WEST COAST BANCORP AND SUBSIDIARIES
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 nine month period ended September 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 NINE MONTHS ENDED SEPTEMBER 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 October
31, 1995:
9,168,942
This document contains a total of 20 pages.
-1-
WEST COAST BANCORP AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(in thousands, except shares) September 30, December 31,
1995 1994
ASSETS -------------------------
Cash and due from bank $ 6,017 $ 9,437
Interest-bearing deposits with
financial institutions 5,415 4,028
Investment securities held to maturity -
approximate market value of $5,700 and
$5,708 in 1995 and 1994, respectively 5,669 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 17,300 10,200
Loans and direct lease financing held for sale - 59
Loans 77,758 86,569
Less allowance for possible credit losses (3,610) (4,649)
------------------------
Net loans 74,148 81,920
------------------------
Real estate owned, net 2,967 4,352
Premises and equipment, net 2,336 2,347
Net assets held for sale 1,452 5,351
Other assets 1,266 1,401
------------------------
$ 120,570 $ 130,910
LIABILITIES ========================
Deposits:
Demand, non-interest bearing $33,853 $36,027
Savings, money market & interest
bearing demand 40,674 38,815
Time certificates under $100,000 27,930 39,134
Time certificates of $100,000 or more 6,667 5,293
------------------------
Total deposits 109,124 119,269
Notes payable to affiliates 854 720
Other borrowed funds 750 171
10% convertible subordinated debentures 3,035 3,035
Other liabilities 1,291 1,512
------------------------
Total liabilities 115,054 124,707
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 (24,660) (23,994)
------------------------
Total shareholders' equity 5,516 6,203
------------------------
$ 120,570 $ 130,910
========================
See accompanying notes to consolidated financial statements.
-2-
WEST COAST BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Nine Months Ended Three Months Ended
(in thousands, September 30, September 30,
except per share data) 1995 1994 1995 1994
------------------------------------------
INTEREST INCOME
Loans, including fees $ 6,549 $ 12,181 $ 2,180 $ 2,620
Investment securities 490 516 149 70
Deposits with bank 251 110 89 31
Federal funds sold 663 631 255 192
------------------------------------------
Total interest income 7,953 13,438 2,673 2,913
INTEREST EXPENSE
Interest on deposits 2,200 3,463 721 773
Other 487 382 278 119
------------------------------------------
Total interest expense 2,687 3,845 999 892
------------------------------------------
Net interest income 5,266 9,593 1,674 2,021
Provision for possible
credit losses 214 3,039 152 895
------------------------------------------
Net interest income
after provision for
possible credit losses 5,052 6,554 1,522 1,126
Other operating income 717 2,279 234 433
Other operating expenses 6,428 10,972 2,098 2,189
Loss on liquidation of WCV, Inc. - 100 - -
Loss on sale of Sacramento First - 1,800 - -
------------------------------------------
Loss before income taxes (659) (4,039) (342) (630)
Income taxes 7 13 - -
------------------------------------------
Net loss $ (666) $ (4,052) $ (342) $ (630)
==========================================
Net loss per common share $ (.07) $ (.44) $ (.04) $ (.07)
==========================================
Weighted average number of common
and shares outstanding 9,185 9,193 9,169 9,193
==========================================
See accompanying notes to consolidated financial statements.
-3-
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 - - - (666) (666)
Change in securities
valuation allowance - - 3 - 3
Reversal of shares
previously issued to
employee (24) (24) - - (24)
----------------------------------------------
Balance at September 30, 1995$ 9,169 $ 30,176 $ - $ (24,660) $ 5,516
===============================================
See accompanying notes to consolidated financial statements.
-4-
WEST COAST BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended
September 30,
(in thousands) 1995 1994
------------------------
Cash flows from operating activities:
Net loss $ (666) $ (4,052)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization 486 670
Provision for possible credit losses 214 3,039
Net change in receivables, payables
and other assets 202 2,142
Proceeds from sales of loans
originated for sale 1,996 5,072
Loans originated for sale (1,863) (4,139)
Gain from sales of loan, net (126) (1,045)
Write-downs of real estate owned 347 194
Gain from sales of real estate owned, net (110) (260)
Loss on discontinued businesses - 1,900
-------------------------
Net cash provided by operating activities 480 3,521
Cash flows from investing activities:
Proceeds from maturity of interest
bearing balances 1,779 3,990
Purchases of interest bearing balances (3,166) (3,231)
Proceeds from maturity of investment securities 2,209 3,446
Purchase of investment securities - (12,647)
Net decrease in loans 5,374 35,506
Proceeds from sales of loans - 4,490
Proceeds from sales of real estate owned 3,418 4,626
Capital expenditures for real estate owned (34) (489)
Purchase of premises and equipment (278) (92)
Proceeds from sales of premises and equipment 181 68
Decrease in cash and cash equivalents
from sale of Sacramento First - (14,023)
------------------------
Net cash provided by investing activities 9,483 21,644
(Continued)
See accompanying notes to consolidated financial statements.
-5-
WEST COAST BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended
September 30,
(in thousands) 1995 1994
----------------------
Cash flows from financing activities:
Net decrease in deposits (10,145) (59,322)
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 (334) (576)
Loan proceeds from affiliate 297 150
----------------------
Net cash used in financing activities (6,283) (59,748)
----------------------
Increase (decrease) in cash and cash equivalents 3,680 (34,583)
Beginning cash and cash equivalents 23,637 55,795
----------------------
Ending cash and cash equivalents $ 27,317 $ 21,212
======================
Supplemental disclosures of cash flow information:
Cash paid (received) during the period for:
Interest $ 2,695 $ 4,016
Income taxes 7 (98)
Supplemental schedule of non-cash investing
and financing activities:
Transfer of loans to real estate owned $ 2,236 $ 2,568
Increase in premises & equipment and other borrowed
funds to establish a capital lease 378 -
Reclassification of other liabilities to other
borrowed funds 372 -
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-
WEST COAST BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1995
(Unaudited)
(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
nine and three month periods ended September 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:
September 30, December 31,
(in thousands) 1995 1994
------------------------
Commercial $ 29,469 $ 33,010
Real estate - Mortgage 44,932 49,236
Installment 3,725 4,694
Less unearned income, discounts and fees (368) (371)
------------------------
Loans and direct lease financing $ 77,758 $ 86,569
========================
-7-
WEST COAST BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1995
(Unaudited)
(5) OTHER OPERATING INCOME
A summary of other operating income follows:
Nine Months Ended Three Months Ended
September 30, September 30,
(in thousands) 1995 1994 1995 1994
--------------------------------------
Depositor charges $ 519 $ 868 $ 168 $ 206
Net gain from sales of loans 126 1,045 49 186
Service charges, commissions
and fees 52 307 15 25
Other income 20 59 2 16
--------------------------------------
$ 717 $ 2,279 $ 234 $ 433
======================================
(6) OTHER OPERATING EXPENSES
A summary of other operating expenses is as follows:
Nine Months Ended Three Months Ended
September 30, September 30,
(in thousands) 1995 1994 1995 1994
----------------------------------------
Salaries and employee
benefits $ 3,048 $ 5,248 $ 960 $ 1,029
Occupancy 717 1,311 142 259
Depreciation and
amortization 486 670 187 156
Data processing 294 496 94 113
Regulatory fees
and assessments 279 555 87 112
Professional services 273 569 85 88
Customer service 256 278 88 91
Net cost of operation of
real estate owned 187 72 20 (41)
Loss from facility
lease adjustment 155 - 155 -
Insurance 108 196 36 51
Stationery and supplies 88 123 32 29
Printing and postage 84 150 26 28
Advertising and promotion 77 168 30 15
Telephone and telefax 53 125 13 26
Delivery and courier 34 146 9 15
Collection 28 489 28 126
Miscellaneous 261 376 106 92
----------------------------------------
$ 6,428 $ 10,972 $ 2,098 $ 2,189
========================================
-8-
WEST COAST BANCORP AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
SEPTEMBER 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 nine and three month periods ended September 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 $666,000 or $.07 per share and $342,000 or $.04
per share during the nine and three months ended September 30, 1995,
respectively, as compared with $4,052,000 or $.44 per share and $630,000 or
$.07 per share during the same respective periods in 1994. The net losses
narrowed in 1995 as losses from the 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
$2,464,000 and $630,000 for the nine and three months ended September 30, 1994
as compared with the $666,000 and $342,000 losses for the same periods in
1995.
The Company had total assets, loans and deposits as follows (in thousands):
September 30, December 31, September 30, December 31,
1995 1994 1994 1993
--------------------------------------------------------
Total assets $ 120,570 $ 130,910 $ 141,619 $ 312,263
Loans 77,758 86,628 97,065 223,343
Deposits 109,124 119,269 127,559 292,950
-9-
WEST COAST BANCORP AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
SEPTEMBER 30, 1995
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 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 $4.3 million or 45% from the first nine 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 nine months ended
September 30, 1995 versus 1994. Average loans at Sunwest decreased by $35
million or 30% from the first nine months of 1994 to the first nine 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 $28
million and average interest-bearing liabilities would have decreased by $24
million for the nine month periods ended September 30, 1995 versus 1994,
respectively.
-10-
WEST COAST BANCORP AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
SEPTEMBER 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 nine and three month
periods ended September 30, 1995 and 1994 (dollars in millions):
Nine Months Ended September 30,
1995 1994
Average Yields/ Average Yields/
ASSETS Balance Rates Balance Rates
------------------------------------
Loans, net of unearned income,
discounts and fees $ 81.4 10.73% $ 170.4 9.53%
Investment securities 10.7 6.13 13.9 4.98
Federal funds sold 15.1 5.83 23.5 3.59
Interest-bearing deposits
with financial institutions 5.1 6.59 3.8 3.79
------------------------------------
Total interest-earning assets 112.3 9.44 211.6 8.47
Allowance for possible credit losses (4.3) (5.5)
Cash and due from banks 6.6 15.5
Other assets 8.8 16.0
------------------------------------
$ 123.4 $ 237.6
====================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Time deposits $ 38.7 5.58% $ 70.3 3.93%
Savings deposits 5.6 1.97 10.3 2.18
Interest-bearing demand deposits 33.6 1.97 73.4 2.22
Other 4.1 15.80 5.0 10.16
------------------------------------
Total interest-bearing liabilities 82.0 4.37 159.0 3.22
Demand deposits 33.8 66.3
Other liabilities 1.6 2.7
Shareholders' equity 6.0 9.6
------------------------------------
$ 123.4 $ 237.6
====================================
Net interest margin 5.08% 5.24%
Net yield on interest-earning assets 6.25 6.04
(Continued)
-11-
WEST COAST BANCORP AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
SEPTEMBER 30, 1995
Three Months Ended September 30,
1995 1994
Average Yields/ Average Yields/
Balance Rates Balance Rates
ASSETS ------------------------------------
Loans, net of unearned income,
discounts and fees $ 77.6 11.23% $ 103.6 10.12%
Investment securities 9.7 6.12 5.7 4.94
Federal funds sold 17.6 5.81 17.2 4.46
Interest-bearing deposits
with financial institutions 5.3 6.74 2.8 4.36
------------------------------------
Total interest-earning assets 110.2 9.70 129.3 9.01
Allowance for possible credit losses (3.5) (4.7)
Cash and due from banks 6.6 7.7
Other assets 8.7 16.1
------------------------------------
$ 122.0 $ 148.4
====================================
LIABILITIES AND
SHAREHOLDERS' EQUITY
Time deposits $ 35.8 5.77% $ 52.9 4.21%
Savings deposits 5.1 2.03 6.6 1.93
Interest-bearing demand deposits 35.9 1.99 36.1 2.05
Other 4.3 25.65 4.8 9.98
------------------------------------
Total interest-bearing liabilities 81.1 4.92 100.4 3.55
Demand deposits 33.5 38.1
Other liabilities 1.5 2.0
Shareholders' equity 5.8 7.9
------------------------------------
$ 122.0 $ 148.4
====================================
Net interest margin 4.78% 5.46%
Net yield on interest-earning assets 6.08 6.25
-12-
WEST COAST BANCORP AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
SEPTEMBER 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):
Nine Months Ended September 30, Three Months Ended September 30,
------------------------------ --------------------------------
Asset/ Interest Asset/ Interest
Changes Liability Rate Liability Rate
in Changes Changes Total Changes Changes Total
------------------------------ --------------------------------
Interest
income $ (7,376) $ 1,891 $ (5,485) $ (608) $ 368 $ (240)
Interest
expense (1,921) 763 (1,158) (232) 339 107
------------------------------------------------------------------
Net interest
income $ (5,455) $ 1,128 $ (4,327) $ (376) $ 29 $ (347)
==================================================================
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 September 30,
1995 and 1994 amounted to $2,965,000 and $5,931,000, respectively. If these
loans had been current throughout their terms, it is estimated that net
interest income would have increased by approximately $126,000 and $166,000 in
the third quarter of 1995 and 1994, respectively. This would have raised the
net yield on interest-earning assets and the net interest margin by
approximately 46 and 51 basis points during the third quarter of 1995 and
1994, respectively.
For the nine months ended September 30, 1995 versus 1994 the yield on earning
assets increased from 8.47% to 9.44%. 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. Yields have stabilized during the
third quarter of 1995 and are expected to remain stable or decrease with
general market rate decreases. The rate on interest-bearing liabilities
increased by 115 basis points from the first nine months of 1994 to the first
nine months of 1995 as time deposits have matured and re-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. The rate on other interest-bearing liabilities
increased significantly during the third quarter of 1995 because of year-to-
date adjustments for a facility lease that was reclassified from an operating
lease to a capital lease and the recognition of past interest on a note
payable entered into during the third quarter for settlement of a judgment
with a former officer. The rate on other interest-bearing liabilities is
expected to be approximately 14% during the fourth quarter of 1995.
-13-
WEST COAST BANCORP AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
SEPTEMBER 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):
Nine Months Ended Three Months Ended
September 30, September 30,
1995 1994 1995 1994
----------------------------------------
Allowance for possible
credit losses balance
at beginning of period $ 4,649 $ 5,557 $ 3,395 $ 4,446
Charge-offs (2,074) (3,562) (94) (797)
Recoveries 821 431 157 78
----------------------------------------
Net charge-offs (1,253) (3,131) 63 (719)
Provision for possible
credit losses 214 3,039 152 895
Transfer to assets held for sale - (843) - -
----------------------------------------
Allowance for possible credit
losses balance at end of period $ 3,610 $ 4,622 $ 3,610 $ 4,622
========================================
A summary of net (charge-offs) recoveries follows (in thousands):
Nine Months Ended Three Months Ended
September 30, September 30,
1995 1994 1995 1994
----------------------------------------
West Coast $ - $ 67 $ - $ -
Sacramento First - (746) - -
Sunwest (1,253) (2,452) 63 (719)
----------------------------------------
$ (1,253) $ (3,131) $ 63 $ (719)
========================================
The provision for possible credit losses was lower during the nine and
three months ended September 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 $1,199,000 and $2,362,000 respectively during the
nine months ended September 30, 1995 versus 1994.
Management believes that the allowance for possible credit losses at
September 30, 1995 of $3,610,000 or 4.64% of loans was adequate to absorb
known and inherent risks in the Company's credit portfolio.
-14-
WEST COAST BANCORP AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
SEPTEMBER 30, 1995
A summary of nonperforming assets follows (dollars in thousands):
September 30, December 31, September 30, December 31,
1995 1994 1994 1993
---------------------------------------------------
Nonaccrual loans $ 2,965 $ 5,414 $ 5,931 $ 10,744
Loans 90 days past due
and still accruing 54 76 48 353
---------------------------------------------------
Nonperforming loans 3,019 5,490 5,979 11,097
Real estate owned 2,967 4,352 4,857 7,738
---------------------------------------------------
Nonperforming assets $ 5,986 $ 9,842 $ 10,836 $ 18,835
===================================================
Nonperforming loans/
Total loans 3.88% 6.34% 6.16% 5.04%
Nonperforming assets/
Total assets 4.96 7.52 7.65 6.03
===================================================
Nonperforming assets have decreased from $18.8 million at December 31, 1993
to $6.0 million at September 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 September 30,
1994. While the levels of nonperforming assets as a percentage of assets
have improved during 1995, they remain at high levels. This was primarily
caused by 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 moderately 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 $3,253,000 at September 30, 1995.
Restructured loans totaling $1,672,000 were on nonaccrual status at
September 30, 1995.
OTHER OPERATING INCOME
Other operating income decreased by $1,562,000 and $199,000 for the nine
and three months ended September 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 $1,025,000 for the nine months ended September 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
caused by lower deposit balances and lower SBA activity at Sunwest.
-15-
WEST COAST BANCORP AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
SEPTEMBER 30, 1995
OTHER OPERATING EXPENSES
Other operating expenses have decreased $4,544,000 and $91,000 from the nine
and three months ended September 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):
Nine Months Ended Three Months Ended
September 30, September 30,
1995 1994 1995 1994
--------------------------------------
Other operating expenses $ 6,428 $ 10,972 $ 2,098 $ 2,189
Other operating expenses
(annualized)/average assets 6.95% 6.16% 6.88% 5.90%
Other operating expenses/interest
and other operating income 74.1% 69.8% 72.2% 65.4%
======================================
Salaries decreased $2,200,000 and $69,000 for the nine and three months
ended September 30, 1995 versus the same periods in 1994. Salaries
decreased at Sunwest by $723,000 for the nine 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 nine months decreased by $594,000; $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
$461,000 of which $417,000 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
$1,289,000 for the nine months ended September 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 nine or three months ended September 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 September 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-
WEST COAST BANCORP AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
SEPTEMBER 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 nine 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 resulted in
$161,000 of cash receipts in July 1995. An additional sale is forecasted to
provide $50,000 during the remainder of 1995.
On July 11, 1995 WCV, Inc. applied to the California Underground Storage Tank
Cleanup Fund ("USTF") for a $680,000 reimbursement of certain costs incurred
to remediate a property. In early November 1995 the USTF informed WCV, Inc.
that approximately $475,000 will be reimbursed to WCV, Inc. during the fourth
quarter of 1995. Approximately $10,000 was deemed ineligible with the
remaining $195,000 subject to further review. Upon receipt of payment,
reimbursements will be recorded as a reversal of the previously expensed loss
on liquidation of WCV, Inc. The eventual resolution of the pending claim is
dependent on further review of the claim and balances in the state cleanup
fund available for disbursement. No estimate of the amount or timing of
reimbursements can be made at this time.
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 a quarterly interest
payment on the 10% subordinated debentures of $76,000. A portion of the notes
payable to affiliates are currently secured by, and scheduled to be repaid by
sales proceeds totaling $50,000 from the other property sales mentioned above.
Advances to WCV, Inc. are forecasted at $250,000 primarily for restoration of
the real estate owned. West Coast anticipates that other operating expenses,
will be approximately $90,000 during the remainder of 1995, of which $50,000
relates to salaries and directors' fees that are currently being deferred. An
agreement for payment of judgment was entered in favor of a former officer
totaling $388,000 and due on April 12, 1996. The agreement required, among
other things, West Coast to place nine shares (9%) of Sunwest stock in escrow
to secure payment of said judgment and that one third of any amount refunded
by the USTF be paid to the former officer as partial settlement of this
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
-17-
WEST COAST BANCORP AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
SEPTEMBER 30, 1995
B&PB stock, however pursuant to agreement with B&PB, West Coast can sell no
additional shares of B&PB without B&PB's consent until January 20, 1996. 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 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 September 30, 1995 for the Company and Sunwest:
Tier 1 Total
Capital Capital Leverage
Ratio Ratio Ratio
--------------------------------
The Company 6.13% 8.14% 4.50%
Sunwest 9.63 10.92 7.00
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 Sep
tember 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
September 30, 1995.
-18-
WEST COAST BANCORP AND SUBSIDIARIES
September 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-
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 November 13, 1995
----------------------------------------- ----------------------
John B. Joseph Date
Chief Executive Officer
/s/Frank E. Smith November 13, 1995
----------------------------------------- ----------------------
Frank E. Smith Date
Chief Financial Officer
-20-
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