<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 September 30, 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 October 31, 1995: 4,805,056
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I. Financial Statements Page
----
<S> <C> <C>
Consolidated Balance Sheets -
September 30, 1995 and December 31, 1994 . . . . . . . . . . . . .. . . . . 3
Consolidated Statements of Income -
Three months and nine months ended September 30, 1995 and 1994 . .. . . . . 4
Consolidated Statements of Cash Flows -
Nine months ended September 30, 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 . . . . . . . . . . . .. . . . . 16
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . 17
</TABLE>
2
<PAGE> 3
WEST COAST BANCORP AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
1995 1994
-------------- ------------
(Unaudited)
<S> <C> <C>
ASSETS
Cash and cash equivalents:
Cash and due from banks . . . . . . . . . . . . . . . . . . . . . . . . . $ 24,986,743 $ 25,047,417
Interest-bearing deposits in other banks . . . . . . . . . . . . . . . . 2,427,172 3,118,272
Federal funds sold . . . . . . . . . . . . . . . . . . . . . . . . . . . 18,828,346 5,474,071
------------ ------------
Total cash and cash equivalents . . . . . . . . . . . . . . . . . . . . 46,242,261 33,639,760
Investment securities:
Investments available for sale . . . . . . . . . . . . . . . . . . . . . 64,759,714 61,012,883
Investments held to maturity . . . . . . . . . . . . . . . . . . . . . . 51,438,520 56,851,658
------------ ------------
Total investment securities . . . . . . . . . . . . . . . . . . . . . 116,198,234 117,864,541
Loans held for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,939,758 -
Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 325,057,570 282,986,234
Allowance for loan loss . . . . . . . . . . . . . . . . . . . . . . . . . (4,696,860) (4,519,267)
------------ ------------
Loans, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 320,360,710 278,466,967
Premises and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . 15,835,330 13,687,173
Intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 304,815 369,390
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,500,663 7,799,873
------------ ------------
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $508,381,771 $451,827,704
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits:
Demand . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 82,241,516 $ 72,334,774
Savings and interest-bearing demand . . . . . . . . . . . . . . . . . . . 225,012,522 213,181,825
Certificates of deposits . . . . . . . . . . . . . . . . . . . . . . . . 136,626,875 94,103,406
------------ ------------
Total deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . 443,880,913 379,620,005
Short-term borrowings:
Federal funds purchased . . . . . . . . . . . . . . . . . . . . . . . . . - 6,860,000
Other short-term borrowings . . . . . . . . . . . . . . . . . . . . . . . 1,000,000 7,955,000
------------ ------------
Total short-term borrowings . . . . . . . . . . . . . . . . . . . . . . 1,000,000 14,815,000
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,697,218 4,559,377
Long-term borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,302,048 8,545,699
------------ ------------
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . 458,880,179 407,540,081
------------ ------------
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
4,805,056 and 4,359,583 respectively . . . . . . . . . . . . . . . . . 6,006,320 5,449,479
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . 32,622,428 25,432,849
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,865,438 14,596,666
Net unrealized gain (loss) on investments available for sale . . . . . . 7,406 (1,191,371)
------------ ------------
Stockholders' equity . . . . . . . . . . . . . . . . . . . . . . . . . . 49,501,592 44,287,623
------------ ------------
Total liabilities and stockholders' equity . . . . . . . . . . . . . . $508,381,771 $451,827,704
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
3
<PAGE> 4
WEST COAST BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
--------------------------- ---------------------------
1995 1994 1995 1994
-------- -------- -------- --------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans . . . . . . . . . . . $8,568,685 $6,971,243 $24,158,989 $19,984,503
Interest on taxable investment securities . . . . 1,021,380 1,000,635 3,017,122 2,947,951
Interest on non-taxable investment securities . . 633,854 652,316 1,994,029 1,932,514
Interest from other banks . . . . . . . . . . . . 35,578 60,394 104,025 128,065
Interest on federal funds sold . . . . . . . . . 190,956 120,788 388,187 255,886
---------- ---------- ----------- -----------
Total interest income . . . . . . . . . . . . . 10,450,453 8,805,376 29,662,352 25,248,919
INTEREST EXPENSE
Savings and interest-bearing demand . . . . . . . 1,669,408 1,440,728 4,861,670 4,004,005
Certificates of deposit . . . . . . . . . . . . . 1,897,114 855,623 5,076,895 2,581,978
Short-term borrowings . . . . . . . . . . . . . . 22,637 22,015 297,399 117,324
Long-term borrowings . . . . . . . . . . . . . . 130,913 114,908 337,620 337,308
---------- ---------- ----------- -----------
Total interest expense . . . . . . . . . . . . 3,720,072 2,433,274 10,573,584 7,040,615
---------- ---------- ----------- -----------
NET INTEREST INCOME . . . . . . . . . . . . . . . 6,730,381 6,372,102 19,088,768 18,208,304
PROVISION FOR LOAN LOSSES . . . . . . . . . . . 180,000 135,000 451,460 442,500
---------- ---------- ----------- -----------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES . . . . . . . . . . . 6,550,381 6,237,102 18,637,308 17,765,804
NON-INTEREST INCOME
Service charges on deposit accounts . . . . . . . 603,779 497,892 1,784,110 1,665,190
Other service charges, fees and commissions . . . 642,458 613,531 1,615,544 1,470,171
Trust revenue . . . . . . . . . . . . . . . . . . 326,659 285,013 1,000,170 888,656
Gains on sales of loans . . . . . . . . . . . . . 217,476 237,998 553,858 844,891
Loan servicing fees . . . . . . . . . . . . . . . 120,414 111,026 364,021 331,204
Other . . . . . . . . . . . . . . . . . . . . . . 144,818 142,626 220,462 220,698
Net gains (losses) on sales of securities . . . . 2,314 (47,926) 7,879 (163,263)
---------- ---------- ------------ ------------
Total non-interest income . . . . . . . . . . . 2,057,918 1,840,160 5,546,044 5,257,547
NON-INTEREST EXPENSE
Salaries and employee benefits . . . . . . . . . 3,346,557 3,144,493 9,643,414 9,001,606
Equipment . . . . . . . . . . . . . . . . . . . . 427,582 376,379 1,335,614 1,196,877
Occupancy . . . . . . . . . . . . . . . . . . . . 465,734 467,527 1,323,653 1,161,198
Professional fees . . . . . . . . . . . . . . . . 324,246 407,015 860,622 944,037
ATM and Bankcard . . . . . . . . . . . . . . . . 248,027 210,939 594,053 482,801
Marketing . . . . . . . . . . . . . . . . . . . . 145,887 119,680 467,831 457,156
Printing and office supplies . . . . . . . . . . 139,510 139,678 461,579 379,130
FDIC insurance . . . . . . . . . . . . . . . . . (20,275) 207,985 409,408 612,452
Communications . . . . . . . . . . . . . . . . . 158,741 110,227 403,734 298,722
Other non-interest expense . . . . . . . . . . . 472,818 592,694 1,521,626 1,703,101
---------- ---------- ----------- -----------
Total non-interest expense . . . . . . . . . . 5,708,827 5,776,617 17,021,534 16,237,080
INCOME BEFORE INCOME TAXES . . . . . . . . . . . 2,899,472 2,300,645 7,161,818 6,786,271
---------- ---------- ----------- -----------
PROVISION FOR INCOME TAXES . . . . . . . . . . . 861,085 622,816 2,160,706 1,884,584
---------- ---------- ----------- -----------
NET INCOME . . . . . . . . . . . . . . . . . . . $2,038,387 $1,677,829 $5,001,112 $4,901,687
========== ========== =========== ===========
EARNINGS PER COMMON SHARE . . . . . . . . . . . . $.42 $.35 $1.04 $1.09
</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>
Nine months ended
September 30,
------------------------------
1995 1994
---------- ----------
(Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 5,001,112 $ 4,901,687
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization of premises and equipment . . . . . . . . . . . 763,231 720,420
Amortization of intangibles . . . . . . . . . . . . . . . . . . . . . . . . . 64,575 64,575
Net (gain) loss on sales of investments
Available for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . (7,879) 163,263
Held to maturity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - -
Provision for loan losses . . . . . . . . . . . . . . . . . . . . . . . . . . 451,460 442,500
(Increase) decrease in interest receivable . . . . . . . . . . . . . . . . . (251,824) 290,086
Decrease (increase) in other assets . . . . . . . . . . . . . . . . . . . . . 551,034 (2,010,278)
Increase (decrease) in interest payable . . . . . . . . . . . . . . . . . . . 647,454 (40,581)
(Decrease) in other liabilities . . . . . . . . . . . . . . . . . . . . . . . (509,613) (789,638)
----------- -----------
Net cash provided by operating activities . . . . . . . . . . . . . . . . . 6,709,550 3,742,034
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from maturities of investment securities
Available for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,763,340 23,067,171
Held to maturity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,588,134 7,586,134
Proceeds from sales of investment securities
Available for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,368,709 8,847,553
Held to maturity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 3,903,035
Purchase of investment securities
Available for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (22,672,224) (28,305,864)
Held to maturity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3,174,996) (8,744,713)
Loans made to customers (greater) than principal collected on loans . . . . . . (44,284,961) (20,676,424)
Capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,911,388) (3,707,366)
----------- -----------
Net cash (used) in investing activities . . . . . . . . . . . . . . . . . . . (44,323,386) (18,030,474)
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in demand, savings and interest
bearing transaction accounts . . . . . . . . . . . . . . . . . . . . . . . . 21,737,439 34,738,992
Net increase (decrease) in proceeds from sales of
certificates of deposits greater than payments for maturing time deposits . . 42,523,469 (10,452,505)
Proceeds from long-term borrowings . . . . . . . . . . . . . . . . . . . . . . 2,000,000 1,000,000
Payments on long-term borrowings . . . . . . . . . . . . . . . . . . . . . . . (1,243,651) (1,156,682)
Net (decrease) in short-term borrowings . . . . . . . . . . . . . . . . . . . . (13,815,000) (10,617,000)
Proceeds from issuance of common stock . . . . . . . . . . . . . . . . . . . . 102,454 5,126,630
Dividends paid and cash paid for fractional shares . . . . . . . . . . . . . . (1,088,374) (864,657)
----------- -----------
Net cash provided by financing activities . . . . . . . . . . . . . . . . . . 50,216,337 17,774,778
----------- -----------
NET INCREASE IN CASH AND
CASH EQUIVALENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,602,501 3,486,338
CASH AND CASH EQUIVALENTS AT BEGINNING
OF YEAR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33,639,760 33,696,075
----------- -----------
CASH AND CASH EQUIVALENTS AT END
OF YEAR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $46,242,261 $37,182,413
=========== ===========
</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>
Additional Net Unrealized Gains
Common Stock Paid-In Retained (Losses) 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 (loss) on investments
available for sale . . . . . . . . - - - - (1,623,840) (1,623,840)
Cash dividends, $.26 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 . . . . . . . . . . . . . - - - 5,001,112 - 5,001,112
Net unrealized gain on investments
Available for sale . . . . . . . . - - - - 1,198,777 1,198,777
Cash dividends, $.23 per Common
Share . . . . . . . . . . . . . . - - - (1,084,458) - (1,084,458)
10 percent Stock dividend . . . . . . 436,823 546,029 7,098,379 (7,644,408) - -
Sale of Stock . . . . . . . . . . . . 9,003 11,254 91,200 - - 102,454
Cash paid for fractional shares . . . (353) (442) - (3,474) - (3,916)
--------- ---------- ----------- ----------- ---------- -----------
BALANCE, September 30, 1995 . . . . . 4,805,056 $6,006,320 $32,622,428 $10,865,438 $7,406 $49,501,592
========== ========== =========== =========== ========== ===========
</TABLE>
The accompanyinng 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 nine months ended September 30, 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
On September 28, 1995, the Board of Directors declared a quarterly cash
dividend of $.07 per share and a 10 percent stock dividend payable October 31,
1995. In addition during 1995, cash dividends of $.07 and $.09 per share have
been paid through September 30, 1995.
5. SHAREHOLDERS EQUITY
During July 1994, settlement occurred on the sale of 396,000 shares of Common
Stock through a public offering managed by Pacific Crest Securities, Inc. In
addition the 59,400 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 September 30, 1995 and 1994
NET INCOME. Bancorp reported net income of $2,038,387, or $.42 per
share, for the three months ended September 30, 1995. This represents a 21%
increase in net income, and a 20% increase in earnings per share as compared to
$1,677,829 or $.35 per share, for the three months ended September 30, 1994.
Increased net income was primarily the result of increased net interest margins
enhanced by interest earning asset growth. Non-interest income rose mainly due
to an increased customer base and higher transaction volumes. Expenses
increased mainly due to new branch expansion costs and development costs
related to a new data processing facility, and were offset by lower FDIC
deposit insurance premiums.
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. Since Bancorp is liability sensitive, 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. In contrast, a declining interest rate environment could
favorably impact Bancorp's margin.
Net interest income on a tax equivalent basis for the three months
ended September 30, 1995 increased $348,768 or 5.20%, to $7,056,912 from
$6,708,144 for the same period in 1994. Average interest-earning assets
increased by $43.9 million, or 10.95%, to $444.6 million, for the three months
ended September 30, 1995 compared to the same three months of 1994. Average
interest-bearing liabilities increased $42.6 million or 13.26% over the same
period. The average net interest spread decreased from 6.05% to 5.56%, which
was mainly caused by rising interest rates over the period, and an increase in
deposit growth principally attributed to certificates of deposits.
Bancorp's net interest margin for the three months ended September 30,
1995 was 6.30%, a decline of 34 basis points from 6.64% for the comparable
period of 1994. The major factor in the decline was the increase in the
average rates paid on interest-bearing liabilities, which increased by 106
basis points to 4.06% in the third quarter of 1995 from 3.00% for the same
period in 1994.
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
September 30,
-------------
Increase
1995 1994 (Decrease) Change
----------- ------------ ---------- ------
<S> <C> <C> <C> <C>
Interest and fee income(1) . . . . . . $ 10,776,984 $ 9,141,418 $ 1,635,566 17.89%
Interest expense . . . . . . . . . . . 3,720,072 2,433,274 1,286,798 52.88%
------------ ------------ ----------- -----
Net interest income . . . . . . . . . . $ 7,056,912 $ 6,708,144 $ 348,768 5.20%
============ ============ =========== =====
Average interest-earning assets . . . . $444,568,402 $400,704,013 $43,864,389 10.95%
Average interest-bearing liabilities. . $363,842,625 $321,253,649 $42,588,976 13.26%
Average yields earned(2) . . . . . . . 9.62% 9.05% .57
Average rates paid(2) . . . . . . . . . 4.06% 3.00% 1.06
Net interest spread(2) . . . . . . . . 5.56% 6.05% (.49)
Net interest margin(2) . . . . . . . . 6.30% 6.64% (.34)
- ----------------
</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 September 30, 1995 and 1994 have
been annualized.
8
<PAGE> 9
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 third quarter of 1995 and 1994 of $180,000
and $135,000, respectively. Net charge-offs for the third quarter of 1995 were
$180,000, compared to net recoveries of 61,000 for the same period in 1994. At
September 30, 1995, the percentage of non-performing assets was 0.23% of total
assets.
Management attributes the relatively low levels of net loans charged
off during both of the 1995 and 1994 periods, .22% and (.09)% of average loans
respectively, to the conservative loan approval processes and monitoring
systems in place. 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 September 30, 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 third quarter of
1995 was $2,057,918, up $217,758, or 11.83%, compared to the same period in
1994. Service charges on deposit accounts increased by $105,887 or 21.27% due to
increased deposit relationships. Other service charges, commissions and fees
increased $28,927, or 4.71%, due mainly to an increased customer base and
transaction volumes in the merchant bankcard, annuity and mutual fund programs,
as well as other similar transaction based programs. Trust revenue increased
$41,646 or 14.61% during the period based on a growing managed asset base and
account activity. Gains on sales of loans decreased $20,552, or 8.62%, as a
result of decreased refinance activity in the residential real estate programs.
Loan servicing income reported increases in the quarter due to increased volumes
of loans serviced for others.
NON-INTEREST EXPENSE. Non-interest expenses for the third quarter
ended September 30, 1995, were $5,708,827 a decrease of $67,790 or 1.17% over
the same period in 1994. The majority of the decrease was due to lower FDIC
deposit insurance premiums which resulted in a credit of $20,275 in the third
quarter of 1995 compared to expenses of $207,985 for the third period in 1994.
Salaries and employee benefits, equipment, marketing, ATM and Bankcard, printing
and office supplies, and communications expenses are higher in the third quarter
of 1995 due mainly to expansion of the Bank's branch system and the additions of
new products and services over the period. 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 declined during the quarter as
Bancorp begins to recognize the benefits of economies of scale after the recent
merger.
9
<PAGE> 10
NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994
NET INCOME. For the nine months ended September 30, 1995, Bancorp's
net income was $5,001,112 an increase of $99,425 from $4,901,687 for same period
in 1994, a 2.03% increase. Earnings per share for the nine month period ended
in 1995 were $1.04 compared to $1.09 in 1994. 1995 earnings per share figures
were impacted by Bancorp's issuance of 455,400 common shares in a secondary
offering in July 1994, increasing outstanding shares by approximately ten
percent. The increase in net income is primarily due to increased net interest
margins resulting from higher interest earning assets. Net interest income on a
tax equivalent basis totaled $29,115,995 for the nine months ended September 30
1995, a 4.75% increase from the same period in 1994. Growth of non-interest
income was due to increased customer bases and transaction volumes. Non-interest
expenses are up mainly due to bank branch expansion.
NET INTEREST INCOME. During the periods ended September 30, 1995 and
1994, average interest earning assets were $426.5 million and $392.8 million,
respectively. During the same periods, average interest bearing liabilities
grew to $349.6 million from $321.1 million, respectively. Additionally, during
the same periods, net interest margins declined to 6.31% from 6.54% respectively
due mainly to rising interest rates and an increase of certificates of deposits
as a funding source. Net interest income on a tax-equivalent basis increased
$912,153, or 4.75%, to $20,115,995 in the first nine months of 1995 from
$19,203,842 in 1994. The increased net interest income was caused by the
offsetting factors of increased asset growth and a declining net interest
spread. Average interest earning assets increased 8.58% over the period while
the average yield earned increased 69 basis points to 9.62% at September 30,
1995 from 8.93% in 1994. The rising interest rate environment in 1995 also led
to a decline in the net interest spread of 42 basis points to 5.58% from 6.00%
in 1994. Average interest bearing liabilities increased $28.6 million, or
8.90%, to $349.6 million for the period ended September 30, 1995, while the
average rates paid increased 111 basis points to 4.04%.
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>
Nine Months Ended
-----------------
September 30,
------------- Increase
1995 1994 (Decrease) Change
---- ---- ---------- ------
<S> <C> <C> <C> <C>
Interest and fee income(1) . . . . . . $ 30,689,579 $ 26,244,457 $ 4,445,122 16.94%
Interest expense . . . . . . . . . . . 10,573,584 7,040,615 3,532,969 50.18%
------------ ------------ ----------- ------
Net interest income . . . . . . . . . . $ 20,115,995 $ 19,203,842 $ 912,153 4.75%
============ ============ =========== =====
Average interest earning assets . . . . $426,510,162 $392,810,902 $33,699,260 8.58%
Average interest bearing liabilities. . $349,629,164 $321,054,715 $28,574,449 8.90%
Average yields earned(2) . . . . . . . 9.62% 8.93% .69
Average rates paid(2) . . . . . . . . 4.04% 2.93% 1.11
Net interest spread(2) . . . . . . . . 5.58% 6.00% (.42)
Net interest margin(2) . . . . . . . . 6.31% 6.54% (.23)
</TABLE>
- -------------------
(1) Interest earned on non-taxable securities has been computed on a 34% tax
equivalent basis.
(2) These ratios for the nine months ended September 30, 1995 and 1994 have
been annualized.
PROVISION FOR LOAN LOSSES. Bancorp recorded a provision for loan
losses of $451,460 in the first nine months of 1995, compared to $442,500 in the
same period in 1994. Bancorp incurred net charge-offs of $273,000 in 1995,
compared to net recoveries of $32,000 in 1994. The allowance for loan losses as
a percentage of loan totals at September 30, 1995 and 1994 were 1.44% and 1.59%
of total loans, respectively. Bancorp's allowance for loan losses represents
410% of its non-performing loans as of September 30, 1995.
NON-INTEREST INCOME. Non-interest income for the nine months ended
September 30, 1995 was $5,546,044 an increase of $288,497, or 5.49%, from
$5,257,547 for the same period in 1994. Service charges on deposit accounts,
other service charges, fees and commissions, and Trust revenues increased over
the same period in 1994, due to an increased customer base and transaction
volumes serviced. Gains on sales of loans declined $291,033 as a result of
decreased refinance activity in Bancorp's residential real estate department,
and decreased revenues in the sale of SBA loans. Overall increases in
non-interest income were due to increased market presence in existing and
expanding market services.
10
<PAGE> 11
NON-INTEREST EXPENSE. Non-interest expense increased 4.83% during
the first nine months of 1995 over the same period in 1994. The increase in
operating expense resulted from additional costs associated with entering new
markets, including the opening of several new branch operations. The largest
increase was in the area of salaries and benefits, which increased to $9,643,414
in 1995 from $9,001,606, up 7.13% for the same period in 1994. The number of
full time equivalent employees increased during 1995 to 355 from 341 in 1994. In
general, the opening of 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. Other
increases in non-interest expense generally were caused by higher operating
activity levels associated with Bancorp's growth and certain costs incurred as a
result of the merger and reorganization of certain operating activities. FDIC
deposit insurance expense declined during the period due to reductions in
insurance premiums.
INCOME TAXES
During the first nine months of 1995, due to an increase in pre-tax
income, the provision for income taxes increased 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 $443.9 million at September 30, 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 $49.5 million at September 30, 1995
from $44.3 million at December 31, 1994 an increase of $5.2 million, or 11.74%,
over that period of time. During July 1994 Bancorp received net proceeds of
$5.1 million in a public offering of 455,400 shares of common stock. The net
proceeds have and 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 and adjacent markets and especially the Portland metropolitan area,
that would allow for continued diversification of assets mix and revenue
streams. At September 30, 1995, Bancorp's shareholders' equity, as a
percentage of total assets, was 9.74%, compared to 9.80% at December 31, 1994.
The decrease was primarily a result of assets growing faster, (through new and
existing branch growth), than the equity base. Equity grew at 11.74% over the
period from December 31, 1994 to September 30, 1995, while assets grew by
12.52% over the same period.
11
<PAGE> 12
As the following table indicates, Bancorp currently exceeds the regulatory
capital minimum requirements.
<TABLE>
<CAPTION>
September 30, 1995
----------------------
Actual
----------------------
(Dollars in thousands)
- ----------------------
Amount Ratio
------ -----
<S> <C> <C>
Tier 1 capital . . . . . . . . . . . . . $ 49,189 13.59%
Tier 1 capital minimum requirement . . . 14,476 4.00
-------- ----
Excess over minimum Tier 1 capital . . $ 34,713 9.59%
======== ====
Total capital . . . . . . . . . . . . . . $ 53,715 14.84%
Total capital minimum requirement . . . . 28,952 8.00
-------- ----
Excess over minimum total capital . . . $ 24,763 6.84%
======== ====
Risk-adjusted assets . . . . . . . . . . $361,906
========
Leverage ratio . . . . . . . . . . . . . 9.92%
Minimum leverage requirement . . . . . . 3.00
----
Excess over minimum leverage ratio . . 6.92%
====
Adjusted total assets . . . . . . . . . . $496,350
========
</TABLE>
LOAN PORTFOLIO
Interest earned on the loan portfolio is the primary source of income
for Bancorp. Net loans represented 63.02% of total assets as of September 30,
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. The
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>
September 30, 1995 December 31, 1994
------------------------ ------------------------
(Dollars in thousands) Amount Percent Amount Percent
---------------------- ------ ------- ------ -------
<S> <C> <C> <C> <C>
Commercial . . . . . . . . . . . . . . . . . . . . $ 97,955 30.14% $ 86,459 30.56%
Real estate construction . . . . . . . . . . . . . 27,539 8.47 23,773 8.40
Real estate mortgage . . . . . . . . . . . . . . . 45,253 13.92 36,958 13.06
Real estate commercial . . . . . . . . . . . . . . 107,704 33.13 95,662 33.80
Installment and other consumer . . . . . . . . . . 46,607 14.34 40,134 14.18
-------- ------ -------- ------
Totals . . . . . . . . . . . . . . . . . . . . . . 325,058 100.00% 282,986 100.00%
Less allowance for loan losses . . . . . . . . . . (4,697) 1.44% (4,519) 1.60%
-------- --------
Loans, net . . . . . . . . . . . . . . . . . . . . $320,361 $278,467
======== ========
</TABLE>
12
<PAGE> 13
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 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) September 30, 1995 December 31, 1994
---------------------- ------------------ -----------------
<S> <C> <C>
Loans on non-accrual status . . . . . . . . . . . . . . . . . . . . $1,120 $476
Loans past due greater than 90 days but not on accrual status . . . 25 23
Other real estate owned . . . . . . . . . . . . . . . . . . . . . . 1 31
------ ----
Total non-performing assets . . . . . . . . . . . . . . . . . . . . $1,146 $530
====== ----
Percentage of non-performing assets to total assets . . . . . . . . .23% .12%
====== ====
</TABLE>
13
<PAGE> 14
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>
Nine months ended Year ended
(Dollars in thousands) September 30, 1995 December 31, 1994
---------------------- ------------------ -----------------
<S> <C> <C>
Loans outstanding at end of period . . . . . . . . . . . . . . . . . . . . $325,058 $282,986
Average loans outstanding during the period . . . . . . . . . . . . . . . . $305,420 $270,817
Allowance for loan losses, beginning of period . . . . . . . . . . . . . . $4,519 $ 3,983
Recoveries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 318
Loans charged off . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (313) (330)
------ ------
Net loans charged off . . . . . . . . . . . . . . . . . . . . . . . . . . . (273) (12)
Provision for loan losses . . . . . . . . . . . . . . . . . . . . . . . . . 451 548
------ ------
Allowance for loan losses, end of period . . . . . . . . . . . . . . . . . $4,697 $4,519
====== ======
Ratio of net loans charged off
to average loans outstanding(1) . . . . . . . . . . . . . . . . . . . . . .12% .00%
Ratio of allowance for loan losses
to loans at end of period . . . . . . . . . . . . . . . . . . . . . . . . 1.44% 1.60%
</TABLE>
(1) The ratios for the nine months ended September 30, 1995 have been
annualized.
14
<PAGE> 15
INVESTMENT PORTFOLIO
The following table shows the book value of the Banks' portfolio of
investments as of September 30, 1995 and December 31, 1994:
<TABLE>
<CAPTION>
September 30, December 31,
(Dollars in thousands) 1995 1994
- ---------------------- ------------- ------------
<S> <C> <C>
Investments available for sale
------------------------------
U.S. Treasury securities . . . . . . . . . . . . . . . . . . . $17,632 $20,350
U.S. Government agency securities . . . . . . . . . . . . . . . 26,483 21,408
Corporate securities . . . . . . . . . . . . . . . . . . . . . 3,497 1,480
Mortgage-backed securities . . . . . . . . . . . . . . . . . . 9,230 8,937
Obligations of state and political subdivisions . . . . . . . . 6,271 7,215
Other securities . . . . . . . . . . . . . . . . . . . . . . . 1,647 1,623
------- -------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . $64,760 $61,013
======= =======
Investments held to maturity
----------------------------
U.S. Treasury securities . . . . . . . . . . . . . . . . . . . $ 3,147 $ 4,681
U.S. Government agency securities . . . . . . . . . . . . . . . 4,894 5,875
Corporate securities . . . . . . . . . . . . . . . . . . . . . 4,768 5,804
Mortgage-backed securities . . . . . . . . . . . . . . . . . . - 301
Obligations of state and political subdivisions . . . . . . . . 38,407 38,316
Other securities . . . . . . . . . . . . . . . . . . . . . . . 222 1,875
------- -------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . $51,438 $56,852
======= =======
</TABLE>
15
<PAGE> 16
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 27 Article 9 Financial Data Schedules for Form 10-Q
(b) None
16
<PAGE> 17
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: October 14, 1995 /s/ Rodney B. Tibbatts
-----------------------
Rodney B. Tibbatts
Co-President and Chief Executive
Officer
Dated: October 14, 1995 /s/ Donald A. Kalkofen
------------------------
Donald A. Kalkofen
Treasurer and Chief Financial
Officer
17
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<CURRENCY> U.S.DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> SEP-30-1995
<EXCHANGE-RATE> 1
<CASH> 24,987
<INT-BEARING-DEPOSITS> 2,427
<FED-FUNDS-SOLD> 18,828
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 64,760
<INVESTMENTS-CARRYING> 51,439
<INVESTMENTS-MARKET> 53,089
<LOANS> 325,058
<ALLOWANCE> 4,697
<TOTAL-ASSETS> 508,382
<DEPOSITS> 443,881
<SHORT-TERM> 1,000
<LIABILITIES-OTHER> 4,697
<LONG-TERM> 9,302
<COMMON> 6,006
0
0
<OTHER-SE> 43,496
<TOTAL-LIABILITIES-AND-EQUITY> 508,382
<INTEREST-LOAN> 24,159
<INTEREST-INVEST> 5,011
<INTEREST-OTHER> 492
<INTEREST-TOTAL> 29,662
<INTEREST-DEPOSIT> 9,939
<INTEREST-EXPENSE> 10,573
<INTEREST-INCOME-NET> 19,089
<LOAN-LOSSES> 451
<SECURITIES-GAINS> 8
<EXPENSE-OTHER> 17,022
<INCOME-PRETAX> 7,162
<INCOME-PRE-EXTRAORDINARY> 7,162
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,001
<EPS-PRIMARY> 1.04
<EPS-DILUTED> 1.04
<YIELD-ACTUAL> 6.31
<LOANS-NON> 1,120
<LOANS-PAST> 25
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 4,519
<CHARGE-OFFS> 313
<RECOVERIES> 40
<ALLOWANCE-CLOSE> 4,697
<ALLOWANCE-DOMESTIC> 4,697
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
