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 six month period ended June 30, 1995
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 SIX MONTHS ENDED JUNE 30, 1995 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 250
Newport Beach, California 92660-1833
(Address of principal executive offices) (Zip Code)
(Registrant's telephone number, including area code) (714) 442-9330
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
28, 1995:
9,168,942
This document contains a total of 20 pages.<PAGE>
WEST COAST BANCORP AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(in thousands, except shares) June 30, December 31,
1995 1994
ASSETS -------------------------
Cash and due from bank $ 7,659 $ 9,437
Interest-bearing deposits with
financial institutions 5,312 4,028
Investment securities held to maturity -
approximate market value of $5,815 and
$5,708 in 1995 and 1994, respectively 5,775 5,868
Investment securities available-for-sale -
approximate market value of $4,000 and
$5,947 in 1995 and 1994, respectively 4,000 5,947
Federal funds sold 9,800 10,200
Loans and direct lease financing held for sale 24 59
Loans 80,876 86,569
Less allowance for possible credit losses (3,395) (4,649)
----------------------
Net loans 77,481 81,920
----------------------
Real estate owned, net 3,637 4,352
Premises and equipment, net 2,103 2,347
Net assets held for sale 1,452 5,351
Other assets 1,621 1,401
----------------------
$118,864 $130,910
======================
LIABILITIES
Deposits:
Demand, non-interest bearing $ 34,807 $ 36,027
Savings, money market & interest
bearing demand 35,075 38,815
Time certificates under $100,000 31,181 39,134
Time certificates of $100,000 or more 6,296 5,293
----------------------
Total deposits 107,359 119,269
Notes payable to affiliates 914 720
Other borrowed funds 171 171
10% convertible subordinated debentures 3,035 3,035
Other liabilities 1,527 1,512
----------------------
Total liabilities 113,006 124,707
SHAREHOLDERS' EQUITY
Common stock, no par value - 30,000,000 shares
authorized, 9,168,942 and 9,192,942 shares issued
and outstanding in 1995 and 1994, respectively 30,176 30,200
Securities valuation allowance - (3)
Accumulated deficit (24,318) (23,994)
----------------------
Total shareholders' equity 5,858 6,203
----------------------
$118,864 $130,910
======================
See accompanying notes to consolidated financial statements.
-2-<PAGE>
WEST COAST BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Six Months Ended Three Months Ended
(in thousands, June 30, June 30,
except per share data) 1995 1994 1995 1994
----------------------------------------
INTEREST INCOME
Loans, including fees $ 4,369 $ 9,561 $ 2,207 $ 4,812
Investment securities 341 446 164 233
Deposits with bank 162 79 93 43
Federal funds sold 408 439 170 183
----------------------------------------
Total interest income 5,280 10,525 2,634 5,271
INTEREST EXPENSE
Interest on deposits 1,479 2,690 711 1,269
Other 209 263 106 131
----------------------------------------
Total interest expense 1,688 2,953 817 1,400
----------------------------------------
Net interest income 3,592 7,572 1,817 3,871
Provision for possible
credit losses 62 2,144 (116) 872
----------------------------------------
Net interest income
after provision for
possible credit losses 3,530 5,428 1,933 2,999
Other operating income 483 1,846 232 1,163
Other operating expenses 4,330 8,783 2,222 4,287
Loss on liquidation of WCV, Inc. - 100 - 100
Loss on sale of Sacramento First - 1,800 - 1,800
----------------------------------------
Loss before income taxes (317) (3,409) (57) (2,025)
Income taxes (benefit) 7 13 7 13
----------------------------------------
Net loss $ (324) $ (3,422) $ (64) $ (2,038)
========================================
Net loss per common share $ (.04) $ (.37) $ (.01) $ (.22)
========================================
Weighted average number of common
and shares outstanding 9,181 9,193 9,177 9,193
========================================
See accompanying notes to consolidated financial statements.
-3-<PAGE>
WEST COAST BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES
IN SHAREHOLDERS' EQUITY
(Unaudited)
Retained
Common Stock Securities Earnings Share-
------------- Valuation (Accum. holders'
(in thousands) Shares Amount Allowance Deficit) Equity
----------------------------------------------
Balance at December 31, 1994 9,193 $30,200 $ (3) $(23,994) $ 6,203
Net loss - - - (324) (324)
Change in securities
valuation allowance - - 3 - 3
Reversal of shares
previously issued to
employee (24) (24) - - (24)
----------------------------------------------
Balance at June 30, 1995 9,169 $30,176 $ - $(24,318) $ 5,858
==============================================
See accompanying notes to consolidated financial statements.
-4-<PAGE>
WEST COAST BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended
June 30,
(in thousands) 1995 1994
----------------------
Cash flows from operating activities:
Net loss $ (324) $ (3,422)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization 299 514
Provision for possible credit losses 62 2,144
Net change in receivables, payables
and other assets (286) 1,982
Proceeds from sales of loans
originated for sale 1,369 3,603
Loans originated for sale (1,284) (2,781)
Gain from sales of loans, net (77) (859)
Write-downs of real estate owned 221 187
Gain from sales of real estate owned, net (27) (287)
Loss on discontinued businesses - 1,900
----------------------
Net cash provided by operating activities (47) 2,981
Cash flows from investing activities:
Proceeds from maturity of interest
bearing balances 1,287 990
Purchases of interest bearing balances (2,571) (990)
Proceeds from maturity of investment securities 2,100 3,449
Purchase of investment securities - (6,172)
Net decrease in loans 3,018 23,131
Proceeds from sales of loans - 3,762
Proceeds from sales of real estate owned 1,938 4,069
Capital expenditures for real estate owned (31) (460)
Purchase of premises and equipment (55) (38)
Proceeds from sales of premises and equipment - 68
Decrease in cash and cash equivalents
from sale of Sacramento First - (14,023)
----------------------
Net cash provided by investing activities 5,686 13,786
(Continued)
See accompanying notes to consolidated financial statements.
-5-<PAGE>
WEST COAST BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended
June 30,
(in thousands) 1995 1994
---------------------
Cash flows from financing activities:
Net decrease in deposits (11,910) (49,380)
Proceeds from sale of Sacramento First 3,512 -
Proceeds from sale of B&PB stock 387 -
Payments for notes payable to affiliates,
subordinated debt and other borrowed funds - (449)
Loan proceeds from affiliate 194 100
----------------------
Net cash used in financing activities (7,817) (49,729)
----------------------
Increase (decrease) in cash and cash equivalents (2,178) (32,962)
Beginning cash and cash equivalents 23,637 55,795
----------------------
Ending cash and cash equivalents $21,459 $ 22,833
======================
Supplemental disclosures of cash flow information:
Cash paid (received) during the period for:
Interest $ 1,696 $ 3,133
Income taxes 7 (98)
Supplemental schedule of non-cash investing
and financing activities:
Transfer of loans to real estate owned $ 1,386 $ 2,483
Senior debt recorded in acquisition of
real estate owned - 987
Loans made to purchasers of real estate owned - 309
Loan assumed by purchasers of real estate owned - 94
See accompanying notes to consolidated financial statements.
-6-<PAGE>
WEST COAST BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
June 30, 1995
(1) BASIS OF PRESENTATION
West Coast Bancorp entered into a definitive agreement on June 22, 1994
to sell Sacramento First National Bank ("Sacramento First") to Business
& Professional Bank ("B&PB"). The sale subsequently closed on January
20, 1995. All assets and liabilities of Sacramento First are included
in "Net assets held for sale" at December 31, 1994. Sacramento First's
operating results were included in the consolidated statements of
operations for all periods through June 30, 1994. As part of the sales
agreement with B&PB, West Coast received 243,000 shares or 14.5% of B&PB
then outstanding common shares upon closing the Sacramento First sale.
B&PB stock was recorded at approximate market value on January 20, 1995,
and is included in "Net assets held for sale." See "Management's
discussion and analysis - general" 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, 1995 and 1994 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 1994 financial
statements to conform to the presentation in 1995.
(3) NET LOSS PER SHARE
The stock options 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:
June 30, December 31,
(in thousands) 1995 1994
----------------------
Commercial $ 27,330 $33,010
Real estate - Mortgage 50,143 49,236
Installment 3,779 4,694
Less unearned income, discounts and fees (376) (371)
----------------------
Loans and direct lease financing $ 80,876 $86,569
======================
-7-<PAGE>
WEST COAST BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
June 30, 1995
(5) OTHER OPERATING INCOME
A summary of other operating income follows:
Six Months Ended Three Months Ended
June 30, June 30,
(in thousands) 1995 1994 1995 1994
----------------------------------------
Depositor charges $ 351 $ 662 $ 169 $ 330
Net gain from sales of loans 77 859 40 683
Service charges, commissions
and fees 37 282 16 133
Other income 18 43 7 17
----------------------------------------
$ 483 $ 1,846 $ 232 $1,163
========================================
(6) OTHER OPERATING EXPENSES
A summary of other operating expenses is as follows:
Six Months Ended Three Months Ended
June 30, June 30,
(in thousands) 1995 1994 1995 1994
----------------------------------------
Salaries and employee
benefits $ 2,088 $ 4,219 $ 936 $1,927
Occupancy 575 1,033 279 510
Depreciation and
amortization 299 514 147 260
Data processing 200 383 98 183
Regulatory fees
and assessments 192 443 96 221
Professional services 188 481 90 291
Customer service 168 187 82 84
Net cost of operation of
real estate owned 167 113 124 175
Insurance 72 145 36 70
Printing and postage 58 122 29 78
Stationery and supplies 56 94 26 39
Advertising and promotion 47 153 33 78
Telephone and telefax 40 118 19 52
Delivery and courier 25 131 12 63
Collection - 363 130 135
Miscellaneous 155 284 85 121
----------------------------------------
$ 4,330 $ 8,783 $ 2,222 $4,287
========================================
-8-<PAGE>
WEST COAST BANCORP AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
June 30, 1995
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, 1995 and 1994.
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 $324,000 or $.04 per share and $64,000 or $.01
per share during the six and three months ended June 30, 1995, respectively,
as compared with $3,422,000 or $.37 per share and $2,038,000 or $.22 per
share during the same respective periods in 1994. The net losses narrowed
in 1995 as losses from the high levels of nonperforming assets were reduced
despite the continued weak economy and depressed real estate values.
On June 22, 1994, West Coast announced the signing of a definitive agreement
among Business & Professional Bank ("B&PB"), Sacramento First National Bank
("Sacramento First"), and West Coast providing for the acquisition of its
majority owned subsidiary, Sacramento First by B&PB. The transaction was
completed on January 20, 1995 and provided West Coast with approximately
$3.6 million of cash, approximately 243,500 shares of B&PB's common stock
and a contingent cash payment of up to $940,000 that 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 December 31, 1994. Sacramento First's operating results were included in
the consolidated statements of operations for all periods through June 30,
1994. Subsequent to June 30, 1994, no amounts relating to Sacramento First
were included in any category of the Company's ending balance sheet, average
balance sheet and income statement except as noted above.
Exclusive of Sacramento First's earnings, the Company's losses would have
been $1,928,000 and $450,000 for the six and three months ended June 30,
1994 as compared with the $324,000 and $64,000 losses for the same periods
in 1995.
The Company had total assets, loans and deposits as follows (in thousands):
June 30, December 31, June 30, December 31,
1995 1994 1994 1993
--------------------------------------------------------
Total assets $ 118,864 $ 130,910 $ 152,026 $ 312,263
Loans 80,900 86,628 110,897 223,343
Deposits 107,359 119,269 137,501 292,950
The 1994 reductions resulted primarily from the accounting treatment for the
sale of Sacramento First and secondarily from a decrease in loans due to
lower loan demand, more stringent underwriting standards, and Sunwest's
capital position and 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
-9-<PAGE>
WEST COAST BANCORP AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
June 30, 1995
other things, maintenance of certain capital levels.
During 1993 Sunwest became "undercapitalized" and during part of 1994
Sunwest was "significantly undercapitalized" under the prompt corrective
action provisions of the FDIC Improvement Act. This made it difficult for
Sunwest to compete with other financial institutions for deposits and loans.
In January 1995, West Coast used the cash proceeds from the sale of
Sacramento First to repay $3.4 million of management fees to Sunwest. This
increased Sunwest's capital ratios to amounts necessary for a depository
institution to be "well capitalized" under the prompt action provisions of
the FDIC Improvement Act. However, because Sunwest is still subject to
regulatory agreements it can only be deemed "adequately capitalized." See
"Capital Resources and Dividends." Despite Sunwest's current capital level,
significant asset growth is not anticipated and further declines may occur.
Further, West Coast's liquidity is limited. In the event West Coast is
unable to raise funds to increase its liquidity, West Coast may not be able
to meet its current obligations and may be forced into bankruptcy. If this
event were to occur, West Coast shareholders could suffer the elimination of
the value of their investments in the Company. See "Liquidity - the Parent
Company."
RESULTS OF OPERATIONS
GENERAL
The 1995 losses were lower than the 1994 losses (exclusive of Sacramento
First) because of reduced loan losses and cost control efforts implemented
at Sunwest.
NET INTEREST INCOME
Net interest income decreased $4.0 million or 53% from the first six months
of 1994 to the same period in 1995 because of the sale of Sacramento First
and reduced loan volumes at Sunwest. The sale of Sacramento First resulted
in a $3.2 million decrease in net interest income for the six months ended
June 30, 1995 versus 1994. Average loans at Sunwest decreased by $40
million or 32% from the first six months of 1994 to the first six months of
1995.
Average earning assets and average interest-bearing liabilities decreased
primarily as a result of the sale of Sacramento First. Excluding Sacramento
First from all periods, average earning assets would have decreased by $32
million and average interest-bearing liabilities would have decreased by $26
million for the six month periods ended June 30, 1995 versus 1994,
respectively.
-10-<PAGE>
WEST COAST BANCORP AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
June 30, 1995
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, 1995 and 1994 (dollars in millions):
Six Months Ended June 30,
1995 1994
Average Yields/ Average Yields/
ASSETS Balance Rates Balance Rates
------------------------------------
Loans, net of unearned income,
discounts and fees $ 83.2 10.50% $203.9 9.38%
Investment securities 11.1 6.13 17.9 4.98
Federal funds sold 14.0 5.84 26.6 3.30
Interest-bearing deposits
with financial institutions 5.0 6.50 4.4 3.61
------------------------------------
Total interest-earning assets 113.3 9.32 252.8 8.33
Allowance for possible credit losses (4.7) (5.9)
Cash and due from banks 6.6 19.3
Other assets 8.9 16.0
------------------------------------
$124.1 $282.2
====================================
LIABILITIES AND
SHAREHOLDERS' EQUITY
Time deposits $ 40.1 5.50% $ 79.1 3.84%
Savings deposits 5.9 1.95 12.1 2.27
Interest-bearing demand deposits 32.5 1.96 92.0 2.25
Other 4.0 10.46 5.1 10.24
------------------------------------
Total interest-bearing liabilities 82.5 4.09 188.3 3.14
Demand deposits 34.0 80.4
Other liabilities 1.6 3.0
Shareholders' equity 6.0 10.5
------------------------------------
$124.1 $282.2
====================================
Net interest margin 5.23% 5.19%
Net yield on interest-earning assets 6.34 5.99
(Continued)
-11-<PAGE>
WEST COAST BANCORP AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
June 30, 1995
Three Months Ended June 30,
1995 1994
Average Yields/ Average Yields/
ASSETS Balance Rates Balance Rates
------------------------------------
Loans, net of unearned income,
discounts and fees $ 82.7 10.67% $197.8 9.73%
Investment securities 10.6 6.16 18.7 4.99
Federal funds sold 11.2 6.09 18.7 3.92
Interest-bearing deposits
with financial institutions 5.6 6.67 4.4 3.93
------------------------------------
Total interest-earning assets 110.1 9.57 239.6 8.80
Allowance for possible credit losses (4.8) (5.9)
Cash and due from banks 6.4 15.9
Other assets 8.4 15.4
------------------------------------
$120.1 $265.0
====================================
LIABILITIES AND
SHAREHOLDERS' EQUITY
Time deposits $ 37.9 5.64% $ 72.0 3.92%
Savings deposits 5.2 1.92 12.1 2.21
Interest-bearing demand deposits 31.2 1.95 90.0 2.21
Other 4.0 10.48 5.2 10.02
------------------------------------
Total interest-bearing liabilities 78.3 4.17 179.3 3.12
Demand deposits 34.2 72.8
Other liabilities 1.7 3.1
Shareholders' equity 5.9 9.8
------------------------------------
$120.1 $265.0
====================================
Net interest margin 5.39% 5.68%
Net yield on interest-earning assets 6.60 6.46
-12-<PAGE>
WEST COAST BANCORP AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
June 30, 1995
The increases (decreases) in interest income and expense and net interest
income resulting from changes in average assets, liabilities and interest
rates for the 1995 versus 1994 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 $(6,670) $ 1,425 $(5,245) $(3,223) $ 586 $(2,637)
Interest
expense (1,627) 362 (1,265) (759) 176 (583)
--------------------------------------------------------------
Net interest
income $(5,043) $ 1,063 $(3,980) $(2,464) $ 410 $(2,054)
==============================================================
The declines in net interest income resulted primarily from the sale of
Sacramento First and volume declines in average earning assets offset
partially by general market rate increases.
Loans on which the accrual of interest had been discontinued at June 30,
1995 and 1994 amounted to $3,913,000 and $3,794,000, respectively. If these
loans had been current throughout their terms, it is estimated that net
interest income would have increased by approximately $121,000 and $110,000
in the second quarter of 1995 and 1994, respectively. This would have
raised the net yield on interest-earning assets and the net interest margin
by approximately 44 and 18 basis points during the second quarter of 1995
and 1994, respectively.
For the six months ended June 30, 1994 versus 1995 the yield on earning
assets increased from 8.33% to 9.32%. This increase was primarily a result
of general increases in market rates including the 300 basis point prime
rate increase from March 1994 to March 1995. The recent decreases in market
rates will cause downward pressure on the Bank's net yield on earning
assets. This may be offset by improvements in loan quality achieved during
the second quarter of 1995 and as a portion of the $25 million of real
estate loans that only reprice annually gradually reprice. The rate on
interest-bearing liabilities increased by 95 basis points from the first six
months of 1994 to the first six months of 1995 as time deposits have matured
and repriced at the higher current market rate. This trend is not expected
to continue as a result of recent market rate declines and most term
deposits already having repriced near current rates.
-13-<PAGE>
WEST COAST BANCORP AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
June 30, 1995
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,
1995 1994 1995 1994
-----------------------------------------
Allowance for possible credit losses
balance at beginning of period $ 4,649 $ 5,557 $ 4,726 $ 6,240
Charge-offs (1,980) (2,765) (1,690) (1,974)
Recoveries 664 353 475 151
----------------------------------------
Net charge-offs (1,316) (2,412) (1,215) (1,823)
Provision for possible
credit losses 62 2,144 (116) 872
Transfer to assets held for sale - (843) - (843)
----------------------------------------
Allowance for possible credit losses
balance at end of period $ 3,395 $ 4,446 $ 3,395 $ 4,446
========================================
A summary of net (charge-offs) recoveries follows (in thousands):
Six Months Ended Three Months Ended
June 30, June 30,
1995 1994 1995 1994
----------------------------------------
West Coast $ - $ 67 $ - $ 32
Sacramento First - (746) - (587)
Sunwest (1,316) (1,733) (1,215) (1,268)
----------------------------------------
$(1,316) $(2,412) $ (1,215) $(1,823)
========================================
The provision for possible credit losses was lower during the six and three
months ended June 30, 1995 than in the same respective periods in 1994,
reflecting the reduced charge-offs, lower levels of nonperforming loans and
the sale of Sacramento First. Sunwest's net charge-offs and provision
decreased by $417,000 and $1,619,000 respectively during the six months
ended June 30, 1995 versus 1994.
Management believes that the allowance for possible credit losses at June
30, 1995 of $3,395,000 or 4.20% 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, 1995
A summary of nonperforming assets follows (dollars in thousands):
June 30, December 31, June 30, December 31,
1995 1994 1994 1993
------------------------------------------------------
Nonaccrual loans $ 3,913 $ 5,414 $ 3,794 $10,744
Loans 90 days past due
and still accruing 196 76 389 353
------------------------------------------------------
Nonperforming loans 4,109 5,490 4,183 11,097
Real estate owned 3,637 4,352 5,334 7,738
------------------------------------------------------
Nonperforming assets $ 7,746 $ 9,842 $ 9,517 $18,835
======================================================
Nonperforming loans/
Total loans 5.08% 6.34% 3.77% 5.04%
Nonperforming assets/
Total assets 6.52 7.52 6.26 6.03
======================================================
Nonperforming assets have decreased from $18.8 million at December 31, 1993
to $7.7 million at June 30, 1995. The 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 which were performing substantially in accordance with
their modified terms totaled $3,264,000 at June 30, 1995. Restructured
loans totaling $1,752,000 were on nonaccrual status at June 30, 1995.
OTHER OPERATING INCOME
Other operating income decreased by $1,363,000 and $931,000 for the six and
three months ended June 30, 1995 as compared with the same periods in 1994.
See notes (1) and (5) of the notes to consolidated financial statements.
Exclusive of Sacramento First, other operating income decreased $826,000 and
$701,000 for the six and three months ended June 30, 1995 versus 1994. This
was primarily caused by Sunwest recording a $536,000 gain on the sale of its
non-guaranteed portion of SBA loans during the second quarter of 1994.
Sunwest has elected not to sell the non-guaranteed portion of SBA loans in
1995. The remaining year-to-date decrease was primarily caused by lower
deposit balances at Sunwest.
-15-<PAGE>
WEST COAST BANCORP AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
June 30, 1995
OTHER OPERATING EXPENSES
Other operating expenses have decreased $4,453,000 and $2,065,000 from the
six and three months ended June 30, 1994 to the same periods in 1995. See
notes (1) and (6) 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,
1995 1994 1995 1994
----------------------------------------
Other operating expenses $ 4,330 $ 8,783 $ 2,222 $ 4,287
Other operating expenses
(annualized)/average assets 6.98% 6.22% 7.40% 6.47%
Other operating expenses/interest
and other operating income 75.1% 71.0% 77.5% 66.6%
========================================
Salaries decreased $2,131,000 and $991,000 for the six and three months
ended June 30, 1995 versus the same periods in 1994. Salaries decreased at
Sunwest by $693,000 for the six month period as a result of the 28% staff
reduction during the second quarter of 1994. Salaries decreased $1,412,000
as a result of selling Sacramento First. Occupancy for the first six months
decreased by $458,000: $322,000 was a result of selling Sacramento First and
the remaining difference was primarily from renegotiating various leases at
Sunwest. Collection expenses decreased by $363,000 of which $319,000
occurred at Sunwest. Sunwest's decrease was a result of significant cost
control efforts and a $195,000 recovery of previously charged expenses. All
other noninterest expenses decreased $1,501,000 for the six months ended
June 30, 1995 versus 1994 primarily from the sale of Sacramento First.
INCOME TAXES
The Company did not record any significant income tax expense or benefit
during the six or three months ended June 30, 1995 or 1994. No significant
income tax expense is expected during 1995.
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 available-for-sale and Federal
funds sold divided by total assets) was 23% at June 30, 1995 and December
31, 1994. The Company believes it has sufficient liquid resources, as well
as available credit facilities, to enable it to meet its operating needs.
-16-<PAGE>
WEST COAST BANCORP AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
June 30, 1995
THE PARENT COMPANY
West Coast's liquidity is limited. West Coast has relied on sales of assets
and borrowings from officers/directors as sources of liquidity. Dividends
from subsidiaries ordinarily provide a source of liquidity to a bank holding
company. Sunwest is prohibited from paying cash dividends by the C&D and
the state order without the prior consent of the regulatory agencies.
During the first six months of 1995 West Coast did not receive any
management fees or dividends from its subsidiaries. West Coast does not
expect to receive management fees or dividends from its subsidiaries
throughout 1995.
West Coast received $3.5 million of cash, net of selling expenses, from the
sale of Sacramento First. West Coast immediately transferred $3.4 million
into Sunwest as a repayment of previously paid management fees. On March
23, 1995, West Coast sold 50,000 shares of B&PB stock. Of the total
proceeds of $387,000, $200,000 was infused as capital in Sunwest on March
30, 1995 and $100,000 was infused during May 1995. Sales of other property
are forecasted to provide $220,000 during the remainder of 1995. On July
11, 1995 WCV, Inc. applied for a $680,000 reimbursement of certain costs
incurred to remediate a property to the state "Underground Storage Tank
Cleanup Fund". The eventual amount and timing of any receipt is dependent on
review of the claim and available balances in the state cleanup fund
available for disbursement. No estimate of a refund has been included in
the financials and no assurances can be given that any refund will be
received.
West Coast anticipates cash expenditures during the remainder of 1995 to
consist of debt service payments, advances to WCV, Inc. and other operating
expenses. West Coast's projected debt service includes quarterly interest
payments on the 10% subordinated debentures of $76,000 each. A portion of
the notes payable to affiliates are currently secured by, and scheduled to
be repaid by sales proceeds totaling $220,000 from the other property sales
mentioned above. Advances to WCV, Inc. are forecasted at $330,000 primarily
for restoration of the real estate owned. West Coast anticipates that other
operating expenses, will be approximately $200,000 during the remainder of
1995, of which $110,000 relates to salaries and directors' fees that are
currently being deferred. A former officer of the Company has a judgment
against West Coast in the amount of $312,000 and is actively pursuing
collection of the judgment.
A cash shortfall is anticipated unless additional cash can be raised. West
Coast may elect to raise additional cash by limiting repayments of the
affiliate debt or interest payments on the subordinated debt, and/or
incurring additional debt. West Coast may not incur debt without the
approval of the Federal Reserve Board. West Coast is considering selling
additional shares of B&PB stock, however pursuant to agreement with B&PB,
West Coast can sell no additional shares of B&PB during 1995 without B&PB's
consent. Even if B&PB was to consent to sale of some additional shares,
proceeds of such sale would become security for West Coast's guarantee of
Sunwest's capital plan as all shares of B&PB stock and proceeds thereof are
pledged to Sunwest to secure such obligation. No assurances can be given
-17-<PAGE>
WEST COAST BANCORP AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
June 30, 1995
that the FDIC would permit Sunwest to release the collateral to West Coast.
In the event West Coast is unable to raise funds to increase its liquidity,
West Coast may not be able to meet its current obligations and may be forced
into bankruptcy. If this event were to occur, West Coast shareholders could
suffer the elimination of the value of their investments in the Company.
CAPITAL RESOURCES AND DIVIDENDS
The following table sets forth the tier 1 and total risk-based capital and
leverage ratios as of June 30, 1995 for the Company and Sunwest:
Tier 1 Total
Capital Capital Leverage
Ratio Ratio Ratio
---------------------------
The Company 6.33% 8.27% 4.72%
Sunwest 9.46 10.74 7.19
Regulatory minimum 4.00 8.00 4.00 (a)
(a) Sunwest is subject to the C&D Order from the FDIC that requires Sunwest
to achieve a leverage ratio of 6.5% and is subject to a substantially
similar State Order.
On January 20, 1995, Sunwest received a repayment of previously paid
management fees totaling $3.4 million from West Coast and on March 30, 1995
Sunwest received an additional $200,000 from West Coast increasing Sunwest's
leverage ratio to above the 6.5% level required by the regulatory orders.
These amounts increase Sunwest's capital ratios to levels necessary for a
depository institution to be "well capitalized" under the prompt action
provisions of the FDIC Improvement Act. However, because Sunwest is still
subject to regulatory agreements it can only be deemed "adequately
capitalized." Sunwest received an additional $100,000 capital infusion from
West Coast during May 1995.
Management believes Sunwest is now in compliance with the regulatory
agreements and orders as set forth in the capital plan Sunwest submitted to
the FDIC, pursuant to the prompt corrective action provisions of the FDIC
Improvement Act, which is guaranteed by West Coast. 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 Company had no material commitments for capital expenditures as of June
30, 1995.
-18-<PAGE>
WEST COAST BANCORP AND SUBSIDIARIES
June 30, 1995
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 August 11, 1995
----------------------------------------- ----------------------
John B. Joseph Date
Chief Executive Officer
/s/Frank E. Smith August 11, 1995
----------------------------------------- ----------------------
Frank E. Smith Date
Chief Financial Officer
<PAGE>
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