-
Net income for the fourth quarter 2012 was $5.7 million or $0.26 per diluted share and $6.5 million or $0.30 per diluted share excluding after-tax merger-related expenses*.
-
Fourth quarter 2012 return on average assets was .93% or 1.05% excluding after-tax merger-related expenses*.
-
Fourth quarter 2012 efficiency ratio, excluding merger-related expenses*, improved to 65.8% from 93.0% in the same quarter in 2011.
-
Full year 2012 pretax income was $35.8 million or $37.5 million excluding merger-related expenses*, which represented an increase of $24.0 million from $13.6 million in 2011.
-
On December 11, 2012, the Company declared a cash dividend of $.05 per common share, payable on January 31, 2013, to shareholders of record as of January 10, 2013, with Series B preferred shares participating on an as-converted basis.
- On September 26, 2012, the Company announced an Agreement and Plan of Merger with Columbia Banking System, Inc. ("Columbia'), headquartered in Tacoma, Washington, with assets of $4.9 billion at December 31, 2012. The merger, for which the consideration consists of a combination of cash and Columbia common stock, is subject to customary closing conditions, including receipt of requisite shareholder and regulatory approvals.
LAKE OSWEGO, Ore., Jan. 24, 2013 (GLOBE NEWSWIRE) -- West Coast Bancorp (Nasdaq:WCBO) ("Bancorp" or "Company"), the parent company of West Coast Bank ("Bank") and West Coast Trust Company, Inc., today announced fourth quarter 2012 net income of $5.7 million or $0.26 per diluted share compared to net income of $17.8 million or $0.83 per diluted share in the fourth quarter of 2011. Fourth quarter 2011 net income reflected the impact from a reversal of a deferred tax asset valuation allowance. Net income for the full year 2012 was $23.5 million or $1.08 per diluted share compared to net income of $33.8 million or $1.58 per diluted share for the full year 2011.
"I am very pleased with the operating performance of the Company in 2012, especially with the progress achieved in the areas of credit quality, expense management, and new loan originations," said Robert D. Sznewajs, President and Chief Executive Officer. "Over the past year our people have worked hard to attain this level of operating results which compares very favorably with our industry peers. The new organization after the merger with Columbia Bank will be well positioned to successfully compete in the Pacific Northwest for many years to come."
* This press release contains certain non-generally accepted accounting principles in the United States of America ("GAAP") financial measures. Table 1 below shows the reconciliation of net income, pretax income, and noninterest expense to the related non-GAAP measures calculated after excluding the effects of merger-related expenses for the quarters ended December 31, 2012, and 2011, and the full years ended December 31, 2012 and 2011. Management uses this non-GAAP information internally and has disclosed it to investors based on its belief that the information provides additional, valuable information relating to its operating performance as compared to prior periods.
Table 1 below shows the reconciliation of net income, pretax income, and noninterest expense to the related non-GAAP measures calculated after excluding the effects of merger-related expenses for the quarters ended December 31, 2012, and 2011, and the full years ended December 31, 2012, and 2011. Merger-related expenses were $1.2 million and $1.8 million for the fourth quarter and full year 2012, respectively.
| Table 1 | |||||||
| Reconciliation of Net Income, Pretax Income and Noninterest Expense to Non-GAAP financial measures | |||||||
| (Dollars in thousands) | Q4 | Q4 | Change | Full year | Full year | Change | |
| 2012 | 2011 | $ | 12/31/2012 | 12/31/2011 | $ | ||
| Net income | $ 5,739 | $ 17,762 | $ (12,023) | $ 23,506 | $ 33,777 | $ (10,271) | |
| Merger-related expenses | 1,194 | -- | 1,194 | 1,772 | -- | 1,772 | |
| Less: tax benefit from merger-related expenses (1) | 417 | -- | 417 | 620 | -- | 620 | |
| After-tax merger-related expenses | 777 | -- | 777 | 1,152 | -- | 1,152 | |
| Net income excluding after-tax merger-related expenses (2,3) | $ 6,516 | $ 17,762 | $ (11,246) | $ 24,658 | $ 33,777 | $ (9,119) | |
| Pretax income | $ 8,419 | $ 116 | $ 8,303 | $ 35,753 | $ 13,565 | $ 22,188 | |
| Merger-related expenses | 1,194 | -- | 1,194 | 1,772 | -- | 1,772 | |
| Pretax income excluding merger-related expenses | $ 9,613 | $ 116 | $ 9,497 | $ 37,525 | $ 13,565 | $ 23,960 | |
| Noninterest expense | $ 20,277 | $ 22,744 | $ (2,467) | $ 84,085 | $ 90,875 | $ (6,790) | |
| Merger-related expenses | 1,194 | -- | 1,194 | 1,772 | -- | 1,772 | |
| Noninterest expense excluding merger-related expenses (3, 4) | $ 19,083 | $ 22,744 | $ (3,661) | $ 82,313 | $ 90,875 | $ (8,562) | |
| (1) Tax rate assumed to be 35%. | |||||||
| (2) Net income excluding merger-related expenses is GAAP net income adjusted for the after-tax impact of merger-related expenses. | |||||||
| (3) Management uses this non-GAAP information internally and has disclosed it to investors based on its belief that the information provides additional, valuable information relating to the Company's operating performance as compared to prior periods. | |||||||
| (4) Noninterest expense excluding merger-related expenses is used to calculate the efficiency ratio excluding merger expenses. | |||||||
Table 2 below shows summary financial information for the quarters ended December 31, 2012, and 2011, and September 30, 2012.
| Table 2 | |||||
| SUMMARY FINANCIAL INFORMATION | |||||
| Qtr. ended | Qtr. ended | Qtr. ended | |||
| Dec. 31, | Dec. 31, | Sept. 30, | |||
| (Dollars and shares in thousands) | 2012 | 2011 | Change | 2012 | Change |
| Net income and performance ratios excluding after-tax merger-related expenses 1 | |||||
| Net income | $ 6,516 | $ 17,762 | $ (11,246) | $ 6,320 | $ 196 |
| Net income per diluted share | $ 0.30 | $ 0.83 | $ (0.53) | $ 0.29 | $ 0.01 |
| Return on average assets, annualized | 1.05% | 2.88% | (1.83) | 1.03% | 0.02 |
| Return on average equity, annualized | 7.67% | 23.68% | (16.01) | 7.59% | 0.08 |
| Efficiency ratio2 | 65.77% | 93.02% | (27.25) | 68.75% | (2.98) |
| Net income and performance ratios | |||||
| Net income | $ 5,739 | $ 17,762 | $ (12,023) | $ 5,944 | $ (205) |
| Net income available to common stockholders 3 | $ 5,369 | $ 16,532 | $ (11,163) | $ 5,559 | $ (190) |
| Net income per diluted share | $ 0.26 | $ 0.83 | $ (0.57) | $ 0.27 | $ (0.01) |
| Book value per common share | $ 16.49 | $ 15.20 | $ 1.29 | $ 16.32 | $ 0.17 |
| Return on average assets, annualized | 0.93% | 2.88% | (1.95) | 0.97% | (0.04) |
| Return on average equity, annualized | 6.76% | 23.68% | (16.92) | 7.14% | (0.38) |
| Efficiency ratio2 | 69.89% | 93.02% | (23.13) | 70.66% | (0.77) |
| Share and per share figures | |||||
| Common shares outstanding at period end | 19,293 | 19,298 | (5) | 19,290 | 3 |
| Weighted average diluted shares4 | 21,727 | 21,175 | 552 | 21,598 | 129 |
| Weighted average diluted shares-two class method 5 | 20,450 | 19,911 | 539 | 20,344 | 106 |
| 1 These measurements exclude the after-tax impact of $.8 million of merger-related expenses; see Table 1 for a reconciliation of net income and noninterest expense to nongaap financial measures. | |||||
| 2 The efficiency ratio has been computed as noninterest expense divided by the sum of net interest income on a tax equivalent basis and noninterest income excluding gains/losses on sales of securities. | |||||
| 3 Adjusted for the impact of allocating net income to participating instruments, which include restricted stock and Series B preferred stock. | |||||
| 4 Reflects the average dilutive impacts of Series B preferred stock (1,213), warrants (1,310), options (27), and restricted stock (64). | |||||
| 5 Reflects the calculation of diluted shares under the two-class method which includes average common (19,113), options (27), and warrants (1,310). | |||||
Balance Sheet Overview
Fourth quarter 2012 total average loan balance of $1.48 billion declined $10 million or 1% from the preceding quarter, with declines primarily in commercial and real estate mortgage categories more than offsetting growth in commercial real estate balances. The main driver of the decline in commercial loan balances can be attributed to line utilization declining to 34% from 39% linked-quarters. Total average loans also declined 1% year over year with a decline in commercial and real estate mortgage categories being offset by growth in commercial real estate and real estate construction categories.
The yield on total average loan portfolio of 4.97% in the fourth quarter of 2012 declined 22 basis points from the corresponding quarter in 2011 and stayed substantially unchanged from the previous quarter. Past periods' trend of higher yielding loans in the portfolio paying off or being refinanced at lower yields combined with new loan originations at current market rates continues to drive the yield on the total portfolio lower as compared to the prior year.
| Table 3 | ||||||||
| AVERAGE LOANS FOR THE QUARTER | ||||||||
| (Dollars in thousands) | Dec. 31, | % of | Dec. 31, | % of | Change | Sept. 30, | % of | |
| 2012 | Total | 2011 | total | Amount | % | 2012 | Total | |
| Commercial loans | $ 262,773 | 17% | $ 293,583 | 20% | $ (30,810) | -10% | $ 287,706 | 19% |
| Commercial real estate construction | 33,534 | 2% | 14,730 | 1% | 18,804 | 128% | 37,838 | 3% |
| Residential real estate construction | 8,304 | 1% | 13,613 | 1% | (5,309) | -39% | 9,497 | 1% |
| Total real estate construction loans | 41,838 | 3% | 28,343 | 2% | 13,495 | 48% | 47,335 | 4% |
| Mortgage | 55,980 | 4% | 67,579 | 5% | (11,599) | -17% | 58,393 | 4% |
| Home equity | 238,462 | 16% | 260,849 | 17% | (22,387) | -9% | 246,330 | 16% |
| Total real estate mortgage | 294,442 | 20% | 328,428 | 22% | (33,986) | -10% | 304,723 | 20% |
| Commercial real estate loans | 872,639 | 59% | 834,362 | 55% | 38,277 | 5% | 841,098 | 56% |
| Installment and other consumer loans | 11,918 | 1% | 13,721 | 1% | (1,803) | -13% | 12,592 | 1% |
| Total loans | $ 1,483,610 | $ 1,498,437 | $ (14,827) | -1% | $ 1,493,454 | |||
| Yield on loans | 4.97% | 5.19% | (0.22) | 4.98% | ||||
The Company's investment portfolio continues to have an unfavorable impact on its net interest margin. During 2012, the Company increased its investments in municipal securities while reducing its U.S. government agency securities portfolio. During this time, municipal securities purchases consisted principally of Oregon and Washington school district securities with State guarantees and fully amortizing mortgage-backed securities. The expected duration of the investment portfolio was approximately 3.0 years at December 31, 2012, compared to approximately 2.5 years twelve months earlier.
The fourth quarter 2012 tax equivalent yield on total cash and investment securities balances was 1.99%, a decline of 25 basis points from the same quarter in 2011, and a decline of 13 basis points on a linked-quarter basis.
| Table 4 | |||||
| AVERAGE CASH EQUIVALENTS AND INVESTMENT SECURITIES FOR THE QUARTER | |||||
| (Dollars in thousands) | Dec. 31, | Dec. 31, | Change | Sept. 30, | |
| 2012 | 2011 | Amount | % | 2012 | |
| Cash equivalents: | |||||
| Federal funds sold | $ 2,724 | $ 3,184 | $ (460) | -14% | $ 2,558 |
| Interest-bearing deposits in other banks | 47,523 | 20,530 | 26,993 | 131% | 47,242 |
| Total cash equivalents | 50,247 | 23,714 | 26,533 | 112% | 49,800 |
| Investment securities: | |||||
| U.S. Treasury securities | 200 | 204 | (4) | -2% | 200 |
| U.S. Government agency securities | 240,134 | 254,030 | (13,896) | -5% | 217,051 |
| Corporate securities | 9,020 | 8,854 | 166 | 2% | 8,385 |
| Mortgage-backed securities | 445,488 | 445,422 | 66 | 0% | 447,756 |
| Obligations of state and political sub. | 81,329 | 62,712 | 18,617 | 30% | 75,717 |
| Equity investments and other securities | 11,825 | 12,726 | (901) | -7% | 11,897 |
| Total investment securities | 787,996 | 783,948 | 4,048 | 1% | 761,006 |
| Total cash equivalents and investment securities | $ 838,243 | $ 807,662 | $ 30,581 | 4% | $ 810,806 |
| Tax equivalent yield on cash equivalents and investment securities (1) | 1.99% | 2.24% | (0.25) | 2.12% | |
| (1) Interest earned on nontaxable securities has been computed on a 35% tax equivalent basis. | |||||
Average total deposits of $1.92 billion in the fourth quarter 2012 stayed essentially unchanged from the previous quarter, as the continued growth in non-interest bearing demand deposits offset declines in money market and time deposit balances. Time deposits represented 7% of the Company's average total deposits in the most recent quarter, a reduction from 9% during the final quarter of 2011. Year-over-year fourth quarter average total deposit balances declined $19 million or 1%, with average money market and time deposit balances declining $63 million and $47 million, respectively. Substantially offsetting these declines, non-interest bearing demand and savings deposits grew $81 million and $19 million, respectively, over the same period.
| Table 5 | ||||||||
| AVERAGE DEPOSITS, BORROWINGS AND SUBORDINATED DEBENTURES FOR THE QUARTER | ||||||||
| (Dollars in thousands) | Q4 | % of | Q4 | % of | Change | Q3 | % of | |
| 2012 | Total | 2011 | Total | Amount | % | 2012 | Total | |
| Demand deposits | $ 703,402 | 37% | $ 622,741 | 33% | $ 80,661 | 13% | $ 677,646 | 36% |
| Interest-bearing demand | 366,413 | 19% | 375,922 | 19% | (9,509) | -3% | 365,560 | 19% |
| Total checking deposits | 1,069,815 | 56% | 998,663 | 52% | 71,152 | 7% | 1,043,206 | 55% |
| Savings | 136,866 | 7% | 117,619 | 6% | 19,247 | 16% | 132,839 | 7% |
| Money market | 577,358 | 30% | 640,247 | 33% | (62,889) | -10% | 592,363 | 31% |
| Total non-time deposits | 1,784,039 | 93% | 1,756,529 | 91% | 27,510 | 2% | 1,768,408 | 93% |
| Time deposits | 132,447 | 7% | 179,288 | 9% | (46,841) | -26% | 140,151 | 7% |
| Total deposits | $ 1,916,486 | 100% | $ 1,935,817 | 100% | $ (19,331) | -1% | $ 1,908,559 | 100% |
| Average rate on total deposits | 0.07% | 0.14% | (0.07) | 0.08% | ||||
| Average borrowings and subordinated debentures | $ 178,900 | $ 189,635 | $ (10,735) | -6% | $ 179,063 | |||
| Rate on borrowings and subordinated debentures | 1.43% | 11.07% | (9.64) | 1.45% | ||||
Fourth quarter 2012 average total checking deposit balance of $1.07 billion grew $71 million or 7% from the corresponding quarter in 2011 and represented 56% of the Company's average total deposits in the quarter. Lower market interest rates and a continuing shift in the mix from time deposits to non-time deposits over the past year reduced the average rate paid on total deposits to 7 basis points in the most recent quarter, representing a decline of 7 basis points from the same quarter in 2011.
Capital Position and Shareholder Cash Dividend
As shown in Table 6 below, the December 31, 2012, capital position improved from year end 2011. The Company declared a shareholder dividend of $0.05 per share on December 11, 2012. The dividend will be payable on January 31, 2013, to shareholders of record on January 10, 2013.
| Table 6 | |||||
| CAPITAL RATIOS | |||||
| Dec. 31, | Dec. 31, | Sept. 30, | |||
| 2012 | 2011 | Change | 2012 | Change | |
| West Coast Bancorp | |||||
| Tier 1 risk-based capital ratio | 20.66% | 19.36% | 1.30 | 20.45% | 0.21 |
| Total risk-based capital ratio | 21.83% | 20.62% | 1.21 | 21.62% | 0.21 |
| Leverage ratio | 15.60% | 14.61% | 0.99 | 15.48% | 0.12 |
| West Coast Bank | |||||
| Tier 1 risk-based capital ratio | 19.95% | 18.66% | 1.29 | 19.80% | 0.15 |
| Total risk-based capital ratio | 21.20% | 19.92% | 1.28 | 21.06% | 0.14 |
| Leverage ratio | 15.07% | 14.09% | 0.98 | 15.00% | 0.07 |
Operating Results
As shown in Table 7 below, pretax income, excluding merger-related expenses, in the fourth quarter of 2012 was $9.6 million compared to pre-tax income of $0.1 million in the final quarter last year. The improvement was driven by higher net interest and noninterest income, with significant reductions in noninterest expense and the provision for credit losses in the most recent quarter. Net interest income in the fourth quarter of 2011 was reduced by a $4.4 million charge in conjunction with prepayments of Federal Home Loan Bank ("FHLB") term borrowings. For sequential quarters, pretax income, excluding merger-related expenses, declined modestly due to a benefit for credit losses in the third quarter of 2011 and lower net interest and noninterest income in the most recent quarter. Noninterest expense declined 8% linked quarters. Fourth quarter 2012 net income of $6.5 million, excluding merger-related expenses, declined from $17.8 million in the final quarter of 2011, when the Company fully reversed its deferred tax asset valuation allowance. See Table 1 for reconciliation of pretax income and net income non-GAAP financial measures.
| Table 7 | |||||||
| SUMMARY INCOME STATEMENT EXCLUDING MERGER-RELATED EXPENSES | |||||||
| (Dollars in thousands) | Q4 | Q4 | Change | Q3 | Change | ||
| 2012 | 2011 | $ | % | 2012 | $ | % | |
| Net interest income | $ 21,435 | $ 17,940 | $ 3,495 | 19% | $ 21,687 | $ (252) | -1% |
| Provision (benefit) for credit losses | 13 | 1,499 | (1,486) | -99% | (593) | 606 | 102% |
| Noninterest income | 7,274 | 6,419 | 855 | 13% | 8,172 | (898) | -11% |
| Noninterest expense excluding merger-related expenses | 19,083 | 22,744 | (3,661) | -16% | 20,729 | (1,646) | -8% |
| Income before income taxes excluding merger-related expenses | 9,613 | 116 | 9,497 | 8187% | 9,723 | (110) | -1% |
| Provision (benefit) for income taxes excluding the tax impact of merger-related expenses | 3,097 | (17,646) | 20,743 | 118% | 3,403 | (306) | -9% |
| Net income excluding merger-related expenses | $ 6,516 | $ 17,762 | $ (11,246) | -63% | $ 6,320 | $ 196 | 3% |
As shown in Table 8 below, adjusted for the prepayment charge in the corresponding quarter in 2011, the net interest margin of 3.72% declined 16 basis points year over year fourth quarter. The decline in the net interest margin was a result of declining yield on the investment and loan portfolios only partially offset by lower rates on interest bearing deposits and FHLB borrowings. The same factors reduced the net interest margin 8 basis points on a linked-quarter basis.
| Table 8 | |||||
| NET INTEREST SPREAD AND MARGIN | |||||
| (Annualized, tax-equivalent basis) | Q4 | Q4 | Q3 | ||
| 2012 | 2011 | Change | 2012 | Change | |
| Yield on average interest-earning assets | 3.89% | 4.16% | (0.27) | 3.97% | (0.08) |
| Rate on average interest-bearing liabilities 1 | 0.28% | 1.58% | (1.30) | 0.29% | (0.01) |
| Net interest spread | 3.61% | 2.58% | 1.03 | 3.68% | (0.07) |
| Net interest margin | 3.72% | 3.13% | 0.59 | 3.80% | (0.08) |
| Impact of FHLB prepayment premium in Q4 2011 | -- | -0.75% | 0.75 | -- | -- |
| Net interest margin excluding FHLB prepayment premium | 3.72% | 3.88% | (0.16) | 3.80% | (0.08) |
| 1 The fourth quarter 2011 rate on average interest-bearing liabilities includes 75 basis points of expense associated with the prepayment of FHLB borrowings. | |||||
As shown in Table 9 below, fourth quarter 2012 total noninterest income of $7.3 million increased $0.9 million or 13% from the same quarter in 2011. The increase was principally attributed to a $1.2 million decrease in Other Real Estate Owned ("OREO") valuation adjustments. On a linked-quarter basis, noninterest income declined $0.9 million with reductions across all major categories.
| Table 9 | |||||||
| NONINTEREST INCOME | |||||||
| (Dollars in thousands) | Q4 | Q4 | Change | Q3 | Change | ||
| 2012 | 2011 | $ | % | 2012 | $ | % | |
| Noninterest income | |||||||
| Service charges on deposit accounts | $ 2,769 | $ 3,005 | $ (236) | -8% | $ 3,017 | $ (248) | -8% |
| Payment systems-related revenue | 3,016 | 3,081 | (65) | -2% | 3,073 | (57) | -2% |
| Trust and investment services revenues | 1,077 | 1,114 | (37) | -3% | 1,231 | (154) | -13% |
| Gains on sales of loans | 346 | 300 | 46 | 15% | 492 | (146) | -30% |
| Gains on sales of securities | -- | 192 | (192) | -100% | -- | -- | 0% |
| Other-than-temporary impairment losses | -- | -- | -- | 0% | -- | -- | 0% |
| Other | 818 | 708 | 110 | 16% | 816 | 2 | 0% |
| Total | 8,026 | 8,400 | (374) | -4% | 8,629 | (603) | -7% |
| OREO gains (losses) on sale | 35 | (57) | 92 | 161% | 29 | 6 | 21% |
| OREO valuation adjustments | (787) | (1,924) | 1,137 | 59% | (486) | (301) | -62% |
| Total net loss on OREO | (752) | (1,981) | 1,229 | 62% | (457) | (295) | -65% |
| Total noninterest income | $ 7,274 | $ 6,419 | $ 855 | 13% | $ 8,172 | $ (898) | -11% |
As shown in Table 10 below, the Company's fourth quarter 2012 total noninterest expense was $20.3 million. Excluding merger-related expenses, total noninterest expense fell $3.6 million or 16% from the fourth quarter in 2011, which included $1 million in cost reduction related expenses. As a result of cost-savings initiatives implemented over the past eighteen months, expenses declined in all categories. On a linked-quarter basis, total noninterest expenses, excluding merger-related expenses, declined $1.6 million or 8%, with reductions across all categories except for occupancy expense. See Table 1 for reconciliation to GAAP measure. Fourth quarter 2012 merger-related expenses were comprised primarily of professional fees.
| Table 10 | |||||||
| NONINTEREST EXPENSE | |||||||
| (Dollars in thousands) | Q4 | Q4 | Change | Q3 | Change | ||
| 2012 | 2011 | $ | % | 2012 | $ | % | |
| Noninterest expense | |||||||
| Salaries and employee benefits | $ 10,685 | $ 12,614 | $ (1,929) | -15% | $ 11,499 | $ (814) | -7% |
| Equipment | 1,467 | 1,560 | (93) | -6% | 1,480 | (13) | -1% |
| Occupancy | 2,084 | 2,162 | (78) | -4% | 1,901 | 183 | 10% |
| Payment systems-related expense | 1,059 | 1,265 | (206) | -16% | 1,148 | (89) | -8% |
| Professional fees | 468 | 1,122 | (654) | -58% | 777 | (309) | -40% |
| Postage, printing and office supplies | 627 | 821 | (194) | -24% | 735 | (108) | -15% |
| Marketing | 498 | 659 | (161) | -24% | 520 | (22) | -4% |
| Communications | 394 | 395 | (1) | 0% | 411 | (17) | -4% |
| Other noninterest expense | 1,801 | 2,146 | (345) | -16% | 2,258 | (457) | -20% |
| Total noninterest expense excluding merger-related expenses | $ 19,083 | $ 22,744 | $ (3,661) | -16% | $ 20,729 | $ (1,646) | -8% |
| Merger-related expenses | 1,194 | -- | 1,194 | 0% | 578 | 616 | 107% |
| Total noninterest expense | $ 20,277 | $ 22,744 | $ (2,467) | -11% | $ 21,307 | $ (1,030) | -5% |
Income Taxes
In the fourth quarter of 2012, the provision for income taxes was $2.7 million compared to a benefit for income taxes of $17.6 million in the final quarter of 2011 when the Company fully reversed its deferred tax asset valuation. The fourth quarter 2012 provision for income taxes was the result of an effective tax rate of 34.3% on pretax income for the full year.
Credit Quality
The Company's provision for credit losses was modest in the fourth quarter 2012 compared to a provision for credit losses of $1.5 million in the same quarter last year, and a benefit for credit losses of $0.6 million in the third quarter of 2012. Net charge-offs in the final quarter of 2012 were $2.0 million or .53% of average loans on an annualized basis, representing a decline from $2.5 million or .67% in the same quarter of 2011, and an increase from $1.0 million or .27% in the prior quarter. See Table 11 below for further details by loan category.
| Table 11 | ||||||
| ALLOWANCE FOR CREDIT LOSSES AND NET CHARGE-OFFS | ||||||
| Charge-offs as | Charge-offs as | Charge-offs as | ||||
| a % of average | a % of average | a % of average | ||||
| (Dollars in thousands) | Q4 | loan balance | Q4 | loan balance | Q3 | loan balance |
| 2012 | annualized | 2011 | annualized | 2012 | annualized | |
| Allowance for credit losses, beginning of period | $ 32,288 | $ 37,016 | $ 33,900 | |||
| Total provision (benefit) for credit losses | 13 | 1,499 | (593) | |||
| Loan net charge-offs: | ||||||
| Commercial | 802 | 1.21% | 292 | 0.39% | 102 | 0.14% |
| Commercial real estate construction | (2) | -0.02% | 48 | 1.29% | 148 | 1.56% |
| Residential real estate construction | 350 | 16.77% | 140 | 4.08% | (4) | -0.17% |
| Total real estate construction | 348 | 3.31% | 188 | 2.63% | 144 | 1.21% |
| Mortgage | 119 | 0.85% | 177 | 1.04% | 101 | 0.69% |
| Home equity | 212 | 0.35% | 723 | 1.10% | 373 | 0.60% |
| Total real estate mortgage | 331 | 0.45% | 900 | 1.09% | 474 | 0.62% |
| Commercial real estate | 150 | 0.07% | 812 | 0.39% | 126 | 0.06% |
| Installment and consumer | 249 | 8.31% | 119 | 3.44% | 48 | 1.52% |
| Overdraft | 104 | 0.00% | 221 | 0.00% | 125 | 0.00% |
| Total loan net charge-offs | 1,984 | 0.53% | 2,532 | 0.67% | 1,019 | 0.27% |
| Total allowance for credit losses | $ 30,317 | $ 35,983 | $ 32,288 | |||
| Components of allowance for credit losses: | ||||||
| Allowance for loan losses | $ 29,448 | $ 35,212 | $ 31,457 | |||
| Reserve for unfunded commitments | 869 | 771 | 831 | |||
| Total allowance for credit losses | $ 30,317 | $ 35,983 | $ 32,288 | |||
| Net loan charge-offs to average loans (annualized) | 0.53% | 0.67% | 0.27% | |||
| Allowance for loan losses to total loans | 1.97% | 2.35% | 2.11% | |||
| Allowance for credit losses to total loans | 2.03% | 2.40% | 2.17% | |||
| Allowance for loan losses to nonperforming loans | 117% | 87% | 97% | |||
| Allowance for credit losses to nonperforming loans | 121% | 89% | 100% | |||
The allowance for credit losses was $30.3 million or 2.03% of total loans at December 31, 2012, compared to an allowance for credit losses of $36.0 million or 2.40% of total loans a year earlier, and $32.3 million or 2.17% at September 30, 2012. The decline in the allowance for credit losses and the allowance relative to total loans over both periods reflected the improving trend in the overall risk profile of the loan portfolio as evidenced by lower charge off activity and a positive risk rating migration within the loan portfolio. The year-end 2012 allowance for credit losses relative to nonperforming loans increased to 121% from 89% twelve months earlier. The Company's estimate of the allowance for credit losses will continue to be closely correlated to the loan portfolio's credit quality performance trends and the region's economic conditions.
Total nonperforming assets at December 31, 2012, were $41.2 million or 1.66% of total assets, which represented a 42% reduction from $71.4 million or 2.94% of total assets a year ago, and a decline of 24% from $54.3 million or 2.19% of total assets at the end of the third quarter 2012.
December 31, 2012, total nonaccrual loans declined 38% to $25.1 million from $40.6 million a year earlier.
| Table 12 | |||||
| NONPERFORMING ASSETS | |||||
| (Dollars in thousands) | Dec. 31, | Sept. 30, | June 30, | Mar. 31, | Dec. 31, |
| 2012 | 2012 | 2012 | 2012 | 2011 | |
| Loans on nonaccrual status: | |||||
| Commercial | $ 4,313 | $ 6,643 | $ 6,199 | $ 6,482 | $ 7,750 |
| Real estate construction: | |||||
| Commercial real estate construction | -- | 1,650 | 3,750 | 3,749 | 3,750 |
| Residential real estate construction | 1,336 | 1,851 | 1,936 | 1,981 | 2,073 |
| Total real estate construction | 1,336 | 3,501 | 5,686 | 5,730 | 5,823 |
| Real estate mortgage: | |||||
| Mortgage | 5,994 | 6,170 | 7,044 | 10,744 | 9,624 |
| Home equity | 3,782 | 2,845 | 2,239 | 2,528 | 2,325 |
| Total real estate mortgage | 9,776 | 9,015 | 9,283 | 13,272 | 11,949 |
| Commercial real estate | 9,659 | 13,248 | 12,384 | 16,648 | 15,070 |
| Installment and consumer | -- | -- | -- | 1 | 5 |
| Total nonaccrual loans | 25,084 | 32,407 | 33,552 | 42,133 | 40,597 |
| 90 days past due not on nonaccrual | -- | -- | -- | -- | -- |
| Total nonperforming loans | 25,084 | 32,407 | 33,552 | 42,133 | 40,597 |
| Other real estate owned, net | 16,112 | 21,939 | 25,726 | 27,525 | 30,823 |
| Total nonperforming assets | $ 41,196 | $ 54,346 | $ 59,278 | $ 69,658 | $ 71,420 |
| Nonperforming loans to total loans | 1.68% | 2.17% | 2.24% | 2.86% | 2.70% |
| Nonperforming assets to total assets | 1.66% | 2.19% | 2.46% | 2.89% | 2.94% |
| Total delinquent loans 30-89 days past due | $ 2,662 | $ 2,963 | $ 3,422 | $ 4,095 | $ 4,273 |
| Delinquent loans to total loans | 0.18% | 0.20% | 0.23% | 0.28% | 0.28% |
As indicated in Table 13 below, during the most recent quarter the Company disposed of 27 OREO properties with a book value of $5.3 million and recorded OREO valuation adjustments totaling $0.8 million. As a result, the Company reduced its OREO balance by $5.8 million to $16.1 million at December 31, 2012, representing a 27% net reduction in total OREO during the quarter. The remaining OREO balance at quarter end reflected write-downs of 63% from original loan principal. Income-producing properties represented the largest balance in the OREO portfolio at December 31, 2012, followed by land and homes, substantially all of which are located within the Company's footprint.
| Table 13 | ||||||
| OTHER REAL ESTATE OWNED ACTIVITY | ||||||
| (Dollars in thousands) | Q4 2012 | Q4 2011 | Q3 2012 | |||
| Amount | # | Amount | # | Amount | # | |
| Beginning balance | $ 21,939 | 218 | $ 30,234 | 308 | $ 25,726 | 244 |
| Additions to OREO | 259 | 1 | 9,241 | 15 | 487 | 3 |
| Dispositions of OREO | (5,299) | (27) | (6,728) | (59) | (3,788) | (29) |
| OREO valuation adjustment | (787) | -- | (1,924) | -- | (486) | -- |
| Ending balance | $ 16,112 | 192 | $ 30,823 | 264 | $ 21,939 | 218 |
| Table 14 | ||||||
| OTHER REAL ESTATE OWNED BY PROPERTY TYPE | ||||||
| Dec. 31, 2012 | Dec. 31, 2011 | Sept. 30, 2012 | ||||
| (Dollars in thousands) | # of | # of | ||||
| Amount | properties | Amount | properties | Amount | properties | |
| Income-producing properties | $ 3,821 | 8 | $ 10,282 | 15 | $ 7,749 | 11 |
| Land | 3,575 | 12 | 5,049 | 16 | 4,104 | 13 |
| Homes | 2,927 | 12 | 6,008 | 17 | 3,518 | 14 |
| Residential site developments | 2,391 | 103 | 3,506 | 146 | 2,736 | 114 |
| Multifamily | 1,570 | 20 | 428 | 4 | 1,570 | 20 |
| Lots | 1,478 | 31 | 2,932 | 51 | 1,912 | 40 |
| Commercial site developments | 350 | 6 | 366 | 6 | 350 | 6 |
| Condominiums | -- | -- | 2,252 | 9 | -- | -- |
| Total | $ 16,112 | 192 | $ 30,823 | 264 | $ 21,939 | 218 |
Other
As announced on January 8, 2013, the Company will not hold a conference call in conjunction with today's release of fourth quarter and full-year 2012 results due to the Company's previously announced Agreement and Plan of Merger with Columbia Banking System, Inc.
West Coast Bancorp is a publicly held, Northwest bank holding company headquartered in Oregon with $2.5 billion in assets, and the parent company of West Coast Bank and West Coast Trust Company, Inc. West Coast Bank operates 58 branches in Oregon and Washington. The Company serves clients who seek the resources, sophisticated products and expertise of larger financial institutions, along with the local decision-making, market knowledge, and customer service orientation of a community bank. The Company offers a broad range of banking, investment, fiduciary and trust services. For more information, please visit the Company web site at www.wcb.com.
The West Coast Bancorp logo is available at http://www.globenewswire.com/newsroom/prs/?pkgid=13726
Forward Looking Statements
Statements in this release regarding future events, performance or results are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995 ("PSLRA") and are made pursuant to the safe harbors of the PSLRA. These statements can often be identified by words such as "expects," "believes," "projects," "anticipates," or "will," or other words of similar meaning, and specifically include in this release all statements regarding the expected future benefits of our ongoing cost-cutting initiatives. Actual results could be quite different from those expressed or implied by the forward-looking statements, which give our current expectations about the future and are not guarantees. Forward-looking statements speak only as of the date they are made, and we do not undertake any obligation to update them to reflect changes that occur after that date.
A number of factors could cause results to differ significantly from our expectations, including, among others, the effects of (i) market conditions in our service areas on our efforts to continue to reduce our levels of nonperforming assets and increase loan originations, (ii) cost reduction initiatives, (iii) any failure to satisfy the conditions to our proposed merger with Columbia Banking System, Inc., including receipt of regulatory and shareholder approvals, and (iv) risk factors identified in our Annual Report on Form 10-K for the year ended December 31, 2011 and our Quarterly Report on Form 10-Q for the quarter ended September 30, 2012, including under the heading "Forward Looking Statement Disclosure" and in the section "Risk Factors" in each report.
| Table 15 | |||||||
| INCOME STATEMENT | |||||||
| (Dollars and shares in thousands) | Q4 | Q4 | Change | Q3 | Full Year | ||
| 2012 | 2011 | $ | % | 2012 | 2012 | 2011 | |
| Net interest income | |||||||
| Interest and fees on loans | $ 18,525 | $ 19,647 | $ (1,122) | -6% | $ 18,706 | $ 75,139 | $ 80,237 |
| Interest on investment securities | 3,867 | 4,266 | (399) | -9% | 3,985 | 16,061 | 18,251 |
| Other interest income | 32 | 19 | 13 | 68% | 35 | 124 | 187 |
| Total interest income | 22,424 | 23,932 | (1,508) | -6% | 22,726 | 91,324 | 98,675 |
| Interest expense on deposit accounts | 346 | 702 | (356) | -51% | 385 | 1,739 | 4,973 |
| Interest on borrowings and subordinated deb. | 643 | 925 | (282) | -30% | 654 | 2,557 | 5,808 |
| Borrowings prepayment charge | -- | 4,365 | (4,365) | -100% | -- | -- | 7,140 |
| Total interest expense | 989 | 5,992 | (5,003) | -83% | 1,039 | 4,296 | 17,921 |
| Net interest income | 21,435 | 17,940 | 3,495 | 19% | 21,687 | 87,028 | 80,754 |
| Provision (benefit) for credit losses | 13 | 1,499 | (1,486) | -99% | (593) | (983) | 8,133 |
| Noninterest income | |||||||
| Service charges on deposit accounts | 2,769 | 3,005 | (236) | -8% | 3,017 | 11,816 | 13,353 |
| Payment systems-related revenue | 3,016 | 3,081 | (65) | -2% | 3,073 | 12,246 | 12,381 |
| Trust and investment services revenues | 1,077 | 1,114 | (37) | -3% | 1,231 | 4,700 | 4,503 |
| Gains on sales of loans | 346 | 300 | 46 | 15% | 492 | 2,295 | 1,335 |
| Net OREO valuation adjustments and gains (losses) on sales | (752) | (1,981) | 1,229 | 62% | (457) | (2,813) | (3,236) |
| Other-than-temporary impairment losses | -- | -- | -- | -- | -- | (49) | (179) |
| Gain on sales of securities | -- | 192 | (192) | -100% | -- | 375 | 713 |
| Other | 818 | 708 | 110 | 16% | 816 | 3,257 | 2,949 |
| Total noninterest income | 7,274 | 6,419 | 855 | 13% | 8,172 | 31,827 | 31,819 |
| Noninterest expense | |||||||
| Salaries and employee benefits | 10,685 | 12,614 | (1,929) | -15% | 11,499 | 45,743 | 48,587 |
| Equipment | 1,467 | 1,560 | (93) | -6% | 1,480 | 6,193 | 6,113 |
| Occupancy | 2,084 | 2,162 | (78) | -4% | 1,901 | 8,179 | 8,674 |
| Payment systems-related expense | 1,059 | 1,265 | (206) | -16% | 1,148 | 4,401 | 5,141 |
| Professional fees | 468 | 1,122 | (654) | -58% | 777 | 3,416 | 4,118 |
| Postage, printing and office supplies | 627 | 821 | (194) | -24% | 735 | 2,910 | 3,265 |
| Marketing | 498 | 659 | (161) | -24% | 520 | 1,585 | 3,003 |
| Communications | 394 | 395 | (1) | 0% | 411 | 1,604 | 1,549 |
| Merger-related expenses | 1,194 | -- | 1,194 | 0% | 578 | 1,772 | -- |
| Other noninterest expense | 1,801 | 2,146 | (345) | -16% | 2,258 | 8,282 | 10,425 |
| Total noninterest expense | 20,277 | 22,744 | (2,467) | -11% | 21,307 | 84,085 | 90,875 |
| Income before income taxes | 8,419 | 116 | 8,303 | 7158% | 9,145 | 35,753 | 13,565 |
| Provision (benefit) for income taxes | 2,680 | (17,646) | 20,326 | 115% | 3,201 | 12,247 | (20,212) |
| Net income | $ 5,739 | $ 17,762 | $ (12,023) | -68% | $ 5,944 | $ 23,506 | $ 33,777 |
| Net income per share: | |||||||
| Basic | $ 0.28 | $ 0.87 | $ (0.59) | $ 0.29 | $ 1.15 | $ 1.65 | |
| Diluted | $ 0.26 | $ 0.83 | $ (0.57) | $ 0.27 | $ 1.08 | $ 1.58 | |
| Weighted average common shares | 19,113 | 19,032 | 81 | 19,110 | 19,086 | 19,007 | |
| Weighted average diluted shares | 20,450 | 19,911 | 539 | 20,344 | 20,286 | 19,940 | |
| Tax equivalent net interest income | $ 21,739 | $ 18,223 | $ 3,516 | $ 21,982 | $ 88,165 | $ 81,870 | |
| Return on average assets | 0.93% | 2.88% | -1.95% | 0.97% | 0.97% | 1.37% | |
| Return on average equity | 6.76% | 23.68% | -16.92% | 7.14% | 7.18% | 11.79% | |
| Table 16 | |||||
| BALANCE SHEETS | |||||
| (Dollars in thousands) | Dec. 31, | Dec. 31, | Change | Sept. 30, | |
| 2012 | 2011 | $ | % | 2012 | |
| Assets: | |||||
| Cash and due from banks | $ 70,119 | $ 59,955 | $ 10,164 | 17% | $ 53,026 |
| Federal funds sold | 4,059 | 4,758 | (699) | -15% | 3,426 |
| Interest-bearing deposits in other banks | 63,433 | 27,514 | 35,919 | 131% | 44,883 |
| Total cash and cash equivalents | 137,611 | 92,227 | 45,384 | 49% | 101,335 |
| Investment securities | 772,109 | 729,844 | 42,265 | 6% | 792,657 |
| Loans | 1,494,929 | 1,501,301 | (6,372) | 0% | 1,490,767 |
| Allowance for loan losses | (29,448) | (35,212) | 5,764 | 16% | (31,457) |
| Loans, net | 1,465,481 | 1,466,089 | (608) | 0% | 1,459,310 |
| Total interest-earning assets | 2,334,530 | 2,267,446 | 67,084 | 3% | 2,331,733 |
| OREO, net | 16,112 | 30,823 | (14,711) | -48% | 21,939 |
| Other assets | 96,867 | 110,904 | (14,037) | -13% | 100,739 |
| Total assets | $ 2,488,180 | $ 2,429,887 | $ 58,293 | 2% | $ 2,475,980 |
| Liabilities and Stockholders' Equity: | |||||
| Demand | $ 712,285 | $ 621,962 | $ 90,323 | 15% | $ 704,810 |
| Savings and interest-bearing demand | 524,031 | 495,117 | 28,914 | 6% | 499,934 |
| Money market | 569,043 | 625,373 | (56,330) | -9% | 588,635 |
| Time deposits | 130,641 | 173,117 | (42,476) | -25% | 135,913 |
| Total deposits | 1,936,000 | 1,915,569 | 20,431 | 1% | 1,929,292 |
| Borrowings and subordinated debentures | 178,900 | 171,000 | 7,900 | 5% | 178,900 |
| Reserve for unfunded commitments | 869 | 771 | 98 | 13% | 831 |
| Other liabilities | 33,191 | 28,068 | 5,123 | 18% | 30,961 |
| Total liabilities | 2,148,960 | 2,115,408 | 33,552 | 2% | 2,139,984 |
| Stockholders' equity | 339,220 | 314,479 | 24,741 | 8% | 335,996 |
| Total liabilities and stockholders' equity | $ 2,488,180 | $ 2,429,887 | $ 58,293 | 2% | $ 2,475,980 |
| Table 17 | ||||||||
| PERIOD END LOANS | ||||||||
| (Dollars in thousands) | Dec. 31, | % of | Dec. 31, | % of | Change | Sept. 30, | % of | |
| 2012 | Total | 2011 | total | Amount | % | 2012 | Total | |
| Commercial loans | $ 259,333 | 17% | $ 299,766 | 20% | $ (40,433) | -13% | $ 286,134 | 19% |
| Commercial real estate construction | 25,191 | 2% | 17,438 | 1% | 7,753 | 44% | 39,100 | 3% |
| Residential real estate construction | 7,792 | 1% | 12,724 | 1% | (4,932) | -39% | 8,306 | 1% |
| Total real estate construction loans | 32,983 | 3% | 30,162 | 2% | 2,821 | 9% | 47,406 | 4% |
| Mortgage | 54,960 | 4% | 66,610 | 5% | (11,650) | -17% | 56,548 | 4% |
| Home equity | 233,516 | 16% | 258,384 | 17% | (24,868) | -10% | 244,683 | 16% |
| Total real estate mortgage | 288,476 | 20% | 324,994 | 22% | (36,518) | -11% | 301,231 | 20% |
| Commercial real estate loans | 901,817 | 59% | 832,767 | 55% | 69,050 | 8% | 843,836 | 56% |
| Installment and other consumer loans | 12,320 | 1% | 13,612 | 1% | (1,292) | -9% | 12,160 | 1% |
| Total loans | $ 1,494,929 | $ 1,501,301 | $ (6,372) | 0% | $ 1,490,767 | |||
| Table 18 | |||||
| AVERAGE BALANCE SHEETS | |||||
| (Dollars in thousands) | Q4 | Q4 | Q3 | Year to date | |
| 2012 | 2011 | 2012 | 2012 | 2011 | |
| Cash and due from banks | $ 53,144 | $ 53,829 | $ 51,697 | $ 51,435 | $ 52,258 |
| Federal funds sold | 2,724 | 3,184 | 2,558 | 2,610 | 3,796 |
| Interest-bearing deposits in other banks | 47,523 | 20,530 | 47,242 | 43,859 | 67,332 |
| Total cash and cash equivalents | 103,391 | 77,543 | 101,497 | 97,904 | 123,386 |
| Investment securities | 787,996 | 783,948 | 761,006 | 746,233 | 734,893 |
| Total loans | 1,483,610 | 1,498,437 | 1,493,454 | 1,484,724 | 1,516,409 |
| Allowance for loan losses | (30,670) | (36,101) | (32,794) | (33,096) | (38,456) |
| Loans, net | 1,452,940 | 1,462,336 | 1,460,660 | 1,451,628 | 1,477,953 |
| Total interest earning assets | 2,321,854 | 2,309,396 | 2,304,261 | 2,277,955 | 2,324,016 |
| Other assets | 114,143 | 122,493 | 118,879 | 122,863 | 124,562 |
| Total assets | $ 2,458,470 | $ 2,446,320 | $ 2,442,042 | $ 2,418,628 | $ 2,460,794 |
| Demand | $ 703,402 | $ 622,741 | $ 677,646 | $ 647,323 | $ 592,630 |
| Savings and interest-bearing demand | 503,280 | 493,541 | 498,399 | 498,649 | 474,719 |
| Money market | 577,358 | 640,247 | 592,363 | 597,376 | 654,329 |
| Time deposits | 132,446 | 179,288 | 140,151 | 147,713 | 217,149 |
| Total deposits | 1,916,486 | 1,935,817 | 1,908,559 | 1,891,061 | 1,938,827 |
| Borrowings and subordinated debentures | 178,900 | 189,635 | 179,063 | 176,939 | 212,237 |
| Total interest bearing liabilities | 1,391,984 | 1,502,711 | 1,409,976 | 1,420,677 | 1,558,434 |
| Other liabilities | 25,162 | 23,245 | 23,063 | 23,108 | 23,332 |
| Stockholders' equity | 337,922 | 297,623 | 331,357 | 327,520 | 286,398 |
| Total liabilities and stockholders' equity | $ 2,458,470 | $ 2,446,320 | $ 2,442,042 | $ 2,418,628 | $ 2,460,794 |