-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, QKNl8f+jzscMptXrEVgGwaApQkeLpjrZTZhOC7dXssC35DLmhShn+X+glgRIwuNf G7MekZcfkO46PTUM59615g== 0000891020-96-000933.txt : 19960816 0000891020-96-000933.hdr.sgml : 19960816 ACCESSION NUMBER: 0000891020-96-000933 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960814 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: WEST COAST BANCORP /NEW/OR/ CENTRAL INDEX KEY: 0000717059 STANDARD INDUSTRIAL CLASSIFICATION: STATE COMMERCIAL BANKS [6022] IRS NUMBER: 930810577 STATE OF INCORPORATION: OR FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-10997 FILM NUMBER: 96611496 BUSINESS ADDRESS: STREET 1: 5000 SW MEADOWS RD STREET 2: SUITE 100 CITY: LAKE OSWEGO STATE: OR ZIP: 97305 BUSINESS PHONE: 5036245864 MAIL ADDRESS: STREET 1: 5000 SW MEADOWS RD STREET 2: SUITE 100 CITY: LAKE OSWEGO STATE: OR ZIP: 97035 FORMER COMPANY: FORMER CONFORMED NAME: COMMERCIAL BANCORP DATE OF NAME CHANGE: 19920703 10-Q 1 WEST COAST BANCORP EDGAR FORM 10-Q 1 U.S. SECURITIES AND EXCHANGE COMMISSION Washington D.C. 20549 _______________________________________________________________________ Form 10-Q [X] Quarterly Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934 For the Quarter Ended June 30, 1996 [ ] Transition report under section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from ________ to ________ Commission file number 0-10997 WEST COAST BANCORP (Exact name of registrants specified in its charter) Oregon 93-0810577 (State or other jurisdiction (IRS Employer incorporation or organization) Identification No.) 5335 S.W. Meadows Road Suite 201, Lake Oswego, Oregon 97035 (Address of Principal executive offices) (Zip code) (503) 684-0884 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No _____ Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: Common Stock, no par value, outstanding on July 31, 1996: 5,326,768 2 TABLE OF CONTENTS
PART I. Financial Statements Page ---- Consolidated Balance Sheets - June 30, 1996 and December 31, 1995 . . . . . . . . . . 3 Consolidated Statements of Income - Three months and six months ended June 30, 1996 and 1995 . . . . . . . . . . . . . . . . . 4 Consolidated Statements of Cash Flows - Six months ended June 30, 1996 and 1995 . . . . . . . . 5 Consolidated Statements of Changes in Stockholders' Equity . . . . . . . . . . . . . . . . 6 Notes to Consolidated Financial Statements . . . . . . . 6 Management's Discussion and Analysis of Financial Condition and Results of Operations . . . . . . . . . . . . . . . . . 9 PART II. Other Information Item 6 - Exhibits and Reports on Form 8-K . . . . . . . 17 Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
2 3 WEST COAST BANCORP CONSOLIDATED BALANCE SHEETS
June 30, December 31, 1996 1995 ------------ ------------- (Unaudited) ASSETS Cash and cash equivalents: Cash and due from banks . . . . . . . . . . . . . . . . . . . . . . . . . $ 33,162,340 $ 30,621,724 Interest bearing deposits in other banks . . . . . . . . . . . . . . . . 5,838,651 2,286,848 Federal funds sold . . . . . . . . . . . . . . . . . . . . . . . . . . . - 7,648,678 ------------ ------------ Total cash and cash equivalents . . . . . . . . . . . . . . . . . . . . 39,000,991 40,557,250 Investment securities: Investments available for sale . . . . . . . . . . . . . . . . . . . . . 102,118,588 116,176,809 Investments held to maturity . . . . . . . . . . . . . . . . . . . . . . - - ------------ ------------ Total investmet securities 102,118,588 116,176,809 Loans held for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . 604,493 836,399 Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 402,570,705 339,912,341 Allowance for loan loss . . . . . . . . . . . . . . . . . . . . . . . . . . (4,876,194) (4,721,213) ------------ ------------ Loans, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 397,694,511 335,191,128 Premises and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . 16,541,280 15,608,855 Intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 240,239 283,290 Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,164,336 7,993,495 ------------ ------------ Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $565,364,438 $516,647,226 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY LIABILITIES Deposits: Demand . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 86,724,100 $ 83,278,388 Savings and interest bearing demand . . . . . . . . . . . . . . . . . . . 253,204,758 229,074,600 Certificates of deposits . . . . . . . . . . . . . . . . . . . . . . . . 134,521,240 129,747,628 ------------ ------------ Total deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . 474,450,098 442,100,616 Short-term borrowings: Federal funds purchased . . . . . . . . . . . . . . . . . . . . . . . . . 10,900,000 - Other short-term borrowings . . . . . . . . . . . . . . . . . . . . . . . 9,450,000 7,927,000 ------------ ------------ Total short-term borrowings . . . . . . . . . . . . . . . . . . . . . . 20,350,000 7,927,000 Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,583,203 4,584,136 Long-term borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,797,056 8,837,763 ------------ ------------ Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . 510,180,357 463,449,515 Commitments and contingent liabilities STOCKHOLDERS' EQUITY Preferred stock: no par value, none issued; 10,000,000 shares authorized Common stock: No par value, 15,000,000 shares authorized; shares issued and outstanding 4,816,700 and 4,804,441 respectively . . . . . . . . . . . . . . . . . 6,020,875 6,005,551 Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . 32,748,550 32,614,692 Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,068,013 12,856,449 Net unrealized gain on investments available for sale . . . . . . . . . . 346,643 1,721,019 ------------ ------------ Stockholders' equity . . . . . . . . . . . . . . . . . . . . . . . . . . 55,184,081 53,197,711 ------------ ------------ Total liabilities and stockholders' equity . . . . . . . . . . . . . . $565,364,438 $516,647,226 ============ ============
The accompanying notes are an integral part of these consolidated statements. 3 4 WEST COAST BANCORP CONSOLIDATED STATEMENTS OF INCOME
Three months ended Six months ended June 30, June 30, ----------------------------- ---------------------------- 1996 1995 1996 1995 ---------- ---------- ---------- ----------- (Unaudited) (Unaudited) INTEREST INCOME Interest and fees on loans . . . . . . . . . . . . . . . . $9,929,744 $8,168,489 $18,857,053 $15,590,304 Interest on taxable investment securities . . . . . . . . . 1,117,586 956,546 2,141,897 1,995,742 Interest on non-taxable investment securities . . . . . . . 602,490 677,690 1,246,436 1,360,175 Interest from other banks . . . . . . . . . . . . . . . . . 80,288 25,532 104,932 68,447 Interest on federal funds sold . . . . . . . . . . . . . . 26,286 122,780 201,802 197,231 ---------- ---------- ---------- ---------- Total interest income . . . . . . . . . . . . . . . . . . 11,756,394 9,951,037 22,552,120 19,211,899 INTEREST EXPENSE Savings and interest-bearing demand . . . . . . . . . . . . 1,829,712 1,656,592 3,512,849 3,192,262 Certificates of deposit . . . . . . . . . . . . . . . . . . 1,765,126 1,757,867 3,502,894 3,179,781 Short-term borrowings . . . . . . . . . . . . . . . . . . . 59,203 98,500 179,959 274,762 Long-term borrowings . . . . . . . . . . . . . . . . . . . 171,418 103,837 292,071 206,707 ----------- ---------- ---------- ---------- Total interest expense . . . . . . . . . . . . . . . . . 3,825,459 3,616,796 7,487,773 6,853,512 ---------- ---------- ---------- ---------- NET INTEREST INCOME . . . . . . . . . . . . . . . . . . . . 7,930,935 6,334,241 15,064,347 12,358,387 PROVISION FOR LOAN LOSS . . . . . . . . . . . . . . . . . 461,200 150,000 794,200 271,460 ---------- ---------- ---------- ---------- NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSS . . . . . . . . . . . . . . . . . 7,469,735 6,184,241 14,270,147 12,086,927 NONINTEREST INCOME Other service charges, commissions and fees . . . . . . . . 682,207 410,742 1,259,701 778,904 Service charges on deposit accounts . . . . . . . . . . . . 597,475 615,375 1,209,046 1,180,331 Trust revenue . . . . . . . . . . . . . . . . . . . . . . . 363,604 364,578 673,006 673,511 Gains on sales of loans . . . . . . . . . . . . . . . . . . 266,868 192,208 542,677 336,382 Loan servicing fees . . . . . . . . . . . . . . . . . . . . 121,649 127,786 244,160 243,607 Other . . . . . . . . . . . . . . . . . . . . . . . . . . . 71,768 169,730 123,300 269,826 Net (losses) gains on sales of securities . . . . . . . . . (28,682) 9,306 (47,767) 5,565 ----------- ---------- ---------- ---------- Total noninterest income . . . . . . . . . . . . . . . . 2,074,889 1,889,725 4,004,123 3,488,126 NONINTEREST EXPENSE Salaries and employee benefits . . . . . . . . . . . . . . 3,576,905 3,060,092 7,029,472 6,296,857 Equipment . . . . . . . . . . . . . . . . . . . . . . . . . 511,182 452,616 998,576 908,032 Occupancy . . . . . . . . . . . . . . . . . . . . . . . . . 466,195 430,554 951,274 857,919 Professional fees . . . . . . . . . . . . . . . . . . . . . 390,930 227,986 855,650 536,376 ATM and Bankcard . . . . . . . . . . . . . . . . . . . . . 252,115 191,722 435,075 346,026 Printing and office supplies . . . . . . . . . . . . . . . 192,043 165,490 372,150 322,069 Marketing . . . . . . . . . . . . . . . . . . . . . . . . . 151,239 173,475 314,966 321,944 Communications . . . . . . . . . . . . . . . . . . . . . . 138,723 134,231 280,602 244,993 FDIC insurance . . . . . . . . . . . . . . . . . . . . . . 1,500 212,177 3,000 429,683 Other noninterest expense . . . . . . . . . . . . . . . . . 672,660 511,955 1,270,208 1,048,808 ---------- ---------- ---------- ---------- Total noninterest expense . . . . . . . . . . . . . . . . 6,353,492 5,560,298 12,510,973 11,312,707 INCOME BEFORE INCOME TAXES . . . . . . . . . . . . . . . . 3,191,132 2,513,668 5,763,297 4,262,346 ---------- ---------- ---------- ---------- PROVISION FOR INCOME TAXES . . . . . . . . . . . . . . . . 1,053,636 804,030 1,892,521 1,299,621 ---------- ---------- ---------- ---------- NET INCOME . . . . . . . . . . . . . . . . . . . . . . . . $2,137,496 $1,709,638 $3,870,776 $2,962,725 ========== ========== ========== ========== EARNINGS PER COMMON SHARE . . . . . . . . . . . . . . . . . $.44 $.36 $.80 $.62 ==== ==== ==== ====
The accompanying notes are an integral part of these consolidated statements. 4 5 WEST COAST BANCORP CONSOLIDATED STATEMENTS OF CASH FLOWS
Six months ended June 30, ------------------------------ 1996 1995 -------------- ------------ (Unaudited) CASH FLOWS FROM OPERATING ACTIVITIES Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,870,776 $ 2,962,725 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization of premises and equipment . . . . . . . . . . . 624,786 507,381 Amortization of intangibles . . . . . . . . . . . . . . . . . . . . . . . . . 43,051 43,050 Net loss (gain) on sales of investments: Available for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47,767 (5,565) Held to maturity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - - Provision for loan losses . . . . . . . . . . . . . . . . . . . . . . . . . . 794,200 271,460 Decrease (increase) in interest receivables . . . . . . . . . . . . . . . . . 72,070 (269,374) Increase in other assets . . . . . . . . . . . . . . . . . . . . . . . . . . (1,242,911) (1,892,759) Increase in interest payable . . . . . . . . . . . . . . . . . . . . . . . . 51,730 501,192 Decrease in other liabilities . . . . . . . . . . . . . . . . . . . . . . . . (1,052,663) (390,543) ------------ ------------ Net cash provided by operating activities . . . . . . . . . . . . . . . . 3,208,806 1,727,567 CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from maturities of investment securities: Available for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22,604,975 10,101,517 Held to maturity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 7,135,901 Proceeds from sales of investment securities: Available for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,222,856 2,378,009 Held to maturity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - - Purchase of investment securities: Available for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (22,191,753) (4,343,282) Held to maturity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - (1,325,000) Loans made to customers greater than principal collected on loans . . . . . . . (63,065,677) (35,719,416) Capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,557,211) (2,368,348) ------------ ----------- Net cash used in investing activities . . . . . . . . . . . . . . . . . . . (51,986,810) (24,140,619) CASH FLOWS FROM FINANCING ACTIVITIES Net increase in demand, savings and interest bearing transaction accounts . . . . . . . . . . . . . . . . . . . . . . . . 27,575,870 674,859 Net increase in proceeds from sales of certificates of deposits greater than payments for maturing time deposits . . 4,773,612 44,346,677 Proceeds from long-term borrowings . . . . . . . . . . . . . . . . . . . . . . 4,000,000 2,000,000 Payments on long-term borrowings . . . . . . . . . . . . . . . . . . . . . . . (1,040,707) (785,714) Net increase (decrease) in short-term borrowings . . . . . . . . . . . . . . . 12,423,000 (10,815,000) Sales of common stock, net . . . . . . . . . . . . . . . . . . . . . . . . . . 149,182 102,454 Dividends paid and cash paid for fractional shares . . . . . . . . . . . . . . (659,212) (759,772) ------------ ------------- Net cash provided by financing activities . . . . . . . . . . . . . . . . . 47,221,745 34,763,504 ----------- ------------- NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS . . . . . . . . . . . . . (1,556,259) 12,350,452 CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR . . . . . . . . . . . . . . . . 40,557,250 33,639,760 ----------- ----------- CASH AND CASH EQUIVALENTS AT END OF PERIOD . . . . . . . . . . . . . . . . . . $39,000,991 $45,990,212 =========== ===========
The accompanying notes are an integral part of these consolidated statements. 5 6 WEST COAST BANCORP CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (Unaudited)
Additional Net Unrealized Gains Common Stock Paid-In Retained (Losses) Investments Shares Amount Capital Earnings Available for Sale Total ------------------------ ----------- ----------- -------------------- ---------- BALANCE, December 31, 1994 . . . . . 4,359,583 $5,449,479 $25,432,849 $14,540,734 $(1,191,371) $44,231,691 Net income . . . . . . . . . . . . . - - - 7,358,595 - 7,358,595 Net unrealized gain on investments available for sale . . . . . . . . - - - - 2,912,390 2,912,390 Cash dividends, $.29 per common share . . . . . . . . . . . . . . - - - (1,395,569) - (1,395,569) Sale of stock . . . . . . . . . . . . 5,699 7,124 82,286 - - 89,410 Sale of common stock pursuant to stock option plans . . . . . . . 3,167 3,958 10,072 - - 14,030 10 percent stock dividend . . . . . . 436,276 545,345 7,089,485 (7,634,830) - - Cash paid for fractional shares . . . (284) (355) - (12,481) - (12,836) --------- ---------- ----------- ----------- ----------- ----------- BALANCE, December 31, 1995 . . . . . 4,804,441 6,005,551 32,614,692 12,856,449 1,721,019 53,197,711 Net income . . . . . . . . . . . . . - - - 3,870,776 - 3,870,776 Net unrealized (loss) on investments available for sale . . . . . . . . - - - - (1,374,376) (1,374,376) Cash dividends, $.13 per common share . . . . . . . . . . . . . . - - - (659,212) - (659,212) Sale of common stock pursuant to stock option plans . . . . . . . . 12,259 15,324 133,858 - - 149,182 --------- ---------- ----------- ----------- ----------- ----------- BALANCE, June 30, 1996 . . . . . . . 4,816,700 $6,020,875 $32,748,550 $16,068,013 $ 346,643 $55,184,081 ========= ========== =========== =========== =========== ===========
The accompanying notes are an integral part of these consolidated statements. Notes to Consolidated Financial Statements 1. PRINCIPLES OF CONSOLIDATION The accompanying consolidated financial statements include the accounts of West Coast Bancorp (Bancorp) and its wholly-owned subsidiaries, The Commercial Bank, The Bank of Newport, and Valley Commercial Bank, after elimination of intercompany transactions and balances. The interim financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments including normal recurring accruals necessary for fair presentation of results of operations for the interim periods included herein have been made. The results of operations for the six months ended June 30, 1996 are not necessarily indicative of results to be anticipated for the year ending December 31, 1996. 6 7 2. USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS The preparation of financial statements, in conformity with generally accepted accounting principles, requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. 3. RECENT MERGERS Effective February 28, 1995, Commercial Bancorp, Salem, Oregon completed its merger of equals with West Coast Bancorp, Newport, Oregon, with and into Commercial Bancorp, with the surviving corporation operating under the name West Coast Bancorp. Effective March 30, 1995 West Coast Bancorp completed its merger with Great Western Bank of Dallas, Oregon which became a branch of The Commercial Bank. The historical consolidated financial statements have been restated and include the accounts and results of operations of the mergers as pooling-of-interest combinations. 4. ACCOUNTING CHANGES In May 1993, the Financial Accounting Standards Board ("FASB") issued SFAS No. 114, "Accounting by Creditors for Impairment of a Loan " and in October 1994 issued SFAS No. 118, "Accounting by Creditors for Impairment of a Loan-Income Recognition Disclosures, an amendment to SFAS No. 114." They require that impaired loans be measured based on the present value of expected future cash flows discounted at the loan's effective interest rate or, as a practical expedient, at the loan's observable market price or the fair market value of the collateral if the loan is collateral dependent. These statements exclude loans that are currently measured at fair value or at lower of cost or fair value, leases and certain large groups of smaller balance homogeneous loans that are collectively measured for impairment. These statements apply to financial statements for fiscal years beginning after December 31, 1995. The implementation of the statements did not have a material effect on West Coast's reported financial position or net income. In May 1995, FASB issued SFAS No. 122, "Accounting to Mortgage Servicing Rights", which requires recognition as separate assets rights to service mortgage loans for others, however, those rights are acquired. It further requires the assessment of its capitalized mortgage servicing rights for impairment based on the fair value of those rights. Impairment should be recognized through a valuation allowance. This statement applies to financial statements for fiscal years beginning after December 15, 1995. The implementation of the statement did not have a material effect on West Coast's reported financial position of net income. 5. NET INCOME PER COMMON SHARE The Board of Directors declared a quarterly cash dividend of $.065 per share during the second quarter of 1996 and $.065 per share during the first quarter of 1996. All per share amounts have been restated to retroactively reflect stock splits as well as all previous stock dividends. 6. SUPPLEMENTAL CASH FLOW INFORMATION For purposes of reporting cash flows, cash and cash equivalents include cash on hand, amounts due from banks, and federal funds sold. Generally, federal funds are purchased and sold for one-day periods. Bancorp paid $6,352,320 and $7,436,042, for interest in the six months ended June 30, 1996 and 1995, respectively. Income taxes paid were $1,610,850 and $1,107,086, in the six months ended June 30, 1996 and 1995, respectively. 7 8 7. SUBSEQUENT ACQUISITIONS Effective July 1, 1996, West Coast Bancorp completed its acquisition of Vancouver Bancorp. Vancouver Bancorp is a bank holding company, headquartered in Vancouver, Washington. Its principal business activities are conducted through its only subsidiary, Bank of Vancouver, a Washington state chartered, full-service commercial bank, whose deposits are insured by the Federal Deposit Insurance Corporation. At June 30, 1996 Vancouver Bancorp had assets totaling $94 million, and equity capital totaling $6.5 million. Vancouver Bancorp earned $575,000 for the six months ended June 30, 1996 and $891,000 the year ended December 31, 1995. Bank of Vancouver's primary service area is Vancouver, Washington, adjacent to the greater Portland, Oregon metropolitan market. The Bank of Vancouver emphasizes real estate related loans to small businesses located within its market area. The transaction will be accounted for as a pooling of interests, accordingly future reports by Bancorp will be restated to include the accounts and results of operations of Vancouver Bancorp. 8 9 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion of Bancorp's consolidated financial condition and results of operations should be read in conjunction with the selected consolidated financial and other data, the consolidated financial statements and related notes included elsewhere herein. RESULTS OF OPERATIONS Three Months Ended June 30, 1996 and 1995 Net Income. Bancorp reported net income of $2,137,496, or $.44 per share, for the three months ended June 30, 1996. This represents a 25% increase in net income, as compared to $1,709,638 or $.36 per share, for the three months ended June 30, 1995. Increased net income was primarily the result of increased net interest margins enhanced by interest earning asset growth. Noninterest income rose mainly due to an increased customer base and higher transaction volumes. Expenses increased mainly due to new branch expansion costs and development costs related to a new data processing facility, as well as some merger related expenditures, and were partially offset by lower FDIC deposit insurance premiums. Net Interest Income. Net interest income is the difference between interest income (principally from loan and investment securities) and interest expense (principally on customer deposits and borrowings). Changes in net interest income result from changes in volume, net interest spread and net interest margin. Volume refers to the average dollar level of interest earning assets and interest bearing liabilities. Net interest spread refers to the differences between the average yield on interest earning assets and the average cost of interest bearing liabilities. Net interest margin refers to net interest income divided by average interest earning assets and is influenced by the level and relative mix of interest earning assets and interest bearing liabilities. Bancorp's profitability, like that of many financial institutions, is dependent to a large extent upon net interest income. Since Bancorp is liability sensitive, as interest bearing liabilities mature or reprice more quickly than interest earning assets in a given period, a significant increase in the market rates of interest could adversely affect net interest income. In contrast, a declining interest rate environment could favorably impact Bancorp's margin. Net interest income on a tax equivalent basis for the three months ended June 30, 1996 increased $1,557,955 or 23.31%, to $8,241,309 from $6,683,354 for the same period in 1995. Average interest earning assets increased by $73.0 million, or 17.29%, to $495.1 million from June 30, 1995. Average interest bearing liabilities increased $52.1 million or 14.91% over the same period. The average net interest spread increased from 5.63% to 5.97%,which was mainly caused by a declining cost of funds over the period. Bancorp's net interest margin for the three months ended June 30, 1996 was 6.69%, an increase of 34 basis points from 6.35% for the comparable period of 1995. The major factor in the increase was the decrease in the average rates paid on interest bearing liabilities, which decreased by 33 basis points to 3.83% in the second quarter of 1996 from 4.16% for the same period in 1995. Analysis of Net Interest Income. The following table presents information regarding yields on interest earning assets, expense on interest bearing liabilities, and net yields on interest earning assets for the periods indicated on a tax equivalent basis:
Three Months Ended ------------------ June 30, -------- Increase 1995 1996 (Decrease) Change ---- ---- ---------- ------ Interest and fee income(1) . . . . . $ 12,066,768 $ 10,300,150 $ 1,766,618 17.15% Interest expense . . . . . . . . . . 3,825,459 3,616,796 208,663 5.77% ------------ ------------ ----------- ------ Net interest income . . . . . . . . . $ 8,241,309 $ 6,683,354 $ 1,557,955 23.31% ============ ============ =========== ====== Average interest earning assets . . . $495,096,253 $422,120,426 $72,975,827 17.29% Average interest bearing liabilities $401,446,996 $349,355,747 $52,091,249 14.91% Average yields earned(2) . . . . . . 9.80% 9.79% .01 Average rates paid(2) . . . . . . . . 3.83% 4.16% (.33) Net interest spread(2) . . . . . . . 5.97% 5.63% .34 Net interest margin(2) . . . . . . . 6.69% 6.35% .34
(1) Interest earned on nontaxable securities has been computed on a 34% tax equivalent basis. (2) These ratios for the three months ended June 30, 1996 and 1995 have been annualized. 9 10 Provision for Loan Losses. Management's policy is to maintain an adequate allowance for loan loss based on historical trends, current and future economic forecasts and statistical analysis of the loan portfolio, as well as detailed reviews of current loan performance. Bancorp recorded provisions for loan losses for the second quarter of 1996 and 1995 of $461,200 and $150,000 respectively. The increases in the provisions are due mainly to increases in outstanding loans over the periods. Net charge-offs for the second quarter of 1996 were $215,000, compared to net charge-offs of $73,000 for the same period in 1995. At June 30, 1996, the percentage of non-performing assets was 0.35% of total assets. Management has in place a conservative loan approval process and a strong asset quality monitoring system. Management continues its efforts to collect amounts previously charged off and to originate new loans of high quality. Management believes that the allowance for possible loan losses at June 30, 1996 is adequate. Further additions to the allowance for loan losses could become necessary, depending upon the performance of Bancorp's loan portfolio or changes in economic conditions, as well as growth within the loan portfolio. See "Loan Loss Allowance and Provision". Noninterest Income. Noninterest income for the second quarter of 1996 was $2,074,889 up $185,164, or 9.80%, compared to the same period in 1995. Other service charges, commissions and fees increased $271,465, or 66.09%, due mainly to an increased customer base and transaction volumes in the merchant bankcard, annuity and mutual fund programs, as well as other similar transaction based programs. Service charges on deposit accounts, trust revenue and loan servicing fees remained relatively stable with minor decreases in revenue of $17,900, $974 and $6,137 respectively Gains on sales of loans increased $74,660, or 38.84%, as a result of increased activity in the residential real estate programs. Noninterest Expense. Noninterest expenses for the second quarter ended June 30, 1996, were $6,353,492 an increase of $793,194 or 14.27% over the same period in 1995. Salaries and employee benefits, equipment, occupancy, ATM and Bankcard, printing and office supplies, communications expenses and other expenses are higher in the second quarter of 1996 due mainly to expansion of the Bank's branch system and the additions of new products and services over the period. In general, opening new branches results in higher costs for Bancorp which are not offset until a certain level of growth in deposits and loans is achieved. Thus, at least initially, new branches tend to have an adverse effect on results of operations, until earnings grow to cover overhead. Professional fees increased over the period mainly due to increased merger related expenditures in the second quarter of 1996. Marketing expenses declined during the period due to enhanced internal capabilities. FDIC deposit insurance expense declined in the period due to reductions in insurance premiums charged. 10 11 Six Months Ended June 30, 1996 and 1995 Net Income. For the six months ended June 30, 1996, Bancorp's net income was $3,870,776, an increase of $908,051 from $2,962,725 for same period in 1995, a 30.65% decline. Earnings per share for the six month period ended in 1996 were $0.80 compared to $0.62 in 1995. Net interest income on a tax equivalent basis totaled $15,706,450 for the six months ended June 30 1996, a 20.27% increase from the same period in 1995. Net Interest Income. During the periods ended June 30, 1996 and 1995, average interest earning assets were $485.3 million and $416.2 million, respectively. During the same periods, average interest bearing liabilities grew to $392.2 million from $341.9 million, respectively. Additionally, during the same periods, net interest margins increased to 6.51% from 6.33% respectively due mainly to a declining cost of funds. Net interest income on a tax-equivalent basis increased $2,647,367, or 20.27%, to $15,706,450 in the first six months of 1996 from $13,059,083 in 1995. The increased net interest income was caused by the increased asset growth and an increased net interest spread. Average interest earning assets increased 16.62% over the period while the average yield earned decreased 4 basis points to 9.61% at June 30, 1996 from 9.65% in 1995. The changing interest rate environment in 1996 also led to an increase in the net interest spread of 16 basis points to 5.77% from 5.61% in 1995. Average interest bearing liabilities increased $50.3 million, or 14.72%, to $392.2 million for the period ended June 30, 1996, while the average rates paid decreased 20 basis points to 3.84%. Analysis of Net Interest Income. The following table presents information regarding yields on interest-earning assets, expense on interest-bearing liabilities, and net yields on interest-earning assets for the periods indicated on a tax equivalent basis:
Six Months Ended June 30, ------------------------- Increase 1996 1995 (Decrease) Change ---- ---- ---------- ------ Interest and fee income(1) . . . . . $ 23,194,223 $ 19,912,595 $ 3,281,628 16.48% Interest expense . . . . . . . . . . 7,487,773 6,853,512 9.25% ------------ ------------ ---- 634,261 ------- Net interest income . . . . . . . . . $ 15,706,450 $ 13,059,083 $ 2,647,367 20.27% ============ ============ =========== ===== Average interest earning assets . . . $485,334,144 $416,165,667 $69,168,477 16.62% Average interest bearing liabilities $392,204,354 $341,890,238 $50,314,116 14.72% Average yields earned(2) . . . . . . 9.61% 9.65% (.04) Average rates paid(2) . . . . . . . 3.84% 4.04% (.20) Net interest spread(2) . . . . . . . 5.77% 5.61% .16 Net interest margin(2) . . . . . . . 6.51% 6.33% .18 - ---------------
(1) Interest earned on non-taxable securities has been computed on a 34% tax equivalent basis. (2) These ratios for the six months ended June 30, 1996 and 1995 have been annualized. Provision for Loan Losses. Bancorp recorded a provision for loan losses of $794,200 in the first six months of 1996, compared to $271,460 in the same period in 1996. Bancorp incurred net charge-offs of $639,000 in 1996, compared to $94,000 during 1995. The allowance for loan losses as a percentage of loan totals at June 30, 1996 and 1995 were 1.21% and 1.39% of total loans, respectively. Non-Interest Income. Non-interest income for the six months ended June 30, 1996 was $4,004,123 an increase of $515,997, or 14.79%, from $3,488,126 for the same period in 1995. Other service charges, commissions and fees and service charges on deposit accounts increased during the period due to an increased customer base and transaction volumes. Gains on sales of loans increased $206,295 as a result of increased activity in Bancorp's residential real estate department. Trust revenue and loan servicing fees remained stable during the period. Overall increases in non-interest income were due to increased market presence in existing and expanding market services. 11 12 Non-Interest Expense. Non-interest expense increased 10.59% during the first six months of 1996 over the same period in 1995. The increase in operating expense resulted from additional costs associated with entering new markets, including the opening of several new branch operations. The largest increase was in the area of salaries and benefits, which increased to $7,029,472 in 1996 from $6,296,857, up 11.63% from the same period in 1995. The number of full time equivalent employees increased during 1996 to 414 from 353 in 1995. In general, the opening of new branches results in higher costs for Bancorp which are not offset until a certain level of growth in deposits and loans is achieved. Thus, at least initially, new branches tend to have an adverse effect on results of operations, until earnings grow to cover overhead. Professional fees were higher during the period due mainly to merger related expenditures. FDIC deposit insurance expense declined in the period due to the reduction in insurance premiums charged. Other increases in non-interest expense generally were caused by higher operating activity levels associated with Bancorp's growth. INCOME TAXES During the first six months of 1996, due to an increase in pre-tax income and a change in tax accounting for the allowance for loan loss, the provision for income taxes increased from that of 1995. LIQUIDITY AND SOURCES OF FUNDS Bancorp's primary sources of funds are customer deposits, maturities of investment securities, sales of "Available for Sale" securities, loan sales, loan repayments, net income, advances from the Federal Home Loan Bank of Seattle, and the use of Federal Funds markets. Scheduled loan repayments are relatively stable sources of funds while deposit inflows and unscheduled loan prepayments are not. Deposit inflows and unscheduled loan prepayments are influenced by general interest rate levels, interest rates available on other investments, competition, economic conditions, and other factors. Deposits are Bancorp's primary source of new funds. Total deposits were $474.5 million at June 30, 1996, up from $442.1 million at December 31, 1995. Bancorp does not generally accept brokered deposits. A concerted effort has been made to attract deposits in the market area it serves through competitive pricing and delivery of a quality product. Increases over the period are due to the opening of new branch facilities, marketing efforts, and new business development programs initiated by Bancorp. Management anticipates that Bancorp will continue relying on customer deposits, maturity of investment securities, sales of "Available for Sale" securities, loan sales, loan repayments, net income, Federal Funds markets, and FHLB borrowings to provide liquidity. Although deposit balances have shown historical growth, such balances may be influenced by changes in the banking industry, interest rates available on other investments, general economic conditions, competition and other factors. Borrowings may be used on a short term basis to compensate for reductions in other sources of funds. Borrowings may also be used on a long term basis to support expanded lending activities and to match maturities or repricing intervals of assets. The sources of such funds will be Federal Funds purchased and borrowings from the FHLB. CAPITAL RESOURCES The FRB and FDIC have established minimum requirements for capital adequacy for bank holding companies and member banks. The requirements address both risk-based capital and leveraged capital. The regulatory agencies may establish higher minimum requirements if, for example, a corporation has previously received special attention or has a high susceptibility to interest rate risk. The FRB and FDIC risk- based capital guidelines require banks and bank holding companies to have a ratio of tier one capital to total risk-weighted assets of at least 4%, and a ratio of total capital to total risk-weighted assets of 8% or greater. In addition, the leverage ratio of tier one capital to total assets less intangibles is required to be at least 3%. Shareholders' equity increased to $55.2 million at June 30, 1996 from $53.2 million at December 31, 1995 an increase of $2.0 million, or 3.73%, over that period of time. At June 30, 1996, Bancorp's shareholders' equity, as a percentage of total assets, was 9.76%, compared to 10.30% at December 31, 1995. The decrease was primarily a result of assets growing faster, (through new and existing branch growth), than the equity base. Equity grew at 3.73% over the period from December 31, 1995 to June 30, 1996, while assets grew by 9.43% over the same period. 12 13 As the following table indicates, Bancorp currently exceeds the regulatory capital minimum requirements.
June 30,1996 ------------ Actual ------ (Dollars in thousands) -------- -- ---------- Amount Ratio ------ ----- Tier 1 capital . . . . . . . . . . . . . $ 54,597 12.47% Tier 1 capital minimum requirement . . . 17,509 4.00 ------ ---- Excess over minimum Tier 1 capital . . $ 37,088 8.47% ======== ===== Total capital . . . . . . . . . . . . . . $ 59,473 13.59% Total capital minimum requirement . . . . 35,018 8.00 ------ ---- Excess over minimum total capital . . . $ 24,455 5.59% ======== ===== Risk-adjusted assets . . . . . . . . . . $437,719 ======== Leverage ratio . . . . . . . . . . . . . 10.06% Minimum leverage requirement . . . . . . 3.00 ---- Excess over minimum leverage ratio . . 7.06% ===== Adjusted total assets . . . . . . . . . . $542,451 ========
13 14 LOAN PORTFOLIO Interest earned on the loan portfolio is the primary source of income for Bancorp. Net loans represented 70.34% of total assets as of June 30, 1996. Although the Banks strive to serve the credit needs of the service areas, the primary focus is on real estate related and commercial credits. The Banks make substantially all of their loans to customers located within the Banks' service areas. The Banks have no loans defined as highly leveraged transactions by the FRB. The following table presents the composition of the Banks' loan portfolios, at the dates indicated:
June 30, 1996 December 31, 1995 ------------- ----------------- (Dollars in thousands) Amount Percent Amount Percent -------- -- ---------- ------ ------- ------ ------- Commercial . . . . . . . . . . . . . . . . . . . . $112,715 28.34% $100,179 29.89% Real estate construction . . . . . . . . . . . . . 41,055 10.32 31,310 9.34 Real estate mortgage . . . . . . . . . . . . . . . 37,807 9.51 36,164 10.79 Real estate commercial . . . . . . . . . . . . . . 160,263 40.30 122,992 36.69 Installment and other consumer . . . . . . . . . . 50,731 12.76 49,267 14.70 ------ ----- ------ ----- Totals . . . . . . . . . . . . . . . . . . . . . . 402,571 101.23% 339,912 101.41% Less allowance for loan losses . . . . . . . . . . (4,876) (4,721) ------- ------- Loans, net . . . . . . . . . . . . . . . . . . . . $397,695 $335,191 ======== ========
LENDING AND CREDIT MANAGEMENT Although a risk of nonpayment exists with respect to all loans, certain specific types of risks are associated with different types of loans. Owing to the nature of the Banks' customer base and the growth experienced in the market areas served, real estate is frequently a material component of collateral for the Banks' loans. The expected source of repayment of these loans is generally the operations of the borrower's business or personal income, but real estate provides an additional measure of security. Risks associated with real estate loans include fluctuating land values, local economic conditions, changes in tax policies, and a concentration of loans within any one area. The Banks mitigate risk on construction loans by generally lending funds to customers who have been pre-qualified for long term financing and are using experienced contractors approved by the Banks. The commercial real estate risk is further mitigated by making the majority of commercial real estate loans to owner-occupied users of the property. Generally, no interest is accrued on loans when factors indicate collection of interest is doubtful or when the principal or interest payment becomes ninety days past due. Loans greater than ninety days past due and on accruing status are both adequately collateralized and in the process of collection. The Banks manage the general risks inherent in the loan portfolio by following loan policies and underwriting practices designed to result in prudent lending activities. The following table presents information with respect to non-performing assets.
(Dollars in thousands) June 30, 1996 December 31, 1995 ---------------------- ------------- ----------------- Loans on non-accrual status . . . . . . . . . . . . . . . . . . . . $1,788 $591 Loans past due greater than 90 days but not on accrual status . . . 34 10 Other real estate owned . . . . . . . . . . . . . . . . . . . . . . 134 1 ------ ---- Total non-performing assets . . . . . . . . . . . . . . . . . . . . $1,956 $602 ====== ---- Percentage of non-performing assets to total assets . . . . . . . . .35% .12% === ===
________________ See "Loan Loss Allowance and Provision" 14 15 LOAN LOSS ALLOWANCE AND PROVISION The provision for loan losses charged to operating expense is based on the Banks' loan loss experience and such other factors that, in management's judgment, deserve recognition in estimating loan losses. Management monitors the loan portfolio to ensure that the allowance for loan losses is adequate to cover outstanding loans. In determining the allowance for loan losses, management considers the level of non- performing loans, loan mix, recent loan growth, historical loss experience for each loan category, potential economic influences, and other relevant factors related to the loan portfolio. The following table summarizes the Banks' allowance for loan losses and charge-off and recovery activity:
Six months ended Year ended (Dollars in thousands) June 30, 1996 December 31, 1995 -------- -- ---------- ------------- ----------------- Loans outstanding at end of period . . . . . . . . . . . . . . . . . . . . . $402,571 $339,912 Average loans outstanding during the period . . . . . . . . . . . . . . . . . $364,459 $309,267 Allowance for loan losses, beginning of period . . . . . . . . . . . . . . . $4,721 $ 4,519 Recoveries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 117 52 Loans charged off . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (756) (520) -------- -------- Net loans charged off . . . . . . . . . . . . . . . . . . . . . . . . . . . . (639) (468) Provision for loan losses . . . . . . . . . . . . . . . . . . . . . . . . . . 794 670 -------- -------- Allowance for loan losses, end of period . . . . . . . . . . . . . . . . . . $4,876 $4,721 ======== ======== Ratio of net loans charged off to average loans outstanding(1) . . . . . . . . . . . . . . . . . . . . . . .35% .15% Ratio of allowance for loan losses to loans at end of period . . . . . . . . . . . . . . . . . . . . . . . . . 1.21% 1.39%
(1) The ratios for the six months ended June 30, 1996 have been annualized. As of December 31, 1995, Bancorp had an agricultural loan with an outstanding balance of $1.5 million that had been written down by $150,000. During 1996, the loan was further written down by $563,000 due to continued declines in the crop value. In assessing Bancorp's collateral position, the crop's value has been writtern down to $0. The remaining loan balance of approximately $937,000 is secured by a governmental guarantee for $360,000 and the remainder of the loan balance is substantially collateralized by real estate and equipment. The loan is currently on nonaccrual status. This is a special agricultural loan and is the only one within Bancorp with this specific type of crop. Bancorp feels that it is an isolated situation, and that reserves are adequate to cover any potential losses. Increases in the provision for loan losses in 1996 were due mainly to increases in loan growth. In addition, further forecasted loan growth will lead to increases in the provision for loan losses. 15 16 INVESTMENT PORTFOLIO The following table shows the book value of the Banks' portfolio of investments as of June 30, 1996 and December 31, 1995:
June 30, December 31, (Dollars in thousands) 1996 1995 ---------------------- ---- ---- Investments available for sale ------------------------------ U.S. Treasury securities . . . . . . . . . . . . . . . . . . . $7,117 $17,741 U.S. Government agency securities . . . . . . . . . . . . . . . 38,731 35,731 Corporate securities . . . . . . . . . . . . . . . . . . . . . 4,021 4,803 Mortgage-backed securities . . . . . . . . . . . . . . . . . . 8,734 9,120 Obligations of state and political subdivisions . . . . . . . . 40,601 45,929 Other securities . . . . . . . . . . . . . . . . . . . . . . . 2,915 2,853 -------- -------- Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . $102,119 $116,177 ======== ========
16 17 PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K (a) Exhibits Exhibit 27 Article 9 Financial Data Schedules for Form 10-Q (b) None 17 18 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. WEST COAST BANCORP (Registrant) Dated: August 12, 1996 /s/ Rodney B. Tibbatts ----------------------------- Rodney B. Tibbatts Co-President and Chief Executive Officer Dated: August 12, 1996 /s/ Donald A. Kalkofen ----------------------------- Donald A. Kalkofen Chief Financial Officer 18 EX-27 2 FINANCIAL DATA SCHEDULE
9 1,000 US DOLLARS 6-MOS DEC-31-1996 JAN-01-1996 JUN-30-1996 1 33,162 5,839 0 0 102,119 0 0 402,571 4,876 565,364 474,450 20,350 3,583 11,797 0 0 6,021 49,163 565,364 18,857 3,388 307 22,552 7,016 7,488 15,064 794 (48) 12,511 5,763 5,763 0 0 3,871 .80 .80 6.51 1,788 34 0 0 4,721 756 117 4,876 4,876 0 0
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