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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
[X] Annual Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
For the fiscal year ended December 31, 1996 Commission file number 0-10997
WEST COAST BANCORP
(Exact name of registrant as specified in its charter)
Oregon 93-0810577
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5335 Meadows Road - Suite 201
Lake Oswego, Oregon 97035
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (503)684-0884
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, No Par Value
(Title of Class)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
The approximate aggregate market value of Registrant's Common Stock held by
non-affiliates of the Registrant on February 28, 1997, was $145,023,045.
The number of shares of Registrant's Common Stock outstanding on February 28,
1997, was 6,706,268.
DOCUMENTS INCORPORATED BY REFERENCE
List hereunder the following documents if incorporated by reference and the
Part of the Form 10-K into which the document is incorporated: Portions of the
West Coast Bancorp Definitive Proxy Statement dated March 14, 1997 are
incorporated by reference into Part III of Form 10-K.
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INDEX
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Page
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PART I
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Item 1. BUSINESS.............................................................1
General
Recent Developments............................................1
Affiliates.....................................................3
Employees......................................................4
Competition....................................................4
Governmental Policies..........................................5
Supervision and Regulation.....................................5
Item 2. PROPERTIES..........................................................12
Item 3. LEGAL PROCEEDINGS................................................12
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.................13
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS...............................................13
Item 6. SELECTED FINANCIAL DATA.............................................14
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.....................15
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.........................28
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE...............................51
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT..................51
Item 11. EXECUTIVE COMPENSATION..............................................51
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT........................................................51
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS......................51
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K..........................................................52
SIGNATURES...................................................................53
EXHIBIT INDEX................................................................54
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PART I
ITEM 1. BUSINESS
GENERAL
West Coast Bancorp ("Bancorp" or the "registrant"), an Oregon corporation,
was organized in August 1981 as a bank holding company under the name Commercial
Bancorp. Pursuant to an Agreement and Plan of Reorganization dated November 30,
1981, Bancorp acquired all of the common stock of The Commercial Bank, an Oregon
state-chartered bank, in a transaction effective July 12, 1982.
As discussed in more detail under "Recent Developments," pursuant to an
Agreement and Plan of Merger dated as of October 24, 1994, between former West
Coast Bancorp ("Old WCB") and the registrant, as amended as of December 12, 1994
(the "Merger Agreement"), Old WCB and the registrant were merged on February 28,
1995 (the "Merger"), with the registrant as the surviving corporation. Old WCB
was a one bank holding company headquartered in Newport, Oregon. The combined
company commenced operations on March 1, 1995, under the name West Coast Bancorp
and, with approximately $712 million in total assets at December 31, 1996, is
the second largest bank holding company based in Oregon.
The registrant is headquartered in Lake Oswego, Oregon. Bancorp's principal
business activities are conducted through its four bank subsidiaries, The
Commercial Bank, Valley Commercial Bank, and The Bank of Newport located in
Oregon and Bank of Vancouver located in Washington (collectively, the "Banks"),
each of which is a state-chartered, full-service commercial Bank with deposits
insured by the Federal Deposit Insurance Corporation ("FDIC"). At February 28,
1997, the Banks had facilities in a total of 24 cities and towns in Oregon and
Southwest Washington, operating a total of 29 full-service branches and three
limited service branches. The registrant also operates West Coast Trust Company
(West Coast Trust) which provides agency trust and related service, the market
value of assets managed for others at December 31, 1996 totaled $165 million.
RECENT DEVELOPMENTS
RESULTS
For the year ended December 31, 1996, the operations of the registrant on a
combined basis earned net income of $9.8 million, or $1.47 per share. The
combined equity of the registrant at December 31, 1996, was $67.1 million, with
6.7 million shares outstanding and a book value of $10.02 per share. Net loans
of the combined corporations of $529 million at December 31, 1996, represented
approximately 74 percent of combined total assets. Combined deposits totaled in
excess of $605 million at year-end 1996.
MANAGEMENT REORGANIZATION
Effective February 10, 1997, Victor L. Bartruff, formerly Co-President and
Chief Executive Officer of Bancorp, assumed the role of President and Chief
Executive Officer of Bancorp. Mr. Rodney Tibbatts, formerly Co-President and
Chief Executive Officer has taken the role of Executive Vice President and
Director of Corporate Development and is primarily responsible for investor
relations and corporate development including acquisitions. Each affiliate is
continuing to operate in its respective local communities with substantial
autonomy and local decision making authority under the guidance of community
boards of directors and local management. In addition, Mr. Bartruff relinquished
his position as President and Chief Executive Officer of The Bank of Newport.
Mr. Timothy P. Dowling was hired to fill the position of President of The Bank
of Newport.
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MERGER WITH VANCOUVER BANCORP
On July 1, 1996, Bancorp consummated a Plan and Agreement of Reorganization
and Merger (the "Agreement") with Vancouver Bancorp of Vancouver, Washington.
Under the Agreement, Vancouver Bancorp's subsidiary, Bank of Vancouver, became a
wholly-owned subsidiary of Bancorp. The transaction was accounted for as a
pooling-of-interest under generally accepted accounting principles.
Vancouver Bancorp was a bank holding company, headquartered in Vancouver,
Washington. Its principal business activities were conducted through its only
subsidiary, Bank of Vancouver, a Washington state chartered, full-service
Commercial Bank, whose deposits are insured by the FDIC. At December 31, 1996,
Bank of Vancouver had assets totaling $106.4 million, and equity capital
totaling $8.4 million. Bank of Vancouver earned $1,502,000 and $982,000 for the
years ended December 31, 1996 and 1995, respectively. Bank of Vancouver's
primary service area is Vancouver, Washington, adjacent to the greater Portland,
Oregon metropolitan market. The Bank of Vancouver emphasizes real estate related
loans to small businesses located within its market area.
MERGER WITH FORMER WEST COAST BANCORP
The merger of equals which was consummated between the registrant and former
West Coast Bancorp on February 28, 1995, is expected to further both companies'
objectives of preserving the benefits of a community banking business strategy.
The combined organization offers greater size, breadth of services, and capital
strength than either institution would have possessed on a stand-alone basis.
The combined corporations' complementary market areas, customer bases, and areas
of expertise provide significant opportunities to achieve growth, enhance
revenue, increase the quality of customer services, compete more effectively
with larger institutions, and allow for greater stability through
diversification.
In the Merger, Old WCB shareholders received .60 shares of Common Stock of
the registrant (the "Common Stock") for each share of Old WCB stock owned.
Shareholders of the registrant continue to have one share of Common Stock for
each share owned prior to the Merger. This transaction was accounted for as a
pooling-of-interests under generally accepted accounting principles.
MERGER WITH GREAT WESTERN BANK
In October 1994, Bancorp and The Commercial Bank entered into a merger
agreement with Great Western Bank of Dallas, Oregon. Under the agreement, Great
Western Bank was merged into The Commercial Bank on March 31, 1995 and the
shareholders of Great Western Bank received shares of Bancorp Common Stock in
exchange for their shares. At March 31, 1995, Great Western Bank had total
assets of approximately $8.1 million and shareholders' equity of approximately
$873,000. 133,868 shares of Bancorp Common Stock were issued to the shareholders
of Great Western Bank. Upon consummation of the merger, the single branch of
Great Western Bank became the Dallas, Oregon, branch of The Commercial Bank.
This transaction was accounted for at as a pooling-of-interests under generally
accepted accounting principles.
FUTURE EXPANSION STRATEGY
The acquisitions of Vancouver Bancorp and Great Western Bank are consistent
with Bancorp's strategy of growing the company through the acquisition of
community banks in Oregon and Washington which share Bancorp's supercommunity
banking philosophy. Accordingly, Bancorp will continue to explore future
opportunities to expand its banking network and other closely related businesses
as attractive opportunities may arise from time to time. In furtherance of that
strategy on March 5, 1997 Bancorp entered into an agreement with Wells Fargo and
Company to acquire the approximately $11.3 million in deposits of the Waldport,
Oregon branch. The branch will be merged with the Bank of Newport's existing
Waldport Branch, the transaction is expected to close in mid-1997.
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AFFILIATES
THE BANKS
The Commercial Bank was organized in 1954. The Commercial Bank's main office
is located in Salem, Oregon; it has three additional branches in Salem, three
branches in Keizer, two branches in Newberg and branches in Dallas, King City,
Molalla, Monmouth, Silverton, Sublimity, Tigard, Wilsonville, and Woodburn. At
December 31, 1996, it had deposits totaling $306 million and loans totaling $242
million.
The Bank of Newport, established in 1925 currently conducts business through
nine branches located in the cities of Newport - two branches, Lincoln City,
Waldport, Depoe Bay, and Toledo along the central Oregon coast, as well as
downtown Portland, Oregon, and Lake Oswego and Clackamas Oregon, which is a
suburb of Portland. At December 31, 1996, The Bank of Newport had deposits
totaling $187 million and loans totaling $182 million.
Bank of Vancouver was organized in 1989, Bank of Vancouver's two offices are
located in Vancouver, Washington. At December 31, 1996, it had deposits totaling
$91 million and loans totaling $87 million.
Valley Commercial Bank was organized in 1981 and the main office is located
in Forest Grove, Oregon with additional branches in North Plains and Hillsboro,
Oregon. At December 31, 1996, it had deposits and loans totaling $26 million and
$19 million, respectively.
In February 1997, The Bank of Newport and Valley Commercial Bank filed an
Application to Merge with the FDIC and the Oregon Division of Banks, whereby
Valley Commercial Bank will merge with and into The Bank of Newport, under the
charter of The Bank of Newport and operating under the name of "Valley
Commercial Bank". It is intended that the merger will close as early as March
31, 1997.
The primary business strategy of the affiliates is to provide community
banking and related services to individuals, professionals, and small- and
medium-sized businesses, emphasizing customer relationships, a high level of
service, and attention to customer needs. Small to medium-sized business and
commercial customers are a significant focus of activity. The Banks offer
deposit accounts, safe-deposit boxes, consumer lending, commercial and
residential real estate lending, commercial loans, including operating lines
secured by accounts receivable and inventory, and other traditional bank
products. Their loan portfolios have some concentration in real estate secured
loans, agricultural and light manufacturing related businesses. Deposit products
include regular and special checking accounts, savings accounts, certificates of
deposit, and money market accounts. Consumer credit products include residential
first and second mortgages, automobile loans, credit cards, lines of credit, and
other products. Lending services include short- and intermediate-term loans,
inventory financing, equipment leasing, revolving lines of credit, and other
types of credit. The Banks also offer Master Card and VISA credit card programs
as part of their retail banking services.
Bancorp also operates a commercial real estate loan brokerage office located
in Lake Oswego which originates and brokers commercial real estate loans to
other banks, insurance companies, pension funds, and other sophisticated
investors.
In order to provide convenient banking services to their customers, the Banks
offer extended banking hours in selected branches. Automatic teller machines are
available in 18 branch locations offering 24-hour transaction services,
including cash withdrawals, deposits, account transfers, and balance inquiries.
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WEST COAST TRUST COMPANY
West Coast Trust provides trust services to individuals, partnerships,
corporations, and institutions. West Coast Trust acts as fiduciary of estates
and conservatorships, and as a trustee under various wills, trust, and pension
and profit-sharing plans. The Banks also offer tax-deferred annuities,
single-premium whole life insurance, other insurance investment products, and
securities products. These trust and annuity services are available and offered
through West Coast Bancorp affiliates.
The following are the main office locations of the affiliates:
<TABLE>
<S> <C> <C> <C>
The Commercial Bank 301 Church Street, N.E., Salem, Oregon 97301 (503)399-2900
The Bank of Newport 506 SW Coast Highway, Newport, Oregon 97365 (541) 265-6666
Bank of Vancouver 801 Main Street, Vancouver, Washington 98660 (360) 693-1246
Valley Commercial Bank 4110 Pacific Avenue, Forest Grove, Oregon 97116 (503) 359-4495
West Coast Trust 301 Church Street, Salem, Oregon 97301 (503) 399-2993
</TABLE>
COBAN, INC.
In December 1967, The Commercial Bank incorporated Coban, Inc. (Coban), an
Oregon corporation. Coban was established to hold selected fixed assets of The
Commercial Bank and to provide additional flexibility for real property
transactions. In addition, Coban serves as an intermediary to purchase Common
Stock for the voluntary employee stock purchase plan and the shareholder
dividend reinvestment plan.
BV CORPORATION
In 1996 Bank of Vancouver incorporated BV Corporation, a Washington
Corporation. BV Corporation was established to serve as trustee under deeds of
trust.
EMPLOYEES
At December 31, 1996 Bancorp and its subsidiaries had approximately 467
full-time equivalent employees. None of these employees are represented by labor
unions. A number of benefit programs are available to eligible employees
including group medical plans, paid sick leave, paid vacation, group life
insurance, 401(k) plan, stock option plans and an optional employee stock
purchase plan.
COMPETITION
At September 30, 1996, The Commercial Bank, The Bank of Newport, and Valley
Commercial Bank were the 9th, 10th, and 41st largest, respectively, of the 48
commercial and savings banks in Oregon, and Bank of Vancouver was the 43rd
largest of the commercial and savings banks in Washington. The Banks compete
with other banks, as well as with savings and loan associations, savings banks,
credit unions, mortgage companies, investment banks, insurance companies,
securities brokerages, and other financial institutions. Banking in Oregon and
Washington is dominated by several significant banking institutions which
include the United States National Bank, Wells Fargo Bank, and Washington Mutual
Savings Bank, which together account for a majority of the total commercial and
savings bank deposits in Oregon and Washington. Other significant competitors
include subsidiaries of BankAmerica Corporation, and Key Corp. These competitors
offer a greater number of branch locations (with statewide branch networks in
the case of the two largest competitors), the ability to offer higher lending
limits, and a variety of services not offered by the Banks. Bancorp has
attempted to offset some of the advantages of the larger competitors by
arranging participations with other banks for loans above its subsidiaries'
legal lending limits. Emphasis is placed on local banking featuring quality
service, local responsive decision making, and money reinvested into the
community, and by participating in nationwide services such as VISA, The
Exchange, Instant Teller, and Cirrus networks.
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GOVERNMENTAL POLICIES
The earnings and growth of Bancorp and its banking and other subsidiaries, as
well as their existing and future business activities, are affected not only by
general economic conditions, but also by the fiscal and monetary policies of the
Federal government and its agencies, particularly the Board of Governors of the
Federal Reserve System (the "Federal Reserve Board"). The Federal Reserve Board
implements national monetary policies (intended to curb inflation and combat
recession) by its open-market operations in United States Government securities,
by adjusting the required level of reserves for financial institutions subject
to its reserve requirements, and by varying the discount rates applicable to
borrowings by banks from the Federal Reserve Banks. The actions of the Federal
Reserve Board in these areas influence the growth of bank loans, investments and
deposits, and also affect interest rates charged on loans and deposits. As
banking is a business which depends largely on interest rate differentials (in
general, the difference between the interest rates paid by the Banks on their
deposits and their other borrowings and the interest rates received by the Banks
on loans extended to their customers and on securities held in the Banks'
investment portfolios), the influence of economic conditions and monetary
policies on interest rates will directly affect earnings. The nature and impact
of any future changes in monetary policies cannot be predicted.
SUPERVISION AND REGULATION
GENERAL
The following generally refers to certain statutes and regulations affecting
the banking industry. These references provide brief summaries only and are not
intended to be complete. These references are qualified in their entirety by the
referenced statutes and regulations. In addition, some statutes and regulations
which apply to and regulate the operation of the banking industry might exist
which are not referenced below. Changes in applicable statutes and regulations
may have a material effect on the business of Bancorp and its subsidiaries.
BANCORP
GENERAL
As a bank holding company, Bancorp is subject to the Bank Holding Company Act
of 1956 ("BHCA"), as amended, which places Bancorp under the supervision of the
Board of Governors of the Federal Reserve System ("FRB"). In general, the BHCA
limits the business of bank holding companies to owning or controlling banks and
engaging in other activities related to banking. Certain recent legislation
designed to expand interstate branching and relax federal restrictions on
interstate banking may expand opportunities for bank holding companies (for
additional information see below under the heading "The Banks - Interstate
Banking and Branching"). However, the full impact of this legislation on Bancorp
is unclear at this time.
HOLDING COMPANY STRUCTURE
FRB Regulation. Bancorp 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.
Bancorp is required by the BHCA to file annual and quarterly reports and such
other reports as may be required from time to time by the FRB. In addition, the
FRB performs periodic examinations of Bancorp and its subsidiary Banks.
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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. The economic Growth
and Regulatory Paperwork Reduction Act of 1996 ("Economic Growth Act") amended
the BHCA to eliminate the requirement that bank holding companies seek FRB
approval before engaging de novo in permissible nonbanking activities if the
holding company is well capitalized and meets certain other specified criteria.
A bank holding company meeting the specifications is now required only to notify
the FRB with 10 business days after the activity has begun. The Economic Growth
Act also established an expedited procedure for well-capitalized bank holding
companies meeting the criteria to obtain FRB approval to acquire smaller
companies that engage in permissible non-banking activities as well as to engage
in nonbanking activities that the FRB has approved by order.
On February 28, 1997, the FRB issued a final rule incorporating the changes
enacted by the Economic Growth Act. Effective April 21, 1997, a well-run bank
holding company, without any prior notice or FRB approval, may commence
immediately any activity that is currently or at the time of commencement
included in the FRB's list of acceptable nonbanking activities.
Transactions with Affiliates. Bancorp and the subsidiaries will be deemed
affiliates within the meaning of the Federal Reserve Act and transactions
between affiliates are subject to certain restrictions. Covered transactions
include, subject to specific exceptions, loans by bank subsidiaries to
affiliates, investments by bank subsidiaries in securities issued by an
affiliate, the taking of such securities as collateral, and the purchase of
assets by a bank subsidiary from an affiliate. Bancorp and the subsidiaries are
also subject to certain restrictions with respect to engaging in the
underwriting, public sale and distribution of securities.
Support of 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 subsidiaries. Any capital loans Bancorp makes to any of
the subsidiaries are subordinate to deposits and to certain other indebtedness
of the subsidiaries. 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 and this obligation will be entitled to
a priority of payment.
Tie-In Arrangements. Bancorp and the 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 Bancorp nor the 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. Until recently, the FRB
extended its bank-tying restrictions to bank holding companies and their
non-bank subsidiaries. However, effective April 21, 1997, the bank anti-tying
rules will no longer apply to the non-bank subsidiaries of a bank holding
company.
State Law Restrictions. As a corporation chartered under the laws of the
State of Oregon, Bancorp is also subject to certain limitations and restrictions
under applicable Oregon corporate law. For example, these include limitations
and restrictions relating to: indemnification of directors, distributions to
shareholders, transactions involving directors, officers or interested
shareholders, maintenance of books, records, and minutes, and observance of
certain corporate formalities.
Securities Registration and Reporting. The common stock of Bancorp is
registered as a class with the Securities and Exchange Commission ("SEC") under
the Securities Exchange Act of 1934 and thus is subject to the periodic
reporting and proxy solicitation requirements and the insider-trading
restrictions of that Act. The periodic reports, proxy statements, and other
information filed by Bancorp under that Act can be inspected and copied at or
obtained from the Washington, D.C., office of the SEC. In addition, the
securities issued by Bancorp are subject to the registration requirements of the
Securities Act of 1933 and applicable state securities laws unless exemptions
are available.
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CONTROL TRANSACTIONS
The Change in Bank Control Act of 1978, as amended, prohibits a person or
group of persons from acquiring "control" of a bank holding company unless the
FRB has been given 60 days' prior written notice of the proposed acquisition,
and within that time period, the FRB has not issued a notice disapproving the
proposed acquisition or extending for up to another 30 days the period during
which such a disapproval may be issued. An acquisition may be made prior to the
expiration of the disapproval period if the FRB issues written notice of its
intent not to disapprove the action. Under a rebuttable presumption established
by the FRB, the acquisition of 10% or more of a class of voting stock of a bank
holding company with a class of securities registered under Section 12 of the
Exchange Act would, under the circumstances set forth in the presumption,
constitute the acquisition of control.
In addition, any "Company" would be required to obtain the approval of the
FRB under the BHCA before acquiring 25% (5% if the company is a bank holding
company) or more of the outstanding shares of Bancorp, or otherwise obtain
control over Bancorp.
THE BANKS
GENERAL
Despite some recent legislative initiatives to reduce regulatory burdens,
banking remains a highly regulated industry. Legislation enacted from time to
time may increase the cost of doing business, limit or expand permissible
activities, or affect the competitive balance between banks and other financial
and nonfinancial institutions. Proposals to change the laws and regulations
governing the operations and taxation of banks and other financial institutions
are frequently made in Congress, in the Oregon State Legislature, and before
various bank regulatory agencies. In addition, there continue to be proposals in
Congress to restructure the banking system.
Some of the significant areas of bank regulation, including significant
federal legislation affecting state-chartered banks, are generally discussed
below.
REGULATION OF STATE BANKS
Oregon state-chartered banks and Washington state-chartered banks are subject
to primary regulation and examination, respectively, by the Oregon Director of
Consumer and Business Services and the Washington Director. The Banks are also
subject to supervision, examination, and regulation by certain federal banking
agencies, including, in the case of Valley Commercial Bank (which is a Federal
Reserve member bank), the FRB. Each of the Banks is insured (to applicable
limits) by, and therefore is subject to regulation by, the FDIC.
Applicable federal and state statutes and regulations governing a bank's
operations relate, among other matters, to capital requirements, required
reserves against deposits, investments, loans, legal lending limits, certain
interest rates payable, mergers and consolidations, borrowings, issuance of
securities, payment of dividends (see below), establishment of branches, and
dealings with affiliated persons. The FDIC has authority to prohibit banks under
their supervision from engaging in what they consider to be an unsafe and
unsound practice in conducting their business. Depository institutions, such as
the Banks, are affected significantly by the actions of the FRB as it attempts
to control the money supply and credit availability in order to influence the
economy.
DIVIDEND RESTRICTIONS
Dividends paid by the Banks to Bancorp are a material source of all of
Bancorp's cash flow. Various federal and state statutory provisions limit the
amount of dividends the Banks are permitted to pay to Bancorp without regulatory
approval. FRB policy further limits the circumstances under which bank holding
companies may declare dividends. For example, a bank holding company should not
continue its existing rate of cash dividends on its common stock unless its net
income is sufficient to fully fund each dividend and its prospective rate of
earnings retention appears consistent with its capital needs, asset quality, and
overall financial condition.
If, in the opinion of the applicable federal banking agency, a depository
institution under its jurisdiction is engaged in or is about to engage in an
unsafe or unsound practice (which, depending on the financial condition of the
institution, could
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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.
Washington statues 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 branches comply with any requirements made by
the Washington Director.
Under these restrictions, as of December 31, 1996, the Banks could have
declared dividends of approximately $17.3 million in the aggregate, without
obtaining prior regulatory approval. The payment of dividends by banks may also
be affected by other factors, such as capital maintenance requirements.
REGULATION OF MANAGEMENT
Federal law: (1) sets forth circumstances under which officers or directors
of a bank may be removed by the institution's federal supervisory agency; (2)
places restraints on lending by a bank to its executive officers, directors,
principal shareholders, and their related interests; and (3) and prohibits
management personnel of a bank from serving as a director or in other management
positions of another financial institution whose assets exceed a specified
amount or which has an office within a specified geographic area.
CONTROL OF FINANCIAL INSTITUTIONS
No person may acquire "control" of a bank unless the appropriate federal
agency has been given 60 days prior written notice and within that time the
agency has not disapproved the acquisition. Substantial monetary penalties may
be imposed for violation of the change in control or other provisions of banking
laws. Washington banking laws further required 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 statue are
deemed void.
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)
8
<PAGE> 11
standards for compensation of executive officers and directors of banks.
However, this provision was modified by recent legislation to allow federal
regulatory agencies to implement these standards through either guidelines or
regulations.
FIRREA
The Financial Institutions Reform, Recovery and Enforcement Act of 1989
("FIRREA") became effective on August 9, 1989. Among other things, this
far-reaching legislation (1) phased in significant increases in the FDIC
insurance premiums paid by commercial banks; (2) created two deposit insurance
pools within the FDIC, one to insure commercial banks and savings bank deposits
and the other to insure savings association deposits; (3) for the first time,
permitted bank holding companies to acquire healthy savings associations; (4)
permitted commercial banks that meet certain housing-related asset requirements
to secure advances and other federal services from their local Federal Home Loan
Banks; and (5) greatly enhanced the regulators' enforcement powers by removing
procedural barriers and sharply increasing the civil and criminal penalties for
violating statutes and regulations.
INTERSTATE BANKING AND BRANCHING
The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 (the
"Interstate Act") will, over the next few months, permit nationwide interstate
banking and branching under certain circumstances. This legislation generally
authorizes interstate branching and relaxes federal law restrictions on
interstate banking. Individual states have the authority to "opt out" of certain
of these provisions. The Interstate Act currently allows states to enact
"opting-in" legislation that (i) permits interstate mergers within their own
borders before June 1, 1997, and (ii) permits out-of-state banks to establish de
novo branches within the state. As of September 29, 1996, 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 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
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
Bancorp or the Banks' operations in particular. Nevertheless, the impact that
the Interstate Act might have on Bancorp and the Banks is impossible to predict.
CAPITAL ADEQUACY REQUIREMENTS
The FRB, the FDIC, and the OCC (collectively, the "Federal Banking Agencies")
have established uniform capital requirements for all commercial banks. Bank
holding companies are also subject to certain minimum capital requirements. A
bank that does not achieve and maintain required capital levels may be subject
to supervisory action through the issuance of a capital directive to ensure the
maintenance of adequate capital levels. In addition, banks are required to meet
certain guidelines concerning the maintenance of an adequate allowance for loan
and lease losses.
The Federal Banking Agencies' "risk-based" capital guidelines establish a
systematic, analytical framework that makes regulatory capital requirements more
sensitive to differences in risk profiles among banking organizations, takes
off-balance sheet exposures into explicit account in assessing capital adequacy,
and minimizes disincentives to holding liquid, low-risk assets. The risk-based
ratio is determined by allocating assets and specified off-balance sheet
commitments into several categories, with high levels of capital being required
for the categories perceived as 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
9
<PAGE> 12
is expected to have well-diversified risk, including no undue interest rate risk
exposure, excellent asset quality, high liquidity and good earnings, and in
general, to be a strong banking organization without any supervisory, financial
or operational weaknesses or deficiencies. Any institutions experiencing or
anticipating significant growth would be expected to maintain capital ratios,
including tangible capital positions, well above the minimum levels (e.g., an
additional cushion of at least 100 to 200 basis points, depending upon the
particular circumstances and risk profile).
Regulations adopted by the Federal Banking Agencies as required by FDICIA
impose even more stringent capital requirements. The regulators require the OCC
and other Federal Banking Agencies to take certain "prompt corrective action"
when a bank fails to meet certain capital requirements. The regulations
establish and define five capital levels at which an institution is deemed to be
"well-capitalized," "adequately capitalized," "undercapitalized," "significantly
undercapitalized" or "critically undercapitalized." In order to be
"well-capitalized," an institution must maintain, at least 10% total risk-based
capital, 6% Tier 1 risk-based capital, and a 5% Leverage Ratio. Increasingly
severe restrictions are imposed on the payment of dividends and mortgage fees,
asset growth and other aspects of the operations of institutions that fall below
the category of "adequately capitalized" (which requires at least 8% total
risk-based capital, 4% Tier 1 risk-based capital, and a 4% Leverage Ratio).
Undercapitalized institutions are required to develop and implement capital
plans acceptable to the appropriate federal regulatory agency. Such plans must
require that any company that controls the undercapitalized institution must
provide certain guarantees that the institution will comply with the plan until
it is adequately capitalized. As of December 31, 1996, the Banks were not
subject to any regulatory order, agreement, or directive to meet and maintain a
specific capital level for any capital measure.
The Oregon Department of Consumer and Business Services has authority under
Oregon law to require shareholders of an Oregon State bank to contribute
additional capital to the bank if its capital becomes impaired. The capital of a
bank is deemed to be impaired under Oregon law if the value of the bank's assets
is insufficient to pay its liabilities (excluding any liability on outstanding
capital debentures) plus the amount of its paid-in capital. Given the strong
capital position of each of Bancorp'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. Bancorp is also
subject to minimum Leverage Ratio guidelines. These guidelines provide for a
minimum Leverage Ratio of 3% for bank holding companies meeting certain
specified criteria, including achievement of the highest supervisory rating. All
other bank holding companies are required to maintain a Leverage Ratio which is
at least 100 to 200 basis points higher (4% to 5%). These guidelines provide
that banking organizations experiencing internal growth or making acquisitions
are expected to maintain strong capital positions substantially above the
minimum supervisory levels, without significant reliance on intangible assets.
In August of 1995, the Federal Banking Agencies adopted a final rule
implementing the portion of Section 305 of FDICIA that requires the banking
agencies to revise their risk-based capital standards to ensure that those
standards take adequate account of interest rate risk. Effective September 1,
1995, when evaluating the capital adequacy of a bank, the Federal Banking
Agencies' examiners will consider exposure to declines in the economic value of
the bank's capital due to changes in interest rates. A bank may be required to
hold additional capital for interest rate risk if it has a significant exposure
or a weak interest rate risk management process. Concurrent with the publication
of this final rule, the Federal Banking Agencies proposed for comment a joint
policy statement describing the process the Federal Banking Agencies will use to
measure and assess a bank's interest rate risk.
This joint policy statement was superseded by an updated Joint Policy
Statement in June of 1996. Any impact the joint final rules and the Joint Policy
Statement may have on Bancorp or its subsidiaries cannot be predicted at this
time.
In addition, the Federal Banking Agencies published a joint final rule on
September 6, 1996, amending their respective risk-based capital standards to
incorporate a measure for market risk to cover all positions located in an
institution's trading account and foreign exchange and commodity positions
wherever located. This final rule, effective January 1, 1997, implements and
amendment to the Basle Capital Accord that sets forth a supervisory framework
for measuring market risk. The final rule effectively requires banks and bank
holding companies with significant exposure to market risk to measure that risk
using its own internal value-at-risk model, subject to the parameters of the
final rule, and to hold a sufficient amount of capital to support the
institution's risk exposure.
10
<PAGE> 13
Institutions subject to this final rule must be in compliance with it by
January 1, 1998. This final rule applies to any bank or bank holding company,
regardless of size, whose trading activity equals 10% or more of its total
assets or amounts to $1 billion or more. The Federal Banking Agencies may
require an institution not otherwise subject to the final rule to comply with it
for safety and soundness reasons and, under certain circumstances, also may
exempt an institution otherwise subject to the final rule from compliance.
FDIC INSURANCE
Generally, customer deposit accounts in banks are insured by the FDIC for up
to a maximum amount of $100,000. The FDIC has adopted a risk-based insurance
assessment system. Under this system, depository institutions, such as the
Banks, with BIF-insured deposits, are required to pay an assessment to the BIF
ranging from $.0 to $.27 per $100 of deposits based on the institution's risk
classification. On September 30, 1996, the Deposit Insurance Funds Act of 1996
("Funds Act") was enacted. The Funds Act provides, among other things, for the
recapitalization of the SAIF through a special assessment on all depository
institutions that hold SAIF-insured deposits. The one-time assessment is
designed to place the SAIF at its 1.25 reserve ratio goal.
The Funds Act, for the three year period beginning in 1997, subjects
BIF-insured deposits to a Financing Corporation ("FICO") premium assessment on
domestic deposits at one-fifth the premium rate (roughly 1.3 basis points)
imposed on SAIF-insured deposits (roughly 6.5 basis points). In addition,
service debt funding on FICO bonds for the first half of 1997 is expected to
result in BIF insured institutions paying .64 cents for each $100 of assessed
deposits, and SAIF insured institutions paying 3.2 cents on each $100 of
deposits. Beginning in the year 2000, BIF insured institutions will be required
to pay the FICO obligations on a pro-rata basis with all thrift institutions;
annual assessments are expected to equal approximately 2.4 basis points until
2017, to be phased out completely by 2019.
Banking regulators are empowered under the Funds Act to prohibit insured
institutions and their holding companies from facilitating or encouraging the
shifting of deposits from the SAIF to the BIF in order to avoid higher
assessment rates. Accordingly, the FDIC recently proposed a rule that would, if
adopted as proposed, impose entrance and exit fees on depository institutions
attempting to shift deposits from the SAIF to the BIF as contemplated by the
Funds Act. The Funds Act also provides for the merger of the BIF and SAIF on
January 1, 1999, only if no thrift institutions exist on that date. It is
expected that Congress will address comprehensive legislation on the merger of
the funds and elimination of the thrift charter during the 1997 session.
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).
11
<PAGE> 14
ITEM 2. PROPERTIES
The principal properties of the registrant are comprised of banking
facilities owned by the registrant's affiliates.
The main offices of The Commercial Bank are located in downtown Salem,
Oregon, in recently remodeled two-story buildings totaling approximately 40,000
square feet of space. The main offices, which are owned by The Commercial Bank,
include land and administrative offices, the main branch, and drive-up teller
facilities. The Commercial Bank also operates 17 other branches, of which 8 are
owned and 9 are leased. The Commercial Bank owns the land under 7 of the 8 owned
branches. In addition, The Commercial Bank owns an approximately
8,000-square-foot building, including the land, in Salem, Oregon that is
currently unoccupied, and leases a building and land housing the data center.
The Commercial Bank's aggregate monthly rental on all leased properties is
$20,500.
The main office of Valley Commercial Bank is located in Forest Grove,
Oregon, in a building and land owned by a subsidiary of The Commercial Bank.
Valley Commercial Bank operates a branch in North Plains, Oregon, in a facility
and land owned by it, and a branch in Hillsboro, Oregon, which is leased for
approximately $3,100 per month.
The Bank of Newport owns the land and building housing its main offices
located in Newport, Oregon, consisting of approximately 15,640 square feet of
space. At December 31, 1996, The Bank of Newport also owned five buildings and
leased four additional spaces housing branches and offices. The Bank of Newport
owns the land under three of the four buildings, while leasing the fourth. The
aggregate monthly rental of leased buildings and land is approximately $24,900.
The main office of the Bank of Vancouver is located in Vancouver,
Washington, in a building consisting of approximately 14,400 square feet of
space and land that is leased. Bank of Vancouver also operates a branch on the
east side of Vancouver in a leased facility shared with Bancorp. In addition,
Bank of Vancouver owns the building in which its former office was located in
Vancouver, Washington, which is subject to a ground lease. The building is
leased out at a monthly rate of $6,250. Bank of Vancouver's aggregate monthly
rental on leased property to non-affiliates is $14,700.
West Coast Trust's main office is in Salem where it leases space from The
Commercial Bank. West Coast Trust also has offices in Portland, Oregon, Newport,
Oregon and Vancouver, Washington where it leases space from The Bank of Newport
and Bank of Vancouver, respectively.
Bancorp leases office space housing its headquarters in Lake Oswego,
Oregon. In addition, Bancorp leases space in Vancouver, Washington to house a
department of its commercial brokerage division, this space is shared with Bank
of Vancouver's east side branch. The aggregate monthly rental of the office
space is approximately $7,600.
ITEM 3. LEGAL PROCEEDINGS
In the fall of 1994, The Commercial Bank and the manager of The Commercial
Bank's Trust Department consented to the entry of an order by the Securities and
Exchange Commission (the "SEC") finding that certain violations of various
provisions of the Securities Act of 1933, and the Investment Company Act of
1940, had occurred by offering interests in an IRA Fund without registration
under such laws. The Commercial Bank paid a civil penalty in the amount of
$75,000 and retained an independent consultant to conduct a review of compliance
procedures, to recommend policies and procedures to prevent and detect
violations of federal securities laws, and to report to the Board of Directors
of The Commercial Bank.
The independent consultant's January 1996 report included recommendations
addressing The Commercial Bank's systems, processes and controls in place to
ensure that the common trust funds continue to operate in a manner consistent
with their respective Plan of Operation and Declaration of Trust. In addition,
an opinion of counsel was obtained that concluded the remaining common trust
funds were exempt from registration under the Securities Act of 1933 ( the 1933
Act) and the Investment Company Act of 1940, although the interests of a Keough
Fund were not exempt from registration under the 1933 Act due to the inclusion
of one ineligible participant.
During 1996, West Coast Trust, formerly Commercial Bank's Trust
Department, implemented changes to its governance and organizational structure,
expanded staff compliance and industry training programs, designated a chief
12
<PAGE> 15
compliance officer, and incorporated additional changes to its operations to
satisfy the recommendations of the independent consultant. In addition, West
Coast Trust offered rescission rights to all eligible participants in the Keough
Fund, which rescission rights have since expired and were not significant.
The SEC consent order also required the independent consultant to conduct
a review one year following the issuance of its report to evaluate the
implementation of its recommendations. In March 1997, the independent consultant
issued its update report to the Boards of Directors of West Coast Trust and The
Commercial Bank, concluding that their recommendations had been appropriately
addressed and no further recommendations were necessary. This report has been
submitted to the SEC by the independent consultant and Bancorp is awaiting
formal resolution of this matter.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
NONE
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
West Coast Bancorp stock trades on the Nasdaq stock market under the
symbol: WCBO. The primary market makers are: Black & Company, Inc.; Dain
Bosworth, Inc.; Herzog, Heine, Geduld, Inc.; Hoefer & Arnett, Inc.; Keefe,
Bruyette & Woods, Inc.; Pacific Crest Securities; Piper Jaffrey Company, Inc.;
and Wedbush Morgan Securities, Inc. The high and low sale price of West Coast
Bancorp's stock for the periods indicated are shown below. The sale price
information has been adjusted retroactively for all stock dividends and splits
previously issued. As of December 31, 1996, there were approximately 2,900
shareholders of Bancorp stock.
<TABLE>
<CAPTION>
1996 1995
--------------------------------------- --------------------------------------
Market Price Cash dividend Market Price Cash dividend
-------------------- ------------------
High Low declared High Low declared
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1st Quarter...... $15.60 $12.80 $0.05 $11.09 $9.82 $0.07
2nd Quarter...... $15.60 $14.20 $0.05 $11.09 $10.18 $0.05
3rd Quarter...... $16.00 $14.00 $0.06 $13.27 $10.36 $0.05
4th Quarter...... $18.75 $16.00 $0.06 $14.00 $12.80 $0.05
</TABLE>
13
<PAGE> 16
ITEM 6. SELECTED FINANCIAL DATA
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
(Dollars in thousands, except per share data)
-------------------------------------------
Year ended December 31,
-------------------------------------------------------------
1996 1995 1994 1993 1992
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Interest income . . . . . . . . . . . . . $56,624 $47,293 $38,918 $35,585 $34,469
Interest expense . . . . . . . . . . . . 19,834 17,429 11,506 10,647 12,242
------ ------ ------ ------ ------
Net interest income . . . . . . . . . 36,790 29,864 27,412 24,938 22,227
Provision for loan loss . . . . . . . . . 2,175 944 777 1,083 1,338
----- --- --- ----- -----
Net interest income after provision for
loan loss . . . . . . . . . . . . . . 34,615 28,920 26,635 23,855 20,889
Noninterest income . . . . . . . . . . . 8,879 8,095 7,087 6,644 5,360
Noninterest expense . . . . . . . . . . . 28,851 25,520 24,654 21,535 19,585
------ ------ ------ ------ ------
Income before income taxes . . . . . . . 14,643 11,495 9,068 8,964 6,664
Provision for income taxes . . . . . . . 4,841 3,246 2,752 2,425 1,878
----- ----- ----- ----- -----
Net income . . . . . . . . . . . . . . . $9,802 $8,249 $6,316 $6,539 $4,786
====== ====== ====== ====== ======
Per share data:
Net income . . . . . . . . . . . . . . $1.47 $1.24 $1.00 $1.07 $0.78
Cash dividends . . . . . . . . . . . . $0.22 $0.23 $0.19 $0.18 $0.14
Period end book value . . . . . . . . $10.02 $8.89 $7.35 $6.62 $5.74
Average common shares outstanding . . 6,660,492 6,627,698 6,313,367 6,091,239 6,078,022
Total Assets . . . . . . . . . . . . . . $712,343 $595,574 $515,750 $480,153 $424,370
Total Deposits . . . . . . . . . . . . . $604,902 $512,774 $437,175 $413,935 $380,690
Total long-term borrowings . . . . . . . $28,583 $10,188 $10,046 $9,095 $ -
Net Loans . . . . . . . . . . . . . . . . $528,755 $395,319 $319,698 $284,184 $249,143
Stockholders' equity . . . . . . . . . . $67,145 $58,981 $48,884 $40,342 $34,962
Financial ratios:
Return on average assets . . . . . . . 1.51% 1.49% 1.28% 1.50% 1.19%
Return on average equity . . . . . . . 15.86% 15.66% 14.17% 18.02% 14.69%
Average equity to assets . . . . . . . 9.51% 9.54% 9.04% 8.31% 8.09%
Dividend payout ratio . . . . . . . . 14.91% 16.92% 18.19% 15.26% 16.43%
Efficiency ratio . . . . . . . . . . . 63.20% 67.25% 71.11% 68.50% 71.01%
Net loans total assets . . . . . . . . 74.23% 66.38% 61.99% 59.19% 58.71%
Yield on earning assets (1) . . . . . 9.70% 9.71% 8.97% 9.19% 9.69%
Average rates paid . . . . . . . . . . 4.09% 4.25% 3.16% 3.20% 3.96%
Net interest spread (1) . . . . . . . 5.61% 5.46% 5.81% 5.99% 5.73%
Net interest margin (1) . . . . . . . 6.38% 6.24% 6.41% 6.54% 6.35%
Nonperforming assets to total assets . .28% 0.14% 0.11% 0.44% 0.64%
Allowance for loan loss to total loans 1.31% 1.39% 1.56% 1.53% 1.47%
Allowance for loan loss to
nonperforming assets . . . . . . . 356.17% 679.15% 927.95% 210.64% 137.67%
</TABLE>
(1) Interest earned on nontaxable securities has been computed on a 34% tax
equivalent basis.
The selected financial data should be read in conjunction with Bancorp's
consolidated financial statements and the accompanying notes presented in Item
8 of this report. The per share information has been adjusted retroactively
for all stock dividends and splits previously issued.
14
<PAGE> 17
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Years Ended December 31, 1996, 1995 and 1994
Net Income. For the three years ended December 31, 1996, Bancorp's net
income was $9.8 million, $8.2 million and $6.3 million, respectively. 1996 net
income increased $1.6 million or 18.82% over 1995, which increased $1.9 million
or 30.61% over 1994's income. Bancorp's 1994 net income was negatively
impacted by approximately $1 million in merger related costs; thus, normal core
operating results would show consistent year-to-year earnings growth. Earnings
per share for the three years ended 1996 were $1.47, $1.24 and $1.00. Bancorp
increased operating income in 1996 primarily due to increased net interest
margins resulting from larger balances of interest earning assets. Net
interest income on a tax equivalent basis totaled $38.1 million for the year
ended December 31, 1996, a 21.68% increase over $31.3 million for the same
period in 1995, which was an 8.67% increase over 1994. Growth of noninterest
income was due to increased customer bases and transaction volumes.
Noninterest expenses increased primarily due to bank branch expansion.
Net Interest Income. During the years ended December 31, 1996, 1995 and
1994, average interest earning assets grew to $597.2 million, from $502.1
million and $449.4 million, respectively. For the same periods, average
interest bearing liabilities were $484.9 million, $410.5 million and $363.6
million, respectively. Additionally, during the same periods, net interest
margins were 6.38%, 6.24% and 6.41%, respectively; fluctuations are due mainly
to a changing interest rate environment and an increase of certificates of
deposits and long-term funding sources. Net interest income on a
tax-equivalent basis increased $6.8 million, or 21.68%, to $38.1 million in
1996 from $31.3 million in 1995 and $28.9 million in 1994. The increased net
interest income was caused mainly by asset growth. Average interest earning
assets increased 18.93% in 1996 from 1995 and 11.75% in 1995 over 1994, while
the fairly stable interest rate environment during most of 1996 led to an
increase in the net interest spread of 15 basis points to 5.61% from 5.46% in
1995 which was down 35 basis points from 5.81% in 1994. The average yield
earned on interest earning assets was 9.70% in 1996, 9.71% in 1995 and 8.97% in
1994. Average interest bearing liabilities increased $74.4 million, or 18.14%,
to $484.9 million for the period ended December 31, 1996, from $410.5 million
in 1995 and $363.6 million in 1994, while the average rates paid were 4.09%,
4.25%, and 3.16%, respectively. Bancorp's loan portfolio experienced
significant growth in 1996 ending the year at $528.8 million, up $133.5 million
or 33.8% from $395.3 million at December 31, 1995. Bancorp also had a shift in
some of its asset mix from investment securities into the loan portfolio.
Analysis of Net Interest Income. The following table presents information
regarding yields on interest-earning assets, expense on interest-bearing
liabilities, and net yields on interest-earning assets for the periods
indicated on a tax equivalent basis:
<TABLE>
<CAPTION>
Year Ended December 31, Increase(Decrease) Change
------------------------------- -------------------- -----------------
(Dollars in thousands) 1996 1995 1994 95-96 95-94 96-95 95-94
-------------------- -------- ------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Interest and fee income (1) ........... $ 57,935 $ 48,742 $ 40,320 $ 9,193 $ 8,422 18.86% 20.89%
Interest expense ...................... $ 19,834 $ 17,429 $ 11,506 $ 2,405 $ 5,923 13.80% 51.48%
Net interest income ................... $ 38,101 $ 31,313 $ 28,814 $ 6,788 $ 2,499 21.68% 8.67%
Average interest earning assets ....... $597,189 $502,142 $449,364 $ 95,047 $ 52,778 18.93% 11.75%
Average interest bearing liabilities... $484,900 $410,461 $363,608 $ 74,439 $ 46,853 18.14% 12.89%
Average yields earned ................. 9.70% 9.71% 8.97% (.01) .74
Average rates paid .................... 4.09% 4.25% 3.16% (.16) 1.09
Net interest spread ................... 5.61% 5.46% 5.81% .15 (.35)
Net interest margin ................... 6.38% 6.24% 6.41% .14 (.17)
</TABLE>
(1) Interest earned on nontaxable securities has been computed on a 34%
tax equivalent basis.
15
<PAGE> 18
Average Balances and Average Rates Earned and Paid. The following table
sets forth, for the periods indicated, information with regard to (i) average
balances of assets and liabilities, (ii) the total dollar amounts of interest
income on interest earning assets and interest expense on interest bearing
liabilities, (iii) resulting yields or costs, (iv) net interest income, and (v)
net interest spread. Nonaccrual loans have been included in the tables as
loans carrying a zero yield. Loan fees are recognized as income using the
interest method over the life of the loan.
<TABLE>
<CAPTION>
Year Ended December 31,
(Dollars in thousands) 1996 1995 1994
- ---------------------- -------------------------------------------------------------------------------------------------
Average Interest Average Interest Average Interest
Outstanding Earned/ Yield/ Outstanding Earned/ Yield/ Outstanding Earned/ Yield/
Balance Paid Rate (1) Balance Paid Rate (1) Balance Paid Rate (1)
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS:
Interest earning balances
due from banks . . . . . . . . . $5,852 $305 5.21% $2,998 $152 5.07% $4,393 $166 3.78%
Federal funds sold . . . . . . 6,490 396 6.10 11,375 641 5.64 11,432 520 4.55
Taxable securities . . . . . . 73,975 4,861 6.57 77,333 4,849 6.27 80,657 4,662 5.78
Nontaxable securities (2) . . . 42,965 3,857 8.98 47,698 4,261 8.93 44,895 4,123 9.18
Loans, including fees (3) . . . 467,907 48,516 10.37 362,738 38,839 10.71 307,987 30,849 10.02
-------- ------- -------- ------- -------- -------
Total interest earning assets. 597,189 57,935 9.70% 502,142 48,742 9.71% 449,364 40,320 8.97%
Allowance for loan loss . . . . (5,983) (5,341) (4,690)
Premises and equipment . . . . 17,383 15,979 12,825
Other assets . . . . . . . . . 41,056 39,123 35,515
-------- -------- --------
Total assets . . . . . . . . $649,645 $551,903 $493,014
======== ======== ========
LIABILITIES AND
SHAREHOLDERS' EQUITY:
Savings and interest bearing
demand deposits . . . . . . . $302,211 $9,912 3.28% $250,292 $8,634 3.45% $249,885 $6,910 2.77%
Certificates of deposit . . . . 160,369 8,680 5.41 143,500 7,837 5.46 100,862 3,992 3.96
Short-term borrowings . . . . . 9,448 553 5.85 5,932 379 6.39 3,599 151 4.20
Long-term borrowings . . . . . 12,872 689 5.35 10,737 579 5.39 9,262 453 4.89
-------- ------- -------- ------- -------- -------
Total interest bearing
liabilities . . . . . . . . 484,900 19,834 4.09 410,461 17,429 4.25 363,608 11,506 3.16
Demand deposits . . . . . . . . 97,006 82,695 79,286
Other liabilities . . . . . . . 5,948 6,082 5,545
-------- -------- --------
Total liabilities . . . . . . 587,854 499,238 448,439
Shareholders' equity . . . . . 61,791 52,665 44,575
-------- -------- --------
Total liabilities and
shareholders' equity . . . $649,645 $551,903 $493,014
======== ======== ========
Net interest income . . . . . . $38,101 $31,313 $28,814
======= ======= =======
Net interest spread . . . . . . 5.61% 5.46% 5.81%
===== ===== =====
</TABLE>
(1) Yield rate calculations have been based on more detailed information than
presented and therefore may not recompute exactly due to rounding.
(2) Interest earned on nontaxable securities has been computed on a 34 percent
tax equivalent basis.
(3) Includes balances for loans held for sale.
16
<PAGE> 19
Analysis of Changes in Interest Differential. The following table sets
forth the amounts of the changes in consolidated net interest income
attributable to changes in volume and to changes in interest rates. Changes
not due solely to volume or rate are allocated to rate and changes due to new
product lines are allocated to volume.
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------------------------------------
1996 versus 1995 1995 versus 1994
------------------------------------ -------------------------------------
Increase (Decrease) Total Increase (Decrease) Total
Due To Increase Due To Increase
------------------------ ----------------------
(Dollars in thousands) Volume Rate (Decrease) Volume Rate (Decrease)
-------------------- --------- ----------- ---------- ---------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Interest income:
Interest earning balances due from banks $144 $9 $153 $ (53) $39 $(14)
Federal funds sold . . . . . . . . . . . (276) 31 (245) (3) 124 121
Investment security income:
Taxable securities . . . . . . . . . . (211) 223 12 (192) 379 187
Nontaxable securities (1) . . . . . . . (423) 19 (404) 257 (119) 138
Loans, including fees on loans . . . . . 11,264 (1,587) 9,677 5,484 2,506 7,990
------ ------- ------ ----- ----- -----
Total interest income (1) . . . . . . 10,498 (1,305) 9,193 5,493 2,929 8,422
Interest expense:
Savings and interest bearing demand . . . 1,791 (513) 1,278 11 1,713 1,724
Certificates of deposit . . . . . . . . . 921 (78) 843 1,688 2,157 3,845
Short-term borrowings . . . . . . . . . . 225 (51) 174 98 130 228
Long-term borrowings . . . . . . . . . . 115 (5) 110 72 54 126
--- --- --- -- -- ---
Total interest expense . . . . . . . 3,052 (647) 2,405 1,869 4,054 5,923
----- ----- ----- ----- ----- -----
Net interest spread (1) . . . . . . . $7,446 $(658) $6,788 $3,624 $ (1,125) $2,499
====== ====== ====== ====== ======== ======
</TABLE>
(1) Tax-exempt income has been adjusted to a tax-equivalent basis at a 34
percent rate.
Provision for Loan Losses. Bancorp recorded provisions for loan losses of
$2,174,987, $943,460 and $777,500 for the years ended December 31, 1996, 1995
and 1994 respectively. The increase each year in the provision is attributed
mainly to the company's strong loan growth. Bancorp incurred net charge-offs
of $706,771, $444,404, and $110,840 in 1996, 1995 and 1994 respectively. The
allowance for loan loss as a percentage of loan totals at December 31, 1996 and
1995 was 1.31% and 1.39% of total loans, respectively. Bancorp's allowance for
loan losses represents 356.17% of its non-performing loans as of December 31,
1996, compared to 679.15% at December 31, 1995.
Noninterest Income. Noninterest income for the year ended December 31,
1996 was $8,878,585 up from $8,094,759 in 1995 and $7,086,522 in 1994. Other
service charges, fees and commissions, service charges on deposit accounts,
trust revenues and loan servicing fees increased over the last three years, due
to an increased customer base and transaction volumes serviced. In 1996 gains
on sales of loans increased $325,098 to $1,178,052 from $852,954 in 1995 which
was a decrease from $1,010,267 reported in 1994. In 1996 and 1994 Bancorp
benefited due to the low stable interest rate environment that increased the
refinance activity on loans sold into the secondary market. Other noninterest
income fluctuated over the three year period with some non-recurring activity.
Securities gains were $17,030 in 1996, $9,838 in 1995 and losses of $170,464
in 1994. Overall increases in noninterest income were due to increased market
presence in existing and expanding markets.
17
<PAGE> 20
Noninterest Expense. Noninterest expenses have increased during the last
three years to $28,851,340 in 1996 from $25,520,456 in 1995 and $24,654,355 in
1994. Increases in salaries, equipment, occupancy, professional fees,
marketing, printing and office supplies, communications and other noninterest
expenses have been caused mainly by Bancorp's expansion of its branch system
and services and the costs associated with entering new markets. Bancorp's
branch system grew to 31 office locations at the end of 1996 from 20 at the
beginning of 1994. Bancorp intends to continue to grow through strategically
placed offices in 1997 and beyond. In general, the opening of new branches
results in higher costs for Bancorp which are not offset until a certain level
of growth in deposits and loans is achieved. Thus, at least initially, new
branches tend to have an adverse effect on results of operations, until
earnings grow to cover overhead. At the end of 1996 Bancorp employed 467
full-time equivalent employees compared to 409 in 1995 and 366 in 1994. Other
increases in noninterest expense generally were caused by higher operating
activity levels associated with Bancorp's internal growth. Equipment,
occupancy and communications expenses also increased beginning in 1995 due to
the opening of Bancorp's new data processing facilities. In 1994 Bancorp
experienced certain costs associated with the mergers of West Coast Bancorp and
Commercial Bancorp as well as the merger of Great Western Bank which became a
branch of Commercial Bank. Merger related expenditures negatively impacted net
income by approximately $1 million in 1994. During 1996 and 1995 Bancorp
incurred additional costs as a result of the consolidation and reorganization
of certain operating activities. From 1994 to 1996 expenses in ATM and
Bankcard have increased due to continued expansion of the ATM network and an
increase in the customer base for The Bank of Newport's Bankcard services.
FDIC deposit insurance expense declined in 1995 and 1996 due to reductions in
insurance premiums charged, expenses were $10,432, $517,847 and $923,587 for
the years ended December 31, 1996, 1995 and 1994, respectively.
INCOME TAXES
Income tax expense for 1996 was $4,840,510 or 33 percent of income before
income taxes, 1995 was $3,245,720 or 28 percent of income before income taxes
and 1994 was $2,751,249 or 30 percent of income before income taxes. The 1995
income tax expense was positively impacted by a one time state income tax
credit of approximately $215,000. The 1994 and 1996 income tax rates were
adversely impacted by costs associated with mergers that were capitalized for
income tax purposes. It is anticipated that Bancorp's tax expense will
increase in future years both due to increased income before income taxes and a
smaller percentage of Bancorp's income being generated from tax exempt items.
Any future merger related capitalized costs may also increase Bancorp tax
provisions.
INTEREST RATE SENSITIVITY
Bancorp uses asset/liability modeling to estimate the degree of interest
rate risk inherent in its mix of interest-earning assets and interest-bearing
liabilities. Bancorp's profitability, like that of many financial
institutions, is dependent to a large extent upon net interest income. Bancorp
is liability sensitive, meaning that interest-bearing liabilities mature or
reprice more quickly than interest-earning assets in a given period, therefore,
a significant increase in market rates of interest could adversely affect net
interest income. In contrast, a declining rate environment could favorably
impact Bancorp's margin. Bancorp's strategy will be to continue to counter
this condition by shortening its investment portfolio maturities, through
increased activity in variable rate loan products, and by focusing efforts to
extend maturities on its deposit and borrowings base. Bancorp also has placed
increased emphasis on its noninterest revenue products to additionally
stabilize the earnings strength of the institution.
18
<PAGE> 21
Interest Rate Sensitivity (Gap) Table. The following table sets forth the
estimated maturity and repricing and the resulting interest rate gap between
interest earning assets and interest bearing liabilities at December 31, 1996.
The amounts in the table are derived from internal data from the Banks. The
amounts shown below could also be significantly affected by external factors
such as changes in the prepayments assumption, early withdrawals of deposits,
and competition.
<TABLE>
<CAPTION>
Estimated Maturity or Repricing at December 31, 1996
------------------------------------------------------------
(Dollars in thousands)
-------------------- Due After
0-3 Months 4-12 Months 1 -5 Years Five Years Total
------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Interest Earning Assets:
Interest earning balances due
from banks . . . . . . . . . . . . . . . . $ 12,141 $ - $ - $ - $ 12,141
Federal funds sold . . . . . . . . . . . . . 23 - - - 23
Investments available for sale (1) . . . . . 9,195 7,297 51,741 38,935 107,168
Investments held to maturity . . . . . . . - - 1,031 1,592 2,623
Loans held for sale . . . . . . . . . . . . . 2,564 - - - 2,564
Loans, including fees . . . . . . . . . . . . 208,964 70,877 216,203 39,749 535,793
-------- ------- -------- ------- --------
Total interest earning assets . . . . . . . $232,887 $78,174 $268,975 $80,276 $660,312
======== ======= ======== =======
Allowance for loan loss . . . . . . . . . . . (7,038)
Cash and due from banks . . . . . . . . . . . 30,817
Other assets . . . . . . . . . . . . . . . . 28,252
--------
Total assets . . . . . . . . . . . . . . . $712,343
========
Interest Bearing Liabilities:
Savings and interest demand deposits . . . . $184,672 $31,848 $102,743 - $319,263
Certificates of deposit . . . . . . . . . . . 70,085 85,374 21,123 3,221 179,803
Borrowings . . . . . . . . . . . . . . . . . 17,495 2,357 10,203 2,237 32,292
-------- -------- -------- ------ --------
Total interest bearing liabilities . . . . $272,252 $119,579 $134,069 $5,458 $531,358
======== ======== ======== ======
Other liabilities . . . . . . . . . . . . . . 113,840
Shareholders' equity . . . . . . . . . . . . 67,145
--------
Total liabilities & shareholders' equity . . $712,343
========
Interest sensitivity gap . . . . . . . . . . (39,365) (41,405) 134,906 74,818 $128,954
Cumulative interest sensitivity gap . . . . . (39,365) (80,770) 54,136 128,954
Cumulative interest sensitivity gap
as a percentage of total assets . . . . . (5.53)% (11.34)% 7.60% 18.10%
</TABLE>
(1) Equity investments have been placed in the 0-3 month category.
Certain shortcomings are inherent in the method of analysis presented in
the foregoing table. For example, although certain assets and liabilities may
have similar maturities and periods of repricing, they may react differently to
changes in market interest rates. Also, interest rates on assets and
liabilities may fluctuate in advance of changes in market interest rates, while
interest rates on other assets and liabilities may follow changes in market
interest rates. Additionally, certain assets have features that restrict
changes in the interest rates of such assets, both on a short-term basis and
over the lives of such assets. The Gap table presented above is based on
maturities and next repricing dates and additionally takes into account
contractual loan repayments. In the event of a change in market interest
rates, prepayments and early withdrawals could cause significant deviation from
the stated maturities and repricings.
19
<PAGE> 22
LIQUIDITY AND SOURCES OF FUNDS
Bancorp's primary sources of funds are customer deposits, maturities of
investment securities, sales of "available for sale" securities, loan sales,
loan repayments, net income, advances from the Federal Home Loan Bank of
Seattle (FHLB), and the use of Federal Funds markets. Scheduled loan
repayments are relatively stable sources of funds while deposit inflows and
unscheduled loan prepayments are not. Deposit inflows and unscheduled loan
prepayments are influenced by general interest rate levels, interest rates
available on other investments, competition, economic conditions, and other
factors.
Deposits are Bancorp's primary source of new funds. Total deposits were
$604.9 million at December 31, 1996, up from $512.7 million at December 31,
1995, of which $179.8 million at December 31, 1996 were in certificates of
deposits. Bancorp does not generally accept brokered deposits. A concerted
effort has been made to attract deposits in the market area it serves through
competitive pricing and delivery of quality products. Increases over the
period are due to the opening of new branch facilities, marketing efforts, and
new business development programs initiated by Bancorp.
Management anticipates that Bancorp will continue relying on customer
deposits, maturity of investment securities, sales of "available for sale"
securities, loan sales, loan repayments, net income, Federal Funds markets, and
FHLB borrowings to provide liquidity. Although deposit balances have shown
historical growth, such balances may be influenced by changes in the banking
industry, interest rates available on other investments, general economic
conditions, competition and other factors. Borrowings may be used on a
short-term basis to compensate for reductions in other sources of funds.
Borrowings may also be used on a long-term basis to support expanded lending
activities and to match maturities or repricing intervals of assets. The
sources of such funds will most likely be Federal Funds purchased and
borrowings from the FHLB.
20
<PAGE> 23
CAPITAL RESOURCES
The Federal Reserve Bank (FRB) and Federal Deposit Insurance Corporation
(FDIC) have established minimum requirements for capital adequacy for bank
holding companies and member banks. The requirements address both risk-based
capital and leveraged capital. The regulatory agencies may establish higher
minimum requirements if, for example, a corporation has previously received
special attention or has a high susceptibility to interest rate risk. The FRB
and FDIC risk-based capital guidelines require banks and bank holding companies
to have a ratio of tier one capital to total risk-weighted assets of at least 4
percent and a ratio of total capital to total risk-weighted assets of 8 percent
or greater. In addition, the leverage ratio of tier one capital to total
assets less intangibles is required to be at least 3 percent. As of December
31, 1996, Bancorp and all of its subsidiary banks are considered "Well
Capitalized" per the regulatory risk based capital guidelines.
As the following table indicates, Bancorp currently exceeds the regulatory
minimum capital ratio requirements.
<TABLE>
<CAPTION>
December 31, 1996
-------------------
(Dollars in thousands) Amount Ratio
-------------------- ------- -----
<S> <C> <C>
Tier 1 capital . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 66,072 11.63%
Tier 1 capital minimum requirement . . . . . . . . . . . . . . . . . 22,717 4.00
--------- -----
Excess Tier 1 capital . . . . . . . . . . . . . . . . . . . . . . $ 43,355 7.63%
========
Total capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 73,110 12.87%
Total capital minimum requirement . . . . . . . . . . . . . . . . . . 45,434 8.00
--------- -----
Excess total capital . . . . . . . . . . . . . . . . . . . . . . . $ 27,676 4.87%
========
Risk-adjusted assets . . . . . . . . . . . . . . . . . . . . . . . . $567,920
========
Leverage ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.52%
Minimum leverage requirement . . . . . . . . . . . . . . . . . . . . 3.00
-----
Excess leverage ratio . . . . . . . . . . . . . . . . . . . . . . 6.52%
======
Adjusted total assets . . . . . . . . . . . . . . . . . . . . . . . . $693,847
========
</TABLE>
Shareholders' equity increased to $67.1 million at December 31, 1996
from $59.0 million at December 31, 1995 an increase of $8.1 million, or 13.73%,
over that period of time. During July 1994 Bancorp received net proceeds of
$5.1 million in a public offering of 569,250 shares of common stock. The net
proceeds have been available to Bancorp and the Banks to support expansion
either through the opening of new branches or the acquisition of existing
facilities. In addition to pursuing growth in the banking industry, Bancorp
has and may continue to use a portion of the proceeds to pursue opportunities
to acquire or establish financial service related companies in Oregon and
Southwest Washington with emphasis in the Portland metropolitan area, that
would allow for continued diversification of assets mix and revenue streams.
At December 31, 1996, Bancorp's shareholders' equity, as a percentage of total
assets, was 9.43%, compared to 9.90% at December 31, 1995. The change was
primarily a result of asset growth outpacing income recognition and the change
in net value of Bancorp's available for sale investment portfolio. In a
rising interest rate environment, the value of Bancorp's available for sale
portfolio will decline thus negatively impacting equity, the opposite would
occur in a falling rate environment. Equity grew at 13.73% over the period
from December 31, 1995 to December 31, 1996, while assets grew by 19.61% over
the same period.
21
<PAGE> 24
INVESTMENT PORTFOLIO
The following table shows the amortized cost and fair value of Bancorp's
investments.
<TABLE>
<CAPTION>
(Dollars in thousands) 1996 1995 1994
-------------------- -----------------------------------------------------------------------------
Amortized Amortized Amortized
Cost Fair Value Cost Fair Value Cost Fair Value
Available for sale -----------------------------------------------------------------------------
- ------------------
<S> <C> <C> <C> <C> <C> <C>
U.S. Treasury securities . . . . . . . . $8,819 $8,827 $18,926 $18,972 $20,774 $20,351
U.S. Agency securities . . . . . . . . . 38,261 38,338 36,082 36,581 21,835 21,407
Obligations of state and political
subdivisions . . . . . . . . . . . . . 34,983 36,617 43,983 46,335 7,875 7,403
Other Securities . . . . . . . . . . . . 23,601 23,386 19,516 19,493 16,065 15,339
------ ------ ------ ------ ------ ------
Total . . . . . . . . . . . . . . . . $105,664 $107,168 $118,507 $121,381 $66,549 $64,500
======== ======== ======== ======== ======= =======
</TABLE>
<TABLE>
<CAPTION>
(Dollars in thousands) 1996 1995 1994
-------------------- -----------------------------------------------------------------------------
Amortized Amortized Amortized
Cost Fair Value Cost Fair Value Cost Fair Value
-----------------------------------------------------------------------------
Held to maturity
- ----------------
<S> <C> <C> <C> <C> <C> <C>
U.S. Treasury securities ................ $ -- $ -- $ 408 $ 442 $ 5,189 $ 4,848
U.S. Agency securities .................. -- -- -- -- 7,328 7,190
Obligations of state and political
subdivisions .......................... 2,623 2,652 2,592 2,615 40,373 40,356
Other Securities ........................ -- -- 4,783 4,742 12,819 12,446
------- ------- ------- ------- ------- -------
Total ................................ $ 2,623 $ 2,652 $ 7,783 $ 7,799 $65,709 $64,840
======= ======= ======= ======= ======= =======
</TABLE>
At December 31, 1996, the net unrealized gains on the investment
portfolio was $1,533,000 representing 1.42% of the total portfolio. Management
has no current plans to sell any of these securities that would result in a
material impact on the results of operation.
The following table summarized the contractual maturities and weighted
average yields of investment securities.
<TABLE>
<CAPTION>
(Dollars in thousands) After 5 Due
-------------------- One Year One Thru thru 10 after 10
December 31, 1996 Or Less Yield 5 Years Yield Years Yield Years Yield Total Yield
- ----------------- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury securities . $5,030 5.51% $3,797 5.78% $ - $ - - - $8,827 5.63%
U.S. Agency securities . . 2,511 6.31% 32,588 6.67% 3,239 6.41% - - 38,338 6.62%
Obligations of state
and political
subdivisions (1) . . . . 1,007 8.26% 11,010 9.03% 18,125 9.13% 9,098 8.93% 39,240 9.04%
Other Securities (2) . . . 7,944 6.64% 5,377 6.35% 982 6.98% 9,083 6.82% 23,386 6.66%
------- ------- ------- ------- --------
Total (1) . . . . . . . $16,492 6.21% $52,772 7.53% $22,346 9.02% $18,181 7.88% $109,791 7.94%
======= ======= ======= ======= ========
</TABLE>
(1) Yields are stated on a federal tax-equivalent basis at 34 percent.
(2) Does not reflect anticipated maturity from prepayments on
mortgage-based and asset-based securities. Anticipated lives are
shorter than contractual maturities.
22
<PAGE> 25
LENDING AND CREDIT MANAGEMENT
Interest earned on the loan portfolio is the primary source of income for
Bancorp. Net loans represented 74.23% of total assets as of December 31, 1996.
Although the Banks strive to serve the credit needs of the service areas, the
primary focus is on real estate related and commercial credits. The Banks make
substantially all of their loans to customers located within the Banks' service
areas. The Banks have no loans defined as highly leveraged transactions by the
FRB.
Although a risk of nonpayment exists with respect to all loans, certain
specific types of risks are associated with different types of loans. Owing to
the nature of the Banks' customer base and the growth experienced in the market
areas served, real estate is frequently a material component of collateral for
the Banks' loans. The expected source of repayment of these loans is generally
the operations of the borrower's business or personal income, but real estate
provides an additional measure of security. Risks associated with real estate
loans include fluctuating land values, local economic conditions, changes in
tax policies, and a concentration of loans within any one area.
The Banks mitigate risk on construction loans by generally lending funds to
customers who have been pre-qualified for long-term financing and are using
experienced contractors approved by the Banks. The commercial real estate risk
is further mitigated by making the majority of commercial real estate loans to
owner-occupied users of the property.
The Banks manage the general risks inherent in the loan portfolio by
following loan policies and underwriting practices designed to result in
prudent lending activities.
<TABLE>
<CAPTION>
Year Ended December 31,
(Dollars in thousands) 1996 1995 1994 1993 1992
- --------------------- ---- ---- ---- ---- ----
Amount Percent Amount Percent Amount Percent Amount Percent Amount Percent
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial loans . . $97,515 18.44% $66,214 16.75% $66,212 20.71% $62,220 21.89% $53,945 21.65%
Real estate
construction . . . 69,917 13.22 52,894 13.38 35,514 11.11 17,394 6.12 17,110 6.87
Real estate-mortgage 92,060 17.41 75,293 19.05 98,480 30.80 87,527 30.80 67,804 27.21
Real estate-commercial 235,935 44.62 165,734 41.92 83,031 25.97 76,413 26.89 67,877 27.24
Installment and other
consumer . . . . 40,366 7.64 40,753 10.31 41,531 13.00 45,034 15.85 46,117 18.51
------ ------ ------ ------ ------
Total loans . . 535,793 101.33 400,888 101.41 324,768 101.59 288,588 101.55 252,853 101.48
Allowance for loan
loss . . . . . . (7,038) (1.33) (5,569) (1.41) (5,070) (1.59) (4,404) (1.55) (3,710) (1.48)
------ ------ ------ ------ ------
Total loans, net $528,755 100.00% $395,319 100.00% $319,698 100.00% $284,184 100.00% $249,143 100.00%
======== ======= ======== ====== ======== ======= ======== ======= ======== =======
</TABLE>
The maturity distribution of selected categories of Bancorp's loan portfolio at
December 31, 1996, and the interest sensitivity are estimated in the following
table.
<TABLE>
<CAPTION>
Commercial Real Estate
(Dollars in thousands) Loans Construction Total
-------------------- ----------------------------------------
<S> <C> <C> <C>
Maturity distribution:
Due within one year . . . . . . . . . . . . . $78,862 $64,960 $143,822
Due after one through five years . . . . . . 17,449 4,957 22,406
Due after five years . . . . . . . . . . . . 1,204 - 1,204
------ ------ -------
Total . . . . . . . . . . . . . . . . . . . . $97,515 $69,917 $167,432
======= ======= ========
Interest sensitivity:
Fixed-interest rate loans . . . . . . . . . . $30,547 $6,972 $37,519
Floating or adjustable interest rate loans (1) 66,968 62,945 129,913
------ ------ -------
Total . . . . . . . . . . . . . . . . . . $97,515 $69,917 $167,432
======= ======= ========
</TABLE>
(1) Some loans contain provisions which place maximum or minimum limits on
interest rate charges.
23
<PAGE> 26
The Banks manage the general risks inherent in the loan portfolio by
following loan policies and underwriting practices designed to result in
prudent lending activities. The following table presents information with
respect to nonperforming assets.
<TABLE>
<CAPTION>
December 31,
--------------------------------------------------------------
(Dollars in thousands) 1996 1995 1994 1993 1992
-------------------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Loans on nonaccrual status . . . . . . . . . . . $1,884 $804 $476 $1,240 $1,984
Loans past due 90 days or more but not on
nonaccrual status . . . . . . . . . . . . . . . . 92 16 39 244 376
Other real estate owned . . . . . . . . . . . . . - 1 31 607 335
------ ---- ---- ------ ------
Total nonperforming assets . . . . . . . . . $1,976 $821 $546 $2,091 $2,695
====== ==== ==== ====== ======
Percentage of nonperforming assets to total assets .28% .14% .11% .44% .64%
</TABLE>
Interest income on loans is accrued daily on the principal balance
outstanding. Generally, no interest is accrued on loans when factors indicate
collection of interest is doubtful or when the principal or interest payment
becomes 90 days past due. For such loans previously accrued but uncollected
interest is charged against current earnings, and income is only recognized to
the extent payments are subsequently received. Interest income foregone on
nonaccrual loans was approximately $298,620 at December 31, 1996.
At December 31, 1996, there was no concentration of loans exceeding 10
percent of the total loans to a multiple number of borrowers engaged in a
similar business.
24
<PAGE> 27
LOAN LOSS ALLOWANCE AND PROVISION
The provision for loan losses charged to operating expense is based on the
Banks' loan loss experience and such other factors that, in management's
judgment, deserve recognition in estimating loan losses. Management monitors
the loan portfolio to ensure that the allowance for loan losses is adequate to
cover outstanding loans. In determining the allowance for loan losses,
management considers the level of non-performing loans, loan mix, loan growth,
historical loss experience for each loan category, potential economic
influences, and other relevant factors related to the loan portfolio.
<TABLE>
<CAPTION>
Year ended December 31,
---------------------------------------------------------------------------
(Dollars in thousands) 1996 1995 1994 1993 1992
-------------------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Loans outstanding at end of period . . . . $535,793 $400,888 $324,768 $288,588 $252,853
Average loans outstanding during the period $466,623 $363,863 $307,339 $261,452 $210,176
Allowance for loan loss, beginning of period $5,569 $5,070 $4,404 $3,710 $3,074
Recoveries:
Commercial . . . . . . . . . . . . . . 143 58 244 200 95
Real estate . . . . . . . . . . . . . 11 - 2 2 -
Installment and consumer . . . . . . . 40 22 73 38 33
-------- -------- -------- ---------- ---------
Total recoveries . . . . . . . . . . . $194 $80 $319 $240 $128
====== ====== ====== ======= =======
Loans charged off:
Commercial . . . . . . . . . . . . . . 715 298 278 401 698
Real estate . . . . . . . . . . . . . 50 19 24 21 -
Installment and consumer . . . . . . . 135 208 128 207 132
-------- -------- -------- ---------- ---------
Total loans charged off . . . . . . . $900 $525 $430 $629 $830
====== ====== ====== ======= =======
Net loans charged off . . . . . . . . . (706) (445) (111) (389) (702)
Provision for loan loss . . . . . . . . . . 2,175 944 777 1,083 1,338
-------- -------- -------- ---------- ---------
Allowance for loan loss, end of period . . $7,038 $5,569 $5,070 $4,404 $3,710
====== ====== ====== ======= =======
Ratio of net loans charged off to average
loans outstanding . . . . . . . . . . . .15% .12% .04% .15% .33%
</TABLE>
25
<PAGE> 28
In May 1993, the Financial Accounting Standards Board (FASB) issued SFAS
No. 114, "Accounting by Creditors for Impairment of a Loan" and in October 1996
issued SFAS No. 118, "Accounting by Creditors for Impairment of a Loan-Income
Recognition Disclosures, an amendment to SFAS No. 114." Bancorp measures
impaired loans based on the present value of expected future cash flows
discounted at the loan's effective interest rate or, as a practical expedient,
at the loan's observable market price or the fair market value of the
collateral if the loan is collateral dependent. Bancorp excludes loans that
are currently measured at fair value or at lower of cost or fair value, leases
and certain large groups of smaller balance homogeneous loans that are
collectively measured for impairment.
At December 31, 1996 and 1995, Bancorp's recorded investment in certain
loans that were considered to be impaired was $1,696,000 and $318,000,
respectively, all of which was classified as non-performing. Of these impaired
loans, $452,000 and $318,000 had a related valuation allowance of $388,000 and
$59,000, while $1,244,000 and $0 did not have a valuation allowance. The
balance of the allowance for loan loss in excess of these specific reserves is
available to absorb losses from all loans.
As of December 31, 1995, Bancorp had an agricultural loan with an
outstanding balance of $1.5 million that had been written down by $150,000.
During 1996, the loan was further written down by $563,000 due to continued
declines in the crop value. In assessing Bancorp's collateral position, the
crop's value has been written down to $0. The remaining loan balance of
approximately $920,000 is secured by a governmental guarantee for $360,000 and
the remainder of the loan balance is partially collateralized by real estate
and equipment. The loan is currently on nonaccrual status. This is a special
agricultural loan and is the only one within Bancorp with this specific type of
crop. Bancorp feels that it is an isolated situation, and that reserves are
adequate to cover any potential losses.
Management does not normally allocate the allowance for loan loss to
specific loan categories. An allocation to major categories as of December 31,
1996 is made below for presentation purposes only. This allocation process does
not necessarily measure anticipated future credit losses; rather, it seeks to
measure management's current assessment of perceived credit loss exposure and
the impact of current and anticipated economic conditions.
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------------------------------------------------------------
(Dollars in thousands) 1996 1995 1994 1993 1992
- --------------------- ---- ---- ---- ---- ----
Amount Percent Amount Percent Amount Percent Amount Percent Amount Percent
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial . . . . $2,403 34.14% $1,949 35.00% $2,189 43.17% $1,514 34.38% $1,143 30.81%
Real estate . . . . 3,647 51.82 2,761 49.58 2,191 43.21 2,352 53.40 2,390 64.42
Installment and
consumer 988 14.04 859 15.42 690 13.62 538 12.22 177 4.77
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total loans . $7,038 100.00% $5,569 100.00% $5,070 100.00% $4,404 100.00% $3,710 100.00%
</TABLE>
26
<PAGE> 29
Total Deposits and Borrowings. The following table summarizes the average
amount of, and the average rate paid on, each of the deposit and borrowing
categories for the periods shown.
<TABLE>
<CAPTION>
Year Ended December 31
--------------------------------------------------------------
1996 1995 1994
--------------------------------------------------------------
(Dollars in thousands) Amount Rate Paid Amount Rate Paid Amount Rate Paid
--------------------- ------ --------- ------ --------- ------ ---------
<S> <C> <C> <C> <C> <C> <C>
Demand . . . . . . . . . . . . . . . . . . . $97,006 - $82,695 - $79,286 -
Savings and interest bearing demand . . . . . 302,211 3.28% 250,292 3.45% 249,885 2.77%
Certificates of deposit . . . . . . . . . . . 160,369 5.41% 143,500 5.46% 100,862 3.96%
Short-term borrowings . . . . . . . . . . . . 9,448 5.85% 5,932 6.39% 3,599 4.20%
Long-term borrowings . . . . . . . . 12,872 5.35% 10,737 5.39% 9,262 4.89%
------ -----
Total deposits and borrowings . . . . . $581,906 $493,156 $442,894
======== ======== ========
</TABLE>
As of December 31, 1996 time deposit liabilities are presented below at the
earlier of the next repricing date or maturity.
<TABLE>
<CAPTION>
Time Deposits
of $100,000 or More (1) All Other Time Deposits (2)
------------------------------ ------------------------------
(Dollars in thousands) Amount Percent Amount Percent
-------------------- ------ ------- ------ --------
<S> <C> <C> <C> <C>
Reprice/mature in three months or less . . . . . . . $22,481 49.73% $47,604 35.37%
Reprice/mature after three months through six months. 14,781 32.69 34,994 26.00
Reprice/mature after six months through one year . . 4,690 10.37 30,909 22.97
Reprice/mature after one year through five years . . 2,813 6.22 18,310 13.60
Reprice/mature after five years . . . . . . . . . . 449 .99 2,772 2.06
-------- -------- ----- -------
Total . . . . . . . . . . . . . . . . . . . . . . $45,214 100.00% $134,589 100.00%
======= --------- -------- -------
</TABLE>
(1) Time deposits of $100,000 or more represent 7.48% of total deposits as of
December 31, 1996.
(2) All other time deposits represent 22.25% of total
deposits as of December 31, 1996.
As of December 31, 1996 other borrowings had the following times remaining
to maturity.
<TABLE>
<CAPTION>
Due in Due after Due after
three three months one year
months through through Due after
(Dollars in thousands) or less one year five years five years Total
--------------------- -------- ------------ ---------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Short-term borrowings ........... $ 3,709 $ -- $ -- $ -- $ 3,709
Long-term borrowings ............ 13,786 2,357 10,203 2,237 28,583
------- ------- ------- ------- -------
Total borrowings ............. $17,495 $ 2,357 $10,203 $ 2,237 $32,292
======= ======= ======= ======= =======
</TABLE>
27
<PAGE> 30
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following audited consolidated financial statements and related
documents are set forth in this Annual Report on Form 10-K on the pages
indicated:
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Public Accountants . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . 29
Consolidated Balance Sheets . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . 30
Consolidated Statements of Income . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . 31
Consolidated Statements of Cash Flows . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . 32
Consolidated Statements of Shareholders' Equity . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . 33
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . 34
</TABLE>
28
<PAGE> 31
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders and Board of Directors of West Coast Bancorp:
We have audited the accompanying consolidated balance sheets of West Coast
Bancorp (an Oregon corporation) and subsidiaries as of December 31, 1996 and
1995, and the related consolidated statements of income, changes in
stockholders' equity and cash flows for each of the three years in the period
ended December 31, 1996. These financial statements are the responsibility of
West Coast Bancorp's management. Our responsibility is to express an opinion
on these financial statements based on our audits. We did not audit the 1995
and 1994 financial statements of Vancouver Bancorp, a company acquired during
1996 in a transaction accounted for as a pooling of interest, as discussed in
Note 17. Such statements are included in West Coast Bancorp's consolidated
balance sheet as of December 31, 1995, and consolidated statements of income,
changes in stockholders' equity and cash flows for the years ended December 31,
1995 and 1994 and reflect 13% of consolidated assets as of December 31, 1995,
and 14% and 11% of consolidated interest revenues in 1995 and 1994
respectively. These statements were audited by other auditors whose report has
been furnished to us and our opinion, insofar as it relates to the amounts
included for Vancouver Bancorp, is based solely upon the report of the other
auditors.
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, based on our audits and the report of the other auditors,
the financial statements referred to above present fairly, in all material
respects, the financial position of West Coast Bancorp and subsidiaries as of
December 31, 1996 and 1995, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 1996, in
conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Portland, Oregon
January 22, 1997
29
<PAGE> 32
WEST COAST BANCORP
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
Year ended December 31, 1996 1995
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS:
Cash and cash equivalents:
Cash and due from banks . . . . . . . . . . . . . . . . . . . . . . $ 30,817,183 $ 33,990,600
Interest-bearing deposits in other banks . . . . . . . . . . . . . . 12,141,497 2,396,081
Federal funds sold . . . . . . . . . . . . . . . . . . . . . . . . . 23,000 7,648,678
----------- ------------
Total cash and cash equivalents . . . . . . . . . . . . . . . . . 42,981,680 44,035,359
Investment securities:
Investments available for sale . . . . . . . . . . . . . . . . . . 107,168,494 121,381,038
Investments held to maturity . . . . . . . . . . . . . . . . . . . 2,623,154 7,783,038
------------ ------------
Total investment securities . . . . . . . . . . . . . . . . . . 109,791,648 129,164,076
Loans held for sale . . . . . . . . . . . . . . . . . . . . . . . . . . 2,563,703 836,399
Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 535,792,573 400,888,450
Allowance for loan loss . . . . . . . . . . . . . . . . . . . . . . . (7,037,636) $ (5,569,420)
------------ ------------
Loans, net . . . . . . . . . . . . . . . . . . . . . . . . . . . 528,754,937 395,319,030
Premises and equipment, net . . . . . . . . . . . . . . . . . . . . . . 17,716,365 16,530,637
Intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . 197,189 283,290
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,337,512 9,405,881
------------ ------------
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . $712,343,034 $595,574,672
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Deposits:
Demand . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $105,836,128 $ 94,362,226
Savings and interest-bearing demand . . . . . . . . . . . . . . . . 319,263,258 270,132,276
Certificates of deposits . . . . . . . . . . . . . . . . . . . . . 179,802,711 148,279,223
------------ ------------
Total deposits . . . . . . . . . . . . . . . . . . . . . . . . . 604,902,097 512,773,725
Short-term borrowings . . . . . . . . . . . . . . . . . . . . . . . . . 3,709,324 8,527,000
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,003,722 5,105,917
Long-term borrowings . . . . . . . . . . . . . . . . . . . . . . . . . 28,582,770 10,187,763
------------ ------------
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . 645,197,913 536,594,405
Commitments and contingent liabilities
STOCKHOLDERS' EQUITY:
Preferred stock, no par value; none issued;
10,000,000 shares authorized
Common stock; no par value 15,000,000 shares authorized; shares issued
and outstanding, 6,702,572, and 5,308,813 respectively . . . . . . 8,378,215 6,636,016
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . 35,476,302 36,532,496
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . 22,363,318 14,036,510
Net unrealized gains on investments available for sale . . . . . . . . 927,286 1,775,245
------------ ------------
Total stockholders' equity . . . . . . . . . . . . . . . . . . . 67,145,121 58,980,267
------------ ------------
Total liabilities and stockholders' equity . . . . . . . . . . . $712,343,034 $595,574,672
============ ============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED STATEMENTS
30
<PAGE> 33
WEST COAST BANCORP
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Year ended December 31, 1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------
INTEREST INCOME
<S> <C> <C> <C>
Interest and fees on loans . . . . . . . . . . . . . . . $48,516,001 $38,838,663 $30,848,846
Interest on taxable investment securities . . . . . . . . 4,861,108 4,849,059 4,662,516
Interest on nontaxable investment securities . . . . . . 2,545,479 2,812,499 2,721,225
Interest from other banks . . . . . . . . . . . . . . . . 305,248 152,418 165,889
Interest on federal funds sold . . . . . . . . . . . . . 396,020 640,687 519,673
------- ------- -------
Total interest income . . . . . . . . . . . . . . . 56,623,856 47,293,326 38,918,149
INTEREST EXPENSE
Savings and interest-bearing demand . . . . . . . . . . . 9,912,025 8,634,137 6,910,351
Certificates of deposit . . . . . . . . . . . . . . . . . 8,680,066 7,836,904 3,991,381
Short-term borrowings . . . . . . . . . . . . . . . . . . 552,338 378,824 151,334
Long-term borrowings . . . . . . . . . . . . . . . . . . 689,160 579,433 452,868
------- ------- -------
Total interest expense . . . . . . . . . . . . . . . 19,833,589 17,429,298 11,505,934
---------- ---------- ----------
NET INTEREST INCOME 36,790,267 29,864,028 27,412,215
PROVISION FOR LOAN LOSS . . . . . . . . . . . . . . . . . 2,174,987 943,460 777,500
--------- ------- -------
NET INTEREST INCOME AFTER PROVISION FOR
LOAN LOSS . . . . . . . . . . . . . . . . . . . . . . . . 34,615,280 28,920,568 26,634,715
NONINTEREST INCOME
Other service charges, commissions, and fees . . . . . . 2,747,856 2,292,827 1,887,838
Service charges on deposit accounts . . . . . . . . . . . 2,632,192 2,538,190 2,420,981
Trust revenues . . . . . . . . . . . . . . . . . . . . . 1,360,430 1,268,587 1,205,973
Gains on sales of loans . . . . . . . . . . . . . . . . . 1,178,052 852,954 1,010,267
Loan servicing fees . . . . . . . . . . . . . . . . . . . 499,744 491,855 449,795
Other . . . . . . . . . . . . . . . . . . . . . . . . . . 443,281 640,508 282,132
Net gains (losses) on sales of securities . . . . . . . . 17,030 9,838 (170,464)
------ ----- --------
Total noninterest income . . . . . . . . . . . . . . 8,878,585 8,094,759 7,086,522
NONINTEREST EXPENSE
Salaries and employee benefits . . . . . . . . . . . . . 15,969,770 14,131,152 12,910,024
Equipment . . . . . . . . . . . . . . . . . . . . . . . . 2,454,551 2,141,985 1,878,655
Occupancy . . . . . . . . . . . . . . . . . . . . . . . . 2,324,133 1,972,562 1,646,859
Professional fees . . . . . . . . . . . . . . . . . . . . 1,822,824 1,479,574 2,091,465
ATM and bankcard . . . . . . . . . . . . . . . . . . . . 1,022,998 799,984 658,405
Marketing . . . . . . . . . . . . . . . . . . . . . . . . 783,067 741,977 714,282
Printing and office supplies . . . . . . . . . . . . . . 750,813 728,955 573,039
FDIC Insurance . . . . . . . . . . . . . . . . . . . . 10,432 517,847 923,587
Communications . . . . . . . . . . . . . 643,107 576,344 414,686
Other noninterest expense . . . . . . . . . . . . . . . . 3,069,645 2,430,076 2,843,353
--------- --------- ---------
Total noninterest expense . . . . . . . . . . . . . 28,851,340 25,520,456 24,654,355
---------- ---------- ----------
INCOME BEFORE INCOME TAXES . . . . . . . 14,642,525 11,494,871 9,066,882
PROVISION FOR INCOME TAXES . . . . . . . 4,840,510 3,245,720 2,751,249
--------- --------- ---------
NET INCOME . . . . . . . . . . . . . . . . . . . . . . . $9,802,015 $8,249,151 $6,315,633
========== ========== ==========
EARNINGS PER COMMON SHARE $1.47 $1.24 $1.00
===== ===== =====
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED STATEMENTS
31
<PAGE> 34
WEST COAST BANCORP
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years ended December 31, 1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C> <C>
Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . $9,802,015 $8,249,151 $6,315,633
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization of premises and equipment . . . . . 1,610,706 1,327,041 1,187,759
Amortization of intangibles . . . . . . . . . . . . . . . . . . . 86,101 86,100 86,100
Net (gains) losses on sales of investments . . . . . . . . . . . . (17,030) (9,838) 170,464
Provision for loan losses . . . . . . . . . . . . . . . . . . . . 2,174,987 943,460 777,500
Increase in interest receivables . . . . . . . . . . . . . . . . . (65,563) (809,609) (269,246)
(Increase) decrease in other assets . . . . . . . . . . . . . . . (866,068) 281,175 (1,883,595)
Net cash (used) provided by loans held for sale . . . . . . . . . (1,727,304) (836,399) 858,467
Increase (decrease) in interest payable . . . . . . . . . . . . . 286,868 316,190 (102,513)
Increase (decrease) in other liabilities . . . . . . . . . . . . . 2,610,937 (40,457) (76,482)
--------- -------- -------
Net cash provided by operating activities . . . . . . . . . . . . 13,895,649 9,506,814 7,064,087
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from maturities of investment securities:
Available for sale . . . . . . . . . . . . . . . . . . . . . . . . 33,100,496 28,263,268 28,628,771
Held to maturity . . . . . . . . . . . . . . . . . . . . . . . . . 5,409,848 10,409,127 13,604,402
Proceeds from sales of investment securities:
Available for sale . . . . . . . . . . . . . . . . . . . . . . . . 16,210,543 3,931,191 10,329,000
Held to maturity . . . . . . . . . . . . . . . . . . . . . . . . . - - 1,881,000
Purchase of investment securities:
Available for sale . . . . . . . . . . . . . . . . . . . . . . . . (35,929,424) (34,137,513) (32,159,002)
Held to maturity . . . . . . . . . . . . . . . . . . . . . . . . . (249,964) (4,368,282) (18,923,902)
Loans made to customers greater than principal
collected on loans . . . . . . . . . . . . . . . . . . . . . . . . (135,610,894) (76,564,136) (36,291,931)
Capital expenditures, net . . . . . . . . . . . . . . . . . . . . . . (2,796,434) (3,328,681) (5,059,907)
---------- ---------- ----------
Net cash used in net investing activities . . . . . . . . . . . . (119,865,829) (75,795,026) (37,991,569)
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in demand, savings and
interest-bearing transaction . . . . . . . . . . . . . . . . . . 60,604,884 33,348,210 27,451,490
Net increase (decrease) in proceeds from sales of certificates of
deposits greater than payments for maturing time deposits . . . . 31,523,488 42,250,673 (3,663,831)
Proceeds from long-term borrowings . . . . . . . . . . . . . . . . . 22,000,000 2,000,000 2,500,000
Payments on long-term borrowings . . . . . . . . . . . . . . . . . . (3,604,993) (1,857,936) (1,549,539)
Net (decrease) increase in short-term borrowings . . . . . . . . . (4,817,676) (6,288,000) 2,495,000
Sales of common stock, net . . . . . . . . . . . . . . . . . . . . . 686,906 212,914 5,077,227
Dividends paid and cash paid for fractional shares . . . . . . . . . (1,476,108) (1,408,405) (1,150,514)
---------- ---------- ----------
Net cash provided by financing
activities . . . . . . . . . 104,916,501 68,257,456 31,159,833
NET (DECREASE) INCREASE IN CASH AND
CASH EQUIVALENTS . . . . . . . . . . . (1,053,679) 1,969,244 232,351
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR . . . . . . . . . . . 44,035,359 42,066,115 41,833,764
---------- ---------- ----------
CASH AND CASH EQUIVALENTS AT END OF YEAR $42,981,680 $44,035,359 $42,066,115
=========== =========== ===========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED STATEMENTS
32
<PAGE> 35
WEST COAST BANCORP
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Unrealized
Gains (Losses)
Common Stock Additional on Investments
----------------------- Paid-In Retained Available
Shares Amount Capital Earnings for Sale Total
--------- ---------- ----------- ----------- --------------- -----------
<S> <C> <C> <C> <C> <C>
BALANCE, December 31, 1993............. 3,499,660 $4,374,575 $19,140,902 $16,393,539 $432,469 $40,341,485
Net income............................. - - - 6,315,633 - 6,315,633
Net unrealized losses on investments
available for sale................. - - - - (1,700,003) (1,700,003)
Cash dividends, $.19 per common share.. - - - (1,149,105) - (1,149,105)
Purchase of stock at cost.............. (25,290) (31,613) (364,500) - - (396,113)
Purchase of common stock pursuant
to employee stock ownership plan... 3,471 4,338 29,533 - - 33,871
Sale of stock.......................... 22,922 28,653 334,452 - - 363,105
Sale of common stock pursuant to
stock option plans................. 2,078 2,598 17,323 - - 19,921
10 percent stock dividend.............. 296,860 371,075 4,996,419 (5,367,494) - -
Stock split in the form of a 100% 638,894 798,618 (798,618) - - -
dividend............................
Cash paid for fractional shares........ - - - (1,409) - (1,409)
Transfer............................... - - 1,360,925 (1,360,925) - -
Common stock issuance in public
offering............................ 414,000 517,500 4,538,943 - - 5,056,443
--------- ----------- ----------- ----------- ----------- -----------
BALANCE, December 31, 1994............. 4,852,595 6,065,744 29,255,379 14,830,239 (1,267,534) 48,883,828
Net Income ............................ - - - 8,249,151 - 8,249,151
Net unrealized gains on investments
available for sale................. - - - - 3,042,779 3,042,779
Cash dividends, $.23 per common share.. - - - (1,395,569) - (1,395,569)
Purchase of common stock pursuant
to employee stock ownership plan... 4,608 5,760 46,453 - - 52,213
Sale of stock.......................... 5,699 7,124 82,286 - - 89,410
Sale of common stock pursuant to
stock option plans................. 9,919 12,398 58,893 - - 71,291
10 percent stock dividend ............. 436,276 545,345 7,089,485 (7,634,830) - -
Cash paid for fractional shares........ (284) (355) - (12,481) - (12,836)
--------- ----------- ----------- ----------- ----------- -----------
BALANCE, December 31, 1995............. 5,308,813 6,636,016 36,532,496 14,036,510 1,775,245 58,980,267
Net income............................. - - - 9,802,015 - 9,802,015
Net unrealized losses on investments
available for sale................. - - - - (847,959) (847,959)
Cash dividends, $.22 per common share - - - (1,461,310) - (1,461,310)
Purchase of common stock pursuant to
employee stock ownership plan..... 4,518 5,648 77,396 - - 83,044
Sale of common stock pursuant to
stock option plans................. 56,377 70,471 533,391 - - 603,862
Stock Split in the form of a
25% dividend....................... 1,333,585 1,666,981 (1,666,981) - - -
Cash paid for fractional shares........ (721) (901) - (13,897) - (14,798)
--------- ---------- ----------- ----------- ------------ -----------
BALANCE, December 31, 1996............. 6,702,572 $8,378,215 $35,476,302 $22,363,318 $ 927,286 $67,145,121
========= ========== =========== =========== ============ ===========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED STATEMENTS
33
<PAGE> 36
WEST COAST BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION. The accompanying consolidated financial
statements include the accounts of West Coast Bancorp (Bancorp) and its
wholly-owned subsidiaries, The Commercial Bank, The Bank of Newport, Bank of
Vancouver and Valley Commercial Bank, (the Banks) and West Coast Trust after
elimination of intercompany transactions and balances.
NATURE OF OPERATIONS. Bancorp operates 31 branch office locations in
Oregon and Southwest Washington. The Banks activities include the usual
lending and deposit functions of commercial banks. West Coast Trust provides
agency, trust and related services.
INVESTMENT SECURITIES. Bancorp adopted Financial Accounting Standards
Board Statement SFAS No. 115 "Accounting for Certain Investments in Debt and
Equity Securities" as of December 31, 1993. Under the standard, investment
securities are classified as either available for sale or held to maturity.
Available for sale securities are carried at fair value with unrealized gains
and losses, net of any tax effect, added to or deducted directly from
stockholders' equity. Held to maturity securities are carried at amortized
cost.
LOANS HELD FOR SALE. Loans held for sale are carried at the lower of cost
or market. Market value is determined in the aggregate.
LOANS. Interest income on loans is accrued daily on the principal balance
outstanding. Generally, no interest is accrued on loans when factors indicate
collection of interest is doubtful or when the principal or interest payment
becomes 90 days past due. For such loans, previously accrued but uncollected
interest is charged against current earnings, and income is only recognized to
the extent payments are subsequently received. Loan fees are offset against
operating expense to the extent these fees cover the direct expense of
originating loans. Fees in excess of origination costs are deferred and
amortized to income over the related loan period.
ACCOUNTING CHANGES. In May 1993, the Financial Accounting Standards Board
(FASB) issued SFAS No. 114, "Accounting by Creditors for Impairment of a Loan"
and in October 1996 issued SFAS No. 118, "Accounting by Creditors for
Impairment of a Loan-Income Recognition Disclosures, an amendment to SFAS No.
114." They require that impaired loans be measured based on the present value
of expected future cash flows discounted at the loan's effective interest rate
or, as a practical expedient, at the loan's observable market price or the fair
market value of the collateral if the loan is collateral dependent. These
statements exclude loans that are currently measured at fair value or at lower
of cost or fair value, leases and certain large groups of smaller balance
homogeneous loans that are collectively measured for impairment. These
statements apply to financial statements for fiscal years beginning after
December 31, 1994. The implementation of the statements did not have a
material effect on Bancorp's reported financial position or net income in 1995.
In May 1995, FASB issued SFAS No. 122, "Accounting to Mortgage Servicing
Rights", which requires recognition as separate assets rights to service
mortgage loans for others, however those rights are acquired. It further
requires the assessment of its capitalized mortgage servicing rights for
impairment based on the fair value of those rights. Impairment should be
recognized through a valuation allowance. This statement applies to financial
statements for fiscal years beginning after December 15, 1995. The
implementation of this statement did not have a material effect on Bancorp's
reported financial position or net income in 1996.
In October 1995, FASB issued SFAS No 123, "Accounting for Stock-Based
Compensation", which requires disclosures about stock-based compensation
arrangements regardless of the method used to account for them. Bancorp has
opted to continue to apply the accounting provisions of Opinion No. 25, and
therefore will disclose the difference between compensation cost included in
net income and the related cost measured by the fair value based method defined
by SFAS No. 123, including tax effects, that would have been recognized in the
income statement if the fair value method had been used.
34
<PAGE> 37
WEST COAST BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
ALLOWANCE FOR LOAN LOSS. The allowance for loan loss is based on
management's estimates. Actual losses may vary from current estimates. These
estimates are reviewed periodically and, as adjustments become necessary, are
reported in earnings in the periods in which they become known. Losses are
charged and recoveries are credited to the allowance.
PREMISES AND EQUIPMENT. Premises and equipment are stated at cost, less
accumulated depreciation. The provision for depreciation is computed on the
straight-line method over the estimated useful lives of the related assets.
Improvements are capitalized and depreciated over their estimated useful lives.
Minor repairs, maintenance, and improvements are charged to operations as
incurred. When property is replaced or otherwise disposed of, the cost of such
assets and the related accumulated depreciation are removed from their
respective accounts. Related profit or loss, if any, is recorded in the
Consolidated Statement of Income.
OTHER BORROWINGS. Federal funds purchased and securities sold under
agreements to repurchase generally mature within one to four days from the
transaction date. Other short-term borrowed funds mature within one year from
the transaction date, other long-term borrowed funds extend beyond one year.
INCOME TAXES. Income taxes are accounted for using the asset and liability
method. Under this method, a deferred tax asset or liability is determined
based on the enacted tax rates which will be in effect when the differences
between the financial statement carrying amounts and tax bases of existing
assets and liabilities are expected to be reported in Bancorp income tax
returns. The deferred tax provision for the year is equal to the net change in
the deferred tax asset from the beginning to the end of the year, less amounts
applicable to the change in value related to investments available for sale.
The effect on deferred taxes of a change in tax rates is recognized in income
in the period that includes the enactment date.
TRUST DEPARTMENT ASSETS. Assets (other than cash deposits) held by West
Coast Trust in fiduciary or agency capacities for its trust customers are not
included in the accompanying consolidated balance sheets, since such items are
not assets of West Coast Trust.
EARNINGS PER SHARE. Earnings per share computations are based on the
weighted average common shares outstanding during the year. The shares used in
calculating earnings per share were 6,660,492, 6,627,698, 6,313,367 for
December 31, 1996, 1995, and 1994, respectively. The shares used in
calculating earnings per share have been restated to reflect all stock
dividends paid as well as all stock splits in the form of stock dividends
distributed.
SUPPLEMENTAL CASH FLOW INFORMATION. For purposes of reporting cash flows,
cash and cash equivalents include cash on hand, amounts due from banks, and
federal funds sold. Generally, federal funds are purchased and sold for
one-day periods. Bancorp paid $19,547,000, $17,118,000, and $11,608,000, for
interest in 1996, 1995, and 1994, respectively. Income taxes paid were
$4,572,000, $2,936,000, and $2,478,000 in 1996, 1995, and 1994, respectively.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS. The
preparation of financial statements, in conformity with generally accepted
accounting principles, requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
RECLASSIFICATIONS. Certain reclassifications of prior year amounts have
been made to conform to current classifications.
35
<PAGE> 38
WEST COAST BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. INVESTMENT SECURITIES
<TABLE>
<CAPTION>
(Dollars in thousands) AVAILABLE FOR SALE
-------------------- -------------------------------------------------------
Amortized Unrealized Unrealized
1996 Cost Gross Gains Gross Losses Fair Value
- ---- --------- ----------- ------------ ----------
<S> <C> <C> <C> <C>
U.S. Treasury securities . . . . . . . . . . $8,819 $23 $15 $8,827
U.S. Government agency securities . . . . . . 38,261 182 105 38,338
Corporate securities . . . . . . . . . . . . 3,346 14 2 3,358
Mortgage-backed securities . . . . . . . . . 15,213 58 293 14,978
Obligations of state and political subdivisions 34,983 1,702 68 36,617
Equity and other securities . . . . . . . . . 5,042 8 - 5,050
-------- ------ ---- --------
Total . . . . . . . . . . . . . . . . . . . $105,664 $1,987 $483 $107,168
======== ====== ==== ========
</TABLE>
<TABLE>
<CAPTION>
HELD TO MATURITY
------------------------------------------------------
Amortized Unrealized Unrealized
1996 Cost Gross Gains Gross Losses Fair Value
- ---- ----------- ----------- ------------ ----------
<S> <C> <C> <C> <C>
Obligations of state and political subdivisions $2,623 $41 $12 $2,652
------ --- --- ------
Total . . . . . . . . . . . . . . . . . . $2,623 $41 $12 $2,652
====== === === ======
</TABLE>
<TABLE>
<CAPTION>
AVAILABLE FOR SALE
-------------------------------------------------------------
Amortized Unrealized Unrealized
1995 Cost Gross Gains Gross Losses Fair Value
- ---- --------- ----------- ------------ ----------
<S> <C> <C> <C> <C>
U.S. Treasury securities ...................... $ 18,926 $ 94 $ 48 $ 18,972
U.S. Government agency securities ............. 36,082 515 16 36,581
Corporate securities .......................... 4,748 57 2 4,803
Mortgage-backed securities .................... 11,444 132 217 11,359
Obligations of state and political subdivisions 43,983 2,418 66 46,335
Equity and other securities ................... 3,324 9 2 3,331
-------- -------- -------- --------
Total ...................................... $118,507 $ 3,225 $ 351 $121,381
======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
HELD TO MATURITY
----------------------------------------------------
Amortized Unrealized Unrealized
1995 Cost Gross Gains Gross Losses Fair Value
- ---- --------- ----------- ------------ ----------
<S> <C> <C> <C> <C>
U.S. Treasury securities ...................... $ 408 $ 34 $ - $ 442
Mortgage-backed securities .................... 4,783 20 61 4,742
Obligations of state and political subdivisions 2,592 44 21 2,615
------ ------ ------ ------
Total ...................................... $7,783 $ 98 $ 82 $7,799
====== ====== ====== ======
</TABLE>
Gross gains of $87,748, $13,579, and $5,000 and gross losses of $70,718,
$3,741, and $175,464 were realized on sales of investment securities in 1996,
1995, and 1994 respectively. In November 1995, Bancorp adopted the FASB Special
Report concerning the implementation of SFAS No. 115. Accordingly, it elected to
transfer most of its investment securities classified as held to maturity to the
available for sale category. Securities with a fair value of approximately
$22,587,660 at December 31, 1996, were pledged to secure public deposits.
Outstanding mortgage-backed securities classified as high-risk at December 31,
1996 were $1,714,065 with a yield of 6.60% and a fair market value of
$1,602,808.
36
<PAGE> 39
WEST COAST BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. MATURITIES OF INVESTMENTS
<TABLE>
<CAPTION>
(Dollars in thousands) AVAILABLE FOR SALE HELD TO MATURITY
- ---------------------- ------------------------- ------------------------
Amortized Fair Value Amortized Fair Value
1996 Cost Cost
- ---- --------- ---------- --------- ----------
<S> <C> <C> <C> <C>
U.S. Treasury securities
One year or less ..................... $ 5,025 $ 5,030 -- --
One year through five years .......... 3,794 3,797 -- --
After five through ten years ......... -- -- -- --
Due after ten years .................. -- -- -- --
-------- -------- -------- --------
Total ............................. 8,819 8,827 -- --
U.S. Government agency securities
One year or less ..................... 2,502 2,511 -- --
One year through five years .......... 32,525 32,588 -- --
After five through ten years ......... 3,234 3,239 -- --
Due after ten years .................. -- -- -- --
-------- -------- -------- --------
Total ............................. 38,261 38,338 -- --
Corporate Securities
One year or less ..................... 1,505 1,508 -- --
One year through five years .......... 1,841 1,850 -- --
After five through ten years ......... -- -- -- --
Due after ten years .................. -- -- -- --
-------- -------- -------- --------
Total ............................. 3,346 3,358 -- --
Obligations of state and political
subdivisions
One year or less ..................... 1,005 1,007 -- --
One year through five years .......... 9,630 9,979 1,031 1,037
After five through ten years ......... 15,877 16,794 1,331 1,338
Due after ten years .................. 8,471 8,837 261 277
-------- -------- -------- --------
Total ............................. 34,983 36,617 2,623 2,652
Sub-total ......................... 85,409 87,140 2,623 2,652
Mortgage-backed securities .............. 15,213 14,978 -- --
Equity investments ...................... 5,042 5,050 -- --
-------- -------- -------- --------
Total securities .................. $105,664 $107,168 $ 2,623 $ 2,652
======== ======== ======== ========
</TABLE>
37
<PAGE> 40
WEST COAST BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. LOANS AND ALLOWANCE FOR LOAN LOSS
The loan portfolio consists of the following:
<TABLE>
<CAPTION>
December 31,
--------------------------------
1996 1995
------------ ------------
<S> <C> <C>
Commercial loans . . . . . . . . . . . . . . . . . . . . . . . . . $ 97,515,273 $ 66,213,975
Real estate - construction . . . . . . . . . . . . . . . . . . . . 69,916,894 52,894,075
Real estate - mortgage . . . . . . . . . . . . . . . . . . . . . . 92,060,069 75,293,375
Real estate - commercial . . . . . . . . . . . . . . . . . . . . . 235,934,845 165,734,000
Installment and other consumer . . . . . . . . . . . . . . . . . . 40,365,492 40,753,025
------------ ------------
Total loans . . . . . . . . . . . . . . . . . . . . . . . . . 535,792,573 400,888,450
Allowance for loan loss . . . . . . . . . . . . . . . . . . . . . . (7,037,636) (5,569,420)
------------ ------------
Total loans, net . . . . . . . . . . . . . . . . . . . . . . . $528,754,937 $395,319,030
============ ============
</TABLE>
The following is an analysis of the changes in the allowance for loan loss:
<TABLE>
<CAPTION>
December 31,
--------------------------------------------------
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Balance, beginning of period . . . . . . . . . $5,569,420 $5,070,364 $4,403,704
Provision for loan loss . . . . . . . . . . . . 2,174,987 943,460 777,500
Losses charged to the allowance . . . . . . . . (900,674) (524,650) (430,367)
Recoveries credited to the allowance . . . . . 193,903 80,246 319,527
------- ------ -------
Balance, end of period . . . . . . . . . . . . $7,037,636 $5,569,420 $5,070,364
========== ========== ==========
</TABLE>
Loans on which the accrual of interest has been discontinued amounted to
approximately $1,884,000, $804,000, and $476,000 at December 31, 1996, 1995,
and 1994, respectively. Interest income foregone on non-accrual loans was
approximately $298,620, $86,664, and $72,687, in 1996, 1995, and 1994,
respectively.
At December 31, 1996 and 1995, Bancorp's recorded investment in certain
loans that were considered to be impaired was $1,696,000 and $318,000,
respectively, all of which was classified as non-performing. Of these impaired
loans, $452,000 and $318,000 had a related valuation allowance of $388,000 and
$59,000, while $1,244,000 and $0 did not have a valuation allowance. The
balance of the allowance for loan loss in excess of these specific reserves is
available to absorb losses from all loans. The average recorded investment in
certain impaired loans for the years ended December 31, 1996 and 1995 was
approximately, $965,000 and $134,000, respectively. For the years ended
December 31, 1996 and 1995, interest income recognized on impaired loans
totaled $28,000 and $20,000, respectively, all of which was recognized on a
cash basis.
As of December 31, 1996, the Banks had loans to persons serving as
directors, officers, and employees, including their spouses, associates, and
related organizations totaling $7,429,422. These loans were made substantially
on the same terms, including interest rates, maturities, and collateral, as
those made to other customers of the Banks.
The Banks grant commercial and residential loans to customers throughout
Oregon and Southwest Washington. Although the Banks have a diversified loan
portfolio, a substantial portion of the portfolio belongs to debtors whose
ability to honor their contracts is dependent upon the economy of Oregon and
Southwest Washington.
38
<PAGE> 41
WEST COAST BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. PREMISES AND EQUIPMENT
Premises and equipment consists of the following:
<TABLE>
<CAPTION>
December 31,
--------------------------------
1996 1995
------------- ------------
<S> <C> <C>
Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,721,581 $ 2,142,476
Buildings and improvements . . . . . . . . . . . . . . . . . . . . . . 14,425,839 13,706,310
Furniture and equipment . . . . . . . . . . . . . . . . . . . . . . . . 9,744,663 9,040,540
Construction in progress . . . . . . . . . . . . . . . . . . . . . . . 366,578 95,512
----------- -----------
27,258,661 24,984,838
Accumulated depreciation (9,542,296) (8,454,201)
----------- -----------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $17,716,365 $16,530,637
=========== ===========
</TABLE>
Depreciation included in net occupancy and equipment expense amounted to
$1,610,706, and $1,327,041 and $1,187,759 for the years ended December 31,
1996, 1995, and 1994 respectively.
6. BORROWINGS
Short-term borrowings consist of $135,400 on a Cash Management Account
(CMA) line of credit for overnight funding with the Federal Home Loan Bank
(FHLB), and term notes outstanding with the FHLB of $3 million with terms
ranging for 3 to 6 months at rates of interest from 5.44% to 5.60%. Bancorp
also had $573,924 in repurchase agreements outstanding, with an average rate of
4.93%.
Long-term borrowing, as of December 31, 1996, consists of amortizing notes
and putable advances with the FHLB totaling $28,582,770. Bancorp has five
amortizing notes totaling $15,582,770, which have original terms of seven years
and mature between April of 2000, and December 2003. Rates on the amortizing
notes range from 4.98% to 6.55%, with an outstanding weighted average rate of
5.77%. Bancorp also has $13 million in putable advances from the FHLB. The
putable advances have terms of five years with quarterly put options starting
March 3, 1997 with a final maturity in December 2001. Principal payments due
on Bancorp's borrowings from 1997 to 1999 are $3.1 million each year, payments
due in 2000 equal $2.2 million, payments due in 2001 equal $14.6 million with a
balance of $2.4 million due thereafter.
39
<PAGE> 42
WEST COAST BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. INCOME TAXES
The provision for income taxes attributable to income for the last three
years consisted of the following:
<TABLE>
<CAPTION>
Year ended December 31,
--------------------------------------------------
1996 1995 1994
(Dollars in thousands) ------------ ------------ ------------
--------------------
Current
<S> <C> <C> <C>
Federal . . . . . . . . . . . . . . . . . $4,338 $2,934 $2,235
State . . . . . . . . . . . . . . . . . . 871 336 550
--- --- ---
5,209 3,270 2,785
Deferred
Federal . . . . . . . . . . . . . . . . . (305) (23) (29)
State . . . . . . . . . . . . . . . . . . (63) (1) (4)
---- --- ---
(368) (24) (33)
Total
Federal . . . . . . . . . . . . . . . . . 4,033 2,911 2,206
State . . . . . . . . . . . . . . . . . . 808 335 546
--- --- ---
Total . . . . . . . . . . . . . . . . . $4,841 $3,246 $2,752
====== ====== ======
</TABLE>
The tax effect of temporary differences that give rise to significant
portions of deferred tax assets and deferred tax liabilities for the last three
years are presented below:
<TABLE>
<CAPTION>
Year ended December 31,
--------------------------------------------------
1996 1995 1994
(Dollars in thousands) ------------ ------------ ------------
--------------------
Deferred tax assets:
<S> <C> <C> <C>
Allowance for loan loss . . . . . . . . . $1,980 $1,325 $1,178
Deferred income . . . . . . . . . . . . . 173 209 344
Net unrealized losses on investments
available for sale . . . . . . . . . . - - 597
Net operating loss . . . . . . . . . . . 13 63 143
Reorganization costs . . . . . . . . . . 84 111 -
Deferred employee benefits . . . . . . . 318 296 260
Other . . . . . . . . . . . . . . . . . . 6 19 58
------ ------ -----
Total deferred tax assets . . . . . . . 2,574 2,023 2,580
Deferred tax liabilities:
Accumulated depreciation . . . . . . . . 432 387 402
Federal Home Loan Bank stock dividends . 336 199 162
Net unrealized gains on investments
available for sale . . . . . . . . . . 577 1,099 -
Other 92 91 97
-- -- --
Total deferred liabilities . . . . . . 1,437 1,776 661
------ ------ -----
Net deferred tax assets . . . . . . . . . $1,137 $ 247 $1,919
====== ====== ======
</TABLE>
40
<PAGE> 43
WEST COAST BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. INCOME TAXES (continued)
The financial tax rate of the provision for income taxes varies from the
federal income tax statutory rate. The reasons for the variance are as
follows:
<TABLE>
<CAPTION>
Year ended December 31,
--------------------------------------------------
1996 1995 1994
(Dollars in thousands) ------------ ------------ ------------
--------------------
<S> <C> <C> <C>
Expected federal income tax provision at 34 percent ....... $ 4,979 $ 3,908 $ 3,083
State income tax, net of federal income tax effect ........ 541 223 388
Interest on obligations of state and political subdivisions
exempt from federal tax ................................. (769) (844) (875)
Other, net ................................................ 90 (41) 155
------- ------- -------
Total ................................................... $ 4,841 $ 3,246 $ 2,751
======= ======= =======
</TABLE>
8. CERTIFICATES OF DEPOSITS
Included in certificates of deposit are certificates in denominations of
$100,000 or greater, totaling $45,214,087 and $35,710,521 at December 31, 1996,
and 1995, respectively. Interest expense relating to certificates of deposits
in denominations of $100,000 or greater was $2,094,955, $1,946,980, and
$869,451 for the years ended December 31, 1996, 1995, and 1994, respectively.
9. STOCKHOLDERS' EQUITY AND STOCK OPTION PLANS
Authorized capital of West Coast Bancorp includes 10,000,000 shares of
Preferred Stock no par value, none of which was issued at December 31, 1996.
On September 26, 1996, the Board of Directors declared a stock split in the
form of a 25 percent dividend payable to shareholders of record October 7,
1996. All share and per share amounts have been restated to retroactively
reflect the stock dividend as well as all previous stock dividends and splits.
The Federal Reserve Board (FRB) and Federal Deposit Insurance Corporation
(FDIC) have established minimum requirements for capital adequacy for bank
holding companies and member banks. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, Bancorp and its significant
bank subsidiaries must meet specific capital guidelines that involve
quantitative measures of assets, liabilities and certain off-balance sheet
items. The FRB and FDIC risk based capital guidelines require banks and bank
holding companies to have a ratio of tier one capital to total risk weighted
assets of at least 4%, and a ratio of total capital to total risk weighted
assets of 8% or greater. In addition, the leverage ratio of tier one capital
to total average assets less intangibles is required to be at least 3%. Well
capitalized guidelines require banks and bank holding companies to maintain
tier one capital of at least 6%, total risk based capital of at least 10% and
a leverage ratio of at least 5%. Bancorp and its significant bank
subsidiaries' capital components, classification, risk weightings and other
factors are also subject to qualitative judgements by regulators. Failure to
meet minimum capital requirements can initiate certain action by regulators
that, if undertaken, could have a material effect on Bancorp's financial
statements. As of December 31, 1996, Bancorp and all of its subsidiary banks
are considered "Well Capitalized" under current risk based capital regulatory
guidelines. Management believes that no events or changes in conditions have
occurred which would significantly change Bancorp and its bank subsidiaries'
capital position.
41
<PAGE> 44
WEST COAST BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. STOCKHOLDERS' EQUITY AND STOCK OPTION PLANS (continued)
The following table presents selected risk adjusted capital information as
of December 31, 1996 and 1995:
<TABLE>
<CAPTION>
West Coast The The Bank Bank
(Dollars in thousands) Bancorp Commercial Bank of Newport of Vancouver
-------------------- ---------------------------------------------------------------------------------
1996
----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Tier 1 capital $ 66,072 11.63% $ 31,155 11.70% $ 17,690 9.23% $ 8,364 9.46%
Well capitalized 34,075 6.00% 15,981 6.00% 11,495 6.00% 5,308 6.00%
-------- ------- -------- ------- -------- ------- -------- -------
Excess $ 31,997 5.63% $ 15,174 5.70% $ 6,195 3.23% $ 3,056 3.46%
======== ======= ======== ======= ======== ======= ======== =======
Total capital $73,110 12.87% $ 34,376 12.91% $ 19,965 10.42% $ 9,472 10.71%
Well capitalized 56,792 10.00% 26,634 10.00% 19,158 10.00% 8,846 10.00%
-------- ------- -------- ------ -------- ------ -------- -------
Excess $ 16,318 2.87% $ 7,742 2.91% $ 807 0.42% $ 626 0.71%
======== ======= ======== ======= ======== ======= ======== =======
Risk adjusted assets $567,920 $266,344 $191,581 $ 88,464
======== ======== ======== ========
Leverage ratio 9.52% 9.20% 7.88% 8.23%
Well capitalized 5.00% 5.00% 5.00% 5.00%
------- ------- ------- -------
Excess 4.52% 4.20% 2.88% 3.23%
======= ======= ======= =======
Adjusted total assets $693,847 $338,707 $224,377 $101,620
======== ========= ======== ========
1995
----
Tier 1 capital $ 57,039 13.16% $ 29,697 13.43% $ 15,572 11.23% $ 5,728 9.46%
Well capitalized 26,011 6.00% 13,263 6.00% 8,319 6.00% 3,632 6.00%
-------- ------- -------- ------ -------- ------ -------- -------
Excess $ 31,028 7.16% $ 16,434 7.43% $ 7,253 5.23% $ 2,096 3.46%
======== ======= ======== ====== ======== ====== ======== =======
Total capital $ 62,450 14.41% $ 32,461 14.69% $ 17,279 12.46% $ 6,486 10.72%
Well capitalized 43,351 10.00% 22,105 10.00% 13,865 10.00% 6,053 10.00%
-------- ------- -------- ------- -------- ------- -------- --------
Excess $ 19,099 4.41% $ 10,356 4.69% $3,414 2.46% $ 433 0.72%
======== ======= ======== ======= ======== ======== ======== =======
Risk adjusted assets $433,513 $221,047 $138,645 $ 60,527
======== ======== ======== ========
Leverage ratio 9.75% 9.62% 8.63% 7.31%
Well capitalized 5.00% 5.00% 5.00% 5.00%
------- ------- ------- -------
Excess 4.75% 4.62% 3.63% 2.31%
======= ======= ======= =======
Adjusted total assets $585,145 $308,561 $180,456 $ 78,344
======== ======== ======== ========
</TABLE>
42
<PAGE> 45
WEST COAST BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. STOCKHOLDERS' EQUITY AND STOCK OPTION PLANS (continued)
Bancorp's stock incentive plans include the Combined 1991 Employee Stock
Option Plan and Non-Qualified Stock Option Plan (the 1991 Plan), the 1995
Directors Stock Option Plan (the 1995 Plan), the 1989 and 1985 Non-Qualified
Stock Option Plans and the 1989 and 1985 Qualified Stock Option Plans (the 1985
and 1989 Plans). The 1991 Plan allows for a maximum number of shares available
for grant not to exceed 2 percent of the shares of Bancorp's outstanding common
stock on January 1st of each such year. The 1995 Plan authorizes the issuance
of 275,000 shares of common stock. No additional grants may be made under the
1985 and 1989 Plans.
Substantially all stock options have an exercise price that is not less
than the fair market value of Bancorp's stock on the date the option was
granted. The options previously granted under the 1991 and 1989 Plans are
exercisable immediately following the effective date of the grant. Certain
options previously granted under the 1995 Plan are exercisable equally over a
three year period. Substantially all options previously granted under the 1985
Plans become exercisable at a rate of 2 percent a month for 50 months, or
equally over a four year period.
<TABLE>
<CAPTION>
1996 1996 1995 1995
Common Weighted Common Weighted
Shares Avg. Price Shares Avg. Price
---------------------------------------------------------
<S> <C> <C> <C> <C>
Balance beginning of year . . . . . . . . . 575,031 $ 8.61 440,751 $ 7.64
Granted . . . . . . . . . . . . . . . . 198,801 $14.63 148,443 $11.44
Exercised . . . . . . . . . . . . . . . (62,228) $ 9.70 (12,838) $ 5.55
Forfeited . . . . . . . . . . . . . . . (375) $14.60 (1,325) $ 6.51
------- ------ ------- ------
Balance, end of year . . . . . . . . . . . 711,229 $10.20 575,031 $ 8.61
======= ====== ======= ======
Exercisable, end of year . . . . . . . . . 588,041 509,786
Fair value of options granted . . . . . . . $ 5.54 $ 4.58
</TABLE>
As of December 31, 1996, outstanding stock options consist of the following:
<TABLE>
<CAPTION>
Exercise Options Weighted Avg. Weighted Avg. Options Weighted Avg.
Price Range Outstanding Exercise Price Remaining Life Exercisable Exercisable Price
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 3.01 - $ 5.56 91,810 $ 4.57 3.57 91,810 $ 4.57
$ 6.79 - $ 8.82 189,016 $ 7.33 6.34 159,721 $ 7.26
$ 9.06 - $11.18 171,374 $10.35 7.53 165,833 $10.36
$12.73 - $14.80 259,029 $14.17 9.25 170,677 $13.95
- ---------------------------------------------------------------------------------------------------------------------
Total 711,229 $10.20 7.33 588,041 $ 9.66
</TABLE>
Bancorp accounts for these plans under APB Opinion No. 25, under which no
compensation cost has been recognized. Had compensation cost for these plans
been determined consistent with FASB Statement No. 123, Bancorp's net income
and earnings per share would have been reduced to the following pro forma
amounts:
<TABLE>
<S> <C> <C> <C>
1996 1995
---- ----
Net Income: As reported $9,802,015 $8,249,151
Pro Forma 9,188,708 7,694,816
Earnings per common share: As reported $ 1.47 $ 1.24
Pro Forma 1.37 1.15
</TABLE>
The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option pricing model with the following
weighted-average assumptions used for grants in 1996 and 1995, respectively:
risk-free interest rates of 6.48% - 6.62% and 6.37% for the Non-qualified
Director options and 6.67% and 6.09% for the Qualified Employee options;
expected dividend yields of 1.32% and 1.56%; expected lives of five years for
the Non-qualified Director options and six years for the Qualified Employee
options, with an expected volatility of 33% and 39%. Due to the discretionary
nature of stock option grants, the compensation cost included in the 1996 and
1995 proforma net income per Statement 123, may not be representative of that
expected in future years.
43
<PAGE> 46
WEST COAST BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10. COMMITMENTS AND CONTINGENT LIABILITIES
Bancorp and the Banks lease land and office space under eighteen long-term
noncancellable operating leases that expire between 1998 and 2011. At the end
of the respective lease terms, Bancorp may renew the leases at fair rental
value. Minimum future lease payments under these leases and other operating
leases are:
<TABLE>
<CAPTION>
Minimum Future
Year Lease Payment
-------------------- --------------
<S> <C>
1997. . . . . . . . . . . . $ 841,814
1998. . . . . . . . . . . . 850,140
1999. . . . . . . . . . . . 844,253
2000. . . . . . . . . . . . 793,837
2001. . . . . . . . . . . . 579,920
Thereafter . . . . . . . . 1,348,275
----------
Total . . . . . . . . . $5,258,239
==========
</TABLE>
Rental expense for all operating leases was $865,490, $656,667, and
$373,282, for the years ended December 31, 1996, 1995, and 1994, respectively.
11. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
The Banks' have financial instruments with off-balance sheet risk in the
normal course of business to meet the financing needs of its customers. These
financial instruments include commitments to extend credit and standby letters
of credit. Those instruments involve, to varying degrees, elements of credit
and interest rate risk in excess of the amount recognized in the Consolidated
Balance Sheets.
The Banks' exposure to credit loss in the event of nonperformance by the
other party to the financial instrument for commitments to extend credit and
standby letters of credit is represented by the contractual notional amount of
those instruments. The Banks use the same credit policies in making
commitments and conditional obligations as for on-balance sheet instruments.
Management does not anticipate any material loss as a result of these
transactions.
<TABLE>
<CAPTION>
Contract or
Notional Amount
---------------
<S> <C>
Financial instruments whose contract amounts represent credit risk:
Commitments to extend credit
Real estate secured for commercial construction or land development . . . . $55,260,000
Revolving open-end lines secured by 1-4 family residential properties . . . 10,018,000
Credit card lines . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,091,000
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52,845,000
Standby letters of credit and financial guarantees . . . . . . . . . . . . . . . 1,371,000
</TABLE>
44
<PAGE> 47
WEST COAST BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
11. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK (continued)
Commitments to extend credit are agreements to lend to a customer as long
as there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination clauses
and may require payment of a fee. Many of the commitments may expire without
being drawn upon, therefore the total commitment amounts do not necessarily
represent future cash requirements. Each customer's credit worthiness is
evaluated on a case-by-case basis. The amount of collateral obtained, if
deemed necessary upon extension of credit, is based on management's credit
evaluation of the customer. Collateral held varies, but may include accounts
receivable, inventory, property, plant and equipment, and income-producing
commercial properties.
Standby letters of credit are conditional commitments issued to guarantee
the performance of a customer to a third party. The credit risk involved in
issuing letters of credit is essentially the same as that involved in extending
loan facilities to customers.
12. BALANCES WITH THE FEDERAL RESERVE BANK
The Banks are required to maintain cash reserves or deposits with the
Federal Reserve Bank equal to a percentage of reservable deposits. Average
required reserves for The Commercial Bank, The Bank of Newport, Bank of
Vancouver and Valley Commercial Bank were $6,407,000, $1,324,000, $301,000 and
$131,000, respectively, during 1996.
13. EMPLOYEE BENEFIT PLANS
During 1996, West Coast Bancorp employee benefits included a plan
established pursuant to section 401(k) of the Internal Revenue Code for certain
qualified employees (the 401(k) plan). Contributions made to the 401(k) plan
are based on percentages of employees' salaries, under which Bancorp matches 50
percent of the employees' contributions up to a maximum of 6 percent of the
employee's salary. Bancorp may also elect to make discretionary contributions
to the plan. Expenses totaled $195,345, $508,341 and $510,903 for 1996, 1995,
and 1994 respectively, of which $0, $383,127 and $377,058, respectively, were
discretionary.
During 1996, Bancorp operated pursuant to Section 401(k) of the Internal
Revenue code an Employee Stock Ownership Plan (KSOP) which was originally
adopted by Vancouver Bancorp in 1992. The KSOP is a deferred compensation plan
in which discretionary contributions are used to provide participating
employees with Bancorp stock and in which employee contributions are made on a
before-tax basis. Essentially all full-time employees of the Bank of Vancouver
over the age of 21 and meeting length of service requirements were participating
in the Plan. Bancorp contributions to the KSOP were $47,927, $36,502 and
$24,571 for 1996, 1995 and 1994, respectively. As of January 1, 1997, no
further employee contributions will be made to the KSOP as the Bank of Vancouver
KSOP participants will be eligible for Bancorp's standard 401(k) Plan.
In 1996, Bancorp established a Non-qualified Deferred Compensation Trust
Plan for Directors and a Non-qualified Deferred Compensation Trust Plan for
executive officers. Expenses relating to the deferred compensation plans were
$165,462 in 1996. Contributions of $1,900 were made to the 1991 Non-qualified
Deferred Compensation Trust Plan (1991 Plan) for Directors for 1994,
subsequently, no further contributions to the 1991 Plan have been made.
Bancorp's expenses related to retirement benefits with present and former
employees, were $57,315, $90,241 and $56,340 for 1996, 1995 and 1994,
respectively. Certain of these retirement benefits are directly or indirectly
funded through the purchase of corporate owned life insurance policies. The
recorded cash surrender value of these policies were $1,380,499 and $1,257,482
at December 31, 1996 and 1995, respectively.
45
<PAGE> 48
WEST COAST BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
14. FAIR VALUES OF FINANCIAL INSTRUMENTS
SFAS No. 107, "Disclosures about Fair Value of Financial Instruments,"
requires the disclosure of the fair value of financial instruments. A
financial instrument is defined as cash, evidence of an ownership interest in
an entity, or a contract that conveys or imposes the contractual right or
obligation to either receive or deliver cash or another financial instrument.
Examples of financial instruments included in Bancorp's balance sheet are cash,
federal funds sold or purchased, debt and equity securities, loans, demand,
savings and other interest-bearing deposits, notes and debentures. Examples of
financial instruments which are not included in the Bancorp balance sheet are
commitments to extend credit and standby letters of credit.
Fair value is defined as the amount at which a financial instrument could
be exchanged in a current transaction between willing parties, other than in a
forced sale or liquidation, and is best evidenced by a quoted market price if
one exists.
The statement requires the fair value of deposit liabilities with no stated
maturity, such as demand deposits, NOW and money market accounts, to equal the
carrying value of these financial instruments and does not allow for the
recognition of the inherent value of core deposit relationships when
determining fair value. While the statement does not require disclosure of the
fair value of nonfinancial instruments, such as Bancorp's premises and
equipment, its banking and trust franchises and its core deposit relationships,
Bancorp believes these nonfinancial instruments have significant fair value.
Bancorp has estimated fair value based on quoted market prices where
available. In cases where quoted market prices were not available, fair values
were based on the quoted market price of a financial instrument with similar
characteristics, the present value of expected future cash flows or other
valuation techniques that utilize assumptions which are highly subjective and
judgmental in nature. Subjective factors include, among other things,
estimates of cash flows, the timing of cash flows, risk and credit quality
characteristics and interest rates. Accordingly, the results may not be
precise and modifying the assumptions may significantly affect the values
derived. In addition, fair values established utilizing alternative valuation
techniques may or may not be substantiated by comparison with independent
markets. Further, fair values may or may not be realized if a significant
portion of the financial instruments were sold in a bulk transaction or a
forced liquidation. Therefore any aggregate unrealized gains or losses should
not be interpreted as a forecast of future earnings or cash flows.
Furthermore, the fair values disclosed should not be interpreted as the
aggregate current value of Bancorp.
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to estimate
that value:
Cash and Cash Equivalents - The carrying amount is a reasonable estimate of
fair value.
Investment Securities - For securities and derivative instruments held for
investment purposes, fair values are based on quoted market prices or dealer
quotes. If a quoted market price is not available, fair value is estimated
using quoted market prices for similar securities.
Loans - The fair value of loans is estimated by discounting the future
cash flows using the current rate at which similar loans would be made to
borrowers with similar credit ratings and for the same remaining maturities.
Deposit Liabilities - The fair value of demand deposits, savings accounts
and other deposits is the amount payable on demand at the reporting date. The
fair value of fixed-rate certificates of deposit is estimated using the rates
currently offered for deposits of similar remaining maturities. The fair value
of variable-rate certificates is estimated at carrying value as these deposits
reprice to market frequently.
46
<PAGE> 49
WEST COAST BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
14. FAIR VALUES OF FINANCIAL INSTRUMENTS (continued)
Short-term borrowings - The carrying amount is a reasonable estimate of
fair value given the short-term nature of these financial instruments.
Long-term borrowings - The fair value of the long-term borrowings is
estimated by discounting the future cash flows using the current rate at which
similar borrowings with similar remaining maturities could be made.
Commitments to Extend Credit, Standby Letters of Credit and Financial
Guarantees - The fair value of commitments, standby letters of credit and
financial guarantees is not significant.
The estimated fair values of financial instruments at December 31, 1996 are
as follows:
<TABLE>
<CAPTION>
(Dollars in thousands) Carrying Value Fair Value
- ---------------------- -------------- ----------
FINANCIAL ASSETS
<S> <C> <C>
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . $ 42,982 $ 42,982
Investment securities . . . . . . . . . . . . . . . . . . . . . 109,791 109,820
Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . 538,356
Allowance for loan losses . . . . . . . . . . . . . . . . . (7,038)
------
Net Loans 531,318 538,658
FINANCIAL LIABILITIES
Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . $604,902 $606,929
Short-term borrowings . . . . . . . . . . . . . . . . . . . 3,709 3,709
Long-term borrowings . . . . . . . . . . . . . . . . . . . . 28,583 28,502
</TABLE>
The estimated fair value of financial instruments at December 31, 1995 are
as follows:
<TABLE>
<CAPTION>
(Dollars in thousands) Carrying Value Fair Value
- ---------------------- -------------- ----------
FINANCIAL ASSETS
<S> <C> <C>
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . $ 44,035 $ 44,035
Investment securities . . . . . . . . . . . . . . . . . . . . . 129,164 129,180
Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . 401,725
Allowance for loan losses . . . . . . . . . . . . . . . . . (5,569)
------
Net Loans 396,156 402,031
FINANCIAL LIABILITIES
Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . $512,774 $513,430
Short-term borrowings . . . . . . . . . . . . . . . . . . . 8,527 8,527
Long-term borrowings . . . . . . . . . . . . . . . . . . . . 10,188 10,109
</TABLE>
47
<PAGE> 50
WEST COAST BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
15. PARENT COMPANY ONLY FINANCIAL DATA
The following sets forth the condensed financial information of West Coast
Bancorp on a stand-alone basis:
<TABLE>
<CAPTION>
Statement of Condition
(Unconsolidated)
December 31,
---------------------------------
1996 1995
---------------------------------
Assets
<S> <C> <C>
Cash and due from the subsidiary banks . . . . . . . . . $ 3,093,408 $ 3,700,611
Advances from subsidiaries . . . . . . . . . . . . . . . 44,590 80,844
Investment in the subsidiaries . . . . . . . . . . . . . 61,608,116 55,905,447
Other assets . . . . . . . . . . . . . . . . . . . . . . 3,539,807 1,263,331
----------- -----------
Total assets . . . . . . . . . . . . . . . . . . . . . $68,285,921 $60,950,233
=========== ===========
Liabilities and stockholders' equity
Balances due to subsidiaries . . . . . . . . . . . . . . $ 9,783 $ 2,036
Long-term borrowings . . . . . . . . . . . . . . . . . . - 1,350,000
Other liabilities . . . . . . . . . . . . . . . . . . . . 1,131,017 617,930
----------- -----------
Total liabilities . . . . . . . . . . . . . . . . . . 1,140,800 1,969,966
Stockholders' equity . . . . . . . . . . . . . . . . . . . 67,145,121 58,980,267
----------- -----------
Total liabilities and stockholders' equity . . . . . . $68,285,921 $60,950,233
=========== ===========
</TABLE>
48
<PAGE> 51
WEST COAST BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
15. PARENT COMPANY ONLY FINANCIAL DATA (continued)
<TABLE>
<CAPTION>
Statement of Income
(Unconsolidated)
Year ended December 31,
---------------------------------------------
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Income
Cash dividends from subsidiaries . . . . . . . . . $4,795,372 $2,042,100 $1,410,000
Other income from the subsidiaries . . . . . . . . 4,267,735 347,087 163,682
Other income . . . . . . . . . . . . . . . . . . . 145,371 103,647 170,787
---------- ---------- ----------
Total income . . . . . . . . . . . . . . . . . . 9,208,478 2,492,834 1,744,469
Expenses . . . . . . . . . . . . . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . . . . 57,829 128,305 7,911
Other Expense . . . . . . . . . . . . . . . . . . . 6,911,249 1,626,077 1,957,391
---------- ---------- ----------
Total expense . . . . . . . . . . . . . . . . . 6,969,078 1,754,382 1,965,302
Income (loss) before income taxes and equity in
undistributed earnings of the banks . . . . . . . . 2,239,400 738,452 (220,833)
Income tax benefit . . . . . . . . . . . . . . . . . . 1,074,807 482,486 370,692
---------- ---------- ----------
Net income before equity in undistributed
earnings of the banks . . . . . . . . . . . . . . . 3,314,207 1,220,938 149,859
Equity in undistributed earnings of the banks . . . . 6,487,808 7,028,213 6,165,774
---------- ---------- ----------
Net Income . . . . . . . . . . . . . . . . . . . $9,802,015 $8,249,151 $6,315,633
========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
Statement of Cash Flows
(Unconsolidated)
Year ended December 31,
---------------------------------------------
1996 1995 1994
----------- ----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C> <C>
Net Income . . . . . . . . . . . . . . . . . . . . . $9,802,015 $8,249,151 $6,315,633
Adjustments to reconcile net income to net cash
provided by operating activities:
Undistributed earnings of subsidiaries . . . . . (6,487,808) (7,028,213) (6,165,774)
Decrease in advances to subsidiaries . . . . . . 36,254 10,179 166,975
(Increase) decrease in other assets . . . . . . . (2,276,476) (787,686) 99,215
Increase (decrease) in balances due to subsidiaries 7,747 (9,037) 4,628
(Increase) in other liabilities . . . . . . . . . 513,087 (287,414) 439,105
------- --------- -------
Net cash provided by operating activities . . . 1,594,819 146,980 859,782
CASH FLOWS FROM INVESTING ACTIVITIES
Capital contributions to subsidiaries . . . . . . (62,820) - (1,500,000)
CASH FROM FINANCING ACTIVITIES:
Net payments on short-term borrowings . . . . . . . . - - (95,000)
Net (payments) proceeds from long-term borrowings . . (1,350,000) (150,000) 1,500,000
Proceeds from issuance of common stock . . . . . . . 686,906 212,914 5,473,340
Repurchase of common stock . . . . . . . . . . . . . - - (396,113)
Dividends paid and cash paid for fractional shares . (1,476,108) (1,408,405) (1,150,514)
---------- ----------- ----------
Net cash provided by (used for) financing
activities . . . . . . . . . . . . . . . . . . (2,139,202) (1,345,491) 5,331,713
Net (decrease) increase in cash and cash equivalents (607,203) (1,198,511) 4,691,495
Cash and cash equivalents at beginning of year . . . 3,700,611 4,899,122 207,627
--------- --------- -------
Cash and cash equivalents at end of year . . . . . . $3,093,408 $3,700,611 $4,899,122
========== ========== ==========
</TABLE>
49
<PAGE> 52
WEST COAST BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
16. QUARTERLY FINANCIAL INFORMATION (unaudited)
<TABLE>
<CAPTION>
(Dollars in thousands, except per share data) March 31, June 30, September 30, December 31,
------------------------------------------- ------------------------------------------------------------------------
1996
- ----
<S> <C> <C> <C> <C>
$12,728 $13,869 $14,778 $15,249
Interest income . . . . . . . . . . . .
Interest expense . . . . . . . . . . . 4,550 4,780 5,165 5,339
------- ------- ------- -------
Net interest income . . . . . . . . 8,178 9,089 9,613 9,910
Provision for loan losses . . . . . . . 403 521 631 620
Noninterest income . . . . . . . . . . 2,019 2,165 2,446 2,249
Noninterest expense . . . . . . . . . . 6,787 7,086 7,620 7,358
------- ------- ------- -------
Income before income taxes . . . . . 3,007 3,647 3,808 4,181
Provision for income taxes . . . . . . 974 1,235 1,176 1,456
------- ------- ------- -------
Net Income . . . . . . . . . . . . . $2,033 $2,412 $2,632 $2,725
====== ====== ====== ======
Earnings per common share . . . . . . . $0.30 $0.36 $0.40 $0.41
===== ===== ===== =====
1995
- ----
Interest income . . . . . . . . . . . . $10,705 $11,544 $12,197 $12,847
Interest expense . . . . . . . . . . . 3,928 4,378 4,532 4,591
------- ------- ------- -------
Net interest income . . . . . . . . 6,777 7,166 7,665 8,256
Provision for loan losses . . . . . . . 181 205 240 317
Noninterest income . . . . . . . . . . 1,664 1,950 2,118 2,362
Noninterest expense . . . . . . . . . . 6,251 6,159 6,260 6,850
------- ------- ------- -------
Income before income taxes . . . . . 2,009 2,752 3,283 3,451
Provision for income taxes . . . . . . 586 862 977 821
------- ------- ------- -------
Net Income . . . . . . . . . . . . . $1,423 $1,890 $2,306 $2,630
====== ====== ====== ======
Earnings per common share . . . . . . . $0.21 $0.28 $0.35 $0.40
===== ===== ===== ======
</TABLE>
17. BUSINESS COMBINATIONS
On February 28, 1995 West Coast Bancorp of Newport, Oregon merged with and
into Commercial Bancorp of Salem, Oregon and retained the name West Coast
Bancorp (the "Merger"), 2,326,346 shares of common stock were issued in the
transaction. At December 31, 1994, prior to the Merger, West Coast Bancorp had
assets of $160.7 million and Commercial Bank had assets of $282.6 million.
The Merger was accounted for as a pooling-of-interests under generally accepted
accounting principles.
On March 30, 1995, Bancorp acquired Great Western Bank of Dallas, Oregon.
The $8.1 million asset, one branch bank, merged into Bancorps' wholly-owned
subsidiary Commercial Bank and became a branch office. Bancorp issued 133,868
shares of common stock for the outstanding shares of Great Western Bank. This
transaction was accounted for as a pooling-of-interests under generally
accepted accounting principles.
On July 1, 1996, Bancorp acquired Vancouver Bancorp parent of Bank of
Vancouver, headquartered in Vancouver, Washington. Shareholders of Vancouver
Bancorp were issued 635,998 new shares of Bancorp Common stock and an
additional 141,743 shares were made available for options previously granted,
providing for a total stock transaction valued at $11.6 million. The
transaction was accounted for as a pooling-of-interest under generally
accepted accounting principles.
50
<PAGE> 53
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
NONE
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
For information concerning directors and certain executive officers of
Bancorp, see "INFORMATION WITH RESPECT TO NOMINEES AND DIRECTORS WHOSE TERMS
EXPIRE" and "SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT"
and "COMPLIANCE WITH SECTION 16(a) FILING REQUIREMENTS" in Bancorp's 1997
Annual Meeting Proxy Statement ("Proxy Statement"), which is incorporated
herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
For information concerning executive compensation, see "EXECUTIVE
COMPENSATION" in the Proxy Statement, which is incorporated herein by
reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
For information concerning the security ownership of certain beneficial
owners and management, see "SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT" in the Proxy Statement, which is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
For information concerning certain relationships and related
transactions, see "INFORMATION WITH RESPECT TO NOMINEES AND DIRECTORS WHOSE
TERMS CONTINUE" and "TRANSACTIONS WITH MANAGEMENT" in the Proxy Statement,
which is incorporated herein by reference.
51
<PAGE> 54
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
List of Financial Statements and Financial Statement Schedules
(a)(1) and (2) Financial Statements:
The financial statements and related documents listed in the index set
forth in Item 8 of this report are filed as part of this report.
All other schedules to the consolidated financial statements required by
Regulation S-X are omitted because they are not applicable, not material or
because the information is included in the consolidated financial statements or
related notes.
(3) Exhibits:
Exhibits are listed in the Exhibit Index beginning on page 54 of this
report.
(b) Filed the following current report on form 8-K:
None
(c) Exhibits:
The response to this portion of Item 14 is submitted as a separate
section of this report entitled, "Index to Exhibits".
(d) Financial Statement Schedules:
None
52
<PAGE> 55
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized, on the 27th day of
March, 1997.
WEST COAST BANCORP
(Registrant)
By: /s/ Victor L. Bartruff
-----------------------------------------------------
President and CEO
Each person whose individual signature appears below hereby authorizes and
appoints Victor L. Bartruff and Donald A. Kalkofen, and each of them, with full
power of substitution and full power to act without the other, as his true and
lawful attorney-in-fact and agent to act in his name, place and stead and to
execute in the name and on behalf of each person, individually and in each
capacity stated below, and to file any and all amendments to this Registration
Statement, including any and all post-effective amendments.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated on the 27th day of March, 1997.
<TABLE>
<S> <C>
PRINCIPAL EXECUTIVE OFFICER:
/s/ Victor L. Bartruff President and CEO and Director
- ---------------------------------------------------
Victor L. Bartruff
PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER:
/s/ Donald A. Kalkofen Chief Financial Officer
- ------------------------------------------------
Donald A. Kalkofen
REMAINING DIRECTORS:
/s/ Lloyd D. Ankeny s/s C. Douglas McGregor
- ------------------------------------------- -------------------------------------------
Lloyd D. Ankeny C. Douglas McGregor
s/s Phillip G. Bateman s/s Robert D. Morrison
- ------------------------------------------- -------------------------------------------
Phillip G. Bateman Robert D. Morrison
s/s Lester D. Green s/s J.F. Ouderkirk
- ------------------------------------------- -------------------------------------------
Lester D. Green J.F. Ouderkirk
s/s William B. Loch s/s James J. Pomajevich
- ------------------------------------------- -------------------------------------------
William B. Loch James J. Pomajevich
s/s Jack E. Long s/s Gary D. Putnam
- ------------------------------------------- -------------------------------------------
Jack E. Long Gary D. Putnam
</TABLE>
53
<PAGE> 56
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit No. Exhibit
- ----------- -------
<S> <C>
3.1 Restated Articles of Incorporation of the Registrant(1)
3.2 Restated Bylaws of the Registrant(1)
4 The Registrant has incurred long-term indebtedness as to which
the amount involved is less than ten percent of the total
assets of the Registrant and its subsidiaries on a consolidated
basis. The Registrant agrees to furnish instruments relating
to such indebtedness to the Commission upon its request.
10.1 Salary Continuation Agreement between the Registrant and Victor
L. Bartruff dated January 1, 1997
10.2 Salary Continuation Agreement between the Registrant and Rodney
B. Tibbatts dated January 1, 1997
10.3 Salary Continuation Agreement between the Registrant and Donald
A. Kalkofen dated December 23, 1996
10.4 Salary Continuation Agreement between the Registrant and Edgar
B. Martin dated December 1, 1996
10.5 Non-Qualified Deferred Compensation Plan for Edgar B. Martin
dated May 23, 1995(2)
10.6 401(k) Profit Sharing Plan(3)
10.7 Directors' Deferred Compensation Plan(3)
10.8 Executives' Deferred Compensation Plan(3)
10.9 Combined 1991 Incentive Stock Option Plan and 1991 Nonqualified
Stock Option Plan(4)
10.10 Form of Option Grant under Combined 1991 Incentive Stock Option
Plan and 1991 Nonqualified Stock Option Plan(4)
10.11 Directors Stock Option Plan(5)
10.12 Form of Directors Stock Option Agreement(3)
10.13 Incentive Stock Option Plan(3)
10.14 Form of Incentive Stock Option Agreement(3)
10.15 Form of Nonqualified Stock Option Plan(5)
10.16 Nonqualified Stock Option Plan(5)
</TABLE>
______________________________________
(1) Incorporated by reference to Exhibits 3.1, 3.2 and 10.6 of Registrant's
Annual Report on Form 10-K for the year ended December 31, 1994.
(2) Incorporated by reference to Exhibits 10(FF) of Registrant's S-4
Registration Statement--Registration No. 33-88656.
(3) Incorporated by reference to Exhibits 99.1, 99.2 and 99.3 of Registrant's
S-8 Registration Statement--Registration No. 333-01649.
(4) Incorporated by reference to Exhibits 99.1 and 99.2 of Registrant's S-8
Registration Statement--Registration No. 33-01651.
(5) Incorporated by reference to Exhibits 99.1, 99.2, 99.3, 99.4, 99.5 and
99.6 of Registrant's S-8 Registration Statement--Registration No.
33-60259.
54
<PAGE> 57
10.17 Incentive Stock Option Nonstatutory Stock Option Plan of
Vancouver Bancorp(6)
10.18 Form of Incentive Stock Option Agreement(6)
10.19 Form of Nonstatutory Stock Option Agreement(6)
10.20 Vancouver Bancorp Employee Stock Option Agreement(6)
10.21 Form of Incentive Stock Option Agreement(6)
10.22 Form of Nonqualified Stock Option Agreement(6)
11 Statement Re-Computation of Per Share Earnings.
21 Subsidiaries of the Registrant.
23 Consent of Independent Public Accountants.
24 Powers of Attorney (included in signature page of annual report
on form 10K).
27 Financial Data Schedule.
_____________________________________
(6) Incorporated by reference to Exhibits 99.1, 99.2, 99.3, 99.4, 99.5, and
99.6 of Registrant's S-8 Registration Statement--Registration No. 333-09721
55
<PAGE> 1
Exhibit 10.1
CONFIDENTIAL
------------
SALARY CONTINUATION AGREEMENT
THIS SALARY CONTINUATION AGREEMENT ("Agreement") is dated as of
January 1, 1997 (the "Effective Date"). The parties to the Agreement
("Parties") are WEST COAST BANCORP, an Oregon corporation ("Bancorp"), its
wholly-owned subsidiary BANK OF NEWPORT, an Oregon state banking corporation
("Bank") (collectively, "Company"), and VICTOR L. BARTRUFF ("Executive").
A. Company currently receives the exclusive services of certain employees
including Executive, and both Company and Executive desire to continue
Executive's services in the event of a change in the control of
Bancorp, thereby allowing Company to maximize the benefits obtainable
from any such change.
B. To encourage Executive s continued services, Company desires to
provide a salary continuation benefit to Executive.
In consideration of the mutual promises, covenants, agreements and
undertakings contained in this Agreement, the parties agree as follows:
1. EFFECTIVE DATE AND TERM. As of the Effective Date, this Agreement
shall be a binding obligation of the parties, not subject to
revocation or amendment except by mutual consent or in accordance with
its terms. The term of this Agreement ("Term") shall commence as of
the Effective Date and shall end one (1) year thereafter, provided
however, that this Agreement shall be automatically renewed for
successive one year periods, unless the Board of Directors of either
the Bank or Bancorp do not approve such renewal and provide written
notice to Executive of such event, or Executive gives written notice
to Company not less than thirty (30) days prior to any such
anniversary date of Executive's election not to extend the term beyond
its then scheduled expiration date. Notwithstanding the preceding, if
a definitive agreement providing for a Change in Control (as defined
below) is entered into on or before the expiration of the Term, the
term of this Agreement shall be extended to twenty-four (24) months
after the consummation of such Change in Control.
2. COMMITMENT OF EXECUTIVE. In the event that any person extends any
proposal or offer which is intended to or may result in a Change in
Control, as defined below (a "Change in Control Proposal"), Executive
shall, at Company's request, assist Company in evaluating such
proposal or offer. Further, as a condition to receipt of the Salary
Continuation Payment defined below, Executive agrees not to resign
Executive's position with Company during any period from the receipt
of a specific Change in Control Proposal up to the consummation or
abandonment of the transaction contemplated by such Proposal.
3. SALARY CONTINUATION PAYMENT.
(a) Amount of Payment--Termination Event After Change in Control.
Except as otherwise provided in this Section, in the case of a
Termination Event After a Change in Control, as defined in
Section 4, Executive shall receive a salary continuation
payment (the "Salary Continuation Payment") equal to the sum
of the
56
<PAGE> 2
Regular Salary Continuation Payment and the Bonus Continuation
Payment. The Regular Salary Continuation Payment shall equal
Executive's regular monthly salary in effect as of the date of
termination of employment (as reportable on Executive's IRS
Form W-2, but including the amount of any voluntary deferrals
of salary, and excluding any expense allowances or
reimbursements, any bonuses, any gain from exercise of stock
options, or any other similar non-recurring payments) which
would be payable to Executive but for the termination from the
date of termination of Executive's employment to the date
twenty-four (24) months after the Change in Control. The
Bonus Continuation Payment shall equal (i) the most recent
annual bonus paid to Executive, multiplied by (ii) (x) the
number of days during which Executive was employed but as to
which no annual bonus has been paid plus the number of days
from the date of termination of employment to the date
twenty-four (24) months after the Change in Control divided by
(y) 365.
(b) Limitation on Payment. Notwithstanding anything in this
Agreement to the contrary, the Salary Continuation Payment
shall not exceed an amount equal to One Dollar ($1.00) less
than the amount which would cause the payment, together with
any other payments received from Company, to be a "parachute
payment" as defined in Section 280G(b)(2)(A) of the Internal
Revenue Code.
4. TERMINATION EVENT AFTER CHANGE IN CONTROL. A Termination Event After
a Change in Control shall be deemed to occur upon, and only upon, one
or more of the following:
(a) Termination of Executive's employment by Executive for Good
Reason (as defined herein) within twenty-four (24) months
after a Change In Control;
(b) Termination of Executive's employment by Company other than
for Cause, Disability, or Retirement (each of which is defined
below) within twenty-four (24) months after a Change In
Control; or
(c) Termination of Executive's employment by Company other than
for Cause, Disability, or Retirement prior to a Change In
Control if such termination occurs either (i) on or after
announcement, by Company or any other party, of a contemplated
Change In Control or an intended Change In Control, or (ii) on
or after the date a contemplated or intended Change In Control
should have been announced in conformity with applicable
securities or other laws, but only if in either case a Change
In Control occurs within twelve (12) months after such
termination of Executive's employment.
5. DEFINITIONS.
(a) Cause. "Cause" shall mean only any one or more of the
following:
(i) Willful misfeasance or gross negligence in the
performance of Executive's duties; or
(ii) Conviction of a crime in connection with such duties.
57
<PAGE> 3
(b) Disability. "Disability" shall mean a physical or mental
impairment which renders Executive incapable of substantially
performing the duties required under this Agreement, and which
is expected to continue rendering Executive so incapable for
the reasonably foreseeable future.
(c) Retirement. "Retirement" shall mean voluntary termination by
Executive in accordance with Company's retirement policies,
including early retirement, if applicable to their salaried
employees.
(d) Good Reason. "Good Reason" shall mean only any one or more of
the following:
(i) Any reduction of Executive's salary or any reduction
or elimination of any compensation or benefit plan
benefiting Executive, which reduction or elimination
is not of general application to substantially all
employees of Company or such employees of any
successor entity or of any entity in control of
Company;
(ii) A relocation or transfer of Executive's place of
employment which would reasonably require Executive
to commute more than twenty (20) miles each way from
Executive's principal residence; or
(iii) A material diminution in the responsibilities or
duties of Executive.
(e) Change In Control. "Change in Control" shall mean either of
the following:
(i) A Person or Entity (as defined below) acquiring or
otherwise becoming the owner (as a result of a
purchase, merger, stock exchange, or otherwise) of
more than fifty percent (50%) of the outstanding
common stock of Company, or
(i) The merger of Company into any corporation, or the
merger of any corporation into Company, where more
than fifty percent (50%) of the stock of such
corporation or Company, as the case may be, (the
"Surviving Corporation") is owned by other than the
owners of the common stock of Company prior to such
merger.
(a) Person or Entity. "Person or Entity" shall include any one or
more persons and/or entities acting in concert with respect to
their interests in the Surviving Corporation.
1. OTHER COMPENSATION AND TERMS OF EMPLOYMENT. This Agreement is not an
employment agreement. Accordingly, except with respect to the Salary
Continuation Payment, this Agreement shall have no effect on the
determination of any compensation payable by Company to Executive, or
upon any of the other terms of Executive's employment with Company.
The specific arrangements referred to herein are not intended to
exclude any other benefits which may be available to Executive upon a
termination of employment with Company pursuant to employee benefit
plants of Company or otherwise.
58
<PAGE> 4
2. WITHHOLDING. All payments required to be made by Company hereunder to
Executive shall be subject to the withholding of such amounts, if any,
relating to tax and other payroll deductions as Company may reasonably
determine should be withheld pursuant to any applicable law or
regulation.
3. ASSIGNABILITY. Company may assign this Agreement and its rights
hereunder in whole, but not in part, to any corporation, bank or other
entity with or into which Company may hereafter merge or consolidate
or to which Company may transfer all or substantially all of its
assets, if in any such case said corporation, bank or other entity
shall by operation of law or expressly in writing assume all
obligations of Company hereunder as fully as if it had been originally
made a party hereto, but may not otherwise assign this Agreement or
its rights hereunder. Executive may not assign or transfer this
Agreement or any rights or obligations hereunder.
4. GENERAL PROVISIONS.
(a) Choice of Law. This Agreement is made with reference to and
is intended to be construed in accordance with the laws of the
State of Oregon.
(b) Arbitration. Any dispute, controversy or claim arising out of
or in connection with, or relating to, this Agreement or any
breach or alleged breach hereof, shall, upon the request of
any party involved, be submitted to, and settled by,
arbitration pursuant to the rules then in effect of the
American Arbitration Association (or under any other form of
arbitration mutually acceptable to the parties so involved).
Any award rendered shall be final and conclusive upon the
parties and a judgment thereon may be entered in the highest
court of the forum having jurisdiction. The arbitrator shall
render a written decision, naming the substantially prevailing
party in the action, and shall award such party all costs and
expenses incurred, including reasonable attorneys' fees.
(c) Attorney Fees. In the event of any breach of or default under
this Agreement which results in either party incurring
attorney or other fees, costs or expenses (including in
arbitration), the prevailing party shall be entitled to
recover from the non- prevailing party any and all such fees,
costs and expenses, including attorney fees.
(d) Successors. This Agreement shall be binding upon and inure to
the benefit of the Parties and each of their respective
affiliates, legal representatives, successors and assigns.
(e) Construction. This Agreement contains the entire agreement
among the Parties with respect to its subject matter, and may
be amended or modified only in a writing executed by all of
the Parties. Its language is and will be deemed to be the
language chosen by the Parties jointly to express their mutual
intent. No rule of construction based on which party drafted
the Agreement or certain of its provisions will be applied
against any party. This Agreement may be amended only in a
writing signed by the parties.
59
<PAGE> 5
(f) Captions. The captions of the respective sections of this
Agreement have been included for convenience of reference
only. They shall not be construed to modify or otherwise
affect in any respect any of the provisions of the Agreement.
(g) Counterparts. This Agreement may be executed in one or more
counterparts by the parties hereto. All counterparts shall be
construed together and shall constitute one Agreement.
EXECUTED by each of the parties effective as of the date first stated
above.
<TABLE>
<S> <C>
BANK:
BANK OF NEWPORT
By:____________________________________
Its:_____________________________
BANCORP:
WEST COAST BANCORP,
an Oregon corporation
By:____________________________________
Its:_____________________________
EXECUTIVE:
_______________________________________
VICTOR L. BARTRUFF
</TABLE>
60
<PAGE> 1
Exhibit 10.2
CONFIDENTIAL
------------
SALARY CONTINUATION AGREEMENT
THIS SALARY CONTINUATION AGREEMENT ("Agreement") is dated as of
January 1, 1997 (the "Effective Date"). The parties to the Agreement
("Parties") are WEST COAST BANCORP, an Oregon corporation ("Bancorp"), and
RODNEY B. TIBBATTS ("Executive").
A. Bancorp currently receives the exclusive services of certain employees
including Executive, and both Bancorp and Executive desire to continue
Executive's services in the event of a change in the control of
Bancorp, thereby allowing Bancorp to maximize the benefits obtainable
from any such change.
B. To encourage Executive's continued services, Bancorp desires to
provide a salary continuation benefit to Executive.
In consideration of the mutual promises, covenants, agreements and
undertakings contained in this Agreement, the parties agree as
follows:
1. EFFECTIVE DATE AND TERM. As of the Effective Date, this Agreement
shall be a binding obligation of the parties, not subject to
revocation or amendment except by mutual consent or in accordance with
its terms. The term of this Agreement ("Term") shall commence as of
the Effective Date and shall end one (1) year thereafter, provided
however, that this Agreement shall be automatically renewed for
successive one year periods, unless the Board of Directors of Bancorp
do not approve such renewal and provide written notice to Executive of
such event, or Executive gives written notice to Bancorp not less than
thirty (30) days prior to any such anniversary date of Executive's
election not to extend the term beyond its then scheduled expiration
date. Notwithstanding the preceding, if a definitive agreement
providing for a Change in Control (as defined below) is entered into
on or before the expiration of the Term, the term of this Agreement
shall be extended to twenty-four (24) months after the consummation of
such Change in Control.
2. COMMITMENT OF EXECUTIVE. In the event that any person extends any
proposal or offer which is intended to or may result in a Change in
Control, as defined below (a "Change in Control Proposal"), Executive
shall, at Bancorp's request, assist Bancorp in evaluating such
proposal or offer. Further, as a condition to receipt of the Salary
Continuation Payment defined below, Executive agrees not to resign
Executive's position with Bancorp during any period from the receipt
of a specific Change in Control Proposal up to the consummation or
abandonment of the transaction contemplated by such Proposal.
3. SALARY CONTINUATION PAYMENT.
(a) Amount of Payment--Termination Event After Change in Control.
Except as otherwise provided in this Section, in the case of a
Termination Event After a Change in Control, as defined in
Section 4, Executive shall receive a salary continuation
payment (the "Salary Continuation Payment") equal to the sum
of the
61
<PAGE> 2
Regular Salary Continuation Payment and the Bonus Continuation
Payment. The Regular Salary Continuation Payment shall equal
Executive's regular monthly salary in effect as of the date of
termination of employment (as reportable on Executive's IRS
Form W-2, but including the amount of any voluntary deferrals
of salary, and excluding any expense allowances or
reimbursements, any bonuses, any gain from exercise of stock
options, or any other similar non-recurring payments) which
would be payable to Executive but for the termination from the
date of termination of Executive's employment to the date
twenty-four (24) months after the Change in Control. The
Bonus Continuation Payment shall equal (i) the most recent
annual bonus paid to Executive, multiplied by (ii) (x) the
number of days during which Executive was employed but as to
which no annual bonus has been paid plus the number of days
from the date of termination of employment to the date
twenty-four (24) months after the Change in Control divided by
(y) 365.
(b) Limitation on Payment. Notwithstanding anything in this
Agreement to the contrary, the Salary Continuation Payment
shall not exceed an amount equal to One Dollar ($1.00) less
than the amount which would cause the payment, together with
any other payments received from Bancorp to be a "parachute
payment" as defined in Section 280G(b)(2)(A) of the Internal
Revenue Code.
4. TERMINATION EVENT AFTER CHANGE IN CONTROL. A Termination Event After
a Change in Control shall be deemed to occur upon, and only upon, one
or more of the following:
(a) Termination of Executive's employment by Executive for Good
Reason (as defined herein) within twenty-four (24) months
after a Change In Control;
(b) Termination of Executive's employment by Bancorp other than
for Cause, Disability, or Retirement (each of which is defined
below) within twenty-four (24) months after a Change In
Control; or
(c) Termination of Executive's employment by Bancorp other than
for Cause, Disability, or Retirement prior to a Change In
Control if such termination occurs either (i) on or after
announcement, by Bancorp or any other party, of a contemplated
Change In Control or an intended Change In Control, or (ii) on
or after the date a contemplated or intended Change In Control
should have been announced in conformity with applicable
securities or other laws, but only if in either case a Change
In Control occurs within twelve (12) months after such
termination of Executive's employment.
5. DEFINITIONS.
(a) Cause. "Cause" shall mean only any one or more of the
following:
(i) Willful misfeasance or gross negligence in the
performance of Executive's duties; or
(ii) Conviction of a crime in connection with such duties.
62
<PAGE> 3
(b) Disability. "Disability" shall mean a physical or mental
impairment which renders Executive incapable of substantially
performing the duties required under this Agreement, and which
is expected to continue rendering Executive so incapable for
the reasonably foreseeable future.
(c) Retirement. "Retirement" shall mean voluntary termination by
Executive in accordance with Bancorp's retirement policies,
including early retirement, if applicable to their salaried
employees.
(d) Good Reason. "Good Reason" shall mean only any one or more of
the following:
(i) Any reduction of Executive's salary or any reduction
or elimination of any compensation or benefit plan
benefiting Executive, which reduction or elimination
is not of general application to substantially all
employees of Bancorp or such employees of any
successor entity or of any entity in control of
Bancorp;
(ii) A relocation or transfer of Executive's place of
employment which would reasonably require Executive
to commute more than twenty (20) miles each way from
Executive's principal residence; or
(iii) A material diminution in the responsibilities or
duties of Executive.
(e) Change In Control. "Change in Control" shall mean either of
the following:
(f) A Person or Entity (as defined below) acquiring or otherwise
becoming the owner (as a result of a purchase, merger, stock
exchange, or otherwise) of more than fifty percent (50%) of
the outstanding common stock of Bancorp, or
(i) The merger of Bancorp into any corporation, or the
merger of any corporation into Bancorp, where more
than fifty percent (50%) of the stock of such
corporation or Bancorp, as the case may be, (the
"Surviving Corporation") is owned by other than the
owners of the common stock of Bancorp prior to such
merger.
(a) Person or Entity. "Person or Entity" shall include any one or
more persons and/or entities acting in concert with respect to
their interests in the Surviving Corporation.
1. OTHER COMPENSATION AND TERMS OF EMPLOYMENT. This Agreement is not an
employment agreement. Accordingly, except with respect to the Salary
Continuation Payment, this Agreement shall have no effect on the
determination of any compensation payable by Bancorp to Executive, or
upon any of the other terms of Executive's employment with Bancorp.
The specific arrangements referred to herein are not intended to
exclude any other benefits which may be available to Executive upon a
termination of employment with Bancorp pursuant to employee benefit
plants of Bancorp or otherwise.
63
<PAGE> 4
2. WITHHOLDING. All payments required to be made by Bancorp hereunder to
Executive shall be subject to the withholding of such amounts, if any,
relating to tax and other payroll deductions as Bancorp may reasonably
determine should be withheld pursuant to any applicable law or
regulation.
3. ASSIGNABILITY. Bancorp may assign this Agreement and its rights
hereunder in whole, but not in part, to any corporation, bank or other
entity with or into which Bancorp may hereafter merge or consolidate
or to which Bancorp may transfer all or substantially all of its
assets, if in any such case said corporation, bank or other entity
shall by operation of law or expressly in writing assume all
obligations of Bancorp hereunder as fully as if it had been originally
made a party hereto, but may not otherwise assign this Agreement or
its rights hereunder. Executive may not assign or transfer this
Agreement or any rights or obligations hereunder.
4. GENERAL PROVISIONS.
(a) Choice of Law. This Agreement is made with reference to and
is intended to be construed in accordance with the laws of the
State of Oregon.
(b) Arbitration. Any dispute, controversy or claim arising out of
or in connection with, or relating to, this Agreement or any
breach or alleged breach hereof, shall, upon the request of
any party involved, be submitted to, and settled by,
arbitration pursuant to the rules then in effect of the
American Arbitration Association (or under any other form of
arbitration mutually acceptable to the parties so involved).
Any award rendered shall be final and conclusive upon the
parties and a judgment thereon may be entered in the highest
court of the forum having jurisdiction. The arbitrator shall
render a written decision, naming the substantially prevailing
party in the action, and shall award such party all costs and
expenses incurred, including reasonable attorneys' fees.
(c) Attorney Fees. In the event of any breach of or default under
this Agreement which results in either party incurring
attorney or other fees, costs or expenses (including in
arbitration), the prevailing party shall be entitled to
recover from the non-prevailing party any and all such fees,
costs and expenses, including attorney fees.
(d) Successors. This Agreement shall be binding upon and inure to
the benefit of the Parties and each of their respective
affiliates, legal representatives, successors and assigns.
(e) Construction. This Agreement contains the entire agreement
among the Parties with respect to its subject matter, and may
be amended or modified only in a writing executed by all of
the Parties. Its language is and will be deemed to be the
language chosen by the Parties jointly to express their mutual
intent. No rule of construction based on which party drafted
the Agreement or certain of its provisions will be applied
against any party. This Agreement may be amended only in a
writing signed by the parties.
64
<PAGE> 5
(f) Captions. The captions of the respective sections of this
Agreement have been included for convenience of reference
only. They shall not be construed to modify or otherwise
affect in any respect any of the provisions of the Agreement.
(g) Counterparts. This Agreement may be executed in one or more
counterparts by the parties hereto. All counterparts shall be
construed together and shall constitute one Agreement.
EXECUTED by each of the parties effective as of the date first stated
above.
<TABLE>
<S> <C>
BANCORP:
WEST COAST BANCORP,
an Oregon corporation
By:______________________________________
Its:_______________________________
EXECUTIVE:
_________________________________________
RODNEY B. TIBBATTS
</TABLE>
65
<PAGE> 1
Exhibit 10.3
CONFIDENTIAL
------------
SALARY CONTINUATION AGREEMENT
THIS SALARY CONTINUATION AGREEMENT ("Agreement") is dated as of
December 1, 1996 (the "Effective Date"). The parties to the Agreement
("Parties"') are WEST COAST BANCORP, an Oregon corporation ("Bancorp") and
DONALD A. KALKOFEN ("Executive").
A. Bancorp currently receives the exclusive services of certain employees
including Executive, and both Bancorp and Executive desire to continue
Executive's services in the event of a change in the control of
Bancorp, thereby allowing Bancorp to maximize the benefits obtainable
from any such change.
B. To encourage Executive's continued services, Bancorp desires to
provide a salary continuation benefit to Executive.
In consideration of the mutual promises, covenants, agreements and
undertakings contained in this Agreement, the parties agree as
follows:
1. EFFECTIVE DATE AND TERM. As of the Effective Date, this Agreement
shall be a binding obligation of the parties, not subject to
revocation or amendment except by mutual consent or in accordance with
its terms. The term of this Agreement ("Term") shall commence as of
the Effective Date and shall end one (1) year thereafter, provided
however, that this Agreement shall be automatically renewed for
successive one year periods, unless the Board of Directors of Bancorp
do not approve such renewal and provide written notice to Executive of
such event, or Executive gives written notice to Bancorp not less than
thirty (30) days prior to any such anniversary date of Executive's
election not to extend the term beyond its then scheduled expiration
date. Notwithstanding the preceding, if a definitive agreement
providing for a Change in Control (as defined below) is entered into
on or before the expiration of the Term, the term of this Agreement
shall be extended to eighteen (18) months after the consummation of
such Change in Control.
2. COMMITMENT OF EXECUTIVE. In the event that any person extends any
proposal or offer which is intended to or may result in a Change in
Control, as defined below (a "Change in Control Proposal"), Executive
shall, at Bancorp's request, assist Bancorp in evaluating such
proposal or offer. Further, as a condition to receipt of the Salary
Continuation Payment defined below, Executive agrees not to resign
Executive's position with Bancorp during any period from the receipt
of a specific Change in Control Proposal up to the consummation or
abandonment of the transaction contemplated by such Proposal.
3. SALARY CONTINUATION PAYMENT.
(a) Amount of Payment--Termination Event After Change in Control.
Except as otherwise provided in this Section, in the case of a
Termination Event After a Change in Control, as defined in
Section 4, Executive shall receive a salary continuation
payment (the "Salary Continuation Payment") equal to the sum
of the
66
<PAGE> 2
Regular Salary Continuation Payment and the Bonus Continuation
Payment. The Regular Salary Continuation Payment shall equal
Executive's regular monthly salary in effect as of the date of
termination of employment (as reportable on Executive's IRS
Form W-2, but including the amount of any voluntary deferrals
of salary, and excluding any expense allowances or
reimbursements, any bonuses, any gain from exercise of stock
options, or any other similar non-recurring payments) which
would be payable to Executive but for the termination from the
date of termination of Executive's employment to the date
eighteen (18) months after the Change in Control. The Bonus
Continuation Payment shall equal (i) the most recent annual
bonus paid to Executive, multiplied by (ii) (x) the number of
days during which Executive was employed but as to which no
annual bonus has been paid plus the number of days from the
date of termination of employment to the date eighteen (18)
months after the Change in Control divided by (y) 365.
(b) Limitation on Payment. Notwithstanding anything in this
Agreement to the contrary, the Salary Continuation Payment
shall not exceed an amount equal to One Dollar ($1.00) less
than the amount which would cause the payment, together with
any other payments received from Bancorp, to be a "parachute
payment" as defined in Section 280G(b)(2)(A) of the Internal
Revenue Code.
4. TERMINATION EVENT AFTER CHANGE IN CONTROL. A Termination Event After
a Change in Control shall be deemed to occur upon, and only upon, one
or more of the following:
(a) Termination of Executive's employment by Executive for Good
Reason (as defined herein) within eighteen (18) months after a
Change In Control;
(b) Termination of Executive's employment by Bancorp other than
for Cause, Disability, or Retirement (each of which is defined
below) within eighteen (18) months after a Change In Control;
or
(c) Termination of Executive's employment by Bancorp other than
for Cause, Disability, or Retirement prior to a Change In
Control if such termination occurs either (i) on or after
announcement, by Bancorp or any other party, of a contemplated
Change In Control or an intended Change In Control, or (ii) on
or after the date a contemplated or intended Change In Control
should have been announced in conformity with applicable
securities or other laws, but only if in either case a Change
In Control occurs within twelve (12) months after such
termination of Executive's employment.
5. DEFINITIONS.
(a) Cause. "Cause" shall mean only any one or more of the
following:
(i) Willful misfeasance or gross negligence in the
performance of Executive's duties; or
(ii) Conviction of a crime in connection with such duties.
67
<PAGE> 3
(b) Disability. "Disability" shall mean a physical or mental
impairment which renders Executive incapable of substantially
performing the duties required under this Agreement, and which
is expected to continue rendering Executive so incapable for
the reasonably foreseeable future.
(c) Retirement. "Retirement" shall mean voluntary termination by
Executive in accordance with Bancorp's retirement policies,
including early retirement, if applicable to their salaried
employees.
(d) Good Reason. "Good Reason" shall mean only any one or more of
the following:
(i) Any reduction of Executive's salary or any reduction
or elimination of any compensation or benefit plan
benefiting Executive, which reduction or elimination
is not of general application to substantially all
employees of Bancorp or such employees of any
successor entity or of any entity in control of
Bancorp;
(ii) A relocation or transfer of Executive's place of
employment which would reasonably require Executive
to commute more than twenty (20) miles each way from
Executive's principal residence; or
(iii) A material diminution in the responsibilities or
duties of Executive.
(e) Change In Control. "Change in Control" shall mean either of
the following:
(i) A Person or Entity (as defined below) acquiring or
otherwise becoming the owner (as a result of a
purchase, merger, stock exchange, or otherwise) of
more than fifty percent (50%) of the outstanding
common stock of Bancorp, or
(i) The merger of Bancorp into any corporation, or the
merger of any corporation into Bancorp, where more
than fifty percent (50%) of the stock of such
corporation or Bancorp, as the case may be, (the
"Surviving Corporation") is owned by other than the
owners of the common stock of Bancorp prior to such
merger.
(a) Person or Entity. "Person or Entity" shall include any one or
more persons and/or entities acting in concert with respect to
their interests in the Surviving Corporation.
1. OTHER COMPENSATION AND TERMS OF EMPLOYMENT. This Agreement is not an
employment agreement. Accordingly, except with respect to the Salary
Continuation Payment, this Agreement shall have no effect on the
determination of any compensation payable by Bancorp to Executive, or
upon any of the other terms of Executive's employment with Bancorp.
The specific arrangements referred to herein are not intended to
exclude any other benefits which may be available to Executive upon a
termination of employment with Bancorp pursuant to employee benefit
plants of Bancorp or otherwise.
68
<PAGE> 4
2. WITHHOLDING. All payments required to be made by Bancorp hereunder to
Executive shall be subject to the withholding of such amounts, if any,
relating to tax and other payroll deductions as Bancorp may reasonably
determine should be withheld pursuant to any applicable law or
regulation.
3. ASSIGNABILITY. Bancorp may assign this Agreement and its rights
hereunder in whole, but not in part, to any corporation, bank or other
entity with or into which Bancorp may hereafter merge or consolidate
or to which Bancorp may transfer all or substantially all of its
assets, if in any such case said corporation, bank or other entity
shall by operation of law or expressly in writing assume all
obligations of Bancorp hereunder as fully as if it had been originally
made a party hereto, but may not otherwise assign this Agreement or
its rights hereunder. Executive may not assign or transfer this
Agreement or any rights or obligations hereunder.
4. GENERAL PROVISIONS.
(a) Choice of Law. This Agreement is made with reference to and
is intended to be construed in accordance with the laws of the
State of Oregon.
(b) Arbitration. Any dispute, controversy or claim arising out of
or in connection with, or relating to, this Agreement or any
breach or alleged breach hereof, shall, upon the request of
any party involved, be submitted to, and settled by,
arbitration pursuant to the rules then in effect of the
American Arbitration Association (or under any other form of
arbitration mutually acceptable to the parties so involved).
Any award rendered shall be final and conclusive upon the
parties and a judgment thereon may be entered in the highest
court of the forum having jurisdiction. The arbitrator shall
render a written decision, naming the substantially prevailing
party in the action, and shall award such party all costs and
expenses incurred, including reasonable attorneys' fees.
(c) Attorney Fees. In the event of any breach of or default under
this Agreement which results in either party incurring
attorney or other fees, costs or expenses (including in
arbitration), the prevailing party shall be entitled to
recover from the non-prevailing party any and all such fees,
costs and expenses, including attorney fees.
(d) Successors. This Agreement shall be binding upon and inure to
the benefit of the Parties and each of their respective
affiliates, legal representatives, successors and assigns.
(e) Construction. This Agreement contains the entire agreement
among the Parties with respect to its subject matter, and may
be amended or modified only in a writing executed by all of
the Parties. Its language is and will be deemed to be the
language chosen by the Parties jointly to express their mutual
intent. No rule of construction based on which party drafted
the Agreement or certain of its provisions will be applied
against any party. This Agreement may be amended only in a
writing signed by the parties.
69
<PAGE> 5
(f) Captions. The captions of the respective sections of this
Agreement have been included for convenience of reference
only. They shall not be construed to modify or otherwise
affect in any respect any of the provisions of the Agreement.
(g) Counterparts. This Agreement may be executed in one or more
counterparts by the parties hereto. All counterparts shall be
construed together and shall constitute one Agreement.
EXECUTED by each of the parties effective as of the date first stated
above.
BANCORP:
WEST COAST BANCORP,
an Oregon corporation
By:_____________________________________
Its:____________________________________
EXECUTIVE:
________________________________________
DONALD A. KALKOFEN
70
<PAGE> 1
Exhibit 10.4
CONFIDENTIAL
------------
SALARY CONTINUATION AGREEMENT
THIS SALARY CONTINUATION AGREEMENT ("Agreement") is dated as of
December 1, 1996 (the "Effective Date"). The parties to the Agreement
("Parties"') are WEST COAST BANCORP, an Oregon corporation ("Bancorp"), its
wholly-owned subsidiary COMMERCIAL BANK, an Oregon state banking corporation
("Bank") (collectively, "Company"), and EDGAR B. MARTIN ("Executive").
A. Company currently receives the exclusive services of certain employees
including Executive, and both Company and Executive desire to continue
Executive's services in the event of a change in the control of
Bancorp, thereby allowing Company to maximize the benefits obtainable
from any such change.
B. To encourage Executive's continued services, Company desires to
provide a salary continuation benefit to Executive.
In consideration of the mutual promises, covenants, agreements and
undertakings contained in this Agreement, the parties agree as follows:
1. EFFECTIVE DATE AND TERM. As of the Effective Date, this Agreement
shall be a binding obligation of the parties, not subject to
revocation or amendment except by mutual consent or in accordance with
its terms. The term of this Agreement ("Term") shall commence as of
the Effective Date and shall end one (1) year thereafter, provided
however, that this Agreement shall be automatically renewed for
successive one year periods, unless the Board of Directors of either
the Bank or Bancorp do not approve such renewal and provide written
notice to Executive of such event, or Executive gives written notice
to Company not less than thirty (30) days prior to any such
anniversary date of Executive's election not to extend the term beyond
its then scheduled expiration date. Notwithstanding the preceding, if
a definitive agreement providing for a Change in Control (as defined
below) is entered into on or before the expiration of the Term, the
term of this Agreement shall be extended to twelve (12) months after
the consummation of such Change in Control.
2. COMMITMENT OF EXECUTIVE. In the event that any person extends any
proposal or offer which is intended to or may result in a Change in
Control, as defined below (a "Change in Control Proposal"), Executive
shall, at Company's request, assist Company in evaluating such
proposal or offer. Further, as a condition to receipt of the Salary
Continuation Payment defined below, Executive agrees not to resign
Executive's position with Company during any period from the receipt
of a specific Change in Control Proposal up to the consummation or
abandonment of the transaction contemplated by such Proposal.
3. SALARY CONTINUATION PAYMENT.
(a) Amount of Payment--Termination Event After Change in Control.
Except as otherwise provided in this Section, in the case of a
Termination Event After a
71
<PAGE> 2
Change in Control, as defined in Section 4, Executive shall
receive a salary continuation payment (the "Salary
Continuation Payment") equal to the sum of the Regular Salary
Continuation Payment and the Bonus Continuation Payment. The
Regular Salary Continuation Payment shall equal Executive's
regular monthly salary in effect as of the date of termination
of employment (as reportable on Executive's IRS Form W-2, but
including the amount of any voluntary deferrals of salary, and
excluding any expense allowances or reimbursements, any
bonuses, any gain from exercise of stock options, or any other
similar non-recurring payments) which would be payable to
Executive but for the termination from the date of termination
of Executive's employment to the date twelve (12) months after
the Change in Control. The Bonus Continuation Payment shall
equal (i) the most recent annual bonus paid to Executive,
multiplied by (ii) (x) the number of days during which
Executive was employed but as to which no annual bonus has
been paid plus the number of days from the date of termination
of employment to the date twelve (12) months after the Change
in Control divided by (y) 365.
(b) Limitation on Payment. Notwithstanding anything in this
Agreement to the contrary, the Salary Continuation Payment
shall not exceed an amount equal to One Dollar ($1.00) less
than the amount which would cause the payment, together with
any other payments received from Company, to be a "parachute
payment" as defined in Section 280G(b)(2)(A) of the Internal
Revenue Code.
4. TERMINATION EVENT AFTER CHANGE IN CONTROL. A Termination Event After
a Change in Control shall be deemed to occur upon, and only upon, one
or more of the following:
(a) Termination of Executive's employment by Executive for Good
Reason (as defined herein) within twelve (12) months after a
Change In Control;
(b) Termination of Executive's employment by Company other than
for Cause, Disability, or Retirement (each of which is defined
below) within twelve (12) months after a Change In Control; or
(c) Termination of Executive's employment by Company other than
for Cause, Disability, or Retirement prior to a Change In
Control if such termination occurs either (i) on or after
announcement, by Company or any other party, of a contemplated
Change In Control or an intended Change In Control, or (ii) on
or after the date a contemplated or intended Change In Control
should have been announced in conformity with applicable
securities or other laws, but only if in either case a Change
In Control occurs within twelve (12) months after such
termination of Executive's employment.
5. DEFINITIONS.
(a) Cause. "Cause" shall mean only any one or more of the
following:
(i) Willful misfeasance or gross negligence in the
performance of Executive's duties; or
(ii) Conviction of a crime in connection with such duties.
72
<PAGE> 3
(b) Disability. "Disability" shall mean a physical or mental
impairment which renders Executive incapable of substantially
performing the duties required under this Agreement, and which
is expected to continue rendering Executive so incapable for
the reasonably foreseeable future.
(c) Retirement. "Retirement" shall mean voluntary termination by
Executive in accordance with Company's retirement policies,
including early retirement, if applicable to their salaried
employees.
(d) Good Reason. "Good Reason" shall mean only any one or more of
the following:
(i) Any reduction of Executive's salary or any reduction
or elimination of any compensation or benefit plan
benefiting Executive, which reduction or elimination
is not of general application to substantially all
employees of Company or such employees of any
successor entity or of any entity in control of
Company;
(ii) A relocation or transfer of Executive's place of
employment which would reasonably require Executive
to commute more than twenty (20) miles each way from
Executive's principal residence; or
(iii) A material diminution in the responsibilities or
duties of Executive.
(e) Change In Control. "Change in Control" shall mean either of
the following:
(i) A Person or Entity (as defined below) acquiring or
otherwise becoming the owner (as a result of a
purchase, merger, stock exchange, or otherwise) of
more than fifty percent (50%) of the outstanding
common stock of Company, or
(i) The merger of Company into any corporation, or the
merger of any corporation into Company, where more
than fifty percent (50%) of the stock of such
corporation or Company, as the case may be, (the
"Surviving Corporation") is owned by other than the
owners of the common stock of Company prior to such
merger.
(a) Person or Entity. "Person or Entity" shall include any one or
more persons and/or entities acting in concert with respect to
their interests in the Surviving Corporation.
1. OTHER COMPENSATION AND TERMS OF EMPLOYMENT. This Agreement is not an
employment agreement. Accordingly, except with respect to the Salary
Continuation Payment, this Agreement shall have no effect on the
determination of any compensation payable by Company to Executive, or
upon any of the other terms of Executive's employment with Company.
The specific arrangements referred to herein are not intended to
exclude any other benefits which may be available to Executive upon a
termination of employment with Company pursuant to employee benefit
plants of Company or otherwise.
73
<PAGE> 4
2. WITHHOLDING. All payments required to be made by Company hereunder to
Executive shall be subject to the withholding of such amounts, if any,
relating to tax and other payroll deductions as Company may reasonably
determine should be withheld pursuant to any applicable law or
regulation.
3. ASSIGNABILITY. Company may assign this Agreement and its rights
hereunder in whole, but not in part, to any corporation, bank or other
entity with or into which Company may hereafter merge or consolidate
or to which Company may transfer all or substantially all of its
assets, if in any such case said corporation, bank or other entity
shall by operation of law or expressly in writing assume all
obligations of Company hereunder as fully as if it had been originally
made a party hereto, but may not otherwise assign this Agreement or
its rights hereunder. Executive may not assign or transfer this
Agreement or any rights or obligations hereunder.
4. GENERAL PROVISIONS.
(a) Choice of Law. This Agreement is made with reference to and
is intended to be construed in accordance with the laws of the
State of Oregon.
(b) Arbitration. Any dispute, controversy or claim arising out of
or in connection with, or relating to, this Agreement or any
breach or alleged breach hereof, shall, upon the request of
any party involved, be submitted to, and settled by,
arbitration pursuant to the rules then in effect of the
American Arbitration Association (or under any other form of
arbitration mutually acceptable to the parties so involved).
Any award rendered shall be final and conclusive upon the
parties and a judgment thereon may be entered in the highest
court of the forum having jurisdiction. The arbitrator shall
render a written decision, naming the substantially prevailing
party in the action, and shall award such party all costs and
expenses incurred, including reasonable attorneys' fees.
(c) Attorney Fees. In the event of any breach of or default under
this Agreement which results in either party incurring
attorney or other fees, costs or expenses (including in
arbitration), the prevailing party shall be entitled to
recover from the non-prevailing party any and all such fees,
costs and expenses, including attorney fees.
(d) Successors. This Agreement shall be binding upon and inure to
the benefit of the Parties and each of their respective
affiliates, legal representatives, successors and assigns.
(e) Construction. This Agreement contains the entire agreement
among the Parties with respect to its subject matter, and may
be amended or modified only in a writing executed by all of
the Parties. Its language is and will be deemed to be the
language chosen by the Parties jointly to express their mutual
intent. No rule of construction based on which party drafted
the Agreement or certain of its provisions will be applied
against any party. This Agreement may be amended only in a
writing signed by the parties.
74
<PAGE> 5
(f) Captions. The captions of the respective sections of this
Agreement have been included for convenience of reference
only. They shall not be construed to modify or otherwise
affect in any respect any of the provisions of the Agreement.
(g) Counterparts. This Agreement may be executed in one or more
counterparts by the parties hereto. All counterparts shall be
construed together and shall constitute one Agreement.
EXECUTED by each of the parties effective as of the date first stated
above.
<TABLE>
<S> <C>
BANK:
COMMERCIAL BANK
By:______________________________________
Its:_______________________________
BANCORP:
WEST COAST BANCORP,
an Oregon corporation
By:______________________________________
Its:_______________________________
EXECUTIVE:
_________________________________________
EDGAR B. MARTIN
</TABLE>
75
<PAGE> 1
EXHIBIT 11
COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
December 31,
---------------------------------
PRIMARY 1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Actual weighted average shares outstanding for the period ....... 6,660,492 6,627,698 6,313,367
Dilutive options using the treasury stock method (1) ............ - - -
---------- ---------- ----------
Total shares used in per share calculations ..................... 6,660,492 6,627,698 6,313,367
Net income ...................................................... $9,802,015 $8,249,151 $6,315,633
---------- ---------- ----------
Earnings per share .............................................. $ 1.47 $ 1.24 $ 1.00
========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
December 31,
----------------------------------
FULLY DILUTIVE 1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Actual weighted average shares outstanding for the period ....... 6,660,492 6,627,698 6,313,367
Dilutive options using the treasury stock method (1) ........... - - -
---------- ---------- ----------
Total shares used in per share calculations ..................... 6,660,492 6,627,698 6,313,367
Net income ...................................................... $9,802,015 $8,249,151 $6,315,633
---------- ---------- ----------
Earnings per share .............................................. $ 1.47 $ 1.24 $ 1.00
========== ========== ==========
</TABLE>
(1) The dilutive effect of stock options is less than 3% in the aggregate,
hence has not been included in the calculations.
76
<PAGE> 1
EXHIBIT 21
SCHEDULE OF SUBSIDIARIES
Following is a list of the registrant's subsidiaries at February 28, 1997.
<TABLE>
<CAPTION>
State of Incorporation
Name of Organization
-----------------------
<S> <C>
The Bank of Newport Oregon
The Commercial Bank Oregon
Coban, Inc. Oregon
Valley Commercial Bank Oregon
Bank of Vancouver Washington
BV Corporation Washington
West Coast Trust Oregon
</TABLE>
77
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of
our reports included (or incorporated by reference) in this Form 10-K, into the
Company's previously filed Registration Statement File Nos. 333-09721,
333-01651, 333-01649 and 033-06259.
ARTHUR ANDERSEN LLP
Portland, Oregon
March 26, 1997
As independent public accountants, we hereby consent to the incorporation of
our reports included (or incorporated by reference) in this Form 10-K, into the
Company's previously filed Registration Statement File Nos. 333-09721,
333-01651, 333-01649 and 033-06259.
MOSS ADAMS LLP
Portland, Oregon
March 26, 1997
78
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<EXCHANGE-RATE> 1
<CASH> 30,817
<INT-BEARING-DEPOSITS> 12,141
<FED-FUNDS-SOLD> 23
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 107,168
<INVESTMENTS-CARRYING> 2,623
<INVESTMENTS-MARKET> 2,652
<LOANS> 535,793
<ALLOWANCE> 7,038
<TOTAL-ASSETS> 712,343
<DEPOSITS> 604,902
<SHORT-TERM> 3,709
<LIABILITIES-OTHER> 8,004
<LONG-TERM> 28,583
8,378
0
<COMMON> 0
<OTHER-SE> 58,767
<TOTAL-LIABILITIES-AND-EQUITY> 712,343
<INTEREST-LOAN> 48,516
<INTEREST-INVEST> 7,407
<INTEREST-OTHER> 701
<INTEREST-TOTAL> 56,624
<INTEREST-DEPOSIT> 18,592
<INTEREST-EXPENSE> 19,834
<INTEREST-INCOME-NET> 36,790
<LOAN-LOSSES> 2,175
<SECURITIES-GAINS> 17
<EXPENSE-OTHER> 28,851
<INCOME-PRETAX> 14,643
<INCOME-PRE-EXTRAORDINARY> 14,643
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,802
<EPS-PRIMARY> 1.47
<EPS-DILUTED> 1.47
<YIELD-ACTUAL> 6.38
<LOANS-NON> 1,884
<LOANS-PAST> 92
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 5,569
<CHARGE-OFFS> 900
<RECOVERIES> 194
<ALLOWANCE-CLOSE> 7,038
<ALLOWANCE-DOMESTIC> 7,038
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
