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 March 31, 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 April 30, 1996:
9,168,942
Transitional Small Business Disclosure Format Yes No X
-- --
This document contains a total of 19 pages.
-1-
WEST COAST BANCORP AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(in thousands, except share data) March 31, December 31,
1996 1995
------------------------
ASSETS
Cash and due from bank $ 5,296 $ 6,507
Interest-bearing deposits with
financial institutions 3,641 3,933
Investment securities held to maturity -
approximate fair value of $3,061 and
$5,616 in 1996 and 1995, respectively 3,040 5,574
Investment securities available-for-sale
at fair market value 3,952 -
Federal funds sold 13,200 15,400
Loans 76,528 79,000
Less allowance for possible credit losses (3,925) (3,820)
-----------------------
Net loans 72,603 75,180
-----------------------
Real estate owned, net 3,138 2,637
Premises and equipment, net 1,569 1,790
Net assets held for sale 1,473 1,452
Other assets 1,259 1,181
-----------------------
$109,171 $113,654
=======================
LIABILITIES
Deposits:
Demand, non-interest bearing $ 32,978 $ 35,983
Savings, money market & interest bearing demand 37,660 36,699
Time certificates under $100,000 19,540 22,372
Time certificates of $100,000 or more 7,696 7,608
-----------------------
Total deposits 97,874 102,662
Notes payable to affiliates 966 948
Other borrowed funds 558 599
10% convertible subordinated debentures 3,035 3,035
Other liabilities 1,423 1,124
-----------------------
Total liabilities 103,856 108,368
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 300 -
Accumulated deficit (25,161) (24,890)
-----------------------
Total shareholders' equity 5,315 5,286
-----------------------
$109,171 $113,654
=======================
(See accompanying notes to consolidated financial statements)
-2-
WEST COAST BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended
(in thousands, except share data) March 31,
1996 1995
-----------------------
INTEREST INCOME
Loans, including fees $ 2,032 $ 2,162
Investment securities 118 177
Deposits with bank 62 69
Federal funds sold 177 238
-----------------------
Total interest income 2,389 2,646
INTEREST EXPENSE
Interest on deposits 571 768
Other 151 103
-----------------------
Total interest expense 722 871
-----------------------
Net interest income 1,667 1,775
Provision for possible credit losses (14) 178
-----------------------
Net interest income after
provision for possible credit losses 1,681 1,597
Other operating income 282 251
Other operating expenses 1,919 2,087
Gain on liquidation of WCV, Inc. 122 -
Expected loss on sale of Sunwest shares 437 -
------------------------
Loss before income taxes (271) (239)
Income taxes - -
-----------------------
Net loss $ (271) $ (239)
=======================
Net loss per common share $ (.03) $ (.03)
=======================
Weighted average number of common
and shares outstanding 9,169 9,193
=======================
(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 - - - (271) (271)
Change in securities
valuation allowance - - 300 - 300
--------------------------------------------
Balance at March 31, 1996 9,169 $30,176 $ 300 $(25,161) $5,315
============================================
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended
March 31,
(in thousands) 1996 1995
----------------------
Cash flows from operating activities:
Net loss $ (271) $(239)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depreciation and amortization 139 131
Provision for possible credit losses (14) 178
Net change in receivables, payables and other assets 475 (68)
Proceeds from sales of loans originated for sale - 773
Loans originated for sale - (729)
Gain from sales of loan, net - (37)
Write-downs of real estate owned 71 36
Loss (gain) from sales of real estate owned, net 4 (12)
Gain on discontinued businesses (122) -
Gain on sale of B&PB shares (93) (12)
---------------------
Net cash provided by operating activities 189 21
(Continued)
(See accompanying notes to consolidated financial statements)
-4-
WEST COAST BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended
March 31,
(in thousands) 1996 1995
--------------------
Cash flows from investing activities:
Proceeds from maturity of interest
bearing balances $ 788 $ 496
Purchases of interest bearing balances (496) (1,977)
Proceeds from maturity of investment securities 2,536 41
Purchase of investment securities (1,988) -
Net decrease in loans 1,919 5,114
Proceeds from sales of real estate owned 96 1,334
Purchase of premises and equipment (51) (9)
--------------------
Net cash provided by investing activities 2,804 4,999
Cash flows from financing activities:
Net decrease in deposits (4,788) (7,631)
Proceeds from sale of Sacramento First - 3,512
Proceeds from sale of B&PB stock 407 387
Payments for notes payable to affiliates,
subordinated debt and other borrowed funds (41) -
Loan proceeds from affiliate 18 91
--------------------
Net cash used in financing activities (4,404) (3,641)
--------------------
Increase (decrease) in cash and cash equivalents (1,411) 1,379
Beginning cash and cash equivalents 21,907 23,637
--------------------
Ending cash and cash equivalents $20,496 $ 25,016
====================
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 728 $ 862
Income taxes - -
Supplemental schedule of non-cash investing
and financing activities:
Transfer of loans to real estate owned $ 672 $ 256
Reclassification of fixed assets to other assets 133 -
(See accompanying notes to consolidated financial statements)
-5-
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 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 three month periods ended March 31, 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 a loss of $437,000 on the expected
sale of the 35 shares of Sunwest stock during the first quarter of
1996. The new 15 shares of Sunwest stock will result in approximately
a $120,000 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 March 31, 1996 of $84,480
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 is for 93,007 shares
and is to occur by May 28, 1996. Phase three is for 74,178 shares and
is to occur by November 15, 1996. Phase two and three are subject to
Western being able to come to an agreement with B&PB regarding certain
restrictions imposed by B&PB regarding subsequent sale and voting of
the shares. Phase three is also subject to Western obtaining certain
regulatory approvals. In accordance with FASB 115, the $336,000
difference between book value and determinable market value (contract
price) is adjusted to Net Assets Held-for-Sale and Shareholders'
Equity. The principals of Western lent West Coast on a non-recourse
basis approximately $819,000 in April 1996. The loan is secured by 12
shares of Sunwest stock. The loan is due upon the earlier of the sale
of Phase two shares, the sale of the shares of the Sunwest common
stock to Western or March 31, 1997.
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-
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 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
loan made by the principals of Western, and repay the $1.2 million of
debentures held by the public 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:
March 31, December 31,
(in thousands) 1996 1995
-----------------------
Commercial $ 28,578 $ 28,479
Real estate - Mortgage 44,838 47,379
Installment 3,446 3,515
Less unearned income, discounts and fees (334) (373)
-----------------------
Loans and direct lease financing $ 76,528 $ 79,000
=======================
(5) OTHER OPERATING INCOME
A summary of other operating income follows:
Three Months Ended
March 31,
(in thousands) 1996 1995
-----------------------
Depositor charges $ 150 $ 182
Gain on sale of B&PB stock 93 12
Service charges, commissions and fees 12 21
Net gain from sales of loans - 37
Other income 27 (1)
-----------------------
$ 282 $ 251
=======================
-7-
WEST COAST BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1996
(Unaudited)
(6) OTHER OPERATING EXPENSES
A summary of other operating expenses is as follows:
Three Months Ended
March 31,
(in thousands) 1996 1995
-----------------------
Salaries and employee benefits $ 919 $1,152
Occupancy 229 296
Depreciation and amortization 139 131
Customer service 93 86
Professional services 87 98
Net cost of operation of real estate owned 68 43
Data processing 58 102
Regulatory fees and assessments 48 96
Stationery and supplies 37 30
Advertising and promotion 37 14
Printing and postage 30 29
Insurance 25 36
Telephone and telefax 21 21
Collection 15 (130)
Miscellaneous 113 83
-----------------------
$1,919 $2,087
=======================
-8-
WEST COAST BANCORP AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
MARCH 31, 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 three month periods ended March 31,
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 $271,000 or $.03 per share and $239,000 or
$.03 per share during the three months ended March 31, 1996 and 1995,
respectively. The net losses increased in 1996 from a $437,000 estimated
loss on the pending sale of Sunwest stock to Western. This was partially
offset by a $122,000 gain on liquidation of WCV, Inc. and a $93,000 gain on
sale of B&PB shares. Exclusive of the above items net income would have
increased $190,000.
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. The
principals of Western lent West Coast on a non-recourse basis approximately
$819,000 in April 1996. 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 loan to be made
by the principals of Western, and repay the $1.2 million of debentures held
by the public and to provide funds for West Coast to continue its
operations.
The Company had total assets, loans and deposits as follows (in thousands):
March 31, December 31, March 31, December 31,
1996 1995 1995 1994
------------------------------------------------------
Total assets $ 109,171 $ 113,654 $ 122,562 $ 130,910
Loans 76,528 79,000 81,150 86,628
Deposits 97,874 102,662 111,638 119,269
-9-
WEST COAST BANCORP AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
MARCH 31, 1996
The reductions since December 31, 1994 resulted primarily from a $10
million decrease in gross loans due to lower loan demand and more stringent
underwriting standards. Total assets were also affected by decreases in
non-interest bearing cash and sale of "net assets held-for-sale", with each
decreasing $4 million since December 31, 1994.
RESULTS OF OPERATIONS
GENERAL
The 1996 loss was higher than the 1995 loss because West Coast recorded a
$437,000 estimated loss on the pending sale of Sunwest stock to Western.
This was partially offset by a $122,000 gain on liquidation of WCV, Inc.
and a $93,000 gain on sale of B&PB shares. Exclusive of the above items
net income would have increased $190,000.
NET INTEREST INCOME
Net interest income decreased $108,000 or 6% from the first quarter of 1995
to the same period in 1996 because of reduced loan volumes at Sunwest.
Average loans at Sunwest decreased by $6.7 million or 8% from the first
three months of 1995 to the first three months of 1996.
Average earning assets and average interest-bearing liabilities decreased
primarily as a result of reduced loan volume and reduced time deposits.
-10-
WEST COAST BANCORP AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
MARCH 31, 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 three month
periods ended March 31, 1996 and 1995 (dollars in millions):
Three Months Ended March 31,
1996 1995
Average Yields/ Average Yields/
Balance Rates Balance Rates
----------------------------------
ASSETS
Loans, net of unearned income,
discounts and fees $ 77.0 10.55% $ 83.7 10.33%
Investment securities 7.9 6.00 11.6 6.10
Federal funds sold 12.9 5.49 16.8 5.67
Interest-bearing deposits
with financial institutions 3.9 6.43 4.4 6.30
----------------------------------
Total interest-earning assets 101.7 9.40 116.5 9.08
Allowance for possible credit losses (3.9) (4.7)
Cash and due from banks 5.8 6.8
Other assets 6.9 9.5
----------------------------------
$ 110.5 $ 128.1
==================================
LIABILITIES AND
SHAREHOLDERS' EQUITY
Time deposits $ 28.5 5.41% $ 42.4 5.37%
Savings deposits 5.0 1.99 6.5 1.97
Interest-bearing demand deposits 32.7 1.97 33.8 1.97
Other 4.6 13.19 3.9 10.44
----------------------------------
Total interest-bearing liabilities 70.8 4.08 86.6 4.02
Demand deposits 33.3 33.7
Other liabilities 1.0 1.6
Shareholders' equity 5.4 6.2
----------------------------------
$ 110.5 $ 128.1
==================================
Net interest margin 5.32% 5.06%
Net yield on interest-earning assets 6.56 6.09
-11-
WEST COAST BANCORP AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
MARCH 31, 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):
Three Months Ended March 31,
------------------------------
Asset/ Interest
Liability Rate
Changes Changes Total
------------------------------
Changes in:
Interest income $(293) $ 36 $(257)
Interest expense (155) 6 (149)
------------------------------
Net interest income $(138) $ 30 $(108)
==============================
The declines in net interest income resulted primarily from volume declines
in average earning assets offset partially by increased yields.
Loans on which the accrual of interest had been discontinued at March 31,
1996 and 1995 amounted to $3,903,000 and $5,617,000, respectively. If
these loans had been current throughout their terms, it is estimated that
net interest income would have increased by approximately $116,000 and
$162,000 in the first quarter of 1996 and 1995, respectively. This would
have raised the net yield on interest-earning assets and the net interest
margin by approximately 46 and 56 basis points during the first quarter of
1996 and 1995, respectively.
For the three months ended March 31, 1996 versus 1995 the yield on earning
assets increased from 9.08% to 9.40%. 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. Changes in the Company's
yields tend to lag behind market changes due to a portion of the Company's
loans having an annual repricing option. The rate on interest-bearing
liabilities remained relatively unchanged from the first quarter of 1995 to
the first quarter of 1996.
-12-
WEST COAST BANCORP AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
MARCH 31, 1996
NONPERFORMING ASSETS AND PROVISION FOR POSSIBLE CREDIT LOSSES
The following table summarizes the activity in the allowance for possible
credit losses during the periods indicated (in thousands):
Three Months Ended
March 31,
1996 1995
--------------------------
Allowance for possible credit losses
balance at beginning of period $ 3,820 $ 4,649
Charge-offs (48) (290)
Recoveries 167 189
--------------------------
Net charge-offs 119 (101)
Provision for possible credit losses (14) 178
--------------------------
Allowance for possible credit losses
balance at end of period $ 3,925 $ 4,726
==========================
All the above charge-offs and recoveries were at Sunwest. The provision
for possible credit losses was $192,000 lower during the three months ended
March 31, 1996 than in the same respective period in 1995, reflecting the
decrease in net charge-offs of $220,000.
Management believes that the allowance for possible credit losses at March
31, 1996 of $3,925,000 or 5.13% of loans was adequate to absorb known and
inherent risks in the Company's credit portfolio.
-13-
WEST COAST BANCORP AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
MARCH 31, 1996
A summary of nonperforming assets follows (dollars in thousands):
March 31, December 31, March 31, December 31,
1996 1995 1995 1994
-------------------------------------------------
Nonaccrual loans $ 3,903 $ 4,153 $ 5,617 $ 5,414
Loans 90 days past due
and still accruing 28 25 15 76
-------------------------------------------------
Nonperforming loans 3,931 4,178 5,632 5,490
Real estate owned 3,138 2,637 3,250 4,352
-------------------------------------------------
Nonperforming assets $ 7,069 $ 6,815 $ 8,882 $ 9,842
=================================================
Nonperforming loans/
Total loans 5.14% 5.29% 6.94% 6.34%
Nonperforming assets/
Total assets 6.48 6.00 7.22 7.52
=================================================
Nonperforming assets have decreased from $9.8 million at December 31, 1994
to $7.1 million at March 31, 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 $2,531,000 at March 31, 1996. Restructured
loans totaling $2,232,000 were on nonaccrual status at March 31, 1996.
OTHER OPERATING INCOME
Other operating income increased by $31,000 for the three months ended
March 31, 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 $93,000 gain on sale of B&PB stock in 1996
versus a $12,000 gain in 1995. Gain on sale of loans decreased $37,000 as
Sunwest has elected not to sell the guaranteed portion of SBA loans in
1996. The remaining decrease was caused by lower deposit balances.
-14-
WEST COAST BANCORP AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
MARCH 31, 1996
OTHER OPERATING EXPENSES
Other operating expenses have decreased $168,000 from the three months
ended March 31, 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):
Three Months Ended
March 31,
1996 1995
----------------------
Other operating expenses $ 1,919 $2,087
Other operating expenses
(annualized)/average assets 6.95% 6.52%
Other operating expenses/interest
and other operating income 71.8% 72.0%
======================
Salaries decreased $233,000 for the three months ended March 31, 1996
versus the same period in 1995. Salaries decreased at Sunwest by $113,000
for the three 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
three months decreased by $67,000 primarily because Sunwest reclassified a
facility lease from an operating lease to a capital lease during the third
quarter of 1995. Collection expenses increased by $145,000. Sunwest had a
$195,000 recovery of previously charged expenses included in 1995. This
increase was partially affected by a decrease from significant cost control
efforts at Sunwest. All other non-interest expenses decreased $13,000 for
the three months ended March 31, 1996 versus 1995.
INCOME TAXES
The Company did not record any significant income tax expense or benefit
during the nine or three months ended March 31, 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.
The principal sources of funds that provide liquidity for Sunwest is
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
-15-
WEST COAST BANCORP AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
MARCH 31, 1996
amounts) and Federal funds sold divided by total assets) was 20% at March
31, 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 without the
prior consent of the regulatory agencies. During the first three 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. On March 8, 1996, West Coast
received $407,000 of cash from the sale of 46,199 shares of its B&PB stock.
West coast has an agreement to sell the remaining B&PB shares for
approximately $1.5 million. The B&PB shares and any proceeds received from
their sale are pledged as collateral for West Coast's guarantee of
Sunwest's capital plan. West Coast will request from the FDIC release of
these shares during 1996. 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 quarter of 1996 because refunds 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. The principals of Western
have lent West Coast on a non-recourse basis $819,000 in April 1996. The
loan is secured by 12 shares of Sunwest stock. The loan is due upon the
earlier of the sale of Phase II shares, the sale of the shares of the
Sunwest common stock to Western or March 31, 1997. At March 31, 1996, West
Coast had cash totaling $515,000.
West Coast anticipates cash expenditures during 1996 to consist of debt
service payments and other operating expenses. West Coast's paid off the
other borrowed funds totaling $185,000 in April, 1996. Other projected
debt service for the remainder of 1996 includes quarterly interest payments
on the 10% subordinated debentures of $76,000 each, payoff of the loan from
the principals of Western totaling $819,000 and subordinated debentures
totaling $3,035,000. Paydowns on the notes payable to affiliates may occur
based on cash availability. West Coast anticipates that other operating
expenses will be approximately $250,000 during 1996, of which $165,000
relates to salaries and directors' fees that are currently being deferred.
-16-
WEST COAST BANCORP AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
MARCH 31, 1996
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 loan made by the principals of Western, and
repay the $1.2 million of debentures held by the public 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 10.01%, 11.30% and 7.77% Tier 1 risk-based capital, total
risk-based capital and leverage ratio at March 31, 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
regulatory agreements it can only be deemed "Adequately Capitalized."
The Company had no material commitments for capital expenditures as of
March 31, 1996.
-17-
WEST COAST BANCORP AND SUBSIDIARIES
MARCH 31, 1996
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
- -------------------------------
In December 1995, a class action lawsuit was brought against Sunwest and
two other banks who were custodians of the class action members' IRA
accounts that were administered by Qualified Pension, Inc. ("QPI"). On
April 9, 1996 plaintiff's Counsel submitted a request for dismissal of all
causes of action, without prejudice, as to Sunwest Bank.
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
Exhibit 27 - Financial Data Schedule for March 31, 1996
(b) Reports on Form 8-K
NONE
-18-
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 May 13, 1996
----------------------------------------- ----------------------
John B. Joseph Date
Chief Executive Officer
/s/Frank E. Smith May 13, 1996
----------------------------------------- ----------------------
Frank E. Smith Date
Chief Financial Officer
-19-
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