<PAGE> 1
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
---------------------------------
Form 10-Q
[X] Quarterly Report Under Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the Quarter Ended June 30, 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 July 31, 1997: 6,730,698
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I. Financial Statements Page
<S> <C>
----
Consolidated Balance Sheets -
June 30, 1997 and December 31, 1996..................................................... 3
Consolidated Statements of Income -
Three months and six months ended June 30, 1997 and 1996................................ 4
Consolidated Statements of Cash Flows -
Six months ended June 30, 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 4 - Submission of Matters to a Vote of Security Holders............................16
Item 6 - Exhibits and Reports on Form 8-K...............................................17
Signatures..............................................................................18
</TABLE>
2
<PAGE> 3
WEST COAST BANCORP
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
------------- -------------
(Unaudited)
<S> <C> <C>
ASSETS Cash and cash equivalents:
Cash and due from banks .................................. $ 36,284,183 $ 30,817,183
Interest-bearing deposits in other banks ................. 3,949,174 12,141,497
Federal funds sold ....................................... 7,599,000 23,000
------------- -------------
Total cash and cash equivalents ........................ 47,832,357 42,981,680
Investment securities:
Investments available for sale ........................... 124,201,740 107,168,494
Investments held to maturity ............................. 2,616,212 2,623,154
------------- -------------
Total investment securities ............................ 126,817,952 109,791,648
Loans held for sale ........................................ 2,416,449 2,563,703
Loans ...................................................... 558,393,708 535,792,573
Allowance for loan loss .................................... (7,861,962) (7,037,636)
------------- -------------
Loans, net ............................................... 550,531,746 528,754,937
Premises and equipment, net ................................ 18,273,030 17,716,365
Intangible assets .......................................... 154,168 197,189
Other assets ............................................... 12,837,830 10,337,512
------------- -------------
Total assets ........................................... $ 758,863,532 $ 712,343,034
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits:
Demand ................................................... $ 120,888,552 $ 105,836,128
Savings and interest-bearing demand ...................... 343,638,666 319,263,258
Certificates of deposits ................................. 200,121,822 179,802,711
------------- -------------
Total deposits ......................................... 664,649,040 604,902,097
Short-term borrowings ...................................... 100,000 3,709,324
Other liabilities .......................................... 5,179,562 8,003,722
Long-term borrowings ....................................... 17,017,103 28,582,770
------------- -------------
Total liabilities ...................................... 686,945,705 645,197,913
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
6,717,613 and 6,702,572 respectively ..................... 8,397,016 8,378,215
Additional paid-in capital ................................. 35,632,525 35,476,302
Retained earnings .......................................... 27,006,279 22,363,318
Net unrealized gains on investments available for sale ..... 882,007 927,286
------------- -------------
Total stockholders' equity ............................... 71,917,827 67,145,121
------------- -------------
Total liabilities and stockholders' equity ............. $ 758,863,532 $ 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 Six months ended
June 30, June 30,
-------------------------------- --------------------------------
1997 1996 1997 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
(Unaudited) (Unaudited)
INTEREST INCOME
Interest and fees on loans ....................... $ 14,200,726 $ 11,764,435 $ 27,756,236 $ 22,382,032
Interest on taxable investment securities ........ 1,455,921 1,276,435 2,644,323 2,480,370
Interest on nontaxable investment securities ..... 551,810 646,001 1,101,709 1,330,689
Interest from other banks ........................ 159,431 80,478 301,040 105,259
Interest on federal funds sold ................... 14,920 101,851 28,885 298,725
------------ ------------ ------------ ------------
Total interest income .......................... 16,382,808 13,869,200 31,832,193 26,597,075
INTEREST EXPENSE
Savings and interest-bearing demand .............. 2,772,404 2,411,585 5,330,727 4,619,546
Certificates of deposit .......................... 2,702,583 2,088,252 5,198,900 4,142,916
Short-term borrowings ............................ 35,050 96,515 87,705 219,227
Long-term borrowings ............................. 337,913 183,208 720,384 347,793
------------ ------------ ------------ ------------
Total interest expense ......................... 5,847,950 4,779,560 11,337,716 9,329,482
------------ ------------ ------------ ------------
NET INTEREST INCOME .............................. 10,534,858 9,089,640 20,494,477 17,267,593
PROVISION FOR LOAN LOSS .......................... 485,000 521,200 1,100,000 923,987
------------ ------------ ------------ ------------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSS ........................ 10,049,858 8,568,440 19,394,477 16,343,606
NONINTEREST INCOME
Other service charges, commissions and fees ...... 1,004,913 716,139 1,773,825 1,333,478
Service charges on deposit accounts .............. 720,214 644,844 1,425,961 1,299,749
Trust revenue .................................... 405,675 363,604 801,379 673,006
Gains on sales of loans .......................... 313,139 266,868 550,085 542,677
Loan servicing fees .............................. 124,655 121,649 243,984 244,160
Other ............................................ 86,359 79,469 171,551 137,946
Net (losses) on sales of securities .............. (19,074) (28,682) (46,386) (47,767)
------------ ------------ ------------ ------------
Total noninterest income ....................... 2,635,881 2,163,891 4,920,399 4,183,249
NONINTEREST EXPENSE
Salaries and employee benefits ................... 4,638,899 3,884,751 9,026,697 7,618,996
Equipment ........................................ 726,236 581,374 1,336,964 1,139,272
Occupancy ........................................ 655,374 518,565 1,261,028 1,062,635
Professional fees ................................ 330,655 522,837 789,983 1,078,476
ATM and Bankcard ................................. 301,448 256,219 539,039 443,206
Marketing ........................................ 278,301 187,966 462,535 371,974
Communications ................................... 221,590 143,840 419,584 289,959
Printing and office supplies ..................... 192,178 209,433 411,639 406,211
FDIC insurance ................................... 19,832 2,555 37,168 5,111
Other noninterest expense ........................ 936,566 778,114 1,705,718 1,456,862
------------ ------------ ------------ ------------
Total noninterest expense ...................... 8,301,079 7,085,654 15,990,355 13,872,702
INCOME BEFORE INCOME TAXES ....................... 4,384,660 3,646,677 8,324,521 6,654,153
PROVISION FOR INCOME TAXES ....................... 1,459,830 1,235,171 2,875,937 2,208,692
------------ ------------ ------------ ------------
NET INCOME ....................................... $ 2,924,830 $ 2,411,506 $ 5,448,584 $ 4,445,461
============ ============ ============ ============
AVERAGE NUMBER OF COMMON
STOCK EQUIVELENT SHARES
OUTSTANDING ...................................... 7,090,378 6,829,989 7,087,804 6,829,625
EARNINGS PER SHARE
Primary ................................. $ .42 $ .35 $ .78 $ .65
Fully Diluted ........................... $ .41 $ .35 $ .77 $ .65
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
4
<PAGE> 5
WEST COAST BANCORP
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Six months ended
June 30,
--------------------------------
1997 1996
------------ ------------
<S> <C> <C>
(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income ................................................................ $ 5,448,584 $ 4,445,461
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization of premises and equipment ................. 807,603 730,007
Amortization of intangibles ............................................. 43,021 43,051
Net loss on sales of available for sale investments ..................... 46,386 47,767
Provision for loan losses ............................................... 1,100,000 923,987
(Increase) decrease in interest receivables ............................. (691,045) 41,714
(Increase) in other assets .............................................. (1,809,273) (1,271,160)
(Decrease) increase in interest payable ................................. (78,602) 66,968
(Decrease) in other liabilities ......................................... (2,745,558) (1,253,542)
------------ ------------
Net cash provided by operating activities ........................... 2,121,116 3,774,253
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from maturities of investment securities:
Available for sale ...................................................... 13,170,667 22,351,691
Held to maturity ........................................................ 6,942 323,469
Proceeds from sales of available for sale investment securities ........... 11,299,325 12,222,856
Purchase of investment securities:
Available for sale ...................................................... (41,594,903) (22,191,753)
Held to maturity ........................................................ -- (313,634)
Loans made to customers greater than principal collected on loans ......... (22,729,555) (71,070,826)
Capital expenditures ...................................................... (1,364,268) (1,530,417)
------------ ------------
Net cash used in investing activities ................................. (41,211,792) (60,208,614)
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in demand, savings and interest
bearing transaction accounts ............................................ 39,427,832 39,865,057
Net increase in proceeds from sales of
certificates of deposits greater than payments for maturing time deposits 20,319,111 6,048,805
Proceeds from long-term borrowings ........................................ 8,000,000 4,666,125
Payments on long-term borrowings .......................................... (19,565,667) (1,819,332)
Net (decrease) increase in short-term borrowings .......................... (3,609,324) 13,490,471
Sales of common stock, net ................................................ 175,024 232,227
Dividends paid and cash paid for fractional shares ........................ (805,623) (659,213)
------------ ------------
Net cash provided by financing activities ............................. 43,941,353 61,824,140
------------ ------------
NET INCREASE IN CASH AND CASH EQUIVALENTS ................................. 4,850,677 5,389,779
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR ............................ 42,981,680 44,035,359
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD ............................... $ 47,832,357 $ 49,425,138
============ ============
</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, 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 ......................... -- -- -- 5,448,584 -- 5,448,584
Net unrealized losses on investments
available for sale .............. -- -- -- -- (45,279) (45,279)
Cash dividends, $.12 per common
share ........................... -- -- -- (805,623) -- (805,623)
Sale of common stock pursuant to
stock option plans .............. 15,041 18,801 156,223 -- -- 175,024
--------- ---------- ----------- ----------- ---------- -----------
BALANCE, June 30, 1997 ............. 6,717,613 $8,397,016 $35,632,525 $27,006,279 $ 882,007 $71,917,827
========= ========== =========== =========== ========== ===========
</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 and six months ended June 30, 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 a 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 6,711,978 and 6,653,733 during the
three months ended June 30, 1997 and 1996, respectively. The year to date
average common shares outstanding were 6,709,130 and 6,647,888 during the six
months ended June 30, 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 Six Months Ended
June 30, June 30,
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Basic earnings per share $.44 $.36 $.81 $.67
Diluted earnings per share $.41 $.35 $.77 $.65
</TABLE>
5. NET INCOME PER COMMON SHARE
The Board of Directors declared a quarterly cash dividend of $.06 per
share during the first and second 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 $11,416,318 and $9,262,514, for interest in the six months
ended June 30, 1997 and 1996, respectively. Income taxes paid were $2,280,000
and $2,077,917 in the six months ended June 30, 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 June 30, 1997 and 1996
Net Income. Bancorp reported net income of $2,924,830 or $.41 per fully
diluted share, for the three months ended June 30, 1997. This represents a 21%
increase in net income, as compared to $2,411,506 or $.35 per fully diluted
share, for the three months ended June 30, 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 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 June 30, 1997 increased $1,396,696 or 14.82%, to $10,819,124 from
$9,422,428 for the same period in 1996. Average interest earning assets
increased by $114.1 million, or 19.61%, to $696.0 million from $581.9 million
for the same period in 1996. Average interest bearing liabilities increased
$89.1 million or 18.84% over the same period. The average net interest spread
decreased from 5.76% to 5.43%,which was caused by a combination of increased
rates paid on deposit accounts and lower yields on earning assets. Bancorp's net
interest margin for the three months ended June 30, 1997 was 6.23%, a decrease
of 28 basis points from 6.51% for the comparable period of 1996. Average rates
paid increased by 11 basis points to 4.17% in the second quarter of 1997 from
4.06% for the same period in 1996, while average yields earned decreased 22
basis points to 9.60%.
Analysis of Net Interest Income. The following table presents
information regarding yields on interest earning assets, expense on interest
bearing liabilities, and net yields on interest earning assets for the periods
indicated on a tax equivalent basis:
<TABLE>
<CAPTION>
Three Months Ended
June 30,
-------------------------------- Increase
1997 1996 (Decrease) Change
------------- ------------- ------------- ------
<S> <C> <C> <C> <C>
Interest and fee income(1) ............. $ 16,667,074 $ 14,201,988 $ 2,465,086 17.36%
Interest expense ....................... 5,847,950 4,779,560 1,068,390 22.35%
------------- ------------- ------------- ------
Net interest income .................... $ 10,819,124 $ 9,422,428 $ 1,396,696 14.82%
============= ============= ============= ======
Average interest earning assets ........ $ 696,045,882 $ 581,929,623 $ 114,116,259 19.61%
Average interest bearing liabilities ... $ 562,028,193 $ 472,912,574 $ 89,115,619 18.84%
Average yields earned(2) ............... 9.60% 9.82% (0.22)
Average rates paid(2) .................. 4.17% 4.06% 0.11
Net interest spread(2) ................. 5.43% 5.76% (0.33)
Net interest margin(2) ................. 6.23% 6.51% (0.28)
</TABLE>
(1) Interest earned on nontaxable securities has been computed on a 34% tax
equivalent basis.
(2) These ratios for the three months ended June 30, 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 second quarter of 1997 and 1996 of
$485,000 and $521,200 respectively. Net charge-offs for the second quarter of
1997 were $176,699, compared to net charge-offs of $215,109 for the same period
in 1996. At June 30, 1997, the percentage of non-performing assets was 0.35% 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 June 30, 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 second quarter of 1997
was $2,635,881 up $471,990, or 21.81%, compared to the same period in 1996.
Other service charges, commissions and fees increased $288,774, or 40.32%,
service charges on deposit accounts increased $75,370, or 11.69% and Trust
revenue increased $42,071 or 11.57% due mainly to an increased customer base and
transaction volumes. Gains on sales of loans increased $46,271, as a result of
increased activity in the residential real estate programs. Loan servicing fees
and other revenue increased slightly over the period.
Noninterest Expense. Noninterest expenses for the second quarter ended
June 30, 1997, were $8,301,079 an increase of $1,215,425 or 17.15% over the same
period in 1996. Salaries and employee benefits, equipment, occupancy, ATM and
Bankcard, communication, marketing expenses and other expenses are higher in the
second 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. Printing and office supplies expenses are
down slightly from the second quarter of 1996. Professional fees are down in
1997 compared to 1996, due to merger costs incurred in the second quarter of
1996 that did not reoccur in the same period in 1997.
9
<PAGE> 10
Six Months Ended June 30, 1997 and 1996
Net Income. For the six months ended June 30, 1997, Bancorp's net
income was $5,448,584, an increase of $1,003,123 from $4,445,461 for same period
in 1996, a 22.57% increase. Fully diluted earnings per share for the six month
period ended June 30, 1997 was $0.77 compared to $0.65 in 1996. Net interest
income on a tax equivalent basis totaled $21,062,024 for the six months ended
June 30, 1997, a 17.32% increase from the same period in 1996.
Net Interest Income. During the period ended June 30, 1997 and 1996,
average interest earning assets were $679.5 million and $567.3 million,
respectively. During the same periods, average interest bearing liabilities grew
to $551.4 million from $460.5 million, respectively. Additionally, during the
same periods, net interest margins decreased to 6.25% from 6.36% respectively
due mainly to an increasing cost of funds. Net interest income on a
tax-equivalent basis increased $3,108,925, or 17.32%, to $21,062,024 in the
first six months of 1997 from $17,953,099 in 1996. The increased net interest
income was caused by the increased earning asset growth. Average interest
earning assets increased 19.78% over the period while the average yield earned
decreased 6 basis points to 9.61% at June 30, 1997 from 9.67% in 1996. The
changing interest rate environment in 1997 also led to a decrease in the net
interest spread of 14 basis points to 5.46% in 1996. Average interest bearing
liabilities increased $90.9 million, or 19.75%, to $551.4 million for the period
ended June 30, 1997, while the average rates paid increased 8 basis points to
4.15%.
Analysis of Net Interest Income. The following table presents
information regarding yields on interest-earning assets, expense on
interest-bearing liabilities, and net yields on interest-earning assets for the
periods indicated on a tax equivalent basis:
<TABLE>
<CAPTION>
Six Months Ended
June 30
-------------------------------- Increase
1997 1996 (Decrease) Change
------------- ------------- ------------- ------
<S> <C> <C> <C> <C>
Interest and fee income(1) ............. $ 32,399,740 $ 27,282,581 $ 5,117,159 18.76%
Interest expense ....................... 11,337,716 9,329,482 2,008,234 21.53%
------------- ------------- ------------- ------
Net interest income .................... $ 21,062,024 $ 17,953,099 $ 3,108,925 17.32%
============= ============= ============= ======
Average interest earning assets ........ $ 679,541,021 $ 567,331,047 $ 112,209,974 19.78%
Average interest bearing liabilities ... $ 551,436,168 $ 460,493,593 $ 90,942,575 19.75%
Average yields earned(2) ............... 9.61% 9.67% (0.06)
Average rates paid(2) .................. 4.15% 4.07% 0.08
Net interest spread(2) ................. 5.46% 5.60% (0.14)
Net interest margin(2) ................. 6.25% 6.36% (0.11)
</TABLE>
(1) Interest earned on nontaxable securities has been computed on a 34% tax
equivalent basis.
(2) These ratios for the six months ended June 30, 1997 and 1996 have been
annualized.
Provision for Loan Losses. Bancorp recorded a provision for loan losses
of $1,100,000 in the first six months of 1997, compared to $923,987 in the same
period in 1996. The increases in the provisions are due mainly to increases in
outstanding loans over the period. Bancorp incurred net charge-offs of $275,674
in 1997, compared to $643,981 during 1996. The allowance for loan losses as a
percentage of loan totals at June 30, 1997 and 1996 were 1.41% and 1.24% of
total loans, respectively.
Non-Interest Income. Non-interest income for the six months ended June
30, 1997 was $4,920,399, an increase of $737,150 or 17.62%, from $4,183,249 for
the same period in 1996. 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
and loan servicing fees remained stable during the period. Overall increases in
non-interest income were due to increased market presence in existing and
expanding market services.
10
<PAGE> 11
Non-Interest Expense. Non-interest expense increased 15.26% during the
first six months of 1997 over the same period in 1996. 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 $9,026,697 in 1997 from
$7,618,996, up 18.48% from the same period in 1996. The number of full time
equivalent employees increased during 1997 to 499 from 449 in 1996. 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 lower
during the period due mainly to higher merger related expenditures in 1996. FDIC
deposit insurance increased slightly in the period due to the increase in
overall deposits. Other increases in non-interest expense generally were caused
by higher operating activity levels associated with Bancorp's growth.
INCOME TAXES
During the first six months of 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
$664.6 million at June 30, 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.
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 $71.9 million at June 30, 1997 from
$67.1 million at December 31, 1996 an increase of $4.8 million, or 7.15%, over
that period of time. At June 30, 1997, Bancorp's shareholders' equity, as a
percentage of total assets, was 9.48%, compared to 9.43% at December 31, 1996.
The increase was primarily the result of Bancorp's equity base growing faster
than assets. Equity grew at 7.11% over the period from December 31, 1996 to June
30, 1997, while assets grew by 6.53% over the same period.
As the following table indicates, Bancorp currently exceeds the
regulatory capital minimum requirements.
<TABLE>
<CAPTION>
June 30, 1997
------------------
(Dollars in thousands)
- - ----------------------
Amount Ratio
-------- -----
<S> <C> <C>
Tier 1 capital ..................... $ 70,925 11.86%
Tier 1 capital minimum requirement . 23,916 4.00
-------- -----
Excess over minimum Tier 1 capital $ 47,009 7.86%
======== =====
Total capital ...................... $ 78,404 13.11%
Total capital minimum requirement .. 47,832 8.00
-------- -----
Excess over minimum total capital $ 30,572 5.11%
======== =====
Risk-adjusted assets ............... $597,904
========
Leverage ratio ..................... 9.48%
Minimum leverage requirement ....... 3.00
-----
Excess over minimum leverage ratio 6.48%
=====
Adjusted total assets .............. $748,404
========
</TABLE>
12
<PAGE> 13
LOAN PORTFOLIO
Interest earned on the loan portfolio is the primary source of income
for Bancorp. Net loans represented 72.55% of total assets as of June 30, 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>
June 30, 1997 December 31, 1996
--------------------- -------------------------
(Dollars in thousands) Amount Percent Amount Percent
- - ---------------------- --------- ------- --------- -------
<S> <C> <C> <C> <C>
Commercial ........................ $ 104,762 19.03% $ 97,515 18.44%
Real estate construction .......... 73,235 13.30 69,917 13.22
Real estate mortgage .............. 92,427 16.79 92,060 17.41
Real estate commercial ............ 250,987 45.59 235,935 44.62
Installment and other consumer .... 36,983 6.72 40,366 7.64
--------- ------ --------- ------
Total loans ....................... 558,394 101.43% 535,793 101.33%
Allowance for loan losses ......... (7,862) (7,038)
--------- ---------
Total loans, net .................. $ 550,532 $ 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>
(Dollars in thousands) June 30, 1997 December 31, 1996
- - --------------------- ------------- -----------------
<S> <C> <C>
Loans on nonaccrual status............................................... $2,120 $1,884
Loans past due greater than 90 days but not on nonaccrual status ........ 209 92
Other real estate owned.................................................. 331 -
------ ------
Total nonperforming assets............................................... $2,660 $1,976
====== ======
Percentage of nonperforming assets to total assets....................... .35% .28%
====== ======
</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 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>
Six months ended Year ended
(Dollars in thousands) June 30, 1997 December 31, 1996
- - ---------------------- ---------------- -----------------
<S> <C> <C>
Loans outstanding at end of period ............... $ 558,394 $ 535,793
Average loans outstanding during the period ...... $ 546,383 $ 466,623
Allowance for loan losses, beginning of period ... $ 7,038 $ 5,569
Recoveries ....................................... 32 194
Loans charged off ................................ (308) (900)
--------- ---------
Net loans charged off ............................ (276) (706)
Provision for loan losses ........................ 1,100 2,175
--------- ---------
Allowance for loan losses, end of period ......... $ 7,862 $ 7,038
========= =========
Ratio of net loans charged off
to average loans outstanding(1) ................ .10% .15%
Ratio of allowance for loan losses
to loans at end of period ...................... 1.41% 1.31%
</TABLE>
(1) The ratios for the six months ended June 30, 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.
14
<PAGE> 15
INVESTMENT PORTFOLIO
The following table shows the carrying value of the Banks' portfolio of
investments:
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
-------- --------
<S> <C> <C>
(Dollars in thousands)
- - ----------------------
Investments available for sale (fair value)
U.S. Treasury securities........................................ $ 3,813 $ 8,827
U.S. Government agency securities............................... 59,659 38,338
Corporate securities............................................ 7,789 3,358
Mortgage-backed securities...................................... 11,422 14,978
Obligations of state and political subdivisions................. 35,966 36,617
Other securities................................................ 5,553 5,050
-------- --------
Total......................................................... $124,202 $107,168
======== ========
Investments held to maturity (historical cost)
U.S. Treasury securities........................................ $ - $ -
U.S. Government agency securities............................... - -
Corporate securities............................................ - -
Mortgage-backed securities...................................... - -
Obligations of state and political subdivisions................. 2,616 2,623
Other securities................................................ - -
-------- --------
Total......................................................... $ 2,616 $ 2,623
======== ========
Total Investment Portfolio.................................... $126,818 $109,791
======== ========
</TABLE>
15
<PAGE> 16
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders.
(a) West Coast Bancorp's Annual Shareholders' Meeting was held on April 18,
1997.
(b) The following Directors were elected to three year terms:
Lloyd D. Ankeny Phillip G. Bateman
C. Douglas McGregor James J. Pomajevich
(c) A brief description of each matter voted upon at the Annual
Shareholders' Meeting held on April 18, 1997 and number of votes cast
for, against or withheld, including a separate tabulation with respect
to each nominee for office is presented below:
(1) Election of four (4) Directors for terms expiring in 2000 or
until their successors have been elected and qualified.
Director:
Lloyd D. Ankeny -
Votes cast for: 4,925,824
Votes cast against: 0
Votes withheld: 17,958
Phillip G. Bateman -
Votes cast for: 4,927,577
Votes cast against: 0
Votes withheld: 16,205
C. Douglas McGregor -
Votes cast for: 4,922,248
Votes cast against: 0
Votes withheld: 21,534
James J. Pomajevich -
Votes cast for: 4,927,849
Votes cast against: 0
Votes withheld: 15,933
(2) Approve amendments to the West Coast Bancorp Director Stock
Option Plan with respect to (I) increase the number of shares
available for grant; (ii) amend the Plan to allow the Board to
grant options at the Board's discretion; and (iii) incorporate
certain technical changes made in connection with revisions to
Section 16 and tax laws.
Votes cast for: 4,436,817
Votes cast against: 362,831
Votes abstained: 94,215
Broker Non-vote 49,919
(d) None.
16
<PAGE> 17
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 June 30, 1997, West Coast Bancorp filed
the following current report on Form 8-K:
None.
17
<PAGE> 18
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
WEST COAST BANCORP
(Registrant)
Dated: August 13, 1997 /s/ Victor L. Bartruff
----------------------
Victor L. Bartruff
President and Chief Executive Officer
Dated: August 13, 1997 /s/ Donald A. Kalkofen
----------------------
Donald A. Kalkofen
Executive Vice President and
Chief Financial Officer
18
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 36,284
<INT-BEARING-DEPOSITS> 3,949
<FED-FUNDS-SOLD> 7,599
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 124,202
<INVESTMENTS-CARRYING> 2,616
<INVESTMENTS-MARKET> 2,656
<LOANS> 558,394
<ALLOWANCE> 7,862
<TOTAL-ASSETS> 758,864
<DEPOSITS> 664,649
<SHORT-TERM> 100
<LIABILITIES-OTHER> 5,180
<LONG-TERM> 17,017
0
0
<COMMON> 8,397
<OTHER-SE> 63,521
<TOTAL-LIABILITIES-AND-EQUITY> 758,864
<INTEREST-LOAN> 27,756
<INTEREST-INVEST> 3,746
<INTEREST-OTHER> 330
<INTEREST-TOTAL> 31,832
<INTEREST-DEPOSIT> 10,530
<INTEREST-EXPENSE> 808
<INTEREST-INCOME-NET> 20,494
<LOAN-LOSSES> 1,100
<SECURITIES-GAINS> (46)
<EXPENSE-OTHER> 15,990
<INCOME-PRETAX> 8,325
<INCOME-PRE-EXTRAORDINARY> 8,325
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,449
<EPS-PRIMARY> .78
<EPS-DILUTED> .77
<YIELD-ACTUAL> 6.25
<LOANS-NON> 2,120
<LOANS-PAST> 209
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 7,038
<CHARGE-OFFS> 308
<RECOVERIES> 32
<ALLOWANCE-CLOSE> 7,862
<ALLOWANCE-DOMESTIC> 7,862
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
