<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 March 31, 1997
[ ] 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, 1997: 6,712,204
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I. Financial Statements Page
----
<S> <C> <C>
Consolidated Balance Sheets -
March 31, 1997 and December 31, 1996........................................3
Consolidated Statements of Income -
Three months ended March 31, 1997 and 1996................................. 4
Consolidated Statements of Cash Flows -
Three months ended March 31, 1997 and 1996................................. 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..................................15
Signatures ...........................................................................16
</TABLE>
2
<PAGE> 3
WEST COAST BANCORP
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
------------- -------------
(Unaudited)
<S> <C> <C>
ASSETS
Cash and cash equivalents:
Cash and due from banks ............................ $ 31,594,177 $ 30,817,183
Interest-bearing deposits in other banks ........... 15,341,442 12,141,497
Federal funds sold ................................. 80,829 23,000
------------- -------------
Total cash and cash equivalents .................. 47,016,448 42,981,680
Investment securities:
Investments available for sale ..................... 121,562,100 107,168,494
Investments held to maturity ....................... 2,621,422 2,623,154
------------- -------------
Total investment securities ...................... 124,183,522 109,791,648
Loans held for sale .................................. 2,768,135 2,563,703
Loans ................................................ 544,938,909 535,792,573
Allowance for loan loss .............................. (7,553,661) (7,037,636)
------------- -------------
Loans, net ......................................... 537,385,248 528,754,937
Premises and equipment, net .......................... 18,274,367 17,716,365
Intangible assets .................................... 175,664 197,189
Other assets ......................................... 13,314,977 10,337,512
------------- -------------
Total assets ..................................... $ 743,118,361 $ 712,343,034
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits:
Demand ............................................. $ 108,056,221 $ 105,836,128
Savings and interest-bearing demand ................ 330,076,022 319,263,258
Certificates of deposits ........................... 192,637,227 179,802,711
------------- -------------
Total deposits ................................... 630,769,470 604,902,097
Short-term borrowings ................................ 10,357,951 3,709,324
Other liabilities .................................... 5,600,072 8,003,722
Long-term borrowings ................................. 27,802,816 28,582,770
------------- -------------
Total liabilities ................................ 674,530,309 645,197,913
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
6,708,383 and 6,702,572 respectively ................ 8,385,479 8,378,215
Additional paid-in capital ........................... 35,513,520 35,476,302
Retained earnings .................................... 24,484,210 22,363,318
Net unrealized gains on investments available for sale 204,843 927,286
------------- -------------
Total stockholders' equity ......................... 68,588,052 67,145,121
------------- -------------
Total liabilities and stockholders' equity ....... $ 743,118,361 $ 712,343,034
============= =============
</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,
-------------------------------
1997 1996
------------ ------------
(Unaudited)
<S> <C> <C>
INTEREST INCOME
Interest and fees on loans ................. $ 13,555,510 $ 10,617,597
Interest on taxable investment securities .. 1,188,402 1,203,935
Interest on nontaxable investment securities 549,899 684,688
Interest from other banks .................. 141,609 24,781
Interest on federal funds sold ............. 13,965 196,874
------------ ------------
Total interest income .................... 15,449,385 12,727,875
INTEREST EXPENSE
Savings and interest-bearing demand ........ 2,558,323 2,207,961
Certificates of deposit .................... 2,496,317 2,054,664
Short-term borrowings ...................... 52,655 130,086
Long-term borrowings ....................... 382,471 157,211
------------ ------------
Total interest expense ................... 5,489,766 4,549,922
------------ ------------
NET INTEREST INCOME ........................ 9,959,619 8,177,953
PROVISION FOR LOAN LOSS .................... 615,000 402,787
------------ ------------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSS .................. 9,344,619 7,775,166
NONINTEREST INCOME
Other service charges, commissions and fees 768,912 617,339
Service charges on deposit accounts ........ 705,747 654,905
Trust revenue .............................. 395,704 309,402
Gains on sales of loans .................... 236,946 275,809
Loan servicing fees ........................ 119,329 122,511
Other ...................................... 85,192 58,477
Net (losses) on sales of securities ........ (27,312) (19,085)
------------ ------------
Total noninterest income ................. 2,284,518 2,019,358
NONINTEREST EXPENSE
Salaries and employee benefits ............. 4,387,798 3,734,245
Equipment .................................. 610,728 557,898
Occupancy .................................. 605,654 544,070
Professional fees .......................... 459,328 555,639
ATM and Bankcard ........................... 237,591 186,987
Printing and office supplies ............... 219,461 196,778
Communications ............................. 197,994 146,119
Marketing .................................. 184,234 184,008
FDIC insurance ............................. 17,336 2,556
Other noninterest expense .................. 769,152 678,748
------------ ------------
Total noninterest expense ................ 7,689,276 6,787,048
INCOME BEFORE INCOME TAXES ................. 3,939,861 3,007,476
PROVISION FOR INCOME TAXES ................. 1,416,107 973,521
------------ ------------
NET INCOME ................................. $ 2,523,754 $ 2,033,955
============ ============
AVERAGE NUMBER OF SHARES OUTSTANDING ....... 6,998,891 6,832,571
EARNINGS PER SHARE
Primary ........................... $ .36 $ .30
Fully Diluted ..................... $ .36 $ .30
</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,
-------------------------------
1997 1996
------------ ------------
(Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income ................................................................ $ 2,523,754 $ 2,033,955
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization of premises and equipment ................. 419,287 345,438
Amortization of intangibles ............................................. 21,525 21,525
Net loss on sales of available for sale investments ..................... 27,312 19,085
Provision for loan losses ............................................... 615,000 402,787
(Increase) decrease in interest receivables ............................. (405,797) 157,969
Increase in other assets ................................................ (2,571,668) (1,148,897)
Increase in interest payable ............................................ 33,529 65,171
(Decrease) increase in other liabilities ................................ (2,437,179) 53,407
------------ ------------
Net cash (used) provided by operating activities ..................... (1,774,237) 1,950,440
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from maturities of investment securities:
Available for sale ...................................................... 4,317,017 18,762,160
Held to maturity ........................................................ 1,732 --
Proceeds from sales of available for sale investment securities ........... 5,915,922 1,908,261
Purchase of investment securities:
Available for sale ...................................................... (25,376,300) (14,398,278)
Held to maturity ........................................................ -- (313,634)
Loans made to customers greater than principal collected on loans ......... (9,449,743) (27,428,395)
Capital expenditures ...................................................... (977,289) (829,381)
------------ ------------
Net cash used in investing activities ................................. (25,568,661) (22,299,267)
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in demand, savings and interest
bearing transaction accounts ............................................ 13,032,857 10,986,182
Net increase in proceeds from sales of
certificates of deposits greater than payments for maturing time deposits 12,834,516 7,781,907
Proceeds from long-term borrowings ........................................ 8,000,000 4,666,125
Payments on long-term borrowings .......................................... (8,779,954) (464,286)
Net increase (decrease) in short-term borrowings .......................... 6,648,627 (3,527,000)
Sales of common stock, net ................................................ 44,482 196,502
Dividends paid and cash paid for fractional shares ........................ (402,862) (312,899)
------------ ------------
Net cash provided by financing activities ............................. 31,377,666 19,325,531
------------ ------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ...................... 4,034,768 (1,023,296)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR ............................ 42,981,680 44,035,359
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD ............................... $ 47,016,448 $ 43,012,063
============ ============
</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
Additional Gains (Losses)
Common Stock Paid-In Retained Investments
Shares Amount Capital Earnings Available for Sale Total
--------- ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, December 31, 1995 ......... 5,308,813 $ 6,636,016 $ 36,532,496 $ 14,036,510 $ 1,775,245 $ 58,980,267
Net income ......................... -- -- -- 9,802,015 -- 9,802,015
Net unrealized losses on investments
available for sale .............. -- -- -- -- (847,959) (847,959)
Cash dividends, $.22 per common
share ........................... -- -- -- (1,461,310) -- (1,461,310)
Purchase of common stock pursuant
to employee stock ownership plan 4,518 5,648 77,396 -- -- 83,044
Sale of common stock pursuant to
stock option plans .............. 56,377 70,471 533,391 -- -- 603,862
Stock Split in the form of a 25%
dividend ......................... 1,333,585 1,666,981 (1,666,981) -- -- --
Cash paid for fractional shares .... (721) (901) -- (13,897) -- (14,798)
--------- ------------ ------------ ------------ ------------ ------------
BALANCE, December 31, 1996 ......... 6,702,572 8,378,215 35,476,302 22,363,318 927,286 67,145,121
Net income ......................... -- -- -- 2,523,754 -- 2,523,754
Net unrealized losses on investments
available for sale .............. -- -- -- -- (722,443) (722,443)
Cash dividends, $.06 per common
share ........................... -- -- -- (402,862) -- (402,862)
Sale of common stock pursuant to
stock option plans .............. 5,811 7,264 37,218 -- -- 44,482
--------- ------------ ------------ ------------ ------------ ------------
BALANCE, March 31, 1997 ............ 6,708,383 $ 8,385,479 $ 35,513,520 $ 24,484,210 $ 204,843 $ 68,588,052
========= ============ ============ ============ ============ ============
</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 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 three months ended March 31, 1997 are not necessarily indicative of results
to be anticipated for the year ending December 31, 1997.
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 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 has continued 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 merger as pooling-of-interest combination.
4. ACCOUNTING CHANGES
In February of 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, "Earnings Per Share" (SFAS
128). The Bank is required to adopt SFAS 128 in the fourth quarter of 1997 and
will restate at that time earnings per share data for prior periods to conform
with SFAS 128. Earlier application is not permitted.
SFAS 128 replaces current earnings per share reporting requirements and
requires a dual presentation of basic and diluted earnings per share. Earnings
per share excludes dilution and is computed by dividing net income by the
weighted average common shares outstanding of 6,708,971 and 6,641,451 during the
three months ended March 31, 1997 and 1996, respectively. Diluted earnings per
share reflects the potential dilution that could occur if common shares were
issued pursuant to the exercise of options under Bancorp's Stock Option Plans.
Pro forma amounts for basic and diluted earnings per share assuming
SFAS 128 had been in effect are as follows:
<TABLE>
<CAPTION>
Three Months Ended
1997 1996
---- ----
<S> <C> <C>
Basic earnings per share $.38 $.31
Diluted earnings per share $.36 $.30
</TABLE>
5. NET INCOME PER COMMON SHARE
The Board of Directors declared a quarterly cash dividend of $.06 per
share during the first quarter of 1997. 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 $5,456,237 and $4,484,751, for interest in the three
months ended March 31, 1997 and 1996, respectively. Income taxes paid were
$500,000 and $434,697, in the three months ended March 31, 1997 and 1996,
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 March 31, 1997 and 1996
Net Income. Bancorp reported net income of $2,523,754 or $.36 per fully
diluted share, for the three months ended March 31, 1997. This represents a 24%
increase in net income, as compared to $2,033,955 or $.30 per fully diluted
share, for the three months ended March 31, 1997. 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 other costs directly related to growth.
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, 1997 increased $1,712,229 or 20.07%, to $10,242,900 from
$8,530,671 for the same period in 1996. Average interest earning assets
increased by $112.7 million, or 20.48%, to $662.8 million from $550.1 million
for the same period in 1996. Average interest bearing liabilities increased
$92.8 million or 20.70% over the same period. The average net interest spread
increased from 5.48% to 5.51%,which was mainly caused by increased yields.
Bancorp's net interest margin for the three months ended March 31, 1997
was 6.27%, an increase of 3 basis points from 6.24% for the comparable period of
1996. The major factors causing the increase were higher yields earned on
average earning assets. Average rates paid increased by 4 basis points to 4.12%
in the first quarter of 1997 from 4.08% for the same period in 1996.
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
1997 1996 (Decrease) Change
------------- ------------- ------------- --------
<S> <C> <C> <C> <C> <C>
Interest and fee income(1) ......... $ 15,732,666 $ 13,080,593 $ 2,652,073 20.27%
Interest expense ................... 5,489,766 4,549,922 939,844 20.66%
------------- ------------- ------------- -------
Net interest income ................ $ 10,242,900 $ 8,530,671 $ 1,712,229 20.07%
============= ============= ============= ======
Average interest earning assets .... $ 662,824,453 $ 550,138,092 $ 112,686,361 20.48%
Average interest bearing liabilities $ 540,807,269 $ 448,052,541 $ 92,754,728 20.70%
Average yields earned(2) ........... 9.63% 9.56% .07
Average rates paid(2) .............. 4.12% 4.08% .04
Net interest spread(2) ............. 5.51% 5.48% .03
Net interest margin(2) ............. 6.27% 6.24% .03
</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, 1997 and 1996 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 first quarter of 1997 and 1996 of
$615,000 and $402,787 respectively. The increase in the provision is due mainly
to an increase in outstanding loans over the periods. Net charge-offs for the
first quarter of 1997 were $99,000, compared to net charge-offs of $429,000 for
the same period in 1996. At March 31, 1997, the percentage of non-performing
assets was 0.22% 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 loan losses at March 31, 1997 was adequate to
absorb potential loss exposure in the portfolio. 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 1997
was $2,284,518 up $265,160, or 13.13%, compared to the same period in 1996.
Other service charges, commissions and fees increased $151,573, or 24.55%,
service charged on deposit accounts increased $50,842, or 7.76% and Trust
revenue increased $86,302 or 27.89% due mainly to an increased customer base and
transaction volumes. Gains on sales of loans decreased $38,863, as a result of
decreased activity in the residential real estate programs. Loan servicing fees
declined slightly while other revenue increased $26,715.
Noninterest Expense. Noninterest expenses for the first quarter ended
March 31, 1997, were $7,689,276 an increase of $902,228 or 13.29% over the same
period in 1996. Salaries and employee benefits, equipment, occupancy, ATM and
Bankcard, printing and office supplies, communication, marketing expenses and
other expenses are higher in the first quarter of 1997 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 are down in 1997 compared to 1996, due to merger costs incurred in the
first quarter of 1996 that did not reoccur in the same period in 1997.
9
<PAGE> 10
INCOME TAXES
During the first three months of 1997, 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 1996.
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
$630.8 million at March 31, 1997, up from $604.9 million at December 31, 1996.
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 $68.6 million at March 31, 1997 from
$67.1 million at December 31, 1996 an increase of $1.5 million, or 2.24%, over
that period of time. At March 31, 1997, Bancorp's shareholders' equity, as a
percentage of total assets, was 9.23%, compared to 9.43% at December 31, 1996.
The decrease was primarily a result of assets growing faster, (through new and
existing branch growth), than the equity base. Equity grew at 2.24% over the
period from December 31, 1996 to March 31, 1997, while assets grew by 4.32% over
the same period.
As the following table indicates, Bancorp currently exceeds the
regulatory capital minimum requirements.
<TABLE>
<CAPTION>
March 31, 1997
(Dollars in thousands) --------------------------
Amount Ratio
-------- -----
<S> <C> <C>
Tier 1 capital ................................ $ 68,259 11.69%
Tier 1 capital minimum requirement ............ 23,357 4.00
-------- -----
Excess over minimum Tier 1 capital .......... $ 44,902 7.69%
======== =====
Total capital ................................. $ 75,562 12.94%
Total capital minimum requirement ............. 46,715 8.00
-------- -----
Excess over minimum total capital ........... $ 28,847 4.94%
======== =====
Risk-adjusted assets .......................... $583,934
========
Leverage ratio ................................ 9.56%
Minimum leverage requirement .................. 3.00
-----
Excess over minimum leverage ratio .......... 6.56%
=====
Adjusted total assets ......................... $713,890
========
</TABLE>
11
<PAGE> 12
LOAN PORTFOLIO
Interest earned on the loan portfolio is the primary source of income
for Bancorp. Net loans represented 72.31% of total assets as of March 31, 1997.
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, 1997 December 31, 1996
------------------------------- -----------------------------
(Dollars in thousands) Amount Percent Amount Percent
- --------------------- --------- ------- --------- -------
<S> <C> <C> <C> <C>
Commercial ................... $ 96,041 17.88% $ 97,515 18.44%
Real estate construction ..... 78,815 14.67 69,917 13.22
Real estate mortgage ......... 90,098 16.77 92,060 17.41
Real estate commercial ....... 240,215 44.70 235,935 44.62
Installment and other consumer 39,770 7.39 40,366 7.64
--------- ------ --------- ------
Total loans .................. 544,939 101.41% 535,793 101.33%
Allowance for loan losses .... (7,554) (7,038)
--------- ---------
Total loans, net ............. $ 537,385 $ 528,755
========= =========
</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>
March 31, December 31,
(Dollars in thousands) 1997 1996
- ---------------------- --------- ------------
<S> <C> <C>
Loans on nonaccrual status ..................................... $1,603 $1,884
Loans past due greater than 90 days but not on nonaccrual status 44 92
Other real estate owned ........................................ -- --
------ ------
Total nonperforming assets ..................................... $1,647 $1,976
====== ======
Percentage of nonperforming assets to total assets ............. .22% .28%
====== ======
</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 nonperforming loans, impaired 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>
Three months ended Year ended
(Dollars in thousands) March 31, 1997 December 31, 1996
- ---------------------- -------------- -----------------
<S> <C> <C>
Loans outstanding at end of period ........... $ 544,939 $ 535,793
Average loans outstanding during the period .. $ 536,861 $ 466,623
Allowance for loan losses, beginning of period $ 7,038 $ 5,569
Recoveries ................................... 17 194
Loans charged off ............................ (116) (900)
--------- ---------
Net loans charged off ........................ (99) (706)
Provision for loan losses .................... 615 2,175
--------- ---------
Allowance for loan losses, end of period ..... $ 7,554 $ 7,038
========= =========
Ratio of net loans charged off
to average loans outstanding(1) ............ .07% .15%
Ratio of allowance for loan losses
to loans at end of period .................. 1.39% 1.31%
</TABLE>
(1) The ratios for the three months ended March 31, 1997 have been annualized.
Increases in the provision for loan losses in 1997 were due mainly to
increases in loan growth. In addition, further forecasted loan growth will lead
to increases in the provision for loan losses. Historical activity in loans
charged off or recoveries are not necessarily indicative of activity to be
anticipated for the years ending December 31, 1997.
13
<PAGE> 14
INVESTMENT PORTFOLIO
The following table shows the carrying value of the Banks' portfolio of
investments:
<TABLE>
<CAPTION>
March 31, December 31,
(Dollars in thousands) 1997 1996
- ---------------------- --------- ------------
<S> <C> <C>
Investments available for sale
U.S. Treasury securities ........................... $ 5,895 $ 8,827
U.S. Government agency securities .................. 57,740 38,338
Corporate securities ............................... 3,583 3,358
Mortgage-backed securities ......................... 12,362 14,978
Obligations of state and political subdivisions .... 36,460 36,617
Other securities ................................... 5,522 5,050
-------- --------
Total ............................................ $121,562 $107,168
======== ========
Investments held to maturity
- ----------------------------
U.S. Treasury securities ........................... $ -- $ --
U.S. Government agency securities .................. -- --
Corporate securities ............................... -- --
Mortgage-backed securities ......................... -- --
Obligations of state and political subdivisions .... 2,622 2,623
Other securities ................................... -- --
-------- --------
Total ............................................ $ 2,622 $ 2,623
======== ========
Total Investment Portfolio ....................... $124,184 $109,791
======== ========
</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) During the three months ended March 31, 1997, West Coast Bancorp
filed the following current report on Form 8-K:
Management reorganization appointing Victor L. Bartruff as
President and Chief Executive Officer, dated February 1, 1997 on
form 8-K filed pursuant to Item 5 of that form.
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, 1997 /s/ Victor L. Bartruff
----------------------
Victor L. Bartruff
President and Chief Executive Officer
Dated: May 13, 1997 /s/ Donald A. Kalkofen
----------------------
Donald A. Kalkofen
Chief Financial Officer
16
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 31,594
<INT-BEARING-DEPOSITS> 15,341
<FED-FUNDS-SOLD> 81
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 121,562
<INVESTMENTS-CARRYING> 2,621
<INVESTMENTS-MARKET> 2,622
<LOANS> 544,939
<ALLOWANCE> 7,544
<TOTAL-ASSETS> 743,118
<DEPOSITS> 630,769
<SHORT-TERM> 10,358
<LIABILITIES-OTHER> 5,600
<LONG-TERM> 27,803
0
0
<COMMON> 8,385
<OTHER-SE> 60,203
<TOTAL-LIABILITIES-AND-EQUITY> 743,118
<INTEREST-LOAN> 13,556
<INTEREST-INVEST> 1,738
<INTEREST-OTHER> 155
<INTEREST-TOTAL> 15,449
<INTEREST-DEPOSIT> 5,055
<INTEREST-EXPENSE> 5,489
<INTEREST-INCOME-NET> 9,960
<LOAN-LOSSES> 615
<SECURITIES-GAINS> (27)
<EXPENSE-OTHER> 7,689
<INCOME-PRETAX> 3,940
<INCOME-PRE-EXTRAORDINARY> 3,940
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,524
<EPS-PRIMARY> .36
<EPS-DILUTED> .36
<YIELD-ACTUAL> 6.27
<LOANS-NON> 1,603
<LOANS-PAST> 44
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 7,038
<CHARGE-OFFS> 116
<RECOVERIES> 17
<ALLOWANCE-CLOSE> 7,554
<ALLOWANCE-DOMESTIC> 7,554
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
