<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 June 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 July 31, 1995: 4,368,233
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I. Financial Statements Page
<S> <C>
Consolidated Balance Sheets -
June 30, 1995 and December 31, 1994 . . . . . . . . . . . . . . 3
Consolidated Statements of Income -
Three months and six months ended June 30, 1995 and 1994 . . . . 4
Consolidated Statements of Cash Flows -
Six months ended June 30, 1995 and 1994 . . . . . . . . . . . . 5
Consolidated Statements of Changes in Stockholders' Equity . . . 6
Notes to Consolidated Financial Statements . . . . . . . . . . .
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>
June 30, December 31,
1995 1994
-------- ------------
(Unaudited)
<S> <C> <C>
ASSETS
Cash and cash equivalents:
Cash and due from banks . . . . . . . . . . . . . . . . . . . . . . . . . $ 30,559,040 $ 25,047,417
Interest-bearing deposits in other banks . . . . . . . . . . . . . . . . 2,569,198 3,118,272
Federal funds sold . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,861,974 5,474,071
------------ ------------
Total cash and cash equivalents . . . . . . . . . . . . . . . . . . . . 45,990,212 33,639,760
Investment securities:
Investments available for sale . . . . . . . . . . . . . . . . . . . . . 53,925,148 61,012,883
Investments held to maturity . . . . . . . . . . . . . . . . . . . . . . 51,040,757 56,851,658
------------ -------------
Total investment securities . . . . . . . . . . . . . . . . . . . . . 104,965,905 117,864,541
Loans held for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,741,819 -
Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 315,869,453 282,986,234
Allowance for loan loss . . . . . . . . . . . . . . . . . . . . . . . . . (4,696,349) (4,519,267)
------------ ------------
Loans, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 311,173,104 278,466,967
Premises and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . 15,548,140 13,687,173
Intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 326,340 369,390
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,962,006 7,799,873
------------ ------------
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $490,707,526 $451,827,704
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits:
Demand . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 78,595,484 $ 72,334,774
Savings and interest-bearing demand . . . . . . . . . . . . . . . . . . . 207,595,974 213,181,825
Certificates of deposits . . . . . . . . . . . . . . . . . . . . . . . . 138,450,083 94,103,406
------------ ------------
Total deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . 424,641,541 379,620,005
Short-term borrowings:
Federal funds purchased . . . . . . . . . . . . . . . . . . . . . . . . . - 6,860,000
Other short-term borrowings . . . . . . . . . . . . . . . . . . . . . . . 4,000,000 7,955,000
------------ ------------
Total short-term borrowings . . . . . . . . . . . . . . . . . . . . . . 4,000,000 14,815,000
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,670,026 4,559,377
Long-term borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,759,985 8,545,699
------------ ------------
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . 443,071,552 407,540,081
------------ ------------
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
4,368,233, and 4,359,583 respectively . . . . . . . . . . . . . . . . . 5,460,291 5,449,479
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . 25,524,049 25,432,849
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,800,061 14,596,666
Net unrealized (loss) on investments available for sale . . . . . . . . . (148,427) (1,191,371)
------------ ------------
Stockholders' equity . . . . . . . . . . . . . . . . . . . . . . . . . . 47,635,974 44,287,623
------------ ------------
Total liabilities and stockholders' equity . . . . . . . . . . . . . . $490,707,526 $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 June 30, Six months ended June 30,
1995 1994 1995 1994
---- ---- ---- ----
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans . . . . . . . . . . . . $8,168,489 $6,711,144 $15,590,304 $13,013,260
Interest on taxable investment securities . . . . . 956,546 875,865 1,995,742 1,947,316
Interest on non-taxable investment securities . . . 677,690 640,362 1,360,175 1,280,198
Interest from other banks . . . . . . . . . . . . . 25,532 67,377 68,447 67,671
Interest on federal funds sold . . . . . . . . . . 122,780 106,692 197,231 135,098
---------- ---------- ----------- -----------
Total interest income . . . . . . . . . . . . . . 9,951,037 8,401,440 19,211,899 16,443,543
INTEREST EXPENSE
Savings and interest-bearing demand . . . . . . . . 1,656,592 1,339,231 3,192,262 2,563,277
Certificates of deposit . . . . . . . . . . . . . . 1,757,867 873,472 3,179,781 1,726,355
Short-term borrowings . . . . . . . . . . . . . . . 98,500 26,452 274,762 95,309
Long-term borrowings . . . . . . . . . . . . . . . 103,837 114,889 206,707 222,400
---------- ---------- ----------- -----------
Total interest expense . . . . . . . . . . . . . 3,616,796 2,354,044 6,853,512 4,607,341
---------- ---------- ----------- -----------
NET INTEREST INCOME . . . . . . . . . . . . . . . . 6,334,241 6,047,396 12,358,387 11,836,202
PROVISION FOR LOAN LOSSES . . . . . . . . . . . . 150,000 138,000 271,460 307,500
---------- ---------- ----------- -----------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES . . . . . . . . . . . . 6,184,241 5,909,396 12,086,927 11,528,702
NON-INTEREST INCOME
Service charges on deposit accounts . . . . . . . . 615,375 567,854 1,180,331 1,159,789
Other service charges, fees and commissions . . . . 410,742 294,893 778,904 607,340
Trust revenue . . . . . . . . . . . . . . . . . . . 364,578 306,412 673,511 603,643
Gains on sales of loans . . . . . . . . . . . . . . 192,208 233,937 336,382 606,893
Loan servicing fees . . . . . . . . . . . . . . . . 127,786 118,029 243,607 220,178
Other . . . . . . . . . . . . . . . . . . . . . . . 169,730 198,017 269,826 334,881
Net gains (losses) on sales of securities . . . . . 9,306 (52,372) 5,565 (115,337)
---------- ---------- ----------- -----------
Total non-interest income . . . . . . . . . . . . 1,889,725 1,666,770 3,488,126 3,417,387
NON-INTEREST EXPENSE
Salaries and employee benefits . . . . . . . . . . 3,060,092 2,956,477 6,296,857 5,857,113
Equipment . . . . . . . . . . . . . . . . . . . . . 452,616 396,820 908,032 820,498
Occupancy . . . . . . . . . . . . . . . . . . . . . 430,554 322,052 857,919 693,671
Professional fees . . . . . . . . . . . . . . . . . 227,986 244,238 536,376 537,022
FDIC insurance . . . . . . . . . . . . . . . . . . 212,177 203,342 429,683 404,467
Marketing . . . . . . . . . . . . . . . . . . . . . 173,475 160,273 321,944 337,476
ATM and Bankcard . . . . . . . . . . . . . . . . . 191,722 143,263 346,026 271,862
Printing and office supplies . . . . . . . . . . . 165,490 127,916 322,069 239,452
Communications . . . . . . . . . . . . . . . . . . 134,231 91,660 244,993 188,495
Other non-interest expense . . . . . . . . . . . . 511,955 587,626 1,048,808 1,110,407
---------- ---------- ----------- -----------
Total non-interest expense . . . . . . . . . . . 5,560,298 5,233,667 11,312,707 10,460,463
INCOME BEFORE INCOME TAXES . . . . . . . . . . . . 2,513,668 2,342,499 4,262,346 4,485,626
---------- ---------- ----------- -----------
PROVISION FOR INCOME TAXES . . . . . . . . . . . . 804,030 682,470 1,299,621 1,261,768
---------- ---------- ----------- -----------
NET INCOME . . . . . . . . . . . . . . . . . . . . $1,709,638 $1,660,029 $ 2,962,725 $ 3,223,858
========== ========== =========== ===========
EARNINGS PER COMMON SHARE . . . . . . . . . . . . . $.39 $.42 $.68 $.82
</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>
Six months ended
June 30,
--------------------------------
1995 1994
------------ ------------
(Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,962,725 $ 3,223,858
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization of premises and equipment . . . . . . . . . . . 507,381 454,221
Amortization of intangibles . . . . . . . . . . . . . . . . . . . . . . . . . 43,050 40,700
Net (gain) loss on sales of investments
Available for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . (5,565) 115,337
Held to maturity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - -
Provision for loan losses . . . . . . . . . . . . . . . . . . . . . . . . . . 271,460 307,500
(Increase) decrease in interest receivable . . . . . . . . . . . . . . . . . (269,374) 242,302
(Increase) in other assets . . . . . . . . . . . . . . . . . . . . . . . . . (1,892,759) (2,984,185)
Increase (decrease) in interest payable . . . . . . . . . . . . . . . . . . . 501,192 (34,979)
Decrease in other liabilities . . . . . . . . . . . . . . . . . . . . . . . . (390,543) (1,089,618)
------------ ------------
Net cash provided by operating activities . . . . . . . . . . . . . . . . . 1,727,567 275,136
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from maturities of investment securities
Available for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,101,517 14,393,756
Held to maturity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,135,901 6,489,937
Proceeds from sales of investment securities
Available for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,378,009 5,068,568
Held to maturity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 3,524,813
Purchase of investment securities
Available for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (4,343,282) (4,140,924)
Held to maturity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,325,000) (5,818,326)
Loans made to customers (greater) than principal collected on loans . . . . . . (35,719,416) (17,039,856)
Capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,368,348) (2,449,710)
------------ ------------
Net cash (used) provided in investing activities . . . . . . . . . . . . . . (24,140,619) 28,258
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in demand, savings and interest
bearing transaction accounts . . . . . . . . . . . . . . . . . . . . . . . . 674,859 16,025,574
Net increase (decrease) in proceeds from sales of
certificates of deposits greater than payments for maturing time deposits . . 44,346,677 (6,824,601)
Proceeds from long-term borrowings . . . . . . . . . . . . . . . . . . . . . . 2,000,000 1,000,000
Payments on long-term borrowings . . . . . . . . . . . . . . . . . . . . . . . (785,714) (763,825)
Net (decrease) in short-term borrowings . . . . . . . . . . . . . . . . . . . . (10,815,000) (11,245,000)
Proceeds from issuance of common stock . . . . . . . . . . . . . . . . . . . . 102,454 130,239
Dividends paid and cash paid for fractional shares . . . . . . . . . . . . . . (759,772) (514,758)
------------ ------------
Net cash provided (used) by financing activities . . . . . . . . . . . . . . 34,763,504 (2,192,371)
------------ ------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS . . . . . . . . . . . . . 12,350,452 (1,888,977)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR . . . . . . . . . . . . . . . . 33,639,760 33,696,075
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF YEAR . . . . . . . . . . . . . . . . . . . $ 45,990,212 $ 31,807,098
============ ============
</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 Investment
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, $.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 . . . . . . . . . . . . . - - - 2,962,725 - 2,962,725
Net unrealized gain on investments
Available for sale . . . . . . . . - - - - 1,042,944 1,042,944
Cash dividends, $.18 per Common
Share . . . . . . . . . . . . . . - - - (755,682) - (755,682)
Sale of Stock . . . . . . . . . . . . 9,003 11,254 91,200 - - 102,454
Cash paid for fractional shares . . . (353) (442) - (3,648) - (4,090)
--------- ---------- ----------- ----------- ----------- -----------
BALANCE, June 30, 1995 . . . . . . . 4,368,233 5,460,291 $25,524,049 $16,800,061 $ (148,427) $47,635,974
========= ========== =========== =========== =========== ===========
</TABLE>
The accompanyinng notes are an intergral 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 six months ended June 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
The Board of Directors declared cash dividends representing $.075 per share
during the second quarter and $.10 per share during the first quarter of 1995.
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 June 30, 1995 and 1994
Net Income. Net income for the quarter ended June 30, 1995 was
$1,709,638, or $0.39 per share, compared to $1,660,029, or $0.42 per share, for
the same period in 1994; net income increased 3%, while earnings per share
declined 7%. 1995 earnings per share figures were impacted by Bancorp's
issuance of 414,000 common shares in a secondary offering in July 1994,
increasing the average outstanding shares by approximately 10%. Increased net
income was primarily the result of increased net interest margins enhanced by
asset growth. Non-interest income rose mainly due to an increased customer
base and higher transaction volumes. Expenses increased due to new branch
expansion costs, development costs related to a new data processing facility
and other reorganizational costs associated with the recent merger.
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 June 30, 1995 increased $306,074 or 4.80%, to $6,683,354 from $6,377,280
for the same period in 1994. Average interest-earning assets increased by
$31.6 million, or 8.10%, to $422.1 million, for the three months ended June 30,
1995 compared to the same three months of 1994, and average interest-bearing
liabilities increased $28.8 million over the same period. The average net
interest spread decreased from 6.02% to 5.63%, 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 June 30, 1995
was 6.35%, a decline of 20 basis points from 6.55% 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 122 basis points to
4.16% in the first quarter of 1995 from 2.94% 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 June 30,
--------------------------- Increase
1995 1994 (Decrease) Change
---- ---- ---------- ------
<S> <C> <C> <C> <C>
Interest and fee income(1) . . . . . $ 10,300,150 $ 8,731,324 $ 1,568,826 17.97%
Interest expense . . . . . . . . . . 3,616,796 2,354,044 1,262,752 53.64%
------------ ------------ ----------- ------
Net interest income . . . . . . . . . $ 6,683,354 $ 6,377,280 $ 306,074 4.80%
============ ============ =========== ======
Average interest-earning assets . . . $422,120,426 $390,503,626 $31,616,800 8.10%
Average interest-bearing liabilities $349,355,747 $320,605,268 $28,750,479 8.97%
Average yields earned(2) . . . . . . 9.79% 8.96% .83
Average rates paid(2) . . . . . . . . 4.16% 2.94% 1.22
Net interest spread(2) . . . . . . . 5.63% 6.02% (.39)
Net interest margin(2) . . . . . . . 6.35% 6.55% (.20)
</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 June 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 second quarter of 1995 and 1994 of $150,000
and $138,000, respectively. Net charge-offs for the second quarter of 1995
were $72,000, compared to $18,000 for the same period in 1994. At June 30,
1995, the percentage of non- performing assets was 0.24% of total assets.
Management attributes the relatively low levels of net loans charged
off during both of the 1995 and 1994 periods, .10% and .03% 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 June 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 second quarter of
1995 was $1,889,725, up $222,995, or 13.38%, compared to the same period in
1994. Service charges on deposit accounts increased by $47,521 or 8.37% due to
increased deposit relationships. Other service charges, commissions and fees
increased $115,849, or 39.29%, due mainly 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 revenue increased $58,166 or 18.98% during the period based on a growing
managed asset base and account activity. Gains on sales of loans decreased
$41,729, or 17.84%, 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 expense for the second quarter
ended June 30, 1995 was $5,560,298, an increase of $326,631, or 6.24%, over the
same period in 1994. Salaries and personnel expense accounted for $103,615 of
the increase or 3.50% 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, marketing, 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 declined during the quarter
as Bancorp begins to recognize the benefits of economies of scale after the
recent merger. FDIC insurance and ATM and Bankcard expenses are up due to
increases in deposits and customer accounts. The FDIC has announced a final
proposal that will lower premiums commercial banks pay in deposit insurance
from a current average of 23.2 cents per $100 of insured deposits to an
expected rate of 4 cents per $100. Furthermore, the rate includes a mechanism
refunding to banks any excess premiums paid to the FDIC during the first half
of 1995. The amount of such refund is expected to be determined during the
third quarter of 1995.
9
<PAGE> 10
Six Months Ended June 30, 1995 and 1994
Net Income. For the six months ended June 30, 1995, Bancorp's net
income was $2,962,725, a decrease of $261,133 from $3,223,858 for same period
in 1994, an 8.10% decline. Earnings per share for the six month period ended
in 1995 was $0.68 compared to $0.82 in 1994. The decline in earnings in 1995
was primarily due to an increase in non-interest expenses, related to branch
expansion costs, merger related expenditures, development costs related to a
new data processing facility and other reorganizational costs related to the
merger. Net interest income on a tax equivalent basis totaled $13,059,083 for
the six months ended June 30 1995, a 4.51% increase from the same period in
1994. Growth of non-interest income was impacted by decreased refinancing
activity and sales of secondary real estate loans.
Net Interest Income. During the periods ended June 30, 1995 and 1994,
average interest earning assets were $416.2 million and $390.5 million,
respectively. During the same periods, average interest bearing liabilities
grew to $341.9 million from $321.1 million, respectively. Additionally, during
the same periods, net interest margins declined to 6.33% from 6.45%
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 $563,385, or 4.51%, to $13,059,083 in the first
six months of 1995 from $12,495,698 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 6.57% over the
period while the average yield earned increased 82 basis points to 9.65% at
June 30, 1995 from 8.83% in 1994. The rising interest rate environment in 1995
also led to a decline in the net interest spread of 33 basis points to 5.61%
from 5.94% in 1994. Average interest bearing liabilities increased $20.7
million, or 6.46%, to $341.9 million for the period ended June 30, 1995, while
the average rates paid increased 115 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>
Six Months Ended June 30,
------------------------- Increase
1995 1994 (Decrease) Change
---- ---- ---------- ------
<S> <C> <C> <C> <C>
Interest and fee income(1) . . . . . $ 19,912,595 $ 17,103,039 $ 2,809,556 16.43%
Interest expense . . . . . . . . . . 6,853,512 4,607,341 2,246,171 48.75%
------------ ------------ ----------- -----
Net interest income . . . . . . . . . $ 13,059,083 $ 12,495,698 $ 563,385 4.51%
============ ============ =========== =====
Average interest earning assets . . . $416,165,667 $390,516,668 $25,648,999 6.57%
Average interest bearing liabilities $341,890,238 $321,140,399 $20,749,839 6.46%
Average yields earned(2) . . . . . . 9.65% 8.83% .82
Average rates paid(2) . . . . . . . 4.04% 2.89% 1.15
Net interest spread(2) . . . . . . . 5.61% 5.94% (.33)
Net interest margin(2) . . . . . . . 6.33% 6.45% (.12)
---------------
</TABLE>
(1) Interest earned on non-taxable securities has been computed on a 34%
tax equivalent basis.
(2) These ratios for the six months ended June 30, 1995 and 1994 have
been annualized.
Provision for Loan Losses. Bancorp recorded a provision for loan
losses of $271,460 in the first six months of 1995, compared to $307,500 in the
same period in 1994. Bancorp incurred net charge-offs of $94,000 in 1995,
compared to $30,000 during 1994. The allowance for loan losses as a percentage
of loan totals at June 30, 1995 and 1994 were 1.49% and 1.53% of total loans,
respectively.
Non-Interest Income. Non-interest income for the six months ended June
30, 1995 was $3,488,126 an increase of $70,739, or 2.07%, from $3,417,387 for
the same period in 1994. Service charges on deposit accounts and Trust revenues
increased over the same period in 1994, due to increases in accounts and
balances serviced. Other service charges, commissions and fees increased
$171,564, or 28.25%, due to an increased customer base and transaction volumes.
Gains on sales of loans declined $270,511 as a result of decreased refinance
activity in Bancorp's residential real estate department, and decreased
revenues in the SBA loan program. Overall increases in non-interest income
were due to increased market presence in existing and expanding market
services.
Non-Interest Expense. Non-interest expense increased 8.15% during the
first six 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
$6,296,857 in 1995 from $5,857,113, up 7.51% for the same period in 1994. The
number of full time equivalent employees increased during 1995 to 353 from
10
<PAGE> 11
344 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.
INCOME TAXES
During the first six 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 $424.6 million at June 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. Bancorp increased its
certificate of deposit activity through certain promotional campaigns to local
customers, it is anticipated that some of these funds may leave during the next
two quarters of 1995.
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 $47.6 million at June 30, 1995 from
$44.3 million at December 31, 1994 an increase of $3.3 million, or 7.4 %, over
that period of time. During July 1994 Bancorp received net proceeds of $5.1
million in a public offering of 414,000 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 June 30, 1995, Bancorp's shareholders' equity, as a percentage of
total assets, was 9.71%, 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 7.4% over the period from
December 31, 1994 to June 30, 1995, while assets grew by 8.61% over the same
period.
11
<PAGE> 12
As the following table indicates, Bancorp currently exceeds the regulatory
capital minimum requirements.
<TABLE>
<CAPTION>
June 30, 1995
------------------------
Actual
------------------------
(Dollars in thousands) Amount Ratio
---------------------- ------ -----
<S> <C> <C>
Tier 1 capital . . . . . . . . . . . . . $ 47,458 12.99%
Tier 1 capital minimum requirement . . . 14,611 4.00
-------- -----
Excess over minimum Tier 1 capital . . $ 32,847 8.99%
======== =====
Total capital . . . . . . . . . . . . . . $ 52,026 14.24%
Total capital minimum requirement . . . . 29,221 8.00
-------- -----
Excess over minimum total capital . . . $ 22,805 6.24%
======== ======
Risk-adjusted assets . . . . . . . . . . $365,267
========
Leverage ratio . . . . . . . . . . . . . 10.09%
Minimum leverage requirement . . . . . . 3.00
-----
Excess over minimum leverage ratio . . 7.09%
=====
Adjusted total assets . . . . . . . . . . $470,885
========
</TABLE>
LOAN PORTFOLIO
Interest earned on the loan portfolio is the primary source of income
for Bancorp. Net loans represented 63.41% of total assets as of June 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>
June 30, 1995 December 31, 1994
------------- -----------------
(Dollars in thousands) Amount Percent Amount Percent
---------------------- ------ ------- ------ -------
<S> <C> <C> <C> <C>
Commercial . . . . . . . . . . . . . . . . . . . . $ 96,828 30.65% $ 86,459 30.56%
Real estate construction . . . . . . . . . . . . . 27,857 8.82 23,773 8.40
Real estate mortgage . . . . . . . . . . . . . . . 38,605 12.22 36,958 13.06
Real estate commercial . . . . . . . . . . . . . . 110,098 34.86 95,662 33.80
Installment and other consumer . . . . . . . . . . 42,481 13.45 40,134 14.18
-------- ------ -------- ------
Totals . . . . . . . . . . . . . . . . . . . . . . 315,869 100.00% 282,986 100.00%
Less allowance for loan losses . . . . . . . . . . (4,696) 1.49% (4,519) 1.60%
-------- --------
Loans, net . . . . . . . . . . . . . . . . . . . . $311,173 $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 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) June 30, 1995 December 31, 1994
-------- -- ---------- ---- --- ---- -------- --- ----
<S> <C> <C>
Loans on non-accrual status . . . . . . . . . . . . . . . . . . . $1,028 $476
Loans past due grater than 90 days but not on accrual status . . 98 23
Other real estate owned . . . . . . . . . . . . . . . . . . . . . 31 31
------ ----
Total non-performing assets . . . . . . . . . . . . . . . . . . . $1,157 $530
====== ----
Percentage of non-performing assets to total assets . . . . . . . .24% .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>
Six months ended Year ended
(Dollars in thousands) June 30, 1995 December 31, 1994
-------- -- ---------- ---- --- ---- -------- --- ----
<S> <C> <C>
Loans outstanding at end of period . . . . . . . . . . . . . . . . . . . . . . $315,869 $282,986
Average loans outstanding during the period . . . . . . . . . . . . . . . . . . $297,021 $270,817
Allowance for loan losses, beginning of period . . . . . . . . . . . . . . . . $4,519 $ 3,983
Recoveries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 318
Loans charged off . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (122) (330)
------ ------
Net loans charged off . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (94) (12)
Provision for loan losses . . . . . . . . . . . . . . . . . . . . . . . . . . . 271 548
------ ------
Allowance for loan losses, end of period . . . . . . . . . . . . . . . . . . . $4,696 $4,519
====== ======
Ratio of net loans charged off to average loans outstanding(1). . . . . . . . . .06% .00%
Ratio of allowance for loan losses to loans at end of period . . . . . . . . . 1.49% 1.60%
</TABLE>
(1) The ratios for the six months ended June 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 June 30, 1995 and December 31, 1994:
<TABLE>
<CAPTION>
June 30, Dec.31,
(Dollars in thousands) 1995 1994
-------- -- ---------- ---- ----
<S> <C> <C>
Investments available for sale
----------- --------- --- ----
U.S. Treasury securities . . . . . . . . . . . . . . . . . . . $17,685 $20,350
U.S. Government agency securities . . . . . . . . . . . . . . . 18,466 21,408
Corporate securities . . . . . . . . . . . . . . . . . . . . . 1,001 1,480
Mortgage-backed securities . . . . . . . . . . . . . . . . . . 9,328 8,937
Obligations of state and political subdivisions . . . . . . . . 5,797 7,215
Other securities . . . . . . . . . . . . . . . . . . . . . . . 1,648 1,623
------- -------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . $53,925 $61,013
======= =======
Investments held to maturity
----------- ---- -- --------
U.S. Treasury securities . . . . . . . . . . . . . . . . . . . $ 3,157 $ 4,681
U.S. Government agency securities . . . . . . . . . . . . . . . 5,888 5,875
Corporate securities . . . . . . . . . . . . . . . . . . . . . 2,937 5,804
Mortgage-backed securities . . . . . . . . . . . . . . . . . . - 301
Obligations of state and political subdivisions . . . . . . . . 38,783 38,316
Other securities . . . . . . . . . . . . . . . . . . . . . . . 276 1,875
------- -------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . $51,041 $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) 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
proforma financial statements for West Coast Bancorp and
Commercial Bancorp combined.
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: August 11, 1995 /s/ Rodney B. Tibbatts
---------------------------
Rodney B. Tibbatts
Co-President and Chief
Executive Officer
Dated: August 11, 1995 /s/ Donald A. Kalkofen
---------------------------
Donald A. Kalkofen
Treasurer and Chief Financial
Officer
17
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> JUN-30-1995
<CASH> 30,559
<INT-BEARING-DEPOSITS> 2,569
<FED-FUNDS-SOLD> 12,862
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 53,925
<INVESTMENTS-CARRYING> 51,041
<INVESTMENTS-MARKET> 52,662
<LOANS> 315,869
<ALLOWANCE> 4,696
<TOTAL-ASSETS> 490,708
<DEPOSITS> 424,642
<SHORT-TERM> 4,000
<LIABILITIES-OTHER> 4,670
<LONG-TERM> 9,760
<COMMON> 5,460
0
0
<OTHER-SE> 42,176
<TOTAL-LIABILITIES-AND-EQUITY> 490,708
<INTEREST-LOAN> 15,590
<INTEREST-INVEST> 3,356
<INTEREST-OTHER> 266
<INTEREST-TOTAL> 19,212
<INTEREST-DEPOSIT> 6,372
<INTEREST-EXPENSE> 6,854
<INTEREST-INCOME-NET> 12,358
<LOAN-LOSSES> 271
<SECURITIES-GAINS> 6
<EXPENSE-OTHER> 11,313
<INCOME-PRETAX> 4,262
<INCOME-PRE-EXTRAORDINARY> 4,262
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,963
<EPS-PRIMARY> .68
<EPS-DILUTED> .68
<YIELD-ACTUAL> 6.35
<LOANS-NON> 1,028
<LOANS-PAST> 98
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 4,519
<CHARGE-OFFS> 122
<RECOVERIES> 28
<ALLOWANCE-CLOSE> 4,696
<ALLOWANCE-DOMESTIC> 4,696
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
