- Quarterly Report (10-Q)

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

FORM 10-Q

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

For the quarterly period ended: March 31, 2012

Commission file number: 0-10997

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

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

5335 Meadows Road – Suite 201, Lake Oswego, Oregon 97035
(Address of principal executive offices)(Zip code)

(503) 684-0884
(Registrant's telephone number, including area code)

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

Yes [ X ] No [ ]

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

Yes [ X ] No [ ]

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

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

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

Yes [ ] No [ X ]

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

Common Stock, no par value: 19,271,471 shares outstanding as of April 30, 2012.

Table of Contents

		PAGE
PART I: FINANCIAL INFORMATION		3
*Item 1.*	*Financial Statements (Unaudited)*	3
	CONSOLIDATED BALANCE SHEETS	3
	CONSOLIDATED STATEMENTS OF INCOME	4
	CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME	5
	CONSOLIDATED STATEMENTS OF CASH FLOWS	6
	CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY	7
	NOTES TO CONSOLIDATED FINANCIAL STATEMENTS	8

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	31

*Item 3.*	*Quantitative and Qualitative Disclosures About Market Risk*	48

*Item 4.*	*Controls and Procedures*	48

PART II: OTHER INFORMATION		49

*Item 1.*	*Legal Proceedings*	49

*Item 1A.*	*Risk Factors*	49

*Item 2.*	*Unregistered Sales of Equity Securities and Use of Proceeds*	49

*Item 3.*	*Defaults Upon Senior Securities*	49

*Item 4.*	*Mine Safety Disclosures*	49

*Item 5.*	*Other Information*	49

*Item 6.*	*Exhibits*	50

SIGNATURES		51

- 2 -

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

WEST COAST BANCORP
CONSOLIDATED BALANCE SHEETS

	March 31,		December 31,
(Dollars and shares in thousands, unaudited)	2012		2011
ASSETS

Cash and cash equivalents:
Cash and due from banks	$	59,146		$	59,955
Federal funds sold		1,803			4,758
Interest-bearing deposits in other banks		108,735			27,514
Total cash and cash equivalents		169,684			92,227
Trading securities		797			747
Investment securities available for sale, at fair value
(amortized cost: $657,942 and $717,593, respectively)		670,534			729,844
Federal Home Loan Bank stock, held at cost		12,148			12,148
Loans held for sale		1,302			3,281
Loans		1,470,848			1,501,301
Allowance for loan losses		(33,854	)		(35,212	)
Loans, net		1,436,994			1,466,089
Premises and equipment, net		23,935			24,374
Other real estate owned, net		27,525			30,823
Bank owned life insurance		26,423			26,228
Other assets		39,945			44,126
Total assets	$	2,409,287		$	2,429,887

LIABILITIES AND STOCKHOLDERS' EQUITY

Deposits:
Demand	$	620,015		$	621,962
Savings and interest bearing demand		503,829			495,117
Money market		614,831			625,373
Time deposits		155,830			173,117
Total deposits		1,894,505			1,915,569

Long-term borrowings		120,000			120,000
Junior subordinated debentures		51,000			51,000
Reserve for unfunded commitments		780			771
Other liabilities		22,020			28,068
Total liabilities		2,088,305			2,115,408

Commitments and contingent liabilities (Note 7)

Stockholders' equity:
Preferred stock: no par value, 10,000 shares authorized;
Series B issued and outstanding: 121 at March 31, 2012 and December 31, 2011		21,124			21,124
Common stock: no par value, 50,000 shares authorized;
issued and outstanding: 19,295 at March 31, 2012 and 19,298 at December 31, 2011		231,472			230,966
Retained earnings		60,741			54,952
Accumulated other comprehensive income		7,645			7,437
Total stockholders' equity		320,982			314,479
Total liabilities and stockholders' equity	$	2,409,287		$	2,429,887

See notes to consolidated financial statements.

- 3 -

WEST COAST BANCORP
CONSOLIDATED STATEMENTS OF INCOME

	Three months ended
	March 31,
(Dollars and shares in thousands, except per share amounts, unaudited)	2012		2011
INTEREST INCOME:
Interest and fees on loans	$	19,209		$	20,299
Interest on taxable investment securities		3,607			4,069
Interest on nontaxable investment securities		492			479
Interest on deposits in other banks		24			70
Interest on federal funds sold		1			1
Total interest income		23,333			24,918

INTEREST EXPENSE:
Savings, interest bearing demand deposits and money market		193			752
Time deposits		384			1,057
Short-term borrowings		1			-
Long-term borrowings		313			1,321
Junior subordinated debentures		309			276
Total interest expense		1,200			3,406
Net interest income		22,133			21,512
Provision for credit losses		89			2,076
Net interest income after provision for credit losses		22,044			19,436

NONINTEREST INCOME:
Service charges on deposit accounts		2,818			3,644
Payment systems related revenue		3,073			2,930
Trust and investment services revenue		935			1,148
Gains on sales of loans		735			513
Other real estate owned valuation adjustments
and (loss) gain on sales		(574	)		(334	)
Gain (loss) on securities, net:
Gains on sales of securities, net		147			267
Other-than-temporary impairment losses on securities		(1,726	)		-
Portion of other-than-temporary, non-credit related losses
recognized in other comprehensive income		1,677			-
Total net gains on securities		98			267
Other noninterest income		802			748
Total noninterest income		7,887			8,916

NONINTEREST EXPENSE:
Salaries and employee benefits		11,478			11,877
Equipment		1,662			1,528
Occupancy		2,075			2,165
Payment systems related expense		1,119			1,247
Professional fees		1,111			982
Postage, printing and office supplies		819			810
Marketing		312			651
Communications		380			378
Other noninterest expense		2,069			2,915
Total noninterest expense		21,025			22,553

INCOME BEFORE INCOME TAXES		8,906			5,799
PROVISION FOR INCOME TAXES		3,117			694
NET INCOME	$	5,789		$	5,105

Basic earnings per share	$	0.28		$	0.25
Diluted earnings per share	$	0.27		$	0.24

Weighted average common shares		19,038			18,960
Weighted average diluted shares		20,054			19,939

See notes to consolidated financial statements.

- 4 -

WEST COAST BANCORP
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

	Three months ended March 31,
(Dollars in thousands, unaudited)	2012		2011
Net income				$	5,789			$	5,105
Other comprehensive income, net of tax:
Unrealized holding gains on securities:
Unrealized holding gains (losses) arising during the period	441					(1,713	)
Tax (provision) benefit	(173	)				667
Unrealized holding gains (losses) arising during the year, net of tax	268					(1,046	)

Less: Reclassification adjustment for net other-than-temporary
impairment losses on securities	49					-
Tax benefit	(19	)				-
Net impairment losses on securities, net of tax	30					-

Less: Reclassification adjustment for net
gains on sales of securities	(147	)				(267	)
Tax provision	57					104
Net realized gains, net of tax	(90	)				(163	)
Other comprehensive income (loss), net of tax					208				(1,209	)
Total net comprehensive income				$	5,997			$	3,896

See notes to consolidated financial statements.

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WEST COAST BANCORP
CONSOLIDATED STATEMENTS OF CASH FLOWS

	Three months ended
(Dollars in thousands, unaudited)	March 31, 2012		March 31, 2011
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	5,789		$	5,105
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, amortization and accretion		2,176			2,132
Amortization of tax credits		163			191
Deferred income tax expense (benefit)		3,772			(1,090	)
Amortization of intangibles		-			60
Provision for credit losses		89			2,076
Increase in accrued interest receivable		509			(431	)
(Increase) decrease in other assets		(662	)		931
Loss on impairment of securities		49			-
Gains on sales of securities		(147	)		(267	)
Net loss on disposal of premises and equipment		1			8
Net other real estate owned valuation adjustments and (loss) gain on sales		574			334
Gains on sales of loans		(735	)		(513	)
Origination of loans held for sale		(8,733	)		(11,451	)
Proceeds from sales of loans held for sale		11,447			13,652
(Decrease) increase in interest payable		(28	)		258
Increase (decrease) in other liabilities		(3,829	)		1,234
Increase in cash surrender value of bank owned life insurance		(195	)		(189	)
Stock based compensation expense		410			544
Excess tax benefits associated with stock plans		-			(11	)
Decrease (increase) in trading securities		(50	)		37
Net cash provided by operating activities		10,600			12,610

CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities of available for sale securities		58,584			72,090
Proceeds from sales of available for sale securities		17,632			20,154
Purchase of available for sale securities		(17,361	)		(92,814	)
Loans made to customers less (greater) than principal collected on loans		35,332			(8,385	)
Purchase of loans		(7,128	)		-
Proceeds from the sale of other real estate owned		3,322			6,276
Capital expenditures on other real estate owned		(8	)		(125	)
Capital expenditures on premises and equipment		(460	)		(650	)
Net cash provided (used) by investing activities		89,913			(3,454	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Net (decrease) increase in demand, savings and interest
bearing transaction accounts		(5,865	)		19,753
Net decrease in time deposits		(17,287	)		(31,844	)
Proceeds from issuance of short-term borrowings		20,000			-
Repayment of short-term borrowings		(20,000	)		-
Proceeds from issuance of common stock-Stock Options		52			11
Redemption of stock pursuant to stock plans		(8	)		(10	)
Activity in deferred compensation plan		52			(2	)
Net cash used by financing activities		(23,056	)		(12,092	)

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		77,457			(2,936	)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD		92,227			177,991
CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	169,684		$	175,055

See notes to consolidated financial statements.

- 6 -

WEST COAST BANCORP
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

													Accumulated
													Other
	Preferred		Common Stock			Retained		Comprehensive
(Shares and dollars in thousands, unaudited)	Stock		Shares			Amount			Earnings	Income		Total
BALANCE, January 1, 2011	$	21,124		19,286			$	229,722		$	21,175		$	539	$	272,560

Net income	$	-		-			$	-		$	33,777		$	-	$	33,777
Other comprehensive income, net of tax:		-		-				-			-			6,898		6,898
Redemption of stock pursuant to stock plans		-		(55	)			(531	)		-			-		(531	)
Activity in deferred compensation plan		-		(3	)			(27	)		-			-		(27	)
Issuance of common stock-stock options		-		7				80			-			-		80
Issuance of common stock-restricted stock		-		64				-			-			-		-
Stock based compensation expense		-		-				1,899			-			-		1,899
Tax adjustment associated with stock plans		-		-				(159	)		-			-		(159	)
Fractional share payment		-		(1	)			(18	)		-			-		(18	)
BALANCE, December 31, 2011		21,124		19,298				230,966			54,952			7,437		314,479

Net income	$	-		-			$	-		$	5,789		$	-	$	5,789
Other comprehensive income, net of tax:		-		-				-			-			208		208
Redemption of stock pursuant to stock plans		-		(8	)			(8	)		-			-		(8	)
Activity in deferred compensation plan		-		-				52			-			-		52
Issuance of common stock-stock options		-		5				52			-			-		52
Stock based compensation expense		-		-				410			-			-		410
BALANCE, March 31, 2012	$	21,124		19,295			$	231,472		$	60,741		$	7,645	$	320,982

See notes to consolidated financial statements.

- 7 -

WEST COAST BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

1. BASIS OF PRESENTATION

The interim unaudited consolidated financial statements have been prepared by management in accordance with accounting principles generally accepted in the United States of America for interim financial information. In addition, this report has been prepared in accordance with the instructions for Form 10-Q, and therefore, these financial statements do not include all of the information and notes required by generally accepted accounting principles for complete financial statements. The accompanying interim consolidated financial statements include the accounts of West Coast Bancorp (“Bancorp” or the “Company”), and its wholly-owned subsidiaries, West Coast Bank (the “Bank”), West Coast Trust Company, Inc. and Totten, Inc., after elimination of intercompany transactions and balances. The Company’s interim consolidated financial statements and related notes should be read in conjunction with the audited financial statements and related notes, including the Company’s significant accounting policies, contained in the Annual Report on Form 10-K for the year ended December 31, 2011 (“2011 10-K”).

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The financial information contained in this report reflects all adjustments of a normal, recurring nature that, in the opinion of management, are necessary for a fair presentation of the results of the interim periods. The results of operations and cash flows for the three months ended March 31, 2012, are not necessarily indicative of the results that may be expected for the year ending December 31, 2012, or other future periods.

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

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

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

Supplemental cash flow information. The following table presents supplemental cash flow information for the three months ended March 31, 2012, and 2011.

(Dollars in thousands)	Three months ended
	March 31,
	2012		2011
Supplemental cash flow information:
Cash paid (received) in the period for:
Interest	$	1,228		$	3,148
Income taxes		-			4,650

Noncash investing and financing activities:
Change in unrealized gain on available
for sale securities, net of tax	$	208		$	(1,209	)
Settlement of secured borrowings		-			(3,085	)
OREO and premises and equipment expenditures
accrued in other liabilities	$	25		$	169
Transfer of loans to OREO		803			6,354

- 8 -

1. BASIS OF PRESENTATION

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

In April 2011, the FASB issued guidance within the ASU 2011-04, “Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs”. This ASU amends existing guidance regarding the highest and best use and valuation assumption by clarifying these concepts are only applicable to measuring the fair value of nonfinancial assets. The ASU also clarifies that the fair value measurement of financial assets and financial liabilities which have offsetting market risks or counterparty credit risks that are managed on a portfolio basis, when several criteria are met, can be measured at the net risk position. Additional disclosures about Level 3 fair value measurements are required including a quantitative disclosure of the unobservable inputs and assumptions used in the measurement, a description of the valuation process in place, and discussion of the sensitivity of fair value changes in unobservable inputs and interrelationships about those inputs as well disclosure of the level of the fair value of items that are not measured at fair value in the financial statements but disclosure of fair value is required. ASU 2011-04 is effective for the Company’s reporting period beginning after December 15, 2011, and was applied prospectively. The adoption of this guidance did not have a material impact on the Company’s consolidated statement of income, its consolidated balance sheet, or its consolidated statement of cash flows.

In June 2011, the FASB issued guidance within ASU 2011-05, “Presentation of Comprehensive Income”. This ASU amends current guidance to allow a company the option of presenting the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. The guidance does not change the items that must be reported in other comprehensive income or when an item of other comprehensive income must be reclassified to net income. The amendments do not change the option for a company to present components of other comprehensive income either net of related tax effects or before related tax effects, with one amount shown for the aggregate income tax expense (benefit) related to the total of other comprehensive income items. The amendments do not affect how earnings per share is calculated or presented. The provisions of ASU 2011-05 were effective for the Company’s reporting period beginning after December 15, 2011, and were applied retrospectively. Early adoption is permitted and there are no required transition disclosures. The adoption of this guidance did not have a material impact on the Company’s consolidated statement of income, its consolidated balance sheet, or its consolidated statement of cash flows.

- 9 -

2. STOCK PLANS

On April 24, 2012, shareholders approved Bancorp’s 2012 Omnibus Incentive Plan (the “2012 Incentive Plan”). Bancorp's 2002 Stock Incentive Plan (the “2002 Plan”) was terminated on March 8, 2012, and no additional awards will be granted under the 2002 Plan. The 2012 Incentive Plan authorizes the issuance of up to 400,000 shares to participants in connection with grants of stock options, restricted stock, restricted stock units, stock appreciation rights, and other stock-based awards. The number of shares that may be issued under the 2012 Incentive Plan is subject to adjustment in certain circumstances.

It is Bancorp’s policy to issue new shares for stock option exercises and restricted stock awards. Bancorp expenses stock options and restricted stock on a straight line basis over the applicable vesting term. Restricted stock granted under the 2002 Plan generally vested over a two to four year vesting period; however, certain grants were made that vested immediately or over a one year period, including grants to directors. All outstanding stock options have an exercise price that was equal to the closing market value of Bancorp’s stock on the date the options were granted. Options granted under the 2002 Plan generally vested over a two to four year vesting period; however, certain grants were made that vested immediately, including grants to directors. Stock options have a 10 year maximum term.

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

	Three months ended
	March 31, 2012
				Weighted Average
	Common Shares		Exercise Price per share
Balance, beginning of period	257,080			$	70.12
Granted	-				-
Exercised	(4,505	)			11.55
Forfeited/expired	(3,250	)			81.31
Balance, end of period	249,325			$	71.03

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

	Three months ended		Three months ended
(Dollars in thousands, except share and per share data)	March 31, 2012		March 31, 2011
Stock options vested and expected to vest:
Number		243,295			294,885
Weighted average exercise price per share	$	71.03		$	67.10
Aggregate intrinsic value	$	477		$	446
Weighted average contractual term of options		3.8 years			4.4 years

Stock options vested and currently exercisable:
Number		242,801			255,981
Weighted average exercise price per share	$	71.26		$	74.25
Aggregate intrinsic value	$	490		$	274
Weighted average contractual term of options		3.8 years			3.8 years

Unearned compensation related to stock options	$	3		$	70

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2. STOCK PLANS

There were no stock option grants for the three months ended March 31, 2012, and 2011.

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

	Three months ended
	March 31, 2012
			Weighted Average Market
	Restricted Shares		Price at Grant
Balance, beginning of period	264,631			$	16.98
Granted	-				-
Vested	(3,031	)			17.01
Forfeited	(7,370	)			15.14
Balance, end of period	254,230			$	17.03

Weighted average remaining recognition period	2.1 years

The balance of unearned compensation related to restricted stock shares as of March 31, 2012, and March 31, 2011, was $2.8 million and $4.1 million, respectively.

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

	Three months ended
	March 31,
(Dollars in thousands)	2012		2011
Restricted stock expense	$	398		$	507
Stock option expense		12			37
Total stock-based compensation expense	$	410		$	544

The income tax benefit recognized in the income statement for restricted stock compensation expense in the three months ended March 31, 2012, and March 31, 2011, was $151,000 and $193,000, respectively.

The cash received from stock option exercises was $52,000 and $11,000 for the three months ended March 31, 2012, and March 31, 2011, 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 three months ended March 31, 2012, and March 31, 2011.

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3. INVESTMENT SECURITIES

The following tables present the available for sale investment portfolio as of March 31, 2012, and December 31, 2011:

(Dollars in thousands)
March 31, 2012	Amortized		Unrealized		Unrealized
	Cost		Gross Gains		Gross Losses	Fair Value
U.S. Treasury securities	$	200		$	1	$	-		$	201
U.S. Government agency securities		191,172			3,309		(13	)		194,468
Corporate securities		14,303			-		(5,786	)		8,517
Mortgage-backed securities		384,206			10,038		(10	)		394,234
Obligations of state and political subdivisions		56,769			4,457		(40	)		61,186
Equity investments and other securities		11,292			659		(23	)		11,928
Total	$	657,942		$	18,464	$	(5,872	)	$	670,534


(Dollars in thousands)
December 31, 2011	Amortized		Unrealized		Unrealized
	Cost		Gross Gains		Gross Losses	Fair Value
U.S. Treasury securities	$	200		$	3	$	-		$	203
U.S. Government agency securities		216,211			3,453		(33	)		219,631
Corporate securities		14,351			-		(5,844	)		8,507
Mortgage-backed securities		419,510			9,351		(136	)		428,725
Obligations of state and political subdivisions		56,003			4,736		(7	)		60,732
Equity investments and other securities		11,318			749		(21	)		12,046
Total	$	717,593		$	18,292	$	(6,041	)	$	729,844

At March 31, 2012, the fair value of the securities in the investment portfolio was $670.5 million while the amortized cost was $657.9 million, reflecting a net unrealized gain in the portfolio of $12.6 million. At December 31, 2011, the fair value and amortized cost of securities in the investment portfolio were $729.8 million and $717.5 million, respectively, reflecting a net unrealized gain of $12.3 million.

At March 31, 2012, the corporate securities portfolio included four pooled trust preferred securities issued by banks and insurance companies with amortized cost of $13.8 million and an estimated fair market value of $8.0 million resulting in an estimated $5.8 million unrealized loss. This unrealized loss reflects a decline in market value since the purchase of these securities. Credit deterioration and wide credit and liquidity spreads contributed to the unrealized loss. These pooled trust preferred 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.

- 12 -

3. INVESTMENT SECURITIES

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 March 31, 2012	Fair Value		Losses		Fair Value		Losses		Fair Value	Losses
U.S. Government agency securities	$	12,673		$	(13	)		$	-	$	-				12,673		(13	)
Corporate securities		-			-				8,017		(5,786	)			8,017		(5,786	)
Mortgage-backed securities		12,269			(4	)			9,213		(6	)			21,482		(10	)
Obligations of state and political subdivisions		2,043			(40	)			-		-				2,043		(40	)
Equity and other securities		597			(4	)			1,181		(19	)			1,778		(23	)
Total	$	27,582		$	(61	)		$	18,411	$	(5,811	)		$	45,993	$	(5,872	)

(Dollars in thousands)	Less than 12 months			12 months or more			Total
				Unrealized					Unrealized				Unrealized
As of December 31, 2011	Fair Value		Losses		Fair Value		Losses		Fair Value	Losses
U.S. Government agency securities	$	14,627		$	(33	)		$	-	$	-			$	14,627	$	(33	)
Corporate securities		-			-				8,007		(5,844	)			8,007		(5,844	)
Mortgage-backed securities		26,416			(130	)			9,538		(6	)			35,954		(136	)
Obligations of state and political subdivisions		234			(7	)			-		-				234		(7	)
Equity and other securities		598			(2	)			1,182		(19	)			1,780		(21	)
Total	$	41,875		$	(172	)		$	18,727	$	(5,869	)		$	60,602	$	(6,041	)

(Dollars in thousands)	Less than 12 months		12 months or more		Total
				Unrealized					Unrealized				Unrealized
As of March 31, 2011	Fair Value		Losses		Fair Value		Losses		Fair Value	Losses
U.S. Government agency securities	$	81,204		$	(825	)		$	-	$	-			$	81,204	$	(825	)
Corporate securities		-			-				9,349		(4,664	)			9,349		(4,664	)
Mortgage-backed securities		166,586			(2,521	)			986		(84	)			167,572		(2,605	)
Obligations of state and political subdivisions		8,805			(159	)			-		-				8,805		(159	)
Equity and other securities		1,957			(42	)			1		(1	)			1,958		(43	)
Total	$	258,552		$	(3,547	)		$	10,336	$	(4,749	)		$	268,888	$	(8,296	)

At March 31, 2012, the Company had six investment securities with an amortized cost of $24.2 million and an unrealized loss of $5.8 million that have been in a continuous unrealized loss position for more than 12 months. Pooled trust preferred securities accounted for the majority of unrealized loss in these securities.

There were a total of eight 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 $27.6 million and a total unrealized loss of $61,000 at March 31, 2012. The unrealized loss on these investment securities was predominantly caused by changes in market interest rates, average life, or credit spreads subsequent to purchase. The fair value of most of the Company’s securities fluctuates as market interest rates change.

- 13 -

3. INVESTMENT SECURITIES

Management reviews and evaluates the Company’s debt securities on an ongoing basis for the presence of other-than-temporary impairment (“OTTI”). Our analysis takes into consideration current market conditions, length and severity of impairment, extent and nature of the change in fair value, issuer ratings, and whether or not the Company intends to, or may be required to, sell debt securities before recovering any unrealized losses.

The Company recorded a credit related OTTI charge of $.2 million pretax in the second quarter of 2011 related to a pooled trust preferred security in its investment portfolio, which also was placed on nonaccrual status at the same time. An additional credit related OTTI charge of $49,000, pretax, relating to this same security was deemed necessary in the first quarter of 2012. We do not intend to sell this security, and it is not likely that we will be required to sell this security, but we do not expect to recover the entire amortized cost basis of the security. The amount of OTTI related to credit losses recognized in earnings represents the portion of amortized cost of the security that we do not expect to recover and is based on the estimated cash flow expected from the security, discounted by the estimated future coupon rates of the security. We estimate cash flows based on the performance of the underlying collateral for the security and the overall structure of the security. Factors considered in the performance of underlying collateral include current default and deferral rates, estimated future default, deferral and recovery rates, and prepayment rates. Factors considered in the overall structure of the security include the impact of the underlying collateral cash flow on debt coverage tests and subordination levels. The remaining impairment on this security that is related to all other factors is recognized in other comprehensive income. Given regulatory guidelines on expectation of full payment of interest and principal as well as extended payments in kind, this pooled trust preferred security was placed on nonaccrual status. In October 2011 the Company placed another pooled trust preferred security, with payments in kind, on nonaccrual status. However, while this security had an impairment loss of $1.6 million at March 31, 2012, the security had no credit related OTTI as of March 31, 2012.

The following table presents a summary of the significant inputs utilized to measure the other-than-temporary impairment related to credit losses associated with the above pooled trust preferred security at March 31, 2012, and March 31, 2011:

(Dollars in thousands)
	March 31, 2012	March 31, 2011
Default Rate	0.75%	N/A
Recovery Rate	15.00%	N/A
Prepayments	1.00%	N/A

The following table presents information about the securities with OTTI losses for the three months ended March 31, 2012, and 2011:

(Dollars in thousands)
	Year to date March 31,
	2012		2011
Other-than-temporary impairment losses on securities	$	(1,726	)	$	-
Portion of other-than temporary, non-credit related losses
recognized in other comprehensive income		1,677			-
Net other-than-temporary impairment losses on securities	$	(49	)	$	-

The following table presents a tabular roll forward of the amount of credit related OTTI recognized in earnings for the periods ended March 31, 2012, and March 31, 2011:

(Dollars in thousands)
	Period ended
	March 31, 2012		March 31, 2011
Balance of net other-than-temporary impairment losses on securities, beginning of period	$	(179	)	$	-
Net other-than-temporary impairment losses on securities in the period		(49	)		-
Balance of net other-than-temporary impairment losses on securities, end of period	$	(228	)	$	-

At March 31, 2012, and December 31, 2011, the Company had $299.2 million and $291.0 million, respectively, in investment securities being provided as collateral to the Federal Home Loan Bank of Seattle (“FHLB”), the Federal Reserve Bank of San Francisco (“Reserve Bank”), the State of Oregon, the State of Washington, and others to support the Company’s borrowing capacities and certain public fund deposits. At March 31, 2012, and December 31, 2011, Bancorp had no reverse repurchase agreements.

- 14 -

3. INVESTMENT SECURITIES

The following table presents the contractual maturities of the investment securities available for sale at March 31, 2012:

(Dollars in thousands)	Available for sale
March 31, 2012	Amortized cost		Fair value
U.S. Treasury securities
One year or less	$	200		$	201
After one year through five years		-			-
After five through ten years		-			-
Due after ten years		-			-
Total		200			201

U.S. Government agency securities:
One year or less		499			501
After one year through five years		190,673			193,967
After five through ten years		-			-
Due after ten years		-			-
Total		191,172			194,468

Corporate securities:
One year or less		-			-
After one year through five years		500			500
After five through ten years		-			-
Due after ten years		13,803			8,017
Total		14,303			8,517

Obligations of state and political subdivisions:
One year or less		1,515			1,566
After one year through five years		15,787			16,740
After five through ten years		29,109			31,729
Due after ten years		10,358			11,151
Total		56,769			61,186

Sub-total		262,444			264,372

Mortgage-backed securities		384,206			394,234
Equity investments and other securities		11,292			11,928
Total securities	$	657,942		$	670,534

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

- 15 -

4. LOANS AND ALLOWANCE FOR CREDIT LOSSES

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

(Dollars in thousands)	March 31, 2012		December 31, 2011
Commercial	$	278,195		$	299,766
Real estate construction		31,921			30,162
Real estate mortgage		318,053			324,994
Commercial real estate		830,053			832,767
Installment and other consumer		12,626			13,612
Total loans		1,470,848			1,501,301
Allowance for loan losses		(33,854	)		(35,212	)
Total loans, net	$	1,436,994		$	1,466,089

The following table presents an age analysis of the loan portfolio, including nonaccrual loans, for the periods shown:

(Dollars in thousands)	March 31, 2012
	30 - 89 days		Greater than		Total	Current		Total
	past due		90 days past due		past due	loans		loans
Commercial	$	766		$	4,717	$	5,483		$	272,712	$	278,195
Real estate construction		-			5,732		5,732			26,189		31,921
Real estate mortgage		3,836			4,100		7,937			310,116		318,053
Commercial real estate		6,090			6,326		12,416			817,637		830,053
Installment and other consumer		83			1		83			12,543		12,626
Total	$	10,775		$	20,876	$	31,651		$	1,439,197	$	1,470,848

(Dollars in thousands)	December 31, 2011
	30 - 89 days		Greater than		Total	Current		Total
	past due		90 days past due		past due	loans		loans
Commercial	$	849		$	5,692	$	6,541		$	293,225	$	299,766
Real estate construction		-			5,522		5,522			24,640		30,162
Real estate mortgage		3,787			6,226		10,013			314,981		324,994
Commercial real estate		3,619			6,328		9,947			822,820		832,767
Installment and other consumer		56			1		57			13,555		13,612
Total	$	8,311		$	23,769	$	32,080		$	1,469,221	$	1,501,301

Loans greater than 90 days past due are classified into nonaccrual status. In addition, certain loans not 90 days past due are on nonaccrual status.

- 16 -

4. LOANS AND ALLOWANCE FOR CREDIT LOSSES

The Company had $56.0 million of impaired loans at March 31, 2012, down slightly from $56.4 million December 31, 2011. The following table presents an analysis of impaired loans for the periods shown:

													Quarter ended
(Dollars in thousands)	March 31, 2012		March 31, 2012
	Unpaid principal		Impaired loans		Impaired loans	Total impaired		Related		Average impaired
	balance ¹		with no allowance		with allowance	loan balance		allowance		loan balance
Commercial	$	17,869		$	6,482	$	410		$	6,892	$	-	$	6,750
Real estate construction		11,123			5,731		41			5,772		-		5,616
Real estate mortgage		30,935			13,271		4,989			18,260		26		18,603
Commercial real estate		26,533			16,648		8,338			24,986		47		24,017
Installment and other consumer		1,886			1		86			87		-		147
Total	$	88,346		$	42,133	$	13,864		$	55,997	$	73	$	55,133

													Quarter ended
(Dollars in thousands)	December 31, 2011		December 31, 2011
	Unpaid principal		Impaired loans		Impaired loans	Total impaired		Related		Average impaired
	balance ¹		with no allowance		with allowance	loan balance		allowance		loan balance
Commercial	$	18,736		$	7,750	$	224		$	7,974	$	1	$	10,504
Real estate construction		9,716			5,823		41			5,864		-		8,405
Real estate mortgage		30,732			11,949		6,779			18,728		329		20,892
Commercial real estate		25,426			15,070		8,604			23,674		173		25,969
Installment and other consumer		1,812			5		175			180		-		54
Total	$	86,422		$	40,597	$	15,823		$	56,420	$	503	$	65,824

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

The Company recorded $.6 million in new TDR’s in the quarter ended March 31, 2012, compared to $2.3 million during the corresponding quarter in 2011. The balance of TDRs at March 31, 2012, was $35.9 million down slightly from $37.6 million at December 31, 2011. The following table presents an analysis of TDRs recorded for the periods ended March 31, 2012, and March 31, 2011:

(Dollars in thousands)	TDRs recorded for the three months ending		TDRs recorded in the 12 months prior to March 31, 2012 that
	March 31, 2012		subsequently defaulted in the three months ending March 31, 2012
	Number of		Pre-TDR outstanding		Post-TDR outstanding	Number of		Pre-TDR outstanding		Amount Defaulted
	loans		recorded investment		recorded investment	loans		recorded investment
Commercial		2		$	649	$	649		-		$	-	$	-
Real estate construction		-			-		-		1			983		983
Real estate mortgage		-			-		-		-			-		-
Commercial real estate		-			-		-		-			-		-
Consumer loans		-			-		-		-			-		-
Total		2		$	649	$	649		1		$	983	$	983

(Dollars in thousands)	TDRs recorded for the three months ending		TDRs recorded in the 12 months prior to March 31, 2011 that
	March 31, 2011		subsequently defaulted in the three months ending March 31, 2011
	Number of		Pre-TDR outstanding		Post-TDR outstanding	Number of		Pre-TDR outstanding		Amount Defaulted
	loans		recorded investment		recorded investment	loans		recorded investment
Commercial		5		$	296	$	296		-		$	-	$	-
Real estate construction		1			744		744		-			-		-
Real estate mortgage		3			1,128		1,128		-			-		-
Commercial real estate		1			180		180		-			-		-
Consumer loans		-			-		-		1			88		87
Total		10		$	2,348	$	2,348		1		$	88	$	87

TDRs are considered impaired and as such are typically measured based on the fair value of the collateral less selling costs. For TDRs that are collateral dependent, the Company charges off the amount of impairment at the time of impairment, rather than creating a specific reserve for the impairment amount.

- 17 -

4. LOANS AND ALLOWANCE FOR CREDIT LOSSES

The Company had $42.1 million of nonaccrual loans at March 31, 2012, compared to $40.6 million at December 31, 2011. The following table presents nonaccrual loans by category as of the dates shown:

	March 31,		December 31,
(Dollars in thousands)	2012		2011
Commercial	$	6,482		$	7,750
Real estate construction		5,730			5,823
Real estate mortgage		13,272			11,949
Commercial real estate		16,648			15,070
Installment and other consumer		1			5
Total loans on nonaccrual status	$	42,133		$	40,597

The Company uses a risk rating matrix to assign a risk rating to loans not evaluated on a homogenous pool level. At March 31, 2012, $1.08 billion of loans were risk rated and $388.4 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 or 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.

- 18 -

4. LOANS AND ALLOWANCE FOR CREDIT LOSSES

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, 2011, to March 31, 2012. Overall classified loans have contracted from December 31, 2011, with reductions in all classified categories during the first three months of 2012.

(Dollars in thousands)	March 31, 2012		December 31, 2011
	Weighted average		Classified		Weighted average	Classified
	risk rating		loans		risk rating	loans
Commercial		5.79		$	19,970		5.84	$	22,401
Real estate construction		6.89			12,423		6.99		13,159
Real estate mortgage		6.53			23,695		6.50		24,004
Commercial real estate		5.68			35,094		5.67		35,255
Installment and other consumer ¹		7.79			262		7.87		358
Total				$	91,444			$	95,177

Total loans risk rated	$	1,082,468				$	1,103,713

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

The following table presents homogeneous loans where credit risk is evaluated on a portfolio basis by category, and includes home equity loans and lines of credit and certain small business loans. Important credit quality metrics for this portfolio include balances on nonaccrual and past due status. Total loans and lines evaluated on a homogeneous pool basis were $388.4 million at March 31, 2012, and $397.6 million at December 31, 2011.

(Dollars in thousands)	March 31, 2012		December 31, 2011
	Current		Nonaccrual		30 - 89 days	Current		Nonaccrual		30 - 89 days
	status		status		past due	status		status		past due
Commercial	$	43,864		$	1	$	87		$	46,774	$	11	$	112
Real estate construction		-			4		-			-		4		-
Real estate mortgage		249,479			13		1,258			254,107		13		1,480
Commercial real estate		80,842			233		307			81,601		1		283
Installment and other consumer		12,209			1		83			13,146		-		56
Total	$	386,394		$	252	$	1,735		$	395,628	$	29	$	1,931

- 19 -

4. LOANS AND ALLOWANCE FOR CREDIT LOSSES

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

(Dollars in thousands)	Three months ended March 31, 2012
				Real estate		Real estate	Commercial		Installment and
	Commercial		construction	mortgage		real estate	other consumer		Unallocated	Total
Beginning balance December 31, 2011	$	7,746		$	2,490		$	8,461		$	11,833		$	1,067		$	4,386		$	35,983
Provision for credit losses		(882	)		(186	)		682			48			324			103			89
Losses charged to the allowance		(634	)		(3	)		(1,239	)		(62	)		(419	)		-			(2,357	)
Recoveries credited to the allowance		639			2			163			21			94			-			919
Ending balance March 31, 2012	$	6,869		$	2,303		$	8,067		$	11,840		$	1,066		$	4,489		$	34,634

Loans valued for impairment:
Individually	$	6,892		$	5,772		$	18,260		$	24,986		$	87		$	-		$	55,997
Collectively		271,303			26,149			299,793			805,067			12,539			-			1,414,851
Total	$	278,195		$	31,921		$	318,053		$	830,053		$	12,626		$	-		$	1,470,848

(Dollars in thousands)	Twelve months ended December 31, 2011
				Real estate		Real estate	Commercial		Installment and
	Commercial		construction	mortgage		real estate	other consumer		Unallocated	Total
Beginning balance December 31, 2010	$	8,541		$	4,474		$	8,156		$	12,462		$	1,273		$	6,161		$	41,067
Provision for credit losses		1,262			(174	)		5,853			1,849			1,118			(1,775	)		8,133
Losses charged to the allowance		(3,393	)		(2,088	)		(5,771	)		(2,526	)		(1,632	)		-			(15,410	)
Recoveries credited to the allowance		1,336			278			223			48			308			-			2,193
Ending balance at December 31, 2011	$	7,746		$	2,490		$	8,461		$	11,833		$	1,067		$	4,386		$	35,983

Loans valued for impairment:
Individually	$	7,974		$	5,864		$	18,728		$	23,674		$	180		$	-		$	56,420
Collectively		291,792			24,298			306,266			809,093			13,432			-			1,444,881
Total	$	299,766		$	30,162		$	324,994		$	832,767		$	13,612		$	-		$	1,501,301

The decline in the provision for credit losses and the allowance for credit losses reflected the improving trend in the overall risk profile of the loan portfolio. The allowance for credit losses declined largely due to lower overall loan balances as well as additional impaired loans moving from the general valuation allowance to individually being measured for impairment.

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

(Dollars in thousands)	March 31, 2012		March 31, 2011
Allowance for loan losses	$	33,854		$	39,692
Reserve for unfunded commitments		780			737
Total allowance for credit losses	$	34,634		$	40,429

- 20 -

5. OTHER REAL ESTATE OWNED, NET

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

(Dollars in thousands)	Three months ended
	March 31, 2012		March 31, 2011
Balance, beginning period	$	30,823		$	39,459
Additions to OREO		810			6,479
Disposition of OREO		(3,587	)		(5,952	)
Valuation adjustments in the period		(521	)		(657	)
Total OREO	$	27,525		$	39,329

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

(Dollars in thousands)	Three months ended
	March 31, 2012		March 31, 2011
Balance, beginning period	$	8,151		$	7,584
Valuation adjustments in the period		521			657
Deductions from the valuation allowance due to disposition		(599	)		(816	)
Total OREO valuation allowance	$	8,073		$	7,425

- 21 -

6. EARNINGS PER SHARE

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

Diluted earnings per share is computed in a similar manner to basic earnings per share except that the denominator of weighted average common shares is increased to include the number of additional common shares that would have been outstanding if shares issuable upon exercise of options and warrants were included in earnings per share. In addition, under the two-class method, net income, the numerator, is adjusted to reflect the allocation of net income to participating securities such as preferred stock and non-vested restricted stock. For the diluted earnings per share computation, the treasury stock method is applied and compared to the two-class method and whichever method results in a more dilutive impact is utilized to calculate diluted earnings per share. The two-class method was utilized to calculate diluted earnings per share for the quarter ended March 31, 2012.

On May 19, 2011, Bancorp implemented the Reverse Stock Split. All share and per share related amounts have been restated to reflect the Reverse Stock Split. The following table reconciles the numerator and denominator of the basic and diluted earnings per share computations for the quarters ended March 31, 2012, and 2011:

(Dollars and shares in thousands, except per share amounts)	Three months ended
	March 31, 2012		March 31, 2011
Net income	$	5,789		$	5,105
Less: Net income allocated to participating securities-basic:
Preferred stock		342			302
Non-vested restricted stock		74			81
Net income available to common stock holders-basic		5,373			4,722
Add: Net income allocated per two-class method-diluted:
Stock options and Class C warrants		20			18
Net income available to common stockholders-diluted	$	5,393		$	4,740

Weighted average common shares outstanding-basic		19,038			18,960
Common stock equivalents from:
Stock options		21			23
Class C warrants		995			956
Weighted average common shares outstanding-diluted		20,054			19,939

Basic earnings per share	$	0.28		$	0.25
Diluted earnings per share	$	0.27		$	0.24

Common stock equivalent shares excluded due to anti-dilutive effect		185			229

- 22 -

7. COMMITMENTS AND CONTINGENT LIABILITIES

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

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

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

	Contract or		Contract or
	Notional Amount		Notional Amount
(Dollars in thousands)	March 31, 2012		December 31, 2011
Financial instruments whose contract amounts represent credit risk:
Commitments to extend credit in the form of loans
Commercial	$	264,763		$	251,105
Real estate construction		20,382			23,932
Real estate mortgage
Mortgage		3,100			3,419
Home equity loans and lines of credit		148,190			150,196
Total real estate mortgage loans		151,290			153,615
Commercial real estate		8,289			10,993
Installment and consumer		10,037			9,907
Other		15,039			12,803
Standby letters of credit and financial guarantees		8,268			8,349
Account overdraft protection instruments		99,989			103,642

Total	$	578,057		$	574,346

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

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

Interest rates on residential 1-4 family mortgage loan applications are typically rate locked during the application stage for periods ranging from 15 to 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 results of operations. This activity is managed daily.

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

- 23 -

8. LONG-TERM BORROWINGS AND JUNIOR SUBORDINATED DEBT

Long-term borrowings consisted of nine fixed rate, fixed maturity notes with the FHLB totaling $120.0 million at March 31, 2012, with rates ranging from 0.81% to 1.43%, unchanged from December 31, 2011. At March 31, 2012, principal payments due at scheduled maturity of Bancorp’s total long-term borrowings are $50.0 million in 2013, $30.0 million in 2014, $29.3 million in 2015 and $10.7 million in 2016.

Bancorp had no outstanding federal funds purchased from correspondent banks, borrowings from the discount window or reverse repurchase agreements at March 31, 2012.

At March 31, 2012, six wholly-owned subsidiary grantor trusts established by Bancorp had an outstanding balance of $51.0 million in trust preferred securities. Under our December 2009 Written Agreement with the Oregon Department of Consumer and Business Services, Division of Finance and Corporate Securities (“DFCS”) and the Reserve Bank, the Company must request regulatory approval prior to making interest or other payments on its trust preferred securities. Bancorp has no deferred interest on its trust preferred securities at March 31, 2012.

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

(Dollars in thousands)

Preferred

Rate at

Next possible

Issuance Trust

Issuance date

security amount

Rate type ¹

3/31/12

Maturity date

redemption date ²

West Coast Statutory Trust III

September 2003

7,500

Variable

3.42%

September 2033

Currently redeemable

West Coast Statutory Trust IV

March 2004

6,000

Variable

3.26%

March 2034

Currently redeemable

West Coast Statutory Trust V

April 2006

15,000

Variable

1.90%

June 2036

Currently redeemable

West Coast Statutory Trust VI

December 2006

5,000

Variable

2.15%

December 2036

Currently redeemable

West Coast Statutory Trust VII

March 2007

12,500

Variable

2.02%

March 2037

June 2012

West Coast Statutory Trust VIII

June 2007

5,000

Variable

1.85%

June 2037

June 2012

Total

51,000

Weighted rate

2.33%

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

- 24 -

9. SEGMENT AND RELATED INFORMATION

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

Summarized financial information concerning Bancorp’s reportable segments and the reconciliation to Bancorp’s consolidated results are shown in the following table. The “Other” column includes Bancorp’s trust operations and corporate-related items, including interest expense related to trust preferred securities. Investment in subsidiaries is netted out of the presentations below. The “Intersegment” column identifies the intersegment activities of revenues, expenses and other assets between the “Banking” and “Other” segments.

(Dollars in thousands)	Three months ended March 31, 2012
	Banking		Other		Intersegment		Consolidated
Interest income	$	23,324		$	9			$	-		$	23,333
Interest expense		891			309				-			1,200
Net interest income (expense)		22,433			(300	)			-			22,133
Provision for credit losses		89			-				-			89
Noninterest income		7,397			758				(268	)		7,887
Noninterest expense		20,385			908				(268	)		21,025
Income (loss) before income taxes		9,356			(450	)			-			8,906
Provision (benefit) for income taxes		3,293			(176	)			-			3,117
Net income (loss)	$	6,063		$	(274	)		$	-		$	5,789

Depreciation and amortization	$	2,169		$	7			$	-		$	2,176
Assets	$	2,403,930		$	15,765			$	(10,408	)	$	2,409,287
Loans, net	$	1,436,994		$	-			$	-		$	1,436,994
Deposits	$	1,904,382		$	-			$	(9,877	)	$	1,894,505
Equity	$	358,458		$	(37,476	)		$	-		$	320,982

(Dollars in thousands)	Three months ended March 31, 2011
	Banking		Other		Intersegment		Consolidated
Interest income	$	24,906		$	12			$	-		$	24,918
Interest expense		3,130			276				-			3,406
Net interest income (expense)		21,776			(264	)			-			21,512
Provision for credit losses		2,076			-				-			2,076
Noninterest income		8,389			798				(271	)		8,916
Noninterest expense		21,892			932				(271	)		22,553
Income (loss) before income taxes		6,197			(398	)			-			5,799
Provision (benefit) for income taxes		849			(155	)			-			694
Net income (loss)	$	5,348		$	(243	)		$	-		$	5,105

Depreciation and amortization	$	2,125		$	7			$	-		$	2,132
Assets	$	2,446,906		$	18,035			$	(13,084	)	$	2,451,857
Loans, net	$	1,496,008		$	-			$	-		$	1,496,008
Deposits	$	1,940,957		$	-			$	(12,526	)	$	1,928,431
Equity	$	314,632		$	(37,644	)		$	-		$	276,988

- 25 -

10. FAIR VALUE MEASUREMENT AND FAIR VALUES OF FINANCIAL INSTRUMENTS

Bancorp measures or discloses certain financial assets and liabilities at fair value in accordance with GAAP, which defines fair value 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.

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.

GAAP established a fair value hierarchy which prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the instrument’s fair value measurement. The three levels within the fair value hierarchy are described as follows:

Level 1 - Quoted prices in active markets for identical assets utilizing 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.
Level 2 - Other observable 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.
Level 3 - Significant unobservable 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.

The estimated fair values of financial instruments and respective level classifications at March 31, 2012, are as follows:

						Fair value measurements using
						Quoted prices in					Significant
						active markets for		Other observable		unobservable
						identical assets		inputs		inputs
(Dollars in thousands)	Carrying Value		Fair Value		(Level 1)	(Level 2)		(Level 3)
FINANCIAL ASSETS:
Cash and cash equivalents	$	169,684		$	169,684	$	169,684		$	-		$	-
Trading securities		797			797		797			-			-
Investment securities		670,534			670,534		1,978			660,039			8,517
Federal Home Loan Bank stock		12,148			12,148		-			12,148			-
Loans held for sale		1,302			1,302		-			1,302			-
Net loans (net of allowance for loan losses)		1,436,994			1,329,681		-			6,881			1,322,800
Bank owned life insurance		26,423			26,423		-			26,423			-

FINANCIAL LIABILITIES:
Deposits	$	1,894,505		$	1,894,753	$	-		$	1,894,753		$	-
Long-term borrowings		120,000			120,460		-			120,460			-

Junior subordinated debentures-variable		51,000			27,216		-			27,216			-

- 26 -

10. FAIR VALUE MEASUREMENT AND FAIR VALUES OF FINANCIAL INSTRUMENTS

The fair values of financial instruments at December 31, 2011, are as follows:

(Dollars in thousands)	Carrying Value		Fair Value
FINANCIAL ASSETS:
Cash and cash equivalents	$	92,227		$	92,227
Trading securities		747			747
Investment securities available for sale		729,844			729,844
Federal Home Loan Bank stock		12,148			12,148
Net loans (net of allowance for loan losses
and including loans held for sale)		1,469,370			1,394,586
Bank owned life insurance		26,228			26,228

FINANCIAL LIABILITIES:
Deposits	$	1,915,569		$	1,916,030
Long-term borrowings		120,000			120,032

Junior subordinated debentures-variable		51,000			27,350

The Company’s Asset/Liability Management Committee (“ALCO”) oversees the bank’s valuation process and reports such valuations to the Loan, Investment & ALCO Committee of the Board of Directors. 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 March 31, 2012, are recorded at fair value on a recurring basis and 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 available for sale investments 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 unadjusted, 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 pricing models. Securities measured with these valuation techniques are generally classified as Level 2 of the hierarchy.

Level 3 investment securities measured on a recurring basis consist of pooled trust preferred securities. The fair values of these securities were estimated using discounted expected cash flows. 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 and adjusted for an additional liquidity premium.

Federal Home Loan Bank stock – FHLB stock is carried at cost which approximates fair value and equals its par value because the shares can only be redeemed with the FHLB at par.

- 27 -

10. FAIR VALUE MEASUREMENT AND FAIR VALUES OF FINANCIAL INSTRUMENTS

Loans held for sale - Loans held for sale includes mortgage loans that are carried at the lower of cost or market value. The fair value of loans held for sale is based on prices from current offerings of secondary markets. Fair value generally approximates cost because of the short duration these assets on our balance sheet.

Loans - The fair value of loans disclosed and not measured on a recurring or nonrecurring basis 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. These estimates differentiate loans based on their financial characteristics such as loan category, pricing features, and remaining maturity. Prepayment and credit loss estimates are also incorporated into loan fair value estimates as well as an additional liquidity discount to more closely align the fair value with observed market prices.

Loans that are deemed impaired are measured on a nonrecurring basis and based on the present value of expected future cash flows discounted at the loan’s effective interest rate. Loans may also, as a practical expedient, be measured at the loan’s observable market price or the fair market value of the collateral less selling costs if the loan is collateral dependent.

Bank owned life insurance – Bank owned life insurance is carried at 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.

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.

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

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

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

- 28 -

10. FAIR VALUE MEASUREMENT AND FAIR VALUES OF FINANCIAL INSTRUMENTS

The tables below present fair value information on certain assets broken down by recurring or nonrecurring measurement status for the periods shown. 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.

Certain assets, such as loans held for sale, loans measured for impairment, and OREO, are measured at fair value on a nonrecurring basis after initial recognition. As of March 31, 2012, loans amounting to $56.0 million in Bancorp’s loan portfolio were deemed impaired. In addition, during the first quarter, certain OREO properties were written down by a total of $.5 million to reflect additional decreases in estimated fair market value subsequent to the time such properties were placed into OREO.

The observable inputs for Level 2 nonrecurring measurements for loans measured for impairment and OREO balances are generally multiples derived from prices in observed transactions involving comparable properties in similar locations.

				Fair value measurements at March 31, 2012, using
				Quoted prices in active
				markets for identical		Other observable		Significant		Impairment
	Fair Value		assets		inputs		unobservable inputs		recognized
(Dollars in thousands)	March 31, 2012		(Level 1)		(Level 2)		(Level 3)
Recurring fair value measurements:
Trading securities	$	797		$	797		$	-		$	-
Available for sale securities:
U.S. Treasury securities		201			-			201			-
U.S. Government agency securities		194,468			-			194,468			-
Corporate securities		8,517			-			-			8,517
Mortgage-backed securities		394,234			-			394,234			-
Obligations of state and political subdivisions		61,186			-			61,186			-
Equity investments and other securities		11,928			1,978			9,950			-
Total recurring assets measured at fair value	$	671,331		$	2,775		$	660,039		$	8,517

Nonrecurring fair value measurements:
Loans measured for impairment ¹	$	6,881		$	-		$	6,881		$	-	$	2,357
OREO ¹		11,676			-			7,108			4,568		521
Total nonrecurring fair value measurements	$	18,557		$	-		$	13,989		$	4,568	$	2,878

¹ Fair value amounts exclude the estimated selling costs of impaired loan collateral and OREO properties.

				Fair value measurements at December 31, 2011, using
				Quoted prices in active
				markets for identical		Other observable		Significant		Impairment
	Fair Value		assets		inputs		unobservable inputs		recognized
(Dollars in thousands)	December 31, 2011		(Level 1)		(Level 2)		(Level 3)
Recurring fair value measurements:
Trading securities	$	747		$	747		$	-		$	-
Available for sale securities:
U.S. Treasury securities		203			-			203			-
U.S. Government agency securities		219,631			-			219,631			-
Corporate securities		8,507			-			-			8,507
Mortgage-backed securities		428,725			-			428,725			-
Obligations of state and political subdivisions		60,732			-			60,732			-
Equity investments and other securities		12,046			1,980			10,066			-
Total recurring assets measured at fair value	$	730,591		$	2,727		$	719,357		$	8,507

Nonrecurring fair value measurements:
Loans measured for impairment ¹	$	68,466		$	-		$	-		$	68,466	$	15,410
OREO ¹		60,491			-			-			60,491		4,832
Total nonrecurring fair value measurements	$	128,957		$	-		$	-		$	128,957	$	20,242

¹ Fair value amounts exclude the estimated selling costs of impaired loan collateral and OREO properties.

- 29 -

10. FAIR VALUE MEASUREMENT AND FAIR VALUES OF FINANCIAL INSTRUMENTS

The Company made no transfers between hierarchy levels in the first quarter of 2012. It is the Company’s policy to recognize hierarchy level changes as of the end of the reporting period. During second quarter 2011, the Company transferred $2.0 million in equity investments and other securities from a Level 2 instrument to a Level 1 instrument. In addition, the Company had no material changes in valuation techniques for recurring and nonrecurring assets measured at fair value in the quarter ended March 31, 2012.

The following table represents a reconciliation of Level 3 instruments for assets that are measured at fair value on a recurring basis for the three months ended March 31, 2012, and 2011:

				Three months ended March 31, 2012
								Reclassification of
				Gains (losses)			losses from
				included in other			adjustment for		Purchases,
	Balance		comprehensive			impairment of		Issuances, and		Balance
(Dollars in thousands)	January 1, 2012		income			securities		Settlements		March 31, 2012
Corporate securities	$	8,507		$	(39	)		$	49	$	-	$	8,517
Balance	$	8,507		$	(39	)		$	49	$	-	$	8,517

				Three months ended March 31, 2011
								Reclassification of
				Gains (losses)			losses from
				included in other			adjustment for		Purchases,
	Balance		comprehensive			impairment of		Issuances, and		Balance
(Dollars in thousands)	January 1, 2011		income			securities		Settlements		March 31, 2011
Corporate securities	$	9,392		$	458			$	-	$	-	$	9,850
Obligations of state and political subdivisions		957			(68	)			-		-		889
Balance	$	10,349		$	390			$	-	$	-	$	10,739

The following table presents quantitative information about Level 3 fair value measurements:

(Dollars in thousands)
	March 31, 2012		Valuation		Unobservable				Weighted
	Fair Value		technique		inputs		Range		average
Corporate securities	$	8,517		Discounted cash flow		Prepayment rate		0-1%		0.50%
						Deferral/default rate		.25-1.5%		0.88%
						Recovery rate		0-50%		25%
						Recovery lag		0-5 years		2.5 years
						Discount rate		7.8-9.0%		8.30%
OREO		4,568		Income approach		Capitalization rate		7.5 - 8.5%		7.95%

The Company estimates the fair value of its Level 3 securities quarterly based on both observable and unobservable inputs. Observable inputs include discount rates derived from current rates on traded corporate bonds. Unobservable inputs are primarily estimates of future cash flows from the Level 3 securities. The Level 3 fair value measurements of our corporate securities are highly sensitive to our estimate of the cash flow from these securities. Higher default or deferral rates and lower recovery rates reduce the overall estimated cash flows and would reduce the estimated fair value of these securities. Prepayment assumptions, recovery lag assumptions and discount rates have a reduced relative effect on the fair value estimates.

- 30 -

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

The following discussion should be read in conjunction with the audited consolidated financial statements and related notes to those statements of West Coast Bancorp (“Bancorp” or the “Company”) that appear under the heading “Financial Statements and Supplementary Data” in Bancorp's Annual Report on Form 10-K for the year ended December 31, 2011 (the “2011 10-K”), as well as the unaudited consolidated financial statements for the current quarter found under Item 1 above.

Forward Looking Statement Disclosure

Statements in this Quarterly 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,” “plans,” “believes,” “anticipates,” “estimates,” “predicts,” “expects,” “projects,” “potential,” or “continue,” or words of similar meaning, often help identify “forward-looking statements,” which include any statements that expressly or implicitly predict future events, results, or performance. Factors that could cause events, results or performance to differ from those expressed or implied by our forward-looking statements include, among others, risks discussed in Item 1A, “Risk Factors” of the 2011 10-K, risks discussed elsewhere in the text of this report, as well as the following specific factors:

General economic conditions, whether national or regional, and conditions in real estate markets, that may hinder our ability to increase lending activities or have an adverse effect on the demand for our loans and other products, our credit quality and related levels of nonperforming assets and loan losses, and the value and salability of the real estate that we own or that is the collateral for many of our loans;
Changing bank regulatory conditions, policies, or programs, whether arising as new legislation or regulatory initiatives, 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 changes in the slope and level of the yield curve, which may be caused by the Federal Reserve Bank’s public comments about future direction and level of interest rates, 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 our investment securities;
Failure to develop, implement, and distribute competitive and client value added products, that may adversely affect our ability to generate additional revenues;
Any failure to successfully implement expense reduction initiatives and realize expected efficiencies, while retaining revenues, that may result in us realizing less benefits from our cost reduction initiatives than expected; 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 expenses; and monitor and manage its 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. We do not intend to publicly revise or update forward-looking statements to reflect events or circumstances that arise after the date of this report.

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

Community Reinvestment Act (“CRA”)

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

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First Quarter 2012 Financial Overview

During first quarter 2012, we recorded:

Net income of $5.8 million an increase of 13% from $5.1 million in first quarter 2011;
A net interest margin of 4.04%, an increase of 23 basis points from 3.81% in first quarter 2011;
An average rate paid on total deposits of .12%, a 26 basis point decline from .38% in first quarter 2011;
A provision for credit losses of $.1 million, a reduction of $2.0 million from $2.1 million for the same quarter in 2011; and
Net loan charge-offs of $1.4 million, a decrease from $2.7 million in first quarter 2011.

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

The Bank’s total and tier 1 risk-based capital ratios increased to 20.88% and 19.62%, respectively, at March 31, 2012, up from 18.28% and 17.02% at March 31, 2011;
The Bank’s leverage ratio improved to 14.85% at March 31, 2012, from 12.87% a year ago; and
Total nonperforming assets decreased by 25% or $23.6 million over the past twelve months, to $69.7 million at quarter end.

In addition, the Company’s expense reduction initiatives implemented in 2011 positively impacted first quarter 2012 operating results. The Company closed two limited service branches in April 2012, as part of its continuing efforts to reduce expenses and to enhance its operating performance.

Results of Operations

Three months ended March 31, 2012 and 2011

Net Income. Net income for the three months ended March 31, 2012, was $5.8 million, as compared to net income of $5.1 for the three months ended March 31, 2011. Earnings per diluted share for the three months ended March 31, 2012, was $0.27, as compared to earnings per diluted share of $0.24 for the three months ended March 31, 2011.

Diluted earnings per share is calculated using the two-class method since the Company has participating security holders, which are principally comprised of Series B preferred stock and to a much lower extent unvested restricted stock. Under the two-class method for calculating earnings per share, net income is allocated between common shareholders and Series B preferred stock holders. The denominator under the two-class method reflects the dilutive impact, which depends on the market price of our stock, of stock options and the 2.4 million warrants outstanding. Over the recent reporting periods, diluted earnings per share under the two-class method, has not been materially different than earnings per share under the treasury method. For additional detail regarding calculation of our earnings per diluted share in the current quarter and year to date, see Note 6 “Earnings Per Share” of our interim financial statements included under Item 1 of this report.

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

	Three months ended
(Dollars in thousands)	March 31, 2012		March 31, 2011	December 31, 2011
	Average							Average	Interest				Average
	Outstanding		Interest	Yield/		Outstanding		Earned/	Yield/		Outstanding	Interest		Yield/
	Balance		Earned/ Paid	Rate ¹		Balance		Paid	Rate ¹		Balance	Earned/ Paid		Rate ¹
ASSETS:
Interest earning balances
due from banks	$	35,334		$	24		0.28	%	$	106,794		$	70		0.26	%	$	20,530		$	18	0.35	%
Federal funds sold		2,601			1		0.08	%		3,947			1		0.09	%		3,184			1	0.08	%
Taxable securities		651,498			3,607		2.23	%		622,208			4,069		2.65	%		724,398			3,740	2.05	%
Nontaxable securities ²		58,502			757		5.21	%		51,241			737		5.83	%		59,550			809	5.39	%
Loans, including fees ³		1,484,353			19,209		5.20	%		1,530,422			20,299		5.38	%		1,501,734			19,647	5.19	%
Total interest earning assets		2,232,288			23,598		4.25	%		2,314,612			25,176		4.41	%		2,309,396			24,215	4.16	%

Allowance for loan losses		(35,249	)							(40,296	)							(36,101	)
Premises and equipment		24,189								26,667								25,005
Other assets		156,948								149,885								148,020
Total assets	$	2,378,176							$	2,450,868							$	2,446,320

LIABILITIES AND
STOCKHOLDERS' EQUITY:

Interest bearing demand	$	366,636		$	22		0.02	%	$	344,090		$	78		0.09	%	$	375,922		$	24	0.03	%
Savings		123,725			16		0.05	%		106,309			40		0.15	%		117,619			20	0.07	%
Money market		623,111			155		0.10	%		660,672			634		0.39	%		640,247			184	0.11	%
Time deposits		167,417			384		0.92	%		269,038			1,057		1.59	%		179,288			474	1.05	%
Total interest bearing deposits		1,280,889			577		0.18	%		1,380,109			1,809		0.53	%		1,313,076			702	0.21	%

Short-term borrowings		505			1		0.72	%		-			-		0.00	%		11,818			19	0.63	%
Long-term borrowings ⁴ 5		171,000			622		1.46	%		219,599			1,597		2.95	%		177,817			5,271	11.76	%
Total borrowings		171,505			623		1.46	%		219,599			1,597		2.95	%		189,635			5,290	11.07	%
Total interest bearing
liabilities		1,452,394			1,200		0.33	%		1,599,708			3,406		0.86	%		1,502,711			5,992	1.58	%
Demand deposits		585,749								552,229								622,741
Other liabilities		22,782								24,983								23,245
Total liabilities		2,060,925								2,176,920								2,148,697
Stockholders' equity		317,251								273,948								297,623
Total liabilities and
stockholders' equity	$	2,378,176							$	2,450,868							$	2,446,320
Net interest income				$	22,398							$	21,770							$	18,223

Net interest spread							3.92	%							3.55	%						2.58	%

Net interest margin							4.04	%							3.81	%						3.13	%

¹		Yield/rate calculations have been based on more detailed information and therefore may not recompute exactly due to rounding.
²		Interest earned on nontaxable securities has been computed on a 35% tax equivalent basis. The tax equivalent basis adjustment for the three months ended March 31, 2012, and 2011, was $.27 million, $.26 million, respectively, and $.28 million for the three months ended December 31, 2011.
³		Includes balances of loans held for sale and nonaccrual loans.
⁴		Includes portion of $4.4 million prepayment fee in connection with the $80.3 million prepayment in FHLB borrowings in the fourth quarter of 2011.
⁵		Includes junior subordinated debentures with average balance of $51.0 million for the three months ended March 31, 2012, and 2011, and December 31, 2011.

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First quarter 2012 net interest income of $22.1 million increased $.6 million from the same quarter in 2011. Net interest income on a tax equivalent basis was $22.4 million in the most recent quarter, up from $21.8 million in the first quarter of 2011. Average interest earning assets of $2.23 billion for the first quarter of 2012 decreased $82.3 million, or 3.6%, from $2.31 billion for the same period in 2011, while average interest bearing liabilities of $1.60 billion declined $147.3 million or 9.2%, to $1.45 billion.

The first quarter 2012 net interest margin of 4.04% increased 23 basis points from first quarter 2011, as declines in the rate paid on interest bearing liabilities exceeded declines on the yield on earning assets. The reduction in interest bearing deposit and borrowing costs more than offset the effect of a year-over-year decline in average loan balances and lower average yields on both loans and investments. In the second half of 2011 the Bank prepaid $169 million in term FHLB borrowings with an average interest rate of 3.17% and entered into $120.0 million in new FHLB borrowings at an average interest rate of 1.05%. A reduction in cash equivalent investments and corresponding increase in taxable securities along with higher loan prepayment premiums and lower amortization of premiums on mortgage-backed securities also contributed to the increase in net interest income and margin compared to the first quarter of 2011.

As of March 31, 2012, the Bank had $712.4 million in floating and adjustable rate loans with interest rate floors, with $542.9 million of these loans at their floor rate. At March 31, 2011, the Bank had $682.3 million in floating and adjustable rate loans with interest rate floors, with $468.7 million of these loans at their floor rate. The floors have benefited the Company’s loan yield and net interest income and margin over the past few years given the extremely low market interest rate environment. If interest rates rise, the Company anticipates yields on loans at floors will lag underlying changes in market interest rates, although the overall effect will depend on how quickly and dramatically market interest rates rise, as well as how the slope of the market yield curve changes.

At March 31, 2012, management estimated that the Bank remains slightly asset sensitive over the next twelve month measurement period, meaning that earning assets are expected to mature or reprice more quickly than interest bearing liabilities over this period. Whether we will be able to continue to maintain our net interest income and margin will depend on the level of prepayments in our existing loan portfolio and our ability to generate new loans, further reduce nonperforming assets, and control our costs of interest-bearing funds, and timing of existing loans prepaying prior to maturity. These factors are influenced by economic conditions, competitive factors and market interest rate trends. For more information see the discussion under the heading “Quantitative and Qualitative Disclosures about Market Risk” in our 2011 10-K.

Provision for Credit Losses. Bancorp recorded provision for credit losses for the first quarters of 2012 and 2011 of $.1 million and $2.1 million, respectively. The reduction in provision in first quarter 2012 reflects the improvement in risk rating migration during the quarter coupled with a reduction in loan net charge-offs which decreased $1.3 million from the first quarter of 2011. Whether we will be able to continue the trend of decreasing provision for credit losses will depend primarily on economic conditions and the interest rate environment, as an increase in interest rates could put pressure on the ability of our borrowers to repay loans. For more information, see the discussion under the subheading “Allowance for Credit Losses and Net Loan Charge-offs” below.

Noninterest Income. Total noninterest income of $7.9 million for the quarter ended March 31, 2012, decreased $1.0 million from $8.9 million in the first quarter of 2011. As a result of the ongoing impact related to the FDIC guidance on overdraft programs, first quarter deposit service charges declined $.8 million, or 23%, from the first quarter in 2011. While payment systems related revenues increased $.1 million or 5% over the first quarter 2011, trust and investment services revenues declined $.2 million or 19% over the same period. Gains on sales of loans were $.7 million, up 43% from $.5 million in the first quarter of 2011. This increase was due to a higher volume of sales of Small Business Administration loans.

Excluding total net losses on OREO, noninterest income for first quarter 2012 was substantially the same as fourth quarter 2011 after excluding the total net loss on OREO in both quarters. The total loss relating to OREO was $2.0 million in fourth quarter 2011 compared to $.6 million in the current quarter.

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

	Three months ended							Three months ended
(Dollars in thousands)	March 31,		Change	December 31,		Change
	2012		2011	$		%	2011		$	%
Noninterest income
Service charges on deposit accounts	$	2,818		$	3,644		$	(826	)	-23	%	$	3,005		$	(187	)	-6	%
Payment systems related revenue		3,073			2,930			143		5	%		3,081			(8	)	-
Trust and investment services revenues		935			1,148			(213	)	-19	%		1,114			(179	)	-16	%
Gains on sales of loans		735			513			222		43	%		300			435		145	%
Gains (losses) on sales of securities		147			267			(120	)	-45	%		192			(45	)	-23	%
Other-than-temporary impairment losses		(49	)		-			(49	)	-			-			(49	)	-
Other		802			748			54		7	%		708			94		13	%
Total		8,461			9,250			(789	)	-9	%		8,400			61		1	%

OREO gains (losses) on sale		(53	)		323			(376	)	-116	%		(57	)		4		7	%
OREO valuation adjustments		(521	)		(657	)		136		21	%		(1,924	)		1,403		73	%
Total		(574	)		(334	)		(240	)	-72	%		(1,981	)		1,407		71	%

Total noninterest income	$	7,887		$	8,916		$	(1,029	)	-12	%	$	6,419		$	1,468		23	%

Noninterest Expense. Noninterest expense for the three months ended March 31, 2012, of $21.0 million, declined $1.6 million from $22.6 million in first quarter 2011. As a result of cost savings initiatives implemented in 2011, salaries and employee benefits declined $.4 million, or 3%, as compared to first quarter 2011. The reduction in marketing expense in the first quarter 2012 of $.3 million as compared to first quarter 2011 was related to the introduction of a new consumer deposit marketing strategy in 2012. The decline in other noninterest expenses was primarily due to a lower FDIC deposit insurance premium assessment.

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

	Three months ended				Three months ended
(Dollars in thousands)	March 31,		March 31,		Change	December 31,		Change
	2012		2011		$	%		2011	$		%
Noninterest expense
Salaries and employee benefits	$	11,478		$	11,877	$	(399	)	-3	%		$	12,614	$	(1,136	)	-9	%
Equipment		1,662			1,528		134		9	%			1,560		102		7	%
Occupancy		2,075			2,165		(90	)	-4	%			2,162		(87	)	-4	%
Payment systems related expense		1,119			1,247		(128	)	-10	%			1,265		(146	)	-12	%
Professional fees		1,111			982		129		13	%			1,122		(11	)	-1	%
Postage, printing and office supplies		819			810		9		1	%			821		(2	)	-
Marketing		312			651		(339	)	-52	%			659		(347	)	-53	%
Communications		380			378		2		1	%			395		(15	)	-4	%
Other noninterest expense		2,069			2,915		(846	)	-29	%			2,146		(77	)	-4	%
Total	$	21,025		$	22,553	$	(1,528	)	-7	%		$	22,744	$	(1,719	)	-8	%

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

Income Taxes . The Company recorded an income tax provision for the three months ended March 31, 2012, of $3.1 million compared to $.7 million during the first quarter of 2011. The first quarter 2012 provision for income taxes is the result of an effective tax rate of 35% on income before income taxes. The provision for income taxes in the first quarter of 2011 reflected the impact of the Company’s deferred tax asset valuation allowance at that time, which was subsequently fully reversed in the fourth quarter of 2011.

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Balance Sheet Overview

Balance sheet highlights are as follows:

Total assets were $2.4 billion as of March 31, 2012, substantially unchanged from December 31, 2011;
Total loans declined $30 million or 2% during the most recent quarter to $1.5 billion at March 31, 2012;
The combined balance of total cash equivalents and investment securities was $840 million, or 37% of earning assets, at March 31, 2012;
Total deposits of $1.9 billion at March 31, 2012, were down $21 million or 1% from year end 2011; and
Shareholders’ equity increased by $7 million during the first quarter 2012 and the Company’s capital ratios continued to strengthen from already solid levels.

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

Cash and Cash Equivalents

Total cash and cash equivalents increased to $169.7 million at March 31, 2012, from $92.2 million at December 31, 2011.

(Dollars in thousands)	March 31,		% of		December 31,	% of		Change				March 31,		% of
	2012		total		2011	total		Amount		%	2011		total
Cash and cash equivalents:
Cash and due from banks	$	59,146		35	%	$	59,955		65	%	$	(809	)		-1	%	$	50,865	29	%
Federal funds sold		1,803		1	%		4,758		5	%		(2,955	)		-62	%		1,966	1	%
Interest-bearing deposits in other banks		108,735		64	%		27,514		30	%		81,221			295	%		122,224	70	%
Total cash and cash equivalents	$	169,684		100	%	$	92,227		100	%	$	77,457			84	%		175,055	100	%

Investment Portfolio

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

	March 31, 2012		December 31, 2011		March 31, 2011
							Net							Net							Net
	Amortized					Unrealized		Amortized				Unrealized		Amortized				Unrealized
(Dollars in thousands)	Cost		Fair Value		Gain/(Loss)		Cost		Fair Value	Gain/(Loss)		Cost		Fair Value	Gain/(Loss)
U.S. Treasury securities	$	200		$	201		$	1		$	200		$	203	$	3			$	4,259		$	4,282	$	23
U.S. Government agency securities		191,172			194,468			3,296			216,211			219,631		3,420				153,637			153,017		(620	)
Corporate securities		14,303			8,517			(5,786	)		14,351			8,507		(5,844	)			14,514			9,850		(4,664	)
Mortgage-backed securities		384,206			394,234			10,028			419,510			428,725		9,215				403,707			405,740		2,033
Obligations of state and political subdivisions		56,769			61,186			4,417			56,003			60,732		4,729				57,305			59,136		1,831
Equity and other securities		11,292			11,928			636			11,318			12,046		728				11,397			11,680		283
Total Investment Portfolio	$	657,942		$	670,534		$	12,592		$	717,593		$	729,844	$	12,251			$	644,819		$	643,705	$	(1,114	)

At March 31, 2012, the fair value of the investment portfolio was $670.5 million, compared to $729.8 million at 2011 year end, a decrease of 8.1% or $59.3 million. The net unrealized gain in the investment portfolio was $12.6 million at March 31, 2012, compared to $12.3 million at December 31, 2011.

The investment portfolio increased $26.8 million since March 31, 2011. The purchases over the past year were primarily of U.S. Government agency, U.S. Government mortgage-backed, and municipal securities. The purchases consisted principally of U.S. Government agency securities with 3 to 5 year maturities and 10 and 15 year fully amortizing U.S. Government agency mortgage-backed securities. The expected duration of the investment portfolio was 2.6 years at March 31, 2012, compared to 3.1 years at March 31, 2011, and 2.5 years at December 31, 2011.

The Company recorded a credit related OTTI charge of $.2 million pretax, in the second quarter of 2011, related to a pooled trust preferred security in our investment portfolio. Based on its assessment, management determined that the impairment for this security was other-than-temporary in accordance with Generally Accepted Accounting Principles (“GAAP”) and that a charge was appropriate. Given regulatory guidelines on expectation of full payment of interest and principal as well as extended principal in kind payments, this pooled trust preferred security was placed on nonaccrual status. An additional credit related OTTI charge of $49,000 pretax relating to this same security was deemed necessary in the first quarter of 2012. Furthermore, in the fourth quarter 2011 the Company placed another pooled trust preferred security with principal in kind payments on nonaccrual status. However, while this security had an impairment loss of $1.6 million at March 31, 2012, the security had no credit related OTTI as of March 31, 2012.

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For additional detail regarding our investment securities portfolio, see Note 3 “Investment Securities” and Note 10 “Fair Value Measurement and Fair Values of Financial Instruments” of our interim financial statements included under Item 1 of this report.

Loan Portfolio

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

(Dollars in thousands)	March 31,		% of total		Dec. 31,	% of total		Change		March 31,	% of total		Change
	2012		loans		2011	loans		Amount		2011	loans		Amount
Commercial loans	$	278,195		18.9	%	$	299,766		20.0	%	$	(21,571	)	$	306,864	20.0	%	$	(28,669	)
Commercial real estate construction		19,839		1.3	%		17,438		1.2	%		2,401			17,711	1.2	%		2,128
Residential real estate construction		12,082		0.8	%		12,724		0.8	%		(642	)		19,896	1.2	%		(7,814	)
Total real estate construction loans		31,921		2.1	%		30,162		2.0	%		1,759			37,607	2.4	%		(5,686	)
Mortgage		65,063		4.4	%		66,610		4.4	%		(1,547	)		74,920	4.9	%		(9,857	)
Home equity loans and lines of credit		252,990		17.2	%		258,384		17.2	%		(5,394	)		266,606	17.4	%		(13,616	)
Total real estate mortgage loans		318,053		21.6	%		324,994		21.6	%		(6,941	)		341,526	22.3	%		(23,473	)
Commercial real estate loans		830,053		56.4	%		832,767		55.4	%		(2,714	)		834,880	54.3	%		(4,827	)
Installment and other consumer loans		12,626		1.0	%		13,612		1.0	%		(986	)		14,823	1.0	%		(2,197	)
Total loans	$	1,470,848		100.0	%	$	1,501,301		100.0	%	$	(30,453	)	$	1,535,700	100.0	%	$	(64,852	)

The Bank’s total loan portfolio was $1.47 billion at March 31, 2012, a decrease of $30.5 million from December 31, 2011. The decline was principally a result of continued loan payoffs prior to maturity, reflecting the current interest rate environment and economic conditions as well as a decline in commercial credit line commitment utilization, which at March 31, 2012, stood at 37% or the lowest level since the Company began tracking this measure.

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

At March 31, 2012, the Bank had outstanding loans of $.1 million to persons serving as directors, executive officers, principal stockholders and their related interests. These loans, when made, were in the ordinary course of business on substantially the same terms, including interest rates, maturities and collateral, as comparable loans made to customers not related to the Bank. At March 31, 2012, and December 31, 2011, Bancorp had no bankers’ acceptances.

Below is a discussion of our loan portfolio by category.

Commercial. At March 31, 2012, the outstanding balance of commercial loans and lines was $278.2 million or approximately 19% of the Company’s total loan portfolio. The total commercial lines and loans balance decreased by $21.6 million or 7% from $299.8 million at year end 2011, in large part due to the decline in the commercial credit line utilization at March 31, 2012.

At March 31, 2012, commercial lines of credit accounted for $172.1 million or 62% of total outstanding commercial loans and lines, while commercial term loans accounted for $106.1 million or 38% of the total.

Real Estate Construction. At March 31, 2012, the balance of real estate construction loans was $31.9 million, an increase of $1.8 million or 6% from $30.2 million at December 31, 2011. Total real estate construction loans represented 2% of the total loan portfolio at the end of the first quarter, relatively unchanged from December 31, 2011, and a year ago. Additionally, at the end of the first quarter 2012, the Bank’s real estate construction concentration at 13% relative to Tier 1 capital and allowance for credit losses was well within the Interagency Guidelines for Real Estate Lending and the Commercial Real Estate Lending Joint Guidance policy guidelines which set forth a 100% limit for such ratio.

Until the supply and market demand for new homes is more in balance and the volume of homes being foreclosed upon declines from recent levels, there will be limited demand for new residential construction loans in the market place. Limited financing for vertical construction may be made available. However, we still view residential construction lending as high risk.

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

											Change from
	March 31, 2012		December 31, 2011		December 31, 2011	March 31, 2011
				Percent of				Percent of									Percent of
				loan				loan								loan
(Dollars in thousands)	Amount		category		Amount	category		Amount		Percent	Amount		category
Mortgage	$	65,063		20	%	$	66,610		21	%	$	(1,547	)	-2	%	$	74,920	22	%
Home equity loans and lines of credit		252,990		80	%		258,384		79	%		(5,394	)	-2	%		266,606	78	%
Total real estate mortgage	$	318,053		100	%	$	324,994		100	%	$	(6,941	)	-2	%	$	341,526	100	%

At March 31, 2012, real estate mortgage loans totaled $318.1 million or approximately 22% of the Company’s total loan portfolio. This loan category included $7.7 million in nonstandard mortgage loans, a decline from $8.5 million at December 31, 2011, and $11.1 million a year ago. At March 31, 2012, mortgage loans excluding nonstandard mortgage loans measured $57.4 million or 18% of total real estate mortgage loans, a decline from $63.8 million and 19%, respectively, a year ago. Standard residential mortgage loans to borrowers represented $28.8 million of the mortgage loan category, while the remaining $28.6 million were associated with commercial interests utilizing residences as collateral. Such commercial interests included $18.9 million related to businesses, $1.6 million related to condominiums, and $4.1 million related to ownership of residential land.

Home equity lines and loans represented 80% or $253.0 million of the real estate mortgage portfolio at March 31, 2012, and declined $13.6 million from $266.6 million a year earlier. The overall home equity line utilization measured approximately 61% at March 31, 2012, which was unchanged from the line utilization a year ago.

The Bank’s home equity portfolio balances have trended lower as new loan and line originations within this portfolio slowed significantly over the past few years. Should weaknesses in the housing market continue, coupled with persistent high unemployment in our markets, increased real estate mortgage delinquencies and charge-offs may result going forward. Additionally, there may be requests made in the future for repurchases of real estate mortgage loans previously sold by the Company in the secondary market. At March 31, 2012, the number of repurchase requests and the balances associated with those requests was not material.

The following table shows home equity lines of credit and loans by market areas at the date shown and, with the exception of Bend where we no longer have a branch presence, indicates a geographic distribution of balances remaining fairly representative of our branch presence in these markets:

(Dollars in thousands)	March 31, 2012		December 31, 2011
Region	Amount		Percent of total		Amount	Percent of total
Portland-Beaverton, Oregon / Vancouver, Washington	$	119,546		47.3	%	$	122,543	47.4	%
Salem, Oregon		59,662		23.6	%		61,019	23.6	%
Oregon non-metropolitan area		27,134		10.7	%		27,419	10.6	%
Olympia, Washington		16,709		6.6	%		17,268	6.7	%
Washington non-metropolitan area		13,002		5.1	%		12,859	5.0	%
Bend, Oregon		3,736		1.5	%		4,377	1.7	%
Other		13,201		5.2	%		12,899	5.0	%
Total home equity loan and line portfolio	$	252,990		100	%	$	258,384	100.0	%

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

(Dollars in thousands)	March 31, 2012		December 31, 2011		March 31, 2011
				% of loan				% of loan				% of loan
	Amount		category		Amount	category		Amount		category
Office Buildings	$	172,900		20.8	%	$	173,295		20.8	%	$	188,736	22.6	%
Retail Facilities		112,405		13.6	%		118,678		14.3	%		110,859	13.3	%
Multi-Family - 5+ Residential		71,052		8.6	%		55,392		6.7	%		59,707	7.1	%
Medical Offices		62,468		7.5	%		60,094		7.2	%		57,406	6.9	%
Commercial/Agricultural		58,420		7.0	%		63,027		7.6	%		58,435	7.0	%
Industrial parks and related		55,121		6.6	%		60,993		7.3	%		58,269	7.0	%
Manufacturing Plants		53,032		6.4	%		51,852		6.2	%		48,136	5.7	%
Hotels/Motels		35,973		4.3	%		35,893		4.3	%		35,491	4.2	%
Mini Storage		22,423		2.7	%		19,037		2.3	%		23,214	2.8	%
Assisted Living		21,864		2.6	%		22,040		2.6	%		25,510	3.1	%
Food Establishments		18,735		2.3	%		19,054		2.3	%		18,828	2.3	%
Land Development and Raw Land		12,290		1.5	%		17,278		2.1	%		19,527	2.3	%
Other		133,370		16.1	%		136,134		16.3	%		130,762	15.7	%
Total commercial real estate loans	$	830,053		100.0	%	$	832,767		100.0	%	$	834,880	100.0	%

The commercial real estate portfolio decreased $2.7 million or 0.3% from $832.8 million at December 31, 2011, to $830.1 million at March 31, 2012. At quarter end, loans secured by office buildings and retail facilities accounted for 34.4% of the commercial real estate portfolio, relatively unchanged from prior periods shown.

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

	March 31, 2012		December 31, 2011		Change	March 31, 2011
				Mix				Mix					Mix
(Dollars in thousands)	Amount		Percent		Amount	Percent		Amount		Percent	Amount		Percent
Owner occupied	$	376,498		45	%	$	390,589		47	%	$	(14,091	)	-2	%	$	397,309	48	%
Non-owner occupied		453,555		55	%		442,178		53	%		11,377		2	%		437,571	52	%
Total commercial real estate loans	$	830,053		100	%	$	832,767		100	%	$	(2,714	)			$	834,880	100	%

Over the periods shown above, the volume of owner occupied commercial real estate has declined while that of non-owner occupied has increased. At March 31, 2012, the Bank’s commercial real estate concentration, at 124% relative to Tier 1 capital and allowance for credit losses, was well within the Interagency Guidelines for Real Estate Lending and the Commercial Real Estate Lending Joint Guidance policy guidelines which set forth a 300% limit for such ratio.

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As shown in the table below, the distribution of our commercial real estate portfolio at March 31, 2012, with the exception of Bend, was fairly consistent with our branch presence in our operating markets. The average size of our commercial real estate loans was approximately $.5 million at March 31, 2012.

(Dollars in thousands)	March 31, 2012
				Number of		Percent of
Region	Amount		loans		total
Portland-Beaverton, Oregon / Vancouver, Washington	$	427,275		709		51	%
Salem, Oregon		158,054		381		19	%
Oregon non-metropoliton area		53,766		157		6	%
Seattle-Tacoma-Bellevue, Washington		37,993		48		5	%
Washington non-metropoliton area		29,383		100		4	%
Olympia, Washington		31,134		74		4	%
Bend, Oregon		22,318		23		3	%
Other		70,130		107		8	%
Total commercial real estate loans	$	830,053		1,599		100	%

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

	March 31, 2012
				Number of		Percent of
(Dollars in thousands)	Amount		loans		total
2012	$	43,236		77		5.2	%
2013		51,765		105		6.2	%
2014 & After		735,052		1,417		88.6	%
Total commercial real estate loans	$	830,053		1,599		100.0	%

At March 31, 2012, commercial real estate loans with stated loan maturities in 2012 and 2013 totaled $95.0 million or a relatively modest 11.4% of the $830.1 million total commercial real estate portfolio. While qualified commercial real estate borrowers may be incented to refinance such loans given the low interest rate environment, commercial real estate markets continue to be vulnerable to financial and valuation pressures that may limit refinance options for certain borrowers and negatively impact their ability to perform under existing loan agreements. Declining values of commercial real estate or higher market interest rates may also have an adverse effect on the ability of borrowers with maturing loans to satisfy loan to value ratios required to renew such loans.

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Nonperforming Assets, Troubled Debt Restructurings, OREO and Delinquencies

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

	March 31, 2012			Dec. 31, 2011	Sept. 30, 2011		Jun. 30, 2011	Mar. 31, 2011
				Percent of
				loan
(Dollars in thousands)	Amount		category	Amount	Amount		Amount	Amount
Commercial loans	$	6,482		2.3%	$	7,750		$	9,987		$	9,280		$	12,803
Real estate construction loans:
Commercial real estate construction		3,749		18.9%		3,750			3,886			4,357			4,032
Residential real estate construction		1,981		16.4%		2,073			3,311			3,439			4,093
Total real estate construction loans		5,730		18.0%		5,823			7,197			7,796			8,125
Real estate mortgage loans:
Mortgage		10,744		16.5%		9,624			10,877			11,527			12,165
Home equity loans and lines of credit		2,528		1.0%		2,325			3,285			2,755			1,426
Total real estate mortgage loans		13,272		4.2%		11,949			14,162			14,282			13,591
Commercial real estate loans		16,648		2.0%		15,070			21,513			19,263			19,424
Installment and other consumer loans		1		0.0%		5			6			1			-
Total nonaccrual loans		42,133		2.9%		40,597			52,865			50,622			53,943
90 day past due and accruing interest		-				-			-			-			-
Total nonperforming loans		42,133		2.9%		40,597			52,865			50,622			53,943
Other real estate owned		27,525				30,823			30,234			35,374			39,329
Total nonperforming assets	$	69,658			$	71,420		$	83,099		$	85,996		$	93,272

Nonperforming loans to total loans		2.86	%			2.70	%		3.52	%		3.33	%		3.51	%
Nonperforming assets to total assets		2.89	%			2.94	%		3.30	%		3.49	%		3.80	%

Delinquent loans 30-89 days past due	$	4,095			$	4,273		$	5,556		$	9,961		$	4,901
Delinquent loans to total loans		0.28	%			0.28	%		0.37	%		0.65	%		0.32	%

At March 31, 2012, total nonperforming assets were $69.7 million, or 2.89% of total assets, compared to $71.4 million, or 2.94%, at December 31, 2011, and $93.3 million or 3.80% a year ago. Nonperforming assets have declined for twelve consecutive quarters and were down 25% from March 31, 2011. The balance of total nonperforming assets at quarter end reflected write-downs totaling $43.5 million or 39% from the original principal loan balance.

Over the past year, total nonaccrual loans declined $11.8 million or 22% to $42.1 million at March 31, 2012. The declines were concentrated in the commercial, residential real estate construction, and commercial real estate categories. Home equity nonaccrual loans increased over the same period reflecting continued pressures on the residential real estate market over the past year and high level of unemployment within our market areas.

Troubled Debt Restructurings. At March 31, 2012, Bancorp had $35.9 million in loans classified as troubled debt restructurings of which $13.9 million was on an interest accruing status and $22.0 million on nonaccrual status. Troubled debt restructurings were $37.6 million at December 31, 2011, of which $15.8 million was on an interest accruing status and $21.8 million on nonaccrual status. All troubled debt restructurings were considered impaired at March 31, 2012, and at year end 2011. The modifications granted on troubled debt restructurings were due to borrower financial difficulty, and generally provide for a modification of loan terms. The decrease in troubled debt restructurings reflects a decrease in the number of loan modifications in 2011. For more information regarding Bancorp’s troubled debt restructurings and loans, see Note 4 “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 the 2011 10-K.

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Other Real Estate Owned. The following table presents activity in the total OREO portfolio for the periods shown:

(Dollars in thousands)	Total OREO related activity
	Amount		Number
Full year 2011:
Beginning balance January 1, 2011	$	39,459		402
Additions to OREO		21,139		74
Capitalized improvements		523		-
Valuation adjustments		(4,832	)	-
Disposition of OREO properties		(25,466	)	(212	)
Ending balance December 31, 2011	$	30,823		264

First Quarter 2012
Additions to OREO	$	803		9
Capitalized improvements		7		-
Valuation adjustments		(521	)	-
Disposition of OREO properties		(3,587	)	(27	)
Ending balance March 31, 2012	$	27,525		246

The Company has remained focused on OREO property disposition activities. During the first quarter 2012 the Company added $.8 million in OREO property, a significant reduction from prior periods, and disposed of $3.6 million in OREO property. At March 31, 2012, the OREO portfolio consisted of 246 properties, which was valued at $27.5 million. The quarter end OREO balance reflected write-downs totaling 54% from the original loan principal balance an increase from 48% at March 31, 2011. The largest balances in the OREO portfolio at March 31, 2012, were attributable to income producing properties, followed by homes and land, all of which are located within the region in which we operate, with the exception of Bend where we no longer have a branch presence. For more information regarding the Company’s OREO, see the discussion under the subheading “OREO” and “Critical Accounting Policies” included in Item 7 of the Company’s 2011 10-K.

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

(Dollars in thousands)	March 31,		# of		December 31,		# of	September 30,	# of
	2012		properties		2011		properties	2011	properties
Income producing properties	$	9,352		15		$	10,282	15	$	8,139	14
Homes		5,228		16			6,008	17		6,329	27
Land		4,710		14			5,049	16		3,762	10
Residential site developments		3,367		136			3,506	146		4,877	176
Lots		2,453		49			2,932	51		3,175	54
Condominiums		1,641		6			2,252	9		3,131	17
Multifamily		408		4			428	4		455	4
Commercial site developments		366		6			366	6		366	6
Total	$	27,525		246		$	30,823	264	$	30,234	308

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

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Delinquencies. Bancorp also monitors delinquencies, defined as loan balances 30-89 days past due, not on nonaccrual status, as an indicator of future nonperforming assets. Total delinquencies were $4.1 million or .28% of total loans at March 31, 2012, down from $4.3 million or .28% at December 31, 2011, and $4.9 million or .32% at March 31, 2011.

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

(Dollars in thousands)	March 31, 2012		December 31, 2011		March 31, 2011
				Percent of				Percent of						Percent of
	Amount		loan category		Amount	loan category		Amount		loan category
Loans 30-89 days past due, not on nonaccrual status
Commercial	$	413			0.15%	$	683		0.23%		$	797			0.26%
Real estate construction		-			0.00%		-		0.00%			-			0.00%
Real estate mortgage:
Mortgage		674			1.04%		1,355		2.03%			398			0.62%
Home equity loans and lines of credit		1,130			0.45%		1,034		0.40%			562			0.21%
Total real estate mortgage		1,804			0.57%		2,389		0.74%			960			0.28%
Commercial real estate		1,795			0.22%		1,145		0.14%			2,988			0.36%
Installment and consumer		83			0.66%		56		0.41%			156			1.06%
Total loans 30-89 days past due, not in nonaccrual status	$	4,095				$	4,273				$	4,901

Delinquent loans past due 30-89 days to total loans		0.28	%				0.28%					0.32	%

Allowance for Credit Losses and Net Loan Charge-offs

Allowance for Credit Losses. An allowance for credit losses has been established based on management’s best estimate, as of the balance sheet date, of probable losses inherent in the loan portfolio. For more information regarding the Company’s allowance for credit losses and net loan charge-offs, see the discussion under the subheadings “Credit Management”, “Allowance for Credit Losses and Net Loan Charge-offs” and “Critical Accounting Policies” included in Item 7 of the Company’s 2011 10-K.

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

	March 31,		Dec. 31,	Sept. 30,		June 30,	Mar. 31,
(Dollars in thousands)	2012		2011	2011		2011	2011
Loans outstanding at end of period	$	1,470,848		$	1,501,301		$	1,503,624		$	1,521,147		$	1,535,700
Average loans outstanding during the period		1,482,522			1,498,437			1,515,091			1,523,170			1,529,290

Allowance for credit losses, beginning of period		35,983			37,016			39,231			40,429			41,067
Total provision for credit losses		89			1,499			1,132			3,426			2,076
Loan charge-offs:
Commercial		(634	)		(710	)		(1,462	)		(460	)		(761	)
Commercial real estate construction		-			(136	)		(472	)		(648	)		(65	)
Residential real estate construction		(3	)		(143	)		(95	)		(218	)		(311	)
Total real estate construction		(3	)		(279	)		(567	)		(866	)		(376	)
Mortgage		(691	)		(191	)		(257	)		(230	)		(626	)
Home equity lines of credit		(548	)		(760	)		(547	)		(2,301	)		(859	)
Total real estate mortgage		(1,239	)		(951	)		(804	)		(2,531	)		(1,485	)
Commercial real estate		(62	)		(834	)		(800	)		(563	)		(329	)
Installment and consumer		(191	)		(130	)		(32	)		(201	)		(176	)
Overdraft		(228	)		(288	)		(279	)		(239	)		(287	)
Total loan charge-offs		(2,357	)		(3,192	)		(3,944	)		(4,860	)		(3,414	)
Recoveries:
Commercial		639			418			281			139			498
Commercial real estate construction		-			88			-			-			-
Residential real estate construction		2			3			182			5			-
Total real estate construction		2			91			182			5			-
Mortgage		157			14			11			8			106
Home equity loans and lines of credit		6			37			31			10			6
Total real estate mortgage		163			51			42			18			112
Commercial real estate		21			22			21			2			3
Installment and consumer		26			11			26			16			8
Overdraft		68			67			45			56			79
Total recoveries		919			660			597			236			700
Net loan charge-offs		(1,438	)		(2,532	)		(3,347	)		(4,624	)		(2,714	)
Allowance for credit losses, end of period	$	34,634		$	35,983		$	37,016		$	39,231		$	40,429

Components of allowance for credit losses
Allowance for loan losses	$	33,854		$	35,212		$	36,314		$	38,422		$	39,692
Reserve for unfunded commitments		780			771			702			809			737
Total allowance for credit losses	$	34,634		$	35,983		$	37,016		$	39,231		$	40,429

Net loan charge-offs to average loans annualized		0.39	%		0.67	%		0.88	%		1.22	%		0.72	%

Allowance for loan losses to total loans		2.30	%		2.35	%		2.42	%		2.53	%		2.58	%
Allowance for credit losses to total loans		2.35	%		2.40	%		2.46	%		2.58	%		2.63	%

Allowance for loan losses to nonperforming loans		80	%		87	%		69	%		76	%		74	%
Allowance for credit losses to nonperforming loans		82	%		89	%		70	%		78	%		75	%

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At March 31, 2012, the Company’s allowance for credit losses was $34.6 million, consisting of a $29.2 million formula allowance, a $4.5 million unallocated allowance, a $.1 million specific allowance and a $.8 million reserve for unfunded commitments. At December 31, 2011, our allowance for credit losses was $36.0 million, consisting of a $30.3 million formula allowance, a $4.4 million unallocated allowance, a $.5 million specific allowance and a $.8 million reserve for unfunded commitments. The reduction in provision in first quarter 2012 reflects the improvement in risk rating migration during the quarter coupled with a reduction in loan net charge-offs. At March 31, 2012, the allowance for credit losses was 2.35% of total loans, a decrease from 2.40% at December 31, 2011. At March 31, 2012, the allowance for credit losses was 82% of nonperforming loans, as compared to 89% at December 31, 2011, and to 75% twelve months earlier.

Overall, we believe that the allowance for credit losses is adequate to absorb probable losses in the loan portfolio at March 31, 2012, although there can be no assurance that future loan losses will not exceed our current estimates. The process for determining the adequacy of the allowance for credit losses is critical to our financial results. Please see Item 1A “Risk Factors” in our 2011 10-K.

Net Loan Charge-offs. For the quarter ended March 31, 2012, total net loan charge-offs were $1.4 million down from $2.7 million in the first quarter of 2011. Year-over-year first quarter, net charge-offs declined across nearly every category. First quarter 2012 annualized net loan charge-offs to total average loans outstanding was 0.39%, down from 0.72% in the same quarter last year and from 0.67% in the previous quarter.

Deposits and Borrowings

The following table summarizes the quarterly average dollar amount in, and the interest rate paid on, each of the deposit and borrowing categories during the first quarters of 2012 and 2011 and fourth quarter 2011:

	First Quarter 2012		Fourth Quarter 2011		First Quarter 2011
	Quarterly Average		Percent		Rate	Quarterly Average		Percent		Rate	Quarterly Average		Percent		Rate
(Dollars in thousands)	Balance		of total		Paid	Balance		of total		Paid	Balance		of total		Paid
Non-interest bearing demand	$	585,749		31.4	%	-			$	622,741	32.2	%		-		$	552,229	28.6	%	-
Interest bearing demand		366,636		19.6	%	0.02	%			375,922	19.4	%		0.03	%		344,090	17.8	%	0.09	%
Savings		123,725		6.6	%	0.05	%			117,619	6.1	%		0.07	%		106,309	5.5	%	0.15	%
Money market		623,111		33.4	%	0.10	%			640,247	33.1	%		0.11	%		660,672	34.2	%	0.39	%
Time deposits		167,417		9.0	%	0.92	%			179,288	9.2	%		1.05	%		269,038	13.9	%	1.59	%
Total deposits		1,866,638		100.0	%	0.12	%			1,935,817	100.0	%		0.14	%		1,932,338	100.0	%	0.38	%

Short-term borrowings		505				0.72	%			11,818				0.63	%		-			0.00	%
Long-term borrowings ^{1 2}		171,000				1.46	%			177,817				11.76	%		219,599			2.95	%
Total borrowings		171,505				1.46	%			189,635				11.07	%		219,599			2.95	%

Total deposits and borrowings	$	2,038,143				0.33	%		$	2,125,452				1.58	%	$	2,151,937			0.86	%

¹ Includes $4.4 million prepayment fee in connections with prepaying $80.3 million in FHLB borrowings in the fourth quarter 2011.
² Long-term borrowings include junior subordinated debentures.

First quarter 2012 average total deposits of $1.87 billion declined 3%, or $65.7 million from the same quarter in 2011. This decrease was mainly due to reductions in higher cost time deposit balances, which declined $101.6 million or 38% from the same quarter last year. Time deposits represented just 9% of the Bank’s average total deposits in the most recent quarter, a decline from 14% in the first quarter of 2011. The combination of the Bank’s favorable shift in deposit mix and deposit pricing strategies helped reduce the average rate paid on total deposits to 0.12% in first quarter 2012, a decline of 26 basis points from 0.38% in the same quarter of 2011 and a decline of two basis points from .14% in the fourth quarter of 2011. Whether we will continue to be successful maintaining our low cost deposit base will depend on various factors, including deposit pricing strategies, market interest rates, the effects of competition, client behavior, and the impact of regulatory changes and requirements.

At March 31, 2012, the Bank did not hold any brokered deposits as compared to $6.0 million at December 31, 2011, and $7.7 million at March 31, 2011. Brokered deposits were not replaced as they matured.

The average balance of long-term borrowings decreased $48.6 million to $171.0 million in the quarter ended March 31, 2012, compared to the same period last year. In the second half of 2011, the Company elected to prepay its FHLB term borrowings of $169 million and to enter into $120 million in new term borrowings with the FHLB in conjunction with managing its interest rate sensitivity position. The rate on the new term borrowings is 1.05%, a reduction from 3.17% on the amount prepaid. At March 31, 2012, the average duration of the new term borrowings was 2.6 years.

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At March 31, 2012, the balance of junior subordinated debentures issued in connection with our prior issuances of trust preferred securities was $51.0 million or unchanged from March 31, 2011. Bancorp has no deferred interest on its outstanding debentures. Under the Company’s December 2009 agreement with the Oregon Department of Consumer and Business Services, Division of Finance and Corporate Securities (“DFCS”) and the Federal Reserve Bank (“Reserve Bank”), the Company must request regulatory approval prior to making payments relating to its trust preferred securities. For additional detail regarding Bancorp’s outstanding debentures, see Note 8 in the financial statements included under Item 1 of this report.

Capital Resources

The Board of Governors of the Federal Reserve System (“Federal Reserve”) and the FDIC have established minimum requirements for capital adequacy for bank holding companies and state non-member banks. For more information on these topics, see the discussions under the subheadings “Capital Adequacy Requirements” in the section “Supervision and Regulation” included in Item 1 of the Company’s 2011 10-K. The following table summarizes the capital measures of Bancorp and the Bank at March 31, 2012:

	West Coast Bancorp		West Coast Bank		Minimum requirements
(Dollars in thousands)	March 31,	December 31,			March 31,	December 31,	Adequately	Well
	2012	2011		2011		2012	2011	2011	Capitalized	Capitalized
Tier 1 risk-based capital ratio	20.36%	17.71%		19.36%		19.62%	17.02%	18.66%	4.00%	6.00%
Total risk-based capital ratio	21.53%	18.98%		20.62%		20.88%	18.28%	19.92%	8.00%	10.00%
Leverage ratio	15.41%	13.40%		14.61%		14.85%	12.87%	14.09%	4.00%	5.00%

Total stockholders' equity	$ 320,982	$ 276,988		$ 314,479		$ 358,458	$ 314,632	$ 352,187

Bancorp’s total risk-based capital ratio increased to 21.53% at March 31, 2012, from 20.62% at December 31, 2011, and 18.98% at March 31, 2011, while Bancorp's Tier 1 risk-based capital ratio increased to 20.36% at the most recent quarter end, from 19.36% at year end 2011 and 17.71% at March 31, 2011. The increases in capital ratios were primarily due to the Company returning to profitability and a reduction in the Company’s asset base. Also, the year-over-year increases in the capital ratios were positively impacted by the effect of fully reversing the Company’s deferred tax asset valuation allowance in the fourth quarter of 2011. The total risk-based capital ratio at the Bank improved to 20.88% at March 31, 2012, from 19.92% at year end 2011, and 18.28% at March 31, 2011, while the Bank’s Tier 1 risk-based capital ratio increased to 19.62% from 18.66% and 17.02% as of the same respective dates. Additionally, the leverage ratio at the Bank improved to 14.85% at March 31, 2012, from 14.09% at year end 2011, and 12.87% a year ago.

The total risk based capital ratios of Bancorp include $51.0 million of junior subordinated debentures which qualified as Tier 1 capital at March 31, 2012, under guidance issued by the Federal Reserve. Bancorp expects to continue to rely on these junior subordinated debentures as part of its regulatory capital, so permitted by applicable law.

Bancorp’s stockholders’ equity was $321.0 million at March 31, 2012, up from $314.5 million at year end 2011 and $277.0 million at March 31, 2011.

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Liquidity and Sources of Funds

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

Deposits are our primary source of funds, and at March 31, 2012, our loan to deposit ratio was 78%, relatively unchanged from December 31, 2011, and a decline from 80% at March 31, 2011. Declining loan balances over the past few years caused the collective balance of interest bearing deposits at the Reserve Bank and investment securities portfolio of $781.1 million to account for a significant 35% of total earning assets at March 31, 2012. In light of our substantial liquidity position we continued to reduce brokered and other time deposits during the most recent quarter.

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

	March 31,	December 31,
	2012	2011
Primary liquidity	51%	45%
On-balance sheet liquidity	27%	26%
Net non-core funding dependency	2%	6%

At March 31, 2012, the Bank had outstanding borrowings of $120.0 million, against its $531.6 million in established borrowing capacity with the FHLB, as compared to $120.0 million outstanding against its $440.4 million in established borrowing capacity at December 31, 2011. The borrowing capacity at the FHLB increased from year end as the FHLB increased the amount they are willing to lend against the Bank’s commercial real estate loan collateral. The Bank’s borrowing facility is subject to collateral and stock ownership requirements. The Bank also had an available discount window primary credit line with the Reserve Bank of approximately $39.8 million at March 31, 2012, with no balance outstanding at either March 31, 2012, or December 31, 2011. The Reserve Bank line is subject to collateral requirements.

On December 15, 2009, Bancorp entered into a Written Agreement with the Reserve Bank and DFCS. For additional discussion of the Written Agreement, see Item 1, “Business – Current Regulatory Actions” in our 2011 10-K. Under the Written Agreement, Bancorp may not directly or indirectly take dividends or other forms of payment representing a reduction in capital from the Bank without the prior written approval of the Reserve Bank and the DFCS. Also, under our Memorandum of Understanding with the FDIC and DFCS, which was entered into in October 2010, the Bank may not pay dividends to the holding company without the consent of the FDIC and the DFCS. At March 31, 2012, the holding company did not have any borrowing arrangements of its own.

Off-Balance Sheet Arrangements

At March 31, 2012, the Bank had commitments to extend credit of $578.1 million, which was up 0.7% compared to $574.3 million at December 31, 2011. For additional information regarding off balance sheet arrangements and future financial commitments, see Note 7 “Commitments and Contingent Liabilities” in the financial statements included under Item 1 of this report.

Critical Accounting Policies

Management has identified as our most critical accounting policies, the calculation of our allowance for credit losses, valuation of OREO, and estimates relating to income taxes. Each of these policies are discussed in our 2011 10-K under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operation – Critical Accounting Policies.”

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Item 3. Quantitative and Qualitative Disclosures About Market Risk

There has been no material change in the market risks disclosure under Item 7A “Quantitative and Qualitative Disclosures about Market Risk” in the Company’s 2011 10-K.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

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

Changes in Internal Control Over Financial Reporting

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

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PART II: OTHER INFORMATION

Item 1. Legal Proceedings

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

Item 1A. Risk Factors

For detailed discussion of additional risks that may affect our business, see Item 1A, “Risk Factors” in our 2011 10-K .

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

(a)		None

(b)		None

(c)		The following table provides information about repurchases of common stock by the Company during the quarter ended March 31, 2012. All share amounts have been restated for the recent Reverse Stock Split:

			Total Number of Shares
			Purchased as Part of Publicly	Maximum Number of Shares Remaining
	Total Number of Shares	Average Price Paid	Announced Plans or Programs	at Period End that May Be Purchased
Period	Purchased (1)	per Share	(2)	Under the Plans or Programs
1/1/12 - 1/31/12	-	$0.00	-	210,364
2/1/12 - 2/29/12	363	$17.15	-	210,364
3/1/12 - 3/31/12	66	$18.79	-	210,364
Total for quarter	429		-

(1)		Shares repurchased by Bancorp include shares acquired from employees in connection with stock option exercises and cancellation of restricted stock to pay withholding taxes totaling 0 shares, 363 shares, and 66 shares, respectively, for the periods indicated. There were no shares repurchased in the periods indicated pursuant to the Company’s corporate stock repurchase program publicly announced in July 2000 (the “Repurchase Program”) and described in note 2 below.

(2)		Under the Repurchase Program, the board of directors originally authorized the Company to repurchase up to 66,000 common shares, which amount was increased by 110,000 shares in September 2000, by .2 million shares in September 2001, by .2 million shares in September 2002, by .2 million shares in April 2004, and by .2 million shares in September 2007 for a total authorized repurchase amount as of March 31, 2012, of approximately 1.0 million shares.

Item 3. Defaults Upon Senior Securities

None

Item 4. Mine Safety Disclosures

None

Item 5. Other Information

None

- 49 -

Item 6. Exhibits

Exhibit No .		Exhibit
10.1		2012 Omnibus Incentive Plan
31.1		Certification of CEO under Rule 13(a) – 14(a) of the Exchange Act.
31.2		Certification of CFO under Rule 13(a) – 14(a) of the Exchange Act.
32		Certification of CEO and CFO under 18 U.S.C. Section 1350.
101.INS		XBRL Instance Document
101.SCH		XBRL Taxonomy Extension Schema Document
101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document
101.LAB		XBRL Taxonomy Extension Label Linkbase Document
101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF		XBRL Taxonomy Extension Definition Linkbase Document

- 50 -

SIGNATURES

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

	WEST COAST BANCORP
	(Registrant)



Dated: May 8, 2012	/s/ Robert D. Sznewajs
	Robert D. Sznewajs
	President and Chief Executive Officer



Dated: May 8, 2012	/s/ Anders Giltvedt
	Anders Giltvedt
	Executive Vice President and Chief Financial Officer

- 51 -

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