<PAGE> 1
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
----------
Amendment No. 1
To
Form 10-Q
[X] Quarterly Report Under Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the Quarter Ended March 31, 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 April 30, 1996: 4,813,839
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I. Financial Statements Page
<S> <C> <C>
Consolidated Balance Sheets -
March 31, 1996 and December 31, 1995............................ 3
Consolidated Statements of Income -
Three months ended March 31, 1996 and 1995...................... 4
Consolidated Statements of Cash Flows -
Three months ended March 31, 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....................... 15
Signatures ................................................................ 16
</TABLE>
2
<PAGE> 3
WEST COAST BANCORP
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
------------- -------------
(Unaudited)
<S> <C> <C>
ASSETS Cash and cash equivalents:
Cash and due from banks ........................... $ 30,675,810 $ 30,621,724
Interest bearing deposits in other banks .......... 2,766,256 2,286,848
Federal funds sold ................................ 1,900,000 7,648,678
------------- -------------
Total cash and cash equivalents ................. 35,342,066 40,557,250
Investment securities:
Investments available for sale .................... 109,793,090 116,176,809
Investments held to maturity ...................... -- --
------------- -------------
Total investment securities ..................... 109,793,090 116,176,809
Loans held for sale ................................. 2,756,941 836,399
Loans ............................................... 360,904,478 339,912,341
Allowance for loan loss ............................. (4,629,988) (4,721,213)
------------- -------------
Loans, net ........................................ 356,274,490 335,191,128
Premises and equipment, net ......................... 16,192,212 15,608,855
Intangible assets ................................... 261,765 283,290
Other assets ........................................ 8,923,803 7,993,495
------------- -------------
Total assets .................................... $ 529,544,367 $ 516,647,226
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits:
Demand ............................................ $ 80,289,911 $ 83,278,388
Savings and interest bearing demand ............... 240,288,806 229,074,600
Certificates of deposits .......................... 133,856,127 129,747,628
------------- -------------
Total deposits .................................. 454,434,844 442,100,616
Short-term borrowings:
Federal funds purchased ........................... 3,000,000 --
Other short-term borrowings ....................... 1,000,000 7,927,000
------------- -------------
Total short-term borrowings ..................... 4,000,000 7,927,000
Other liabilities ................................... 4,774,701 4,584,136
Long-term borrowings ................................ 12,373,477 8,837,763
------------- -------------
Total liabilities ............................... 475,583,022 463,449,515
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 ......... 6,017,299 6,005,551
4,813,839 and 4,804,441 respectively .............. 32,716,401 32,614,692
Additional paid-in capital .......................... 14,276,830 12,856,449
Retained earnings ................................... 950,815 1,721,019
------------- -------------
Net unrealized gain on investments available for sale 53,961,345 53,197,711
------------- -------------
Stockholders' equity .............................. $ 529,544,367 $ 516,647,226
============= =============
Total liabilities and stockholders' equity
</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
March 31,
------------------------------
1996 1995
------------ ------------
(Unaudited)
<S> <C> <C>
INTEREST INCOME
Interest and fees on loans .................. $ 8,927,309 $ 7,421,815
Interest on taxable investment securities ... 1,024,311 1,039,196
Interest on non-taxable investment securities 643,946 682,485
Interest from other banks ................... 24,644 42,915
Interest on federal funds sold .............. 175,516 74,451
------------ ------------
Total interest income ..................... 10,795,726 9,260,862
INTEREST EXPENSE
Savings and interest-bearing demand ......... 1,683,137 1,535,670
Certificates of deposit ..................... 1,737,768 1,421,914
Short-term borrowings ....................... 120,756 176,262
Long-term borrowings ........................ 120,653 102,870
------------ ------------
Total interest expense .................... 3,662,314 3,236,716
------------ ------------
NET INTEREST INCOME ......................... 7,133,412 6,024,146
PROVISION FOR LOAN LOSS ..................... 333,000 121,460
------------ ------------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSS ................... 6,800,412 5,902,686
NONINTEREST INCOME
Service charges on deposit accounts ......... 611,571 564,956
Other service charges, commissions and fees . 577,494 368,162
Trust revenue ............................... 309,402 308,933
Gains on sales of loans ..................... 275,809 144,174
Loan servicing fees ......................... 122,511 115,821
Other ....................................... 51,532 100,096
Net losses on sales of securities ........... (19,085) (3,741)
------------ ------------
Total noninterest income .................. 1,929,234 1,598,401
NONINTEREST EXPENSE
Salaries and employee benefits .............. 3,452,567 3,236,765
Equipment ................................... 487,394 455,416
Occupancy ................................... 485,079 427,365
Professional fees ........................... 464,720 308,390
ATM and Bankcard ............................ 182,960 154,304
Printing and office supplies ................ 180,107 156,579
Marketing ................................... 163,727 148,469
Communications .............................. 141,879 110,762
FDIC insurance .............................. 1,500 217,506
Other noninterest expense ................... 597,548 536,853
------------ ------------
Total noninterest expense ................. 6,157,481 5,752,409
INCOME BEFORE INCOME TAXES .................. 2,572,165 1,748,678
------------ ------------
PROVISION FOR INCOME TAXES .................. 838,885 495,591
------------ ------------
NET INCOME .................................. $ 1,733,280 $ 1,253,087
============ ============
EARNINGS PER COMMON SHARE ................... $ .36 $ .26
============ ============
</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>
Three months ended
March 31,
------------------------------
1996 1995
------------ ------------
(Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income ................................................................... $ 1,733,280 $ 1,253,087
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization of premises and equipment .................... 293,242 251,922
Amortization of intangibles ................................................ 21,525 21,525
Net loss on sales of investments:
Available for sale ....................................................... 19,085 3,741
Held to maturity ......................................................... -- --
Provision for loan losses .................................................. 333,000 121,460
Decrease (Increase) in interest receivables ................................ 184,172 (118,156)
Increase in other assets ................................................... (1,114,480) (1,500,995)
Increase in interest payable ............................................... 7,538 294,109
Increase in other liabilities .............................................. 183,027 79,859
------------ ------------
Net cash provided by operating activities ............................... 1,660,389 406,552
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from maturities of investment securities:
Available for sale ......................................................... 18,084,447 4,758,042
Held to maturity ........................................................... -- 4,414,465
Proceeds from sales of investment securities:
Available for sale ......................................................... 1,908,261 727,563
Held to maturity ........................................................... -- --
Purchase of investment securities:
Available for sale ......................................................... (14,398,278) (610,000)
Held to maturity ........................................................... -- --
Loans made to customers greater than principal collected on loans ............ (23,336,904) (14,084,847)
Capital expenditures ......................................................... (876,599) (638,194)
------------ ------------
Net cash used in investing activities .................................... (18,619,073) (5,432,971)
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in demand, savings and interest
bearing transaction accounts ............................................... 8,225,729 (10,419,727)
Net increase in proceeds from sales of
certificates of deposits greater than payments for maturing time deposits .. 4,108,499 23,017,561
Proceeds from long-term borrowings ........................................... 4,000,000 --
Payments on long-term borrowings ............................................. (464,286) (392,857)
Net decrease in short-term borrowings ........................................ (3,927,000) (11,945,000)
Sales of common stock, net ................................................... 113,457 89,410
Dividends paid and cash paid for fractional shares ........................... (312,899) (429,664)
------------ ------------
Net cash provided (used) by financing activities ......................... 11,743,500 (80,277)
------------ ------------
NET DECREASE IN CASH AND CASH EQUIVALENTS .................................... (5,215,184) (5,106,696)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR ............................... 40,557,250 33,639,760
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF YEAR .................................... $ 35,342,066 $ 28,533,064
============ ============
</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 ......................... -- -- -- 1,733,280 -- 1,733,280
Net unrealized (loss) on investments
available for sale .............. -- -- -- -- (770,204) (770,204)
Cash dividends, $.07 per common
share ........................... -- -- -- (312,899) -- (312,899)
Sale of common stock pursuant to
stock option plans .............. 9,398 11,748 101,709 -- -- 113,457
--------- ------------ ------------ ------------ ------------ ------------
BALANCE, March 31, 1996 ............ 4,813,839 $ 6,017,299 $ 32,716,401 $ 14,276,830 $ 950,815 $ 53,961,345
========= ============ ============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
Notes to Consolidated Financial Statements
1. PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of West
Coast Bancorp (Bancorp) and its wholly-owned subsidiaries, The Commercial Bank,
The Bank of Newport, and Valley Commercial Bank, after elimination of
intercompany transactions and balances.
The interim financial statements have been prepared in accordance with generally
accepted accounting principles for interim financial information. Accordingly,
they do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In the opinion
of management, all adjustments including normal recurring accruals necessary for
fair presentation of results of operations for the interim periods included
herein have been made. The results of operations for the three months ended
March 31, 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
On March 28, 1996 the Board of Directors declared a quarterly cash
dividend of $.065 per share.
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 $3,655,000 and $2,943,000, for interest in the quarters
ended March 31, 1996 and 1995, respectively. Income taxes paid were $210,000
and $57,500, in the quarters ended March 31, 1996 and 1995, respectively.
7
<PAGE> 8
7. ACQUISITIONS
On February 15, 1996, Bancorp entered into a Plan and Agreement of
Reorganization and Merger (the "Agreement") with Vancouver Bancorp of Vancouver,
Washington. Under the Agreement, Vancouver Bancorp's subsidiary, Bank of
Vancouver, will become a wholly-owned subsidiary of West Coast Bancorp.
The transaction which is expected to close in mid-1996, is subject to
approval by Vancouver Bancorp shareholders and applicable regulatory agencies.
The transaction will be accounted for as a pooling-of-interests under generally
accepted accounting principles.
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 December 31, 1995, Vancouver Bancorp had assets
totaling $78.9 million, and equity capital totaling $5.8 million. Vancouver
Bancorp earned $891,000 and $664,000 for the years ended December 31, 1995 and
1994, respectively. 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.
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 March 31, 1996 and 1995
Net Income. Bancorp reported net income of $1,733,280, or $.36 per
share, for the three months ended March 31, 1996. This represents a 38% increase
in net income, and in earnings per share as compared to $1,253,087 or $.26 per
share, for the three months ended March 31, 1996. 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, and were offset by lower FDIC deposit insurance premiums.
Net Interest Income. Net interest income is the difference between
interest income (principally from loan and investment securities) and interest
expense (principally on customer deposits and borrowings). Changes in net
interest income result from changes in volume, net interest spread and net
interest margin. Volume refers to the average dollar level of interest earning
assets and interest bearing liabilities. Net interest spread refers to the
differences between the average yield on interest earning assets and the average
cost of interest bearing liabilities. Net interest margin refers to net interest
income divided by average interest earning assets and is influenced by the level
and relative mix of interest earning assets and interest bearing liabilities.
Bancorp's profitability, like that of many financial institutions, is dependent
to a large extent upon net interest income. Since Bancorp is liability
sensitive, as interest bearing liabilities mature or reprice more quickly than
interest earning assets in a given period, a significant increase in the market
rates of interest could adversely affect net interest income. In contrast, a
declining interest rate environment could favorably impact Bancorp's margin.
Net interest income on a tax equivalent basis for the three months
ended March 31, 1996 increased $1,089,413 or 17.09%, to $7,465,142 from
$6,375,729 for the same period in 1995. Average interest earning assets
increased by $63.2 million, or 15.44%, to $472.2 million from March 31, 1995.
Average interest bearing liabilities increased $50.3 million or 15.11% over the
same period. The average net interest spread increased from 5.59% to 5.63%,which
was mainly caused by a declining interest rate environment over the period.
Bancorp's net interest margin for the three months ended March 31, 1996
was 6.36%, an increase of 4 basis points from 6.32% 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 9 basis points to 3.85%
in the first quarter of 1996 from 3.94% 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
------------------
March 31,
--------- Increase
1996 1995 (Decrease) Change
------------ ------------ ------------ --------
<S> <C> <C> <C> <C>
Interest and fee income(1) ............ $ 11,127,456 $ 9,612,445 $ 1,515,011 15.76%
Interest expense ...................... 3,662,314 3,236,716 425,598 13.15%
------------ ------------ ------------ -----
Net interest income ................... $ 7,465,142 $ 6,375,729 $ 1,089,413 17.09%
============ ============ ============ =====
Average interest earning assets ....... $472,157,092 $408,997,274 $ 63,159,818 15.44%
Average interest bearing liabilities .. $382,915,541 $332,645,115 $ 50,270,426 15.11%
Average yields earned(2) .............. 9.48% 9.53% (.05)
Average rates paid(2) ................. 3.85% 3.94% (.09)
Net interest spread(2) ................ 5.63% 5.59% .04
Net interest margin(2) ................ 6.36% 6.32% .04
</TABLE>
- ----------
(1) Interest earned on nontaxable securities has been computed on a 34% tax
equivalent basis.
(2) These ratios for the three months ended March 31, 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 first quarter of 1996 and 1995 of $333,000 and $121,460,
respectively. Net charge-offs for the first quarter of 1996 were $424,000,
compared to net charge-offs of 21,000 for the same period in 1995. At March 31,
1996, the percentage of non-performing assets was 0.46% of total assets.
Management has in place a conservative loan approval process and 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 March 31,
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 first quarter of 1996
was $1,929,234, up $330,833, or 20.70%, compared to the same period in 1995.
Service charges on deposit accounts increased by $46,615 or 8.25% due to
increased deposit relationships. Other service charges, commissions and fees
increased $209,332, or 56.86%, due mainly to an increased customer base and
transaction volumes in the merchant bankcard, annuity and mutual fund programs,
as well as other similar transaction based programs. Trust revenue increased
slightly during the period based on a growing managed asset base and account
activity. Gains on sales of loans increased $131,635, or 91.30%, as a result of
increased refinance activity in the residential real estate programs. Loan
servicing income reported increases in the quarter due to increased volumes of
loans serviced for others.
Noninterest Expense. Noninterest expenses for the first quarter ended
March 31, 1996, were $6,157,481 an increase of $405,072 or 7.04% over the same
period in 1995. Salaries and employee benefits, equipment, occupancy, marketing,
ATM and Bankcard, printing and office supplies, and communications expenses are
higher in the first 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 first
quarter of 1996. FDIC deposit insurance expense declined in the period due to
reductions in insurance premiums charged.
INCOME TAXES
During the first three 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
$454.4 million at March 31, 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.
10
<PAGE> 11
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 $54.0 million at March 31, 1996 from
$53.2 million at December 31, 1995 an increase of $.8 million, or 1.50%, over
that period of time. At March 31, 1996, Bancorp's shareholders' equity, as a
percentage of total assets, was 10.19%, 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 1.50% over the
period from December 31, 1995 to March 31, 1996, while assets grew by 2.50% over
the same period.
As the following table indicates, Bancorp currently exceeds the
regulatory capital minimum requirements.
<TABLE>
<CAPTION>
March 31, 1996
------------------------
Actual
------------------------
(Dollars in thousands)
- ----------------------
Amount Ratio
-------- -----
<S> <C> <C>
Tier 1 capital ................................ $ 52,749 13.13%
Tier 1 capital minimum requirement ............ 16,066 4.00
-------- -----
Excess over minimum Tier 1 capital .......... $ 36,683 9.13%
======== =====
Total capital ................................. $ 57,379 14.29%
Total capital minimum requirement ............. 32,132 8.00
-------- -----
Excess over minimum total capital ........... $ 25,247 6.29%
======== =====
Risk-adjusted assets .......................... $401,646
========
Leverage ratio ................................ 10.21%
Minimum leverage requirement .................. 3.00
-----
Excess over minimum leverage ratio .......... 7.21%
=====
Adjusted total assets ......................... $517,011
========
</TABLE>
11
<PAGE> 12
LOAN PORTFOLIO
Interest earned on the loan portfolio is the primary source of income
for Bancorp. Net loans represented 67.28% of total assets as of March 31, 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>
March 31, 1996 December 31, 1995
--------------------------- ---------------------
(Dollars in thousands) Amount Percent Amount Percent
- ---------------------- --------- ------- --------- -------
<S> <C> <C> <C> <C>
Commercial ................... $ 105,704 29.67% $ 100,179 29.89%
Real estate construction ..... 34,323 9.63 31,310 9.34
Real estate mortgage ......... 39,547 11.10 36,164 10.79
Real estate commercial ....... 134,480 37.75 122,992 36.69
Installment and other consumer 46,850 13.15 49,267 14.70
--------- ------ --------- ------
Totals ....................... 360,904 101.30% 339,912 101.41%
Less allowance for loan losses (4,630) (1.30%) (4,721) (1.41%)
--------- ---------
Loans, net ................... $ 356,274 $ 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) March 31, 1996 December 31, 1995
- ---------------------- -------------- -----------------
<S> <C> <C>
Loans on non-accrual status .................................... $2,226 $591
Loans past due greater than 90 days but not on accrual status .. 74 10
Other real estate owned ........................................ 134 1
------ ----
Total non-performing assets .................................... $2,434 $602
====== ----
Percentage of non-performing assets to total assets ............ .46% .12%
====== ====
</TABLE>
- ----------------
See "Loan Loss Allowance and Provision"
12
<PAGE> 13
LOAN LOSS ALLOWANCE AND PROVISION
The provision for loan losses charged to operating expense is based on the
Banks' loan loss experience and such other factors that, in management's
judgment, deserve recognition in estimating loan losses. Management monitors the
loan portfolio to ensure that the allowance for loan losses is adequate to cover
outstanding loans. In determining the allowance for loan losses, management
considers the level of non-performing loans, loan mix, recent loan growth,
historical loss experience for each loan category, potential economic
influences, and other relevant factors related to the loan portfolio. The
following table summarizes the Banks' allowance for loan losses and charge-off
and recovery activity:
<TABLE>
<CAPTION>
Three months ended Year ended
(Dollars in thousands) March 31, 1996 December 31, 1995
- ---------------------- ------------------ -----------------
<S> <C> <C>
Loans outstanding at end of period ............. $ 360,904 $ 339,912
Average loans outstanding during the period .... $ 348,857 $ 309,267
Allowance for loan losses, beginning of period . $ 4,721 $ 4,519
Recoveries ..................................... 102 52
Loans charged off .............................. (526) (520)
--------- ---------
Net loans charged off .......................... (424) (468)
Provision for loan losses ...................... 333 670
--------- ---------
Allowance for loan losses, end of period ....... $ 4,630 $ 4,721
========= =========
Ratio of net loans charged off
to average loans outstanding(1) .............. .49% .15%
Ratio of allowance for loan losses
to loans at end of period .................... 1.28% 1.39%
</TABLE>
(1) The ratios for the three months ended March 31, 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 the first quarter of 1996, the loan was further written down by $320,000
due to continued declines in the crop value. During the second quarter of 1996
an additional $243,000 was charged off on this loan. 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 the first quarter of 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.
13
<PAGE> 14
INVESTMENT PORTFOLIO
The following table shows the book value of the Banks' portfolio of
investments as of March 31, 1996 and December 31, 1995:
<TABLE>
<CAPTION>
March 31, December 31,
(Dollars in thousands) 1996 1995
- ---------------------- --------- ------------
Investments available for sale
- ------------------------------
<S> <C> <C>
U.S. Treasury securities ........................... $ 8,626 $ 17,741
U.S. Government agency securities .................. 42,459 35,731
Corporate securities ............................... 4,752 4,803
Mortgage-backed securities ......................... 8,940 9,120
Obligations of state and political subdivisions .... 42,097 45,929
Other securities ................................... 2,919 2,853
-------- --------
Total ............................................ $109,793 $116,177
======== ========
</TABLE>
14
<PAGE> 15
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) One report, pending acquisition of Vancouver Bancorp, dated February
15, 1996 on Form 8-K was filed during the quarter ending March 31,
1996, pursuant to Item 5 of that form. No financial statements were
filed as part of that report.
15
<PAGE> 16
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
WEST COAST BANCORP
(Registrant)
Dated: May 13, 1996 /s/ Rodney B. Tibbatts
----------------------------------------
Rodney B. Tibbatts
Co-President and Chief Executive Officer
Dated: May 13, 1996 /s/ Donald A. Kalkofen
----------------------------------------
Donald A. Kalkofen
Chief Financial Officer
16
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<EXCHANGE-RATE> 1
<CASH> 30,676
<INT-BEARING-DEPOSITS> 2,766
<FED-FUNDS-SOLD> 1,900
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 109,793
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 360,904
<ALLOWANCE> 4,630
<TOTAL-ASSETS> 529,544
<DEPOSITS> 454,435
<SHORT-TERM> 4,000
<LIABILITIES-OTHER> 4,775
<LONG-TERM> 12,373
0
0
<COMMON> 6,017
<OTHER-SE> 47,944
<TOTAL-LIABILITIES-AND-EQUITY> 529,544
<INTEREST-LOAN> 8,927
<INTEREST-INVEST> 1,668
<INTEREST-OTHER> 201
<INTEREST-TOTAL> 10,796
<INTEREST-DEPOSIT> 3,421
<INTEREST-EXPENSE> 3,662
<INTEREST-INCOME-NET> 7,134
<LOAN-LOSSES> 333
<SECURITIES-GAINS> (19)
<EXPENSE-OTHER> 6,157
<INCOME-PRETAX> 2,572
<INCOME-PRE-EXTRAORDINARY> 2,572
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,733
<EPS-PRIMARY> .36
<EPS-DILUTED> .36
<YIELD-ACTUAL> 6.36
<LOANS-NON> 2,226
<LOANS-PAST> 74
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 4,721
<CHARGE-OFFS> 526
<RECOVERIES> 102
<ALLOWANCE-CLOSE> 4,630
<ALLOWANCE-DOMESTIC> 4,630
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
