<PAGE> 1
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
or
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM N/A TO N/A
COMMISSION FILE NUMBER: 0-10897
WEST COAST BANCORP
(Name of Small Business Issuer in Its Charter)
CALIFORNIA 95-3586860
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
535 E. FIRST STREET
TUSTIN, CALIFORNIA 92780-3312
(Address of Principal Executive Offices) (Zip Code)
(714) 730-4499
Issuer's Telephone Number, Including Area Code
Securities registered under Section 12(b) of the Act: NONE
Securities registered under Section 12(g) of the Act:
COMMON STOCK, NO PAR VALUE
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 [ ]
Check if there is no disclosure of delinquent filers pursuant to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB.[ ]
Total revenues for the most recent fiscal year: $15,355,000.
As of February 29, 2000, the aggregate market value of the voting stock held by
non-affiliates of the registrant was approximately $11,888,000 based upon the
last sale price on such date.
Number of shares of Common Stock of the registrant outstanding
as of February 29, 2000: 9,328,942
Transitional Small Business Disclosure Format: YES [ ] NO [X]
DOCUMENTS INCORPORATED BY REFERENCE
Part III of this Form 10-KSB is incorporated by reference from registrant's
definitive proxy statement which will be filed within 120 days of the fiscal
year ended December 31, 1999.
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WEST COAST BANCORP
Form 10-KSB for the year ended December 31, 1999
TABLE OF CONTENTS
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Page
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PART I
Item 1 Business.......................................................... 3
Item 2 Properties........................................................ 17
Item 3 Legal Proceedings................................................. 17
Item 4 Submission of Matters to a Vote of Security Holders............... 17
Item 4(A) Executive officers of the registrant.............................. 17
PART II
Item 5 Market for Common Equity and Related Stockholder Matters.......... 18
Item 6 Management's Discussion and Analysis ............................. 18
Item 7 Financial Statements ............................................. 25
Item 8 Changes In and Disagreements with Accountants on
Accounting and Financial Disclosure............................. 25
PART III
Item 9 Directors, Executive Officers, Promoters and Control Persons...... 25
Item 10 Executive Compensation............................................ 25
Item 11 Security Ownership of Certain Beneficial Owners and Management.... 25
Item 12 Certain Relationships and Related Transactions.................... 25
PART IV
Item 13 Exhibits, List and Reports on Form 8-K............................ 25
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WEST COAST BANCORP
Form 10-KSB for the year ended December 31, 1999
PART I
ITEM 1. BUSINESS
Certain matters discussed in this Annual Report may constitute
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995 (the "Reform Act") and as such may involve risks
and uncertainties. These forward-looking statements relate to, among other
things, expectations of the business environment in which the Company operates,
projections of future performance, perceived opportunities in the market and
statements regarding the Company's mission and vision. The Company's actual
results, performance, or achievements may differ significantly from the results,
performance, or achievements expressed or implied in such forward-looking
statements. For discussion of the factors that might cause such a difference,
see "ITEM 1. BUSINESS - Summary of Business Considerations and Other Factors
That May Affect Future Results of Operations and/or Stock Price."
GENERAL
West Coast Bancorp (separately, "West Coast" and, with its subsidiaries on
a consolidated basis, the "Company") is a California corporation organized in
February 1981 and is a registered bank holding company subject to the Bank
Holding Company Act of 1956, as amended (the "BHCA"). West Coast's primary
subsidiary is Sunwest Bank ("Sunwest"). On September 13, 1996, Western
Acquisitions, L.L.C. and Western Acquisition Partners, L.P., (collectively,
"Western"), affiliates of Hovde Financial, Inc., acquired a 43.5% interest in
Sunwest.
The only other remaining subsidiary with activity during the periods was
WCV, Inc. Its activity was limited to the restoration of one remaining property.
West Coast also currently has six other direct and indirect wholly-owned
subsidiaries which are either in the process of liquidation or inactive - West
Coast Realty Finance ("West Coast Realty"), North Orange County Bancorp ("North
Orange"), which acts as a holding company for WCV, Inc. and Chancellor Financial
Services, Inc. ("Chancellor"), Sunwest Leasing Corp. ("Sunwest Leasing"), a
wholly-owned subsidiary of Sunwest, and Centennial Beneficial Loan Company
("Centennial Loan").
The Company had net income of $1,721,000 or $.19 per share in 1999, as
compared with net income of $1,289,000 or $.14 per share in 1998.
SUBSIDIARIES
Sunwest Bank
Sunwest commenced operations as a California state-chartered bank in 1970
and is the oldest commercial bank founded in Orange County, California. West
Coast acquired Sunwest in June 1985. At December 31, 1999, Sunwest had total
consolidated assets of $186,795,000, total consolidated loans and leases of
$133,008,000, and total consolidated deposits of $158,945,000. For the year
ended December 31, 1999, Sunwest had net income of $3,274,000. Minority
shareholders' interest reduced the net income to the Company by $1,424,000.
Sunwest presently has three banking offices within Orange County,
California. The main office is located in Tustin at 535 East First Street.
Sunwest's two branch offices are located at 4770 Campus Drive, Newport Beach and
501 South Main Street, Orange.
Through its network of banking offices, Sunwest emphasizes personalized
service combined with services primarily directed to small and medium-sized
businesses and professionals. Although Sunwest focuses its marketing of services
to businesses and professionals, a wide range of consumer banking services are
made available to its customers.
Sunwest offers a wide range of deposit instruments. These include personal
and business checking and savings accounts, including interest-bearing
negotiable order of withdrawal ("NOW") accounts, Super NOW accounts and money
market accounts, time deposits and individual retirement accounts.
Sunwest also engages in a full complement of lending activities, including
commercial, consumer installment and real estate loans. Commercial loans are
loans to local community businesses and may be unsecured or secured by assets of
the business and/or its principals. Consumer installment loans include loans for
automobiles, home improvements, debt consolidation and other personal needs.
Real estate loans include secured short-term mini-permanent real estate loans
and construction loans. Sunwest originates loans ("SBA Loans") that are
guaranteed under the Small Business Investments Act and in the past has sold SBA
Loans in the secondary market. Sunwest currently retains SBA Loans in its
portfolio.
Sunwest also offers a wide range of specialized services designed to attract
and service the needs of commercial customers and account holders. These
services include extended weekday banking, drive-up and walk-up facilities,
merchant windows, ACH originations, on-line banking for business customers,
mutual funds, traveler's checks, safe deposit, Mastercard and Visa merchant
deposit services, ATM cards and computer accounting services, which include
payroll, lockbox and
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WEST COAST BANCORP
Form 10-KSB for the year ended December 31, 1999
escrow accounting services. Sunwest currently does not operate a trust
department.
North Orange County Bancorp
North Orange, a wholly-owned subsidiary of West Coast, acts solely as a
holding company for WCV, Inc. and Chancellor. North Orange does not have assets,
revenues or earnings that are material to the Company.
WCV, Inc.
WCV, Inc., formerly Heritage Thrift and Loan Association, was organized in
June 1981 and commenced business in March 1982 as a licensed California thrift
and loan company. During 1992, the Company began liquidating the assets of WCV,
Inc. As of March 9, 1993, WCV, Inc. had no remaining deposits and it surrendered
its license to act as a California thrift and loan company during March 1993.
WCV, Inc.'s assets are now substantially liquidated and its operations are
limited to the restoration and sale of its one remaining property. See "ITEM 3 -
LEGAL PROCEEDINGS."
Chancellor Financial Services, Inc.
Chancellor was organized in June 1981 and commenced business in March 1982
as a licensed California personal property broker. Chancellor is inactive and
has no assets, revenues and earnings for the periods presented.
Centennial Beneficial Loan Company
Centennial Loan was organized in March 1981 and engaged in limited loan
servicing activities. Centennial Loan is inactive and has no assets, revenues
and earnings for the periods presented.
COMPETITION
The banking and financial services business in California generally, and in
Sunwest's market areas specifically, is highly competitive. The increasingly
competitive environment is a result primarily of changes in regulation, changes
in technology and product delivery systems, and the accelerating pace of
consolidation among financial services providers. Sunwest competes for loans,
deposits and customers for financial services with other commercial banks,
savings and loan associations, securities and brokerage companies, mortgage
companies, insurance companies, finance companies, money market funds, credit
unions, and other nonbank financial service providers. Many of these competitors
are much larger in total assets and capitalization, have greater access to
capital markets and offer a broader array of financial services than Sunwest.
See "ITEM 1. BUSINESS - Supervision and Regulation - Financial Services
Modernization Legislation."
In order to compete with the other financial services providers, Sunwest
principally relies upon local promotional activities, personal relationships
established by officers, directors and employees with its customers, and
specialized services tailored to meet its customers' needs. In those instances
where Sunwest is unable to accommodate a customer's needs, Sunwest may arrange
for those services to be provided by its correspondents. Neither the deposits
nor loans of the Bank exceed 1% of all financial services companies located in
the market area in which Sunwest operates.
ECONOMIC CONDITIONS, GOVERNMENTAL POLICIES, LEGISLATION, AND REGULATION
The Company's profitability, like most financial institutions, is primarily
dependent on interest rate differentials. In general, the difference between the
interest rates paid by the Company on interest-bearing liabilities, such as
deposits and other borrowings, and the interest rates received by the Company on
its interest-earning assets, such as loans extended to its clients and
securities held in its investment portfolio, comprise the major portion of the
Company's earnings. These rates are highly sensitive to many factors that are
beyond the control of the Company, such as inflation, recession and
unemployment, and the impact which future changes in domestic and foreign
economic conditions might have on the Company cannot be predicted.
The business of the Company is also influenced by the monetary and fiscal
policies of the federal government and the policies of regulatory agencies,
particularly the Board of Governors of the Federal Reserve System (the "Federal
Reserve Board"). The Federal Reserve Board implements national monetary policies
(with objectives such as curbing inflation and combating recession) through its
open-market operations in U.S. Government securities by adjusting the required
level of reserves for depository institutions subject to its reserve
requirements and by varying the target federal funds and discount rates
applicable to borrowings by depository institutions. The actions of the Federal
Reserve Board in these areas influence the growth of bank loans, investments and
deposits and also affect interest rates earned on interest-earning assets and
paid on interest-bearing liabilities. The nature and impact on the Company and
the Bank of any future changes in monetary and fiscal policies cannot be
predicted.
From time to time, legislative acts, as well as regulations, are enacted
which have the effect of increasing the cost of doing business, limiting or
expanding permissible activities, or affecting the competitive balance between
banks and other financial services providers. Proposals to change the laws and
regulations governing the operations and taxation of banks, bank holding
companies and other financial institutions are frequently made in the U.S.
Congress, in the state legislatures and before various bank regulatory
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WEST COAST BANCORP
Form 10-KSB for the year ended December 31, 1999
agencies. See "ITEM 1. BUSINESS - Supervision And Regulation."
SUPERVISION AND REGULATION
Bank holding companies and banks are extensively regulated under both
federal and state law. This regulation is intended primarily for the protection
of depositors and the deposit insurance fund and not for the benefit of
stockholders of the Company. Set forth below is a summary description of certain
laws and regulations which relate to the operations of the Company and the Bank.
The description is qualified in its entirety by reference to the applicable laws
and regulations.
West Coast
West Coast, as a registered bank holding company, is subject to regulation
under the BHCA. West Coast is required to file with the Federal Reserve Board
quarterly and annual reports and such additional information as the Federal
Reserve Board may require pursuant to the BHCA. The Federal Reserve Board may
conduct examinations of West Coast and its subsidiaries.
The Federal Reserve Board may require that West Coast terminate an activity
or terminate control of or liquidate or divest certain subsidiaries or
affiliates when the Federal Reserve Board believes the activity or the control
of the subsidiary or affiliate constitutes a significant risk to the financial
safety, soundness or stability of any of its banking subsidiaries. The Federal
Reserve Board also has the authority to regulate provisions of certain bank
holding company debt, including authority to impose interest ceilings and
reserve requirements on such debt. Under certain circumstances, West Coast must
file written notice and obtain approval from the Federal Reserve Board prior to
purchasing or redeeming its equity securities.
Under the BHCA and regulations adopted by the Federal Reserve Board, a bank
holding company and its nonbanking subsidiaries are prohibited from requiring
certain tie-in arrangements in connection with any extension of credit, lease or
sale of property or furnishing of services. Further, the Company is required by
the Federal Reserve Board to maintain certain levels of capital. See "ITEM 1.
BUSINESS - Supervision And Regulation - Capital Standards."
West Coast is required to obtain the prior approval of the Federal Reserve
Board for the acquisition of more than 5% of the outstanding shares of any class
of voting securities or substantially all of the assets of any bank or bank
holding company. Prior approval of the Federal Reserve Board is also required
for the merger or consolidation of the Company and another bank holding company.
West Coast is prohibited by the BHCA, except in certain statutorily
prescribed instances, from acquiring direct or indirect ownership or control of
more than 5% of the outstanding voting shares of any company that is not a bank
or bank holding company and from engaging directly or indirectly in activities
other than those of banking, managing or controlling banks or furnishing
services to its subsidiaries. However, West Coast, subject to the prior approval
of the Federal Reserve Board, may engage in any, or acquire shares of companies
engaged in, activities that are deemed by the Federal Reserve Board to be so
closely related to banking or managing or controlling banks as to be a proper
incident thereto.
Under Federal Reserve Board regulations, a bank holding company is required
to serve as a source of financial and managerial strength to its subsidiary
banks and may not conduct its operations in an unsafe or unsound manner. In
addition, it is the Federal Reserve Board's policy that in serving as a source
of strength to its subsidiary banks, a bank holding company should stand ready
to use available resources to provide adequate capital funds to its subsidiary
banks during periods of financial stress or adversity and should maintain the
financial flexibility and capital-raising capacity to obtain additional
resources for assisting its subsidiary banks. A bank holding company's failure
to meet its obligations to serve as a source of strength to its subsidiary banks
will generally be considered by the Federal Reserve Board to be an unsafe and
unsound banking practice or a violation of the Federal Reserve Board's
regulations or both.
The Company is also a bank holding company within the meaning of Section
3700 of the California Financial Code. As such, the Company and its subsidiaries
are subject to examination by, and may be required to file reports with, the
California Department of Financial Institutions.
West Coast's securities are registered with the Securities and Exchange
Commission under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"). As such, the Company is subject to the information, proxy solicitation,
insider trading, and other requirements and restrictions of the Exchange Act.
Sunwest Bank
Sunwest, as a California state chartered bank, is subject to primary
supervision, periodic examination and regulation by the California Commissioner
of Financial Institutions ("Commissioner") and the Federal Deposit Insurance
Corporation ("FDIC"). If, as a result of an examination of a bank, the FDIC
should determine that the financial condition, capital resources, asset quality,
earnings prospects, Management, liquidity or other aspects of Sunwest's
operations are unsatisfactory or that Sunwest or its Management is violating or
has violated any law or regulation, various remedies are available to the FDIC.
Such remedies include the power to enjoin "unsafe or unsound" practices, to
require affirmative action to correct any conditions resulting from any
violation or practice, to issue an administrative order that can be judicially
enforced, to direct an increase in capital,
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WEST COAST BANCORP
Form 10-KSB for the year ended December 31, 1999
to restrict the growth of the bank, to assess civil monetary penalties, to
remove officers and directors and ultimately to terminate a bank's deposit
insurance, which for a California state-chartered bank would result in a
revocation of the bank's charter. The Commissioner has many of the same remedial
powers.
Various requirements and restrictions under the laws of the State of
California and the United States affect the operations of Sunwest. State and
federal statutes and regulations relate to many aspects of Sunwest operations,
including reserves against deposits, interest rates payable on deposits, loans,
investments, mergers and acquisitions, borrowings, dividends, locations of
branch offices and capital requirements. Further, Sunwest is required to
maintain certain levels of capital. See "ITEM 1. BUSINESS - Supervision and
Regulation - Capital Standards."
Financial Services Modernization Legislation
On November 12, 1999, President Clinton signed into law the
Gramm-Leach-Bliley Act of 1999 (the "Financial Services Modernization Act"). The
Financial Services Modernization Act repeals the two affiliation provisions of
the Glass-Steagall Act: Section 20, which restricted the affiliation of Federal
Reserve Member Banks with firms "engaged principally" in specified securities
activities; and Section 32, which restricts officer, director, or employee
interlocks between a member bank and any company or person "primarily engaged"
in specified securities activities. In addition, the Financial Services
Modernization Act also contains provisions that expressly preempt any state law
restricting the establishment of financial affiliations, primarily related to
insurance. The general effect of the law is to establish a comprehensive
framework to permit affiliations among commercial banks, insurance companies,
securities firms, and other financial service providers by revising and
expanding the BHCA framework to permit a holding company system to engage in a
full range of financial activities through a new entity known as a Financial
Holding Company. "Financial activities" is broadly defined to include not only
banking, insurance, and securities activities, but also merchant banking and
additional activities that the Federal Reserve Board, in consultation with the
Secretary of the Treasury, determines to be financial in nature, incidental to
such financial activities, or complementary activities that do not pose a
substantial risk to the safety and soundness of depository institutions or the
financial system generally.
Generally, the Financial Services Modernization Act:
o Repeals historical restrictions on, and eliminates many federal and state law
barriers to, affiliations among banks, securities firms, insurance companies,
and other financial service providers;
o Provides a uniform framework for the functional regulation of the activities
of banks, savings institutions, and their holding companies;
o Broadens the activities that may be conducted by national banks, banking
subsidiaries of bank holding companies, and their financial subsidiaries;
o Provides an enhanced framework for protecting the privacy of consumer
information;
o Adopts a number of provisions related to the capitalization, membership,
corporate governance, and other measures designed to modernize the Federal Home
Loan Bank system;
o Modifies the laws governing the implementation of the Community Reinvestment
Act ("CRA"), and
o Addresses a variety of other legal and regulatory issues affecting both
day-to-day operations and long-term activities of financial institutions.
In order for West Coast to take advantage of the ability to affiliate with
other financial services providers, West Coast must become a "Financial Holding
Company" as permitted under an amendment to the BHCA. To become a Financial
Holding Company West Coast would file a declaration with the Federal Reserve
Board, electing to engage in activities permissible for Financial Holding
Companies and certifying that it is eligible to do so because all of its insured
depository institution subsidiaries are well-capitalized and well-managed. See
"ITEM 1. BUSINESS - Supervision And Regulation - Capital Standards." In
addition, the Federal Reserve Board must also determine that each insured
depository institution subsidiary of West Coast has at least a "satisfactory"
CRA rating. See "- Sunwest Bank - Community Reinvestment Act and Fair Lending
Developments." West Coast currently meets the requirements to make an election
to become a Financial Holding Company. Management of the Company has not
determined at this time whether it will seek an election to become a Financial
Holding Company. West Coast is examining its strategic business plan to
determine whether, based on market conditions, the relative financial conditions
of West Coast and its subsidiaries, regulatory capital requirements, general
economic conditions, and other factors, West Coast desires to utilize any of its
expanded powers provided in the Financial Services Modernization Act.
The Financial Services Modernization Act also permits national banks to
engage in expanded activities through the formation of financial subsidiaries. A
national bank may have a subsidiary engaged in any activity authorized for
national banks directly or any financial activity, except for insurance
underwriting, insurance investments, real estate investment or development, or
merchant banking, which may only be conducted through a subsidiary of a
Financial Holding Company. Financial activities include all activities permitted
under new sections of the BHCA or permitted by regulation.
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WEST COAST BANCORP
Form 10-KSB for the year ended December 31, 1999
A national bank seeking to have a financial subsidiary, and each of its
depository institution affiliates, must be "well-capitalized" and
"well-managed." The total assets of all financial subsidiaries may not exceed
the lesser of 45% of a bank's total assets, or $50 billion. A national bank must
exclude from its assets and equity all equity investments, including retained
earnings, in a financial subsidiary. The assets of the subsidiary may not be
consolidated with the bank's assets. The bank must also have policies and
procedures to assess financial subsidiary risk and protect the bank from such
risks and potential liabilities.
The Financial Services Modernization Act also includes a new section of the
Federal Deposit Insurance Act governing subsidiaries of state banks that engage
in "activities as principal that would only be permissible" for a national bank
to conduct in a financial subsidiary. It expressly preserves the ability of a
state bank to retain all existing subsidiaries. Because California permits
commercial banks chartered by the state to engage in any activity permissible
for national banks, Sunwest will be permitted to form subsidiaries to engage in
the activities authorized by the Financial Services Modernization Act, to the
same extent as a national bank. In order to form a financial subsidiary, Sunwest
must be well-capitalized, and Sunwest would be subject to the same capital
deduction, risk management and affiliate transaction rules as applicable to
national banks.
West Coast and Sunwest do not believe that the Financial Services
Modernization Act will have a material adverse effect on our operations in the
near-term. However, to the extent that it permits banks, securities firms, and
insurance companies to affiliate, the financial services industry may experience
further consolidation. The Financial Services Modernization Act is intended to
grant to community banks certain powers as a matter of right that larger
institutions have accumulated on an ad hoc basis. Nevertheless, this act may
have the result of increasing the amount of competition that West Coast and
Sunwest face from larger institutions and other types of companies offering
financial products, many of which may have substantially more financial
resources than West Coast and Sunwest.
Dividends and Other Transfers of Funds
West Coast is a legal entity separate and distinct from Sunwest. West
Coast's ability to pay cash dividends is limited by state law.
There are statutory and regulatory limitations on the amount of dividends
which may be paid to West Coast by Sunwest. California law restricts the amount
available for cash dividends by state chartered banks to the lesser of retained
earnings or the bank's net income for its last three fiscal years (less any
distributions made to shareholders by the bank or by any majority-owned
subsidiary of the bank during such period). Notwithstanding this restriction, a
bank may, with the prior approval of the Commissioner, make a distribution to
its shareholders in an amount not exceeding the greatest of the retained
earnings of the bank, net income for such bank's last fiscal year or the net
income of the bank for its current year.
The FDIC and the Commissioner also have authority to prohibit Sunwest from
engaging in activities that, in the FDIC's and the Commissioner's opinion,
constitute unsafe or unsound practices in conducting its business. It is
possible, depending upon the financial condition of Sunwest and other factors,
that the FDIC and the Commissioner could assert that the payment of dividends or
other payments might, under some circumstances, be such an unsafe or unsound
practice. Further, the FDIC and the Federal Reserve Board have established
guidelines with respect to the maintenance of appropriate levels of capital by
banks or bank holding companies under their jurisdiction. Compliance with the
standards set forth in such guidelines and the restrictions that are or may be
imposed under the prompt corrective action provisions of federal law could limit
the amount of dividends which Sunwest or West Coast may pay. See "ITEM 1.
BUSINESS - Supervision and Regulation - Prompt Corrective Regulatory Action and
Other Enforcement Mechanisms" and - "Capital Standards" for a discussion of
these additional restrictions on capital distributions.
West Coast has not received any and does not currently plan on receiving any
dividends from Sunwest in 2000. At December 31, 1999, Sunwest had an accumulated
deficit, which prohibits it from payment of cash dividends without prior
regulatory approval.
Sunwest is subject to certain restrictions imposed by federal law on any
extensions of credit to, or the issuance of a guarantee or letter of credit on
behalf of, West Coast or other affiliates, the purchase of or investments in
stock or other securities thereof, the taking of such securities as collateral
for loans and the purchase of assets of West Coast or other affiliates. Such
restrictions prevent West Coast and such other affiliates from borrowing from
Sunwest unless the loans are secured by collateral having a market value equal
to the amount required by law. Further, such secured loans and investments by
Sunwest to or in West Coast or to or in any other affiliate are limited to 10%
of Sunwest capital and surplus (as defined by federal regulations) and such
secured loans and investments are limited, in the aggregate, to 20% of Sunwest
capital stock and surplus (as defined by federal regulations). California law
also imposes certain restrictions with respect to transactions involving West
Coast and other controlling persons of Sunwest. Additional restrictions on
transactions with affiliates may be imposed on Sunwest under the prompt
corrective action provisions of federal law. See "ITEM 1. - BUSINESS -
Supervision and Regulation - Prompt Corrective Regulatory Action and Other
Enforcement Mechanisms."
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WEST COAST BANCORP
Form 10-KSB for the year ended December 31, 1999
Capital Standards
The Federal Reserve Board and the FDIC have adopted risk-based minimum
capital guidelines intended to provide a measure of capital that reflects the
degree of risk associated with a banking organization's operations for both
transactions reported on the balance sheet as assets and transactions, such as
letters of credit and recourse arrangements, which are recorded as off balance
sheet items. Under these guidelines, nominal dollar amounts of assets and credit
equivalent amounts of off balance sheet items are multiplied by one of several
risk adjustment percentages, which range from 0% for assets with low credit
risk, such as certain U.S. Treasury securities, to 100% for assets with
relatively high credit risk, such as commercial loans.
The federal banking agencies require a minimum ratio of qualifying total
capital to risk-adjusted assets of 8% and a minimum ratio of Tier 1 capital to
risk-adjusted assets of 4%. In addition to the risked-based guidelines, federal
banking regulators require banking organizations to maintain a minimum amount of
Tier 1 capital to total assets, referred to as the leverage ratio. For a banking
organization rated in the highest of the five categories used by regulators to
rate banking organizations, the minimum leverage ratio of Tier 1 capital to
total assets must be 3%. In addition to these uniform risk-based capital
guidelines and leverage ratios that apply across the industry, the regulators
have the discretion to set individual minimum capital requirements for specific
institutions at rates significantly above the minimum guidelines and ratios.
The following tables present the amounts of regulatory capital and the
capital ratios for West Coast and Sunwest, compared to their minimum regulatory
capital requirements as of December 31, 1999 (dollars in thousands).
West Coast
<TABLE>
<CAPTION>
Actual Required Excess
---------------- ---------------- ----------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
Leverage ratio $18,660 9.76% $ 7,678 4.00% $10,982 5.76%
Tier 1 risk-based ratio $18,660 12.14% $ 6,150 4.00% $12,510 8.14%
Total risk-based ratio $20,635 13.39% $12,301 8.00% $8,334 5.39%
</TABLE>
Sunwest
<TABLE>
<CAPTION>
Actual Required Excess
---------------- ---------------- ----------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
Leverage ratio $19,738 10.32% $ 7,678 4.00% $12,060 6.32%
Tier 1 risk-based ratio $19,738 13.17% $ 5,994 4.00% $13,744 9.17%
Total risk-based ratio $21,713 14.42% $11,988 8.00% $ 9,725 6.42%
</TABLE>
Prompt Corrective Action And Other Enforcement Mechanisms
Federal banking agencies possess broad powers to take corrective and other
supervisory action to resolve the problems of insured depository institutions,
including but not limited to those institutions that fall below one or more
prescribed minimum capital ratios. Each federal banking agency has promulgated
regulations defining the following five categories in which an insured
depository institution will be placed, based on its capital ratios: well
capitalized, adequately capitalized, undercapitalized, significantly
undercapitalized, and critically undercapitalized. At December 31, 1999, the
Company and Sunwest exceeded the required ratios for classification as "well
capitalized."
An institution that, based upon its capital levels, is classified as well
capitalized, adequately capitalized, or undercapitalized may be treated as
though it were in the next lower capital category if the appropriate federal
banking agency, after notice and opportunity for hearing, determines that an
unsafe or unsound condition or an unsafe or unsound practice warrants such
treatment. At each successive lower capital category, an insured depository
institution is subject to more restrictions. The federal banking agencies,
however, may not treat a significantly undercapitalized institution as
critically undercapitalized unless its capital ratio actually warrants such
treatment.
In addition to measures taken under the prompt corrective action provisions,
commercial banking organizations may be subject to potential enforcement actions
by the federal regulators for unsafe or unsound practices in conducting their
businesses or for violations of any law, rule, regulation, or any condition
imposed in writing by the agency or any written agreement with the agency.
Safety And Soundness Standards
The federal banking agencies have adopted guidelines designed to assist the
federal banking agencies in identifying and addressing potential safety and
soundness concerns before capital becomes impaired. The guidelines set forth
operational and managerial standards relating to: (i) internal controls,
information systems and internal audit systems, (ii) loan documentation, (iii)
credit underwriting, (iv) asset growth, (v) earnings, and (vi) compensation,
fees and benefits. In addition, the federal banking agencies have also adopted
safety and soundness guidelines with respect to asset quality and earnings
standards. These guidelines provide six standards for establishing and
maintaining a system to identify problem assets and prevent those assets from
deteriorating. Under these standards, an insured depository institution should:
(i) conduct periodic asset quality reviews to identify problem assets, (ii)
estimate the inherent losses in
8
<PAGE> 9
WEST COAST BANCORP
Form 10-KSB for the year ended December 31, 1999
problem assets and establish reserves that are sufficient to absorb estimated
losses, (iii) compare problem asset totals to capital, (iv) take appropriate
corrective action to resolve problem assets, (v) consider the size and potential
risks of material asset concentrations, and (vi) provide periodic asset quality
reports with adequate information for management and the board of directors to
assess the level of asset risk. These new guidelines also set forth standards
for evaluating and monitoring earnings and for ensuring that earnings are
sufficient for the maintenance of adequate capital and reserves.
Premiums for Deposit Insurance
Sunwest's deposit accounts are insured by the Bank Insurance Fund ("BIF"),
as administered by the FDIC, up to the maximum permitted by law. Insurance of
deposits may be terminated by the FDIC upon a finding that the institution has
engaged in unsafe or unsound practices, is in an unsafe or unsound condition to
continue operations, or has violated any applicable law, regulation, rule,
order, or condition imposed by the FDIC or the institution's primary regulator.
The FDIC charges an annual assessment for the insurance of deposits, which
as of December 31, 1999, ranged from 0 to 27 basis points per $100 of insured
deposits, based on the risk a particular institution poses to its deposit
insurance fund. The risk classification is based on an institution's capital
group and supervisory subgroup assignment. Pursuant to the Economic Growth and
Paperwork Reduction Act of 1996 (the "Paperwork Reduction Act"), at January 1,
1997, Sunwest began paying, in addition to its normal deposit insurance premium
as a member of the BIF, an amount equal to approximately 1.3 basis points per
$100 of insured deposits toward the retirement of the Financing Corporation
bonds ("Fico Bonds") issued in the 1980s to assist in the recovery of the
savings and loan industry. Members of the Savings Association Insurance Fund
("SAIF"), by contrast, pay, in addition to their normal deposit insurance
premium, approximately 6.4 basis points. Under the Paperwork Reduction Act, the
FDIC is not permitted to establish SAIF assessment rates that are lower than
comparable BIF assessment rates Effective January 1, 2000, the rate paid to
retire the Fico Bonds will be 2.12 basis points, equal for members of the BIF
and the SAIF. The Paperwork Reduction Act also provided for the merging of the
BIF and the SAIF by January 1, 1999 provided there were no financial
institutions still chartered as savings associations at that time. However, as
of January 1, 1999, there were still financial institutions chartered as savings
associations.
Interstate Banking And Branching
The BHCA currently permits bank holding companies from any state to acquire
banks and bank holding companies located in any other state, subject to certain
conditions, including certain nationwide- and state-imposed concentration
limits. The Bank has the ability, subject to certain restrictions, to acquire by
acquisition or merger branches outside its home state. The establishment of new
interstate branches is also possible in those states with laws that expressly
permit it. Interstate branches are subject to certain laws of the states in
which they are located. Competition may increase further as banks branch across
state lines and enter new markets.
Community Reinvestment Act And Fair Lending Developments
Sunwest is subject to certain fair lending requirements and reporting
obligations involving home mortgage lending operations and Community
Reinvestment Act ("CRA") activities. The CRA generally requires the federal
banking agencies to evaluate the record of a financial institution in meeting
the credit needs of its local communities, including low- and moderate-income
neighborhoods. A bank may be subject to substantial penalties and corrective
measures for a violation of certain fair lending laws. The federal banking
agencies may take compliance with such laws and CRA obligations into account
when regulating and supervising other activities.
A bank's compliance with its CRA obligations is based on a performance-based
evaluation system which bases CRA ratings on an institution's lending service
and investment performance. When a bank holding company applies for approval to
acquire a bank or other bank holding company, the Federal Reserve Board will
review the assessment of each subsidiary bank of the applicant bank holding
company, and such records may be the basis for denying the application. Based on
an examination conducted as of June 21, 1999, Sunwest was rated satisfactory in
complying with its CRA obligations.
Current Accounting Pronouncements
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 requires companies to record
derivatives on the balance sheet as assets or liabilities, measured at fair
value. Gains or losses resulting from changes in the values of those derivatives
would be accounted for depending on the use of the derivative and whether it
qualifies for hedge accounting. The key criterion for hedge accounting is that
the hedging relationship must be highly effective in achieving offsetting
changes in fair value or cash flows. SFAS No. 133 was to be effective for fiscal
years beginning after June 15, 1999. However, in June 1999, the FASB issued SFAS
No. 137 "Accounting for Derivative Instruments and Hedging Activities-Deferral
of the Effective Date of FASB Statement No. 133" which deferred the effective
date of SFAS No. 133 until fiscal years beginning after June 15, 2000.
Management believes that the adoption of SFAS No. 133 will not have a material
impact on the
9
<PAGE> 10
WEST COAST BANCORP
Form 10-KSB for the year ended December 31, 1999
Company's results of operations or financial position when adopted.
In October 1998, the FASB issued SFAS No. 134, "Accounting for
Mortgage-Backed Securities Retained after the Securitization of Mortgage Loans
Held for Sale by a Mortgage Banking Enterprise." SFAS No. 134 amends SFAS No.
65, "Accounting for Certain Mortgage Banking Activities," which establishes
accounting and reporting standards for certain activities of mortgage banking
enterprises and other enterprises that conduct operations that are substantially
similar. SFAS No. 134 requires that after the securitization of mortgage loans
held for sale, the resulting mortgage-backed securities and other retained
interests should be classified in accordance with SFAS No. 115, "Accounting for
Certain Investments in Debt and Equity Securities," based on the company's
ability and intent to sell or hold those investments. SFAS No. 134 is effective
for the first fiscal quarter beginning after December 15, 1998. The adoption of
SFAS No. 134 did not have a material impact on the Company's results of
operations or financial position when adopted.
EMPLOYEES
At December 31, 1999, West Coast and its subsidiaries employed 64 persons of
which 61 were full time. West Coast and its subsidiaries believe that their
employee relations are satisfactory.
10
<PAGE> 11
WEST COAST BANCORP
Form 10-KSB for the year ended December 31, 1999
SELECTED STATISTICAL INFORMATION
The following tables and data set forth, for the respective periods shown,
selected statistical information relating to the Company. The tables and data
should be read in conjunction with the other financial information appearing
elsewhere in this report.
For the tables of "Average Balance Sheet and Analysis of Net Interest
Earnings" and "Rate and Volume Variance Analysis" see "ITEM 6. - MANAGEMENT'S
DISCUSSION AND ANALYSIS - Results Of Operations - Net Interest Income."
Investment Securities
The Company maintains a portion of its assets in investment securities to
provide liquidity, generate a reasonable rate of return, meet pledging
requirements, and minimize risk. At December 31, 1999, all of the Company's
investment securities were classified as available-for-sale. Investment
securities classified as available-for-sale are stated at market value.
<TABLE>
<CAPTION>
Available for Sale
----------------------------
(in thousands) 1999 1998
- - - --------------------------------------------------------------------------------------
<S> <C> <C>
U.S. Treasury and other government agency securities $ 991 $ 1,010
Collateralized mortgage obligations 18,560 12,266
Mortgage-backed securities 4,876 6,042
Corporate bonds 4,900 4,533
Trust preferred securities 3,863 4,869
Municipal bonds 5,829 --
Other securities 473 408
- - - --------------------------------------------------------------------------------------
Total $39,492 $29,128
- - - --------------------------------------------------------------------------------------
</TABLE>
The following table discloses the maturity dates and average yields of the
investment securities at December 31, 1999. Mortgage-backed securities and
collateralized mortgage obligations are classified in accordance with their
estimated lives. Expected maturities will differ from contractual maturities
because borrowers may have the right to prepay obligations. Trust preferred
securities are classified in the one to five year category due to call
provisions at the option of the issuer. The stated maturities are in excess of
ten years.
<TABLE>
<CAPTION>
Due Within Due After One Year Due After Five
One Year But Within Five Years But Within Due After
Years Ten Years Ten Years
-----------------------------------------------------------------------------------
(dollars in thousands) Amount Yield Amount Yield Amount Yield Amount Yield
- - - ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury and other
government agency
securities $ -- --% $ 991 5.49% $ -- --% $ -- --%
Collateralized mortgage
obligations 580 7.64 6,315 7.20 8,385 7.08 3,276 7.31
Mortgage-backed securities 177 6.77 1,992 8.21 827 6.84 1,880 7.63
Corporate bonds 996 5.40 2,006 7.09 1,418 7.29 481 6.36
Trust preferred securities -- -- 3,865 8.73 -- -- -- --
Municipal bonds -- -- 3,026 6.96 2,804 7.10 -- --
Other Securities 473 4.08 -- -- -- -- -- --
- - - ------------------------------------------------------------------------------------------------------------------
Total $2,226 5.81% $18,195 7.49% $13,434 7.09% $5,637 7.33%
- - - ------------------------------------------------------------------------------------------------------------------
</TABLE>
11
<PAGE> 12
WEST COAST BANCORP
Form 10-KSB for the year ended December 31, 1999
Loans by Type
The following table sets forth loans by type as of December 31. The Company
had no foreign loans during the periods reported.
<TABLE>
<CAPTION>
(dollars in thousands) 1999 1998
- - - --------------------------------------------------------------------------------
<S> <C> <C>
Commercial $ 42,162 $ 34,318
Real Estate - mortgage 87,548 71,184
Real Estate - construction 1,957 376
Installment loans 1,698 3,942
Unearned income, discounts and fees (357) (273)
- - - --------------------------------------------------------------------------------
Total $ 133,008 $ 109,547
- - - --------------------------------------------------------------------------------
</TABLE>
Commercial loans are generally loans to local community businesses and may
be unsecured or secured by assets of the business and/or its principals.
Mortgage loans are secured by deeds of trust on the underlying properties and
may be guaranteed by the principal borrowers. Installment loans to individuals
may be unsecured or secured by various types of assets including automobiles,
trust deeds, recreational vehicles or other personal property.
The Company primarily funds loans based on the creditworthiness of the
borrower and supported by a minimum of two identified sources of repayment.
Advance rates on collateral provided in support of the sources of repayment
generally range from 60% to 80% of collateral value.
Sunwest was the only subsidiary that had loans for the periods presented.
Loans have increased because of an emphasis on marketing efforts and an
improving economy during 1999.
Real estate mortgage and construction lending contain potential risks which
are not inherent in other types of commercial loans. These potential risks
include declines in market values of underlying real property collateral and,
with respect to construction lending, delays or cost overruns, which could
expose the Company to loss. In addition, risks in commercial real estate lending
include declines in commercial real estate values, general economic conditions
surrounding the commercial real estate properties, and vacancy rates. A decline
in the general economic conditions or real estate values within the Company's
market area could have a negative impact on the performance of the loan
portfolio or value of the collateral. Because the Company lends primarily within
its market areas, the real property collateral for its loans is similarly
concentrated, rather than diversified over a broader geographic area. The
Company could therefore be adversely affected by a decline in real estate values
in Orange County and the surrounding counties even if real estate values
elsewhere in California generally remained stable or increased.
The risks in the Company's loan portfolio stem from the individual credits
that are contained therein and the diversification among the credits. The risks
of a particular credit arise from the interplay of various factors, including
the underwriting criteria applied to originate the credit, the creditworthiness
of the borrower, the controls placed on the disbursement of funds, the
procedures employed to monitor the credit, the interest rate charged, market
interest rate increases for variable rate loans and the external economic
conditions that may affect the creditor's ability to repay or the value of the
underlying collateral. Further, with respect to secured credits, certain
additional factors include the nature of the appraisals obtained with respect to
the underlying collateral and the loan to value ratio. Assuming all other things
are equal, certain credits have characteristics that present a higher degree of
risk than others: a secured credit is less risky than an unsecured credit; a
credit with liquid collateral is less risky than a credit secured by collateral
for which there is only a limited market; a credit with a lower interest rate is
less risky than one with a higher rate; a credit with a lower loan to value
ratio is less risky than a credit with a higher ratio; and a credit that is
underwritten pursuant to rigorous underwriting criteria and a careful review of
the borrower's creditworthiness is less risky than a credit originated pursuant
to less rigorous standards. The Company considers these characteristics, among
others, during the underwriting process in an attempt to originate loans with an
acceptable level of risk. At December 31, 1999, the Company had no significant
loan concentrations other than those listed above.
Rate Sensitivity
Financial institutions are susceptible to fluctuations in interest rates. To
the degree that the average yield on assets responds differently to a change in
interest rates than does the average cost of funds sources, earnings will be
sensitive to interest rate changes.
The following table sets forth the maturities for commercial and real
estate-construction loans at December 31, 1999. These loans comprised 33% of the
gross loan portfolio and are classified according to changes in interest rates.
12
<PAGE> 13
WEST COAST BANCORP
Form 10-KSB for the year ended December 31, 1999
<TABLE>
<CAPTION>
Maturing
- - - --------------------------------------------------------------------------------
Within After One
One Year But After
Year or Within Five
(in thousands) Less Five Years Years Total
- - - --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Commercial $22,122 $16,937 $3,103 $42,162
Real Estate - construction 1,449 508 -- 1,957
- - - --------------------------------------------------------------------------------
Total $23,571 $17,445 $3,103 $44,119
- - - --------------------------------------------------------------------------------
Loans included above with:
Fixed rates $ 3,310 $ 6,204 $ 422 $ 9,936
Variable rates 20,261 11,241 2,681 34,183
- - - --------------------------------------------------------------------------------
Total $23,571 $17,445 $3,103 $44,119
- - - --------------------------------------------------------------------------------
</TABLE>
Allowance for Credit Losses
The following table discloses the activity in the allowance for credit
losses for the years ended December 31:
<TABLE>
<CAPTION>
(dollars in thousands) 1999 1998
- - - --------------------------------------------------------------------------------
<S> <C> <C>
Allowance for credit losses at
beginning of period $ 2,444 $ 2,364
Charge-offs:
Commercial (158) --
Real estate - construction -- (13)
Real estate - mortgage (92) (12)
Installment loans to individuals (2) (12)
Direct lease financing -- --
- - - --------------------------------------------------------------------------------
Total Charge-offs (252) (37)
- - - --------------------------------------------------------------------------------
Recoveries:
Commercial 42 288
Real estate - construction -- --
Real estate - mortgage 205 4
Installment loans to individuals 16 25
Direct lease financing 2 5
- - - --------------------------------------------------------------------------------
Total Recoveries 265 322
- - - --------------------------------------------------------------------------------
Net recoveries (charge-offs) 13 285
Additions (reductions)
charged to provision for credit losses -- (205)
- - - --------------------------------------------------------------------------------
Balance at end of period $ 2,457 $ 2,444
- - - --------------------------------------------------------------------------------
Allowance for credit losses as a percentage of:
Average loans 1.87% 2.35%
Loans at end of period 1.85% 2.23%
Loans on nonaccrual and
90 days past due 486.50% 179.57%
Net (recoveries) charge-offs as a
percentage of:
Average loans (.01)% (.27)%
- - - ------------------------------------------------------------------------------
</TABLE>
The allowance for credit losses is established by a provision for credit
losses charged against current period income. Credit losses are charged against
the allowance when, in Management's judgment, the credit is considered
uncollectible or of such little value that its continuance as an asset is
unwarranted. The allowance is the amount that Management believes is adequate to
absorb losses inherent in existing loans and commitments to extend credit.
Management's evaluation takes into consideration several factors, including
economic conditions and their effects on particular industries and specific
borrowers, borrowers' financial data, regulatory examinations and requirements,
and continuous monitoring and review of the loan portfolio for changes in
overall quality and specific loan problems. The allowance is available for all
credit losses. The amount of the allowance is determined by establishing
specific allocations, general allocations and supplemental allocations. Specific
allocations are established by analyzing individual credits, generally all loans
classified as "doubtful" and certain loans classified as "substandard" (see
"ITEM 1. - BUSINESS - Selected Statistical Information - Classified Loans"). The
general allocations are determined based upon quantitative historical loss
experience of loans. The supplemental allocations are additional reserves that
are based on economic conditions, year 2000 exposure, trends in delinquency,
restructured and nonperforming loans, and are otherwise deemed necessary and
prudent by Management. Management believes that the allowance for credit losses
of $2,457,000, constituting approximately 1.85% of loans outstanding at December
31, 1999, was adequate to absorb known and inherent risks in the loan portfolio.
For additional information on the allowance for credit losses and net
charge-offs, see "ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS - Results Of
Operations."
The Company established an allowance for credit losses at December 31, 1999
and 1998 for each category as set forth below. The allowance includes
allocations for specific loans as well as general and supplemental allocations
for each category.
<TABLE>
<CAPTION>
(dollars in thousands) 1999
- - - -------------------------------------------------------------------------
Percent of
Loan Category
Allowance to Total Loans
- - - -------------------------------------------------------------------------
<S> <C> <C>
Commercial $ 684 31.4%
Real estate-mortgage 1,714 65.8
Real estate-construction 24 1.5
Installment loans 35 1.3
- - - -------------------------------------------------------------------------
Total $2,457 100.0%
- - - -------------------------------------------------------------------------
</TABLE>
13
<PAGE> 14
WEST COAST BANCORP
Form 10-KSB for the year ended December 31, 1999
<TABLE>
<CAPTION>
(dollars in thousands) 1998
- - - -------------------------------------------------------------------------
Percent of
Loan Category
Allowance to Total Loans
- - - -------------------------------------------------------------------------
<S> <C> <C>
Commercial $ 599 31.3%
Real estate-mortgage 1,753 64.8
Real estate-construction 3 0.3
Installment loans 89 3.6
- - - -------------------------------------------------------------------------
Total $2,444 100.0%
- - - -------------------------------------------------------------------------
</TABLE>
Nonperforming Loans
Loans for which the accrual of interest has been discontinued are designated
nonaccrual loans. Accrual of interest on such loans is discontinued when
reasonable doubt exists as to the full and timely collection of either principal
or interest or generally when a loan becomes contractually 90 days past due with
respect to principal or interest. Under certain circumstances, interest accruals
are continued on loans past due 90 days which, in Management's judgment, are
considered to be well-secured and fully collectible. Restructured loans are
those on which the terms have been modified in favor of the borrower as a result
of the borrower's inability to meet the original terms.
The following table summarizes loans which were on nonaccrual, loans 90 days
or more past due and still accruing interest and restructured loans as of
December 31:
<TABLE>
<CAPTION>
(dollars in thousands) 1999 1998
- - - -------------------------------------------------------------------------------
<S> <C> <C>
Nonaccrual loans $ 505 $1,360
90 days past due loans and
still accruing -- 1
Restructured loans 2,041 2,070
Loans on nonaccrual and 90
days past due/total loans 0.38% 1.24%
Loans on nonaccrual and 90
days past due/total assets 0.27% 0.89%
- - - -------------------------------------------------------------------------------
</TABLE>
The changes in the levels of nonperforming loans during 1999 and 1998 are
discussed under "ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS - Results of
Operations - Nonperforming Assets."
If loans on nonaccrual at December 31, 1999 had performed in accordance with
original terms, interest income of the Company would have increased by $117,000.
Under the original terms of the restructured loans, interest earned would have
totaled $218,000 and $403,000 for the years ended December 31, 1999 and 1998,
respectively. Under the restructured terms of the loans, interest income
recorded amounted to $167,000 and $280,000 in 1999 and 1998, respectively.
All restructured loans shown in the chart above were in compliance with
their modified terms.
Classified Loans
The policy of the Company is to review the loans in the portfolio to
identify problem credits and classify them based on a loan grading system. The
loan grading system includes three classifications for problem loans:
"substandard", "doubtful" and "loss". A substandard loan is inadequately
protected by the current sound net worth and paying capacity of the borrower or
by the pledged collateral, if any. A substandard loan has one or more well
defined weaknesses that jeopardize the liquidation of the debt. A doubtful loan
has critical weaknesses which make collection or liquidation in full improbable.
A loan classified as loss is considered uncollectible or of such little value
that its continuance as an asset is unwarranted. Another category designated as
"special mention" is maintained for loans which are marginally acceptable but
currently protected by the current sound net worth and paying capacity of the
borrower or by the pledged collateral, if any. A special mention loan is
potentially weak, as the borrower is exhibiting deteriorating trends which, if
not corrected, could jeopardize the repayment of the debt and result in a
substandard classification.
The following presents loans classified as substandard, doubtful and special
mention at December 31:
<TABLE>
<CAPTION>
(in thousands) 1999 1998
- - - ---------------------------------------------------
<S> <C> <C>
Substandard $2,478 $3,879
Doubtful 8 1
- - - ---------------------------------------------------
Total $2,486 $3,880
- - - ---------------------------------------------------
Special mention $2,096 $2,645
- - - ---------------------------------------------------
</TABLE>
There were no loans classified as loss for any of the periods presented.
Except for the loans classified as substandard or doubtful, Management is not
aware of any loans at December 31, 1999 where the known credit problems of the
borrower would cause the Company to have serious doubts as to the ability of
such borrowers to comply with their present loan repayment terms and which would
result in such loans becoming nonperforming loans at some future date.
Management cannot, however, predict the extent to which the current economic
environment may deteriorate, or the full impact such environment may have on the
Company's loan portfolio. Furthermore, Sunwest's loan portfolio is subject to
review by federal and state regulators as part of their routine, periodic
examination and such regulators' assessment of specific credits may affect the
level of the Company's nonperforming loans and allowance for credit losses.
Accordingly, there can be no assurance that other loans will not become
nonperforming in the future.
14
<PAGE> 15
WEST COAST BANCORP
Form 10-KSB for the year ended December 31, 1999
Real Estate Owned
Gross real estate owned, the valuation allowance and net real estate owned
at December 31 were as follows:
<TABLE>
<CAPTION>
(dollars in thousands) 1999 1998
- - - --------------------------------------------------------------------------------
<S> <C> <C>
Gross real estate owned $963 $831
Valuation allowance 461 303
- - - --------------------------------------------------------------------------------
Net real estate owned $502 $528
- - - --------------------------------------------------------------------------------
Percent of assets 0.3% 0.3%
- - - --------------------------------------------------------------------------------
</TABLE>
Real estate owned consists of real estate acquired in settlement of loans.
Real estate owned is carried at the lower of cost or fair value, less estimated
selling costs. The recognition of gains and losses on sales of real estate is
dependent upon various factors relating to the nature of the property sold and
the terms of the sale.
Once real estate is acquired and periodically thereafter, Management obtains
a valuation of the real estate and a valuation allowance for estimated losses is
provided against income if the carrying value of real estate exceeds estimated
fair value less selling costs. Legal fees and direct costs, including
foreclosure, appraisal and other related costs, are expensed as incurred. While
Management uses currently available information to provide for losses on real
estate, future additions to the valuation allowance may be necessary based on
future economic conditions. In addition, the regulatory agencies periodically
review the valuation allowance and such agencies may require the Company to
recognize additions to the valuation allowance based on information and factors
available to them at the time of their examinations. Accordingly, no assurance
can be given that the Company will not recognize additional losses with respect
to its real estate owned. The net cost of operation of other real estate owned
includes write-downs of real estate owned, gains and losses on disposition and
real estate owned operating expenses, net of related income. The net cost of
operation of other real estate owned totaled $48,000 during 1999, representing
0.3% of the Company's total income for that year, as compared with $55,000 or
0.4% of revenue for 1998.
Deposits
The following table discloses the average outstanding balance of deposits
and the average rates paid thereon for each of the years ended December 31:
<TABLE>
<CAPTION>
(dollars in thousands) 1999
- - - --------------------------------------------------------------------
Average Interest
Balance Rate
- - - --------------------------------------------------------------------
<S> <C> <C>
Noninterest-bearing
demand deposits $ 53,900 --%
Interest-bearing
demand deposits 42,130 1.93
Savings deposits 4,821 1.37
Time deposits 47,391 4.87
- - - --------------------------------------------------------------------
Total $148,242 2.15%
- - - --------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
(dollars in thousands) 1998
- - - --------------------------------------------------------------------
Average Interest
Balance Rate
- - - --------------------------------------------------------------------
<S> <C> <C>
Noninterest-bearing
demand deposits $ 46,079 --%
Interest-bearing
demand deposits 38,049 1.89
Savings deposits 5,007 1.92
Time deposits 43,217 5.35
- - - --------------------------------------------------------------------
Total $132,352 2.36%
- - - --------------------------------------------------------------------
</TABLE>
The maturities of the time certificates of deposit of $100,000 or more and
the ratio of such deposits to total deposits at December 31, 1999 were as
follows (dollars in thousands):
<TABLE>
<CAPTION>
Percentage
Maturity Amount of Total
- - - ----------------------------------------------------------------------
<S> <C> <C>
0-3 Months $18,835 11.87%
3-6 Months 4,631 2.92
6-12 Months 7,720 4.87
Over 12 Months 726 0.46
- - - ----------------------------------------------------------------------
Total $31,912 20.12%
- - - ----------------------------------------------------------------------
</TABLE>
Generally, the holders of these deposits are highly sensitive to changes in
interest rates thereby increasing the competition for such deposits as well as
the interest rates paid thereon. Time deposits are sometimes acquired from
deposit brokers. Total brokered deposits at December 31, 1999 were $6.4 million.
15
<PAGE> 16
WEST COAST BANCORP
Form 10-KSB for the year ended December 31, 1999
Selected Financial Ratios
The following table sets forth the ratios of net income to average total
assets and to average shareholders' equity for the years ended December 31, as
indicated. In addition, the ratios of average shareholders' equity to average
total assets are presented. West Coast has not declared or paid any cash
dividends during the periods presented.
<TABLE>
<CAPTION>
1999 1998
- - - ---------------------------------------------------------------------
<S> <C> <C>
Ratio of net income to:
Average total assets 1.00% .86%
Average shareholders' equity 17.36 15.74
Ratio of average shareholders'
equity to average total assets 5.73 5.49
- - - ---------------------------------------------------------------------
</TABLE>
SUMMARY OF BUSINESS CONSIDERATIONS AND CERTAIN FACTORS THAT MAY AFFECT FUTURE
RESULTS OF OPERATIONS AND/OR STOCK PRICE
Discussions of certain matters contained in this Annual Report on Form
10-KSB may constitute forward-looking statements within the meaning of the
Reform Act and as such, may involve risks and uncertainties. These
forward-looking statements relate to, among other things, expectations of the
business environment in which the Company operates, projections of future
performance, perceived opportunities in the market and statements regarding the
Company's mission and vision. The Company's actual results, performance and
achievements may differ materially from the results, performance or achievements
expressed or implied in such forward-looking statements. The following is a
summary of some of the important factors that could affect the Company's future
results of operations and/or its stock price, and should be considered carefully
in evaluating the Company.
Economic Conditions and Geographic Concentration.
The Company's operations are located in Southern California and concentrated
primarily in the area known as Orange County. As a result of the geographic
concentration, the Company's results depend largely upon economic conditions in
this area, which has been relatively volatile over the last several years. While
the Southern California and Orange County economies recently have exhibited
positive economic and employment trends, there is no assurance that such trends
will continue. Deterioration in economic conditions could have a material
adverse impact on the quality of the Company's loan portfolio and the demand for
its products and services.
Interest Rates
The Company anticipates that interest rate levels will continue to increase
moderately in 2000, but if interest rates vary substantially from present
levels, the Company's results may differ materially from the results currently
anticipated. Changes in interest rates will influence the growth of loans,
investments and deposits and affect the rates received on loans and investment
securities and paid on deposits.
Government Regulation and Monetary Policy
The banking industry is subject to extensive federal and state supervision
and regulation. Significant new laws or changes in, or repeals of, existing laws
may cause the Company's results to differ materially. Further, federal monetary
policy, particularly as implemented through the Federal Reserve System,
significantly affects credit conditions for the Company, primarily through open
market operations in United States government securities, the discount rate for
bank borrowings and bank reserve requirements, and a material change in these
conditions would be likely to have a material impact on the Company's results.
Competition
The banking and financial services business in the Company's market areas is
highly competitive. The increasingly competitive environment is a result of
changes in regulation, changes in technology and product delivery systems, and
the accelerating pace of consolidation among financial services providers. The
results of the Company may differ if circumstances affecting the nature or level
of competition change.
Credit Quality
A significant source of risk arises from the possibility that losses will be
sustained because borrowers, guarantors and related parties may fail to perform
in accordance with the terms of their loans. The Company has adopted
underwriting and credit monitoring procedures and credit policies, including the
establishment and review of the allowance for credit losses, that Management
believes are appropriate to minimize this risk by assessing the likelihood of
nonperformance, tracking loan performance and diversifying the Company's credit
portfolio. Such policies and procedures, however, may not prevent unexpected
losses that could materially adversely affect the Company's results.
Year 2000 Compliance
During 1999, the Company completed its plan to address the year 2000 date
change. The Company has not experienced any failures or disruptions in its
systems since the date change and does not anticipate any date change problems
in the future. However, management will continue to monitor, throughout the
year, its systems and interactions with vendors, customers and other third
parties to ensure that all systems continue to function properly. The costs of
the year 2000 project through
16
<PAGE> 17
WEST COAST BANCORP
Form 10-KSB for the year ended December 31, 1999
December 31, 1999 totaled approximately $216,000. These costs include equipment
and software purchased that are being amortized for up to five years. Internal
and external costs specifically associated with modifying internal-use software
for the year 2000 were expensed as incurred. No future expenditures are
currently anticipated.
Other Risks
From time to time, the Company details other risks with respect to its
business and/or financial results in its filings with the Securities and
Exchange Commission.
ITEM 2. PROPERTIES
Sunwest occupies its offices under long-term leases expiring at various
dates through 2003. The Company's total occupancy expense for the year ended
December 31, 1999 and 1998 were approximately $900,000 and $871,000,
respectively. For additional information concerning properties, see "Notes 6, 14
and 17 of the Notes to the Consolidated Financial Statements" appearing
elsewhere in this report.
ITEM 3. LEGAL PROCEEDINGS
In 1992, WCV, Inc. was named a "responsible party" under state and federal
environmental laws with respect to the contamination of certain real property
located in San Bernardino, California (the "Property"). Beginning in 1996
throughout 1999, WCV, Inc. filed claims with the California Underground Storage
Tank Cleanup Fund ("USTF") and was reimbursed for "eligible" cleanup costs
associated with the contaminated property. WCV, Inc. expects that future cleanup
costs will total $90,000 to $180,000 and that these costs will qualify as
"eligible" costs and be reimbursed by USTF. The cost to remediate the Property
has been tentatively estimated between $1,000,000 and $1,100,000 of which
$912,000 has been incurred through December 31, 1999. The USTF limits the
reimbursement per site to $1 million. WCV, Inc. has been reimbursed $738,000
through December 31, 1999.
In addition, West Coast and its subsidiaries are parties to various other
legal proceedings, none of which individually or in the aggregate are considered
by West Coast or its subsidiaries, based in part upon opinions of counsel, to be
material to the financial condition or results of operations of West Coast or
its subsidiaries.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to shareholders during the fourth quarter of
1999.
ITEM 4(A) EXECUTIVE OFFICERS OF THE REGISTRANT
As of February 29, 2000, the executive officers of the Company are as
follows (Includes Name, Age, Position, and Principal Occupation and Affiliation
During Last Five Years):
Eric D. Hovde, Age 35
Chairman of the Board, President and Chief Executive Officer, West Coast.
Chairman of the Board, Sunwest.
Eric D. Hovde has been Chairman of the Board, President and Chief
Executive Officer of West Coast Bancorp since June 1998 and Chairman of the
Board of Sunwest since March 1999. Mr. Hovde has been president of Hovde
Financial, Inc. since 1987 and has been Chairman and President of Hovde
Securities, Inc. since 1989.
Frank E. Smith, Age 49
Senior Vice President, Chief Financial Officer and Secretary, West Coast,
West Coast Realty; Senior Vice President, Chief Financial Officer, Secretary and
Treasurer, Sunwest; Vice President, Secretary and Chief Financial Officer,
Sunwest Leasing and North Orange; Senior Vice President, Treasurer and
Secretary, Centennial Loan; Treasurer and Secretary, Chancellor; Treasurer, WCV,
Inc.
Frank E. Smith has served as Senior Vice President, Chief Financial
Officer and Secretary of West Coast since September 1987 and as Senior Vice
President and Chief Financial Officer of Sunwest since February 1993.
James G. LeSieur, Age 58
Director, President and Chief Executive Officer, Sunwest and Sunwest
Leasing.
James G. LeSieur serves as President and Chief Executive Officer of
Sunwest. Mr. LeSieur joined Sunwest in 1975 as Vice President and Cashier, was
promoted to Senior Vice President and Controller, and later promoted to
Executive Vice President and Chief Financial Officer. In 1991 Mr. LeSieur
assumed the position of President.
17
<PAGE> 18
WEST COAST BANCORP
Form 10-KSB for the year ended December 31, 1999
PART II
ITEM 5. MARKET FOR THE COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Securities Market Information
West Coast's common stock currently trades over the counter under the symbol
WCBC. The following table sets forth, for the calendar quarters indicated, the
range of high and low bid or sale prices for the common stock as received from
over the counter market quotations. These quotations reflect inter-dealer
prices, without retail mark-up, mark-down or commission and may not represent
actual transactions:
<TABLE>
<CAPTION>
1999 1998
High Low High Low
- - - --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
First Quarter $1.41 $0.88 $2.13 $1.22
Second Quarter 1.63 1.20 1.88 1.69
Third Quarter 1.59 1.25 1.63 1.06
Fourth Quarter 1.53 1.38 1.31 0.94
- - - --------------------------------------------------------------------------------
</TABLE>
Holders of Record
As of February 29, 2000, there were approximately 2,600 holders of record of
West Coast's common stock.
Dividends
No dividends have been paid by West Coast since inception. At the present
time, West Coast plans to retain any earnings to increase its liquidity and
capital levels. For additional information on dividends, see "ITEM 1. BUSINESS -
SUPERVISION AND REGULATION - Dividends and Other Transfers of Funds."
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS
The following presents Management's discussion and analysis of West Coast
Bancorp (as a separate entity "West Coast" and together with its subsidiaries
the "Company") for the years ended December 31, 1999 and 1998. West Coast's
primary subsidiary is its majority owned subsidiary Sunwest Bank ("Sunwest").
This discussion should be read in conjunction with the Company's consolidated
financial statements and the notes thereto appearing elsewhere in this report.
Certain statements under this caption constitute "forward-looking
statements" under the Reform Act which involve risks 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 areas 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."
GENERAL
The Company posted net income of $1,721,000 or $0.19 per share ($0.18
diluted) in 1999 versus $1,289,000 or $0.14 per share in 1998. Pretax income
before the provision for credit losses and minority interest expense increased
$1,616,000, or 72%, in 1999 from 1998. This increase resulted from higher net
interest income reflecting asset growth of 21% and higher noninterest income
offset by increases in operating expenses due to the growth in the Company's
core business. In the fourth quarter of 1999 Sunwest began fully providing for
income taxes because all net operating loss carryforwards have been realized for
financial statement purposes.
On September 13, 1996, Western Acquisitions, L.L.C. and Western
Acquisition Partners, L.P., (collectively, "Western"), affiliates of Hovde
Financial, Inc., acquired a 43.5% interest in Sunwest. Minority interest expense
reduced pretax income by $1.4 million and $1.1 million in 1999 and 1998,
respectively.
The only other remaining subsidiary with activity during the periods was
WCV Inc. Its activity was limited to the restoration of one remaining property.
The Company had total assets, loans and deposits as of December 31 as
follows:
<TABLE>
<CAPTION>
(in millions) 1999 1998
- - - ----------------------------------------------------------------------
<S> <C> <C>
Total assets $187 $154
Total loans and leases 133 110
Total deposits 159 134
- - - ----------------------------------------------------------------------
</TABLE>
RESULTS OF OPERATIONS
General
The Company had net income of $1,721,000 in 1999 versus $1,289,00 in 1998,
an increase of $432,000. Pretax income before the provision for credit losses
and minority interest expense increased $1,616,000, or 72%, in 1999 from 1998.
Factors contributing to the increase include higher net interest income of
$1,206,000 from asset growth and higher noninterest income of $538,000 due
primarily to increased service charges and recoveries of prior years' interest
on charged off loans. These factors were partially offset by higher noninterest
expense of $126,000. Net income was negatively affected, compared to 1998, by a
lower negative loan loss provision ($205,000) and higher tax expenses
($701,000).
18
<PAGE> 19
WEST COAST BANCORP
Form 10-KSB for the year ended December 31, 1999
Net Interest Income
The increase in net interest income in 1999 resulted primarily from higher
volumes of interest earning assets. Average interest earning assets increased
$23 million from 1998 to 1999.
In 1999, the net interest margin (yield on earning assets less the rate paid
on interest-bearing liabilities) and net yield on interest earning assets (net
interest income divided by average earning assets) decreased from the prior
year. This occurred due to a decline in the yield earned on interest earning
assets.
The yield on interest earning assets declined due to a 76 basis point drop
in the yield on loans. Market rates for loans decreased in 1999 due to the
"prime rate" decreasing 75 basis points between October and November 1998.
Increased competition for loans also resulted in lower yields on loans. Prime
rate was 7.75% from January 1999 to June 1999. Five increases in the Federal
funds rate from the period June 1999 through March 2000 have resulted in the
current prime rate of 9.00%. This will tend to increase the net interest margin
at the Company in 2000. An increase in investment securities yields of 74 basis
points partially offset the decline in loan yield. Investment securities yields
increased primarily as a result of investing in higher yielding securities.
Interest expense increased in 1999 primarily from changes in
interest-bearing liability volumes. Average interest-bearing liabilities
increased by $13 million from 1998 to 1999.
The rate paid on interest-bearing liabilities decreased 21 basis points from
1998 to 1999 due primarily to lower interest rates. The reduction in rates was
partially offset by the Company's use of wholesale funds, including nationally
gathered time deposits from its Money Desk operation and Federal Home Loan Bank
borrowings. These funding sources generally bear higher rates than locally
gathered deposits. The Company intends to expand its use of wholesale funds in
2000.
19
<PAGE> 20
WEST COAST BANCORP
Form 10-KSB for the year ended December 31, 1999
Average Balance Sheets and Analyses of Net Interest Earnings
Information concerning average interest earning assets and interest-bearing
liabilities, along with the interest earned or paid thereon and the average
interest rates earned and paid thereon, is set forth in the following table for
the years ended December 31. Averages were computed based on daily balances. The
Company had no income or yield earned on tax exempt securities during any of the
periods presented.
<TABLE>
<CAPTION>
(dollars in thousands) 1999 1998
- - - ---------------------------------------------------------------------------------------------------
Average Average Average Average
Balance Interest Rates Balance Interest Rates
- - - ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Assets
Loans, net of unearned loan fees
& discounts(1) $124,402 $11,586 9.31% $104,045 $10,473 10.07%
Investment securities 29,981 2,088 6.96 20,689 1,286 6.22
Federal funds sold 1,363 68 4.99 14,668 797 6.22
Interest-bearing deposits
with banks -- -- -- 11 1 9.09
- - - ---------------------------------------------------------------------------------------------------
Interest earning assets 161,350 14,030 8.70 139,413 12,557 9.01
Allowance for credit losses (2,475) (2,424)
Cash and due from banks 9,873 8,603
Other assets 4,166 3,664
- - - ---------------------------------------------------------------------------------------------------
Total assets $172,914 $149,256
- - - ---------------------------------------------------------------------------------------------------
Liabilities and Shareholders'
Equity
Time deposits $ 47,391 $ 2,310 4.87% $ 43,217 $ 2,314 5.35%
Interest-bearing demand deposits 42,130 813 1.93 38,049 719 1.89
Savings deposits 4,821 66 1.37 5,007 96 1.92
FHLB borrowings 4,904 257 5.24 121 6 4.96
Other debt(2) 791 151 19.09 948 195 20.57
- - - ---------------------------------------------------------------------------------------------------
Total interest-bearing liabilities 100,037 3,597 3.60 87,342 3,330 3.81
Demand deposits 53,900 46,079
Other liabilities 1,357 1,115
Minority Interest 7,704 6,530
Shareholders' equity 9,916 8,190
- - - ---------------------------------------------------------------------------------------------------
Total liabilities and
shareholders' equity $172,914 $149,256
- - - ---------------------------------------------------------------------------------------------------
Net interest income $10,433 $9,227
Net interest margin 5.10% 5.20%
Net yield on interest earning 6.47 6.62
assets
- - - ---------------------------------------------------------------------------------------------------
</TABLE>
(1) Interest income includes loan fees of $190,000 and $231,000 for the years
ended December 31, 1999 and 1998, respectively. Loans, net of unearned
loan fees and discounts, include loans placed on nonaccrual.
(2) Other debt includes a capital lease, and other borrowed funds.
20
<PAGE> 21
WEST COAST BANCORP
Form 10-KSB for the year ended December 31, 1999
Rate and Volume Variance Analyses
The following schedule analyzes the rate and volume changes in net interest
income for the years ended December 31. The variances attributable to
simultaneous volume and rate changes have been allocated based upon the absolute
values of the rate and volume variance.
<TABLE>
<CAPTION>
1999 vs. 1998 1998 vs. 1997
---------------------------------- -----------------------------------
(in thousands) Volume Rate Total Volume Rate Total
- - - -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest Income:
Loans and leases $ 1,938 $ (825) $ 1,113 $ 1,535 $ (343) $ 1,192
Investment securities 988 102 1,090 499 (16) 483
Federal funds sold (669) (60) (729) 175 (7) 168
Interest-bearing deposits with banks (1) (1) (2) (37) 12 (25)
- - - -----------------------------------------------------------------------------------------------------------------
Total 2,256 (783) 1,472 2,172 (354) 1,818
Interest Expense:
Time deposits 213 (217) (4) 605 (34) 571
Interest-bearing demand deposits 78 16 94 111 - 111
Savings deposits (3) (27) (30) 5 (4) 1
FHLB Borrowings 251 - 251 - - -
Other debt (46) 2 (44) - 21 21
- - - -----------------------------------------------------------------------------------------------------------------
Total 493 (226) 267 721 (17) 704
- - - -----------------------------------------------------------------------------------------------------------------
Net change in net interest income $ 1,763 $ (558) $ 1,205 $ 1,451 $ (337) $ 1,114
- - - -----------------------------------------------------------------------------------------------------------------
</TABLE>
Provision for Credit Losses
For the tables showing the Company's "Allowance for credit losses, net
charge-offs and provision for credit losses": See "ITEM 1 - BUSINESS - SELECTED
STATISTICAL INFORMATION - Allowance for credit losses."
The Company had a credit provision for credit losses in 1998 due to
improvements in the Company's loan portfolio and recoveries of loan losses from
prior years.
Management has maintained the Company's allowance for credit losses as a
percentage of loans at a level higher than industry averages, which reflects the
result of a comprehensive risk assessment system to identify and quantify risk
in the portfolio. Management believes that the allowance for credit losses at
December 31, 1999 is adequate to absorb known and inherent risks in the
Company's credit portfolio. See "ITEM 1 - SELECTED STATISTICAL INFORMATION -
Classified loans" for a summary of classified loans.
The ultimate collectability 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 exhibited positive trends for several
years, there is no assurance that such trends will continue. Deterioration in
economic conditions could result in 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 credit losses and
would adversely affect the financial condition and results of operations of the
Company.
Charge-offs
All charge-offs and recoveries were located at Sunwest. The increase in
charge-offs in 1999 is a result of two loans charged off. The current low level
of net charge-offs relates primarily to the economy and real estate values
improving in southern California. The Company's net (recoveries) charge-offs as
a percentage of average loans were (0.01)% in 1999 and (0.27)% in 1998.
21
<PAGE> 22
WEST COAST BANCORP
Form 10-KSB for the year ended December 31, 1999
Nonperforming Assets
Nonperforming assets include nonperforming loans and real estate owned.
Nonperforming loans include loans for which the accrual of interest has been
discontinued and loans that are contractually past due 90 days or more with
respect to principal and are still accruing interest. Real estate owned consists
of real estate collateral for which the Company has legally taken ownership.
Nonperforming loans totaled $505,000 and $1,361,000 at December 31, 1999 and
1998, respectively. This amounted to 0.38% and 1.24% of total loans for the same
respective periods.
In 1999, nonperforming loans decreased by $856,000 primarily due to a $1.2
million loan being upgraded when assumed by a new borrower and placing another
loan on nonaccrual status.
Real estate owned totaled $27,000, $475,000 and $502,000 at December 31,
1999 at West Coast, Sunwest and the Company, respectively. At December 31, 1998,
real estate owned totaled $53,000, $475,000 and $528,000 at West Coast, Sunwest
and the Company, respectively. This represented 0.3% of the Company's assets at
December 31, 1999, and 1998, respectively.
Nonperforming assets (nonperforming loans and real estate owned combined)
totaled $27,000, $980,000 and $1,007,000 at December 31, 1999 at West Coast,
Sunwest and the Company, respectively. At December 31, 1998, nonperforming
assets totaled $53,000, $1,836,000 and $1,889,000 at West Coast, Sunwest and the
Company, respectively. This represented 0.5% and 1.2% of the Company's assets at
December 31, 1999 and 1998, respectively.
Restructured loans, all of which were performing in compliance with their
modified terms, totaled $2,041,000 and $2,070,000 at December 31, 1999 and 1998.
No restructured loans were on nonaccrual status at December 31, 1999 and 1998.
Other Operating Income
A summary of other operating income by category is presented in NOTE 12 of
the Notes to the Consolidated Financial Statements. Other operating income
increased to $1,325,000 from $787,000 in 1998. The income was due primarily to
increases in interest recovered from loans charged off in prior years, depositor
charges and service charges.
Other Operating Expenses
Other operating expenses increased from 1998 to 1999. A summary of the
operating expenses is presented in NOTE 13 of the Notes to the Consolidated
Financial Statements.
A summary of other operating expenses follows:
<TABLE>
<CAPTION>
(dollars in thousands) 1999 1998
- - - ----------------------------------------------------------
<S> <C> <C>
Other operating expenses $ 7,909 $ 7,783
Other operating expenses
/Net interest and other
operating income 67.3% 77.7%
Other operating expenses
/Average assets 4.6% 5.2%
- - - ----------------------------------------------------------
</TABLE>
Other operating expenses increased by $126,000 or 2% from 1998 to 1999. The
increase is primarily due to increases in customer service expense and
professional services. The number of full time equivalent employees declined
from 65 at the end of 1998 to 62.5 at the end of 1999. Professional services
increased primarily due to reengineering consulting fees, recruitment fees,
marketing fees, and year 2000 remediation consulting fees. Increases in customer
service expense are the result of the growth in the Company's core business.
The Company has been able to improve its expense ratios through improvements
in processes and technology. The Company is anticipating higher other operating
expenses in 2000 related to continued growth and the development of new products
and services.
Minority Interest Expense
The Company recorded the minority shareholder's 43.5% interest in Sunwest
earnings subsequent to the sale date of September 13, 1996. Minority interest
expense will continue to represent approximately 43.5% of Sunwest's earnings
based on current ownership of Sunwest.
(Loss) Gain on Liquidation of WCV, Inc.
WCV. Inc. was substantially liquidated in 1993. Remaining activity
consists of the environmental cleanup and disposition of the sole remaining real
estate owned property. Future costs of the cleanup are estimated at $90,000 to
$180,000 and are expected to be reimbursed by the USTF.
22
<PAGE> 23
WEST COAST BANCORP
Form 10-KSB for the year ended December 31, 1999
Income Taxes
A summary indicating the differences between the effective income tax rate
and the Federal statutory rate is presented in NOTE 9 of the Notes to the
Consolidated Financial Statements. Sunwest has fully recognized the benefits of
its net operating tax loss carryforwards for financial statement purposes and
began recording income tax expense using an effective rate of 41.25% in the
fourth quarter of 1999.
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 to West Coast's subsidiary,
Sunwest, are maturities of investment securities, collections on loans,
increased deposits and borrowings. The Company had loan commitments of
$29,471,000 and standby and commercial letters of credit totaling $503,000 at
December 31, 1999. The majority of outstanding loan commitments are not expected
to be drawn upon. All the outstanding loan commitments were at Sunwest.
Sunwest manages its liquidity as well as interest rate risk through an
asset and liability management committee. The asset and liability management
committee obtains estimates from the Bank's loan officers of how much of the
commitments will ultimately be funded and when. The committee reviews and
evaluates these estimates in conjunction with projections of loan and time
deposit run-off, other expected deposit fluctuations and investment maturities.
The committee uses the projections to assess liquidity and manage asset levels.
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 17% at December 31, 1999 and 21% at December 31, 1998. The
Company believes that it has sufficient liquid resources, as well as available
credit facilities, to enable it to meet its operating needs.
The Company's cash and cash equivalents decreased by $2.0 million during
1999. Cash from operating activities increased cash by $4.3 million primarily
from $1.7 million of net income. Investing activities used $37.1 million in cash
and cash equivalents which consisted primarily of net loan increases of $23.8
million and net increases in investments of $12.8 million. Net cash of $30.8
million was used in financing activities and consisted of a $24.9 million net
increase in deposits and a $6.0 million increase in FHLB borrowings.
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 1999, West Coast did not receive any dividends from its subsidiaries.
West Coast does not currently expect to receive dividends from its subsidiaries
during 2000.
West Coast's primary source of cash in 2000 is expected to be earnings on
cash and short term investments. At December 31, 1999, West Coast had cash and
short term investments of $288,000.
West Coast anticipates cash expenditures during 1999 to consist of debt
service payments and other operating expenses. In January 1998, West Coast
executed a note and security agreement with a company owned by one of its former
directors, John B. Joseph. The original amount of the note was $514,000
representing unpaid fees for services. The current balance of this note is
$414,000. An unrelated bank currently owns the note. The note bears interest at
9%, payable monthly, with principal due January 29, 2001. Five shares of Sunwest
Bank stock secure the note. On June 9, 1998, the Company executed a note in the
amount of $450,000 to Eric D. Hovde, Chairman and President of West Coast. The
note replaced an existing note payable to an unrelated third party that was
purchased from the third party by Mr. Hovde. The note bears interest at prime
plus 2% with principal payments of $12,000 due quarterly and a maturity date of
June 30, 2000. At this time management believes that the maturity date will be
extended to June 2001. West Coast's projected debt service in 2000 for all notes
payable is expected to total $84,000. Principal and interest outstanding under
these notes totaled $841,000 at December 31, 1999. West Coast anticipates that
other operating expenses will be approximately $87,000 during 2000. 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
The Company had a 12.14%, 13.39% and 9.76% Tier 1 risk-based capital, total
risk-based capital and leverage ratio at December 31, 1999, respectively. These
are above the regulatory minimums of 4.00%, 8.00% and 4.00%, respectively.
Sunwest is classified as a "Well Capitalized" depository institution.
The Company had no material commitments for capital expenditures as of
December 31, 1999.
The Company has not paid dividends and does not contemplate paying dividends
in 2000.
ASSET AND LIABILITY MANAGEMENT
Management of assets and liabilities in terms of rate, maturity and quality
has an important effect on liquidity and net interest margin, and rate
sensitivity is of particular importance. Rate sensitivity is determined by
calculating
23
<PAGE> 24
WEST COAST BANCORP
Form 10-KSB for the year ended December 31, 1999
the ratio of rate sensitive assets to rate sensitive liabilities. Rate
sensitivity ratios that are close to one-to-one tend to stabilize earnings and
provide a Company with flexibility in managing liquidity. Rate sensitivity
ratios in which rate sensitive assets exceed rate sensitive liabilities tend to
produce an expanded net yield on interest earning assets in rising interest rate
environments and a reduced net yield on interest earning assets in declining
interest rate environments. Conversely, when rate sensitive liabilities exceed
rate sensitive assets, the net yield on interest earning assets generally
declines in rising interest rate environments and increases in declining
interest rate environments. However, because interest rates for different asset
and liability products offered by depository institutions respond differently to
changes in the interest rate environment, the interest sensitivity table set
forth below is only a general indicator of interest rate sensitivity.
The Company had a net asset sensitivity of $65.7 million at December 31,
1999. Interest rates declined in the last quarter of 1998 with the Fed funds
rate decreasing 75 basis points due to actions taken by the Federal Reserve
Bank. In 1999, these actions were reversed and the Fed funds rate rose 75 basis
points by the end of the year. The Company's net yield on interest earning
assets decreased from 6.62% in 1998 to 6.47% in 1999.
The following table sets forth the interest earning assets and interest-bearing
liabilities of the Company on the basis of when they reprice or mature and sets
forth the rate sensitivity positions of the Company at December 31, 1999:
<TABLE>
<CAPTION>
Over
91 One Year
Immediate Through 181 Through Over
(dollars in thousands) Through 180 Through Five Five
90 Days Days 365 Days Years Years Total
- - - ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INTEREST EARNING ASSETS
Loans $ 47,406 $ 14,591 $ 10,348 $ 48,617 $ 12,046 $133,008
Investments and Federal funds 6,883 733 1,130 16,480 20,516 45,742
- - - ------------------------------------------------------------------------------------------------------------------------
Total interest earning assets $ 54,289 $ 15,324 $ 11,478 $ 65,097 $ 32,562 $178,750
- - - ------------------------------------------------------------------------------------------------------------------------
INTEREST-BEARING LIABILITIES
Time certificates of deposit of
$100,000 or more $ 18,835 $ 4,631 $ 7,720 $ 727 $-- $ 31,913
Time certificates of under $100,000 8,004 7,907 5,293 1,069 -- 22,273
Other interest-bearing deposits 19,768 -- -- -- 30,969 50,737
Other interest-bearing liabilities 2,038 2,042 4,078 -- -- 8,158
- - - ------------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities $ 48,645 $ 14,580 $ 17,091 $ 1,796 $ 30,969 $113,081
- - - ------------------------------------------------------------------------------------------------------------------------
Rate sensitive gap $ 5,644 $ 744 $ (5,613) $ 63,301 $ 1,593 $ 65,669
- - - ------------------------------------------------------------------------------------------------------------------------
Cumulative rate sensitive gap $ 5,644 $ 6,388 $ 775 $ 64,076 $ 65,669 $ 65,669
- - - ------------------------------------------------------------------------------------------------------------------------
Cumulative assets divided by
liabilities 111.60% 110.10% 100.97% 178.04% 158.07% 158.07%
- - - ------------------------------------------------------------------------------------------------------------------------
</TABLE>
24
<PAGE> 25
WEST COAST BANCORP
Form 10-KSB for the year ended December 31, 1999
ITEM 7. FINANCIAL STATEMENTS
See "ITEM 13. EXHIBITS, LIST AND REPORTS ON FORM 8-K" below for consolidated
financial statements filed as a part of this report.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS PROMOTERS AND CONTROL PERSONS
Except as presented below, the information concerning directors and
executive officers of the Company is incorporated by reference from the sections
entitled "DIRECTORS AND EXECUTIVE OFFICERS - Election of Directors and - Section
16(a) Beneficial Ownership Reporting Compliance" of the Company's definitive
Proxy Statement to be filed pursuant to Regulation 14A within 120 days after the
end of the last fiscal year.
ITEM 10. EXECUTIVE COMPENSATION
Information concerning Management remuneration and transactions is
incorporated by reference from the section entitled "DIRECTORS AND EXECUTIVE
OFFICERS - Compensation of Executive Officers and Directors" of the Company's
definitive Proxy Statement to be filed pursuant to Regulation 14A within 120
days after the end of the last fiscal year.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information concerning security ownership of certain beneficial owners and
Management is incorporated by reference from the section entitled "Security
Ownership of Certain Beneficial Owners and Management" of the Company's
definitive Proxy Statement to be filed pursuant to Regulation 14A within 120
days after the end of the last fiscal year.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information concerning certain relationships and related transactions with
Management is incorporated by reference from the section entitled "DIRECTORS AND
EXECUTIVE OFFICERS - Compensation of Executive Officers and Directors - Certain
Transactions" of the Company's definitive Proxy Statement to be filed pursuant
to Regulation 14A within 120 days after the end of the last fiscal year.
PART IV
ITEM 13. EXHIBITS, LIST AND REPORTS ON FORM 8-K
(a) Documents filed as part of this report.
1. Consolidated Financial Statements. Reference is made to the Index
to Consolidated Financial Statements at page F-1 for a list of
financial statements filed as part of this report.
2. Financial Statement Schedules. No financial statement schedules
are included in this report on the basis that they are either
inapplicable or the information required to be set forth therein
is contained in the financial statements filed herewith.
3. Exhibits. Reference is made to the Index of Exhibits at page F-20
for a list of the exhibits filed as part of this report.
Executive Compensation Plans and Arrangements. Reference is made
to the Index of Exhibits at page F-20 for a list of the exhibits
filed as part of this report.
(b) Reports on Form 8-K. The Company filed no reports on Form 8-K during the
fourth quarter of 1999.
(c) Exhibits required by Item 601 of Regulation S-K. See Item 13(a) 3.
(d) Additional financial statements. Inapplicable.
25
<PAGE> 26
WEST COAST BANCORP
Form 10-KSB for the year ended December 31, 1999
Signatures
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, on the 29th day of
March, 2000.
WEST COAST BANCORP
(Registrant)
By
/s/ Eric D. Hovde
-------------------------------------
Eric D. Hovde
Chairman of the Board, President and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant in the capacities and on the dates indicated.
<TABLE>
<S> <C> <C>
/s/ Eric D. Hovde Chairman of the Board, March 29, 2000
- - - ----------------- President and
Eric D. Hovde Chief Executive Officer
(Principal Executive Officer)
/s/ Frank E. Smith Chief Financial Officer March 29, 2000
- - - ------------------ (Principal Financial
Frank E. Smith and Accounting Officer)
/s/ Michael A. Cohen Director March 29, 2000
- - - --------------------
Michael A. Cohen
/s/ Robert W. Hodgson Director March 29, 2000
- - - ---------------------
Robert W. Hodgson
/s/ James G. LeSieur, III Director March 29, 2000
- - - -------------------------
James G. LeSieur, III
/s/ Richard L. Shepley Director March 29, 2000
- - - ----------------------
Richard L. Shepley
</TABLE>
ITEMS 7, 13(a)(1) AND 13(a)(2)
26
<PAGE> 27
WEST COAST BANCORP
Form 10-KSB for the year ended December 31, 1999
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
West Coast Bancorp and Subsidiaries:
Consolidated Balance Sheets -
December 31, 1999 and 1998...............................................F-2
Consolidated Statements of Operations for the Years Ended
December 31, 1999 and 1998...............................................F-3
Consolidated Statements of Comprehensive Income for the Years
Ended December 31, 1999 and 1998.........................................F-3
Consolidated Statements of Shareholders' Equity for the
Years Ended December 31, 1999 and 1998...................................F-3
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1999 and 1998...............................................F-4
Notes to Consolidated Financial Statements.................................F-5
Report of Independent Public Accountants..................................F-19
Responsibility for Financial Reporting....................................F-19
</TABLE>
All schedules are omitted because they are not applicable, not material or
because the information is included in the consolidated financial statements or
the notes thereto.
F-1
<PAGE> 28
WEST COAST BANCORP
Form 10-KSB for the year ended December 31, 1999
CONSOLIDATED BALANCE SHEETS West Coast Bancorp and Subsidiaries
(in thousands, except share data)
<TABLE>
<CAPTION>
At December 31,
ASSETS 1999 1998
- - - ------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash and due from banks $ 5,574 $ 9,334
Federal funds sold 6,250 4,500
Investment securities available-for-sale at fair value 39,492 29,128
Loans 133,008 109,547
Less allowance for loan losses (2,457) (2,444)
- - - ------------------------------------------------------------------------------------------------------
Net loans 130,551 107,103
- - - ------------------------------------------------------------------------------------------------------
Real estate owned, net 502 528
Premises and equipment, net 1,041 516
Deferred taxes 1,976 1,408
Other assets 1,437 1,267
- - - ------------------------------------------------------------------------------------------------------
$186,823 $153,784
- - - ------------------------------------------------------------------------------------------------------
LIABILITIES
- - - ------------------------------------------------------------------------------------------------------
Deposits:
Demand, non interest-bearing $ 53,723 $ 47,254
Savings, money market and interest-bearing demand 50,738 45,510
Time certificates under $100,000 22,273 20,288
Time certificates of $100,000 or more 31,912 20,687
- - - ------------------------------------------------------------------------------------------------------
Total deposits 158,646 133,739
- - - ------------------------------------------------------------------------------------------------------
Federal Home Loan Bank borrowings 8,000 2,000
Other borrowed funds 541 589
Capital lease obligation 158 265
Other liabilities 1,516 1,364
- - - ------------------------------------------------------------------------------------------------------
Total liabilities 168,861 137,957
Commitments and contingencies (Note 17)
Minority interest in subsidiary 8,045 7,094
- - - ------------------------------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY
- - - ------------------------------------------------------------------------------------------------------
Common stock, no par value; 30,000,000 shares authorized; 9,328,942 and
9,258,942 shares issued and outstanding in 1999 and 1998, respectively 30,351 30,274
Accumulated deficit (19,737) (21,458)
Accumulated other comprehensive income, net of tax (697) (83)
- - - ------------------------------------------------------------------------------------------------------
Total shareholders' equity 9,917 8,733
- - - ------------------------------------------------------------------------------------------------------
$186,823 $153,784
- - - ------------------------------------------------------------------------------------------------------
</TABLE>
(See accompanying notes to consolidated financial statements)
F-2
<PAGE> 29
WEST COAST BANCORP
Form 10-KSB for the year ended December 31, 1999
CONSOLIDATED STATEMENTS OF OPERATIONS West Coast Bancorp and Subsidiaries
(in thousands, except per share data)
<TABLE>
<CAPTION>
Years ended
December 31,
INTEREST INCOME 1999 1998
- - - -------------------------------------------------------------------------------------------------
<S> <C> <C>
Loans, including fees $ 11,586 $ 10,473
Federal funds sold 68 797
Investment securities 2,376 1,287
- - - -------------------------------------------------------------------------------------------------
Total interest income 14,030 12,557
- - - -------------------------------------------------------------------------------------------------
INTEREST EXPENSE
- - - -------------------------------------------------------------------------------------------------
Savings, money market and interest-bearing demand deposits 879 816
Time certificate deposits under $100,000 1,055 1,403
Time certificate deposits of $100,000 or more 1,255 909
- - - -------------------------------------------------------------------------------------------------
Total interest on deposits 3,189 3,128
Other 408 202
- - - -------------------------------------------------------------------------------------------------
Total interest expense 3,597 3,330
- - - -------------------------------------------------------------------------------------------------
Net interest income 10,433 9,227
Provision (benefit) for loan losses - (205)
- - - -------------------------------------------------------------------------------------------------
Net interest income after provision (benefit) for loan losses 10,433 9,432
Other operating income 1,325 787
Other operating expenses 7,909 7,783
Minority interest in net income of subsidiary 1,424 1,146
(Loss) gain on liquidation of WCV, Inc. (1) 1
- - - -------------------------------------------------------------------------------------------------
Income before income taxes 2,424 1,291
Income tax expense 703 2
- - - -------------------------------------------------------------------------------------------------
Net income $ 1,721 $ 1,289
- - - -------------------------------------------------------------------------------------------------
Basic earnings per share $ .19 $ .14
- - - -------------------------------------------------------------------------------------------------
Diluted earnings per share $ .18 $ .14
- - - -------------------------------------------------------------------------------------------------
</TABLE>
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
<TABLE>
<CAPTION>
Years ended
December 31,
1999 1998
- - - -------------------------------------------------------------------------------------------------
<S> <C> <C>
Net income $1,721 $1,289
Other comprehensive income, net of tax:
Unrealized gain (loss) on available-for-sale investments
arising during period (614) (122)
- - - -------------------------------------------------------------------------------------------------
Other comprehensive income (loss) (614) (122)
- - - -------------------------------------------------------------------------------------------------
Comprehensive income $1,107 $1,167
- - - -------------------------------------------------------------------------------------------------
</TABLE>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(in thousands)
<TABLE>
<CAPTION>
Accumulated
Common stock Other
---------------- Comprehensive Accumulated Shareholders'
Shares Amount Income Deficit Equity
- - - -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1997 9,169 $ 30,176 $ 39 $(22,747) $ 7,468
Net Income -- -- -- 1,289 1,289
Stock options exercised 90 98 -- -- 98
Change in securities valuation
allowance, net of tax -- -- (122) -- (122)
- - - -----------------------------------------------------------------------------------------------------------
Balance at December 31, 1998 9,259 30,274 (83) (21,458) 8,733
Net income 1,721 1,721
Stock options exercised 70 77 -- -- 77
Change in securities valuation
allowance, net of tax -- -- (614) -- (614)
- - - -----------------------------------------------------------------------------------------------------------
Balance at December 31, 1999 9,329 $ 30,351 $ (697) $(19,737) $ 9,917
- - - -----------------------------------------------------------------------------------------------------------
</TABLE>
(See accompanying notes to consolidated financial statements)
F-3
<PAGE> 30
WEST COAST BANCORP
Form 10-KSB for the year ended December 31, 1999
CONSOLIDATED STATEMENTS OF CASH FLOWS West Coast Bancorp and Subsidiaries
(in thousands)
<TABLE>
<CAPTION>
Years ended December 31,
CASH FLOWS FROM OPERATING ACTIVITIES 1999 1998
- - - ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net income $ 1,721 $ 1,289
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 338 325
Provision (benefit) for credit losses -- (205)
Minority interest in net income of subsidiary 1,177 1,146
Write-down of real estate owned 26 16
Gain on sales of real estate owned -- (10)
Gain on sale and liquidation of subsidiaries -- (1)
Increase (decrease) in deferred tax asset 178 (105)
Amortization and accretion from investment securities 847 (275)
Accrual for lease loss 88 150
Increase in other assets (170) (145)
Increase in other liabilities 64 365
- - - ---------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 4,269 2,550
- - - ---------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
- - - ---------------------------------------------------------------------------------------------------------
Proceeds from maturity of interest bearing balances -- 99
Proceeds from maturity of investment securities available-for-sale 467 3,982
Purchase of investment securities available-for-sale (13,264) (15,855)
Net increase in loans (23,809) (6,385)
Proceeds from sales of real estate owned 361 617
Proceeds from sales of premises and equipment 395 61
Purchases of premises and equipment (1,258) (203)
- - - ---------------------------------------------------------------------------------------------------------
Net cash used in investing activities (37,108) (17,684)
- - - ---------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
- - - ---------------------------------------------------------------------------------------------------------
Net increase in deposits 24,907 18,769
Cash payments on other borrowed funds (48) (377)
Repayment of capital lease obligation (107) (63)
Advances from Federal Home Loan Bank 8,000 2,000
Repayments of advances from Federal Home Loan Bank (2,000) --
Stock options exercised 77 98
- - - ---------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 30,829 20,427
- - - ---------------------------------------------------------------------------------------------------------
(Decrease) increase in cash and cash equivalents (2,010) 5,293
Cash and cash equivalents at beginning of year 13,834 8,541
- - - ---------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 11,824 $ 13,834
- - - ---------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
- - - ---------------------------------------------------------------------------------------------------------
Cash paid during the period for:
Interest $ 3,509 $ 3,327
Income taxes 367 107
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND
FINANCING ACTIVITIES:
- - - ---------------------------------------------------------------------------------------------------------
Transfer note payable affiliate to other borrowed funds $ 414 $ --
Transfer from accrued liabilities to note payable affiliate -- 514
Loan to facilitate sale of other real estate owned -- 496
- - - ---------------------------------------------------------------------------------------------------------
</TABLE>
(See accompanying notes to consolidated financial statements)
F-4
<PAGE> 31
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS West Coast Bancorp and Subsidiaries
December 31, 1999 and 1998
NOTE 1
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS
West Coast Bancorp ("West Coast"), through its majority owned subsidiary,
Sunwest Bank ("Sunwest"), provides banking services in Orange County,
California. West Coast and Sunwest are regulated by certain Federal and State
agencies and undergo periodic examinations by those regulatory authorities.
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of West Coast,
a bank holding company, and its subsidiaries (collectively, the "Company"). On
September 13, 1996, Western Acquisitions, L.L.C. and Western Acquisition
Partners, L.P., (collectively, "Western"), affiliates of Hovde Financial, Inc.,
acquired a 43.5% interest in Sunwest.
The only other remaining subsidiary with activity during the periods was
WCV, Inc. Its activity was limited to the restoration of one remaining property.
The consolidated financial statements have been prepared in conformity with
accounting principles generally accepted in the United States and prevailing
practices within the banking industry. In preparing the consolidated financial
statements, Management is required to make estimates and assumptions that affect
the reported amounts of assets and liabilities as of the date of the balance
sheet and revenues and expenses for the period. Actual results could differ
significantly from those estimates. All inter-company balances and transactions
have been eliminated in consolidation.
INTEREST BEARING DEPOSITS WITH FINANCIAL INSTITUTIONS
Interest bearing deposits with financial institutions generally represent
certificates of deposit of $100,000 or less held at other financial institutions
with FDIC insurance.
INVESTMENT SECURITIES
The Company's securities portfolio includes U.S. Treasury, U.S. federal
agency, mortgage backed securities, collateralized mortgage obligations and
corporate debt securities and municipal bonds.
Securities are classified as available-for-sale when the Company intends to
hold the securities for an indefinite period of time but not necessarily to
maturity. Any decision to sell a security classified as available-for- sale
would be based on various factors, including significant movements in interest
rates, changes in the maturity mix of the Company's assets and liabilities,
liquidity demands, regulatory capital considerations, and other similar factors.
Securities available-for-sale are carried at fair value with unrealized gains
and losses (net of related income taxes) reported as accumulated other
comprehensive income. The cost of securities sold is based on the specific
identification method.
The Company has no investments classified as trading or held-to-maturity.
INTEREST RATE SWAPS
Interest rate swaps are used in the Company's management of interest rate
sensitivity. The periodic net settlement for interest rate swaps is recorded as
an adjustment to the net interest income or interest expense of the related
asset or liability.
INTEREST ON LOANS
Loans on which the accrual of interest has been discontinued are designated
as nonaccrual loans. Accrual of interest on loans is discontinued when
reasonable doubt exists as to the full, timely collection of interest or
principal and, generally, when a loan becomes contractually past due by ninety
days or more with respect to principal or interest. The accrual of interest may
be continued on a well-secured loan contractually past due 90 days or more with
respect to principal or interest if the loan is in the process of collection or
collection of the principal and interest is deemed probable.
When a loan is placed on nonaccrual status, all interest previously accrued
but not collected is reversed against current period income. Interest on such
loans is then recognized only to the extent that cash is received and where the
future collection of principal is probable. Accruals are resumed on loans only
when, in the judgment of Management, the loan is estimated to be fully
collectible. Restructured loans are returned to accrual status when the
remaining loan balance, net of any charge-offs related to the restructure, is
estimated to be fully collectible by Management and performing in accordance
with the applicable loan terms.
F-5
<PAGE> 32
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS West Coast Bancorp and Subsidiaries
December 31, 1999 and 1998
LOAN ORIGINATION FEES AND COSTS
Loan origination fees and direct costs associated with lending are netted,
deferred and amortized to interest income as an adjustment to yield over the
respective lives of the loans using the interest method. The amortization of
deferred fees and costs is discontinued on loans that are placed on nonaccrual.
When a loan is paid off, any unamortized net loan origination fees are
recognized in interest income.
SALES OF LOANS
The Company has realized gains from the sale of the guaranteed and
unguaranteed portions of Small Business Administration loans. When only a
portion of a loan is sold the gain or loss is recognized upon completion of the
sale (net of related commissions paid that are directly attributable to the
sale) and is based on the difference between the net sales proceeds and the
relative fair value of the portion of the loan sold versus the portion of the
loan retained.
ALLOWANCE FOR CREDIT LOSSES
Provisions (benefits) for credit losses are charged (credited) to operations
based on Management's evaluation of the estimated losses in its loan portfolio.
The major factors considered in evaluating losses are historical charge-off
experience, delinquency rates, local and national economic conditions, the
borrower's ability to repay the loan and timing of repayments, and the value of
any related collateral. Management's estimate of fair value of the collateral
considers the current and anticipated future real estate market conditions,
thereby causing these estimates to be particularly susceptible to changes that
could result in a material adjustment to results of operations in the future.
Recovery of the carrying value of such loans and related real estate is
dependent, to a great extent, on economic, operating and other conditions that
may be beyond the Company's control. In addition, the regulatory agencies
periodically review the allowance for credit losses and such agencies may
require the Company to recognize additions to the allowance based on information
and factors available to them at the time of their examinations. Accordingly, no
assurance can be given that the Company will not recognize additional provisions
for credit losses with respect to its loan portfolio.
For the Company, loans collectively reviewed for impairment include all
single-family loans excluding loans which are individually reviewed based on
specific criteria, such as delinquency, debt coverage, adequacy of collateral
and condition of collateral property. The Company's impaired loans include
nonaccrual loans (excluding those collectively reviewed for impairment), certain
restructured loans and certain performing loans less than 90 days delinquent
("other impaired loans") that the Company believes will likely not be collected
in accordance with contractual terms of the loans.
The Company considers a loan to be impaired when, based upon current
information and events, it believes it is probable the Company will be unable to
collect all amounts due according to the contractual terms of the loan
agreement. The Company continues to accrue interest on restructured loans since
full payment of principal and interest is expected and such loans are performing
or less than 90 days delinquent and therefore do not meet the criteria for
nonaccrual status.
The Company bases the measurement of loan impairment on the fair value of
the loans' collateral properties. Impairment losses are included in the
allowance for credit losses through a charge to provision for credit losses.
Adjustments to impairment losses due to changes in the fair value of impaired
loans' collateral properties are included in the provision for credit losses.
REAL ESTATE OWNED
Real estate owned consists of real estate acquired in settlement of loans.
Real estate owned is carried at the lower of cost or fair value less estimated
selling costs. The recognition of gains and losses on sales of real estate is
dependent upon various factors relating to the nature of the property sold and
the terms of the sale.
Once real estate is acquired and periodically thereafter, Management obtains
a valuation and an allowance for estimated losses is provided if the carrying
value of real estate exceeds estimated fair value, less selling costs. Legal
fees and direct costs, including foreclosure, appraisal and other related costs,
are expensed as incurred. While Management uses currently available information
to provide for losses on real estate, future additions to the valuation
allowance may be necessary based on future economic conditions. In addition, the
regulatory agencies periodically review the valuation allowance for real estate
owned losses and such agencies may require the Company to recognize additions to
the allowance based on information and factors available to them at the time of
their examinations. Accordingly, no assurance can be given that the Company will
not recognize additional losses with respect to its real estate owned. The net
cost of operation of other real estate owned includes write-downs of real estate
owned, gains and losses on disposition and real estate owned operating expenses,
net of related income.
PREMISES AND EQUIPMENT
Premises and equipment are stated at cost, less accumulated depreciation and
amortization that is charged to expense on a straight-line basis over the
estimated useful lives of 3 to 10 years. Premises under leasehold improvements
are amortized on a straight-line basis over the term of the lease or the
estimated useful lives of the improvements whichever is shorter. Expenditures
for major renewals and betterments of premises and equipment are capitalized and
those for maintenance and repairs are charged to expense as incurred. A
valuation
F-6
<PAGE> 33
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS West Coast Bancorp and Subsidiaries
December 31, 1999 and 1998
allowance is established for any impaired long-lived assets.
INCOME TAXES
The Company accounts for income taxes using the asset and liability method.
Under the asset and liability method, deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and liabilities and
their respective tax bases. A valuation allowance is established if it is "more
likely than not" that all or a portion of the deferred tax asset will not be
realized.
CASH AND CASH EQUIVALENTS
For purposes of reporting cash flows, cash and cash equivalents include cash
and due from banks, investment securities with original maturities of less than
90 days and Federal funds sold. Generally, Federal funds are purchased and sold
for one-day periods.
Non-interest earning cash reserves of $323,000 and $2,092,000 were required
by Sunwest to satisfy Federal regulatory requirements at December 31, 1999 and
1998, respectively.
EARNINGS PER SHARE
Earnings per share calculations are computed as follows:
<TABLE>
<CAPTION>
Per-Share
Income Shares Amount
--------------------------------------
<S> <C> <C> <C>
For the year ended 1998:
Net Income $1,289,000
Basic earnings per share
Income available to common
shareholders $1,289,000 9,221,442 $0.14
- - - ----------------------------------------------------------------------
Options issued to
executives and directors 53,832
Diluted earnings per share $1,289,000 9,275,274 $0.14
- - - ----------------------------------------------------------------------
For the year ended 1999:
Net Income $1,721,000
Basic earnings per share
Income available to common
shareholders $1,721,000 9,299,775 $0.19
- - - ----------------------------------------------------------------------
Options issued to executives
and directors 12,505
Diluted earnings per share $1,721,000 9,312,280 $0.18
- - - ----------------------------------------------------------------------
</TABLE>
Basic earnings per common share were computed by dividing net income by the
weighted average number of shares of common stock outstanding during the year.
Diluted earnings per common share were determined on the assumptions that the
stock options were exercised in the periods when their exercise prices were less
than market price.
RECLASSIFICATIONS
Certain amounts in the 1998 consolidated financial statements have been
reclassified to conform to the 1999 presentation.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 requires companies to record
derivatives on the balance sheet as assets or liabilities, measured at fair
value. Gains or losses resulting from changes in the values of those derivatives
would be accounted for depending on the use of the derivative and whether it
qualifies for hedge accounting. The key criterion for hedge accounting is that
the hedging relationship must be highly effective in achieving offsetting
changes in fair value or cash flows. In June 1999, the FASB issued SFAS
No. 137 "Accounting for Derivative Instruments
F-7
<PAGE> 34
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS West Coast Bancorp and Subsidiaries
December 31, 1999 and 1998
and Hedging Activities-Deferral of the Effective Date of FASB Statement No. 133"
which deferred the effective date of SFAS No. 133 until fiscal years beginning
after June 15, 2000. Management believes that the adoption of SFAS No. 133 will
not have a material impact on the Company's results of operations or financial
position when adopted.
In October 1998, the FASB issued SFAS No. 134, "Accounting for
Mortgage-Backed Securities Retained after the Securitization of Mortgage Loans
Held for Sale by a Mortgage Banking Enterprise." SFAS No. 134 amends SFAS No.
65, "Accounting for Certain Mortgage Banking Activities," which establishes
accounting and reporting standards for certain activities of mortgage banking
enterprises and other enterprises that conduct operations that are substantially
similar. SFAS No. 134 requires that after the securitization of mortgage loans
held for sale, the resulting mortgage-backed securities and other retained
interests should be classified in accordance with SFAS No. 115, "Accounting for
Certain Investments in Debt and Equity Securities," based on the company's
ability and intent to sell or hold those investments. SFAS No. 134 is effective
for the first fiscal quarter beginning after December 15, 1998. The adoption of
SFAS No. 134 did not have a material impact on the Company's results of
operations or financial position when adopted.
NOTE 2
INVESTMENT SECURITIES
At December 31, 1999 and 1998 all investment securities were classified as
available-for-sale. A summary of the Bank's investment portfolio is as follows
at December 31, 1999 (in thousands):
<TABLE>
<CAPTION>
Gross Unrealized Estimated
Amortized -------------------- Fair
Cost Gains Losses Value
- - - --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury and other
government agency
securities $ 997 $ -- $ (6) $ 991
Taxable municipal
bonds 5,943 -- (114) 5,829
Collateralized mortgage
obligations 19,104 -- (544) 18,560
Mortgage-backed
securities 4,908 -- (32) 4,876
Corporate bonds 5,097 -- (197) 4,900
Trust preferred
Securities 5,052 -- (1,189) 3,863
Other securities 473 -- -- 473
- - - --------------------------------------------------------------------------------
Total $41,574 $ -- $(2,082) $39,492
- - - --------------------------------------------------------------------------------
</TABLE>
A summary of available-for-sale investment securities is as follows at
December 31, 1998 (in thousands):
<TABLE>
<CAPTION>
Gross Unrealized Estimated
Amortized -------------------- Fair
Cost Gains Losses Value
- - - --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury and other
government agency
securities $ 995 $ 15 $ -- $ 1,010
Collateralized mortgage
obligations 12,493 -- (227) 12,266
Mortgage-backed
securities 5,927 115 -- 6,042
Corporate bonds 4,595 -- (62) 4,533
Trust preferred
Securities 4,960 -- (91) 4,869
Other Securities 408 -- -- 408
- - - --------------------------------------------------------------------------------
Total $29,378 $ 130 $ (380) $29,128
- - - --------------------------------------------------------------------------------
</TABLE>
At December 31, 1999, investment securities available-for-sale with a book
value of $21,064,000 were pledged as collateral to secure public funds and for
other purposes as required or permitted by law.
Proceeds from maturities of debt securities during 1999 and 1998 were
$467,000 and $3,982,000, respectively. Gains and losses on investment securities
F-8
<PAGE> 35
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS West Coast Bancorp and Subsidiaries
December 31, 1999 and 1998
are determined on the specific identification method and are included in other
income.
The amortized cost and estimated fair value of securities at December 31,
1999, by contractual maturity, are shown below. Mortgage-backed securities and
collateralized mortgage obligations are classified in accordance with their
estimated lives. Expected maturities will differ from contractual maturities
because borrowers may have the right to prepay obligations. Trust preferred
securities are included in the one year to five year category due to call
provisions at the option of the issuer. The stated maturities are in excess of
ten years.
<TABLE>
<CAPTION>
Amortized Estimated
(in thousands) Cost Fair Value
- - - --------------------------------------------------------------------------------
<S> <C> <C>
Due in one year $ 2,275 $ 2,226
Due after one year through five years 19,615 18,195
Due after five years through ten years 13,848 13,434
Due after ten years 5,837 5,637
- - - --------------------------------------------------------------------------------
$41,575 $39,492
- - - --------------------------------------------------------------------------------
</TABLE>
NOTE 3
LOANS
A summary of loans is as follows at December 31:
<TABLE>
<CAPTION>
(in thousands) 1999 1998
- - - --------------------------------------------------------------------------------
<S> <C> <C>
Commercial loans not secured by real estate $ 42,162 $ 34,318
Real estate mortgage loans 87,548 71,184
Real estate construction 1,957 376
Personal loans not secured by real estate 1,698 3,942
Unearned income, discounts and fees (357) (273)
- - - --------------------------------------------------------------------------------
$ 133,008 $ 109,547
- - - --------------------------------------------------------------------------------
</TABLE>
Loans on which the accrual of interest had been discontinued or reduced at
December 31, 1999 and 1998 amounted to $505,000 and $1,360,000, respectively. If
these loans had been current throughout their terms, interest income would have
increased approximately $117,000 and $112,000 in 1999 and 1998, respectively.
The Company serviced loans for others totaling $1,112,000 and $1,512,000 at
December 31, 1999 and 1998, respectively. These loans are not included in the
accompanying consolidated balance sheets.
Loans totaling $18,843,529 and $2,070,000 at December 31, 1999 and 1998 were
pledged as collateral with the Federal Reserve Bank to secure purchases of
Federal funds. There were no purchases of Federal funds from the Federal Reserve
Bank during 1999 and 1998.
Loans totaling $9,310,300 at December 31, 1999 were pledged as collateral
with the Federal Home Loan Bank of San Francisco to secure term and overnight
advances. Advances outstanding against these loans totaled $4,000,000 at
December 31, 1999.
NOTE 4
ALLOWANCE FOR CREDIT LOSSES
A summary of activity in the allowance for credit losses follows:
<TABLE>
<CAPTION>
(in thousands) 1999 1998
- - - --------------------------------------------------------------------------------
<S> <C> <C>
Balance at beginning of year $ 2,444 $ 2,364
Credits charged off (252) (37)
Recoveries on credits previously charged off 265 322
- - - --------------------------------------------------------------------------------
Net recoveries 13 285
Provision (benefit) for credit losses -- (205)
- - - --------------------------------------------------------------------------------
Balance at end of year $ 2,457 $ 2,444
- - - --------------------------------------------------------------------------------
</TABLE>
A summary of investment in impaired loans by type is as follows at
December 31:
<TABLE>
<CAPTION>
(in thousands) 1999 1998
- - - --------------------------------------------------------------------------------
<S> <C> <C>
Nonaccrual loans:
Nonresidential real estate mortgage $ 505 $1,360
Restructured loans 2,041 2,070
- - - --------------------------------------------------------------------------------
$2,546 $3,430
- - - --------------------------------------------------------------------------------
</TABLE>
The Company had no "other impaired loans" at December 31, 1999 and 1998. The
related impairment valuation allowances were $848,000 and $960,000 at December
31, 1999 and 1998, respectively. These amounts were included as part of the
allowance for credit losses in the accompanying consolidated balance sheets. The
provision for losses and any related recoveries are recorded as part of the
provision for credit losses on loans in the accompanying statements of
operations. During the years ended December 31, 1999 and 1998, the Company's
average investment in impaired loans were $2,921,000 and $3,190,000, and
interest income recorded during this period was $219,000 and $198,000. None of
these amounts were recorded using the cash basis method of accounting described
above.
F-9
<PAGE> 36
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS West Coast Bancorp and Subsidiaries
December 31, 1999 and 1998
NOTE 5
VALUATION ALLOWANCE FOR REAL ESTATE OWNED
A summary of activity in the valuation allowance for real estate owned is
as follows:
<TABLE>
<CAPTION>
(in thousands) 1999 1998
- - - --------------------------------------------------------------------------------
<S> <C> <C>
Balance at beginning of year $ 421 $ 540
Losses charged off 40 (119)
Provision for estimated losses -- --
- - - --------------------------------------------------------------------------------
Balance at end of year $ 461 $ 421
- - - --------------------------------------------------------------------------------
</TABLE>
NOTE 6
PREMISES AND EQUIPMENT
A summary of premises and equipment follows:
<TABLE>
<CAPTION>
(in thousands) 1999 1998
- - - --------------------------------------------------------------------------------
<S> <C> <C>
Furniture, fixtures and equipment $ 3,219 $ 2,803
Leasehold improvements 1,576 1,564
Property under capital leases 445 445
Construction in progress 5 19
- - - --------------------------------------------------------------------------------
5,245 4,831
Accumulated depreciation and amortization (4,204) (4,315)
- - - --------------------------------------------------------------------------------
$ 1,041 $ 516
- - - --------------------------------------------------------------------------------
</TABLE>
NOTE 7
FEDERAL HOME LOAN BANK BORROWINGS
The Company had available lines of credit totaling $8,638,000 and $4,000,000
at December 31, 1999 and 1998 with the Federal Home Loan Bank (FHLB). The FHLB
advances are collateralized by commercial mortgage loans, qualifying investment
securities, FHLB stock and qualifying investment securities.
Advances from FHLB outstanding at December 31, 1999 mature as follows:
<TABLE>
<CAPTION>
Amount Maturity Date Interest Rate
- - - -----------------------------------------------------
<S> <C> <C>
$2,000,000 02/23/00 5.70%
2,000,000 06/26/00 6.15%
2,000,000 11/29/00 6.15%
2,000,000 12/11/00 6.13%
- - - -----------------------------------------------------
$8,000,000
- - - -----------------------------------------------------
</TABLE>
Advances from FHLB outstanding at December 31, 1998 mature as follows:
<TABLE>
<CAPTION>
Amount Maturity Date Interest Rate
- - - -----------------------------------------------------
<S> <C> <C>
$2,000,000 12/09/99 4.91%
- - - -----------------------------------------------------
</TABLE>
NOTE 8
OTHER BORROWED FUNDS
Other borrowed funds at December 31, 1999 consisted of long-term obligations
to affiliated parties of $127,000 and a capital lease obligation of $158,000. A
director purchased a note from an unaffiliated party during 1998. The terms of
the note remained unchanged with an interest rate of prime plus 2% and a
maturity date of June 30, 1999. The maturity date of this note was extended to
June 30, 2000. Prime was 8.50% at December 31, 1999.
In April 1998, an accrued liability payable to an affiliate of a former
director was converted to a long-term note. The note was acquired by an
unrelated bank in 1999. The terms of this note include a fixed interest rate of
9.00% and maturity date of January 29, 2001. Five shares of Sunwest common stock
secure this note.
The capital lease obligation outstanding at December 31, 1999 has an imputed
interest rate of 45% and matures on November 30, 2000. The current liability
portion of the amortizing capital lease is $107,000.
The long-term note obligations outstanding at December 31, 1999 are as
follows:
<TABLE>
<CAPTION>
Amount Maturity Date Interest Rates
- - - ----------------------------------------------------
<S> <C> <C>
$414,000 January 29, 2001 9.00%
127,000 June 30, 2000 10.50%
- - - ----------------------------------------------------
$541,000
- - - ----------------------------------------------------
</TABLE>
NOTE 9
INCOME TAXES
For 1999 the Company had a $260,000 current income tax expense for Federal
and $266,000 for State. For 1998 the Company had an $83,000 current income tax
expense for Federal and $24,000 for State. During 1999 deferred Federal tax
benefits of $4,000 and deferred tax expense $181,000 were recognized,
respectively. During 1998 deferred Federal and State tax benefits of $54,000 and
$51,000 were recognized, respectively.
F-10
<PAGE> 37
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS West Coast Bancorp and Subsidiaries
December 31, 1999 and 1998
The actual income tax expense (benefit) differed from the expected Federal
statutory rate as follows:
<TABLE>
<CAPTION>
(in thousands) 1999 1998
- - - --------------------------------------------------------------------------------
<S> <C> <C>
Expected tax expense at 34% $ 848 $ 439
Change in the valuation allowance for
deferred tax assets (1,250) (1,029)
Net state franchise tax 286 236
Minority interest expense in
Sunwest earnings not deductible 460 390
Other 359 (34)
- - - --------------------------------------------------------------------------------
$ 703 $ 2
- - - --------------------------------------------------------------------------------
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities at December 31 are as
follows:
<TABLE>
<CAPTION>
(in thousands) 1999 1998
- - - --------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards $ 2,641 $ 3,671
Net capital loss carryforwards 1,236 1,236
Loans, due to allowance for credit losses, deferred
loan origination fees and costs, and leases (218) 8
Alternative minimum tax credit carryforwards 488 574
Real estate owned 136 138
Loss and expense accruals and other 213 217
General business tax credit carryforwards 127 127
Premises and equipment (34) 149
- - - --------------------------------------------------------------------------------
Total gross deferred tax assets 4,589 6,120
Less valuation allowance (3,342) (4,592)
- - - --------------------------------------------------------------------------------
Net deferred tax assets 1,247 1,528
Deferred tax liabilities:
Deferred State income taxes 119 223
Unrealized loss on available-for-sale securities (848) (103)
- - - --------------------------------------------------------------------------------
Total gross deferred tax liabilities (729) 120
- - - --------------------------------------------------------------------------------
Net deferred tax asset $ 1,976 $ 1,408
- - - --------------------------------------------------------------------------------
</TABLE>
In 1999 and 1998 the valuation allowance decreased by $1,250,000 and
$1,029,000, respectively. The decreases were due to recognizing that part of the
deferred tax asset that is more likely than not to be utilized in the future and
due to earnings during the years.
Current income taxes payable at December 31, 1999 were none for Federal and
$159,000 for State. No current income tax refund receivable or payable existed
at December 31, 1998. The Company had net operating loss carryforwards of $7.2
million for Federal income tax purposes at December 31, 1999 which expire from
2005 to 2012 and $1.7 million for State franchise tax purposes which expire from
2000 to 2004. The Company had net capital loss carryforwards of $2.4 million for
Federal and State purposes. The Federal and State capital loss expires in 2000.
The Company had general business tax credit carryforwards of $127,000 available
for tax purposes at December 31, 1999 which expire in 2000. The Company had
alternative minimum tax credit carryforwards of $330,000 available for Federal
income tax purposes and $158,000 available for State franchise tax purposes at
December 31, 1999.
Due to the sale of Sunwest's minority shares on September 13, 1996, Sunwest
is required to file a separate standalone tax return versus previously being
consolidated with the Company's return. Since the remaining entities included in
the Company's tax return have no significant current operating income,
utilization of the Company's deferred tax assets will likely be limited to
amounts available for Sunwest on its standalone tax return.
At December 31, 1999 Sunwest had the following deferred tax items: gross
deferred tax assets of $2,252,000; a valuation allowance of $0; a gross deferred
tax liability of $276,000 and a net deferred tax asset of $1,976,000.
At December 31, 1999 Sunwest had net operating loss carryforwards of $2.2
million for Federal income tax purposes which expire from 2005 to 2011. Sunwest
had no net operating loss carryforwards for State franchise tax purposes.
Sunwest had no capital loss carryforwards. Sunwest had general business tax
credit carryforwards of $127,000 available for tax purposes at December 31, 1999
which expire in 2000. Sunwest had alternative minimum tax credit carryforwards
of $227,000 available for Federal income tax purposes and $76,000 available for
State franchise tax purposes at December 31, 1999.
NOTE 10
STOCK OPTION PLAN
During 1988, the Company adopted the West Coast Bancorp 1988 Stock Option
Plan (the "1988 Plan"). The 1988 Plan provided for the grant of both options
that were incentive options, as well as options that do not qualify as incentive
options ("non-qualified options"), to purchase 1,250,000 of authorized but
unissued shares of the Company's common stock. All employees, employee directors
and non-employee directors of the Company were eligible to receive options.
Non-employee directors of the Company were only eligible to receive
non-qualified options. The 1988 Plan is administered by the Board of Directors
or a committee thereof, and such board or committee determined the persons to
whom options were granted, the vesting schedule and the
F-11
<PAGE> 38
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS West Coast Bancorp and Subsidiaries
December 31, 1999 and 1998
purchase price of the common stock subject to each option, provided that such
purchase price not be less than 100% of the fair value of the common stock at
the time the option was granted. No options may extend more than ten years from
the date of grant. Incentive options to persons owning more than 10% of the
total combined voting power of all classes of stock of West Coast or its
affiliates expire not later than five years from the date of grant. The 1988
Plan expired in September 1998; however, unexpired options granted under the
Plan remain outstanding.
A summary of stock option transactions for the 1988 Plan follows:
<TABLE>
<CAPTION>
- - - --------------------------------------------------------------------------------
Number Price per
of Shares Share
- - - --------------------------------------------------------------------------------
<S> <C> <C>
Options outstanding at December 31, 1997 357,500 $ 1.06-2.75
Canceled 30,000 2.75
Exercised 90,000 1.06-1.13
- - - --------------------------------------------------------------------------------
Options outstanding at December 31, 1998 237,500 1.06-2.75
Canceled 115,000 1.06-2.75
Exercised 70,000 1.06-1.13
- - - --------------------------------------------------------------------------------
Options outstanding at December 31, 1999 52,500 $ 1.06-1.13
Options exercisable at December 31, 1999 52,500 $ 1.06-1.13
- - - --------------------------------------------------------------------------------
</TABLE>
NOTE 11
RELATED PARTY TRANSACTIONS
At December 31, 1999, there were no outstanding loans to directors. During
the year ended December 31, 1999, new loans totaling $16,000 were granted to
directors and repayments totaled $101,000. At December 31, 1998, loans to
directors totaled $85,000. During the year ended December 31, 1998, new loans
totaling $81,000 were granted to directors and repayments totaled $30,000.
These loans were made in the ordinary course of business. The loans were
granted on substantially the same terms, including interest rates and collateral
on loans, as those prevailing at the same time for comparable transactions for
others.
NOTE 12
OTHER OPERATING INCOME
A summary of other operating income is as follows:
<TABLE>
<CAPTION>
(in thousands) 1999 1998
- - - --------------------------------------------------------------------------------
<S> <C> <C>
Depositor charges $812 $600
Interest recovered on loans charged off in prior years 297 43
Service charges, commissions & fees 134 105
Other income 82 39
- - - --------------------------------------------------------------------------------
$1,325 $ 787
- - - --------------------------------------------------------------------------------
</TABLE>
NOTE 13
OTHER OPERATING EXPENSES
A summary of other operating expenses is as follows:
<TABLE>
<CAPTION>
(in thousands) 1999 1998
- - - --------------------------------------------------------------------------------
<S> <C> <C>
Salaries and employee benefits $3,688 $3,810
Occupancy 900 871
Customer service expense 658 543
Professional services 628 428
Data processing 574 541
Depreciation and amortization 341 325
Advertising and promotion 260 318
Stationary and supplies 134 109
Printing and postage 110 106
Telephone and Telefax 104 91
Net cost of operation of real estate owned 48 54
Miscellaneous 464 587
- - - --------------------------------------------------------------------------------
$7,909 $7,783
- - - --------------------------------------------------------------------------------
</TABLE>
NOTE 14
GAIN (LOSS) ON LIQUIDATION OF WCV, INC.
During November 1992, the Board of Directors of WCV, Inc., resolved to
liquidate WCV, Inc. The liquidation of WCV, Inc. was substantially completed in
1993. Included in other liabilities is the remaining net liability related to
WCV, Inc. of $60,000 both at December 31, 1999 and 1998. Beginning in 1996
throughout 1999, WCV, Inc. filed claims with the California Underground Storage
Tank Cleanup Fund ("USTF") and was reimbursed for "eligible" cleanup costs
associated with the contaminated property. The company has no expected loss
accrual as all projected future costs are anticipated to be reimbursed from the
USTF. Future cleanup costs are expected to total between $90,000 to $180,000.
F-12
<PAGE> 39
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS West Coast Bancorp and Subsidiaries
December 31, 1999 and 1998
NOTE 15
DISCLOSURES ABOUT THE FAIR VALUE OF FINANCIAL INSTRUMENTS
Fair value estimates of financial instruments for both assets and
liabilities are made at a discrete point in time based on relevant market
information and information about the financial instruments. Because no active
market exists for a significant portion of the Company's financial instruments,
fair value estimates are based on judgments regarding current economic
conditions, risk characteristics of various financial instruments, prepayment
assumptions, future expected loss experience and other such factors. These
estimates are subjective in nature and involve uncertainties and matters of
significant judgment and therefore cannot be determined with precision. Changes
in assumptions could significantly affect the estimates.
The Company intends to hold the majority of its assets and liabilities to
their stated maturities. Thus, Management does not believe that the bulk sale
concepts applied to certain problem loans for purposes of measuring the impact
of credit risk on fair values of said assets is reasonable to the operations of
the Company and does not fairly present the values realizable over the long term
on assets that will be retained by the Company. Therefore, the Company does not
intend to realize any significant differences between carrying balance and fair
value disclosures through sale or other disposition. No attempt should be made
to adjust stockholders' equity to reflect the following fair value disclosures
as management believes them to be inconsistent with the philosophies and
operations of the Company.
In addition, the fair value estimates are based on existing on-and
off-balance sheet financial instruments without attempting to estimate the value
of existing and anticipated future customer relationships and the value of
assets and liabilities that are not considered financial instruments.
Significant assets and liabilities that are not considered financial assets or
liabilities include the branch network, deferred tax assets and premises and
equipment.
Fair value estimates, methods, and assumptions are set forth below:
CASH, INTEREST-BEARING DEPOSITS WITH FINANCIAL INSTITUTIONS AND FEDERAL FUNDS
The carrying values approximate fair value because of the short maturity of
these instruments.
INVESTMENT SECURITIES
For investment securities, fair value is based on quoted market prices.
LOANS
For loans, fair value is estimated using quoted market prices for similar
loans. For loans for which no quoted market price is readily available, fair
value is estimated by discounting the future cash flows using the current rates
at which similar loans would be made to borrowers with similar credit ratings
and for the same maturities.
DEPOSIT LIABILITIES
The fair value of demand, savings and money market deposits is the amount
payable on demand at the reporting date. The fair value of time certificates of
deposit is estimated using the rates currently offered for deposits of similar
remaining maturities.
OTHER INTEREST-BEARING LIABILITIES
Other interest bearing liabilities include notes payable to affiliates,
other borrowed funds and Federal Home Loan Bank borrowings. The fair value of
other interest bearing liabilities is estimated using market rates for
instruments with similar characteristics.
INTEREST RATE SWAPS
The fair value of interest rate swaps is the estimated amount that the
Company would receive or pay to terminate the agreements at the reporting date,
taking into account current interest rates and the current creditworthiness of
the swap counter parties.
COMMITMENTS TO EXTEND CREDIT
The fair value of commitments to extend credit cannot be readily determined.
The estimated fair values of the Company's financial instruments are as
follows:
<TABLE>
<CAPTION>
December 31, 1999
- - - --------------------------------------------------------------------------------
Carrying Estimated
(in thousands) Amount Fair Value
- - - --------------------------------------------------------------------------------
<S> <C> <C>
Financial assets:
Cash, interest bearing deposits and
Federal funds $ 11,824 $ 11,824
Investment securities 39,492 39,492
Net loans 130,551 128,847
Interest rate swaps -- (1)
Financial liabilities:
Deposits 158,646 158,489
Other interest-bearing liabilities 8,699 8,699
- - - --------------------------------------------------------------------------------
</TABLE>
F-13
<PAGE> 40
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS West Coast Bancorp and Subsidiaries
December 31, 1999 and 1998
<TABLE>
<CAPTION>
December 31, 1998
- - - --------------------------------------------------------------------------------
Carrying Estimated
(in thousands) Amount Fair Value
- - - --------------------------------------------------------------------------------
<S> <C> <C>
Financial assets:
Cash, interest-bearing deposits and
Federal funds $ 13,834 $ 13,834
Investment securities 29,128 29,128
Net loans 107,103 107,982
Interest rate swaps -- (16)
Financial liabilities:
Deposits 133,739 133,016
Other interest bearing liabilities 2,854 2,854
- - - --------------------------------------------------------------------------------
</TABLE>
NOTE 16
401(k) PROFIT SHARING PLAN
The Company has a 401(k) profit sharing plan (the "Plan") that covers
all employees eighteen years of age or older who have completed 500 hours of
service. Each employee eligible to participate in the Plan may contribute up to
15% of his or her compensation, subject to certain statutory limitations.
Eligible employees have the option on a quarterly basis to change the status of
their enrollment and/or the amount of their deferral. Once an employee has
completed 1,000 hours of service, the Company will match 50% of the
participant's contribution until the participant's contribution equals 6% of his
or her compensation. The Company may also make an additional profit sharing
contribution on behalf of the eligible employees. The Company's contributions of
approximately $60,000 and $65,000 were included in salaries and employee
benefits in 1999 and 1998, respectively.
NOTE 17
COMMITMENTS AND CONTINGENCIES
LEASES
The Company leases certain facilities for corporate offices and branch
operations and equipment under non-cancelable long-term operating leases.
Facility lease expense for the years ended December 31, 1999 and 1998 was
approximately $665,000 and $615,000, respectively. Rents paid were offset by
rental income of $194,000 and 233,000 in 1999 and 1998, respectively.
Future minimum lease commitments under all non-cancelable leases at December
31, 1999 are as follows:
<TABLE>
<CAPTION>
Capital Operating
(in thousands) Leases Leases
- - - --------------------------------------------------------------------------------
<S> <C> <C>
Year ending December 31:
2000 $ 196 $ 549
2001 -- 483
2002 -- 508
2003 -- 485
Thereafter -- --
- - - --------------------------------------------------------------------------------
Total minimum lease payments 196 2,542
Less amounts representing interest at
approximately 45% and executory costs 38
- - - --------------------------------------------------------------------------------
Present value of minimum capital lease payments
included in other liabilities $ 158
- - - --------------------------------------------------------------------------------
</TABLE>
Amortization expense for capital leases is included with depreciation
expense. Total minimum sublease rental income to be received in the future under
non-cancelable subleases is $133,000.
FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
In the normal course of business, the Company is a party to financial
instruments with off-balance sheet risk to meet the financing needs of customers
and to reduce exposure to fluctuations in interest. These financial instruments
include interest rate swaps, various guarantees, commitments to extend credit
and standby and commercial letters of credit. At December 31, 1999 and 1998, the
Company had standby and commercial letters of credit of $493,000 and $421,100
outstanding and commitments to extend credit, totaling $29,741,000 and
$24,415,000, respectively.
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract. Standby and
commercial letters of credit and financial guarantees written are conditional
commitments issued by the Company to guaranty the performance of a customer to a
third party. Commitments generally have fixed expiration dates or other
termination clauses and may require payment of a fee. Since many of the
commitments are expected to expire without being drawn upon, the total
commitment amounts do not necessarily represent future cash requirements. The
credit risk involved in issuing letters of credit is essentially the same as
that involved in extending loan facilities to customers. The Company evaluates
each customer's creditworthiness on a case-by-case basis. The amount of
collateral obtained, if deemed necessary by the Company upon extension of
credit, is based on Management's credit evaluation of the counter-party.
Collateral held varies but may include deposits,
F-14
<PAGE> 41
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS West Coast Bancorp and Subsidiaries
December 31, 1999 and 1998
accounts receivable, inventory, property, plant and equipment, motor vehicles
and real estate.
Interest rate swap agreements involve the exchange of fixed and floating
rate interest payments based on a notional principal amount and maturity date.
The Company minimizes credit risk on interest rate swaps by performing credit
reviews of the counter party.
At December 31, 1999 and 1998, the Company had interest rate swaps with
outstanding notional amounts of $648,000 and $656,000, respectively. The
interest rate swaps were acquired in connection with a purchase of loans from
another party. The loans pay a fixed rate of interest that is converted to a
variable rate of interest through the interest rate swap. As a result of an
early payoff on one of the loans, on July 9, 1998, the Company terminated one of
the interest rate swaps which had a notional amount of $878,000. The Company
received a prepayment penalty of $44,000 on the loan and paid a termination fee
of $11,000 on the interest rate swap. The remaining interest rate swap expires
January 1, 2000. At December 31, 1999 the interest rate swap had an estimated
negative market value of $1,000.
LITIGATION
The Company is party to various lawsuits which have arisen in the course of
business. While it is not possible to predict with certainty the outcome of such
litigation, it is the opinion of Management, based in part upon opinions of
counsel, that the liability, if any, arising from such lawsuits would not have a
material adverse effect on the Company's financial position or results of
operations.
NOTE 18
REGULATORY MATTERS
West Coast and Sunwest are subject to various regulatory capital
requirements administered by the federal banking agencies. Failure to meet
minimum capital requirements can initiate certain mandatory, and possible
additional discretionary, actions by regulators that, if undertaken, could
have a direct material effect on the Company's financial condition. Under
capital adequacy guidelines and the regulatory framework for prompt corrective
action, the Company must meet specific capital guidelines that involve
quantitative measures of the Company's assets, liabilities, and certain
off-balance sheet items as calculated under regulatory accounting practices. The
Company's capital amounts and classification are also subject to qualitative
judgments by the regulators about components, risk weightings, and other
factors.
Quantitative measures established by the regulators to ensure capital
adequacy require the Company and Sunwest to maintain minimum amounts and ratios
(set forth in the table below) of total and Tier 1 capital (as defined in the
regulations) to risk-weighted assets (as defined), and of Tier 1 capital (as
defined) to average assets (as defined). Management believes, as of December 31,
1999, that the Company and Sunwest meet all capital adequacy requirements.
As of December 31, 1999 and 1998, Sunwest was categorized as well
capitalized under the regulatory framework for prompt corrective action. To be
categorized as well capitalized Sunwest must maintain minimum total risk-based,
Tier 1 risk-based, and Tier 1 leverage ratios as set forth in the table below.
There are no conditions or events since that notification that Management
believes have changed the institution's category. The Company's and Sunwest's
actual capital amounts and ratios are also presented in the table. No amount was
deducted from capital for interest rate risk.
F-15
<PAGE> 42
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS West Coast Bancorp and Subsidiaries
December 31, 1999 and 1998
The Company
<TABLE>
<CAPTION>
To be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
-----------------------------------------------------------------------
(dollars in thousands) Amount Ratio Amount Ratio Amount Ratio
- - - ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1999:
Total Capital (to Risk-Weighted Assets) $ 20,635 13.4% $>/=12,301 >/=8.0% $>/=15,316 >/=10.0%
Tier 1 Capital (to Risk-Weighted Assets) 18,660 12.1 >/= 6,150 >/=4.0 >/= 9,226 >/= 6.0
Tier 1 Capital (to Average Assets) 18,660 9.8 >/= 7,678 >/=4.0 >/= 9.597 >/= 5.0
As of December 31, 1998:
Total Capital (to Risk-Weighted Assets) $ 17,511 14.3% $>/= 9,768 >/=8.0% >/=12,210 >/=10.0%
Tier 1 Capital (to Risk-Weighted Assets) 15,896 13.0 >/= 4,884 >/=4.0 >/= 7,326 >/= 6.0
Tier 1 Capital (to Average Assets) 15,896 10.4 >/= 6,145 >/=4.0 >/= 7,682 >/= 5.0
- - - ---------------------------------------------------------------------------------------------------------------
</TABLE>
Sunwest
<TABLE>
<CAPTION>
To be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
-----------------------------------------------------------------------
(dollars in thousands) Amount Ratio Amount Ratio Amount Ratio
- - - ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1999:
Total Capital (to Risk-Weighted Assets) $ 21,713 14.4% $>/=11,988 >/=8.0% $>/=14,986 >/=10.0%
Tier 1 Capital (to Risk-Weighted Assets) 19,738 13.2 >/= 5,994 >/=4.0 >/= 8,991 >/= 6.0
Tier 1 Capital (to Average Assets) 19,738 10.3 >/= 7,678 >/=4.0 >/= 9,597 >/= 5.0
As of December 31, 1998:
Total Capital (to Risk-Weighted Assets) $ 18,079 14.1% $>/=10,267 >/=8.0% >/=12,833 >/=10.0%
Tier 1 Capital (to Risk-Weighted Assets) 16,464 12.8 >/= 5,133 >/=4.0 >/= 7,700 >/= 6.0
Tier 1 Capital (to Average Assets) 16,464 10.7 >/= 6,148 >/=4.0 >/= 7,685 >/= 5.0
- - - ---------------------------------------------------------------------------------------------------------------
</TABLE>
DIVIDEND AND ADVANCE RESTRICTIONS
The Federal Reserve Act restricts Sunwest from making loans or advances to
West Coast in excess of 10% of its capital stock and surplus. At December 31,
1999 this would allow $0.9 million of advances. Such loans or extensions of
credit to West Coast must be secured at the time of transaction by collateral
having a market value of 100% to 130%, depending on the collateral, of the
amount funded. Various laws and regulations limit the amount of dividends which
a bank can pay without obtaining prior approval from bank regulators. At
December 31, 1999, Sunwest is restricted from paying any cash dividend without
prior regulatory approval.
F-16
<PAGE> 43
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS West Coast Bancorp and Subsidiaries
December 31, 1999 and 1998
NOTE 19
CONDENSED FINANCIAL INFORMATION OF PARENT COMPANY ONLY
West Coast Bancorp's condensed balance sheets as of December 31, are as
follows:
<TABLE>
<CAPTION>
(in thousands) 1999 1998
- - - --------------------------------------------------------------------------------
<S> <C> <C>
Assets
Cash and short-term investments $ 288 $ 357
Investment in:
Sunwest Bank 18,504 16,316
WCV, Inc. 240 241
Other assets 28 56
- - - --------------------------------------------------------------------------------
$ 19,060 $ 16,970
- - - --------------------------------------------------------------------------------
Liabilities and Shareholders' Equity
Notes payable $ 541 $ 589
Minority interest 8,045 7,094
Other liabilities 557 554
- - - --------------------------------------------------------------------------------
Total liabilities 9,143 8,237
- - - --------------------------------------------------------------------------------
Shareholders' equity:
Common stock 30,350 30,274
Accumulated deficit (20,433) (21,541)
- - - --------------------------------------------------------------------------------
Total shareholders' equity 9,917 8,733
- - - --------------------------------------------------------------------------------
$ 19,060 $ 16,970
- - - --------------------------------------------------------------------------------
</TABLE>
West Coast Bancorp's condensed statements of operations for the years ended
December 31, are as follows:
<TABLE>
<CAPTION>
(in thousands) 1999 1998
- - - --------------------------------------------------------------------------------
<S> <C> <C>
Income
Interest income from subsidiaries $ 15 $ 21
- - - --------------------------------------------------------------------------------
15 21
- - - --------------------------------------------------------------------------------
Expenses
Interest expense 53 61
Salaries and employee benefits -- 39
Professional services 38 71
Other expenses 43 52
- - - --------------------------------------------------------------------------------
134 223
- - - --------------------------------------------------------------------------------
Equity in undistributed net income of subsidiaries 1,850 1,491
- - - --------------------------------------------------------------------------------
Income before income taxes 1,731 1,289
Income taxes 10 --
- - - --------------------------------------------------------------------------------
Net income $1,721 $1,289
- - - --------------------------------------------------------------------------------
</TABLE>
West Coast Bancorp's condensed statements of cash flows for the years ended
December 31, are as follows:
<TABLE>
<CAPTION>
(in thousands) 1999 1998
- - - --------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,721 $ 1,289
Equity in net income of subsidiaries (1,850) (1,491)
Depreciation -- 13
Decrease (increase) in other assets 28 (1)
Increase in other liabilities 247 289
- - - --------------------------------------------------------------------------------
Net cash provided by operating activities 188 57
- - - --------------------------------------------------------------------------------
Cash flows from investing activities:
Increase in advances to subsidiaries (1) (19)
- - - --------------------------------------------------------------------------------
Net cash used in investing activities (1) (19)
- - - --------------------------------------------------------------------------------
Cash flows from financing activities:
Cash payments on notes payable (333) (377)
Stock options exercised 77 98
- - - --------------------------------------------------------------------------------
Net cash provided by (used in) financing activities (256) (279)
- - - --------------------------------------------------------------------------------
Decrease in cash (69) (241)
Cash at beginning of year 357 598
- - - --------------------------------------------------------------------------------
Cash at end of year $ 288 $ 357
- - - --------------------------------------------------------------------------------
Supplemental schedule of non-cash financing activities
- - - --------------------------------------------------------------------------------
Transfer from note payable to affiliate to other
borrowed funds $ 414 $ --
Transfer from accrued liabilities to note payable
to affiliates -- 514
Supplemental disclosure of cash flow information
- - - --------------------------------------------------------------------------------
Cash paid during the year for:
Interest $ 53 $ 61
Income taxes -- --
- - - --------------------------------------------------------------------------------
</TABLE>
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 1999, West Coast did not receive any dividends from its subsidiaries.
West Coast does not currently expect to receive dividends from its subsidiaries
during 2000. At December 31, 1999, West Coast had cash totaling $288,000.
West Coast's primary source of cash in 2000 is expected to be sales of
assets and earnings on cash and short-term investments. West Coast anticipates
other cash expenditures during 2000 to consist of debt service payments on notes
payable totaling $84,000 and approximately $87,000 for other operating expenses.
F-17
<PAGE> 44
West Coast Bancorp and Subsidiaries
December 31, 1999
NOTE 20
QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized quarterly financial data follows (in thousands, except per share
data):
<TABLE>
<CAPTION>
1999 March 31 June 30 September 30 December 31 Total
- - - --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Total interest income $ 3,150 $ 3,278 $ 3,668 $ 3,934 $ 14,030
Total interest expense 760 771 957 1,109 3,597
Net interest income 2,390 2,507 2,711 2,825 10,433
Provision (benefit) for credit losses - - - - -
Net income before income taxes 398 546 708 773 2,425
Net income 338 475 618 290 1,721
Net income per common share - basic .04 .05 .07 .02 .19
Net income per common share - diluted .04 .05 .07 .02 .18
1998
Total interest income $ 2,986 $ 3,092 $ 3,304 $ 3,175 $ 12,557
Total interest expense 778 853 896 803 3,330
Net interest income 2,208 2,239 2,408 2,372 9,227
Provision (benefit) for credit losses - - - (205) (205)
Net income before income taxes 274 249 401 367 1,291
Net income 274 249 401 365 1,289
Net income per common share - basic
and diluted .03 .03 .04 .04 .14
- - - --------------------------------------------------------------------------------------------------------
</TABLE>
F-18
<PAGE> 45
West Coast Bancorp and Subsidiaries
December 31, 1999
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors
of West Coast Bancorp:
We have audited the accompanying consolidated balance sheets of West Coast
Bancorp (a California corporation) and subsidiaries as of December 31, 1999 and
1998, and the related consolidated statements of operations, comprehensive
income, shareholders' equity and cash flows for the years then ended. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of West Coast Bancorp
and subsidiaries as of December 31, 1999 and 1998, and the results of their
operations and their cash flows for the years then ended in conformity with
accounting principles generally accepted in the United States.
/s/ Arthur Andersen LLP
Orange County, California
February 18, 2000
RESPONSIBILITY FOR FINANCIAL REPORTING
The consolidated financial statements included in this report are the
responsibility of Management. These statements have been prepared in conformity
with generally accepted accounting principles and include amounts based on our
best estimates and judgments. Financial information appearing elsewhere in this
report is consistent with that in the consolidated financial statements. To meet
Management's responsibility for financial reporting, internal accounting control
systems and procedures are designed to provide reasonable assurance at a
reasonable cost as to the reliability of financial records. In addition, the
Company maintains a program for communicating corporate policy throughout the
organization.
West Coast Bancorp's 1999 consolidated financial statements have been
audited by Arthur Andersen LLP. In accordance with generally accepted auditing
standards, the independent auditors obtained a sufficient understanding of the
Company's internal control structure to plan their audit and determine the
nature, timing and extent of tests to be performed. The Audit Committee of the
Board of Directors meets with the independent auditors and representatives of
Management, both jointly and separately, to discuss financial reporting matters
and audit and control functions.
/s/ Eric D. Hovde
Eric D. Hovde
Chairman of the Board and President
February 18, 2000
/s/ Frank E. Smith
Frank E. Smith
Senior Vice President and
Chief Financial Officer
February 18, 2000
F-19
<PAGE> 46
West Coast Bancorp and Subsidiaries
December 31, 1999
EXHIBITS
<TABLE>
<CAPTION>
Number Description Page No.
------ ----------- --------
<S> <C> <C>
3.01 Amended Articles of Incorporation of West Coast, filed as Exhibit 3.1(c) *
3.02 Amended Bylaws of West Coast, filed as Exhibit 3.2(d) *
10.01 Form of Indemnification Agreement entered into and between West Coast and *
its directors and certain of its officers, filed as Exhibit 10.13(a)(1)
10.02 Form of West Coast 1988 Stock Option Plan, filed as Exhibit 10.14(b)(1) *
10.05 West Coast Bancorp 401(k) Profit Sharing Plan Document, Trust and Summary *
Plan Description filed as Exhibit 10.06(e)
10.06 Agreement between West Coast and B&PB to sell Sacramento First to B&PB *
dated June 30, 1994(f)
10.07 Stock Purchase agreement among Western, West Coast and Sunwest to purchase *
Sunwest stock filed as Exhibit 10.19(g)
10.09 Employment Agreement effective September 1, 1996 by and between Sunwest and *
James G. LeSieur(1)
10.10 Employment Agreement effective September 1, 1996 by and between Sunwest and *
Frank E. Smith(1)
10.11 Promissory note modification agreement made as of July 3, 1996, by Robert *
McKernan and West Coast
10.12 Loan and Security Agreement made as of January 29, 1998 by and between *
Pacific Advisors, Inc. and West Coast
10.13 Promissory note modification agreement made as of June 30, 1999, by and *
between Hovde Financial, Inc. and West Coast
21 Subsidiaries of West Coast *
23 Consent of Independent Public Accountants - Arthur Andersen LLP *
27 Financial Data Schedule
</TABLE>
(1) These are executive compensation plans or arrangements as reported
under ITEM 13 part (a)3 of this Form 10-KSB
<PAGE> 47
West Coast Bancorp and Subsidiaries
December 31, 1999
(a) to West Coast's Registration Statement on Form S-1 (Registration No.
33-24069) filed with the Commission on August 31, 1988, and which is
incorporated herein by reference
(b) to Amendment No. 1 to West Coast's Registration Statement on Form S-1
(Registration No. 33-24069) filed with the Commission on October 21,
1988, and which is incorporated herein by reference
(c) to West Coast's Annual Report on Form 10-K for the fiscal
year ended December 31, 1989 filed with the Commission,
and which is incorporated herein by reference
(d) to West Coast's Annual Report on form 10-K for the fiscal
year ended December 31, 1991 filed with the Commission,
and which is incorporated herein by reference
(e) to West Coast's Annual Report on Form 10-K for the fiscal
year ended December 31, 1992 filed with the Commission,
and which is incorporated herein by reference
(f) to West Coast's Report on Form 8-K filed on June 30, 1994 with the
Commission, and which is incorporated herein by reference
(g) To West Coast's Annual Report on Form 10-K for the fiscal
year ended December 31, 1995 filed with the Commission,
and which is incorporated herein by reference
* Not Applicable
<PAGE> 1
EXHIBIT 10.12
LOAN AND SECURITY AGREEMENT
This Loan and Security Agreement (this "Agreement") is made as of this
January 29, 1998 by and between West Coast Bancorp, a California corporation
(the "Borrower") and Pacific Advisors, Inc. ("Lender").
PRELIMINARY STATEMENT
Borrower is indebted to Lender in the aggregate amount of $513,616.94.
Borrower and Lender desire to enter into this Agreement in order to set forth
their understanding of the terms upon which such indebtedness is to be repaid
and to provide for the pledge by Borrower to Lender, as collateral security for
Borrower's obligations hereunder, of all of Borrower's right, title and interest
in and to five (5) shares of the Common Stock of Sunwest Bank owned by Borrower
and in the proceeds thereof (the "Collateral").
NOW, THEREFORE, IT IS AGREED:
1. LOAN. Borrower acknowledges that the deferred compensation described
above constitutes a loan from Lender to Borrower in the principal sum of
$513,616.94 (the "Loan"). The Loan shall mature and be due and payable by
Borrower on January 29, 2001 unless repayment is sooner accelerated in
accordance with the terms hereof. In recognition of the fact that the Loan
represents deferred compensation, it is expressly understood and agreed that any
repayment of the principal of the Loan shall be subject to applicable federal,
state and local payroll withholdings. The Loan shall bear interest at the rate
of nine percent (9%) per annum, payable monthly in arrears on the first day of
each month. All accrued unpaid interest shall be payable concurrently with
repayment of the principal amount of the Loan. Interest shall be computed on the
basis of a 365 day year for the actual number of days elapsed.
It is further agreed that, in the event that as a result of this
Agreement, Borrower is required to make payroll withholdings prior to the
repayment of the principal of the Loan, then Borrower shall deliver to Lender a
written certification of the amount of such withholding. Any such withholding
shall be deemed to be a repayment of the principal of the Loan equal to the
amount of such withholding, and from the date of such withholding interest shall
accrue on the remaining principal balance of the Loan.
2. GRANT OF SECURITY INTEREST. Borrower hereby grants to Lender a
continuing security interest in all presently existing and hereafter acquired or
arising Collateral.
3. TERMINATION. This Agreement will terminate upon the repayment in
full of the Loan and full performance of all other obligations of Borrower to
Lender under this Agreement.
-1-
<PAGE> 2
4. REPRESENTATIONS AND WARRANTIES. Borrower represents and warrants to
Lender that: (a) Borrower is or will be the owner of the Collateral; (b)
Borrower has the right to grant a security interest in the Collateral; (c) the
Collateral is genuine, free from liens, adverse claims, setoffs, default,
prepayment, defenses and conditions precedent of any kind or character, except
as previously disclosed in any writing evidencing same; (d) all persons
appearing to be obligated under the Collateral have authority and capacity to
contract and are bound as they appear to be; (e) all statements herein and,
where applicable, in the Collateral are true and complete; (f) no financing
statement covering any of the Collateral, and naming any secured party is on
file in any public office and (g) its chief executive office is in the State of
California at 4770 Campus Drive, Suite 250, Newport Beach, California 92660.
5. COVENANTS OF DEBTOR.
(a) Borrower agrees: (i) to pay the Loan secured hereby when
due; (ii) to indemnify Lender against all losses, claims, demands, liabilities
and expenses of every kind arising out of the Collateral or the transactions
contemplated hereby; (iii) to pay all expenses, including reasonable attorneys'
fees, incurred by Lender in the perfection, preservation, realization,
enforcement and exercise of its rights, powers and remedies hereunder; (iv) to
permit Lender to exercise its powers; (v) to execute and deliver such documents
as Lender deems necessary to create, perfect and continue the security interests
contemplated hereby; and (vi) not to change its chief place of business or the
place where Borrower keeps any of its books and records concerning the
Collateral without first giving Lender written notice thereof.
(b) Borrower agrees with regard to the Collateral (i) not to
permit any lien on or security interest in the Collateral, except in favor of
Lender; (ii) not to sell, hypothecate or dispose of any of the Collateral, or
any interest therein, without the prior written consent of Lender; (iii) to
furnish to Lender copies of any communications received by Borrower from Sunwest
Bank with respect to the Collateral; (iv) to keep, in accordance with generally
accepted accounting principles, complete and accurate records regarding all
Collateral, and to permit Lender to inspect the same at any reasonable time; (v)
not to commingle the proceeds or collections of the Collateral with other
property; (vi) to notify Lender of Borrower's receipt of any proceeds of the
Collateral and to pay same to Lender on demand; (vii) from time to time, when
requested by Lender, to prepare and deliver a schedule of all Collateral subject
to this Agreement; and (viii) to provide any service and do any other acts which
may be necessary to maintain, preserve and protect the Collateral, and to keep
the Collateral free and clear of all defenses, rights of offset and
counterclaims.
6. POWERS OF LENDER. Borrower appoints Lender its true attorney in fact
to perform any of the following powers, which are coupled with an interest, are
irrevocable until termination of this Agreement and may be exercised by Lender
at any time when Borrower is in default hereunder: (a) to perform any obligation
of Borrower hereunder in Borrower's name or otherwise; (b) to give notice of
Lender's rights in the Collateral, to enforce the same and make extension
agreements with respect thereto; (c) to prepare, execute, file, record or
deliver notes, assignments, schedules, designation statements, financing
statements, continuation statements,
-2-
<PAGE> 3
termination statements, statements of assignment, applications for registration
or like papers to perfect, preserve or release Lender's interest in the
Collateral; (d) to take cash, instruments for the payment of money and other
property to which Lender is entitled by reason of its interests in the
Collateral; (e) to verify facts concerning the Collateral by inquiry of the Bank
or other obligor thereon; (f) to make withdrawals from and to close deposit
accounts or other accounts with any financial institution, wherever located,
into which proceeds of Collateral may have been deposited, and to apply funds so
withdrawn to payment of the Indebtedness; (g) to exercise all rights, powers and
remedies which Borrower would have, but for this Agreement, with respect to all
Collateral; and (h) to do all acts and things and execute all documents in the
name of Borrower or otherwise, deemed by Lender as necessary, proper and
convenient in connection with the preservation, perfection or enforcement of its
rights hereunder.
7. PAYMENT OF PREMIUMS, TAXES, CHARGES, LIENS AND ASSESSMENTS. Borrower
agrees to pay, prior to delinquency, all insurance premiums, taxes, charges,
liens and assessments against the Collateral, and upon the failure of Borrower
to do so, Lender at its option may pay any of them and shall be the sole judge
of the legality or validity thereof and the amount necessary to discharge the
same. Any such payments made by Lender shall be included within the Loan of
Borrower to Lender, due and payable immediately upon demand, together with
interest at a rate applicable to the Loan and shall be secured by the
Collateral, subject to all terms and conditions of this Agreement.
8. EVENTS OF DEFAULT. The occurrence of any of the following shall
constitute an "Event of Default" under this Agreement: (a) any default in the
payment or performance of the Loan; (b) any representation or warranty made by
any Borrower herein shall prove to be incorrect in any material respect when
made; (c) Borrower shall fail to observe or perform any obligation or agreement
contained herein; and (d) Borrower shall be the subject of any voluntary or
involuntary petition filed under the Federal Bankruptcy Code or shall file an
assignment for the benefit of creditors.
9. REMEDIES. Upon the occurrence of any Event of Default, Lender shall
have the right to declare immediately due and payable all or any amounts secured
hereby (and not otherwise payable on demand) and to terminate any commitments to
make loans or otherwise extend credit to Borrower. Lender shall have all other
rights, powers, privileges and remedies granted to a secured party under the
California Uniform Commercial Code or otherwise provided by law, including
without limitation, the right to contact the Bank and all persons obligated to
Borrower on the Collateral and to instruct such persons to deliver all proceeds
of the Collateral directly to Lender. The rights, powers, privileges and
remedies of Lender are cumulative. No delay, failure or discontinuance of Lender
in exercising any right, power, privilege or remedy hereunder shall affect or
operate as a waiver of such right, power, privilege or remedy; nor shall any
single or partial exercise of any such right, power, privilege or remedy
preclude, waive or otherwise affect any other or further exercise thereof or the
exercise of any other right, power, privilege or remedy. Any waiver, permit,
consent or approval of any kind by Lender of any default hereunder, or any such
waiver of any provisions or conditions hereof, must be in writing and shall be
effective only to the extent set forth in writing.
-3-
<PAGE> 4
10. DISPOSITION OF COLLATERAL AND PROCEEDS. Upon the transfer of all or
any part of the Loan, Lender may transfer all or any part of the Collateral and
shall be fully discharged thereafter from all liability and responsibility with
respect to any of the foregoing so transferred, and the transferee shall be
vested with all rights and powers of Lender hereunder with respect to any of the
foregoing so transferred; but with respect to any Collateral not so transferred,
Lender shall retain all rights, powers, privileges and remedies herein given.
Any proceeds of any disposition of the Collateral, or any part thereof, may be
applied by Lender to the payment of expenses incurred by Lender in connection
with the foregoing, including reasonable attorneys' fees, and the balance of
such proceeds may be applied by Lender toward the payment of the Loan in such
order of application as Lender may from time to time elect.
11. COSTS, EXPENSES AND ATTORNEYS' FEES. Borrower shall pay to Lender
immediately upon demand the full amount of all payments, advances, charges,
costs and expenses, including reasonable attorneys' fees incurred by Lender in
exercising any right, power, privilege or remedy conferred by this Agreement or
in the enforcement thereof, including any of the foregoing incurred in
connection with any bankruptcy proceeding relating to Borrower or the valuation
of the Collateral, including without limitation, the seeking of relief from or
modification of the automatic stay or the negotiation and drafting of a cash
collateral order. All of the foregoing shall be paid to Lender by Borrower with
interest at a rate per annum equal to nine percent (9%).
12. MISCELLANEOUS. Borrower waives presentment, protest, notice of
protest, notice of dishonor and notice of nonpayment with respect to the
Collateral to which Borrower is entitled hereunder; any right to direct the
application of payments or security for the Loan of Borrower hereunder and any
right to require proceedings against others or to require exhaustion of security
are waived; and consent to extensions, forbearances or alterations of the terms
of the Loan, and the release or substitution of security is given with respect
to the Collateral. Until the Loan shall have been paid in full, Borrower shall
have no right of subrogation or contribution, and Borrower hereby waives any
benefit of or any right to participate in any of the Collateral or any other
security whatsoever now or hereafter held by Lender.
13. NOTICES. All notices or demands of any kind which Lender may be
required or desires to serve upon Borrower under the terms of this Agreement
shall be served upon Borrower by personal service or by mailing a copy thereof
by first class mail, postage prepaid, addressed to Borrower at the address of
Borrower's chief executive office set forth below, or at such other address as
Borrower shall designate by written notice to Lender. Service by mail shall be
determined to be complete at the expiration of the second day after the date of
mailing.
14. GOVERNING LAW; SUCCESSORS, ASSIGNS. This Agreement shall be
governed by and construed in accordance with the laws of the State of
California, and shall be binding on and inure to the benefit of the executors,
administrators, legal representatives, heirs, successors and permitted assigns
of the parties.
-4-
<PAGE> 5
15. SEVERABILITY OF PROVISIONS. If any provision of this Agreement
shall be held to be prohibited by or invalid under applicable law, such
provision shall be ineffective only to the extent of such prohibition or
invalidity, without invalidating the remainder of such provision or any
remaining provisions of this Agreement.
IN WITNESS WHEREOF, this Agreement has been duly executed as of the
date first written above.
WEST COAST BANCORP
By:
----------------------------------------
Title:
-------------------------------------
PACIFIC ADVISORS, INC.
By:
----------------------------------------
Title:
-------------------------------------
-5-
<PAGE> 1
EXHIBIT 10.13
PROMISSORY NOTE
Principal Amount: Tustin, CA
$162,883.44 June 30, 1999
I. TERMS OF NOTE
FOR VALUE RECEIVED, West Coast Bancorp, a California corporation
("Maker"), together with its successors and assigns, promises to pay to the
order of Hovde Financial, Inc. or its successors and assigns (the "Holder"), at
1826 Jefferson Place, NW, Washington, D.C. or at such other place as the holder
of this Promissory Note (the "Note") may from time to time designate, the
principal amount of One Hundred Sixty Two Thousand Eight Hundred Eighty Three
Dollars and Forty Four Cents ($162,883.44) together with interest from the date
of June 30, 1999 on the unpaid principal at the interest rate of Bank of
America's (or its successor's) posted prime rate plus two percent (2%) plus Two
Hundred Fifty Eight Thousand Two Hundred Eighty Seven Dollars and Eighty Two
Cents ($258,287.82).
Maker hereby acknowledges a currently existing debt and obligation to
Holder in the principal amount of $162,883.44 and unpaid accrued interest of
$258,287.82, and hereby waives any right or claim which might otherwise arise to
contest the existence or validity of said debt and obligation.
Payment; Form and Schedule. Maker shall repay the full amount hereof in
quarterly payments of Twelve Thousand Dollars and No Cents ($12,000.00)
beginning on June 30, 1999 and each quarter thereafter until maturing June 30,
2000 when the entire unpaid principal balance hereof shall be repaid in full
together with any interest due and accruing through June 30, 2000, and upon such
payment this Note shall be satisfied.
II. EVENTS OF DEFAULT
Events of Default. The occurrence of any one or more of the following
shall constitute an event of default ("Event of Default") hereunder and Maker
covenants and agrees to give Holder prompt written notice of the occurrence of
any one or more of the following:
(i) Failure to pay, when due, any sum payable hereunder, and
continuance of such failure for ten (10) days after the date
on which sum is due;
(ii) The commencement by Maker of any case, proceeding, or other
action seeking reorganization, arrangement, adjustment,
liquidation, or composition of Maker's debts under any law
relating to bankruptcy,
-1-
<PAGE> 2
insolvency, or reorganization, or relief of debtors, or
seeking appointment of a receiver, trustee, custodian, or
other similar official for it or for all or any substantial
part of its property; and
(iii) The commencement of any case, proceeding, or other action
against Maker seeking to have any order for relief entered
against Maker as debtor, or seeking reorganization,
arrangement, adjustment, liquidation, or composition of Maker
or its debtors, or seeking appointment of a receiver, trustee,
custodian, or other similar official for Maker or for all or
any substantial part of the property of Maker, and (a) Maker
shall, by any act or omission, indicate its consent to,
approval of, or acquiescence in such case, proceeding, or
action, or (b) such case, proceeding, or action results in the
entry of an order for relief which is not fully stayed within
seven (7) business days after the entry thereof, or (c) such
case, proceeding, or action remains undismissed for a period
of fifteen (15) days or more or is dismissed or suspended only
pursuant to Section 305 of the United States Bankruptcy Code
or any corresponding provision of any future United States
bankruptcy law.
Holder's Rights in Event of Default. Upon the occurrence of any such
Event of Default hereunder, the entire principal amount hereof shall be
immediately due and payable together with interest accrued and accruing thereon,
at the option of the Holder, without demand or notice, and in addition thereto,
and not in substitution therefore, Holder shall be entitled to exercise any one
of more of the rights and remedied provided by applicable law. Failure to
exercise said option or to pursue such other remedies shall not constitute a
waiver of such option or other such remedies or of the right to exercise any of
the same in the event of any subsequent Event of Default hereunder.
Each Obligor (which term shall include Makers and all makers, sureties,
guarantors, endorsers, and other persons assuming obligations pursuant to this
Note) under this Note hereby waives presentment, protest, demand, notice of
dishonor, and all other notices, and all defenses and pleas on the grounds of
any extension or extensions of the time of payments after maturity, with or
without notice. No renewal or extension of this Note, no release or surrender of
any collateral given as security for this Note, not release of any Obligor, and
no delay in enforcement of this Note or in exercising any right or power
hereunder, shall affect the liability of the Obligor. The pleading of any
statute of limitations as a defense to any demand against any Obligor is
expressly waived.
Exercise of Holder's Rights. No single or partial exercise by Holder of
any right hereunder, or under any other agreement given as security for this
Note or pertaining hereto, shall preclude any other or further exercise thereof
or the exercise of any other rights. No delay or omission on the part of Holder
in exercising any right hereunder shall operate as a waiver of such right or of
any other right under this Note.
-2-
<PAGE> 3
III. MISCELLANEOUS
Confession of Judgement. Maker and Holder acknowledge and agree that
if, for any reason other than default on part of Holder, for which it has
received written notice Maker fails to render timely payments to Holder as
specified herein, that this Note may be presented to any court of competent
jurisdiction without contest, to secure a confessed judgement to be enforced by
such court against Maker in the face value amount stated above, less any amounts
previously paid to Holder.
Indemnification. Maker hereby indemnifies Holder and holds Holder
harmless as to any and all claims arising out of the execution, existence, or
performance under this Note, including but not limited to claims arising from
any governmental taxing entity or subdivision, and any claimant against or
creditor or Maker.
Successors and Assigns. Whenever used herein, the words "Maker" and
"Holder" and "Obligor" shall be deemed to include their respective successors
and assigns.
Jurisdiction. This Note shall be governed by and construed under and in
accordance with the laws of the State of California, and shall be enforceable in
the courts of the State of California.
Savings. It is Expressly agreed that if any portion of this Note shall
be deemed invalid or unenforceable, then the remaining portion of this Note
shall remain in full force and effect, notwithstanding.
IN WITNESS WHEREOF, the undersigned has dully executed this Note as of
the day and year first set forth above.
MAKER:
WEST COAST BANCORP
By: /s/ Frank E. Smith
---------------------------------
Its: Chief Financial Officer
---------------------------------
Signed and sworn before me this 30th day of June, 1999.
- - - ---------------------------------
Notary Public
My commission expires:
---------------------------------
-3-
<PAGE> 1
West Coast Bancorp and Subsidiaries
December 31, 1999
EXHIBIT 21
WEST COAST BANCORP
Subsidiaries Of West Coast Bancorp
SUBSIDIARIES
Centennial Beneficial Loan Corp.*
Chancellor Financial Services, Inc.*
WCV, Inc. (formerly Heritage Thrift & Loan)*
North Orange County Bancorp*
Sunwest Leasing Corp.*
Sunwest Bank*
West Coast Reality Finance*
*All subsidiaries are California corporations
<PAGE> 1
West Coast Bancorp and Subsidiaries
December 31, 1999
EXHIBIT 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
report dated February 18, 2000 included in this Form 10-KSB into the Company's
previously filed Registration Statement File No. 33-25859 on Form S-8. It
should be noted that we have not audited any financial statements of the
Company subsequent to December 31, 1999 or performed any audit procedures
subsequent to the date of our report.
/s/ Arthur Andersen LLP
Orange County, California
March 29, 2000
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<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
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<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 6,250
<TRADING-ASSETS> 0
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0
0
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