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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-KSB
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[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934 (FEE REQUIRED)
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES ACT OF 1934 (NO FEE REQUIRED)
COMMISSION FILE NUMBER 0-21564
WEST COAST BANCORP, INC.
(Name of Small Business Issuer in its Charter)
FLORIDA 65-0018667
(State or Other Jurisdiction of (IRS Employer
Incorporation or Organization) Identification No.)
2724 DEL PRADO BOULEVARD SOUTH 33904
CAPE CORAL, FLORIDA (Zip Code)
(Address of Principal Executive Offices)
(813) 772-2220
(Issuer's Telephone Number, Including Area Code)
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SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE EXCHANGE ACT:
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NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
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None None
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SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE EXCHANGE ACT:
Common Stock, par value $1.00 per share
Check whether the issuer: (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 during the past 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
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Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendments to this Form 10-KSB. [X]
The issuer's revenues for its most recent fiscal year was $13,273,719.
The aggregate market value of the Common Stock of the issuer held by
non-affiliates as of February 29, 1996, was approximately $22,780,873 as
computed by reference to the closing price of the Common Stock as quoted by the
NASDAQ National Market System on such date. As of February 29, 1996, there
were 1,544,466 issued and outstanding shares of issuer's Common Stock.
Transitional Small Business Disclosure Format (check one): Yes No X
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DOCUMENTS INCORPORATED BY REFERENCE
Portions of the issuer's Annual Report to Shareholders for the fiscal year
ended December 31, 1995 ("Annual Report to Shareholders") are incorporated
herein by reference into Parts I and II of the Form 10-KSB. Portions of the
issuer's definitive Proxy Statement for the 1996 Annual Meeting of Shareholders
to be filed with the Securities and Exchange Commission no later than 120 days
after the end of the issuer's 1995 fiscal year are incorporated by reference
into Part III of this Form 10-KSB.
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WEST COAST BANCORP, INC.
FORM 10-KSB
Fiscal Year Ended December 31, 1995
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ITEM NUMBER IN
FORM 10-KSB PAGE
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PART I
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1. Description of Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2. Description of Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
4. Submission of Matters to a Vote of Security-Holders . . . . . . . . . . . . . . . . . . . . . . . . 17
PART II
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5. Market for Common Equity and Related Stockholder Matters . . . . . . . . . . . . . . . . . . . . . . 17
6. Management's Discussion and Analysis or Plan of Operation . . . . . . . . . . . . . . . . . . . . . 18
7. Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
8. Changes in and Disagreements with Accountants on Accounting . . . . . . . . . . . . . . . . . . . . 18
PART III
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9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act . . . . . . . . . . . . . . . . . . . . . . . 19
10. Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
11. Security Ownership of Certain Beneficial
Owners and Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
12. Certain Relationships and Related Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
13. Exhibits, Lists and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
GENERAL
West Coast Bancorp, Inc. (the "Company"), a Florida corporation
organized on December 11, 1987, is a bank holding company registered under the
Bank Holding Company Act of 1956, as amended (the "BHCA"), whose sole
subsidiary and principal asset is the First National Bank of Southwest Florida,
a national banking association (the "Bank"). The Company owns all of the
outstanding capital stock of the Bank. Through its ownership of the Bank, the
Company is engaged in a general commercial banking business and its primary
source of earnings is derived from income generated by the Bank. The Company
currently engages in no substantial business activities other than activities
related to its ownership of the Bank. As of December 31, 1995, the Company, on
a consolidated basis, had total assets of $147,213,170, net portfolio loans of
$98,082,748, total deposits of $129,205,191, and shareholders' equity of
$16,427,544. Unless the context otherwise requires, references herein to the
Company include the Company and the Bank on a consolidated basis.
The Bank is a national banking association originally chartered in
February 1989. The Bank engages in general commercial banking and related
businesses from its four full service branches and one satellite office, all of
which are operating in the Cape Coral - Fort Myers area. These facilities are:
its main office located on Del Prado Boulevard in Cape Coral, Florida; a branch
office located on the Cape Coral Parkway in Cape Coral (the"Cape Coral Parkway
Branch"); a branch office located on Colonial Boulevard in Fort Myers, Florida
(the "Colonial-Metro Branch"); a branch office located at the intersection of
Santa Barbara Boulevard and Trafalgar Boulevard in Cape Coral (the "Trafalgar
Branch"); and a satellite office located at 1333 Santa Barbara Boulevard (the
"Satellite Office"). The Satellite Office, which opened on November 14, 1995,
is located at a local retirement community site and is opened twice per week
for four hours per day to meet the needs of the retirement community. This
office provides the Bank with an additional deposit base. The Trafalgar
Branch, the Bank's newest full service branch office, was opened on January 9,
1996. Management believes that the Trafalgar Branch is located in a
progressive, high growth area. At January 31, 1996, the Trafalgar Branch had
$2.6 million in deposits. The Bank also operates a residential mortgage
department located at 4417 SE 16th Place in Cape Coral ("Residential Mortgage
Lending Department").
The business of the Bank consists primarily of attracting deposits
from the general public in the areas served by its banking offices and applying
those funds, together with funds derived from other sources, to the origination
of loans for various types of collateralized and uncollateralized consumer
loans, and loans for the purchase, construction, financing and refinancing of
commercial and residential real estate in Cape Coral, Fort Myers and
surrounding communities. The revenues of the Bank are primarily derived from
interest on, and fees received in connection with, real estate and other loans,
and from income received from the sale of loans and mortgage loan servicing
rights. The principal sources of funds for the Bank's lending activities are
its deposits, amortization and prepayment of loans, and sales of loans and
mortgage loan servicing rights. The principal expenses of the Bank are the
interest paid on deposits and operating and general administrative expenses.
The Bank offers a broad range of short to medium-term business and
personal loans. Commercial loans include both collateralized and
uncollateralized loans for working capital (including inventory and
receivables), business expansion (including real estate acquisitions and
improvements), and purchases of equipment and machinery. Consumer loans
include collateralized and uncollateralized loans for financing automobiles,
boats, home improvements, and personal investments. The Bank also originates a
variety of residential real estate loans, including conventional mortgages
collateralized by first mortgage liens to enable borrowers to purchase,
refinance, construct upon or improve real property. Such loans include loans
collateralized by first mortgage interests made to individual borrowers who
intend to erect their own home on a purchased parcel of unimproved real estate
zoned for residential homes. To a lesser extent, the Bank also has made land
acquisition and development loans and construction loans to developers of
residential
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properties for the construction of residential subdivisions and multi-family
residential housing projects. The Bank primarily enters into loan agreements
with individuals who are familiar to the Bank and are residents of the Bank's
primary market area.
The Bank offers a variety of corporate and personal banking services
to individuals, businesses, and other institutions located in the Cape Coral -
Fort Myers region of southwest Florida. Deposit services include certificates
of deposit, individual retirement accounts ("IRAs") and other time deposits,
checking and other demand deposit accounts, interest paying checking accounts
("NOW accounts"), savings accounts and money market accounts. The transaction
accounts and time certificates are tailored to the principal market areas at
rates competitive to those in the area. All deposit accounts are insured by
the Federal Deposit Insurance Corporation ("FDIC") up to the maximum limits
permitted by law. The Bank solicits these accounts from small businesses,
professional firms and households located throughout its primary market area.
The Bank also offers ATM cards with access to local, state, and
national networks, safe deposit boxes, wire transfers, direct deposit of
payroll and social security checks, and automatic drafts for various accounts.
The Bank provides corporate credit cards, VISA or MasterCard credit cards, as
issued by a correspondent bank which assumes all liabilities relating to
underwriting of the credit applicant. The Bank presently does not provide
fiduciary or appraisal services. The market for such services, as well as
further product diversification, is reviewed periodically for possible future
inclusion in the Bank's products and services.
The Bank's Residential Mortgage Lending Department originates,
generates, approves, closes, and services single family residential home
mortgages. Its primary function is to originate fixed and adjustable rate
residential lending programs as a means of increasing its residential loan
portfolio and resulting interest income, and increasing non-interest income
through the sale of fixed rate mortgages in the secondary market while
retaining or packaging for sale the fee generating servicing rights associated
with such loans. A majority of the mortgage loans made by the Bank are sold in
the secondary market to the Federal National Mortgage Association ("FNMA") and
other government agencies. During the fiscal year ended December 31, 1995, the
Bank originated approximately $15 million in mortgage loans and sold
approximately $13 million of such loans, including those held in inventory from
the previous year, in the secondary market. Servicing fee income for 1995 was
approximately $119,000.
Prior to 1995, the Bank's standard practice was to sell in the
secondary market the residential mortgage loans that it originated while
retaining the fee generating servicing rights. Although the Bank packaged
certain of these servicing rights in 1994 and sold them to another financial
institution, the Bank did not originally intend to change its practice of
retaining such rights. During 1995, however, management revised the Bank's
practices and commenced the packaging and sale of such servicing rights
simultaneously with the sale of the underlying mortgage loan. Accordingly, in
September, 1995, the Bank negotiated the sale of its mortgage servicing rights
with respect to approximately $22 million in unpaid principal amount of
FHLMC/FNMA loans originated by the Bank. Such servicing rights were sold to
unaffiliated third party financial institutions for approximately $230,000, or
a premium of 1.05% on the unpaid balance of the loan portfolio servicing rights
sold. The Bank will consider future packaging and sale of mortgage loans
and/or servicing rights from time to time as it deems appropriate.
The Bank also originates loans in association with the Small Business
Administration ("SBA"). During the fiscal years ended December 31, 1995 and
1994, the Bank originated and closed $1.6 million and $2.2 million in SBA
loans, respectively. The Bank believes that its participation in the "SBA Low
Doc" program has proved beneficial to its SBA lending program by assisting the
Bank in assembling and preparing loan packages which satisfy SBA guidelines for
business operators in the Bank's primary market area. In 1995, the SBA
conferred "Certified Lender" status on the Bank thereby enabling the Bank to
process SBA loan applications on an expedited basis. The Bank intends to
continue to aggressively pursue a program of SBA loan originations with the
intent of selling the guaranteed portion of such loans into the secondary
market while retaining the unguaranteed portion of the loan as well as the loan
servicing rights. However, recent changes have been made to the SBA loan
program which limit funding for and the size of SBA loans, and such changes
will likely reduce the opportunities for generating fee income with respect to
such loans in the future.
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In addition to the Bank's business activities, the Company also is
authorized to conduct banking related activities, including accounts receivable
financing and services, and the solicitation, servicing, and participation in
commercial loan transactions. See "Item 6. Management's Discussion and
Analysis or Plan of Operations".
As is the case with banking institutions generally, the Bank's
operations are materially and significantly influenced by general economic
conditions and by related monetary and fiscal policies of financial institution
regulatory agencies, including the FRB, the OCC and the FDIC. Deposit flows
and cost of funds are influenced by interest rates on competing investments and
general market rates of interest. Lending activities are affected by the
demand for financing of real estate and other types of loans, which in turn is
affected by the interest rates at which such financing may be offered and other
factors affecting local demand and availability of funds. The Bank faces
strong competition in the attraction of deposits (its primary source of
lendable funds) and in the origination of real estate loans.
MARKET AREA AND GROWTH STRATEGY
The Bank's four current full service banking facilities and its
Satellite Office are all located in the Cape Coral - Fort Myers area of
Southwest Florida, which is the Bank's primary market area. In the state of
Florida, Cape Coral is the fifteenth largest city by population and the second
largest city by geographic area. Fort Myers is the thirty-eighth largest city
by population. This population growth has resulted in the continued
construction of residential housing and related commercial support facilities.
In order to expand its geographic market area and to diversify its
sources for and uses of funds, the Company has established four banking
facilities in Cape Coral (including the Satellite Office) and another facility
in Fort Myers and, in the future, may consider strategic acquisitions of banks
or banking assets in those geographic areas that management believes would
complement the Bank's existing business and would most effectively achieve
market penetration within its primary market area.
In this regard, the Company has continued to identify areas into which
its operations can expand and improve market share. As previously indicated,
in 1995 the Company opened the Satellite Office and in early 1996 it has opened
a fourth full service banking facility, the Trafalgar Branch. In addition, in
1995 the Company relocated its 3,000 square foot modular facility from its Del
Prado location to the Trafalgar Branch site to serve as the Trafalgar Branch
office facility. As a result of this relocation, the Company's Residential
Mortgage Lending Department was relocated to another leased facility at 4417
SE 16th Place, Unit 11, Cape Coral. The Company believes that it can improve
its market share and long term profitability by continuing to seek and identify
strategic locations for opening or acquiring additional full service and
satellite branch offices.
Although the Company has considered, in the past, the purchase of
certain banking institutions or specific branches of failed institutions, the
Company has not entered into any such transactions. The Company will continue
to consider and evaluate potential strategic acquisitions which are brought to
its attention to determine whether such acquisitions are in the best interests
of the Company and should be pursued. Even though the Company determined to
begin a more aggressive approach in its search for an acquisition during the
1995 fiscal year, it was unsuccessful in consummating any such transactions.
Currently, the Company does not have any current understandings, arrangements,
or agreements, whether written or oral, with respect to any specific
acquisition prospect, and its is not presently negotiating with any party with
respect thereto. Accordingly, there is no assurance the Company will be able
to identify any additional acquisitions candidates, or to the extent a suitable
acquisition candidates are identified, that an acquisition will be consummated.
MARKET FOR SERVICES
Management believes that the Bank's principal markets are: (i) the
affluent and expanding residential market within its primary market areas; (ii)
the established and expanding commercial market within its primary market
areas; and (iii) the real estate mortgage market within its primary market
areas and their environs. Management also believes that the most profitable
banking relationships are characterized by high deposit balances, low frequency
of transactions, and low distribution requirements. Moreover, management
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believes that a community bank with local management is well positioned to
establish these relationships with the smaller commercial customers and
households. Since the Bank is the only independent community bank
headquartered in Cape Coral, Florida, management believes that the Bank is well
positioned to take advantage of its market segment. Specifically, the Bank has
targeted businesses with annual gross revenues up to $10 million, and all
households within the primary market areas. Given the projected growth of
these segments and their respective profiles, the Company believes the
targeting of these segments as the foundation of the Bank's customer base will
increase opportunities to establish profitable banking operations in the
primary market area.
Businesses are solicited through the personal efforts of the Bank's
directors and officers. Management believes a locally-based bank is often
perceived by the local business community as possessing a clearer understanding
of local commerce and its needs. Consequently, the Company expects that the
Bank will be able to make prudent lending decisions quickly and more equitably
than its competitors without compromising asset quality or the Bank's
profitability.
In an effort to attract a broader base of customer relationships and
diversify its banking operations, the Bank has expanded on its initial lending
philosophy which focused on smaller commercial customers to include larger
borrowers and credit accommodations. Initially the Bank concentrated on the
smaller commercial customer and meeting their generally smaller lending needs
because, as a local community bank, that segment offered the greatest
concentration of business. As the Bank and its loan portfolio has grown in
both volume and maturity, management has begun funding larger credit
accommodations which meet the same quality underwriting standards that have
been used by the Bank for approving of the smaller loan requests.
LENDING ACTIVITIES
General
The primary source of income generated by the Bank is from the
interest earned from both the loan and investment portfolios. The Bank
maintains diversification when considering investments and the granting of loan
requests. Emphasis is placed on the borrower's ability to generate cash flow
to support its debt obligations and other cash related expenses. Lending
activities include commercial and consumer loans, and loans for residential
purposes. Commercial loans are originated for commercial construction,
acquisition, or remodeling. Consumer loans include those for the purchase of
automobiles, boats, home improvements and investments. Residential loans
include the origination of conventional mortgages and residential lot loans for
the purchase or construction of single-family housing or lots. Substantially
all of the properties collateralizing the Bank's mortgage portfolio are located
in the Bank's primary market area.
At December 31, 1995, the Bank's net loan portfolio was approximately
$98 million, representing approximately 67% of its total assets. As of such
date, the loan portfolio consisted of 61% commercial and financial loans, 20%
real- estate mortgage loans, 14% real estate construction and development
loans, and 5% installment loans. In addition, approximately $6 million of
residential real estate mortgage loans are being held for sale.
Commercial Lending
The Bank offers a variety of commercial loan services including term
loans, lines of credit, and equipment financing. A broad range of
short-to-medium term commercial loans, both collateralized and
uncollateralized, are made available to businesses for working capital
(including inventory and receivables), business expansion (including
acquisitions of real estate and improvements), and the purchase of equipment
and machinery. The purpose of a particular loan generally determines its
structure.
The Bank's commercial loans primarily are underwritten in the Bank's
primary market area on the basis of the borrowers' ability to service such debt
from income. As a general practice, the Bank takes as collateral a security
interest in any available real estate, equipment, or other chattel. Working
capital loans
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are primarily collateralized by short term assets whereas term loans are
primarily collateralized by long term assets.
Unlike residential mortgage loans, which generally are made on the
basis of the borrower's ability to make repayment from his employment and other
income and which are collateralized by real property whose value tends to be
easily ascertainable, commercial loans typically are made on the basis of the
borrower's ability to make repayment from the cash flow of his business and
generally are collateralized by business assets, such as accounts receivable,
equipment and inventory. As a result, the availability of funds for the
repayment of commercial loans may be substantially dependent on the success of
the business itself. Further, the collateral underlying the loans may
depreciate over time, occasionally cannot be appraised with as much precision
as residential real estate, and may fluctuate in value based on the success of
the business.
Real Estate Mortgage Loans
A significant portion of the Bank's lending activity consists of the
origination of single-family residential mortgage loans collateralized by
owner-occupied property located in the Bank's primary market area. The Bank
offers a variety of mortgage loan products. Its originations are generally for
ARMs and fixed-rate mortgage loans having a term of 15 to 30 years amortized on
a monthly basis, with principal and interest due each month.
The Bank offers one-year ARMs with rate adjustments tied to the weekly
average rate of U.S. Treasury securities adjusted to a constant one-year
maturity with specified minimum and maximum interest rate adjustments. The
interest rates on a majority of these mortgages are adjusted yearly with
limitations on upward adjustments of 2% per adjustment period and 6% over the
life of the loan. The Bank also originates 15-year and 30-year fixed-rate
mortgage loans on single family residential real estate. The Bank generally
charges a higher interest rate if the property is not owner-occupied.
Fixed-rate mortgage loans are generally underwritten according to FNMA or
Federal Home Loan Mortgage Corporation ("FHLMC") guidelines so that the loans
qualify for sale in the secondary market to FNMA or FHLMC. It has been the
Bank's experience that the proportion of fixed-rate and adjustable-rate loan
originations depend in large part on the level of interest rates. As interest
rates fall, there is generally a reduced demand for ARMs and, as interest rates
rise, there is generally an increased demand for ARMs.
Loans collateralized by single family residential real estate
generally have been originated in amounts of no more than 80% of appraised
value. The Bank requires mortgage title insurance and hazard insurance
generally in the amount of the loan. Although the contractual loan payment
period for single family residential real estate loans are generally for a 15
to 30 year period, such loans often remain outstanding for significantly
shorter periods than their contractual terms. Borrowers are typically
permitted to refinance or prepay loans at their option without penalty.
It is the Company's policy to retain in its portfolio ARMs for those
credit worthy borrowers who may not qualify for fixed rate mortgage loans that
can be sold in the secondary market under the guidelines established by FNMA
and FHLMC. Fixed-rate loans with longer maturities are generally sold in the
secondary market by the Bank.
Installment Loans
Installment loans made by the Bank have included automobiles,
recreation vehicles, boats, second mortgages, home improvements, home equity
lines of credit, personal (collateralized and uncollateralized) and deposit
account collateralized loans. The terms of these loans typically range from 36
to 180 months and vary based upon the kind of collateral and size of loan.
Installment loans are attractive to the Bank because they typically
have a shorter term and carry higher interest rates than that charged on other
types of loans. Installment loans, however, do pose additional risks of
collectability when compared to traditional types of loans granted by
commercial banks such as residential mortgage loans. In many instances, the
Bank is required to rely on the borrower's ability to repay since the
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collateral may be of reduced value at the time of collection. Accordingly, the
initial determination of the borrower's ability to repay is of primary
importance in the underwriting of consumer loans.
Residential Construction and Development Loans
The Bank originates residential construction mortgage loans to finance
the construction of single-family dwellings, housing developments, and
subdivisions. The Bank also originates loans for the acquisition and
development of unimproved property to be used for residential purposes. As a
result of increased commercial construction activity in the Bank's primary
market area, real estate construction loans increased from 5.5% of the Bank's
loan portfolio in 1993 to 14.4% in 1994 to 14.2% in 1995. Most of the
residential construction loans are made to individuals who intend to erect
owner-occupied housing on a purchased parcel of real estate. Construction
loans also are made to developers to erect single-family dwellings for resale.
Construction loans are generally offered on the same basis as other residential
real estate loans except that a larger percentage down payment is typically
required. The Bank's construction loans to individuals typically range in size
from $50,000 to $200,000.
Construction loans to developers generally have terms of up to 12
months. Loan proceeds on builders' projects are disbursed in increments as
construction progresses and as inspections warrant. The Bank finances the
construction of individual, owner-occupied houses on the basis of written
underwriting and construction loan management guidelines. Construction loans
are structured either to be converted to permanent loans with the Bank at the
end of the construction phase or to be paid off upon receiving financing from
another financial institution. Construction loans on residential properties
are generally made in amounts up to 80% of appraised value.
Construction loans are generally considered to involve a higher degree
of risk than long-term financing collateralized by improved, occupied real
estate. A lender's risk of loss on a construction loan is dependent largely
upon the accuracy of the initial estimate of the property's value at the
completion of construction and estimated cost (including interest) of
construction. If the estimate of construction cost proves to be inaccurate,
the lender could be required to advance funds beyond the amount originally
committed in order to permit completion of the project. If the estimate of
anticipated value proves to be inaccurate, the lender may have collateral which
has value insufficient to assure full repayment.
Loans collateralized by subdivisions and multi-family residential real
estate generally are larger than loans collateralized by single family,
owner-occupied housing and also generally involve a greater degree of risk.
Payments on these loans depend to a large degree on the results of operations
and management of the properties, and repayment of such loans may be more
subject to adverse conditions in the real estate market or the economy.
LOAN SOLICITATION AND PROCESSING
Loan originations are derived from a number of sources. Residential
loan originations can be attributed to real estate broker referrals, mortgage
loan brokers, direct solicitation by the Bank's loan officers, present savers
and borrowers, builders, attorneys, walk-in customers and, in some instances,
other lenders. Loan applications, whether originated through the Bank or
through mortgage brokers, are underwritten and closed based on the same
standards, which generally meet FHLMC or FNMA underwriting guidelines.
Installment and commercial real estate loan originations emanate from many of
the same sources.
Upon receipt of a loan application from a prospective borrower, a
credit report and verifications are ordered to verify specific information
relating to the loan applicant's employment, income, and credit standing. An
appraisal of the real estate intended to collateralize the proposed loan is
undertaken by an appraiser approved by the Bank.
Once a loan application has been completed and all information has
been obtained, a loan must be approved through a formal process. As a part of
the approval process, the Bank has formed a loan committee made up of senior
officers. Loans of up to $500,000 on single or multiple properties must be
approved by
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the loan committee. Loans greater than $500,000 are subject to the approval of
the executive loan committee of the Bank and by the Board of Directors of the
Bank.
Loan applicants are notified promptly of the decision of the Bank by
telephone and a letter. If the loan is approved, the commitment letter
specifies the terms and conditions of the proposed loan including the amount of
the loan, interest rate, amortization term, a brief description of the required
collateral, and required insurance coverage. Prior to closing any long-term
loan, the borrower must provide proof of fire and casualty insurance on the
property serving as collateral which insurance must be maintained during the
full term of the loan. Title insurance is required on loans collateralized by
real property. Interest rates on committed loans are normally locked in at the
time of application for a 30 day period. The commitment issued at the time of
approval will be for the time remaining, based on the application date.
MORTGAGE BANKING OPERATIONS
The Company provides mortgage banking services through the Bank's
Residential Mortgage Lending Department. This department originates,
underwrites, closes, and services a broad line of residential mortgage loan
products both for the Bank's loan portfolio and for resale in the secondary
mortgage market.
As a general policy, the Bank originates residential mortgage loans
with the intent to sell such loans, without recourse, in the secondary market.
Prior to 1995, the Bank's policy also was to retain the mortgage servicing
rights for such loans and, receive the servicing fees, ancillary fees including
late charges, and fees collected in connection with a change in the borrower or
other loan modification, and the maintenance of mortgagee tax and insurance.
During 1995, however, the Bank negotiated the sale of its mortgage servicing
rights with respect to approximately $22 million in unpaid principal amount of
FHLMC/FNMA loans originated by the Bank. Such servicing rights were sold to
unaffiliated third parties for approximately $230,000, or 1.05% premium on the
unpaid principal balance of the loan portfolio servicing rights sold. Upon
making the decision to package and sell the mortgage servicing rights
associated with these loans, the Bank solicited bids from various mortgage
servicing entities. The Bank selected what it deemed to be the best offer in
terms of price and timing of payment and then entered into an agreement to sell
the mortgage servicing rights. Prior to 1995, the Bank's standard practice was
to sell the mortgage loans that it originated in the secondary market while
retaining the fee generating servicing rights. Although the Bank packaged
certain of these servicing rights in 1994 and sold them to another financial
institution, the Bank did not originally intend to change its practice of
retaining such rights. During 1995, however, management reviewed its practices
in this area and determined that it should package and sell the servicing
rights if the market for servicing rights is advantageous. The Bank's decision
to sell mortgage loans and/or servicing rights will be influenced by the
amount and type of loans originated in relation to the Bank's loan portfolio
needs, general market conditions of the secondary mortgage market, and the
interest rate environment. As of December 31, 1995, the Bank was not
servicing any loans which had been sold.
In addition to interest earned on loans and fees generated from
mortgage servicing activities or sales, the Bank receives loan origination fees
or "points" for originating loans. Origination fees are calculated as a
percentage of the principal amount of the mortgage loan and are charged to the
borrower for creation of the loan. Loan origination fees are volatile sources
of income, and are affected by the volume and types of loans and commitments
made, competitive conditions in the mortgage markets, and the demand for and
availability of money.
OTHER SERVICES
In addition to the banking services provided by the Bank, the Company
also conducts certain banking related activities. In this regard, the Company
provides accounts receivable financing and factoring services to businesses and
professionals. This service is made available as a means of providing credit
worthy businesses and professionals with funding and management of their
accounts receivables. Upon receiving an application from a prospective
business client, the Company reviews the applicant and its financial
information under underwriting standards similar to those used by the Bank in
evaluating other extensions of credit to businesses. The Bank analyzes the
financial condition of the applicant, verifies the information furnished in
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the application, and assesses the collectibility and strength of the accounts
receivables. If the applicant, the application, and the collectibility and
value of the accounts receivables meet all of the Company's underwriting
requirements, the Company will then purchase the accounts receivable from the
applicants at a discount and thereafter be responsible for monitoring and
controlling the collection process, including billing the account debtors for
the amounts due and receipt of payments from the account debtors. As of
December 31, 1995, the Company owned approximately $1.2 million in outstanding
accounts receivables.
In addition to the services described above, the Company also is
authorized to solicit, service and participate in commercial loan transactions.
SUPERVISION AND REGULATION
The banking industry is extensively regulated under both federal and
state law, and is undergoing significant change. These laws and regulations
are intended to protect depositors, not shareholders. The following discussion
summarizes certain aspects of the banking laws and regulations that affect the
Company or the Bank. Proposals to change the laws and regulations governing
the banking industry are frequently raised in Congress, in state legislatures,
and before the various banking agencies. The likelihood and timing of any
changes, and the impact that such changes might have on the Company, are
impossible to predict with any certainty. A change in the applicable laws or
regulations, or a change in the way such laws or regulations are interpreted by
regulatory agencies or the courts, may have a material impact on the business
or prospects of the Company and the Bank.
To the extent that the following information describes statutory and
regulatory provisions, it is qualified in its entirety by reference to the
particular statutory and regulatory provisions.
Bank Holding Company Regulation
General. As a bank holding company registered under the BHCA, the
Company is subject to the regulation and supervision of, and inspection by, the
FRB. The Company is required to file with the FRB annual reports and other
information regarding its business operations and those of its subsidiaries.
Under the BHCA, the Company's activities and those of its subsidiaries are
limited to banking, managing or controlling banks, furnishing services to or
performing services for its subsidiaries or engaging in any other activity which
the FRB determines to be so closely related to banking or managing or
controlling banks as to be properly incident thereto. In this regard, the BHCA
prohibits a bank holding company, with certain limited exceptions, from (i)
acquiring or retaining direct or indirect ownership or control of more than 5%
of the outstanding voting stock of any company which is not a bank or bank
holding company, or (ii) engaging directly or indirectly in activities other
than those of banking, managing or controlling banks, or performing services for
its subsidiaries; unless such nonbanking business is determined by the FRB to be
so closely related to banking or managing or controlling banks as to be properly
incident thereto. In making such determinations, the FRB is required to weigh
the expected benefit to the public, such as greater convenience, increased
competition or gains in efficiency, against the possible adverse effects, such
as undue concentration of resources, decreased or unfair competition, conflicts
of interest, or unsound banking practices. Generally, bank holding companies,
such as the Company, are required to obtain the prior approval of the FRB to
engage in any new activity not previously approved by the FRB.
The BHCA also requires, among other things, the prior approval of the
FRB in any case where a bank holding company proposes to (i) acquire all or
substantially all of the assets of any bank, (ii) acquire direct or indirect
ownership or control of more than 5% of the outstanding voting stock of any
bank (unless it owns a majority of such bank's voting shares), or (iii) merge or
consolidate with any other bank holding company. The FRB will not approve any
acquisition, merger, or consolidation that would result in a monopoly, or which
would be in the furtherance of any attempt to monopolize the business of
banking in any part of the United States, or which would have a substantially
anti-competitive effect, unless the anti-competitive impact of the proposed
transaction are clearly outweighed by a greater public interest in meeting the
convenience and needs of the community to be served. The FRB also considers
capital adequacy and other financial and managerial factors when reviewing
acquisitions or mergers. As described in greater detail below, pursuant to the
Riegle-
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Neal Interstate Banking and Branch Efficiency Act of 1994 (the "Interstate
Banking and Branching Act") passed by Congress in 1994, effective September 25,
1995, a bank holding company is permitted to acquire banks in states other than
its home state. Prior to that time, with the limited exception for
acquisitions of financially troubled banks, the FRB could not approve the
acquisition of control of any bank operating outside the bank holding company's
principal state of operations, unless such action was specifically authorized
by the statutes of the state in which the bank to be acquired was located. See
"Item 1. Business - Supervision and Regulation-Bank Holding Company
Regulation--Interstate Banking" below for additional information.
There are a number of obligations and restrictions imposed on bank
holding companies and their depository institution subsidiaries by law and
regulatory policy that are designed to minimize potential loss to the
depositors of such depository institutions and the FDIC insurance funds in the
event the depository institution becomes in danger of default or in default.
For example, under the Federal Deposit Insurance Company Improvement Act of
1991 ("FDICIA"), to avoid receivership of an insured depository institution
subsidiary, a bank holding company is required to guarantee the compliance of
any insured depository institution subsidiary that may become
"undercapitalized" with the terms of any capital restoration plan filed by such
subsidiary with its appropriate federal banking agency up to the lesser of (i)
an amount equal to 5% of the institution's total assets at the time the
institution became undercapitalized or (ii) the amount that is necessary (or
would have been necessary) to bring the institution into compliance with all
applicable capital standards as of the time the institution fails to comply
with such capital restoration plan. See "Item 1. Business - Supervision and
Regulation - - Capital Adequacy Guidelines."
Under a policy of the FRB with respect to bank holding company
operations, a bank holding company is required to serve as a source of
financial strength to its subsidiary depository institutions and to commit all
available resources to support such institutions in circumstances where it
might not do so absent such policy. Although this "source of strength" policy
has been challenged in litigation, the FRB continues to take the position that
it has authority to enforce it. The FRB under the BHCA also has cease and
desist authority pursuant to which it may require a bank holding company to
terminate any activity or to relinquish control of a nonbank subsidiary (other
than a nonbank subsidiary of a bank) upon the FRB's determination that such
activity or control constitutes a serious risk to the financial soundness and
stability of any bank subsidiary of the bank holding company.
In addition, the "cross-guarantee" provisions of the Federal Deposit
Insurance Act ("FDI Act") require insured depository institutions which are
under common control to reimburse the FDIC for any loss suffered by the Bank
Insurance Fund ("BIF") of the FDIC as a result of the default of a commonly
controlled insured depository institution or for any assistance provided by the
FDIC to a commonly controlled insured depository institution in danger of
default. Accordingly, the cross-guarantee provisions enable the FDIC to access
a bank holding company's healthy BIF members. The FDIC may decline to enforce
the cross-guarantee provisions if it determines that a waiver is in the best
interest of the BIF. The FDIC's claims are superior to claims of stockholders
of the insured depository institution or its holding company but are
subordinate to claims of depositors, secured creditors and holders of
subordinated debt (other than affiliates) of the commonly controlled insured
depository institutions.
The FRB and the FDIC collectively have extensive enforcement authority
over commercial banks. This authority has been enhanced substantially by the
Financial Institutions Reform, Recovery and Enforcement Act of 1989 ("FIRREA")
and the FDICIA. This enforcement authority includes, among other things, the
ability to assess civil money penalties, to issue cease and desist or removal
orders, to initiate injunctive actions, and, in extreme cases, to terminate
deposit insurance. In general, these enforcement actions may be initiated for
violations of laws and regulations and unsafe or unsound practices. Other
actions or inactions may provide the basis for enforcement action, including
misleading or untimely reports filed with the federal banking agencies. FIRREA
significantly increased the amount of and the grounds for civil money penalties
and generally requires public disclosure of final enforcement actions.
Community Reinvestment Act. Bank holding companies and their
subsidiary banks are subject to the provisions of the Community Reinvestment Act
of 1977 ("CRA") and the regulations promulgated thereunder by the appropriate
bank regulatory agency. Under the terms of the CRA, a national bank has a
continuing
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and affirmative obligation consistent with its safe and sound operation to help
meet the credit needs of its entire community, including low and moderate
income neighborhoods. The CRA does not establish specific lending requirements
or programs for financial institutions nor does it limit an institution's
discretion to develop the types of products and services that it believes are
best suited to its particular community, consistent with the CRA. The CRA
requires the OCC, in connection with its examination of a national bank, to
assess the association's record of meeting the credit needs of its community
and to take such record into account in its evaluation of certain applications
by such association. The CRA also requires all institutions to make public
disclosure of their CRA ratings. Further, such assessment also is required of
any national bank that, among other things, has applied to merge or consolidate
with, or acquire the assets or assume the liabilities of, a federally regulated
financial institution, or to open or relocate a branch office. In the case of
a bank holding company applying for approval to acquire a bank or a bank
holding company, the FRB will assess the record of each subsidiary bank of the
applicant bank holding company in considering the application.
In April 1995, the OCC and the other federal banking agencies adopted
amendments revising their CRA regulations. Among other things, the amended CRA
regulations substitute for the prior process-based assessment factors a new
evaluation system that would rate an institution based on its actual
performance in meeting community needs. In particular, the proposed system
would focus on three tests: (i) a lending test, to evaluate the institution's
record of making loans in its service areas; (ii) an investment test, to
evaluate the institution's record of investing in community development
projects, affordable housing and programs benefitting low or moderate income
individuals and business; and (iii) a service test, to evaluate the
institution's deliver of services through its branches, ATMs and other offices.
The amended CRA regulations also clarify how an institution's CRA performance
would be considered in the application process.
Interstate Banking. Prior to the Interstate Banking and Branching
Act, the BHCA prohibited the FRB from approving a bank holding company's
application to acquire a bank or a bank holding company located outside the
state in which the operations of its banking subsidiaries are principally
conducted, unless such acquisition is specifically authorized by statute of the
state in which the bank or bank holding company to be acquired is located. The
Interstate Banking and Branching Act significantly altered interstate banking
rules. Under the newly enacted Interstate Banking and Branching Act,
regardless of any previously applicable state law, commencing in September 1995
bank holding companies which meet specified capital and management adequacy
standards are eligible to acquire banks in states other than their home states,
but will need to retain a separate bank charter in each state where
subsidiaries conduct banking business. Various restrictions on interstate
acquisitions will continue to apply, including (1) federal and state antitrust
laws, as currently in effect; (2) prohibitions on a single holding company
system accounting for more than 10% of all deposits nationwide or, subject to
various opt-in and opt-out provisions for various states on a nondiscriminatory
basis, accounting for more than 30% or more of deposits in any state; (3)
state-imposed prohibitions on acquiring banks within up to five years after
they commence operations; and (4) compliance by the acquirer with the CRA and
fair lending laws.
Furthermore, beginning June 1, 1997, the Interstate Banking and
Branching Act also authorizes adequately capitalized and managed banks to cross
state lines to merge with other banks, thereby creating interstate branches,
subject to individual state' adoption of various nondiscriminatory opt-in and
opt-out provisions. Under such legislation, each state has the opportunity to
"opt-in" at an earlier time thereby allowing interstate banking in that state
prior to 1997, or to "opt-out". Furthermore a state may opt-in with respect to
de novo branching thereby permitting a bank to open new branches in a state in
which the bank does not already have a branch. Without de novo branching, an
out-of-state bank can enter the state only by acquiring an existing bank.
Antitrust and anti-concentration restrictions will apply as described above.
It will not be necessary to keep multiple state charters in effect or to have a
holding company system. Generally, all banks that are parties to a proposed
post-1997 merger must satisfy applicable CRA, management quality, and capital
adequacy standards.
In this context, the Florida legislature enacted legislation in 1994
which specifically authorizes out-of-state bank holding companies located in
any state or the District of Columbia that meet certain prescribed criteria to
acquire Florida banks or bank holding companies, subject to the prior approval
of the Florida
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Department of Banking and Finance. Entry into the State of Florida by
interstate branching or by means other than such an acquisition is expressly
prohibited by the Florida Reciprocal Banking Act.
Proposals to change the laws and regulations governing the banking
industry are frequently introduced in Congress, in state legislatures, and
before the various bank regulatory agencies. The likelihood and timing of any
such changes and the potential impact of such changes on the Company or the
Bank cannot be determined at this time.
Bank Regulation
General. The Bank is a national banking association subject to the
supervision of, and regular examination by, the OCC and to a limited extent,
the supervision of the FDIC and the FRB.
The operations of the Bank are subject to state and federal statutes
applicable to national banks and the regulations of the OCC, the FRB and the
FDIC. The FDIC insures the deposits of the Bank to the current maximum allowed
by law. Such statutes and regulations relate to required reserves against
deposits, investments, loans, mergers and consolidations, issuance of
securities, payment of dividends, establishment of branches, and other aspects
of the Bank's operations. Various consumer laws and regulations also affect
the operations of the Bank, including state usury laws, laws relating to
fiduciaries, consumer credit and equal credit, and fair credit reporting.
Under the provision of the Federal Reserve Act, the Bank is subject to certain
restrictions on any extensions of credit to the Company or, with certain
exceptions, other affiliates, on investments in the stock or other securities
of national banks, and on the taking of such stock or securities as collateral.
These regulations and restrictions may limit the Company's ability to obtain
funds from the Bank for its cash needs, including funds for acquisitions, and
the payment of dividends, interest and operating expenses. Further, the Bank
is prohibited from engaging in certain tie-in arrangements in connection with
any extension of credit, lease or sale of property or furnishing of service.
For example, the Bank may not generally require a customer to obtain other
services from the Bank or the Company, and may not require the customer to
promise not to obtain other services from a competitor, as a condition to an
extension of credit. The Bank also is subject to certain restrictions imposed
by the Federal Reserve Act on extensions of credit to executive officers,
directors, principal shareholders or any related interest of such persons.
Extensions of credit (i) must be made on substantially the same terms,
including interest rates and collateral as, and following credit underwriting
procedures that are not less stringent than those prevailing at the time for
comparable transactions with persons not covered above and who are not
employees and (ii) must not involve more than the normal risk of repayment or
present other unfavorable features. The Bank also is subject to certain
lending limits and restrictions on overdrafts to such persons. A violation of
these restrictions may result in the assessment of substantial civil monetary
penalties on the Bank or any officer, director, employee, agent or other person
participating in the conduct of the affairs of the Bank or the imposition of a
cease and desist order.
Dividends. Under various banking laws, the declaration and payment of
dividends by a national banking institution is subject to certain restrictions,
including those relating to the amount and frequency of such dividends. Under
the FDICIA, an insured depository institution is prohibited from making any
capital distribution to its owner, including any dividend, if, after making
such distribution, the depository institution fails to meet the required
minimum level for any relevant capital measure, including the risk-based
capital adequacy and leverage standards described below. Furthermore, the OCC,
the primary regulator of national banking institutions, not only has
established other certain financial requirements which affect the ability of a
banking institution to pay dividends, but it also has the general authority to
prohibit the payment of a dividend if it determines that the payment thereof
constitutes an unsafe or unsound practice.
Capital Adequacy Guidelines
Minimum Capital Requirements. The FRB, the OCC, and the FDIC have
adopted substantially similar risk-based capital guidelines for bank holding
companies and banks under their supervision. The risk-based capital guidelines
are designed to make regulatory capital requirements more sensitive to
differences in risk profile among banks and bank holding companies, to account
for off-balance sheet exposure, and to minimize
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disincentives for holding liquid assets. Under these guidelines, assets and
off-balance sheet items are assigned to broad risk categories each with
appropriate weights. The resulting capital ratios represent capital as a
percentage of total risk-weighted assets and off-balance sheet items. In
addition, these regulatory agencies may from time to time require that a
banking organization maintain capital above the minimum limits, whether because
of its financial condition or actual or anticipated growth.
The FRB risk-based capital guidelines define a two-tier capital
framework. Under these regulations, the minimum ratio of total capital to
risk-weighted assets (including certain off-balance sheet activities, such as
stand-by letters of credit) is 8%. At least half of the total capital must be
"Tier I Capital," consisting of common shareholders' equity, noncumulative
perpetual preferred stock, and a limited amount of cumulative perpetual
preferred stock, less certain goodwill items and other intangible assets (i.e.,
at least 4% of the risk weighted assets). The remainder ("Tier II Capital")
may consist of (a) the allowance for loan losses of up to 1.25% of
risk-weighted risk assets, (b) excess of qualifying perpetual preferred stock,
(c) hybrid capital instruments, (d) perpetual debt, (e) mandatory convertible
securities, and (f) subordinated debt and intermediate term-preferred stock up
to 50% of Tier I capital. Total capital is the sum of Tier I and Tier II
capital less reciprocal holdings of other banking organizations' capital
instruments and investments in unconsolidated subsidiaries and any other
deductions as determined by the FRB (determined on a case by case basis or as a
matter of policy after formal rule making).
In computing total risk-weighted assets, bank holding company assets
are given risk-weights of 0%, 20%, 50% and 100%. In addition, certain
off-balance sheet items are given similar credit conversion factors to convert
them to asset equivalent amounts to which an appropriate risk-weight will
apply. These computations result in the total risk-weighted assets. Most
loans will be assigned to the 100% risk category, except for first mortgage
loans fully secured by residential property which carry a 50% risk rating.
Most investment securities (including, primarily, general obligation claims on
states or other political subdivisions of the United States) will be assigned
to the 20% category, except for municipal or state revenue bonds, which have a
50% risk-weight, and direct obligations of the U.S. treasury or obligations
backed by the full faith and credit of the U.S. Government, which have a 0%
risk-weight. In converting off-balance sheet items, direct credit substitutes
including general guarantees and standby letters of credit backing financial
obligations, are given a 100% conversion factor. Transaction related
contingencies such as bid bonds, standby letters of credit backing
non-financial obligations, and undrawn commitments (including commercial credit
lines with an initial maturity or more than one year) have a 50% conversion
factor. Short term or trade letters of credit are converted at 20% and certain
short-term unconditionally cancelable commitments have a 0% factor.
As of December 31, 1995, the total risk-based capital ratio of the
Company and the Bank were 12.57% and 11.59%, respectively. In addition to the
risk-based capital guidelines, the FRB and the FDIC also have adopted a
leverage standard to supplement the risk-based ratios. This leverage standard
focuses on the banking institution's ratio of Tier I capital to average total
assets, adjusted for goodwill and certain other items. Under these guidelines,
banking institutions which have received the highest regulatory rating and
exhibit certain other high standards, must maintain a minimum level of Tier I
capital to average consolidated assets of at least 3%. All other banking
institutions are expected to maintain a ratio of at least 1% or 2% above the
stated minimum. As of December 31, 1995, the leverage capital ratio of the
Company and the Bank were 11.16% and 7.88%, respectively.
Banking agencies have recently adopted final regulations which require
regulators to take into consideration concentrations of audit risk and risks
from non-traditional activities, as well as an institution's ability to manage
those risks. This evaluation will be made as part of the institution's regular
safety and soundness examination. In addition, pursuant to the requirements of
the FDICIA, federal banking agencies all have adopted final regulations
requiring regulators to consider interest rate risk (when interest rate
sensitivity of an institution's assets does not match its liabilities or its
off-balance sheet position) in the evaluation of a bank's capital adequacy.
Concurrently, banking agencies have prepared a new methodology for evaluating
interest rate risk. After gaining experience with the proposed measurement
process, the banking agencies intend to propose further regulations to
establish an explicit risk-based capital charges for interest rate risk.
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Classification of Banking Institutions. FDICIA substantially revised
the bank regulatory and funding provisions of the FDI Act and made revisions to
several other federal banking statutes. Among other things, the FDICIA
provided federal banking agencies broad powers to take "prompt corrective
action" in respect of depository institutions that do not meet minimum capital
requirements. The extent of those powers depend upon whether the institutions
in question are "well capitalized," "adequately capitalized,"
"undercapitalized," "significantly undercapitalized," or "critically
undercapitalized." A depository institution's capital tier will depend upon
where its capital levels are in relation to various relevant capital measures,
which include a risk-based capital measure and a leverage ratio capital
measure, and certain other factors.
Under implementing regulations adopted by the federal banking
agencies, a bank will be considered "well capitalized" if it has (i) a total
risk-based capital ratio of 10% or greater, (ii) a Tier I risk-based capital
ratio of 6% or greater, (iii) a leverage ratio of 5% or greater, and (iv) is not
subject to any order or written directive to meet and maintain a specific
capital level for any capital measure. An "adequately capitalized" bank would
be defined as one that has (i) a total risk-based capital ratio of 8% or
greater, (ii) a Tier I risk-based capital ratio of 4% of greater, and (iii) a
leverage ratio of 4% or greater (or 3% or greater in the case of a bank with a
composite CAMEL rating of 1). A bank would be considered (A)
"undercapitalized" if it has (i) a total risk-based capital ratio of less than
8%, (ii) a Tier I risk-based capital ratio of less than 4%, or (iii) a leverage
ratio of less than 4% (or 3% in the case of a bank with a composite CAMEL
rating of 1); (B) "significantly undercapitalized" if the bank has (i) a total
risk-based capital ratio of less than 6%, or (ii) a Tier I risk-based capital
ratio of less than 3%, or (iii) a leverage ratio of less than 3%; and (C)
"critically undercapitalized" if the bank has a ratio of tangible equity to
total assets equal to or less than 2%. The FRB may reclassify a "well
classified" bank as "adequately capitalized" or subject an "adequately
capitalized" or "undercapitalized" institution to supervisory actions
applicable to the next lower capital category if it determines that the bank is
in an unsafe or unsound condition or deems the bank to be engaged in an unsafe
or unsound practice and not have corrected the deficiency. The Bank currently
meets the definition of a "well capitalized" institution.
FDICIA
FDICIA was enacted on December 19, 1991. Some of the more significant
provisions of FDICIA are outlined below:
Real Estate Lending Policies. Pursuant to FDICIA, the FRB, the OCC,
and the other federal banking agencies adopted real estate lending guidelines
pursuant to which each insured depository institution is required to adopt and
maintain written real estate lending policies in conformity with the prescribed
guidelines. Under these guidelines, each institution is expected to set loan
to value ratios not exceeding the supervisory limits set forth in the
guidelines. A loan to value ratio is generally defined as the total loan
amount divided by the appraised value of the property at the time the loan is
originated. The guidelines also require that the institution's real estate
policy require proper loan documentation and that it establishes prudent
under-writing standards. These guidelines became effective on March 19, 1993.
Truth in Savings Act. The FDICIA also contains the Truth in Savings
Act. The FRB adopted regulations Regulation DD under the Truth in Savings Act
that was effective on June 21, 1993. The purpose of the Truth in Savings Act
is to require the clear and uniform disclosure of the rates of interest which
are payable on deposit accounts by depository institutions and the fees that
are assessable against deposit accounts, so that consumers can make a
meaningful comparison between the competing claims of financial institutions
with regard to deposit accounts and products.
Brokered Deposits. The FDICIA also amended the prior law with respect
to the acceptance of brokered deposits by insured depository institutions to
permit only a "well capitalized" depository institution to accept brokered
deposits without prior regulatory approval. Under implementing regulations,
"well capitalized" banks may accept brokered deposits without restriction,
"adequately capitalized" banks may accept brokered deposits with a waiver from
the FDIC (subject to certain restrictions on payments of rates), while
"undercapitalized" banks may not accept brokered deposits. The regulations
contemplate that the definitions of "well capitalized," "adequately
capitalized" and "undercapitalized" will be the same as the definitions
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adopted by the agencies to implement the prompt corrective action provisions of
the FDICIA (as described above).
Other FDICIA Provisions. To facilitate the early identification of
problems, the FDICIA, among other things, directed federal banking agencies to
prescribe more stringent accounting and reporting requirements than those
required by generally accepted accounting principles. In September 1992, the
FDIC issued a notice of proposed rules which, among other things, would require
that management report on the institution's responsibility for preparing
financial statements and establishing and maintaining an internal control
structure and procedures for financial reporting and compliance with laws and
regulations concerning safety and soundness, and that independent auditors
attest to and report separately on assertions in management's reports
concerning compliance with such laws and regulations, using FDIC-approved
audit procedures.
The FDICIA further requires federal banking agencies to develop
regulations requiring disclosure of contingent assets and liabilities and, to
the extent feasible and practicable, supplemental disclosure of the estimated
fair market value of assets and liabilities. The FDICIA also requires
examinations of all insured depository institutions by the appropriate federal
banking agency, with some exceptions for small, well-capitalized institutions
and state-chartered institutions examined by state regulators. Moreover, the
FDICIA, modified by the Federal Enterprises Financial Safety and Soundness Act,
requires the federal banking agencies to set operational and managerial, asset
quality, earnings and stock valuation standards for insured depository
institutions and depository institution holding companies (including bank
holding companies such as the Company), as well as compensation standards for
insured depository institutions that prohibit excessive compensation, fees or
benefits to officers, directors, employees and principal stockholders. In July
1992, the federal banking agencies issued a joint advance notice of proposed
rule making soliciting comments on all aspects of the implementation of these
standards in accordance with the FDICIA, including whether the compensation
standards should apply to depository institution holding companies.
FDIC Insurance Premiums
The Bank is required to pay semiannual FDIC deposit insurance
assessments. However, the FDIC has recently lowered assessment rates in
recognition of the fact that the Bank Insurance Fund ("BIF") has achieved its
legally mandated reserve ratio. Under the new rate structure, the most
financially sound banks have had their assessment lowered from 23 cents per
$100 of insured deposits to 4 cents per $100 of insured deposits. Banks that
overpaid assessments during the first half of the year have received
appropriate refunds. Each financial institution is assigned to one of three
capital groups - well capitalized, adequately capitalized or undercapitalized -
and further assigned to one of three subgroups - with a capital group, on the
basis of supervisory evaluations by the institution's primary federal and, if
applicable, state supervisors and other information relevant to the
institution's financial condition and the risk posed to the applicable FDIC
deposit insurance fund. The actual assessment rate applicable to a particular
institution (and any applicable refund) will, therefore, depend in part upon
the risk assessment classification so assigned to the institution by the FDIC.
The FDIC is authorized by federal law to raise insurance premiums in
certain circumstances. Any increase in premiums would have an adverse effect
on the Bank and the Company's earnings.
Under the FDICIA, insurance of deposits may be terminated by the FDIC
upon a finding that the institution has engage in unsafe and unsound practices,
is in an unsafe or unsound condition to continue operations or have violated
any applicable law, regulation, rule, order or condition imposed by a federal
bank regulatory agency.
Due to recent changes in deposit insurance premiums assessed by the
FDIC, the Bank's annual FDIC premiums will be reduced by approximately $157,000
(based on current deposit balances) effective in 1996. The Bank received a
refund of approximately $74,000 in September 1995 as payment of the refund due
for the applicable portion of 1995.
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Depositor Preference
The Omnibus Budget Reconciliation Act of 1993 provides that deposits
and certain claims for administrative expenses and employee compensation
against an insured depository institution would be afforded a priority over
other general unsecured claims against such an institution, including federal
funds and letters of credit, in the "liquidation or other resolution" of such
an institution by any receiver.
Monetary Policy And Economic Control
The commercial banking business in which the Bank engages is affected
not only by general economic conditions, but also by the monetary policies of
the FRB. Changes in the discount rate on member bank borrowing, availability
of borrowing at the "discount window," open market operations, the imposition
of changes in reserve requirements against members banks' deposits and assets
of foreign branches and the imposition of and changes in reserve requirements
against certain borrowings by banks and their affiliates are some of the
instruments of monetary policy available to the FRB. These monetary policies
are used in varying combinations to influence overall growth and distributions
of bank loans, investments and deposits, and this use may affect interest rates
charged on loans or paid on deposits. The monetary policies of the FRB have
had a significant effect on the operating results of commercial banks and are
expected to do so in the future. The monetary policies of these agencies are
influenced by various factors, including inflation, unemployment, short-term
and long-term changes in the international trade balance and in the fiscal
policies of the United States Government. Future monetary policies and the
effect of such policies on the future business and earnings of the Company
cannot be predicted.
COMPETITION
The Bank encounters strong competition both in making loans and
attracting deposits. The deregulation of the banking industry and the
widespread enactment of state laws which permit multi-bank holding companies as
well as a degree of interstate banking has created a highly competitive
environment for commercial banking in the Bank's primary market area. In one
or more aspects of its business, the Bank competes with other commercial banks,
savings and loan associations, credit unions, finance companies, mutual funds,
insurance companies, brokerage and investment banking companies, and other
financial intermediaries operating in the Cape Coral area and elsewhere. Most
of these competitors, some of which are affiliated with large bank holding
companies, have substantially greater resources and lending limits, and may
offer certain services, such as trust services, that the Bank does not
currently provide. In addition, many of the Company's non-bank competitors are
not subject to the same extensive federal regulations that govern bank holding
companies and federal chartered and insured banks.
The Bank's primary market area is served by 13 commercial banks with
77 offices in the Cape Coral/Fort Myers area, 1 savings and loan association
with 1 office, and 3 savings banks with 15 offices, for a total of 93 offices.
As of September 30, 1995, the total reported deposits in the primary market
area were approximately $3.2 billion. As of that date, the largest bank in the
Cape Coral/Fort Myers area was NationsBank of Florida, N.A., a subsidiary of
NationsBank Corporation, which is a large bank holding company headquartered in
Charlotte, North Carolina. As of December 31, 1995, NationsBank of Florida,
N.A. had assets of approximately $845 million.
Management believes that the Company and the Bank are well positioned
to compete successfully in its primary market area, although no assurances can
be given. Competition among financial institutions is based upon interest
rates offered on deposit accounts, interest rates charged on loans and other
credit and service charges, the quality of the services rendered, the
convenience of banking facilities, and, in the case of loans to commercial
borrowers, relative lending limits. As the only independent community bank
headquartered in Cape Coral, management believes that the Bank's community
commitment and involvement in its primary market area, as well as its
commitment to quality, personalized banking services, are factors that
contribute to the Bank's competitiveness.
-15-
<PAGE> 18
EMPLOYEES
At December 31, 1995, the Company and the Bank together employed 79
full-time and 6 part-time employees. None of these employees are covered by a
collective bargaining agreement and the Company believes that its employee
relations are good.
STATISTICAL DISCLOSURES REQUIRED BY INDUSTRY GUIDE 3
The statistical information contained on pages 15 through 29 of the
Annual Report to Shareholders is incorporated herein by reference.
ITEM 2. DESCRIPTION OF PROPERTY
The executive and administrative offices of the Company are located at
2724 Del Prado Boulevard South, Cape Coral, Florida. This building, located at
the northwest corner of Shelby Parkway and Del Prado Boulevard South, also
serves as the banking facilities of the Bank's main office. Both the building
and the 50,400 square foot piece of commercial property on which it is situated
are owned by the Bank. The Bank's offices occupy 12,000 square feet of the
building. The remaining space is occupied by one other tenant. The Bank's
main office includes six inside teller stations, four outside drive-in teller
operations, one 24-hour outside automatic teller machine, and three inside
customer representative positions. The property on which the Del Prado office
is situated originally was 115,000 square feet. In 1995, the Bank and the
Company sold an aggregate of 64,600 square feet of the excess property located
north of the Del Prado office for an aggregate sales price of $950,000, or
approximately $14.70 per square foot, for a one time gain of $263,965.
The Company also owns the building and property located at 859 Cape
Coral Parkway, Cape Coral, Florida, which houses the Bank's Cape Coral Parkway
Branch. This facility consists of approximately 3,000 square feet and includes
four inside teller stations, four outside drive-in teller operations, and two
inside customer representative positions.
The Company occupies offices located at 2915 Colonial Boulevard, Fort
Myers, Florida. This building houses the Bank's Colonial-Metro Branch office.
This property consists of 9,400 square feet occupying all of the first floor of
the structure, including a drive-through facility. The facility is leased
under a commercial lease agreement executed in July 1992. The term of the
lease is for five years commencing on the date of occupancy, November 1992, and
the Bank holds two five-year renewal options. The lease provides for the
payment of $174,000 annual rent, which includes common area maintenance,
subject to certain adjustments, payable in monthly installments throughout the
term of the lease.
The Company owns the building and property located at 1530 Santa
Barbara Boulevard, Cape Coral, Florida, which houses the Bank's Trafalgar
Branch. The property is owned in fee simple by the Company. The Company has
relocated its 3,000 square foot modular facility to this 61,700 square foot
property to serve as the banking facility at the Trafalgar Branch. This office
has four teller stations, three drive through lanes, and an ATM machine. The
Bank leases the property from the Company. The term of the lease is through
March 30, 2005, and the Bank holds two-five year renewal options. The lease
provides for the payment of $36,000 annual rent, payable in monthly
installments throughout the term of the lease.
The Satellite Office is located on the premises of a local retirement
community where it services the needs of the Community's members from a rent
free office of approximately 100 square feet in size located off the reception
area of the retirement community.
The Residential Mortgage Lending Department has been relocated to
4417 SE 16th Place, Unit 11, Cape Coral, Florida. The facility was leased by
the Bank for a one year term which expired in February 1996. The lease
provided the Bank with an option to renew the lease for an additional year
period, which option the Bank has exercised. The lease provides for annual
rent of $19,500, payable in monthly installments.
-16-
<PAGE> 19
Management believes that each of its banking locations provide
sufficient parking for its customers as well as visibility from highly
travelled thoroughfares.
ITEM 3. LEGAL PROCEEDINGS
The Company and the Bank are periodically parties to, or otherwise
involved in, legal proceedings arising in the normal course of business, such as
claims to enforce liens, foreclose on loan defaults, claims involving the
making and servicing of real property loans, and other issues incident to the
Bank's business. Management does not believe that there is any proceeding
threatened or pending against the Company or the Bank which, if determined
adversely, would have a material effect on the business or financial position
of the Company or the Bank.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
There were no matters submitted to a vote of the Company's securities
holders during the fourth quarter of its fiscal year ended December 31, 1995.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
MARKET FOR COMMON STOCK
The Company's Common Stock is quoted by the NASDAQ National Market
System ("NASDAQ-NMS") under the symbol WBAN. At the close of business on
February 29, 1996, there were outstanding 1,544,466 shares of Common Stock
which were held by approximately 1,500 shareholders of record.
The following table sets forth the high and low closing sales prices
for the Common Stock as quoted by NASDAQ- NMS for the periods indicated, and
the cash dividends paid per share by the Company.
<TABLE>
<CAPTION>
CASH DIVIDEND
HIGH LOW PAID PER SHARE
---- --- --------------
1994
<S> <C> <C> <C>
First Quarter . . . . . . . . . . . . . . . . . . . . . $ 13.00 $ 11.75 $.05
Second Quarter . . . . . . . . . . . . . . . . . . . . . $ 12.75 $ 11.00 $.05
Third Quarter . . . . . . . . . . . . . . . . . . . . . $ 12.50 $ 11.50 $.05
Fourth Quarter (through December 31, 1993) . . . . . . . $ 12.50 $ 11.00 $.05
1995
First Quarter . . . . . . . . . . . . . . . . . . . . . $ 12.375 $ 11.75 $.05
Second Quarter . . . . . . . . . . . . . . . . . . . . . $ 15.00 $ 12.25 $.05
Third Quarter . . . . . . . . . . . . . . . . . . . . . $ 15.75 $ 13.50 $.06
Fourth Quarter . . . . . . . . . . . . . . . . . . . . . $ 16.50 $ 15.00 $.06
1996
First Quarter (through February 29, 1996) . . . . . . . $ 15.50 $ 14.25
</TABLE>
On February 29, 1996, the last reported sale price of the Common Stock
as quoted by NASDAQ-NMS was $14.25 per share.
Holders of the Company's Common Stock are entitled to receive
dividends when and if declared by its Board of Directors out of funds legally
available therefor. The Company has declared and paid a regular
-17-
<PAGE> 20
quarterly cash dividend since the third quarter of 1993. Prior to this time,
the Company had not paid any cash dividends to its shareholders. During 1995,
the Company paid dividends to its shareholders on February 13, May 15, August
14, and November 16. The annual dividend was increased from $.20 per share to
$.24 per share (or an increase of 20%) beginning in the third quarter of 1995.
The Company is a legal entity separate and distinct from the Bank and
its revenues are derived principally from the Bank. Accordingly, the ability
of the Company to pay cash dividends on its Common Stock in the future
generally will be largely dependent upon the earnings of the Bank and the
ability of the Bank to pay dividends to the Company. The Bank, as a nationally
chartered bank, is subject to certain legal restrictions on the amount of
dividends it is permitted to pay. The amount of cash dividends that may be
paid is based on the Bank's net profits during the current year combined with
the Bank's retained net profits of the proceeding two years, as defined by
applicable OCC regulations. At December 31, 1995, the Bank had approximately
$2,900,000 available for the payment of cash dividends to the Company as
determined by applicable regulations.
The payment of dividends by the Bank is subject to a determination by
the Bank's Board of Directors and will depend upon a number of factors,
including capital requirements, regulatory limitations, the Bank's results of
operations and financial condition, tax considerations, and general economic
conditions. National banking laws regulate and restrict the ability of the
Bank to pay dividends to the Company. The OCC, which regulates the Bank, not
only has established certain financial and capital requirements that affect the
ability of the Bank to pay dividends, but it also has the general authority to
prohibit the Bank from engaging in an unsafe or unsound practice in conducting
its business. Depending upon the financial condition of the Bank, the payment
of cash dividends could be deemed to constitute such an unsafe or unsound
practice. See "Item 1. Business - Supervision and Regulation -- Bank
Regulation."
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
"Management's Discussion and Analysis of Financial Condition" on pages
11 through 30 of the Annual Report to Shareholders is incorporated herein by
reference.
ITEM 7. FINANCIAL STATEMENTS
The "Consolidated Financial Statements" and the "Report of Independent
Accountants" on pages 31 through 53 and page 50, respectively, are incorporated
herein by reference.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
Not Applicable.
-18-
<PAGE> 21
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Information required by Item 9 of Form 10-KSB is incorporated herein
by reference to the Registrant's definitive Proxy Statement for the 1996 Annual
Meeting of Shareholders which will be filed with the Securities and Exchange
Commission no later than 120 days after the close of the Registrant's fiscal
year.
ITEM 10. EXECUTIVE COMPENSATION
Information required by Item 10 of Form 10-KSB is incorporated herein
by reference to the Registrant's definitive Proxy Statement for the 1996 Annual
Meeting of Shareholders which will be filed with the Securities and Exchange
Commission no later than 120 days after the close of the Registrant's fiscal
year.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
Information required by Item 11 of Form 10-KSB is incorporated herein
by reference to the Registrant's definitive Proxy Statement for the 1996 Annual
Meeting of Shareholders which will be filed with the Securities and Exchange
Commission no later than 120 days after the close of the Registrant's fiscal
year.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information required by Item 11 of Form 10-KSB is incorporated herein
by reference to the Registrant's definitive Proxy Statement for the 1996 Annual
Meeting of Shareholders which will be filed with the Securities and Exchange
Commission no later than 120 days after the close of the Registrant's fiscal
year.
ITEM 13. EXHIBITS, LISTS AND REPORTS ON FORM 8-K
(A) EXHIBITS
3.1 -- Articles of Incorporation of the Company, incorporated herein
by reference to Exhibit 3.1 to the Company's Registration
Statement on Form S-18 (Registration No. 33-19069-A)
previously filed with the Commission.
3.2 -- Articles of Amendment to the Articles of Incorporation,
incorporated by reference herein to Exhibit 3.2 to the
Company's Registration Statement on Form SB-2 (Registration
No. 33-59954) previously filed with the Commission.
3.3 -- By-Laws of the Company, incorporated herein by reference to
Exhibit 3.2 to the Company's Registration Statement on Form
S-18 (Registration No. 33-19069-A) and previously filed with
the Commission.
-19-
<PAGE> 22
4.1 -- See Exhibits 3.1, 3.2 and 3.3 for provisions of the Articles
of Incorporation, as amended and the By- Laws of the Company
defining the rights of holders of the Company's Common Stock.
4.2 -- Form of Warrant dated December 17, 1993 issued to certain
directors of the Company.
10.1 -- Commercial Lease, dated July 22, 1992, by and between Founders
National Trust Bank and the Bank for lease of the Fort Myers
branch office location, incorporated herein by reference to
Exhibit 10.1 to the Company's Registration Statement on Form
SB-2 (Registration No. 33-59954) previously filed with the
Commission.
*10.2 -- Lease, dated January 1, 1996, by and between First National
Bank of Southwest Florida and West Coast Bancorp, Inc. for
lease of Trafalgar Branch office location.
*10.3 -- Lease, dated February 1, 1995, by and between First National
Bank of Southwest Florida and Devic Rentals for lease of the
residential mortgage loan department location.
10.4 -- Employee Incentive Stock Option Plan, dated December 16, 1987,
incorporated herein by reference to Exhibit 4.2 to the
Company's Registration Statement on Form S-18 (Registration
No. 33-19069-A) previously filed with the Commission.
10.5 -- Nonstatutory Stock Option Plan with Stock Appreciation Rights,
adopted March 19, 1992, and Form of Nonstatutory Stock Option
Plan Agreement, incorporated herein by reference to Exhibit
10.3 to the Company's Registration Statement on Form SB-2
(Registration No. 33-9954) previously filed with the
Commission.
10.6 -- Data Processing Service Agreement, dated October 20, 1993, by
and between the Bank and First Integrated Systems (effective
February 20,1994).
10.7 -- Employment Agreement, dated January 1, 1994, by and among the
Company, the Bank and Michael P. Geml, President of the
Company and the Bank.
*13.1 -- Annual Report to Shareholders for the year ended December 31,
1995("Annual Report") filed herewith. Such Annual Report,
except for those portions thereof that are expressly
incorporated by reference herein, is furnished for the
information of the Securities and Exchange Commission only and
is not deemed to be "filed" as part of this Annual Report on
Form 10- KSB.
21.1 -- Subsidiaries of the Company, incorporated herein by reference
to Exhibit 22 to the Company's Annual Report on Form 10-K for
the year ended December 31, 1988 (33-19069).
*27.1 -- Financial Data Schedule (for SEC use only)
-------------------------
(*) Exhibit filed herewith.
(B) REPORTS ON FORM 8-K
None.
-20-
<PAGE> 23
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act
of 1934, the registrant has caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
WEST COAST BANCORP, INC.
Date: March 21, 1996 By:/s/ Michael P. Geml
------------------------------
Michael P. Geml
President and Chief Executive
Officer
In accordance with the Securities Exchange Act of 1934, this report has
been signed below by the following persons on behalf of the Registrant and in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Thomas R. Cronin Chairman of the Board March 21, 1996
- --------------------------------------
Thomas R. Cronin
/s/ Michael P. Geml President, Chief Executive Officer and March 21, 1996
- ------------------------------------- Director (Principal Executive Officer)
Michael P. Geml
/s/ Jeffrey C. Ledward Principal Accounting Officer and Director March 21, 1996
- -------------------------------------
Jeffrey C. Ledward
/s/ Joseph G. Howard Director March 21, 1996
- -------------------------------------
Joseph G. Howard
/s/ James B. McMenamy Director March 21, 1996
- -------------------------------------
James B. McMenamy
/s/ Robert C. Adamski Director March 21, 1996
- -------------------------------------
Robert C. Adamski
/s/ Harland F. Simonds, Jr. Director March 21, 1996
- -------------------------------------
Harland F. Simonds, Jr.
/s/ Stephen R. Zellner Director March 21, 1996
- -------------------------------------
Stephen R. Zellner
/s/ Robert E. McCormack Director March 21, 1996
- -------------------------------------
Robert E. McCormack
/s/ William S. Hussey Director March 21, 1996
- -------------------------------------
William S. Hussey
/s/ Nicholas J. Panicaro Chief Financial Officer March 21, 1996
- ------------------------------------- (Principal Financial Officer)
Nicholas J. Panicaro
</TABLE>
<PAGE> 1
EXHIBIT 10.2
<PAGE> 2
EXHIBIT 10.2
Return to: (enclose self-addressed stamped envelope)
Name:
Address:
This Instrument Prepared by:
Address:
LEASE
This Indenture, Made the 1st day of January, A.D. 1996 Between West
Coast Bancorp, Inc., a Florida Corporation hereinafter called the lessor, which
term shall include heirs and assigns, where the context so requires or
admits, of the one part; and First National Bank of Southwest Florida
hereinafter called the lessee , which term shall include executors and
administrators, wherever the context so requires or admits, of the other part.
WITNESSETH: That the said lessor hereby lease and demise unto
the said lessee
Property at 1530 Santa Barbara Boulevard, Cape Coral, Lee County
Florida. To be used and occupied by the lessee as a financial banking center.
TO HAVE AND TO HOLD the premises unto the said lessee ,
executors and administrators, from the 1st day of January, A.D. 1996 for the
term of 120 months then next ensuing, the said lessee yielding and paying to
the said lessor the rental of Three Thousand Dollars, plus applicable sales tax
Dollars ($3,000.00), said rent to be paid in advance, without demand in monthly
payments, the first payment of Dollars ($3,000.00 plus tax), on the
1st day of January, A.D. 1996, which said sum has been paid and acknowledged
herein, and the remaining payments as follows, namely:
119 Monthly Payments of $3,000.00 plus applicable sales tax. Due the
first day of each month, and ending on the 30th day of March, 2005.
Two renewal options - same terms as above.
THE LESSEE hereby covenant with the lessor that will pay the
rent herein reserved at the times and in the manner aforesaid; and will pay all
charges for gas, electricity and other illuminant, and for all water used on
said premises; and that should said rent or charges for light or water herein
provided for at any time remain due and unpaid for the space of days after
the same shall have become due, the said lessor may, at option, consider
the said lessee tenant at sufferance and immediately re-enter upon said
premises and the entire rent for the rental period then next ensuing shall at
once be due and payable and may forthwith be collected by distress or
otherwise; and will not use or permit the premises to be used for any illegal
or improper purposes, nor permit any disturbance, noise or annoyance
whatsoever, detrimental to the premises or to the comfort of the other
inhabitants of said building or its neighbors; and will not sublet or assign
this lease nor any part thereof without the written consent of the lessor ,
and will keep the interior of the premises, and also the windows and doors
thereof, and the fixtures therein, and all the interior walls, pipes and other
appurtenances, in good and substantial repair and clean condition, damage by
fire or storm excepted; and will exercise all reasonable care in the use of
halls, stairs, bathroom, closets, piazzas and other fixtures and parts of said
premises used in common with other tenants in said building which may be
necessary for the preservation of the property and the comfort of the other
tenants; and will also permit the lessor or agents or employees at all
reasonable times, to enter into the premises and view the conditions thereof,
and make such repairs as may be necessary; and will at the expiration of said
term, without demand, quietly and peaceably deliver up the possession of said
premises in good state and condition, damage or destruction by fire or storm
excepted.
<PAGE> 3
THE LESSOR hereby covenant with the lessee upon the performance by the
lessee of the covenants hereinbefore set forth, that the said lessor will,
during the continuance of said term, keep all the external parts of the
premises in good repair; that in case the said buildings and premises, or any
part thereof, shall at any time be destroyed or so damaged by fire or storm as
to be unfit for occupation or use, said lessor shall have the option to
terminate this lease, or to repair and rebuild the said premises, remitting the
rents hereby reserved, or a fair and just portion thereof, according to the
damage sustained, until the said premises are reinstated and made fit for
occupancy and use; and that the lessee may quietly hold and enjoy the premises
without any interruption by the lessor or any person claiming through or under
the lessor. Provided that on the breach of any of the covenants by the lessee
herein, contained, the lessor may re-enter said premises and immediately
thereupon the said term shall be terminated.
And said lessee hereby pledge and assign to the lessor all of the
furniture, fixtures, goods, and chattels of said lessee which are or may be
brought or put on said premises, as security for the payment of the rent herein
reserved, agree that the said lien may be enforced by distress, foreclosure or
otherwise, at the election of the said lessor; and said lessee hereby waive all
right of homestead or exemption in said furniture, fixtures, goods and chattels
to which may be entitled under the Constitution and laws of this State; and in
case of the failure of the lessee to pay the rent herein reserved when the same
shall become due, and the same is collected by suit or through an attorney, the
lessee agree to pay the lessor an attorney's fee of ten per cent of the amount
so collected or found due, together with all costs and charges thereof.
RADON GAS NOTIFICATION (the following notification may be required in
some states): Radon is a naturally occurring radioactive gas that, when it has
accumulated in a building in sufficient quantities, may present health risks to
persons who are exposed to it over time. Levels of radon that exceed federal
and state guidelines have been found in buildings. Additional information
regarding radon and radon testing may be obtained from your county public
health unit.
IN WITNESS WHEREOF, the said parties have hereunto set their hands and
seals the 1st day of January, 1996
<TABLE>
<S> <C>
Signed, sealed and delivered in the presence of:
/s/ Kathleen F. Barney /s/ Michael P. Gemi
- ------------------------------------------------- -----------------------------------------------
Witness Signature (as to Lessor) Lessor Signature
Kathleen F. Barney Michael P. Geml, President. West Coast Bancorp,
- ------------------------------------------------- -----------------------------------------------
Printed Name Printed Name
/s/ Kathy Ragland P.O. Box 1467
- ------------------------------------------------- -----------------------------------------------
Witness Signature (as to Lessor) Post Office Address
Kathy Ragland Cape Coral, FL 33910-1467
- ------------------------------------------------- -----------------------------------------------
Printed Name /s/ Nicholas J. Panicaro
-----------------------------------------------
/s/ Kathleen F. Barney Lessee Signature
- -------------------------------------------------
Witness Signature (as to Lessee) Nicholas J. Panicaro, SVP, First National Bank
of Southwest FL
Kathleen F. Barney -----------------------------------------------
- ------------------------------------------------- Printed Name
Printed Name
P.O. Box 1467
/s/ Kathy Ragland -----------------------------------------------
- ------------------------------------------------- Post Office Address
Witness Signature (as to Lessee)
Cape Coral, FL 33910-1467
Kathy Ragland ------------------------------------------------
- -------------------------------------------------
Printed Name
STATE OF FLORIDA
) I hereby Certify that on this day, before me, an officer
COUNTY OF LEE duly authorized to administer oaths and take
) acknowledgements, personally appeared
Michael P. Geml and Nicholas J. Panicaro
- -----------------------------------------------------------------------------------------------------------------------------------
known to me to be the person ___ described in and who executed the foregoing instrument, who acknowledged before me that they
executed the same, and an oath was not taken. (Check one :) /x/ Said person(s) is/are personally known to me. /x/ Said person(s)
provided the following type of identification:
------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------- Witness my hand and official seal in the County and State
Notary Rubber Stamp Seal last aforesaid this 1st day of January A.D 1996.
[STAMP]
/s/ Donna L. Berning
----------------------------------------------------------
RAMCO FORM 28-1/2 Notary Signature
- -----------------------------------------------------------
- ----------------------------------------------------------- Donna L. Berning
----------------------------------------------------------
LEASE Printed Notary Signature
TENEMENTS OR OFFICES
- -----------------------------------------------------------
- -----------------------------------------------------------
FROM
TO
- -----------------------------------------------------------
- -----------------------------------------------------------
DATED
- -----------------------------------------------------------
- -----------------------------------------------------------
- -----------------------------------------------------------
- -----------------------------------------------------------
051893
</TABLE>
<PAGE> 1
EXHIBIT 10.3
<PAGE> 2
EXHIBIT 10.3
THIS AGREEMENT, entered into this 6th day of January, 1995 between DEVIC
RENTALS - YANIC DEVIC 549-4422, hereinafter called the lessor, party of the
first part, and First National Bank of Southwest Florida of the County of Lee
and the State of Florida hereinafter called the lessee or tenant, party of the
second part:
WITNESSETH, That the said lessor does this day lease unto said lessee,
and said lessee does hereby hire and take as tenant under said lessor Room or
Space
4417 S. E. 16th Place
Suite 11 (Approx. 2758 sq. ft.)
situate in Lee County, State of Florida, to be used and occupied by the lessee
as Real Estate Business Office and for no other purposes or uses whatsoever, for
the term of One Year, subject and conditioned on the provisions of clause ten
of this lease beginning the 1st day of February 1995, and ending the 31st day of
January, 1996, at and for the agreed total rental of $1,625.00 per month
Dollars, payable as follows: Monthly on the first, plus 6% Sales Tax.
Tenant agrees to pay a late charge of $10.00 per day if any rent should
not be paid within five (5) days after due date.
All payments to be made to the lessor on the first day of each and every month
in advance without demand at the office of Devic Rentals 12490 Riverside Dr.
in the City of Ft. Myers, Fl 33919 or at such place and to such other person,
as the lessor may from time to time designate in writing.
The following express stipulations and conditions are made a part of this
lease and are hereby assented to by the lessee:
A. Security Deposit of $1,625.00 plus first months rent due at lease signing.
B. Lessee has an option to renew for an additional year notifying Lessor of
the intentions no later than 90 days prior to termination. Option year
rental fee will be $1,690.00 plus tax.
C. Lessee requests access to the premise starting no later than 01/16/95 for
the purpose of installing, telephone, data, and alarm equipment.
1 of 5
<PAGE> 3
FIRST: The lessee shall not assign this lease, nor sublet the premises, or any
part thereof nor use the same, or any part thereof, for any other purpose than
as above stipulated, nor make any alterations therein without the Landlord's
written consent. If lessee installs furniture, fixtures or other equipment
with the written consent of landlord, the said furniture, fixtures or other
equipment may be detached and removed by lessee at the expiration of this
lease by lapse of time or otherwise provided that lessee restores the
premises including the floors and walls to the same condition which they were
in at the commencement of the lease.
SECOND: All personal property placed or moved in the premises above described
shall be at the risk of the lessee or owner thereof, and lessor shall not be
liable for any damage to said personal property unless it shall be due to the
fault of the landlord, his employees or agents.
THIRD: That the tenant shall promptly execute an comply with all statutes,
ordinances, rules, orders, regulations and requirements of the Federal, State
and City Government and of any and all their Departments and Bureaus
applicable to said premises, for the correction, prevention, and abatement of
nuisances or other grievances, in, upon, or connected with said premises during
said term; and shall also promptly comply with and execute all rules, orders
and regulations of the Southeastern Underwriters Association for the prevention
of fires, at its own cost and expense.
FOURTH: In the event the premises shall be destroyed or so damaged or injured
by fire or other casualty during the life of this agreement, whereby the same
shall be rendered untenantable, then the lessor shall have the right to render
said premises tenantable by repairs within sixty (60) days therefrom. If said
premises are not rendered tenantable within said time, it shall be optional
with either party hereto to cancel this lease, and in the event of such
cancellation the rent shall be paid only to the date of such fire or casualty.
The cancellation herein mentioned shall be evidenced in writing.
FIFTH: The prompt payment of the rent for said premises upon the dates named,
and the faithful observance of the rules and regulations printed upon this
lease, and which are hereby made a part of this covenant, are the conditions
upon which the lease is made and accepted and any failure on the part of the
lessee to comply with the terms of said lease, or any of said rules and
regulations now in existence shall at the option of the lessor, work a
forfeiture of this contract, and all of the rights of the lessee hereunder.
SIXTH: If the lessee shall abandon or vacate said premises before the end of
the term of this lease, or shall suffer the rent to be in arrears, the lessor
may, at his option, forthwith cancel this lease.
SEVENTH: Lessee agrees to pay the cost of collection and reasonable attorney's
fee on any part of said rental that may be collected by suit or by attorney
after the same is part due, also attorney's fee to prevailing party should any
litigation result to enforce the terms of this agreement.
EIGHTH: The lessee agrees that he will pay all charges for rent, and should
said charges for rent, herein provided for at any time remain due and unpaid
for the space of five days after the same shall have become due, the lessor may
at its option consider the said lessee tenant at sufferance and immediately
re-enter upon said premises and the entire rent for the rental period then next
ensuing shall at once be due and payable and may forthwith be collected by
distress or otherwise. Landlord will supply water and sewer for domestic uses.
Tenant is responsible for all other utilities including but not limited to
electric and telephone.
NINTH: The lessor, or any of his agents, shall have the right to enter said
premises during all reasonable hours, to examine the same to make such repairs,
additions or alterations as may be deemed necessary for the safety, comfort, or
preservation thereof, or of said building, or to exhibit said premises, and to
put or keep upon the doors or windows thereof a notice "FOR RENT" at any time
within
2
<PAGE> 4
sixty (60) Days before the expiration of this lease. The right of entry shall
likewise exist for the purpose of removing placards, signs, fixtures,
alterations, or additions, which do not conform to this agreement, or to the
rules and regulations of the building.
TENTH: Lessee hereby accepts the premises in the condition they are in at
the beginning of this lease and agrees to maintain said premises in the same
condition, order and repair as they are at the commencement of said term,
exception only reasonable wear and tear arising from the use thereof under this
agreement, and to make good to said lessor immediately upon demand, any
damage to water apparatus, or electric lights or any fixture, appliances
or appurtenances of said premises, or of the building, caused by any act or
neglect of lessee, or of any person or persons in the employ or under the
control of the lessee.
ELEVENTH: It is expressly agreed and understood by and between the parties to
this agreement, that the landlord shall not be liable for any damage or injury
by water, which may be sustained by the said tenant or other person or for any
other damage or injury resulting from the carelessness, negligence, or improper
conduct on the part of any other tenant, occupant, agent, or employees, or by
reason of the breakage, leakage, or obstruction of the water, sewer or soil
pipes, or other leakage in or about the said building.
TWELFTH: If the lessee shall become insolvent or if bankruptcy proceedings
shall be begun by or against the lessee, before the end of said term the lessor
is hereby irrevocably authorized at its option, to forthwith cancel this lease,
as for a default. Lessor may elect to accept rent from such receiver, trustee,
or other judical officer during the term of their occupancy in their fiduciary
capacity without effecting lessor's rights as contained in this contract but no
receiver, trustee or other judicial officer shall ever have any right, title or
interest in or to the above described property by virtue of this contract.
THIRTEENTH: Lessee hereby waives and renounces any and all exemption rights he
may have now, or hereafter, under or by virtue of the constitution and laws of
the State of Florida, or of any other State, or of the United States, as against
the payment of said rental or any portion hereof, or any other obligation or
damage that may accrue under the terms of this agreement.
FOURTEENTH: This contract shall bind the lessor and its assigns or successors,
and the heirs, assigns, administrators, legal representatives, executors or
successors as the case may be, of the lessee.
FIFTEENTH: It is understood and agreed between the parties hereto that time is
of the essence of this contract and this applies to all terms and conditions
herein.
SIXTEENTH: It is understood and agreed between the parties hereto that
written notice mailed or delivered to the premises leased hereunder shall
constitute sufficient notice to the lessee and written notice mailed or
delivered to the office of the lessor shall constitute sufficient notice to the
lessor, to comply with the terms of this contract.
SEVENTEENTH: The rights of the lessor under the foregoing shall be cumulative,
and failure on the part of the lessor to exercise promptly any rights given
hereunder shall not operate to forfeit any of the said rights.
EIGHTEENTH: It is further understood and agreed between the parties hereto
that any charges against the lessee by the lessor for services or for work done
on the premises by order of the lessee or otherwise accuring under this
contract shall be considered as rent due and shall be included in any lien for
rent due and unpaid.
NINETEENTH: It is hereby understood and agreed that any signs or advertising
to be used, including awnings, in connection with the premises leased hereunder
shall be first submitted to the lessor for approval before installation of
same. All signs must conform
3
<PAGE> 5
to all City Ordinances and Codes as to sign, dimension and content, if
applicable, and are the responsibility of the tenant.
TWENTIETH: Lessee shall, at his expense, obtain a policy of public liability
insurance with a company or companies acceptable to Lessor, and with minimum
liability limits of One Hundred Thousand Dollars/Three Hundred Thousand Dollars
($100,000-$300,000), and of burglary insurance to cover building burglary
damage. Lessee shall provide proof of such coverage and shall notify all
insurance companies to give landlord notification of any change in terms of
said lease or cancellation of same and list the landlord as additional insured
thereunder. Lessee shall also provide plate glass coverage for any and all
windows of any kind.
TWENTY-FIRST: The parties acknowledge that the air-conditioning unit
(including heating element thereon) that is attached to the premises is in
good working order at the commencement of this lease, and tenant agrees to
maintain and complete any and all repairs to the air-conditioning unit
hereinafter so that the unit is returned to the landlord in good operating
condition at the termination of this lease; tenant shall replace all interior
filters, if any, that may be necessary periodically and repair the unit at his
sole cost saving the landlord harmless from the same. However, Landlord will be
responsible for repair and/or replacement of the compressor, unless damage is
caused by lack of tenant's proper maintenance and/or operation.
TWENTY-SECOND: Tenants shall be responsible for providing all necessary pest
control on the premises at their own expense.
4
<PAGE> 6
IN WITNESS WHEREOF, the parties have hereunto executed this instrument for the
purpose herein expressed, the day and year above written.
Signed, sealed and delivered
in the presence of: Devic Rentals
/s/ Phil ?
- ------------------------------ BY: /s/ Yonnick Devic
-------------------------------------
As Its Yonnick Devic
/s/ ? ------------------------------
- ------------------------------ Lease Manager
As to Lessor Lessor
First National Bank of Southwest Florida
/s/ Kathy A. Ragland
- ------------------------------ BY: /s/ Nicholas J. Panicaro
-------------------------------------
As Its Nicholas J. Panicaro
/s/ Phil ? ------------------------------
- ------------------------------ S.V.P/Cashier
As to Lessee Lessee
STATE OF FLORIDA
COUNTY OF LEE
BEFORE ME, A Notary Public in and for said State and County, personally came
_______________________________as___________of
, to me well known to be the person named in the foregoing
lease, and acknowledged that he executed the same for the purpose therein
expressed.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official seal
the ______day of ___________________, 19
--------------------------------------
NOTARY PUBLIC, STATE OF FLORIDA
AT LARGE
My Commission Expires:
STATE OF FLORIDA
COUNTY OF LEE
BEFORE ME, A Notary Public in and for said State and County, personally came
Nicholas J. Panicaro as S.V.P. Cashier of First National Bank of Southwest
Florida, to me well known to be the person named in the foregoing lease, and
acknowledged that he executed the same for the purpose therein expressed.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official seal
the 27th day of January, 1995.
/s/ Kathleen F. Barney
--------------------------------------
NOTARY PUBLIC, STATE OF FLORIDA
AT LARGE
My Commission Expires:
5
<PAGE> 1
EXHIBIT 13.1
<PAGE> 2
* MANAGEMENT'S DISCUSSION AND ANALYSIS *
WEST COAST BANCORP, INC. AND SUBSIDIARY
- --------------------------------------------------------------------------------
GENERAL
The Company's principal asset is its ownership of the Bank. Accordingly, the
Company's results of operations are primarily dependent upon the results of
operations of the Bank. The Bank conducts a general commercial banking business
which consists of attracting deposits from the general public and applying
those funds to the origination of loans for commercial, consumer and
residential purposes. The Bank's profitability depends primarily on net
interest income, which is the difference between interest income generated from
interest-earning assets (i.e., loans and investments) less the interest expense
incurred on interest-bearing liabilities (i.e., customer deposits and borrowed
funds). Net interest income is affected by the relative amounts of
interest-earning assets and interest-bearing liabilities, and the interest rate
paid on these balances.
Net interest income is dependent upon the Bank's interest rate spread, which is
the difference between the average yield earned on its interest-earning assets
and the average rate paid on its interest-bearing liabilities. When
interest-earning assets approximate or exceed interest-bearing liabilities, any
positive interest rate spread will generate net interest income. During 1995,
the Bank maintained an average interest rate spread of 5.26%. The interest rate
spread is impacted by interest rates, deposit flows, and loan demands.
Additionally, and to a lesser extent, the Bank's profitability is affected by
such factors as the level of non-interest income and expenses, the provision
for loan losses, and the effective tax rate. Non-interest income consists
primarily of loan and other fees, and income from the sale of loans and
servicing rights. During 1995, the Bank experienced an increase in non-interest
income due primarily to the Bank's increased participation in Small Business
Administration ("SBA") loans (and the subsequent sale of the guaranteed
portions into the secondary market) and the sale of a parcel of Bank and
Company owned property adjacent to the main office. The Bank's non-interest
expenses primarily consist of compensation and benefits, occupancy related
expenses, deposit insurance premiums paid to the FDIC, opening of branch
offices, and other operating expenses.
The Bank's residential mortgage lending department originates fixed and
adjustable rate residential loans as a means of increasing its residential loan
portfolio and resulting interest income, and increasing non-interest income
through sales of loans in the secondary market. During the fiscal years ended
December 31, 1995 and 1994, respectively, the Bank originated approximately $13
million and $19 million in mortgage loans and sold approximately $13 million
and $19 million of such loans including those held in inventory from the
previous year. Servicing fee income for 1995 and 1994 was approximately
$119,000 and $181,000, respectively.
Prior to 1995, the Bank's standard practice was to sell in the secondary market
the residential mortgage loans that it originated while retaining the fee
generating servicing rights. Although the Bank packaged certain of these
servicing rights in 1994 and sold them to another financial institution, the
Bank did not originally intend to change its practice of retaining such rights.
During 1995, however, management revised its practices and commenced the
packaging and sale of such servicing rights simultaneously with the sale of the
mortgage loans in the secondary market. Accordingly, in September 1995, the
Bank negotiated the sale of its mortgage servicing rights with respect to a
portfolio of FHLMC/FNMA loans originated by the Bank totalling approximately
$22 million in unpaid principal amount. Such servicing rights were sold to an
unaffiliated third party financial institution for approximately $230,000, or a
premium of 1.05% of the unpaid principal portfolio. The Bank will consider the
further packaging and sale of mortgage loans and/or servicing rights from time
to time as it deems appropriate.
During the fiscal years ended December 31, 1995 and 1994, the Bank originated
and closed approximately $1.6 million and $2.2 million in SBA loans,
respectively. The Bank was approved by the SBA to participate in the new "SBA
Low Doc" program in 1994, and in 1995 the SBA conferred upon the Bank the
status of a "Certified Lender". Designation as a Certified Lender, which
designation is made upon the quality of the lending institution's SBA loan
submissions, the number of loans submitted for approval, and the overall dollar
volume of the loans generated by the banking institution, enables the Bank to
* PAGE 11 *
<PAGE> 3
* MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)*
WEST COAST BANCORP, INC. AND SUBSIDIARY
- --------------------------------------------------------------------------------
process applicants on an expedited basis. The Bank intends to continue to
aggressively pursue a program of SBA loan originations with the intent of
selling such loans in the secondary market while retaining servicing rights, as
a method of generating non-interest income. Recent changes have been made to the
SBA loan program which limit the funding for and the size of SBA loans and such
changes will likely reduce the opportunities to generate fee income on future
transactions. Notwithstanding these changes to the SBA loan program, the Bank
has made a commitment to continue to aggressively pursue SBA guaranteed credit
accommodations and considers it a viable source of fee income.
Since the commencement of banking operations in February 1989, the Bank has
experienced substantial growth. During the past three years, the Bank's total
assets have grown approximately 58%. Furthermore, this increase has been marked
by a stable and consistent annual growth with increases in assets of 7%, 20%,
and 26% in 1995, 1994 and 1993, respectively.
As of December 31, 1995, the Bank had three full-service branches and one
satellite office, all of which are operating in the Cape Coral - Fort Myers
area. On November 14, 1995, the Bank opened a satellite office in a local
retirement community located in Cape Coral. This office is open four hours per
day, twice per week to meet the needs of the community and it is provided rent
free by the community. This office provides an additional deposit base for the
Bank. On January 9, 1996, the Company opened its fourth full-service banking
facility in western Cape Coral at the intersection of Santa Barbara Boulevard
and Trafalgar Boulevard (the "Trafalgar Branch"). The Trafalgar Branch office
is located on 61,700 square feet of real estate purchased by the Company in
December 1994 for a total of $418,000 (or $6.77 per square foot). In addition,
in 1995 the Company relocated its 3,000 square foot modular facility from its
Del Prado location to the new Trafalgar Branch site to serve as the banking
facility. The Bank leases the property from the Company. The Trafalgar Branch
has four teller stations, three drive-up lanes, and an automated teller machine
(ATM). Management has identified the Trafalgar Branch site as a progressive
area of high growth. As of January 31, 1996, the Trafalgar Branch had $2.6
million in deposits.
In 1995, the Bank and Company received an offer to sell the excess land located
to the north of the Del Prado office. This excess land was part of the Bank's
original parcel purchased in 1988 and was being held for future expansion.
After evaluating the Company's expansion plans, it was determined that the land
was not needed to accomplish its expansion goals, and the purchase price
offered for the property represented a favorable return for both the Bank and
the Company. The purchase contract required the Bank to convey approximately
44,800 square feet of land and the Company to convey 19,800 square feet. The
total sales price was $950,000, or approximately $14.70 per square foot. The
property had been carried on the books at $636,560, and the sale resulted in a
one-time gain of $263,965.
In addition to the Bank's business activities, the Company provides
accounts-receivable financing and services to businesses and professionals
through its Business Manager/Accounts Receivable Funding Program. In connection
with its accounts-receivable financing services, the Company purchases the
accounts receivable at a discount and then assumes the responsibility to bill,
collect, monitor, and control the credits. As of the fiscal years ending
December 31, 1995 and 1994, respectively, the Company owned approximately $1.2
million and $390,000 in outstanding accounts receivables,resulting in net
income of $57,000 and $6,000. The Company has assigned one full-time account
officer and one part-time data entry clerk to administer the accounts
receivable financing program. The Company intends to expand this service as a
source of increasing its non-interest fee income. In addition to its accounts
receivable financing services, the Company also is authorized to solicit,
service, and participate in commercial loan transactions.
Consistent with the Company's and the Bank's capital plan filed with the OCC,
the Company maintains a "Well Capitalized" status. In 1993, the Company raised
proceeds from a public offering of its Common Stock which has been used to fund
capital contributions to the Bank, to finance the Company's bank related
activities, and to pay dividends. The unused funds are invested in short-term
securities pending their application and such proceeds will continue to
* PAGE 12 *
<PAGE> 4
WEST COAST BANCORP, INC. AND SUBSIDIARY
- --------------------------------------------------------------------------------
be used for the purposes described above, as well as for general corporate
purposes, including loan participations, possible expansion, the acquisition of
other financial institutions, and working capital. Even though the Company was
determined to be more aggressive in its search for acquisitions during the 1995
fiscal year, it was unsuccessful in consummating any such transactions. At this
time the Company does not have any current plans, understandings, arrangements,
or agreements, written or oral, with respect to any specific acquisition
prospect, and it is not presently negotiating with any party with respect
thereto. Although the Company intends to use the net proceeds from the public
offering in the manner described above, the Company may determine that it is
necessary to vary the allocation of any cash or cash equivalents held by it,
including any of such net proceeds, to respond to changing circumstances.
In November 1995, the Company exchanged 29 non-income producing, repossessed
properties for an income-producing medical office complex in Fort Myers. An
independent appraisal service retained by the Company valued the medical office
complex at approximately $1.2 million. The Company exchanged the 29 non-income
producing parcels of equal value for the income producing medical complex, and
is currently marketing the sale of the complex.
The following discussion and analysis of earnings and related financial data
are presented herein to assist investors in understanding the financial
condition and results of operations of the Company for the fiscal years ended
December 31, 1995 and 1994. This discussion should be read in conjunction with
the consolidated financial statements and related footnotes presented elsewhere
herein.
RESULTS OF OPERATIONS
Comparison of the Fiscal Years Ended
December 31, 1995 and 1994
For the year ended December 31, 1995, the Company reported net income of
$1,288,866, or $0.84 per share, as compared to net income of $994,954, or $0.65
per share, for 1994. For the years ended December 31, 1995 and 1994, income
before income taxes was $2,110,866 and $1,555,954, respectively. In 1995, net
income increased 30% over 1994, due primarily to an increase in the Bank's net
interest income of $1,210,000 and the gain on the one time sale of Bank and
Company owned property. This increase in income was partially offset by a
$552,000 increase in operating expenses, due mainly to the Company's expenses
related to adding the Trafalgar Branch facility and the Company's year over year
growth. The trend of increased operating costs has lessened with the Company's
ability to utilize economies of scale as it continues to grow.
The Company's total assets at December 31, 1995 were $147 million, an increase
of $9 million, or 6%, from December 31, 1994. This increase was due to the
increase in portfolio loans originated by the Bank to $98 million as compared
to $85 million in 1994. This increase was funded by a $7 million growth in
deposits and a decrease in federal funds sold.
The Company's portfolio loans at December 31, 1995 totaled $98 million, net, or
approximately 67% of total assets. Gross portfolio loans consist of $34 million
in real estate construction and mortgage loans, $61 million in commercial and
commercial real estate, and $5 million in installment loans. The allowance for
credit losses has increased from $791,000 at December 31, 1994, to $1,115,000
at December 31, 1995. The Company believes that, based on historical patterns,
the allowance for credit losses is sufficient to absorb losses in the loan
portfolio.
Comparison of the Fiscal Years
Ended December 31, 1994 and 1993
For the year ended December 31, 1994, the Company reported net income of
$994,954, or $0.65 per share, as compared to net income of $741,994, or $0.56
per share for 1993. For the year ended December 31, 1994 and 1993, income
before income taxes was $1,555,954 and $1,225,994, respectively. In 1994, net
income increased 34% over 1993, due primarily to an increase in the Bank's net
interest income of $927,000. This increase in income was partially offset by a
$717,000 increase in operating expenses due mainly to the Company's year over
year growth. The trend of increased operating costs will continue as long as
the Company remains in a growth mode.
The Company's total assets at December 31, 1994 were $138 million, an increase
of $23 million or 20%, from December 31, 1993. This increase was due to the
increase in portfolio loans originated by the Bank to $85 million as compared
to $73 million in 1993. Federal funds sold increased $8
* PAGE 13 *
<PAGE> 5
* MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)*
WEST COAST BANCORP, INC. AND SUBSIDIARY
- --------------------------------------------------------------------------------
million. These increases were funded by a $23 million growth in deposits.
The Company's portfolio loans at December 31, 1994, totalled $85 million, net,
or approximately 62% of total assets. Gross portfolio loans consist of $31
million residential real estate construction and mortgage loans, $50 million in
commercial and commercial real estate loans, and $5 millon in installment
loans. The allowance for credit losses decreased from $813,000 at December 31,
1993, to $791,000 at December 31, 1994. The credit loss allowance represents
approximately 0.92% of total loans, down from 1.09% at December 31, 1993. The
Company believes that the current allowance for credit losses is sufficient to
absorb potential losses in the loan portfolio.
NET INTEREST INCOME
Net interest income, which constitutes the principal source of income for the
Company, represents the difference between interest income on interest-earning
assets and interest expense on interest-bearing liabilities. The principal
interest-earning assets are loans made to businesses and individuals.
Interest-bearing liabilities primarily consist of time deposits, interest-paying
checking accounts ("NOW accounts"), retail savings deposits and money-market
accounts. Funds attracted by these interest-bearing liabilities are invested in
interest-earning assets. Accordingly, net interest income depends upon the
volume of average interest-earning assets and average interest-bearing
liabilities and the interest rates earned or paid on them.
Net interest income totalled $6,829,955 and $5,620,254 and the net yields on
average interest-earning assets were 5.26% and 5.06% for the fiscal years ended
December 31, 1995 and 1994, respectively. Although rates remained stable for
most of 1995, the Company was able to maintain its spread of interest-earning
assets to interest-bearing liabilities. Management does not believe this
scenario is indicative of any future trend.
The following table shows for each category of interest-earning assets and
interest-bearing liabilities, the average amount outstanding, the interest
earned or paid on such amount, and the average rate earned or paid for the years
ended December 31, 1995 and 1994. The table also shows the average rate earned
on all interest-earning assets, the average rate paid on all interest-bearing
liabilities, and the net yield on average interest-earning assets for the same
periods.
* PAGE 14 *
<PAGE> 6
WEST COAST BANCORP, INC. AND SUBSIDIARY
- --------------------------------------------------------------------------------
AVERAGE BALANCES AND INTEREST RATES
<TABLE>
<CAPTION>
Years Ended December 31,
-------------------------------------------------------------------
1995 1994
Interest Interest
Average Income Average Average Income/ Average
Balance(1) Expense Rate Balance Expense Rate
-------------------------------------------------------------------
INTEREST-EARNING ASSETS: (Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Loans receivable, net (4) ....................... $ 92,453 $ 9,489(3) 10.26% $ 79,358 $7,315(3) 9.22%
Mortgage loans held for sale, net ............... 5,933 449 7.57% 5,234 366 6.99%
Investment securities, taxable .................. 15,766 948 6.01% 12,154 626 5.15%
Investment securities, nontaxable ............... 4,273 192 4.49% 2,726 94 3.45%
Mortgage-backed securities, taxable ............. 4,294 272 6.33% 4,866 280 5.75%
Federal funds sold .............................. 6,798 404 5.94% 6,157 277 4.50%
Interest-earning deposits with banks ............ 352 17 4.83% 529 24 4.54%
-------------------------------------------------------------------
Total interest-earning assets ................ 129,869 11,771 9.06% 111,024 8,982 8.09%
-------------------------------------------------------------------
NON-INTEREST EARNING ASSETS:
Cash and due from banks ......................... $ 4,561 $ 4,309
Other assets .................................... 7,032 5,969
-------------------------------------------------------------------
Total noninterest-earning assets ................. 11,593 10,278
-------------------------------------------------------------------
Total assets ................................. $141,462 $121,302
===================================================================
Interest-bearing liabilities:
Deposits:
Interest-bearing demand and NOW deposits ....... $ 16,620 $ 408 2.45% $ 13,363 $ 277 2.07%
Savings deposits ............................... 11,832 322 2.72% 14,748 402 2.73%
Money market deposits .......................... 16,319 566 3.47% 18,166 527 2.90%
Time deposits .................................. 64,356 3,590 5.58% 44,546 2,096 4.71%
Borrowings ..................................... 1,062 55 5.18% 1,285 60 4.67%
-------------------------------------------------------------------
Total interest-bearing liabilities ........... $110,189 4,941 4.48% 92,108 3,362 3.65%
NON-INTEREST BEARING LIABILITIES:
Non-interest bearing deposits .................. 14,844 13,893
Other liabilities .............................. 608 513
-------------------------------------------------------------------
Total non-interest bearing liabilities ........... 15,452 14,406
-------------------------------------------------------------------
Shareholders' equity ............................. 15,821 14,778
-------------------------------------------------------------------
Total liabilities and shareholders' equity .. $141,462 $121,302
===================================================================
Net interest income .............................. $ 6,830 $5,620
Net yield on average earning assets (2) .......... 5.26% 5.06%
</TABLE>
- -------------------
(1) Average balances based on historical costs.
(2) The net yield on average earning assets is the net interest income divided
by average interest-earning assets.
(3) Includes loan fees of $514,000 in 1995 and $414,000 in 1994.
(4) Includes non-accrual loans of $2,884,000 at December 31, 1995 and
$1,318,000 at December 31, 1994.
The effect on interest income, interest expense, and net interest income for
the periods indicated, of changes in average balance and rate, is shown below.
The effect of a change in average balance has been determined by applying the
average rate at the year-end for the earlier period to the change in average
balance at the year-end for the later period. Changes resulting from average
balance/rate variances are included in changes resulting from volume.
* PAGE 15 *
<PAGE> 7
* MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)*
WEST COAST BANCORP, INC. AND SUBSIDIARY
- --------------------------------------------------------------------------------
RATE/VOLUME ANALYSIS OF NET INCOME
<TABLE>
<CAPTION>
1995 COMPARED TO 1994 1994 COMPARED TO 1993
INCREASE (DECREASE) DUE TO INCREASE (DECREASE) DUE TO
VOLUME(1) RATE CHANGE VOLUME(1) RATE CHANGE
--------------------------------------------------------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Interest earned on:
Loans receivable, net (2) ................ $1,344 $ 830 $2,174 $1,313 $(94) $1,219
Mortgage loans held for sale, net ........ 53 30 83 35 17 52
Investment securities, taxable ........... 217 105 322 132 16 148
Investment securities, nontaxable ........ 69 29 98 61 0 61
Mortgage-backed securities, taxable ...... (36) 28 (8) (91) (56) (147)
Federal funds sold ....................... 38 89 127 60 73 133
Interest-earning deposits ................ (9) 2 (7) (16) (21) (37)
-------------------------------------------------------------------
Total interest income ................. 1,676 1,113 2,789 1,494 (65) 1,429
-------------------------------------------------------------------
Interest paid on:
Interest-bearing demand and NOW deposits . 80 51 131 74 (37) 37
Savings deposits ......................... (79) (1) (80) 60 (21) 39
Money market accounts .................... (64) 103 39 (58) 22 (36)
Time deposits ............................ 1,105 389 1,494 478 (40) 438
Borrowings ............................... (2) (3) (5) 25 (1) 24
Total interest expense ................ 1,040 539 1,579 579 (77) 502
-------------------------------------------------------------------
Change in net interest income ......... $ 636 $ 574 $1,210 $ 915 $ 12 $ 927
===================================================================
</TABLE>
(1) Non-accruing loans are excluded from the average volumes used in
calculating this table.
(2) Includes loan fees of $514,000 in 1995 and $414,000 in 1994.
PROVISION FOR CREDIT LOSSES
The provision for credit losses was $442,727 and $122,103 for the years ended
December 31, 1995 and 1994, respectively. The 1995 provision reflects
management's intent to continue maintaining the Bank's allowance for credit
losses at a level management believes necessary to cushion it against any
reasonably expected losses that may result. The Bank currently determines its
credit loss allowance from an analysis of its actual operating experience as
applied to its particular loan portfolio, which management believes more
accurately reflects the risks associated with its loan portfolio.
The targeted level of credit loss allowance is based upon management's
continual review of the loan portfolio. Management reviews the loans by type
and nature of collateral and establishes an appropriate provision for credit
losses based upon historical charge-off experience, the present and prospective
financial condition of specific borrowers, industry concentrations within the
loan portfolio, size of the credit, existence and quality of any collateral,
profitability, and general economic conditions. The 1995 and 1994 credit loss
provisions reflect the growth in and maturing nature of the Company's loan
portfolio and the risks inherent in it.
The total allowance for credit losses has increased from $791,000 (or 0.92% of
total loans) in 1994 to $1,115,000 (or 1.04% of total loans) in 1995. In 1995
the Bank had 15 loans on a non-accrual status representing approximately
$2,882,000. During 1995, the Company charged off $118,000 in loans, net of
recoveries, and placed into other real estate owned $224,000 in foreclosed real
estate acquired in satisfaction of loans receivable. The $224,000 in foreclosed
real estate includes 8 residential lot loans and 3 houses, with an estimated
fair market value of $294,000. The Company has actively pursued past-due loans
and has acquired the collateral with the intent of resale. Although management
uses the best information available to make determinations with respect to the
allowance for credit losses, future adjustments may be necessary if economic
conditions differ substantially from the assumptions used or adverse
developments arise with respect to the Company's non-performing or performing
loans. Material additions to the Company's allowance for credit losses would
result in a decrease in the Company's net income and capital. See "Allowance
for Credit Losses."
NON-INTEREST INCOME
During 1995, non-interest income increased to $1,502,015 from $1,283,951 in
1994, a 17% increase. The increase in non-interest income was due primarily to
the gain of approximately $264,000 on the sale of property adjacent to the
* PAGE 16 *
<PAGE> 8
WEST COAST BANCORP, INC. AND SUBSIDIARY
- --------------------------------------------------------------------------------
Company's Del Prado office. Fee income from origination and sale of loans
decreased by $146,000 due to reduction in residential lending activity.
However, this was offset by a gain on sale of loan servicing of $251,000.
As previously indicated, in 1995 the Bank revised its practices and began
packaging and selling its mortgage servicing rights at the time it sells the
mortgage loans in the secondary market. The Company's decision to sell mortgage
loans and/or servicing rights will be influenced by the amount and type of
loans originated in relation to the Company's loan portfolio needs, general
market conditions of the secondary mortgage market, and the interest rate
environment. The $184,000 increase in service charges and other fees during
1995 is largely attributable to the overall increase in business activity
experienced by the Bank, including SBA loan activity.
The following table compares the various categories of non-interest income for
the years ended December 31, 1995 and 1994.
<TABLE>
<CAPTION>
YEARS ENDED DEC. 31,
1995 1994
----------------------
<S> <C> <C>
Mortgage loan servicing fees ........ $ 118,838 $ 182,386
Service charges and other fees ...... 655,889 472,010
Gain (loss) on sale of securities ... (36,347) 19,678
Gain on sale of loan servicing ...... 251,631 281,984
Gain on sales of loans
held for sale ...................... 243,729 326,116
Rental income ....................... 24,816 13,499
Loss on sale of other
real estate owned .................. (20,506) (11,722)
Gain on sale of property ............ 263,965 0
----------------------
Total non-interest income ......... $1,502,015 $1,283,951
======================
</TABLE>
NON-INTEREST EXPENSE
Non-interest expenses increased from $5.2 million in 1994, to $5.7 million in
1995 due primarily to the costs associated with the opening of the Trafalgar
Branch, including increased staffing and occupancy costs.
Although non-interest expense has increased in each of the past two years, the
ratio of total non-interest expense to average assets for 1995 and 1994 has
declined slightly at 4.08% and 4.30%, respectively. The consistency in the
efficiency ratio from year to year is attributable to management's continuing
efforts to maintain the growth of non-interest expenses at a level equal to or
less than the growth in average assets.
Due to recent changes in deposit insurance premiums assessed by the FDIC, the
Bank's annual FDIC premiums will be reduced by approximately $157,000 (based on
current deposit balances) effective in 1996. The Bank received a refund of
approximately $74,000 in September 1995 as payment of the refund due for the
applicable portion of 1995.
The following table summarizes the various categories of non-interest expense
for the years ended December 31, 1995 and 1994.
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
1995 1994
----------------------
<S> <C> <C>
Salary and employee benefits ........... $2,197,204 $1,945,725
Occupancy expense ...................... 698,956 641,058
Business development and
community support ..................... 206,035 159,536
Data processing ........................ 199,945 162,610
Furniture and equipment ................ 594,872 588,358
Insurance .............................. 207,175 265,141
Legal and professional fees ............ 425,963 382,779
License, assessments and taxes ......... 81,665 84,900
Printing, stationery and supplies ...... 186,032 155,628
Amortization of organization
costs ................................. 0 2,861
Director fees .......................... 65,000 70,500
Postage and freight .................... 196,225 168,477
Other expenses ......................... 566,380 499,245
Other real estate owned costs .......... 152,925 99,330
---------- ----------
Total non-interest expenses .......... $5,778,377 $5,226,148
========== ==========
</TABLE>
INCOME TAXES
The Company's provision for income taxes was $822,000 for 1995, and $561,000
for 1994. The increase relates primarily to the increase in income.
Deferred income taxes are recognized for the tax consequences of "temporary
differences" by applying enacted statutory tax rates applicable to future years
to differences between the financial statement carrying amounts and the tax
basis of existing assets and liabilities. The effect on deferred income taxes
of a change in tax rates is recognized in income in the period that includes
the enactment date.
ASSET/LIABILITY MANAGEMENT
A principal objective of the Bank's asset/liability management strategy is to
minimize the Bank's exposure to changes in interest rates by matching the
maturity and repricing horizons of interest-earning assets and interest-bearing
liabilities. This strategy is overseen in part through the direction of the
Asset and Liability Committee of the Bank (the "ALCO Committee") which
establishes policies and monitors results to control interest rate sensitivity.
* PAGE 17 *
<PAGE> 9
* MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)*
WEST COAST BANCORP, INC. AND SUBSIDIARY
- --------------------------------------------------------------------------------
As a part of the Bank's interest rate risk management policy, the ALCO
Committee examines the extent to which its assets and liabilities are "interest
rate-sensitive" and monitors the Bank's interest rate-sensitivity "gap." An
asset or liability is considered to be interest rate-sensitive if it will
reprice or mature within the time period analyzed, usually one year or less.
The interest rate-sensitivity gap is the difference between interest-earning
assets and interest-bearing liabilities scheduled to mature or reprice within
such time period. A gap is considered positive when the amount of interest
rate-sensitive assets exceeds the amount of interest rate-sensitive
liabilities. A gap is considered negative when the amount of interest
rate-sensitive liabilities exceeds interest rate-sensitive assets. During a
period of rising interest rates, a negative gap would tend to adversely affect
net interest income while a positive gap would tend to result in an increase in
net interest income. During a period of falling interest rates, a negative gap
would tend to result in an increase in net interest income while a positive gap
would tend to adversely affect net interest income. If the repricing of the
Bank's assets and liabilities were equally flexible and moved concurrently, the
impact of any increase or decrease in interest rates on net interest income
would be minimal.
Since its inception, the Bank has generally experienced a negative gap which
would suggest that the Bank's net yield on interest-earning assets may decline
during periods of rising interest rates. However, management has extended
maturities on liabilities in order to obtain a positive gap, in a belief that
rates are more likely to rise than decline. A simple interest rate "gap"
analysis by itself may not be an accurate indicator of how net interest income
will react to changes in interest rates. Accordingly, the ALCO Committee also
evaluates how the repayment of particular assets and liabilities are impacted
by changes in interest rates. Income associated with interest-earning assets
and costs associated with interest-bearing liabilities may not react uniformly
to changes in interest rates. In addition, the magnitude and duration of
changes in interest rates may have a significant impact on net interest income.
For example, although certain assets and liabilities may have similar
maturities or periods of repricing, they may react in different degrees to
changes in market interest rates. Interest rates on certain types of assets and
liabilities fluctuate in advance of changes in general market interest rates,
while interest rates on other types may lag behind changes in general market
rates. In addition, certain assets, such as adjustable rate mortgage loans,
have features (generally referred to as "interest rate caps") which limit
changes in interest rates on a short-term basis and over the life of the asset.
In the event of a change in interest rates, prepayment and early withdrawal
levels also could deviate significantly from those assumed in calculating the
interest-rate gap. The ability of many borrowers to service their debts also
may decrease in the event of an interest-rate increase.
Management's strategy is to maintain a balanced interest rate risk position to
protect its net interest margin from market fluctuations. To this end, the ALCO
Committee reviews, on a monthly basis, the maturity and repricing of assets and
liabilities. The ALCO Committee has adopted a long range objective of achieving
and maintaining a one-year gap between rate sensitive assets and rate sensitive
liabilities of 0.75 to 1.25, and a short range gap (for 30, 60 and 180 days)
between 0.85 and 1.15. Currently the Bank's one-year actual gap approximates
the targeted gap rates.
Principal among the Bank's asset/liability management strategies has been the
emphasis on managing its interest-rate sensitive liabilities in a manner
designed to reduce the Bank's exposure during periods of rising interest rates.
Management believes that the type and amount of the interest rate-sensitive
liabilities held by the Bank, a significant portion of which are composed of
money market accounts whose yields, to a certain extent, are subject to the
discretion of management, may minimize the potential impact that a rise in
interest rates might have on the Bank's net interest income. Additionally,
management has instituted a "floor," or minimum rate, on its floating or prime
based loans. The "floor" amount for each specific loan is determined in
relation to the prevailing market rates on the date of origination. This
"floor", management believes, will allow the Bank to continue to earn a higher
rate when prime falls below the established "floor" rate. Further, management
believes that customers of the Bank, as a community bank, are less likely to
base their banking decisions solely on relative yield than customers of larger
financial institutions.
* PAGE 18 *
<PAGE> 10
WEST COAST BANCORP, INC. AND SUBSIDIARY
- --------------------------------------------------------------------------------
Management utilizes a simulation model, complete with rate shock scenarios, to
determine the Bank's sensitivity to rate changes. Using historical data and
prepayment assumptions, management places each category of asset and liability
in a time frame that it expects the assets and liabilities to reprice.
The following table sets forth the interest rate-sensitive assets and
liabilities of the Bank at December 31, 1995, which are expected to mature or
are subject to repricing in each of the time periods indicated.
<TABLE>
<CAPTION>
90 DAYS 91-180 181 DAYS 1-3 3-5 MORE THAN
OR LESS DAYS TO 1 YEAR YEARS YEARS 5 YEARS TOTAL
------------------------------------------------------------------------------------
Interest-earning assets: (Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Federal funds sold .......... $ 2,965 $ 0 $ 0 $ 0 $ 0 $ 0 $ 2,965
Investment securities held
to maturity ................ 697 1,483 1,853 4,995 872 3,780 13,680
Investment securities
available for sale ......... 2,024 235 750 4,562 250 0 7,821
Mortgage-backed securities
available for sale .......... 1,807 148 670 1,707 59 0 4,391
Mortgage loans held for sale. 5,866 0 0 0 0 0 5,866
Interest-earning deposits ... 250 0 0 0 0 0 250
Loans ....................... 62,635 8,656 9,252 7,747 5,860 3,933 98,083
------------------------------------------------------------------------------------
Total interest-earning
assets ................... 76,244 10,522 12,525 19,011 7,041 7,713 133,056
------------------------------------------------------------------------------------
Interest-bearing liabilities:
Interest-bearing demand
and NOW accounts ........... 3,399 687 2,254 3,012 5,584 3,078 18,014
Savings deposits ............ 0 1,043 2,965 4,055 2,221 1,303 11,587
Money market deposits ....... 15,432 0 0 0 0 0 15,432
Time deposits ............... 18,133 13,413 18,590 12,272 5,378 0 67,786
Borrowed funds ............... 29 0 1,000 0 0 0 1,029
------------------------------------------------------------------------------------
Total interest-bearing
liabilities ............... 36,993 15,143 24,809 19,339 13,183 4,381 113,848
------------------------------------------------------------------------------------
Interest sensitivity gap
per period .................. $39,251 $(4,621) $(12,284) $ (328) $(6,142) $ 3,332 $ 19,208
====================================================================================
Cumulative gap ............... $39,251 $34,630 $ 22,346 $22,018 $15,876 $19,208
====================================================================================
Cumulative ratio of interest-
earning assets to interest
bearing liabilities ......... 1.940 1.660 1.290 1.220 1.140 1.160
Cumulative gap to
total assets ................ 0.266 0.235 0.151 0.149 0.107 0.130
</TABLE>
FINANCIAL CONDITION
LENDING ACTIVITIES
The primary source of income for the Company is the interest earned on loans.
At December 31, 1995, the Company's total assets were $147.2 million as
compared to $138.5 million at December 31, 1994, and net loans of $98 million
represented 67% of the total assets for 1995 as compared to net loans of $85
million representing 63% of the total assets in 1994. Management believes that
the increase in net loans from 1994 to 1995 is primarily attributable to
increased loan demand resulting from the Bank's reputation among business and
individuals located in its primary market area as an independent community
bank. Each loan officer has defined lending authority beyond which loans,
depending upon their size, must be reviewed by either senior management or a
loan committee comprised of certain Directors of the Bank and certain senior
loan officers. Loan requests for amounts in excess of $500,000 also must be
approved by the Board of Directors of the Bank.
* PAGE 19 *
<PAGE> 11
* MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)*
WEST COAST BANCORP, INC. AND SUBSIDIARY
- --------------------------------------------------------------------------------
The following table shows the composition of the Company's loan portfolio by
type of loan on the dates indicated. The Bank has no foreign or agricultural
loans nor does it have any loans to energy-producing customers.
LOAN PORTFOLIO ANALYSIS
<TABLE>
<CAPTION>
Year Ended December 31,
1995 1994
------------------------------------------------
Amount % Amount %
------------------------------------------------
Type of Loan: (Dollars in Thousands)
<S> <C> <C> <C> <C>
Commercial and financial (1) ..... $60,840 61 % $50,054 58 %
Real estate construction ......... 14,217 14 12,398 14
Real estate mortgage (2) ......... 19,377 20 18,732 22
Installment loans to individuals . 5,156 5 5,143 6
------------------------------------------------
Total loans ..................... 99,590 100.0% 86,327 100.0%
Less:
Unearned loan fees ............... (392) (338)
Allowance for credit losses ...... (1,115) (791)
------------------------------------------------
Total loans, net ................ $98,083 $85,198
------------------------------------------------
</TABLE>
- ------------------
(1) Commercial and financial consists of commercial real estate mortgage loans
and other commercial loans.
(2) Real estate mortgage consists of residential real estate mortgages.
The following tables set forth the maturities of loans (excluding real estate
mortgages and installment loans) outstanding at December 31, 1995, and an
analysis of sensitivities of loans due to changes in interest rates.
LOAN MATURITY SCHEDULE
(DOLLARS IN THOUSANDS)
AT DECEMBER 31, 1995
<TABLE>
<CAPTION>
DUE AFTER 1
DUE IN 1 YEAR BUT DUE AFTER
YEAR OR LESS BEFORE 5 YEARS 5 YEARS TOTAL
--------------------------------------------------
<S> <C> <C> <C> <C>
Commercial and financial ........ $40,931 $17,970 $1,939 $60,840
Real estate construction ........ 14,217 0 0 14,217
</TABLE>
The following table sets forth as of December 31, 1995, the dollar amounts of
loans due after one year which had predetermined interest rates and which had
floating or adjustable rates.
<TABLE>
<CAPTION>
AT DECEMBER 31, 1995
DOLLAR AMOUNT OF LOANS
(IN THOUSANDS)
----------------------
<S> <C>
Type of Interest Rate:
Predetermined .......... $ 8,139
Floating or adjustable . $11,770
-------
Total ................ $19,909
-------
</TABLE>
ASSET QUALITY
Management seeks to maintain a level of high quality assets through
conservative underwriting and sound lending practices. Management intends to
follow this policy even though it may result in foregoing the funding of higher
yielding loans. The majority of the loans in the Bank's loan portfolio are
collateralized by first mortgage interests in residential lot loans, commercial
real estate, and one-to-four-family residences which historically have carried
relatively low credit risk. As of December 31, 1995, approximately 85% of the
total loan portfolio was collateralized by this type of property. As of December
31, 1995, non-performing loans and real estate owned amounted to $4,438,000, or
3.01% of total assets as compared to $2,587,000 or 1.87% of total assets as of
December 31, 1994. Management does not believe that this increase in
non-performing loans is indicative of the overall asset quality of the Bank's
loan portfolio.
* PAGE 20 *
<PAGE> 12
WEST COAST BANCORP, INC. AND SUBSIDIARY
- --------------------------------------------------------------------------------
Non-accrual loans increased to $2,882,000 from $1,318,000 as of December 1994.
This increase was concentrated in four credits aggregating $1,492,000. These
particular loans are collateralized by commercial real estate in the Bank's
market area.
Other Real Estate Owned "OREO" totaled $1,532,000 as of December 31, 1995,
compared to $1,147,000 at December 31, 1994. The OREO property is comprised of
21 properties. which consist of 17 vacant lots, three homes and the medical
complex which the Company exchanged for 29 non-income-producing vacant lots.
The Company intends to sell the medical complex. The appraised value of all
OREO property is approximately $1,715,000. The Company does not anticipate any
material or unrecognized losses associated with the current assets classified
as non-performing.
In an effort to maintain the quality of the loan portfolio, management seeks to
minimize higher risk types of lending and additional precautions have been taken
when such loans are made in order to reduce the Bank's risk of loss. Generally,
construction loans present a higher degree of risk to a lender depending upon,
among other things, whether the borrower has permanent financing at the end of
the loan period, whether the project is an income producing transaction in the
interim, and the nature of changing economic conditions including changing
interest rates. In view of the real estate related loans, there can be no
assurance that a downturn in the value of the real estate in Southwest Florida
will not have a material adverse impact on the Bank's profitability. However, as
part of its loan portfolio management strategy, the Bank typically requires a
substantial percentage of the purchase price as a down payment, and as
collateral for the loan, a first mortgage interest in the entire property to be
encumbered, not just the proportionate value of the property which relates to
the amount loaned. Management believes that such precautions reduce the
Company's exposure to the risks associated with a downturn in real estate
values.
Commercial and financial loans also entail certain additional risks since they
usually involve large loan balances to single borrowers or a related group of
borrowers, resulting in a more concentrated loan portfolio. Further, since their
repayment is usually dependent upon the successful operation of the commercial
enterprise, they also are subject to adverse conditions in the economy.
Commercial loans are generally riskier than residential mortgages because they
are typically made on the basis of the ability to repay from the cash flow of a
business rather than on the ability of the borrower or guarantor to repay.
Further, the collateral underlying commercial loans may depreciate over time,
and occasionally cannot be appraised with as much precision as residential real
estate, and may fluctuate in value based on the success of the business.
Commercial loans in Southwest Florida tend to be particularly sensitive to the
fluctuations of the tourist and construction industries, the mainstays of the
local economy.
While there is no assurance that the Bank will not suffer any losses on its
construction loans or its commercial real estate loans, management believes
that it has reduced the risks associated therewith because, among other things,
substantially all of such loans relate to owner-occupied projects, projects
where the borrower has received permanent financing commitments from which the
Bank will be repaid, and projects where the borrower has demonstrated to
management that its business will generate sufficient income to repay the loan.
In this regard, the Bank has made four land acquisition and development loans
and construction loans to developers of residential properties for the
construction of real estate subdivisions and multi-family housing projects
totaling $3.8 million. The Bank primarily enters into agreements with
individuals who are familiar to the Bank and are residents of the Bank's
primary market area.
In addition to maintaining high quality assets, management attempts to limit the
Bank's risk exposure to any one borrower or borrowers with similar or related
entities. As of December 31, 1995, the Bank has extended credit in excess of $1
million to three borrowers. The current outstanding balance of these three
credits is approximately $3.7 million. One of these loans was made in 1989 and
was participated in by another bank in order not to exceed the Bank's legal
lending limit that existed at that time. As of December 31, 1995, this
particular loan has experienced difficulty in making its repayments, and the
loan has been placed on non-accrual status. The Bank's total exposure under this
obligation is approximately $643,000. However, the Bank holds a first mortgage
and personal guarantees
* PAGE 21 *
<PAGE> 13
* MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)*
WEST COAST BANCORP, INC. AND SUBSIDIARY
- --------------------------------------------------------------------------------
which substantially exceed the outstanding obligation. Accordingly, the Bank
does not believe that a default and/or foreclosure under this obligation will
have any material effect on the Company or the Bank.
Loan concentrations are defined as amounts loaned to a number of borrowers
engaged in similar activities which would cause them to be similarly impacted by
economic or other conditions. The Company, on a routine basis, evaluates these
concentrations for purposes of policing its concentrations and to make necessary
adjustments in its lending practices that most clearly reflect the economic
times, loan to deposit ratios, and industry trends. As of December 31, 1995,
total loans to any particular group of customers engaged in similar activities
or having similar economic characteristics did not exceed 10% of total loans.
However, as indicated above, a substantially natural geographical concentration
of credit risk exists within the Bank's primary market areas.
The Board of Directors of the Bank concentrates its efforts and resources, and
that of its senior management and lending officials, on loan review and
underwriting procedures. The Bank utilizes the services of an independent
consultant to perform periodic loan review and underwriting procedures.
Internal controls include a loan review specialist employed by the Bank, who
performs on-going reviews of loans made to monitor documentation and ensure the
existence and valuations of collateral. The Bank's loan review committee
reviews bi-weekly all loans subject to close monitoring due to internal policy
guidelines. In addition, senior loan officers of the Bank have established a
review process with the objective of quickly identifying, evaluating, and
initiating necessary corrective action for marginal loans. The goal of the loan
review process is to address watch loans, substandard and non-performing loans
as early as possible. Combined, these components are integral elements of the
Bank's loan program which has resulted in its loan portfolio performance to
date. Nonetheless, management maintains a cautious outlook in anticipating the
potential effects of uncertain economic conditions (both locally and
nationally) and the possibility of more stringent regulatory standards.
CLASSIFICATION OF ASSETS
Generally, interest on loans is accrued and credited to income based upon the
principal balance outstanding. It is management's policy to discontinue the
accrual of interest income and classify a loan as non-accrual when principal or
interest is past due 90 days or more and the loan is not adequately
collateralized, or when in the opinion of management, principal or interest is
not likely to be paid in accordance with the terms of the obligation. Consumer
installment loans will be charged-off after 90 days of delinquency unless
adequately collateralized and in the process of collection. Loans will not be
returned to accrual status until principal and interest payments are brought
current and future payments appear certain. Interest accrued and unpaid at the
time a loan is placed on non-accrual status is charged against interest income.
Subsequent payments received are applied to the outstanding principal balance.
Real estate acquired by the Bank as a result of foreclosure or acceptance of
deeds in lieu of foreclosure is classified as OREO. These properties are
recorded on the date acquired at the lower of fair value less estimated selling
costs or the recorded investment in the related loan. If the fair value after
deducting the estimated selling costs of the acquired property is less than the
recorded investment in the related loan, the estimated loss is charged to the
allowance for credit losses at that time. The resulting carrying value
established at the date of foreclosure becomes the new cost basis for subsequent
accounting. After foreclosure, if the fair value less estimated selling costs of
the property becomes less than its cost, the deficiency is charged to the
provision for losses on other real estate owned.
Costs relating to the developmental improvement of the property are capitalized,
whereas those relating to holding the property for sale are charged as an
expense.
The amount of OREO included in other assets was approximately $1,532,000 and
$1,147,000 at December 31, 1995 and 1994, respectively. The amount of allowance
for losses on OREO is $140,000 and $65,000 at December 31, 1995 and 1994,
respectively.
At December 31, 1995, the Bank had 15 loans on
* PAGE 22 *
<PAGE> 14
WEST COAST BANCORP, INC. AND SUBSIDIARY
- --------------------------------------------------------------------------------
a non-accrual status representing $2,882,000. At December 31, 1994, the Bank had
18 loans on a non-accrual status representing $1,318,000. This increase in
principal amount of loans which are in non-accrual status is due primarily to
those credits discussed under the section "Asset Quality".
The following table sets forth certain information with respect to the Bank's
non-accrual loans, OREO, and accruing loans which are contractually past due 90
days or more as to principal or interest.
NON-PERFORMING ASSETS
<TABLE>
<CAPTION>
AT DECEMBER 31
1995 1994
(DOLLARS IN THOUSANDS)
----------------------
<S> <C> <C>
NON-ACCRUAL LOANS:
Commercial and
financial .................... $ 855 $ 891
Real estate mortgage .......... 2,027 427
-------------------
Total non-accrual loans .... 2,882 1,318
Accruing loans contractually
past due 90 days or more ..... 24 122
-------------------
Total non-performing loans . 2,906 1,440
OREO and other assets ......... 1,532 1,147
-------------------
Total non-performing assets. $4,438 $2,587
===================
Total non-performing assets
to total assets .............. 3.01% 1.87%
===================
</TABLE>
The approximate amount of interest on non-accrual loans which would have been
recorded as income under the original terms of the loans was $185,000 and
$109,000 for the fiscal years ended December 31, 1995 and 1994, respectively.
The amount of interest income collected on non-accrual loans, prior to the
point of becoming non-accrual loans, that was included in net income for the
years ended December 31, 1995 and 1994 was approximately $94,000 and $40,000,
respectively. The amount of interest income included in net income on accruing
loans contractually past due 90 days or more was $800 for the year ended
December 31, 1995.
ALLOWANCE FOR CREDIT LOSSES
In originating loans, the Bank recognizes that credit losses will be
experienced and that the risk of loss will vary with, among other things, the
type of loan being made, the creditworthiness of the borrower over the term of
the loan and, in the case of a collateralized loan, the quality of the
collateral for the loan as well as general economic conditions. It is
management's policy to maintain an adequate allowance for credit losses based
on, among other things, the Bank's historical credit loss experience,
evaluation of economic conditions and regular reviews of delinquencies and loan
portfolio quality.
The Company adopted Statement of Financial Accounting Standards No. 114
"Accounting by Creditors for Impairment of a Loan," (SFAS No. 114) on January
1, 1995. Under the new standard, a loan is considered impaired, based on
current information and events, if it is probable that the Company will be
unable to collect the scheduled payments of principal or interest when due
according to the contractual terms of the loan agreement. The Company evaluates
individual loans for impairment from internally generated watch lists and other
sources. Insignificant delays or shortfalls in the amount of payments is not
automatically considered by management to cause a loan to become impaired.
Management considers the reasons for the delays or shortfalls (e.g.,
seasonality of the business, temporary stoppage in operations due to equipment
failure or a natural disaster) when loss evaluations are made. However,all
loans 90 days or more past due are reviewed for impairment. Loans meeting the
criteria for impairment may or may not be placed on non-accrual status, based
on the loan's current status and nature and amount of impairment. The
measurement of impaired loans is generally based on the present value of
expected future cash flows discounted at the historical effective interest
rate, except that all collateral-dependent loans are measured for impairment
based on the fair value of the collateral. The adoption of SFAS No. 114
resulted in no additional provision for credit losses.
The adequacy of the allowance for credit losses is periodically evaluated by the
Company in order to maintain the allowance at a level that is sufficient to
absorb probable credit losses. Management's evaluation of the adequacy of the
allowance is based on a review of the Company's historical loss experience,
known and inherent risks in the loan portfolio, including adverse circumstances
that may affect the ability of the borrower to repay interest and/or principal,
the estimated value of collateral, and an analysis of the levels and trends of
delinquencies, charge-offs, and the risk ratings of the various loan categories.
Such factors as the level and trend of interest rates and the condition of the
national and local economies are also considered.
* PAGE 23 *
<PAGE> 15
* MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)*
WEST COAST BANCORP, INC. AND SUBSIDIARY
- --------------------------------------------------------------------------------
Management recognizes the greater inherent risks in connection with consumer,
construction, and commercial lending. See "Provision for Credit Losses."
The allowance for credit losses is established through charges to earnings in
the form of a provision for credit losses. Increases and decreases in the
allowance due to changes in the measurement of the impaired loans are included
in the provision for credit losses. Loans continue to be classified as impaired
unless they are brought fully current and the collection of scheduled interest
and principal is considered probable.
When a loan or portion of a loan, including impaired loans, is determined to be
uncollectible, the portion deemed uncollectible is charged against the
allowance and subsequent recoveries, if any, are credited to the allowance.
In October 1994, FASB issued Statement of Financial Accounting Standards No.
118, "Accounting by Creditors for Impairment of a Loan - Income Recognition and
Disclosures" (SFAS No. 118). SFAS No. 118 amends SFAS No. 114 to allow a
creditor to use existing methods for recognizing interest income on any
impaired loan, rather than the methods prescribed in SFAS No. 114.
Loans, including impaired loans, are generally classified by the Company as
nonaccrual if they are past due as to maturity or payment of principal or
interest for a period of more than ninety (90) days, unless such loans are well
collateralized and in the process of collection. If a loan or a portion of a
loan is classified as doubtful or is partially charged off, the loan is
classified as nonaccrual. Loans that are on a current payment status or past
due less than ninety (90) days may also be classified as nonaccrual if
repayment in full of principal and/or interest is in doubt.
While a loan is classified as nonaccrual and the future collectibility of the
recorded loan balance is doubtful, collections of interest and principal are
generally applied as a reduction to principal outstanding. When the future
collectibility of the recorded loan balance is expected, interest income may be
recognized on a cash basis. In the case where a nonaccrual loan had been
partially charged off, recognition of interest on a cash basis is limited to
that which would have been recognized on the recorded loan balance at the
contractual interest rate. Cash interest receipts in excess of that amount are
recorded as recoveries to the allowance for credit losses until prior
charge-offs have been fully recovered.
Management continues to actively monitor the Bank's asset quality and to
charge-off loans against the allowance for credit losses when appropriate or to
provide specific loss allowances when necessary. Although management believes
it uses the best information available to make determinations with respect to
the allowance for credit losses, future adjustments may be necessary if
economic conditions differ from the economic conditions in the assumptions used
in making the initial determinations. The Bank increased its allowance to
$1,115,000 during the year ended December 31, 1995, reflecting management's
intent to maintain the level of the Bank's allowance for credit losses at a
level management believes to be adequate to cushion it against the reasonably
expected economic conditions.
The provision for credit losses in 1994 and 1995 was determined by management
using such factors as growth in the loan portfolio and change in the loan mix.
The increase in the provisions in 1995 from 1994 resulted primarily from the
Company's identification of four commercial loans which experienced difficulty
in 1995 in servicing its debt. The Company has placed these loans on non-accrual
and has increased its allowance for credit losses to provide for future
potential losses.
* PAGE 24 *
<PAGE> 16
WEST COAST BANCORP, INC. AND SUBSIDIARY
- --------------------------------------------------------------------------------
The following table sets forth an analysis of the Bank's allowance for possible
credit losses for the periods indicated.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
1995 1994
-------------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Average net loans outstanding during the year..... $92,453 $79,358
Total net loans outstanding at year end........... 98,083 85,198
=========================
Beginning balance of allowance for credit losses. $ 791 $ 813
Loans charged off:
Commercial and financial......................... 47 168
Real estate mortgage ............................ 44 0
Real estate construction......................... 0 0
Installment loans to individuals................. 76 18
-------------------------
Total loans charged-off........................... 167 186
-------------------------
Recoveries of loans previously charged off:
Commercial and financial......................... 30 41
Real estate mortgage............................. 0 0
Installment loans to individuals................. 19 1
-------------------------
Net loans charged-off ............................ 118 144
-------------------------
Provisions for credit losses...................... 442 122
-------------------------
Balance at year end............................... $ 1,115 $ 791
=========================
Net charge-offs during year to average net loans.. 0.12% 0.18%
Allowance as a percentage of non-performing loans. 25.12% 55.31%
</TABLE>
The following table sets forth the breakdown of the allowance for credit losses
by loan category for the periods indicated. Management believes that the
allowance can be allocated by category only on an approximate basis. The
allocation of an allowance to each category is not necessarily indicative of
future losses and does not restrict the use of the allowance to absorb losses
in any other category.
<TABLE>
<CAPTION>
AT DECEMBER 31,
1995 1994
PERCENT OF LOAN PERCENT OF LOANS
IN CATEGORY TO IN CATEGORY TO
AMOUNT TOTAL LOANS AMOUNT TOTAL LOANS
--------------------------------------------------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Commercial and financial.......... $ 483 61.1% $440 58.0%
Real estate mortgage.............. 131 19.5 107 21.7
Real estate construction.......... 20 14.2 8 14.4
Installment loans to individuals.. 25 5.2 11 5.9
Unallocated....................... 456 0.0 225 0.0
---------------------------------------------------------
Total allowance for credit loss. $1,115 100.0% $791 100.0%
=========================================================
</TABLE>
The allowance for credit losses represented 1.04% of the gross loans outstanding
at December 31, 1995 and 0.92% of the gross loans outstanding at December 31,
1994. The increase is due in part to an overall increase in total loans
outstanding as well as an increase in nonperforming loans.
Impaired loans by type of loan as of December 31, 1995 are as follows:
<TABLE>
<CAPTION>
Amount
----------
<S> <C>
Commercial and financial........... $4,032,240
Real estate construction........... 0
Real estate mortgage............... 78,408
Installment........................ 355,825
----------
$4,466,473
----------
</TABLE>
The measurement of impaired loans is based on the fair value of the loan's
collateral. The measurement of non-collateral dependent loans is based on the
present value of expected future cash flows discounted at the historical
effective interest rate. Impaired loans totaling $4,097,000 were measured using
the fair value of the loans' collateral and $370,000 were measured using the
present value of expected future cash flows. The Company recognized $222,000 of
interest on impaired loans using the cash basis method.
* PAGE 25 *
<PAGE> 17
* MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED) *
WEST COAST BANCORP, INC. AND SUBSIDIARY
- --------------------------------------------------------------------------------
The components of the allowance for credit losses are as follows:
<TABLE>
<CAPTION>
DEC. 31, 1995
-------------
<S> <C>
Impaired loans.................. $ 375,068
Other........................... 739,959
----------
$1,115,027
----------
</TABLE>
The information noted above is not presented for December 31,1994 as SFAS No.
114 was not adopted until January 1, 1995.
INVESTMENT ACTIVITIES
Securities that management has the intent and the Company has the ability at
the time of purchase to hold until maturity are classified securities held to
maturity. Securities in this category are carried at amortized cost adjusted
for accretion of discounts and amortization of premiums using the effective
interest method over the estimated life of the securities. If a security has a
decline in fair value below its amortized cost that is other than temporary,
then the security will be written down to its new cost basis by recording a
loss in the consolidated statement of operations. Securities to be held for
indefinite periods of time and not intended to be held to maturity are
classified as available for sale. Assets included in this category are those
assets that management intends to use as part of its asset/liability management
strategy and that may be sold in response to changes in interest rates,
resultant prepayment risk and other factors related to interest rate and
resultant prepayment risk changes. Securities available for sale are recorded
at fair value. Both unrealized holding gains and losses on securities available
for sale, net of taxes, are included as a separate component of shareholders'
equity in the consolidated balance sheets until these gains or losses are
realized. The cost of investment securities sold is determined by the specific
identification method. If a security has a decline in fair value that is other
than temporary, then the security will be written down to its fair value by
recording a loss in the consolidated statements of income. Securities that are
held for the purpose of selling in the near future are classified as trading
securities. These securities are recorded at fair value. Both unrealized gains
and losses are included in the consolidated statements of income. The Company
currently has no securities classified as trading securities.
In November 1995, the Financial Accountiing Standards Board (FASB) issued a
Special Report entitled "A Guide to Implementation of Statement 115 on
Accounting for Certain Investments in Debt and Equity Securities." This Special
Report allowed companies a one-time opportunity to reassess their
classification of certain investments. As a result of this opportunity, the
Company has transferred a portion of its held to maturity investments to
available for sale. The amortized cost of the investments transferred was
$5,501,000 and the unrealized loss was $43,000.
The Company's investments of approximately $26 million at December 31, 1995,
primarily consisted of United States Treasury securities, federal agency
obligations, obligations of states and political subdivisions, and
mortgage-backed securities held for sale.
The following table sets forth the carrying value of the Company's investment
portfolio as of the dates indicated.
<TABLE>
<CAPTION>
AT DECEMBER 31,
1995 1994
----------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Investment securities
available for sale:
U.S. treasury securities......... $ 0 $ 0
U.S. government agencies......... 7,141 1,450
Other securities................. 680 1,054
--------------------
Total investment securities,
available for sale............. $ 7,821 $ 2,504
====================
Investment securities,
held to maturity:
U.S. treasury securities......... $ 7,144 $ 7,780
U.S. government agencies......... 0 4,745
Obligations of state and
political subdivisions.......... 6,536 2,786
Other securities................. 0 0
--------------------
Total investment securities
held to maturity............... $13,680 $15,311
====================
Mortgage-backed securities
available for sale............... $ 4,391 $ 4,145
====================
</TABLE>
The following table sets forth the weighted average yield of the investment
portfolio of the
* PAGE 26 *
<PAGE> 18
WEST COAST BANCORP, INC. AND SUBSIDIARY
- --------------------------------------------------------------------------------
Company as of December 31, 1995. The calculation of the weighted average
interest yields is based on interest earned divided by the average cost of the
investment.
<TABLE>
<CAPTION>
AVERAGE
AMOUNT YIELD
----------------------
Investment Category: (Dollars in Thousands)
<S> <C> <C>
Obligations of U.S. Treasury and
Agencies Available for Sale:
0-1 years ....................... $ 1,021 5.11%
1-5 years ....................... 5,869 5.64
5-10 years ...................... 251 7.28
--------------------
Total ......................... 7,141 5.62
--------------------
Other Securities Available for Sale:
1-5 years ....................... 247 6.00
5-10 years ...................... 33 0.00
Over 10 years ................... 400 0.00
--------------------
Total ......................... 680 2.18
--------------------
Mortgage-Backed Securities
Available for Sale:
0-1 years ....................... 22 7.95
1-5 years ....................... 1,406 6.36
Over 10 years.................... 2,963 5.98
--------------------
Total ......................... 4,391 6.11
--------------------
Obligations of U.S. Treasury and
Agencies Held to Maturity
(Tax Exempt) (1):
0-1 years ....................... 3,664 6.08
1-5 years ....................... 3,480 6.12
--------------------
Total ......................... 7,144 6.10
--------------------
Obligations of State and Political
Subdivisions Held to Maturity:
0-1 years ...................... 620 3.26
1-5 years ....................... 2,435 4.42
5-10 years....................... 2,938 4.92
Over 10 years.................... 543 4.81
--------------------
Total ......................... 6,536 4.57
--------------------
Total mortgage-backed and
investment securities ....... $25,892 5.48%
====================
</TABLE>
(1) Yields on tax-exempt obligations have not been computed on a fully tax
equivalent basis
DEPOSIT ACTIVITIES
Deposits are the major source of the Bank's funds for lending and other
investment purposes. In addition to deposits, the Bank derives funds from
interest payments, loan principal payments, loan sales and funds provided from
operations. Scheduled loan repayments are a relatively stable source of funds,
while deposit inflows are significantly influenced by general interest rates
and money market conditions. The Company may use borrowings on a short-term
basis if necessary to compensate for reductions in the availability of other
sources of funds. They also may be used on a longer-term basis for general
business purposes.
Deposits are attracted principally from within the Bank's primary market area
through the offering of a broad variety of deposit instruments including
checking accounts, money market accounts, regular savings accounts, term
certificate accounts (including "jumbo" certificates in denominations of
$100,000 or more) and retirement savings plans. See Note 7 of the "Notes to
Consolidated Financial Statements." As of December 31, 1995, jumbo certificates
accounted for $17 million of the Bank's deposits. Of this amount, $7 million
had a term of six months or less. The Bank has not aggressively attempted to
obtain large denomination, high interest-bearing certificates of deposits in
the past nor does the Bank presently intend to do so in the future.
Maturity terms, service fees and withdrawal penalties are established by the
Bank on a periodic basis. The determination of rates and terms is predicated on
funds acquisition and liquidity requirements, rates paid by competitors, growth
goals and federal regulations.
Regulations promulgated by the FDIC pursuant to the FDICIA place limitations on
the ability of insured depository institutions to accept, renew, or roll-over
deposits by offering rates of interest which are significantly higher than the
prevailing rates of interest on deposits offered by other insured depository
institutions having the same type of charter in such depository institution's
normal market area. Under these regulations, "well capitalized" depository
institutions may accept, renew, or roll such deposits over without restriction,
"adequately capitalized" depository institutions may accept, renew or roll such
deposits over with a waiver from the FDIC (subject to certain restrictions on
payments of rates), and "undercapitalized" depository institutions may not
accept, renew or roll such deposits over. The regulations contemplate that the
definitions of "well capitalized," "adequately capitalized" and
"undercapitalized" will be the same as the definitions adopted by the agencies
to implement the corrective action provisions of the FDICIA. As of December 31,
1995, the Bank met the definition of a "well capitalized" depository
institution.
* PAGE 27 *
<PAGE> 19
* MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED) *
WEST COAST BANCORP, INC. AND SUBSIDIARY
- --------------------------------------------------------------------------------
The following table sets forth the average balances and average weighted rates
for the Bank's categories of deposits for the periods indicated.
<TABLE>
<CAPTION>
FISCAL YEARS ENDED DECEMBER 31,
1995 1994
-----------------------------------------------------------------
% OF % OF
AVERAGE AVERAGE TOTAL AVERAGE AVERAGE TOTAL
Balance Rate Deposits Balance Rate Deposits
-----------------------------------------------------------------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Non-interest bearing demand deposits ............... $ 14,844 0.00% 11.97% $ 13,893 0.00% 13.27%
Interest bearing demand and NOW deposits ........... 16,620 2.45% 13.41% 13,363 2.07% 12.76%
Savings and money market accounts deposits.......... 28,151 3.15% 22.71% 32,914 2.82% 31.43%
Time deposits ...................................... 64,356 5.58% 51.91% 44,546 4.71% 42.54%
----------------------------------------------------------------
Total ............................................ $123,971 100.00% $104,716 100.00%
Weighted Average Rate .............................. 3.94% 3.15%
================================================================
</TABLE>
At December 31, 1995, certificates of deposit represented approximately 52% of
the Bank's total deposits, up from 49% at December 31, 1994. Non-brokered time
deposits over $100,000 represented 14% of total liabilities. The Bank's
increase in time deposits represents the low rate environment which exists for
savings and "NOW" deposits which made these instruments more attractive to
depositors. The Bank does not have a concentration of deposits from any one
source, the loss of which would have a material adverse effect on the business
of either the Bank or the Company. Management believes that substantially all
of the Bank's depositors are residents in its primary market area.
The following table indicates the amount of the Bank's certificates of deposit
of $100,000 or more by time remaining until maturity at December 31, 1995.
<TABLE>
<CAPTION>
CERTIFICATES OF
DEPOSIT
MATURITY PERIOD (DOLLARS IN THOUSANDS)
----------------------
<S> <C>
Under three months ......................... $3,272
Over three months through six months........ 4,287
Over six months through twelve months....... 3,750
Over twelve months ......................... 6,404
-------
Totals ................................... $17,713
=======
</TABLE>
RETURN ON EQUITY AND ASSETS
The following table sets forth the Bank's performance ratios for the periods
indicated.
<TABLE>
<CAPTION>
AT DECEMBER 31,
1995 1994
--------------------------------------
<S> <C> <C>
Return on average assets (3) ............................... 0.91% 0.82%
Return on average equity(3) ................................ 8.04% 6.73%
Dividend payout ratio ...................................... 26.19% 30.79%
Year-end equity to year-end
total assets............................................... 11.16% 10.89%
Average interest-earning assets to
average interest-bearing liabilities ...................... 117.86% 120.54%
Net yield on average interest-
earning assets (1) ....................................... 5.26% 5.06%
Non-interest expense to average assets ..................... 4.08% 4.31%
Net interest income to
non-interest expenses ..................................... 118.20% 107.54%
Non-performing loans and other
real estate owned to average
total assets (2)........................................... 3.14% 2.12%
Non-performing loans to
total loans ............................................... 2.92% 1.67%
Average equity to average total assets .................... 11.18% 12.19%
Allowance for loan losses to
total loans ............................................... 1.11% 0.92%
Net charge-offs to average
net loans ................................................. 0.12% 0.18%
</TABLE>
- ----------
(1) Represents net interest income as a percentage of
average total interest-bearing assets.
(2) Non-performing loans consist of non-accrual loans
and loans contractually past due 90 days or more.
(3) SFAS 115 adjustments are excluded from assets and
equity.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal sources of funds are those generated by the Bank,
proceeds received from the sale of the Company's securities, and from the
Company's bank related activities. The Bank's principal sources of funds are
deposits, principal and interest payments on loans, interest on investments and
the sale of loans and investments. During 1995, the Bank received $7 million
from deposit growth, and $13 million from the sale of loans and $508,000 from
the sale of investments. In addition, the Bank utilized these resources in the
origination of $29 million in loans for its portfolio and held for sale, and
for the purchase of $12 million in investment securities.
* PAGE 28 *
<PAGE> 20
WEST COAST BANCORP, INC. AND SUBSIDIARY
- --------------------------------------------------------------------------------
In accordance with risk capital guidelines issued by the Federal Reserve Board,
the Company is required to maintain a minimum standard of total capital to
weighted risk assets of 8%. Additionally, all national banks must maintain
"core" or "Tier 1" capital of at least 4% of total assets. National banks
operating at or near the 4% capital level are expected to have well-diversified
risks, including no undue interest rate risk exposure, excellent control
systems, good earnings, high asset quality, high liquidity, and well managed on
and off balance sheet activities; and in general be considered strong banking
organizations with a composite 1 rating under the CAMEL rating system for
banks. For all but the most highly rated banks meeting the above conditions,
the minimum leverage requirement will be increased to up to 5% of total assets.
The following table summarizes the capital ratios of the Company and the Bank
at December 31, 1995.
CAPITAL REQUIREMENTS AT DECEMBER 31, 1995
<TABLE>
<CAPTION>
RISK-BASED CAPITAL COMPANY BANK:
----------------------
Tier I Capital (IN THOUSANDS)
<S> <C> <C>
Common shareholders' equity less intangible assets ...... $ 16,428 $ 11,217
Tier II Capital
Allowable allowance for credit loss ..................... 1,115 1,099
Total Capital ......................................... $ 17,543 $ 12,316
Risk-adjusted assets ...................................... $139,524 $136,405
----------------------
Risk-based capital ratios:
Tier I Capital .......................................... 11.77% 10.56%
Total Capital .......................................... 12.57% 11.59%
Leverage Ratio .......................................... 11.16% 7.88%
</TABLE>
ACCOUNTING MATTERS
The Company adopted the Statement of Financial Accounting Standards No. 107,
"Disclosure About Fair Value of Financial Instruments" ("SFAS No. 107") on
January 1, 1995, SFAS No. 107 requires disclosures about the fair value of
financial instruments and the methods and assumptions used to estimate fair
value. Included in the definition of financial instruments are investment and
mortgage backed securities, loans, deposit liabilities, and unfunded loan
commitments.
Accounting for Loan Impairments: The Company adopted Statement of Financial
Accounting Standards No. 114 "Accounting by Creditors for Impairment of a
Loan," ("SFAS No. 114") on January 1, 1995. Under the new standard, a loan is
considered impaired, based on current information and events, if it is probable
that the Company will be unable to collect the scheduled payments of principal
or interest when due according to the contractual terms of the loan agreement.
The measurement of impaired loans is generally based on the present value of
expected future cash flows discounted at the historical effective interest
rate, except that all collateral-dependent loans are measured for impairment
based on the fair value of the collateral. The adoption of SFAS No. 114
resulted in no change to the allowance for credit losses at January 1, 1995.
Impaired Loan Income Recognition and Disclosure: In October, 1994, the
Financial Accounting Standards Board ("FASB") issued Statement of Financial
Accounting Standards No. 118, "Accounting by Creditors for Impairment of a Loan
- - Income Recognition and Disclosures" ("SFAS No. 118"). SFAS No. 118 amends
SFAS No. 114 to allow a creditor to use existing methods for recognizing
interest income on an impaired loan, rather than the methods prescribed in SFAS
No. 114.
Mortgage Banking Activities: In May 1995, the FASB issued Statement of
Financial Accounting Standards No. 122, "Accounting for Mortgage Servicing
Right," ("SFAS No. 122"). SFAS No. 122 amends SFAS 65, "Accounting for Certain
Mortgage Banking Activities," to require that a mortgage banking enterprise
recognize an asset for rights to service mortgage loans for others regardless
of the manner in which those servicing rights are acquired. It also requires an
enterprise to assess its capitalized mortgage servicing rights for impairment
based on the fair value of those rights. In assessing impairment, mortgage
servicing rights that are capitalized after the adoption of this Statement
should be stratified based on one or more of the predominant risk
characteristics of the underlying loans. Impairment should then be recognized
through a valuation allowance for each impaired stratum.
* PAGE 29 *
<PAGE> 21
* MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED) *
WEST COAST BANCORP, INC. AND SUBSIDIARY
- --------------------------------------------------------------------------------
SFAS No. 122 will apply to the Company for its fiscal year beginning after
December 15, 1995. Management believes that the adoption of the SFAS No. 122
will not have a material impact on the financial position of the Company. The
Company has not retained the servicing for its mortgage loans sold. Therefore,
the Company does not anticipate the adoption of the Statement to have any
impact on the Company's financial statements.
IMPACT OF INFLATION AND CHANGING PRICES
The financial statements and related financial data concerning the Company
presented in this Annual Report to Shareholders have been prepared in
accordance with generally accepted accounting principles, which require the
measurement of financial position and operating results in terms of historical
dollars without considering changes in the relative purchasing power of money
over time due to inflation. The primary impact of inflation on the operations
of the Company is reflected in increased operating costs. Unlike most
industrial companies, virtually all of the assets and liabilities of a
financial institution are monetary in nature. As a result, changes in interest
rates have a more significant impact on the performance of a financial
institution than do the effects of changes in the general rate of inflation and
changes in prices. Interest rates do not necessarily move in the same direction
or in the same magnitude as the prices of goods and services.
FEDERAL AND STATE TAXATION
General. The Company and the Bank file a consolidated federal income tax return
on a fiscal year basis. Consolidated returns have the effect of eliminating
intercompany distributions, including dividends, from the computation of
consolidated taxable income for the taxable year in which the distributions
occur. Banks and bank holding companies are subject to federal and state income
taxes in the same manner as other corporations. In accordance with an income
tax sharing agreement, income tax charges or credits are allocated to the
Company and the Bank on the basis of their respective taxable income or loss
included in the consolidated income tax return.
Federal Income Taxation. Although a Bank's income tax liability is determined
under provisions of the Internal Revenue Code of 1986, as amended (the "Code"),
which is applicable to all taxpayers or corporations, Sections 581 through 597
of the Code apply specifically to financial institutions.
The two primary areas in which the treatment of financial institutions differ
from the treatment of other corporations under the Code are in the areas of
bond gains and losses and bad debt deductions. Bond gains and losses generated
from the sale or exchange of portfolio instruments are generally treated for
financial institutions as ordinary gains and losses as opposed to capital gains
and losses for other corporations, as the Code considers bond portfolios held
by banks to be inventory in a trade or business rather than capital assets.
Banks are allowed a statutory method for calculating a reserve for bad debt
deductions. Based on the asset size of the Company, the Bank is permitted to
maintain a bad debt reserve calculated on an experience method, based on
charge-offs for the current and preceding five years, or a "grandfathered" base
year reserve, if larger.
State Taxation. The Bank files state income tax returns in Florida. Florida
taxes banks under primarily the same provisions as other corporations.
Generally, state taxable income is calculated under applicable Code sections
with some modifications required by state law.
* PAGE 30 *
<PAGE> 22
CONSOLIDATED BALANCE SHEETS
WEST COAST BANCORP AND SUBSIDIARY
December 31, 1995 and 1994
<TABLE>
<CAPTION>
1995 1994
-----------------------------
<S> <C> <C>
ASSETS
Cash and due from banks......................................... $ 6,725,460 $ 5,876,317
Federal funds sold.............................................. 2,965,000 13,400,000
Interest-bearing deposits in other banks........................ 250,000 250,000
Mortgage loans held for sale.................................... 5,866,318 5,113,154
Investment securities available for sale........................ 7,821,017 2,503,711
Mortgage-backed securities available for sale................... 4,390,536 4,145,168
Investment securities held to maturity (aggregate fair values of
$13,799,181 in 1995 and $14,844,696 in 1994).................. 13,680,277 15,311,447
Loans (net of allowances for credit losses and deferred loan
fees of $1,506,559 in 1995 and $1,129,014 in 1994)............ 98,082,748 85,198,080
Premises and equipment, net..................................... 3,650,483 3,871,568
Other assets.................................................... 3,781,331 2,753,864
-----------------------------
Total assets.......................................... $147,213,170 $138,423,309
==========================
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Deposits........................................................ $129,205,191 $122,068,376
Long-term borrowings............................................ 1,028,846 1,097,053
Other liabilities............................................... 551,589 182,356
-----------------------------
Total Liabilities..................................... 130,785,626 123,347,785
==========================
COMMITMENTS AND CONTINGENCIES (Notes 11 and 12)
SHAREHOLDERS' EQUITY
Preferred stock, $1.00 par value, 2,500,000 shares authorized,
no shares issued and outstanding........................... 0 0
Common stock, $1.00 par value, 7,500,000 shares authorized,
1,540,066 and 1,531,753 shares issued and outstanding at
December 31, 1995 and 1994, respectively................... 1,540,066 1,531,753
Additional paid-in capital...................................... 12,775,695 12,709,997
Unrealized holding loss on investment securities available for
sale, net..................................................... (82,407) (409,511)
Retained earnings............................................... 2,194,190 1,243,285
-----------------------------
Total shareholders' equity............................ 16,427,544 15,075,524
-----------------------------
Total liabilities and shareholders' equity............ $147,213,170 $138,423,309
==========================
</TABLE>
The accompanying notes are an integral part of these financial statements.
31
<PAGE> 23
CONSOLIDATED STATEMENTS OF INCOME
WEST COAST BANCORP, INC. AND SUBSIDIARY
Years ended December 31, 1995 and 1994
<TABLE>
<CAPTION>
1995 1994
--------------------------
<S> <C> <C>
Interest income
Interest on loans................................................ $ 9,937,976 $7,680,698
Interest on mortgage-backed securities, taxable.................. 272,408 280,202
Interest on investment securities, taxable....................... 947,583 625,741
Interest on investment securities, nontaxable.................... 192,272 93,677
Other interest income............................................ 421,465 300,779
--------------------------
Total interest income.................................... 11,771,704 8,981,097
--------------------------
Interest expense
Deposits......................................................... 4,886,450 3,300,803
Borrowings....................................................... 55,299 60,040
--------------------------
Total interest expense................................... 4,941,749 3,360,843
--------------------------
Net interest income.............................................. 6,829,955 5,620,254
Provision for credit losses........................................ 442,727 122,103
--------------------------
Net interest income after provision for credit losses............ 6,387,228 5,498,151
--------------------------
Other operating income
Mortgage loan servicing fee...................................... 118,838 182,386
Service charges and other fees................................... 655,889 472,010
Rental income.................................................... 24,816 13,499
Gain (loss) on sale of securities................................ (36,347) 19,678
Gain on sale of loan servicing................................... 251,631 281,984
Gain on sale of loans............................................ 243,729 326,116
Loss on sale of other real estate owned.......................... (20,506) (11,722)
Gain on sale of property......................................... 263,965 0
--------------------------
Total other operating income............................. 1,502,015 1,283,951
--------------------------
Other operating expenses........................................... 5,778,377 5,226,148
--------------------------
Income before income taxes....................................... 2,110,866 1,555,954
Provision for income taxes......................................... 822,000 561,000
--------------------------
Net income....................................................... $ 1,288,866 $ 994,954
=======================
Earnings per share
Net income per share............................................. $ .84 $ .65
=======================
Weighted average number of shares outstanding...................... 1,535,809 1,531,526
=======================
</TABLE>
The accompanying notes are an integral part of these financial statements.
32
<PAGE> 24
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
WEST COAST BANCORP, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, 1995 AND 1994
UNREALIZED
HOLDING GAIN
(LOSS) ON
SECURITIES
COMMON STOCK ADDITIONAL AVAILABLE TOTAL
---------------------- PAID-IN FOR SALE, RETAINED SHAREHOLDERS'
SHARES PAR VALUE CAPITAL NET EARNINGS EQUITY
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balances,
December 31, 1993..... 1,531,253 $1,531,253 $12,705,892 $ 53,804 $ 554,623 $ 14,845,572
Stock options for 300
shares exercised April
1, 1994 at $9.75 less
stock appreciation
rights................ 300 300 2,355 0 0 2,655
Stock options for 200
shares exercised July
1, 1994 at $9.75...... 200 200 1,750 0 0 1,950
Cash dividends paid..... 0 0 0 0 (306,292) (306,292)
Unrealized holding loss
on securities
available for sale,
net................... 0 0 0 (463,315) 0 (463,315)
Net income.............. 0 0 0 0 994,954 994,954
--------------------------------------------------------------------------------
Balances, December 31,
1994.................. 1,531,753 1,531,753 12,709,997 (409,511) 1,243,285 15,075,524
Stock options for 8,313
shares exercised at
$9.75-$11.50 per share
less stock
appreciation rights... 8,313 8,313 53,395 0 0 61,708
Stock appreciation
rights to management
exercised............. 0 0 12,303 0 0 12,303
Cash dividends paid..... 0 0 0 0 (337,961) (337,961)
Unrealized holding gain
on securities
available for sale,
net................... 0 0 0 327,104 0 327,104
Net income.............. 0 0 0 0 1,288,866 1,288,866
--------------------------------------------------------------------------------
1,540,066 $1,540,066 $12,775,695 $ (82,407) $2,194,190 $ 16,427,544
================================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
33
<PAGE> 25
CONSOLIDATED STATEMENTS OF CASH FLOWS
WEST COAST BANCORP, INC. AND SUBSIDIARY
Years ended December 31, 1995 and 1994
<TABLE>
<CAPTION>
1995 1994
---------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Interest received............................................... $ 11,408,501 $ 8,859,498
Service charges and fees........................................ 799,543 667,895
Interest paid................................................... (4,913,129) (3,423,728)
Proceeds from loans sold........................................ 12,608,156 18,680,417
Originations of loans held for sale............................. (13,301,678) (18,530,110)
Proceeds from sale of loan servicing............................ 251,631 281,784
Cash paid to suppliers and employees............................ (5,105,836) (5,169,747)
Income taxes paid............................................... (808,000) (446,423)
---------------------------
Net cash provided by operating activities.................... 939,188 919,586
---------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of investment securities............................... (11,877,676) (16,918,254)
Proceeds from sale of mortgage-backed securities................ 0 1,254,678
Proceeds from the sale of investment securities................. 508,962 0
Proceeds from principal reduction of investment securities...... 80,556 105,556
Proceeds from principal reductions of mortgage-backed
securities................................................... 158,597 347,062
Proceeds from the sale of premises and equipment................ 1,305,730 0
Maturities of investment securities............................. 7,655,000 13,254,446
Purchase of interest-bearing deposits in other banks............ (250,000) (250,000)
Proceeds from maturities of interest-bearing deposits in other
banks........................................................ 250,000 250,000
Net proceeds from the sale of other real estate owned........... 166,503 152,413
Acquisition of premises and equipment........................... (1,264,888) (573,520)
Net loans to customers.......................................... (14,062,488) (12,619,476)
---------------------------
Net cash used in investing activities........................ (17,329,704) (14,997,095)
---------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in demand deposits, NOW money market and
savings accounts............................................. (594,699) 1,086,688
Net increase in certificates of deposit......................... 7,731,514 22,563,412
Proceeds from borrowings........................................ 1,000,000 1,000,000
Repayment of borrowings......................................... (1,068,207) (1,134,387)
Cash dividends paid............................................. (337,961) (306,296)
Proceeds from sale of common stock.............................. 74,011 4,605
---------------------------
Net cash provided by financing activities.................... 6,804,658 23,214,022
---------------------------
Net increase in cash and cash equivalents.................... (9,585,858) 9,136,513
Cash and cash equivalents at beginning of year.................. 19,276,318 10,139,805
---------------------------
Cash and cash equivalents at end of year........................ $ 9,690,460 $ 19,276,318
========================
</TABLE>
(Continued on next page)
The accompanying notes are an integral part of these financial statements.
34
<PAGE> 26
WEST COAST BANCORP, INC. AND SUBSIDIARY
RECONCILIATION OF NET INCOME TO NET CASH
PROVIDED BY OPERATING ACTIVITIES
<TABLE>
<CAPTION>
1995 1994
----------------------
<S> <C> <C>
Net income............................................................ $1,288,866 $ 994,954
----------------------
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation.......................................................... 423,972 369,543
Deferred income tax provision (credit)................................ (130,000) 71,000
Amortization of organization costs.................................... 0 2,861
Net amortization of premium on investment securities.................. 4,913 15,666
Net accretion of discount on mortgage-backed securities............... (2,590) (3,712)
Provision for loan losses............................................. 442,727 122,103
Provision for other real estate owned................................. 100,000 31,022
Increase in net deferred loan fees.................................... 69,743 12,568
(Gain) loss on sale of securities..................................... 36,347 (19,678)
Gain on sale of premises and equipment................................ (243,729) 0
Loss on sale of other real estate owned............................... 20,506 11,722
Accretion of discount on certificate of deposit....................... 0 (27)
Increase in loans held for sale....................................... (769,000) (167,342)
(Increase) decrease in other assets................................... (502,851) (307,591)
Increase (decrease) in other liabilities.............................. 200,724 (213,503)
----------------------
Total adjustments................................................ (349,678) (75,368)
----------------------
Net cash provided by operating activities........................ $ 939,188 $ 919,586
====================
</TABLE>
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING ACTIVITIES:
The Company acquired other real estate owned in satisfaction of loans receivable
in the amount of $751,053 and $463,302 during 1995 and 1994, respectively.
The accompanying notes are an integral part of these financial statements.
35
<PAGE> 27
NOTES
WEST COAST BANCORP, INC. AND SUBSIDIARY
1 ORGANIZATION
West Coast Bancorp, Inc. (Company) was incorporated on December 11, 1987, for
the purpose of forming the First National Bank of Southwest Florida (Bank), a
wholly-owned subsidiary, and to conduct business as a bank holding company in
the State of Florida. The Bank received all required regulatory approvals and
opened for business of February 3, 1989. The Bank is chartered as a national
banking institution.
2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting and reporting policies of the Company and the Bank conform to
generally accepted accounting principles and to general practice within the
banking industry. Following is a description of the more significant of those
policies:
PRINCIPLES OF CONSOLIDATION: The consolidated financial statements include the
accounts of the Company and its wholly-owned subsidiary, First National Bank of
Southwest Florida, collectively referred to herein as the Company. All
significant intercompany accounts and transactions have been eliminated.
INVESTMENT SECURITIES: Investment securities are classified in the following
categories:
Held to maturity -- Securities that management has the intent and the
Company has the ability at the time of purchase to hold until maturity are
classified as securities held to maturity. Securities in this category are
carried at amortized cost adjusted for accretion of discounts and
amortization of premiums using the effective interest method over the
estimated life of the securities. If a security has a decline in fair value
below its amortized cost that is other than temporary, then the security
will be written down to its new cost basis by recording a loss in the
consolidated statement of operations. Sales of investments held to maturity
are not anticipated except under rare circumstances.
Available for sale -- Securities to be held for indefinite periods of time
and not intended to be held to maturity are classified as available for
sale. Assets included in this category art those assets that management
intends to use as part of its asset/liability management strategy and that
may be sold in response to changes in interest rates, resultant prepayment
risk and other factors related to interest rate and resultant prepayment
risk changes. Securities available for sale are recorded at fair value.
Both unrealized holding gains and losses on securities available for sale,
net of taxes, are included as a separate component of shareholders' equity
in the consolidated balance sheets until these gains or losses are
realized. The cost of investment securities sold is determined by the
specific identification method. If a security has a decline in fair value
that is other than temporary, then the security will be written down to its
fair value by recording a loss in the consolidated statement of operations.
Trading securities -- Securities that are held principally for the purpose
of selling in the near future are classified as trading securities. These
securities are recorded at fair value. Both unrealized gains and losses are
included in the consolidated statement of operations. The company currently
has no securities classified as trading securities.
LOANS: Loans are carried at the principal amount outstanding, net of deferred
loan fees. Interest is accrued on a simple-interest basis. Loan origination and
commitment fees and certain direct loan origination costs are deferred. For
portfolio loans, net deferred loan fees are amortized to interest income using
the interest method over the life of the related loan. Net deferred loan fees on
loans held for sale are reversed at time of sale.
ALLOWANCE FOR CREDIT LOSSES: The Company adopted Statement of Financial
Accounting Standards No. 114 "Accounting by Creditors for Impairment of a Loan,"
(SFAS No. 114) on January 1, 1995. Under SFAS No. 114, a loan is considered
impaired, based on current information and events, if it is probable that the
Company will be unable to collect the scheduled payments of principal or
interest when due according to the contractual terms of the loan agreement.
Insignificant delays or shortfalls, such as infrequent or short-duration delays
due to off-season cash flow shortages, do not automatically cause loans to be
considered impaired. The
36
<PAGE> 28
NOTES
WEST COAST BANCORP, INC. AND SUBSIDIARY
measurement of impaired loans is generally based on the present value of
expected future cash flows discounted at the historical effective interest rate,
except that all collateral-dependent loans are measured for impairment based on
the fair value of the collateral. The adoption of SFAS No. 114 resulted in no
additional provision for credit losses.
The adequacy of the allowance for credit losses is periodically evaluated by the
Company in order to maintain the allowance at a level that is sufficient to
absorb probable credit losses. Management's evaluation of the adequacy of the
allowance is based on a review of the Company's historical loss experience,
known and inherent risks in the loan portfolio, including adverse circumstances
that may affect the ability of the borrower to repay interest and/or principal,
the estimated value of collateral, and an analysis of the levels and trends of
delinquencies, charge-offs, and the risk ratings of the various loan categories.
Such factors as the level and trend of interest rates and the condition of the
national and local economies are also considered.
The allowance for credit losses is established through charges to earnings in
the form of a provision for credit losses. Increases and decreases in the
allowance due to changes in the measurement of the impaired loans are included
in the provision for credit losses. Loans continue to be classified as impaired
unless they are brought fully current and the collection of scheduled interest
and principal is considered probable.
When a loan or portion of a loan, including impaired loans, is determined to be
uncollectible, the portion deemed uncollectible is charged against the allowance
and subsequent recoveries, if any, are credited to the allowance.
In October 1994, FASB issued Statement of Financial Accounting Standards No.
118, "Accounting by Creditors for Impairment of a Loan -- Income Recognition and
Disclosures" (SFAS No. 118 amends SFAS No. 114 to allow a creditor to use
existing methods for recognizing interest income on an impaired loan, rather
than the methods prescribed in SFAS No. 114.
INCOME RECOGNITION ON IMPAIRED AND NONACCRUAL LOANS: Loans, including impaired
loans, are generally classified as nonaccrual if they are past due as to
maturity or payment of principal or interest for a period of more than 90 days,
unless such loans are well-collateralized and in the process of collection. If a
loan or a portion of a loan is classified as doubtful or is partially charged
off, the loan is classified as nonaccrual. Loans that are on a current payment
status or past due less than 90 days may also be classified as nonaccrual if
repayment in full of principal and/or interest is in doubt.
Loans may be returned to accrual status when all principal and interest amounts
contractually due (including arrearages) are reasonably assured of repayment
within an acceptable period of time, and there is a sustained period of
repayment performance (generally a minimum of six months) by the borrower, in
accordance with the contractual terms of interest and principal.
While a loan is classified as nonaccrual and the future collectibility
of the recorded loan balance is doubtful, collections of interest and principal
are generally applied as a reduction to principal outstanding. When the future
collectibility of the recorded loan balance is expected, interest income may be
recognized on a cash basis. In the case where a nonaccrual loan had been
partially charged off, recognition of interest on a cash basis is limited to
that which would have been recognized on the recorded loan balance at the
contractual interest rate. Cash interest receipts in excess of that amount are
recorded as recoveries to the allowance for credit losses until prior
charge-offs have been fully recovered.
RESTRUCTURED LOANS: Loans are considered troubled debt restructurings under
Statement of Financial Accounting Standards No. 15, "Accounting by Debtors and
Creditors for Troubled Debt Restructurings" (SFAS No. 15), if, for economic or
legal reasons, a concession has been granted to the borrower related to the
borrower's financial difficulties that the Company would not have otherwise
considered. The Company has restructured certain loans in instances where a
determination was made that greater economic value will be realized under new
terms than through foreclosure, liquidation, or other disposition. The terms of
the
37
<PAGE> 29
NOTES
WEST COAST BANCORP, INC. AND SUBSIDIARY
renegotiation generally involve some or all of the following characteristics: a
reduction in the interest pay rate to reflect actual operating income, an
extension of the loan maturity date to allow time for stabilization of operating
income, and partial forgiveness of principal and interest.
The carrying value of a restructured loan is reduced by the fair value of any
assets or equity interest received. In addition, if the present value of future
cash receipts under the new terms does not equal the recorded investment in the
loan at the time of restructuring the carrying value would be further reduced by
a charge to the allowance. Prior to demonstrating performance, the Company
classifies impaired restructured loans as nonaccrual. The accrual of interest
resumes when such loans can demonstrate performance, generally evidenced by six
months of pre- or post-restructuring payment performance in accordance with the
restructured terms, or by the presence of other significant factors. In
addition, at the time of restructuring loans are generally classified as
impaired. A restructured loan that is not impaired based on the restructured
terms and that has a stated interest rate greater than or equal to a market
interest rate at the date of the restructuring is reclassified as unimpaired in
the year immediately following the year it was disclosed as restructured. The
Company had no loans classified as restructured loans at December 31, 1995.
MORTGAGE LOAN ADMINISTRATION: The Company originates and sells real estate
mortgage loans in the secondary market. Loans originated pending sale are
classified as loans held for sale. Such loans are valued at the lower of cost or
market as determined by outstanding commitments from investors or current
investor yield requirements, calculated on the aggregate loan basis. All loans
sold are subject to recourse provisions relating to documentation deficiencies
only, which the Company may correct. Gains or losses resulting from sales are
recognized in the period the sale occurs, as the recourse provisions are not
considered to significantly affect the earnings process.
In May 1995, SFAS No. 122, "Accounting for Mortgage Servicing Rights" was
issued. SFAS No. 122 amends SFAS 65, "Accounting for Certain Mortgage Banking
Activities," to require that a mortgage banking enterprise recognize an asset
for rights to service mortgage loans for others however those servicing rights
are acquired. It also requires an enterprise to assess its capitalized mortgage
servicing rights for impairment based on the fair value of those rights. In
assessing impairment, mortgage servicing rights that are capitalized after the
adoption of this Statement should be stratified based on one or more of the
predominant risk characteristics of the underlying loans. Impairment should then
be recognized through a valuation allowance for each impaired stratum.
SFAS No. 122 will apply to the Company beginning after January 1, 1996. The
Company currently does not retain the servicing for its sold mortgage loans.
Therefore, the Company does not anticipate the adoption of the Statement to have
any impact on the Company's financial statements.
OTHER REAL ESTATE OWNED: Other real estate owned includes properties acquired
through foreclosure or acceptance of deeds in lieu of foreclosure. These
properties are recorded on the dates acquired at the lower of fair value minus
estimated costs to sell or the recorded investment in the related loan. If the
fair value minus estimated costs to sell the property acquired is less than the
recorded investment in the related loan, the resulting loss is charged to the
allowance for credit losses. The resulting carrying value established at the
date of foreclosure becomes the net cost basis for subsequent accounting. After
foreclosure, if the fair value minus estimated costs to sell the property
becomes less than its cost, the deficiency is charged to the provision for
losses on other real estate owned. Costs relating to the development and
improvement of the property are capitalized, whereas those relating to holding
the property for sale are charged to expense.
The amount of other real estate owned included in other assets was approximately
$1,392,000 and $1,148,000 at December 31, 1995 and 1994, respectively. These
amounts are net of allowances for losses on other real estate owned of $140,000
and $65,000 at December 31, 1995 and 1994, respectively.
38
<PAGE> 30
NOTES
WEST COAST BANCORP, INC. AND SUBSIDIARY
PREMISES AND EQUIPMENT: Land is stated at cost. The remaining premises and
equipment are stated at net depreciated cost. Depreciation is computed using the
straight-line method over the estimated useful lives of the related assets.
Major improvements, and betterments of property are capitalized. Maintenance,
repairs and minor improvements are expensed as incurred. Upon retirement or
other disposition of the assets, the applicable net depreciated cost is removed
from the accounts and any gains or losses are included in earnings.
INCOME TAXES: The Company and its banking subsidiary file consolidated income
tax returns. Deferred income taxes are recognized for the tax consequences of
"temporary differences" by applying enacted statutory tax rates applicable to
future years to differences between the financial statement carrying amounts and
the tax basis of existing assets and liabilities. The effect on deferred income
taxes of a change in tax rates is recognized in income in the period that
includes the enactment date.
FUTURE ACCOUNTING REQUIREMENTS - SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets To Be Disposed Of", issued by the
Financial Accounting Standards Board (FASB) in March 1995, is effective for the
Company January 1, 1996. SFAS No. 121 requires that long-lived assets and
certain identifiable intangibles to be held and used by an entity, be reviewed
for impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. In performing the review
for recoverability, the entity should estimate the future cash flows expected to
result from the use of the asset and its eventual disposition. If the sum of
the expected future cash flows (undiscounted and without interest charges) is
less than the carrying amount of the asset, an impairment loss is recognized.
Measurement of an impairment loss for long-lived assets and identifiable
intangibles that an entity expects to hold and use should be based on the fair
value of the asset. Management does not anticipate that the adoption of SFAS
No. 121 will have a material impact on the Company.
EARNINGS PER SHARE: Earnings per share have been computed by dividing net
income by the weighted average number of shares outstanding each year. Common
stock equivalents in the form of outstanding stock options and warrants are not
included due to the immaterial impact on dilution of earnings per share.
STATEMENT OF CASH FLOWS: For purposes of reporting cash flows, cash and cash
equivalents include cash and amounts due from banks and federal funds sold.
Federal funds are generally acquired and held for one-day periods.
3 INVESTMENT AND MORTGAGE-BACKED SECURITIES AVAILABLE FOR SALE
A summary of investment and mortgage-backed securities available for sale is as
follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1995
-------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED
COST GAINS LOSSES FAIR VALUE
-------------------------------------------------
<S> <C> <C> <C> <C>
Investment securities............................. $7,867,263 $ 21,995 $ (68,241) $7,821,017
================================================
Mortgage-backed securities........................ $4,469,149 $ 9,132 $ (87,745) $4,390,536
================================================
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1994
-------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED
COST GAINS LOSSES FAIR VALUE
-------------------------------------------------
<S> <C> <C> <C> <C>
Investment securities............................. $2,644,880 $ 52 $ (141,221) $2,503,711
=================================================
Mortgage-backed securities........................ $4,624,471 $ 3,307 $ (482,610) $4,145,168
=================================================
</TABLE>
Unrealized holding gains and losses on securities available for sale, net of
taxes, are shown as a separate component of shareholders' equity on the
consolidated balance sheet.
At December 31, 1995 and 1994, an unrealized loss of $82,407 and $409,511, net
of a tax effect of $42,452 and $210,961, respectively, was shown as a decrease
of shareholders' equity.
The amortized cost and fair value of investment securities at December 31, 1995,
by contractual principal maturity, are shown below. Actual maturities will
differ from contractual maturities because borrowers may have the right to call
or prepay obligations without prepayment penalties.
<TABLE>
<CAPTION>
AMORTIZED
COST FAIR VALUE
-------------------------
<S> <C> <C>
Due after one year through five years............................... $7,579,591 $7,525,007
=========================
</TABLE>
39
<PAGE> 31
NOTES
WEST COAST BANCORP, INC. AND SUBSIDIARY
There were no sales of mortgage-backed securities available for sale during the
year ended December 31, 1995. Proceeds from the sale of mortgage-backed
securities available for sale during the year ended December 31, 1994 were
$1,254,678. Gross gains of $19,678 were realized on these sales.
At December 31, 1995 and 1994 no investment or mortgage-backed securities
available for sale were pledged as collateral for public funds.
Proceeds from the sale of investment securities available for sale were $508,962
for the year ended December 31, 1995. A gross loss of $36,347 was realized.
There were no sales of investment securities available for sale for the year
ended December 31, 1994.
4 INVESTMENT SECURITIES HELD TO MATURITY
A summary of investments held to maturity is as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1995
---------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
---------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury securities......................... $ 7,144,110 $ 61,829 $ 0 $ 7,205,939
Obligations of state and political
subdivisions................................... 6,536,167 71,128 (14,053) 6,593,242
---------------------------------------------------
$13,680,277 $ 132,957 $ (14,053) $13,799,181
===================================================
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1994
---------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
---------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury securities........................ $ 7,780,610 $1,046 $ (35,342) $ 7,746,314
U.S. Government agencies........................ 4,744,636 0 (332,878) 4,411,758
Obligations of state and political
subdivisions.................................. 2,786,201 3,056 (102,633) 2,686,624
---------------------------------------------------
$15,311,447 $4,102 $ (470,853) $14,844,696
===================================================
</TABLE>
The amortized cost and fair value of investment securities held to maturity at
December 31, 1995, by contractual principal maturity, are shown below. Actual
maturities will differ from contractual maturities because borrowers have the
right to prepay obligations without prepayment penalties.
<TABLE>
<CAPTION>
AMORTIZED FAIR
COST VALUE
---------------------------
<S> <C> <C>
Due in less than one year......................................... $ 4,284,093 $ 4,297,851
Due after one year through five years............................. 5,915,209 5,983,891
Due after five years through ten years............................ 3,480,975 3,517,439
---------------------------
$13,680,277 $13,799,181
===========================
</TABLE>
At December 31, 1995 the amortized cost and fair value of investment securities
held to maturity pledged to secure public funds were $500,000 and $747,400,
respectively.
In November 1995, the Financial Accounting Standards Board (FASB) issued a
Special Report entitled "A Guide to Implementation of Statement 115 on
Accounting for Certain Investments in Debt and Equity Securities." This Special
Report allowed companies a one time opportunity to reassess its classification
of certain investments. As a result of this opportunity, the Company has
transferred a portion of its held to maturity investments to available for sale.
The amortized cost of the investments transferred was $5,501,000 and the
unrealized loss was $43,000.
40
<PAGE> 32
NOTES
WEST COAST BANCORP, INC. AND SUBSIDIARY
5 LOANS AND ALLOWANCE FOR CREDIT LOSSES
The Company's loan portfolio consisted of the following at December 31:
<TABLE>
<CAPTION>
1995 1994
---------------------------
<S> <C> <C>
Commercial (including commercial
real estate) and financial...................................... $60,839,122 $50,053,652
Real estate construction.......................................... 14,217,076 12,397,844
Real estate mortgage.............................................. 19,377,151 18,732,135
Installment....................................................... 5,155,958 5,143,463
---------------------------
99,589,307 86,327,094
Less:
Allowance for loan losses....................................... (1,115,027) (790,949)
Deferred loan fees.............................................. (391,532) (338,065)
---------------------------
Loans, net................................................... $98,082,748 $85,198,080
===========================
</TABLE>
At December 31, 1995 and 1994 the Company had nonaccrual loans totaling
$2,884,000 and $1,318,000, respectively. The approximate amount of interest on
nonaccrual loans which would have been recorded as income under the original
terms of the loans was approximately $185,000 and $109,000 for fiscal years
ended December 31, 1995 and 1994, respectively. The amount of interest income
collected on nonaccrual loans that was included in net income for the years
ended December 31, 1995 and 1994 was approximately $94,000 and $40,000,
respectively.
An analysis of the allowance for credit losses for 1995 and 1994 is as follows:
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
------------------------
Balance at beginning of year........................................ $ 790,949 $ 813,000
Provision charged to operating expense.............................. 442,727 122,103
Recoveries on loans................................................. 48,371 41,515
Loans charged off................................................... (167,020) (185,669)
------------------------
Balance at end of year.............................................. $1,115,027 $ 790,949
========================
</TABLE>
At December 31, 1995, the recorded investment in loans for which impairment has
been recognized in accordance with SFAS 114 totaled approximately $4,467,000, of
which approximately $3,759,000 related to loans with no valuation allowance
because the loans have been partially written down through charge-offs and
approximately $708,000 related to loans with a corresponding valuation allowance
of approximately $375,000. The Company recognized approximately $222,000 of
interest on impaired loans during the portion of the year they were impaired,
using the cash basis method.
6 PREMISES AND EQUIPMENT
Premises and equipment consisted of the following at December 31:
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
---------------------------
Land and land improvements........................................ $ 1,458,582 $ 1,890,895
Buildings and building improvements............................... 1,852,464 1,805,368
Furniture, fixtures and equipment................................. 1,987,054 1,416,392
Leasehold improvements............................................ 35,170 35,020
---------------------------
5,333,270 5,147,675
Less accumulated depreciation..................................... (1,682,787) (1,276,107)
---------------------------
$ 3,650,483 $ 3,871,568
===========================
</TABLE>
41
<PAGE> 33
NOTES
WEST COAST BANCORP, INC. AND SUBSIDIARY
Depreciation expense totaled $423,972 and $369,543 for the years ended December
31, 1995 and 1994, respectively.
7 DEPOSITS
Deposits consisted of the following at December 31:
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
-----------------------------
Non-interest-bearing demand deposits............................ $ 16,386,179 $ 14,980,853
-----------------------------
Interest-bearing deposits:
NOW........................................................... 18,013,829 16,063,466
Money market.................................................. 15,432,416 17,981,985
Savings....................................................... 11,586,981 12,988,133
Certificates of deposit....................................... 67,785,786 60,053,939
-----------------------------
Total interest-bearing deposits....................... 112,819,012 107,087,523
-----------------------------
$129,205,191 $122,068,376
=============================
</TABLE>
The aggregate amount of certificates of deposit of $100,000 or more at December
31, 1995 and 1994 was approximately $17,713,000 and $14,962,000, respectively.
Interest on deposits was as follows for the years ended December 31:
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
-------------------------
NOW................................................................. $ 408,025 $ 276,657
Money market........................................................ 566,436 526,678
Savings............................................................. 321,732 401,635
Certificates of deposit............................................. 3,590,257 2,095,833
-------------------------
$4,886,450 $3,300,803
=========================
</TABLE>
8 LONG-TERM BORROWINGS
Each Federal Home Loan Bank (FHLB) is authorized to make advances to its member
associations, subject to such regulations and limitations as the FHLB may
prescribe. The Bank's borrowings from the FHLB of Atlanta are as follows at
December 31, 1995 and 1994:
<TABLE>
<CAPTION>
MATURITY RATE 1995 1994
- --------------------------------------------------------------
--------------------------------
<S> <C> <C> <C>
July 1995..................................................... 4.56% $ 0 $ 952,822
February 1996................................................. 6.34% 28,846 144,231
July 1996..................................................... 6.12% 1,000,000 0
--------------------------------
1,028,846 $1,097,053
======================
Weighted average interest rate................................ 6.13% 4.79%
======================
</TABLE>
The FHLB requires that the Bank maintain qualifying mortgages as collateral for
its advances. In addition, all of the Bank's FHLB stock is pledged as collateral
for such advances.
42
<PAGE> 34
NOTES
WEST COAST BANCORP, INC. AND SUBSIDIARY
9 OTHER OPERATING EXPENSES
Other operating expenses are as follows for the years ended December 31:
<TABLE>
<CAPTION>
1995 1994
-----------------------
<S> <C> <C>
Salaries and employee benefits........................................ $2,197,204 $1,945,725
Occupancy............................................................. 698,956 641,058
Business development and community support............................ 206,035 159,536
Data processing....................................................... 199,945 162,610
Furniture and equipment............................................... 594,872 588,358
Insurance............................................................. 207,175 265,141
Legal and professional fees........................................... 425,963 3832,779
Licenses, assessments and taxes....................................... 81,665 84,900
Printing, stationary and supplies..................................... 186,032 155,628
Amortization of organization costs.................................... 0 2,861
Director fees......................................................... 65,000 70,500
Postage and freight................................................... 196,225 168,477
Other real estate owned costs......................................... 152,925 99,330
Other................................................................. 566,380 499,245
-----------------------
$5,778,377 $5,226,148
=======================
</TABLE>
10 INCOME TAXES
The Company's provision for income taxes consisted of the following for the year
ended December 31:
<TABLE>
<CAPTION>
1995 1994
--------------------
<S> <C> <C>
Current
Federal............................................................... $ 805,000 $443,000
State................................................................. 147,000 47,000
--------------------
Total current...................................................... 952,000 490,000
--------------------
Deferred
Federal............................................................... (116,000) 60,000
State................................................................. (14,000) 11,000
--------------------
Total deferred..................................................... (130,000) 71,000
--------------------
Total.............................................................. $ 822,000 $561,000
====================
</TABLE>
43
<PAGE> 35
NOTES
WEST COAST BANCORP, INC. AND SUBSIDIARY
Deferred income taxes consisted of the following for the years ended December
31:
<TABLE>
<CAPTION>
1995 1994
--------------------
<S> <C> <C>
Provision for loan losses............................................... $(127,000) $ 33,000
Deferred loan fees...................................................... 0 130,000
Provision for other real estate owned................................... (36,000) 4,000
Depreciation and amortization........................................... (24,000) (10,000)
Valuation allowance on deferred tax asset............................... 93,000 (23,000)
Accrual interest on nonaccrual loans.................................... 0 (25,000)
Adjustment for conversion from accrual basis accounting to cash basis
accounting............................................................ (20,000) (38,000)
Other................................................................... (16,000) 0
--------------------
$(130,000) $ 71,000
====================
</TABLE>
The Company's effective income tax rate varies from the statutory federal income
tax rate for the following reasons:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
1995 1994
-----------------------
<S> <C> <C>
Income tax expense at statutory federal rate......................... $ 718,000 $ 529,000
Tax-exempt interest income........................................... (65,000) (32,000)
State income taxes, net of federal tax benefit....................... 87,000 38,000
Valuation allowance on deferred tax asset............................ 106,000 13,000
Other................................................................ (24,000) 13,000
-----------------------
$ 822,000 $ 561,000
=======================
</TABLE>
Included in other assets at December 31, 1995 and 1994 are net deferred tax
assets of $370,000 and $236,000, respectively. The tax effects of the temporary
differences that comprise the net deferred tax asset are as follows:
<TABLE>
<CAPTION>
1995 1994
---------------------
<S> <C> <C>
DEFERRED TAX ASSETS:
Provision for doubtful accounts...................................... $330,000 $203,000
Provision for other real estate owned................................ 60,000 24,000
Provision for accrued interest....................................... 20,000 0
Depreciation......................................................... 40,000 16,000
Other................................................................ 2,000 7,000
Valuation allowance.................................................. (106,000) (13,000)
Accrual in cash basis conversion..................................... 30,000 10,000
---------------------
376,000 247,000
---------------------
DEFERRED TAX LIABILITIES:
Other................................................................ (6,000) (11,000)
---------------------
Net deferred tax assets........................................... $370,000 $236,000
=====================
</TABLE>
44
<PAGE> 36
NOTES
WEST COAST BANCORP, INC. AND SUBSIDIARY
11 COMMITMENTS
The Company leases the majority of its furniture, fixtures and equipment under
noncancelable operating leases. The future minimum rental payments, by year and
in the aggregate, required under theses leases are approximately as follows at
December 31, 1995:
<TABLE>
<S> <C>
1996.............................................................................. $ 87,000
1997.............................................................................. 54,000
1998.............................................................................. 21,000
1999.............................................................................. 19,000
--------
$181,000
========
</TABLE>
Total rental expense recorded by the Company for the years ended December 31,
1995 and 1994 was approximately $178,000 and $232,000, respectively.
12 FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
The Company is a party to financial instruments with off-balance sheet risk in
the normal course of business to meet the financing needs of its customers and
to reduce its own exposure to fluctuations in interest rates. These financial
instruments include commitments to extend credit and standby letters of credit.
Those instruments involve, to varying degrees, elements of credit and interest
rate risk in excess of the amount recognized in the statements of financial
condition. The contract amounts of those instruments reflect the extent of
involvement the Company has in particular classes of financial instruments.
The Company's exposure to credit loss in the event of nonperformance by the
counterparty to the financial instrument for commitments to extend credit and
standby letters of credit is represented by the contractual amount of those
instruments. The Company uses the same credit policies in making commitments and
conditional obligations as it does for on-balance sheet instruments.
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract. Commitments
generally have fixed expiration dates or other termination clauses and may
require payment of a fee. Since many of the commitments are expected to expire
without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. Total commitments to extend credit at
December 31, 1995 and 1994 were $10,988,000 and $6,634,000, respectively. The
Company evaluates each customer's creditworthiness on a case-by-case basis. The
amount of collateral obtained if deemed necessary by the Company upon extension
of credit is based on management's credit evaluation of the counterparty.
Collateral held varies but may include accounts receivable, inventory, property,
plant, and equipment, residential real estate, and income-producing commercial
properties.
Standby letters of credit are conditional commitments issued by the Company to
guarantee the performance of a customer to a third party. Those guarantees are
primarily issued to support public and private borrowing arrangements. The
credit risk involved in issuing letters of credit is essentially the same as
that involved in extending loan facilities to customers. The collateral varies
but may include accounts receivable, inventory, property, plant and equipment
and residential real estate for those commitments for which collateral is deemed
necessary. The Company had approximately $188,000 and $142,000 in irrevocable
standby letters of credit outstanding at December 31, 1995 and 1994
respectively.
45
<PAGE> 37
NOTES
WEST COAST BANCORP, INC. AND SUBSIDIARY
13 RELATED PARTY TRANSACTIONS
Some of the Directors of the Company are also owners or executive officers in
other business organizations. The Company has made loans to these individuals
and related companies, as well as to executive officers of the Company.
Aggregate loans to these related parties, exclusive of loans to these related
parties, exclusive of loans to such persons which, in aggregate, do not exceed
$60,000, were as follows:
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
---------------------
Balance at beginning of year........................................... $ 839,460 $ 870,525
New loans.............................................................. 267,688 424,795
Repayment of loans..................................................... (222,805) (455,680)
---------------------
Balance at end of year................................................. $ 884,523 $ 839,640
===================
</TABLE>
The Company leases office space to a business of which a Director of the Company
is a partner. Total rental income received under this lease was approximately
$13,000 for each of the two years ended December 31, 1995.
14 FAIR VALUES OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, "disclosures About Fair
Value of Financial Instruments" (SFAS No. 107), requires that the Company
disclose estimated fair values for its financial instruments. Fair value is
defined as the price at which a financial instrument could be liquidated in an
orderly manner over a reasonable time period under present market conditions.
Fair value estimates, methods and assumptions are set forth below for the
Company's financial instruments.
CASH AND DUE FROM BANKS: For cash and due from banks, the carrying amount is a
reasonable estimate of fair value.
INVESTMENTS AND MORTGAGE-BACKED SECURITIES: The fair value of investments and
mortgage-backed securities is estimated based on bid prices published in
financial newspapers or bid quotations received from securities dealers.
LOANS: The estimated fair value of the Company's performing fixed rate loans was
calculated by discounting contractual cash flows adjusted for current prepayment
estimates. The discount rates were based on the interest rates charged to
current customers for comparable loans. The Company's performing adjustable rate
loans reprice frequently at current market rates. Therefore, the fair value of
these loans has been estimated to be approximately equal to their carrying
amount.
The impact of delinquent loans on the estimation of the fair values described
above is not considered to have a material effect and, accordingly, delinquent
loans have been disregarded in the valuation methodologies used.
DEPOSIT LIABILITIES: The fair value of deposits with no stated maturity, such as
demand, NOW, money market and savings is equal to the amount payable on demand
as of December 31, 1995. The fair value of time deposits is estimated using the
rates currently offered for deposits of similar remaining maturities.
COMMITMENTS TO EXTEND CREDIT AND STANDBY LETTERS OF CREDIT: The fair value of
commitments to extend credit is estimated using the fees currently charged to
enter into similar agreements, taking into account the remaining terms of the
agreements and the present creditworthiness of the counterparties. For fixed
rate loan commitments, fair value also considers the difference between current
levels of interest rates and the committed rates. The fair value of letters of
credit is based on fees currently charged for similar agreements or on the
estimated cost to terminate them or otherwise settle the obligations with the
counterparties.
46
<PAGE> 38
NOTES
WEST COAST BANCORP, INC. AND SUBSIDIARY
The estimated fair values of the Bank's financial instruments are as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
---------------------
1995
---------------------
CARRYING FAIR
AMOUNT VALUE
---------------------
<S> <C> <C>
Financial assets:
Cash and due from banks.............................................. $ 6,725 $ 6,725
Federal funds sold................................................... $ 2,965 $ 2,965
Deposits in other banks.............................................. $ 250 $ 252
Investment securities................................................ $ 25,892 $ 26,011
Loans, net of allowance.............................................. $103,949 $105,116
Financial liabilities:
Deposits............................................................. $129,205 $129,579
Securities sold not owned............................................ $ 1,029 $ 1,033
</TABLE>
<TABLE>
<CAPTION>
CONTRACT
Unrecognized financial instruments: VALUE
--------
<S> <C> <C>
Loan commitments..................................................... $ 10,988 $ 0
Standby letters of credit............................................ $ 188 $ 0
</TABLE>
LIMITATIONS: The fair value estimates are made at a discrete point in time
based on relevant market information and information about the financial
instrument. Quoted market prices, when available, are used as the measure of
fair value. Where quoted market prices are not available, fair value estimates
have been based on judgments regarding future expected loss experience, current
economic conditions, risk characteristics of various financial instruments, and
other factors. These estimates are inherently subjective, involving
uncertainties and matters of significant judgment, and, therefore, may not be
indicative of the value that could be realized in a current market exchange.
Changes in assumptions could significantly affect the estimates.
The fair value estimates are based on existing on- and off-balance sheet
financial instruments without attempting to estimate the value of anticipated
future business and the value of assets and liabilities that are not considered
financial instruments. Other significant assets and liabilities that are not
considered financial assets or liabilities include deferred tax assets and
property, plant and equipment. In addition, the tax ramifications related to the
realization of the unrealized gains and losses for investments and
mortgage-backed securities can have a significant effect on fair value estimates
and have not been considered in many of the estimates.
15 STOCK TRANSACTIONS
A summary of cash dividends declared and paid during the year ended December 31,
1995 is as follows:
<TABLE>
<CAPTION>
DATE OF DIVIDEND PAYMENT TOTAL
DIVIDEND DIVIDEND DATE OF DIVIDEND TO SHAREHOLDERS CASH
DECLARATION AMOUNT PAYMENT OF RECORD ON DIVIDENDS
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
January 19, 1995 $.05 February 13, 1995 February 3, 1995 $ 76,590
April 19, 1995 $.05 May 15, 1995 May 5, 1995 76,612
July 20, 1995 $.06 August 14, 1995 August 4, 1995 92,355
October 20, 1995 $.06 November 16, 1995 November 6, 1995 92,404
---------
$ 337,961
========
</TABLE>
47
<PAGE> 39
NOTES
WEST COAST BANCORP, INC. AND SUBSIDIARY
A summary of stock options exercised during 1995 is as follows:
<TABLE>
<CAPTION>
ADDITIONAL TOTAL
COMMON STOCK PAID-IN SHAREHOLDERS
SHARES PAR VALUE CAPITAL EQUITY
----------------------------------------------
<S> <C> <C> <C> <C>
Stock options for 500 shares exercised April 7, 1995 at
$9.75 less stock appreciation rights.................. 500 $ 500 $ 3,575 $ 4,075
Stock options for 2,200 shares exercised May 22, 1995 at
$10.00 less stock appreciation rights................. 2,200 2,200 13,697 15,897
Stock options for 2,200 shares exercised July 7, 1995 at
$10.00 less stock appreciation rights................. 2,200 2,200 14,137 16,337
Stock options for 2,200 shares exercised July 25, 1995
at $10.00 less stock appreciation rights.............. 2,200 2,200 13,257 15,457
Stock options for 175 shares exercised July 26, 1995 at
$9.75 less stock appreciation rights.................. 175 175 1,224 1,399
Stock options for 120 shares exercised July 27, 1995 at
$11.25 less stock appreciation rights................. 120 120 888 1,008
Stock options for 100 shares exercised July 31, 1995 at
$9.75 less stock appreciation rights.................. 100 100 690 790
Stock options for 118 shares exercised October 4, 1995
at $9.75 less stock appreciation rights............... 118 118 823 941
Stock options for 200 shares at $9.75 and 100 shares at
$11.50 exercised October 11, 1995 less stock
appreciation rights................................... 300 300 2,194 2,494
Stock options for 200 shares at $9.75 and 200 shares at
$11.50 exercised November 16, 1995 less stock
appreciation rights................................... 400 400 2,910 3,310
----------------------------------------------
8,313 $ 8,313 $ 53,395 $ 61,708
==============================================
</TABLE>
16 DIVIDEND RESTRICTIONS
The Bank, as a nationally chartered bank, is limited in the amount of cash
dividends that may be paid to its parent. The amount of cash dividends that may
be paid is based on the Bank's net profits of the current year combined with the
Bank's retained net profits of the preceding two years, as defined by national
banking regulations. At December 31, 1995, the Bank had approximately $2,900,000
available for the payment of cash dividends to its parent as determined by the
applicable regulations.
17 STOCK WARRANTS
In connection with the Company's initial public offering in February 1989, each
share of common stock purchased by a Director or organizer of the Company was
accompanied by one nontransferable warrant to purchase one additional share of
common stock at an offering price of $10.00 per share. A total of 127,000
warrants were issued with an expiration date of February 3, 1999. As a result of
the payment of a 10% stock dividend in 1992, the original warrants were canceled
and new warrants issued for the purchase of 139,700 shares of common stock at
$9.09 per share, exercisable through December 17, 2003. Warrants not exercised
prior to or on the expiration date shall expire and become null and void. No
warrants were exercised as of December 31, 1995.
18 STOCK OPTION PLANS
In October 1995, the FASB issued Statement of Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" (SFAS No. 123), which is effective for
the Company beginning January 1, 1996. SFAS No. 123 provides an alternative
method of accounting for stock-based compensation arrangements,
48
<PAGE> 40
NOTES
WEST COAST BANCORP, INC. AND SUBSIDIARY
based on fair value of the stock-based compensation determined by an option
pricing model utilizing various assumptions regarding the underlying attributes
of the options and the Company's stock, rather than the existing method of
accounting for stock-based compensation which is provided in Accounting
Practices Bulletin Opinion No. 25, "Accounting for Stock Issued to Employees
(APB 25). The FASB encourages entities to adopt the fair value based method, but
does not require the adoption of this method, but does not require the adoption
of this method. For those entities that continue to apply APB 25, pro forma
disclosure of the effects, if adopted, of SFAS No. 123 on net income and
earnings per share would be required in the 1996 financial statements. The
Company will continue to apply APB 25 and, therefore, there will be no impact on
the consolidated financial position and consolidated results of operations.
In December 1987, the Board of Directors of the Company approved an Employee
Incentive Stock Option Plan (ISO Plan). The ISO Plan is designed to qualify as
an incentive stock option plan under Section 422A of the Internal Revenue Code.
Under the ISO Plan, a committee designated by the Board of Directors is
authorized to grant options to purchase up to 50,000 shares of common stock to
employees of the Company, including officers. The committee will administer the
ISO Plan and designate the optionees, the number of shares subject to options,
the exercise price, date of grant and date of exercise of the option.
Except for options granted to 10% shareholders, the exercise price of the option
must be at least 100% of the fair market value of the Company's common stock on
the effective date of grant. Options granted to shareholders possessing more
than 10% of the combined voting power of the Company's stock must be at an
exercise price not less than 110% of such fair market value. Options must be
granted within 10 years from the date of adoption of the ISO Plan. Each option
granted under the ISO Plan must be exercised, if at all, within seven years from
the date of grant.
A summary of options granted under the ISO Plan is as follows:
<TABLE>
<CAPTION>
OPTIONS
OPTIONS EXERCISABLE
YEAR OPTION GRANTED AND AT DEC. 31,
GRANTED PRICE OUTSTANDING 1995
- --------------------------------------------------
<S> <C> <C> <C>
1990 $ 9.09 9,900 9,900
1991 $ 9.09 9,900 9,900
1992 $10.00 9,000 9,000
- --------------------------------------------------
28,800 28,800
==================================================
</TABLE>
In March 1992, the Board of Directors of the Company approved the adoption of
the Nonstatutory Stock Option Plan with Stock Appreciation Rights (Nonstatutory
Plan). Under the Nonstatutory Plan, a committee consisting of no less than three
members of the Board of Directors is authorized to grant options to purchase up
to 50,000 shares of common stock to employees of the Company, including
officers.
Options can be granted under the Nonstatutory Plan on such terms and prices
determined by the Board of Directors upon recommendation of the committee
provided, however, that the per share exercise price of the options cannot be
more than the fair market value of the common stock on the date of grant or less
than par value of the common stock. Each option granted shall be exercisable for
a period of five years from the date of grant. No options may be granted under
the Nonstatutory Plan later than ten years from the establishment of the plan.
Options granted under the Nonstatutory Plan are not transferable other than by
will or the laws of descent and distribution.
Under the recommendation of the committee, the Board of Directors may grant
stock appreciation rights (SAR) to participants of the Nonstatutory Plan. Each
SAR may be awarded concurrently with the grant of a nonstatutory option. The
Board of Directors shall have the discretion to grant up to one SAR for every
2.5 options granted under the Nonstatutory Plan. Each SAR entitles the
participant to receive the excess of the fair market value of common stock on
the exercise date less the option price per share of the related option
49
<PAGE> 41
NOTES
WEST COAST BANCORP, INC. AND SUBSIDIARY
granted under the Nonstatutory Plan. The total appreciation payable to a
participant shall be paid in cash, but only in conjunction with the exercise of
the related stock option.
On June 16, 1994, the Company's Board of Directors authorized the issuance of
stock options for 10,000 shares of the Company's common stock to Company
employees. Nine thousand shares were granted to 53 employees at an exercise
price of $11.25 per share, carrying a vesting period of four years. Stock
appreciation rights were also granted with this issue, consisting of one share
of common stock for each 2.5 shares exercised. During the year ended December
31, 1994, 700 options granted during 1993 and 500 options granted during 1992
were forfeited due to employment termination.
On March 16, 1995, the Company's Board of Directors authorized the issuance of
stock options for 10,000 shares of the Company's common stock to Company
employees. Nine thousand shares were granted to 54 employees at an exercise
price of $12.75 per share, carrying a vesting period of four years. Stock
appreciation rights were also granted with this issue, consisting of one share
of common stock for each 2.5 shares exercised. In addition, the Directors
authorized the issuance of 2,500 shares of common stock to a Director at $11.48
per share with no vesting period. Stock appreciation rights were granted with
this issue, consisting of one share for each 2.5 shares exercised. During the
year ended December 31, 1995, 631 options granted during 1994, 700 options
granted during 1993 and 500 options granted during 1992 were forfeited due to
employment termination.
A summary of options granted is as follows:
<TABLE>
<CAPTION>
OPTIONS
OPTIONS EXERCISABLE
YEAR OPTION GRANTED AND AT DEC. 31,
GRANTED PRICE OUTSTANDING 1995
- ----------------------------------------------------
<S> <C> <C> <C>
1995 12.75 9,000 2,250
1994 11.25 9,000 4,500
1993 9.75 2,750 2,550
1992 9.75 2,050 1,850
- ----------------------------------------------------
22,800 11,150
====================================================
</TABLE>
Concurrent with the options granted, a total of 1,300 SAR's were awarded in both
1993 and 1992.
19 BENEFIT PLAN
Effective January 1, 1991, the Company established a savings plan under Section
401(k) of the Internal Revenue Code for eligible employees. The savings plan is
designed to provide eligible employees an opportunity for savings for their
retirement to supplement benefits provided under the Federal Social Security
Act. The savings plan allows employees to defer up to 10% of their income on a
pretax basis through contributions to the plan. Employee contributions vest
immediately. In accordance with the provisions of the savings plan, for every
dollar the employee contributes, the Company may elect to match each
participant's contribution in an amount equal to a percentage of the
participant's deferral. The matching percentage will be determined each year by
the Company's Board of Directors. Matching contributions paid by the Company
vest as follows:
<TABLE>
<CAPTION>
YEARS OF VESTING
SERVICE PROVISIONS
<S> <C>
- --------------------------------------------------------------------
1..................................................... 10%
2..................................................... 25%
3..................................................... 50%
4..................................................... 75%
5..................................................... 100%
</TABLE>
50
<PAGE> 42
NOTES
WEST COAST BANCORP, INC. AND SUBSIDIARY
For the years ended December 31, 1995 and 1994, the Company recorded expense for
the matching contributions of $39,966 and $29,694, respectively.
20 DEFERRED COMPENSATION
The President of the Company has deferred a portion of his salary for the
purpose of the purchase of a life insurance contract. The owner and beneficiary
of the contract is the Company, and the cash surrender value of this contract is
recorded by the Company.
Upon termination of the President's employment with the Company, the cash
surrender value of the contract will be paid to the President, in accordance
with the provisions of the deferred compensation agreement, either in a lump sum
or in installments.
21 RISKS AND UNCERTAINTIES
The earnings of the Company depend on the earnings of the Bank. The Bank is
dependent primarily upon the level of net interest income, which is the
difference between interest earned on its interest earning assets, such as loans
and investments and the interest paid on its interest-bearing liabilities, such
as deposits and borrowings. Accordingly, the operations of the Bank are subject
to risks and uncertainties surrounding its exposure to changes in the interest
rate environment.
Most of the Bank's lending activity is with customers located within Southwest
Florida. Generally, the loans are collateralized real estate consisting of
single family residential and commercial properties. While this represents a
concentration of credit risk, the credit losses arising from this type of
lending compare favorably with the Bank's credit loss experience on its
portfolio as a whole. The ultimate repayment of these loans is dependent to a
certain degree on the local economy and real estate market.
The financial statements of the Company are prepared in conformity with
generally accepted accounting principles that require management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reported period. Actual results could differ from these estimates.
Significant estimates are made by management in determining the allowance for
possible credit losses and carrying values of real estate owned and real estate
held for development. Consideration is given to a variety of factors in
establishing these estimates including current economic conditions,
diversification of the loan portfolio, delinquency statistics, results of
internal loan reviews, borrowers' perceived financial and managerial strengths,
the adequacy of underlying collateral, if collateral dependent, or present value
of future cash flows and other relevant factors. Since the allowance for
possible credit losses and carrying value of real estate assets and real estate
held for development is dependent, to a great extent, on general and other
conditions that may be beyond the Bank's control, it is at least reasonably
possible that the estimates of the allowance for possible credit losses and the
carrying values of the real estate assets could differ materially in the near
term.
51
<PAGE> 43
NOTES
WEST COAST BANCORP, INC. AND SUBSIDIARY
22 CONDENSED PARENT COMPANY FINANCIAL STATEMENTS
The financial statements of West Coast Bancorp, Inc., as the parent
organization, are presented as follows:
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31
---------------------------
1995 1994
---------------------------
<S> <C> <C>
ASSETS
Cash and due from banks......................................... $ 714,715 $ 583,613
Investment securities held to maturity.......................... 0 525,000
Investment securities available for sale........................ 497,615 727,161
Mortgage-backed securities available for sale................... 925,598 1,345,203
Investment in banking subsidiary................................ 11,205,716 9,679,329
Loans........................................................... 1,236,545 690,469
Premises and equipment, net..................................... 1,268,961 1,355,773
Other assets.................................................... 1,189,401 168,976
---------------------------
Total assets............................................ $17,038,551 $15,075,524
===========================
LIABILITIES
Notes payable................................................... $ 611,007 $ 0
---------------------------
Shareholders' equity
Common stock.................................................... 1,540,066 1,531,753
Additional paid-in capital...................................... 12,775,695 12,709,997
Unrealized holding loss on securities available for sale,
net.......................................................... (82,407) (409,511)
Retained earnings............................................... 2,194,190 1,243,285
---------------------------
Total shareholders' equity.............................. 16,427,544 15,075,524
---------------------------
Total liabilities and shareholders' equity.............. $17,038,551 $15,075,524
===========================
</TABLE>
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31
-----------------------
1995 1994
-----------------------
<S> <C> <C>
Interest income...................................................... $ 168,590 $281,586
Loans fees........................................................... 163,916 24,750
Rental income........................................................ 72,479 60,000
Other income......................................................... 30,543 98
Other expenses....................................................... (460,583) (231,087)
Loss on sale of securities........................................... (36,347) 0
-----------------------
Income (loss) before income taxes.......................... (61,402) 135,347
Credit (provision) for income taxes.................................. 3,457 (33,009)
-----------------------
Income (loss) before equity in undistributed earnings of banking
subsidiary...................................................... (57,945) 102,338
Equity in undistributed earnings of banking subsidiary............... 1,346,812 892,616
-----------------------
Net income................................................. $1,288,867 $994,954
=======================
</TABLE>
52
<PAGE> 44
NOTES
WEST COAST BANCORP, INC. AND SUBSIDIARY
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31
-------------------------
1995 1994
-------------------------
<S> <C> <C>
CASH FLOWS PROVIDED BY OPERATING ACTIVITIES:....................... $ 174,044 $ 85,798
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in banking subsidiary................................. 0 (1,500,000)
Acquisition of premises and equipment............................ (695,292) (245,501)
Net decrease in investments and interest-bearing deposits........ 867,819 1,800,030
Net increase in loans purchased.................................. (562,526) (443,253)
-------------------------
Net cash used in investing activities.................... (389,999) (388,704)
-------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sale of common stock............................... 74,011 4,605
Proceeds from short-term borrowings.............................. 611,007 0
Payment of dividends............................................... (337,961) (306,292)
-------------------------
Net cash provided by (used in) financing activities.............. 347,057 (301,687)
-------------------------
Net increase (decrease) in cash and cash equivalents............. 131,102 (604,593)
Cash and cash equivalents at beginning of year................... 583,613 1,188,206
-------------------------
Cash and cash equivalents at end of year......................... $ 714,715 $ 583,613
=========================
</TABLE>
53
<PAGE> 45
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders
West Coast Bancorp, Inc. and Subsidiary
Cape Coral, Florida
We have audited the accompanying consolidated balance sheets of West Coast
Bancorp, Inc. and Subsidiary at December 31, 1995 and 1994, and the related
consolidated statements of income, changes in shareholders' equity and cash
flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of West Coast
Bancorp, Inc. and Subsidiary at December 31, 1995 and 1994, and the
consolidated statements of their operations and their cash flows for the years
then ended in conformity with generally accepted accounting principles.
As discussed in Note 2 to the consolidated financial statements, the Company
adopted Statement of Financial Accounting Standards (SFAS) No. 114, "Accounting
by Creditors for Impairment of Loan," and SFAS No. 118, "Accounting by
Creditors for Impairment of a Loan - Income Recognition and Disclosures," as of
January 1, 1995.
Fort Myers, Florida
January 19, 1996
54
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS LEGEND CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONSOLIDATED
BALANCE SHEET, CONSOLIDATED STATEMENT OF INCOME, NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS AND ITEM B. MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE
10-KSB OF WEST COAST BANCORP AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FORM 10-KSB AND THE ANNUAL REPORT.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 6,725,460
<INT-BEARING-DEPOSITS> 250,000
<FED-FUNDS-SOLD> 2,965,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 12,211,553
<INVESTMENTS-CARRYING> 13,680,277
<INVESTMENTS-MARKET> 13,799,181
<LOANS> 99,589,307
<ALLOWANCE> 1,115,027
<TOTAL-ASSETS> 147,213,170
<DEPOSITS> 129,205,191
<SHORT-TERM> 0
<LIABILITIES-OTHER> 551,589
<LONG-TERM> 1,028,846
0
0
<COMMON> 1,540,066
<OTHER-SE> 14,887,478
<TOTAL-LIABILITIES-AND-EQUITY> 147,213,170
<INTEREST-LOAN> 9,937,976
<INTEREST-INVEST> 1,412,263
<INTEREST-OTHER> 421,465
<INTEREST-TOTAL> 11,771,704
<INTEREST-DEPOSIT> 4,886,450
<INTEREST-EXPENSE> 4,941,749
<INTEREST-INCOME-NET> 6,829,955
<LOAN-LOSSES> 442,727
<SECURITIES-GAINS> (36,347)
<EXPENSE-OTHER> 5,778,377
<INCOME-PRETAX> 2,110,866
<INCOME-PRE-EXTRAORDINARY> 2,110,866
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,288,866
<EPS-PRIMARY> .84
<EPS-DILUTED> .84
<YIELD-ACTUAL> 5.26
<LOANS-NON> 2,882,000
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 1,584,473
<ALLOWANCE-OPEN> 790,949
<CHARGE-OFFS> 167,020
<RECOVERIES> 48,371
<ALLOWANCE-CLOSE> 1,115,027
<ALLOWANCE-DOMESTIC> 659,027
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 456,000
</TABLE>
