<PAGE> 1
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------------------
Form 10-Q
[X] Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Quarter Ended June 30, 1998
[ ] Transition report under Section 13 or 15(d)
of the Securities Exchange Act of 1934
Commission file number 0-10997
WEST COAST BANCORP
(Exact name of registrants specified in its charter)
Oregon 93-0810577
(State or other jurisdiction (IRS Employer
incorporation or organization) Identification No.)
5335 Meadows Road, Suite 201, Lake Oswego, Oregon 97035
(Address of Principal executive offices) (Zip code)
(503) 684-0884
(Registrant's telephone number, including area code)
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 the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
Common Stock, no par value, outstanding on July 31, 1998: 12,886,274
<PAGE> 2
TABLE OF CONTENTS
PART I. Financial Information
<TABLE>
<CAPTION>
Item 1. Financial Statements Page
<S> <C>
Consolidated Balance Sheets -
June 30, 1998 and December 31, 1997.............................................................3
Consolidated Statements of Income -
Three months and six months ended June 30, 1998 and 1997........................................4
Consolidated Statements of Cash Flows -
Six months ended June 30, 1998 and 1997.........................................................5
Consolidated Statements of Changes in Stockholders' Equity......................................6
Notes to Consolidated Financial Statements......................................................7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.............................................................9
Item 3. Quantitative and Qualitative Disclosures About Market Risk.....................................20
PART II. Other Information
Item 4. Submissions of Matters to a Vote of Security Holders...........................................21
Item 6. Exhibits and Reports on Form 8-K...............................................................22
Signatures.....................................................................................23
</TABLE>
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
Item 1.
WEST COAST BANCORP
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
--------------- ---------------
(Unaudited)
<S> <C> <C>
ASSETS
Cash and cash equivalents:
Cash and due from banks ...................... $ 82,511,270 $ 97,769,331
Interest-bearing deposits in other banks ..... 3,411,863 1,048,327
Federal funds sold ........................... -- --
--------------- ---------------
Total cash and cash equivalents .......... 85,923,133 98,817,658
Investment securities:
Investment available for sale ................ 204,036,071 191,189,957
Investment held to maturity .................. 2,969,594 2,987,256
--------------- ---------------
Total investment securities .............. 207,005,665 194,177,213
Loans held for sale ............................... 10,018,069 10,457,247
Loans ............................................. 820,786,733 776,941,389
Allowance for loan loss ........................... (12,003,751) (10,450,584)
--------------- ---------------
Loans, net ................................... 808,782,982 766,490,805
Premises and equipment, net ....................... 29,638,007 27,850,076
Intangible assets ................................. 2,934,839 3,157,300
Other assets ...................................... 17,952,705 17,436,250
--------------- ---------------
Total assets ............................. $ 1,162,255,400 $ 1,118,386,549
=============== ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits:
Demand ....................................... $ 185,075,712 $ 162,567,731
Savings and interest-bearing demand .......... 504,240,879 495,890,935
Certificates of deposits ..................... 323,953,693 300,022,929
--------------- ---------------
Total deposits ........................... 1,013,270,284 958,481,595
Short-term borrowings ............................. 1,397,000 29,249,000
Other liabilities ................................. 6,058,342 7,069,962
Long-term borrowings .............................. 31,874,245 22,445,674
--------------- ---------------
Total liabilities ........................ 1,052,599,871 1,017,246,231
Commitments and contingent liabilities
STOCKHOLDERS' EQUITY
Preferred stock: no par value, none issued;
10,000,000 shares authorized
Common stock: no par value, 50,000,000 shares
authorized; shares issued and outstanding
12,867,816 and 12,606,009 respectively ....... 16,084,770 15,757,511
Additional paid-in capital ........................ 45,544,866 43,213,086
Retained earnings ................................. 46,417,522 40,599,130
Accumulated other comprehensive income ............ 1,608,371 1,570,591
--------------- ---------------
Total stockholders' equity ................... 109,655,529 101,140,318
--------------- ---------------
Total liabilities and stockholders' equity $ 1,162,255,400 $ 1,118,386,549
=============== ===============
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
3
<PAGE> 4
WEST COAST BANCORP
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Three Months ended Six Months ended
June 30, June 30,
-------------------------------------------------------------------
1998 1997 1998 1997
-------------------------------------------------------------------
INTEREST INCOME (Unaudited)
<S> <C> <C> <C> <C>
Interest and fees and loans ................ $ 20,435,332 $ 19,514,766 $ 40,648,220 $ 38,036,585
Interest on taxable investment securities .. 2,063,646 1,611,787 4,110,395 2,949,266
Interest on nontaxable investment securities 969,152 568,935 1,864,092 1,135,113
Interest from other banks .................. 399,219 132,527 945,089 356,028
Interest on federal funds sold ............. 28,794 14,920 35,146 28,885
------------ ------------ ------------ ------------
Total interest income ................. 23,896,143 21,842,935 47,602,942 42,505,877
INTEREST EXPENSE
Savings and interest-bearing demand ........ 4,045,863 3,656,132 8,006,396 7,038,224
Certificates of deposit .................... 4,379,463 3,603,962 8,661,893 7,086,572
Short-term borrowings ...................... 115,540 290,049 400,266 430,269
Long-term borrowings ....................... 462,502 293,814 918,903 720,384
------------ ------------ ------------ ------------
Total interest expense ................ 9,003,368 7,843,957 17,987,458 15,275,449
------------ ------------ ------------ ------------
NET INTEREST INCOME ........................ 14,892,775 13,998,978 29,615,484 27,230,428
PROVISION FOR LOAN LOSS .................... 495,000 913,000 1,980,415 2,310,000
------------ ------------ ------------ ------------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSS ............... 14,397,775 13,085,978 27,635,069 24,920,428
NONINTEREST INCOME
Gains on sales of loans .................... 1,880,784 503,504 2,975,181 855,309
Service charges on deposit accounts ........ 1,121,235 995,575 2,207,353 1,950,960
Other service charges, commissions and fees 867,070 793,650 1,656,074 1,460,547
Gains on sale of servicing rights .......... -- 118,974 -- 1,445,317
Trust revenue .............................. 518,067 405,675 1,304,544 801,379
Loans servicing fees ....................... 169,069 199,709 312,481 479,567
Other ...................................... 233,423 138,866 401,511 296,227
Net gains (losses) on sales of securities .. 150,095 (19,074) 250,981 (46,386)
------------ ------------ ------------ ------------
Total noninterest income .............. 4,939,743 3,136,879 9,108,125 7,242,920
NONINTEREST EXPENSE
Salaries and employee benefits ............. 7,473,181 6,155,010 14,738,944 12,049,391
Equipment .................................. 1,363,403 1,175,919 2,576,896 2,230,325
Occupancy .................................. 804,993 860,644 1,619,131 1,668,023
Professional fees .......................... 360,055 422,783 780,699 1,008,599
Printing and office supplies ............... 351,174 259,225 759,656 573,863
Marketing .................................. 362,698 372,614 749,934 672,316
Communications ............................. 371,680 287,014 748,480 551,090
FDIC insurance ............................. 28,932 23,514 57,669 48,801
Other noninterest expense .................. 1,766,039 1,484,878 4,005,808 2,906,762
------------ ------------ ------------ ------------
Total noninterest expense ............. 12,882,155 11,041,601 26,037,217 21,709,170
INCOME BEFORE INCOME TAXES ................. 6,455,363 5,181,256 10,705,977 10,454,178
PROVISION FOR INCOME TAXES ................. 2,099,503 1,868,426 3,603,510 3,791,691
------------ ------------ ------------ ------------
NET INCOME ................................. $ 4,355,860 $ 3,312,830 $ 7,102,467 $ 6,662,487
============ ============ ============ ============
AVERAGE NUMBER OF COMMON EQUIVALENT SHARES
OUTSTANDING ................................ 13,380,000 12,934,000 13,359,000 12,894,000
Basic ................................. $ .34 $ .27 $ .56 $ .54
Diluted ............................... $ .33 $ .26 $ .53 $ .52
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
4
<PAGE> 5
WEST COAST BANCORP
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Six Months ended
June 30,
---------------------------------
1998 1997
---------------------------------
(Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income ...................................................... $ 7,102,467 $ 6,662,487
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization of premises and equipment .... 1,459,342 1,234,213
Amortization of intangibles ................................ 222,461 170,416
Net (gain) loss on sales of available for sale investments.. (250,981) 46,386
Provision for loan losses .................................. 1,980,415 2,310,000
Increase in interest receivables ........................... (610,554) (750,699)
(Increase) decrease in other assets ........................ 94,099 (1,192,908)
Net cash provided by loans held for sale ................... 439,178 3,466,207
Decrease in interest payable ............................... (42,560) (140,040)
Decrease in other liabilities .............................. (969,060) (2,847,684)
Tax benefit associated with stock options .................. 1,189,902 --
------------ ------------
Net cash provided by operating activities .............. 10,614,709 8,958,378
CASH FLOWS FOR INVESTING ACTIVITIES
Proceeds from maturities of investment securities:
Available for sale ......................................... 22,798,055 12,574,961
Held to maturity ........................................... 17,662 56,942
Proceeds from sales of available for sale investment securities.. 5,512,295 11,299,325
Purchase of investment securities:
Available for sale ......................................... (40,867,703) (41,594,903)
Held to maturity ........................................... -- (100,000)
Loans made to customers greater than principal collected on loans (44,272,592) (30,936,733)
Capital expenditures ............................................ (3,247,273) (1,642,965)
------------ ------------
Net cash used in investing activities ...................... (60,059,556) (50,343,373)
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in demand, savings and interest
bearing transaction accounts ............................... 30,857,925 55,814,704
Net increase in proceeds from sales of certificates of deposits
greater than payments for maturing time deposits ........... 23,930,764 13,156,362
Proceeds from long-term borrowings .............................. 11,000,000 10,180,000
Payments on long-term borrowings ................................ (1,571,429) (21,745,667)
Net decrease in short-term borrowings ........................... (27,852,000) (8,000,734)
Sales of common stock, net ...................................... 1,469,247 238,238
Dividends paid and cash paid for fractional shares .............. (1,284,185) (1,044,459)
------------ ------------
Net cash provided by financing activities .................. 36,550,322 48,598,444
------------ ------------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS ............ (12,894,525) 7,213,449
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR .................. 98,817,658 59,174,506
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD ...................... $ 85,923,133 $ 66,387,955
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
5
<PAGE> 6
WEST COAST BANCORP
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(Unaudited)
<TABLE>
<CAPTION>
Accumulated
Additional Other
Common Stock Paid-In Retained Comprehensive
Shares Amount Capital Earnings Income Total
------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, December 31, 1996 ......... 8,992,541 $ 11,240,676 $ 44,819,357 $ 28,477,489 $ 843,142 $ 85,380,664
Net income ......................... -- -- -- 14,438,513 -- 14,438,513
Net unrealized gains on investments
available for sale ............... -- -- -- -- 727,449 727,449
Cash dividends, $.18 per common
shares ........................... -- -- -- (2,305,154) -- (2,305,154)
Sale of common stock pursuant to
stock option plans ............... 262,516 328,145 2,055,883 -- -- 2,384,028
Redemption of stock pursuant to
stock option plans ............... (19,507) (24,384) (526,964) -- -- (551,348)
Stock Split in the form of a 50
percent dividend ................. 3,370,835 4,213,544 (4,213,544) -- -- --
Cash paid for fractional shares .... (376) (470) -- (11,718) -- (12,188)
Tax benefit associated with stock
options .......................... -- -- 1,078,354 -- -- 1,078,354
------------- ------------- ------------- ------------- ------------- -------------
BALANCE, December 31, 1997 ......... 12,606,009 15,757,511 43,213,086 40,599,130 1,570,591 101,140,318
Net income ......................... -- -- -- 7,102,467 -- 7,102,467
Net unrealized losses on investments
available for sale ............... -- -- -- -- 37,780 37,780
Cash dividends, $.10 per common
Share ............................ -- -- -- (1,282,610) -- (1,282,610)
Sale of common stock pursuant to
stock options plans .............. 263,027 328,784 1,168,565 -- -- 1,497,349
Redemption of stock pursuant to
stock option plans ............... (1,132) (1,415) (26,687) -- -- (28,102)
Cash paid for fractional shares .... (88) (110) -- (1,465) -- (1,575)
Tax benefit associated with stock
options .......................... -- -- 1,189,902 -- -- 1,189,902
------------- ------------- ------------- ------------- ------------- -------------
BALANCE, June 30, 1998 ............. 12,867,816 $ 16,084,770 $ 45,544,866 $ 46,417,522 $ 1,608,371 $ 109,655,529
============= ============= ============= ============= ============= =============
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
6
<PAGE> 7
NOTES TO CONSOLIDATED FINANCIAL STATEMENT
1. 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, including its branches operated under the
trade name Valley Commercial Bank, The Bank of Vancouver, Centennial Bank,
(collectively, the "Banks"), Centennial Funding corporation, Totten Inc., and
West Coast Trust, after elimination of intercompany transactions and balances.
The interim financial statements have been prepared in accordance with
generally accepted accounting principles for interim financial information.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments including normal recurring
accruals necessary for fair presentation of results of operations for the
interim periods included herein have been made. The results of operations for
the three and six months ended June 30, 1998 are not necessarily indicative of
results to be anticipated for the year ending December 31, 1998, or other future
periods.
2. 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.
3. BUSINESS COMBINATIONS
Effective February 28, 1998, Bancorp completed its acquisition of
Centennial Holdings, Ltd. in Olympia, Washington. Its principal business
activities were conducted through Centennial Bank, which has continued as a
wholly-owned commercial bank subsidiary of Bancorp. The merger was accounted for
as a pooling-of-interests. The historical consolidated financial statements have
been restated and include the accounts and results of operations of Centennial
Holdings, Ltd.
4. ACCOUNTING CHANGES
In June 1998, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities".
The Statement establishes accounting and reporting standards requiring that
every derivative instrument (including certain derivative instruments embedded
in other contracts) be recorded in the balance sheet as either an asset or
liability measured at its fair value. The Statement requires that changes in the
derivative's fair value be recognized currently in earnings unless specific
hedge accounting criteria are met. Special accounting for qualifying hedges
allows a derivative's gains and losses to offset related results on the hedged
item in the income statement, and requires that a company must formally
document, designate, and assess the effectiveness of transactions that receive
hedge accounting.
SFAS No. 133 is effective for fiscal years beginning after June 15,
1999. A company may also implement the Statement as of the beginning of any
fiscal quarter after issuance (that is, fiscal quarters beginning June 16, 1998
and thereafter). Statement 133 cannot be applied retroactively. SFAS No. 133
must be applied to (a) derivative instruments and (b) certain derivative
instruments embedded in hybrid contracts that were issued, acquired, or
substantively modified after December 31, 1997 (and, at the company's election,
before January 1, 1998).
The implementation of this statement is not anticipated to have a
material effect on Bancorp's financial position or net income.
5. STOCKHOLDERS' EQUITY
The Board of Directors declared a quarterly cash dividend of $.05 per
share during the first and second quarter of 1998. A dividend of $.04 was
declared in the first and second quarter of 1997. A stock split in the form of a
50 percent dividend was declared during the third quarter of 1997. All per share
amounts have been restated to retroactively reflect stock dividends and stock
splits previously reported.
7
<PAGE> 8
6. 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 $18,030,018 and $15,275,449, for interest in the six
months ended June 30, 1998 and 1997, respectively. Income taxes paid were
$2,170,934 and $3,294,140 in the six months ended June 30, 1998 and 1997
respectively.
7. COMPREHENSIVE INCOME
Bancorp has adopted SFAS No. 130 "Reporting Comprehensive Income" as of
the quarter ended March 31, 1998. This statement established standards for the
reporting and display of comprehensive income and its components in the
financial statements. For Bancorp, comprehensive income includes net income
reported on the income statement and changes in the fair value of its
available-for-sale investments reported as a component of shareholders' equity.
The following table presents net income adjusted by the change in unrealized
gains or losses on the available-for-sale investments as a component of
comprehensive income:
<TABLE>
<CAPTION>
Three Months ended Six Months ended
June 30, June 30,
1998 1997 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net income $ 4,355,860 $ 3,312,830 $ 7,102,467 $ 6,662,487
Net change in unrealized gains (losses)
on available for sale investments 143,629 666,323 37,780 (94,830)
=========== =========== =========== ===========
Comprehensive income $ 4,499,489 $ 3,979,153 $ 7,140,247 $ 6,567,657
=========== =========== =========== ===========
</TABLE>
8. EARNINGS PER SHARE
Bancorp adopted SFAS No. 128, "Earnings Per Share", effective December
15, 1997. As a result, Bancorp's earnings per share for all periods have been
restated. Bancorp for the periods reported had no reconciling items between net
income and income available to common shareholders. The following table
reconciles the numerator and denominator of the basic and diluted earnings per
share computations:
<TABLE>
<CAPTION>
Weighted
Average Per-Share
Net Income Shares Amount
----------------------------------------------
Three Months ended June 30, 1998
----------------------------------------------
<S> <C> <C> <C>
Basic earnings per share ........... $4,355,860 12,841,614 $ 0.34
Stock options ...................... 538,558
Diluted earnings per share ......... $4,355,860 13,380,172 $ 0.33
Three Months ended June 30, 1997
----------------------------------------------
Basic earnings per share ........... $3,312,830 12,351,158 $ 0.27
Stock options ...................... 582,385
Diluted earnings per share ......... $3,312,830 12,933,543 $ 0.26
</TABLE>
<TABLE>
<CAPTION>
Six Months ended June 30, 1998
----------------------------------------------
<S> <C> <C> <C>
Basic earnings per share ........... $7,102,467 12,747,354 $ 0.56
Stock options ...................... 611,769
Diluted earnings per share ......... $7,102,467 13,359,123 $ 0.53
</TABLE>
<TABLE>
<CAPTION>
Six Months ended June 30, 1997
----------------------------------------------
<S> <C> <C> <C>
Basic earnings per share ........... $6,662,487 12,346,374 $ 0.54
Stock options ...................... 547,793
Diluted earnings per share ......... $6,662,487 12,894,167 $ 0.52
</TABLE>
9. RECLASSIFICATIONS
Certain reclassifications of prior year amounts have been made to
conform to current classifications.
8
<PAGE> 9
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of Bancorp's consolidated financial condition
and results of operations should be read in conjunction with the selected
consolidated financial and other data, the consolidated financial statements,
and related notes included elsewhere in this report. In addition to historical
information, this quarterly report contains certain "forward looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995
("PSLRA"). This statement is included for the express purpose of availing
Bancorp of the protections of the safe harbor provisions of the PSLRA. The
forward looking statements contained in this report are subject to factors,
risks, and uncertainties that may cause actual results to differ materially from
those projected. Important factors that might cause such a material difference
include, but are not limited to, those discussed in this section of the report.
In addition, the following items are among the factors that could cause actual
results to differ materially from the forward looking statements in this report:
general economic conditions, including their impact on capital expenditures;
business conditions in the banking industry; the regulatory environment; new
legislation; rapidly changing technology and evolving banking industry
standards; competitive standards; competitive factors, including increased
competition with community, regional, and national financial institutions;
fluctuating interest rate environments; and similar matters. Readers are
cautioned not to place undue reliance on these forward looking statements, which
reflect Management's analysis only as of the date of the statement. Bancorp
undertakes no obligation to publicly revise or update these forward-looking
statements to reflect events or circumstances that arise after the date of this
report. Readers should carefully review the risk factors described in this and
other documents Bancorp files from time to time with the Securities and Exchange
Commission.
RESULTS OF OPERATIONS
Three months ended June 30, 1998 and 1997
Net Income. Bancorp reported net income of $4,355,860 or $.33 per
diluted share, for the three months ended June 30, 1998. This represents a 31 %
increase in net income and a 27% increase in diluted per share amounts, as
compared to $3,312,830 or $.26 per diluted share for the three months ended June
30, 1997. Net interest income increased in the second quarter of 1998 over the
comparable period in 1997 due to higher average interest earning assets.
Noninterest income increased mainly due to gains on sales of loans, an increased
customer base, higher transaction volumes, and increases in fee assessments.
Expenses increased mainly due to an increased customer base, higher transaction
volumes, product expansion costs, and other costs related to growth.
Net Interest Income. Net interest income is the difference between
interest income (principally from loan and investment securities) and interest
expense (principally on customer deposits and borrowings). Changes in net
interest income result from changes in volume, net interest spread, and net
interest margin. Volume refers to the average dollar level of interest earning
assets and interest bearing liabilities. Net interest spread refers to the
differences between the average yield on interest earning assets and the average
cost of interest bearing liabilities. Net interest margin refers to net interest
income divided by average interest earning assets and is influenced by the level
and relative 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. Since Bancorp tends to be liability
sensitive, as interest bearing liabilities mature or reprice more quickly than
interest earning assets in a given period, a significant increase in the market
rates of interest or flattening of the interest rate yield curve could adversely
affect net interest income. In contrast, a declining interest rate environment
or steepening of the interest rate yield curve could favorably impact Bancorp's
margin. Competition, the economy, and the status of the interest rate
environment also impact Bancorp's net interest income in any period.
9
<PAGE> 10
Net interest income on a tax equivalent basis for the three months
ended June 30, 1998 increased $1,099,969 or 7.70%, to $15,392,035 from
$14,292,066 for the same period in 1997. Average interest earning assets
increased by $159.7 million, or 17.69%, to $1.1 billion from $902.6 million for
the same period in 1997, while average interest bearing liabilities increased
$122.9 million or 16.70%. The average net interest spread decreased from 5.57%
to 5.01%, mainly due to decreased average earning asset yields which declined 63
basis points from 9.84% to 9.21%. The low/flat interest rate yield curve has
caused variable rate repricing on assets over the period decreasing asset
yields. In addition, certain fixed rate loan customers have refinanced their
loans at the lower rates over the period. Average rates paid decreased only 7
basis points to 4.20% in the second quarter of 1998 from 4.27% for the same
period in 1997. Bancorp's net interest margin for the three months ended June
30, 1998 was 5.81%, a decrease of 54 basis points from 6.35% for the comparable
period of 1997. Bancorp expects to see further declines in its interest margin,
due to continued anticipated refinance activity caused by the low interest rate
environment and continued strong competition in the markets it serves. 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>
Analysis of Net Interest Income Three Months Ended
June 30,
---------------------------------- Increase
1998 1997 (Decrease) Change
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Interest and fee income (1) ............ $ 24,395,403 $ 22,136,023 $ 2,259,380 10.21%
Interest expense ....................... 9,003,368 7,843,957 1,159,411 14.78%
-------------- -------------- --------------
Net interest income .................... $ 15,392,035 $ 14,292,066 $ 1,099,969 7.70%
============== ============== ==============
Average interest earning assets ........ $1,062,304,710 $ 902,640,439 $ 159,664,271 17.69%
Average interest bearing liabilities ... $ 859,098,468 $ 736,149,709 $ 122,948,759 16.70%
Average yields earned (2) .............. 9.21% 9.84% (0.63)
Average rates paid (2) ................. 4.20% 4.27% (0.07)
Net interest paid (2) .................. 5.01% 5.57% (0.56)
Net interest margin (2) ................ 5.81% 6.35% (0.54)
</TABLE>
(1) Interest earned on nontaxable securities has been computed on a 34% tax
equivalent basis.
(2) These ratios for the three months ended June 30, 1998 and 1997 have been
annualized.
Provision for Loan Loss. Bancorp recorded provisions for loan losses
for the second quarter of 1998 and 1997 of $495,000 and $913,000 respectively.
Bancorp's first quarter provision for loan losses was approximately $447,000,
net the one time merger-related increase in the provision for loan losses of
$1,038,000. Net charge-offs for the second quarter of 1998 were $281,000,
compared to net charge-offs of $249,000 for the same period in 1997. At June 30,
1998, the percentage of non-performing assets was 0.31% of total assets compared
to 0.35% one year earlier. Bancorp's loan loss reserve, as a percentage of total
loans was 1.46% at June 30, 1998 compared to 1.31% as of June 30, 1997.
Noninterest Income. Noninterest income for the second quarter of 1998
was $4,939,743 up $1,802,864 or 57.47% from $3,136,879 in the like period in
1997. Gains on sales of loans increased $1,377,280 to $1,880,784 in 1998 over
1997. The gains represented 38% of noninterest income during the second quarter
of 1998 compared to 16% in the second quarter of 1997. The increase in sales of
loans was due mainly to increased activity in the residential real estate
programs. Service charges on deposit accounts increased to $1,121,235, a 12.62%
increase over the same period in 1997 caused mainly by increases in volumes of
customers serviced. Other service charges, commissions, and fees increased
$73,420 or 9.25% in 1998 over 1997. The increases in other service charges,
commissions, and fees were due to strong growth in the merchant bankcard program
and sales of investment products. Trust revenue increased in 1998 over 1997, due
mainly to an increased customer base, assets managed, and transaction volumes.
Loan servicing fees decreased, due mainly to prior period sales of servicing
rights on loans, while other noninterest income increased during the period.
Noninterest Expense. Noninterest expenses for the second quarter ended
June 30, 1998, were $12,882,155, an increase of $1,840,554 or 16.67% over the
same period in 1997. Bancorp's salaries and employee benefits, equipment,
communications, printing and office supplies, and other expenses are higher in
the second quarter of 1998 over the same period in 1997, due mainly to growth
and expansion including additions of new products and services over the period.
Salaries and employee benefits increased $1,318,171 or 21.42% in the second
quarter of 1998, due to increases in personnel over the same period in 1997.
Equipment expense increased $187,484 or 15.94% in the second quarter of 1998
over 1997. Bancorp continues to invest in technological improvements and
expansion. Communication and other expenses increased in line with the continued
growth of Bancorp. Occupancy, marketing, and professional fees decreased in the
second quarter of 1998 over the like period in 1997. Professional fees incurred
for services from outside consultants, accountants, and attorneys are down
$62,728 in the second quarter of 1998 compared to the second quarter of 1997.
10
<PAGE> 11
Six Months Ended June 30, 1998 and 1997
Net Income. For the six months ended June 30, 1998, Bancorp's net
income was $7,102,467, an increase of $439,980 from $6,662,487 for the same
period in 1997, a 6.60% increase. Net income through June 30, 1998 includes
first quarter pretax merger related costs of $569,000 in transition expenses and
a merger related increase in the provision for loan losses of $1,038,000. Net
income through June 30, 1997 includes a one time pretax gain on sale of
servicing rights of $1,326,343 and a one-time increase to the provision for loan
losses of $675,000 related to a previous bank acquisition made by Centennial
Bank. Noninterest income increased mainly due to gains on sales of loans, an
increased customer base, and higher transaction volumes. Expenses increased
mainly due to an increased customer base, higher transaction volumes, branch
expansion costs, acquisition related costs, and other costs related to growth.
Net Interest Income. Net interest income on a tax equivalent basis for
the six months ended June 30, 1998 increased $2,760,591 or 9.92%, to $30,575,774
from $27,815,183 for the same period in 1997. Average interest earning assets
increased by $164.4 million, or 18.60%, to $1.05 billion from $884.4 million for
the same period in 1997. Average interest bearing liabilities increased $130.9
million or 18.07% over the same period. The average net interest spread
decreased from 5.58 to 5.10%, due to decreased average earning asset yields
which declined 49 basis points from 9.83% to 9.34%. The low/flat interest rate
yield curve has caused variable rate repricing on assets over the period
decreasing asset yields. In addition, certain fixed rate loan customers have
refinanced their loans at the lower rates over the period. Bancorp expects to
see further declines in its interest margin, due to continued anticipated
refinance activity caused by the low interest rate environment and continued
strong competition in the markets it serves. Average rates paid decreased only 1
basis point to 4.24% through June 1998 from 4.25% for the same period in 1997.
Bancorp's net interest margin for the six months ended June 30, 1998 was 5.88%,
a decrease of 46 basis points from 6.34% for the comparable period of 1997. 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>
Analysis of Net Interest Income Six Months Ended
June 30,
---------------------------------- Increase
1998 1997 (Decrease) Change
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Interest and fee income (1) ............ $ 48,563,232 $ 43,090,632 $ 5,472,600 12.70%
Interest expense ....................... 17,987,458 15,275,449 2,712,009 17.75%
-------------- -------------- --------------
Net interest income .................... $ 30,575,774 $ 27,815,183 $ 2,760,591 9.92%
============== ============== ==============
Average interest earning assets ........ $1,048,810,193 $ 884,361,968 $ 164,448,225 18.60%
Average interest bearing liabilities ... $ 855,276,289 $ 724,361,321 $ 130,914,968 18.07%
Average yields earned (2) .............. 9.34% 9.83% (0.49)
Average rates paid (2) ................. 4.24% 4.25% (0.01)
Net interest paid (2) .................. 5.10% 5.58% (0.48)
Net interest margin (2) ................ 5.88% 6.34% (0.46)
</TABLE>
(1) Interest earned on nontaxable securities has been computed on a 34% tax
equivalent basis.
(2) These ratios for the six months ended June 30, 1998 and 1997 have been
annualized.
Provision for Loan Loss. Management's policy is to maintain an adequate
allowance for loan loss based on historical trends, current economic forecasts,
and statistical analysis of the loan portfolio, as well as detailed review of
individual loans, and current loan performance. Bancorp recorded provisions for
loan losses through June 1998 and 1997 of $1,980,415 and $2,310,000,
respectively. The provision for loan loss through June 30, 1998 includes an
increase at Centennial Bank of $1,038,000 to bring the allowance for loan loss
methodology in line with Bancorp practices. Bancorp's first quarter provision
for loan losses was approximately $447,000, net the one time merger-related
increase in the provision for loan losses of $1,038,000. Included in the June
30, 1997 provision for loan loss is a one-time increase of $675,000 related to a
previous bank acquisition made by Centennial Bank. Net charge-offs through June
30, 1998 were $427,000, compared to net charge-offs of $1,015,000 for the same
period in 1997. At June 30, 1998, the percentage of non-performing assets was
0.31% of total assets compared to 0.35% one year earlier. Bancorp's loan loss
reserve, as a percentage of total loans was 1.46% at June 30, 1998 compared to
1.31% as of June 30, 1997.
11
<PAGE> 12
Management has in place a comprehensive loan approval process and an
asset quality monitoring system. Management continues its efforts to collect
amounts previously charged off and to originate new loans of high quality.
Management believes that the allowance for loan losses at June 30, 1998 was
adequate to absorb potential loss exposure in the portfolio. Further additions
to the allowance for loan losses could become necessary, depending upon the
performance of Bancorp's loan portfolio or changes in economic conditions, as
well as growth within the loan portfolio. See "Loan Loss Allowance and
Provision".
Noninterest Income. Noninterest income for the six months ended June
30, 1998 was $9,108,125 up $1,865,205 from $7,242,920 or 25.75% over the like
period in 1997. Gains on sales of loans increased $2,119,872 to $2,975,181 in
1998 over 1997. The gains represent 33% of noninterest income in 1998 compared
to 12% in the same period of 1997. The increase in sales of loans was due to
increased activity in the residential real estate programs. Service charges on
deposit accounts increased to $2,207,353 for the six months ended June 30, 1998,
a 13.14% increase over the same period in 1997, caused mainly by increases in
volumes of customers serviced. Other service charges, commissions, and fees
increased $195,527 or 13.39% in 1998 over 1997. The increases in other service
charges, commissions, and fees were due to strong growth in the merchant
bankcard program and sales of investment products. Included in the June 30, 1997
noninterest income is a one-time gain on sale of servicing rights of $1,445,317.
Trust revenue increased in 1998 over 1997, due mainly to an increased customer
base, assets managed, and transaction volumes. Loan servicing fees decreased,
due mainly to the previously mentioned sale of servicing rights, while other
noninterest income increased in 1998 over 1997.
Noninterest Expense. Noninterest expenses for the six months ended June
30, 1998, were $26,037,217, an increase of $4,328,047 or 19.94% over the same
period in 1997. Noninterest expenses through June 30, 1998 include $569,000 of
expenditures in relation to the transition of the acquisition of Centennial Bank
into Bancorp. The majority of these expenses are related to employment, computer
hardware and software expenditures, and conversion costs. Bancorp's salaries and
employee benefits, equipment, communications, marketing, printing and office
supplies, and other expenses are higher in the first six months of 1998 over the
same period in 1997, due mainly to growth and expansion including additions of
new products, branch locations, and services over the period. Salaries and
employee benefits increased $2,689,553 or 22.32% through the second quarter of
1998, due to increases in salaries and personnel over the same period in 1997.
Equipment expense increased $346,571 or 15.54% in 1998 over 1997. Bancorp
continues to invest in technological improvements and expansion. Marketing and
printing and office supplies expense increased through the second quarter of
1998 over the like period in 1997 due to growth and increased efforts to promote
products and services in new and current markets. Occupancy costs decreased
slightly in 1998 over 1997. Professional fees incurred for services from outside
consultants, accountants, and attorneys are down $227,900 in the first two
quarters of 1998 compared to the same period in 1997. Communication and other
expenses increased in line with the continued growth of Bancorp. Other
noninterest expenses are up due to merger related transition expenses of
$569,000 and continued growth.
INCOME TAXES
During the first six months of 1998, due to changes in the mix of
taxable and nontaxable income items, the provision for income taxes decreased
from that of 1997. It is anticipated that Bancorp's tax expense will increase in
future periods, both due to an increase in income before 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.
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
$1.013 billion at June 30, 1998, up from $958.5 million at December 31, 1997.
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 a quality product. Increases over the period are due to
marketing efforts, expansion, and new business development programs initiated by
Bancorp.
12
<PAGE> 13
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,
FHLB, and other 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 include Federal Funds purchased and borrowings from the FHLB.
CAPITAL RESOURCES
The Board of Governors of the Federal Reserve System ("FRB") and the
Federal Deposit Insurance Corporation ("FDIC") have established minimum
requirements for capital adequacy for bank holding companies and member banks.
The requirements address both risk-based capital and leveraged capital. The
regulatory agencies may establish higher minimum requirements if, for example, a
corporation has previously received special attention or has a high
susceptibility to interest rate risk. The FRB and FDIC risk-based capital
guidelines require banks and bank holding companies to have a ratio of tier one
capital to total risk-weighted assets of at least 4%, and a ratio of total
capital to total risk-weighted assets of 8% or greater. In addition, the
leverage ratio of tier one capital to total assets less intangibles is required
to be at least 3%.
Shareholders' equity increased to $109,655,529 at June 30, 1998, from
$101,140,318 at December 31, 1997, an increase of $8,515,211, or 8.42%, over
that period of time. At June 30, 1998, Bancorp's shareholders' equity, as a
percentage of total assets, was 9.43%, compared to 9.04% at December 31, 1997.
The increase was primarily the result of Bancorp's equity base growing faster
than assets. Equity grew at 8.42% over the period from December 31, 1997, to
June 30, 1998, while assets grew by 3.92% over the same period.
As the following table indicates, Bancorp currently exceeds the
regulatory capital minimum requirements.
<TABLE>
<CAPTION>
June 30, 1998
-----------------------------
(Dollars in thousands)
Amount Ratio
---------- ----------
<S> <C> <C>
Tier 1 capital .......................... $ 105,794 11.67%
Tier 1 capital minimum requirement ...... 36,252 4.00%
---------- ----------
Excess over minimum Tier 1 capital .... $ 69,542 7.67%
========== ==========
Total capital ........................... $ 117,132 12.92%
Total capital minimum requirement ....... 72,504 8.00%
---------- ----------
Excess over minimum total capital ..... $ 44,628 4.92%
========== ==========
Risk-adjusted assets .................... $ 906,303
==========
Leverage ratio .......................... 9.30%
Minimum leverage requirement ............ 3.00%
----------
Excess over minimum leverage ratio .... 6.30%
==========
Risk-adjusted total assets .............. $1,137,489
==========
</TABLE>
13
<PAGE> 14
LOAN PORTFOLIO
Interest earned on the loan portfolio is the primary source of income
for Bancorp. Net loans represented 69.59% and 68.54% of total assets as of June
30, 1998 and December 31, 1997, respectively. 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. The following table
presents the composition of the Banks' loan portfolios, at the dates indicated:
<TABLE>
<CAPTION>
June 30, 1998 December 31,1997
--------------------------- ---------------------------
(Dollars in thousands)
Amount Percent Amount Percent
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Commercial ......................... $ 195,743 24.20% $ 181,508 23.68%
Real estate construction ........... 112,725 13.94 110,601 14.43
Real estate mortgage ............... 102,231 12.64 99,555 12.99
Real estate commercial ............. 327,916 40.54 298,902 38.99
Installment and other consumer ..... 82,172 10.16 86,376 11.27
--------- --------- --------- ---------
Total loans ........................ 820,787 101.48% 776,942 101.36%
Allowance for loan losses .......... (12,004) (1.48) (10,451) (1.36)
--------- --------- --------- ---------
Total loans, net ................... $ 808,783 100.00% $ 766,491 100.00%
========= ========= ========= =========
</TABLE>
LENDING AND CREDIT MANAGEMENT
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 or 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.
Generally, no interest is accrued on loans when factors indicate
collection of interest is doubtful or when the principal or interest payment
becomes ninety days past due. Loans greater than ninety days past due and on
accruing status are both adequately collateralized and in the process of
collection.
14
<PAGE> 15
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
non-performing assets.
<TABLE>
<CAPTION>
(Dollars in thousands) June 30, 1998 December 31, 1997
- ---------------------- ------------- -----------------
<S> <C> <C>
Loans on nonaccrual status ....................................... $ 2,748 $ 4,245
Loans past due greater than 90 days but not on nonaccrual status.. 256 44
Other real estate owned .......................................... 642 494
-------- --------
Total nonperforming assets ....................................... $ 3,646 $ 4,783
======== ========
Percentage of nonperforming assets to total assets ............... .31% .43%
======== ========
</TABLE>
See "Loan Loss Allowance and Provisions"
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 nonperforming loans, impaired loans, loan mix, recent
loan growth, historical loss experience for each loan category, potential
economic influences, and other relevant factors related to the loan portfolio.
In addition, management utilizes internal loan grading as part of its analysis.
The following table summarizes the Banks' allowance for loan losses and
charge-off and recovery activity:
<TABLE>
<CAPTION>
Six months ended Year ended
(Dollars in thousands) June 30, 1998 December 31, 1997
- ---------------------- ------------- -----------------
<S> <C> <C>
Loans outstanding at end of period ............. $ 820,787 $ 776,942
Average loans outstanding during the period .... $ 800,306 $ 751,284
Allowance for loan losses, beginning of period.. $ 10,451 $ 8,491
Recoveries ..................................... 205 242
Loans charged off .............................. (632) (2,218)
---------- ----------
Net loans charged off .......................... (427) (1,976)
Provision for loan losses ...................... 1,980 3,936
---------- ----------
Allowance for loan losses, end of period ....... $ 12,004 $ 10,451
========== ==========
Ratio of net loans charged off
to average loans outstanding (1) ............. .11% .26%
Ratio of allowance for loan losses
to loans at end of period .................... 1.46% 1.35%
</TABLE>
(1) The ratios for the six months ended June 30, 1998 have been annualized.
Forecasted loan growth will lead to expected future increases in the
provision for loan losses. Historical activity in loans charged off or
recoveries are not necessarily indicative of activity to be anticipated for the
year ending December 31, 1998 or any future periods.
15
<PAGE> 16
INVESTMENT PORTFOLIO
The following table shows the carrying value of the Banks' portfolio of
investments:
<TABLE>
<CAPTION>
June 30, December 31,
(Dollars in thousands) 1998 1997
-------- --------
<S> <C> <C>
Investments available for sale (At Fair Value)
U.S. Treasury securities ............................ $ 6,825 $ 9,571
U.S. Government agency securities ................... 77,086 76,512
Corporate securities ................................ 26,439 24,802
Mortgage-backed securities .......................... 9,771 8,444
Obligations of state and political subdivisions ..... 74,232 63,822
Other securities .................................... 9,683 8,039
-------- --------
Total ........................................ $204,036 $191,190
Investments held to maturity (At Historical Cost)
U.S. Treasury securities ............................ $ -- $ --
U.S. Government agency securities ................... -- --
Corporate securities ................................ -- --
Mortgage-backed securities .......................... -- --
Obligations of state and political subdivisions ..... 2,970 2,987
Other securities .................................... -- --
-------- --------
Total ........................................ $ 2,970 $ 2,987
Total Investment Portfolio ................... $207,006 $194,177
======== ========
</TABLE>
YEAR 2000 ISSUES
Introduction
The year 2000 creates challenges with respect to the automated systems
used by financial institutions and other companies. Many software programs are
not able to recognize the year 2000, since most programs and systems were
designed to store calendar years in the 1900s by assuming the "19" and storing
only the last two digits of the year. For example, these automated systems would
recognize a year stored as "00" as the year "1900," rather than as the year
2000. If these automated systems are not appropriately re-coded, updated, or
replaced before the year 2000, they will likely confuse data, crash, or fail in
some manner. In addition, many software programs and automated systems will fail
to recognize the year 2000 as a leap year. The problem is not limited to
computer systems. Year 2000 issues will potentially affect every system that has
an embedded microchip, such as automated teller machines, elevators, and vaults.
The year 2000 challenge is especially problematic for financial
institutions, since many transactions, such as interest accruals and payments,
are date sensitive. It also may affect the operations of third parties with whom
Bancorp and its subsidiaries (collectively, the "Company") do business,
including the Company's vendors, suppliers, utility companies, and customers.
The Company's State of Readiness
The Company is committed to addressing these year 2000 challenges in a
prompt and responsible manner and has dedicated resources to do so. Management
has completed an assessment of its automated systems and has implemented a plan
to resolve these issues, including purchasing appropriate computer technology.
The Company's year 2000 compliance plan ("Y2K Plan") has five phases. These
phases are (1) project management, (2) awareness, (3) assessment, (4) testing,
and (5) renovation and implementation. The Company has substantially completed
phases one through three, although appropriate follow-up activities are
continuing to occur, and the Company is currently involved in the testing phase
of the Y2K Plan.
Project Management. The Company has assigned primary responsibility for
year 2000 project management to its Chief Information Officer. The
Company has also formed a year 2000 compliance committee, consisting of
appropriate representatives from its critical operational areas, to
assist the Chief Information Officer in implementing the Y2K Plan. In
addition, Bancorp provides quarterly reports to its board of directors
and to the boards of directors of each of its subsidiaries, in order to
assist them in overseeing the Company's year 2000 readiness.
16
<PAGE> 17
Awareness. The Company has completed several projects designed to
promote awareness of year 2000 issues throughout our organization and
our customer base. These projects include mailing information brochures
to deposit and loan customers, providing training for lending officers,
and other staff, assigning a compliance officer to answer customer
questions, responding to vendor, customer, and shareholder inquiries,
and providing year 2000 information and progress updates on Bancorp's
web site.
Assessment. Assessment is the process of identifying all
mission-critical applications that could potentially be negatively
affected by dates in the year 2000 and beyond. The Company's assessment
phase is substantially complete. Systems examined during this phase
included telecommunications systems, account-processing applications,
and other software and hardware used in connection with customer
accounts.
The Company's operations, like those of many other companies, are
intertwined with the operations of certain of its business partners.
Accordingly, the Company's operations could be materially affected, if
the operations of those companies who provide the Company with mission
critical applications, systems, and services are materially affected.
For example, the Company depends upon vendors who provide equipment,
technology, and software to it in connection with its business
operations. Failure of these software vendors to achieve year 2000
readiness could substantially affect the operations of the Company. In
addition, lawsuits and other financial challenges materially affecting
the financial viability of these vendors could materially affect the
Company. In response to this concern, the Company has identified and
contacted those vendors who provide our mission-critical applications.
The Company is assessing their year 2000 compliance efforts and will
continue to monitor their progress as the year 2000 approaches.
Testing. Updating and testing of the Company's mission-critical
automated systems is currently underway. All mission-critical systems
will be tested to verify that dates in the year 2000 are being
appropriately recognized and processed. Testing of the Company's
current mission-critical automated systems will be substantially
complete by September 1, 1998. Testing of renovations and new systems
will continue throughout 1998 and 1999.
Renovation and Implementation. This phase involves obtaining and
implementing renovated software applications provided by our vendors.
As these applications are received and implemented, the Company will
test them for year 2000 compliance. This phase also involves upgrading
and replacing automated systems where appropriate and will continue
throughout 1998 and 1999. Although this phase will be substantially
complete before the end of 1999, additional follow-up activities may
take place in the year 2000 and beyond.
17
<PAGE> 18
Estimated Costs to Address the Company's Year 2000 Issues
The total financial effect of these year 2000 challenges on the Company
cannot be predicted with certainty at this time. In fact, in spite of all
efforts being made to rectify these problems, the success of these efforts
cannot be predicted until the year 2000 actually arrives. The Company will
upgrade or replace certain automated systems before the year 2000; however some
of these systems would have been replaced before the year 2000, without regard
to year 2000 compliance issues, due to technology updates and Company expansion.
The Company's estimated budget under its Y2K Plan is set forth in the table
below(1). The costs below represent approximately 9% of the Company's
information technology budget for 1998 and approximately 12% of the 1999
information technology budget. The Company plans to expense these costs from
operating funds as they are incurred. Year-to-date, the Company has spent
approximately $80,000 of the 1998 costs estimated below.
<TABLE>
<CAPTION>
Item 1998 1999 Total
---- ----------------------------------------
<S> <C> <C> <C>
Anticipated Personnel Costs $100,000 $105,000 $205,000
Telephone Banking Equipment (2) -- 75,000 75,000
Personal Computers (2) 59,500 87,500 147,000
Third Party Consulting (3) 30,000 35,000 65,000
----------------------------------------
Totals $189,500 302,500 $492,000
</TABLE>
(1) The Company may incur additional costs complying with requirements of its
regulatory agencies related to year 2000 issues. Management cannot predict these
costs at this time, so they have not been included in the table above, other
than with respect to anticipated personnel costs.
(2) This represents the replacement cost of certain equipment the Company has
identified to date as requiring replacement. The majority of this equipment was
scheduled for replacement regardless of year 2000 issues, due to age,
operability, and changing Company requirements.
(3) Bancorp has engaged a consulting firm to write a comprehensive testing plan
for the Company. Expenses for 1999 relate to consulting Bancorp may seek to
review and audit the Company's year 2000 compliance progress.
Based on the estimates set forth above and the information the Company
has received to date from its critical system providers and vendors, Management
does not believe that expenses related to meeting the Company's year 2000
challenges will have a material effect on the operations or financial
performance of the Company. However, factors beyond the control of management,
such as the effects on vendors of our mission-critical software and systems, the
effects of year 2000 issues on the economy, and the development of the risks
identified below under "The Risks of the Company's Year 2000 Issues," among
other things, could have a material effect on the operations or financial
performance of the Company.
18
<PAGE> 19
The Risks of the Company's Year 2000 Issues
The year 2000 presents certain risks to the Company and its operations.
Some of these risks are present because the Company purchases technology
applications from other parties who face year 2000 challenges. Other of these
risks are inherent in the business of banking or are risks faced by many
companies with stock traded on a national stock exchange. Although it is
impossible to identify every possible risk that the Company may face moving into
the millennium, Management has to date identified the following potential risks:
1. Commercial banks, such as the Banks, may experience a contraction in
their deposit base, if a significant amount of deposited funds are
withdrawn by customers prior to the year 2000, and interest rates may
increase in the latter part of 1999. This potential deposit contraction
could make it necessary for the Banks to change their sources of funding
and could materially impact future earnings. The Company has
incorporated a contingency plan for addressing this situation, should it
occur, into its asset and liability management policies. This plan
includes maintaining the ability to borrow funds in an amount at least
equal to 50% of the Company's allowed borrowing from the Federal Home
Loan Bank of Seattle. Significant demand for funds by other banks could
reduce the amount of funds available for the Company to borrow. If
insufficient funds are available from a Federal Home Loan Bank or other
correspondents, the Company may also sell investment securities or other
liquid assets to meet liquidity needs. Despite these efforts, a
significant deposit contraction could materially impact the Company's
earnings or future operations, particularly if funds availability at the
Federal Home Loan Bank is impaired.
2. The Banks lend significant amounts to businesses in their market areas.
If these businesses are adversely affected by year 2000 issues, their
ability to repay loans could be impaired. This increased credit risk
could affect the Company's financial performance. During the assessment
phase of the Company's Y2K Plan, each of the Banks identified their
significant borrowers. Management is currently monitoring the year 2000
compliance efforts of these credit customers.
3. The Company's operations, like those of many other companies, can be
affected by the year 2000 triggered failures of other companies upon
whom the Company depends for the functioning of its automated systems.
Accordingly, the Company's operations could be materially affected, if
the operations of those companies who provide the Company with mission
critical applications, systems, and services are materially affected. As
described above, the Company has identified its mission-critical vendors
and is monitoring their year 2000 compliance progress. For more
information, see "The Company's Year 2000 Readiness," above.
4. All companies with stock traded on a national stock exchange, including
Bancorp, could experience a drop in stock price as investors change
their investment portfolios or sell stock prior to the millennium. At
this time, it is impossible to predict whether or not this will in fact
be the case with respect to the stock of Bancorp or any other company.
5. Bancorp's subsidiary West Coast Trust provides investment advisory
services to certain customers, including an open-end mutual fund
administered by an investment company registered under the Investment
Advisors Act of 1940. Management is currently assessing the material
risks of the activities of West Coast Trust and monitoring the year 2000
compliance activities of the investment company administering the
open-end mutual fund.
6. The Company's ability to operate effectively in the year 2000 could be
affected by communications abilities and access to utilities, such as
electricity, water, telephone, and others, to the extent access is
interrupted due to the effects of year 2000 issues on these and other
utilities.
The Company's Contingency Plans
The Company has not yet developed any contingency plans related to year
2000 issues, other than those described above under "The Risks of the Company's
Year 2000 Issues." If during the testing phase of the Y2K Plan, the Company
identifies a material problem with a mission-critical system, the Company will
develop an appropriate contingency plan for operation or recovery, as possible
and appropriate, should that system fail in the year 2000. Certain circumstances
may occur for which there are no satisfactory contingency plans. For more
information see above under "The Risks of the Company's Year 2000 Issues."
19
<PAGE> 20
FORWARD LOOKING STATEMENTS
The discussion above, entitled "Year 2000 Issues," includes certain
"forward looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995 ("PSLRA"). This statement is included for the
express purpose of availing Bancorp of the protections of the safe harbor
provisions of the PSLRA. Management's ability to predict results or effects of
issues related to the year 2000 is inherently uncertain, and is subject to
factors that may cause actual results to differ materially from those projected.
Factors that could affect the actual results include the possibility that
protection procedures, contingency plans, and remediation efforts will not
operate as intended, and the Company's failure to timely or completely identify
all software or hardware applications requiring remediation, unexpected costs,
and the uncertainty associated with the impact of year 2000 issues on the
banking industry and on the Company's customers, vendors, and others with whom
it does business. Readers are cautioned not to place undue reliance on these
forward looking statements.
Item 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
MARKET RISK
Interest rate, credit, and operations risks are the most significant
market risks impacting Bancorp's performance. Other types of market risk, such
as foreign currency exchange rate risk and commodity price risk, do not arise in
the normal course of Bancorp's business activities. Bancorp relies on loan
reviews, prudent loan underwriting standards and an adequate allowance for loan
loss to mitigate credit risk.
Bancorp uses an asset/liability management simulation model to measure
interest rate risk. The model quantifies interest rate risk through simulating
forecasted net interest income over a 12-month time period under various rate
scenarios, as well as monitoring the change in the present value of equity under
the same rate scenarios. The present value of equity is defined as the
difference between the market value of current assets less current liabilities.
By measuring the change in the present value of equity under different rate
scenarios, management is able to identify interest rate risk that may not be
evident in simulating changes in forecasted net interest income.
Bancorp is currently slightly 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 or a flattening interest rate yield curve could
adversely affect net interest income. In contrast, a decreasing rate environment
or a steepening interest rate yield curve may slightly improve Bancorp's margin.
Bancorp's strategy will be to continue to limit its loss exposure through
managing the repricing characteristics of its assets and liabilities. Bancorp
has also placed increased emphasis on its non-interest revenue products to
additionally stabilize earnings strength.
It should be noted that the simulation model does not take into account
future management actions that could be undertaken, if there were a change in
actual market interest rates during the year. Also, certain assumptions are
required to perform modeling simulations that may have significant impact on the
results. These include assumptions regarding the level of interest rates and
balance changes on deposit products that do not have stated maturities. These
assumptions have been developed through a combination of industry standards and
future expected pricing behavior. The model also includes assumptions about
changes in the composition or mix of the balance sheet. The results derived from
the simulation model could vary significantly by external factors such as
changes in the prepayment assumptions, early withdrawals of deposits and
competition. Merger activity will also have an impact on Bancorp's
asset/liability position as new assets are acquired and added. The acquisition
of Centennial Holdings, Ltd. decreased Bancorp's liability sensitivity slightly.
Centennial Bank is currently slightly asset sensitive. Management has assessed
these risks and believes that there has been no material change since December
31, 1997.
20
<PAGE> 21
PART II. OTHER INFORMATION
Item 4. Submissions of Matters to a Vote of Security Holders.
(a) West Coast Bancorp's Annual Shareholders' Meeting was held on April 24,
1998.
(b) Not Applicable
(c) A brief description of each matter voted upon at the Annual
Shareholders' Meeting held on April 24, 1998 and number of votes cast
for, against or withheld, including a separate tabulation with respect
to each nominee for office is presented below:
(1) Election of (4) Directors for terms expiring in 2001 or until their
successors have been elected and qualified.
Director:
Thomas W. Healy-
Votes cast for: 10,546,233
Votes cast against: -
Votes withheld: 175,209
J. F. Ouderkirk-
Votes cast for: 10,560,619
Votes cast against: -
Votes withheld: 160,823
Gary D. Putnam-
Votes cast for: 10,560,413
Votes cast against: -
Votes withheld: 161,029
Jack E. Long-
Votes cast for: 10,569,393
Votes cast against: -
Votes withheld: 152,049
(2) Approve amendments to the West Coast Bancorp Articles of
Incorporation to increase the number of shares of common stock that
West Coast Bancorp is authorized to issue from 15 million shares to 50
million shares, thereby increasing the total number of authorized
shares (common and preferred) from 25 million to 60 million.
Votes cast for: 9,034,074
Votes cast against: 1,544,419
Votes withheld: 80,915
(d) None
21
<PAGE> 22
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
3.1 Restated Articles of Incorporation.
3.2 Amendment to the Articles of Incorporation.
27 Financial Data Schedules for Form 10-Q.
(b) During the six months ended June 30, 1998, West Coast Bancorp filed the
following current report on Form 8-K:
Form 8-KA filed April 29, 1998 amending Form 8-K filed March
3, 1998 incorporating by reference the combined financial
results of West Coast Bancorp for the acquisition of
Centennial Holdings, LTD.
22
<PAGE> 23
SIGNATURES
As required by the Securities Exchange Act of 1934, this report is signed on
registrant's behalf by the undersigned authorized officers.
WEST COAST BANCORP
(Registrant)
Dated: August 13, 1998 /s/ Victor L. Bartruff
----------------------------------------
Victor L. Bartruff
President and Chief Executive Officer
Dated: August 13, 1998 /s/ Donald A. Kalkofen
----------------------------------------
Donald A. Kalkofen
Executive Vice President and Chief
Financial Officer
23
<PAGE> 1
EXHIBIT 3.1
RESTATED ARTICLES OF INCORPORATION
OF
WEST COAST BANCORP
Effective upon the merger of West Coast Bancorp, an Oregon corporation,
with and into Commercial Bancorp, an Oregon corporation, the name of the
surviving corporation shall be changed to be West Coast Bancorp, and its
articles of incorporation shall be amended and restated in the following form:
ARTICLE I
NAME
The name of the corporation is WEST COAST BANCORP.
ARTICLE II
CAPITALIZATION
The corporation is authorized to issue 60,000,000 shares of stock divided
into two classes as follows:
A. Common Stock. 50,000,000 shares of common stock which shall have
unlimited voting rights, subject only to such voting rights as may be specified
in respect of preferred stock, and shall have the right to receive the net
assets of the corporation upon dissolution, subject only to prior payment of
such amount of the net assets of the corporation as may be specified in respect
of shares of preferred stock.
B. Preferred Stock. 10,000,000 shares of preferred stock issuable from
time to time in one or more series as permitted by law and the provisions of the
articles of incorporation as may be determined from time to time by the board of
directors (or a committee of the board of directors or an officer duly
authorized to take such action) and stated in a resolution or resolutions
providing for the issuance of shares of such series prior to the issuance of any
such shares:
1. Issuance in Series. The board of directors (or a committee of
the board of directors or an officer duly authorized to take such action)
shall have the authority to fix and determine, subject to the provisions
hereof, the rights and preferences of the shares of any series so
established, including, without limitation, the rate of dividend, whether
the dividend shall be cumulative, whether shares may be redeemed and, if
so, the redemption price and the terms and conditions of the redemption,
the amount payable upon shares in the event of voluntary or involuntary
liquidation, sinking fund provisions, if any, for the redemption or
purchase of shares, the terms and conditions, if any, on which shares may
be converted, and voting rights, if any.
1
<PAGE> 2
2. Dividends. The holders of shares of preferred stock of a
series shall be entitled to receive dividends, out of funds legally
available therefor, at the rate and at the time or times as may be
provided in respect of a particular series of preferred stock. If such
dividends shall be cumulative, and if dividends shall not have been paid,
then the deficiency shall be fully paid or the dividends declared and set
apart for payment before any dividends on the common stock shall be paid
or declared and set apart for payment. Unless otherwise provided in
respect of a particular series of preferred stock, the holders of the
preferred stock shall not be entitled to receive any dividends thereon
other than the dividends referred to in this section.
3. Redemption. The preferred stock of a series may be redeemed in
such amount, and at such time or times, if any, as may be provided in
respect of a particular series of preferred stock. In any event, preferred
stock may be repurchased by the corporation to the extent legally
permissible.
4. Liquidation. In the event of any liquidation, dissolution, or
winding up of the affairs of the corporation, whether voluntary or
involuntary, then, before any distribution shall be made to the holders of
the common stock, the holders of the preferred stock of a series shall be
entitled to be paid the preferential amount or amounts as may be provided
in respect of a particular series of preferred stock per share and
dividends accrued thereon to the date of such payment. The holders of the
preferred stock shall not be entitled to receive any distributive amounts
upon the liquidation, dissolution, or winding up of the affairs of the
corporation other than the distributive amounts referred to in this
section, unless otherwise provided in respect of a particular series of
preferred stock.
5. Conversion. Shares of a particular series of preferred stock
may be convertible or converted into common stock or other securities of
the corporation on such terms and conditions as may be provided in respect
of that series.
6. Voting Rights. Holders of preferred stock of a series shall
have such voting rights not in excess of one vote per share as may be
provided in respect of a particular series of preferred stock.
C. Preemptive Rights. Shareholders shall have no preemptive right to
acquire shares or other securities of the corporation which would otherwise be
available to the shareholders pursuant to ORS 60.174.
D. Cumulative Rights. Shareholders do not have cumulative voting rights
with respect to the election of directors of the corporation.
2
<PAGE> 3
ARTICLE III
BOARD OF DIRECTORS
A. Number of Directors. The board of directors shall consist of not
fewer than eight (8) or more than twenty (20) directors. The exact number within
such minimum and maximum limits shall be fixed and determined by resolutions
approved by at least a 75 percent vote of the total number of directors then in
office. The board of directors may fill vacancies on the board of directors,
whether caused by resignation, death or otherwise; provided, that at no time
shall the total number exceed twenty (20).
B. Classes of Board. The board of directors shall be divided into three
classes: Class A, Class B, and -Class C, which shall be as nearly equal in
number as possible. Each director shall serve for a term ending on the date of
the third annual meeting of shareholders following the annual meeting at which
such director was elected; provided, however, that with respect to the directors
named below for terms of office commencing upon the effective date of these
restated articles of incorporation, each director in Class A shall hold office
until the annual meeting of shareholders in 1995; each director in Class B shall
hold office until the annual meeting of shareholders in 1996; and each director
in Class C shall hold office until the annual meeting of shareholders in 1997;
and in each case until their successors are duly elected and have qualified or
until their earlier resignation, removal from office or death.
The directors of the corporation at the effective date of these restated
articles of incorporation, their addresses and the classes in which they shall
serve are as follows:
NAME ADDRESS
---- -------
CLASS A
Lester D. Green 301 Church Street
Salem, Oregon 97308
Jack E. Long 301 Church Street
Salem, Oregon 97308
J. F. Ouderkirk 506 S.W. Coast Highway
Newport, Oregon 97365
Gary D. Putnam 506 S.W. Coast Highway
Newport, Oregon 97365
CLASS B
Victor L. Bartruff 506 S.W. Coast Highway
Newport, Oregon 97365
3
<PAGE> 4
Rodney B. Tibbatts 301 Church Street
Salem, Oregon 97308
Chester C. Clark 506 S.W. Coast Highway
Newport, Oregon 97365
Robert D. Morrison 301 Church Street
Salem, Oregon 97308
William B. Loch 301 Church Street
Salem, Oregon 97308
CLASS C
Lloyd D. Ankeny 506 S.W. Coast Highway
Newport, Oregon 97365
Iral D. Barrett 301 Church Street
Salem, Oregon 97308
Phillip G. Bateman 506 S.W. Coast Highway
Newport, Oregon 97365
Stanley M. Green 506 S.W. Coast Highway
Newport, Oregon 97365
C. Douglas McGregor 301 Church Street
Salem, Oregon 97308
In the event of any increase or decrease in the authorized number of
directors (1) each director then serving as such shall nevertheless continue as
a director of the class in which he or she is a member until the expiration of
his or her current term, or his or her earlier resignation, removal from office
or death, and (2) the newly created or eliminated directorships resulting from
such increase or decrease shall be apportioned by the board of directors among
three classes of directors so as to maintain such classes as nearly equal as
possible.
C. Removal from Office. No director may be removed from office without
cause except by a vote of 66 2/3 percent of the shares then entitled to vote at
an election of directors. Except as otherwise provided by law, cause for removal
shall exist only if the board of directors has reasonable grounds to believe
that the corporation has suffered or will suffer substantial injury as a result
of the gross negligence, willful misconduct, or dishonesty of the director whose
removal is proposed.
4
<PAGE> 5
ARTICLE IV
DIRECTOR LIABILITY
Directors of the corporation shall not be liable to the corporation or its
shareholders for monetary damages for conduct as directors except to the extent
that the Oregon Business Corporation Act, as it now exists or may hereafter be
amended, prohibits elimination or limitation of director liability. No repeal or
amendment of this Article V or of the Oregon Business Corporation Act shall
adversely affect any right or protection of a director for actions or omissions
prior to the repeal or amendment.
ARTICLE V
INDEMNIFICATION
The corporation shall indemnify each of its directors to the fullest
extent permissible under the Oregon Business Corporation Act, as the same exists
or may hereafter be amended, against all expense, liability, and loss
(including, without limitation, attorneys' fees) incurred or suffered by such
person by reason of or arising from the fact that such person is or was a
director of the corporation, or is or was serving at the request of the
corporation as a director, officer, partner, trustee, employee, or agent of
another foreign or domestic corporation, partnership, joint venture, trust,
employee benefit plan, or other enterprise, and such indemnification shall
continue as to a person who has ceased to be a director, officer, partner,
trustee, employee, or agent and shall inure to the benefit of his or her heirs,
executors, and administrators. The corporation may, in its bylaws or as
otherwise authorized by its board of directors, provide indemnification to
officers, employees, and agents of the corporation to the extent permitted by
law. The indemnification provided in this Article VI shall not be exclusive of
any other rights to which any person may be entitled under any statute, bylaw,
agreement, resolution of shareholders or directors, contract, or otherwise.
ARTICLE VI
SHAREHOLDER APPROVAL OF CERTAIN TRANSACTIONS
A. Except as set forth in Section B of this Article VI:
1. any transaction or series of related transactions to which the
corporation or any of its subsidiaries is a party, the consummation of
which would result in a Change of Control of the corporation (as
hereinafter defined); or
2. any sale, lease, exchange, or other disposition of all or
substantially all of the property, with or without goodwill, of the
corporation and its subsidiaries to any other corporation, person, trust,
partnership, limited liability company, or other entity;
5
<PAGE> 6
shall require the affirmative vote of the holders of shares representing at
least 66 1/3 percent of all classes of capital stock of the corporation then
entitled to vote at an election of directors, considered for the purposes of
this Article VI as one class.
For the purposes of this Article VI, a "Change in Control" of the
corporation would occur if:
(a) any "person" (as such term is used in Sections 13(d) and 14(d)
or any successor provisions of the Securities Exchange Act of 1934 and the
Securities and Exchange Commission's rules and regulations pursuant
thereto, as in effect from time to time (collectively, the "Exchange
Act")), other than the corporation, becomes the "beneficial owner" (as
defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of
securities of the corporation representing 30 percent or more of the
combined voting power of the corporation's then outstanding securities; or
(b) the corporation is merged or consolidated with another
corporation and as a result of such merger or consolidation less than 50
percent of the outstanding voting securities of the surviving or resulting
corporation would be owned in the aggregate by persons or entities who
were shareholders of the corporation immediately prior to such merger or
consolidation, other than shareholders who are "affiliates" (as defined in
Rule 12b-2 under the Exchange Act) of any party to such merger or
consolidation; or
(c) the transaction is of the type that would be required to be
reported in response to Item 6(e) of Schedule 14A of Regulation 14A under
the Exchange Act.
Also for purposes of this Article VI, the term "substantially all of the
property, with or without goodwill, of the corporation and its subsidiaries"
shall mean those properties and assets involved in any single transaction or
series of related transactions having an aggregate fair market value of more
than a majority of the total consolidated assets of the corporation and its
subsidiaries.
B. The provisions of this Article VI shall not apply to any transaction
or series of transactions described in Section A of this Article VI if, prior to
the consummation of such transaction or transactions, the board of directors of
the corporation shall have approved the transaction or transactions by the
affirmative vote of more than 75 percent of the directors. The board of
directors of this corporation shall have the power and duty to determine for the
purposes of this Article VI, on the basis of information known to the
corporation, whether any transaction or series of transactions is subject to the
voting requirements of this Article VI. Any such determination made in good
faith shall be conclusive and binding for all purposes of this Article VI.
C. No amendment to the articles of incorporation of this corporation
shall amend, alter, change, or repeal any of the provisions of this Article VI
unless the amendment effecting such amendment, alteration, change, or repeal (i)
shall be approved by more than 75 percent of the directors, or (ii) shall
receive the affirmative vote of 66 2/3 percent of all classes of stock of
6
<PAGE> 7
the corporation entitled to vote at an election of directors, considered for the
purposes of this Article VI as one class.
D. Nothing contained in this Article VI shall be construed to relieve
any beneficial owner of shares of the corporation from any fiduciary obligation
imposed by law.
ARTICLE VII
CONSIDERATION OF NON-MONETARY FACTORS
The board of directors of the corporation, when evaluating any offer of
another party to (a) make a tender or exchange for any equity security of the
corporation, (b) merge or consolidate the corporation with another corporation
or association, or (c) purchase or otherwise acquire all or substantially all of
the properties and assets of the corporation, may, in connection with the
exercise of its judgment in determining what is in the best interests of the
corporation and its stockholders, give due consideration to all relevant
factors, including without limitation the social and economic effects on the
employees, customers, suppliers, and other constituents of the corporation and
its subsidiaries and on the communities in which the corporation and its
subsidiaries operate or are located.
As amended by the Shareholders on April 24, 1998.
7
<PAGE> 1
EXHIBIT 3.2
AMENDMENT TO ARTICLES OF INCORPORATION
OF
WEST COAST BANCORP
Article II, Section A, of the Articles of Incorporation of West Coast Bancorp is
amended to read as follows:
The corporation is authorized to issue 60,000,000 shares of stock divided
into two classes as follows:
A. Common Stock. 50,000,000 shares of common stock which shall have
unlimited voting rights, subject only to such voting rights as may be
specified in respect of preferred stock, and shall have the right to
receive the net assets of the corporation upon dissolution, subject only
to prior payment of such amount of the net assets of the corporation as
may be specified in respect of shares of preferred stock.
Approved by the Shareholders on April 24, 1998.
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<S> <C>
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<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
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