WEST COAST BANCORP /NEW/OR/, 10-Q, 1999-11-12

WEST COAST BANCORP /NEW/OR/
10-Q, 1999-11-12
STATE COMMERCIAL BANKS

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<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 September 30, 1999

[ ] 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)

<TABLE>
<CAPTION>
Oregon 93-0810577
<S> <C>
(State or other jurisdiction (IRS Employer
incorporation or organization) Identification No.)
</TABLE>

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 October 31, 1999: 15,367,351

<PAGE> 2

TABLE OF CONTENTS

PART I. Financial Information

<TABLE>
<CAPTION>
Item 1. Financial Statements Page
----
<S> <C> <C>
Consolidated Balance Sheets --
September 30, 1999 and December 31, 1998...................................3

Consolidated Statements of Income --
Three months and nine months ended September 30, 1999 and 1998........... 4

Consolidated Statements of Cash Flows --
Nine months ended September 30, 1999 and 1998............................ 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...................................... 14

Item 3. Quantitative and Qualitative Disclosures About Market Risk............... 28

PART II. Other Information

Item 1. Legal Proceedings........................................................ 29

Item 6. Exhibits and Reports on Form 8-K......................................... 30

Signatures....................................................................... 31
</TABLE>

2
<PAGE> 3

PART I. FINANCIAL INFORMATION

Item 1.

WEST COAST BANCORP
CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
--------------- ---------------
(Unaudited)
<S> <C> <C>
ASSETS:
Cash and cash equivalents:
Cash and due from banks ...................... $ 53,348,621 $ 80,923,069
Interest-bearing deposits in other banks ..... 4,399,284 568,825
--------------- ---------------
Total cash and cash equivalents .......... 57,747,905 81,491,894
Investment securities:
Investments available for sale ............... 265,374,535 253,271,239
Investments held to maturity ................. -- 2,695,531
--------------- ---------------
Total investment securities .............. 265,374,535 255,966,770

Loans held for sale ............................... 6,819,628 15,972,711

Loans ............................................. 917,697,695 862,052,215
Allowance for loan loss ........................... (12,932,914) (12,452,694)
--------------- ---------------
Loans, net ................................... 904,764,781 849,599,521
Premises and equipment, net ....................... 29,824,235 29,689,405
Intangible assets ................................. 2,434,126 2,727,564
Other assets ...................................... 23,621,272 19,975,557
--------------- ---------------
Total assets ............................. $ 1,290,586,482 $ 1,255,423,422
=============== ===============

LIABILITIES AND STOCKHOLDERS' EQUITY

LIABILITIES:
Deposits:
Demand ....................................... $ 196,121,484 $ 205,408,337
Savings and interest-bearing demand .......... 533,603,743 559,211,508
Certificates of deposits ..................... 348,769,595 343,837,191
--------------- ---------------
Total deposits ........................... 1,078,494,822 1,108,457,036

Short-term borrowings ............................. 67,774,500 --
Other liabilities ................................. 8,296,899 9,481,233
Long-term borrowings .............................. 19,081,414 20,259,985
--------------- ---------------
Total liabilities ........................ 1,173,647,635 1,138,198,254

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
15,409,183 and 14,235,931, respectively ...... 19,261,479 17,794,914
Additional paid-in capital ........................ 79,037,758 66,474,468
Retained earnings ................................. 19,848,132 29,392,264
Accumulated other comprehensive income (loss) ..... (1,208,522) 3,563,522
--------------- ---------------
Total stockholders' equity ................... 116,938,847 117,225,168
--------------- ---------------
Total liabilities and stockholders'
equity................................. $ 1,290,586,482 $ 1,255,423,422
=============== ===============
</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 Nine months ended
September 30, September 30,
----------------------------- --------------------------
1999 1998 1999 1998
------------ ------------ ----------- -----------
INTEREST INCOME: (Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Interest and fees on loans ................. $ 20,351,721 $ 20,932,081 $60,800,117 $61,580,301
Interest on taxable investment securities .. 2,505,274 2,247,770 7,258,134 6,358,165
Interest on nontaxable investment
securities................................ 1,081,540 1,024,178 3,336,863 2,888,270
Interest from other banks .................. 48,107 292,116 198,103 1,237,205
Interest on federal funds sold ............. 6,292 321,426 32,575 356,572
------------ ------------ ----------- -----------
Total interest income ................. 23,992,934 24,817,571 71,625,792 72,420,513

INTEREST EXPENSE:

Savings and interest-bearing demand ........ 4,069,001 4,257,626 12,064,987 12,264,022
Certificates of deposit .................... 4,491,744 4,552,781 13,475,619 13,214,674
Short-term borrowings ...................... 253,679 3,617 469,230 403,883
Long-term borrowings ....................... 244,329 459,583 741,994 1,378,486
------------ ------------ ----------- -----------
Total interest expense ................ 9,058,753 9,273,607 26,751,830 27,261,065
------------ ------------ ----------- -----------
NET INTEREST INCOME ........................ 14,934,181 15,543,964 44,873,962 45,159,448
PROVISION FOR LOAN LOSS .................... 450,000 485,000 1,410,000 2,465,415
------------ ------------ ----------- -----------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSS ............... 14,484,181 15,058,964 43,463,962 42,694,033

NONINTEREST INCOME:

Service charges on deposit accounts ........ 1,119,006 1,176,609 3,421,344 3,383,962
Other service charges, commissions
and fees.................................. 1,099,076 1,257,285 3,212,028 2,913,359
Gains on sales of loans .................... 725,696 1,221,244 2,971,362 4,196,425
Trust revenue .............................. 451,825 576,540 1,567,685 1,881,084
Loans servicing fees ....................... 112,962 128,960 353,079 441,441
Other ...................................... 509,123 242,120 1,066,355 643,631
Net gains (losses) on sales of securities .. (68,887) (497) 135,477 250,484
------------ ------------ ----------- -----------
Total noninterest income .............. 3,948,801 4,602,261 12,727,330 13,710,386

NONINTEREST EXPENSE:

Salaries and employee benefits ............. 6,630,620 7,532,563 20,068,533 22,271,507
Equipment .................................. 1,178,971 1,384,183 3,655,544 3,961,079
Occupancy .................................. 990,924 853,299 2,733,246 2,472,430
Marketing .................................. 376,803 359,168 1,288,062 1,109,102
Communications ............................. 350,677 440,977 1,169,073 1,189,457
Professional fees .......................... 403,284 398,642 1,085,942 1,179,341
Printing and office supplies ............... 272,501 288,804 813,307 1,048,460
Restructuring charges ...................... -- 1,918,350 707,863 1,918,350
Other noninterest expense .................. 2,060,943 1,677,187 5,574,141 5,740,664
------------ ------------ ----------- -----------
Total noninterest expense ............. 12,264,723 14,853,173 37,095,711 40,890,390

INCOME BEFORE INCOME TAXES ................. 6,168,259 4,808,052 19,095,581 15,514,029
PROVISION FOR INCOME TAXES ................. 1,911,816 1,504,743 5,963,644 5,108,253
------------ ------------ ----------- -----------
NET INCOME ................................. $ 4,256,443 $ 3,303,309 $13,131,937 $10,405,776
============ ============ =========== ===========

Basic earnings per share .............. $ .28 $ .21 $ .85 $ .67
Diluted earnings per share ............ $ .27 $ .20 $ .83 $ .64
</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>
Nine months ended
September 30,
------------------------------
1999 1998
------------ -------------
(Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:

Net income ...................................................... $ 13,131,937 $ 10,405,776
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization of premises and equipment .... 2,661,474 2,313,150
Amortization of intangibles ................................ 293,438 328,981
Net gain on sales of available for sale investments ........ (135,477) (250,484)
Provision for loan losses .................................. 1,410,000 2,465,415
Increase in interest receivables ........................... (2,889,645) (1,507,100)
(Increase) decrease in other assets ........................ (756,070) 1,339,300
Net cash provided by (used in) loans held for sale ......... 9,153,083 (2,849,728)
Decrease in interest payable ............................... (3,846) (229,424)
(Decrease) increase in other liabilities ................... (1,180,488) 1,879,916
Tax benefit associated with stock options .................. 716,945 1,454,687
------------ -------------
Net cash provided by operating activities .............. 22,401,351 15,350,489

CASH FLOWS FROM INVESTING ACTIVITIES:

Proceeds from maturities of investment securities:
Available for sale ......................................... 34,119,428 37,930,970
Held to maturity ........................................... -- 108,510
Proceeds from sales of available for sale investment
securities .................................................... 31,719,162 4,906,135
Purchase of investment securities:
Available for sale ......................................... (79,882,922) (94,004,219)
Loans made to customers greater than principal collected
on loans ...................................................... (56,575,260) (51,091,399)
Capital expenditures, net ....................................... (2,796,304) (5,537,098)
------------ -------------
Net cash used in investing activities ...................... (73,415,896) (107,687,101)

CASH FLOWS FROM FINANCING ACTIVITIES:

Net (decrease) increase in demand, savings and interest-
bearing transaction accounts ............................... (34,894,618) 57,509,511
Net increase in proceeds from sales of certificates of deposits
greater than payments for maturing time deposits ........... 4,932,404 32,811,392
Proceeds from long-term borrowings .............................. -- 11,000,000
Payments on long-term borrowings ................................ (1,178,571) (2,357,143)
Net increase (decrease) in short-term borrowings ................ 67,774,500 (19,549,000)
Redemption of common stock for stock repurchase plan ............ (8,352,745) --
Sales of common stock, net ...................................... 1,541,718 1,708,238
Dividends paid and cash paid for fractional shares .............. (2,552,132) (2,065,649)
------------ -------------
Net cash provided by financing activities .................. 27,270,556 79,057,349
------------ -------------

NET DECREASE IN CASH AND CASH EQUIVALENTS ....................... (23,743,989) (13,279,263)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR .................. 81,491,894 98,817,658
------------ -------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD ...................... $ 57,747,905 $ 85,538,395
============ =============
</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 (loss) Total
---------- ------------ ------------ ------------ ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, December 31, 1997 .......... 12,606,009 $ 15,757,511 $ 43,213,086 $ 40,599,130 $ 1,570,591 $ 101,140,318

Comprehensive income:
Net income .......................... -- -- -- 14,058,671 -- 14,058,671
Other comprehensive income, net of
tax:
Net unrealized investment gains ..... -- -- -- -- -- 2,207,313
Reclassification adjustment for gains
included in net income, net of tax -- -- -- -- -- (214,382)
-------------
Other comprehensive income, net of
tax ............................... -- -- -- -- 1,992,931 1,992,931
-------------
Comprehensive income ................ 16,051,602
=============
Cash dividends, $.19 per common
share ............................. -- -- -- (2,972,623) -- (2,972,623)
Sale of common stock pursuant to
stock options plans ............... 412,485 515,606 2,209,761 -- -- 2,725,367
Redemption of stock pursuant to
stock options plans ............... (23,422) (29,278) (440,805) -- -- (470,083)
Common stock repurchased and
retired ........................... (50,000) (62,500) (966,530) -- -- (1,029,030)
10 percent stock dividend ........... 1,291,627 1,614,535 20,666,030 (22,280,565) -- --
Cash paid for fractional shares ..... (768) (960) -- (12,349) -- (13,309)
Tax benefit associated with stock
options ........................... -- -- 1,792,926 -- -- 1,792,926
---------- ------------ ------------ ------------ ----------- -------------
BALANCE, December 31, 1998 .......... 14,235,931 $ 17,794,914 $ 66,474,468 $ 29,392,264 $ 3,563,522 $ 117,225,168

Comprehensive income:
Net income .......................... -- -- -- 13,131,937 -- 13,131,937
Other comprehensive loss, net
of tax:
Net unrealized investment loss ...... -- -- -- -- -- (4,986,786)
Cumulative effect of change in
accounting principle, net of
tax ............................... -- -- -- -- -- 131,369
Reclassification adjustment for
gains included in net income,
net of tax ........................ -- -- -- -- -- 83,373
-------------
Other comprehensive loss, net of tax -- -- -- -- (4,772,044) (4,772,044)
-------------
Comprehensive income ................ 8,359,893
=============
Cash dividends, $.16 per common
share ............................. -- -- -- (2,552,132) -- (2,552,132)
Sale of common stock pursuant to
stock options plans ............... 255,016 318,770 1,815,439 -- -- 2,134,209
Redemption of stock pursuant to
stock option plans ................ (31,690) (39,612) (552,879) -- -- (592,491)
Common stock repurchased and
retired ........................... (450,000) (562,500) (7,790,245) -- -- (8,352,745)
10 percent stock dividend ........... 1,399,926 1,749,907 18,374,030 (20,123,937) --
Tax benefit associated with stock
options ........................... -- -- 716,945 -- -- 716,945
---------- ------------ ------------ ------------ ----------- -------------
BALANCE, September 30, 1999 ......... 15,409,183 $ 19,261,479 $ 79,037,758 $ 19,848,132 $(1,208,522) $ 116,938,847
========== ============ ============ ============ =========== =============
</TABLE>

The accompanying notes are an integral part of these consolidated statements.

6
<PAGE> 7

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. PRINCIPLES OF CONSOLIDATION

The accompanying consolidated financial statements include the accounts of
West Coast Bancorp (Bancorp or the Company) which operates its wholly-owned
subsidiaries, West Coast Bank (the Bank), West Coast Trust, Centennial Funding
Corporation and Totten, Inc. 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 nine months ended September 30, 1999 are not necessarily
indicative of results to be anticipated for the year ending December 31, 1999,
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 was merged into West
Coast Bank on December 31, 1998. The acquisition of Centennial Holdings, Ltd.
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 1998, the Financial Accounting Standards Board issued SFAS NO. 133,
"Accounting for Derivative Instruments and Hedging Activities". The statement
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts and for
hedging activities. It requires that an entity recognize all derivatives as
either assets or liabilities in the statements of financial position and measure
those instruments at fair value.

Effective January 1, 1999, Bancorp adopted SFAS NO. 133, "Accounting for
Derivative Instruments and Hedging Activities". The adoption of SFAS 133 did not
materially impact the financial position or results of operations of Bancorp.
Bancorp does not currently utilize derivative instruments in its operations, and
does not engage in hedging activities. Under the provisions of SFAS NO. 133, and
in connection with the adoption of SFAS 133, Bancorp reclassified investment
securities carried at $2,695,531 with a market value of $2,909,000 from the held
to maturity classification to the available for sale classification. As a result
of this transfer, an unrealized gain of $131,000, net of tax, was recognized in
accumulated other comprehensive income as a cumulative effect of change in
accounting principle.

7
<PAGE> 8

5. RESTRUCTURING CHARGES

As previously disclosed, the 1999 results have been impacted by one-time
costs resulting from the consolidation of the Company's affiliate banks into one
entity, called West Coast Bank. The consolidation was completed on December 31,
1998. Bancorp has expensed $4.63 million in costs for the consolidation,
including costs related to a severance plan, signage, data conversions,
marketing, regulatory and administrative items. While the Company still expects
to make further severance payouts, and has accrued for certain conversion costs,
these costs have been recognized as expenses in the results of operations since
the inception of the consolidation in the third quarter of 1998 through
September 30, 1999. The Company does not anticipate incurring any additional
significant restructuring expenses in future quarters. Of the one-time expenses,
$404,573 were charged in the first quarter of 1999, and $303,290 were expensed
in the second quarter of 1999 as restructuring charges. No expenses were
incurred for restructuring in the third quarter of 1999.

Total restructuring charges of $1.92 million were accrued in the fourth
quarter of 1998 to cover anticipated costs of $1.73 million for the severance
program and personnel related expenditures, with the remaining $188,000 in costs
reserved for marketing and professional fees incurred but not yet paid. As of
September 30, 1999, Bancorp has an accrual for the restructuring charges of
$624,000 of which $506,000 is for severance and employment costs and the
remaining amount is for unpaid professional fees and conversion costs. During
the nine months ending September 30, 1999, $1,193,000 of the severance and
employee related program costs and marketing and professional fees were charged
against the accrual. During the second quarter of 1999 Bancorp reduced its
expected severance accrual by $248,000 and increased the accrual by $305,000 for
professional fees and conversion costs already incurred but not yet paid. The
following table summarizes the accrued restructuring charges utilized in the
first, second, and third quarters of 1999.

<TABLE>
<CAPTION>
(Dollars in Thousands) September 30, 1999
- ---------------------- ------------------
<S> <C>
Balance, accrued restructuring charges, December 31, 1998 .. $1,760
Provision for restructure charges first quarter 1999 ....... --
Utilization first quarter 1999:
Cash .................................................. 589
Noncash ............................................... --
------
Total Utilization .......................................... 589
------
Balance, accrued restructuring charges, March 31, 1999 ..... 1,171

Provision for restructure charges second quarter 1999 ...... 57
Utilization second quarter 1999:
Cash .................................................. 208
Noncash ............................................... --
------
Total Utilization .......................................... 208
------
Balance, accrued restructuring charges, June 30, 1999 ...... 1,020

Provision for restructure charges third quarter 1999 ....... --
Utilization third quarter 1999:
Cash .................................................. 396
Noncash ............................................... --
------
Total Utilization .......................................... 396
------
Balance, accrued restructuring charges, September 30, 1999 . $ 624
======
</TABLE>

6. STOCKHOLDERS' EQUITY

The Board of Directors declared a quarterly cash dividend of $.065 per
share during the third quarter of 1999. In addition, dividends of $.045 per
share were declared in the first and second quarters of 1999. A 10 percent stock
dividend was also declared in the third quarter of 1999. All per share amounts
have been restated to retroactively reflect stock dividends and stock splits
previously reported.

8
<PAGE> 9

7. 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 $26,756,000 and $27,490,000 for interest in the nine months
ended September 30, 1999 and 1998, respectively. Income taxes paid were
$5,685,000 and $3,370,934 in the nine months ended September 30, 1999 and 1998,
respectively.

8. CONTINGENCIES AND LITIGATION

During the normal course of business, the Company from time-to-time is
subject to routine litigation incidental to its business. The Bank and Bancorp
are defendants in a lawsuit seeking damages in excess of $4.6 million or
specific performance, based on an alleged financing commitment made by the Bank
to the plaintiffs. The Bank denies the existence of any agreement or commitment
to plaintiffs. Due to the nature and uncertainties inherent in litigation, there
are no assurances that these matters would not at some point in the future have
a material effect on the Company. However, at this time, management believes
that the probable resolution of those matters will not materially affect the
financial position of the Company.

9. COMPREHENSIVE INCOME

Bancorp adopted SFAS No. 130 "Reporting Comprehensive Income" in 1998. This
statement established standards for reporting and displaying comprehensive
income and its components. The following table displays the components of other
comprehensive income:

<TABLE>
<CAPTION>
Three Months ended Nine Months ended
September 30, September 30,
------------------ -------------------
(Dollars in thousands) 1999 1998 1999 1998
-------------------- ------ ------- ------- -------
<S> <C> <C> <C> <C>
Unrealized gains (losses) on securities:
Unrealized holding gains (losses) arising during the period ........... $ 12 $ 1,461 $(8,062) $ 1,255
Tax benefit (expense) ................................................. (5) (548) 3,075 (459)
---- ------- ------- -------
Unrealized holdings gains (losses) arising during the period,
after tax ........................................................... 7 913 (4,987) 796

Cumulative effect of change in accounting principle ................... -- -- $ 213 --
Tax expense ........................................................... -- -- (82) --
---- ------- ------- -------
Cumulative effect of change in accounting principle after tax ......... -- -- 131 --

Less: Reclassification adjustment for gains (losses) realized in
income .............................................................. $(69) $ -- $ 135 $ 251
Tax expense ........................................................... 27 -- (51) (96)
---- ------- ------- -------
Net unrealized gains .................................................. (42) -- 84 155
---- ------- ------- -------
Other comprehensive income (loss) ..................................... $(35) $ 913 $(4,772) $ 951
==== ======= ======= =======
</TABLE>

9
<PAGE> 10

10. EARNINGS PER SHARE

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 September 30, 1999
--------------------------------------------------
<S> <C> <C> <C>
Basic earnings per share............. $4,256,443 15,419,316 $0.28
Stock options........................ 318,558
Diluted earnings per share........... $4,256,443 15,737,874 $0.27

Three Months ended September 30, 1998
--------------------------------------------------
Basic earnings per share............. $3,303,309 15,595,798 $0.21
Stock options........................ 534,147
Diluted earnings per share........... $3,303,309 16,129,945 $0.20

Weighted
Average Per-Share
Net Income Shares Amount
--------------------------------------------------
Nine Months ended September 30, 1999
--------------------------------------------------
Basic earnings per share............. $13,131,937 15,508,361 $0.85
Stock options........................ 379,647
Diluted earnings per share........... $13,131,937 15,888,008 $0.83

Nine Months ended September 30, 199
--------------------------------------------------
Basic earnings per share............. $10,405,776 15,485,372 $0.67
Stock options........................ 671,854
Diluted earnings per share........... $10,405,776 16,157,226 $0.64
</TABLE>

Bancorp for the periods reported had no reconciling items between net income and
income available to common shareholders.

10
<PAGE> 11

11. SEGMENT AND RELATED INFORMATION

Bancorp adopted SFAS No. 131, "Disclosures about Segments of an Enterprise
and Related Information," in 1998, which established standards for the way
enterprises report information about operating segments.

During 1998, Bancorp operated four community banks; these banks were
consolidated into one banking entity at December 31,1998. Until late in 1998,
separate management teams managed the four banks, relying on common support
services offered through the parent Company. The four banks operated in Oregon
and Washington, where the economic and regulatory factors were similar for the
banks; three of the four banks shared the Portland, Oregon market. The banks
used similar means of branch networks, marketing and technology to deliver
similar loan and deposit products and services. Following the consolidation to a
single banking entity, the Bank now operates 42 branch offices, and has
realigned management resources into a single team. Through the consolidation to
a one-bank structure, Bancorp has aggregated its historical banking operations
into a single segment as shown below.

Bancorp accounts for intercompany fees and services at an estimated fair
value according to regulatory requirements for the service provided.
Intercompany items relate primarily to the use of accounting, human resources,
data processing and marketing services provided. All other accounting policies
are the same as those described in the summary of significant accounting
policies in Bancorp's 1998 annual report.

Summarized financial information concerning Bancorp's reportable segments
and the reconciliation to Bancorp's consolidated results is shown in the
following table. The "Other" column includes Bancorp's trust operations and
corporate-related items. In 1998, these items included support services such as
accounting, human resources, data processing and marketing provided at the
parent. During 1999, these support services are operating within the banking
unit. Investment in subsidiaries is netted out of the presentations below. The
"Intersegment" column identifies the intersegment activities of revenues,
expenses and other assets, between the "Banking" and "Other" segment.

<TABLE>
<CAPTION>
(Dollars in thousands) Three months ended September 30, 1999
- ---------------------- -------------------------------------------------------------
Banking Other Intersegment Consolidated
---------- --------- ------------ ------------
<S> <C> <C> <C> <C>
Interest income ............... $ 23,968 $ 51 $ (26) $ 23,993
Interest expense .............. 9,085 -- (26) 9,059
---------- -------- ------- ----------
Net interest income ...... 14,883 51 -- 14,934
---------- -------- ------- ----------
Provision for loan loss ....... 450 -- -- 450
Noninterest income ............ 3,604 459 (114) 3,949
Restructuring charges ......... -- -- -- --
Noninterest expense ........... 11,730 649 (114) 12,265
---------- -------- ------- ----------
Income before income taxes 6,307 (139) -- 6,168
Provision for income taxes .... 1,962 (50) -- 1,912
---------- -------- ------- ----------
Net income .................... $ 4,345 $ (89) $ -- $ 4,256
========== ========= ======= ==========

Depreciation and amortization . $ 1,013 $ 1 $ -- $ 1,014
Assets ........................ $1,288,860 $ 6,384 $(4,658) $1,290,586
Loans, net .................... $ 904,765 $ -- $ -- $ 904,765
Deposits ...................... $1,083,049 $ -- $(4,554) $1,078,495
Equity ........................ $ 110,238 $ 6,701 $ N/A $ 116,939
</TABLE>

11
<PAGE> 12
11. Segment and Related Information (continued)

<TABLE>
<CAPTION>
(Dollars in thousands) Three months ended September 30, 1999
- ---------------------- -------------------------------------------------------------
Banking Other Intersegment Consolidated
---------- --------- ------------ ------------
<S> <C> <C> <C> <C>
Interest income ............... $ 24,809 $ 28 $ (19) $ 24,818
Interest expense .............. 9,293 -- (19) 9,274
---------- -------- ------- ----------
Net interest income ...... 15,516 28 -- 15,544
---------- -------- ------- ----------
Provision for loan loss ....... 485 -- -- 485
Noninterest income ............ 3,877 2,523 (1,797) 4,603
Restructuring charges ......... 1,918 -- -- 1,918
Noninterest expense ........... 11,338 3,395 (1,797) 12,936
---------- -------- ------- ----------
Income before income taxes 5,652 (844) -- 4,808
Provision for income taxes .... 2,485 (980) -- 1,505
---------- -------- ------- ----------
Net income .................... $ 3,167 $ 136 $ -- $ 3,303
========== ======== ======= ==========

Depreciation and amortization . $ 719 $ 242 $ -- $ 961
Assets ........................ $1,204,108 $ 12,998 $(5,200) $1,211,906
Loans, net .................... $ 815,117 $ -- $ -- $ 815,117
Deposits ...................... $1,053,652 $ -- $(4,850) $1,048,802
Equity ........................ $ 102,144 $ 11,450 $ N/A $ 113,594
</TABLE>

Interest income ............... $ 71,548 $ 156 $ (78) $ 71,626
Interest expense .............. 26,830 -- (78) 26,752
---------- -------- ------- ----------
Net interest income ...... 44,718 156 -- 44,874
---------- -------- ------- ----------
Provision for loan loss ....... 1,410 -- -- 1,410
Noninterest income ............ 11,361 1,611 (245) 12,727
Restructuring charges ......... 708 -- -- 708
Noninterest expense ........... 34,717 1,916 (245) 36,388
---------- -------- ------- ----------
Income before income taxes 19,244 (149) -- 19,095
Provision for income taxes .... 6,017 (54) -- 5,963
---------- -------- ------- ----------
Net income .................... $ 13,227 $ (95) $ -- $ 13,132
========== ======== ======= ==========

Depreciation and amortization . $ 2,935 $ 20 $ -- $ 2,955
Assets ........................ $1,288,860 $ 6,384 $(4,658) $1,290,586
Loans, net .................... $ 904,765 $ -- $ -- $ 904,765
Deposits ...................... $1,083,049 $ -- $(4,554) $1,078,495
Equity ........................ $ 110,238 $ 6,701 $ N/A $ 116,939
</TABLE>

12
<PAGE> 13
11. Segment and Related Information (continued)

<TABLE>
<CAPTION>
(Dollars in thousands) Nine months ended September 30, 1999
- ---------------------- -------------------------------------------------------------
Banking Other Intersegment Consolidated
---------- --------- ------------ ------------
<S> <C> <C> <C> <C>
Interest income ............... $ 72,366 $ 102 $ (47) $ 72,421
Interest expense .............. 27,304 4 (47) 27,261
---------- -------- ------- ----------
Net interest income ...... 45,062 98 -- 45,160
---------- -------- ------- ----------
Provision for loan loss ....... 2,493 (28) -- 2,465
Noninterest income ............ 11,510 7,473 (5,273) 13,710
Restructuring charges ......... 1,918 -- -- 1,918
Noninterest expense ........... 34,359 9,887 (5,273) 38,973
---------- -------- ------- ----------
Income before income taxes 17,802 (2,288) -- 15,514
Provision for income taxes .... 6,570 (1,462) -- 5,108
---------- -------- ------- ----------
Net income .................... $ 11,232 $ (826) $ -- $ 10,406
========== ======== ======= ==========

Depreciation and amortization . $ 2,174 $ 468 $ -- $ 2,642
Assets ........................ $1,204,108 $ 12,998 $(5,200) $1,211,906
Loans, net .................... $ 815,117 $ -- $ -- $ 815,117
Deposits ...................... $1,053,652 $ -- $(4,850) $1,048,802
Equity ........................ $ 102,144 $ 11,450 $ N/A $ 113,594
</TABLE>

12. RECLASSIFICATION

Certain reclassifications of prior year amounts have been made to conform
to current classifications.

13
<PAGE> 14

Item 2.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

FORWARD LOOKING STATEMENT DISCLOSURE

In addition to historical information, this 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 September 30, 1999 and 1998

Net Income. Bancorp reported net income of $4,256,443 or $.27 per diluted
share, for the three months ended September 30, 1999, compared to $3,303,309 or
$.20 per diluted share for the three months ended September 30, 1998. The 1998
third quarter results include $1,918,350 in restructuring charges ($1,247,000
after income taxes), resulting from expenses associated with Bancorp's
consolidation of its subsidiary banks. After adjusting for the 1998 third
quarter non-recurring events, adjusted operating net income was $4,550,000 or
$.28 per diluted share. Net interest income decreased in the third quarter of
1999 over the comparable period in 1998, due mainly to lower yields generated on
interest earning assets. Noninterest income decreased mainly due to lower
revenues generated from gains on sales of loans, trust revenue, and other
service charges, commissions and fees. Total noninterest expenses decreased due
to non-recurring restructuring charges recorded in 1998, and staff reductions
and other savings associated with Bancorp's consolidation of its subsidiaries.

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. Bancorp tends to be 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 the market rates of interest or flattening interest rate
yield curve could adversely affect net interest income. In contrast, a
decreasing interest rate environment or steepening interest rate yield curve may
slightly improve Bancorp's margin. Competition, the economy, and the status of
the interest rate environment also impact Bancorp's net interest income in any
period.

14
<PAGE> 15

Net interest income on a tax equivalent basis for the three months ended
September 30, 1999, decreased $580,000 or 3.61%, to $15,491,000 from $16,071,000
for the same period in 1998. The decreased net interest income was due mainly to
lower yields generated on earning assets. Average yields on earning assets
declined 74 basis points to 8.42% from 9.16% one year earlier. Average interest
earning assets increased $59.5 million, or 5.42%, to $1.16 billion in the third
quarter of 1999, from $1.10 billion for the same period in 1998, while average
interest bearing liabilities increased $48.7 million or 5.53%. The average net
interest spread decreased from 4.98% to 4.55% in 1999 compared to 1998, mainly
due to the decrease in average earning asset yields. The low/flat interest rate
yield curve has caused variable rate repricing on assets over the period, which
along with recent new asset generation and increased competitive pricing, have
led to the 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 31 basis points to 3.87% in the third quarter of
1999, from 4.18% for the same period in 1998. Bancorp's net interest margin for
the three months ended September 30, 1999, was 5.31%, a decrease of 50 basis
points from 5.81% for the comparable period of 1998. The decrease in Bancorp's
net interest margin and related yields or spreads are due mainly to a changing
interest rate environment, increased pricing competition, and a shift in some of
its asset mix. Given these factors, Bancorp could see further fluctuations in
its interest margin. The low interest rate environment, continued strong
competition in the markets it serves, and other economic factors, could further
impact the Company's net interest margin.

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>
Three Months Ended
(Dollars in thousands) September 30,
- ---------------------- ------------------------- Increase
1999 1998 (Decrease) Change
--------- ---------- -------- ------
<S> <C> <C> <C> <C>
Interest and fee income(1)................. $ 24,550 $ 25,345 $ (795) (3.14%)
Interest expense............................ 9,059 9,274 (215) (2.32%)
---------- ---------- -------
Net interest income......................... $ 15,491 $ 16,071 $ (580) (3.61%)
========= ========== =======

Average interest earning assets............. $1,157,133 $1,097,639 $ 59,494 5.42%
Average interest bearing liabilities........ $ 929,331 $ 880,656 $ 48,675 5.53%
Average interest earning assets/
interest bearing liabilities........... 124.51% 124.64% (0.13)
Average yields earned (2)................... 8.42% 9.16% (0.74)
Average rates paid (2)...................... 3.87% 4.18% (0.31)
Net interest spread (2)..................... 4.55% 4.98% (0.43)
Net interest margin (2)..................... 5.31% 5.81% (0.50)
</TABLE>
- ----------
(1) Interest earned on nontaxable securities has been computed on a 34% tax
equivalent basis.

(2) These ratios for the three months ended September 30, 1999 and 1998 have
been annualized.

Provision for Loan Loss. Bancorp recorded provisions for loan losses for
the third quarter of 1999 and 1998 of $450,000 and $485,000 respectively. Net
charge-offs for the third quarter of 1999 were $575,000, compared to net
charge-offs of $392,000 for the same period in 1998. At September 30, 1999, the
percentage of non-performing assets was 0.41% of total assets, compared to 0.36%
one year earlier. Bancorp's allowance for loan losses, as a percentage of total
loans was 1.41% at September 30, 1999, compared to 1.46% as of September 30,
1998.

Noninterest Income. Noninterest income for the third quarter of 1999 was
$3,948,801, down $653,460, or 14.20%, from $4,602,261 in the like period in
1998. Gains on sales of loans decreased $495,548, to $725,696 in 1999, from
$1,221,244 in 1998. The decrease in gains on sales of loans was due mainly to
decreased sales activity in the commercial brokerage and secondary residential
real estate programs. Other service charges, commissions, and fees decreased
$158,209, to $1,099,076, from $1,257,285 or 12.58%, in 1999 over 1998. The
decrease in other service charges, commissions, and fees was due to decreased
net revenues in brokerage commissions and other areas such as merchant bankcard
revenues. ATM related service charges increased over the period. Service charges
on deposit accounts decreased to $1,119,006, a 4.90% decrease over the same
period in 1998, was caused mainly by adjustments to service charges and
fluctuations in customer activity. Trust revenue decreased $124,715 to $451,825
during the third quarter of 1999, as compared to the same period in 1998, due in
part to the activity of the equity market. Loan servicing fees decreased in
1999, compared to 1998. Other noninterest income increased in the third quarter
of 1999, compared to 1998, due to sales of certain real estate assets. Net
losses on the sales of securities were $68,887 in the third quarter of September
30, 1999, compared to a loss of $497 for the same period one year earlier.

15
<PAGE> 16

Noninterest Expense. Noninterest expenses for the third quarter ended
September 30, 1999, were $12,264,723, a decrease of $2,588,450, or 17.43%, over
the same period in 1998. A restructuring charge of $1,918,350 impacted the third
quarter 1998 noninterest expenses, due to the Company's consolidation of its
subsidiary banks. Bancorp's salaries and employee benefits decreased $901,943,
or 11.97%, to $6,630,620 in the third quarter ended September 30, 1999, from
$7,532,563 for the like period in 1998. Salary and employee benefit expense has
declined primarily as a result of Bancorp's restructuring efforts. At September
30, 1999, Bancorp employed 656 staffing positions compared to 719 at September
30, 1998. Bancorp's staffing reductions have been primarily administrative in
nature, and Bancorp has continued to expand its products, services, and branch
network over the past year. Equipment and printing and office supplies expenses
and communication expenses decreased in the third quarter compared to the same
period in 1998, as Bancorp realized efficiencies in operations following its
more recent acquisitions and its restructuring efforts. Equipment expense
decreased $205,212 or 14.83% in the third quarter of 1999 over 1998. Bancorp
continues to invest in technological improvements and expansion; occupancy
expenses are higher in the third quarter of 1999 over the same period in 1998,
due mainly to growth and expansion including additions of new branches, products
and services over the period. Marketing expenses increased $17,635, or 4.91%, in
the third quarter of 1999 over the same period in 1998, as Bancorp has incurred
increased marketing costs associated with marketing its new bank name and
company expansion. Professional fees incurred for services from outside
consultants, accountants, and attorneys, and other expenses are up in the third
quarter of 1999, compared to the third quarter of 1998.

Nine months ended September 30, 1999 and 1998

Net Income. Bancorp reported net income of $13,131,937, or $.83 per diluted
share, for the nine months ended September 30, 1999, compared to $10,405,776, or
$.64 per diluted share, for the nine months ended September 30, 1998. The 1999
year to date results include $888,000 in non-recurring and restructuring charges
($558,000 after tax), associated with Bancorp's consolidation of its subsidiary
banks. In addition, the 1998 year to date results were impacted by non-recurring
merger related costs of $1,607,000 ($1,060,000 after taxes), and $1,918,000
($1,247,000 after taxes), in non-recurring restructuring charges associated with
the consolidation of its subsidiary banks. After adjusting for these
non-recurring events, adjusted operating net income year to date was
$13,690,000, or $.86 per diluted share, up 8% compared to adjusted operating net
income of $12,713,000, or $.79 per diluted share, for the same period in 1998.
Net interest income decreased through September 30, 1999, over the comparable
period in 1998, due mainly to lower yields generated on interest earning assets.
Noninterest income decreased mainly due to lower revenues generated from gains
on sales of loans, trust revenue and loan servicing fees. These decreases were
in part offset by increases in other service charges commissions and fees and
service charges on deposit accounts, due to an increased customer base, higher
transaction volumes, and increases in fee assessments. Total noninterest
expenses decreased mainly due to non-recurring restructuring charges recorded in
1998, and staff reductions and other savings associated with Bancorp's
consolidation of its subsidiaries.

Net Interest Income. Net interest income on a tax equivalent basis for the
nine months ended September 30, 1999, decreased $54,000, or .12%, to $46,593,000
from $46,647,000 for the same period in 1998. The decreased net interest income
was due mainly to lower yields generated on earning assets. Average yields on
earning assets declined 78 basis points to 8.52% from 9.30%, one year earlier.
Average interest earning assets increased by $88.0 million, or 8.28%, to $1.15
billion in the third quarter of 1999, from $1.06 billion for the same period in
1998, while average interest bearing liabilities increased $63.3 million, or
7.32%. The average net interest spread decreased from 5.08% to 4.66%, mainly due
to the decrease in average earning asset yields. The low/flat interest rate
yield curve has caused variable rate repricing on assets over the period, which
along with recent new asset generation and increased competitive pricing, have
lead to the decreasing asset yields. In addition, certain fixed rate loan
customers have refinanced their loans at lower rates over the period. Average
rates paid decreased 36 basis points to 3.86% in the first three quarters of
1999, from 4.22% for the same period in 1998. Bancorp's net interest margin for
the nine months ended September 30, 1999 was 5.41%, a decrease of 46 basis
points from 5.87% for the comparable period of 1998. The decrease in Bancorp's
net interest margin and related yields or spreads are due mainly to a changing
interest rate environment, increased pricing competition, and a shift in some of
its asset mix. Given these factors, Bancorp could see further fluctuations in
its interest margin. The low interest rate environment, continued strong
competition in the markets it serves, and other economic factors, could further
impact the Company's net interest margin.

16
<PAGE> 17

<TABLE>
<CAPTION>
Three Months Ended
(Dollars in thousands) September 30,
- ---------------------- --------------------------- Increase
1999 1998 (Decrease) Change
----------- ---------- -------- ------
<S> <C> <C> <C> <C>
Interest and fee income(1).................. $ 73,345 $ 73,908 $ (563) (0.76%)
Interest expense............................ 26,752 27,261 (509) (1.87%)
----------- ---------- -------
Net interest income......................... $ 46,593 $ 46,647 $ (54) (0.12%)
=========== ========== =======

Average interest earning assets............. $ 1,150,525 $1,062,528 $87,997 8.28%
Average interest bearing liabilities........ $ 927,414 $ 864,150 $63,264 7.32%
Average interest earning assets/
interest bearing liabilities........... 124.06% 122.96% 1.10
Average yields earned (2)................... 8.52% 9.30% (0.78)
Average rates paid (2)...................... 3.86% 4.22% (0.36)
Net interest spread (2)..................... 4.66% 5.08% (0.42)
Net interest margin (2)..................... 5.41% 5.87% (0.46)
</TABLE>
- ----------
(1) Interest earned on nontaxable securities has been computed on a 34% tax
equivalent basis.

(2) These ratios for the nine months ended September 30, 1999 and 1998 have
been annualized.

Provision for Loan Loss. Bancorp recorded provisions for loan losses
through September of 1999 and 1998, of $1,410,000 and $2,465,415 respectively.
Bancorp's provision was impacted in the first quarter of 1998 by a one time
merger-related increase in the provision for loan losses of $1,038,000, related
to the Centennial Holdings Ltd. acquisition, to bring its allowance for loan
loss methodology in line with Bancorp practices. Net charge-offs through
September 30, 1999 were $930,000, compared to net charge-offs of $820,000 for
the same period in 1998.

Noninterest Income. Noninterest income for the first nine months of 1999
was $12,727,330, down $983,056 or 7.17% from $13,710,386 in the like period in
1998. Gains on sales of loans decreased $1,225,063 to $2,971,362 in 1999, from
$4,196,425 in 1998, due to decreases in loan sales activity in the commercial
brokerage and secondary residential real estate programs. The secondary
residential real estate sales programs have been impacted by the recent interest
rate environment lowering the demand for refinance and sales activity. Trust
revenue also decreased in the first nine months of 1999, as compared to the same
period in 1998, due in part to the activity of the equity market. Other service
charges, commissions, and fees increased $298,669, or 10.25%, through September
30, 1999, over the same period in 1998. The increases in other service charges,
commissions, and fees were due to growth in the merchant bankcard program, and
increased ATM related service charges. Service charges on deposit accounts
increased to $3,421,344, a 1.10% increase over the same period in 1998. Loan
servicing fees decreased in the first nine months of 1999, compared to 1998,
caused mainly by a decrease in the number of loans serviced. Other noninterest
income increased mainly due to the sales of certain real estate assets in 1999.
Net gains on the sales of securities were $135,477 through September 30, 1999,
compared to $250,484 for the same period one year earlier.

Noninterest Expense. Noninterest expenses for the nine months ended
September 30, 1999, were $37,095,711, a decrease of $3,794,679 or 9.28% from
$40,890,390 for the same period in 1998. Non-recurring and restructuring charges
of $888,000 ($558,000 after tax) impacted the 1999 year-to-date results, due to
the Company's recent consolidation of its subsidiary banks. Noninterest expenses
through September 30, 1998, include $569,000 related to an acquisition and
$1,918,000 related to restructuring charges. Bancorp's salaries and employee
benefits decreased $2,202,974, or 9.89%, to $20,068,533 through September 30,
1999, from $22,271,507 for the like period in 1998. Salary and employee benefit
expense has declined as a result of Bancorp's restructuring efforts. At
September 30, 1999, Bancorp employed 656 staffing positions, compared to 719 at
September 30, 1998. Bancorp's staffing reductions have been primarily
administrative in nature, and over the year Bancorp has continued to expand its
products, services and branch network. Equipment, professional fees, printing
and office supplies, and communication expenses have decreased in the first nine
months of 1999, compared to the same period in 1998, as Bancorp realized
efficiencies in operations following its more recent acquisitions and its
restructuring efforts. Occupancy and marketing expenses are higher in the first
three quarters of 1999 over the same period in 1998, due mainly to growth and
expansion including additions of new branches, products and services over the
period. Marketing expenses increased $178,960, or 16.14%, in 1999 over 1998, due
to increased efforts to market Bancorp's name and products. Bancorp opened two
new branch offices during the first half of 1999, and now operates 42 branches.
Bancorp also opened a new loan servicing administrative center in 1999 to
centralize certain lending and administrative activities. Other noninterest
expense decreased $166,523 in the first nine months of 1999 compared to like
period in 1998.

17
<PAGE> 18

RESTRUCTURING CHARGES

For the nine months ended September 30, 1999, Bancorp expensed $707,863 in
restructuring charges related to its consolidation. No restructuring charges
were expensed in the third quarter of 1999. The consolidation was completed on
December 31, 1998, and new signs on the branch facilities were installed in the
first quarter of 1999. In the four quarters since the plan was announced,
Bancorp has identified, notified, or released over 73 staff positions. The
restructuring liability is being charged as severance and conversion cost
payments are made.

Bancorp has expensed a total of $4.63 million in costs for the
consolidation, including costs related to a severance plan, signage, data
conversions, marketing, regulatory and administrative items. While Bancorp still
expects to make further severance payouts, and has accrued for certain
conversion costs, these costs have been recognized as expenses in the results of
operations, since the announcement of the consolidation in the third quarter of
1998. The Company does not anticipate incurring significant additional
restructuring expenses in future quarters. The Company had originally forecast
the cost of the restructure at $5 million. Bancorp was therefore successful in
containing its costs below the original forecast.

Bancorp expects that the consolidation will save approximately $6 million
annually. The cost savings will come from the reductions in staff and related
overhead, a simplified corporate structure, a reduced regulatory burden and
synergies created by unified marketing efforts and name branding. The original
plan called for two-thirds of the cost savings to be substantially achieved by
third quarter 1999, with the remaining savings to be achieved early in the year
2000. The Company to date has identified and instituted cost reductions in
excess of the $6 million restructuring goal, and in addition has identified
areas for enhancing revenues. Certain of the Company's operations continue to be
consolidated into centralized locations during 1999, and additional staffing
reductions will be realized following these changes.

Bancorp's liquidity has not been materially affected by cash outlays
related to one-time restructuring charges. Bancorp does not anticipate that
future restructuring charges will have a material effect on Bancorp's liquidity.

INCOME TAXES

During the first nine months of 1999, due to an increase in net income
before taxes and changes in the mix of taxable and nontaxable income items, the
provision for income taxes increased from that of 1998. 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's tax provision.

18
<PAGE> 19

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
$1.078 billion at September 30, 1999, compared to $1.108 billion at December 31,
1998. 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.

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, customer management of cash resources prior to
year 2000 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, repurchase agreements, and borrowings from the
FHLB.

CAPITAL RESOURCES

The Federal Reserve Bank "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%. As of September 30, 1999,
Bancorp and the Bank are considered "Well Capitalized" under the regulatory risk
based capital guidelines.

Shareholders' equity decreased to $116.9 million at September 30,1999, from
$117.2 million at December 31, 1998, a decrease of $.3 million over that period
of time. The decrease is due to a decline in the in the market value of
Bancorp's available for sale investment portfolio and Bancorp's activity in its
stock repurchase plan. At September 30, 1999, Bancorp's shareholders' equity, as
a percentage of total assets, was 9.06%, compared to 9.34% at December 31, 1998.
The decrease was primarily the result of Bancorp's equity base decreasing and an
increase in total assets. Equity decreased .26% over the period from December
31, 1998, to September 30, 1999, while assets increased by 2.80% over the same
period. As the following table indicates, Bancorp currently exceeds the
regulatory capital minimum requirements.

<TABLE>
<CAPTION>
(Dollars in thousands) September 30, 1999
- ---------------------- -------------------------
Amount Ratio
----------- -----
<S> <C> <C>
Tier 1 capital.................................. $ 116,275 11.20%
Tier 1 capital minimum requirement.............. 41,535 4.00%
----------- -----
Excess over minimum Tier 1 capital............ $ 74,740 7.20%
=========== =====
Total capital................................... $ 129,208 12.44%
Total capital minimum requirement............... 83,069 8.00%
----------- -----
Excess over minimum total capital............. $ 46,139 4.44%
=========== =====
Risk-adjusted assets............................ $ 1,038,367
===========
Leverage ratio.................................. 9.27%
Minimum leverage requirement.................... 3.00%
-----
Excess over minimum leverage ratio............ 6.27%
=====
Risk-adjusted total assets...................... $ 1,253,763
===========
</TABLE>

19
<PAGE> 20

LENDING AND CREDIT MANAGEMENT

Interest earned on the loan portfolio is the primary source of income for
Bancorp. Net loans represented 70.10% of total assets as of September 30, 1999.

Although the Bank strives to serve the credit needs of its service areas,
the primary focus is on real estate related and commercial credits. The Bank
makes substantially all its loans to customers located within its service areas.
The Bank has 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 Bank's customer base and the growth experienced in the market
areas served, real estate is frequently a material component of collateral for
the Bank's loans. The expected source of repayment of these loans is generally
the cash flow of the project, operations of the borrower's business or personal
income. 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 Bank manages the general risks inherent in the loan portfolio by
following loan policies and underwriting practices designed to result in prudent
lending activities.

The following table presents the composition of the Banks' loan portfolios, at
the dates indicated.

<TABLE>
<CAPTION>
September 30, 1999 December 31,1998
(Dollars in thousands) --------------------------------------------------------
- ---------------------- Amount Percent Amount Percent
--------- ------- --------- -------
<S> <C> <C> <C> <C>
Commercial................................... $ 161,498 17.85% $ 150,206 17.68%
Real estate construction..................... 123,505 13.65 118,171 13.91
Real estate mortgage......................... 101,498 11.22 113,661 13.38
Real estate commercial....................... 470,236 51.97 414,169 48.75
Installment and other consumer............... 60,961 6.74 65,845 7.75
--------- ------ --------- ------
Total loans.................................. 917,698 101.43% 862,052 101.47%

Allowance for loan losses.................... (12,933) (1.43) (12,453) (1.47)
--------- ------ --------- ------
Total loans, net............................. $ 904,765 100.00% $ 849,599 100.00%
========= ====== ========= ======
</TABLE>

The following table presents information with respect to nonperforming assets.

<TABLE>
<CAPTION>
(Dollars in thousands) September 30, 1999 December 31, 1998
-------------------- ------------------ -----------------
<S> <C> <C>
Loans on nonaccrual status........................................... $4,739 $4,565
Loans past due greater than 90 days but not on nonaccrual status..... 53 42
Other real estate owned.............................................. 558 1,121
------ ------
Total nonperforming assets........................................... $5,350 $5,728
====== ======
Percentage of nonperforming assets to total assets................... .41% .46%
</TABLE>

See "Loan Loss Allowance and Provision"

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. The nonaccrual loans consist of a number of loans in
different categories and are largely secured. 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.

20
<PAGE> 21

As of September 30, 1999, the Bank had loans to persons serving as
directors, officers, principal shareholders and their related interests. These
loans were made substantially on the same terms, including interest rates,
maturities and collateral as those made to other customers of the Banks. At
September 30, 1999, Bancorp had $4,984,000 of bankers' acceptances. At September
30, 1999, there was no concentration of loans exceeding 10 percent of the total
loans to a multiple number of borrowers engaged in a similar business.

LOAN LOSS ALLOWANCE AND PROVISION

Bancorp maintains a loan loss allowance to absorb losses inherent in the
loan portfolio. The allowance is based on ongoing, quarterly assessments of the
probable estimated losses inherent in the loan portfolio, and to a lesser
extent, unused commitments to provide financing. Our methodology for assessing
the appropriateness of the allowance consists of several key elements, which
include:

- The formula allowance,

- Specific allowances for identified problem loans and portfolio
segments and

- The unallocated allowance.

Bancorp's allowance incorporates the results of measuring impaired loans as
provided in: Statement of Financial Accounting Standards ("SFAS") No. 114,
"Accounting by Creditors for Impairment of a Loan," and SFAS No 118, "Accounting
by Creditors for Impairment of a Loan -- Income Recognition and Disclosures."
These accounting standards prescribe the measurement methods, income recognition
and disclosures concerning impaired loans.

During 1999, modifications to the allowance for loan losses included
identifying segments of the loan portfolio where the Bank may have larger credit
concentrations or exposure, and then allocating the allowance in these areas
based on loss factors deemed appropriate. The Bank continues to look for ways to
enhance the allowance methodology, with increased detailed analysis, tracking
and review and feels that the changes to the allowance methodology made during
1999 will enhance the overall identification and allocation of the reserves.

The formula allowance is calculated by applying loss factors to outstanding
loans and certain unused commitments, in each case based on the internal risk
grade of those loans, pools of loans, or commitments. Changes in risk grades of
both performing and nonperforming loans affect the amount of the formula
allowance. Loss factors are based on our historical loss experience and other
such pertinent data and may be adjusted for significant factors that, in
management's judgement, affect the collectibility of the portfolio as of the
evaluation date. Loss factors are described as follows:

- Problem graded loan loss factors are obtained from four years of
historical loss experience. Bancorp is exploring the utilization of a
migration model to track historical loss experience.

- Pooled loan loss factors, not individually graded loans, are based on
expected net charge-offs for one year. Pooled loans are loans and
leases that are homogeneous in nature, such as consumer installment
and residential mortgage loans.

Specific allowances are established where management has identified
significant conditions or circumstances related to a credit that management
believes indicate the probability that a loss may be incurred in excess of the
amount determined by the application of the formula allowance. The unallocated
allowance uses a more subjective method and considers such factors as the
following:

- Existing general economic and business conditions affecting our key
lending areas,

- Credit quality trends, including trends in nonperforming loans
expected to result from existing conditions,

- Collateral values,

- Loan volumes and concentrations,

- Seasoning of the loan portfolio,

- Specific industry conditions within portfolio segments,

- Recent loss experience in particular segments of the portfolio,

- Duration of the current business cycle,

- Bank regulatory examination results and

- Findings of our internal credit examiners.

21
<PAGE> 22

Executive credit management reviews these conditions quarterly in
discussion with our senior credit officers. If any of these conditions is
evidenced by a specifically identifiable problem credit or portfolio segment as
of the evaluation date, management's estimate of the effect of this condition
may be reflected as a specific allowance applicable to this credit or portfolio
segment. Where any of these conditions is not evidenced by a specifically
identifiable problem credit or portfolio segment as of the evaluation date,
management's evaluation of the probable loss concerning this condition is
reflected in the unallocated allowance.

The allowance for credit losses is based upon estimates of probable losses
inherent in the loan portfolio. The amount actually observed for these losses
can vary significantly from the estimated amounts. Our methodology includes
several features that are intended to reduce the differences between estimated
and actual losses. By assessing the probable estimated losses inherent in the
loan portfolio on a quarterly basis, we are able to adjust specific and inherent
loss estimates based upon any more recent information that has become available.

Recently acquired loan portfolios are reviewed and an overall assessment is
made using Bancorp's methodology as to the adequacy of the loan portfolios, and
any necessary adjustments to the allowance are made as they are identified. A
detailed review of the acquired loan portfolio follows, and Bancorp's loan
grading system is then applied to the portfolio. Any further adjustments to the
allowance are recorded in the period they are identified.

The following table summarizes the Banks' allowance for loan losses,
charge-offs and recovery activity:

<TABLE>
<CAPTION>
Nine months ended Year ended
(Dollars in thousands) September 30, 1999 December 31, 1998
- ---------------------- ------------------ -----------------
<S> <C> <C>
Loans outstanding at end of period ........... $ 917,698 $ 862,052

Average loans outstanding during the period .. $ 891,715 $ 816,240

Allowance for loan losses, beginning of period $ 12,453 $ 10,451
Recoveries:
Commercial ................................. 71 298
Real Estate ................................ 42 47
Installment and consumer ................... 71 63
--------- ---------
Total recoveries ........................... 184 408
Loans charged off:
Commercial ................................. 324 853
Real Estate ................................ 427 39
Installment and consumer ................... 363 414
--------- ---------
Total loans charged off .................... 1,114 1,306
--------- ---------
Net loans charged off ........................ (930) (898)

Provision for loan losses .................... 1,410 2,900
--------- ---------

Allowance for loan losses, end of period ..... $ 12,933 $ 12,453
========= =========
Ratio of net loans charged off
to average loans outstanding (1) ........... .14% .11%

Ratio of allowance for loan losses
to loans outstanding at end of period ...... 1.41% 1.44%
</TABLE>
- ----------
(1) The ratio for the nine months ended September 30, 1999 has been annualized.

At September 30, 1999, Bancorp's allowance for loan loss was $12.9 million,
or 1.41% of total loans, and 241.74% of total nonperforming assets, compared
with an allowance for loan losses at December 31, 1998 of $12.4 million, or
1.44% of total loans, and 217.41% of total nonperforming assets.

22
<PAGE> 23

Bancorp, during its normal loan review procedures considers a loan to be
impaired when it is probable that Bancorp will be unable to collect all amounts
due according to the contractual terms of the loan agreement. A loan is not
considered to be impaired during a period of minimal delay (less than 90 days).
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. 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 are excluded. Impaired loans are charged to the allowance when
management believes, after considering economic and business conditions,
collection efforts and collateral position, that the borrower's financial
condition is such that collection of principal is not probable.

During the third quarter of 1999, net loans charged off were $575,000,
compared to $392,000 for the same period in 1998. The annualized percentage of
net loans charged off year to date to average loans outstanding was 0.14% and
0.14% at September 30, 1999, and at September 30, 1998, respectively. Charged
off loans reflect the realization of losses in the portfolio that were
recognized previously through the provision for loan losses.

At September 30, 1999, the provision for loan loss exceeded the net loans
charged off during the year, reflecting management's belief, based on the
foregoing analysis, that there are additional losses inherent in the loan
portfolio. There can be no assurance that the adverse impact to Bancorp, if any,
of these conditions will not be in excess of the range set forth above. Readers
are referred to management's "Forward Looking Statement Disclosure" in
connection with this section.

INVESTMENT PORTFOLIO

The following table shows the carrying value of the Banks' portfolio of
investments:

<TABLE>
<CAPTION>
September 30, December 31,
(Dollars in thousands) 1999 1998
- ---------------------- ------------ -----------
<S> <C> <C>
Investments available for sale (At Fair Value)
U.S. Treasury securities ........................ $ 502 $ 6,065
U.S. Government agency securities ............... 109,335 88,856
Corporate securities ............................ 35,833 34,682
Mortgage-backed securities ...................... 9,778 6,517
Obligations of state and political subdivisions . 99,931 107,689
Other securities ................................ 9,996 9,462
-------- --------
Total .................................... $265,375 $253,271

Investments held to maturity (At Historical Cost)
Obligations of state and political subdivisions . $ -- $ 2,696
-------- --------
Total .................................... $ -- $ 2,696

Total Investment Portfolio ............... $265,375 $255,967
======== ========
</TABLE>

Under the provisions of SFAS NO. 133, and in connection with its adoption,
Bancorp reclassified investment securities carried at $2,695,531 with a market
value of $2,909,000 from the held to maturity classification to the available
for sale classification in the first quarter of 1999.

23
<PAGE> 24

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.

These challenges are especially problematic for financial institutions,
since many transactions, such as interest accruals and payments, are date
sensitive. The operations of third parties with whom Bancorp does business,
including the Company's vendors, suppliers, utility companies, and customers,
may also be affected.

THE COMPANY'S STATE OF READINESS. The Company is committed to addressing
these year 2000 challenges in a prompt and responsible manner. Management has
assessed automated systems, implemented a plan to resolve year 2000 issues, and
purchased technology as appropriate. 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 all phases, although appropriate
follow-up activities and testing are continuing to occur.

PROJECT MANAGEMENT. The Company's Chief Information Officer has primary
responsibility for year 2000 project management. The Company also formed a year
2000 compliance committee, consisting of appropriate representatives from its
critical operational areas, to assist in Y2K Plan implementation. The Company's
board of directors is provided with status reports at least quarterly to assist
them in overseeing this process.

AWARENESS. The Company 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 the Company's web site.

ASSESSMENT. Assessment is the process of identifying all mission-critical
applications, including information technology and non-information technology
systems, 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.

Last year, the Company's lending personnel examined its current loan
portfolios and identified our key business customers. The Company contacted
these customers and requested information regarding their preparation for the
year 2000. The Company then assessed the responses received to identify the risk
of loan defaults due to the effects of the year 2000 on the businesses of key
business customers. The Company is monitoring on a quarterly basis those
business borrowers who appear to have higher risk than others with respect to
year 2000 issues. In addition, the Company will continue to assess new loan
applicants for year 2000 risks. For more information see below, under "The Risks
of the Company's Year 2000 Issues."

24
<PAGE> 25

TESTING. Updating and testing of the Company's mission-critical automated
systems is substantially complete. During the first round of testing, all
mission-critical systems were tested to verify that dates in the year 2000 are
being appropriately recognized and processed. A second round of testing,
conducted to verify first round results using an alternative methodology, is
also complete. To date, testing has revealed no material year 2000 compliance
issues related to mission-critical automated systems that cannot be remedied
before the year 2000. The Company plans to conduct a final round of testing on
its mission-critical automated systems during the fourth quarter of 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 tests them for year 2000
compliance. This phase also involves upgrading and replacing mission-critical
automated systems where appropriate. Although this phase is substantially
complete, a final round of testing will occur before the end of 1999. Additional
follow-up activities may take place in the year 2000 and beyond.

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; although some of these systems
would have been replaced without regard to year 2000 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 represented approximately 9%
of the Company's information technology budget for 1998 and will represent about
10% of the 1999 information technology budget. The Company currently plans to
continue to use normal operating funds for payment of its year 2000 expenses.

Bancorp's estimated budget for year 2000 costs and expenses is as follows:

<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) 29,500 117,500 147,000
ATM Upgrades --- 25,000 25,000
Third Party Consulting(3) 30,000 35,000 65,000
-------- -------- --------
Totals(1) $234,500 $282,500 $517,000
======== ======== ========
</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 engaged a consulting firm to write a comprehensive testing plan for
the Company in 1998. Expenses for 1999 relate to costs associated with proxy
testing and audit of certain systems and procedures.

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.

25
<PAGE> 26

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 Bank, 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 Bank to change its 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 strategies. 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, and
establishing a liquidity line with the Federal Reserve. 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 borrow on the Federal
Reserve line or 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 is impaired or higher interest rates for
the Bank's funding sources lead to a decrease in the Company's net interest
margin.

2. The Bank lends significant amounts to businesses in its 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. Management is currently monitoring the
year 2000 compliance efforts of its significant business loan customers as
described above under the "Assessment" segment of the "Introduction." To
date, as a precaution, Management has increased the Company's loan loss
reserves by about $377,000 to provide for potential losses from loan
defaults due to year 2000 risks. As the Company continues to monitor risk
in this area, it may increase or decrease loan loss reserves as appropriate
in the future.

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 has assessed the mission critical systems used by West Coast
Trust and continues to monitor the year 2000 compliance activities of the
investment company administering the open-end mutual fund. Management also
continues to monitor the year 2000 compliance activities of the third party
broker-dealer that sells certain non-deposit investment products to
customers of the Bank and West Coast Trust. In addition, West Coast Trust
has completed testing of its mission critical systems, and no material
issues were found that cannot be addressed before the year 2000. Testing
results were audited by an independent third party, and no material
exceptions were found.

6. The Company's ability to serve customers in the year 2000 could be affected
by factors outside its control, such as communications abilities and access
to utilities, such as electricity, water, telephone, and others, to the
extent access or service is interrupted due to the effects of year 2000
issues on these and other utilities.

26
<PAGE> 27

THE COMPANY'S CONTINGENCY PLANS. In addition to the contingency plans
described above under "The Risks of the Company's Year 2000 Issues," the Company
has developed a Business Interruption Contingency Plan ("BIC Plan"). The BIC
Plan contains information pertinent to maintaining the successful operation of
each major business line of the Company. The Company will continue to update
this policy as appropriate throughout 1999. 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."

FORWARD LOOKING STATEMENTS

The discussion above, entitled "Year 2000 Issues," including without
limitation the section entitled "Risks of the Company's 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, without
limitation, (1) the possibility that protection procedures, contingency plans,
and remediation efforts will not operate as intended, (2) the possibility that
the Company may fail to timely or completely identify all software or hardware
applications requiring remediation or other risks or issues related to the year
2000, (3) unexpected costs or events, (4) failures of communications abilities
or utility companies serving the Company, (5) fluctuating interest rates, and
(6) 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.

27
<PAGE> 28

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.
Further, the effects of a flattening yield curve could more adversely affect
Bancorp's margin than any benefits received from a decreasing rate environment.
Bancorp attempts 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. Any merger activity will also have an impact on Bancorp's
asset/liability position as new assets are acquired and added. Management has
assessed these risks and believes that there has been no material change since
December 31, 1998.

28
<PAGE> 29

PART II. OTHER INFORMATION

Item 1. Legal Proceedings.

On May 11, 1999, the Bank and Bancorp were served with a summons and
complaint with respect to an alleged financing commitment. The lawsuit, filed by
Edward A. Fischer and Marianne M. Fischer ("Plaintiffs"), is currently pending
in the Circuit Court of the State of Oregon for the County of Multnomah.
Plaintiffs are seeking damages in excess of $4.6 million or specific performance
of the alleged agreement. The Bank denies the existence of any agreement or
commitment to Plaintiffs.

Due to the nature and uncertainties inherent in litigation, there are no
assurances that this matter will not at some point in the future result in a
loss that could materially effect the Company. However, at this time, management
believes that the probable resolution of this matter will not materially effect
the financial position of the Company.

This section 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 section 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, (1) facts and events currently unknown to
management that may surface as the subject matters discussed are further
investigated, (2) common law, rights, and legal and equitable remedies that may
be uncovered when the issues raised above are further researched, and (3)
uncertainties inherent in the legal process. 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.

29
<PAGE> 30

Item 6. Exhibits and Reports on Form 8-K.

<TABLE>
<CAPTION>
(a) Exhibits
<S> <C>
10.1 Form of indemnification agreement for directors and certain officers.

10.2 Separation and release agreement for Victor L. Bartruff dated July 16,
1999.

10.3 Employment agreement for Ronald T. DeLude dated July 16, 1999.

27 Financial Data Schedule for Form 10-Q.
</TABLE>

(b) During the three months ended September 30, 1999, West Coast Bancorp filed
the following current report on Form 8-K:

Form 8-K filed July 23, 1999 related to a change in senior management.

30
<PAGE> 31

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: November 12, 1999 /s/ Ronald T. DeLude
----------------------------------------
Ronald T. DeLude
Acting President and
Chief Executive Officer

Dated: November 12, 1999 /s/ Donald A. Kalkofen
----------------------------------------
Donald A. Kalkofen
Executive Vice President and
Chief Financial Officer

<PAGE> 1
EXHIBIT 10.1

INDEMNIFICATION AGREEMENT

This Indemnification Agreement ("Agreement"), dated as of _____________,
1999, is between WEST COAST BANCORP ("Corporation") and < NAME > ("Indemnitee").

RECITALS

A. Indemnitee, as member of the board of directors or an officer of the
Corporation and/or, one or more of its affiliate corporations, performs
valuable services for the Corporation.

B. The Corporation's Articles of Incorporation ("Articles") and Bylaws
("Bylaws") provide for the indemnification of the officers, directors,
agents and employees of the Corporation to the maximum extent authorized
by the Oregon Business Corporation Act ("Act").

C. The Articles, Bylaws and the Act, by their non-exclusive nature, permit
contracts between the Corporation and its directors and officers to
indemnify those directors and officers.

D. The Corporation has purchased and maintains a policy or policies of
Directors and Officers Liability Insurance ("D & O Insurance"), covering
certain liabilities, which may be incurred by its directors and officers
in the performance of their duties.

E. Due to changes in the terms, scope and availability of D & 0 Insurance,
uncertainty exists as to the extent of protection afforded directors and
officers under such D & O Insurance or under the indemnification
provisions of the Act, Articles, or Bylaws.

F. To induce Indemnitee to continue service as a director or officer of the
Corporation and/or one or more of its affiliate corporations, the
Corporation desires to enter this contract with Indemnitee.

Therefore, in consideration of Indemnitee's continued service as a
director or officer, the parties agree as follows:

AGREEMENT

1. INDEMNITY. The Corporation agrees to hold harmless and indemnify
Indemnitee:

(a) to the fullest extent permitted under each of the Articles, the
Bylaws, and the Act, as each may be amended from time to time; and

(b) against any and all expenses (including attorneys' fees), witness
fees, judgments, fines, ERISA excise taxes, and amounts paid in
settlement actually and reasonably incurred by Indemnitee in
connection with any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative
(including an action by or in the right of the Corporation) to which
Indemnitee is, was or at any time becomes a party, or is threatened
to be made a party, by reason of the fact that Indemnitee is, was or
at any time becomes a director, officer, employee or agent of the
Corporation, or is or was serving or at any time serves at the
request of the Corporation as a director, officer, employee or agent
of another (i) corporation, including without

<PAGE> 2
limitation a corporate affiliate of the Corporation, (ii)
partnership, (iii) joint venture, (iv) trust, (v) employee benefit
plan or (vii) other enterprise.

2. LIMITATIONS ON ADDITIONAL INDEMNITY. No indemnity under Section 1 will be
paid by the Corporation:

(a) for expenses or liabilities paid to the Indemnitee under any D & 0
Insurance purchased and maintained by the Corporation;

(b) on account of any action, suit or proceeding brought by or on behalf
of the Corporation in which judgment is rendered holding the
Indemnitee liable to the Corporation;

(d) on account of Indemnitee's conduct which is the subject of an
action, suit or proceeding described in Section 6(c)(ii);

(e) on account of any action, claim or proceeding (other than a
proceeding referred to in Section 7(b)) initiated by the Indemnitee
unless such action, claim or proceeding is specifically authorized
by action of the Corporation's board of directors;

(f) on account of any action, claim or proceeding referred to in Section
7(b) which action is finally adjudged to be frivolous or made not in
good faith;

(g) if a final decision by a Court having jurisdiction in the matter
determines that such indemnification is not lawful.

3. MUTUAL ACKNOWLEDGMENT. Both Corporation and Indemnitee acknowledge that,
in certain instances, federal law or public policy may override applicable
state law and prohibit the Corporation from indemnifying its directors and
officers. For example, the Corporation and Indemnitee acknowledge that the
Securities and Exchange Commission (the "SEC") takes the position that
indemnification is not permitted for liabilities arising under certain
federal securities laws, and federal legislation prohibits indemnification
for certain ERISA violations.

4. CONTINUATION OF OBLIGATIONS. Under this Agreement the Corporation is
obligated to Indemnitee for any period Indemnitee is or was a director,
officer, employee or agent of the Corporation (or is or was serving at the
request of the Corporation as a director, officer, employee or agent of
another (i) corporation, including without limitation, a corporate
affiliate of Corporation, (ii) partnership, (iii) joint venture, (iv)
trust, (v) employee benefit plan or (vi) other enterprise). Furthermore,
this obligation will continue after Indemnittee's service as a director or
officer terminates and so long as Indemnitee may be subject to any
possible claim or threatened, pending or completed action, suit or
proceeding, whether civil, criminal or investigative, by reason of the
fact that Indemnitee was a director or an officer of the Corporation or
was serving at the Corporation's request as a director, officer, employee
or agent of another (i) corporation, including without limitation, a
corporate affiliate of Corporation, (ii) partnership, (iii) joint venture,
(iv) trust, (v) employee benefit plan or (vi) other enterprise.

Page 2 of 5
<PAGE> 3
5. NOTIFICATION AND DEFENSE OF CLAIM. Within 30 after Indemnitee receives any
notice of the commencement of any action, suit, or proceeding, Indemnitee
will notify the Corporation of it, if a claim with respect to the action
may be made against the Corporation under this Agreement. The failure to
so notify the Corporation will not relieve the Corporation from any
liability it may have to Indemnitee under authority other than this
Agreement. With respect to any action, suit or proceeding of which
Indemnitee timely notifies the Corporation:

(a) the Corporation is entitled to participate at its own expense;

(b) except as otherwise provided below, the Corporation (jointly with
any other indemnifying party similarly notified) is entitled to
assume the defense of the action with counsel reasonably
satisfactory to Indemnitee; and

(c) the Corporation is not liable to indemnify Indemnitee under this
Agreement for any amounts paid in settlement of any action or claim
that is effected without its written consent.

After notice from the Corporation to Indemnitee of its election to assume
the defense of the action, the Corporation will not be liable to
Indemnitee under this Agreement for any legal or other expenses
subsequently incurred by Indemnitee in connection with the defense of the
action, other than reasonable costs of investigation or as otherwise
provided below. Indemnitee may employ its counsel in such action but the
fees and expenses of such counsel incurred after notice from the
Corporation of its assumption of the defense will be at the expense of
Indemnitee unless (i) Indemnitee's employment of counsel is authorized by
the Corporation, (ii) Indemnitee reasonably concludes that there may be a
conflict of interest between the Corporation and Indemnitee in the conduct
of the defense of such action or (iii) the Corporation has not employed
counsel to assume the defense of such action, in each of which cases the
fees and expenses of Indemnitee's separate counsel will be at the expense
of the Corporation. The Corporation is not entitled to assume the defense
of any action, suit, or proceeding brought by or on behalf of the
Corporation or as to which Indemnitee has made the conclusion provided for
in (ii) above.

The Corporation is permitted to settle any action except that it may not
settle any action or claim in any manner which would impose any penalty or
limitation on Indemnitee without Indemnitee's written consent. Neither the
Corporation nor Indemnitee will unreasonably withhold its consent to any
proposed settlement.

6. ADVANCEMENT AND REPAYMENT OF EXPENSES.

(a) If Indemnitee employs his/her own counsel, the cost of which is to
be indemnified by the Corporation under Section 5, the Corporation
will advance to Indemnitee any and all reasonable expenses
(including legal fees and expenses) incurred in investigating or
defending any such action, suit or proceeding. These expenses must
be advanced before any final disposition of any threatened or
pending action, suit or proceeding, whether civil, criminal,
administrative or investigative and within 10 days after receiving
copies of invoices presented to Indemnitee for such expenses.

Page 3 of 5
<PAGE> 4
(b) Indemnitee agrees that Indemnitee will reimburse the Corporation for
all reasonable expenses paid by the Corporation in defending any
civil or criminal action, suit or proceeding against Indemnitee if,
and only to the extent that, it is ultimately determined by a final
judicial decision (from which there is no right of appeal) that
Indemnitee is not entitled to be indemnified by the Corporation for
such expenses.

(c) The Corporation is not required to advance expenses to Indemnitee if
Indemnitee (i) commences any action, suit or proceeding as a
plaintiff, unless such advance is specifically approved by a
majority of the Corporation's board of directors or (ii) is a party
to an action, suit or proceeding brought by the Corporation and
approved by a majority of the Corporation's board which alleges
willful misappropriation of corporate assets by Indemnitee,
disclosure of confidential information in violation of Indemnitee's
fiduciary or contractual obligations to the Corporation, or any
other willful and deliberate breach in faith of Indemnitee's duty to
the Corporation, its affiliates, or its shareholders.

7. ENFORCEMENT.

(a) The Corporation confirms that it has entered into this Agreement to
induce Indemnitee to continue as a director or an officer of the
Corporation or one or more of its affiliates, and acknowledges that
Indemnitee is relying upon this Agreement in continuing in such
capacity.

(b) If Indemnitee successfully brings any action to enforce rights or to
collect moneys due under this Agreement, the Corporation will
reimburse Indemnitee for all Indemnitee's reasonable fees and
expenses in bringing and pursuing such action.

8. SUBROGATION. If the Corporation pays Indemnitee under this Agreement, the
Corporation will be subrogated to the extent of such payment to all of the
rights of recovery of Indemnitee, who agrees to execute all documents
required and to do all acts necessary to secure such rights and to enable
the Corporation effectively to bring suit to enforce such rights.

9. NON-EXCLUSIVITY OF RIGHTS. The rights conferred on Indemnitee by this
Agreement are not exclusive of any other right which Indemnitee may have
or hereafter acquire under any statute, provision of the Articles, Bylaws,
agreement, vote of shareholders or directors, or otherwise, both as to
action in his/her official capacity and as to action in another capacity
while holding office.

10. SURVIVAL OF RIGHTS. The rights conferred on Indemnitee by this Agreement
continue after Indemnitee ceases to be a director, officer, employee, or
other agent of the Corporation and will inure to the benefit of
Indemnitee's heirs, executors, and administrators.

11. SEPARABILITY. Each provision of this Agreement is a separate and distinct
agreement independent of others. If any provision is held to be invalid or
unenforceable for any reason, such invalidity or unenforceability will not
affect the validity or enforceability of the other provisions or the
obligation of the Corporation to indemnify the Indemnitee to the full
extent provided by the Articles, Bylaws or the Act.

Page 4 of 5
<PAGE> 5
12. GOVERNING LAW. This Agreement is interpreted and enforced in accordance
with the laws of the State of Oregon.

13. BINDING EFFECT. This Agreement is binding upon Indemnitee and upon the
Corporation, its successors and assigns, and inures to the benefit of
Indemnitee, his/her heirs, personal representatives, and assigns and to
the benefit of the Corporation, its successors and assigns.

14. AMENDMENT AND TERMINATION. No amendment, modification, termination, or
cancellation of this Agreement is effective unless in writing signed by
both parties.

Signed as of ____________, 1999:

WEST COAST BANCORP

By: Victor L. Bartruff
President and CEO

INDEMNITEE

__________________________________________

Page 5 of 5

<PAGE> 1
EXHIBIT 10.2

SEPARATION AND RELEASE AGREEMENT

1. PARTIES.

The parties to this Separation and Release Agreement (the "Agreement")
are West Coast Bancorp ("Bancorp") and Victor L. Bartruff ("Bartruff").

2. RECITALS.

a. Bartruff was employed by Bancorp in the position of President and
Chief Executive Officer of Bancorp and its subsidiary, West Coast Bank
(the "Bank"). Effective July 16, 1999, Bartruff's employment in such
positions with Bancorp and the Bank is terminated.

b. In recognition of Bartruff's service to Bancorp, and to resolve
any and all issues between them arising out of Bartruff's employment,
Bancorp and Bartruff have voluntarily agreed to enter into this Agreement.

3. RESIGNATION FROM BANK AND BOARD.

Effective July 16, 1999, Bartruff resigns from his positions with Bancorp,
Bancorp's Board of Directors, and from his positions with, and Board membership
on, any parent, subsidiary or affiliated company of Bancorp, including the Bank.

As discussed below in Paragraph 4, after July 16, 1999, Bancorp shall
employ Bartruff in another capacity through and including October 31, 1999.
Thereafter, Bartruff shall not intentionally seek or accept future employment or
position (including Board membership) with Bancorp or any of its affiliated or
successor organizations or Boards until May 1, 2000.

4. PAYMENT AND BENEFITS TO BARTRUFF.

a. As consideration for other provisions of this Agreement, Bancorp
shall employ Bartruff, with current salary and benefits, through and
including October 31, 1999. Bartruff's specific designated duties will be
mutually agreed to by Bartruff and the Board. Bancorp shall provide
Bartruff with office space and support services, including a secretary.

-1-
<PAGE> 2

b. On January 4, 2000, Bancorp shall pay Bartruff a lump sum amount
of two hundred seventy five thousand dollars ($275,000.00). To the extent
allowed by any plan documents and existing law, Bartruff may defer the
maximum amount of this payment. Bancorp shall make no withholdings from
this lump sum amount, and Bartruff is solely responsible for any tax
consequences resulting from this payment.

c. Bancorp shall pay Bartruff for any earned, unused vacation as of
October 31, 1999.

d. Bancorp shall reimburse Bartruff for any reasonable business
expenses incurred through October 31, 1999, provided Bartruff submits his
reimbursement requests by no later than November 15, 1999.

e. Bartruff may permanently retain his personal laptop computer,
provided all confidential Bancorp information is deleted and returned to
Bancorp consistent with paragraphs 7 and 9 below.

f. After Bartruff's employment ends on October 31, 1999, Bancorp
shall pay the cost of Bartruff's COBRA insurance coverage to provide
Bartruff health insurance coverage through and including January 31, 1999.
After that time, any insurance premium payments are solely Bartruff's
responsibility.

g. Bancorp shall pay directly for executive outplacement services
for Bartruff, up to a maximum of five thousand dollars ($5,000.00).

h. If allowed by plan documents and law, Bartruff may continue his
disability insurance coverage at his own expense.

i. Bancorp is making no representations or warranties concerning the
tax implications of any payments pursuant to this Agreement, and has
encouraged Bartruff to seek independent tax and legal advice. Except as
may be expressly stated in this Agreement, Bancorp shall have no other
financial obligation to Bartruff. Except as otherwise stated herein,
Bancorp is not responsible for making any other payment,

-2-
<PAGE> 3
pension plan, 401(k) or other retirement plan or other plan payments to
Bartruff or on Bartruff's behalf.

5. WAIVER AND RELEASE OF LIABILITY.

In exchange for the payment provided above, Bartruff waives and releases
all claims, complaints, and charges of any kind related to his employment and
the events leading up to this Agreement.

This waiver and release applies to Bancorp, all affiliated organizations,
all successor organizations, all employee benefit plans, all present and former
directors, officers, employees, agents, and fiduciaries. It includes, but is not
limited to, all claims of unlawful discrimination under federal and state
statutes, including Title VII of the Civil Rights Act of 1964, the Age
Discrimination in Employment Act, the Americans with Disabilities Act, the Older
Worker Benefit Protection Act, ORS Chapters 652 and 659, the Fair Labor
Standards Act, all claims for termination of employment or breach of contract,
wage or other compensation claims, and any other claims relating to Bartruff"s
employment with Bancorp, whether based on contract, statute, or tort, and
whether filed before a federal or state court or administrative agency. Bartruff
understands that this waiver and release also applies to his heirs, assigns,
executors, and administrators.

6. ALL OTHER AGREEMENTS NULL AND VOID.

Any other written or verbal agreements between the parties are null and
void, and superceded by this Agreement. This includes that Bartruff specifically
waives any rights he has pursuant to the "Salary Continuation Agreement" between
the parties.

7. CONFIDENTIALITY OF AGREEMENT.

As part of the consideration for Bank's payment to Bartruff, Bartruff
agrees that he shall maintain strict confidentiality regarding the existence and
terms of this Agreement, except as required for accounting statements,
preparation of tax returns, compulsion of legal process, or disclosure to
financial consultants, attorneys or his spouse.

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<PAGE> 4
8. MUTUAL NON-DISPARAGEMENT.

Neither Bancorp nor Bartruff shall make any negative comments about the
other party. If Bancorp is asked for employment information concerning Bartruff
it shall direct any such inquiry to Gary D. Putnam for so long as Mr. Putnam
remains a member of Bancorp's Board of Directors.

9. RETURN OF PROPERTY.

Bartruff agrees to return all property to Bancorp, including but not
limited to keys, documents, software, hardware, and any other Bank property.
Bancorp shall assign the membership in the Oregon Golf Club currently used by
Bartruff to Bartruff, effective July 31, 1999. All future costs associated with
that membership, including dues, are solely Bartruff's responsibility. Bancorp
shall have no future costs associated with that membership, or any other
membership, association or affiliation undertaken by Bartruff.

11. EXECUTION AND REVOCATION OF THIS AGREEMENT.

Bartruff accepts this Agreement voluntarily and understands: (a) the
meaning and effect of the waiver and release in paragraph 4; (b) that he was
given, and waived, twenty-one (21) days to decide whether to accept this
Agreement; and (c) that he was advised to consult with an attorney before he
accepts this Agreement. IN MAKING HIS DECISION WHETHER TO ACCEPT THIS AGREEMENT,
BARTRUFF IS NOT RELYING ON ANY PROMISES OR REPRESENTATIONS, EITHER ORAL OR
WRITTEN, OTHER THAN WHAT IS CONTAINED IN THIS AGREEMENT. BARTRUFF UNDERSTANDS
THAT HE MAY REVOKE HIS DECISION ONLY WITHIN A PERIOD OF SEVEN (7) DAYS AFTER THE
DATE HE SIGNS THIS AGREEMENT, BY

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<PAGE> 5
DELIVERING WRITTEN NOTICE TO BANCORP. IF BARTRUFF REVOKES HIS DECISION WITHIN
THE SEVEN DAYS, THE AGREEMENT SHALL NOT BE EFFECTIVE OR ENFORCEABLE AND BARTRUFF
WILL NOT RECEIVE THE CONSIDERATION DESCRIBED IN THE AGREEMENT.

12. ABILITY TO SEEK EMPLOYMENT/NON-COMPETITION/NON-SOLICITATION

While employed by Bancorp pursuant to this Agreement, Bartruff may seek
other employment opportunities. However, Bartruff shall not terminate his
Bancorp employment until October 31, 1999.

While employed by Bancorp, Bartruff will not, anywhere in any County in
which Bancorp is doing business, directly or indirectly provide services for or
acquire an interest greater than 5% (as an employee, consultant, independent
contractor, agent, sole proprietor, partner, joint venturer, investor,
shareholder, corporate officer, or director) in any bank, firm, entity, or
business that competes with or is expected to compete with Bancorp's business or
reasonably anticipated business.

Bartruff further agrees that, while employed by Bancorp, he will not
directly or indirectly solicit or encourage any customer, employee or consultant
of Bancorp to leave or terminate such relationship, employment or consultancy
for any reason, including without limitation, becoming a customer of or engaged
in any capacity by Bartruff (or any person or entity associated with or engaging
Bartruff or owned to any degree directly or indirectly by Bartruff, nor will he
assist others in doing so.

All of the restrictions on competition and solicitation in this Paragraph
expressly include a ban on any promotional, organizing, or pre-incorporation
activities by Bartruff in connection with any bank, firm, entity, or business
that competes with, or should reasonably expect to compete with, Bancorp's
business or reasonably anticipated business.

13. NO ADMISSION OF WRONGDOING

This Agreement is not an admission of wrongdoing by either party.

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<PAGE> 6
14. PARAGRAPH AND SECTION TITLES.

Paragraph and section titles in this Agreement are used for convenience
only and are not intended to and shall not in any way enlarge, define, limit, or
extend the rights or obligations of the parties or affect the interpretation of
this Agreement.

15. ENTIRE AGREEMENT.

This Agreement constitutes the entire integrated agreement of the parties.
All the agreements, covenants, representations, and warranties, express or
implied, oral or written, concerning the subject matter of this Agreement are
contained in this Agreement. Unless otherwise stated herein, all prior and
contemporaneous conversations, negotiations, agreements, representations,
covenants, and warranties concerning the subject matter of this Agreement are
merged into this Agreement.

16. SEVERABILITY.

If any provision of this Agreement is found to be illegal or legally
unenforceable, Bancorp shall have the right to elect that the remaining
provisions shall continue in full force and effect or that there be a rescission
of this Agreement.

17. GOVERNING LAW.

This Agreement shall be governed and enforced by the laws of the state of
Oregon.

18. MISCELLANEOUS.

The benefits of this Agreement shall inure to the successors and assigns
of the parties. The sole remedy for any breach shall be the rights and remedies
provided for herein. The parties acknowledge that the only consideration for
this Agreement is the consideration expressly described herein. The parties
further acknowledge that the terms of this Agreement are contractual.

This Agreement may be executed via facsimile and in one or more
counterparts, each of which shall be deemed to be an original. All counterparts
shall constitute one Agreement binding on all of the parties, notwithstanding
that not all of the parties are signatories to the same counterpart.

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<PAGE> 7
Each of the parties and/or its counsel has reviewed, revised, and
negotiated, or had the opportunity to negotiate the terms, conditions, and
language of this Agreement. The rule of construction that ambiguities are to be
resolved against the drafting party shall not be applied in interpreting this
Agreement.

Each party is responsible for the payment of its own attorneys' fees and
legal expenses with relation to the negotiation and preparation of this
Agreement.

WEST COAST BANCORP

/s/ Victor L. Bartruff / July 16, 1999 By /s/ Gary D. Putnam / July 16, 1999
- -------------------------------------- ----------------------------------
Victor L. Bartruff Date Gary D. Putnam Date

-7-

<PAGE> 1
EXHIBIT 10.3

CONFIDENTIAL

EMPLOYMENT AGREEMENT

THIS EMPLOYMENT AGREEMENT ("Agreement") is dated as of July 16, 1999 (the
"Effective Date"). The parties to the Agreement ("Parties"') are WEST COAST
BANCORP, an Oregon corporation ("Bancorp" or "Company"), and RONALD DELUDE
("Executive").

A. Executive is presently Bancorp's Chief Operating Officer and has
entered into a Salary Continuation Agreement dated April 1, 1999 (the "Salary
Continuation Agreement") governing the respective rights and obligations of
Executive and Bancorp in the event of a Change in Control (as defined in the
Salary Continuation Agreement) in Bancorp.

B. In connection with the recent resignation of the President and Chief
Executive Officer of Bancorp and its wholly owned subsidiary, West Coast Bank
(the "Bank"), Bancorp wishes to appoint Executive as the acting President and
Chief Executive Officer of Bancorp and the Bank, under the terms and conditions
of this Agreement.

C. Under the terms of this Agreement, Executive wishes to serve as the
acting President and Chief Executive Officer of Bancorp and West Coast Bank for
the period provided in this Agreement.

D. The parties acknowledge that while Executive is employed under this
Agreement, the Salary Continuation Agreement remains in full force and effect.

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 (the "Term") shall commence as of the Effective
Date and shall continue until such time as a permanent President and Chief
Executive Officer for Bancorp and West Coast Bank is hired, but not more
than one (1) year from the date hereof.

2. EMPLOYMENT. Bancorp will employ Executive during the Term, and Executive
accepts such employment by Bancorp, on the terms and conditions set forth
in this Agreement. Executive's title will be "Acting President and Chief
Executive Officer."

3. DUTIES. Executive will faithfully and diligently perform the duties
assigned to Executive from time to time by Company's Chairman, consistent
with the duties that have been normal and customary to the position of
President and Chief Executive Officer. Executive will use his best efforts
to perform his duties and will devote full time and attention to these
duties during working hours. Executive will report directly to Bancorp's
board of directors. Executive acknowledges that as Acting President and
Chief Executive Officer, he is expected to facilitate and accommodate
management succession, as well as any other management objectives of
Company. Executive will

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<PAGE> 2

assume any additional positions, duties, and responsibilities as may
reasonably be requested of him with or without additional compensation, as
appropriate and consistent with this Section 3.

4. SALARY; SIGNING BONUS. Initially, Executive will receive a salary of
$150,000 per year ("Base Salary"), to be paid in accordance with Bancorp's
regular payroll schedule. Upon execution of this Agreement, Executive will
receive a gross cash bonus of $25,000. Upon Executive's completion of the
Term or earlier termination as provided in Section 9, Executive will
receive an additional gross cash bonus of $25,000 (the "Supplemental
Bonus") as set forth in Section 9.

5. SEVERANCE PAYMENT. Subject to subparagraph (c) below, if, after
Executive's completion of the Term, Executive's employment with Bancorp is
terminated without Cause or Executive resigns for Good Reason (as such
terms are defined in Section 10), Bancorp will pay Executive a severance
payment in the amount determined pursuant to subsection (a) below (the
"Severance Payment"), payable on the date of termination.

a) The Severance Payment shall be an amount equal to the Payment
Multiple (defined below) multiplied by one-twelfth of Executive's
compensation as reported on Executive's IRS Form W-2 for the most
recent calendar year. The "Payment Multiple" shall be twenty-four
(24).

b) Notwithstanding anything in this Agreement to the contrary, the
Severance 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 of 1986, as amended.

c) If Executive's employment with Bancorp is terminated in connection
with a Change in Control entitling Executive to receive the Salary
Continuation Payment under the Salary Continuation Agreement,
Executive shall not be entitled to receive the Severance Payment
hereunder.

6. INCENTIVE COMPENSATION. Bancorp's board of directors will determine the
amount of additional bonus, if any, to be paid by Bancorp to Executive
during the Term. In making this determination, Bancorp's board of
directors will consider factors such as Executive's performance of his
duties and the safety, soundness, and profitability of Bancorp.
Executive's bonus, if any, will reflect Executive's contribution to the
performance of Bancorp during the Term.

7. INCOME DEFERRAL AND BENEFITS. Subject to eligibility requirements and in
accordance with and subject to any policies adopted by Bancorp's board of
directors with respect to any benefit plans or programs, Executive will be
entitled to receive benefits similar to those offered to other officers of
Bancorp and its subsidiaries with position and duties comparable to those
of Executive. Bancorp does not, through this Agreement, obligate itself to
make any particular benefits available to its employees or executive
officers.

8. BUSINESS EXPENSES. Bancorp will reimburse Executive for ordinary and
necessary expenses (including, without limitation, travel, entertainment,
and similar expenses) incurred in performing and promoting Bancorp's
business. Executive will present from

-2-
<PAGE> 3

time to time itemized accounts of these expenses, subject to any limits of
Bancorp policy or the rules and regulations of the Internal Revenue
Service.

9. TERMINATION.

(a) Termination for Cause. If, before the end of the Term, Bancorp
terminates Executive's employment under this Agreement for Cause (defined
below), Bancorp will pay Executive the Base Salary earned and expenses
reimbursable under this Agreement incurred through the date of Executive's
termination, but Executive will not be entitled to receive the Supplemental
Bonus.

(b) Termination without Cause. If, before the end of the Term, Bancorp
terminates Executive's employment under this Agreement without Cause, Bancorp
will pay Executive the Supplemental Bonus.

(c) Completion of Term. If this Agreement terminates due to expiration of
the Term, whether by passage of time or the hiring of a permanent President and
Chief Executive Officer, Bancorp will pay Executive the Supplemental Bonus.

(d) Death or Disability. Executive's employment with Bancorp under this
Agreement terminates (1) if Executive dies or (2) if Executive becomes Disabled,
unless with reasonable accommodation Executive could continue to perform his
duties under this Agreement and making these accommodations would not pose an
undue hardship on Bancorp. If termination occurs under this Section 9(d),
Executive or his estate will be entitled to receive only the compensation and
benefits earned and expenses reimbursable through the date this Agreement
terminated.

(e) Return of Company Property. If and when Executive ceases, for any
reason, to be employed by Bancorp, Executive must return to Bancorp all keys,
pass cards, identification cards and any other property of Bancorp. At the same
time, Executive also must return to Bancorp all originals and copies (whether in
hard copy, electronic or other form) of any documents, drawings, notes,
memoranda, designs, devices, diskettes, tapes, manuals, and specifications which
constitute proprietary information or material of Bancorp. The obligations in
this paragraph include the return of documents and other materials which may be
in Executive's desk at work, in Executive's car or place of residence, or in any
other location under Executive's control.

10. DEFINITIONS.

(a) Cause. "Cause" shall mean only any one or more of the following:

(i) Willful misfeasance or gross negligence in the performance of
Executive's duties;

(ii) Conviction of a crime in connection with such duties; or

(iii) Conduct demonstrably and significantly harmful to Company as
determined in the reasonable discretion of the board of directors of
Bancorp.

-3-
<PAGE> 4

(b) Disabled. "Disabled" 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.

(i) Substantial diminution of Executive's duties;

(ii) Substantial diminution of Executive's compensation; or

(iii) Significant relocation, where Significant means a change of
more than 50 miles in the Executive's commute if the Executive
does not move.

11. SALARY CONTINUATION AGREEMENT. This Agreement in no way affects or amends
the Salary Continuation Agreement, which remains in full force and effect.

12. WITHHOLDING. All payments required to be made by Company hereunder to the
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.

13. 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. The Executive may
not assign or transfer this Agreement or any rights or obligations
hereunder.

14. 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

-4-
<PAGE> 5

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) Survival. The severance payment provisions of Section 5 and the
withholding provisions of Section 12 shall survive any termination
of this Agreement.

f) 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.

g) Counsel Review. Executive acknowledges that he has had the
opportunity to consult with independent counsel with respect to the
negotiation, preparation and execution of this Agreement.

h) 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.

i) 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: /s Gary D. Putnam
---------------------------------------
Its: Chariman of the Board

EXECUTIVE:

/s/ Ronald DeLude
---------------------------------------------
RONALD DELUDE

-5-

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