<PAGE> 1
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
_______________________________________________________________________
Form 10-Q
[X] Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Quarter Ended March 31, 1995
[ ] Transition report under section 13 or 15(d)
of the Securities Exchange Act of 1934
For the transition period from ________ to ________
Commission file number 0-10997
WEST COAST BANCORP
(Exact name of registrants specified in its charter)
Oregon 93-0810577
(State or other jurisdiction (IRS Employer
incorporation or organization) Identification No.)
5335 S.W. Meadows Road Suite 201, Lake Oswego, Oregon 97035
(Address of Principal executive offices) (Zip code)
(503) 684-0884
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed 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
----- -----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
Common Stock, no par value, outstanding on April 30, 1995: 4,365,171.
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
PART I. Financial Statements
Consolidated Balance Sheets -
March 31, 1995 and December 31, 1994 . . . . . . . . . . . . . . . . . . . . . . . . . 3
Consolidated Statement of Income -
Three months ended March 31, 1995 and 1994 . . . . . . . . . . . . . . . . . . . . . . 4
Consolidated Statements of Cash Flows -
Three months ended March 31, 1995 and 1994 . . . . . . . . . . . . . . . . . . . . . . 5
Consolidated Statements of Changes in Stockholders' Equity . . . . . . . . . . . . . . 6
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . 6
Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . . 8
PART II. Other Information
Item 6 - Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . . 15
Signatures. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
</TABLE>
2
<PAGE> 3
WEST COAST BANCORP AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
1995 1994
------------ ------------
(Unaudited)
<S> <C> <C>
ASSETS
Cash and cash equivalents:
Cash and due from banks . . . . . . . . . . . . . . . . . . . . . . . . . $ 22,086,060 $ 25,047,417
Interest-bearing deposits in other banks . . . . . . . . . . . . . . . . 3,099,482 3,118,272
Federal funds sold . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,347,522 5,474,071
------------ ------------
Total cash and cash equivalents . . . . . . . . . . . . . . . . . . . . 28,533,064 33,639,760
Investment securities:
Investments available for sale . . . . . . . . . . . . . . . . . . . . . 56,609,859 61,012,883
Investments held to maturity . . . . . . . . . . . . . . . . . . . . . . 52,437,193 56,851,658
------------ ------------
Total investment securities . . . . . . . . . . . . . . . . . . . . . 109,047,052 117,864,541
Loans held for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . 198,966 -
Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 296,849,986 282,986,234
Allowance for loan loss . . . . . . . . . . . . . . . . . . . . . . . . . (4,618,598) (4,519,267)
------------ ------------
Loans, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 292,231,388 278,466,967
Premises and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . 14,073,445 13,687,173
Intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 347,865 369,390
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,419,024 7,799,873
------------ ------------
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $453,850,804 $451,827,704
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits:
Demand . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 71,752,453 $ 72,334,774
Savings and interest-bearing demand . . . . . . . . . . . . . . . . . . . 203,344,419 213,181,825
Certificates of deposits . . . . . . . . . . . . . . . . . . . . . . . . 117,120,967 94,103,406
------------ ------------
Total deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . 392,217,839 379,620,005
Short-term borrowings:
Federal funds purchased . . . . . . . . . . . . . . . . . . . . . . . . . - 6,860,000
Other short-term borrowings . . . . . . . . . . . . . . . . . . . . . . . 2,870,000 7,955,000
------------ ------------
Total short-term borrowings . . . . . . . . . . . . . . . . . . . . . . 2,870,000 14,815,000
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,933,345 4,559,377
Long-term borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,152,842 8,545,699
------------ ------------
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . 408,174,026 407,540,081
------------ ------------
Commitments and contingent liabilities
STOCKHOLDERS' EQUITY
Preferred stock, no par value; none issued:
10,000,000 shares authorized
Common Stock: No par value, 15,000,000 shares
authorized; shares issued and outstanding
4,365,171, and 4,359,583 respectively . . . . . . . . . . . . . . . . . 5,456,464 5,449,479
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . 25,514,833 25,432,849
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,420,530 14,596,666
Net unrealized (loss) gain on investments available for sale . . . . . . . (715,049) (1,191,371)
------------ ------------
Stockholders' equity . . . . . . . . . . . . . . . . . . . . . . . . . . 45,676,778 44,287,623
------------ ------------
Total liabilities and stockholders' equity . . . . . . . . . . . . . . $453,850,804 $451,827,704
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
3
<PAGE> 4
WEST COAST BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
Three months ended
March 31,
-----------------------------
1995 1994
------------ ------------
(Unaudited)
<S> <C> <C>
INTEREST INCOME
Interest and fees on loans . . . . . . . . . . . . . . . . . . . $7,421,815 $6,302,116
Interest on taxable investment securities . . . . . . . . . . . . 1,039,196 1,071,451
Interest on non-taxable investment securities . . . . . . . . . . 682,485 639,836
Interest from other banks . . . . . . . . . . . . . . . . . . . . 42,915 294
Interest on federal funds sold . . . . . . . . . . . . . . . . . 74,451 28,406
---------- ----------
Total interest income . . . . . . . . . . . . . . . . . . . . . 9,260,862 8,042,103
INTEREST EXPENSE
Savings and interest-bearing demand . . . . . . . . . . . . . . . 1,535,670 1,224,046
Certificates of deposit . . . . . . . . . . . . . . . . . . . . . 1,421,914 852,883
Short-term borrowings . . . . . . . . . . . . . . . . . . . . . . 176,262 68,857
Long-term borrowings . . . . . . . . . . . . . . . . . . . . . . 102,870 107,511
---------- ----------
Total interest expense . . . . . . . . . . . . . . . . . . . . 3,236,716 2,253,297
---------- ----------
NET INTEREST INCOME . . . . . . . . . . . . . . . . . . . . . . . 6,024,146 5,788,806
PROVISION FOR LOAN LOSSES . . . . . . . . . . . . . . . . . . . 121,460 169,500
---------- ----------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES . . . . . . . . . . . . . . . . . . . 5,902,686 5,619,306
NON-INTEREST INCOME
Service charges on deposit accounts . . . . . . . . . . . . . . . 564,956 591,935
Other service charges, fees and commissions . . . . . . . . . . . 368,162 312,447
Trust revenue . . . . . . . . . . . . . . . . . . . . . . . . . . 308,933 297,231
Gains on sales of loans . . . . . . . . . . . . . . . . . . . . . 144,174 372,956
Loan servicing fees . . . . . . . . . . . . . . . . . . . . . . . 115,821 102,149
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100,096 136,864
Net gains (losses) on sales of securities . . . . . . . . . . . . (3,741) (62,965)
---------- ----------
Total non-interest income . . . . . . . . . . . . . . . . . . . 1,598,401 1,750,617
NON-INTEREST EXPENSE
Salaries and employee benefits . . . . . . . . . . . . . . . . . 3,236,765 2,900,636
Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . 455,416 423,678
Occupancy . . . . . . . . . . . . . . . . . . . . . . . . . . . . 427,365 371,619
Professional fees . . . . . . . . . . . . . . . . . . . . . . . . 308,390 292,784
FDIC insurance . . . . . . . . . . . . . . . . . . . . . . . . . 217,506 201,125
Marketing . . . . . . . . . . . . . . . . . . . . . . . . . . . . 148,469 177,203
ATM and Bankcard . . . . . . . . . . . . . . . . . . . . . . . . 154,304 128,599
Printing and office supplies . . . . . . . . . . . . . . . . . . 156,579 111,536
Communications . . . . . . . . . . . . . . . . . . . . . . . . . 110,762 96,835
Other non-interest expense . . . . . . . . . . . . . . . . . . . 536,853 522,781
---------- ----------
Total non-interest expense . . . . . . . . . . . . . . . . . . 5,752,409 5,226,796
INCOME BEFORE INCOME TAXES . . . . . . . . . . . . . . . . . . . 1,748,678 2,143,127
---------- ----------
PROVISION FOR INCOME TAXES . . . . . . . . . . . . . . . . . . . 495,591 579,298
---------- ----------
NET INCOME . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,253,087 $1,563,829
========== ==========
EARNINGS PER COMMON SHARE . . . . . . . . . . . . . . . . . . . . $0.29 $0.40
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
4
<PAGE> 5
WEST COAST BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three months ended
March 31,
--------------------------------
1995 1994
------------ ------------
(Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,253,087 $ 1,563,829
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization of premises and equipment . . . . . . . . . . . 251,922 218,368
Amortization of intangibles . . . . . . . . . . . . . . . . . . . . . . . . . 21,525 20,350
Net loss on sales of investments
Available for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,741 62,965
Held to maturity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - -
Provision for loan losses . . . . . . . . . . . . . . . . . . . . . . . . . . 121,460 169,500
(Increase) decrease in interest receivable . . . . . . . . . . . . . . . . . (118,156) 152,393
(Increase) in other assets . . . . . . . . . . . . . . . . . . . . . . . . . (1,500,995) (1,727,407)
Increase in interest payable . . . . . . . . . . . . . . . . . . . . . . . . 294,109 165,268
Increase (decrease) in other liabilities . . . . . . . . . . . . . . . . . . 79,859 (2,314,322)
------------ ------------
Net cash provided (used) by operating activities . . . . . . . . . . . . . . 406,552 (1,689,056)
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from maturities of investment securities
Available for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,758,042 12,132,231
Held to maturity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,414,465 1,067,652
Proceeds from sales of investment securities
Available for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 727,563 5,068,568
Held to maturity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - -
Purchase of investment securities
Available for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (610,000) (596,110)
Held to maturity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - (494,226)
Loans made to customers (greater) than principal collected on loans . . . . . . (14,084,847) (9,539,372)
Capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (638,194) (1,601,186)
------------ ------------
Net cash (used) provided in investing activities . . . . . . . . . . . . . . (5,432,971) 6,037,557
CASH FLOWS FROM FINANCING ACTIVITIES
Net (decrease) increase in demand, savings and interest
bearing transaction accounts . . . . . . . . . . . . . . . . . . . . . . . . (10,419,727) 4,596,018
Net increase (decrease) in proceeds from sales of
certificates of deposits greater than payments for maturing time deposits . . 23,017,561 (1,878,558)
Proceeds from long-term borrowings . . . . . . . . . . . . . . . . . . . . . . - 1,000,000
Payments on long-term borrowings . . . . . . . . . . . . . . . . . . . . . . . (392,857) (370,968)
Net (decrease) in short-term borrowings . . . . . . . . . . . . . . . . . . . . (11,945,000) (10,395,000)
Proceeds from issuance (purchase) of common stock . . . . . . . . . . . . . . . 89,410 (25,400)
Dividends paid and cash paid for fractional shares . . . . . . . . . . . . . . (429,664) (257,782)
------------ ------------
Net cash (used) by financing activities . . . . . . . . . . . . . . . . . . . (80,277) (7,331,690)
------------ ------------
NET INCREASE IN CASH AND CASH EQUIVALENTS . . . . . . . . . . . . . . . . . . (5,106,696) (2,983,189)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR . . . . . . . . . . . . . . . . 33,639,760 33,696,075
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF YEAR . . . . . . . . . . . . . . . . . . . $ 28,533,064 $ 30,712,886
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
5
<PAGE> 6
WEST COAST BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(Unaudited)
<TABLE>
<CAPTION>
Common Stock Additional Net Unrealized Gains
---------------------- Paid-In Retained on Investments
Shares Amount Capital Earnings Available for Sale Total
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, December 31, 1993 3,010,119 $3,762,648 $16,708,830 $15,406,992 $ 432,469 $36,310,939
Net income - - - 5,707,682 - 5,707,682
Net unrealized gain on investments
available for sale - - - - (1,623,840) (1,623,840)
Cash dividends, $.29 per common
share - - - (1,149,105) - (1,149,105)
Sale of common stock pursuant to
stock option plans 2,078 2,598 17,323 - - 19,921
10 percent Stock dividend 296,860 371,075 4,996,418 (5,367,493) - -
Stock split in the form of
100 percent dividend 638,894 798,618 (798,618) - - -
Issuance of Common Stock
in Public Offering 414,000 517,500 4,538,944 - - 5,056,444
Purchase of Stock (25,290) (31,613) (364,500) - - (396,113)
Sale of Stock 22,922 28,653 334,452 - - 363,105
Cash paid for fractional shares - - - (1,410) - (1,410)
------------------------------------------------------------------------------------
BALANCE, December 31, 1994 4,359,583 5,449,479 25,432,849 14,596,666 (1,191,371) 44,287,623
Net income - - - 1,253,087 - 1,253,087
Net unrealized gain on investments
available for sale - - - - 476,322 476,322
Cash dividends, $.10 per common
share - - - (428,065) - (428,065)
Sale of Stock 5,941 7,426 81,984 - - 89,410
Cash paid for fractional shares (353) (441) - (1,158) - (1,599)
------------------------------------------------------------------------------------
BALANCE, March 31, 1995 4,365,171 $5,456,464 $25,514,833 $15,420,530 $ (715,049) $45,676,778
====================================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
Notes to Consolidated Financial Statements
1. PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of West
Coast Bancorp (Bancorp) and its wholly-owned subsidiaries, The Commercial Bank,
The Bank of Newport, and Valley Commercial Bank, after elimination of
intercompany transactions and balances.
The interim financial statements have been prepared in accordance with
generally accepted accounting principles for interim financial information.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments including normal recurring
accruals necessary for fair presentation of results of operations for the
interim periods included herein have been made. The results of operations for
the three months ended March 31, 1995 are not necessarily indicative of results
to be anticipated for the year ending December 31, 1995. Certain amounts in
the 1994 financial statements have been reclassified to conform with the 1995
interim presentation.
6
<PAGE> 7
2. RECENT MERGERS
Effective February 28, 1995, Commercial Bancorp, Salem, Oregon completed its
merger of equals with West Coast Bancorp, Newport, Oregon, with and into
Commercial Bancorp, with the surviving corporation operating under the name
West Coast Bancorp. Effective March 30, 1995 West Coast Bancorp completed its
merger with Great Western Bank of Dallas, Oregon which became a branch of The
Commercial Bank. The historical consolidated financial statements have been
restated and include the accounts and results of operations of the mergers as
pooling-of-interest combinations.
3. ACCOUNTING CHANGES
In May 1993, the Financial Accounting Standards Board ("FASB") issued SFAS No.
114, "Accounting by Creditors for Impairment of a Loan " and in October 1994
issued SFAS No. 118, "Accounting by Creditors for Impairment of a Loan-Income
Recognition Disclosures, an amendment to SFAS No. 114." They require that
impaired loans be measured based on the present value of expected future cash
flows discounted at the loan's effective interest rate or, as a practical
expedient, at the loan's observable market price or the fair market value of
the collateral if the loan is collateral dependent. These statements exclude
loans that are currently measured at fair value or at lower of cost or fair
value, leases and certain large groups of smaller balance homogeneous loans
that are collectively measured for impairment. These statements apply to
financial statements for fiscal years beginning after December 31, 1994. The
implementation of the statements did not have a material effect on West Coast's
reported financial position or net income.
4. NET INCOME PER COMMON SHARE
During the first quarter of 1995, the Board of Directors declared cash
dividends representing $.10 per share. All per share amounts have been
restated to retroactively reflect stock splits as well as all previous stock
dividends.
5. SHAREHOLDERS EQUITY
During July 1994, settlement occurred on the sale of 360,000 shares of Common
Stock through a public offering managed by Pacific Crest Securities, Inc. In
addition the 54,000 share over-allotment option was exercised by Pacific Crest
Securities Inc. in July 1994. The net proceeds after expenditures from the
offering and over-allotment options were approximately $5.1 million.
7
<PAGE> 8
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of Bancorp's consolidated financial condition
and results of operations should be read in conjunction with the selected
consolidated financial and other data, the consolidated financial statements
and related notes included elsewhere herein.
RESULTS OF OPERATIONS
Three Months Ended March 31, 1995 and 1994
Net Income. Net income for the quarter ended March 31, 1995 was
$1,253,087, or $0.29 per share, compared to $1,563,829, or $0.40 per share, for
the same period in 1994, a decrease of 19.87% and 27.50% in net income and
earnings per share, respectively. 1995 earnings per share figures were
impacted by Bancorp's issuance of 414,000 common shares issued in a secondary
offering in July 1994, increasing the average outstanding shares by
approximately 10 percent. The decline in net income was primarily the result
of new branch expansion costs, merger related expenditures, development costs
related to a new data processing facility and other re-organizational costs
related to the merger, as well as a decline in non-interest income.
Net Interest Income. Net interest income is the difference between
interest income (principally from loan and investment securities) and interest
expense (principally on customer deposits and borrowings). Changes in net
interest income result from changes in volume, net interest spread and net
interest margin. Volume refers to the average dollar level of interest-earning
assets and interest bearing liabilities. Net interest spread refers to the
differences between the average yield on interest-earning assets and the
average cost of interest-bearing liabilities. Net interest margin refers to
net interest income divided by average interest-earning assets and is
influenced by the level and relative mix of interest-earning assets and
interest-bearing liabilities. Bancorp's profitability, like that of many
financial institutions, is dependent to a large extent upon net interest
income. As interest-bearing liabilities mature or reprice more quickly than
interest-earning assets in a given period, a significant increase in the market
rates of interest could adversely affect net interest income.
Net interest income on a tax equivalent basis for the three months
ended March 31, 1995 increased $257,311, or 4.21%, to $6,375,729 from
$6,118,418 for the same period in 1994. Average interest-earning assets
increased by $20.9 million, or 5.38%, to $409.0 million, for the three months
ended March 31, 1995 compared to the same three months of 1994, and average
interest-bearing liabilities increased $13.0 million over the same period. The
average net interest spread decreased from 5.89% to 5.59%, which was caused by
rising interest rates over the period.
Bancorp's net interest margin for the three months ended March 31,
1995 was 6.32%, a decline of 7 basis points from 6.39% for the comparable
period of 1994. The major factor in the decline was the increase in the
average rate paid on interest-bearing liabilities, which increased by 108 basis
points to 3.94% in the first quarter of 1995 from 2.86% for the same period in
1994.
8
<PAGE> 9
Analysis of Net Interest Income. The following table presents
information regarding yields on interest-earning assets, expense on
interest-bearing liabilities, and net yields on interest-earning assets for the
periods indicated on a tax equivalent basis:
<TABLE>
<CAPTION>
Three Months Ended
March 31,
------------------------------ Increase
1995 1994 (Decrease) Change
------------ ------------ ----------- ------
<S> <C> <C> <C> <C>
Interest and fee income(1) $ 9,612,445 $ 8,371,715 $ 1,240,730 14.82%
Interest expense 3,236,716 2,253,297 983,419 43.64%
------------ ------------ ----------- -----
Net interest income $ 6,375,729 $ 6,118,418 $ 257,311 4.21%
============ ============ =========== =====
Average interest-earning assets $408,997,274 $388,117,514 $20,879,760 5.38%
Average interest-bearing liabilities $332,645,115 $319,631,686 $13,013,429 4.07%
Average yields earned(2) 9.53% 8.75% .78
Average rates paid(2) 3.94% 2.86% 1.08
Net interest spread(2) 5.59% 5.89% (.30)
Net interest margin(2) 6.32% 6.39% (.07)
</TABLE>
(1) Interest earned on non-taxable securities has been computed on a 34% tax
equivalent basis.
(2) These ratios for the three months ended March 31, 1995 and 1994 have been
annualized.
Provision for Loan Losses. Management's policy is to maintain an
adequate allowance for loan losses based on historical trends, current and
future economic forecasts and statistical analysis of the loan portfolio, as
well as detailed reviews of current loan performance. Bancorp recorded
provisions for loan losses for the first quarter of 1995 and 1994 of $121,460
and $169,500, respectively. Net charge-offs for the first quarter of 1995 were
$21,000, compared to $12,000 for the same period in 1994. At March 31, 1995,
the percentage of non-performing assets was 0.22% of total assets.
Management attributes the relatively low levels of loans charged off
during both of the 1995 and 1994 periods, net of recoveries, to the
conservative loan approval processes and monitoring systems implemented in
recent years. Management continues its efforts to collect amounts previously
charged off and to originate new loans of high quality. Management believes
that the allowance for possible loan losses at March 31, 1995 is adequate.
Further additions to the allowance for loan losses could become necessary,
depending upon the performance of Bancorp's loan portfolio or changes in
economic conditions, as well as growth within the loan portfolio.
Non-Interest Income. Non-interest income for the first quarter of
1995 was $1,598,401, down $152,216, or 8.69%, compared to the same period in
1994. Gains on sales of loans decreased $228,782, or 61.34%, as a result of
decreased refinance activity in Bancorp's residential real estate program as
well as a decrease in SBA loan sales. Service charges on deposit accounts
decreased by $26,979 or 4.56% due to new products structured to increase
deposit balances, which charge lower servicing fees. Other service charges,
commissions and fees increased $55,715, or 17.83%, due to an increased customer
base and transaction volumes in the merchant bankcard, business manager, and
annuity and mutual fund programs, as well as other similar transaction based
programs. Trust and loan servicing income reported increases in the first
quarter.
Non-Interest Expense. Non-interest expense for the first quarter
ended March 31, 1995 was $5,752,409, an increase of $525,613, or 10.06%, over
the same period in 1994. Salaries and personnel expense accounted for $336,129
of the increase or 11.59% over the 1994 period, this resulted from staff
increases mainly related to the expansion of the Banks' branch system and the
additions of new products and services during 1995 over that of 1994.
Equipment, occupancy, printing and office supplies and communication expenses
were also up due to branch expansions. In general, opening new branches
results in higher costs for Bancorp which are not offset until a certain level
of growth in deposits and loans is achieved. Thus, at least initially, new
branches tend to have an adverse effect on results of operations, until
earnings grow to cover overhead. Professional fees increased during the
quarter due to costs associated to the mergers and re-organizational
expenditures. FDIC insurance and ATM and Bankcard expenses are up due to
increases in deposit and customer accounts. Marketing expense are lower in the
first quarter due to an increased emphasis on controlling certain overhead
costs and performing many of these tasks in-house.
9
<PAGE> 10
INCOME TAXES
During the first quarter of 1995, due to a decrease in pre-tax income,
the provision for income taxes declined from that of 1994.
LIQUIDITY AND SOURCES OF FUNDS
Bancorp's primary sources of funds are customer deposits, maturities
of investment securities, sales of "Available for Sale" securities, loan sales,
loan repayments, net income, advances from the Federal Home Loan Bank of
Seattle, and the use of Federal Funds markets. Scheduled loan repayments are
relatively stable sources of funds while deposit inflows and unscheduled loan
prepayments are not. Deposit inflows and unscheduled loan prepayments are
influenced by general interest rate levels, interest rates available on other
investments, competition, economic conditions, and other factors.
Deposits are Bancorp's primary source of new funds. Total deposits
were $392.2 million at March 31, 1995, up from $379.6 million at December 31,
1994. Bancorp does not generally accept brokered deposits. A concerted effort
has been made to attract deposits in the market area it serves through
competitive pricing and delivery of a quality product. Increases over the
period are due to the opening of new branch facilities, marketing efforts, and
new business development programs initiated by Bancorp.
Management anticipates that Bancorp will continue relying on customer
deposits, maturity of investment securities, sales of "Available for Sale"
securities, loan sales, loan repayments, net income, Federal Funds markets, and
FHLB borrowings to provide liquidity. Although deposit balances have shown
historical growth, such balances may be influenced by changes in the banking
industry, interest rates available on other investments, general economic
conditions, competition and other factors. Borrowings may be used on a
short-term basis to compensate for reductions in other sources of funds.
Borrowings may also be used on a long-term basis to support expanded lending
activities and to match maturities or repricing intervals of assets. The
sources of such funds will be Federal Funds purchased and borrowings from the
FHLB.
CAPITAL RESOURCES
The FRB and FDIC have established minimum requirements for capital
adequacy for bank holding companies and member banks. The requirements address
both risk-based capital and leveraged capital. The regulatory agencies may
establish higher minimum requirements if, for example, a corporation has
previously received special attention or has a high susceptibility to interest
rate risk. The FRB and FDIC risk-based capital guidelines require banks and
bank holding companies to have a ratio of tier one capital to total
risk-weighted assets of at least 4%, and a ratio of total capital to total
risk-weighted assets of 8% or greater. In addition, the leverage ratio of tier
one capital to total assets less intangibles is required to be at least 3%.
Shareholders' equity increased to $45.7 million at March 31, 1995 from
$44.3 million at December 31, 1994 an increase of $1.4 million, or 3.2%, over
that period of time. Bancorp received net proceeds of $5.1 million in a public
offering of 414,000 shares by Bancorp in July 1994. The offering was
underwritten by Pacific Crest Securities, Inc. The net proceeds will be
available to Bancorp and the Banks to support branch expansion either through
the opening of new branches or the acquisition of existing facilities. In
addition to pursuing growth in the banking industry, Bancorp has and may
continue to use a portion of the proceeds to pursue opportunities to acquire or
establish financial service related companies in the Oregon market and
especially the Portland metropolitan area, that would allow for continued
diversification of assets mix and revenue streams. At March 31, 1995,
Bancorp's shareholders' equity, as a percentage of total assets, was 10.06%,
compared to 9.80% at December 31, 1994. The increase was primarily a result of
equity growing faster, (through net income growth), than the asset base.
Equity grew at 3.2% over the period from December 31, 1994 to March 31, 1995,
while assets grew by .04% over the same period.
10
<PAGE> 11
As the following table indicates, Bancorp currently exceeds the regulatory
capital minimum requirements.
<TABLE>
<CAPTION>
March 31, 1995
--------------------------
Actual
--------------------------
(Dollars in thousands) Amount Ratio
---------------------- -------- -----
<S> <C> <C>
Tier 1 capital $ 46,044 13.64%
Tier 1 capital minimum requirement 13,501 4.00
-------- -----
Excess Tier 1 capital $ 32,543 9.64%
======== =====
Total capital $ 50,268 14.89%
Total capital minimum requirement 27,001 8.00
-------- -----
Excess total capital $ 23,267 6.89%
======== =====
Risk-adjusted assets $337,517
========
Leverage ratio 10.26%
Minimum leverage requirement 3.00
-----
Excess leverage ratio 7.26%
=====
Adjusted total assets $449,304
========
</TABLE>
LOAN PORTFOLIO
Interest earned on the loan portfolio is the primary source of income
for Bancorp. Net loans represented 64.39% of total assets as of March 31,
1995. Although the Banks strive to serve the credit needs of the service
areas, the primary focus is on real estate related and commercial credits.
Banks make substantially all of their loans to customers located within the
Banks' service areas. The Banks have no loans defined as highly leveraged
transactions by the FRB. The following table presents the composition of the
Banks' loan portfolios, at the dates indicated:
<TABLE>
<CAPTION>
March 31, 1995 December 31, 1994
----------------------- ---------------------
(Dollars in thousands) Amount Percent Amount Percent
---------------------- -------- -------- -------- -------
<S> <C> <C> <C> <C>
Commercial . . . . . . . . . . . . . . . . . . . . $ 88,460 29.80% $ 86,459 30.56%
Real estate construction . . . . . . . . . . . . . 22,877 7.71 23,773 8.40
Real estate mortgage . . . . . . . . . . . . . . . 38,571 12.99 36,958 13.06
Real estate commercial . . . . . . . . . . . . . . 105,405 35.51 95,662 33.80
Installment and other consumer . . . . . . . . . . 41,537 13.99 40,134 14.18
-------- ------ -------- ------
296,850 100.00% 282,986 100.00%
Less allowance for loan losses . . . . . . . . . . (4,619) 1.56% (4,519) 1.60%
-------- --------
Loans, net . . . . . . . . . . . . . . . . . . . . $292,231 $278,467
======== ========
</TABLE>
11
<PAGE> 12
LENDING AND CREDIT MANAGEMENT
Although a risk of nonpayment exists with respect to all loans,
certain specific types of risks are associated with different types of loans.
Owing to the nature of the Banks' customer base and the growth experienced in
the market areas served, real estate is frequently a material component of
collateral for the Banks' loans. The expected source of repayment of these
loans is generally the operations of the borrower's business or personal
income, but real estate provides an additional measure of security. Risks
associated with real estate loans include fluctuating land values, local
economic conditions, changes in tax policies, and a concentration of loans
within any one area.
The Banks mitigate risk on construction loans by generally lending
funds to customers who have been pre-qualified for long-term financing and are
using experienced contractors approved by the Banks. The commercial real
estate risk is further mitigated by making the majority of commercial real
estate loans to owner-occupied users of the property.
Generally, no interest is accrued on loans when factors indicate
collection of interest is doubtful or when the principal or interest payment
becomes ninety days past due. Loans greater than ninety days past due and are
on accruing status are both adequately collateralized and in the process of
collection.
The Banks manage the general risks inherent in the loan portfolio by
following loan policies and underwriting practices designed to result in
prudent lending activities. The following table presents information with
respect to non-performing assets.
<TABLE>
<CAPTION>
(Dollars in thousands) March 31, 1995 December 31, 1994
---------------------- -------------- -----------------
<S> <C> <C>
Loans on non-accrual status . . . . . . . . . . . . . . . $ 866 $476
Loans past due greater than 90 days but not on
non-accrual status . . . . . . . . . . . . . . . . . . 106 23
Other real estate owned . . . . . . . . . . . . . . . . . 31 31
------ ----
Total non-performing assets . . . . . . . . . . . . . . . $1,003 $530
====== ====
Percentage of non-performing assets to total assets . . . .22% .12%
==== ====
</TABLE>
12
<PAGE> 13
LOAN LOSS ALLOWANCE AND PROVISION
The provision for loan losses charged to operating expense is based on
the Banks' loan loss experience and such other factors that, in management's
judgment, deserve recognition in estimating loan losses. Management monitors
the loan portfolio to ensure that the allowance for loan losses is adequate to
cover outstanding loans. In determining the allowance for loan losses,
management considers the level of non-performing loans, loan mix, recent loan
growth, historical loss experience for each loan category, potential economic
influences, and other relevant factors related to the loan portfolio. The
following table summarizes the Banks' allowance for loan losses and charge-off
and recovery activity:
<TABLE>
<CAPTION>
Three months ended Year ended
(Dollars in thousands) March 31, 1995 December 31, 1994
---------------------- ------------------ -----------------
<S> <C> <C>
Loans outstanding at end of period $296,850 $282,986
Average loans outstanding during the period $288,705 $270,817
Allowance for loan losses, beginning of period $ 4,519 $ 3,983
Recoveries 13 318
Loans charged off (34) (330)
-------- --------
Net loans charged off (21) (12)
Provision for loan losses 121 548
-------- --------
Allowance for loan losses, end of period $ 4,619 $ 4,519
======== ========
Ratio of net loans charged off to average loans outstanding(1) .03% .00%
Ratio of allowance for loan losses to loans at end of period 1.56% 1.60%
- ---------------
</TABLE>
(1) The ratios for the three months ended March 31, 1995 have been
annualized.
13
<PAGE> 14
INVESTMENT PORTFOLIO
The following table shows the book value of the Banks' portfolio of
investments as of March 31, 1995 and December 31, 1994:
<TABLE>
<CAPTION>
March 31, December 31,
(Dollars in thousands) 1995 1994
---------------------- --------- ------------
<S> <C> <C>
Investments available for sale
------------------------------
U.S. Treasury securities $19,966 $20,350
U.S. Government agency securities 18,204 21,408
Corporate securities 990 1,480
Mortgage-backed securities 9,047 8,937
Obligations of state and political subdivisions 6,753 7,215
Other securities 1,650 1,623
------- -------
Total $56,610 $61,013
======= =======
Investments held to maturity
----------------------------
U.S. Treasury securities $ 3,165 $ 4,681
U.S. Government agency securities 5,882 5,875
Corporate securities 4,743 5,304
Mortgage-backed securities - 301
Obligations of state and political subdivisions 38,303 38,316
Other securities 344 2,375
------- -------
Total $52,437 $56,852
======= =======
</TABLE>
14
<PAGE> 15
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
None
(b) A current report on Form 8-K was filed March 13, 1995 pursuant
to Section 13 of the Securities Exchange Act of 1934, as
amended, to report the merger of West Coast Bancorp and
Commercial Bancorp, which was completed on February 28, 1995.
Note that West Coast Bancorp, Newport, Oregon merged with and
into Commercial Bancorp, Salem, Oregon with the surviving
corporation operating under the name West Coast Bancorp.
An amendment to the report, filed pursuant to Item II of Form
8-K, was filed on May 12, 1995 and included detailed
historical financial statements for West Coast Bancorp and pro
forma financial statements for West Coast Bancorp and
Commercial Bancorp combined.
15
<PAGE> 16
SIGNATURES
Pursuant to the requirements 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.
WEST COAST BANCORP
(Registrant)
Dated: May 12, 1995 /s/ Rodney B. Tibbatts
--------------------------
Rodney B. Tibbatts
Co-President and Chief Executive Officer
Dated: May 12, 1995 /s/ Donald A. Kalkofen
--------------------------
Donald A. Kalkofen
Treasurer and Chief Financial Officer
16
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> MAR-31-1995
<EXCHANGE-RATE> 1
<CASH> 22,086
<INT-BEARING-DEPOSITS> 3,099
<FED-FUNDS-SOLD> 3,348
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 56,610
<INVESTMENTS-CARRYING> 52,437
<INVESTMENTS-MARKET> 53,532
<LOANS> 296,850
<ALLOWANCE> 4,619
<TOTAL-ASSETS> 453,851
<DEPOSITS> 392,218
<SHORT-TERM> 2,870
<LIABILITIES-OTHER> 4,933
<LONG-TERM> 8,153
<COMMON> 5,456
0
0
<OTHER-SE> 40,221
<TOTAL-LIABILITIES-AND-EQUITY> 453,851
<INTEREST-LOAN> 7,422
<INTEREST-INVEST> 1,722
<INTEREST-OTHER> 117
<INTEREST-TOTAL> 9,261
<INTEREST-DEPOSIT> 2,958
<INTEREST-EXPENSE> 3,237
<INTEREST-INCOME-NET> 6,024
<LOAN-LOSSES> 121
<SECURITIES-GAINS> (4)
<EXPENSE-OTHER> 5,752
<INCOME-PRETAX> 1,749
<INCOME-PRE-EXTRAORDINARY> 1,749
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,253
<EPS-PRIMARY> 0.29
<EPS-DILUTED> 0.29
<YIELD-ACTUAL> 6.32
<LOANS-NON> 866
<LOANS-PAST> 106
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 4,519
<CHARGE-OFFS> 34
<RECOVERIES> 13
<ALLOWANCE-CLOSE> 4,619
<ALLOWANCE-DOMESTIC> 4,619
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
