- Quarterly Report (10-Q)

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

[X] Quarterly Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934

For the quarterly period ended: June 30, 2011

Commission file number: 0-10997

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

Oregon		93-0810577
(State or other jurisdiction		I.R.S. Employer Identification Number
of incorporation or organization)

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 by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes [ ] No [ ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a small reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act (check one):

[ ] Large Accelerated Filer [ X ] Accelerated Filer [ ] Non-accelerated Filer [ ] Smaller Reporting Company

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes [ ] No [ X ]

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: 19,316,069 shares outstanding as of June 30, 2011.

Table of Contents

		PAGE
PART I: FINANCIAL INFORMATION		3

Item 1.	Financial Statements (Unaudited)	3
	CONSOLIDATED BALANCE SHEETS	3
	CONSOLIDATED STATEMENTS OF INCOME (LOSS)	4
	CONSOLIDATED STATEMENTS OF CASH FLOWS	5
	CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY	7
	NOTES TO CONSOLIDATED FINANCIAL STATEMENTS	8

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	33

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	50

Item 4.	Controls and Procedures	50

PART II: OTHER INFORMATION		51

Item 1.	Legal Proceedings	51

Item 1A.	Risk Factors	51

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	52

Item 3.	Defaults Upon Senior Securities	52

Item 4.	[Reserved]	52

Item 5.	Other Information	52

Item 6.	Exhibits	52

SIGNATURES		53

- 2 -

PART I: FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)

WEST COAST BANCORP
CONSOLIDATED BALANCE SHEETS

	June 30,			December 31,
(Dollars and shares in thousands, unaudited)	2011			2010
ASSETS

Cash and cash equivalents:
Cash and due from banks	$	54,296		$	42,672
Federal funds sold		2,367			3,367
Interest-bearing deposits in other banks		33,583			131,952
Total cash and cash equivalents		90,246			177,991
Trading securities		781			808
Investment securities available for sale, at fair value
(amortized cost: $755,035 and $645,246, respectively)		760,704			646,112
Federal Home Loan Bank stock, held at cost		12,148			12,148
Loans held for sale		750			3,102
Loans		1,521,147			1,536,270
Allowance for loan losses		(38,422	)		(40,217	)
Loans, net		1,482,725			1,496,053
Premises and equipment, net		25,981			26,774
Other real estate owned, net		35,374			39,459
Core deposit intangible, net		239			358
Bank owned life insurance		25,736			25,313
Other assets		27,872			32,941
Total assets	$	2,462,556		$	2,461,059

LIABILITIES AND STOCKHOLDERS' EQUITY

Deposits:
Demand	$	599,020		$	555,766
Savings and interest bearing demand		465,779			445,878
Money market		658,185			663,467
Time deposits		208,013			275,411
Total deposits		1,930,997			1,940,522

Short-term borrowings		39,200			-
Long-term borrowings		129,399			168,599
Junior subordinated debentures		51,000			51,000
Other liabilities		26,391			28,378
Total liabilities		2,176,987			2,188,499

Commitments and contingent liabilities (Note 7)

Stockholders' equity:
Preferred stock: no par value, 10,000 shares authorized;
Series B issued and outstanding: 121 at June 30, 2011 and December 31, 2010		21,124			21,124
Common stock: no par value, 50,000 shares authorized;
issued and outstanding: 19,316 at June 30, 2011 and 19,286 at December 31, 2010		230,090			229,722
Retained earnings		30,914			21,175
Accumulated other comprehensive income		3,441			539
Total stockholders' equity		285,569			272,560
Total liabilities and stockholders' equity	$	2,462,556		$	2,461,059

See notes to consolidated financial statements.

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WEST COAST BANCORP
CONSOLIDATED STATEMENTS OF INCOME (LOSS)

	Three months ended						Six months ended
	June 30,						June 30,
(Dollars and shares in thousands, except per share amounts)	2011			2010			2011			2010
INTEREST INCOME:
Interest and fees on loans	$	20,231		$	22,416		$	40,530		$	45,259
Interest on taxable investment securities		4,276			3,688			8,345			7,299
Interest on nontaxable investment securities		535			549			1,014			1,145
Interest on deposits in other banks		61			162			131			307
Interest on federal funds sold		1			1			2			4
Total interest income		25,104			26,816			50,022			54,014

INTEREST EXPENSE:
Savings, interest bearing demand deposits and money market		702			1,172			1,454			2,792
Time deposits		774			2,103			1,831			4,776
Short-term borrowings		46			349			46			494
Long-term borrowings		1,289			4,002			2,610			5,859
Junior subordinated debentures		332			280			608			550
Total interest expense		3,143			7,906			6,549			14,471
Net interest income		21,961			18,910			43,473			39,543
Provision for credit losses		3,426			7,758			5,502			15,392
Net interest income after provision for credit losses		18,535			11,152			37,971			24,151

NONINTEREST INCOME:
Service charges on deposit accounts		3,575			4,213			7,219			7,809
Payment systems related revenue		3,169			2,875			6,099			5,411
Trust and investment services revenue		1,208			1,167			2,356			2,146
Gains on sales of loans		300			306			813			447
Other real estate owned valuation adjustments
and (loss) gain on sales		(910	)		(209	)		(1,244	)		(2,267	)
Impairment losses on securities:
Impairment losses on securities		(1,636	)		-			(1,636	)		-
Noncredit- related losses on securities recognized in other
comprehensive income		1,457			-			1,457			-
Net impairment losses on securities		(179	)		-			(179	)		-
Gains on sales of securities		130			488			397			945
Other noninterest income		777			785			1,525			1,542
Total noninterest income		8,070			9,625			16,986			16,033

NONINTEREST EXPENSE:
Salaries and employee benefits		12,119			11,322			23,996			22,497
Equipment		1,564			1,606			3,092			3,182
Occupancy		2,232			2,249			4,397			4,433
Payment systems related expense		1,350			1,212			2,597			2,216
Professional fees		976			1,161			1,958			2,022
Postage, printing and office supplies		862			737			1,672			1,541
Marketing		831			738			1,482			1,425
Communications		389			381			767			763
Other noninterest expense		2,635			3,503			5,550			5,925
Total noninterest expense		22,958			22,909			45,511			44,004

INCOME (LOSS) BEFORE INCOME TAXES		3,647			(2,132	)		9,446			(3,820	)
PROVISION (BENEFIT) FOR INCOME TAXES		(987	)		1,717			(293	)		917
NET INCOME (LOSS)	$	4,634		$	(3,849	)	$	9,739		$	(4,737	)

Basic earnings (loss) per share		$0.23			($0.20	)		$0.48			($0.30	)
Diluted earnings (loss) per share		$0.22			($0.20	)		$0.45			($0.30	)

Weighted average common shares		19,006			18,425			18,983			15,939
Weighted average diluted shares		20,025			18,425			19,982			15,939

See notes to consolidated financial statements.

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WEST COAST BANCORP

CONSOLIDATED STATEMENTS OF CASH FLOWS

	Six months ended
(Dollars in thousands, unaudited)	June 30, 2011			June 30, 2010
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)	$	9,739		$	(4,737	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation, amortization and accretion		4,032			4,159
Amortization of tax credits		382			542
Deferred income tax benefit		(304	)		(2,598	)
Amortization of intangibles		119			160
Provision for credit losses		5,502			15,392
Decrease (increase) in accrued interest receivable		157			(243	)
Decrease (increase) in other assets		(326	)		33,516
Loss on impairment of securities		179			-
Gains on sales of securities		(397	)		(945	)
Net loss on disposal of premises and equipment		9			23
Net other real estate owned valuation adjustments and (loss) gain on sales		1,244			2,267
Gains on sales of loans		(813	)		(447	)
Origination of loans held for sale		(17,818	)		(11,838	)
Proceeds from sales of loans held for sale		20,983			10,826
Increase in interest payable		258			16
Increase (decrease) in other liabilities		868			(5,037	)
Increase in cash surrender value of bank owned life insurance		(423	)		(412	)
Stock based compensation expense		1,029			803
Excess tax benefits associated with stock plans		(53	)		-
Decrease in trading securities		27			54
Net cash provided by operating activities		24,394			41,501

CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities of available for sale securities		137,577			86,617
Proceeds from sales of available for sale securities		38,611			36,728
Purchase of available for sale securities		(288,064	)		(199,285	)
Loans made to customers (greater) less than principal collected on loans		(2,542	)		102,487
Proceeds from the sale of other real estate owned		13,591			25,961
Capital expenditures on other real estate owned		(358	)		(2,420	)
Capital expenditures on premises and equipment		(996	)		(1,169	)
Net cash provided (used) by investing activities		(102,181	)		48,919

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WEST COAST BANCORP
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)

	Six months ended
(Dollars in thousands, unaudited)	June 30, 2011			June 30, 2010
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in demand, savings and interest
bearing transaction accounts		57,873			6,420
Net decrease in time deposits		(67,398	)		(149,204	)
Repayment of short-term borrowings		-			(17,600	)
Repayment of long-term borrowings		-			(81,500	)
Increase from secured borrowings		-			2,834
Repayment of secured borrowings		-			(2,834	)
Proceeds from issuance of common stock-Stock Options		38			-
Proceeds from issuance of common stock-Rights Offering		-			10,000
Costs of issuance of common stock-Rights Offering		-			(591	)
Proceeds from issuance of common stock-Discretionary Program		-			7,856
Costs of issuance of common stock-Discretionary Program		-			(219	)
Fractional share payment		(18	)		-
Redemption of stock pursuant to stock plans		(495	)		(31	)
Excess tax benefits associated with stock plans		53			-
Activity in deferred compensation plan		(11	)		249
Net cash used by financing activities		(9,958	)		(224,620	)

NET DECREASE IN CASH AND CASH EQUIVALENTS		(87,745	)		(134,200	)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD		177,991			303,097
CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	90,246		$	168,897

See notes to consolidated financial statements.

- 6 -

WEST COAST BANCORP
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

											Accumulated
											Other
	Preferred			Common Stock					Retained		Comprehensive
(Shares and dollars in thousands, unaudited)	Stock			Shares		Amount			Earnings		Income (Loss)			Total
BALANCE, January 1, 2010	$	139,248		3,128		$	93,246		$	17,950	$	(1,386	)	$	249,058
Comprehensive income:
Net income		-		-			-			3,225		-		$	3,225
Other comprehensive income, net of tax:
Net unrealized investment gain		-		-			-			-		1,925			1,925
Other comprehensive income, net of tax		-		-			-			-		-			1,925
Comprehensive income		-		-			-			-		-		$	5,150

Redemption of stock pursuant to stock plans		-		(12	)		(35	)		-		-			(35	)
Conversion of Series A preferred stock		(118,124	)	14,288			118,124			-		-			-
Issuance of common stock-Rights Offering,
net of costs				1,000			9,350			-		-			9,350
Issuance of common stock-Discretionary Program,
net of costs				561			7,039			-		-			7,039
Activity in deferred compensation plan		-		(3	)		262			-		-			262
Issuance of common stock-stock options		-		1			4			-		-			4
Issuance of common stock-restricted stock		-		323			-			-		-			-
Stock based compensation expense		-		-			2,089			-		-			2,089
Tax adjustment associated with stock plans		-		-			(357	)		-		-			(357	)
BALANCE, December 31, 2010		21,124		19,286			229,722			21,175		539			272,560

Comprehensive income:
Net income		-		-			-			9,739		-		$	9,739
Other comprehensive income, net of tax:
Net unrealized investment gain		-		-			-			-		2,902			2,902
Other comprehensive income, net of tax		-		-			-			-		-			2,902
Comprehensive income		-		-			-			-		-		$	12,641

Redemption of stock pursuant to stock plans		-		(34	)		(495	)		-		-			(495	)
Issuance of common stock-stock options		-		3			38			-		-			38
Issuance of common stock-restricted stock		-		63			-			-		-			-
Activity in deferred compensation plan		-		(1	)		(11	)		-		-			(11	)
Stock based compensation expense		-		-			1,029			-		-			1,029
Tax adjustment associated with stock plans		-		-			(175	)		-		-			(175	)
Fractional share payment		-		(1	)		(18	)		-		-			(18	)
BALANCE, June 30, 2011	$	21,124		19,316		$	230,090		$	30,914	$	3,441		$	285,569

See notes to consolidated financial statements.

- 7 -

WEST COAST BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

1. BASIS OF PRESENTATION

The interim unaudited consolidated financial statements have been prepared by management in accordance with accounting principles generally accepted in the United States of America for interim financial information. In addition, this report has been prepared in accordance with the instructions for Form 10-Q, and therefore, these financial statements do not include all of the information and notes required by generally accepted accounting principles for complete financial statements. The accompanying interim consolidated financial statements include the accounts of West Coast Bancorp (“Bancorp” or the “Company”), and its wholly-owned subsidiaries, West Coast Bank (the “Bank”), West Coast Trust Company, Inc and Totten, Inc., after elimination of intercompany transactions and balances. The Company’s interim consolidated financial statements and related notes should be read in conjunction with the audited financial statements and related notes, including the Company’s significant accounting policies, contained in the Annual Report on Form 10-K for the year ended December 31, 2010 (“2010 10-K”).

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. The financial information contained in this report reflects all adjustments of a normal, recurring nature that, in the opinion of management, are necessary for a fair presentation of the results of the interim periods. The results of operations and cash flows for the six months ended June 30, 2011, are not necessarily indicative of the results that may be expected for the year ending December 31, 2011, or other future periods.

Reverse Stock Split. On May 19, 2011, Bancorp implemented a 1-for-5 reverse split of its common stock (the "Reverse Stock Split"), pursuant to an amendment to its Restated Articles of Incorporation approved by shareholders at the Company’s annual meeting of shareholders held on April 26, 2011. All share and per share related amounts in this report have been restated to reflect the Reverse Stock Split.

As a result of the Reverse Stock Split, every 5 shares of the Company's common stock issued and outstanding at the end of the effective date of May 19, 2011, were combined and reclassified into 1 share of common stock. Bancorp did not issue fractional shares of common stock and paid cash in lieu of fractional shares resulting from the Reverse Stock Split. Cash payments for fractional shares were determined on the basis of the stock's average closing price on the NASDAQ Global Select Market for the five trading days immediately preceding May 19, 2011, as adjusted for the Reverse Stock Split.

As a result of the Reverse Stock Split, the number of outstanding shares of common stock declined from 96.4 million shares to 19.3 million shares. The number of authorized shares of common stock was reduced from 250 million to 50 million. Proportional adjustments have also been made to the conversion or exercise rights under the Company's outstanding stock incentive plans, preferred stock, restricted stock, stock options and warrants.

Supplemental cash flow information. The following table presents supplemental cash flow information for the six months ended June 30, 2011, and 2010.

	Six months ended
	June 30,
(Dollars in thousands)	2011			2010
Supplemental cash flow information:
Cash paid in the period for:
Interest	$	6,291		$	14,455
Income taxes		6,500		$	(27,792	)

Noncash investing and financing activities:
Change in unrealized gain on available
for sale securities, net of tax	$	2,902		$	5,624
Settlement of secured borrowings		(3,085	)		-
Transfer of long term debt to short term debt		39,200			-
OREO and premises and equipment expenditures
accrued in other liabilities	$	30		$	55
Transfer of loans to OREO		10,367			9,770
Accrued costs of issuing common stock, descretionary program		-			600

- 8 -

1. BASIS OF PRESENTATION (continued)

New Accounting Pronouncements. In December 2010, the Financial Accounting Standards Board (“FASB”) issued guidance within the Accounting Standards Update (“ASU”) 2010-20 “Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses.” ASU 2010-20 requires entities to provide disclosures designed to facilitate financial statement users’ evaluation of (i) the nature of credit risk inherent in the entity’s portfolio of financing receivables, (ii) how that risk is analyzed and assessed in arriving at the allowance for credit losses and (iii) the changes and reasons for those changes in the allowance for credit losses. Disclosures must be disaggregated by portfolio segment, the level at which an entity develops and documents a systematic method for determining its allowance for credit losses, and class of financing receivable, which is generally a disaggregation of portfolio segment. The required disclosures include, among other things, a roll forward of the allowance for credit losses as well as information about modified, impaired, nonaccrual and past due loans and credit quality indicators. ASU 2010-20 became effective for the Company’s financial statements as of December 31, 2010, as it relates to disclosures required as of the end of a reporting period. Disclosures that relate to activity during a reporting period are required for the Company’s financial statements that include periods beginning on or after January 1, 2011. The adoption of this guidance did not have any impact on the Company’s consolidated statement of income (loss), its consolidated balance sheet, or its consolidated statement of cash flows.

In April 2011, the FASB issued guidance within the ASU 2011-02 “A Creditor’s Determination of Whether a Restructuring is a Troubled Debt Restructuring.” ASU 2011-02 clarifies when a loan modification or restructuring is considered a troubled debt restructuring. This guidance is effective for the first interim or annual period beginning on or after June 15, 2011, and will be applied retrospectively to the beginning of the annual period of adoption. The adoption of this guidance did not have a material impact on the Company’s consolidated statement of income (loss), its consolidated balance sheet, or its consolidated statement of cash flows.

- 9 -

2. STOCK PLANS

At June 30, 2011, Bancorp maintained the 2002 Stock Incentive Plan (“2002 Plan”) which is shareholder approved and authorizes the grant of stock options, restricted stock awards and certain other stock based awards. The 2002 Plan permits the grant of stock options and restricted stock awards for up to 0.82 million shares. As of June 30, 2011, 46,136 shares remained available for issuance, of which 35,663 shares may be allocated to restricted stock awards. Proportional adjustments were made to the per share and related amounts of shares as well as the conversion and exercise rights of stock options and other awards made under the 2002 Plan, in connection with the Reverse Stock Split.

It is Bancorp’s policy to issue new shares for stock option exercises and restricted stock awards. Bancorp expenses stock options and restricted stock on a straight line basis over the applicable vesting term.

Restricted stock granted under the 2002 Plan generally vests over a two to four year vesting period; however, certain grants have been made that vested immediately or over a one year period, including grants to directors.

All outstanding stock options have an exercise price that was equal to the closing market value of Bancorp’s stock on the date the options were granted. Options granted under the 2002 Plan generally vest over a two to four year vesting period; however, certain grants have been made that vested immediately, including grants to directors. Stock options have a 10 year maximum term.

The following table presents information on stock options outstanding for the period shown:

	Six months ended
	June 30, 2011
			Weighted Average
	Common Shares		Exercise Price per share
Balance, beginning of period	306,529		$	66.89
Granted	-			-
Exercised	(3,347	)		11.55
Forfeited/expired	(38,742	)		54.54
Balance, end of period	264,440		$	69.39

The following table presents information on stock options outstanding for the periods shown, less estimated forfeitures:

	Six months ended		Six months ended
(Dollars in thousands, except share and per share data)	June 30, 2011		June 30, 2010
Stock options vested and expected to vest:
Number		257,827		301,973
Weighted average exercise price per share	$	69.39	$	66.70
Aggregate intrinsic value	$	400	$	95
Weighted average contractual term of options		4.6 years		5.2 years
Stock options vested and currently exercisable:
Number		257,206		260,490
Weighted average exercise price per share	$	69.59	$	73.80
Aggregate intrinsic value	$	397	$	58
Weighted average contractual term of options		4.6 years		4.6 years
Unearned compensation related to stock options		48		201

- 10 -

2. STOCK PLANS (continued)

There were no stock option grants for the six months ended June 30, 2011, and 190 stock options granted for the same period in 2010.

The following table presents information on restricted stock outstanding for the period shown:

	Six months ended
	June 30, 2011
			Weighted Average Market
	Restricted Shares		Price at Grant
Balance, beginning of period	327,251		$	18.99
Granted	63,135			16.79
Vested	(93,131	)		22.53
Forfeited	(6,858	)		16.83
Balance, end of period	290,397		$	17.42

Weighted average remaining recognition period	2.8 years

The balance of unearned compensation related to restricted stock shares as of June 30, 2011, and December 31, 2010, was $4.6 million and $4.5 million, respectively.

The following table presents stock-based compensation expense for the periods shown:

	Three months ended				Six months ended
	June 30,				June 30,
(Dollars in thousands)	2011		2010		2011		2010
Restricted stock expense	$	468	$	443	$	975	$	677
Stock option expense		17		44		54		126
Total stock-based compensation expense	$	485	$	487	$	1,029	$	803

The income tax benefit recognized in the income statement for restricted stock compensation expense in the three and six months ended June 30, 2011, was $178,000 and $371,000, respectively, compared to no income tax benefit recognized in the income statement for restricted stock compensation expense for the three and six months ended June 30, 2010.

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3. INVESTMENT SECURITIES

The following tables present the available for sale investment portfolio as of June 30, 2011, and December 31, 2010:


(Dollars in thousands)	Amortized		Unrealized		Unrealized
June 30, 2011	Cost		Gross Gains		Gross Losses			Fair Value
U.S. Treasury securities	$	4,223	$	14	$	-		$	4,237
U.S. Government agency securities		221,331		1,083		(456	)		221,958
Corporate securities		14,344		-		(4,838	)		9,506
Mortgage-backed securities		447,699		7,278		(948	)		454,029
Obligations of state and political subdivisions		56,067		3,062		(7	)		59,122
Equity investments and other securities		11,371		504		(23	)		11,852
Total	$	755,035	$	11,941	$	(6,272	)	$	760,704


(Dollars in thousands)	Amortized		Unrealized		Unrealized
December 31, 2010	Cost		Gross Gains		Gross Losses			Fair Value
U.S. Treasury securities	$	14,347	$	45	$	-		$	14,392
U.S. Government agency securities		193,901		836		(507	)		194,230
Corporate securities		14,499		-		(5,107	)		9,392
Mortgage-backed securities		359,965		5,853		(2,200	)		363,618
Obligations of state and political subdivisions		51,111		1,789		(255	)		52,645
Equity investments and other securities		11,423		437		(25	)		11,835
Total	$	645,246	$	8,960	$	(8,094	)	$	646,112

At June 30, 2011, the fair value of the securities in the investment portfolio was $760.7 million while the amortized cost was $755.0 million, reflecting a net unrealized gain in the portfolio of $5.7 million. At December 31, 2010, the fair value and amortized cost of securities in the investment portfolio were $646.1 million and $645.2 million, respectively, reflecting a net unrealized gain of $.9 million.

The Company analyzes investment securities for other-than-temporary impairment (“OTTI”) on a quarterly basis. The Company assesses whether OTTI is present when the fair value of an investment security is less than its amortized cost basis at the balance sheet date. Under these circumstances, OTTI is considered to have occurred if (1) the Company intends to sell the security; (2) it is “more likely than not” the Company will be required to sell the security before recovery of its amortized cost basis; or (3) the present value of expected cash flows is not sufficient to recover the entire amortized cost basis.

Credit related OTTI is recognized in earnings, while noncredit related OTTI on securities not expected to be sold, is recognized in other comprehensive income (“OCI”). Noncredit related OTTI is based on other factors, including illiquidity and changes in interest rates. Presentation of OTTI is made in the statements of income on a gross basis with an offset for the amount of OTTI recognized in OCI.

In the second quarter of 2011, the Company recorded an OTTI charge of $.2 million related to a pooled trust preferred security in its investment securities portfolio. At June 30, 2011, this security had $1.6 million of impairment loss of which $1.4 million was due to noncredit related factors and therefore recognized in OCI. In reaching the determination to record this impairment management reviewed the facts and circumstances available surrounding the security, including the projected cash flows from the security, the duration and amount of the unrealized loss, the financial condition of the underlying issuers in the pool, and the prospects for a change in market value within a reasonable period of time. For pooled trust preferred investments, the Company analyzes cash flow projections that utilize inputs for deferral, default and recovery rates, and the timing of such deferrals, defaults and recoveries. Utilizing the projection of cash flows, the credit loss of $.2 million on this security was measured as the difference between the amortized cost basis and the present value of the cash flows expected to be collected. Projected cash flows were discounted by the current effective interest rate. The primary cause of the credit related loss was the reduction of projected future cash flows as a result of issuers deferring interest payments. The remaining $1.4 million impairment, an amount equal to the difference between the present value of the cash flows expected to be collected and the fair value, was recognized as a charge to OCI.

- 12 -

3. INVESTMENT SECURITIES (continued)

The following table presents a tabular roll forward of the amount of credit related OTTI recognized in earnings for the periods presented:


	Three months ended					Six months ended
(Dollars in thousands)	June 30, 2011			June 30, 2010		June 30, 2011			June 30, 2010
Balance of credit related OTTI at beginning of period	$	-		$	-	$	-		$	-
Credit related OTTI recognized in the period		(179	)		-		(179	)		-
Balance of credit related OTTI at end of period	$	(179	)	$	-	$	(179	)	$	-

After taking into account the OTTI described above, the corporate securities segment of the investment securities portfolio had a $4.8 million net unrealized loss at June 30, 2011, with an amortized cost of $13.8 million and a fair value of $9.0 million as of that date. The unrealized loss was associated with the decline in fair value of the four investments in pooled trust preferred securities issued primarily by banks and insurance companies. An increase in liquidity and credit spreads, including due to certain issuer defaults, and an extension of expected cash flows, including due to issuer elections to defer interest payments, since the purchase of these securities contributed to the unrealized loss associated with these securities at June 30, 2011. Compared to December 31, 2010, the fair value of these securities did not change materially. These securities have several features that reduce credit risk, including seniority over certain tranches in the same pool and the benefit of certain collateral coverage tests.

The following tables provide the fair value and gross unrealized losses on securities available for sale, aggregated by category and length of time the individual securities have been in a continuous unrealized loss position:

(Dollars in thousands)	Less than 12 months					12 months or more					Total
			Unrealized					Unrealized					Unrealized
As of June 30, 2011	Fair Value		Losses			Fair Value		Losses			Fair Value		Losses
U.S. Government agency securities	$	65,570	$	(456	)	$	-	$	-			65,570		(456	)
Corporate securities		-		-			9,006		(4,838	)		9,006		(4,838	)
Mortgage-backed securities		84,183		(948	)		-		-			84,183		(948	)
Obligations of state and political subdivisions		476		(7	)		-		-			476		(7	)
Equity and other securities		1,777		(22	)		1		(1	)		1,778		(23	)
Total	$	152,006	$	(1,433	)	$	9,007	$	(4,839	)	$	161,013	$	(6,272	)

(Dollars in thousands)	Less than 12 months					12 months or more					Total
			Unrealized					Unrealized					Unrealized
As of December 31, 2010	Fair Value		Losses			Fair Value		Losses			Fair Value		Losses
U.S. Government agency securities	$	40,528	$	(507	)	$	-	$	-		$	40,528	$	(507	)
Corporate securities		-		-			8,892		(5,107	)		8,892		(5,107	)
Mortgage-backed securities		110,414		(2,088	)		978		(112	)		111,392		(2,200	)
Obligations of state and political subdivisions		4,084		(255	)		-		-			4,084		(255	)
Equity and other securities		1,776		(24	)		1		(1	)		1,777		(25	)
Total	$	156,802	$	(2,874	)	$	9,871	$	(5,220	)	$	166,673	$	(8,094	)

(Dollars in thousands)	Less than 12 months					12 months or more					Total
			Unrealized					Unrealized					Unrealized
As of June 30, 2010	Fair Value		Losses			Fair Value		Losses			Fair Value		Losses
Corporate securities	$	-	$	-		$	9,174	$	(4,791	)	$	9,174	$	(4,791	)
Mortgage-backed securities		3,697		(28	)		5,228		(534	)		8,925		(562	)
Obligations of state and political subdivisions		1,322		(204	)		1,944		(69	)		3,266		(273	)
Total	$	5,019	$	(232	)	$	16,346	$	(5,394	)	$	21,365	$	(5,626	)

At June 30, 2011, the Company had five investment securities with an amortized cost of $13.8 million and an unrealized loss of $4.8 million that have been in a continuous unrealized loss position for more than 12 months. Pooled trust preferred securities accounted for the majority of unrealized loss in these securities.

- 13 -

3. INVESTMENT SECURITIES (continued)

There were a total of 16 securities in Bancorp’s investment portfolio with an amortized cost of $153.4 million and a total unrealized loss of $1.4 million at June 30, 2011, that have been in a continuous unrealized loss position for less than 12 months. The unrealized loss on these investment securities was predominantly caused by changes in market interest rates, average life or credit spreads subsequent to purchase. The fair value of most of the Company’s securities fluctuates as market interest rates change.

At June 30, 2011, and December 31, 2010, the Company had $333.7 and $504.0 million, respectively, in investment securities being provided as collateral to the Federal Home Loan Bank of Seattle (“FHLB”), the Federal Reserve Bank of San Francisco (“Reserve Bank”), the State of Oregon, the State of Washington, and others to support the Company’s borrowing capacities and certain public fund deposits. At June 30, 2011, and December 31, 2010, Bancorp had no reverse repurchase agreements.

The following table presents the contractual maturities of the investment securities available for sale at June 30, 2011:

(Dollars in thousands)	Available for sale
June 30, 2011	Amortized cost		Fair value
U.S. Treasury securities
One year or less	$	4,223	$	4,237
After one year through five years		-		-
After five through ten years		-		-
Due after ten years		-		-
Total		4,223		4,237

U.S. Government agency securities:
One year or less		-		-
After one year through five years		201,208		201,973
After five through ten years		20,123		19,985
Due after ten years		-		-
Total		221,331		221,958

Corporate securities:
One year or less		-		-
After one year through five years		500		500
After five through ten years		-		-
Due after ten years		13,844		9,006
Total		14,344		9,506

Obligations of state and political subdivisions:
One year or less		4,217		4,280
After one year through five years		12,925		13,736
After five through ten years		29,896		31,723
Due after ten years		9,029		9,383
Total		56,067		59,122
Sub-total		295,965		294,823

Mortgage-backed securities		447,699		454,029
Equity investments and other securities		11,371		11,852
Total securities	$	755,035	$	760,704

Certain investments have maturities that will differ from contractual maturities because borrowers have the right to call or prepay obligations with or without call or prepayment penalties.

- 14 -

4. LOANS AND ALLOWANCE FOR CREDIT LOSSES

The compositions and carrying values of the Company’s loan portfolio, excluding loans held for sale, were as follows:

(Dollars in thousands)	June 30, 2011			December 31, 2010
Commercial	$	297,817		$	309,327
Real estate construction		32,434			44,085
Real estate mortgage		336,724			349,016
Commercial real estate		839,665			818,577
Installment and other consumer		14,507			15,265
Total loans		1,521,147			1,536,270
Allowance for loan losses		(38,422	)		(40,217	)
Total loans, net	$	1,482,725		$	1,496,053

Loans greater than 90 days past due are classified into nonaccrual status. The following table presents an age analysis of the loan portfolio, including nonaccrual loans, for the periods shown:

(Dollars in thousands)	June 30, 2011
	30 - 89 days		Greater than		Total		Current		Total
	past due		90 days past due		past due		loans		loans
Commercial	$	2,750	$	6,804	$	9,554	$	288,263	$	297,817
Real estate construction		5,750		1,664		7,414		25,020		32,434
Real estate mortgage		4,293		4,554		8,847		327,877		336,724
Commercial real estate		8,043		9,843		17,886		821,779		839,665
Installment and other consumer		8		1		9		14,498		14,507
Total	$	20,844	$	22,866	$	43,710	$	1,477,437	$	1,521,147

(Dollars in thousands)	December 31, 2010
	30 - 89 days		Greater than		Total		Current		Total
	past due		90 days past due		past due		loans		loans
Commercial	$	953	$	9,984	$	10,937	$	298,390	$	309,327
Real estate construction		2,098		4,039		6,137		37,948		44,085
Real estate mortgage		4,662		5,669		10,331		338,685		349,016
Commercial real estate		3,988		12,157		16,145		802,432		818,577
Installment and other consumer		53		-		53		15,212		15,265
Total	$	11,754	$	31,849	$	43,603	$	1,492,667	$	1,536,270

- 15 -

4. LOANS AND ALLOWANCE FOR CREDIT LOSSES (continued)

The following table presents an analysis of impaired loans for the periods shown:

											Quarter ended
(Dollars in thousands)	June 30, 2011										June 30, 2011
	Unpaid principal		Impaired loans		Impaired loans		Total impaired		Related		Average impaired
	balance 1		with no allowance		with allowance		loan balance		allowance		loan balance
Commercial	$	18,482	$	9,279	$	164	$	9,443	$	-	$	11,833
Real estate construction		12,118		7,797		840		8,637		-		9,491
Real estate mortgage		34,195		14,282		7,054		21,336		312		21,314
Commercial real estate		26,970		19,263		5,801		25,064		84		25,702
Installment and other consumer		1,513		1		-		1		-		3
Total	$	93,278	$	50,622	$	13,859	$	64,481	$	396	$	68,343

											Quarter ended
(Dollars in thousands)	December 31, 2010										December 31, 2010
	Unpaid principal		Impaired loans		Impaired loans		Total impaired		Related		Average impaired
	balance 1		with no allowance		with allowance		loan balance		allowance		loan balance
Commercial	$	22,692	$	13,377	$	1,679	$	15,056	$	2	$	19,992
Real estate construction		15,570		10,692		323		11,015		2		20,191
Real estate mortgage		28,856		15,491		7,828		23,319		443		20,610
Commercial real estate		28,717		21,648		5,634		27,282		103		17,187
Installment and other consumer		-		-		-		-		-		45
Total	$	95,835	$	61,208	$	15,464	$	76,672	$	550	$	78,025

1 The unpaid principal balance on impaired loans represents the amount owed by the borrower. The carrying value of impaired loans is lower than the unpaid principal balance due to charge-offs.

A loan is accounted for as a troubled debt restructure (“TDR”) if the Company, for economic or legal reasons related to the borrower’s financial difficulties, grants a concession to the borrower that it would not otherwise consider granting. A TDR typically involves a modification of terms such as a reduction of the stated interest rate or face amount of the loan, a reduction of accrued interest, or an extension of the maturity date(s) at a stated interest rate lower than the current market rate for a new loan with similar risk.

The following table presents an analysis of TDRs for the periods ended June 30, 2011, and June 30, 2010:

						TDRs recorded in the 12 months prior to June 30, 2011 that
(Dollars in thousands)	TDRs recorded for the six months ending June 30, 2011					subsequently defaulted in the six months ending June 30, 2011
	Number of	Pre-TDR outstanding		Post-TDR outstanding		Number of	Pre-TDR outstanding		Post-TDR outstanding
	loans	recorded investment		recorded investment		loans	recorded investment		recorded investment
Commercial	9	$	809	$	779	-	$	-	$	-
Real estate construction	1		1,008		744	1		983		983
Real estate mortgage	6		2,071		2,058	-		-		-
Commercial real estate	3		917		913	-		-		-
Total	19	$	4,805	$	4,494	1	$	983	$	983

						TDRs recorded in the 12 months prior to June 30, 2010 that
(Dollars in thousands)	TDRs recorded for the six months ending June 30, 2010					subsequently defaulted in the six months ending June 30, 2010
	Number of	Pre-TDR outstanding		Post-TDR outstanding		Number of	Pre-TDR outstanding		Post-TDR outstanding
	loans	recorded investment		recorded investment		loans	recorded investment		recorded investment
Commercial	15	$	3,570	$	3,460	-	$	-	$	-
Real estate construction	10		3,729		3,555	-		-		-
Real estate mortgage	5		2,125		2,119	2		335		335
Commercial real estate	3		13,018		12,535	-		-		-
Total	33	$	22,442	$	21,669	2	$	335	$	335

TDRs are considered impaired and as such are typically measured based on the fair value of the collateral less selling costs. For TDRs that are collateral dependent the Company charges off the amount of impairment at the time of impairment, rather than placing the impaired loan amount in a specific reserve allowance. Known impairments on non-real estate secured TDRs are charged off immediately rather than recording a specific reserve allowance in the allowance for loan losses. TDRs that have subsequently defaulted are removed from the loan balances with any loss charged to the allowance for loan losses reserve. Additional losses charged on subsequently defaulting TDRs is typically a minimal amount and immaterial for the period ending June 30, 2011.

- 16 -

4. LOANS AND ALLOWANCE FOR CREDIT LOSSES (continued)

The following table presents nonaccrual loans by category as of the dates shown:

	June 30,		December 31,
(Dollars in thousands)	2011		2010
Commercial	$	9,280	$	13,377
Real estate construction		7,796		10,692
Real estate mortgage		14,282		15,491
Commercial real estate		19,263		21,671
Installment and other consumer		1		-
Total loans on nonaccrual status	$	50,622	$	61,231

The Company uses a risk rating matrix to assign a risk rating to loans not evaluated on a homogenous pool level. At June 30, 2011, $1.10 billion of loans were risk rated and $417.6 million were evaluated on a homogeneous pool basis. Individually risk rated loans are rated on a scale of 1 to 10. A description of the general characteristics of the 10 risk ratings is as follows:

Ratings 1, 2 and 3 - These ratings include loans to very high credit quality borrowers of investment or near investment grade. These borrowers have significant capital strength, moderate leverage, stable earnings and growth, and readily available financing alternatives. Smaller entities, regardless of strength, would generally not fit in these ratings. These ratings also include loans that are collateralized by U. S. Government securities and certificates of deposits.
Rating 4 - These ratings include loans to borrowers of solid credit quality with moderate risk. Borrowers in these ratings are differentiated from higher ratings on the basis of size (capital and/or revenue), leverage, asset quality and the stability of the industry or market area.
Ratings 5 and 6 - These ratings include “pass rating” loans to borrowers of acceptable credit quality and risk. Such borrowers are differentiated from Rating 4 in terms of size, secondary sources of repayment or they are of lesser stature in other key credit metrics in that they may be over-leveraged, undercapitalized, inconsistent in performance or in an industry or an economic area that is known to have a higher level of risk, volatility, or susceptibility to weaknesses in the economy. However, no material adverse trends are evident with borrowers in these pass ratings.
Rating 7 - This rating includes loans on management’s “watch list” and is intended to be utilized on a temporary basis for pass rating borrowers where a significant risk-modifying action is anticipated in the near term.
Rating 8 - This rating includes “Substandard” loans, in accordance with regulatory guidelines, for which the accrual of interest may or may not been discontinued. By definition under regulatory guidelines, a “Substandard” loan has defined weaknesses which make payment default or principal exposure likely, but not yet certain. Such loans are apt to be dependent upon collateral liquidation, a secondary source of repayment, or an event outside of the normal course of business.
Rating 9 - This rating includes “Doubtful” loans in accordance with regulatory guidelines. Such loans are placed on nonaccrual status and may be dependent upon collateral having a value that is difficult to determine or upon some near-term event which lacks certainty.
Rating 10 - This rating includes “Loss” loans in accordance with regulatory guidelines. Such loans are to be charged-off or charged-down when payment is acknowledged to be uncertain or when the timing or value of payments cannot be determined. “Loss” is not intended to imply that the loan or some portion of it will never be paid, nor does it in any way imply that there has been a forgiveness of debt.

- 17 -

4. LOANS AND ALLOWANCE FOR CREDIT LOSSES (continued)

The Company considers loans assigned a risk rating 8 through 10 to be classified loans. The following table presents weighted average risk ratings of the loan portfolio and classified loans by category. The weighted average risk ratings did not exhibit material change from December 31, 2010, to June 30, 2011. Overall classified loans have contracted from December 31, 2010, with reductions in classified commercial and real estate construction balances more than offsetting increases in real estate mortgage and commercial real estate categories during the first six months of 2011.

(Dollars in thousands)	June 30, 2011				December 31, 2010
	Weighted average		Classified		Weighted average		Classified
	risk rating		loans		risk rating		loans
Commercial		5.92	$	23,862		5.89	$	32,895
Real estate construction		7.09		14,135		7.33		24,131
Real estate mortgage		6.54		28,266		6.34		20,913
Commercial real estate		5.73		49,487		5.75		42,045
Installment and other consumer 1		7.76		226		7.41		137
Total			$	115,976			$	120,121

Total loans risk rated	$	1,103,554			$	1,096,859

1 Installment and other consumer loans are primarily evalued on a homogenous pool level and generally not individually risk rated unless certain factors are met.

The following table presents homogeneous loans where credit risk is evaluated on a portfolio basis by category, and includes home equity lines of credit and certain small business loans. Important credit quality metrics for this portfolio include balances on nonaccrual and past due status. Total loans and lines evaluated on a homogeneous pool basis were $417.6 million at June 30, 2011, and $439.4 million at December 31, 2010. Such balances on nonaccrual status declined from $7.7 million at December 31, 2010, to $2.6 million at June 30, 2011. During first quarter 2011, due to the unique nature of nonstandard mortgages, the methodology for risk rating these loans was modified. This procedural change resulted in the movement of 35 notes with total commitments of $6.4 million from the homogenous pool to the individually risk rated portfolio. This change did not have a significant impact on the allowance for loan losses.

(Dollars in thousands)	June 30, 2011						December 31, 2010
	Current		Nonaccrual		30 - 89 days		Current		Nonaccrual		30 - 89 days
	status		status		past due		status		status		past due
Commercial	$	49,627	$	47	$	728	$	54,217	$	245	$	7
Real estate construction		-		753		-		-		1,136		-
Real estate mortgage		262,438		934		921		269,862		4,958		1,931
Commercial real estate		86,594		870		372		90,782		1,334		8
Installment and other consumer		14,300		2		7		14,878		-		52
Total	$	412,959	$	2,606	$	2,028	$	429,739	$	7,673	$	1,998

- 18 -

4. LOANS AND ALLOWANCE FOR CREDIT LOSSES (continued)

The following table presents summary account activity relating to the allowance for credit losses by loan category for the periods shown:

(Dollars in thousands)	Three months ended June 30, 2011
				Real estate			Real estate			Commercial			Installment and
	Commercial			construction			mortgage			real estate			other consumer			Unallocated			Total
Beginning balance March 31, 2011	$	8,735		$	3,989		$	8,137		$	12,790		$	1,118		$	5,660		$	40,429
Provision for credit losses		(556	)		(733	)		3,116			1,605			234			(240	)		3,426
Losses charged to the allowance		(460	)		(866	)		(2,531	)		(564	)		(439	)		-			(4,860	)
Recoveries credited to the allowance		139			5			18			3			71			-			236
Ending balance June 30, 2011	$	7,858		$	2,395		$	8,740		$	13,834		$	984		$	5,420		$	39,231

(Dollars in thousands)	Six months ended June 30, 2011
				Real estate			Real estate			Commercial			Installment and
	Commercial			construction			mortgage			real estate			other consumer			Unallocated			Total
Beginning balance December 31, 2010	$	8,541		$	4,474		$	8,156		$	12,462		$	1,273		$	6,161		$	41,067
Provision for credit losses		(99	)		(842	)		4,470			2,259			455			(741	)		5,502
Losses charged to the allowance		(1,221	)		(1,242	)		(4,016	)		(893	)		(902	)		-			(8,274	)
Recoveries credited to the allowance		637			5			130			6			158			-			936
Ending balance June 30, 2011	$	7,858		$	2,395		$	8,740		$	13,834		$	984		$	5,420		$	39,231

Loans valued for impairment:
Individually	$	9,443		$	8,637		$	21,336		$	25,064		$	1		$	-		$	64,481
Collectively		288,374			23,797			315,388			814,601			14,506			-			1,456,666
Total	$	297,817		$	32,434		$	336,724		$	839,665		$	14,507		$	-		$	1,521,147

(Dollars in thousands)	Twelve months ended December 31, 2010
				Real estate			Real estate			Commercial			Installment and
	Commercial			construction			mortgage			real estate			other consumer			Unallocated			Total
Beginning balance December 31, 2009	$	8,224		$	7,240		$	8,211		$	9,492		$	1,294		$	4,957		$	39,418
Provision for credit losses		4,474			113			7,025			4,262			1,574			1,204			18,652
Losses charged to the allowance		(5,229	)		(3,576	)		(7,461	)		(1,321	)		(1,889	)		-			(19,476	)
Recoveries credited to the allowance		1,072			697			381			29			294			-			2,473
Ending balance at December 31, 2010	$	8,541		$	4,474		$	8,156		$	12,462		$	1,273		$	6,161		$	41,067

Loans valued for impairment:
Individually	$	15,056		$	11,015		$	23,319		$	27,282		$	-		$	-		$	76,672
Collectively		294,271			33,070			325,697			791,295			15,265			-			1,459,598
Total	$	309,327		$	44,085		$	349,016		$	818,577		$	15,265		$	-		$	1,536,270

The following table shows the components of the allowance for credit losses:

(Dollars in thousands)	June 30, 2011		June 30, 2010
Allowance for loan losses	$	38,422	$	43,329
Reserve for unfunded commitments		809		1,018
Total allowance for credit losses	$	39,231	$	44,347

The reserve for unfunded commitments was included in other liabilities as of June 30, 2011 and 2010.

- 19 -

5. OTHER REAL ESTATE OWNED, NET

The following tables summarize Other Real Estate Owned (“OREO”) for the periods shown:

(Dollars in thousands)	Three months ended
	June 30, 2011			June 30, 2010
Balance, beginning period	$	39,329		$	45,238
Additions to OREO		4,270			7,209
Disposition of OREO		(6,670	)		(13,612	)
Valuation adjustments in the period		(1,555	)		(1,257	)
Total OREO	$	35,374		$	37,578

(Dollars in thousands)	Six months ended
	June 30, 2011			June 30, 2010
Balance, beginning period	$	39,459		$	53,594
Additions to OREO		10,749			12,212
Disposition of OREO		(12,622	)		(24,612	)
Valuation adjustments in the period		(2,212	)		(3,616	)
Total OREO	$	35,374		$	37,578

The following tables summarize the OREO valuation allowance for the periods shown:

(Dollars in thousands)	Three months ended
	June 30, 2011			June 30, 2010
Balance, beginning period	$	7,425		$	8,003
Valuation adjustments in the period		1,555			1,257
Deductions from the valuation allowance due to disposition		(1,425	)		(2,105	)
Total OREO valuation allowance	$	7,555		$	7,155

(Dollars in thousands)	Six months ended
	June 30, 2011			June 30, 2010
Balance, beginning period	$	7,584		$	9,489
Valuation adjustments in the period		2,212			3,616
Deductions from the valuation allowance due to disposition		(2,241	)		(5,950	)
Total OREO valuation allowance	$	7,555		$	7,155

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6. EARNINGS (LOSS) PER SHARE

The earnings (loss) per share is calculated under the two-class method. The two-class method is an earnings allocation formula that determines earnings (loss) per share for each class of common stock and participating security according to dividends declared (or accumulated) and participation rights in undistributed earnings. A participating security is an instrument that may participate in undistributed earnings with common stock. The Company has issued restricted stock and preferred stock that qualifies as a participating security. Basic earnings (loss) per share is computed by dividing net income (loss) available to common shareholders by the weighted average number of shares of common stock outstanding during the period.

Diluted earnings (loss) per share is computed in the same manner as basic earnings (loss) per share except that the denominator is increased to include the number of additional common shares that would have been outstanding if certain shares issuable upon exercise of options and warrants, conversion of preferred stock, and non-vested restricted stock were included, unless those additional shares would have been anti-dilutive. For the diluted earnings (loss) per share computation, the treasury stock method is applied and compared to the two-class method and whichever method results in a more dilutive impact is utilized to calculate diluted earnings per share. The two-class method was utilized to calculate diluted earnings per share for the quarter ended June 30, 2011.

On May 19, 2011, Bancorp implemented the Reverse Stock Split. All share and per share related amounts have been restated to reflect the Reverse Stock Split. The following table reconciles the numerator and denominator of the basic and diluted earnings (loss) per share computations for the quarters ended June 30, 2011, and 2010:

(Dollars and shares in thousands, except per share amounts)	Three months ended
	June 30, 2011		June 30, 2010
Net income (loss)	$	4,634	$	(3,849	)
Less: Net income (loss) allocated to participating securities-basic:
Preferred stock		274		-
Non-vested restricted stock		63		-
Net income (loss) available to common stock holders-basic		4,297		(3,849	)
Add: Net income (loss) allocated per two-class method-diluted:
Stock options and Class C warrants		15		-
Net income (loss) available to common stockholders-diluted	$	4,312	$	(3,849	)

Weighted average common shares outstanding-basic		19,006		18,425
Common stock equivalents from:
Stock options		24		-
Class C warrants		995		-
Weighted average common shares outstanding-diluted		20,025		18,425

Basic earnings (loss) per share	$	0.23	$	(0.20	)
Diluted earnings (loss) per share	$	0.22	$	(0.20	)

Common stock equivalent shares excluded due to anti-dilutive effect		189		639

(Dollars and shares in thousands, except per share amounts)	Six months ended
	June 30, 2011		June 30, 2010
Net income (loss)	$	9,739	$	(4,737	)
Less: Net income (loss) allocated to participating securities-basic:
Preferred stock		576		-
Non-vested restricted stock		143		-
Net income (loss) available to common stock holders-basic		9,020		(4,737	)
Add: Net income (loss) allocated per two-class method-diluted:
Stock options and Class C warrants		32		-
Net income (loss) available to common stockholders-diluted	$	9,052	$	(4,737	)

Weighted average common shares outstanding-basic		18,983		15,939
Common stock equivalents from:
Stock options		23		-
Class C warrants		976		-
Weighted average common shares outstanding-diluted		19,982		15,939

Basic earnings (loss) per share	$	0.48	$	(0.30	)
Diluted earnings (loss) per share	$	0.45	$	(0.30	)

Common stock equivalent shares excluded due to anti-dilutive effect		192		639

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7. COMMITMENTS AND CONTINGENT LIABILITIES

The Bank has financial instruments with off balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit and standby letters of credit. Those instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the Consolidated Balance Sheets.

The Bank’s exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit and standby letters of credit is represented by the contractual or notional amount of those instruments. The Bank uses the same credit policies in making commitments and conditional obligations as for on-balance sheet instruments.

The following table summarizes the Bank’s off balance sheet unfunded commitments as of the dates shown:

	Contract or		Contract or
	Notional Amount		Notional Amount
(Dollars in thousands)	June 30, 2011		December 31, 2010
Financial instruments whose contract amounts represent credit risk:
Commitments to extend credit in the form of loans
Commercial	$	245,186	$	246,702
Real estate construction		8,055		10,568
Real estate mortgage
Mortgage		3,049		4,265
Home equity loans and lines of credit		153,113		154,073
Total real estate mortgage loans		156,162		158,338
Commercial real estate		10,573		7,756
Installment and consumer		10,143		10,734
Other		19,157		10,395
Standby letters of credit and financial guarantees		10,190		8,531
Account overdraft protection instruments		103,488		118,596
Total	$	562,954	$	571,620

Commitments to extend credit are agreements to lend to a customer, as long as there is no violation of any condition established in the underlying contracts. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Many of the commitments may expire without being drawn upon; therefore total commitment amounts do not necessarily represent future cash requirements. Each customer’s creditworthiness is evaluated on a case-by-case basis. The amount of collateral obtained, if deemed necessary upon extension of credit, is based on the Bank’s credit evaluation of the customer. Collateral held varies, but may include real property, accounts receivable, inventory, property, plant and equipment, and income-producing commercial properties. The Company maintains a reserve for unfunded commitments as a component of the allowance for credit losses.

Standby letters of credit are conditional commitments issued to support a customer’s performance or payment obligation to a third party. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers.

Interest rates on residential 1-4 family mortgage loan applications are typically rate locked during the application stage for periods ranging from 15 to 60 days, the most typical period being 45 days. These loans are locked with various qualified investors under a best-efforts delivery program. The Company makes every effort to deliver these loans before their rate locks expire. This arrangement generally requires the Bank to deliver the loans prior to the expiration of the rate lock. Delays in funding the loans may require a lock extension. The cost of a lock extension at times is borne by the borrower and at times by the Bank. These lock extension costs paid by the Bank are not expected to have a material impact on results of operations. This activity is managed daily.

Bancorp is periodically party to litigation arising in the ordinary course of business. Based on information currently known to management, although there are uncertainties inherent in litigation, we do not believe there is any legal action to which Bancorp or any of its subsidiaries is a party that, individually or in the aggregate, will have a materially adverse effect on Bancorp’s financial condition and results of operations, cash flows, or liquidity.

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8. COMPREHENSIVE INCOME (LOSS)

The following table displays the components of comprehensive income (loss) for the periods shown:

	Three months ended						Six months ended
	June 30,						June 30,
(Dollars in thousands)	2011			2010			2011			2010
Net income (loss) as reported	$	4,634		$	(3,849	)	$	9,739		$	(4,737	)

Unrealized holding gains on securities:
Unrealized holding gains arising during the period		6,734			5,323			5,021			10,209
Tax provision		(2,653	)		(2,096	)		(1,986	)		(4,009	)
Unrealized holding gains arising during the period, net of tax		4,081			3,227			3,035			6,200

Less: Reclassification adjustment for gains
on sales of securities		(130	)		(488	)		(397	)		(945	)
Tax provision		51			193			155			369
Net realized gains on sales of securities, net of tax		(79	)		(295	)		(242	)		(576	)

Less: Reclassification adjustment for other-than-temporary impairment		179			-			179			-
Tax benefit		(70	)		-			(70	)		-
Net other-than-temporary impairment		109			-			109			-

Total comprehensive income (loss)	$	8,745		$	(917	)	$	12,641		$	887

9. LONG-TERM BORROWINGS AND JUNIOR SUBORDINATED DEBT

The following table summarized Bancorp’s long-term borrowings for the periods shown:

(Dollars in thousands)	June 30, 2011		December 31, 2010
FHLB non-putable advances	$	99,399	$	138,599
FHLB putable advances		30,000		30,000
Total long-term borrowings	$	129,399	$	168,599

Long-term borrowings consisting of notes with fixed maturities and structured advances with the FHLB totaled $129.4 million at June 30, 2011, compared to long-term borrowings of $168.6 million at December 31, 2010. The decrease in long-term borrowings of $39.2 million during the first six months of 2011 was due to advances becoming short-term, as they are scheduled to mature over the next twelve months. At June 30, 2011, Bancorp’s remaining long-term borrowings with fixed maturities, or non-putable advances, were $99.4 million, with rates ranging from 2.78% to 5.03%. Bancorp also had three structured, or putable, advances totaling $30.0 million, with original terms of five years and rates ranging from 2.45% to 3.78%. The scheduled maturities on these structured advances occur in February 2013, August 2013 and March 2014, although the FHLB may under certain circumstances require payment prior to maturity. At June 30, 2011, principal payments due at scheduled maturity of Bancorp’s total long-term borrowings were $10.9 million in 2012, $76.3 million in 2013 and $42.2 million in 2014.

Bancorp had no outstanding federal funds purchased from correspondent banks, borrowings from the discount window or reverse repurchase agreements at June 30, 2011.

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9. LONG-TERM BORROWINGS AND JUNIOR SUBORDINATED DEBT (continued)

At June 30, 2011, six wholly-owned subsidiary grantor trusts established by Bancorp had an outstanding balance of $51.0 million in trust preferred securities. During the second quarter of 2011 the Company paid all deferred interest on its trust preferred securities. Under our December 2009 Written Agreement with the Oregon Department of Consumer and Business Services, Division of Finance and Corporate Securities (“DFCS”) and the Reserve Bank, the Company must request regulatory approval prior to making interest or other payments on its trust preferred securities.

The following table is a summary of outstanding trust preferred securities issued by the grantor trusts and guaranteed by Bancorp:

(Dollars in thousands)

Preferred

Rate at

Next possible

Issuance Trust

Issuance date

security amount

Rate type 1

6/30/11

Maturity date

redemption date 2

West Coast Statutory Trust III

September 2003

7,500

Variable

3.20

September 2033

Currently redeemable

West Coast Statutory Trust IV

March 2004

6,000

Variable

3.04

March 2034

Currently redeemable

West Coast Statutory Trust V

April 2006

15,000

Variable

1.68

June 2036

Currently redeemable

West Coast Statutory Trust VI

December 2006

5,000

Variable

1.93

December 2036

December 2011

West Coast Statutory Trust VII

March 2007

12,500

Variable

1.80

March 2037

March 2012

West Coast Statutory Trust VIII

June 2007

5,000

Variable

1.63

June 2037

June 2012

Total

51,000

Weighted rate

2.11

1 The variable rate preferred securities reprice quarterly.
2 Securities are redeemable at the option of Bancorp following these dates.

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10. SEGMENT AND RELATED INFORMATION

Bancorp accounts for intercompany fees and services at fair value according to regulatory requirements for the service provided. Intercompany items relate primarily to the provision of accounting, human resources, data processing and marketing services.

Summarized financial information concerning Bancorp’s reportable segments and the reconciliation to Bancorp’s consolidated results are shown in the following table. The “Other” column includes Bancorp’s trust operations and corporate-related items, including interest expense related to trust preferred securities. 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 June 30, 2011
	Banking			Other			Intersegment			Consolidated
Interest income	$	25,093		$	11		$	-		$	25,104
Interest expense		2,811			332			-			3,143
Net interest income (expense)		22,282			(321	)		-			21,961
Provision for credit losses		3,426			-			-			3,426
Noninterest income		7,523			817			(270	)		8,070
Noninterest expense		22,287			941			(270	)		22,958
Income (loss) before income taxes		4,092			(445	)		-			3,647
Benefit for income taxes		(813	)		(174	)		-			(987	)
Net income (loss)	$	4,905		$	(271	)	$	-		$	4,634

Depreciation and amortization	$	1,892		$	8		$	-		$	1,900
Assets	$	2,458,268		$	15,215		$	(10,927	)	$	2,462,556
Loans, net	$	1,482,725		$	-		$	-		$	1,482,725
Deposits	$	1,941,357		$	-		$	(10,360	)	$	1,930,997
Equity	$	323,631		$	(38,062	)	$	-		$	285,569


(Dollars in thousands)	Three months ended June 30, 2010
	Banking			Other			Intersegment			Consolidated
Interest income	$	26,798		$	18		$	-		$	26,816
Interest expense		7,626			280			-			7,906
Net interest income (expense)		19,172			(262	)		-			18,910
Provision for credit losses		7,758			-			-			7,758
Noninterest income		9,130			780			(285	)		9,625
Noninterest expense		22,263			931			(285	)		22,909
Income (loss) before income taxes		(1,719	)		(413	)		-			(2,132	)
Provision (benefit) for income taxes		1,879			(162	)		-			1,717
Net income (loss)	$	(3,598	)	$	(251	)	$	-		$	(3,849	)

Depreciation and amortization	$	1,966		$	9		$	-		$	1,975
Assets	$	2,501,169		$	16,782		$	(12,465	)	$	2,505,486
Loans, net	$	1,558,703		$	-		$	-		$	1,558,703
Deposits	$	2,015,996		$	-		$	(11,896	)	$	2,004,100
Equity	$	305,656		$	(38,244	)	$	-		$	267,412

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10. SEGMENT AND RELATED INFORMATION (continued)

(Dollars in thousands)	Six months ended June 30, 2011
	Banking			Other			Intersegment			Consolidated
Interest income	$	49,999		$	23		$	-		$	50,022
Interest expense		5,941			608			-			6,549
Net interest income (expense)		44,058			(585	)		-			43,473
Provision for credit losses		5,502			-			-			5,502
Noninterest income		15,912			1,615			(541	)		16,986
Noninterest expense		44,179			1,873			(541	)		45,511
Income (loss) before income taxes		10,289			(843	)		-			9,446
Provision (benefit) for income taxes		36			(329	)		-			(293	)
Net income (loss)	$	10,253		$	(514	)	$	-		$	9,739

Depreciation and amortization	$	4,017		$	15		$	-		$	4,032
Assets	$	2,458,268		$	15,215		$	(10,927	)	$	2,462,556
Loans, net	$	1,482,725		$	-		$	-		$	1,482,725
Deposits	$	1,941,357		$	-		$	(10,360	)	$	1,930,997
Equity	$	323,631		$	(38,062	)	$	-		$	285,569

(Dollars in thousands)	Six months ended June 30, 2010
	Banking			Other			Intersegment			Consolidated
Interest income	$	53,979		$	35		$	-		$	54,014
Interest expense		13,921			550			-			14,471
Net interest income (expense)		40,058			(515	)		-			39,543
Provision for credit losses		15,392			-			-			15,392
Noninterest income		15,046			1,559			(572	)		16,033
Noninterest expense		42,759			1,817			(572	)		44,004
Income (loss) before income taxes		(3,047	)		(773	)		-			(3,820	)
Provision (benefit) for income taxes		1,219			(302	)		-			917
Net income (loss)	$	(4,266	)	$	(471	)	$	-		$	(4,737	)

Depreciation and amortization	$	4,141		$	18		$	-		$	4,159
Assets	$	2,501,169		$	16,782		$	(12,465	)	$	2,505,486
Loans, net	$	1,558,703		$	-		$	-		$	1,558,703
Deposits	$	2,015,996		$	-		$	(11,896	)	$	2,004,100
Equity	$	305,656		$	(38,244	)	$	-		$	267,412

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11. FAIR VALUE MEASUREMENT AND FAIR VALUES OF FINANCIAL INSTRUMENTS

A financial instrument is defined as cash, evidence of an ownership interest in an entity, or a contract that conveys or imposes the contractual right or obligation to either receive or deliver cash or another financial instrument. Examples of financial instruments included in Bancorp’s balance sheet are cash, federal funds sold, debt and equity securities, loans, demand, savings and other interest-bearing deposits, notes and debentures. Examples of financial instruments which are not included in the Bancorp balance sheet are commitments to extend credit and standby letters of credit.

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

Accounting standards require the fair value of deposit liabilities with no stated maturity, such as demand deposits, NOW and money market accounts, to equal the carrying value of these financial instruments and does not allow for the recognition of the inherent value of core deposit relationships when determining fair value.

Bancorp has estimated fair value based on quoted market prices where available. In cases where quoted market prices were not available, fair values were based on the quoted market price of a financial instrument with similar characteristics, the present value of expected future cash flows or other valuation techniques that utilize assumptions which are subjective and judgmental in nature. Subjective factors include, among other things, estimates of cash flows, the timing of cash flows, risk and credit quality characteristics, interest rates and liquidity premiums or discounts. Accordingly, the results may not be precise, and modifying the assumptions may significantly affect the values derived. Further, fair values may or may not be realized if a significant portion of the financial instruments were sold in a bulk transaction or a forced liquidation. Therefore, any aggregate unrealized gains or losses should not be interpreted as a forecast of future earnings or cash flows. Furthermore, the fair values disclosed should not be interpreted as the aggregate current value of Bancorp.

The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value:

Cash and cash equivalents - The carrying amount is a reasonable estimate of fair value.

Trading securities – Trading securities held at June 30, 2011, are related solely to bonds, equity securities and mutual funds held in a Rabbi Trust for benefit of the Company’s deferred compensation plans. Fair values for trading securities are based on quoted market prices.

Investment securities - For substantially all securities within the categories U.S. Treasuries, U.S. Government agencies, mortgage-backed, obligations of state and political subdivisions, and equity investments and other securities held for investment purposes, fair values are based on quoted market prices or dealer quotes if available. When quoted market prices are not readily accessible or available, the use of alternative approaches, such as matrix or model pricing or indicators from market makers, is used. If a quoted market price is not available due to illiquidity, fair value is estimated using quoted market prices for similar securities or other modeling techniques. If neither a quoted market price nor market prices for similar securities are available, fair value is estimated by discounting expected cash flows using a market derived discount rate as of the valuation date.

Level 3 assets consist of pooled trust preferred securities and auction rate securities. The fair values of these securities were estimated using the discounted cash flow method. The fair value for these securities used inputs for base case default, recovery and prepayment rates to estimate the probable cash flows for the security. The estimated cash flows were discounted using a rate for comparably rated securities adjusted for an additional liquidity premium.

Loans - The fair value of loans is estimated by discounting the future cash flows using the current rate at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities. An additional liquidity discount is also incorporated to more closely align the fair value with observed market prices.

Impaired loans - A loan is considered to be impaired when, based on current information and events, it is probable that the Company will be unable to collect all amounts due (both interest and principal) according to the contractual terms of the loan agreement. 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 value of the collateral. A significant portion of the Bank's impaired loans are measured using the fair value of the collateral.

Bank owned life insurance - The carrying amount is the cash surrender value of all policies, which approximates fair value.

Other real estate owned - Management obtains third party appraisals as well as independent fair market value assessments from realtors or persons involved in selling OREO in determining the fair value of particular properties. Accordingly, the valuation of OREO is subject to significant external and internal judgment. Management periodically reviews OREO and obtains periodic appraisals to determine whether the property continues to be carried at the lower of its recorded book value or fair value less estimated selling costs.

- 27 -

11. FAIR VALUE MEASUREMENT AND FAIR VALUES OF FINANCIAL INSTRUMENTS (continued)

Deposit liabilities - The fair value of demand deposits, savings accounts and other deposits is the amount payable on demand at the reporting date. The fair value of time deposits is estimated using the rates currently offered for deposits of similar remaining maturities.

Short-term borrowings - The carrying amount is a reasonable estimate of fair value given the short-term nature of these financial instruments.

Long-term borrowings - The fair value of the long-term borrowings is estimated by discounting the future cash flows using the current rate at which similar borrowings with similar remaining maturities could be made.

Junior subordinated debentures - The fair value of the variable rate junior subordinated debentures and trust preferred securities approximates the pricing of a preferred security at current market prices.

Commitments to extend credit, standby letters of credit and financial guarantees - The majority of commitments to extend credit carry current market interest rates if converted to loans.

The tables below present fair value information on certain assets broken down by recurring or nonrecurring measurement status. Recurring assets are initially measured at fair value and are required to be reflected at fair value in the financial statements at each reporting date. Assets measured on a nonrecurring basis are assets that due to an event or circumstance were required to be re-measured at fair value after initial recognition in the financial statements at some time during the reporting period.

Assets are classified as level 1-3 based on the lowest level of input that has a significant effect on fair value. The following definitions describe the level 1-3 categories for inputs used in the tables presented below.

Quoted prices in active markets for identical assets (Level 1): Inputs that are quoted unadjusted prices in active markets for identical assets that the Company has the ability to access at the measurement date. An active market for the asset is a market in which transactions for the asset or liability occur with sufficient frequency and volume to provide pricing information on an ongoing basis.
Other observable inputs (Level 2): Inputs that reflect the assumptions market participants would use in pricing the asset or liability developed based on market data obtained from sources independent of the reporting entity including quoted prices for similar assets, quoted prices for securities in inactive markets and inputs derived principally from or corroborated by observable market data by correlation or other means.
Significant unobservable inputs (Level 3): Inputs that reflect the reporting entity's own estimates about the assumptions market participants would use in pricing the asset or liability developed based on the best information available in the circumstances.

- 28 -

11. FAIR VALUE MEASUREMENT AND FAIR VALUES OF FINANCIAL INSTRUMENTS (continued)

The following tables present fair value measurements for assets that are measured at fair value on a recurring basis subsequent to initial recognition for the periods shown:

(Dollars in thousands)			Fair value measurements at June 30, 2011, using
			Quoted prices in active		Other observable		Significant unobservable
	Total fair value		markets for identical assets		inputs		inputs
	June 30, 2011		(Level 1)		(Level 2)		(Level 3)
Trading securities	$	781	$	781	$	-	$	-
Available for sale securities:
U.S. Treasury securities		4,237		-		4,237		-
U.S. Government agency securities		221,958		-		221,958		-
Corporate securities		9,506		-		-		9,506
Mortgage-backed securities		454,029		-		454,029		-
Obligations of state and political subdivisions		59,122		-		58,318		804
Equity investments and other securities		11,852		1,978		9,874		-
Total recurring assets measured at fair value	$	761,485	$	2,759	$	748,416	$	10,310

(Dollars in thousands)			Fair value measurements at December 31, 2010, using
			Quoted prices in active		Other observable		Significant unobservable
	Total fair value		markets for identical assets		inputs		inputs
	December 31, 2010		(Level 1)		(Level 2)		(Level 3)
Trading securities	$	808	$	808	$	-	$	-
Available for sale securities:
U.S. Treasury securities		14,392		-		14,392		-
U.S. Government agency securities		194,230		-		194,230		-
Corporate securities		9,392		-		-		9,392
Mortgage-backed securities		363,618		-		363,618		-
Obligations of state and political subdivisions		52,645		-		51,688		957
Equity investments and other securities		11,835		1		11,834		-
Total recurring assets measured at fair value	$	646,920	$	809	$	635,762	$	10,349

The Company transferred $2.0 million in equity investments and other securities from a level 2 to a level 1 at June 30, 2011. The Company transferred $14.4 million in U.S. Treasury securities from a level 1 instrument to a level 2 instrument at December 31, 2010. In addition, the Company had no material changes in valuation techniques for recurring and nonrecurring assets measured at fair value from the quarter ended June 30, 2011.

- 29 -

11. FAIR VALUE MEASUREMENT AND FAIR VALUES OF FINANCIAL INSTRUMENTS (continued)

The following table represents a reconciliation of level 3 instruments for assets that are measured at fair value on a recurring basis for the three and six months ended June 30, 2011, and 2010:

	Three months ended June 30, 2011
						Reclassification of
			Gains (losses)			losses from
			included in other			adjustment for		Purchases,
	Balance		comprehensive			impairment of		Issuances, and		Balance
(Dollars in thousands)	March 31, 2011		income			securities		Settlements		June 30, 2011
Corporate securities	$	9,850	$	(523	)	$	179	$	-	$	9,506
Obligations of state and political subdivisions		889		(85	)		-		-		804
Fair value	$	10,739	$	(608	)	$	179	$	-	$	10,310

	Six months ended June 30, 2011
						Reclassification of
			Gains (losses)			losses from
			included in other			adjustment for		Purchases,
	Balance		comprehensive			impairment of		Issuances, and		Balance
(Dollars in thousands)	January 1, 2011		income			securities		Settlements		June 30, 2011
Corporate securities	$	9,392	$	(65	)	$	179	$	-	$	9,506
Obligations of state and political subdivisions		957		(153	)		-		-		804
Fair value	$	10,349	$	(218	)	$	179	$	-	$	10,310

	Three months ended June 30, 2010
						Reclassification of
			Gains (losses)			losses from
			included in other			adjustment for		Purchases,
	Balance		comprehensive			impairment of		Issuances, and		Balance
(Dollars in thousands)	March 31, 2010		income			securities		Settlements		June 30, 2010
Corporate securities	$	10,231	$	(557	)	$	-	$	-	$	9,674
Obligations of state and political subdivisions		993		9			-		-		1,002
Fair value	$	11,224	$	(548	)	$	-	$	-	$	10,676

	Six months ended June 30, 2010
						Reclassification of
			Gains (losses)			losses from
			included in other			adjustment for		Purchases,
	Balance		comprehensive			impairment of		Issuances, and		Balance
(Dollars in thousands)	January 1, 2010		income			securities		Settlements		June 30, 2010
Corporate securities	$	9,753	$	(79	)	$	-	$	-	$	9,674
Obligations of state and political subdivisions		973		29			-		-		1,002
Fair value	$	10,726	$	(50	)	$	-	$	-	$	10,676

Certain assets, such as loans held for sale, loans measured for impairment, and OREO, are measured at fair value on a nonrecurring basis after initial recognition. For the three months ended June 30, 2011, loans held for sale were subject to the lower of cost or market method of accounting. However, there were no impairments recognized on loans held for sale in second quarter 2011. As of June 30, 2011, $64.5 million loans included in Bancorp’s loan portfolio were deemed impaired. In addition, during the second quarter, certain properties were written down by a total of $1.5 million to reflect additional decreases in estimated fair market value subsequent to the time such properties were placed into OREO.

- 30 -

11. FAIR VALUE MEASUREMENT AND FAIR VALUES OF FINANCIAL INSTRUMENTS (continued)

There were no nonrecurring level 1 or 2 fair value measurements for the three or six months ended June 30, 2011, or the full year 2010. The following tables represent the level 3 fair value measurements for nonrecurring assets for the periods presented:

	Three months ended June 30, 2011
(Dollars in thousands)	Impairment		Fair Value 1
Loans measured for impairment	$	4,860	$	19,638
OREO		1,555		15,465
Total nonrecurring assets measured at fair value	$	6,415	$	35,103

	Six months ended June 30, 2011
(Dollars in thousands)	Impairment		Fair Value 1
Loans measured for impairment	$	8,274	$	39,061
OREO		2,212		33,511
Total nonrecurring assets measured at fair value	$	10,486	$	72,572

	Twelve months ended December 31, 2010
(Dollars in thousands)	Impairment		Fair Value 1
Loans measured for impairment	$	19,476	$	82,910
OREO		6,649		74,146
Total nonrecurring assets measured at fair value	$	26,125	$	157,056

1	Fair value excludes cost to sell collateral.

- 31 -

11. FAIR VALUE MEASUREMENT AND FAIR VALUES OF FINANCIAL INSTRUMENTS (continued)

The estimated fair values of financial instruments at June 30, 2011, are as follows:

(Dollars in thousands)	Carrying Value		Fair Value
FINANCIAL ASSETS:
Cash and cash equivalents	$	90,246	$	90,246
Trading securities		781		781
Investment securities		760,704		760,704
Federal Home Loan Bank stock		12,148		12,148
Net loans (net of allowance for loan losses
and including loans held for sale)		1,483,475		1,393,318
Bank owned life insurance		25,736		25,736

FINANCIAL LIABILITIES:
Deposits	$	1,930,997	$	1,931,866
Short-term borrowings		39,200		39,200
Long-term borrowings		129,399		135,304

Junior subordinated debentures-variable		51,000		26,792

The estimated fair values of financial instruments at December 31, 2010, are as follows:

(Dollars in thousands)	Carrying Value		Fair Value
FINANCIAL ASSETS:
Cash and cash equivalents	$	177,991	$	177,991
Trading securities		808		808
Investment securities		646,112		646,112
Federal Home Loan Bank stock		12,148		12,148
Net loans (net of allowance for loan losses
and including loans held for sale)		1,499,155		1,407,366
Bank owned life insurance		25,313		25,313

FINANCIAL LIABILITIES:
Deposits	$	1,940,522	$	1,942,301
Long-term borrowings		168,599		175,305

Junior subordinated debentures-variable		51,000		26,597

- 32 -

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion should be read in conjunction with the audited consolidated financial statements and related notes to those statements of West Coast Bancorp (“Bancorp” or the “Company”) that appear under the heading “Financial Statements and Supplementary Data” in Bancorp's Annual Report on Form 10-K for the year ended December 31, 2010 (“2010 10-K”), as well as the unaudited consolidated financial statements for the current quarter found under Item 1 above.

Forward Looking Statement Disclosure

Statements in this Annual Report of West Coast Bancorp (“Bancorp” or the “Company”) regarding future events or performance are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 (the “PSLRA”) and are made pursuant to the safe harbors of the PSLRA. The Company’s actual results could be quite different from those expressed or implied by the forward-looking statements. Words such as “could,” “may,” “should,” “plan,” “believes,” “anticipates,” “estimates,” “predicts,” “expects,” “projects,” “potential,” “likely,” or “continue,” or words of similar import, often help identify “forward-looking statements,” which include any statements that expressly or implicitly predict future events, results, or performance. Factors that could cause events, results or performance to differ from those expressed or implied by our forward-looking statements include, among others, risks discussed in Item 1A, “Risk Factors” of the 2010 10-K, risks discussed elsewhere in the text of this report, as well as the following specific factors:

General economic conditions, whether national or regional, and conditions in real estate markets, that may affect the demand for our loan and other products, lead to declines in credit quality and increase in loan losses, negatively affect the value and salability of the real estate that we own or that is the collateral for many of our loans, and hinder our ability to increase lending activities;
Changing bank regulatory conditions, policies, or programs, whether arising as new legislation or regulatory initiatives or changes in our regulatory classifications, that could lead to restrictions on activities of banks generally or West Coast Bank (the “Bank”) in particular, increased costs, including higher deposit insurance premiums, price controls on debit card interchange, regulation or prohibition of certain income producing activities, or changes in the secondary market for bank loan and other products;
Competitive factors, including competition with community, regional and national financial institutions, that may lead to pricing pressures that reduce yields the Bank earns on loans or increase rates the Bank pays on deposits, the loss of our most valued customers, defection of key employees or groups of employees, or other losses;
Increasing or decreasing interest rate environments, including the slope and level of the yield curve, that could lead to decreases in net interest margin, lower net interest and fee income, including lower gains on sales of loans, and changes in the value of the Company’s investment securities; and
Changes or failures in technology or third party vendor relationships in important revenue production or service areas or increases in required investments in technology that could reduce our revenues, increase our costs, or lead to disruptions in our business.

Furthermore, forward-looking statements are subject to risks and uncertainties related to the Company’s ability to, among other things: dispose of properties or other assets obtained through foreclosures at expected prices and within a reasonable period of time; attract and retain key personnel; generate loan and deposit balances at projected spreads; sustain fee generation including gains on sales of loans; maintain asset quality and control risk; limit the amount of net loan charge-offs; manage its interest rate sensitivity position in periods of changing market interest rates; adapt to changing customer deposit, investment and borrowing behaviors; control expense growth; and monitor and manage the Company’s financial reporting, operating and disclosure control environments.

Readers are cautioned not to place undue reliance on our forward-looking statements, which reflect management’s analysis only as of the date of the statements. The Company does not intend to publicly revise or update forward-looking statements to reflect events or circumstances that arise after the date of this report.

Readers should carefully review all disclosures we file from time to time with the Securities and Exchange Commission (“SEC”).

Community Reinvestment Act (“CRA”)

The Bank received a CRA rating of satisfactory during its most recent CRA examination in September 2010.

- 33 -

Second Quarter 2011 Financial Overview

During second quarter 2011, we recorded:

Net income of $4.6 million compared to a net loss of $3.8 million in second quarter 2010;
A net interest margin of 3.85%, an increase of 74 basis points from 3.11% in second quarter 2010;
An average rate paid on total deposits of .31%, a 33 basis point decline from .64% in second quarter 2010;
A provision for credit losses of $3.4 million, a reduction of $4.4 million from $7.8 million for the same quarter in 2010; and
Net loan charge-offs of $4.6 million, relatively unchanged from $4.7 million in second quarter 2010.

Management continued to proactively implement and execute certain strategies that have resulted in significant strengthening of the Company’s balance sheet, including:

Increasing the Bank’s total and tier 1 risk-based capital ratios to 18.56% and 17.30%, respectively, at June 30, 2011, up from 17.10% and 15.84% at June 30, 2010;
Improving the Bank’s leverage ratio to 13.04% at June 30, 2011, from 11.43% a year ago; and
Reducing total nonperforming assets by 26% or $30.2 million over the past twelve months, to $86.0 million at quarter end.

On May 19, 2011, Bancorp implemented a 1-for-5 reverse split of its common stock (the "Reverse Stock Split") pursuant to an amendment to its Restated Articles of Incorporation approved by shareholders on April 26, 2011. All share and per share related amounts in this report have been restated to reflect the Reverse Stock Split.

Also a result of the Reverse Stock Split reduced the number of outstanding shares of common stock declined from 96.4 million shares to 19.3 million shares. The number of authorized shares of common stock was reduced from 250 million to 50 million. Proportional adjustments have also been made to the conversion or exercise rights under the Company's outstanding stock incentive plans, preferred stock, restricted stock, stock options and warrants.

Results of Operations

Three and six months ended June 30, 2011 and 2010

Net Income (Loss). Net income for the three and six months ended June 30, 2011, was $4.6 million and $9.7 million, respectively, as compared to a net loss of $3.8 and $4.7 million for the three and six months ended June 30, 2010. Earnings per diluted share for the three and six months ended June 30, 2011, were $0.22 and $0.45, respectively, as compared to a loss per diluted share of $0.20 and $0.30 for the three and six months ended June 30, 2010. For additional detail regarding calculation of our earnings per diluted share in the current quarter and year to date, see Note 6 “Earnings (Loss) Per Share” of our interim financial statements included under Item 1 of this report.

- 34 -

Net Interest Income. The following table sets forth, for the periods indicated, information with regard to (1) average balances of assets and liabilities, (2) the total dollar amounts of interest income on interest earning assets and interest expense on interest bearing liabilities, (3) resulting yields and rates, (4) net interest income and (5) net interest spread. Nonaccrual loans have been included in the tables as loans carrying a zero yield. Loan fees are recognized as income using the interest method over the life of the loan.

	Three months ended
(Dollars in thousands)	June 30, 2011							June 30, 2010							March 31, 2011
	Average							Average			Interest				Average
	Outstanding			Interest		Yield/		Outstanding			Earned/		Yield/		Outstanding			Interest		Yield/
	Balance			Earned/ Paid		Rate 1		Balance			Paid		Rate 1		Balance			Earned/ Paid		Rate 1
ASSETS:
Interest earning balances
due from banks	$	93,225		$	61	0.26	%	$	249,007		$	161	0.26	%	$	106,794		$	70	0.26	%
Federal funds sold		4,790			1	0.07	%		3,605			1	0.11	%		3,947			1	0.09	%
Taxable securities		639,930			4,276	2.68	%		521,139			3,688	2.84	%		622,208			4,069	2.65	%
Nontaxable securities 2		58,186			823	5.67	%		57,530			845	5.89	%		51,241			737	5.83	%
Loans, including fees 3		1,523,849			20,231	5.33	%		1,646,068			22,416	5.46	%		1,530,422			20,299	5.38	%
Total interest earning assets		2,319,980			25,392	4.39	%		2,477,349			27,111	4.39	%		2,314,612			25,176	4.41	%

Allowance for loan losses		(38,944	)						(42,895	)						(40,296	)
Premises and equipment		26,279							27,807							26,667
Other assets		153,210							178,150							149,885
Total assets	$	2,460,525						$	2,640,411						$	2,450,868

LIABILITIES AND STOCKHOLDERS' EQUITY:
Interest bearing demand	$	365,407		$	79	0.09	%	$	332,850		$	119	0.14	%	$	344,090		$	78	0.09	%
Savings		110,683			40	0.15	%		104,052			64	0.25	%		106,309			40	0.15	%
Money market		654,668			583	0.36	%		657,454			989	0.60	%		660,672			634	0.39	%
Time deposits		224,674			774	1.38	%		431,669			2,103	1.95	%		269,038			1,057	1.59	%
Total interest bearing deposits		1,355,432			1,476	0.44	%		1,526,025			3,275	0.86	%		1,380,109			1,809	0.53	%

Short-term borrowings 4		6,461			47	2.88	%		17,407			349	8.04	%		-			-	0.00	%
Long-term borrowings 4 5		213,138			1,620	3.05	%		295,803			4,282	5.81	%		219,599			1,597	2.95	%
Total borrowings		219,599			1,667	3.04	%		313,210			4,631	5.93	%		219,599			1,597	2.95	%
Total interest bearing
liabilities		1,575,031			3,143	0.80	%		1,839,235			7,906	1.72	%		1,599,708			3,406	0.86	%
Demand deposits		578,562							523,298							552,229
Other liabilities		24,331							17,118							24,983
Total liabilities		2,177,924							2,379,651							2,176,920
Stockholders' equity		282,601							260,760							273,948
Total liabilities and
stockholders' equity	$	2,460,525						$	2,640,411						$	2,450,868
Net interest income				$	22,249						$	19,205						$	21,770

Net interest spread						3.59	%						2.67	%						3.55	%

Net interest margin						3.85	%						3.11	%						3.81	%

1 Yield/rate calculations have been based on more detailed information and therefore may not recompute exactly due to rounding.

2 Interest earned on nontaxable securities has been computed on a 35% tax equivalent basis. The tax equivalent basis adjustment for the three months ended June 30, 2011, and 2010, was $.29 million and $.30 million, respectively, and $.26 million for three months ended March 31, 2011.

3 Includes balances of loans held for sale and nonaccrual loans.

4 Includes portion of $2.3 million prepayment fee in connection with prepaying $99.1 million in FHLB borrowings in the second quarter of 2010.

5 Includes junior subordinated debentures with average balance of $51.0 million for the three months ended June 30, 2011, and 2010, and March 31, 2011.

- 35 -

Second quarter 2011 net interest income of $22.0 million increased $3.1 million from the same quarter in 2010. Excluding a $2.3 million expense related to a Federal Home Loan Bank (“FHLB”) borrowing prepayment expense in the second quarter of 2010, net interest income expanded $.8 million year-over year second quarter. Net interest income on a tax equivalent basis was $22.2 million in the most recent quarter, up from $19.2 million in the second quarter of 2010. Average interest earning assets decreased $157.4 million, or 6.4%, to $2.32 billion for the second quarter of 2011 from $2.48 billion for the same period in 2010, while average interest bearing liabilities decreased $264.2 million, or 14.4%, to $1.58 billion from $1.84 billion in the prior period.

The second quarter 2011 net interest margin of 3.85% increased 74 basis points from second quarter 2010, predominantly due to a lower rate on interest bearing deposits and the above mentioned FHLB prepayment expense in the second quarter 2010. The spread between the yield earned on loans and rate paid on interest bearing deposits improved 92 basis points year-over-year in the second quarter notwithstanding the continued unfavorable shift in the average earning asset mix as higher yielding loan balances continued to decline. Collectively, cash equivalents and investment securities earned 273 basis points less than the loan portfolio during the most recent quarter.

As of June 30, 2011, the Bank had $695.9 million in floating and adjustable rate loans with interest rate floors. Of these loans, $488.5 million were at their floor rate. These floors have benefited the Company’s loan yield and net interest income and margin over the past year. If interest rates rise, the Company anticipates yields on loans at floors will lag underlying changes in market interest rates, although the overall effect will depend on how quickly and dramatically market interest rates rise, as well as how the slope of the market yield curve changes.

At June 30, 2011, management estimated that the Bank remains slightly asset sensitive over the next twelve month measurement period, meaning that earning assets are expected to mature or reprice more quickly than interest bearing liabilities over this period. Whether we will be able to continue recent positive trends in or maintain our net interest margin will depend on our ability to generate new loans and thereby utilize excess liquidity, to further reduce nonperforming assets, and to control our costs of funds, all of which will depend on economic conditions, competitive factors and market interest rate trends. For more information see the discussion under the heading “Quantitative and Qualitative Disclosures about Market Risk” in our 2010 10-K.

Provision for Credit Losses. Bancorp recorded provision for credit losses for the second quarters of 2011 and 2010 of $3.4 million and $7.8 million, respectively. While loan net charge-offs remained relatively unchanged from the second quarter of 2010, the overall risk profile of the Company’s loan portfolio improved. For example, residential real estate construction loans comprised just 1% of total loans at June 30, 2011, compared to 3% a year ago. Additionally, the Bank experienced a declining volume of loans migrating to higher risk rating classifications. The provision for credit losses was $5.5 million for the six months ended June 30, 2011, compared to $15.4 million in the same period last year. Whether we will be able to continue the trend of decreasing provision for credit losses will depend primarily on economic conditions and the interest rate environment, as an increase in interest rates could put pressure on the ability of our borrowers to repay loans. For more information, see the discussion under the subheading “Allowance for Credit Losses and Net Loan Charge-offs” below.

Noninterest Income. Total noninterest income of $8.1 million for the quarter ended June 30, 2011, decreased $1.5 million from $9.6 million in the second quarter of 2010. The decrease was primarily due to a $.7 million increase in OREO valuation adjustments and (loss) gains on sales, a $.6 million reduction in service charges on deposit accounts, a $.4 million decline in gain (loss) on sales of securities, and a $.2 million credit related other-than-temporary-impairment (“OTTI”) loss on a pooled trust preferred security in the investment portfolio. Noninterest income for the six months ended June 30, 2011 was $17.0 million compared to $16.0 million for the same period in 2010. The year-to-date increase in noninterest income was primarily due to a $1.0 million decrease in OREO valuation adjustments and (losses) gains on sales compared to the first six months of 2010. The following table illustrates the components and change in noninterest income for the periods shown:

	Three months ended											Three months ended
	June 30,						Change					March 31,			Change
(Dollars in thousands)	2011			2010			$			%		2011			$			%
Noninterest income
Service charges on deposit accounts	$	3,575		$	4,213		$	(638	)	-15	%	$	3,644		$	(69	)	-2	%
Payment systems related revenue		3,169			2,875			294		10	%		2,930			239		8	%
Trust and investment services revenues		1,208			1,167			41		4	%		1,148			60		5	%
Gains on sales of loans		300			306			(6	)	-2	%		513			(213	)	-42	%
Gains (losses) on sales of securities		130			488			(358	)	-73	%		267			(137	)	-51	%
Other-than-temporary impairment losses		(179	)		-			(179	)	-			-			(179	)	-
Other		777			785			(8	)	-1	%		748			29		4	%
Total		8,980			9,834			(854	)	-9	%		9,250			(270	)	-3	%

OREO gains (losses) on sale		645			1,048			(403	)	-38	%		323			322		100	%
OREO valuation adjustments		(1,555	)		(1,257	)		(298	)	-24	%		(657	)		(898	)	-137	%
Total		(910	)		(209	)		(701	)	-335	%		(334	)		(576	)	-172	%

Total noninterest income	$	8,070		$	9,625		$	(1,555	)	-16	%	$	8,916		$	(846	)	-9	%

- 36 -

In November 2010 the Federal Deposit Insurance Corporation ("FDIC") issued guidance applicable to its supervised institutions, including the Bank, on overdraft payment programs which is effective July 1, 2011. The Bank began implementing changes to its overdraft payment program in the second quarter of 2011 to comply with the FDIC's guidance and further changes will be implemented in the third quarter of 2011. The Company believes these changes will adversely affect noninterest income in future periods.

Noninterest Expense. Noninterest expense for the three months ended June 30, 2011, of $23.0 million, remained nearly unchanged compared to $22.9 million in the second quarter 2010. Salaries and employee benefits expense increased $.8 million over the same period in the prior year. Payment system related expenses grew $.1 million or 11% due to higher customer transaction volumes. These increases were substantially offset by the $.9 million decline in other noninterest expenses, which was primarily due to a reduction in the Company’s FDIC insurance premium expense from the second quarter in 2010.

Noninterest expense for the six months ended June 30, 2011, was $45.5 million, an increase of $1.5 million compared to $44.0 million for the same period in 2010. The increase in noninterest expense for the six months ended June 30, 2011, compared to the same period in 2010 was primarily due to higher salary and employee benefits expense. The Company continues to make efforts to lower its cost structure without negative effects on our customers. We expect our noninterest expenses will continue to be affected by expenses associated with elevated levels of nonperforming assets.

The following table illustrates the components and changes in noninterest expense for the periods shown:

	Three months ended									Three months ended
	June 30,		June 30,		Change					March 31,		Change
(Dollars in thousands)	2011		2010		$			%		2011		$			%
Noninterest expense
Salaries and employee benefits	$	12,119	$	11,322	$	797		7	%	$	11,877	$	242		2	%
Equipment		1,564		1,606		(42	)	-3	%		1,528		36		2	%
Occupancy		2,232		2,249		(17	)	-1	%		2,165		67		3	%
Payment systems related expense		1,350		1,212		138		11	%		1,247		103		8	%
Professional fees		976		1,161		(185	)	-16	%		982		(6	)	-1	%
Postage, printing and office supplies		862		737		125		17	%		810		52		6	%
Marketing		831		738		93		13	%		651		180		28	%
Communications		389		381		8		2	%		378		11		3	%
Other noninterest expense		2,635		3,503		(868	)	-25	%		2,915		(280	)	-10	%
Total	$	22,958	$	22,909	$	49		0	%	$	22,553	$	405		2	%

Changing business conditions, increased costs in connection with retention of, or a failure to retain key employees, lower loan production volumes causing deferred loan origination costs to decline, or a failure to manage operating and control environments could adversely affect our ability to limit expense growth in the future.

Income Taxes. The Company recorded an income tax benefit for the three months ended June 30, 2011, of $1.0 million compared to a provision for income taxes of $1.7 million during the second quarter of 2010. The benefit for income taxes in second quarter 2011 is the result of the increase in the estimated gross unrealized gains on the investment securities portfolio for the full year. For the six months period ended June 30, 2011, the Company recorded an income tax benefit of $.3 million compared to a provision for income taxes of $.9 million in the first six months of 2010.

As of June 30, 2011, the Company maintained a valuation allowance of $18.0 million against its deferred tax asset balance of $24.1 million, for a net deferred tax asset of $6.1 million. Under certain assumptions, including having pretax income in the third and fourth quarters of 2011, the remaining deferred tax asset valuation allowance could be reversed in the fourth quarter of 2011. The reversal of the deferred tax asset valuation allowance would significantly decrease the Company’s income tax expense and increase net income.

The following table illustrates the components of the provision (benefit) for income taxes for the periods shown:

	Three months ended						Six months ended
	June 30,			June 30,			June 30,			June 30,
(Dollars in thousands)	2011			2010			2011			2010
Benefit for income taxes net of initial
establishment of deferred tax asset valuation allowance	$	-		$	-		$	-		$	-
Provision (benefit) for income taxes from deferred
tax asset valuation allowance:
Unrealized loss (gain) on securities		(987	)		(1,798	)		(293	)		(2,598	)
Change in deferred tax assets-tax return adjustments		-			3,515			-			3,515
Total provision (benefit) for income taxes	$	(987	)	$	1,717		$	(293	)	$	917

- 37 -

Balance Sheet Overview

Balance sheet highlights are as follows:

Total assets were $2.5 billion as of June 30, 2011, substantially unchanged from December 31, 2010;
Total loans at $1.5 billion also remained virtually unchanged from the balance at December 31, 2010, primarily due to an improving trend in the Company’s quarterly loan commitment origination volume that nearly offset loan run off and resolution;
The combined balance of total cash equivalents and investment securities was $797 million, or 34% of earning assets, at June 30, 2011; and
Total deposits of $1.9 billion at June 30, 2011, were also relatively unchanged from year end 2010, with a continuing deposit balance mix shift away from time deposits.

Our balance sheet management efforts are focused on increasing loan balances within our concentration parameters to targeted customer segments as opportunities arise, limiting loan concentrations within our loan portfolio, maintaining a strong capital position until we have more certainty regarding prospective economic conditions, and retaining sufficient liquidity. We also expect to further reduce nonperforming assets by resolving nonaccrual loans and disposing of OREO properties.

Cash and Cash Equivalents

Total cash and cash equivalents decreased to $90.2 million at June 30, 2011, from $178.0 million at December 31, 2010, as we invested cash into our investment securities portfolio over the past six months.

	June 30,		% of		December 31,		% of		Change					June 30,		% of
(Dollars in thousands)	2011		total		2010		total		Amount			%		2010		total
Cash and Cash equivalents:
Cash and due from banks	$	54,296	60	%	$	42,672	24	%	$	11,624		27	%	$	45,685	27	%
Federal funds sold		2,367	3	%		3,367	2	%		(1,000	)	-30	%		13,431	8	%
Interest-bearing deposits in other banks		33,583	37	%		131,952	74	%		(98,369	)	-75	%		109,781	65	%
Total cash and cash equivalents	$	90,246	100	%		177,991	100	%	$	(87,745	)	-49	%	$	168,897	100	%
																.

- 38 -

Investment Portfolio

The compositions and carrying values of Bancorp’s investment securities portfolio were as follows:

	June 30, 2011							December 31, 2010							June 30, 2010
					Net							Net							Net
	Amortized				Unrealized			Amortized				Unrealized			Amortized				Unrealized
(Dollars in thousands)	Cost		Fair Value		Gain/(Loss)			Cost		Fair Value		Gain/(Loss)			Cost		Fair Value		Gain/(Loss)
U.S. Treasury securities	$	4,223	$	4,237	$	14		$	14,347	$	14,392	$	45		$	14,588	$	14,688	$	100
U.S. Government agency securities		221,331		221,958		627			193,901		194,230		329			249,423		250,848		1,425
Corporate securities		14,344		9,506		(4,838	)		14,499		9,392		(5,107	)		14,465		9,674		(4,791	)
Mortgage-backed securities		447,699		454,029		6,330			359,965		363,618		3,653			293,080		300,485		7,405
Obligations of state and political subdivisions		56,067		59,122		3,055			51,111		52,645		1,534			56,274		58,564		2,290
Equity and other securities		11,371		11,852		481			11,423		11,835		412			11,475		11,972		497
Total Investment Portfolio	$	755,035	$	760,704	$	5,669		$	645,246	$	646,112	$	866		$	639,305	$	646,231	$	6,926

At June 30, 2011, the fair value of the investment portfolio was $760.7 million, compared to $646.1 million at 2010 year end, an increase of 17.7% or $114.6 million. The net unrealized gain in the investment portfolio was $5.7 million at June 30, 2011, compared to $.9 million at year end 2010. An increase in net unrealized gains in the Company’s mortgage-backed securities and obligations of state and political subdivisions categories, primarily due to declining market interest rates, led to the increase in the overall net unrealized gain in the Company’s investment portfolio.

The investment portfolio increased $114.5 million since June 30, 2010. The purchases were primarily of US Government agency securities with 3 to 5 year maturities and 10 and 15 year fully amortizing US Agency mortgage backed securities for which we expect to have limited extension risk. The expected duration of the investment portfolio was 3.0 years at June 30, 2011, compared to 1.8 years at June 30, 2010, and 3.1 years at March 31, 2011.

In the second quarter of 2011, the Company recorded a credit related OTTI charge of $.2 million pretax related to a pooled trust preferred security in our investment portfolio. In reaching the determination to record this impairment management reviewed the facts and circumstances available surrounding the security, including the projected cash flows from the security, the duration and amount of the unrealized loss, the financial condition of the issuers within the pool and the prospects for a change in market value within a reasonable period of time. Based on its assessment, management determined that the impairment was other-than-temporary in accordance with Generally Accepted Accounting Principles (“GAAP”) and that a charge was appropriate for this security.

For additional detail regarding our investment securities portfolio, see Note 3 “Investment Securities” and Note 11 “Fair Value Measurement and Fair Values of Financial Instruments” of our interim financial statements included under Item 1 of this report.

Loan Portfolio

The compositions of the Bank’s loan portfolio were as follows for the periods shown:

	June 30,		% of total		Dec. 31,		% of total		Change			June 30,		% of total		Change
(Dollars in thousands)	2011		loans		2010		loans		Amount			2010		loans		Amount
Commercial loans	$	297,817	19.6	%	$	309,327	20.1	%	$	(11,510	)	$	312,170	19.5	%	$	(14,353	)
Commercial real estate construction		17,024	1.1	%		19,760	1.3	%		(2,736	)		22,096	1.4	%		(5,072	)
Residential real estate construction		15,410	0.9	%		24,325	1.6	%		(8,915	)		52,062	3.2	%		(36,652	)
Total real estate construction loans		32,434	2.0	%		44,085	2.9	%		(11,651	)		74,158	4.6	%		(41,724	)
Mortgage		62,244	4.1	%		67,525	4.4	%		(5,281	)		73,867	4.6	%		(11,623	)
Nonstandard mortgage		10,464	0.7	%		12,523	0.8	%		(2,059	)		14,348	0.9	%		(3,884	)
Home equity loans and lines of credit		264,016	17.4	%		268,968	17.5	%		(4,952	)		274,072	17.2	%		(10,056	)
Total real estate mortgage loans		336,724	22.2	%		349,016	22.7	%		(12,292	)		362,287	22.7	%		(25,563	)
Commercial real estate loans		839,665	55.2	%		818,577	53.3	%		21,088			837,033	52.2	%		2,632
Installment and other consumer loans		14,507	1.0	%		15,265	1.0	%		(758	)		16,384	1.0	%		(1,877	)
Total loans	$	1,521,147	100.0	%	$	1,536,270	100.0	%	$	(15,123	)	$	1,602,032	100.0	%	$	(80,885	)

The Bank’s total loan portfolio was $1.52 billion at June 30, 2011, a slight decrease from December 31, 2010. While loan balances contracted as compared to June 30, 2010, we have experienced a steady increase in our quarterly loan commitment origination volumes over the past year which has resulted in our loan balances stabilizing over the past six months. Reflecting the continued challenges in local residential real estate markets and in the economy, commercial, real estate construction, and real estate mortgage loan balances declined from year end and more than offset growth in commercial real estate loans. The residential real estate construction loan portfolio contracted $36.7 million or 70% since June 30, 2010, and measured just 1% of total loans at most recent quarter end compared to 3% a year ago. The Company also exited a number of higher risk rated loans over the past year which contributed to the $14.4 million or 5% contraction in the commercial loan category over the same period. Additionally, commercial credit line commitment utilization at most recent quarter end remained low compared to historical levels.

- 39 -

Interest and fees earned on our loan portfolio are our primary source of revenue, and it will be very important that we continue to improve loan originations and increase loan balances in order to grow overall revenues. Our ability to achieve loan growth will be dependent on many factors, including the effects of competition, economic conditions in our markets, health of the real estate market, retention of key personnel and valued customers, and our ability to close loans in the pipeline.

At June 30, 2011, the Bank had outstanding loans of $5.4 million to persons serving as directors, executive officers, principal stockholders and their related interests. These loans, when made, were made in the ordinary course of business on substantially the same terms, including interest rates, maturities and collateral, as comparable loans made to customers not related to the Bank. At June 30, 2011, and December 31, 2010, Bancorp had no bankers’ acceptances.

Below is a discussion of our loan portfolio by category.

Commercial. At June 30, 2011, the outstanding balance of commercial loans and lines was $297.8 million or approximately 20% of the Company’s total loan portfolio. The total commercial lines and loans balance decreased by $11.5 million or 4% from $309.3 million at year end 2010.

At June 30, 2011, commercial lines of credit accounted for $182.3 million or 61% of total outstanding commercial loans and lines, while commercial term loans accounted for $115.5 million or 39% of the total. The commercial line utilization remained towards the low end of our customers’ utilization range over the past few years.

The Company guides new origination volume using concentration limits that establish maximum exposure levels by designated industry segment, real estate product types, geography, and single borrower limits. We expect the commercial loan portfolio to be an important contributor to growth in future revenues. Our capital and liquidity positions will support our efforts to pursue opportunities in targeted commercial lending segments.

Real Estate Construction. At June 30, 2011, the balance of real estate construction loans was $32.4 million, a reduction of $11.7 million or 26% from $44.1 million at December 31, 2010. Total real estate construction loans represented 2% of the total loan portfolio at the end of the second quarter, down from 3% at December 31, 2010, and 5% a year ago. Additionally, at the end of the second quarter 2011, the Bank’s real estate construction concentration at 17% relative to Tier 1 capital and allowance for credit losses was well within the Interagency Guidelines for Real Estate Lending and the Commercial Real Estate Lending Joint Guidance policy guidelines which set forth a 100% limit for such ratio.

Until the supply and market demand for new homes is more in balance and volume of homes being foreclosed upon declines from recent levels, there will be limited demand for new residential construction loans in the market place. Limited financing for vertical construction may be made available. However, we still view residential construction lending as high risk, and we are not actively looking to grow residential construction balances at this time.

Real Estate Mortgage. The following table presents the components of our real estate mortgage loan portfolio:

									Change from
	June 30, 2011				December 31, 2010				December 31, 2010					June 30, 2010
			Percent of				Percent of									Percent of
			loan				loan									loan
(Dollars in thousands)	Amount		category		Amount		category		Amount			Percent		Amount		category
Mortgage	$	62,244	19	%	$	67,525	19	%	$	(5,281	)	-8	%	$	73,867	20	%
Nonstandard mortgage product		10,464	3	%		12,523	4	%		(2,059	)	-16	%		14,348	4	%
Home equity loans and lines of credit		264,016	78	%		268,968	77	%		(4,952	)	-2	%		274,072	76	%
Total real estate mortgage	$	336,724	100	%	$	349,016	100	%	$	(12,292	)	-4	%	$	362,287	100	%

At June 30, 2011, real estate mortgage loans totaled $336.7 million or approximately 22% of the Company’s total loan portfolio. This loan category included $10.5 million in nonstandard mortgage loans, a decline from $12.5 million at December 31, 2010, and $14.3 million a year ago. At June 30, 2011, mortgage loans measured $62.2 million or 19% of total real estate mortgage loans, $31.2 million of which were standard residential mortgage loans to homeowners. The remaining $31.0 million in mortgage loans were associated with commercial interests utilizing residences as collateral. Such commercial interests included $19.8 million related to businesses, $2.2 million related to condominiums, and $4.6 million related to ownership of residential land.

Home equity lines and loans represented 78% or $264.0 million of the real estate mortgage portfolio at June 30, 2011. The overall home equity line utilization measured approximately 61% at June 30, 2011, which was similar to such line utilization a year ago.

The mortgage loan portfolios have experienced some weakness year to date 2011, primarily in home equity loans and lines of credit, as reflected by higher nonaccrual balances and net charge-offs in this portfolio. Should weaknesses in the economy and housing market continue, coupled with persistent high unemployment in our markets, increased real estate mortgage delinquencies and charge-offs may result going forward. Additionally, there may be requests made in the future for repurchases of real estate mortgage loans previously sold by the Company in the secondary market. At June 30, 2011, the number of repurchase requests and the balances associated with those requests was not material.

.- 40 -

The following table shows home equity lines of credit and loans by market areas at the date shown and indicates a geographic distribution of balances remaining fairly representative of our branch presence in these markets:

(Dollars in thousands)	June 30, 2011				December 31, 2010
Region	Amount		Percent of total		Amount		Percent of total
Portland-Beaverton, Oregon / Vancouver, Washington	$	126,428	48	%	$	127,479	48	%
Salem, Oregon		62,544	24	%		62,533	23	%
Oregon non-metropolitan area		26,903	10	%		27,615	10	%
Olympia, Washington		18,483	7	%		17,236	7	%
Washington non-metropolitan area		13,553	5	%		14,489	5	%
Bend, Oregon		4,836	2	%		5,692	2	%
Other		11,269	4	%		13,924	5	%
Total home equity loan and line portfolio	$	264,016	100	%	$	268,968	100	%

Commercial Real Estate. The compositions of commercial real estate loan portfolio based on collateral type were as follows:

(Dollars in thousands)	June 30, 2011				December 31, 2010				June 30, 2010
			% of loan				% of loan				% of loan
	Amount		category		Amount		category		Amount		category
Office Buildings	$	185,521	22.1	%	$	182,376	22.3	%	$	185,318	22.1	%
Retail Facilities		111,832	13.3	%		108,874	13.3	%		111,737	13.3	%
Multi-Family - 5+ Residential		63,368	7.6	%		58,606	7.2	%		49,030	5.9	%
Commercial/Agricultural		59,899	7.1	%		54,361	6.6	%		60,822	7.3	%
Medical Offices		57,162	6.8	%		55,294	6.8	%		59,736	7.1	%
Industrial parks and related		56,325	6.7	%		59,493	7.3	%		60,051	7.2	%
Manufacturing Plants		49,523	6.0	%		47,341	5.8	%		47,613	5.7	%
Hotels/Motels		35,390	4.2	%		35,724	4.4	%		42,448	5.1	%
Assisted Living		23,196	2.8	%		25,669	3.1	%		26,268	3.1	%
Mini Storage		22,789	2.7	%		24,678	3.0	%		25,221	3.0	%
Land Development and Raw Land		21,289	2.5	%		19,534	2.4	%		20,723	2.5	%
Food Establishments		18,588	2.2	%		16,370	2.0	%		14,897	1.8	%
Other		134,783	16.0	%		130,257	15.8	%		133,169	15.9	%
Total commercial real estate loans	$	839,665	100.0	%	$	818,577	100.0	%	$	837,033	100.0	%

The commercial real estate portfolio increased $21.1 million or 2.6% from $818.6 million at December 31, 2010, to $839.7 million at June 30, 2011. At quarter end, loans secured by office buildings and retail facilities accounted for 35.4% of the commercial real estate portfolio, relatively unchanged from prior periods shown.

The compositions of the commercial real estate loan portfolio by occupancy type were as follows:

(Dollars in thousands)	June 30, 2011				December 31, 2010				Change				June 30, 2010
			Mix				Mix				Mix
	Amount		Percent		Amount		Percent		Amount		Percent		Amount		Percent
Owner occupied	$	389,930	46	%	$	383,047	47	%	$	6,883	-1	%	$	402,062	48	%
Non-owner occupied		449,735	54	%		435,530	53	%		14,205	1	%		434,971	52	%
Total commercial real estate loans	$	839,665	100	%	$	818,577	100	%	$	21,088			$	837,033	100	%

- 41 -

Over the periods shown, the mix between owner occupied and non-owner occupied commercial real estate has remained fairly stable with balances increasing in both segments since year end 2010. At June 30, 2011, the Bank’s commercial real estate concentration at 132% relative to Tier 1 capital and allowance for credit losses was well within the Interagency Guidelines for Real Estate Lending and the Commercial Real Estate Lending Joint Guidance policy guidelines which set forth a 300% limit for such ratio. The following table shows the commercial real estate portfolio by property location:

(Dollars in thousands)	June 30, 2011
			Number of	Percent of
Region	Amount		loans	total
Portland-Beaverton, Oregon / Vancouver, Washington	$	447,898	745	53.3	%
Salem, Oregon		151,612	394	18.1	%
Oregon non-metropoliton area		55,550	166	6.6	%
Seattle-Tacoma-Bellevue, Washington		37,837	43	4.5	%
Washington non-metropoliton area		31,286	105	3.7	%
Olympia, Washington		27,983	75	3.3	%
Bend, Oregon		24,136	24	2.9	%
Other		63,363	96	7.6	%
Total commercial real estate loans	$	839,665	1,648	100.0	%

As shown in the table above, the distribution of our commercial real estate portfolio at June 30, 2011, was fairly consistent with our branch presence in our operating markets. The average size of our commercial real estate loans was approximately $.5 million at June 30, 2011. The following table shows the commercial real estate portfolio by year of stated maturity:

(Dollars in thousands)	June 30, 2011
			Number of	Percent of
	Amount		loans	total
2011	$	37,350	65	4.4	%
2012		55,121	87	6.6	%
2013 & After		747,194	1,496	89.0	%
Total commercial real estate loans	$	839,665	1,648	100.0	%

At June 30, 2011, commercial real estate loans with stated loan maturities in 2011 and 2012 totaled $92.5 million or a relatively modest 11% of the $839.7 million total commercial real estate portfolio. Commercial real estate markets continue to be vulnerable to financial and valuation pressures that may limit refinance options and negatively impact borrowers’ ability to perform under existing loan agreements. Declining values of commercial real estate or higher market interest rates may have a further adverse affect on the ability of borrowers with maturing loans to satisfy loan to value ratios required to renew such loans.

- 42 -

Nonperforming Assets and Delinquencies

Nonperforming Assets. Nonperforming assets consist of nonaccrual loans, loans past due more than 90 days and still accruing interest and OREO. The following table presents information with respect to total nonaccrual loans by category and OREO for the periods shown:

(Dollars in thousands)	June 30, 2011					Mar. 31, 2011			Dec. 31, 2010			Sept. 30, 2010			June 30, 2010
				Percent of
				loan
	Amount			category		Amount			Amount			Amount			Amount
Commercial loans	$	9,280		3.1	%	$	12,803		$	13,377		$	13,319		$	15,317
Real estate construction loans:
Commercial real estate construction		4,357		25.6	%		4,032			4,077			3,391			3,391
Residential real estate construction		3,439		22.3	%		4,093			6,615			13,316			19,465
Total real estate construction loans		7,796		24.0	%		8,125			10,692			16,707			22,856
Real estate mortgage loans:
Mortgage		5,734		9.2	%		5,714			9,318			13,040			14,535
Nonstandard mortgage product		5,793		55.4	%		6,451			5,223			5,150			6,121
Home equity loans and lines of credit		2,755		1.0	%		1,426			950			1,538			2,198
Total real estate mortgage loans		14,282		4.2	%		13,591			15,491			19,728			22,854
Commercial real estate loans		19,263		2.3	%		19,424			21,671			18,792			17,542
Installment and other consumer loans		1		0.0	%		-			-			-			74
Total nonaccrual loans		50,622		3.3	%		53,943			61,231			68,546			78,643
90 day past due and accruing interest		-					-			-			-			-
Total nonperforming loans		50,622		3.3	%		53,943			61,231			68,546			78,643
Other real estate owned		35,374					39,329			39,459			35,814			37,578
Total nonperforming assets	$	85,996				$	93,272		$	100,690		$	104,360		$	116,221

Nonperforming loans to total loans		3.33	%				3.51	%		3.99	%		4.35	%		4.91	%
Nonperforming assets to total assets		3.49	%				3.80	%		4.09	%		4.20	%		4.64	%

Delinquent loans 30-89 days past due	$	9,961				$	4,901		$	2,721		$	5,502		$	2,742
Delinquent loans to total loans		0.65	%				0.32	%		0.18	%		0.35	%		0.17	%

At June 30, 2011, total nonperforming assets were $86.0 million, or 3.49% of total assets, compared to $100.7 million, or 4.09%, at December 31, 2010, and $116.2 million or 4.64% a year ago. Nonperforming assets have declined for nine consecutive quarters and were down 26% from June 30, 2010. The balance of total nonperforming assets at quarter end reflected write-downs totaling $47.8 million or 35% from the original principal loan balance.

Over the past year, total nonaccrual loans declined $28.0 million or 36% to $50.6 million at June 30, 2011. The reduction was largely due to the Company taking ownership of additional residential and commercial properties related to loans which previously were on nonaccrual status, nonaccrual loan payoffs, charge-offs, and the disposition of nonaccrual commercial loans. Over the past year, nonaccrual commercial, residential real estate construction and real estate mortgage loans declined and more than offset a modest increase in nonaccrual commercial real estate loans.

- 43 -

OREO. The following table presents activity in the total OREO portfolio for the periods shown:

	Total OREO related activity
(Dollars in thousands)	Amount			Number
Full year 2010:
Beginning balance January 1, 2010	$	53,594		672
Additions to OREO		25,199		123
Capitalized improvements		3,185		-
Valuation adjustments		(6,649	)	-
Disposition of OREO properties		(35,870	)	(393	)
Ending balance December 31, 2010	$	39,459		402

First Quarter 2011
Additions to OREO	$	6,354		25
Capitalized improvements		125		-
Valuation adjustments		(657	)	-
Disposition of OREO properties		(5,952	)	(28	)
Ending balance March 31, 2011	$	39,329		399

Second Quarter 2011
Additions to OREO	$	4,013		18
Capitalized improvements		257		-
Valuation adjustments		(1,555	)	-
Disposition of OREO properties		(6,670	)	(51	)
Ending balance June 30, 2011	$	35,374		366

Year to Date 2011
Beginning balance January 1, 2011	$	39,459		402
Additions to OREO		10,367		43
Capitalized improvements		382		-
Valuation adjustments		(2,212	)	-
Disposition of OREO properties		(12,622	)	(79	)
Ending balance June 30, 2011	$	35,374		366

The Company has remained focused on OREO property disposition activities. During the second quarter 2011 the Company added $4.0 million and disposed of $6.7 million in OREO property. At June 30, 2011, the OREO portfolio consisted of 366 properties valued at $35.4 million. The quarter end OREO balance reflected write-downs totaling 50% from the original loan principal compared to 52% twelve months ago. The largest balances in the OREO portfolio at June 30, 2011, were attributable to homes, followed by income producing properties and residential site development projects, all of which are located within the region in which we operate. For more information regarding the Company’s OREO, see the discussion under the subheading “OREO” and “Critical Accounting Policies” included in Item 7 of the Company’s 2010 10-K.

The following table presents segments of the OREO portfolio for the periods shown:

	June 30,		# of	March 31,		# of	December 31,		# of
(Dollars in thousands)	2011		properties	2011		properties	2010		properties
Homes	$	10,108	43	$	15,093	64	$	17,297	69
Income producing properties		9,237	14		6,613	9		5,162	7
Residential site developments		5,912	215		6,973	236		7,340	245
Land		4,052	11		4,427	11		5,135	12
Lots		3,126	52		3,758	56		3,700	56
Condominiums		1,900	14		1,792	12		128	2
Multifamily		673	11		673	11		697	11
Commercial site developments		366	6		-	-		-	-
Total	$	35,374	366	$	39,329	399	$	39,459	402

Expenses from the acquisition, maintenance and disposition of OREO properties are included in other noninterest expense in the statements of income (loss.) Our operating results will be impacted by our ability to dispose of OREO properties at prices that are in line with current valuation expectations. Continued decline in real estate market values in our area would lead to additional OREO valuation adjustments or losses upon final disposal, which would have an adverse effect on our results of operations.

- 44 -

Delinquencies. Bancorp also monitors delinquencies, defined as loan balances 30-89 days past due, not on nonaccrual status, as an indicator of future nonperforming assets. Total delinquencies were $10.0 million or .65% of total loans at June 30, 2011, up from $2.7 million or .18% at December 31, 2010, and $2.7 million or .17% at June 30, 2010. The majority of the $6.2 million increase from year end 2010 in commercial real estate delinquencies at June 30, 2011, was cured subsequent to quarter end.

The following table summarizes total delinquent loan balances by type of loan as of the dates shown:

(Dollars in thousands)	June 30, 2011					December 31, 2010					June 30, 2010
				Percent of					Percent of					Percent of
	Amount			loan category		Amount			loan category		Amount			loan category
Loans 30-89 days past due, not on nonaccrual status
Commercial	$	1,919		0.64	%	$	52		0.02	%	$	450		0.14	%
Real estate construction		-		0.00	%		-		0.00	%		1,094		1.48	%
Real estate mortgage:
Mortgage		742		1.19	%		409		0.01	%		406		0.55	%
Nonstandard mortgage product		246		2.35	%		945		0.08	%		-		0.00	%
Home equity loans and lines of credit		302		0.11	%		708		0.00	%		247		0.09	%
Total real estate mortgage		1,290		0.38	%		2,062		0.59	%		653		0.18	%
Commercial real estate		6,746		0.80	%		555		0.07	%		337		0.04	%
Installment and consumer		6		0.05	%		52		0.34	%		208		1.27	%
Total loans 30-89 days past due, not in nonaccrual status	$	9,961				$	2,721				$	2,742

Delinquent loans past due 30-89 days to total loans		0.65	%				0.18	%				0.17	%

Allowance for Credit Losses and Net Loan Charge-offs

Allowance for Credit Losses. An allowance for credit losses has been established based on management’s best estimate, as of the balance sheet date, of probable losses inherent in the loan portfolio. For more information regarding the Company’s allowance for credit losses and net loan charge-offs, see the discussion under the subheadings “Credit Management”, “Allowance for Credit Losses and Net Loan Charge-offs” and “Critical Accounting Policies” included in Item 7 of the Company’s 2010 10-K.

- 45 -

The following table is a summary of activity in the allowance for credit losses for the periods presented:

	June 30,			March 31,			Dec. 31,			Sep. 30,			June 30,
(Dollars in thousands)	2011			2011			2010			2010			2010
Loans outstanding at end of period	$	1,521,147		$	1,535,700		$	1,536,270		$	1,575,451		$	1,602,032
Average loans outstanding during the period		1,523,170			1,529,290			1,556,975			1,586,849			1,645,189
Allowance for credit losses, beginning of period		40,429			41,067			42,618			44,347			41,299
Total provision for credit losses		3,426			2,076			1,693			1,567			7,758
Loan charge-offs:
Commercial		(460	)		(761	)		(1,268	)		(713	)		(2,003	)
Commercial real estate construction		(648	)		(65	)		(76	)		-			(248	)
Residential real estate construction		(218	)		(311	)		(471	)		(906	)		(513	)
Total real estate construction		(866	)		(376	)		(547	)		(906	)		(761	)
Mortgage		(145	)		(310	)		(533	)		(450	)		(515	)
Nonstandard mortgage		(85	)		(316	)		(77	)		(7	)		(643	)
Home equity lines of credit		(2,301	)		(859	)		(673	)		(572	)		(631	)
Total real estate mortgage		(2,531	)		(1,485	)		(1,283	)		(1,029	)		(1,789	)
Commercial real estate		(563	)		(329	)		(587	)		(343	)		(288	)
Installment and consumer		(201	)		(176	)		(69	)		(288	)		(179	)
Overdraft		(239	)		(287	)		(382	)		(399	)		(216	)
Total loan charge-offs		(4,860	)		(3,414	)		(4,136	)		(3,678	)		(5,236	)
Recoveries:
Commercial		139			498			159			189			319
Commercial real estate construction		-			-			-			-			-
Residential real estate construction		5			-			382			93			81
Total real estate construction		5			-			382			93			81
Mortgage		6			105			186			1			37
Nonstandard mortgage		2			1			1			2			2
Home equity loans and lines of credit		10			6			103			4			4
Total real estate mortgage		18			112			290			7			43
Commercial real estate		2			3			3			4			13
Installment and consumer		16			8			10			16			33
Overdraft		56			79			48			73			37
Total recoveries		236			700			892			382			526
Net loan charge-offs		(4,624	)		(2,714	)		(3,244	)		(3,296	)		(4,710	)
Allowance for credit losses, end of period	$	39,231		$	40,429		$	41,067		$	42,618		$	44,347

Components of allowance for credit losses
Allowance for loan losses	$	38,422		$	39,692		$	40,217		$	41,753		$	43,329
Reserve for unfunded commitments		809			737			850			865			1,018
Total allowance for credit losses	$	39,231		$	40,429		$	41,067		$	42,618		$	44,347

Net loan charge-offs to average loans annualized		1.22	%		0.72	%		0.83	%		0.82	%		1.15	%

Allowance for loan losses to total loans		2.53	%		2.58	%		2.62	%		2.65	%		2.70	%
Allowance for credit losses to total loans		2.58	%		2.63	%		2.67	%		2.71	%		2.77	%

Allowance for loan losses to nonperforming loans		76	%		74	%		66	%		61	%		55	%
Allowance for credit losses to nonperforming loans		78	%		75	%		67	%		62	%		56	%

- 46 -

At June 30, 2011, the Company’s allowance for credit losses was $39.2 million, consisting of a $32.6 million formula allowance, a $5.4 million unallocated allowance, a $.4 million specific allowance and a $.8 million reserve for unfunded commitments. At December 31, 2010, our allowance for credit losses was $41.1 million, consisting of a $33.5 million formula allowance, a $6.2 million unallocated allowance, a $.6 million specific allowance and a $.8 million reserve for unfunded commitments. The reserve for unfunded commitments was included in other liabilities as of both period ends. At June 30, 2011, the allowance for credit losses was 2.58% of total loans, a decrease from 2.67% at December 31, 2010. At June 30, 2011, the allowance for credit losses was 78% of nonperforming loans, as compared to 67% at December 31, 2010.

Overall, we believe that the allowance for credit losses is adequate to absorb probable losses in the loan portfolio at June 30, 2011, although there can be no assurance that future loan losses will not exceed our current estimates. The process for determining the adequacy of the allowance for credit losses is critical to our financial results. Please see Item 1A “Risk Factors” in our 2010 10-K.

Net Loan Charge-offs. For the quarter ended June 30, 2011, total net loan charge-offs were $4.6 million compared to $4.7 million in the second quarter 2010. Year over year second quarter, commercial loan net charge-offs declined while home equity net charge-offs increased. Second quarter 2011 annualized net loan charge-offs to total average loans outstanding was 1.22%, up slightly from 1.15% in the same quarter last year.

Deposits and Borrowings

The following table summarizes the quarterly average dollar amount in, and the interest rate paid on, each of the deposit and borrowing categories during the second quarters of 2011 and 2010 and first quarter 2011:

(Dollars in thousands)	Second Quarter 2011						First Quarter 2011						Second Quarter 2010
	Quarterly Average		Percent		Rate		Quarterly Average		Percent		Rate		Quarterly Average		Percent		Rate
	Balance		of total		Paid		Balance		of total		Paid		Balance		of total		Paid
Non-interest bearing demand	$	578,562	29.9	%	-		$	552,229	28.6	%	-		$	523,298	25.5	%	-
Interest bearing demand		365,407	18.9	%	0.09	%		344,090	17.8	%	0.09	%		332,850	16.2	%	0.14	%
Savings		110,683	5.7	%	0.15	%		106,309	5.5	%	0.15	%		104,052	5.1	%	0.25	%
Money market		654,668	33.9	%	0.36	%		660,672	34.2	%	0.39	%		657,454	32.1	%	0.60	%
Time deposits		224,674	11.6	%	1.38	%		269,038	13.9	%	1.59	%		431,669	21.1	%	1.95	%
Total deposits		1,933,994	100.0	%	0.31	%		1,932,338	100.0	%	0.38	%		2,049,323	100.0	%	0.64	%

Short-term borrowings		6,461			2.88	%		-			0.00	%		17,407			8.04	%
Long-term borrowings 1		213,138			3.05	%		219,599			2.95	%		295,803			5.81	%
Total borrowings		219,599			3.04	%		219,599			2.95	%		313,210			5.93	%

Total deposits and borrowings	$	2,153,593			0.80	%	$	2,151,937			0.86	%	$	2,362,533			1.72	%

1	Long-term borrowings include junior subordinated debentures.

Second quarter 2011 average total deposits of $1.93 billion declined 6% or $115.3 million from the same quarter in 2010. This decrease was mainly due to the decision to continue to reduce higher cost time deposit balances, which declined $207.0 million or 48% from the same quarter last year. Time deposits represented just 12% of the Company’s average total deposits in the most recent quarter. The combination of the Company’s favorable deposit mix and recent deposit pricing strategies helped reduce the average rate paid on total deposits to .31% in second quarter 2011, representing a decline of 33 basis points from 0.64% in the same quarter 2010. Whether we will continue to be successful maintaining or growing our low cost deposit base will depend on various factors, including deposit pricing strategies, market interest rates, the effects of competition, client behavior, and regulatory changes and requirements.

At June 30, 2011, total brokered deposits were $7.6 million, compared to $7.7 million at March 31, 2011, and $59.1 million at June 30, 2010. Brokered deposits are currently not being replaced as they mature.

The average balance of long-term borrowings decreased $82.7 million from the second quarter 2010 to $213.1 million in the most recent quarter as we did not replace maturing borrowings over the past twelve months.

At June 30, 2011, the balance of junior subordinated debentures issued in connection with our prior issuances of trust preferred securities was $51.0 million or unchanged from June 30, 2010. During the second quarter of 2011 the Company paid all previously deferred interest and current interest payments on its trust preferred securities. Under the December 2009 Written Agreement with the Oregon Department of Consumer and Business Services, Division of Finance and Corporate Securities (“DFCS”) and the Federal Reserve Bank (“Reserve Bank”), we must request regulatory approval prior to making payments on our trust preferred securities. For additional detail regarding Bancorp’s outstanding debentures, see Note 9 in the financial statements included under Item 1 of this report.

- 47 -

Capital Resources

The Board of Governors of the Federal Reserve System (“Federal Reserve”) and the FDIC have established minimum requirements for capital adequacy for bank holding companies and state non-member banks. For more information on these topics, see the discussions under the subheadings “Capital Adequacy Requirements” in the section “Supervision and Regulation” included in Item 1 of the Company’s 2010 10-K. The following table summarizes the capital measures of Bancorp and the Bank at June 30, 2011:

	West Coast Bancorp									West Coast Bank									Minimum requirements
(Dollars in thousands)	June 30,						December 31,			June 30,						December 31,			Adequately		Well
	2011			2010			2010			2011			2010			2010			Capitalized		Capitalized
Tier 1 risk-based capital ratio		17.99	%		16.50	%		17.47	%		17.30	%		15.84	%		16.79	%	4.00	%	6.00	%
Total risk-based capital ratio		19.25	%		17.76	%		18.74	%		18.56	%		17.10	%		18.05	%	8.00	%	10.00	%
Leverage ratio		13.55	%		11.90	%		13.02	%		13.04	%		11.43	%		12.51	%	4.00	%	5.00	%

Total stockholders' equity	$	285,569		$	267,412		$	272,560		$	323,631		$	305,656		$	310,487

Bancorp’s total risk-based capital ratio improved to 19.25% at June 30, 2011, from 18.74% at December 31, 2010, and 17.76% at June 30, 2010, while Bancorp's Tier 1 risk-based capital ratio increased to 17.99% at the most recent quarter end, from 17.47% at year end 2010 and 16.50% at June 30, 2010. These increases were due to the Company returning to profitability and a continued reduction in its total assets. The total risk-based capital ratio at the Bank improved to 18.56% at June 30, 2011, from 18.05% at year end 2010, and 17.10% at June 30, 2010, while the Bank’s Tier 1 risk-based capital ratio increased to 17.30% from 16.79% and 15.84% at those same dates. Additionally, the leverage ratio at the Bank improved to 13.04% at June 30, 2011, from 12.51% at year end 2010, and 11.43% a year ago.

The total risk based capital ratios of Bancorp include $51.0 million of junior subordinated debentures which qualified as Tier 1 capital at June 30, 2011, under guidance issued by the Federal Reserve. As provided in the Dodd-Frank Act, which was signed into law on July 21, 2010, Bancorp expects to continue to rely on these junior subordinated debentures as part of its regulatory capital. However, at this point, Bancorp does not expect to issue additional junior subordinated debentures as any future issued junior subordinated debentures would not qualify as Tier 1 total capital under Dodd-Frank.

Bancorp’s stockholders’ equity was $285.6 million at June 30, 2011, up from $272.6 million at year end 2010 and $267.4 million at June 30, 2010. While the Company has no immediate plans to raise additional capital, it may decide to do so at some time in the future. At such time, Bancorp may offer and issue qualifying equity or debt instruments. Any equity or debt financing, if available at all, may be dilutive to existing shareholders or include covenants or other restrictions that limit the Company’s activities.

- 48 -

Liquidity and Sources of Funds

The Bank’s sources of funds include customer deposits, loan repayments, advances from the FHLB, maturities of investment securities, sales of “Available for Sale” securities, loan and OREO sales, net income, if any, loans taken out at the Reserve Bank discount window, and the use of Federal Funds markets. Scheduled loan repayments are a relatively stable source of funds, while deposit inflows, unscheduled loan prepayments, and loan and OREO sales are not. Deposit inflows, sales of securities, loan and OREO properties, and unscheduled loan prepayments may, amongst other factors, be influenced by general interest rate levels, interest rates available on other investments, competition, market and general economic conditions.

Deposits are our primary source of funds, and at June 30, 2011, our loan to deposit ratio was 79%, unchanged from December 31, 2010, and a slight decline from 80% at June 30, 2010. Lower loan balances caused the collective balance of interest bearing deposits at the Reserve Bank and investment securities portfolio of $796.7 million to account for a significant 34% of total earning assets at June 30, 2011. In light of our substantial liquidity position, a portion of which is funded at a higher cost of funds than amounts being earned and therefore has an adverse impact on net interest income and operating results, we continued to reduce brokered, internet, and other time deposits during the most recent quarter.

The following table summarizes the primary liquidity, on balance sheet liquidity, and net non-core funding dependency ratios. The primary liquidity ratio represents the sum of net cash, short-term and marketable assets and available borrowing lines divided by deposits. The on balance sheet consists of the sum of net cash, short-term and marketable assets divided by deposits. The net non-core funding dependency ratio is non-core liabilities less short-term investments divided by long-term assets. The Company ’ s primary liquidity, on balance sheet liquidity, and net non-core funding dependency ratios remained strong at quarter end :

	June 30,		December 31,
	2011		2010
Primary liquidity	44	%	37	%
On balance sheet liquidity	25	%	15	%
Net non-core funding dependency	8	%	6	%

At June 30, 2011, the Bank had outstanding borrowings of $168.6 million, against its $493.2 million in established borrowing capacity with the FHLB, as compared to $168.6 million outstanding against its $673.0 million in established borrowing capacity at December 31, 2010. The borrowing capacity at the FHLB declined from year end as the Company elected to hold a higher balance of unpledged securities. The Bank’s borrowing facility is subject to collateral and stock ownership requirements. The Bank also had an available discount window primary credit line with the Reserve Bank of approximately $40.2 million at June 30, 2011, with no balance outstanding at either June 30, 2011, or December 31, 2010. The Reserve Bank line is subject to collateral requirements.

On December 15, 2009, Bancorp entered into a Written Agreement with the Reserve Bank and DFCS. For detailed discussion of the Written Agreement, see Item 1, “Business – Current Regulatory Actions” in our 2010 10-K . Under the Written Agreement, Bancorp may not directly or indirectly take dividends or other forms of payment representing a reduction in capital from the Bank without the prior written approval of the Reserve Bank and the DFCS. Also, under our Memorandum of Understanding, the Bank may not pay dividends to the holding company without the consent of the FDIC and the DFCS. At June 30, 2011, the holding company did not have any borrowing arrangements of its own.

Off-Balance Sheet Arrangements

At June 30, 2011, the Bank had commitments to extend credit of $563.0 million, which was down .2% compared to $571.6 million at December 31, 2010. For additional information regarding off balance sheet arrangements and future financial commitments, see Note 7 “Commitments and Contingent Liabilities” in the financial statements included under Item 1 of this report.

Critical Accounting Policies

Management has identified as our most critical accounting policies, the calculation of our allowance for credit losses, valuation of OREO, and estimates relating to income taxes. Each of these policies are discussed in our 2010 10-K under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operation – Critical Accounting Policies.”

- 49 -

Item 3. Quantitative and Qualitative Disclosures About Market Risk

There has been no material change in the market risks disclosure under Item 7A “Quantitative and Qualitative Disclosures about Market Risk” in the Company’s 2010 10-K.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Our disclosure controls and procedures are designed to ensure that information the Company must disclose in its reports filed or submitted under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms and accumulated and communicated to our management, including our chief executive officer (“CEO”) and chief financial officer (“CFO”), as appropriate to allow timely decisions regarding required disclosure. Our management has evaluated, with the participation and under the supervision of our CEO and CFO, the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act) as of the end of the period covered by this report. Based on this evaluation, our CEO and CFO have concluded that, as of such date, the Company’s disclosure controls and procedures are effective in ensuring that information relating to the Company, including its consolidated subsidiaries, required to be disclosed in reports that it files under the Exchange Act is (1) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and (2) accumulated and communicated to our management, including our CEO and CFO, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control Over Financial Reporting

There was no change in our internal controls over financial reporting during our most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting.

- 50 -

PART II: OTHER INFORMATION

Item 1. Legal Proceedings

On June 24, 2009, West Coast Trust was served with an Objection to Personal Representative's Petition and Petition for Surcharge of Personal Representative in Linn County Circuit Court. The petition was filed by the beneficiaries of the estate of Archie Q. Adams, for which West Coast Trust acts as the personal representative. The petitioners allege a breach of fiduciary duty with respect to West Coast Trust's prior sale of real property owned by the Adams estate and sought relief in the form of a surcharge to West Coast Trust of $215,573,115.60, the amount of the alleged loss to the estate. West Coast Trust filed a motion to dismiss on July 2, 2009, which was granted in a letter ruling dated September 15, 2009. Petitioners appealed and briefs have been filed. The Company believes the appeal and underlying petition are without merit.

Item 1A. Risk Factors

For detailed discussion of risks that may affect our business, see Item 1A, “Risk Factors” in our 2010 10-K .

- 51 -

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

(a)		None

(b)		None

(c)		The following table provides information about repurchases of common stock by the Company during the quarter ended June 30, 2011. All share amounts have been restated for the recent Reverse Stock Split:

				Total Number of Shares
				Purchased as Part of Publicly	Maximum Number of Shares Remaining
	Total Number of Shares	Average Price Paid		Announced Plans or Programs	at Period End that May Be Purchased
Period	Purchased (1)	per Share		(2)	Under the Plans or Programs
4/1/11 - 4/30/11	27,056	$	17.92	-	210,364
5/1/11 - 5/31/11	-	$	0.00	-	210,364
6/1/11 - 6/30/11	16	$	15.90	-	210,364
Total for quarter	27,072			-

	(1)		Shares repurchased by Bancorp during the quarter include shares acquired from employees in connection with stock option exercises and cancellation of restricted stock to pay withholding taxes totaling 27,056 shares, 0 shares, and 16 shares, respectively, for the periods indicated. There were no shares repurchased in the periods indicated pursuant to the Company’s corporate stock repurchase program publicly announced in July 2000 (the “Repurchase Program”) and described in note 2 below.

	(2)		Under the Repurchase Program, the board of directors originally authorized the Company to repurchase up to 66,000 common shares, which amount was increased by 110,000 shares in September 2000, by .2 million shares in September 2001, by .2 million shares in September 2002, by .2 million shares in April 2004, and by .2 million shares in September 2007 for a total authorized repurchase amount as of June 30, 2011, of approximately 1.0 million shares.

Item 3. Defaults Upon Senior Securities

None

Item 4. [Reserved]

Item 5. Other Information

None

Item 6. Exhibits

	Exhibit No .		Exhibit
	31.1		Certification of CEO under Rule 13(a) – 14(a) of the Exchange Act.

	31.2		Certification of CFO under Rule 13(a) – 14(a) of the Exchange Act.

	32		Certification of CEO and CFO under 18 U.S.C. Section 1350.

- 52 -

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, this registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	WEST COAST BANCORP
	(Registrant)

Dated: July 29, 2011	/s/ Robert D. Sznewajs
	Robert D. Sznewajs
	President and Chief Executive Officer

Dated: July 29, 2011	/s/ Anders Giltvedt
	Anders Giltvedt
	Executive Vice President and Chief Financial Officer

- 53 -

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