-----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, EDDJ3ZC3E561EIM6cDcWufdWHnA2xLgBrmuKCcTOz7bguIq8yArpiDTnV3ulb/OF KH79gSuWLL+Kb2Q5Vf9rZQ== 0000891020-97-000823.txt : 19970515 0000891020-97-000823.hdr.sgml : 19970515 ACCESSION NUMBER: 0000891020-97-000823 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970331 FILED AS OF DATE: 19970514 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: 97603151 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 EDGAR FORM 10-Q FOR WEST COAST BANCORP 1 U.S. SECURITIES AND EXCHANGE COMMISSION Washington D.C. 20549 Form 10-Q [X] Quarterly Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934 For the Quarter Ended March 31, 1997 [ ] Transition report under section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from ________ to _________ Commission file number 0-10997 WEST COAST BANCORP (Exact name of registrants specified in its charter) Oregon 93-0810577 (State or other jurisdiction (IRS Employer incorporation or organization) Identification No.) 5335 S.W. Meadows Road Suite 201, Lake Oswego, Oregon 97035 (Address of Principal executive offices) (Zip code) (503) 684-0884 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ----- ----- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: Common Stock, no par value, outstanding on April 30, 1997: 6,712,204 2 TABLE OF CONTENTS
PART I. Financial Statements Page ---- Consolidated Balance Sheets - March 31, 1997 and December 31, 1996........................................3 Consolidated Statements of Income - Three months ended March 31, 1997 and 1996................................. 4 Consolidated Statements of Cash Flows - Three months ended March 31, 1997 and 1996................................. 5 Consolidated Statements of Changes in Stockholders' Equity................. 6 Notes to Consolidated Financial Statements................................. 6 Management's Discussion and Analysis of Financial Condition and Results of Operations........................................ 8 PART II. Other Information Item 6 - Exhibits and Reports on Form 8-K..................................15 Signatures ...........................................................................16
2 3 WEST COAST BANCORP CONSOLIDATED BALANCE SHEETS
March 31, December 31, 1997 1996 ------------- ------------- (Unaudited) ASSETS Cash and cash equivalents: Cash and due from banks ............................ $ 31,594,177 $ 30,817,183 Interest-bearing deposits in other banks ........... 15,341,442 12,141,497 Federal funds sold ................................. 80,829 23,000 ------------- ------------- Total cash and cash equivalents .................. 47,016,448 42,981,680 Investment securities: Investments available for sale ..................... 121,562,100 107,168,494 Investments held to maturity ....................... 2,621,422 2,623,154 ------------- ------------- Total investment securities ...................... 124,183,522 109,791,648 Loans held for sale .................................. 2,768,135 2,563,703 Loans ................................................ 544,938,909 535,792,573 Allowance for loan loss .............................. (7,553,661) (7,037,636) ------------- ------------- Loans, net ......................................... 537,385,248 528,754,937 Premises and equipment, net .......................... 18,274,367 17,716,365 Intangible assets .................................... 175,664 197,189 Other assets ......................................... 13,314,977 10,337,512 ------------- ------------- Total assets ..................................... $ 743,118,361 $ 712,343,034 ============= ============= LIABILITIES AND STOCKHOLDERS' EQUITY LIABILITIES Deposits: Demand ............................................. $ 108,056,221 $ 105,836,128 Savings and interest-bearing demand ................ 330,076,022 319,263,258 Certificates of deposits ........................... 192,637,227 179,802,711 ------------- ------------- Total deposits ................................... 630,769,470 604,902,097 Short-term borrowings ................................ 10,357,951 3,709,324 Other liabilities .................................... 5,600,072 8,003,722 Long-term borrowings ................................. 27,802,816 28,582,770 ------------- ------------- Total liabilities ................................ 674,530,309 645,197,913 Commitments and contingent liabilities STOCKHOLDERS' EQUITY Preferred stock: no par value, none issued; 10,000,000 shares authorized Common stock: No par value, 15,000,000 shares authorized; shares issued and outstanding 6,708,383 and 6,702,572 respectively ................ 8,385,479 8,378,215 Additional paid-in capital ........................... 35,513,520 35,476,302 Retained earnings .................................... 24,484,210 22,363,318 Net unrealized gains on investments available for sale 204,843 927,286 ------------- ------------- Total stockholders' equity ......................... 68,588,052 67,145,121 ------------- ------------- Total liabilities and stockholders' equity ....... $ 743,118,361 $ 712,343,034 ============= =============
The accompanying notes are an integral part of these consolidated statements. 3 4 WEST COAST BANCORP CONSOLIDATED STATEMENTS OF INCOME
Three months ended March 31, ------------------------------- 1997 1996 ------------ ------------ (Unaudited) INTEREST INCOME Interest and fees on loans ................. $ 13,555,510 $ 10,617,597 Interest on taxable investment securities .. 1,188,402 1,203,935 Interest on nontaxable investment securities 549,899 684,688 Interest from other banks .................. 141,609 24,781 Interest on federal funds sold ............. 13,965 196,874 ------------ ------------ Total interest income .................... 15,449,385 12,727,875 INTEREST EXPENSE Savings and interest-bearing demand ........ 2,558,323 2,207,961 Certificates of deposit .................... 2,496,317 2,054,664 Short-term borrowings ...................... 52,655 130,086 Long-term borrowings ....................... 382,471 157,211 ------------ ------------ Total interest expense ................... 5,489,766 4,549,922 ------------ ------------ NET INTEREST INCOME ........................ 9,959,619 8,177,953 PROVISION FOR LOAN LOSS .................... 615,000 402,787 ------------ ------------ NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSS .................. 9,344,619 7,775,166 NONINTEREST INCOME Other service charges, commissions and fees 768,912 617,339 Service charges on deposit accounts ........ 705,747 654,905 Trust revenue .............................. 395,704 309,402 Gains on sales of loans .................... 236,946 275,809 Loan servicing fees ........................ 119,329 122,511 Other ...................................... 85,192 58,477 Net (losses) on sales of securities ........ (27,312) (19,085) ------------ ------------ Total noninterest income ................. 2,284,518 2,019,358 NONINTEREST EXPENSE Salaries and employee benefits ............. 4,387,798 3,734,245 Equipment .................................. 610,728 557,898 Occupancy .................................. 605,654 544,070 Professional fees .......................... 459,328 555,639 ATM and Bankcard ........................... 237,591 186,987 Printing and office supplies ............... 219,461 196,778 Communications ............................. 197,994 146,119 Marketing .................................. 184,234 184,008 FDIC insurance ............................. 17,336 2,556 Other noninterest expense .................. 769,152 678,748 ------------ ------------ Total noninterest expense ................ 7,689,276 6,787,048 INCOME BEFORE INCOME TAXES ................. 3,939,861 3,007,476 PROVISION FOR INCOME TAXES ................. 1,416,107 973,521 ------------ ------------ NET INCOME ................................. $ 2,523,754 $ 2,033,955 ============ ============ AVERAGE NUMBER OF SHARES OUTSTANDING ....... 6,998,891 6,832,571 EARNINGS PER SHARE Primary ........................... $ .36 $ .30 Fully Diluted ..................... $ .36 $ .30
The accompanying notes are an integral part of these consolidated statements. 4 5 WEST COAST BANCORP CONSOLIDATED STATEMENTS OF CASH FLOWS
Three months ended March 31, ------------------------------- 1997 1996 ------------ ------------ (Unaudited) CASH FLOWS FROM OPERATING ACTIVITIES Net income ................................................................ $ 2,523,754 $ 2,033,955 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization of premises and equipment ................. 419,287 345,438 Amortization of intangibles ............................................. 21,525 21,525 Net loss on sales of available for sale investments ..................... 27,312 19,085 Provision for loan losses ............................................... 615,000 402,787 (Increase) decrease in interest receivables ............................. (405,797) 157,969 Increase in other assets ................................................ (2,571,668) (1,148,897) Increase in interest payable ............................................ 33,529 65,171 (Decrease) increase in other liabilities ................................ (2,437,179) 53,407 ------------ ------------ Net cash (used) provided by operating activities ..................... (1,774,237) 1,950,440 CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from maturities of investment securities: Available for sale ...................................................... 4,317,017 18,762,160 Held to maturity ........................................................ 1,732 -- Proceeds from sales of available for sale investment securities ........... 5,915,922 1,908,261 Purchase of investment securities: Available for sale ...................................................... (25,376,300) (14,398,278) Held to maturity ........................................................ -- (313,634) Loans made to customers greater than principal collected on loans ......... (9,449,743) (27,428,395) Capital expenditures ...................................................... (977,289) (829,381) ------------ ------------ Net cash used in investing activities ................................. (25,568,661) (22,299,267) CASH FLOWS FROM FINANCING ACTIVITIES Net increase in demand, savings and interest bearing transaction accounts ............................................ 13,032,857 10,986,182 Net increase in proceeds from sales of certificates of deposits greater than payments for maturing time deposits 12,834,516 7,781,907 Proceeds from long-term borrowings ........................................ 8,000,000 4,666,125 Payments on long-term borrowings .......................................... (8,779,954) (464,286) Net increase (decrease) in short-term borrowings .......................... 6,648,627 (3,527,000) Sales of common stock, net ................................................ 44,482 196,502 Dividends paid and cash paid for fractional shares ........................ (402,862) (312,899) ------------ ------------ Net cash provided by financing activities ............................. 31,377,666 19,325,531 ------------ ------------ NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ...................... 4,034,768 (1,023,296) CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR ............................ 42,981,680 44,035,359 ------------ ------------ CASH AND CASH EQUIVALENTS AT END OF PERIOD ............................... $ 47,016,448 $ 43,012,063 ============ ============
The accompanying notes are an integral part of these consolidated statements. 5 6 WEST COAST BANCORP CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (Unaudited)
Net Unrealized Additional Gains (Losses) Common Stock Paid-In Retained Investments Shares Amount Capital Earnings Available for Sale Total --------- ------------ ------------ ------------ ------------ ------------ BALANCE, December 31, 1995 ......... 5,308,813 $ 6,636,016 $ 36,532,496 $ 14,036,510 $ 1,775,245 $ 58,980,267 Net income ......................... -- -- -- 9,802,015 -- 9,802,015 Net unrealized losses on investments available for sale .............. -- -- -- -- (847,959) (847,959) Cash dividends, $.22 per common share ........................... -- -- -- (1,461,310) -- (1,461,310) Purchase of common stock pursuant to employee stock ownership plan 4,518 5,648 77,396 -- -- 83,044 Sale of common stock pursuant to stock option plans .............. 56,377 70,471 533,391 -- -- 603,862 Stock Split in the form of a 25% dividend ......................... 1,333,585 1,666,981 (1,666,981) -- -- -- Cash paid for fractional shares .... (721) (901) -- (13,897) -- (14,798) --------- ------------ ------------ ------------ ------------ ------------ BALANCE, December 31, 1996 ......... 6,702,572 8,378,215 35,476,302 22,363,318 927,286 67,145,121 Net income ......................... -- -- -- 2,523,754 -- 2,523,754 Net unrealized losses on investments available for sale .............. -- -- -- -- (722,443) (722,443) Cash dividends, $.06 per common share ........................... -- -- -- (402,862) -- (402,862) Sale of common stock pursuant to stock option plans .............. 5,811 7,264 37,218 -- -- 44,482 --------- ------------ ------------ ------------ ------------ ------------ BALANCE, March 31, 1997 ............ 6,708,383 $ 8,385,479 $ 35,513,520 $ 24,484,210 $ 204,843 $ 68,588,052 ========= ============ ============ ============ ============ ============
The accompanying notes are an integral part of these consolidated statements. Notes to Consolidated Financial Statements 1. PRINCIPLES OF CONSOLIDATION The accompanying consolidated financial statements include the accounts of West Coast Bancorp (Bancorp) and its wholly-owned subsidiaries, The Commercial Bank, The Bank of Newport, The Bank of Vancouver and West Coast Trust Company, Inc., after elimination of intercompany transactions and balances. The interim financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments including normal recurring accruals necessary for fair presentation of results of operations for the interim periods included herein have been made. The results of operations for the three months ended March 31, 1997 are not necessarily indicative of results to be anticipated for the year ending December 31, 1997. 6 7 2. USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS The preparation of financial statements, in conformity with generally accepted accounting principles, requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. 3. RECENT MERGERS Effective July 1, 1996, West Coast Bancorp completed its acquisition of Vancouver Bancorp of Vancouver, Washington. Its principal business activities were conducted through the Bank of Vancouver which has continued as a wholly-owned subsidiary of West Coast Bancorp. The historical consolidated financial statements have been restated and include the accounts and results of operations of the merger as pooling-of-interest combination. 4. ACCOUNTING CHANGES In February of 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 128, "Earnings Per Share" (SFAS 128). The Bank is required to adopt SFAS 128 in the fourth quarter of 1997 and will restate at that time earnings per share data for prior periods to conform with SFAS 128. Earlier application is not permitted. SFAS 128 replaces current earnings per share reporting requirements and requires a dual presentation of basic and diluted earnings per share. Earnings per share excludes dilution and is computed by dividing net income by the weighted average common shares outstanding of 6,708,971 and 6,641,451 during the three months ended March 31, 1997 and 1996, respectively. Diluted earnings per share reflects the potential dilution that could occur if common shares were issued pursuant to the exercise of options under Bancorp's Stock Option Plans. Pro forma amounts for basic and diluted earnings per share assuming SFAS 128 had been in effect are as follows:
Three Months Ended 1997 1996 ---- ---- Basic earnings per share $.38 $.31 Diluted earnings per share $.36 $.30
5. NET INCOME PER COMMON SHARE The Board of Directors declared a quarterly cash dividend of $.06 per share during the first quarter of 1997. A stock split in the form of a 25 percent dividend was declared during the third quarter of 1996. All per share amounts have been restated to retroactively reflect stock dividends and stock splits previously reported. 6. SUPPLEMENTAL CASH FLOW INFORMATION For purposes of reporting cash flows, cash and cash equivalents include cash on hand, amounts due from banks, and federal funds sold. Generally, federal funds are purchased and sold for one-day periods. Bancorp paid $5,456,237 and $4,484,751, for interest in the three months ended March 31, 1997 and 1996, respectively. Income taxes paid were $500,000 and $434,697, in the three months ended March 31, 1997 and 1996, respectively. 7. RECLASSIFICATIONS Certain reclassifications of prior year amounts have been made to conform to current classifications. 7 8 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion of Bancorp's consolidated financial condition and results of operations should be read in conjunction with the selected consolidated financial and other data, the consolidated financial statements and related notes included elsewhere herein. RESULTS OF OPERATIONS Three Months Ended March 31, 1997 and 1996 Net Income. Bancorp reported net income of $2,523,754 or $.36 per fully diluted share, for the three months ended March 31, 1997. This represents a 24% increase in net income, as compared to $2,033,955 or $.30 per fully diluted share, for the three months ended March 31, 1997. Increased net income was primarily the result of increased net interest margins enhanced by interest earning asset growth. Noninterest income rose mainly due to an increased customer base and higher transaction volumes. Expenses increased mainly due to new branch expansion costs and other costs directly related to growth. Net Interest Income. Net interest income is the difference between interest income (principally from loan and investment securities) and interest expense (principally on customer deposits and borrowings). Changes in net interest income result from changes in volume, net interest spread and net interest margin. Volume refers to the average dollar level of interest earning assets and interest bearing liabilities. Net interest spread refers to the differences between the average yield on interest earning assets and the average cost of interest bearing liabilities. Net interest margin refers to net interest income divided by average interest earning assets and is influenced by the level and relative mix of interest earning assets and interest bearing liabilities. Bancorp's profitability, like that of many financial institutions, is dependent to a large extent upon net interest income. Since Bancorp is liability sensitive, as interest bearing liabilities mature or reprice more quickly than interest earning assets in a given period, a significant increase in the market rates of interest could adversely affect net interest income. In contrast, a declining interest rate environment could favorably impact Bancorp's margin. Net interest income on a tax equivalent basis for the three months ended March 31, 1997 increased $1,712,229 or 20.07%, to $10,242,900 from $8,530,671 for the same period in 1996. Average interest earning assets increased by $112.7 million, or 20.48%, to $662.8 million from $550.1 million for the same period in 1996. Average interest bearing liabilities increased $92.8 million or 20.70% over the same period. The average net interest spread increased from 5.48% to 5.51%,which was mainly caused by increased yields. Bancorp's net interest margin for the three months ended March 31, 1997 was 6.27%, an increase of 3 basis points from 6.24% for the comparable period of 1996. The major factors causing the increase were higher yields earned on average earning assets. Average rates paid increased by 4 basis points to 4.12% in the first quarter of 1997 from 4.08% for the same period in 1996. Analysis of Net Interest Income. The following table presents information regarding yields on interest earning assets, expense on interest bearing liabilities, and net yields on interest earning assets for the periods indicated on a tax equivalent basis:
Three Months Ended March 31, --------------------------------- Increase 1997 1996 (Decrease) Change ------------- ------------- ------------- -------- Interest and fee income(1) ......... $ 15,732,666 $ 13,080,593 $ 2,652,073 20.27% Interest expense ................... 5,489,766 4,549,922 939,844 20.66% ------------- ------------- ------------- ------- Net interest income ................ $ 10,242,900 $ 8,530,671 $ 1,712,229 20.07% ============= ============= ============= ====== Average interest earning assets .... $ 662,824,453 $ 550,138,092 $ 112,686,361 20.48% Average interest bearing liabilities $ 540,807,269 $ 448,052,541 $ 92,754,728 20.70% Average yields earned(2) ........... 9.63% 9.56% .07 Average rates paid(2) .............. 4.12% 4.08% .04 Net interest spread(2) ............. 5.51% 5.48% .03 Net interest margin(2) ............. 6.27% 6.24% .03
(1) Interest earned on nontaxable securities has been computed on a 34% tax equivalent basis. (2) These ratios for the three months ended March 31, 1997 and 1996 have been annualized. 8 9 Provision for Loan Losses. Management's policy is to maintain an adequate allowance for loan loss based on historical trends, current and economic forecasts and statistical analysis of the loan portfolio, as well as detailed review of individual loans, and current loan performance. Bancorp recorded provisions for loan losses for the first quarter of 1997 and 1996 of $615,000 and $402,787 respectively. The increase in the provision is due mainly to an increase in outstanding loans over the periods. Net charge-offs for the first quarter of 1997 were $99,000, compared to net charge-offs of $429,000 for the same period in 1996. At March 31, 1997, the percentage of non-performing assets was 0.22% of total assets. Management has in place a comprehensive loan approval process and asset quality monitoring system. Management continues its efforts to collect amounts previously charged off and to originate new loans of high quality. Management believes that the allowance for loan losses at March 31, 1997 was adequate to absorb potential loss exposure in the portfolio. Further additions to the allowance for loan losses could become necessary, depending upon the performance of Bancorp's loan portfolio or changes in economic conditions, as well as growth within the loan portfolio. See "Loan Loss Allowance and Provision". Noninterest Income. Noninterest income for the first quarter of 1997 was $2,284,518 up $265,160, or 13.13%, compared to the same period in 1996. Other service charges, commissions and fees increased $151,573, or 24.55%, service charged on deposit accounts increased $50,842, or 7.76% and Trust revenue increased $86,302 or 27.89% due mainly to an increased customer base and transaction volumes. Gains on sales of loans decreased $38,863, as a result of decreased activity in the residential real estate programs. Loan servicing fees declined slightly while other revenue increased $26,715. Noninterest Expense. Noninterest expenses for the first quarter ended March 31, 1997, were $7,689,276 an increase of $902,228 or 13.29% over the same period in 1996. Salaries and employee benefits, equipment, occupancy, ATM and Bankcard, printing and office supplies, communication, marketing expenses and other expenses are higher in the first quarter of 1997 due mainly to expansion of the Bank's branch system and the additions of new products and services over the period. In general, opening new branches results in higher costs for Bancorp which are not offset until a certain level of growth in deposits and loans is achieved. Thus, at least initially, new branches tend to have an adverse effect on results of operations, until earnings grow to cover overhead. Professional fees are down in 1997 compared to 1996, due to merger costs incurred in the first quarter of 1996 that did not reoccur in the same period in 1997. 9 10 INCOME TAXES During the first three months of 1997, due to an increase in pre-tax income and a change in the mix of taxable and nontaxable income items, the provision for income taxes increased from that of 1996. LIQUIDITY AND SOURCES OF FUNDS Bancorp's primary sources of funds are customer deposits, maturities of investment securities, sales of "Available for Sale" securities, loan sales, loan repayments, net income, advances from the Federal Home Loan Bank of Seattle, and the use of Federal Funds markets. Scheduled loan repayments are relatively stable sources of funds while deposit inflows and unscheduled loan prepayments are not. Deposit inflows and unscheduled loan prepayments are influenced by general interest rate levels, interest rates available on other investments, competition, economic conditions, and other factors. Deposits are Bancorp's primary source of new funds. Total deposits were $630.8 million at March 31, 1997, up from $604.9 million at December 31, 1996. Bancorp does not generally accept brokered deposits. A concerted effort has been made to attract deposits in the market area it serves through competitive pricing and delivery of a quality product. Increases over the period are due to the opening of new branch facilities, marketing efforts, and new business development programs initiated by Bancorp. Management anticipates that Bancorp will continue relying on customer deposits, maturity of investment securities, sales of "Available for Sale" securities, loan sales, loan repayments, net income, Federal Funds markets, and FHLB borrowings to provide liquidity. Although deposit balances have shown historical growth, such balances may be influenced by changes in the banking industry, interest rates available on other investments, general economic conditions, competition and other factors. Borrowings may be used on a short term basis to compensate for reductions in other sources of funds. Borrowings may also be used on a long term basis to support expanded lending activities and to match maturities or repricing intervals of assets. The sources of such funds will be Federal Funds purchased and borrowings from the FHLB. 10 11 CAPITAL RESOURCES The FRB and FDIC have established minimum requirements for capital adequacy for bank holding companies and member banks. The requirements address both risk-based capital and leveraged capital. The regulatory agencies may establish higher minimum requirements if, for example, a corporation has previously received special attention or has a high susceptibility to interest rate risk. The FRB and FDIC risk-based capital guidelines require banks and bank holding companies to have a ratio of tier one capital to total risk-weighted assets of at least 4%, and a ratio of total capital to total risk-weighted assets of 8% or greater. In addition, the leverage ratio of tier one capital to total assets less intangibles is required to be at least 3%. Shareholders' equity increased to $68.6 million at March 31, 1997 from $67.1 million at December 31, 1996 an increase of $1.5 million, or 2.24%, over that period of time. At March 31, 1997, Bancorp's shareholders' equity, as a percentage of total assets, was 9.23%, compared to 9.43% at December 31, 1996. The decrease was primarily a result of assets growing faster, (through new and existing branch growth), than the equity base. Equity grew at 2.24% over the period from December 31, 1996 to March 31, 1997, while assets grew by 4.32% over the same period. As the following table indicates, Bancorp currently exceeds the regulatory capital minimum requirements.
March 31, 1997 (Dollars in thousands) -------------------------- Amount Ratio -------- ----- Tier 1 capital ................................ $ 68,259 11.69% Tier 1 capital minimum requirement ............ 23,357 4.00 -------- ----- Excess over minimum Tier 1 capital .......... $ 44,902 7.69% ======== ===== Total capital ................................. $ 75,562 12.94% Total capital minimum requirement ............. 46,715 8.00 -------- ----- Excess over minimum total capital ........... $ 28,847 4.94% ======== ===== Risk-adjusted assets .......................... $583,934 ======== Leverage ratio ................................ 9.56% Minimum leverage requirement .................. 3.00 ----- Excess over minimum leverage ratio .......... 6.56% ===== Adjusted total assets ......................... $713,890 ========
11 12 LOAN PORTFOLIO Interest earned on the loan portfolio is the primary source of income for Bancorp. Net loans represented 72.31% of total assets as of March 31, 1997. Although the Banks strive to serve the credit needs of the service areas, the primary focus is on real estate related and commercial credits. The Banks make substantially all of their loans to customers located within the Banks' service areas. The Banks have no loans defined as highly leveraged transactions by the FRB. The following table presents the composition of the Banks' loan portfolios, at the dates indicated:
March 31, 1997 December 31, 1996 ------------------------------- ----------------------------- (Dollars in thousands) Amount Percent Amount Percent - --------------------- --------- ------- --------- ------- Commercial ................... $ 96,041 17.88% $ 97,515 18.44% Real estate construction ..... 78,815 14.67 69,917 13.22 Real estate mortgage ......... 90,098 16.77 92,060 17.41 Real estate commercial ....... 240,215 44.70 235,935 44.62 Installment and other consumer 39,770 7.39 40,366 7.64 --------- ------ --------- ------ Total loans .................. 544,939 101.41% 535,793 101.33% Allowance for loan losses .... (7,554) (7,038) --------- --------- Total loans, net ............. $ 537,385 $ 528,755 ========= =========
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.
March 31, December 31, (Dollars in thousands) 1997 1996 - ---------------------- --------- ------------ Loans on nonaccrual status ..................................... $1,603 $1,884 Loans past due greater than 90 days but not on nonaccrual status 44 92 Other real estate owned ........................................ -- -- ------ ------ Total nonperforming assets ..................................... $1,647 $1,976 ====== ====== Percentage of nonperforming assets to total assets ............. .22% .28% ====== ======
- ---------------- See "Loan Loss Allowance and Provision" 12 13 LOAN LOSS ALLOWANCE AND PROVISION The provision for loan losses charged to operating expense is based on the Banks' loan loss experience and such other factors that, in management's judgment, deserve recognition in estimating loan losses. Management monitors the loan portfolio to ensure that the allowance for loan losses is adequate to cover outstanding loans. In determining the allowance for loan losses, management considers the level of nonperforming loans, impaired loans, loan mix, recent loan growth, historical loss experience for each loan category, potential economic influences, and other relevant factors related to the loan portfolio. In addition, management utilizes internal loan grading as part of its analysis. The following table summarizes the Banks' allowance for loan losses and charge-off and recovery activity:
Three months ended Year ended (Dollars in thousands) March 31, 1997 December 31, 1996 - ---------------------- -------------- ----------------- Loans outstanding at end of period ........... $ 544,939 $ 535,793 Average loans outstanding during the period .. $ 536,861 $ 466,623 Allowance for loan losses, beginning of period $ 7,038 $ 5,569 Recoveries ................................... 17 194 Loans charged off ............................ (116) (900) --------- --------- Net loans charged off ........................ (99) (706) Provision for loan losses .................... 615 2,175 --------- --------- Allowance for loan losses, end of period ..... $ 7,554 $ 7,038 ========= ========= Ratio of net loans charged off to average loans outstanding(1) ............ .07% .15% Ratio of allowance for loan losses to loans at end of period .................. 1.39% 1.31%
(1) The ratios for the three months ended March 31, 1997 have been annualized. Increases in the provision for loan losses in 1997 were due mainly to increases in loan growth. In addition, further forecasted loan growth will lead to increases in the provision for loan losses. Historical activity in loans charged off or recoveries are not necessarily indicative of activity to be anticipated for the years ending December 31, 1997. 13 14 INVESTMENT PORTFOLIO The following table shows the carrying value of the Banks' portfolio of investments:
March 31, December 31, (Dollars in thousands) 1997 1996 - ---------------------- --------- ------------ Investments available for sale U.S. Treasury securities ........................... $ 5,895 $ 8,827 U.S. Government agency securities .................. 57,740 38,338 Corporate securities ............................... 3,583 3,358 Mortgage-backed securities ......................... 12,362 14,978 Obligations of state and political subdivisions .... 36,460 36,617 Other securities ................................... 5,522 5,050 -------- -------- Total ............................................ $121,562 $107,168 ======== ======== Investments held to maturity - ---------------------------- U.S. Treasury securities ........................... $ -- $ -- U.S. Government agency securities .................. -- -- Corporate securities ............................... -- -- Mortgage-backed securities ......................... -- -- Obligations of state and political subdivisions .... 2,622 2,623 Other securities ................................... -- -- -------- -------- Total ............................................ $ 2,622 $ 2,623 ======== ======== Total Investment Portfolio ....................... $124,184 $109,791 ======== ========
14 15 PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K (a) Exhibits Exhibit 27 Article 9 Financial Data Schedules for Form 10-Q (b) During the three months ended March 31, 1997, West Coast Bancorp filed the following current report on Form 8-K: Management reorganization appointing Victor L. Bartruff as President and Chief Executive Officer, dated February 1, 1997 on form 8-K filed pursuant to Item 5 of that form. 15 16 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. WEST COAST BANCORP (Registrant) Dated: May 13, 1997 /s/ Victor L. Bartruff ---------------------- Victor L. Bartruff President and Chief Executive Officer Dated: May 13, 1997 /s/ Donald A. Kalkofen ---------------------- Donald A. Kalkofen Chief Financial Officer 16 EX-27 2 FINANCIAL DATA SCHEDULE
9 1,000 3-MOS DEC-31-1997 JAN-01-1997 MAR-31-1997 31,594 15,341 81 0 121,562 2,621 2,622 544,939 7,544 743,118 630,769 10,358 5,600 27,803 0 0 8,385 60,203 743,118 13,556 1,738 155 15,449 5,055 5,489 9,960 615 (27) 7,689 3,940 3,940 0 0 2,524 .36 .36 6.27 1,603 44 0 0 7,038 116 17 7,554 7,554 0 0
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