<PAGE> 1
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 March 31, 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 April 30, 2000:
9,328,942
Transitional Small Business Disclosure Format Yes No X
--- ---
This document contains a total of 18 pages.
<PAGE> 2
WEST COAST BANCORP AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
(in thousands, except share data) 2000 1999
(Unaudited)
----------- ------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 9,880 $ 5,574
Federal funds sold -- 6,250
Investment securities available-for-sale
at fair value 43,693 39,492
Loans 137,825 133,008
Less allowance for loan losses (2,468) (2,457)
--------- ---------
Net loans 135,357 130,551
--------- ---------
Real estate owned, net 495 502
Premises and equipment, net 947 1,041
Deferred taxes 1,649 1,976
Other assets 1,505 1,437
--------- ---------
$ 193,526 $ 186,823
========= =========
LIABILITIES
Deposits:
Demand, non interest-bearing $ 58,003 $ 53,723
Savings, money market & interest-bearing demand 52,636 50,738
Time certificates under $100,000 20,981 22,273
Time certificates of $100,000 or more 32,334 31,912
--------- ---------
Total deposits 163,954 158,646
Federal Home Loan Bank borrowings 9,000 8,000
Other borrowed funds 528 541
Capital lease obligation 122 158
Other liabilities 1,401 1,516
--------- ---------
Total liabilities 175,005 168,861
Commitments and contingencies
Minority interest in subsidiary 8,300 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 (19,328) (19,737)
Accumulated other comprehensive income - net of tax (802) (697)
--------- ---------
Total shareholders' equity 10,221 9,917
--------- ---------
$ 193,526 $ 186,823
========= =========
</TABLE>
(See accompanying notes to consolidated financial statements)
2
<PAGE> 3
WEST COAST BANCORP AND SUBSIDIARIES
CONSOLIDATED INCOME STATEMENTS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
(in thousands, March 31,
except share data) 2000 1999
------ ------
<S> <C> <C>
INTEREST INCOME:
Loans, including fees $3,280 $2,607
Federal funds sold 2 37
Investment securities 801 506
------ ------
Total interest income 4,083 3,150
INTEREST EXPENSE:
Interest on deposits 960 694
Other 159 66
------ ------
Total interest expense 1,119 760
------ ------
Net interest income 2,964 2,390
Provision for loan losses -- --
------ ------
Net interest income after
provision for loan losses 2,964 2,390
Other operating income 230 257
Other operating expenses 1,906 1,970
Minority interest in net income of subsidiary 336 279
------ ------
Income before income taxes 952 398
Income tax expense 543 60
------ ------
Net income $ 409 $ 338
====== ======
Basic and diluted earnings per share $ .04 $ .04
====== ======
</TABLE>
(See accompanying notes to consolidated financial statements)
3
<PAGE> 4
WEST COAST BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months Ended
March 31,
(in thousands) 2000 1999
----- -----
<S> <C> <C>
Net income $ 409 $ 338
Other comprehensive income, net of tax:
Unrealized loss on
available-for-sale investments
arising during period (105) (12)
----- -----
Other comprehensive income (loss) (105) (12)
----- -----
Comprehensive income $ 304 $ 326
===== =====
</TABLE>
(See accompanying notes to consolidated financial statements)
4
<PAGE> 5
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 -- -- -- 409 409
Change in net unrealized
loss on available-for-sale
investments -- -- (105) -- (105)
----- ------- ----- -------- --------
Balance at March 31, 2000 9,329 $30,351 $(802) $(19,328) $ 10,221
===== ======= ===== ======== ========
</TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three Months Ended
March 31,
(in thousands) 2000 1999
------- -----
<S> <C> <C>
Cash flows from operating activities:
Net income $ 409 $ 338
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 131 71
Amortization and accretion from investment securities 16 64
Minority interest in net income of subsidiary 337 279
Write-down of real estate owned 7 6
Deferred tax benefit (220) --
Decrease in other assets 598 33
Decrease in other liabilities (115) (46)
------- -----
Net cash provided by operating activities 1,163 745
</TABLE>
(Continued)
(See accompanying notes to consolidated financial statements)
5
<PAGE> 6
WEST COAST BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
(in thousands) March 31,
2000 1999
-------- --------
<S> <C> <C>
Cash flows from investing activities:
Purchase of interest bearing deposits $ (99) $ --
Proceeds from maturities and paydowns of investment
securities available-for-sale 657 1,487
Purchase of investment securities available-for-sale (5,081) --
Net increase in loans (4,805) (3,553)
Purchase of premises and equipment (37) (124)
-------- --------
Net cash used in investing activities (9,365) (2,190)
Cash flows from financing activities:
Net increase (decrease) in deposits 5,307 (76)
Principal payments on other borrowed funds (13) (12)
Repayment of capital lease obligation (36) (22)
Borrowed funds from Federal Home Loan Bank 1,000 --
-------- --------
Net cash provided by (used in) financing activities 6,258 (110)
-------- --------
Decrease in cash and cash equivalents (1,944) (1,555)
Cash and cash equivalents at beginning of year 11,824 13,834
-------- --------
Cash and cash equivalents at end of year $ 9,880 $ 12,279
======== ========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 1,015 $ 755
Income taxes 55 10
</TABLE>
(See accompanying notes to consolidated financial statements)
6
<PAGE> 7
WEST COAST BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 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 statement
of the results of operations for the interim periods. Results for the
period ended March 31, 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.
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.
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.
7
<PAGE> 8
WEST COAST BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000
(Unaudited)
(3) EARNINGS PER SHARE
The following is a reconciliation of basic earnings per share (EPS) to
diluted EPS for the three month periods ended March 31, 2000 and 1999.
<TABLE>
<CAPTION>
(dollars and shares in thousands) Three months ended March 31, 2000:
Net Per Share
Income Shares Amount
------ ------ ---------
<S> <C> <C> <C>
Basic EPS:
Income available to common shareholders $409 9,329 $0.04
Effect of Dilutive Securities:
Stock options -- -- --
---- ----- -----
Diluted EPS:
Income available to common shareholders
plus assumed conversions $409 9,329 $0.04
==== ===== =====
</TABLE>
<TABLE>
<CAPTION>
Three months ended March 31, 1999:
Net Per Share
Income Shares Amount
------ ------ ---------
<S> <C> <C> <C>
Basic EPS:
Income available to common shareholders $338 9,259 $0.04
Effect of Dilutive Securities:
Stock options -- 4 --
---- ----- -----
Diluted EPS:
Income available to common shareholders
plus assumed conversions $338 9,263 $0.04
==== ===== =====
</TABLE>
(4) LOANS
A summary of loans follows:
<TABLE>
<CAPTION>
March 31, December 31,
(in thousands) 2000 1999
--------- ------------
<S> <C> <C>
Commercial loans not secured by real estate $ 44,759 $ 42,162
Real estate mortgage loans 90,018 87,548
Real estate construction 1,935 1,957
Personal loans not secured by real estate 1,472 1,698
Unearned income, discounts and fees (359) (357)
--------- ---------
$ 137,825 $ 133,008
========= =========
</TABLE>
8
<PAGE> 9
WEST COAST BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000
(Unaudited)
(5) OTHER OPERATING INCOME
A summary of other operating income follows:
<TABLE>
<CAPTION>
Three Months Ended
March 31,
(in thousands) 2000 1999
---- ----
<S> <C> <C>
Depositor charges $196 $165
Service charges, commissions & fees 29 43
Other income 5 49
---- ----
$230 $257
==== ====
</TABLE>
(6) OTHER OPERATING EXPENSES
A summary of other operating expenses is as follows:
<TABLE>
<CAPTION>
Three Months Ended
March 31,
(in thousands) 2000 1999
------ ------
<S> <C> <C>
Salaries and employee benefits $ 935 $ 982
Occupancy 206 166
Customer service 189 158
Data processing 144 139
Depreciation and amortization 131 71
Professional services 78 204
Advertising and promotion 35 69
Telephone and telefax 23 24
Stationary and supplies 20 28
Printing & postage 18 26
Regulatory fees and assessments 14 8
Director fees 13 13
Net cost of operation of real estate owned 9 5
Miscellaneous 91 77
------ ------
$1,906 $1,970
====== ======
</TABLE>
9
<PAGE> 10
WEST COAST BANCORP AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
MARCH 31, 2000
(Unaudited)
The following presents management's discussion and analysis of the consolidated
financial condition and operating results of West Coast Bancorp (as a separate
entity "West Coast" and together with its subsidiaries the "Company") for the
three month periods ended March 31, 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-Q 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,
year 2000 issues 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 $409,000, or $.04 per share, during the three
months ended March 31, 2000, as compared with income of $338,000, or $.04 per
share, during the same period in 1999. The 2000 figures include the effects of
recording a tax provision of $543,000 compared to $60,000 in 1999. The higher
pretax income in 2000 versus 1999 occurred primarily because Sunwest had higher
earnings in 2000. Sunwest's higher earnings were primarily due to increased
growth in net interest income and fees from growth in assets and deposits.
The Company had total assets, loans and deposits as follows:
<TABLE>
<CAPTION>
March 31, December 31, March 31, December 31,
2000 1999 1999 1998
(in thousands) --------- ------------ --------- ------------
<S> <C> <C> <C> <C>
Total assets $193,526 $186,823 $154,223 $153,784
Loans 137,825 133,008 113,031 109,547
Deposits 163,954 158,646 133,663 133,739
</TABLE>
The $39 million increase in total assets from March 31, 1999 to March 31, 2000,
occurred primarily due to a $25 million increase in loans at Sunwest from
increased marketing efforts and due to the expanding economy in Orange County,
California. The increase in assets was funded by an increase in deposits of $30
million, an increase in borrowings and other liabilities of $7 million and
earnings of $2 million.
10
<PAGE> 11
WEST COAST BANCORP AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
MARCH 31, 2000
(Unaudited)
RESULTS OF OPERATIONS
NET INTEREST INCOME
The increase in net interest income in 2000 resulted primarily from higher
volumes of interest earning assets. The improved mix of interest earning assets
and deposits favorably impacted net interest income. Average interest earning
assets increased $30 million, or 20% in 2000.
The net interest margin (yield on interest earning assets less the rate paid on
interest bearing liabilities) and the net yield on interest earning assets (net
interest income divided by average earning assets) both increased in 2000. This
was a result of an increase in the general level of interest rates during the
past year. The Company has more interest rate sensitive earning assets than
interest bearing liabilities. As a result, margins tend to increase during
periods of rising interest rates. 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 a 45 basis point
increase in loan yields. 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 increased as a result of
higher interest rates.
Interest expense increased in 2000 as a result of increased volumes and higher
interest rates. Average interest bearing liabilities increased by $22 million
from 1999.
The rates paid on interest bearing liabilities increased 61 basis points from
year ago levels. This was 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 from 2% in 1999 to 8% in 2000. 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. However, asset growth over the past year has relied
to a greater extent on increases in time deposits and borrowed funds, thereby
increasing the rate paid on interest bearing liabilities.
11
<PAGE> 12
WEST COAST BANCORP AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
MARCH 31, 2000
(Unaudited)
The following table sets forth the Company's average balance sheets, yields on
earning assets, rates paid on interest-bearing liabilities, net interest margins
and net yields on interest-earning assets for the three month periods ended
March 31, 2000 and 1999 (dollars in millions):
<TABLE>
<CAPTION>
2000 1999
Average Yields/ Average Yields/
Balance Rates Balance Rates
------- ------- ------- -------
<S> <C> <C> <C> <C>
ASSETS
Loans, net of unearned income,
discounts and fees $134.2 9.78% $111.8 9.33%
Investment securities 42.9 7.47 32.3 6.47
Federal funds sold .2 4.17 3.1 4.81
Interest bearing deposits
with financial institutions -- 5.76 -- 4.74
------ ----- ------ -----
Total interest earning assets 177.3 9.22 147.2 8.56
Allowance for loan losses (2.5) (2.4)
Cash and due from banks 9.2 10.3
Other assets 4.8 4.5
------ ----- ------ -----
$188.8 $159.6
====== ===== ====== =====
LIABILITIES AND
SHAREHOLDERS' EQUITY
Time deposits $ 52.3 5.31% $ 41.1 4.81%
Interest-bearing demand deposits 45.4 2.20 40.9 1.76
Savings deposits 5.3 1.29 5.0 1.53
FHLB borrowings 8.4 6.10 2.0 5.00
Other debt .7 16.41 .8 20.02
------ ----- ------ -----
Total interest bearing liabilities 112.1 3.99 89.8 3.38
Demand deposits 56.7 51.3
Other liabilities 1.6 1.3
Minority interest 8.1 7.2
Shareholders' equity 10.3 10.0
------ ----- ------ -----
$188.8 $159.6
====== ===== ====== =====
Net interest margin 5.23% 5.18%
Net yield on interest earning assets 6.69 6.50
</TABLE>
12
<PAGE> 13
WEST COAST BANCORP AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
MARCH 31, 2000
(Unaudited)
The increases (decreases) in interest income and expense and net interest income
resulting from changes in average assets, liabilities and interest rates for the
2000 versus 1999 periods are summarized as follows (in thousands):
<TABLE>
<CAPTION>
Three Months Ended March 31,
------------------------------
Asset/ Interest
Liability Rate
Changes Changes Total
--------- -------- -----
<S> <C> <C> <C>
Changes in:
Interest income $703 $230 $933
Interest expense 250 109 359
---- ---- ----
Net interest income $453 $121 $574
==== ==== ====
</TABLE>
Loans on which the accrual of interest had been discontinued at March 31, 2000
and 1999 amounted to $505,000 and $1,238,000, respectively. If these loans had
been current throughout their terms, it is estimated that net interest income
would have increased by approximately $14,000 and $41,000 in the first quarter
of 2000 and 1999, respectively. This would have raised the net yield on interest
earning assets and the net interest margin by approximately 3 basis points and
11 basis points during the first quarter of 2000 and 1999, respectively.
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
March 31,
2000 1999
------ -------
<S> <C> <C>
Allowance for loan losses
balance at beginning of period $2,457 $ 2,444
Charge-offs -- (93)
Recoveries 11 24
------ -------
Net recoveries (charge-offs) 11 (69)
Provision for loan losses -- --
------ -------
Allowance for loan losses
balance at end of period $2,468 $ 2,375
====== =======
</TABLE>
All the above charge-offs and recoveries were at Sunwest. The net charge-offs
during the first quarter 1999 are primarily the result of a single charge-off.
13
<PAGE> 14
WEST COAST BANCORP AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
MARCH 31, 2000
(Unaudited)
Management believes that the allowance for loan losses at March 31, 2000 of
$2,468,000 or 1.80% 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>
March 31, December 31, March 31, December 31,
2000 1999 1999 1998
--------- ------------ --------- ------------
<S> <C> <C> <C> <C>
Nonaccrual loans $ 505 $ 505 $1,238 $1,360
Loans 90 days past due
and still accruing 13 -- -- 1
------ ------ ------ ------
Nonperforming loans 518 505 1,238 1,361
Real estate owned 495 502 522 528
------ ------ ------ ------
Nonperforming assets $1,013 $1,007 $1,760 $1,889
====== ====== ====== ======
Nonperforming loans/
Total loans .38% .38% 1.10% 1.24%
Nonperforming assets/
Total assets .52% .54% 1.14% 1.23%
====== ====== ====== ======
</TABLE>
Nonperforming assets have declined approximately $876,000 from December 31,
1998. The decrease is due primarily to one loan placed on nonaccrual in the
second quarter of 1998 that was subsequently repaid in 1999.
Impaired loans have not changed significantly from the amounts reported at
December 31, 1999.
Restructured loans that were performing substantially in accordance with their
modified terms totaled $2.0 million at March 31, 2000. No restructured loans
were on nonaccrual status at March 31, 2000.
OTHER OPERATING INCOME
Other operating income declined by $27,000 for the three months ended March 31,
2000, as compared with the same period in 1999, primarily as a result of lower
service charges and other income, offset in part by higher depositor charges.
See note (5) of the notes to consolidated financial statements.
14
<PAGE> 15
WEST COAST BANCORP AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
MARCH 31, 2000
(Unaudited)
OTHER OPERATING EXPENSES
Other operating expenses declined $64,000 in the three months ended March 31,
2000 from the same period in 1999. The largest decline was in professional
services expense which declined $126,000. Approximately $90,000 of this decline
was the result of hiring a consulting firm to conduct a profit improvement study
in 1999. 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
March 31,
2000 1999
------ ------
<S> <C> <C>
Other operating expenses $1,906 $1,970
Other operating expenses
(annualized)/average assets 4.04% 4.94%
Other operating expenses/net interest income
and other operating income 59.7% 70.7%
====== ======
</TABLE>
The other operating expense ratios declined as a result of expenses growing at a
slower rate than assets and revenue; however, as the Company grows it is likely
that operating expenses will also increase. The Company is currently assessing
its facilities needs in light of its expected future growth and possible
expansion into other areas of Orange County. Although no commitments for new
facilities have been made, it is likely that additional investments in
facilities will be made during 2000.
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 March 31, 2000 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.
INCOME TAXES
The Company recognized income tax expense of $543,000 and $60,000, during the
three month periods ended March 31, 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.
15
<PAGE> 16
WEST COAST BANCORP AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
MARCH 31, 2000
(Unaudited)
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 March 31, 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 first quarter 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 March 31, 2000, West Coast had cash and short term investments totaling
$254,000. 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 $384,000
due to its Chairman on June 30, 2000. At this time management believes that the
maturity date will be extended; however, no amendments have yet been made to the
note. West Coast's projected debt service for the remainder of 2000 is expected
to total $63,000. West Coast anticipates that other operating expenses will be
approximately $76,000 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 12.20%, 13.45% and 10.25% Tier 1 risk-based capital, total
risk-based capital and leverage ratio at March 31, 2000, respectively. Sunwest
had a 12.51%, 13.77% and 10.78% Tier 1 risk-based capital, total risk-based
capital and leverage ratio at March 31, 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 March 31,
2000.
16
<PAGE> 17
WEST COAST BANCORP AND SUBSIDIARIES
MARCH 31, 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
NONE
Item 5. Other Information
NONE
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 27 - Financial Data Schedule for March 31, 2000
(b) Reports on Form 8-K
None
17
<PAGE> 18
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 May 12, 2000
- ----------------------------------------- -----------------
Eric D. Hovde Date
Chief Executive Officer
/s/ Frank E. Smith May 12, 2000
- ----------------------------------------- -----------------
Frank E. Smith Date
Chief Financial Officer
18
<PAGE> 19
EXHIBIT INDEX
Exhibit
Number Description
- ------ -----------
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-2000
<CASH> 9,880
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 43,693
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 137,825
<ALLOWANCE> 2,468
<TOTAL-ASSETS> 193,526
<DEPOSITS> 163,954
<SHORT-TERM> 9,650
<LIABILITIES-OTHER> 1,401
<LONG-TERM> 0
0
0
<COMMON> 30,351
<OTHER-SE> 19,328
<TOTAL-LIABILITIES-AND-EQUITY> 193,526
<INTEREST-LOAN> 3,280
<INTEREST-INVEST> 803
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 4,083
<INTEREST-DEPOSIT> 960
<INTEREST-EXPENSE> 1,119
<INTEREST-INCOME-NET> 2,964
<LOAN-LOSSES> 0
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 1,906
<INCOME-PRETAX> 952
<INCOME-PRE-EXTRAORDINARY> 952
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 409
<EPS-BASIC> .04
<EPS-DILUTED> .04
<YIELD-ACTUAL> 6.69
<LOANS-NON> 505
<LOANS-PAST> 13
<LOANS-TROUBLED> 2,000
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 2,457
<CHARGE-OFFS> 0
<RECOVERIES> 11
<ALLOWANCE-CLOSE> 2,468
<ALLOWANCE-DOMESTIC> 2,468
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
