<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED
For the quarterly period ended September 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM __________________
to __________________
Commission file number 0-10794
STERLING WEST BANCORP
(Exact name of registrant as specified in its charter)
CALIFORNIA 95-3712404
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3287 WILSHIRE BOULEVARD, LOS ANGELES, CALIFORNIA 90010
(Address of principal executive offices) (Zip Code)
(213) 384-4444
(Registrant's telephone number, including area code)
Indicate by check whether the registrant (1) has field all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 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 the registrant's sole class of common stock at
November 13, 1997: 1,710,214
<PAGE> 2
STERLING WEST BANCORP
SEPTEMBER 30, 1997 QUARTERLY REPORT ON FORM 10-Q
INDEX
PART I
FINANCIAL INFORMATION
Item 1.Financial Statements
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
PART II
OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
2
<PAGE> 3
PART I: FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
Sterling West Bancorp and Subsidiaries
CONSOLIDATED BALANCE SHEETS
<TABLE>
September 30, December 31,
1997 1996
------------- -------------
(Unaudited)
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 17,847,000 $ 24,322,000
Securities held to maturity
(fair value of $11,380,000 at
September 30, 1997 and
$7,204,000 at December 31, 1996) 11,338,000 7,224,000
Loans receivable, net 67,107,000 67,629,000
Real estate held for sale 2,435,000 2,749,000
Fixed assets
Land and building 246,000 243,000
Furniture and equipment 3,200,000 3,088,000
Leasehold improvements 1,408,000 1,408,000
------------- -------------
4,854,000 4,739,000
Less: accumulated depreciation (3,767,000) (3,583,000)
------------- -------------
1,087,000 1,156,000
Accrued interest receivable 689,000 589,000
Other assets 727,000 892,000
------------- -------------
$ 101,230,000 $ 104,561,000
============= =============
LIABILITIES
Deposits
Demand $ 29,442,000 $ 32,541,000
Savings and NOW 49,313,000 50,786,000
Money market 6,114,000 5,778,000
Time deposits $100,000 or greater 5,054,000 3,720,000
Other time deposits 2,871,000 3,361,000
------------- -------------
92,794,000 96,186,000
Notes payable 800,000 --
Other liabilities 908,000 1,114,000
------------- -------------
94,502,000 97,300,000
Commitments and contingencies
STOCKHOLDERS' EQUITY
Common stock - authorized 5,000,000
shares without par value; issued and
outstanding 1,710,214 shares in 1997
and 1996 8,686,000 8,686,000
Accumulated deficit, restricted (1,958,000) (1,425,000)
------------- -------------
6,728,000 7,261,000
------------- -------------
Total liabilities & stockholders equity $ 101,230,000 $ 104,561,000
============= =============
</TABLE>
3
<PAGE> 4
PART I: FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
Sterling West Bancorp and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the three For the three For the nine For the nine
months ended months ended months ended months ended
September 30, September 30, September 30, September 30,
1997 1996 1997 1996
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Interest income
Loans $ 1,768,000 $ 1,866,000 $ 5,196,000 $ 5,787,000
Federal funds sold 211,000 196,000 565,000 574,000
Securities held to maturity 175,000 110,000 517,000 346,000
----------- ----------- ----------- -----------
2,154,000 2,172,000 6,278,000 6,707,000
Interest expense
Savings and NOW 520,000 491,000 1,505,000 1,542,000
Money market 29,000 26,000 86,000 66,000
Time deposits $100,000 or greater 61,000 62,000 115,000 183,000
Other time deposits 31,000 25,000 176,000 85,000
Notes payable 22,000 8,000 25,000 44,000
----------- ----------- ----------- -----------
663,000 612,000 1,907,000 1,920,000
----------- ----------- ----------- -----------
Net interest income 1,491,000 1,560,000 4,371,000 4,787,000
Provision for loan losses 188,000 84,000 1,227,000 265,000
----------- ----------- ----------- -----------
Net interest income after provision
for loan losses 1,303,000 1,476,000 3,144,000 4,522,000
Non-interest income
Service charges on deposit accounts 154,000 147,000 494,000 373,000
Gain on sale of SBA loans -- -- 229,000 11,000
Other 84,000 51,000 134,000 639,000
----------- ----------- ----------- -----------
238,000 198,000 857,000 1,023,000
Non-interest expenses
Salaries and employee benefits 730,000 695,000 2,155,000 2,220,000
Occupancy 197,000 206,000 608,000 633,000
Furniture and equipment 51,000 55,000 152,000 187,000
Real estate operations, net -- 112,000 186,000 381,000
Other 456,000 535,000 1,431,000 1,568,000
----------- ----------- ----------- -----------
1,434,000 1,603,000 4,532,000 4,989,000
----------- ----------- ----------- -----------
Income before income taxes 107,000 71,000 (531,000) 556,000
Income tax provision -- 31,000 2,000 241,000
----------- ----------- ----------- -----------
Net income $ 107,000 $ 40,000 $ (533,000) $ 315,000
=========== =========== =========== ===========
Net income per share $ 0.06 $ 0.02 $ (0.31) $ 0.18
=========== =========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements
4
<PAGE> 5
PART I: FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
Sterling West Bancorp and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Nine Months ended
September 30,
1997 1996
------------ ------------
<S> <C> <C>
Cash flows from operating activities
Net income(loss) $ (533,000) $ 315,000
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 184,000 158,000
Provision for loan losses 1,227,000 265,000
Provision for real estate held for sale 320,000 442,000
(Increase) decrease in accrued interest receivable (100,000) 49,000
Decrease in other assets 165,000 918,000
Increase (decrease) in other liabilities (206,000) 354,000
------------ ------------
Total adjustments: 1,590,000 2,186,000
------------ ------------
Net cash provided by operating activities 1,057,000 2,501,000
Cash flows from investing activities
Proceeds from maturities of securities 1,398,000 1,375,000
Purchase of securities (5,513,000) (590,000)
Net (increase) decrease in loans receivable (1,749,000) 2,884,000
Proceeds from sale of real estate 1,039,000 1,583,000
Purchase of fixed assets (116,000) (129,000)
------------ ------------
Net cash provided by investment(used in)
investing activities (4,941,000) 5,123,000
Cash flows from financing activities
Net decrease in demand deposits, savings
and other money market accounts (4,236,000) (23,440,000)
Net increase in time deposits 844,000 370,000
Net (increase) decrease in notes payable 800,000 (1,372,000)
------------ ------------
Net cash used in financing activities (2,592,000) (24,442,000)
------------ ------------
Net decrease in cash and cash equivalents (6,476,000) (16,818,000)
Cash and cash equivalents at beginning of period 24,323,000 36,072,000
------------ ------------
Cash and cash equivalents at end of period $ 17,847,000 $ 19,254,000
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE> 6
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS
NOTE 1. PRESENTATION OF FINANCIAL INFORMATION
The accompanying unaudited consolidated interim financial statements have been
prepared in accordance with generally accepted accounting principles ("GAAP")
for interim financial information and are in compliance with the instructions
for Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include
all of the information and footnotes required by GAAP for complete financial
statements. The accompanying unaudited consolidated interim financial statements
should be read in conjunction with the financial statements and the related
Management's Discussion and Analysis of Financial Condition and Results of
Operations filed with the Annual Report on Form 10-K for the year ended December
31, 1996 of Sterling West Bancorp (the "Company"). In the opinion of Management,
all adjustments (consisting only of normal recurring accruals) considered
necessary for a fair presentation have been included. The Results of Operations
for the nine months ended September 30, 1997, are not necessarily indicative of
results that may be expected for the entire year ending December 31, 1997.
Certain prior period amounts have been reclassified to conform to the current
period presentation.
NOTE 2. COMMITMENTS TO EXTEND CREDIT
In the ordinary course of business the Company enters into commitments to extend
credit to its customers. These commitments are not reflected in the accompanying
consolidated financial statements and Management does not expect any loss to
result from such commitments. As of September 30, 1997 and December 31, 1996 the
Company had entered into the following commitments:
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
----------------------------------------
<S> <C> <C>
Letters of Credit $ 145,000 $ 255,000
Undisbursed Loan Commitments $9,318,000 $8,188,000
</TABLE>
NOTE 3. EARNINGS PER SHARE
Earnings per share amounts have been computed using the weighted average number
of common shares and dilutive common equivalent shares outstanding. The number
of such primary shares are 1,710,214 for the periods ended September 30, 1997
and December 31, 1996.
NOTE 4. CASH AND CASH EQUIVALENTS
The cash and cash equivalents at September 30, 1997 and December 31, 1996 are as
follows:
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
----------------------------------------
<S> <C> <C>
Cash & non-interest bearing deposits $ 5,847,000 $ 5,929,000
Federal funds sold $12,000,000 $18,393,000
</TABLE>
6
<PAGE> 7
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Management's Discussion and Analysis of Financial Condition and Results of
Operations is intended to provide a better understanding of the material changes
in trends relating to the financial condition, results of operations, and
liquidity of the Company. The discussion and analysis for the third quarter and
nine months ended September 30, 1997 and September 30, 1996, primarily reflect
the operations of Sterling Bank ("the Bank"). Sterling Business Credit, Inc.
("Business Credit") made no material contribution to the financial results for
the quarters ended September 30, 1997 and 1996, respectively. The Bank and
Business Credit are wholly-owned subsidiaries of the Company. Unless otherwise
specified, the discussion below relates to the Company's consolidated financial
condition and operations.
Discussions of certain matters contained in this Quarterly Report on Form 10-Q
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 -- Factors That May Affect Future Results"
contained in the Company's Annual Report on Form 10-K for the year ended
December 31, 1996.
Financial Condition
At September 30, 1997, assets of the Company were $101,230,000, a decrease of
$3.3 million or 3.2% from $104,561,000 at December 31, 1996. The change in
assets was primarily attributable to decreases in federal funds sold, offset to
a lesser extent by increases in securities held to maturity.
Federal funds sold decreased to $12.0 million at September 30, 1997 from $18.4
million at December 31, 1996, while securities held to maturity increased to
$11.3 million at September 30, 1997 from $7.2 million at December 31, 1996. This
shift is primarily related to the decision by the asset-liability committee of
the Bank to employ excess liquidity to securities held to maturity. See
Liquidity and Capital Resources discussions below.
Loans receivable, net, decreased modestly to $67.1 million at September 30, 1997
from $67.6 million at December 31, 1996. Average loans outstanding during the
third quarter of 1997 were $66.9 million an increase of 2.7% or $1.8 million
from the second quarter of 1997. The increase is the result of new loan
originations.
7
<PAGE> 8
Financial Condition (continued)
The following table summarizes the nonperforming assets of the Company at the
dates indicated:
<TABLE>
<CAPTION>
(Dollars in thousands) September 30, December 31, September 30,
1997 1996 1996
------------- ------------ -------------
<S> <C> <C> <C>
Nonaccrual loans $1,260 $1,964 $1,179
Real estate held for sale $2,435 $2,749 $2,384
------ ------ ------
Total nonperforming assets $3,695 $4,713 $3,563
====== ====== ======
Nonperforming assets as a % of total assets 3.65% 4.51% 3.61%
Nonaccrual loans as a % of total loans receivable 1.83% 2.85% 1.71%
</TABLE>
Total nonperforming assets at September 30, 1997 decreased by 21.6% from
December 31, 1996, and by 3.7% from September 30, 1996, and represented 3.65%,
4.51% and 3.61% of total assets, at such dates.
Nonaccrual loans decreased to $1.1 million at September 30, 1997 from $2.0
million and $1.2 million at December 31, 1996 and September 30, 1996,
respectively. Real estate held for sale declined to $2.4 million at September
30, 1997 from $2.7 million and $2.4 million at December 31, 1996 and September
30, 1996, respectively. The decline in nonaccrual loans, as well as real estate
held for sale is a result of the Company's continued efforts to liquidate
nonperforming assets to minimum levels.
It is the Company's general policy to account for a loan as nonaccrual when the
loan becomes 90 days delinquent or when collection of interest appears doubtful.
Any interest previously accrued with respect to nonaccrual loans is reversed and
charged against interest income. Interest income is recognized on nonaccrual
loans to the extent that payments are received and to the extent that the
Company believes it will recover the remaining principal balance of the loan. No
further interest income is recognized on such loans until a subsequent
determination removes doubt as to collectibility.
Real estate held for sale at September 30, 1997, is stated at the estimated fair
value less estimated selling costs. Further foreclosures may occur and no
assurance can be given that additional losses will not occur in excess of
existing allowances.
Liquidity
The Company's most liquid assets are cash and cash equivalents and its
investment portfolio. The levels of these assets are dependent on the Company's
operating, financing and investing activities during any given period. The
liquidity needs of the Company primarily relate to the Bank.
The Bank's primary sources of funds are deposits and principal and interest
payments on its loan and securities portfolios. While maturities and scheduled
amortization of loans and securities are, in general, a predictable source of
funds, deposit flows and loan prepayments are greatly influenced by general
interest rates, economic conditions and competition.
8
<PAGE> 9
Liquidity (continued)
The Bank had available $12.0 million of federal funds sold and a $11.3 million
investment portfolio at September 30, 1997, all of which could be used as
immediate sources of funds. In addition, the Bank has access to a $3.5 million
federal funds purchase line of credit from Community Bank, subject to
cancellation, which the Bank can use to meet short term needs. The Bank also has
access to funds through the Federal Reserve Bank discount window. The Bank
maintained at September 30, 1997, approximately 29% of its total assets in
liquid assets.
Total deposits decreased by $3.4 million, or 3.5%, comprised of a $3.1 million
decrease in demand deposits a $1.5 million decrease in savings and now deposits
and a $0.5 million decrease in other time deposits, which were offset by a $1.7
million net increase in time deposits $100,000 or greater and money market
accounts, at September 30, 1997 as compared to December 31, 1996. The overall
decline in total deposits is the result of what management believes to be normal
fluctuations in deposits and ongoing liquidity management by the Banks
asset-liability committee.
Notes Payable
At September 30, 1997 the Company had outstanding $800,000 of promissory notes
issued to certain Directors of the Company, during the second quarter of 1997.
The proceeds of these notes were used by the Company to reimburse the Bank for a
tax receivable from the Company. This balance results from the filing of
consolidated tax returns of the Company, under an agreement, with its
subsidiaries, which has been in effect for many years. The tax receivable
represented the tax impact of prior operating losses at Sterling Bank, which
were utilized on a consolidated basis, against the profits earned in Sterling
Business Credit and from the gain on the sale of Sterling Business Credit
assets.
Capital Resources
Management seeks to maintain a level of capital adequate to support asset growth
and credit risks and to ensure that the Company is within established regulatory
guidelines and industry standards. The Company and the Bank are required to
achieve certain risk-based capital standards and leverage capital standards. The
risk-based capital standards establish capital requirements that are more
sensitive to risk differences between various assets, consider off balance sheet
activities in assessing capital adequacy, and minimize the disincentive to
holding liquid, low risk assets.
During the second quarter of 1997, the Company engaged the investment banking
firm of Hoefer & Arnett, Inc. to assist it in evaluating alternative strategies
for enhancing shareholder value.
9
<PAGE> 10
Capital Resources (continued)
The following table sets forth the regulatory capital ratios of the
Company and the Bank at September 30, 1997 (dollars in thousands):
<TABLE>
<CAPTION>
Company Bank
---------------------- ----------------------
Risk Weighted Amount Ratio Amount Ratio
-------- ----- -------- -----
<S> <C> <C> <C> <C>
Tier 1 Capital $ 6,729 9.14% $ 6,992 9.52%
Tier 1 Capital
minimum requirement $ 2,944 4.00% $ 2,937 4.00%
-------- ----- -------- -----
Excess $ 3,785 5.14% $ 4,055 5.52%
Total capital $ 7,658 10.40% $ 7,917 10.78%
Total capital
minimum requirement $ 5,889 8.00% $ 5,874 8.00%
-------- ----- -------- -----
Excess $ 1,770 2.40% $ 2,043 2.78%
Risk-weighted assets $ 73,610 $ 73,431
Average Total Assets
Tier 1 capital $ 6,729 6.53% $ 6,992 6.84%
Tier 1 capital
minimum
requirement $ 4,121 4.00%
-------- ----- -------- -----
Memorandum
requirement $ 6,900 6.75%
-------- -----
Excess $ 2,608 2.53% $ 92 0.09%
Average total assets $103,024 $102,228
</TABLE>
The leverage ratio consists of tangible Tier 1 capital divided by total average
assets. As of September 30, 1997, the Company and the Bank had leverage ratios
of 6.53% and 6.84%, respectively.
During 1995, the Board of Directors of the Company and the Bank entered into
Memorandums of Understanding (collectively, the "Memorandums") with the Federal
Reserve Bank ("the FRB Memorandum"), the Federal Deposit Insurance Corporation
("FDIC Memorandum) and the State Banking Department ("SBD Memorandum"). Under
these Memorandums, the Company, among other things, may not directly or
indirectly, acquire or sell any interest in any entity, line of business,
problem loans or other assets, without the prior written approval of the Federal
Reserve Bank; and may not pay cash dividends without the prior written consent
of the Federal Reserve Bank. The Bank is also required, among other things, to
maintain Tier 1 capital equal to or above 6.75% of total assets; establish and
maintain an adequate allowance for loan losses; and not pay cash dividends
without the prior written consent of the FDIC and the California Superintendent
of Banks.
10
<PAGE> 11
Capital Resources (continued)
The Company and the Bank believe they are currently in full compliance, and
management believes that it can continue to comply with the terms of the FRB
Memorandum, the FDIC Memorandum and the SBD Memorandum, and otherwise meet
regulatory capital requirements, and that any actions taken to so comply in the
future will not have a material adverse effect on the Company's financial
condition or results of operations. However, failure to comply with any
Memorandum could result in regulatory action.
The Company expects that the ability of the Company to pay dividends in the
future will depend on continued profitability and the maintenance of acceptable
financial results.
Results of Operations
The Company's results of operations are dependent primarily on net interest
income, which is the difference between the interest income earned on its loan
portfolio, investment securities and other earning assets, and its cost of
funds, consisting of interest paid on its deposits and borrowings. The Company's
operating results are also impacted by provisions for loan losses, and to a
lesser extent service charges on deposit accounts and other noninterest income.
In addition, the Company's operating expenses principally consist of salaries,
wages and employee benefits, occupancy expenses, real estate operations expense
and other general noninterest expenses. The Company's results of operations are
also significantly affected by general economic and competitive conditions,
particularly changes in interest rates and actions of regulatory authorities.
Net Income
During the third quarter of 1997, the Company had a net income of $107,000, or
$.06 per share compared to net income of $40,000, or $02. per share for the
third quarter of 1996. For the nine months ended September 30, 1997 the Company
had a net loss of $533,000, or ($.31) per share as compared to net income of
$315,000, or $.18 per share for the same period in 1996. Return on average
assets for the three months ended September 30, 1997 was .10% compared to .04%
for the same period in 1996. The return on average assets was (.52%) for the
nine months ended September 30, 1997 as compared to .30% for the same period in
1996. The return on average shareholders' equity for the three months ended
September 30, 1997 and 1996 was 1.58% and .55%, respectively. The return on
average shareholders' equity for the nine months ended September 30, 1997 and
1996 was (7.56%) and 4.39%, respectively.
Net Interest Income
Net interest income is the difference between interest and fees received on
earning assets and interest paid on deposits and other sources of funds. The
Company's net interest income is affected by the change in the amount and mix of
interest-earning assets and interest-earning liabilities. It is also affected by
the change in the amount and mix of interest-earning assets and rates paid on
deposits and other borrowed funds.
11
<PAGE> 12
Net interest income (continued)
Net interest income decreased 4.4% for the third quarter of 1997 as compared to
the third quarter of 1996 from $1.6 million to $1.5 million, respectively. For
the first nine months ended September 30, 1997, net interest income decreased
8.7%, as compared to the same period in 1996, from $4.8 million to $4.4 million,
respectively. The decline is attributable to lower levels of loans receivable
outstanding during the periods presented and higher rates paid on deposits.
Allowance and Provision for Losses
The provision for loan losses is determined by management based upon the
Company's loan loss experience, the performance of loans in the Company's
portfolio, the quality of loans in the Company's portfolio, evaluation of
collateral for such loans, the economic conditions affecting collectibility of
loans, the prospects and financial condition of the respective borrowers or
guarantors and such other factors which in management's judgment deserve
recognition in the estimation of probable loan losses. In addition, regulatory
agencies, as an integral part of their examination process, periodically review
the Bank's allowance for loan losses. Such agencies may require the Bank to
recognize additions to the allowance or to take charge-offs (reductions in the
allowance) in anticipation of losses.
At September 30, 1997, the allowance for loan losses was $1.7 million or 2.43%
of total loans, as compared to $1.3 million or 1.83% of total loans at December
31, 1996 and $1.3 million or 1.86% of total loans at September 30, 1996. The
allowance for loan losses was 154% of nonaccrual loans at September 30, 1997 as
compared to 64% at December 31, 1996 and 110% at September 30, 1996. During the
three months ending September 30, 1997, the Company made additions to the
allowance of $188,000 compared to $84,000 of additions during the same period in
1996. For the first nine months of 1997 the Company made additions to the
allowance of $1.2 million compared to $0.3 million for the same period in 1996.
For the three months ending September 30, 1997 the Company had net charge-offs
of $140,000 compared to $316,000 for the same quarter in 1996. Net charge-offs
for the nine months ended September 30, 1997 were $957,000 compared to $488,000
for the same period in 1996. The increases in the allowance for loan losses for
the third quarter of 1997 and the first nine months ended September 30, 1997, as
compared to the same periods in 1996 relate primarily to additional net charge
offs in loans receivable during the periods presented.
Taking into account economic trends in the condition of the loan portfolio
management believes that the allowance for loan losses at September 30, 1997 is
adequate to absorb known and inherent risks in the loan portfolio. However, no
assurance can be given that the Company will not incur additional losses on
these loans or that additional provisions for loan losses will not be required.
In addition, the Company maintains an allowance for losses on loan repurchases
which amounted to $0.4 million at September 30, 1997, $0.4 million at December
31, 1996 and $1.0 million at September 30, 1996. This allowance is carried in
Other Liabilities on the balance sheet. In determining the amount of this
allowance, the Company considered the exposure of the Company to repurchases
which takes into account the Company's past experience with repurchases, the
potential for future repurchases and any losses thereon. Management believes
that the allowance for losses on loan repurchases at September 30, 1997 is
adequate to absorb future losses on loan repurchases. However, no assurance can
be given that the Company will not incur additional losses on such repurchases.
12
<PAGE> 13
Allowance and Provision for Losses (continued)
At September 30, 1997, December 31, 1996 and September 30, 1996, the gross
amount of loans subject to recourse obligations amounted to $0.7 million, $0.7
million and $1.0 million respectively.
Noninterest Income
Noninterest income for the third quarter of 1997 was $238,000 compared to
$198,000 for the same period in 1996. For the first nine months of 1997
noninterest income decreased to $857,000 from $1,023,000 in 1996. The decrease
in the 1997 period as compared to 1996 period results from income received from
the settlement of certain litigation in the second quarter of 1996.
Noninterest Expenses
Noninterest expenses decreased 1.42% for the third quarter of 1997 to $1.38
million compared to $1.60 million for the same period in 1996. For the first
nine months of 1997 noninterest expense decreased to $4.5 million from $5.0
million for the same period in 1996. The reduction is primarily a result of the
Company and the Bank benefiting from lower cost expended on salaries, wages and
employee benefits and other noninterest expenses, during the third quarter and
first nine months of 1997, as compared to the same periods in 1996.
Income taxes
Income tax expense for the third quarter of 1997 amounted to zero compared to
$31,000 for the third quarter in 1996. For the first nine months of 1997 income
tax expense amounted to $2,000 as compared to $241,000 for the same period in
1996. The provision for income taxes reflects state minimum tax, which considers
the effect of the net operating loss carryforwards available for California
Franchise Tax , as well as Federal Income Tax purposes.
PART II: OTHER INFORMATION
ITEM 1-5. Not applicable.
ITEM 6. Exhibits and Reports on 8-K .
(A) EXHIBITS:
EXHIBIT 27 -- Financial Data Schedule
(B) Report on Form 8-K: None.
13
<PAGE> 14
SIGNATURES
Pursuant to the requirement 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.
STERLING WEST BANCORP
(Registrant)
DATED: November 14, 1997 By /s/ Joseph C. Carona
----------------------------------
Joseph C. Carona
Chief Financial and
Accounting Officer
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATIION EXTRACTED FROM (STERLING
WEST BANCORP AND SUBSIDIARIES) CONSOLIDATED FINANCIAL STATEMENTS AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 5,847
<INT-BEARING-DEPOSITS> 99
<FED-FUNDS-SOLD> 12,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 0
<INVESTMENTS-CARRYING> 11,239
<INVESTMENTS-MARKET> 11,281
<LOANS> 68,775
<ALLOWANCE> 1,668
<TOTAL-ASSETS> 101,230
<DEPOSITS> 92,794
<SHORT-TERM> 800
<LIABILITIES-OTHER> 908
<LONG-TERM> 0
0
0
<COMMON> 8,686
<OTHER-SE> (1,958)
<TOTAL-LIABILITIES-AND-EQUITY> 101,230
<INTEREST-LOAN> 5,196
<INTEREST-INVEST> 1,082
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 6,278
<INTEREST-DEPOSIT> 1,882
<INTEREST-EXPENSE> 1,907
<INTEREST-INCOME-NET> 4,371
<LOAN-LOSSES> 1,227
<SECURITIES-GAINS> 857
<EXPENSE-OTHER> 4,532
<INCOME-PRETAX> (531)
<INCOME-PRE-EXTRAORDINARY> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (533)
<EPS-PRIMARY> (0.31)
<EPS-DILUTED> (0.31)
<YIELD-ACTUAL> 6.44
<LOANS-NON> 1,260
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,260
<CHARGE-OFFS> 957
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 1,668
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
