<PAGE> 1
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
__________________________________________________
Form 10-Q
[X] Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Quarter Ended September 30, 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 October 31, 1996: 6,682,848
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
PART I. Financial Statements
September 30, 1996 and December 31, 1995. . . . . . . . . . . . . 3
Consolidated Statements of Income -
Three months and nine months ended September 30, 1996 and 1995. . 4
Consolidated Statements of Cash Flows -
Nine months ended September 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 . . . . . . . . . . . . . . . 8
PART II. Other Information
Item 6 - Exhibits and Reports on Form 8-K . . . . . . . . . . . . 16
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
</TABLE>
2
<PAGE> 3
WEST COAST BANCORP
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
Sept. 30, December 31
1996 1995
------------ ------------
(Unaudited)
<S> <C> <C>
ASSETS
Cash and cash equivalents:
Cash and due from banks . . . . . . . . . . . . . . . . . $ 37,425,613 $ 33,990,600
Interest bearing deposits in other banks . . . . . . . . 5,746,217 2,396,081
Federal funds sold . . . . . . . . . . . . . . . . . . . 2,485,139 7,648,678
------------ ------------
Total cash and cash equivalents . . . . . . . . . . . . 45,656,969 44,035,359
Investment securities:
Investments available for sale . . . . . . . . . . . . . 111,188,197 121,381,038
Investments held to maturity . . . . . . . . . . . . . . 2,702,919 7,783,038
------------ ------------
Total investment securities . . . . . . . . . . . . . 113,891,116 129,164,076
Loans held for sale . . . . . . . . . . . . . . . . . . . . 3,035,841 836,399
Loans . . . . . . . . . . . . . . . . . . . . . . . . . . 497,753,678 400,888,450
Allowance for loan loss . . . . . . . . . . . . . . . . . . (6,407,733) (5,569,420)
------------ ------------
Loans, net . . . . . . . . . . . . . . . . . . . . . . . 491,345,945 395,319,030
Premises and equipment, net . . . . . . . . . . . . . . . . 17,704,820 16,530,637
Intangible assets . . . . . . . . . . . . . . . . . . . . . 218,714 283,290
Other assets . . . . . . . . . . . . . . . . . . . . . . . 11,904,081 9,405,881
------------ ------------
Total assets . . . . . . . . . . . . . . . . . . . . . $683,757,486 $595,574,672
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits:
Demand . . . . . . . . . . . . . . . . . . . . . . . . . $107,930,786 $ 94,362,226
Savings and interest bearing demand . . . . . . . . . . . 318,909,202 270,132,276
Certificates of deposits . . . . . . . . . . . . . . . . 168,147,940 148,279,223
------------ ------------
Total deposits . . . . . . . . . . . . . . . . . . . . 594,987,928 512,773,725
Short-term borrowings:
Federal funds purchased . . . . . . . . . . . . . . . . . - -
Other short-term borrowings . . . . . . . . . . . . . . . 6,760,096 8,527,000
------------ ------------
Total short-term borrowings . . . . . . . . . . . . . . 6,760,096 8,527,000
Other liabilities . . . . . . . . . . . . . . . . . . . . . 6,631,319 5,105,917
Long-term borrowings . . . . . . . . . . . . . . . . . . . 11,189,913 10,187,763
------------ ------------
Total liabilities . . . . . . . . . . . . . . . . . . . 619,569,256 536,594,405
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
6,667,465 and 5,308,813 respectively . . . . . . . . . . 8,334,331 6,636,016
Additional paid-in capital . . . . . . . . . . . . . . . . 35,147,924 36,532,496
Retained earnings . . . . . . . . . . . . . . . . . . . . . 20,053,002 14,036,510
Net unrealized gain on investments available for sale . . . 652,973 1,775,245
------------ ------------
Stockholders' equity . . . . . . . . . . . . . . . . . . 64,188,230 58,980,267
------------ ------------
Total liabilities and stockholders' equity . . . . . . $683,757,486 $595,574,672
============ ============
</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 Nine months ended
Sept. 30, Sept. 30,
---------------------------- ----------------------------
1996 1995 1996 1995
------------ ----------- ----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans . . . . . . . . . . . . $12,834,034 $10,107,236 $35,216,066 $28,286,256
Interest on taxable investment securities . . . . . 1,195,517 1,177,078 3,675,887 3,507,080
Interest on non-taxable investment securities . . . 631,613 672,181 1,962,302 2,103,554
Interest from other banks . . . . . . . . . . . . . 41,819 35,704 147,078 104,400
Interest on federal funds sold . . . . . . . . . . 75,119 205,091 373,844 444,834
----------- ----------- ----------- -----------
Total interest income . . . . . . . . . . . . . . 14,778,102 12,197,290 41,375,177 34,446,124
INTEREST EXPENSE
Savings and interest-bearing demand . . . . . . . . 2,604,560 2,163,908 7,224,106 6,316,780
Certificates of deposit . . . . . . . . . . . . . . 2,203,727 2,178,104 6,346,643 5,757,634
Short-term borrowings . . . . . . . . . . . . . . . 192,305 27,327 411,532 329,279
Long-term borrowings . . . . . . . . . . . . . . . 164,859 162,643 512,652 434,775
----------- ----------- ----------- -----------
Total interest expense . . . . . . . . . . . . . 5,165,451 4,531,982 14,494,933 12,838,468
--------- --------- ---------- ----------
NET INTEREST INCOME . . . . . . . . . . . . . . . . 9,612,651 7,665,308 26,880,244 21,607,656
PROVISION FOR LOAN LOSS . . . . . . . . . . . . . 631,000 240,000 1,554,987 626,460
----------- ----------- ----------- -----------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSS . . . . . . . . . . . . . 8,981,651 7,425,308 25,325,257 20,981,196
NONINTEREST INCOME
Other service charges, commissions and fees . . . . 765,161 658,982 2,098,639 1,678,491
Service charges on deposit accounts . . . . . . . . 652,390 640,809 1,952,139 1,893,111
Trust revenue . . . . . . . . . . . . . . . . . . . 333,985 326,659 1,006,991 1,000,170
Gains on sales of loans . . . . . . . . . . . . . . 379,534 217,476 922,211 553,858
Loan servicing fees . . . . . . . . . . . . . . . . 119,925 120,414 364,085 364,021
Other . . . . . . . . . . . . . . . . . . . . . . . 167,074 150,972 305,020 233,324
Net (losses) gains on sales of securities . . . . . 28,271 2,314 (19,496) 9,838
----------- ----------- ----------- -----------
Total noninterest income . . . . . . . . . . . . 2,446,340 2,117,626 6,629,589 5,732,813
NONINTEREST EXPENSE
Salaries and employee benefits . . . . . . . . . . 4,384,962 3,618,744 12,003,958 10,418,031
Equipment . . . . . . . . . . . . . . . . . . . . . 620,036 489,890 1,759,308 1,519,149
Occupancy . . . . . . . . . . . . . . . . . . . . . 595,962 533,656 1,658,597 1,464,589
Professional fees . . . . . . . . . . . . . . . . . 387,948 359,053 1,466,424 980,910
ATM and Bankcard . . . . . . . . . . . . . . . . . 324,295 251,980 767,501 605,937
Printing and office supplies . . . . . . . . . . . 176,357 157,735 582,568 519,259
Marketing . . . . . . . . . . . . . . . . . . . . . 157,005 161,979 528,979 532,324
Communications . . . . . . . . . . . . . . . . . . 153,547 162,830 443,506 415,651
FDIC insurance . . . . . . . . . . . . . . . . . . 2,661 (23,209) 7,772 469,246
Other noninterest expense . . . . . . . . . . . . . 817,645 546,887 2,274,507 1,744,989
----------- ----------- ----------- -----------
Total noninterest expense . . . . . . . . . . . . 7,620,418 6,259,545 21,493,120 18,670,085
INCOME BEFORE INCOME TAXES . . . . . . . . . . . . 3,807,573 3,283,389 10,461,726 8,043,924
PROVISION FOR INCOME TAXES . . . . . . . . . . . . 1,175,531 976,980 3,384,223 2,424,601
----------- ----------- ----------- -----------
NET INCOME . . . . . . . . . . . . . . . . . . . . $ 2,632,042 $ 2,306,409 $ 7,077,503 $ 5,619,323
=========== =========== =========== ===========
EARNINGS PER COMMON SHARE . . . . . . . . . . . . . $.40 $.35 $1.06 $.85
==== ==== ===== ====
</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>
Nine months ended
Sept. 30,
---------------------------------
1996 1995
------------ -------------
(Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 7,077,503 $ 5,619,323
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization of premises and equipment . . . . . . . . . . . 1,153,254 924,494
Amortization of intangibles . . . . . . . . . . . . . . . . . . . . . . . . . 64,576 64,575
Net loss on sales of available for sale investments . . . . . . . . . . . . . 19,496 9,838
Provision for loan losses . . . . . . . . . . . . . . . . . . . . . . . . . . 1,554,987 626,460
Decrease (increase) in interest receivables . . . . . . . . . . . . . . . . . 45,044 (317,616)
(Increase) decrease in other assets . . . . . . . . . . . . . . . . . . . . . (2,543,244) 434,815
Increase in interest payable . . . . . . . . . . . . . . . . . . . . . . . . 62,926 703,327
Increase (decrease) in other liabilities . . . . . . . . . . . . . . . . . . 1,462,476 (339,954)
----------- ------------
Net cash provided by operating activities . . . . . . . . . . . . . . . . 8,897,018 7,725,262
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from maturities of investment securities:
Available for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25,673,350 16,685,144
Held to maturity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,347,783 9,243,708
Proceeds from sales of available for sale investment securities . . . . . . . . 11,635,543 3,929,232
Purchase of investment securities:
Available for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (28,257,820) (22,868,130)
Held to maturity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (267,664) (4,033,046)
Loans made to customers greater than principal collected on loans . . . . . . . (99,781,344) (59,994,799)
Capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,327,437) (3,084,458)
----------- ------------
Net cash used in investing activities . . . . . . . . . . . . . . . . . . . (87,977,589) (60,122,349)
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in demand, savings and interest
bearing transaction accounts . . . . . . . . . . . . . . . . . . . . . . . . 62,345,486 25,528,663
Net increase in proceeds from sales of
certificates of deposits greater than payments for maturing time deposits . . 19,868,717 48,514,854
Proceeds from long-term borrowings . . . . . . . . . . . . . . . . . . . . . . 4,000,000 2,000,000
Payments on long-term borrowings . . . . . . . . . . . . . . . . . . . . . . . (2,997,850) (1,318,651)
Net (decrease) in short-term borrowings . . . . . . . . . . . . . . . . . . . . (1,766,904) (13,715,000)
Sales of common stock, net . . . . . . . . . . . . . . . . . . . . . . . . . . 313,743 211,928
Dividends paid and cash paid for fractional shares . . . . . . . . . . . . . . (1,061,011) (1,088,374)
----------- ------------
Net cash provided by financing activities . . . . . . . . . . . . . . . . . 80,702,181 60,133,420
----------- ------------
NET INCREASE IN CASH AND CASH EQUIVALENTS . . . . . . . . . . . . . . . . . . . 1,621,610 7,736,333
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR . . . . . . . . . . . . . . . . 44,035,359 42,066,115
----------- ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD . . . . . . . . . . . . . . . . . . $45,656,969 $49,802,448
=========== ============
</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>
Net
Unrealized
Gains
(Losses)
Additonal Investments
Common Stock Paid-In Retained Available
Shares Amount Capital Earnings for Sale Total
---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, December 31, 1994 . . . . . 4,852,595 $6,065,744 $29,255,378 $14,830,239 $(1,267,534) $48,883,827
Net income . . . . . . . . . . . . . - - 8,249,151 - 8,249,151
Net unrealized gain on investments -
available for sale . . . . . . . . - - - 3,042,779 3,042,779
Cash dividends, $.23 per common -
share . . . . . . . . . . . . . . - - - (1,395,569) - (1,395,569)
Sale of stock . . . . . . . . . . . . 5,699 7,124 82,286 - - 89,410
Purchase of common stock pursuant
to employee stock ownership plan . 4,608 5,760 46,453 - - 52,213
Sale of common stock pursuant to
stock option plans . . . . . . . . 9,919 12,398 58,894 - - 71,292
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 . . . . . 5,308,813 6,636,016 36,532,496 14,036,510 1,775,245 58,980,267
--------- ---------- ----------- ----------- ----------- -----------
Net income . . . . . . . . . . . . . - - - 7,077,503 - 7,077,503
Net unrealized (loss) on investments
available for sale . . . . . . . . - - - - (1,122,272) (1,122,272)
Cash dividends, $.16 per common
share . . . . . . . . . . . . . . - - - (1,059,260) - (1,059,260)
Purchase of common stock pursuant
to employee stock ownership plan . 4,518 5,647 77,397 - - 83,044
Sale of common stock pursuant to
stock option plans . . . . . . . . 20,733 25,917 204,782 - - 230,699
Stock split in the form of a
25 percent dividend . . . . . . . 1,333,493 1,666,866 (1,666,866) - - -
Cash paid for fractional shares . . . (92) (115) 115 (1,751) - (1,751)
--------- ---------- ----------- ----------- ----------- -----------
BALANCE, September 30, 1996 . . . . . 6,667,465 $8,334,331 $35,147,924 $20,053,002 $ 652,973 $64,188,230
========= ========== =========== =========== =========== ===========
</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, The Bank of Vancouver, Valley Commercial
Bank, and West Coast Trust Company, Inc., after elimination of intercompany
transactions and balances.
The interim financial statements have been prepared in accordance with
generally accepted accounting principles for interim financial information.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments including normal recurring
accruals necessary for fair presentation of results of operations for the
interim periods included herein have been made. The results of operations for
the nine months ended September 30, 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. Effective July 1, 1996, West Coast Bancorp completed its
acquisition of Vancouver Bancorp of Vancouver, Washington. Its principal
business activities were conducted through the Bank of Vancouver which will
continue as a wholly-owned subsidiary of West Coast Bancorp. 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 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 or net income.
5. NET INCOME PER COMMON SHARE
The Board of Directors declared a quarterly cash dividend of $.06 per
share during the third quarter of 1996. In addition, dividends of $.052 and
$.052 were declared in the first and second quarters of 1996. A stock split
in the form of a 25 percent dividend was declared during the third quarter of
1996. All per share amounts have been restated to retroactively reflect stock
dividends and stock splits previously reported.
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 $14,432,007 and $12,135,141, for interest in the nine
months ended September 30, 1996 and 1995, respectively. Income taxes paid were
$3,337,067 and $2,154,572, in the nine months ended September 30, 1996 and
1995, respectively.
7. RECLASSIFICATIONS
Certain reclassifications of prior year amounts have been made to
conform to current classifications.
7
<PAGE> 8
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of Bancorp's consolidated financial condition
and results of operations should be read in conjunction with the selected
consolidated financial and other data, the consolidated financial statements
and related notes included elsewhere herein.
RESULTS OF OPERATIONS
Three Months Ended September 30, 1996 and 1995
Net Income. Bancorp reported net income of $2,632,042, or $.40 per
share, for the three months ended September 30, 1996. This represents a 14%
increase in net income, as compared to $2,306,409 or $.35 per share, for the
three months ended September 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 and reorganization related expenditures.
Net Interest Income. Net interest income is the difference between
interest income (principally from loan and investment securities) and interest
expense (principally on customer deposits and borrowings). Changes in net
interest income result from changes in volume, net interest spread and net
interest margin. Volume refers to the average dollar level of interest earning
assets and interest bearing liabilities. Net interest spread refers to the
differences between the average yield on interest earning assets and the
average cost of interest bearing liabilities. Net interest margin refers to
net interest income divided by average interest earning assets and is
influenced by the level and relative mix of interest earning assets and
interest bearing liabilities. Bancorp's profitability, like that of many
financial institutions, is dependent to a large extent upon net interest
income. Since Bancorp is liability sensitive, as interest bearing liabilities
mature or reprice more quickly than interest earning assets in a given period,
a significant increase in the market rates of interest could adversely affect
net interest income. In contrast, a declining interest rate environment could
favorably impact Bancorp's margin.
Net interest income on a tax equivalent basis for the three months
ended September 30, 1996 increased $1,926,444 or 24.05%, to $9,938,027 from
$8,011,583 for the same period in 1995. Average interest earning assets
increased by $96.9 million, or 18.88%, to $610.1 million from $513.2 million
for the same period in 1995. Average interest bearing liabilities increased
$74.2 million or 17.64% over the same period. The average net interest spread
increased from 5.42% to 5.70%,which was mainly caused by increased yields and a
declining cost of funds over the period.
Bancorp's net interest margin for the three months ended September 30,
1996 was 6.48%, an increase of 29 basis points from 6.19% for the comparable
period of 1995. The major factors causing the increase were the decrease in
the average rates paid on interest bearing liabilities, and the higher yields
earned on average earning assets. Average rates paid decreased by 13 basis
points to 4.15% in the third quarter of 1996 from 4.28% 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
Sept. 30,
--------------------------------
Increase
1996 1995 (Decrease) Change
------------ ------------- ------------ --------
<S> <C> <C> <C> <C>
Interest and fee income(1) . . . . . $ 15,103,478 $ 12,543,565 $ 2,559,913 20.41%
Interest expense . . . . . . . . . . 5,165,451 4,531,982 633,469 13.98%
------------ ------------- ------------ --------
Net interest income . . . . . . . . . $ 9,938,027 $ 8,011,583 $ 1,926,444 24.05%
============ ============= ============ ========
Average interest earning assets . . . $610,133,689 $513,223,836 $96,909,853 18.88%
Average interest bearing liabilities $494,912,339 $420,714,783 $74,197,556 17.64%
Average yields earned(2) . . . . . . 9.85% 9.70% .15
Average rates paid(2) . . . . . . . . 4.15% 4.28% (.13)
Net interest spread(2) . . . . . . . 5.70% 5.42% .28
Net interest margin(2) . . . . . . . 6.48% 6.19% .29
</TABLE>
(1) Interest earned on nontaxable securities has been computed on a 34% tax
equivalent basis.
(2) These ratios for the three months ended September 30, 1996 and 1995 have
been annualized.
8
<PAGE> 9
Provision for Loan Losses. Management's policy is to maintain an
adequate allowance for loan loss based on historical trends, current and
economic forecasts and statistical analysis of the loan portfolio, as well as
detailed review of individual loans, and current loan performance. Bancorp
recorded provisions for loan losses for the third quarter of 1996 and 1995 of
$631,000 and $240,000 respectively. The increases in the provisions are due
mainly to increases in outstanding loans over the periods. Net charge-offs for
the third quarter of 1996 were $73,000, compared to net charge-offs of $164,000
for the same period in 1995. At September 30, 1996, the percentage of
non-performing assets was 0.37% of total assets.
Management has in place a comprehensive loan approval process and
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 September
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 third quarter of 1996
was $2,446,340 up $328,714, or 15.52%, compared to the same period in 1995.
Other service charges, commissions and fees increased $106,179, or 16.11%, 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 and trust
revenue remained relatively stable with minor increases in revenue of $11,581
and $7,326 respectively. Gains on sales of loans increased $162,058, or
74.52%, as a result of increased activity in the residential real estate
programs. Loan servicing fees decreased slightly.
Noninterest Expense. Noninterest expenses for the third quarter ended
September 30, 1996, were $7,620,418 an increase of $1,360,873 or 21.74% over
the same period in 1995. Salaries and employee benefits, equipment, occupancy,
ATM and Bankcard, printing and office supplies expenses and other expenses are
higher in the third 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. Marketing and
communication expenses declined during the period due to enhanced internal
capabilities.
9
<PAGE> 10
Nine Months Ended September 30, 1996 and 1995
Net Income. For the nine months ended September 30, 1996, Bancorp's
net income was $7,077,503, an increase of $1,458,180 from $5,619,323 for same
period in 1995, a 25.95% increase. Earnings per share for the nine month
period ended September 30, 1996 was $1.06 compared to $0.85 in 1995. Net
interest income on a tax equivalent basis totaled $27,891,127 for the nine
months ended September 30, 1996, a 22.92% increase from the same period in
1995.
Net Interest Income. During the periods ended September 30, 1996 and
1995, average interest earning assets were $581.8 million and $490.7 million,
respectively. During the same periods, average interest bearing liabilities
grew to $473.6 million from $402.8 million, respectively. Additionally, during
the same periods, net interest margins increased to 6.40% from 6.18%
respectively due mainly to a declining cost of funds. Net interest income on a
tax-equivalent basis increased $5,199,822, or 22.92%, to $27,891,127 in the
first nine months of 1996 from $22,691,305 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 18.57% over the period while
the average yield earned increased 5 basis points to 9.73% at September 30,
1996 from 9.68% in 1995. The changing interest rate environment in 1996 also
led to an increase in the net interest spread of 22 basis points to 5.64% from
5.42% in 1995. Average interest bearing liabilities increased $70.8 million,
or 17.57%, to $473.6 million for the period ended September 30, 1996, while the
average rates paid decreased 17 basis points to 4.09%.
Analysis of Net Interest Income. The following table presents
information regarding yields on interest-earning assets, expense on
interest-bearing liabilities, and net yields on interest-earning assets for the
periods indicated on a tax equivalent basis:
<TABLE>
<CAPTION>
Nine Months Ended
Sept. 30,
------------------------------- Increase
1996 1995 (Decrease) Change
------------ ------------- ----------- ------
<S> <C> <C> <C> <C>
Interest and fee income(1) . . . . . $ 42,386,060 $ 35,529,773 $ 6,856,287 19.30%
Interest expense . . . . . . . . . . 14,494,933 12,838,468 1,656,465 12.90%
------------ ------------ ----------- -----
Net interest income . . . . . . . . . $ 27,891,127 $ 22,691,305 $ 5,199,822 22.92%
============ ============ =========== =====
Average interest earning assets . . . $581,844,847 $490,735,140 $91,109,707 18.57%
Average interest bearing liabilities $473,610,849 $402,844,291 $70,766,558 17.57%
Average yields earned(2) . . . . . . 9.73% 9.68% .05
Average rates paid(2) . . . . . . . 4.09% 4.26% (.17)
Net interest spread(2) . . . . . . . 5.64% 5.42% .22
Net interest margin(2) . . . . . . . 6.40% 6.18% .22
- ---------------
</TABLE>
(1) Interest earned on non-taxable securities has been computed on a 34%
tax equivalent basis.
(2) These ratios for the nine months ended September 30, 1996 and 1995
have been annualized.
Provision for Loan Losses. Bancorp recorded a provision for loan
losses of $1,554,987 in the first nine months of 1996, compared to $626,460 in
the same period in 1995. The increases in the provisions are due mainly to
increases in outstanding loans over the period. Bancorp incurred net
charge-offs of $716,000 in 1996, compared to $256,000 during 1995. The
allowance for loan losses as a percentage of loan totals at September 30, 1996
and 1995 were 1.29% and 1.42% of total loans, respectively.
Non-Interest Income. Non-interest income for the nine months ended
September 30, 1996 was $6,629,589 an increase of $896,776 or 15.64%, from
$5,732,813 for the same period in 1995. Other service charges, commissions and
fees, service charges on deposit accounts, and trust revenue increased during
the period due to an increased customer base and transaction volumes. Gains on
sales of loans increased $368,353 as a result of increased activity in
Bancorp's residential real estate department. 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.
10
<PAGE> 11
Non-Interest Expense. Non-interest expense increased 15.12% during the
first nine 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
$12,003,958 in 1996 from $10,418,031, up 15.22% from the same period in 1995.
The number of full time equivalent employees increased during 1996 to 461 from
421 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 nine months of 1996, due to an increase in pre-tax
income and a change in the mix of taxable and nontaxable income items, 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 $595.0 million at September 30, 1996, up from $512.8 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.
11
<PAGE> 12
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 $64.2 million at September 30, 1996
from $59.0 million at December 31, 1995 an increase of $5.2 million, or 8.81%,
over that period of time. At September 30, 1996, Bancorp's shareholders'
equity, as a percentage of total assets, was 9.39%, compared to 9.90% 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 8.83% over the period from December 31, 1995 to September 30,
1996, while assets grew by 14.81% over the same period.
As the following table indicates, Bancorp currently exceeds the
regulatory capital minimum requirements.
<TABLE>
<CAPTION>
September 30, 1996
(Dollars in thousands) ------------------------
Amount Ratio
------ -----
<S> <C> <C>
Tier 1 capital . . . . . . . . . . . . . $63,385 11.40%
Tier 1 capital minimum requirement . . . 22,241 4.00
------- -----
Excess over minimum Tier 1 capital . . $41,144 7.40%
======= =====
Total capital . . . . . . . . . . . . . . $69,793 12.55%
Total capital minimum requirement . . . . 44,482 8.00
------- -----
Excess over minimum total capital . . . $25,311 4.55%
======= =====
Risk-adjusted assets . . . . . . . . . . $556,029
========
Leverage ratio . . . . . . . . . . . . . 9.54%
Minimum leverage requirement . . . . . . 3.00
-----
Excess over minimum leverage ratio . . 6.54%
=====
Adjusted total assets . . . . . . . . . . $664,258
========
</TABLE>
12
<PAGE> 13
LOAN PORTFOLIO
Interest earned on the loan portfolio is the primary source of income
for Bancorp. Net loans represented 71.86% of total assets as of September 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>
September 30, 1996 December 31, 1995
--------- --- ---- -------- --- ----
(Dollars in thousands) Amount Percent Amount Percent
---------------------- ------ ------- ------ -------
<S> <C> <C> <C> <C>
Commercial . . . . . . . . . . . . . . . . . . . . $ 85,561 17.41% $ 66,214 16.75%
Real estate construction . . . . . . . . . . . . . 59,140 12.04 52,894 13.38
Real estate mortgage . . . . . . . . . . . . . . . 91,844 18.69 75,293 19.05
Real estate commercial . . . . . . . . . . . . . . 221,543 45.09 165,734 41.92
Installment and other consumer . . . . . . . . . . 39,666 8.07 40,753 10.31
-------- ------ -------- ------
Totals . . . . . . . . . . . . . . . . . . . . . . 497,754 101.30% 400,888 101.41%
Less allowance for loan losses . . . . . . . . . . (6,408) (5,569)
-------- --------
Loans, net . . . . . . . . . . . . . . . . . . . . $491,346 $395,319
======== ========
</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) September 30, 1996 December 31, 1995
-------- -- --------- ------------------ -----------------
<S> <C> <C>
Loans on non-accrual status . . . . . . . . . . . . . . . . . . . . $2,470 $804
Loans past due greater than 90 days but not on accrual status . . 36 16
Other real estate owned . . . . . . . . . . . . . . . . . . . . . . - 1
- -
Total non-performing assets . . . . . . . . . . . . . . . . . . . . $2,506 $821
====== ----
Percentage of non-performing assets to total assets . . . . . . . . .37% .14%
====== ====
</TABLE>
________________
See "Loan Loss Allowance and Provision"
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. In
addition, management utilizes internal loan grading as part of its analysis.
The following table summarizes the Banks' allowance for loan losses and
charge-off and recovery activity:
<TABLE>
<CAPTION>
Nine months ended Year ended
(Dollars in thousands) September 30, 1996 December 31, 1995
---------------------- ------------------ -----------------
<S> <C> <C>
Loans outstanding at end of period . . . . . . . . . . . . . . . . . . . . . $497,754 $400,888
Average loans outstanding during the period . . . . . . . . . . . . . . . . . $449,699 $363,951
Allowance for loan losses, beginning of period . . . . . . . . . . . . . . . $ 5,569 $ 5,070
Recoveries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 132 81
Loans charged off . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (848) (525)
Net loans charged off . . . . . . . . . . . . . . . . . . . . . . . . . . . . (716) (444)
Provision for loan losses . . . . . . . . . . . . . . . . . . . . . . . . . . 1,555 943
-------- --------
Allowance for loan losses, end of period . . . . . . . . . . . . . . . . . . $ 6,408 $ 5,569
======== ========
Ratio of net loans charged off
to average loans outstanding(1) . . . . . . . . . . . . . . . . . . . . . . .21% .12%
Ratio of allowance for loan losses
to loans at end of period . . . . . . . . . . . . . . . . . . . . . . . . . 1.29% 1.39%
</TABLE>
(1) The ratios for the nine months ended September 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 written down to $0. The remaining loan balance of
approximately $920,000 is secured by a governmental guarantee for $360,000 and
the remainder of the loan balance is partially 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.
14
<PAGE> 15
INVESTMENT PORTFOLIO
The following table shows the carrying value of the Banks' portfolio of
investments as of September 30, 1996 and December 31, 1995:
<TABLE>
<CAPTION>
September 30, December 31,
(Dollars in thousands) 1996 1995
---------------------- ---- ----
<S> <C> <C>
Investments available for sale
U.S. Treasury securities . . . . . . . . . . . . . . . . $ 10,006 $ 18,972
U.S. Government agency securities . . . . . . . . . . . . 38,037 36,582
Corporate securities . . . . . . . . . . . . . . . . . . 3,985 4,803
Mortgage-backed securities . . . . . . . . . . . . . . . 15,780 11,359
Obligations of state and political subdivisions . . . . . 38,721 46,334
Other securities . . . . . . . . . . . . . . . . . . . . 4,659 3,331
-------- --------
Total . . . . . . . . . . . . . . . . . . . . . . . . . $111,188 $121,381
======== ========
Investments held to maturity
U.S. Treasury securities . . . . . . . . . . . . . . . . $ - $ -
U.S. Government agency securities . . . . . . . . . . . . - 408
Corporate securities . . . . . . . . . . . . . . . . . . - -
Mortgage-backed securities . . . . . . . . . . . . . . . - 4,786
Obligations of state and political subdivisions . . . . . 2,703 2,589
Other securities . . . . . . . . . . . . . . . . . . . . - -
- -
Total . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,703 $ 7,783
======== ========
Total Investment Portfolio . . . . . . . . . . . . . . $113,891 $129,164
======== ========
</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) During the three months ended September 30, 1996, West Coast
Bancorp filed the following current report on Form 8-K:
Form 8-K filed July 1, 1996, relating to the acquisition of
Vancouver Bancorp.
Form 8-KA filed November 7, 1996 amending the Form 8-K
filed July 1, 1996.
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: November 12, 1996 /s/ Rodney B. Tibbatts
--------------------------
Rodney B. Tibbatts
Co-President and Chief
Executive Officer
Dated: November 12, 1996 /s/ Donald A. Kalkofen
--------------------------
Donald A. Kalkofen
Chief Financial Officer
17
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<EXCHANGE-RATE> 1
<CASH> 37,426
<INT-BEARING-DEPOSITS> 5,746
<FED-FUNDS-SOLD> 2,485
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 111,188
<INVESTMENTS-CARRYING> 2,703
<INVESTMENTS-MARKET> 2,688
<LOANS> 497,754
<ALLOWANCE> 6,408
<TOTAL-ASSETS> 683,757
<DEPOSITS> 594,988
<SHORT-TERM> 6,760
<LIABILITIES-OTHER> 6,631
<LONG-TERM> 11,190
0
0
<COMMON> 8,334
<OTHER-SE> 55,854
<TOTAL-LIABILITIES-AND-EQUITY> 683,757
<INTEREST-LOAN> 35,216
<INTEREST-INVEST> 5,638
<INTEREST-OTHER> 521
<INTEREST-TOTAL> 41,375
<INTEREST-DEPOSIT> 13,571
<INTEREST-EXPENSE> 14,495
<INTEREST-INCOME-NET> 26,880
<LOAN-LOSSES> 1,555
<SECURITIES-GAINS> (19)
<EXPENSE-OTHER> 21,493
<INCOME-PRETAX> 10,462
<INCOME-PRE-EXTRAORDINARY> 7,078
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,078
<EPS-PRIMARY> 1.06
<EPS-DILUTED> 1.06
<YIELD-ACTUAL> 9.73
<LOANS-NON> 2,470
<LOANS-PAST> 36
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 5,569
<CHARGE-OFFS> 848
<RECOVERIES> 132
<ALLOWANCE-CLOSE> 6,408
<ALLOWANCE-DOMESTIC> 6,408
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
