WEST COAST BANCORP AND SUBSIDIARIES
U.S. Securities And Exchange Commission
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
EXCHANGE ACT
For the transition period from N/A to N/A
COMMISSION FILE NUMBER: 0-10897
WEST COAST BANCORP
(Exact name of small business issuer as
specified in its charter)
CALIFORNIA 95-3586860
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
4770 CAMPUS DRIVE, SUITE 250
Newport Beach, California 92660-1833
(Address of principal executive offices)
(714) 442-9330
(Registrant's telephone number, including area code)
N/A
(Former name, former address, and former fiscal year,
if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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 outstanding of each of the issuer's
classes of common equity as of July 30, 1996:
9,168,942
Transitional Small Business Disclosure Format Yes No X
-- --
This document contains a total of 20 pages.
-1-
WEST COAST BANCORP AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(in thousands, except share data) June 30, December 31,
1996 1995
------------------------
ASSETS
Cash and due from bank $ 5,863 $ 6,507
Interest-bearing deposits with
financial institutions 3,342 3,933
Investment securities held to maturity -
approximate fair value of $2,896 and
$5,616 in 1996 and 1995, respectively 2,884 5,574
Investment securities available-for-sale
at fair value 1,933 -
Federal funds sold 8,200 15,400
Loans 79,012 79,000
Less allowance for possible credit losses (3,093) (3,820)
-----------------------
Net loans 75,919 75,180
-----------------------
Real estate owned, net 4,523 2,637
Premises and equipment, net 1,430 1,790
Net assets held for sale 654 1,452
Other assets 1,180 1,181
-----------------------
$105,928 $113,654
=======================
LIABILITIES
Deposits:
Demand, non-interest bearing $ 35,557 $ 35,983
Savings, money market & interest bearing demand 35,251 36,699
Time certificates under $100,000 16,742 22,372
Time certificates of $100,000 or more 7,472 7,608
-----------------------
Total deposits 95,022 102,662
Notes payable to affiliates 835 948
Other borrowed funds 370 599
10% convertible subordinated debentures 3,035 3,035
Other liabilities 1,473 1,124
-----------------------
Total liabilities 100,735 108,368
SHAREHOLDERS' EQUITY
Common stock, no par value - 30,000,000
shares authorized, 9,168,942 shares
issued and outstanding in 1996 and 1995 30,176 30,176
Securities valuation allowance 93 -
Accumulated deficit (25,076) (24,890)
-----------------------
Total shareholders' equity 5,193 5,286
-----------------------
$105,928 $113,654
=======================
(See accompanying notes to consolidated financial statements)
-2-
WEST COAST BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Six Months Ended Three Months Ended
(in thousands, June 30, March 31,
except share data) 1996 1995 1996 1995
--------------------------------------
INTEREST INCOME
Loans, including fees $4,039 $4,369 $2,007 $2,207
Investment securities 213 341 95 164
Deposits with bank 109 162 47 93
Federal funds sold 376 408 199 170
--------------------------------------
Total interest income 4,737 5,280 2,348 2,634
INTEREST EXPENSE
Interest on deposits 1,079 1,479 508 711
Other 309 209 158 106
--------------------------------------
Total interest expense 1,388 1,688 666 817
--------------------------------------
Net interest income 3,349 3,592 1,682 1,817
Provision for credit losses (56) 62 (42) (116)
--------------------------------------
Net interest income after
provision for credit losses 3,405 3,530 1,724 1,933
Other operating income 658 483 376 232
Other operating expenses 3,935 4,330 2,016 2,222
Gain on liquidation of WCV, Inc. 152 - 30 -
Expected loss on sale of Sunwest
shares 459 - 22 -
--------------------------------------
Income (loss) before income taxes (179) (317) 92 (57)
Income taxes 7 7 7 7
--------------------------------------
Net income (loss) (186) (324) $ 85 $ (64)
======================================
Net income (loss) per common share (.02) $ (.04) $ .01 $ (.01)
======================================
Weighted average number of common
and shares outstanding 9,169 9,181 9,169 9,177
======================================
(See accompanying notes to consolidated financial statements)
-3-
WEST COAST BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN
SHAREHOLDERS' EQUITY AND CASH FLOWS
(Unaudited)
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
Common Stock Securities Share-
------------- Valuation Accum. holders'
(in thousands) Shares Amount Allowance Deficit Equity
--------------------------------------------
Balance at December 31, 1995 9,169 $30,176 $ - $(24,890) $5,286
Net loss - - - (186) (186)
Change in securities
valuation allowance - - 93 - 93
--------------------------------------------
Balance at June 30, 1996 9,169 $30,176 $ 93 $(25,076) $5,193
============================================
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended
June 30,
(in thousands) 1996 1995
----------------------
Cash flows from operating activities:
Net loss $ (186) $(324)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depreciation and amortization 281 299
Provision for credit losses (56) 62
Net change in receivables, payables and other assets 173 (274)
Proceeds from sales of loans originated for sale - 1,369
Loans originated for sale - (1,284)
Gain from sales of loan, net - (77)
Write-downs of real estate owned 172 221
Loss (gain) from sales of real estate owned, net 9 (27)
Gain on discontinued businesses (152) -
Gain on sale of B&PB shares (287) (12)
Expected loss on sale of Sunwest shares 459 -
---------------------
Net cash provided by (used in) operating activities 413 (47)
(Continued)
(See accompanying notes to consolidated financial statements)
-4-
WEST COAST BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended
June 30,
(in thousands) 1996 1995
--------------------
Cash flows from investing activities:
Proceeds from maturity of interest
bearing balances $ 2,075 $ 1,287
Purchases of interest bearing balances (1,484) (2,571)
Proceeds from maturity of investment securities 2,693 2,100
Purchase of investment securities (1,988) -
Net (increase) decrease in loans (2,693) 3,018
Proceeds from sales of real estate owned 156 1,907
Purchase of premises and equipment (54) (55)
--------------------
Net cash (used in) provided by investing activities (1,295) 5,686
Cash flows from financing activities:
Net decrease in deposits (7,640) (11,910)
Proceeds from sale of Sacramento First - 3,512
Proceeds from sale of B&PB stock 1,233 387
Payments for notes payable to affiliates,
subordinated debt and other borrowed funds (592) -
Loan proceeds from affiliate 37 194
--------------------
Net cash used in financing activities (6,962) (7,817)
--------------------
Decrease in cash and cash equivalents (7,844) (2,178)
Beginning cash and cash equivalents 21,907 23,637
--------------------
Ending cash and cash equivalents $14,063 $ 21,459
====================
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 1,419 $ 1,696
Income taxes 7 7
Supplemental schedule of non-cash investing
and financing activities:
Transfer of loans to real estate owned $ 2,010 $ 1,386
Assumption of real estate owned senior debt 213 -
Reclassification of fixed assets to other assets 133 -
(See accompanying notes to consolidated financial statements)
-5-
WEST COAST BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1996
(Unaudited)
(1) BASIS OF PRESENTATION
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, 1996 and
1995 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.
On February 29, 1996, West Coast Bancorp ("West Coast") and Sunwest
Bank ("Sunwest") entered into an agreement with Western Acquisitions,
L.L.C. ("Western"), an affiliate of Hovde Financial, Inc., for West
Coast to sell 35 existing shares of Sunwest for $2,520,000 and for
Sunwest to issue and sell 15 new shares for $1,080,000. On
consummation of the stock sales contemplated by the agreement, West
Coast and Western will own approximately 57% and 43% of Sunwest,
respectively. West Coast recorded losses on the expected sale of the
35 shares of Sunwest stock of $437,000 and $22,000 during the first
and second quarters of 1996, respectively. The new 15 shares of
Sunwest stock will result in approximately a $130,000 charge to paid-
in-capital at West Coast with an offsetting amount for minority
interest when the sale is completed. This will occur because the
selling price of Sunwest stock is $72,000 per share versus a book
value of outstanding shares at June 30, 1996 of $85,097 per share.
The actual loss on sale will depend on the book value per share of
Sunwest Bank at the time of closing. The stock sales are subject to
Western obtaining various regulatory approvals.
West Coast entered into an agreement with Western on February 29,
1996, which was amended in April 1996, whereby Western will acquire
all of the remaining 213,384 shares of Business & Professional Bank
("B&PB") common stock at $8.81 per share. The sale is to be completed
in three phases. Phase one occurred on March 8, 1996 and resulted in
proceeds of approximately $407,000. Phase two occurred on May 28,
1996 and resulted in proceeds of $820,000. The proceeds were used to
pay down the loan advanced during April from the principals of
Western. Phase three is for 74,178 shares and is to occur by November
15, 1996. Phase three is subject to certain regulatory approvals. In
accordance with Financial Accounting Standards Board Statement #115,
the $149,000 difference between book value and determinable market
value (contract price) is adjusted to Net Assets Held-for-Sale and
Shareholders' Equity.
If the sale of Sunwest stock does not occur as planned, West Coast
will seek to renegotiate and extend its debt to affiliates, including
the $1.8 million of debentures held by insiders and their affiliates.
-6-
WEST COAST BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1996
(Unaudited)
If the remaining B&PB shares are not acquired by Western the shares
will be sold on the open market to raise sufficient funds to repay the
$1.2 million of debentures held by persons other than insiders and
their affiliates, and to provide funds for West Coast to continue its
operations.
(2) RECLASSIFICATIONS
Certain reclassifications have been made in the prior periods
financial statements to conform to the presentation in the current
periods.
(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 equals 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) 1996 1995
-----------------------
Commercial $ 28,799 $ 28,479
Real estate - Mortgage 47,057 47,379
Installment 3,456 3,515
Less unearned income, discounts and fees (300) (373)
-----------------------
Loans and direct lease financing $ 79,012 $ 79,000
=======================
(5) OTHER OPERATING INCOME
A summary of other operating income follows:
Six Months Ended Three Months Ended
June 30, June 30,
(in thousands) 1996 1995 1996 1995
------------------------------------
Depositor charges $ 304 $ 351 $ 154 $ 169
Gain on sale of B&PB stock 287 12 194 -
Service charges, commissions
& fees 28 37 16 16
Net gain from sales of loans - 77 - 40
Other income 39 6 12 7
------------------------------------
$ 658 $ 483 $ 376 $ 232
====================================
-7-
WEST COAST BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1996
(Unaudited)
(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) 1996 1995 1996 1995
-----------------------------------
Salaries and employee benefits $1,789 $2,088 $ 870 $ 936
Occupancy 460 575 231 279
Depreciation and amortization 281 299 142 147
Professional services 241 188 154 90
Data processing 202 200 144 98
Customer service 187 168 94 82
Net cost of operation of REO 153 167 85 124
Advertising and promotion 100 47 63 33
Regulatory fees and assessments 93 192 45 96
Printing and postage 63 58 33 29
Stationery and supplies 62 56 25 26
Insurance 50 72 25 36
Telephone and telefax 37 40 16 19
Collection 32 - 17 130
Miscellaneous 185 180 72 97
-----------------------------------
$3,935 $4,330 $2,016 $2,222
===================================
(7) CURRENT ACCOUNTING PRONOUNCEMENTS
In June 1996, the FASB issued Statement of Financial Accounting
Standards No. 125 ("SFAS 125"), "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities". SFAS 125 provides
accounting and reporting standards for transfers and servicing of financial
assets and extinguishments of liabilities based on consistent application
of a financial-components approach that focuses on control. It
distinguishes transfers of financial assets that are sales from transfers
that are secured borrowings. Under the financial-components approach,
after a transfer of financial assets, an entity recognizes all financial
and servicing assets it controls and liabilities it has incurred and
derecognizes financial assets it no longer controls and liabilities that
have been extinguished. The financial-components approach focuses on the
assets and liabilities that exist after the transfer. Many of these assets
and liabilities are components of financial assets that existed prior to
the transfer. If a transfer does not meet the criteria for a sale, the
transfer is accounted for as a secured borrowing with pledge of collateral.
SFAS 125 is effective for transfers and servicing of financial assets and
extinguishments of liabilities occurring after December 31, 1996 and should
be applied prospectively. Management does not believe SFAS 125 will have a
material impact on the Company's financial condition or operations.
-8-
WEST COAST BANCORP AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
JUNE 30, 1996
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, 1996 and 1995. 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 recorded losses of $186,000 or $.02 per share and $324,000 or
$.04 per share during the six months ended June 30, 1996 and 1995,
respectively. During the three months ended June 30, 1996, the Company
recorded net income of $85,000 as compared to a loss of $64,000 during the
same respective period in 1995. The decreases in year-to-date losses in
1996 versus 1995 occurred because the parent company recorded during 1996 a
$324,000 gain on sale of its B&PB stock, a gain on discontinued business of
$152,000 and Sunwest increased its net income by $119,000. These items
were offset by a $459,000 expected loss on the sale of Sunwest shares by
West Coast.
West Coast entered into an agreement with Western on February 29, 1996,
which was amended in April 1996, whereby Western will acquire all of the
remaining 213,384 shares of B&PB common stock at $8.81 per share. See Note
1 of the "Notes to the consolidated financial statements" for additional
information on the above transactions.
If the sale of Sunwest stock does not occur as planned, West Coast will
seek to renegotiate and extend its debt to affiliates, including the $1.8
million of debentures held by insiders and their affiliates. If the
remaining B&PB shares are not acquired by Western the shares will be sold
on the open market to raise sufficient funds to repay the $1.2 million of
debentures held by persons other than insiders and their affiliates, and to
provide funds for West Coast to continue its operations.
The Company had total assets, loans and deposits as follows:
June 30, December 31, June 30, December 31,
1996 1995 1995 1994
(in thousands) -----------------------------------------------------
Total assets $ 105,928 $ 113,654 $ 118,864 $ 130,910
Loans 79,012 79,000 80,900 86,628
Deposits 95,022 102,662 107,359 119,269
-9-
WEST COAST BANCORP AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
JUNE 30, 1996
The approximate $24 million reductions in total assets and deposits since
December 31, 1994 resulted from an $8 million decrease in loans, $7 million
decrease in investment securities and $5 million decrease in Federal Funds
sold. The decrease in total liabilities resulted primarily from a $20
million decrease in time certificates of deposits.
RESULTS OF OPERATIONS
GENERAL
The loss for the first six months in 1996 was less than the loss incurred
for the first six months of 1995 because the parent company recorded
$324,000 of gain on sale of its B&PB stock, a gain on discontinued business
of $152,000 was recorded in 1996 and Sunwest increased its net income by
$119,000. These items were offset by a $459,000 expected loss on the sale
of Sunwest shares by West Coast.
NET INTEREST INCOME
Net interest income decreased $243,000 or 7% from the first six months of
1995 to the same period in 1996 because of reduced loan volumes at Sunwest.
For the first six months of 1995 to the first six months of 1996 average
loans at Sunwest decreased by $7 million or 8% and average investment
securities decreased by $4 million or 37%. These decreases were offset by
average time deposits decreasing by $13 million or 33% during the same
period. Due to recent loan originations, ending loans were only 2 percent
lower at June 30, 1996 versus June 30, 1995 and increased 3 percent during
the second quarter of 1996.
-10-
WEST COAST BANCORP AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
JUNE 30, 1996
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, 1996 and 1995 (dollars in millions):
Six Months Ended June 30,
1996 1995
Average Yields/ Average Yields/
Balance Rates Balance Rates
----------------------------------
ASSETS
Loans, net of unearned income,
discounts and fees $ 76.3 10.59% $ 83.2 10.50%
Investment securities 7.0 6.07 11.1 6.13
Federal funds sold 13.9 5.43 14.0 5.84
Interest-bearing deposits
with financial institutions 3.6 6.00 5.0 6.50
----------------------------------
Total interest-earning assets 100.8 9.40 113.3 9.32
Allowance for credit losses (3.8) (4.7)
Cash and due from banks 5.8 6.6
Other assets 7.4 8.9
----------------------------------
$ 110.2 $ 124.1
==================================
LIABILITIES AND
SHAREHOLDERS' EQUITY
Time deposits $ 26.9 5.30% $ 40.1 5.50%
Savings deposits 5.1 2.02 5.9 1.95
Interest-bearing demand deposits 32.6 1.93 32.5 1.96
Other 4.8 12.96 4.0 10.46
----------------------------------
Total interest-bearing liabilities 69.4 4.00 82.5 4.09
Demand deposits 34.2 34.0
Other liabilities 1.2 1.6
Shareholders' equity 5.4 6.0
----------------------------------
$ 110.2 $ 124.1
==================================
Net interest margin 5.40% 5.23%
Net yield on interest-earning assets 6.64 6.34
(Continued)
-11-
WEST COAST BANCORP AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
JUNE 30, 1996
(Continued)
Three Months Ended June 30,
1996 1995
Average Yields/ Average Yields/
Balance Rates Balance Rates
----------------------------------
ASSETS
Loans, net of unearned income,
discounts and fees $ 75.5 10.63% $ 82.7 10.67%
Investment securities 6.2 6.17 10.6 6.16
Federal funds sold 14.8 5.38 11.2 6.09
Interest-bearing deposits
with financial institutions 3.4 5.51 5.6 6.67
----------------------------------
Total interest-earning assets 99.9 9.40 110.1 9.57
Allowance for credit losses (3.8) (4.8)
Cash and due from banks 5.9 6.4
Other assets 7.9 8.4
----------------------------------
$ 109.9 $ 120.1
==================================
LIABILITIES AND
SHAREHOLDERS' EQUITY
Time deposits $ 25.3 5.17% $ 37.9 5.64%
Savings deposits 5.3 2.05 5.2 1.92
Interest-bearing demand deposits 32.4 1.89 31.2 1.95
Other 5.0 12.74 4.0 10.48
----------------------------------
Total interest-bearing liabilities 68.0 3.92 78.3 4.17
Demand deposits 35.0 34.2
Other liabilities 1.5 1.7
Shareholders' equity 5.4 5.9
----------------------------------
$ 109.9 $ 120.1
==================================
Net interest margin 5.48% 5.39%
Net yield on interest-earning assets 6.73 6.60
-12-
WEST COAST BANCORP AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
JUNE 30, 1996
The increases (decreases) in interest income and expense and net interest
income resulting from changes in average assets, liabilities and interest
rates for the 1996 versus 1995 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 Changes Total Changes Changes Total
------------------------------------------------------
Changes in:
Interest income $(537) $ (6) $ (543) $(242) $ (44) $(286)
Interest expense (268) (32) (300) (115) (36) (151)
------------------------------------------------------
Net interest income $(269) $ 26 $ (243) $(127) $ (8) $(135)
======================================================
The declines in net interest income resulted primarily from volume declines
in average earning assets. The $7 million decline in loans (the highest
yielding assets) for both the six and three months ended June 30, 1996 as
compared to the same periods in 1995 caused the greatest decrease in net
interest income. Management believes the decrease in interest income from
asset/liability changes should be reduced in future periods because of the
increase in loans during the second quarter of 1996. Recent loan fundings
have caused ending loans at June 30, 1996 to exceed average loans for the
six months ended June 30, 1996 by $3 million. However, no assurance can be
given that loan volumes will not decline in the future. The decrease in
interest expense was caused by a $13 million decrease in average time
deposits for the three and six months ended June 30, 1996 versus 1995.
Loans on which the accrual of interest had been discontinued at June 30,
1996 and 1995 amounted to $2,541,000 and $3,913,000, respectively. If
these loans had been current throughout their terms, it is estimated that
net interest income would have increased by approximately $66,000 and
$121,000 in the second quarters of 1996 and 1995, respectively. This would
have raised the net yield on interest-earning assets and the net interest
margin by approximately 26 and 44 basis points during the second quarters
of 1996 and 1995, respectively.
For the six months ended June 30, 1996 versus 1995 the yield on earning
assets remained relatively flat, only changing from 9.32% to 9.40%.
Similarly, the rates on interest-bearing liabilities remained relatively
unchanged for the six months ended June 30, 1996 versus 1995 only changing
from 4.09% to 4.00%.
-13-
WEST COAST BANCORP AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
JUNE 30, 1996
NONPERFORMING ASSETS AND PROVISION FOR CREDIT LOSSES
The following table summarizes the activity in the allowance for credit
losses during the periods indicated (in thousands):
Six Months Ended Three Months Ended
June 30, June 30,
1996 1995 1996 1995
----------------------------------------
Allowance for credit losses
balance at beginning of period $3,820 $4,649 $3,925 $4,726
Charge-offs (991) (1,980) (943) (1,690)
Recoveries 320 664 153 475
----------------------------------------
Net charge-offs (671) (1,316) (790) (1,215)
Provision for credit losses (56) 62 (42) (116)
----------------------------------------
Allowance for credit losses
balance at end of period $3,093 $3,395 $3,093 $3,395
========================================
All the above charge-offs and recoveries were at Sunwest. The provision
for credit losses was $118,000 lower during the six months ended June 30,
1996 than in the same respective period in 1995, reflecting the decreases
in net charge-offs and nonperforming loans.
Management believes that the allowance for credit losses at June 30, 1996
of $3,093,000 or 3.91% of loans was adequate to absorb known and inherent
risks in the Company's credit portfolio. No assurance can be given that
economic condition which may adversely effect the Company's service area or
other circumstances will not be reflected in increased provisions for
credit losses in the future.
-14-
WEST COAST BANCORP AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
JUNE 30, 1996
A summary of nonperforming assets follows (dollars in thousands):
June 30, December 31, June 30, December 31,
1996 1995 1995 1994
-------------------------------------------------
Nonaccrual loans $ 2,536 $ 4,153 $ 3,913 $ 5,414
Loans 90 days past due
and still accruing 5 25 196 76
-------------------------------------------------
Nonperforming loans 2,541 4,178 4,109 5,490
Real estate owned 4,523 2,637 3,637 4,352
-------------------------------------------------
Nonperforming assets $ 7,064 $ 6,815 $ 7,746 $ 9,842
=================================================
Nonperforming loans/
Total loans 3.22% 5.29% 5.08% 6.34%
Nonperforming assets/
Total assets 6.67 6.00 6.52 7.52
=================================================
Nonperforming assets have decreased from $9.8 million at December 31, 1994
to $7.1 million at June 30, 1996. While the levels of nonperforming assets
as a percentage of assets have improved since December 31, 1994, 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 and charge-offs.
Restructured loans which were performing substantially in accordance with
their modified terms totaled $2,521,000 at June 30, 1996. Restructured
loans totaling $1,300,000 were on nonaccrual status at June 30, 1996.
OTHER OPERATING INCOME
Other operating income increased by $175,000 for the six months ended June
30, 1996 as compared with the same period in 1995. See notes (1) and (5)
of the notes to consolidated financial statements. The increase was a
result of West Coast recording a $275,000 gain on sale of B&PB stock in
1996 versus a $12,000 gain in 1995. Gain on sale of loans decreased
$77,000 as Sunwest has elected not to sell the guaranteed portion of SBA
loans in 1996. The remaining decrease was caused by lower deposit
balances.
-15-
WEST COAST BANCORP AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
JUNE 30, 1996
OTHER OPERATING EXPENSES
Other operating expenses have decreased $395,000 from the six months ended
June 30, 1996 to the same period 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,
1996 1995 1996 1995
--------------------------------------
Other operating expenses $3,935 $4,330 $2,016 $2,222
Other operating expenses
(annualized)/average assets 7.14% 6.98% 7.33% 7.40%
Other operating expenses/interest
and other operating income 72.9% 75.1% 74.0% 77.5%
======================================
Salaries decreased $299,000 for the six months ended June 30, 1996 versus
the same period in 1995. Salaries decreased at Sunwest by $230,000 for the
six month period as a result of steady reductions in staff, primarily from
not replacing employees who leave voluntarily. The remaining salary
decrease was at West Coast and resulted from a bonus accrual during 1995
because West Coast completed the sale of Sacramento First and Sunwest
achieved a 6.5% leverage ratio. Occupancy for the first six months
decreased by $115,000 primarily because Sunwest reclassified a facility
lease from an operating lease to a capital lease during the third quarter
of 1995. Regulatory fees and assessments decreased by $99,000 primarily
from a rate reduction by the Federal Deposit Insurance Corporation.
Advertising and promotion increased by $53,000 for the six months ended
June 30, 1996 versus 1995 because of a return to actively advertising
Sunwest in the local market. Professional services increased by $53,000
because the internal audit function was outsourced beginning in July 1995.
All other non-interest expenses increased $12,000 for the six months ended
June 30, 1996 versus 1995.
INCOME TAXES
The Company did not record any significant income tax expense or benefit
during the six or three months ended June 30, 1996 or 1995. No significant
income tax expense is expected during 1996.
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.
-16-
WEST COAST BANCORP AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
JUNE 30, 1996
The principal sources of funds that provide liquidity for Sunwest 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 (excluding pledged
amounts) and Federal funds sold divided by total assets) was 14% at June
30, 1996 and 19% at December 31, 1995. 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 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
without the prior consent of the regulatory agencies. During the first six
months of 1996 West Coast did not receive any dividends from its
subsidiaries. West Coast does not expect to receive dividends from its
subsidiaries throughout 1996.
West Coast's primary sources of cash during 1996 are expected to be from
sales of its B&PB stock and Sunwest stock. During the first six months of
1996, West Coast received $1.2 million of cash from the sale of 139,206
shares of its B&PB stock. West Coast has an agreement to sell the remaining
B&PB shares for approximately $650,000. An agreement to sell 35 shares of
Sunwest stock for $2.5 million was entered into between West Coast, Sunwest
and Western. Sales of other property are forecasted to provide $50,000
during 1996. Advances from WCV, Inc. provided approximately $120,000 of
cash during the first half of 1996 because of refunds received from the
California Underground Storage Tank Fund exceeded payments for the
restoration of the real estate owned. Additional refunds will be used to
pay for current and future amounts due for restoration of the property. At
June 30, 1996, West Coast had cash totaling $817,000.
West Coast anticipates cash expenditures during 1996 to consist of debt
service payments and other operating expenses. West Coast repaid other
borrowed funds totaling $185,000 in April, 1996 and made payments on notes
payable to affiliates totaling $150,000 during June 1996. Other projected
debt service for the remainder of 1996 includes quarterly interest payments
on the 10% subordinated debentures of $76,000 each, $12,000 quarterly
principal payments on other borrowed funds and a payment for the
subordinated debenture principal balance totaling $3,035,000. On July 2,
1996 the Centennial Group Incorporated and Centennial Capital Incorporated
(both affiliates of the parent) assigned their notes totaling $483,000 to
an individual unaffiliated with the parent company. A modification of
agreement between the parent company and the new lender dated July 3, 1996
extended the maturity date to June 30, 1999 and required a $12,000
principal payment each quarter beginning September 30, 1996. Paydowns on
the notes payable to affiliates may occur based on cash availability. West
Coast anticipates that other operating expenses will be approximately
$160,000 during 1996, of which $100,000 relates to salaries and directors'
fees that are currently being deferred. West Coast intends on contributing
-17-
WEST COAST BANCORP AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
JUNE 30, 1996
$300,000 in capital to Sunwest Bank if Western does not acquire 15 new
shares of Sunwest common stock. This amount represents the final
installment under Sunwest's capital plan. Sunwest is currently adequately
capitalized, therefore it is no longer subject to the Prompt Corrective
Action requirements of the Federal Deposit Insurance Corporation
Improvement Act.
West Coast's liquidity is limited. If the remaining B&PB shares are not
acquired by Western the shares will be sold on the open market to raise
sufficient funds to repay the $1.2 million of debentures held by persons
other than insiders and their affiliates, and to provide funds for West
Coast to continue its operations. In the event the above transactions are
not completed as contemplated, West Coast would need to come to an
agreement with certain affiliates to extend indebtedness to a future date
when sufficient funds can be obtained to repay the debts. 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
Sunwest had a 9.80%, 11.08% and 7.86% Tier 1 risk-based capital, total risk-
based capital and leverage ratio at June 30, 1996, respectively. These are
above the regulatory minimums of 4.00%, 8.00% and 4.00%, respectively and
above the regulatory orders that require Sunwest to maintain a minimum
leverage ratio of 6.5%. Sunwest's capital ratios are above amounts
necessary for a depository institution to be deemed to be "Well
Capitalized." However, because Sunwest is still subject to a written
regulatory agreement it can only be deemed "Adequately Capitalized."
The Company had no material commitments for capital expenditures as of June
30, 1996.
-18-
WEST COAST BANCORP AND SUBSIDIARIES
JUNE 30, 1996
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 June 27, 1996.
At the Meeting, the following individuals were elected to serve as
directors until the 1997 Annual Meeting of Shareholders and until their
successors are elected and have qualified:
Authority
Name of Director Votes For Withheld
J. David Cheshier 6,049,678 48,160
L. Wayne Gertmenian 6,056,318 41,520
Thomas A. Jones 6,055,298 42,540
John B. Joseph 5,957,085 140,753
Lacy G. Marlette, Jr. 6,049,982 47,856
Ronald R. White 5,979,320 118,518
Item 5. Other Information
- -------------------------------
NONE
Item 6. Exhibits and Reports on Form 8-K
- ----------------------------------------------
(a) Exhibits
Exhibit 27 - Financial Data Schedule for June 30, 1996
(b) Reports on Form 8-K
NONE
-19-
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
WEST COAST BANCORP
/s/John B. Joseph August 13, 1996
----------------------------------------- ----------------------
John B. Joseph Date
Chief Executive Officer
/s/Frank E. Smith August 13, 1996
----------------------------------------- ----------------------
Frank E. Smith Date
Chief Financial Officer
-20-
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