UNITED STATES
SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or
15(d) of
the Securities Exchange Act of 1934
For the quarterly period ended: September 30,
2012
Commission file number: 0-10997
WEST COAST BANCORP
(Exact name of registrant as
specified in its charter)
Oregon
|
93-0810577
|
(State or other
jurisdiction
|
I.R.S. Employer Identification
Number
|
of incorporation or
organization)
|
|
5335 Meadows Road Suite 201, Lake
Oswego, Oregon 97035
(Address of principal executive offices)(Zip code)
(503) 684-0884
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant:
(1) has filed all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes [ X ] No [ ]
Indicate by check mark whether the registrant
has submitted electronically and posted on its corporate website, if any, every
Interactive Data File required to be submitted and posted pursuant to Rule 405
of Regulation S-T during the preceding 12 months (or for such shorter period
that the registrant was required to submit and post such files).
Yes [ X ] No [ ]
Indicate by check mark whether the registrant
is a large accelerated filer, an accelerated filer, a non-accelerated filer, or
a smaller reporting company. See the definitions of large accelerated filer,
accelerated filer and smaller reporting company in Rule 12b-2 of the
Exchange Act (check one):
[ ] Large Accelerated Filer [ X ]
Accelerated Filer [ ] Non-accelerated Filer [ ] Smaller Reporting
Company
Indicate by check mark whether the registrant
is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes [ ] No [ X ]
Indicate the number of shares outstanding of
each of the issuers classes of common stock, as of the latest practicable date.
Common Stock, no par value: 19,290,175 shares
outstanding as of October 31, 2012.
Table of
Contents
|
|
|
|
|
PAGE
|
PART I: FINANCIAL
INFORMATION
|
|
3
|
|
|
|
|
|
Item 1.
|
|
Financial Statements
(Unaudited)
|
|
3
|
|
|
|
CONSOLIDATED BALANCE SHEETS
|
|
3
|
|
|
|
CONSOLIDATED STATEMENTS OF INCOME
|
|
4
|
|
|
|
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
|
|
5
|
|
|
|
CONSOLIDATED STATEMENTS OF CASH
FLOWS
|
|
6
|
|
|
|
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS
EQUITY
|
|
7
|
|
|
|
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
|
|
8
|
|
|
|
|
|
|
|
Item 2.
|
|
Managements Discussion and Analysis of
Financial Condition and Results of Operations
|
|
33
|
|
|
|
|
|
|
|
Item 3.
|
|
Quantitative and Qualitative Disclosures
About Market Risk
|
|
53
|
|
|
|
|
|
|
|
Item 4.
|
|
Controls and Procedures
|
|
53
|
|
|
|
|
|
|
PART II: OTHER
INFORMATION
|
|
54
|
|
|
|
|
|
Item 1.
|
|
Legal Proceedings
|
|
54
|
|
|
|
|
|
|
|
Item 1A.
|
|
Risk Factors
|
|
54
|
|
|
|
|
|
|
|
Item 2.
|
|
Unregistered Sales of Equity Securities and
Use of Proceeds
|
|
56
|
|
|
|
|
|
|
|
Item 3.
|
|
Defaults Upon Senior
Securities
|
|
56
|
|
|
|
|
|
|
|
Item 4.
|
|
Mine Safety Disclosures
|
|
56
|
|
|
|
|
|
|
|
Item 5.
|
|
Other Information
|
|
56
|
|
|
|
|
|
|
|
Item 6.
|
|
Exhibits
|
|
56
|
|
|
|
|
|
|
SIGNATURES
|
|
57
|
PART I: FINANCIAL
INFORMATION
Item 1. Financial Statements (Unaudited)
WEST COAST BANCORP
CONSOLIDATED
BALANCE SHEETS
|
|
September 30,
|
|
December 31,
|
(Dollars and shares in
thousands, unaudited)
|
|
2012
|
|
2011
|
ASSETS
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents:
|
|
|
|
|
|
|
|
|
Cash and due from
banks
|
|
$
|
53,026
|
|
|
$
|
59,955
|
|
Federal
funds sold
|
|
|
3,426
|
|
|
|
4,758
|
|
Interest-bearing
deposits in other banks
|
|
|
44,883
|
|
|
|
27,514
|
|
Total cash and cash equivalents
|
|
|
101,335
|
|
|
|
92,227
|
|
Investment securities available for sale, at fair
value
|
|
|
|
|
|
|
|
|
(amortized cost: $773,856 and $717,593, respectively)
|
|
|
792,657
|
|
|
|
729,844
|
|
Federal Home Loan Bank stock, held at
cost
|
|
|
12,040
|
|
|
|
12,148
|
|
Loans held for sale
|
|
|
-
|
|
|
|
3,281
|
|
Loans
|
|
|
1,490,767
|
|
|
|
1,501,301
|
|
Allowance for loan losses
|
|
|
(31,457
|
)
|
|
|
(35,212
|
)
|
Loans, net
|
|
|
1,459,310
|
|
|
|
1,466,089
|
|
Premises and equipment, net
|
|
|
22,672
|
|
|
|
24,374
|
|
Other real estate owned, net
|
|
|
21,939
|
|
|
|
30,823
|
|
Bank owned life insurance
|
|
|
26,895
|
|
|
|
26,228
|
|
Other assets
|
|
|
39,132
|
|
|
|
44,873
|
|
Total assets
|
|
$
|
2,475,980
|
|
|
$
|
2,429,887
|
|
|
LIABILITIES AND STOCKHOLDERS'
EQUITY
|
|
|
|
|
|
|
|
|
|
Deposits:
|
|
|
|
|
|
|
|
|
Demand
|
|
$
|
704,810
|
|
|
$
|
621,962
|
|
Savings
and interest bearing demand
|
|
|
499,934
|
|
|
|
495,117
|
|
Money market
|
|
|
588,635
|
|
|
|
625,373
|
|
Time
deposits
|
|
|
135,913
|
|
|
|
173,117
|
|
Total deposits
|
|
|
1,929,292
|
|
|
|
1,915,569
|
|
|
Short-term borrowings
|
|
|
35,000
|
|
|
|
-
|
|
Long-term borrowings
|
|
|
92,900
|
|
|
|
120,000
|
|
Junior subordinated debentures
|
|
|
51,000
|
|
|
|
51,000
|
|
Reserve for unfunded commitments
|
|
|
831
|
|
|
|
771
|
|
Other liabilities
|
|
|
30,961
|
|
|
|
28,068
|
|
Total liabilities
|
|
|
2,139,984
|
|
|
|
2,115,408
|
|
|
Commitments and contingent liabilities (Note
8)
|
|
|
|
|
|
|
|
|
|
Stockholders' equity:
|
|
|
|
|
|
|
|
|
Preferred stock: no par value, 10,000 shares
authorized;
|
|
|
|
|
|
|
|
|
Series B issued and
outstanding: 121 at September 30, 2012 and December 31, 2011
|
|
|
21,124
|
|
|
|
21,124
|
|
Common stock: no par value, 50,000 shares
authorized;
|
|
|
|
|
|
|
|
|
issued
and outstanding: 19,290 at September 30, 2012 and 19,298 at December 31,
2011
|
|
|
231,766
|
|
|
|
230,966
|
|
Retained earnings
|
|
|
71,692
|
|
|
|
54,952
|
|
Accumulated other comprehensive
income
|
|
|
11,414
|
|
|
|
7,437
|
|
Total stockholders'
equity
|
|
|
335,996
|
|
|
|
314,479
|
|
Total liabilities and stockholders' equity
|
|
$
|
2,475,980
|
|
|
$
|
2,429,887
|
|
See notes to consolidated financial
statements.
- 3 -
WEST COAST BANCORP
CONSOLIDATED STATEMENTS OF INCOME
|
|
Three months
ended
|
|
Nine months
ended
|
|
|
September 30,
|
|
September 30,
|
(Dollars and shares in thousands, except per share
amounts)
|
|
2012
|
|
2011
|
|
2012
|
|
2011
|
INTEREST INCOME:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest and fees on loans
|
|
$
|
18,706
|
|
|
$
|
20,060
|
|
|
$
|
56,614
|
|
|
$
|
60,590
|
|
Interest on taxable
investment securities
|
|
|
3,439
|
|
|
|
4,092
|
|
|
|
10,647
|
|
|
|
12,437
|
|
Interest on nontaxable investment
securities
|
|
|
546
|
|
|
|
534
|
|
|
|
1,547
|
|
|
|
1,548
|
|
Interest on deposits in
other banks
|
|
|
35
|
|
|
|
35
|
|
|
|
91
|
|
|
|
166
|
|
Interest on federal funds sold
|
|
|
-
|
|
|
|
-
|
|
|
|
1
|
|
|
|
2
|
|
Total interest income
|
|
|
22,726
|
|
|
|
24,721
|
|
|
|
68,900
|
|
|
|
74,743
|
|
|
INTEREST
EXPENSE:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings, interest bearing demand deposits
and money market
|
|
|
183
|
|
|
|
392
|
|
|
|
560
|
|
|
|
1,846
|
|
Time deposits
|
|
|
202
|
|
|
|
594
|
|
|
|
833
|
|
|
|
2,425
|
|
Short-term borrowings
|
|
|
37
|
|
|
|
282
|
|
|
|
42
|
|
|
|
328
|
|
Long-term
borrowings
|
|
|
315
|
|
|
|
1,060
|
|
|
|
959
|
|
|
|
3,670
|
|
Borrowings prepayment charge
|
|
|
-
|
|
|
|
2,775
|
|
|
|
-
|
|
|
|
2,775
|
|
Junior subordinated
debentures
|
|
|
302
|
|
|
|
277
|
|
|
|
913
|
|
|
|
885
|
|
Total interest expense
|
|
|
1,039
|
|
|
|
5,380
|
|
|
|
3,307
|
|
|
|
11,929
|
|
Net interest
income
|
|
|
21,687
|
|
|
|
19,341
|
|
|
|
65,593
|
|
|
|
62,814
|
|
Provision (benefit) for credit
losses
|
|
|
(593
|
)
|
|
|
1,132
|
|
|
|
(996
|
)
|
|
|
6,634
|
|
Net interest income after
provision for credit losses
|
|
|
22,280
|
|
|
|
18,209
|
|
|
|
66,589
|
|
|
|
56,180
|
|
|
NONINTEREST
INCOME:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service charges on deposit
accounts
|
|
|
3,017
|
|
|
|
3,129
|
|
|
|
9,047
|
|
|
|
10,348
|
|
Payment systems related
revenue
|
|
|
3,073
|
|
|
|
3,201
|
|
|
|
9,230
|
|
|
|
9,300
|
|
Trust and investment services
revenue
|
|
|
1,231
|
|
|
|
1,033
|
|
|
|
3,623
|
|
|
|
3,389
|
|
Gains on sales of
loans
|
|
|
492
|
|
|
|
222
|
|
|
|
1,949
|
|
|
|
1,035
|
|
Other real estate owned
valuation adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and
(loss) gain on sales
|
|
|
(457
|
)
|
|
|
(11
|
)
|
|
|
(2,061
|
)
|
|
|
(1,255
|
)
|
Gain (loss) on securities,
net:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gains
on sales of securities
|
|
|
-
|
|
|
|
124
|
|
|
|
375
|
|
|
|
521
|
|
Other-than-temporary
impairment losses on securities
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,726
|
)
|
|
|
(1,636
|
)
|
Portion
of other-than-temporary, non-credit related losses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
recognized in other comprehensive income
|
|
|
-
|
|
|
|
-
|
|
|
|
1,677
|
|
|
|
1,457
|
|
Total net gains on
securities
|
|
|
-
|
|
|
|
124
|
|
|
|
326
|
|
|
|
342
|
|
Other noninterest income
|
|
|
816
|
|
|
|
716
|
|
|
|
2,439
|
|
|
|
2,241
|
|
Total noninterest income
|
|
|
8,172
|
|
|
|
8,414
|
|
|
|
24,553
|
|
|
|
25,400
|
|
|
NONINTEREST
EXPENSE:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and employee benefits
|
|
|
11,499
|
|
|
|
11,977
|
|
|
|
35,058
|
|
|
|
35,973
|
|
Equipment
|
|
|
1,480
|
|
|
|
1,461
|
|
|
|
4,726
|
|
|
|
4,553
|
|
Occupancy
|
|
|
1,901
|
|
|
|
2,115
|
|
|
|
6,095
|
|
|
|
6,512
|
|
Payment systems related
expense
|
|
|
1,148
|
|
|
|
1,279
|
|
|
|
3,342
|
|
|
|
3,876
|
|
Professional fees
|
|
|
777
|
|
|
|
1,038
|
|
|
|
2,948
|
|
|
|
2,996
|
|
Postage, printing and
office supplies
|
|
|
735
|
|
|
|
772
|
|
|
|
2,283
|
|
|
|
2,444
|
|
Marketing
|
|
|
520
|
|
|
|
862
|
|
|
|
1,087
|
|
|
|
2,344
|
|
Communications
|
|
|
411
|
|
|
|
387
|
|
|
|
1,210
|
|
|
|
1,154
|
|
Merger expenses
|
|
|
578
|
|
|
|
-
|
|
|
|
578
|
|
|
|
-
|
|
Other noninterest
expense
|
|
|
2,258
|
|
|
|
2,729
|
|
|
|
6,481
|
|
|
|
8,279
|
|
Total noninterest expense
|
|
|
21,307
|
|
|
|
22,620
|
|
|
|
63,808
|
|
|
|
68,131
|
|
|
INCOME BEFORE INCOME
TAXES
|
|
|
9,145
|
|
|
|
4,003
|
|
|
|
27,334
|
|
|
|
13,449
|
|
PROVISION (BENEFIT) FOR INCOME
TAXES
|
|
|
3,201
|
|
|
|
(2,273
|
)
|
|
|
9,567
|
|
|
|
(2,566
|
)
|
NET INCOME
|
|
$
|
5,944
|
|
|
$
|
6,276
|
|
|
$
|
17,767
|
|
|
$
|
16,015
|
|
|
Basic earnings per share
|
|
$
|
0.29
|
|
|
$
|
0.31
|
|
|
$
|
0.87
|
|
|
$
|
0.78
|
|
Diluted earnings per share
|
|
$
|
0.27
|
|
|
$
|
0.29
|
|
|
$
|
0.82
|
|
|
$
|
0.75
|
|
Weighted average common shares
|
|
|
19,110
|
|
|
|
19,029
|
|
|
|
19,077
|
|
|
|
18,999
|
|
Weighted average diluted shares
|
|
|
20,344
|
|
|
|
19,880
|
|
|
|
20,225
|
|
|
|
19,951
|
|
See notes to consolidated financial
statements.
- 4 -
WEST COAST BANCORP
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
|
|
Three months ended
|
|
Nine months ended
|
|
|
September 30,
|
|
September 30,
|
(Dollars in thousands, unaudited)
|
|
2012
|
|
2011
|
|
2012
|
|
2011
|
Net income
|
|
$
|
5,944
|
|
|
$
|
6,276
|
|
|
$
|
17,767
|
|
|
16,015
|
|
Other comprehensive income, net of tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized holding gains on
securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized holding gains arising during the
period
|
|
|
4,512
|
|
|
|
7,665
|
|
|
|
6,877
|
|
|
12,686
|
|
Tax provision
|
|
|
(1,773
|
)
|
|
|
(3,011
|
)
|
|
|
(2,701
|
)
|
|
(4,997
|
)
|
Unrealized holding gains arising during the period, net
of tax
|
|
|
2,739
|
|
|
|
4,654
|
|
|
|
4,176
|
|
|
7,689
|
|
|
Less: Reclassification adjustment for net
other-than-temporary
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
impairment losses on securities
|
|
|
-
|
|
|
|
-
|
|
|
|
49
|
|
|
179
|
|
Tax benefit
|
|
|
-
|
|
|
|
-
|
|
|
|
(19
|
)
|
|
(70
|
)
|
Other-than-temporary impairment losses on
securities, net of tax
|
|
|
-
|
|
|
|
-
|
|
|
|
30
|
|
|
109
|
|
|
Less: Reclassification adjustment for
net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
gains
on sales of securities
|
|
|
-
|
|
|
|
(124
|
)
|
|
|
(375
|
)
|
|
(521
|
)
|
Tax provision
|
|
|
-
|
|
|
|
48
|
|
|
|
146
|
|
|
203
|
|
Gains on sales of securities, net of
tax
|
|
|
-
|
|
|
|
(76
|
)
|
|
|
(229
|
)
|
|
(318
|
)
|
Other comprehensive
income, net of tax
|
|
|
2,739
|
|
|
|
4,578
|
|
|
|
3,977
|
|
|
7,480
|
|
Total net comprehensive income
|
|
$
|
8,683
|
|
|
$
|
10,854
|
|
|
$
|
21,744
|
|
|
23,495
|
|
See notes to consolidated financial
statements.
- 5 -
WEST COAST BANCORP
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
Nine months ended
|
(Dollars in thousands,
unaudited)
|
|
September 30, 2012
|
|
September 30, 2011
|
CASH FLOWS FROM OPERATING
ACTIVITIES:
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
17,767
|
|
|
$
|
16,015
|
|
Adjustments to reconcile net income to net
cash provided by operating activities:
|
|
|
|
|
|
|
|
|
Depreciation, amortization and accretion
|
|
|
6,418
|
|
|
|
6,389
|
|
Amortization of tax credits
|
|
|
489
|
|
|
|
682
|
|
Deferred income tax expense
|
|
|
5,226
|
|
|
|
1,687
|
|
Amortization of intangibles
|
|
|
-
|
|
|
|
358
|
|
Provision (benefit) for credit losses
|
|
|
(996
|
)
|
|
|
6,634
|
|
Decrease (increase) in accrued interest
receivable
|
|
|
221
|
|
|
|
(541
|
)
|
Increase in other assets
|
|
|
(2,782
|
)
|
|
|
(3,388
|
)
|
Loss on impairment of securities
|
|
|
49
|
|
|
|
179
|
|
Gains on sales of securities
|
|
|
(375
|
)
|
|
|
(521
|
)
|
Net loss on disposal of premises and
equipment
|
|
|
41
|
|
|
|
305
|
|
Net other real estate owned valuation adjustments and
(loss) gain on sales
|
|
|
2,061
|
|
|
|
1,255
|
|
Gains on sales of loans held for
sale
|
|
|
(1,457
|
)
|
|
|
(1,035
|
)
|
Origination of loans held for sale
|
|
|
(9,510
|
)
|
|
|
(27,474
|
)
|
Proceeds from sales of loans held for
sale
|
|
|
14,248
|
|
|
|
29,610
|
|
Decrease in interest payable
|
|
|
(45
|
)
|
|
|
(2,085
|
)
|
Increase in other liabilities
|
|
|
1,430
|
|
|
|
1,363
|
|
Increase in cash surrender value of bank owned life
insurance
|
|
|
(667
|
)
|
|
|
(653
|
)
|
Stock based compensation expense
|
|
|
1,168
|
|
|
|
1,452
|
|
Excess tax benefits associated with stock plans
|
|
|
(124
|
)
|
|
|
(53
|
)
|
Net
cash provided by operating activities
|
|
|
33,162
|
|
|
|
30,179
|
|
|
CASH FLOWS FROM INVESTING
ACTIVITIES:
|
|
|
|
|
|
|
|
|
Proceeds from maturities of available for sale
securities
|
|
|
183,705
|
|
|
|
198,778
|
|
Proceeds from sales of available for sale
securities
|
|
|
32,859
|
|
|
|
39,193
|
|
Proceeds from redemption of FHLB stock
|
|
|
108
|
|
|
|
-
|
|
Purchase of available for sale
securities
|
|
|
(276,585
|
)
|
|
|
(406,429
|
)
|
Loans made to customers less than principal collected on
loans
|
|
|
11,499
|
|
|
|
10,204
|
|
Purchase of loans
|
|
|
(8,255
|
)
|
|
|
-
|
|
Proceeds from the sale of other real estate
owned
|
|
|
11,424
|
|
|
|
20,392
|
|
Capital expenditures on other real estate
owned
|
|
|
(69
|
)
|
|
|
(521
|
)
|
Capital expenditures on premises and equipment
|
|
|
(772
|
)
|
|
|
(1,845
|
)
|
Net
cash used by investing activities
|
|
|
(46,086
|
)
|
|
|
(140,228
|
)
|
|
CASH FLOWS FROM FINANCING
ACTIVITIES:
|
|
|
|
|
|
|
|
|
Net increase in demand, savings and interest
|
|
|
|
|
|
|
|
|
bearing
transaction accounts
|
|
|
51,566
|
|
|
|
138,705
|
|
Net decrease in time deposits
|
|
|
(37,204
|
)
|
|
|
(88,449
|
)
|
Proceeds from issuance of short-term
borrowings
|
|
|
97,000
|
|
|
|
55,818
|
|
Repayment of short-term borrowings
|
|
|
(97,000
|
)
|
|
|
(67,200
|
)
|
Proceeds from issuance of long-term
borrowings
|
|
|
7,900
|
|
|
|
50,000
|
|
Repayment of long-term borrowings
|
|
|
-
|
|
|
|
(49,118
|
)
|
Proceeds from issuance of common stock-stock
options
|
|
|
92
|
|
|
|
74
|
|
Fractional share payment
|
|
|
-
|
|
|
|
(18
|
)
|
Redemption of stock pursuant to stock
plans
|
|
|
(499
|
)
|
|
|
(509
|
)
|
Excess tax benefits associated with stock
plans
|
|
|
124
|
|
|
|
53
|
|
Activity in deferred compensation
plan
|
|
|
53
|
|
|
|
(20
|
)
|
Net
cash provided by financing activities
|
|
|
22,032
|
|
|
|
39,336
|
|
|
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS
|
|
|
9,108
|
|
|
|
(70,713
|
)
|
CASH AND CASH EQUIVALENTS AT BEGINNING OF
PERIOD
|
|
|
92,227
|
|
|
|
177,991
|
|
CASH AND CASH EQUIVALENTS AT END OF
PERIOD
|
|
$
|
101,335
|
|
|
$
|
107,278
|
|
See notes to consolidated
financial statements.
- 6 -
WEST COAST BANCORP
CONSOLIDATED STATEMENTS OF
CHANGES IN STOCKHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
(Shares and dollars in thousands,
unaudited)
|
|
Preferred
|
|
Common Stock
|
|
Retained
|
|
Comprehensive
|
|
|
|
|
|
|
Stock
|
|
Shares
|
|
Amount
|
|
Earnings
|
|
Income
|
|
Total
|
BALANCE, January 1,
2011
|
|
$
|
21,124
|
|
19,286
|
|
|
$
|
229,722
|
|
|
$
|
21,175
|
|
|
$
|
539
|
|
$
|
272,560
|
|
|
Net income
|
|
$
|
-
|
|
-
|
|
|
$
|
-
|
|
|
$
|
33,777
|
|
|
$
|
-
|
|
$
|
33,777
|
|
Other comprehensive income, net of
tax:
|
|
|
-
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
6,898
|
|
|
6,898
|
|
Redemption of stock
pursuant to stock plans
|
|
|
-
|
|
(55
|
)
|
|
|
(531
|
)
|
|
|
-
|
|
|
|
-
|
|
|
(531
|
)
|
Activity in deferred compensation
plan
|
|
|
-
|
|
(3
|
)
|
|
|
(27
|
)
|
|
|
-
|
|
|
|
-
|
|
|
(27
|
)
|
Issuance of common
stock-stock options
|
|
|
-
|
|
7
|
|
|
|
80
|
|
|
|
-
|
|
|
|
-
|
|
|
80
|
|
Issuance of common stock-restricted
stock
|
|
|
-
|
|
64
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
-
|
|
Stock based compensation
expense
|
|
|
-
|
|
-
|
|
|
|
1,899
|
|
|
|
-
|
|
|
|
-
|
|
|
1,899
|
|
Tax adjustment associated with stock
plans
|
|
|
-
|
|
-
|
|
|
|
(159
|
)
|
|
|
-
|
|
|
|
-
|
|
|
(159
|
)
|
Fractional share
payment
|
|
|
-
|
|
(1
|
)
|
|
|
(18
|
)
|
|
|
-
|
|
|
|
-
|
|
|
(18
|
)
|
BALANCE, December 31, 2011
|
|
|
21,124
|
|
19,298
|
|
|
|
230,966
|
|
|
|
54,952
|
|
|
|
7,437
|
|
|
314,479
|
|
|
Net income
|
|
$
|
-
|
|
-
|
|
|
$
|
-
|
|
|
$
|
17,767
|
|
|
$
|
-
|
|
$
|
17,767
|
|
Other comprehensive
income, net of tax:
|
|
|
-
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3,977
|
|
|
3,977
|
|
Cash dividends, $.05 per
common share
|
|
|
-
|
|
-
|
|
|
|
-
|
|
|
|
(1,027
|
)
|
|
|
-
|
|
|
(1,027
|
)
|
Redemption of stock
pursuant to stock plans
|
|
|
-
|
|
(45
|
)
|
|
|
(499
|
)
|
|
|
-
|
|
|
|
-
|
|
|
(499
|
)
|
Activity in deferred
compensation plan
|
|
|
-
|
|
(1
|
)
|
|
|
53
|
|
|
|
-
|
|
|
|
-
|
|
|
53
|
|
Issuance of common
stock-stock options
|
|
|
-
|
|
8
|
|
|
|
92
|
|
|
|
-
|
|
|
|
-
|
|
|
92
|
|
Issuance of common
stock-restricted stock
|
|
|
-
|
|
30
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
-
|
|
Stock based compensation
expense
|
|
|
-
|
|
-
|
|
|
|
1,168
|
|
|
|
-
|
|
|
|
-
|
|
|
1,168
|
|
Tax adjustment associated
with stock plans
|
|
|
-
|
|
-
|
|
|
|
(14
|
)
|
|
|
-
|
|
|
|
-
|
|
|
(14
|
)
|
BALANCE, September 30,
2012
|
|
$
|
21,124
|
|
19,290
|
|
|
$
|
231,766
|
|
|
$
|
71,692
|
|
|
$
|
11,414
|
|
$
|
335,996
|
|
See notes to consolidated financial
statements.
- 7 -
WEST COAST BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. BASIS OF PRESENTATION
The interim
unaudited consolidated financial statements have been prepared by management in
accordance with accounting principles generally accepted in the United States of
America for interim financial information. In addition, this report has been
prepared in accordance with the instructions for Form 10-Q, and therefore, these
financial statements do not include all of the information and notes required by
generally accepted accounting principles for complete financial statements. The
accompanying interim consolidated financial statements include the accounts of
West Coast Bancorp (Bancorp or the Company) and its wholly-owned
subsidiaries, West Coast Bank (the Bank), West Coast Trust Company, Inc. and
Totten, Inc., after elimination of intercompany transactions and balances. The
Companys interim consolidated financial statements and related notes should be
read in conjunction with the audited financial statements and related notes,
including the Companys significant accounting policies, contained in the Annual
Report on Form 10-K for the year ended December 31, 2011 (2011
10-K).
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. The
financial information contained in this report reflects all adjustments of a
normal, recurring nature that, in the opinion of management, are necessary for a
fair presentation of the results of the interim periods. The results of
operations and cash flows for the three and nine months ended September 30,
2012, are not necessarily indicative of the results that may be expected for the
year ending December 31, 2012, or other future periods.
Supplemental cash flow information.
The following table presents supplemental cash flow
information for the nine months ended September 30, 2012, and 2011.
(Dollars in thousands)
|
|
Nine months ended
|
|
|
September 30,
|
|
|
2012
|
|
2011
|
Supplemental cash flow
information:
|
|
|
|
|
|
|
|
Cash
paid (received) in the period for:
|
|
|
|
|
|
|
|
Interest
|
|
$
|
3,352
|
|
$
|
14,015
|
|
Income taxes
|
|
|
5,425
|
|
|
6,529
|
|
|
Noncash investing and financing
activities:
|
|
|
|
|
|
|
|
Change in unrealized gain on
available
|
|
|
|
|
|
|
|
for sale securities, net of tax
|
|
$
|
3,977
|
|
$
|
7,480
|
|
Settlement of secured borrowings
|
|
|
-
|
|
|
(3,085
|
)
|
Transfer of long term debt to short term debt
|
|
|
35,000
|
|
|
39,200
|
|
OREO and premises and equipment
expenditures
|
|
|
|
|
|
|
|
accrued
in other liabilities
|
|
$
|
13
|
|
$
|
12
|
|
Transfer of loans to OREO
|
|
|
4,532
|
|
|
11,906
|
|
Dividends declared and accrued
in
other liabilities
|
|
|
1,027
|
|
|
-
|
|
- 8 -
1. BASIS OF PRESENTATION
New
Accounting Pronouncements.
In May 2011, the
Financial Accounting Standards Board (FASB) issued guidance within the
Accounting Standards Update (ASU) 2011-04, Amendments to Achieve Common Fair
Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs. This ASU
amends existing guidance regarding the highest and best use and valuation
assumption by clarifying these concepts are only applicable to measuring the
fair value of nonfinancial assets. The ASU also clarifies that the fair value
measurement of financial assets and financial liabilities which have offsetting
market risks or counterparty credit risks that are managed on a portfolio basis,
when several criteria are met, can be measured at the net risk position.
Additional disclosures about Level 3 fair value measurements are required
including a quantitative disclosure of the unobservable inputs and assumptions
used in the measurement, a description of the valuation process in place, and
discussion of the sensitivity of fair value changes in unobservable inputs and
interrelationships about those inputs as well as disclosure of the level of the
fair value of items that are not measured at fair value in the financial
statements but disclosure of fair value is required. ASU 2011-04 is effective
for the Companys reporting period beginning after December 15, 2011, and was
applied prospectively. The adoption of this guidance did not have a
material
impact on the Companys consolidated
statement of income, its consolidated balance sheet, or its consolidated
statement of cash flows.
In June 2011, the FASB issued guidance within ASU 2011-05, Presentation
of Comprehensive Income. This ASU amends current guidance to allow a company
the option of presenting the total of comprehensive income, the components of
net income, and the components of other comprehensive income either in a single
continuous statement of comprehensive income or in two separate but consecutive
statements. The guidance does not change the items that must be reported in
other comprehensive income or when an item of other comprehensive income must be
reclassified to net income. The amendments do not change the option for a
company to present components of other comprehensive income either net of
related tax effects or before related tax effects, with one amount shown for the
aggregate income tax expense (benefit) related to the total of other
comprehensive income items. The amendments do not affect how earnings per share
is calculated or presented. The provisions of ASU 2011-05 were effective for the
Companys reporting period beginning after December 15, 2011, and were applied
retrospectively. Early adoption is permitted and there are no required
transition disclosures. The adoption of this guidance did not have a
material
impact on the Companys consolidated
statement of income, its consolidated balance sheet, or its consolidated
statement of cash flows.
2. PROPOSED MERGER WITH COLUMBIA
BANKING SYSTEM, INC.
On September 25, 2012, Bancorp entered into an Agreement and Plan of
Merger (the Merger Agreement) with Columbia Banking System, Inc.,
(Columbia), a Washington corporation, pursuant to which a newly formed
subsidiary of Columbia will merge with and into Bancorp (the Merger), with
Bancorp continuing as the surviving corporation (the Surviving Corporation).
As soon as reasonably practicable following the Merger, and as part of a single
integrated transaction, the Surviving Corporation will be merged with and into
Columbia (the Second Step Merger and together with the Merger, the Mergers).
Consummation of the Merger remains subject to customary closing conditions,
including receipt of requisite shareholder and regulatory approvals. Certain
terms of the Merger Agreement and other related agreements are summarized in,
and the Merger Agreement has been filed as an exhibit to, the Current Report on
Form 8-K filed by Bancorp with the Securities and Exchange Commission on October
1, 2012.
In connection with the proposed Merger, Bancorp has incurred
Merger-related expenses of approximately $0.6 million, principally legal and
professional services, for the three months ended September 30, 2012.
- 9 -
3. STOCK PLANS
On April 24,
2012, shareholders approved Bancorps 2012 Omnibus Incentive Plan (the 2012
Incentive Plan). Bancorp's 2002 Stock Incentive Plan (the 2002 Plan) was
terminated on March 8, 2012, and no additional awards will be granted under the
2002 Plan. The 2012 Incentive Plan authorizes the issuance of up to 400,000
shares to participants in connection with grants of stock options, restricted
stock, restricted stock units, stock appreciation rights, and other stock-based
awards. The 2012 Incentive Plan has 372,166 shares available for grant at
September 30, 2012. The number of shares that may be issued under the 2012
Incentive Plan is subject to adjustment in certain circumstances.
It is Bancorps policy to issue new shares for stock option exercises and
restricted stock awards. Bancorp expenses stock options and restricted stock on
a straight line basis over the applicable vesting term. Restricted stock granted
under the 2002 Plan generally vested over a one, two to four year vesting
period; including grants to directors. All outstanding stock options have an
exercise price that was equal to the closing market value of Bancorps stock on
the date the options were granted. Options granted under the 2002 Plan generally
vested over a two to four year vesting period; however, certain grants were made
that vested immediately, including grants to directors. Stock options have a 10
year maximum term.
The following table presents information on stock options outstanding for
the period shown:
|
|
Nine months
ended
|
|
|
September 30, 2012
|
|
|
|
|
|
Weighted
Average
|
|
|
Common Shares
|
|
|
Exercise Price per share
|
Balance, beginning of
period
|
|
257,080
|
|
|
$
|
70.12
|
Granted
|
|
-
|
|
|
|
-
|
Exercised
|
|
(7,945
|
)
|
|
|
11.55
|
Forfeited/expired
|
|
(43,714
|
)
|
|
|
75.93
|
Balance, end of
period
|
|
205,421
|
|
|
$
|
71.15
|
The following table presents information on stock options outstanding for
the periods shown:
|
|
Nine months
ended
|
|
Nine months
ended
|
(Dollars in thousands, except share and per
share data)
|
|
September 30, 2012
|
|
September 30, 2011
|
Stock options vested and
expected to vest:
|
|
|
|
|
|
|
Number
|
|
|
205,421
|
|
|
253,461
|
Weighted average
exercise price per share
|
|
$
|
71.15
|
|
$
|
69.93
|
Aggregate intrinsic value
|
|
$
|
691
|
|
$
|
174
|
Weighted average
contractual term of options
|
|
|
3.9 years
|
|
|
4.4 years
|
|
Stock options vested and
currently exercisable:
|
|
|
|
|
|
|
Number
|
|
|
205,371
|
|
|
252,990
|
Weighted average
exercise price per share
|
|
$
|
71.16
|
|
$
|
70.14
|
Aggregate intrinsic value
|
|
$
|
690
|
|
$
|
179
|
Weighted average
contractual term of options
|
|
|
3.9 years
|
|
|
4.3 years
|
|
Unearned compensation
related to stock options
|
|
$
|
-
|
|
$
|
28
|
There were no stock option grants for the nine months ended September 30,
2012, and 2011.
- 10 -
3. STOCK PLANS
The following table presents information on restricted stock outstanding for the
period shown:
|
Nine months
ended
|
|
September 30, 2012
|
|
|
|
|
Weighted Average
Market
|
|
Restricted Shares
|
|
Price at Grant
|
Balance, beginning of
period
|
264,631
|
|
|
$
|
16.98
|
Granted
|
29,673
|
|
|
|
19.05
|
Vested
|
(95,132
|
)
|
|
|
18.18
|
Forfeited
|
(19,714
|
)
|
|
|
15.89
|
Balance, end of
period
|
179,458
|
|
|
$
|
16.80
|
|
Weighted average remaining
recognition period
|
1.8 years
|
|
|
|
|
The balance of unearned compensation related to restricted shares as of
September 30, 2012, and September 30, 2011, was $2.4 million and $3.8 million,
respectively.
The following table presents stock-based compensation expense for the periods
shown:
|
Three months
ended
|
|
Nine months
ended
|
|
September 30,
|
|
September 30,
|
(Dollars in thousands)
|
2012
|
|
2011
|
|
2012
|
|
2011
|
Restricted stock
expense
|
$
|
375
|
|
$
|
409
|
|
$
|
1,153
|
|
$
|
1,384
|
Stock option expense
|
|
-
|
|
|
14
|
|
|
15
|
|
|
68
|
Total stock-based
compensation expense
|
$
|
375
|
|
$
|
423
|
|
$
|
1,168
|
|
$
|
1,452
|
The income tax benefit recognized in the income statement for restricted stock
compensation expense in the three and nine months ended September 30, 2012, was
$131,000 and $404,000, respectively. The income tax benefit recognized in the
income statement for restricted stock compensation expense in the three and nine
months ended September 30, 2011, was $155,000 and $526,000,
respectively.
The cash received from stock option exercises was $22,000 and $92,000 for the
three and nine months ended September 30, 2012, respectively. The Company
recorded $13,000 and $168,000 of tax expense from disqualifying dispositions
involving incentive stock options, the exercise of non-qualified stock options,
and the vesting and release of restricted stock for the nine months ended
September 30, 2012 and September 30, 2011, respectively.
- 11
-
4. INVESTMENT SECURITIES
The following tables present the
available for sale investment portfolio as of September 30, 2012, and December
31, 2011:
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2012
|
Amortized
|
|
Unrealized
|
|
Unrealized
|
|
|
|
|
Cost
|
|
Gross Gains
|
|
Gross Losses
|
|
Fair Value
|
U.S. Treasury
securities
|
$
|
200
|
|
$
|
-
|
|
$
|
-
|
|
|
$
|
200
|
U.S. Government agency securities
|
|
225,728
|
|
|
4,632
|
|
|
-
|
|
|
|
230,360
|
Corporate
securities
|
|
14,303
|
|
|
-
|
|
|
(5,284
|
)
|
|
|
9,019
|
Mortgage-backed securities
|
|
447,437
|
|
|
13,820
|
|
|
(180
|
)
|
|
|
461,077
|
Obligations of state and
political subdivisions
|
|
74,948
|
|
|
5,184
|
|
|
(16
|
)
|
|
|
80,116
|
Equity investments and other
securities
|
|
11,240
|
|
|
657
|
|
|
(12
|
)
|
|
|
11,885
|
Total
|
$
|
773,856
|
|
$
|
24,293
|
|
$
|
(5,492
|
)
|
|
$
|
792,657
|
|
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2011
|
Amortized
|
|
Unrealized
|
|
Unrealized
|
|
|
|
|
Cost
|
|
Gross Gains
|
|
Gross Losses
|
|
Fair Value
|
U.S. Treasury
securities
|
$
|
200
|
|
$
|
3
|
|
$
|
-
|
|
|
$
|
203
|
U.S. Government agency securities
|
|
216,211
|
|
|
3,453
|
|
|
(33
|
)
|
|
|
219,631
|
Corporate
securities
|
|
14,351
|
|
|
-
|
|
|
(5,844
|
)
|
|
|
8,507
|
Mortgage-backed securities
|
|
419,510
|
|
|
9,351
|
|
|
(136
|
)
|
|
|
428,725
|
Obligations of state and
political subdivisions
|
|
56,003
|
|
|
4,736
|
|
|
(7
|
)
|
|
|
60,732
|
Equity investments and other
securities
|
|
11,318
|
|
|
749
|
|
|
(21
|
)
|
|
|
12,046
|
Total
|
$
|
717,593
|
|
$
|
18,292
|
|
$
|
(6,041
|
)
|
|
$
|
729,844
|
At
September 30, 2012, the corporate securities portfolio included four pooled
trust preferred securities issued by banks and/or insurance companies with
amortized cost of $13.8 million and an estimated fair market value of $8.5
million resulting in an estimated $5.3 million unrealized loss. This unrealized
loss reflects a decline in market value since the purchase of these securities.
Credit deterioration and wider credit and liquidity spreads since purchase
contributed to the unrealized loss. These pooled trust preferred securities are
rated C or better by the rating agencies that cover these securities and they
have several features that reduce credit risk, including seniority over certain
tranches in the same pool and the benefit of certain collateral coverage
tests. Beginning on the 10th year anniversary of each pooled trust preferred security and quarterly thereafter, each security could, under certain circumstances, be redeemed at par. One of our trust preferred securities reached its 10 year anniversary on November 1. It is unlikely that the security will be redeemed at this point.
The following tables provide the fair value and gross unrealized losses on
securities available for sale, aggregated by category and length of time the
individual securities have been in a continuous unrealized loss
position:
(Dollars in thousands)
|
Less than 12 months
|
|
12 months or more
|
|
Total
|
|
|
|
|
Unrealized
|
|
|
|
|
Unrealized
|
|
|
|
|
Unrealized
|
As of September 30, 2012
|
Fair Value
|
|
Losses
|
|
Fair Value
|
|
Losses
|
|
Fair Value
|
|
Losses
|
U.S. Treasury
securities
|
$
|
200
|
|
$
|
-
|
|
|
$
|
-
|
|
$
|
-
|
|
|
$
|
200
|
|
$
|
-
|
|
Corporate securities
|
|
-
|
|
|
-
|
|
|
|
8,519
|
|
|
(5,284
|
)
|
|
|
8,519
|
|
|
(5,284
|
)
|
Mortgage-backed
securities
|
|
24,307
|
|
|
(92
|
)
|
|
|
9,956
|
|
|
(88
|
)
|
|
|
34,263
|
|
|
(180
|
)
|
Obligations of state and political
subdivisions
|
|
2,542
|
|
|
(16
|
)
|
|
|
-
|
|
|
-
|
|
|
|
2,542
|
|
|
(16
|
)
|
Equity and other
securities
|
|
-
|
|
|
-
|
|
|
|
1,188
|
|
|
(12
|
)
|
|
|
1,188
|
|
|
(12
|
)
|
Total
|
$
|
27,049
|
|
$
|
(108
|
)
|
|
$
|
19,663
|
|
$
|
(5,384
|
)
|
|
$
|
46,712
|
|
$
|
(5,492
|
)
|
|
(Dollars in thousands)
|
Less than 12 months
|
|
12 months or more
|
|
Total
|
|
|
|
|
Unrealized
|
|
|
|
|
Unrealized
|
|
|
|
|
Unrealized
|
As of December 31, 2011
|
Fair Value
|
|
Losses
|
|
Fair Value
|
|
Losses
|
|
Fair Value
|
|
Losses
|
U.S. Government agency
securities
|
$
|
14,627
|
|
$
|
(33
|
)
|
|
$
|
-
|
|
$
|
-
|
|
|
$
|
14,627
|
|
$
|
(33
|
)
|
Corporate securities
|
|
-
|
|
|
-
|
|
|
|
8,007
|
|
|
(5,844
|
)
|
|
|
8,007
|
|
|
(5,844
|
)
|
Mortgage-backed
securities
|
|
26,416
|
|
|
(130
|
)
|
|
|
9,538
|
|
|
(6
|
)
|
|
|
35,954
|
|
|
(136
|
)
|
Obligations of state and political
subdivisions
|
|
234
|
|
|
(7
|
)
|
|
|
-
|
|
|
-
|
|
|
|
234
|
|
|
(7
|
)
|
Equity and other
securities
|
|
598
|
|
|
(2
|
)
|
|
|
1,182
|
|
|
(19
|
)
|
|
|
1,780
|
|
|
(21
|
)
|
Total
|
$
|
41,875
|
|
$
|
(172
|
)
|
|
$
|
18,727
|
|
$
|
(5,869
|
)
|
|
$
|
60,602
|
|
$
|
(6,041
|
)
|
- 12
-
4. INVESTMENT SECURITIES
Management reviews and evaluates the Companys debt securities on a quarterly
basis for the presence of other-than-temporary impairment (OTTI). This
analysis takes into consideration current market conditions, length and severity
of impairment, extent and nature of the change in fair value, issuer ratings,
and whether or not the Company intends to, or may be required to, sell debt
securities before recovering any unrealized losses.
The Company recorded a credit related OTTI charge of $.2 million pretax in the
second quarter of 2011 related to a pooled trust preferred security in its
investment portfolio, which also was placed on nonaccrual status at the same
time. An additional credit related OTTI charge of $49,000, pretax, relating to
this same security was deemed necessary in the first quarter of 2012. The
Company does not intend to sell this security, and it is not likely that it will
be required to sell this security, but it does not expect to recover the entire
amortized cost basis of the security. The amount of OTTI related to credit
losses recognized in earnings represents the portion of amortized cost of the
security that the Company does not expect to recover and is based on the
estimated cash flow expected from the security, discounted by the estimated
future coupon rates of the security. The Company estimates cash flows based on
the performance of the underlying collateral for the security and the overall
structure of the security. Factors considered in the performance of underlying
collateral include current default and deferral rates, estimated future default,
deferral and recovery rates, and prepayment rates. Factors considered in the
overall structure of the security include the impact of the underlying
collateral cash flow on debt coverage tests and subordination levels. The
remaining impairment on this security that is related to all other factors is
recognized in other comprehensive income. Given regulatory guidelines on
expectation of full payment of interest and principal as well as extended
payments in kind, this pooled trust preferred security was placed on nonaccrual
status. In October 2011, the Company placed another pooled trust preferred
security, with payments in kind, on nonaccrual status. While this
security had an impairment loss of $1.5 million at September 30, 2012, the
security had no credit related OTTI as of September 30, 2012.
The following table presents a summary of the significant inputs utilized to
measure the OTTI related to credit losses associated with the above pooled trust
preferred security at September 30, 2012, and September 30, 2011:
|
September 30, 2012
|
|
|
September 30, 2011
|
|
Default Rate
|
0.75
|
%
|
|
0.75
|
%
|
Recovery Rate
|
15.00
|
%
|
|
15.00
|
%
|
Prepayments
|
1.00
|
%
|
|
1.00
|
%
|
Discount rate (coupon) range
|
3.0%-4.3
|
%
|
|
3.75%-5.04
|
%
|
The following table presents information about the securities with OTTI losses
for the periods shown:
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months
ended
|
|
|
Nine months
ended
|
|
September 30, 2012
|
|
September 30, 2011
|
|
September 30, 2012
|
|
September 30, 2011
|
Other-than-temporary
impairment losses on securities
|
$
|
-
|
|
$
|
-
|
|
$
|
(1,726
|
)
|
|
$
|
(1,636
|
)
|
Portion of other-than temporary, non-credit
related losses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
recognized in other comprehensive income
|
|
-
|
|
|
-
|
|
|
1,677
|
|
|
|
1,457
|
|
Net other-than-temporary
impairment losses on securities
|
$
|
-
|
|
$
|
-
|
|
$
|
(49
|
)
|
|
$
|
(179
|
)
|
The following table presents a tabular roll forward of the amount of credit
related OTTI recognized in earnings for the periods shown:
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months
ended
|
|
Nine months
ended
|
|
September 30, 2012
|
|
September 30, 2011
|
|
September 30, 2012
|
|
September 30, 2011
|
Balance of net OTTI losses
on securities, beginning of period
|
$
|
(228
|
)
|
|
$
|
(179
|
)
|
|
$
|
(179
|
)
|
|
$
|
-
|
|
Net
OTTI losses on securities in the period
|
|
-
|
|
|
|
-
|
|
|
|
(49
|
)
|
|
|
(179
|
)
|
Balance of net OTTI losses
on securities, end of period
|
$
|
(228
|
)
|
|
$
|
(179
|
)
|
|
$
|
(228
|
)
|
|
$
|
(179
|
)
|
At September 30, 2012, and December
31, 2011, the Company had $297.6 million and $291.0 million, respectively, in
investment securities being provided as collateral to the Federal Home Loan Bank
of Seattle (FHLB), the Federal Reserve Bank of San Francisco (Reserve Bank),
the State of Oregon, the State of Washington, and others to support the
Companys borrowing capacities and certain public fund deposits.
- 13
-
4. INVESTMENT SECURITIES
The following table presents the contractual maturities of the investment
securities available for sale at September 30, 2012:
(Dollars in thousands)
|
Available for sale
|
September 30, 2012
|
Amortized cost
|
|
Fair value
|
U.S. Treasury
securities
|
|
|
|
|
|
One year or less
|
$
|
-
|
|
$
|
-
|
After one year
through five years
|
|
200
|
|
|
200
|
After five through ten years
|
|
-
|
|
|
-
|
Due after ten
years
|
|
-
|
|
|
-
|
Total
|
|
200
|
|
|
200
|
|
U.S. Government agency
securities:
|
|
|
|
|
|
One year or less
|
|
600
|
|
|
604
|
After one year
through five years
|
|
160,010
|
|
|
163,732
|
After five through ten years
|
|
65,118
|
|
|
66,024
|
Due after ten
years
|
|
-
|
|
|
-
|
Total
|
|
225,728
|
|
|
230,360
|
|
Corporate
securities:
|
|
|
|
|
|
One year or less
|
|
-
|
|
|
-
|
After one year
through five years
|
|
500
|
|
|
500
|
After five through ten years
|
|
-
|
|
|
-
|
Due after ten
years
|
|
13,803
|
|
|
8,519
|
Total
|
|
14,303
|
|
|
9,019
|
|
Obligations of state and
political subdivisions:
|
|
|
|
|
|
One year or less
|
|
1,817
|
|
|
1,839
|
After one year
through five years
|
|
18,319
|
|
|
19,395
|
After five through ten years
|
|
35,643
|
|
|
38,687
|
Due after ten
years
|
|
19,169
|
|
|
20,195
|
Total
|
|
74,948
|
|
|
80,116
|
|
Mortgage-backed
securities
|
|
447,437
|
|
|
461,077
|
Equity investments and other
securities
|
|
11,240
|
|
|
11,885
|
Total
securities
|
$
|
773,856
|
|
$
|
792,657
|
Certain investments have maturities that will differ from contractual maturities
because borrowers have the right to call or prepay obligations with or without
call or prepayment penalties.
- 14
-
5. LOANS AND ALLOWANCE FOR CREDIT
LOSSES
The compositions and carrying values of the Companys loan portfolio, excluding
loans held for sale, were as follows:
(Dollars in thousands)
|
September 30, 2012
|
|
December 31, 2011
|
Commercial
|
$
|
286,134
|
|
|
$
|
299,766
|
|
Real estate construction
|
|
47,406
|
|
|
|
30,162
|
|
Real estate
mortgage
|
|
301,231
|
|
|
|
324,994
|
|
Commercial real estate
|
|
843,836
|
|
|
|
832,767
|
|
Installment and other
consumer
|
|
12,160
|
|
|
|
13,612
|
|
Total loans
|
|
1,490,767
|
|
|
|
1,501,301
|
|
Allowance for loan
losses
|
|
(31,457
|
)
|
|
|
(35,212
|
)
|
Total loans, net
|
$
|
1,459,310
|
|
|
$
|
1,466,089
|
|
The following tables present an age analysis of the loan portfolio, including
nonaccrual loans, for the periods shown:
(Dollars in thousands)
|
September 30, 2012
|
|
30 - 89 days
|
|
Greater than
|
|
|
Total
|
|
Current
|
|
Total
|
|
past due
|
|
90 days past due
|
|
|
past due
|
|
loans
|
|
loans
|
Commercial
|
$
|
1,075
|
|
$
|
5,442
|
|
$
|
6,517
|
|
$
|
279,617
|
|
$
|
286,134
|
Real estate construction
|
|
-
|
|
|
3,503
|
|
|
3,503
|
|
|
43,903
|
|
|
47,406
|
Real estate
mortgage
|
|
2,621
|
|
|
2,657
|
|
|
5,278
|
|
|
295,953
|
|
|
301,231
|
Commercial real estate
|
|
2,041
|
|
|
5,593
|
|
|
7,634
|
|
|
836,202
|
|
|
843,836
|
Installment and other
consumer
|
|
162
|
|
|
1
|
|
|
163
|
|
|
11,997
|
|
|
12,160
|
Total
|
$
|
5,899
|
|
$
|
17,196
|
|
$
|
23,095
|
|
$
|
1,467,672
|
|
$
|
1,490,767
|
|
(Dollars in thousands)
|
December 31, 2011
|
|
30 - 89 days
|
|
Greater than
|
|
Total
|
|
Current
|
|
Total
|
|
past due
|
|
90 days past due
|
|
past due
|
|
loans
|
|
loans
|
Commercial
|
$
|
849
|
|
$
|
5,692
|
|
$
|
6,541
|
|
$
|
293,225
|
|
$
|
299,766
|
Real estate construction
|
|
-
|
|
|
5,522
|
|
|
5,522
|
|
|
24,640
|
|
|
30,162
|
Real estate
mortgage
|
|
3,787
|
|
|
6,226
|
|
|
10,013
|
|
|
314,981
|
|
|
324,994
|
Commercial real estate
|
|
3,619
|
|
|
6,328
|
|
|
9,947
|
|
|
822,820
|
|
|
832,767
|
Installment and other
consumer
|
|
56
|
|
|
1
|
|
|
57
|
|
|
13,555
|
|
|
13,612
|
Total
|
$
|
8,311
|
|
$
|
23,769
|
|
$
|
32,080
|
|
$
|
1,469,221
|
|
$
|
1,501,301
|
Loans greater than 90 days past due are classified into nonaccrual status. In
addition, certain loans not 90 days past due are on nonaccrual
status.
- 15
-
5.
LOANS AND ALLOWANCE FOR CREDIT LOSSES
The following tables present an analysis of impaired loans for the periods
shown:
(Dollars in thousands)
|
September 30, 2012
|
|
Unpaid principal
|
|
Impaired loans
|
|
Impaired loans
|
|
Total impaired
|
|
Related
|
|
balance
1
|
|
with no allowance
|
|
with allowance
|
|
loan balance
|
|
allowance
|
Commercial
|
$
|
18,478
|
|
$
|
4,434
|
|
$
|
2,674
|
|
$
|
7,108
|
|
$
|
248
|
Real estate construction
|
|
10,234
|
|
|
3,501
|
|
|
1,795
|
|
|
5,296
|
|
|
116
|
Real estate
mortgage
|
|
25,600
|
|
|
11,641
|
|
|
2,186
|
|
|
13,827
|
|
|
106
|
Commercial real estate
|
|
23,445
|
|
|
13,248
|
|
|
8,685
|
|
|
21,933
|
|
|
165
|
Installment and other
consumer
|
|
1,968
|
|
|
-
|
|
|
83
|
|
|
83
|
|
|
20
|
Total
|
$
|
79,725
|
|
$
|
32,824
|
|
$
|
15,423
|
|
$
|
48,247
|
|
$
|
655
|
|
|
(Dollars in thousands)
|
December 31, 2011
|
|
Unpaid principal
|
|
Impaired loans
|
|
Impaired loans
|
|
Total impaired
|
|
Related
|
|
balance
1
|
|
with no allowance
|
|
with allowance
|
|
loan balance
|
|
allowance
|
Commercial
|
$
|
18,736
|
|
$
|
7,750
|
|
$
|
224
|
|
$
|
7,974
|
|
$
|
1
|
Real estate construction
|
|
9,716
|
|
|
5,823
|
|
|
41
|
|
|
5,864
|
|
|
-
|
Real estate
mortgage
|
|
30,732
|
|
|
11,949
|
|
|
6,779
|
|
|
18,728
|
|
|
329
|
Commercial real estate
|
|
25,426
|
|
|
15,070
|
|
|
8,604
|
|
|
23,674
|
|
|
173
|
Installment and other
consumer
|
|
1,812
|
|
|
5
|
|
|
175
|
|
|
180
|
|
|
-
|
Total
|
$
|
86,422
|
|
$
|
40,597
|
|
$
|
15,823
|
|
$
|
56,420
|
|
$
|
503
|
1
The unpaid principal
balance on impaired loans represents the amount owed by the borrower. The
carrying value of impaired loans is lower than the unpaid principal balance due
to charge-offs.
The following table presents the average impaired loan balances and interest
recognized on impaired loans for the periods shown:
(Dollars in thousands)
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
2012
|
|
2011
|
|
2012
|
|
2011
|
|
|
|
|
Interest
|
|
|
|
|
Interest
|
|
|
|
|
Interest
|
|
|
|
|
Interest
|
|
Average
|
|
Recognized
|
|
Average
|
|
Recognized
|
|
Average
|
|
Recognized
|
|
Average
|
|
Recognized
|
|
Impaired
|
|
on Impaired
|
|
Impaired
|
|
on Impaired
|
|
Impaired
|
|
on Impaired
|
|
Impaired
|
|
on Impaired
|
|
Loan Balance
|
|
Loans
|
|
Loan Balance
|
|
Loans
|
|
Loan Balance
|
|
Loans
|
|
Loan Balance
|
|
Loans
|
Commercial
|
$
|
6,660
|
|
$
|
22
|
|
$
|
10,194
|
|
$
|
58
|
|
$
|
6,704
|
|
$
|
56
|
|
$
|
11,287
|
|
$
|
152
|
Real estate construction
|
|
5,557
|
|
|
1
|
|
|
7,112
|
|
|
13
|
|
|
5,634
|
|
|
1
|
|
|
8,947
|
|
|
38
|
Real estate
mortgage
|
|
13,752
|
|
|
46
|
|
|
21,205
|
|
|
139
|
|
|
16,046
|
|
|
148
|
|
|
21,278
|
|
|
437
|
Commercial real estate
|
|
21,672
|
|
|
199
|
|
|
27,273
|
|
|
142
|
|
|
22,809
|
|
|
506
|
|
|
26,225
|
|
|
392
|
Installment and other
consumer
|
|
83
|
|
|
1
|
|
|
50
|
|
|
1
|
|
|
107
|
|
|
4
|
|
|
19
|
|
|
1
|
Total
|
$
|
47,724
|
|
$
|
269
|
|
$
|
65,834
|
|
$
|
353
|
|
$
|
51,300
|
|
$
|
715
|
|
$
|
67,756
|
|
$
|
1,020
|
- 16
-
5.
LOANS AND ALLOWANCE FOR CREDIT LOSSES
The balance of Troubled Debt Restructurings (TDR) at September 30, 2012, was
$32.8 million, down from $37.6 million at December 31, 2011. The following table
presents an analysis of TDRs recorded for the periods ended September 30, 2012,
and September 30, 2011:
(Dollars in thousands)
|
TDRs recorded for the
three months ended
|
|
TDRs recorded in the 12
months prior to September 30, 2012 that
|
|
September 30, 2012
|
|
subsequently defaulted in the three months ended
September 30, 2012
|
|
Number of
|
|
Pre-TDR
outstanding
|
|
Post-TDR
outstanding
|
|
Number of
|
|
Pre-TDR
outstanding
|
|
|
|
loans
|
|
recorded investment
|
|
recorded investment
|
|
loans
|
|
recorded investment
|
|
Amount Defaulted
|
Commercial
|
|
1
|
|
$
|
22
|
|
$
|
22
|
|
-
|
|
$
|
-
|
|
$
|
-
|
Real estate construction
|
|
1
|
|
|
1,795
|
|
|
1,795
|
|
-
|
|
|
-
|
|
|
-
|
Real estate
mortgage
|
|
-
|
|
|
-
|
|
|
-
|
|
-
|
|
|
-
|
|
|
-
|
Commercial real estate
|
|
3
|
|
|
855
|
|
|
855
|
|
-
|
|
|
-
|
|
|
-
|
Consumer loans
|
|
-
|
|
|
-
|
|
|
-
|
|
-
|
|
|
-
|
|
|
-
|
Total
|
|
5
|
|
$
|
2,672
|
|
$
|
2,672
|
|
-
|
|
$
|
-
|
|
$
|
-
|
|
(Dollars in thousands)
|
TDRs recorded for the
three months ended
|
|
TDRs recorded in the 12
months prior to September 30, 2011 that
|
|
September 30, 2011
|
|
subsequently defaulted in the three months ended
September 30, 2011
|
|
Number of
|
|
Pre-TDR
outstanding
|
|
Post-TDR
outstanding
|
|
Number of
|
|
Pre-TDR
outstanding
|
|
|
|
loans
|
|
recorded investment
|
|
recorded investment
|
|
loans
|
|
recorded investment
|
|
Amount Defaulted
|
Commercial
|
|
1
|
|
$
|
95
|
|
$
|
95
|
|
2
|
|
$
|
64
|
|
$
|
33
|
Real estate construction
|
|
-
|
|
|
-
|
|
|
-
|
|
-
|
|
|
-
|
|
|
-
|
Real estate
mortgage
|
|
4
|
|
|
751
|
|
|
745
|
|
1
|
|
|
59
|
|
|
49
|
Commercial real estate
|
|
2
|
|
|
424
|
|
|
421
|
|
2
|
|
|
356
|
|
|
356
|
Consumer loans
|
|
2
|
|
|
138
|
|
|
137
|
|
-
|
|
|
-
|
|
|
-
|
Total
|
|
9
|
|
$
|
1,408
|
|
$
|
1,398
|
|
5
|
|
$
|
479
|
|
$
|
438
|
|
|
(Dollars in thousands)
|
TDRs recorded for the nine
months ended
|
|
TDRs recorded in the 12
months prior to September 30, 2012 that
|
|
September 30, 2012
|
|
subsequently defaulted in the nine months ended September
30, 2012
|
|
Number of
|
|
Pre-TDR
outstanding
|
|
Post-TDR
outstanding
|
|
Number of
|
|
Pre-TDR
outstanding
|
|
|
|
loans
|
|
recorded investment
|
|
recorded investment
|
|
loans
|
|
recorded investment
|
|
Amount Defaulted
|
Commercial
|
|
4
|
|
$
|
711
|
|
$
|
711
|
|
-
|
|
$
|
-
|
|
$
|
-
|
Real estate construction
|
|
1
|
|
|
1,795
|
|
|
1,795
|
|
-
|
|
|
-
|
|
|
-
|
Real estate
mortgage
|
|
-
|
|
|
-
|
|
|
-
|
|
-
|
|
|
-
|
|
|
-
|
Commercial real estate
|
|
3
|
|
|
855
|
|
|
855
|
|
-
|
|
|
-
|
|
|
-
|
Consumer loans
|
|
-
|
|
|
-
|
|
|
-
|
|
-
|
|
|
-
|
|
|
-
|
Total
|
|
8
|
|
$
|
3,361
|
|
$
|
3,361
|
|
-
|
|
$
|
-
|
|
$
|
-
|
|
(Dollars in thousands)
|
TDRs recorded for the nine
months ended
|
|
TDRs recorded in the 12
months prior to September 30, 2011 that
|
|
September 30, 2011
|
|
subsequently defaulted in the nine months ended September
30, 2011
|
|
Number of
|
|
Pre-TDR
outstanding
|
|
Post-TDR
outstanding
|
|
Number of
|
|
Pre-TDR
outstanding
|
|
|
|
loans
|
|
recorded investment
|
|
recorded investment
|
|
loans
|
|
recorded investment
|
|
Amount Defaulted
|
Commercial
|
|
10
|
|
$
|
904
|
|
$
|
874
|
|
2
|
|
$
|
64
|
|
$
|
33
|
Real estate construction
|
|
1
|
|
|
1,008
|
|
|
744
|
|
1
|
|
|
983
|
|
|
983
|
Real estate
mortgage
|
|
9
|
|
|
2,822
|
|
|
2,803
|
|
1
|
|
|
59
|
|
|
49
|
Commercial real estate
|
|
5
|
|
|
1,341
|
|
|
1,334
|
|
2
|
|
|
356
|
|
|
356
|
Consumer loans
|
|
2
|
|
|
138
|
|
|
137
|
|
-
|
|
|
-
|
|
|
-
|
Total
|
|
27
|
|
$
|
6,213
|
|
$
|
5,892
|
|
6
|
|
$
|
1,462
|
|
$
|
1,421
|
TDRs are considered impaired and are
either measured based on the fair value of the collateral less selling costs or
based on net present value methodology. For TDRs that are collateral dependent,
the Company charges off the amount of impairment at the time of impairment,
rather than creating a specific reserve for the impairment
amount.
- 17
-
5.
LOANS AND ALLOWANCE FOR CREDIT LOSSES
The following table presents nonaccrual loans by category as of the dates
shown:
(Dollars in thousands)
|
September 30,
|
|
December 31,
|
|
2012
|
|
2011
|
Commercial
|
$
|
6,643
|
|
$
|
7,750
|
Real estate construction
|
|
3,501
|
|
|
5,823
|
Real estate
mortgage
|
|
9,015
|
|
|
11,949
|
Commercial real estate
|
|
13,248
|
|
|
15,070
|
Installment and other
consumer
|
|
-
|
|
|
5
|
Total
loans on nonaccrual status
|
$
|
32,407
|
|
$
|
40,597
|
The Company uses a risk rating matrix to assign a risk rating to loans not
evaluated on a homogenous pool level. At September 30, 2012, $1.12 billion of
loans were risk rated and $371.7 million were evaluated on a homogeneous pool
basis. Individually risk rated loans are rated on a scale of 1 to 10. A
description of the general characteristics of the 10 risk ratings is as
follows:
-
Ratings 1, 2 and 3 - These ratings include loans to very high credit
quality borrowers of investment or near investment grade. These borrowers have
significant capital strength, moderate leverage, stable earnings and growth,
and readily available financing alternatives. Smaller entities, regardless of
strength, would generally not fit in these ratings. These ratings also include
loans that are collateralized by U. S. Government securities or certificates
of deposits.
-
Rating
4 - These ratings include loans to borrowers of solid credit quality with
moderate risk. Borrowers in these ratings are differentiated from higher
ratings on the basis of size (capital and/or revenue), leverage, asset quality
and the stability of the industry or market area.
-
Ratings 5 and 6 - These ratings include pass rating loans to
borrowers of acceptable credit quality and risk. Such borrowers are
differentiated from Rating 4 in terms of size, secondary sources of repayment
or they are of lesser stature in other key credit metrics in that they may be
over-leveraged, undercapitalized, inconsistent in performance or in an
industry or an economic area that is known to have a higher level of risk,
volatility, or susceptibility to weaknesses in the economy. However, no
material adverse trends are evident with borrowers in these pass
ratings.
-
Rating
7 - This rating includes loans on managements watch list and is intended to
be utilized on a temporary basis for borrowers where a significant
risk-modifying action is anticipated in the near term.
-
Rating
8 - This rating includes Substandard loans, in accordance with regulatory
guidelines, for which the accrual of interest may or may not been
discontinued. By definition under regulatory guidelines, a Substandard loan
has defined weaknesses which make payment default or principal exposure
likely, but not yet certain. Such loans are apt to be dependent upon
collateral liquidation, a secondary source of repayment, or an event outside
of the normal course of business.
-
Rating
9 - This rating includes Doubtful loans in accordance with regulatory
guidelines. Such loans are placed on nonaccrual status and may be dependent
upon collateral having a value that is difficult to determine or upon some
near-term event which lacks certainty.
-
Rating
10 - This rating includes Loss loans in accordance with regulatory
guidelines. Such loans are to be charged-off or charged-down when payment is
acknowledged to be uncertain or when the timing or value of payments cannot be
determined.
Loss is not intended to
imply that the loan or some portion of it will never be paid, nor does it in
any way imply that there has been a forgiveness of debt.
- 18
-
5.
LOANS AND ALLOWANCE FOR CREDIT LOSSES
The Company considers loans assigned a risk rating 8 through 10 to be classified
loans. The following table presents weighted average risk ratings of the loan
portfolio, including classified loans, by category. Weighted average risk
ratings percentages and classified loan totals declined in each loan category,
except for installment and other consumer loans, from December 31, 2011 to
September 30, 2012
(Dollars in thousands)
|
September 30, 2012
|
|
December 31, 2011
|
|
Weighted average
|
|
Classified
|
|
Weighted average
|
|
Classified
|
|
risk rating
|
|
loans
|
|
risk rating
|
|
loans
|
Commercial
|
|
5.76
|
|
$
|
17,617
|
|
|
5.84
|
|
$
|
22,401
|
Real estate construction
|
|
6.51
|
|
|
11,508
|
|
|
6.99
|
|
|
13,159
|
Real estate
mortgage
|
|
6.38
|
|
|
18,504
|
|
|
6.50
|
|
|
24,004
|
Commercial real estate
|
|
5.63
|
|
|
31,360
|
|
|
5.67
|
|
|
35,255
|
Installment and other
consumer
1
|
|
7.89
|
|
|
238
|
|
|
7.87
|
|
|
358
|
Total
|
|
|
|
$
|
79,227
|
|
|
|
|
$
|
95,177
|
|
Total loans risk
rated
|
$
|
1,119,093
|
|
|
|
|
$
|
1,103,713
|
|
|
|
1
Installment and other
consumer loans are primarily evaluated on a homogenous pool level and generally
not individually risk rated unless certain factors are met.
The following table presents homogeneous loans where credit risk is evaluated on
a portfolio basis by category, and includes home equity loans and lines of
credit and certain small business loans. Important credit quality metrics for
this portfolio include balances on nonaccrual and past due status. Total loans
and lines evaluated on a homogeneous pool basis were $371.7 million at September
30, 2012, and $397.6 million at December 31, 2011.
(Dollars in thousands)
|
September 30, 2012
|
|
December 31, 2011
|
|
Current
|
|
Nonaccrual
|
|
30 - 89 days
|
|
Current
|
|
Nonaccrual
|
|
30 - 89 days
|
|
status
|
|
status
|
|
past due
|
|
status
|
|
status
|
|
past due
|
Commercial
|
$
|
42,534
|
|
$
|
19
|
|
$
|
414
|
|
$
|
46,774
|
|
$
|
11
|
|
$
|
112
|
Real estate construction
|
|
-
|
|
|
4
|
|
|
-
|
|
|
-
|
|
|
4
|
|
|
-
|
Real estate
mortgage
|
|
238,733
|
|
|
15
|
|
|
453
|
|
|
254,107
|
|
|
13
|
|
|
1,480
|
Commercial real estate
|
|
77,367
|
|
|
155
|
|
|
86
|
|
|
81,601
|
|
|
1
|
|
|
283
|
Installment and other
consumer
|
|
11,733
|
|
|
1
|
|
|
163
|
|
|
13,146
|
|
|
-
|
|
|
56
|
Total
|
$
|
370,367
|
|
$
|
194
|
|
$
|
1,116
|
|
$
|
395,628
|
|
$
|
29
|
|
$
|
1,931
|
The following tables present summary account activity relating to the allowance
for credit losses by loan category:
(Dollars in thousands)
|
Three months ended September 30, 2012
|
|
|
|
|
|
Real estate
|
|
Real estate
|
|
Commercial
|
|
Installment and
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
construction
|
|
mortgage
|
|
real estate
|
|
other consumer
|
|
Unallocated
|
|
Total
|
Beginning balance June 30,
2012
|
$
|
6,701
|
|
|
$
|
2,466
|
|
|
$
|
8,642
|
|
|
$
|
11,275
|
|
|
$
|
931
|
|
|
$
|
3,885
|
|
|
$
|
33,900
|
|
Provision for credit losses
|
|
(378
|
)
|
|
|
8
|
|
|
|
106
|
|
|
|
(311
|
)
|
|
|
68
|
|
|
|
(86
|
)
|
|
|
(593
|
)
|
Losses charged to the
allowance
|
|
(203
|
)
|
|
|
(150
|
)
|
|
|
(584
|
)
|
|
|
(149
|
)
|
|
|
(230
|
)
|
|
|
-
|
|
|
|
(1,316
|
)
|
Recoveries credited to the
allowance
|
|
101
|
|
|
|
6
|
|
|
|
110
|
|
|
|
23
|
|
|
|
57
|
|
|
|
-
|
|
|
|
297
|
|
Ending balance September
30, 2012
|
$
|
6,221
|
|
|
$
|
2,330
|
|
|
$
|
8,274
|
|
|
$
|
10,838
|
|
|
$
|
826
|
|
|
$
|
3,799
|
|
|
$
|
32,288
|
|
|
|
Nine months ended September 30, 2012
|
|
|
|
|
|
Real estate
|
|
Real estate
|
|
Commercial
|
|
Installment and
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
construction
|
|
mortgage
|
|
real estate
|
|
other consumer
|
|
Unallocated
|
|
Total
|
Beginning balance December
31, 2011
|
$
|
7,746
|
|
|
$
|
2,490
|
|
|
$
|
8,461
|
|
|
$
|
11,833
|
|
|
$
|
1,067
|
|
|
$
|
4,386
|
|
|
$
|
35,983
|
|
Provision for credit losses
|
|
(1,204
|
)
|
|
|
(44
|
)
|
|
|
1,790
|
|
|
|
(1,407
|
)
|
|
|
456
|
|
|
|
(587
|
)
|
|
|
(996
|
)
|
Losses charged to the
allowance
|
|
(1,217
|
)
|
|
|
(152
|
)
|
|
|
(2,298
|
)
|
|
|
(761
|
)
|
|
|
(902
|
)
|
|
|
-
|
|
|
|
(5,330
|
)
|
Recoveries credited to the
allowance
|
|
896
|
|
|
|
36
|
|
|
|
321
|
|
|
|
1,173
|
|
|
|
205
|
|
|
|
-
|
|
|
|
2,631
|
|
Ending balance September
30, 2012
|
$
|
6,221
|
|
|
$
|
2,330
|
|
|
$
|
8,274
|
|
|
$
|
10,838
|
|
|
$
|
826
|
|
|
$
|
3,799
|
|
|
$
|
32,288
|
|
|
Loans valued for
impairment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually
|
$
|
7,108
|
|
|
$
|
5,296
|
|
|
$
|
13,827
|
|
|
$
|
21,933
|
|
|
$
|
83
|
|
|
$
|
-
|
|
|
$
|
48,247
|
|
Collectively
|
|
279,026
|
|
|
|
42,110
|
|
|
|
287,404
|
|
|
|
821,903
|
|
|
|
12,077
|
|
|
|
-
|
|
|
|
1,442,520
|
|
Total
|
$
|
286,134
|
|
|
$
|
47,406
|
|
|
$
|
301,231
|
|
|
$
|
843,836
|
|
|
$
|
12,160
|
|
|
$
|
-
|
|
|
$
|
1,490,767
|
|
- 19
-
5.
LOANS AND ALLOWANCE FOR CREDIT LOSSES
(Dollars in thousands)
|
Three months ended September 30, 2011
|
|
|
|
|
|
Real estate
|
|
Real estate
|
|
Commercial
|
|
Installment and
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
construction
|
|
mortgage
|
|
real estate
|
|
other consumer
|
|
Unallocated
|
|
Total
|
Beginning balance June 30,
2011
|
$
|
7,858
|
|
|
$
|
2,395
|
|
|
$
|
8,740
|
|
|
$
|
13,834
|
|
|
$
|
984
|
|
|
$
|
5,420
|
|
|
$
|
39,231
|
|
Provision for credit losses
|
|
974
|
|
|
|
93
|
|
|
|
667
|
|
|
|
(242
|
)
|
|
|
372
|
|
|
|
(732
|
)
|
|
|
1,132
|
|
Losses charged to the
allowance
|
|
(1,462
|
)
|
|
|
(567
|
)
|
|
|
(804
|
)
|
|
|
(800
|
)
|
|
|
(311
|
)
|
|
|
-
|
|
|
|
(3,944
|
)
|
Recoveries credited to the
allowance
|
|
281
|
|
|
|
182
|
|
|
|
42
|
|
|
|
21
|
|
|
|
71
|
|
|
|
-
|
|
|
|
597
|
|
Ending balance September
30, 2011
|
$
|
7,651
|
|
|
$
|
2,103
|
|
|
$
|
8,645
|
|
|
$
|
12,813
|
|
|
$
|
1,116
|
|
|
$
|
4,688
|
|
|
$
|
37,016
|
|
|
(Dollars in thousands)
|
Nine months ended September 30, 2011
|
|
|
|
|
|
Real estate
|
|
Real estate
|
|
Commercial
|
|
Installment and
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
construction
|
|
mortgage
|
|
real estate
|
|
other consumer
|
|
Unallocated
|
|
Total
|
Beginning balance December
31, 2010
|
$
|
8,541
|
|
|
$
|
4,474
|
|
|
$
|
8,156
|
|
|
$
|
12,462
|
|
|
$
|
1,273
|
|
|
$
|
6,161
|
|
|
$
|
41,067
|
|
Provision for credit losses
|
|
875
|
|
|
|
(749
|
)
|
|
|
5,137
|
|
|
|
2,017
|
|
|
|
827
|
|
|
|
(1,473
|
)
|
|
|
6,634
|
|
Losses charged to the
allowance
|
|
(2,683
|
)
|
|
|
(1,810
|
)
|
|
|
(4,821
|
)
|
|
|
(1,693
|
)
|
|
|
(1,211
|
)
|
|
|
-
|
|
|
|
(12,218
|
)
|
Recoveries credited to the
allowance
|
|
918
|
|
|
|
188
|
|
|
|
173
|
|
|
|
27
|
|
|
|
227
|
|
|
|
-
|
|
|
|
1,533
|
|
Ending balance September
30, 2011
|
$
|
7,651
|
|
|
$
|
2,103
|
|
|
$
|
8,645
|
|
|
$
|
12,813
|
|
|
$
|
1,116
|
|
|
$
|
4,688
|
|
|
$
|
37,016
|
|
|
Loans valued for
impairment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually
|
$
|
10,144
|
|
|
$
|
7,238
|
|
|
$
|
21,616
|
|
|
$
|
27,290
|
|
|
$
|
143
|
|
|
$
|
-
|
|
|
$
|
66,431
|
|
Collectively
|
|
286,191
|
|
|
|
18,788
|
|
|
|
309,174
|
|
|
|
809,462
|
|
|
|
13,578
|
|
|
|
-
|
|
|
|
1,437,193
|
|
Total
|
$
|
296,335
|
|
|
$
|
26,026
|
|
|
$
|
330,790
|
|
|
$
|
836,752
|
|
|
$
|
13,721
|
|
|
$
|
-
|
|
|
$
|
1,503,624
|
|
The decline in the provision for credit losses and the allowance for credit
losses reflected the improving trend in the overall risk profile of the loan
portfolio. The allowance for credit losses at September 30, 2012 declined from
December 31, 2011, also due to lower overall loan balances as well as
adjustments being made to loan category risk rating reserve
percentages.
The following table shows the components of the allowance for credit
losses:
(Dollars in thousands)
|
September 30, 2012
|
|
September 30, 2011
|
Allowance for loan
losses
|
$
|
31,457
|
|
$
|
36,314
|
Reserve
for unfunded commitments
|
|
831
|
|
|
702
|
Total allowance for credit
losses
|
$
|
32,288
|
|
$
|
37,016
|
- 20
-
6. OTHER REAL ESTATE OWNED, NET
The following
tables summarize Other Real Estate Owned (OREO) for the periods shown:
(Dollars in
thousands)
|
Three months ended
|
|
September 30, 2012
|
|
September 30, 2011
|
Balance, beginning of period
|
$
|
25,726
|
|
|
$
|
35,374
|
|
Additions to
OREO
|
|
487
|
|
|
|
1,672
|
|
Disposition of OREO
|
|
(3,788
|
)
|
|
|
(6,116
|
)
|
Valuation
adjustments in the period
|
|
(486
|
)
|
|
|
(696
|
)
|
Total OREO
|
$
|
21,939
|
|
|
$
|
30,234
|
|
|
(Dollars in
thousands)
|
Nine months ended
|
|
September 30, 2012
|
|
September 30, 2011
|
Balance, beginning of period
|
$
|
30,823
|
|
|
$
|
39,459
|
|
Additions to
OREO
|
|
4,601
|
|
|
|
12,421
|
|
Disposition of OREO
|
|
(11,265
|
)
|
|
|
(18,738
|
)
|
Valuation
adjustments in the period
|
|
(2,220
|
)
|
|
|
(2,908
|
)
|
Total OREO
|
$
|
21,939
|
|
|
$
|
30,234
|
|
|
The following tables summarize
the OREO valuation allowance for the periods shown:
|
|
(Dollars in
thousands)
|
Three months ended
|
|
September 30, 2012
|
|
September 30, 2011
|
Balance, beginning of period
|
$
|
8,822
|
|
|
$
|
7,555
|
|
Valuation
adjustments in the period
|
|
486
|
|
|
|
696
|
|
Deductions from the valuation allowance due to
disposition
|
|
(1,181
|
)
|
|
|
(944
|
)
|
Total OREO
valuation allowance
|
$
|
8,127
|
|
|
$
|
7,307
|
|
|
(Dollars in
thousands)
|
Nine months ended
|
|
September 30, 2012
|
|
September 30, 2011
|
Balance, beginning of period
|
$
|
8,151
|
|
|
$
|
7,584
|
|
Valuation
adjustments in the period
|
|
2,220
|
|
|
|
2,908
|
|
Deductions from the valuation allowance due to
disposition
|
|
(2,244
|
)
|
|
|
(3,185
|
)
|
Total OREO
valuation allowance
|
$
|
8,127
|
|
|
$
|
7,307
|
|
- 21
-
7. EARNINGS PER SHARE
Earnings per
share is calculated under the two-class method. The two-class method is an
earnings allocation formula that determines earnings per share for each class of
common stock and participating security according to dividends declared (or
accumulated) and participation rights in undistributed earnings. A participating
security is an instrument that may participate in undistributed earnings with
common stock. The Company has issued restricted stock and preferred stock that
qualifies as a participating security. Basic earnings per share is computed by
dividing net income available to common shareholders by the weighted average
number of shares of common stock outstanding during the period.
Diluted earnings per share is computed in a similar manner to basic
earnings per share except that the denominator of weighted average common shares
is increased to include the number of additional common shares that would have
been outstanding if shares issuable upon exercise of options and warrants were
included in earnings per share. In addition, under the two-class method, net
income, the numerator, is adjusted to reflect the allocation of net income to
participating securities such as preferred stock and non-vested restricted
stock. For the diluted earnings per share computation, the treasury stock method
is applied and compared to the two-class method and whichever method results in
a more dilutive impact is utilized to calculate diluted earnings per share. The
two-class method was utilized to calculate diluted earnings per share for the
three and nine months ended September 30, 2012.
The following table reconciles the numerator and denominator of the basic
and diluted earnings per share computations for the periods ended September 30,
2012, and 2011:
(Dollars and
shares in thousands, except per share amounts)
|
Three months ended
|
|
September 30, 2012
|
|
September 30, 2011
|
Net income
|
$
|
5,944
|
|
$
|
6,276
|
Less: Net income
allocated to participating securities-basic:
|
|
|
|
|
|
Preferred stock
|
|
351
|
|
|
371
|
Non-vested restricted
stock
|
|
53
|
|
|
87
|
Net income available to common stock holders-basic
|
|
5,540
|
|
|
5,818
|
Add: Net income
allocated per two-class method-diluted:
|
|
|
|
|
|
Stock options and Class C
warrants
|
|
19
|
|
|
18
|
Net income
available to common stockholders-diluted
|
$
|
5,559
|
|
$
|
5,836
|
|
Weighted average common shares outstanding -basic
|
|
19,110
|
|
|
19,029
|
Common stock
equivalents from:
|
|
|
|
|
|
Stock options
|
|
26
|
|
|
18
|
Class C warrants
|
|
1,208
|
|
|
833
|
Weighted average common shares outstanding -diluted
|
|
20,344
|
|
|
19,880
|
|
Basic earnings per share
|
$
|
0.29
|
|
$
|
0.31
|
Diluted earnings
per share
|
$
|
0.27
|
|
$
|
0.29
|
|
Common stock equivalent shares excluded due to anti-dilutive
effect
|
|
144
|
|
|
233
|
|
(Dollars and
shares in thousands, except per share amounts)
|
Nine months ended
|
|
September 30, 2012
|
|
September 30, 2011
|
Net income
|
$
|
17,767
|
|
$
|
16,015
|
Less: Net income
allocated to participating securities-basic:
|
|
|
|
|
|
Preferred stock
|
|
1,051
|
|
|
947
|
Non-vested restricted
stock
|
|
186
|
|
|
232
|
Net income available to common stock holders-basic
|
|
16,530
|
|
|
14,836
|
Add: Net income
allocated per two-class method-diluted:
|
|
|
|
|
|
Stock options and Class C
warrants
|
|
62
|
|
|
52
|
Net income
available to common stockholders-diluted
|
$
|
16,592
|
|
$
|
14,888
|
|
Weighted average common shares outstanding -basic
|
|
19,077
|
|
|
18,999
|
Common stock
equivalents from:
|
|
|
|
|
|
Stock options
|
|
24
|
|
|
21
|
Class C warrants
|
|
1,124
|
|
|
931
|
Weighted average common shares outstanding -diluted
|
|
20,225
|
|
|
19,951
|
|
Basic earnings per share
|
$
|
0.87
|
|
$
|
0.78
|
Diluted earnings
per share
|
$
|
0.82
|
|
$
|
0.75
|
|
Common stock equivalent shares excluded due to anti-dilutive
effect
|
|
165
|
|
|
203
|
- 22 -
8. COMMITMENTS AND CONTINGENT
LIABILITIES
The Bank has
financial instruments with off balance sheet risk in the normal course of
business to meet the financing needs of its customers. These financial
instruments include commitments to extend credit and standby letters of credit.
Those instruments involve, to varying degrees, elements of credit and interest
rate risk in excess of the amount recognized in the Consolidated Balance Sheets.
The Banks exposure to credit loss in the event of nonperformance by the
other party to the financial instrument for commitments to extend credit and
standby letters of credit is represented by the contractual or notional amount
of those instruments. The Bank uses the same credit policies in making
commitments and conditional obligations as for on-balance sheet instruments.
The following table summarizes the Banks off balance sheet unfunded
commitments as of the dates shown:
|
Contract or
|
|
Contract or
|
|
Notional Amount
|
|
Notional Amount
|
(Dollars in
thousands)
|
September 30, 2012
|
|
December 31, 2011
|
Financial instruments whose contract amounts represent credit
risk:
|
|
|
|
|
|
Commitments to
extend credit in the form of loans
|
|
|
|
|
|
Commercial
|
$
|
253,955
|
|
$
|
251,105
|
Real estate
construction
|
|
36,178
|
|
|
23,932
|
Real estate mortgage
|
|
|
|
|
|
Mortgage
|
|
3,400
|
|
|
3,419
|
Home equity loans and lines of credit
|
|
138,980
|
|
|
150,196
|
Total real estate mortgage
loans
|
|
142,380
|
|
|
153,615
|
Commercial real
estate
|
|
9,829
|
|
|
10,993
|
Installment and
consumer
|
|
9,569
|
|
|
9,907
|
Other
|
|
23,952
|
|
|
12,803
|
Standby letters
of credit and financial guarantees
|
|
8,278
|
|
|
8,349
|
Account overdraft protection instruments
|
|
77,214
|
|
|
103,642
|
|
Total
|
$
|
561,355
|
|
$
|
574,346
|
Commitments to extend credit are agreements to lend to a customer as long
as there is no violation of any condition established in the underlying
contracts. Commitments generally have fixed expiration dates or other
termination clauses and may require payment of a fee. Many of the commitments
may expire without being drawn upon; therefore, total commitment amounts do not
necessarily represent future cash requirements. Each customers creditworthiness
is evaluated on a case-by-case basis. The amount of collateral obtained, if
deemed necessary upon extension of credit, is based on the Banks credit
evaluation of the customer. Collateral held varies, but may include real
property, accounts receivable, inventory, property, plant and equipment, and
income-producing commercial properties. The Company maintains a reserve for
unfunded commitments as a component of the allowance for credit losses.
Standby letters of credit are conditional commitments issued to support a
customers performance or payment obligation to a third party. The credit risk
involved in issuing letters of credit is essentially the same as that involved
in extending loan facilities to customers.
Bancorp is periodically party to litigation arising in the ordinary
course of business. Based on information currently known to management, although
there are uncertainties inherent in litigation, Bancorp does not believe there
is any legal action to which Bancorp or any of its subsidiaries is a party that,
individually or in the aggregate, will have a materially adverse effect on
Bancorps financial condition and results of operations, cash flows, or
liquidity.
- 23 -
9. SEGMENT AND RELATED INFORMATION
Bancorp
accounts for intercompany fees and services at fair value according to
regulatory requirements for the service provided. Intercompany items relate
primarily to the provision of accounting, human resources, data processing and
marketing services.
Summarized financial information concerning Bancorps reportable segments
and the reconciliation to Bancorps consolidated results are shown in the
following table. The Other column includes Bancorps trust operations and
corporate-related items, including interest expense related to trust preferred
securities. Investment in subsidiaries is netted out of the presentations below.
The Intersegment column identifies the intersegment activities of revenues,
expenses and other assets between the Banking and Other segments.
(Dollars in
thousands)
|
Three months ended September 30,
2012
|
|
Banking
|
|
Other
|
|
Intersegment
|
|
Consolidated
|
Interest income
|
$
|
22,718
|
|
|
$
|
8
|
|
|
$
|
-
|
|
|
$
|
22,726
|
|
Interest
expense
|
|
736
|
|
|
|
303
|
|
|
|
-
|
|
|
|
1,039
|
|
Net interest income
(expense)
|
|
21,982
|
|
|
|
(295
|
)
|
|
|
-
|
|
|
|
21,687
|
|
Provision for
credit losses
|
|
(593
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(593
|
)
|
Noninterest income
|
|
7,697
|
|
|
|
742
|
|
|
|
(267
|
)
|
|
|
8,172
|
|
Noninterest
expense
|
|
20,657
|
|
|
|
917
|
|
|
|
(267
|
)
|
|
|
21,307
|
|
Income (loss) before income
taxes
|
|
9,615
|
|
|
|
(470
|
)
|
|
|
-
|
|
|
|
9,145
|
|
Provision
(benefit) for income taxes
|
|
3,384
|
|
|
|
(183
|
)
|
|
|
-
|
|
|
|
3,201
|
|
Net income (loss)
|
$
|
6,231
|
|
|
$
|
(287
|
)
|
|
$
|
-
|
|
|
$
|
5,944
|
|
|
Depreciation and amortization
|
$
|
2,182
|
|
|
$
|
7
|
|
|
$
|
-
|
|
|
$
|
2,189
|
|
Assets
|
$
|
2,470,331
|
|
|
$
|
15,001
|
|
|
$
|
(9,352
|
)
|
|
$
|
2,475,980
|
|
Loans, net
|
$
|
1,459,310
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
1,459,310
|
|
Deposits
|
$
|
1,938,644
|
|
|
$
|
-
|
|
|
$
|
(9,352
|
)
|
|
$
|
1,929,292
|
|
Equity
|
$
|
374,769
|
|
|
$
|
(38,773
|
)
|
|
$
|
-
|
|
|
$
|
335,996
|
|
(Dollars in
thousands)
|
Three months ended September 30,
2011
|
|
Banking
|
|
Other
|
|
Intersegment
|
|
Consolidated
|
Interest income
|
$
|
24,711
|
|
|
$
|
10
|
|
|
$
|
-
|
|
|
$
|
24,721
|
|
Interest
expense
|
|
5,104
|
|
|
|
276
|
|
|
|
-
|
|
|
|
5,380
|
|
Net interest income
(expense)
|
|
19,607
|
|
|
|
(266
|
)
|
|
|
-
|
|
|
|
19,341
|
|
Provision for
credit losses
|
|
1,132
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,132
|
|
Noninterest income
|
|
7,931
|
|
|
|
754
|
|
|
|
(271
|
)
|
|
|
8,414
|
|
Noninterest
expense
|
|
21,982
|
|
|
|
909
|
|
|
|
(271
|
)
|
|
|
22,620
|
|
Income (loss) before income
taxes
|
|
4,424
|
|
|
|
(421
|
)
|
|
|
-
|
|
|
|
4,003
|
|
Provision
(benefit) for income taxes
|
|
(2,109
|
)
|
|
|
(164
|
)
|
|
|
-
|
|
|
|
(2,273
|
)
|
Net income (loss)
|
$
|
6,533
|
|
|
$
|
(257
|
)
|
|
$
|
-
|
|
|
$
|
6,276
|
|
|
Depreciation and amortization
|
$
|
2,349
|
|
|
$
|
8
|
|
|
$
|
-
|
|
|
$
|
2,357
|
|
Assets
|
$
|
2,516,335
|
|
|
$
|
15,227
|
|
|
$
|
(10,315
|
)
|
|
$
|
2,521,247
|
|
Loans, net
|
$
|
1,467,310
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
1,467,310
|
|
Deposits
|
$
|
2,000,518
|
|
|
$
|
-
|
|
|
$
|
(9,740
|
)
|
|
$
|
1,990,778
|
|
Equity
|
$
|
334,746
|
|
|
$
|
(37,879
|
)
|
|
$
|
-
|
|
|
$
|
296,867
|
|
- 24 -
9. SEGMENT AND RELATED INFORMATION
(Dollars in
thousands)
|
Nine months ended September 30,
2012
|
|
Banking
|
|
Other
|
|
Intersegment
|
|
Consolidated
|
Interest income
|
$
|
68,875
|
|
|
$
|
25
|
|
|
$
|
-
|
|
|
$
|
68,900
|
|
Interest
expense
|
|
2,393
|
|
|
|
914
|
|
|
|
-
|
|
|
|
3,307
|
|
Net interest income
(expense)
|
|
66,482
|
|
|
|
(889
|
)
|
|
|
-
|
|
|
|
65,593
|
|
Provision for
credit losses
|
|
(996
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(996
|
)
|
Noninterest income
|
|
23,068
|
|
|
|
2,287
|
|
|
|
(802
|
)
|
|
|
24,553
|
|
Noninterest
expense
|
|
61,840
|
|
|
|
2,770
|
|
|
|
(802
|
)
|
|
|
63,808
|
|
Income (loss) before income
taxes
|
|
28,706
|
|
|
|
(1,372
|
)
|
|
|
-
|
|
|
|
27,334
|
|
Provision
(benefit) for income taxes
|
|
10,102
|
|
|
|
(535
|
)
|
|
|
-
|
|
|
|
9,567
|
|
Net income (loss)
|
$
|
18,604
|
|
|
$
|
(837
|
)
|
|
$
|
-
|
|
|
$
|
17,767
|
|
|
Depreciation and amortization
|
$
|
6,397
|
|
|
$
|
21
|
|
|
$
|
-
|
|
|
$
|
6,418
|
|
Assets
|
$
|
2,470,331
|
|
|
$
|
15,001
|
|
|
$
|
(9,352
|
)
|
|
$
|
2,475,980
|
|
Loans, net
|
$
|
1,459,310
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
1,459,310
|
|
Deposits
|
$
|
1,938,644
|
|
|
$
|
-
|
|
|
$
|
(9,352
|
)
|
|
$
|
1,929,292
|
|
Equity
|
$
|
374,769
|
|
|
$
|
(38,773
|
)
|
|
$
|
-
|
|
|
$
|
335,996
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in
thousands)
|
Nine months ended September 30,
2011
|
|
Banking
|
|
Other
|
|
Intersegment
|
|
Consolidated
|
Interest income
|
$
|
74,710
|
|
|
$
|
33
|
|
|
$
|
-
|
|
|
$
|
74,743
|
|
Interest
expense
|
|
11,044
|
|
|
|
885
|
|
|
|
-
|
|
|
|
11,929
|
|
Net interest income
(expense)
|
|
63,666
|
|
|
|
(852
|
)
|
|
|
-
|
|
|
|
62,814
|
|
Provision for
credit losses
|
|
6,634
|
|
|
|
-
|
|
|
|
-
|
|
|
|
6,634
|
|
Noninterest income
|
|
23,843
|
|
|
|
2,369
|
|
|
|
(812
|
)
|
|
|
25,400
|
|
Noninterest
expense
|
|
66,162
|
|
|
|
2,781
|
|
|
|
(812
|
)
|
|
|
68,131
|
|
Income (loss) before income taxes
|
|
14,713
|
|
|
|
(1,264
|
)
|
|
|
-
|
|
|
|
13,449
|
|
Provision
(benefit) for income taxes
|
|
(2,073
|
)
|
|
|
(493
|
)
|
|
|
-
|
|
|
|
(2,566
|
)
|
Net income (loss)
|
$
|
16,786
|
|
|
$
|
(771
|
)
|
|
$
|
-
|
|
|
$
|
16,015
|
|
|
Depreciation and amortization
|
$
|
6,367
|
|
|
$
|
22
|
|
|
$
|
-
|
|
|
$
|
6,389
|
|
Assets
|
$
|
2,516,335
|
|
|
$
|
15,227
|
|
|
$
|
(10,315
|
)
|
|
$
|
2,521,247
|
|
Loans, net
|
$
|
1,467,310
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
1,467,310
|
|
Deposits
|
$
|
2,000,518
|
|
|
$
|
-
|
|
|
$
|
(9,740
|
)
|
|
$
|
1,990,778
|
|
Equity
|
$
|
334,746
|
|
|
$
|
(37,879
|
)
|
|
$
|
-
|
|
|
$
|
296,867
|
|
- 25 -
10. FAIR VALUE MEASUREMENT AND FAIR
VALUES OF FINANCIAL INSTRUMENTS
Bancorp
measures or discloses certain financial assets and liabilities at fair value in
accordance with GAAP, which defines fair value as the price that would be
received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date.
Bancorp has estimated fair value based on quoted market prices where
available. In cases where quoted market prices were not available, fair values
were based on the quoted market price of a financial instrument with similar
characteristics, the present value of expected future cash flows or other
valuation techniques that utilize assumptions which are subjective and
judgmental in nature. Subjective factors include, among other things, estimates
of cash flows, the timing of cash flows, risk and credit quality
characteristics, interest rates and liquidity premiums or discounts.
Accordingly, the results may not be precise, and modifying the assumptions may
significantly affect the values derived. Further, fair values may or may not be
realized if a significant portion of the financial instruments were sold in a
bulk transaction or a forced liquidation. Therefore, any aggregate unrealized
gains or losses should not be interpreted as a forecast of future earnings or
cash flows. Furthermore, the fair values disclosed should not be interpreted as
the aggregate current value of Bancorp.
GAAP established a fair value hierarchy which prioritizes the inputs to
valuation techniques used to measure fair value into three broad levels. The
fair value hierarchy gives the highest priority to quoted prices in active
markets for identical assets or liabilities (Level 1) and the lowest priority to
unobservable inputs (Level 3). A financial instruments categorization within
the fair value hierarchy is based upon the lowest level of input that is
significant to the instruments fair value measurement. The three levels within
the fair value hierarchy are described as follows:
-
Level
1 - Quoted prices in active markets for identical assets utilizing inputs that
are quoted unadjusted prices in active markets for identical assets that the
Company has the ability to access at the measurement date. An active market
for the asset is a market in which transactions for the asset or liability
occur with sufficient frequency and volume to provide pricing information on
an ongoing basis.
-
Level 2 - Other observable inputs
that reflect the assumptions market participants would use in pricing the
asset or liability developed based on market data obtained from sources
independent of the reporting entity including quoted prices for similar
assets, quoted prices for securities in inactive markets and inputs derived
principally from or corroborated by observable market data by correlation or
other means.
-
Level 3 - Significant unobservable
inputs that reflect the reporting entitys own estimates about the assumptions
market participants would use in pricing the asset or liability developed
based on the best information available in the circumstances.
The estimated fair values of financial
instruments and respective level classifications at September 30, 2012, are as
follows:
|
|
|
|
|
|
|
Fair value measurements
using
|
|
|
|
|
|
|
|
Quoted prices in
|
|
|
|
|
Significant
|
|
|
|
|
|
|
|
active markets for
|
|
Other
observable
|
|
unobservable
|
(Dollars in
thousands)
|
|
|
|
|
|
|
identical assets
|
|
inputs
|
|
inputs
|
|
Carrying Value
|
|
Fair Value
|
|
(Level 1)
|
|
(Level 2)
|
|
(Level 3)
|
FINANCIAL ASSETS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash
equivalents
|
$
|
101,335
|
|
$
|
101,335
|
|
$
|
101,335
|
|
$
|
-
|
|
$
|
-
|
Trading securities
|
|
853
|
|
|
853
|
|
|
853
|
|
|
-
|
|
|
-
|
Investment
securities
|
|
792,657
|
|
|
792,657
|
|
|
1,990
|
|
|
781,648
|
|
|
9,019
|
Federal Home Loan Bank stock
|
|
12,040
|
|
|
12,040
|
|
|
-
|
|
|
12,040
|
|
|
-
|
Loans held for
sale
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
Net loans (net of allowance for loan losses)
|
|
1,459,310
|
|
|
1,391,543
|
|
|
-
|
|
|
-
|
|
|
1,391,543
|
Bank owned life
insurance
|
|
26,895
|
|
|
26,895
|
|
|
-
|
|
|
26,895
|
|
|
-
|
|
FINANCIAL LIABILITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
$
|
1,929,292
|
|
$
|
1,929,366
|
|
$
|
-
|
|
$
|
1,929,366
|
|
$
|
-
|
Short-term borrowings
|
|
35,000
|
|
|
35,000
|
|
|
-
|
|
|
35,000
|
|
|
-
|
Long-term
borrowings
|
|
92,900
|
|
|
93,517
|
|
|
-
|
|
|
93,517
|
|
|
-
|
|
Junior subordinated debentures-variable
|
|
51,000
|
|
|
27,390
|
|
|
-
|
|
|
27,390
|
|
|
-
|
- 26 -
10. FAIR VALUE MEASUREMENT AND FAIR
VALUES OF FINANCIAL INSTRUMENTS
The estimated
fair values of financial instruments at December 31, 2011, are as follows:
(Dollars in
thousands)
|
Carrying Value
|
|
Fair Value
|
FINANCIAL ASSETS:
|
|
|
|
|
|
Cash and cash
equivalents
|
$
|
92,227
|
|
$
|
92,227
|
Trading securities
|
|
747
|
|
|
747
|
Investment
securities available for sale
|
|
729,844
|
|
|
729,844
|
Federal Home Loan Bank stock
|
|
12,148
|
|
|
12,148
|
Net loans (net
of allowance for loan losses
|
|
|
|
|
|
and including loans held for sale)
|
|
1,469,370
|
|
|
1,394,586
|
Bank owned life
insurance
|
|
26,228
|
|
|
26,228
|
|
FINANCIAL LIABILITIES:
|
|
|
|
|
|
Deposits
|
$
|
1,915,569
|
|
$
|
1,916,030
|
Long-term borrowings
|
|
120,000
|
|
|
120,032
|
|
Junior subordinated debentures-variable
|
|
51,000
|
|
|
27,350
|
The Companys Asset/Liability Management Committee (ALCO) oversees the
banks valuation process and reports such valuations to the Loan, Investment
& ALCO Committee of the Board of Directors. The following methods and
assumptions were used to estimate the fair value of each class of financial
instruments for which it is practicable to estimate that value:
Cash and
cash equivalents
- The carrying amount is a
reasonable estimate of fair value.
Trading securities
-
Trading securities held at September 30, 2012, are recorded at
fair value on a recurring basis and related solely to bonds, equity securities
and mutual funds held in a Rabbi Trust for benefit of the Companys deferred
compensation plans. Fair values for trading securities are based on quoted
market prices.
Investment securities
-
For substantially all available for sale investment securities within the
categories U.S. Treasuries, U.S Government agencies, mortgage-backed,
obligations of state and political subdivisions, and equity investments and
other securities held for investment purposes, fair values are based on
unadjusted, quoted market prices or dealer quotes if available. When quoted
market prices are not readily accessible or available, alternative approaches,
such as matrix or model pricing or indicators from market makers, are used. If a
quoted market price is not available due to illiquidity, fair value is estimated
using quoted market prices for similar securities or other pricing models.
Securities measured with these valuation techniques are generally classified as
Level 2 of the hierarchy.
Level 3 investment securities measured on a recurring basis consist of
pooled trust preferred securities. The fair values of these securities were
estimated using discounted expected cash flows. The fair value for these
securities used inputs for base case default, recovery and prepayment rates to
estimate the probable cash flows for the security. The estimated cash flows were
discounted using a rate for comparably rated securities and adjusted for an
additional liquidity premium.
Federal Home Loan Bank stock
FHLB stock is carried at cost which approximates fair value and equals
its par value because the shares can only be redeemed with the FHLB at par.
- 27 -
10. FAIR VALUE MEASUREMENT AND FAIR
VALUES OF FINANCIAL INSTRUMENTS
Loans held
for sale
-
Loans held for sale includes
mortgage loans that are carried at the lower of cost or market value. The fair
value of loans held for sale is based on prices from current offerings in
secondary markets. Fair value generally approximates cost because of the short
duration of these assets on the Companys balance sheet.
Loans
- The fair value of
loans disclosed and not measured on a recurring or nonrecurring basis is
estimated by discounting the future cash flows using the current rate at which
similar loans would be made to borrowers with similar credit ratings and for the
same remaining maturities. These estimates differentiate loans based on their
financial characteristics such as loan category, pricing features, and remaining
maturity. Prepayment and credit loss estimates are also incorporated into loan
fair value estimates as well as an additional liquidity discount to more closely
align the fair value with observed market prices.
Loans that are deemed impaired are measured on a nonrecurring basis and
based on the present value of expected future cash flows discounted at the
loans effective interest rate. Loans may also, as a practical expedient, be
measured at the loans observable market price or the fair market value of the
collateral less selling costs if the loan is collateral dependent.
Bank owned life insurance
Bank owned life insurance is carried at the cash surrender value of all
policies, which approximates fair value.
Other real estate owned
- Management obtains
third party appraisals as well as independent fair market value assessments from
realtors or persons involved in selling OREO in determining the fair value of
particular properties. Accordingly, the valuation of OREO is subject to
significant external and internal judgment. Management reviews OREO at least
annually and obtains periodic appraisals to determine whether the property
continues to be carried at the lower of its recorded book value or fair value
less estimated selling costs.
Deposit liabilities
- The
fair value of demand deposits, savings accounts and other deposits is the amount
payable on demand at the reporting date. The fair value of time deposits is
estimated using the rates currently offered for deposits of similar remaining
maturities.
Long-term borrowings
-
The fair value of the long-term borrowings is estimated by discounting the
future cash flows using the current rate at which similar borrowings with
similar remaining maturities could be made.
Junior subordinated debentures
- The fair value of the variable rate junior subordinated debentures and
trust preferred securities approximates the pricing of a preferred security at
current market prices.
Commitments to extend credit, standby letters of credit and
financial guarantees
- The majority of
commitments to extend credit carry current market interest rates if converted to
loans.
- 28 -
10. FAIR VALUE MEASUREMENT AND FAIR
VALUES OF FINANCIAL INSTRUMENTS
The tables below present fair value information on certain assets broken
down by recurring or nonrecurring measurement status for the periods shown.
Recurring assets are initially measured at fair value and are required to be
reflected at fair value in the financial statements at each reporting date.
Assets measured on a nonrecurring basis are assets that due to an event or
circumstance were required to be re-measured at fair value after initial
recognition in the financial statements at some time during the reporting
period.
Certain assets, such as loans held for sale, loans measured for
impairment, and OREO, are measured at fair value on a nonrecurring basis after
initial recognition. As of September 30, 2012, loans amounting to $48.2 million
in Bancorps loan portfolio were deemed impaired. In addition, during the third
quarter, certain OREO properties were written down by a total of $.5 million to
reflect additional decreases in estimated fair market value subsequent to the
time such properties were placed into OREO.
|
|
|
|
Fair value measurements at September 30,
2012, using
|
|
|
|
|
|
|
|
Quoted prices in active
|
|
|
|
|
|
|
|
|
|
|
|
|
|
markets for identical
|
|
Other
observable
|
|
Significant
|
|
|
(Dollars in
thousands)
|
Fair
Value
|
|
assets
|
|
inputs
|
|
unobservable inputs
|
|
Impairment
|
|
September 30, 2012
|
|
(Level 1)
|
|
(Level 2)
|
|
(Level 3)
|
|
recognized
|
Recurring fair value measurements:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading
securities
|
$
|
853
|
|
$
|
853
|
|
$
|
-
|
|
$
|
-
|
|
|
|
Available for sale securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury
securities
|
|
200
|
|
|
-
|
|
|
200
|
|
|
-
|
|
|
|
U.S. Government agency
securities
|
|
230,360
|
|
|
-
|
|
|
230,360
|
|
|
-
|
|
|
|
Corporate securities
|
|
9,019
|
|
|
-
|
|
|
-
|
|
|
9,019
|
|
|
|
Mortgage-backed
securities
|
|
461,077
|
|
|
-
|
|
|
461,077
|
|
|
-
|
|
|
|
Obligations of state and
political subdivisions
|
|
80,116
|
|
|
-
|
|
|
80,116
|
|
|
-
|
|
|
|
Equity investments and other
securities
|
|
11,885
|
|
|
1,990
|
|
|
9,895
|
|
|
-
|
|
|
|
Total recurring
assets measured at fair value
|
$
|
793,510
|
|
$
|
2,843
|
|
$
|
781,648
|
|
$
|
9,019
|
|
|
|
|
Nonrecurring fair value measurements
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
for the three months
ending:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans measured for
impairment
1
|
$
|
3,972
|
|
$
|
-
|
|
$
|
-
|
|
$
|
3,972
|
|
$
|
1,316
|
OREO
1
|
|
4,231
|
|
|
-
|
|
|
-
|
|
|
4,231
|
|
|
486
|
Total nonrecurring
fair value measurements
|
$
|
8,203
|
|
$
|
-
|
|
$
|
-
|
|
$
|
8,203
|
|
$
|
1,802
|
|
Nonrecurring fair value measurements
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
for the nine months
ending:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans measured for
impairment
1
|
$
|
15,901
|
|
$
|
-
|
|
$
|
-
|
|
$
|
15,901
|
|
$
|
5,330
|
OREO
1
|
|
31,345
|
|
|
-
|
|
|
-
|
|
|
31,345
|
|
|
2,220
|
Total nonrecurring
fair value measurements
|
$
|
47,246
|
|
$
|
-
|
|
$
|
-
|
|
$
|
47,246
|
|
$
|
7,550
|
1
Fair value amounts exclude
the estimated selling costs of impaired loan collateral and OREO
properties.
The impairment recognized on impaired
loans disclosed above represents the amount of the specific reserve and/or
charge-offs recognized during the period applicable to loans held at period end.
The amount of the specific reserve is included in the allowance for loan and
lease losses. The losses on OREO disclosed above represent the write-downs taken
at foreclosure that were charged to the allowance for loan and lease losses, as
well as subsequent write-downs from updated appraisals that were charged to loss
on OREO.
- 29 -
10. FAIR VALUE MEASUREMENT AND FAIR
VALUES OF FINANCIAL INSTRUMENTS
|
|
|
|
Fair value measurements at December 31,
2011, using
|
|
|
|
|
|
|
|
Quoted prices in active
|
|
|
|
|
|
|
|
|
|
|
|
|
|
markets for identical
|
|
Other
observable
|
|
Significant
|
|
|
(Dollars in
thousands)
|
Fair
Value
|
|
assets
|
|
inputs
|
|
unobservable inputs
|
|
Impairment
|
|
December 31, 2011
|
|
(Level 1)
|
|
(Level 2)
|
|
(Level 3)
|
|
recognized
|
Recurring fair value measurements:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading
securities
|
$
|
747
|
|
$
|
747
|
|
$
|
-
|
|
$
|
-
|
|
|
|
Available for sale securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury
securities
|
|
203
|
|
|
-
|
|
|
203
|
|
|
-
|
|
|
|
U.S. Government agency
securities
|
|
219,631
|
|
|
-
|
|
|
219,631
|
|
|
-
|
|
|
|
Corporate securities
|
|
8,507
|
|
|
-
|
|
|
-
|
|
|
8,507
|
|
|
|
Mortgage-backed
securities
|
|
428,725
|
|
|
-
|
|
|
428,725
|
|
|
-
|
|
|
|
Obligations of state and
political subdivisions
|
|
60,732
|
|
|
-
|
|
|
60,732
|
|
|
-
|
|
|
|
Equity investments and other
securities
|
|
12,046
|
|
|
1,980
|
|
|
10,066
|
|
|
-
|
|
|
|
Total recurring
assets measured at fair value
|
$
|
730,591
|
|
$
|
2,727
|
|
$
|
719,357
|
|
$
|
8,507
|
|
|
|
|
Nonrecurring fair value measurements:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans measured for
impairment
1
|
$
|
68,466
|
|
$
|
-
|
|
$
|
-
|
|
$
|
68,466
|
|
$
|
15,410
|
OREO
1
|
|
60,491
|
|
|
-
|
|
|
-
|
|
|
60,491
|
|
|
4,832
|
Total nonrecurring
fair value measurements
|
$
|
128,957
|
|
$
|
-
|
|
$
|
-
|
|
$
|
128,957
|
|
$
|
20,242
|
1
Fair value amounts exclude
the estimated selling costs of impaired loan collateral and OREO
properties.
- 30 -
10. FAIR VALUE MEASUREMENT AND FAIR
VALUES OF FINANCIAL INSTRUMENTS
The Company
made no transfers between hierarchy levels in the third quarter of 2012. It is
the Companys policy to recognize hierarchy level changes as of the end of the
reporting period. During second quarter 2011, the Company transferred $2.0
million in equity investments and other securities from a Level 2 instrument to
a Level 1 instrument. In addition, the Company had no material changes in
valuation techniques for recurring and nonrecurring assets measured at fair
value in the quarter ended September 30, 2012.
The following table represents a reconciliation of Level 3 instruments
for assets that are measured at fair value on a recurring basis for the three
and nine months ended September 30, 2012, and 2011:
|
|
Three months ended September 30,
2012
|
|
|
|
|
|
|
|
|
|
Reclassification of
|
|
|
|
|
|
|
|
|
|
|
|
Gains (losses)
|
|
losses from
|
|
|
|
|
|
|
|
|
|
|
|
included in other
|
|
adjustment for
|
|
Purchases,
|
|
|
|
|
|
Balance
|
|
comprehensive
|
|
impairment of
|
|
Issuances, and
|
|
Balance
|
(Dollars in thousands)
|
|
June 30,
2012
|
|
income
|
|
securities
|
|
Settlements
|
|
September 30,
2012
|
Corporate securities
|
|
$
|
8,378
|
|
$
|
641
|
|
|
$
|
-
|
|
$
|
-
|
|
$
|
9,019
|
Fair
value
|
|
$
|
8,378
|
|
$
|
641
|
|
|
$
|
-
|
|
$
|
-
|
|
$
|
9,019
|
|
|
|
Nine months ended September 30,
2012
|
|
|
|
|
|
|
|
|
|
Reclassification of
|
|
|
|
|
|
|
|
|
|
|
|
Gains (losses)
|
|
losses from
|
|
|
|
|
|
|
|
|
|
|
|
included in other
|
|
adjustment for
|
|
Purchases,
|
|
|
|
|
|
Balance
|
|
comprehensive
|
|
impairment of
|
|
Issuances, and
|
|
Balance
|
(Dollars in thousands)
|
|
January 1,
2012
|
|
income
|
|
securities
|
|
Settlements
|
|
September 30,
2012
|
Corporate securities
|
|
$
|
8,507
|
|
$
|
463
|
|
|
$
|
49
|
|
$
|
-
|
|
$
|
9,019
|
Fair
value
|
|
$
|
8,507
|
|
$
|
463
|
|
|
$
|
49
|
|
$
|
-
|
|
$
|
9,019
|
|
|
|
Three months ended September 30,
2011
|
|
|
|
|
|
|
|
|
|
Reclassification of
|
|
|
|
|
|
|
|
|
|
|
|
Gains (losses)
|
|
losses from
|
|
|
|
|
|
|
|
|
|
|
|
included in other
|
|
adjustment for
|
|
Purchases,
|
|
|
|
|
|
Balance
|
|
comprehensive
|
|
impairment of
|
|
Issuances, and
|
|
Balance
|
(Dollars in thousands)
|
|
June 30,
2011
|
|
income
|
|
securities
|
|
Settlements
|
|
September 30,
2011
|
Corporate securities
|
|
$
|
9,506
|
|
$
|
(648
|
)
|
|
$
|
-
|
|
$
|
-
|
|
$
|
8,858
|
Obligations of state and political subdivisions
|
|
|
804
|
|
|
(309
|
)
|
|
|
-
|
|
|
-
|
|
|
495
|
Fair value
|
|
$
|
10,310
|
|
$
|
(957
|
)
|
|
$
|
-
|
|
$
|
-
|
|
$
|
9,353
|
|
|
|
Nine months ended September 30,
2011
|
|
|
|
|
|
|
|
|
|
Reclassification of
|
|
|
|
|
|
|
|
|
|
|
|
Gains (losses)
|
|
losses from
|
|
|
|
|
|
|
|
|
|
|
|
included in other
|
|
adjustment for
|
|
Purchases,
|
|
|
|
|
|
Balance
|
|
comprehensive
|
|
impairment of
|
|
Issuances, and
|
|
Balance
|
(Dollars in thousands)
|
|
January 1,
2011
|
|
income
|
|
securities
|
|
Settlements
|
|
September 30,
2011
|
Corporate securities
|
|
$
|
9,392
|
|
$
|
(713
|
)
|
|
$
|
179
|
|
$
|
-
|
|
$
|
8,858
|
Obligations of state and political subdivisions
|
|
|
957
|
|
|
(462
|
)
|
|
|
-
|
|
|
-
|
|
|
495
|
Fair value
|
|
$
|
10,349
|
|
$
|
(1,175
|
)
|
|
$
|
179
|
|
$
|
-
|
|
$
|
9,353
|
- 31 -
10. FAIR VALUE MEASUREMENT AND FAIR
VALUES OF FINANCIAL INSTRUMENTS
The following
table presents quantitative information about Level 3 fair value measurements
for the three months ended September 30, 2012:
(Dollars in thousands)
|
|
September 30,
2012
|
|
Valuation
|
|
Unobservable
|
|
|
|
Weighted
|
|
|
Fair Value
|
|
technique
|
|
inputs
|
|
Range
|
|
average
|
Corporate
securities
|
|
$
|
9,019
|
|
Discounted cash
flow
|
|
Prepayment rate
|
|
0 - 1%
|
|
0.50
|
%
|
|
|
|
|
|
|
|
Deferral/default
rate
|
|
.25 - 1.50%
|
|
0.88
|
%
|
|
|
|
|
|
|
|
Recovery rate
|
|
0 - 50%
|
|
25
|
%
|
|
|
|
|
|
|
|
Recovery lag
|
|
0 - 5 years
|
|
2.5 years
|
|
|
|
|
|
|
|
Discount rate
|
|
6.90 - 8.10%
|
|
7.40
|
%
|
Loans measured for impairment
|
|
|
3,972
|
|
Market comparable
|
|
Adjustment to appraisal value
|
|
.84 - 72.02%
|
|
9.88
|
%
|
OREO
|
|
|
4,231
|
|
Market
comparable
|
|
Adjustment to appraisal
value
|
|
0 - 78.37%
|
|
11.18
|
%
|
The following table presents quantitative information about Level 3 fair
value measurements for the nine months ended September 30, 2012:
(Dollars in thousands)
|
|
September 30,
2012
|
|
Valuation
|
|
Unobservable
|
|
|
|
Weighted
|
|
|
Fair Value
|
|
technique
|
|
inputs
|
|
Range
|
|
average
|
Corporate
securities
|
|
$
|
9,019
|
|
Discounted cash
flow
|
|
Prepayment rate
|
|
0 - 1%
|
|
0.50
|
%
|
|
|
|
|
|
|
|
Deferral/default
rate
|
|
.25 - 1.5%
|
|
0.88
|
%
|
|
|
|
|
|
|
|
Recovery rate
|
|
0 - 50%
|
|
25
|
%
|
|
|
|
|
|
|
|
Recovery lag
|
|
0 - 5 years
|
|
2.5 years
|
|
|
|
|
|
|
|
Discount rate
|
|
7.10 - 8.40%
|
|
7.90
|
%
|
Loans measured for impairment
|
|
|
3,507
|
|
Income approach
|
|
Capitalization rate
|
|
6.75 - 8.00%
|
|
7.27
|
%
|
|
|
|
12,394
|
|
Market comparable
|
|
Adjustment to appraisal value
|
|
.25 - 72.02%
|
|
10.60
|
%
|
OREO
|
|
|
6,248
|
|
Income approach
|
|
Capitalization
rate
|
|
6.75 - 8.50%
|
|
7.69
|
%
|
|
|
|
25,097
|
|
Market
comparable
|
|
Adjustment to appraisal
value
|
|
0 - 78.37%
|
|
8.37
|
%
|
The Company estimates the fair value of its Level 3 securities quarterly
based on both observable and unobservable inputs. Observable inputs include
discount rates derived from current rates on traded corporate bonds.
Unobservable inputs are primarily estimates of future cash flows from the Level
3 securities. The Level 3 fair value measurements of the Companys corporate
securities are highly sensitive to its estimate of the cash flow from these
securities. Higher default or deferral rates and lower recovery rates reduce the
overall estimated cash flows and would reduce the estimated fair value of these
securities. Prepayment assumptions, recovery lag assumptions and discount rates
have a reduced relative effect on the fair value estimates.
- 32 -
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
The following discussion should be read in conjunction with the audited consolidated financial statements and related notes to those statements of West Coast Bancorp (Bancorp or the Company) that
appear under the heading Financial Statements and Supplementary Data in Bancorp's Annual Report on Form 10-K for the year ended December 31, 2011 (the 2011 10-K), as well as the unaudited consolidated financial statements for
the current quarter found under Item 1 above.
Forward Looking Statement Disclosure
Statements in this Quarterly Report of Bancorp, including information included or incorporated by reference herein, regarding future events or performance are forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995 (the PSLRA) and are made pursuant to the safe harbors of the PSLRA. These forward-looking statements include, but are not limited to, (i) statements about the benefits of the Merger (as
defined below), including future financial and operating results, cost savings, enhancements to revenue and accretion to reported earnings that may be realized from the Merger; and (ii) statements about Columbia Banking System, Inc.s
(Columbia) and Bancorps respective plans, objectives, expectations and intentions and other statements that are not historical facts. The Companys actual results could be quite different from those expressed or implied by
the forward-looking statements. Words such as could, intends, may, should, plans, believes, anticipates, estimates, predicts,
expects, projects, potential, or continue, or words of similar meaning, often help identify forward-looking statements, which include any statements that expressly or implicitly predict
future events, results, or performance. These forward-looking statements are based on current beliefs and expectations of Columbias and Bancorps managements, and are inherently subject to significant business, economic and competitive
uncertainties and contingencies, many of which are beyond Columbias and Bancorps control. In addition, these forward-looking statements are subject to assumptions with respect to future business strategies and decisions that are subject
to change. Factors that could cause events, results or performance to differ from those expressed or implied by the forward-looking statements include, among others, risks discussed in Item 1A, Risk Factors of the 2011 10-K, risks
discussed elsewhere in the text of this report, as well as the following specific factors:
-
General
economic conditions, whether national or regional, and conditions in real
estate markets, that may hinder the Companys ability to increase lending
activities or have an adverse effect on the demand for its loans and other
products, its credit quality and related levels of nonperforming assets and
loan losses, and the value and salability of the real estate that it owns or
that is the collateral for many of its loans;
-
Changing bank regulatory conditions,
policies, or programs, whether arising as new legislation or regulatory
initiatives, that could lead to restrictions on activities of banks generally
or the Bank in particular, increased costs, including deposit insurance
premiums, price controls on debit card interchange, regulation or prohibition
of certain income producing activities, or changes in the secondary market for
bank loan and other products;
-
Competitive factors, including
competition with community, regional and national financial institutions, that
may lead to pricing pressures that reduce yields the Bank earns on loans and
increase rates the Bank pays on deposits, the loss of its most valued
customers, defection of key employees or groups of employees, or other
losses;
-
Increasing or decreasing interest rate
environments, including changes in the slope and level of the yield curve,
which may be caused by the Federal Reserve Banks public comments about future
direction and level of interest rates, that could lead to decreases in net
interest margin, lower net interest and fee income, including lower gains on
sales of loans, higher cost of funding, and changes in the value of the
Companys investment securities;
-
Failure to develop, implement, and
distribute competitive and client value added products, which may adversely
affect the Companys ability to generate additional revenues;
-
Any failure to successfully implement
expense reduction initiatives and realize expected efficiencies, while
retaining revenues, that may result in lower benefits from cost reduction
initiatives than expected; and
-
Changes or failures in technology or
third party vendor relationships in important revenue production or service
areas or increases in required investments in technology that could reduce
revenues, increase costs, or lead to disruptions in the Companys
business.
-
The Merger with Columbia may not close
when expected or at all because required regulatory, shareholder or other
approvals and other conditions to closing are not received on a timely basis
or at all;
-
Columbias stock price could change,
before closing of the Merger, including as a result of the financial
performance of Columbia and/or Bancorp prior to closing, or more generally due
to broader stock market movements, and the performance of financial companies
and peer group companies;
-
Benefits from the Merger may not be
fully realized or may take longer to realize than expected, including as a
result of changes in general economic and market conditions, interest rates,
monetary policy, laws and regulations and their enforcement, and the degree of
competition in the geographic and business areas in which Bancorp
operates;
-
Bancorps business may not be
integrated into Columbias successfully, or such integration may take longer
to accomplish than expected;
- 33 -
-
The anticipated
growth opportunities and cost savings from the Merger may not be fully
realized or may take longer to realize than expected;
-
Operating costs, customer losses and business
disruption following the Merger, including adverse developments in
relationships with employees, may be greater than expected; and
-
Management time and effort may be diverted to the
resolution of merger-related issues.
Furthermore,
forward-looking statements are subject to risks and uncertainties related to the
Companys ability to, among other things: dispose of properties or other assets
obtained through foreclosures at expected prices and within a reasonable period
of time; attract and retain key personnel; generate loan and deposit balances at
projected spreads; sustain fee generation including gains on sales of loans;
maintain asset quality and control risk; limit the amount of net loan
charge-offs; adapt to changing customer deposits, investment and borrowing
behaviors; control expenses; and monitor and manage its financial reporting,
operating and disclosure control environments.
Readers are cautioned not to place undue reliance on the Companys
forward-looking statements, which reflect managements analysis only as of the
date of the statements. The Company does not intend to publicly revise or update
forward-looking statements to reflect events or circumstances that arise after
the date of this report.
Community Reinvestment Act (CRA)
The Bank received a CRA rating of satisfactory during its most recent CRA
examination in September 2010.
Agreement and Plan of Merger
On September 25, 2012, Bancorp entered
into an Agreement and Plan of Merger (the Merger Agreement) with Columbia,
pursuant to which a newly formed subsidiary of Columbia will merge with and into
Bancorp (the Merger), with Bancorp continuing as the surviving corporation
(the Surviving Corporation). As soon as reasonably practicable following the
Merger, and as part of a single integrated transaction, the Surviving
Corporation will be merged with and into Columbia (the Second Step Merger and
together with the Merger, the Mergers).
Subject to the terms and conditions of the Merger Agreement, at the
effective time of the Merger, Bancorp shareholders will have the right, with
respect to each of their shares of Bancorp common stock, to elect to receive,
subject to proration and adjustment, either cash, stock, or a unit consisting of
a mix of cash and stock in an amount equal to their pro rata share (taking into
account Class C Warrants and in-the-money stock options on an as-exercised basis
and shares of common stock issuable upon conversion of Series B Preferred Stock
(including shares of Series B Preferred Stock issuable upon exercise of Class C
Warrants)) of the total consideration, which consists of $264,468,650 in cash
(subject to adjustment in certain circumstances), plus the product of 12,809,525
shares of Columbia common stock multiplied by the volume weighted average price
of Columbia common stock for the twenty trading day period beginning on the
twenty fifth day before the effective time of the Merger.
The Merger Agreement contains customary representations and warranties
from both Bancorp and Columbia. Bancorp has also agreed to various customary
covenants and agreements, including, among others, (1) to conduct its business
in the ordinary course consistent with past practice in all material respects
during the interim period between the execution of the Merger Agreement and the
consummation of the Merger, (2) not to engage in certain kinds of transactions
or take certain actions during this period without the prior written consent of
Columbia (which may not be unreasonably withheld), (3) subject to certain
exceptions, to convene and hold a meeting of its shareholders to consider and
vote upon the Merger Agreement, (4) to recommend approval of the Merger
Agreement to its shareholders and, subject to certain exceptions, not to
withdraw or materially and adversely modify such recommendation, (5) not to
initiate, solicit, encourage or knowingly facilitate any alternative proposal to
acquire Bancorp, and (6) subject to certain exceptions, not to provide any
non-public information in connection with any such alternative proposal, or
engage in any discussions relating to any such proposal. Columbia has also
agreed to various customary covenants and agreements.
The consummation of the Merger is subject to customary conditions,
including, among others, (1) approval by Bancorp shareholders of the Merger
Agreement, (2) approval by Columbia shareholders of the issuance of Columbia
common stock in connection with the Merger, (3) effectiveness of the
registration statement on Form S-4 for the Columbia common stock to be issued in
the Merger, (4) authorization for listing on the Nasdaq Stock Exchange of the
shares of Columbia common stock to be issued in the Merger, (5) the absence of
any law, order, injunction or decree prohibiting or making illegal the closing
of the Merger or the other transactions contemplated by the Merger Agreement and
(6) receipt of required regulatory approvals. Each partys obligation to
consummate the Merger is also subject to certain additional customary
conditions, including (i) subject to certain exceptions, the accuracy of the
representations and warranties of the other party, (ii) performance in all
material respects by the other party of its obligations and (iii) the receipt by
such party of an opinion from its counsel to the effect that the Mergers, taken
together, will qualify as a reorganization within the meaning of Section 368(a)
of the Internal Revenue Code of 1986, as amended.
- 34 -
The Merger
Agreement contains certain termination rights in favor of each of Columbia and
Bancorp. Upon termination of the Merger Agreement under certain circumstances,
Bancorp will be obligated to pay Columbia a termination fee of $20 million. Upon
termination of the Merger Agreement in certain other limited circumstances,
Columbia will be obligated to pay Bancorp a termination fee of $5
million.
Certain terms of the Merger Agreement and other related agreements are
summarized in, and the Merger Agreement has been filed as an exhibit to, the
Current Report on Form 8-K filed by Bancorp with the Securities and Exchange
Commission on October 1, 2012.
Current Regulatory Matters
As of June 27, 2012, the Written Agreement between the Holding Company
and the Federal Reserve Bank of San Francisco (Reserve Bank) and the Oregon
Department of Consumer and Business Services Division of Finance and Corporate
Securities (DFCS) was terminated. The termination of this agreement ends
certain restrictions on the Holding Company, including paying interest on its
$51 million in trust preferred securities outstanding. At this time, the Reserve
Bank requires that we continue to inform and consult with them and seek a
non-objection notice ahead of declaring and paying cash dividends to
shareholders. Bancorp received such non-objection notice in conjunction with the
$.05 per share shareholder cash dividend declared by its Board of Directors on
September 25, 2012, which is payable on October 31, 2012.
West Coast Bank continues to be subject to a Memorandum of Understanding
(MOU) with the Federal Deposit Insurance Corporation (FDIC) and DFCS, which
requires that during the life of the MOU the Bank may not pay dividends without
the written consent of the FDIC and DFCS and that the Bank maintain higher
levels of capital than required by published capital adequacy requirements. For
additional discussion of the MOU, see Item 1, Business Current Regulatory
Actions in the Companys 2011 10-K.
- 35 -
Third Quarter 2012 Financial
Overview
On September
25, 2012, the Companys Board of Directors declared a cash dividend of $.05 per
share common share and $.50 per share of Series B Preferred Stock payable on
October 31, 2012, to shareholders of record on October 10, 2012. Amounts payable
to holders of Series B Preferred Stock are equal to amounts that would have been
received if
such
Series B preferred stock had been converted to common stock prior to payment of
the dividend. The declaration of the dividend reflected the Companys strong
capital position and continued profitability. Key financial measures
included:
-
Net income of $5.9 million, or $6.3 million
after excluding after-tax merger-related expenses, compared to $6.3 million in
third quarter 2011. See the table below for a reconciliation of net income to
net income excluding after-tax merger-related expenses;
-
Return on average assets of .97% for the
quarter, or 1.03% excluding after-tax merger-related charges, and .99% year to
date September 30, 2012;
-
A net interest margin of 3.80%, an increase
of 49 basis points from 3.31% in third quarter 2011;
-
An average rate paid on total deposits of
.08%, a 12 basis points decline from .20% in third quarter 2011;
-
A benefit for credit losses of $.6 million,
representing a reduction of $1.7 million from a $1.1 million provision for
credit losses in the same quarter in 2011;
-
Net loan charge-offs of $1.0 million, a
decrease from $3.3 million in third quarter 2011; and
-
Total noninterest expense of $21.3 million
in third quarter 2012, or $20.7 million after excluding merger-related
expenses, as compared to noninterest expense of $22.6 million in third quarter
2011. See the table below for a reconciliation of noninterest expense to
noninterest expense excluding merger related expenses.
Management continued to proactively
implement and execute certain strategies that have resulted in strengthening of
the Companys balance sheet, including:
-
Increasing the Banks total and tier 1
risk-based capital ratios to 21.06% and 19.80%, respectively, at September 30,
2012, up from 19.00% and 17.74%, respectively, at September 30,
2011;
-
Improving the Banks leverage ratio to
15.00% at September 30, 2012, from 13.20% a year ago; and
-
Reducing total nonperforming assets by 35%
or $28.8 million over the past twelve months, to $54.3 million at third
quarter end.
Results of Operations
Three and nine months ended
September 30, 2012 and 2011
Net Income.
Net income for the three months ended
September 30, 2012, was $5.9 million, as compared to net income of $6.3 for the
three months ended September 30, 2011. Earnings per diluted share for the three
months ended September 30, 2012, was $0.27, as compared to earnings per diluted
share of $0.29 for the three months ended September 30, 2011.
Net income for the first nine months of 2012 was $17.8 million or $.82
per diluted share compared to net income of $16.0 million or $.75 per diluted
share in the same period of 2011.
- 36 -
The table
below shows the reconciliation of net income to the non-generally accepted
accounting principles in the United States of America (GAAP) financial
measures presented in this report including both net income excluding after-tax
merger-related expenses and noninterest expense excluding merger-related
expenses, to the corresponding figures, net income and noninterest expense,
calculated in accordance with U.S. GAAP for the quarters ended September 30,
2012, and 2011, and the nine months ended as of September 30, 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.
Certain ratios in this report, such as
efficiency ratio and return on average assets excluding merger related expenses,
are calculated using these non-GAAP measures.
|
Three months ended
|
|
|
|
|
|
Nine months ended
|
|
|
|
|
(Dollars in thousands)
|
September 30,
|
|
Change
|
|
September 30,
|
|
Change
|
|
2012
|
|
2011
|
|
$
|
|
2012
|
|
2011
|
|
$
|
Net
income
|
$
|
5,944
|
|
$
|
6,276
|
|
$
|
(332
|
)
|
|
$
|
17,767
|
|
$
|
16,015
|
|
$
|
1,752
|
|
|
Merger-related
expenses
|
|
578
|
|
|
-
|
|
|
578
|
|
|
|
578
|
|
|
-
|
|
|
578
|
|
Less: tax benefit from
merger-related expenses
(1)
|
|
202
|
|
|
-
|
|
|
202
|
|
|
|
202
|
|
|
-
|
|
|
202
|
|
After-tax
merger-related expenses
|
|
376
|
|
|
-
|
|
|
376
|
|
|
|
376
|
|
|
-
|
|
|
376
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
excluding after-tax merger-related expenses
(2,3)
|
$
|
6,320
|
|
$
|
6,276
|
|
$
|
44
|
|
|
$
|
18,143
|
|
$
|
16,015
|
|
$
|
2,128
|
|
|
Noninterest
expense
|
$
|
21,307
|
|
$
|
22,620
|
|
$
|
(1,313
|
)
|
|
$
|
63,808
|
|
$
|
68,131
|
|
$
|
(4,323
|
)
|
|
Merger-related
expenses
|
|
578
|
|
|
-
|
|
|
578
|
|
|
|
578
|
|
|
-
|
|
|
578
|
|
Noninterest expense excluding
merger-related expenses
(3,4)
|
$
|
20,729
|
|
$
|
22,620
|
|
$
|
(1,891
|
)
|
|
$
|
63,230
|
|
$
|
68,131
|
|
$
|
(4,901
|
)
|
(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-related expenses.
|
- 37 -
Net
Interest Income.
The following table sets
forth, for the periods indicated, information with regard to (1) average
balances of assets and liabilities, (2) the total dollar amounts of interest
income on interest earning assets and interest expense on interest bearing
liabilities, (3) resulting yields and rates, (4) net interest income and (5) net
interest spread. Nonaccrual loans have been included in the tables as loans
carrying a zero yield. Loan fees are recognized as income using the interest
method over the life of the loan.
|
|
Three months
ended
|
(Dollars in thousands)
|
|
September 30,
2012
|
|
September 30,
2011
|
|
June 30,
2012
|
|
|
Average
|
|
|
|
|
|
|
|
Average
|
|
Interest
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
|
Outstanding
|
|
Interest
|
|
Yield/
|
|
Outstanding
|
|
Earned/
|
|
Yield/
|
|
Outstanding
|
|
Interest
|
|
Yield/
|
|
|
Balance
|
|
Earned/
Paid
|
|
Rate
1
|
|
Balance
|
|
Paid
|
|
Rate
1
|
|
Balance
|
|
Earned/
Paid
|
|
Rate
1
|
ASSETS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest earning
balances
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
due from banks
|
|
$
|
47,242
|
|
|
$
|
35
|
|
0.29
|
%
|
|
$
|
49,918
|
|
|
$
|
35
|
|
0.28
|
%
|
|
$
|
45,260
|
|
|
$
|
32
|
|
0.28
|
%
|
Federal
funds sold
|
|
|
2,558
|
|
|
|
-
|
|
0.07
|
%
|
|
|
3,275
|
|
|
|
-
|
|
0.00
|
%
|
|
|
2,555
|
|
|
|
-
|
|
0.07
|
%
|
Taxable securities
|
|
|
691,780
|
|
|
|
3,439
|
|
1.98
|
%
|
|
|
723,203
|
|
|
|
4,092
|
|
2.24
|
%
|
|
|
664,307
|
|
|
|
3,601
|
|
2.18
|
%
|
Nontaxable securities
2
|
|
|
69,226
|
|
|
|
841
|
|
4.83
|
%
|
|
|
59,121
|
|
|
|
821
|
|
5.51
|
%
|
|
|
62,546
|
|
|
|
782
|
|
5.03
|
%
|
Loans, including fees
3
|
|
|
1,493,454
|
|
|
|
18,706
|
|
4.98
|
%
|
|
|
1,516,311
|
|
|
|
20,060
|
|
5.25
|
%
|
|
|
1,479,524
|
|
|
|
18,699
|
|
5.08
|
%
|
Total interest earning assets
|
|
|
2,304,261
|
|
|
|
23,021
|
|
4.02
|
%
|
|
|
2,351,828
|
|
|
|
25,008
|
|
4.22
|
%
|
|
|
2,254,192
|
|
|
|
23,114
|
|
4.12
|
%
|
|
Allowance for loan losses
|
|
|
(32,794
|
)
|
|
|
|
|
|
|
|
|
(38,529
|
)
|
|
|
|
|
|
|
|
|
(33,699
|
)
|
|
|
|
|
|
|
Premises and
equipment
|
|
|
22,902
|
|
|
|
|
|
|
|
|
|
25,747
|
|
|
|
|
|
|
|
|
|
23,568
|
|
|
|
|
|
|
|
Other
assets
|
|
|
147,673
|
|
|
|
|
|
|
|
|
|
148,161
|
|
|
|
|
|
|
|
|
|
151,216
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
2,442,042
|
|
|
|
|
|
|
|
|
$
|
2,487,207
|
|
|
|
|
|
|
|
|
$
|
2,395,277
|
|
|
|
|
|
|
|
|
LIABILITIES AND
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS' EQUITY:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest bearing
demand
|
|
$
|
365,560
|
|
|
$
|
37
|
|
0.04
|
%
|
|
$
|
363,554
|
|
|
$
|
45
|
|
0.05
|
%
|
|
$
|
374,579
|
|
|
$
|
33
|
|
0.04
|
%
|
Savings
|
|
|
132,839
|
|
|
|
17
|
|
0.05
|
%
|
|
|
114,779
|
|
|
|
25
|
|
0.09
|
%
|
|
|
127,930
|
|
|
|
16
|
|
0.05
|
%
|
Money market
|
|
|
592,363
|
|
|
|
129
|
|
0.09
|
%
|
|
|
661,871
|
|
|
|
322
|
|
0.19
|
%
|
|
|
596,949
|
|
|
|
135
|
|
0.09
|
%
|
Time
deposits
|
|
|
140,151
|
|
|
|
202
|
|
0.57
|
%
|
|
|
196,807
|
|
|
|
594
|
|
1.20
|
%
|
|
|
151,085
|
|
|
|
247
|
|
0.66
|
%
|
Total interest bearing deposits
|
|
|
1,230,913
|
|
|
|
385
|
|
0.13
|
%
|
|
|
1,337,011
|
|
|
|
986
|
|
0.29
|
%
|
|
|
1,250,543
|
|
|
|
431
|
|
0.14
|
%
|
|
Short-term borrowings
4
|
|
|
17,989
|
|
|
|
37
|
|
0.81
|
%
|
|
|
39,926
|
|
|
|
939
|
|
9.33
|
%
|
|
|
3,143
|
|
|
|
4
|
|
0.51
|
%
|
Long-term borrowings
4
5
|
|
|
161,074
|
|
|
|
617
|
|
1.45
|
%
|
|
|
180,428
|
|
|
|
3,455
|
|
7.60
|
%
|
|
|
175,098
|
|
|
|
633
|
|
1.44
|
%
|
Total borrowings
|
|
|
179,063
|
|
|
|
654
|
|
1.47
|
%
|
|
|
220,354
|
|
|
|
4,394
|
|
7.91
|
%
|
|
|
178,241
|
|
|
|
637
|
|
1.44
|
%
|
Total interest bearing
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
liabilities
|
|
|
1,409,976
|
|
|
|
1,039
|
|
0.29
|
%
|
|
|
1,557,365
|
|
|
|
5,380
|
|
1.37
|
%
|
|
|
1,428,784
|
|
|
|
1,068
|
|
0.30
|
%
|
Demand
deposits
|
|
|
677,646
|
|
|
|
|
|
|
|
|
|
615,956
|
|
|
|
|
|
|
|
|
|
621,547
|
|
|
|
|
|
|
|
Other liabilities
|
|
|
23,063
|
|
|
|
|
|
|
|
|
|
22,779
|
|
|
|
|
|
|
|
|
|
21,550
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
2,110,685
|
|
|
|
|
|
|
|
|
|
2,196,100
|
|
|
|
|
|
|
|
|
|
2,071,881
|
|
|
|
|
|
|
|
Stockholders' equity
|
|
|
331,357
|
|
|
|
|
|
|
|
|
|
291,107
|
|
|
|
|
|
|
|
|
|
323,396
|
|
|
|
|
|
|
|
Total liabilities and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
stockholders' equity
|
|
$
|
2,442,042
|
|
|
|
|
|
|
|
|
$
|
2,487,207
|
|
|
|
|
|
|
|
|
$
|
2,395,277
|
|
|
|
|
|
|
|
Net
interest income
|
|
|
|
|
|
$
|
21,982
|
|
|
|
|
|
|
|
|
$
|
19,628
|
|
|
|
|
|
|
|
|
$
|
22,046
|
|
|
|
|
Net
interest spread
|
|
|
|
|
|
|
|
|
3.68
|
%
|
|
|
|
|
|
|
|
|
2.85
|
%
|
|
|
|
|
|
|
|
|
3.82
|
%
|
|
Net
interest margin
|
|
|
|
|
|
|
|
|
3.80
|
%
|
|
|
|
|
|
|
|
|
3.31
|
%
|
|
|
|
|
|
|
|
|
3.93
|
%
|
1
|
Yield/rate calculations have been based on more detailed
information and therefore may not recompute exactly due to
rounding.
|
2
|
Interest earned on nontaxable securities has been computed on a 35%
tax equivalent basis.
|
3
|
Includes balances of loans held for sale and nonaccrual
loans.
|
4
|
Includes portion of $2.8 million prepayment fee in connection with
the $88.3 million prepayment in FHLB borrowings in the third quarter of
2011.
|
5
|
Includes junior subordinated debentures with average balance of
$51.0 million for the three months ended September 30, 2012, and 2011, and
June 30, 2012.
|
- 38 -
Third quarter
2012 net interest income of $21.7 million increased $2.3 million from the same
quarter in 2011 due to a prepayment charge of $2.8 million in the third quarter
of 2011 associated with the prepayment of $88.3 million in term Federal Home Loan Bank of
Seattle (FHLB) borrowings. The current quarter also reflects the benefit from
the prepayment in the second half of 2011 of a total of $168.6 million term FHLB
borrowings, with an average interest rate of 3.17%, which were partially
replaced by $120.0 million in new FHLB borrowings at an average interest rate of
1.05%. Net interest income on a tax equivalent basis was $22.0 million in the
most recent quarter, up from $19.6 million in the third quarter of 2011. Third
quarter 2012 average interest earning assets of $2.30 billion decreased $47.6
million, or 2.0%, from $2.35 billion in the same period in 2011. Average
interest bearing liabilities of $1.41 billion declined $147.4 million or 9.5%,
from $1.56 billion over the same period, while average noninterest bearing
demand deposits increased $61.7 million or 10.0% over the same
period.
The third quarter 2012 net interest margin of 3.80% increased 49 basis
points from third quarter 2011, principally due to the impact of the FHLB
prepayment in the third quarter last year and lower volume and cost of
interest-bearing liabilities more than offsetting the effect of a year-over-year
decline in average loan balances and lower yields on loan and investment
portfolios.
Net interest income for the nine months ended September 30, 2012, was
$65.6 million, an increase of $2.8 million compared to the same period in 2011.
For the nine months ended September 30, 2012, net interest margin was 3.92%, an
increase of 27 basis points from 3.65% for the nine months ended September 30,
2011. The increase in net interest income and margin for the nine month period
was substantially due to the same factors as for the increase in year-over-year
third quarter net interest income and margin.
As of September 30, 2012, the Bank had $771.5 million in floating and
adjustable rate loans with interest rate floors, with $605.6 million of these
loans at their floor rate. At September 30, 2011, the Bank had $708.3 million in
floating and adjustable rate loans with interest rate floors, with $520.3
million of these loans at their floor rate. The floors have benefited the
Companys loan yield and net interest income and margin over the past few years
given the extremely low market interest rate environment. If interest rates
rise, however, the Company anticipates yields on loans at floors will lag
underlying changes in market interest rates, although the overall effect will
depend on how quickly and dramatically market interest rates rise, as well as
how the slope of the market yield curve changes.
At September 30, 2012, management estimated that the Companys current
balance sheet remained slightly asset sensitive over a twelve month measurement
period given instantaneous parallel rate shocks. Asset sensitive means that
earning assets are expected to mature or reprice more quickly than interest
bearing liabilities over this period under the parallel rate shocks. Management
believes its estimates of the Companys interest rate risk position are highly
dependent upon a number of assumptions regarding the repricing behavior of
various deposit, investment, and loan types in response to changes in both
short-term and long-term interest rates, balance sheet composition, and other
modeling assumptions, actions of competitors and customers in response to those
changes. Whether interest rate parallel rate shocks or gradual interest rate
changes are utilized in modeling, will also affect its estimates of its interest
rate risk position. For more information see the discussion under the heading
Quantitative and Qualitative Disclosures about Market Risk in the Companys
2011 10-K.
Provision for Credit Losses.
Bancorp recorded a benefit for credit losses for the third quarter of
2012 of $.6 million compared to a provision for credit losses of $1.1 million in
the third quarter of 2011. The benefit for credit losses in third quarter 2012
reflects an overall improved risk profile of the loan portfolio evidenced by
modest charge-off activity, low delinquency, and a positive risk rating
migration. The benefit for credit losses was $1.0 million for the nine months
ended September 30, 2012, compared to a provision for credit losses of $6.6
million in the same period of 2011. The reduction in 2012 year-to-date net
charge-offs compared to the same period in 2011 was heavily influenced by a
recovery of $1.1 million related to a commercial real estate loan in the second
quarter of 2012.
The provision for credit losses in future periods will depend primarily
on economic conditions and the interest rate environment, as weakening economic
conditions or an increase in interest rates could put pressure on the ability of
the Banks borrowers to repay loans. For more information, see the discussion
under the subheading Allowance for Credit Losses and Net Loan Charge-offs
below.
Noninterest Income.
Total
noninterest income of $8.2 million for the quarter ended September 30, 2012,
decreased $.2 million from $8.4 million in the third quarter of 2011. The
decline can be attributed to a $.7 million decrease in gains on sales of Other
Real Estate Owned (OREO) and slightly lower service charges on deposit
accounts and payment systems-related revenues. These declines were partly offset
by a $.3 million increase in gains on sales of loans, an increase in trust and
investment services revenues, and lower OREO valuation adjustments. Total net
loss on OREO was $.5 million in the quarter ended September 30, 2012, as
compared to virtually no net loss in the same quarter of 2011. Total noninterest
income decreased 4% or $.3 million from the second quarter of 2012, as a lower
total net loss on OREO did not offset declines in remaining noninterest income
categories. The Company recognized $.4 million less in gains on sales of Small
Business Administration loans in the third quarter of 2012 compared to the prior
quarter and realized and no gains on sales of securities in the most recent
quarter.
Noninterest income for the nine months ended September 30, 2012, was
$24.6 million, a decline of $.8 million from $25.4 million in the same period in
2011. The year-to-date decrease in noninterest income was primarily due to a
$1.3 million decrease in service charges on deposit accounts and a $.7 million
decrease in OREO gains on sale partly offset by an increase of $.9 million in
gains on sales of loans.
- 39 -
The following
table illustrates the components of and changes in noninterest income for the
periods shown:
|
|
Three months ended
|
|
|
|
Three months ended
|
|
|
(Dollars in thousands)
|
|
September 30,
|
|
Change
|
|
June 30,
|
|
Change
|
|
|
2012
|
|
2011
|
|
$
|
|
%
|
|
2012
|
|
$
|
|
%
|
Noninterest income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service charges on deposit
accounts
|
|
$
|
3,017
|
|
|
$
|
3,129
|
|
|
$
|
(112
|
)
|
|
-4
|
%
|
|
$
|
3,212
|
|
|
$
|
(195
|
)
|
|
-6
|
%
|
Payment
systems related revenue
|
|
|
3,073
|
|
|
|
3,201
|
|
|
|
(128
|
)
|
|
-4
|
%
|
|
|
3,084
|
|
|
|
(11
|
)
|
|
-
|
Trust and investment services
revenues
|
|
|
1,231
|
|
|
|
1,033
|
|
|
|
198
|
|
|
19
|
%
|
|
|
1,457
|
|
|
|
(226
|
)
|
|
-16
|
%
|
Gains
on sales of loans
|
|
|
492
|
|
|
|
222
|
|
|
|
270
|
|
|
122
|
%
|
|
|
722
|
|
|
|
(230
|
)
|
|
-32
|
%
|
Gains (losses) on sales of
securities
|
|
|
-
|
|
|
|
124
|
|
|
|
(124
|
)
|
|
-100
|
%
|
|
|
228
|
|
|
|
(228
|
)
|
|
-100
|
%
|
Other-than-temporary impairment losses
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
-
|
Other
|
|
|
816
|
|
|
|
716
|
|
|
|
100
|
|
|
14
|
%
|
|
|
821
|
|
|
|
(5
|
)
|
|
-1
|
%
|
Total
|
|
|
8,629
|
|
|
|
8,425
|
|
|
|
204
|
|
|
2
|
%
|
|
|
9,524
|
|
|
|
(895
|
)
|
|
-9
|
%
|
|
OREO
gains (losses) on sale
|
|
|
29
|
|
|
|
685
|
|
|
|
(656
|
)
|
|
-96
|
%
|
|
|
183
|
|
|
|
(154
|
)
|
|
84
|
%
|
OREO valuation
adjustments
|
|
|
(486
|
)
|
|
|
(696
|
)
|
|
|
210
|
|
|
30
|
%
|
|
|
(1,213
|
)
|
|
|
727
|
|
|
60
|
%
|
Total
|
|
|
(457
|
)
|
|
|
(11
|
)
|
|
|
(446
|
)
|
|
-4055
|
%
|
|
|
(1,030
|
)
|
|
|
573
|
|
|
56
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total noninterest income
|
|
$
|
8,172
|
|
|
$
|
8,414
|
|
|
$
|
(242
|
)
|
|
-3
|
%
|
|
$
|
8,494
|
|
|
$
|
(322
|
)
|
|
-4
|
%
|
Noninterest Expense.
Noninterest expense for the three months ended September 30, 2012, of $21.3
million, declined $1.3 million or 6% from $22.6 million in third quarter 2011.
Excluding expenses associated with the previously announced plan of Merger with
Columbia, total noninterest expense declined $1.9 million or 8% over the same
period. Principally as a result of cost savings initiatives implemented over the
past year, expenses declined in nearly all categories from the corresponding
quarter in 2011. Noninterest expenses also declined across most categories on a
linked quarter basis.
Noninterest expense for the nine months ended September 30, 2012, was
$63.8 million, a decrease of $4.3 million or 6.3% from $68.1 million for the
nine months ended September 30, 2011. The Companys efficiency ratio, defined as
noninterest expense divided by the sum of net interest income on a tax
equivalent basis and noninterest income excluding gains and losses on sales of
securities, declined to 70.4% in the nine months ended September 30, 2012, from
77.0% for the same period in 2011.
The following table illustrates the components of and changes in
noninterest expense for the periods shown:
|
|
Three months ended
|
|
|
|
Three months ended
|
|
|
(Dollars in thousands)
|
|
September 30,
|
|
September 30,
|
|
Change
|
|
June 30,
|
|
Change
|
|
|
2012
|
|
2011
|
|
$
|
|
%
|
|
2012
|
|
$
|
|
%
|
Noninterest expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and employee
benefits
|
|
$
|
11,499
|
|
$
|
11,977
|
|
$
|
(478
|
)
|
|
-4
|
%
|
|
$
|
12,081
|
|
$
|
(582
|
)
|
|
-5
|
%
|
Equipment
|
|
|
1,480
|
|
|
1,461
|
|
|
19
|
|
|
1
|
%
|
|
|
1,584
|
|
|
(104
|
)
|
|
-7
|
%
|
Occupancy
|
|
|
1,901
|
|
|
2,115
|
|
|
(214
|
)
|
|
-10
|
%
|
|
|
2,119
|
|
|
(218
|
)
|
|
-10
|
%
|
Payment
systems related expense
|
|
|
1,148
|
|
|
1,279
|
|
|
(131
|
)
|
|
-10
|
%
|
|
|
1,075
|
|
|
73
|
|
|
7
|
%
|
Professional fees
|
|
|
777
|
|
|
1,038
|
|
|
(261
|
)
|
|
-25
|
%
|
|
|
1,060
|
|
|
(283
|
)
|
|
-27
|
%
|
Postage, printing and office supplies
|
|
|
735
|
|
|
772
|
|
|
(37
|
)
|
|
-5
|
%
|
|
|
729
|
|
|
6
|
|
|
1
|
%
|
Marketing
|
|
|
520
|
|
|
862
|
|
|
(342
|
)
|
|
-40
|
%
|
|
|
255
|
|
|
265
|
|
|
104
|
%
|
Communications
|
|
|
411
|
|
|
387
|
|
|
24
|
|
|
6
|
%
|
|
|
419
|
|
|
(8
|
)
|
|
-2
|
%
|
Other noninterest
expense
|
|
|
2,258
|
|
|
2,729
|
|
|
(471
|
)
|
|
-17
|
%
|
|
|
2,154
|
|
|
104
|
|
|
5
|
%
|
Total noninterest expense excluding merger
expenses
|
|
$
|
20,729
|
|
$
|
22,620
|
|
$
|
(1,891
|
)
|
|
-8
|
%
|
|
$
|
21,476
|
|
$
|
(747
|
)
|
|
-3
|
%
|
|
Merger
expense
|
|
|
578
|
|
|
-
|
|
|
578
|
|
|
0
|
%
|
|
|
-
|
|
|
578
|
|
|
0
|
%
|
Total noninterest expense
|
|
$
|
21,307
|
|
$
|
22,620
|
|
$
|
(1,313
|
)
|
|
-6
|
%
|
|
$
|
21,476
|
|
$
|
(169
|
)
|
|
-1
|
%
|
Changing
business conditions, increased costs in connection with retention of, or a
failure to retain, key employees, lower loan production volumes causing deferred
loan origination costs to decline, compliance with regulatory guidance, or a
failure to manage operating and control environments could adversely affect the
Companys ability to control its expenses in the future.
Income Taxes
. The Company
recorded an income tax provision for the three months ended September 30, 2012,
of $3.2 million compared to a $2.3 million benefit during the third quarter of
2011. For the nine months period ended September 30, 2012, the Company recorded
an income tax provision of $9.6 million compared to an income tax benefit of
$2.6 million in the first nine months of 2011. The three and nine month period
ended September 30, 2012, provision for income taxes is the result of an
effective tax rate of 35% on income before income taxes. The provision for
income taxes in the three and nine month period ended September 30, 2011,
reflected the impact of the Companys deferred tax asset valuation allowance at
that time, which was subsequently fully reversed in the fourth quarter of
2011.
- 40 -
Balance Sheet
Overview
Balance sheet
highlights are as follows:
-
Total assets were $2.5 billion as of September 30,
2012, substantially unchanged from December 31, 2011;
-
Total loans of $1.5 billion as of September 30,
2012, remained relatively unchanged from year end 2012 and from June 30,
2012;
-
The combined average total cash equivalents and
investment securities was $811 million, or 35% of average earning assets,
during the quarter ended September 30, 2012; and
-
Total deposits of $1.9 billion at September 30,
2012, increased slightly from year end 2011.
The Companys balance sheet management efforts are focused on increasing
loan balances with new loan production within established concentration
parameters to targeted customer segments as opportunities arise, limiting loan
concentrations within our loan portfolio, maintaining a strong capital position
until the Company have more certainty regarding prospective economic conditions,
and retaining sufficient liquidity. While new loan commitment production year-to-date has increased from the same period in 2011, loan growth remains challenging due to loan prepayments, modest draws on lines of credit, and a continued to decline in our sizeable home equity portfolio. The Company also expects to further reduce
nonperforming assets by resolving nonaccrual loans and disposing of OREO
properties.
Cash and Cash Equivalents
Total cash and cash equivalents at September 30, 2012, of $101.3 million,
increased from December 31, 2011 due to higher interest bearing deposits held in
other banks, and decreased slightly from September 30, 2011.
(Dollars in thousands)
|
|
September 30,
|
|
% of
|
|
December 31,
|
|
% of
|
|
Change
|
|
|
|
|
September 30,
|
|
% of
|
|
|
2012
|
|
total
|
|
2011
|
|
total
|
|
Amount
|
|
%
|
|
2011
|
|
total
|
Cash and cash
equivalents:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and due from banks
|
|
$
|
53,026
|
|
52
|
%
|
|
$
|
59,955
|
|
65
|
%
|
|
$
|
(6,929
|
)
|
|
-12
|
%
|
|
$
|
57,442
|
|
54
|
%
|
Federal funds
sold
|
|
|
3,426
|
|
4
|
%
|
|
|
4,758
|
|
5
|
%
|
|
|
(1,332
|
)
|
|
-28
|
%
|
|
|
2,102
|
|
2
|
%
|
Interest-bearing deposits in other banks
|
|
|
44,883
|
|
44
|
%
|
|
|
27,514
|
|
30
|
%
|
|
|
17,369
|
|
|
63
|
%
|
|
|
47,734
|
|
44
|
%
|
Total cash and cash
equivalents
|
|
$
|
101,335
|
|
100
|
%
|
|
$
|
92,227
|
|
100
|
%
|
|
$
|
9,108
|
|
|
10
|
%
|
|
|
107,278
|
|
100
|
%
|
Investment
Portfolio
The compositions and carrying values of Bancorps investment securities
portfolio were as follows:
|
|
September 30, 2012
|
|
December 31, 2011
|
|
September 30, 2011
|
|
|
|
|
|
|
|
|
Net
|
|
|
|
|
|
|
|
Net
|
|
|
|
|
|
|
|
Net
|
|
|
Amortized
|
|
|
|
|
Unrealized
|
|
Amortized
|
|
|
|
|
Unrealized
|
|
Amortized
|
|
|
|
|
Unrealized
|
(Dollars in thousands)
|
|
Cost
|
|
Fair Value
|
|
Gain/(Loss)
|
|
Cost
|
|
Fair Value
|
|
Gain/(Loss)
|
|
Cost
|
|
Fair Value
|
|
Gain/(Loss)
|
U.S. Treasury
securities
|
|
$
|
200
|
|
$
|
200
|
|
$
|
-
|
|
|
$
|
200
|
|
$
|
203
|
|
$
|
3
|
|
|
$
|
200
|
|
$
|
205
|
|
$
|
5
|
|
U.S. Government agency securities
|
|
|
225,728
|
|
|
230,360
|
|
|
4,632
|
|
|
|
216,211
|
|
|
219,631
|
|
|
3,420
|
|
|
|
274,282
|
|
|
277,669
|
|
|
3,387
|
|
Corporate
securities
|
|
|
14,303
|
|
|
9,019
|
|
|
(5,284
|
)
|
|
|
14,351
|
|
|
8,507
|
|
|
(5,844
|
)
|
|
|
14,352
|
|
|
8,858
|
|
|
(5,494
|
)
|
Mortgage-backed securities
|
|
|
447,437
|
|
|
461,077
|
|
|
13,640
|
|
|
|
419,510
|
|
|
428,725
|
|
|
9,215
|
|
|
|
450,334
|
|
|
460,927
|
|
|
10,593
|
|
Obligations of state and
political subdivisions
|
|
|
74,948
|
|
|
80,116
|
|
|
5,168
|
|
|
|
56,003
|
|
|
60,732
|
|
|
4,729
|
|
|
|
59,736
|
|
|
63,761
|
|
|
4,025
|
|
Equity and other securities
|
|
|
11,240
|
|
|
11,885
|
|
|
645
|
|
|
|
11,318
|
|
|
12,046
|
|
|
728
|
|
|
|
11,345
|
|
|
12,038
|
|
|
693
|
|
Total Investment
Portfolio
|
|
$
|
773,856
|
|
$
|
792,657
|
|
$
|
18,801
|
|
|
$
|
717,593
|
|
$
|
729,844
|
|
$
|
12,251
|
|
|
$
|
810,249
|
|
$
|
823,458
|
|
$
|
13,209
|
|
At September 30, 2012, the estimated fair value of the
investment portfolio was $792.7 million, compared to $729.8 million at year end
2011, an increase of 8.6% or $62.9 million. The net unrealized gain in the
investment portfolio was $18.8 million at September 30, 2012, an increase from
$12.3 million at December 31, 2011.
The investment portfolio (amortized cost) increased $56.3 million since
December 31, 2011. The Company has increased its investments in municipal
securities and its U.S. government agency portfolio. During this time, purchases
consisted principally of Oregon and Washington school district municipal
securities with state guarantees and 10-year and 15-year fully amortizing U.S.
government agency mortgage-backed securities.
The expected duration of the investment portfolio
was 2.7 years at September 30, 2012, compared to 2.3 years at September 30,
2011, and 2.5 years at December 31, 2011.
The Company recorded a credit related other-than-temporary impairment
(OTTI) charge of $.2 million pretax in the second quarter of 2011, related to
a pooled trust preferred security in the Companys investment portfolio. Based
on its assessment, management determined that the impairment for this security
was other-than-temporary in accordance with Generally Accepted Accounting
Principles (GAAP) and that a charge was appropriate. Given regulatory
guidelines on expectation of full payment of interest and principal as well as
extended principal in kind payments, this pooled trust preferred security was
placed on nonaccrual status. An additional credit related OTTI charge of $49,000
pretax relating to this same security was deemed necessary in the first quarter
of 2012. Furthermore, in the fourth quarter 2011 the Company placed another
pooled trust preferred security with principal in kind payments on nonaccrual
status. While this security had an impairment loss of $1.5 million at
September 30, 2012, the security had no credit related OTTI as of September 30,
2012.
- 41 -
For additional
detail regarding the Companys investment securities portfolio, see Note 4
Investment Securities and Note 10 Fair Value Measurement and Fair Values of
Financial Instruments of the interim financial statements included under Item 1
of this report.
Loan Portfolio
The compositions of the Banks loan portfolio was as follows for the
periods shown:
(Dollars in thousands)
|
|
September 30,
|
|
% of total
|
|
Dec. 31,
|
|
% of total
|
|
Change
|
|
September 30,
|
|
% of total
|
|
Change
|
|
|
2012
|
|
loans
|
|
2011
|
|
loans
|
|
Amount
|
|
2011
|
|
loans
|
|
Amount
|
Commercial loans
|
|
$
|
286,134
|
|
19.2
|
%
|
|
$
|
299,766
|
|
20.0
|
%
|
|
$
|
(13,632
|
)
|
|
$
|
296,335
|
|
19.7
|
%
|
|
$
|
(10,201
|
)
|
Commercial real estate construction
|
|
|
39,100
|
|
2.6
|
%
|
|
|
17,438
|
|
1.2
|
%
|
|
|
21,662
|
|
|
|
12,859
|
|
0.9
|
%
|
|
|
26,241
|
|
Residential real estate
construction
|
|
|
8,306
|
|
0.6
|
%
|
|
|
12,724
|
|
0.8
|
%
|
|
|
(4,418
|
)
|
|
|
13,167
|
|
0.9
|
%
|
|
|
(4,861
|
)
|
Total real estate construction
loans
|
|
|
47,406
|
|
3.2
|
%
|
|
|
30,162
|
|
2.0
|
%
|
|
|
17,244
|
|
|
|
26,026
|
|
1.8
|
%
|
|
|
21,380
|
|
Mortgage
|
|
|
56,548
|
|
3.8
|
%
|
|
|
66,610
|
|
4.4
|
%
|
|
|
(10,062
|
)
|
|
|
69,333
|
|
4.6
|
%
|
|
|
(12,785
|
)
|
Home
equity loans and lines of credit
|
|
|
244,683
|
|
16.4
|
%
|
|
|
258,384
|
|
17.2
|
%
|
|
|
(13,701
|
)
|
|
|
261,457
|
|
17.4
|
%
|
|
|
(16,774
|
)
|
Total real estate mortgage
loans
|
|
|
301,231
|
|
20.2
|
%
|
|
|
324,994
|
|
21.6
|
%
|
|
|
(23,763
|
)
|
|
|
330,790
|
|
22.0
|
%
|
|
|
(29,559
|
)
|
Commercial real estate loans
|
|
|
843,836
|
|
56.6
|
%
|
|
|
832,767
|
|
55.4
|
%
|
|
|
11,069
|
|
|
|
836,752
|
|
55.6
|
%
|
|
|
7,084
|
|
Installment and other
consumer loans
|
|
|
12,160
|
|
0.8
|
%
|
|
|
13,612
|
|
1.0
|
%
|
|
|
(1,452
|
)
|
|
|
13,721
|
|
0.9
|
%
|
|
|
(1,561
|
)
|
Total
loans
|
|
$
|
1,490,767
|
|
100.0
|
%
|
|
$
|
1,501,301
|
|
100.0
|
%
|
|
$
|
(10,534
|
)
|
|
$
|
1,503,624
|
|
100.0
|
%
|
|
$
|
(12,857
|
)
|
The Banks total loan portfolio was $1.5
billion at September 30, 2012, a decrease of $10.5 million or .7% from December
31, 2011. The decline was principally a result of lower commercial, mortgage,
and home equity balances partially offset by higher commercial real estate
construction and commercial real estate term loan balances. The Banks loan
portfolio decreased $12.9 million from September 30, 2011. Third quarter 2012
new loan commitment production increased significantly from the same quarter of
2011.
Interest and fees earned on the loan portfolio are the Banks primary
source of revenue, and it will be very important to generate sufficient new loan
commitment originations to increase loan balances in order to grow overall
revenues. The Companys ability to achieve loan growth at acceptable spreads
will be dependent on many factors, including the effects of competition,
economic conditions in our markets, health of the real estate market, retention
of key personnel and valued customers, and the ability to close loans in the
pipeline.
At September 30, 2012, the Bank had outstanding loans of $.2 million to
persons serving as directors, executive officers, principal stockholders and
their related interests. These loans, when made, were in the ordinary course of
business on substantially the same terms, including interest rates, maturities
and collateral, as comparable loans made to customers not related to the Bank.
At September 30, 2012, and December 31, 2011, Bancorp had no bankers
acceptances.
Below is a discussion of the Companys loan portfolio by
category.
Commercial.
At September
30, 2012, the outstanding balance of commercial loans and lines was $286.1
million or approximately 19% of the Companys total loan portfolio. The total
commercial lines and loans balance decreased by $13.7 million or 5% from $299.8
million at year end 2011.
At September 30, 2012, commercial lines of credit accounted for $179.0
million or 63% of total outstanding commercial loans and lines, while commercial
term loans accounted for $107.1 million, or 37% of the total.
Real Estate Construction.
At September 30, 2012, the balance of
real estate construction loans was $47.4 million, an increase of $17.2 million
or 57% from $30.2 million at December 31, 2011, with the increase centered in
commercial real estate construction loans. Total real estate construction loans
represented approximately 3% of the total loan portfolio at the end of the third
quarter compared to 2% at December 31, 2011. Additionally, at the end of the
third quarter 2012, the Banks real estate construction concentration at 12%
relative to Tier 1 capital and allowance for credit losses was well within the
Interagency Guidelines for Real Estate Lending and the Commercial Real Estate
Lending Joint Guidance policy guidelines which set forth a 100% limit for such
ratio.
While the supply and market demand for homes is more in balance than in
recent years, the volume of new homes being constructed remains well below the
activity in years prior to the most recent recession. For certain home price
levels, there is also uncertainty surrounding the level of shadow inventory that
may exist in the market. As a consequence, there is relatively limited overall
demand for new single family residential construction loans in the Banks market
place. While the Bank participates in a limited way in vertical construction
financing it still views residential construction lending as high
risk.
- 42 -
Real Estate
Mortgage.
The following table presents the
components of the real estate mortgage loan portfolio:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change from
|
|
|
|
|
|
|
|
|
September 30, 2012
|
|
December 31, 2011
|
|
December 31, 2011
|
|
September 30, 2011
|
|
|
|
|
|
Percent of
|
|
|
|
|
Percent of
|
|
|
|
|
|
|
|
|
|
|
|
Percent of
|
|
|
|
|
|
loan
|
|
|
|
|
loan
|
|
|
|
|
|
|
|
|
|
|
|
loan
|
(Dollars in thousands)
|
|
Amount
|
|
category
|
|
Amount
|
|
category
|
|
Amount
|
|
Percent
|
|
Amount
|
|
category
|
Mortgage
|
|
$
|
56,548
|
|
19
|
%
|
|
$
|
66,610
|
|
21
|
%
|
|
$
|
(10,062
|
)
|
|
-15
|
%
|
|
$
|
69,333
|
|
21
|
%
|
Home equity loans and lines of
credit
|
|
|
244,683
|
|
81
|
%
|
|
|
258,384
|
|
79
|
%
|
|
|
(13,701
|
)
|
|
-5
|
%
|
|
|
261,457
|
|
79
|
%
|
Total real estate
mortgage
|
|
$
|
301,231
|
|
100
|
%
|
|
$
|
324,994
|
|
100
|
%
|
|
$
|
(23,763
|
)
|
|
-7
|
%
|
|
$
|
330,790
|
|
100
|
%
|
At September 30, 2012, real estate mortgage loans totaled $301.2 million
or approximately 20% of the Companys total loan portfolio. The mortgage loan
category included $5.9 million in nonstandard mortgage loans, a decline from
$8.5 million at December 31, 2011, and $9.9 million a year ago. At September 30,
2012, mortgage loans excluding nonstandard mortgage loans measured $50.6
million, a decline from $59.4 million a year ago. Standard residential mortgage
loans to borrowers represented $26.2 million of the mortgage loan category,
while the remaining $24.4 million were associated with commercial interests
utilizing residences as collateral. Such commercial interests included $17.0
million related to businesses, $1.8 million related to condominiums, and $2.2
million related to ownership of residential land.
Home equity lines and loans, totaled $244.7 million, and represented 16%
of the loan portfolio at September 30, 2012, a decline of $16.8 million from
$261.5 million a year earlier. The overall home equity line utilization measured
approximately 62% at September 30, 2012, which was relatively unchanged from the
line utilization a year ago. The Banks home equity portfolio balances have
trended lower as payoffs have increased and new loan and line originations
within this portfolio slowed significantly over the past few years.
The following table shows home equity
lines of credit and loans by market areas at the dates shown and, with the
exception of Bend where the Company no longer has a branch presence, indicates a
geographic distribution of balances remaining fairly representative of the
Banks branch presence in these markets:
(Dollars in thousands)
|
|
September 30, 2012
|
|
December 31, 2011
|
Region
|
|
Amount
|
|
Percent of total
|
|
Amount
|
|
Percent of total
|
Portland-Beaverton, Oregon
/ Vancouver, Washington
|
|
$
|
115,648
|
|
47.2
|
%
|
|
$
|
122,543
|
|
47.4
|
%
|
Salem, Oregon
|
|
|
59,892
|
|
24.4
|
%
|
|
|
61,019
|
|
23.6
|
%
|
Oregon non-metropolitan
area
|
|
|
26,139
|
|
10.7
|
%
|
|
|
27,419
|
|
10.6
|
%
|
Olympia, Washington
|
|
|
15,335
|
|
6.3
|
%
|
|
|
17,268
|
|
6.7
|
%
|
Washington
non-metropolitan area
|
|
|
12,368
|
|
5.1
|
%
|
|
|
12,859
|
|
5.0
|
%
|
Bend, Oregon
|
|
|
3,837
|
|
1.6
|
%
|
|
|
4,377
|
|
1.7
|
%
|
Other
|
|
|
11,464
|
|
4.7
|
%
|
|
|
12,899
|
|
5.0
|
%
|
Total
home equity loan and line portfolio
|
|
$
|
244,683
|
|
100
|
%
|
|
$
|
258,384
|
|
100.0
|
%
|
Should weaknesses in the housing market continue, coupled with persistent
high unemployment in the Companys markets, increased real estate mortgage
delinquencies and charge-offs may result going forward. Additionally, there may
be requests made in the future for repurchases of real estate mortgage loans
previously sold by the Company in the secondary market. At September 30, 2012,
the number of repurchase requests and the balances associated with those
requests were not material.
- 43 -
Commercial
Real Estate.
The composition of the
commercial real estate loan portfolio based on collateral type was as follows:
(Dollars in thousands)
|
|
September 30, 2012
|
|
December 31, 2011
|
|
September 30, 2011
|
|
|
|
|
|
% of loan
|
|
|
|
|
% of loan
|
|
|
|
|
% of loan
|
|
|
Amount
|
|
category
|
|
Amount
|
|
category
|
|
Amount
|
|
category
|
Office Buildings
|
|
$
|
171,213
|
|
20.3
|
%
|
|
$
|
173,295
|
|
20.8
|
%
|
|
$
|
183,146
|
|
21.9
|
%
|
Retail Facilities
|
|
|
119,482
|
|
14.2
|
%
|
|
|
118,678
|
|
14.3
|
%
|
|
|
114,606
|
|
13.7
|
%
|
Multi-Family - 5+
Residential
|
|
|
86,327
|
|
10.2
|
%
|
|
|
63,027
|
|
7.6
|
%
|
|
|
60,731
|
|
7.3
|
%
|
Commercial/Agricultural
|
|
|
60,711
|
|
7.2
|
%
|
|
|
60,094
|
|
7.2
|
%
|
|
|
60,059
|
|
7.2
|
%
|
Medical Offices
|
|
|
57,705
|
|
6.8
|
%
|
|
|
60,993
|
|
7.3
|
%
|
|
|
57,781
|
|
6.9
|
%
|
Industrial parks and related
|
|
|
56,234
|
|
6.7
|
%
|
|
|
55,392
|
|
6.7
|
%
|
|
|
58,310
|
|
7.0
|
%
|
Hotels/Motels
|
|
|
48,162
|
|
5.7
|
%
|
|
|
35,893
|
|
4.3
|
%
|
|
|
35,027
|
|
4.2
|
%
|
Manufacturing Plants
|
|
|
47,241
|
|
5.6
|
%
|
|
|
51,852
|
|
6.2
|
%
|
|
|
53,109
|
|
6.3
|
%
|
Mini Storage
|
|
|
22,413
|
|
2.7
|
%
|
|
|
19,037
|
|
2.3
|
%
|
|
|
21,795
|
|
2.6
|
%
|
Food Establishments
|
|
|
19,096
|
|
2.3
|
%
|
|
|
19,054
|
|
2.3
|
%
|
|
|
19,132
|
|
2.3
|
%
|
Assisted Living
|
|
|
17,291
|
|
2.0
|
%
|
|
|
22,040
|
|
2.6
|
%
|
|
|
22,191
|
|
2.7
|
%
|
Land Development and Raw Land
|
|
|
9,472
|
|
1.1
|
%
|
|
|
17,278
|
|
2.1
|
%
|
|
|
20,318
|
|
2.4
|
%
|
Other
|
|
|
128,489
|
|
15.2
|
%
|
|
|
136,134
|
|
16.3
|
%
|
|
|
130,547
|
|
15.5
|
%
|
Total
commercial real estate loans
|
|
$
|
843,836
|
|
100.0
|
%
|
|
$
|
832,767
|
|
100.0
|
%
|
|
$
|
836,752
|
|
100.0
|
%
|
The total commercial real estate portfolio increased $11.0 million or
1.3% from $832.8 million at December 31, 2011, to $843.8 million at September
30, 2012. At September 30, 2012, loans secured by office buildings and retail
facilities accounted for 34.5% of the commercial real estate portfolio,
relatively unchanged from prior periods shown. The average size of the Banks
commercial real estate loans was approximately $.5 million at September 30,
2012.
The composition of the commercial real estate loan portfolio by occupancy
type was as follows:
|
|
September 30, 2012
|
|
December 31, 2011
|
|
Change
|
|
September 30, 2011
|
|
|
|
|
|
Mix
|
|
|
|
|
Mix
|
|
|
|
|
|
Mix
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
Amount
|
|
Percent
|
|
Amount
|
|
Percent
|
|
Amount
|
|
Percent
|
|
Amount
|
|
Percent
|
Owner occupied
|
|
$
|
360,640
|
|
43
|
%
|
|
$
|
390,589
|
|
47
|
%
|
|
$
|
(29,949
|
)
|
|
-4
|
%
|
|
$
|
394,563
|
|
47
|
%
|
Non-owner occupied
|
|
|
483,196
|
|
57
|
%
|
|
|
442,178
|
|
53
|
%
|
|
|
41,018
|
|
|
4
|
%
|
|
|
442,189
|
|
53
|
%
|
Total commercial real
estate loans
|
|
$
|
843,836
|
|
100
|
%
|
|
$
|
832,767
|
|
100
|
%
|
|
$
|
11,069
|
|
|
|
|
|
$
|
836,752
|
|
100
|
%
|
Over the periods shown above, the balance of owner occupied commercial
real estate loans has declined while that of non-owner occupied has increased.
At September 30, 2012, the Banks commercial real estate concentration, at 128%
relative to Tier 1 capital and allowance for credit losses, was well within the
Interagency Guidelines for Real Estate Lending and the Commercial Real Estate
Lending Joint Guidance policy guidelines which set forth a 300% limit for such
ratio.
- 44 -
The following
table shows the distribution of the commercial real estate portfolio at
September 30, 2012.
(Dollars in thousands)
|
|
September 30, 2012
|
|
|
|
|
|
Number of
|
|
Percent of
|
Region
|
|
Amount
|
|
loans
|
|
total
|
Portland-Beaverton, Oregon
/ Vancouver, Washington
|
|
$
|
421,849
|
|
697
|
|
50
|
%
|
Salem, Oregon
|
|
|
168,010
|
|
366
|
|
20
|
%
|
Oregon non-metropolitan
area
|
|
|
53,955
|
|
150
|
|
6
|
%
|
Seattle-Tacoma-Bellevue,
Washington
|
|
|
35,279
|
|
47
|
|
4
|
%
|
Olympia,
Washington
|
|
|
31,161
|
|
73
|
|
4
|
%
|
Washington non-metropolitan area
|
|
|
29,142
|
|
99
|
|
3
|
%
|
Bend, Oregon
|
|
|
24,004
|
|
23
|
|
3
|
%
|
Other
|
|
|
80,436
|
|
123
|
|
10
|
%
|
Total commercial real
estate loans
|
|
$
|
843,836
|
|
1,578
|
|
100
|
%
|
The following table shows the commercial real estate portfolio by year of
stated maturity:
|
|
September 30, 2012
|
|
|
|
|
|
Number of
|
|
Percent of
|
(Dollars in thousands)
|
|
Amount
|
|
loans
|
|
total
|
2012
|
|
$
|
22,668
|
|
32
|
|
2.7
|
%
|
2013
|
|
|
50,007
|
|
99
|
|
5.9
|
%
|
2014 & After
|
|
|
771,161
|
|
1,447
|
|
91.4
|
%
|
Total
commercial real estate loans
|
|
$
|
843,836
|
|
1,578
|
|
100.0
|
%
|
At September 30, 2012, commercial real estate loans with stated loan
maturities in 2012 and 2013 totaled $72.7 million or a relatively modest 8.6% of
the $843.8 million total commercial real estate portfolio. While qualified
commercial real estate borrowers may be incented to refinance such loans given
the low interest rate environment, commercial real estate markets also continue
to be vulnerable to financial and valuation pressures that may limit refinance
options for certain borrowers and negatively impact their ability to perform
under existing loan agreements. Declining values of commercial real estate or
higher market interest rates may also have an adverse effect on the ability of
borrowers with maturing loans to satisfy loan to value ratios required to renew
such loans.
- 45 -
Nonperforming Assets, Troubled Debt
Restructurings, OREO and Delinquencies
Nonperforming Assets.
Nonperforming
assets consist of nonaccrual loans, loans past due more than 90 days and still
accruing interest and OREO. The following table presents information with
respect to total nonaccrual loans by category and OREO for the quarterly periods
presented:
|
|
September 30, 2012
|
|
June 30, 2012
|
|
March 31, 2012
|
|
December 31, 2011
|
|
September 30, 2011
|
|
|
|
|
|
|
Percent of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
loan
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
Amount
|
|
category
|
|
Amount
|
|
Amount
|
|
Amount
|
|
Amount
|
Commercial loans
|
|
$
|
6,643
|
|
|
2.3
|
%
|
|
$
|
6,199
|
|
|
$
|
6,482
|
|
|
$
|
7,750
|
|
|
$
|
9,987
|
|
Real estate construction loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate
construction
|
|
|
1,650
|
|
|
4.2
|
%
|
|
|
3,750
|
|
|
|
3,749
|
|
|
|
3,750
|
|
|
|
3,886
|
|
Residential real estate construction
|
|
|
1,851
|
|
|
22.3
|
%
|
|
|
1,936
|
|
|
|
1,981
|
|
|
|
2,073
|
|
|
|
3,311
|
|
Total real estate
construction loans
|
|
|
3,501
|
|
|
7.4
|
%
|
|
|
5,686
|
|
|
|
5,730
|
|
|
|
5,823
|
|
|
|
7,197
|
|
Real estate mortgage loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage
|
|
|
6,170
|
|
|
10.9
|
%
|
|
|
7,044
|
|
|
|
10,744
|
|
|
|
9,624
|
|
|
|
10,877
|
|
Home
equity loans and lines of credit
|
|
|
2,845
|
|
|
1.2
|
%
|
|
|
2,239
|
|
|
|
2,528
|
|
|
|
2,325
|
|
|
|
3,285
|
|
Total real estate mortgage
loans
|
|
|
9,015
|
|
|
3.0
|
%
|
|
|
9,283
|
|
|
|
13,272
|
|
|
|
11,949
|
|
|
|
14,162
|
|
Commercial real estate loans
|
|
|
13,248
|
|
|
1.6
|
%
|
|
|
12,384
|
|
|
|
16,648
|
|
|
|
15,070
|
|
|
|
21,513
|
|
Installment and other
consumer loans
|
|
|
-
|
|
|
0.0
|
%
|
|
|
-
|
|
|
|
1
|
|
|
|
5
|
|
|
|
6
|
|
Total
nonaccrual loans
|
|
|
32,407
|
|
|
2.2
|
%
|
|
|
33,552
|
|
|
|
42,133
|
|
|
|
40,597
|
|
|
|
52,865
|
|
90 day past due and
accruing interest
|
|
|
-
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Total
nonperforming loans
|
|
|
32,407
|
|
|
2.2
|
%
|
|
|
33,552
|
|
|
|
42,133
|
|
|
|
40,597
|
|
|
|
52,865
|
|
Other real estate
owned
|
|
|
21,939
|
|
|
|
|
|
|
25,726
|
|
|
|
27,525
|
|
|
|
30,823
|
|
|
|
30,234
|
|
Total nonperforming assets
|
|
$
|
54,346
|
|
|
|
|
|
$
|
59,278
|
|
|
$
|
69,658
|
|
|
$
|
71,420
|
|
|
$
|
83,099
|
|
|
Nonperforming loans to
total loans
|
|
|
2.17
|
%
|
|
|
|
|
|
2.24
|
%
|
|
|
2.86
|
%
|
|
|
2.70
|
%
|
|
|
3.52
|
%
|
Nonperforming assets to total
assets
|
|
|
2.19
|
%
|
|
|
|
|
|
2.46
|
%
|
|
|
2.89
|
%
|
|
|
2.94
|
%
|
|
|
3.30
|
%
|
|
Delinquent loans 30-89
days past due
|
|
$
|
2,963
|
|
|
|
|
|
$
|
3,422
|
|
|
$
|
4,095
|
|
|
$
|
4,273
|
|
|
$
|
5,556
|
|
Delinquent loans to total loans
|
|
|
0.20
|
%
|
|
|
|
|
|
0.23
|
%
|
|
|
0.28
|
%
|
|
|
0.28
|
%
|
|
|
0.37
|
%
|
At September 30, 2012, total
nonperforming assets were $54.3 million, or 2.19% of total assets, compared to
$71.4 million, or 2.94%, at December 31, 2011, and $83.1 million or 3.30% a year
ago.
Total nonaccrual loans of $32.4 million declined $8.2 million or 20% from
year end and $20.5 million or 39% from September 30, 2011. Nonaccrual loans as
of September 30, 2012, declined in every loan category compared to twelve months
earlier.
Troubled Debt Restructurings.
At September 30, 2012, Bancorp had $32.8 million in loans classified as
troubled debt restructurings of which $15.8 million were on an interest accruing
status and $17.0 million on nonaccrual status. Troubled debt restructurings were
$37.6 million at December 31, 2011, of which $15.8 million was on an interest
accruing status and $21.8 million on nonaccrual status. All troubled debt
restructurings were considered impaired at September 30, 2012, and at year end
2011. The modifications granted on troubled debt restructurings were due to
borrower financial difficulty, and generally provide for a modification of loan
terms. For more information regarding Bancorps troubled debt restructurings and
loans, see Note 3 Loans and Allowance for Credit Losses to the Companys
audited consolidated financial statements included under the section Financial
Statements and Supplementary Data in Item 8 of the 2011 10-K.
- 46 -
Other Real Estate Owned.
The following table presents activity in the
total OREO portfolio for the periods shown:
(Dollars in thousands)
|
|
Total OREO related
activity
|
|
|
Amount
|
|
Number
|
Full year 2011:
|
|
|
|
|
|
|
|
Beginning balance January 1, 2011
|
|
$
|
39,459
|
|
|
402
|
|
Additions to
OREO
|
|
|
21,662
|
|
|
74
|
|
Valuation adjustments
|
|
|
(4,832
|
)
|
|
-
|
|
Disposition of OREO
properties
|
|
|
(25,466
|
)
|
|
(212
|
)
|
Ending balance December 31, 2011
|
|
$
|
30,823
|
|
|
264
|
|
|
First Quarter 2012
|
|
|
|
|
|
|
|
Additions to OREO
|
|
$
|
810
|
|
|
9
|
|
Valuation
adjustments
|
|
|
(521
|
)
|
|
-
|
|
Disposition of OREO properties
|
|
|
(3,587
|
)
|
|
(27
|
)
|
Ending balance March 31,
2012
|
|
$
|
27,525
|
|
|
246
|
|
|
Second Quarter 2012
|
|
|
|
|
|
|
|
Additions to OREO
|
|
$
|
3,304
|
|
|
28
|
|
Valuation
adjustments
|
|
|
(1,213
|
)
|
|
-
|
|
Disposition of OREO properties
|
|
|
(3,890
|
)
|
|
(30
|
)
|
Ending balance June 30,
2012
|
|
$
|
25,726
|
|
|
244
|
|
|
Third Quarter 2012
|
|
|
|
|
|
|
|
Additions to OREO
|
|
$
|
487
|
|
|
3
|
|
Valuation
adjustments
|
|
|
(486
|
)
|
|
-
|
|
Disposition of OREO properties
|
|
|
(3,788
|
)
|
|
(29
|
)
|
Ending balance September
30, 2012
|
|
$
|
21,939
|
|
|
218
|
|
|
Year to Date 2012
|
|
|
|
|
|
|
|
Beginning balance January 1, 2012
|
|
$
|
30,823
|
|
|
264
|
|
Additions to
OREO
|
|
|
4,601
|
|
|
40
|
|
Valuation adjustments
|
|
|
(2,220
|
)
|
|
-
|
|
Disposition of OREO
properties
|
|
|
(11,265
|
)
|
|
(86
|
)
|
Ending balance September 30, 2012
|
|
$
|
21,939
|
|
|
218
|
|
During the
third quarter 2012 the Company added $.5 million in OREO property, disposed of
$3.8 million in OREO property, and recorded OREO valuation adjustments of $.5
million. OREO valuation adjustments are recorded as other noninterest income. At
September 30, 2012, the OREO portfolio consisted of 218 properties, which was
valued at $21.9 million and reflected write-downs of 57% from original loan
principal. The largest balances in the OREO portfolio at September 30, 2012,
were attributable to income producing properties, followed by land and homes,
all of which are located within the region in which the Company operates, with
the exception of Bend, Oregon, where it no longer has a branch presence. For
more information regarding the Companys OREO, see the discussion under the
subheading OREO and Critical Accounting Policies included in Item 7 of the
Companys 2011 10-K.
The following table presents segments of the OREO portfolio for the
periods shown:
(Dollars in thousands)
|
|
September 30,
|
|
# of
|
|
June 30,
|
|
# of
|
|
March 31,
|
|
# of
|
|
|
2012
|
|
properties
|
|
2012
|
|
properties
|
|
2012
|
|
properties
|
Income producing
properties
|
|
$
|
7,749
|
|
11
|
|
$
|
8,106
|
|
13
|
|
$
|
9,352
|
|
15
|
Land
|
|
|
4,104
|
|
13
|
|
|
4,780
|
|
15
|
|
|
4,710
|
|
14
|
Homes
|
|
|
3,518
|
|
14
|
|
|
5,539
|
|
20
|
|
|
5,228
|
|
16
|
Residential site developments
|
|
|
2,736
|
|
114
|
|
|
3,104
|
|
126
|
|
|
3,367
|
|
136
|
Lots
|
|
|
1,912
|
|
40
|
|
|
1,999
|
|
42
|
|
|
2,453
|
|
49
|
Multifamily
|
|
|
1,570
|
|
20
|
|
|
1,570
|
|
20
|
|
|
408
|
|
4
|
Commercial site
developments
|
|
|
350
|
|
6
|
|
|
303
|
|
6
|
|
|
366
|
|
6
|
Condominiums
|
|
|
-
|
|
-
|
|
|
325
|
|
2
|
|
|
1,641
|
|
6
|
Total
|
|
$
|
21,939
|
|
218
|
|
$
|
25,726
|
|
244
|
|
$
|
27,525
|
|
246
|
- 47 -
Expenses from
the acquisition, maintenance and disposition of OREO properties are included in
other noninterest expense in the statements of income. The Banks operating
results will be impacted by its ability to dispose of OREO properties at prices
that are in line with current valuation expectations. Further decline in real
estate market values in the Banks lending area would lead to additional OREO
valuation adjustments or losses upon final disposal, which would have an adverse
effect on the results of operations.
Delinquencies.
Bancorp also monitors delinquencies,
defined as loan balances 30-89 days past due, not on nonaccrual status, as an
indicator of future nonperforming assets. Total delinquencies were $3.0 million
or .20% of total loans at September 30, 2012, down from $4.3 million or .28% at
December 31, 2011, and $5.6 million or .37% at September 30, 2011.
The following table summarizes total delinquent loan balances by loan
category as of the dates shown:
(Dollars in thousands)
|
|
September 30, 2012
|
|
December 31, 2011
|
|
September 30, 2011
|
|
|
|
|
|
|
Percent of
|
|
|
|
|
|
Percent of
|
|
|
|
|
|
Percent of
|
|
|
Amount
|
|
loan category
|
|
Amount
|
|
loan category
|
|
Amount
|
|
loan category
|
Loans 30-89 days past due,
not on nonaccrual status
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
$
|
1,058
|
|
|
0.37
|
%
|
|
$
|
683
|
|
|
0.23
|
%
|
|
$
|
610
|
|
|
0.21
|
%
|
Real estate
construction
|
|
|
-
|
|
|
0.00
|
%
|
|
|
-
|
|
|
0.00
|
%
|
|
|
-
|
|
|
0.00
|
%
|
Real
estate mortgage:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage
|
|
|
1,004
|
|
|
1.98
|
%
|
|
|
1,355
|
|
|
2.03
|
%
|
|
|
455
|
|
|
0.77
|
%
|
Nonstandard mortgage product
|
|
|
-
|
|
|
0.00
|
%
|
|
|
-
|
|
|
0.00
|
%
|
|
|
-
|
|
|
0.00
|
%
|
Home equity loans and lines of credit
|
|
|
16
|
|
|
0.01
|
%
|
|
|
1,034
|
|
|
0.40
|
%
|
|
|
219
|
|
|
0.08
|
%
|
Total
real estate mortgage
|
|
|
1,020
|
|
|
0.34
|
%
|
|
|
2,389
|
|
|
0.74
|
%
|
|
|
674
|
|
|
0.20
|
%
|
Commercial real
estate
|
|
|
722
|
|
|
0.09
|
%
|
|
|
1,145
|
|
|
0.14
|
%
|
|
|
4,184
|
|
|
0.50
|
%
|
Installment and consumer
|
|
|
163
|
|
|
1.34
|
%
|
|
|
56
|
|
|
0.41
|
%
|
|
|
88
|
|
|
0.64
|
%
|
Total loans 30-89 days
past due, not in nonaccrual status
|
|
$
|
2,963
|
|
|
|
|
|
$
|
4,273
|
|
|
|
|
|
$
|
5,556
|
|
|
|
|
|
Delinquent loans past due
30-89 days to total loans
|
|
|
0.20
|
%
|
|
|
|
|
|
0.28
|
%
|
|
|
|
|
|
0.37
|
%
|
|
|
|
Allowance for Credit Losses and Net
Loan Charge-offs
Allowance for Credit Losses.
An allowance for credit losses has been
established based on managements best estimate, as of the balance sheet date,
of probable losses inherent in the loan portfolio. For more information
regarding the Companys allowance for credit losses and net loan charge-offs,
see the discussion under the subheadings Credit Management, Allowance for
Credit Losses and Net Loan Charge-offs and Critical Accounting Policies
included in Item 7 of the Companys 2011 10-K.
- 48 -
The following
table is a summary of activity in the allowance for credit losses for the
quarterly periods presented:
(Dollars in thousands)
|
|
Sep. 30,
|
|
June 30,
|
|
March 31,
|
|
Dec. 31,
|
|
Sep. 30,
|
|
|
2012
|
|
2012
|
|
2012
|
|
2011
|
|
2011
|
Loans outstanding at end
of period
|
|
$
|
1,490,767
|
|
|
$
|
1,495,797
|
|
|
$
|
1,470,848
|
|
|
$
|
1,501,301
|
|
|
$
|
1,503,624
|
|
Average loans outstanding during the
period
|
|
|
1,493,454
|
|
|
|
1,479,226
|
|
|
|
1,482,522
|
|
|
|
1,498,437
|
|
|
|
1,515,091
|
|
|
Allowance for credit
losses, beginning of period
|
|
|
33,900
|
|
|
|
34,634
|
|
|
|
35,983
|
|
|
|
37,016
|
|
|
|
39,231
|
|
Total provision (benefit) for credit
losses
|
|
|
(593
|
)
|
|
|
(492
|
)
|
|
|
89
|
|
|
|
1,499
|
|
|
|
1,132
|
|
Loan
charge-offs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
(203
|
)
|
|
|
(379
|
)
|
|
|
(634
|
)
|
|
|
(710
|
)
|
|
|
(1,462
|
)
|
Commercial real estate construction
|
|
|
(150
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(136
|
)
|
|
|
(472
|
)
|
Residential real estate construction
|
|
|
-
|
|
|
|
-
|
|
|
|
(3
|
)
|
|
|
(143
|
)
|
|
|
(95
|
)
|
Total real estate
construction
|
|
|
(150
|
)
|
|
|
-
|
|
|
|
(3
|
)
|
|
|
(279
|
)
|
|
|
(567
|
)
|
Mortgage
|
|
|
(130
|
)
|
|
|
(122
|
)
|
|
|
(691
|
)
|
|
|
(191
|
)
|
|
|
(257
|
)
|
Home equity lines of credit
|
|
|
(454
|
)
|
|
|
(354
|
)
|
|
|
(548
|
)
|
|
|
(760
|
)
|
|
|
(547
|
)
|
Total
real estate mortgage
|
|
|
(584
|
)
|
|
|
(476
|
)
|
|
|
(1,239
|
)
|
|
|
(951
|
)
|
|
|
(804
|
)
|
Commercial real
estate
|
|
|
(149
|
)
|
|
|
(549
|
)
|
|
|
(62
|
)
|
|
|
(834
|
)
|
|
|
(800
|
)
|
Installment and consumer
|
|
|
(64
|
)
|
|
|
(70
|
)
|
|
|
(191
|
)
|
|
|
(130
|
)
|
|
|
(32
|
)
|
Overdraft
|
|
|
(166
|
)
|
|
|
(182
|
)
|
|
|
(228
|
)
|
|
|
(288
|
)
|
|
|
(279
|
)
|
Total
loan charge-offs
|
|
|
(1,316
|
)
|
|
|
(1,656
|
)
|
|
|
(2,357
|
)
|
|
|
(3,192
|
)
|
|
|
(3,944
|
)
|
Recoveries:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
101
|
|
|
|
156
|
|
|
|
639
|
|
|
|
418
|
|
|
|
281
|
|
Commercial real estate construction
|
|
|
2
|
|
|
|
-
|
|
|
|
-
|
|
|
|
88
|
|
|
|
-
|
|
Residential real estate construction
|
|
|
4
|
|
|
|
29
|
|
|
|
2
|
|
|
|
3
|
|
|
|
182
|
|
Total real estate
construction
|
|
|
6
|
|
|
|
29
|
|
|
|
2
|
|
|
|
91
|
|
|
|
182
|
|
Mortgage
|
|
|
29
|
|
|
|
30
|
|
|
|
157
|
|
|
|
14
|
|
|
|
11
|
|
Home equity loans and lines of credit
|
|
|
81
|
|
|
|
18
|
|
|
|
6
|
|
|
|
37
|
|
|
|
31
|
|
Total
real estate mortgage
|
|
|
110
|
|
|
|
48
|
|
|
|
163
|
|
|
|
51
|
|
|
|
42
|
|
Commercial real
estate
|
|
|
23
|
|
|
|
1,129
|
|
|
|
21
|
|
|
|
22
|
|
|
|
21
|
|
Installment and consumer
|
|
|
16
|
|
|
|
13
|
|
|
|
26
|
|
|
|
11
|
|
|
|
26
|
|
Overdraft
|
|
|
41
|
|
|
|
39
|
|
|
|
68
|
|
|
|
67
|
|
|
|
45
|
|
Total
recoveries
|
|
|
297
|
|
|
|
1,414
|
|
|
|
919
|
|
|
|
660
|
|
|
|
597
|
|
Net loan
charge-offs
|
|
|
(1,019
|
)
|
|
|
(242
|
)
|
|
|
(1,438
|
)
|
|
|
(2,532
|
)
|
|
|
(3,347
|
)
|
Allowance for credit losses, end of
period
|
|
$
|
32,288
|
|
|
$
|
33,900
|
|
|
$
|
34,634
|
|
|
$
|
35,983
|
|
|
$
|
37,016
|
|
|
Components of allowance
for credit losses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses
|
|
$
|
31,457
|
|
|
$
|
33,132
|
|
|
$
|
33,854
|
|
|
$
|
35,212
|
|
|
$
|
36,314
|
|
Reserve for unfunded
commitments
|
|
|
831
|
|
|
|
768
|
|
|
|
780
|
|
|
|
771
|
|
|
|
702
|
|
Total
allowance for credit losses
|
|
$
|
32,288
|
|
|
$
|
33,900
|
|
|
$
|
34,634
|
|
|
$
|
35,983
|
|
|
$
|
37,016
|
|
|
Net loan charge-offs to
average loans annualized
|
|
|
0.27
|
%
|
|
|
0.07
|
%
|
|
|
0.39
|
%
|
|
|
0.67
|
%
|
|
|
0.88
|
%
|
|
Allowance for loan losses
to total loans
|
|
|
2.11
|
%
|
|
|
2.22
|
%
|
|
|
2.30
|
%
|
|
|
2.35
|
%
|
|
|
2.42
|
%
|
Allowance for credit losses to total
loans
|
|
|
2.17
|
%
|
|
|
2.27
|
%
|
|
|
2.35
|
%
|
|
|
2.40
|
%
|
|
|
2.46
|
%
|
|
Allowance for loan losses
to nonperforming loans
|
|
|
97
|
%
|
|
|
99
|
%
|
|
|
80
|
%
|
|
|
87
|
%
|
|
|
69
|
%
|
Allowance for credit losses to nonperforming
loans
|
|
|
100
|
%
|
|
|
101
|
%
|
|
|
82
|
%
|
|
|
89
|
%
|
|
|
70
|
%
|
- 49 -
At September
30, 2012, the Companys allowance for credit losses was $32.3 million,
consisting of a $27.0 million formula allowance, a $3.8 million unallocated
allowance, a $.7 million specific allowance and a $.8 million reserve for
unfunded commitments. At December 31, 2011, the Companys allowance for credit
losses was $36.0 million, consisting of a $30.3 million formula allowance, a
$4.4 million unallocated allowance, a $.5 million specific allowance and a $.8
million reserve for unfunded commitments. The reduction in provision for credit
losses in the third quarter 2012, compared to the same quarter of 2011, reflects
an overall improving risk profile of the loan portfolio, as evidenced by
charge-off activity, low delinquency, and a positive risk rating migration. The
level of net loan charge-offs in the year to date 2012 was heavily influenced by
a recovery of $1.1 million related to a commercial real estate loan in the
second quarter of 2012. At September 30, 2012, the allowance for credit losses
was 2.17% of total loans, a decrease from 2.40% at December 31, 2011. At
September 30, 2012, the allowance for credit losses was 100% of nonperforming
loans, as compared to 89% at December 31, 2011, and 70% twelve months
earlier.
Overall, the Company believes that the allowance for credit losses is
adequate to absorb probable losses in the loan portfolio at September 30, 2012,
although there can be no assurance that future loan losses will not exceed
current estimates. The process for determining the adequacy of the allowance for
credit losses is critical to the Companys financial results. Please see Item 1A
Risk Factors in the Companys 2011 10-K.
Net Loan Charge-offs.
For
the quarter ended September 30, 2012, total net loan charge-offs were $1.0
million, down from $3.3 million in the third quarter of 2011. Year-over-year
third quarter, net loan charge-offs declined across nearly every category. Third
quarter 2012 annualized net loan charge-offs to total average loans outstanding
was 0.27%, down from 0.88% in the same quarter last year and up from 0.07% in
the previous quarter.
Deposits and Borrowings
The following table summarizes the quarterly average dollar amount in,
and the interest rate paid on, each of the deposit and borrowing categories
during the third quarters of 2012 and 2011 and second quarter 2012:
|
|
Third Quarter
2012
|
|
Second Quarter
2012
|
|
Third Quarter
2011
|
|
|
Quarterly Average
|
|
Percent
|
|
Rate
|
|
Quarterly Average
|
|
Percent
|
|
Rate
|
|
Quarterly Average
|
|
Percent
|
|
Rate
|
(Dollars in thousands)
|
|
Balance
|
|
of
total
|
|
Paid
|
|
Balance
|
|
of
total
|
|
Paid
|
|
Balance
|
|
of
total
|
|
Paid
|
Non-interest bearing demand
|
|
$
|
677,646
|
|
35.5
|
%
|
|
-
|
|
|
$
|
621,547
|
|
33.2
|
%
|
|
-
|
|
|
$
|
615,956
|
|
31.5
|
%
|
|
-
|
|
Interest bearing demand
|
|
|
365,560
|
|
19.2
|
%
|
|
0.04
|
%
|
|
|
374,579
|
|
20.0
|
%
|
|
0.04
|
%
|
|
|
363,554
|
|
18.6
|
%
|
|
0.05
|
%
|
Savings
|
|
|
132,839
|
|
7.0
|
%
|
|
0.05
|
%
|
|
|
127,930
|
|
6.8
|
%
|
|
0.05
|
%
|
|
|
114,779
|
|
5.9
|
%
|
|
0.09
|
%
|
Money market
|
|
|
592,363
|
|
31.0
|
%
|
|
0.09
|
%
|
|
|
596,949
|
|
31.9
|
%
|
|
0.09
|
%
|
|
|
661,871
|
|
33.9
|
%
|
|
0.19
|
%
|
Time deposits
|
|
|
140,151
|
|
7.3
|
%
|
|
0.57
|
%
|
|
|
151,085
|
|
8.1
|
%
|
|
0.66
|
%
|
|
|
196,807
|
|
10.1
|
%
|
|
1.20
|
%
|
Total deposits
|
|
|
1,908,559
|
|
100.0
|
%
|
|
0.08
|
%
|
|
|
1,872,090
|
|
100.0
|
%
|
|
0.09
|
%
|
|
|
1,952,967
|
|
100.0
|
%
|
|
0.20
|
%
|
|
Short-term borrowings
1
|
|
|
17,989
|
|
|
|
|
0.81
|
%
|
|
|
3,143
|
|
|
|
|
0.51
|
%
|
|
|
39,926
|
|
|
|
|
9.33
|
%
|
Long-term borrowings
1 2
|
|
|
161,074
|
|
|
|
|
1.14
|
%
|
|
|
175,098
|
|
|
|
|
1.44
|
%
|
|
|
180,428
|
|
|
|
|
7.60
|
%
|
Total
borrowings
|
|
|
179,063
|
|
|
|
|
1.45
|
%
|
|
|
178,241
|
|
|
|
|
1.44
|
%
|
|
|
220,354
|
|
|
|
|
7.91
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deposits and borrowings
|
|
$
|
2,087,622
|
|
|
|
|
0.29
|
%
|
|
$
|
2,050,331
|
|
|
|
|
0.30
|
%
|
|
$
|
2,173,321
|
|
|
|
|
1.37
|
%
|
1
|
Includes $2.8 million prepayment
fee in connections with prepaying $88.3 million in FHLB borrowings in the
third quarter 2011.
|
2
|
Long-term borrowings include
junior subordinated debentures.
|
Third quarter
2012 average total deposits of $1.91 billion declined 2%, or $44.4 million from
the same quarter in 2011. This decrease was due to reductions in money market
deposits and higher cost time deposit balances, which declined $69.5 million and
$56.7 million, respectively, from the same quarter last year. Time deposits
represented just 7% of the Banks average total deposits in the most recent
quarter, a decline from 10% in the third quarter of 2011. The combination of the
Banks favorable shift in deposit mix and deposit pricing strategies helped
reduce the average rate paid on total deposits to 0.08% in third quarter 2012, a
decline of 12 basis points from 0.20% in the same quarter of 2011 and a decline
of one basis point from .09% in the second quarter of 2012. Whether the Company
will continue to be successful maintaining its low cost deposit base will depend
on various factors, including deposit pricing strategies, market interest rates,
the effects of competition, client behavior, and the impact of regulatory
changes and requirements.
At September 30, 2012, the Bank did not hold any brokered deposits as
compared to $6.0 million at December 31, 2011, and $7.3 million at September 30,
2011. Brokered deposits were not replaced as they matured.
The average balance of long-term borrowings decreased $19.4 million to
$161.1 million in the quarter ended September 30, 2012, compared to the same
period last year. In the second half of 2011, the Company elected to prepay its
FHLB term borrowings of $169 million and to enter into $120 million in new term
borrowings with the FHLB in conjunction with managing its interest rate
sensitivity position. The rate on the new term borrowings is 1.05%, a reduction
from 3.17% on the amount prepaid.
At September 30, 2012, the balance of junior subordinated debentures
issued in connection with the Companys prior issuances of trust preferred
securities was $51.0 million or unchanged from September 30, 2011. Bancorp has
no deferred interest on its outstanding debentures.
- 50 -
Capital Resources
The Board
of Governors of the Federal Reserve System (Federal Reserve) and the FDIC have
established minimum requirements for capital adequacy for bank holding companies
and state non-member banks. For more information on these topics, see the
discussions under the subheadings Capital Adequacy Requirements in the section
Supervision and Regulation included in Item 1 of the Companys 2011 10-K. The
following table summarizes the capital measures of Bancorp and the Bank for the
periods shown:
|
|
West Coast Bancorp
|
|
|
West Coast Bank
|
|
Minimum requirements
|
(Dollars in thousands)
|
|
September 30,
|
|
December 31,
|
|
|
September 30,
|
|
December 31,
|
|
Adequately
|
|
Well
|
|
|
2012
|
|
2011
|
|
2011
|
|
|
2012
|
|
2011
|
|
2011
|
|
Capitalized
|
|
Capitalized
|
Tier 1 risk-based capital
ratio
|
|
|
20.45
|
%
|
|
|
18.43
|
%
|
|
|
19.36
|
%
|
|
|
|
19.80
|
%
|
|
|
17.74
|
%
|
|
|
18.66
|
%
|
|
4.00
|
%
|
|
6.00
|
%
|
Total risk-based capital ratio
|
|
|
21.62
|
%
|
|
|
19.69
|
%
|
|
|
20.62
|
%
|
|
|
|
21.06
|
%
|
|
|
19.00
|
%
|
|
|
19.92
|
%
|
|
8.00
|
%
|
|
10.00
|
%
|
Leverage ratio
|
|
|
15.48
|
%
|
|
|
13.72
|
%
|
|
|
14.61
|
%
|
|
|
|
15.00
|
%
|
|
|
13.20
|
%
|
|
|
14.09
|
%
|
|
4.00
|
%
|
|
5.00
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders'
equity
|
|
$
|
335,996
|
|
|
$
|
296,867
|
|
|
$
|
314,479
|
|
|
|
$
|
374,769
|
|
|
$
|
334,746
|
|
|
$
|
352,187
|
|
|
|
|
|
|
|
Bancorps total risk-based capital
ratio increased to 21.62% at September 30, 2012, from 20.62% at December 31,
2011, and 19.69% at September 30, 2011, while Bancorp's Tier 1 risk-based
capital ratio increased to 20.45% at the most recent quarter end, from 19.36% at
year end 2011 and 18.43% at September 30, 2011. The increases in capital ratios
were primarily due to the Companys continued profitability. Also, the
year-over-year increases in the capital ratios were positively impacted by the
effect of fully reversing the Companys deferred tax asset valuation allowance
in the fourth quarter of 2011. The total risk-based capital ratio at the Bank
improved to 21.06% at September 30, 2012, from 19.92% at year end 2011, and
19.00% at September 30, 2011, while the Banks Tier 1 risk-based capital ratio
increased to 19.80% from 18.66% and 17.74% as of the same respective dates.
Additionally, the leverage ratio at the Bank improved to 15.00% at September 30,
2012, from 14.09% at year end 2011, and 13.20% a year ago.
The total risk based
capital ratios of Bancorp include $51.0 million of junior subordinated
debentures which qualified as Tier 1 capital at September 30, 2012, under
guidance issued by the Federal Reserve. The Company will monitor the
finalization of the Basel III Capital Rules, including whether its junior
subordinated debentures will continue to qualify for Tier 1 capital under the
final rules.
Bancorps stockholders equity was
$336.0 million at September 30, 2012, up from $314.5 million at year end 2011
and $296.9 million at September 30, 2011.
- 51 -
Liquidity and Sources of
Funds
The
Banks sources of funds include customer deposits, loan repayments, borrowings
from the FHLB, maturities of investment securities, sales of Available for
Sale securities, loan and OREO sales, net income, and loans taken out at the
Reserve Bank discount window. Scheduled loan repayments are a relatively stable
source of funds, while deposit inflows, unscheduled loan prepayments, and loan
and OREO sales are not. Deposit inflows, sales of securities, loan and OREO
properties, and unscheduled loan prepayments may, amongst other factors, be
influenced by general interest rate levels, interest rates available on other
investments, competition, market and general economic conditions.
Deposits are the Banks primary
source of funds, and at September 30, 2012, its loan to deposit ratio was 77%,
relatively unchanged from December 31, 2011, and September 30, 2011. Declining
loan balances over the past few years caused the collective balance of interest
bearing deposits and investment securities portfolio of $841.0 million to
account for a significant 36% of total earning assets at September 30, 2012. In
light of the Banks substantial liquidity position it continued to reduce
brokered and other time deposits during the most recent quarter.
The following table summarizes the
Banks primary liquidity, on-balance sheet liquidity, and net non-core funding
dependency ratios. The primary liquidity ratio represents the sum of net cash
and short-term, marketable assets and available borrowing lines divided by total
deposits. The on-balance sheet liquidity ratio consists of the sum of net cash, short-term and
marketable assets divided by total deposits. The net non-core funding dependency
ratio is non-core liabilities less short-term investments divided by long-term
assets.
T
he Banks
primary liquidity, on-balance sheet liquidity, and net non-core funding
dependency ratios remained strong at quarter end:
|
|
September 30,
|
|
December 31,
|
|
|
2012
|
|
2011
|
Primary
liquidity
|
|
48
|
%
|
|
45
|
%
|
On-balance sheet liquidity
|
|
29
|
%
|
|
26
|
%
|
Net non-core funding
dependency
|
|
5
|
%
|
|
6
|
%
|
At September 30, 2012, the Bank had
outstanding borrowings of $127.9 million, against its $455.0 million in
established borrowing capacity with the FHLB, as compared to $120.0 million
outstanding against its $440.4 million in established borrowing capacity at
December 31, 2011. The borrowing capacity at the FHLB increased from year end as
the FHLB increased the amount they are willing to lend against the Banks
commercial real estate loan collateral. The Banks borrowing facility is subject
to collateral and stock ownership requirements. The Bank also had an available
discount window primary credit line with the Reserve Bank of approximately $42.2
million at September 30, 2012, with no balance outstanding at either September
30, 2012, or December 31, 2011. The Reserve Bank line is subject to collateral
requirements.
On October 6, 2010, the Bank entered
into a Memorandum of Understanding with the FDIC and DFCS under which the Bank
may not pay dividends to the holding company without the consent of the FDIC and
the DFCS. At September 30, 2012, the holding company did not have any borrowing
arrangements of its own.
Off-Balance Sheet Arrangements
At September 30, 2012, the Bank had
commitments to extend credit of $561.4 million, which was down 2.3% compared to
$574.3 million at December 31, 2011. For additional information regarding off
balance sheet arrangements and future financial commitments, see Note 8
Commitments and Contingent Liabilities in the financial statements included
under Item 1 of this report.
Critical Accounting Policies
Management has identified as the
Companys most critical accounting policies, the calculation of its allowance
for credit losses, valuation of OREO, and estimates relating to income taxes.
Each of these policies are discussed in the Companys 2011 10-K under the
heading Managements Discussion and Analysis of Financial Condition and Results
of Operation Critical Accounting Policies.
- 52 -
Item 3. Quantitative and Qualitative
Disclosures About Market Risk
There has
been no material change in the market risks disclosure under Item 7A
Quantitative and Qualitative Disclosures about Market Risk in the Companys
2011 10-K.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls
and Procedures
The Companys disclosure controls
and procedures are designed to ensure that information the Company must disclose
in its reports filed or submitted under the Securities Exchange Act of 1934, as
amended (the Exchange Act), is recorded, processed, summarized, and reported
within the time periods specified in the SECs rules and forms and accumulated
and communicated to its management, including the chief executive officer
(CEO) and chief financial officer (CFO), as appropriate to allow timely
decisions regarding required disclosure. Management has evaluated, with the
participation and under the supervision of the CEO and CFO, the effectiveness of
the Companys disclosure controls and procedures (as defined in Rules 13a-15(e)
and 15d-15(e) of the Exchange Act) as of the end of the period covered by this
report. Based on this evaluation, the CEO and CFO have concluded that, as of
such date, the Companys disclosure controls and procedures are effective in
ensuring that information relating to the Company, including its consolidated
subsidiaries, required to be disclosed in reports that it files under the
Exchange Act is (1) recorded, processed, summarized and reported within the time
periods specified in the SECs rules and forms, and (2) accumulated and
communicated to its management, including the CEO and CFO, as appropriate to
allow timely decisions regarding required disclosure.
Changes in Internal Control Over
Financial Reporting
There was no change in the Companys
internal controls over financial reporting during its most recent fiscal quarter
that has materially affected, or is reasonably likely to materially affect, its
internal controls over financial reporting.
- 53 -
PART II: OTHER
INFORMATION
Item 1. Legal
Proceedings
On June
24, 2009, West Coast Trust was served with an Objection to Personal
Representative's Petition and Petition for Surcharge of Personal Representative
in Linn County Circuit Court. The petition was filed by the beneficiaries of the
estate of Archie Q. Adams, for which West Coast Trust acts as the personal
representative. The petitioners allege a breach of fiduciary duty with respect
to West Coast Trust's prior sale of real property owned by the Adams estate and
sought relief in the form of a surcharge to West Coast Trust of $215,573,115.60,
the amount of the alleged loss to the estate. West Coast Trust filed a motion to
dismiss on July 2, 2009, which was granted in a letter ruling dated September
15, 2009. Petitioners appealed and briefs have been filed. Appeals Court oral
arguments are scheduled in November, 2012. The Company believes the appeal and
underlying petition are without merit.
On October 3, 2012, a class action
complaint was filed in the Circuit Court of the State of Oregon for the County
of Multnomah against Bancorp, its directors, and Columbia challenging the Merger
(as defined above): Gary M. Klein v. West Coast Bancorp, et al., Case No.
1210-12431. The complaint names as defendants Bancorp, all of the current
members of Bancorps board of directors, and Columbia. The complaint alleges
that the Bancorp directors breached their fiduciary duties to Bancorp and
Bancorp shareholders by agreeing to the proposed Merger at an unfair price. The
complaint also alleges that the proposed Merger is being driven by an unfair
process, that the directors approved provisions in the Merger Agreement that
constitute preclusive deal protection devices, that certain large shareholders
of Bancorp are using the Merger as an opportunity to sell their illiquid
holdings in Bancorp, and that Bancorp directors and officers will obtain
personal benefits from the Merger not shared equally by other Bancorp
shareholders. The complaint further alleges that Bancorp and Columbia aided and
abetted the directors alleged breaches of their fiduciary duties. The
defendants believe this action is without merit.
Item 1A. Risk Factors
Expiration of the Dodd-Frank Deposit
Insurance Provision as scheduled on December 31, 2012, may have a material
adverse effect on the Bank's ability to grow or retain noninterest-bearing
transaction accounts. Extension of the Dodd-Frank Deposit Insurance Provision
may impose additional insurance premiums on the Bank.
Section 343 of the Dodd-Frank Wall
Street Reform and Consumer Protection Act provides temporary unlimited deposit
insurance coverage for noninterest-bearing accounts at all FDIC-insured
depository institutions. All funds in noninterest-bearing transaction accounts
held at the Bank are fully insured under the Dodd-Frank Deposit Insurance
Provision, which is effective from December 31, 2010, through December 31, 2012.
Generally, other transaction accounts are only insured up to $250,000. If the
Dodd-Frank Deposit Insurance Provision is not extended past December 31, 2012,
depositors may withdraw uninsured deposits in excess of $250,000 from the Bank
or may withdraw their entire deposit portfolio from the Bank. If such deposits
are withdrawn, the Bank may experience a negative impact on its liquidity
position and net interest income and margin. Alternatively, extension of the
Dodd-Frank Deposit Insurance Provision may require that the Bank pay additional
premiums for coverage of deposits in excess of $250,000, which may have an
adverse effect on the Bank's net income.
The anticipated benefits of the
Merger may not be realized.
The success of the Merger will
depend, in part, on Columbias ability to successfully combine the Columbia and
Bancorp organizations. If Columbia is not able to achieve this objective, the
anticipated benefits of the Merger may not be realized fully or at all or may
take longer than expected to be realized.
Columbia and Bancorp have operated
and, until the completion of the Merger, will continue to operate,
independently. It is possible that the integration process or other factors
could result in the loss or departure of key employees, the disruption of the
ongoing business of Bancorp or inconsistencies in standards, controls,
procedures and policies. It is also possible that clients, customers, depositors
and counterparties of Bancorp could choose to discontinue their relationships
with the combined company pre- or post-Merger because they prefer doing business
with an independent company or for any other reason, which would adversely
affect the future performance of the combined company. These transition matters
could have an adverse effect on Bancorp during the pre-Merger period and on the
combined company for an undetermined time after the completion of the Merger.
The Merger Agreement limits
Bancorps ability to pursue an alternative transaction and requires Bancorp to
pay a termination fee of $20,000,000 under certain circumstances relating to
alternative acquisition proposals.
The Merger Agreement prohibits
Bancorp from soliciting, initiating, encouraging or knowingly facilitating
certain alternative acquisition proposals with any third party, subject to
exceptions set forth in the Merger Agreement. The Merger Agreement also provides
for the payment by Bancorp to Columbia of a termination fee of $20,000,000 in
the event that the Merger Agreement is terminated in certain circumstances,
involving, among others, certain changes in the recommendation of Bancorps
board of directors, a failure of Bancorps shareholders to approve the Merger
Agreement or the termination of the Merger Agreement in certain circumstances
followed by an acquisition of Bancorp by a third party. These provisions may
discourage a potential competing acquiror that might have an interest in
acquiring Bancorp from considering or proposing such an acquisition.
- 54 -
The Merger is subject to the receipt
of consents and approvals from governmental entities that may impose conditions
that could have an adverse effect on the Bancorp or the combined company
following the Merger.
Before
the Merger may be completed, various approvals and consents must be obtained
from the Federal Reserve Board, the Oregon Department of Consumer and Business
Services and various other securities, antitrust, and other regulatory
authorities. These governmental entities may impose conditions on the granting
of such approvals and consents. Although Columbia and Bancorp do not currently
expect that any such material conditions or changes would be imposed, there can
be no assurance that they will not be, and such conditions or changes could have
the effect of delaying completion of the Merger or imposing additional costs or
limiting the revenues of the combined company following the Merger, any of which
might have an adverse effect on Bancorp or the combined company following the
Merger. In addition, each of Columbia and Bancorp has agreed to use its
reasonable best efforts to avoid or overcome impediments to completing the
Merger, including, among other things, making expenditures and incurring costs,
raising capital, divesting or otherwise disposing of businesses or assets, and
effecting the dissolution, internal merger or consolidation of subsidiaries or
enhancing internal controls. Such actions may entail costs and may adversely
affect Bancorp, or the combined company following the Merger.
The Merger is subject to certain
closing conditions that, if not satisfied or waived, will result in the Merger
not being completed, which may cause the price of Bancorp common stock to
decline.
The Merger is subject to customary
conditions to closing, including the receipt of required regulatory approvals
and approvals of the Columbia and Bancorp shareholders. If any condition to the
Merger is not satisfied or waived, to the extent permitted by law, the Merger
will not be completed. In addition, Columbia and Bancorp may terminate the
Merger Agreement under certain circumstances even if the Merger Agreement is
approved by Bancorp shareholders and the issuance of Columbia common stock in
connection with the Merger is approved by Columbia shareholders. If Columbia and
Bancorp do not complete the Merger, the trading price of Bancorp common stock
may decline to the extent that the current price reflects a market assumption
that the Merger will be completed. In addition, neither Bancorp nor Columbia
would realize any of the expected benefits of having completed the Merger. If
the Merger is not completed and Bancorps board of directors seeks another
merger or business combination, Bancorp shareholders cannot be certain that
Bancorp will be able to find a party willing to offer equivalent or more
attractive consideration than the consideration Columbia has agreed to provide
in the Merger. If the Merger is not completed, additional risks could
materialize, which could materially and adversely affect the business, financial
condition and results of Bancorp.
The combined company expects to
incur substantial expenses related to the Merger.
The combined company expects to
incur substantial expenses in connection with completing the Merger and
combining the business, operations, networks, systems, technologies, policies
and procedures of the two companies. Although Columbia and Bancorp have assumed
that a certain level of transaction and combination expenses would be incurred,
there are a number of factors beyond their control that could affect the total
amount or the timing of their combination expenses. Many of the expenses that
will be incurred, by their nature, are difficult to estimate accurately at the
present time. Due to these factors, the transaction and combination expenses
associated with the Merger could, particularly in the near term, exceed the
savings that the combined company expects to achieve from the elimination of
duplicative expenses and the realization of economies of scale and cost savings
related to the combination of the businesses following the completion of the
Merger. As a result of these expenses, both Columbia and Bancorp expect to take
charges against their earnings before and after the completion of the Merger.
The charges taken in connection with the Merger are expected to be significant,
although the aggregate amount and timing of such charges are uncertain at
present.
For detailed discussion of additional
risks that may affect the Companys business, see Item 1A, Risk Factors in the
Companys 2011 10-K
.
- 55 -
Item 2. Unregistered Sales of Equity
Securities and Use of Proceeds
(a)
|
|
None
|
|
(b)
|
|
None
|
|
(c)
|
|
The following table provides
information about repurchases of common stock by the Company during the
quarter ended September 30, 2012:
|
|
|
|
|
|
|
|
Total Number of Shares
|
|
|
|
|
|
|
|
|
|
Purchased as Part of
Publicly
|
|
Maximum Number of Shares
Remaining
|
|
|
Total Number of Shares
|
|
Average Price
Paid
|
|
Announced Plans or Programs
|
|
at Period End that May Be
Purchased
|
Period
|
|
Purchased (1)
|
|
per Share
|
|
(2)
|
|
Under the Plans or Programs
|
7/1/12 - 7/31/12
|
|
-
|
|
$
|
0.00
|
|
-
|
|
210,364
|
8/1/12 - 8/31/12
|
|
-
|
|
$
|
0.00
|
|
-
|
|
210,364
|
9/1/12 - 9/30/12
|
|
20
|
|
$
|
22.44
|
|
-
|
|
210,364
|
Total for
quarter
|
|
20
|
|
|
|
|
-
|
|
|
|
(1)
|
|
Shares repurchased by Bancorp
include shares acquired from employees in connection with stock option
exercises and cancellation of restricted stock to pay withholding taxes
totaling 0 shares, 0 shares, and 20 shares, respectively, for the periods
indicated. There were no shares repurchased in the periods indicated
pursuant to the Companys corporate stock repurchase program publicly
announced in July 2000 (the Repurchase Program) and described in note 2
below.
|
|
|
|
(2)
|
|
Under the Repurchase Program, the
board of directors originally authorized the Company to repurchase up to
66,000 common shares, which amount was increased by 110,000 shares in
September 2000, by .2 million shares in September 2001, by .2 million
shares in September 2002, by .2 million shares in April 2004, and by .2
million shares in September 2007 for a total authorized repurchase amount
as of September 30, 2012, of approximately 1.0 million
shares.
|
Item 3. Defaults Upon Senior
Securities
None
Item 4. Mine Safety
Disclosures
None
Item 5. Other
Information
None
Item 6. Exhibits
Exhibit No
.
|
|
Exhibit
|
|
31.1
|
|
Certification of CEO under Rule 13(a) 14(a) of the Exchange
Act.
|
|
|
|
31.2
|
|
Certification of CFO under Rule 13(a) 14(a) of the Exchange
Act.
|
|
|
|
32
|
|
Certification of CEO and CFO under 18 U.S.C. Section
1350.
|
|
|
|
101.
|
|
INS
XBRL Instance Document
|
|
|
|
101.
|
|
SCH
XBRL Taxonomy Extension Schema Document
|
|
|
|
101.
|
|
PRE
XBRL Taxonomy Extension Presentation Linkbase Document
|
|
|
|
101.
|
|
LAB
XBRL Taxonomy Extension Label Linkbase Document
|
|
|
|
101.
|
|
CAL
XBRL Taxonomy Extension Calculation Linkbase Document
|
|
|
|
101.
|
|
DEF
XBRL Taxonomy Extension Definition Linkbase
Document
|
- 56 -
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
|
WEST COAST
BANCORP
|
|
(Registrant)
|
|
|
Dated: November 2, 2012
|
/s/
Robert D. Sznewajs
|
|
|
Robert D.
Sznewajs
|
|
President and Chief
Executive Officer
|
|
|
Dated: November 2, 2012
|
/s/
Anders Giltvedt
|
|
|
Anders
Giltvedt
|
|
Executive Vice President
and Chief Financial Officer
|
- 57 -
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