WEST COAST BANCORP /NEW/OR/, 10-Q, 2000-05-15

WEST COAST BANCORP /NEW/OR/
10-Q, 2000-05-15
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 March 31, 2000

[ ] Transition report under Section 13 or 15(d) of the
Securities Exchange Act of 1934

Commission file number 0-10997

WEST COAST BANCORP
(Exact name of registrants specified in its charter)

Oregon 93-0810577
(State or other jurisdiction (IRS Employer
incorporation or organization) Identification No.)

5335 Meadows Road, Suite 201, Lake Oswego, Oregon 97035

(Address of Principal executive offices) (Zip code)

(503) 684-0884

(Registrant's telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.

Yes [X] No. [ ]

Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:

Common Stock, no par value, outstanding on April 30, 2000: 15,410,215

<PAGE> 2

TABLE OF CONTENTS
<TABLE>
<CAPTION>

<S> <C> <C>
PART I. Financial Information

Item 1. Financial Statements Page

Consolidated Balance Sheets -
March 31, 2000 and December 31, 1999...................................................3

Consolidated Statements of Income -
Three months ended March 31, 2000 and 1999.............................................4

Consolidated Statements of Cash Flows -
Three months ended March 31, 2000 and 1999.............................................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...................................................11

Item 3. Quantitative and Qualitative Disclosures About Market Risk............................20

PART II. Other Information

Item 1. Legal Proceedings.....................................................................21

Item 6. Exhibits and Reports on Form 8-K......................................................22

Signatures ......................................................................................23
</TABLE>

<PAGE> 3

Item 1.

WEST COAST BANCORP
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>

March 31, December 31,
2000 1999
-------------------------------------
(Unaudited)
<S> <C> <C>
ASSETS:
Cash and cash equivalents:
Cash and due from banks .................................... $ 53,524,573 $ 47,148,168
Interest-bearing deposits in other banks ................... 2,479,550 17,024,548
Federal funds sold ......................................... -- 2,800,000
--------------- ---------------
Total cash and cash equivalents ....................... 56,004,123 66,972,716
Trading assets .................................................. 1,254,836 1,000,943
Investment securities:
Investments available for sale ............................. 251,915,587 255,609,218

Loans held for sale ............................................. 8,522,199 8,309,188

Loans ........................................................... 1,001,464,547 976,297,233
Allowance for loan loss ......................................... (14,064,172) (13,479,752)
--------------- ---------------
Loans, net ............................................ 987,400,375 962,817,481
Premises and equipment, net ..................................... 30,317,432 30,654,447
Intangible assets ............................................... 2,239,972 2,337,049
Other assets .................................................... 28,175,568 26,986,340
--------------- ---------------
Total assets .......................................... $ 1,365,830,092 $ 1,354,687,382
=============== ===============

LIABILITIES AND STOCKHOLDERS' EQUITY

LIABILITIES:
Deposits:
Demand ..................................................... $ 193,937,162 $ 194,338,293
Savings and interest-bearing demand ........................ 526,013,991 542,532,667
Certificates of deposits ................................... 341,966,424 343,926,889
--------------- ---------------
Total deposits ........................................ 1,061,917,577 1,080,797,849
Short-term borrowings ........................................... 118,575,000 79,512,500
Other liabilities ............................................... 9,741,017 11,895,821
Long-term borrowings ............................................ 60,295,699 65,688,557
--------------- ---------------
Total liabilities ..................................... 1,250,529,293 1,237,894,727

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, respectively; shares issued and outstanding
15,321,733 and 15,344,857, respectively ................... 19,152,166 19,181,071
Additional paid-in capital ...................................... 76,798,371 78,005,788
Retained earnings ............................................... 23,260,241 23,007,819
Accummulated other comprehensive loss ........................... (3,909,979) (3,402,023)
--------------- ---------------
Total stockholders' equity .................................. 115,300,799 116,792,655
--------------- ---------------
Total liabilities and stockholders' equity ............ $ 1,365,830,092 $ 1,354,687,382
=============== ===============
</TABLE>

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

<PAGE> 4

WEST COAST BANCORP
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>

Three months ended
March 31,
----------------------------
2000 1999
----------------------------
(Unaudited)
<S> <C> <C>
INTEREST INCOME:
Interest and fees on loans ............................ $22,638,373 $20,077,974
Interest on taxable investment securities ............. 2,847,109 2,523,907
Interest on nontaxable investment securities .......... 1,068,045 1,130,328
Interest from other banks ............................. 50,570 72,127
Interest on federal funds sold ........................ 2,720 8,615
----------- -----------
Total interest income ........................... 26,606,817 23,812,951

INTEREST EXPENSE:
Savings and interest-bearing demand ................... 4,177,654 3,947,007
Certificates of deposit ............................... 4,571,694 4,493,936
Short-term borrowings ................................. 1,565,109 110,918
Long-term borrowings .................................. 891,828 256,272
----------- -----------
Total interest expense ........................... 11,206,285 8,808,133
----------- -----------
NET INTEREST INCOME ................................... 15,400,532 15,004,818
PROVISION FOR LOAN LOSS ............................... 675,000 510,000
----------- -----------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSS ..... 14,725,532 14,494,818

NONINTEREST INCOME:
Service charges on deposit accounts ................... 1,213,529 1,158,041
Other service charges, commissions and fees ........... 1,098,092 1,031,125
Trust revenue ......................................... 553,668 528,028
Gains on sales of loans ............................... 418,679 1,235,766
Loan servicing fees ................................... 128,507 155,965
Other ................................................. 139,320 484,230
Net gains on sales of securities ...................... -- 102,905
----------- -----------
Total noninterest income ........................ 3,551,795 4,696,060

NONINTEREST EXPENSE:
Salaries and employee benefits ........................ 6,144,938 6,962,929
Equipment ............................................. 1,313,212 1,267,592
Occupancy ............................................. 939,903 875,317
Communications ........................................ 370,710 425,788
Marketing ............................................. 353,325 359,398
Printing and office supplies .......................... 240,349 288,542
Professional fees ..................................... 219,217 327,604
Litigation settlement charges ......................... 4,946,055 --
Restructuring charges ................................. -- 404,573
Other noninterest expense ............................. 2,071,957 1,834,249
----------- -----------
Total noninterest expense ........................ 16,599,666 12,745,992
----------- -----------

INCOME BEFORE INCOME TAXES ............................ 1,677,661 6,444,886
PROVISION FOR INCOME TAXES ............................ 426,036 2,064,810
----------- -----------
NET INCOME ............................................ $ 1,251,625 $ 4,380,076
=========== ===========

Basic earnings per share ......................... $ 0.08 $ 0.28
Diluted earnings per share ....................... $ 0.08 $ 0.27
</TABLE>

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

<PAGE> 5

WEST COAST BANCORP
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>

Three months ended
March 31,
-------------------------------
2000 1999
-------------------------------
(Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ................................................................ $ 1,251,625 $ 4,380,076
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization of premises and equipment .............. 975,736 807,535
Amortization of intangibles .......................................... 97,077 98,023
Net gain on sales of available for sale investments .................. -- (102,905)
Provision for loan losses ............................................ 675,000 510,000
Increase in interest receivables ..................................... (139,671) (193,552)
(Increase) decrease in other assets .................................. (1,049,557) 144,398
Net cash (used in) provided by loans held for sale ................... (213,011) 9,730,034
Decrease in interest payable ......................................... (670,296) (60,158)
Decrease in other liabilities ........................................ (1,484,508) (227,858)
Tax benefit associated with stock options ............................ 17,524 302,330
Increase in trading assets ........................................... (253,893) --
------------ ------------
Net cash (used in) provided by operating activities ............. (793,974) 15,387,923

CASH FLOWS FROM INVESTING ACTIVITIES:

Proceeds from maturities of available for sale securities ................. 3,209,487 17,557,231
Proceeds from sales of available for sale securities ...................... -- 7,900,393
Purchase of available for sale securities ................................. (23,812) (17,919,868)
Loans made to customers greater than principal collected on loans ......... (25,257,894) (17,706,699)
Net capital expenditures .................................................. (638,721) (1,088,762)
------------ ------------
Net cash used in investing activities ........................... (22,710,940) (11,257,705)

CASH FLOWS FROM FINANCING ACTIVITIES:

Net decrease in demand, savings and interest
bearing transaction accounts ......................................... (16,919,807) (3,120,629)
Net decrease in certificates of deposit ................................... (1,960,465) (3,905,623)
Net decrease in long-term borrowings ...................................... (5,392,858) (392,857)
Net increase in short-term borrowings ..................................... 39,062,500 --
Redemption of common stock for stock repurchase plan ...................... (1,669,498) (3,059,444)
Sales of common stock, net ................................................ 415,652 423,450
Dividends paid and cash paid for fractional shares ........................ (999,203) (779,027)
------------ ------------
Net cash (used in) provided by financing activities ............. 12,536,321 (10,834,130)
------------ ------------

NET DECREASE IN CASH AND CASH EQUIVALENTS ................................. (10,968,593) (6,703,912)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR ............................ 66,972,716 81,491,894
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD ................................ $ 56,004,123 $ 74,787,982
============ ============
</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>
Additional
Common Stock Paid-In Retained
Shares Amount Capital Earnings
----------------------------------------------------------
<S> <C> <C> <C> <C>
BALANCE, December 31, 1998 ............................. 14,235,931 $ 17,794,914 $ 66,474,468 $ 29,392,264

Comprehensive income:
Net income ........................................... -- -- -- 17,332,036
Other comprehensive income, net of tax:
Net unrealized investment losses ................... -- -- -- --
Cumulative effect of change in accounting
principal ....................................... -- -- -- --
Reclassification adjustments for realized
gains included in net income ..................... -- -- -- --

Other comprehensive loss, net of tax ................. -- -- -- --

Comprehensive income ................................... -- -- -- --

Cash dividends, $.23 per common share .................. -- -- -- (3,553,257)
Sale of common stock pursuant to option plans .......... 277,875 347,344 1,914,874 --
Redemption of stock pursuant to options ................ (36,866) (46,083) (620,233) --
Common stock repurchased and retired ................... (533,206) (666,508) (8,919,681) --
10% stock dividend ..................................... 1,401,926 1,752,408 18,400,279 (20,152,687)
Cash paid for fractional shares ........................ (803) (1,004) -- (10,537)
Tax benefit associated with stock options .............. -- -- 756,081 --
----------- ------------ ------------ ------------
BALANCE, December 31, 1999 ............................. 15,344,857 19,181,071 78,005,788 23,007,819

Comprehensive income:
Net income ........................................... -- -- -- 1,251,625
Other comprehensive income, net of tax:
Net unrealized investment losses ................... -- -- -- --

Comprehensive income ................................... -- -- -- --

Cash dividends, $.065 per common share ................. -- -- -- (999,203)
Sale of common stock pursuant to option plans .......... 126,768 158,460 420,384 --
Redemption of stock pursuant to options ................ (12,775) (15,969) (147,223) --
Common stock repurchased and retired ................... (137,117) (171,396) (1,498,102) --
Tax benefit associated with stock options .............. -- -- 17,524 --
----------- ------------ ------------ ------------
BALANCE, March 31, 2000 ................................ 15,321,733 $ 19,152,166 $ 76,798,371 $ 23,260,241
=========== ============ ============ ============
<CAPTION>

Accumulated
Other
Comprehensive
Income (Loss) Total
-----------------------------
<S> <C> <C>
BALANCE, December 31, 1998 ............................. $ 3,563,522 $ 117,225,168

Comprehensive income:
Net income ........................................... -- 17,332,036
Other comprehensive income, net of tax:
Net unrealized investment losses ................... -- (7,046,537)
Cumulative effect of change in accounting
principal ....................................... -- 131,369
Reclassification adjustments for realized
gains included in net income ..................... -- (50,377)
-------------

Other comprehensive loss, net of tax ................. (6,965,545) (6,965,545)
-------------
Comprehensive income ................................... -- 10,366,491
=============
Cash dividends, $.23 per common share .................. -- (3,553,257)
Sale of common stock pursuant to option plans .......... -- 2,262,218
Redemption of stock pursuant to options ................ -- (666,316)
Common stock repurchased and retired ................... -- (9,586,189)
10% stock dividend ..................................... -- --
Cash paid for fractional shares ........................ -- (11,541)
Tax benefit associated with stock options .............. -- 756,081
----------- -------------
BALANCE, December 31, 1999 ............................. (3,402,023) 116,792,655

Comprehensive income:
Net income ........................................... -- 1,251,625
Other comprehensive income, net of tax:
Net unrealized investment losses ................... (507,956) (507,956)
-------------
Comprehensive income ................................... -- 743,669
=============
Cash dividends, $.065 per common share ................. -- (999,203)
Sale of common stock pursuant to option plans .......... -- 578,844
Redemption of stock pursuant to options ................ -- (163,192)
Common stock repurchased and retired ................... -- (1,669,498)
Tax benefit associated with stock options .............. -- 17,524
----------- -------------
BALANCE, March 31, 2000 ................................ $(3,909,979) $ 115,300,799
=========== =============
</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 Company) which operates its
wholly-owned subsidiaries, West Coast Bank (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 months ended March 31, 2000 are not necessarily indicative of results
to be anticipated for the year ending December 31, 2000, 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. ACCOUNTING CHANGES

In 1999, Bancorp adopted 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.
Under the provisions of SFAS No. 133, and in connection with the adoption of
SFAS No. 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 in the first quarter of 1999. The
cumulative effect of this change, net of tax, was an unrealized gain of $131,000
recorded in other comprehensive income (loss). The implementation of this
statement did not have a material effect on Bancorp's reported financial
position or net income in 1999.

4. STOCKHOLDERS' EQUITY

The Board of Directors declared a quarterly cash dividend of $.065
per share during the first quarter of 2000. A dividend of $.055 was declared in
the first quarter 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.

7
<PAGE> 8

5. 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 $11,877,000 and $8,868,000 for interest in the three
months ended March 31, 2000 and 1999, respectively. Income taxes paid were
$650,000 and $510,000 in the three months ended March 31, 2000 and 1999,
respectively.

6. CONTINGENCIES AND LITIGATION

Edward and Marianne Fischer v. West Coast Bank, Multnomah County
Circuit Court, Case No. 9905-04969. On May 11, 1999, a husband and wife who
loaned $4.6 million to a construction company filed suit in the Circuit Court of
the State of Oregon for the County of Multnomah against the Bank and Bancorp
alleging that they suffered damages as the result of the Bank and Bancorp's
failure to provide take-out funding to the construction company. The
construction company defaulted on the $4.6 million loan. The loan is secured by
an approximate 500 acre tract of land in Lincoln County, Oregon ("Lincoln County
Property"). Plaintiffs asserted claims against the Bank for breach of contract,
promissory estoppel, fraud, promissory fraud and conversion, and for
compensatory damages in excess of $4.6 million. Plaintiffs subsequently amended
their complaint to remove Bancorp as a defendant and to include a claim for
punitive damages against the Bank in excess of $5 million.

On March 16, 2000, the Bank entered into a Settlement and Loan
Purchase Agreement with Plaintiffs. Under the Agreement, the Bank paid to
Plaintiffs $5.4 million, in exchange for Plaintiffs' transfer of all their
rights, title and interest in the loan and the Lincoln County Property and a
release of all Plaintiffs' claims against the Bank and its affiliates.

Based on a recently received appraisal on the property and related
carrying, disposition, and other cost estimates, the Bank currently estimates
the net book value of the Lincoln County Property at approximately $400,000.
Accordingly, in connection with this settlement and its valuation of its
interest in the Lincoln County Property, the Company expensed in its first
quarter results, the net effect of approximately $5 million, for this
non-recurring item.

This section may contain "forward looking statements." Please see
item 1 of Part II other information of this report entitled "Legal Proceedings"
for risk factors and uncertainties that may affect these statements. Readers are
cautioned not to place undue reliance on these statements which reflect
management's analysis only as of the date of the statement.

7. COMPREHENSIVE INCOME

The following table displays the components of other comprehensive
income:

Three months ended
March 31,
---------------------
(Dollars in thousands) 2000 1999
- ---------------------- ------- -------
Unrealized losses on securities:
<S> <C> <C>
Unrealized holding losses arising during the period $ (922) $(2,692)
Tax benefit 414 1,016
------- -------
Unrealized holding losses arising during the period, after tax (508) (1,676)

Less: Unrealized gains from change in accounting principle -- 213
Tax expense -- (82)
------- -------
Unrealized gains from change in accounting principle, net of tax -- 131

Plus: Reclassification adjustment for realized gain on sales of securities -- (103)
Tax expense -- 40
------- -------
Net realized gains -- (63)
------- -------
Other comprehensive loss, net of tax $ (508) $(1,482)
======= =======
</TABLE>

8
<PAGE> 9

8. EARNINGS PER SHARE

The following table reconciles the numerator and denominator of the
basic and diluted earnings per share computations:

Weighted
Average Per-Share
Net Income Shares Amount
------------------------------------------

Three Months ended March 31, 2000
------------------------------------------
<S> <C> <C> <C>
Basic earnings per share ............................ $1,251,625 15,356,601 $ 0.08
Stock options ....................................... 157,819
Diluted earnings per share .......................... $1,251,625 15,514,420 $ 0.08

Three Months ended March 31, 1999
------------------------------------------
Basic earnings per share ............................ $4,380,076 15,594,042 $ 0.28
Stock options ....................................... 445,708
Diluted earnings per share .......................... $4,380,076 16,039,750 $ 0.27
</TABLE>

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

9. RECLASSIFICATION

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

9
<PAGE> 10

10. 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.

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 1999 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. 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" segments.

(Dollars in thousands) Three months ended March 31, 2000
- --------------------- Banking Other Intersegment Consolidated
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Interest income .............................. $ 26,585 $ 44 $ (22) $ 26,607
Interest expense ............................. 11,227 1 (22) 11,206
------------- ------------- ------------- -------------
Net interest income ..................... 15,358 43 -- 15,401
------------- ------------- ------------- -------------
Provision for loan loss ...................... 675 -- -- 675
Noninterest income ........................... 3,025 560 (33) 3,552
Noninterest expense .......................... 16,089 544 (33) 16,600
------------- ------------- ------------- -------------
Income before income taxes .............. 1,619 59 -- 1,678
Provision for income taxes ................... 403 23 -- 426
------------- ------------- ------------- -------------
Net income ................................... $ 1,216 $ 36 $ -- $ 1,252
============= ============= ============= =============

Depreciation and amortization ................ $ 1,072 $ 1 $ -- $ 1,073
Assets ....................................... $ 1,364,640 $ 5,467 $ (4,277) $ 1,365,830
Loans, net ................................... $ 987,475 $ -- $ (75) $ 987,400
Deposits ..................................... $ 1,066,120 $ -- $ (4,202) $ 1,061,918
Equity ....................................... $ 110,405 $ 4,896 $ N/A $ 115,301

(Dollars in thousands) Three months ended March 31, 1999
- --------------------- Banking Other Intersegment Consolidated
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Interest income .............................. $ 23,797 $ 40 $ (24) $ 23,813
Interest expense ............................. 8,832 -- (24) 8,808
------------- ------------- ------------- -------------
Net interest income ..................... 14,965 40 -- 15,005
------------- ------------- ------------- -------------
Provision for loan loss ...................... 510 -- -- 510
Noninterest income ........................... 4,206 555 (65) 4,696
Restructuring charges ........................ 405 -- -- 405
Noninterest expense .......................... 11,746 660 (65) 12,341
------------- ------------- ------------- -------------
Income before income taxes .............. 6,510 (65) -- 6,445
Provision for income taxes ................... 2,087 (22) -- 2,065
------------- ------------- ------------- -------------
Net income ................................... $ 4,423 $ (43) $ -- $ 4,380
============= ============= ============= =============

Depreciation and amortization ................ $ 895 $ 11 $ -- $ 906
Assets ....................................... $ 1,245,672 $ 8,024 $ (6,194) $ 1,247,502
Loans, net ................................... $ 866,796 $ -- $ -- $ 866,796
Deposits ..................................... $ 1,107,533 $ -- $ (6,102) $ 1,101,431
Equity ....................................... $ 107,363 $ 9,648 $ N/A $ 117,011
</TABLE>

10
<PAGE> 11

Item 2.

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

FORWARD LOOKING STATEMENT DISCLOSURE

In addition to historical information, this annual 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; vendor quality and efficiency; employee
retention factors; 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 we file from time to time with the Securities and Exchange
Commission.

RESULTS OF OPERATIONS

Three months ended March 31, 2000 and 1999

Net Income. Bancorp reported net income of $1,251,625 or $.08 per
diluted share, for the three months ended March 31, 2000, compared to $4,380,076
or $.27 per diluted share for the three months ended March 31, 1999. The 2000
first quarter results include a nonrecurring charge of $4,946,000 ($3,051,000
after income taxes) related to the litigation settlement charges. The 1999 first
quarter results include a $405,000 restructuring charge ($255,000 after income
taxes), resulting from expenses associated with Bancorp's consolidation of its
subsidiary banks. After adjusting for first quarter non-recurring events,
adjusted operating net income in the first quarter of 2000 was $4,302,787 or
$.28 per diluted share, compared to adjusted 1999 results of $4,635,158 or $.29
per diluted share. Net interest income increased in the first quarter of 2000
over the comparable period in 1999, due mainly to higher loan volumes partly
offset by increased volumes and average rates paid on interest bearing
liabilities, as well as changes in the mix of interest bearing liabilities.
Noninterest income decreased mainly due to lower revenues generated from gains
on sales of loans, loan servicing fees, gains on sales of securities and other
noninterest income. Total noninterest expenses increased due to the litigation
settlement charges, offset partially by decreased expenses in salaries and
employee benefits, communications, marketing, printing and office supplies, and
professional fees.

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 is liability sensitive,
meaning that interest bearing liabilities mature or reprice more quickly than
interest earning assets in a given period. Therefore, a significant increase in
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. Further, the effects of a flattening yield curve could more
adversely affect the margin than the benefits received from a decreasing rate
environment. Competition, the economy, and the status of the interest rate
environment also impact Bancorp's net interest income in any period.

11
<PAGE> 12

Net interest income on a tax equivalent basis for the three months
ended March 31, 2000, increased $389,000, or 2.50%, to $15,976,000 from
$15,587,000 for the same period in 1999. The increased net interest income was
due mainly to increases in volumes of interest earning assets partly offset by
increases in both volume and rates, as well as change in mix of interest bearing
liabilities. Average yields on earning assets remained constant at 8.67% in the
first quarter of 2000 compared to one year earlier. Average interest earning
assets increased $118.6 million, or 10.39%, to $1.26 billion in the first
quarter of 2000, from $1.14 billion for the same period in 1999, while average
interest bearing liabilities increased $117.1 million or 12.71%. Average rates
paid on interest bearing liabilities increased 47 basis points in the first
quarter of 2000 to 4.34% from 3.87% for the like period in 1999. The average net
interest spread decreased from 4.80% to 4.33% in the first quarter of 2000
compared to 1999, mainly due to increases in average volumes and rates paid on
interest bearing liabilities. Bancorp's net interest margin for the three months
ended March 31, 2000, was 5.10%, a decrease of 44 basis points from 5.54% for
the comparable period of 1999. 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, a shift in its asset mix, and an
increased dependence on borrowed funds over the period. Given these factors, and
the interest rate environment, continued strong competition in the markets it
serves, and other economic factors, Bancorp could see further decreases in 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:

Three Months Ended
(Dollars in thousands) March 31,
- --------------------- ------------------------------- Increase
2000 1999 (Decrease) Change
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Interest and fee income (1) .................. $ 27,182 $ 24,395 $ 2,787 11.42%
Interest expense ............................. 11,206 8,808 2,398 27.23%
------------- ------------- -------------
Net interest income .......................... $ 15,976 $ 15,587 $ 389 2.50%
============= ============= =============
Average interest earning assets .............. $ 1,260,349 $ 1,141,734 $ 118,615 10.39%
Average interest bearing liabilities ......... $ 1,039,089 $ 921,925 $ 117,164 12.71%
Average interest earning assets/
interest bearing liabilities ............ 121.29% 123.84% (2.55)
Average yields earned (2) .................... 8.67% 8.67% --
Average rates paid (2) ....................... 4.34% 3.87% 0.47
Net interest spread (2) ...................... 4.33% 4.80% (0.47)
Net interest margin (2) ...................... 5.10% 5.54% (0.44)

</TABLE>

(1) Interest earned on nontaxable securities has been computed on a 35% tax
equivalent basis in 2000 and 34% in 1999.
(2) These ratios for the three months ended March 31, 2000 and 1999 have
been annualized.

Provision for Loan Loss. Bancorp recorded provisions for loan losses
for the first quarter of 2000 and 1999 of $675,000 and $510,000, respectively.
Net charge-offs for the first quarter of 2000 were $91,000, compared to net
charge-offs of $241,000 for the same period in 1999. At March 31, 2000, the
percentage of non-performing assets was 0.36% of total assets, compared to 0.41%
one year earlier. Bancorp's allowance for loan losses, as a percentage of total
loans was 1.40% at March 31, 2000, compared to 1.45% at March 31, 1999.

Noninterest Income. Noninterest income for the first quarter of 2000
was $3,551,795, down $1,144,265, or 24.37%, from $4,696,060 in the like period
in 1999. Gains on sales of loans decreased $817,087, to $418,679 in 2000, from
$1,235,766 in 1999. The decrease in gains on sales of loans was due mainly to
decreased sales activity in the secondary residential real estate programs
predominantly caused by the higher interest rate environment in 2000. Service
charges on deposit accounts increased to $1,213,529, a 4.79% increase over the
same period in 1999, caused mainly by fluctuations in customer activity and
deposit volume, as well as fee collection efforts. Other service charges,
commissions, and fees increased $66,967, to $1,098,092, from $1,031,125 or
6.49%, in 2000 over 1999. The increase in other service charges, commissions,
and fees was due to increased sales activity and thus net revenues in brokerage
commissions and other areas including merchant bankcard revenues. Trust revenue
increased slightly during the first quarter of 2000, as compared to the same
period in 1999, due in part to fee adjustments and changes in the market value
of assets managed. Loan servicing fees decreased in 2000, compared to 1999.
Other noninterest income decreased in the first quarter of 2000, compared to
1999, due to sales of certain real estate assets in 1999. No securities were
sold in the first quarter of 2000, while net gains on the sales of securities
were $102,905 in the first quarter of 1999.

12
<PAGE> 13

Noninterest Expense. Noninterest expenses for the first quarter
ending March 31, 2000 were $16,599,666, an increase of $3,853,674, or 30.23%,
over the same period in 1999. A one-time expense related to litigation
settlement charges of $4,946,000 ($3,051,000 after income taxes) impacted the
first quarter 2000 noninterest expense. A restructuring charge of $404,573
($255,082 after income taxes), impacted the first quarter 1999 noninterest
expenses, due to the Company's consolidation of its subsidiary banks. Bancorp's
salaries and employee benefits decreased $817,991, or 11.75%, to $6,144,938 in
the first quarter of 2000, from $6,962,929 for the like period in 1999. Salary
and employee benefit expense has declined primarily as a result of decreases in
the level of staffing in the period and changes in salary structure. At March
31, 2000, Bancorp employed 599 staffing positions compared to 662 at March 31,
1999. Bancorp's staffing reductions have been primarily administrative in
nature, and Bancorp has continued to expand its products, services, and branch
network over the previous year. Equipment and occupancy expenses increased in
the first quarter of 2000 compared to the same period in 1999, due in part to
the opening of two new branches and improving certain branch locations.
Equipment expense increased $45,620 or 3.60% in the first quarter of 2000 over
1999, as Bancorp has continued to invest in technological improvements and
expansion. Occupancy expenses were higher in the first quarter of 2000 over the
same period in 1999, due mainly to growth and expansion including additions of
new branches, a new loan servicing center, and products and services over the
period. Communication expense decreased in the first quarter of 2000 compared to
1999. Marketing expenses decreased slightly in the first quarter of 2000 over
the same period in 1999. In 2000, Bancorp has adjusted its marketing strategy
associated with marketing its new bank name and company expansion. Professional
fees incurred for services from directors, outside consultants, accountants, and
attorneys, decreased to $219,217 in the first quarter of 2000, compared to
$327,604 the first quarter of 1999, due in part to a decrease in the value of
Bancorp's director deferred compensation plan. Other noninterest expenses were
higher in the quarter ended March 31, 2000 due to changes in check processing,
and other enhancements to services provided.

RESTRUCTURING CHARGES

The first quarter 1999 results have been impacted by one-time costs
resulting from the consolidation of our subsidiary banks into one entity, called
West Coast Bank. The consolidation was completed on December 31, 1998, and the
conversions were completed in 1999. Of the one-time expenses, $404,573 was
recognized in the first quarter of 1999. There were no restructuring charges
incurred in the first quarter of 2000.

During 1999, we completed and worked on the system and data
conversions, signage changes, name branding, staff reductions, corporate
reorganizations, the opening of a new loan servicing center and the
consolidation of loan processing, etc. We expended 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 costs. We
paid out approximately $315,000 in remaining severance payments in the first
quarter of 2000. All accruals for related restructuring charges have been
utilized. These items were recognized as expenses in the results of operations
through December 31, 1999. We initially anticipated these costs of the
consolidation at $5 million. We were successful in maintaining the restructuring
costs below our original forecast.

The following table summarizes the accrued restructuring charges.

(Dollars in Thousands) March 31, 2000
- ---------------------- --------------

<S> <C>
Balance, accrued restructuring charges, December 31, 1999 ......... $ 315
Provision for restructure charges first quarter 2000 .............. --
Utilization first quarter 2000:
Cash ......................................................... 315
Noncash ...................................................... --
--------
Total Utilization ................................................. 315
--------
Balance, accrued restructuring charges, March 31, 2000 ............ $ --
========
</TABLE>

Our original forecast, established in 1998, anticipated that the
consolidation would save approximately $6 million annually. The cost savings
were identified as coming from reductions in staff and related overhead, a
simplified corporate structure, a reduced regulatory burden, and pricing and
other synergies created by unified marketing efforts and name branding. The plan
called for two-thirds of the cost savings to be substantially achieved by the
third quarter of 1999, with the remaining savings to be achieved early in the
year 2000.

Bancorp's liquidity has not been materially affected by cash outlays
related to one-time restructuring charges.

13
<PAGE> 14

INCOME TAXES

During the first three months of 2000, due to a decrease in net
income before taxes primarily effected by litigation settlement charges, and
changes in the mix of taxable and nontaxable income items, the provision for
income taxes decreased from that of 1999. 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.

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 $1.062 billion at March 31, 2000, compared to $1.081 billion at December
31, 1999. At March 31, 2000, Bancorp utilized no brokered deposits, but may
accept such deposits in the future. 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. Deposit balances will be
influenced by changes in the banking industry, interest rates available on other
investments, general economic conditions, competition, and other factors.
Borrowings may be used on a short-term basis to compensate for reductions in
other sources of funds. Borrowings may also be used on a long-term basis to
support expanded lending activities and to match maturities or repricing
intervals of assets. The sources of such funds will include Federal Funds
purchased, repurchase agreements, and borrowings from the FHLB.

14
<PAGE> 15

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 March 31, 2000, Bancorp
and the Bank are considered "Well Capitalized" under the regulatory risk based
capital guidelines.

Shareholders' equity decreased to $115.3 million at March 31, 2000,
from $116.8 million at December 31, 1999, a decrease of $1.5 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 March 31, 2000, Bancorp's shareholders' equity, as a
percentage of total assets, was 8.44%, compared to 8.62% at December 31, 1999.
The decrease was primarily the result of Bancorp's equity base decreasing and an
increase in total assets. Equity decreased 1.3% over the period from December
31, 1999, to March 31, 2000, while assets increased by .8% over the same period.
As the following table indicates, Bancorp currently exceeds the regulatory
capital minimum requirements.

(Dollars in thousands) March 31, 2000
- ---------------------- ---------------------------
Amount Ratio
---------- ----------
<S> <C> <C>
Tier 1 capital ............................... $ 117,489 10.39%
Tier 1 capital minimum requirement ........... 45,245 4.00%
---------- ----------
Excess over minimum Tier 1 capital ......... $ 72,244 6.39%
========== ==========

Total capital ................................ $ 131,553 11.63%
Total capital minimum requirement ............ 90,490 8.00%
---------- ----------
Excess over minimum total capital .......... $ 41,063 3.63%
========== ==========

Risk-adjusted assets ......................... $1,131,126
==========
Leverage ratio ............................... 8.68%
Minimum leverage requirement ................. 3.00%
----------
Excess over minimum leverage ratio ......... 5.68%
==========

Risk-adjusted total assets ................... $1,353,327
==========
</TABLE>

15
<PAGE> 16

LENDING AND CREDIT MANAGEMENT

Interest earned on the loan portfolio is the primary source of income
for Bancorp. Net loans represented 72.29% of total assets as of March 31, 2000.
A certain degree of credit risk is inherent in our lending activities. This risk
is managed through our Credit Administration and Credit Review functions, which
are designed to help ensure compliance with our credit standards. Through the
Credit Review function, the Bank is able to monitor all credit-related policies
and practices on a post approval basis, ensuring uniform application. As part of
our ongoing lending process, internal risk ratings are assigned to each
Commercial and Commercial Real Estate credit before the funds are extended to
the customer. Credit risk ratings are based on apparent credit worthiness of the
borrower at the time the loan is made. Large balance accounts have the credit
risk rating reviewed on at least an annual basis.

Although Bancorp strives to serve the credit needs of its service
areas, the primary focus is on real estate related and commercial credits. We
make substantially all our loans to customers located within our 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. As
a result of the nature of our 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 following table presents the composition of the Banks' loan
portfolios, at the dates indicated.

March 31, 2000 December 31, 1999
----------------------------- ----------------------------
(Dollars in thousands)
- ----------------------
Amount Percent Amount Percent
----------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Commercial ............................................ $ 159,251 16.13% $ 157,912 16.40%
Real estate construction .............................. 126,706 12.83 124,102 12.89
Real estate mortgage .................................. 99,231 10.05 101,579 10.55
Real estate commercial ................................ 560,260 56.74 531,600 55.21
Installment and other consumer ........................ 56,016 5.67 61,104 6.35
----------- ---------- ----------- -----------
Total loans ........................................... 1,001,464 101.42 976,297 101.40

Allowance for loan losses ............................. (14,064) (1.42) (13,480) (1.40)
----------- ---------- ----------- -----------
Total loans, net ...................................... $ 987,400 100.00% $ 962,817 100.00%
=========== ========== =========== ===========
</TABLE>

The following table presents information with respect to
nonperforming assets.

(Dollars in thousands) March 31, 2000 December 31, 1999
- ---------------------- -------------- -----------------

<S> <C> <C>
Loans on nonaccrual status ............................................... $4,572 $4,316
Loans past due greater than 90 days but not on nonaccrual status ......... 9 8
Other real estate owned .................................................. 343 325
------ ------
Total nonperforming assets ............................................... $4,924 $4,649
====== ======

Percentage of nonperforming assets to total assets ....................... .36% .34%
</TABLE>

See "Loan Loss Allowance and Provision" for further discussion on the loan
portfolio.

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 or principal 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.

At March 31, 2000, we were not aware of any concentration of loans
exceeding 10 percent of the total loans to a multiple number of borrowers
engaged in a similar business. At March 31, 2000 and December 31, 1999, the Bank
had no bankers acceptances.

16
<PAGE> 17

As of March 31, 2000, the Bank had outstanding 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 Bank.

LOAN LOSS ALLOWANCE AND PROVISION

A loan loss allowance has been established 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.

Our 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, income recognition and
guidelines 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. We continue to look for ways to
enhance the allowance methodology, with increased detailed analysis, tracking
and review. The changes to the allowance methodology made during 1999 were to
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. While historic charge-off activity is studied and used as a
base of information, management believes that the recent strength of the economy
has played a favorable role in reducing charge-off activity. Management believes
that Commercial and Commercial Real Estate loans have in the industry produced
significant losses in brief periods at particular points in economic cycles.
Therefore management believes it is appropriate to use a reserve higher than
recent charge-off experience would suggest in these categories of loans. This
decision is supported by what management perceives to be industry practices for
minimum reserve levels, and is intended to prevent an understatement of reserves
based upon over-reliance on recent, favorable economic conditions.

Loss factors are described as follows:

- Problem graded loan loss factors are obtained from historical
loss experience, and other relevant factors including trends
in past dues, non-accruals, and risk rating changes.

- Pooled loan loss factors, not individually graded loans, are
based on expected net charge-offs and other factors including
trends in past dues, collateral values, and levels of Other
Real Estate Owned. 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 an amount
different than 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 growth rates and concentrations,

- Specific industry conditions within portfolio segments,

- Recent loss experience in particular segments of the
portfolio,

- Interest rate environment, Duration of the - current business
cycle,

- Bank regulatory examination results and findings of our
internal credit examiners.

17
<PAGE> 18

Executive credit management reviews these conditions quarterly in
discussion with our senior credit officers and Credit Review. 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 the most recent information available.

At March 31, 2000, the Bank's allowance for loan losses was $14.1
million, consisting of a $13.1 million formula allowance, a $711,000 specific
allowance and a $286,000 unallocated allowance. At December 31, 1999, our
allowance for loan losses was $13.5 million, consisting of a $12.8 million
formula allowance, a $525,000 specific allowance and a $210,000 unallocated
allowance The changes in the allocation of the allowance for loan losses in the
first quarter of 2000, were due primarily to additions to the loan portfolio,
turnover in our non-performing loans, and charge-off activity.

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

Three months ended Year ended
(Dollars in thousands) March 31, 2000 December 31, 1999
- ---------------------- ------------------ -----------------
<S> <C> <C>
Loans outstanding at end of period ............................... $ 1,001,464 $ 976,297

Average loans outstanding during the period ...................... $ 992,634 $ 904,931

Allowance for loan losses, beginning of period ................... $ 13,480 $ 12,453
Recoveries:
Commercial ..................................................... 10 129
Real Estate .................................................... 233 58
Installment and consumer ....................................... 2 77
---------------- ----------------
Total recoveries ............................................... 245 264
Loans charged off:
Commercial ..................................................... 64 450
Real Estate .................................................... 10 487
Installment and consumer ....................................... 262 490
---------------- ----------------
Total loans charged off ........................................ 336 1,427
---------------- ----------------
Net loans charged off ............................................ (91) (1,163)

Provision for loan losses ........................................ 675 2,190
---------------- ----------------
Allowance for loan losses, end of period ......................... $ 14,064 $ 13,480
================ ================

Ratio of net loans charged off
to average loans outstanding (1) ............................... .04% .13%

Ratio of allowance for loan losses
to loans outstanding at end of period .......................... 1.40% 1.38%
</TABLE>

(1) The ratio for the three months ended March 31, 2000 has been
annualized.

At March 31, 2000, Bancorp's allowance for loan loss was $14.1
million, or 1.40% of total loans, and 285.62% of total nonperforming assets,
compared with an allowance for loan losses at December 31, 1999 of $13.5
million, or 1.38% of total loans, and 289.95% of total nonperforming assets.

18
<PAGE> 19

During Bancorp's normal loan review procedures, a loan is considered
to be impaired when it is probable that we will be unable to collect all amounts
due according to the contractual terms of the loan agreement. A loan is usually
not considered to be impaired during a period of minimal delay (less than 90
days). Impaired loans are measured based on the present value of expected future
cash flows, discounted at the loan's effective interest rate or, as a practical
expedient, at the loan's observable market price or the fair market value of the
collateral if the loan is collateral dependent. Loans are currently measured at
lower of cost or fair value. Leases and certain large groups of smaller balance
homogeneous loans, are collectively measured for impairment, and are excluded in
the calculation of total impaired loans. 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 first quarter of 2000, net loans charged off were $91,000,
compared to $241,000 for the same period in 1999. The annualized percentage of
net loans charged off year to date to average loans outstanding was 0.04% and
0.11% at March 31, 2000, and at March 31, 1999, respectively. Charged off loans
reflect the realization of losses in the portfolio that were recognized
previously through the provision for loan losses.

At March 31, 2000, 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:

March 31, December 31,
(Dollars in thousands) 2000 1999
------------- -------------
<S> <C> <C>
Investments available for sale (At Fair Value)
U.S. Treasury securities ................................ $ 500 $ 501
U.S. Government agency securities ....................... 99,166 100,408
Corporate securities .................................... 33,030 34,340
Mortgage-backed securities .............................. 8,970 9,235
Obligations of state and political subdivisions ......... 94,756 95,946
Equity and other securities ............................. 15,493 15,179
------------- -------------
Total Investment Portfolio ....................... $ 251,915 $ 255,609
============= =============
</TABLE>

19
<PAGE> 20

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.

Asset/liability management simulation models are used to measure
interest rate risk. The models quantify interest rate risk through simulating
forecasted net interest income over a 12-month time horizon 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 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. The present reliance on
borrowed funds and their re-pricing characteristics has increased our liability
sensitivity. Changes in the re-pricing characteristics of newly generated loans
during the past year have added to the liability sensitivity. 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, 1999. Readers are referred to management's
"Forward Looking Statement Disclosure" in connection with this section.

20
<PAGE> 21

PART II. OTHER INFORMATION

Item 1. Legal Proceedings.

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 in connection with the Lincoln County Property, (2)
environmental factors and issues that may affect the Lincoln County Property,
(3) any defenses raised or other matters occurring that prevent or delay the
Bank's ability to foreclose its interest in the Lincoln County Property, if it
chooses to foreclose this interest, (4) factors affecting the real estate market
and property values in Lincoln County, Oregon, (5) actual market or sale values
of property can differ from appraised values, (6) fluctuating interest rates,
and (7) other risks inherent in property development. 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.

21
<PAGE> 22

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

(a) Exhibits

10.1 Change of Control Employment Agreement of Robert D.
Sznewajs dated January 1, 2000.1

10.2 Employment Agreement of Robert D. Sznewajs dated January
1, 2000. 1

10.3 Indemnification agreement between Bancorp and Robert D.
Sznewajs dated January 1, 2000.

27 Financial Data Schedule for Form 10-Q.

(b) During the three months ended March 31, 2000, West Coast Bancorp
filed the following current report on Form 8-K:

Form 8-K filed January 7, 2000 related to the appointment of Robert
D. Sznewajs as Chief Executive Officer.

1 Incorporated by reference to exhibits 10.1 and 10.2 to
Bancorp's form 8-K filed on January 7, 2000.

22
<PAGE> 23

SIGNATURES

As required by the Securities Exchange Act of 1934, this report is signed on
registrant's behalf by the undersigned authorized officers.

WEST COAST BANCORP
(Registrant)

Dated: May 12, 2000 /s/ Robert D. Sznewajs
-----------------------------------------
Robert D. Sznewajs
Chief Executive Officer and President

Dated: May 12, 2000 /s/ Anders Giltvedt
-----------------------------------------
Anders Giltvedt
Executive Vice President and Chief
Financial Officer

<PAGE> 1
EXHIBIT 10.3

INDEMNIFICATION AGREEMENT

This Indemnification Agreement ("Agreement"), dated as of January 1,
2000, is between WEST COAST BANCORP ("Corporation") and Robert D. Sznewajs
("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

<PAGE> 2

director, officer, employee or agent of another (i) corporation,
including without 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 &
O 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 Indemnitee'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

<PAGE> 3

without limitation, a corporate affiliate of Corporation, (ii)
partnership, (iii) joint venture, (iv) trust, (v) employee benefit plan
or (vi) other enterprise.

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

<PAGE> 4

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.

(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.
<PAGE> 5

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.

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 January 1, 2000:

WEST COAST BANCORP

By: Gary D. Putnam
Chairman

INDEMNITEE

-----------------------------------
Robert D. Sznewajs

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