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, 1998
[ ] 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.)
535 E. First Street
Tustin, California 92780
(Address of principal executive offices)
(714) 730-4499
(Registrant's telephone number, including area code)
4770 Campus Drive, Suite 250
Newport Beach, California 92660-1833
(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, 1998:
9,258,942
Transitional Small Business Disclosure Format Yes No X
This document contains a total of 21 pages.
1
<PAGE>
WEST COAST BANCORP AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
June 30, December 31,
(in thousands, except share data) 1998 1997
--------------------------
ASSETS
Cash and due from bank $ 9,694 $ 7,041
Federal funds sold 15,450 1,500
Interest-bearing deposits with
financial institutions -- 99
Investment securities available-for-sale
at fair value 19,692 17,345
Loans 109,809 102,877
Less allowance for loan losses (2,393) (2,364)
--------------------------
Net loans 107,416 100,513
--------------------------
Real estate owned, net 528 1,151
Premises and equipment, net 1,338 711
Deferred taxes 1,280 1,153
Other assets 428 1,108
$ 155,826 $ 130,621
--------------------------
LIABILITIES
Deposits:
Demand, non-interest bearing $ 48,189 $ 42,920
Savings, money market & interest bearing demand 44,270 36,745
Time certificates under $100,000 27,377 22,169
Time certificates of $100,000 or more 19,341 13,136
--------------------------
Total deposits 139,177 114,970
Other borrowed funds 1,234 779
Other liabilities 828 1,363
--------------------------
Total liabilities 141,239 117,112
Commitments and contingencies
Minority interest in subsidiary 6,517 6,041
--------------------------
SHAREHOLDERS' EQUITY
Common stock, no par value - 30,000,000
shares authorized, 9,168,942 shares
issued and outstanding in 1997 and 1996 30,274 30,176
Accumulated deficit (22,224) (22,747)
Accumulated other comprehensive income:
Net unrealized gain on available-for-sale
investments 20 39
--------------------------
Total shareholders' equity 8,070 7,468
--------------------------
$ 155,826 $ 130,621
==========================
(See accompanying notes to consolidated financial statements)
2
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WEST COAST BANCORP AND SUBSIDIARIES
CONSOLIDATED INCOME STATEMENTS
(Unaudited)
Six Months Ended Three Months Ended
(in thousands, June 30, June 30,
except share data) 1998 1997 1998 1997
-----------------------------------------
INTEREST INCOME:
Loans, including fees $ 5,161 $ 4,393 $ 2,588 $ 2,246
Investment securities 526 305 284 191
Federal funds sold 389 318 220 174
Deposits with banks 1 25 -- 5
-----------------------------------------
Total interest income 6,077 5,041 3,092 2,616
INTEREST EXPENSE:
Interest on deposits 1,529 1,110 801 591
Other 101 91 52 45
-----------------------------------------
Total interest expense 1,630 1,201 853 636
-----------------------------------------
Net interest income 4,447 3,840 2,239 1,980
Provision for loan losses -- -- -- --
-----------------------------------------
Net interest income after
provision for loan losses 4,447 3,840 2,239 1,980
Other operating income 353 338 172 167
Other operating expenses 3,788 3,573 1,928 1,672
Minority interest in net income
of Subsidiary 490 454 233 362
Gain (loss) on liquidation of
WCV, Inc. 1 (4) (1) (3)
-----------------------------------------
Income before income taxes 523 147 249 110
Income tax expense -- (301) -- (301)
-----------------------------------------
Net income $ 523 $ 448 $ 249 $ 411
=========================================
Basic and diluted earnings
per share $ .06 $ .05 $ .03 $ .04
=========================================
(See accompanying notes to consolidated financial statements)
3
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WEST COAST BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
Six Months Ended Three Months Ended
June 30, June 30,
(in thousands) 1998 1997 1998 1997
----------------------------------------
Net Income $ 523 $ 448 $ 249 $ 411
Other comprehensive income,
net of tax:
Unrealized gain/(loss) on
available-for-sale investments
arising during period (19) 40 (13) 74
----------------------------------------
Other comprehensive income (loss) (19) 40 (13) 74
----------------------------------------
Comprehensive income $ 504 $ 488 $ 236 $ 485
========================================
(See accompanying notes to consolidated financial statements)
4
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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, 1997 9,169 $30,176 $ 39 $ (22,747) $ 7,468
Net income -- -- -- 523 523
Stock options exercised 90 98 98
Change in securities
valuation allowance -- -- (19) -- (19)
-------------------------------------------------
Balance at June 30, 1998 9,259 $30,274 $ 20 $ (22,224) $ 8,070
=================================================
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended
June 30,
(in thousands) 1998 1997
-----------------------
Cash flows from operating activities:
Net income $ 523 $ 448
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 175 195
Provision for loan losses -- --
Net change in receivables, payables and other assets (29) (469)
Gain on sale of real estate owned (10) --
Write-downs of real estate owned 16 --
Minority interest expense 490 454
(Gain) loss on discontinued businesses (1) 4
-----------------------
Net cash provided by operating activities 1,164 632
(Continued)
(See accompanying notes to consolidated financial statements)
5
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WEST COAST BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended
(in thousands) June 30,
1998 1997
-------------------------
Cash flows from investing activities:
Proceeds from maturity of interest bearing cash
with an original maturity greater than 90 days $ 99 $ 1,882
Purchases of interest bearing deposits with
financial institutions - (99)
Purchase of investment securities available-for-sale (5,931) (8,497)
Proceeds from maturity of investment securities
available-for-sale 3,500 579
Net increase in loans (6,903) (3,687)
Proceeds on sale of real estate owned 617 -
Purchase of premises and equipment (111) (29)
Proceeds from sales of premises and equipment 20 -
-------------------------
Net cash used in investing activities (8,709) (9,851)
Cash flows from financing activities:
Net increase in deposits 24,207 11,610
Payments for notes payable to affiliates and
other borrowed funds (59) (23)
-------------------------
Net cash provided by financing activities 24,148 11,587
-------------------------
Increase in cash and cash equivalents 16,603 2,368
Beginning cash and cash equivalents 8,541 17,346
-------------------------
Ending cash and cash equivalents $25,144 $19,714
=========================
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 1,638 $ 1,195
Income taxes 105 2
Supplemental schedule of non-cash investing
and financing activities:
Transfer of investment security from
held-to-maturity to available-for-sale $ - $ 2,553
Transfer from other liabilities to
other borrowed funds 475 -
(See accompanying notes to consolidated financial statements)
6
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WEST COAST BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998
(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, 1998 and
1997 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.
Certain reclassifications have been made in the prior periods financial
statements to conform to the presentation in the current periods.
(2) RECENT ACCOUNTING PRONOUNCEMENTS
The Company has adopted SFAS No. 130, "Reporting Comprehensive Income."
This statement establishes standards for all entities for reporting
comprehensive income and its components in financial statements. This
statement requires that all items which are required to be recognized
under accounting standards as components of comprehensive income be
reported in a financial statement that is displayed with the same
prominence as other financial statements. Comprehensive income is equal
to net income plus the change in "other comprehensive income", as
defined by SFAS No. 130. The only component of other comprehensive
income currently applicable to the Company is the net unrealized gain
or loss on available-for-sale investments. SFAS No. 130 requires that
an entity: (a) classify items of other comprehensive income by their
nature in a financial statement, and (b) report the accumulated balance
of other comprehensive income separately from common stock and retained
earnings in the equity section of the balance sheet. This statement is
effective for financial statements issued for fiscal years beginning
after December 15, 1997.
7
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WEST COAST BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998
(Unaudited)
(3) EARNINGS PER SHARE
The following is a reconciliation of basic earnings per share (EPS) to
diluted EPS for the six and three months ended June 30, 1998 and 1997.
(dollars and shares in thousands,
except per share amounts)
Six Months Ended Six Months Ended
June 30, 1998 June 30, 1997
--------------------------------------------------------
Per Per
Net Share Net Share
Income Shares Amount Income Shares Amount
--------------------------------------------------------
Basic EPS:
Income available to
common shareholders $ 523 9,184 $ .06 $ 448 9,169 $ .05
Effect of Dilutive
Securities:
Stock options 85 --
--------------------------------------------------------
Diluted EPS:
Income available to
common shareholders
plus assumed
conversions $ 523 9,269 $ .06 $ 448 9,169 $ .05
========================================================
Three Months Ended Three Months Ended
June 30, 1998 June 30, 1997
--------------------------------------------------------
Per Per
Net Share Net Share
Income Shares Amount Income Shares Amount
--------------------------------------------------------
Basic EPS:
Income available to
common shareholders $ 249 9,199 $ .03 $ 411 9,169 $ .03
Effect of Dilutive
Securities:
Stock options 85 --
--------------------------------------------------------
Diluted EPS:
Income available to
common shareholders
plus assumed
conversions $ 249 9,284 $ .03 $ 411 9,169 $ .03
========================================================
8
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WEST COAST BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998
(Unaudited)
(4) LOANS
A summary of loans follows:
June 30, December 31,
(in thousands) 1998 1997
-----------------------------
Real estate mortgage loans $ 71,244 $ 67,970
Commercial loans not secured by real estate 34,194 29,425
Personal loans not secured by real estate 4,594 5,755
Less unearned income, discounts and fees (223) (273)
-----------------------------
$ 109,809 $ 102,877
=============================
(5) OTHER OPERATING INCOME
A summary of other operating income follows:
Six Months Ended Three Months Ended
June 30, June 30,
(in thousands) 1998 1997 1998 1997
-------------------------------------------
Depositor charges $ 276 $ 279 $ 137 $ 137
Service charges, commissions
& fees 34 24 22 13
Other income 43 35 13 17
-------------------------------------------
$ 353 $ 338 $ 172 $ 167
===========================================
9
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WEST COAST BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998
(Unaudited)
(6) OTHER OPERATING EXPENSES
A summary of other operating expenses is as follows:
Six Months Ended Three Months Ended
June 30, June 30,
(in thousands) 1998 1997 1998 1997
---------------------------------------------
Salaries and Employee Benefits $1,929 $1,715 $ 957 $ 826
Occupancy 381 512 208 212
Data Processing 262 242 133 125
Customer Service 235 236 132 117
Depreciation and Amortization 175 196 90 92
Professional Services 158 101 92 53
Advertising and Promotion 140 129 74 62
Printing and Postage 54 54 31 31
Net Cost of Operation of REO 53 6 24 2
Stationery and Supplies 48 38 28 19
Telephone and Telefax 41 40 22 17
Insurance 20 31 10 15
Regulatory Fees and Assessments 17 30 9 15
Collection 8 29 3 10
Miscellaneous 267 214 115 58
---------------------------------------------
$3,788 $3,573 $1,928 $1,672
=============================================
10
<PAGE>
WEST COAST BANCORP AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
JUNE 30, 1998
(Unaudited)
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, 1998 and 1997. 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, 1997.
GENERAL
The Company recorded net income of $523,000, or $.06 per share, and $249,000, or
$.03 per share, during the six and three months ended June 30, 1998, as compared
with net income of $448,000, or $.05 per share, and $411,000, or $.04 per share,
during the same respective periods in 1997. The 1997 figures included the
effects of recording a tax benefit of $307,000 in June 1997. The higher pre-tax
income in 1998 versus 1997 occurred primarily because Sunwest had higher
earnings in 1998. Sunwest's higher earnings were primarily due to increased
growth in net interest income from growth in assets and deposits.
The Company had total assets, loans and deposits as follows:
June 30, December 31, June 30, December 31,
1998 1997 1997 1996
--------------------------------------------------------
(in thousands)
Total assets $155,826 $130,621 $120,961 $108,987
Loans 109,809 102,877 86,236 82,657
Deposits 139,177 114,970 107,167 95,557
The $35 million increase in total assets from June 30, 1997 to June 30, 1998
occurred primarily due to a $32 million increase in deposits at Sunwest from
increased marketing efforts and due to the expanding economy in Orange County,
California.
11
<PAGE>
WEST COAST BANCORP AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
JUNE 30, 1998
(Unaudited)
RESULTS OF OPERATIONS
NET INTEREST INCOME
Net interest income increased $607,000 or 16% during the first six months of
1998 as compared to the same period in 1997. Sunwest's net interest income
increased $629,000 due to a $1,036,000 increase in interest income, partially
offset by a $407,000 increase in interest expense. The increase in interest
income was due to an increase in interest earning assets offset to an extent by
a decline in the average yield earned on such assets. The increase in interest
expense was due primarily to an increase in the volume of interest-bearing
deposits, primarily time deposits. Net interest margin declined from 5.81% in
1997 to 5.22% in 1998 primarily due to a decline in the percentage of loans to
earning assets from 79% in 1997 to 76% in 1998. An increase in time deposits as
a percentage of deposits from 29% in 1997 to 33% in 1998 also contributed to a
decline in the net interest margin. 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. Increased
competition in the Company's market area for loans and deposits may result in a
lower net interest margin.
12
<PAGE>
WEST COAST BANCORP AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
JUNE 30, 1998
(Unaudited)
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, 1998 and 1997 (dollars in millions):
Six Months Ended June 30,
1998 1997
Average Yields/ Average Yields/
Balance Rates Balance Rates
-----------------------------------------------
ASSETS
Loans, net of unearned income,
discounts and fees $ 101.1 10.21% $ 84.6 10.38%
Investment securities 18.0 5.83 9.4 6.47
Federal funds sold 14.2 5.47 11.6 5.46
Interest-bearing deposits
with financial institutions 0.0 7.14 1.0 5.18
-----------------------------------------------
Total interest-earning assets 133.3 9.11 106.6 9.46
Allowance for credit losses (2.4) (2.8)
Cash and due from banks 8.0 6.3
Other assets 3.8 4.0
-----------------------------------------------
$ 142.7 $ 114.1
===============================================
LIABILITIES AND
SHAREHOLDERS' EQUITY
Time deposits $ 42.4 5.43% $ 28.8 5.32%
Savings deposits 5.0 1.99 4.7 1.96
Interest-bearing demand deposits 35.4 1.86 31.4 1.88
Other 1.0 21.62 1.0 22.04
-----------------------------------------------
Total interest-bearing liabilities 83.8 3.89 65.9 3.64
Minority interest 6.2 4.9
Demand deposits 43.9 35.6
Other liabilities 1.1 1.4
Shareholders' equity 7.7 6.3
-----------------------------------------------
$ 142.7 $ 114.1
===============================================
Net interest margin 5.22% 5.81%
Net yield on interest-earning assets 6.67 7.20
13
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WEST COAST BANCORP AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
JUNE 30, 1998
(Unaudited)
Three Months Ended June 30,
1998 1997
Average Yields/ Average Yields/
Balance Rates Balance Rates
-----------------------------------------------
ASSETS
Loans, net of unearned income,
discounts and fees $ 102.2 10.13% $ 85.9 10.46%
Investment securities 19.5 5.82 11.6 6.54
Federal funds sold 15.8 5.56 12.4 5.60
Interest-bearing deposits
with financial institutions 0.0 0.00 .3 4.64
-----------------------------------------------
Total interest-earning assets 137.5 8.99 110.2 9.49
Allowance for credit losses (2.4) (2.7)
Cash and due from banks 8.2 6.4
Other assets 3.9 3.8
-----------------------------------------------
$ 147.2 $ 117.7
===============================================
LIABILITIES AND
SHAREHOLDERS' EQUITY
Time deposits $ 44.7 5.43% $ 30.6 5.39%
Savings deposits 5.1 1.95 4.8 2.00
Interest-bearing demand deposits 36.0 1.89 32.3 1.90
Other 1.1 18.96 .9 22.00
-----------------------------------------------
Total interest-bearing liabilities 86.9 3.93 68.6 3.71
Minority interest 6.3 4.9
Demand deposits 45.1 36.7
Other liabilities 1.0 1.1
Shareholders' equity 7.9 6.4
-----------------------------------------------
$ 147.2 $ 117.7
===============================================
Net interest margin 5.07% 5.78%
Net yield on interest-earning assets 6.51 7.18
14
<PAGE>
WEST COAST BANCORP AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
JUNE 30, 1998
(Unaudited)
The increases (decreases) in interest income and expense and net interest income
resulting from changes in average assets, liabilities and interest rates for the
1998 versus 1997 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 $1,138 $ (100) $1,038 $ 577 $ (99) $ 478
Interest expense 401 28 429 210 7 217
-----------------------------------------------------------
Net interest income $ 737 $ (128) $ 609 $ 367 $ (106) $ 261
===========================================================
Loans on which the accrual of interest had been discontinued at June 30, 1998
and 1997 amounted to $1,253,000 and $834,000, respectively. If these loans had
been current throughout their terms, it is estimated that net interest income
would have increased by approximately $17,000 and $22,000 in the second quarters
of 1998 and 1997, respectively. This would have raised the net yield on
interest-earning assets and the net interest margin by approximately 5 and 8
basis points during the second quarters of 1998 and 1997, respectively.
Impaired loans have not changed significantly from the amounts reported at
December 31, 1997.
NONPERFORMING ASSETS AND PROVISION FOR LOAN LOSSES
The following table summarizes the activity in the allowance for loan losses
during the periods indicated (in thousands):
Six Months Ended Three Months Ended
June 30, June 30,
1998 1997 1998 1997
-------------------------------------------
Allowance for loan losses
balance at beginning of period $ 2,364 $ 2,848 $ 2,367 $ 2,887
Charge-offs (23) (194) (9) (189)
Recoveries 52 86 35 42
-------------------------------------------
Net recoveries (charge-offs) 29 (108) 26 (147)
Provision for loan losses -- -- -- --
-------------------------------------------
Allowance for loan losses
balance at end of period $ 2,393 $ 2,740 $ 2,393 $ 2,740
===========================================
15
<PAGE>
WEST COAST BANCORP AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
JUNE 30, 1998
(Unaudited)
All the above charge-offs and recoveries were at Sunwest. The net recoveries
during the six and three months ended in 1998 are a result of improved asset
quality and the high levels of charge-offs in previous years.
Management believes that the allowance for loan losses at June 30, 1998 of
$2,393,000 or 2.18% of loans was adequate to absorb known and inherent risks in
the Company's loan 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 loan 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,
1998 1997 1997 1996
--------------------------------------------------
Nonaccrual loans $1,253 $ -- $ 834 $ 931
Loans 90 days past due
and still accruing 1 31 44 43
--------------------------------------------------
Nonperforming loans 1,254 31 878 974
Real estate owned 528 1,151 1,243 1,243
--------------------------------------------------
Nonperforming assets $1,782 $1,182 $2,121 $2,217
==================================================
Nonperforming loans/
Total loans 1.14% .03% 1.02% 1.18%
Nonperforming assets/
Total assets 1.14 .90 1.75 2.03
==================================================
Nonperforming assets have decreased from $2.2 million at December 31, 1996 to
$1.8 million at June 30, 1998 due to a decline in nonperforming loans. 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. One loan was placed on nonaccrual as of June 30, 1998.
The loan is expected to be repaid in the third quarter of 1998.
Restructured loans that were performing substantially in accordance with their
modified terms totaled $3,038,000 at June 30, 1998. No restructured loans were
on nonaccrual status at June 30, 1998.
16
<PAGE>
WEST COAST BANCORP AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
JUNE 30, 1998
(Unaudited)
OTHER OPERATING INCOME
Other operating income increased by $15,000 for the six months ended June 30,
1998, as compared with the same period in 1997. See note (5) of the notes to
consolidated financial statements.
OTHER OPERATING EXPENSES
Other operating expenses increased $215,000 from the six months ended June 30,
1997 to the same period in 1998 primarily due to salary expense. See note (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,
1998 1997 1998 1997
----------------------------------------------
Other operating expenses $ 3,788 $ 3,573 $ 1,928 $ 1,672
Other operating expenses
(annualized)/average assets 5.31% 6.26% 5.24% 5.68%
Other operating expenses/interest
and other operating income 58.9% 66.4% 59.1% 60.1%
==============================================
The decline in the other expense ratios is primarily a result of the increases
in assets and income exceeding the increase in expenses. As the Company grows it
is likely that operating expenses will also increase.
The Company strives to decrease non-interest expenses where opportunity exists
while growing the loans and deposits of the Company.
The Company has determined that a number of its computer software applications
and hardware will need to be replaced in order to maintain their functionality
as the year 2000 approaches. A comprehensive plan has been developed, with
system conversions and testing to be substantially completed by December 31,
1998. Additionally, the Company continues to communicate with significant
customers and vendors to determine the extent of risk created by those third
parties' failure to remediate their own Year 2000 issues. However, it is not
possible, at present, to determine the financial effect if significant customer
and vendor remediation efforts are not resolved in a timely manner. Cumulative
charges to noninterest expense for incremental costs associated with the Year
2000 issue were approximately $13,000 through June 30, 1998. The Company
currently estimates that it will incur (and expense) additional incremental
out-of-pocket costs of about $200,000. These costs include equipment and
software purchases that may be amortized for up to five years. Other costs
associated with the redeployment of resources to the Year 2000 issue are
expected to be significantly less than the incremental costs.
17
<PAGE>
WEST COAST BANCORP AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
JUNE 30, 1998
(Unaudited)
INCOME TAXES
The Company and Sunwest did not recognize any income tax expense or benefit
during the six and three months ended June 30, 1998 or 1997. Sunwest had $3.1
million of net deferred tax assets and approximately $7.3 million of net
operating loss carryforwards at December 31, 1997. Excluding the Sunwest
amounts, the Company had $3.8 million of net operating loss carryforwards at
December 31, 1997.
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 portion of the deferred tax
asset will be recognized as a benefit.
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 December 31, 1997, Sunwest has recognized a $1.2 million
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 1998 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 24% at June 30, 1998 and 16% at December 31,
1997. 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 1998 West Coast did not receive any dividends
from its subsidiaries. West Coast does not expect to receive dividends from its
subsidiaries during 1998.
18
<PAGE>
WEST COAST BANCORP AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
JUNE 30, 1998
(Unaudited)
At June 30, 1998, West Coast had cash and short term investments totaling
$535,000. No Significant cash receipts are expected for the remainder of 1998.
West Coast anticipates cash expenditures during 1998 to consist of debt service
payments and other operating expenses. West Coast's projected debt service for
the remainder of 1998 is expected to total $108,000. West Coast anticipates that
other operating expenses will be approximately $63,000 during the remainder of
1998. Funds to meet cash needs will come from current cash resources
supplemented by sales of assets and possibly dividends from Sunwest.
CAPITAL RESOURCES AND DIVIDENDS
Sunwest had a 12.07%, 13.32% and 10.16% Tier 1 risk-based capital, total
risk-based capital and leverage ratio at June 30, 1998, respectively. West Coast
Bancorp had a 11.75%, 13.00% and 9.89% Tier 1 risk-based capital, total
risk-based capital and leverage ratio at June 30, 1998, respectively. These are
above the regulatory minimums of 4.00%, 8.00% and 4.00%, respectively. West
Coast Bancorp and Sunwest are considered "well capitalized" under the regulatory
capital guidelines.
The Company had no material commitments for capital expenditures as of June 30,
1998.
19
<PAGE>
WEST COAST BANCORP AND SUBSIDIARIES
JUNE 30, 1998
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 June 30, 1998
(b) Reports on Form 8-K
None
20
<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/Eric D. Hovde August 14, 1998
----------------------------------- ------------------------------
Eric D. Hovde Date
Chief Executive Officer
/s/Frank E. Smith August 14, 1998
----------------------------------- ------------------------------
Frank E. Smith Date
Chief Financial Officer
21
<PAGE>
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