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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, 1995 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.)
5335 Meadows Road - Suite 201
Lake Oswego, Oregon 97035
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (503)684-0884
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 February 29, 1996, was $90,201,731
The number of shares of Registrant's Common Stock outstanding on February
29, 1996, was 4,810,759.
DOCUMENTS INCORPORATED BY REFERENCE
List hereunder the following documents if incorporated by reference and
the Part of the Form 10-K into which the document is incorporated: Portions of
the West Coast Bancorp Definitive Proxy Statement dated March 15, 1996 are
incorporated by reference into Part III of Form 10-K.
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INDEX
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PART I
Item 1. BUSINESS ............................................................... 1
General ............................................................ 1
Recent Developments ................................................ 1
The Commercial Bank, The Bank of Newport and Valley Commercial Bank 2
Coban, Inc. ........................................................ 3
Employees .......................................................... 3
Competition ........................................................ 4
Governmental Policies .............................................. 4
Supervision and Regulation ......................................... 4
Item 2. PROPERTIES ............................................................. 10
Item 3. LEGAL PROCEEDINGS ...................................................... 11
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS .................... 11
EXECUTIVE OFFICERS OF THE REGISTRANT ................................. 12
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS .................................................. 12
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 ............................ 26
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE .................................. 49
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT ..................... 49
Item 11. EXECUTIVE COMPENSATION ................................................. 49
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT ........................................................... 49
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS ......................... 49
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K ............................................................. 50
SIGNATURES ....................................................................... 51
EXHIBIT INDEX .................................................................... 53
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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 ("Old WCB") and the registrant, as amended as of December 12, 1994
(the "Merger Agreement"), Old WCB and the registrant were merged on February 28,
1995 (the "Merger"), with the registrant as the surviving corporation. Old 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 $517 million in total assets at December 31, 1995, is
the second largest bank holding company based in Oregon.
The registrant is headquartered in Lake Oswego, Oregon. 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 The Commercial Bank with deposits insured by the Federal Deposit
Insurance Corporation ("FDIC"). At February 29, 1996, the Banks had facilities
in a total of 21 cities and towns in Oregon, operating a total of 26
full-service branches and two 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. The combined organization offers greater size, breadth of services,
and capital strength than either institution would have possessed on a
stand-alone basis. The combined corporations' complementary market areas,
customer bases, and areas of expertise provide significant opportunities to
achieve growth, enhance revenue, increase the quality of customer services,
compete more effectively with larger institutions, and allow for greater
stability through diversification.
In the Merger, Old WCB shareholders received .60 shares of Common Stock
of the registrant (the "Common Stock") for each share of Old WCB stock owned.
Shareholders of the registrant continue to have one share of Common Stock for
each share owned prior to the Merger. This transaction was accounted for as a
pooling-of-interests under generally accepted accounting principles.
For the year ended December 31, 1995, the operations of the registrant on
a combined basis earned net income of $7.4 million, or $1.53 per share. The
combined equity of the registrant at December 31, 1995, was $53.2 million, with
4.8 million shares outstanding and a book value of $11.07 per share. Net loans
of the combined corporations of $335 million at December 31, 1995, represented
approximately 65 percent of combined total assets. Combined deposits totaled in
excess of $442 million at year-end 1995.
Rodney B. Tibbatts, formerly president and chief executive officer of the
registrant, and Victor L. Bartruff, formerly president and chief executive
officer of Old 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
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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.
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, Great
Western Bank was merged into The Commercial Bank on March 31, 1995 and the
shareholders of Great Western Bank received shares of Bancorp Common Stock in
exchange for their shares. At March 31, 1995, Great Western Bank had total
assets of approximately $8.1 million and shareholders' equity of approximately
$873,000. 107,094 shares of Bancorp Common Stock were issued to the shareholders
of Great Western Bank. Upon consummation of the merger, the single branch of
Great Western Bank became the Dallas, Oregon, branch of The Commercial Bank.
This transaction was accounted for at as a pooling-of-interests under generally
accepted accounting principles.
PENDING MERGER WITH VANCOUVER BANCORP
On February 15, 1996, Bancorp entered into a Plan and Agreement of
Reorganization and Merger (the "Agreement") with Vancouver Bancorp of Vancouver,
Washington. Under the Agreement, Vancouver Bancorp's subsidiary, Bank of
Vancouver, will become a wholly-owned subsidiary of West Coast Bancorp.
The transaction which is expected to close in mid-1996, is subject to
approval by Vancouver Bancorp shareholders and applicable regulatory agencies.
The transaction will be accounted for as a pooling-of-interests under generally
accepted accounting principles.
Vancouver Bancorp is a bank holding company, headquartered in Vancouver,
Washington. Its principal business activities are conducted through its only
subsidiary, Bank of Vancouver, a Washington state chartered, full-service The
Commercial Bank, whose deposits are insured by the Federal Deposit Insurance
Corporation. At December 31, 1995, Vancouver Bancorp had assets totaling $78.9
million, and equity capital totaling $5.8 million. Vancouver Bancorp earned
$891,000 and $664,000 for the years ended December 31, 1995 and 1994,
respectively. Bank of Vancouver's primary service area is Vancouver, Washington,
adjacent to the greater Portland, Oregon metropolitan market. The Bank of
Vancouver emphasizes real estate related loans to small businesses located
within its market area.
FUTURE EXPANSION STRATEGY
The acquisition of Great Western Bank and the pending acquisition of
Vancouver Bancorp are consistent with Bancorp's strategy of growing the company
through the acquisition of community banks in Oregon and Washington which share
Bancorp's supercommunity banking philosophy. Accordingly, Bancorp will continue
to explore future opportunities to expand its banking network as attractive
opportunities may arise from time to time.
THE COMMERCIAL BANK, THE BANK OF NEWPORT AND VALLEY COMMERCIAL BANK
The Commercial Bank was organized in 1954. The Commercial Bank's main
office is located in Salem, Oregon; it has three additional branches in Salem,
three branches in Keizer, two branches in Newberg and branches in Dallas,
Molalla, Monmouth, Silverton, Tigard,Wilsonville and Woodburn. At December 31,
1995, it had deposits totaling $276 million and loans totaling $198 million.
The Bank of Newport, established in 1925 currently conducts business
through nine branches located in the cities of Newport - two branches, Lincoln
City, Waldport, Depoe Bay, and Toledo along the central Oregon coast, as well as
downtown Portland, Oregon, and Lake Oswego and Clackamas Oregon, which is a
suburb of Portland. In addition, Bancorp operates a commercial real estate loan
brokerage office located in Lake Oswego which originates and brokers commercial
real estate loans to other banks, insurance companies, pension funds, and other
sophisticated
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investors. At December 31, 1995, The Bank of Newport had deposits totaling $153
million and loans totaling $130 million.
Valley Commercial Bank was organized in 1981 and the main office is
located in Forest Grove, Oregon with additional branches in North Plains and
Hillsboro. At December 31, 1995, it had deposits and loans totaling $17 million
and $12 million, respectively.
The following are the main office locations of the Banks:
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The Commercial Bank 301 Church Street, N.E. , Salem, Oregon 97301 (503) 399-2900
The Bank of Newport 506 SW Coast Highway, Newport, Oregon 97365 (541) 265-6666
Valley Commercial Bank 4110 Pacific Avenue, Forest Grove, Oregon 97116 (503) 359-4495
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The primary business strategy of the Banks 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. Small to medium-sized business and commercial
customers are a significant focus of activity. The Banks offer deposit accounts,
safe-deposit boxes, 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 real estate secured loans, 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 Banks also offer Master Card and VISA credit card programs as part
of their retail banking services.
In order to provide convenient banking services to their customers, the
Banks offer extended banking hours in selected branches. Automatic teller
machines are available in 18 branch locations 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,
operating under the name West Coast Trust, acts as fiduciary of estates and
conservatorships, and as a trustee under various wills, trust, and pension and
profit-sharing plans. The Banks also offers tax-deferred annuities,
single-premium whole life insurance, other insurance investment products, and
securities products. These trust and annuity services are available and offered
to all customers by the Banks.
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 February 29, 1996, Bancorp and its subsidiaries had approximately 376
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, 401K plan, stock option plans and an optional employee stock purchase
plan.
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COMPETITION
At December 31, 1995, The Commercial Bank, The Bank of Newport, and
Valley Commercial Bank were the 13th, 14th, and 45th largest, respectively, of
the 50 commercial and savings banks in Oregon. The Banks compete with other
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 48 percent of the total commercial and
savings bank deposits in the state. Other significant competitors include
subsidiaries of BankAmerica Corporation, Key Corp., and Washington Mutual
Savings Bank. 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 decision making, 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
The following generally refers to certain statutes and regulations
affecting the banking industry. These references provide brief summaries only
and are not intended to be complete. These references are qualified in their
entirety by the referenced statutes and regulations. In addition, some statutes
and regulations which apply to and regulate the operation of the banking
industry might exist which are not referenced below. Changes in applicable
statutes and regulations may have a material effect on the business of Bancorp
and its subsidiaries.
BANCORP
GENERAL
As a bank holding company, Bancorp is subject to the Bank Holding
Company Act of 1956 ("BHCA"), as amended, which places Bancorp under the
supervision of the Board of Governors of the Federal Reserve System ("FRB"). In
general, the BHCA limits the business of bank holding companies to owning or
controlling banks and engaging in other activities related to banking. Certain
recent legislation designed to expand interstate branching and relax federal
restrictions on interstate banking will continue to be phased in over the next
two years and may expand opportunities for bank holding companies (for
additional information see below under the heading "The Banks - Interstate
Banking and Branching"). However, the full impact of this legislation on Bancorp
is unclear at this time.
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HOLDING COMPANY STRUCTURE
FRB Regulation. Bancorp must obtain the approval of the FRB:
(1) prior to acquiring direct or indirect ownership or control of any voting
shares of any bank if, after such acquisition, it would own or control, directly
or indirectly, more than 5% of the voting shares of such bank; (2) before
merging or consolidating with another bank holding company; and (3) before
acquiring substantially all of the assets of any additional banks.
Bancorp is required by the BHCA to file annual and quarterly reports
and such other reports as may be required from time to time by the FRB. In
addition, the FRB performs periodic examinations of Bancorp and its subsidiary
Banks.
Holding Company Control of Nonbanks. With certain exceptions, the BHCA
prohibits bank holding companies from acquiring direct or indirect ownership or
control of voting shares in any company which is not a bank or a bank holding
company unless the FRB determines that the activities of such company are so
closely related to banking or managing or controlling banks as to be a proper
incident thereto. In making such determinations, the FRB considers whether the
performance of such activities by a bank holding company would offer advantages
to the public that would outweigh possible adverse effects. For example, the FRB
has by regulation determined activities such as: among others, operating an
industrial loan company; industrial bank; savings association; mortgage company;
finance company; trust company; credit card company or factoring company;
performing certain data processing operations; leasing personal or real
property, subject to certain conditions and providing investment and financial
advice, are so closely related to banking as to be a proper incident thereto
within the meaning of the BHCA. On the other hand, activities such as, among
others, 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, are not
so closely related to banking as to be a proper incident thereto within the
meaning of the BHCA. In the future, the FRB may from time to time add to or
delete from the list of activities permissible for bank holding companies.
Transactions with Affiliates. Bancorp and the Banks will be deemed
affiliates within the meaning of the Federal Reserve Act and transactions
between affiliates are subject to certain restrictions. Covered transactions
include, subject to specific exceptions, loans by bank subsidiaries to
affiliates, investments by bank subsidiaries in securities issued by an
affiliate, the taking of such securities as collateral, and the purchase of
assets by a bank subsidiary from an affiliate. Bancorp and the Banks are also
subject to certain restrictions with respect to engaging in the underwriting,
public sale and distribution of securities.
Support of Bank Subsidiaries. Under FRB policy, a bank holding
company is expected to act as a source of financial and managerial strength to,
and commit resources to support, each of its subsidiary banks. Any capital loans
Bancorp makes to any of the Banks are subordinate to deposits and to certain
other indebtedness of the Banks. The Crime Control Act of 1990 provides that, in
the event of a bank holding company's bankruptcy, the bankruptcy trustee will
assume any commitment the bank holding company has made to a federal bank
regulatory agency to maintain the capital of a subsidiary bank and this
obligation will be entitled to a priority of payment.
Tie-In Arrangements. Bancorp and the Banks are prohibited from
engaging in 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, neither Bancorp nor the Banks may condition an extension of
credit to a customer on either (1) a requirement that the customer obtain
additional services provided by it or (2) an agreement by the customer to
refrain from obtaining other services from a competitor.
State Law Restrictions. As a corporation chartered under the laws of the
State of Oregon, Bancorp is also subject to certain limitations and restrictions
under applicable Oregon corporate law. For example, these include limitations
and restrictions relating to: indemnification of directors, distributions to
shareholders, transactions involving directors, officers or interested
shareholders, maintenance of books, records, and minutes, and observance of
certain corporate formalities.
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Securities Registration and Reporting. The common stock of Bancorp is registered
as a class with the Securities and Exchange Commission ("SEC") under the
Securities Exchange Act of 1934 and thus is subject to the periodic reporting
and proxy solicitation requirements and the insider-trading restrictions of that
Act. The periodic reports, proxy statements, and other information filed by
Bancorp under that Act can be inspected and copied at or obtained from the
Washington, D.C., office of the SEC. In addition, the securities issued by
Bancorp are subject to the registration requirements of the Securities Act of
1933 and applicable state securities laws unless exemptions are available.
CONTROL TRANSACTIONS
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 FRB has been given 60 days' prior written notice of the proposed
acquisition, and within that time period, the FRB 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 FRB issues written
notice of its intent not to disapprove the action. Under a rebuttable
presumption established by the FRB, the acquisition of 10% or more of a class of
voting stock of a bank holding company with a class of securities registered
under Section 12 of the Exchange Act 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 FRB under the BHCA before acquiring 25% (5% if the company is a bank holding
company) or more of the outstanding shares of Bancorp, or otherwise obtain
control over Bancorp.
THE BANKS
GENERAL
Despite some recent legislative initiatives to reduce regulatory
burdens, banking remains a highly regulated industry. Legislation enacted from
time to time may increase the cost of doing business, limit or expand
permissible activities, or affect the competitive balance between banks and
other financial and nonfinancial institutions. Proposals to change the laws and
regulations governing the operations and taxation of banks and other financial
institutions are frequently made in Congress, in the Oregon State Legislature,
and before various bank regulatory agencies. In addition, there continue to be
proposals in Congress to restructure the banking system.
Some of the significant areas of bank regulation, including significant
federal legislation affecting state-chartered banks, are generally discussed
below.
REGULATION OF STATE BANKS
Oregon State banks, such as the Banks, are subject to primary
regulation and examination by the Oregon Department of Consumer and Business
Services. The Banks are also subject to supervision, examination, and regulation
by certain federal banking agencies, including, in the case of Valley Commercial
Bank (which is a Federal Reserve member bank), the FRB. Each of the Banks is
insured (to applicable limits) by, and therefore is subject to regulation by,
the FDIC.
Applicable federal and state statutes and regulations governing a
bank's operations relate, among other matters, to capital requirements, required
reserves against deposits, investments, loans, legal lending limits, certain
interest rates payable, mergers and consolidations, borrowings, issuance of
securities, payment of dividends (see below), establishment of branches, and
dealings with affiliated persons. The FDIC has authority to prohibit banks under
their supervision from engaging in what they consider to be an unsafe and
unsound practice in conducting their business. Depository institutions, such as
the Banks, are affected significantly by the actions of the FRB as it attempts
to control the money supply and credit availability in order to influence the
economy.
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DIVIDEND RESTRICTIONS
Dividends paid by the Banks to Bancorp are a material source of 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. FRB policy further limits the circumstances under which bank holding
companies may declare dividends. For example, 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
depository 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 FRB 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.
Oregon law imposes the following limitations on the payment of
dividends by Oregon State banks: (1) no dividends may be paid that would impair
capital; (2) until the surplus fund of a bank is equal to 50% of its paid-in
capital, no dividends may be declared unless at least 20% of the bank's net
profits for the dividend period have been carried to the surplus account; (3)
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 (4) if the surplus fund does not
exceed 50% 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% 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, 1995, the Banks could have
declared dividends of approximately $10.7 million in the aggregate, without
obtaining prior regulatory approval. The payment of dividends by banks may also
be affected by other factors, such as capital maintenance requirements.
REGULATION OF MANAGEMENT
Federal law: (1) sets forth circumstances under which officers or
directors of a bank may be removed by the institution's federal supervisory
agency; (2) places restraints on lending by a bank to its executive officers,
directors, principal shareholders, and their related interests; and (3) and
prohibits management personnel of a bank from serving as a director or in other
management positions of another financial institution whose assets exceed a
specified amount or which has an office within a specified geographic area.
CONTROL OF FINANCIAL INSTITUTIONS
No person may acquire "control" of a bank unless the appropriate
federal agency has been given 60 days prior written notice and within that time
the agency has not disapproved the acquisition. Substantial monetary penalties
may be imposed for violation of the change in control or other provisions of
banking laws.
FDICIA
The Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA") was enacted into law in late 1991. As required by FDICIA, numerous
regulations have been adopted by federal bank regulatory agencies, including the
following: (1) federal bank regulatory authorities have established five
different capital levels for banks and, as a general matter, enable banks with
higher capital levels to engage in a broader range of activities; (2) the FRB
has issued regulations requiring standardized disclosures with respect to
interest paid on deposits; (3) the FDIC has imposed restrictions on the
acceptance of brokered deposits by weaker banks; (4) the FDIC has implemented
risk-based deposit insurance premiums; and (5) the FDIC has issued regulations
requiring state-chartered banks to comply with certain restrictions with respect
to equity investments and activities in which the banks act as a principal.
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FDICIA recapitalized the Bank Insurance Fund ("BIF") and required the
FDIC to maintain the BIF and Savings Association Insurance Fund ("SAIF") at
1.25% of insured deposits by increasing deposit insurance premiums as necessary
to maintain such ratio. FDICIA also required federal bank regulatory authorities
to prescribe, by December 1, 1993, (1) non-capital standards of safety and
soundness; (2) operational and managerial standards for banks; (3) asset and
earnings standards for banks and bank holding companies addressing such areas as
classified assets, capital, and stock price; and (4) standards for compensation
of executive officers and directors of banks. However, this provision was
modified by recent legislation to allow federal regulatory agencies to implement
these standards through either guidelines or regulations.
FIRREA
The Financial Institutions Reform, Recovery and Enforcement Act of 1989
("FIRREA") became effective on August 9, 1989. Among other things, this
far-reaching legislation (1) phased in significant increases in the FDIC
insurance premiums paid by commercial banks; (2) created two deposit insurance
pools within the FDIC, one to insure commercial banks and savings bank deposits
and the other to insure savings association deposits; (3) for the first time,
permitted bank holding companies to acquire healthy savings associations; (4)
permitted commercial banks that meet certain housing-related asset requirements
to secure advances and other federal services from their local Federal Home Loan
Banks; and (5) greatly enhanced the regulators' enforcement powers by removing
procedural barriers and sharply increasing the civil and criminal penalties for
violating statutes and regulations.
INTERSTATE BANKING AND BRANCHING
The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994
(the "Interstate Act") will, over the next two years, permit nationwide
interstate banking and branching under certain circumstances. This legislation
generally authorizes interstate branching and relaxes federal law restrictions
on interstate banking. Individual states have the authority to "opt out" of
certain of these provisions. The Interstate Act currently allows states to enact
"opting-in" legislation that (i) permits interstate mergers within their own
borders before June 1, 1997, and (ii) permits out-of-state banks to establish de
novo branches within the state. As of September 29, 1995, bank holding companies
may purchase banks in any state, and states may not prohibit such purchases.
Additionally, beginning June 1, 1997, banks will be permitted to merge with
banks in other states as long as the home state of neither merging bank has
opted out. The Interstate Act requires regulators to consult with community
organizations before permitting an interstate institution to close a branch in a
low-income area.
Oregon has enacted "opting in" legislation, effective as of February
27, 1995, generally permitting interstate mergers, subject to certain
restrictions. Given that Oregon has permitted interstate banking for a number of
years, this legislation is not expected to have a profound impact on banking in
Oregon or on Bancorp or the Banks' operations in particular. Nevertheless, the
impact that the Interstate Act might have on Bancorp and the Banks is impossible
to predict.
CAPITAL ADEQUACY REQUIREMENTS
The FRB, the FDIC, and the OCC (collectively, the "Federal Banking
Agencies") have established uniform capital requirements for all commercial
banks. Bank holding companies are also subject to certain minimum capital
requirements. A bank that does not achieve and maintain required capital levels
may be subject to supervisory action through the issuance of a capital directive
to ensure the maintenance of adequate capital levels. In addition, banks are
required to meet certain guidelines concerning the maintenance of an adequate
allowance for loan and lease losses.
The Federal Banking Agencies' "risk-based" capital guidelines establish
a systematic, analytical framework that makes regulatory capital requirements
more sensitive to differences in risk profiles among banking organizations,
takes off-balance sheet exposures into explicit account in assessing capital
adequacy, and minimizes disincentives to holding liquid, low-risk assets. The
risk-based ratio is determined by allocating assets and specified off-balance
sheet commitments into several categories, with high levels of capital being
required for the categories perceived as
8
<PAGE> 11
representing greater risk. The risk weights assigned to assets and credit
equivalent amounts of off-balance sheet items are based primarily on credit
risk. Other types of exposure, such as interest rate, liquidity and funding
risks, as well as asset quality problems, are not factored into the risk-based
ratio. Such risks, however, will be taken into account in determining a final
assessment of an organization's capital adequacy. Under these new regulations,
banks were required to achieve a minimum total risk-based capital ratio of 8%
and a minimum Tier 1 risk-based capital ratio of 4%.
The Federal Banking Agencies also have adopted leverage ratio standards
that require commercial banks to maintain a minimum ratio of core capital to
total assets (the "Leverage Ratio") of 3%. Any institution operating at or near
this level is expected to have well-diversified risk, including no undue
interest rate risk exposure, excellent asset quality, high liquidity and good
earnings, and in general, to be a strong banking organization without any
supervisory, financial or operational weaknesses or deficiencies. Any
institutions experiencing or anticipating significant growth would be expected
to maintain capital ratios, including tangible capital positions, well above the
minimum levels (e.g., an additional cushion of at least 100 to 200 basis points,
depending upon the particular circumstances and risk profile).
Regulations adopted by the Federal Banking Agencies as required by
FDICIA impose even more stringent capital requirements. The regulators require
the OCC and other Federal Banking Agencies to take certain "prompt corrective
action" when a bank fails to meet certain capital requirements. The regulations
establish and define five capital levels at which an institution is deemed to be
"well-capitalized," "adequately capitalized," "undercapitalized," "significantly
undercapitalized" or "critically undercapitalized." In order to be
"well-capitalized," an institution must maintain, at least 10% total risk-based
capital, 6% Tier 1 risk-based capital, and a 5% Leverage Ratio. Increasingly
severe restrictions are imposed on the payment of dividends and mortgage fees,
asset growth and other aspects of the operations of institutions that fall below
the category of "adequately capitalized" (which requires at least 8% total
risk-based capital, 4% Tier 1 risk-based capital, and a 4% Leverage Ratio).
Undercapitalized institutions are required to develop and implement capital
plans acceptable to the appropriate federal regulatory agency. Such plans must
require that any company that controls the undercapitalized institution must
provide certain guarantees that the institution will comply with the plan until
it is adequately capitalized. As of December 31, 1995, the Banks were not
subject to any regulatory order, agreement, or directive to meet and maintain a
specific capital level for any capital measure.
The Oregon Department of Consumer and Business Services has authority
under Oregon law to require shareholders of an Oregon State 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.
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 FRB for bank holding companies is 8%. At least one-half of the total capital
must be Tier 1 capital; the remainder may consist of Tier 2 capital. Bancorp is
also subject to minimum Leverage Ratio guidelines. These guidelines provide for
a minimum Leverage Ratio of 3% for bank holding companies meeting certain
specified criteria, including achievement of 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 (4% to 5%). These guidelines provide
that banking organizations experiencing internal growth or making acquisitions
are expected to maintain strong capital positions substantially above the
minimum supervisory levels, without significant reliance on intangible assets.
In August of 1995, the Federal Banking Agencies adopted a final rule
implementing the portion of Section 305 of FDICIA that requires the banking
agencies to revise their risk-based capital standards to ensure that those
standards take adequate account of interest rate risk. Effective September 1,
1995, when evaluating the capital adequacy of a bank, the Federal Banking
Agencies' examiners will consider exposure to declines in the economic value of
the bank's capital due to changes in interest rates. A bank may be required to
hold additional capital for interest rate risk if it has a significant exposure
or a weak interest rate risk management process. Concurrent with the publication
of this final rule, the Federal Banking Agencies proposed for comment a joint
policy statement describing the process the Federal Banking Agencies will use to
measure and assess a bank's interest rate risk. As
9
<PAGE> 12
indicated by both the final rule and the joint policy statement, the Federal
Banking Agencies intend, through a future proposed rule, to incorporate explicit
minimum requirements for interest rate risk into their risk-based capital
standards. Although the Federal Banking Agencies have indicated that they
anticipate any proposed capital requirement would be based on the measurement
framework described in the joint policy statement, neither the likelihood that
the Federal Banking Agencies will in fact propose such a rule nor the actual
requirements or standards established by any such rule can be predicted at this
time. Furthermore, any impact the Federal Banking Agency activities discussed
above may have on the Banks cannot be predicted at this time.
FDIC INSURANCE
Generally, customer deposit accounts in banks are insured by the FDIC
for up to a maximum amount of $100,000. The FDIC has adopted a risk-based
insurance assessment system. Under this system, depository institutions, such as
the Banks, with BIF-insured deposits, are required to pay an assessment to the
BIF ranging from $.0 to $.27 per $100 of deposits based on the institution's
risk classification. This assessment range is significantly higher for
depository institutions with SAIF-insured deposits. Banks at the zero assessment
rate will pay the statutory minimum of $2,000 for deposit insurance.
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).
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 land and administrative offices, the main branch, and drive-up teller
facilities. The Commercial Bank also operates 15 other branches, of which 8 are
owned and 7 are leased. The Commercial Bank owns the land under 7 of the 8 owned
branches. In addition, The Commercial Bank owns an approximately
8,000-square-foot building, including the land, in Salem, Oregon that is
currently unoccupied, and leases a building and land housing the data center.
The Commercial Bank's aggregate monthly rental on all leased properties is
$21,200.
The main office of Valley Commercial Bank is located in Forest Grove,
Oregon, in a building and land owned by a subsidiary of The Commercial Bank.
Valley Commercial Bank operates a branch in North Plains, Oregon, in a facility
and land owned by it, and a branch in Hillsboro, Oregon, which is leased for
approximately $3,000 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, 1995, The Bank of Newport also owned four buildings and
leased five additional spaces housing branches and offices. The Bank of Newport
owns the land under three of the four buildings, while leasing the fourth. The
aggregate monthly rental of leased buildings and land is approximately $20,700.
Bancorp leases office space housing its headquarters in Lake Oswego,
Oregon. The aggregate monthly rental of the office space is approximately
$4,700.
10
<PAGE> 13
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 determined
it was not cost effective to administer the fund as a mutual fund. Consequently,
The Commercial Bank Trust Department completed a liquidation of the IRA Fund and
distributed the proceeds to the fund participants at their respective account
levels. The Commercial Bank also offered recission (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 paid $15,630 on acceptance of the recission
offer by all persons whose interests in the IRA Fund had a current market value
of less than the amount offered in the recission offer.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
11
<PAGE> 14
EXECUTIVE OFFICERS OF THE REGISTRANT
<TABLE>
<CAPTION>
Has served as an Executive
Officer of Bancorp, WCB
Name Age Position with Bancorp or the Banks since
- ---- --- --------------------- --------------------------
<S> <C> <C> <C>
Rodney B. Tibbatts 56 Co-President and Co-CEO and Director
of Bancorp; former President and CEO
of Commercial Bancorp, Director of
The Commercial Bank 1990
Victor L. Bartruff 48 Co-President and Co-CEO and Director
of Bancorp; President and CEO of The
Bank of Newport; former District Manager
of U.S. National Bank of Oregon; Director
of The Bank of Newport, The Commercial
Bank and Valley Commercial Bank 1991
Edgar B. Martin 56 President and CEO and Director of The
Commercial Bank since 1991; employed by
The Commercial Bank in various capacities
Since 1973. 1991
Donald A. Kalkofen 32 SVP and CFO of Bancorp since 1995; SVP
and Treasurer of old WCB from 1994 and
and SVP and CFO of The Bank of Newport
since 1992; former Senior Accountant with
U.S. Bancorp of Oregon 1992
Cora A. Hallauer 56 SVP and Secretary of Bancorp and SVP
Operations and Secretary of The Commercial
Bank since 1990; VP and Systems Operations
Officer of The Commercial Bank from 1985 1990
</TABLE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
West Coast Bancorp stock trades on the NASDAQ stock market under the
symbol: WCBO. The primary market makers are: Dain Bosworth, Inc.; Pacific Crest
Securities; Herzog, Heine, Geduld, Inc.; Wedbush Morgan Securities, Inc.; and
Black & Company, Inc. The high and low sale price for the periods indicated of
West Coast Bancorp's stock are shown below. The per share information has been
adjusted retroactively for all stock dividends and splits previously issued. As
of December 31, 1995, there were approximately 2,700 shareholders of record of
Bancorp stock.
<TABLE>
<CAPTION>
1995 1994
----------------------------------- ----------------------------------
Market Price Cash dividends Market Price Cash dividends
----------------------------------- ----------------------------------
High Low declared High Low declared
----------------------------------- ----------------------------------
<C> <C> <C> <C> <C> <C> <C>
1st Quarter $13.86 $12.27 $0.09 $14.46 $11.68 $0.05
2nd Quarter $13.86 $12.73 $0.07 $14.55 $13.41 $0.06
3rd Quarter $16.59 $12.95 $0.07 $15.00 $13.86 $0.06
4th Quarter $17.50 $16.00 $0.07 $15.45 $12.73 $0.06
</TABLE>
12
<PAGE> 15
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
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
(Dollars in thousands, except per share data) Year ended December 31,
- --------------------------------------------- --------------------------------------------------------
1995 1994 1993 1992 1991
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Interest income $ 40,628 $ 34,487 $ 32,161 $ 31,273 $ 29,857
Interest expense 14,304 9,776 9,465 10,917 13,649
-------- -------- -------- -------- --------
Net interest income 26,324 24,711 22,696 20,356 16,208
Provision for loan loss 670 547 798 1,204 783
-------- -------- -------- -------- --------
Net interest income after provision for
loan loss 25,654 24,164 21,898 19,152 15,425
Noninterest income 7,842 6,888 6,482 5,227 4,831
Noninterest expense 23,284 22,942 20,077 18,325 15,551
-------- -------- -------- -------- --------
Income before income taxes 10,212 8,110 8,303 6,054 4,705
Provision for income taxes 2,853 2,458 2,268 1,674 1,382
-------- -------- -------- -------- --------
Net Income $ 7,359 $ 5,652 $ 6,035 $ 4,380 $ 3,323
======== ======== ======== ======== ========
Per share data:
Net income $ 1.53 $ 1.24 $ 1.39 $ 1.00 $ 0.77
Cash dividends 0.29 0.24 0.23 0.18 0.16
Period end book value 11.07 9.22 8.36 7.24 6.43
Total Assets $516,647 $451,772 $430,942 $380,088 $355,321
Total Deposits 442,101 379,620 368,395 340,031 311,266
Total long-term borrowings 8,838 8,546 9,095 -- 850
Net Loans 335,191 278,467 252,755 220,109 204,189
Stockholders' equity 53,198 44,232 36,311 31,436 27,680
Financial ratios:
Return on average assets 1.53% 1.29% 1.54% 1.20% 1.02%
Return on average equity 15.50% 14.05% 18.54% 14.83% 12.62%
Average equity to assets 9.86% 9.17% 8.29% 8.10% 8.10%
Dividend payout ratio 18.95% 19.35% 16.55% 18.00% 20.78%
Efficiency ratio 68.16% 72.21% 69.15% 71.61% 74.80%
Net loans total assets 64.88% 61.64% 58.65% 57.91% 57.47%
</TABLE>
The 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 per share information has been adjusted retroactively for
all stock dividends and splits previously issued.
13
<PAGE> 16
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion of West Coast Bancorp's (Bancorp) consolidated
financial condition and results of operations should be read in conjunction with
the selected consolidated financial and other data, the consolidated financial
statements and related notes included elsewhere herein.
RESULTS OF OPERATIONS
Years Ended December 31, 1995, 1994 and 1993
Net Income. For the three years ended December 31, 1995, Bancorp's net
income was $7.4 million, $5.7 million and $6.0 million, respectively. 1995 net
income increased $1.7 million or 30.20% over 1994, which showed a decline of $.3
million over 1993's income. Bancorp's 1994 net income was negatively impacted by
approximately $1 million in merger related costs; thus, normal operating results
would show consistent year-to-year earnings growth. Earnings per share for the
three years ended 1995 were $1.53, $1.24 and $1.39. Both 1995 and 1994 earnings
per share figures were impacted by Bancorp's issuance of 455,400 common shares
in a secondary offering in July 1994, increasing outstanding shares by
approximately ten percent. Bancorp increased operating income in 1995 primarily
due to increased net interest margins resulting from larger balances of interest
earning assets. Net interest income on a tax equivalent basis totaled $27.7
million for the year ended December 31, 1995, a 6.29% increase over $26.1
million for the same period in 1994, which was an 8.65% increase over 1993.
Growth of noninterest income was due to increased customer bases and transaction
volumes. Noninterest expenses increased mainly due to bank branch expansion, and
in 1994 the merger related expenditures.
Net Interest Income. During the year ended December 31, 1995, 1994 and
1993, average interest earning assets grew to $435.4 million, from $398.4
million and $359.9 million, respectively. For the same periods, average interest
bearing liabilities were $355.3 million, $322.4 million and $298.8 million,
respectively. Additionally, during the same periods, net interest margins
declined to 6.36% from 6.54% and 6.66%, respectively due mainly to a rising
interest rate environment and an increase of certificates of deposits and
long-term funding sources. Net interest income on a tax-equivalent basis
increased $1.6 million, or 6.29%, to $27.7 million in 1995 from $26.1 million in
1994 and $24.0 million in 1993. The increased net interest income was caused by
the offsetting factors of increased asset growth and a declining net interest
spread. Average interest earning assets increased 9.28% in 1995 from 1994 and
10.70% in 1994 over 1993, while the rising interest rate environment during most
of 1995 led to a decline in the net interest spread of 34 basis points to 5.62%
from 5.96% in 1994 and 17 basis points from 6.13% in 1993. The average yield
earned on interest earning assets increased to 9.65% in 1995 from 8.99% in 1994
and 9.29% in 1993. Average interest bearing liabilities increased $32.9 million,
or 10.21%, to $355.3 million for the period ended December 31, 1995, from $322.4
million in 1994 and $298.8 million in 1993, while the average rates paid
increased to 4.03%.
Analysis of Net Interest Income. The following table presents information
regarding yields on interest earning assets, expense on interest bearing
liabilities, and net yields on interest earning assets for the periods indicated
on a tax equivalent basis:
<TABLE>
<CAPTION>
Year Ended December 31, Increase (Decrease) Change
-------------------------------- --------------------- -------------
(Dollars in thousands) 1995 1994 1993 95-94 94-93 95-94 94-93
- ---------------------- -------- -------- -------- ------- ------- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Interest and fee income(1) ............... $ 42,000 $ 35,834 $ 33,449 $ 6,166 $ 2,385 17.21% 7.13%
Interest expense ......................... 14,304 9,776 9,465 4,528 311 46.32% 3.29%
-------- -------- -------- ------- ------- ----- -----
Net interest income ...................... $ 27,696 $ 26,058 $ 23,984 $ 1,638 $ 2,074 6.29% 8.65%
======== ======== ======== ======= ======= ===== =====
Average interest earning assets .......... $435,405 $398,436 $359,937 $36,969 $38,499 99.28% 10.70%
Average interest bearing liabilities ..... $355,335 $322,429 $298,834 $32,906 $23,595 10.21% 7.90%
Average yields earned .................... 9.65% 8.99% 9.29% .66 (.30)
Average rates paid ....................... 4.03% 3.03% 3.16% 1.00 (.13)
Net interest spread ...................... 5.62% 5.96% 6.13% (.34) (.17)
Net interest margin ...................... 6.36% 6.54% 6.66% (.18) (.12)
</TABLE>
(1) Interest earned on non-taxable securities has been computed on a 34% tax
equivalent basis.
14
<PAGE> 17
Average Balances and Average Rates Earned and Paid. The following table
sets forth, for the periods indicated, information with regard to (i) average
balances of assets and liabilities, (ii) the total dollar amounts of interest
income on interest earning assets and interest expense on interest bearing
liabilities, (iii) resulting yields or costs, (iv) net interest income, and (v)
net interest spread. Nonaccrual loans have been included in the tables as loans
carrying a zero yield. Loan fees are recognized as income using the interest
method over the life of the loan.
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------------------------------------------------------------
(Dollars in thousands) 1995 1994 1993
-------------------------------- ------------------------------- --------------------------------
Average Interest Average Interest Average Interest
Outstanding Earned/ Yield/ Outstanding Earned/ Yield/ Outstanding Earned/ Yield/
Balance Paid Rate(1) Balance Paid Rate(1) Balance Paid Rate(1)
----------- --------- ------- ----------- -------- ------- ----------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS:
Interest earning balances
due from banks .............. $ 2,998 $ 152 5.07% $ 4,394 $ 165 3.76% $ 848 $ 30 3.54%
Federal funds sold ........... 9,893 556 5.62 7,248 345 4.76 9,239 373 4.04
Taxable securities ........... 67,553 4,202 6.22 72,457 4,165 5.75 77,237 5,050 6.54
Nontaxable securities(2) ..... 44,948 4,035 8.98 42,873 3,962 9.24 40,371 3,787 9.38
Loans, including fees(3) ..... 310,013 33,055 10.66 271,464 27,197 10.02 232,242 24,209 10.42
--------- --------- -------- ------- -------- --------
Total interest earning assets 435,405 $ 42,000 9.65% 398,436 $35,834 8.99% 359,937 $ 33,449 9.29%
Allowance for loan loss ...... (4,671) (4,213) (3,585)
Premises and equipment ....... 15,120 12,152 7,944
Other assets ................. 35,465 32,254 28,075
--------- -------- --------
Total assets ............... $ 481,319 $438,629 $392,371
========= ======== ========
LIABILITIES AND
SHAREHOLDERS' EQUITY:
Savings and interest bearing
demand deposits .............. $ 212,718 $ 6,643 3.12% $219,960 $ 5,684 2.58% $183,940 $ 4,935 2.68%
Certificates of deposit ...... 128,444 6,866 5.35 89,676 3,494 3.90 104,701 4,084 3.90
Short-term borrowings ........ 5,383 344 6.39 3,598 151 4.20 3,207 102 3.18
Long-term borrowings ......... 8,790 451 5.13 9,195 447 4.86 6,986 344 4.92
--------- --------- -------- ------- -------- --------
Total interest bearing
liabilities ............... 355,335 14,304 4.03% 322,429 9,776 3.03% 298,834 9,465 3.16%
Demand deposits .............. 73,166 70,729 57,931
Other liabilities ............ 5,353 5,251 3,063
--------- --------- --------
Total liabilities .......... 433,854 398,409 359,828
Shareholders' equity ......... 47,465 40,220 32,543
--------- --------- --------
Total liabilities and
shareholders' equity ..... $ 481,319 $ 438,629 $392,371
========= ========= ========
Net interest income .......... $ 27,696 $ 26,058 $ 23,984
========= ========= ========
Net interest spread .......... 5.62% 5.96% 6.13%
==== ==== ====
</TABLE>
(1) Yield rate calculations have been based on more detailed information than
presented and therefore may not recompute exactly due to rounding.
(2) Interest earned on nontaxable securities has been computed on a 34 percent
tax equivalent basis.
(3) Includes balances for loans held for sale.
15
<PAGE> 18
Analysis of Changes in Interest Differential. The following table sets
forth the amounts of the changes in consolidated net interest income
attributable to changes in volume and to changes in interest rates. Changes not
due solely to volume or rate are allocated to rate and changes due to new
product lines are allocated to volume.
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------------------------------------
1995 versus 1994 1994 versus 1993
---------------------------------- ---------------------------------
Increase (Decrease) Increase (Decrease)
Due To Total Due To Total
------------------- Increase ------------------- Increase
(Dollars in thousands) Volume Rate (Decrease) Volume Rate (Decrease)
------ ------ ---------- ------ ------ ----------
<S> <C> <C> <C> <C> <C> <C>
Interest income:
Interest earning balances due from banks $ (52) $ 39 $ (13) $ 126 $ 9 $ 135
Federal funds sold ..................... 126 85 211 (80) 52 (28)
Interest income:
Taxable securities ................... (282) 319 37 (313) (572) (885)
Nontaxable securities (1) ............ 192 (119) 73 235 (60) 175
Loans, including fees on loans ......... 3,862 1,996 5,858 4,087 (1,099) 2,988
------ ------ ------- ------ ------- ------
Total interest income (1) ........... 3,846 2,320 6,166 4,055 (1,670) 2,385
Interest expense:
Savings and interest bearing demand .... (187) 1,146 959 965 (216) 749
Certificates of deposit ................ 1,512 1,860 3,372 (586) (4) (590)
Short-term borrowings .................. 75 118 193 12 37 49
Long-term borrowings ................... (20) 24 4 109 (6) 103
------ ------ ------- ------ ------- ------
Total interest expense ............. 1,380 3,148 4,528 500 (189) 311
------ ------ ------- ------ ------- ------
Net interest spread (1) ............ $2,466 $ (828) $ 1,638 $3,555 $(1,481) $2,074
====== ====== ======= ====== ======= ======
</TABLE>
(1) Tax-exempt income has been adjusted to a tax-equivalent basis at a 34
percent rate.
Provision for Loan Losses. Bancorp recorded provisions for loan losses of
$670,460, $547,500 and $798,000 for the years ended December 31, 1995, 1994 and
1993 respectively. Bancorp incurred net charge-offs of $468,514, $11,516, and
$195,889 in 1995, 1994 and 1993 respectively. The allowance for loan losses as a
percentage of loan totals at December 31, 1995 and 1994 were 1.39% and 1.60% of
total loans, respectively. Bancorp's allowance for loan losses represents 784%
of its nonperforming assets as of December 31, 1995, compared to 852% at
December 31, 1994.
Noninterest Income. Noninterest income for the year ended December 31,
1995 was $7,841,833 up from $6,887,809 in 1994 and $6,481,871 in 1993. Service
charges on deposit accounts, other service charges, fees and commissions, and
Trust revenues increased over the last three years, due to an increased customer
base and transaction volumes serviced. In 1995 gains on sales of loans declined
$157,313 to $852,954 from $1,010,267 in 1994 which was an increase over $688,932
reported in 1993. In 1994 Bancorp benefited due to the low interest rate
environment mainly in the first half of 1994 that increased the refinance
activity on loans sold into the secondary market. Additionally, Bancorp
increased its gains on sales of loans when Bancorp began selling Small Business
Administration (SBA) loans late in 1993. Loan servicing fees increased due to an
increase in loans serviced for others. Other noninterest income increased in
1995 due to an increased customer base as well as some non-recurring income. In
addition, during 1993 The Commercial Bank sold its Bankcard department and
recorded $241,000 in gross revenues from the sale. Securities gains were $7,879
in 1995, losses of $170,464 in 1994 and gains of $142,720 in 1993. Overall
increases in noninterest income were due to increased market presence in
existing and expanding markets.
16
<PAGE> 19
Noninterest Expense. Noninterest expenses have increased during the last
three years to $23,283,513 in 1995 from $22,942,319 in 1994 and $20,076,897 in
1993. Increases in salaries, equipment, occupancy, professional fees, marketing,
printing and office supplies and other noninterest expenses have been caused
mainly by Bancorp's expansion of its branch system and services and the costs
associated with entering new markets. Bancorp's branch system grew to 28 office
locations at the end of 1995 from 19 at the beginning of 1993. Bancorp intends
to continue to grow through strategically placed offices in 1996 and beyond. In
general, the opening of new branches results in higher costs for Bancorp which
are not offset until a certain level of growth in deposits and loans is
achieved. Thus, at least initially, new branches tend to have an adverse effect
on results of operations, until earnings grow to cover overhead. At the end of
1995 Bancorp employed 376 full-time equivalent employees compared to 341 in
1994. Other increases in noninterest expense generally were caused by higher
operating activity levels associated with Bancorp's internal growth. Equipment,
occupancy and communications expenses also increased in 1995 due to the opening
of Bancorp's new data processing facilities. In 1994 Bancorp experienced certain
costs associated with the mergers of West Coast Bancorp and Commercial Bancorp
as well as the merger of Great Western Bank which became a branch of The
Commercial Bank. Merger related expenditures negatively impacted net income by
approximately $1 million in 1994. During 1995 Bancorp incurred additional costs
as a result of the consolidation and reorganization of certain operating
activities. During 1993 The Commercial Bank sold its Bankcard department, and
therefore in 1994 ATM and Bankcard expenses were lower. During 1995 expenses in
ATM and Bankcard were higher as Bancorp continued to expand the ATM network and
The Bank of Newport's Bankcard services and increased its customer base
serviced. FDIC deposit insurance expense declined in 1995 due to reductions in
insurance premiums charged; the increase in 1994 over 1993 was caused by growth
in Bancorp's deposit base.
INCOME TAXES
Income tax expense for 1995 was $2,853,513 or 28 percent of income before
income taxes, 1994 was $2,457,549 or 30 percent of income before income taxes
and 1993 was $2,268,060 or 27 percent of income before income taxes. The 1995
income tax expense was positively impacted by a one time state income tax credit
of approximately $215,000. The 1994 income tax rate was negatively impacted by
costs associated with the mergers that were capitalized for income tax purposes;
with the resulting impact of approximately $383,000. It is anticipated that
Bancorp's tax expense will increase in future years both due to increased income
before income taxes and a smaller percentage of Bancorp's income being generated
from tax exempt items.
INTEREST RATE SENSITIVITY
Bancorp uses asset/liability modeling to estimate the degree of interest
rate risk inherent in its mix of interest earning assets and interest bearing
liabilities. Bancorp's profitability, like that of many financial institutions,
is dependent to a large extent upon net interest income. Bancorp is liability
sensitive, meaning that interest bearing liabilities mature or reprice more
quickly than interest earning assets in a given period, therefore, a significant
increase in market rates of interest could adversely affect net interest income.
In contrast, a declining rate environment could favorably impact Bancorp's
margin. Bancorp's strategy will be to continue to counter this condition by
shortening its investment portfolio maturities, through increased activity in
variable rate loan products, and by focusing efforts to extend maturities on its
deposit and borrowings base. Bancorp also has placed increased emphasis on its
noninterest revenue products to additionally stabilize the earnings strength of
the institution.
17
<PAGE> 20
Interest Rate Sensitivity (Gap) Table. The following table sets forth the
estimated maturity and repricing and the resulting interest rate gap between
interest earning assets and interest bearing liabilities at December 31, 1995.
The amounts in the table are derived from internal data from the Banks. The
amounts shown below could also be significantly affected by external factors
such as changes in the prepayments assumption, early withdrawals of deposits,
and competition.
<TABLE>
<CAPTION>
Estimated Maturity or Repricing at December 31, 1995
------------------------------------------------------------------------
Due After
(Dollars in thousands) 0-3 Months 4-12 Months 1 -5 Years Five Years Total
- ---------------------- ---------- ----------- ---------- ---------- --------
<S> <C> <C> <C> <C> <C>
Interest Earning Assets
Interest earning balances due
from banks .............................. $ 2,287 -- -- -- $ 2,287
Federal funds sold ........................ 7,649 -- -- -- 7,649
Investments available for sale ............ 13,882 9,169 53,985 39,141 116,177
Loans held for sale ....................... 836 -- -- -- 836
Loans, including fees ..................... 138,055 47,763 125,210 28,884 339,912
--------- -------- -------- -------- --------
Total interest earning assets ........... $ 162,709 $ 56,932 $179,195 $ 68,025 466,861
========= ======== ======== ======== ========
Allowance for loan loss ................... (4,721)
Cash and due from banks ................... 30,622
Other assets .............................. 23,885
--------
Total assets ........................... $516,647
========
Interest Bearing Liabilities:
Savings and interest demand deposits ...... $ 123,626 $ 15,562 $ 89,886 -- $229,074
Certificates of deposit ................... 53,730 66,039 9,954 25 129,748
Borrowings ................................ 8,391 1,393 6,524 457 16,765
--------- -------- -------- -------- --------
Total interest bearing liabilities ..... $ 185,747 $ 82,994 $106,364 $ 482 $375,587
========= ======== ======== ======== ========
Other liabilities ......................... 87,862
Shareholders' equity ...................... 53,198
--------
Total liabilities & shareholders' equity $516,647
========
Interest sensitivity gap .................. (23,038) (26,062) 72,831 67,543 91,274
Cumulative interest sensitivity gap ....... (23,038) (49,100) 23,731 91,274
Cumulative interest sensitivity gap
as a percentage of total assets ....... (4.46)% (9.50)% 4.59% 17.67%
</TABLE>
Certain shortcomings are inherent in the method of analysis presented in
the foregoing table. For example, although certain assets and liabilities may
have similar maturities and periods of repricing, they may react differently to
changes in market interest rates. Also, interest rates on assets and liabilities
may fluctuate in advance of changes in market interest rates, while interest
rates on other assets and liabilities may follow changes in market interest
rates. Additionally, certain assets have features that restrict changes in the
interest rates of such assets, both on a short-term basis and over the lives of
such assets. The Gap table presented above is based on maturities and next
repricing dates and additionally takes into account contractual loan repayments.
In the event of a change in market interest rates, prepayments and early
withdrawals could cause significant deviation from the stated maturities and
repricings.
18
<PAGE> 21
LIQUIDITY AND SOURCES OF FUNDS
Bancorp's primary sources of funds are customer deposits, maturities of
investment securities, sales of "available for sale" securities, loan sales,
loan repayments, net income, advances from the Federal Home Loan Bank of Seattle
(FHLB), and the use of Federal Funds markets. Scheduled loan repayments are
relatively stable sources of funds while deposit inflows and unscheduled loan
prepayments are not. Deposit inflows and unscheduled loan prepayments are
influenced by general interest rate levels, interest rates available on other
investments, competition, economic conditions, and other factors.
Deposits are Bancorp's primary source of new funds. Total deposits were
$442.1 million at December 31, 1995, up from $379.6 million at December 31, 1994
of which $129.7 million were in certificates of deposits. Bancorp does not
generally accept brokered deposits. A concerted effort has been made to attract
deposits in the market area it serves through competitive pricing and delivery
of quality products. Increases over the period are due to the opening of new
branch facilities, marketing efforts, and new business development programs
initiated by Bancorp.
Management anticipates that Bancorp will continue relying on customer
deposits, maturity of investment securities, sales of "available for sale"
securities, loan sales, loan repayments, net income, Federal Funds markets, and
FHLB borrowings to provide liquidity. Although deposit balances have shown
historical growth, such balances may be influenced by changes in the banking
industry, interest rates available on other investments, general economic
conditions, competition and other factors. Borrowings may be used on a
short-term basis to compensate for reductions in other sources of funds.
Borrowings may also be used on a long-term basis to support expanded lending
activities and to match maturities or repricing intervals of assets. The sources
of such funds will most likely be Federal Funds purchased and borrowings from
the FHLB.
19
<PAGE> 22
CAPITAL RESOURCES
The Federal Reserve Bank (FRB) and Federal Deposit Insurance Corporation
(FDIC) have established minimum requirements for capital adequacy for bank
holding companies and member banks. The requirements address both risk-based
capital and leveraged capital. The regulatory agencies may establish higher
minimum requirements if, for example, a corporation has previously received
special attention or has a high susceptibility to interest rate risk. The FRB
and FDIC risk-based capital guidelines require banks and bank holding companies
to have a ratio of tier one capital to total risk-weighted assets of at least
4%, and a ratio of total capital to total risk-weighted assets of 8% or greater.
In addition, the leverage ratio of tier one capital to total assets less
intangibles is required to be at least 3%. As of December 31, 1995, Bancorp and
all of its subsidiary banks are considered "Well Capitalized" per the regulatory
risk based capital guidelines.
As the following table indicates, Bancorp currently exceeds the
regulatory minimum capital ratio requirements.
<TABLE>
<CAPTION>
December 31, 1995
-------------------------
(Dollars in thousands) Amount Ratio
- ---------------------- -------- -----
<S> <C> <C>
Tier 1 capital ..................................... $ 51,193 13.57%
Tier 1 capital minimum requirement ................. 15,085 4.00
-------- -----
Excess Tier 1 capital ........................... $ 36,108 9.57%
========
Total capital ...................................... $ 55,908 14.82%
Total capital minimum requirement .................. 30,171 8.00
-------- -----
Excess total capital ............................ $ 25,737 6.82%
========
Risk-adjusted assets ............................... $377,138
========
Leverage ratio ..................................... 10.07%
Minimum leverage requirement ....................... 3.00
-----
Excess leverage ratio ........................... 7.07%
=====
Adjusted total assets .............................. $508,795
========
</TABLE>
Shareholders' equity increased to $53.2 million at December 31, 1995 from
$44.2 million at December 31, 1994 an increase of $9.0 million, or 20.36%, over
that period of time. During July 1994 Bancorp received net proceeds of $5.1
million in a public offering of 455,400 shares of common stock. The net proceeds
are available to Bancorp and the Banks to support expansion either through the
opening of new branches or the acquisition of existing facilities. In addition
to pursuing growth in the banking industry, Bancorp has and may continue to use
a portion of the proceeds to pursue opportunities to acquire or establish
financial service related companies in Oregon and adjacent markets and
especially the Portland metropolitan area and vicinity, that would allow for
continued diversification of asset mix and revenue streams. At December 31,
1995, Bancorp's shareholders' equity, as a percentage of total assets, was
10.30%, compared to 9.79% at December 31, 1994. The increase was primarily a
result of income recognition and the increased net value of Bancorp's available
for sale investment portfolio out pacing asset growth. In a rising interest rate
environment, the value of Bancorp's available for sale portfolio will decline
thus negatively impacting equity, the opposite would occur in a falling rate
environment. Equity grew at 20.36% over the period from December 31, 1994 to
December 31, 1995, while assets grew by 14.36% over the same period.
20
<PAGE> 23
INVESTMENT PORTFOLIO
The following table shows the amortized cost and fair value of Bancorp's
investments.
<TABLE>
<CAPTION>
(Dollars in thousands) 1995 1994 1993
- ---------------------- --------------------- --------------------- ---------------------
Amortized Amortized Amortized
Available for sale Cost Fair Value Cost Fair Value Cost Fair Value
- ------------------ --------- ---------- --------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
U.S. Treasury securities . $ 17,714 $ 17,741 $20,774 $20,351 $27,697 $27,865
U.S. Agency securities ... 35,258 35,731 21,835 21,407 19,966 20,397
Obligations of state and . 43,585 45,929 7,671 7,215 8,322 8,544
political subdivisions ..
Other Securities ......... 16,828 16,776 12,667 12,040 16,019 16,363
-------- -------- ------- ------- ------- -------
Total ................. $113,385 $116,177 $62,947 $61,013 $72,004 $73,169
======== ======== ======= ======= ======= =======
<CAPTION>
1995 1994 1993
--------------------- --------------------- ---------------------
Amortized Amortized Amortized
Held to maturity Cost Fair Value Cost Fair Value Cost Fair Value
- ---------------- --------- ---------- --------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
U.S. Treasury securities . $ -- $ -- $ 4,680 $ 4,362 $ 5,627 $ 5,606
U.S. Agency securities ... -- -- 5,872 5,798 2,000 2,071
Obligations of state and . 38,316 38,474 34,794 37,650
political subdivisions .. -- --
Other Securities ......... -- -- 7,983 7,934 11,589 12,211
----- ----- ------- ------- ------- -------
Total ................. $ -- $ -- $56,851 $56,568 $54,010 $57,538
===== ===== ======= ======= ======= =======
</TABLE>
At December 31, 1995, the gross unrealized loss on the investment portfolio was
$329,000 representing .29%of the total portfolio. Management has no current
plans to sell any of these securities that would result in a material impact on
the results of operation.
The following table summarized the contractual maturities and weighted
average yields of investment securities.
<TABLE>
<CAPTION>
(Dollars in thousands) One After 5 Due
Year or One Thru thru after 10
December 31, 1995 Less Yield 5 Years Yield 10 Yrs Yield Years Yield Total Yield
- ----------------- ------- ----- -------- ----- ------- ----- ------- ----- -------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury securities ..... $ 9,650 4.93% $ 8,091 5.45% $ -- --% $ -- --% $ 17,741 5.17%
U.S. Agency securities ....... 6,541 6.53 25,048 6.67 4,142 7.65 -- -- 35,731 6.76
Obligations of state and
political subdivisions(1) ... 2,762 8.40 9,565 9.07 19,337 9.07 14,265 8.92 45,929 8.98
Other Securities (2) ......... 4,098 4.48 11,281 6.65 987 6.04 410 7.74 16,776 6.10
------- ---- ------- ---- ------- ---- ------- ---- -------- ----
Total (1) ................. $23,051 5.72% $53,985 6.91% $24,466 8.71% $14,675 8.89% $116,177 6.52%
======= ==== ======= ==== ======= ==== ======= ===== ======== ====
</TABLE>
(1) Yields are stated on a federal tax-equivalent basis at 34 percent.
(2) Does not reflect anticipated maturity from prepayments on mortgage-based and
asset-based securities. Anticipated lives are shorter than contractual
maturities.
21
<PAGE> 24
LENDING AND CREDIT MANAGEMENT
Interest earned on the loan portfolio is the primary source of income for
Bancorp. Net loans represented 64.88% of total assets as of December 31, 1995.
Although the Banks strive to serve the credit needs of their service areas, the
primary focus is on real estate related and commercial credits. The Banks make
substantially all of their loans to customers located within the Banks' service
areas. The Banks have no loans defined as highly leveraged transactions by the
FRB.
Although a risk of nonpayment exists with respect to all loans, certain
specific types of risks are associated with different types of loans. Owing to
the nature of the Banks' customer base and the growth experienced in the market
areas served, real estate is frequently a material component of collateral for
the Banks' loans. The expected source of repayment of these loans is generally
the operations of the borrower's business or personal income, but real estate
provides an additional measure of security. Risks associated with real estate
loans include fluctuating land values, local economic conditions, changes in tax
policies, and a concentration of loans within any one area.
The Banks mitigate risk on construction loans by generally lending funds
to customers who have been pre-qualified for long-term financing and are using
experienced contractors approved by the Banks. The commercial real estate risk
is further mitigated by making the majority of commercial real estate loans to
owner-occupied users of the property.
The Banks manage the general risks inherent in the loan portfolio by
following loan policies and underwriting practices designed to result in prudent
lending activities. The following table presents the composition of the loan
portfolio.
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991
------------------- ------------------- ------------------- ------------------- -------------------
(Dollars in thousands) Amount Percent Amount Percent Amount Percent Amount Percent Amount Percent
- ---------------------- --------- ------- --------- ------- --------- ------- --------- ------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial loans ........ $ 100,179 29.89% $ 86,406 31.03% $ 81,854 32.38% $ 72,167 32.79% $ 73,175 35.84%
Real estate-construction 31,310 9.34 23,796 8.55 24,675 9.76 10,816 4.91 7,173 3.51
Real estate-mortgage .... 36,164 10.79 34,961 12.55 39,696 15.71 34,899 15.86 33,149 16.23
Real estate-commercial .. 122,992 36.69 97,617 35.06 67,607 26.75 60,447 27.46 44,281 21.69
Installment and other
consumer ................ 49,267 14.70 40,206 14.43 42,906 16.98 45,160 20.52 49,282 24.14
--------- ------ --------- ------ --------- ------ --------- ------ --------- ------
Total loans .......... 339,912 101.41 282,986 101.62 256,738 101.58 223,489 101.54 207,060 101.41
Allowance for loan loss . (4,721) (1.41) (4,519) (1.62) (3,983) (1.58) (3,380) (1.54) (2,871) (1.41)
--------- ------ --------- ------ --------- ------ --------- ------ --------- ------
Total loans, net ..... $ 335,191 100.00% $ 278,467 100.00% $ 252,755 100.00% $ 220,109 100.00% $ 204,189 100.00%
========= ====== ========= ====== ========= ====== ========= ====== ========= ======
</TABLE>
22
<PAGE> 25
The maturity distribution of selected categories of Bancorp's loan
portfolio at December 31, 1995, and the interest sensitivity are estimated in
the following table.
<TABLE>
<CAPTION>
Commercial Real Estate
(Dollars in thousands) Loans Construction Total
- ---------------------- ---------- ------------ --------
<S> <C> <C> <C>
Maturity distribution:
Due within one year .......................... $ 73,623 $29,973 $103,596
Due after one through five years ............. 23,102 1,337 24,439
Due after five years ......................... 3,454 -- 3,454
-------- ------- --------
Total ...................................... $100,179 $31,310 $131,489
======== ======= ========
Interest sensitivity:
Fixed-interest rate loans ..................... $ 32,827 $ 3,980 $ 36,807
Floating or adjustable interest rate loans(1) . 67,352 27,330 94,682
-------- ------- --------
Total ..................................... $100,179 $31,310 $131,489
======== ======= ========
</TABLE>
(1) Some loans contain provisions which place maximum or minimum limits on
interest rate charges.
The Banks manage the general risks inherent in the loan portfolio by
following loan policies and underwriting practices designed to result in prudent
lending activities. The following table presents information with respect to
nonperforming assets.
<TABLE>
<CAPTION>
December 31,
------------------------------------------
(Dollars in thousands) 1995 1994 1993 1992 1991
---- ---- ------ ------ ------
<S> <C> <C> <C> <C> <C>
Loans on nonaccrual status ............. $591 $476 $1,138 $1,984 $1,883
Loans past due 90 days or more
but not on nonaccrual status ......... 10 23 223 376 117
Other real estate owned ................ 1 31 607 335 749
---- ---- ------ ------ ------
Total nonperforming assets ........... $602 $530 $1,968 $2,695 $2,749
==== ==== ====== ====== ======
Percentage of nonperforming assets to
total assets ......................... .12% .12% .46% .71% .77%
</TABLE>
Interest income on loans is accrued daily on the principal balance
outstanding. Generally, no interest is accrued on loans when factors indicate
collection of interest is doubtful or when the principal or interest payment
becomes 90 days past due. For such loans previously accrued but uncollected
interest is charged against current earnings, and income is only recognized to
the extent payments are subsequently received. Interest income foregone on
nonaccrual loans was approximately $68,007 at December 31, 1995.
At December 31, 1995, there was no concentration of loans exceeding 10
percent of the total loans to a multiple number of borrowers engaged in a
similar business.
23
<PAGE> 26
LOAN LOSS ALLOWANCE AND PROVISION
The provision for loan losses charged to operating expense is based on
the Banks' loan loss experience and such other factors that, in management's
judgment, deserve recognition in estimating loan losses. Management monitors the
loan portfolio to ensure that the allowance for loan losses is adequate to cover
outstanding loans. In determining the allowance for loan losses, management
considers the level of non-performing loans, loan mix, loan growth, historical
loss experience for each loan category, potential economic influences, and other
relevant factors related to the loan portfolio. The following table summarizes
the Banks allowance for loan loss and charge-off and recovery activity.
<TABLE>
<CAPTION>
December 31,
-----------------------------------------------------------------
(Dollars in thousands) 1995 1994 1993 1992 1991
- ---------------------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Loans outstanding at end of period .......... $ 339,912 $ 282,986 $ 256,739 $ 223,490 $ 207,060
Average loans outstanding during the period . $ 309,267 $ 270,817 $ 231,582 $ 216,640 $ 185,129
Allowance for loan loss,beginning of period . $ 4,519 $ 3,983 $ 3,381 $ 2,871 $ 2,315
Recoveries .................................. 52 318 239 128 100
Loans charged off ........................... (520) (329) (435) (822) (488)
--------- --------- --------- --------- ---------
Net loans charged off .................... (468) (11) (196) (694) (388)
Provision for possible loan loss ............ 670 547 798 1,204 944
--------- --------- --------- --------- ---------
Allowance for loan loss end of period ....... $ 4,721 $ 4,519 $ 3,983 $ 3,381 $ 2,871
========= ========= ========= ========= =========
Ratio of net loans charged off to average
loans outstanding ................... .15% .00% .08% .32% .21%
</TABLE>
As of December 31, 1995, Bancorp had an agricultural loan with an
outstanding balance of $1.5 million that had been written down by $150,000 due
to the then projected value of the associated crop. During the first quarter of
1996, the loan is being further written down by $320,000 due to continued
declines in the crop value. Should the crop value continue to decline,
additional write downs of the loan balance may be required. The loan is also
being placed on nonaccrual status. This is a special agricultural loan and is
the only one within Bancorp with this specific type of crop. Bancorp feels that
it is an isolated situation, and that reserves are adequate to cover the losses.
It is anticipated that increases to the regular provision for loan losses may be
needed to maintain the reserves at appropriate levels. Due to forecasted loan
growth, Bancorp had already planned for increases to the regular provision for
loan losses.
Management does not normally allocate the allowance for loan loss to
specific loan categories. An allocation to major categories as of December 31,
1995 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.
<TABLE>
<CAPTION>
Ratio of
category of
outstanding
(Dollars in thousands) Amount total loans
- ---------------------- ------ ------------
<S> <C> <C>
Commercial .................................. $1,795 38.02%
Real Estate ................................. 2,075 43.95
Installment and other consumer .............. 851 18.03
------ ------
Total ..................................... $4,721 100.00%
====== ======
</TABLE>
24
<PAGE> 27
Total Deposits and Borrowings. The following table summarizes the average
amount of, and the average rate paid on, each of the deposit and borrowing
categories for the periods shown.
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------------------------------
1995 1994 1993
--------------------- --------------------- --------------------
(Dollars in thousands) Amount Rate Paid Amount Rate Paid Amount Rate Paid
-------- --------- -------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Demand ............................... $ 73,166 -- $ 70,729 -- $ 57,931 --
Savings and interest bearing demand .. 212,718 3.12% 219,960 2.58% 183,940 2.68%
Certificates of deposit .............. 128,444 5.35% 89,676 3.90% 104,701 3.90%
Short-term borrowings ................ 5,383 6.39% 3,598 4.20% 3,207 3.18%
Long-term borrowings ................. 8,790 5.13% 9,195 4.86% 6,986 4.92%
-------- -------- --------
Total deposits and borrowings ..... $428,501 $393,158 $356,765
======== ======== ========
</TABLE>
As of December 31, 1995 time deposit liabilities are presented below at
the earlier of the next repricing date or maturity.
<TABLE>
<CAPTION>
Time Deposits of
$100,000 or More (1) All Other Time Deposits(2)
--------------------- --------------------------
(Dollars in thousands) Amount Percent Amount Percent
- ---------------------- ------- ------- ------- -------
<S> <C> <C> <C> <C>
Reprice/mature in three months or less .............. $ 9,543 30.77% $44,187 44.76%
Reprice/mature after three months through six mths .. 14,992 48.33 20,595 20.86
Reprice/mature after six months through one year .... 5,884 18.97 24,568 24.88
Reprice/mature after one year through five years .... 600 1.93 9,354 9.47
Reprice/mature after five years ..................... -- -- 25 .03
------- ------ ------- ------
Total ............................................. $31,019 100.00% $98,729 100.00%
======= ====== ======= ======
</TABLE>
(1) Time deposits of $100,000 or more represent 7.02% of total deposits as of
December 31, 1995.
(2) All other time deposits represent 22.33% of total deposits as of December
31, 1995.
As of December 31, 1995 other borrowings had the following times
remaining to maturity.
<TABLE>
<CAPTION>
Due in Due after Due after
three three months one year
months through through Due after
(Dollars in thousands) or less one year five years five years Total
- ---------------------- ------- ------------ ---------- ---------- -------
<S> <C> <C> <C> <C> <C>
Federal funds purchased ............ $ -- $ -- $ -- $ -- $ --
Other short-term borrowings ........ 7,927 -- -- -- 7,927
Long-term borrowings ............... 464 1,393 6,524 $457 8,838
------ ------ ------ ---- -------
Total borrowings ................ $8,391 $1,393 $6,524 $457 $16,765
====== ====== ====== ==== =======
</TABLE>
25
<PAGE> 28
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
Report of Independent Public Accountants ..................... 25
Consolidated Balance Sheets .................................. 26
Consolidated Statements of Income ............................ 27
Consolidated Statements of Cash Flows ........................ 28
Consolidated Statements of Shareholders' Equity .............. 29
Notes to Consolidated Financial Statements ................... 30
26
<PAGE> 29
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders and Board of Directors of West Coast Bancorp:
We have audited the accompanying consolidated balance sheets of West
Coast Bancorp (an Oregon corporation) and subsidiaries as of December 31, 1995,
and 1994, and the related consolidated statements of income, changes in
stockholders' equity and cash flows for each of the three years in the period
ended December 31, 1995. These financial statements are the responsibility of
West Coast Bancorp'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 West Coast Bancorp
and subsidiaries as of December 31, 1995, and 1994, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1995, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Portland, Oregon
January 30, 1996
27
<PAGE> 30
WEST COAST BANCORP
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
Year ended December 31, 1995 1994
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and cash equivalents:
Cash and due from banks ......................................... $ 30,621,724 $ 25,047,417
Interest-bearing deposits in other banks ........................ 2,286,848 3,118,272
Federal funds sold .............................................. 7,648,678 5,474,071
------------- -------------
Total cash and cash equivalents .............................. 40,557,250 33,639,760
Investment securities:
Investments available for sale .................................. 116,176,809 61,012,883
Investments held to maturity .................................... -- 56,851,658
------------- -------------
Total investment securities (notes 2 and 3) .................. 116,176,809 117,864,541
Loans held for sale ............................................... 836,399 --
Loans (note 4) .................................................... 339,912,341 282,986,234
Allowance for loan loss (note 4) .................................. (4,721,213) (4,519,267)
------------- -------------
Loans, net ................................................... 335,191,128 278,466,967
Premises and equipment, net (note 5) .............................. 15,608,855 13,687,173
Intangible assets ................................................. 283,290 369,390
Other assets ...................................................... 7,993,495 7,743,941
------------- -------------
Total assets ................................................. $ 516,647,226 $ 451,771,772
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Deposits:
Demand .......................................................... $ 83,278,388 $ 72,334,774
Savings and interest-bearing demand ............................. 229,074,600 213,181,825
Certificates of deposits (note 8) ............................... 129,747,628 94,103,406
------------- -------------
Total deposits ............................................... 442,100,616 379,620,005
Short-term borrowings:
Federal funds purchased ......................................... -- 6,860,000
Other short-term borrowings (note 6) ............................ 7,927,000 7,955,000
------------- -------------
Total short-term borrowings .................................. 7,927,000 14,815,000
Other liabilities ................................................. 4,584,136 4,559,377
Long-term borrowings (note 6) ..................................... 8,837,763 8,545,699
------------- -------------
Total liabilities ............................................ 463,449,515 407,540,081
Commitments and contingent liabilities (notes 10 and 11)
STOCKHOLDERS' EQUITY
Preferred stock, no par value; none issued;
10,000,000 shares authorized
Common stock; no par value 15,000,000 shares authorized;
shares issued and outstanding, 4,804,441, and 4,359,583
respectively (note 9) .......................................... 6,005,551 5,449,479
Additional paid-in capital ........................................ 32,614,692 25,432,849
Retained earnings ................................................. 12,856,449 14,540,734
Net unrealized gains (losses) on investments available for
sale (note 2) .................................................. 1,721,019 (1,191,371)
------------- -------------
Total stockholders' equity ................................... 53,197,711 44,231,691
------------- -------------
Total liabilities and stockholders' equity ................... $ 516,647,226 $ 451,771,772
============= =============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED STATEMENTS.
28
<PAGE> 31
WEST COAST BANCORP
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Year ended December 31, 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans ........................... $33,055,409 $27,197,077 $24,209,348
Interest on taxable investment securities ............ 4,201,931 4,165,272 5,049,532
Interest on nontaxable investment securities ......... 2,662,802 2,614,335 2,499,654
Interest from other banks ............................ 151,914 165,377 29,881
Interest on federal funds sold ....................... 555,843 345,043 372,685
----------- ----------- -----------
Total interest income ........................... 40,627,899 34,487,104 32,161,100
INTEREST EXPENSE
Savings and interest-bearing demand .................. 6,642,960 5,683,451 4,934,563
Certificates of deposit .............................. 6,865,768 3,493,743 4,084,475
Short-term borrowings ................................ 343,789 151,334 102,416
Long-term borrowings ................................. 451,128 447,268 343,807
----------- ----------- -----------
Total interest expense .......................... 14,303,645 9,775,796 9,465,261
----------- ----------- -----------
NET INTEREST INCOME .................................. 26,324,254 24,711,308 22,695,839
PROVISION FOR LOAN LOSS (Note 4) ..................... 670,460 547,500 798,000
----------- ----------- -----------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSS .... 25,653,794 24,163,808 21,897,839
NONINTEREST INCOME
Service charges on deposit accounts .................. 2,385,938 2,271,084 2,311,469
Other service charges, commissions, and fees ......... 2,214,167 1,842,062 1,154,947
Trust revenue ........................................ 1,268,587 1,205,973 1,078,367
Gains on sales of loans .............................. 852,954 1,010,267 688,932
Loan servicing fees .................................. 491,855 449,795 322,487
Other ................................................ 620,453 279,092 782,949
Net gains (losses) on sales of securities ............ 7,879 (170,464) 142,720
----------- ----------- -----------
Total noninterest income ........................ 7,841,833 6,887,809 6,481,871
NONINTEREST EXPENSE
Salaries and employee benefits ....................... 13,093,850 12,110,658 11,000,849
Equipment ............................................ 1,890,516 1,669,916 1,534,834
Occupancy ............................................ 1,759,799 1,563,080 1,338,486
Professional fees .................................... 1,302,609 1,949,768 1,281,172
ATM and bankcard ..................................... 784,287 643,313 781,742
Marketing ............................................ 671,790 648,275 562,192
Printing and office supplies ......................... 649,307 524,279 528,188
FDIC Insurance ....................................... 451,062 820,704 757,913
Communications ....................................... 560,245 404,227 350,420
Other noninterest expense ............................ 2,120,048 2,608,099 1,941,101
----------- ----------- -----------
Total noninterest expense ....................... 23,283,513 22,942,319 20,076,897
----------- ----------- -----------
INCOME BEFORE INCOME TAXES ........................... 10,212,114 8,109,298 8,302,813
PROVISION FOR INCOME TAXES (Note 7) .................. 2,853,519 2,457,549 2,268,060
----------- ----------- -----------
NET INCOME ........................................... $ 7,358,595 $ 5,651,749 $ 6,034,753
=========== =========== ============
EARNINGS PER COMMON SHARE ............................ $ 1.53 $ 1.24 $ 1.39
=========== =========== ============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED STATEMENTS.
29
<PAGE> 32
WEST COAST BANCORP
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year ended December 31, 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income ...................................................... $ 7,358,595 $ 5,651,749 $ 6,034,753
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization of premises and equipment ....... 1,153,841 1,010,347 889,436
Amortization of intangibles ................................... 86,100 86,100 86,100
Net (gains) losses on sales of investments .................... (7,879) 170,464 (142,720)
Provision for loan losses ..................................... 670,460 547,500 798,000
Increase in interest receivables .............................. (684,544) (135,214) (116,733)
Decrease (increase) in other assets ........................... 434,990 (1,573,021) 560,465
Increase (decrease) in interest payable ....................... 242,402 (146,357) 107,601
(Decrease) increase in other liabilities ...................... (217,643) (115,994) 1,889,796
------------ ------------ ------------
Net cash provided by operating activities .................... 9,036,322 5,495,574 10,106,698
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from maturities of investment securities:
Available for sale ............................................ 27,921,500 30,447,335 --
Held to maturity .............................................. 9,896,579 9,748,139 39,398,565
Proceeds from sales of investment securities:
Available for sale ............................................ 3,368,709 10,329,000 --
Held to maturity .............................................. -- 1,881,000 8,476,000
Purchase of investment securities:
Available for sale ............................................ (33,412,688) (30,414,344) --
Held to maturity .............................................. (3,166,099) (14,470,386) (58,448,861)
Loans made to customers greater than
principal collected on loans .................................. (58,231,020) (25,400,610) (34,302,656)
Capital expenditures ............................................ (3,075,523) (4,735,780) (2,689,548)
------------ ------------ ------------
Net cash used in net investing activities .................... (56,698,542) (22,615,646) (47,566,500)
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in demand, savings and
interest-bearing transaction accounts ......................... 26,836,389 13,512,371 44,347,801
Net increase (decrease) in proceeds from sales
of certificates of deposits greater than
payments for maturing time deposits ........................... 35,644,222 (2,286,917) (15,984,337)
Proceeds from long-term borrowings .............................. 2,000,000 1,000,000 10,000,000
Payments on long-term borrowings ................................ (1,707,936) (1,549,539) (904,762)
Net increase (decrease) in short-term borrowings ................ (6,888,000) 2,495,000 6,523,000
Sales (purchases) of common stock, net .......................... 103,440 5,043,356 (592,379)
Dividends paid and cash paid for fractional shares .............. (1,408,405) (1,150,514) (999,692)
------------ ------------ ------------
Net cash provided by financing activities .................... 54,579,710 17,063,757 42,389,631
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ............ 6,917,490 (56,315) 4,929,829
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR .................. 33,639,760 33,696,075 28,766,246
------------ ------------ ------------
CASH AND CASH EQUIVALENTS AT END OF YEAR ........................ $ 40,557,250 $ 33,639,760 $ 33,696,075
============ ============ ============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED STATEMENTS.
30
<PAGE> 33
WEST COAST BANCORP
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Unrealized
Gains
(Losses)
on
Additional Investments
Common Stock Paid-In Retained Available
Shares Amount Capital Earnings For Sale Total
------------------------ ------------ ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, December 31, 1992 2,993,046 $ 3,741,308 $ 16,010,454 $ 11,684,027 $ -- $ 31,435,789
Net income -- -- -- 6,034,753 -- 6,034,753
Net unrealized gains on investments
available for sale -- -- -- -- 432,469 432,469
Cash dividends, $.23 per common
share -- -- -- (999,120) -- (999,120)
Purchase of stock at cost (83,230) (104,038) (1,011,819) -- -- (1,115,857)
Sale of stock 25,101 31,376 282,000 -- -- 313,376
Sale of common stock pursuant to
stock option plans 22,718 28,397 181,705 -- -- 210,102
10 percent stock dividend 52,484 65,605 1,246,490 (1,312,095) -- --
Cash paid for fractional shares -- -- -- (572) -- (572)
--------- ----------- ------------ ------------ ----------- ------------
BALANCE, December 31, 1993 3,010,119 3,762,648 16,708,830 15,406,993 432,469 36,310,940
Net income -- -- -- 5,651,749 -- 5,651,749
Net unrealized losses on investments
available for sale -- -- -- -- (1,623,840) (1,623,840)
Cash dividends, $.24 per common
share -- -- -- (1,149,105) -- (1,149,105)
Purchase of stock at cost (25,290) (31,613) (364,500) -- -- (396,113)
Sale of stock 22,922 28,653 334,452 -- -- 363,105
Sale of common stock pursuant to
stock option plans 2,078 2,598 17,323 -- -- 19,921
10 percent stock dividend 296,860 371,075 4,996,419 (5,367,494) -- --
Stock split in the form of a
100 percent dividend 638,894 798,618 (798,618) -- -- --
Cash paid for fractional shares -- -- -- (1,409) -- (1,409)
Issuance of common stock in
public offering 414,000 517,500 4,538,943 -- -- 5,056,443
--------- ----------- ------------ ------------ ----------- ------------
BALANCE, December 31, 1994 4,359,583 5,449,479 25,432,849 14,540,734 (1,191,371) 44,231,691
Net income -- -- -- 7,358,595 -- 7,358,595
Net unrealized gains on investments
available for sale -- -- -- -- 2,912,390 2,912,390
Cash dividends $.29 per common
share -- -- -- (1,395,569) -- (1,395,569)
Sale of stock 5,699 7,124 82,286 -- -- 89,410
Sale of common stock pursuant to
stock option plans 3,167 3,958 10,072 -- -- 14,030
10 percent stock dividend 436,276 545,345 7,089,485 (7,634,830) -- --
Cash paid for fractional shares (284) (355) -- (12,481) -- (12,836)
--------- ----------- ------------ ------------ ----------- ------------
BALANCE, December 31, 1995 4,804,441 $ 6,005,551 $ 32,614,692 $ 12,856,449 $ 1,721,019 $ 53,197,711
========= =========== ============ ============ =========== ============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED STATEMENTS.
31
<PAGE> 34
WEST COAST BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation. The accompanying consolidated financial
statements include the accounts of West Coast Bancorp (Bancorp) and its
wholly-owned subsidiaries, The Commercial Bank, The Bank of Newport, and Valley
Commercial Bank, (the Banks) after elimination of intercompany transactions and
balances.
Nature of Operations. Bancorp operates 28 branch office locations in
Oregon. The Banks activities include the usual lending and deposit functions of
commercial banks. The Commercial Bank also has a Trust Department which provides
agency, trust and related services.
Investment Securities. Bancorp adopted Financial Accounting Standards
Board Statement SFAS No. 115 "Accounting for Certain Investments in Debt and
Equity Securities" as of December 31, 1993. Under the standard, investment
securities are classified as either available for sale or held to maturity.
Available for sale securities are carried at fair value with unrealized gains
and losses, net of any tax effect, added to or deducted directly from
stockholders' equity. Held to maturity securities are carried at amortized cost.
Loans Held for Sale. Loans held for sale are carried at the lower of cost
or market. Market value is determined in the aggregate.
Loans. Interest income on loans is accrued daily on the principal balance
outstanding. Generally, no interest is accrued on loans when factors indicate
collection of interest is doubtful or when the principal or interest payment
becomes 90 days past due. For such loans, previously accrued but uncollected
interest is charged against current earnings, and income is only recognized to
the extent payments are subsequently received. Loan fees are offset against
operating expense to the extent these fees cover the direct expense of
originating loans. Fees in excess of origination costs are deferred and
amortized to income over the related loan period.
Accounting Changes. In May 1993, the Financial Accounting Standards Board
issued SFAS No. 114, "Accounting by Creditors for Impairment of a Loan" and in
October 1994 issued SFAS No. 118, "Accounting by Creditors for Impairment of a
Loan-Income Recognition Disclosures, an amendment to SFAS No. 114." They require
that impaired loans be measured based on the present value of expected future
cash flows discounted at the loan's effective interest rate or, as a practical
expedient, at the loan's observable market price or the fair market value of the
collateral if the loan is collateral dependent. These statements exclude loans
that are currently measured at fair value or at lower of cost or fair value,
leases and certain large groups of smaller balance homogeneous loans that are
collectively measured for impairment. These statements apply to financial
statements for fiscal years beginning after December 31, 1994. The
implementation of the statements did not have a material effect on Bancorp's
reported financial position or net income in 1995.
In May 1995, FASB issued SFAS No. 122, "Accounting to Mortgage Servicing
Rights", which requires recognition as separate assets rights to service
mortgage loans for others, however those rights are acquired. It further
requires the assessment of its capitalized mortgage servicing rights for
impairment based on the fair value of those rights. Impairment should be
recognized through a valuation allowance. This statement applies to financial
statements for fiscal years beginning after December 15, 1995. Management
believes that implementation of this statement will not have a material effect
on Bancorp's reported financial position or net income.
Allowance for Loan Loss. The allowance for loan loss 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 allowance.
32
<PAGE> 35
WEST COAST BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Premises and Equipment. Premises and equipment are stated at cost, less
accumulated depreciation. The provision for depreciation is computed on the
straight-line method over the estimated useful lives of the related assets.
Improvements are capitalized and depreciated over their estimated useful lives.
Minor repairs, maintenance, and improvements are charged to operations as
incurred. When property is replaced or otherwise disposed of, the cost of such
assets and the related accumulated depreciation are removed from their
respective accounts. Related profit or loss, if any, is recorded in the
Consolidated Statement of Income.
Other Borrowings. Federal funds purchased and securities sold under
agreements to repurchase generally mature within one to four days from the
transaction date. Other short-term borrowed funds consist of term federal funds
purchased and other such borrowings that mature within 1 to 120 days from the
transaction date, other long-term borrowed funds extend beyond 120 days.
Income Taxes. In 1993, Bancorp adopted the SFAS No. 109, "Accounting for
Income Taxes." Under the standard, income taxes are accounted for using the
asset and liability method. Under this method, a deferred tax asset or liability
is determined based on the enacted tax rates which will be in effect when the
differences between the financial statement carrying amounts and tax bases of
existing assets and liabilities are expected to be reported in Bancorp income
tax returns. The deferred tax provision for the year is equal to the net change
in the deferred tax asset from the beginning to the end of the year, less
amounts applicable to the change in value related to investments available for
sale. The effect on deferred taxes of a change in tax rates is recognized in
income in the period that includes the enactment date. The cumulative effect of
this change as of January 1, 1993 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
Commercial Bank 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 The Commercial Bank.
Earnings Per Share. Earnings per share computations are based on the
weighted average common stock equivalent shares outstanding during the year. The
shares used in calculating earnings per share were 4,803,461, 4,561,154, and
4,337,086 for December 31, 1995, 1994, and 1993, respectively. The shares used
in calculating earnings per share have been restated to reflect all stock
dividends paid as well as the two-for-one stock split in the form of a 100
percent stock dividend distributable June 8, 1994.
Supplemental Cash Flow Information. For purposes of reporting cash flows,
cash and cash equivalents include cash on hand, amounts due from banks, and
federal funds sold. Generally, federal funds are purchased and sold for one-day
periods.
Bancorp paid $14,061,000, $10,187,000, and $8,921,000, for interest in
1995, 1994, and 1993, respectively. Income taxes paid were $2,629,000,
$2,199,000, and $2,734,000 in 1995, 1994, and 1993, respectively.
Use Of Estimates In The Preparation Of Financial Statements. The
preparation of financial statements, in conformity with generally accepted
accounting principles, requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Reclassifications. Certain reclassification of prior year amounts have
been made to conform to current classifications.
33
<PAGE> 36
WEST COAST BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. INVESTMENT SECURITIES
<TABLE>
<CAPTION>
(Dollars in thousands) AVAILABLE FOR SALE
---------------------- ---------------------------------------------------------------
Unrealized Unrealized
1995 Amortized Cost Gross Gains Gross Losses Fair Value
---- -------------- ----------- ------------ ----------
<S> <C> <C> <C> <C>
U.S. Treasury securities ...................... $ 17,714 $ 75 $ 48 $ 17,741
U.S. Government agency securities ............. 35,258 489 16 35,731
Corporate securities .......................... 4,748 57 2 4,803
Mortgage-backed securities .................... 9,234 81 195 9,120
Obligations of state and political subdivisions 43,585 2,410 66 45,929
Other securities .............................. 2,846 9 2 2,853
-------- ---------- --------- ---------
Total ....................................... $113,385 $ 3,121 $ 329 $ 116,177
======== ========== ========= =========
<CAPTION>
AVAILABLE FOR SALE
---------------------------------------------------------------
Unrealized Unrealized
1994 Amortized Cost Gross Gains Gross Losses Fair Value
---- -------------- ----------- ------------ ----------
<S> <C> <C> <C> <C>
U.S. Treasury securities ...................... $ 20,774 $ 3 $ 426 $ 20,351
U.S. Government agency securities ............. 21,835 11 439 21,407
Corporate securities .......................... 1,498 2 20 1,480
Mortgage-backed securities .................... 9,542 4 609 8,937
Obligations of state and political subdivisions 7,671 2 458 7,215
Other securities .............................. 1,627 - 4 1,623
-------- ---------- --------- ---------
Total ....................................... $ 62,947 $ 22 $ 1,956 $ 61,013
======== ========== ========= ==========
<CAPTION>
HELD TO MATURITY
---------------------------------------------------------------
Unrealized Unrealized
1994 Amortized Cost Gross Gains Gross Losses Fair Value
---- -------------- ----------- ------------ ----------
<S> <C> <C> <C> <C>
U.S. Treasury securities ...................... $ 4,680 $ - $ 318 $ 4,362
U.S. Government agency securities ............. 5,872 9 83 5,798
Corporate securities .......................... 5,804 20 47 5,777
Mortgage-backed securities .................... 301 - 50 251
Obligations of state and political subdivisions 38,316 801 643 38,474
Other securities .............................. 1,878 28 - 1,906
-------- ---------- --------- ---------
Total ....................................... $ 56,851 $ 858 $ 1,141 $ 56,568
======== ========== ======== ==========
</TABLE>
Gross Gains of $11,620, $5,000, and $142,720 and gross losses of
$3,741, $175,464, and $0 were realized on sales of investment securities in
1995, 1994, and 1993, respectively. In November 1995, Bancorp adopted the FASB
Special Report concerning the implementation of SFAS No. 115. Accordingly, it
elected to transfer all its investment securities classified as held to maturity
to the available for sale category. Securities with a fair value of
approximately $19,585,259 at December 31, 1995, were pledged to secure public
deposits. Outstanding mortgage- backed securities classified as high-risk at
December 31, 1995 were $2,950,000 with a yield of 6.60% and a fair market value
of $2,803,000.
34
<PAGE> 37
WEST COAST BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. MATURITIES OF INVESTMENTS
<TABLE>
<CAPTION>
(Dollars in thousands) AVAILABLE FOR SALE
- ---------------------- ------------------
1995 Amortized Cost Fair Value
- ---- -------------- ----------
<S> <C> <C>
U.S. Treasury securities
One year or less ............................. $ 9,654 $ 9,650
One year through five years .................. 8,060 8,091
After five through ten years ................. -- --
Due after ten years -- --
-------- --------
Total ..................................... 17,714 17,741
U.S. Government agency securities
One year or less ............................. 6,502 6,541
One year through five years .................. 24,687 25,048
After five through ten years ................. 4,069 4,142
Due after ten years -- --
-------- --------
Total ..................................... 35,258 35,731
Corporate Securities
One year or less ............................. 1,399 1,405
One year through five years .................. 3,349 3,398
After five through ten years ................. -- --
Due after ten years -- --
-------- --------
Total ..................................... 4,748 4,803
Obligations of state and political subdivisions
One year or less ............................. 2,746 2,762
One year through five years .................. 9,164 9,565
After five through ten years ................. 18,211 19,337
Due after ten years .......................... 13,464 14,265
-------- --------
Total ..................................... 43,585 45,929
Other Securities
One year or less ............................. 1,075 1,074
One year through five years .................. 77 76
After five through ten years ................. -- --
Due after ten years -- --
-------- --------
Total .................................... 1,152 1,150
Sub-total ................................ 102,457 105,354
Mortgage-backed securities ..................... 9,234 9,120
Equity investments ............................. 1,694 1,703
-------- --------
Total securities ......................... $113,385 $116,177
======== ========
</TABLE>
35
<PAGE> 38
WEST COAST BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. LOANS AND ALLOWANCE FOR LOAN LOSS
The loan portfolio consists of the following:
<TABLE>
<CAPTION>
December 31,
-----------------------------
1995 1994
------------ ------------
<S> <C> <C>
Commercial loans . . . . . . . . . . . $100,178,760 $ 86,406,014
Real estate - construction . . . . . . 31,309,797 23,796,393
Real estate - mortgage . . . . . . . . 36,164,534 34,961,168
Real estate - commercial . . . . . . . 122,991,790 97,617,079
Installment and other consumer . . . . 49,267,460 40,205,580
------------ ------------
Total loans . . . . . . . . . . . . 339,912,341 282,986,234
Allowance for loan loss . . . . . . . . (4,721,213) (4,519,267)
------------ ------------
Total loans, net . . . . . . . . . . $335,191,128 $278,466,967
============ ============
</TABLE>
The following is an analysis of the changes in the allowance for loan loss:
<TABLE>
<CAPTION>
December 31,
------------------------------------
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
Balance, beginning of period ........... $4,519,267 $3,983,283 $3,381,172
Provision for loan loss ................ 670,460 547,500 798,000
Losses charged to the allowance ........ (519,867) (329,770) (435,393)
Recoveries credited to the allowance ... 51,353 318,254 239,504
---------- ---------- ----------
Balance, end of period ............ $4,721,213 $4,519,267 $3,983,283
========== ========== ==========
</TABLE>
Loans on which the accrual of interest has been discontinued or reduced
amounted to approximately $590,503, $476,000 and $1,138,000 at December 31,
1995, 1994, and 1993, respectively. Interest income foregone on non-accrual
loans was approximately $68,007, $72,687, and $160,151, in 1995, 1994, and 1993,
respectively.
Effective January 1, 1995, Bancorp adopted the new accounting standard
"Accounting by Creditors for Impairment of a Loan." A loan is impaired when,
based on current information and events, it is probable that Bancorp will be
unable to collect all amounts due according to the contractual terms of the loan
agreement. When a loan is impaired, the recorded amount of the loan in the
Consolidated Balance Sheets is based on the present value of expected future
cash flows discounted at the loan's effective interest rate or on the observable
or estimated market price of the loan or the fair value of the collateral if the
loan is collateral dependent. As of December 31, 1995, the total recorded
investment in impaired loans was $50,000 and the related allowance for credit
losses was $10,000. The valuation allowance is included in the allowance for
loan losses on the balance sheet. For income reporting purposes, impaired loans
are placed on a non-accrual status more fully discussed in Note 1. Cash payments
are first applied as a reduction of the loans principal balance until
collectibility of the remaining principal and interest can be reasonably
assured. Thereafter interest income is recognized as it is collected in cash.
There was no interest income reported on these loans during 1995.
As of December 31, 1995, the Banks had loans to persons serving as
directors, officers, and employees, including their spouses, associates, and
related organizations totaling $12,623,302. These loans were made substantially
on the same terms, including interest rates, maturities, and collateral, as
those made to other customers of the Banks.
The Banks grant commercial and residential loans to customers throughout
Oregon. Although the Banks have a diversified loan portfolio, a substantial
portion of the portfolio belongs to debtors whose ability to honor their
contracts is dependent upon the economy of Oregon.
36
<PAGE> 39
WEST COAST BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. PREMISES AND EQUIPMENT
Premises and equipment consists of the following:
<TABLE>
<CAPTION>
December 31,
-------------------------------
1995 1994
----------- -----------
<S> <C> <C>
Land . . . . . . . . . . . . . . $ 2,142,476 $ 2,142,176
Buildings and improvements . . . 13,043,435 11,843,401
Furniture and equipment . . . . . 8,136,242 6,156,791
Construction in progress . . . . 95,512 463,789
----------- -----------
23,417,665 20,606,157
Accumulated depreciation . . . . (7,808,810) (6,918,984)
----------- -----------
Total . . . . . . . . . . . . $15,608,855 $13,687,173
=========== ===========
</TABLE>
Depreciation included in net occupancy and equipment expense amounted to
$1,153,841, $1,010,347, and $889,436 for the years ended December 31, 1995,
1994, and 1993 respectively.
6. BORROWINGS
Short-term borrowings consist of a $8.05 million cash management advance
line for overnight funding from the Federal Home Loan Bank of Seattle. The
balance outstanding at December 31, 1995 was $7,927,000 at a rate of 6.125
percent. In addition, Bancorp has a $300,000 line of credit at prime plus 1
percent with another financial institution, of which the amount outstanding at
December 31, 1995, was $0.
Long-term borrowings consist of three notes: A $10,000,000 note with a
balance of $6,238,096 at December 31, 1995 with a seven year term and monthly
payments, maturing on April 12, 2000 at a rate of 5.0 percent; a $1,000,000 note
with a balance of $736,175 at December 31, 1995 with a seven year term and
monthly payments, maturing January 26, 2001 at a rate of 5.4 percent; and a
$2,000,000 note with a balance of $1,863,492 at December 31, 1995 with a seven
year term and monthly payments, maturing June 7, 2002 at a rate of 6.6 percent.
Principal payments on long term borrowings due in 1996 through 1999 are in equal
amounts of $1,857,143 annually, payments due in 2000 equal $952,381 with a
balance of $456,810 due thereafter.
37
<PAGE> 40
WEST COAST BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. INCOME TAXES
The provision for income taxes attributable to income for the last three
years consisted of the following:
<TABLE>
<CAPTION>
(Dollars in thousands) Year ended December 31,
---------------------- -----------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Current
Federal ............... $ 2,524 $ 1,950 $ 2,181
State ................. 336 550 618
------- ------- -------
2,860 2,500 2,799
Deferred
Federal ............... (5) (38) (464)
State ................. (1) (4) (67)
------- ------- -------
(6) (42) (531)
Total
Federal ............... 2,519 1,912 1,717
State ................. 335 546 551
------- ------- -------
Total ............... $ 2,854 $ 2,458 $ 2,268
======= ======= =======
</TABLE>
The tax effect of temporary differences that give rise to significant
portions of deferred tax assets and deferred tax liabilities for the last three
years are presented below:
<TABLE>
<CAPTION>
(Dollars in thousands) December 31,
---------------------- ------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Deferred tax assets:
Allowance for loan loss ......................... $1,078 $1,013 $ 825
Deferred income ................................. 207 292 487
Net unrealized losses on investments available
for sale .................................. -- 599 --
Net operating loss .............................. 63 143 103
Reorganization costs ............................ 111 -- --
Deferred liabilities ............................ 123 154 88
Accrued expenses ................................ 192 125 40
Other ........................................... -- 39 11
------ ------ ------
Total deferred tax assets .................... 1,774 2,365 1,554
Deferred tax liabilities:
Accumulated depreciation ........................ 419 433 302
Federal Home Loan Bank stock dividends .......... 199 162 127
Net unrealized gains on investments available
for sale .................................... 1,071 -- 274
Other ........................................... 3 24 20
------ ------ ------
Total deferred liabilities ................... 1,692 619 723
------ ------ ------
Net deferred tax assets ............................ $ 82 $1,746 $ 831
====== ====== ======
</TABLE>
38
<PAGE> 41
WEST COAST BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. INCOME TAXES (Continued)
The effective tax rate of the provision for income taxes varies from the
federal income tax statutory rate. The reasons for the variance are as follows:
<TABLE>
<CAPTION>
Year ended December 31,
-----------------------
(Dollars in thousands) 1995 1994 1993
---------------------- ---- ---- ----
<S> <C> <C> <C>
Expected federal income tax provision at 34 percent ... $3,472 $2,757 $2,825
State income tax, net of federal income tax effect .... 223 388 382
Interest on obligations of state and political
subdivisions exempt from federal tax ................ (802) (842) (799)
Other, net ............................................ (39) 155 (140)
------ ------ ------
Total ........................................... $2,854 $2,458 $2,268
====== ====== ======
</TABLE>
8. CERTIFICATES OF DEPOSITS
Included in certificates of deposit are certificates in denominations of
$100,000 or greater, totaling $31,019,145 and $17,887,405 at December 31, 1995,
and 1994, respectively. Interest expense relating to certificates of deposits in
denominations of $100,000 or greater was $1,719,009, $688,001, and $676,930 for
the years ended December 31, 1995, 1994, and 1993, respectively.
9. STOCKHOLDERS' EQUITY AND STOCK OPTION PLANS
Authorized capital of West Coast Bancorp includes 10,000,000 shares of
Preferred Stock no par value, none of which was issued at December 31, 1995.
On September 28, 1995, the Board of Directors declared a 10 percent stock
dividend payable October 31, 1995. All share and per share amounts have been
restated to retroactively reflect the stock dividend as well as all previous
stock dividends and splits.
Bancorp's stock incentive plans include the Combined 1991 Employee Stock
Option Plan and Non-Qualified Stock Option Plan (the 1991 Plan), the 1995
Directors Stock Option Plan (the 1995 Plan), the 1985 Non-Qualified Stock Option
Plan and the 1985 Qualified Stock Option Plan (the 1985 Plans). The 1991 Plan
allows for a maximum number of shares available for grant not to exceed 2
percent of the shares of Bancorp's outstanding common stock on January 1st of
each such year. The 1995 Plan authorizes the issuance of 220,000 shares of
common stock. No additional grants may be made under the 1985 Plans.
Substantially all stock options have an exercise price that is not less
than the fair market value of Bancorp's stock on the date the option was
granted. The options granted under the 1991 and 1995 plans are exercisable
immediately following the effective date of the grant. Substantially all options
previously granted under the 1985 Plans become exercisable at a rate of 2
percent a month for 50 months.
39
<PAGE> 42
WEST COAST BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. STOCKHOLDERS' EQUITY AND STOCK OPTION PLANS (continued)
The following table represents share activity related to the plans:
<TABLE>
<CAPTION>
Common Option Price
Shares Per Share
------ -----------------
December 31, 1995
-----------------
<S> <C> <C>
Balance beginning of year ............ 239,200 $ 3.76 - $13.98
Granted ............................ 112,002 12.95 - 15.91
Exercised .......................... (3,473) 3.87 - 9.39
Canceled ........................... (1,060) 3.87 - 9.39
------- ------ ------
Balance, end of year ................. 346,669 $ 3.76 - $15.91
======= ====== ======
December 31, 1994
Balance beginning of year ............ 200,451 $ 3.76 - $12.92
Granted ............................ 60,456 11.02 - 13.98
Exercised .......................... (3,927) 2.25 - 7.61
Canceled ........................... (17.780) 9.39 - 9.39
------- ------ ------
Balance, end of year ................. 239,200 $ 3.76 - $13.98
======= ====== ======
</TABLE>
Options to purchase 294,472 shares are exercisable with expiration dates
ranging from December, 1998 to September, 2005 for options outstanding at
December 31, 1995.
10. COMMITMENTS AND CONTINGENT LIABILITIES
Bancorp and the Banks lease land and office space under sixteen long-term
noncancellable operating leases that expire between 1996 and 2011. At the end of
the respective lease terms, Bancorp may renew the leases at fair rental value.
Minimum future lease payments under these leases and other operating leases are:
<TABLE>
<CAPTION>
Minimum Future
Year Lease Payment
---- -------------
<S> <C>
1996 .............. $594,433
1997 .............. 528,168
1998 .............. 533,524
1999 .............. 533,462
2000 .............. 438,882
Thereafter ........ 1,550,541
-----------
Total .......... $ 4,179,010
===========
</TABLE>
Rental expense for all operating leases was $550,558, $363,032, and
$380,678, for the years ended December 31, 1995, 1994, and 1993, respectively.
40
<PAGE> 43
WEST COAST BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
11. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
The Banks have financial instruments with off-balance sheet risk in the
normal course of business to meet the financing needs of its customers. 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 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 for on-balance sheet instruments. Management does
not anticipate any material loss as a result of these transactions.
<TABLE>
<CAPTION>
Contract or
Notional Amount
---------------
<S> <C>
Financial instruments whose contract amounts represent credit risk:
Commitments to extend credit
Real estate secured for commercial construction or land development ..... $46,188,000
Revolving open-end lines secured by 1-4 family residential properties ... 4,402,000
Credit card lines ....................................................... 5,166,000
Other ................................................................... 42,358,000
Standby letters of credit and financial guarantees ......................... 1,598,000
</TABLE>
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. Many of the commitments may expire without being drawn
upon, therefore the total commitment amounts do not necessarily represent future
cash requirements. Each customer's credit worthiness is evaluated on a
case-by-case basis. The amount of collateral obtained, if deemed necessary upon
extension of credit, is based on management's credit evaluation 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 to guarantee the
performance of a customer to a third party. The credit risk involved in issuing
letters of credit is essentially the same as that involved in extending loan
facilities to customers.
41
<PAGE> 44
WEST COAST BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
12. BALANCES WITH THE FEDERAL RESERVE BANK
The Banks are required to maintain cash reserves or deposits with the Federal
Reserve Bank equal to a percentage of reservable deposits. Average required
reserves for The Bank of Newport, The Commercial Bank and Valley Commercial Bank
were $1,052,000, $5,297,000, and $95,000 respectively, during 1995.
13. EMPLOYEE BENEFIT PLANS
West Coast Bancorp employee benefit plans include two plans established
pursuant to section 401(k) of the Internal Revenue Code for certain qualified
employees. Contributions made to the 401(k) plans are based on percentages of
employee's salaries. Under Plan I, Bancorp matches 50 percent of the employee's
contributions up to a maximum of 6 percent of the employee's salary. Under Plan
II, Bancorp matches 25 percent of the employee's contributions up to a maximum
of 6 percent of the employee's salary up to a maximum of $2,310 per employee.
Bancorp may also elect to make discretionary contributions to both plans.
Expenses under the Plans totaled $508,341, $510,903, and $404,599 for 1995,
1994, and 1993 respectively, of which $383,127, $377,058, and $313,000,
respectively, were discretionary.
Effective January 1, 1996, the 401(k) plans will be merged into one plan
similar to Plan I.
In 1991, Bancorp established a Non-qualified Deferred Compensation Trust Plan
for Directors. In addition, Bancorp has accrued deferred compensation related to
agreements with present and former employees. Expenses relating to these plans
and the deferred compensation were $98,566, $52,316, and $39,852 for 1995, 1994,
and 1993, respectively.
14. FAIR VALUES OF FINANCIAL INSTRUMENTS
SFAS No. 107, "Disclosures about Fair Value of Financial Instruments,"
requires the disclosure of the fair value of financial instruments. A financial
instrument is defined as cash, evidence of an ownership interest in an entity,
or a contract that conveys or imposes the contractual right or obligation to
either receive or deliver cash or another financial instrument. Examples of
financial instruments included in Bancorp's balance sheet are cash, federal
funds sold or purchased, debt and equity securities, loans, demand, savings and
other interest-bearing deposits, notes and debentures. Examples of financial
instruments which are not included in the Bancorp balance sheet are commitments
to extend credit and standby letters of credit.
Fair value is defined as the amount at which a financial instrument could be
exchanged in a current transaction between willing parties, other than in a
forced sale or liquidation, and is best evidenced by a quoted market price if
one exists.
The statement requires the fair value of deposit liabilities with no stated
maturity, such as demand deposits, NOW and money market accounts, to equal the
carrying value of these financial instruments and does not allow for the
recognition of the inherent value of core deposit relationships when determining
fair value. While the statement does not require disclosure of the fair value of
nonfinancial instruments, such as Bancorp's premises and equipment, its banking
and trust franchises and its core deposit relationships, Bancorp believes these
nonfinancial instruments have significant fair value.
42
<PAGE> 45
WEST COAST BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
14. FAIR VALUES OF FINANCIAL INSTRUMENTS (continued)
Bancorp has estimated fair value based on quoted market prices where
available. In cases where quoted market prices were not available, fair values
were based on the quoted market price of a financial instrument with similar
characteristics, the present value of expected future cash flows or other
valuation techniques that utilize assumptions which are highly subjective and
judgmental in nature. Subjective factors include, among other things, estimates
of cash flows, the timing of cash flows, risk and credit quality characteristics
and interest rates. Accordingly, the results may not be precise and modifying
the assumptions may significantly affect the values derived. In addition, fair
values established utilizing alternative valuation techniques may or may not be
substantiated by comparison with independent markets. Further, fair values may
or may not be realized if a significant portion of the financial instruments
were sold in a bulk transaction or a forced liquidation. Therefore any aggregate
unrealized gains or losses should not be interpreted as a forecast of future
earnings or cash flows. Furthermore, the fair values disclosed should not be
interpreted as the aggregate current value of Bancorp.
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 that mature or reprice within one year, 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-rate certificates of deposit is estimated using the rates
currently offered for deposits of similar remaining maturities. The fair value
of variable-rate certificates is estimated at carrying value as these deposits
reprice to market frequently.
Short-term borrowings - The carrying amount is a reasonable estimate of fair
value being given the short-term nature of these financial instruments.
Long-term borrowings - The fair value of the long-term borrowings is
estimated by discounting the future cash flows using the current rate at which
similar borrowings with similar remaining maturities could be made.
Commitments to Extend Credit, Standby Letters of Credit and Financial
Guarantees - The fair value of commitments, standby lettters of credit and
financial guarantees is not significant, therefore, the fair value of these
instruments is reported at zero.
43
<PAGE> 46
WEST COAST BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
14. FAIR VALUE OF FINANCIAL INSTRUMENTS (continued)
The estimated fair values of financial instruments at December 31, 1995 are
as follows:
<TABLE>
<CAPTION>
(Dollars in thousands)
----------------------
Carrying Value Fair Value
-------------- ----------
<S> <C> <C>
FINANCIAL ASSETS
Cash and cash equivalents ............. $ 40,557 $ 40,557
Investment securities ................. 116,177 116,177
Loans .............................. 340,749
Allowance for loan losses .......... (4,721)
---------
Net Loans ............................. 336,028 340,896
FINANCIAL LIABILITIES
Deposits .............................. $ 442,101 $442,532
Short-term borrowings .............. 7,927 7,927
Long-term borrowings ............... 8,838 8,759
Unrecognized financial instruments:
Commitments to extend credit ....... 98,114 --
Standby letters of credit .......... 1,598 --
</TABLE>
The estimated fair values of financial instruments at December 31, 1994 are
as follows:
<TABLE>
<CAPTION>
(Dollars in thousands)
----------------------
Carrying Value Fair Value
-------------- ----------
<S> <C> <C>
FINANCIAL ASSETS
Cash and cash equivalents ............. $ 33,640 $ 33,640
Investment securities ................. 117,865 117,581
Loans .............................. 282,986
Allowance for loan losses .......... (4,519)
--------
Net Loans ............................. 278,467 280,884
FINANCIAL LIABILITIES
Deposits .............................. $379,620 $379,515
Short-term borrowings .............. 14,815 14,815
Long-term borrowings ............... 8,546 7,856
Unrecognized financial instruments:
Commitments to extend credit ....... 38,889 --
Standby letters of credit .......... 2,417 --
</TABLE>
44
<PAGE> 47
WEST COAST BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
15. PARENT COMPANY ONLY FINANCIAL DATA
The following sets forth the condensed financial information of West Coast
Bancorp on a stand-alone basis:
Statement of Condition
(Unconsolidated)
<TABLE>
<CAPTION>
December 31,
------------
1995 1994
---- ----
<S> <C> <C>
Assets
Cash and due from the subsidiary banks ........... $ 3,685,803 $ 4,895,413
Cash and due from other banks .................... -- 49
Advances from subsidiaries ....................... 80,844 91,023
Investment in the subsidiaries ................... 48,843,840 39,699,940
Other assets ..................................... 1,247,243 456,083
----------- -----------
Total assets .................................. $53,857,730 $45,142,508
=========== ===========
Liabilities and stockholders' equity
Balances due to subsidiaries ..................... $ 2,036 $ 11,073
Short-term borrowings ............................ -- --
Other liabilities ................................ 657,983 899,744
----------- -----------
Total liabilities .............................. 660,019 910,817
Stockholders' equity ............................. 53,197,711 44,231,691
----------- -----------
Total liabilities and stockholders' equity ..... $53,857,730 $45,142,508
=========== ===========
</TABLE>
45
<PAGE> 48
WEST COAST BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
15. PARENT COMPANY ONLY FINANCIAL DATA (continued)
Statement of Income
(Unconsolidated)
<TABLE>
<CAPTION>
Year Ended December 31
----------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Income
Cash dividends from subsidiaries ................ $1,857,100 $1,385,000 $2,375,000
Other income from the subsidiaries .............. 347,087 163,682 95,233
Other income .................................... 90,031 170,787 119,710
---------- ---------- ----------
Total income ................................. 2,294,218 1,719,469 2,589,943
Expenses
Interest expense ................................ -- 2,311 9,566
Other expense ................................... 1,602,664 1,955,613 1,171,883
---------- ---------- ----------
Total expense ................................ 1,602,664 1,957,924 1,181,449
Income (loss) before income taxes and equity in
undistributed earnings of the banks ............. 691,554 (238,455) 1,408,494
Income tax benefit ................................ 435,531 370,692 492,652
---------- ---------- ----------
Net income before equity in undistributed
earnings of the banks ........................... 1,127,085 132,237 1,901,146
Equity in undistributed earnings of the banks ..... 6,231,510 5,519,512 4,133,607
---------- ---------- ----------
Net Income ...................................... $7,358,595 $5,651,749 $6,034,753
========== ========== ==========
</TABLE>
Statement of Cash Flows
(Unconsolidated)
<TABLE>
<CAPTION>
Year Ended December 31,
------------------- ---
CASH FLOWS FROM OPERATING ACTIVITIES: 1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Net Income .................................................... $ 7,358,595 $ 5,651,749 $ 6,034,753
Adjustments to reconcile net income to net cash provided
by operating activities:
Undistributed earnings of subsidiaries ..................... (6,231,510) (5,519,512) (4,133,607)
Decrease (increase) in advances to subsidiaries ............ 10,179 166,975 (209,715)
(Increase) decrease in other assets ........................ (791,160) 118,777 (375,184)
(Decrease) increase in balances due to subsidiaries ........ (9,037) 4,628 (5,098)
(Decrease) increase in other liabilities ................... (241,761) 433,505 266,427
----------- ----------- -----------
Net cash provided by (used for) operating activities ... 95,306 856,122 1,577,576
CASH FROM FINANCING ACTIVITIES:
Net payments on borrowings .................................... -- (95,000) (5,000)
Proceeds from issuance of common stock ........................ 103,440 5,439,469 523,478
Repurchase of common stock .................................... -- (396,113) (1,115,857)
Dividends paid and cash paid for fractional shares ............ (1,408,405) (1,150,514) (999,692)
----------- ----------- -----------
Net cash provided by (used for) financing activities ....... (1,304,965) 3,797,842 (1,597,071)
Net (decrease) increase in cash and cash equivalents .......... (1,209,659) 4,653,964 (19,495)
Cash and cash equivalents at beginning of year ................ 4,895,462 241,498 260,993
----------- ----------- -----------
Cash and cash equivalents at end of year ...................... $ 3,685,803 $ 4,895,462 $ 241,498
=========== =========== ===========
</TABLE>
46
<PAGE> 49
WEST COAST BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
16. QUARTERLY FINANCIAL INFORMATION (unaudited)
<TABLE>
<CAPTION>
(Dollars in thousands) March 31, June 30, September 30, December 31,
- ---------------------- --------- -------- ------------- ------------
<S> <C> <C> <C> <C>
1995
- ----
Interest income ................. $9,261 $9,951 $10,451 $10,965
Interest expense ................ 3,237 3,617 3,720 3,730
------ ------ ------- -------
Net interest income .......... 6,024 6,334 6,731 7,235
Provision for loan losses ....... 121 150 180 219
Noninterest income .............. 1,598 1,890 2,058 2,296
Noninterest expense ............. 5,753 5,560 5,709 6,262
------ ------ ------- -------
Income before income taxes ... 1,748 2,514 2,900 3,050
Provision for income taxes ...... 495 804 861 693
------ ------ ------- -------
Net income ................... $1,253 $1,710 $ 2,039 $ 2,357
====== ====== ======= =======
Earnings per common share ....... $ 0.26 $ 0.36 $ 0.42 $ 0.49
====== ====== ======= =======
1994
- ----
Interest income ................. $8,042 $8,402 $ 8,805 $ 9,238
Interest expense ................ 2,253 2,355 2,433 2,735
------ ------ ------- -------
Net interest income .......... 5,789 6,047 6,372 6,503
Provision for loan losses ....... 170 138 135 105
Noninterest income .............. 1,751 1,667 1,840 1,630
Noninterest expense ............. 5,227 5,234 5,776 6,705
------ ------ ------- -------
Income before income taxes ... 2,143 2,342 2,301 1,323
Provision for income taxes ...... 579 682 623 573
------ ------ ------- -------
Net income ................... $1,564 $1,660 $ 1,678 $ 750
====== ====== ======= =======
Earnings per common share ....... $ 0.35 $ 0.38 $ 0.35 $ 0.16
====== ====== ======= =======
</TABLE>
47
<PAGE> 50
WEST COAST BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
17. BUSINESS COMBINATIONS
On February 28, 1995 West Coast Bancorp of Newport, Oregon merged with and
into Commercial Bancorp of Salem, Oregon and retained the name West Coast
Bancorp (the "Merger"), 1,861,077 shares of common stock were issued in the
transaction. At December 31, 1994, prior to the Merger, West Coast Bancorp had
assets of $160.7 million, total deposits of $124.7 million and total
stockholders' equity of $17.1 million. At December 31, 1994, prior to the
Merger, Commercial Bancorp had assets of $282.6 million, total deposits of
$246.7 million and stockholders' equity of $27.0 million. West Coast Bancorp
reported net income of $1.9 million and $2.1 during 1994 and 1993, respectively,
while Commercial Bancorp recorded net income of $4.0 million and $4.0 million
over the same periods. The Merger was accounted for as a pooling-of-interests
under generally accepted accounting principles.
On March 30, 1995, Bancorp acquired Great Western Bank of Dallas, Oregon.
The $8.1 million asset, one branch bank, merged into Bancorps' wholly-owned
subsidiary Commercial Bank and became a branch office. Bancorp issued 107,094
shares of common stock for the outstanding shares of Great Western Bank. This
transaction was accounted for as a pooling-of-interests under generally accepted
accounting principles.
18. EVENTS (UNAUDITED) SUBSEQUENT TO DATE OF REPORT OF INDEPENDENT PUBLIC
ACCOUNTANTS
On February 15, 1996, Bancorp entered into a Plan and Agreement of
Reorganization and Merger (the "Agreement") with Vancouver Bancorp of Vancouver,
Washington. Under the Agreement, Vancouver Bancorp's subsidiary, Bank of
Vancouver, will become a wholly-owned subsidiary of West Coast Bancorp.
The transaction which is expected to close in mid-1996, is subject to
approval by Vancouver Bancorp shareholders and applicable regulatory agencies.
The transaction will be accounted for as a pooling-of-interests under generally
accepted accounting principles.
Vancouver Bancorp is a bank holding company, headquartered in Vancouver,
Washington. Its principal business activities are conducted through its only
subsidiary, Bank of Vancouver, a Washington state chartered, full-service
commercial bank, whose deposits are insured by the Federal Deposit Insurance
Corporation. At December 31, 1995, Vancouver Bancorp had assets totaling $78.9
million, and equity capital totaling $5.8 million. Vancouver Bancorp earned
$891,000 and $664,000 for the years ended December 31, 1995 and 1994,
respectively. Bank of Vancouver's primary service area is Vancouver, Washington,
adjacent to the greater Portland, Oregon metropolitan market. The Bank of
Vancouver emphasizes real estate related loans to small businesses located
within its market area.
48
<PAGE> 51
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
For information concerning directors and certain executive officers of
Bancorp, see "INFORMATION WITH RESPECT TO NOMINEES AND DIRECTORS WHOSE TERMS
EXPIRE" and "SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT" and
"COMPLIANCE WITH SECTION 16(a) FILING REQUIREMENTS" in Bancorp's 1996 Annual
Meeting Proxy Statement ("Proxy Statement"), which is incorporated herein by
reference.
ITEM 11. EXECUTIVE COMPENSATION
For information concerning executive compensation, see "EXECUTIVE
COMPENSATION" in the Proxy Statement, which is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
For information concerning the security ownership of certain beneficial
owners and management, see "OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT" in the Proxy Statement, which is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
For information concerning certain relationships and related transactions,
see "INFORMATION WITH RESPECT TO NOMINEES AND DIRECTORS WHOSE TERMS CONTINUE"
and "TRANSACTIONS WITH MANAGEMENT" in the Proxy Statement, which is incorporated
herein by reference.
49
<PAGE> 52
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
List of Financial Statements and Financial Statement Schedules
(a)(1) and (2) Financial Statements:
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 other schedules to the consolidated financial statements required by
Regulation S-X are omitted because they are not applicable, not material or
because the information is included in the consolidated financial statements or
related notes.
(3) Exhibits:
Exhibits are listed in the Exhibit Index beginning on page 52 of this
report.
(b) Reports on Form 8-K:
None
(c) Exhibits:
The response to this portion of Item 14 is submitted as a separate section
of this report.
(d) Financial Statement Schedules:
None
50
<PAGE> 53
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, on the 26th day of
March, 1996.
WEST COAST BANCORP
(Registrant)
By: /s/ Victor L. Bartruff
-----------------------
Victor L. Bartruff
Co-President and Co-CEO
By: /s/ Rodney B. Tibbatts
-----------------------
Rodney B. Tibbatts
Co-President and Co-CEO
Each person whose individual signature appears below hereby authorizes and
appoints Victor L. Bartruff, Rodney B. Tibbatts, and Donald A. Kalkofen, and
each of them, with full power of substitution and full power to act without the
other, as his true and lawful attorney-in-fact and agent to act in his name,
place and stead and to execute in the name and on behalf of each person,
individually and in each capacity stated below, and to file any and all
amendments to this Registration Statement, including any and all post-effective
amendments.
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 26th day of March, 1996
PRINCIPAL EXECUTIVE OFFICERS:
/s/ Victor L. Bartruff Co-President and Co-CEO and Director
- ---------------------------------
Victor L. Bartruff
/s/ Rodney B. Tibbatts Co-President and Co-CEO and Director
- ---------------------------------
Rodney B. Tibbatts
PRINCIPAL FINANCIAL OFFICER:
/s/ Donald A. Kalkofen Chief Financial Officer
- ---------------------------------
Donald A. Kalkofen
PRINCIPAL ACCOUNTING OFFICER:
/s/ Nora L. Boman Controller
- ---------------------------------
Nora L. Boman
51
<PAGE> 54
REMAINING DIRECTORS:
/s/ Lloyd D. Ankeny /s/ Jack E. Long
- --------------------------------- --------------------------------
Lloyd D. Ankeny Jack E. Long
/s/ Phillip G. Bateman /s/ C. Douglas McGregor
- --------------------------------- --------------------------------
Phillip G. Bateman C. Douglas McGregor
/s/ Lester D. Green /s/ Robert D. Morrison
- --------------------------------- --------------------------------
Lester D. Green Robert D. Morrison
/s/ Stanley M. Green /s/ J.F. Ouderkirk
- --------------------------------- --------------------------------
Stanley M. Green J. F. Ouderkirk
/s/ William B. Loch /s/ Gary D. Putnam
- --------------------------------- --------------------------------
William B. Loch Gary D. Putnam
/s/ Chester C. Clark
- ---------------------------------
Chester C. Clark
52
<PAGE> 55
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit No. Exhibit
- ----------- -------
<S> <C>
3.1 Restated Articles of Incorporation of the Registrant(1).
3.2 Restated Bylaws of the Registrant(1).
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.
10.1 Executive Employment Agreement between the Registrant and Rodney B.
Tibbatts effective February 28, 1995(2).
10.2 Executive Employment Agreement between the Registrant and Victor L.
Bartruff effective February 28, 1995(2).
10.3 Executive Employment Agreement between the Registrant and Donald A.
Kalkofen effective February 28, 1995(2).
10.4 Executive Employment Agreement between the Registrant and Cora A.
Hallauer effective February 28, 1995(2).
10.5 Salary Continuation Agreement between The Commercial Bank and Edgar
B. Martin effective February 28, 1995(2).
10.6 Form of Salary Continuation Agreement with other officers and key
employees of the Registrant's subsidiaries effective February 28,
1995(1).
10.7 Non-Qualified Deferred Compensation Plan for Edgar B. Martin dated
May 23, 1995(2).
10.8 401(k) Profit Sharing Plan(3).
10.9 Directors Deferred Compensation Plan(3).
10.10 Officers Deferred Compensation Plan(3).
10.11 Combined 1991 Incentive Stock Option Plan and 1991 Nonqualified
Stock Option Plan(4).
10.12 Form of Option Grant under Combined 1991 Incentive Stock Option
Plan and 1991 Nonqualified Stock Option Plan(4).
10.13 Directors Stock Option Plan(5).
10.14 Form of Directors Stock Option Agreement(5).
10.15 Incentive Stock Option Plan(5).
10.16 Form of Incentive Stock Option Agreement(5).
10.17 Nonqualified Stock Option Plan(5).
</TABLE>
53
<PAGE> 56
<TABLE>
<CAPTION>
Exhibit No. Exhibit
- ----------- -------
<S> <C>
10.18 Form of Nonqualifiued Stock Option Plan(5).
11 Statement Re-Computation of Per Share Earnings.
21 "Significant" subsidiaries of the Registrant.
23 Consent of Arthur Andersen LLP.
24 Powers of Attorney (included in signature page of annual report on
form 10K).
27 Financial Data Schedule.
</TABLE>
- -------------------------------------
(1) Incorporated by reference to Exhibits 3.1, 3.2 and 10.6 of Registrant's
Annual Report on Form 10-K for the year ended December 31, 1994.
(2) Incorporated by reference to Exhibits 10(G), 10(I), 10(J), 10(H), 10(N)
and 10(FF) of Registrant's S-4 Registration Statement- -Registration No.
33-88656.
(3) Incorporated by reference to Exhibits 99.1, 99.2 and 99.3 of Registrant's
S-8 Registration Statement--Registration No. 33- 01649.
(4) Incorporated by reference to Exhibits 99.1 and 99.2 of Registrant's S-8
Registration Statement--Registration No. 33-01651.
(5) Incorporated by reference to Exhibits 99.1, 99.2, 99.3, 99.4, 99.5 and
99.6 of Registrant's S-8 Registration Statement -- Registration No.
33-60259.
54
<PAGE> 1
EXHIBIT 11
COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
December 31,
------------
PRIMARY 1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Actual weighted average shares outstanding for the period ... 4,803,461 4,561,154 4,337,086
Dilutive options using the treasury stock method* ........... -- -- --
---------- ---------- ----------
Total shares used in per share calculations ................. 4,803,461 4,561,154 4,337,086
Net income .................................................. $7,358,595 $5,651,749 $6,034,753
---------- ---------- ----------
Earnings per share .......................................... $ 1.53 $ 1.24 $ 1.39
========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
December 31,
------------
FULLY DILUTIVE 1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Actual weighted average shares outstanding for the period ... 4,803,461 4,561,154 4,337,086
Dilutive options using the treasury stock method* .......... -- -- --
---------- ---------- ----------
Total shares used in per share calculations ................. 4,803,461 4,561,154 4,337,086
Net income .................................................. $7,358,595 $5,651,749 $6,034,753
---------- ---------- ----------
Earnings per share .......................................... $ 1.53 $ 1.24 $ 1.39
========== ========== ==========
</TABLE>
* The dilutive effect of stock options is less than 3% in the aggregate,
hence has not been included in the calculations.
55
<PAGE> 1
EXHIBIT 21
SCHEDULE OF SUBSIDIARIES
Following is a list of the registrant's subsidiaries at February 29, 1996.
<TABLE>
<CAPTION>
State of Incorporation
Name Or Organization
---- ---------------
<S> <C>
The Bank of Newport Oregon
The Commercial Bank Oregon
Coban, Inc. Oregon
Valley Commercial Bank Oregon
</TABLE>
56
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
reports included (or incorporated by reference) in this Form 10-K, into the
Company's previously filed Registration Statement File Nos. 33-01651 and
33-60259.
Portland, Oregon
March 25, 1996
57
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 30,622
<INT-BEARING-DEPOSITS> 2,287
<FED-FUNDS-SOLD> 7,649
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 116,177
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 339,912
<ALLOWANCE> 4,721
<TOTAL-ASSETS> 516,647
<DEPOSITS> 442,100
<SHORT-TERM> 7,927
<LIABILITIES-OTHER> 4,584
<LONG-TERM> 8,838
6,006
0
<COMMON> 0
<OTHER-SE> 47,192
<TOTAL-LIABILITIES-AND-EQUITY> 516,647
<INTEREST-LOAN> 33,055
<INTEREST-INVEST> 6,865
<INTEREST-OTHER> 708
<INTEREST-TOTAL> 40,628
<INTEREST-DEPOSIT> 13,509
<INTEREST-EXPENSE> 795
<INTEREST-INCOME-NET> 14,304
<LOAN-LOSSES> 670
<SECURITIES-GAINS> 8
<EXPENSE-OTHER> 23,284
<INCOME-PRETAX> 10,212
<INCOME-PRE-EXTRAORDINARY> 10,212
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,359
<EPS-PRIMARY> 1.53
<EPS-DILUTED> 0
<YIELD-ACTUAL> 9.65
<LOANS-NON> 591
<LOANS-PAST> 10
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 4,519
<CHARGE-OFFS> 520
<RECOVERIES> 52
<ALLOWANCE-CLOSE> 4,721
<ALLOWANCE-DOMESTIC> 4,721
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
