West Coast Bancorp's strategy of concentrating on just one bank is paying off.
The Newport Beach, Calif., two-bank holding company had a disastrous year in 1993. But its strategy of selling one bank and focusing on fixing the other could save the company.
West Coast's planned sale of its Sacramento First National Bank next month will leave the holding company about $1.7 million short of capital targets set by federal regulators. Frank Smith, chief financial officer, said the company is exploring ways to raise the difference, but he would not comment on what they were.
Nonetheless, West Coast is showing some improvement. Its third-quarter operating loss of $630,000 was sharply reduced from a year-earlier $2.5 million loss.
Key to the improvement was a sharp reduction in nonperforming assets and a reduction in the provision for loan losses.
Despite its improved bottom line, West Coast is one of about a dozen community bank companies, where problems linger from a recession that hit California in 1991.
West Coast, with subsidiaries in Tustin in the south and Sacramento in the north, was designed to survive the vagaries of the differing economies in those parts of the state.
But the recession hit harder than expected in the south, and West Coast's Sunwest Bank in Orange County suffered commercial real estate losses in 1992 and 1993.
Sunwest's numbers tell how bad things have gone for community banks in Orange County.
At June 30, the bank had a 3.42% core capital ratio, and 6.5% of its total assets were not performing, according to Sheshunoff Information Services.
West Coast's 94%-owned Sacramento First National Bank lost money in 1993 but rebounded nicely this year and is well-capitalized.
West Coast has been under regulatory scrutiny for two years. In November 1992, it signed a memorandum of understanding with the Federal Reserve Bank of San Francisco to improve its financial condition. Sunwest Bank has been under similar orders from the state.
Mr. Smith, the chief financial officer, said West Coast had planned to sell Sacramento First for several years, but he admitted the recession had forced a sale in a bad market. West Coast will take a $1.8 million loss on the deal.
"Having an operation in the south and one in the north, we didn't get the economies of scale we had hoped for," he said. "One of the issues we had was an undercapitalized bank here.
"And of all of the options we considered, selling the Sacramento operation was really the way that we could best proceed with raising capital."
West Coast is selling Sacramento First to Professional and Business Bank of Sacramento for $7.5 million, $4 million of it in cash. Professional and Business Bank is seeking to expand in the Sacramento area, said Michael Burkart, chief executive.
West Coast still has a way to go. While the company has shaved $15 million from its nonperforming-assets portfolio (only $3.2 million of the reduction was from the sale of Sacramento First), it still has a high 7.6% ratio of nonperformers to total assets.
The company's risk-based capital is 7.12%, and its leverage capital. is 3.89%, below the regulatory requirements of 8% and 4%, respectively.
West Coast Bancorp
At a Glance
Headquarters -- Newport Beach, Calif.
Assets -- $141.6 million
Branches -- 4
CEO -- John B. Joseph
ROA -- -3.8%
Leverage capital ratio -- 3.89%
ROE -- -73%