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

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 September 30, 2002 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 [ ]

The number of shares of Registrant’s Common Stock outstanding on October 31, 2002, was 15,413,797.

TABLE OF CONTENTS


PART I. FINANCIAL INFORMATION
	Item 1.
		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 6. Exhibits and Reports on Form 8-K.
Signatures
Certification of Chief Executive Officer
Certification of Chief Financial Officer
EXHIBIT 99.1
EXHIBIT 99.2

WEST COAST BANCORP
FORM 10-Q
TABLE OF CONTENTS

Page

PART I Financial Information

Item 1. Financial Statements (unaudited)

Consolidated Balance Sheets -
September 30, 2002 and December 31, 2001
3

Consolidated Statements of Income -
Three and nine months ended September 30, 2002 and 2001
4

Consolidated Statements of Cash Flows -
Nine months ended September 30, 2002 and 2001
5

Consolidated Statements of Changes in Stockholders’ Equity -
Nine months ended September 30, 2002 and year ended December 31, 2001
6

Notes to Consolidated Financial Statements 7

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 15

Item 3. Quantitative and Qualitative Disclosures About Market Risk 27

Item 4. Controls and Procedures 27

PART II Other Information

Item 1. Legal Proceedings 28

Item 6. Exhibits and Reports on Form 8-K 28

Signatures 29

Certification of Chief Executive Officer 30

Certification of Chief Financial Officer 31

PART I. FINANCIAL INFORMATION

Item 1.

WEST COAST BANCORP
CONSOLIDATED BALANCE SHEETS
(Unaudited)

September 30, December 31,

(Dollars in thousands) 2002 2001

ASSETS:

Cash and cash equivalents:

Cash and due from banks
$ 59,799 $ 52,960

Interest-bearing deposits in other banks
3,917 1

Federal funds sold
38,342 —

Total cash and cash equivalents
102,058 52,961

Trading assets
984 1,092

Investment securities available for sale, at fair value (amortized cost: $253,867 and $240,713)
263,159 244,689

Loans held for sale
10,797 14,023

Loans
1,138,154 1,085,050

Allowance for loan losses
(16,276 ) (15,252 )

Loans, net
1,121,878 1,069,798

Premises and equipment, net
27,442 29,116

Intangible assets
1,306 1,575

Other assets
20,528 22,447

Total assets
$ 1,548,152 $ 1,435,701

LIABILITIES AND STOCKHOLDERS’ EQUITY

Deposits:

Demand
$ 280,583 $ 224,927

Savings and interest-bearing demand
596,880 569,588

Certificates of deposit
405,258 376,918

Total deposits
1,282,721 1,171,433

Short-term borrowings
9,902 26,688

Long-term borrowings
93,000 90,500

Mandatorily redeemable trust preferred securities
12,500 5,000

Other liabilities
17,104 13,290

Total liabilities
1,415,227 1,306,911

Commitments and contingent liabilities

STOCKHOLDERS’ EQUITY:

Preferred stock: no par value, none issued; 10,000,000 shares authorized
— —

Common stock: no par value, 55,000,000 shares authorized; 15,481,276 and 16,025,316 shares issued and outstanding, respectively
19,352 20,032

Additional paid-in capital
74,857 82,679

Retained earnings
34,457 24,543

Deferred compensation
(829 ) (878 )

Accumulated other comprehensive income
5,088 2,414

Total stockholders’ equity
132,925 128,790

Total liabilities and stockholders’ equity
$ 1,548,152 $ 1,435,701

See notes to consolidated financial statements.

WEST COAST BANCORP
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)

(Dollars and shares in thousands Three months ended Sept. 30, Nine months ended Sept. 30,

except per shares data) 2002 2001 2002 2001

INTEREST INCOME:

Interest and fees on loans
$ 21,627 $ 21,363 $ 62,663 $ 65,189

Interest on taxable investment securities
2,286 2,476 6,922 7,618

Interest on nontaxable investment securities
881 956 2,672 2,910

Interest on deposits in other banks
26 95 60 237

Interest on federal funds sold
62 22 83 81

Total interest income
24,882 24,912 72,400 76,035

INTEREST EXPENSE:

Savings and interest-bearing demand
1,814 3,154 5,544 11,240

Certificates of deposit
3,445 5,054 11,051 16,315

Short-term borrowings
65 291 266 1,859

Long-term borrowings
1,906 1,087 4,754 3,114

Manditorily redeemable trust preferred securities
274 — 502 —

Total interest expense
7,504 9,586 22,117 32,528

NET INTEREST INCOME
17,378 15,326 50,283 43,507

Provision for loan losses
1,467 920 3,787 2,120

Net interest income after provision for loan losses
15,911 14,406 46,496 41,387

NONINTEREST INCOME:

Service charges on deposit accounts
1,563 1,497 4,675 4,470

Other service charges, commissions and fees
1,300 1,202 3,841 3,492

Trust revenue
394 422 1,301 1,319

Gains on sales of loans
899 863 2,971 2,865

Loan servicing fees
66 107 245 377

Other
42 68 956 247

Total noninterest income
4,264 4,159 13,989 12,770

NONINTEREST EXPENSE:

Salaries and employee benefits
7,421 6,684 22,136 19,316

Equipment
1,337 1,342 3,834 4,052

Occupancy
1,135 1,084 3,445 3,232

Check and other transaction processing
643 659 1,906 1,919

Professional fees
491 411 1,276 1,353

Courier and postage
501 472 1,463 1,383

Marketing
535 487 1,424 1,262

Communications
297 299 891 938

Other taxes and insurance
189 197 571 631

Printing and office supplies
160 172 521 545

Kiting charge
— — — 1,945

Other noninterest expense
474 774 2,767 2,349

Total noninterest expense
13,183 12,581 40,234 38,925

INCOME BEFORE INCOME TAXES
6,992 5,984 20,251 15,232

PROVISION FOR INCOME TAXES
2,339 1,876 6,831 4,718

NET INCOME
$ 4,653 $ 4,108 $ 13,420 $ 10,514

Basic earnings per share
$ 0.30 $ 0.25 $ 0.86 $ 0.65

Diluted earnings per share
$ 0.29 $ 0.25 $ 0.83 $ 0.64

Weighted average common shares
15,493 16,149 15,663 16,178

Weighted average diluted shares
16,017 16,549 16,154 16,461

See notes to consolidated financial statements.

WEST COAST BANCORP
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

Nine months ended September 30,

(Dollars in thousands) 2002 2001

CASH FLOWS FROM OPERATING ACTIVITIES:

Net income
$ 13,420 $ 10,514

Adjustments to reconcile net income to cash provided by operating activities:

Depreciation of premises and equipment
2,486 2,750

Deferred income tax benefit
(66 ) (304 )

Write-down of premises and equipment
613 —

Amortization of intangibles
269 287

Provision for loan losses
3,787 2,120

Decrease (increase) in interest receivable
(170 ) 577

Decrease in other assets
2,155 3,025

Origination of loans held for sale
(45,836 ) (55,118 )

Proceeds from sales of loans held for sale
49,062 52,988

Decrease in interest payable
(74 ) (500 )

Increase (decrease) in other liabilities
3,888 (2,536 )

Stock based compensation expense
407 405

Tax benefit associated with stock options
260 162

Decrease (increase) in trading assets
108 (123 )

Net cash provided by operating activities
30,309 14,247

CASH FLOWS FROM INVESTING ACTIVITIES:

Proceeds from maturities of available for sale securities
44,120 89,370

Purchase of available for sale securities
(59,915 ) (84,076 )

Loans made to customers greater than principal collected on loans
(55,867 ) (36,206 )

Net capital expenditures
(1,425 ) (3,103 )

Net cash used in investing activities
(73,087 ) (34,015 )

CASH FLOWS FROM FINANCING ACTIVITIES:

Net increase in demand, savings and interest bearing transaction accounts
82,948 72,283

Net increase in certificates of deposit
28,340 5,036

Proceeds from issuance of trust preferred securities
7,500 —

Proceeds from issuance of long-term borrowings
50,000 60,500

Repayment of long-term borrowings
(47,500 ) (35,022 )

Net decrease in short-term borrowings
(16,786 ) (77,386 )

Redemption and repurchase of common stock
(9,971 ) (4,232 )

Net proceeds from issuance of common stock
850 713

Dividends paid and cash paid for fractional shares
(3,506 ) (3,301 )

Net cash provided by financing activities
91,875 18,591

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
49,097 (1,177 )

CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD
52,961 60,834

CASH AND CASH EQUIVALENTS AT END OF PERIOD
$ 102,058 $ 59,657

Supplemental cash flow information:

Cash paid in the period for:

Interest
$ 22,191 $ 33,028

Income taxes
$ 1,627 $ 6,313

See notes to consolidated financial statements.

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


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

BALANCE, December 31, 2000				16,415		$	20,518		$	87,364		$	14,248		$	(1,032	)	$	171	$	121,269
Comprehensive income:
	Net income			—			—			—			14,760			—			—		14,760
	Other comprehensive income, net of tax:
		Net unrealized investment gains		—			—			—			—			—			2,243		2,243

	Other comprehensive income, net of tax			—			—			—			—			—			—		2,243

Comprehensive income				—			—			—			—			—			—		17,003

Cash dividends, $.25 per common share				—			—			—			(4,465	)		—			—		(4,465	)
Issuance of common stock — option plans				138			172			923			—			—			—		1,095
Redemption of common stock				(28	)		(32	)		(250	)		—			—			—		(282	)
Issuance of common stock — restricted stock plans				34			42			386			—			(428	)		—		—
Amortization of deferred compensation restricted stock				—			—			—			—			582			—		582
Common stock repurchased and retired				(534	)		(668	)		(5,929	)		—			—			—		(6,597	)
Tax benefit associated with stock options				—			—			185			—			—			—		185

BALANCE, December 31, 2001				16,025		$	20,032		$	82,679		$	24,543		$	(878	)	$	2,414	$	128,790

Comprehensive income:
	Net income		$	—		$	—		$	—		$	13,420		$	—		$	—	$	13,420
	Other comprehensive income, net of tax:
		Net unrealized investment gains and unrealized derivative losses		—			—			—			—			—			2,674		2,674

	Other comprehensive income, net of tax			—			—			—			—			—			—		2,674

Comprehensive income				—			—			—			—			—			—		16,094

Cash dividends, $.22 per common share				—			—			—			(3,506	)		—			—		(3,506	)
Issuance of common stock — option plans				123			154			1,011			—			—			—		1,165
Redemption of common stock				(26	)		(33	)		(329	)		—			19			—		(343	)
Issuance of common stock — restricted stock plans				25			31			346			—			(377	)		—		—
Amortization of deferred compensation restricted stock				—			—			—			—			407			—		407
Common stock repurchased and retired				(666	)		(832	)		(9,139	)		—			—			—		(9,971	)
Expense associated with accelerated vesting				—			—			29			—			—			—		29
Tax benefit associated with stock options				—			—			260			—			—			—		260

BALANCE, September 30, 2002				15,481		$	19,352		$	74,857		$	34,457		$	(829	)	$	5,088	$	132,925

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”), 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 and nine months ended September 30, 2002 are not necessarily indicative of the results that may be expected for the year ending December 31, 2002, 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 2001 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 include 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.

2. NEW ACCOUNTING PRONOUNCEMENTS

In July 2001, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) Nos. 141, Business Combinations, and 142, Goodwill and Other Intangible Assets. SFAS No. 141 requires all business combinations initiated after June 30, 2001 to be accounted for using the purchase method. Under SFAS No. 142, goodwill is no longer subject to amortization over its estimated useful life. The methods used for evaluating and measuring impairment of goodwill also changed. The Company does not currently have any goodwill. The Company’s current intangible assets consist of deposit purchase premiums. Under SFAS No. 142, intangibles created as deposit purchase premiums continue to be amortized. The Company adopted SFAS No. 142 on January 1, 2002, and the adoption had no effect on the Company’s financial statements.

SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, addresses accounting and reporting for the impairment or disposal of long-lived assets. SFAS No. 144 supersedes SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of. SFAS No. 144 establishes a single accounting model for long-lived assets to be disposed of by sale and expands on the guidance provided by SFAS No. 121 with respect to cash flow estimations. SFAS No. 144 became effective for the Company beginning January 1, 2002 and had no effect on the Company at that date.

In April 2002, the FASB issued SFAS No. 145, Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections. This statement, among other amendments, eliminates the requirement to record gains and losses from the early extinguishment of debt as extraordinary items.

In July 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities. The standard requires companies to recognize costs associated with exit or disposal activities when they are incurred rather than at the date of a commitment to an exit or disposal plan. Costs covered by the standard include lease termination costs and certain employee severance costs that are associated with a restructuring, discontinued operation, plant closing, or other exit or disposal activity. This statement is to be applied prospectively to exit or disposal activities initiated after December 31, 2002.

At this time, the Company does not expect a material impact from adopting the provisions of SFAS No. 145 and No. 146, on the Company’s Company’s consolidated financial position or results of operations.

In September 2002, the FASB issued SFAS No. 147, Acquisitions of Certain Financial Institutions. This Statement removes acquisitions of financial institutions from the scope of both SFAS No. 72, Accounting for Certain Acquisitions of Banking or Thrift Institutions, and FASB Interpretation No. 9, Applying APB Opinions No. 16 and 17 When a Savings and Loan Association or a Similar Institution Is Acquired in a Business Combination Accounted for by the Purchase Method, and requires that those transactions be accounted for in accordance with SFAS No. 141, Business Combinations, and SFAS No. 142, Goodwill and Other Intangible Assets. As a result, the requirement in SFAS No. 72 to recognize (and subsequently amortize) any excess of the fair value of liabilities assumed over the fair value of tangible and identifiable intangible assets acquired as an unidentifiable intangible asset no longer applies to acquisitions within the scope of this Statement.

In addition, this Statement amends SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, to include in its scope long-term customer-relationship intangible assets of financial institutions such as depositor- and borrower-relationship intangible assets and credit cardholder intangible assets. Consequently, those intangible assets are subject to the same undiscounted cash flow recoverability test and impairment loss recognition and measurement provisions that SFAS No. 144 requires for other long-lived assets that are held and used.

This statement is effective for acquisitions under the purchase method for which the date of acquisition is on or after October 1, 2002. The provisions in this statement related to accounting for the impairment or disposal of certain long-term customer-relationship intangible assets are effective on October 1, 2002. Transition provisions for previously recognized unidentifiable intangible assets are effective on October 1, 2002, with earlier application permitted. The Company believes there will be no current impact of adopting the provisions of this statement on its financial statements.

3. STOCKHOLDERS’ EQUITY

The Board of Directors declared a quarterly cash dividend of $.0775 per share during the third quarter of 2002 and $.0725 per share during the third quarter of 2001.

4. COMPREHENSIVE INCOME

The components of comprehensive income are as follows:

Three months ended Nine months ended

September 30, September 30,

(Dollars in thousands) 2002 2001 2002 2001

Net income as reported
$ 4,653 $ 4,108 $ 13,420 $ 10,514

Unrealized gains on securities:

Unrealized holding gains arising during the period
4,139 3,119 5,316 6,566

Tax provision
(1,627 ) (1,225 ) (2,089 ) (2,580 )

Comprehensive income from securities, net of tax
2,512 1,894 3,227 3,986

Unrealized losses on derivatives:

Unrealized holding losses on derivatives arising during the period
(740 ) — (911 ) —

Tax benefit
291 — 358 —

Comprehensive loss from derivatives, net of tax
(449 ) — (553 ) —

Total comprehensive income
$ 6,716 $ 6,002 $ 16,094 $ 14,500

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 $.9 million at September 30, 2002. This unrealized loss is reflected in other assets on the consolidated balance sheet, as well as in 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:

(Dollars and shares in thousands, except per share data) Net Income Weighted Average Shares Per Share Amount

Three months ended September 30, 2002

Basic earnings
$ 4,653 15,493 $ 0.30

Common stock equivalents from:

Stock options
492

Restricted stock
32

Diluted earnings
$ 4,653 16,017 $ 0.29

Three months ended September 30, 2001

Basic earnings
$ 4,108 16,149 $ 0.25

Common stock equivalents from:

Stock options
371

Restricted stock
29

Diluted earnings
$ 4,108 16,549 $ 0.25

Net Income Weighted Average Shares Per Share Amount

Nine months ended September 30, 2002

Basic earnings
$ 13,420 15,663 $ 0.86

Common stock equivalents from:

Stock options
447

Restricted stock
44

Diluted earnings
$ 13,420 16,154 $ 0.83

Nine months ended September 30, 2001

Basic earnings
$ 10,514 16,178 $ 0.65

Common stock equivalents from:

Stock options
252

Restricted stock
31

Diluted earnings
$ 10,514 16,461 $ 0.64

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) September 30, 2002 December 31, 2001

Land
$ 4,796 $ 4,859

Buildings and improvements
22,900 23,318

Furniture and equipment
23,179 25,655

Construction in progress
221 593

51,096 54,425

Accumulated depreciation
(23,654 ) (25,309 )

Total
$ 27,442 $ 29,116

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 2002, the Company disposed of antiquated computer and printer related equipment with a net book value of $258,000. In addition, during the first quarter of 2002 the Company sold a house and an administration building in Shelton, Washington. A branch location in Lincoln County, Oregon was also examined and found to be impaired under the guidance provided in SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. The amount of impairment loss relating to this building was $355,000. In the first quarter of 2002, the Company recognized a total of $613,000 of expenses in other noninterest expense related to these fixed asset write-offs and impairment charges. The fair value of the properties was based on pending sale prices and independent appraisals. No impairment write-downs occurred in 2001.

7. ALLOWANCE FOR LOAN LOSSES

The following tables represent activity in the allowance for loan losses for the three and nine months ended September 30, 2002, and 2001:

Three months ending

(Dollars in thousands) September 30, 2002 September 30, 2001

Balance at beginning of period
$ 16,067 $ 14,558

Provision for loan losses
1,467 920

Loans charged off
(1,322 ) (849 )

Recoveries
64 17

Balance at end of period
$ 16,276 $ 14,646

Nine months ending

(Dollars in thousands) September 30, 2002 September 30, 2001

Balance at beginning of period
$ 15,252 $ 14,244

Provision for loan losses
3,787 2,120

Loans charged off
(2,951 ) (1,919 )

Recoveries
188 201

Balance at end of period
$ 16,276 $ 14,646

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 were 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. Due to the uncertainties inherent in litigation, and the limited stage of discovery, there are no assurances that this matter will not ultimately result in a loss that could materially affect the Company.

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 2001 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 September 30, 2002

Banking Other Intersegment Consolidation

Interest income
$ 24,862 $ 230 $ (210 ) $ 24,882

Interest expense
7,367 347 (210 ) 7,504

Net interest income
17,495 (117 ) — 17,378

Provision for loan loss
1,467 — — 1,467

Noninterest income
3,907 396 (39 ) 4,264

Noninterest expense
12,779 443 (39 ) 13,183

Income before income taxes
7,156 (164 ) — 6,992

Provision (benefit) for income taxes
2,405 (66 ) — 2,339

Net income (loss)
$ 4,751 $ (98 ) $ — $ 4,653

Depreciation and amortization
$ 890 $ — $ — $ 890

Assets
$ 1,546,760 $ 26,261 $ (24,869 ) $ 1,548,152

Loans, net
$ 1,121,878 $ 12,500 $ (12,500 ) $ 1,121,878

Deposits
$ 1,294,172 $ — $ (11,451 ) $ 1,282,721

Equity
$ 135,322 $ 1,137 N/A $ 132,925


(Dollars in thousands)			Three months ended September 30, 2001

			Banking		Other		Intersegment			Consolidation

Interest income			$	24,889	$	41	$	(18	)	$	24,912
Interest expense				9,604		—		(18	)		9,586

	Net interest income			15,285		41		—			15,326

Provision for loan loss				920		—		—			920
Noninterest income				3,774		424		(39	)		4,159
Noninterest expense				12,205		415		(39	)		12,581

		Income before income taxes		5,934		50		—			5,984
Provision for income taxes				1,857		19		—			1,876

		Net income	$	4,077	$	31	$	—		$	4,108

Depreciation and amortization			$	1,017	$	—	$	—		$	1,017
Assets			$	1,384,202	$	8,070	$	(6,690	)	$	1,385,582
Loans, net			$	1,020,053	$	—	$	—		$	1,020,053
Deposits			$	1,160,112	$	—	$	(6,185	)	$	1,153,927
Equity			$	122,251	$	2,621		N/A		$	129,516

(Dollars in thousands) Nine months ended September 30, 2002

Banking Other Intersegment Consolidation

Interest income
$ 72,331 $ 471 $ (402 ) $ 72,400

Interest expense
21,873 646 (402 ) 22,117

Net interest income
50,458 (175 ) — 50,283

Provision for loan loss
3,787 — — 3,787

Noninterest income
12,802 1,306 (119 ) 13,989

Noninterest expense
39,084 1,269 (119 ) 40,234

Income before income taxes
20,389 (138 ) — 20,251

Provision (benefit) for income taxes
6,887 (56 ) — 6,831

Net income (loss)
$ 13,502 $ (82 ) $ — $ 13,420

Depreciation and amortization
$ 2,755 $ — $ — $ 2,755

Assets
$ 1,546,760 $ 26,261 $ (24,869 ) $ 1,548,152

Loans, net
$ 1,121,878 $ 12,500 $ (12,500 ) $ 1,121,878

Deposits
$ 1,294,172 $ — $ (11,451 ) $ 1,282,721

Equity
$ 135,322 $ 1,137 N/A $ 132,925

(Dollars in thousands) Nine months ended September 30, 2001

Banking Other Intersegment Consolidation

Interest income
$ 75,961 $ 113 $ (39 ) $ 76,035

Interest expense
32,567 — (39 ) 32,528

Net interest income
43,394 113 — 43,507

Provision for loan loss
2,120 — — 2,120

Noninterest income
11,559 1,324 (113 ) 12,770

Noninterest expense
37,780 1,258 (113 ) 38,925

Income before income taxes
15,053 179 — 15,232

Provision for income taxes
4,650 68 — 4,718

Net income
$ 10,403 $ 111 $ — $ 10,514

Depreciation and amortization
$ 3,033 $ 4 $ — $ 3,037

Assets
$ 1,384,202 $ 8,070 $ (6,690 ) $ 1,385,582

Loans, net
$ 1,020,053 $ — $ — $ 1,020,053

Deposits
$ 1,160,112 $ — $ (6,185 ) $ 1,153,927

Equity
$ 122,251 $ 2,621 N/A $ 129,516

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 September 30, 2002 and 2001

Net Income. Bancorp reported net income of $4.65 million, or $.29 per diluted share, for the three months ended September 30, 2002, compared to $4.11 million, or $.25 per diluted share, for the three months ended September 30, 2001. Net interest income increased to $17.4 million in the third quarter of 2002 compared to $15.3 million for the same period in 2001, an increase of $2.1 million or 13%. The increase in net interest income continues to be driven by higher loan balances, higher loan fees, and improved deposit mix, as well as improved net interest spread generated from significantly lower costs of interest bearing liabilities. Noninterest income increased $.1 million or 3% to $4.3 million in the third quarter of 2002 compared to $4.2 million in the same period in 2001. The increase in noninterest income is due in part to higher revenues generated from service charges on deposit accounts and other service charges, commissions and fees, as well as increased gains on sales of loans. Third quarter 2002 non-interest expense at $13.2 million increased by $.6 million or slightly less than 5% compared to the third quarter of 2001. Salary and employee benefit expense increased $.7 million from the same quarter in 2001, due to higher performance-based compensation and employee benefit expenses, as well as continued investments in business banking and new branches. Combined, all other non-interest expense categories declined 2% compared to the third quarter of 2001.

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 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 September 30, 2002, increased 13% to $17.9 million from $15.8 million for the same period in 2001. 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 7.06% in the third quarter of 2002 from 7.84% in 2001. Average interest earning assets increased $137.6 million, or 10.7%, to $1.42 billion in the third quarter of 2002, from $1.29 billion for the same period in 2001. Average rates paid on interest bearing liabilities decreased 100 basis points in the third quarter of 2002, to 2.65% from 3.65% for the like period in 2001. Mainly due to a decrease in rates paid on interest bearing liabilities, the average net interest spread increased from 4.19% in the third quarter of 2001 to 4.41% in the third quarter of 2002. Bancorp’s net interest margin for the three months ended September 30, 2002, was 4.97%, an increase of 9 basis points from 4.88% for the comparable period of 2001. The increases in Bancorp’s net interest margin and related spreads are due mainly to a decreasing interest rate environment, a shift in earning assets, and a favorable change in deposit mix.

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)	September 30,						(Decrease)			Change

	2002			2001			2002-2001			2002-2001

Interest and fee income (1)	$	25,357		$	25,426		$	(69	)		-0.3	%

Interest expense		7,504			9,586			(2,082	)		-21.7	%

Net interest income (1)	$	17,853		$	15,840		$	2,013			12.7	%
Average interest earning assets	$	1,424,335		$	1,286,726		$	137,609			10.7	%
Average interest bearing liabilities	$	1,123,344		$	1,042,669		$	80,675			7.7	%
Average interest earning assets/ Average interest bearing liabilities		126.8	%		123.4	%		3.4	%
Average yields earned (1)		7.06	%		7.84	%		-0.78	%
Average rates paid		2.65	%		3.65	%		-1.00	%
Net interest spread (1)		4.41	%		4.19	%		0.22	%
Net interest margin (1)		4.97	%		4.88	%		0.09	%

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

These ratios for the three months ended September 30, 2002 and 2001 have been annualized where appropriate.

Provision for Loan Loss. Bancorp recorded provisions for loan losses for the third quarter of 2002 and 2001 of $1,467,000 and $920,000, respectively. Net charge-offs for the third quarter of 2002 were $1,259,000, compared to net charge-offs of $832,000 for the same period in 2001. Net charge-offs were concentrated in commercial and unsecured consumer credit portfolios. Annualized net charge-offs for the third quarter 2002 were 0.44% of average loans, compared to 0.32% in the same period last year. At September 30, 2002, 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 1.43% at September 30, 2002, compared to 1.42% at September 30, 2001. The increase in the provision in the third quarter of 2002 over the third quarter of 2001 is primarily due to changes in the risk characteristics of the loan portfolio, and higher net loan charge-offs in the third quarter of 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. Noninterest income for the third quarter of 2002 increased 2.5% to $4.3 million, compared to $4.2 million in the like period in 2001. Service charges on deposit accounts increased $65,000 to $1.6 million in the third quarter of 2002, a 4.4% increase over the same period in 2001, caused mainly by increases in customer activity and a lower earnings credit. Other service charges, commissions, and fees were $1.3 million in the third quarter of 2002, an increase of 8% over the third quarter of 2001. The increase was partly due to improved revenue from brokerage activities. Also, gains on sales of loans increased 4.2% to $899,000 in the third quarter of 2002, compared to $863,000 in the same period of 2001. Gains on sales of loans increased slightly due to continued strong single family residential loan production. Trust revenue decreased slightly during the third quarter of 2002, as compared to the same period in 2001, mainly due to a decrease in the market value of the asset portfolio managed. Loan servicing fees decreased in 2002 compared to the like period in 2001 due to a decrease in the balances of loans serviced for others. Other noninterest income decreased slightly in the third quarter of 2002, compared to 2001. No securities were sold in the third quarter of 2002 and 2001.

Noninterest Expense. Noninterest expense for the third quarter ended September 30, 2002 was $13.2 million, an increase of $.6 million compared to $12.6 million in core noninterest expense for the same period in 2001. The increased noninterest expense in the third quarter of 2002 compared to the same period in 2001 was due to higher variable and performance-based compensation and employee benefit expenses, as well as investments in the business banking unit and new branches.

Bancorp’s compensation and employee benefits increased $.7 million, or 11%, to $7.4 million in the third quarter of 2002, from $6.7 million for the like period in 2001. The increase in compensation expense is primarily due to higher revenue based, variable and performance-based compensation for certain business units, including the residential mortgage group, increased investments in personnel for the business banking unit and new branches. For the quarter ending September 30, 2002, Bancorp employed 560 full time equivalent employees compared to 528 at September 30, 2001. Bancorp has continued to expand its products, services, and branch network over the previous year.

Equipment expense decreased .4% in the third quarter of 2002 over 2001. 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 4.7% in the third quarter of 2002 compared to the same period in 2001. Branch lease expense increased in the third quarter of 2002 compared to the same period in 2001 due to yearly increases in lease expenses and lease expense associated with two new branches, one in Hillsboro, OR and the other in Beaverton, OR. Check and other transaction processing fees decreased slightly in the third quarter of 2002 compared to 2001. Professional fees incurred for services from outside consultants, accountants, directors and attorneys, increased over 19% in the third quarter of 2002, compared to the third quarter of 2001. This increase was due primarily to costs incurred in the third quarter of 2002 related to increased expenses of loan collection and property foreclosure. Courier and postage expense increased over 6% in the third quarter as new customers take advantage of courier services. Marketing expenses increased 10% in the third quarter of 2002 over the same period in 2001.

Communication expense remained flat in the third quarter of 2002 compared to 2001. Printing and office supply expense decreased over 7% in the third quarter of 2002 compared to the same period in 2001. Other noninterest expenses were reduced in the quarter ended September 30, 2002, compared to the previous year.

Nine months ended September 30, 2002 and 2001

Net Income. Bancorp reported net income of $13.4 million, or $.83 per diluted share, for the nine months ended September 30, 2002, compared to core net income of $11.7 million, or $.71 per diluted share, for the nine months ended September 30, 2001. Including a non-recurring kiting charge of $1.2 million, after tax, in the second quarter of 2001, net income for the nine months ended September 30, 2001 was $10.5 million, or $.64 per diluted share. In the first nine months of 2002, net interest income increased to $50.3 million from $43.5 million for the same period in 2001, a 15.6% increase. The increase in net interest income continues to be primarily driven by higher loan balances as well as improved net interest spread generated from significantly lower costs of interest bearing liabilities. Noninterest income increased $1.2 million, or 9.5%, in the first nine months of 2002 compared to the same period in 2001, due in part to a $.6 million gain on sale of a property in Lincoln County, Oregon, as well as higher revenues generated from service charges on deposit accounts and other service charges, commissions, and fees. Excluding the kiting charge of $1.9 million pretax, in the second quarter of 2001, and a charge of $.6 million related to previously noted fixed asset write-offs and building impairment charges in the first quarter of 2002, noninterest expense increased $2.7 million, or 7.1% in the first nine months of 2002 compared to the first nine months of 2001, primarily due to higher variable compensation expense.

Net Interest Income. Net interest income on a tax equivalent basis for the nine months ended September 30, 2002, increased $8.2 million or just under 19% to $51.7 million from $43.5 million for the same period in 2001. The increase was mainly due to increased average loan balances and a significant decrease 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 7.13% for the nine months ended September 30, 2002 from 8.19% in 2001. Average interest earning assets increased $117.5 million, or 9.3%, to $1.38 billion in the nine months ended September 30, 2002, from $1.27 billion for the same period in 2001. Average rates paid on interest bearing liabilities decreased 153 basis points for the nine months ended September 30, 2002, to 2.67% from 4.20% for the like period in 2001. Mainly due to the decrease in rates paid on interest bearing liabilities, the average net interest spread increased from 3.99% in 2001 to 4.46% in the nine months ended September 30, 2002. Bancorp’s net interest margin for the nine months ended September 30, 2002, was 4.99%, an increase of 24 basis points from 4.75% for the comparable period of 2001. The increases in Bancorp’s net interest margin and related spreads are due mainly to a decreasing interest rate environment, a shift in earning assets, and a favorable change in deposit mix.


	Nine months ended						Increase			Percentage
(Dollars in thousands)	September 30,						(Decrease)			Change

	2002			2001			2002-2001			2002-2001

Interest and fee income (1)	$	73,838		$	76,035			($2,197	)		-2.9	%
Interest expense		22,117			32,528			(10,411	)		-32.0	%

Net interest income (1)	$	51,721		$	43,507		$	8,214			18.9	%
Average interest earning assets	$	1,384,891		$	1,267,378		$	117,513			9.3	%
Average interest bearing liabilities	$	1,109,068		$	1,035,916		$	73,152			7.1	%
Average interest earning assets/ Average interest bearing liabilities		124.9	%		122.3	%		2.6	%
Average yields earned (1)		7.13	%		8.19	%		-1.06	%
Average rates paid		2.67	%		4.20	%		-1.53	%
Net interest spread (1)		4.46	%		3.99	%		0.47	%
Net interest margin (1)		4.99	%		4.75	%		0.24	%

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

These ratios for the nine months ended September 30, 2002 and 2001 have been annualized where appropriate.

Provision for Loan Losses. Bancorp recorded provisions for loan losses for the first nine months of 2002 and 2001 of $3.8 million and $2.1 million, respectively. Net charge-offs for the first nine months of 2002 were $2.8 million, compared to net charge-offs of $1.7 million for the same period in 2001. The increase in net charge-offs in the period was primarily in the commercial and unsecured consumer credit areas. At September 30, 2002, 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 1.43% at September 30, 2002, compared to 1.42% at September 30, 2001. The increase in the provision in the first nine months of 2002 over the same period in 2001 is mainly due to changes in the risk characteristics of the loan portfolio, and increased net loan charge-offs. 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 document.

Noninterest Income. Noninterest income for the first nine months of 2002 was $14.0 million, compared to $12.8 million in the like period in 2001. Gains on sales of loans increased slightly to $2.9 million in the first nine months of 2002 compared to $2.8 million in the like period in 2001. Service charges on deposit accounts increased to $4.7 million in the period, a nearly 5% increase over the same period in 2001, caused mainly by increased customer activity and a lower earnings credit offset by a decrease in non-sufficient fund charges. Other service charges, commissions, and fees were $3.8 million in the first nine months of 2002, an increase of 10% over the first nine months of 2001. The increase was mainly due to improved revenue from bankcard services and brokerage activities. In the first nine months of 2002, fees from investment sales to customers increased over 9%, compared to the first nine months of 2001. Trust revenue decreased slightly during the first nine months of 2002, as compared to the same period in 2001. Loan servicing fees decreased in 2002 compared to the like period in 2001 due to a decrease in the balances of loans serviced for others. Other noninterest income increased $.7 million in the first nine months of 2002 compared to 2001, primarily due to a $.6 million gain on sale of the Lincoln County, Oregon property. No securities were sold in the first three quarters of 2002 and 2001.

Noninterest Expense. Noninterest expense for the first nine months ended September 30, 2002 was $40.2 million, an increase of $1.3 million over the same period in 2001, primarily due to higher variable compensation expense. The nine months ended 2002 includes a charge of $.6 million related to previously noted fixed asset write-offs and building impairment charges in the first quarter of 2002. The first nine months of 2001 includes a kiting charge of $1.9 million, pretax. Excluding this charge, noninterest expense increased $3.3 million.

Bancorp’s compensation and employee benefit expenses increased $2.8 million, or 14.6%, to $22.1 million in the first nine months of 2002, from $19.3 million for the like period in 2001. The increase in compensation expense is primarily due to higher variable and performance-based compensation. Bancorp has also continued to invest in business banking and branch related personnel. Benefits expense increased approximately 11% in the nine month period.

Equipment expense decreased more than 5% in the first nine months of 2002 over the like period in 2001. 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. The Company’s equipment depreciation, maintenance, and repair expense decreased due to increased utilization of third party vendors for equipment as well as write-offs of obsolete equipment which in turn decreased depreciation expense. Occupancy expenses were up slightly over 6% in the first nine months of 2002 compared to the same period in 2001 primarily due to increased lease expense offset by a decrease in maintenance and repair in 2002 compared to 2001.

Check and other transaction processing fees remained flat in the first nine months of 2002 compared to 2001. Professional fees incurred for services from directors, outside consultants, accountants, and attorneys, declined just under 6% to $1.3 million in the first nine months of 2002, compared to $1.4 million in the first three quarters of 2001. This decrease was due primarily to costs incurred in the first nine months of 2001 related to the utilization of outside consultants to define strategy and streamline the product line and processes. Marketing expenses increased nearly 13% in the first nine months of 2002 over the same period in 2001 due to a more active marketing calendar in 2002.

Communication expense decreased slightly in the first nine months of 2002 compared to 2001, due to certain credits received in the negotiation of contracts and improved utilization of communication technology and data lines. Other loan expense increased in the first nine months of 2002 compared to 2001, due to increased loan origination expenses related to home equity based products. Printing and office supply expense decreased slightly in the first nine months of 2002 compared to the same period in 2001.

Income Taxes

During the first nine months of 2002, due to an increase in net income before taxes and changes in the mix of taxable and nontaxable income items, the provision for income taxes increased from the first nine months of 2001.

Investment Portfolio

The investment portfolio increased $18 million in the first nine months ended September 30, 2002 compared to December 31, 2001. The increase was mainly in mortgage-backed securities as the bank increased its investments in mortgage backed securities providing monthly cash flow, liquidity and attractive spreads. The composition and carrying value of the Bank’s investment portfolio is as follows:

September 30, December 31,

(Dollars in thousands) 2002 2001

Investments available for sale (At fair value)

U.S. Treasury securities
$ 5,579 $ 5,490

U.S. Government agency securities
53,982 57,904

Corporate securities
23,747 21,396

Mortgage-backed securities
74,612 54,141

Obligations of state and political subdivisions
89,291 89,137

Equity and other securities
15,948 16,621

Total Investment Portfolio
$ 263,159 $ 244,689

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 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 $1.283 billion at September 30, 2002, compared to $1.171 billion at December 31, 2001. At September 30, 2002, 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:


	September 30,					December 31,
	2002					2001

(Dollars in thousands)	Amount		Percent			Amount		Percent

Demand	$	280,583		22	%	$	224,927		19	%
Savings and interest bearing demand		596,880		46	%		569,588		49	%
Certificates of deposit		405,258		32	%		376,918		32	%

Total deposits	$	1,282,721		100	%	$	1,171,433		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 Federal Funds purchased, repurchase agreements, and borrowings from the FHLB.

As of September 30, 2002 other borrowings had the following times remaining to contractual maturity

Due after

(Dollars in thousands) Due in three
months or less three months
through one year Due after one year
through five years Due after
five years Total

Short-term borrowings
$ — $ — $ — $ — $ —

Long-term borrowings (1)
— — 93,000 — 93,000

Total borrowings
$ — $ — $ 93,000 $ — $ 93,000

(1) Based on contractual maturities.

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 September 30, 2002, 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 September 30, 2002, 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 the Trust 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 at September 30, 2002 and December 31, 2001.

(Dollars in thousands) September 30, 2002 December 31, 2001

Amount Ratio Amount Ratio

Tier 1 capital
$ 139,031 10.62 % $ 129,802 10.44 %

Tier 1 capital minimum requirement
52,381 4.00 % 49,729 4.00 %

Excess Tier 1 capital
$ 86,650 6.62 % $ 80,073 6.44 %

Total capital
$ 155,306 11.86 % $ 145,054 11.67 %

Total capital minimum requirement
104,762 8.00 % 99,458 8.00 %

Excess total capital
$ 50,544 3.86 % $ 45,596 3.67 %

Risk-adjusted assets
$ 1,309,524 $ 1,243,219

Leverage ratio
9.23 % 9.32 %

Minimum leverage requirement
3.00 % 3.00 %

Excess leverage ratio
6.23 % 6.32 %

Adjusted total assets
$ 1,505,842 $ 1,392,808

Stockholders’ equity increased to $132.9 million at September 30, 2002, from $128.8 million at December 31, 2001, an increase of $4.1 million. The increase is due to net income, an increase in the unrealized gain on securities available for sale, offset by payments of cash dividends to stockholders and Bancorp’s activity in its corporate stock repurchase program. During the first nine months of 2002, and consistent with its capital plan, the Company repurchased approximately 665,800 shares, or approximately 4.3% of its common shares pursuant to its corporate stock repurchase program. In September of 2002, Bancorp expanded its common stock repurchase program by 1 million shares. As of September 30, 2002, approximately 1.1 million shares remained available for repurchase under the corporate repurchase program. Since implementing both the now discontinued stock repurchase plan associated with its stock option plans in December 1998, and the corporate repurchase program in July 2000, the Company had repurchased approximately 2.7 million shares through September 30, 2002.

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, 2001.

Lending and Credit Management

Interest earned on the loan portfolio is the primary source of Bancorp’s income. Net loans represented 72.5% of total assets as of September 30, 2002. 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) September 30, 2002 December 31, 2001

Amount Percent Amount Percent

Commercial
$ 203,633 18.2 % $ 198,252 18.5 %

Real estate construction
117,194 10.4 % 94,470 8.8 %

Real estate mortgage
141,203 12.6 % 113,462 10.6 %

Real estate commercial
628,529 56.0 % 633,216 59.2 %

Installment and other consumer
47,595 4.1 % 45,650 4.2 %

Total loans
1,138,154 101.5 % 1,085,050 101.4 %

Allowance for loan losses
(16,276 ) -1.5 % (15,252 ) -1.4 %

Total loans, net
$ 1,121,878 100.0 % $ 1,069,798 100.0 %

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

(Dollars in thousands) September 30, 2002 December 31, 2001

Amount Percent Amount Percent

Assisted Living
$ 43,754 7.0 % $ 44,094 7.0 %

Food Establishments
14,107 2.2 % 14,716 2.3 %

Hotels/Motels
73,069 11.6 % 83,281 13.2 %

Land Development and Raw Land
11,242 1.8 % 11,662 1.8 %

Manufacturing Plants
14,805 2.4 % 17,958 2.8 %

Medical Offices
32,123 5.1 % 28,544 4.5 %

Mini Storage
17,553 2.8 % 18,416 2.9 %

Multi-Family - 5+ Residential
65,800 10.5 % 65,710 10.4 %

Office Buildings
139,419 22.2 % 136,399 21.5 %

Retail Facilities
73,611 11.7 % 74,554 11.8 %

Other
143,046 22.8 % 137,882 21.8 %

Total real estate commercial loans
$ 628,529 100 % $ 633,216 100 %

As of September 30, 2002, 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 September 30, 2002 and December 31, 2001, 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, none of which exceed $500,000. 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)	September 30, 2002			December 31, 2001

Loans on nonaccrual status	$	3,977		$	6,391
Loans past due greater than 90 days not on nonaccrual status		92			4
Other real estate owned		2,374			1,308

Total nonperforming assets	$	6,443		$	7,703

Percentage of nonperforming assets to total assets		0.41	%		0.54	%

See “Allowance for Loan Losses” for further discussion on the loan portfolio.

Allowance for Loan Losses

A loan loss allowance has been established to provide coverage for probable losses inherent in the Bank’s loan portfolio. Management evaluates the allowance 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 include:

           - The formula allowance,

           - Specific allowances for identified problem loans and portfolio segments 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 has determined that the allowance for loan losses is adequate at September 30, 2002.

The formula allowance is calculated by applying loss factors to loan categories that are based on the relative risk characteristics of the loan portfolio categories. The categories are based on the internal risk grade of those loans, or pools of loans. Changes in risk grades and balances in the risk grades of both performing and nonperforming loans affect the amount of the formula allowance. Loss factors are based on our historical loss experience and other such pertinent data and may be adjusted for significant factors that, in management’s judgement, affect the collectibility of the portfolio as of the evaluation date. While historic charge-off activity is studied and used as a base of information, management takes into account the role and relative strength of the economy in projecting charge-off activity. Management believes that commercial and commercial real estate loans have in the banking industry as a whole produced significant losses in brief periods at particular points in economic cycles. Therefore management believes it is appropriate to use a reserve higher than recent charge-off experience would suggest in these categories of loans. This decision is supported by what management perceives to be industry practices for minimum reserve levels, and is intended to help prevent an understatement of reserves based upon over-reliance on recent, favorable economic conditions.

Loss factors are described as follows:

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

- Pooled loan loss factors, 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.

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 Bank separately analyzes the carrying value of impaired loans to determine whether the carrying value is less than or equal to the present value of expected cash flows, the loan’s observable market price or the appraised collateral value of the loan. In most evaluations of impaired credits the Bank basis for impairment is based on the collateral of the loan. In determining impairment, the Bank follows SFAS 114 and 118, “Accounting by Creditors for Impairment of a Loan”.

During our normal loan review procedures, a loan is considered 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 impaired during a period of minimal delay (less than 90 days). Impaired loans are measured based on the loan’s observable market price or the fair market value of the collateral if the loan is collateral dependent or the present value of expected future cash flows, discounted at the loan’s effective interest rate. Leases and certain large groups of smaller balance homogeneous loans, that are collectively measured for impairment, are excluded. The difference between the carry amount and the impaired loan measurement are charged to the allowance if management believes after considering economic and business conditions, collection efforts, collateral position, and the borrower’s financial condition, that collection of principal is not probable.

Regardless of the amount of analysis of the above factors, certain inherent but unforeseen and undetected losses are probable in the Bank’s loan portfolio. This is due to several factors including changes in customer financial position, delays or inability to get financial information, judgmental factors of individual loan evaluation, changes in the value of collateral and the overall difficulty in forecasting future economic events. The unallocated reserve is an estimate by management based on the evaluation of the imprecise nature inherent in evaluating the risk characteristics of the loan portfolio.

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,

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

At September 30, 2002, the Bank’s allowance for loan losses was $16.3 million, consisting of a $15.4 million formula allowance, a $.3 million specific allowance and a $1.2 million unallocated allowance. At December 31, 2001, our allowance for loan losses was $15.3 million, consisting of a $14.9 million formula allowance, a $.1 million specific allowance and a $.2 million unallocated allowance. The changes in the allocation of the allowance for loan losses in the first nine months of 2002 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 September 30, 2002, Bancorp’s allowance for loan loss was 1.43% of total loans, and 415% of total nonperforming loans, compared with an allowance for loan losses at December 31, 2001 of 1.41% of total loans, and 198% of total nonperforming assets.

Changes in the allowance for loan losses are as follows:

Nine months ended Year ended

(Dollars in thousands) September 30, 2002 Dec. 31, 2001

Loans outstanding at end of period
$ 1,138,154 $ 1,085,050

Average loans outstanding during the period
$ 1,120,240 $ 1,017,536

Allowance for loan losses, beginning of period
$ 15,252 $ 14,244

Recoveries:

Commercial
104 205

Real Estate
6 7

Installment and consumer
78 64

Total recoveries
188 276

Loans charged off:

Commercial
(1,707 ) (1,542 )

Real Estate
(143 ) (310 )

Installment and consumer
(1,101 ) (698 )

Total loans charged off
(2,951 ) (2,550 )

Net loans charged off
(2,763 ) (2,274 )

Provision for loan losses
3,787 3,282

Allowance for loan losses, end of period
$ 16,276 $ 15,252

Ratio of net loans charged off to average loans outstanding (1)
0.33 % 0.23 %

Ratio of allowance for loan losses to loans outstanding at end of period
1.43 % 1.41 %

(1) The ratio for the nine months ended September 30, 2002 has been annualized.

During the first nine months of 2002, net loans charged off were $2.8 million, compared to $1.7 million for the same period in 2001. The annualized percentage of net loans charged off year to date to average loans outstanding was 0.33% at September 30, 2002, and 0.23% at September 30, 2001. Charged off loans reflect the realization of losses in the portfolio that were recognized previously through the provision for loan losses.

For the first nine months ending September 30, 2002, the provision for loan loss exceeded the 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, 2001.

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 6. Exhibits and Reports on Form 8-K.

(a) 99.1 Certification from CEO of West Coast Bancorp

99.2 Certification from CFO of West Coast Bancorp

(b) None.

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: November 13, 2002		/s/ Robert D. Sznewajs

		Robert D. Sznewajs Chief Executive Officer and President


Dated: November 13, 2002		/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 officers 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 officers 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 officers 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: November 13, 2002 /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;

     4. The registrant’s other certifying officers 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 officers 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 officers 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: November 13, 2002 /s/ Anders Giltvedt

Anders Giltvedt
Executive Vice President and Chief Financial Officer

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			Page

PART I		Financial Information
	Item 1.	Financial Statements (unaudited)
		Consolidated Balance Sheets - September 30, 2002 and December 31, 2001		3
		Consolidated Statements of Income - Three and nine months ended September 30, 2002 and 2001		4
		Consolidated Statements of Cash Flows - Nine months ended September 30, 2002 and 2001		5
		Consolidated Statements of Changes in Stockholders’ Equity - Nine months ended September 30, 2002 and year ended December 31, 2001		6
		Notes to Consolidated Financial Statements		7
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		15
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk		27
	Item 4.	Controls and Procedures		27
PART II		Other Information
	Item 1.	Legal Proceedings		28
	Item 6.	Exhibits and Reports on Form 8-K		28
	Signatures			29
	Certification of Chief Executive Officer			30
	Certification of Chief Financial Officer			31


(Dollars and shares in thousands			Three months ended Sept. 30,				Nine months ended Sept. 30,

except per shares data)			2002		2001		2002		2001

INTEREST INCOME:
Interest and fees on loans			$	21,627	$	21,363	$	62,663	$	65,189
Interest on taxable investment securities				2,286		2,476		6,922		7,618
Interest on nontaxable investment securities				881		956		2,672		2,910
Interest on deposits in other banks				26		95		60		237
Interest on federal funds sold				62		22		83		81

		Total interest income		24,882		24,912		72,400		76,035
INTEREST EXPENSE:
Savings and interest-bearing demand				1,814		3,154		5,544		11,240
Certificates of deposit				3,445		5,054		11,051		16,315
Short-term borrowings				65		291		266		1,859
Long-term borrowings				1,906		1,087		4,754		3,114
Manditorily redeemable trust preferred securities				274		—		502		—

		Total interest expense		7,504		9,586		22,117		32,528

NET INTEREST INCOME				17,378		15,326		50,283		43,507
Provision for loan losses				1,467		920		3,787		2,120

Net interest income after provision for loan losses				15,911		14,406		46,496		41,387
NONINTEREST INCOME:
Service charges on deposit accounts				1,563		1,497		4,675		4,470
Other service charges, commissions and fees				1,300		1,202		3,841		3,492
Trust revenue				394		422		1,301		1,319
Gains on sales of loans				899		863		2,971		2,865
Loan servicing fees				66		107		245		377
Other				42		68		956		247

		Total noninterest income		4,264		4,159		13,989		12,770
NONINTEREST EXPENSE:
Salaries and employee benefits				7,421		6,684		22,136		19,316
Equipment				1,337		1,342		3,834		4,052
Occupancy				1,135		1,084		3,445		3,232
Check and other transaction processing				643		659		1,906		1,919
Professional fees				491		411		1,276		1,353
Courier and postage				501		472		1,463		1,383
Marketing				535		487		1,424		1,262
Communications				297		299		891		938
Other taxes and insurance				189		197		571		631
Printing and office supplies				160		172		521		545
Kiting charge				—		—		—		1,945
Other noninterest expense				474		774		2,767		2,349

		Total noninterest expense		13,183		12,581		40,234		38,925

INCOME BEFORE INCOME TAXES				6,992		5,984		20,251		15,232
PROVISION FOR INCOME TAXES				2,339		1,876		6,831		4,718

NET INCOME			$	4,653	$	4,108	$	13,420	$	10,514

	Basic earnings per share		$	0.30	$	0.25	$	0.86	$	0.65
	Diluted earnings per share		$	0.29	$	0.25	$	0.83	$	0.64
	Weighted average common shares			15,493		16,149		15,663		16,178
	Weighted average diluted shares			16,017		16,549		16,154		16,461


				Nine months ended September 30,

(Dollars in thousands)				2002			2001

CASH FLOWS FROM OPERATING ACTIVITIES:
Net income				$	13,420		$	10,514
Adjustments to reconcile net income to cash provided by operating activities:
		Depreciation of premises and equipment			2,486			2,750
		Deferred income tax benefit			(66	)		(304	)
		Write-down of premises and equipment			613			—
		Amortization of intangibles			269			287
		Provision for loan losses			3,787			2,120
		Decrease (increase) in interest receivable			(170	)		577
		Decrease in other assets			2,155			3,025
		Origination of loans held for sale			(45,836	)		(55,118	)
		Proceeds from sales of loans held for sale			49,062			52,988
		Decrease in interest payable			(74	)		(500	)
		Increase (decrease) in other liabilities			3,888			(2,536	)
		Stock based compensation expense			407			405
		Tax benefit associated with stock options			260			162
		Decrease (increase) in trading assets			108			(123	)

			Net cash provided by operating activities		30,309			14,247
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities of available for sale securities					44,120			89,370
Purchase of available for sale securities					(59,915	)		(84,076	)
Loans made to customers greater than principal collected on loans					(55,867	)		(36,206	)
Net capital expenditures					(1,425	)		(3,103	)

			Net cash used in investing activities		(73,087	)		(34,015	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in demand, savings and interest bearing transaction accounts					82,948			72,283
Net increase in certificates of deposit					28,340			5,036
Proceeds from issuance of trust preferred securities					7,500			—
Proceeds from issuance of long-term borrowings					50,000			60,500
Repayment of long-term borrowings					(47,500	)		(35,022	)
Net decrease in short-term borrowings					(16,786	)		(77,386	)
Redemption and repurchase of common stock					(9,971	)		(4,232	)
Net proceeds from issuance of common stock					850			713
Dividends paid and cash paid for fractional shares					(3,506	)		(3,301	)

			Net cash provided by financing activities		91,875			18,591

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS					49,097			(1,177	)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD					52,961			60,834

CASH AND CASH EQUIVALENTS AT END OF PERIOD				$	102,058		$	59,657

Supplemental cash flow information:
	Cash paid in the period for:
		Interest		$	22,191		$	33,028
		Income taxes		$	1,627		$	6,313


(Dollars and shares in thousands, except per share data)		Net Income		Weighted Average Shares		Per Share Amount

		Three months ended September 30, 2002

Basic earnings		$	4,653		15,493	$	0.30
Common stock equivalents from:
	Stock options				492
	Restricted stock				32

Diluted earnings		$	4,653		16,017	$	0.29


		Three months ended September 30, 2001

Basic earnings		$	4,108		16,149	$	0.25
Common stock equivalents from:
	Stock options				371
	Restricted stock				29

Diluted earnings		$	4,108		16,549	$	0.25


		Net Income		Weighted Average Shares		Per Share Amount

		Nine months ended September 30, 2002

Basic earnings		$	13,420		15,663	$	0.86
Common stock equivalents from:
	Stock options				447
	Restricted stock				44

Diluted earnings		$	13,420		16,154	$	0.83


		Nine months ended September 30, 2001

Basic earnings		$	10,514		16,178	$	0.65
Common stock equivalents from:
	Stock options				252
	Restricted stock				31

Diluted earnings		$	10,514		16,461	$	0.64


	Three months ending

(Dollars in thousands)	September 30, 2002			September 30, 2001

Balance at beginning of period	$	16,067		$	14,558
Provision for loan losses		1,467			920
Loans charged off		(1,322	)		(849	)
Recoveries		64			17

Balance at end of period	$	16,276		$	14,646


	Nine months ending

(Dollars in thousands)	September 30, 2002			September 30, 2001

Balance at beginning of period	$	15,252		$	14,244
Provision for loan losses		3,787			2,120
Loans charged off		(2,951	)		(1,919	)
Recoveries		188			201

Balance at end of period	$	16,276		$	14,646

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




		These ratios for the three months ended September 30, 2002 and 2001 have been annualized where appropriate.

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




		These ratios for the nine months ended September 30, 2002 and 2001 have been annualized where appropriate.


				Due after
(Dollars in thousands)		Due in three months or less		three months through one year		Due after one year through five years		Due after five years		Total

Short-term borrowings		$	—	$	—	$	—	$	—	$	—
Long-term borrowings (1)			—		—		93,000		—		93,000

	Total borrowings	$	—	$	—	$	93,000	$	—	$	93,000

			- The formula allowance,

			- Specific allowances for identified problem loans and portfolio segments 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,

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


		Nine months ended			Year ended
(Dollars in thousands)		September 30, 2002			Dec. 31, 2001

Loans outstanding at end of period		$	1,138,154		$	1,085,050
Average loans outstanding during the period		$	1,120,240		$	1,017,536
Allowance for loan losses, beginning of period		$	15,252		$	14,244
Recoveries:
	Commercial		104			205
	Real Estate		6			7
	Installment and consumer		78			64

	Total recoveries		188			276
Loans charged off:
	Commercial		(1,707	)		(1,542	)
	Real Estate		(143	)		(310	)
	Installment and consumer		(1,101	)		(698	)

	Total loans charged off		(2,951	)		(2,550	)

Net loans charged off			(2,763	)		(2,274	)
Provision for loan losses			3,787			3,282

Allowance for loan losses, end of period		$	16,276		$	15,252

Ratio of net loans charged off to average loans outstanding (1)			0.33	%		0.23	%
Ratio of allowance for loan losses to loans outstanding at end of period			1.43	%		1.41	%


(a)		99.1 Certification from CEO of West Coast Bancorp

		99.2 Certification from CFO of West Coast Bancorp

(b)		None.


	(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;


	(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




Date: November 13, 2002		/s/ Robert D. Sznewajs

		Robert D. Sznewajs Chief Executive Officer and President