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 September 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 October 31, 1997:
9,168,942
Transitional Small Business Disclosure Format Yes No X
-- --
This document contains a total of 19 pages.
1
<PAGE>
WEST COAST BANCORP AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
September 30, December 31,
(in thousands, except share data) 1997 1996
------------------------
ASSETS
Cash and due from bank $ 8,333 $ 7,246
Federal funds sold 4,400 10,100
Interest-bearing deposits with
financial institutions 99 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 17,294 2,680
Loans 98,006 82,657
Less allowance for credit losses (2,671) (2,848)
-----------------------
Net loans 95,335 79,809
-----------------------
Real estate owned, net 1,218 1,243
Premises and equipment, net 723 932
Refundable and deferred taxes 1,200 870
Other assets 1,030 1,518
-----------------------
$ 129,632 $ 108,987
=======================
LIABILITIES
Deposits:
Demand, non-interest bearing $ 43,420 $ 33,983
Savings, money market & interest bearing demand 37,056 34,342
Time certificates under $100,000 24,036 18,260
Time certificates of $100,000 or more 10,489 8,972
-----------------------
Total deposits 115,001 95,557
Other borrowed funds 796 834
Other liabilities 1,176 1,642
-----------------------
Total liabilities 116,973 98,033
Commitments and contingencies
Minority interest in subsidiary 5,640 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 49 (25)
Accumulated deficit (23,206) (24,016)
-----------------------
Total shareholders' equity 7,019 6,135
$ 129,632 $ 108,987
=======================
(See accompanying notes to consolidated financial statements)
2
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WEST COAST BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Nine Months Ended Three Months Ended
(in thousands, September 30, September 30,
except share data) 1997 1996 1997 1996
-------------------------------------------
INTEREST INCOME
Loans, including fees $ 6,721 $ 6,135 $ 2,327 $ 2,096
Investment securities 537 292 233 79
Deposits with banks 26 154 2 45
Federal funds sold 536 528 219 152
-------------------------------------------
Total interest income 7,820 7,109 2,781 2,372
INTEREST EXPENSE
Interest on deposits 1,750 1,546 640 467
Other 136 453 45 144
-------------------------------------------
Total interest expense 1,886 1,999 685 611
-------------------------------------------
Net interest income 5,934 5,110 2,096 1,761
Provision for credit losses (144) (236) (144) (180)
-------------------------------------------
Net interest income after
provision for credit losses 6,078 5,346 2,240 1,941
Other operating income 495 1,303 157 645
Other operating expenses 5,299 5,781 1,726 1,846
Loss (gain) on discontinued business 7 (149) 3 3
Loss (gain) on sale of Sunwest shares -- 394 -- (65)
Minority interest expense 783 199 329 199
-------------------------------------------
Income before income taxes 484 424 339 603
Income tax (benefit) expense (326) 7 (23) --
-------------------------------------------
Net income $ 810 $ 417 $ 362 $ 603
===========================================
Net income per common share $ .09 $ .05 $ .04 $ .07
===========================================
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 -- -- -- 810 810
Change in securities
valuation allowance -- -- 74 -- 74
------------------------------------------------
Balance at September 30, 1997 9,169 $30,176 $ 49 $ (23,206) $ 7,019
================================================
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended
September 30,
(in thousands) 1997 1996
----------------------
Cash flows from operating activities:
Net income $ 810 $ 417
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 283 390
Provision for credit losses (144) (236)
Net change in receivables, payables and other assets (173) 432
Write-downs of real estate owned 25 291
Gain from sales of real estate owned, net -- (60)
Loss (gain) on discontinued businesses 4 (149)
Gain on sale of B&PB shares -- (436)
Loss on sale of Sunwest shares -- 394
Minority interest expense 783 199
----------------------
Net cash provided by operating activities 1,588 1,242
(Continued)
(See accompanying notes to consolidated financial statements)
4
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WEST COAST BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended
(in thousands) September 30,
1997 1996
----------------------
Cash flows from investing activities:
Proceeds from maturity of interest bearing cash
with an original maturity greater than 90 days $ 1,982 $ 2,760
Purchases of interest bearing cash (99) (1,583)
Proceeds from maturity of investment securities
held to maturity -- 2,807
Purchase of investment securities available-for-sale (13,213) (1,988)
Proceeds from maturity of investment securities
available for sale 1,206 --
Net increase in loans (15,382) (1,341)
Proceeds from sales of real estate owned -- 1,324
Purchase of premises and equipment (101) (62)
----------------------
Net cash (used in) provided by investing activities (25,607) 1,917
Cash flows from financing activities:
Net increase (decrease) in deposits 19,444 (12,576)
Proceeds from sale of B&PB stock -- 1,884
Proceeds from sales of Sunwest stock -- 3,571
Payments for notes payable to affiliates,
subordinated debt and other borrowed funds (38) (608)
Loan proceeds from affiliate -- 37
----------------------
Net cash used in financing activities 19,406 (7,692)
----------------------
Decrease in cash and cash equivalents (4,613) (4,533)
Beginning cash and cash equivalents 17,346 21,907
----------------------
Ending cash and cash equivalents $ 12,733 $ 17,374
======================
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 1,866 $ 2,033
Income taxes 4 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
Transfer from notes payable to affiliates
to other borrowed funds - 475
Assumption of real estate owned senior debt - 213
Capital adjustment from Sunwest issuing new shares - 157
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
SEPTEMBER 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 statement
of the results of operations for the interim periods. Results for the
nine and three month periods ended September 30, 1997 and 1996 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 $1,051,000. 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 period's
financial statements to conform to the presentation in the current
period.
(3) NET INCOME PER SHARE
The stock options and 10% convertible subordinated debentures were not
included in the net income per share computations as the effect would
have been anti-dilutive because average exercise and conversion prices
exceeded the market prices during all periods. Fully diluted earnings
per share equals primary earnings per share.
(4) LOANS
A summary of loans follows:
September 30, December 31,
(in thousands) 1997 1996
-------------------------
Real estate mortgage loans $ 62,669 $ 54,938
Commercial loans not secured by real estate 30,004 25,300
Personal loans not secured by real estate 5,600 2,728
Less unearned income, discounts and fees (267) (309)
-------------------------
$ 98,006 $ 82,657
=========================
6
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WEST COAST BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
(Unaudited)
(5) OTHER OPERATING INCOME
A summary of other operating income follows:
Nine Months Ended Three Months Ended
September 30, September 30,
(in thousands) 1997 1996 1997 1996
--------------------------------------
Depositor charges $ 412 $ 442 $ 133 $ 138
Gain on sale of B&PB stock -- 436 -- 149
Interest recoveries on
charged off loans -- 320 -- 320
Service charges, commissions
& fees 38 42 14 14
Other income 45 63 10 24
--------------------------------------
$ 495 $1,303 $ 157 $ 645
======================================
(6) OTHER OPERATING EXPENSES
A summary of other operating expenses is as follows:
Nine Three
Months Ended Months Ended
September 30, September 30,
(in thousands) 1997 1996 1997 1996
-------------------------------------
Salaries and employee benefits $2,569 $2,627 $ 854 $ 838
Occupancy 689 689 177 229
Data processing 360 312 118 110
Customer service 349 275 113 88
Depreciation and amortization 283 390 87 109
Professional services 204 330 103 89
Advertising and promotion 185 150 56 50
Printing & postage 80 90 26 27
Stationary and supplies 66 91 28 29
Telephone and telefax 58 52 18 15
Insurance 46 75 15 25
Regulatory fees and assessments 45 157 15 64
Collection 36 46 7 14
Net cost of operation of REO 11 206 5 53
Miscellaneous 318 291 104 106
-------------------------------------
$5,299 $5,781 $1,726 $1,846
=====================================
7
<PAGE>
WEST COAST BANCORP AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
SEPTEMBER 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
nine and three month periods ended September 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 regarding 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 income of $810,000, or $.09 per share, and $362,000, or
$.04 per share, during the nine and three months ended September 30, 1997, as
compared with income of $417,000, or $.05 per share, and $603,000, or $.07 per
share, during the same respective periods in 1996. The higher income in the nine
month period of 1997 versus income in 1996 occurred primarily because Sunwest
had higher earnings, including recognizing a $323,000 tax benefit, and West
Coast had no interest expense from the 10% convertible subordinated debentures
that were repaid in October 1996. Third quarter income was higher in 1996
compared to 1997 primarily due to unusually high recoveries of interest on
charged off loans at Sunwest and a gain on sale of Business & Professional Bank
stock by West Coast, both occurring in the third quarter of 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:
September 30, December 31, September 30, December 31,
1997 1996 1996 1995
(in thousands) -----------------------------------------------------
Total assets $129,632 $108,987 $105,411 $113,654
Loans 98,006 82,657 77,871 79,000
Deposits 115,001 95,557 90,086 102,662
8
<PAGE>
WEST COAST BANCORP AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
SEPTEMBER 30, 1997
The $24 million increase in total assets from September 30, 1996 to September
30, 1997 occurred primarily due to a $25 million increase in deposits at Sunwest
from increased marketing efforts and due to the expanding economy in Orange
County, California.
RESULTS OF OPERATIONS
NET INTEREST INCOME
Net interest income increased $824,000, or 16%, from the first nine months of
1996 to the same period in 1997. Sunwest increased its net interest income by
$516,000 by increasing interest income $711,000 from an increase in loans, the
highest yielding earning asset, and investments, partially offset by a $195,000
increase in interest expense on time deposits (the highest cost deposits). The
increase in net interest income was also due to West Coast increasing its net
interest income by $304,000 from paying off its 10% subordinated debentures and
other notes payable in October 1996. Net interest income increased $335,000, or
19%, for the three months ended September 30, 1997 as compared to the same
period in 1996. Sunwest increased its net interest income by $244,000 by
increasing interest income $409,000, partially offset by an increase in interest
expense of $165,000. The increase in the three month figures for 1997 reflect
the increase in average loans outstanding (14.0%) and deposits (18.9%) at
Sunwest. West Coast reduced its interest expense by $99,000 for the three months
ended September 30, 1997 due to repayment of the subordinated debentures and
other debt 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 expanding economy in Orange County, California.
9
<PAGE>
WEST COAST BANCORP AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
SEPTEMBER 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 nine and three month periods
ended September 30, 1997 and 1996 (dollars in millions):
Nine Months Ended September 30,
1997 1996
Average Yields/ Average Yields/
Balance Rates Balance Rates
-----------------------------------------
ASSETS
Loans, net of unearned income,
discounts and fees $ 85.8 10.44% $ 76.7 10.67%
Investment securities 11.1 6.45 6.3 6.13
Federal funds sold 13.1 5.46 13.0 5.44
Interest-bearing deposits
with financial institutions .7 5.24 3.5 5.84
-----------------------------------------
Total interest-earning assets 110.7 9.42 99.5 9.53
Allowance for credit losses (2.8) (3.6)
Cash and due from banks 6.6 5.8
Other assets 4.0 7.2
-----------------------------------------
$ 118.5 $ 108.9
=========================================
LIABILITIES AND
SHAREHOLDERS' EQUITY
Time deposits $ 30.4 5.39% $ 25.6 5.23%
Savings deposits 4.7 1.98 5.2 1.99
Interest-bearing demand deposits 31.6 1.88 32.0 1.93
Other 1.0 22.11 4.6 13.15
-----------------------------------------
Total interest-bearing liabilities 67.7 3.71 67.4 3.96
Minority interest 5.1 .3
Demand deposits 37.9 34.5
Other liabilities 1.3 1.3
Shareholders' equity 6.5 5.4
-----------------------------------------
$ 118.5 $ 108.9
=========================================
Net interest margin 5.71% 5.57%
Net yield on interest-earning assets 7.15 6.85
(Continued)
10
<PAGE>
WEST COAST BANCORP AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
SEPTEMBER 30, 1997
(Continued)
Three Months Ended September 30,
1997 1996
Average Yields/ Average Yields/
Balance Rates Balance Rates
-----------------------------------------
ASSETS
Loans, net of unearned income,
discounts and fees $ 88.3 10.54% $ 77.5 10.82%
Investment securities 14.5 6.42 5.0 6.29
Federal funds sold 16.1 5.45 11.1 5.47
Interest-bearing deposits
with financial institutions .1 6.20 3.3 5.50
-----------------------------------------
Total interest-earning assets 119.0 9.35 96.9 9.79
Allowance for credit losses (2.7) (3.2)
Cash and due from banks 7.0 5.7
Other assets 4.0 6.9
-----------------------------------------
$ 127.3 $ 106.3
=========================================
LIABILITIES AND
SHAREHOLDERS' EQUITY
Time deposits $ 33.6 5.50% $ 23.1 5.07%
Savings deposits 4.7 2.02 5.2 1.93
Interest-bearing demand deposits 32.1 1.90 30.8 1.94
Other 1.0 22.30 4.2 13.58
-----------------------------------------
Total interest-bearing liabilities 71.4 3.84 63.3 3.86
Minority interest 5.4 .9
Demand deposits 42.5 35.2
Other liabilities 1.2 1.5
Shareholders' equity 6.8 5.4
-----------------------------------------
$ 127.3 $ 106.3
=========================================
Net interest margin 5.51% 5.93%
Net yield on interest-earning assets 7.04 7.27
11
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WEST COAST BANCORP AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
SEPTEMBER 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):
Nine Months Ended Three Months Ended
September 30, September 30,
--------------------------------------------------------
Asset/ Interest Asset/ Interest
Liability Rate Liability Rate
Changes Changes Total Changes Changes Total
--------------------------------------------------------
Changes in:
Interest income $ 841 $(130) $ 711 $ 262 $(154) $ 108
Interest expense 19 (132) (113) (134) (180) (314)
--------------------------------------------------------
Net interest income $ 822 $ 2 $ 824 $ 396 $ 26 $ 422
========================================================
Loans on which the accrual of interest had been discontinued at September 30,
1997 and 1996 amounted to $701,000 and $1,973,000, respectively. If these loans
had been current throughout their terms, it is estimated that net interest
income would have increased by approximately $18,000 and $60,000 in the third
quarters of 1997 and 1996, respectively. This would have raised the net yield on
interest-earning assets and the net interest margin by approximately 6 and 25
basis points during the third quarters of 1997 and 1996, respectively.
Impaired loans have not changed significantly from the amounts reported at
December 31, 1996 except for the changes in nonaccrual loans described above.
12
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WEST COAST BANCORP AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
SEPTEMBER 30, 1997
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):
Nine Months Ended Three Months Ended
September 30, September 30,
1997 1996 1997 1996
-----------------------------------------
Allowance for credit losses
balance at beginning of period $ 2,848 $ 3,820 $ 2,740 $ 3,093
Charge-offs (328) (1,002) (134) (11)
Recoveries 295 657 209 337
-----------------------------------------
Net (charge-offs) recoveries (33) (345) 75 326
Provision for credit losses (144) (236) (144) (180)
Other adjustments (1) -- (115) -- (115)
-----------------------------------------
Allowance for credit losses
balance at end of period $ 2,671 $ 3,124 $ 2,671 $ 3,124
=========================================
(1) Interest collected on charged-off loans had in prior years been recorded
as a recovery of principal on charged-off loans. These amounts should
have been recorded to other non-interest income. Prior periods were not
restated because the recoveries occurred over several years and are not
material to any individual year's total loans, charge-offs or recoveries.
An offsetting amount is included in other operating income for the 1996
periods (see note 5).
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 September 30, 1997
of $2,671,000, or 2.73% 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 the 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.
13
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WEST COAST BANCORP AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
SEPTEMBER 30, 1997
A summary of nonperforming assets follows (dollars in thousands):
September 30, December 31, September 30, December 31,
1997 1996 1996 1995
--------------------------------------------------------
Nonaccrual loans $ 701 $ 931 $ 1,973 $ 4,153
Loans 90 days past due
and still accruing 31 43 58 25
--------------------------------------------------------
Nonperforming loans 732 974 2,031 4,178
Real estate owned 1,218 1,243 3,305 2,637
--------------------------------------------------------
Nonperforming assets $ 1,950 $ 2,217 $ 5,336 $ 6,815
========================================================
Nonperforming loans/
Total loans .75% 1.18% 2.61% 5.29%
Nonperforming assets/
Total assets 1.50 2.03 5.06 6.00
========================================================
Nonperforming assets have decreased from $6.8 million at December 31, 1995 to
$1.9 million at September 30, 1997. This was accomplished primarily from $3.3
million of real estate owned sales in 1996, which included $2.0 million on
nonaccrual loans transferred to real estate owned during 1996.
Restructured loans that were performing substantially in accordance with their
modified terms totaled $3,080,000 at September 30, 1997. Restructured loans
totaling $353,000 were on nonaccrual status at September 30, 1997.
OTHER OPERATING INCOME
Other operating income decreased by $808,000 for the nine months ended September
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 result of West
Coast recording a $436,000 gain on sale of B&PB stock in 1996. In 1996, Sunwest
recognized $320,000 of interest recoveries on loans previously charged-off in
prior years. One individual borrower accounted for $206,000 of the recoveries.
For the three month period ended September 30, 1997, other operating income
decreased by $488,000 compared to the same period in 1996. The decrease was due
to the Sunwest recoveries of $320,000 described above and West Coast's $149,000
gain on the sale of B&PB stock in the third quarter of 1996.
14
<PAGE>
WEST COAST BANCORP AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
SEPTEMBER 30, 1997
OTHER OPERATING EXPENSES
Other operating expenses have decreased $482,000 and $120,000 for the nine and
three month periods ended September 30, 1997, compared to the same periods in
1996. See notes (1) and (6) of the notes to consolidated financial statements.
Total other operating expenses expressed in dollars and as a percentage of total
revenues and average assets follows (dollars in thousands):
Nine Months Ended Three Months Ended
September 30, September 30,
1997 1996 1997 1996
----------------------------------------------
Other operating expenses $ 5,299 $ 5,781 $ 1,726 $ 1,846
Other operating expenses
(annualized)/average assets 5.96% 7.08% 5.42% 6.95%
Other operating expenses/interest
and other operating income 63.7% 68.7% 58.7% 61.2%
==============================================
Significant decreases in expenses for the nine month period in 1997 are as
follows: Net cost of operation of REO decreased $195,000 from lower levels of
foreclosed assets. Professional services decreased $126,000 due primarily to
lower fees and reduced services from outside vendors. Regulatory fees and
assessments declined $112,000 due to improvement in the condition of Sunwest.
Depreciation and amortization decreased $107,000 from assets becoming fully
depreciated and from closure of Sunwest's Santa Ana facility on April 1, 1997.
Salaries and employee benefits decreased $58,000 as a result of steady
reductions in staff.
Significant increases included Customer service expenses increasing $74,000 due
to increased business levels. Data processing expenses increased $48,000
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 $35,000.
Similar trends are reflected in the three month comparisons with the exception
of Salaries and employee benefits and Professional services. Third quarter 1997
increases in Salaries and employee benefits reflect higher incentive
compensation awards. Increases in Professional services reflects the higher use
of outside consultants in the third quarter of 1997.
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
and an additional $23,000 during the third quarter 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 portion of the
15
<PAGE>
WEST COAST BANCORP AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
SEPTEMBER 30, 1997
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 September 30, 1997, Sunwest has recognized a $1,200,000
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 22% at September 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 nine 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 September 30, 1997, West
Coast had cash totaling $671,000.
16
<PAGE>
WEST COAST BANCORP AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
SEPTEMBER 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 a quarterly payment on the notes payable.
Principal and interest outstanding under these notes totaled $458,000 at
September 30, 1997. Unpaid principal and interest is due June 30, 1999. West
Coast anticipates that other operating expenses will be approximately $35,000
during 1997 plus $15,000 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 September
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 12.13%, 13.39% and 10.13% Tier 1 risk-based capital, total
risk-based capital and leverage ratio at September 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 September
30, 1997.
17
<PAGE>
WEST COAST BANCORP AND SUBSIDIARIES
SEPTEMBER 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
- -----------------------------------------------------------------
NONE
Item 5. Other Information
- -------------------------------
NONE
Item 6. Exhibits and Reports on Form 8-K
- ----------------------------------------------
(a) Exhibits
Exhibit 27 - Financial Data Schedule for September 30, 1997
(b) Reports on Form 8-K
None
18
<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 November 14, 1997
----------------------------------------- ----------------------
John B. Joseph Date
Chief Executive Officer
/s/Frank E. Smith November 14, 1997
----------------------------------------- ----------------------
Frank E. Smith Date
Chief Financial Officer
19
<PAGE>
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