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, 1997
[ ] 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 31, 1997:
9,168,942
Transitional Small Business Disclosure Format Yes No X
This document contains a total of 18 pages.
1
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WEST COAST BANCORP AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
June 30, December 31,
(in thousands, except share data) 1997 1996
------------------------
ASSETS
Cash and due from bank $ 6,414 $ 7,246
Interest-bearing deposits with
financial institutions 199 1,982
Investment securities held to maturity -
approximate fair value of $2,626 in
1996 - 2,607
Investment securities available-for-sale
at fair value 13,205 2,680
Federal funds sold 13,300 10,100
Loans 86,236 82,657
Less allowance for credit losses (2,740) 2,848)
------------------------
Net loans 83,496 79,809
------------------------
Real estate owned, net 1,243 1,243
Premises and equipment, net 739 932
Refundable and deferred taxes 1,177 870
Other assets 1,188 1,518
------------------------
$ 120,961 $ 108,987
========================
LIABILITIES
Deposits:
Demand, non-interest bearing $ 39,503 $ 33,983
Savings, money market & interest bearing demand 35,364 34,342
Time certificates under $100,000 21,523 18,260
Time certificates of $100,000 or more 10,777 8,972
------------------------
Total deposits 107,167 95,557
Other borrowed funds 811 834
Other liabilities 1,076 1,642
------------------------
Total liabilities 109,054 98,033
Commitments and contingencies
Minority interest in subsidiary 5,284 4,819
------------------------
SHAREHOLDERS' EQUITY
Common stock, no par value - 30,000,000
shares authorized, 9,168,942 shares
issued and outstanding in 1997 and 1996 30,176 30,176
Securities valuation allowance 15 (25)
Accumulated deficit (23,568) (24,016)
------------------------
Total shareholders' equity 6,623 6,135
------------------------
$ 120,961 $ 108,987
========================
(See accompanying notes to consolidated financial statements)
2
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WEST COAST BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Six Months Ended Three Months Ended
(in thousands, June 30, June 30,
except share data) 1997 1996 1997 1996
-----------------------------------------
INTEREST INCOME
Loans, including fees $ 4,393 $ 4,039 $ 2,246 $ 2,007
Investment securities 305 213 191 95
Deposits with banks 25 109 5 47
Federal funds sold 318 376 174 199
-----------------------------------------
Total interest income 5,041 4,737 2,616 2,348
INTEREST EXPENSE
Interest on deposits 1,110 1,079 591 508
Other 91 309 45 158
-----------------------------------------
Total interest expense 1,201 1,388 636 666
-----------------------------------------
Net interest income 3,840 3,349 1,980 1,682
Provision for credit losses -- (56) -- (42)
-----------------------------------------
Net interest income after
provision for credit losses 3,840 3,405 1,980 1,724
Other operating income 338 658 167 376
Other operating expenses 3,573 3,935 1,672 2,016
(Loss) gain on liquidation of
WCV, Inc. (4) 152 (3) 30
Minority interest expense 454 -- 362 --
Loss on sale of Sunwest shares -- 459 -- 22
-----------------------------------------
Income (loss) before income taxes 147 (179) 110 92
Income taxes (301) 7 (301) 7
-----------------------------------------
Net income (loss) $ 448 $ (186) $ 411 $ 85
=========================================
Net income (loss) per common share $ .05 $ (.02) $ .04 $ .01
=========================================
Weighted average number of common
and shares outstanding 9,169 9,169 9,169 9,169
=========================================
(See accompanying notes to consolidated financial statements)
3
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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, 1996 9,169 $ 30,176 $ (25) $ (24,016) $ 6,135
Net income - - - 448 448
Change in securities
valuation allowance - - 40 - 40
-------------------------------------------------
Balance at June 30, 1997 9,169 $ 30,176 $ 15 $ (23,568) $ 6,623
=================================================
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended
June 30,
(in thousands) 1997 1996
-------------------
Cash flows from operating activities:
Net income (loss) $ 448 $ (186)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization 195 281
Provision (benefit) for credit losses -- (56)
Net change in receivables, payables and other assets (469) 173
Write-downs of real estate owned -- 172
Loss from sales of real estate owned, net -- 9
Minority interest expense 454 --
Loss (gain) on discontinued businesses 4 (152)
Gain on sale of B&PB shares -- (287)
Expected loss on sale of Sunwest shares -- 459
-------------------
Net cash provided by (used in) operating activities 632 413
(Continued)
(See accompanying notes to consolidated financial statements)
4
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WEST COAST BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended
(in thousands) June 30,
1997 1996
-------------------
Cash flows from investing activities:
Proceeds from maturity of interest bearing cash
with an original maturity greater than 90 days $ 1,882 $ 2,075
Purchases of interest bearing cash (99) (1,484)
Proceeds from maturity of investment securities
held to maturity -- 2,693
Purchase of investment securities available for sale (8,497) (1,988)
Proceeds from maturity of investment securities
available for sale 579 --
Net increase in loans (3,687) (2,693)
Proceeds from sales of real estate owned -- 156
Purchase of premises and equipment (29) (54)
-------------------
Net cash (used in) provided by investing activities (9,851) (1,295)
Cash flows from financing activities:
Net increase (decrease) in deposits 11,610 (7,640)
Proceeds from sale of B&PB stock -- 1,233
Payments for notes payable to affiliates,
subordinated debt and other borrowed funds (23) (592)
Loan proceeds from affiliate -- 37
-------------------
Net cash provided by (used in) financing activities 11,587 (6,962)
-------------------
Increase (decrease) in cash and cash equivalents 2,368 (7,844)
Beginning cash and cash equivalents 17,346 21,907
-------------------
Ending cash and cash equivalents $19,714 $ 14,063
===================
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 1,195 $ 1,419
Income taxes - 7
Supplemental schedule of non-cash investing
and financing activities:
Transfer of investment security from held to maturity
to available for sale $ 2,553 $ -
Transfer of loans to real estate owned - 2,010
Assumption of real estate owned senior debt 213
Reclassification of fixed assets to other assets - 133
(See accompanying notes to consolidated financial statements)
5
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WEST COAST BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997
(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
presentation of the results of operations for the interim periods.
Results for the six and three month periods ended June 30, 1997 and
1996 are not necessarily indicative of results that 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 $1,051,000. On September
13, 1996, the sale closed. West Coast and Western own approximately
56.5% and 43.5% of Sunwest, respectively.
(2) RECLASSIFICATIONS
Certain reclassifications have been made in the prior periods financial
statements to conform to the presentation in the current periods.
(3) NET INCOME (LOSS) PER SHARE
The stock options and 10% convertible subordinated debentures were not
included in the net income (loss) per share computations as the effect
would have been anti-dilutive because conversion prices exceeded the
market price during all periods. Fully diluted earnings (loss) per
share equals primary earnings (loss) per share.
(4) LOANS
A summary of loans follows:
June 30, December 31,
(in thousands) 1997 1996
-------------------------
Real estate mortgage loans $ 56,629 $ 54,938
Commercial loans not secured by real estate 27,846 25,300
Personal loans not secured by real estate 2,053 2,728
Less unearned income, discounts and fees (292) (309)
-------------------------
$ 86,236 $ 82,657
=========================
6
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WEST COAST BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997
(Unaudited)
(5) OTHER OPERATING INCOME
A summary of other operating income follows:
Six Months Ended Three Months Ended
June 30, June 30,
(in thousands) 1997 1996 1997 1996
---------------------------------------
Depositor charges $ 279 $ 304 $ 137 $ 154
Gain on sale of B&PB stock - 287 - 194
Service charges, commissions
& fees 24 28 13 16
Other income 35 39 17 12
---------------------------------------
$ 338 $ 658 $ 167 $ 376
=======================================
(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) 1997 1996 1997 1996
--------------------------------------
Salaries and Employee Benefits $ 1,715 $ 1,789 $ 826 $ 870
Occupancy 512 460 212 231
Data Processing 242 202 125 144
Customer Service 236 187 117 94
Depreciation and Amortization 196 281 92 142
Advertising and Promotion 129 100 62 63
Professional Services 101 241 53 154
Director Fees 57 37 18 20
Printing and Postage 54 63 31 33
Telephone and Telefax 40 37 17 16
Stationery and Supplies 38 62 19 25
Insurance 31 50 15 25
Regulatory Fees and Assessments 30 93 15 45
Collection 29 32 10 17
Net Cost of Operation of REO 6 153 2 85
Miscellaneous 157 148 58 52
--------------------------------------
$ 3,573 $ 3,935 $ 1,672 $ 2,016
======================================
7
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WEST COAST BANCORP AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
JUNE 30, 1997
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, 1997 and 1996. The discussion should
be read in conjunction with the Company's consolidated financial statements and
the accompanying notes appearing elsewhere in this report.
Certain statements in this Report on Form 10-QSB constitute "forward-looking
statements" under the Private Securities Litigation Act of 1995 which involve
risk and uncertainties. The Company's actual results may differ significantly
from the results discussed in such forward-looking statements. Factors that
might cause such a difference include but are not limited to economic
conditions, competition in the geographic and business area in which the Company
conducts its operations, fluctuations in interest rates, credit quality and
government regulation. For additional information concerning these factors, see
"Item 1. Business Summary of Business Considerations and Certain Factors that
May Affect Future Results of Operations and/or Stock Price" contained in the
Company's Annual Report on Form 10-KSB for the year ended December 31, 1996.
GENERAL
The Company recorded net income of $448,000, or $.05 per share and $411,000, or
$.04 per share during the six and three months ended June 30, 1997, as compared
with a loss of $186,000, or $.02 per share and income of $85,000, or $.01 per
share during the same respective periods in 1996. The income in 1997 versus the
loss in 1996 occurred primarily because Sunwest had higher earnings, including
recognizing a $307,000 tax benefit, and West Coast had no interest expense from
the 10% convertible subordinated debentures that were repaid in October 1996.
During 1996 Western Acquisitions, L.L.C. ("Western"), an affiliate of Hovde
Financial, Inc., purchased 43.5% of Sunwest's common stock and purchased West
Coast's remaining shares of Business & Professional Bank. See note 1 of the
"Notes to the Consolidated Financial Statements" for additional information on
these transactions.
The Company had total assets, loans and deposits as follows:
June 30, December 31, June 30, December 31,
1997 1996 1996 1995
-------------------------------------------------------------
(in thousands)
Total assets $ 120,961 $ 108,987 $ 105,928 $ 113,654
Loans 86,236 82,657 79,012 79,000
Deposits 107,167 95,557 95,022 102,662
The $15 million increase in total assets from June 30, 1996 to June 30, 1997
occurred primarily due to a $12 million increase in deposits at Sunwest from
increased marketing efforts.
8
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WEST COAST BANCORP AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
JUNE 30, 1997
RESULTS OF OPERATIONS
NET INTEREST INCOME Net interest income increased $491,000 or 15% from the first
six months of 1996 to the same period in 1997. This resulted from an 11%
increase in average loans, the highest yielding earning asset, partially offset
by a 7% increase in time deposits (the highest cost deposits) as a funding
source. The increase in net interest income was also due to West Coast
increasing its net interest income by $217,000 from paying off its 10%
subordinated debentures and other notes payable in October 1996. Net interest
income is expected to increase in the future as Sunwest increases its earning
assets through its marketing efforts and the recovering economy in Orange
County, California.
9
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WEST COAST BANCORP AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
JUNE 30, 1997
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, 1997 and 1996 (dollars in millions):
Six Months Ended June 30,
1997 1996
Average Yields/ Average Yields/
Balance Rates Balance Rates
-----------------------------------------
ASSETS
Loans, net of unearned income,
discounts and fees $ 84.6 10.38% $ 76.3 10.59%
Investment securities 9.4 6.47 7.0 6.07
Federal funds sold 11.6 5.46 13.9 5.43
Interest-bearing deposits
with financial institutions 1.0 5.18 3.6 6.00
-----------------------------------------
Total interest-earning assets 106.6 9.46 100.8 9.40
Allowance for credit losses (2.8) (3.8)
Cash and due from banks 6.3 5.8
Other assets 4.0 7.4
-----------------------------------------
$ 114.1 $ 110.2
=========================================
LIABILITIES AND
SHAREHOLDERS' EQUITY
Time deposits $ 28.8 5.32% $ 26.9 5.30%
Savings deposits 4.7 1.96 5.1 2.02
Interest-bearing demand deposits 31.4 1.88 32.6 1.93
Other 1.0 22.04 4.8 12.96
-----------------------------------------
Total interest-bearing liabilities 65.9 3.64 69.4 4.00
Minority interest 4.9 .-
Demand deposits 35.6 34.2
Other liabilities 1.4 1.2
Shareholders' equity 6.3 5.4
-----------------------------------------
$ 114.1 $110.2
=========================================
Net interest margin 5.81% 5.40%
Net yield on interest-earning assets 7.20 6.64
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WEST COAST BANCORP AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
JUNE 30, 1997
Three Months Ended June 30,
1997 1996
Average Yields/ Average Yields/
Balance Rates Balance Rates
-----------------------------------------
ASSETS
Loans, net of unearned income,
discounts and fees $ 85.9 10.46% $ 75.5 10.63%
Investment securities 11.6 6.54 6.2 6.17
Federal funds sold 12.4 5.60 14.8 5.38
Interest-bearing deposits
with financial institutions .3 4.64 3.4 5.51
-----------------------------------------
Total interest-earning assets 110.2 9.49 99.9 9.40
Allowance for credit losses (2.7) (3.8)
Cash and due from banks 6.4 5.9
Other assets 3.8 7.9
-----------------------------------------
$ 117.7 $ 109.9
=========================================
LIABILITIES AND
SHAREHOLDERS' EQUITY
Time deposits $ 30.6 5.39% $ 25.3 5.17%
Savings deposits 4.8 2.00 5.3 2.05
Interest-bearing demand deposits 32.3 1.90 32.4 1.89
Other .9 22.00 5.0 12.74
-----------------------------------------
Total interest-bearing liabilities 68.6 3.71 68.0 3.92
Minority interest 4.9 .-
Demand deposits 36.7 35.0
Other liabilities 1.1 1.5
Shareholders' equity 6.4 5.4
-----------------------------------------
$ 117.7 $ 109.9
=========================================
Net interest margin 5.78% 5.48%
Net yield on interest-earning assets 7.18 6.73
11
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WEST COAST BANCORP AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
JUNE 30, 1997
The increases (decreases) in interest income and expense and net interest income
resulting from changes in average assets, liabilities and interest rates for the
1997 versus 1996 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 $ 377 $ (75) $ 302 $ 290 $ (24) $ 266
Interest expense (76) (111) (187) 9 (39) (30)
-------------------------------------------------------
Net interest income $ 453 $ 36 $ 489 $ 281 $ 15 $ 296
=======================================================
Loans on which the accrual of interest had been discontinued at June 30, 1997
and 1996 amounted to $834,000 and $2,536,000, respectively. If these loans had
been current throughout their terms, it is estimated that net interest income
would have increased by approximately $22,000 and $66,000 in the second quarters
of 1997 and 1996, respectively. This would have raised the net yield on
interest-earning assets and the net interest margin by approximately 8 and 26
basis points during the second quarters of 1997 and 1996, respectively.
Impaired loans have not changed significantly from the amounts reported at
December 31, 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,
1997 1996 1997 1996
------------------------------------------
Allowance for credit losses
balance at beginning of period $ 2,848 $ 3,820 $ 2,887 $ 3,925
Charge-offs (194) (991) (189) (943)
Recoveries 86 320 42 153
------------------------------------------
Net charge-offs (108) (671) (147) (790)
Provision for credit losses -- (56) -- (42)
------------------------------------------
Allowance for credit losses
balance at end of period $ 2,740 $ 3,093 $ 2,740 $ 3,093
==========================================
12
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WEST COAST BANCORP AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
JUNE 30, 1997
All the above charge-offs and recoveries were at Sunwest. The lower net
charge-offs during 1997 are a result of improved asset quality.
Management believes that the allowance for credit losses at June 30, 1997 of
$2,740,000 or 3.18% of loans was adequate to absorb known and inherent risks in
the Company's credit portfolio. The ultimate collectibility of a substantial
portion of the Company's loans, as well as its financial condition, is affected
by general economic conditions and the real estate market in California.
California has experienced, and may continue to experience, volatile economic
conditions. These conditions have adversely affected certain borrowers' ability
to repay loans. While Southern California and Orange County economies have
recently exhibited positive trends, there is no assurance that such trends will
continue. A deterioration in economic conditions could result in a deterioration
in the quality of the loan portfolio and high levels of nonperforming assets,
classified assets and charge-offs, which would require increased provisions for
possible credit losses and would adversely affect the financial condition and
results of operations of the Company.
A summary of nonperforming assets follows (dollars in thousands):
June 30, December 31, June 30, December 31,
1997 1996 1996 1995
---------------------------------------------------
Nonaccrual loans $ 834 $ 931 $ 2,536 $ 4,153
Loans 90 days past due
and still accruing 44 43 5 25
---------------------------------------------------
Nonperforming loans 878 974 2,541 4,178
Real estate owned 1,243 1,243 4,523 2,637
---------------------------------------------------
Nonperforming assets $2,121 $2,217 $ 7,064 $ 6,815
===================================================
Nonperforming loans/
Total loans 1.02% 1.18% 3.22% 5.29%
Nonperforming assets/
Total assets 1.75 2.03 6.67 6.00
===================================================
Nonperforming assets have decreased from $6.8 million at December 31, 1995 to
$2.1 million at June 30, 1997. This was accomplished primarily from $3.2 million
of real estate owned sales in 1996, which included $2.0 million of nonaccrual
loans transferred to real estate owned during 1996.
Restructured loans that were performing substantially in accordance with their
modified terms totaled $3,091,000 at June 30, 1997. Restructured loans totaling
$539,000 were on nonaccrual status at June 30, 1997.
OTHER OPERATING INCOME
Other operating income decreased by $320,000 for the six months ended June 30,
1997, as compared with the same period in 1996. See notes (1) and (5) of the
notes to consolidated financial statements. The decrease was a
13
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WEST COAST BANCORP AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
JUNE 30, 1997
result of West Coast recording a $287,000 gain on sale of B&PB stock in 1996.
OTHER OPERATING EXPENSES
Other operating expenses decreased $362,000 from the six months ended June 30,
1996 to the same period in 1997. 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,
1997 1996 1997 1996
--------------------------------------------
Other operating expenses $ 3,573 $ 3,935 $ 1,672 $ 2,016
Other operating expenses
(annualized)/average assets 6.26% 7.14% 5.68% 7.33%
Other operating expenses/interest
and other operating income 66.4% 72.9% 60.1% 74.0%
============================================
Significant decreases in expenses in 1997 are as follows: Net Cost of Operation
of REO decreased $147,000 from lower levels of foreclosed assets. Professional
Services decreased $140,000 due primarily to lower fees and reduced services
from outside vendors.
Depreciation and Amortization decreased $85,000 from assets becoming fully
depreciated and from closure of the Santa Ana facility on April 1, 1997.
Salaries and Employee Benefits decreased $74,000 as a result of reductions in
staff. Regulatory fees and Assessments declined $63,000 due to improvement in
the condition of Sunwest.
Significant increases included Occupancy expenses increasing $52,000 from
recording $56,000 of estimated future subleases losses during the quarter ended
March 31, 1997. These losses were a result of Sunwest subleasing excess space to
unaffiliated parties. Total costs from Sunwest's lease with its landlord, tenant
improvement costs, commissions for the sublease and expected maintenance costs
for the sublease periods exceeded expected rental income on the subleases.
Customer Service increased $49,000 due to increased business levels. Data
Processing expenses increased $40,000 primarily due to an adjustment received
from a vendor in 1996 and increased business levels in 1997. Due to actively
marketing Sunwest in the local market, Advertising and Promotion increased
$29,000.
The Company strives to decrease non-interest expenses where opportunity exists
while growing the loans and deposits of the Company.
INCOME TAXES
Sunwest recognized a tax benefit of $307,000 during the second quarter of 1997.
The tax benefit was recognized after performing the quarterly analysis of the
valuation allowance for deferred taxes. The valuation allowance was reduced
because it was deemed more likely than not that a
14
<PAGE>
WEST COAST BANCORP AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
JUNE 30, 1997
portion of the deferred tax asset will be recognized as a benefit. Sunwest had
$4.7 million of net deferred tax assets and approximately $9.2 million of net
operating loss carryforwards at December 31, 1996. Excluding the Sunwest
amounts, the Company had $4.2 million of net operating loss carryforwards at
December 31, 1996.
For all the periods presented a valuation allowance has been recorded to offset
most or all of the deferred tax assets of Sunwest and the Company. The valuation
allowance was established due to uncertainty of future earnings at both Sunwest
and the Company. As of June 30, 1997, Sunwest has recognized a $1,177,000
deferred tax asset due to its improved earnings and expected tax preference
items. Sunwest and the Company may adjust the valuation allowance and the
corresponding tax benefit in earnings in 1997 based on increases in expected
earnings and changes in tax preference items.
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 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 26% at June 30, 1997 and 18% at December 31,
1996. 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 sources of liquidity are 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 prior
regulatory consent.
During the first six months of 1997 West Coast did not receive any dividends
from its subsidiaries. West Coast does not expect to receive dividends from its
subsidiaries during 1997.
West Coast received $493,000 in February 1997 from the purchase price adjustment
that originated from the sale of 15 shares of Sunwest stock. No significant cash
receipts are expected for the remainder of 1997. At June 30, 1997, West Coast
had cash totaling $734,000.
15
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WEST COAST BANCORP AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
JUNE 30, 1997
West Coast paid $120,000 of accrued directors' fees in February 1997. These fees
were accrued for the period October 1994 through January 1997. Directors' fees
are now paid at the rate of $250 per director per meeting attended. West Coast
anticipates other cash expenditures during 1997 to consist of debt service
payments and other operating expenses. West Coast's projected debt service for
the remainder of 1997 includes quarterly payments on the notes payable of
$12,000 each. Principal and interest outstanding under these notes totaled
$463,000 at June 30, 1997. Unpaid principal and interest is due June 30, 1999.
West Coast anticipates that other operating expenses will be approximately
$80,000 during the remainder of 1997 plus $30,000 of salary to the President of
West Coast. The President's compensation was reduced from $158,000 to $60,000
effective May 1, 1997, at which time the deferral of his salary was
discontinued. Prior deferred salaries and incentives payable to the President
totaled $514,000 at June 30, 1997. This amount cannot be paid without approval
by the Federal Reserve Board. Funds to repay the notes payable and deferred
salaries will come from current cash resources supplemented by sales of assets
and possibly dividends from Sunwest.
CAPITAL RESOURCES AND DIVIDENDS
Sunwest had a 13.36%, 14.63% and 10.31% Tier 1 risk-based capital, total
risk-based capital and leverage ratio at June 30, 1997, respectively. These are
above the regulatory minimums of 4.00%, 8.00% and 4.00%, respectively. Sunwest
is considered "well capitalized" under the regulatory capital guidelines.
The Company had no material commitments for capital expenditures as of June 30,
1997.
16
<PAGE>
WEST COAST BANCORP AND SUBSIDIARIES
JUNE 30, 1997
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
- -------------------------------
NONE
Item 2. Changes in Securities
- -----------------------------------
NONE
Item 3. Defaults Upon Senior Securities
- ---------------------------------------------
NONE
Item 4. Submission of Matters to a Vote of Security Holders
- -----------------------------------------------------------------
West Coast Bancorp held its Annual Meeting of Shareholders (the "Meeting") on
May 27, 1997.
At the Meeting, the following individuals were elected to serve as directors
until the 1998 Annual Meeting of Shareholders and until their successors are
elected and have qualified:
Authority
Name of Director Votes For Withheld
J. David Cheshier 6,083,576 178,018
L. Wayne Gertmenian 6,077,260 184,334
Thomas A. Jones 6,084,644 176,950
John B. Joseph 6,020,232 241,362
Lacy G. Marlette, Jr. 6,083,760 177,834
Ronald R. White 6,016,170 245,424
Item 5. Other Information
- -------------------------------
NONE
Item 6. Exhibits and Reports on Form 8-K
- ----------------------------------------------
(a) Exhibits
Exhibit 27 - Financial Data Schedule for June 30, 1997
(b) Reports on Form 8-K
None
17
<PAGE>
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 14, 1997
----------------------------------------- ----------------------
John B. Joseph Date
Chief Executive Officer
/s/Frank E. Smith August 14, 1997
----------------------------------------- ----------------------
Frank E. Smith Date
Chief Financial Officer
18
<PAGE>
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