FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1994
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ------- to -------
FOR QUARTER ENDED MARCH 31, 1994 COMMISSION FILE NUMBER: 0-10897
WEST COAST BANCORP
(Exact name of registrant as specified in its charter)
CALIFORNIA 95-3586860
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4770 CAMPUS DRIVE, SUITE 100
Newport Beach, California 92660-1833
(Address of principal executive offices) (Zip Code)
(Registrant's telephone number, including area code) (714) 757-6868
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
---- ----
Number of shares of common stock of the registrant outstanding as of April 30,
1994:
9,192,942
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<PAGE>
WEST COAST BANCORP AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(in thousands, except shares) March 31, December 31,
ASSETS 1994 1993
---------------------
Cash and due from banks $ 19,111 $ 18,995
Interest-bearing deposits with banks 4,377 4,377
Investment securities held to maturity - approximate market value
of $18,503 and $16,612 in 1994 and 1993, respectively 18,609 16,317
Federal funds sold 29,600 36,800
Loans and direct lease financing held for sale 1,018 2,977
Loans and direct lease financing:
Commercial 69,429 78,462
Real estate - Construction 23,370 27,558
Real estate - Mortgage 95,814 98,220
Installment 14,892 16,874
Direct lease financing 115 -
Less unearned income and discounts (687) (748)
----------------------
202,933 220,366
Less allowance for possible credit losses (6,240) (5,557)
----------------------
Net loans and direct lease financing 196,693 214,809
Real estate owned 6,943 7,738
Premises and equipment, net 5,329 5,550
Other assets 3,011 4,700
----------------------
$284,691 $312,263
======================
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Deposits:
Demand, non-interest bearing $ 84,157 $ 96,053
Savings, money market and interest bearing demand 103,597 104,731
Time certificates under $100,000 61,687 68,833
Time certificates $100,000 or more 17,923 23,333
----------------------
Total deposits $267,364 $292,950
Notes payable to affiliates 487 406
Other borrowed funds 94 441
10% convertible subordinated debentures 3,035 3,035
Other liabilities 3,684 4,020
----------------------
Total liabilities 274,664 300,852
Shareholders' equity:
Common stock, no par value - 30,000,000 shares authorized, 9,192,942
shares issued and outstanding in 1994 and 1993 30,200 30,200
Accumulated deficit (20,173) (18,789)
----------------------
Total shareholders' equity 10,027 11,411
----------------------
$284,691 $312,263
======================
See accompanying notes to consolidated financial statements.
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<PAGE>
WEST COAST BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT
(Unaudited)
Three Months Ended
March 31,
(in thousands, except share data) 1994 1993
---------------------
Interest income:
Loans, including fees $ 4,749 $6,439
Investment securities 213 205
Deposits with banks 36 14
Federal funds sold 256 166
-----------------------
Total interest income 5,254 6,824
Interest expense:
Interest on deposits 1,421 1,917
Other borrowed funds 132 144
-----------------------
Total interest expense 1,553 2,061
-----------------------
Net interest income 3,701 4,763
Provision for possible credit losses 1,272 798
-----------------------
Net interest income after provision
for possible credit losses 2,429 3,965
Other operating income 683 722
Other operating expenses 4,496 6,127
-----------------------
Loss before income taxes (1,384) (1,440)
Income tax expense - -
-----------------------
Net loss $(1,384) $(1,440)
Accumulated deficit at beginning of period (18,789) (6,682)
-----------------------
Accumulated deficit at end of period (20,173) (8,122)
=======================
Net loss per common share
and common share equivalent $ (.15) $ (.16)
=======================
Weighted average number of common
and common equivalent shares 9,192,942 9,168,942
=======================
See accompanying notes to consolidated financial statements.
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<PAGE>
WEST COAST BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended
March 31,
(in thousands ) 1994 1993
---------------------
Cash flows from operating activities:
Net loss $(1,384) $(1,440)
Adjustments to reconcile net loss to net cash provided
by operating activities:
Depreciation and amortization 254 275
Provision for possible credit losses 1,272 798
Net change in receivables, payables
and other assets 1,353 (694)
Net write-downs of real estate owned 85 434
Proceeds from sales of loans originated for sale 2,516 2,313
Loans originated for sale (1,679) (2,209)
Gain from sales of loans, net (175) (101)
(Gain) loss from sales of real estate owned, net (259) 161
-----------------------
Total adjustments 3,367 977
-----------------------
Net cash provided by (used in) operating activities 1,983 (463)
Cash flows from investing activities:
Proceeds from maturity of investment securities 1,874 3,593
Purchase of investment securities (4,166) (4,154)
Net decrease in loans 16,636 19,799
Proceeds from sales of loans and leases - 2,366
Proceeds from sales of real estate owned 2,880 1,914
Purchase of premises and equipment (33) (138)
Capital expenditures for real estate owned (276) (228)
-----------------------
Net cash provided by investing activities 16,915 23,152
Cash flows from financing activities:
Net decrease in deposits (25,586) (13,785)
Payments for notes payable to affiliates,
subordinated debt and other borrowed funds (471) (45)
Loan originated from affiliate 75 -
-----------------------
Net cash used in financing activities (25,982) (13,830)
-----------------------
Increase (decrease) in cash and cash equivalents (7,084) 8,859
Beginning cash and cash equivalents 60,172 48,084
-----------------------
Ending cash and cash equivalents $53,088 $56,943
=======================
(Continued)
See accompanying notes to consolidated financial statements.
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<PAGE>
WEST COAST BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Continued)
Three Months Ended
March 31,
(in thousands) 1994 1993
---------------------
Supplemental disclosures of cash flow information:
Cash paid (received) during the period for:
Interest $ 1,582 $ 2,068
Income taxes (105) -
Supplemental schedule of non-cash investing
and financing activities:
Transfer of loans to real estate owned $ 1,814 $ 1,382
Loans made to purchasers of real estate owned 309 -
Senior debt recorded in acquisition of
real estate owned 130 807
See accompanying notes to consolidated financial statements.
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<PAGE>
WEST COAST BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
March 31, 1994
(1) BASIS OF PRESENTATION
The unaudited consolidated financial statements reflect all
adjustments, consisting only of normal recurring adjustments, which
are, in the opinion of management, necessary for a fair statement of
the results of operations for the interim periods. Results for the
three month periods ended March 31, 1994 and 1993 are not necessarily
indicative of results which may be expected for any other interim
period, or for the year as a whole. All significant intercompany
balances have been eliminated.
(2) RECLASSIFICATIONS
Certain reclassifications have been made in the 1993 financial
statements to conform to the presentation in 1994.
(3) NET LOSS PER SHARE
The stock options, common stock warrants and 10% convertible
subordinated debentures were not included in the net loss per share
computations as the effect would have been anti-dilutive. Fully
diluted loss per share approximates primary loss per share.
(4) OTHER OPERATING INCOME
A summary of other operating income follows:
Three Months Ended
March 31,
(in thousands) 1994 1993
------------------
Depositor charges $ 332 $ 404
Gain from sales of loans and leases, net 176 101
Service charges, commissions and fees 149 195
Other income 26 22
------------------
$ 683 $ 722
==================
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<PAGE>
WEST COAST BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
March 31, 1994
(5) OTHER OPERATING EXPENSES
A summary of other operating expenses is as follows:
Three Months Ended
March 31,
(in thousands) 1994 1993
------------------
Salaries and employee benefits $2,292 $ 2,775
Occupancy 523 573
Depreciation and amortization 254 275
Collection 228 159
Regulatory fees and assessments 222 238
Data processing 200 220
Professional services 190 200
Customer service 103 113
Advertising and promotion 75 93
Insurance 75 81
Delivery and courier 68 66
Telephone and telefax 66 51
Stationery and supplies 55 74
Printing and postage 44 58
Credit investigation 36 80
Director fees 28 77
Net cost of operation of real estate owned (62) 786
Miscellaneous 99 208
-----------------
$4,496 $6,127
=================
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<PAGE>
WEST COAST BANCORP AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
March 31, 1994
The following presents management's discussion and analysis of the consolidated
financial condition and operating results of West Coast Bancorp (as a separate
entity "West Coast" and together with its subsidiaries the "Company") for the
three month period ended March 31, 1994 and 1993. The discussion should be
read in conjunction with the Company's consolidated financial statements and
the accompanying notes appearing elsewhere in this report.
GENERAL
The Company posted losses of $1,384,000 or $.15 per share and $1,440,000 or
$.16 per share during the three months ended March 31, 1994 and 1993.
The Company had total assets, loans and deposits as follows (in thousands):
March 31, December 31, March 31, December 31,
1994 1993 1993 1992
-----------------------------------------------------
Total assets $ 284,691 $ 312,263 $ 347,265 $ 361,741
Loans 203,951 223,343 254,757 279,014
Deposits 267,364 292,950 317,058 330,843
The reduction in assets resulted from a decrease in loans due to lower loan
demand and more stringent underwriting standards, particularly at Sunwest Bank
("Sunwest"). The decrease in assets also resulted from Sunwest's capital
position and its regulatory orders. Sunwest is operating under an Order to
Cease and Desist (the "C&D Order") from the FDIC and an order from the State
Banking Department (the "State Order"). Both orders require, among other
things, maintenance of certain capital levels. Further Sunwest is signifi-
cantly undercapitalized under the prompt corrective action provisions of the
FDIC Improvement Act. Sunwest's capital position and the presence of its
regulatory orders have made it difficult for Sunwest to compete with other
financial institutions for deposits. Sunwest is expected to continue to lose
loan and deposit volume in 1994. Loan and deposit growth are not anticipated
until Sunwest's capital is increased.
The Company is exploring various alternatives for raising additional capital
for the Company and Sunwest, including a possible rights/public offering by
West Coast, possible private placements of securities or sale of its assets,
including its interest in Sacramento First National Bank ("Sacramento First").
The federal banking agencies have broad powers to impose restrictions and
sanctions on an institution classified as significantly undercapitalized. In
the event West Coast is unable to raise the funds necessary to increase the
Company's and Sunwest's capital levels and Sunwest continues to incur losses,
the FDIC would take additional actions at Sunwest. Those actions may include
the appointment of a conservator or receiver, the termination of insurance of
deposits, the imposition of civil monetary penalties and removal or prohibition
orders against institution-affiliated parties. If Sunwest was closed by the
FDIC, the FDIC could enforce West Coast's guaranty and exercise its rights
under the cross-guaranty provisions of Federal law to assess Sacramento First
for any losses suffered by the FDIC in connection with the closure of Sunwest.
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<PAGE>
WEST COAST BANCORP AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
March 31, 1994
Further, West Coast's liquidity is very limited and a cash shortfall is
presently anticipated for the remainder of 1994. Although West Coast has
certain options available to raise or conserve cash, its liquidity needs
ultimately must be met by raising capital or selling assets. In the event that
West Coast does not raise capital or sell assets, it is probable that West
Coast would not be able to meet its current obligations and could be forced
into bankruptcy.
If any of these events were to occur, West Coast's shareholders could suffer
the elimination of the value of their investments in the Company.
RESULTS OF OPERATIONS
GENERAL
The 1994 and 1993 losses resulted from lower net interest income, loan losses
and costs and expenses associated with high levels of nonperforming assets.
NET INTEREST INCOME
Net interest income decreased $1,062,000 or 22% from the first three months of
1993 to the same period in 1994 primarily because of reduced loan volumes and
lower interest rates. Average loans decreased $52.4 million or 20% for the
three months ended March 31, 1994 as compared with 1993.
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<PAGE>
WEST COAST BANCORP AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
March 31, 1994
The following table sets forth the Company's average balance sheets, yields on
earning assets, rates paid on interest-bearing liabilities, net interest
margins and net yields on interest-earning assets for the three month periods
ended March 31, 1994 and 1993 (dollars in millions):
Three Months Ended March 31,
1994 1993
Average Average
ASSETS Balances Rates Balances Rates
-------------------------------
Loans, net of
unearned income
and discounts $210.0 9.05% $262.4 9.81%
Investment securities 17.1 4.98 16.1 5.08
Federal funds sold 34.5 2.97 25.4 2.62
Interest-bearing
deposits in
other banks 4.4 3.29 1.3 4.41
------ ------
Total interest-earning
assets 266.0 7.90 305.2 8.94
Allowance for possible
credit losses (5.8) (6.7)
Cash and due from banks 22.7 27.0
Other assets 16.5 26.9
------ ------
$299.4 $352.4
====== ======
LIABILITIES AND SHAREHOLDERS' EQUITY
Time deposits $86.2 3.77% $118.1 4.00%
Savings deposits 12.0 2.29 12.3 2.53
Interest-bearing
demand deposits 94.1 2.29 95.7 2.75
Other 5.0 10.47 5.8 9.98
------ ------
Total interest-bearing
liabilities 197.3 3.15 231.9 3.56
Demand deposits 88.0 94.2
Other liabilities 2.9 2.6
Shareholders' equity 11.2 23.7
------ ------
$299.4 $352.4
====== ======
Net interest margin 4.75% 5.38%
Net yield on interest-
earning assets 5.57 6.24
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<PAGE>
WEST COAST BANCORP AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
March 31, 1994
The effects of declines in average assets, liabilities and interest rates on
interest income and expense and net interest income are summarized as follows
(in thousands):
Three Months Ended March 31,
1994 vs. 1993
Decrease Resulting From
----------------------------
Asset/ Interest
Liability Rate
Changes in Decline Decline Total
--------------------------
Interest income $(1,111) $(459) $ (1,570)
Interest expense (334) (174) (508)
---------------------------
Net interest income $ (777) $(285) $ (1,062)
==========================
The declines in net interest income resulted primarily from volume declines in
average earning assets and to a lesser extent rates.
The Company's ability to increase earning assets is limited by the capital
levels that it and its principal subsidiaries are required to maintain.
Sunwest is currently below certain regulatory capital requirements. See
Capital Resources and Dividends. Consequently, Sunwest will not be able to
significantly increase and may further decrease its assets until such time as
it increases its capital to a level that will permit growth. Further, the
Company's earning assets are expected to continue to decline.
Loans on which the accrual of interest had been discontinued at March 31, 1994
and 1993 amounted to $7,607,000 and $7,433,000, respectively. If these loans
had been current throughout their terms, net interest income is estimated to
have increased by approximately $243,000 and $188,000 in the first quarters of
1994 and 1993, respectively. This would have raised the net yield on interest-
earning assets and the net interest margin by approximately 36 basis points
during the first quarter of 1994 and by approximately 24 basis points during
the first quarter of 1993.
The yield on earning assets is expected to increase in the second quarter
because the prime rate increased 25 basis points in March and 50 basis points
in April. Rates on interest-bearing liabilities are also expected to increase
as time deposits mature and reprice at higher rates. Demand deposits are
expected to decrease at least 10% during the second quarter due to the loss of
a large customer with a money order operation at Sunwest. No significant
effect on liquidity or earnings is expected from losing this customer as the
reduction in net interest income is expected to be offset by a reduction in
expenses necessary to provide services to the customer.
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<PAGE>
WEST COAST BANCORP AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
March 31, 1994
NONPERFORMING ASSETS AND PROVISION FOR POSSIBLE CREDIT LOSSES
The following table summarizes the activity in the allowance for possible
credit losses during the periods indicated (in thousands):
Three Months Ended
March 31,
1994 1993
------------------
Allowance for possible credit losses
balance at beginning of period $ 5,557 $ 6,512
Charge-offs (791) (804)
Recoveries 202 97
---------------------
Net charge-offs (589) (707)
Provision for possible credit losses 1,272 798
---------------------
Allowance for possible credit losses
balance at end of period $ 6,240 $ 6,603
=====================
A summary of net charge-offs (recoveries) follows (in thousands):
Three Months Ended
March 31,
1994 1993
-------------------
West Coast Bancorp $ (35) $ -
Sacramento First National Bank 159 (1)
Sunwest Bank 465 708
---------------------
$ 589 $ 707
=====================
The provision for possible credit losses was higher for the three months ended
March 31, 1994 than in 1993, reflecting the continued recession and depressed
real estate values. Net charge-offs were lower in 1994 primarily at Sunwest
where a decrease in gross charge-offs and an increase in recoveries occurred.
Management believes that the allowance for possible credit losses at March 31,
1994 of $6,240,000 or 3.06% of loans was adequate to absorb known and inherent
risks in the Company's credit portfolio.
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<PAGE>
WEST COAST BANCORP AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
March 31, 1994
A summary of nonperforming assets follows (dollars in thousands):
March 31, December 31, March 31, December 31,
1994 1993 1993 1992
---------------------------------------------
Nonaccrual loans $7,607 $10,744 $7,433 $8,796
Loans 90 days past due and
still accruing 639 353 287 158
--------------------------------------------
Total nonperforming loans 8,246 11,097 7,720 8,954
Real estate owned 6,943 7,738 15,456 15,548
--------------------------------------------
Total nonperforming assets $15,189 $18,835 $23,176 $24,502
============================================
Nonperforming loans/Total loans 4.04% 5.04% 3.03% 3.21%
Nonperforming assets/Total assets 5.34 6.03 6.67 6.77
============================================
Nonperforming assets have decreased steadily from $24.5 million at December 31,
1992 to $15.2 million at March 31, 1994. The high levels of nonperforming
assets as a percentage of assets are reflective of the current economic
environment and depressed real estate values, particularly in southern
California. While progress has been made, until such time as the current
economic environment and real estate values improve, the Company may continue
to experience high levels of nonperforming assets, charge-offs and provisions
for possible credit losses.
Restructured loans totaled $5,557,000 at March 31, 1994 and were all performing
in accordance with their current terms.
OTHER OPERATING INCOME
Other operating income decreased by $39,000 from the three months ended March
31, 1993 to the same period in 1994. See note (4) of the notes to consolidated
financial statements. Depositor charges decreased $72,000 in the first quarter
of 1994 as compared with 1993 as depositor charges declined at both Sacramento
First and Sunwest.
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<PAGE>
WEST COAST BANCORP AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
March 31, 1994
OTHER OPERATING EXPENSES
Other operating expenses have decreased by $1,631,000 from the first quarter of
1993 to the same period in 1994. See note (5) of the notes to consolidated
financial statements. Total other operating expenses expressed in dollars and
as a percentage of total revenues and average assets follows (dollars in
thousands):
Three Months Ended
March 31,
1994 1993
------------------
Other operating expenses $4,496 $6,127
Other operating expenses (annualized)/
Average assets 6.01% 6.95%
Other operating expenses/
Interest and other operating income 75.7% 81.2%
===================
The net cost of operation of real estate owned decreased by $848,000 from the
first quarter of 1993 to 1994. The Company recorded gains on the sale of real
estate owned net of write-downs of $174,000 in 1994 as compared with write-
downs and losses on sale totaling $595,000 in 1993. Other expenses associated
with operating real estate owned decreased by $79,000 from 1993 to 1994,
resulting primarily from lower volumes of real estate owned. West Coast's
salaries decreased $232,000 as a result of the 1993 restructuring and other
salary adjustments. Sacramento First and Sunwest decreased salaries by
$132,000 and $119,000, respectively. Sunwest expects to see further decreases
of approximately $1.0 million per year in salary expenses as the total number
of employees decreased from 129 at March 31, 1994 to 97 at April 30, 1994. All
other noninterest expenses decreased $300,000 as a result of lower asset
levels, and management's cost control efforts.
INCOME TAXES
The Company did not record income tax benefits during the three months ended
March 31, 1994 or 1993.
LIQUIDITY
The Company
Liquidity, as it relates to banking, represents the ability to obtain funds to
meet loan commitments and to satisfy demand for deposit withdrawals. The
principal sources of funds that provide liquidity to West Coast's subsidiaries
are maturities of investment securities and loans, collections on loans,
increased deposits and temporary borrowings. The Company's liquid asset ratio
(the sum of cash, investments and Federal funds sold divided by total assets)
was 21% at March 31, 1994 and 24% at December 31, 1993. Although liquidity is
expected to be reduced at Sunwest from expected demand deposit run-off, the
Company believes that it has sufficient liquid resources, as well as available
credit facilities, to enable it to meet its operating needs.
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<PAGE>
WEST COAST BANCORP AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
March 31, 1994
THE PARENT COMPANY
West Coast's liquidity is limited. West Coast has relied on sales of assets,
and management service fees and dividends from its subsidiaries as sources of
liquidity. West Coast does not expect to receive management service fees
during 1994. Sunwest is prohibited from paying cash dividends. Regulatory
dividend restrictions effectively limit Sacramento First's dividend to 1994
income without prior regulatory approval.
West Coast does not anticipate a dividend paid by Sacramento First until the
fourth quarter of 1994 at the earliest. Sales of other real estate owned
provided $316,000 and an income tax refund provided $105,000 during the first
quarter of 1994. West Coast borrowed $75,000 from a director in March 1994 and
is expected to borrow additional funds up to $75,000 during the second quarter
of 1994. West Coast received $150,000 during the second quarter of 1994 from
the sale of its remaining loans and the sale of loans previously charged off.
Sale of real estate owned is expected to provide $118,000 during the third
quarter of 1994. West Coast had cash totaling $102,000 at March 31, 1994.
West Coast anticipates expenditures during the remainder of 1994 will consist
of debt service payments, advances to WCV, Inc. and other operating expenses,
primarily salaries and employee benefits. West Coast's projected debt service
for 1994 includes quarterly interest payments on the 10% subordinated deben-
tures of $76,000 each and an annual principal payment on the notes payable to
affiliates of $76,000. Advances to WCV, Inc. are not expected to exceed
$265,000 during the remainder of 1994 and are primarily for restoration of the
real estate owned. West Coast anticipates that other operating expenses, will
be approximately $575,000 during the remainder of 1994.
A cash shortfall is anticipated unless additional cash can be raised. West
Coast may elect to limit repayments of the intercompany debt or interest
payments on the subordinated debt, and/or incur additional debt. West Coast
may not incur debt without the approval of the Federal Reserve Board. West
Coast is exploring various alternatives for raising capital, including a
possible rights/public offering, the possible private placement of securities
or sale of its interest in Sacramento First. In the event that West Coast does
not raise capital or sell assets, it is probable that West Coast would not be
able to meet its current obligations and could be forced into bankruptcy. See
"Capital Resources and Dividends."
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<PAGE>
WEST COAST BANCORP AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
March 31, 1994
CAPITAL RESOURCES AND DIVIDENDS
The following table sets forth the tier 1 and total risk-based capital and
leverage ratios as of March 31, 1994 for the Company, Sunwest and Sacramento
First:
Tier 1 Total
Capital Capital Leverage
Ratio Ratio Ratio
----------------------------------
The Company 4.74 % 6.57 % 3.49 %
Sunwest 3.77 5.05 2.87
Sacramento First 10.36 11.61 7.40
Regulatory minimum 4.00 8.00 4.00 (a)
(a) Sunwest is subject to regulatory orders that require it to maintain a
minimum leverage ratio of 6.5%.
In its most recent examination of Sunwest as of July 19, 1993, the FDIC noted
that Sunwest was not in full compliance with the provisions of the C&D Order
relating to maintaining specified levels of tier 1 and total risk-based
capital. Subsequent to December 31, 1993, the FDIC notified Sunwest that is
was deemed to be significantly undercapitalized under the prompt corrective
action provisions of the FDIC Improvement Act. As a result of becoming
significantly undercapitalized, Sunwest is not only subject to asset growth
restrictions, and prohibitions on payment of dividends and management fees and
the elimination of "pass through" deposit insurance for certain employee
benefit accounts placed at Sunwest, but is also subject to other additional
restrictions and sanctions being imposed by the FDIC which could include, among
other things, a forced sale of Sunwest to another institution, further
restrictions on growth or required shrinkage, and limitations on interest rates
paid on deposits to prevailing rates in Sunwest's market area for deposits of
comparable size and maturity.
In accordance with the prompt corrective action provisions of the FDIC
Improvement Act, Sunwest submitted to the FDIC a capital restoration plan and
West Coast submitted to the FDIC a guaranty of the capital restoration plan.
The amount of such guaranty is limited to the lesser of (i) 5% of Sunwest's
total assets at September 30, 1993, the date the FDIC deemed Sunwest to have
notice that it was undercapitalized or (ii) the amount which is necessary to
bring Sunwest into compliance with all applicable capital standards at the time
Sunwest fails to comply with the capital restoration plan. The capital
restoration plan provides that the anticipated primary source of additional
capital for Sunwest will be provided by West Coast. West Coast is pursuing
various methods for raising capital, including a possible rights/public
offering, the possible private placement of securities or sale of its interest
in Sacramento First. In addition to the infusion of capital by West Coast,
Sunwest is attempting to augment its capital levels by increasing revenues,
reducing overhead expenses, and improving asset quality.
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<PAGE>
WEST COAST BANCORP AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
March 31, 1994
However, no assurance can be given that efforts to increase capital through an
offering or otherwise will be successful. In the event additional capital is
not obtained and Sunwest does not resume profitable operations, it is likely
that there will be some form of further regulatory intervention in the
operations of Sunwest. Such intervention could include, among other things, a
forced sale of the voting equity of Sunwest to raise additional capital or a
forced merger or sale of Sunwest under the prompt corrective action provisions
of the FDIC Improvement Act or a closure of Sunwest by the bank's regulatory
authorities. In addition, the FDIC would be permitted to enforce the
provisions of the guaranty provided by West Coast and exercise its rights under
the cross-guaranty provisions of Federal law to assess Sacramento First for the
estimated losses suffered by the FDIC in connection with the failure of
Sunwest. If any of these events were to occur, West Coast's shareholders could
suffer the elimination of the value of their investment in the Company.
Under the State Order, Sunwest Bank is required to, among other things,
maintain a ratio of capital to total assets of at least 6.5%. Sunwest is not
in compliance with this provision of the State Order.
Under the California Financial Code, the contributed capital of a state
chartered bank, such as Sunwest, is deemed impaired when the bank has deficit
retained earnings that exceed 40% of its contributed capital. When the
contributed capital of a state chartered bank is impaired, the Superintendent
is required to order the bank to correct such impairment within 60 days of such
order. Unless the impairment is otherwise corrected within the 60 day period,
the bank's board of directors is required to levy and collect an assessment on
its outstanding common shares in accordance with Section 423 of the California
Corporations Code. The aggregate amount of the assessment shall equal the
minimum amount that is necessary to cure the impairment, which shall equal the
amount that is necessary to increase the contributed capital to the quotient
obtained by dividing the total accumulated deficit retained earnings by 40%.
If an assessment is levied, the shareholders of the bank are required to pay
the assessment on a pro rata basis determined by the number of shares held by
each shareholder. If a shareholder fails to pay the assessment within a
specified time period, the assessed shares may be sold by the bank to satisfy
the assessment. If no bidder offers to pay the assessment due on the shares,
together with a penalty of 5% thereof, the shares shall be forfeited to the
bank.
-17-
<PAGE>
WEST COAST BANCORP AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
March 31, 1994
On February 9, 1994, the Superintendent issued an order to Sunwest advising it
that its contributed capital was impaired under the provisions of the
California Financial Code in the amount of $279,000 and that the Bank must
correct such impairment of its contributed capital within 60 days of the order.
Under the provisions of the California Financial Code, the amount necessary to
correct the impairment as of December 31, 1993 was approximately $700,000.
Since Sunwest did not correct such impairment, Sunwest's Board of Directors
levied an assessment on Sunwest's outstanding shares of common stock, all of
which are owned by West Coast. No date for payment of such assessment has yet
been set. On May 6, 1994, the Superintendent issued another order to Sunwest
advising it that as of March 31, 1994 its contributed capital was now impaired
in the aggregate amount of $1,414,000. The amount necessary to correct the
aggregate impairment as of March 31, 1994 was approximately $3,535,000. In the
event the additional amount of the impairment is not corrected within 60 days
of the order, Sunwest's Board of Directors will have to levy an additional
assessment. In the event that West Coast cannot pay the assessment due on any
of those shares, such shares, or a portion thereof, could be sold to a bidder
who is willing to pay the assessment and penalty thereon or could be forfeited
to Sunwest if no such bidder is willing to pay such amount. Any such sale of
Sunwest's outstanding common stock would reduce or possibly eliminate West
Coast's ownership in Sunwest, which would, in turn, result in a substantial
diminution or the elimination of value of the West Coast shareholders' interest
in the Company.
The Company had no material commitments for capital expenditures as of March
31, 1994.
-18-
<PAGE>
WEST COAST BANCORP AND SUBSIDIARIES
March 31, 1994
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
- -------------------------------
NONE
Item 2. Changes in Securities
- -----------------------------------
NONE
Item 3. Defaults Upon Senior Securities
- ---------------------------------------------
NONE
Item 4. Submission of Matters to a Vote of Security Holders
- -----------------------------------------------------------------
NONE
Item 5. Other Information
- -------------------------------
NONE
Item 6. Exhibits and Reports on Form 8-K
- ----------------------------------------------
(a) Exhibits
NONE
(b) Reports on Form 8-K
NONE
-19-
<PAGE>
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
/s/John B. Joseph May 13, 1994
----------------------------------------- ----------------------
John B. Joseph Date
Chief Executive Officer
/s/Frank E. Smith May 13, 1994
----------------------------------------- ----------------------
Frank E. Smith Date
Chief Financial Officer<PAGE>
