West Coast Bancorp 10K 2010 Annual report

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] Annual Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934

For the fiscal year ended December 31, 2010

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)

Securities registered pursuant to Section 12(b) of the Act: Common Stock
(Title of Class)
Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark whether the registrant is a well known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes [ ] No [X]

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes [ ] No [X]

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ]

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

[ ] 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]

The aggregate market value of registrant’s Common Stock held by non-affiliates of the registrant on June 30, 2010, was approximately $245,873,000.

The number of shares of registrant’s Common Stock outstanding on January 31, 2011, was 96,426,489.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the West Coast Bancorp Definitive Proxy Statement for the 2011 annual meeting of shareholders of West Coast Bancorp are incorporated by reference into Part III of this Form 10-K.

Table of Contents

PART I		PAGE
	Forward Looking Statement Disclosure	2

Item 1.	Business	3

Item 1A.	Risk Factors	11

Item 1B.	Unresolved Staff Comments	15

Item 2.	Properties	15

Item 3.	Legal Proceedings	15

Item 4.	[Reserved]	15

PART II

Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	16

Item 6.	Selected Financial Data	18

Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	20

Item 7A.	Quantitative and Qualitative Disclosures about Market Risk	50

Item 8.	Financial Statements and Supplementary Data	52

Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	95

Item 9A.	Controls and Procedures	95

Item 9B.	Other Information	97

PART III

Item 10.	Directors, Executive Officers and Corporate Governance	97

Item 11.	Executive Compensation	97

Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	98

Item 13.	Certain Relationships and Related Transactions, and Director Independence	98

Item 14.	Principal Accountant Fees and Services	98

PART IV

Item 15.	Exhibits and Financial Statement Schedules	99

Signatures		100

Index to Exhibits		101

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,” 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 this report, 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 further declines in credit quality and additional 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 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 and 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; 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”).

PART I

ITEM 1. BUSINESS

General

West Coast Bancorp (“Bancorp” or the “Company”) is a bank holding company headquartered in Lake Oswego, Oregon. Bancorp’s principal business activities are conducted through its full-service, commercial bank subsidiary, West Coast Bank (the “Bank”), an Oregon state-chartered bank with deposits insured by the Federal Deposit Insurance Corporation (“FDIC”). At December 31, 2010, the Bank had facilities in 43 cities and towns in western Oregon and southwestern Washington, operating a total of 61 full-service and four limited-service branches and a Small Business Administration (“SBA”) lending office in Vancouver, Washington. Bancorp also owns West Coast Trust Company, Inc. (“West Coast Trust”), an Oregon trust company that provides agency, fiduciary and other related trust services with offices in Portland and Salem, Oregon.

Bancorp reports two principal operating segments in the notes to its financial statements: West Coast Bank and West Coast Trust and parent company related operations. For more information regarding Bancorp’s operating segments, see Note 22 “Segment and Related Information” to the Company’s audited consolidated financial statements included under the section “Financial Statements and Supplementary Data” in Item 8 of this report.

Bancorp experienced rapid balance sheet and loan growth during the period 2002-2007. With the onset of a significant slowdown in economic activity and unprecedented disruptions in the real estate and credit markets, this growth period ended in late 2007 and Bancorp experienced net losses of $6.3 million for 2008 and $91.2 million for 2009. The Bank’s earliest and most significant losses arose out of its two-step residential construction lending program pursuant to which the Bank made residential construction loans to individuals (referred to in this report as the “two-step loan program”). The Bank experienced significant losses in other loan portfolios as well resulting from the economic slowdown. The prolonged recession and severe slump in housing and other real estate markets have hindered the ability of the Bank’s borrowers to repay loans and the value of the property that serves as collateral for many of the Bank’s loans.

During 2008 and 2009, Bancorp and the Bank took several steps to preserve capital and sustain or improve regulatory capital ratios, including careful management of capital and operating expenses along with a reduction of risk weighted assets. Bancorp also sought new capital through various means and successfully raised significant capital as follows:

In October 2009, Bancorp completed a private capital raise (referred to in this report as, the “private capital raise”) in which it received net proceeds of $139.2 million in exchange for various securities that ultimately resulted in the issuance of: 71,442,450 shares of Common Stock, 121,328 shares of mandatorily convertible cumulative participating preferred stock, Series B (“Series B Preferred Stock”), and Class C Warrants exercisable for a total of 240,000 shares of Series B Preferred Stock at a price of $100.00 per share (the “Class C Warrants”), to investors in the private capital raise. Shares of Series B Preferred Stock automatically convert into 6,066,400 shares of Common Stock upon transfer of the Series B shares to third parties in a widely dispersed offering. Similarly, shares of Series B Preferred Stock issuable upon exercise of the Class C Warrants will automatically convert into 12,000,000 shares of Common Stock following exercise of the Class C Warrants and transfer of the Series B shares issuable there under to third parties in a widely dispersed offering.

As a result of the private capital raise, a small group of shareholders own a significant portion of the Company’s stock, which may allow these persons to influence the business through voting of shares and other means and may affect trading and volatility in the Company’s stock. See “Risk Factors” in Item 1A of this report.

Following the private capital raise, Bancorp conducted a rights offering of up to 5.0 million shares of Common Stock at a subscription price of $2.00 per share during the first quarter 2010. The rights offering was oversubscribed, after taking into account exercise of certain over subscription privileges. The net proceeds of the rights offering were $9.3 million, all of which was contributed to the Bank in first quarter 2010.

On June 24, 2010, Bancorp commenced a discretionary equity issuance program (the “Program”) through Sandler O’Neill + Partners, L.P., as its sales agent. In connection with the Program, Bancorp sold an aggregate of 2.8 million shares of Common Stock at an average sales price of $2.80 per share. The aggregate gross sales proceeds were $7.9 million from which Bancorp contributed $6.0 million to the Bank in second quarter 2010. The Program was terminated on August 6, 2010.

Regulatory capital ratios at Bancorp and Bank improved significantly as a result of the Company’s capital raising activities and reductions in its risk weighted assets. As a result of these actions as well as the continued weak economy throughout 2010, which led to loan losses and contributed to limited new loan opportunities, the Bank experienced a significant reduction in the size of its loan portfolio and a dramatic increase in its portfolio of investment securities. This shift in earning asset mix has resulted in significant downward pressure on Bancorp’s net interest income and margin. That said, with its current strong capital and liquidity position, the Company has operating flexibility to pursue its business strategies going forward from a capital perspective.

As of December 31, 2010, Bancorp had total assets of $2.46 billion, with total net loans of $1.50 billion and total investment securities of $646.1 million. Bancorp’s total deposits at December 31, 2010, were $1.94 billion and stockholders’ equity was $272.6 million. At December 31, 2009, Bancorp had total assets of $2.73 billion, total net loans of $1.69 billion and total investment securities of $562.3 million. Bancorp’s total deposits at December 31, 2009, were $2.15 billion, with stockholders’ equity of $249.1 million. At December 31, 2010, tangible book value per share was $2.60 down from $6.98 at December 31, 2009, as a result of share issuances as part of capital raising activities over the last 15 months.

Bancorp and Bank are each parties to an agreement with regulators. For more information regarding these regulatory agreements, see the discussion under the subheading “Current Regulatory Actions” in the section “Supervision and Regulation” included in Item 1 of this report.

West Coast Bank

The Bank traces its origins to a bank organized in 1925 under the name The Bank of Newport. The Bank in its current form resulted from the merger on December 31, 1998, of the Bank of Newport of Newport, Oregon, The Commercial Bank of Salem, Oregon, Bank of Vancouver of Vancouver, Washington and Centennial Bank of Olympia, Washington, into a single entity. This entity was renamed West Coast Bank. The Bank’s headquarters are presently located in Lake Oswego, Oregon.

The Bank’s Oregon branches are located in the following cities and towns: Beaverton, Bend (2), Canby, Clackamas, Dallas, Depoe Bay, Dundee, Eugene (2), Forest Grove, Gresham, Happy Valley, Hillsboro (2), Keizer (3), King City, Lake Oswego, Lincoln City, McMinnville, Molalla, Monmouth, Mt. Angel, Newberg, Newport (2), North Plains, Oregon City, Portland (5), Salem (5), Silverton, Stayton, Sublimity, Tigard, Toledo, Tualatin, Waldport, Wilsonville (2) and Woodburn (3). The Bank’s Washington branches are located in Centralia, Chehalis, Hoodsport, Lacey (2), Olympia (2), Shelton, Tukwila and Vancouver (4).

The primary business strategy of the Bank is to provide comprehensive banking and related financial services within its local communities. The Bank emphasizes the diversity and accessibility of its product lines and services and conducts its business consistent with its client value proposition, which is to provide products typically associated with larger financial organizations, while maintaining the local decision making authority, market knowledge and customer service orientation typically associated with a community bank. The Bank focuses on four targeted areas: 1) high value consumers (including the mature market), 2) small businesses that desire streamlined packaged products, 3) commercial businesses that benefit from customized lending, deposit, cash management, and investment solutions and 4) clients requiring real estate financing for construction of commercial and residential projects as well as permanent financing for income producing properties.

For consumer banking customers, the Bank offers a variety of checking and savings accounts, check cards, and competitive borrowing products, such as personal lines of credit, credit cards and a variety of first and second lien residential mortgage products and other types of consumer loans. Consumer accounts consist of free checking and three other account types, each specifically designed to meet the needs of a unique market segment. Because of the straightforward and streamlined product design, our personal bankers are able to quickly and easily help our clients identify the best account for their needs. Financing offerings for consumers include residential real estate mortgage loans, home equity lines and loans, personal lines of credit and consumer credit cards. Customers have access to the Bank’s products and services through a variety of convenient channels such as 24 hour 7 days a week automated phone and internet access, a personal customer service center accessed by phone, and ATMs (both shared and proprietary networks), as well as through our branch locations.

For business banking customers, the Bank offers customized deposit products tailored for specific needs, including a variety of checking accounts, sophisticated internet-based cash management, iDepositSM, a remote deposit service that allows business customers to make deposits electronically, and a full array of investment services, all with online and/or CD-ROM information and customizable reporting. The Bank recently began offering a new business online suite of products called eBiz Access PLUSSM, which offers commercial clients a customized Treasury Management Online Banking system featuring enhanced security features, real time customizable reports, and expanded treasury management services that are all accessed through a customized dashboard. Customized financing packages provide businesses with a comprehensive suite of credit facilities that include general commercial loans (short and intermediate term), revolving lines of credit, real estate loans and lines to support construction, owner occupied and investor financing and SBA loans. The Bank also offers business credit cards (VISA), extensive merchant service options and equipment leasing through vendor alliances and other types of business credit.

The Bank is committed to community banking and intends to remain community-focused. Bancorp’s strategic vision includes greater commercial banking market penetration, coupled with focused distribution capability in targeted Pacific Northwest markets. The Bank intends to grow its distribution and reach through expansion of its branch network in target markets and through continued product expansion and use of new technology, including a full range of transaction and payment system capabilities.

West Coast Trust

West Coast Trust provides trust services and life insurance products to individuals, for-profit and not for-profit businesses and institutions. West Coast Trust acts as fiduciary of estates and conservatorships, and as a trustee under various wills, trusts, and pension and profit-sharing plans. The main office of West Coast Trust is located at 1000 SW Broadway, Suite 1100, Portland, Oregon 97205, (503) 279-3911. The market value of assets managed for others at December 31, 2010, was $311.5 million.

West Coast Statutory Trusts III, IV, V, VI, VII and VIII

West Coast Statutory Trusts III, IV, V, VI, VII and VIII are wholly-owned subsidiary trusts of Bancorp formed to facilitate the issuance of trust preferred securities. The trusts were organized in September 2003, March 2004, April 2006, December 2006, March 2007 and June 2007, respectively, in connection with six offerings of trust preferred securities. In September 2009, the Company elected to defer interest payments related to all of its trust preferred securities. As of December 31, 2010, the Company had accrued $1.8 million in deferred interest payable under the terms of these securities. For more information regarding Bancorp’s issuance of trust preferred securities, see Note 10 “Junior Subordinated Debentures” to the Company’s audited financial consolidated statements included under the section “Financial Statements and Supplementary Data” in Item 8 of this report. For more information regarding risks related to our trust preferred securities and junior subordinated debentures, see the discussion under the section “Risk Factors” in Item 1A of this report.

Additional Information

Bancorp’s filings with the SEC, including its annual report on Form 10-K, quarterly reports on Form 10-Q, periodic reports on Form 8-K and amendments to these reports, are accessible free of charge at our website at http://www.wcb.com as soon as reasonably practicable after filing with the SEC. By making this reference to our website, we do not intend to incorporate into this report any information contained in the website. The website should not be considered part of this report.

The SEC maintains a website at http://www.sec.gov that contains reports, proxy and information statements, and other information regarding issuers with publicly traded securities, including the Company.

Employees

At December 31, 2010, Bancorp and its subsidiaries had approximately 735 employees. None of these employees are represented by labor unions. Management believes that Bancorp’s relationship with its employees is good. Bancorp emphasizes a positive work environment for its employees and our work environment is measured annually utilizing an anonymous employee survey. Results continue to indicate a high level of employee satisfaction. Management continually strives to retain top talent as well as provide career development opportunities to enhance skill levels. A number of benefit programs are available to eligible employees.

Competition

Commercial banking in the state of Oregon and southwest Washington is highly competitive with respect to providing banking services, including making loans and attracting deposits. The Bank competes with other banks, as well as with savings and loan associations, savings banks, credit unions, mortgage companies, investment banks, insurance companies, securities brokerages and other financial institutions. Banking in Oregon and Washington is dominated by several large banking institutions, including U.S. Bank, Wells Fargo Bank, Bank of America, and Chase Bank, which together account for a majority of the total commercial and savings bank loans and deposits in Oregon and Washington. These competitors have significantly greater financial resources and offer a greater number of branch locations (with statewide branch networks), higher lending limits, and a variety of services not offered by the Bank. Bancorp has attempted to offset some of the advantages of the larger competitors by leveraging technology and third party arrangements to deliver contemporary product solutions and better compete in targeted customer segments. The Bank has positioned itself successfully as a local alternative to banking conglomerates that may be perceived by customers or potential customers to be impersonal, out-of-touch with the community, or simply not interested in providing banking services to some of the Bank’s target customers.

In addition to larger institutions, numerous “community” banks and credit unions operate in the Bank’s market areas. As a result of very weak real estate markets over the past few years, a number of banks and credit unions have developed a similar focus to the Bank. These institutions have further increased competition, particularly in the Portland metropolitan area, where the Bank has enjoyed significant growth in past years and focused much of its expansion efforts. Additionally, a heightened focus by larger institutions on the Bank’s market segments has led to intensified competition in all aspects of Bancorp’s business.

The financial services industry has experienced widespread consolidation over the last decade. Bancorp anticipates that consolidation among financial institutions in its market areas will continue and perhaps accelerate as a result of not only financial distress in the industry but also significantly increased regulatory burdens and rules negatively impacting both expenses and revenues.

Supervision and Regulation

Bancorp is an Oregon corporation headquartered in Lake Oswego, Oregon, and is registered with the Federal Reserve as a bank holding company. The Bank is an Oregon state bank and is not a member of the Federal Reserve System. The Bank’s primary federal regulator is the FDIC and, at the state level, the Oregon Department of Consumer and Business Services Division of Finance and Corporate Securities (the “DFCS”).

The laws and regulations applicable to Bancorp and its subsidiaries are primarily intended to protect borrowers and depositors of the Bank and not stockholders of Bancorp. Various proposals to change the laws and regulations governing the banking industry are currently pending in Congress, in the state legislatures and before the various bank regulatory agencies. In the current economic climate and regulatory environment, there is a high likelihood of enactment of new banking legislation and promulgation of new banking regulations. The potential impact of new laws and regulations on Bancorp and its subsidiaries cannot be determined, but any such laws and regulations may materially affect the business and prospects of Bancorp and its subsidiaries. Violation of the laws and regulations applicable to Bancorp and its subsidiaries may result in the imposition of regulatory enforcement actions, including assessment of civil money penalties. The following is a brief description of the significant laws and regulations that govern our activities.

Bank Holding Company Regulation

As a registered bank holding company, Bancorp is subject to the supervision of, and regular inspection by, the Federal Reserve pursuant to the Bank Holding Company Act of 1956, as amended (the “BHCA”). Bancorp must file reports with the Federal Reserve and must provide it with such additional information as it may require. The BHCA restricts the direct and indirect activities of Bancorp to banking, managing or controlling banks and other subsidiaries authorized under the BHCA, and activities that are closely related to banking or managing or controlling banks. Bank holding companies like Bancorp must, among other things, obtain prior Federal Reserve approval before they: (1) acquire direct or indirect ownership or control of any voting shares of any bank or bank holding company that results in total ownership or control, directly or indirectly, of more than 5% of the outstanding shares of any class of voting securities of such bank or bank holding company; (2) merge or consolidate with another bank holding company; or (3) acquire substantially all of the assets of another bank or bank holding company.

Bank holding companies must also act as a source of financial and managerial strength to subsidiary banks. This means that Bancorp is required to commit, as necessary, resources to support the Bank. Under certain conditions, the Federal Reserve may conclude that certain actions of a bank holding company, such as payment of cash dividends, would constitute unsafe and unsound banking practices.

Subsidiary banks of a bank holding company are subject to certain other restrictions under the Federal Reserve Act and Regulation W covering transactions with affiliates generally and in particular on extensions of credit to the parent holding company or any affiliate, investments in the securities of the parent, and covering the use of such securities as collateral for loans to any borrower. These restrictions may limit Bancorp’s ability to obtain funds from the Bank for its cash needs, including funds for payment of interest on its junior subordinated debentures, cash dividends and operational expenses.

Bank Regulation

General. The Bank is an Oregon state-bank and is not a member of the Federal Reserve System. The Bank conducts banking business in Oregon and Washington. The Bank is subject to supervision and regulation by the DFCS, the FDIC and to a lesser extent, the Washington Department of Financial Institutions. The Bank's regulators conduct regular examinations of the Bank and have the authority to prohibit the Bank from engaging in unsafe or unsound banking practices.

Deposit Insurance. Eligible deposits maintained at the Bank are insured by the FDIC up to $250,000 per account, and from December 31, 2010, through December 31, 2012, a depositor’s funds in a noninterest bearing transaction account or an Interest on Lawyers Trust Account are fully insured. The Bank is required to pay quarterly deposit insurance premiums to the FDIC. Premiums are based on an assessment of how much risk a particular institution presents to the Bank Insurance Fund. Banks with higher levels of capital and a low degree of supervisory concern are assessed lower premiums than banks with lower levels of capital or a higher degree of supervisory concern. The FDIC may terminate deposit insurance if it determines the institution involved has engaged in or is engaging in unsafe or unsound banking practices, is in unsafe or unsound condition, or has violated applicable laws, regulations or orders.

Community Reinvestment Act and Fair Lending and Reporting Requirements. The Bank is subject to the Community Reinvestment Act of 1977, as amended (“CRA”) and to certain fair lending and reporting requirements that relate primarily to home mortgage lending operations. The CRA generally requires the federal banking agencies to evaluate the record of a financial institution in meeting the credit needs of its local communities, including low- and moderate-income neighborhoods, consistent with the safe and sound operation of the institution. The federal banking agencies may take into account compliance with the CRA when regulating and supervising other activities, such as evaluating mergers, acquisitions and applications to open a branch or facility. In connection with its assessment of CRA performance, the FDIC assigns a rating of “outstanding,” “satisfactory,” “needs to improve” or “substantial noncompliance.” The Bank’s most recent CRA rating, based on an examination in February 2008, was satisfactory.

There are several rules and regulations governing fair lending and reporting practices by financial institutions. A bank may be subject to substantial damages, penalties and corrective measures for any violation of fair lending and reporting, including credit reporting, laws and regulations.

Consumer Privacy. The Gramm-Leach-Bliley Act of 1999 requires financial institutions to implement policies and procedures regarding the disclosure of nonpublic personal information about consumers to non-affiliated third parties. In general, the statutes require explanations to consumers on policies and procedures regarding the disclosure of such nonpublic personal information, and, except as otherwise required by law, prohibits disclosing such information except as provided in the Bank’s policies and procedures. The Bank has implemented privacy policies addressing these restrictions which are distributed regularly to all existing and new customers of the Bank.

Consumer Information Security. The Federal Reserve and other bank regulatory agencies have adopted final guidelines for safeguarding confidential, personal customer information. These guidelines require each financial institution, under the supervision and ongoing oversight of its board of directors or an appropriate committee thereof, to create, implement and maintain a comprehensive written information security program designed to ensure the security and confidentiality of customer information, protect against any anticipated threats or hazard to the security or integrity of such information and protect against unauthorized access to or use of such information that could result in substantial harm or inconvenience to any customer. Bancorp and the Bank have adopted a customer information security program to comply with such requirements.

Capital Adequacy Requirements

Federal bank regulatory agencies use capital adequacy guidelines in the examination and regulation of bank holding companies and banks. If capital falls below minimum levels, the bank holding company or bank may, among other things, be denied approval to acquire or establish additional banks or non-bank businesses or to open new facilities.

The FDIC and Federal Reserve use risk-based capital guidelines for banks and bank holding companies. Risk-based guidelines are designed to make capital requirements more sensitive to differences in risk profiles among banks and bank holding companies, to account for off balance sheet exposure and to minimize disincentives for holding liquid low-risk assets. Assets and off balance sheet items are assigned to broad risk categories, each with appropriate weights. The resulting capital ratios represent capital as a percentage of total risk-weighted assets and off balance sheet items.

The guidelines are minimums and the Federal Reserve may require that a banking organization maintain ratios in excess of the minimums, particularly organizations contemplating significant expansion. Current guidelines require all bank holding companies and federally-regulated banks to maintain a minimum risk-based total capital ratio equal to 8%, of which at least 4% must be Tier I capital. Tier I capital for bank holding companies includes common stockholders’ equity, qualifying preferred stock and minority interests in equity accounts of consolidated subsidiaries, minus certain deductions, including, without limitation, goodwill, other identifiable intangible assets, and deferred tax assets.

The Federal Reserve also monitors a leverage ratio, which is Tier I capital as a percentage of total assets minus certain deductions, including, without limitations, goodwill, mortgage servicing assets, other identifiable intangible assets, and certain deferred tax assets, to be used as a supplement to risk-based guidelines. The principal objective of the leverage ratio is to constrain the maximum degree to which a bank holding company may leverage its equity capital base. The Federal Reserve requires a minimum leverage ratio of 3%.

The minimum risk-based capital requirements adopted by the U.S. federal banking agencies follow the Capital Accord of the Basel Committee on Banking Supervision. The Basel Committee has developed further revisions to the Capital Accord (Basel III), which includes narrowing the definition of capital, increasing capital requirements for specific exposures, introducing short-term liquidity coverage and term funding standards, and establishing an international leverage ratio. The Company fully expects to be in compliance with the higher Basel III capital standards applicable to it when they become effective over the transition period from 2013 through 2018.

For more information regarding the Bank and Bancorp’s capital and leverage ratios, see the discussion under the section “Capital Resources” in the Item 7 of this report. For more information regarding regulatory enforcement actions that increase minimum ratios applicable to Bancorp and the Bank, see the discussion under the subheading “Current Regulatory Actions” in this section below.

The Federal Deposit Insurance Corporation Improvement Act (“FDICIA”), among other things, created a statutory framework of supervisory actions indexed to the capital level of the individual institution. Under regulations adopted by the FDIC, an institution is assigned to one of five capital categories - well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, and critically undercapitalized - depending on its total risk-based capital ratio, Tier I risk-based capital ratio, and leverage ratio, together with certain subjective factors such as an overall assessment of the level and severity of problem and classified assets. Undercapitalized, significantly undercapitalized, and critically undercapitalized banks are subject to certain mandatory supervisory corrective actions.

Under FDICIA, each federal banking agency has prescribed, by regulation, non-capital safety and soundness standards for institutions under its authority. These standards cover internal controls, information systems and internal audit systems, loan documentation, credit underwriting, interest rate exposure, asset growth, compensation, fees and benefits, such other operational and managerial standards as the agency determines to be appropriate, and standards for asset quality, earnings and stock valuation.

Dividends

Substantially all of our activities are conducted through the Bank. Consequently, as the parent company of the Bank, the Company receives substantially all of its revenue as dividends from the Bank. The banking regulators may prohibit banks and bank holding companies from paying dividends that would constitute an unsafe or unsound banking practice. In addition, a bank may not pay cash dividends if doing so would reduce the amount of its capital below that necessary to meet minimum applicable regulatory capital requirements. Oregon law also limits a bank's ability to pay dividends.

Pursuant to a Memorandum of Understanding (“MOU”) with the FDIC and DFCS, the Bank is prohibited from paying dividends without the consent of the FDIC and DFCS. Pursuant to a Written Agreement with the Federal Reserve Bank of San Francisco (“Reserve Bank”) and DFCS, Bancorp is prohibited from paying dividends and making payments of interest or principal on subordinated indebtedness or trust preferred securities without the prior consent of the Reserve Bank, the Director of Banking Supervision and Regulation of the Board of Governors of the Federal Reserve System (the “Federal Reserve Director”), and the DFCS. For more information regarding regulatory actions, see the discussion under the subheading “Current Regulatory Actions” in this section below.

Other Laws and Regulations

Interstate Banking and Branching. The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 (the “Interstate Act”) generally authorizes interstate branching and relaxes federal law restrictions on interstate banking. Currently, adequately capitalized and managed bank holding companies may purchase banks in any state and states may not prohibit these purchases. Additionally, banks are permitted to merge with banks in other states, as long as the home state of neither merging bank has opted out under the legislation. Oregon and Washington each enacted “opting in” legislation in accordance with the Interstate Act. The Interstate Act requires regulators to consult with community organizations before permitting an interstate institution to close a branch in a low income area.

Monetary and Fiscal Policy Effects on Interest Rates. Banking is a business which depends on interest rate differentials. In general, the major portion of a bank’s earnings derives from the differences between: (i) interest received by a bank on loans extended to its customers and the yield on securities held in its investment portfolio; and (ii) the interest paid by a bank on its deposits and its other borrowings (the bank’s “cost of funds.”) Thus, our earnings and growth are constantly subject to the influence of economic conditions generally, both domestic and foreign, and also to the monetary, fiscal and related policies of the United States and its agencies, particularly the Federal Reserve and the U.S. Treasury. The nature and timing of changes in such policies and their impact cannot be predicted.

Overdraft Programs - Recent Developments. The Electronic Funds Transfer Act (the “EFTA”) provides a basic framework for establishing the rights, liabilities, and responsibilities of consumers who use electronic funds transfer (“EFT”) systems. The EFTA is implemented by the Federal Reserve's Regulation E, which governs transfers initiated through ATMs, point-of-sale terminals, payroll cards, automated clearinghouse (“ACH”) transactions, telephone bill-payment plans, or remote banking services. Recent amendments to Regulation E require consumers to opt in (affirmatively consent) to participation in the Bank's overdraft service program for ATM and one-time debit card transactions before overdraft fees may be assessed on the consumer’s account. Notice of the opt-in right must be provided to all new customers who are consumers, and the customer's affirmative consent must be obtained, before charges may be assessed on the consumer's account for paying such overdrafts.

The recent amendments to Regulation E also provide bank customers with an ongoing right to revoke consent to participation in an overdraft service program for ATM and one-time debit card transactions and prohibits banks from conditioning the payment of overdrafts for checks, ACH transactions, or other types of transactions that overdraw the consumer's account on the consumer's opting into an overdraft service for ATM and one-time debit card transactions. For customers who do not affirmatively consent to overdraft service for ATM and one-time debit card transactions, a bank must provide those customers with the same account terms, conditions, and features that it provides to consumers who do affirmatively consent, except for the overdraft service for ATM and one-time debit card transactions.

On November 24, 2010, the FDIC issued FIL-81-2010 to provide “guidance” (“Overdraft Guidance”) on automated overdraft service programs to ensure that a bank mitigates the risks associated with offering automated overdraft payment programs and complies with all consumer protection laws and regulations.

The Bank's compliance with the recent amendments to Regulation E and the Overdraft Guidance may have a substantial negative impact on the Bank's revenue from overdraft service fees and non-sufficient funds (“NSF”) charges. For more information regarding risks facing Bancorp and the Bank, see the discussion under the section “Risk Factors” in Item 1A of this report.

Current Regulatory Actions

Holding Company Written Agreement. On December 15, 2009, Bancorp entered into a Written Agreement with the Reserve Bank and DFCS. The Written Agreement requires that as long as the Written Agreement is in effect, Bancorp may not:

Declare or pay any dividends without the prior written approval of the Reserve Bank, the Federal Reserve Director, and the DFCS;
Directly or indirectly take dividends or any other form of payment representing a reduction in capital at the Bank without the prior written approval of the Reserve Bank and the DFCS;
Make any payments of interest or principal on subordinated indebtedness or trust preferred securities without the prior written approval of the Reserve Bank, the Federal Reserve Director, and the DFCS; or
Directly or indirectly incur, increase, or guarantee any debt without the prior written approval of the Reserve Bank and the DFCS.

Bank Memorandum of Understanding. On October 6, 2010, the Bank entered into a MOU with the FDIC and DFCS, which replaced the prior Order to Cease and Desist (“Consent Order”) issued against the Bank that was terminated by the FDIC and DFCS on July 15, 2010. The MOU requires that during the life of the MOU the Bank may not pay dividends without the written consent of the FDIC and DFCS and that the Bank maintain higher levels of capital than required by published capital adequacy requirements, as discussed above.

ITEM 1A. RISK FACTORS

The following are risks that management believes are specific to our business. This should not be viewed as an all inclusive list or in any particular order.

Future loan losses may exceed our allowance for credit losses.

We are subject to credit risk, which is the risk that borrowers will fail to repay loans in accordance with their terms. We maintain an allowance for credit losses that represents management’s best estimate, as of a particular date, of the probable amount of loan receivables and unfunded commitments that the Bank will be unable to collect. An extended recession or further weakening of the economy or a specific industry sector or a rapid change in interest rates could adversely affect our borrowers’ ability to repay loans. Developments of this nature could result in losses in excess of our allowance for credit losses. In addition, to the extent that loan payments from borrowers are not timely, the loans will be placed on nonaccrual status, thereby lowering earning assets balances and reducing future interest income, and, in certain circumstances, requiring reversal of previously accrued interest income. If we determine that it is appropriate to increase the allowance for credit losses to address changing conditions, we will do so through additional provision for credit losses. Any additional provision for credit losses to increase the allowance for credit losses results in a decrease in net income, and possibly risk-based capital, and may have a material adverse effect on our financial condition and results of operations. For more information regarding the Company’s allowance for credit losses, see the discussion under the subheading “Allowance for Credit Losses” and “Critical Accounting Policies” included in Item 7 of this report.

A large percentage of our loan portfolio is secured by real estate. As a result, we are particularly vulnerable to continued deterioration in the real estate market in our market areas.

Approximately 79% of our loan portfolio is secured by real estate. As a result, we are vulnerable to declines in the real estate markets in which we operate. We have experienced declining real estate values over the last three years and have experienced high levels of net charge-offs and provision for credit losses, which have only recently begun to decline. If we experience increases in commercial and consumer delinquency levels or renewed declines in real estate market values, we would expect increased loan charge-offs and provision for credit losses, which could have a material adverse effect on our business, financial condition and results of operations and prospects. Because of our significant concentration in loans secured by real estate, we are particularly vulnerable to such effects.

The recession has been particularly severe in the market areas we serve and our results of operations will continue to be adversely affected if the local economies do not improve or if the recession worsens.

Substantially all of our loans and loan opportunities are to businesses and individuals in our markets in Washington and Oregon. As evidenced by the unemployment rate in Oregon, which has hovered at or above 10% since January 2009, and was at 10.6% in December 2010, our region has been severely impacted by the same challenges facing the economy nationally and perhaps more so. The region has also experienced severe declines in residential and commercial real estate values. If we experience further deterioration in the economic conditions or a prolonged delay in economic recovery in our market areas, we could face the following consequences, any of which could materially and adversely affect our business: the value of assets that serve as collateral for our loans, especially real estate, may decline further in value; loan delinquencies could increase; problem assets and foreclosures may increase; demand for our products and services may decrease; and access to low cost or noninterest bearing deposits may decrease.

Financial services legislation and regulatory reforms may have a significant impact on our businesses and results of operations.

The Dodd-Frank Act was signed into law on July 21, 2010, and many of its provisions have extended implementation periods and delayed effective dates and will require extensive rulemaking by regulatory authorities as well as require multiple studies to be conducted over the next one to two years. The Dodd-Frank Act, including future rules implementing its provisions and the interpretation of those rules, could result in a number of adverse impacts on us. The levels of capital and liquidity with which we and the Bank must operate may be increased, resulting in decreased leverage and reduced earnings. We may also be subjected to new and/or higher fees paid to various regulatory entities, including but not limited to deposit insurance premiums to the FDIC. Revenue on interchange fees may decrease as a result of the level of fees the Federal Reserve deems “reasonable and proportional” when it finalizes its proposed regulation standards on the amount of interchange fees that can be charged to merchants for electronic debit card transactions. The Company may also be subject to additional regulations under the newly established Bureau of Consumer Financial Protection which has been given broad authority to implement new consumer protection regulations. These and other provisions of the Dodd-Frank Act could limit our ability to pursue business opportunities we might otherwise consider engaging in, impose additional costs on us, result in significant loss of revenue, impact the value of assets we hold, or otherwise significantly adversely affect our businesses.

The Bank derives overdraft fee income from its customer’s participation in the Bank’s overdraft service program. Recent amendments to Regulation E and the FDIC’s new Overdraft Guidance may impact our customer’s participation in the program and our overdraft fee income may be negatively affected.

Under recent amendments to Regulation E, customer’s that desire to participate in the Bank’s overdraft service program for ATM and one-time-debit card transactions must affirmatively opt-in because the Bank imposes service fees on such transactions. Although the majority of our customers have elected to opt-in, we are not able to predict future customer behavior or determine whether new customers will elect to opt-in. The FDIC issued guidance on overdraft payment programs in November 2010, which becomes effective July 2011. The guidance requires banks to, among other things, establish an outreach program to customers who excessively overdraw their account and advise them of lower cost alternatives, institute appropriate daily limits on customer costs and consider eliminating overdraft fees for transactions that overdraw an account by a de minimus amount. If customers do not elect to participate or remain in our overdraft protection program, an important source of noninterest income will be negatively affected.

The Congressional and regulatory response to the current economic and credit crisis could have an adverse effect on our business.

Federal and state legislators and regulators are pursuing increased regulation of how loans are originated, purchased, and sold, and properties are foreclosed, as a result of the current economic and credit crisis. Changes in the banking industry, lending markets and secondary markets for loans and related congressional and regulatory responses may impact how the Bank conducts business, makes and underwrites loans, and buys and sells loans in secondary markets. Loan sales are subject to proper compliance with standard underwriting rules that if not met, may allow the secondary market buyer to require the Company to repurchase the note. We are unable to predict whether any legislative or regulatory initiatives or actions will be implemented or what form they will take. Any such actions could affect us in substantial and unpredictable ways and could have an adverse effect on our business, financial condition and results of operations. For more information regarding the regulatory environment in which we operate, see the discussion under the subheading “Supervision and Regulation” included in Item 1 of this report.

Significant legal and regulatory actions could subject us to uninsured liabilities, associated reputational risk, and reduced revenues.

From time to time, we are sued for damages or threatened with lawsuits relating to various aspects of our operations. We may also be subject to investigations and possibly substantial civil money penalties assessed by, or other actions of, federal or state regulators in connection with violations or alleged violations of applicable laws, regulations or standards. We may incur substantial attorney fees and expenses in the process of defending against lawsuits or regulatory actions and our insurance policies may not cover, or cover adequately, the costs of adverse judgments, civil money penalties, and attorney fees and expenses. As a result, we may be exposed to substantial uninsured liabilities, which could adversely affect our results of operations, capital, and financial condition.

We are subject to reputational risk, which is the potential that negative publicity regarding our business practices, whether true or not, could cause a decline in our customer base, stock price, or general reputation in the markets in which we operate. Reputational risk is heightened in the instance of publicity surrounding lawsuits or regulatory actions. We are presently subject to regulatory agreements with the primary regulators for Bancorp and the Bank. These agreements restrict our activities. They also may negatively affect our reputation.

Impairment of investment securities, including Federal Home Loan Bank of Seattle (the “FHLB”) stock, could negatively impact our results of operations.

Our investment securities portfolio currently includes securities with unrecognized losses, including our securities in FHLB. We own common stock of the FHLB with a carrying value of $12.1 million. Ownership of FHLB common stock is a requirement to qualify for membership in the FHLB system, which enables us to borrow funds from the FHLB. Our assessment of the impairment of investment securities, including our investment in FHLB common stock, factors in several uncertain and qualitative factors, including, without limitation, the length of time and extent to which the fair value of a particular security has been less than cost, the financial condition and near-term prospects of the issuer, and our intent and ability to retain a particular investment long enough to recover value in the future. We evaluate the securities portfolio for other-than-temporary impairment each reporting period, as required by generally accepted accounting principles in the United States of America. As of December 31, 2010, we did not recognize any securities as other-than-temporarily impaired. There can be no assurance, however, that future evaluations of the securities portfolio will not lead us to the conclusion that we must recognize an impairment charge with respect to these and other holdings.

The FHLB is under regulatory restrictions on its operations due primarily to credit related charges recorded on private-label mortgage-backed securities and is currently prohibited by its primary regulator, the Federal Housing Finance Authority, from repurchasing or redeeming capital stock or paying dividends to members. Consequently, for this and other reasons, there is a risk that our investment in common stock of the FHLB could be deemed other than temporarily impaired at some time in the future. The impact of each of these impairment matters could have a material adverse effect on our business and results of operations.

We may seek to raise additional capital in the future to enhance capital levels, improve capital ratios, provide capital for acquisitions, or increase liquidity available for operations and other opportunities.

We are not restricted from issuing additional shares of our Common Stock or Preferred Stock. While we have no plans to do so at this time, in the event we desire to raise additional capital, any equity or debt financing, if available at all, may not be available on terms that are favorable to the Company. In the case of equity financings, the issuance of additional common stock, convertible preferred stock, warrants, or other convertible securities or the exercise of such securities could be substantially dilutive to holders of our Common Stock and securities issued in such financings may have rights, preferences and privileges that are senior to those of our current shareholders. Any debt financing may include covenants that restrict our operations and interest charges that detract from future earnings.

Bancorp is restricted from paying cash dividends on its Common Stock, and these restrictions may continue for a significant period of time.

Pursuant to the Written Agreement with the Reserve Bank and the DFCS, Bancorp is prohibited from paying dividends without prior consent of the Reserve Bank, the Federal Reserve Director and the DFCS, or extending credit or otherwise supplying funds to, or engaging in certain transactions with the Bank. Additionally, even if Bancorp obtains regulatory approval to pay dividends, we may not pay any cash dividends on our Common Stock until we are current on interest payments on our junior subordinated debentures issued in connection with our trust preferred securities. For these and other reasons, Bancorp may not resume paying cash dividends on its Common Stock for some time into the future, if at all.

Bancorp is a separate and distinct legal entity from its subsidiaries. Substantially all of Bancorp’s funds and revenue is received as dividends paid from the Bank, which is currently restricted from paying dividends. The Bank may not pay dividends to Bancorp in the near future.

Substantially all of Bancorp’s funds and revenue is received as dividends paid from the Bank. Pursuant to the MOU the Bank is prohibited from paying dividends to Bancorp without the consent of the FDIC and the DFCS. We do not know when the FDIC and DFCS would consent to a request from the Bank to pay dividends to Bancorp. In the event the Bank continues to be unable to pay dividends to Bancorp, Bancorp may not be able to service debt or pay other obligations. The inability to receive dividends from the Bank could have a material adverse effect on Bancorp’s business, financial condition, including liquidity, and results of operations. Additionally, we have elected to defer regularly scheduled interest payments on our junior subordinated debentures issued in connection with our trust preferred securities and may be deemed to be in default if payment is not made prior to the end of the deferral period.

During the third quarter of 2009, we began deferring regularly scheduled interest payments of its junior subordinated debentures issued in connection with our trust preferred securities. Under the terms of the junior subordinated debentures and the trust documents, we have the contractual right to defer payments of interest on the junior subordinated debentures for up to 20 consecutive quarterly periods without default. During the deferral period, the respective trusts will likewise suspend the declaration and payment of dividends on the trust preferred securities. If the Company fails to bring the deferred payments current prior to the end of the deferral period, then we may be deemed to be in default under the terms of the notes and subject to various penalties.

Rapidly changing interest rates could reduce our net interest margin, net interest income, fee income and net income.

Interest and fees on loans and investment securities, net of interest paid on deposits and borrowings, are a large part of our net income. Interest rates are a key driver of our net interest margin and are subject to many factors beyond our control. As interest rates change, net interest income is affected. It could also lead to decreased demand for loans and other products that are priced based on interest rates. Rapid increases in interest rates could result in interest expense increasing faster than interest income because of mismatches in financial instrument maturities. Rapid decreases in interest rates could result in interest income decreasing faster than interest expense, for example, if management is unable to match decreases in earning assets yields, with reduced rates paid on deposits or borrowings. Periods of low market interest rates, such as we have today, may adversely affect our net interest spread and net interest income because our earning assets yield decreases and stays low during a time that our cost of interest bearing liabilities is already low and cannot be correspondingly reduced further. For more information regarding interest rates, see the discussion under the section “Quantitative and Qualitative Disclosures about Market Risk” in the Item 7A of this report.

We face liquidity risks in the operation of our business.

Liquidity is crucial to the operation of Bancorp and the Bank. Liquidity risk is the potential that the Company will be unable to fund increases in assets or meet payment obligations, including obligations to depositors, as they become due because of an inability to obtain adequate funding or liquidate assets at a reasonable cost. Funding illiquidity may arise at the Bank if we are unable to, at reasonable terms, attract and retain deposits, secure or renew borrowings from the overnight inter-bank market, the FHLB, or the Federal Reserve discount window, or access other sources of liquidity, as described in more detail under the heading “Liquidity and Sources of Funds” in Item 7 of this report. Changes or disruptions to the FHLB system could adversely impact our ability to meet our short-term and long-term liquidity requirements. If we fail to monitor and control our liquidity risks, there may be materially adverse effects on our results of operations and financial condition.

We face operational risks that may result in unexpected losses.

We face various operational risks that arise from the potential that inadequate information systems, operational problems, failures in internal controls, breaches of our security systems, fraud, the execution of unauthorized transactions by employees, or any number of unforeseen catastrophes could result in unexpected losses. Additionally, third party vendors provide key components of our business infrastructure such as internet connections, network access, data reporting, and data processing. Any problems caused by third parties could adversely affect our ability to deliver products and services to our customers and our revenues, expenses, and earnings. Replacing third party vendors, should that be necessary, may entail significant delay and expense.

The financial services industry is very competitive.

We face competition in attracting and retaining deposits, making loans and providing other financial services. Our competitors include other community banks, larger banking institutions, and a wide range of other financial institutions, such as credit unions, government-sponsored enterprises, mutual fund companies, insurance companies and other non-bank businesses. Many of these competitors have substantially greater resources than us. For a more complete discussion of our competitive environment, see the discussion under the heading “Competition” included in Item 1 of this report. If we are unable to compete effectively, we will lose market share, and income from loans and other products may be reduced.

Inability to hire or retain key professionals, management and staff could adversely affect our revenues and net income.

We rely on key personnel to manage and operate our business, including, but not limited to, major revenue generating functions such as our loan and deposit portfolios. The loss of key staff may adversely affect our ability to maintain and manage these portfolios effectively, which could negatively affect our revenues and earnings.

Market and other constraints on our loan origination volumes may lead to continued pressure on our interest and fee income.

Due to the poor economic conditions in the markets in which we operate and other factors, we expect continued pressure on new loan originations in the near term, particularly with respect to construction loans. If we are unable to increase loan volumes, there will be continued pressure on our interest income and fees generated from our lending operations. Unless we are able to offset the lower interest income and fees with increased activity in other areas of our operations, our total revenues may decline relative to our total noninterest expenses. We expect that it may be difficult to find new revenue sources in the near term.

Our products and services are delivered on a technological platform that is subject to rapid change and transformation.

The financial services industry is undergoing rapid technological change and we face constant evolution of customer demand for technology-driven financial and banking products and services. Many of our competitors have substantially greater resources to invest in technological improvement and product development, marketing, and implementation. Any failure to successfully keep pace with and fund technological innovation in the markets in which we compete could have a material adverse impact on our business and results of operation.

Our Common Stock trades in relatively limited volumes and a significant percentage continues to be owned by investors in the October 2009 private capital raise, resulting in a share price that is volatile and which may be subject to downward pricing pressure in the event significant shareholders decide to dispose of shares of our Common Stock.

Our Common Stock trades on the NASDAQ Global Select Market under the symbol “WCBO" and trading volume is modest. The limited trading market for our Common Stock may lead to exaggerated fluctuations in market prices and possible market inefficiencies, as compared to a more actively traded stock. It may also make it more difficult to dispose of our shares at expected prices, especially for holders seeking to dispose of a large number of our shares. In addition, if a large shareholder or group of investors in our private capital raise elects to sell their shares, such sales or attempted sales could result in significant downward pressure on the market price of our Common Stock and actual price declines.

ITEM 1B. UNRESOLVED STAFF COMMENTS

None.

ITEM 2. PROPERTIES

The principal properties owned by the Bank include a 40,000-square-foot office and branch facility in downtown Salem, Oregon, a 15,600-square-foot office and branch facility in Newport, Oregon, and a 12,000-square-foot branch and office facility in Lacey, Washington. In total, the Bank owns 27 buildings, primarily to house branch offices. The Bank leases the land under seven buildings and owns the land under 20 buildings. In addition, the Bank leases 42 office spaces and buildings for branch locations.

Other non-branch office facilities are located in leased office space, including our headquarters office in Lake Oswego, Oregon, office and processing space in Salem, Oregon, where the Bank’s data center is located, space in Wilsonville, Oregon, where its loan servicing and operations center is located, space in Vancouver, Washington, where we have lending personnel and a branch office, and space in downtown Portland, where we have commercial banking personnel, West Coast Investment Services and West Coast Trust. In addition, we lease two smaller office spaces for lending personnel in Lake Oswego, Oregon, and in Tukwila, Washington.

The aggregate monthly rental on 49 leased properties is approximately $338,000.

ITEM 3. 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 opening briefs are due March 22, 2011. The Company believes the appeal and underlying petition are without merit.

Bancorp and its subsidiaries are 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.

ITEM 4. RESERVED

PART II

ITEM 5.

MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Stock Price and Dividends

Bancorp Common Stock trades on the NASDAQ Global Select Market under the symbol “WCBO.” The high and low closing sale prices per share of our Common Stock for each quarter during the last two years are shown in the table below, together with dividend information for each period. The prices below do not include retail mark-ups, mark-downs or commissions, may not represent actual transactions and are not adjusted for dividends. As of December 31, 2010, there were approximately 1,900 holders of record of our Common Stock.

	2010						2009
	Market Price				Cash dividend		Market Price				Cash dividend
	High		Low		declared		High		Low		declared
1st Quarter	$	3.00	$	2.05	$	0.00	$	6.59	$	1.09	$	0.01
2nd Quarter	$	3.44	$	2.55	$	0.00	$	4.56	$	1.85	$	0.01
3rd Quarter	$	2.75	$	2.06	$	0.00	$	3.33	$	1.53	$	0.00
4th Quarter	$	2.94	$	2.45	$	0.00	$	2.82	$	2.00	$	0.00

Bancorp dividends are limited under federal and Oregon laws and regulations pertaining to Bancorp’s financial condition. Payment of dividends by the Bank is also subject to limitation under state and federal banking laws and by actions of state and federal banking regulators. For more information on this topic, see the discussion under the section “Supervision and Regulation” included in Item 1 of this report and the section “Liquidity and Sources of Funds” included in Item 7 of this report.

Under Bancorp’s Written Agreement with the Reserve Bank and the DFCS, Bancorp may not pay cash dividends without prior regulatory approval. Similarly, the Bank may not pay dividends to Bancorp without consent of the FDIC and DFCS. Bancorp has also exercised its right to defer regularly scheduled interest payments on its junior subordinated debentures issued in connection with our trust preferred securities. It may not pay any cash dividends on its Common Stock until it is current on interest payments on its junior subordinated debentures.

Information regarding securities authorized for issuance under equity compensation plans is incorporated by reference into Part III, Item 12 of this report.

Issuer Purchases of Equity Securities

The following table provides information about purchases of Common Stock by the Company during the quarter ended December 31, 2010:

					Total Number of Shares	Maximum Number of Shares Remaining
	Total Number of Shares		Average Price Paid		Purchased as Part of Publicly	at Period End that May Be Purchased
Period	Purchased/Cancelled 1		per Share		Announced Plans or Programs 2	Under the Plans or Programs
10/1/10 - 10/31/10	(1,525	)	$	2.63	-	1,051,821
11/1/10 - 11/30/10	-		$	0.00	-	1,051,821
12/1/10 - 12/31/10	-		$	0.00	-	1,051,821
Total for quarter	(1,525	)			-

1 Shares repurchased by Bancorp during the quarter include shares repurchased from employees in connection with cancellation of restricted stock to pay withholding taxes totaling 1,525 shares, 0 shares, and 0 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 footnote 2 below.

2 Under the Repurchase Program, the board of directors originally authorized the Company to purchase up to 330,000 common shares, which amount was increased by 550,000 shares in September 2000, by 1.0 million shares in September 2001, by 1.0 million shares in September 2002, and by 1.0 million shares in April 2004, and by 1.0 million shares in September 2007 for a total authorized repurchase amount as of December 31, 2010, of approximately 4.9 million shares, 1.05 million shares remain available for repurchase under the plan subject to any regulatory restrictions.

Five Year Stock Performance Graph

The following chart compares the yearly percentage change in the cumulative shareholder return on our Common Stock during the five years ended December 31, 2010, with (1) the Total Return Index for the NASDAQ Stock Market (U.S. Companies) and (2) the Total Return Index for NASDAQ Bank Stocks. This comparison assumes $100.00 was invested on December 31, 2005, in our Common Stock and the comparison groups and assumes the reinvestment of all cash dividends prior to any tax effect and retention of all stock dividends. Bancorp’s total cumulative return was -87% over the five year period ended December 31, 2010, compared to -31.4% and 25.8% for the NASDAQ Bank Stocks and NASDAQ composite, respectively.

	Period Ended
Index	12/31/05	12/31/06	12/31/07	12/31/08	12/31/09	12/31/10
West Coast Bancorp	100	132.6	72.7	27.5	8.9	13.0
NASDAQ Composite	100	110.3	122.1	73.5	106.6	125.8
NASDAQ Bank Index	100	113.7	91.4	72.0	60.2	68.6

ITEM 6. SELECTED FINANCIAL DATA

Consolidated Five Year Financial Data

The following selected consolidated five year financial data should be read in conjunction with Bancorp’s audited consolidated financial statements and the related notes to those statements presented in Item 8 of this report.

(Dollars in thousands, except per share data)				As of and For the Year ended December 31,
	2010			2009			2008			2007			2006
Interest income	$	105,576		$	112,150		$	140,846		$	183,190		$	150,798
Interest expense		22,269			33,423			48,696			68,470			49,926
Net interest income		83,307			78,727			92,150			114,720			100,872
Provision for credit losses		18,652			90,057			40,367			38,956			2,733
Net interest income after provision for credit losses		64,655			(11,330	)		51,783			75,764			98,139
Noninterest income		32,697			9,129			24,629			33,498			28,096
Noninterest expense		90,337			108,288			90,323			85,299			81,665
Income (loss) before income taxes		7,015			(110,489	)		(13,911	)		23,963			44,570
Provision (benefit) for income taxes		3,790			(19,276	)		(7,598	)		7,121			15,310
Net income (loss)	$	3,225		$	(91,213	)	$	(6,313	)	$	16,842		$	29,260

Net interest income on a tax equivalent basis 2	$	84,478		$	80,222		$	93,901		$	116,361		$	102,432

Per share data:
Basic earnings (loss) per share	$	0.03		$	(5.83	)	$	(0.41	)	$	1.08		$	1.95
Diluted earnings (loss) per share	$	0.03		$	(5.83	)	$	(0.41	)	$	1.04		$	1.86
Cash dividends	$	-		$	0.02		$	0.29		$	0.51		$	0.45
Period end book value per common share	$	2.61		$	7.02		$	12.63		$	13.35		$	12.89
Weighted average common shares outstanding		87,300			15,510			15,472			15,507			15,038
Weighted average diluted shares outstanding		90,295			15,510			15,472			16,045			15,730

Total assets	$	2,461,059		$	2,733,547		$	2,516,140		$	2,646,614		$	2,465,372
Total deposits	$	1,940,522		$	2,146,884		$	2,024,379		$	2,094,832		$	2,006,352
Total long-term borrowings	$	168,599		$	250,699		$	91,059		$	83,100		$	57,991
Total loans, net	$	1,496,053		$	1,686,352		$	2,035,876		$	2,125,752		$	1,924,673
Stockholders’ equity	$	272,560		$	249,058		$	198,187		$	208,241		$	200,882
Financial ratios:
Return on average assets		0.13	%		-3.49	%		-0.25	%		0.66	%		1.33	%
Return on average equity		1.21	%		-45.66	%		-3.06	%		7.93	%		16.47	%
Average equity to average assets		10.32	%		7.64	%		8.04	%		8.37	%		8.10	%
Dividend payout ratio		0.00	%		-0.34	%		-70.73	%		47.51	%		24.19	%
Efficiency ratio 1		78.14	%		122.34	%		72.79	%		56.90	%		62.23	%
Net loans to assets		60.79	%		61.69	%		80.91	%		80.33	%		78.07	%
Average yields earned 2		4.40	%		4.71	%		5.92	%		7.72	%		7.37	%
Average rates paid		1.27	%		1.76	%		2.60	%		3.76	%		3.27	%
Net interest spread 2		3.13	%		2.95	%		3.32	%		3.96	%		4.10	%
Net interest margin 2		3.48	%		3.33	%		3.90	%		4.86	%		4.96	%
Nonperforming assets to total assets		4.09	%		5.59	%		7.86	%		1.12	%		0.06	%
Allowance for loan losses to total loans		2.62	%		2.23	%		1.40	%		2.16	%		1.18	%
Allowance for credit losses to total loans		2.67	%		2.29	%		1.45	%		2.53	%		1.18	%
Net loan charge-offs to average loans		1.05	%		4.21	%		3.04	%		0.34	%		0.06	%
Allowance for loan loss to
nonperforming loans		65.68	%		38.74	%		22.67	%		177.53	%		1567.61	%

1	The efficiency ratio has been computed as noninterest expense divided by the sum of net interest income on a tax equivalent basis and noninterest income excluding gains/losses on sales of securities.
2	Interest earned on nontaxable securities has been computed on a 35% tax equivalent basis.

Consolidated Quarterly Financial Data

The following table presents selected consolidated quarterly financial data for each quarter of 2009 and 2010. The financial information contained in this table reflects all adjustments, which, in the opinion of management, are necessary for a fair presentation of the results of the interim periods.

2010
(Dollars in thousands, except per share data)	December 31,			September 30,			June 30,			March 31,
Interest income	$	25,509		$	26,053		$	26,816		$	27,198
Interest expense		3,620			4,178			7,906			6,565
Net interest income		21,889			21,875			18,910			20,633
Provision for credit losses		1,693			1,567			7,758			7,634
Noninterest income		8,595			8,069			9,625			6,408
Noninterest expense		23,330			23,003			22,909			21,095
Net income (loss) before income taxes		5,461			5,374			(2,132	)		(1,688	)
Provision (benefit) for income taxes		3,549			(676	)		1,717			(800	)
Net income (loss)	$	1,912		$	6,050		$	(3,849	)	$	(888	)

Earnings (loss) per common share:
Basic	$	0.02		$	0.06			($0.04	)		($0.01	)
Diluted	$	0.02		$	0.06			($0.04	)		($0.01	)

Return on average assets 1		0.31	%		0.96	%		-0.58	%		-0.13	%
Return on average equity 1		2.75	%		8.84	%		-5.92	%		-1.42	%

1	Ratios have been annualized.

2009
(Dollars in thousands, except per share data)	December 31,			September 30,			June 30,			March 31,
Interest income	$	26,948		$	27,725		$	28,869		$	28,608
Interest expense		7,710			8,580			8,655			8,478
Net interest income		19,238			19,145			20,214			20,130
Provision for credit losses		35,233			20,300			11,393			23,131
Noninterest income (loss)		(6,148	)		4,971			5,958			4,348
Noninterest expense		24,181			23,489			25,244			35,374
Loss before income taxes		(46,324	)		(19,673	)		(10,465	)		(34,027	)
Provision (benefit) for income taxes		2,543			(7,265	)		(4,126	)		(10,428	)
Net loss	$	(48,867	)	$	(12,408	)	$	(6,339	)	$	(23,599	)

Loss per common share:
Basic		($3.13	)		($0.79	)		($0.41	)		($1.51	)
Diluted		($3.13	)		($0.79	)		($0.41	)		($1.51	)

Return on average assets 1		-7.06	%		-1.85	%		-0.99	%		-3.85	%
Return on average equity 1		-74.54	%		-29.39	%		-14.61	%		-48.54	%

1	Ratios have been annualized.

ITEM 7. 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 as of December 31, 2010 and 2009, and for each of the three years in the period ended December 31, 2010, of West Coast Bancorp and its subsidiaries that appear in Item 8 “Financial Statements and Supplementary Data” of this report. References to “we,” “our” or “us” refer to West Coast Bancorp and its subsidiaries.

Forward-Looking Statement Disclosure

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 further declines in credit quality and additional loan losses, and negatively affect the value and salability of the real estate that we own or 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 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 earned on loans and increase rates paid 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 Bancorp’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.

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. Bancorp 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.

Overview

2010 Financial review

The Company’s operating results in 2010 show several favorable trends. During 2010, we recorded:

Net income of $3.2 million compared to a loss of $91.2 million in 2009;
A net interest margin of 3.48%, an increase of 15 basis points from 3.33% in 2009;
An average rate paid on total deposits of .60%, a decline from 1.17% in 2009;
A provision for credit losses of $18.7 million, down $71.4 million from $90.1 million in 2009;
Net loan charge-offs of $17.0 million, a decline from $80.6 million in 2009; and
Net Other Real Estate Owned (“OREO”) valuation adjustments and gains and losses on sales of $4.4 million, a reduction from $27.0 million in 2009.

The financial condition of Bancorp and the Bank also continued to strengthen in 2010, as evidenced by:

Increasing the Bank’s total and tier 1 risk-based capital ratios to 18.05% and 16.79%, respectively, at December 31, 2010, up from 15.37% and 14.11% at December 31, 2009;
Improving the Bank’s leverage ratio to 12.51% at December 31, 2010, from 10.57% a year ago; and
Reducing total nonperforming assets by 34% or $52.2 million over the past twelve months to $100.7 million at year end.

In addition, the Bank continued to reduce real estate construction loan balances, which contracted 56% from $99.3 million at December 31, 2009, to $44.1 million, or less than 3% of total loans, at December 31, 2010.

Update on Regulatory Actions

On July 15, 2010, the Consent Order issued to the Bank effective on October 22, 2009 by the Oregon Department of Consumer and Business Services Division of Finance and Corporate Securities (the “DFCS”) and the Federal Deposit Insurance Corporation (“FDIC”) was terminated. Although the Consent Order was terminated, the DFCS and FDIC required the Bank enter into a Memorandum of Understanding on October 6, 2010.

Bancorp remains subject to a Written Agreement with the DFCS and the Federal Reserve Bank of San Francisco (the “Reserve Bank”) which was entered into on December 15, 2009. Bancorp’s agreement with the Reserve Bank and DFCS is referred to in this Item 7 as the “Written Agreement.”

For more information, see the discussion under the subheading “Current Regulatory Actions” in the section “Supervision and Regulation” included in Item 1 of this report.

Income Statement Overview

Our net income for the full year 2010 was $3.2 million, compared to net losses of $91.2 million in 2009 and $6.3 million in 2008. Earnings per diluted share for the year ended December 31, 2010 was $.03, while the loss per diluted share for the years ended December 31, 2009 and 2008 was $5.83 and $.41, respectively. Return on average equity improved to 1.2% in 2010 from -45.7% in 2009 and -3.1% in 2008. As discussed below, the improved year-over-year performance was primarily due to reduced provision for credit losses and OREO losses in 2010.

Net Interest Income, Average Balances, Yields Earned, and Rates Paid. The following table displays information on net interest income, average yields earned and rates paid, as well as net interest spread and margin information on a tax equivalent basis for the periods indicated. The adjustment to a taxable equivalent basis increases interest income by an estimate of the additional yield that would have been received by the Company if its tax-exempt securities had been taxable at the statutory rate. This information can be used to follow the changes in our yields and rates and the changes in our earning assets and liabilities over the past three years:

(Dollars in thousands)	Year Ended December 31,									Increase (Decrease)						Percentage Change
	2010			2009			2008			10-09			09-08			10-09		09-08
Interest and fee income 1		$106,747			$113,645			$142,597			($6,898	)		($28,952	)	-6.1	%	-20.3	%
Interest expense		$22,269			$33,423			$48,696			($11,154	)		($15,273	)	-33.4	%	-31.4	%
Net interest income 1		$84,478			$80,222			$93,901			$4,256			($13,679	)	5.3	%	-14.6	%

Average interest earning assets		$2,425,073			$2,410,755			$2,409,896			$14,318			$859		0.6	%	0.0	%
Average interest bearing liabilities		$1,751,296			$1,897,170			$1,876,083			($145,874	)		$21,087		-7.7	%	1.1	%

Average interest earning assets/
Average interest bearing liabilities		138.47	%		127.07	%		128.45	%		11.40	%		-1.38	%
Average yield earned 1		4.40	%		4.71	%		5.92	%		-0.31	%		-1.21	%
Average rate paid		1.27	%		1.76	%		2.60	%		-0.49	%		-0.84	%
Net interest spread 1		3.13	%		2.95	%		3.32	%		0.18	%		-0.37	%
Net interest margin 1		3.48	%		3.33	%		3.90	%		0.15	%		-0.57	%

1 Interest earned on nontaxable securities has been computed on a 35% tax equivalent basis.

Net interest income on a tax equivalent basis totaled $84.5 million for the year ended December 31, 2010, an increase of $4.3 million or 5.3% from $80.2 million in 2009. The net interest margin increased 15 basis points to 3.48% in 2010 from 3.33% in 2009. The increase in net interest income and margin from 2009 to 2010 was mainly due to lower rates paid on interest bearing deposits, a change in deposit mix to lower cost demand deposits, as well as lower cash balances at the Federal Reserve and lower nonaccrual loan balances. These trends more than offset a significant shift in the Company’s earning assets mix from loan to investment securities balances and the cost of prepaying a portion of our FHLB debt in 2010. The yield on the investment portfolio in 2010 was 2.94% or 250 basis points less than the 5.44% yield on the loan portfolio in 2010. In 2008, net interest income on a tax equivalent basis was $93.9 million and the net interest margin was 3.90%. The $13.7 million decline in net interest income from 2008 to 2009 was primarily driven by lower loan balances, yields, and fees along with higher nonaccrual loan balances, which led to increased interest reversals.

Changing interest rate environments, including the slope, level of, and changes in the yield curve, and competitive pricing pressure, and changing economic conditions, could lead to higher deposit costs, lower loan yields, reduced net interest margin and spread and lower loan fees, all of which could lead to additional pressure on our net interest income. For more information regarding interest rates, see the discussion under the section “Quantitative and Qualitative Disclosures about Market Risk” in the Item 7A of this report.

Until our loan balances and the proportion of our overall earning assets balances that are in loans begin to expand and the value of noninterest bearing deposit balances increase, we project pressure on our net interest income and margin. Whether we will be able to expand our loan portfolio in 2011 will be primarily dependent on increased economic activity and improved market conditions, which affect both qualified loan demand and credit quality.

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.

	Year Ended December 31,
(Dollars in thousands)	2010							2009							2008
	Average							Average			Interest				Average			Interest
	Outstanding			Interest		Yield/		Outstanding			Earned/		Yield/		Outstanding			Earned/		Yield/
	Balance			Earned/ Paid		Rate 1		Balance			Paid		Rate 1		Balance			Paid		Rate 1
ASSETS:
Interest earning balances
due from banks	$	188,925		$	493	0.26	%	$	136,944		$	366	0.27	%	$	2,333		$	38	1.63	%
Federal funds sold		6,194			6	0.09	%		6,673			6	0.09	%		16,867			340	2.02	%
Taxable securities 2		547,960			14,493	2.64	%		276,852			8,646	3.12	%		157,648			7,700	4.88	%
Nontaxable securities 3		58,139			3,346	5.76	%		72,770			4,270	5.87	%		83,826			5,002	5.97	%
Loans, including fees 4		1,623,855			88,409	5.44	%		1,917,516			100,357	5.23	%		2,149,222			129,517	6.03	%
Total interest earning assets		2,425,073			106,747	4.40	%		2,410,755			113,645	4.71	%		2,409,896			142,597	5.92	%

Allowance for loan losses		(42,003	)						(37,363	)						(38,328	)
Premises and equipment		27,517							31,309							34,141
Other assets		165,284							210,575							163,910
Total assets	$	2,575,871						$	2,615,276						$	2,569,619

LIABILITIES AND
STOCKHOLDERS' EQUITY:
Interest bearing demand	$	335,134		$	447	0.13	%	$	298,002		$	776	0.26	%	$	279,227		$	1,963	0.70	%
Savings		103,531			278	0.27	%		89,903			714	0.79	%		71,542			578	0.81	%
Money market		659,542			3,939	0.60	%		617,881			8,194	1.33	%		658,360			14,633	2.22	%
Time deposits		388,500			7,466	1.92	%		587,299			14,758	2.51	%		566,195			20,375	3.60	%
Short-term borrowings 5		7,570			494	6.52	%		44,220			806	1.82	%		149,016			4,312	2.89	%
Long-term borrowings 5 6		257,019			9,645	3.75	%		259,865			8,175	3.15	%		151,743			6,835	4.50	%
Total interest bearing liabilities		1,751,296			22,269	1.27	%		1,897,170			33,423	1.76	%		1,876,083			48,696	2.60	%
Demand deposits		540,280							499,283							470,601
Other liabilities		18,486							19,044							16,409
Total liabilities		2,310,062							2,415,497							2,363,093
Stockholders' equity		265,809							199,779							206,526
Total liabilities and
stockholders' equity	$	2,575,871						$	2,615,276						$	2,569,619
Net interest income				$	84,478						$	80,222						$	93,901
Net interest spread						3.13	%						2.95	%						3.32	%

Net interest margin						3.48	%						3.33	%						3.90	%

1	Yield/rate calculations have been based on more detailed information and therefore may not recompute exactly due to rounding.
2	2010 does not include Federal Home Loan Bank stock balances. In 2010 FHLB stock is included in other assets. 2009 and 2008 investment securities includes Federal Home Loan Bank stock balances.
3	Interest earned on nontaxable securities has been computed on a 35% tax equivalent basis. The tax equivalent basis adjustment for the years ended December 31, 2010, 2009 and 2008, was $1.2 million, $1.5 million and $1.8 million, respectively.
4	Includes balances of loans held for sale and nonaccrual loans.
5	Includes portion of $2.3 million prepayment fee in connection with prepaying $99.1 million in FHLB borrowings in the second quarter of 2010. The maximum amount of short-term borrowings was $17.6 million and $193.0 million for the years ended December 31, 2010 and 2009, respectively.
6	Includes junior subordinated debentures with average balance of $51 million for 2010, 2009, and 2008.

Net Interest Income – Changes Due to Rate and Volume. The following table sets forth the dollar amounts of the changes in consolidated net interest income attributable to changes in volume and to changes in interest rates. Changes not due solely to volume or rate and changes due to new product lines, if any, are allocated to volume.

	Year Ended December 31,
	2010 compared to 2009									2009 compared to 2008

(Dollars in thousands)	Increase (Decrease) due to:						Total Increase			Increase (Decrease) due to:						Total Increase
	Volume			Yield/Rate			(Decrease)			Volume			Yield/Rate			(Decrease)
Interest income:
Interest earning balances due
from banks	$	98		$	29		$	127		$	2,216		$	(1,888	)	$	328
Federal funds sold		-			-			-			(206	)		(128	)		(334	)
Investment security income:
Interest on taxable securities		8,637			(2,789	)		5,848			5,781			(4,835	)		946
Interest on nontaxable securities 1		(859	)		(66	)		(925	)		(660	)		(73	)		(733	)
Loans, including fees on loans		(12,182	)		234			(11,948	)		(10,234	)		(18,925	)		(29,159	)
Total interest income 1		(4,306	)		(2,592	)		(6,898	)		(3,103	)		(25,849	)		(28,952	)

Interest expense:
Interest bearing demand		97			(425	)		(328	)		132			(1,319	)		(1,187	)
Savings		108			(545	)		(437	)		148			(12	)		136
Money market		552			(4,807	)		(4,255	)		(900	)		(5,539	)		(6,439	)
Time deposits		(4,618	)		(2,674	)		(7,292	)		(1,349	)		(4,268	)		(5,617	)
Short-term borrowings		(668	)		356			(312	)		(3,032	)		(474	)		(3,506	)
Long-term borrowings 2		(90	)		1,560			1,470			4,871			(3,531	)		1,340
Total interest expense		(4,619	)		(6,535	)		(11,154	)		(130	)		(15,143	)		(15,273	)
Increase (decrease) in net interest income 1	$	313		$	3,943		$	4,256		$	(2,973	)	$	(10,706	)	$	(13,679	)

1 Tax exempt income has been adjusted to a tax-equivalent basis using a 35% tax equivalent basis.
2 Long-term borrowings include junior subordinated debentures.

For the year ended December 31, 2010, lower loan balances were the main driver of the $6.9 million decline in interest income. However, lower interest expense caused by a decline in time deposit balances and lower deposit rates, primarily in money market and time deposits categories, more than offset the decline in interest income producing a $4.3 million increase in net interest income. The $29.0 million decline in interest income during 2009 compared to 2008 was due to a decline in loan yield and balances between the two periods which was only partially offset by lower interest expense.

Provision for Credit Losses. The provision for credit losses is comprised of two primary components, a provision for loan losses related to outstanding loans and a provision for losses related to unfunded commitments. The provision for credit losses reflects changes in the credit quality of the entire loan portfolio. The provision for credit losses is recorded to bring the allowance for loan losses and the reserve for unfunded commitments to amounts considered appropriate by management based on factors which are described in the “Credit Management” and “Allowance for Credit Losses and Net Loan Charge-offs” sections of this report.

The provision for credit losses was $18.7 million, $90.1 million, and $40.4 million for the years ended December 31, 2010, 2009 and 2008, respectively, while net loan charge-offs were $17.0 million, $80.6 million, and $65.3 million, over those same years. The provision for credit losses decreased $71.4 million in 2010 compared to 2009, primarily due to a reduction in negative loan risk rating migration within the Company’s loan portfolio and lower loan net charge-offs, particularly in the commercial, residential real estate construction, and real estate mortgage categories.

The $90.1 million provision for credit losses in 2009 represented a significant increase over the $40.4 million provision for 2008. This amount reflected the significantly higher year-over-year net loan charge-offs and a significant negative loan risk rating migration within the loan portfolio in 2009. As a result, the general valuation allowances within the allowance for credit losses model were increased during 2009 and 2010. While provision for credit losses in 2008 was largely attributable to the two-step loan program, over half of the increase in 2009 related to commercial, commercial real estate, and non-two-step real estate construction portfolios.

The level of the Company’s future provisioning will be heavily dependent on the local real estate market for both residential and commercial properties, general economic conditions nationally and in the areas in which we do business, and the effects of any changes in interest rates.

Noninterest Income. Our noninterest income for the year ended December 31, 2010 was $32.7 million up $23.6 million compared to $9.1 million in 2009. This increase predominantly reflected a $22.5 million decrease in losses related to OREO property sales and valuation adjustments, which is a component of noninterest income. The decrease in losses on OREO sales and valuation adjustments was due to a reduction of our OREO property balance, a slower decline in residential real estate property values, and a net gain on OREO sold during 2010, compared to a net loss in 2009.

Noninterest income before the effects of OREO losses was $37.1 million in 2010 compared to $36.1 million in 2009. Service charges on deposit accounts remained relatively flat in 2010 as compared to 2009. Payment systems related revenues increased $2.0 million in 2010 compared to 2009 mainly as a result of an increase in the number of deposit transaction accounts and associated cards as well as higher transaction volumes. Trust and investment service revenue increased 4% or $.2 million in 2010 compared to 2009. In 2010, gains on sales of loans were $1.2 million, down 31% from $1.7 million for 2009. This decrease was due to reduced mortgage loan originations and sales of residential mortgage loans as well as a decrease in the gains on sales of Small Business Administration (“SBA”) loans. The Company recorded gains on sales of securities of $1.6 million in 2010 compared to $.8 million in 2009.

Our noninterest income for the year ended December 31, 2009, was $9.1 million down $15.5 million or 63%, compared to $24.6 million in 2008. This decrease predominantly reflected a $21.6 million increase in losses related to OREO property sales and valuation adjustments. In the fourth quarter of 2009, the Company sold 69 OREO properties with a book value of $18.9 million in a bulk sale. The Company recorded a loss on sale of $6.7 million associated with this transaction.

Our ability to increase noninterest income in the future will be dependent on many factors, including the effects of legislation or regulations limiting bank activities, our ability to retain and grow deposit balances, and the success in developing new products. For instance, it is anticipated that new regulations and regulatory guidance regarding overdraft programs and price controls on debit card interchange could have a material negative impact on the Company’s revenues from deposit service charges on deposit accounts and its payment systems business, respectively, when implemented. Additional OREO valuation adjustments and competitive factors could also adversely affect our noninterest income.

The following table illustrates the components and change in noninterest income for the periods shown:

(Dollars in thousands)	Full year			Full year			2010 to 2009			Full year
	2010			2009			Change			2008
Noninterest income
Service charges on deposit accounts	$	15,690		$	15,765		$	(75	)	$	15,547
Payment systems related revenue		11,393			9,399			1,994			9,033
Trust and investment services revenues		4,267			4,101			166			5,413
Gains on sales of loans		1,197			1,738			(541	)		2,328
Other		3,003			4,438			(1,435	)		3,252
Other-than-temporary impairment losses		-			(192	)		192			(6,338	)
Gain on sales of securities		1,562			833			729			780
Total		37,112			36,082			1,030			30,015

OREO gains (losses) on sale, net		2,234			(1,725	)		3,959			(602	)
OREO valuation adjustments		(6,649	)		(18,562	)		11,913			(4,784	)
OREO loss on bulk sale		-			(6,666	)		6,666			-
Total		(4,415	)		(26,953	)		22,538			(5,386	)

Total noninterest income	$	32,697		$	9,129		$	23,568		$	24,629

Noninterest Expense. Total noninterest expense of $90.3 million in 2010, decreased $18.0 million, or 17%, from $108.3 million in 2009. This was in large part due to a $13.1 million goodwill impairment charge taken in the first quarter of 2009.

Additionally, equipment and occupancy expenses collectively decreased $2.6 million in 2010 compared to 2009 partly as result of a review of fixed assets and disposals of certain obsolete equipment in 2009. Payment system related expenses increased $.7 million in 2010 over 2009 due to higher transaction volumes.

Other noninterest expense decreased $3.9 million in 2010 primarily attributable to a $3.4 million decrease in FDIC insurance premiums compared to 2009. The decrease in FDIC insurance expense was due to a combination of a $1.2 million industry wide special assessment charge in 2009 and a decrease in our insurance premium assessment rate in 2010.

Noninterest expense increased $18.0 million or 20% in 2009 compared to 2008, primarily due to a $13.1 million goodwill impairment charge taken in the first quarter 2009 and a $5.7 million increase in our FDIC insurance premiums. The increase in FDIC insurance expense in 2009 included an industry wide special assessment charge of $1.2 million, an increase in our insurance premium assessment rate in 2009 over 2008, and higher insurance premium expenses related to participation in special government deposit insurance programs.

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, unexpected increases in OREO expenses, or a failure to manage our operating and control environments could adversely affect our ability to limit expense growth in the future.

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

(Dollars in thousands)	Full year		Full year		2010 to 2009			Full year
	2010		2009		Change			2008
Noninterest expense
Salaries and employee benefits	$	45,854	$	44,608	$	1,246		$	47,500
Equipment		6,247		8,120		(1,873	)		7,117
Occupancy		8,894		9,585		(691	)		9,440
Payment systems related expense		4,727		4,036		691			3,622
Professional fees		3,991		4,342		(351	)		4,317
Postage, printing and office supplies		3,148		3,201		(53	)		3,834
Marketing		3,086		2,990		96			3,583
Communications		1,525		1,574		(49	)		1,722
Goodwill impairment		-		13,059		(13,059	)		-
Other noninterest expense		12,865		16,773		(3,908	)		9,188
Total noninterest expense	$	90,337	$	108,288	$	(17,951	)	$	90,323

Income Taxes. The Company recorded a provision for income taxes of $3.8 million for the full year 2010 compared to a benefit of $19.3 million for 2009. The tax benefit for 2009 was significantly reduced by the establishment of a $21.0 million deferred tax asset valuation allowance at year end 2009. Due to a pretax loss in 2008, the Company recorded a tax benefit of $7.6 million for 2008.

The following table shows the components of the tax provision (benefit) for the periods shown:

							2010 to 2009
(Dollars in thousands)	Full year 2010			Full year 2009			Change			Full year 2008
Benefit for income taxes net of initial
establishment of deferred tax asset valuation allowance	$	-		$	(40,275	)		(40,275	)	$	(7,598	)
Provision (benefit) for income taxes from deferred
tax asset valuation allowance:
Establishment of deferred tax asset valuation allowance		-			23,296			23,296			-
Unrealized loss on securities		(1,197	)		(2,297	)		(1,100	)		-
Change in deferred tax assets-tax return adjustments		4,987			-			(4,987	)		-
Total provision (benefit) for income taxes	$	3,790		$	(19,276	)	$	(23,066	)	$	(7,598	)

As of December 31, 2009, the Company determined that it was appropriate to establish an initial deferred tax asset valuation allowance of $21.0 million, reducing its net deferred tax asset to $3.2 million at December 31, 2009 which was the amount that the Company determined was more likely than not to be realized. As of December 31, 2010 following adjustments during the year, the Company’s deferred tax asset valuation allowance had increased slightly to $23.5 million against the deferred tax asset balance of $29.3 million for a net deferred tax asset of $5.8 million. In reaching the determination of a deferred tax asset valuation allowance, a significant element of objective negative evidence evaluated was the $117.3 million cumulative, pretax loss incurred over the three year period ended December 31, 2010. The amount of the deferred tax asset considered realizable, however, could be adjusted if sufficient objective and subjective positive evidence arises to overcome the objective negative evidence affecting the analysis, including cumulative losses in the previous three years ending December 31, 2010.

Management will continue to review the deferred tax asset valuation allowance on a quarterly basis. Any future reversals of the deferred tax asset valuation allowance, including a reduction for the effect of pretax income, would decrease the Company’s income tax expense and increase net income. While the Company maintains a deferred tax asset valuation allowance, changes in the gross unrealized gain on the Company’s investment portfolio will also, either favorably or unfavorably, continue to impact the Company’s future deferred tax asset valuation allowance and provision for income taxes.

As the following table illustrates, the expected amount of tax provision on the Company’s 2010 income was $2.4 million. The reconciliation between the Company’s effective tax rate on income (loss) and the statutory rate is as follows:

(Dollars in thousands)	Year ended December 31,
	2010			2009			2008
Expected federal income tax (benefit) provision 1	$	2,385		$	(38,671	)	$	(4,730	)
State income tax, net of federal income tax effect		66			(3,504	)		(769	)
Interest on obligations of state and political subdivisions
exempt from federal tax		(901	)		(1,148	)		(1,302	)
Federal low income housing tax credits		(427	)		(972	)		(880	)
Bank owned life insurance		(302	)		(307	)		(309	)
Stock options		70			123			177
Goodwill impairment		-			4,570			-
Change in deferred tax asset valuation allowance		2,465			20,999			-
Other, net		434			(366	)		215
Total (benefit) provision for income taxes	$	3,790		$	(19,276	)	$	(7,598	)

1 Federal income tax provision applied at 34% in 2010 and 2008 and 35% in 2009.

For more information regarding the Company’s income taxes, see Note 17 “Income Taxes” to the Company’s audited consolidated financial statements included under the section “Financial Statements and Supplementary Data” in Item 8 of this report.

Balance Sheet Overview

Balance sheet highlights are as follows:

Total assets were $2.5 billion as of December 31, 2010, down from $2.7 billion at December 31, 2009;
Total loans decreased to $1.5 billion, a decline of 11% or $188.6 million from December 31, 2009, primarily due to declines of $60.8 million or 16% in commercial loan balances, $55.2 million or 56% in real estate construction loan balances, and $43.6 million or 5% in commercial real estate loan balances;
The combined balance of total cash and cash equivalents and investment securities was substantial at $824.1 million at December 31, 2010, and represented 35% of earning assets at year end;
Total deposits decreased to $1.9 billion at December 30, 2010, a $206.4 million or 10% decline since year end 2009, primarily due to planned contraction in time deposit balances to reduce our cost of funds.

Our balance sheet management efforts are focused on increasing loan balances, limiting loan concentrations, continuing to reduce nonperforming assets, maintaining a strong capital position and sufficient liquidity, and include efforts to:

Shift our earning asset mix toward loan balances by increasing loan production within our concentration parameters to targeted customer segments as opportunities arise;
Continue to resolve nonaccrual loans through potential loan sales and disposal of OREO properties; and
Manage the size of our balance sheet and maintain regulatory capital ratios at high levels until we have more certainty regarding economic conditions.

Given the continued weak commercial and residential real estate markets in our operating area, we expect our construction loan portfolio will continue to contract in 2011. We do, however, anticipate more opportunities for growth within the term commercial real estate category and the commercial loan category in 2011. Our ability to achieve loan growth will be dependent on many factors, including the effects of competition, health of the real estate market, economic conditions in our markets, retention of key personnel and valued customers, and our ability to close loans in the pipeline.

Cash and Cash Equivalents

Total cash and cash equivalents decreased from $303.0 million at December 31, 2009, to $178.0 million at December 31, 2010. This decrease was primarily due to investing interest bearing deposits in higher yielding investment securities balances in 2010 while continuing to maintain strong liquidity ratios.

(Dollars in thousands)	Dec. 31,		% of		Dec. 31,		% of		Change					Dec. 31,		% of
	2010		total		2009		total		Amount			%		2008		total
Cash and Cash equivalents:
Cash and due from banks	$	42,672	24	%	$	47,708	16	%	$	(5,036	)	-11	%	$	58,046	90	%
Federal funds sold		3,367	2	%		20,559	7	%		(17,192	)	-84	%		6,682	10	%
Interest-bearing deposits in other banks		131,952	74	%		234,830	77	%		(102,878	)	-44	%		50	0	%
Total cash and cash equivalents	$	177,991	100	%		303,097	100	%	$	(125,106	)	-41	%	$	64,778	100	%

Investment Portfolio

The following table shows the amortized cost and fair value of Bancorp’s investment portfolio. At December 31, 2010, Bancorp had no securities classified as held to maturity.

	December 31, 2010							December 31, 2009
					Net							Net
	Amortized				Unrealized			Amortized				Unrealized
(Dollars in thousands)	Cost		Fair Value		Gain/(Loss)			Cost		Fair Value		Gain/(Loss)
U.S. Treasury securities	$	14,347	$	14,392		45		$	24,907	$	25,007		100
U.S. Government agency securities		193,901		194,230		329			104,168		103,988		(180	)
Corporate securities		14,499		9,392		(5,107	)		14,436		9,753		(4,683	)
Mortgage-backed securities		359,965		363,618		3,653			344,179		344,294		115
Obligations of state and political subdivisions		51,111		52,645		1,534			67,651		70,018		2,367
Equity investments and other securities		11,423		11,835		412			9,274		9,217		(57	)
Total Investment Portfolio	$	645,246	$	646,112	$	866		$	564,615	$	562,277	$	(2,338	)

At December 31, 2010, the estimated fair value of the investment portfolio was $646.1 million, an increase of $83.8 million or 15% from $562.3 million at year end 2009. We increased our investment securities balance as our loan balances contracted. The net unrealized gain on the investment portfolio was $.9 million at December 31, 2010, representing .1% of the total portfolio compared to a net unrealized loss of $2.3 million and .4%, respectively, at year end 2009. The net unrealized gain on mortgage-backed securities increased from $.1 million to $3.7 million and was partly offset by a $.8 million decline in net unrealized gain in obligations of state and political subdivisions and a $.4 million increase in net unrealized loss on the corporate securities portfolio.

The Company regularly reviews its investment portfolio to determine whether any of its securities are other-than-temporarily impaired. In addition to accounting and regulatory guidance in determining whether a security is other-than-temporarily impaired, the Company considers the duration and amount of each unrealized loss, the financial condition of the issuer and the prospects for a change in market value within a reasonable period of time. At December 31, 2010, the Company determined there were no other-than-temporarily impaired securities in the investment portfolio.

Our U.S. Government agency securities increased by $90.2 million during 2010, as part of our efforts to maintain portfolio diversification, provide possible collateral for public funds and borrowings sources, and reduce low yielding cash and cash equivalent balances.

Our corporate security portfolio had an estimated $5.1 million unrealized loss at December 31, 2010. The majority of this loss was associated with the decline in market value of our investments in pooled trust preferred securities issued primarily by banks and insurance companies. Continued wide credit and liquidity spreads contributed to the unrealized loss associated with these securities which had a $14.0 million amortized cost and an estimated $8.9 million fair value at December 31, 2010. At year end 2010, these securities were rated C or better by the rating agencies that cover these securities, and they have several features that reduce credit risk, including seniority over certain tranches in the same pool and the benefit of certain collateral coverage tests.

At December 31, 2010, our mortgage-backed securities portfolio consisted of $342.8 million of U.S. agency backed mortgages and $20.8 million of non-agency mortgages. The majority of our non-agency mortgage-backed securities portfolio was comprised of securities secured by 15 year fully amortizing jumbo loans. Approximately 91% of our non-agency mortgage-backed securities were rated AA- or better. One $1.8 million security was rated BB+ at year end 2010. None of the mortgages within this mortgage-backed security were delinquent at December 31, 2010.

Our portfolio of securities representing obligations of state and political subdivisions had an estimated fair value of $52.6 million, with an amortized cost of $51.1 million, indicating an unrealized gain of $1.5 million. Consistent with the industry, the Company has experienced a modest adverse change in the credit ratings of the securities in this segment of our portfolio, which is comprised solely of municipal bonds. At December 31, 2010, the ratings associated with the securities in this segment were: 9% AAA, 59% AA, 18% A, 9% BBB and 5% non-rated. At December 31, 2009, the ratings were: 8% AAA, 52% AA, 25% A, 10% BBB and 5% non-rated.

For more information regarding the Company’s fair value calculations, see Note 19 “Fair Value Measurement” to the Company’s audited consolidated financial statements included under the section “Financial Statements and Supplementary Data” in Item 8 of this report.

The following table summarizes the contractual maturities and weighted average yields on Bancorp’s investment securities:

					After				After
(Dollars in thousands)	One year				One through				Five through				Due after
	or less		Yield		five years		Yield		ten years		Yield		ten years		Yield		Total		Yield
U.S. Treasury securities	$	14,181	1.08	%	$	211	4.50	%	$	-	-		$	-	-		$	14,392	1.13	%
U.S. Government agency securities		-	-			164,087	2.34	%		30,143	1.76	%		-	-			194,230	2.25	%
Obligations of state and
political subdivisions 1		6,328	6.27	%		11,966	5.87	%		29,441	6.61	%		4,910	5.31	%		52,645	6.28	%
Other securities 2		-	-			2,642	4.31	%		127,675	3.64	%		254,528	3.80	%		384,845	3.75	%
Total 1	$	20,509	2.68	%	$	178,906	2.61	%	$	187,259	3.81	%	$	259,438	3.83	%	$	646,112	2.94	%

1 Yields are stated on a federal tax equivalent basis at 35%.

2 Contractual maturities do not reflect prepayments on mortgage-backed and asset-backed securities. Actual durations are anticipated to be significantly shorter than contractual maturities.

The projected average life of Bancorp’s investment portfolio decreased slightly from 3.5 years at December 31, 2009 to 3.3 years at December 31, 2010. While the investment portfolio grew during 2010, the Company elected to maintain a relatively short expected duration in light of the historically low market interest rate environment. Management may consider selling certain securities and realizing gains and/or losses in the Company’s investment portfolio on an on-going basis as part of Bancorp’s overall business strategy. For more information regarding Bancorp’s investment securities, see Note 2 “Investment Securities” to the Company’s audited consolidated financial statements included under the section “Financial Statements and Supplementary Data” in Item 8 of this report.

FHLB stock is carried at cost which equals its par value because the shares can only be redeemed with the FHLB at par. The Bank is required to maintain a minimum level of investment in FHLB stock based on specific percentages of its outstanding mortgages and FHLB advances. Stock redemptions are at the discretion of the FHLB or of the Company upon prior notice to the FHLB of five years for FHLB Class B stock or six months for FHLB Class A stock. The Company periodically analyzes FHLB stock for other-than-temporary impairment (“OTTI”). The evaluation of OTTI on FHLB stock is based on an assessment of the ultimate recoverability of cost rather than recognizing temporary declines in value. The Company analyzed FHLB stock for OTTI and concluded that no impairment exists at December 31, 2010.

Loan Portfolio

The following table provides the composition of the loan portfolio and the balance of our allowance for loan losses as of the dates shown:

	December 31,
(Dollars in thousands)	2010					2009					2008					2007					2006
	Amount			Percent		Amount			Percent		Amount			Percent		Amount			Percent		Amount			Percent
Commercial	$	309,327		20	%	$	370,077		21	%	$	482,405		23	%	$	504,101		23	%	$	463,188		24	%
Real estate construction		44,085		3	%		99,310		6	%		285,149		14	%		517,988		24	%		365,954		19	%
Real estate mortgage		349,016		23	%		374,668		22	%		393,208		19	%		330,803		15	%		287,495		15	%
Commercial real estate		818,577		53	%		862,193		50	%		882,092		43	%		796,622		37	%		804,865		41	%
Installment and other
consumer		15,265		1	%		18,594		1	%		21,942		1	%		23,155		1	%		26,188		1	%
Total loans		1,536,270		100	%		1,724,842		100	%		2,064,796		100	%		2,172,669		100	%		1,947,690		100	%

Allowance for loan losses		(40,217	)	2.62	%		(38,490	)	2.23	%		(28,920	)	1.40	%		(46,917	)	2.16	%		(23,017	)	1.18	%

Total loans, net	$	1,496,053				$	1,686,352				$	2,035,876				$	2,125,752				$	1,924,673

The Company’s loan portfolio was $1.5 billion at December 31, 2010, a decrease of $188.6 million or 11% from December 31, 2009. The most significant decline within the loan portfolio continued to occur in the real estate construction loan category, which contracted $55.2 million or 56% in 2010. Total real estate construction loans represented 3% of the loan portfolio at the end of 2010, a reduction from 6% at December 31, 2009, and down from 24% at its peak at year end 2007. At 53% of the loan portfolio, commercial real estate represented the largest component of the portfolio at year end 2010. Interest and fees earned on our loan portfolio is our primary source of revenue, and the decline in loan balances has had a significant negative impact on interest income and loan fees earned.

The following table presents the maturity distribution and interest rate sensitivity of the Company’s loan portfolio by category at December 31, 2010:

(Dollars in thousands)	Commercial		Real estate		Real estate		Commercial		Installment
	loans		construction		mortgage		real estate		and other		Total
Maturity distribution:1
Due within one year	$	168,033	$	44,085	$	20,895	$	48,909	$	4,833	$	286,755
Due after one through five years		118,619		-		116,541		315,420		4,970		555,550
Due after five years		22,675		-		211,580		454,248		5,462		693,965
Total	$	309,327	$	44,085	$	349,016	$	818,577	$	15,265	$	1,536,270
Interest rate sensitivity:
Fixed-interest rate loans	$	103,881	$	12,635	$	93,536	$	209,514	$	7,639	$	427,205
Floating or adjustable interest rate loans2		205,446		31,450		255,480		609,063		7,626		1,109,065
Total	$	309,327	$	44,085	$	349,016	$	818,577	$	15,265	$	1,536,270

1 The table is based on stated maturities, not expected maturities or durations.

2 Certain loans contain provisions which place maximum or minimum limits on interest rates or interest rate changes. Adjustable rate loans include all loans whose rates could change prior to maturity.

Loans held for sale at December 31, 2010, were $3.1 million compared to $1.2 million at December 31, 2009. The majority of our loan sales involve residential real estate mortgage loans. These loan sales have no recourse, however sales are subject to proper compliance with standard underwriting rules that if not met, may allow the secondary market buyer to require the Company to repurchase the note. To date, the Company has received few requests to repurchase notes from secondary market purchasers and related expenses have not been material. However, there can be no assurance that we will not receive additional and increased requests to repurchase loans, in which case possible losses to the Bank could be material to results of operations. Also, from time to time, the Company sells the guaranteed portions of SBA loans with servicing rights and obligations usually retained.

At December 31, 2010, Bancorp had $57.8 million in loans classified as troubled debt restructurings of which $15.5 million was on accrual status, with the remaining $42.3 million on nonaccrual status. Troubled debt restructurings were $22.8 million at December 31, 2009, of which $11.7 million was on accrual status, with the remaining $11.1 million on nonaccrual status. A total of $57.8 million and $22.8 million in troubled debt restructurings were considered impaired at year end 2010 and 2009, respectively. The modifications granted on troubled debt restructurings were due to borrower financial difficulty, and generally provide for a modification of loan terms. The increase in troubled debt restructures reflects an increase in the number of loan modifications in 2010, particularly with regard to loan maturities that have been extended. For more information regarding Bancorp’s troubled debt restructures and loans, see Note 3 “Loans and Allowance for Credit Losses” to the Company’s audited consolidated financial statements included under the section “Financial Statements and Supplementary Data” in Item 8 of this report.

At December 31, 2010, and 2009, we had $5.0 million and $3.9 million, respectively, in outstanding loans to persons serving as directors, senior officers, principal stockholders and their related interests. These loans were made substantially on the same terms, including interest rates, maturities and collateral, as those made to other customers of the Bank. At December 31, 2010, and 2009, the Bank had no banker’s acceptances.

Below is a discussion of our loan portfolio by category.

Commercial. The composition of commercial loans as of December 31, 2010 and December 31, 2009 was as follows:

(Dollars in thousands)				Percent of					Percent					Percent
	December 31, 2010			total		December 31, 2009			of total		Change			change
Commercial lines of credit:
Total commitment	$	448,042				$	492,394				$	(44,352	)	-9	%
Outstanding balance		187,983		61	%		221,779		60	%		(33,796	)	-15	%
Utilization %		42.0	%				45.0	%

Commercial term loans:
Total commitment	$	121,344				$	148,298				$	(26,954	)	-18	%
Outstanding balance		121,344		39	%		148,298		40	%		(26,954	)	-18	%

Total commercial lines and loans:
Total commitment	$	569,386				$	640,692				$	(71,306	)	-11	%
Outstanding balance		309,327		100	%		370,077		100	%		(60,750	)	-16	%

At December 31, 2010, the total balance of commercial loans and lines was $309.3 million or approximately 20% of the Company’s total loan portfolio. The commercial loan balance decreased by $60.8 million or 16% from $370.1 million at year end 2009. Commercial term loans accounted for $121.3 million or 39% of the total outstanding balance while $188.0 million or 61% consisted of commercial lines of credit. The weak economic environment over the past couple of years significantly reduced loan origination volume in the commercial category, as well as the line utilization which declined from 45% in 2009 to 42% in 2010 or towards the low end of our customers’ utilization range in past years. Commercial term loans are typically intermediate to long-term (two to ten years) secured credit used to finance capital equipment or provide working capital while commercial lines of credit are generally revolving loans typically used to finance short-term or seasonal working capital needs.

Since the onset of the recessionary environment the Company elected to limit new loan originations to customers in certain sectors, including businesses related to the housing industry, as well as to exit certain high risk client relationships. However, in terms of our long term strategy we expect commercial businesses to be an important contributor to growth in loan balances and future revenues. The capital raises over the past 15 months support our efforts to strategically pursue opportunities in targeted commercial lending segments.

In originating commercial loans and lines, our underwriting standards may include maximum loan to value ratios, minimum target levels for debt service coverage and other financial covenants specific to the loan and the borrower. Common forms of collateral pledged to secure our commercial loans are real estate, accounts receivable, inventory, equipment, agricultural crops and/or livestock and marketable securities. Commercial loans and lines of credit typically have maximum terms of one to ten years and loan to value ratios in the range of 50% to 80% at origination.

Real Estate Construction. The composition of our real estate construction portfolio as of December 31, 2010, 2009, and 2008 is presented in the following table:

(Dollars in thousands)	December 31, 2010					December 31, 2009					Change					December 31, 2008
	Amount			Percent		Amount			Percent		Amount			Percent		Amount			Percent
Commercial construction	$	19,781		45	%	$	29,615		30	%	$	(9,834	)	-33	%	$	92,615		32	%
Two-step residential construction loans		1,132		3	%		2,407		2	%		(1,275	)	-53	%		53,084		19	%
Residential construction to builders		12,301		28	%		44,786		45	%		(32,485	)	-73	%		71,296		25	%
Residential subdivision or site development		10,903		24	%		22,590		23	%		(11,687	)	-52	%		68,485		24	%
Net deferred fees		(32	)	0	%		(88	)	0	%		56		64	%		(331	)	0	%
Total real estate construction loans	$	44,085		100	%	$	99,310		100	%	$	(55,225	)	-56	%	$	285,149		100	%

At December 31, 2010, the balance of real estate construction loans was $44.1 million, down $55.2 million or 56% from $99.3 million at December 31, 2009, which in turn was down from $285.1 million at December 31, 2008. Our construction loan portfolio has contracted dramatically as a result of real estate market conditions and our efforts to work through problem credits within this portfolio.

Real estate construction loans to builders are generally secured by the property underlying the project that is being financed. Construction loans to builders and developers typically have terms from 12 to 24 months and initial loan to value ratios in the range of 60% to 85% based on the estimated “as-is” and “as-proposed” values of the project at the time of loan origination.

At December 31, 2010, the Bank was within the Interagency Guidelines for Real Estate Lending and the Commercial Real Estate Lending Joint Guidance policy guidelines for concentrations in construction relative to the sum of Tier 1 capital and allowance for credit losses. New loan origination activity in this loan category has been and continues to be limited due to weak real estate market conditions.

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

(Dollars in thousands)	December 31, 2010				December 31, 2009				Change					December 31, 2008
	Amount		Percent		Amount		Percent		Amount			Percent		Amount		Percent
Mortgage	$	67,525	19	%	$	74,977	20	%	$	(7,452	)	-10	%	$	87,628	22	%
Nonstandard mortgage product		12,523	4	%		20,108	5	%		(7,585	)	-38	%		32,597	8	%
Home equity loans and lines of credit		268,968	77	%		279,583	75	%		(10,615	)	-4	%		272,983	70	%
Total real estate mortgage	$	349,016	100	%	$	374,668	100	%	$	(25,652	)	-7	%	$	393,208	100	%

At December 31, 2010, the total real estate mortgage loan balance was $349.0 million or approximately 23% of the Company’s total loan portfolio. This included $12.5 million in our nonstandard mortgage product, a decline from $20.1 million at December 31, 2009 due primarily to borrower pay downs. There were only two nonstandard mortgage loans originated in 2010. At December 31, 2010, mortgage loans measured $67.5 million, of which $30.9 million consisted of standard residential mortgage loans to homeowners. The remaining $36.6 million was associated with commercial interests utilizing residences as collateral. Such commercial interests included $22.4 million related to businesses, $4.0 million related to condominiums, and $4.9 million related to residential land.

Home equity lines and loans represented 77% or $269.0 million of the real estate mortgage portfolio. The Bank’s home equity lines and loans were almost entirely generated within our market area and were originated through our branches. The home equity portfolio peaked at year end 2009. Originations within this portfolio slowed significantly over the past two years as a result of the Bank’s ongoing analysis of market conditions and corresponding adjustments made to our pricing and underwriting standards as well as reduced customer demand. As shown below, the year end 2010 home equity line utilization percentage for loans originated in 2010 averaged approximately 50%, which was below that of loans originated in prior years.

(Dollars in thousands)	Year of Origination
																			2004 &
	2010			2009			2008			2007			2006			2005			Earlier			Total
Home equity lines
Commitments	$	23,679		$	30,195		$	58,022		$	74,930		$	74,980		$	53,717		$	80,612		$	396,135
Outstanding balance		11,763			18,573			36,695			50,154			48,012			34,109			42,943			242,249

Utilization at year end (1)		49.7	%		61.5	%		63.2	%		66.9	%		64.0	%		63.5	%		53.3	%		61.2	%

Home equity loans
Outstanding balance		1,772			2,929			7,319			5,389			3,650			942			3,402			25,403

Total home equity outstanding	$	13,535		$	21,502		$	44,014		$	55,543		$	51,662		$	35,051		$	46,345		$	267,652

(1) For the purposes of utilization percentages, the outstanding balance does not include deferred costs and fees of $1.3 million

Approximately 39% of the Bank’s home equity portfolio is in first lien position, and this collateral position helps mitigate overall portfolio risk. There were a significant amount of other types of loans as well as deposits derived from our home equity borrowers at year end 2010, which we believe were a result of our home equity line and loan portfolios being sourced to relationship customers through our branch network.

The following table shows home equity lines of credit and loans by metropolitan service. The majority of our home equity lines and loans are secured by homes in the Portland-Beaverton, Oregon, Vancouver, Washington and Salem, Oregon markets, where most of our branches are also located.

(Dollars in thousands)	December 31, 2010				December 31, 2009
			Percent of				Percent of
Region	Amount		total		Amount		total
Portland-Beaverton, Oregon / Vancouver, Washington	$	127,479	47.4	%	$	135,647	48.5	%
Salem, Oregon		62,533	23.2	%		64,241	23.0	%
Oregon non-metropolitan area		27,615	10.3	%		27,333	9.8	%
Olympia, Washington		17,236	6.4	%		18,803	6.7	%
Washington non-metropolitan area		14,489	5.4	%		15,541	5.6	%
Bend, Oregon		5,692	2.1	%		5,665	2.0	%
Other		13,924	5.2	%		12,353	4.4	%
Total home equity loan and line portfolio	$	268,968	100.0	%	$	279,583	100.0	%

Commercial Real Estate. The composition of commercial real estate loan types based on collateral is as follows:

(Dollars in thousands)	December 31, 2010				December 31, 2009
	Amount		Percent		Amount		Percent
Office Buildings	$	182,376	22.3	%	$	193,233	22.4	%
Retail Facilities		108,874	13.3	%		114,697	13.3	%
Industrial parks and related		59,493	7.3	%		55,955	6.5	%
Multi-Family - 5+ Residential		58,606	7.2	%		50,498	5.9	%
Medical Offices		55,294	6.8	%		61,636	7.1	%
Commercial/Agricultural		54,361	6.6	%		62,366	7.2	%
Manufacturing Plants		47,341	5.8	%		55,216	6.4	%
Hotels/Motels		35,724	4.4	%		37,829	4.4	%
Assisted Living		25,669	3.1	%		26,600	3.1	%
Mini Storage		24,678	3.0	%		25,778	3.0	%
Land Development and Raw Land		19,534	2.4	%		26,594	3.1	%
Food Establishments		16,370	2.0	%		18,108	2.1	%
Other		130,257	15.8	%		133,683	15.5	%
Total commercial real estate loans	$	818,577	100.0	%	$	862,193	100.0	%

The commercial real estate portfolio decreased $43.6 million or 5% during 2010. While the level of prepayments of loans was low in 2010, new commercial real estate loan originations in 2010 continued at a modest level compared to levels prior to 2009, reflecting difficult market conditions. At year end 2010, office buildings and retail facilities accounted for 36% of the collateral securing the commercial real estate portfolio, similar to that of year end 2009. The Company’s underwriting of commercial real estate loans generally includes loan to value ratios at origination not exceeding 75% and debt service coverage ratios at 120% or better.

The composition of the commercial real estate loan portfolio by occupancy type is as follows:

	December 31,				December 31,				Change
(Dollars in thousands)	2010				2009							Mix
	Amount		Percent		Amount		Percent		Amount			Percent
Owner occupied	$	383,047	47	%	$	423,031	49	%	$	(39,984	)	-9	%
Non-owner occupied		435,530	53	%		439,162	51	%		(3,632	)	-1	%
Total commercial real estate loans	$	818,577	100	%	$	862,193	100	%	$	(43,616	)

The owner occupied category of the Company’s commercial real estate portfolio decreased $40.0 million or 9% in 2010 and represented 47% of total commercial real estate loans at December 31, 2010. The non-owner occupied commercial real estate category remained relatively unchanged during 2010. We believe our commercial real estate portfolio to be a relatively mature portfolio.

The following table shows the commercial real estate portfolio by current property location:

(Dollars in thousands)	December 31, 2010
			Number of	Percent of
Region	Amount		loans	total
Portland-Beaverton, Oregon / Vancouver, Washington	$	440,506	742	53.8	%
Salem, Oregon		145,217	408	17.7	%
Oregon non-metropoliton area		56,601	172	6.9	%
Seattle-Tacoma-Bellevue, Washington		38,742	42	4.7	%
Washington non-metropoliton area		30,876	113	3.8	%
Olympia, Washington		26,661	77	3.3	%
Bend, Oregon		22,774	24	2.8	%
Other		57,200	87	7.0	%
Total commercial real estate loans	$	818,577	1,665	100.0	%

As shown in the table above, the distribution of our commercial real estate portfolio at year end 2010 reflected our branch presence in our operating markets fairly well. At year end 2010 the average loan balance in our commercial real estate portfolio was less than $.5 million.

The following table shows the commercial real estate portfolio by year of stated maturity:

	December 31, 2010
			Number of	Percent of
(Dollars in thousands)	Amount		loans	total
2011	$	48,909	100	6.0	%
2012		52,676	82	6.4	%
2013 and after		716,992	1,483	87.6	%
Total commercial real estate loans	$	818,577	1,665	100.0	%

At year end 2010, the stated loan maturities in 2011 and 2012 totaled $101.6 million or 12.4% of the $818.6 million total commercial real estate portfolio.

Credit Management.

Credit risk is inherent in our lending activities. We manage the general risks in the loan portfolio by following loan policies and underwriting practices designed to result in prudent lending activities. In addition, we attempt to manage our risk through our credit administration and credit review functions that are designed to help confirm our credit standards are being followed. Through the credit review function we monitor credit related policies and practices on a post approval basis. Significant findings and periodic reports are communicated to the chief credit officer and chief executive officer and, in certain cases, to the Loan, Investment, & Asset/Liability Committee, which is comprised of certain directors. Credit risk in the loan portfolio can be amplified by loan concentrations. We manage our concentration risk on an ongoing basis by establishing a maximum amount of credit that may be extended to any one borrower and by employing concentration limits that regulate exposure levels by product type and portfolio category. We also employ concentration limits by geography for certain commercial and residential real estate loans.

Our residential construction portfolio, consisting of developers and builders, is a portfolio we consider to have higher risk. The prolonged downturn in residential real estate has slowed land, lot and home sales within our markets and has resulted in lengthening the absorption period for completed homes and has negatively affected borrower liquidity and collateral values. We have continued to reduce our exposure to residential construction by controlling origination activity and managing down loans to existing borrowers. Until our regional economy generates and sustains higher levels of overall business activity and employment levels, financial pressures will continue to challenge borrowers in many industry segments. We are closely monitoring our credit exposure in both owner occupied and non-owner occupied term real estate. An important component of managing risk in the commercial real estate portfolio involves stress testing, at both a portfolio and individual borrower level. Our stress test for individual commercial real estate borrowers focuses on examining project performance relative to cash flow and collateral value under a range of assumptions that include interest rates, absorption, unit sales prices, and capitalization rates. This level of risk monitoring assists the Bank to identify potential problem loans early and develop action plans on a timely basis, which may include requiring borrowers to provide curtailments, pledge additional collateral, or transfer the borrowing relationship to our special asset team for closer monitoring.

Current economic conditions continue to challenge the banking industry. Consequently, we are tightly focused on monitoring and managing credit risk across all of our loan portfolios. As part of our ongoing lending process, a risk analysis is prepared for each primary credit action with the borrower before the funds are advanced. Most borrowers are assigned individual risk ratings which are based on our assessment of the borrower’s credit worthiness and the quality of our collateral position at the time a particular loan is made. Thereafter, credit risk ratings are evaluated on an ongoing basis focusing on our interpretation of relevant risk factors known to us at the time of each evaluation. Large credit relationships have their credit risk rating reviewed at least annually, and given current economic conditions, risk rating evaluations may occur more frequently. Our relationship managers play a critical role in this process by evaluating the ongoing financial condition of each borrower in their respective portfolio of loans. These activities include, but are not limited to, maintaining open communication channels with borrowers, analyzing periodic financial statements and cash flow projections, tracking financial trends, evaluating collateral, monitoring covenant compliance, and evaluating the financial capacity of guarantors. Collectively, these activities represent an ongoing process that results in an assessment of credit risk associated with each commercial, real estate construction and commercial real estate loan consistent with our internal risk rating guidelines. Our risk rating process is a central component in estimating the required allowance for credit losses, as discussed in the Allowance for Credit Losses section which follows. Credit files are also examined periodically on a sample test basis by our credit review department and internal auditors, as well as by regulatory examiners.

Although a risk of nonpayment exists with respect to all loans, certain specific types of risks are associated with different types of loans. The expected source of repayment of loans is generally the cash flow of a particular project, income from the borrower's business, conversion of trading assets to cash, proceeds from the sale of real property, proceeds of refinancing, or personal income. Real estate is frequently a material component of collateral for our loans. Risks associated with loans secured by real estate include the risks of decreasing land and property values, material increases in interest rates, deterioration in local economic conditions, changes in tax policies, and tightening credit or refinancing markets. A concentration of loans within any one market area may increase these risks.

Nonperforming Assets and Delinquencies

Nonperforming assets. The following table presents information with respect to nonperforming assets as of the dates shown:

	December 31,
(Dollars in thousands)	2010			2009			2008			2007			2006
Nonperforming loans:
Commercial	$	13,377		$	36,211		$	6,250		$	2,401		$	385
Real estate construction:
Commercial real estate construction		4,077			1,488			2,922			-			-
Residential real estate construction		6,615			22,373			90,712			22,121			567
Total real estate construction		10,692			23,861			93,634			22,121			567
Real estate mortgage:
Mortgage		9,318			11,563			8,283			552			-
Nonstandard mortgage		5,223			8,752			15,229			-			-
Home equtiy		950			2,036			1,043			-			-
Real estate mortgage		15,491			22,351			24,555			552			-
Commercial real estate		21,671			16,778			3,145			1,353			516
Installment and other consumer		-			144			6			-			-
Total loans on nonaccrual status		61,231			99,345			127,590			26,427			1,468
Loans past due 90 days or more but not on
nonaccrual status		-			-			-			-			-
Other real estate owned		39,459			53,594			70,110			3,255			-
Total nonperforming assets	$	100,690		$	152,939		$	197,700		$	29,682		$	1,468
Percentage of nonperforming assets to
total assets		4.09	%		5.60	%		7.86	%		1.12	%		0.06	%

Total assets	$	2,461,059		$	2,733,547		$	2,516,140		$	2,646,614		$	2,465,372

Nonperforming assets consist of nonaccrual loans, loans past due more than 90 days and still accruing interest, and OREO. At December 31, 2010, total nonperforming assets were $100.7 million, or 4.1% of total assets, which was down from $152.9 million, or 5.6% of total assets, at December 31, 2009. The balance of total nonperforming assets reflected write downs totaling $53.6 million or 35% from the original loan principal balance compared to write downs of 38% twelve months ago. The decline in total nonperforming assets in 2010 was caused by the combination of OREO sales and net charge-offs exceeding the inflow of additional nonaccrual loans. Total nonaccrual loans declined by $38.1 million to $61.2 million at December 31, 2010, from $99.3 million at year end 2009. During 2010, nonaccrual loan balances declined significantly within the commercial and residential real estate construction categories, while increasing in commercial real estate construction and term commercial real estate categories.

Generally, loans are placed on nonaccrual status and no interest is accrued when factors indicate collection of interest or principal in accordance with the contractual terms is doubtful or when the principal or interest payment becomes 90 days past due. For such loans, previously accrued but uncollected interest is reversed and charged against current earnings and additional income is only recognized to the extent payments are subsequently received and the loan is placed back on accrual status. Interest income foregone on nonaccrual loans was approximately $6.5 million, $10.7 million, and $13.6 million in 2010, 2009, and 2008, respectively.

A loan is considered to be impaired when it is probable that we will be unable to collect all amounts due according to the contractual terms of the loan agreement. Impaired loans are measured based on the present value of expected future cash flows, discounted at the loan’s effective interest rate or, as a practical expedient, at the loan’s observable market price or the fair market value of the collateral less selling costs if the loan is collateral dependent. Loans that are measured at lower of cost or fair value and certain large groups of smaller balance homogeneous loans collectively measured for impairment are excluded from impairment measurement. Impaired loans are charged off promptly to the allowance for loan losses when management believes, after considering economic, market, and business conditions, collection efforts, collateral position, and other factors deemed relevant, that the borrower’s financial condition is such that collection of principal and interest is not probable.

For the years ended December 31, 2010, 2009, and 2008, interest income recognized on impaired loans totaled $568,000, $526,000, and $1,195,000, respectively. Interest income on loans is accrued daily on the principal balance outstanding.

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

(Dollars in thousands)	December 31, 2010					December 31, 2009
	Amount			# of properties		Amount			# of properties
Beginning balance	$	53,594		672		$	70,110		288
Additions to OREO		25,199		123			74,174		699
Capitalized improvements		3,185		-			4,933		-
Valuation adjustments		(6,649	)	-			(18,562	)	-
Disposition of OREO properties		(35,870	)	(393	)		(77,061	)	(315	)
Ending balance	$	39,459		402		$	53,594		672

OREO is real property that the Bank has taken possession of either through a deed-in-lieu of foreclosure, non-judicial foreclosure, judicial foreclosure or similar process in full or partial satisfaction of a loan or loans. During 2010, the Company remained focused on OREO property disposition activities, resulting in the sale of $35.9 million in OREO property compared to $77.1 million in 2009. The Company assumed $25.2 million in additional OREO properties in 2010, down from $74.2 million during 2009. Reflecting lower OREO balances as well as a slowing trend in declines in local residential real estate values, OREO valuation adjustments fell to $6.6 million in 2010 from $18.6 million in 2009. At December 31, 2010, the OREO portfolio consisted of 402 properties valued at $39.5 million. The year-end OREO balance reflected write-downs totaling 51% from the original loan principal compared to 49% twelve months earlier. As shown below, the largest categories of the OREO balance at December 31, 2010, were attributable to homes followed by residential site development projects located within our footprint. The residential site development balance and number of such properties declined in 2010 due to continued lot sales.

OREO is recorded at the lower of the carrying amount of the loan or estimated fair value less estimated costs to sell. Management is responsible for estimating the fair market value of OREO and utilizes appraisals and internal judgments in its assessment of fair market value and estimated selling costs. This estimate becomes the property’s book value at the time it is taken into OREO. If the estimate is below the carrying value of the related loan, the amount of the required valuation adjustment is charged to the allowance for loan losses at the time the property is taken into OREO. Management then periodically reviews OREO to determine whether the property continues to be carried at the lower of its recorded book value or estimated fair value, net of estimated costs to sell. Any further OREO valuation adjustments or subsequent gains or losses upon final disposition of OREO are charged to other noninterest income.

Expenses from the acquisition, maintenance and disposition of OREO properties are included in other noninterest expense in the consolidated statements of income (loss). It will be critical to our operating results for us to dispose of OREO properties in a timely fashion and at valuations that are consistent with our expectations. Continued decline in market values in our area would lead to additional valuation adjustments, which would have an adverse effect on our results of operation.

In addition to OREO sales, the Bank also completed 19 short sales in 2010 for total proceeds of $3.6 million. Short sales occur when we accept an agreement with a borrower to sell the Bank's collateral on a loan that produces net proceeds that are less than what is owed. The obligor receives no proceeds; however, the debt is fully extinguished. A short sale is an alternative to foreclosure. The losses on short sales and valuation adjustments on loans prior to taking property into OREO are recorded directly to the allowance for loan losses.

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

(Dollars in thousands)	December 31,		# of	December 31,		# of
	2010		properties	2009		properties
Homes	$	17,297	69	$	29,435	118
Residential site developments		7,340	245		14,851	453
Lots		3,700	56		5,235	71
Land		5,135	12		1,607	7
Income producing properties		5,162	7		1,255	4
Condominiums		128	2		982	12
Multifamily		697	11		229	7
Total	$	39,459	402	$	53,594	672

Delinquencies. Bancorp also monitors delinquencies, defined as balances 30-89 days past due, not in nonaccrual status, as an important indicator for future nonperforming assets. Total delinquencies were 0.18% of total loans at December 31, 2010, down from 0.49% at December 31, 2009. During 2010, delinquencies declined in all loan categories. We had the largest decrease in delinquencies in our commercial real estate portfolio, in which delinquencies have decreased from $4.0 million at December 31, 2009 to $0.6 million at December 31, 2010. The amount of delinquencies and the percentage of categories or total loans represented by delinquencies may increase or decrease by a fair amount from period to period and not necessarily reflect a negative or positive trend in the underlying credit quality of the loan portfolio.

The following table summarizes total delinquent loan balances by type of loan for the periods shown:

	December 31,
(Dollars in thousands)	2010			% of		2009			% of		2008			% of
	Amount			category		Amount			category		Amount			category
Commercial	$	52		0.02	%	$	1,151		0.31	%	$	2,814		0.58	%
Real estate construction		-		0.00	%		606		0.61	%		1,940		0.68	%
Real estate mortgage		2,062		0.59	%		2,649		0.71	%		1,934		0.49	%
Commercial real estate		555		0.07	%		3,962		0.46	%		1,324		0.15	%
Installment and other consumer		52		0.34	%		59		0.32	%		80		0.36	%

Total loans 30-89 days past due,
not in nonaccrual status	$	2,721				$	8,427				$	8,092

Delinquent loans to total loans		0.18	%				0.49	%				0.39	%

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. The actual losses may vary significantly from the estimated amounts. For more information regarding the Company’s allowance for credit losses, see the discussion under the subheading “Allowance for Credit Losses” in the section “Critical Accounting Policies” included in Item 7 of this report below. The allowance for credit losses is comprised of two primary components: the allowance for loan losses, which is the sum of the specific reserve, formula and unallocated allowance relating to loans in the loan portfolio, and the reserve for unfunded commitments. Our methodology for determining the allowance for credit losses consists of several key elements, which include:

Specific Reserve Allowances. Specific reserve allowances may be established when management can estimate the amount of an impairment of a loan, typically on a non real estate collateralized loan or to address the unique risks associated with a group of loans or particular type of credit exposure. The Company does not establish specific reserve allowances on collateral dependent impaired loans. Impairment amounts related to these loans are charged off to the allowance for credit losses when impairment is established.
Formula Allowance. The formula allowance is calculated by applying loss factors to individual loans based on the assignment of risk ratings, or through the assignment of loss factors to homogenous pools of loans. Changes in risk ratings of both performing and nonperforming loans affect the amount of the formula allowance. Loss factors are based on our historical loss experience and such other data as management believes to be pertinent, and may be adjusted for significant factors that, in management’s judgment, affect the collectability of the portfolio as of the evaluation date.
Unallocated Allowance. The unallocated loan loss allowance represents an amount for imprecision or uncertainty that is inherent in estimates used to determine the allowance. In determining whether to carry an unallocated allowance and, if so, the amount of the allowance, management considers a variety of qualitative factors, including regional economic and business conditions that impact important categories of our portfolio, loan growth rates, the depth and skill of lending staff, the interest rate environment, and the results of bank regulatory examinations and findings of our internal credit analysts. The current level of unallocated reserves is high by historical standards; however, the Company believes higher levels of unallocated reserves are appropriate given downward pressure on real estate values and higher levels of uncertainty associated with strained economic conditions.
Reserve for Unfunded Commitments. A reserve for unfunded commitments is maintained at a level that, in the opinion of management, is adequate to absorb probable losses associated with commitments to lend funds under existing agreements; for example, the Bank’s commitment to fund advances under lines of credit. The reserve amount for unfunded commitments is determined based on our methodologies described above with respect to the formula allowance. As our unfunded commitments decrease due to the transition to a funded loan, the corresponding reserve for unfunded commitments will decrease.

At December 31, 2010, the allowance for credit losses was $41.1 million or 2.67% of total loans, consisting of a $33.5 million formula allowance, a $6.2 million unallocated allowance, a $.6 million specific reserve allowance and a $.8 million reserve for unfunded commitments. At December 31, 2009, the allowance for credit losses was $39.4 million or 2.29% of total loans, consisting of a $33.4 million formula allowance, a $5.0 million unallocated allowance and a $1.0 million reserve for unfunded commitments. At December 31, 2010, a specific reserve allowance in the amount of $.6 million was established for impaired loans considered to be troubled debt restructurings, which are still on accrual status, as compared to no such specific reserve allowance at year end 2009. At December 31, 2010, within the formula allowance, the Company had $2.9 million and .9 million allocated to home equity lines and loans and overdrafts, respectively. During 2010, our provision for credit losses exceeded net charge-offs, increasing the allowance for credit losses by $1.7 million. The primary elements affecting the provision expense were net charge-offs, a continued negative risk rating migration, and increases to loss factors in the allowance for credit losses model for certain categories of the Bank’s loan portfolio. The allowance for credit losses was 65% of nonperforming loans at year end 2010, up from 40% at December 31, 2009. Compared to 2009 we experienced a slowdown in the unfavorable risk rating migration within the loan portfolio. During 2010, we also released reserves as certain loans moved from being included in the formula valuation allowance to being individually measured for impairment.

At December 31, 2010, and 2009, Bancorp had loans that were considered to be impaired of $76.7 million and $98.8 million, respectively. The average balance of impaired loans for the years ended December 31, 2010, and 2009, was $78.0 million and $134.3 million, respectively.

Overall, we believe that the allowance for credit losses is adequate to absorb losses in the loan portfolio at December 31, 2010. The process for determining the adequacy of the allowance for credit losses is critical to our financial results. It requires difficult, qualitative and complex judgments as a result of the need to make estimates about the effect of matters that are uncertain. Therefore, we cannot provide assurance that, in any particular period, we will not have sizeable credit losses in relation to the amount reserved. We may later need to significantly adjust the allowance for credit losses considering factors in existence at such time, including economic, market, or business conditions and the results of ongoing internal and external examination processes.

Changes in the total allowance for credit losses for full years ended December 31, 2010, through December 31, 2006, are presented in the following table:

	December 31,
(Dollars in thousands)	2010			2009			2008			2007			2006
Loans outstanding at end of period	$	1,536,270		$	1,724,842		$	2,064,796		$	2,172,669		$	1,947,690
Average loans outstanding during the period	$	1,622,445		$	1,914,975		$	2,146,870		$	2,094,977		$	1,745,777

Allowance for credit losses, beginning of period	$	39,418		$	29,934		$	54,903		$	23,017		$	20,469
Allowance for loan losses, from acquisition		-			-			-			-			887
Loans charged off:
Commercial		(5,229	)		(22,411	)		(6,464	)		(3,798	)		(831	)
Commercial real estate construction		(811	)		(325	)		(1,422	)		-			-
�� Residential real estate construction		(2,211	)		(28,287	)		(10,105	)		-			-
Two-step residential construction		(554	)		(6,963	)		(42,483	)		(2,540	)		-
Total real estate construction		(3,576	)		(35,575	)		(54,010	)		(2,540	)		-
Mortgage		(2,430	)		(10,022	)		(1,811	)		-			-
Nonstandard mortgage		(2,224	)		(3,666	)		(3,036	)		-			-
Home equity		(2,807	)		(3,394	)		(249	)		(71	)		(48	)
Total real estate mortgage		(7,461	)		(17,082	)		(5,096	)		(71	)		(48	)
Commercial real estate		(1,321	)		(5,383	)		(826	)		-			-
Installment and consumer		(706	)		(840	)		(531	)		(254	)		(130	)
Overdraft		(1,183	)		(1,054	)		(1,328	)		(1,050	)		(912	)
Total loans charged off		(19,476	)		(82,345	)		(68,255	)		(7,713	)		(1,921	)
Recoveries:
Commercial		1,073			1,005			203			269			501
Commercial real estate construction		-			-			-			-			-
Residential real estate construction		697			44			-			-			-
Two-step residential construction		-			241			2,339			7			-
Total real estate construction		697			285			2,339			7			-
Mortgage		247			11			-			-			-
Nonstandard mortgage		5			1			38			-			-
Home equity		128			35			32			33			36
Total real estate mortgage		380			47			70			33			36
Commercial real estate		28			151			-			2			4
Installment and consumer		92			65			78			112			75
Overdraft		203			219			229			220			233
Total recoveries		2,473			1,772			2,919			643			849
Net loans charged off		(17,003	)		(80,573	)		(65,336	)		(7,070	)		(1,072	)
Provision for credit losses loans other than two-step loans		18,098			83,756			30,867			7,976			2,733
Provision for credit losses two-step loans		554			6,301			9,500			30,980			-
Total provision for credit losses		18,652			90,057			40,367			38,956			2,733
Allowance for credit losses, end of period	$	41,067		$	39,418		$	29,934		$	54,903		$	23,017

Components of allowance for credit losses
Allowance for loan losses	$	40,217		$	38,490		$	28,920		$	46,917		$	23,017
Reserve for unfunded commitments		850			928			1,014			7,986			-
Total allowance for credit losses	$	41,067		$	39,418		$	29,934		$	54,903		$	23,017

Ratio of net loans charged off to average
loans outstanding		1.05	%		4.21	%		3.04	%		0.34	%		0.06	%
Ratio of allowance for loan losses to end of
period loans		2.62	%		2.23	%		1.40	%		2.16	%		1.18	%
Ratio of allowance for credit losses to end of
period loans		2.67	%		2.29	%		1.45	%		2.53	%		1.18	%

Net Loan Charge-offs. During 2010, total net loan charge-offs were $17.0 million, a decline from $80.6 million in 2009. Net loan charge-offs in 2008 were $65.3 million. Net loan charge-offs reflect the realization of net losses in the loan portfolio that were recognized previously through the provision for credit losses. The total net loan charge-off to total average loans outstanding was 1.05% for the year ended 2010, down from 4.21% in 2009 and 3.04% in 2008. The net loan charge-offs decreased in 2010 in all major loan categories when compared to 2009.

The following table summarizes net loan charge-offs by type of loan for the periods shown:

(Dollars in thousands)	December 31, 2010				December 31, 2009

	Net loan charge-		% of average		Net loan charge-		% of average
	offs		loan category		offs		loan category
Commercial		4,156	1.26	%		21,406	4.92	%
Commercial real estate construction		811	3.61	%		325	0.49	%
Residential real estate construction		2,068	4.00	%		34,965	25.85	%
Total real estate construction		2,879	3.88	%		35,290	17.55	%
Mortgage		2,183	3.16	%		10,011	12.88	%
Nonstandard mortgage		2,219	15.27	%		3,665	17.58	%
Home equity		2,679	0.96	%		3,359	1.16	%
Total real estate mortgage		7,081	1.95	%		17,035	4.39	%
Commercial real estate		1,293	0.15	%		5,232	0.60	%
Installment and consumer		614	4.12	%		775	4.20	%
Overdraft		980	68.87	%		835	56.19	%
Total loan net charge-offs	$	17,003	1.05	%	$	80,573	4.21	%

Deposits and Borrowings

We predominantly use customer deposits complimented by FHLB borrowings to fund earning assets. The composition of our funding mix has and will continue to depend on our funding needs, customer demand for various deposit products, interest rate risk position, funding costs of the various alternatives, the level and shape of the yield curve, collateral requirements for borrowings, the relative cost and availability of other funding sources including government lending or investment programs, and credit market conditions. Borrowings may be used to manage short-term and long-term funding needs when they are less expensive than deposits, or when necessary to adjust our interest rate risk position.

The following table summarizes the average amount of, and the average rate paid on, each of the deposit and borrowing categories for the periods shown:

	2010						2009						2008
			Percent		Rate				Percent		Rate				Percent		Rate
(Dollars in thousands)	Average Balance		of total		Paid		Average Balance		of total		Paid		Average Balance		of total		Paid
Demand deposits	$	540,280	26.7	%	-		$	499,283	23.9	%	-		$	470,601	23.0	%	-
Interest bearing demand		335,134	16.5	%	0.13	%		298,002	14.2	%	0.26	%		279,227	13.6	%	0.70	%
Savings		103,531	5.1	%	0.27	%		89,903	4.3	%	0.79	%		71,542	3.5	%	0.81	%
Money market		659,542	32.5	%	0.60	%		617,881	29.5	%	1.33	%		658,360	32.2	%	2.22	%
Total non-time deposits		1,638,487	80.8	%	0.28	%		1,505,069	71.9	%	0.64	%		1,479,730	72.3	%	1.16	%
Time deposits		388,500	19.2	%	1.92	%		587,299	28.1	%	2.51	%		566,195	27.7	%	3.60	%
Total deposits		2,026,987	100	%	0.60	%		2,092,368	100	%	1.17	%		2,045,925	100	%	1.84	%

Short-term borrowings		7,570			6.52	%		44,220			1.82	%		149,016			2.89	%
Long-term borrowings 1		257,019			3.75	%		259,865			3.15	%		151,743			4.50	%
Total borrowings		264,589			3.83	%		304,085			2.95	%		300,759			3.71	%

Total deposits and borrowings	$	2,291,576			1.27	%	$	2,396,453			1.76	%	$	2,346,684			2.60	%

1 Long-term borrowings include junior subordinated debentures.

Average total deposits in 2010 decreased 3.1% or $65.4 million from 2009. However, our deposit mix shifted significantly towards demand, savings and money market categories during 2010 and these categories represented over 80% of average total deposits in 2010. Due to our goal of lowering costs of funds in light of the contracting loan portfolio and weak customer demand for time deposits, we reduced average time deposits balances by $198.8 million in 2010. The 2010 average rate paid on total deposits of .60% declined 57 basis points from 2009. Looking forward, we intend to price our deposit products competitively in connection with our efforts to maintain our strong relationship deposit base. Deposit growth remains a key strategic focus for us, and our marketing efforts are primarily focused on long-term growth in business and consumer relationships with deposit accounts and balances in lower cost categories such as demand deposits, interest bearing demand, savings and money market accounts. Whether we will be successful maintaining and growing our deposit base, and particularly our low cost deposit base, will depend on various risk factors including deposit pricing, the effects of competitive pricing pressure, changing customer deposit behavior, regulatory changes, consumer’s evaluation of bank stability, market interest rates and our success in competing for deposits in uncertain economic and market conditions. Adverse developments with respect to any of these risk factors could limit our ability to attract and retain deposits.

The time deposits category includes certificates of deposit originated at our branches, deposits obtained from internet listing services and brokered deposits, which include both wholesale brokered deposits and deposits arising out of the Company’s participation in the Certificate of Deposit Account Registry Service (“CDARS”) network that are treated as brokered deposits for regulatory purposes. The CDARS network uses a deposit matching program to match CDARS deposits in other participating banks, dollar for dollar, enabling participating institutions to make additional FDIC coverage available to customers.

At December 31, 2010, brokered deposits totaled $30.4 million or 2% of period end deposits, of which $.5 million were reciprocal CDARS deposits and $29.9 million were wholesale brokered deposits compared to $72.4 million in total brokered deposits at December 31, 2009, of which $19.8 million were reciprocal CDARS deposits and $52.6 million were wholesale brokered deposits. CDARS deposits declined $19.3 million during 2010. Time deposits obtained via internet listing services totaled $8.4 million at December 31, 2010. While as of year end 2010, the Company had no plans to renew maturing brokered deposits, we may consider taking wholesale brokered deposits and CDARS deposits in the future if management determines that is appropriate to maintain or grow our deposit funding base in such manner.

As of December 31, 2010, time deposits are presented below at the earlier of the next repricing date or maturity:

	Time deposits
(Dollars in thousands)	of $100,000 or more				Other time deposits				Total time deposits
	Amount		Percent		Amount		Percent		Amount		Percent
Reprice/mature in 3 months or less	$	17,959	20.4	%	$	52,241	27.9	%	$	70,200	25.5	%
Reprice/mature after 3 months through 6 months		25,439	28.9	%		43,353	23.1	%		68,792	25.0	%
Reprice/mature after 6 months through one year		24,501	27.9	%		48,033	25.6	%		72,534	26.3	%
Reprice/mature after one year through five years		20,089	22.8	%		43,796	23.4	%		63,885	23.2	%
Reprice/mature after five years		-	0.0	%		-	0.0	%		-	0.0	%
Total	$	87,988	100.0	%	$	187,423	100.0	%	$	275,411	100.0	%

Approximately 77% of our time deposits will mature and reprice in the next 12 months. Historically, the Company has been able to retain and or expand time deposits by increasing rates paid, which increases our funding cost. The level of time deposits in the future depends on customer preferences for time deposits, market interest rates and the slope of the yield curve, our need for deposit funding volume, customer perceptions of the Bank, as well as the pricing required to retain and attract time deposits relative to other funding alternatives including borrowings from the FHLB.

	December 31,				December 31,
(Dollars in thousands)	2010				2009
Time deposits less than $100,000	$	187,423	68	%	$	313,452	60	%
Time deposits $100,000 to $250,000		64,528	23	%		162,886	31	%
Time deposits greater than $250,000		23,460	9	%		48,187	9	%
Total time deposits	$	275,411	100	%	$	524,525	100	%

As shown above, time deposits of $100,000 or more represented about 32% of total time deposits at year end 2010, down from 40% at December 31, 2009. This was caused primarily by rate sensitive, high balance, time deposits moving into other deposit products or leaving the bank.

As of December 31, 2010, long-term and short-term borrowings through the FHLB had the following terms remaining to their contractual maturities:

(Dollars in thousands)	Due in three		Three months		Due after one year		Due after
	months or less		through one year		through five years		five years		Total
Short-term borrowings	$	-	$	-	$	-	$	-	$	-
Long-term borrowings 1		-		-		168,599		-		168,599
Total borrowings	$	-	$	-	$	168,599	$	-	$	168,599

1 Based on contractual maturities; actual terms may vary based on call dates.

Average total borrowings of $213.6 million in 2010 decreased from $253.1 million in 2009 due to the prepayment of about $99.1 million of FHLB borrowings in the second quarter of 2010. The Company may consider prepaying additional FHLB borrowings in the future and this may result in a prepayment expense, which would reduce net interest income and net income at such time.

At December 31, 2010, six wholly-owned subsidiary grantor trusts established by Bancorp had issued and sold $51.0 million of trust preferred securities that remain outstanding. Trust preferred securities accrue and pay distributions periodically at specified annual rates as provided in each indenture. The trusts used all of the net proceeds from each sale of trust preferred securities to purchase a like amount of junior subordinated debentures of the Company. The junior subordinated debentures are the sole assets of the trusts. The Company’s obligations under the junior subordinated debentures and related documents, taken together, constitute a full and unconditional guarantee by the Company of the obligations of the trusts. The trust preferred securities are mandatorily redeemable upon the maturity of the junior subordinated debentures and may be subject to earlier redemption as provided in the indentures. The Company has the right to redeem the junior subordinated debentures in whole (but not in part) on or after specific dates, at a redemption price specified in the indentures plus any accrued but unpaid interest to the redemption date. At December 31, 2010, the Company had no plans to redeem these junior subordinated debentures.

The following table is a summary of outstanding trust preferred securities at December 31, 2010:

(Dollars in thousands)

Preferred security

Rate

Rate at

Next possible

Issuance Trust

Issuance date

amount

type 1

Initial rate

12/31/10

Maturity date

redemption date 2

West Coast Statutory Trust III

September 2003

7,500

Variable

6.75%

3.25%

September 2033

Currently redeemable

West Coast Statutory Trust IV

March 2004

6,000

Variable

5.88%

3.09%

March 2034

Currently redeemable

West Coast Statutory Trust V

April 2006

15,000

Variable

6.79%

1.73%

June 2036

June 2011

West Coast Statutory Trust VI

December 2006

5,000

Variable

7.04%

1.98%

December 2036

December 2011

West Coast Statutory Trust VII

March 2007

12,500

Variable

6.90%

1.85%

March 2037

March 2012

West Coast Statutory Trust VIII

June 2007

5,000

Variable

6.74%

1.68%

June 2037

June 2012

Total

51,000

Weighted rate

2.16%

1 The variable rate preferred securities reprice quarterly.

2 Securities are redeemable at the option of Bancorp following these dates.

The interest rates on all issued trust preferred securities reset quarterly and are tied to the London Interbank Offered Rate (“LIBOR”) rate. There were no purchases, redemptions, or maturities of trust preferred securities in 2010. During 2009, the Company exercised its right to defer regularly scheduled interest payments on junior subordinated debentures related to its trust preferred securities. At December 31, 2010, the Company had a balance in other liabilities of $1.8 million in accrued and unpaid interest expense related to these junior subordinated debentures and it may not pay dividends on its capital stock until all accrued but unpaid interest has been paid in full. The average balance of junior subordinated debentures in 2010 was $51.0 million, unchanged from 2009.

Capital Resources

The 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 this topic, see the discussion under the subheading “Capital Adequacy Requirements” in the section “Supervision and Regulation” included in Item 1 of this report. The following table summarizes the capital measures of Bancorp and the Bank at December 31, 2010:

													Bank-level
	West Coast Bancorp						West Coast Bank						guideline requirements
	December 31,						December 31,						Adequately		Well
	2010			2009			2010			2009			Capitalized		Capitalized
Tier 1 risk-based capital ratio		17.47	%		7.17	%		16.79	%		14.11	%	4.00	%	6.00	%
Total risk-based capital ratio		18.74	%		9.13	%		18.05	%		15.37	%	8.00	%	10.00	%
Leverage ratio		13.02	%		5.37	%		12.51	%		10.57	%	4.00	%	5.00	%

Total stockholders' equity	$	272,560		$	249,058		$	310,487		$	288,477

Bancorp’s total risk-based capital ratio improved to 18.74% at December 31, 2010, up from 9.13% at December 31, 2009. Bancorp's Tier 1 risk-based capital ratio increased to 17.47% from 7.17% in 2010, and its leverage ratio increased to 13.02% from 5.37% over the same period. Bancorp’s capital ratios improved dramatically over year end 2009 principally as a result of the mandatory conversion of Series A preferred stock issued in the Company's October 2009 private capital raise, with net proceeds of $139.2 million, into 71.4 million common shares following receipt of shareholder approvals relating to the transactions on January 27, 2010. The $9.3 million in net proceeds from the rights offering completed during first quarter 2010, $7.0 million in net proceeds from issuances under our discretionary equity issuance program during the second quarter 2010, and a continued reduction in the Company’s risk weighted assets over the past 12 months also contributed to improved capital ratios at Bancorp.

The total capital ratio at the Bank improved to 18.05% at December 31, 2010, from 15.37% at December 31, 2009, while the Bank’s Tier 1 capital ratio increased from 14.11% to 16.79% over the same period. The leverage ratio at the Bank improved to 12.51% at December 31, 2010, from 10.57% at December 31, 2009. Improved capital ratios at the Bank were primarily attributable to the rights offering and discretionary equity issuance program in 2010, as well as a decline in the balance of the Bank’s risk weighted assets during 2010. From the net proceeds of the private capital raise of $139.2 million, $5.0 million was retained by Bancorp and $134.2 million was contributed to the Bank as a capital contribution.

Bancorp’s stockholders’ equity was $272.6 million at December 31, 2010, up from $249.1 million at December 31, 2009. The total risk based capital ratios of Bancorp included $51.0 million of junior subordinated debentures of which $51.0 million and $36.6 million qualified as Tier 1 capital at December 31, 2010, and 2009, respectively, under guidance issued by the Federal Reserve and because of the Company’s size on the determined date, grandfathered as Tier 1 capital under the Dodd-Frank Act. Bancorp expects to continue to rely on common equity and junior subordinated debentures to remain well capitalized, although it does not expect to issue additional junior subordinated debentures in the near term.

The Company closely monitors and manages its capital position. The combination of the private capital raise, the rights offering and the discretionary equity issuance program increased capital by $155.5 million. During 2009, the Company also suspended its quarterly cash dividend, which cannot be reinstated without regulatory consent. In addition, the Company exercised its right to defer payment of interest on its outstanding debentures issued in connection with its trust preferred securities. As a result, the Company did not pay dividends or make payments on its junior subordinated debentures issued in connection with its trust preferred securities beginning in the third quarter of 2009. As noted above, the Company has taken significant steps to increase and preserve capital and reduce risk based assets over the past two years.

While Bancorp believes its capital at the present time is sufficient and has no current plan to raise additional capital, Bancorp may take steps to raise additional capital in the future. The Company may offer and issue equity, hybrid equity or debt instruments, including convertible preferred stock or subordinated debt. 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.

Liquidity and Sources of Funds

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

Deposits are the primary source of new funds. Total deposits were $1.9 billion at December 31, 2010, down from $2.1 billion at December 31, 2009. Over the past 12 months our loan to deposit ratio remained relatively unchanged and measured 79% at December 31, 2010, as reductions in time deposit balances offset the decline in the loan portfolio. At December 31, 2010, the investment securities portfolio was $646.1 million and represented a significant 28% of total earning assets. In light of the substantial liquidity position, a portion of which carried a higher cost of funds than amounts being earned and therefore has an adverse impact on net interest income and operating results, we reduced brokered, internet, and other term deposits, as well as FHLB borrowings, during 2010.

The primary liquidity ratio is equal to the sum of net cash, short-term and marketable assets divided by the sum of net deposits and short-term liabilities. The net non-core funding dependency ratio is non-core liabilities less short-term investments divided by long-term assets. The following table summarizes the primary liquidity and non-core liability ratios for the periods shown:

	December 31,
	2010	2009
Primary liquidity	37%	38%
Net non-core funding dependency	6%	10%

At year end 2010, the Company’s primary and net non-core funding dependency ratios remained strong. At December 31, 2010, the Bank had outstanding borrowings of $168.6 million against its $373.0 million in established borrowing capacity with the FHLB. The Bank’s borrowing facility at year end 2010 was subject to collateral and stock ownership requirements, as well as restrictions on the term of borrowings. The Bank also had a Federal Funds line of credit agreement with a correspondent financial institution of $5.0 million at December 31, 2010. The use of such Federal Funds line is subject to certain conditions. Additionally, at December 31, 2010, the Bank had an available discount window credit line with the Federal Reserve of approximately $34.0 million with no balance outstanding. As with the other lines, each advance under the credit arrangement with the Federal Reserve is subject to prior Federal Reserve consent. For more information regarding the Company’s outstanding borrowings, see Note 9 “Borrowings” to the Company’s audited consolidated financial statements included under the section “Financial Statements and Supplementary Data” in Item 8 of this report.

The holding company is a separate entity from the Bank and must provide for its own liquidity. Substantially all of the holding company’s liquidity, which is required to pay interest on Bancorp’s junior subordinated debentures, any shareholder cash dividends and other expenses, comes from dividends declared and paid by the Bank. In addition, the holding company may receive cash from the exercise of options and the issuance of equity securities. 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 MOU, the Bank may not pay dividends to the holding company without the consent of the FDIC and the DFCS. At December 31, 2010, the holding company did not have any borrowing arrangements of its own.

Management expects to continue relying on customer deposits, cash flow from investment securities, and sales of “Available for Sale” securities, as its most important sources of liquidity. In addition, the Bank may from time to time obtain additional liquidity from loan and OREO sales, loan repayments, internet deposit listing services, federal funds markets, the Federal Reserve discount window and other borrowings as well as from net income. Borrowings may be used on a short-term and long-term basis to compensate for reductions in other sources of funds. Borrowings may also be used on a long-term basis to support expanded lending activities and to match maturities, duration, or repricing intervals of assets. The sources of such funds may include, but are not limited to, Federal Funds purchased, reverse repurchase agreements and borrowings from the FHLB.

For more information on this topic, see the discussion under the section “Risk Factors” included in Item 1A of this report.

Off Balance Sheet Arrangements

At December 31, 2010, the Bank had commitments to extend credit of $571.6 million, which was up 1% compared to $564.4 million at December 31, 2009. For additional information regarding off balance sheet arrangements and future financial commitments, see Note 20 “Financial Instruments with Off Balance Sheet Risk” to the Company’s audited consolidated financial statements included under the section “Financial Statements and Supplementary Data” in Item 8 of this report. We are party to many contractual financial obligations, including repayment of borrowings, operating lease payments and commitments to extend credit.

The table below presents certain future financial obligations including payments required under retirement plans which are included in “Other long-term liabilities:”

	Payments due within time period at December 31, 2010
(Dollars in thousands)							Due After Five
	0-12 Months		1-3 Years		4-5 Years		Years		Total
Operating leases 1	$	3,937	$	7,851	$	6,520	$	10,237	$	28,545
Junior subordinated debentures 2 3		2,893		2,207		2,207		72,799		80,106
Long-term borrowings 3		5,345		133,160		42,690		-		181,195
Other long-term liabilities		213		413		416		1,055		2,097
Total	$	12,388	$	143,631	$	51,833	$	84,091	$	291,943

1 Operating leases do not include increases in common area charges.

2 Junior subordinated debenture obligations reflect contractual maturities which are 30 years from origination and do not reflect possible call dates.

3 Long-term borrowings and junior subordinated debenture obligations reflect interest payment obligations based on December 31, 2010 contractual interest rates.

Critical Accounting Policies

We have identified our accounting policies related to our calculation of the allowance for credit losses, valuation of other real estate owned (“OREO”), and estimates relating to income taxes as policies that are most critical to an understanding of our financial condition and operating results. Application of these policies and calculation of these amounts involve difficult, subjective, and complex judgments, and often involve estimates about matters that are inherently uncertain. These policies are discussed in greater detail below, as well as in Note 1 “Summary of Significant Accounting Policies” to the Company’s audited consolidated financial statements included under the section “Financial Statements and Supplementary Data” Item 8 of this report.

Allowance for Credit Losses. Our methodology for establishing the allowance for credit losses considers a series of risk factors, both quantitative and qualitative, to reflect changes in the collectability of the portfolio not captured solely by the historical loss data. These factors augment actual loss experience and help to estimate the probability of loss within the loan portfolio based upon emerging or inherent risk trends. Qualitative factors include concentration, past due, non-accrual/adversely classified, and troubled debt restructure trends. New products and expansion into new geographic regions can increase the uncertainties in management’s evaluation of the factors that are part of establishment of an allowance for credit losses that is believed to be adequate. Changes in any of the above factors could have a significant effect on the calculation of the allowance for credit losses in any given period. This discussion should be read in conjunction with our audited consolidated financial statements and related notes included in Item 8 of this report, and the section “Allowance for Credit Losses and Net Loan Charge-offs” in this Item 7 of this report.

Valuation of OREO. The Bank takes possession of OREO as part of its lending business, as real estate serves as collateral for many of the Bank’s loans. OREO is initially recorded in our financial statements at the lower of the carrying amount of the loan or fair value of the property less the estimated costs to sell the property. Management considers 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. If there is a difference between management’s assessment of fair value less estimated cost to sell and the carrying value of the loan at the date a particular property is transferred into OREO, the difference is charged to the allowance for credit losses. Thereafter, management periodically assesses its estimate of fair value, often by means of new appraisals or reduction of property listing price. Any resulting decreases in the estimated fair value of OREO are considered valuation adjustments and trigger a corresponding charge to the line item “Other real estate owned sales and valuation adjustments and (loss) gain on sales” within total noninterest income of the consolidated statements of income (loss). At December 31, 2010, the Bank had $39.5 million of OREO.

Income Taxes. We are subject to the income tax laws of the United States and primarily the state of Oregon. We account for income taxes using the asset and liability method in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 740, “Income Taxes.” Our income tax benefit or expense is estimated and reported in the Consolidated Statements of Income (Loss) and includes both current and deferred tax expense or benefits and reflects taxes to be paid or refunded for the current period. Current taxes payable represent the Company’s expected federal tax liability and are reported in other liabilities on the consolidated balance sheets.

We determine our deferred income taxes using the balance sheet method, under which the net deferred tax asset or liability is based on the tax effects of the differences between the book and tax bases of assets and liabilities, and changes in tax rates and laws are recognized in the period in which they occur. Deferred income tax expense or benefit is recorded based on changes in deferred tax assets and liabilities between periods. The Company records net deferred tax assets to the extent these assets will more likely than not be realized. In making the determination whether a deferred tax asset is more likely than not to be realized, management seeks to evaluate all available positive and negative evidence including the possibility of future reversals of existing taxable temporary differences, projected future taxable income, tax planning strategies and recent financial results. A deferred tax asset valuation allowance is established to reduce the net carrying amount of deferred tax assets if it is determined to be more likely than not that all or some portion of the deferred tax asset will not be realized. Based on its evaluation of the Company’s deferred tax assets as of December 31, 2010, management determined that it was appropriate to have a deferred tax asset valuation allowance of $23.5 million which reduces the deferred tax asset to reflect only that portion that more likely than not will be realized. This amount was determined to be $5.8 million as of that date.

In reaching the determination to record the deferred tax asset valuation allowance, management evaluated all available evidence. A significant element of objective evidence continues to be the Company’s $117.3 million cumulative, pretax loss over the three year period ended December 31, 2010. This objective evidence limits management's ability to consider other subjective evidence, including any subjective expectation of continued profitability in the future. Going forward, management will review the deferred tax asset on a quarterly basis. Any future reversals of the deferred tax asset valuation allowance, including a reduction for the effect of pretax income, would decrease the Company’s income tax expense and increase net income. In the event management later determines that the Company is more likely than not to be able to realize the tax benefits of its cumulative losses in recent years, all or part of the deferred tax asset valuation allowance may be reversed.

The income tax laws of the jurisdictions in which we operate are complex and subject to different interpretations. In establishing a provision for income tax expense or benefit, we make judgments and interpretations about the application of these complex tax laws. Our interpretations are subject to change and may be subject to external review during examination by taxing authorities. Disputes may arise over our tax positions. See Note 17 “Income Taxes” to the Company’s audited consolidated financial statements included under the section “Financial Statements and Supplementary Data” in Item 8 of this report.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market Risk

Interest rate, credit and operations risks are the most significant market risks impacting our performance. Other types of market risk, such as foreign currency exchange rate risk and commodity price risk, do not arise in the normal course of our business activities. We rely on loan reviews, prudent loan underwriting standards and an adequate allowance for credit losses to attempt to mitigate credit risk. Interest rate risk is reviewed at least quarterly by the Asset Liability Management Committee (“ALCO”) which includes senior management representatives. The ALCO manages our balance sheet to maintain net interest income and present value of equity within acceptable ranges.

Asset/liability management simulation models are used to measure interest rate risk. The models quantify interest rate risk by simulating forecasted net interest income over a 12-month time horizon under various rate scenarios, as well as monitoring the change in the present value of equity under the same rate scenarios. The present value of equity is defined as the difference between the market value of current assets less current liabilities. By measuring the change in the present value of equity under different rate scenarios, management can identify interest rate risk that may not be evident in simulating changes in forecasted net interest income. Readers are referred to the sections, “Forward Looking Statement Disclosure” and “Risk Factors” of this report in connection with this discussion of market risks.

The following table shows the approximate percentage changes in forecasted net interest income over a 12-month period and in the present value of equity under several rate scenarios. For the net interest income analysis, three rate scenarios are compared to a stable (unchanged from December 31, 2010) rate scenario:

Stable rate scenario compared to:	Percent Change in
	Net Interest Income
Up 200 basis points	1.9%
Up 100 basis points	.1%
Down 100 basis points	-1.4%

As illustrated in the above table, we estimate our balance sheet was slightly asset sensitive over a 12 month horizon at December 31, 2010, meaning that interest earning assets are expected to mature or reprice more quickly than interest-bearing liabilities in a given period. A decrease in market rates of interest could adversely affect net interest income, while an increase in market rates may increase net interest income slightly. At December 31, 2009, we also estimated that our balance sheet was slightly asset sensitive. We attempt to limit our interest rate risk through managing the repricing characteristics of our assets and liabilities.

For the present value of equity analysis, the results are compared to the net present value of equity using the yield curve as of December 31, 2010. This curve is then shifted up and down and the net present value of equity is computed. This table does not include flattening or steepening yield curve effects.

December 31, 2010	Percent Change in
Change in Interest Rates	Present Value of Equity
Up 200 basis points	-3.7%
Up 100 basis points	-2.0%
Down 100 basis points	-1.9%

It should be noted that the simulation model does not take into account future management actions that could be undertaken should a change occur in actual market interest rates during the year. Also, certain assumptions are required to perform modeling simulations that may have a significant impact on the results. These include important assumptions regarding the level of interest rates and balance changes on deposit products that do not have stated maturities, as well as the relationship between loan yields and deposit rates relative to market interest rates. These assumptions have been developed through a combination of industry standards and future expected pricing behavior but could be significantly influenced by future competitor pricing behavior. The model also includes assumptions about changes in the composition or mix of the balance sheet. The results derived from the simulation model could vary significantly due to external factors such as changes in the prepayment assumptions, early withdrawals of deposits and competition. Any transaction activity will also have an impact on the asset/liability position as new assets are acquired and added.

Interest Rate Sensitivity (Gap) Table

The primary objective of our asset/liability management is to maximize net interest income while maintaining acceptable levels of interest-rate sensitivity. We seek to meet this objective through influencing the maturity and repricing characteristics of our assets and liabilities.

The following table sets forth the estimated maturity and repricing and the resulting interest rate gap between interest earning assets and interest bearing liabilities at December 31, 2010. The amounts in the table are derived from internal Bank data regarding maturities and next repricing dates including contractual repayments.

	Estimated Maturity or Repricing at December 31, 2010
(Dollars in thousands)										Due After
	0-3 Months			4-12 Months			1-5 Years			Five Years			Total
Interest Earning Assets:
Interest earning balances due from banks	$	131,952		$	-		$	-		$	-		$	131,952
Federal funds sold		3,367			-			-			-			3,367
Trading assets		808			-			-			-			808
Investments available for sale1 2		52,957			59,241			285,711			248,203			646,112
Federal Home Loan Bank Stock, held at cost1		12,148			-			-			-			12,148
Loans held for sale		3,102			-			-			-			3,102
Loans, including fees		588,190			252,532			629,721			65,827			1,536,270
Total interest earning assets	$	792,524		$	311,773		$	915,432		$	314,030			2,333,759
Allowance for loan losses														(40,217	)
Cash and due from banks														42,672
Other assets														124,845
Total assets													$	2,461,059

Interest Bearing Liabilities:
Savings, interest bearing demand
and money markets 3	$	56,262		$	137,723		$	440,419		$	474,941		$	1,109,345
Time deposits		70,202			141,324			63,885			-			275,411
Borrowings 2		-			-			168,599			-			168,599
Junior subordinated debentures		51,000			-			-			-			51,000
Total interest bearing liabilities	$	177,464		$	279,047		$	672,903		$	474,941			1,604,355
Other liabilities														584,144
Total liabilities														2,188,499
Stockholders' equity														272,560
Total liabilities & stockholders' equity													$	2,461,059

Interest sensitivity gap	$	615,060		$	32,726		$	242,529		$	(160,911	)	$	729,404
Cumulative interest sensitivity gap	$	615,060		$	647,786		$	890,315		$	729,404
Cumulative interest sensitivity gap
as a percentage of total assets		25	%		26	%		36	%		30	%

1 Equity investments have been placed in the 0-3 month category.

2 Repricing is based on anticipated call dates and may vary from contractual maturities.

3 Repricing is based on estimated average lives.

Certain shortcomings are inherent in the method of analysis presented in the foregoing table. For example, savings, interest bearing demand and money market deposit accounts will very likely experience a change in deposit rates more frequently than in their estimated average lives. Additionally, although certain assets and liabilities may have similar maturities and periods of repricing, they may react differently to changes in market interest rates. Also, interest rates on assets and liabilities may fluctuate in advance of changes in market interest rates, while interest rates on other assets and liabilities may follow changes in market interest rates. Given these shortcomings, management believes that rate risk is best measured by simulation modeling as opposed to measuring interest rate risk through interest rate gap measurement.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The following audited consolidated financial statements and related documents are set forth in this Annual Report on Form 10-K on the pages indicated:

	Report of Independent Registered Public Accounting Firm		53
	Consolidated Balance Sheets		54
	Consolidated Statements of Income (Loss)		55
	Consolidated Statements of Cash Flows		56
	Consolidated Statements of Changes in Stockholders’ Equity		57
	Notes to Consolidated Financial Statements		58

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of
West Coast Bancorp
Lake Oswego, Oregon

We have audited the accompanying consolidated balance sheets of West Coast Bancorp and subsidiaries (the “Company”) as of December 31, 2010 and 2009, and the related statements of income (loss), changes in stockholders' equity, and cash flows for each of the three years in the period ended December 31, 2010. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of West Coast Bancorp and subsidiaries as of December 31, 2010 and 2009, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2010, in conformity with accounting principles generally accepted in the United States of America.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company's internal control over financial reporting as of December 31, 2010, based on the criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 10, 2011 expressed an unqualified opinion on the Company's internal control over financial reporting.

/s/ DELOITTE & TOUCHE LLP

Portland, Oregon

March 10, 2011

WEST COAST BANCORP
CONSOLIDATED BALANCE SHEETS

As of December 31 (Dollars and shares in thousands)	2010			2009
ASSETS
Cash and cash equivalents:
Cash and due from banks	$	42,672		$	47,708
Federal funds sold		3,367			20,559
Interest-bearing deposits in other banks		131,952			234,830
Total cash and cash equivalents		177,991			303,097
Trading securities		808			731
Investment securities available for sale, at fair value
(amortized cost: $645,246 and $564,615, respectively)		646,112			562,277
Federal Home Loan Bank stock, held at cost		12,148			12,148
Loans held for sale		3,102			1,176
Loans		1,536,270			1,724,842
Allowance for loan losses		(40,217	)		(38,490	)
Loans, net		1,496,053			1,686,352
Premises and equipment, net		26,774			28,476
Other real estate owned, net		39,459			53,594
Core deposit intangible, net		358			637
Bank owned life insurance		25,313			24,417
Other assets		32,941			60,642
Total assets	$	2,461,059		$	2,733,547

LIABILITIES AND STOCKHOLDERS' EQUITY

Deposits:
Demand	$	555,766		$	542,215
Savings and interest bearing demand		445,878			422,838
Money market		663,467			657,306
Time deposits		275,411			524,525
Total deposits		1,940,522			2,146,884
Short-term borrowings		-			12,600
Long-term borrowings		168,599			250,699
Junior subordinated debentures		51,000			51,000
Reserve for unfunded commitments		850			928
Other liabilities		27,528			22,378
Total liabilities		2,188,499			2,484,489
Commitments and contingent liabilities (Notes 12 and 20)
Stockholders' equity:
Preferred stock: no par value, 10,000 shares authorized;
Series A issued and outstanding: none at December 31, 2010, and
1,429 at December 31, 2009		-			118,124
Series B issued and outstanding: 121 at December 31, 2010 and 2009		21,124			21,124
Common stock: no par value, 250,000 shares authorized;
issued and outstanding: 96,431 at December 31, 2010 and 15,641 at December 31, 2009		229,722			93,246
Retained earnings		21,175			17,950
Accumulated other comprehensive income (loss)		539			(1,386	)
Total stockholders' equity		272,560			249,058
Total liabilities and stockholders' equity	$	2,461,059		$	2,733,547

See notes to consolidated financial statements.

WEST COAST BANCORP
CONSOLIDATED STATEMENTS OF INCOME (LOSS)

Years ended December 31 (Dollars and shares in thousands, except per share amounts)	2010			2009			2008
INTEREST INCOME:
Interest and fees on loans	$	88,409		$	100,356		$	129,517
Interest on taxable investment securities		14,493			8,646			7,700
Interest on nontaxable investment securities		2,175			2,776			3,251
Interest on deposits in other banks		493			366			38
Interest on federal funds sold		6			6			340
Total interest income		105,576			112,150			140,846

INTEREST EXPENSE:
Savings, interest bearing demand deposits and money market		4,664			9,684			17,174
Time deposits		7,466			14,758			20,375
Short-term borrowings		494			806			4,312
Long-term borrowings		8,502			6,693			4,201
Junior subordinated debentures		1,143			1,482			2,634
Total interest expense		22,269			33,423			48,696
Net interest income		83,307			78,727			92,150
Provision for credit losses		18,652			90,057			40,367
Net interest income (loss) after provision for credit losses		64,655			(11,330	)		51,783

NONINTEREST INCOME:
Service charges on deposit accounts		15,690			15,765			15,547
Payment systems related revenue		11,393			9,399			9,033
Trust and investment services revenue		4,267			4,101			5,413
Gains on sales of loans		1,197			1,738			2,328
Other real estate owned valuation adjustments and (loss) gain on sales		(4,415	)		(26,953	)		(5,386	)
Other noninterest income		3,003			4,438			3,252
Other-than-temporary impairment losses		-			(192	)		(6,338	)
Gains on sales of securities		1,562			833			780
Total noninterest income		32,697			9,129			24,629

NONINTEREST EXPENSE:
Salaries and employee benefits		45,854			44,608			47,500
Equipment		6,247			8,120			7,117
Occupancy		8,894			9,585			9,440
Payment systems related expense		4,727			4,036			3,622
Professional fees		3,991			4,342			4,317
Postage, printing and office supplies		3,148			3,201			3,834
Marketing		3,086			2,990			3,583
Communications		1,525			1,574			1,722
Goodwill impairment		-			13,059			-
Other noninterest expense		12,865			16,773			9,188
Total noninterest expense		90,337			108,288			90,323

INCOME (LOSS) BEFORE INCOME TAXES		7,015			(110,489	)		(13,911	)
PROVISION (BENEFIT) FOR INCOME TAXES		3,790			(19,276	)		(7,598	)
NET INCOME (LOSS)	$	3,225		$	(91,213	)	$	(6,313	)

Basic earnings (loss) per share	$	0.03			($5.83	)		($0.41	)
Diluted earnings (loss) per share	$	0.03			($5.83	)		($0.41	)

Weighted average common shares		87,300			15,510			15,472
Weighted average diluted shares		90,295			15,510			15,472

See notes to consolidated financial statements.

WEST COAST BANCORP
CONSOLIDATED STATEMENTS OF CASH FLOWS

Years ended December 31 (Dollars in thousands)	2010			2009			2008
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)	$	3,225		$	(91,213	)	$	(6,313	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation, amortization and accretion		8,778			8,281			4,520
Amortization of tax credits		1,085			1,320			1,264
Deferred income tax provision (benefit)		(2,540	)		11,926			3,811
Amortization of intangibles		279			358			437
Provision for credit losses		18,652			90,057			40,367
Goodwill impairment		-			13,059			-
Decrease in accrued interest receivable		892			591			5,535
Decrease (Increase) in other assets		30,070			(14,854	)		(12,268	)
Loss on impairment of securities		-			192			6,338
Gains on sales of securities		(1,562	)		(833	)		(780	)
Net loss on disposal of premises and equipment		61			186			14
Net other real estate owned valuation adjustments and loss (gain) on sales		4,415			26,953			5,386
Gains on sale of loans		(1,197	)		(1,738	)		(2,328	)
Origination of loans held for sale		(34,927	)		(66,485	)		(61,159	)
Proceeds from sales of loans held for sale		34,198			69,907			63,814
Increase (decrease) in interest payable		504			359			(579	)
Increase (decrease) in other liabilities		1,651			3,345			(21,151	)
Increase in cash surrender value of bank owned life insurance		(896	)		(892	)		(913	)
Stock based compensation expense		2,089			1,520			2,865
Excess tax deficiency associated with stock plans		(357	)		(496	)		-
Increase (decrease) in trading securities		(77	)		815			36
Net cash provided by operating activities		64,343			52,358			28,896

CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities of available for sale securities		288,050			69,140			51,151
Proceeds from sales of available for sale securities		77,551			36,189			35,033
Purchase of available for sale securities		(449,665	)		(467,360	)		(32,854	)
Purchase of Federal Home Loan Bank stock		-			(1,305	)		(4,849	)
Redemption of Federal Home Loan Bank stock		-			-			4,301
Investments in tax credits		-			(9	)		(476	)
Loans made to customers less (greater) than principal collected on loans		138,459			185,293			(38,373	)
Proceeds from the sale of other real estate owned		38,106			68,670			16,969
Proceeds from the sales of premises and equipment		-			-			31
Capital expenditures on other real estate owned		(3,234	)		(4,881	)		(1,230	)
Capital expenditures on premises and equipment		(2,265	)		(1,275	)		(3,124	)
Net cash provided (used) by investing activities		87,002			(115,538	)		26,579

CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in demand, savings and interest
bearing transaction accounts		42,752			182,273			(104,481	)
Net increase (decrease) in time deposits		(249,114	)		(59,768	)		34,028
Proceeds from issuance of short-term borrowings		-			347,600			2,321,801
Repayment of short-term borrowings		(17,600	)		(479,600	)		(2,391,801	)
Proceeds from issuance of long-term borrowings		4,400			192,240			42,959
Repayment of long-term borrowings		(81,500	)		(20,000	)		-
Proceeds from issuance of preferred stock, net of costs		-			139,248			-
Proceeds from secured borrowings		7,991			-			-
Proceeds from issuance of common stock-Rights Offering		10,000			-			-
Costs of issuance of common stock-Rights Offering		(650	)		-			-
Proceeds from issuance of common stock-Discretionary Program		7,856			-			-
Costs of issuance of common stock-Discretionary Program		(817	)		-			-
Activity in deferred compensation plan		262			(1	)		(50	)
Proceeds from issuance of common stock-stock options		4			-			25
Redemption of stock pursuant to stock plans		(35	)		(22	)		(190	)
Tax expense associated with equity plans		-			-			(287	)
Cash dividends paid		-			(471	)		(6,503	)
Net cash provided (used) by financing activities		(276,451	)		301,499			(104,499	)

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		(125,106	)		238,319			(49,024	)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR		303,097			64,778			113,802
CASH AND CASH EQUIVALENTS AT END OF YEAR	$	177,991		$	303,097		$	64,778

See notes to consolidated financial statements.

WEST COAST BANCORP

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

											Accumulated
											Other
(Shares and dollars in thousands)	Preferred		Common Stock					Retained			Comprehensive
	Stock		Shares		Amount			Earnings			Income (Loss)			Total
BALANCE, January 1, 2008	-		15,593		$	89,882		$	118,792		$	(433	)	$	208,241
Comprehensive loss:
Net loss	-		-			-			(6,313	)		-		$	(6,313	)
Other comprehensive loss, net of tax:
Net unrealized investment loss	-		-			-			-			(1,167	)		(1,167	)
Other comprehensive loss, net of tax	-		-			-			-			-			(1,167	)
Comprehensive loss	-		-			-			-			-		$	(7,480	)
Cash dividends, $.29 per common share	-		-			-			(4,550	)		-			(4,550	)

Issuance of common stock-stock options	-		2			25			-			-			25
Redemption of stock pursuant to stock plans	-		(20	)		(190	)		-			-			(190	)
Activity in deferred compensation plan	-		(7	)		(50	)		-			-			(50	)
Issuance of common stock-restricted stock	-		128			-			-			-			-
Stock based compensation expense	-		-			2,865			-			-			2,865
Tax adjustment associated with stock plans	-		-			(287	)		-			-			(287	)
Post retirement benefit adjustment	-		-			-			(387	)		-			(387	)
BALANCE, December 31, 2008	-		15,696			92,245			107,542			(1,600	)		198,187
Comprehensive loss:
Net loss	-		-			-			(91,213	)		-		$	(91,213	)
Other comprehensive income, net of tax:
Net unrealized investment gain	-		-			-			-			2,149			2,149
Other comprehensive income, net of tax	-		-			-			-			-			2,149
Comprehensive loss	-		-			-			-			-		$	(89,064	)

Cumulative effect of adopting ASC 320	-		-			-			1,935			(1,935	)		-
Cash dividends, $.02 per common share	-		-			-			(314	)		-			(314	)
Redemption of stock pursuant to stock plans	-		(12	)		(22	)		-			-			(22	)
Issuance of Series A preferred stock, net of costs	118,124		-			-			-			-			118,124

Issuance of Series B preferred stock and warrant, net of costs	21,124		-			-			-			-			21,124
Activity in deferred compensation plan	-		(43	)		(1	)		-			-			(1	)
Stock based compensation expense	-		-			1,520			-			-			1,520
Tax adjustment associated with stock plans	-		-			(496	)		-			-			(496	)
BALANCE, December 31, 2009	139,248		15,641			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	-		(58	)		(35	)		-			-			(35	)
Conversion of Series A preferred stock	(118,124	)	71,442			118,124			-			-			-
Issuance of common stock-Rights Offering,
net of costs			5,000			9,350			-			-			9,350
Issuance of common stock-Discretionary Program,
net of costs			2,804			7,039			-			-			7,039
Activity in deferred compensation plan	-		(13	)		262			-			-			262
Issuance of common stock-stock options	-		2			4			-			-			4
Issuance of common stock-restricted stock	-		1,613			-			-			-			-
Stock based compensation expense	-		-			2,089			-			-			2,089
Tax adjustment associated with stock plans	-		-			(357	)		-			-			(357	)
BALANCE, December 31, 2010	21,124		96,431		$	229,722		$	21,175		$	539		$	272,560

See notes to consolidated financial statements.

WEST COAST BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Operations. West Coast Bancorp (“Bancorp” or “the Company”) provides a full range of financial services including lending and depository services through West Coast Bank and its 65 branch banking offices in Oregon and Washington. West Coast Trust Company, Inc. (“West Coast Trust”) provides fiduciary, agency, trust and related services, and life insurance products.

Principles of Consolidation. The accompanying consolidated financial statements include the accounts of Bancorp, and its wholly-owned subsidiaries, West Coast Bank (the “Bank”), West Coast Trust and Totten, Inc., after elimination of material intercompany transactions and balances. West Coast Statutory Trusts III, IV, V, VI, VII and VIII are considered related parties to Bancorp and their financial results are not consolidated in Bancorp’s financial statements. Junior subordinated debentures issued by the Company to West Coast Statutory Trusts are included on the Company’s balance sheet as junior subordinated debentures.

Basis of Financial Statement Presentation and the Use of Estimates in the Financial Statements. The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States and with prevailing practices within the banking and securities industries. Management is required to make certain estimates and assumptions when preparing the financial statements that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the balance sheet and the amounts of income and expense for the reporting period. Actual results could differ significantly from management’s estimates. Certain material estimates subject to significant change relate to the determination of the allowance for credit losses, the provision or benefit for income taxes, and the fair value of other real estate owned.

Subsequent Events. The Company has evaluated events and transactions for potential recognition or disclosure through the day the financial statements were issued.

Cash and Cash Equivalents. Cash and cash equivalents include cash on hand, interest bearing deposits in other banks, amounts due from banks and federal funds sold. Generally, federal funds are purchased or sold for one-day periods.

Supplemental Cash Flow Information. The following table presents supplemental cash flow information for the years ended December 31, 2010, 2009 and 2008.

(Dollars in thousands)	December 31,
	2010			2009			2008
Supplemental cash flow information:
Cash (received) paid in the year for:
Interest	$	21,765		$	33,063		$	49,275
Income taxes, net		(27,742	)		(14,585	)		4,385
Noncash investing and financing activities:
Change in unrealized gain (loss) on available
for sale securities, net of tax	$	1,925		$	2,149		$	(1,167	)
Dividends declared and accrued in other liabilities		-			-			157
Sale of SBA loans - transfer to other assets		7,991			-			-
Settlement of secured borrowings		(4,906	)		-			-
OREO and premises and equipment expenditures
accrued in other liabilities		74			242			129
Transfer of loans to OREO		25,199			74,174			87,881

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Trading Securities. Debt and equity securities that are bought and held principally for the purpose of selling them in the near term are classified as trading securities and reported at fair value, with realized and unrealized gains and losses included in noninterest income. Trading securities held at December 31, 2010 and 2009 are related solely to assets held in a rabbi trust for the benefit of the Company’s deferred compensation plans.

Investment Securities Available for Sale. Investment securities classified as available for sale are not trading securities but may be sold before maturity in response to changes in the Company’s interest rate risk profile, funding needs or demand for collateralized deposits by public entities. Available for sale securities are carried at fair value with unrealized gains and losses, net of any tax effect, reported within accumulated other comprehensive income (loss) in stockholders’ equity. Premiums and discounts are amortized or accreted over the estimated life of the investment security as an adjustment to the yield. For purposes of computing realized gains and losses, the cost of securities sold is determined using the specific identification method. The Company analyzes investment securities for other-than-temporary impairment (“OTTI”) on a quarterly basis. For equity securities where declines in fair value are deemed other-than-temporary and the Company does not have the ability and intent to hold the securities until recovery, OTTI is recognized in noninterest income. The Company considers whether a debt security will be sold or if it is likely to be required to be sold prior to the recovery of any unrealized loss. Intent to sell or a requirement to sell debt securities prior to recovery would result in recognizing the entire impairment as OTTI in noninterest income. If the Company does not intend to sell impaired debt securities, will not be required to sell them prior to recovery, and the Company does not expect to recover its entire amortized cost basis of the securities, the portion of impairment loss specifically related to credit losses is recognized in noninterest income. The portion of impairment loss related to all other factors is recognized as a separate category in other comprehensive income (loss).

Valuation of Investment Securities Available for Sale. Investment securities are valued utilizing a number of methods including quoted prices in active markets, 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. In addition, certain investment securities are valued based on the Company’s own assumptions using the best information available using a discounted cash flow model.

Federal Home Loan Bank Stock. Federal Home Loan Bank of Seattle (the “FHLB”) stock is carried at cost which equals its par value because the shares can only be redeemed with the FHLB at par and it lacks a market. The Bank is required to maintain a minimum level of investment in FHLB stock based on specific percentages of its outstanding mortgages and FHLB advances. Stock redemptions are at the discretion of the FHLB or of the Company, upon prior notice to the FHLB of five years for FHLB B stock or six months for FHLB A stock. The Bank considers FHLB stock a restricted security. The Company periodically analyzes FHLB stock for OTTI. The evaluation of OTTI on FHLB stock is based on an assessment of the ultimate recoverability of cost rather than recognizing temporary declines in value. The determination of whether a decline affects the ultimate recoverability of cost is influenced by criteria such as (a) the significance of any decline in net assets of the FHLB as compared to the capital stock amount for the FHLB and the length of time this situation has persisted, (b) commitments by the FHLB to make payments required by law or regulation and the level of such payments in relation to the operating performance of the FHLB, (c) the impact of legislative and regulatory changes on institutions and, accordingly, the customer base of the FHLB, and (d) the liquidity position of the FHLB. The Company analyzed FHLB stock for OTTI and concluded that no impairment exists at December 31, 2010.

Loans Held for Sale. Loans held for sale includes mortgage loans that are carried at the lower of cost or market value. Market value generally approximates cost because of the short duration these assets are held by us. Gains and infrequent losses are recognized in the consolidated statement of income (loss) as the proceeds from sale less the net book value of the loan including unamortized fees and capitalized direct costs. Servicing rights are typically not retained. In addition, we originate loans to customers under Small Business Administration (“SBA”) programs that generally provide for SBA guarantees of 50% to 85% of each loan. We periodically sell the guaranteed portion of certain SBA loans to investors and retain the unguaranteed portion and servicing rights in our loan portfolio. SBA loans are recorded and held within the loan portfolio until designated to be sold. Gains on these sales are earned through the sale of the guaranteed portion of the loan for an amount in excess of the adjusted carrying value of the portion of the loan sold. We allocate the carrying value of such loans between the portion sold, the portion retained and a value assigned to the right to service the loan. The difference between the adjusted carrying value of the portion retained and the face amount of the portion retained is amortized to interest income over the life of the related loan using a straight-line method over the anticipated lives of the pool of SBA loans. Certain sold SBA loans are subject to a borrower three payment “seasoning period” in which loan sale recourse applies if the borrower does not make timely payments. We record a gain on sale only after this seasoning period ends. During the seasoning period and upon receiving the cash proceeds, we record the transaction as a secured borrowing.

Loans. Loans are reported at the amount of unpaid principal balance outstanding net of unearned income and deferred fees and costs. Loan and commitment fees and certain direct loan origination costs are deferred and recognized over the life of the loan and/or commitment period as yield adjustments. Interest income on loans is accrued daily on the unpaid principal balance outstanding as earned.

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Nonaccrual Loans. Loans (including impaired loans) are placed on nonaccrual status when the collection of interest or principal has become 90 days past due or is otherwise considered doubtful. When a loan is placed on nonaccrual status, the Company stops accruing interest and unpaid accrued interest is reversed. In addition, the Company stops amortizing deferred fees and costs. For certain real estate construction loans accrued unpaid interest as well as qualifying capitalized interest is reversed. When management determines that the ultimate collectability of principal is in doubt, cash receipts on nonaccrual loans are applied to reduce the principal balance on a cash-basis method until the loans qualify for return to accrual status. Loans are returned to accrual status when all principal and interest amounts contractually due are brought current and future payments are reasonably assured.

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 market value of the collateral less selling costs if the loan is collateral dependent. For loans 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 loans are charged off immediately rather than recording a specific reserve allowance in the allowance for loan losses.

A loan is accounted for as a troubled debt restructure 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. A troubled debt restructure 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. Troubled debt restructures are considered impaired and as such are typically measured based on the fair market value of the collateral less selling costs. Certain troubled debt restructures are considered impaired but remain in a performing status based on a current documented evaluation supporting the expectation of performance. These loans are measured for impairment based on the present value of expected future cash flows discounted at the loans original interest rate.

Allowance for Credit Losses. The allowance for credit losses is comprised of two components, the allowance for loan losses and the reserve for unfunded commitments. The allowance for loan losses is a calculation applied to outstanding loan balances, while the reserve for unfunded commitments is based upon a calculation applied to that portion of total loan commitments not yet funded for the period reported.

The allowance for credit losses is based on management’s estimates. Management determines the adequacy of the allowance for credit losses based on evaluations of the loan portfolio, recent loss experience and other factors, including economic conditions. The Company determines the amount of the allowance for credit losses required for certain sectors based on relative risk characteristics of the loan portfolio. Actual losses may vary from current estimates. These estimates are reviewed periodically and, as adjustments become necessary, are reported in earnings in the periods in which they become known. The allowance for credit losses is increased by provisions for credit losses in earnings. Losses are charged to the allowance while recoveries are credited to the allowance.

Commitments to Extend Credit. Unfunded loan commitments are generally related to providing credit facilities to customers of the bank and are not actively traded financial instruments. These unfunded commitments are disclosed as commitments to extend credit in Note 20 in the notes to consolidated financial statements.

Reserve for Unfunded Commitments. As a component of allowance for credit losses, a reserve for unfunded commitments is maintained at a level that, in the opinion of management, is adequate to absorb losses associated with the Bank’s commitment to lend funds under existing agreements such as letters or lines of credit or construction loans. Management determines the adequacy of the reserve for unfunded commitments based upon reviews of individual credit facilities, current economic conditions, the risk characteristics of the various categories of commitments as well as pooled commitments with similar risk characteristics and other relevant factors. The reserve is based on estimates, and ultimate losses may vary from the current estimates. These estimates are evaluated on a regular basis and, as adjustments become necessary, they are reported in the provision for credit losses in the income statement in the periods in which they become known.

Other Real Estate Owned (“OREO”). OREO is real property of which the Bank has taken possession or that has been deeded to the Bank through a deed-in-lieu of foreclosure, non-judicial foreclosure, judicial foreclosure or similar process in partial or full satisfaction of a loan or loans. OREO is initially recorded at the lower of the carrying amount of the loan or fair value of the property less estimated costs to sell. This amount becomes the property’s new basis. Management considers 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 also periodically reviews OREO to determine whether the property continues to be carried at the lower of its recorded book value or fair value, net of estimated costs to sell. Any further OREO valuation adjustments or subsequent gains or losses on the final disposition of OREO are charged to other real estate owned valuation adjustments and (loss) gain on sales. Expenses from the maintenance and operations of OREO are included in other noninterest expense in the statements of income (loss).

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Premises and Equipment. Premises and equipment are stated at cost, less accumulated depreciation and amortization. Land is carried at cost. Depreciation is computed on the straight-line method over the estimated useful lives of the related assets. In general, furniture and equipment is amortized over a useful life of 3 to 10 years, software and computer related equipment is amortized over 3 to 5 years and buildings are amortized over periods up to 40 years. Leasehold improvements are amortized over the life of the related lease, or the life of the related assets, whichever is shorter. Expenditures for major renovations and betterments of the Company’s premises and equipment are capitalized. Improvements are capitalized and depreciated over their estimated useful lives. Minor repairs, maintenance and improvements are charged to operations as incurred. When property is replaced or otherwise disposed of, the cost of such assets and the related accumulated depreciation are removed from their respective accounts. Related gain or loss, if any, is recorded in current operations.

Goodwill and Intangible Assets. At March 31, 2009, based on management’s analysis and continued deteriorating economic conditions and the length of time and amount by which the Company’s book value per share had exceeded its market value per share, the Company determined it was appropriate to write off the entire $13.1 million of goodwill related to its acquisition of Mid-Valley Bank in June, 2006.

Core deposit intangibles are reviewed for impairment at least annually as of year-end. At December 31, 2010 it was determined that core deposit intangibles were not impaired. If impairment were deemed to exist, the core deposit intangibles would be written down to estimated fair value, resulting in a charge to earnings in the period in which the write down occurs.

Income Taxes. Income taxes are accounted for using the asset and liability method. Under this method, a deferred tax asset or liability is determined based on the enacted tax rates that will be in effect when the differences between the financial statement carrying amounts and tax basis of existing assets and liabilities are expected to be reported in Bancorp’s income tax returns. The deferred tax provision (benefit) for the year is equal to the net change in the net deferred tax asset from the beginning to the end of the year, less amounts applicable to the change in value related to investment securities available for sale. The effect on deferred taxes of a change in tax rates is recognized in income in the period that includes the enactment date. The Company records net deferred tax assets to the extent these assets will more likely than not be realized. In making such determination, the Company assesses the available positive and negative evidence including future reversals of existing taxable temporary differences, projected future taxable income, tax planning strategies and recent financial results. A deferred tax asset valuation allowance is established to reduce the net carrying amount of deferred tax assets if it is determined to be more likely than not, that all or some portion of the potential deferred tax asset will not be realized. The Company’s accounting policy is to exclude deferred tax assets related to unrealized losses on its available for sale debt securities as these losses are expected to reverse and realization of the related deferred tax asset is not dependent on future taxable income. It is the Company’s accounting policy to include interest expense and penalties related to income taxes as a component of provision (benefit) for income taxes. See Note 17 “Income taxes” of the notes to consolidated financial statements for more detail.

Operating Segments. Public enterprises are required to report certain information about their operating segments in the financial statements. The basis for determining the Company’s operating segments is the way in which management operates the businesses. Bancorp has identified two reportable segments, “banking” and “other” which includes West Coast Trust. See Note 22, “Segment and Related Information” of the notes to consolidated financial statements for more detail.

Trust Company Assets. Assets (other than cash deposits) held by West Coast Trust in fiduciary or agency capacities for its trust customers are not included in the accompanying consolidated balance sheets, because such items are not assets of West Coast Trust.

Borrowings. Federal funds purchased and securities sold under agreements to repurchase generally mature within one to four days from the transaction date. Other short-term borrowed funds mature within one year from the date of this financial statement. Long-term borrowed funds extend beyond one year and are reclassed to short-term borrowings when the long term borrowed funds mature within one year and there is no intent to refinance.

Earnings (Loss) Per Share. 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 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, warrants, conversion of preferred stock, and nonvested 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.

Service Charges on Deposit Accounts. Service charges on deposit accounts primarily represent monthly fees based on minimum balances or transaction-based fees. These fees are recognized as earned or as transactions occur and services are provided.

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Payment Systems Revenue. Payment systems revenue includes interchange income from credit and debit cards, annual fees, and other transaction and account management fees. Interchange income is a fee paid by a merchant bank to the card-issuing bank through the interchange network. Interchange fees are set by the credit card associations and are based on cardholder purchase volumes. The Company records interchange income as transactions occur. Transaction and account management fees are recognized as transactions occur or services are provided, except for annual fees, which are recognized over the applicable period. Volume-related payments to partners and credit card associations and expenses for rewards programs are also recorded within payment systems revenue. Payments to partners and expenses related to rewards programs are recorded when earned by the partner or customer. Merchant processing services revenue consists principally of transaction and account management fees charged to merchants for the electronic processing of transactions, net of interchange fees paid to the credit card issuing bank, card association assessments, and revenue sharing amounts, and are all recognized at the time the merchant’s transactions are processed or other services are performed. The Company may enter into revenue sharing agreements with referral partners or in connection with purchases of merchant contracts from sellers. The revenue sharing amounts are determined primarily on sales volume processed or revenue generated for a particular group of merchants. Merchant processing revenue also includes revenues related to point-of-sale equipment recorded as sales when the equipment is shipped or as earned for equipment rentals.

Trust and Investment Services Revenue. Trust and investment management fees are recognized over the period in which services are performed and are based on a percentage of the fair value of the assets under management or administration, fixed based on account type, or transaction-based fees.

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 will be 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.

ASU 2010-20, “Receivables (Topic 310)—Deferral of the Effective Date of Disclosures about Troubled Debt Restructurings in Update No. 2010-20,” temporarily deferred the effective date for disclosures related to troubled debt restructurings to coincide with the effective date of a proposed accounting standards update related to troubled debt restructurings, which is currently expected to be effective for periods ending after June 15, 2011. The adoption of this guidance is not expected to have a material impact on the Company’s consolidated statement of income (loss), its consolidated balance sheet, or its consolidated statement of cash flows.

2. INVESTMENT SECURITIES

The following table presents the available for sale investment securities as of December 31, 2010 and 2009:

(Dollars in thousands)
December 31, 2010	Amortized		Unrealized		Unrealized
	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

(Dollars in thousands)
December 31, 2009	Amortized		Unrealized		Unrealized
	Cost		Gross Gains		Gross Losses			Fair Value
U.S. Treasury securities	$	24,907	$	100	$	-		$	25,007
U.S. Government agency securities		104,168		300		(480	)		103,988
Corporate securities		14,436		-		(4,683	)		9,753
Mortgage-backed securities		344,179		3,013		(2,898	)		344,294
Obligations of state and political subdivisions		67,651		2,562		(195	)		70,018
Equity investments and other securities		9,274		2		(59	)		9,217
Total	$	564,615	$	5,977	$	(8,315	)	$	562,277

Gross realized gains on the sale of investment securities included in earnings in 2010, 2009, and 2008 were $1,562,000, $833,000 and $814,000, respectively. Gross realized losses were $34,000 in 2008 and there were no such losses in 2010 and 2009.

In 2008, the Company recorded OTTI charges totaling $6.3 million pretax consisting of $.4 million relating to an investment in a Lehman Brothers bond, $3.1 million related to two pooled trust preferred investments in our corporate securities portfolio, and $2.8 million for an investment in Freddie Mac preferred stock held in our equity and other securities portfolio. The $3.1 million OTTI related to two pooled trust preferred investments was subsequently reversed as of March 31, 2009 as a result of the FASB issuing authoritative guidance included in Accounting Standards Codification (“ASC”) 320 “Investments – Debt and Equity Securities” that amended other-than-temporary impairment guidance for debt securities to require a new other-than-temporary impairment model that shifts the focus from an entity’s intent to hold the debt security until recovery to its intent, or expected requirements to sell the debt security. This guidance is intended to provide greater clarity to investors about the credit and noncredit component of an OTTI event and to more effectively communicate when an OTTI event has occurred. This guidance was applied prospectively with a cumulative effect transition adjustment as of the beginning of the period in which it was adopted.

In the first quarter of 2009, the Company recorded OTTI charges totaling $.2 million pretax consisting of $.1 million relating to a Lehman Brothers bond held in our corporate securities portfolio and $.1 for the investment in Freddie Mac preferred stock held in our equity and other securities portfolio. Both of these investments were sold in the second quarter of 2009 for no additional gain or loss.

Dividends on equity investments for the years 2010, 2009, and 2008 were $105,000, $106,000, and $294,000, respectively.

2. INVESTMENT SECURITIES (continued)

Our U.S. Government agency securities increased by $90.2 million from December 31, 2009, to December 31, 2010, as part of our effort to improve liquidity, maintain portfolio diversification and provide collateral for public funds and borrowing sources such as the FHLB.

The investment securities portfolio had a net unrealized gain of $.9 million at December 31, 2010 compared to a net unrealized loss of $2.3 million at December 31, 2009. Our corporate security portfolio had a $5.1 million unrealized loss at December 31, 2010. The majority of this loss was associated with the decline in market value of our investments in pooled trust preferred securities issued primarily by banks and insurance companies. An increase in credit and liquidity spreads contributed to the unrealized loss associated with these securities which had a $14.0 million amortized cost and an $8.9 million estimated fair value at December 31, 2010. These securities are rated C or better by the rating agencies that cover these securities and they 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 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 December 31, 2009	Fair Value		Losses			Fair Value		Losses			Fair Value		Losses
U.S. Government agency securities	$	65,422	$	(480	)	$	-	$	-		$	65,422	$	(480	)
Corporate securities		-		-			9,253		(4,683	)		9,253		(4,683	)
Mortgage-backed securities		136,313		(2,074	)		5,882		(824	)		142,195		(2,898	)
Obligations of state and political subdivisions		2,470		(49	)		1,866		(146	)		4,336		(195	)
Equity and other securities		4,736		(59	)		-		-			4,736		(59	)
Total	$	208,941	$	(2,662	)	$	17,001	$	(5,653	)	$	225,942	$	(8,315	)

There were six investment securities with a 12 month or greater continuous unrealized loss in the investment portfolio at December 31, 2010, with a total unrealized loss of $5.2 million. In comparison, at December 31, 2009, there were nine investment securities with a 12 month or greater continuous unrealized loss in the investment portfolio, with a total unrealized loss of $5.7 million. The unrealized loss on these investment securities was primarily due to continued increased credit and liquidity spreads and an extension of expected cash flow causing a decline in the fair market value subsequent to the purchase of our pooled trust preferred securities (corporate security category). These securities had an estimated fair value of $8.9 million compared to a $14.0 million amortized cost at December 31, 2010. The value of most of our securities fluctuates as market interest rates change.

There were a total of 28 securities in Bancorp’s investment portfolio at December 31, 2010, that have been in a continuous unrealized loss position for less than 12 months, with an amortized cost of $159.7 million and a total unrealized loss of $2.9 million. At December 31, 2009, there were a total of 37 securities in Bancorp’s investment portfolio that have been in a continuous unrealized loss position for less than 12 months, with an amortized cost of $211.6 million and a total unrealized loss of $2.7 million. The unrealized loss on these investment securities was predominantly caused by increases in credit and liquidity spreads. The fair value of these securities fluctuates as market interest rates change.

Based on management’s review and evaluation of the Company’s debt securities, the Bank does not intend to sell any debt securities which have an unrealized loss, it is unlikely the Company will be required to sell these securities before recovery, and we expect to recover the entire amortized cost of these impaired securities. Therefore the debt securities with unrealized losses were not considered to have OTTI. In addition, the unrealized loss on equity securities is considered temporary and the Company has the intent and ability to hold equity investments until recovery, therefore these securities were not considered other-than-temporarily impaired.

At December 31, 2010 and 2009, the Company had $504.0 and $399.0 million, respectively, in investment securities being provided as collateral to the FHLB, the Federal Reserve Bank of San Francisco (the “Reserve Bank”), the State of Oregon and the State of Washington, and others for our borrowings and certain public fund deposits. At December 31, 2010 and December 31, 2009, Bancorp had no reverse repurchase agreements.

2. INVESTMENT SECURITIES (continued)

The follow table presents the maturities of the investment portfolio at December 31, 2010:

(Dollars in thousands)	Available for sale
	Amortized cost		Fair value
U.S. Treasury securities
One year or less	$	14,147	$	14,181
After one year through five years		200		211
After five through ten years		-		-
Due after ten years		-		-
Total		14,347		14,392

U.S. Government agency securities:
One year or less		-		-
After one year through five years		163,481		164,087
After five through ten years		30,420		30,143
Due after ten years		-		-
Total		193,901		194,230

Corporate securities:
One year or less		-		-
After one year through five years		500		500
After five through ten years		-		-
Due after ten years		13,999		8,892
Total		14,499		9,392

Obligations of state and political subdivisions:
One year or less		6,223		6,328
After one year through five years		11,359		11,966
After five through ten years		28,668		29,441
Due after ten years		4,861		4,910
Total		51,111		52,645

Sub-total		273,858		270,659

Mortgage-backed securities		359,965		363,618
Equity investments and other securities		11,423		11,835
Total securities	$	645,246	$	646,112

Mortgage-backed securities, including collateralized mortgage obligations and asset-backed securities, have maturities that will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

3. LOANS AND ALLOWANCE FOR CREDIT LOSSES

The following table presents the loan portfolio as of December 31, 2010 and 2009:

(Dollars in thousands)	December 31,
	2010			2009
Commercial loans	$	309,327		$	370,077
Real estate construction		44,085			99,310
Real estate mortgage		349,016			374,668
Commercial real estate		818,577			862,193
Installment and other consumer		15,265			18,594
Total loans		1,536,270			1,724,842
Allowance for loan losses		(40,217	)		(38,490	)
Total loans, net	$	1,496,053		$	1,686,352

Total loans decreased by 11% or $189 million from the balance at December 31, 2009, and the decrease reflected weak real estate markets and soft loan demand within our operating region which, on a historical basis, contributed to modest new loan origination volumes. At December 31, 2010 and 2009, Bancorp had $1.3 million and $1.2 million, respectively, of overdrafts classified as loans in the installment and other consumer loan category.

The Company has lending policies and underwriting processes in place that are designed to make loans within an acceptable level of risk for the estimated return. Management reviews and approves these policies and processes on a regular basis. Management frequently reviews reports related to loan production, loan quality, loan delinquencies and nonperforming and potential problem loans. Diversification in the loan portfolio is a means of managing risk associated with fluctuations in economic conditions.

Commercial loans are underwritten after evaluating and understanding the borrower’s ability to operate profitably and prudently execute its business. Underwriting standards are designed to promote relationship banking rather than transactional banking. The Company’s lending officers examine current and projected cash flows to determine the ability of the borrower to repay their obligations as agreed. Commercial loans are primarily made based on the identified cash flows of the borrower and secondarily on the underlying collateral provided by the borrower. The cash flows of borrowers, however, may not be as expected and the collateral securing these loans may fluctuate in value. Management monitors and evaluates commercial loans based on collateral, geography and risk rating criteria. Most commercial loans are secured by the assets being financed or other business assets such as accounts receivable or inventory and typically incorporate a personal guarantee; however, some short-term loans may be made on an unsecured basis. In the case of loans secured by accounts receivable, the availability of funds for the repayment of these loans may be substantially dependent on the ability of the borrower to collect amounts due from its customers.

Commercial real estate loans are subject to underwriting standards and processes similar to commercial loans. These loans are viewed primarily as cash flow loans and secondarily as loans secured by real estate. Commercial real estate lending typically involves higher loan principal amounts and the repayment of these loans is generally largely dependent on the successful lease-up of the property securing the loan or the business conducted on the property securing the loan. Commercial real estate loans may be more adversely affected by conditions in the real estate markets or in the general economy. Management monitors and evaluates commercial real estate loans based on collateral, geography and risk rating criteria. As a general rule, the Company avoids financing single purpose projects unless other underwriting factors are present to help mitigate risk. The Company also utilizes third parties to provide insight and guidance about economic conditions and trends affecting market areas it serves.

With respect to loans to real estate investors that are secured by non-owner occupied properties that the Company may originate from time to time, the Company generally requires the borrower to have had an existing relationship and have a proven record of positive business performance. Our residential and commercial construction portfolios are portfolios we consider to have higher risk. Construction loans are underwritten utilizing independent appraisal reviews, sensitivity analysis of absorption and lease rates financial analysis of the developers, property owners, and investors as well as on a selective basis, feasibility studies. Construction loans are generally based upon estimates of costs and value associated with the complete project. These estimates may be inaccurate. Construction loans often involve the disbursement of substantial funds with repayment substantially dependent on the success of the ultimate project. Sources of repayment for these types of loans may be pre-committed permanent loans from the Company or other approved third party long-term lenders, sales of developed property or an interim loan commitment from the Company until permanent financing is obtained. These loans are closely monitored by on-site inspections and are considered to have higher risks than other real estate loans due to their ultimate repayment being sensitive to interest rate changes, governmental regulation of real property, pre-leasing that does not materialize, general economic conditions, the availability of long-term financing, and completion of construction within timelines and costs originally set forth.

3. LOANS AND ALLOWANCE FOR CREDIT LOSSES (continued)

The Bank originates fixed and adjustable rate residential mortgages. These residential loans are typically sold on the secondary market with the servicing responsibility released by the Company. These loan sales have no recourse, however sales are subject to proper compliance with standard underwriting rules that if not met, may allow the secondary market buyer to require the Company to repurchase the note. Upon origination, these residential mortgage loans are recorded as loans held for sale until the sale has closed.

The Bank originates home equity loans and lines through an online application system in which all applications are centrally reviewed with underwriting and verifications completed by an experienced underwriter. Monthly loan portfolio reports provide home equity loan performance monitoring. Annual review of credit policies document the acceptance of policy and procedure changes as needed. Credit risk is minimized by accepting borrowers with a proven credit history, verified income sources for repayment and owner occupied properties as acceptable collateral. Portfolio balances, performance and underwriting standards can be influenced by regional economic cycles related to unemployment levels, de-leveraging by borrowers, and market values for residential properties.

The Company originates consumer loans utilizing a computer-based credit scoring analysis to supplement the underwriting process. To monitor and manage consumer loan risk, policies and procedures are developed and modified, as needed, jointly by line and staff personnel. This activity, coupled with relatively small loan amounts that are spread across many individual borrowers, minimizes risk. Additionally, trend and outlook reports are reviewed by management on a regular basis.

The Company maintains credit administration and credit review functions that are designed to help confirm our credit standards are being followed. Significant findings and periodic reports are communicated to the Chief Credit Officer and Chief Executive Officer and, in certain cases, to the Loan, Investment & Asset/Liability Committee, which is comprised of certain directors. The loan review process complements and reinforces the risk identification and assessment decisions made by lenders and credit personnel, as well as the Company’s policies and procedures.

Loans greater than 90 days past due are classified into nonaccrual status. The following table presents an age analysis of the loan portfolio as of December 31, 2010 and 2009:

(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

(Dollars in thousands)	December 31, 2009
	30 - 89 days		Greater than		Total		Current		Total
	past due		90 days past due		past due		loans		loans
Commercial	$	7,540	$	23,280	$	30,820	$	339,257	$	370,077
Real estate construction		3,462		13,284		16,746		82,564		99,310
Real estate mortgage		7,215		11,399		18,614		356,054		374,668
Commercial real estate		5,626		3,227		8,853		853,340		862,193
Installment and other consumer		59		128		187		18,407		18,594
Total	$	23,902	$	51,318	$	75,220	$	1,649,622	$	1,724,842

3. LOANS AND ALLOWANCE FOR CREDIT LOSSES (continued)

The following table presents an analysis of impaired loans as of December 31, 2010 and 2009:

(Dollars in thousands)	December 31, 2010
	Unpaid principal		Impaired loans		Impaired loans		Total impaired		Related		Average
	balance1		with no allowance		with allowance		loan balance		allowance		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

(Dollars in thousands)	December 31, 2009
	Unpaid principal		Impaired loans		Impaired loans		Total impaired		Related		Average
	balance1		with no allowance		with allowance		loan balance		allowance		balance
Commercial	$	55,150	$	35,640	$	-	$	35,640	$	-	$	38,500
Real estate construction		36,455		23,861		-		23,861		-		58,703
Real estate mortgage		31,459		23,523		-		23,523		-		28,228
Commercial real estate		16,801		15,783		-		15,783		-		8,881
Installment and other consumer		-		-		-		-		-		14
Total	$	139,865	$	98,807	$	-	$	98,807	$	-	$	134,326

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

At December 31, 2010 and 2009, Bancorp’s recorded investment in loans that were considered to be impaired was $76.7 million and $98.8 million, respectively. 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. For loans that are collateral dependent; the Company charges off the amount of impairment at the time of impairment. At December 31, 2010, a specific reserve allowance in the amount of $.6 million was established related to $15.5 million of impaired loans which were considered to be troubled debt restructurings and were on accrual status, compared to no such specific reserve allowance for impaired loans at December 31, 2009.

The average recorded investment in impaired loans for the years ended December 31, 2010, 2009 and 2008 was approximately, $78.0 million, $134.3 million and $128.6 million, respectively. For the years ended December 31, 2010, 2009 and 2008, interest income recognized on impaired loans totaled $568,000, $526,000, and $1,195,000, respectively.

At December 31, 2010, Bancorp had $57.8 million in loans classified as troubled debt restructurings of which $15.5 million was on accrual status, with the remaining $42.3 million on nonaccrual status. The $57.8 million in troubled debt restructurings were considered impaired at December 31, 2010. Troubled debt restructurings were $22.8 million at December 31, 2009, of which $11.7 million was on accrual status, with the remaining $11.1 million on nonaccrual status. The modifications granted on troubled debt restructurings were due to borrower financial difficulty and generally provide for a temporary modification of loan terms.

The following table presents nonaccrual loans by category as of December 31, 2010 and 2009:

	December 31,
(Dollars in thousands)	2010		2009
Commercial	$	13,377	$	36,211
Real estate construction		10,692		23,861
Real estate mortgage		15,491		22,351
Commercial real estate		21,671		16,778
Installment and other consumer		-		144
Total loans on nonaccrual status	$	61,231	$	99,345

Loans on which the accrual of interest has been discontinued were approximately $61.2 million, $99.3 million and $127.6 million at December 31, 2010, 2009, and 2008, respectively. Interest income foregone on nonaccrual loans was approximately $6.5 million, $10.7 million and $13.6 million in 2010, 2009, and 2008, respectively.

3. LOANS AND ALLOWANCE FOR CREDIT LOSSES (continued)

The Company uses a risk rating matrix to assign a risk rating to loans not evaluated on a homogenous pool level. At December 31, 2010, $1.10 billion of loans were risk rated and $439.4 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.

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, 2009 to December 31, 2010. Overall classified loans have decreased, both in total and as a percentage of the loan portfolio. Total commercial real estate classified loans increased during 2010, as this portfolio typically is challenged in the latter part of a weak economic period.

(Dollars in thousands)	December 31, 2010				December 31, 2009
	Weighted average		Classified		Weighted average		Classified
	risk rating		loans		risk rating		loans
Commercial		5.89	$	32,895		5.92	$	50,517
Real estate construction		7.33		24,131		7.18		38,337
Real estate mortgage		6.34		20,913		6.70		15,090
Commercial real estate		5.75		42,045		5.54		32,627
Installment and other consumer1		7.41		137		-		-
Total			$	120,121			$	136,571

Total loans risk graded	$	1,096,859			$	1,197,263

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

3. LOANS AND ALLOWANCE FOR CREDIT LOSSES (continued)

The following table presents loans by category that the credit risk is evaluated on a portfolio basis including our home equity lines of credit and certain small business loans. Important credit quality metrics for this portfolio include nonaccrual and past due status. Total loans evaluated on a homogeneous pool basis were $439.4 million and $527.6 million at December 31, 2010 and 2009, respectively.

(Dollars in thousands)	December 31, 2010						December 31, 2009
	Current		Nonaccrual		30 - 89 days		Current		Nonaccrual		30 - 89 days
	status		status		past due		status		status		past due
Commercial	$	54,217	$	245	$	7	$	57,635	$	582	$	29
Real estate construction		-		1,136		-		2,787		2,420		-
Real estate mortgage		269,862		4,958		1,931		318,176		14,540		1,102
Commercial real estate		90,782		1,334		8		110,557		989		167
Installment and other consumer		14,878		-		52		18,391		144		59
Total	$	429,739	$	7,673	$	1,998	$	507,546	$	18,675	$	1,357

The allowance for credit losses is a reserve established through a provision for credit losses charged to expense, which represents management’s best estimate as of the balance sheet date, of probable losses that have been incurred within the existing loan portfolio. The allowance for credit losses is based on historical loss experience by type of credit and internal risk rating, specific homogeneous risk pools and specific loss allocations, with adjustments for current events and conditions. The Company’s process for determining the appropriate amount of the allowance for credit losses is designed to account for credit deterioration as it occurs. The provision for credit losses is reflective of loan quality trends, and considers trends related to nonaccrual loans, past due loans, potential problem loans, criticized loans and net charge-offs or recoveries, among other factors. The provision for credit losses also reflects the totality of actions taken on all loans for a particular period.

The allowance for credit losses reflects management’s continuing evaluation of industry concentrations, specific credit risks, loan loss experience, current loan portfolio quality, present economic, political and regulatory conditions and unidentified losses inherent in the current loan portfolio. Portions of the allowance may be allocated for specific loans; however, the entire allowance is available for any loan that, in management’s judgment, should be charged off. While management utilizes its best judgment and information available, the ultimate adequacy of the allowance is dependent upon a variety of factors beyond the Company’s control, including, among other things, the performance of the overall loan portfolio, the economy, changes in interest rates and the view of the regulatory authorities toward loan classifications.

The Company’s allowance for loan losses consists of three key elements: specific reserve allowances, formula allowance, and an unallocated allowance that represents an amount to capture risk associated with qualitative factors and uncertainty that is inherent in estimates used to determine the allowance.

Specific reserve allowances may be established when management can estimate the amount of an impairment of a loan, typically on a non real estate collateralized loan or to address the unique risks associated with a group of loans or particular type of credit exposure. The Company does not establish specific reserve allowances on collateral dependent impaired loans. Impairment on these loans is charged off to the allowance for credit losses when impairment is established.

The formula allowance is calculated by applying loss factors to individual loans based on the assignment of risk ratings, or through the assignment of loss factors to homogenous pools of loans. Changes in risk ratings of both performing and nonperforming loans affect the amount of the formula allowance. Loss factors are based on our historical loss experience and such other data as management believes to be pertinent, and may be adjusted for significant factors that, in management’s judgment, affect the collectability of the portfolio as of the evaluation date. At December 31, 2010 and 2009, the allowance for loan losses was $40.2 million and $38.5 million, respectively, while the reserve for unfunded commitments was $.8 million and $.9 million, respectively.

The unallocated loan loss allowance represents an amount for imprecision or uncertainty that is inherent in estimates used to determine the allowance. In determining whether to carry an unallocated allowance and, if so, the amount of the allowance, management considers a variety of qualitative factors, including regional economic and business conditions that impact important categories of our portfolio, loan growth rates, the depth and skill of lending staff, the interest rate environment, and the results of bank regulatory examinations and findings of our internal credit examiners. Currently, we have an unallocated allowance for loan losses that is the result of our judgment about risks inherent in the loan portfolio due to economic uncertainties, as well as our evaluation of historical loss experience relative to current trends, and other subjective factors. The current level of unallocated reserves is high by historical standards; however, the Company believes higher levels of unallocated reserves are appropriate given downward pressure on real estate values and higher levels of uncertainty associated with strained economic conditions.

3. LOANS AND ALLOWANCE FOR CREDIT LOSSES (continued)

The following is an analysis of the changes in the allowance for credit losses:

(Dollars in thousands)	Year Ended December 31,
	2010			2009			2008
Balance, beginning of period	$	39,418		$	29,934		$	54,903
Provision for credit losses		18,652			90,057			40,367
Losses charged to the allowance		(19,476	)		(82,345	)		(68,255	)
Recoveries credited to the allowance		2,473			1,772			2,919
Balance, end of period	$	41,067		$	39,418		$	29,934

Components of allowance for credit losses
Allowance for loan losses	$	40,217		$	38,490		$	28,920
Reserve for unfunded commitments		850			928			1,014
Total allowance for credit losses	$	41,067		$	39,418		$	29,934

The reduced provision for credit losses of $18.7 million for 2010, as compared to $90.1 million for 2009, was largely due to a slowdown in the unfavorable risk rating migration within the loan portfolio, lower loan net charge-offs, and, to a lesser extent, the release of reserves as certain loans moved from being included in the general valuation allowance to being individually measured for impairment. The provision for credit losses of $90.1 million for 2009 increased $49.7 million as compared to $40.4 million in 2008, primarily caused by negative risk rating changes within the loan portfolio and higher net charge-offs in our loan portfolio.

The following table presents summary account activity of the allowance for credit losses by loan category as of December 31, 2010 and 2009:

(Dollars in thousands)	December 31, 2010
				Real estate			Real estate			Commercial			Installment and
	Commercial			construction			mortgage			real estate			other consumer			Unallocated		Total
Balance, beginning of period	$	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
Balance, end of period	$	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

(Dollars in thousands)	December 31, 2009
				Real estate			Real estate			Commercial			Installment and
	Commercial			construction			mortgage			real estate			other consumer			Unallocated		Total
Balance, beginning of period	$	7,221		$	7,875		$	5,002		$	6,552		$	1,341		$	1,943	$	29,934
Provision for credit losses		22,409			34,656			20,244			8,171			1,563			3,014		90,057
Losses charged to the allowance		(22,411	)		(35,576	)		(17,082	)		(5,382	)		(1,894	)		-		(82,345	)
Recoveries credited to the allowance		1,005			285			47			151			284			-		1,772
Balance, end of period	$	8,224		$	7,240		$	8,211		$	9,492		$	1,294		$	4,957	$	39,418

Loans valued for impairment:
Individually	$	35,640		$	23,861		$	23,523		$	15,783		$	-		$	-	$	98,807
Collectively		334,437			75,449			351,145			846,410			18,594			-		1,626,035
Total	$	370,077		$	99,310		$	374,668		$	862,193		$	18,594		$	-	$	1,724,842

4. PREMISES AND EQUIPMENT

Premises and equipment consists of the following:

(Dollars in thousands)	December 31,
	2010			2009
Land	$	4,439		$	4,439
Buildings and improvements		31,002			30,832
Furniture and equipment		28,917			28,147
Construction in progress		398			370
		64,756			63,788
Accumulated depreciation		(37,982	)		(35,312	)
Total	$	26,774		$	28,476

Depreciation included in occupancy and equipment expense amounted to $3.8 million, $5.9 million, and $4.7 million for the years ended December 31, 2010, 2009, and 2008, respectively. Depreciation for all premises and equipment is calculated using the straight-line method. The Company periodically reviews the recorded value of its long-lived assets, specifically premises and equipment, to determine whether impairment exists. No impairments were recorded during 2010, 2009, or 2008.

5. GOODWILL AND INTANGIBLE ASSETS

The following table summarizes the changes in Bancorp’s goodwill and core deposit intangible asset for the periods shown:

(Dollars in thousands)				Core deposit
	Goodwill			intangible
Balance, January 1, 2009	$	13,059		$	995
Amortization		-			(358	)
Impairment		(13,059	)		-
Balance, December 31, 2009	$	-		$	637
Amortization		-			(279	)
Balance, December 31, 2010	$	-		$	358

The goodwill impairment analysis requires management to make judgments in determining if an indicator of impairment has occurred and involves a two-step process. The first step was a comparison of the Bank’s fair value to its carrying value. We estimated fair value using a combination of quoted market price and an estimate of a control premium. The results of the analysis concluded that the estimated fair value of the Company’s Bank reporting unit was less than its book value and the carrying amount of the Company’s Bank reporting unit goodwill exceeded its implied fair value. Therefore, the Company failed step one and moved to the second step which required allocation of the fair value to all of the assets and liabilities of the reporting unit, including any unrecognized intangible assets, in a hypothetical analysis that would calculate the implied fair value of goodwill.

At March 31, 2009, based on management’s analysis and continued deteriorating economic conditions and the length of time and amount by which the Company’s book value per share had exceeded its market value per share, the Company determined the Company’s Bank reporting unit goodwill exceeded its implied fair value at March 31, 2009 and it was appropriate to write off the entire $13.1 million of goodwill related to its acquisition of Mid-Valley Bank in June 2006.

The following table presents the forecasted core deposit intangible asset amortization expense for 2011 through 2013:

(Dollars in thousands)	Full year
	expected
Year	amortization
2011	$	199
2012		119
2013		40

6. OTHER REAL ESTATE OWNED, NET

The following table summarizes Bancorp’s OREO for the years ended December 31, 2010 and 2009:

(Dollars in thousands)	December 31,
	2010			2009
Balance, beginning period	$	53,594		$	70,110
Additions to OREO		28,384			79,107
Disposition of OREO		(35,870	)		(77,061	)
Valuation adjustments in the period		(6,649	)		(18,562	)
Total OREO	$	39,459		$	53,594

The following table summarizes Bancorp’s OREO valuation allowance for the years ended December 31, 2010 and 2009:

(Dollars in thousands)	December 31,
	2010			2009
Balance, beginning period	$	9,489		$	3,920
Valuation adjustments in the period		6,649			18,562
Deductions from the valuation allowance due to disposition		(8,554	)		(12,993	)
Total OREO valuation allowance	$	7,584		$	9,489

7. OTHER ASSETS

The following table summarizes Bancorp’s other assets for the years ended December 31, 2010 and 2009:

(Dollars in thousands)	December 31,
	2010		2009
Deferred tax assets, net	$	5,789	$	3,249
Accrued interest receivable		9,522		10,415
Investment in affordable housing tax credits		3,915		4,833
Income taxes receivable		-		31,493
Other		13,715		10,652
Total other assets	$	32,941	$	60,642

Bancorp has invested in two limited partnerships that operate qualified affordable housing properties. Tax credits and tax deductions from operating losses are passed through the partnerships to Bancorp. The Company accounts for these investments using the equity method.

8. BALANCES WITH THE FEDERAL RESERVE BANK

The Bank is required to maintain cash reserves or deposits with the Federal Reserve Bank equal to a percentage of reservable deposits. The average required reserves for the Bank were $6.5 million and $6.1 million during the years ended December 31, 2010 and 2009, respectively.

9. BORROWINGS

The following table summarizes Bancorp’s borrowings for the years ended December 31, 2010 and 2009:

(Dollars in thousands)	December 31,
	2010		2009
Short-term borrowings:
FHLB advances	$	-	$	12,600
Long-term borrowings:
FHLB non-putable advances		138,599		220,699
FHLB putable advances		30,000		30,000
Total long-term borrowings		168,599		250,699
Total borrowings	$	168,599	$	263,299

FHLB advances are collateralized, as provided for in an “Advances, Security and Deposit Agreement” with the FHLB, by investment securities and qualifying loans. This advance agreement requires FHLB prior consent to utilize available credit. At December 31, 2010, the Company had additional borrowing capacity available at the FHLB of $504.4 million based on pledged collateral.

Long-term borrowings at December 31, 2010, consisted of notes with fixed maturities (non-putable) and putable advances with the FHLB totaling $168.6 million. Total long-term borrowings with fixed maturities were $138.6 million, with rates ranging from 2.32% to 5.03%. Bancorp had three putable advances totaling $30.0 million, with original terms of five years at rates ranging from 2.45% to 3.78%. The scheduled maturities on these putable advances occur in February 2013, August 2013, and March 2014, although the FHLB may under certain circumstances require repayment of these putable advances prior to maturity. Principal payments due at scheduled maturity of Bancorp’s long-term borrowings at December 31, 2010, were $50.1 million in 2012, $76.3 million in 2013, and $42.2 million in 2014.

Long-term borrowings at December 31, 2009 consisted of notes with fixed maturities and putable advances with the FHLB totaling $250.7 million. Total long-term borrowings with fixed maturities were $220.7 million. Bancorp had three putable advances totaling $30.0 million with original terms of five years, and final maturities in February 2013, August 2013, and March 2014. The FHLB may under certain circumstances require repayment of these putable advances prior to their scheduled maturities.

Bancorp had no outstanding Federal Funds purchased from correspondent banks, borrowings from the discount window, or reverse repurchase agreements at December 31, 2010 and 2009.

10. JUNIOR SUBORDINATED DEBENTURES

At December 31, 2010, six wholly-owned subsidiary grantor trusts established by Bancorp had issued and sold $51 million of trust preferred securities. Trust preferred securities accrue and pay distributions periodically at specified annual rates as provided in each indenture. The trusts used all of the net proceeds from each sale of trust preferred securities to purchase a like amount of junior subordinated debentures of the Company. The junior subordinated debentures are the sole assets of the trusts. The Company’s obligations under the junior subordinated debentures and related documents, taken together, constitute a full and unconditional guarantee by the Company of the obligations of the trusts. The trust preferred securities are mandatorily redeemable upon the maturity of the junior subordinated debentures and may be subject to earlier redemption by the Company as provided in the indentures. The Company has the right to redeem the junior subordinated debentures in whole (but not in part) on or after specific dates, at a redemption price specified in the indentures plus any accrued but unpaid interest to the redemption date. During the third quarter 2009, the Company exercised its right to defer regularly scheduled interest payments on junior subordinated debentures related to its trust preferred securities. At December 31, 2010, the Company had a balance in other liabilities of $1.8 million in accrued and unpaid interest expense related to these junior subordinated debentures, and it may not pay dividends on its capital stock until all accrued but unpaid interest has been paid in full.

The following table is a summary of outstanding trust preferred securities at December 31, 2010:

(Dollars in thousands)

Preferred security

Rate at

Next possible

Issuance Trust

Issuance date

amount

Rate type 1

Initial rate

12/31/10

Maturity date

redemption date 2

West Coast Statutory Trust III

September 2003

7,500

Variable

6.75%

3.25%

September 2033

Currently redeemable

West Coast Statutory Trust IV

March 2004

6,000

Variable

5.88%

3.09%

March 2034

Currently redeemable

West Coast Statutory Trust V

April 2006

15,000

Variable

6.79%

1.73%

June 2036

June 2011

West Coast Statutory Trust VI

December 2006

5,000

Variable

7.04%

1.98%

December 2036

December 2011

West Coast Statutory Trust VII

March 2007

12,500

Variable

6.90%

1.85%

March 2037

March 2012

West Coast Statutory Trust VIII

June 2007

5,000

Variable

6.74%

1.68%

June 2037

June 2012

Total

51,000

Weighted rate

2.16%

1 The variable rate preferred securities reprice quarterly.

2 Securities are redeemable at the option of Bancorp following these dates.

The interest rates on the trust preferred securities reset quarterly and are tied to the London Interbank Offered Rate (“LIBOR”) rate.

The junior subordinated debentures issued by Bancorp to the grantor trust are reflected in our consolidated balance sheet in the liabilities section at December 31, 2010 and 2009, as junior subordinated debentures. Bancorp records interest expense on the corresponding junior subordinated debentures in the consolidated statements of income (loss). The common capital securities issued by the trusts are recorded within other assets in the consolidated balance sheets, and totaled $1.6 million at December 31, 2010 and 2009.

11. EMPLOYEE BENEFIT PLANS

Bancorp employee benefits include a plan established under section 401(k) of the Internal Revenue Code for certain qualified employees (the “401(k) plan”). Employee contributions up to 100 percent of salaries under the Internal Revenue Code guidelines can be made under the 401(k) plan, of which Bancorp may match 50 percent of the employees’ contributions up to a maximum of three percent of the employees’ eligible compensation. Bancorp may also elect to make discretionary contributions to the plan. In 2010, Bancorp made a qualified non-elective contribution in the amount of $100 per full-time employee, excluding certain executive officers, prorated for part time employees and with immediate vesting. Bancorp’s 401(k) related discretionary contributions expenses for 2010, 2009, and 2008 were $.1 million, $0, and $0, respectively. Employees vest immediately in their own contributions and earnings, and vest in Bancorp’s contributions over five years of eligible service. Bancorp had no 401(k) plan related expenses in 2010, 2009 and 2008 related to the Company’s 401(k) plan match.

Bancorp provides separate non-qualified deferred compensation plans for directors and executive officers (collectively, “Deferred Compensation Plans”) as supplemental benefit plans which permit directors and selected officers to elect to defer receipt of all or any portion of their future salary, bonus or directors’ fees, including with respect to officers, amounts they otherwise might not be able to defer under the 401(k) plan due to specified Internal Revenue Code restrictions on the maximum deferral that may be allowed under that plan. Under the Deferred Compensation Plans, an amount equal to compensation being deferred by participants is placed in a rabbi trust, the assets of which are available to Bancorp’s creditors and recorded as trading securities in our consolidated balance sheets, and invested consistent with the participants’ direction among a variety of investment alternatives. A deferred compensation liability of $1.6 million was included in other liabilities as of December 31, 2010, compared to $1.5 million at December 31, 2009.

Bancorp has multiple supplemental executive retirement agreements with former and current executives. The following table reconciles the accumulated liability for the benefit obligation of these agreements:

(Dollars in thousands)	Year ended December 31,
	2010			2009
Beginning balance	$	2,514		$	2,356
Benefit expense		209			281
Benefit payments		(105	)		(123	)
Ending balance	$	2,618		$	2,514

Bancorp’s obligations under supplemental executive retirement agreements are unfunded plans and have no plan assets. The benefit obligation represents the vested net present value of future payments to individuals under the agreements. Bancorp’s benefit expense, as specified in the agreements for the entire year 2011, is expected to be $.2 million. The benefits expected to be paid are presented in the following table:

(Dollars in thousands)	Benefits expected to
Year	be paid
2011	$	213
2012		206
2013		207
2014		208
2015		208
2016 through 2020		1,055

12. COMMITMENTS AND CONTINGENT LIABILITIES

The Company leases land and office space under 49 leases, of which 46 are long-term operating leases that expire between 2011 and 2024. At the end of most of the respective lease terms, Bancorp has the option to renew the leases at fair market value. At December 31, 2010, minimum future lease payments under these leases and other operating leases were:

(Dollars in thousands)	Minimum Future
Year	Lease Payments
2011	$	3,937
2012		3,960
2013		3,891
2014		3,578
2015		2,942
Thereafter		10,237
Total	$	28,545

Rental expense for all operating leases was $4.2 million, $4.2 million, and $4.1 million for the years ended December 31, 2010, 2009, and 2008, respectively.

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.

13. STOCKHOLDERS’ EQUITY AND REGULATORY CAPITAL

On January 20, 2010, the Company’s shareholders approved (i) an amendment of Bancorp's Restated Articles of Incorporation to increase the number of authorized shares of Common Stock to 250,000,000 and correspondingly to increase the total number of authorized shares of all classes of stock from 60,000,000 to 260,000,000, and (ii) conversion of the outstanding Preferred Stock into Common Stock as required by the rules of The Nasdaq Stock Market. At December 31, 2010, Bancorp had issued and outstanding 96,430,613 shares of Common Stock and 121,328 shares of Series B Preferred Stock.

Authorized capital stock of Bancorp at December 31, 2009, included 50,000,000 shares of Common Stock, no par value, and 10,000,000 shares of Preferred Stock, no par value, of which 2,000,000 shares had been designated as Mandatorily Convertible Cumulative Participating Preferred Stock, Series A (“Series A Preferred Stock”) and 600,000 shares had been designated as Mandatorily Convertible Cumulative Participating Preferred Stock, Series B (“Series B Preferred Stock”).

Preferred Stock. Following the receipt of shareholder approvals on January 20, 2010, 1,428,849 shares of Series A Preferred Stock issued in connection with Bancorp's private capital raise and outstanding at December 31, 2009, automatically converted into an aggregate of 71,442,450 shares of Common Stock. There are no shares of Series A Preferred Stock currently outstanding.

Bancorp also issued an aggregate of 121,328 shares of Series B Preferred Stock in the private capital raise all of which remains outstanding. These shares will automatically convert into an aggregate of 6,066,400 shares of Common Stock upon transfer of the Series B Preferred Stock to third parties in a widely dispersed offering.

The Series B Preferred Stock is not subject to the operation of a sinking fund and has no participation rights. The Series B Preferred Stock is not redeemable by the Company and is perpetual with no maturity. The holders of Series B Preferred Stock have no general voting rights. If the Board of Directors declares and pays a dividend in respect of Common Stock, it must declare and pay to the holders of the Series B Preferred Stock on the same date a dividend in an amount per share of the Series B Preferred Stock determined in accordance with the Restated Articles of Incorporation that is intended to provide such holders dividends in the amount they would have received if shares of Series B Preferred Stock had been converted into Common Stock as of that date. There are no accrued dividends or dividends in arrears on Series B Preferred Stock at December 31, 2010.

Warrants to purchase Series B Preferred Stock. Also in October 2009 as part of the private capital raise, Bancorp issued Class C Warrants to purchase an aggregate of 240,000 shares of Series B Preferred Stock at an exercise price of $100.00 per share. The Warrants were immediately exercisable and will expire on October 23, 2016. Shares of Series B Preferred Stock issuable upon exercise of the Warrants will automatically convert into an aggregate of 12.0 million shares of Common Stock upon transfer of the Series B Preferred Stock to third parties in a widely dispersed offering. The Company allocated the proceeds of $21.1 million from the issuance of the Series B Preferred Stock and Warrants between the two based on their relative fair values. The fair value allocated to the warrants was $11.1 million.

The Company maintains a stock repurchase plan. Under the Company’s stock repurchase plan, the Company can purchase up to 4.88 million shares of the Company’s Common Stock. The Company did not repurchase any shares in 2010 nor does it anticipate repurchasing any shares in the foreseeable future. Total shares available for repurchase under this plan are 1,052,000 at December 31, 2010.

13. STOCKHOLDERS’ EQUITY AND REGULATORY CAPITAL (continued)

Regulatory Capital. The Federal Reserve and Federal Deposit Insurance Corporation (“FDIC”) have established minimum requirements for capital adequacy for bank holding companies and nonmember banks. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, Bancorp and the Bank must meet specific capital guidelines that involve quantitative measures of assets, liabilities and certain off balance sheet items. The Federal Reserve and FDIC risk based capital guidelines require banks and bank holding companies to have a ratio of Tier 1 capital to total risk weighted assets of at least 4%, and a ratio of total capital to total risk weighted assets of 8% or greater. In addition, the leverage ratio of Tier 1 capital to total average assets less intangibles is required to be at least 4%. Bancorp and its bank subsidiary’s capital components, classification, risk weightings and other factors are also subject to qualitative judgments by regulators. Failure to meet minimum capital requirements can initiate certain action by regulators that, if undertaken, could have a material effect on Bancorp’s financial statements.

Bancorp’s total risk-based capital ratio improved to 18.74% at December 31, 2010, up from 9.13% at December 31, 2009, while Bancorp's Tier 1 risk-based capital ratio increased to 17.47% at current year end, from 7.17% at year end 2009. Bancorp’s capital ratios improved over year end 2009 principally as a result of the mandatory conversion of Series A preferred stock issued in the Company's October 2009 private capital raise into 71.4 million common shares following receipt of shareholder approval. The $9.4 million in net proceeds from the rights offering completed during first quarter 2010, $7.0 million in net proceeds from issuance under our discretionary equity issuance program that was terminated August 6, 2010, and a reduction in the Company’s risk weighted assets over the past 12 months also contributed to improved capital ratios at Bancorp.

The following table presents the capital measures of Bancorp and the Bank as of December 31, 2010 and 2009:

	2010								2009
					Amount		Percent						Amount		Percent
					Required For		required for						Required For		required for
					Minimum		Minimum						Minimum		Minimum
(Dollars in thousands)					Capital		Capital						Capital		Capital
	Amount		Ratio		Adequacy		Adequacy		Amount		Ratio		Adequacy		Adequacy
Tier 1 risk-based capital
West Coast Bancorp	$	322,648	17.47	%	$	73,859	4	%	$	147,153	7.17	%	$	82,047	4	%
West Coast Bank		309,578	16.79	%		73,765	4	%		289,236	14.11	%		81,894	4	%

Total risk-based capital
West Coast Bancorp	$	345,951	18.74	%	$	147,718	8	%	$	187,359	9.13	%	$	164,094	8	%
West Coast Bank		332,852	18.05	%		147,530	8	%		315,027	15.37	%		163,969	8	%

Leverage ratio
West Coast Bancorp	$	322,648	13.02	%	$	99,088	4	%	$	147,153	5.37	%	$	109,635	4	%
West Coast Bank		309,578	12.51	%		98,975	4	%		289,236	10.57	%		109,454	4	%

14. STOCK PLANS

At December 31, 2010, Bancorp maintained two stock plans; the 2002 Stock Incentive Plan (“2002 Plan”) and the 1999 Stock Option Plan (“1999 Plan”). No additional grants may be made under the 1999 Plan. The 2002 Plan, which is shareholder approved, permits the grant of stock options, restricted stock and certain other stock based awards. 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 over a one year period or immediately, including grants to directors. On April 27, 2010, shareholders approved a 2.0 million share increase in the shares available under the 2002 Plan. The 2002 Plan permits the grant of stock options and restricted stock awards for up to 4.1 million shares, of which 488,116 shares remained available for issuance as of December 31, 2010.

All stock options granted have an exercise price that is equal to the closing fair 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 ten-year maximum term. Options previously issued under the 1999 or prior plans are fully vested. It is Bancorp’s policy to issue new shares for stock option exercises and restricted stock. Bancorp expenses stock options and restricted stock on a straight line basis over the related vesting term.

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

			2010				2009				2008
			Weighted				Weighted				Weighted
	2010 Common		Avg. Ex.		2009 Common		Avg. Ex.		2008 Common		Avg. Ex.
	Shares		Price		Shares		Price		Shares		Price
Balance, beginning of year	1,746,752		$	13.08	1,407,515		$	16.41	1,311,585		$	16.97
Granted	950			2.63	421,900			2.31	178,000			12.73
Exercised	(1,525	)		2.31	-			-	(2,622	)		9.46
Forfeited/expired	(213,543	)		10.96	(82,663	)		14.90	(79,448	)		17.56
Balance, end of year	1,532,634		$	13.38	1,746,752		$	13.08	1,407,515		$	16.41
Exercisable, end of year	1,293,978				1,245,135				1,150,201

The average fair value of stock options granted is estimated on the date of grant using the Black-Scholes option-pricing model. There were no non-qualified director stock options granted in 2010. The following table presents the assumptions used in the fair value calculation:

	Non-Qualified
	Director Options						Employee Options
	2009			2008			2010			2009			2008
Risk Free interest rates		1.64	%		2.75	%		1.43	%		1.64	%		2.75%-3.52		%
Expected dividend		1.22	%		3.60	%		0.00	%		0%-1.22	%		3.60%-4.18		%
Expected lives, in years		4			4			4			4			4
Expected volatility		37	%		27	%		38	%		37	%		27		%
Fair value of options granted	$	0.65		$	2.20		$	0.83		$	0.65		$		2.20

As of December 31, 2010, outstanding stock options consist of the following:

						Weighted Avg.
					Options	Remaining Time to		Weighted Avg.			Weighted Avg.
	Exercise Price Range				Outstanding	Maturity		Exercise Price		Options Exercisable	Exercise Price
$	2.31	-	$	8.56	406,625	$	8.25	$	2.33	242,700	$	2.34
	8.56	-		12.75	332,780		3.75		11.49	260,736		11.15
	12.75	-		20.64	504,870		2.62		17.11	504,870		17.11
	20.64	-		34.13	288,359		4.27		24.59	285,672		24.52
Total					1,532,634	$	4.67	$	13.38	1,293,978	$	14.78

14. STOCK PLANS (continued)

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

(Dollars in thousands, except share and per share data)	Year ended December 31,
	2010		2009		2008
Intrinsic value of options exercised in the period	$	-	$	-	$	6

Stock options fully vested and expected to vest:
Number		1,494,590		1,704,448		1,375,273
Weighted average exercise price	$	13.38	$	13.08	$	16.10
Aggregate intrinsic value	$	190	$	-	$	-
Weighted average contractual term of options		4.7 years		5.5 years		4.7 years

Stock options vested and currently exercisable
Number		1,293,978		1,245,135		1,150,201
Weighted average exercise price	$	14.78	$	15.71	$	16.09
Aggregate intrinsic value	$	123	$	-	$	-
Weighted average contractual term of options		4.1 years		4.0 years		3.9 years

Bancorp grants restricted stock periodically as a part of the 2002 Plan for the benefit of employees and directors. Restricted stock grants are made at the discretion of the Board of Directors, except with regard to grants to certain Company officers, which are made at the discretion of the Board’s Compensation & Personnel Committee. Compensation expense for restricted stock is based on the market price of the Company stock at the date of the grant and amortized on a straight-line basis over the vesting period which is currently one, three or four years for all grants. Recipients of restricted stock do not pay any cash consideration to the Company for the shares, have the right to vote all shares subject to such grant and receive all dividends with respect to such shares, whether or not the shares have vested, except in the case of performance awards granted in 2008 for which dividends are collected and will be forfeited if performance conditions are not met. Restrictions are generally based upon continuous service, except that performance awards vest based on achievement of performance targets based on the Company’s stock price.

Restricted stock consists of the following for the years ended December 31, 2010, 2009 and 2008:

			Weighted				Weighted				Weighted
			Avg. Grant				Avg. Grant				Avg. Grant
	2010 Restricted		Date Fair		2009 Restricted		Date Fair		2008 Restricted		Date Fair
	Shares		Value		Shares		Value		Shares		Value
Balance, beginning of year	136,680		$	17.06	210,768		$	18.41	148,317		$	27.97
Granted	1,612,808			3.24	-			-	127,900			11.48
Vested	(66,709	)		16.90	(71,183	)		20.85	(59,949	)		26.53
Forfeited	(45,797	)		4.67	(2,905	)		22.44	(5,500	)		26.26
Balance, end of year	1,636,982		$	3.80	136,680		$	17.06	210,768		$	18.41

Weighted avg. remaining
recognition period	3.03 years				1.29 years				1.40 years

The following table presents stock-based compensation expense for employees and directors related to restricted stock and stock options for the periods shown:

	Twelve months ended December 31,
(Dollars in thousands)	2010		2009		2008
Restricted stock expense	$	1,883	$	1,106	$	2,301
Stock option expense		205		414		564
Total stock-based compensation expense	$	2,088	$	1,520	$	2,865

Tax benefit recognized on share-based expense	$	793	$	578	$	1,089

The balance of unearned compensation related to unvested restricted stock granted as of December 31, 2010 and 2009 was $4.5 million and $1.2 million, respectively. The December 31, 2010 unearned compensation balance is expected to be recognized over a weighted average period of 3.0 years. The Company received cash in the amount of $3,523 and $0 from stock option exercises for the twelve months ended December 31, 2010 and 2009, respectively. The Company had no tax benefits from disqualifying dispositions involving incentive stock options, the exercise of non-qualified stock options, and the vesting and release of restricted stock for the twelve months ended December 31, 2010 and 2009.

15. COMPREHENSIVE INCOME (LOSS)

The following table displays the components of other comprehensive income (loss) for the last three years:

(Dollars in thousands)	Year ended December 31,
	2010			2009			2008
Net income (loss) as reported	$	3,225		$	(91,213	)	$	(6,313	)

Unrealized holding gains (losses) on securities:
Unrealized holding gains (losses) arising during the year		4,766			4,082			(7,480	)
Tax (provision) benefit		(1,888	)		(1,538	)		2,891
Unrealized holding gains (losses) arising during the year, net of tax		2,878			2,544			(4,589	)

Less: Reclassification adjustment for impairment and
(gains) losses on sales of securities		(1,562	)		(641	)		5,558
Tax provision (benefit)		609			246			(2,136	)
Net realized (gains) losses, net of tax		(953	)		(395	)		3,422

Total comprehensive income (loss)	$	5,150		$	(89,064	)	$	(7,480	)

16. EARNINGS (LOSS) PER SHARE

The following tables reconcile the numerator and denominator of the basic and diluted earnings (loss) per share computations:

(Dollars and shares in thousands, except per share amounts)	Year ended December 31,
	2010		2009			2008
Net income (loss)	$	3,225	$	(91,213	)	$	(6,313	)
Less: Net income (loss) allocated to participating securities-basic:
Preferred stock		367		-			-
Non-vested restricted stock		37		(728	)		(44	)
Net income (loss) available to common stock holders-basic		2,821		(90,485	)		(6,269	)
Add: Net income (loss) allocated per two-class method-diluted:
Stock options and Class C warrants		12		-			-
Net income (loss) available to common stockholders-diluted	$	2,833	$	(90,485	)	$	(6,269	)

Weighted average common shares outstanding-basic		87,300		15,510			15,472
Common stock equivalents from:
Stock options		29		-			-
Class C Warrants		2,966		-			-
Weighted average common shares outstanding-diluted		90,295		15,510			15,472

Basic earnings (loss) per share	$	0.03	$	(5.83	)	$	(0.41	)
Diluted earnings (loss) per share	$	0.03	$	(5.83	)	$	(0.41	)

Common stock equivalent shares excluded due to anti-dilutive effect		2,203		1,883			60

17. INCOME TAXES

The components of the provision (benefit) for income taxes for the last three years were:

(Dollars in thousands)	Year ended December 31,
	2010			2009			2008
Current
Federal	$	6,230		$	(24,220	)	$	(9,717	)
State		100			(6,982	)		(1,692	)
		6,330			(31,202	)		(11,409	)
Deferred
Federal		(2,483	)		10,335			3,302
State		(57	)		1,591			509
		(2,540	)		11,926			3,811
Total
Federal		3,747			(13,885	)		(6,415	)
State		43			(5,391	)		(1,183	)
Total provision (benefit) for income taxes	$	3,790		$	(19,276	)	$	(7,598	)

The deferred Federal and State tax expense includes a change in the deferred tax asset valuation allowance of $2.5 million and $21.0 million for the years ended December 31, 2010 and 2009, respectively.

The reconciliation between the Company’s effective tax rate on income (loss) and the statutory rate is as follows:

(Dollars in thousands)	Year ended December 31,
	2010			2009			2008
Expected federal income tax (benefit) provision 1	$	2,385		$	(38,671	)	$	(4,730	)
State income tax, net of federal income tax effect		66			(3,504	)		(769	)
Interest on obligations of state and political subdivisions
exempt from federal tax		(901	)		(1,148	)		(1,302	)
Federal low income housing tax credits		(427	)		(972	)		(880	)
Bank owned life insurance		(302	)		(307	)		(309	)
Stock options		70			123			177
Goodwill impairment		-			4,570			-
Change in deferred tax asset valuation allowance		2,465			20,999			-
Other, net		434			(366	)		215
Total (benefit) provision for income taxes	$	3,790		$	(19,276	)	$	(7,598	)

1 Federal income tax provision applied at 34% in 2010 and 2008 and 35% in 2009.

17. INCOME TAXES (continued)

Net deferred taxes are included in other assets on the Company’s balance sheet. The tax effect of temporary differences that give rise to significant components of deferred tax assets and deferred tax liabilities as of December 31, 2010 and 2009 are presented below:

(Dollars in thousands)	December 31,
	2010			2009
Deferred tax assets:
Allowance for loan losses	$	15,455		$	14,792
Reserve for unfunded commitments		327			357
Net unrealized loss on investments
available for sale		-			952
Deferred employee benefits		1,768			1,484
Stock option and restricted stock		973			682
Valuation allowance on OREO		2,914			3,647
Capitalized OREO expenses		988			889
Taxable interest on nonaccrual loans		2,207			-
State net operating loss carryforwards		3,195			3,630
State business energy and low income housing tax credits		631			477
Federal low income housing tax credits		2,313			972
Other		3,514			1,041
Total gross deferred tax assets		34,285			28,923

Deferred tax liabilities:
Accumulated depreciation		868			582
Net unrealized gain on investments available for sale		327			-
Loan origination costs		1,645			1,807
Federal Home Loan Bank stock dividends		1,893			1,893
Intangible assets		138			193
Other		161			200
Total gross deferred tax liabilities		5,032			4,675
Net deferred tax assets before valuation allowance		29,253			24,248
Deferred tax asset valuation allowance		(23,464	)		(20,999	)
Net deferred tax assets	$	5,789		$	3,249

Based on the Company’s evaluation as of December 31, 2010, of the amount of deferred tax assets that more likely than not will be realized, a deferred tax asset valuation allowance of $23.5 million was recorded at year end with a remaining net deferred tax asset balance of $5.8 million.

At December 31, 2010, the Company has deferred tax assets related to state tax net operating loss carryforwards of $3.2 million and state tax credit carryforwards of $.6 million. In addition, the Company has $2.3 million of federal tax credits that must be carried forward against future federal income taxes and cannot be used against current or prior period federal income tax. The following table summarizes the expiration dates of federal tax credits and state net operating loss and tax credit carryforwards:

(Dollars in thousands)
Year of expiration	Type	Amount
2023-2024	State net operating losses	$	3,195
2016-2017	State tax credits- business energy		569
2013-2014	State tax credits- low income housing		62
2029	Federal tax credits- low income housing		2,313

Bancorp is subject to U.S. federal income taxes and State of Oregon income taxes. The years 2007 through 2010 remain open to examination for federal income taxes, and years 2007 through 2010 remain open for State examination. As of December 31, 2010 and 2009, Bancorp had no unrecognized tax benefits or uncertain tax positions. In addition, Bancorp had $.1 million of accrued interest on taxes and no tax penalties as of December 31, 2010. Bancorp had no accrued interest or penalties as of December 31, 2009.

18. TIME DEPOSITS

Included in time deposits are deposits in denominations of $100,000 or greater, totaling $87.9 million and $211.1 million at December 31, 2010 and 2009, respectively. Interest expense relating to time deposits in denominations of $100,000 or greater was $2.7 million, $5.9 million, and $10.5 million for the years ended December 31, 2010, 2009 and 2008, respectively. Maturity amounts on Bancorp’s time deposits include $211.5 million in 2011, $52.4 million in 2012, $5.2 million in 2013, $4.1 million in 2014, and $2.2 million in 2015. Included in the maturity amounts are $1.9 million in variable rate time deposits that reprice monthly with maturities in the first quarter of 2011.

19. 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 December 31, 2010, 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.

Our level 3 assets consist of pooled trust preferred securities, certain municipal 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 market value of the collateral. A significant portion of the Bank's impaired loans are measured using the fair market 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.

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

Goodwill – The method used to determine the impairment charge taken first quarter 2009 involved a two step process. The first step estimated fair value using a combination of quoted market price and an estimate of a control premium. It was determined that the estimated fair value of the Company’s Banking reporting unit was less than its book value and the carrying amount of the Company’s Banking reporting unit goodwill exceeded its implied fair value. The second step calculated the implied fair value of goodwill which required allocation of the fair value to all of the assets and liabilities of the reporting unit, including any unrecognized intangible assets, in a hypothetical analysis.

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 issued in connection with our 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 our 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.

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

The following table presents fair value measurements for assets that are measured at fair value on a recurring basis subsequent to initial recognition:

			Fair value measurements at December 31, 2010, using
			Quoted prices in active		Other observable		Significant
	Total fair value		markets for identical assets		inputs		unobservable inputs
(Dollars in thousands)	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

			Fair value measurements at December 31, 2009, using
			Quoted prices in active		Other observable		Significant
	Total fair value		markets for identical assets		inputs		unobservable inputs
(Dollars in thousands)	December 31, 2009		(Level 1)		(Level 2)		(Level 3)
Trading securities	$	731	$	731	$	-	$	-
Available for sale securities:
U.S. Treasury securities		25,007		25,007		-		-
U.S. Government agency securities		103,988		-		103,988		-
Corporate securities		9,753		-		-		9,753
Mortgage-backed securities		344,294		-		344,294		-
Obligations of state and political subdivisions		70,018		-		69,045		973
Equity investments and other securities		9,217		1		9,216		-
Total recurring assets measured at fair value	$	563,008	$	25,739	$	526,543	$	10,726

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. The Company did not have any transfers between level 1, level 2, or level 3 instruments during the year ended December 31, 2009. In addition, the Company had no material changes in valuation techniques for recurring and nonrecurring assets measured at fair value from the year ended December 31, 2009.

19. 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 full year 2010 and 2009:

	Twelve months ended December 31, 2010
			Gains (loss)			Reclassification of
			included in other			losses from adjustment				Balance
	Balance		comprehensive			for impairment of		Purchases, Issuances,		December 31,
(Dollars in thousands)	January 1, 2010		income (loss)			securities		and Settlements		2010
Corporate securities	$	9,753	$	(361	)	$	-	$	-	$	9,392
Obligations of state and political
subdivisions		973		(16	)		-		-		957
Fair value	$	10,726	$	(377	)	$	-	$	-	$	10,349

	Twelve months ended December 31, 2009
			Gains (loss)			Reclassification of
			included in other			losses from adjustment				Balance
	Balance		comprehensive			for impairment of		Purchases, Issuances,		December 31,
(Dollars in thousands)	January 1, 2009		income (loss)			securities		and Settlements		2009
Corporate securities	$	9,520	$	165		$	68	$	-	$	9,753
Obligations of state and political
subdivisions		-		(31	)		-		1,004		973
Fair value	$	9,520	$	134		$	68	$	1,004	$	10,726

The losses from adjustments for OTTI of securities were recognized in noninterest income in the consolidated income statement.

Certain assets and liabilities are measured at fair value on a nonrecurring basis after initial recognition such as loans held for sale, loans measured for impairment and OREO. For the twelve months ended December 31, 2010 and 2009, loans held for sale were subject to the lower of cost or market method of accounting. There was no impairment recognized on loans held for sale at December 31, 2010 or 2009. For the twelve months ended December 31, 2010, certain loans included in Bancorp’s loan portfolio were deemed impaired. OREO that was taken into possession during 2010 was measured at estimated fair value less sales expense. In addition, during 2010, certain properties were written down $6.6 million to reflect additional decreases in their fair market value after initial recognition at the time the property was placed into OREO.

There were no nonrecurring level 1 or 2 fair value measurements in 2010 or 2009. The following table represents the level 3 fair value measurements for nonrecurring assets for the periods presented:

	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

	Twelve months ended December 31, 2009
(Dollars in thousands)	Impairment		Fair Value 1
Loans measured for impairment	$	82,345	$	212,311
OREO		18,562		162,153
Goodwill		13,059		-
Total nonrecurring assets measured at fair value	$	113,966	$	374,464

1 Fair value excludes costs to sell collateral.

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

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 available for sale		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

The estimated fair values of financial instruments at December 31, 2009 are as follows:

(Dollars in thousands)	Carrying Value		Fair Value
FINANCIAL ASSETS:
Cash and cash equivalents	$	303,097	$	303,097
Trading securities		731		731
Investment securities available for sale		567,277		567,277
Federal Home Loan Bank stock		12,148		12,148
Net loans (net of allowance for loan losses
and including loans held for sale)		1,687,528		1,575,033
Bank owned life insurance		24,417		24,417

FINANCIAL LIABILITIES:
Deposits	$	2,146,884	$	2,151,850
Short-term borrowings		12,600		12,600
Long-term borrowings		250,699		256,841

Junior subordinated debentures-variable		51,000		17,850

20. FINANCIAL INSTRUMENTS WITH OFF BALANCE SHEET RISK

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 notional amount of those instruments. The Bank uses the same credit policies in making commitments and conditional obligations as for on-balance sheet instruments. As of December 31, 2010, and 2009, outstanding commitments consist of the following:

	Contract or		Contract or
	Notional Amount		Notional Amount
(Dollars in thousands)	December 31, 2010		December 31, 2009
Financial instruments whose contract amounts represent credit risk:
Commitments to extend credit in the form of loans
Commercial	$	246,702	$	260,934
Real estate construction		10,568		15,044
Real estate mortgage
Mortgage		4,265		4,063
Home equity line of credit		154,073		164,638
Total real estate mortgage loans		158,338		168,701
Commercial real estate		7,756		10,832
Installment and consumer		10,734		12,147
Other 1		10,395		10,363
Standby letters of credit and financial guarantees		8,531		9,491
Account overdraft protection instruments		118,596		76,919
Total	$	571,620	$	564,431

The category “other” represents commitments extended to clients or borrowers that have been extended but not yet fully executed. These extended commitments are not yet classified nor have they been placed into our loan system.

Commitments to extend credit are agreements to lend to a customer, as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Many of the commitments may expire without being drawn upon; therefore 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.

Outstanding commitments for account overdraft protection instruments increased by $41.7 million to $118.6 million in 2010 as a result of an increase in the number of customers in our overdraft protection program and an increase in assigned overdraft limits.

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 45 days, the most typical period being 30 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 operations. This activity is managed daily.

21. PARENT COMPANY ONLY FINANCIAL DATA

The following sets forth the condensed financial information of West Coast Bancorp on a stand-alone basis:

WEST COAST BANCORP
UNCONSOLIDATED BALANCE SHEETS

As of December 31 (Dollars in thousands)	2010		2009
Assets:
Cash and cash equivalents	$	10,910	$	10,965
Investment in bank subsidiary		309,951		289,883
Investment in other subsidiaries		5,223		3,036
Other assets		1,892		1,884
Total assets	$	327,976	$	305,768

Liabilities and stockholders’ equity:
Junior subordinated debentures	$	51,000	$	51,000
Other liabilities		4,416		5,710
Total liabilities		55,416		56,710
Stockholders’ equity		272,560		249,058
Total liabilities and stockholders’ equity	$	327,976	$	305,768

WEST COAST BANCORP
UNCONSOLIDATED STATEMENTS OF INCOME (LOSS)

Year ended December 31 (Dollars in thousands)	2010			2009			2008
Income:
Cash dividends from Bank	$	-		$	-		$	6,000
Other income		10			10			10
Total income		10			10			6,010
Expenses:
Interest expense		1,143			1,483			2,635
Other expense		961			905			869
Total expense		2,104			2,388			3,504
Income (loss) before income taxes and equity in
undistributed earnings (loss) of the subsidiaries		(2,094	)		(2,378	)		2,506
Income tax benefit		816			927			1,363
Net income (loss) before equity in undistributed
earnings (loss) of the subsidiaries		(1,278	)		(1,451	)		3,869
Equity in undistributed earnings (loss) of the subsidiaries		4,503			(89,762	)		(10,182	)
Net income (loss)	$	3,225		$	(91,213	)	$	(6,313	)

21. PARENT COMPANY ONLY FINANCIAL DATA (continued)

WEST COAST BANCORP
UNCONSOLIDATED STATEMENTS OF CASH FLOWS

Year ended December 31 (Dollars in thousands)	2010			2009			2008
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)	$	3,225		$	(91,213	)	$	(6,313	)
Adjustments to reconcile net income to net cash
provided by operating activities:
Undistributed (earnings) loss of subsidiaries		(4,503	)		89,762			10,182
(Increase) decrease in other assets		(535	)		1,633			(1,805	)
Increase in other liabilities		(1,294	)		3,222			5
Excess tax deficiency associated with stock plans		(357	)		(496	)		-
Stock based compensation expense		2,089			1,520			2,865
Net cash provided by operating activities		(1,375	)		4,428			4,934

CASH FLOWS FROM INVESTING ACTIVITIES:
Capital contribution to subsidiaries		(15,300	)		(134,248	)		-
Net cash used in investing activities		(15,300	)		(134,248	)		-

CASH FLOWS FROM FINANCING ACTIVITIES:
Activity in deferred compensation plan		262			(1	)		(50	)
Proceeds from issuance of common stock		16,393			-			25
Redemption of stock pursuant to stock plans		(35	)		(22	)		(190	)
Tax adjustment associated with stock plans		-			-			(287	)
Proceeds from issuance of preferred stock, net of costs		-			139,248			-
Cash dividends paid		-			(471	)		(6,503	)
Other, net		-			-			-
Net cash provided by (used in) financing activities		16,620			138,754			(7,005	)

Net increase (decrease) in cash and cash equivalents		(55	)		8,934			(2,071	)
Cash and cash equivalents at beginning of year		10,965			2,031			4,102
Cash and cash equivalents at end of year	$	10,910		$	10,965		$	2,031

During the years ended December 31, 2010 and 2009, the Parent Company made non-cash capital contributions of $.53 million and $.43 million, respectively, to the Bank in the form of an intercompany tax settlement.

22. SEGMENT AND RELATED INFORMATION

Bancorp accounts for intercompany fees and services at an estimated fair value according to regulatory requirements for the service provided. Intercompany items relate primarily to the use of accounting, human resources, data processing and marketing services provided by the Bank, West Coast Trust, and the holding company. All other accounting policies are the same as those described in the summary of significant accounting policies.

Summarized financial information concerning Bancorp’s reportable segments and the reconciliation to Bancorp’s consolidated results is shown in the following table. The “Other” column includes West Coast Trust’s operations and holding company related items including activity relating to trust preferred securities. Investment in subsidiaries is netted out of the presentations below. The “Intercompany” column identifies the intercompany activities of revenues, expenses and other assets, between the “Banking” and “Other” segment.

	As of and for the year ended
(Dollars in thousands)	December 31, 2010
	Banking			Other			Intercompany			Consolidated
Interest income	$	105,510		$	66		$	-		$	105,576
Interest expense		21,126			1,143			-			22,269
Net interest income (expense)		84,384			(1,077	)		-			83,307
Provision for credit losses		18,652			-			-			18,652
Noninterest income		30,789			3,053			(1,145	)		32,697
Noninterest expense		87,841			3,641			(1,145	)		90,337
Income (loss) before income taxes		8,680			(1,665	)		-			7,015
Provision (benefit) for income taxes		4,439			(649	)		-			3,790
Net income (loss)	$	4,241		$	(1,016	)	$	-		$	3,225

Depreciation, amortization and accretion	$	8,742		$	36		$	-		$	8,778
Assets	$	2,456,223		$	17,650		$	(12,814	)	$	2,461,059
Goodwill	$	-		$	-		$	-		$	-
Loans, net	$	1,496,053		$	-		$	-		$	1,496,053
Deposits	$	1,952,780		$	-		$	(12,258	)	$	1,940,522
Equity	$	310,487		$	(37,927	)	$	-		$	272,560

	As of and for the year ended
(Dollars in thousands)	December 31, 2009
	Banking			Other			Intercompany			Consolidated
Interest income	$	112,068		$	82		$	-		$	112,150
Interest expense		31,941			1,482			-			33,423
Net interest income (expense)		80,127			(1,400	)		-			78,727
Provision for credit losses		90,057			-			-			90,057
Noninterest income		7,208			3,032			(1,111	)		9,129
Noninterest expense		105,917			3,482			(1,111	)		108,288
Loss before income taxes		(108,639	)		(1,850	)		-			(110,489	)
Benefit for income taxes		(18,555	)		(721	)		-			(19,276	)
Net loss	$	(90,084	)	$	(1,129	)	$	-		$	(91,213	)

Depreciation, amortization and accretion	$	8,253		$	28		$	-		$	8,281
Assets	$	2,729,453		$	17,370		$	(13,276	)	$	2,733,547
Goodwill	$	-		$	-		$	-		$	-
Loans, net	$	1,686,352		$	-		$	-		$	1,686,352
Deposits	$	2,159,342		$	-		$	(12,458	)	$	2,146,884
Equity	$	288,477		$	(39,419	)	$	-		$	249,058

22. SEGMENT AND RELATED INFORMATION (continued)

	As of and for the year ended
(Dollars in thousands)	December 31, 2008
	Banking			Other			Intercompany			Consolidated
Interest income	$	140,767		$	79		$	-		$	140,846
Interest expense		46,061			2,635			-			48,696
Net interest income (expense)		94,706			(2,556	)		-			92,150
Provision for credit losses		40,367			-			-			40,367
Noninterest income		22,429			3,329			(1,129	)		24,629
Noninterest expense		87,836			3,616			(1,129	)		90,323
Loss before income taxes		(11,068	)		(2,843	)		-			(13,911	)
Benefit for income taxes		(6,489	)		(1,109	)		-			(7,598	)
Net loss	$	(4,579	)	$	(1,734	)	$	-		$	(6,313	)

Depreciation, amortization and accretion	$	4,493		$	27		$	-		$	4,520
Assets	$	2,511,006		$	9,470		$	(4,336	)	$	2,516,140
Goodwill	$	13,059		$	-		$	-		$	13,059
Loans, net	$	2,035,876		$	-		$	-		$	2,035,876
Deposits	$	2,027,899		$	-		$	(3,520	)	$	2,024,379
Equity	$	241,701		$	(43,514	)	$	-		$	198,187

23. RELATED PARTY TRANSACTIONS

As of December 31, 2010, the Bank had loan commitments to directors, senior officers, principal stockholders and their related interests totaling $6.3 million, unchanged from December 31, 2009. These commitments and the loan balances below were made substantially on the same terms in the course of ordinary banking business, including interest rates, maturities and collateral as those made to other customers of the Bank.

The following table presents a summary of outstanding balances for loans made to directors, senior officers, and principal stockholders of the Company and their related interests:

(Dollars in thousands)	December 31,
	2010			2009
Balance, beginning of period	$	3,893		$	22,861
New loans and advances		1,237			1,199
Principal payments and payoffs		(91	)		(20,167	)
Balance, end of period	$	5,039		$	3,893

24. QUARTERLY FINANCIAL INFORMATION (unaudited)

2010
(Dollars in thousands, except per share data)	December 31,			September 30,			June 30,			March 31,
Interest income	$	25,509		$	26,053		$	26,816		$	27,198
Interest expense		3,620			4,178			7,906			6,565
Net interest income		21,889			21,875			18,910			20,633
Provision for credit losses		1,693			1,567			7,758			7,634
Noninterest income		8,595			8,069			9,625			6,408
Noninterest expense		23,330			23,003			22,909			21,095
Net income (loss) before income taxes		5,461			5,374			(2,132	)		(1,688	)
Provision (benefit) for income taxes		3,549			(676	)		1,717			(800	)
Net income (loss)	$	1,912		$	6,050		$	(3,849	)	$	(888	)

Net Income (loss) per common share:
Basic		$0.02			$0.06			($0.04	)		($0.01	)
Diluted		$0.02			$0.06			($0.04	)		($0.01	)

2009
(Dollars in thousands, except per share data)	December 31,			September 30,			June 30,			March 31,
Interest income	$	26,948		$	27,725		$	28,869		$	28,608
Interest expense		7,710			8,580			8,655			8,478
Net interest income		19,238			19,145			20,214			20,130
Provision for credit losses		35,233			20,300			11,393			23,131
Noninterest income (loss)		(6,148	)		4,971			5,958			4,348
Noninterest expense		24,181			23,489			25,244			35,374
Loss before income taxes		(46,324	)		(19,673	)		(10,465	)		(34,027	)
Provision (benefit) for income taxes		2,543			(7,265	)		(4,126	)		(10,428	)
Net loss	$	(48,867	)	$	(12,408	)	$	(6,339	)	$	(23,599	)

Loss per common share:
Basic		($3.13	)		($0.79	)		($0.41	)		($1.51	)
Diluted		($3.13	)		($0.79	)		($0.41	)		($1.51	)

ITEM 9.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.

None.

ITEM 9A. CONTROLS AND PROCEDURES

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 Securities and Exchange Commission’s rules and forms and accumulated and communicated to our management, including our CEO and CFO, as appropriate to allow timely decisions regarding required disclosure. Our management has evaluated, with the participation and under the supervision of our chief executive officer (“CEO”) and chief financial officer (“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 Securities and Exchange Commission’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.

Material Changes in Internal Control over Financial Reporting

None.

Management’s Report on Internal Control Over Financial Reporting

The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting. The Company’s internal control system is designed to provide reasonable assurance regarding the preparation, reliability and fair presentation of published financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America. Management is also responsible for ensuring compliance with the federal laws and regulations concerning loans to insiders and the federal and state laws and regulations concerning dividend restrictions, both of which are designated by the Federal Deposit Insurance Corporation (“FDIC”) as safety and soundness laws and regulations. Nonetheless, all internal control systems, no matter how well designed, have inherent limitations. Even systems determined to be effective as of a particular date can provide only reasonable assurance with respect to financial statement preparation and presentation and may not eliminate the need for restatements.

The Company’s management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2010. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control—Integrated Framework. Based on our assessment, we believe that, as of December 31, 2010, the Company’s internal control over financial reporting is effective based on those criteria.

The Company’s management has assessed its compliance with the designated safety and soundness laws and regulations and has maintained records of its determinations and assessments as required by the FDIC. Based on this assessment, management believes that West Coast Bancorp has complied, in all material respects, with the designated safety and soundness laws and regulations for the year ended December 31, 2010.

The Company’s independent registered public accounting firm has audited the Company’s internal control over financial reporting as of December 31, 2010, as stated in their report appearing below.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of

West Coast Bancorp

Lake Oswego, Oregon

We have audited the internal control over financial reporting of West Coast Bancorp and subsidiaries (the "Company") as of December 31, 2010, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Because management's assessment and our audit were conducted to meet the reporting requirements of Section 112 of the Federal Deposit Insurance Corporation Improvement Act (FDICIA), management's assessment and our audit of the Company's internal control over financial reporting included controls over the preparation of the schedules equivalent to the basic financial statements in accordance with the instructions for the Consolidated Financial Statements for Bank Holding Companies (Form FR Y-9C). The Company's management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying management’s report on internal control over financial reporting. Our responsibility is to express an opinion on the Company's internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company's internal control over financial reporting is a process designed by, or under the supervision of, the company's principal executive and principal financial officers, or persons performing similar functions, and effected by the company's board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.

Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2010, based on the criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.

We have not examined and, accordingly, we do not express an opinion or any other form of assurance on management's statement referring to compliance with laws and regulations.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements as of and for the year ended December 31, 2010 of the Company and our report dated March 10, 2011 expressed an unqualified opinion on those consolidated financial statements.

/s/ DELOITTE & TOUCHE LLP

Portland, Oregon
March 10, 2011

ITEM 9B. OTHER INFORMATION

None.

PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

Information concerning directors and executive officers of Bancorp required to be included in this item is set forth under the headings “Election of Directors,” “Section 16(a) Beneficial Ownership Reporting Compliance,” and “Management” in Bancorp’s Proxy Statement for its 2011 Annual Meeting of Shareholders to be filed within 120 days of Bancorp’s fiscal year end of December 31, 2010 (the “Proxy Statement”), and is incorporated into this report by reference.

Audit and Compliance Committee

Bancorp has a separately-designated standing Audit and Compliance Committee established in accordance with Section 3(a)(58)(A) of the Exchange Act. The members of the Audit and Compliance Committee are Nancy Wilgenbusch (Chair), Lloyd Ankeny, and Duane C. McDougall, each of whom is independent as independence for audit committee members is defined under NASDAQ listing standards applicable to the Company.

Audit Committee Financial Expert

Bancorp’s Board of Directors has determined that Duane C. McDougall is an audit committee financial expert as defined in Item 407(d)(5) of Regulation S-K of the Exchange Act and is independent as independence for audit committee members is defined under NASDAQ listing standards applicable to the Company.

Code of Ethics

We have adopted a code of ethics (the “Code of Ethics”), for our CEO, CFO, principal accounting officer, and persons performing similar functions, entitled the West Coast Bancorp Code of Ethics for Senior Financial Officers. The Code of Ethics is available on our website at www.wcb.com under the tab for investor relations. Stockholders may request a free copy of the Code of Ethics from:

West Coast Bancorp

Attention: Secretary

5335 Meadows Road, Suite 201

Lake Oswego, Oregon 97035

(503) 684-0884

ITEM 11. EXECUTIVE COMPENSATION

Information concerning executive and director compensation and certain matters regarding participation in Bancorp’s Compensation & Personnel Committee required by this item is set forth under the headings “Executive Compensation” and “Board of Directors” in the Proxy Statement and is incorporated into this report by reference.

ITEM 12.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCK HOLDER MATTERS

Security Ownership

Information concerning the security ownership of certain beneficial owners and management required by this item is set forth under the heading “Security Ownership of Certain Beneficial Owners and Management” in the Proxy Statement and is incorporated into this report by reference.

Equity Compensation Plan Information

Information concerning Bancorp’s equity compensation plans, required by this item is set forth under the heading “Executive Compensation—Equity Compensation Plan Information” in the Proxy Statement and is incorporated into this report by reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

Certain Relationships and Related Transactions

Information concerning certain relationships and related transactions required by this item is set forth under the heading “Transactions with Related Persons” in the Proxy Statement and is incorporated into this report by reference.

Director Independence

Information concerning the independence of Bancorp directors required by this item is set forth under the heading “Election of Directors” in the Proxy Statement and is incorporated into this report by reference.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

Information concerning fees paid to our accountants required by this item is included under the heading “Matters Related to our Auditors—Fees Paid to Independent Registered Public Accounting Firm” in the Proxy Statement and is incorporated into this report by reference.

PART IV

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

	(a) (1)		Financial Statements:

	The financial statements and related documents listed in the Index set forth in Item 8 of this report are filed as part of this report.

	(2)		Financial Statements Schedules:

	None.

	(3)		Exhibits:

	The response to this portion of Item 15 is submitted as a separate section of this report appearing immediately following the signature page and entitled “Index to Exhibits.”

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on March 10, 2011.

	WEST COAST BANCORP

	(Registrant)

	By:	/s/ Robert D. Sznewajs
		Robert D. Sznewajs
		President and CEO

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated on March 10, 2011.

Principal Executive Officer:
/s/ Robert D. Sznewajs		President and CEO and Director
Robert D. Sznewajs

Principal Financial Officer:
/s/ Anders Giltvedt		Executive Vice President and Chief Financial Officer
Anders Giltvedt

Principal Accounting Officer:
/s/ Kevin M. McClung		Senior Vice President and Controller
Kevin M. McClung

Remaining Directors:
*Lloyd D. Ankeny, Chairman
*Shmuel (“Sam”) Levinson
*Duane C. McDougall
*Steven J. Oliva
*John T. Pietrzak
*Steven N. Spence
*Nancy A. Wilgenbusch, PhD.
*By	/s/ Robert D. Sznewajs
	Robert D. Sznewajs
	Attorney-in-Fact

100

INDEX TO EXHIBITS

Exhibit No.		Exhibit
3.1		Restated Articles of Incorporation (as amended through January 20, 2010).

3.2		Amended and Restated Bylaws of the Company (as amended through February 9, 2010).

4.1		Form of Class C Warrant. Incorporated by reference to Exhibit 4.2 to the Company's Current Report on Form 8-K dated October 22, 2009, and filed with the Securities and Exchange Commission on October 28, 2009 (the "October 8-K").

4.2		Tax Benefit Preservation Plan, dated as of October 23, 2009, between West Coast Bancorp and Wells Fargo Bank, National Association. Incorporated by reference to Exhibit 4.4 to the October 8-K.

4.3		The Company has incurred long-term indebtedness as to which the amount involved is less than ten percent of the total assets of the Company and its subsidiaries on a consolidated basis. The Company agrees to furnish instruments relating to such indebtedness to the Commission upon its request.

10.1		Form of Indemnification Agreement for all directors and executive officers. Incorporated by reference to Exhibit 10.1 to the Company's Annual Report on Form 10-K for the year ended December 31, 2008 (the "2008 10-K").*

10.2		Change in Control Agreement between the Company and Robert D. Sznewajs dated January 1, 2004, and amended and restated December 30, 2008. Incorporated by reference to Exhibit 10.2 to the 2008 10-K.*

10.3		Change in Control Agreement between the Company and Anders Giltvedt dated January 1, 2004, and amended and restated December 30, 2008. Incorporated by reference to Exhibit 10.3 to the 2008 10-K.*

10.4		Change in Control Agreement between the Company and Xandra McKeown dated January 1, 2004, and amended and restated December 30, 2008. Incorporated by reference to Exhibit 10.4 to the 2008 10-K.*

10.5		Change in Control Agreement between the Company and James D. Bygland dated January 1, 2004 and amended and restated December 30, 2008. Incorporated by reference to Exhibit 10.5 to the 2008 10-K.*

10.6		Change in Control Agreement between the Company and Hadley Robbins dated March 5, 2007 and amended and restated December 30, 2008. Incorporated by reference to Exhibit 10.6 to the 2008 10-K.*

10.7		Supplemental Executive Retirement Plan adopted by West Coast Bank, the Company and Robert D. Sznewajs dated August 1, 2003, and amended and restated as of January 1, 2011. Incorporated by reference to Exhibit 10.2 to the Company's Current Report on Form 8-K dated January 14, 2011.*

10.8		Supplemental Executive Retirement Plan adopted by West Coast Bank, the Company and Anders Giltvedt dated August 1, 2003, and amended and restated as of January 1, 2009. Incorporated by reference to Exhibit 10.8 to the 2008 10-K.*

10.9		Supplemental Executive Retirement Plan adopted by West Coast Bank, the Company and Xandra McKeown dated August 1, 2003, and amended and restated as of January 1, 2009. Incorporated by reference to Exhibit 10.9 to the 2008 10-K.*

10.10		Supplemental Executive Retirement Plan adopted by West Coast Bank, the Company and James D. Bygland dated August 1, 2003, and amended and restated as of January 1, 2009. Incorporated by reference to Exhibit 10.10 to the 2008 10-K.*

*Indicates a management contract or compensatory plan, contract or arrangement.

101

INDEX TO EXHIBITS (continued)

Exhibit No.		Exhibit
10.11		Supplemental Executive Retirement Plan adopted by West Coast Bank, the Company and Hadley Robbins dated April 1, 2007, and amended and restated as of January 1, 2009. Incorporated by reference to Exhibit 10.11 to the 2008 10-K.*

10.12		401(k) Profit Sharing Plan. Incorporated by reference to Exhibit 99.1 to the Company’s Registration Statement on Form S-8 (Reg. No. 333-01649) filed March 12, 1996.*

10.13		Directors’ Deferred Compensation Plan. Incorporated by reference to Exhibit 10.13 to the 2008 10-K.*

10.14		Executives’ Deferred Compensation Plan. Incorporated by reference to Exhibit 10.14 to the 2008 10-K.*

10.15		1999 Stock Option Plan and Form of Agreement. Incorporated by reference to Exhibits 99.1 and 99.2 to the Company’s Registration Statement on Form S-8 (Reg. No. 333-86113) filed August 30, 1999.*

10.16		2002 Stock Incentive Plan, as amended. Incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2009.*

10.17		Forms of Option Agreements, Restricted Stock Agreements and Restricted Stock Performance Award Agreement under the 2002 Stock Incentive Plan. Incorporated by reference to Exhibits 10.3 through 10.7 to the September 2006 10-Q and Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2008.

10.18		Employment Agreement dated effective as of January 1, 2011, between Robert D. Sznewajs and the Company. Incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K dated January 14, 2011.*

10.19		Form of Investment Agreement, dated as of October 23, 2009 by and between West Coast Bancorp and the investors party thereto. Incorporated by reference to Exhibit 10.1 to the October 8-K.

10.20		Written Agreement, dated as of December 18, 2009, by and among West Coast Bancorp, the Federal Reserve Bank of San Francisco and the Oregon Department of Consumer and Business Services, Division of Finance and Corporate Securities. Incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K dated December 18, 2009 and filed with the Securities and Exchange Commission on December 21, 2009.

21		Subsidiaries of the Company.

23		Consent of Deloitte & Touche LLP.

24		Power of Attorney.

*Indicates a management contract or compensatory plan, contract or arrangement.

102

Positive
Negative
Uncertain
Constraining
Legalese
Litigous
Readability	H.S. freshman Avg

West Coast Bancorp Inactive 10-K2010 FY Annual report

Content analysis