<PAGE> 1
Filed pursuant to Rule 424(b)(4)
Registration No. 333-02719
[Vancouver Bancorp Letterhead]
June 7, 1996
Dear Fellow Shareholder:
You are cordially invited to attend the Annual Meeting of Shareholders
of Vancouver Bancorp ("VB"), which will be held on Friday, June 28, 1996, at
2:00 p.m., local time, at the Royal Oaks Country Club, 8917 N.E. Fourth Plain
Boulevard, Vancouver, Washington.
At the Annual Meeting, you will be asked to consider and ratify a Plan
and Agreement of Reorganization and Merger, dated as of February 15, 1996 (the
"Merger Agreement"), between VB, West Coast Bancorp ("WCB") and HB Acquisition
Corporation ("HB"), WCB's wholly owned subsidiary, under the terms of which VB
will be merged with and into HB (the "Merger"), with the result that VB
shareholders would become shareholders of WCB. The Merger is subject to various
conditions which are contained in the Merger Agreement. The terms of the Merger
are described in the attached Proxy Statement, which also serves as a Prospectus
of WCB for its Common Stock to be issued in the Merger. The complete text of the
Merger Agreement appears as Appendix A to the Prospectus/Proxy Statement. If the
Merger is approved, each VB shareholder will receive shares of WCB Common Stock
for each share of VB Common Stock owned, based on an exchange formula detailed
in the Prospectus/Proxy Statement which is intended to provide WCB shares with a
market value of approximately $66.95 for each share of VB exchanged in the
merger. The Board of Directors has received an opinion from Columbia Financial
Advisors, Inc. to the effect that the consideration to be received by VB's
shareholders in the Merger is fair from a financial point of view.
At the Annual Meeting, you will also be asked to elect seven directors
to VB's Board of Directors, each to serve a one-year term or until their
respective successors are elected and qualified, or until such time as the
Merger is effective.
YOUR BOARD OF DIRECTORS BELIEVES THAT THE MERGER IS IN THE BEST
INTERESTS OF VANCOUVER BANCORP AND ITS SHAREHOLDERS AND UNANIMOUSLY RECOMMENDS
THAT YOU VOTE IN FAVOR OF THE MERGER. YOUR BOARD OF DIRECTORS ALSO RECOMMENDS
THAT YOU VOTE FOR THE ELECTION OF THE SEVEN NOMINEES FOR DIRECTOR. Approval of
the Merger requires the affirmative vote of the holders of a majority of the
outstanding shares of VB Common Stock. Directors are elected by a plurality of
the votes cast for nominees. We urge you to read the attached Prospectus/Proxy
Statement and to consider your vote carefully. If you have any questions
regarding this material in advance of the Annual Meeting, please feel free to
call Anne M. Ryan, VB's Vice President and Secretary, at (360) 695-3439.
Regardless of the size of your holdings, it is important that your
shares be voted at the Annual Meeting.
WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING, PLEASE BE CERTAIN
TO COMPLETE, SIGN AND DATE THE ENCLOSED PROXY, AND RETURN IT PROMPTLY IN THE
POSTAGE-PAID ENVELOPE PROVIDED. IF YOU ATTEND THE ANNUAL MEETING, YOU MAY VOTE
IN PERSON IF YOU WISH, EVEN THOUGH YOU HAVE PREVIOUSLY RETURNED YOUR PROXY. IF
FOR ANY REASON YOU SHOULD DESIRE TO REVOKE YOUR PROXY, YOU MAY DO SO AT ANY TIME
BEFORE IT IS VOTED AT THE ANNUAL MEETING.
Very truly yours,
James J. Pomajevich Lee S. Stenseth
Chairman of the Board President
PLEASE COMPLETE, SIGN, DATE AND RETURN THE ENCLOSED PROXY CARD
<PAGE> 2
VANCOUVER BANCORP
801 MAIN STREET
VANCOUVER, WASHINGTON 98660
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD JUNE 28, 1996
TO THE SHAREHOLDERS OF VANCOUVER BANCORP:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders of
Vancouver Bancorp ("VB") will be held on Friday, June 28, 1996, at 2:00 p.m.,
local time, at the Royal Oaks Country Club, 8917 N.E. Fourth Plain Boulevard,
Vancouver, Washington. The Annual Meeting is for the following purposes:
1. MERGER AGREEMENT. To consider and vote upon a proposal
to approve the Plan and Agreement of Reorganization and Merger,
dated as of February 15, 1996, as more fully described in the
accompanying Prospectus/Proxy Statement, and attached as Appendix
A thereto.
2. ELECTION OF DIRECTORS. To elect seven directors, each
to hold office for a one-year term, or until their respective
successors are elected and qualified, or until such time as the
Merger is effective.
3. OTHER MATTERS. To act upon such other matters as may
properly come before the Annual Meeting or any adjournment thereof.
Only holders of record of the VB Common Stock, $1.00 par value per
share, at the close of business on May 28, 1996, the record date for the Annual
Meeting, are entitled to notice of and to vote at the Annual Meeting or any
adjournments or postponements thereof. Shareholders desiring to do so may
dissent from the Merger and obtain payment for their shares in accordance with
the provisions of the Washington statute, RCW 23B.13, a copy of which is
included in the Prospectus/Proxy Statement. See "THE MERGER -- Dissenters'
Rights of Appraisal" and Appendix C.
All shareholders are cordially invited to attend the Annual Meeting
personally. Whether or not you are able to do so, it is important that you
complete, sign, date, and promptly return the accompanying proxy in the enclosed
postage-paid envelope in order to vote your shares of VB Common Stock.
Shareholders may revoke proxies previously submitted by completing a later-dated
proxy, by written revocation delivered to VB's secretary at or prior to the
Annual Meeting, or by appearing and voting at the Annual Meeting in person.
Attendance at the Annual Meeting will not of itself revoke a previously
submitted proxy.
By Order of the Board of Directors,
Anne M. Ryan, Secretary
Vancouver, Washington
June 7, 1996
YOUR VOTE IS IMPORTANT REGARDLESS OF THE NUMBER OF SHARES YOU OWN.
APPROVAL OF THE MERGER REQUIRES THE AFFIRMATIVE VOTE OF HOLDERS
OF A MAJORITY OF THE OUTSTANDING SHARES OF VB COMMON STOCK. IN ORDER TO ENSURE
THAT THE REQUISITE VOTES ARE OBTAINED, AND IN ORDER TO ENSURE A QUORUM, WE URGE
YOU TO SIGN, DATE AND RETURN THE ENCLOSED PROXY.
<PAGE> 3
PROXY STATEMENT OF VANCOUVER BANCORP
ANNUAL MEETING OF SHAREHOLDERS TO BE HELD ON JUNE 28, 1996
PROSPECTUS OF WEST COAST BANCORP
SHARES OF COMMON STOCK, NO PAR VALUE
This Prospectus/Proxy Statement is being furnished to holders of shares
of common stock, $1.00 par value per share ("VB Common Stock"), of Vancouver
Bancorp ("VB"), a Washington corporation, in connection with the solicitation of
proxies by the Board of Directors of VB (the "VB Board") for use at the Annual
Meeting of Shareholders to be held on Friday, June 28, 1996, at 2:00 p.m., local
time, at the Royal Oaks Country Club, 8917 N.E. Fourth Plain Boulevard,
Vancouver, Washington, and at any adjournments or postponements thereof. VB
shareholders will vote upon a proposal to approve the merger (the "Merger") of
VB with and into HB Acquisition Corporation ("HB"), a Washington corporation and
wholly owned subsidiary of West Coast Bancorp ("WCB"), an Oregon corporation and
bank holding company, on the terms described in the Plan and Agreement of
Reorganization and Merger (the "Merger Agreement") dated as of February 15, 1996
between WCB, HB and VB. The Merger Agreement is incorporated herein by
reference.
This Prospectus/Proxy Statement also constitutes the Prospectus of WCB
filed as part of a Registration Statement on Form S-4 with the Securities and
Exchange Commission ("SEC") under the Securities Act of 1933, as amended (the
"Securities Act"), relating to the shares of Common Stock, no par value per
share ("WCB Common Stock"), of WCB to be issued in the Merger. When the Merger
becomes effective, all outstanding shares of VB Common Stock will be converted
into the right to receive shares of WCB Common Stock. Cash will be paid in lieu
of fractional shares. See "THE MERGER -- Basic Terms of Merger." Shareholders
desiring to do so may dissent from the Merger and obtain payment for their
shares in accordance with the provisions of the Washington statute, RCW 23B.13,
a copy of which is included in the Prospectus/Proxy Statement. See "THE MERGER
- -- Dissenters' Rights of Appraisal" and Appendix C. For a description of certain
significant considerations in connection with the Merger, see "THE MERGER --
Conditions to the Merger; Interests of Certain Persons in the Merger."
This Prospectus/Proxy Statement does not cover any resale of the
securities to be received by shareholders of VB upon consummation of the Merger,
and no person is authorized to make any use of this Prospectus/Proxy in
connection with any such resale.
This Prospectus/Proxy Statement and the accompanying proxy cards are
first being mailed to shareholders of VB on or about June 8, 1996.
THE SHARES OF WCB COMMON STOCK ISSUABLE IN THE MERGER ARE NOT SAVINGS OR DEPOSIT
ACCOUNTS OR OTHER OBLIGATIONS OF A BANK AND ARE NOT INSURED BY THE BANK
INSURANCE FUND OF THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER
GOVERNMENT AGENCY.
THE SHARES OF WCB COMMON STOCK ISSUABLE IN THE MERGER HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OF ADEQUACY OF THIS
PROSPECTUS/PROXY STATEMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
----------------
The date of this Prospectus/Proxy Statement is June 7, 1996
<PAGE> 4
AVAILABLE INFORMATION
WCB is subject to the information and reporting requirements of the
Securities Exchange Act of 1934, (the "Exchange Act") as amended. In accordance
with the Exchange Act, WCB files reports, proxy statements, and other
information with the SEC. Under the rules and regulations of the SEC, the
solicitation of VB shareholders to approve the Merger constitutes an offering of
the WCB Common Stock to be issued in conjunction with the Merger. WCB has filed
with the SEC a registration statement on Form S-4 (the "Registration Statement")
under the Securities Act covering the WCB Common Stock to be issued in
connection with the Merger. The Registration Statement and the exhibits thereto,
as well as the reports, proxy statements, and other information filed with the
SEC by WCB under the Exchange Act may be inspected and copied at prescribed
rates at the public reference facilities maintained by the SEC at Room 1024,
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the
regional offices of the SEC located at 7 World Trade Center, Thirteenth Floor,
New York, New York 10048, and at The Citicorp Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661. Copies of such materials may also be
obtained at prescribed rates from the Public Reference Section of the SEC at 450
Fifth Street, N.W., Washington, D.C. 20549. In addition, materials filed by WCB
are available for inspection at the offices of the Nasdaq Stock Market, 1735 K
Street, N.W., Washington, D.C. 20006. As permitted by the rules and regulations
of the SEC, this Prospectus/Proxy Statement omits certain information, exhibits,
and undertakings contained in the Registration Statement. Reference is made to
the Registration Statement and to the exhibits thereto for further information.
VB is not subject to the information and reporting requirements of the
Exchange Act.
This Prospectus/Proxy Statement constitutes part of the Registration
Statement on Form S-4 (File No. 333-2719) filed by WCB with the SEC under the
Securities Act. This Prospectus/Proxy Statement omits certain information
contained in the Registration Statement in accordance with the rules and
regulations of the SEC. Reference is made hereby to the Registration Statement
and related exhibits for further information with respect to WCB and the WCB
Common Stock. Statements contained herein or in any document incorporated herein
by reference as to the contents of any contract or other document referred to
herein or therein are not necessarily complete, and in each instance, reference
is made to the copy of such contract or other document filed as an exhibit to
the Registration Statement or such other document incorporated herein by
reference. Each such statement is qualified in its entirety by such reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by WCB with the SEC pursuant to the
Exchange Act are incorporated in this Prospectus/Proxy Statement by reference:
1. WCB's Annual Report on Form 10-K for the year ended
December 31, 1995 (the "WCB 1995 10-K");
2. WCB's Proxy Statement for its 1996 Annual Meeting of
Shareholders (the "WCB 1996 Proxy");
3. WCB's Quarterly Report on Form 10-Q, and the amendment
thereto, for the quarter ended March 31, 1996 (the "WCB 1996
10-Q/A");
4. WCB's Current Report on Form 8-K dated February 20,
1996; and
5. The description of WCB's capital stock contained in its
Registration Statement on Form S-4 filed with the SEC
on January 27, 1995 (Registration No. 33-88656).
<PAGE> 5
All documents filed by WCB pursuant to Sections 13(a), 13(c), 14 and
15(d) of the Exchange Act after the date hereof and prior to the VB Annual
Meeting of Shareholders shall be deemed to be incorporated by reference herein
and to be a part hereof from the date of filing such documents. Any statement
contained in a document incorporated or deemed to be incorporated by reference
herein shall be deemed to be modified or superseded for purposes hereof to the
extent that a statement contained herein or in any other subsequently filed
document that also is, or is deemed to be, incorporated by reference herein
modifies or superseded such document. Any such statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part hereof.
A copy each of the WCB 1995 10-K, the WCB 1996 Proxy and the WCB 1996
10-Q/A are delivered herewith.
As described above, this Prospectus/Proxy Statement incorporates by
reference documents that are not presented herein or delivered herewith. These
documents (other than exhibits to such documents that are specifically
incorporated by reference into the text of such documents) are available,
without charge, to each person, including any beneficial owner, to whom a copy
of this Prospectus/Proxy Statement is delivered, upon written or oral request to
Anne M. Ryan, Vice President and Secretary, Vancouver Bancorp, 801 Main Street,
Vancouver, Washington 98660. In order to ensure timely delivery of the
documents, any such request should be made by June 20, 1996.
All information contained in this Prospectus/Proxy Statement relating
to WCB has been furnished by WCB, and VB is relying upon the accuracy of that
information. All information contained in this Prospectus/Proxy Statement
relating to VB has been furnished by VB, and WCB is relying upon the accuracy of
that information.
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS/PROXY STATEMENT AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATION SHOULD NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY EITHER WCB OR VB. THIS PROSPECTUS/PROXY STATEMENT DOES NOT
CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO PURCHASE, THE
SECURITIES OFFERED BY THIS PROSPECTUS/PROXY STATEMENT, OR THE SOLICITATION OF A
PROXY, IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH AN OFFER,
SOLICITATION OF AN OFFER, OR PROXY SOLICITATION.
NEITHER THE DELIVERY OF THIS PROSPECTUS/PROXY STATEMENT NOR ANY
DISTRIBUTION OF THE SECURITIES OFFERED PURSUANT TO THIS PROSPECTUS/PROXY
STATEMENT SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS
BEEN NO CHANGE IN THE INFORMATION SET FORTH HEREIN OR IN THE AFFAIRS OF VB OR
WCB AND ITS SUBSIDIARIES SINCE THE DATE OF THIS PROSPECTUS/PROXY STATEMENT OR
THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE
HEREOF.
<PAGE> 6
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
SUMMARY.................................................................... 1
Introduction........................................................... 1
VB Shareholder Meeting................................................. 1
Parties to the Merger.................................................. 2
The Merger; Exchange Ratio............................................. 3
Effective Date......................................................... 3
Reasons for the Merger; Recommendation of the VB Board................. 3
Opinion of Financial Advisor........................................... 4
Board of Directors and Executive Officers of WCB and the Bank.......... 4
Trading Market......................................................... 4
Conditions; Regulatory Approvals....................................... 4
Termination and Amendment of the Merger Agreement...................... 5
Tax Treatment of the Merger............................................ 5
Accounting Treatment of the Merger..................................... 5
Dissenters' Rights of Appraisal........................................ 5
Interests of Certain Persons in the Merger............................. 6
Comparison of Shareholders' Rights..................................... 6
Stock Option Agreement................................................. 6
STOCK PRICE AND DIVIDEND INFORMATION....................................... 7
WCB.................................................................... 7
VB..................................................................... 7
SELECTED HISTORICAL AND UNAUDITED PRO FORMA FINANCIAL DATA................. 9
Proforma West Coast Bancorp and Vancouver Bancorp Consolidated
(Unaudited)........................................................... 10
West Coast Bancorp..................................................... 11
Vancouver Bancorp...................................................... 12
EQUIVALENT PER COMMON SHARE DATA........................................... 13
ANNUAL MEETING OF VB SHAREHOLDERS.......................................... 15
Date, Time, and Place.................................................. 15
Purpose of the Meeting................................................. 15
Shares Outstanding and Entitled to Vote; Record Date................... 15
Vote Required.......................................................... 15
Voting, Solicitation, and Revocation of Proxies........................ 16
BACKGROUND OF AND REASONS FOR THE MERGER................................... 16
Background of the Merger............................................... 16
Reasons for the Merger - General....................................... 17
Reasons for the Merger - WCB........................................... 18
Reasons for the Merger - VB............................................ 19
Opinion of VB Financial Advisor....................................... 20
Recommendation of the VB Board......................................... 22
</TABLE>
i
<PAGE> 7
<TABLE>
<CAPTION>
Page
----
<S> <C>
THE MERGER..................................................................... 22
General................................................................... 22
Basic Terms of the Merger................................................. 23
Cash for Fractional Shares................................................ 24
Exchange of Stock Certificates............................................ 24
Directors and Officers.................................................... 25
Employee Benefit Plans.................................................... 25
Mechanics of the Merger................................................... 26
Conduct Pending Consummation of the Merger................................ 26
Conditions to the Merger.................................................. 26
Amendment of the Merger Agreement......................................... 27
Termination of the Merger Agreement....................................... 27
Interests of Certain Persons in the Merger................................ 28
Certain Federal Income Tax Matters........................................ 28
Accounting Treatment of Merger............................................ 29
Dissenters' Rights of Appraisal........................................... 30
Resales of Stock Received in the Merger by VB Affiliates.................. 30
No Solicitation........................................................... 31
Expenses.................................................................. 31
Stock Option Agreement.................................................... 31
UNAUDITED CONDENSED PRO FORMA COMBINED FINANCIAL STATEMENTS.................... 34
INFORMATION CONCERNING WCB..................................................... 42
INFORMATION CONCERNING VB...................................................... 42
Business.................................................................. 42
Competition............................................................... 42
Facilities................................................................ 43
Employees................................................................. 44
Legal Proceedings......................................................... 44
VB MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.................................. 44
Financial Condition and Results of Operations............................. 46
Lending................................................................... 49
Summary of Loan Loss Experience........................................... 52
Asset and Liability Maturity Repricing Schedule
March 31, 1996............................................................ 54
MANAGEMENT OF VB............................................................... 57
Directors and Executive Officers.......................................... 57
Executive Compensation.................................................... 57
Director Compensation..................................................... 59
Certain Transactions and Relationships.................................... 59
Securities Ownership of Management and Certain Beneficial Owners.......... 59
Other Principal Shareholders.............................................. 60
Committees of the Board of Directors...................................... 61
</TABLE>
ii
<PAGE> 8
<TABLE>
<CAPTION>
Page
----
<S> <C>
SUPERVISION AND REGULATION................................................ 61
General............................................................... 61
Holding Company Structure............................................. 61
Control Transactions.................................................. 62
General............................................................... 63
Regulation of State Banks............................................. 63
Dividends............................................................. 64
Regulation of Management.............................................. 64
Control of Financial Institutions..................................... 65
FIRREA................................................................ 65
FDICIA................................................................ 65
Interstate Banking and Branching...................................... 65
Capital Adequacy Requirements......................................... 66
FDIC Insurance........................................................ 68
Community Reinvestment Act ("CRA").................................... 68
COMPN OF CERTAIN RIGHTS OF HOLDERS OF
VB AND WCB COMMON STOCK................................................... 68
General............................................................... 68
Preferred Stock....................................................... 69
Common Stock.......................................................... 69
Dividend Rights....................................................... 69
Voting Rights......................................................... 69
Preemptive Rights..................................................... 70
Liquidation Rights.................................................... 70
Assessments........................................................... 70
Board of Directors.................................................... 70
Indemnification and Limitation of Liability........................... 70
Amendment of Articles of Incorporation and Bylaws..................... 71
Repurchase of Shares.................................................. 71
Dissenters' Rights.................................................... 71
Sales of Assets, Mergers and Dissolutions - Voting.................... 72
Potential "Anti-Takeover" Provisions.................................. 72
CERTAIN LEGAL MATTERS..................................................... 74
EXPERTS................................................................... 75
OTHER MATTERS............................................................. 75
GLOSSARY OF KEY TERMS..................................................... G-1
APPENDIX A - Plan and Agreement of Reorganization and Merger
APPENDIX B - Stock Option Agreement
APPENDIX C - Dissenters' Rights of Appraisal
APPENDIX D - Opinion of Columbia Financial Advisors, Inc.
</TABLE>
iii
<PAGE> 9
SUMMARY
The following material summarizes certain information contained
elsewhere in this Prospectus/Proxy Statement. This summary is not intended to be
complete and is qualified in its entirety by reference to the more detailed
information contained elsewhere in this Prospectus/Proxy Statement (including
the appendices hereto). Capitalized terms used in this Prospectus/Proxy
Statement, unless the context otherwise requires, have the meanings ascribed to
them in the Glossary of Key Terms inside the back cover. Additional terms used
principally in particular sections of this Prospectus/Proxy Statement are
defined in the sections where they are used.
INTRODUCTION
Pursuant to the Merger Agreement, WCB proposes to acquire VB by means
of a triangular merger, whereby VB would be merged with and into HB, WCB's
wholly-owned subsidiary, with the result that VB shareholders would become
shareholders of WCB, and the Bank of Vancouver (the "Bank") would become a
wholly-owned subsidiary bank of WCB.
The respective Boards of Directors ("Boards") of WCB, HB and VB have
unanimously adopted the Merger Agreement. The VB Board has unanimously
recommended that the shareholders of VB vote to approve the Merger Agreement.
Subject to approval by VB's shareholders, receipt of required regulatory
approvals, and satisfaction of certain other conditions, VB will be merged with
and into HB. VB's shareholders will receive shares of WCB Common Stock in
exchange for their shares of VB Common Stock. See "THE MERGER -- Basic Terms of
the Merger."
VB SHAREHOLDER MEETING
An Annual Meeting ("Meeting") of VB's shareholders will be held on
Friday June 28, 1996, at 2:00 p.m., local time, at the Royal Oaks Country Club,
8917 N.E. Fourth Plain Boulevard, Vancouver, Washington. The purposes of the
Meeting are to (i) vote to approve the Merger Agreement providing for the merger
of VB with and into HB, (ii) elect seven nominees to the VB Board, each of whom
will serve a one-year term, or until his or her successor has been elected and
qualified or the Merger is consummated, and (iii) act upon such other matters as
may properly come before the Meeting or any adjournment thereof.
Only shares of VB Common Stock held of record as of May 28, 1996 (the
"Record Date") are entitled to notice of, and to vote at, the Meeting. On the
Record Date, there were 141,461 shares of VB Common Stock outstanding. The
affirmative vote of a majority of the shares of VB Common Stock outstanding on
the Record Date is required to approve the Merger Agreement. Directors are
elected by a plurality of the votes cast at the election. As of the Record Date,
VB's directors were entitled to vote, and have agreed to vote, 50,289 shares in
favor of the Merger Agreement, which represents approximately 35.5 percent of
the total number of outstanding shares at such date.
For additional information about the Meeting, see "ANNUAL
MEETING OF VB SHAREHOLDERS."
- 1 -
<PAGE> 10
PARTIES TO THE MERGER
WCB. WCB, an Oregon corporation, was organized in August 1981 as a bank
holding company under the name Commercial Bancorp ("Commercial"). Pursuant to an
agreement and plan of merger between former West Coast Bancorp ("Old WCB") and
Commercial, Old WCB and Commercial were merged on February 28, 1995, with WCB 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
and, with approximately $530 million in total assets at March 31, 1996, is the
second largest bank holding company based in Oregon.
WCB is headquartered in Lake Oswego, Oregon, and its principal business
activities are conducted through its three bank subsidiaries, The Commercial
Bank -- Valley Commercial Bank, and The Bank of Newport -- each of which is an
Oregon state-chartered, full-service commercial bank with deposits insured by
the Federal Deposit Insurance Corporation ("FDIC"). At March 31, 1996, WCB's
subsidiary 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.
In October 1994, WCB and The Commercial Bank entered into a merger
agreement with Great Western Bank of Dallas, Oregon. Under the terms of the
merger agreement, Great Western Bank was merged into The Commercial Bank on
March 31, 1995, and the shareholders of Great Western Bank received shares of
WCB 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.
WCB's executive offices are located at 5335 S.W. Meadows Road, Suite
201, Lake Oswego, Oregon 97035, and its telephone number is (503) 684-0884.
Additional information concerning WCB and its business is included in the
documents incorporated into this Prospectus/Proxy Statement by reference. See
"INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE," the WCB 1995 10-K, the WCB
1996 10-Q/A and the WCB 1996 Proxy.
HB. HB is a Washington bank holding company that was incorporated in
1996 to facilitate WCB's acquisition of VB. HB is WCB's wholly owned subsidiary.
Immediately after Closing of the Merger, WCB intends to merge HB with and into
WCB. HB's address and telephone number are the same as WCB's.
VB. VB is a Washington corporation that was incorporated in 1994 for
the purpose of being a holding company for the Bank, under an agreement and plan
of exchange pursuant to which shareholders of the Bank became shareholders of
VB. VB is registered with the Board of Governors of the Federal Reserve System
as a bank holding company under the Bank Holding Company Act of 1956, as amended
("BHCA"), and has no significant operations separate from the Bank.
The Bank is a state-chartered bank organized under Washington law in
June, 1989. The Bank, which has a sole office in Vancouver, Washington, is a
local community bank with a commitment to service to the businesses and
residents of Clark County, Washington. The Bank offers commercial banking
services (including commercial loans, accounts receivable and inventory
financing, consumer installment loans, acceptance of deposits, and personal
savings and checking accounts), primarily to small-and medium-size businesses,
professionals and retail customers. Its deposits are insured by the FDIC. As of
March 31, 1996, the Bank had deposits of approximately $77.2 million and assets
of approximately $86.7 million.
- 2 -
<PAGE> 11
VB's principal offices are located at the main office of the Bank, at
801 Main St., Vancouver, Washington 98660, and its telephone number is (360)
695-3439. For additional information about VB and its business, see "INFORMATION
CONCERNING VB."
THE MERGER; EXCHANGE RATIO
In accordance with the Merger Agreement, on the Effective Date, VB will
be merged with and into HB, with HB as the surviving corporation. Upon
consummation of the Merger, each holder of shares of VB Common Stock, other than
dissenting shares, will be entitled to receive, in exchange for each share of VB
Common Stock held of record by such shareholder as of the Effective Date, the
number of shares of WCB Common Stock obtained by dividing $11,581,000 by the
Average Closing Price or the Modified Average Closing Price, whichever applies,
and by further dividing such quotient by the aggregate number of shares of VB
Common Stock that are issued and outstanding, including shares subject to
unexercised options, as of the Effective Date. The formula is designed to result
in VB shareholders receiving WCB Common Stock having a market value at the time
of Closing of approximately $66.95 in exchange for each share of VB Common Stock
held, so long as the WCB Common Stock is trading at a price between $15.30 and
$18.70 per share. Cash will be paid in lieu of issuing fractional shares of WCB
Common Stock. Upon completion of the Merger, shareholders of VB will no longer
own any stock in VB.
For more detailed information concerning the Merger, and how VB
Shareholders may exchange certificates representing shares of VB Common Stock,
see "THE MERGER -- Basic Terms of the Merger; Cash for Fractional Shares;
Exchange of Stock Certificates."
EFFECTIVE DATE
The parties presently expect to consummate the Merger during the second
quarter of 1996, although the timing is subject to the satisfaction of certain
conditions. The date on which the Merger is consummated, even if this date is
the Postponed Effective Date under the Merger Agreement, is referred to in this
Prospectus/Proxy Statement as the "Effective Date." The Merger Agreement
provides that if the Merger has not been consummated by October 31, 1996, at any
time after such date, the Board of either WCB or VB may vote to abandon the
Merger. See "THE MERGER -- Basic Terms of the Merger."
REASONS FOR THE MERGER; RECOMMENDATION OF THE VB BOARD
The VB Board has unanimously determined that the Merger is fair to and
in the best interests of VB's shareholders. In making this determination, the VB
Board considered a variety of factors, including the value of the WCB Common
Stock that the shareholders of VB will receive in exchange for their shares of
VB Common Stock, the continued ability of the Bank to continue to provide
competitive and comprehensive services in the markets in which it operates, and
the parties' shared belief in community banking, which emphasizes responsiveness
to local markets and the delivery of personalized services to customers. The VB
Board believes that the Merger will allow the Bank to continue to provide the
advantages of personal community banking to VB's current customers, and will
also allow VB to realize a premium, thus enhancing shareholder value. THE VB
BOARD HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT AS ADVISABLE AND IN THE BEST
INTERESTS OF VB AND ITS SHAREHOLDERS AND RECOMMENDS THAT VB'S SHAREHOLDERS
APPROVE THE MERGER AGREEMENT. See "BACKGROUND OF AND REASONS FOR THE MERGER."
- 3 -
<PAGE> 12
OPINION OF FINANCIAL ADVISOR
Columbia Financial Advisors, Inc. ("CFA"), VB's financial advisor, has
delivered a written opinion to the VB Board dated the date of this
Prospectus/Proxy Statement, to the effect that the Merger is fair, from a
financial perspective, to VB and its shareholders. A copy of CFA's opinion
setting forth the limits of its review, assumptions made, matters considered and
procedures followed, is attached to this Prospectus/Proxy Statement as Appendix
D and should be read in its entirety by VB's shareholders. See "BACKGROUND OF
AND REASONS FOR THE MERGER -- Opinion of VB Financial Advisor."
BOARD OF DIRECTORS AND EXECUTIVE OFFICERS OF WCB AND THE BANK
Upon consummation of the Merger, the WCB Board will consist of 12
current directors of WCB, in addition to James J. Pomajevich, who is presently
the Chairman of the VB Board. WCB has agreed to appoint Mr. Pomajevich to the
WCB Board upon consummation of the Merger, effective as of the Effective Date.
WCB will also permit Lee S. Stenseth, the Bank's President, to attend meetings
of the WCB Board as a nonvoting, ex-officio member of the WCB Board until the
end of his service as President of the Bank. The respective executive officers
of WCB and the Bank in office immediately before the Effective Date are expected
to remain unchanged following consummation of the Merger. On the Effective Date,
the Bank's Board will consist of all persons who were directors of the Bank
immediately before the Merger, plus an additional WCB director to be designated
by WCB to the Bank's Board. See "THE MERGER -- Directors and Officers; Interests
of Certain Persons in the Merger."
TRADING MARKET
The WCB Common Stock is quoted on the Nasdaq Stock Market under the
symbol "WCBO," and is registered as a class with the SEC under the Exchange Act.
Accordingly, WCB is required to file certain periodic and annual reports with
the SEC and make information about WCB available to its shareholders and the
public. VB is not subject to the information and reporting requirements of the
Exchange Act and its Common Stock is not actively traded or listed on any market
system.
CONDITIONS; REGULATORY APPROVALS
Consummation of the Merger is conditioned on (a) approval of the Merger
Agreement by the holders of not less than a majority of the outstanding shares
of VB Common Stock; (b) receipt of all necessary approvals of the Merger by
governmental regulatory agencies, including the FRB and the Washington Director;
(c) receipt by each party of a favorable tax opinion from Graham & Dunn, P.C.;
(d) receipt of a letter from Arthur Andersen LLP to the effect that the Merger
qualifies for pooling of interests accounting treatment; (e) the continuing
accuracy of the representations and warranties of each party; (f) the
performance of specified obligations by each party; and (g) certain other
conditions. Graham & Dunn, P.C. has delivered its tax opinion, dated April 19,
1996, to the effect, among other things, that the Merger will constitute a
tax-free reorganization for federal tax purposes. See "THE MERGER -- Certain
Federal Income Tax Matters." On May 23, 1996, WCB received approval of the
Merger from the FRB, and on May 11, 1996, the Merger was automatically declared
effective by the Washington Director. See "THE MERGER -- Conditions to the
Merger" and "SUPERVISION AND REGULATION."
- 4 -
<PAGE> 13
TERMINATION AND AMENDMENT OF THE MERGER AGREEMENT
The Merger Agreement may be terminated, and the Merger abandoned,
before the Effective Date, whether before or after its adoption by the
shareholders of VB by (i) the respective majority votes of the WCB and VB
Boards, or (ii) either the WCB or the VB Board under certain specified
circumstances, including a failure to consummate the Merger by October 31, 1996.
The Merger Agreement may be amended at any time before the Effective Date if
both the WCB and VB Boards approve, but no amendment reducing the amount or
changing the form of any consideration which is to be received by VB
shareholders can be effected without the approval of VB shareholders. See "THE
MERGER -- Amendment and Termination of Merger Agreement."
TAX TREATMENT OF THE MERGER
Graham & Dunn, P.C. delivered its opinion dated April 19, 1996, to the
effect that (i) the Merger will constitute a tax-free reorganization within the
meaning of Section 368(a)(1)(A) of the Internal Revenue Code of 1986, (the
"Code") as amended, (ii) pursuant to the provisions of Section 354(a)(i) of the
Code, no gain or loss will be recognized with respect to each shareholder of VB
who exchanges his or her shares of VB Common Stock solely for shares of WCB
Common Stock, and (iii) the payment of cash to a shareholder of VB in lieu of a
fractional share of WCB Common Stock will be treated as a distribution in
redemption of the fractional share interest, subject to the limitations of
Section 302 of the Code. The receipt by WCB, and delivery to VB, of such opinion
is a condition to consummation of the Merger. See "THE MERGER -- Certain Federal
Income Tax Matters."
ACCOUNTING TREATMENT OF THE MERGER
It is anticipated that the Merger will be accounted for as a pooling of
interests by WCB under generally accepted accounting principles. The Merger
Agreement provides that, as a condition to WCB's obligation to consummate the
Merger, WCB must receive a letter from its independent auditors, Arthur Andersen
LLP, to the effect that the Merger will qualify for pooling of interests
accounting treatment. See "THE MERGER -- Accounting Treatment of Merger."
DISSENTERS' RIGHTS OF APPRAISAL
Holders of VB Common Stock have the right to dissent from the Merger
and, if they follow certain procedures and the Merger is effectuated, to obtain
payment of the fair value of their shares in cash, in accordance with applicable
provisions of Washington state law. To exercise such dissenters' rights, a VB
shareholder must (i) deliver to VB, before the vote on approval of the Merger is
taken, written notice of intent to demand payment for his or her shares if the
Merger is consummated, and (ii) not vote in favor of the Merger. Following
consummation of the Merger, WCB will send a notice to all VB shareholders who
have properly perfected their dissenters' rights (by complying with (i) and (ii)
above). A dissenting shareholder must also follow the procedures set forth in
the notice, which will contain instructions for completing the exercise of
dissenters' rights, including that the dissenting shareholder must (1) make
written demand for payment of the fair value of his or her shares within the
specified time period specified in the notice, (2) certify that beneficial
ownership of his or her shares of VB Common Stock was acquired before the date
set forth in the notice, and (3) surrender his or her stock certificates
representing shares of the VB Common Stock in the manner set forth in the
notice. A VOTE AGAINST THE MERGER WILL NOT IN AND OF ITSELF SATISFY THE
REQUIREMENTS OF THE WASHINGTON STATUTE; A SHAREHOLDER WHO DOES NOT DELIVER TO VB
PRIOR TO THE MEETING A WRITTEN NOTICE OF HIS OR HER INTENT TO
- 5 -
<PAGE> 14
DEMAND PAYMENT FOR THE "FAIR VALUE" OF THE SHARES WILL LOSE THE RIGHT
TO EXERCISE DISSENTERS' RIGHTS. IN ADDITION, ANY SHAREHOLDER ELECTING TO
EXERCISE DISSENTERS' RIGHTS MUST EITHER VOTE AGAINST THE MERGER OR ABSTAIN FROM
VOTING. A SHAREHOLDER'S FAILURE TO FOLLOW EXACTLY THE PROCEDURES SPECIFIED IN
THE WASHINGTON STATUTE WILL RESULT IN LOSS OF SUCH SHAREHOLDER'S DISSENTERS'
RIGHTS. Accordingly, the VB's shareholders wishing to dissent from the Merger
are urged to read carefully "THE MERGER -- Dissenters' Rights of Appraisal," and
the copy of Chapter 13 of the Washington Business Corporation Act set forth in
Appendix C to this Prospectus/Proxy Statement.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Certain members of VB's management and the VB Board may be deemed to
have interests in the Merger in addition to their interests as shareholders of
VB generally. These include, among other things, provisions in the Merger
Agreement relating to an employment agreement and appointments to the WCB Board.
As a condition to the execution of the Merger Agreement, the Bank has
entered into an employment agreement with Mr. Stenseth under the terms of which
he will continue as President of the Bank after the consummation of Merger. The
employment agreement, the term of which will expire on May 31, 1998, provides
that Mr. Stenseth will receive $85,000 in annual base salary, in addition to an
incentive bonus ranging from 2.5 percent to 5 percent of the pre-tax earnings
(gross annual revenues) of the Bank, depending on the Bank's performance. The
Bank may terminate the agreement at any time for cause without incurring any
post-termination obligation to Mr. Stenseth, or without cause, in which case the
agreement provides severance benefits equal to the salary and benefits which Mr.
Stenseth would have been entitled but for such termination. Further, WCB will
permit Mr. Stenseth to attend any and all meetings of the WCB Board as a
non-voting ex-officio member until the end of his service as President of the
Bank. WCB has also agreed to appoint Mr. Pomajevich, currently the Chairman of
the VB Board, to the WCB Board effective upon Closing. The directors and
management of the Bank are expected to retain their respective positions with
the Bank after the Merger. For additional information regarding these matters,
see "THE MERGER -- Interests of Certain Persons in the Merger."
COMPARISON OF SHAREHOLDERS' RIGHTS
Shareholders of VB who receive shares of WCB Common Stock in exchange
for their shares of VB Common Stock will be governed, with respect to their
rights as shareholders, by WCB's Articles of Incorporation and Bylaws, and by
Oregon law. Prior to the Merger, the rights of VB's shareholders are determined
under VB's Articles of Incorporation and Bylaws, and under Washington law. For a
discussion of certain material differences in the rights of shareholders of WCB
and VB and an explanation of certain possible antitakeover effects of certain
provisions in WCB's Articles of Incorporation and Bylaws, see "COMPARISON OF
SHAREHOLDERS' RIGHTS."
STOCK OPTION AGREEMENT
As an inducement to WCB to enter into the Merger Agreement, VB has
granted an Option to WCB, by agreement dated as of February 15, 1996, to
purchase up to approximately 19.9% of the then-outstanding VB Common Stock at a
price equal to $64.00 per share. WCB may exercise the Option only upon (i) the
occurrence of certain events (none of which have occurred), and (ii) obtaining
any regulatory approvals necessary for the acquisition of the VB Common Stock
subject to the Option. At the request of WCB, under limited circumstances, VB
will repurchase for a formula price the Option and any shares of
- 6 -
<PAGE> 15
VB Common Stock purchased upon exercise of the Option and beneficially
owned by WCB at that time. See "THE MERGER -- Stock Option Agreement."
STOCK PRICE AND DIVIDEND INFORMATION
WCB
The WCB Common Stock trades on the Nasdaq Stock Market under the symbol
"WCBO." The primary market makers are: Dain Bosworth, Inc., Pacific Crest
Securities Inc., Herzog, Heine, Geduld, Inc., Wedbush Morgan Securities, Inc.,
and Black & Company, Inc. The respective high and low sale prices of the WCB
Common Stock for the periods indicated are shown below. The prices do not
include retail mark-ups, mark-downs, or commissions and may not represent actual
transactions. The per share information has been adjusted retroactively for all
stock dividends and splits previously issued. As of March 31, 1996, there were
approximately 2,700 shareholders of record of the WCB Common Stock.
<TABLE>
<CAPTION>
1996 1995 1994
Cash Cash Cash
Market Price Dividends Market Price Dividends Market Price Dividends
------------ --------- ------------ --------- ------------ ---------
High Low Declared High Low Declared High Low Declared
---- --- -------- ---- --- -------- ---- --- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1st Quarter $19.50 $16.00 $0.07 $13.26 $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>
VB
No broker makes a market in the VB Common Stock and trading has not
been extensive. The trades that have occurred cannot be characterized as
amounting to an established public trading market. The VB Common Stock is traded
by individuals on a personal basis and is not listed on any exchange or traded
on the over-the-counter market, and the prices reported reflect only the
transactions known to management. Due to the limited information available, the
following data may not accurately reflect the actual market value of the VB
Common Stock. The following data include trades between individual investors, as
reported to VB as its own transfer agent.
<TABLE>
<CAPTION>
Number of Shares VB Common Stock Prices Cash Dividends
Period Reported as Traded High Low Paid
------ ------------------ ---- --- ----
<S> <C> <C> <C> <C> <C>
1st Quarter 1996 4,736 $66.95 $57.83 (1) None
Year Ended 1995 2,045 $50.00 $40.00 (2) None
Year Ended 1994 3,818 $35.10 $35.10 (3) None
</TABLE>
- ---------------
(1) 1,256 shares purchased by the Bank's KSOP at $66.95 in
February 1996.
(2) 1,281 shares purchased by the Bank's KSOP at the appraised
price of $40.76 in February 1995.
(3) 965 shares purchased by the Bank's KSOP at the appraised
price of $35.10 in February 1994.
- 7 -
<PAGE> 16
The market value of VB Common Stock historically has been based on an
annual appraisal conducted in connection with the administration of VB's
employee stock ownership plan. The appraisal process involves consideration of
general and local economic factors, the outlook for the industry, ownership
interests of management and employees, and financial condition and performance
of the Bank. The specific techniques of the appraisal include evaluation of VB's
assets as reflected on the balance sheet and as adjusted to reflect fair market
value, earnings, cash flow, and dividends as compared to those of similar
institutions, applying appropriate multiples based on the prices paid for the
stock of such similar institutions.
As of May 28, 1996, there were 194 shareholders of record of VB Common
Stock.
The following table sets forth the closing price per share for WCB
Common Stock, as reported on The Nasdaq Stock Market, for VB Common Stock and
the equivalent per share price for VB Common Stock on February 14, 1996, the
last full trading day prior to the public announcement of the Merger Agreement.
<TABLE>
<CAPTION>
===================================================================================================================
WCB VB
- -------------------------------------------------------------------------------------------------------------------
(2)
Pro forma
Historical Historical Equivalent
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Market value per share February 14, 1996(1):
With exchange ratio at mid point, 3.9381
(Assumes Average Closing Price of $17.00) 17.00 57.83 66.95
===================================================================================================================
</TABLE>
(1) Date preceding the public announcement of the proposed merger.
(2) The market value of VB Common Stock, prior to the announcement of the
Merger, has been based on an annual appraisal conducted as of December 31 in
connection with the administration of VB's employee stock ownership plan. The
appraisal process involves consideration of general and local economic factors,
the outlook for the industry, ownership interests of management and employees,
and financial condition and performance of the Bank. The specific techniques of
the appraisal, which was conducted by an independent third party appraiser,
include evaluation of VB's assets as reflected on the balance sheet and as
adjusted to reflect fair market value, earnings, cash flow, and dividends as
compared to those of similar institutions, applying appropriate multiples based
on the prices paid for the stock of such similar institutions.
(3) If the average closing price of WCB Common Stock is between $15.30 and
$18.70, the VB pro forma equivalent market value would be $66.95. To the extent
the average closing price of WCB Common Stock is lower than $15.30 or higher
than $18.70, the VB pro forma equivalent market value may be different.
- 8 -
<PAGE> 17
SELECTED HISTORICAL AND UNAUDITED PRO FORMA FINANCIAL DATA
The following table sets forth selected historical consolidated
financial data for WCB and VB, and selected unaudited pro forma combined
financial data giving effect to the Merger on a pooling of interests basis for
the periods specified. The pro forma combined financial data are not necessarily
indicative of actual or future operating results or the financial position that
would have occurred or will occur upon the consummation of the Merger. The data
has been derived in part from, and should be read in conjunction with, the
financial statements and notes thereto and other financial information with
respect to WCB and VB set forth elsewhere in this Prospectus/Proxy Statement or
incorporated herein by reference, and such data are qualified in their entirety
by reference thereto. All adjustments that the respective managements of WCB and
VB believe to be necessary for a fair presentation of the data have been
included and are of a normal recurring nature.
- 9 -
<PAGE> 18
PROFORMA WEST COAST BANCORP AND VANCOUVER BANCORP CONSOLIDATED (UNAUDITED)
The following table presents unaudited information concerning certain
financial information and ratios on a pro forma basis giving effect to the
proposed Merger on a pooling of interests accounting basis. The pro forma
combined consolidated information are presented as if the Merger had been
consummated at the beginning of each period presented. Any adjustments necessary
to prepare this information have been of a normal reccurring nature.
The information is qualified in its entirety by reference to the more detailed
financial information and financial statements presented elsewhere in this
Prospectus/Proxy Statement. The March 31, ratios have been annualized where
necessary.
<TABLE>
<CAPTION>
(Dollars in thousands, except per share data) Quarter Ended Year ended
December 31,
-----------------------------------------------------------------
3/31/96 3/31/95 1995 1994
-----------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest income ................................. $ 12,728 $ 10,705 $ 47,293 $ 38,918
Interest expense ................................ 4,550 3,928 17,430 11,506
-----------------------------------------------------------------
Net interest income ............................. 8,178 6,777 29,863 27,412
Provision for loan loss ......................... 403 181 943 777
-----------------------------------------------------------------
Net interest income after provision for loan loss 7,775 6,596 28,920 26,635
Noninterest income .............................. 2,019 1,664 8,095 7,087
Noninterest expense ............................. 6,786 6,252 25,520 24,654
-----------------------------------------------------------------
Income before income taxes ...................... 3,008 2,008 11,495 9,068
Provision for income taxes ...................... 974 585 3,245 2,752
-----------------------------------------------------------------
Net income ...................................... $ 2,034 $ 1,423 $ 8,250 $ 6,316
=================================================================
Per share data:
Net income .................................... $ 0.38 $ 0.27 $ 1.53 $ 1.23
Cash dividends ................................ 0.07 0.09 0.29 0.24
Period end book value ......................... 11.19 9.46 11.01 9.16
Average common shares outstanding ............. 5,363,736 5,343,074 5,349,967 5,100,087
Total assets .................................... $ 616,241 $ 519,296 $ 595,574 $ 515,750
Total deposits .................................. 531,541 449,540 512,774 434,175
Total long-term borrowings ...................... 14,389 9,653 10,788 10,046
Net loans ....................................... 420,424 340,205 395,319 319,698
Stockholders' equity ............................ 60,086 50,600 58,981 48,884
Financial ratios:
Return on average assets ...................... 1.37% 1.12% 1.49% 1.28%
Return on average equity ...................... 13.73% 11.56% 15.66% 14.17%
Average equity to assets ...................... 9.94% 9.73% 9.54% 9.04%
Dividend payout ratio ......................... 15.37% 30.37% 16.89% 17.33%
Efficiency ratio .............................. 66.53% 73.52% 67.25% 71.11%
Net loans to total assets ..................... 68.22% 65.51% 66.38% 61.99%
Yield on earning assets ....................... 9.30% 9.25% 9.42% 8.66%
Average rates paid ............................ 4.08% 4.17% 4.25% 3.16%
Net interest spread ........................... 5.22% 5.08% 5.17% 5.50%
Net interest margin ........................... 5.98% 5.86% 5.95% 6.10%
Nonperforming assets to total assets .......... 0.42% 0.21% 0.15% 0.11%
Allowance for loan loss to total loans ........ 1.30% 1.51% 1.39% 1.58%
Allowance for loan loss to
nonperforming assets ............................ 213.32% 471.12% 635.90% 927.95%
</TABLE>
<TABLE>
<CAPTION>
(Dollars in thousands, except per share data) Year ended
December 31,
-----------------------------------------------
1993 1992 1991
<S> <C> <C> <C>
Interest income ................................. $ 35,585 $ 34,469 $ 32,194
Interest expense ................................ 10,647 12,242 14,838
-----------------------------------------------
Net interest income ............................. 24,938 22,227 17,356
Provision for loan loss ......................... 1,083 1,338 921
-----------------------------------------------
Net interest income after provision for loan loss 23,855 20,889 16,435
Noninterest income .............................. 6,644 5,360 4,942
Noninterest expense ............................. 21,535 19,585 16,518
-----------------------------------------------
Income before income taxes ...................... 8,964 6,664 4,859
Provision for income taxes ...................... 2,425 1,878 1,382
-----------------------------------------------
Net income ...................................... $ 6,539 $ 4,786 $ 3,477
===============================================
Per share data:
Net income ...................................... $ 1.34 $ 0.98 $ 0.74
Cash dividends ................................ 0.23 0.18 0.16
Period end book value .................... 8.27 7.17 6.36
Average common shares outstanding ............. 4,872,991 4,862,418 4,725,145
Total assets .................................... $ 480,153 $ 424,370 $ 386,193
Total deposits .................................. 413,935 380,690 339,242
Total long-term borrowings ...................... 9,095 -- 850
Net loans ....................................... 284,184 249,143 224,717
Stockholders' equity ............................ 40,342 34,962 30,518
Financial ratios:
Return on average assets ...................... 1.50% 1.19% 0.99%
Return on average equity ...................... 18.02% 14.69% 12.13%
Average equity to assets ...................... 8.31% 8.09% 8.19%
Dividend payout ratio ......................... 15.26% 16.43% 19.84%
Efficiency ratio .............................. 68.50% 71.01% 73.26%
Net loans to total assets ..................... 59.19% 58.71% 58.19%
Yield on earning assets ....................... 8.86% 9.40% 10.31%
Average rates paid ............................ 3.20% 3.96% 5.55%
Net interest spread ........................... 5.65% 5.44% 4.76%
Net interest margin ........................... 6.21% 6.06% 5.56%
Nonperforming assets to total assets .......... 0.44% 0.64% 0.71%
Allowance for loan loss to total loans ........ 1.53% 1.47% 1.37%
Allowance for loan loss to
nonperforming assets ............................ 210.64% 137.67% 113.19%
</TABLE>
- 10 -
<PAGE> 19
WEST COAST BANCORP
The following table presents unaudited information concerning certain
financial information and ratios for WCB. The information is qualified in its
entirety by reference to the more detailed financial information and financial
statements presented elsewhere in this Prospectus/Proxy Statement. The March 31,
ratios have been annualized where necessary.
<TABLE>
<CAPTION>
(Dollars in thousands, except per share data) Quarter Ended Year ended December 31,
----------------------------------------------------------------
3/31/96 3/31/95 1995 1994 1993
----------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Interest income................................ $ 10,796 $ 9,261 $ 40,628 $ 34,487 $ 32,161
Interest expense............................... 3,663 3,237 14,304 9,776 9,465
----------------------------------------------------------------
Net interest income............................ 7,133 6,024 26,324 24,711 22,696
Provision for loan loss........................ 333 121 670 547 798
----------------------------------------------------------------
Net interest income after provision for loan
loss.......................................... 6,800 5,903 25,654 24,164 21,898
Noninterest income............................. 1,929 1,598 7,842 6,888 6,482
Noninterest expense............................ 6,157 5,753 23,284 22,942 20,077
----------------------------------------------------------------
Income before income taxes..................... 2,572 1,748 10,212 8,110 8,303
Provision for income taxes..................... 839 495 2,853 2,458 2,268
----------------------------------------------------------------
Net income..................................... $ 1,733 $ 1,253 $ 7,359 $ 5,652 $ 6,035
================================================================
Per share data:
Net income................................... $ 0.36 $ 0.26 $ 1.53 $ 1.24 $ 1.39
Cash dividends............................... 0.07 0.09 0.29 0.24 0.23
Period end book value........................ 11.21 9.51 11.07 9.22 8.36
Average common shares outstanding............ 4,808,814 4,801,688 4,803,461 4,561,154 4,337,086
Total assets................................... $ 529,544 $ 453,851 $ 516,647 $ 451,772 $ 430,942
Total deposits................................. 454,435 392,218 442,101 379,620 368,942
Total long-term borrowings..................... 12,373 8,153 8,838 8,546 9,095
Net loans...................................... 356,274 292,231 335,191 278,467 252,755
Stockholders' equity........................... 53,961 45,677 53,198 44,232 36,311
Financial ratios:
Return on average assets..................... 1.35% 1.13% 1.53% 1.29% 1.54%
Return on average equity..................... 12.99% 11.27% 15.50% 14.05% 18.54%
Average equity to assets..................... 10.38% 10.04% 9.86% 9.17% 8.29%
Dividend payout ratio........................ 18.06% 34.62% 18.95% 19.35% 16.55%
Efficiency ratio............................. 67.80% 75.43% 68.16% 72.21% 69.15%
Net loans to total assets.................... 67.28% 64.39% 64.88% 61.64% 58.65%
Yield on earning assets...................... 9.48% 9.53% 9.65% 8.99% 9.29%
Average rates paid........................... 3.85% 3.94% 4.03% 3.03% 3.16%
Net interest spread.......................... 5.63% 5.59% 5.62% 5.96% 6.13%
Net interest margin.......................... 6.36% 6.32% 6.36% 6.54% 6.66%
Nonperforming assets to total assets......... 0.46% 0.20% 0.12% 0.12% 0.46%
Allowance for loan loss to total loans....... 1.28% 1.56% 1.39% 1.60% 1.55%
Allowance for loan loss to nonperforming
assets..................................... 190.22% 502.07% 784.22% 852.64% 202.39%
<CAPTION>
(Dollars in thousands, except per share data) Year ended December 31,
-----------------------
1992 1991
-----------------------
<S> <C> <C>
Interest income................................ $ 31,273 $ 29,857
Interest expense............................... 10,917 13,649
-----------------------
Net interest income............................ 20,356 16,208
Provision for loan loss........................ 1,204 783
-----------------------
Net interest income after provision for loan
loss.......................................... 19,152 15,425
Noninterest income............................. 5,227 4,831
Noninterest expense............................ 18,325 15,551
-----------------------
Income before income taxes..................... 6,054 4,705
Provision for income taxes..................... 1,674 1,382
-----------------------
Net income..................................... $ 4,380 $ 3,323
=======================
Per share data:
Net income................................... $ 1.00 $ 0.77
Cash dividends............................... 0.18 0.16
Period end book value........................ 7.24 6.43
Average common shares outstanding............ 4,368,565 4,311,644
Total assets................................... $ 380,088 $ 355,321
Total deposits................................. 340,031 311,266
Total long-term borrowings..................... -- 850
Net loans...................................... 220,109 204,189
Stockholders' equity........................... 31,436 27,680
Financial ratios:
Return on average assets..................... 1.20% 1.02%
Return on average equity..................... 14.83% 12.62%
Average equity to assets..................... 8.10% 8.10%
Dividend payout ratio........................ 18.00% 20.78%
Efficiency ratio............................. 71.61% 74.80%
Net loans to total assets.................... 57.91% 57.47%
Yield on earning assets...................... 9.45% 10.33%
Average rates paid........................... 3.90% 5.50%
Net interest spread.......................... 5.55% 4.83%
Net interest margin.......................... 6.15% 5.61%
Nonperforming assets to total assets......... 0.71% 0.77%
Allowance for loan loss to total loans....... 1.51% 1.39%
Allowance for loan loss to nonperforming \
assets..................................... 125.42% 104.44%
</TABLE>
- 11 -
<PAGE> 20
VANCOUVER BANCORP
The following table presents unaudited information concerning certain
financial information and ratios for VB. The information is qualified in its
entirety by reference to the more detailed financial information and financial
statements presented elsewhere in this Prospectus/Proxy Statement. The March 31,
ratios have been annualized where necessary.
<TABLE>
<CAPTION>
(Dollars in thousands, except per share data) Quarter Ended Year ended December 31,
-------------------------------------------------------------------------------
3/31/96 3/31/95 1995 1994 1993 1992 1991
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Interest income................................ $ 1,932 $ 1,444 $ 6,665 $ 4,431 $3,424 $ 3,196 $ 2,337
Interest expense............................... 887 691 3,126 1,730 1,182 1,325 1,189
-------------------------------------------------------------------------------
Net interest income............................ 1,045 753 3,539 2,701 2,242 1,871 1,148
Provision for loan loss........................ 70 60 273 230 285 134 138
-------------------------------------------------------------------------------
Net interest income after provision for loan
loss......................................... 975 693 3,266 2,471 1,957 1,737 1,010
Noninterest income............................. 90 66 253 199 162 133 111
Noninterest expense............................ 629 499 2,236 1,712 1,458 1,260 967
-------------------------------------------------------------------------------
Income before income taxes..................... 436 260 1,283 958 661 610 154
Provision for income taxes..................... 135 90 392 294 157 204 0
-------------------------------------------------------------------------------
Net income..................................... $ 301 $ 170 $ 891 $ 664 $ 504 $ 406 $ 154
===============================================================================
Per share data:
Net income................................... $ 2.03 $ 1.20 $ 6.10 $ 4.71 $ 3.70 $ 3.25 $ 1.48
Cash dividends............................... -- -- -- -- -- -- --
Period end book value........................ 43.30 35.59 41.24 33.95 29.62 25.91 22.74
Average common shares outstanding............ 140,911 137,474 138,774 136,851 136,082 125,404 105,000
Total assets................................... $ 86,697 $ 65,445 $ 78,927 $ 63,978 $ 49,211 $ 44,282 $ 30,872
Total deposits................................. 77,106 57,322 70,673 57,555 44,993 40,659 27,976
Total long-term borrowings..................... 2,016 1,500 1,350 1,500 -- -- --
Net loans...................................... 64,150 47,974 60,128 41,231 31,429 29,034 20,528
Stockholders' equity........................... 6,125 4,923 5,783 4,652 4,031 3,526 2,838
Financial ratios:
Return on average assets..................... 1.46% 1.06% 1.26% 1.22% 1.02% 1.08% 0.44%
Return on average equity..................... 20.35% 14.10% 17.08% 15.25% 13.43% 13.33% 6.61%
Average equity to assets..................... 7.19% 7.55% 7.38% 8.00% 8.42% 8.00% 9.42%
Dividend payout ratio........................ -- -- -- -- -- -- --
Efficiency ratio............................. 55.42% 60.93% 58.97% 59.03% 60.65% 62.87% 76.81%
Net loans to total assets.................... 73.99% 73.30% 76.18% 64.45% 63.87% 65.57% 66.49%
Yield on earning assets...................... 9.91% 9.58% 10.01% 8.70% 8.21% 8.92% 10.07%
Average rates paid........................... 5.45% 5.59% 5.67% 4.20% 3.54% 4.51% 6.26%
Net interest spread.......................... 4.46% 3.99% 4.34% 4.50% 4.67% 4.41% 3.81%
Net interest margin.......................... 5.36% 5.00% 5.32% 5.30% 5.37% 5.22% 4.95%
Nonperforming assets to total assets......... 0.19% 0.16% 0.35% 0.03% 0.25% 0.00% 0.00%
Allowance for loan loss to total loans....... 1.41% 1.26% 1.39% 1.31% 1.32% 1.12% 1.16%
Allowance for loan loss to nonperforming
assets..................................... 554.72% 570.87% 309.75% 3359.73% 342.74% -- --
</TABLE>
- 12 -
<PAGE> 21
EQUIVALENT PER COMMON SHARE DATA
(UNAUDITED)
The following table presents selected per common share data for (i)
WCB, (ii) WCB and VB pro forma combined, (iii) VB and (iv) equivalent pro forma
data per share of VB after giving effect to the Merger on a pooling of interests
basis. The pro forma condensed combined financial data are not necessarily
indicative of actual or future operating results or the financial position that
would have occurred or will occur upon the consummation of the Merger. The pro
forma equivalent data are based on the respective pro forma combined amounts per
shared multiplied by three different exchange ratios, assuming the Average
Closing Price for WCB Common Stock was: (i) $17.00 per share, (ii) $15.30 per
share, and (iii) $18.70 per share. On June 6, 1996, the last trading day prior
to the date of this Proxy Statement/Prospectus, the closing price of WCB Common
Stock was $18.00 per share; if that price were the Average Closing Price under
the Merger Agreement, the exchange ratio would be 3.7194 WCB shares for each
share of VB outstanding. This data should be read in conjunction with the
financial statements and other financial and pro forma financial information
with respect to WCB and VB included elsewhere in this Prospectus/Proxy Statement
or incorporated herein by reference.
<TABLE>
<CAPTION>
==================================================================================================================================
WCB VB
------------------------------------------------------------------------------
PRO FORMA
COMBINED PRO FORMA
HISTORICAL CORPORATION HISTORICAL EQUIVALENT
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
BOOK VALUE PER SHARE(1)
WITH EXCHANGE RATIO AT MID POINT, 3.9381:
(Assumes Average Closing Price of $17.00)
March 31, 1996 ......................... $11.20 $11.18 $43.30 $44.03
December 31, 1995 ...................... 11.07 11.01 41.24 43.36
- ----------------------------------------------------------------------------------------------------------------------------------
BOOK VALUE PER SHARE(1)
WITH EXCHANGE RATIO AT 4.3757:
(Assumes Average Closing Price of $15.30)
March 31, 1996 ......................... $11.20 $11.05 $43.30 $48.37
December 31, 1995 ...................... 11.07 10.89 41.24 47.63
- ----------------------------------------------------------------------------------------------------------------------------------
BOOK VALUE PER SHARE(1)
WITH EXCHANGE RATIO AT 3.5801:
(Assumes Average Closing Price of $18.70)
March 31, 1996 ......................... $11.20 $11.29 $43.30 $40.41
December 31, 1995 ...................... 11.07 11.11 41.24 39.79
- ----------------------------------------------------------------------------------------------------------------------------------
EARNINGS PER SHARE(2) FOR THE PERIODS ENDED
WITH EXCHANGE RATIO AT MID POINT, 3.9381:
March 31, 1996 ......................... $ 0.36 $ 0.38 $ 2.03 $ 1.49
December 31, 1995 ...................... 1.53 1.53 6.10 6.04
December 31, 1994 ...................... 1.24 1.23 4.71 4.86
December 31, 1993 ...................... 1.39 1.34 3.70 5.28
- ----------------------------------------------------------------------------------------------------------------------------------
EARNINGS PER SHARE(2) FOR THE PERIODS ENDED
WITH EXCHANGE RATIO AT 4.3757:
(Assumes Average Closing Price of $15.30)
March 31, 1996 ......................... $ 0.36 $ 0.37 $ 2.03 $ 1.63
December 31, 1995 ...................... 1.53 1.52 6.10 6.63
December 31, 1994 ...................... 1.24 1.22 4.71 5.34
December 31, 1993 1.39 1.33 3.70 5.80
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
- 13 -
<PAGE> 22
<TABLE>
<CAPTION>
==================================================================================================================================
WCB VB
------------------------------------------------------------------------------
PRO FORMA
COMBINED PRO FORMA
HISTORICAL CORPORATION HISTORICAL EQUIVALENT
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
EARNINGS PER SHARE(2) FOR THE PERIODS ENDED
WITH EXCHANGE RATIO AT MID POINT, 3.5801:
(Assumes Average Closing Price of $18.70)
March 31, 1996 $0.36 $0.38 $2.03 $1.36
December 31, 1995 1.53 1.55 6.10 5.55
December 31, 1994 1.24 1.25 4.71 4.46
December 31, 1993 1.39 1.36 3.70 4.85
- ---------------------------------------------------------------------------------------------------------------------------------
CASH DIVIDENDS DECLARED PER SHARE FOR THE PERIODS
ENDED, WITH EXCHANGE RATIO AT
MID POINT, 3.9381:
(Assumes Average Closing Price of $17.00)
March 31, 1996 0.07 0.07 -- 0.26
December 31, 1995 0.29 0.29 -- 1.14
December 31, 1994 0.24 0.24 -- 0.95
December 31, 1993 0.23 0.23 -- 0.91
- ---------------------------------------------------------------------------------------------------------------------------------
CASH DIVIDENDS DECLARED PER SHARE FOR THE PERIODS
ENDED, WITH EXCHANGE RATIO AT 4.3757
(Assumes Average Closing Price of $15.30)
March 31, 1996 0.07 0.07 -- 0.28
December 31, 1995 0.29 0.29 -- 1.27
December 31, 1994 0.24 0.24 -- 1.05
December 31, 1993 0.23 0.23 -- 1.01
- ---------------------------------------------------------------------------------------------------------------------------------
CASH DIVIDENDS DECLARED PER SHARE FOR THE PERIODS
ENDED, WITH EXCHANGE RATIO AT 3.5801
(Assumes Average Closing Price of $18.70)
March 31, 1996 0.07 0.07 -- 0.23
December 31, 1995 0.29 0.29 -- 1.04
December 31, 1994 0.24 0.24 -- 0.86
December 31, 1993 0.23 0.23 -- 0.82
=================================================================================================================================
</TABLE>
- ----------------
(1) Book value per share is calculated by dividing the total actual historical
and pro forma equity as of the date indicated by the actual historical and
pro forma number of shares outstanding as of the same date.
(2) Earnings per share is calculated by dividing total actual historical and
pro forma net income for the periods ended by the actual historical and pro
forma weighted average number of shares of common stock for the period
indicated.
- 14 -
<PAGE> 23
ANNUAL MEETING OF VB SHAREHOLDERS
DATE, TIME, AND PLACE
The Meeting will be held on Friday, June 28, 1996, at 2:00 p.m., local
time, at the Royal Oaks Country Club, 8917 N.E. Fourth Plain Boulevard,
Vancouver, Washington.
PURPOSE OF THE MEETING
The purpose of the Meeting are as follows: (i) to consider and
vote upon approval of the Merger Agreement; (ii) to elect seven
directors to serve a one-year term each, or until their respective successors
have been elected and qualified, or until the Merger is consummated; and (iii)
to act upon such matters, if any, as may properly come before the Meeting.
SHARES OUTSTANDING AND ENTITLED TO VOTE; RECORD DATE
The VB Board has fixed the close of business on May 28 , 1996 as the
Record Date for determining the holders of shares of VB Common Stock entitled to
notice of and to vote at the Meeting. At the close of business on the Record
Date, there were 141,461 shares of VB Common Stock issued and outstanding held
by approximately 194 holders of record. See "INFORMATION CONCERNING VB --
Security Ownership of Certain Beneficial Owners and Management." Holders of
record of VB Common Stock on the Record Date are entitled to one vote per share,
and are also entitled to exercise dissenters' rights if certain procedures are
followed. See "Dissenters' Rights of Appraisal" and Appendix C.
VOTE REQUIRED
The affirmative vote of a majority of all shares of VB Common Stock
outstanding on the Record Date is required to approve the Merger Agreement. A
plurality of the votes cast at the Meeting by holders of shares of VB Common
Stock is required for the election of persons nominated to serve as directors.
As to both the Merger and the election of each director nominee to the VB Board,
VB's shareholders are entitled to one vote for each share of VB Common Stock
held. The presence of a majority of the outstanding shares of VB Common Stock in
person or by proxy is necessary to constitute a quorum of shareholders for the
Meeting. For this purpose, abstentions and broker nonvotes (i.e., proxies from
brokers or nominees indicating that such person has not received instructions
from the beneficial owners or other persons entitled to vote shares as to a
matter with respect to which the broker or nominees do not have discretionary
power to vote) are counted in determining the shares present at a meeting. For
voting purposes, however, only shares affirmatively voted for the approval of
the Merger Agreement, and neither abstentions nor broker nonvotes, will be
counted as favorable votes in determining whether the Merger Agreement is
approved by the holders of VB Common Stock. As a consequence, abstentions and
broker nonvotes will have the same effect as votes against approval of the
Merger Agreement.
As of the Record Date, VB's directors and executive officers and their
affiliates owned and were entitled to vote 50,855 shares at the Meeting,
representing approximately 35.9 percent of the outstanding shares of VB Common
Stock. Each VB director has agreed to vote all shares of VB Common Stock held or
controlled by him or her (a total of 50,289 shares) in favor of approval of the
Merger.
- 15 -
<PAGE> 24
VOTING, SOLICITATION, AND REVOCATION OF PROXIES
If the enclosed proxy is duly executed and received in time for the
Meeting, it will be voted in accordance with the instructions given. If no
instruction is given, it is the intention of the persons named in the proxy to
vote the shares represented by the proxy FOR THE ELECTION OF THE BOARD'S
NOMINEES FOR DIRECTOR, FOR THE APPROVAL OF THE MERGER AGREEMENT AND IN THE
PROXY'S DISCRETION ON ANY OTHER MATTER COMING BEFORE THE MEETING, unless
otherwise directed by the proxy. Any proxy given by a shareholder may be revoked
before its exercise by written notice to the Secretary of VB, or by a
subsequently dated proxy, or in open meeting before the shareholder vote is
taken. The shares represented by properly executed, unrevoked proxies will be
voted in accordance with the instructions in the proxy. With respect to both the
approval of the Merger and the election of each director nominee to the open
positions on the VB Board, shareholders are entitled to one vote for each share
of VB Common Stock held on the Record Date.
The proxy for the Meeting is being solicited on behalf of the VB Board.
VB will bear the cost of solicitation of proxies from its shareholders. In
addition to using the mails, proxies may be solicited by personal interview,
telephone, and wire. Banks, brokerage houses, other institutions, nominees, and
fiduciaries will be requested to forward their proxy soliciting material to
their principals and obtain authorization for the execution of proxies. Officers
and other employees of VB may solicit proxies personally. VB is not expected to
pay any compensation for the solicitation of proxies, but will, upon request,
pay the standard charges and expenses of banks, brokerage houses, other
institutions, nominees, and fiduciaries for forwarding proxy materials to and
obtaining proxies from their principals.
BACKGROUND OF AND REASONS FOR THE MERGER
BACKGROUND OF THE MERGER
Since its formation in 1989, VB has enjoyed progressive earnings gains
and strong asset growth in its Vancouver, Washington market. Although VB's
founding directors anticipated that they might consider a sale of the company
after the Bank was well-established and profitable, the VB Board and management
have not seriously pursued a possible sale or merger given their record of
performance. In early 1995, VB received an unsolicited inquiry from another
community banking organization concerning a possible merger of their companies.
This inquiry gave the VB Board and management an opportunity to reassess their
organization, their success to date, the circumstances under which they might be
interested and/or required to consider a merger possibility. The Board
considered the potential increase in profitability that could be realized by
sharing operating costs such as personnel administration, training, regulatory
compliance and loan review with a larger organization. Moreover, where the Bank
had been successful in participating in loans exceeding the Bank's lending
limits, additional revenue for a combined organization could be realized through
participation with one or more sister banks and retaining the interest income
within the organization. The VB Board believed that the cost savings and
enhanced revenue could significantly increase shareholder value. Moreover,
through a merger with a larger company, VB shareholders could enjoy increased
liquidity of their stock. Thus, the Board believed that pursuing a merger,
rather than remaining independent, was in the best interest of VB shareholders.
After consideration of the proposed merger, discussions ceased in July 1995 when
the two companies were unable to reach an agreement with respect to the role of
VB management in the post-merger organization and the merger consideration to be
received by VB shareholders.
In September 1995, Rodney B. Tibbatts, WCB's Co-President and Co-Chief
Executive Officer, contacted Mr. Stenseth, President of both VB and the Bank, to
arrange a luncheon meeting. The purpose of the meeting was to gain insight into
VB and the Bank's strategic plans for the future, along with informing Mr.
Stenseth of WCB's mission and strategic intent. Mr. Tibbatts indicated that WCB
desired to have a presence
- 16 -
<PAGE> 25
in southwest Washington and that VB could represent a viable partner to
enable this goal to be achieved. Mr. Stenseth indicated the conversation was
timely in that VB was holding a directors retreat in the near future to discuss
strategies for 1996 and beyond. The Board, having previously determined that a
merger could enhance shareholder value, believed that WCB's indication of
interest presented an opportunity to achieve the mutually beneficial business
combination that had been previously sought in the earlier discussions with the
community banking organization. The Board decided, therefore, to continue
discussions with WCB. Accordingly, in October 1995, Messrs. Stenseth and
Pomajevich, the Chairman of the VB Board, met with Mr. Tibbatts and Victor L.
Bartruff, WCB's other Co-President and Co-Chief Executive Officer, along with
Lester Green and Gary Putnam, the Chairman and Vice Chairman, respectively, of
the WCB Board, to share the philosophies of the two organizations in order to
determine if further discussions would be productive. The parties reported on
their respective conversations at their next Board meetings and, feeling that a
combination of the two institutions would be consistent with the objectives of
both parties, on October 17, 1995, WCB and VB signed a Confidentiality
Agreement. Subsequently, in late October, a joint dinner meeting was held
involving the seven members of the VB Board, the six- member Executive Committee
of the WCB Board, and WCB's Chief Financial Officer, Donald A. Kalkofen.
Subsequently, certain directors and management teams of both parties
held a series of meetings to further explore the possible combination of WCB and
VB. WCB and VB then conducted detailed due diligence reviews of each other's
assets, business and financial conditions, consulting on the proposed
transaction with their respective independent public accountants, legal counsel,
and Board members. Also, the WCB negotiating team of Messrs. Tibbatts, Bartruff,
Green, Putnam and Kalkofen met on several occasions with Messrs. Stenseth and
Pomajevich, and on occasion other VB directors. After reaching a consensus on a
number of basic issues involving a combination of the companies, including a
stock exchange ratio, VB retained a financial advisor. On December 12, 1995, the
WCB Board met and on December 21, 1995 the VB Board met, and both approved
proceeding with formal negotiations towards a definitive Merger Agreement.
At special meetings of the VB and WCB Boards held on February 15, 1996,
the proposed combination was considered in detail. The WCB Board, along with its
counsel, Graham & Dunn, P.C., reviewed the Merger Agreement together with its
exhibits. After considering the potential benefits of the transaction, the
financial and valuation analyses of the transaction, the terms of the Merger
Agreement, and related questions and answers, the WCB Board unanimously approved
the transaction. The VB Board, with advice from its legal counsel, Foster Pepper
& Shefelman, reviewed the Merger Agreement and considered the potential benefit
of the proposed Merger to VB and its shareholders, taking into account the
financial and valuation analysis of the Merger, the terms of the Merger
Agreement and a report regarding the fairness of the transaction, from a
financial point of view, presented by VB's financial advisor, CFA. At this
meeting, the VB Board unanimously determined that the proposed Merger was fair
to and in the best interest of VB and its shareholders, and therefore
recommended that the Merger Agreement be submitted to VB's shareholders for
approval. At each meeting, the Merger, Exchange Ratio, and related transactions
were unanimously approved by all members of the respective Boards present,
subject to the approval of VB shareholders, obtaining necessary regulatory
approvals, and the further conditions set forth in the Merger Agreement.
At the time of determining the Exchange Ratio, WCB Common Stock
recorded sales ranging from $16.375 on December 21, 1995 to $17.00 on February
14, 1996.
REASONS FOR THE MERGER - GENERAL
VB and WCB share a community banking philosophy and strategy, which
emphasizes responsiveness to local markets and delivery of personalized service
through locally managed banks. The parties believe that a bank holding company
composed of autonomous banks, emphasizing high quality personalized customer
service and strong local identification is a viable alternative to the
super-regional organizations which have
- 17 -
<PAGE> 26
acquired many smaller independent banks in recent years and operated
them as branches. WCB expects to continue to emphasize this strategy after the
Merger and intends to operate the Bank of Vancouver along with its present
subsidiaries -- The Bank of Newport, The Commercial Bank and Valley Commercial
Bank -- as separate subsidiaries with local management and directors that are
involved in, and knowledgeable about, the respective communities of WCB's
subsidiary banks.
The parties believe that the Merger will enable the Bank to provide
enhanced services to customers and to compete more effectively in the present
banking environment, which is dominated by much larger institutions. The
parties' geographic markets and products are complementary. The Bank is located
in Vancouver, Washington, with its primary market area Clark County, Washington.
This market is immediately adjacent to the greater Portland, Oregon, market in
which several offices of WCB's three present subsidiary banks are located. The
city of Vancouver, Washington, and Clark County are considered a part of the
Portland metropolitan area. VB's primary focus is on the small- to medium-sized
businesses within its market area which is consistent with the niche banking
philosophy of the three business banking offices of The Bank of Newport located
in the Portland, Oregon area.
While VB's loan portfolio focuses on business lending, with a
concentration in real estate developments, the institutions' portfolios
complement each other both geographically and by industry types. WCB's loan
portfolio has a broad diversity with some concentration in the agricultural,
manufacturing, fishing, tourism, and real estate industries. WCB offers a range
of non-traditional products, such as annuities, mutual funds and brokerage
services, which are not presently offered by VB. In addition WCB, through its
Trust Division -- West Coast Trust -- offers trust and employee benefit plans
which are not presently offered by VB. It is expected that the parties'
complementary market areas, product mixes and areas of expertise will provide
additional opportunity for growth, revenue enhancement, and increased quality of
customer services.
To a lesser extent, the Merger is expected to provide benefits to the
parties through increased efficiencies and other savings, particularly in the
areas of data processing, loan participation, and through enhanced marketing
efforts. Moreover, having banking offices on both sides of the Columbia River is
expected to enable the parties to more effectively pursue their strategy of
providing community-style banking services to small and medium-sized businesses
throughout the entire metropolitan area, including those in Oregon and Clark
County, Washington.
REASONS FOR THE MERGER - WCB
At its meeting on February 15, 1996, the WCB Board determined that the
Merger and Merger Agreement are fair to and in the best interests of WCB and its
shareholders. In considering the Merger, the WCB Board determined that the
Merger would be consistent with WCB's strategic intent in expanding its
community banking organization. With VB, WCB can potentially provide customers
and shareholders with certain advantages of a community banking organization as
well as the larger banking organization.
WCB determined that the Merger would advance WCB's strategic plan
because of its belief that the Merger will combine two financially-sound
institutions with complementary businesses and strategies, thereby creating a
stronger combined organization with greater size, flexibility, efficiency, and
profitability. The WCB Board believes that (i) each institution is currently
well-managed, (ii) the companies have compatible management philosophies and
strategic focuses, (iii) each institution will contribute complementary business
strengths resulting in a well meshed diversified institution, and (iv) the
strong capitalization of the combined organization will allow it to take
advantage of future acquisition opportunities. The WCB Board also believes that
the Merger will allow the combined organization to compete effectively in the
rapidly changing marketplace of banking and financial services and to take
advantage of opportunities for growth and diversification in both Oregon and
Washington.
- 18 -
<PAGE> 27
In reaching its determination, the WCB Board consulted with WCB's
management as well as WCB's accounting and legal advisors and considered a
number of factors, including the following:
- The effectiveness of the Merger in implementing WCB's basic
strategy, and in responding to changes in the banking industry
which have made competing as a community banking organization
more difficult;
- The WCB Board review based in part on a presentation by WCB
management regarding (i) its due diligence review of VB,
including the business, operations, earnings, asset
quality, financial condition and corporate culture of VB on a
historical, prospective and pro forma basis, (ii) product mix,
the compatibility of corporate roles and the respective
contributions the parties would bring to a combined
organization, and (iii) the expanded opportunities for revenue
enhancement and synergies that are expected to result from the
Merger;
- The terms of the Merger Agreement, the VB Stock
Option Agreement and the other documents executed in
conjunction with the Merger;
- WCB's long-term strategy of seeking to expand its operations
along the I-5 corridor and particularly its stated goal of
expanding its banking operations throughout the
Portland-Metropolitan area, including southwest Washington;
and
- The current and prospective economic environment
facing financial institutions generally and WCB in
particular.
The WCB Board did not assign any specific or relative weight to the foregoing
factors in the course of its consideration.
REASONS FOR THE MERGER - VB
The VB Board believes that the terms of the Merger, which are the
product of arms length negotiations between representatives of VB and WCB, are
fair and in the best interests of VB and its shareholders. In the course of
reaching its determination, the VB Board consulted with legal counsel with
respect to the legal duties of the VB Board, the terms of the Merger Agreement
and the issues related thereto; with its accountants with respect to certain
financial aspects of the transaction; with its financial advisor with respect to
the financial aspects and fairness of the transaction; and with senior
management regarding, among other things, operational and due diligence matters.
At its meeting on February 15, 1996, the VB Board unanimously
determined that the Merger and Merger Agreement are fair to, and in the best
interests of VB and its shareholders and recommended the Merger Agreement be
submitted to the shareholders of VB for approval. In addition to the overall
objectives of enhancing shareholder value and providing high-quality community
banking services in Vancouver and surrounding communities, the VB Board
considered the fairness opinion of CFA, and the following additional material
factors:
- VB shareholder value would be significantly enhanced by
the value of WCB Common Stock being issued in the Merger;
- WCB stock is relatively actively traded, thus creating a
far more marketable and liquid security for VB
shareholders;
- 19 -
<PAGE> 28
- The Merger is structured as a tax-free exchange of stock,
permitting VB shareholders the opportunity to continue to
invest in a community banking organization;
- WCB's financial condition, businesses and prospects and
the economic prospects of the markets served by both
parties appear to be attractive;
- The Merger would allow VB to provide trust, investment and
mortgage services to VB customers;
- The combined organization would enable the Bank to offer
larger loans to customers due to higher legal lending
limits;
- The combined organization is expected to provide increased
opportunities to employees;
- The structure of the Merger would allow the Bank to retain its
name and local identity, Board and management team, enabling
it to continue to provide responsive, quality, community
banking services to its customers; and
- The Merger is expected to receive regulatory approval and
is not conditioned upon the approval of any shareholder
group other than VB.
The VB Board did not ascribe relative or specific weights to any factor in its
evaluation of the Merger.
OPINION OF VB FINANCIAL ADVISOR
VB retained CFA as its exclusive financial advisor pursuant to an
engagement letter dated February 5, 1996 (the "Engagement Letter") in connection
with the Merger. CFA is a regionally recognized investment banking firm that is
regularly engaged in the valuation of businesses and securities in connection
with mergers and acquisitions. CFA is familiar with VB, having acted as its
financial advisor in connection with initiating and participating in the
negotiations with WCB leading to the Merger Agreement. The VB Board selected CFA
to act as VB's exclusive financial advisor based on CFA's experience in mergers
and acquisitions and in securities valuation generally.
On February 15, 1996, CFA issued its opinion to the VB Board that, in
its opinion as investment bankers, the terms of the Merger as provided in the
Merger Agreement are fair, from a financial view point, to VB and its
shareholders. The CFA opinion is directed only to the fairness, from a financial
point of view, of the consideration to be received and does not constitute a
recommendation to any VB shareholder as to how such shareholder should vote at
the Meeting. No limitations were imposed by the VB Board on CFA in respect to
the investigations made or procedures followed by CFA in rendering its opinions.
CFA will deliver an updated opinion on the date that this Prospectus/Proxy
Statement is mailed to VB Shareholders.
In rendering its opinion to VB, CFA reviewed, among other things,
historical financial data of VB, certain internal financial data and assumptions
of VB prepared for financial planning and budgeting purposes furnished by the
management of VB and, to the extent publicly available, the financial terms of
certain change of control transactions involving Northwest community banks. CFA
discussed with VB's management the financial condition, current operating
results, and business outlook for VB. CFA also reviewed certain publicly
available information concerning WCB and certain financial and securities data
of WCB and companies deemed similar to WCB. CFA discussed with WCB's management
the financial condition, current operating results and business outlook for WCB
and WCB's plans relating to VB. In rendering its opinion, CFA relied, without
independent verification, on the accuracy and completeness of all financial and
other information reviewed by
- 20 -
<PAGE> 29
it and did not attempt to verify or to make any independent evaluation or
appraisal of the assets of VB or WCB nor was it furnished any such appraisals.
VB did not impose any limitations on the scope of the CFA investigation in
arriving at its opinion.
CFA analyzed the total Purchase Price on a cash equivalent fair market
value basis using standard evaluation techniques (as discussed below) including
comparable sales multiples, net present value analysis, and net asset value
based on certain assumption of projected growth, earnings and dividends and a
range of discount rates from 16% to 18%.
Net Asset Value is the value of the net equity of a bank, including
every kind of property and value. This approach normally assumes the liquidation
on the date of appraisal with the recognition of the investment securities gains
or losses, real estate appreciation or depreciation, adjustments to the loan
loss reserve, discounts to the loan portfolio and changes in the net value of
other assets. As such, it is not the best evaluation approach when valuing a
going concern because it is based on historical cost and varying account
methods. Even if the assets and liabilities are adjusted to reflect prevailing
market prices and yields (which is often of limited accuracy due to the lack of
readily available data), it still results in a liquidation value. In addition,
since this approach fails to account for the values attributable to the going
concern such as the interrelationship among VB's assets and liabilities,
customer relations, market presence, image and reputation, staff expertise and
depth, little weight is given by CFA to the net asset value approach to
valuation.
Market Value is generally defined as the price, established on an
"arms-length" basis, at which knowledgeable, unrelated buyers and sellers would
agree. The "hypothetical" market value for a small bank with a thin market for
its common stock is normally determined by comparison to the average price to
stockholders equity, price to earnings, and price to total assets, adjusting for
significant differences in financial performance criteria and for any lack of
marketability or liquidity of the buyer. The market value in connection with the
evaluation of control of a bank is determined by the previous sales of small
banks in the state or region. In valuing a business enterprise, when sufficient
comparable trade data are available, the market value approach deserves greater
weight than the net asset value approach and similar weight as the investment
value approach as discussed below.
CFA maintains a substantial data base concerning prices paid for
banking institutions in the Northwest, particularly Washington banking
institutions, during 1988 through 1996. This data base provides comparable
pricing and financial performance data for banking institutions sold or
acquired. Organized by different peer groups, these data present medians of
financial performance and purchase price levels, thereby facilitating a valid
comparative purchase price analysis. In analyzing the transaction value of VB,
CFA has considered the market approach and has evaluated price to stockholders
equity and price to earnings multiples and the price to total assets percentage
for transactions involving Washington, Oregon, and Idaho banking organizations
with total assets less than $100 million that sold for 100% common stock from
January, 1988 to January, 1996.
Comparable Sales Multiples. CFA calculated a "merger consideration
multiple" of VB's Adjusted Book Value (using the estimated June 30, 1996,
stockholders' equity) based on the ratio of price to adjusted stockholders'
equity for a sample of Northwest banking institutions with assets below $100
million which sold between January, 1988 and January, 1996, and a sample of
banking institutions located in western Washington and western Oregon with total
assets below $100 million which sold between March, 1990 and January 1996. Based
on these two samples, the merger consideration multiple values suggested for VB
shares based on the estimated June 30, 1996 stockholders' equity were $60.42 and
$74.52, respectively.
Transaction Value as a Percentage of Total Assets. CFA calculated the
percentage of total assets which the transaction represents as a price level
indicator. The transaction value as a percentage of total assets facilitates a
truer price level comparison with comparable banking organizations, regardless
of the differing levels
- 21 -
<PAGE> 30
of stockholders equity and earnings. In this instance, a transaction
value of $66.95 per share results in a transaction value as a percentage of
total assets of 13.52%. The median price as a percentage of total assets for a
sample of Northwest banking institutions with assets below $100 million which
sold between January, 1988 through January, 1996, and a sample of Northwest
banking institutions with total assets below $100 million which sold between
1990 and 1995, was 13% and 15%, respectively.
Investment Value is sometimes referred to as the income or earnings
value. One investment value method frequented used estimates the present value
of an institution's future earnings or cash flow which is discussed below.
Net Present Value Analysis. The investment or earnings value of any
banking organization's stock is an estimate of the present value of future
benefits, usually earnings, dividends, or cash flow, which will accrue to the
stock. An earnings value is calculated using an annual future earning stream
over a period of time of not less than five years, and the residual or terminal
value of the earnings stream after five years, using VB's estimates of future
growth and an appropriate capitalization or discount rate. CFA's calculations
were based on an analysis of the banking industry, VB's earnings estimates for
1996-2000, historical levels of growth and earnings, and the competitive
situation in VB's market area. Using discount rates of 16% and 18%, acceptable
discount rates considering the risk-return relationship most investors would
demand of an investment of this type, as of the valuation date, the "Net Present
Value of Future Earnings: provided a range of $63.13 to $67.76 per
share.
When the net asset value, market value and investment value approaches
are subjectively weighed, using the appraiser's experience and judgment, it is
CFA's opinion that the proposed transaction is fair, from a financial point of
view.
Pursuant to the terms of the Engagement Letter, VB has agreed to pay
CFA a fee of $15,000. In addition, VB has agreed to reimburse CFA for its
reasonable out-of-pocket expenses, including the fees and disbursements of its
counsel, and to indemnify CFA against certain liabilities.
THE FULL TEXT OF THE OPINION OF CFA DATED AS OF THE DATE OF THIS
PROSPECTUS/PROXY STATEMENT, WHICH SETS FORTH ASSUMPTIONS MADE, MATTERS
CONSIDERED, AND LIMITS ON THE REVIEW UNDERTAKEN BY CFA IS ATTACHED TO THIS
PROSPECTUS/PROXY STATEMENT AS APPENDIX D. THE SHAREHOLDERS OF VB ARE ADVISED TO
READ THIS DOCUMENT IN ITS ENTIRETY. THE CFA OPINION IS DIRECTED ONLY TO THE
EXCHANGE RATIO IN THE MERGER AND DOES NOT CONSTITUTE RECOMMENDATIONS TO ANY VB
SHAREHOLDER AS TO HOW SUCH SHAREHOLDER SHOULD VOTE AT THE VB MEETING. FURTHER,
THE SUMMARY OF THE CFA OPINION SET FORTH IN HEREIN IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO THE FULL TEXT OF SUCH OPINION CONTAINED IN APPENDIX D. THE CFA
OPINION DELIVERED TO THE VB BOARD AND DATED FEBRUARY 15, 1996, IS SUBSTANTIALLY
IDENTICAL TO THE OPINION ATTACHED HERETO.
RECOMMENDATION OF THE VB BOARD
THE VB BOARD UNANIMOUSLY RECOMMENDS THAT THE VB SHAREHOLDERS VOTE FOR
THE APPROVAL OF THE MERGER AGREEMENT.
THE MERGER
GENERAL
The following description of the material terms of the Merger is
qualified in its entirety by reference to the Merger Agreement. All VB
shareholders are urged to read the Merger Agreement carefully. VB shareholders
are being asked to approve the Merger in accordance with the terms of the Merger
Agreement.
- 22 -
<PAGE> 31
BASIC TERMS OF THE MERGER
The Merger Agreement provides for the merger of VB with and into HB,
WCB's wholly-owned subsidiary, with the result that VB shareholders would become
shareholders of WCB and the Bank would become a wholly-owned subsidiary of WCB.
VB would cease to exist after the Merger. While WCB and VB believe that they
will receive the requisite regulatory approvals for the Merger, there can be no
assurance that such approvals will be received or, if received, as to the timing
of such approvals or as to the ability to obtain such approvals on satisfactory
terms. See "-- Conditions to the Merger."
Under the terms of the Merger Agreement, WCB would acquire VB for an
aggregate purchase price of $11,581,000, or $66.95 per share of VB Common Stock.
WCB would acquire VB by means of a triangular merger through which VB would be
merged with and into HB, WCB's wholly-owned subsidiary organized solely to
effect this transaction. As a result, VB shareholders, other than those who duly
exercise dissenters' rights, would become shareholders of WCB (See "THE MERGER
- -- Dissenters' Rights of Appraisal"). Upon consummation of the Merger, each
holder of shares of VB Common Stock, other than dissenting shares, will be
entitled to receive shares of WCB Common Stock in exchange for the shares of VB
Common Stock held of record by such shareholder as of the Effective Date. The
number of shares of WCB Common Stock to be received for each share of VB Common
Stock is the number obtained by dividing $11,581,000 by either the Average
Closing Price or the Modified Average Closing Price (as defined in the Merger
Agreement and discussed in more detail below), whichever applies, and by further
dividing such quotient by the aggregate number of shares of VB Common Stock that
are issued and outstanding or subject to unexercised options on the Effective
Date. So long as the Average Closing Price of WCB Common Stock is between $15.30
and $18.70 per share, the formula is designed to result in VB shareholders
receiving WCB Common Stock having a market value of approximately $66.95 for
each share of VB exchanged in the Merger.
The Average Closing Price is equal to the average of each Daily Sales
Price of WCB Common Stock for the ten consecutive trading days ending on and
including the fifth trading day preceding the Effective Date ("Pricing Period").
But, the Average Closing Price in the Merger Agreement includes a "floor" and a
"ceiling" price, respectively 10% below and above a midpoint price of $17
(representing the average closing price of WCB Common Stock prior to the
execution of the Merger Agreement). Accordingly, if the average Daily Sales
Price over the Pricing Period is less than $15.30, the Average Closing Price
will be $15.30. If, on the other hand, the Average Daily Sales Price over the
Pricing Period is greater than $18.70, the Average Closing Price will be $18.70.
The Modified Average Closing Price is the Average Closing Price not
subject to the "floor" price described above. The Modified Average Closing Price
will be used in place of the Closing Price only if (i) the Average Daily Sales
Price over the Pricing Period is below $15.30 and has declined more than 5% in
excess of any corresponding decline in a selected index of peer group stock
prices, (ii) VB is entitled to and does exercise its provisional right to
terminate the Merger Agreement under Subsection 7.2.5(a), and (iii) WCB removes
the limitation otherwise imposed by the "floor" as permitted by Subsection
7.2.5(b) of the Merger Agreement. See "Termination of the Merger Agreement --
Decline in Value of WCB Stock."
As an example of the operation of the formula for computing the
exchange ratio, recognizing the $11,581,000 Purchase Price, using the midpoint
price of $17 as the Average Closing Price, and assuming 172,984 shares of VB
Common Stock issued and outstanding or subject to unexercised options, the
number of shares of WCB Common Stock that will be exchanged for each share of VB
Common Stock would be determined as follows: 11,581,000 / 17 = 681,235.29 /
172,984 = 3.9381 shares of WCB Common Stock for each share of VB Common Stock.
- 23 -
<PAGE> 32
The following table sets forth examples showing the approximate number
of shares of WCB Common Stock a VB shareholder would receive in exchange for 100
shares of VB Common Stock. The table is based upon various hypothetical Average
Closing Prices and assumes that 172,984 shares of VB Common Stock are issued and
outstanding or subject to unexercised options as of the Effective Date. On June
6, 1996, the price per share of the WCB Common Stock was $18.00. However, no
assurance can be given as to the market value of WCB Common Stock during the
Pricing Period.
<TABLE>
<CAPTION>
================================================================================================
Assumed Average Closing No. of Shares of WCB Common
Price of WCB Common Stock for 100 Shares
Stock of VB Common Stock
- ------------------------------------------------------------------------------------------------
<S> <C>
$15.30 or lower 437(1)
- ------------------------------------------------------------------------------------------------
$16.15 414
- ------------------------------------------------------------------------------------------------
$17.00 393
- ------------------------------------------------------------------------------------------------
$17.85 375
- ------------------------------------------------------------------------------------------------
$18.70 or higher 358
================================================================================================
</TABLE>
- -------------------
(1) However, if the Modified Average Closing Price were applicable, the
number of shares issuable would continue to increase proportionately
for values below $15.30 per share.
The Merger will close and become effective on the Effective Date (as
defined in the Merger Agreement, within five business days after the fulfillment
or waiver of each condition set forth in the Merger Agreement), unless extended
by the parties. Closing is anticipated by the summer of 1996. If Closing does
not occur before October 31, 1996, either VB or WCB may terminate the Merger
Agreement. See "THE MERGER -- Conditions to the Merger."
CASH FOR FRACTIONAL SHARES
WCB will not issue certificates for fractional shares of WCB Common
Stock. Each VB shareholder who is otherwise entitled to receive a fractional
share, will receive cash in lieu thereof in an amount equal to the product of
such fraction multiplied by the Average Closing Price of WCB Common Stock, and
such VB shareholder will have no other rights with respect to such fractional
shares or other shares.
EXCHANGE OF STOCK CERTIFICATES
On and after the Effective Date, certificates representing VB Common
Stock will be deemed to represent only the right to receive WCB Common Stock or
cash as provided in the Merger Agreement. Upon surrender to the Exchange Agent
designated by WCB and VB, of certificates that, before the Effective Date,
represented shares of VB Common Stock, together with a properly executed
transmittal letter form and any other required documents, the holder
surrendering the certificates will be entitled to receive certificates
representing the number of shares of WCB Common Stock, and cash, if any, to
which he or she is entitled in accordance with the terms of the Merger
Agreement. DO NOT SEND IN YOUR CERTIFICATES AT THIS TIME. VB shareholders will
receive written instructions and the required letter of transmittal after the
Merger is effective.
- 24 -
<PAGE> 33
All WCB Common Stock issued pursuant to the Merger Agreement will be
deemed issued as of the Effective Date. No distributions or dividends paid upon
shares of WCB Common Stock after the consummation of the Merger will be paid to
holders of VB Common Stock who are entitled under the Merger Agreement to
receive WCB Common Stock until such holders have surrendered the certificates
formerly representing shares of VB Common Stock, at which time any accumulated
dividends and distributions since the Effective Date, without interest, will be
paid.
DIRECTORS AND OFFICERS
In connection with the Merger, WCB intends to appoint Mr. Pomajevich to
the WCB Board. Mr. Pomajevich is currently the Chairman of the VB Board. This
appointment will be effective on the Effective Date. In addition, after the
Merger Mr. Stenseth will continue as the President of the Bank and, until the
end of his service as President, will be allowed to attend WCB Board meetings as
a non-voting ex-officio member of the WCB Board. See "SUMMARY -- Board of
Directors and Executive Officers of WCB and the Bank;" and "Interests of Certain
Persons in the Merger."
The Bank's Board before the Merger will remain the same after the
Merger, except that an additional director (one of WCB's current directors) will
be appointed by WCB to the Bank's Board. Consequently, on the Effective Date,
the Bank's Board will consist of all persons who were directors of the Bank
immediately before the Merger, plus a WCB director designated by WCB. The Bank's
directors will serve until the 1997 annual meeting of the Bank's shareholders or
until their successors have been elected and qualified. At the 1997 annual
meeting of the Bank's shareholders, the directors then serving on the Bank's
Board may propose a slate of directors for election to the Bank's Board until
the 1998 annual meeting of the Bank's shareholders. WCB, as the Bank's sole
shareholder, has agreed to elect the slate of directors proposed by the outgoing
VB directors in 1997, although WCB has the right to refuse to elect any of the
proposed directors if it has good cause for such refusal.
As a condition to the execution of the Merger Agreement, each member of
the Board of VB entered into a Director Noncompetition Agreement with WCB, HB,
and VB. Except under certain limited circumstances, the Director Noncompetition
Agreement prohibits these directors from competing with WCB in Clackamas,
Lincoln, Marion, Multnomah and Washington Counties, Oregon and Clark County,
Washington, for the lesser of (a) two years after the director's service as a
director of the Bank, WCB, or any affiliate of WCB, is terminated or (b) three
years from Closing of the Merger.
As a further condition to the execution of the Merger Agreement, the
Bank entered into an employment agreement with Mr. Stenseth, which was ratified
by WCB. Under the employment agreement, the term of which will expire on May 31,
1998, Mr. Stenseth will continue as President of the Bank after the Merger and
will receive, as compensation for his services, $85,000 in annual base salary
and an incentive bonus ranging from 2.5 percent to 5 percent of the pre-tax
earnings of the Bank, depending on the Bank's performance. The Bank may
terminate the agreement at any time for cause without incurring any
post-termination obligation to Mr. Stenseth, or without cause, in which case the
agreement provides severance benefits equal to the salary and benefits which Mr.
Stenseth would have been entitled but for such termination. See "SUMMARY --
Board of Directors and Executive Officers of WCB and the Bank;" and "Interests
of Certain Persons in the Merger."
EMPLOYEE BENEFIT PLANS
The Merger Agreement confirms WCB's intention to allow the Bank's
employees who continue as employees of the Bank after the Merger to participate
in certain WCB employee benefit plans. VB's
- 25 -
<PAGE> 34
employee benefit plans will be terminated as soon as practical after
the Merger, and the employee interests in those plans will be transferred or
merged into WCB's employee benefit plans.
MECHANICS OF THE MERGER
On the Effective Date, VB will be merged with and into HB which itself
will be merged into WCB immediately after Closing. At that time, all business,
assets, and liabilities formerly carried on or owned by VB will be transferred
to and vested in WCB. VB will cease to have a corporate existence separate from
WCB, and the Bank will be a directly owned subsidiary of WCB.
CONDUCT PENDING CONSUMMATION OF THE MERGER
The Merger Agreement provides that, until the Merger is effective, VB
will, and will cause the Bank to, conduct its business only in the ordinary and
usual course, and use all reasonable efforts to preserve its present business
organization, retain the services of its present management, and preserve the
goodwill of all parties with whom it has business dealings. The Merger Agreement
also provides that, unless WCB otherwise consents in writing, VB will refrain
from engaging in various activities such as, effecting any stock split or other
recapitalization, disposing of assets or making material commitments, acquiring
real property without conducting an environmental evaluation, and entering into
transactions or incurring any expenses that are not in the ordinary course of
business.
CONDITIONS TO THE MERGER
Consummation of the Merger is subject to various conditions. No
assurance can be provided as to whether these conditions will be satisfied or
waived by the appropriate party. Accordingly, there can be no assurance that the
Merger will be completed. In the event that conditions to the Merger remain
unsatisfied and the Merger has not been effected on or before October 31, 1996,
the Merger Agreement may be terminated by either party to the Merger Agreement.
The Merger can occur only if the holders of the shares of VB Common
Stock approve the transaction. In accordance with VB's Articles of Incorporation
and Washington law, approval of the Merger requires the affirmative vote by the
holders of a majority of all shares outstanding. In addition, approval of the
Merger Agreement is required from the FRB and the Washington Director. On May
23, 1996, WCB received approval of the Merger from the FRB and on May 11, 1996,
the Merger was automatically declared effective by the Washington Director.
Certain conditions must be satisfied or events must occur before the
parties will be obligated to complete the Merger. Each party's obligations under
the Merger Agreement are conditioned on satisfaction by the other parties of
their conditions. Some of these conditions are as follows: (a) the
representations and warranties of each party are true in all material respects
(as of Closing), and each party has complied with its covenants in the Merger
Agreement; (b) no Material Adverse Effect has occurred with respect to a party;
(c) each party's Board and VB's shareholders have approved the Merger; (d) WCB
has appointed, effective as of Closing, a VB director to serve on the WCB Board;
(e) the parties have provided one another with the counsel, tax, accounting
treatment, and fairness opinions required by the Merger Agreement; (f) WCB has
assumed or paid VB's note with Security State Bank and secured a release from
Security State Bank of VB's stock pledged as security for the note; (g) the SEC
has declared the effectiveness of the Registration Statement for the shares of
WCB Common Stock to be issued in the Merger; (h) VB and the Bank have met
certain financial condition requirements; (i) no action or proceeding has been
commenced or is threatened by any governmental agency to restrain or prohibit or
invalidate the Merger; (j) the aggregate of the cash to be paid to VB's
shareholders in accordance with
- 26 -
<PAGE> 35
the Merger Agreement do not exceed ten percent of the value of the WCB
Common Stock to be issued in the Merger; and (k) all appropriate regulatory
agencies have approved the Merger.
Either WCB or VB may waive any of the other party's conditions, except
those that are required by law (such as receipt of regulatory and shareholder
approval). Either WCB or VB may also grant extended time to the other party to
complete an obligation or condition.
AMENDMENT OF THE MERGER AGREEMENT
The Merger Agreement may be amended or supplemented at any time by
written agreement of the parties, whether before or after the Meeting. To the
extent permitted under applicable law, the parties may make any amendment or
supplement without further approval of VB's shareholders, except amendments
which would reduce the amount or change the form of consideration that the
shareholders of VB will receive in the Merger transaction.
TERMINATION OF THE MERGER AGREEMENT
The Merger Agreement contains several provisions entitling either VB or
WCB to terminate the Merger Agreement under certain circumstances. The following
briefly describes these provisions:
Lapse of Time. If the Merger has not been consummated by October 31,
1996, then at any time after that date, either WCB or VB may terminate the
Merger Agreement if failure of the parties to consummate the Merger by October
31, 1996, was not due to the terminating party's breach of its obligations,
representations, or warranties under the Merger Agreement.
Mutual Consent. The parties may terminate the Merger Agreement at any
time before Closing, whether before or after approval by VB's shareholders, by
mutual consent.
Failure of VB to Recommend Approval or Stock Option Becomes
Exercisable. WCB may terminate the Merger Agreement before VB shareholders
approval if the VB Board fails to recommend (or adversely modifies, withdraws or
changes its recommendation) approval of the merger to its shareholders. WCB may
also terminate the Merger if the Option under the Stock Option Agreement becomes
exercisable by WCB, unless WCB has exercised such Option.
Decline in Value of WCB Stock. VB has certain rights, tied to a
reduction in value of WCB Common Stock, to terminate the Merger Agreement during
the three-business-day period beginning five calendar days before the Effective
Date of the Merger. These termination rights are generally subject to WCB's
right to avoid termination by increasing the number of WCB shares VB
shareholders will receive (the so-called "right to fill"). However, VB may
terminate the Merger Agreement, and WCB has no right to avoid termination, if,
during the three-business-day period identified above, the Modified Average
Closing Price is less than $13.60.
Impracticability. Either WCB or VB may terminate the Merger Agreement
upon written notice to the other parties if its Board determines, in good faith
and after due consultation with counsel, that the Merger is inadvisable or
impracticable by reason of the institution of litigation by the federal
government or the governments of Washington or Oregon to restrain or invalidate
the transactions contemplated by the Merger Agreement.
- 27 -
<PAGE> 36
Allocation of Costs Upon Termination. If the Merger Agreement is
terminated, WCB and VB will each pay their own out-of-pocket costs incurred in
connection with the transaction, and will have no other liability to any other
party.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Certain members of the VB Board and management may be deemed to have
interests in the Merger, in addition to their interests as shareholders of VB.
The VB Board was aware of these factors and considered them, among other
matters, in approving the Merger Agreement and the transactions contemplated
thereby.
Employment Agreement. WCB has ratified an employment agreement entered
into between the Bank and Mr. Stenseth, President of the Bank. The term of the
employment agreement begins on the Effective Date and ends on May 31, 1998.
Under the terms of the employment agreement, Mr. Stenseth will receive $85,000
in annual base salary, in addition to a bonus ranging from 2.5 percent to 5
percent of the pre-tax earnings (gross annual revenues) of the Bank, depending
on the Bank's performance. The Bank may terminate the agreement at any time, for
cause, without incurring any post-termination obligation to Mr. Stenseth, or
without cause, in which case the agreement provides severance benefits equal to
the salary and benefits which Mr. Stenseth would have been entitled but for such
termination. Mr. Stenseth is generally prohibited from competing with WCB in its
market area for the lesser of (a) two years after termination or (b) three years
from the Effective Date.
Appointments to the WCB Board. WCB has also agreed to appoint Mr.
Pomajevich, currently the Chairman of the VB Board, to the WCB Board, effective
on Closing. In addition, Mr. Stenseth will be allowed to attend any and all WCB
Board meetings as a non-voting ex-officio member, until the end of his service
as President of the Bank. Finally, the current directors of the Bank will
continue to serve as directors following the Merger.
CERTAIN FEDERAL INCOME TAX MATTERS
The Merger is intended to qualify as a tax-free reorganization under
Section 368(a) of the Code for federal income tax purposes. Graham & Dunn, P.C.
has delivered its opinion, dated April 19, 1996, to the effect that the Merger
will constitute a tax-free reorganization for federal tax purposes. Such opinion
will not bind the Internal Revenue Service or preclude the Internal Revenue
Service from adopting a contrary position. The opinion is based upon facts and
assumptions and representations and assurances made by VB and WCB. THE FEDERAL
INCOME TAX DISCUSSION SET FORTH BELOW MAY NOT APPLY TO PARTICULAR CATEGORIES OF
HOLDERS OF VB COMMON STOCK SUBJECT TO SPECIAL TREATMENT UNDER THE FEDERAL INCOME
TAX LAWS, SUCH AS FOREIGN HOLDERS OR HOLDERS WHOSE STOCK MAY HAVE BEEN ACQUIRED
AS COMPENSATION. IN ADDITION, THERE MAY BE RELEVANT STATE, LOCAL OR OTHER TAX
CONSEQUENCES, NONE OF WHICH ARE DESCRIBED BELOW. SHAREHOLDERS ARE URGED TO
CONSULT THEIR ADVISORS TO DETERMINE THE SPECIFIC PERSONAL TAX CONSEQUENCES OF
THE MERGER, INCLUDING THE APPLICABILITY AND EFFECT OF FOREIGN, STATE, LOCAL, AND
OTHER TAX LAWS.
The Graham & Dunn, P.C. opinion states that:
1. The merger of VB with and into HB will constitute a
tax-free reorganization.
2. No gain or loss will be recognized by either VB or WCB
as a result of the Merger.
- 28 -
<PAGE> 37
3. The tax basis and holding period for the VB assets that are
received by WCB in the Merger will be the same as the tax
basis and holding period of the assets held immediately before
the exchange by VB.
4. No gain or loss will be recognized by holders of VB Common
Stock upon the receipt of WCB Common Stock in exchange for VB
Common Stock pursuant to the Merger.
5. The tax basis of the WCB Common Stock received in the
Merger by VB shareholders will be the same as the tax
basis of the shares of VB Common Stock surrendered in
the exchange, reduced by any basis allocable to a
fractional share interest in the WCB Common Stock for
which cash is received. The holding period for the
shares of WCB Common Stock received in the Merger will
include the holding period of VB shares exchanged,
provided that VB shares were held as capital assets at
the time of the Merger.
6. Gain or loss will be recognized by VB shareholders who
receive cash in lieu of fractional shares of WCB Common
Stock, or who exercise dissenters' rights and receive
cash for their shares. The amount of such gain or loss
will be the difference between the cash received and the
basis of the shares or fractional share interests
surrendered in the exchange. Such gain or loss will be
a capital gain or loss provided that the shares of VB
Common Stock surrendered were capital assets at the time
of surrender, and will be long-term capital gain or loss
if such shares of VB have been held for more than one
year.
ACCOUNTING TREATMENT OF MERGER
It is anticipated that the Merger will be accounted for as a pooling of
interests for accounting purposes. Under this method of accounting, assets and
liabilities of VB and WCB are carried forward at their previously recorded
amounts, and operating results of WCB and VB will represent the combined results
for periods before and after the Merger. No recognition of goodwill arising from
the Merger is required of any party to the Merger. Under the Merger Agreement,
receipt of a letter from Arthur Andersen LLP that the Merger will qualify for
the pooling of interests treatment is a condition to the obligation of WCB to
consummate the Merger.
The unaudited condensed pro forma combined financial information
contained in this Prospectus/Proxy Statement has been prepared using the pooling
of interests accounting method to account for the Merger. See "UNAUDITED
CONDENSED PRO FORMA COMBINED FINANCIAL STATEMENTS," including the related Notes.
- 29 -
<PAGE> 38
DISSENTERS' RIGHTS OF APPRAISAL
Under Washington state law (RCW 23B.13), a shareholder of VB may
exercise "dissenters' rights" and receive the fair value of his or her shares in
cash, if certain procedures are followed. To exercise these rights, a VB
shareholder must (i) deliver to VB, before the vote on approval of the Merger is
taken, written notice of intent to demand payment for his or her shares if the
Merger is effected, and (ii) not vote in favor of the Merger. Following
consummation of the Merger, WCB will send a Dissenters' Notice to each VB
shareholder who has properly perfected his or her dissenters' rights. A
dissenting shareholder must also follow the procedures set forth in the
Dissenters' Notice. The Dissenters' Notice will include instructions to
completing the exercise of dissenters' rights, including that the dissenting
shareholder must (1) make written demand for payment of the fair value of his or
her shares in the form sent to the shareholder by the corporation along with the
Dissenters' Notice (this notice will prescribe a time period within which the
demand must be made), (2) certify that beneficial ownership of his or her VB
Common Stock shares was acquired before the date set forth in the Dissenters'
Notice, and (3) surrender his or her stock certificates representing shares of
the VB Common Stock in accordance with the Dissenters' Notice. If a shareholder
exercises dissenters' rights, the dissenting shareholder is entitled to receive
the fair value of his or her shares in cash. Such value may be higher or lower
than the value of WCB Common Stock issuable pursuant to the Merger Agreement.
A VOTE AGAINST THE MERGER WILL NOT IN AND OF ITSELF SATISFY THE
REQUIREMENTS OF THE WASHINGTON STATUTE; A SHAREHOLDER WHO DOES NOT DELIVER TO VB
PRIOR TO THE MEETING A WRITTEN NOTICE OF THE SHAREHOLDER'S INTENT TO DEMAND
PAYMENT FOR THE FAIR VALUE OF THE SHARES OF VB COMMON STOCK HELD WILL LOSE THE
RIGHT TO EXERCISE DISSENTERS' RIGHTS. IN ADDITION, ANY SHAREHOLDER ELECTING TO
EXERCISE DISSENTERS' RIGHT MUST EITHER VOTE AGAINST THE MERGER OR ABSTAIN FROM
VOTING. THE FAILURE OF A SHAREHOLDER OF VB TO COMPLY STRICTLY WITH THE STATUTORY
REQUIREMENTS WILL RESULT IN A LOSS OF DISSENTERS' RIGHTS. A COPY OF THE RELEVANT
STATUTORY PROVISIONS IS ATTACHED AS APPENDIX C AND VB SHAREHOLDERS ARE URGED TO
REFER TO THIS APPENDIX FOR A COMPLETE STATEMENT CONCERNING DISSENTERS' RIGHTS.
THE FOREGOING SUMMARY OF SUCH RIGHTS IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH APPENDIX C.
RESALES OF STOCK RECEIVED IN THE MERGER BY VB AFFILIATES
The WCB Common Stock to be issued in the Merger will be transferable
free of restrictions under the Securities Act, except for shares received by
persons, including directors and executive officers of VB, who may be deemed to
be "affiliates" of VB, as that term is used in (i) paragraphs (c) and (d) of
Rule 145 under the Securities Act and/or (ii) Accounting Series Releases 130 and
135, as amended, of the SEC. Affiliates may not sell their shares of WCB Common
Stock acquired pursuant to the Merger, except (a) pursuant to an effective
registration statement under the Securities Act covering those shares, (b) in
compliance with Rule 145, or (c) in the opinion of counsel reasonably
satisfactory to WCB, pursuant to other applicable exemptions from the
registration requirements of the Securities Act. SEC guidelines further indicate
that the pooling of interests method of accounting will generally not be
challenged on the basis of sales by affiliates of the acquiring or acquired
company if such affiliates do not dispose of any of the shares of the acquiring
or acquired company they owned before the consummation of a merger or shares of
the acquiring corporation they receive in connection with the merger during the
period beginning 30 days before the merger and ending when financial results
covering at least 30 days of post-merger operations of the combined organization
have been published. WCB has obtained customary agreements with all VB
directors, officers, and affiliates of VB and WCB, under the terms of which such
persons have represented that they will not dispose of their shares of WCB
received in the Merger or the shares of capital stock of VB or WCB held by them
before the Merger, except (i) in compliance with the Securities Act and the
rules and regulations promulgated thereunder, and (ii) in
- 30 -
<PAGE> 39
a manner that would not adversely affect the ability of WCB to treat the Merger
as a pooling of interests for financial reporting purposes. This
Prospectus/Proxy Statement does not cover any resales of the WCB Common Stock
received by affiliates of VB.
NO SOLICITATION
VB has agreed in the Merger Agreement that, except as required by law,
neither VB nor any of its officers or directors will (i) solicit, encourage,
entertain or facilitate any other proposals or inquiries for an acquisition of
the shares or assets of VB or its subsidiaries, (ii) enter into discussions
concerning any such acquisition, or (iii) furnish any nonpublic information
relating to WCB's business or organization to any person that is not affiliated
with VB or WCB.
EXPENSES
WCB and VB will each pay their own expenses in connection with the
Merger Agreement and the transactions contemplated thereby, except that printing
expenses for this Prospectus/Proxy Statement will be shared by both parties.
STOCK OPTION AGREEMENT
As a condition to WCB's willingness to enter into the Merger Agreement,
and in consideration thereof, VB issued to WCB an irrevocable Option to
purchase, under certain conditions, up to 28,144 shares of VB Common Stock at a
price of $64.00 per share, subject to adjustment in certain circumstances, such
as in the event of issuance of additional shares (other than pursuant to stock
options). The Option was granted to WCB pursuant to the Stock Option Agreement
between WCB and VB dated as of February 15, 1996. The number of shares of VB
Common Stock subject to the Option represents approximately 19.9% of the
outstanding shares of VB Common Stock as of February 15, 1996, before giving
effect to the issuance of such shares.
Prior to exercising the Option, WCB will not have any voting rights
with respect to the shares of VB Common Stock subject to the Option. WCB may
exercise the Option only upon the occurrence of certain events (described below)
and obtaining any regulatory approvals necessary for the acquisition of the VB
Common Stock subject to the Option. To WCB and VB's knowledge, no event which
would permit the exercise of the Option has occurred as of the date of this
Prospectus/Proxy Statement. At the request of WCB, under limited circumstances,
VB will repurchase for a formula price the Option and any shares of VB Common
Stock purchased upon exercise of the Option and beneficially owned by WCB at
that time.
WCB may not exercise the Option during any period in which it is
failing in any material respect to perform its obligations or observe its
covenants under the Merger Agreement, unless the reason for such failure is that
VB is failing in any material respect to perform its obligations or observe its
covenants under the Merger Agreement. Further, WCB may not exercise the Option
if any governmental approvals required for the issuance of the shares of VB
Common Stock to be purchased under the Option have not been obtained, or the
issuance would violate applicable laws or regulations. Otherwise, WCB may
exercise the Option in whole or in part, but only if both an Initial Triggering
Event (defined below) and a Subsequent Triggering Event (defined below) occur
before the occurrence of an Exercise Termination Event (defined below). WCB must
notify VB in writing of its intention to exercise the Option within 30 days
after the Subsequent Triggering Event, or such longer period as provided in the
Stock Option Agreement.
- 31 -
<PAGE> 40
The term "Initial Triggering Event" means any of the following events
or transactions which occurs after February 15, 1996:
(i) VB or any of its subsidiaries taking certain actions (each an
"Acquisition Transaction"), including authorizing, recommending or entering into
an agreement with any third party, without WCB's prior written consent, to
effect (a) a merger, consolidation or similar transaction involving VB or any of
its significant subsidiaries, (b) a sale, lease or other disposition of all or
substantially all of the assets of VB or any of its significant subsidiaries,
(c) a sale or other disposition (including by way of merger, consolidation,
share exchange or otherwise) of securities representing 15% or more of the
voting power of VB or any of its significant subsidiaries, or (d) a transaction
substantially similar to any of the foregoing;
(ii) A third party acquiring or having the right to acquire an
aggregate of 15% or more of the outstanding shares of VB Common Stock;
(iii) A third party making a bona fide proposal to VB or its
shareholders by public announcement or written communication that becomes the
subject of public disclosure to engage in an Acquisition Transaction;
(iv) After a proposal is made by a third party to VB or its
shareholders to engage in an Acquisition Transaction, VB breaching any covenant
or obligation contained in the Merger Agreement that would entitle WCB to
terminate the Merger Agreement and is not cured during the period provided; or
(v) A third party filing an application or notice with the Federal
Reserve Board or other federal or state bank regulatory authority, that is
accepted for processing, for approval to engage in an Acquisition Transaction.
The term "Subsequent Triggering Event" means either of the following
events or transactions which occurs after February 15, 1996, such an event also
constituting an Initial Triggering Event:
(i) A third party acquiring beneficial ownership of 25% or
more of the then outstanding shares of VB Common Stock; or
(ii) VB or any of its subsidiaries taking certain actions,
including authorizing, recommending or entering into an agreement with any third
party, without WCB's prior written consent, to effect (a) a merger,
consolidation or similar transaction involving VB or any of its significant
subsidiaries, (b) a sale, lease or other disposition of all or substantially all
of the assets of VB or any of its significant subsidiaries, (c) a sale or other
disposition (including by way of merger, consolidation, share exchange or
otherwise) of securities representing 25% or more of the voting power of VB or
any of its significant subsidiaries, or (d) a transaction substantially similar
to any of the foregoing.
The term "Exercise Termination Event" means the earliest to occur of
the following: (a) the Effective Date of the Merger; (b) termination of the
Merger Agreement in accordance with its terms (with certain limited exceptions,
before the occurrence of an Initial Triggering Event); (iii) 12 months after the
termination of the Merger Agreement, if the termination follows the occurrence
of an Initial Triggering Event (or a termination by WCB under certain
circumstances); (iv) the second anniversary of the date of the Stock Option
Agreement (that is, February 15, 1998); or (v) the exercise by WCB of its right
to terminate the Merger Agreement under a certain provision of the Merger
Agreement.
- 32 -
<PAGE> 41
Anti-Dilution Provisions. In addition to typical antidilution
provisions which protect against the effects of stock dividends, stock splits
and other similar transactions, the Option provides that if the additional
shares are issued, the number of shares which may be purchased under the Option
will increase to maintain WCB's purchase percentage at 19.9, and, unless those
shares are issued pursuant to a pre-existing agreement (such as the outstanding
stock options), the exercise price will be adjusted so that the aggregate price
paid by WCB will be the same. This is the case even if the new shares are issued
for market value consideration.
Registration Rights. If the right to exercise the Option is triggered,
WCB has the right to request registration of the shares to be issued to it under
the Securities Act. Should registration be required, it would result in a
significant expense, both in connection with the initial registration and
because VB would then be subject to ongoing reporting under the Exchange Act.
Repurchase of Option or Option Shares. In the event the right to
exercise the Option is triggered, WCB or the owner of the shares received in
exercise of the Option will have the right to require VB to repurchase the
Option or the shares. The repurchase price is to be based upon the highest of
the following during the preceding six months: (a) the price at which a tender
or exchange offer has been made; (b) the price paid, or agreed to be paid, by a
third party for VB shares; (c) the highest closing market price; and (d) in the
event of an asset sale, a price based upon the price paid for the assets sold
plus the value of the remaining assets as determined by a nationally recognized
investment banking firm selected by WCB or the owner of the shares (the
"Market/Offer Price").
Substitute Option. In the event of a merger in which VB is not the
surviving entity, a merger in which VB is the surviving entity but increases the
number of its shares outstanding by more than 50 percent, or a sale of all or
substantially all of the assets of VB, WCB is entitled to a Substitute Option in
VB (if it is the surviving entity), the acquiring company or a person in control
of the acquiring company, selected at WCB's option. The number of shares is to
be based upon the product of the number of shares then covered by the Option
multiplied by the Market/Offer Price (computed as described in the preceding
paragraph) divided by a computed average price for the entity in which the
Substitute Option is granted. This could result in a number of shares different
from those received by other shareholders. The exercise price for the Substitute
Option will be adjusted based on the difference in the number of shares for
which the initial Option is exercisable as compared to the number of shares for
which the Substitute Option is exercisable. If the effect of this computation
would be to give a Substitute Option for more than 19.9 percent of the surviving
entity, the Substitute Option will only be for 19.9 percent, but WCB would be
entitled to a cash payment for the value of the reduction. The Substitute Option
would be subject to standard antidilution provisions, but not the additional
price adjustments for the original Option.
The Stock Option Agreement and the Option are intended to compensate
WCB in the event that the Merger is not consummated according to the terms set
forth in the Merger Agreement, and may have the effect of discouraging competing
offers to acquire VB from potential third party acquirors because the Option
could increase the cost of such an acquisition. A copy of the Stock Option
Agreement is set forth as Appendix B to this Prospectus/Proxy Statement, and
reference is made thereto for the complete terms of the Stock Option Agreement
and the Option. The foregoing discussion is qualified in its entirety by
reference to the Stock Option Agreement.
- 33 -
<PAGE> 42
UNAUDITED CONDENSED PRO FORMA COMBINED FINANCIAL STATEMENTS
The following unaudited condensed pro forma combined financial
statements give effect to the Merger of WCB and VB on a pooling of interests
basis. The unaudited pro forma combined balance sheet is presented on the basis
that the Merger took place on March 31, 1996. The unaudited condensed pro forma
combined statements of income are presented on the basis that the Merger was
consummated as of the beginning of the first period presented.
These unaudited condensed pro forma combined financial statements
should be read in conjunction with the historical financial statements and the
related notes thereto for WCB and VB included or incorporated into this
Prospectus/Proxy Statement by reference. See "AVAILABLE INFORMATION,"
"INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE" and WCB's 1995 10-K, WCB's
1996 10-Q/A and WCB 1996 Proxy.
The unaudited condensed pro forma statements of income are not
necessarily indicative of operating results which would have been achieved had
the Merger been consummated as of the beginning of the first period presented
and should not be construed as representative of future results.
- 34 -
<PAGE> 43
WEST COAST BANCORP
AND
VANCOUVER BANCORP
CONDENSED PRO FORMA COMBINED BALANCE SHEET
MARCH 31, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
=================================================================================================================================
WEST COAST WEST COAST PRO FORMA
PARENT BANCORP VANCOUVER ADJUSTMENTS COMBINED
COMPANY CONSOLIDATED BANCORP (NOTE 2) (NOTE 3)
------- ------------ ------- -------- --------
<S> <C> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents:
Cash and due from banks ........................ $ 3,294,603 $ 30,675,810 $ 2,745,972 -- $ 33,421,782
Interest-bearing deposits in other banks ....... -- 2,766,256 6,025 -- 2,772,281
Federal funds sold ............................. -- 1,900,000 4,918,000 -- 6,818,000
----------- ------------ ----------- --------- ------------
Total cash and cash equivalents .............. 3,294,603 35,342,066 7,669,997 -- 43,012,063
Investment securities:
Investments available for sale ................. -- 109,793,090 4,485,071 -- 114,278,161
Investments held to maturity ................... -- -- 8,096,672 -- 8,096,672
----------- ------------ ----------- --------- ------------
Total investment securities .................. -- 109,793,090 12,581,743 -- 122,374,833
Loans held for sale .............................. -- 2,756,941 -- -- 2,756,941
Loans ............................................ -- 360,904,478 65,062,953 -- 425,967,431
Allowance for loan loss .......................... -- (4,629,988) (913,347) -- (5,543,335)
----------- ------------ ----------- --------- ------------
Loans, net ................................... -- 356,274,490 64,149,606 -- 420,424,096
Premises and equipment, net ...................... 964,940 16,192,212 822,368 -- 17,014,580
Investment in subsidiaries ....................... 49,435,500 -- -- -- --
Intangible assets ................................ 65,463 261,765 -- -- 261,765
Other assets ..................................... 1,137,562 8,923,803 1,473,006 -- 10,396,809
----------- ------------ ----------- --------- ------------
Total assets ................................. $54,898,068 $529,544,367 $86,696,720 $ -- $616,241,087
=========== ============ =========== ========= ============
LIABILITIES AND STOCKHOLDERS'
EQUITY
LIABILITIES:
Deposits:
Demand ......................................... -- $ 80,289,911 $11,303,174 -- 91,593,085
Savings and interest-bearing demand ............ -- 240,288,806 43,597,793 -- 283,886,599
Certificates of deposits ....................... -- 133,856,127 22,205,003 -- 156,061,130
----------- ------------ ----------- --------- ------------
Total deposits ............................... -- 454,434,844 77,105,970 -- 531,540,814
Short-term borrowings:
Federal funds purchased ........................ -- 3,000,000 -- -- 3,000,000
Other short-term borrowings .................... -- 1,000,000 1,000,000 -- 2,000,000
----------- ------------ ----------- --------- ------------
Total short-term borrowings .................. -- 4,000,000 1,000,000 -- 5,000,000
Other liabilities ................................ 936,723 4,774,701 449,794 -- 5,224,495
Long-term borrowings ............................. -- 12,373,477 2,016,125 -- 14,389,602
----------- ------------ ----------- --------- ------------
Total liabilities ............................ 936,723 475,583,022 80,571,889 -- 556,154,911
STOCKHOLDERS' EQUITY
Common Stock ..................................... 6,017,299 6,017,299 141,461 554,899 6,713,659
Additional paid-in capital ....................... 32,716,401 32,716,401 4,489,853 (554,899) 36,651,355
Retained earnings ................................ 14,276,830 14,276,830 1,480,736 -- 15,757,566
Net unrealized gains (losses) on investments
available for sale ............................. 950,815 950,815 12,781 -- 963,596
----------- ------------ ----------- --------- ------------
Total stockholders' equity ................... 53,961,345 53,961,345 6,124,831 -- 60,086,176
----------- ------------ ----------- --------- ------------
Total liabilities and stockholders' equity ... $54,898,068 $529,544,367 $86,696,720 -- $616,241,087
=========== ============ =========== ========= ============
=================================================================================================================================
</TABLE>
- 35 -
<PAGE> 44
PRO-FORMA COMBINED STATEMENTS OF INCOME
THREE MONTHS ENDED MARCH 31, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
======================================================================================================
WEST COAST VANCOUVER PRO FORMA
---------- --------- ---------
<S> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans ..................... $ 8,927,309 $1,690,288 $10,617,597
Interest on taxable investment securities ...... 1,024,311 179,624 1,203,935
Interest on nontaxable investment securities ... 643,946 40,742 684,688
Interest from other banks ...................... 24,644 137 24,781
Interest on federal funds sold ................. 175,516 21,358 196,874
----------- ---------- -----------
Total interest income ........................ 10,795,726 1,932,149 12,727,875
INTEREST EXPENSE
Savings and interest-bearing demand ............ 1,683,137 524,824 2,207,961
Certificates of deposit ........................ 1,737,768 316,896 2,054,664
Short-term borrowings .......................... 120,756 1,956 122,712
Long-term borrowings ........................... 120,653 43,932 164,585
----------- ---------- -----------
Total interest expense ....................... 3,662,314 887,608 4,549,922
----------- ---------- -----------
NET INTEREST INCOME ............................ 7,133,412 1,044,541 8,177,953
PROVISION FOR POSSIBLE LOAN LOSS ............... 333,000 69,787 402,787
----------- ---------- -----------
NET INTEREST INCOME AFTER PROVISION FOR
LOAN LOSS .................................... 6,800,412 974,754 7,775,166
NONINTEREST INCOME
Service charges on deposit accounts ............ 611,571 43,334 654,905
Other service charges, commissions and fees .... 577,494 39,845 617,339
Trust revenue .................................. 309,402 -- 309,402
Gains on sales of loans ........................ 275,809 -- 275,809
Loan servicing fees ............................ 122,511 -- 122,511
Other .......................................... 51,532 6,945 58,477
Net gains on sales of securities ............... (19,085) -- (19,085)
----------- ---------- -----------
Total noninterest income ..................... 1,929,234 90,124 2,019,358
NONINTEREST EXPENSE
Salaries and employee benefits ................. 3,452,567 281,678 3,734,245
Equipment ...................................... 487,394 70,504 557,898
Occupancy ...................................... 485,079 58,991 544,070
Professional fees .............................. 464,720 90,919 555,639
ATM and bankcard ............................... 182,960 4,027 186,987
Marketing ...................................... 163,727 20,281 184,008
Printing and office supplies ................... 180,107 16,671 196,778
FDIC insurance ................................. 1,500 1,056 2,556
Communications ................................. 141,879 4,240 146,119
Other noninterest expense ...................... 597,548 81,200 678,748
----------- ---------- -----------
Total noninterest expense .................... 6,157,481 629,567 6,787,048
----------- ---------- -----------
INCOME BEFORE INCOME TAXES ..................... 2,572,165 435,311 3,007,476
PROVISION FOR INCOME TAXES ..................... 838,885 134,636 973,521
----------- ---------- -----------
NET INCOME ..................................... $ 1,733,280 $ 300,675 $ 2,033,955
=========== ========== ===========
AVERAGE COMMON SHARES OUTSTANDING .............. 4,808,814 148,084 5,391,984
NET INCOME PER SHARE ........................... $ .36 $ 2.03 $ .38
======================================================================================================
</TABLE>
- 36 -
<PAGE> 45
PRO-FORMA COMBINED STATEMENTS OF INCOME
THREE MONTHS ENDED MARCH 31, 1995
(UNAUDITED)
<TABLE>
<CAPTION>
=====================================================================================================
WEST COAST VANCOUVER PRO FORMA
---------- --------- ---------
<S> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans ..................... $7,421,815 $1,203,787 $ 8,625,602
Interest on taxable investment securities ...... 1,039,196 169,515 1,208,711
Interest on nontaxable investment securities ... 682,485 32,671 715,156
Interest from other banks ...................... 42,915 127 43,042
Interest on federal funds sold ................. 74,451 37,581 112,032
---------- ---------- -----------
Total interest income ........................ 9,260,862 1,443,681 10,704,543
INTEREST EXPENSE
Savings and interest-bearing demand ............ 1,535,670 485,188 2,020,858
Certificates of deposit ........................ 1,421,914 166,267 1,588,181
Short-term borrowings .......................... 176,262 1,876 178,138
Long-term borrowings ........................... 102,870 37,645 140,515
---------- ---------- -----------
Total interest expense ....................... 3,236,716 690,976 3,927,692
---------- ---------- -----------
NET INTEREST INCOME ............................ 6,024,146 752,705 6,776,851
PROVISION FOR POSSIBLE LOAN LOSS ............... 121,460 60,000 181,460
---------- ---------- -----------
NET INTEREST INCOME AFTER PROVISION FOR
LOAN LOSS .................................... 5,902,686 692,705 6,595,391
NONINTEREST INCOME
Service charges on deposit accounts ............ 564,956 34,838 599,794
Other service charges, commissions and fees .... 368,162 29,345 397,507
Trust revenue .................................. 308,933 -- 308,933
Gains on sales of loans ........................ 144,174 -- 144,174
Loan servicing fees ............................ 115,821 -- 115,821
Other .......................................... 100,096 1,598 101,694
Net gains on sales of securities ............... (3,741) -- (3,741)
---------- ---------- -----------
Total noninterest income ..................... 1,598,401 65,781 1,664,182
NONINTEREST EXPENSE
Salaries and employee benefits ................. 3,236,765 234,237 3,471,002
Equipment ...................................... 455,416 56,956 512,372
Occupancy ...................................... 427,365 27,705 455,070
Professional fees .............................. 308,390 42,090 350,480
ATM and bankcard ............................... 154,304 3,826 158,130
Marketing ...................................... 148,469 11,432 159,901
Printing and office supplies ................... 156,579 15,366 171,945
FDIC insurance ................................. 217,506 31,386 248,892
Communications ................................. 110,762 3,160 113,922
Other noninterest expense ...................... 536,853 72,308 609,161
---------- ---------- -----------
Total noninterest expense .................... 5,752,409 498,466 6,250,875
---------- ---------- -----------
INCOME BEFORE INCOME TAXES ..................... 1,748,678 260,020 2,008,698
PROVISION FOR INCOME TAXES ..................... 495,591 90,000 585,591
---------- ---------- -----------
NET INCOME ..................................... $1,253,087 $ 170,020 $ 1,423,107
========== ========== ===========
AVERAGE COMMON SHARES OUTSTANDING .............. 4,801,688 141,311 5,358,185
NET INCOME PER SHARE ........................... $ .26 $ 1.20 $ .27
=====================================================================================================
</TABLE>
- 37 -
<PAGE> 46
PRO-FORMA COMBINED STATEMENTS OF INCOME
TWELVE MONTHS ENDED DECEMBER 31, 1995
(UNAUDITED)
<TABLE>
<CAPTION>
=====================================================================================================
WEST COAST VANCOUVER PRO FORMA
---------- --------- ---------
<S> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans ..................... $33,055,409 $5,783,254 $38,838,663
Interest on taxable investment securities ...... 4,201,931 647,128 4,849,059
Interest on nontaxable investment securities ... 2,662,802 149,697 2,812,499
Interest from other banks ...................... 151,914 504 152,418
Interest on federal funds sold ................. 555,843 84,844 640,687
----------- ---------- -----------
Total interest income ........................ 40,627,899 6,665,427 47,293,326
INTEREST EXPENSE
Savings and interest-bearing demand ............ 6,642,960 1,991,177 8,634,137
Certificates of deposit ........................ 6,865,768 971,136 7,836,904
Short-term borrowings .......................... 343,789 35,035 378,824
Long-term borrowings ........................... 451,128 128,305 579,433
----------- ---------- -----------
Total interest expense ....................... 14,303,645 3,125,653 17,429,298
----------- ---------- -----------
NET INTEREST INCOME ............................ 26,324,254 3,539,774 29,864,028
PROVISION FOR POSSIBLE LOAN LOSS ............... 670,460 273,000 943,460
----------- ---------- -----------
NET INTEREST INCOME AFTER PROVISION FOR
LOAN LOSS .................................... 25,653,794 3,266,774 28,920,568
NONINTEREST INCOME
Service charges on deposit accounts ............ 2,385,938 152,252 2,538,190
Other service charges, commissions and fees .... 2,214,167 78,660 2,292,827
Trust revenue .................................. 1,268,587 -- 1,268,587
Gains on sales of loans ........................ 852,954 -- 852,954
Loan servicing fees ............................ 491,855 -- 491,855
Other .......................................... 620,453 20,055 640,508
Net gains on sales of securities ............... 7,879 1,959 9,838
----------- ---------- -----------
Total noninterest income ..................... 7,841,833 252,926 8,094,759
NONINTEREST EXPENSE
Salaries and employee benefits ................. 13,093,850 1,037,302 14,131,152
Equipment ...................................... 1,890,516 251,469 2,141,985
Occupancy ...................................... 1,759,799 212,763 1,972,562
Professional fees .............................. 1,302,609 176,965 1,479,574
ATM and bankcard ............................... 784,287 15,697 799,984
Marketing ...................................... 671,790 70,187 741,977
Printing and office supplies ................... 649,307 79,648 728,955
FDIC insurance ................................. 451,062 66,785 517,847
Communications ................................. 560,245 16,099 576,344
Other noninterest expense ...................... 2,120,048 310,028 2,430,076
----------- ---------- -----------
Total noninterest expense .................... 23,283,513 2,236,943 25,520,456
----------- ---------- -----------
INCOME BEFORE INCOME TAXES ..................... 10,212,114 1,282,757 11,494,871
PROVISION FOR INCOME TAXES ..................... 2,853,519 392,201 3,245,720
----------- ---------- -----------
NET INCOME ..................................... $ 7,358,595 $ 890,556 $ 8,249,151
=========== ========== ===========
AVERAGE COMMON SHARES OUTSTANDING .............. 4,803,461 145,963 5,378,278
NET INCOME PER SHARE ........................... $ 1.53 $ 6.10 $ 1.53
=====================================================================================================
</TABLE>
- 38 -
<PAGE> 47
PRO-FORMA COMBINED STATEMENTS OF INCOME
TWELVE MONTHS ENDED DECEMBER 31, 1994
(UNAUDITED)
<TABLE>
<CAPTION>
=====================================================================================================================
WEST COAST VANCOUVER PRO FORMA
---------- --------- ---------
<S> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans.................................. $27,197,077 $3,651,769 $30,848,846
Interest on taxable investment securities................... 4,165,272 497,244 4,662,516
Interest on nontaxable investment securities................ 2,614,335 106,890 2,721,225
Interest from other banks................................... 165,377 512 165,889
Interest on federal funds sold.............................. 345,043 174,630 519,673
----------- ----------- -----------
Total interest income..................................... 34,487,104 4,431,045 38,918,149
INTEREST EXPENSE
Savings and interest-bearing demand......................... 5,683,451 1,226,900 6,910,351
Certificates of deposit..................................... 3,493,743 497,638 3,991,381
Short-term borrowings....................................... 151,334 -- 151,334
Long-term borrowings........................................ 447,268 5,600 452,868
----------- ----------- -----------
Total interest expense.................................... 9,775,796 1,730,138 11,505,934
----------- ----------- -----------
NET INTEREST INCOME......................................... 24,711,308 2,700,907 27,412,215
PROVISION FOR POSSIBLE LOAN LOSS............................ 547,500 230,000 777,500
----------- ----------- -----------
NET INTEREST INCOME AFTER PROVISION FOR
LOAN LOSS................................................. 24,163,808 2,470,907 26,634,715
NONINTEREST INCOME
Service charges on deposit accounts......................... 2,271,084 149,897 2,420,981
Other service charges, commissions and fees................. 1,842,062 45,776 1,887,838
Trust revenue............................................... 1,205,973 -- 1,205,973
Gains on sales of loans..................................... 1,010,267 -- 1,010,267
Loan servicing fees......................................... 449,795 -- 449,795
Other....................................................... 279,092 3,040 282,132
Net loss on sales of securities............................. (170,464) -- (170,464)
----------- ----------- -----------
Total noninterest income.................................. 6,887,809 198,713 7,086,522
NONINTEREST EXPENSE
Salaries and employee benefits.............................. 12,110,658 799,366 12,910,024
Equipment................................................... 1,669,916 208,739 1,878,655
Occupancy................................................... 1,563,080 83,779 1,646,859
Professional fees........................................... 1,949,768 141,697 2,091,465
ATM and bankcard............................................ 643,313 15,092 658,405
Marketing................................................... 648,275 66,007 714,282
Printing and office supplies................................ 524,279 48,760 573,039
FDIC insurance.............................................. 820,704 102,883 923,587
Communications.............................................. 404,227 10,459 414,686
Other noninterest expense................................... 2,608,099 235,254 2,843,353
----------- ----------- -----------
Total noninterest expense................................. 22,942,319 1,712,036 24,654,355
----------- ----------- -----------
INCOME BEFORE INCOME TAXES.................................. 8,109,298 957,584 9,066,882
PROVISION FOR INCOME TAXES.................................. 2,457,549 293,700 2,751,249
----------- ----------- -----------
NET INCOME.................................................. $ 5,651,749 $ 663,884 $ 6,315,633
=========== =========== ===========
AVERAGE COMMON SHARES OUTSTANDING........................... 4,561,154 140,916 5,116,095
NET INCOME PER SHARE........................................ $ 1.24 $ 4.71 $ 1.23
=====================================================================================================================
</TABLE>
- 39 -
<PAGE> 48
PRO-FORMA COMBINED STATEMENTS OF INCOME
TWELVE MONTHS ENDED DECEMBER 31, 1993
(UNAUDITED)
<TABLE>
<CAPTION>
=====================================================================================================================
WEST COAST VANCOUVER PRO FORMA
---------- --------- ---------
<S> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans.................................. $24,209,348 $2,836,090 $27,045,438
Interest on taxable investment securities................... 5,049,532 416,645 5,466,177
Interest on nontaxable investment securities................ 2,499,654 48,998 2,548,652
Interest from other banks................................... 29,881 855 30,736
Interest on federal funds sold.............................. 372,685 121,429 494,114
----------- ---------- -----------
Total interest income..................................... 32,161,100 3,424,017 35,585,117
INTEREST EXPENSE
Savings and interest-bearing demand......................... 4,934,563 699,730 5,634,293
Certificates of deposit..................................... 4,084,475 482,128 4,566,603
Short-term borrowings....................................... 102,416 -- 102,416
Long-term borrowings........................................ 343,807 -- 343,807
----------- ---------- -----------
Total interest expense.................................... 9,465,261 1,181,858 10,647,119
----------- ---------- -----------
NET INTEREST INCOME......................................... 22,695,839 2,242,159 24,937,998
PROVISION FOR POSSIBLE LOAN LOSS............................ 798,000 285,000 1,083,000
----------- ---------- -----------
NET INTEREST INCOME AFTER PROVISION FOR
LOAN LOSS................................................. 21,897,839 1,957,159 23,854,998
NONINTEREST INCOME
Service charges on deposit accounts......................... 2,311,469 132,393 2,443,862
Other service charges, commissions and fees................. 1,154,947 26,687 1,181,634
Trust revenue............................................... 1,078,367 -- 1,078,367
Gains on sales of loans..................................... 688,932 -- 688,932
Loan servicing fees......................................... 322,487 -- 322,487
Other....................................................... 782,949 2,685 785,634
Net gains on sales of securities............................ 142,720 -- 142,720
----------- ---------- -----------
Total noninterest income.................................. 6,481,871 161,765 6,643,636
NONINTEREST EXPENSE
Salaries and employee benefits.............................. 11,000,849 647,749 11,648,598
Equipment................................................... 1,534,834 177,466 1,712,300
Occupancy................................................... 1,338,486 71,088 1,409,574
Professional fees........................................... 1,281,172 102,983 1,384,155
ATM and bankcard............................................ 781,742 14,813 796,555
Marketing................................................... 562,192 30,161 592,353
Printing and office supplies................................ 528,188 47,722 575,910
FDIC insurance.............................................. 757,913 87,596 845,509
Communications.............................................. 350,420 8,372 358,792
Other noninterest expense................................... 1,941,101 269,754 2,210,855
----------- ---------- -----------
Total noninterest expense................................. 20,076,897 1,457,704 21,534,601
----------- ---------- -----------
INCOME BEFORE INCOME TAXES.................................. 8,302,813 661,220 8,964,033
PROVISION FOR INCOME TAXES.................................. 2,268,060 157,079 2,425,139
----------- ---------- -----------
NET INCOME.................................................. $ 6,034,753 $ 504,141 $ 6,538,894
=========== =========== ===========
AVERAGE COMMON SHARES OUTSTANDING........................... 4,337,086 136,082 4,872,991
NET INCOME PER SHARE........................................ $ 1.39 $ 3.70 $ 1.34
=====================================================================================================================
</TABLE>
- 40 -
<PAGE> 49
NOTES TO UNAUDITED PRO FORMA COMBINED
FINANCIAL STATEMENTS
1. Intangibles
Core deposit intangibles of $261,765 at WCB are being amortized over
seven and ten year lives with approximately six years remaining.
2. Adjustments
The unaudited pro forma combined balance sheet reflects the issuance of
WCB Common Stock, no par value, as the issuance of 557,087 shares to VB
shareholders using the exchange ratio of 3.9381, in addition to the
4,813,839 shares already outstanding to WCB's shareholders. These
shares were derived by using the respective company's outstanding
shares at March 31, 1996. An adjustment of $554,899 to common stock and
capital surplus is necessary to reflect the difference between issuance
of 557,087 shares of WCB Common Stock, no par value, with an aggregate
par value of $696,358 and the value of VB Common Stock that will be
canceled which is $141,461. The pro forma adjustments were based on the
midpoint of the proposed exchange ratio collar generating the issuance
of 557,087 shares. The estimated maximum number of shares to be issued
would be 619,778 (except under certain circumstances) and the estimated
minimum number of shares to be issued would be 506,444, based on March
31, 1996 financial information. There were no other significant
adjustments made to the historical balance sheets or statements of
income of WCB and VB to arrive at the unaudited pro forma combined
balance sheets.
3. Transaction Costs
Total costs to be incurred by WCB and VB in connection with the Merger
are estimated to be $300,000. These costs, relating to legal,
accounting, printing and other related expenses, will be charged
against net income of the combined organization in the period incurred.
The effect of the costs has not been reflected in the Pro Forma
Combined Financial Statements.
4. Earnings Per Share
Earnings per share computations are based on the weighted average
common shares outstanding during the years. The shares used in
calculating earnings per share have been restated to reflect all stock
dividends paid. Pro forma earnings per share data may vary due to
potential changes in the exchange ratio. See "EQUIVALENT PER COMMON
SHARE DATA".
5. West Coast Bancorp
The assets and liabilities of WCB's parent company only, as disclosed,
are included in the assets and liabilities of WCB Consolidated.
- 41 -
<PAGE> 50
INFORMATION CONCERNING WCB
WCB is a bank holding company headquartered in Lake Oswego, Oregon,
eight miles south of downtown Portland. The community banking organization
currently comprises three member banks, The Bank of Newport, The Commercial
Bank, and Valley Commercial Bank, and has long-standing roots in Oregon dating
back to 1925. A broad range of community banking services are offered throughout
the 28-office network stretching from Portland south along I-5 to the greater
Salem area and west to the central Oregon Coast.
WCB's expansion plans include internally-generated growth from
strategically-located existing branches, some selected new branch expansion and
expansion into southwest Washington. In addition to limited de novo branching,
WCB's management strategy has also been to pursue attractive alliance
opportunities with other well-run community banks such as the proposed
transaction with VB, as well as other financial service related companies. In
June 1994, WCB concluded a successful offering of the WCB Common Stock, which
contributed over $5 million in additional capital to help finance WCB's
expansion plans. During the interim period, WCB has continued to invest
significantly in management, technology, and other resources (such as a new data
center) to support its expansion.
Financial and other information regarding WCB, including information
relating to WCB's directors and executive officers, are set forth in the WCB
1995 10-K, WCB's 1996 10-Q and the WCB 1996 Proxy incorporated by reference
herein. See "INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE," "AVAILABLE
INFORMATION," the WCB 1995 10-K, the WCB 10-Q/A, and the WCB 1996 Proxy.
INFORMATION CONCERNING VB
BUSINESS
VB was organized under Washington law in 1994 for the purpose of
becoming a holding company of the Bank, under an agreement and plan of exchange
pursuant to which shareholders of the Bank became shareholders of VB. VB is
registered with the Board of Governors of the Federal Reserve System as a bank
holding company under the BHCA, and has no significant operations separate from
the Bank. The principal offices of VB are located at the main office of the Bank
at 801 Main Street, Vancouver, Washington.
The Bank is a state-chartered bank organized under Washington law in
June 1989. It engages in commercial banking activities from its sole office
located at 801 Main St., Vancouver, Washington. The Bank was organized to meet a
perceived need for the services of a local community bank with a commitment to
service to the businesses and residents of Clark County, Washington. The Bank
offers commercial banking services, primarily to small- and medium-size
businesses, professionals and retail customers, including commercial loans,
accounts receivable and inventory financing, consumer installment loans,
acceptance of deposits, and personal savings and checking accounts. The Bank
offers residential mortgage loans in association with PHW Mortgage Co.
The Bank's accounts are insured by the FDIC. As of March 31, 1996, the
Bank had deposits of approximately $77.2 million and assets of approximately
$86.7 million.
COMPETITION
Competition in the banking industry is significant and has intensified
with interest rate deregulation. Furthermore, competition from outside the
traditional banking system from investment
- 42 -
<PAGE> 51
banking firms, insurance companies and related industries offering bank-like
products has widened the competition for deposits and loans.
The banking industry in the Bank's primary market area is characterized
by well-established branches of large banks with headquarters located generally
outside the primary market area.
The Bank's traditional competition for deposits comes from commercial
banks, savings and loan associations, credit unions, and money market funds,
many of which have more locations or offer higher rates of interest than the
Bank. Competition for funds also comes from issuers of corporate and
governmental securities, insurance companies, mutual funds, and other financial
intermediaries. Other than with respect to large certificates of deposit, the
Bank competes for deposits by offering a variety of deposit accounts at rates
generally competitive with similar financial institutions in the area. The
Bank's principal competitive advantage with respect to the larger state-wide
financial institutions is its status as a local community bank, offering
products and services tailored to the needs of the community. In addition, as a
result of the absence of costs associated with operating a branch system, the
Bank, operating from just one office, can and sometimes does pay a higher rate
on deposits.
In competing for deposits, the Bank is subject to certain limitations
not applicable to non-bank competitors. Legislation enacted in the 1980s
authorized banks to offer deposit instruments with rates competitive with money
market funds, but subject to restrictions not applicable to those funds.
Legislation has also made non-bank financial institutions more effective
competitors. Savings and loan associations and credit unions are now permitted
to offer checking accounts and to make commercial loans with certain
limitations.
The Bank's competition for loans comes primarily from the same
financial institutions with which the Bank competes for deposits. The Bank
competes for loan originations primarily through the level of interest rates and
loan fees charged, the variety of commercial and mortgage loan products offered,
and the efficiency and quality of services provided to borrowers. Factors which
affect loan competition include the availability of lendable funds, local and
national economic conditions, current interest rate levels, and loan demand. The
Bank does not engage in mortgage banking activities, and loan origination for
mortgage loans is limited by the Bank's regulatory lending limits.
The offices of the major banks and savings and loan associations have
competitive advantages over the Bank in that they have high public visibility
and are able to maintain advertising and marketing activity on a much larger
scale than the Bank can economically maintain. Because single borrower lending
limits imposed by law are dependent on the capital of the institution, the
branches of larger institutions with substantial capital bases are also at an
advantage with respect to loan applications which are in excess of the Bank's
legal lending limits.
At present, there are five commercial banks, five thrifts and 19 credit
unions operating in the Bank's market area which offer some of the services
offered by the Bank, and which may be in direct competition for the customers
which the Bank seeks to attract. Because of the extensive experience of
management of the Bank in its trade area and the business contacts of management
and the directors, management believes that the Bank is able to compete
effectively for business.
FACILITIES
The principal offices of VB are located at the main office of the Bank
at 801 Main Street, Vancouver, Washington. Approximately 14,400 square feet of
space, constituting the Bank's premises, are leased by the Bank pursuant to
three leases, for an aggregate monthly rate of $13,975.50. The leases expire on
January 31, 2001.
- 43 -
<PAGE> 52
The Bank owns the building in which its former office was located at
109 E. 13th St., Vancouver, Washington, subject to a ground lease which expires
in the year 2015 and carries a monthly rent of $750. The building is leased to
Washington Mutual, Inc. at a monthly rent of $6,250.00.
EMPLOYEES
As of March 31, 1996, the Bank had 34 full-time equivalent employees.
VB has no employees separate from those of the Bank. The employees are not
represented by a union organization or other collective bargaining group, and
management considers its relations with the employees to be very good.
LEGAL PROCEEDINGS
The Bank is from time to time a party to various legal proceedings
arising in the ordinary course of the Bank's business. Management believes that
there is no threatened or pending proceedings against VB or the Bank which, if
determined adversely would have a material effect on the business or financial
position of either, respectively.
VB MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of VB's consolidated financial condition and
results of operations is intended to be read in conjunction with, and is
qualified in its entirety by reference to, the selected consolidated financial
and other data, the consolidated financial statements and relates notes included
elsewhere in this Prospectus/Proxy.
General. The Bank's business consists primarily of attracting deposits
from the public and originating commercial and real estate loans. The Bank's net
income is derived principally from net interest income. The Bank exceeded all of
its regulatory capital requirements at March 31, 1996.
Quarter ended March 31, 1996 and 1995
Overview. Total assets of $86.7 million as of March 31, 1996,
represents a 32.5% increase over total assets of $65.4 million as of March 31,
1995. Most of the growth is a result of the increases within the loan portfolio.
Net Income. For the quarters ended March 31, 1996 and 1995, VB's net
income was $300,675 and $170,020, respectively. Income increased $130,655, or
76.8%, from 1995 to 1996. The significant increase in earnings is due in part to
increased non-interest income from origination of real estate mortgage loans for
PHH Mortgage, resulting in net income of $28,308 for the three months ended
March 31, 1996, as compared to $20,202 for the same period in 1995, or a 40.1%
increase. Earnings per share for the two quarters ended March 31, 1996 were
$2.03 and $1.20, respectively.
Net Interest Income. During the quarters ended March 31, 1996 and 1995,
average interest earning assets grew to $78.0 million from $60.3 million. For
the same periods, average interest bearing liabilities were $65.1 million and
$49.4 million, respectively. During the same periods, net interest margins
increased to 4.46% from 3.99%, due mainly to rising interest rates on
investments and declining rates on deposits. Net interest income increased
$291,836 or 38.8% to $1.1 million on March 31, 1996, from $.8 million on March
31, 1995. The increased net interest income on interest earning assets increased
to 9.91% on March 31, 1996 from 9.58% on March 31, 1995. For the same periods,
average rates paid for interest-bearing liabilities decreased from 5.59% in 1995
to 5.45% in 1996.
- 44 -
<PAGE> 53
Average Balances and Average Rates Earned and Paid. The following table
sets forth, for the periods indicated, information with regard to average
balances of assets and liabilities, the total dollar amounts in interest income
on interest earning assets and interest expense on interest bearing liabilities,
resulting yields or costs, net interest income and net interest margin. Loan
fees are recognized as income using the interest method over the life of the
loan.
<TABLE>
<CAPTION>
=========================================================================================================================
VANCOUVER BANCORP
- -------------------------------------------------------------------------------------------------------------------------
ANALYSIS OF NET INTEREST MARGIN MARCH 31, 1996 MARCH 31, 1995
- -------------------------------------------------------------------------------------------------------------------------
Ave. Inc/Exp Rate Ave. Inc/Exp Rate
---- ------- ---- ---- ------- ----
<S> <C> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------------
Interest-earning Assets
- -------------------------------------------------------------------------------------------------------------------------
Loans $63,769 $1,690 10.60% $45,107 $1,203 10.68%
- -------------------------------------------------------------------------------------------------------------------------
Investment Securities
- -------------------------------------------------------------------------------------------------------------------------
Taxable Securities 9,570 180 7.51% 10,105 170 6.71%
- -------------------------------------------------------------------------------------------------------------------------
Non-Taxable Securities 3,005 41 5.42% 2,443 33 5.35%
- -------------------------------------------------------------------------------------------------------------------------
Federal Funds Sold 1,637 21 5.25% 2,603 38 5.79%
- -------------------------------------------------------------------------------------------------------------------------
Total Interest Earning Assets $77,981 $1,932 9.91% $60,258 $1,444 9.58%
- -------------------------------------------------------------------------------------------------------------------------
Cash and Due from Banks 2,728 2,327
- -------------------------------------------------------------------------------------------------------------------------
Fixed Assets 849 822
- -------------------------------------------------------------------------------------------------------------------------
Loan Loss Allowance (868) (574)
- -------------------------------------------------------------------------------------------------------------------------
Other Assets 1,519 1,113
- -------------------------------------------------------------------------------------------------------------------------
Total Assets $82,209 $63,946
- -------------------------------------------------------------------------------------------------------------------------
Interest-Bearing Liabilities
- -------------------------------------------------------------------------------------------------------------------------
Interest-bearing Checking and Savings Account $42,283 $524 4.96% $35,996 $485 5.39%
- -------------------------------------------------------------------------------------------------------------------------
Time Deposits 20,121 317 6.30% 11,832 166 5.62%
- -------------------------------------------------------------------------------------------------------------------------
Borrowed Funds 2,733 46 6.72% 1,616 40 9.78%
- -------------------------------------------------------------------------------------------------------------------------
Total Interest-Bearing Liabilities $65,137 $887 5.45% $49,444 $691 5.59%
- -------------------------------------------------------------------------------------------------------------------------
Noninterest-Bearing Deposits $10,312 $ 9,202
- -------------------------------------------------------------------------------------------------------------------------
Other Liabilities 751 635
- -------------------------------------------------------------------------------------------------------------------------
Total Liabilities $76,200 $59,281
- -------------------------------------------------------------------------------------------------------------------------
Shareholders' Equity 6,009 4,665
- -------------------------------------------------------------------------------------------------------------------------
Total Liabilities and Shareholders' Equity $82,209 $63,946
- -------------------------------------------------------------------------------------------------------------------------
Net Interest Income $1,045 $753
- -------------------------------------------------------------------------------------------------------------------------
Net Interest Margin 4.46% 3.99%
- -------------------------------------------------------------------------------------------------------------------------
Average Yield on Earning Assets 9.91% 9.58%
- -------------------------------------------------------------------------------------------------------------------------
Interest Expense to Earning Assets 4.55% 4.59%
- -------------------------------------------------------------------------------------------------------------------------
Net Interest Income to Earning Assets 5.36% 5.00%
=========================================================================================================================
</TABLE>
- 45 -
<PAGE> 54
Non-Interest Expenses. Non-interest expenses for the quarters ended
March 31, 1996 and 1995 increased $131,101, or 26.3%, from 1995 to 1996. The
increase in expenses is due primarily to costs associated with the Bank's asset
growth of over 32%.
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Years ended December 31, 1995 and 1994
Overview. Total assets of $78.9 million as of December 31, 1995,
represents a 23.4% increase over total assets of $64.0 million as of December
31, 1994. Most of the growth is a result of the increases within the loan
portfolio.
Net Income. For the years ended December 31, 1995 and 1994, VB's net
income was $890,556 and $663,884, respectively. Income increased $226,672, or
34.1% from 1995 to 1994. Increased earnings were due, in part to increased
non-interest income from origination of real estate mortgage loans for PHH
Mortgage, resulting in net income of $42,987 for the year ended December 31,
1995, an increase of 498.4% from the $7,184 earned in the year ended December
31, 1994. During 1995, VB began processing real estate deed reconveyances for
the Bank, which contributed an additional $13,616 to earnings. Earnings per
share for the two years ended 1995 were $6.10 and $4.71, respectively.
Net Interest Income. During the years ended December 31, 1995 and 1994,
average interest earning assets grew to $66.6 million, from $50.9 million. For
the same periods, average interest bearing liabilities were $55.1 million and
$41.2 million, respectively. During the same periods, net interest margins
decreased to 4.34% from 4.50%, due mainly to a rising interest rate environment
and an increase of high yield savings accounts. Net interest income increased
$839,000 or 31.1% to $3.5 million in 1995 from $2.7 million in 1994. The
increased net interest income was caused by the offsetting factors of increased
asset growth and a declining net interest spread. The average yield earned on
interest earning assets increased to 10.01% in 1995 from 8.70% in 1994. For the
same periods, average rates paid for interest-bearing liabilities increased from
4.20% to 5.67% in 1995.
- 46 -
<PAGE> 55
Average Balances and Average Rates Earned and Paid. The following table
sets forth, for the periods indicated, information with regard to average
balances of assets and liabilities, the total dollar amounts in interest income
on interest earning assets and interest expense on interest bearing liabilities,
resulting yields or costs, net interest income, and net interest margin. Loan
fees are recognized as income using the interest method over the life of the
loan.
<TABLE>
<CAPTION>
=========================================================================================================================
VANCOUVER BANCORP
- -------------------------------------------------------------------------------------------------------------------------
ANALYSIS OF NET INTEREST MARGIN DECEMBER 31, 1995 DECEMBER 31, 1994
- -------------------------------------------------------------------------------------------------------------------------
Ave. Inc/Exp Rate Ave. Inc/Exp Rate
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest-earning Assets
- -------------------------------------------------------------------------------------------------------------------------
Loans $52,565 $5,783 11.00% $36,522 $3,652 10.00%
- -------------------------------------------------------------------------------------------------------------------------
Investment Securities
- -------------------------------------------------------------------------------------------------------------------------
Taxable Securities 9,780 647 6.62% 8,200 497 6.06%
- -------------------------------------------------------------------------------------------------------------------------
Non-Taxable Securities 2,750 150 5.44% 2,022 107 5.29%
- -------------------------------------------------------------------------------------------------------------------------
Federal Funds Sold 1,482 85 5.76% 4,184 175 4.19%
- -------------------------------------------------------------------------------------------------------------------------
Total Interest Earning Assets $68,577 $6,665 10.01% $50,928 $4,431 8.70%
- -------------------------------------------------------------------------------------------------------------------------
Cash and Due from Banks 2,548 2,385
- -------------------------------------------------------------------------------------------------------------------------
Fixed Assets 858 673
- -------------------------------------------------------------------------------------------------------------------------
Loan Loss Allowance (670) (477)
- -------------------------------------------------------------------------------------------------------------------------
Other Assets 1,271 676
- -------------------------------------------------------------------------------------------------------------------------
Total Assets $70,584 $54,385
- -------------------------------------------------------------------------------------------------------------------------
Interest-Bearing Liabilities
- -------------------------------------------------------------------------------------------------------------------------
Interest-bearing Checking and Savings Account $37,573 $1,991 5.30% $29,925 $1,227 4.10%
- -------------------------------------------------------------------------------------------------------------------------
Time Deposits 15,607 971 6.22% 11,187 498 4.45%
- -------------------------------------------------------------------------------------------------------------------------
Borrowed Funds 1,946 163 8.39% 67 6 8.36%
- -------------------------------------------------------------------------------------------------------------------------
Total Interest-Bearing Liabilities $55,126 $3,126 5.67% $41,179 $1,730 4.20%
- -------------------------------------------------------------------------------------------------------------------------
Noninterest-Bearing Deposits $ 9,719 $ 8,557
- -------------------------------------------------------------------------------------------------------------------------
Other Liabilities 539 294
- -------------------------------------------------------------------------------------------------------------------------
Total Liabilities $65,384 $50,030
- -------------------------------------------------------------------------------------------------------------------------
Shareholders' Equity 5,200 4,355
- -------------------------------------------------------------------------------------------------------------------------
Total Liabilities and Shareholders' Equity $70,584 $54,385
- -------------------------------------------------------------------------------------------------------------------------
Net Interest Income $3,540 $2,701
- -------------------------------------------------------------------------------------------------------------------------
Net Interest Margin 4.34% 4.50%
- -------------------------------------------------------------------------------------------------------------------------
Average Yield on Earning Assets 10.01% 8.70%
- -------------------------------------------------------------------------------------------------------------------------
Interest Expense to Earning Assets 4.69% 3.40%
- -------------------------------------------------------------------------------------------------------------------------
Net Interest Income to Earning Assets 5.32% 5.30%
=========================================================================================================================
</TABLE>
Non-Interest Expenses. Non-interest expenses for the year ended
December 31, 1995, increased $525,000, or 30.66%, from 1994. The 1995 increase
is due primarily to increased personnel and occupancy costs associated with the
Bank's move to a new facility as well as continued growth in loans and deposits.
Loans increased $19.3 million, or 45.77%, to $61.4 million in 1995 from $42.1
million in 1994.
- 47 -
<PAGE> 56
Provision for Loan Losses. The allowance for loan losses represents
management's current estimate of amounts required to absorb losses on existing
loans. The allowance of $913,347 at March 31, 1996, is an increase of $302,080,
or 49.4%, from the March 31, 1995 allowance of $611,267. The allowance
represents 1.41% of total loans at March 31, 1996. The $848,207 allowance at
December 31, 1995, is an increase of $297,110, or 53.9%, from the 1994 allowance
of $551,097. The allowance represents 1.39% of total loans at December 31, 1995,
as compared to 1.31% at December 31, 1994. Determination of the appropriate
allowance level is based on, among other things, an analysis of various factors
including historical loss experience based on volumes and types of loans,
volumes and trends in delinquencies and non-accrual loans, trends in portfolio
volume, results of internal and independent external credit reviews, and
anticipated economic conditions in the Bank's market area. The Bank determines
the adequacy of its loan loss reserves through a formula taking into
consideration non-performing loans, special mention credits and substandard
loans. Based on historical loan loss experience, provisions are taken sufficient
to establish and maintain a reserve equal to 5% for special mention credits, 15%
for substandard loans, 100% for loans which appear to be total loss, and 0.5%
for all other loans. Based on this analysis, management considers the allowance
for possible loan losses to be adequate.
Liquidity and Sources of Funds. The Bank's primary sources of funds are
customer deposits, maturities of investment securities, sales of "available for
sale" securities, loan repayments, net income, and advances from the Federal
Home Loan Bank of Seattle (FHLB). 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.
Total deposits were $77.1 million at March 31, 1996, up from $57.3
million at March 31, 1995. Total deposits were $70.7 million at December 31,
1995, up from $57.6 million at December 31, 1994. The Bank 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. Deposit growth in 1994, 1995 and the first quarter of 1996 has been
largely a function of the increase in lending customers who move their deposit
accounts to the Bank.
Management anticipates that the Bank will continue relying on customer
deposits, maturity of investment securities, sales of "available for sale"
securities, loan repayments, net income 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
borrowings from the FHLB.
Capital. The primary capital-to-asset leverage ratio for the Bank was
8.50% at March 31, 1996, as compared to 8.95% at March 31, 1995. The primary
capital-to-asset leverage ratio for the Bank was 8.95% at December 31, 1995, as
compared to 9.59% at December 31, 1994. In 1989, the banking regulators adopted
risk based capital guidelines under which one of four risk weights is applied to
balance sheet assets, each with different capital requirements based on the
credit risk of the asset. Risk-adjusted capital-to-asset ratios were 11.18% and
13.01% at March 31, 1996 and 1995, respectively. Risk-adjusted capital-to-asset
ratios were 11.45% and 13.90% at December 31, 1995 and 1994, respectively. As of
March 31, 1996, the Bank was considered "Well Capitalized" per regulatory risk
based capital guidelines.
- 48 -
<PAGE> 57
As the following table indicates, the Bank currently exceeds the
regulatory minimum capital ratio requirements.
<TABLE>
<CAPTION>
========================================================================================================================
MARCH 31, 1996 DECEMBER 31, 1995
(Dollars in thousands) Amount Ratio Amount Ratio
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Tier 1 capital $7,357 11.18% $7,008 11.45%
Tier 1 capital minimum requirement $2,631 4.00% $2,451 4.00%
Excess Tier 1 capital $4,726 7.18% $4,557 7.45%
Total capital $8,180 12.44% $7,774 12.70%
Total capital minimum requirement $5,262 8.00% $4,902 8.00%
Excess total capital $2,918 4.44% $2,872 4.70%
========================================================================================================================
</TABLE>
LENDING
The Bank's principal lending activity is the origination of commercial
real estate and real estate construction loans. The Bank's policy is to
originate loans primarily in its local market area. Real estate values and
construction starts remain strong in Clark County. A Taiwanese company has
recently announced its intent to construct a $1.2 billion facility beginning in
December, 1996, which is expected to employ up to 2,000 workers during
construction and approximately 800 employees upon completion. Additional growth
of construction projects and ancillary services in the Portland metropolitan
area supports and contributes to the increase of real estate values and
construction starts in Clark County, as the county continues to provide housing
for many people working in Portland. In general, loan-to-value ratios are
maintained at 75% or less, except for residential mortgage loans on homes under
$150,000, where the Bank permits a loan-to-value ratio of up to 80%.
The Bank's loan underwriting policies focus on assessment of each
borrower's ability to service and repay the debt, and the availability of
collateral that can be used to secure the loan. Depending on the nature of the
borrower and the purpose and amount of the loan, the Bank's loans may be secured
by a variety of collateral, including business assets, real estate andpersonal
assets. Many business loans may also be dependent upon the personal guarantees
of owners of the business. The Bank's loans are generally classified by the
ability of the borrower to repay and the principal asset pledged as collateral
to secure the loan.
The Bank's commercial and industrial loans consist primarily of secured
revolving operating lines of credit and business term loans. Commercial real
estate loans include loans for various purposes where the primary collateral is
commercial real estate. Real estate construction loans include loans made in
connection with custom and "spec" (build to sell) construction of residential
and commercial buildings and loans made to borrowers who build residential and
commercial buildings for resale. The majority of loans within the Bank's
portfolio have terms of five years or less or have adjustable interest rates.
Such rates are principally tied to the prime rate, or to a similar extent, a
treasury-base index.
Consumer installment loans and other loans, while representing a small
percentage of total outstanding loans, include home equity loans, auto loans and
Visa cards.
- 49 -
<PAGE> 58
In addition to interest earned on loans, the Bank receives fees for
originating loans and for providing loan commitments. These fees, net of costs
to originate the loans, are deferred and amortized into interest income over the
life of the loan. Loans are originated principally as a result of contact with
and referrals from existing customers and through the efforts of Bank staff.
Types of Loans. The following table sets forth the composition of the
Bank's loan portfolio by type of loan as of the date indicated. The composition
of loans at March 31, 1996 and for the years ended December 31, 1995 and 1994
was as follows:
<TABLE>
<CAPTION>
=========================================================================================================================
December 31,
------------
March 31, 1996 1995 1994
-------------------------------------------------------------------------------------------
Amount % of Total Amount % of Total Amount % of Total
-------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Commercial $12,887,357 19.67% $10,081,130 16.41% $ 8,965,980 21.28%
Commercial-real estate 23,689,993 36.15% 20,536,874 33.44% 15,225,084 36.14%
Real estate-construction 17,968,614 27.42% 19,293,548 31.42% 9,253,365 21.97%
Real estate-mortgage 9,307,076 14.20% 9,893,050 16.11% 7,317,732 17.37%
Installment 858,436 1.31% 723,559 1.18% 674,605 1.60%
Personal lines of credit,
credit cards, and overdrafts 820,042 1.25% 882,355 1.44% 690,261 1.64%
---------------------------------------------------------------------------------------------
$65,531,518 100.00% $61,410,516 100.00% $42,127,027 100.00%
=============================================================================================
=========================================================================================================================
</TABLE>
Loan Maturities and Sensitivities to Changes in Interest Rates. The
following table shows the maturity analysis of loans outstanding by type as of
March 31, 1996. In addition, the table shows the amount of all loans due within
and after one year classified according to the sensitivity to change in interest
rates.
<TABLE>
<CAPTION>
==========================================================================================================
After One,
Within But Within After
Loans One Year Five Years Five Years Total
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Commercial $10,549,807 $ 2,032,968 $ 304,582 $12,887,357
Commercial-real estate 2,338,277 20,197,105 1,154,611 23,689,993
Real estate-construction 17,534,710 433,904 0 17,068,614
Real estate-mortgage 1,364,427 7,177,406 765,244 9,307,076
Lines of credit, installments,
credit cards 576,493 341,474 760,511 1,678,478
- ----------------------------------------------------------------------------------------------------------
Total $32,363,714 $30,182,856 $2,984,948 $65,531,518
==========================================================================================================
Total loans maturing after one
year with:
Predetermined interest rates $ 3,453,256 $ 6,530,104 $2,984,948 $12,968,308
(fixed)
Floating or adjusted interest rates
(variable) 28,910,458 23,652,752 0 52,563,210
- ----------------------------------------------------------------------------------------------------------
Total $32,363,714 $30,182,856 $2,984,948 $65,531,518
==========================================================================================================
</TABLE>
- 50 -
<PAGE> 59
Risk Elements. The following table states as of March 31, 1996 and for
the years ended December 31, 1995 and 1994 non-accrual and past due loans:
<TABLE>
<CAPTION>
===================================================================================
March 31, 1996 1995 1994
<S> <C> <C> <C>
Non-accrual loans $164,650 $213,238 $ 0
Accruing loans past due 90 days or more $ 0 $ 5,709 $16,403
===================================================================================
</TABLE>
Interest income on non-accrual loans that would have been recorded in the period
ended March 31, 1996, was $3,846 and $18,657 for the period ended December 31,
1995. Interest income collected on such loans and included in income for 1995
was $20,285. No interest income was collected in 1996. Past due loans continue
to be minimal.
Loan Administration. The Bank has experienced significant growth of its
loan portfolio, particularly commercial real estate and construction loans. This
growth is largely attributable to the economic growth of Clark County generally
resulting from the expanding high technology industry in the Portland
metropolitan area. This growth has contributed to a greater demand for
commercial and residential development, and consequently, in higher loan demand.
The Bank has increased its staff and obtained additional capital from VB to
accommodate this demand. Although the Bank has not experienced any increase in
loan losses as a result of this growth, management recognizes that new loans may
represent somewhat higher risk than seasoned loans, as no repayment history has
been established. The Bank strives to minimize the risks associated with loans
to developers by funding borrowers with significant assets and other sources of
income beyond their development companies. Typically, many of the developers
have rental income from commercial or residential properties, and management
considers loans to these customers to be of the same or better quality as loans
to long-standing Bank customers and represent no additional risk. With the
Bank's primary lending focus on commercial, commercial real estate and real
estate construction, risk is generally correlated with the health of the
business community. The risk is mitigated by monitoring the financial condition
of the Bank's customers, and by maintaining adequate collateral margins. The
Bank has adopted comprehensive lending policies that provide detailed
underwriting guidelines, as well as procedures for the identification and
monitoring of potential problem loans. The loan committee meets regularly and
reviews various reports pertaining to the performance, quality and composition
of the loan portfolio, as well as detailed credit information regarding new
loans extended during the period. The VB Board, as a whole, serves as the loan
committee.
Non-Performing Loans. Accrual of interest on loans is discontinued when
reasonable doubt exists as to the collectibility of the loan or the unpaid
interest, or when payment of principal or interest is contractually 90 days past
due, unless the loan is well secured and in the process of collection. Upon such
discontinuance, the loan is placed on non-accrual status and any accrued but
unpaid interest is charged against income in that period. Accrual of interest is
resumed only when the borrower demonstrates an ability to make scheduled
payments of both principal and interest.
At March 31, 1996, there were no commitments to lend additional funds
to borrowers whose loans were classified as non-accrual. The Bank is not aware
of any loans that continue to accrue interest at March 31, 1996, that management
reasonably expects will have a materially negative impact on future operating
results. The Bank's management is not aware of any information concerning any
material loans, other than those discussed as risk elements above, that causes
them to have doubts as to the ability of the borrowers to comply with the terms
of the loans.
- 51 -
<PAGE> 60
At March 31, 1996, the Bank had $164,650 in non-accrual loans,
representing 18.0% of loan loss reserves, compared to non-accrual loans of
$213,238 or 25.1% of reserves at December 31, 1995, and no non-accrual loans at
December 31, 1994. Of the three borrowers representing the non-accrual loans at
December 31, 1995, one was involved in real estate development and two were
borrowing for commercial purposes. The Bank expects to collect on all
non-accrual loans and suffer no losses.
SUMMARY OF LOAN LOSS EXPERIENCE
Analysis of Allowance for Loan Losses. The Bank maintains the allowance
for loan losses at a level sufficient to provide for estimated loan losses based
on evaluating known and inherent risks in the loan portfolio. Management
determines the adequacy of the allowance based on reviews of individual credits,
recent loss experience, current economic conditions, the risk characteristics of
classified loans, and other pertinent factors. Credits deemed uncollectible are
charged to the allowance. Provisions for credit losses and recoveries on loans
previously charged off loans are added to the allowance. The following is an
analysis of the activity in the allowance for loan losses for the period ended
March 31, 1996 and the years ended December 31, 1995 and 1994:
<TABLE>
<CAPTION>
==================================================================================================
For the period For the Year Ended December 31,
ended March 31 -------------------------------
--------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Balance at beginning of period $ 848,207 $ 551,097 $ 420,421
Charge-offs:
Commercial 0 (258) (95,098)
Consumer (5,241) (4,525) (5,499)
----------- ----------- -----------
(5,241) (4,783) (100,597)
----------- ----------- -----------
Recoveries:
Commercial 0 28,094 6
Consumer 594 799 1,267
----------- ----------- -----------
594 28,893 1,273
----------- ----------- -----------
Net (charge-offs) Recoveries (4,647) 24,110 (99,324)
Provision charged to operations 69,787 273,000 230,000
----------- ----------- -----------
Balance at end of period $ 913,347 $ 848,207 $ 551,097
=========== =========== ===========
Ratio of net (charge-offs) recoveries to
average outstanding during period (0.01%) 0.05% (0.27%)
Average loans outstanding
during the period $63,768,729 $52,528,186 $36,522,000
==================================================================================================
</TABLE>
Asset and Liability Management. The Bank's results of operations depend
substantially on net interest income. Interest income and interest expense are
affected by general economic conditions, competition in the market place, market
interest rates and repricing and maturity characteristics of the Bank's assets
and liabilities.
- 52 -
<PAGE> 61
Exposure to interest rate risk is primarily a function of differences
between the maturity and repricing schedules of assets (principally loans and
investment portfolio securities) and liabilities (principally deposits). Assets
and liabilities are described as interest sensitive for a given period of time
when they mature or can reprice within that period. The difference between the
amount of interest sensitive assets and interest sensitive liabilities is
referred to as the interest sensitivity "GAP" for any given period of time.
As a general rule, in periods of falling interest rates, banks with
positive interest sensitivity GAPs are more susceptible to a decline in net
interest income. In periods of rising interest rates, banks with negative
interest sensitivity GAPs are more likely to experience declines in net interest
income. The actual effect that rising and falling interest rates have on the
Bank's net interest income depends, however, not only on the interest
sensitivity GAP, but also the relative changes in interest rates that occur when
assets and liabilities are repriced, unscheduled repayments of loans, early
withdrawals of deposits and other factors.
As of March 31, 1996, the Bank had a negative interest sensitivity GAP
and thus is most vulnerable to rising interest rates. Bank management attempts
to limit exposure to interest rate risk by maintaining a balance sheet posture
such that net interest income is not significantly affected by market
fluctuations in interest rates. The Bank utilizes interest sensitivity GAP
reports in conjunction with simulation modeling to measure the effect of varying
interest rate scenarios and balance sheet strategies on net interest income.
Certain shortcomings are inherent in the interest sensitivity GAP
method of analysis presented in the following table. For example, although
certain assets and liabilities may have similar repricing characteristics, they
may react in different degrees to changes in market interest rates. Also, the
interest rates on certain types of assets and liabilities may fluctuate in
advance of changes in market interest rates, while interest rates on other types
may lag behind changes in market rates.
The following table sets forth the dollar amount of interest sensitive
assets and interest sensitive liabilities at March 31, 1996, and the difference
between them for the maturity or repricing periods indicated.
- 53 -
<PAGE> 62
ASSET AND LIABILITY MATURITY REPRICING SCHEDULE
MARCH 31, 1996
<TABLE>
<CAPTION>
====================================================================================================================
After One,
Within But Within After
One Year Five Years Five Years Total
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Loans $ 33,363,714 $30,182,856 $ 2,984,948 $65,531,518
Investment Securities:
Available for sale 505,935 1,308,030 2,671,106 4,485,071
Held to Maturity 0 1,488,672 6,121,000 7,609,672
Interest bearing deposits
with banks 4,924,025 0 0 4,924,025
Federal Home Loan Bank stock 487,000 0 0 487,000
----------------------------------------------------------------------------
Total Earning Assets 38,280,674 32,979,558 11,777,054 83,037,286
----------------------------------------------------------------------------
Deposits:
Interest bearing demand 8,720,293 0 0 8,720,293
Savings 34,877,501 0 0 34,877,501
Time certificates of deposit 16,191,208 3,238,351 2,775,444 22,205,003
----------------------------------------------------------------------------
Total Interest Bearing Liabilities 59,789,002 3,238,351 2,775,444 65,802,797
----------------------------------------------------------------------------
Net Interest Rate Sensitivity Gap $(21,508,328) $29,741,207 $ 9,001,610 $17,234,489
====================================================================================================================
</TABLE>
Investment Activities. The Bank has adopted, as required, Statement of
Financial Accounting Standards ("SFAS") No. 115 "Accounting for Certain
Investments in Debt and Equity Securities." This Statement requires investment
securities to be segregated as trading securities, held-to-maturity or
available-for-sale based upon management's intent as to the ultimate disposition
of each security acquired. Investments classified as held-to-maturity are
accounted for at amortized cost, but an institution must have both the positive
intent and the ability to hold those securities to maturity. There are very
limited circumstances under which securities in the held-to-maturity category
can be sold without jeopardizing the cost basis of accounting for the remainder
of the securities in this category. Unrealized gains and losses on
available-for-sale securities are excluded from earnings and reported, net of
federal income taxes, as a separate component of stockholders' equity.
Other than securities issued by the U.S. government or a federal
agency, the Bank has no securities exceeding 10% of stockholders' equity.
Municipal securities owned by the Bank are primarily issued by the State of
Washington or local municipalities with which the Bank is familiar. The Bank's
mortgage-backed securities and collateralized mortgage obligations have, within
the past several months, all been analyzed for performance under differing
interest-rate scenarios to assess the effect of an increase or decrease of
market interest rates of up to three percentage points. Under this "stress
test," only one security failed marginally, but currently is performing as
agreed. The cost and market value of the investment security that failed the
stress test were $298,077 and $278,226, respectively, at March 31, 1996.
The Bank's investment policy is approved by its Board. It has been the
policy of the Bank to maintain relatively high levels of liquidity to meet loan
funding and deposit outflow requirements. The following table sets forth the
investment securities portfolio of the Bank.
- 54 -
<PAGE> 63
Analysis of Investment Securities. The amortized cost and estimated
market values of investments in debt securities are as follows as of March 31,
1996:
<TABLE>
<CAPTION>
================================================================================================================================
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
AVAILABLE-FOR-SALE SECURITIES:
U.S. Treasury securities and
obligations of U.S. government
corporations and agencies $1,816,787 $ 9,543 $ (12,365) $1,813,965
State and municipal securities 487,151 4,473 (107) 491,517
Mortgage-backed securities
and collateralized mortgage
obligations 2,161,804 33,209 (15,424) 2,176,986
---------------------------------------------------------------
$4,465,742 $ 47,225 $ (27,896) $4,482,468
===============================================================
HELD-TO-MATURITY SECURITIES:
U.S. Treasury securities and
obligations of U.S. government
corporations and agencies $ 412,749 $ 27,131 $ 0 $ 439,880
State and municipal securities 2,682,096 21,470 (72,223) 2,631,343
Mortgage-backed securities
and collateralized mortgage
obligations 4,514,827 11,277 (76,899) 4,451,808
---------------------------------------------------------------
$7,609,672 $ 59,878 $ (149,122) $7,523,031
========== ========= =========== ==========
=====================================================================================================
</TABLE>
- 55 -
<PAGE> 64
Maturity Distributions of Investment Securities. The scheduled
maturities of investment securities and their weighted average yield as of March
31, 1996 were as follows:
<TABLE>
<CAPTION>
=================================================================================================================
AVAILABLE-FOR-SALE SECURITIES HELD-TO-MATURITY SECURITIES
--------------------------------------------------------------------------------------------
Estimated Weighted Estimated Weighted
Amortized Market Average Amortized Market Average
Cost Value Yield Cost Value Yield
--------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Due in one $ 506,217 $ 505,935 5.31% $ -- $ -- 0.00%
year or less
Due after one
year through 1,310,570 1,308,030 7.00% 1,491,276 1,496,087 6.31%
five years
Due after five
years through 487,151 491,518 5.44% 1,235,132 1,190,580 5.22%
ten years
Due after ten -- -- 0.00% 371,041 387,160 6.46%
years
Mortgaged-
backed
securities 2,161,804 2,179,589 6.86% 4,512,223 4,449,204 6.22%
and
collateralized
mortgage
obligations
-----------------------------------------------------------------------------------------
$4,465,742 $4,485,072 6.68% $7,609,672 $7,523,031 6.09%
========== ========== ==== ========== ========== ====
==============================================================================================================
</TABLE>
- 56 -
<PAGE> 65
MANAGEMENT OF VB
DIRECTORS AND EXECUTIVE OFFICERS
Set forth below is certain information concerning all of the directors
and executive officers of VB and the Bank, including the background, business
experience, and principal occupations, of each VB director and executive
officer. Except as otherwise noted, the positions indicated are at both VB and
the Bank.
DEAN N. ALTERMAN, age 36, is an attorney in the law firm of Kell, Alterman &
Runstein. He received a B.A. from Harvard College and a J.D. from Northwestern
School of Law at Lewis and Clark College. Mr. Alterman has served as a director
since 1992.
STUART A. BENDER, age 60, is a self-employed dentist, and has served as a
director since 1992.
DIANNE E. FRICHTL, age 60, is the owner of Luepke Florists and Gifts. She served
as the Chair of the VB and Bank Boards in 1994, and has served as a director
since the Bank's inception in 1989.
ROBERT V. HYDE, age 67, is a self-employed land developer and has been a
director since the Bank's inception in 1989. He has previously served as
Chairman of the Board.
TIMOTHY P. MOYER, age 39, is a real estate developer and investor. He served as
a director of the Bank from 1989 to 1992, and has served as a director of VB and
the Bank since 1995.
JAMES J. POMAJEVICH, age 53, is the owner and President of Pomajevich
Properties, Inc. ("PPI"), a commercial real estate development and management
company. Mr. Pomajevich has been a director since the Bank's inception in 1989,
and served as Chairman of the Board in 1993 and again from 1995 to the present.
He received a B.Th. from Northwest Christian College, a B.A. from the University
of Illinois, and a J.D. from Willamette University School of Law.
ANNE M. RYAN, age 47, has over 26 years of banking experience and currently
serves as Vice President and Secretary of VB, and Cashier of the Bank. Prior to
joining the Bank in 1989, Ms. Ryan served as a branch manager for U.S. National
Bank of Oregon.
LEE S. STENSETH, age 59, is the President and Chief Executive Officer of VB and
the Bank, and has over 37 years of banking experience. Prior to joining the
Bank, Mr. Stenseth served as Executive Vice President of Northwest National
Bank. He has served as a director since the Bank's inception in 1989.
EXECUTIVE COMPENSATION
The following table sets forth all cash compensation paid by the Bank
during the fiscal year ended December 31, 1995, to its President, the only
executive officer whose compensation exceeded $100,000.
<TABLE>
<CAPTION>
=====================================================================================================================
Named Executive Officer Position Held Salaries and Fees(1)
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Lee S. Stenseth President $155,846
=====================================================================================================================
</TABLE>
- -------------------
(1) Includes salary, bonus, personal benefits of automobiles and annual fees
paid to directors for participation in Board meetings.
- 57 -
<PAGE> 66
Executive Supplemental Income Plan. The Bank has a nonqualified
Executive Supplemental Income Plan covering 6 officers. The plan provides
benefits payable upon death, disability or retirement. Such benefits are payable
monthly over a fifteen year term.
Employee Stock Ownership Plan. VB has an Employee Stock Ownership Plan
with 401(k) features ("KSOP") which covers substantially all employees. The Plan
is a deferred compensation plan in which Bank contributions are used to provide
participating employees with stock in VB. Employees may choose to contribute a
percentage of their monthly salary on a pre-tax basis to the Plan, subject to
certain limitations. The Bank currently makes discretionary matching
contributions, subject to a vesting schedule based on length of service. In
1995, the Bank contributed $36,502 to the Employee Stock Ownership Plan. As of
March 31, 1996, the KSOP held 4,602 shares of VB common stock.
1989 Stock Option Plan. VB also has a 1989 Stock Option Plan for
certain key employees. Options granted under the plan may be incentive stock
options as defined by Section 422A of the Internal Revenue Code, as amended.
Incentive stock options are exercisable at not less than 100% of the fair market
value of the stock at the time of the grant. The plan also provides for grants
of non-qualified options at the discretion of the administrators of the plan.
There are 18,522 shares of Company stock reserved for possible issuance under
the plan. As of March 31, 1996, there were options covering 18,384 shares
outstanding under the plan.
1992 Stock Option Plan. VB also has a 1992 combined incentive and
nonstatutory Stock Option Plan which permits the grant of options to executive
officers and non-employee directors. The plan reserves 30,000 shares of VB stock
for possible issuance upon exercise of options granted under the plan. As of
March 31, 1996, there were options covering 13,139 shares outstanding under the
plan.
Following consummation of the Merger, outstanding options under the
1989 Stock Option Plan and the 1992 Stock Option Plan will be converted into and
exchanged for options to purchase shares of WCB stock on substantially identical
terms as were in effect at the time of grant.
Options Granted in Last Fiscal Year. No officer received or exercised
any options in the 1995 fiscal year. One director received an option for shares
and one director exercised options for 1,877 shares in the 1995 fiscal year.
Aggregate Option Exercises and Fiscal Year-End Option Value Table. The
following table includes the number of shares covered by both exercisable and
unexercisable stock options as of December 31, 1995, to the executive officer
named in the Summary Compensation Table. Also reported are the values for
"in-the-money" options, which represent the positive spread between the exercise
price of any such existing stock options and the year and price of VB Common
Stock.
<TABLE>
<CAPTION>
========================================================================================================================
Shares Number of Unexercised Value of Unexercised
Acquired Value Options at Year End Options at Year End
Name on Exercise Realized --------------------------------------------------------------
Exercisable Unexercisable Exercisable Unexercisable
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Lee S. Stenseth -0- -0- 12,128 -0- $514,312 -0-
========================================================================================================================
</TABLE>
- -------------------
(1) Value is based on $66.95 per share price
- 58 -
<PAGE> 67
DIRECTOR COMPENSATION
Directors receive a fee, based on meetings attended during the year,
for serving on the Board of VB or the Bank. Currently, directors receive $500.00
per month and $125.00 per special committee meeting. Directors also receive
incentive compensation based on the return on assets of the Bank. During 1995,
incentive pay was $2,250 per director. During 1992, each director then serving
was awarded an option to purchase 1,877 shares at an exercise price of $30.51
per share for 10 years. The newest member of the VB Board received an option for
1,877 shares at $40.76 per share after he was elected to the VB Board in 1995.
CERTAIN TRANSACTIONS AND RELATIONSHIPS
None of the directors or executive officers of the Bank have or have
had any material interest in any transactions to which the Bank was or is a
party, outside of the ordinary course of the Bank's business, except as set
forth below.
Certain directors and officers of the Bank, and the companies with
which they are associated, have had and are expected to continue to have banking
transactions with the Bank from time to time in the ordinary course of business.
Any loans and commitments to lend included in such transactions have been and
will continue to be made in accordance with all applicable laws and regulations
and on substantially the same terms, including interest rates and collateral, as
those prevailing at the time for comparable transactions with other persons of
similar credit worthiness.
From time to time the Bank enters into loan participation agreements
with other institutions and individuals in order to facilitate loans which
otherwise would exceed the Bank's legal lending limits. Pursuant to such an
agreement, the Bank is currently participating in a commercial loan with a
current balance of $1,046,196 to PPI, owned by Mr. Pomajevich, the Chairman of
the Board of the Bank. The Bank's portion of the outstanding balance is
$194,215. Robert V. Hyde, a director of the Bank, is participating as a
co-lender of this loan. Mr. Hyde's portion of the outstanding balance is
$258,458. Mr. Hyde is also participating as a co-lender of a loan to VB by
Security State Bank of Central Washington. The loan amount is $1,350,000, of
which Mr. Hyde's portion is $225,000. This loan will be paid off by WCB on the
Effective Date. Amounts paid to Mr. Hyde are not considered compensation for
services to the Bank. In addition, Mr. Hyde is a participating co-lender in two
loans to nonaffiliates of the Bank with an aggregate outstanding balance of
approximately $303,000.
The Bank does not consider such a loan participation to constitute a
sale of assets for regulatory purposes, and believes the terms of the loan, and
of the agreement, are substantially the same as those prevailing in other
similar loans and participation agreements at the time this loan was made, and
at the time the participation agreement was executed. The Bank believes that the
loan and the participation agreement are in all respects fair to the Bank.
SECURITIES OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL OWNERS
The following table sets forth information as of May 28, 1996, with
respect to (i) each director and executive officer of VB and the Bank, and (ii)
the shares owned by all directors and executive officers as a group.
- 59 -
<PAGE> 68
Directors and Executive Officers
<TABLE>
<CAPTION>
Number of Shares Percent of
Name Beneficially Owned(1) Outstanding
- ---- --------------------- -----------
<S> <C> <C>
James J. Pomajevich 8,714 (2)(3)(4) 6.08%
Lee S. Stenseth 21,167 (3)(5)(6) 13.78%
Robert V. Hyde 16,849 (2)(4) 11.75%
12,686 (7) 8.85%
Timothy Moyer
Dianne E. Frichtl 6,778 (3)(4)
4.73%
Dean N. Alterman 2,346 (4) 1.64%
Stuart A. Bender 8,231 5.74%
(4)
Anne M. Ryan 2,130 (6)(8) 1.49%
------ ------ ------
All Directors and Officers as a Group 78,901 (2-8) 47.41%
====== ====== ======
</TABLE>
- ---------------------------------------
(1) Beneficial ownership includes sole voting and investment power as to the
shares, unless otherwise indicated.
(2) Includes shares held as a custodian for a minor child or other member of
the named individual's household.
(3) Includes shares held by or jointly with spouse.
(4) Includes 1,877 shares covered by options exercisable at $30.51 per share.
(5) Includes 12,128 shares covered by options exercisable at prices ranging
between $22.00 and $30.51 per share.
(6) Includes shares held by the Bank of Vancouver Employee Stock Ownership
Plan.
(7) Includes shares held by Mr. Moyer's children. Also includes 1,877 shares
covered by options exercisable at $40.76 per share.
(8) Includes 1,564 shares covered by options exercisable at $30.51 per share.
OTHER PRINCIPAL SHAREHOLDERS
The following sets forth information as of May 28, 1996, with respect
to each person other than Messrs. Bender, Hyde, Moyer, Pomajevich and Stenseth
(included in the previous table) known by VB and the Bank to have beneficial
ownership of more than five percent of the outstanding shares of VB Common
Stock.
<TABLE>
<CAPTION>
Number of Shares Percent of
Name and Address Beneficially Owned(1) Outstanding
- ---------------- --------------------- -----------
<S> <C> <C>
Franz and Anne Boschwitz 9,837 6.95%
5604 D Lakeview Dr.
Kirkland, WA 98033
</TABLE>
- ---------------
(1) Beneficial ownership includes sole voting and investment power as to the
shares.
- 60 -
<PAGE> 69
COMMITTEES OF THE BOARD OF DIRECTORS
VB has no separate audit or compensation committees; the entire VB
Board (with the exception of Mr. Stenseth) handles those responsibilities.
SUPERVISION AND REGULATION
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 WCB, VB
and their respective subsidiaries.
WCB AND VB
GENERAL
As bank holding companies, WCB and VB are subject to the Bank Holding
Company Act of 1956 ("BHCA"), as amended, which places them 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 "WCB's Subsidiary Banks --
Interstate Banking and Branching"). However, the full impact of this legislation
on WCB and VB is unclear at this time.
HOLDING COMPANY STRUCTURE
FRB Regulation. A bank holding company must obtain the approval of the
FRB: (1) before 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.
WCB and VB file annual and certain interim reports as may be required
from time to time by the FRB. In addition, the FRB performs periodic
examinations of WCB and VB.
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 exceptions, 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 real
estate brokerage and syndication, land development,
- 61 -
<PAGE> 70
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. WCB and its subsidiary banks, and
likewise VB and the Bank, are 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. When the
Merger is consummated, WCB and its subsidiary banks will be deemed affiliates
within the meaning of the Federal Reserve Act.
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 a
bank holding company makes to its subsidiary banks are subordinate to deposits
and to certain other indebtedness of those subsidiary 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. WCB, VB and the bank subsidiaries 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 WCB, VB nor the bank subsidiaries 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 an Oregon corporation, WCB is subject to
certain limitations and restrictions under applicable Oregon corporate law.
Similarly, as a Washington corporation, VB is subject to certain limitations and
restrictions under applicable Washington corporate law. For example, state law
restrictions in both Oregon and Washington 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.
Securities Registration and Reporting. The WCB Common Stock is
registered as a class with the SEC under the Exchange Act 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 WCB 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 WCB are subject to the registration
requirements of the Securities Act 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
before the expiration of the disapproval
- 62 -
<PAGE> 71
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 WCB or VB, or to otherwise obtain
control over the WCB or VB.
THE BANK SUBSIDIARIES
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 state legislatures, 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 WCB's bank subsidiaries, are subject to
primary regulation and examination by the Oregon Department of Consumer and
Business Services ("Oregon Department"). As a Washington State bank, the Bank is
subject to primary regulation and examination by the Washington Director. WCB's
bank subsidiaries 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. The deposits of each of
WCB's bank subsidiaries are insured (to applicable limits) by, and therefore are
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 bank subsidiaries, 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.
Washington state banking law provides that the amount of funds which a
bank may lend to a single borrower is generally limited to 20% of capital and
surplus. For this purpose, capital includes (i) the amount of common stock
outstanding and unimpaired, (ii) the amount of preferred stock outstanding and
unimpaired, and (iii) capital notes or debentures issued pursuant to RCW 30.36.
Surplus includes capital surplus, reflecting the amounts paid in excess of the
par or stated value of capital stock, or amounts contributed to the bank other
than for capital stock, and undivided profits.
- 63 -
<PAGE> 72
DIVIDENDS
Dividends paid to WCB by its bank subsidiaries are a material source of
WCB's cash flow. Likewise, dividends paid to VB by the Bank are a material
source of VB's cash flow. Various federal and state statutory provisions limit
the amount of dividends the bank subsidiaries are permitted to pay to WCB and
VB, respectively, 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, WCB's bank
subsidiaries 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.
Washington statutes prohibit a bank from paying any dividends in an
amount greater than the bank's retained earnings, without approval of the
Washington Director. The Washington Director has authority to require a bank to
suspend payment of all dividends until the bank has complied with any
requirements made by the Washington Director.
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)
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.
- 64 -
<PAGE> 73
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. Washington banking laws further require that 30 days before the
acquisition of control, defined as direct or indirect ownership, control or
power to vote 25% or more of the outstanding stock of a bank, the acquiring
party must file with the Washington Director an application containing certain
specified information. Acquisitions of control in violation of the statute are
deemed void.
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 bank 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.
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.
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.
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
- 65 -
<PAGE> 74
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, effective as of February 27, 1995, and Washington, effective
June 6, 1996, have each enacted "opting in" legislation generally permitting
interstate mergers, subject to certain restrictions. Given that Oregon and
Washington have permitted interstate banking for a number of years, this
legislation is not expected to have a profound impact on banking in Oregon or
Washington or on WCB, VB or the bank subsidiaries' operations in particular.
Nevertheless, the impact that the Interstate Act might have on WCB, VB and the
bank subsidiaries is impossible to predict with accuracy.
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 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-
- 66 -
<PAGE> 75
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 management 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 bank subsidiaries
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 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. Given the strong capital position of
each of WCB's subsidiary banks, this provision presently is not applicable.
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. Bank
holding companies are 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 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, the actual requirements or standards established by
any such rule nor the impact the Federal Banking Agency activities discussed
above may have on the bank subsidiaries can be predicted with accuracy at this
time.
- 67 -
<PAGE> 76
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 bank subsidiaries, 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). All the
bank subsidiaries are currently deemed well capitalized and all in Group "A",
qualifying for the lowest assessment classification, presently set at zero.
COMMUNITY REINVESTMENT ACT ("CRA")
The Federal Banking Agencies have each adopted regulations and
examination procedures to ensure that a bank is helping to meet the credit needs
of all segments of its communities, including low-and-moderate-income
neighborhoods.
At its most recent CRA examination, The Commercial Bank received a
rating of "satisfactory;" The Bank of Newport received a rating of
"outstanding;" Valley Commercial Bank received a rating of "marginally
satisfactory" and the Bank received a rating of "satisfactory."
COMPARISON OF CERTAIN RIGHTS OF HOLDERS OF
VB AND WCB COMMON STOCK
The Oregon Business Corporations Act ("OBCA"), as amended, and WCB's
Articles of Incorporation and Bylaws, both as amended, govern the rights of WCB
shareholders and will govern the rights of VB shareholders who become
shareholders of WCB through the Merger. The rights of VB shareholders are
currently governed by the Washington Business Corporations Act ("WBCA"), as
amended, and by VB's Articles of Incorporation and Bylaws. The following is a
brief summary of certain differences between the rights of VB shareholders and
WCB shareholders' rights. This summary does not purport to be complete and is
qualified by the documents and statutes referenced and by other applicable law.
GENERAL
Under its Articles of Incorporation, WCB's authorized capital stock
consists of 15,000,000 common stock shares, no par value, and 10,000,000
preferred stock shares, no par value.
VB's authorized capital stock consists of 10,000,000 common stock
shares with a $1 per share par value and 1,000,000 preferred stock shares with a
$1 per share par value.
The following is a more detailed description of WCB's and VB's capital
stock.
- 68 -
<PAGE> 77
PREFERRED STOCK
As of May 28, 1996, neither WCB nor VB had any shares of preferred
stock issued. The WCB Board is authorized, without further shareholder action,
to issue preferred stock shares with such designations, preferences and rights
as the WCB Board may determine. Likewise, the VB Board is authorized, without
further shareholder action, to issue preferred stock shares with such
designations, preferences and rights as the VB Board may determine.
COMMON STOCK
As of May 28, 1996, there were 4,813,839 shares of WCB Common Stock
issued and outstanding, in addition to options for the purchase of 494,619
shares of WCB Common Stock under WCB's employee and director stock option plans.
As of May 28, 1996, there were 141,461 shares of VB Common Stock issued
and outstanding, in addition to options for the purchase of 31,523 shares of VB
Common Stock under VB's employee and director stock option plans.
DIVIDEND RIGHTS
Dividends may be paid on WCB Common Stock as and when declared by the
WCB Board out of funds legally available for the payment of dividends. The WCB
Board may issue preferred stock that is entitled to such dividend rights as the
WCB Board may determine, including priority over the common stock in the payment
of dividends. The ability of WCB to pay dividends basically depends on the
amount of dividends paid to it by its subsidiaries. Accordingly, the dividend
restrictions imposed on the subsidiaries by statute or regulation effectively
may limit the amount of dividends WCB can pay (See "SUPERVISION AND REGULATION
- -- The Bank Subsidiaries; Dividend Restrictions"). Under the OBCA, the WCB Board
is barred from making any dividend payment if, after giving effect to such
payment, WCB is either unable to pay its debts as they become due in the usual
course of business or WCB's total assets would be less than the sum of its total
liabilities, as more fully provided in ORS 60.181.
Dividends may be paid on VB Common Stock as and when declared by the VB
Board out of funds legally available for the payment of dividends. The VB Board
may issue preferred stock that is entitled to such dividend rights as the VB
Board may determine, including priority over the common stock in the payment of
dividends. The ability of VB to pay dividends basically depends on the amount of
dividends paid to it by its subsidiary. Accordingly, the dividend restrictions
imposed on its subsidiary by statute or regulation effectively may limit the
amount of dividends VB can pay (See "SUPERVISION AND REGULATION -- The Bank
Subsidiaries; Dividend Restrictions"). Under the WBCA, the VB Board is barred
from making any dividend payment if, after giving effect to such payment, VB is
either unable to pay its debts as they become due in the usual course of
business or WCB's total assets would be less than the sum of its total
liabilities, as more fully provided in RCW 23B.06.400.
VOTING RIGHTS
All voting rights are currently vested in the holders of WCB Common
Stock and VB Common Stock, respectively, each share being entitled to one vote.
Both the WCB and VB Articles provide that shareholders do not have
cumulative voting rights in the election of directors. The WCB Board and the VB
Board are each authorized to determine the voting rights of any preferred stock
that may be issued.
- 69 -
<PAGE> 78
PREEMPTIVE RIGHTS
Neither the holders of WCB Common Stock nor the holders of VB Common
Stock have preemptive rights to subscribe to any additional securities that may
be issued.
LIQUIDATION RIGHTS
If WCB is liquidated, the holders of WCB Common Stock are entitled to
share, on a pro rata basis, WCB's remaining assets after provision for
liabilities. The WCB Board is authorized to determine the liquidation rights of
any preferred stock that may be issued, including priority over the liquidation
rights of holders of WCB Common Stock.
Similarly, VB Common Stock holders are entitled to share, pro rata,
VB's remaining assets after provision for liabilities, if VB is liquidated. The
VB Board is authorized to determine the liquidation rights of any preferred
stock that may be issued, including priority over the liquidation rights of
holders of VB Common Stock.
ASSESSMENTS
All outstanding shares of VB Common Stock and of WCB Common Stock are
fully paid and nonassessable.
BOARD OF DIRECTORS
WCB's Articles of Incorporation provide for division of its Board into
three classes, as nearly equal in number as possible. Each director serves for a
three-year term, and the classes are staggered so that one class is elected each
year. The WCB Board must consist of at least eight (8), but no more than twenty
(20) directors; the WCB Board sets the exact number by resolution. Currently,
the WCB Board has thirteen (12) directors. A WCB director may not be removed
without cause before his or her term expires, unless two-thirds of the
shareholders entitled to vote on the matter, vote in favor of removal.
VB's Bylaws provide that each member of its Board serves for a one-year
term (or until the next annual shareholders' meeting and until the director's
successor is elected and qualified). The VB Board must consist of at least five
(5), but no more than fifteen (15) directors; the VB Board sets the exact number
by resolution. Currently, the VB Board has seven (7) directors. VB's
shareholders, by an affirmative majority vote, may remove any director from
office, with or without cause, before his or her term expires.
A staggered board as provided in WCB's Articles of Incorporation is
considered a potential "anti-takeover" provision. The effect of a staggered
board may lengthen the time required for a person to acquire control of WCB
through the election of a majority of the WCB Board, or otherwise, and may deter
any potential unfriendly offers or other efforts to obtain control of WCB. This
could also make removal of incumbent directors more difficult, even in
circumstances where such action was favored by a majority of WCB's shareholders.
INDEMNIFICATION AND LIMITATION OF LIABILITY
WCB's Articles of Incorporation provide for indemnification, to the
fullest extent permissible under the OBCA, of its directors against all expense,
liability, and loss (including attorneys' fees) incurred by him or her by reason
of or arising from the fact that he or she is or was a director of WCB
- 70 -
<PAGE> 79
or is or was serving at WCB's request as a director, officer, partner, trustee,
employee, or agent of another foreign or domestic corporation, partnership,
joint venture, trust, employee benefit plan, or other enterprise, and these
indemnification rights continue as to a person who has ceased to be a director,
officer, partner, trustee, employee, or agent and inure to the benefit of his or
her heirs, executors, and administrators. WCB's Articles of Incorporation
authorize WCB, through its Bylaws, and the WCB Board to provide indemnification
to WCB's officers, employees, and agents, to the extent permitted by law. WCB's
Bylaws provide that WCB will indemnify its directors and officers to the full
extent permitted by the OBCA. However, WCB will not provide indemnification when
(a) a director or officer commits intentional misconduct or knowingly violates
the law; (b) a director or officer is adjudged liable to WCB in a proceeding by
or in the right of WCB; or (c) a director or officer is adjudged liable in any
proceeding charging improper personal benefit on the basis that the director or
officer improperly received a personal benefit. Indemnification rights and
procedures, including entitlements to advanced expenses, are set forth in more
detail in WCB's Bylaws.
VB's Articles of Incorporation provide that a director is not
personally liable to VB or VB's shareholders for monetary damages for conduct as
a director, except for (a) intentional misconduct or knowing violations of law;
(b) conduct violating RCW 23B.08.310 (unlawful distributions); or (c)
transactions from which the director will personally receive a benefit in money,
property or services to which the director is not legally entitled. VB's
Articles of Incorporation provide for indemnification of directors and officers
under certain circumstances. The VB Board may authorize indemnification of VB's
other employees and agents in accordance with VB's Articles of Incorporation.
Indemnification rights and procedures, including entitlements to advanced
expenses, are set forth in more detail in VB's Articles of Incorporation.
AMENDMENT OF ARTICLES OF INCORPORATION AND BYLAWS
Under Oregon law, WCB's shareholders may amend WCB's Articles of
Incorporation by an affirmative majority vote of the shares entitled to vote on
the matter. The WCB Board may make the amendments listed in ORS 60.434 to the
Articles of Incorporation without shareholder approval. Either the shareholders
or, subject to certain restrictions, the WCB Board may amend WCB's Bylaws.
Unless a company's articles of incorporation provide otherwise, the
WBCA requires approval of two-thirds of the shareholders entitled to vote on the
matter in order to amend a company's articles. VB's Articles of Incorporation
allow VB's shareholders to amend VB's Articles by an affirmative majority vote
of the shares entitled to vote on the matter. The VB Board may make the
amendments listed in RCW 23B.10.020 to the Articles of Incorporation without
shareholder approval. Either the shareholders or the VB Board may amend VB's
Bylaws.
REPURCHASE OF SHARES
Under both Oregon and Washington laws, a corporation may acquire shares
of its own stock. Therefore, both WCB and VB may, under applicable state law,
repurchase shares of their own capital stock.
DISSENTERS' RIGHTS
Under the WBCA, a shareholder is entitled to dissent from, and, upon
perfection of the shareholder's appraisal right, to obtain the fair value of his
or her shares in the event of certain corporate actions, including certain
mergers, share exchanges, sales of substantially all assets of the corporation,
and certain amendments to the corporation's articles of incorporation that
materially and adversely affect
- 71 -
<PAGE> 80
shareholder rights. VB's shareholders are therefore entitled to exercise
dissenters' rights in connection with the proposed Merger.
Similar dissenters' rights are generally provided to shareholders under
the OBCA. However, under the OBCA, dissenters' rights are not available to
shareholders of any class or series if the shares of that class or series were
registered on a national securities exchange or quoted on The Nasdaq Stock
Market as a National Market System issue on the record date for the
shareholders' meeting at which the corporate action ordinarily entitling the
shareholders to dissenters' rights was taken or on the date a copy or summary of
the plan of merger is mailed to shareholders under ORS 60.491. The WCB Common
Stock is quoted on the Nasdaq Stock Market as a National Market issue.
Consequently, WCB's shareholders are not entitled to dissenters' rights.
SALES OF ASSETS, MERGERS AND DISSOLUTIONS - VOTING
Under the WBCA, unless the articles of incorporation provide for a
lesser vote (but not less than a majority), approval by at least two-thirds of
the outstanding shares entitled to vote or two-thirds of each voting group is
required for mergers, assets sales, and dissolutions. Separate voting by voting
groups is required (i) on a plan of share exchange and (ii) on a plan of merger
if it contains provisions that would require separate voting if contained in an
amendment to articles of incorporation. VB's Articles of Incorporation reduce
the VB shareholder vote otherwise required under the WBCA for mergers, asset
sales, and dissolutions to a simple majority of all votes entitled to be cast by
each voting group. The OBCA requires approval by the holders of a majority of
the shareholders entitled to vote on the matter for assets sales, mergers and
dissolutions. Both the OBCA and the WBCA contain provisions setting forth
certain circumstances under which no vote by the shareholders of a corporation
surviving a merger is required.
POTENTIAL "ANTI-TAKEOVER" PROVISIONS
WCB's Articles of Incorporation and Oregon and Washington statutes
contain certain provisions which may limit or prevent certain acquisitions.
These provisions are briefly summarized below.
1. WCB's Articles of Incorporation.
WCB's Articles of Incorporation include certain provisions that could
make more difficult the acquisition of WCB by means of a tender offer, a proxy
contest, merger or otherwise. These provisions include (1) restrictions on
removal of directors which could limit changes in the composition of the WCB
Board (See "Board of Directors," above); (2) certain nonmonetary factors that
the WCB Board may consider when evaluating a takeover offer (discussed in more
detail below); and (3) a requirement that at least two-thirds of the
shareholders approve a Change in Control of WCB or a sale of substantially all
of WCB's assets, unless the transaction is approved by 75% of the WCB Board.
In addition, the authorization of preferred stock, which is intended
primarily as a financing tool and not as a defense against takeovers, may
potentially be used by management to make more difficult uninvited attempts to
acquire control of WCB (e.g., by diluting the ownership interest of a
substantial shareholder, increasing the amount of consideration necessary for a
shareholder to obtain control, or selling authorized but unissued shares to
friendly third parties).
WCB's Articles of Incorporation allow the WCB Board to consider
nonmonetary factors in evaluating another party's offer to (a) make a tender or
exchange for any equity security of WCB, (b) merge or consolidate WCB with
another corporation or association, or (c) purchase or otherwise acquire all or
substantially all of WCB's assets. Specifically, the Articles allow the WCB
Board, in determining
- 72 -
<PAGE> 81
what is in the best interests of WCB and its shareholders, to consider all
relevant factors, including the effects on its employees, customers, suppliers,
and other constituents of WCB and its subsidiaries and on the communities in
which WCB and its subsidiaries are located.
The staggered terms for WCB's directors, provisions in WCB's Articles
of Incorporation permitting the removal of directors only for cause except by a
super-majority shareholder vote, requirement of a super-majority vote of
shareholders to approve change-in-control transactions unless such transactions
receive a super-majority approval of the WCB Board, permitting the consideration
of nonmonetary factors in evaluating takeover proposals, the availability of
WCB's preferred stock for issuance without shareholder approval, and the WCB
Board's ability to expand the Board size and fill resulting vacancies, may have
the effect of lengthening the time required for a person to acquire control of
WCB through a tender offer, proxy contest, the election of a majority of the WCB
Board, or otherwise, and may deter any potential unfriendly offers or other
efforts to obtain control of WCB. This could deprive WCB's shareholders of
opportunities to realize a premium for their WCB Common Stock and could make
removal of incumbent directors more difficult, even in circumstances where such
action was favored by a majority of WCB's shareholders.
2. Oregon Law.
Oregon's significant anti-takeover provisions are generally described
below.
ORS 60.357(5), a statutory provision similar to the provision described
above in WCB's Articles of Incorporation, allows directors to consider
nonmonetary factors when evaluating a takeover offer.
ORS 60.157 allows a corporation's board of directors to impose certain
restrictions or conditions on rights, options or warrants issued by the
corporation for the purchase of shares, without violating the general rule (see
ORS 60.131) that all shares within the same class must have identical
preferences, limitations, and relative rights. With respect to any person (or
such person's transferee) owning or offering to acquire a specified number or
percentage of the outstanding stock or other securities of the corporation, this
statute allows the board to (a) preclude or limit such person's exercise,
transfer, or receipt of rights, options or warrants and (b) invalidate or void
the rights, options or warrants held by such person. This permits the adoption
of a Shareholder Rights Plan or a so called "Poison Pill."
The Oregon Control Share Act (ORS 60.801, et.seq.) ("OCSA") operates to
deny voting rights to potential acquirors of a corporation who trigger the OCSA
by purchasing enough shares to cross certain thresholds designated in the
statute. Under the OCSA, the shares of an "acquiring person" obtained in a
"control share acquisition" are denied voting rights unless (a) the target's
board or shareholders approve the acquisition in advance; (b) a majority of the
disinterested shareholders approve restoration of the acquiring person's voting
rights; (c) the acquiring person sells the shares to an unaffiliated person; or
(d) the corporation, in its Articles of Incorporation or Bylaws, "opts out" of
the control share provisions. At this time, WCB has not opted-out of the OCSA.
Transactions in which the corporation acquires its own shares and mergers
involving an agreement and plan of merger to which the corporation is a party
are excluded from the definition of "control share acquisition."
ORS 60.835 prohibits business combinations with interested shareholders
for a period of three years following the date the shareholder becomes
interested, unless an exception applies. A shareholder becomes interested when
the shareholder acquires 15% or more of the outstanding voting stock of the
corporation. Business combinations with an interested shareholder are not
prohibited if (a) the board of directors approves in advance either the business
combination or the transaction in which the shareholder becomes an interested
shareholder; (b) the shareholder acquires 85% or more of the outstanding voting
stock in the same transaction in which the shareholder becomes interested; or
(c) the board of directors
- 73 -
<PAGE> 82
approves the business combination and at least two-thirds of the outstanding
voting stock (excluding the interested shares) approve the transaction (by
affirmative vote and not by written consent). ORS 60.835 does not apply if a
shareholder inadvertently becomes interested and divests as soon as practicable.
3. Washington Law.
Washington's significant anti-takeover provisions are generally
described below.
RCW 23B.17.020 provides that all shareholders of Washington business
corporations, like VB, are entitled to receive equal consideration for their
shares in certain business combinations. This statute generally provides that an
interested person exercising control cannot exercise such control in connection
with certain corporate transactions unless the transaction is approved by the
affirmative vote of the holders of two-thirds of the shares entitled to vote.
Shares owned by interested persons are not entitled to vote in connection with
such business combinations, but are counted for the proposes of quorum
requirements. An "interested shareholder" is a person, including affiliates of
such person, who beneficially owns 20% or more of the outstanding shares of a
corporation. The two-thirds vote requirement is not applicable if (i) a majority
of the company's board of directors approves the transaction, (ii) a majority of
the company's board of directors determines that the fair market value of the
consideration to be received by noninterested shareholders is not less than the
highest price paid by any interested shareholder within two years before the
transaction, or (iii) a company's initial or amended Articles specifically
exclude the provision's applicability.
RCW 23B.17.020 is designed to discourage the two-step, front-end loaded
tender offer. Typically, that occurs when a person makes a cash tender offer to
a premium above the current market price for a majority of the company's voting
stock, and then follows that purchase with a later business combination, such as
a merger, that "freezes out" the remaining minority shareholders at a lower
price than that paid in the cash tender offer.
Washington law also requires prior approval by a majority of the board
of directors of the target company in certain acquisition transactions. RCW
23B.19.040 prohibits corporations that have a class of voting stock registered
with the SEC pursuant to Section 12 of the Securities Exchange Act of 1934 from
engaging in any Significant Business Transactions (including, mergers or
consolidations; certain sales, leases, exchanges, mortgages, pledges, transfers,
or other dispositions or encumbrances of assets; termination of 5% or more of
the corporation's employees; issuances or redemptions of stock; sales of assets,
liquidation, or dissolution of the corporation; reclassifications of the
corporation's securities; and allowing the acquiring person or an affiliate or
associate to receive any disproportionate benefit as a shareholder) for a period
of five years after a person or group acquires 10% or more of the corporation's
outstanding voting stock, unless the acquisition is approved in advance by
majority vote of the board of directors. The statute will not apply to a person
who "inadvertently" acquires 10% of the shares, if such person divests itself as
soon as practicable of sufficient shares to fall below the 10% threshold. Any
acquisition that violates this statute is deemed to be void and the proposed
acquiror's certificate of authority to transact business in Washington is
revoked. As the Common Stock is not currently registered under Section 12 of the
Securities Act, these state law provisions do not apply.
CERTAIN LEGAL MATTERS
The validity of the WCB Common Stock to be issued in the Merger will be
passed upon for WCB by its counsel, Graham & Dunn, a professional corporation,
Seattle/Tacoma, Washington. Graham & Dunn, P.C. also will give an opinion
concerning certain tax matters related to the Merger.
- 74 -
<PAGE> 83
EXPERTS
The consolidated financial statements of WCB as of December 31, 1995,
1994 and 1993, and for each of the three years in the period ended December 31,
1995, incorporated by reference into this Prospectus/Proxy Statement, have been
audited by Arthur Andersen LLP, independent public accountants, as indicated in
their reports with respect thereto, and are included therein in reliance upon
the authority of such firm as experts in giving said reports.
The financial statements of VB included in this Prospectus/Proxy
Statement and in the Registration Statement have been audited by Moss Adams LLP,
independent certified public accountants, to the extent and for the periods set
forth in their report appearing elsewhere herein, and are included in reliance
upon such report given upon the authority of said firm as experts in auditing
and accounting.
OTHER MATTERS
The VB Board is not aware of any business to come before the Meeting
other than those matters described above in this Prospectus/Proxy Statement.
However, if any other matters should properly come before the Meeting, it is
intended that proxies in the accompanying form will be voted in respect thereof
in accordance with the judgment of the persons voting the proxies.
- 75 -
<PAGE> 84
VANCOUVER BANCORP
INDEPENDENT AUDITOR'S REPORT
AND
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1994
<PAGE> 85
CONTENTS
PAGE
----
INDEPENDENT AUDITOR'S REPORT 1
CONSOLIDATED FINANCIAL STATEMENTS
Balance sheet 2
Income statement 3 - 4
Statement of changes in stockholders' equity 5 - 6
Statement of cash flows 7
Notes to consolidated financial statements 8 - 26
<PAGE> 86
[MOSS-ADAMS LLP LETTERHEAD]
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Stockholders
Vancouver Bancorp
We have audited the accompanying consolidated balance sheets of Vancouver
Bancorp as of December 31, 1995 and 1994, and the related consolidated
statements of income, retained earnings, and cash flows for the years then
ended. These financial statements are the responsibility of Vancouver 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 Vancouver Bancorp as of
December 31, 1995 and 1994, and the results of their operations and their cash
flows for the years ended in conformity with generally accepted accounting
principles.
As disclosed in Note 1 to the consolidated financial statements, Vancouver
Bancorp changed its method of accounting for certain investment securities
during 1994.
/s/ Moss Adams LLP
- ------------------
Moss Adams LLP
Portland, Oregon
January 17, 1996
<PAGE> 87
VANCOUVER BANCORP
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
------------ ----------------------------
1996 1995 1994
------------ ------------ ------------
(Unaudited)
<S> <C> <C> <C>
ASSETS
Cash and noninterest-bearing deposits due from depository
institutions $ 2,745,972 $ 3,368,876 $ 2,518,381
Interest-bearing deposits due from depository institutions 4,924,025 109,233 5,907,974
Investment securities:
Available-for-sale investment securities 4,485,071 4,725,929 3,295,958
Held-to-maturity investment securities 7,609,672 7,783,038 8,857,650
Federal Home Loan Bank stock 487,000 478,300 191,100
------------ ------------ ------------
12,581,743 12,987,267 12,344,708
Loans 65,531,518 61,410,516 42,127,027
Allowance for loan losses (913,347) (848,207) (551,097)
Unearned loan fees (468,564) (434,407) (344,543)
------------ ------------ ------------
64,149,607 60,127,902 41,231,387
Property and equipment, net of depreciation 877,627 921,782 841,824
Accrued interest receivable 495,165 468,962 343,897
Other assets 922,581 943,424 789,609
------------ ------------ ------------
$ 86,696,720 $ 78,927,446 $ 63,977,780
============ ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
DEPOSITS
Demand deposits $ 11,303,174 $ 11,083,838 $ 10,777,681
NOW and money market accounts 8,720,293 8,779,317 7,433,193
Savings and time certificate accounts 50,990,905 46,118,578 34,889,824
Time certificate accounts of $100,000 and more 6,091,598 4,691,376 4,454,138
------------ ------------ ------------
77,105,970 70,673,109 57,554,836
Accrued interest payable and other liabilities 449,794 521,781 270,807
Liabilities for securities sold under repurchase agreements 666,125 600,000 --
Note payable 2,350,000 1,350,000 1,500,000
------------ ------------ ------------
80,571,889 73,144,890 59,325,643
------------ ------------ ------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Preferred stock, $1 par value, 1,000,000 shares
authorized, no shares issued and outstanding -- -- --
Common stock, $1 par value, 10,000,000 shares
authorized, 141,461 (140,205 in 1995 and 137,047
in 1994) issued and outstanding 141,461 140,205 137,047
Surplus 4,489,853 4,408,064 4,301,748
Undivided profits 1,480,736 1,180,061 289,505
Net unrealized gain (loss) on available-for-sale
securities 12,781 54,226 (76,163)
------------ ------------ ------------
6,124,831 5,782,556 4,652,137
------------ ------------ ------------
$ 86,696,720 $ 78,927,446 $ 63,977,780
============ ============ ============
</TABLE>
The accompanying notes are an integral
part of these consolidated financial statements.
<PAGE> 88
VANCOUVER BANCORP
CONSOLIDATED INCOME STATEMENTS
<TABLE>
<CAPTION>
THREE MONTHS ENDED YEARS ENDED
MARCH 31, DECEMBER 31,
----------------------- -----------------------
1996 1995 1995 1994
---------- ---------- ---------- ----------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans $1,690,288 $1,203,787 $5,783,254 $3,651,769
Interest on investment securities:
Taxable investments 179,624 169,515 647,128 497,244
Nontaxable investments 40,742 32,671 149,697 106,890
Interest on deposits due from depository institutions 21,495 37,708 85,348 175,142
---------- ---------- ---------- ----------
1,932,149 1,443,681 6,665,427 4,431,045
INTEREST EXPENSE
Interest on NOW, money market, and savings accounts 524,824 485,188 1,991,177 1,226,900
Interest on time deposits 316,896 166,267 971,136 497,638
Interest on borrowings 45,888 39,520 163,340 5,600
---------- ---------- ---------- ----------
887,608 690,975 3,125,653 1,730,138
---------- ---------- ---------- ----------
Net interest income before provision
for loan losses 1,044,541 752,706 3,539,774 2,700,907
PROVISION FOR LOAN LOSSES 69,787 60,000 273,000 230,000
---------- ---------- ---------- ----------
Net interest income after provision
for loan losses 974,754 692,706 3,266,774 2,470,907
---------- ---------- ---------- ----------
NONINTEREST INCOME
Service fees 43,334 34,838 152,252 149,897
Other fee and noninterest income 46,790 30,943 100,674 48,816
---------- ---------- ---------- ----------
90,124 65,781 252,926 198,713
---------- ---------- ---------- ----------
NONINTEREST EXPENSES
Salaries and employee benefits 281,678 235,237 1,037,302 799,366
Furniture and fixture expenses 53,329 42,397 189,307 151,182
Insurance and assessments 39,184 61,961 92,583 136,306
Professional fees 67,294 26,186 104,563 88,100
Occupancy 58,992 27,705 235,283 83,779
Data processing 23,187 20,857 86,233 81,012
Advertising and promotional 15,757 6,659 46,321 49,111
Supplies 16,671 15,366 73,718 48,760
Other 73,475 62,099 371,633 274,420
---------- ---------- ---------- ----------
629,567 498,467 2,236,943 1,712,036
---------- ---------- ---------- ----------
</TABLE>
The accompanying notes are an integral
part of these consolidated financial statements.
<PAGE> 89
<TABLE>
<CAPTION>
THREE MONTHS ENDED YEARS ENDED
MARCH 31, DECEMBER 31,
---------------------- ------------------------
1996 1995 1995 1994
-------- -------- ---------- --------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
INCOME BEFORE PROVISION FOR INCOME TAXES $435,311 $260,020 $1,282,757 $957,584
PROVISION FOR INCOME TAXES 134,636 90,000 392,201 293,700
-------- -------- ---------- --------
NET INCOME $300,675 $170,020 $ 890,556 $663,884
======== ======== ========== ========
EARNINGS PER COMMON AND COMMON EQUIVALENT
SHARE $ 2.03 $ 1.20 $ 6.10 $ 4.71
======== ======== ========== ========
</TABLE>
<PAGE> 90
VANCOUVER BANCORP
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK
----------------- --------------------
SHARES AMOUNT SHARES AMOUNT
------ ------ ------ ------
<S> <C> <C> <C> <C>
BALANCE, December 31, 1993 -- $-- 136,082 $136,082
NET UNREALIZED GAIN ON AVAILABLE-
FOR-SALE SECURITIES UPON
ADOPTION OF FAS -- 115 -- -- -- --
PURCHASES OF COMMON STOCK -- -- 965 965
NET INCOME -- -- -- --
ADJUSTMENT RELATING TO
REORGANIZATION -- -- -- --
NET UNREALIZED LOSS ON AVAILABLE-
FOR-SALE SECURITIES -- -- -- --
--- --- ------- --------
BALANCE, December 31, 1994 (Audited) -- -- 137,047 137,047
PURCHASE OF COMMON STOCK
Exercise of options -- -- 1,877 1,877
Purchase of shares by the employee
stock ownership plan -- -- 1,281 1,281
NET INCOME -- -- -- --
CHANGE IN NET UNREALIZED GAIN
(LOSS) ON AVAILABLE-FOR-SALE
SECURITIES -- -- -- --
--- --- ------- --------
BALANCE, December 31, 1995 (Audited) -- -- 140,205 140,205
PURCHASE OF COMMON STOCK
Purchase of shares by the employee
stock ownership plan -- -- 1,256 1,256
NET INCOME -- -- -- --
CHANGE IN NET UNREALIZED GAIN
(LOSS) ON AVAILABLE-FOR-SALE
SECURITIES -- -- -- --
--- --- ------- --------
BALANCE, March 31, 1996 (Unaudited) -- $-- 141,461 $141,461
=== === ======= ========
</TABLE>
The accompanying notes are an integral
part of these consolidated financial statements.
<PAGE> 91
<TABLE>
<CAPTION>
NET UNREALIZED GAIN TOTAL
UNDIVIDED (LOSS) ON AVAILABLE- STOCKHOLDERS'
SURPLUS PROFITS FOR-SALE SECURITIES EQUITY
------- --------- -------------------- -------------
<S> <C> <C> <C>
$ 2,907,917 $ 986,546 $ -- $ 4,030,545
-- -- 20,328 20,328
32,906 -- -- 33,871
-- 663,884 -- 663,884
1,360,925 (1,360,925) -- --
-- -- (96,491) (96,491)
----------- ----------- --------- -----------
4,301,748 289,505 (76,163) 4,652,137
55,384 -- -- 57,261
50,932 -- -- 52,213
-- 890,556 -- 890,556
-- -- 130,389 130,389
----------- ----------- --------- -----------
4,408,064 1,180,061 54,226 5,782,556
81,789 -- -- 83,045
-- 300,675 -- 300,675
-- -- (41,445) (41,445)
----------- ----------- --------- -----------
$ 4,489,853 $ 1,480,736 $ 12,781 $ 6,124,831
=========== =========== ========= ===========
</TABLE>
<PAGE> 92
VANCOUVER BANCORP
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED FOR THE YEARS ENDED
MARCH 31, DECEMBER 31,
-------------------------- ----------------------------
1996 1995 1995 1994
----------- ----------- ------------ ------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
CASH FLOWS RELATED TO OPERATING ACTIVITIES
Net income $ 300,675 $ 170,020 $ 890,556 $ 663,884
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 36,906 26,414 173,200 177,412
Provision for loan losses 69,787 60,000 273,000 230,000
Gain on sale of fixed assets -- -- (775) (8,773)
Realized gain on sale of available-for-sale
securities -- -- (1,959) --
Deferred taxes 19,522 -- (18,250) 9,030
Federal Home Loan Bank stock dividend (8,700) (3,000) (19,700) (16,100)
Increase (decrease) in cash due to changes in
certain assets and liabilities:
Accrued interest receivable (26,203) (45,304) (125,063) (134,032)
Other assets 1,321 6,023 (231,202) (282,110)
Accrued interest payable and other liabilities 15,488 49,664 270,029 83,356
----------- ----------- ------------ ------------
Net cash provided by operating
activities 408,796 263,817 1,209,836 722,667
----------- ----------- ------------ ------------
CASH FLOWS RELATED TO INVESTING ACTIVITIES
Net change in loans made to customers (4,091,492) (6,802,953) (19,169,515) (10,032,854)
Net change in interest bearing deposits (4,814,792) 5,906,519 5,798,741 146,266
Purchase of property and equipment 7,249 (84,347) (465,714) (331,363)
Proceeds from disposition of property and equipment -- -- 164,822 17,788
Purchases of available-for-sale securities (600,000) -- (705,125) (1,728,558)
Proceeds from maturity and principal reduction of
available-for-sale securities -- 61,374 466,856 613,189
Proceeds from sale of available-for-sale securities 778,063 -- 562,482 --
Purchases of held-to-maturity investments -- (450,950) (1,202,183) (4,453,516)
Proceeds from maturity and principal reduction of
held-to-maturity investments 173,366 -- 512,548 1,385,238
----------- ----------- ------------ ------------
Net cash used in investing activities (8,547,606) (1,370,357) (14,037,088) (14,383,810)
----------- ----------- ------------ ------------
CASHFLOWS RELATED TO FINANCING ACTIVITIES
Net change in demand deposits, NOW, and money
market accounts 6,432,861 (233,117) 1,652,281 2,474,350
Net change in savings and time certificates -- -- 11,465,992 10,087,854
Exercise of stock options and sale of common stock 83,045 53,494 109,474 33,871
Proceeds from note payable 1,000,000 -- -- 1,500,000
Repayments of note payable -- -- (150,000) --
Sale of repurchase agreements -- -- 600,000 --
Net decrease in federal funds purchased -- 1,362,000 -- --
----------- ----------- ------------ ------------
Net cash provided by financing activities 7,515,906 1,182,377 13,677,747 14,096,075
----------- ----------- ------------ ------------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS (622,904) 75,837 850,495 434,932
CASH AND CASH EQUIVALENTS, beginning of period 3,368,876 2,518,381 2,518,381 2,083,449
----------- ----------- ------------ ------------
CASH AND CASH EQUIVALENTS, end of period $ 2,745,972 $ 2,594,218 $ 3,368,876 $ 2,518,381
=========== =========== ============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION
Interest paid in cash $ 806,945 $ 645,466 $ 2,910,856 $ 1,693,621
=========== =========== ============ ============
Taxes paid in cash $ 224,697 $ 26,066 $ 306,626 $ 279,322
=========== =========== ============ ============
SCHEDULE OF NONCASH ACTIVITIES
Change in unrealized gain (loss) on available-for-sale
securities, net of tax $ (41,445) $ 43,066 $ 130,389 $ (76,163)
=========== =========== ============ ============
Transfer of securities from held-to-maturity to the
available-for-sale category $ -- $ -- $ 1,526,194 $ --
=========== =========== ============ ============
</TABLE>
The accompanying notes are an integral
part of these consolidated financial statements.
<PAGE> 93
VANCOUVER BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1994
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
(a) Organization - In March 1994, Vancouver Bancorp (Bancorp) was
established for the purpose of becoming a holding company of Bank of Vancouver
(the Bank) by acquiring 100% of its outstanding common stock. This
reorganization was accomplished by each share of common stock of Bank of
Vancouver being converted and exchanged for a share of Bancorp's common stock.
All intercompany activity has been eliminated in the preparation of these
consolidated financial statements.
(b) Nature of operations - The Bank is a state chartered institution
authorized to provide banking services by the State of Washington. Bank of
Vancouver began operations on June 27, 1989. The Bank offers commercial banking
services primarily to small and medium-sized businesses, professionals, and
retail customers in Clark County, Washington.
(c) Management's estimates and assumptions - In preparing the
consolidated financial statements, management is required to make estimates and
assumptions that affect the reported amounts of assets and liabilities as of the
date of the balance sheet and revenues and expenses for the period. Significant
estimations made by management primarily involve the calculation of the
allowance for loan losses. Actual results could differ significantly from those
estimates.
(d) Investment securities - Vancouver Bancorp adopted the Financial
Accounting Standards Board's Statement No. 115, "Accounting for Certain
Investments in Debt and Equity Securities," as of January 1, 1994. The
pronouncement requires the Bank to specifically identify its investment
securities as "held-to-maturity," "available-for-sale," or "trading accounts."
Accordingly, management has determined that all investment securities held at
December 31, 1995 and 1994, as either "held-to-maturity" or "available-for-sale"
and conform to the following accounting policies:
Securities held-to-maturity - Bonds, notes, and debentures for
which the Bank has the intent and ability to hold to maturity are reported at
cost, adjusted for premiums and discounts that are recognized in interest income
using the interest method over the period to maturity.
<PAGE> 94
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES - (Continued)
Securities available-for-sale - Available-for-sale securities
consist of bonds, notes, debentures, and certain equity securities not
classified as held-to-maturity securities. Unrealized gains and losses, net of
tax, on available-for-sale securities are reported as a net amount in a separate
component of equity until realized. Fair values for investment securities are
based on quoted market prices. Gains and losses on the sale of
available-for-sale securities are determined using the specific-identification
method.
Declines in the fair value of individual held-to-maturity and
available-for-sale securities below their cost that are other than temporary,
result in write-downs to their fair value. The write-downs would be included in
earnings as realized losses. Premiums and discounts are recognized in interest
income using the effective interest method over the period to maturity.
(e) Loans net of allowance for loan losses and unearned income - Loans
are stated at the amount of unpaid principal, reduced by an allowance for
estimated losses on loans and unearned income. Interest on loans is calculated
by using the simple-interest method on daily balances of the principal amount
outstanding. The allowance for loan losses is established through a provision
for loan losses charged to expenses. Loans are charged against the allowance for
loan losses when management believes that the collectibility of the principal is
unlikely. The allowance is an amount that management believes is adequate to
absorb possible losses on existing loans that may become uncollectible, based on
evaluations of the collectibility of loans and prior loan loss experience. The
evaluations take into consideration such factors as changes in the nature and
volume of the loan portfolio, overall portfolio quality, review of specific
problem loans, and current economic conditions that may affect the borrower's
ability to pay. Accrual of interest is discontinued on a loan when management
believes, after considering economic and business conditions, collection efforts
and collateral position, that the borrower's financial condition is such that
collection of interest is doubtful. Loan origination fees and certain direct
origination costs are capitalized and recognized by the effective interest
method as an adjustment to the yield of the related loan.
The Bank adopted the Financial Accounting Standards Board's
Statements No. 114 "Accounting by Creditors for Impairment of a Loan" and No.
118 "Accounting by Creditors for Impairment of a Loan - Income Recognition and
Disclosures" as of January 1, 1995. These pronouncements require that impaired
loans be measured based on the present value of expected future cash flows
discounted at
<PAGE> 95
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES - (Continued)
the loan's effective interest rate or at the loan's market price or the fair
value of the collateral if the loan is collateral dependent. A loan is impaired
when, based on current information and events, management believes that a
borrower will be unable to pay all amounts due according to contractual terms of
a related loan agreement. Large groups of smaller-balance homogeneous loans,
which include installment and credit card accounts, are collectively evaluated
for impairment by management. All loans for which the accrual of interest has
been discontinued are considered by management to be impaired loans. The
adoption of these statements did not have a material effect on the consolidated
financial statements.
(f) Property and equipment - Property and equipment are stated at cost,
less accumulated depreciation, computed principally by the straight-line method
over the estimated useful lives of the assets which range from three to five
years for furniture and equipment and 31-1/2 years for building premises.
(g) Income taxes - Deferred tax assets and liabilities are reflected at
currently enacted income tax rates applicable to the period in which the
deferred tax assets or liabilities are expected to be realized or settled. As
changes in tax laws or rates are enacted, deferred tax assets and liabilities
are adjusted through the provision for income taxes.
(h) Net income per share - Earnings per share were computed by dividing
net income by the weighted average number of shares of common stock and common
stock equivalents outstanding for the years ending December 31, 1995 and 1994.
Common stock equivalents include the number of shares that would have been
purchased with the proceeds from the exercise of the options based on the
average price of common stock during the year.
(i) Off-balance-sheet financial instruments - In the ordinary course of
business, the Bank has entered into off-balance-sheet financial instruments
consisting of commitments to extend credit as well as commercial letters of
credit and standby letters of credit. Such financial instruments are recorded in
the financial statements when they are funded or related fees are incurred or
received.
The Financial Accounting Standards Board issued Statement No. 119
"Disclosures about Derivative Financial Instruments and Fair Value of Financial
Instruments" which became effective for the Bank for the year ending December
31, 1995. This pronouncement requires that banks holding derivative financial
instruments, disclose quantitative and qualitative information about the
instruments. As of December 31, 1995, and for the year then ended, the Bank held
no derivative financial instruments.
<PAGE> 96
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES - (Continued)
(j) Fair value of financial instruments - The following methods and
assumptions were used by the Bank in estimating fair values of financial
instruments as disclosed herein:
Cash and cash equivalents - The carrying amounts of cash and
short-term instruments approximate their fair value.
Held-to-maturity and available-for-sale securities - Fair values
for investment securities, excluding restricted equity securities, are based on
quoted market prices. The carrying values of restricted equity securities
approximate fair values.
Loans receivable - For variable-rate loans that reprice frequently
and have no significant change in credit risk, fair values are based on carrying
values. Fair values for certain mortgage loans (for example, one-to-four family
residential), credit card loans, and other consumer loans are based on quoted
market prices of similar loans sold in conjunction with securitization
transactions, adjusted for differences in loan characteristics. Fair values for
commercial real estate and commercial loans are estimated using discounted cash
flow analyses, using interest rates currently being offered for loans with
similar terms to borrowers of similar credit quality. Fair values for impaired
loans are estimated using discounted cash flow analyses or underlying collateral
values, where applicable.
Deposit liabilities - The fair values disclosed for demand deposits
are, by definition, equal to the amount payable on demand at the reporting date
(that is, their carrying amounts). The carrying amounts of variable-rate,
fixed-term money market accounts and certificates of deposit (CDs) approximate
their fair values at the reporting date. Fair values for fixed-rate CDs are
estimated using a discounted cash flow calculation that applies interest rates
currently being offered on certificates to a schedule of aggregated expected
monthly maturities on time deposits.
Short-term borrowings - The carrying amounts of federal funds
purchased, borrowings under repurchase agreements, and other short-term
borrowings maturing within 90 days approximate their fair values. Fair values of
other short-term borrowings are estimated using discounted cash flow analyses
based on the Bank's current borrowing rates for similar types of borrowing
arrangements.
Long-term debt - The fair values of the Bank's long-term debt are
estimated using discounted cash flow analyses based on the Bank's current
borrowing rates for similar types of borrowing arrangements.
<PAGE> 97
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES - (Continued)
Accrued interest - The carrying amounts of accrued interest
approximate their fair values.
Off-balance-sheet instruments - The Bank's off-balance-sheet
instruments include unfunded commitments to extend credit and standby letters of
credit. The Bank does not participate in loan sale transactions and, therefore,
has no experience nor expertise in determining the value of unfunded
commitments. Furthermore, management is unaware of any source that could provide
the Bank with relevant data regarding the fair value of similar
off-balance-sheet financial instruments within the market area. Therefore, the
fair value of these instruments is not considered practicable to estimate
because of the lack of quoted market prices and the inability to estimate fair
value without incurring excessive costs. Management believes the fair value of
off-balance-sheet instruments is immaterial to the consolidated financial
statements taken as a whole.
(k) Statement of cash flows - Cash equivalents are generally short-term
investments with a maturity of three months or less. Cash and cash equivalents
normally include cash on hand and amounts due from banks.
(l) Reclassifications - Certain reclassifications have been made to the
1994 financial statements to conform with current year presentations.
(m) Unaudited interim financial data - The interim financial statements
have been prepared in accordance with generally accepted accounting principles
for interim financial information. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, the interim
consolidated financial statements include all normal recurring adjustments and
accruals necessary for fair presentation of financial position and results
of operations for the interim periods included herein. The
results of operations for the three months ended March 31, 1996, are not
necessarily indicative of results to be anticipated for the year ending December
31, 1996.
<PAGE> 98
NOTE 2 - INVESTMENT SECURITIES
The amortized cost and estimated market values of investments in
debt securities are as follows:
<TABLE>
<CAPTION>
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
---------- --------- ----------- ----------
<S> <C> <C> <C> <C>
December 31, 1995
Available-for-sale securities:
U.S. Treasury securities and obliga-
tions of U.S. government corpora-
tions and agencies $2,036,370 $ 45,434 $ (159) $2,081,645
State and municipal securities 397,470 7,463 -- 404,933
Mortgage-backed securities and
collateralized mortgage obligations 2,209,965 50,905 (21,519) 2,239,351
---------- --------- ----------- ----------
$4,643,805 $ 103,802 $ (21,678) $4,725,929
========== ========= =========== ==========
Held-to-maturity securities:
U.S. Treasury securities and obliga-
tions of U.S. government corpora-
tions and agencies $ 408,351 $ 33,971 $ -- $ 442,322
State and municipal securities 2,591,733 44,187 (20,807) 2,615,113
Mortgage-backed securities and
collateralized mortgage obligations 4,782,954 19,428 (61,292) 4,741,090
---------- --------- ----------- ----------
$7,783,038 $ 97,586 $ (82,099) $7,798,525
========== ========= =========== ==========
<CAPTION>
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
---------- --------- ----------- ----------
<S> <C> <C> <C> <C>
December 31, 1994
Available-for-sale securities:
State and municipal securities $ 203,720 $ -- $ (15,471) $ 188,249
Mortgage-backed securities and
collateralized mortgage obligations 3,207,673 5,942 (105,906) 3,107,709
---------- --------- ----------- ----------
$3,411,393 $ 5,942 $ (121,377) $3,295,958
========== ========= =========== ==========
Held-to-maturity securities:
U.S. Treasury securities and obliga-
tions of U.S. government corpora-
tions and agencies $1,964,375 $ -- $ (86,527) $1,877,848
State and municipal securities 2,057,532 -- (175,304) 1,882,228
Mortgage-backed securities and
collateralized mortgage obligations 4,835,743 1,102 (324,423) 4,512,422
---------- --------- ----------- ----------
$8,857,650 $ 1,102 $ (586,254) $8,272,498
========== ========= =========== ==========
</TABLE>
<PAGE> 99
NOTE 2 - INVESTMENT SECURITIES - (Continued)
The amortized cost and estimated market value of debt securities at
December 31, 1995, by contractual maturity, are shown below. Expected maturities
will differ from contractual maturities because borrowers have the right to call
or prepay obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
AVAILABLE-FOR-SALE HELD-TO-MATURITY
SECURITIES SECURITIES
----------------------- -----------------------
ESTIMATED ESTIMATED
AMORTIZED MARKET AMORTIZED MARKET
COST VALUE COST VALUE
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Due in one year or less $ 508,519 $ 508,360 $ -- $ --
Due after one year through five
years 1,527,851 1,573,285 1,489,855 1,524,103
Due after five years through ten
years 397,470 404,933 1,235,470 1,225,281
Due after ten years -- -- 274,759 308,051
Mortgage-backed securities and
collateralized mortgage obliga-
tions 2,209,965 2,239,351 4,782,954 4,741,090
---------- ---------- ---------- ----------
$4,643,805 $4,725,929 $7,783,038 $7,798,525
========== ========== ========== ==========
</TABLE>
During 1995, pursuant to implementation guidance on accounting for
certain investments in debt and equity securities issued in a Special Report by
the Financial Accounting Standards Board, the Bank reassessed the
appropriateness of its classifications for investment securities. Accordingly,
securities with an amortized cost of $1,526,194 were transferred from the
held-to-maturity category to the available-for-sale category. This resulted in
the recognition of an unrealized gain on available-for-sale securities, net of
tax, of approximately $34,300 at the time of transfer.
As of December 31, 1995 and 1994, investment securities with a book
value of $1,832,443 and $1,450,802, respectively, have been pledged to secure
public deposits and for other purposes required or permitted by law.
<PAGE> 100
NOTE 3 - LOANS
The composition of loan balances are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------
1995 1994
------------ ------------
<S> <C> <C>
Commercial $ 10,081,130 $ 8,965,980
Commercial - real estate 20,536,874 15,225,084
Real estate - construction 19,293,548 9,253,365
Real estate - mortgage 9,893,050 7,317,732
Installment 723,559 674,605
Personal lines of credit, credit
cards, and overdraft accounts 882,355 690,261
------------ ------------
61,410,516 42,127,027
Allowance for loan losses (848,207) (551,097)
Unearned loan fees (434,407) (344,543)
------------ ------------
$ 60,127,902 $ 41,231,387
============ ============
</TABLE>
Impaired loans of $268,129 at December 31, 1995, have been
recognized in conformity with FASB Statement No. 114 as amended by FASB
Statement No. 118. The investment in impaired loans at December 31, 1995, was
$218,684. The total allowance for loan losses related to these loans was $49,445
on December 31, 1995. Interest income on impaired loans of $20,285 was
recognized for cash payments received in 1995. Had the impaired loans performed
according to their original terms, additional interest income of $18,657 would
have been recognized during 1995.
NOTE 4 - ALLOWANCE FOR LOAN LOSSES
Changes in the allowance for loan losses were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1995 1994
--------- ---------
<S> <C> <C>
Balance at beginning of period $ 551,097 $ 420,421
Provision for loan losses 273,000 230,000
Loans charged off (4,783) (100,597)
Recoveries 28,893 1,273
--------- ---------
$ 848,207 $ 551,097
========= =========
</TABLE>
<PAGE> 101
NOTE 5 - PROPERTY AND EQUIPMENT
The major classifications of property and equipment are summarized
as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------
1995 1994
----------- -----------
<S> <C> <C>
Land $ -- $ 75,900
Building and improvements 662,875 649,600
Furniture and equipment 697,058 464,250
Computer software 136,752 112,114
Bank-owned vehicles 70,488 61,691
----------- -----------
1,567,173 1,363,555
Less accumulated depreciation (645,391) (521,731)
----------- -----------
$ 921,782 $ 841,824
=========== ===========
</TABLE>
NOTE 6 - TIME DEPOSITS
The maturity range for time certificates of deposit of $100,000 or
more and all other time deposits as of December 31, 1995, is as follows:
<TABLE>
<CAPTION>
TIME
CERTIFICATES ALL OTHER
OF $100,000 TIME
OR MORE DEPOSITS
----------- -----------
<S> <C> <C>
Due in three months or less $ 2,672,827 $ 1,469,903
Due after three months through one year 1,243,018 6,679,176
Due after one year through five years 423,392 3,553,315
Due after five years 352,139 2,137,986
----------- -----------
$ 4,691,376 $13,840,380
=========== ===========
</TABLE>
NOTE 7 - REPURCHASE AGREEMENTS
As of December 31, 1995, the Bank had sold $600,000 of U.S.
government securities under agreements to repurchase. The repurchase agreements
provide for interest from 4.90% to 5.50%; the securities sold yield interest
from 5.25% to 7.25%. Securities sold and the corresponding liabilities were as
follows:
<TABLE>
<CAPTION>
MATURITY CARRYING MARKET REPURCHASE
SECURITIES SOLD TERM VALUE VALUE LIABILITY
- --------------------- ---------------- -------- -------- ----------
<S> <C> <C> <C> <C>
U.S. Treasury notes Up to six months $704,963 $707,798 $600,000
======== ======== ========
</TABLE>
<PAGE> 102
NOTE 8 - INCOME TAXES
The provision for income taxes consisted of the following:
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
-------------------------
1995 1994
--------- --------
<S> <C> <C>
Currently payable federal taxes $ 410,451 $284,670
Deferred tax (benefit) liability (18,250) 9,030
--------- --------
Provision for income taxes $ 392,201 $293,700
========= ========
</TABLE>
Deferred income taxes represent the tax effect of differences in
timing between financial income and taxable income. Deferred income taxes,
according to the timing differences which caused them, were as follows:
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
-----------------------
1995 1994
-------- --------
<S> <C> <C>
Excess loan loss provision not
deductible for tax purposes $ 81,900 $ 51,850
Deferred loan fees recognized for tax
reporting (49,595) (34,000)
Amortization of organization costs (1,040) (8,400)
Difference between book and tax
depreciation methods 1,347 (2,000)
Difference between accrual and cash
basis for tax reporting (11,394) (22,050)
Other (2,968) 5,570
-------- --------
Deferred tax benefit (liability) $ 18,250 $ (9,030)
======== ========
</TABLE>
<PAGE> 103
NOTE 8 - INCOME TAXES- (CONTINUED)
The net deferred tax asset at December 31, 1995 and 1994, includes the
following components:
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
-------------------------
1995 1994
--------- --------
<S> <C> <C>
Deferred income tax assets: $ 38,587 $ 91,796
Deferred loan fees 246,561 152,866
Reserve for loan losses
Net book value of property and 31,962 4,574
equipment less than tax basis $ 317,110 $249,236
--------- --------
Deferred income tax liabilities: (87,211) (74,298)
Accrual of cash adjustment (36,711) --
--------- --------
Other (123,922) (74,298)
--------- --------
Net deferred tax asset $ 193,188 $174,938
========= ========
</TABLE>
Management believes, based upon the Bank's historical performance, net
deferred tax assets will be realized in the normal course of operations and,
accordingly, management has not reduced net deferred tax assets by a valuation
allowance.
The provision for federal income tax differs from the statutory rate of
34%. The nature of the differences are as follows:
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
----------------------
1995 1994
-------- --------
<S> <C>
Expected federal tax at statutory rate $436,138 $325,578
Effect of nontaxable interest income, net (42,953) (31,983)
Effect of nondeductible life insurance
premiums paid on key employees 5,823 6,258
Other ,net (6,807) (6,153)
-------- --------
$392,206 $293,700
======== ========
</TABLE>
<PAGE> 104
NOTE 9 - FAIR VALUES OF FINANCIAL INSTRUMENTS
The following table shows the estimated fair value and the related
carrying values of the Bank's financial instruments at December 31, 1995:
<TABLE>
<CAPTION>
CARRYING ESTIMATED
AMOUNT FAIR VALUE
----------- -----------
<S> <C>
Cash and due from financial
institutions $ 3,368,876 $ 3,368,876
Interest earning deposits due from
depositing institutions $ 109,233 $ 109,233
Securities available-for-sale $ 4,643,805 $ 4,725,929
Securities held-to-maturity $ 7,783,038 $ 7,798,526
Loans, net of allowance for loan
losses $60,127,902 $60,286,954
Accrued interest receivable $ 468,962 $ 468,962
Demand deposits $11,083,838 $11,083,838
NOW and money market accounts $ 8,779,317 $ 8,779,317
Savings and time certificate accounts $46,118,578 $46,287,838
Time certificate accounts of $100,000
or more $ 4,691,376 $ 4,747,424
Accrued interest payable $ 186,323 $ 186,323
Repurchase agreements $ 600,000 $ 600,000
Note payable $ 1,350,000 $ 1,350,000
</TABLE>
While these estimates of fair value are based on management's judgment
of the most appropriate factors, there is no assurance that were the Bank or
Bancorp to have disposed of such items at December 31, 1995, the estimated fair
values would necessarily have been achieved at that date, since market values
may differ depending on various circumstances. The estimated fair values at
December 31, 1995, should not necessarily be considered to apply at subsequent
dates.
In addition, other assets and liabilities of the Bank and Bancorp that
are not defined as financial instruments are not included in the above
disclosures, such as property and equipment. Also, nonfinancial instruments
typically not recognized in the financial statements nevertheless may have value
but are not included in the above disclosures. These include among other items,
the estimated earnings power of core deposit accounts, the earnings potential of
loan servicing rights, customer goodwill, and similar items.
<PAGE> 105
NOTE 10 - TRANSACTIONS WITH RELATED PARTIES
Certain directors, executive officers, and principal stockholders
are customers of and have had banking transactions with the Bank, and the Bank
expects to have such transactions in the future. All loans and commitments
included in such transactions were made in compliance with applicable laws on
substantially the same terms (including interest rates and collateral) as those
prevailing at the time for comparable transactions with other persons and do not
involve more than the normal risk of collectibility or present any other
unfavorable features. The amount of loans outstanding to directors, executive
officers, principal stockholders, and companies with which they are associated
was as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1995 1994
--------- --------
<S> <C> <C>
Beginning balance $ 798,879 $333,885
Loans made 250,000 502,027
Loans paid (403,729) (37,418)
Net change in Visa borrowing (1,065) 385
--------- --------
$ 644,085 $798,879
========= ========
</TABLE>
NOTE 11 - FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
In the normal course of business to meet the financing needs of its
customers, the Bank is a party to financial instruments with off-balance-sheet
risk. These financial instruments include commitments to extend credit and the
issuance of letters of credit. These instruments involve, to varying degrees,
elements of credit and interest rate risk in excess of the amount recognized in
the statement of financial position. The contract amounts of those instruments
reflect the extent of involvement the Bank has in particular classes of
financial instruments.
The Bank's exposure to credit loss in the event of nonperformance by
the other party to the financial instrument for commitments to extend credit and
letters of credit written is represented by the contractual amount of those
instruments. The Bank
<PAGE> 106
NOTE 11 - FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK - (CONTINUED)
uses the same credit policies in making commitments and conditional obligations
as it does for on-balance-sheet instruments. Approximately 75% of the Bank's
outstanding commitments to extend credit are written with variable interest
rates. Unless noted otherwise, the Bank does not require collateral or other
security to support financial instruments with credit risk.
<TABLE>
<CAPTION>
CONTRACTUAL AMOUNT
AS OF DECEMBER 31,
--------------------------------
1995 1994
----------- ----------
<S> <C> <C>
Financial instruments whose contract amounts
represent credit risk:
Commitments to extend credit:
Commercial real estate and construction
loan commitments $ 7,003,846 $2,879,374
Revolving lines secured by residential
properties 237,447 180,552
Credit card lines of credit 922,573 836,540
Other unused commitments 3,049,428 2,562,748
Letters of credit 209,306 191,100
----------- ----------
$11,422,600 $6,650,314
=========== ==========
</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. Since many of the commitments are expected to
expire without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. The amount of collateral obtained, if deemed
necessary by the Bank upon extension of credit, is based on management's credit
evaluation of the counterparty. Collateral held varies but may include accounts
receivable, inventory, property, plant and equipment, and income-producing
properties.
Letters of credit are conditional commitments issued by the Bank to
guarantee the performance of a customer to a third-party. Those guarantees are
primarily issued to support public and private borrowing arrangements, including
commercial paper, bond financing, and similar transactions. The credit risk
involved in issuing letters of credit is essentially the same as that involved
in extending loan facilities to customers.
<PAGE> 107
NOTE 12 - CONCENTRATIONS OF CREDIT RISK
All of the Bank's loans, commitments, commercial letters of credit,
and standby letters of credit have been granted to customers in the Bank's
market area. The majority of such customers are also depositors of the Bank.
Investments in state and municipal securities involve governmental entities
within the Bank's geographical region. The concentrations of credit by type of
loan are set forth in Note 3. The distribution of commitments to extend credit
approximates the distribution of loans outstanding. Commercial and standby
letters of credit were granted primarily to commercial borrowers as of December
31, 1995. The Bank's loan policy does not allow the extension of credit to any
single borrower or group of related borrowers in excess of $300,000 without
approval from the Board of Director's loan committee.
NOTE 13 - COMMITMENTS AND CONTINGENCIES
(a) Operating lease commitments - The approximate annual commitment for
rentals under noncancellable operating leases is summarized as follows:
<TABLE>
<CAPTION>
LEASE SUB-LEASE NET
YEARS ENDING DECEMBER 31, COMMITMENT INCOME COMMITMENT
------------------------- ---------- --------- ----------
<S> <C> <C> <C>
1996 $169,515 $ 75,000 $ 94,515
1997 147,924 78,125 69,799
1998 147,924 81,250 66,674
1999 147,924 87,500 60,424
Thereafter 228,024 87,500 140,524
-------- -------- --------
$841,311 $409,375 $431,936
======== ======== ========
</TABLE>
Rental expense for all operating leases was $106,109 and $10,250 for
the periods ended December 31, 1995 and 1994, respectively.
(b) Legal contingencies - In the ordinary course of business, the Bank
may become involved in litigation arising from normal bank activities. In the
opinion of management and legal counsel, the ultimate disposition of these
actions will not have a material adverse effect on the Bank's financial position
or results of operations.
<PAGE> 108
NOTE 14 - CREDIT ARRANGEMENTS AND NOTE PAYABLE
The Bank is a member of the Federal Home Loan Bank (FHLB) of
Seattle. As a member, the Bank has a committed line of credit up to 10% of total
assets. During 1994, the collateral arrangement was changed from physical
possession to a blanket pledge agreement. Borrowings generally provide for
interest at the then current published rates. The Bank had no borrowings
outstanding from the FHLB at December 31, 1995 or 1994.
In December 1994, the Bancorp obtained a $1,500,000 note from
Security State Bank. The note bears interest at prime (8.5% at December 31,
1994) and the final principal payment is due on December 15, 1999. Interest is
paid quarterly, beginning on March 15, 1995, and principal is paid semi-annually
beginning on June 15, 1995. The loan is secured by Bank of Vancouver stock.
The scheduled repayment of long-term debt is as follows:
<TABLE>
<CAPTION>
YEARS ENDING DECEMBER 31, AMOUNT
------------------------- ----------
<S> <C>
1996 $ 225,000
1997 375,000
1998 375,000
1999 375,000
----------
$1,350,000
==========
</TABLE>
NOTE 15 - STOCK OPTION PLANS
The Board of Directors and Stockholders adopted an Employee Stock
Option Plan (the "Plan") in June 1989 for the benefit of the Bank's and
Bancorp's key employees. Under the Plan, which offers both incentive and
nonqualified stock options, the maximum number of shares which may be optioned
and sold is 18,552 shares of Bancorp's outstanding common stock, subject to
adjustment for changes in the Bank's capitalization. Options granted under the
Plan are exercisable at any time by the grantee up to the 10th anniversary of
the date of the grant. The option price for the shares of common stock to be
issued under the Plan is established by the Board of Directors or its committee,
but, in the case of incentive stock options, will be no less than the fair
market value of the stock on the date of grant.
<PAGE> 109
NOTE 15 - STOCK OPTION PLANS - (CONTINUED)
In October 1989, the Bank entered into incentive and nonqualified
stock option agreements with its President, pursuant to the Plan. Under the
incentive stock option agreement, the President was given options to purchase
4,000 shares of the Bank's common stock at $25 per share for a 10-year period
from the date of grant. Under the nonqualified stock option agreement, the
President was given options to purchase up to 5,914 shares of common stock for
$22 per share also for a 10-year period. As of December 31, 1995, the President
had exercised no options to acquire Bank or Bancorp stock.
In December 1992, an Incentive Stock Option and Nonstatutory Stock
Option Plan was approved and adopted. This Plan provides nonstatutory stock
options for both directors and employees as well as incentive stock options for
employees of Bancorp. The maximum number of shares optioned and sold under this
Plan is 30,000, subject to adjustment for changes in Bancorp's capitalization.
Options granted under the Plan will be evidenced by Stock Option Agreements
stipulating terms and conditions under which the options have been granted. All
options under the Plan are exercisable by the grantees up to the 10th
anniversary of the date of grant. However, incentive stock options do not become
exercisable for a period of one year after the date of grant. In no event will
the shares granted under either the nonstatutory or incentive options, be
exercisable at prices less than 100% of the fair market value of the stock at
the time of grant.
In February 1993, the President and certain officers were granted
incentive stock options to acquire 5,342 shares of common stock at a price of
$30.51 per share. Simultaneously, nonstatutory stock options for 11,262 shares
of common stock at $30.51 per share were granted to directors of the Bank. In
December 1993, other officers were granted incentive options to acquire 3,128
shares of common stock at a price of $35.10. In June 1995, nonstatutory options
to acquire 1,877 shares of common stock at a price of $40.76 were granted to a
Director.
In 1995, nonstatutory stock options for 1,877 shares were exercised
by a Bank director and resulted in the recognition of $57,261 of additional
capital.
<PAGE> 110
NOTE 15 - STOCK OPTION PLANS - (CONTINUED)
The following table summarizes options granted and exercisable as of
December 31, 1995:
<TABLE>
<CAPTION>
NUMBER AMOUNT
OF SHARES PRICE EXERCISABLE
--------- ----- -----------
<S> <C> <C> <C>
Incentive stock options:
October 1989 4,000 $25.00 $100,000
February 1993 5,342 $30.51 162,984
December 1993 3,128 $35.10 109,793
Nonqualified/nonstatutory
stock options:
October 1989 5,914 $22.00 130,108
February 1993 11,262 $30.51 343,604
June 1995 1,877 $40.76 76,506
--------
$922,995
========
</TABLE>
NOTE 16 - EMPLOYEE BENEFIT PLANS
Effective January 1, 1992, the Bank adopted a Salary Savings Plan
which allowed employees to defer certain amounts of compensation for income tax
purposes under Section 401(k) of the Internal Revenue Code. The Plan was amended
and incorporated into an Employee Stock Ownership Plan (KSOP) on November 18,
1992. The KSOP is a deferred compensation plan in which Bank contributions are
used to provide participating employees with stock in the Bank and in which
employee contributions are made on a before-tax basis pursuant to provisions
under Internal Revenue Code Section 401(k). Essentially all full-time employees
over the age of 21 and meeting length of service requirements are eligible to
participate in the Plan.
Employees may elect to contribute and defer, within statutory
limits, up to 15% of their annual compensation into the Plan. Their
contributions and those of the Bank will be invested by Plan Trustees into
either an equity or general investment fund. The equity fund will focus on the
acquisition of the Bancorp's common stock. The general investment fund will be a
diversified portfolio.
Employer contributions to the Plan are all discretionary and consist
of basic, optional, and matching allocations. Employee contributions are fully
vested at all times. Basic and optional contributions are primarily invested in
Bancorp stock and fully vested when participating employees have six or more
years of service. Matching contributions relate to employee salary reduction
elections and contributions to the
<PAGE> 111
NOTE 16 - EMPLOYEE BENEFIT PLANS - (CONTINUED)
Plan. Matching contributions also vest when participating employees have six or
more years of service. For the years ended December 31, 1995 and 1994, the Bank
contributed cash of $36,502 and $24,571, respectively, into the KSOP.
During 1992, the Bank also adopted and implemented an Executive
Supplemental Income (ESI) Plan. The Plan was established to provide retirement
benefits for officers key to the Bank's growth and profitability. The Plan,
which covers certain executive officers, is being indirectly funded through the
purchase of corporate owned life insurance. The accumulated asset value of
acquired insurance policies will serve to pay future retirement benefits of
covered executives. However, these future retirement benefits are earned through
the working lifetime of covered executives and, once fully vested, are only
equal to the excess of the cash value of the corporate life insurance policy
over premiums paid by the Bank. As of December 31, 1995, the cash value of the
policies approximated the total premiums paid and, therefore, no employee
benefit obligation has been accrued.
As of December 31, 1995 and 1994, the cash surrender value of the
corporate owned life insurance policies was $616,192 and $448,740, respectively.
NOTE 17 - OTHER OPERATING EXPENSES
Other operating expenses consist of the following:
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
----------------------
1995 1994
-------- --------
<S> <C> <C>
Taxes and fees $ 97,593 $ 62,811
Directors' fees 72,402 55,375
Correspondent bank service charges 32,451 32,443
Postage 27,343 21,641
Armored car and courier 14,130 17,172
Dues, membership, and subscriptions 17,997 15,819
Conventions and meetings 9,417 14,009
Telephone 16,099 10,459
Contributions 12,690 9,890
Education and staff development 11,940 9,114
Other miscellaneous expenses 59,571 25,687
-------- --------
$371,633 $274,420
======== ========
</TABLE>
<PAGE> 112
NOTE 18 - REGULATORY MATTERS
The Bank is required to maintain minimum amounts of capital to total
"risk weighted" assets, as defined by banking regulators. At December 31, 1995,
the Bank is required to have minimum Tier 1 and total capital ratios of 4.00%
and 8.00%, respectively. The Bank's actual ratios at that date were 11.45% and
12.70%, respectively.
NOTE 19 - SUBSEQUENT EVENT
On February 15, 1996, Bancorp entered into a definitive agreement to
merge with West Coast Bancorp (WCB). The agreement provides that, upon
consummation of the merger, stockholders of Bancorp will receive WCB stock worth
$11.6 million. Based upon the terms of the merger agreement, the exchange ratio
is subject to the average price of WCB stock over a ten-day period prior to the
closing of the merger. While it is anticipated that the merger will be completed
in mid-1996, the acquisition is subject to certain conditions, including the
approval of Bancorp's shareholders. If completed, it is expected the merger will
be accounted for using the pooling of interests method. Transactions accounted
for as a pooling of interests reflect the assets, liabilities, stockholders'
equities, and results of operations of the separate entities as though the
entities had been combined as of the earliest date reported.
<PAGE> 113
GLOSSARY OF KEY TERMS
BHCA................................. Bank Holding Company Act of 1956, as
amended.
BANK................................. Bank of Vancouver.
CFA.................................. Columbia Financial Advisors, Inc., VB's
financial advisors.
CLOSING.............................. Closing of the Merger contemplated in
the Merger Agreement.
CODE................................. Internal Revenue Code of 1986, as
amended.
DISSENTING SHARES.................... Those shares of VB Common Stock as to
which shareholders have perfected their
dissenters' rights pursuant to RCW
23B.13.
EFFECTIVE DATE....................... The date Closing of the Merger will
occur.
EXCHANGE ACT......................... Securities Exchange Act of 1934, as
amended, and related rules and
regulations.
EXCHANGE AGENT....................... Individual designated by WCB and VB to
handle the exchange of VB Common Stock
for WCB Common Stock or cash (in the
case of holders that would otherwise be
entitled to a fractional share of WCB
Common Stock).
FDIC................................. Federal Deposit Insurance Corporation.
FRB.................................. Board of Governors of the Federal
Reserve System.
GAAP................................. Generally accepted accounting
principles, consistently applied.
HB................................... HB Acquisition Corporation, a Washington
bank holding company and wholly owned
subsidiary of WCB.
MERGER............................... The merger of VB with and into HB in
accordance with the Merger Agreement.
MERGER AGREEMENT..................... The Plan and Agreement of Reorganization
and Merger, dated as of February 15,
1996 among WCB, HB and VB.
OBCA................................. The Oregon Business Corporations Act.
ORS.................................. Oregon Revised Statutes.
OREGON DEPARTMENT.................... The Oregon Department of Consumer and
Business Services.
PRICING PERIOD....................... The ten consecutive trading days ending
on and including the fifth trading day
preceding the Effective Date.
G-1
<PAGE> 114
PROSPECTUS/PROXY STATEMENT........... Prospectus/Proxy Statement which is to
be mailed to VB's shareholders, together
with any amendments and supplemental and
supplementals to such prospectus/proxy
statement.
PURCHASE PRICE....................... The aggregate consideration payable by
WCB to VB's shareholders in connection
with the Merger, with an aggregate value
equal to $11,581,000.
RCW.................................. Revised Code of Washington.
REGISTRATION STATEMENT............... Registration Statement on Form S-4, of
which this Prospectus/Proxy Statement
forms a part, filed by WCB with the SEC
for the purpose of registering shares of
WCB Common Stock to be issued in the
Merger.
REGULATORY APPROVALS................. The required regulatory approvals of the
transaction by the FRB and the
Washington Director.
SEC.................................. Securities and Exchange Commission.
SECURITIES ACT....................... Securities Act of 1933, as amended, and
the rules and regulations promulgated
thereunder.
STOCK OPTION AGREEMENT............... Stock Option Agreement between WCB and
VB, dated as of February 15, 1996.
TERMINATION DATE..................... A date after October 31, 1996 in which
Closing has not occurred.
VB................................... Vancouver Bancorp, a Washington bank
holding company.
VB COMMON STOCK...................... VB's Common Stock, $1.00 par value per
share.
VB FINANCIAL STATEMENTS............. VB's audited consolidated statements of
financial condition as of December 31,
1995 and 1994, and the related audited
statements of income, changes in cash
flows and stockholders' equity for each
of the years ended December 31, 1995 and
1994.
WBCA................................. The Washington Business Corporations
Act.
WCB.................................. West Coast Bancorp, an Oregon bank
holding company.
WCB COMMON STOCK..................... WCB's Common Stock, no par value.
WCB FINANCIAL STATEMENTS............. WCB's audited consolidated statements of
financial condition as of December 31,
1995 and 1994, and the related audited
statements of income, changes in cash
flows and shareholders' equity for each
of the years ended December 31, 1995 and
1994.
WASHINGTON DIRECTOR.................. The Director of the Washington State
Department of Financial Institutions.
G-2
<PAGE> 115
G-3
