WEST COAST BANCORP /NEW/OR/ - 10-Q Quarterly Report

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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 Quarter ended March 31, 2003 Commission file number 0-10997

WEST COAST BANCORP

(Exact name of registrant as specified in its charter)


Oregon (State or other jurisdiction of incorporation or organization)		93-0810577 (I.R.S. Employer Identification No.)


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

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

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act:
Common Stock, No Par Value
(Title of Class)

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 is an accelerated filer (as defined in Exchange Act Rule 12b-2). Yes [X] No [ ]

The number of shares of Registrant’s Common Stock outstanding on April 30, 2003 was 15,211,049.

TABLE OF CONTENTS


PART I. Financial Information
	Item 1. Financial Statements
		CONSOLIDATED BALANCE SHEETS
		CONSOLIDATED STATEMENTS OF INCOME
		CONSOLIDATED STATEMENTS OF CASH FLOWS
		CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
		NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
	Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
	Item 3. Quantitative and Qualitative Disclosures About Market Risk
	Item 4. Controls and Procedures
PART II. Other Information
	Item 1. Legal Proceedings.
	Item 4. Submission of Matters to a Vote of Security Holders.
	Item 6. Exhibits and Reports on Form 8-K.
Signatures
Certification of Chief Executive Officer
Certification of Chief Financial Officer
EX-3.2
EX-3.4
EX-99

WEST COAST BANCORP
FORM 10-Q
Table of Contents


		Page

PART I.	Financial Information
Item 1.	Financial Statements (unaudited)
	Consolidated Balance Sheets - March 31, 2003 and December 31, 2002		3
	Consolidated Statements of Income - Three months ended March 31, 2003 and 2002		4
	Consolidated Statements of Cash Flows - Three months ended March 31, 2003 and 2002		5
	Consolidated Statements of Changes in Stockholders’ Equity - Three months ended March 31, 2003 and year ended December 31, 2002		6
	Notes to Consolidated Financial Statements		7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		12
Item 3.	Quantitative and Qualitative Disclosures About Market Risk		23
Item 4.	Controls and Procedures		23
PART II.	Other Information
Item 1.	Legal Proceedings		24
Item 4.	Submission of Matters to a Vote of Security Holders		24
Item 6.	Exhibits and Reports on Form 8-K		25
Signatures			26
Certification of Chief Executive Officer			27
Certification of Chief Financial Officer			28

PART I. Financial Information

Item 1. Financial Statements

WEST COAST BANCORP
CONSOLIDATED BALANCE SHEETS
(Unaudited)


				March 31,			December 31,
(Dollars in thousands)				2003			2002

ASSETS:
Cash and cash equivalents:
		Cash and due from banks		$	55,433		$	55,026
		Interest-bearing deposits in other banks			27			2,316
		Federal funds sold			5,598			391

			Total cash and cash equivalents		61,058			57,733
Trading assets					956			967
Investment securities available for sale, at fair value (amortized cost: $256,013 and $257,954)					265,072			266,407
Loans held for sale					8,928			10,924
Loans					1,174,242			1,159,915
Allowance for loan losses					(17,246	)		(16,838	)

			Loans, net		1,156,996			1,143,077
Premises and equipment, net					26,169			26,609
Intangible assets, net					1,129			1,218
Bank owned life insurance					13,867			1,757
Other assets					22,999			23,635

			Total assets	$	1,557,174		$	1,532,327

LIABILITIES AND STOCKHOLDERS’ EQUITY
Deposits:
		Demand		$	276,037		$	275,724
		Savings and interest-bearing demand			623,869			619,502
		Certificates of deposit			372,569			371,227

			Total deposits		1,272,475			1,266,453
Short-term borrowings					38,332			9,902
Long-term borrowings					83,000			98,000
Mandatorily redeemable trust preferred securities					12,500			12,500
Other liabilities					16,324			12,085

			Total liabilities		1,422,631			1,398,940
Commitments and contingent liabilities (note 8)
STOCKHOLDERS’ EQUITY:
Preferred stock: no par value, none issued; 10,000,000 shares authorized					—			—
Common stock: no par value, 55,000,000 shares authorized; 15,153,040 and 15,325,937 shares issued and outstanding, respectively					18,941			19,158
Additional paid-in capital					69,743			72,279
Retained earnings					41,592			38,047
Deferred compensation					(658	)		(671	)
Accumulated other comprehensive income					4,925			4,574

	Total stockholders’ equity				134,543			133,387

			Total liabilities and stockholders’ equity	$	1,557,174		$	1,532,327

See notes to consolidated financial statements.

WEST COAST BANCORP
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)


(Dollars and shares in thousands		Three months ended March 31,
except per shares data)		2003		2002

INTEREST INCOME:
Interest and fees on loans		$	19,494	$	20,468
Interest on taxable investment securities			2,211		2,264
Interest on nontaxable investment securities			831		904
Interest on deposits in other banks			4		16
Interest on federal funds sold			8		6

	Total interest income		22,548		23,658
INTEREST EXPENSE:
Savings and interest-bearing demand			1,288		1,900
Certificates of deposit			2,899		3,968
Short-term borrowings			140		121
Long-term borrowings			1,262		1,499
Manditorily redeemable trust preferred securities			261		111

	Total interest expense		5,850		7,599

NET INTEREST INCOME			16,698		16,059
Provision for loan losses			850		878

Net interest income after provision for loan losses			15,848		15,181
NONINTEREST INCOME:
Service charges on deposit accounts			1,672		1,557
Other service charges, commissions and fees			1,392		1,149
Trust revenue			414		461
Gain on sales of loans			1,142		1,092
Bank owned life insurance			110		8
Other			60		948
Gain on sales of securities			192		—

	Total noninterest income		4,982		5,215
NONINTEREST EXPENSE:
Salaries and employee benefits			7,830		7,545
Equipment			1,216		1,332
Occupancy			1,181		1,153
Check and other transaction processing			675		618
Professional fees			501		361
Courier and postage			509		476
Marketing			290		392
Communications			286		295
Other taxes and insurance			182		195
Printing and office supplies			140		171
Other noninterest expense			874		1,426

	Total noninterest expense		13,684		13,964

INCOME BEFORE INCOME TAXES			7,146		6,432
PROVISION FOR INCOME TAXES			2,427		2,189

NET INCOME		$	4,719	$	4,243

	Basic earnings per share	$	0.31	$	0.27
	Diluted earnings per share	$	0.30	$	0.26
	Weighted average common shares		15,147		15,860
	Weighted average diluted shares		15,611		16,305

See notes to consolidated financial statements.

WEST COAST BANCORP
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)


				Three months ended March 31,

(Dollars in thousands)				2003			2002

CASH FLOWS FROM OPERATING ACTIVITIES:
Net income				$	4,719		$	4,243
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation of premises and equipment					691			904
Deferred income tax expense (benefit)					(155	)		98
Write-down of premises and equipment					—			613
Amortization of intangibles					89			90
Provision for loan losses					850			878
Increase in interest receivable					(143	)		(1,019	)
Decrease in other assets					824			140
Gain on sale of securities					(192	)		—
Origination of loans held for sale					(42,214	)		(21,613	)
Proceeds from sales of loans held for sale					44,210			30,364
Increase (decrease) in interest payable					109			(457	)
Increase in other liabilities					4,129			555
Stock based compensation expense					159			124
Tax benefit associated with stock options					55			—
Decrease in trading assets					11			42

			Net cash provided by operating activities		13,142			14,962
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities of available for sale securities					23,520			16,373
Proceeds from sales of securities					4,158			—
Purchase of available for sale securities					(25,800	)		(12,457	)
Purchase of bank owned life insurance					(12,000	)		—
Loans made to customers greater than principal collected on loans					(14,768	)		(12,944	)
Net capital expenditures					(252	)		(324	)

			Net cash used in investing activities		(25,142	)		(9,352	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in demand, savings and interest bearing transaction accounts					4,681			2,621
Net increase in certificates of deposit					1,341			30,659
Proceeds from issuance of long-term borrowings					—			15,000
Repayment of long-term borrowings					(15,000	)		(15,000	)
Net (decrease) increase in short-term borrowings					28,430			(16,786	)
Redemption and repurchase of common stock					(3,081	)		(2,672	)
Net proceeds from issuance of common stock					128			200
Dividends paid and cash paid for fractional shares					(1,174	)		(1,162	)

			Net cash provided by financing activities		15,325			12,860

NET INCREASE IN CASH AND CASH EQUIVALENTS					3,325			18,470
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD					57,733			52,961

CASH AND CASH EQUIVALENTS AT END OF PERIOD				$	61,058		$	71,431

Supplemental cash flow information:
	Cash paid in the period for:
		Interest		$	5,741		$	8,056
		Income taxes		$	1,000		$	1,273

See notes to consolidated financial statements.

WEST COAST BANCORP
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(Unaudited)


																		Accumulated
									Additional									Other
(Shares and Dollars in thousands)			Common Stock						Paid-In			Retained			Deferred			Comprehensive
			Shares			Amount			Capital			Earnings			Compensation			Income		Total

BALANCE, December 31, 2001				16,025		$	20,032		$	82,679		$	24,543		$	(878	)	$	2,414	$	128,790
Comprehensive income:
	Net income			—			—			—			18,203			—			—		18,203
	Other comprehensive income, net of tax:
		Net unrealized investment gains		—			—			—			—			—			2,160		2,160

	Other comprehensive income, net of tax																				2,160

Comprehensive income																				$	20,363

Cash dividends, $.30 per common share				—			—			—			(4,699	)		—			—		(4,699	)
Issuance of common stock- option plans				164			205			1,272			—			—			—		1,477
Redemption of common stock				(35	)		(44	)		(464	)					18			—		(490	)
Activity in Deferred Compensation Plan				13			16			144											160
Issuance of common stock- restricted stock plans				25			31			346						(377	)		—		—
Amortization of deferred compensation restricted stock																566			—		566
Common stock repurchased and retired				(866	)		(1,082	)		(11,999	)								—		(13,081	)
Tax benefit associated with stock options										301									—		301

BALANCE, December 31, 2002				15,326		$	19,158		$	72,279		$	38,047		$	(671	)	$	4,574	$	133,387

Comprehensive income:
	Net income		$	—		$	—		$	—		$	4,719		$	—		$	—	$	4,719
	Other comprehensive income, net of tax:
		Net unrealized investment gains and unrealized derivative losses		—			—			—			—			—			351		351

	Other comprehensive income, net of tax																				351

Comprehensive income																				$	5,070

Cash dividends, $.0775 per common share				—			—			—			(1,174	)		—			—		(1,174	)
Issuance of common stock- option plans				20			25			140									—		165
Redemption of common stock				(3	)		(4	)		(43	)					17			—		(30	)
Activity in Deferred Compensation Plan				—			(1	)		(7	)										(8	)
Issuance of common stock- restricted stock plans				10			13			150						(163	)		—		—
Amortization of deferred compensation restricted stock																159			—		159
Common stock repurchased and retired				(200	)		(250	)		(2,831	)								—		(3,081	)
Tax benefit associated with stock options										55									—		55

BALANCE, March 31, 2003				15,153		$	18,941		$	69,743		$	41,592		$	(658	)	$	4,925	$	134,543

See notes to consolidated financial statements.

WEST COAST BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

1. BASIS OF PRESENTATION

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”), which includes its wholly owned subsidiary Eld inc., West Coast Trust, West Coast Statutory Trust I, West Coast Statutory Trust II, Centennial Funding Corporation and Totten, Inc. All significant intercompany balances and transactions have been eliminated in consolidation.

The interim unaudited financial statements have been prepared by management in accordance with accounting principles generally accepted in the United States of America (“generally accepted accounting principles”) 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 footnotes required by generally accepted accounting principles for complete financial statements.

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The financial information contained in this report reflects all adjustments, which, in the opinion of management, are necessary for a fair presentation of the results of the interim periods. All such adjustments are of a normal recurring nature. The results of operations and cash flows for the three months ended March 31, 2003 are not necessarily indicative of the results that may be expected for the year ending December 31, 2003, or other future periods.

Certain reclassifications of prior year amounts have been made to conform to current classifications. The accompanying interim consolidated financial statements should be read in conjunction with the financial statements and related notes contained in Bancorp’s 2002 Annual Report to Stockholders.

For purposes of reporting cash flows, cash and cash equivalents include cash on hand, amounts due from banks, and federal funds sold. Generally, federal funds are purchased and sold for one-day periods.

Loans Held for Sale includes mortgage loans and are reported at the lower of cost or market value. Gains or losses on the sale of loans that are held for sale and certain SBA loans, are recognized at the time of the sale and determined by the difference between net sale proceeds and the net book value of the loans less the estimated fair value of any retained servicing rights.

Loans are reported net of unearned income. Interest income on loans is accrued daily on the principal balance outstanding. Loan and commitment fees and the direct cost of originating a loan are deferred and recognized over the life of the loan and/or commitment period as yield adjustments. Generally, no interest is accrued on loans when factors indicate collection of interest is doubtful or when the principal or interest payment becomes 90 days past due. For such loans, previously accrued but uncollected interest is charged against current earnings, and income is only recognized to the extent payments are subsequently received.

Impaired loans are measured based on the present value of expected future cash flows discounted at the loan’s effective interest rate or, as a practical expedient, at the loan’s observable market price or the fair value of the collateral if the loan is collateral dependent. Loans that are currently measured at fair value or at lower of cost or fair value, leases and certain large groups of smaller balance homogeneous loans that are collectively measured for impairment are excluded.

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

2. NEW ACCOUNTING PRONOUNCEMENTS

In June 2002, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 146, Accounting for Costs Associated with Exit or Disposal Activities. This Statement requires that a liability for costs associated with an exit or disposal activity be recognized when the liability is incurred and be measured at fair value and adjusted for changes in estimated cash flows. Existing generally accepted accounting principles provide for the recognition of such costs at the date of management’s commitment to an exit plan. Under SFAS No. 146, management’s commitment to an exit plan would not be sufficient, by itself, to recognize a liability. The Statement is effective for exit or disposal activities initiated after December 31, 2002 and is not expected to have a material impact on the results of operations or financial condition of Bancorp.

In October 2002, the FASB issued SFAS No. 147, Acquisitions of Certain Financial Institutions. This Statement amends Statements No. 72 and 44 and FASB Interpretation No. 9. Among other topics, this Statement requires that an unidentifiable intangible asset that is recognized in an acquisition of a financial institution, which is accounted for as a business combination, in which the liabilities assumed exceed the identifiable assets acquired, be recorded as goodwill. Consequently, this unidentifiable intangible asset will be subject to the goodwill accounting standards set forth in SFAS No. 142, Goodwill and Other Intangible Assets, and will be evaluated for impairment on an annual basis instead of being amortized. Bancorp does not currently own intangible assets of this nature, as Bancorp’s intangible assets are identified entirely as deposit intangibles that continue to be amortized.

In December 2002, the FASB issued SFAS No. 148, Accounting for Stock-Based Compensation - Transition and Disclosure. SFAS No. 148 amends SFAS No. 123, Accounting for Stock-Based Compensation to provide alternative methods of transition for an entity that voluntarily changes to the fair value based method of accounting for stock-based employee compensation. This statement is effective for fiscal years ending after December 15, 2002. Management does not expect that the provisions of SFAS No. 148 will impact our results of operations or financial condition.

3. ACCOUNTING FOR STOCK BASED COMPENSATION

At March 31, 2003, Bancorp has multiple stock option plans. Bancorp accounts for its stock option plans using the intrinsic value method under Accounting Principals Board (APB) Opinion 25, under which no compensation cost has been recognized in the periods presented. All options granted under our stock option plans had an exercise price equal to the market value of the underlying common stock on the date of grant. The following table illustrates the effect on net income and earnings per share if the fair value based method established in SFAS No. 123, Accounting for Stock-Based Compensation had been applied to all outstanding and unvested awards in each period.


		Three months ended
		March 31,
(Dollars in thousands, except per share data)		2003			2002

Net income, as reported		$	4,719		$	4,243
Deduct: Total stock-based compensation expense determined under fair value based method for all options, net of related tax effects			(194	)		(154	)

Pro forma net income		$	4,525		$	4,089

Earnings per share:
	Basic-as reported	$	0.31		$	0.27
	Basic-proforma	$	0.30		$	0.26
	Diluted-as reported	$	0.30		$	0.26
	Diluted-proforma	$	0.29		$	0.25

4. COMPREHENSIVE INCOME

The components of comprehensive income are as follows:


		March 31,

(Dollars in thousands)		2003			2002

Net income as reported		$	4,719		$	4,243
Unrealized gains (losses) on securities:
Unrealized holding gains (losses) arising during the period			797			(462	)
Tax provision (benefit)			(313	)		181

Net unrealized gain (loss) on securities, net of tax			484			(281	)
Less: Reclassification adjustment for gains on sales of securities			192			—
Tax provision			(75	)		—

Net realized gains on sale of securities, net of tax			117			—
Unrealized losses on derivatives:
Unrealized holding losses on derivatives arising during the period			(53	)		—
Tax benefit			37			—

Net unrealized holding losses from derivatives, net of tax			(16	)		—

	Total comprehensive income	$	5,070		$	3,962

Bancorp currently uses two single interest-rate swaps to convert its variable rate Trust Preferred Securities to fixed rates. These swaps were entered into concurrently with the issuance of the Trust Preferred Securities. The swaps are accounted for as cash flow hedges under SFAS No. 133. The fair value of Bancorp’s swaps was an unrealized loss of $1.0 million at March 31, 2003 and $1.0 million at December 31, 2002. This unrealized loss is reflected in other liabilities on the consolidated balance sheet, as well as in accumulated other comprehensive income in the consolidated statement of changes in stockholders’ equity.

5. EARNINGS PER SHARE

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


				Weighted Average		Per Share
(Dollars and shares in		Net Income		Shares		Amount
thousands, except per share data)		Three months ended March 31, 2003

Basic earnings		$	4,719		15,147	$	0.31
Common stock equivalents from:
	Stock options				424
	Restricted stock				40

Diluted earnings		$	4,719		15,611	$	0.30


		Three months ended March 31, 2002

Basic earnings		$	4,243	15,860	$	0.27
Common stock equivalents from:
	Stock options			399
	Restricted stock			46

Diluted earnings		$	4,243	16,305	$	0.26

For the periods reported, Bancorp had no reconciling items between net income and income available to common stockholders.

6. PREMISES AND EQUIPMENT

The following table presents the amounts of premises and equipment:


(Dollars in thousands)	March 31, 2003			December 31, 2002

Land	$	4,796		$	4,796
Buildings and improvements		22,881			22,881
Furniture and equipment		22,209			22,432
Construction in progress		115			37

		50,001			50,146
Accumulated depreciation		(23,832	)		(23,537	)

Total	$	26,169		$	26,609

Depreciation included in the net occupancy and equipment expense amounted to $691,000 and $904,000 in the first quarters of 2003 and 2002, respectively. The Company periodically reviews the recorded value of its long-lived assets, specifically premises and equipment, to determine whether impairment exists. During the first quarter of 2003, there were no impairment write downs. In 2002, under the guidance of SFAS No. 144, Accounting for the Impairment or Disposal of Long-lived Assets, the Company recognized a total of $613,000 of expenses in other noninterest expense related to fixed asset write-offs and impairment charges. The fair value of the properties was based on pending sale prices and independent appraisals.

7. ALLOWANCE FOR LOAN LOSSES

The following tables represent activity in the allowance for loan losses for the three months ended March 31 2003, and 2002:


	Three months ending

(Dollars in thousands)	March 31, 2003			March 31, 2002

Balance at beginning of period	$	16,838		$	15,252
Provision for loan losses		850			878
Loans charged off		(688	)		(571	)
Recoveries		246			78

Balance at end of period	$	17,246		$	15,637

8. CONTINGENCIES AND LITIGATION

In April, 2002, a lawsuit was filed against Bancorp in the Circuit Court of the State of Oregon for the County of Lincoln by Walter L. West d.b.a. Walter West Construction Co. The suit is known as Walter L. West, dba Walter West Construction Co. v. Jeffrey Teeny, Stephen L. Stoelk, Shauna L. Stoelk, B.A.S.S. Construction Co., Inc. and West Coast Bancorp. Plaintiffs have asserted claims against Bancorp alleging breach of contract, various estoppel theories, negligent misrepresentation, and interference with prospective economic advantage.

Plaintiff’s allegations relate to Bancorp’s alleged failure to provide take out financing to a third party in connection with a real estate transaction in 1998. Plaintiff alleges that it was a third party beneficiary of an agreement to provide financing and that Bancorp’s actions in connection with the transaction constituted a breach of contract and was tortious under Oregon law. Plaintiff seeks damages from Bancorp in the amount of $3.5 million, plus such additional damages as may be proven at trial.

In addition, 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.

9. SEGMENT AND RELATED INFORMATION

Bancorp accounts for intercompany fees and services at an estimated fair value according to regulatory requirements for the service provided. Intercompany items relate primarily to the use of accounting, human resources, data processing and marketing services provided. All other accounting policies are the same as those described in the summary of significant accounting policies in Bancorp’s 2002 annual report.

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


(Dollars in thousands)			Three months ended March 31, 2003

			Banking		Other			Intersegment			Consolidation

Interest income			$	22,528	$	180		$	(160	)	$	22,548
Interest expense				5,701		309			(160	)		5,850

	Net interest income			16,827		(129	)		—			16,698

Provision for loan loss				850		—			—			850
Noninterest income				4,601		441			(60	)		4,982
Noninterest expense				13,275		469			(60	)		13,684

		Income (loss) before income taxes		7,303		(157	)		—			7,146
Provision (benefit) for income taxes				2,488		(61	)		—			2,427

		Net income (loss)	$	4,815	$	(96	)	$	—		$	4,719

Depreciation and amortization			$	779	$	1		$	—		$	780
Assets			$	1,555,603	$	15,711		$	(14,140	)	$	1,557,174
Loans, net			$	1,156,996	$	12,887		$	(12,887	)	$	1,156,996
Deposits			$	1,280,398	$	—		$	(7,923	)	$	1,272,475
Equity			$	139,875	$	3,112			N/A		$	134,543


(Dollars in thousands)			Three months ended March 31, 2002

			Banking		Other			Intersegment			Consolidation

Interest income			$	23,634	$	130		$	(106	)	$	23,658
Interest expense				7,560		145			(106	)		7,599

	Net interest income			16,074		(15	)		—			16,059

Provision for loan loss				878		—			—			878
Noninterest income				4,792		463			(40	)		5,215
Noninterest expense				13,602		402			(40	)		13,964

		Income before income taxes		6,386		46			—			6,432
Provision for income taxes				2,171		18			—			2,189

		Net income	$	4,215	$	28		$	—		$	4,243

Depreciation and amortization			$	993	$	1		$	—		$	994
Assets			$	1,451,386	$	7,950		$	(6,591	)	$	1,452,745
Loans, net			$	1,081,864	$	5,155		$	(5,155	)	$	1,081,864
Deposits			$	1,210,408	$	—		$	(5,695	)	$	1,204,713
Equity			$	125,439	$	3,803			N/A		$	129,242

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

Forward Looking Statement Disclosure

This Quarterly Report may contain statements regarding future events or performance that 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. Forward-looking statements include, without limitation, statements regarding the outlook for future operations, the effect of changes in interest rates and the yield curve and their effect on Company net interest income and fee income, the adequacy of loan loss reserves, forecasts of future expenses and productivity, evaluation of market conditions, the outcome of legal proceedings, or plans for distribution, product or service development or expansion. Forward-looking statements are subject to risks and uncertainties that may cause actual results to be quite different from those expressed or implied by the forward-looking statements. Factors that could cause actual results to differ include, among others, risks discussed in this Quarterly Report and in Bancorp’s other reports filed with the Securities and Exchange Commission, as well as the following: changes in general economic conditions, whether national or regional, that could affect the demand for loans or lead to increased loan losses; competitive factors, including increased competition with community, regional, and national financial institutions, that may lead to pricing pressures on rates Bancorp charges on loans and pays on deposits or to reduced demand for our products and services; changes in interest rates that could result in decreased net interest margin; loss of customers of greatest value to Bancorp; changing business conditions in the banking industry; changes in the bank regulatory environment or new legislation; changes in vendor quality; and changes in technology or required investments in technology. Readers are cautioned not to place undue reliance on forward-looking statements. Bancorp disclaims any obligation to publicly revise or update forward-looking statements to reflect events or circumstances that arise after the date of this report.

Results of Operations

Three months ended March 31, 2003 and 2002

Net Income. Bancorp reported net income of $4.72 million, or $.30 per diluted share, for the three months ended March 31, 2003, compared to $4.24 million, or $.26 per diluted share, for the three months ended March 31, 2002. Net interest income increased to $16.7 million in the first quarter of 2003 compared to $16.1 million for the same period in 2002, an increase of $.6 million or 4%. The increase in net interest income continues to be driven by higher loan balances, higher loan fees, and improved deposit mix.

Excluding the $.6 million gain on sale of property in the first quarter of 2002, total non-interest income increased 8% from the same period a year ago. This was largely due to an increase in total deposit and other service charges of $.4 million, or 13% from the same period a year ago. During the first quarter 2003, the Company invested $12 million in bank owned life insurance, contributing $.1 million to non-interest income in the quarter, with a partially offsetting impact on net interest income and margin. In addition, the Company recognized a $.2 million gain on the sales of securities during the quarter, which substantially offset the expense associated with a pre-payment of long-term debt. On a GAAP basis, total non-interest income decreased 4% from the prior period to $5.0 million. The decrease in non-interest income in the period is partly due to a gain of $.6 million generated from the sale of property in the first quarter of 2002.

Excluding the first quarter 2002 write-off of certain fixed assets, non-interest expense increased just over 2% from the first quarter of 2002. The period-over-period increase was primarily related to the addition of commercial lending personnel, new branches, and higher commission related expenses. Other than personnel expense, non-interest expense was virtually unchanged with first quarter of 2002.

See “Reconciliation to GAAP Financial Measures” below for further discussion on this section.

Net Interest Income. Net interest income is the difference between interest income (principally from loans and investment securities) and interest expense (principally on customer deposits and borrowings). Changes in net interest income result from changes in volume and net interest spread. Volume is the average dollar level of interest earning assets and interest bearing liabilities. Net interest spread is the difference between the average yield on interest earning assets and the average cost of interest bearing liabilities. Net interest margin is net interest income divided by average interest earning assets and is influenced by the level and relative mix of interest earning assets and interest bearing liabilities. Bancorp’s profitability, like that of many financial institutions, is dependent to a large extent upon net interest income. Our balance sheet is currently slightly liability sensitive, meaning that interest-bearing liabilities mature or reprice more quickly than interest-earning assets in a given period. Therefore, a significant increase in market rates of interest, or a flattening or inverted interest rate yield curve, could adversely affect our net interest income. A steepening interest rate yield curve may slightly improve net interest income. Further, the effects of a flat yield curve could more adversely affect net interest income than any benefits received from a decreasing rate environment. Competition, the economy, and the interest rate environment also impact Bancorp’s net interest income in any period.

Net interest income on a tax equivalent basis for the three months ended March 31, 2003, increased 4% to $17.1 million from $16.5 million for the same period in 2002. The increase was mainly due to increased average loan balances and decreases in rates paid on interest bearing liabilities, offset in part by a decrease in yields on average earning assets. Average yields on earning assets decreased to 6.46% in the first quarter of 2003 from 7.23% in 2002. Average interest earning assets increased $89.7 million, or 6.6%, to $1.44 billion in the first quarter of 2003, from $1.35 billion for the same period in 2002. Average rates paid on interest bearing liabilities decreased 71 basis points in the first quarter of 2003, to 2.10% from 2.81% for the like period in 2002. The net interest spread decreased from 4.42% in the first quarter of 2002 to 4.36% in the first quarter of 2003. Bancorp’s net interest margin for the three months ended March 31, 2003, was 4.82%, a decrease of 13 basis points from 4.95% for the comparable period of 2002. The decrease in Bancorp’s net interest margin and related spreads is predominantly due to a combination of lower value non-interest bearing deposits, a $.2 million pre-payment expense on longer-term debt and the purchase of bank owned life insurance.

Analysis of Net Interest Income. The following table presents information regarding yields on interest-earning assets, expense on interest-bearing liabilities, and net yields on interest-earning assets for the periods indicated on a tax equivalent basis:


	Three months ended						Increase			Percentage
(Dollars in thousands)	March 31,						(Decrease)			Change

	2003			2002			2003-2002			2003-2002

Interest and fee income (1)	$	22,996		$	24,145			($1,149	)		-4.8	%

Interest expense		5,850			7,599			(1,749	)		-23.0	%

Net interest income (1)	$	17,146		$	16,546		$	600			3.6	%
Average interest earning assets	$	1,443,984		$	1,354,266		$	89,718			6.6	%
Average interest bearing liabilities	$	1,131,788		$	1,095,969		$	35,819			3.3	%
Average interest earning assets/Average interest bearing liabilities		127.6	%		123.6	%		4.0	%
Average yields earned (1)		6.46	%		7.23	%		-0.77	%
Average rates paid		2.10	%		2.81	%		-0.71	%
Net interest spread (1)		4.36	%		4.42	%		-0.06	%
Net interest margin (1)		4.82	%		4.95	%		-0.13	%

(1) Interest earned on nontaxable securities has been computed on a 35% tax equivalent basis.
These ratios for the three months ended March 31, 2003 and 2002 have been annualized where appropriate.

Provision for Loan Loss. Bancorp recorded provisions for loan losses for the first quarter of 2003 and 2002 of $850,000 and $878,000, respectively. The slight decrease in the provision in the first quarter of 2003 compared to the first quarter of 2002 is primarily due to changes in the risk characteristics of the loan portfolio and lower net loan charge-offs in the first quarter of 2003. Net charge-offs for the first quarter of 2003 were $442,000, compared to net charge-offs of $493,000 for the same period in 2002. Net charge-offs were concentrated in commercial real estate and consumer credit portfolios. The Company experienced loan recoveries of $247,000 during the quarter ended March 31, 2003, as compared to $78,000 in first quarter 2002. Annualized net charge-offs for the first quarter 2003 were 0.15% of average loans, compared to 0.18% in the same period last year. At March 31, 2003, non-performing assets were 0.41% of total assets, compared to 0.47% one year earlier. Bancorp’s allowance for loan losses as a percentage of total loans was 1.47% at March 31, 2003, up from 1.42% at March 31, 2002. The provision for loan loss is recorded to bring the allowance for loan losses to an amount considered appropriate by management based on factors which are described in the “Lending and Credit Management” and “Allowance for Loan Losses” sections of this report.

Noninterest Income. Excluding the $.6 million gain on sale of property in the first quarter of 2002, total non-interest income increased 8% from the same period a year ago. Service charges on deposit accounts and other service charges, commissions and fees increased 13% in first quarter of 2003 over the same period in 2002, caused mainly by increases in customer transaction activity and investment sales related fees. Gains on sales of loans increased 4.6% to $1.1 million in the first quarter of 2003, compared to the same period of 2002. Gains on sales of loans increased due to continued strong single family residential loan production. Trust revenue declined in the first quarter of 2003, as compared to the same period in 2002, mainly due to a decrease in the market value of the asset portfolio managed. During the first quarter of 2003, the Company purchased $12 million of bank owned life insurance, which produced $.1 million in revenues in the first quarter. Other noninterest income decreased in the first quarter of 2003, compared to 2002 due to the sale of property in the first quarter of 2002. Gains on sales of securities were recognized in the first quarter of 2003 of $.2 million. No securities were sold in the first quarter of 2002.

See “Reconciliation to GAAP Financial Measures” below for further discussion on this section.

Noninterest Expense. Excluding the first quarter 2002 write-off of certain fixed assets noninterest expense for the first quarter ended March 31, 2003 was $13.7 million, an increase of $.3 million compared to $13.4 million in core noninterest expense for the same period in 2002. In 2002, under the guidance of SFAS No. 144, Accounting for the Impairment or Disposal of Long-lived Assets, the Company recognized a total of $.6 million of expenses in other noninterest expense related to fixed asset write-offs and impairment charges. The fair value of the properties was based on pending sale prices and independent appraisals.

Bancorp’s compensation and employee benefits increased $.3 million, or 3.8%, to $7.8 million in the first quarter of 2003, from $7.5 million for the like period in 2002. The increase in compensation expense was primarily related to the addition of commercial lending personnel, new branches, and higher commission related expenses. For the quarter ending March 31, 2003, Bancorp employed 566 full time equivalent employees compared to 554 at March 31, 2002. Bancorp has continued to expand its products, services, and branch network over the previous year.

Equipment expense decreased over 8% in the first quarter of 2003 over 2002. This decrease is due to multiple factors, including a decrease in equipment depreciation expense associated with a decrease in capital investments in equipment, and a shift to using more software and third party based product delivery. Occupancy expenses increased 2.4% in the first quarter of 2003 compared to the same period in 2002. The increase in occupancy expense is due to the addition of two new branches and certain periodic increases in other leased properties. Check and other transaction processing fees increased in the first quarter of 2003 compared to 2002 due to an increase in the volume of transactions processed. Professional fees increased $140,000 in the first quarter of 2003 compared to the same period in 2002 due to increased legal expenses in 2003 compared to 2002. The increased legal expenses are generally associated with more services required for loan collection, contract review, and general legal work. Courier and postage expense increased over 6% in the first quarter as new customers took advantage of courier services. Marketing expenses decreased 26% in the first quarter of 2003 compared to the same period in 2002, due to a decrease in newspaper advertising, direct mail campaigns and public relation related expenses.

Communication expense, printing and office supply expense, and other taxes and insurance expense decreased slightly in the first quarter of 2003 compared to 2002. Excluding the first quarter 2002 write-off of certain fixed assets, other noninterest expenses were reduced slightly in the quarter ended March 31, 2003, compared to the previous year.

See “Reconciliation to GAAP Financial Measures” below for further discussion on this section.

Reconciliation to GAAP Financial Measures. The above sections include information relating to non-interest income and non-interest expense that is calculated on a non-GAAP basis. Management uses this non-GAAP information internally, and has disclosed it to investors, based on its belief that the information provides a more useful picture of its operating results for purposes of comparisons to results for prior periods. The tables below include a reconciliation of these measures to comparable measures calculated in accordance with GAAP.


	Three months ended
	March 31,				Change
(Unaudited) (dollars in thousands):	2003		2002		$		%

Non-interest income excluding gain on sale of property	$	4,982	$	4,602	$	380		8	%
add: Gain on sale of property		—		613		-613		—

GAAP non-interest income	$	4,982	$	5,215	$	-233		-4	%


	Three months ended
	March 31,				Change
	2003		2002		$		%

Non-interest expense excluding write-off of fixed assets	$	13,684	$	13,351	$	333		2	%
add: Write off of fixed assets		—		613		-613		—

GAAP non-interest expense	$	13,684	$	13,964	$	-280		-2	%

Income Taxes

During the first three months of 2003, due to an increase in taxable income before taxes, the provision for income taxes increased from the first three months of 2002. Bancorp’s effective tax rate in the first three months of 2003 and 2002 was 34%.

Investment Portfolio

The investment portfolio decreased $1.3 million for the period ended March 31, 2003 compared to December 31, 2002. The composition and carrying value of the Bank’s investment portfolio is as follows:


		March 31,		December 31,
(Dollars in thousands)		2003		2002

Investments available for sale (At fair value)
U.S. Treasury securities		$	5,570	$	5,583
U.S. Government agency securities			72,521		66,483
Corporate securities			20,689		22,497
Mortgage-backed securities			67,888		69,234
Obligations of state and political subdivisions			86,714		87,592
Equity and other securities			11,690		15,018

	Total Investment Portfolio	$	265,072	$	266,407

Liquidity and Sources of Funds

Bancorp’s primary sources of funds are customer deposits, maturities of investment securities, sales of available for sale securities, loan sales, loan repayments, net income, advances from the Federal Home Loan Bank of Seattle (“FHLB”), the issuance of trust preferred securities and the use of Federal Funds markets. Scheduled loan repayments are a relatively stable sources of funds, while deposit inflows and unscheduled loan prepayments are not. General interest rate levels, interest rates available on other investments, competition, economic conditions, and other factors, influence unscheduled loan prepayments.

Deposits are Bancorp’s primary source of funds. Total deposits were $1.272 billion at March 31, 2003, compared to $1.266 billion at December 31, 2002. At March 31, 2003, Bancorp used no brokered deposits, but we may accept such deposits in the future. We are focused on attracting deposits in the market area we serve through competitive pricing and delivery of a quality product. The composition of Bancorp’s deposits is as follows:


	March 31,					December 31,
	2003					2002

(Dollars in thousands)	Amount		Percent			Amount		Percent

Demand	$	276,037		22	%	$	275,724		22	%
Savings and interest bearing demand		623,869		46	%		619,502		49	%
Certificates of deposit		372,569		32	%		371,227		29	%

Total deposits	$	1,272,475		100	%	$	1,266,453		100	%

Management anticipates that Bancorp will continue relying on customer deposits, maturity of investment securities, sales of available for sale securities, loan sales, loan repayments, net income, trust preferred securities, Federal Funds markets, FHLB, and other borrowings to provide liquidity. Deposit balances might be influenced by changes in the banking industry, interest rates available on other investments, general economic conditions, competition, and other factors. Borrowings may be used on a short-term basis to compensate for reductions in other sources of funds. Borrowings may also be used on a long-term basis to support expanded lending activities and to better match maturities or repricing intervals of assets. The sources of such funds might include repurchase agreements, and borrowings from the FHLB and the issuance of Trust Preferred Securities.

As of March 31, 2003 other borrowings had the following time periods remaining to contractual maturity.


	Payments due within time period at March 31, 2003

							Due after
(Dollars in thousands)	0-12 months		1-3 Years		4-5 Years		five years		Total

Reverse repurchase agreements	$	9,902	$	—	$	—	$	—	$	9,902
Trust preferred securities		—		—		12,500		—		12,500
Short term borrowings	$	28,430		—		—		—		28,430
Long-term borrowings		10,000		47,500		25,500		—		83,000

Total borrowings	$	48,332	$	47,500	$	38,000	$	—	$	133,832

Capital Resources

The Federal Reserve Bank (FRB) and the Federal Deposit Insurance Corporation (FDIC) have established minimum requirements for capital adequacy for bank holding companies and member banks. The requirements address both risk-based capital and leveraged capital. The regulatory agencies may establish higher minimum requirements if, for example, a corporation has previously received special attention or has a high susceptibility to interest rate risk. The FRB and FDIC risk-based capital guidelines require banks and bank holding companies to have a ratio of tier one capital to total risk-weighted assets of at least 4%, and a ratio of total capital to total risk-weighted assets of 8% or greater. In addition, the leverage ratio of tier one capital to total assets less intangibles is required to be at least 3%. As of March 31, 2003, Bancorp and the Bank are considered “Well Capitalized” under the regulatory risk based capital guidelines.

In June 2002, West Coast Bancorp issued $7.5 million of pooled Trust Preferred Securities through one issuance by a wholly-owned subsidiary grantor trust, West Coast Statutory Trust II (Trust II). The sole asset of Trust II is $7.5 million principal amount 4.69% Debentures that mature in June 2032, and are redeemable prior to maturity at the option of the Company on or after June 2007. These Trust Preferred Securities are considered Tier 1 capital (with certain limitations applicable) under current regulatory guidelines. At March 31, 2003, Bancorp’s total outstanding Trust Preferred Securities was $12.5 million.

The Trust Preferred Securities accrue and pay distributions periodically at specified annual rates as provided in the indentures. Trust II used the net proceeds from the offering to purchase a like amount of Junior Subordinated Debentures (the Junior Debentures) of the Company. The Junior Debentures are the sole assets of Trust II and are eliminated, along with the related income statement effects, in the consolidated financial statements. The Company’s obligations under the Junior Debentures and related documents, taken together, constitute a full and unconditional guarantee by the Company of the obligations of the statutory Trust. The Trust Preferred Securities are mandatorily redeemable upon the maturity of the Debentures, or upon earlier redemption as provided in the indentures. The Company has the right to redeem the Debentures in whole (but not in part) on or after specific dates, at a redemption price specified in the indentures plus any accrued but unpaid interest to the redemption date.

The following table summarizes the consolidated Risk Based Capital ratios of Bancorp and the Bank at March 31, 2003 and December 31, 2002.


	March 31, 2003										December 31, 2002

						Amount		Percent								Amount		Percent
						Required For		required for								Required For		required for
						Minimum		Minimum								Minimum		Minimum
						Capital		Capital								Capital		Capital
	Actual					Adequacy		Adequacy			Actual					Adequacy		Adequacy

(Dollars in thousands)	Amount		Ratio			Amount					Amount		Ratio			Amount

Tier 1 Capital
West Coast Bancorp	$	140,989		10.16	%	$	55,495		4	%	$	140,095		10.10	%	$	55,474		4	%
West Coast Bank		133,861		9.65	%		55,489		4	%		133,958		9.66	%		55,467		4	%
Total Capital
West Coast Bancorp	$	158,235		11.41	%	$	110,990		8	%	$	156,933		11.32	%	$	110,947		8	%
West Coast Bank		151,108		10.89	%		110,977		8	%		150,796		10.87	%		110,933		8	%
Risk weighted assets
West Coast Bancorp	$	1,387,375									$	1,386,843
West Coast Bank	$	1,387,216									$	1,386,667
Leverage Ratio
West Coast Bancorp	$	140,989		9.30	%	$	45,495		3	%	$	140,095		9.19	%	$	45,725		3	%
West Coast Bank		133,861		8.83	%		45,496		3	%		133,958		8.78	%		45,748		3	%
Adjusted total assets
West Coast Bancorp		1,516,493										1,524,169
West Coast Bank		1,516,520										1,524,927

Stockholders’ equity increased to $134.5 million at March 31, 2003, from $133.4 million at December 31, 2002, an increase of $1.1 million. The increase is due to net income and an increase in the unrealized gain on securities available for sale, offset in part by payments of cash dividends to stockholders and Bancorp’s activity in its corporate stock repurchase program.

In July 2000, Bancorp announced a stock repurchase program that was expanded in September 2000, June 2001, and again in September 2002. Under this plan, the Company can buy up to 2.88 million shares of the Company’s common stock, including completed purchases. The Company intends to use existing funds and/or long-term borrowings to finance the repurchases. During the first three months of 2003, and consistent with its capital plan, the Company repurchased approximately 200,000 shares, or approximately 1.3% of its common shares pursuant to its corporate stock repurchase program. Total shares available for repurchase under this plan are 708,000 at March 31, 2003. The following table presents information with respect to Bancorp’s July 2000 stock repurchase program.


						Average
(Shares and dollars in thousands)		Shares repurchased in period		Cost of shares repurchased		Cost per share

Year ended 2000			573	$	5,264	$	9.19
Year ended 2001			534		6,597	$	12.35
Year ended 2002			866		13,081	$	15.11
Quarter ended 2003			200		3,081	$	15.43

	Plan to date total		2,173	$	28,023	$	12.90

Critical Accounting Policies

We have identified our most critical accounting policy to be that related to the allowance for loan loss. Bancorp’s allowance for loan loss methodology incorporates a variety of risk considerations, both quantitative and qualitative, in establishing an allowance for loan loss that management believes is appropriate at each reporting date. Quantitative factors include our historical loss experience, delinquency and charge-off trends, collateral values, changes in non-performing loans, and other factors. Qualitative factors include the general economic environment in our markets and, in particular, the state of certain industries. Size and complexity of individual loans in relation to lending officer’s background and experience levels, loan structure, extent and nature of waivers of existing loan policies and pace of portfolio growth are other qualitative factors that are considered in our methodology. As we add new products, increase complexity of the portfolio, and expand our geographic coverage, we intend to enhance and adapt our methodology to keep pace with the size and complexity of the loan portfolio. Changes in any of the above factors could affect the calculation of the allowance for loan loss in any given period. Management believes that our systematic methodology continues to be appropriate given our size and level of complexity.

This discussion and analysis should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2002.

Lending and Credit Management

Interest earned on the loan portfolio is the primary source of Bancorp’s income. Net loans represented 76.6% of total assets as of March 31, 2003. A certain degree of credit risk is inherent in our lending activities. Bancorp has a comprehensive risk management process to control, underwrite, monitor and manage credit risk in our loan portfolio. This risk is managed through our credit administration and credit review functions, which are designed to help ensure compliance with our credit standards. Credit files are examined on a sample test basis, periodically, by the internal credit review department, internal and external auditors, as well as bank regulatory examiners.

Through the credit review function, Bancorp is able to monitor all credit-related policies and practices on a post approval basis, ensuring uniform application. As part of our ongoing lending process, internal risk ratings are assigned to each commercial and commercial real estate credit before the funds are advanced to the customer. Credit risk ratings are based on apparent credit worthiness of the borrower at the time the loan is made. Large balance accounts have the credit risk rating reviewed on at least an annual basis. The credit review function independently reviews loans to ensure risk ratings are appropriate. The findings of these reviews are communicated with senior management, the Audit Committee and the Loan, Investment, and ALCO Committee, which is made up of certain directors.

Bancorp strives to serve the credit needs of its service areas; the primary focus is on real estate related and commercial credits. We make substantially all our loans to customers located within our service areas.

A risk of nonpayment exists with respect to all loans, and certain specific types of risks are associated with different types of loans. As a result of the nature of our customer base and the growth experienced in the market areas served, real estate is frequently a material component of collateral for Bancorp’s loans. The expected source of repayment of these loans is generally the cash flow of the project, operations of the borrower’s business, personal income or net worth. Risks associated with real estate loans include fluctuating land values, local and national economic conditions, changes in tax policies, and a concentration of loans within any one area. Due to the concentration of Bancorp’s real estate collateral, adverse developments with respect to the above risks could have a significant adverse impact on the value of Bancorp’s collateral and a negative impact on earnings.

The composition of Bancorp’s loan portfolio is as follows:


(Dollars in thousands)	March 31, 2003						December 31, 2002

	Amount			Percent			Amount			Percent

Commercial	$	227,959			19.4	%	$	205,725			17.7	%
Real estate construction		110,708			9.4	%		121,711			10.5	%
Real estate mortgage		158,009			13.5	%		148,350			12.8	%
Real estate commercial		634,664			54.0	%		637,978			55.0	%
Installment and other consumer		42,902			3.7	%		46,151			4.0	%

Total loans		1,174,242			100	%		1,159,915			100	%
Allowance for loan losses		(17,246	)		1.47	%		(16,838	)		1.45	%

Total loans, net	$	1,156,996					$	1,143,077

The change in the composition of bancorp’s loan portfolio, with higher a percentage mix in commercial and real estate mortgage (home equity) categories, reflects the strategic focus of the company.

The composition of commercial real estate loan types based on collateral is as follows:


(Dollars in thousands)	March 31, 2003					December 31, 2002

	Amount		Percent			Amount (1)		Percent

Office Buildings	$	140,100		22.1	%	$	138,700		21.7	%
Hotels/Motels		72,500		11.4	%		72,200		11.3	%
Retail Facilities		71,500		11.3	%		73,000		11.4	%
Multi-Family - 5+ Residential		66,700		10.5	%		66,900		10.5	%
Assisted Living		39,400		6.2	%		39,600		6.2	%
Medical Offices		33,600		5.3	%		32,100		5.0	%
Industrial parks and related		19,600		3.1	%		18,600		2.9	%
Mini Storage		18,000		2.8	%		18,000		2.8	%
Manufacturing Plants		15,900		2.5	%		15,900		2.5	%
Commercial/Agricultural		15,500		2.4	%		13,000		2.0	%
Food Establishments		15,200		2.4	%		15,200		2.4	%
Church, Civic, Nonprofit facilities		14,200		2.2	%		14,400		2.3	%
Land Development and Raw Land		12,700		2.0	%		11,200		1.8	%
RV Parks, Marinas, related		11,000		1.7	%		10,800		1.7	%
Health spa and gym		10,900		1.7	%		11,400		1.8	%
Other		77,900		12.3	%		86,900		13.6	%

Total real estate commercial loans	$	634,700		100	%	$	637,900		100	%

(1) Certain amounts have been reclassified at year end to conform to current categories.

Approximately 35% of Bancorp’s commercial real estate loan portfolio in classified as owner occupied. Bancorp’s underwriting of commercial real estate loans is conservative with loan to values generally not exceeding 75% and debt service coverage ratios of 120% or better.

As of March 31, 2003, the Bank had outstanding loans to persons serving as directors, officers, principal stockholders and their related interests. These loans, when made, are substantially on the same terms, including interest rates, maturities and collateral as comparable loans made to other customers of the Bank. At March 31, 2003 and December 31, 2002, Bancorp had no bankers acceptances.

Nonperforming Assets

Nonperforming assets include nonaccrual loans, other real estate owned, and loans past due more than 90 days. Interest income on loans is accrued daily on the principal balance outstanding. Generally, no interest is accrued on loans when factors indicate collection of interest or principal is doubtful or when the principal or interest payment becomes 90 days past due. The current nonaccrual loans consist of a mix of commercial and commercial real estate secured loans. For such loans, previously accrued but uncollected interest is charged against current earnings, and income is only recognized to the extent payments are subsequently received.

Nonperforming assets consist of the following:


(Dollars in thousands)	March 31, 2003			December 31, 2002

Loans on nonaccrual status	$	4,815		$	5,080
Loans past due greater than 90 days not on nonaccrual status		—			15
Other real estate owned		1,551			1,672

Total nonperforming assets	$	6,366		$	6,767

Percentage of nonperforming assets to total assets		0.41	%		0.44	%

Allowance for Loan Losses

A loan loss allowance has been established to absorb losses inherent in the loan portfolio. The allowance is based on ongoing, quarterly assessments of the probable estimated losses inherent in the loan portfolio. Our methodology for assessing the appropriateness of the allowance consists of several key elements, which consist of:

— Specific allowances for identified problem loans and portfolio segments,

— The formula allowance, and

— The unallocated allowance.

The evaluation of each element above and the overall allowance is based on a continuing assessment of problem loans, related off-balance sheet items, recent and historical loss experience, and other factors, including regulatory guidance and economic factors. The Bank considers historical charge-off levels in addition to existing economic conditions, and other factors, when establishing the allowance for loan losses. Management believes that the allowance for loan losses is adequate at March 31, 2003.

Our allowance incorporates the results of measuring impaired loans as provided in: SFAS No. 114, “Accounting by Creditors for Impairment of a Loan,” and SFAS No 118, “Accounting by Creditors for Impairment of a Loan — Income Recognition and Disclosures.” These accounting standards prescribe the measurement, income recognition and guidelines concerning impaired loans.

Specific allowances are established where management has identified significant conditions or circumstances related to a credit that management believes indicate the probability that a loss may be incurred in an amount different than the amount determined by the application of the formula allowance.

The formula allowance is calculated by applying loss factors to outstanding loans, in each case based on the internal risk grade of those loans or pools of loans. Changes in risk grades of both performing and nonperforming loans affect the amount of the formula allowance. Loss factors are based on our historical loss experience and other data management believes pertinent and may be adjusted for significant factors that, in management’s judgement, affect the collectibility of the portfolio as of the evaluation date. Management believes that Commercial and Commercial Real Estate loans have produced significant losses in the banking industry in brief periods at particular points in economic cycles. Therefore, management believes it is appropriate to use a reserve higher than recent charge-off experience would suggest in these categories of loans. This decision is supported by what management perceives to be industry practices for minimum reserve levels and is intended to prevent an understatement of reserves based upon over-reliance on recent loss experience.

Loss factors used in the formula allowance are described as follows:

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

— Pooled loan loss factors, for loans not individually graded, are based on expected net charge-offs and other factors, including trends in past dues, collateral values, and levels of other real estate owned. Pooled loans are loans and leases that are homogeneous in nature, such as consumer installment and residential mortgage loans.

The unallocated allowance uses a more subjective method and considers factors such as the following:

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

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

— Loan growth rates and concentrations,

— Specific industry conditions within portfolio segments,

— Recent loss experience in particular segments of the portfolio,

— Interest rate environment,

— Duration of the current business cycle, and

— Bank regulatory examination results and findings of our internal credit examiners

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

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

During our normal loan review procedures, a loan is considered to be impaired when it is probable that we will be unable to collect all amounts due according to the contractual terms of the loan agreement. A loan is usually not considered to be impaired during a period of minimal delay (less than 90 days). Impaired loans are measured based on the present value of expected future cash flows, discounted at the loan’s effective interest rate or, as a practical expedient, at the loan’s observable market price or the fair market value of the collateral if the loan is collateral dependent. Impaired loans are currently measured at lower of cost or fair value. Leases and certain large groups of smaller balance homogeneous loans, that are collectively measured for impairment, are excluded. Impaired loans are charged to the allowance when management believes, after considering economic and business conditions, collection efforts and collateral position that the borrower’s financial condition is such that collection of principal is not probable.

At March 31, 2003, the Bank’s allowance for loan losses was $17.2 million, consisting of a $15.4 million formula allowance, a $.3 million specific allowance and a $1.5 million unallocated allowance. At December 31, 2002, our allowance for loan losses was $16.8 million, consisting of a $15.5 million formula allowance, a $.1 million specific allowance and a $1.2 million unallocated allowance. The changes in the allocation of the allowance for loan losses in the first three months of 2003 were due primarily to changes in the loan portfolio and its mix, changes in the risk grading of our loans, and charge-offs as well as recovery activity. The higher allocation to the unallocated allowance reflects an increased weighting by management on the above mentioned factors describing the methodology of the unallocated allowance.

At March 31, 2003, Bancorp’s allowance for loan loss was 1.47% of total loans, and 358% of total nonperforming loans, compared with an allowance for loan losses at December 31, 2002 of 1.45% of total loans, and 330% of total nonperforming loans.

Changes in the allowance for loan losses are as follows:


		Three months ended			Year ended
(Dollars in thousands)		March 31, 2003			Dec. 31, 2002

Loans outstanding at end of period		$	1,174,242		$	1,159,915
Average loans outstanding during the period		$	1,168,968		$	1,127,761
Allowance for loan losses, beginning of period		$	16,838		$	15,252
Loans charged off:
	Commercial		(159	)		(1,878	)
	Real Estate		(311	)		(526	)
	Installment and consumer		(218	)		(1,276	)

	Total loans charged off		(688	)		(3,680	)
Recoveries:
	Commercial		172			160
	Real Estate		62			25
	Installment and consumer		12			102

	Total recoveries		246			287

Net loans charged off			(442	)		(3,393	)
Provision for loan losses			850			4,979

Allowance for loan losses, end of period		$	17,246		$	16,838

Ratio of net loans charged off to average loans outstanding (1)			0.15	%		0.30	%
Ratio of allowance for loan losses to loans outstanding at end of period			1.47	%		1.45	%

(1) The ratio for the three months ended March 31, 2003 has been annualized.

During the first three months of 2003, net loans charged off were $.4 million, compared to $.5 million for the same period in 2002. The annualized percentage of net loans charged off year to date to average loans outstanding was 0.15% in the quarter ended March 31, 2003, compared to 0.18% in the same quarter last year. Charged off loans reflect the realization of losses in the portfolio that were recognized previously through the provision for loan losses.

For the first three months ending March 31, 2003, the provision for loan loss exceeded the loan net loans charged off, reflecting management’s belief, based on the foregoing analysis, that there are additional losses inherent in the loan portfolio. Readers are referred to management’s “Forward Looking Statement Disclosure” in connection with this section.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Market Risk

There has not been any material change in the market risk disclosure contained in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2002.

Item 4. 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 on a timely basis. Within 90 days prior to the filing of this report, we carried out an evaluation, under the supervision and with the participation of our chief executive officer (“CEO”) and chief financial officer (“CFO”), of the effectiveness of our disclosure controls and procedures. Based on that evaluation, the CEO and CFO have concluded that the Company’s disclosure controls and procedures are effective in bringing to their attention on a timely basis information required to be disclosed by the Company in reports that it files or submits under the Exchange Act. Also, since the date of their evaluation, there have not been any significant changes in the Company’s internal controls or in other factors that could significantly affect those controls, including any corrective actions with regard to significant deficiencies and material weaknesses.

PART II. Other Information

Item 1. Legal Proceedings.

Item 4. Submission of Matters to a Vote of Security Holders.

Bancorp held its Annual Meeting of Shareholders on April 22, 2003. Below is a brief description of matters considered and voted on by shareholders and the number of votes cast for, against or withheld on such matters.

1. Amending our Restated Articles of Incorporation (the “Articles”) to provide for one-year terms of office for all of our directors.


Votes for	Votes against		Abstentions

12,733,986		111,182		377,853

2. Amending the Articles to limit the authority of the Board of Directors to authorize the issuance of preferred stock in specified circumstances.


Votes for	Votes against		Abstentions

9,694,482		506,308		204,415

3. Electing ten directors to serve for one-year terms.


Director	Votes for		Votes withheld

Lloyd Ankeny		12,450,716		772,305
Michael Bragg		12,725,592		497,079
William Loch		12,338,403		884,618
Jack Long		12,423,381		799,640
Duane McDougall		12,575,890		647,131
Steven Oliva		12,730,145		492,876
J.F. Ouderkirk		12,605,932		617,089
Steven Spence		12,580,008		643,013
Robert Sznewajs		12,597,826		625,195
Nancy Wilgenbusch		12,576,174		646,847

4. The appointment of Deloitte & Touche LLP as our independent public accountants for 2003 was ratified by shareholders.

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


(a)	Exhibits

	3.1	Restated Articles of Incorporation.¹

	3.2	Amendments to Restated Articles of Incorporation, approved April 22, 2003.

	3.3	Restated Bylaws.²

	3.4	Amendments to Restated Bylaws, approved December 17, 2002.

	99	Certification from CEO and CFO of West Coast Bancorp

(b)	During the three months ended March 31, 2003, West Coast Bancorp filed the following current report on Form 8-K:

	None.

¹ Incorporated by reference to Exhibit 3.1 of Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 1998.

² Incorporated by reference to Exhibits 3.2 of the Company’s Annual Report on Form 10-K for the year ended December 31, 1998.

Signatures

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


		WEST COAST BANCORP (Registrant)

Dated: May 13, 2003		/s/ Robert D. Sznewajs Robert D. Sznewajs Chief Executive Officer and President


Dated: May 13, 2003		/s/ Anders Giltvedt Anders Giltvedt Executive Vice President and Chief Financial Officer

Certification of Chief Executive Officer

I, Robert D. Sznewajs, certify that:

1. I have reviewed this quarterly report on Form 10-Q of West Coast Bancorp;

2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

(a) Designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

(b) Evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and

(c) Presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):

(a) All significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

6. The registrant’s other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.


Date:		May 13, 2003		/s/ Robert D. Sznewajs Robert D. Sznewajs Chief Executive Officer and President

Certification of Chief Financial Officer

I, Anders Giltvedt, certify that:

1. I have reviewed this quarterly report on Form 10-Q of West Coast Bancorp;

(b) Evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and

(c) Presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and


Date:		May 13, 2003		/s/ Anders Giltvedt Anders Giltvedt Executive Vice President and Chief Financial Officer

	—		Specific allowances for identified problem loans and portfolio segments,

	—		The formula allowance, and

	—		The unallocated allowance.

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

	—		Pooled loan loss factors, for loans not individually graded, are based on expected net charge-offs and other factors, including trends in past dues, collateral values, and levels of other real estate owned. Pooled loans are loans and leases that are homogeneous in nature, such as consumer installment and residential mortgage loans.

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

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

	—		Loan growth rates and concentrations,

	—		Specific industry conditions within portfolio segments,

	—		Recent loss experience in particular segments of the portfolio,

	—		Interest rate environment,

	—		Duration of the current business cycle, and

	—		Bank regulatory examination results and findings of our internal credit examiners