WEST COAST BANCORP AND SUBSIDIARIES
U.S. Securities And Exchange Commission
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2000
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
EXCHANGE ACT
For the transition period from N/A to N/A
COMMISSION FILE NUMBER: 0-10897
WEST COAST BANCORP
(Exact name of small business issuer as
specified in its charter)
CALIFORNIA 95-3586860
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
535 E. FIRST STREET
Tustin, California 92780-3312
(Address of principal executive offices)
(714) 730-4499
(Registrant's telephone number, including area code)
N/A
(Former name, former address, and former fiscal year,
if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
YES X NO
--- ---
Number of shares outstanding of each of the issuer's
classes of common equity as of October 31, 2000:
9,328,942
Transitional Small Business Disclosure Format Yes No X
-- --
This document contains a total of 19 pages.
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
WEST COAST BANCORP AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
(Unaudited)
---------------------------
ASSETS
<S> <C> <C>
Cash and due from banks ........................................................ $ 11,021 $ 5,574
Federal funds sold ............................................................. -- 6,250
Investment securities available-for-sale
at fair value ............................................................. 41,594 39,492
Loans .......................................................................... 126,505 133,008
Less allowance for loan losses ................................................. (2,499) (2,457)
----------------------
Net loans ................................................................. 124,006 130,551
----------------------
Real estate owned, net ......................................................... 7 502
Premises and equipment, net .................................................... 971 1,041
Deferred taxes ................................................................. 1,073 1,976
Other assets ................................................................... 1,442 1,437
----------------------
$ 180,114 $ 186,823
======================
LIABILITIES
Deposits:
Demand, non interest-bearing .............................................. $ 59,637 $ 53,723
Savings, money market & interest-bearing demand ........................... 49,557 50,738
Time certificates under $100,000 .......................................... 13,911 22,273
Time certificates of $100,000 or more ..................................... 27,562 31,912
----------------------
Total deposits ............................................................ 150,667 158,646
Federal Home Loan Bank borrowings .............................................. 7,000 8,000
Other borrowed funds ........................................................... 504 541
Capital lease obligation ....................................................... 35 158
Other liabilities .............................................................. 1,844 1,516
----------------------
Total liabilities ......................................................... 160,050 168,861
Commitments and contingencies
Minority interest in subsidiary ................................................ 9,010 8,045
---------------------
SHAREHOLDERS' EQUITY
Common stock, no par value - 30,000,000
shares authorized, 9,328,942 shares
issued and outstanding in 2000 and 1999 ................................... 30,351 30,351
Accumulated deficit ............................................................ (18,663) (19,737)
Accumulated other comprehensive income - net of tax ............................ (634) (697)
----------------------
Total shareholders' equity ................................................ 11,054 9,917
----------------------
$ 180,114 $ 186,823
======================
</TABLE>
(See accompanying notes to consolidated financial statements)
<PAGE>
WEST COAST BANCORP AND SUBSIDIARIES
CONSOLIDATED INCOME STATEMENTS
(Unaudited)
(in thousands, except share data)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
--------------------------------------
<S> <C> <C> <C> <C>
INTEREST INCOME:
Loans, including fees .............. $ 3,212 $ 3,088 $ 9,757 $ 8,465
Federal funds sold ................. 0 22 6 61
Investment securities .............. 905 558 2,571 1,570
-------------------------------------
Total interest income ......... 4,117 3,668 12,334 10,096
INTEREST EXPENSE:
Interest on deposits ............... 925 844 2,873 2,225
Other .............................. 161 113 493 263
-------------------------------------
Total interest expense ........ 1,086 957 3,366 2,488
-------------------------------------
Net interest income ........... 3,031 2,711 8,968 7,608
Provision for loan losses .......... 20 -- 20 --
------------------------------------
Net interest income after
provision for loan losses ..... 3,011 2,711 8,948 7,608
Other operating income ............. 222 400 676 1,064
Other operating expenses ........... 2,197 1,899 6,147 5,843
Minority interest in net income
of subsidiary .................... 278 504 915 1,177
-------------------------------------
Income before income taxes .... 758 708 2,562 1,652
Income tax expense ................. 446 90 1,488 221
-------------------------------------
Net income .................... $ 312 $ 618 $ 1,074 $ 1,431
======================================
Basic and diluted earnings per share $ .03 $ .07 $ .12 $ .15
======================================
</TABLE>
(See accompanying notes to consolidated financial statements)
<PAGE>
WEST COAST BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
(in thousands) 2000 1999 2000 1999
--------------------------------------
<S> <C> <C> <C> <C>
Net income ............................ $ 312 $ 618 $ 1,074 $ 1,431
Other comprehensive income, net of tax:
Unrealized gain (loss) on
available-for-sale investments
arising during period ............... 269 (91) 63 (238)
--------------------------------------
Other comprehensive gain (loss) ....... 269 (91) 63 (238)
--------------------------------------
Comprehensive income .................. $ 581 $ 527 $ 1,137 $ 1,193
======================================
</TABLE>
(See accompanying notes to consolidated financial statements)
<PAGE>
WEST COAST BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN
SHAREHOLDERS' EQUITY AND CASH FLOWS
(Unaudited)
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Accumulated
Common Stock Other Share-
------------- Comprehensive Accumulated holders'
(in thousands) Shares Amount Income Deficit Equity
------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1999 9,329 $30,351 $ (697) $ (19,737) $ 9,917
Net income .................. -- -- -- 1,074 1,074
Change in net unrealized
loss on available-for-sale
investments ............... -- -- 63 -- 63
---------------------------------------------------
Balance at September 30, 2000 9,329 $30,351 $ (634) $ (18,663) $ 11,054
===================================================
</TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
(in thousands) 2000 1999
--------------------------
<S> <C> <C>
Cash flows from operating activities:
Net income ............................................ $ 1,074 $ 1,431
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization ....................... 383 227
Amortization and accretion from investment securities 34 341
Loss on sale of securities .......................... 16 --
Provision for credit losses ......................... 20 --
Minority interest in net income of subsidiary ....... 915 1,177
Write-down of real estate owned ..................... 20 20
Gain on sale of real estate owned ................... (79) --
Deferred tax benefit ................................ 832 (47)
Increase in other assets .............................. (5) (29)
Increase (decrease) in other liabilities .............. 328 (86)
-------------------
Net cash provided by operating activities ............. 3,538 3,034
</TABLE>
(Continued)
(See accompanying notes to consolidated financial statements)
<PAGE>
WEST COAST BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
(in thousands) September 30,
2000 1999
<S> <C> <C>
Cash flows from investing activities ...........................................
Proceeds from maturities and paydowns of investment securities
available-for-sale ........................................................ 2,974 3,831
Purchase of investment securities available-for-sale ........................ (4,942) (9,813)
Decrease (increase) in loans ................................................ 6,525 (25,064)
Proceeds from sales of real estate owned .................................... 554 361
Purchase of premises and equipment .......................................... (313) (462)
--------------------
Net cash provided by (used in) investing activities ......................... 4,798 (31,147)
Cash flows from financing activities:
Net (decrease) increase in deposits ......................................... (7,979) 18,580
Principal payments on other borrowed funds .................................. (37) (36)
Repayment of capital lease obligation ....................................... (123) (74)
(Repayments) borrowings of funds from the
Federal Home Loan Bank ..................................................... (1,000) 6,000
Stock options exercised ..................................................... -- 77
--------------------
Net cash (used in) provided by financing activities ......................... (9,139) 24,547
--------------------
Decrease in cash and cash equivalents .......................................... (803) (3,566)
Cash and cash equivalents at beginning of year ................................. 11,824 13,834
--------------------
Cash and cash equivalents at end of year ....................................... $ 11,021 $ 10,268
====================
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest .................................................................. $ 3,479 $ 2,430
Income taxes .............................................................. 340 95
Supplemental schedule of non-cash investing and financing activities:
Transfer of loans to REO .................................................. $ -- $ 361
</TABLE>
(See accompanying notes to consolidated financial statements)
<PAGE>
WEST COAST BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
(Unaudited)
(1) BASIS OF PRESENTATION
The unaudited consolidated financial statements reflect all
adjustments, consisting primarily of normal recurring adjustments,
which are, in the opinion of management, necessary for a fair
presentation of the results of operations for the interim periods.
Results for the three and nine month periods ended September 30, 2000
are not necessarily indicative of results that may be expected for any
other interim period, or for the year as a whole. All significant
intercompany balances have been eliminated. These financial statements
should be read in conjunction with the Company's Form 10-KSB filed with
the Securities and Exchange Commission.
On February 29, 1996, West Coast Bancorp ("West Coast") and Sunwest
Bank ("Sunwest") entered into an agreement with Western Acquisitions,
L.L.C. ("Western"), an affiliate of Hovde Financial, Inc., for West
Coast to sell 35 existing shares of Sunwest for $2,520,000 and for
Sunwest to issue and sell 15 new shares for $1,051,000. On September
13, 1996, the sale closed. West Coast and Western own approximately
56.5% and 43.5% of Sunwest, respectively.
(2) 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 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.
In June 2000, the FASB issued SFAS No. 138 "Accounting for Certain
Derivative Instruments and Certain Hedging Activities" which amended
SFAS No. 133. 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.
<PAGE>
WEST COAST BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
(Unaudited)
(3) EARNINGS PER SHARE
The following is a reconciliation of basic earnings per share (EPS) to
diluted EPS for the three and nine month periods ended September 30,
2000 and 1999.
<TABLE>
<CAPTION>
(dollars and shares in thousands)
Three Months Ended Three Months Ended
September 30, 2000 September 30, 1999
----------------------------------------------------------
Net Per Share Net Per Share
Income Shares Amount Income Shares Amount
<S> <C> <C> <C> <C> <C> <C>
----------------------------------------------------------
Basic EPS:
Income available to
common shareholders $ 312 9,329 $ .03 $ 618 9,329 $ .07
Effect of dilutive
securities:
Stock options ...... -- 15 -- -- 10 --
---------------------------------------------------------
Diluted EPS:
Income available to
common shareholders
plus assumed
conversions ....... $ 312 9,344 $ .03 $ 618 9,339 $ .07
=========================================================
</TABLE>
<TABLE>
<CAPTION>
Nine Months Ended Nine Months Ended
September 30, 2000 September 30, 1999
------------------------------------------------------------
Net Per Share Net Per Share
Income Shares Amount Income Shares Amount
<S> <C> <C> <C> <C> <C> <C>
------------------------------------------------------------
Basic EPS:
Income available to
common shareholders $1,074 9,329 $ .12 $1,431 9,290 $ .15
Effect of dilutive
securities:
Stock options ...... -- 9 -- -- 13 --
------------------------------------------------------------
Diluted EPS:
Income available to
common shareholders
plus assumed
conversions ....... $1,074 9,338 $ .12 $1,431 9,303 $ .15
============================================================
</TABLE>
<PAGE>
WEST COAST BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
(Unaudited)
(4) LOANS
A summary of loans follows:
<TABLE>
<CAPTION>
September 30, December 31,
(in thousands) 2000 1999
---------------------------
<S> <C> <C>
Commercial loans not secured by real estate $ 37,183 $ 42,162
Real estate mortgage loans ................ 84,803 87,548
Real estate construction .................. 3,200 1,957
Personal loans not secured by real estate . 1,612 1,698
Unearned income, discounts and fees ....... (293) (357)
--------------------------
$ 126,505 $ 133,008
==========================
</TABLE>
(5) OTHER OPERATING INCOME
A summary of other operating income follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
(in thousands) 2000 1999 2000 1999
-----------------------------------
<S> <C> <C> <C> <C>
Depositor charges ........................ $ 174 $ 218 $ 555 $ 587
Service charges, commissions
& fees ................................. 25 24 85 106
Other income ............................. 23 158 36 371
----------------------------------
$ 222 $ 400 $ 676 $1,064
==================================
</TABLE>
(6) OTHER OPERATING EXPENSES
A summary of other operating expenses is as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
(in thousands) 2000 1999 2000 1999
----------------------------------------
<S> <C> <C> <C> <C>
Salaries and employee benefits $ 963 $ 852 $ 2,914 $ 2,766
Customer service .............. 230 170 644 485
Occupancy ..................... 223 216 710 587
Professional services ......... 191 158 363 512
Data processing ............... 165 150 448 432
Depreciation and amortization . 122 80 383 226
Advertising and promotion ..... 50 72 133 208
Stationery and supplies ....... 33 22 81 87
Telephone and telefax ......... 27 25 71 77
Printing & postage ............ 16 30 53 83
Regulatory fees and assessments 15 9 42 26
Insurance ..................... 9 10 28 29
Net cost of operation of REO .. 6 11 (97) 39
Collection .................... 2 12 21 27
Miscellaneous ................. 145 82 353 259
----------------------------------------
$ 2,197 $ 1,899 $ 6,147 $ 5,843
========================================
</TABLE>
<PAGE>
PART I
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following presents management's discussion and analysis of the consolidated
financial condition and operating results of West Coast Bancorp (as a separate
entity "West Coast" and together with its subsidiaries the "Company") for the
three and nine month periods ended September 30, 2000 and 1999. The discussion
should be read in conjunction with the Company's unaudited consolidated
financial statements and the notes thereto appearing elsewhere in this report.
Certain statements in this Report on Form 10-QSB constitute "forward-looking
statements" under the Private Securities Litigation Act of 1995 which involve
risk and uncertainties. The Company's actual results may differ significantly
from the results discussed in such forward looking statements. Factors that
might cause such a difference include but are not limited to economic
conditions, competition in the geographic and business 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" contained in
the Company's Annual Report on Form 10-KSB for the year ended December 31, 1999.
GENERAL
The Company recorded net income of $312,000 and $1,074,000, or $.03 and $.12 per
share, during the three and nine month periods ended September 30, 2000, as
compared with income of $618,000, and $1,431,000, or $.07 and $.15 per share,
during the same respective periods in 1999. The 2000 figures include the effects
of recording a tax provision of $446,000 and $1,488,000 during the three and
nine month periods of 2000 compared to $90,000 and $221,000 in 1999.
The Company had total assets, loans and deposits as follows:
<TABLE>
<CAPTION>
September 30, December 31, September 30, December 31,
2000 1999 1999 1998
(in thousands) ---------------------------------------------------------
<S> <C> <C> <C> <C>
Total assets $180,114 $186,823 $180,431 $153,784
Loans ...... 126,505 133,008 134,411 109,547
Deposits ... 150,667 158,646 152,319 133,739
</TABLE>
The $317,000 decrease in total assets from September 30, 1999 to September 30,
2000, occurred primarily due to a $7.9 million decrease in loans, partially
offset by an increase of $7.6 million in investment securities and other assets.
Loan growth has been hampered by a larger than normal number of loan payoffs
during the nine months of 2000. Lower loan growth can reduce net interest income
growth as funds are invested in lower yielding securities. Deposits decreased
$1.7 million from a year ago as a result of reducing the volume of wholesale
certificates of deposit ("money desk deposits"). Money desk deposits declined
$9.2 million from $24.1 million at September 30, 1999 to $14.9 million at
September 30, 2000. Branch deposits increased $7.4 million. Money desk deposits
were reduced due to the lower volume of loans requiring funding.
<PAGE>
RESULTS OF OPERATIONS
NET INTEREST INCOME
The increase in net interest income in 2000 resulted primarily from higher
volumes of average interest earning assets. The improved mix of deposits
favorably impacted net interest income. Average interest earning assets
increased $9.4 million, or 5.6% in the three months ended September 30, 2000
compared to 1999 and increased $23.3 million, or 15.0% in the nine months ended
September 30, 2000 compared to the same period in 1999.
The net interest margin (yield on interest earning assets less the rate paid on
interest-bearing liabilities) increased 3 basis points in the three months ended
September 30, 2000 and declined 6 basis points in the nine months ended
September 30, 2000 compared to the same respective periods in 1999. The net
yield on interest earning assets (net interest income divided by average earning
assets) increased 38 basis points in the third quarter of 2000 and 16 basis
points in the nine months ended September 30, 2000 as compared to the same
periods in 1999. This was a result of an increase in the general level of
interest rates during the past year offset in part by a shift in the mix of
earning assets and deposits. Loan yields were significantly impacted by an
increase in the "prime rate" of 125 basis points from the prior year.
The yield on interest earning assets increased primarily due to an increase in
loan yields of 68 basis points and 51 basis points in the three and nine months
of 2000, respectively as compared to the same periods in 1999. This was caused
by the increase in the prime rate noted above, offset in part by competitive
pressures on loan yields in the Company's markets. The yield on investment
securities has increased as a result of higher interest rates and investing in
corporate bonds and extending maturities. The unrealized loss on
available-for-sale investments has decreased as a result of more favorable
market conditions. The increase in rates was offset in part, due to a decline in
the percentage of loans to total earning assets in the three and nine month
periods of 2000, compared to the same periods in 1999.
Interest expense increased in 2000 as a result of higher interest rates. Average
interest-bearing liabilities decreased by $600,000 in the third quarter of 2000
and increased $14.4 million in the nine months of 2000 as compared to the same
periods in 1999. The rates paid on interest-bearing liabilities increased 52
basis points and 60 basis points for the third quarter and nine months from year
ago levels due to increases in overall interest rate levels. In addition,
average Federal Home Loan Bank borrowings as a percentage of average
interest-bearing liabilities increased to 8.5% in the third quarter of 2000 from
5.7% in the third quarter of 1999 and increased to 8.2% in the nine months of
2000 compared to 4.1% in the nine months of 1999. Also, average time deposits
declined as a percentage of average interest-bearing liabilities in 2000.
Average time deposits as a percentage of interest-bearing liabilities declined
to 41.3% in the third quarter of 2000 from 47.8% in the third quarter of 1999
and declined to 44.6% in the nine months of 2000 from 46.6% in the same period
of 1999. These declines were due to reductions in money desk deposits. The
Company's deposits are concentrated in low and noninterest-bearing transaction
accounts that are not as sensitive to interest rate changes as the Company's
interest earning assets are.
<PAGE>
The following table sets forth the Company's average balance sheets, yields on
earning assets, rates paid on interest-bearing liabilities, net interest margins
and net yields on interest-earning assets for the three and nine month periods
ended September 30, 2000 and 1999 (dollars in millions):
<TABLE>
<CAPTION>
Three months ended September 30,
2000 1999
Average Yields/ Average Yields/
Balance Rates Balance Rates
---------------------------------------------
ASSETS
<S> <C> <C> <C> <C>
Loans, net of unearned income,
discounts and fees ............ $ 128.5 10.00% $ 132.6 9.32%
Investment securities .............. 47.7 7.59 32.6 6.85
Federal funds sold ................. 0.0 0.00 1.6 5.37
--------------------------------------------
Total interest earning assets ...... 176.2 9.35 166.8 8.80
Allowance for loan losses .......... (2.5) (2.5)
Cash and due from banks ............ 10.7 10.0
Other assets ....................... 3.8 3.9
-------------------------------------------
$ 188.2 $ 178.2
===========================================
LIABILITIES AND
SHAREHOLDERS' EQUITY
Time deposits ...................... $ 43.0 5.81% $ 50.0 4.93%
Interest-bearing demand deposits ... 47.7 2.42 42.8 1.97
Savings deposits ................... 4.0 1.29 4.8 1.24
FHLB borrowings .................... 8.8 6.48 6.0 5.10
Other debt ......................... 0.5 16.10 1.0 19.30
---------------------------------------------
Total interest-bearing liabilities . 104.0 4.18 104.6 3.66
Demand deposits .................... 62.2 54.5
Other liabilities .................. 2.4 1.4
Minority interest .................. 8.7 7.8
Shareholders' equity ............... 10.9 9.9
---------------------------------------------
$ 188.2 $ 178.2
=============================================
Net interest margin ................ 5.17% 5.14%
Net yield on interest earning assets 6.88 6.50
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Nine months ended September 30,
2000 1999
Average Yields/ Average Yields/
Balance Rates Balance Rates
------------------------------------------
ASSETS
<S> <C> <C> <C> <C>
Loans, net of unearned income,
discounts and fees ............ $ 132.6 9.81% $ 121.4 9.30%
Investment securities .............. 45.6 7.52 32.0 6.53
Federal funds sold ................. .1 5.33 1.6 5.02
--------------------------------------------
Total interest earning assets ...... 178.3 9.22 155.0 8.68
Allowance for loan losses .......... (2.4) (2.4)
Cash and due from banks ............ 10.2 10.1
Other assets ....................... 4.2 4.0
-------------------------------------------
$ 190.3 $ 166.7
===========================================
LIABILITIES AND
SHAREHOLDERS' EQUITY
Time deposits ...................... $ 48.7 5.52% $ 44.4 4.81%
Interest-bearing demand deposits ... 46.8 2.31 41.1 1.84
Savings deposits ................... 4.6 1.27 4.8 1.37
FHLB borrowings .................... 9.0 6.24 3.9 5.01
Other debt ......................... .5 18.79 1.0 43.30
------------------------------------------
Total interest-bearing liabilities . 109.6 4.09 95.2 3.49
Demand deposits .................... 59.7 52.9
Other liabilities .................. 2.0 1.3
Minority interest .................. 8.4 7.5
Shareholders' equity ............... 10.6 9.8
------------------------------------------
$ 190.3 $ 166.7
===========================================
Net interest margin ................ 5.13% 5.19%
Net yield on interest earning assets 6.70 6.54
</TABLE>
<PAGE>
The increases in interest income and expense and net interest income resulting
from changes in average assets, liabilities and interest rates for the 2000
versus 1999 periods are summarized as follows (in thousands):
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
---------------------------------------------------------
Asset/ Interest Asset/ Interest
Liability Rate Liability Rate
Changes Changes Total Changes Changes Total
---------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Changes in:
Interest income $ 212 $ 237 $ 449 $1,585 $ 653 $2,238
Interest expense (6) 135 129 408 470 878
--------------------------------------------------------
Net interest income . $ 218 $ 102 $ 320 $1,177 $ 183 $1,360
========================================================
</TABLE>
There were no loans on which the accrual of interest had been discontinued at
September 30, 2000. However, there were loans on which the accrual of interest
had been discontinued at September 30, 1999 amounting to $888,000. If these
loans had been current throughout their terms, it is estimated that net interest
income would have increased by approximately $27,000 in the third quarter of
1999. This would have raised the net yield on interest earning assets and the
net interest margin by approximately 6 basis points during the third quarter of
1999.
NONPERFORMING ASSETS AND PROVISION FOR LOAN LOSSES
The following table summarizes the activity in the allowance for loan losses
during the periods indicated (in thousands):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
------------------------------------------
<S> <C> <C> <C> <C>
Allowance for loan losses
balance at beginning of period $ 2,472 $ 2,449 $ 2,457 $ 2,444
Charge-offs ....................... (46) -- (63) (93)
Recoveries ........................ 53 156 85 254
------------------------------------------
Net recoveries .................... 7 156 22 161
Provision for loan losses ......... 20 -- 20 --
------------------------------------------
Allowance for loan losses
balance at end of period ..... $ 2,499 $ 2,605 $ 2,499 $ 2,605
==========================================
</TABLE>
All the above charge-offs and recoveries were at Sunwest. The net recoveries
during the three and nine months ended September 30, 2000, were primarily the
result of improved asset quality.
<PAGE>
Management believes that the allowance for loan losses at September 30, 2000 of
$2.5 million or 2.0% of loans was adequate to absorb known and inherent risks in
the Company's loan portfolio. The ultimate collectibility of a substantial
portion of the Company's loans, as well as its financial condition, is affected
by general economic conditions and the real estate market in California.
California has experienced, and may continue to experience, volatile economic
conditions. These conditions have adversely affected certain borrowers' ability
to repay loans. While Southern California and Orange County economies have
exhibited positive trends for several years, there is no assurance that such
trends will continue. A deterioration in economic conditions could result in a
deterioration in the quality of the loan portfolio and high levels of
nonperforming assets, classified assets and charge-offs, which would require
increased provisions for loan losses and would adversely affect the financial
condition and results of operations of the Company.
A summary of nonperforming assets follows (dollars in thousands):
<TABLE>
<CAPTION>
September 30, December 31, September 30, December 31,
2000 1999 1999 1998
----------------------------------------------------
<S> <C> <C> <C> <C>
Nonaccrual loans ...... $ 0 $ 505 $ 888 $1,360
Loans 90 days past due
and still accruing -- -- -- 1
-------------------------------------------------
Nonperforming loans ... 0 505 888 1,361
Real estate owned ..... 7 502 508 528
-------------------------------------------------
Nonperforming assets .. $ 7 $1,007 $1,396 $1,889
=================================================
Nonperforming loans/
Total loans ....... .00% .38% .66% 1.24%
Nonperforming assets/
Total assets ...... .00% .54% .77% 1.23%
================================================
</TABLE>
Nonperforming assets have declined $1,882,000 from December 31, 1998. The
decrease is due primarily to the sale of real estate owned, one loan placed on
nonaccrual in the second quarter of 1998 that was subsequently repaid in 1999,
one real estate owned that was sold in the second quarter of 2000, and one loan
that was paid off in the third quarter of 2000.
Impaired loans decreased $505,000 from $2.5 million at December 31, 1999 to $2.0
million at September 30, 2000.
Restructured loans that were performing substantially in accordance with their
modified terms totaled $2.0 million at September 30, 2000. No restructured loans
were on nonaccrual status at September 30, 2000.
OTHER OPERATING INCOME
Other operating income declined by $178,000 and $388,000 for the three and nine
months ended September 30, 2000, as compared with the same periods in 1999,
primarily as a result of lower other income. Other income includes recoveries of
interest on loans on nonaccrual in prior years of $93,000 and $295,000 for the
three and nine month periods ended September 30, 1999, as compared to zero for
the same periods in 2000. See note (5) of the notes to consolidated financial
statements.
<PAGE>
OTHER OPERATING EXPENSES
Other operating expenses increased $298,000 and $304,000 in the three and nine
months ended September 30, 2000 from the same periods in 1999. The increase for
the three month period of 2000 was primarily attributed to the increases in
salaries and benefits, customer services, and miscellaneous expenses which
increased $111,000, $60,000, and $63,000, respectively. The increase for the
nine months of 2000 was due mainly to increases in salaries and benefits,
depreciation and amortization, and customer service expenses which increased
$148,000, $157,000, and $159,000, respectively. The increase was partly offset
by professional services expense which declined $149,000, and cost of operation
of REO which declined $136,000. Approximately $90,000 of the decline in
professional services in the first nine months was the result of hiring a
consulting firm to conduct a profit improvement study in 1999. A gain of
$119,000 on the sale of REO was realized in the second quarter of 2000 that
resulted to a lower REO expense. See note (6) of the notes to consolidated
financial statements. Total other operating expenses expressed in dollars and as
a percentage of total revenues and average assets follows (dollars in
thousands):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
-----------------------------------------------
<S> <C> <C> <C> <C>
Other operating expenses ..............$ 2,197 $ 1,899 $ 6,147 $ 5,843
Other operating expenses
(annualized)/average assets ...... 4.7% 4.3% 4.3% 4.7%
Other operating expenses/net interest
income and other operating income. 67.5% 61.0% 63.7% 67.4%
===============================================
</TABLE>
The other operating expense ratios declined during the first nine months of 2000
as a result of expenses growing at a slower rate than assets and revenue;
however, ratios went up during the three months ended September 30, 2000 as
compared to the same period in 1999 as the Company increased its salaries and
customer services expenses in the third quarter of 2000. The Company is
currently assessing its facilities needs in light of its expected future growth
and possible expansion into other areas of Orange County. The Company relocated
its Orange branch to Anaheim in September 2000. Although no other commitment for
additional facilities have been made, it is likely that additional investments
in facilities will be made during 2000.
INCOME TAXES
The Company recognized income tax expense of $446,000 and $90,000, during the
three month periods ended September 30, 2000 and 1999, respectively. Income tax
expense of $1,488,000 and $221,000 were recognized during the nine month periods
ended September 30, 2000 and 1999, respectively. Income tax expense is higher in
2000 due to higher earnings and due to Sunwest fully recognizing the benefits of
its net operating tax loss carryforwards for financial statement purposes.
Sunwest began recording income tax expense at the rate of 41.25% in the fourth
quarter of 1999.
<PAGE>
LIQUIDITY
The Company
Liquidity, as it relates to banking, represents the ability to obtain funds to
meet loan commitments and to satisfy demand for deposit withdrawals.
The principal sources of funds that provide liquidity for Sunwest are maturities
of investment securities and loans, collections on loans, increased deposits and
temporary borrowings. The Company's liquid asset ratio (the sum of cash,
investments available-for-sale, excluding pledged amounts, and Federal funds
sold divided by total assets) was 16% at September 30, 2000 and 17% at December
31, 1999. The Company believes it has sufficient liquid resources, as well as
available credit facilities, to enable it to meet its operating needs.
THE PARENT COMPANY
West Coast's sources of liquidity are limited. West Coast has relied on sales of
assets and borrowings from officers/directors as sources of liquidity. Dividends
from subsidiaries ordinarily provide a source of liquidity to a bank holding
company. Sunwest is prohibited from paying cash dividends without prior
regulatory consent.
During the nine months of 2000 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 September 30, 2000, West Coast had cash and short term investments totaling
$170,000. No significant cash receipts are expected for the remainder of 2000.
West Coast anticipates cash expenditures during 2000 to consist of debt service
payments and other operating expenses. West Coast has a note payable of $363,000
due to its Chairman on November 30, 2000. At this time management believes that
the maturity date will be extended or the note exchanged for common stock;
however, no amendments have yet been made to the note. Except for the final
payment on the note payable, West Coast's projected debt service for the
remainder of 2000 is expected to total $12,000. West Coast anticipates that
other operating expenses will be approximately $28,000 during the remainder of
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 14.10%, 15.36% and 11.26% Tier 1 risk-based capital, total
risk-based capital and leverage ratio at September 30, 2000, respectively.
Sunwest had a 14.54%, 15.79% and 11.52% Tier 1 risk-based capital, total
risk-based capital and leverage ratio at September 30, 2000, 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 September
30, 2000.
<PAGE>
WEST COAST BANCORP AND SUBSIDIARIES
SEPTEMBER 30, 2000
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
-------------------------------
NONE
Item 2. Changes in Securities
-----------------------------------
NONE
Item 3. Defaults Upon Senior Securities
---------------------------------------------
NONE
Item 4. Submission of Matters to a Vote of Security Holders
-----------------------------------------------------------------
West Coast Bancorp held its Annual Meeting of Shareholders (the "Meeting") on
August 22, 2000.
At the Meeting, the following individuals were elected to serve as directors
until the 2001 Annual Meeting of Shareholders and until their successors are
elected and have qualified:
Authority
Name of Director Votes For Withheld
---------------- --------- --------
Michael A. Cohen 5,942,280 77,183
Robert W. Hodgson 5,936,396 83,067
Eric D. Hovde 5,943,916 75,547
James G. Lesieur 5,940,011 79,452
John H. Norberg 5,944,396 75,067
Richard L. Shepley 5,936,396 83,067
Item 5. Other Information
-------------------------------
NONE
Item 6. Exhibits and Reports on Form 8-K
----------------------------------------------
(a) Exhibits
Exhibit 27 - Financial Data Schedule for September 30, 2000
(b) Reports on Form 8-K
None
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
WEST COAST BANCORP
/s/Eric D. Hovde November 9, 2000
----------------------------------------- ----------------------
Eric D. Hovde Date
Chief Executive Officer
/s/Frank E. Smith November 9, 2000
----------------------------------------- ----------------------
Frank E. Smith Date
Chief Financial Officer
