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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] Annual Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
For the fiscal year ended December 31, 1994 Commission file number 0-10997
WEST COAST BANCORP
(Exact name of registrant as specified in its charter)
Oregon 93-0810577
(State or other jurisdiction of I.R.S. Employer
incorporation or organization) Identification No.)
301 Church Street N.E.
Salem, Oregon 97301
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (503) 399-2900
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, No Par Value
(Title of Class)
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 by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not 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-K or any
amendment to this Form 10-K. [X]
The approximate aggregate market value of Registrant's Common Stock held
by non-affiliates of the Registrant on March 1, 1995, was $57,282,946.
The number of shares of Registrant's Common Stock outstanding on March 1,
1995, was 4,319,549.
DOCUMENTS INCORPORATED BY REFERENCE
None.
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INDEX
Page
PART I
Item 1. BUSINESS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3
General . . . . . . . . . . . . . . . . . . . . . . . . . . .3
Recent Developments . . . . . . . . . . . . . . . . . . . . .3
The Commercial Bank and Valley Commercial Bank. . . . . . . .4
Coban, Inc. . . . . . . . . . . . . . . . . . . . . . . . . .5
Employees . . . . . . . . . . . . . . . . . . . . . . . . . .5
Competition . . . . . . . . . . . . . . . . . . . . . . . . .5
Governmental Policies . . . . . . . . . . . . . . . . . . . .5
Supervision and Regulation. . . . . . . . . . . . . . . . . .6
Item 2. PROPERTIES. . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Item 3. LEGAL PROCEEDINGS . . . . . . . . . . . . . . . . . . . . . . . . 12
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS . . . . . . . 12
EXECUTIVE OFFICERS OF THE REGISTRANT. . . . . . . . . . . . . . . 12
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS. . . . . . . . . . . . . . . . . . . . . . . 13
Item 6. SELECTED FINANCIAL DATA . . . . . . . . . . . . . . . . . . . . . 13
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS. . . . . . . . . . 14
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA . . . . . . . . . . . 27
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE. . . . . . . . . . . . . . . 48
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. . . . . . . . 48
Item 11. EXECUTIVE COMPENSATION. . . . . . . . . . . . . . . . . . . . . . 52
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. . . . . . . . . . 59
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
EXHIBIT INDEX. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
<PAGE>
PART I
ITEM 1. BUSINESS
General
West Coast Bancorp ("Bancorp" or the "registrant"), an Oregon corporation,
was organized in August 1981 as a bank holding company under the name
Commercial Bancorp. Pursuant to an Agreement and Plan of Reorganization dated
November 30, 1981, Bancorp acquired all of the common stock of The Commercial
Bank, an Oregon state-chartered bank, in a transaction effective July 12,
1982.
As discussed in more detail under "Recent Developments," pursuant to an
Agreement and Plan of Merger dated as of October 24, 1994, between former West
Coast Bancorp ("WCB") and the registrant, as amended as of December 12, 1994
(the "Merger Agreement"), WCB and the registrant were merged on February 28,
1995 (the "Merger"), with the registrant as the surviving corporation. WCB
was a one bank holding company headquartered in Newport, Oregon. The combined
company commenced operations on March 1, 1995, under the name West Coast
Bancorp and, with approximately $445 million in total assets, is the third
largest bank holding company based in Oregon.
The registrant is presently headquartered in Salem, Oregon, but will be
moving its principal executive offices to Lake Oswego, Oregon, in the near
future. Bancorp's principal business activities are conducted through its
three bank subsidiaries, The Commercial Bank, Valley Commercial Bank, and The
Bank of Newport (collectively, the "Banks"), each of which is an Oregon state-
chartered, full-service commercial bank with deposits insured by the Federal
Deposit Insurance Corporation ("FDIC"). At March 1, 1995, the Banks had
facilities in a total of 18 cities and towns in Oregon, operating a total of
22 full-service branches and 2 limited service branches.
Recent Developments
Merger with Former West Coast Bancorp
The merger of equals which was consummated between the registrant and
former West Coast Bancorp on February 28, 1995, is expected to further both
companies' objectives of preserving the benefits of a community banking
business strategy under the umbrella of a "super community" banking
organization with greater size, flexibility, breadth of services, efficiency,
and capital strength than either institution would possess on a stand-alone
basis. The combined corporations' complementary market areas, product mixes,
and areas of expertise are anticipated to provide significant opportunities to
achieve growth, revenue enhancement, increased quality of customer services,
an ability to compete more effectively with larger institutions, and greater
stability through diversification.
In the Merger, WCB shareholders received .60 shares of Common Stock of the
registrant (the "Common Stock") for each share of WCB stock owned.
Shareholders of the registrant continue to have one share of Common Stock for
each share owned prior to the Merger.
For the year ended December 31, 1994, the operations of the registrant and
WCB on a combined basis earned net income of $6.8 million, or $1.67 per share,
before $922,000 of non-recurring Merger related and reorganization costs. Net
income was $5.9 million or $1.44 per share after the Merger related costs.
The pro forma combined equity of the corporations at December 31, 1994, was
$43.3 million, with 4.3 million shares outstanding and a book value of $10.18
per share. Net loans of the combined corporations of $276 million at
December 31, 1994, represented approximately 63 percent of combined total
assets. Combined deposits totaled in excess of $371 million at year-end 1994.
Rodney B. Tibbatts, formerly president and chief executive officer of the
registrant, and Victor L. Bartruff, formerly president and chief executive
officer of WCB, have assumed the roles of Co-Presidents and Co-Chief Executive
Officers of Bancorp. Mr. Tibbatts is primarily responsible for holding
company administration and non-bank operating units, while Mr. Bartruff is
primarily responsible for all banking operations. Each subsidiary bank is
continuing to operate in its respective local communities with substantial
autonomy and local decision making authority under the guidance of community
boards of directors and local management.
The Bank of Newport
WCB's only operating subsidiary was The Bank of Newport, which was
established in 1925. It currently conducts business through eight branches
located in the cities of Newport (two), Lincoln City, Waldport, Depoe Bay, and
Toledo along the central Oregon coast, downtown Portland, Oregon, and Lake
Oswego, a suburb of Portland. The Bank of Newport has received regulatory
approval to open a new branch in east Portland, which is expected to open by
April 1995. In addition, a commercial real estate loan brokerage office
located in Lake Oswego originates and brokers commercial real estate loans to
other banks, insurance companies, pension funds, and other sophisticated
investors.
The Bank of Newport's principal business consists of attracting deposits
from the general public through its branch system and using those funds,
together with advances from the Federal Home Loan Bank Board, to originate
loans and purchase investment securities. The Bank of Newport also generates
noninterest income through the origination and sale of mortgage and Small
Business Administration ("SBA") loans, service charges on deposit accounts,
loan servicing fees, ATM service charges, merchant credit card processing
fees, and from the sale of annuities and mutual funds. To augment The Bank of
Newport's commitment to small-and medium-sized businesses, it has adopted a
number of lending programs targeted at serving this segment. It has expanded
its use of the resources available through the SBA and has added employees
experienced in both processing SBA guaranteed loans and selling the guaranteed
portions of these loans. Also, The Bank of Newport has initiated its Business
Manager product, an accounts receivable lending program designed specifically
for small-to medium-sized businesses. Its loan portfolio emphasizes the
tourism and real estate industries.
Pending Merger with Great Western Bank
In October 1994, Bancorp and The Commercial Bank entered into a merger
agreement with Great Western Bank of Dallas, Oregon. Under the agreement,
subject to satisfaction of certain conditions (including, without limitation,
approval by the shareholders of Great Western Bank and receipt of applicable
regulatory approvals), Great Western Bank will be merged into The Commercial
Bank and the shareholders of Great Western Bank will receive shares of Bancorp
Common Stock in exchange for their shares. At December 31, 1994, Great
Western Bank had total assets of approximately $9,300,000 and shareholders'
equity of approximately $860,000. The number of shares of Bancorp Common
Stock issuable to the shareholders of Great Western Bank will be determined by
a formula based upon the adjusted book value of Great Western Bank (as
defined) and the market price of Common Stock. Upon consummation of the
merger, scheduled for March 30, 1995, the single branch of Great Western Bank
will become the Dallas, Oregon, branch of The Commercial Bank.
The Commercial Bank and Valley Commercial Bank
The Commercial Bank and Valley Commercial Bank were organized in 1954 and
1981, respectively. The Commercial Bank's main office is located at 301
Church Street N.E., Salem, Oregon (telephone (503) 399-2900); it has three
additional branches in Salem, three branches in Keizer, and branches in
Molalla, Monmouth, Newberg, Silverton, Tigard, and Wilsonville. At
December 31, 1994, it had deposits totaling $232 million and loans totaling
$167 million. The main office of Valley Commercial Bank is located at 4110
Pacific Avenue, Forest Grove, Oregon 97116 (telephone (503) 359-4495), with
additional branches in North Plains and Hillsboro. At December 31, 1994, it
had deposits and loans totaling $15 million and $10 million, respectively.
The primary business strategy of The Commercial Bank and Valley Commercial
Bank is to provide community banking services to individuals, professionals,
and small- and medium-sized businesses, emphasizing customer relationships, a
high level of service, and attention to customer needs. Business and
commercial customers are a significant focus of activity. The two banks offer
deposit accounts, safe-deposit, consumer lending, commercial and residential
real estate lending, commercial loans, including operating lines secured by
accounts receivable and inventory, and other traditional bank products. Their
loan portfolios have some concentration in agricultural and light
manufacturing related businesses. Deposit products include regular and
special checking accounts, savings accounts, certificates of deposit, and
money market accounts. Consumer credit products include residential first and
second mortgages, automobile loans, credit cards, lines of credit, and other
products. Lending services include short- and intermediate-term loans,
inventory financing, equipment leasing, revolving lines of credit, and other
types of credit. The Commercial Bank and Valley Commercial Bank also offer
Master Card and VISA credit card programs through third party vendors as part
of their retail banking services.
In order to provide convenient banking services to their customers, The
Commercial Bank and Valley Commercial Bank offer extended banking hours in
selected branches. The Commercial Bank has also installed automatic teller
machines in ten of its branches offering 24-hour transaction services,
including cash withdrawals, deposits, account transfers, and balance
inquiries.
The Commercial Bank's Trust Department provides trust services to
individuals, partnerships, corporations, and institutions. The Trust
Department acts as fiduciary of estates and conservatorships, and as a trustee
under various wills, trust, and pension and profit-sharing plans. The
Commercial Bank also offers tax-deferred annuities, single-premium whole life
insurance, other insurance investment products, and securities products.
Coban, Inc.
In December 1967, The Commercial Bank incorporated Coban, Inc. (Coban), an
Oregon corporation. Coban was established to hold selected fixed assets of
The Commercial Bank and to provide additional flexibility for real property
transactions. In addition, Coban serves as an intermediary to purchase Common
Stock for the voluntary employee stock purchase plan and the shareholder
dividend reinvestment plan.
Employees
At March 1, 1995, Bancorp and its subsidiaries had approximately 335 full-
time equivalent employees. None of these employees are represented by labor
unions. A number of benefit programs are available to eligible employees
including group medical plans, paid sick leave, paid vacation, group life
insurance, pension plan, and an optional employee stock purchase plan.
Competition
At December 31, 1994, The Commercial Bank, The Bank of Newport, and Valley
Commercial Bank were the 13th, 15th, and 47th largest, respectively, of the 51
commercial and savings banks in Oregon. The Banks compete with other
commercial banks, as well as with savings and loan associations, savings
banks, credit unions, mortgage companies, investment banks, insurance
companies, securities brokerages, and other financial institutions. Banking in
Oregon is dominated by United States National Bank of Oregon and First
Interstate Bank of Oregon, N.A., which together account for approximately
44 percent of the total commercial and savings bank deposits in the state.
Other significant competitors include subsidiaries of BankAmerica Corporation,
Key Corp., and West One Bancorp. These competitors offer a greater number of
branch locations (with statewide branch networks in the case of the two
largest competitors), the ability to offer higher lending limits, and a
variety of services not offered by the Banks. Bancorp has attempted to offset
some of the advantages of the larger competitors by arranging participations
with other banks for loans above its subsidiaries' legal lending limits.
Emphasis is placed on local banking featuring quality service, local
responsive decisionmaking, and money reinvested into the community, and by
participating in nationwide services such as The Exchange, Instant Teller, and
Cirrus networks.
Governmental Policies
The earnings and growth of Bancorp and its banking subsidiaries, as well
as their existing and future business activities, are affected not only by
general economic conditions, but also by the fiscal and monetary policies of
the Federal government and its agencies, particularly the Board of Governors
of the Federal Reserve System (the "Federal Reserve Board"). The Federal
Reserve Board implements national monetary policies (intended to curb
inflation and combat recession) by its open-market operations in United States
Government securities, by adjusting the required level of reserves for
financial institutions subject to its reserve requirements, and by varying the
discount rates applicable to borrowings by banks from the Federal Reserve
Banks. The actions of the Federal Reserve Board in these areas influence the
growth of bank loans, investments and deposits, and also affect interest rates
charged on loans and deposits. As banking is a business which depends largely
on interest rate differentials (in general, the difference between the
interest rates paid by the Banks on their deposits and their other borrowings
and the interest rates received by the Banks on loans extended to their
customers and on securities held in the Banks' investment portfolios), the
influence of economic conditions and monetary policies on interest rates will
directly affect earnings. The nature and impact of any future changes in
monetary policies cannot be predicted.
Supervision and Regulation
General
As a bank holding company, Bancorp is subject to supervision by the
Federal Reserve Board pursuant to the Bank Holding Company Act of 1956, as
amended (the "BHCA"). Its bank subsidiaries are subject to extensive
supervision, examination, and regulation by applicable federal and state
banking agencies, including the FDIC, in the case of The Commercial Bank and
The Bank of Newport (which are not members of the Federal Reserve System), and
the Federal Reserve Board, in the case of Valley Commercial Bank (which is a
member bank). Each of the Banks is insured (to applicable limits) by, and
therefore is also subject to the regulations of, the FDIC. In addition, the
Banks are subject to supervision of the Oregon Department of Consumer and
Business Services and regulation under Oregon law.
Depository institutions, such as the Banks, are affected significantly by
the actions of the Federal Reserve Board as it attempts to control the money
supply and credit availability in order to influence the economy. Also,
relevant Oregon law applies to certain areas of all bank operations, such as
the opening of branches, and limits the maximum interest rates that may be
charged by state banks.
As a corporation chartered under the laws of the state of Oregon, Bancorp
is also subject to certain limitations and restrictions as provided under
applicable Oregon law. These include, for example, limitations and
restrictions which relate to indemnification of directors, distributions to
shareholders, transactions involving directors, officers, or interested
shareholders, the maintenance of books, records, and minutes, and procedural
matters relating to shareholder meetings and major corporate transactions.
The following references to certain statutes and regulations are brief
summaries thereof. The references are not intended to be complete and are
qualified in their entirety by reference to the statutes and regulations. In
addition, there are other statutes and regulations that apply to and regulate
the operation of banking institutions. A change in applicable law or
regulation may have a material effect on the business of Bancorp and its
subsidiaries.
Dividend Restrictions
Dividends paid by the Banks are the source of substantially all of
Bancorp's cash flow. Various federal and state statutory provisions limit the
amount of dividends the Banks are permitted to pay to Bancorp without
regulatory approval. The Federal Reserve Board has issued a policy statement
that a bank holding company should not declare or pay a cash dividend to its
shareholders if the dividend would place undue pressure on the capital of its
subsidiary banks or if the dividend could be funded only through additional
borrowings or other arrangements that might adversely affect the financial
position of the bank holding company. Specifically, a bank holding company
should not continue its existing rate of cash dividends on its common stock
unless its net income is sufficient to fully fund each dividend and its
prospective rate of earnings retention appears consistent with its capital
needs, asset quality, and overall financial condition.
If, in the opinion of the applicable federal banking agency, a depositary
institution under its jurisdiction is engaged in or is about to engage in an
unsafe or unsound practice (which, depending on the financial condition of the
institution, could include the payment of dividends), the agency may require,
after notice and hearing, that such institution cease and desist from such
practice. In addition, the Federal Reserve Board and the FDIC have issued
policy statements which provide that insured banks and bank holding companies
should generally pay dividends only out of current operating earnings.
Under Oregon law, the following limitations on the payment of dividends by
Oregon state-chartered banks are imposed: (i) no dividends may be paid that
would impair capital; (ii) until the surplus fund of a bank is equal to
50 percent of its paid-in capital, no dividends may be declared unless there
has been carried to the surplus account at least 20 percent of the bank's net
profits for the dividend period; (iii) dividends cannot be greater than net
undivided profits then on hand minus losses, certain bad debts, certain
charged-off assets or depreciation and accrued expenses, interest, and taxes;
and (iv) if the surplus fund does not exceed 50 percent of paid-in capital at
the time of a reduction in the surplus due to losses, dividends cannot be
declared or paid in excess of 50 percent of net earnings until the surplus
fund is restored to at least the amount from which the surplus was originally
reduced.
Under these restrictions, as of December 31, 1994, the Banks could have
declared dividends of approximately $7.6 million in the aggregate, without
obtaining prior regulatory approval. The payment of dividends by any bank
subsidiary may also be affected by other factors, such as the requirement that
each such subsidiary maintain adequate capital.
Holding Company Structure
APPROVAL BY FEDERAL RESERVE BOARD. A bank holding company is required to
file with the Federal Reserve Board annual reports and other information
regarding its business operations and those of its subsidiaries. It is also
subject to examination by the Federal Reserve Board and is required to obtain
Federal Reserve Board approval before acquiring, directly or indirectly,
ownership or control of any voting shares of any bank if, after such
acquisition, it would directly or indirectly own or control more than
5 percent of the voting stock of that bank, unless it already owns a majority
of the voting stock of that bank.
The BHCA further provides that the Federal Reserve Board shall not approve
any acquisition that would result in or further the creation of a monopoly, or
the effect of which may be substantially to lessen competition, unless the
anticompetitive effects of the proposed transaction are clearly outweighed by
the probable effect in meeting the convenience and needs of the community to
be served.
LIMITS ON CONTROL OF NONBANKS. Under the BHCA, a bank holding company is,
with limited exceptions, prohibited from (i) acquiring direct or indirect
ownership or control of more than 5 percent of the voting shares of any
company which is not a bank or (ii) engaging in any activity other than
managing or controlling banks. With the prior approval of the Federal Reserve
Board, however, a bank holding company may own shares of a company engaged in
activities which the Federal Reserve Board has determined to be so closely
related to banking or managing or controlling banks as to be a proper incident
thereto.
The Federal Reserve Board has by regulation determined that certain
activities are so closely related to banking as to be a proper incident
thereto within the meaning of the BHCA. These activities include, but are not
limited to, operating an industrial loan company, industrial bank, savings
association, mortgage company, finance company, credit card company or
factoring company; performing certain data processing operations; providing
investment and financial advice; operating a trust company in certain
instances; selling traveler's checks, United States savings bonds, and certain
money orders; providing certain courier services; providing management
consulting advice to nonaffiliated depository institutions in some instances;
acting as insurance agent for certain types of credit-related insurance;
leasing property or acting as agent, broker, or adviser for leasing property
on a "full pay-out basis"; acting as a consumer financial counselor, including
tax planning and return preparation; performing futures and options advisory
services, check guarantee services, and discount brokerage activities;
operating a collection or credit bureau; or performing personal property
appraisals.
The Federal Reserve Board has also determined that certain activities are
not so closely related to banking to be a proper incident thereto within the
meaning of the BHCA. Such activities include real estate brokerage and
syndication; land development; property management; underwriting of life
insurance not related to credit transactions; and, with certain exceptions,
securities underwriting and equity funding. In the future, the Federal Reserve
Board may add to or delete from the list of activities permissible for
subsidiaries of bank holding companies.
TRANSACTIONS INVOLVING BANK SUBSIDIARIES. Transactions involving the
Banks will be subject to restrictions under federal law that limit the
transfer of funds from such subsidiaries to Bancorp and (with certain
exceptions) its nonbank subsidiaries in "covered transactions" such as loans,
extensions of credit, investments, or asset purchases. Each such transfer by a
bank subsidiary to either Bancorp or any nonbank subsidiary is limited to
10 percent of that bank subsidiary's capital and surplus and, with respect to
all such transfers to Bancorp and all Bancorp's nonbank subsidiaries in the
aggregate, to 20 percent of that bank subsidiary's capital and surplus.
Furthermore, loans and extensions of credit are required to be secured in
specified amounts. "Covered transactions" also include the acceptance of
securities issued by the bank subsidiary as collateral for a loan and the
issuance of a guarantee, acceptance, or letter of credit for the benefit of
Bancorp or its nonbank subsidiaries.
TIE-IN ARRANGEMENTS. A bank holding company and its subsidiaries are
prohibited from certain tie-in arrangements in connection with any extension
of credit, sale or lease of property, or furnishing of services. For example,
with certain exceptions, a bank may not condition an extension of credit on a
promise by its customer to obtain other services provided by it, its holding
company, or other subsidiaries, or on a promise by its customer not to obtain
other services from a competitor.
BANK HOLDING COMPANY SUPPORT OF BANK SUBSIDIARIES. Under Federal Reserve
Board policy, a bank holding company is expected to act as a source of
financial and managerial strength to each of its subsidiary banks and to
commit resources to support each such subsidiary bank. This support may be
required by the Federal Reserve Board at times when Bancorp may not have the
resources to provide it or, for other reasons, would not otherwise be inclined
to provide it. Any capital loans by Bancorp to any of the Banks are
subordinate in right of payment to deposits and to certain other indebtedness
of such bank subsidiary. In addition, the Crime Control Act of 1990 provides
that, in the event of a bank holding company's bankruptcy, any commitment by
the bank holding company to a federal bank regulatory agency to maintain the
capital of a subsidiary bank will be assumed by the bankruptcy trustee and
entitled to a priority of payment.
RECOVERY OF LOSSES BY FDIC. A depository institution, the deposits of
which are insured by the FDIC, may be held liable for any loss incurred by, or
reasonably expected to be incurred by, the FDIC in connection with (i) the
default of a commonly controlled FDIC-insured depository institution or
(ii) any assistance provided by the FDIC to a commonly controlled FDIC-insured
depository institution in danger of default (the so-called cross guaranty
provision). "Default" is defined under the FDIC's regulations generally as the
appointment of a conservator or receiver, and "in danger of default" is
defined generally as the existence of certain conditions indicating that a
"default" is likely to occur in the absence of regulatory assistance.
Capital Requirements
The minimum ratio of total capital to risk-adjusted assets (including
certain off-balance sheet items, such as stand-by letters of credit) required
by the Federal Reserve Board for bank holding companies is 8 percent. At least
one-half of the total capital must be comprised of common equity, retained
earnings, qualifying noncumulative perpetual preferred stock, a limited amount
of qualifying cumulative perpetual preferred stock, and minority interests in
the equity accounts of consolidated subsidiaries, less goodwill and certain
other intangible assets ("Tier 1 capital"). The remainder may consist of
hybrid capital instruments, perpetual debt, mandatorily convertible debt
securities, a limited amount of subordinated debt, other preferred stock, and
a limited amount of loan and lease loss reserves ("Tier 2 capital"). The
Federal Reserve Board has stated that banking organizations generally, and
particularly those that actively make acquisitions, are expected to operate
well above the minimum risk-based capital ratios.
In addition, Bancorp is subject to minimum leverage ratio (Tier 1 capital
to average total assets) guidelines. These guidelines provide for a minimum
leverage ratio of 3 percent for bank holding companies that meet certain
specified criteria, including that they have the highest supervisory rating.
All other bank holding companies are required to maintain a leverage ratio
which is at least 100 to 200 basis points higher (i.e., a leverage ratio of at
least 4 percent to 5 percent). Neither Bancorp nor any of its bank
subsidiaries has been advised by its appropriate federal regulatory agency of
any specific leverage ratio applicable to it. The guidelines also provide
that banking organizations experiencing internal growth or making acquisitions
will be expected to maintain strong capital positions substantially above the
minimum supervisory levels, without significant reliance on intangible assets.
Furthermore, the guidelines indicate that the Federal Reserve Board will
continue to consider a "tangible Tier 1 leverage ratio" in evaluating
proposals for expansion or new activities. The tangible Tier 1 leverage ratio
is the ratio of a banking organization's Tier 1 capital less all intangibles
to total assets less all intangibles. The Banks will also be subject to
capital requirements adopted by applicable federal regulatory agencies which
are substantially similar to those imposed by the Federal Reserve Board on
bank holding companies. As of December 31, 1994, Bancorp and each of the Banks
had capital in excess of all minimum regulatory requirements.
Each of the federal banking agencies has proposed regulations that would
add an additional capital requirement based upon the amount of an
institution's exposure to interest rate risk. The federal banking agencies
have yet to adopt final rules on the interest rate risk component of
risk-based capital.
The Federal Deposit Insurance Act (the "FDIA") generally prohibits a
depository institution from making any capital distribution (including payment
of a dividend) or paying any management fee to its holding company if the
institution would thereafter be undercapitalized.
Undercapitalized depository institutions are also subject to restrictions
on borrowing from the Federal Reserve System, are subject to increased
monitoring by the appropriate federal banking agency and limitations on
growth, and are required to submit a capital restoration plan. The federal
banking agencies may not accept a capital plan without determining, among
other things, that the plan is based on realistic assumptions and is likely to
succeed in restoring the institution's capital. In addition, for a capital
restoration plan to be acceptable, the depository institution's parent holding
company must guarantee that the institution will comply with such capital
restoration plan. The aggregate liability of the parent holding company with
respect to such a guarantee is limited to the lesser of: (a) an amount equal
to 5 percent of the depository institution's total assets at the time it
became undercapitalized or (b) the amount which is necessary (or would have
been necessary) to bring the institution into compliance with all capital
standards applicable with respect to such institution as of the time it fails
to comply with the plan. If a depository institution fails to submit an
acceptable plan, it is treated as if it were significantly undercapitalized.
Significantly undercapitalized depository institutions may be subject to a
number of requirements and restrictions, including orders to sell sufficient
voting stock to become adequately capitalized and requirements to reduce total
assets, and are prohibited from receiving deposits from correspondent banks.
"Critically undercapitalized" institutions are subject to the appointment of a
receiver or conservator.
Under Oregon law, the Oregon Department of Consumer and Business Services
has the authority to require the shareholders of an Oregon state- chartered
bank to contribute additional capital to the bank if its capital becomes
impaired. The capital of a bank is deemed to be impaired under Oregon law if
the value of the bank's assets is insufficient to pay its liabilities
(excluding any liability on outstanding capital debentures) plus the amount of
its paid-in capital.
Recent Legislation
FEDERAL DEPOSIT INSURANCE CORPORATION IMPROVEMENT ACT OF 1991. In 1991,
Congress enacted the Federal Deposit Insurance Corporation Improvement Act of
1991 ("FDICIA"), which, among other things, amended the FDIA, increased the
FDIC's borrowing authority to resolve bank failures, mandated least-cost
resolutions and prompt regulatory action with regard to undercapitalized
institutions, expanded consumer protection, and mandated increased supervision
of domestic depository institutions and the U.S. operations of foreign
depository institutions. FDICIA requires federal banking agencies to
promulgate regulations and specify standards in numerous areas of bank
operations, including interest rate exposure, asset growth, internal controls,
credit underwriting, executive officer and director compensation, real estate
construction financing, additional review of capital standards, interbank
liabilities, and other operational and managerial standards as the agencies
determine appropriate. These regulations have increased and may continue to
increase the cost of and the regulatory burden associated with the banking
business.
FDICIA contains numerous amendments to consumer-related laws. The Equal
Credit Opportunity Act ("ECOA") has been amended to require the banking
agencies to report any case where there is a reason to believe a pattern or
practice of violating the ECOA has occurred directly to the United States
Attorney General. The Expedited Funds Availability Act has been amended to
extend the time period in which notice must be given to depositors regarding
the use of an exception to the institution's funds availability schedule. The
Truth in Savings Act, which requires comprehensive disclosures of interest
rates and terms of deposit accounts, has been adopted pursuant to FDICIA.
PROMPT CORRECTIVE ACTION. Effective in December 1992, the FDIC, the
Federal Reserve Board, and other federal bank regulatory authorities adopted
new regulations to implement the prompt corrective action provisions of the
FDIA. The capital-based prompt corrective action provisions of the FDIA and
their implementing regulations apply to FDIC-insured depository institutions
and are not applicable to holding companies which control such institutions.
However, the Federal Reserve Board has indicated that in regulating bank
holding companies, it will take appropriate action at the holding company
level based on its assessment of the effectiveness of supervisory actions
imposed upon subsidiary depository institutions pursuant to such provisions
and regulations. Although the capital categories defined under the prompt
corrective action regulations are not directly applicable to Bancorp under
existing law and regulations, if Bancorp were placed in a capital category, it
would have qualified as well-capitalized as of December 31, 1994. As of
December 31, 1994, no bank subsidiary of Bancorp was subject to any regulatory
order, agreement, or directive to meet and maintain a specific capital level
for any capital measure.
BROKERED DEPOSITS. The FDIC has also adopted final regulations governing
the receipt of brokered deposits. Under these regulations, an FDIC-insured
bank or savings association cannot accept brokered deposits unless: (i) it is
well capitalized or (ii) it is adequately capitalized and receives a waiver
from the FDIC.
A bank or savings association that cannot receive brokered deposits also
cannot offer "pass through" insurance on certain employee benefit accounts,
unless it provides certain notice to affected depositors. In addition, a bank
or savings association that is not well capitalized may not pay an interest
rate on any deposits in excess of 75 basis points over certain prevailing
market rates.
At December 31, 1994, none of Bancorp's bank subsidiaries had brokered
deposits.
FDIC INSURANCE. The FDIC has adopted a risk-related insurance assessment
system. Under the risk-related insurance assessment system, a bank or savings
association is required to pay an assessment ranging from $.23 to $.31 per
$100 of deposits based on the institution's risk classification. The Banks
pay assessments to the FDIC's Bank Insurance Fund.
The risk classification is based on an assignment of the institution by
the FDIC to one of three capital groups and to one of three supervisory
subgroups. The capital groups are "well capitalized," "adequately
capitalized," and "undercapitalized." The three supervisory subgroups are
Group "A" (for financially sound institutions with only a few minor
weaknesses), Group "B" (for those institutions with weaknesses which, if
uncorrected, could cause substantial deterioration of the institution and
increase risk to the deposit insurance fund), and Group "C" (for those
institutions with a substantial probability of loss to the fund absent
effective corrective action). For the most recent assessment period, insurance
assessments on all deposits of the Banks were paid at the $.23 rate per $100
of deposits. In February 1995, the FDIC published proposed rules which, if
adopted, would result in a significant reduction in assessment rates for
members of the Bank Insurance Fund.
INTERSTATE BRANCHING. The Reigle-Neal Interstate Banking and Branching
Efficiency Act of 1994 (the "Interstate Act") will, over the next three years,
permit nationwide interstate banking and branching by bank holding companies
meeting specified capital and management adequacy standards. The Interstate
Act currently allows states to permit interstate mergers within their own
borders. After September 1995, bank holding companies may buy banks in any
state. From that time, states may not prohibit such purchases. As of July 1,
1997, banks will be permitted to merge with banks in any other state as long
as the state has not passed legislation prohibiting such mergers. Also, if a
state permits it, a bank may establish de novo branches in the state. The
Interstate Act requires regulators to consult with community organizations
before permitting an interstate institution to close a branch in a low-income
area. At this time, the impact of the Interstate Act on Bancorp and its bank
subsidiaries is unclear.
Control Acquisitions
The Change in Bank Control Act of 1978, as amended, prohibits a person or
group of persons from acquiring "control" of a bank holding company unless the
Federal Reserve Board has been given 60 days' prior written notice of proposed
acquisition and within that time period the Federal Reserve Board has not
issued a notice disapproving the proposed acquisition or extending for up to
another 30 days the period during which such a disapproval may be issued. An
acquisition may be made prior to the expiration of the disapproval period if
the Federal Reserve Board issues written notice of its intent not to
disapprove the action. Under a rebuttable presumption established by the
Federal Reserve Board, the acquisition of 10 percent or more of a class of
voting stock of a bank holding company with a class of securities registered
under Section 12 of the Securities Exchange Act of 1934, such as Bancorp,
would, under the circumstances set forth in the presumption, constitute the
acquisition of control.
In addition, any "company" would be required to obtain the approval of the
Federal Reserve Board under the BHCA before acquiring 25 percent (5 percent in
the case of an acquiror that is a bank holding company) or more of the
outstanding shares of the Common Stock, or otherwise obtaining control over
Bancorp.
ITEM 2. PROPERTIES
The principal properties of the registrant are comprised of banking
facilities owned by the registrant's three banking subsidiaries.
The main offices of The Commercial Bank are located in downtown Salem,
Oregon, in recently remodeled two-story buildings totaling approximately
40,000 square feet of space. The main offices, which are owned by The
Commercial Bank, include administrative offices of Bancorp and The Commercial
Bank, the main branch of The Commercial Bank, and drive-up teller facilities.
The Commercial Bank also operates 12 other branches, of which 6 are owned and
6 are leased at an aggregate monthly rental of approximately $11,000. In
addition, The Commercial Bank owns an approximately 8,000-square-foot service
center in Salem, Oregon, that houses data processing facilities.
The main office of Valley Commercial Bank is located in Forest Grove,
Oregon, in a building owned by a subsidiary of The Commercial Bank. Valley
Commercial Bank operates a branch in North Plains, Oregon, in a facility owned
by it, and a branch in Hillsboro, Oregon, which is leased for approximately
$2,800 per month.
The Bank of Newport owns the land and building housing its main offices
located in Newport, Oregon, consisting of approximately 15,640 square feet of
space. At December 31, 1994, The Bank of Newport also owned the land and
buildings housing four other branches and offices and leased the space housing
five branches and offices at a monthly aggregate rental of approximately
$10,000.
ITEM 3. LEGAL PROCEEDINGS
Beginning in 1987, The Commercial Bank's Trust Department offered
interests in a common trust fund (the "IRA Fund") as an investment vehicle for
individual retirement accounts. In the fall of 1994, The Commercial Bank and
the manager of The Commercial Bank's Trust Department consented to the entry
of an order by the Securities and Exchange Commission (the "SEC") finding that
The Commercial Bank willfully violated, and that the manager of The Commercial
Bank's Trust Department willfully aided and abetted and caused violations by
The Commercial Bank of, various provisions of the Securities Act of 1933, as
amended ("Securities Act"), and the Investment Company Act of 1940, as amended
("Investment Company Act"), by offering interests in the IRA Fund without
registration under such laws, by failing to disclose that interests in the IRA
Fund were not insured by the FDIC, and otherwise. Pursuant to offers of
settlement, in which The Commercial Bank and the manager of the Trust
Department neither admitted nor denied the violations, the SEC ordered that
The Commercial Bank and the manager of the Trust Department each cease and
desist from committing or causing violations of the specified provisions of
the Securities Act and Investment Company Act. The Commercial Bank was
ordered to pay a civil penalty in the amount of $75,000 and to retain an
independent consultant to conduct a review of compliance procedures, to
recommend policies and procedures to prevent and detect violations of federal
securities laws, and to report to the Board of Directors of The Commercial
Bank. The manager of the Trust Department was suspended from association with
any broker/dealer, municipal securities dealer, investment adviser, or
investment company for a period of six months. Together with the independent
consultant, The Commercial Bank is evaluating the most effective method of
ensuring that the IRA Fund is operated in full compliance with all applicable
securities laws and is actively reviewing alternatives, principally various
means of offering registered funds sponsored by third parties. The Commercial
Bank also plans to offer recision (at a price equal to original deposit plus
9 percent per annum interest) of prior purchases of interests in the IRA Fund.
The Commercial Bank estimates that its maximum aggregate liability in the
event of acceptance of the recision offer by all persons whose interests in
the IRA Fund have a current market value of less than the amount offered in
the recision offer is approximately $90,000, based on market prices as of
December 31, 1994.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
A special meeting of Bancorp's common shareholders was held on
February 27, 1995, to consider and vote upon approval of a plan of merger
contained in the Merger Agreement. The table below shows the votes cast for
or against approval of the Merger, as well as abstentions and broker non-
votes.
No. of Shares
For 1,844,344.8400
Against 33,366.8630
Abstentions 11,609.6826
Broker Non-Votes 8,480.0000
Pursuant to the Merger Agreement, the following individuals were designated as
directors of Bancorp beginning the effective date of the Merger, with terms
ending as of the annual meeting of shareholders occurring in the years
specified below.
Name Term Ending
Lloyd D. Ankeny 1998
Iral D. Barrett 1998
Victor L. Bartruff 1997
Phillip G. Bateman 1998
Chester C. Clark 1997
Lester D. Green 1996
Stanley M. Green 1998
William B. Loch 1997
Jack E. Long 1996
C. Douglas McGregor 1998
Robert D. Morrison 1997
J. F. Ouderkirk 1996
Gary D. Putnam 1996
Rodney B. Tibbatts 1997
EXECUTIVE OFFICERS OF THE REGISTRANT
Information regarding Bancorp's executive officers appears in Item 10 of
this report.
PART II
Item 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
Bancorp's common stock is traded over the counter in the NASDAQ National
Market System. At December 31, 1994, there were approximately 1,100
shareholders of record of Bancorp common stock. The following table presents
the high and low sales prices, as reported by NASDAQ, of Bancorp's common
stock and cash dividends paid for each quarter in the last two years:
Cash
High Low Dividend
1994 1st Quarter $15.91 $12.85 $.0750
1994 2nd Quarter 16.00 14.75 .0750
1994 3rd Quarter 16.50 15.25 .0750
1994 4th Quarter 17.00 14.00 .0750
1993 1st Quarter $15.68 $13.18 $.0682
1993 2nd Quarter 15.23 14.09 .0682
1993 3rd Quarter 14.55 12.95 .0682
1993 4th Quarter 15.68 13.64 .0682
The market prices and cash dividends have been adjusted retroactively for the
2-for-1 stock split effective January 25, 1993, and the 10 percent stock
dividend paid in 1994. See Item 1. Business, "Supervision and Regulation--
Dividend Restrictions" for a discussion of legal restrictions on the ability
of Bancorp's banking subsidiaries to pay dividends to Bancorp.
Item 6. SELECTED FINANCIAL DATA
The following selected financial data should be read in conjunction with
Bancorp's consolidated financial statements and the accompanying notes
presented in Item 8 of this report. The data was not restated to reflect the
February 28, 1995, merger with former West Coast Bancorp.
<PAGE>
<TABLE>
<CAPTION>
Years Ended December 31 1994 1993 1992 1991 1990
-------- -------- -------- -------- --------
(Dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Interest income $ 21,633 $ 19,540 $ 19,829 $ 19,533 $ 19,296
Interest expense (5,538) (5,630) (6,632) (8,420) (9,163)
-------- -------- -------- -------- --------
Net interest income 16,095 13,910 13,197 11,113 10,133
Provision for possible
loan losses (300) (325) (832) (600) (560)
-------- -------- -------- -------- --------
Net interest income after
provision for possible
loan losses 15,795 13,585 12,365 10,513 9,573
Other income 3,850 4,292 3,557 3,120 2,466
Operating expenses (14,168) (12,582) (12,202) (10,567) (9,391)
-------- -------- -------- -------- --------
Income before income taxes 5,477 5,295 3,720 3,066 2,648
Provision for income taxes (1,464) (1,344) (854) (762) (696)
-------- -------- -------- -------- --------
Net income $ 4,013 $ 3,951 $ 2,866 $ 2,304 $ 1,952
======== ======== ======== ======== ========
Per share (a):
Net income $ 1.53 $ 1.51 $ 1.09 $ 0.88 $ 0.75
Cash dividends .30 .27 .23 .20 .23
Year-end book value 10.30 9.35 8.01 7.51 6.79
Total assets $282,579 $277,300 $240,791 $230,369 $203,664
Total deposits 246,654 245,589 217,890 207,577 184,905
Net loans 173,988 153,829 136,306 141,705 128,754
Shareholders' equity 27,007 24,514 20,980 18,735 16,953
Performance ratios:
Return on average assets 1.43% 1.54% 1.22% 1.10% .98%
Return on average equity 15.58 17.37 14.43 12.91 12.02
Equity to assets 9.47 8.91 8.67 8.13 8.32
Net loans to deposits 70.54 62.64 63.10 68.27 69.63
(a) All per share data has been restated to reflect 5 percent stock dividends issued in
1990 and 1992, a 2-for-1 stock split in 1993 and a 10 percent stock dividend in 1994.
</TABLE>
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion is intended to be read in conjunction with and
is qualified in its entirety by reference to the consolidated financial
statements and accompanying notes presented in Item 8 of this report.
Years Ended December 31, 1994 and 1993
Financial Highlights
Net income for 1994 of $4,013,000 was 2 percent higher than the
$3,951,000 in 1993, which was 38 percent greater than the $2,866,000 in 1992.
Return on average assets (ROA) decreased to 1.43 percent in 1994, versus
1.54 percent and 1.22 percent in 1993 and 1992, respectively. Return on
average shareholders' equity (ROE) was 15.58 percent in 1994, compared to
17.37 percent and 14.43 percent in 1993 and 1992, respectively. The primary
capital-to-asset leverage ratio was 9.56 percent at December 31, 1994,
compared to 9.50 percent and 8.95 percent at year-end 1993 and 1992,
respectively.
Earnings Performance
NET INTEREST INCOME. Net interest margin, which is tax-equivalent net
interest income divided by average earning assets, increased to an annualized
6.98 percent during 1994, versus 6.58 percent in 1993, and 6.79 percent in
1992. This statistical measurement of the primary earnings source is an
important indicator of the ability to effectively manage the earning assets
and interest bearing liabilities. Through September 30, 1994, this tax
equivalent net interest margin placed Bancorp in the top 2 percent of its
568 peer bank holding companies with total assets between $150 million and
$300 million located in the twelfth Federal Reserve district.
The overall tax-equivalent earning asset yield increased to 9.21 percent
compared to 9.03 percent for the same period in 1993 due to an increase in
market interest rates and a growth in the proportion of relatively-higher
yielding loans to earning assets. The prime rate increased from 6.00 percent
on January 1, 1994, to 8.50 percent as of December 31, 1994. Loans, which
generally carry a higher yield than securities, comprised 67 percent of
average earning assets during 1994, versus 61 percent in 1993.
Interest cost as a percent of earning assets declined to 2.23 percent in
1994 versus 2.45 percent in 1993, and 3.17 percent in 1992. Although the
average 91-day treasury bill rate increased from 3.03 percent in January 1994
to 5.65 percent in December 1994, local competitive conditions plus a
continued focus on quality personal service allowed deposit pricing at the
lower end of the local market. As a result, tax-equivalent net interest
income for the year 1994 of $17,341,000 was $2,232,000 or 15 percent higher
than $15,109,000 in 1993 which was $914,000 or 6 percent higher than the
$14,195,000 in 1992.
<PAGE>
AVERAGE BALANCES AND AVERAGE RATES EARNED AND PAID
The following table shows average balances and interest income or
interest expense, with the resulting average yield or rates by category of
average earning asset or interest-bearing liability (dollars in thousands):
<TABLE>
<CAPTION>
Year Ended December 31,
1994 1993 1992
------------------------------- ------------------------------- -------------------------------
Interest Average Interest Average Interest Average
Average Income or Yields Average Income or Yields Average Income or Yields
Balance Expense or Rates Balance Expense or Rates Balance Expense or Rates
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS:
Taxable securities $ 36,115 $ 1,783 4.94% $ 41,378 $ 1,946 4.70% $ 31,774 $ 1,986 6.25%
Nontaxable securities (1) 40,373 3,642 9.02 35,965 3,504 9.74 28,529 2,917 10.22
Federal funds sold 6,636 257 3.87 11,372 325 2.86 6,750 235 3.48
Loans, net of unearned
income (2)(3) 165,244 17,197 10.41 141,023 14,964 10.61 142,065 15,689 11.04
-------- ------- -------- ------- ------- -------
Total earning
assets/interest
income (1) 248,368 22,879 9.21% 229,738 20,739 9.03% 209,118 20,827 9.96%
Reserve for loan losses (2,701) (2,363) (2,070)
Other assets 34,926 28,512 27,777
-------- -------- --------
Total assets $280,593 $255,887 $234,825
======== ======== ========
LIABILITIES AND
SHAREHOLDERS'
EQUITY:
Interest-bearing
demand deposits $ 78,395 $ 1,752 2.23% $ 72,471 $ 1,728 2.38% $ 66,866 $ 1,883 2.82%
Savings deposits 77,267 2,283 2.95 61,015 1,946 3.19 40,631 1,439 3.54
Time deposits 43,308 1,503 3.47 52,119 1,956 3.75 66,185 3,310 5.00
-------- ------- -------- ------- -------- -------
Total
interest-bearing
liabilities/interest
expense 198,970 5,538 2.78 185,605 5,630 3.03 173,682 6,632 3.82
Demand deposits 46,983 42,976 37,412
Other liabilities 8,879 4,559 3,873
-------- -------- --------
Total liabilities 254,832 233,140 214,967
Shareholders' equity 25,761 22,747 19,858
-------- ------- -------- ------- -------- -------
Total liabilities and
shareholders'
equity $280,593 $255,887 $234,825
======== ======== ========
Net interest income $17,341 $15,109 $14,195
======= ======= =======
Net interest spread 6.43 6.00 6.14
Average yield on
earning assets (1) 9.21 9.03 9.96
Interest expense to
earning assets 2.23 2.45 3.17
Net interest income to
earning assets (1) 6.98% 6.58% 6.79%
===== ===== =====
(1)Tax-exempt income has been adjusted to a tax-equivalent basis at a 34 percent rate.
(2)Nonaccrual loans are included in the average balance.
(3)Loan fees included in the yield calculation totaled $1,341,000 in 1994, $1,627,000 in 1993,
and $1,578,000 in 1992.
</TABLE>
<PAGE>
ANALYSIS OF CHANGES IN INTEREST DIFFERENTIAL. The following table shows
the dollar amount of the increase (decrease) in Bancorp's net interest income
and expense and attributes such dollar amounts to changes in volume as well as
changes in rates. Rate/volume variances have been allocated proportionally
between rate and volume changes:
<TABLE>
<CAPTION>
Year Ended December 31,
1994 over 1993 1993 over 1992
Amount of Change Attributed to Amount of Change Attributed to
------------------------------ ------------------------------
Total Total
Increase Increase
Volume Rate (Decrease) Volume Rate (Decrease)
------ ---- --------- ------ ---- ----------
<S> <C> <C> <C> <C> <C> <C>
(Dollars in thousands)
Interest income:
Interest on taxable
securities $ (470) $ 307 $ (163) $ 519 $ (559) $ (40)
Interest on nontaxable
securities (1) 409 (271) 138 676 (89) 587
Federal funds sold (159) 91 (68) 138 (48) 90
Interest and fees on loans 2,545 (312) 2,233 (115) (610) (725)
------ ----- ------- ------- ------ ------
Total interest income (1) 2,325 (185) 2,140 1,218 (1,306) (88)
Interest expense:
Savings and interest-bearing
demand 636 (275) 361 744 (392) 352
Time deposits (311) (142) (453) (622) (732) (1,354)
------ ----- ------ ------ ------ ------
Total interest expense 325 (417) (92) 122 (1,124) (1,002)
------ ----- ------ ------ ------ ------
Net interest spread (1) $2,000 $ 232 $2,232 $1,096 $ (182) $ 914
====== ===== ====== ====== ====== ======
___________
(1)Tax-exempt income has been adjusted to a tax-equivalent basis at a 34 percent rate.
</TABLE>
PROVISION FOR POSSIBLE LOAN LOSSES. Recoveries exceeded charge-offs by
$108,000 during 1994, versus net charge-offs of $57,000 in 1993 and $556,000
in 1992. Loans on nonaccrual status declined to $302,000 at december 31, 1994,
versus $983,000 at year-end 1993. Bancorp made a provision for possible loan
losses of $300,000 for 1994, versus $325,000 for 1993 and $832,000 in 1992.
The provision amount is based on past charge-off experience, a careful
analysis of our current portfolio, and evaluation of future economic trends in
our market area. Management continues to closely monitor the loan quality of
new and existing relationships; 1995 net loan losses are projected to total
approximately $150,000.
NONINTEREST INCOME AND NONINTEREST EXPENSE. Management continues to
emphasize and reward the customer's total banking relationship with reduced
fees, and has not implemented a service charge change since May 1, 1992. Thus,
service charge income for 1994 declined to $1,410,000 versus $1,536,000 in
1993 and $1,498,000 in 1992.
The Commercial Bank Trust Department's assets under management grew
15 percent during 1994. As a result of this growth, trust income of
$1,206,000 was $128,000 or 12 percent greater than the $1,078,000 for 1993,
which was 39 percent higher than the $776,000 earned in 1992. Other income
decreased primarily because 1993 results included $241,000 in gross revenue
from the 1993 sale of The Commercial Bank's Bankcard Department.
Salary and benefit expense of $7,781,000 in 1994 was 5 percent or
$396,000 higher than the $7,385,000 in 1993, which was $566,000 or 8 percent
higher than the $6,819,000 in 1992, reflecting salary increases and the higher
accrual for the payment of employee incentives under the Banks' ROA Incentive
Compensation Plans.
Net occupancy expense in 1994 of $1,088,000 was $152,000 or 16 percent
greater than the $936,000 in 1993, which was $48,000 or 6 percent higher than
the $888,000 in 1992. Furniture and equipment expense of $853,000 in 1994 was
$141,000 or 20 percent greater than 1993 expense of $712,000, which was
$168,000 or 19 percent lower than the $880,000 in 1992. 1994 included initial
costs associated with the construction of a new Home Office for The Commercial
Bank, remodeling of the old Home Office building, and the opening of the
Tigard branch. 1993 included the opening of the new Valley Commercial Bank
Hillsboro branch. The ten-year renovation program of The Commercial Bank
branches which began in 1992, including the construction of a new Home Office
and the renovation of its existing Home Office in 1994, may increase occupancy
or equipment costs slightly during the next several years, but such expenses
are expected to be substantially offset by the elimination of the lease
expense for the former administrative offices.
Communications expense of $422,000 was $33,000, or 7 percent, lower than
the $455,000 in 1993, which was $37,000, or 9 percent, higher than the
$418,000 in 1992. Data processing expense of $428,000 was $209,000, or
33 percent, lower than the $637,000 in 1993, which was $66,000, or 9 percent,
lower than the $703,000 in 1992. The sale of The Commercial Bank's Bankcard
Department in 1993 significantly reduced the associated data processing
expense versus the prior year's expense, while 1992 expense included the
implementation of the new data processing system for its main deposit, loan,
and general ledger functions.
Examination and deposit insurance expense of $667,000 was $49,000, or
8 percent, higher than the $618,000 in 1993, which was $32,000, or 5 percent,
lower than the $650,000 in 1992. These costs include the rise in FDIC premium
from deposit growth. In 1994, Bancorp's bank subsidiaries paid $538,000 for
FDIC insurance, versus $481,000 in 1993, and $461,000 in 1992. In 1994, the
FDIC continued tiered pricing for FDIC insurance, providing the most favorable
rate for well-capitalized, strongly managed institutions. Both The Commercial
Bank and Valley Commercial Bank qualified for the lowest premiums in 1994.
Loan origination and collection expense of $178,000 was $35,000, or
16 percent, lower than the $213,000 in 1993, which was $93,000, or 30 percent,
lower than the $306,000 in 1992. The 1992 costs included collection efforts
associated with several large obligations, which have been resolved without
significant losses. Similar collection efforts were not required in 1994 or
1993.
Other expense of $2,519,000 was $1,139,000, or 83 percent, higher than
the $1,380,000 in 1993, which was $120,000, or 10 percent, higher than the
$1,260,000 in 1992. Expenses associated with the pending merger of equals with
West Coast Bancorp totaled $360,000 in 1994. Costs associated with The
Commercial Bank's settlement with the Securities and Exchange Commission over
the bank's failure to properly register an IRA fund totaled $292,000 in 1994,
including a $75,000 non tax-deductible fine.
INCOME TAXES. Income tax expense for 1994 was $1,464,000, or 27 percent
of pre-tax income, versus 1993 of $1,344,000, or 25 percent of pre-tax income,
and 1992 of $854,000, or 23 percent of pre-tax income.
In February 1992, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes" (SFAS No. 109). This standard requires an asset-and-liability approach
for financial accounting and reporting for income taxes, replacing the income
statement approach inherent in the prior income tax accounting standard. The
implementation of this standard was required in 1993. The effect of adopting
this standard was not significant.
Balance Sheet Analysis
INVESTMENT SECURITIES. The approximately 160 basis point rise in
overall market rates since January 1, 1994, reduced the market value of the
investment portfolio to $670,000 below book value on December 31, 1994, versus
$3,241,000 above book value at year-end 1993. At December 31, 1994, the
impact on equity for the mark-to-market securities was a negative $747,000,
less $287,000 for the tax impact, compared to a positive $416,000 less the
$161,000 tax impact at year-end 1993.
During 1994, $10,329,000 in available for sale securities were sold,
generating a net $51,000 loss. An additional $431,000 was sold from the held
to maturity category due to a deterioration in credit quality, generating a
net $3,000 gain. This compares to sales of $5,826,000 in 1993, with net gains
of $77,000.
LOANS. Gross loans outstanding increased 14 percent to $176,893,000 at
December 31, 1994, from $156,326,000 at December 31, 1993. The reserve for
possible loan losses equalled 1.64 percent of total loans at December 31,
1994, versus 1.60 percent of total loans at year-end 1993.
<PAGE>
<TABLE>
<CAPTION>
December 31,
1994 1993 1992 1991 1990
----------------- ------------------ ----------------- -----------------------------------
Amount Percent Amount Percent Amount Percent Amount Percent Amount Percent
------ ------- ------ ------- ------ ------- ------ ------- ------ -------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial $69,386 39.88% $66,340 43.12% $60,376 44.29% $63,566 44.85% $55,010 42.72%
Real estate
construction 14,990 8.62 1,226 .80 4,610 3.38 4,252 3.00 4,974 3.86
Real estate
mortgage 69,149 39.74 59,562 38.72 41,706 30.60 39,841 28.12 38,139 29.62
Installment 23,004 13.22 29,198 18.98 31,822 23.35 34,399 24.28 29,583 22.98
Other 364 .21 - - 21 .02 1,600 1.13 2,522 1.96
------- ------ ------- ------ ------- ------ ------- ------ ------- ------
Total loans 176,893 101.67 156,326 101.67 138,535 101.64 143,658 101.38 130,228 101.14
Less -
Reserve for
possible
loan losses (2,905) ( 1.67) (2,497) (1.62) (2,229) (1.64) (1,953) (1.38) (1,474) (1.14)
------- ------ ------- ------ ------- ------ ------- ------ ------- ------
Net loans $173,988 100.00% $153,829 100.00% $136,306 100.00% $141,705 100.00%$128,754 100.00%
======= ====== ======= ====== ======= ====== ======= ====== ======= ======
</TABLE>
<PAGE>
The maturity distribution of selected categories of Bancorp's loan
portfolio at December 31, 1994, and the interest sensitivity are estimated in
the following table (dollars in thousands):
<TABLE>
<CAPTION>
Loans Secured
Commercial Loans by Real Estate Total
---------------- --------------- -------
<S> <C> <C> <C>
Maturity distribution:
Due within one year $50,704 $27,839 $ 78,543
Due after one through five years 15,546 27,768 43,314
Due after five years 3,136 28,532 31,668
------- ------- -------
Total $69,386 $84,139 $153,525
======= ======= =======
Interest sensitivity:
Fixed-rate loans $29,308 $24,689 $ 53,997
Adjustable loans* 40,078 59,450 99,528
------- ------- -------
Total
$69,386 $84,139 $153,525
======= ======= =======
----------
* Some loans contain provisions which place maximum or minimum limits on interest rate
charges.
</TABLE>
Nonperforming assets, including loans on nonaccrual, are as follows
(dollars in thousands):
<TABLE>
<CAPTION>
December 31,
------------
1994 1993 1992 1991 1990
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Loans past due 90 days or
more but not on nonaccrual
status $ 20 $ 74 $ 157 $ 117 $ 245
Loans on nonaccrual
status 302 899 1,820 1,775 2,467
Other real estate
owned 244 607 335 749 571
----- ----- ----- ----- -----
Total nonperforming
assets $566 $1,580 $2,312 $2,641 $3,283
===== ===== ===== ===== =====
Percentage of
nonperforming assets
to total assets .20% .57% .96% 1.15% 1.61%
</TABLE>
Gross interest income that would have been recorded had the above
nonaccruing loans been current in accordance with their regular terms is
estimated at $67,000 for 1994. No interest income with respect to nonaccruing
loans was included in net income for 1994. Bancorp's policy is to place a
loan on nonaccrual status when there is significant question as to the
collectability of the interest. Normally, if the loan is past due 90 days or
more, it is placed in nonaccrual status unless well secured and in the process
of collection.
At December 31, 1994, there was no concentration of loans exceeding
10 percent of the total loans to a multiple number of borrowers engaged in
similar activities.
SUMMARY OF LOAN LOSS EXPERIENCE. The reserve balance and amount of
provision charged to operations is based primarily on management's evaluation
of the entire portfolio. This analysis includes review of the following
factors: (a) the volume and mix of the existing loan portfolio, including the
volume and severity of nonperforming loans and adversely classified credits,
as well as analysis of net charge-offs experienced on previously classified
loans; (b) the extent to which loan renewals and extensions are used to
maintain loans on a current basis and the degree of risk associated with such
loans; (c) the trend in loan growth, including any rapid increase in loan
volume within a relatively short period of time; (d) general and local
economic conditions affecting the collectability of Bancorp's loans;
(e) previous loan loss experience by loan type, including net charge-offs as
a percentage of average loans over the past several years; (f) the
relationship and trend over the past several years of recoveries as
a percentage of previous years' charge-offs; and (g) available outside
information of a comparable nature regarding the loan portfolios of other
banks, including peer group banks. The reserve has grown as a percentage of
nonperforming assets and as a percentage of the loan portfolio primarily due
to improved asset quality. Accordingly, the provision has declined in recent
periods to reflect these favorable trends. Management believes that the
reserve is appropriate for the current portfolio.
The following table shows Bancorp's loan loss experience for the
specified years ended December 31 (dollars in thousands):
<PAGE>
<TABLE>
<CAPTION>
1994 1993 1992 1991 1990
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Loans outstanding at end of
year $176,893 $156,326 $138,535 $143,658 $130,228
Average loans outstanding
during year 165,244 141,023 142,065 129,490 125,087
Reserve for possible loan
losses, beginning of year 2,497 2,229 1,953 1,474 1,162
----- ------- ------- ------- ------
Recoveries 261 228 96 48 175
Loans charged off (153) (285) (652) (330) (423)
----- ------- ------- ------- ------
Net recoveries (loans
charged off) 108 (57) (556) (282) (248)
Provision for possible
loan losses 300 325 832 600 560
Changes incidental to
merger -- -- -- 161 --
-------- -------- -------- -------- --------
Reserve for possible loan
losses, end of year $ 2,905 $ 2,497 $ 2,229 $ 1,953 $ 1,474
======== ======== ======== ======== ========
Ratio of net loans
(recoveries) charged off
to average loans
outstanding (.07)% .04% .39% .22% .20%
Ratio of reserve for possible
loan losses to loans at end
of year 1.64% 1.60% 1.61% 1.36% 1.13%
</TABLE>
Management does not normally allocate the reserve for possible loan
losses to specific loan categories. An allocation to major categories is made
below for presentation purposes only. This allocation process does not
necessarily measure anticipated future credit losses; rather, it seeks to
measure management's current assessment of perceived credit loss exposure and
the impact of current and anticipated economic conditions. A schedule
allocating the reserve for possible loan losses to specified categories at
December 31, 1994, is set forth below:
<TABLE>
<CAPTION>
Ratio of
Category to
Outstanding
(Dollars in thousands) Amount Total Loans
------ -----------
<S> <C> <C>
Commercial $2,402 .8269
Real estate 116 .0400
Installment and other consumer 387 .1331
------ -----------
$2,905 1.0000
Total ====== ===========
</TABLE>
<PAGE>
DEPOSITS. Total deposits at December 31, 1994, of $246,654,000 were
$1,065,000 or .43 percent higher than $245,589,000 at year-end 1993. This
growth has occurred in transaction accounts, which management believes
resulted from the successful focus on the mature market and small business
segments, as well as Bancorp's reputation for exceptional customer service.
Average deposit balances and interest rates paid are included on
page 16.
The following table sets forth by time remaining to maturity, domestic
time certificates of deposit in amounts of $100,000 or more at December 31,
1994 (dollars in thousands):
Less than three months $4,680
Three to six months 1,225
Six to twelve months 2,302
Over 1 year through 5 years --
More than 5 years --
------
$8,207
======
RETURN ON EQUITY AND ASSETS. Return on daily average assets and equity
and certain other ratios for the years ended December 31 are presented below
(dollars in thousands except per share data):
<TABLE>
<CAPTION>
1994 1993 1992 1991 1990
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net income $4,013 $3,951 $2,866 $2,304 $1,952
Average assets $280,593 $255,887 $234,825 $209,318 $199,773
RETURN ON AVERAGE ASSETS 1.43% 1.54% 1.22% 1.10% .98%
Net income $4,013 $3,951 $2,866 $2,304 $1,952
Average equity $25,761 $22,747 $19,858 $17,844 $16,246
RETURN ON AVERAGE EQUITY 15.58% 17.37% 14.43% 12.91% 12.02%
Cash dividends paid per share $.30 $.27 $.23 $.20 $.23
Net income per share $1.53 $1.51 $1.09 $.88 $.75
DIVIDEND PAYOUT RATIO 19.61% 18.07% 20.83% 22.68% 30.49%
Average equity $25,761 $22,747 $19,858 $17,844 $16,246
Average assets $280,593 $255,887 $234,825 $209,318 $199,733
AVERAGE EQUITY-TO-ASSET RATIO 9.18% 8.89% 8.46% 8.52% 8.13%
</TABLE>
CAPITAL ADEQUACY. The primary capital-to-asset leverage ratio was
9.55 percent at December 31, 1994, versus 8.91 percent at year-end 1993. In
1989, the banking regulators adopted risk-based capital guidelines under which
one of four risk weights is applied to balance sheet assets, each with
different capital requirements based on the credit risk of the asset. Our
analysis indicates Bancorp's risk-adjusted capital-to-asset ratio at
December 31, 1994, was 13.32 percent, substantially exceeding regulatory
guidelines.
Bancorp's subsidiaries continued a long term branch renovation in 1994.
In February, The Commercial Bank completed the construction of a new Home
Office, and in October completed the remodeling of the prior Home Office
building to house the lending and administration functions. The Tigard branch
also opened in October 1994, and construction is underway for the Woodburn
branch scheduled for an early 1995 opening. Management believes that current
capital plus projected earnings is sufficient to continue to provide for these
projects.
As the following table indicates, Bancorp currently exceeds the
regulatory capital minimum requirements (dollars in thousands):
<TABLE>
<CAPTION>
<S> <C> <C>
Tier 1 capital $26,772 13.32%
Tier 1 capital minimum requirement 8,039 4.00
------- ------
18,733 9.32%
Excess Tier 1 capital ======= ======
Total capital $29,677 14.77%
Total capital minimum requirement 16,079 8.00
------- ------
Excess total capital $13,598 6.77%
======= ======
Risk-adjusted assets $200,982
========
Leverage ratio 9.55%
Minimum leverage requirement 3.00
------
Excess leverage ratio 6.55%
======
Adjusted total assets $280,358
========
LIQUIDITY MANAGEMENT. Liquidity represents the ability to meet cash
flow requirements and financial commitments of a reasonable cost, while
retaining the flexibility to take advantage of business opportunities.
Bancorp has always placed a high priority on maintaining a high liquidity
through a moderate loan-to-deposit ratio and a conservative investment
portfolio. Our loan-to-deposit ratio was 70.54 percent at December 31, 1994,
versus 62.64 percent at year-end 1993. Approximately $11,514,000 or
16.44 percent of our securities portfolio matures within one year.
ASSET-LIABILITY MANAGEMENT. The principal purpose of asset-liability
management is to manage our sources and uses of funds to maximize net interest
income under different interest rate conditions with minimal risk. We employ
a financial model to project earnings performance under various rate scenarios
and growth assumptions.
A part of this financial model calculates the "GAP," the difference
between our repricing assets and repricing liabilities in a specific time
period. We modify this mathematical calculation by the historical pattern
between changes in the overall rates such as prime and treasury bills with the
actual changes in our deposit and loan rates. This "Beta-adjusted" GAP
provides an indication of our earnings risk due to future interest rate
changes. At December 31, 1994, our measurement indicated our risk was within
our policy guidelines.
<PAGE>
INTEREST RATE SENSITIVITY
(dollars in thousands, as of December 31, 1994)
</TABLE>
<TABLE>
<CAPTION>
Within Three Six Months
Three to Six to Over
Months Months One Year One Year Total
------ ------ ---------- -------- -----
<S> <C> <C> <C> <C> <C>
ASSETS
Investments $ 10,292 $ 5,100 $ 855 $ 53,767 $ 70,014
Loans 73,610 7,344 11,869 84,070 176,893
-------- ------- ------- -------- --------
Total Interest Earnings
Assets 83,902 12,444 12,724 137,837 246,907
LIABILITIES
Interest Bearing Demand
Accounts 76,571 - - - 76,571
Savings Accounts 71,564 - - - 71,564
Time Deposits 19,930 10,740 7,154 9,276 47,100
Federal funds purchased 6,000 - - - 6,000
-------- ------- ------- -------- --------
Total Interest Bearing
Deposits $174,065 $10,740 $ 7,154 $ 9,276 $201,235
-------- ------- ------- -------- --------
Interest sensitive GAP $(90,163) $ 1,704 $ 5,570 $128,561 $ 45,672
GAP as a percent of earning
assets (107.46%) 13.69% 43.78% 93.27% 18.50%
GAP adjusted for actual
rate sensitivity (Beta) $ 14,328 $ 1,593 $ 6,195 $110,621 $132,737
Beta GAP as a percent of
earning assets 17.08% 12.80% 48.69% 80.25% 53.76%
</TABLE>
<PAGE>
SECURITIES PORTFOLIO
(dollars in thousands)
<TABLE>
<CAPTION>
December 31, 1994
Available Held to
for Sale Maturity
--------- --------
Approximate Approximate
Amortized Market Amortized Market
Cost Value Yield Cost Value Yield
--------- ----------- ----- --------- ----------- -----
<S> <C> <C> <C> <C> <C> <C>
U.S. Treasuries:
1 year or less $5,043 $4,997 3.7% $ - $ -
1 through 5 years 5,166 4,977 4.1 3,174 2,966 4.6%
------ ------ ----- -----
10,209 9,974 3,174 2,966
U.S. Government Agencies:
1 year or less 3,005 3,000 5.2 - -
1 through 5 years 4,989 4,948 7.4 1,973 1,931 7.7
------ ------ ----- -----
7,994 7,948 1,973 1,931
Obligations of State
and Political
Subdivisions(1):
1 year or less - - 964 977 10.5
1 to 5 years 1,668 1,638 7.4 6,986 7,173 9.6
5 to 10 years 4,502 4,221 7.4 13,173 13,479 9.6
Over 10 years 1,500 1,356 8.1 13,569 13,222 9.2
------ ------ ------ ------
7,670 7,215 34,692 34,851
Certificates of Deposit:
Other Institutions
1 year or less - - 2,180 2,180 5.6
------ ------ ------ ------
- - 2,180 2,180
Other:
1 year or less 1,031 1,033 6.9 1,471 1,499 5.2
1 through 5 years 499 479 7.2 500 500 7.2
Over 10 years 841 848 - -
------ ------ ------ ------
2,371 2,360 1,971 1,999
------ ------ ------ ------
Total investments $28,244 $27,497 5.9% $43,990 $43,927 8.5%
====== ====== ====== ======
________________________
(1) Yields are stated on a federal tax-equivalent basis at 34 percent in 1994.
</TABLE>
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following audited consolidated financial statements and related
documents are set forth in this Annual Report on Form 10-K on the pages
indicated:
Page
Consolidated Balance Sheets 28
Consolidated Statements of Income 29
Consolidated Statements of Shareholders' Equity 30
Consolidated Statements of Cash Flows 31
Notes to Consolidated Financial Statements 32
Report of Independent Public Accountants 47
<PAGE>
COMMERCIAL BANCORP
CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
ASSETS
December 31,
---------------------
1994 1993
-------- --------
CASH AND CASH EQUIVALENTS
Cash and due from banks (Note 2) $ 23,313 $ 21,194
Federal Funds sold 2,474 300
------- -------
Total cash and cash equivalents 25,787 21,494
INVESTMENT SECURITIES (Note 3)
Investments available for sale 27,497 50,738
Investments held to maturity 41,810 39,392
------- -------
Total investments 69,307 90,130
LOANS (Note 4) 176,893 156,326
Less reserve for possible loan losses (2,905) (2,497)
------- -------
Net loans 173,988 153,829
PREMISES AND EQUIPMENT,
at cost less accumulated depreciation (Note 6) 9,109 6,029
ACCRUED INTEREST AND OTHER ASSETS 4,388 5,818
------- -------
Total assets $282,579 $277,300
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Deposits-
Demand $ 51,419 $ 49,922
Interest-bearing demand 76,571 75,636
Savings 71,564 73,448
Time (Note 7) 47,100 46,583
------- -------
Total deposits 246,654 245,589
Federal Funds purchased 6,000 4,000
Other liabilities 2,918 3,197
------- -------
Total liabilities 255,572 252,786
COMMITMENTS AND CONTINGENCIES (Notes 5 and 8)
SHAREHOLDERS' EQUITY
Common stock, no par value, 10,000,000 shares
authorized, 2,627,422 and 2,388,565 shares
issued, and 2,621,481 and 2,384,992
outstanding, respectively 3,277 2,981
Paid in capital 13,783 10,291
Retained earnings 10,407 10,987
Net unrealized (loss) gain on investments
available for sale (Note 3) (460) 255
------- -------
Total shareholders' equity 27,007 24,514
------- -------
Total liabilities and shareholders' equity $282,579 $277,300
======== ========
The accompanying notes are an integral part of these consolidated statements.
<PAGE>
COMMERCIAL BANCORP
CONSOLIDATED STATEMENTS OF INCOME
(dollars in thousands except per share amounts)
Years Ended December 31,
------------------------
1994 1993 1992
------ ------ ------
INTEREST INCOME
Loans and loan fees $17,197 $14,964 $15,689
Taxable investments 1,783 1,946 1,986
Nontaxable investments 2,396 2,305 1,919
Federal Funds sold 257 325 235
------ ------ ------
Total interest income 21,633 19,540 19,829
INTEREST ON DEPOSITS
Interest-bearing demand 1,752 1,728 1,883
Savings 2,283 1,946 1,439
Time 1,503 1,956 3,310
------ ------ ------
Total interest expense 5,538 5,630 6,632
------ ------ ------
NET INTEREST INCOME 16,095 13,910 13,197
PROVISION FOR POSSIBLE LOAN LOSSES 300 325 832
------ ------ ------
Net interest income after provision
for possible loan losses 15,795 13,585 12,365
NONINTEREST INCOME
Service charges on deposit accounts 1,410 1,536 1,498
Trust department 1,206 1,078 776
Other fees and income 1,282 1,601 1,238
Investment securities gains (losses), net (48) 77 45
------ ------ ------
Total noninterest income 3,850 4,292 3,557
------ ------ ------
NONINTEREST EXPENSE
Salaries and employee benefits 7,781 7,385 6,819
Occupancy 1,088 936 888
Furniture and equipment 853 712 880
Communications 422 455 418
Data processing 428 637 703
Examination fees and deposit insurance 667 618 650
Loan origination and collection 178 213 306
Supplies 232 246 278
Other 2,519 1,380 1,260
------ ------ ------
Total noninterest expense 14,168 12,582 12,202
------ ------ ------
INCOME BEFORE PROVISION FOR INCOME TAXES 5,477 5,295 3,720
PROVISION FOR INCOME TAXES (Note 12) 1,464 1,344 854
------ ------ ------
NET INCOME $ 4,013 $ 3,951 $ 2,866
======= ======= =======
NET INCOME PER SHARE (Note 13) $1.53 $1.51 $1.09
======= ======= =======
The accompanying notes are an integral part of these consolidated statements.
<PAGE>
<TABLE>
<CAPTION>
COMMERCIAL BANCORP
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(dollars in thousands except share amounts)
Net Unrealized
Gain
(Loss) on Total
Investments Stock-
Common Paid In Retained Available holders'
Shares Stock Capital Earnings for Sale Equity
--------- ------ ------- -------- ----------- -------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1991 2,267,852 $2,835 $9,258 $6,642 $ -- $18,735
1992:
Net income -- -- -- 2,866 -- 2,866
5% stock dividend,
113,706 shares issued 113,706 142 1,031 (1,173) -- --
Cash dividends ($.23 per share) -- -- -- (583) -- (583)
Purchase of stock
23,734 shares at cost (23,734) (30) (233) -- -- (263)
Sale of stock - 22,918 shares 22,918 29 196 -- -- 225
--------- ----- ------ ------ ---- ------
Balance at December 31, 1992 2,380,742 2,976 10,252 7,752 -- 20,980
1993:
Net income -- -- -- 3,951 -- 3,951
Cash dividends ($.27 per share) -- -- -- (716) -- (716)
Purchase of stock
21,586 shares at cost (21,586) (27) (248) -- -- (275)
Sale of stock - 25,101 shares 25,101 31 282 -- -- 313
Net unrealized gains on
investments available for sale -- -- -- -- 255 255
Exercise of stock options 735 1 5 -- -- 6
--------- ----- ------ ------ ---- ------
Balance at December 31, 1993 2,384,992 2,981 10,291 10,987 255 24,514
1994:
Net income -- -- -- 4,013 -- 4,013
10% stock dividend,
238,857 shares issued 238,857 299 3,523 (3,822) -- --
Cash dividends ($.30 per share) -- -- -- (771) -- (771)
Purchase of stock
25,290 shares at cost (25,290) (32) (365) -- -- (397)
Sale of stock - 22,922 shares 22,922 29 334 -- -- 363
Net unrealized loss on
investments available for sale -- -- -- -- (715) (715)
--------- ----- ------ ------ ---- ------
Balance at December 31, 1994 2,621,481 $3,277 $13,783 $10,407 $(460) $27,007
========= ====== ======= ======= ====== =======
The accompanying notes are an integral part of these consolidated statements.
</TABLE>
<PAGE>
COMMERCIAL BANCORP
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
Years Ended December 31,
------------------------
1994 1993 1992
------ ------ ------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $4,013 $3,951 $2,866
Adjustments to reconcile net income to
net cash provided by operating activities -
Depreciation and amortization 665 546 630
Provision for possible loan losses 300 325 832
Net losses (gains) on sales of
investment securities 48 (77) (45)
(Credit) provision for deferred income taxes (19) (419) (267)
Decrease (increase) in accrued
interest and other assets 1,896 (941) 767
(Decrease) increase in other liabilities (279) 1,064 (1,869)
------ ------ ------
Net cash provided by operating activities 6,624 4,449 2,914
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of investment securities
Available for sale (12,711) -- --
Held to maturity (10,346) (46,046) (35,984)
Proceeds from maturities of investment
securities
Available for sale 24,413 -- --
Held to maturity 7,497 21,872 23,202
Proceeds from sales of investment
securities
Available for sale 10,329 -- --
Held to maturity 431 5,826 2,299
Loan originations and loan principal
collections, net (20,459) (17,848) 4,567
Purchase of premises and equipment, net (3,745) (1,322) (1,342)
------- ------- ------
Net cash used in investing activities (4,591) (37,518) (7,258)
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in demand deposits and
savings accounts 130 39,429 25,471
Proceeds from issuances of and (payments)
for maturing time deposits, net 935 (11,730) (15,158)
Net increase in borrowed funds 2,000 4,000 --
Sales (purchases) of stock, net (34) 38 (38)
Cash dividends paid (771) (716) (583)
Exercise of stock option -- 6 --
------- ------- ------
Net cash provided by financing activities 2,260 31,027 9,692
------- ------- ------
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 4,293 (2,042) 5,348
CASH AND CASH EQUIVALENTS, beginning of year 21,494 23,536 18,188
------- ------- ------
CASH AND CASH EQUIVALENTS, end of year $25,787 $21,494 $23,536
======= ======= ======
The accompanying notes are an integral part of these consolidated statements.
<PAGE>
COMMERCIAL BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
PRINCIPLES OF CONSOLIDATION. The accompanying consolidated financial
statements include the accounts of Commercial Bancorp (Bancorp), a bank
holding company and its wholly owned subsidiaries, The Commercial Bank (CB)
and Valley Commercial Bank (VCB) (collectively, the Banks). Significant
intercompany accounts and transactions have been eliminated in consolidation.
DESCRIPTION OF BUSINESS. The Banks' activities include the usual
lending and deposit functions of a commercial bank. CB also has a Trust
Department which provides agency, trust, and related services.
STATEMENTS OF CASH FLOWS. 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 sold for one day periods. The Banks
paid approximately $5,484,000, $5,258,000, and $$6,870,000 for the years ended
December 31, 1994, 1993, and 1992, respectively, in interest on deposits and
other borrowings. Bancorp made income tax payments of approximately
$1,172,000, $1,644,000, and $1,242,000 in 1994, 1993, and 1992, respectively.
INVESTMENT SECURITIES. Effective December 31, 1993, the Banks adopted
Statement of Financial Accounting Standards (SFAS) No. 115, "Accounting for
Certain Investments in Debt and Equity Securities." Under SFAS No. 115, a
bank's investment portfolio is segregated between investment securities that
are available for sale, and those that are held to maturity. The investment
securities that are available for sale are stated at market value and
unrealized gains and losses are reported net of related income taxes as a
separate component of shareholders' equity.
Investment securities that are held to maturity are stated at cost,
adjusted for amortization of premiums and accretion of discounts, which are
recognized as adjustments to interest income. Gains or losses on the sale of
investment securities are determined on the basis of specific identification.
During 1994, Bancorp sold three securities from its held to maturity
portfolio due to the deterioration in credit quality of the investments as
evidenced by the downgrading of each security below an A rating coupled with
the location of the investments being out of Bancorp's operating territory.
The following represents a list of amortized costs and realized gain or loss
for each security.
1994 Sales from Held to Maturity
Amortized Cost Realized Gain (Loss)
----------------------------------------
$ 53,000 $ (335)
135,589 557
142,636 2,552
INCOME RECOGNITION. Interest on loans is accrued on a simple interest
basis. The accrual of interest on loans is discontinued when, in management's
judgment, the future collectability of interest and principal is in serious
doubt or 90 days past due.
Loan origination and commitment fees, net of certain direct loan
origination costs, are generally recognized over the life of the related loan
as an adjustment of yield.
RESERVE FOR POSSIBLE LOAN LOSSES. The reserve for possible loan losses
is based on management's estimates. Actual losses may vary from current
estimates. These estimates are reviewed periodically and, as adjustments
become necessary, are reported in earnings in the periods in which they become
known. Losses are charged, and recoveries are credited, to the reserve.
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." These statements require that impaired loans be measured based on
the 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, 1994. Management believes that implementation of the
statements will not have a material effect on Bancorp's reported financial
position or net income.
PREMISES AND EQUIPMENT. Premises and equipment are stated at cost, less
accumulated depreciation. Depreciation is principally provided on the
straight-line method over the estimated useful lives of the assets.
INCOME TAXES. Deferred income taxes result from timing differences in
reporting transactions for financial reporting and income tax purposes.
In February 1992, the FASB issued SFAS No. 109, "Accounting for Income
Taxes." Bancorp adopted the new standard in 1993. When Bancorp adopted the
new accounting rules in 1993, the entire catch-up effect was recorded.
Implementation of the standard did not have a material effect on Bancorp's
reported financial position or net income.
TRUST DEPARTMENT ASSETS. Assets (other than cash deposits) held by CB
in fiduciary or agency capacities for its trust customers are not included in
the accompanying consolidated balance sheets, since such items are not assets
of CB.
REPURCHASE OF SHARES. A wholly owned subsidiary of CB held 5,941 shares
of Bancorp common stock at December 31, 1994, and 3,573 shares at December 31,
1993. For accounting purposes, Bancorp treats these shares as if they were not
outstanding even though they are issued shares.
RECLASSIFICATIONS. Certain reclassifications of prior year amounts have
been made to conform to current year classifications.
2. Cash and Due from Banks
The Banks are required to maintain average reserve balances with the
Federal Reserve Bank or maintain such balances in the form of cash. The amount
of these reserve balances at December 31, 1994 and 1993 was approximately
$3,892,000 and $3,554,000, respectively, and were met by holding cash and
maintaining reserve balances with the Federal Reserve Bank.
<PAGE>
3. Investment Securities
The carrying value of securities and their approximate market value at
December 31 were as follows (dollars in thousands):
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
--------- ---------- ---------- ---------
1994
----
Held to maturity
U.S. Treasury $ 3,174 $ -- $(208) $ 2,966
U.S. Government agencies 1,973 -- (42) 1,931
Obligations of state and
political subdivisions 34,692 773 (614) 34,851
Other 1,971 28 -- 1,999
------ --- ---- ------
Total $41,810 $801 $(864) $41,747
======= ==== ===== =======
Available for sale
U.S. Treasury $10,209 $ -- $(235) $ 9,974
U.S. Government agencies 7,994 10 (56) 7,948
Obligations of state and
political subdivisions 7,670 2 (457) 7,215
Corporate bonds 1,498 2 (20) 1,480
Other 873 7 -- 880
------ --- ---- ------
Total $28,244 $21 $(768) $27,497
======= ==== ===== =======
1993
----
Held to maturity
U.S. Treasury $ 4,119 $ 12 $(22) $ 4,109
U.S. Government agencies 2,000 71 -- 2,071
Obligations of state and
political subdivisions 29,553 2,772 (18) 32,307
Certificates of deposit -
other institutions 2,967 -- -- 2,967
Other 753 11 -- 764
------ --- ---- ------
Total $39,392 $2,866 $(40) $42,218
======= ====== ===== =======
Available for Sale
U.S. Treasury $21,515 $ 70 $ (65) $21,520
U.S. Government agencies 13,043 307 (38) 13,312
Obligations of state and
political subdivisions 8,322 235 (13) 8,544
Corporate bonds 6,602 57 -- 6,659
Other 841 -- (138) 703
------ --- ---- ------
Total $50,323 $669 $(254) $50,738
======= ==== ===== =======
The amortized cost and estimated market value of investment securities
at December 31, 1994, by contractual maturity, are shown below. Expected
maturities could differ from contractual maturities because borrowers may have
the right to call or prepay obligations with or without call or prepayment
penalties.
Estimated
Amortized Cost Market Value
-------------- ------------
(dollars in thousands)
Held to Maturity
Due in one year or less $ 2,435 $ 2,476
Due in one year through five years 12,633 12,570
Due after five years through ten years 13,173 13,479
Due after ten years 13,569 13,222
------ ------
$41,810 $41,747
======= =======
Available for Sale
Due in one year or less $ 9,079 $ 9,030
Due in one year through five years 12,317 12,037
Due after five years through ten years 4,502 4,221
Due after ten years 2,346 2,209
------ ------
$28,244 $27,497
======= =======
Securities of approximately $4,000,000 (at carrying value) were pledged
at December 31, 1994 and 1993, to secure public monies as required or
permitted by law. Secured deposits were approximately $4,869,000 and
$2,409,000 at December 31, 1994 and 1993, respectively.
Securities of approximately $2,000,000 and $1,000,000 (at carrying
value) were pledged at December 31, 1994 and 1993, respectively, with the
State of Oregon to ensure performance of fiduciary responsibilities by the CB
Trust Department and to secure any deposits maintained at CB for the Trust
Department in excess of $100,000.
4. Loans
The composition of loan balances at December 31, 1994 and 1993 was as
follows (dollars in thousands):
1994 1993
---------- ----------
Commercial $ 69,386 $ 66,340
Real estate - construction 14,990 1,226
Real estate - mortgage 69,149 59,562
Installment 23,004 29,198
Other 364 --
------- -------
$176,893 $156,326
======== ========
The Banks grant commercial and residential loans to customers throughout
the Willamette Valley, Washington County, and Columbia County. Although the
Banks have diversified loan portfolios, a substantial portion of their
debtors' ability to honor their contracts is dependent upon the economy of
these areas.
Loans on nonaccrual status were approximately $302,000 and $983,000 at
December 31, 1994 and 1993, respectively. Bancorp estimates that interest
forgone on nonaccrual loans was approximately $67,000, $137,000, and $181,000
in 1994, 1993, and 1992, respectively. Loans past due 90 days and still
accruing interest were $20,000 and $68,000 at year-end 1994 and 1993,
respectively.
Transactions in the reserve for possible loan losses for the years ended
December 31 were as follows (dollars in thousands):
1994 1993 1992
---------- ---------- ----------
Balance at beginning of year $2,497 $2,229 $1,953
Provision for possible loan losses 300 325 832
Recoveries of loans previously
charged off 261 228 96
Loans charged off (153) (285) (652)
----- ----- -----
Balance at end of year $2,905 $2,497 $2,229
====== ====== ======
The Banks have had, and expect to have in the future, transactions in
the ordinary course of business with directors and executive officers of the
Banks (and the companies with which they are associated). All loans and loan
commitments included in such transactions were made on the same terms,
including interest rates and collateral, as those prevailing at the time for
comparable transactions with other customers of the Banks.
An analysis of activity with respect to such loans for the year ended
December 31, 1994, was as follows (dollars in thousands):
Balance at beginning of period $1,386
Additions 1,346
Amounts collected (1,539)
-----
Balance at end of period $1,193
======
In addition, as of December 31, 1994, there were commitments to extend
credit of approximately $1,491,000 to various directors and executive officers
of the Banks.
5. Financial Instruments with Off-Balance Sheet Risk
The Banks are parties to financial instruments with off-balance sheet
risk in the normal course of business to meet the financing needs of their
customers and to reduce their 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
Consolidated Balance Sheets. The contract or notional amounts of those
instruments reflect the extent of involvement the Banks have in particular
classes of financial instruments.
The Banks' exposure to credit loss in the event of nonperformance by the
other party to the financial instrument for commitments to extend credit and
standby letters of credit is represented by the contractual notional amount of
those instruments. The Banks use the same credit policies in making
commitments and conditional obligations as they do for on-balance sheet
instruments. For interest rate caps and floors, the contract or notional
amounts do not represent exposure to credit loss. Management does not
anticipate any material loss as a result of these transactions.
Contract or Notional
Amount
December 31, 1994
-----------------
(dollars in thousands)
Financial instruments whose contract
amounts represent credit risk:
Commitments to extend credit $16,683
Standby letters of credit 2,216
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. The Banks evaluate each
customer's creditworthiness on a case-by-case basis. The amount of collateral
obtained, if deemed necessary upon extension of credit, is based upon
management's credit evaluations of the customer. Collateral held varies but
may include accounts receivable, inventory, property, plant, and equipment,
and income-producing commercial properties.
Standby letters of credit are conditional commitments issued by the
Banks to guarantee the performance of a customer to a third party. Those
guarantees are primarily issued to support public and private borrowing
arrangements, including commercial paper, bond financing, and similar
transactions. The credit risk involved in issuing letters of credit is
essentially the same as that involved in extending loan facilities to
customers. The Banks hold marketable securities as collateral supporting those
commitments for which collateral is deemed necessary.
6. Premises and Equipment
The composition of premises and equipment at December 31 was as follows
(dollars in thousands):
1994 1993
---------- ----------
Land $ 1,541 $ 1,202
Buildings and improvements 8,160 5,522
Furniture and equipment 3,978 3,514
------ ------
$13,679 $10,238
Less accumulated depreciation (4,570) (4,209)
------ ------
$ 9,109 $6,029
====== =====
7. Time Deposits
Time certificates of deposit in excess of $100,000 aggregated
approximately $8,207,000 and $7,253,000 at December 31, 1994 and 1993,
respectively. Interest expense on deposits in excess of $100,000 totaled
$208,000, $285,000, and $247,000 in 1994, 1993, and 1992, respectively.
8. Commitments and Contingencies
The Banks lease some branch premises and equipment. Total rental expense
was approximately $248,000, $275,000, and $320,000 in 1994, 1993, and 1992,
respectively.
As of December 31, 1994, the aggregate minimum rental commitments under
existing operating leases is summarized as follows (dollars in thousands):
1995 $ 152
1996 141
1997 124
1998 125
1999 126
Thereafter 506
-----
$1,174
======
The Company is involved in certain litigation matters arising in the
ordinary course of business. In the opinion of the Company's management, these
actions will not have a material effect, if any, on the Company's financial
position or results of operations.
9. Retirement Plan
Effective December 31, 1992, CB terminated its defined benefit pension
plan. The plan participants became fully vested as of the termination date. In
conjunction with the termination, the plan was amended to provide that all
excess funding be allocated to plan participants at settlement.
CB's method of accounting for pension costs complies with SFAS No. 87
and No. 88. No pension expense was recognized in 1994 or 1993, as compared to
$369,000 in 1992. The following table illustrates the components of pension
expense under this method, the funded status of the plan and amounts
recognized in Bancorp's consolidated financial statements, and the major
assumptions used to determine these amounts at December 31 (dollars in
thousands):
1992
----------
PLAN ASSETS AT FAIR VALUE (PRIMARILY COMMON TRUST FUNDS
CONSISTING OF LISTED STOCKS, BONDS, AND CASH EQUIVALENTS) $3,517
======
ACTUARIAL PRESENT VALUE OF PROJECTED BENEFIT OBLIGATIONS:
Accumulated benefit obligations -
Vested $3,517
Nonvested --
Provision for future salary increases --
Projected benefit obligations $3,517
======
EXCESS (DEFICIT) OF PLAN ASSETS OVER PROJECTED
BENEFIT OBLIGATIONS $ --
UNRECOGNIZED NET TRANSITION ASSET --
UNRECOGNIZED NET (GAIN) LOSS --
-----
Accrued pension cost $ --
======
COMPONENTS OF PENSION EXPENSE:
Service cost $ 136
Interest cost 227
Actual return on plan assets (229)
Net amortization and deferral (115)
Curtailment loss due to plan termination and amendment 350
-----
$ 369
======
10. 401(k) Plan
The 401(k) Plan (the Plan) was established effective January 1, 1988, by
CB to encourage employee savings and to supplement other benefits. The Plan
was adopted and amended by Bancorp effective January 1, 1993, to cover
employees of CB and VCB and was renamed the Commercial Bancorp 401(k) Plus
Savings Plan. Participants may elect to contribute up to 17 percent of
qualified earnings, and Bancorp will match 25 percent of the first 6 percent
of qualified contributions up to a maximum of $2,310 per employee. Bancorp
may also elect to make discretionary contributions. Expense under the Plan
totaled $461,000 and $378,000 in 1994 and 1993, respectively, of which
$377,000 and $313,000 was discretionary, respectively.
11. Stock Option Plan
Bancorp has a combined Incentive Stock Option Plan and Non-Qualified
Stock Option Plan (jointly termed "the Stock Option Plan") which covers a
maximum number of shares not to exceed 2 percent of the shares of Bancorp
stock outstanding on January 1 of each year.
The price per share under each option granted under the Non-Qualified
Stock Option Plan shall be determined by the Board of Directors and may be
less than, equal to, or greater than the fair market value of the shares
covered by the option on the date such option is granted.
In general, the exercise price per share under each option granted under
the Incentive Stock Option Plan shall be determined by the Board of Directors,
but shall not be less than the fair market value of the shares covered by the
option on the date such option is granted.
The following table presents share data related to the Plan.
Option Price
Per Common Share Common Shares
---------------- -------------
December 31, 1991 7.52 13,975
Granted 13.30 17,050
Options exercised -- --
Terminated -- --
----- ------
December 31, 1992 7.52 to 13.30 31,025
Granted 14.21 25,575
Options exercised 7.62 (808)
Terminated -- (770)
----- ------
December 31, 1993 7.52 to 14.21 55,022
Granted 15.375 30,000
Options exercised -- --
Terminated -- --
----- ------
December 31, 1994 7.52 to 15.375 85,022
============== ======
The above amounts have been adjusted for a 10 percent stock dividend
paid in April 1994, a two-for-one stock split effective January 25, 1993, and
a 5 percent stock dividend in 1992.
<PAGE>
12. Income Taxes
The provision for income taxes for the years ended December 31 was as
follows (dollars in thousands):
1994 1993 1992
------ ------ ------
Current:
Federal $1,116 $1,335 $825
State 367 428 296
----- ----- ---
Total current 1,483 1,763 1,121
Deferred:
Federal (17) (371) (221)
State (2) (48) (46)
----- ----- ---
Total deferred (19) (419) (267)
----- ----- ---
Provision for income taxes $1,464 $1,344 $854
====== ====== ====
The provision for income taxes results in effective tax rates being less
than the federal income tax statutory rate. The nature of the differences for
the years ended December 31 was as follows (dollars in thousands):
1994 1993 1992
------ ------ ------
Computed expected federal tax expense
at 34 percent $1,862 $1,800 $1,265
State income taxes, net of federal effect 274 251 165
Effect of nontaxable interest income (769) (725) (573)
Other, net 97 18 (3)
----- ----- ---
Provision for income taxes $1,464 $1,344 $854
====== ====== ====
The Company has the following deferred tax assets and deferred tax
liabilities resulting from the tax effects of temporary differences at
December 31 (dollars in thousands):
1994 1993
------ ------
DEFERRED TAX ASSETS
Allowance for loan losses $ 634 $ 519
Deferred income 188 235
Vacation accrual 65 65
Net operating loss 66 103
Unrealized loss on investments available for sale 147 --
Other 39 11
----- -----
1,139 933
DEFERRED TAX LIABILITIES
Accumulated depreciation 246 210
Unrealized gain on investments available for sale -- 161
Other 24 20
----- -----
270 391
----- -----
$869 $542
====== ======
No valuation adjustment is required for the deferred tax asset.
An analysis of the components of the deferred tax provision for the year
ended December 31, 1992, was as follows (dollars in thousands):
1992
------
Loan loss provision $(104)
Depreciation 33
Pension expense (48)
Deferred loan fees (182)
Other, net 34
----
$(267)
=====
13. Net Income per Share
Net income per share and other per share information included in the
accompanying consolidated financial statements is based on the average number
of shares of common stock outstanding during each year, adjusted retroactively
for a 5 percent stock dividend in 1992, a two-for-one stock split effective
January 25, 1993, and a 10 percent stock dividend in April 1994. Average
shares outstanding as adjusted were approximately 2,624,197, 2,622,629, and
2,621,126 for 1994, 1993, and 1992, respectively.
14. Statement of Fair Values
The following methods and assumptions were used to estimate the fair
value of each class of financial instruments for which it is practicable to
estimate that value:
CASH AND CASH EQUIVALENTS. The carrying amount is a reasonable estimate
of fair value.
INVESTMENT SECURITIES. For securities and derivative instruments held
for investment purposes, fair values are based on quoted market prices or
dealer quotes. If a quoted market price is not available, fair value is
estimated using quoted market prices for similar securities.
LOANS. For variable rate loans, fair value is estimated at carrying
value as these loans reprice to market frequently. The fair value of other
types of loans is estimated by discounting the future cash flows using the
current rate at which similar loans would be made to borrowers with similar
credit ratings and for the same remaining maturities.
DEPOSIT LIABILITIES. The fair value of demand deposits, savings
accounts, and other deposits is the amount payable on demand at the reporting
date. The fair value of fixed-maturity certificates of deposit is estimated
using the rates currently offered for deposits of similar remaining
maturities.
COMMITMENTS TO EXTEND CREDIT, STANDBY LETTERS OF CREDIT, AND FINANCIAL
GUARANTEES. The fair value of commitments 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.
Fair value of guarantees and 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 at the reporting date. The fees currently
charged are considered negligible.
The estimated fair values of financial instruments at December 31, 1994,
are as follows (dollars in thousands):
Carrying
Value Fair Value
-------- ----------
Financial assets:
Cash and cash equivalents $ 25,787 $ 25,787
Investment securities and money
market investments 69,307 69,244
Loans 176,893
Less--reserve for possible loan losses (2,905)
------- -------
Net loans 173,988 175,493
Financial liabilities:
Deposits 246,654 246,597
Unrecognized financial instruments:
Commitments to extend credit 16,683 (59)
Standby letters of credit 2,216 (27)
The estimated fair values of financial instruments at December 31, 1993
are as follows (dollars in thousands):
Carrying
Value Fair Value
-------- ----------
Financial assets:
Cash and cash equivalents $ 21,494 $ 21,494
Investment securities and money
market investments 90,130 92,956
Loans 156,326
Less--reserve for possible loan losses (2,497)
------- -------
Net loans 153,829 157,300
Financial liabilities:
Deposits 245,589 246,555
Unrecognized financial instruments:
Commitments to extend credit 4,550 (16)
Standby letters of credit 396 (5)
<PAGE>
15. Parent Company Financial Information
Condensed financial information for Bancorp (unconsolidated parent
company only) is as follows (dollars in thousands):
CONDENSED BALANCE SHEETS
December 31,
1994 1993
------- -------
ASSETS:
Cash $ 347 $ 229
Investments 848 701
Investment in subsidiaries 25,863 23,331
Other assets 322 432
------ ------
$27,380 $24,693
======= =======
LIABILITIES:
Other liabilities $ 373 $ 179
SHAREHOLDERS' EQUITY:
Common stock 3,284 2,981
Other shareholders' equity 23,723 21,533
------ ------
27,007 24,514
------ ------
$27,380 $24,693
======= =======
<PAGE>
CONDENSED STATEMENTS OF INCOME
Year Ended December 31,
------------------------
1994 1993 1992
------ ------ ------
INCOME:
Cash dividends from subsidiaries $1,295 $1,825 $ 855
Investment dividends 16 4 --
----- ----- ------
1,311 1,829 855
EXPENSE:
Salaries and employee benefits 161 139 105
Other 679 194 176
----- ----- -----
840 333 281
----- ----- -----
INCOME BEFORE BENEFIT FOR INCOME TAXES 471 1,496 574
INCOME TAX BENEFIT 172 133 92
----- ----- -----
INCOME BEFORE EQUITY IN UNDISTRIBUTED
NET INCOME OF SUBSIDIARY 643 1,629 666
EQUITY IN UNDISTRIBUTED NET INCOME OF SUBSIDIARY 3,370 2,322 2,200
----- ----- -----
NET INCOME $4,013 $3,951 $2,866
====== ====== ======
CONDENSED STATEMENTS OF CASH FLOWS
Year Ended December 31,
------------------------
1994 1993 1992
------ ------ ------
OPERATING ACTIVITIES:
Net income $4,013 $3,951 $2,866
Adjustments to reconcile net income to net
cash provided by operating activities -
Tax benefit provided from losses (172) (133) (92)
Undistributed earnings in subsidiaries (3,370) (2,322) (2,200)
Changes in assets and liabilities -
Increase in other liabilities 194 122 24
(Increase) decrease in other assets 224 (80) 27
----- ----- -----
Net cash provided by operating activities 889 1,538 625
----- ----- -----
INVESTING ACTIVITIES:
Purchase of investment securities -- (841) --
----- ----- -----
Net cash used in investing activities -- (841) --
----- ----- -----
FINANCING ACTIVITIES:
Cash dividends paid (771) (716) (583)
Exercise of stock options -- 6 --
----- ----- -----
Net cash used in financing activities (771) (710) (583)
(DECREASE) INCREASE IN CASH 118 (13) 42
CASH AT BEGINNING OF YEAR 229 242 200
----- ----- -----
CASH AT END OF YEAR $ 347 $ 229 $ 242
====== ====== ======
<PAGE>
16. Quarterly Financial Information (Unaudited)
<TABLE>
<CAPTION>
Income
Provision Before
Interest Net Interest for Possible Income Net Net Income
Income Income Loan Losses Taxes Income Per Share(a)
------- ------------ ------------ ------ ------ -----------
(dollars in thousands, except per share amounts)
1994:
<S> <C> <C> <C> <C> <C> <C>
Quarter ended:
March 31 $ 5,051 $ 3,741 $ 75 $1,285 $ 975 $ .41
June 30 5,245 3,918 75 1,582 1,157 .45
September 30 5,565 4,202 75 1,622 1,202 .46
December 31 5,772 4,234 75 988 679 .21
------ ------ --- ----- ----- -----
Year ended December 31 $21,633 $16,095 $300 $5,477 $4,013 $1.53
======= ======= ==== ====== ====== =====
1993:
Quarter ended:
March 31 $ 4,517 $ 3,127 $100 $ 909 $ 718 $ .27
June 30 4,875 3,483 75 1,589 1,154 .45
September 30 5,018 3,590 75 1,450 937 .35
December 31 5,130 3,710 75 1,347 1,142 .44
------ ------ --- ----- ----- -----
Year ended December 31 $19,540 $13,910 $325 $5,295 $3,951 $1.51
======= ======= ==== ====== ====== =====
1992:
Quarter ended:
March 31 $ 5,088 $ 3,260 $154 $ 882 $ 673 $ .26
June 30 4,984 3,284 152 1,025 767 .29
September 30 4,517 2,913 275 981 717 .27
December 31 5,240 3,740 251 832 709 .27
------ ------ --- ----- ----- -----
Year ended December 31 $19,829 $13,197 $832 $3,720 $2,866 $1.09
======= ======= ==== ====== ====== =====
(a) Adjusted retroactively for a 5 percent stock dividend in August 1992, a two-for-one stock split dated January 25,
1993, and a 10 percent stock dividend in April 1994.
</TABLE>
<PAGE>
17. Merger with West Coast Bancorp
On October 24, 1994, as amended December 12, 1994, Bancorp entered into
an Agreement and Plan of Merger (the "Merger") with West Coast Bancorp of
Newport, Oregon. The Merger provides that shareholders of West Coast will
receive, for each share of West Coast Common Stock, .60 shares of Bancorp
Common Stock in the combined company.
Completion of the Merger is subject to shareholder and regulatory
approvals and is expected to close in the spring of 1995. The Merger will be
accounted for as a pooling of interests under generally accepted accounting
principles.
West Coast Bancorp reported net interest income of $8,390,000, net
income of $1,864,000, and earnings per share of $0.74 for the year ended
December 31, 1994. West Coast Bancorp had total assets of $160,654,000, total
deposits of $124,697,000, and shareholders' equity of $17,131,000 as of
December 31, 1994.
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders of Commercial Bancorp:
We have audited the accompanying consolidated balance sheets of
Commercial Bancorp (an Oregon corporation) and subsidiaries as of December 31,
1994 and 1993, and the related consolidated statements of income,
shareholders' equity, and cash flows for each of the three years in the period
ended December 31, 1994. 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 financial position of Commercial Bancorp
and subsidiaries as of December 31, 1994 and 1993, and the results of their
operations and their cash flows for each of the three years in the period
ended December 31, 1994, in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Portland, Oregon,
January 30, 1995
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The directors and executive officers of the registrant at March 1, 1995,
are set forth below. The executive officers include certain persons who are
not titled officers of the registrant, but serve as officers of its bank
subsidiaries.
Name Age Position(s) Held
---- --- ----------------
Lloyd D. Ankeny 57 Director of Bancorp*
Iral D. Barrett 60 Director of Bancorp
Victor L. Bartruff 47 Co-President and Co-Chief Executive
Officer and Director of Bancorp*;
President and Chief Executive Officer of
The Bank of Newport
Phillip G. Bateman 54 Director of Bancorp*
Chester C. Clark 73 Director of Bancorp*
Lester D. Green 69 Chairman of the Board of Bancorp
Stanley M. Green 72 Director of Bancorp*
Cora A. Hallauer 55 Secretary of Bancorp; Senior Vice
President and Secretary of The
Commercial Bank
Donald A. Kalkofen 31 Chief Financial Officer of Bancorp* and
Senior Vice President and Chief
Financial Officer of The Bank of Newport
William B. Loch 61 Director of Bancorp
Jack E. Long 56 Director of Bancorp and Chairman of the
Board of The Commercial Bank
C. Douglas McGregor 56 Director of Bancorp
Edgar B. Martin 55 President and Chief Executive Officer of
The Commercial Bank
Robert D. Morrison 63 Director of Bancorp
J. F. Ouderkirk 44 Director of Bancorp* and Chairman of the
Board of The Bank of Newport
Gary D. Putnam 50 Vice Chairman of the Board of Bancorp*
Rodney B. Tibbatts 55 Co-President and Co-Chief Executive
Officer and Director of Bancorp*
and Chairman of the Board of
Valley Commercial Bank
---------------
*Since February 28, 1995, pursuant to the Merger Agreement.
Bancorp's Board of Directors is divided into three classes with
staggered terms of three years; directors serve until their successors have
been elected and qualified. The terms of Bancorp's present directors expire
as follows: the terms of Messrs. Lester D. Green, Long, Ouderkirk, and Putnam
expire in 1996; the terms of Messrs. Bartruff, Clark, Loch, Morrison, and
Tibbatts expire in 1997; and the terms of Messrs. Ankeny, Barrett, Bateman,
Stanley M. Green, and McGregor expire in 1998. The officers of Bancorp and
its bank subsidiaries are elected by their respective board of directors to
serve until the next annual board meeting or until their successors are
elected and qualified, subject to prior death, resignation, or removal. There
are no family relationships among the directors and executive officers.
Lloyd D. Ankeny was a director of WCB since 1993 and has served as a
director of The Bank of Newport since 1986. Mr. Ankeny graduated from the
University of California in 1959 with a B.S. degree and, in 1961, earned an
M.B.A. in Management. During the period 1961 through 1980, Mr. Ankeny served
in various executive capacities with IBM and Xerox corporations. Since 1981,
Mr. Ankeny has been a self-employed real estate investor and owner of Landmark
Development Corporation.
Iral D. Barrett has been a director of Bancorp since 1982. He is the
retired Chairman of the Board and Chief Executive Officer of Supra Products,
Inc., a key lock company, a position which Mr. Barrett held from 1964 until
1994. Mr. Barrett joined the board of The Commercial Bank in 1976, of which
Mr. Barrett continues to be a director, and served as Chairman of the Board of
The Commercial Bank from May 1991 to April 1994. Mr. Barrett has been
actively involved in the community and with Young Life for many years.
Victor L. Bartruff was President and Chief Executive Officer of WCB from
1993 until February 28, 1995, when he became Co-President and Co-Chief
Executive Officer of Bancorp, and was a director of WCB since 1992.
Mr. Bartruff has served as President and Chief Executive Officer and director
of The Bank of Newport since 1991. Mr. Bartruff has been in the banking
industry for over 29 years. Mr. Bartruff was with United States National Bank
of Oregon from 1965 to 1991 and was a Vice President and District Manager
prior to joining WCB and The Bank of Newport. Mr. Bartruff has an extensive
background in lending, personnel, marketing, and management. He is a graduate
of Oregon State University and Pacific Coast Banking School. Mr. Bartruff is
an active leader in many civic and church-related organizations. He serves as
a director of the Greater Newport Chamber of Commerce and is a member of the
Newport Rotary Club, Treasurer of the Yaquina Bay Economic Foundation,
Chairman of the City of Newport Retirement Board, a member of the Oregon State
University Newport Marine Science Development Council, and a Deacon at the
First Baptist Church of Newport.
Phillip G. Bateman was a director of WCB since 1993 and has served as a
director of The Bank of Newport since 1979. Mr. Bateman is a graduate of
San Francisco College of Mortuary Science and has been a partner in Bateman
Funeral Homes, Central Coast Crematorium, and Chelan Abbey Mausoleum and
Columbariam since 1975.
Chester C. Clark was a director of WCB since 1993 and has served as a
director of The Bank of Newport since 1986. Mr. Clark was employed by what is
now First Interstate Bank of Oregon, N.A., from 1942 to 1965. In 1965,
Mr. Clark entered the veneer business and, in 1968, joined Alsea Veneer
Company, Inc. Mr. Clark served as owner/operator of that company until his
retirement in 1987. Mr. Clark remains Chairman of the Board of Alsea Veneer
Company, Inc., and a partner in Alsea Land and Timber Company.
Lester D. Green has been Chairman of Bancorp's Board of Directors since
1991 and has served as a director of Bancorp since 1982 and of The Commercial
Bank since 1972. He has been property manager of Mission Properties, a real
estate holding company, since 1994. Mr. Green was formerly Chairman of the
Board of Capitol Auto Group, composed of Capitol Chevrolet Cadillac, Capitol
Toyota, and Willamette Pontiac, since 1955. A University of Oregon graduate,
Mr. Green has been actively involved in numerous automobile dealer
associations during his career. Mr. Green received the TIME Quality Dealer
Award in 1971. During his involvement in the community, Mr. Green has chaired
or been president of the Salem Downtown Development Commission, the Salem
Economic Development Corporation, the East Salem Rotary Club, and the Salem
Hospital Board. Mr. Green was also honored as Salem's First Citizen in 1977.
Stanley M. Green was a director of WCB since 1981. He worked as an
Animation Artist for Walt Disney from 1950 to 1991 and is currently an
animation director of Tolco Productions, Inc. Mr. Green is a member of the
faculty at Portland State University, where he teaches animation and drawing.
Mr. Green attended the Arts Students League in New York City and the Chounaird
Art Institute in Los Angeles.
Cora A. Hallauer has been Senior Vice President and Operations
Administrator and Secretary of The Commercial Bank and Secretary of Bancorp
since July 1990. She was also Treasurer of Bancorp from July 1990 until
February 28, 1995. Ms. Hallauer previously served as Vice President and
Systems Operations Officer of The Commercial Bank since 1985. Ms. Hallauer is
a graduate of Pacific Coast Banking School and has taught at Chemeketa
Community College and for the American Institute of Banking since 1978.
Ms. Hallauer is a member of the Oregon Bankers Association Operations
Committee, and serves on the Board of Directors for the YWCA of Salem.
Donald A. Kalkofen was the Senior Vice President and Treasurer of WCB,
as well as Senior Vice President and Chief Financial Officer of The Bank of
Newport, from January 1993 until February 28, 1995, when he became Chief
Financial Officer of Bancorp. Mr. Kalkofen is a Certified Public Accountant
and has nine years experience in the accounting and financial services related
industries. Prior to joining WCB and The Bank of Newport, Mr. Kalkofen held
various positions with United States National Bank of Oregon, including Senior
Accounting Officer and Controller of a subsidiary from May 1988 to April 1992.
Mr. Kalkofen is a gradate of Washington State University and the Bank
Administration Institute and is a member of the Oregon Society of Certified
Public Accountants, the American Society of Certified Public Accountants, the
Oregon Bankers Association Investment Committee, and the Oregon Society of
Certified Public Accountants Financial Services Committee.
William B. Loch has been a director of Bancorp since 1982 and of The
Commercial Bank since 1977. He has been President of Capital City
Companies, Inc., a petroleum distribution and transportation company, since
1980. Mr. Loch is a graduate of the University of Oregon and has owned and
managed petroleum, transportation, and warehouse businesses since 1957. He is
actively involved in several industry associations and is a Trustee of the
University of Oregon Foundation.
Jack E. Long has been a Bancorp director since 1990, a director of The
Commercial Bank since 1990, and Chairman of the Board of The Commercial Bank
since April 1994. He is President of J & L Nursery Co., Inc. Mr. Long has
been in the nursery business since his graduation from Oregon State
University's agricultural program in 1960. Mr. Long is a member of numerous
professional organizations including President [Elect] of the American
Association of Nurserymen and the Oregon Department of Agriculture Nursery
Advisory Council. Mr. Long has received numerous awards related to his
nursery business. Among them, Mr. Long was named "STAR PRODUCER" in the
"AG STARS 88" promotion sponsored by the Salem Economic Development Commission
and received the Northwest Horticulture Congress Distinguished Service Award.
C. Douglas McGregor has been a director of Bancorp and of The Commercial
Bank since 1994. He has been Chairman of the Board of ACCESS Long Distance
since 1993. Formerly, Mr. McGregor was an Executive Vice President with First
Interstate Bank of Oregon, N.A., since 1985. Mr. McGregor is a graduate of
Oregon State University and past Trustee and Chairman of Pacific Coast Banking
School and is currently a member of the Executive Committee of Willamette
University.
Edgar B. Martin has been President and Chief Executive Officer of The
Commercial Bank since 1991. He was previously Executive Vice President from
March 1990, and Chief Operating Officer from June 1990, of The Commercial
Bank. Mr. Martin served as Senior Vice President and Loan Administrator of
The Commercial Bank from 1985 to 1990 and, prior to that, served as Vice
President and Branch Administrator for 12 years. He is a graduate of Lewis
and Clark College and Pacific Coast Banking School. Mr. Martin is active in
the Salem Kiwanis, Salem Area Chamber of Commerce, and numerous Oregon Bankers
Association committees.
Robert D. Morrison has been a director of Bancorp since 1978 and of The
Commercial Bank since 1982. He has been First Vice President, Financial
Consultant with Smith Barney, Inc. (or its predecessor, Shearson Lehman
Brothers, Inc.) since 1974. Mr. Morrison is a graduate of the University of
Washington, is a member and past trustee of the First Methodist Church in
Salem, and is a founding director of Illahe Hills Country Club.
J. F. Ouderkirk was a director of WCB since 1992 and has served as a
director of The Bank of Newport since 1986 and as Chairman of the Board of The
Bank of Newport since 1988. During 1992 and 1993, Mr. Ouderkirk also served
as Executive Vice President of WCB and was Chairman of the Board of WCB from
April 1993 to February 1994. Mr. Ouderkirk is a partner in the law firm of
Richardson, Ouderkirk and Hollen, which Mr. Ouderkirk co-founded in 1975.
Mr. Ouderkirk is a graduate of Brown University and the University of Oregon
School of Law. Mr. Ouderkirk is a member of the Oregon State Bar and is
admitted to practice before the United States District Court, District of
Oregon, the Ninth Circuit Court of Appeals, and the Unites States Tax Court.
Gary D. Putnam served as President and Chief Operating Officer and
director of WCB from 1990 to 1992. Mr. Putnam rejoined the board of directors
of WCB in October 1993 and was appointed Chairman of the Board of WCB in 1994.
Mr. Putnam has 20 years of banking experience and, prior to joining WCB,
served as Senior Vice President of Far West Federal Bank, S.B. ("Far West")
from 1985 to 1988 and Executive Vice President of Far West from 1988 to 1990.
In 1991, Far West was placed in receivership by the Office of Thrift
Supervision. In May 1994, the Resolution Trust Corporation ("RTC"), as
successor to Far West, filed a lawsuit against certain former officers and
directors of Far West alleging negligence in their management of Far West and
seeking damages for the resulting losses. Mr. Putnam was named as a defendant
in an amended complaint filed in June 1994. Mr. Putnam never served as a
director or a loan officer of Far West and believes that there is no basis for
any claim by the RTC against him. During 1971 to 1989, while not employed in
bank management, Mr. Putnam was engaged in the practice of law, emphasizing
banking and financial law. Mr. Putnam is a graduate of Lewis & Clark College
and the Willamette University College of Law and a member of the Oregon State
Bar and the American Bar Association. Since 1992, Mr. Putnam has been an
owner and is President of Pacific Drilling Supply, Inc., in Wilsonville,
Oregon.
Rodney B. Tibbatts was President and Chief Executive Officer of Bancorp
from 1990 until February 28, 1995, when he became Co-President and Co-Chief
Executive Officer of Bancorp. Mr. Tibbatts has been a director of Bancorp and
of The Commercial Bank since 1990 and of Valley Commercial Bank since 1991 and
Chairman of the Board of Valley Commercial Bank since April 1993.
Mr. Tibbatts was formerly Senior Vice President and Regional Manager of Key
Bank of Oregon from 1986 until 1991. He has been in the banking industry for
33 years. Mr. Tibbatts attended the University of Washington and graduated
from the Pacific Coast Banking School. He is a member of the American Bankers
Association Government Relations Council and several Oregon Bankers
Association committees. Mr. Tibbatts is President-Elect of the Salem Downtown
Rotary Club, serves on the board of the Salem Area Chamber of Commerce and the
Salem Family YMCA, and was named Associated Oregon Industries "1986 Oregon
Business Leader of the Year" and Albany's 1986 "First Citizen."
ITEM 11. EXECUTIVE COMPENSATION.
The following table sets forth for the three years ended December 31,
1994, the compensation awarded or paid to, or earned by, Bancorp's chief
executive officer and each other executive officer whose salary and bonus for
1994 exceeded $100,000.
<PAGE>
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
--------------------------
Long-Term Compensation
Awards
Annual Compensation ----------------------
----------------------- Securities Underlying All Other
Name and Principal Position (1) Year Salary (2) Bonus Options (#) (3) Compensation
--------------------------- ---- ---------- --------- ---------------------- ----------------
<S> <C> <C> <C> <C> <C>
Rodney B. Tibbatts 1994 $121,008 (4) $60,000 8,500 $23,900 (5)
President and Chief Executive 1993 117,404 (4) 30,000 7,700 18,973
Officer of Bancorp 1992 101,482 (4) 15,000 6,600 3,410
Edgar B. Martin 1994 110,201 (6) 36,366 6,500 22,675 (7)
President and Chief Executive 1993 101,200 32,384 5,500 14,540
Officer of The Commercial Bank 1992 90,800 (8) 20,160 3,300 166
__________________________
(1) Position held during 1994.
(2) Includes salary, amounts contributed by the identified executive officer to Bancorp's 401(k) Employee
Savings Plan and Trust ("401(k) Plan"), and fees paid to directors for participation in board and committee
meetings.
(3) Options to acquire shares of Bancorp Common Stock do not include stock appreciation rights ("SARs").
(4) Includes $6,000 in 1994, $1,400 in 1993, and $7,500 in 1992, paid as director fees for service as a
director of The Commercial Bank and Valley Commercial Bank and an automobile allowance.
(5) Includes $20,520 in 401(k) Plan contributions by Bancorp, and $3,410 for premium cost of term life
insurance in the amount of $50,000 and whole life insurance currently in the amount of $288,000.
(6) Includes an automobile allowance of $6,000.
(7) Includes $22,509 in 401(k) Plan contributions by Bancorp and $166 for premium cost of $50,000 in term life
insurance.
(8) Includes $7,200 paid as director fees for service as a director of The Commercial Bank.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
OPTION GRANTS IN LAST FISCAL YEAR
---------------------------------
Potential Realizable
Number of Percent of Value at Assumed
Securities Total Options Annual Rates of Stock
Underlying Granted to Price Appreciation
Options Employees Exercise Expiration for Option Term (2)
Name Granted (#) (1) in Fiscal Year Price ($/Share) Date (5%) (10%)
------------------- ------------------- -------------- --------------- ---------- --------------------
<S> <C> <C> <C> <C> <C>
Rodney B. Tibbatts 8,500 28.3% $15.375 11-16-2004 $82,189 $189,983
Edgar B. Martin 6,500 21.7% 15.375 11-16-2004 $62,850 $145,280
__________________________
(1) Incentive stock options to acquire shares of Bancorp Common Stock. The stock options become exercisable in full
on November 17, 1995. No SARs were granted during 1994.
(2) The dollar amounts shown illustrate values that might be realized upon exercise of the options immediately prior
to the expiration of their term based upon the assumed compounded rates of appreciation in the value of Common
Stock over the term of the options. These amounts do not take into account provisions of the options providing
for termination of the options following termination of employment or nontransferability. The values which may
ultimately be realized will depend upon the actual market value of the Common Stock during the period during
which the options are exercisable, which may vary significantly from the assumed rates of appreciation; there is
no assurance that any appreciation from the exercise price will be realized.
</TABLE>
<PAGE>
FISCAL YEAR-END OPTION VALUES (1)
---------------------------------
Number of Value of
Securities Underlying Unexercised In-the-Money
Unexercised Options at FY-End Options at FY-End
Name Exercisable Unexercisable (#) Exercisable Unexercisable
------------------ ------------------------------- ---------------------------
Rodney B. Tibbatts 18,920 8,500 $42,465 --
Edgar G. Martin 11,110 6,500 21,720 --
---------------------
(1) No options were exercised by the indicated persons during 1994.
(2) On December 31, 1994, the closing price of Bancorp's Common Stock was
$14.50. For purposes of the foregoing table, stock options with an
exercise price less than that amount are considered to be "in-the-money"
and are considered to have a value equal to the difference between this
amount and the exercise price of the stock option multiplied by the
number of shares covered by the stock option.
<PAGE>
COMPENSATION OF DIRECTORS. Bancorp directors receive a fee of $1,000
per month ($1,250 per month for the Chairman and Vice Chairman of the Board),
plus $100 for each committee meeting attended, other than meetings held in
conjunction with Board of Directors meetings. In addition, each non-employee
director of The Commercial Bank receives a fee of $750 per month and the
Chairman of the Board receives a fee of $1,000 per month. Each member of a
committee of The Commercial Bank receives $100 for each committee meeting
attended (other than special Loan and Investment Committee meetings held
immediately prior to the regular Board of Directors meetings). Directors of
Valley Commercial Bank receive $125 per month. Non-employee directors of The
Bank of Newport receive $600 per month, except the Chairman of the Board, who
receives an additional $250 per month, and members of board committees receive
$100 for each meeting attended. Directors of Bancorp during 1994 otherwise
received fees only as directors of one of Bancorp's bank subsidiaries.
During 1994, Lester D. Green received $325 per month for his services as
Chairman of the Board of Bancorp, and Iral D. Barrett and Jack E. Long
received $1,300 and $2,375, respectively, for services as Chairman of the
Board of The Commercial Bank.
Lester D. Green and Jack E. Long each received $5,000 from Bancorp in
1994, and $2,000 from Bancorp during 1995, as compensation for services to
Bancorp in connection with the Merger. J. F. Ouderkirk and Gary D. Putnam
each received $2,000 per month from August 31, 1994, through February 28,
1995, from WCB as compensation for services to WCB in connection with the
Merger.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION. During
1994, Iral D. Barrett, Michael J. Bragg, Anna M. Peterson, and Forrest A. Weil
served on an ad hoc compensation committee appointed by Bancorp's Board of
Directors. Each member of the ad hoc committee was a nonemployee director of
Bancorp. Various directors, including one or more members of the ad hoc
committee, members of their immediate families, and firms in which they had an
interest were customers of and had transactions with Bancorp's subsidiary
banks during 1994 in the ordinary course of business. Similar transactions
may be expected to take place in the ordinary course of business in the
future. All outstanding loans and commitments included in such transactions
were made on substantially the same terms, including interest rates and
collateral, as those prevailing at the time for comparable transactions with
other persons and did not, in the opinion of management, involve more than
normal risks of collectibility or present other unfavorable features.
NON-QUALIFIED RETIREMENT PLAN. In December 1994, a Non-Qualified
Deferred Compensation Plan was approved with respect to Edgar B. Martin that
will result in a $250,000 benefit to Mr. Martin at normal retirement (age 65).
The benefit is intended to compensate Mr. Martin for the shortfall that would
otherwise occur due to termination of The Commercial Bank Defined Benefit Plan
at December 31, 1992. The benefit will be funded by an insurance contract
with an annual premium expected not to exceed $30,000.
EXECUTIVE EMPLOYMENT AGREEMENT. Bancorp has entered into an executive
employment agreement with Rodney B. Tibbatts pursuant to which Bancorp has
agreed to employ Mr. Tibbatts as Co-President and Co-Chief Executive Officer
through December 31, 1996. The agreement provides that Mr. Tibbatts will
receive a base salary of $125,000 per year, is eligible to receive bonuses,
and is entitled to be provided with other benefits made available by Bancorp.
Also, if Mr. Tibbatt's employment were terminated prior to December 31, 1996,
without cause (as defined), or terminated by him for good reason (as defined),
he would be entitled to continuing compensation through December 31, 1996. He
will also be entitled to receive a salary continuation payment if his
employment is terminated without cause or terminated by him for good reason
following a change in control which occurs prior to December 31, 1996, or
which results from a definitive agreement in effect at or prior to
December 31, 1996. The salary continuation payment would be paid in a lump
sum following termination at a rate equal to his annual salary level at the
date of termination plus his most recent bonus for a period of 24 months
following the change in control, less any period of continued employment by
Bancorp following such change in control during the salary continuation
period. For purposes of the agreement, "change in control" means (i) the
acquisition or ownership by a person or group of persons acting in concert of
more than 50 percent of the outstanding Common Stock or (ii) the merger of
Bancorp with or into any corporation where more than 50 percent of the stock
of the surviving corporation is owned by persons other than the owners of the
Common Stock prior to such merger.
SALARY CONTINUATION AGREEMENT. The Commercial Bank has entered into a
salary continuation agreement with Edgar B. Martin pursuant to which he will
be entitled to receive a salary continuation payment in the event his
employment is terminated without cause or he elects to terminate his
employment for good reason prior to December 31, 1996. In the event of a
change in control of Bancorp occurring on or before June 30, 1996, or pursuant
to a definitive agreement executed by that date, Mr. Martin will be entitled
to receive a payment in the event of termination without cause or termination
by him for good reason occurring prior to December 31, 1996. In either such
event, the salary continuation payment would be based on Mr. Martin's current
salary as of the date of termination plus a prorated amount reflecting his
most recent bonus or incentive compensation and would be payable in a lump sum
calculated for the period beginning with the date of termination through
December 31, 1996, but not to exceed 18 months. See "Executive Employment
Agreement" for a summary of the definition of change in control.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth the shares of Bancorp Common Stock
beneficially owned as of March 1, 1995, by each director, by certain executive
officers, and by all executive officers and directors of Bancorp as a group.
<PAGE>
Such shares include shares held in the Bancorp dividend reinvestment
program/stock purchase plan, but exclude fractional shares.
Shares Percent
Name of Beneficial Owner Beneficially Owned (1)(2) of
Class
------------------------ ------------------------- -------
Lloyd D. Ankeny 32,231 *
Iral D. Barrett 10,181 *
Victor L. Bartruff 29,387 *
Phillip G. Bateman 15,618 *
Chester C. Clark 41,907 (3) *
Lester D. Green 32,334 (3) *
Stanley M. Green 116,159 (3) 2.7%
William B. Loch 11,424 *
Jack E. Long 5,198 *
C. Douglas McGregor 634 *
Edgar B. Martin 14,461 *
Robert D. Morrison 13,217 *
J. F. Ouderkirk 13,258 *
Gary D. Putnam 2,880 *
Rodney B. Tibbatts 21,734 (3) *
All directors and executive
officers as a group
(17 persons) 369,001 8.8%
__________________________
* Represents less than one percent.
(1) Shares held directly with sole voting and sole investment power, unless
otherwise indicated.
(2) Share amounts include stock options which are currently exercisable as
follows: Lloyd D. Ankeny, 1,580 shares; Victor L. Bartruff,
19,418 shares; Phillip G. Bateman, 2,451 shares: Chester C. Clark,
2,451 shares; Stanley M. Green, 1,580 shares; Edgar B. Martin, 11,110
shares; J.F. Ouderkirk, 3,355 shares; Gary D. Putnam, 1,560 shares;
Rodney B. Tibbatts, 18,920 shares; and all directors and executive
officers as a group, 70,803 shares.
(3) Share amounts include shares owned by the spouses of Lester D. Green
(5,914), Stanley M. Green (37,596), William B. Loch (783), and Rodney B.
Tibbatts (2,814), each of whom disclaims any beneficial ownership in the
shares.
ITEM 13. CERTAIN TRANSACTIONS.
Various of the directors and officers of Bancorp, members of their
immediate families, and firms in which they had an interest were customers of
and had transactions with Bancorp's subsidiary banks during 1994 in the
ordinary course of business. Similar transactions may be expected to take
place in the ordinary course of business in the future. All outstanding loans
and commitments included in such transactions were made on substantially the
same terms, including interest rates and collateral, as those prevailing at
the time for comparable transactions with other persons and did not, in the
opinion of management, involve more than normal risks of collectibility or
present other unfavorable features.
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) 1. and 2.
The financial statements and related documents listed in the index set
forth in Item 8 of this report are filed as part of this report.
All schedules are omitted because of the absence of the conditions under
which they are required or because the required information is included
in the financial statements or related notes.
(a) 3.
Exhibits are listed in the Exhibit Index beginning on page 61 of this
report. Each management contract or compensatory plan or arrangement
required to be filed as an exhibit to this report is listed under Item
10, "Executive Compensation Plans and Arrangements and Other Management
Contracts," in the Exhibit Index.
Upon written request to Cora Hallauer, Secretary, West Coast Bancorp,
P.O. Box 428, Salem, Oregon 97308, a shareholder will be furnished a
copy of any exhibit, upon payment of $.10 per page, which represents the
registrant's reasonable expenses in furnishing the exhibit requested.
(b) Reports on Form 8-K:
During the quarter ended December 31, 1994, the registrant filed a
Current Report on Form 8-K dated October 24, 1994, reporting the
execution of an Agreement and Plan of Merger dated as of October 24,
1994, between the registrant and former West Coast Bancorp, together
with related documents.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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)
Date: March 28, 1995 By: Victor L. Bartruff
Co-President and Co-Chief
Executive Officer
Date: March 28, 1995 By: Rodney B. Tibbatts
Co-President and Co-Chief
Executive Officer
Pursuant to the requirements of 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 indicated on the 28th day of March, 1995.
Signature Title
Principal Executive Officers
and Directors:
Victor L. Bartruff Co-President and Co-Chief
Executive Officer and Director
Rodney B. Tibbatts Co-President and Co-Chief
Executive Officer and Director
Principal Financial Officer:
Donald A. Kalkofen Chief Financial Officer
Principal Accounting Officer:
Donald R. Judson Controller
Other Directors:
Iral D. Barrett Director
Lester D. Green Chairman of the Board
William B. Loch Director
Jack E. Long Director
C. Douglas McGregor Director
Robert D. Morrison Director
<PAGE>
INDEX TO EXHIBITS
2.1 Agreement and Plan of Merger dated as of October 24, 1994, between
West Coast Bancorp and the Registrant, as amended as of
December 12, 1994 ("Merger Agreement"), incorporated by reference
to Appendix 1 to the Prospectus/Proxy Statement included in the
Registrant's Registration Statement on Form S-4 (No. 33-88656)
(the "Form S-4"). Annex 4 to Appendix 1 to the Prospectus/Proxy
Statement specifying the form of letter to be executed by certain
affiliates and the Schedules of Exceptions and related Disclosure
Letters are omitted and will be furnished supplementally to the
Commission upon its request.
2.2 Merger Agreement dated September 28, 1994, among The Commercial
Bank, the Registrant, and Great Western Bank, incorporated by
reference to Exhibit (2)(B) to the Form S-4. The schedules
thereto are omitted and will be furnished supplementally to the
Commission upon its request.
3.1 Restated Articles of Incorporation of the Registrant.
3.2 Restated Bylaws of the Registrant.
4 The Registrant has incurred long-term indebtedness as to which the
amount involved is less than ten percent of the total assets of
the Registrant and its subsidiaries on a consolidated basis. The
Registrant agrees to furnish instruments relating to such
indebtedness to the Commission upon its request.
10 Executive Compensation Plans and Arrangements and Other Management
Contracts.
10.1 Executive Employment Agreement between the Registrant and
Rodney B. Tibbatts effective February 28, 1995, incorporated by
reference to Exhibit (10)(G) to the Form S-4.
10.2 Executive Employment Agreement between the Registrant and
Victor L. Bartruff effective February 28, 1995, incorporated by
reference to Exhibit (10)(I) to the Form S-4.
10.3 Executive Employment Agreement between the Registrant and Donald
A. Kalkofen effective February 28, 1995, incorporated by reference
to Exhibit (10)(J) to the Form S-4.
10.4 Executive Employment Agreement between the Registrant and Cora A.
Hallauer effective February 28, 1995, incorporated by reference to
Exhibit (10)(H) to the Form S-4.
10.5 Salary Continuation Agreement between The Commercial Bank and
Edgar B. Martin effective February 28, 1995, incorporated by
reference to Exhibit (10)(N) to the Form S-4.
10.6 Form of Salary Continuation Agreement with other officers and key
employees of the Registrant's subsidiaries effective February 28,
1995.
10.7 1991 Combined Incentive Stock Option Plan and 1991 Non-Qualified
Stock Option Plan of the Registrant, incorporated by reference to
Exhibit 10.4 to the Registrant's Form 10-K for the year ended
December 31, 1991.
10.8 Form of Option Grant under 1991 Combined Incentive Stock Option
Plan and 1991 Non-Qualified Stock Option Plan of the Registrant,
incorporated by reference to Exhibit (10)(W) to the Form S-4.
10.9 Non-Qualified Stock Option Plan of former West Coast Bancorp and
related Form of Non-Qualified Stock Option Agreement, incorporated
by reference to Exhibits 10.2 and 10.3, respectively, to its
Registration Statement on Form SB-2 (No. 33-79086) ("Form SB-2").
10.10 Incentive Stock Option Plan of former West Coast Bancorp and
related Form of Incentive Stock Option Agreement, incorporated by
reference to Exhibits 10.4 and 10.5, respectively, to the Form SB-
2.
10.11 The Commercial Bank Incentive Compensation Plan, as amended,
incorporated by reference to Exhibit 10.5 to the Registrant's Form
10-K for the year ended December 31, 1993.
10.12 1994 and 1995 Amendments to The Commercial Bank Incentive
Compensation Plan, incorporated by reference to Exhibit (10)(BB)
to the Form S-4.
10.13 Valley Commercial Bank Incentive Compensation Plan, as amended,
incorporated by reference to Exhibit (10)(CC) to the Form S-4.
10.14 Non-Qualified Deferred Compensation Plan for Edgar B. Martin,
incorporated by reference to Exhibit (10)(FF) to the Form S-4.
10.15 Indemnification of Directors and Officers of the Registrant,
incorporated by reference to Exhibit 25 to the Registrant's
Form 10-K for the year ended December 31, 1989.
11 Statement of Calculation of Average Common Shares Outstanding of
the Registrant.
21 Schedule of Subsidiaries of the Registrant.
23 Consent of Arthur Andersen LLP with respect to its report on the
Registrant's financial statements.
27 Financial Data Schedule.
Other exhibits listed in Item 601 of Regulation S-K are not applicable.
<PAGE>
<PAGE>
EXHIBIT 3.1
RESTATED ARTICLES OF INCORPORATION
OF
WEST COAST BANCORP
Effective upon the merger of West Coast Bancorp, an Oregon corporation,
with and into Commercial Bancorp, an Oregon corporation, the name of the
surviving corporation shall be changed to be West Coast Bancorp, and its
articles of incorporation shall be amended and restated in the following form:
ARTICLE
Name
The name of the corporation is WEST COAST BANCORP.
ARTICLE
Capitalization
The corporation is authorized to issue 25,000,000 shares of stock divided
into two classes as follows:
A. Common Stock. 15,000,000 shares of common stock which shall have
unlimited voting rights, subject only to such voting rights as may be
specified in respect of preferred stock, and shall have the right to receive
the net assets of the corporation upon dissolution, subject only to prior
payment of such amount of the net assets of the corporation as may be
specified in respect of shares of preferred stock.
B. Preferred Stock. 10,000,000 shares of preferred stock issuable
from time to time in one or more series as permitted by law and the provisions
of the articles of incorporation as may be determined from time to time by the
board of directors (or a committee of the board of directors or an officer
duly authorized to take such action) and stated in a resolution or resolutions
providing for the issuance of shares of such series prior to the issuance of
any such shares:
1. Issuance in Series. The board of directors (or a
committee of the board of directors or an officer duly authorized to
take such action) shall have the authority to fix and determine,
subject to the provisions hereof, the rights and preferences of the
shares of any series so established, including, without limitation,
the rate of dividend, whether the dividend shall be cumulative,
whether shares may be redeemed and, if so, the redemption price and
the terms and conditions of the redemption, the amount payable upon
shares in the event of voluntary or involuntary liquidation, sinking
fund provisions, if any, for the redemption or purchase of shares,
the terms and conditions, if any, on which shares may be converted,
and voting rights, if any.
2. Dividends. The holders of shares of preferred stock of
a series shall be entitled to receive dividends, out of funds
legally available therefor, at the rate and at the time or times as
may be provided in respect of a particular series of preferred
stock. If such dividends shall be cumulative, and if dividends
shall not have been paid, then the deficiency shall be fully paid or
the dividends declared and set apart for payment before any
dividends on the common stock shall be paid or declared and set
apart for payment. Unless otherwise provided in respect of a
particular series of preferred stock, the holders of the preferred
stock shall not be entitled to receive any dividends thereon other
than the dividends referred to in this section.
3. Redemption. The preferred stock of a series may be
redeemed in such amount, and at such time or times, if any, as may
be provided in respect of a particular series of preferred stock.
In any event, preferred stock may be repurchased by the corporation
to the extent legally permissible.
4. Liquidation. In the event of any liquidation,
dissolution, or winding up of the affairs of the corporation,
whether voluntary or involuntary, then, before any distribution
shall be made to the holders of the common stock, the holders of the
preferred stock of a series shall be entitled to be paid the
preferential amount or amounts as may be provided in respect of a
particular series of preferred stock per share and dividends accrued
thereon to the date of such payment. The holders of the preferred
stock shall not be entitled to receive any distributive amounts upon
the liquidation, dissolution, or winding up of the affairs of the
corporation other than the distributive amounts referred to in this
section, unless otherwise provided in respect of a particular series
of preferred stock.
5. Conversion. Shares of a particular series of preferred
stock may be convertible or converted into common stock or other
securities of the corporation on such terms and conditions as may be
provided in respect of that series.
6. Voting Rights. Holders of preferred stock of a series
shall have such voting rights not in excess of one vote per share as
may be provided in respect of a particular series of preferred
stock.
C. Preemptive Rights. Shareholders shall have no preemptive right to
acquire shares or other securities of the corporation which would otherwise be
available to the shareholders pursuant to ORS 60.174.
D. Cumulative Rights. Shareholders do not have cumulative voting
rights with respect to the election of directors of the corporation.
ARTICLE
Board of Directors
A. Number of Directors. The board of directors shall consist of not
fewer than eight (8) or more than twenty (20) directors. The exact number
within such minimum and maximum limits shall be fixed and determined by
resolutions approved by at least a 75 percent vote of the total number of
directors then in office. The board of directors may fill vacancies on the
board of directors, whether caused by resignation, death or otherwise;
provided, that at no time shall the total number exceed twenty (20).
B. Classes of Board. The board of directors shall be divided into
three classes: Class A, Class B, and Class C, which shall be as nearly equal
in number as possible. Each director shall serve for a term ending on the
date of the third annual meeting of shareholders following the annual meeting
at which such director was elected; provided, however, that with respect to
the directors named below for terms of office commencing upon the effective
date of these restated articles of incorporation, each director in Class A
shall hold office until the annual meeting of shareholders in 1995; each
director in Class B shall hold office until the annual meeting of shareholders
in 1996; and each director in Class C shall hold office until the annual
meeting of shareholders in 1997; and in each case until their successors are
duly elected and have qualified or until their earlier resignation, removal
from office or death.
The directors of the corporation at the effective date of these restated
articles of incorporation, their addresses and the classes in which they shall
serve are as follows:
<PAGE>
Name Address
---- -------
Class A
-------
Lester D. Green 301 Church Street
Salem, Oregon 97308
Jack E. Long 301 Church Street
Salem, Oregon 97308
J. F. Ouderkirk 506 S.W. Coast Highway
Newport, Oregon 97365
Gary D. Putnam 506 S.W. Coast Highway
Newport, Oregon 97365
Class B
-------
Victor L. Bartruff 506 S.W. Coast Highway
Newport, Oregon 97365
Rodney B. Tibbatts 301 Church Street
Salem, Oregon 97308
Chester C. Clark 506 S.W. Coast Highway
Newport, Oregon 97365
Robert D. Morrison 301 Church Street
Salem, Oregon 97308
William B. Loch 301 Church Street
Salem, Oregon 97308
Class C
-------
Lloyd D. Ankeny 506 S.W. Coast Highway
Newport, Oregon 97365
Iral D. Barrett 301 Church Street
Salem, Oregon 97308
Phillip G. Bateman 506 S.W. Coast Highway
Newport, Oregon 97365
Stanley M. Green 506 S.W. Coast Highway
Newport, Oregon 97365
C. Douglas McGregor 301 Church Street
Salem, Oregon 97308
In the event of any increase or decrease in the authorized number of
directors (1) each director then serving as such shall nevertheless continue
as a director of the class in which he or she is a member until the expiration
of his or her current term, or his or her earlier resignation, removal from
office or death, and (2) the newly created or eliminated directorships
resulting from such increase or decrease shall be apportioned by the board of
directors among three classes of directors so as to maintain such classes as
nearly equal as possible.
C. Removal from Office. No director may be removed from office
without cause except by a vote of 66 2/3 percent of the shares then entitled
to vote at an election of directors. Except as otherwise provided by law,
cause for removal shall exist only if the board of directors has reasonable
grounds to believe that the corporation has suffered or will suffer
substantial injury as a result of the gross negligence, willful misconduct, or
dishonesty of the director whose removal is proposed.
ARTICLE
Director Liability
Directors of the corporation shall not be liable to the corporation or
its shareholders for monetary damages for conduct as directors except to the
extent that the Oregon Business Corporation Act, as it now exists or may
hereafter be amended, prohibits elimination or limitation of director
liability. No repeal or amendment of this Article V or of the Oregon Business
Corporation Act shall adversely affect any right or protection of a director
for actions or omissions prior to the repeal or amendment.
ARTICLE
Indemnification
The corporation shall indemnify each of its directors to the fullest
extent permissible under the Oregon Business Corporation Act, as the same
exists or may hereafter be amended, against all expense, liability, and loss
(including, without limitation, attorneys' fees) incurred or suffered by such
person by reason of or arising from the fact that such person is or was a
director of the corporation, or is or was serving at the request of the
corporation as a director, officer, partner, trustee, employee, or agent of
another foreign or domestic corporation, partnership, joint venture, trust,
employee benefit plan, or other enterprise, and such indemnification shall
continue as to a person who has ceased to be a director, officer, partner,
trustee, employee, or agent and shall inure to the benefit of his or her
heirs, executors, and administrators. The corporation may, in its bylaws or
as otherwise authorized by its board of directors, provide indemnification to
officers, employees, and agents of the corporation to the extent permitted by
law. The indemnification provided in this Article VI shall not be exclusive
of any other rights to which any person may be entitled under any statute,
bylaw, agreement, resolution of shareholders or directors, contract, or
otherwise.
ARTICLE VI
Shareholder Approval of Certain Transactions
Except as set forth in Section B of this Article VI:
any transaction or series of related transactions to
which the corporation or any of its subsidiaries is a party, the
consummation of which would result in a Change of Control of the
corporation (as hereinafter defined); or
any sale, lease, exchange, or other disposition of all
or substantially all of the property, with or without goodwill, of
the corporation and its subsidiaries to any other corporation,
person, trust, partnership, limited liability company, or other
entity;
shall require the affirmative vote of the holders of shares representing at
least 66 2/3 percent of all classes of capital stock of the corporation then
entitled to vote at an election of directors, considered for the purposes of
this Article VI as one class.
For the purposes of this Article VI, a "Change in Control" of the
corporation would occur if:
any "person" (as such term is used in Sections 13(d) and
14(d) or any successor provisions of the Securities Exchange Act of
1934 and the Securities and Exchange Commission's rules and
regulations pursuant thereto, as in effect from time to time
(collectively, the "Exchange Act")), other than the corporation,
becomes the "beneficial owner" (as defined in Rule 13d-3 under the
Exchange Act), directly or indirectly, of securities of the
corporation representing 30 percent or more of the combined voting
power of the corporation's then outstanding securities; or
the corporation is merged or consolidated with another
corporation and as a result of such merger or consolidation less
than 50 percent of the outstanding voting securities of the
surviving or resulting corporation would be owned in the aggregate
by persons or entities who were shareholders of the corporation
immediately prior to such merger or consolidation, other than
shareholders who are "affiliates" (as defined in Rule 12b-2 under
the Exchange Act) of any party to such merger or consolidation; or
the transaction is of the type that would be required to
be reported in response to Item 6(e) of Schedule 14A of
Regulation 14A under the Exchange Act.
Also for purposes of this Article VI, the term "substantially all of the
property, with or without goodwill, of the corporation and its subsidiaries"
shall mean those properties and assets involved in any single transaction or
series of related transactions having an aggregate fair market value of more
than a majority of the total consolidated assets of the corporation and its
subsidiaries.
The provisions of this Article VI shall not apply to any
transaction or series of transactions described in Section A of this
Article VI if, prior to the consummation of such transaction or transactions,
the board of directors of the corporation shall have approved the transaction
or transactions by the affirmative vote of more than 75 percent of the
directors. The board of directors of this corporation shall have the power
and duty to determine for the purposes of this Article VI, on the basis of
information known to the corporation, whether any transaction or series of
transactions is subject to the voting requirements of this Article VI. Any
such determination made in good faith shall be conclusive and binding for all
purposes of this Article VI.
No amendment to the articles of incorporation of this corporation
shall amend, alter, change, or repeal any of the provisions of this Article VI
unless the amendment effecting such amendment, alteration, change, or repeal
(i) shall be approved by more than 75 percent of the directors, or (ii) shall
receive the affirmative vote of 66 2/3 percent of all classes of stock of the
corporation entitled to vote at an election of directors, considered for the
purposes of this Article VI as one class.
Nothing contained in this Article VI shall be construed to relieve
any beneficial owner of shares of the corporation from any fiduciary
obligation imposed by law.
ARTICLE I
Consideration of Non-Monetary Factors
The board of directors of the corporation, when evaluating any offer of
another party to (a) make a tender or exchange for any equity security of the
corporation, (b) merge or consolidate the corporation with another corporation
or association, or (c) purchase or otherwise acquire all or substantially all
of the properties and assets of the corporation, may, in connection with the
exercise of its judgment in determining what is in the best interests of the
corporation and its stockholders, give due consideration to all relevant
factors, including without limitation the social and economic effects on the
employees, customers, suppliers, and other constituents of the corporation and
its subsidiaries and on the communities in which the corporation and its
subsidiaries operate or are located.
<PAGE>
EXHIBIT 3.2
RESTATED BYLAWS
OF
WEST COAST BANCORP
(Incorporated Under the Laws of Oregon)
____________________________________________________
Section 1
SHAREHOLDERS' MEETINGS
1.1 Place. Shareholders' meetings may be held at the principal office
of the corporation, or at any other location within or without the State of
Oregon as determined by the board of directors and stated in the notice of
meeting.
1.2 Annual Meeting. The annual meeting of the shareholders of the
corporation for the election of directors to succeed those whose terms then
expire and for the transaction of any other business as may properly come
before the meeting will be held each year on a date and at a time selected by
the board of directors that is not later than five (5) months after the end of
the corporation's fiscal year. Failure to hold an election of directors at
the annual meeting of the shareholders or failure to hold an annual meeting of
the shareholders within the time stated in these bylaws, through oversight or
otherwise, does not affect the validity of any corporate action, and a meeting
of the shareholders may be held at a later date for the election of directors
and for the transaction of any other business that may properly come before
the meeting. Any election held or other business transacted at a later
meeting will be as valid as if done or transacted at the annual meeting of the
shareholders. Any later meeting will be called in the same manner as a
special meeting of the shareholders, and notice of the time, place, and
purpose of the meeting will be given in the same manner as notice of a special
meeting of the shareholders.
1.3 Special Meetings. Special meetings of the shareholders, for any
purpose or purposes, may be called by the president or by the board of
directors, and shall be called by the president if one or more written demands
for a meeting describing the purpose or purposes for which it is to be held
are signed, dated, and delivered to the secretary by the holders of at least
10 percent of all votes entitled to be cast on any issue proposed to be
considered at the meeting.
1.4 Notices of Meetings. Written notice stating the date, time, and
place of the meeting, and, in case of a special meeting, the purpose or
purposes for which the meeting is called, shall be given not less than ten
(10) nor more than sixty (60) days before the date of the meeting. Notice of
any shareholders' meeting may be given either personally or by mail, by or at
the direction of the president, the secretary, or the person or persons
calling the meeting, to each shareholder of record entitled to vote at the
meeting and to others as required by law. If mailed, the notice will be
effective when deposited in the United States mail with postage prepaid,
addressed to the shareholder at his or her address as it appears in the
current records of the corporation.
1.5 Waiver of Notice. Notice of any shareholders' meeting may be
waived at any time, either before or after the meeting, if the waiver is in
writing, signed by the shareholders entitled to notice, and delivered to the
corporation. A shareholder's attendance at a meeting waives objection to lack
of notice or defective notice of the meeting unless the shareholder objects at
the beginning of the meeting to holding the meeting or transacting business at
the meeting. A shareholder waives objection to consideration of a particular
matter at a meeting that is not within the purpose or purposes described in
the meeting notice unless the shareholder objects to considering the matter
when it is presented.
1.6 Adjourned Meetings. An adjournment or adjournments of any
shareholders' meeting may be taken until the time and place determined by
those present, without new notice being given, whether by reason of the
failure of a quorum to attend or otherwise.
1.7 Quorum of Shareholders. Shares entitled to vote as a separate
voting group may take action on a matter only if a quorum of those shares
exists with respect to the matter. A majority of the votes entitled to be
cast on the matter by voting group, represented in person or by proxy, shall
constitute a quorum of that voting group for action on that matter. If a
quorum exists, action on a matter, other than the election of directors, shall
be approved by a voting group if the votes cast within the voting group
favoring the action exceed the votes cast opposing the action unless the
Oregon Business Corporation Act, the articles of incorporation, or these
bylaws require a greater number of affirmative votes. Directors shall be
elected by a plurality of the votes cast by the shares entitled to vote in the
election at a meeting at which a quorum is present. Once a share is
represented for any purpose at a meeting, it shall be deemed present for
quorum purposes for the remainder of the meeting and for any adjournment of
that meeting unless a new record date is or must be set for that adjourned
meeting. Shareholders may participate in a meeting of the shareholders by
means of a conference telephone or similar communications equipment by which
all persons participating in the meeting can hear each other during the
meeting. Participation by such means will constitute presence in person at a
meeting.
1.8 Voting of Shares. A shareholder may vote either in person or by
proxy executed in writing by the shareholder or his or her duly authorized
attorney-in-fact. No proxy will be valid after eleven (11) months from the
date of its execution, unless otherwise provided in the proxy. Any proxy
shall be filed with the secretary of the corporation before or at the time of
the meeting.
1.9 Action Without Meeting. Any action required or permitted to be
taken at a meeting of the shareholders of the corporation may be taken without
a meeting if a written consent resolution, setting forth the action taken, is
signed by all shareholders entitled to vote on the action and is delivered to
the corporation. Once delivered, the consent resolution will have the same
force and effect as a unanimous vote of the shareholders.
1.10 Stockholder Business. At any annual meeting of the shareholders,
only such business shall be conducted (other than procedural matters relating
to the conduct of the meeting) as shall have been brought before the meeting
(a) by or at the direction of the board of directors, (b) as specified in the
notice of such meeting, or (c) by any stockholder of record of the corporation
who complies with the notice procedures set forth in this Section 1.10. For
business to be properly brought before an annual meeting by any such
shareholder, the shareholder must give written notice thereof to the
secretary, either by personal delivery or by certified mail, postage prepaid,
addressed to the secretary at the corporation's executive offices not less
than sixty (60) days in advance of such meeting (provided that if the date of
such annual meeting of shareholders has not been publicly announced by the
corporation more than 90 days in advance of such meeting, such written notice
must be given within fifteen (15) days after the first public disclosure of
the date of the annual meeting, including, without limitation, disclosure of
the meeting date set forth in any document or exhibit thereto filed by the
corporation with the Securities and Exchange Commission). Each such notice
shall set forth as to each matter the shareholder proposes to bring before the
annual meeting (a) a brief description of the business desired to be brought
before the annual meeting and the reasons for conducting such business at the
annual meeting, (b) the name and address, as they appear on the corporation's
stock ledger, of the shareholder proposing such business, (c) a representation
that such shareholder is a holder of record of shares of the corporation
entitled to vote at such meeting and intends to appear at the meeting in
person or by proxy to propose such business, and (d) any material interest of
such shareholder in the proposed business. The chairman of an annual meeting
shall, if the facts warrant, determine and declare to the meeting that any
such business was not properly brought before the meeting and in accordance
with the provisions of this Section 1.10, and if he should so determine, he
shall so declare to the meeting and such business not properly brought before
the meeting shall not be transacted.
Section 2
BOARD OF DIRECTORS
2.1 Number and Qualifications. The business and affairs of the
corporation will be managed by a board of directors, the members of which need
not be shareholders of the corporation or residents of the State of Oregon.
The number of directors shall be fixed in the manner set forth in the articles
of incorporation.
2.2 Nominations for Director. Nominations for election to the board of
directors may be made by the board of directors or by any shareholder of any
outstanding class of capital stock of the corporation entitled to vote for the
election of directors. Nominations by the board of directors of candidates
for election to the Board at or after the 1996 Annual Meeting of shareholders,
shall be approved by at least 75 percent of the members of the board of
directors. Any shareholder entitled to vote for the election of directors may
nominate at a meeting persons for election as directors only if written notice
of such shareholder's intent to make such nomination is given, either by
personal delivery or by certified mail, postage prepaid, addressed to the
secretary at the corporation's executive offices not later than (i) with
respect to an election to be held at an annual meeting of shareholders, sixty
(60) days prior to the date of such meeting (provided that if the date of such
annual meeting of shareholders has not been publicly announced by the
corporation more than 90 days in advance of such meeting, such written notice
must be given within fifteen (15) days after the first public disclosure of
the date of the annual meeting, including, without limitation, disclosure of
the meeting date set forth in any document or exhibit thereto filed by the
corporation with the Securities and Exchange Commission), and (ii) with
respect to an election to be held at a special meeting of shareholders for the
election of directors, the close of business on the seventh day following the
date on which notice of such meeting is first given to shareholders. Each
such notice shall set forth: (a) the name and address, as they appear on the
corporation's stock ledger, of the shareholder who intends to make the
nomination and the name and address of each person to be nominated; (b) a
representation that such shareholder is a holder of record of shares of the
corporation entitled to vote at such meeting and intends to appear at the
meeting in person or by proxy to nominate the person or persons specified in
the notice as directors; (c) a description of all arrangements or
understandings between such shareholder and each proposed nominee and any
other person or persons (naming such person or persons) pursuant to which the
nomination or nominations are to be made by such shareholder; (d) such other
information regarding each nominee proposed by such shareholder as would be
required to be included in a proxy statement filed pursuant to the proxy rules
of the Securities and Exchange Commission were such nominee to be nominated by
the board of directors; and (e) the consent of each proposed nominee to serve
as a director of the corporation if so elected. The chairman of any meeting
of shareholders to elect directors may refuse to permit the nomination of any
person to be made without compliance with the foregoing procedure.
2.3 Vacancies. In the event of any increase or decrease in the
authorized number of directors, (1) each director then serving as such shall
nevertheless continue as a director of the Class in which he is a member until
the expiration of his current term, or his earlier resignation, removal from
office or death, and (2) the newly created or eliminated directorships
resulting from such increase or decrease shall be apportioned by the board of
directors among the three classes of directors so as to maintain such classes
as nearly equal as possible.
2.4 Regular Meetings. A regular meeting of the board of directors will
be held immediately after and at the same place as each annual meeting of
shareholders. Additional regular meetings of the board of directors will be
held on the dates and at the times and places decided by resolution of the
board of directors.
2.5 Special Meetings. Special meetings of the board of directors may
be held at any time and at any place whenever called by an executive officer
or director of the corporation.
2.6 Notice of Meetings. Notice of the annual or regular meetings of
the board of directors is not required. Notice of the date, time, and place
of special meetings of the board of directors must be given, by or at the
direction of the chairman of the board, the president, the secretary, or any
person or persons calling the meeting, by mail, facsimile, radio, telegram, or
personal communication over the telephone or otherwise, at least two (2) days
prior to the day on which the meeting is to be held. No notice need be given
if the time and place of the meeting has been fixed by resolution of the board
of directors and a copy of the resolution has been mailed to every director at
least three (3) days before the meeting.
2.7 Waiver of Notice. Notice of any meeting of the board of directors
may be waived at any time, either before or after a meeting, if the waiver is
in writing, signed by the director entitled to notice, and delivered to the
corporation. Notice is waived by any director attending or participating in a
meeting unless the director, at the beginning of the meeting or promptly on
the director's arrival, objects to holding the meeting or transacting business
at the meeting and does not vote for or assent to any action taken at the
meeting.
2.8 Quorum of Directors; Attendance. A majority of the number of
directors fixed in accordance with the articles of incorporation or bylaws
from time to time will constitute a quorum for the transaction of business.
The act of a majority of the directors present at a meeting at which a quorum
is present will be the act of the board of directors unless a greater
requirement is imposed by law, the articles of incorporation, or these bylaws.
Members of the board of directors or any committee designated by the board of
directors may participate in a meeting of the Board or committee by means of a
conference telephone or similar communication equipment by which all persons
participating in the meeting can hear each other at the meeting.
Participation by such means will constitute presence in person at a meeting.
2.9 Dissent by Directors. A director of the corporation who is present
at a meeting of its board of directors at which action on any corporate matter
is taken will be presumed to have assented to the action unless (a) the
director objects at the beginning of the meeting, or promptly on his or her
arrival, to holding the meeting or transacting business at the meeting;
(b) the director's dissent or abstention from the action taken is entered in
the minutes of the meeting, or (c) the director delivers written notice of his
or her dissent or abstention to the presiding officer of the meeting before
its adjournment or to the corporation within a reasonable time after
adjournment. The right of dissent or abstention is not available to a
director who votes in favor of the action taken.
2.10 Action Without Meeting. Any action which may be or is required to
be taken at a meeting of the board of directors, or any action which may be
taken at a meeting of a committee designated by the board of directors, may be
taken without a meeting if a written consent resolution, setting forth the
action taken, is signed by all of the directors or all of the members of the
committee, as the case may be, and is delivered to the corporation. The fully
signed consent resolution will have the same force and effect as a unanimous
vote.
2.11 Committees. The board of directors, by resolution adopted by a
majority of the full board of directors, shall designate from among its
members an executive committee and may designate one or more other committees.
Each must consist of two (2) or more persons. The committees will be governed
by the same rules regarding meetings, actions without meetings, notices,
waivers of notice, and quorum and voting requirements applied to the board of
directors. To the extent provided in the resolution forming the committee,
each committee may have and may exercise all the authority of the board of
directors, except that no committee will have the authority to:
(a) Authorize or approve a distribution except as may be
permitted by paragraph (g) below;
(b) Approve or propose to shareholders action required to be
approved by shareholders;
(c) Fill vacancies on the board of directors or on any of
its committees;
(d) Amend the articles of incorporation of the corporation
except as may be necessary to document a determination of the
relative rights, preferences, and limitations of a series of shares
as permitted by paragraph (h) below;
(e) Adopt, amend, or repeal the bylaws of the corporation;
(f) Approve a plan of merger not requiring shareholder
approval;
(g) Authorize or approve reacquisition of shares, except
within limits presented by the board of directors; or
(h) Authorize or approve the issuance or sale or contract
for sale of shares, or determine the designation and relative
rights, preferences, and limitations of a class or series of shares,
except that the board of directors may authorize a committee or an
officer of the corporation to do so:
1. Pursuant to a stock option or other stock
compensation plan; or
2. By approving the maximum number of shares to
be issued and delegating the authority to determine all
or any part of the terms of the issuance or sale or
contract of sale and the designation and relative
rights, preferences, and limitations of the class or
series of shares.
The creation of, delegation of authority to, or action by such a committee of
the Board will not operate to relieve the board of directors, or any of its
members, of any responsibility imposed by law.
Section 3
OFFICERS
3.1 Officers Enumerated - Election. The officers of the corporation
will include a chief executive officer, president, secretary, and treasurer
and one or more vice presidents, as well as any assistants to the officers as
the board of directors may determine. The offices of president and chief
executive officer may be held by two (2) individuals as co-presidents and co-
chief executive officers. The board of directors, in its discretion, may also
elect a chairman of the board and a vice chairman of the board from among the
members of the board who shall not be deemed an officer of the corporation
unless so designated by the board of directors. All officers will be elected
by the board of directors.
3.2 Qualifications. None of the officers of the corporation need be a
director. Any two or more offices may be held by the same person.
3.3 Chairman and Vice Chairman of the Board. The chairman of the
board, if any, or, in the chairman's absence, the vice chairman of the board,
if any, will preside at all meetings of the board of directors and of the
shareholders at which he or she is present, and will perform any other duties
assigned by the board of directors from time to time.
3.4 Chief Executive Officer. Subject to the authority of the board of
directors, the chief executive officer will have general charge, supervision,
and control over the business and affairs of the corporation and will be
responsible for its management. The chief executive officer shall have the
power and shall perform the duties as are regularly and customarily performed
by the chief executive officer of a corporation and may delegate such duties
as appropriate to other officers of the corporation. The chief executive
officer will submit a report of the operations of the corporation for the
preceding year to the shareholders at their annual meeting. If no chairman of
the board is elected by the board of directors or in the absence of the
chairman of the board, the chief executive officer will preside at all
meetings of the shareholders, and of the board of directors if he or she is a
member of the Board. Any shares of stock of another corporation held by the
corporation will be voted by the chief executive officer subject to direction
from the board of directors. The chief executive officer will perform any
other duties assigned to that office from time to time by the board of
directors.
3.5 Co-Chief Executive Officers. The office of chief executive officer
may be shared by two (2) individuals. In the event that two persons hold
office as co-chief executive officers, the co-chief executive officers shall
determine between themselves those areas of which each shall have primary
responsibility, it being understood that both of them shall be involved in and
be responsible for all major policy decisions and both of them shall have
general oversight over the business and affairs of the Combined Corporation.
Any matters upon which the co-chief executive officers are unable to agree
shall be referred to the Executive Committee. If one co-chief executive
officer is absent or disabled, the other shall exercise all the duties of that
office.
3.6 President. The president, who also may be the chief executive
officer of the corporation, shall have such authority and shall exercise such
duties as shall, from time to time, be assigned to that office by the board of
directors or, as appropriate, the chief executive officer.
3.7 Co-Presidents. The office of president may be shared by two (2)
individuals, one of whom or both of whom may also be the chief executive
officer or co-chief executive officers of the corporation. In the event that
two persons hold office as co-presidents, the board of directors or, as
appropriate, the chief executive officer or co-chief executive officers shall
determine those areas of which each co-president shall have primary
responsibility. Any matters upon which the co-presidents are unable to agree
shall be referred to the chief executive officer or co-chief executive
officers, if such person or persons are not also a co-president or
co-presidents, and otherwise to the Executive Committee. If one co-president
is absent or disabled, the other shall exercise all the duties of that office.
3.8 Vice President. If the president is absent or disabled, the vice
president will have and may exercise and perform the authority and duties of
the president. In addition, the vice president will perform any other duties
assigned to that office by the board of directors, the chief executive
officer, or president from time to time. If more than one vice president is
elected, the vice presidents will have the titles, seniority, and duties
established for them by the board of directors.
3.9 Secretary. The secretary will prepare and keep minutes of meetings
of shareholders and directors, will be responsible for authenticating records
of the corporation, and will exercise the usual authority pertaining to the
office of secretary. The secretary will keep and, when proper, affix the seal
of the corporation, if any, and will perform any other duties assigned to that
office by the board of directors, the CEO, or president from time to time.
3.10 Treasurer. The treasurer, who may also be the chief financial
officer, will have charge and custody of and be responsible for all funds and
securities of the corporation. The treasurer will deposit all such funds in
the name of the corporation in the depositories or invest them in the
investments designated or approved by the board of directors, and will
authorize disbursement of the funds of the corporation in payment of just
demands against the corporation or as may be ordered by the board of directors
on securing proper vouchers. The treasurer will render to the board of
directors from time to time, as may be required, an account of all
transactions as treasurer, and will perform any other duties assigned to that
office from time to time by the board of directors, the CEO, or president.
3.11 Other Officers and Agents. The board of directors may appoint
other officers and agents as it deems necessary or expedient. These other
officers and agents will exercise the authority and perform the duties
prescribed for them by the board of directors, which authority and duties may
include, in the case of the other officers, one or more of the duties of the
named officers of the corporation.
3.12 Removal of Officers. Any officer or agent may be removed by the
board of directors whenever in its judgment the best interests of the
corporation will be served by doing so. Removal will be without prejudice to
the contract rights, if any, of the person removed. Election or appointment
of an officer or agent will not of itself create contract rights.
3.13 Vacancies. Vacancies in any office arising from any cause may be
filled by the board of directors at any regular or special meeting.
3.14 Salaries. Salaries of all officers of the corporation appointed by
the board of directors will be fixed by the board of directors or by a person
or committee authorized by the board of directors.
Section 4
BUSINESS OF THE CORPORATION
4.1 Obligations. Any agreements or other documents requiring Board
approval will be valid if approved by the Board and signed by the chief
executive officer, president, or vice president and attested by the secretary
or an assistant secretary.
4.2 Contracts. The board of directors may authorize any officer or
agent to enter into any contract or execute and deliver any instrument in the
name of and on behalf of the corporation. This authority may be general or
confined to specific instances.
4.3 Loans to Corporation. No loans will be contracted on behalf of the
corporation, and no evidence of indebtedness will be issued in its name,
unless authorized by the board of directors. This authority may be general or
confined to specific instances.
4.4 Checks and Drafts. All checks, drafts, or other orders for the
payment of money, notes, or other evidence of indebtedness issued in the name
of the corporation will be signed by the officer(s) or agent(s) of the
corporation and in the manner prescribed from time to time by the board of
directors.
Section 5
INDEMNIFICATION
5.1 Definitions. As used in this Section:
(a) "Act" means the Oregon Business Corporation Act, now or
hereafter in force.
(b) "Corporation" means this corporation, and any domestic
or foreign predecessor entity which, in a merger or other
transaction, ceased to exist.
(c) "Director" means an individual who is or was a director
of the corporation or an individual who, while a director of the
corporation, is or was serving at the corporation's request as a
director, officer, partner, trustee, employee, or agent of another
foreign or domestic corporation, partnership, joint venture, trust,
employee benefit plan, or other enterprise. "Director" includes the
estate or personal representative of a director, unless the context
requires otherwise.
(d) "Expenses" include counsel fees.
(e) "Indemnitee" means an individual made a party to a
proceeding because the individual is or was a director, officer,
employee, or agent of the corporation and who possesses
indemnification rights pursuant to the Articles of Incorporation,
these Bylaws, or other corporate action. It also includes any
individual entitled to indemnification pursuant to this Section. It
also includes the heirs, executors, and other successors in interest
of the above individuals.
(f) "Liability" means the obligation to pay a judgment,
settlement, penalty, fine, including any excise tax assessed with
respect to an employee benefit plan, or reasonable expenses incurred
with respect to a proceeding.
(g) "Party" includes an individual who was, is, or is
threatened to be named a defendant or respondent in a proceeding.
(h) "Proceeding" means any threatened, pending, or completed
action, suit, or proceeding, whether civil, criminal,
administrative, or investigative and whether formal or informal.
5.2 Directors and Officers. The corporation will indemnify its
directors and officers to the full extent permitted by the Act. However, the
indemnity will not apply on account of:
(a) Acts or omissions of a director or officer finally
adjudged to be intentional misconduct or a knowing violation of law;
(b) A proceeding by or in the right of the corporation in
which the director or officer was adjudged liable to the
corporation; or
(c) Any proceeding charging improper personal benefit to the
director or officer in which the director or officer was adjudged
liable on the basis that personal benefit was improperly received by
the director or officer.
The corporation will advance expenses for such persons pursuant to the terms
set forth in these Bylaws, in a resolution of the Board of Directors, or in a
contract with any such person.
5.3 Employees and Agents. The corporation may, by action of the Board,
grant rights to indemnification and advancement of expenses to employees and
agents of the corporation within the same scope and effect allowed by the
provisions of this Section with respect to the indemnification and advancement
of expenses of directors and officers of the corporation or by the Act or
otherwise.
5.4 Procedure for Seeking Indemnification or Advance.
(a) Notification and Defense of Claim. An Indemnitee will promptly
notify the corporation in writing of any proceeding for which indemnification
is sought under this Section. In addition, the Indemnitee will provide the
corporation with information and cooperation that the corporation may
reasonably require and which is within the Indemnitee's power.
With respect to any proceeding of which the Indemnitee has notified the
corporation:
(1) The corporation will be entitled to participate in the
proceeding at its own expense; and
(2) Except as otherwise provided below, to the extent that
it may wish, the corporation, jointly with any other indemnifying
party similarly notified, will be entitled to assume the defense of
the proceeding, with counsel satisfactory to the Indemnitee. The
Indemnitee's consent to such counsel will not be unreasonably
withheld.
The corporation will not be entitled to assume the defense of any
proceeding brought by or on behalf of the corporation or as to which
Indemnitee has reasonably concluded that a conflict of interest may exist
between the corporation and the Indemnitee in the conduct of the defense.
After notice from the corporation to the Indemnitee of its election to
assume the defense, the corporation will not be liable to the Indemnitee under
this Section for any legal or other expenses subsequently incurred by the
Indemnitee in connection with the defense. However, the fees and expenses of
the Indemnitee's counsel will be paid by the corporation if:
(1) The employment of counsel by the Indemnitee has been
authorized by the corporation;
(2) Indemnitee reasonably concludes that a conflict of
interest may exist between the corporation and the Indemnitee in the
conduct of the defense; or
(3) The corporation did not in fact employ counsel to assume
the defense of the proceeding.
Notwithstanding the assumption of defense by the corporation in any
proceeding, the Indemnitee will continue to have the right to employ its
counsel in the proceeding, at the Indemnitee's expense.
(b) Information Required and Determination of Indemnification. For the
purpose of pursuing rights to indemnification under this Section, the
Indemnitee will submit to the Board an Indemnification Statement, consisting
of:
(1) A sworn statement requesting indemnification; and
(2) Any evidence that the Board may reasonably request of
all amounts for which indemnification is requested.
Submission of an Indemnification Statement to the Board will create a
presumption that the Indemnitee is entitled to indemnification and, if
requested in accordance with the following Subsection, advancement of
expenses. The corporation will, within sixty (60) calendar days after
submission of the Indemnification Statement (or twenty (20) calendar days in
the case of advancement of expenses), make the payments requested in the
Indemnification Statement to or for the benefit of the Indemnitee, unless
within the sixty (60) or twenty (20) day period the corporation determines (in
the manner provided below) that the Indemnitee is not entitled to
indemnification under this Section and gives the Indemnitee notice in writing
of such determination, which notice will disclose with particularity the
evidence on which the determination is based. Such determination will be
based on clear and convincing evidence, sufficient to rebut the foregoing
presumption.
At the election of the President of the corporation, the foregoing
determination may be made as provided in ORS 60.404.
Any determination that the Indemnitee is not entitled to indemnification
and any failure to make the payments requested in the Indemnification
Statement will be subject to judicial review by any court of competent
jurisdiction.
(c) Special Procedure Regarding Advances. An Indemnitee seeking
payment or reimbursement of expenses in advance of a final disposition of the
proceeding must furnish the corporation, as part of the Indemnification
Statement, with:
(1) A written affirmation of the Indemnitee's good faith
belief that the Indemnitee has met the standard of conduct required
to be eligible for indemnification; and
(2) A written undertaking, constituting an unlimited general
obligation of the Indemnitee, to repay the advance if it is
ultimately determined that the Indemnitee did not meet the required
standard of conduct.
(d) Settlement. The corporation is not liable to indemnify Indemnitee
for any amounts paid in settlement of any proceeding without the corporation's
written consent. The corporation will not settle any proceeding in any manner
which would impose any penalty or limitation on Indemnitee without
Indemnitee's written consent. Neither the corporation nor Indemnitee will
unreasonably withhold its consent to a proposed settlement.
5.5 Contract and Related Rights.
(a) Contract Rights. The right of an Indemnitee to indemnification and
advancement of expenses is a contract right on which the Indemnitee will be
presumed to have relied in determining to serve or continue to serve in his or
her capacity with the corporation. Such right will continue as long as
Indemnitee is subject to any possible proceeding. Any amendment to or repeal
of this Section will not adversely affect any right or protection of an
Indemnitee with respect to any acts or omissions of the Indemnitee occurring
prior to the amendment or repeal.
(b) Optional Insurance, Contracts, and Funding. The corporation may:
(1) Maintain insurance, at its expense, to protect itself
and any Indemnitee against any liability, whether or not the
corporation would have power to indemnify the individual against the
same liability under the Act;
(2) Enter into contracts with any Indemnitee in furtherance
of this Section and consistent with the Act; and
(3) Create a trust fund, grant a security interest, or use
other means (including, without limitation, a letter of credit) to
ensure the payment of amounts that may be necessary to effect
indemnification as provided in this Section.
(c) Severability. If any provision or application of this Section is
invalid or unenforceable, the remainder of this Section and its remaining
applications will not be affected thereby and will continue in full force and
effect.
(d) Right of Indemnitee to Bring Suit. If a claim under this Section
for indemnification is not paid in full by the corporation within sixty (60)
days, or for advancement of expenses is not paid in full by the corporation
within twenty (20) days, after an Indemnification Statement setting forth the
claim has been received by the corporation, the Indemnitee may at any time
thereafter bring suit against the corporation to recover the unpaid amount of
the claim. To the extent such suit is successful, the Indemnitee will be
entitled to recover from the corporation the expense (to be prorated if the
Indemnitee is only partially successful) of prosecuting the claim.
Neither (1) the failure of the corporation (including its Board of
Directors, shareholders, or independent legal counsel) to have made a
determination prior to the commencement of a proceeding that indemnification
of, or reimbursement or advance of expenses to, the Indemnitee is proper in
the circumstances, nor (2) an actual determination by the corporation
(including its Board of Directors, shareholders, or independent legal counsel)
that the Indemnitee is not entitled to indemnification or to the reimbursement
or advancement of expenses, will create a presumption that the Indemnitee is
not so entitled.
5.6 Exceptions. Notwithstanding any other provision of this Section,
the corporation will not be obligated pursuant to the terms of these Bylaws to
indemnify or advance expenses to Indemnitee with respect to any proceeding:
(a) Claims Initiated by Indemnitee. Initiated or brought
voluntarily by Indemnitee and not by way of defense, except with
respect to proceedings brought to establish or enforce a right of
indemnification under these Bylaws or any other statute or law or as
otherwise required under the Act. However, indemnification or
advancement of expenses may be provided by the corporation in
specific cases if the Board of Directors finds it to be appropriate.
(b) Lack of Good Faith. Initiated or brought voluntarily by
Indemnitee to enforce or interpret these Bylaws if a court of
competent jurisdiction determines that each of the material
assertions made by Indemnitee in such proceeding was not made in
good faith or was frivolous.
(c) Insured Claims. For which any of the expenses or
Liabilities for indemnification being sought have been paid directly
to Indemnitee by an insurance carrier under a policy of insurance
maintained by the corporation.
(d) Prohibited by Law. If the corporation is prohibited by
the Act, or other applicable law as then in effect from paying such
indemnification and/or advancement of expenses.
5.7 Service for Other Entities. The indemnification and advancement of
expenses provided under this Section will apply to directors, officers,
employees, or agents of the corporation for both (a) service in such
capacities for the corporation, and (b) service at the corporation's request
as a director, officer, partner, trustee, employee, or agent of another
foreign or domestic corporation, partnership, joint venture, trust, employee
benefit plan, or other enterprise. A person is considered to be serving an
employee benefit plan at the corporation's request if that person's duties to
the corporation also impose duties on, or otherwise involve services by, that
person to the plan or to participants or beneficiaries of the plan.
Section 6
STOCK
6.1 Certificate of Stock. Certificates of stock will be issued in
numerical order. Each shareholder will be entitled to a certificate signed,
either manually or in facsimile, by the president or vice president and the
secretary, or by the board of directors. The certificate may be sealed with
the corporate seal. Every certificate of stock will state:
(a) The name of the corporation and the fact that the
corporation is incorporated under the laws of the State of Oregon;
(b) The name of the registered holder of the shares
represented by the certificate; and
(c) The number and class of the shares and the designation
of the series, if any, represented by the certificate.
6.2 Transfer. Subject to any legend appearing on the certificate,
shares of stock may be transferred by delivery of the certificate, accompanied
by either an assignment in writing on the back of the certificate or a
separate written assignment and power of attorney to transfer the same, which
in either event is signed by the record holder of the certificate. No transfer
will be valid, except as between the parties to the transfer, until the
transfer is made on the books of the corporation. Except as otherwise
specifically provided in these bylaws, no shares of stock will be transferred
on the books of the corporation until the outstanding certificate or
certificates representing the transferred stock have been surrendered to the
corporation accompanied by an assignment as above.
6.3 Shareholders of Record. The corporation will be entitled to treat
the holder of record on the books of the corporation of any share or shares of
stock as the holder in fact of those shares for all purposes, including the
payment of dividends on and the right to vote the stock, unless provided
otherwise by the board of directors.
6.4 Loss or Destruction of Certificates. If any certificate of stock
is lost or destroyed, another may be issued in its place on proof of loss or
destruction and on the giving of a satisfactory bond of indemnity to the
corporation. A new certificate may be issued without requiring any bond when,
in the judgment of the board of directors, it is proper to do so.
6.5 Record Date and Transfer Books. For the purpose of determining
shareholders entitled to notice of or to vote at any meeting of shareholders
or any adjournment thereof, or entitled to receive payment of any dividend, or
in order to make a determination of shareholders for any other proper purpose,
the board of directors will make in advance a record date for any such
determination of shareholders. The record date in any case will not be more
than seventy (70) days and, in the case of a meeting of shareholders, not less
than ten (10) days prior to the date on which the particular action requiring
the determination of shareholders is to be taken. If no record date is fixed
for these purposes, the date on which notice of the meeting is mailed or the
date on which the resolution of the board of directors declaring the dividend
is adopted, as the case may be, will be the record date for the determination
of shareholders.
6.6 Regulations. The board of directors will have the power and
authority to make all rules and regulations it deems expedient concerning the
issue, transfer, conversion, and registration of certificates for shares of
stock of the corporation not inconsistent with these bylaws, the articles of
incorporation, or the laws of the United States or the State of Oregon.
Section 7
BOOKS AND RECORDS
7.1 Records of Corporate Meetings and Share Register. The corporation
will keep at either its principal place of business, its registered office, or
another place permitted by law, as the board of directors may designate,
(a) books and records of account and minutes or records of all of the pro-
ceedings of the board of directors, director committees, and shareholders, and
(b) a record of shareholders, giving the names of the shareholders and showing
their respective addresses and the number and class of shares held by each.
7.2 Reliance on Records. Any person dealing with the corporation may
rely on a copy of any of the records of the proceedings, resolutions, or votes
of the board of directors, director committees, or shareholders when certified
by the president, vice president, or secretary.
7.3 Form of Records. All books and records may be kept on paper or in
electronic or other format.
Section 8
CORPORATE SEAL
The corporation may adopt, but will not be required to adopt, a corporate
seal. If a seal is adopted, it will be circular and will include the name of
the corporation and the words "corporate seal."
Section 9
AMENDMENTS
9.1 Action by Board. The board of directors may amend or repeal the
bylaws unless:
(a) The articles of incorporation or the provisions of law
reserve this power exclusively to the shareholders in whole or in
part; or
(b) The shareholders in amending or adopting a particular
bylaw provide expressly that the board of directors may not amend or
repeal that bylaw.
9.2 Amendment by Shareholders. The shareholders may amend or repeal
the bylaws even though the bylaws may also be amended and repealed by its
board of directors.
9.3 Amendments to Shareholder Quorum Requirements. If expressly
authorized by the articles of incorporation, the shareholders may adopt or
amend a bylaw that fixes a greater quorum or voting requirement for
shareholders, or voting groups of shareholders, than is required by law. The
adoption or amendment of a bylaw that adds, changes, or deletes a greater
quorum or voting requirement for shareholders must meet the same quorum
requirement and be adopted by the same vote and voting groups required to take
action under the quorum and voting requirement then in effect or the quorum or
voting requirement proposed to be adopted, whichever is greater. A bylaw that
fixes a greater quorum or voting requirement for shareholders under this
Section 9.3 may not be adopted, amended, or repealed by the board of
directors.
9.4 Amendments to Board Quorum Requirements. A bylaw provision that
fixes a greater quorum or voting requirement for the board of directors may be
amended or repealed:
(a) If the provision was originally adopted by the
shareholders, only by the shareholders; or
(b) If the provision was originally adopted by the board of
directors, either by the shareholders or by the board of directors.
A bylaw provision adopted or amended by the shareholders that fixes a
greater quorum or voting requirement for the board of directors may provide
that it may be amended or repealed only by a specified vote of either the
shareholders or the board of directors.
<PAGE>
EXHIBIT 10.6
SALARY CONTINUATION AGREEMENT
THIS SALARY CONTINUATION AGREEMENT ("Agreement") is dated as of
January __, 1995 (the "Effective Date"). The parties to the Agreement
("Parties") are __________________________, an Oregon state banking
corporation (the "Bank") (a wholly-owned subsidiary of _____________ Bancorp,
an Oregon corporation ("Bancorp")) (collectively, "Company"), and
__________________________ ("Executive").
A. Commercial Bancorp has entered into an Agreement and Plan of Merger
dated as of October 24, 1994, with West Coast Bancorp ("West Coast Bancorp"),
pursuant to which (i) West Coast Bancorp will merge with and into Commercial
Bancorp (the "Merger"), which will then be known as West Coast Bancorp (the
"Combined Corporation"), and (ii) West Coast Bancorp's wholly-owned banking
subsidiary, The Bank of Newport, an Oregon banking corporation, and Commercial
Bancorp's wholly-owned banking subsidiaries, The Commercial Bank and Valley
Commercial Bank, both also Oregon banking corporations, will remain as
separate subsidiaries of the Combined Corporation after the Merger.
B. The Bank currently receives the exclusive services of certain
employees including Executive, and both the Bank and Executive desire that an
employment relationship exist after the Merger.
C. Executive and the Bank have previously entered into a form of "Change
in Control" Agreement, which is currently in effect, but now desire that, in
substitution of such Agreement and in partial consideration for entering into
this Agreement, but effective only upon consummation of the Merger, such prior
agreement be void and of no further force or effect.
D. In order to encourage Executive to continue Executive's existing
employment relationship until and after the Merger, and in particular to
continue obtaining Executive's services in the event of a potential change in
the control of the Combined Corporation that may be detrimental to the
Executive, thereby allowing the Bank to maximize the benefits obtainable from
any such change, the Bank desires to provide a salary continuation benefit to
Executive, expressly conditioned upon the consummation of the Merger.
In consideration of the mutual promises, covenants, agreements and
undertakings contained in this Agreement, the parties hereby contract and
agree as follows:
1. Effective Date and Term.
a. Effective Date. As of its Effective Date, this Agreement shall be a
binding obligation of the parties, not subject to revocation or amendment
except by mutual consent or in accordance with its terms, except, however,
performance of its terms shall be suspended until such time as the Merger
shall be consummated.
b. Term. Notwithstanding the Effective Date of this Agreement, the term
of this Agreement ("Term") shall commence as of the date the Merger is
consummated, and shall end one (1) year thereafter. Notwithstanding the
preceding sentence, if a definitive agreement providing for a Change in
Control (as defined below) is entered into on or before June 30, 1996, the
term of this Agreement shall be extended to end one (1) year after the
consummation of such Change in Control.
c. Abandonment of Merger. This Agreement shall be void as of its
Effective Date and of no force and effect if the Merger does not occur by
June 30, 1995, or is earlier abandoned by West Coast and Commercial Bancorp.
2. Termination of Existing Change in Control Agreement.
Any change in control, employment, salary continuation, or severance
agreement, or any other arrangement providing for benefits to Executive on or
after a change in the ownership or control of the assets or stock of the Bank
or Commercial Bancorp, including the Agreement between Executive and
_____________ dated _____________, shall terminate and be of no further force
and effect as of the date the Merger is consummated.
3. Commitment of Executive.
In the event that any person extends any proposal or offer which is
intended to or may result in a Change in Control, as defined below (a "Change
in Control Proposal"), Executive shall, at the Bank's request, assist the
Combined Corporation in evaluating such proposal or offer. Further, Executive
specifically agrees not to resign Executive's position with the Bank during
any period from the receipt of a specific Change in Control Proposal up to the
consummation or abandonment of the transaction contemplated by such Proposal.
4. Salary Continuation Payment.
a. Amount of Payment--Termination Event Without Change in Control.
Except as otherwise provided in this Section 4, in the case of a Termination
Event Without a Change in Control, as defined in Section 5, Executive shall
receive a salary continuation payment (the "Salary Continuation Payment")
equal to the sum of the Regular Salary Continuation Payment and the Bonus
Continuation Payment. The Regular Salary Continuation Payment shall equal
Executive's regular monthly salary in effect as of the date of termination of
employment (as reportable on Executive's IRS Form W-2, but including the
amount of any voluntary deferrals of salary, and excluding any expense
allowances or reimbursements, any bonuses, any gain from exercise of stock
options, or any other similar non-recurring payments) which would be payable
to Executive but for the termination from the date of termination of
Executive's employment to the date one (1) year after the Merger. The Bonus
Continuation Payment shall equal (i) the most recent annual bonus paid to
Executive, multiplied by (ii) (x) the number of days during which Executive
was employed but as to which no annual bonus has been paid plus the number of
days from the date of termination of employment to the date one (1) year after
the Merger divided by (y) 365.
b. Amount of Payment--Termination Event After Change in Control. Except
as otherwise provided in this Section 4, in the case of a Termination Event
After a Change in Control, as defined in Section 5, Executive shall receive a
salary continuation payment (the "Salary Continuation Payment") equal to the
sum of the Regular Salary Continuation Payment and the Bonus Continuation
Payment. The Regular Salary Continuation Payment shall equal Executive's
regular monthly salary in effect as of the date of termination of employment
(as reportable on Executive's IRS Form W-2, but including the amount of any
voluntary deferrals of salary, and excluding any expense allowances or
reimbursements, any bonuses, any gain from exercise of stock options, or any
other similar non-recurring payments) which would be payable to Executive but
for the termination from the date of termination of Executive's employment to
the date one (1) year after the Change in Control. The Bonus Continuation
Payment shall equal (i) the most recent annual bonus paid to Executive,
multiplied by (ii) (x) the number of days during which Executive was employed
but as to which no annual bonus has been paid plus the number of days from the
date of termination of employment to the date one (1) year after the Change in
Control divided by (y) 365.
c. Limitation on Payment. Notwithstanding anything in this Agreement to
the contrary, the Salary Continuation Payment shall not exceed an amount equal
to One Dollar ($1.00) less than the amount which would cause the payment,
together with any other payments received from the Combined Corporation, to be
a "parachute payment" as defined in Section 280G(b)(2)(A) of the Internal
Revenue Code.
5. Termination Events.
a. Without Change in Control. A Termination Event Without a Change in
Control shall be deemed to occur upon, and only upon, one or more of the
following:
i. Termination of Executive's employment by the Bank without Cause
(as defined herein) within one (1) year after the consummation of the
Merger, where neither Section 5.b.ii nor 5.b.iii applies; or
ii. Termination of Executive's employment by the Executive for
Good Reason (as defined herein) within one (1) year after the
consummation of the Merger, where Section 5.b.i does not apply.
b. After Change in Control. A Termination Event After a Change in
Control shall be deemed to occur upon, and only upon, one or more of the
following:
i. Termination of Executive's employment by the Executive for Good
Reason (as defined herein) within one (1) year after a Change in Control;
ii. Termination of Executive's employment by the Bank without
Cause (as defined herein) within one (1) year after a Change in Control;
or
iii. Termination of Executive's employment by the Bank without
Cause prior to a Change in Control if such termination occurs either (i)
on or after announcement, by the Bank or any other party, of a
contemplated Change in Control or an intended Change in Control, or (ii)
on or after the date a contemplated or intended Change in Control should
have been announced in conformity with applicable securities or other
laws, but only if in either case a Change in Control occurs within twelve
(12) months after such termination of Executive's employment.
6. Definitions.
a. Cause. "Cause" shall mean only any one or more of the following:
i. Willful misfeasance or gross negligence in the performance of
Executive's duties;
ii. Conviction of a crime in connection with such duties; or
iii. Conduct demonstrably and significantly harmful to the Bank as
determined in the reasonable discretion of the Board of Directors of
Bancorp.
iv. Permanent disability, which shall mean a physical or mental
impairment which renders Executive incapable of substantially performing
the duties required under this Agreement, and which is expected to
continue rendering Executive so incapable for the reasonably foreseeable
future.
b. Good Reason. "Good Reason" shall mean only any one or more of the
following:
i. Any reduction of Executive's salary or any reduction or
elimination of any compensation or benefit plan benefitting Executive,
which reduction or elimination is not of general application to
substantially all employees of the Bank or such employees of any
successor entity or of any entity in control of the Bank;
ii. A relocation or transfer of Executive's place of employment
which would reasonably require Executive to commute more than fifty (50)
miles each way from Executive's principal residence; or
iii. The assignment to the Executive of any authority or duties
materially inconsistent with Executive's position as of the date of this
Agreement.
c. Change in Control. "Change in Control" shall mean (i) a Person or
Entity (as defined below) acquiring or otherwise becoming the owner (as a
result of a purchase, merger, stock exchange, or otherwise) of more than fifty
percent (50%) of the outstanding common stock of the Company, or (ii) the
merger of the Company into any corporation, or the merger of any corporation
into the Company, where more than fifty percent (50%) of the stock of such
corporation or the Company, as the case may be (the "Surviving Corporation")
is owned by other than the owners of the common stock of the Company prior to
such merger. "Person or Entity" shall include any one or more persons and/or
entities acting in concert with respect to their interests in the Surviving
Corporation. The Merger shall not be considered to be a Change in Control.
7. Other Compensation and Terms of Employment.
This Agreement is not an employment agreement. Accordingly, except with
respect to the Salary Continuation Payment, this Agreement shall have no
effect on the determination of any compensation payable by the Bank to the
Executive, or upon any of the other terms of Executive's employment with the
Bank.
8. General Provisions.
a. Choice of Law. This Agreement is made with reference to and is
intended to be construed in accordance with the laws of the State of Oregon.
b. Arbitration. Any dispute, controversy or claim arising out of or in
connection with, or relating to, this Agreement or any breach or alleged
breach hereof, shall, upon the request of any party involved, be submitted to,
and settled by, arbitration pursuant to the rules then in effect of the
American Arbitration Association (or under any other form of arbitration
mutually acceptable to the parties so involved). Any award rendered shall be
final and conclusive upon the parties and a judgment thereon may be entered in
the highest court of the forum having jurisdiction. The arbitrator shall
render a written decision, naming the substantially prevailing party in the
action, and shall award such party all costs and expenses incurred, including
reasonable attorney fees.
c. Attorney Fees. In the event of any breach of or default under this
Agreement which results in either party incurring attorney or other fees,
costs or expenses (including in arbitration), the prevailing party shall be
entitled to recover from the non-prevailing party any and all such fees, costs
and expenses, including attorney fees.
d. Successors. The agreement shall be binding upon and inure to the
benefit of the Parties and each of their respective affiliates, legal
representatives, successors and assigns.
e. Construction. This Agreement contains the entire agreement among the
Parties with respect to its subject matter, and may be amended or modified
only in a writing executed by all of the Parties. Its language is and will be
deemed to be the language chosen by the Parties jointly to express their
mutual intent. No rule of construction based on which party drafted the
Agreement or certain of its provisions will be applied against any party.
This Agreement may be amended only in a writing signed by the parties.
f. Captions. The captions of the respective sections of this Agreement
have been included for convenience of reference only. They shall not be
construed to modify or otherwise affect in any respect any of the provisions
of the Agreement.
g. Counterparts. This Agreement may be executed in one or more
counterparts by the parties hereto. All counterparts shall be construed
together and shall constitute one Agreement.
EXECUTED by each of the parties effective as of the date first stated
above.
__________________________, an EXECUTIVE
Oregon banking corporation
By__________________________ _________________________
President and CEO
<PAGE>
EXHIBIT 11
COMPUTATION OF PER SHARE EARNINGS
December 31,
---------------------------------
1994 1993 1992
--------- --------- ---------
PRIMARY
Actual weighted average shares
outstanding for the period 2,624,197 2,622,629 2,621,126
Dilutive options using the
treasury stock method* -- -- --
--------- --------- ---------
Total shares used in per share
calculations 2,624,197 2,622,629 2,621,126
Net income $4,013,000 $3,951,000 $2,866,000
--------- --------- ---------
Earnings per share $1.53 $1.51 $1.09
========= ========= =========
December 31,
---------------------------------
1994 1993 1992
--------- --------- ---------
FULLY DILUTIVE
Actual weighted average shares
outstanding for the period 2,624,197 2,622,629 2,621,126
Dilutive options using the
treasury stock method* -- -- --
--------- --------- ---------
Total shares used in per share
calculations 2,624,197 2,622,629 2,621,126
Net income $4,013,000 $3,951,000 $2,866,000
--------- --------- ---------
Earnings per share $1.53 $1.51 $1.09
========= ========= =========
*The dilutive effect of stock options is less than 3% in the aggregate, hence
has not been included in the calculations
<PAGE>
EXHIBIT 21
SCHEDULE OF SUBSIDIARIES
Following is a list of the registrant's subsidiaries at March 28, 1995:
State of Incorporation
Name or Organization
---- ---------------
The Bank of Newport Oregon
The Commercial Bank Oregon
Coban, Inc. Oregon
Valley Commercial Bank Oregon
<PAGE>
EXHIBIT 23
Consent of Independent Public Accountants
As independent public accountants, we hereby consent to the incorporation of
our reports included in this Form 10-K, into the Company's previously filed
Registration Statement File Nos. 33-88872 and 33-88874.
ARTHUR ANDERSEN LLP
Portland, Oregon,
March 29, 1995
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND> This schedule contains summary financial information
extracted from Consolidated Financial Statements and
Notes included in this Form 10-K for the period ended
December 31, 1994, and is qualified in its entirety by
reference to such financial statements.
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<PERIOD-TYPE> 12-MOS
<EXCHANGE-RATE> 1
<S> <C>
<CASH> 23,313
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 2,474
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 27,497
<INVESTMENTS-CARRYING> 41,810
<INVESTMENTS-MARKET> 41,747
<LOANS> 176,893
<ALLOWANCE> 2,905
<TOTAL-ASSETS> 282,579
<DEPOSITS> 246,654
<SHORT-TERM> 6,000
<LIABILITIES-OTHER> 2,918
<LONG-TERM> 0
3,277
0
<COMMON> 0
<OTHER-SE> 23,730
<TOTAL-LIABILITIES-AND-EQUITY> 282,579
<INTEREST-LOAN> 17,197
<INTEREST-INVEST> 4,179
<INTEREST-OTHER> 257
<INTEREST-TOTAL> 21,633
<INTEREST-DEPOSIT> 5,538
<INTEREST-EXPENSE> 5,538
<INTEREST-INCOME-NET> 16,095
<LOAN-LOSSES> 300
<SECURITIES-GAINS> (48)
<EXPENSE-OTHER> 14,168
<INCOME-PRETAX> 5,477
<INCOME-PRE-EXTRAORDINARY> 5,477
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,477
<EPS-PRIMARY> 1.53
<EPS-DILUTED> 1.53
<YIELD-ACTUAL> 9.21
<LOANS-NON> 302
<LOANS-PAST> 20
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 2,497
<CHARGE-OFFS> 108
<RECOVERIES> 261
<ALLOWANCE-CLOSE> 2,905
<ALLOWANCE-DOMESTIC> 2,905
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
