<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, 1996
[ ] 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, 1996: 5,326,768
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I. Financial Statements Page
----
<S> <C> <C>
Consolidated Balance Sheets -
June 30, 1996 and December 31, 1995 . . . . . . . . . . 3
Consolidated Statements of Income -
Three months and six months ended
June 30, 1996 and 1995 . . . . . . . . . . . . . . . . . 4
Consolidated Statements of Cash Flows -
Six months ended June 30, 1996 and 1995 . . . . . . . . 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 . . . . . . . . . . . . . . . . . 9
PART II. Other Information
Item 6 - Exhibits and Reports on Form 8-K . . . . . . . 17
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
</TABLE>
2
<PAGE> 3
WEST COAST BANCORP
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
------------ -------------
(Unaudited)
<S> <C> <C>
ASSETS
Cash and cash equivalents:
Cash and due from banks . . . . . . . . . . . . . . . . . . . . . . . . . $ 33,162,340 $ 30,621,724
Interest bearing deposits in other banks . . . . . . . . . . . . . . . . 5,838,651 2,286,848
Federal funds sold . . . . . . . . . . . . . . . . . . . . . . . . . . . - 7,648,678
------------ ------------
Total cash and cash equivalents . . . . . . . . . . . . . . . . . . . . 39,000,991 40,557,250
Investment securities:
Investments available for sale . . . . . . . . . . . . . . . . . . . . . 102,118,588 116,176,809
Investments held to maturity . . . . . . . . . . . . . . . . . . . . . . - -
------------ ------------
Total investmet securities 102,118,588 116,176,809
Loans held for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . 604,493 836,399
Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 402,570,705 339,912,341
Allowance for loan loss . . . . . . . . . . . . . . . . . . . . . . . . . . (4,876,194) (4,721,213)
------------ ------------
Loans, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 397,694,511 335,191,128
Premises and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . 16,541,280 15,608,855
Intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 240,239 283,290
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,164,336 7,993,495
------------ ------------
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $565,364,438 $516,647,226
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits:
Demand . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 86,724,100 $ 83,278,388
Savings and interest bearing demand . . . . . . . . . . . . . . . . . . . 253,204,758 229,074,600
Certificates of deposits . . . . . . . . . . . . . . . . . . . . . . . . 134,521,240 129,747,628
------------ ------------
Total deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . 474,450,098 442,100,616
Short-term borrowings:
Federal funds purchased . . . . . . . . . . . . . . . . . . . . . . . . . 10,900,000 -
Other short-term borrowings . . . . . . . . . . . . . . . . . . . . . . . 9,450,000 7,927,000
------------ ------------
Total short-term borrowings . . . . . . . . . . . . . . . . . . . . . . 20,350,000 7,927,000
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,583,203 4,584,136
Long-term borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,797,056 8,837,763
------------ ------------
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . 510,180,357 463,449,515
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
4,816,700 and 4,804,441 respectively . . . . . . . . . . . . . . . . . 6,020,875 6,005,551
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . 32,748,550 32,614,692
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,068,013 12,856,449
Net unrealized gain on investments available for sale . . . . . . . . . . 346,643 1,721,019
------------ ------------
Stockholders' equity . . . . . . . . . . . . . . . . . . . . . . . . . . 55,184,081 53,197,711
------------ ------------
Total liabilities and stockholders' equity . . . . . . . . . . . . . . $565,364,438 $516,647,226
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
3
<PAGE> 4
WEST COAST BANCORP
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
----------------------------- ----------------------------
1996 1995 1996 1995
---------- ---------- ---------- -----------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans . . . . . . . . . . . . . . . . $9,929,744 $8,168,489 $18,857,053 $15,590,304
Interest on taxable investment securities . . . . . . . . . 1,117,586 956,546 2,141,897 1,995,742
Interest on non-taxable investment securities . . . . . . . 602,490 677,690 1,246,436 1,360,175
Interest from other banks . . . . . . . . . . . . . . . . . 80,288 25,532 104,932 68,447
Interest on federal funds sold . . . . . . . . . . . . . . 26,286 122,780 201,802 197,231
---------- ---------- ---------- ----------
Total interest income . . . . . . . . . . . . . . . . . . 11,756,394 9,951,037 22,552,120 19,211,899
INTEREST EXPENSE
Savings and interest-bearing demand . . . . . . . . . . . . 1,829,712 1,656,592 3,512,849 3,192,262
Certificates of deposit . . . . . . . . . . . . . . . . . . 1,765,126 1,757,867 3,502,894 3,179,781
Short-term borrowings . . . . . . . . . . . . . . . . . . . 59,203 98,500 179,959 274,762
Long-term borrowings . . . . . . . . . . . . . . . . . . . 171,418 103,837 292,071 206,707
----------- ---------- ---------- ----------
Total interest expense . . . . . . . . . . . . . . . . . 3,825,459 3,616,796 7,487,773 6,853,512
---------- ---------- ---------- ----------
NET INTEREST INCOME . . . . . . . . . . . . . . . . . . . . 7,930,935 6,334,241 15,064,347 12,358,387
PROVISION FOR LOAN LOSS . . . . . . . . . . . . . . . . . 461,200 150,000 794,200 271,460
---------- ---------- ---------- ----------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSS . . . . . . . . . . . . . . . . . 7,469,735 6,184,241 14,270,147 12,086,927
NONINTEREST INCOME
Other service charges, commissions and fees . . . . . . . . 682,207 410,742 1,259,701 778,904
Service charges on deposit accounts . . . . . . . . . . . . 597,475 615,375 1,209,046 1,180,331
Trust revenue . . . . . . . . . . . . . . . . . . . . . . . 363,604 364,578 673,006 673,511
Gains on sales of loans . . . . . . . . . . . . . . . . . . 266,868 192,208 542,677 336,382
Loan servicing fees . . . . . . . . . . . . . . . . . . . . 121,649 127,786 244,160 243,607
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . 71,768 169,730 123,300 269,826
Net (losses) gains on sales of securities . . . . . . . . . (28,682) 9,306 (47,767) 5,565
----------- ---------- ---------- ----------
Total noninterest income . . . . . . . . . . . . . . . . 2,074,889 1,889,725 4,004,123 3,488,126
NONINTEREST EXPENSE
Salaries and employee benefits . . . . . . . . . . . . . . 3,576,905 3,060,092 7,029,472 6,296,857
Equipment . . . . . . . . . . . . . . . . . . . . . . . . . 511,182 452,616 998,576 908,032
Occupancy . . . . . . . . . . . . . . . . . . . . . . . . . 466,195 430,554 951,274 857,919
Professional fees . . . . . . . . . . . . . . . . . . . . . 390,930 227,986 855,650 536,376
ATM and Bankcard . . . . . . . . . . . . . . . . . . . . . 252,115 191,722 435,075 346,026
Printing and office supplies . . . . . . . . . . . . . . . 192,043 165,490 372,150 322,069
Marketing . . . . . . . . . . . . . . . . . . . . . . . . . 151,239 173,475 314,966 321,944
Communications . . . . . . . . . . . . . . . . . . . . . . 138,723 134,231 280,602 244,993
FDIC insurance . . . . . . . . . . . . . . . . . . . . . . 1,500 212,177 3,000 429,683
Other noninterest expense . . . . . . . . . . . . . . . . . 672,660 511,955 1,270,208 1,048,808
---------- ---------- ---------- ----------
Total noninterest expense . . . . . . . . . . . . . . . . 6,353,492 5,560,298 12,510,973 11,312,707
INCOME BEFORE INCOME TAXES . . . . . . . . . . . . . . . . 3,191,132 2,513,668 5,763,297 4,262,346
---------- ---------- ---------- ----------
PROVISION FOR INCOME TAXES . . . . . . . . . . . . . . . . 1,053,636 804,030 1,892,521 1,299,621
---------- ---------- ---------- ----------
NET INCOME . . . . . . . . . . . . . . . . . . . . . . . . $2,137,496 $1,709,638 $3,870,776 $2,962,725
========== ========== ========== ==========
EARNINGS PER COMMON SHARE . . . . . . . . . . . . . . . . . $.44 $.36 $.80 $.62
==== ==== ==== ====
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
4
<PAGE> 5
WEST COAST BANCORP
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Six months ended
June 30,
------------------------------
1996 1995
-------------- ------------
(Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,870,776 $ 2,962,725
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization of premises and equipment . . . . . . . . . . . 624,786 507,381
Amortization of intangibles . . . . . . . . . . . . . . . . . . . . . . . . . 43,051 43,050
Net loss (gain) on sales of investments:
Available for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47,767 (5,565)
Held to maturity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - -
Provision for loan losses . . . . . . . . . . . . . . . . . . . . . . . . . . 794,200 271,460
Decrease (increase) in interest receivables . . . . . . . . . . . . . . . . . 72,070 (269,374)
Increase in other assets . . . . . . . . . . . . . . . . . . . . . . . . . . (1,242,911) (1,892,759)
Increase in interest payable . . . . . . . . . . . . . . . . . . . . . . . . 51,730 501,192
Decrease in other liabilities . . . . . . . . . . . . . . . . . . . . . . . . (1,052,663) (390,543)
------------ ------------
Net cash provided by operating activities . . . . . . . . . . . . . . . . 3,208,806 1,727,567
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from maturities of investment securities:
Available for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22,604,975 10,101,517
Held to maturity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 7,135,901
Proceeds from sales of investment securities:
Available for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,222,856 2,378,009
Held to maturity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - -
Purchase of investment securities:
Available for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (22,191,753) (4,343,282)
Held to maturity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - (1,325,000)
Loans made to customers greater than principal collected on loans . . . . . . . (63,065,677) (35,719,416)
Capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,557,211) (2,368,348)
------------ -----------
Net cash used in investing activities . . . . . . . . . . . . . . . . . . . (51,986,810) (24,140,619)
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in demand, savings and interest
bearing transaction accounts . . . . . . . . . . . . . . . . . . . . . . . . 27,575,870 674,859
Net increase in proceeds from sales of
certificates of deposits greater than payments for maturing time deposits . . 4,773,612 44,346,677
Proceeds from long-term borrowings . . . . . . . . . . . . . . . . . . . . . . 4,000,000 2,000,000
Payments on long-term borrowings . . . . . . . . . . . . . . . . . . . . . . . (1,040,707) (785,714)
Net increase (decrease) in short-term borrowings . . . . . . . . . . . . . . . 12,423,000 (10,815,000)
Sales of common stock, net . . . . . . . . . . . . . . . . . . . . . . . . . . 149,182 102,454
Dividends paid and cash paid for fractional shares . . . . . . . . . . . . . . (659,212) (759,772)
------------ -------------
Net cash provided by financing activities . . . . . . . . . . . . . . . . . 47,221,745 34,763,504
----------- -------------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS . . . . . . . . . . . . . (1,556,259) 12,350,452
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR . . . . . . . . . . . . . . . . 40,557,250 33,639,760
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD . . . . . . . . . . . . . . . . . . $39,000,991 $45,990,212
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
5
<PAGE> 6
WEST COAST BANCORP
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, 1994 . . . . . 4,359,583 $5,449,479 $25,432,849 $14,540,734 $(1,191,371) $44,231,691
Net income . . . . . . . . . . . . . - - - 7,358,595 - 7,358,595
Net unrealized gain on investments
available for sale . . . . . . . . - - - - 2,912,390 2,912,390
Cash dividends, $.29 per common
share . . . . . . . . . . . . . . - - - (1,395,569) - (1,395,569)
Sale of stock . . . . . . . . . . . . 5,699 7,124 82,286 - - 89,410
Sale of common stock pursuant to
stock option plans . . . . . . . 3,167 3,958 10,072 - - 14,030
10 percent stock dividend . . . . . . 436,276 545,345 7,089,485 (7,634,830) - -
Cash paid for fractional shares . . . (284) (355) - (12,481) - (12,836)
--------- ---------- ----------- ----------- ----------- -----------
BALANCE, December 31, 1995 . . . . . 4,804,441 6,005,551 32,614,692 12,856,449 1,721,019 53,197,711
Net income . . . . . . . . . . . . . - - - 3,870,776 - 3,870,776
Net unrealized (loss) on investments
available for sale . . . . . . . . - - - - (1,374,376) (1,374,376)
Cash dividends, $.13 per common
share . . . . . . . . . . . . . . - - - (659,212) - (659,212)
Sale of common stock pursuant to
stock option plans . . . . . . . . 12,259 15,324 133,858 - - 149,182
--------- ---------- ----------- ----------- ----------- -----------
BALANCE, June 30, 1996 . . . . . . . 4,816,700 $6,020,875 $32,748,550 $16,068,013 $ 346,643 $55,184,081
========= ========== =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
Notes to Consolidated Financial Statements
1. PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the
accounts of West Coast Bancorp (Bancorp) and its wholly-owned subsidiaries, The
Commercial Bank, The Bank of Newport, and Valley Commercial Bank, after
elimination of intercompany transactions and balances.
The interim financial statements have been prepared in accordance with
generally accepted accounting principles for interim financial information.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments including normal recurring
accruals necessary for fair presentation of results of operations for the
interim periods included herein have been made. The results of operations for
the six months ended June 30, 1996 are not necessarily indicative of results to
be anticipated for the year ending December 31, 1996.
6
<PAGE> 7
2. USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements, in conformity with generally
accepted accounting principles, requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
3. 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.
4. 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, 1995. The
implementation of the statements did not have a material effect on West Coast's
reported financial position or net income.
In May 1995, FASB issued SFAS No. 122, "Accounting to Mortgage
Servicing Rights", which requires recognition as separate assets rights to
service mortgage loans for others, however, those rights are acquired. It
further requires the assessment of its capitalized mortgage servicing rights
for impairment based on the fair value of those rights. Impairment should be
recognized through a valuation allowance. This statement applies to financial
statements for fiscal years beginning after December 15, 1995. The
implementation of the statement did not have a material effect on West Coast's
reported financial position of net income.
5. NET INCOME PER COMMON SHARE
The Board of Directors declared a quarterly cash dividend of $.065 per
share during the second quarter of 1996 and $.065 per share during the first
quarter of 1996. All per share amounts have been restated to retroactively
reflect stock splits as well as all previous stock dividends.
6. SUPPLEMENTAL CASH FLOW INFORMATION
For purposes of reporting cash flows, cash and cash equivalents
include cash on hand, amounts due from banks, and federal funds sold.
Generally, federal funds are purchased and sold for one-day periods.
Bancorp paid $6,352,320 and $7,436,042, for interest in the six months
ended June 30, 1996 and 1995, respectively. Income taxes paid were $1,610,850
and $1,107,086, in the six months ended June 30, 1996 and 1995, respectively.
7
<PAGE> 8
7. SUBSEQUENT ACQUISITIONS
Effective July 1, 1996, West Coast Bancorp completed its acquisition
of Vancouver Bancorp. Vancouver Bancorp is a bank holding company,
headquartered in Vancouver, Washington. Its principal business activities are
conducted through its only subsidiary, Bank of Vancouver, a Washington state
chartered, full-service commercial bank, whose deposits are insured by the
Federal Deposit Insurance Corporation. At June 30, 1996 Vancouver Bancorp had
assets totaling $94 million, and equity capital totaling $6.5 million.
Vancouver Bancorp earned $575,000 for the six months ended June 30, 1996 and
$891,000 the year ended December 31, 1995. Bank of Vancouver's primary
service area is Vancouver, Washington, adjacent to the greater Portland, Oregon
metropolitan market. The Bank of Vancouver emphasizes real estate related
loans to small businesses located within its market area. The transaction will
be accounted for as a pooling of interests, accordingly future reports by
Bancorp will be restated to include the accounts and results of operations of
Vancouver Bancorp.
8
<PAGE> 9
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, 1996 and 1995
Net Income. Bancorp reported net income of $2,137,496, or $.44 per
share, for the three months ended June 30, 1996. This represents a 25%
increase in net income, as compared to $1,709,638 or $.36 per share, for the
three months ended June 30, 1995. Increased net income was primarily the
result of increased net interest margins enhanced by interest earning asset
growth. Noninterest 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, as well as some merger related expenditures, and were partially
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 June 30, 1996 increased $1,557,955 or 23.31%, to $8,241,309 from
$6,683,354 for the same period in 1995. Average interest earning assets
increased by $73.0 million, or 17.29%, to $495.1 million from June 30, 1995.
Average interest bearing liabilities increased $52.1 million or 14.91% over the
same period. The average net interest spread increased from 5.63% to
5.97%,which was mainly caused by a declining cost of funds over the period.
Bancorp's net interest margin for the three months ended June 30, 1996
was 6.69%, an increase of 34 basis points from 6.35% for the comparable period
of 1995. The major factor in the increase was the decrease in the average
rates paid on interest bearing liabilities, which decreased by 33 basis points
to 3.83% in the second quarter of 1996 from 4.16% for the same period in 1995.
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 1996 (Decrease) Change
---- ---- ---------- ------
<S> <C> <C> <C> <C>
Interest and fee income(1) . . . . . $ 12,066,768 $ 10,300,150 $ 1,766,618 17.15%
Interest expense . . . . . . . . . . 3,825,459 3,616,796 208,663 5.77%
------------ ------------ ----------- ------
Net interest income . . . . . . . . . $ 8,241,309 $ 6,683,354 $ 1,557,955 23.31%
============ ============ =========== ======
Average interest earning assets . . . $495,096,253 $422,120,426 $72,975,827 17.29%
Average interest bearing liabilities $401,446,996 $349,355,747 $52,091,249 14.91%
Average yields earned(2) . . . . . . 9.80% 9.79% .01
Average rates paid(2) . . . . . . . . 3.83% 4.16% (.33)
Net interest spread(2) . . . . . . . 5.97% 5.63% .34
Net interest margin(2) . . . . . . . 6.69% 6.35% .34
</TABLE>
(1) Interest earned on nontaxable securities has been computed on a 34% tax
equivalent basis.
(2) These ratios for the three months ended June 30, 1996 and 1995 have been
annualized.
9
<PAGE> 10
Provision for Loan Losses. Management's policy is to maintain an
adequate allowance for loan loss 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 1996 and 1995 of $461,200 and $150,000
respectively. The increases in the provisions are due mainly to increases in
outstanding loans over the periods. Net charge-offs for the second quarter of
1996 were $215,000, compared to net charge-offs of $73,000 for the same period
in 1995. At June 30, 1996, the percentage of non-performing assets was 0.35%
of total assets.
Management has in place a conservative loan approval process and a
strong asset quality monitoring system. 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, 1996 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. See "Loan Loss Allowance and Provision".
Noninterest Income. Noninterest income for the second quarter of 1996
was $2,074,889 up $185,164, or 9.80%, compared to the same period in 1995.
Other service charges, commissions and fees increased $271,465, or 66.09%, 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. Service charges on deposit accounts, trust revenue
and loan servicing fees remained relatively stable with minor decreases in
revenue of $17,900, $974 and $6,137 respectively Gains on sales of loans
increased $74,660, or 38.84%, as a result of increased activity in the
residential real estate programs.
Noninterest Expense. Noninterest expenses for the second quarter
ended June 30, 1996, were $6,353,492 an increase of $793,194 or 14.27% over the
same period in 1995. Salaries and employee benefits, equipment, occupancy, ATM
and Bankcard, printing and office supplies, communications expenses and other
expenses are higher in the second quarter of 1996 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 increased over the period mainly due to increased merger
related expenditures in the second quarter of 1996. Marketing expenses
declined during the period due to enhanced internal capabilities. FDIC
deposit insurance expense declined in the period due to reductions in insurance
premiums charged.
10
<PAGE> 11
Six Months Ended June 30, 1996 and 1995
Net Income. For the six months ended June 30, 1996, Bancorp's net
income was $3,870,776, an increase of $908,051 from $2,962,725 for same period
in 1995, a 30.65% decline. Earnings per share for the six month period ended
in 1996 were $0.80 compared to $0.62 in 1995. Net interest income on a tax
equivalent basis totaled $15,706,450 for the six months ended June 30 1996, a
20.27% increase from the same period in 1995.
Net Interest Income. During the periods ended June 30, 1996 and 1995,
average interest earning assets were $485.3 million and $416.2 million,
respectively. During the same periods, average interest bearing liabilities
grew to $392.2 million from $341.9 million, respectively. Additionally, during
the same periods, net interest margins increased to 6.51% from 6.33%
respectively due mainly to a declining cost of funds. Net interest income on a
tax-equivalent basis increased $2,647,367, or 20.27%, to $15,706,450 in the
first six months of 1996 from $13,059,083 in 1995. The increased net interest
income was caused by the increased asset growth and an increased net interest
spread. Average interest earning assets increased 16.62% over the period while
the average yield earned decreased 4 basis points to 9.61% at June 30, 1996
from 9.65% in 1995. The changing interest rate environment in 1996 also led to
an increase in the net interest spread of 16 basis points to 5.77% from 5.61%
in 1995. Average interest bearing liabilities increased $50.3 million, or
14.72%, to $392.2 million for the period ended June 30, 1996, while the average
rates paid decreased 20 basis points to 3.84%.
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
1996 1995 (Decrease) Change
---- ---- ---------- ------
<S> <C> <C> <C> <C>
Interest and fee income(1) . . . . . $ 23,194,223 $ 19,912,595 $ 3,281,628 16.48%
Interest expense . . . . . . . . . . 7,487,773 6,853,512 9.25%
------------ ------------ ----
634,261
-------
Net interest income . . . . . . . . . $ 15,706,450 $ 13,059,083 $ 2,647,367 20.27%
============ ============ =========== =====
Average interest earning assets . . . $485,334,144 $416,165,667 $69,168,477 16.62%
Average interest bearing liabilities $392,204,354 $341,890,238 $50,314,116 14.72%
Average yields earned(2) . . . . . . 9.61% 9.65% (.04)
Average rates paid(2) . . . . . . . 3.84% 4.04% (.20)
Net interest spread(2) . . . . . . . 5.77% 5.61% .16
Net interest margin(2) . . . . . . . 6.51% 6.33% .18
- ---------------
</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, 1996 and 1995 have been
annualized.
Provision for Loan Losses. Bancorp recorded a provision for loan
losses of $794,200 in the first six months of 1996, compared to $271,460 in the
same period in 1996. Bancorp incurred net charge-offs of $639,000 in 1996,
compared to $94,000 during 1995. The allowance for loan losses as a percentage
of loan totals at June 30, 1996 and 1995 were 1.21% and 1.39% of total loans,
respectively.
Non-Interest Income. Non-interest income for the six months ended June
30, 1996 was $4,004,123 an increase of $515,997, or 14.79%, from $3,488,126 for
the same period in 1995. Other service charges, commissions and fees and
service charges on deposit accounts increased during the period due to an
increased customer base and transaction volumes. Gains on sales of loans
increased $206,295 as a result of increased activity in Bancorp's residential
real estate department. Trust revenue and loan servicing fees remained stable
during the period. Overall increases in non-interest income were due to
increased market presence in existing and expanding market services.
11
<PAGE> 12
Non-Interest Expense. Non-interest expense increased 10.59% during the
first six months of 1996 over the same period in 1995. 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
$7,029,472 in 1996 from $6,296,857, up 11.63% from the same period in 1995.
The number of full time equivalent employees increased during 1996 to 414 from
353 in 1995. 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.
Professional fees were higher during the period due mainly to merger related
expenditures. FDIC deposit insurance expense declined in the period due to the
reduction in insurance premiums charged. 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 1996, due to an increase in pre-tax
income and a change in tax accounting for the allowance for loan loss, the
provision for income taxes increased from that of 1995.
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 $474.5 million at June 30, 1996, up from $442.1 million at December 31,
1995. 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 $55.2 million at June 30, 1996 from
$53.2 million at December 31, 1995 an increase of $2.0 million, or 3.73%, over
that period of time. At June 30, 1996, Bancorp's shareholders' equity, as a
percentage of total assets, was 9.76%, compared to 10.30% at December 31, 1995.
The decrease was primarily a result of assets growing faster, (through new and
existing branch growth), than the equity base. Equity grew at 3.73% over the
period from December 31, 1995 to June 30, 1996, while assets grew by 9.43% over
the same period.
12
<PAGE> 13
As the following table indicates, Bancorp currently exceeds
the regulatory capital minimum requirements.
<TABLE>
<CAPTION>
June 30,1996
------------
Actual
------
(Dollars in thousands)
-------- -- ----------
Amount Ratio
------ -----
<S> <C> <C>
Tier 1 capital . . . . . . . . . . . . . $ 54,597 12.47%
Tier 1 capital minimum requirement . . . 17,509 4.00
------ ----
Excess over minimum Tier 1 capital . . $ 37,088 8.47%
======== =====
Total capital . . . . . . . . . . . . . . $ 59,473 13.59%
Total capital minimum requirement . . . . 35,018 8.00
------ ----
Excess over minimum total capital . . . $ 24,455 5.59%
======== =====
Risk-adjusted assets . . . . . . . . . . $437,719
========
Leverage ratio . . . . . . . . . . . . . 10.06%
Minimum leverage requirement . . . . . . 3.00
----
Excess over minimum leverage ratio . . 7.06%
=====
Adjusted total assets . . . . . . . . . . $542,451
========
</TABLE>
13
<PAGE> 14
LOAN PORTFOLIO
Interest earned on the loan portfolio is the primary source of income
for Bancorp. Net loans represented 70.34% of total assets as of June 30, 1996.
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, 1996 December 31, 1995
------------- -----------------
(Dollars in thousands) Amount Percent Amount Percent
-------- -- ---------- ------ ------- ------ -------
<S> <C> <C> <C> <C>
Commercial . . . . . . . . . . . . . . . . . . . . $112,715 28.34% $100,179 29.89%
Real estate construction . . . . . . . . . . . . . 41,055 10.32 31,310 9.34
Real estate mortgage . . . . . . . . . . . . . . . 37,807 9.51 36,164 10.79
Real estate commercial . . . . . . . . . . . . . . 160,263 40.30 122,992 36.69
Installment and other consumer . . . . . . . . . . 50,731 12.76 49,267 14.70
------ ----- ------ -----
Totals . . . . . . . . . . . . . . . . . . . . . . 402,571 101.23% 339,912 101.41%
Less allowance for loan losses . . . . . . . . . . (4,876) (4,721)
------- -------
Loans, net . . . . . . . . . . . . . . . . . . . . $397,695 $335,191
======== ========
</TABLE>
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) June 30, 1996 December 31, 1995
---------------------- ------------- -----------------
<S> <C> <C>
Loans on non-accrual status . . . . . . . . . . . . . . . . . . . . $1,788 $591
Loans past due greater than 90 days but not on accrual status . . . 34 10
Other real estate owned . . . . . . . . . . . . . . . . . . . . . . 134 1
------ ----
Total non-performing assets . . . . . . . . . . . . . . . . . . . . $1,956 $602
====== ----
Percentage of non-performing assets to total assets . . . . . . . . .35% .12%
=== ===
</TABLE>
________________
See "Loan Loss Allowance and Provision"
14
<PAGE> 15
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, 1996 December 31, 1995
-------- -- ---------- ------------- -----------------
<S> <C> <C>
Loans outstanding at end of period . . . . . . . . . . . . . . . . . . . . . $402,571 $339,912
Average loans outstanding during the period . . . . . . . . . . . . . . . . . $364,459 $309,267
Allowance for loan losses, beginning of period . . . . . . . . . . . . . . . $4,721 $ 4,519
Recoveries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 117 52
Loans charged off . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (756) (520)
-------- --------
Net loans charged off . . . . . . . . . . . . . . . . . . . . . . . . . . . . (639) (468)
Provision for loan losses . . . . . . . . . . . . . . . . . . . . . . . . . . 794 670
-------- --------
Allowance for loan losses, end of period . . . . . . . . . . . . . . . . . . $4,876 $4,721
======== ========
Ratio of net loans charged off
to average loans outstanding(1) . . . . . . . . . . . . . . . . . . . . . . .35% .15%
Ratio of allowance for loan losses
to loans at end of period . . . . . . . . . . . . . . . . . . . . . . . . . 1.21% 1.39%
</TABLE>
(1) The ratios for the six months ended June 30, 1996 have been annualized.
As of December 31, 1995, Bancorp had an agricultural loan with an
outstanding balance of $1.5 million that had been written down by $150,000.
During 1996, the loan was further written down by $563,000 due to continued
declines in the crop value. In assessing Bancorp's collateral position, the
crop's value has been writtern down to $0. The remaining loan balance of
approximately $937,000 is secured by a governmental guarantee for $360,000 and
the remainder of the loan balance is substantially collateralized by real
estate and equipment. The loan is currently on nonaccrual status. This is a
special agricultural loan and is the only one within Bancorp with this specific
type of crop. Bancorp feels that it is an isolated situation, and that
reserves are adequate to cover any potential losses.
Increases in the provision for loan losses in 1996 were due mainly to
increases in loan growth. In addition, further forecasted loan growth will
lead to increases in the provision for loan losses.
15
<PAGE> 16
INVESTMENT PORTFOLIO
The following table shows the book value of the Banks' portfolio of
investments as of June 30, 1996 and December 31, 1995:
<TABLE>
<CAPTION>
June 30, December 31,
(Dollars in thousands) 1996 1995
---------------------- ---- ----
<S> <C> <C>
Investments available for sale
------------------------------
U.S. Treasury securities . . . . . . . . . . . . . . . . . . . $7,117 $17,741
U.S. Government agency securities . . . . . . . . . . . . . . . 38,731 35,731
Corporate securities . . . . . . . . . . . . . . . . . . . . . 4,021 4,803
Mortgage-backed securities . . . . . . . . . . . . . . . . . . 8,734 9,120
Obligations of state and political subdivisions . . . . . . . . 40,601 45,929
Other securities . . . . . . . . . . . . . . . . . . . . . . . 2,915 2,853
-------- --------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . $102,119 $116,177
======== ========
</TABLE>
16
<PAGE> 17
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
17
<PAGE> 18
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 12, 1996 /s/ Rodney B. Tibbatts
-----------------------------
Rodney B. Tibbatts
Co-President and Chief
Executive Officer
Dated: August 12, 1996 /s/ Donald A. Kalkofen
-----------------------------
Donald A. Kalkofen
Chief Financial Officer
18
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<EXCHANGE-RATE> 1
<CASH> 33,162
<INT-BEARING-DEPOSITS> 5,839
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 102,119
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 402,571
<ALLOWANCE> 4,876
<TOTAL-ASSETS> 565,364
<DEPOSITS> 474,450
<SHORT-TERM> 20,350
<LIABILITIES-OTHER> 3,583
<LONG-TERM> 11,797
0
0
<COMMON> 6,021
<OTHER-SE> 49,163
<TOTAL-LIABILITIES-AND-EQUITY> 565,364
<INTEREST-LOAN> 18,857
<INTEREST-INVEST> 3,388
<INTEREST-OTHER> 307
<INTEREST-TOTAL> 22,552
<INTEREST-DEPOSIT> 7,016
<INTEREST-EXPENSE> 7,488
<INTEREST-INCOME-NET> 15,064
<LOAN-LOSSES> 794
<SECURITIES-GAINS> (48)
<EXPENSE-OTHER> 12,511
<INCOME-PRETAX> 5,763
<INCOME-PRE-EXTRAORDINARY> 5,763
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,871
<EPS-PRIMARY> .80
<EPS-DILUTED> .80
<YIELD-ACTUAL> 6.51
<LOANS-NON> 1,788
<LOANS-PAST> 34
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 4,721
<CHARGE-OFFS> 756
<RECOVERIES> 117
<ALLOWANCE-CLOSE> 4,876
<ALLOWANCE-DOMESTIC> 4,876
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
