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 June 30, 1994
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from N/A to N/A
FOR QUARTER ENDED JUNE 30, 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 July 29,
1994:
9,192,942
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WEST COAST BANCORP AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(in thousands, except shares) June 30, December 31,
ASSETS 1994 1993
---------------------
Cash and due from banks $ 10,633 $ 18,995
Interest-bearing deposits with banks 3,000 4,377
Investment securities held to maturity - approximate
market value of $1,373 and $16,392 in 1994 and 1993,
respectively 1,396 16,317
Investment securities held for sale 2,002 -
Federal funds sold 12,200 36,800
Loans and direct lease financing held for sale 220 2,977
Loans and direct lease financing 110,677 220,366
Less allowance for possible credit losses (4,446) (5,557)
----------------------
Net loans and direct lease financing 106,231 214,809
Real estate owned 5,334 7,738
Premises and equipment, net 2,964 5,550
Net assets held for sale 6,750 -
Other assets 1,296 4,700
----------------------
$ 152,026 $ 312,263
======================
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Deposits:
Demand, non-interest bearing $ 41,431 $ 96,053
Savings, money market & interest
bearing demand 43,230 104,731
Time certificates under $100,000 44,025 68,833
Time certificates $100,000 or more 8,815 23,333
----------------------
Total deposits 137,501 292,950
Notes payable to affiliates 537 406
Other borrowed funds 854 441
10% convertible subordinated debentures 3,035 3,035
Other liabilities 2,110 4,020
----------------------
Total liabilities 144,037 300,852
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 (22,211) (18,789)
----------------------
Total shareholders' equity 7,989 11,411
----------------------
$152,026 $ 312,263
======================
See accompanying notes to consolidated financial statements.
-2-<PAGE>
WEST COAST BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT
(Unaudited)
Six Months Ended Three Months Ended
(in thousands, June 30, June 30,
except per share data) 1994 1993 1994 1993
----------------------------------------
Interest income:
Loans, including fees $ 9,561 $ 12,438 $ 4,812 $ 5,999
Investment securities 446 412 233 207
Deposits with banks 79 29 43 15
Federal funds sold 439 326 183 160
----------------------------------------
Total interest income 10,525 13,205 5,271 6,381
Interest expense:
Interest on deposits 2,690 3,697 1,269 1,780
Other borrowed funds 263 286 131 142
----------------------------------------
Total interest expense 2,953 3,983 1,400 1,922
----------------------------------------
Net interest income 7,572 9,222 3,871 4,459
Provision for possible
credit losses 2,144 5,047 872 4,249
----------------------------------------
Net interest income
after provision for
possible credit losses 5,428 4,175 2,999 210
Other operating income 1,846 1,414 1,163 692
Other operating expenses 8,783 11,848 4,287 5,721
Loss on liquidation of WCV, Inc. 100 300 100 300
Loss on proposed sale
of Sacramento First 1,800 - 1,800 -
----------------------------------------
Loss before income taxes (3,409) (6,559) (2,025) (5,119)
Income tax expense 13 7 13 7
----------------------------------------
Net loss $ (3,422) $ (6,566) $ (2,038) $ (5,126)
Accumulated deficit at
beginning of period (18,789) (6,682) (20,173) (8,122)
----------------------------------------
Accumulated deficit at
end of period (22,211) (13,248) (22,211) (13,248)
========================================
Net loss per common share
and common share equivalent $ (.37) $ (.72) $ (.22) $ (.56)
========================================
Weighted average number of common
and common equivalent shares 9,193 9,177 9,193 9,186
========================================
See accompanying notes to consolidated financial statements.
-3- <PAGE>
WEST COAST BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended
June 30,
(in thousands) 1994 1993
--------------------
Cash flows from operating activities:
Net loss $ (3,422) $ (6,566)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization 514 548
Provision for possible credit losses 2,144 5,047
Net change in receivables, payables
and other assets 1,982 (496)
Net write-downs of real estate owned 187 1,288
Proceeds from sales of loans
originated for sale 3,603 3,608
Loans originated for sale (2,781) (3,331)
Gain from sales of loans, net (859) (221)
Gain from sales of real estate owned, net (287) (187)
Loss on discontinued business 1,900 300
----------------------
Net cash provided by (used in)
operating activities 2,981 (10)
Cash flows from investing activities:
Proceeds from maturity of investment securities 3,449 6,613
Purchase of investment securities (6,172) (6,630)
Net decrease in loans 23,131 14,496
Proceeds from sales of loans and leases 3,762 2,313
Proceeds from sales of real estate owned 4,069 5,815
Purchase of premises and equipment (38) (275)
Proceeds from sales of premises and equipment 68 -
Capital expenditures for real estate owned (460) (360)
Decrease in cash and cash equivalents
from proposed sale of Sacramento First (15,400) -
----------------------
Net cash provided by investing activities 12,409 21,972
Cash flows from financing activities:
Net decrease in deposits (49,380) (23,513)
Payments for notes payable to affiliates,
subordinated debt and other borrowed funds (449) (1,150)
Loan proceeds from affiliate 100 -
Shares issued to employee - 24
----------------------
Net cash used in financing activities (49,729) (24,639)
----------------------
Decrease in cash and cash equivalents (34,339) (2,677)
Beginning cash and cash equivalents 60,172 48,084
----------------------
Ending cash and cash equivalents $ 25,833 $ 45,407
======================
(Continued)
See accompanying notes to consolidated financial statements.
-4- <PAGE>
WEST COAST BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Continued)
Six Months Ended
June 30,
(in thousands) 1994 1993
---------------------
Supplemental disclosures of cash flow information:
Cash (received) paid during the period for:
Interest $ 3,133 $ 4,090
Income taxes (98) 7
Supplemental schedule of non-cash investing
and financing activities:
Transfer of loans to real estate owned $ 2,483 $ 3,325
Senior debt recorded in acquisition of
real estate owned 987 1,026
Loans made to purchasers of real estate owned 309 1,370
Loans assumed by purchasers of real estate owned 94 -
See accompanying notes to consolidated financial statements.
-5- <PAGE>
WEST COAST BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
June 30, 1994
(1) BASIS OF PRESENTATION
West Coast Bancorp entered into a definitive agreement on June 22, 1994
to sell Sacramento First National Bank ("Sacramento First"). All assets
and liabilities of Sacramento First are included in "Net assets held for
sale" at June 30, 1994. Sacramento First's operating results were
included in the consolidated statements of operations for all periods.
See "Management's discussion and analysis - general" and Note 5 for
additional details. The unaudited consolidated financial statements
reflect all adjustments, consisting primarily 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 six and three month periods ended June 30, 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) LOANS AND DIRECT LEASE FINANCING
A summary of loans and direct lease financing follows:
(in thousands) June 30, December 31,
1994 1993
----------------------
Commercial $ 42,580 $ 78,462
Real estate - Construction 1,519 27,558
Real estate - Mortgage 60,310 98,220
Installment 6,551 16,874
Direct lease financing 108 -
Less unearned income and discounts (391) (748)
----------------------
Loans and direct lease financing $110,677 $ 220,366
======================
-6- <PAGE>
WEST COAST BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
June 30, 1994
(5) NET ASSETS HELD FOR SALE
Net assets held for sale representing all assets and liabilities of
Sacramento First at June 30, 1994 are as follows:
(in thousands) Amount
-----------
Cash and due from banks $ 8,423
Interest-bearing deposits with banks 1,377
Investment securities 15,642
Federal funds 5,600
Loans and direct financing leases 80,161
Real estate owned 1,962
Premises and equipment 2,042
Other assets 1,601
Deposits (106,069)
Other borrowed funds (749)
Other liabilities (981)
Minority interest (459)
Accrued loss on proposed sale
of Sacramento First (1,800)
-----------
$ 6,750
===========
(6) OTHER OPERATING INCOME
A summary of other operating income follows:
Six Months Ended Three Months Ended
June 30, June 30,
(in thousands) 1994 1993 1994 1993
-----------------------------------------
Gain from sales of loans
and leases, net $ 859 $ 221 $ 683 $ 120
Depositor charges 662 838 330 434
Service charges, commissions
and fees 282 300 133 105
Other income 43 55 17 33
-----------------------------------------
$ 1,846 $ 1,414 $ 1,163 $ 692
=========================================
-7- <PAGE>
WEST COAST BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
June 30, 1994
(7) OTHER OPERATING EXPENSES
A summary of other operating expenses is as follows:
Six Months Ended Three Months Ended
June 30, June 30,
(in thousands) 1994 1993 1994 1993
-----------------------------------------
Salaries and employee
benefits $ 4,219 $ 5,284 $ 1,927 $ 2,509
Occupancy 1,033 1,167 510 594
Depreciation and
amortization 514 548 260 273
Professional services 481 441 291 241
Regulatory fees
and assessments 443 479 221 241
Data processing 383 422 183 202
Collection 363 342 135 183
Customer service 187 220 84 107
Advertising and promotion 153 204 78 111
Insurance 145 159 70 78
Delivery and courier 131 138 63 72
Printing and postage 122 131 78 73
Net cost of operation of
real estate owned 113 1,342 175 556
Stationery and supplies 94 147 39 73
Director fees 59 155 31 78
Miscellaneous 343 669 142 330
-----------------------------------------
$ 8,783 $ 11,848 $ 4,287 $ 5,721
=========================================
-8- <PAGE>
WEST COAST BANCORP AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
June 30, 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
six and three month periods ended June 30, 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 $3,422,000 or $.37 per share and $2,038,000 or
$.22 per share during the six and three months ended June 30, 1994,
respectively, and $6,566,000 or $.72 per share and $5,126,000 or $.56 per share
during the same respective periods in 1993.
On June 22, 1994, West Coast announced the signing of a definitive agreement
among Business & Professional Bank, Sacramento First National Bank ("Sacramento
First"), and West Coast providing for the acquisition of its majority owned
subsidiary, Sacramento First by Business & Professional Bank.
Completion of the transaction is subject to, among other things, the receipt of
necessary regulatory approvals from the state and federal banking agencies as
well as the approval of the shareholders of both Business & Professional Bank
and Sacramento First. West Coast, which owns 94% of Sacramento First's common
shares, has agreed to vote its shares in favor of the transaction. The sale is
expected to close during the fourth quarter of 1994 and to provide West Coast
with approximately $3.6 million of cash and approximately $2.3 million in
Business & Professional Bank's common stock based upon Business &
Professional's book value per common share as of the end of the month
immediately preceding the consummation of the transaction. A contingent
payment of up to $940,000 may be received by West Coast from three to five
years after the sale date based on the performance of Sacramento First's loan
portfolio and real estate owned. All assets and liabilities of Sacramento
First are included in "Net assets held for sale" at June 30, 1994. Sacramento
First's operating results were included in the consolidated statements of
operations for all periods.
Exclusive of Sacramento First's earnings and loss on sale, the Company's loss
would have been $1,928,000 and $450,000 for the six and three months ended June
30, 1994 as compared with $6,023,000 and $4,831,000 for the same periods in
1993.
The Company had total assets, loans and deposits as follows (in thousands):
June 30, December 31, June 30, December 31,
1994 1993 1993 1992
--------------------------------------------
Total assets $152,026 $ 312,263 $ 331,706 $ 361,741
Loans 110,897 223,343 254,993 279,014
Deposits 137,501 292,950 307,330 330,843
Total assets, loans and deposits of Sacramento First that have been netted into
"Net Assets Held for Sale" at June 30, 1994 were $116,808, $81,004 and
$106,069, respectively.
-9- <PAGE>
WEST COAST BANCORP AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
June 30, 1994
Remaining reductions 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. Loan and deposit growth are not
anticipated until Sunwest's capital is increased.
The federal banking agencies have broad powers to impose restrictions and
sanctions on an institution classified as significantly undercapitalized. In
the event Sunwest continues to incur losses, and West Coast is unable to raise
the funds necessary to increase the Company's and Sunwest's capital levels, the
FDIC would take additional actions at Sunwest. Those actions may include the
appointment of a conservator or receiver or the termination of insurance of
deposits.
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 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 losses were significantly affected by recording an estimate of the
loss on the proposed sale of Sacramento First. The 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 $1,650,000 or 18% from the first half of 1993 to
the first half of 1994 and by $588,000 or 13% from the second quarter of 1993
to the second quarter of 1994 because of reduced loan volumes. Average loans
decreased by $55 million or 21% from the first half of 1993 to the first half
of 1994.
Average earning assets and average interest-bearing liabilities will decrease
in the third quarter as a result of the proposed sale of Sacramento First.
Sacramento First's average earning assets and average interest-bearing
liabilities (included in the consolidated total) were approximately $107
million and $78 million, respectively for the six and three months ended June
30, 1994.
-10- <PAGE>
WEST COAST BANCORP AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
June 30, 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 six and three month
periods ended June 30, 1994 and 1993 (dollars in millions):
Six Months Ended June 30,
1994 1993
Average Yields/ Average Yields/
ASSETS Balance Rates Balance Rates
------------------------------------
Loans, net of unearned income
and discounts $203.9 9.38% $258.7 9.62%
Investment securities 17.9 4.98 16.5 5.00
Federal funds sold 26.6 3.30 24.2 2.69
Interest-bearing deposits
in other banks 4.4 3.61 1.4 4.25
------------------------------------
Total interest-earning assets 252.8 8.33 300.8 8.78
Allowance for possible credit losses (5.9) (6.6)
Cash and due from banks 19.3 26.4
Other assets 16.0 25.2
------------------------------------
$282.2 $345.8
====================================
LIABILITIES AND
SHAREHOLDERS' EQUITY
Time deposits $79.1 3.84% $112.7 3.99%
Savings deposits 12.1 2.27 12.2 2.50
Interest-bearing demand deposits 92.0 2.25 95.4 2.72
Other 5.1 10.24 5.5 10.45
------------------------------------
Total interest-bearing liabilities 188.3 3.14 225.8 3.53
Demand deposits 80.4 94.7
Other liabilities 3.0 2.5
Shareholders' equity 10.5 22.8
------------------------------------
$282.2 $345.8
====================================
Net interest margin 5.19% 5.25%
Net yield on interest-earning assets 5.99 6.13
(Continued)
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WEST COAST BANCORP AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
June 30, 1994
(Continued) Three Months Ended June 30,
1994 1993
Average Yields/ Average Yields/
ASSETS Balance Rates Balance Rates
------------------------------------
Loans, net of unearned income
and discounts $197.8 9.73% $254.9 9.41%
Investment securities 18.7 4.99 16.8 4.92
Federal funds sold 18.7 3.92 23.1 2.77
Interest-bearing deposits
in other banks 4.4 3.93 1.5 4.11
------------------------------------
Total interest-earning assets 239.6 8.80 296.3 8.61
Allowance for possible credit losses (5.9) (6.6)
Cash and due from banks 15.9 25.9
Other assets 15.4 23.6
------------------------------------
$265.0 $339.2
====================================
LIABILITIES AND
SHAREHOLDERS' EQUITY
Time deposits $ 72.0 3.92% $107.4 3.98%
Savings deposits 12.1 2.21 12.0 2.46
Interest-bearing demand deposits 90.0 2.21 95.0 2.69
Other 5.2 10.02 5.2 10.97
------------------------------------
Total interest-bearing liabilities 179.3 3.12 219.6 3.50
Demand deposits 72.8 95.2
Other liabilities 3.1 2.4
Shareholders' equity 9.8 22.0
------------------------------------
$265.0 $339.2
====================================
Net interest margin 5.68% 5.11%
Net yield on interest-earning assets 6.46 6.02
-12- <PAGE>
WEST COAST BANCORP AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
June 30, 1994
The increases (decreases) in interest income and expense and net interest
income resulting from changes in average assets, liabilities and interest rates
for the 1994 versus 1993 periods are summarized as follows (in thousands):
Six Months Ended June 30, Three Months Ended June 30,
---------------------------- ----------------------------
Asset/ Interest Asset/ Interest
Liability Rate Liability Rate
Changes in Changes Changes Total Changes Changes Total
---------------------------- ----------------------------
Interest income $(2,452) $ (228) $(2,680) $(1,367) $ 257 $(1,110)
Interest expense (708) (322) (1,030) (376) (146) (522)
----------------------------------------------------------
Net interest
income $(1,743) $ 93 $(1,650) $ (991) $ 403 $ (588)
==========================================================
The declines in net interest income resulted primarily from volume declines in
average earning assets.
The Company's ability to increase earning assets is limited by the capital
levels that it and Sunwest Bank 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.
Loans on which the accrual of interest had been discontinued at June 30, 1994
and 1993 amounted to $3,794,000 and $9,618,000, respectively. If these loans
had been current throughout their terms, it is estimated that net interest
income would have increased by approximately $110,000 and $207,000 in the
second quarters of 1994 and 1993, respectively. This would have raised the net
yield on interest-earning assets and the net interest margin by approximately
18 basis points during the second quarter of 1994 and by approximately 28 basis
points during the second quarter of 1993.
The yield on interest-earning assets increased by 89 basis points from the
first quarter to the second quarter of 1994 because the prime rate increased 25
basis points in March, 50 basis points in April and 50 basis points in May.
The yield is expected to increase during the remainder of 1994 as a full
quarter of interest is earned at the higher rates and as a portion of the $24
million of real estate loans that only reprice annually gradually reprice.
Average demand deposits decreased 17% from the first to second quarter of 1994
primarily from the loss of a large customer with a money order operation at
Sunwest. Rates on interest-bearing liabilities are also expected to increase
as time deposits mature and reprice at higher rates.
-13- <PAGE>
WEST COAST BANCORP AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
June 30, 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):
Six Months Ended Three Months Ended
June 30, June 30,
1994 1993 1994 1993
----------------------------------------
Allowance for possible credit losses
balance at beginning of period $ 5,557 $ 6,512 $ 6,240 $ 6,603
Charge-offs (2,765) (5,445) (1,974) (4,641)
Recoveries 353 244 151 147
----------------------------------------
Net charge-offs (2,412) (5,201) (1,823) (4,494)
Provision for possible
credit losses 2,144 5,047 872 4,249
Transfer to assets held for sale (843) - (843) -
----------------------------------------
Allowance for possible credit losses
balance at end of period $ 4,446 $ 6,358 $ 4,446 $ 6,358
========================================
A summary of net (charge-offs) recoveries follows (in thousands):
Six Months Ended Three Months Ended
June 30, June 30,
1994 1993 1994 1993
----------------------------------------
West Coast Bancorp $ 67 $ 31 $ 32 $ 31
Sacramento First National Bank (746) (575) (587) (576)
Sunwest Bank (1,733) (4,657) (1,268) (3,949)
----------------------------------------
$ (2,412) $ (5,201) $ (1,823) $(4,494)
========================================
The provision for possible credit losses was lower during the six and three
months ended June 30, 1994 than in the same respective periods in 1993,
reflecting the reduced charge-offs and lower levels of nonperforming loans.
Net charge-offs were lower in 1994 primarily at Sunwest where a decrease in
gross charge-offs and an increase in recoveries occurred. Sacramento First had
total charge-offs, recoveries and a provision for possible credit losses of
$836,000, $90,000 and $551,000, respectively, during the six months ended June
30, 1994 and $630,000, $43,000 and $197,000, respectively, during the quarter
ended June 30, 1994.
Management believes that the allowance for possible credit losses at June 30,
1994 of $4,446,000 or 4.01% of loans was adequate to absorb known and inherent
risks in the Company's credit portfolio.
-14- <PAGE>
WEST COAST BANCORP AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
June 30, 1994
A summary of nonperforming assets follows (dollars in thousands):
June 30, December 31, June 30, December 31,
1994 1993 1993 1992
---------------------------------------------
Nonaccrual loans $ 3,794 $10,744 $ 9,618 $ 8,796
Loans 90 days past due and
still accruing 389 353 67 158
---------------------------------------------
Total nonperforming loans 4,183 11,097 9,685 8,954
Real estate owned 5,334 7,738 12,309 15,548
---------------------------------------------
Total nonperforming assets $ 9,517 $18,835 $21,994 $ 24,502
=============================================
Nonperforming loans/
Total loans 3.77% 5.04% 3.80% 3.21%
Nonperforming assets/
Total assets 6.26 6.03 6.63 6.77
=============================================
Nonperforming assets have decreased steadily from $24.5 million at December 31,
1992 to $9.5 million at June 30, 1994. The proposed sale of Sacramento First
accounted for $1,211,000 of the nonperforming loan decrease and $3,173,000 of
the nonperforming asset decrease from December 31, 1993 to June 30, 1994. The
high levels of nonperforming assets as a percentage of assets are reflective of
the current economic environment and depressed real estate values in southern
California. While significant progress in reducing nonperforming assets 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 $5,522,000 at June 30, 1994 and were all performing
substantially in accordance with their current terms.
OTHER OPERATING INCOME
Other operating income increased by $432,000 and $471,000 for the six and three
months ended June 30, 1994 as compared with the same periods in 1993. See note
(6) of the notes to consolidated financial statements. Gain on sale of loans
increased by $638,000 for the six months ended June 30, 1994 versus 1993 and by
$563,000 for the quarter ended June 30, 1994 versus 1993 primarily because
Sunwest sold a significant portion of its non-guaranteed portion of SBA loans
for a $536,000 gain during the second quarter of 1994. Historically Sunwest
has only sold its guaranteed portion of the SBA loans. In addition, West Coast
sold its remaining loans for a gain of $96,000 during the second quarter of
1994 which was offset by Sacramento First's second quarter 1994 gain on sales
of loans being $104,000 below 1993 levels. Depositor charges decreased
$176,000 during the first half of 1994 versus 1993 and by $104,000 in the
second quarter of 1994 as compared with the second quarter of 1993 as depositor
charges declined primarily at Sunwest from lower levels of deposits.
Noninterest income is expected to decrease from the second quarter to the third
quarter of 1994 as a result of the proposed sale of Sacramento First and the
non-recurring gain on sales of loans at Sunwest and West Coast during the
second quarter of 1994. Sacramento First's noninterest income for the six and
three months ended June 30, 1994 totaled $537,000 and $230,000, respectively.
-15- <PAGE>
WEST COAST BANCORP AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
June 30, 1994
OTHER OPERATING EXPENSES
Other operating expenses have decreased $3,065,000 and $1,434,000 from the six
and three months ended June 30, 1993 to the same periods in 1994. See note (7)
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):
Six Months Ended Three Months Ended
June 30, June 30,
1994 1993 1994 1993
--------------------------------------
Other operating expenses $ 8,783 $11,848 $ 4,287 $ 5,721
Other operating expenses
(annualized)/average assets 6.22% 6.85% 6.47% 6.75%
Other operating expenses/interest
and other operating income 71.0% 81.1% 66.6% 81.5%
======================================
Salaries decreased $1,065,000 and $582,000 for the six and three months ended
June 30, 1994 versus the same periods in 1993. Salaries decreased at Sunwest
by $530,000 and $411,000 for the same respective periods. Sunwest reduced
staff from 129 employees at March 31, 1994 to 97 at April 30 and 93 employees
at June 30, 1994. Sunwest's salaries are expected to be approximately $200,000
lower in the third quarter 1994 as compared to the second quarter as a result
of the second quarter staff reductions. West Coast reduced salaries by
$300,000 for the six months ended June 30, 1994 versus 1993 as a result of the
1993 restructuring and other salary adjustments. The net cost of operation of
real estate owned decreased by $1,229,000 and $381,000 for the first half and
second quarter of 1993 to 1994 due primarily to lower losses incurred on the
sale of real estate owned and lower levels of real estate owned. All other
noninterest expenses decreased $771,000 and $471,000 for the six and three
months ended June 30, 1994 versus 1993 as a result of lower asset levels, and
management's cost control efforts. Sacramento First's salaries, real estate
owned and all other expenses totaled $1,412,000, $145,000 and $1,519,000 for
the first half of 1994 and $696,000, $53,000 and $786,000, respectively for the
second quarter of 1994.
INCOME TAXES
The Company did not record any significant income tax expense or benefit during
the six months ended June 30, 1994 or 1993. No significant income tax expense
is expected during 1994.
-16- <PAGE>
WEST COAST BANCORP AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
June 30, 1994
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 19% at June 30, 1994 and 24% at December 31, 1993. The Company believes it
has sufficient liquid resources, as well as available credit facilities, to
enable it to meet its operating needs.
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 and terms of the
proposed sale agreement prevent Sacramento First from paying dividends.
West Coast anticipates that it will receive from the proposed sale of
Sacramento First during the fourth quarter of 1994 approximately $3.6 million
in cash and $2.3 million of Business & Professional common stock based upon
Business & Professional's book value per common share as of the end of the
month immediately preceding the consummation of the transaction. A planned
capital infusion to Sunwest combined with payments of debt payable to
affiliates totaling $281,000 will leave West Coast with limited liquidity.
Sources of cash for West Coast included $150,000 received during the second
quarter of 1994 from the sale of its remaining loans and the sale of loans
previously charged off. West Coast has received $150,000 of loans from a
director through August 1994. Sales of real estate owned provided $316,000
through June and are expected to provide $93,000 during the third quarter of
1994. West Coast had cash totaling $27,000 at June 30, 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
$132,000 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 $327,000 during the remainder of 1994.
-17- <PAGE>
WEST COAST BANCORP AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
June 30, 1994
A cash shortfall is anticipated unless additional funds can be raised. The
proposed sale of Sacramento First will provide a substantial inflow of cash.
West Coast is exploring various alternatives for raising funds, including a
possible rights/public offering or the possible private placement of
securities. See "Capital Resources and Dividends." West Coast may not incur
debt without the approval of the Federal Reserve Board. In the event that West
Coast does not complete the sale of Sacramento First and is not able to raise
additional funds, it is possible that West Coast would not be able to meet its
current obligations and could be forced into bankruptcy. See "Capital
Resources and Dividends."
CAPITAL RESOURCES AND DIVIDENDS
The following table sets forth the tier 1 and total risk-based capital and
leverage ratios as of June 30, 1994 for the Company, Sunwest and Sacramento
First:
Tier 1 Total
Capital Capital Leverage
Ratio Ratio Ratio
--------------------------
The Company 6.22% 8.45% 3.01%
Sunwest 4.14 5.42 3.42
Sacramento First (b) 10.54 11.53 7.81
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%.
(b) Sacramento First is currently included in "Net assets held for sale."
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 it
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.
-18- <PAGE>
WEST COAST BANCORP AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
June 30, 1994
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 or the possible private placement of securities. 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.
The additional capital received by Sunwest from West Coast's proposed sale of
Sacramento First will not increase Sunwest's leverage ratio above the 6.5%
minimum established by the regulatory orders. 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. 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.
-19- <PAGE>
WEST COAST BANCORP AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
June 30, 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. 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. 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. 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 June 30,
1994.
-20- <PAGE>
WEST COAST BANCORP AND SUBSIDIARIES
June 30, 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
- - -----------------------------------------------------------------
West Coast Bancorp held its Annual Meeting of Shareholders (the "Meeting")
on May 24, 1994.
At the Meeting, the following individuals were elected to serve as directors
until the 1995 Annual Meeting of Shareholders and until their successors are
elected and have qualified:
Authority
Name of Director Votes For Withheld
J. David Cheshier 5,557,355 467,040
I. Jack Cowley 5,570,131 454,264
L. Wayne Gertmenian 5,578,911 445,484
Thomas A. Jones 5,581,831 442,564
John B. Joseph 5,515,468 508,927
Lacy G. Marlette, Jr. 5,570,111 454,284
Ronald White 5,520,142 504,253
Item 5. Other Information
- - -------------------------------
NONE
Item 6. Exhibits and Reports on Form 8-K
- - ----------------------------------------------
(a) Exhibits
NONE
(b) Reports on Form 8-K
West Coast Bancorp filed a report on Form 8-K on June 30, 1994 for the event
of June 22, 1994 reporting under Item 5 the agreement between West Coast
Bancorp, Sacramento First National Bank and Business & Professional Bank.
-21- <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 August 11, 1994
----------------------------------------- ----------------------
John B. Joseph Date
Chief Executive Officer
/s/Frank E. Smith August 11, 1994
----------------------------------------- ----------------------
Frank E. Smith Date
Chief Financial Officer<PAGE>
