10-K

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

FORM 10-K

x    Annual Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934

For the fiscal year ended December 31, 2005

Commission file number 0-10997

WEST COAST BANCORP

(Exact name of registrant as specified in its charter)

Oregon	93-0810577
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
5335 Meadows Road – Suite 201 Lake Oswego, Oregon	97035
(Address of principal executive offices)	(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 is a well known seasoned issuer, as defined in Rule 405 of the Securities Act. 

Yes   o No   x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. 

Yes   o No   x

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

Yes   x No   o

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

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

o Large Accelerated Filer x Accelerated Filer o Non-accelerated Filer

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

Yes   o No   x

The aggregate market value of registrant’s Common Stock held by non-affiliates of the registrant on June 30, 2005, was approximately $356,783,000. 

The number of shares of registrant’s Common Stock outstanding on January 31, 2006, was 14,702,242.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the West Coast Bancorp Definitive Proxy Statement for the 2006 annual meeting of shareholders are incorporated by reference into Part III of this Form 10-K.

Table of Contents

		PAGE
PART I
	Forward Looking Statement Disclosure	2
Item 1.	Business	3
Item 1A.	Risk Factors	10
Item 1B.	Unresolved Staff Comments	11
Item 2.	Properties	11
Item 3.	Legal Proceedings	11
Item 4.	Submission of Matters to a Vote of Security Holders	11
PART II
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	12
Item 6.	Selected Financial Data	13
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	15
Item 7A.	Quantitative and Qualitative Disclosures about Market Risk	34
Item 8.	Financial Statements and Supplementary Data	36
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	67
Item 9A.	Controls and Procedures	67
Item 9B.	Other Information	69
PART III
Item 10.	Directors and Executive Officers of the Registrant	70
Item 11.	Executive Compensation	70
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	71
Item 13.	Certain Relationships and Related Transactions	71
Item 14.	Principal Accountant Fees and Services	71
PART IV
Item 15.	Exhibits and Financial Statement Schedules	72
Signatures		73
Index to Exhibits		74

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Forward Looking Statement Disclosure

Statements in this Annual Report regarding future events or performance are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 (the “PSLRA”) and are made pursuant to the safe harbors of the PSLRA.  Actual results of West Coast Bancorp (“Bancorp” or the “Company”) could be quite different from those expressed or implied by the forward-looking statements.  Any statements containing the words “could,” “may,” “will,” “should,” “plan,” “believes,” “anticipates,” “estimates,” “predicts,” “expects,” “projections,” “potential,” “continue,” or words of similar import, constitute “forward-looking statements,” as do any other statements that expressly or implicitly predict future events, results, or performance.  Factors that could cause results to differ from results expressed or implied by our forward-looking statements include, among others, risks discussed in the text of this Annual Report as well as the following specific items:

• 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 that reduce yields Bancorp achieves on loans and increase rates Bancorp pays on deposits, loss of Bancorp’s most valued customers, defection of key employees or groups of employees, or other losses;

• Increasing or decreasing interest rate environments, including the shape and level of the yield curve, that could lead to decreases in net interest margin, lower net interest and fee income, including lower gains on sales of loans, and changes in the value of Bancorp’s investment securities;

• Changing business or regulatory conditions, or new legislation, affecting the financial services industry that could lead to increased costs, changes in the competitive balance among financial institutions, or revisions to our strategic focus;

• Our proposed acquisition of Mid-Valley Bank, which may result in costs and expenses that are greater, or benefits that are less, than we currently anticipate, or the assumption of unanticipated liabilities; and

• Changes or failures in technology or third party vendor relationships in important revenue production or service areas, or increases in required investments in technology that could reduce our revenues, increase our costs or lead to disruptions in our business.

          Furthermore, forward-looking statements are subject to risks and uncertainties related to the Company’s ability to: satisfy conditions to the proposed acquisition of Mid-Valley Bank, including regulatory and Mid-Valley shareholder approvals; attract and retain lending officers and other key personnel; close loans in the pipeline; generate loan and deposit balances at projected spreads; sustain fee generation and gains on sales of loans; maintain asset quality; control the level of net charge-offs; adapt to changing customer deposit, investment, and lending behaviors; generate retail investments; control expense growth; monitor and manage the Company’s financial reporting, operating and disclosure control environments, and other matters.

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

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

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PART I

ITEM 1. BUSINESS

General

          Bancorp is a bank holding company that in September 2005, elected to become a financial holding company to have more flexibility in the products and services it provides through its subsidiaries. Bancorp was originally organized under the laws of the state of Oregon in 1981 under the name Commercial Bancorp.  Commercial Bancorp merged with West Coast Bancorp, a one-bank holding company based in Newport, Oregon, on February 28, 1995.  The combined corporation retained the name West Coast Bancorp, and moved its headquarters to Lake Oswego, Oregon. References in this report to “we,” “us,” or “our” refer to Bancorp.

          Bancorp’s principal business activities are conducted through its full-service, commercial bank subsidiary West Coast Bank (the “Bank”), an Oregon state-chartered bank with deposits insured by the Federal Deposit Insurance Corporation (“FDIC”).  At December 31, 2005, the Bank had facilities in 38 cities and towns in western Oregon and southwestern Washington, operating a total of 49 full-service and three limited-service branches.  In addition, the Bank operates a mortgage loan office in Bend, Oregon and a mortgage loan office and SBA lending office in Vancouver, Washington.  Bancorp also owns West Coast Trust Company, Inc. (“WCT” or “West Coast Trust”), an Oregon trust company that provides agency, fiduciary and other related trust services.  The market value of assets managed for others at December 31, 2005, totaled $398.4 million.

          Bancorp’s net income for 2005 was $23.8 million, or $1.55 per diluted share, and its consolidated equity at December 31, 2005, was $157.1 million, with 14.7 million common shares outstanding and a book value of $10.69 per share.  Net loans of $1.5 billion at December 31, 2005, represented approximately 76.8% of total assets of $2.0 billion.  Bancorp had deposits totaling $1.6 billion at December 31, 2005.  For more information regarding Bancorp’s financial results, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Financial Statements and Supplementary Data,” contained in Items 7 and 8 of this report.

          Bancorp reports two principal operating segments in the notes to its financial statements, West Coast Bank on the one hand, and West Coast Trust and corporate related operations on the other hand..  For more information regarding Bancorp’s operating segments, see Note 20 to the Company’s financial statements  included under “Financial Statements and Supplementary Data” in Item 8 of this report.

          Bancorp is committed to community banking and intends the Bank to remain community-focused.  Bancorp’s strategic vision includes greater commercial banking market penetration, as well as expanded distribution capability in the Pacific Northwest.  The Bank intends to grow its distribution and reach through development of new branch locations in key growth markets and through product expansion, including remote deposit capabilities.  In furtherance of this goal, Bancorp has entered into an agreement to acquire Mid-Valley Bank, a rapidly growing community bank headquartered in Woodburn, Oregon that operates four full-service branches in the towns of Woodburn, Wilsonville, and Mt. Angel, Oregon.  Bancorp will continue to seek acquisition opportunities with other community banks that share its business philosophies.  For more information regarding our proposed acquisition of Mid-Valley Bank and conditions to completion of the transaction, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations -- Recent Developments” contained in Item 7 of this report.

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

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

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Subsidiaries

West Coast Bank

          The Bank was organized in 1925 under the name The Bank of Newport, and its head office is currently located in Lake Oswego, Oregon. The Bank resulted from the merger on December 31, 1998, of the Bank of Newport of Newport, Oregon, The Commercial Bank of Salem, Oregon, Bank of Vancouver of Vancouver, Washington, and Centennial Bank of Olympia, Washington, into a single entity, which was named West Coast Bank.

          The Bank conducts business through 52 branches located in western Oregon and southwestern Washington.  The Oregon branches are located in the following cities and towns:  Beaverton, Bend, Canby, Clackamas, Dallas, Depoe Bay, Eugene, Forest Grove, Gresham, Hillsboro (2), Keizer (3), King City, Lake Oswego, Lincoln City, McMinnville, Molalla, Monmouth, Newberg, Newport (2), North Plains, Portland (4), Salem (5), Silverton, Stayton, Sublimity, Tigard, Toledo, Tualatin, Waldport, Wilsonville, and Woodburn.   The Bank’s Washington branches are located in Centralia, Chehalis, Hoodsport, Lacey, Olympia (2), Shelton, and Vancouver (3). 

          The primary business strategy of the Bank is to provide comprehensive banking and related financial services tailored to individuals, professionals, and small to medium-sized businesses.  The Bank emphasizes the diversity of its product lines and convenient access typically associated with larger financial organizations, while maintaining the local decision making authority, market knowledge, and customer service orientation typically associated with a community bank.  The Bank has significant focus on four targeted segments:  1) high value consumers (including the mature market), 2) smaller businesses with credit needs under $250,000, 3) medium-sized commercial businesses with credit needs over $250,000 up to $20 million, and 4) commercial real estate and construction-related businesses.

          For consumer banking customers, the Bank offers a variety of flexible checking and savings plans and debit cards, as well as competitive borrowing products, including lines of credit, credit cards, home equity loans, construction loans , mortgage loans, and other types of consumer loans.  In 2004, the Bank introduced 2 new groups of checking products in the South Puget Sound region and in 2005; these products were expanded throughout all of the Bank’s regions.  The consumer products consist of free checking and 6 other account types, each specifically designed to meet the needs of a unique market segment.  The small business package of accounts includes free business checking and an interest-bearing account for eligible organizations.  Because of the straightforward and uncomplicated product design, our personal bankers are able to quickly and easily identify the best account for our clients.  Customers have access to the Bank’s products and services through a variety of convenient channels such as 24 hour a day, 7 days a week automated phone or Internet access, a personal customer service center accessed by phone, ATMs (both shared and proprietary networks), as well as through our  branch locations.

          For business banking customers, the Bank offers customized deposit products tailored for specific needs, including a variety of checking accounts, sophisticated Internet-based cash management and a full array of investment services, all with online and/or CD-ROM information reporting.  Customized financing packages for commercial, commercial real estate and construction purposes are developed from a suite of loan offerings, including:  Short-to-intermediate term loans, accounts receivable and inventory financing, equipment leasing, revolving lines-of-credit, SBA loans, business VISA credit cards, and other types of credit. The Bank’s loan portfolio has some concentration in real estate-secured loans.

          The principal office of the Bank is at 5335 Meadows Road, Suite 201, Lake Oswego, OR  97035 (503) 684-0884.

West Coast Trust

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

Totten, Inc.

          Totten, Inc., a Washington corporation, serves as trustee under deeds of trust and holds certain real estate licenses.

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West Coast Statutory Trusts I, II, III, and IV.

          West Coast Statutory Trusts I, II, III, and IV are wholly-owned subsidiary trusts of Bancorp formed to facilitate the issuance of Pooled Trust Preferred Securities (“trust preferred securities”).  The trusts were organized November 27, 2001, June 26, 2002, September 17, 2003, and March 17, 2004, respectively, in connection with four offerings of trust preferred securities.  For more information regarding Bancorp’s issuance of trust preferred securities, see Footnote 7 “Junior Subordinated Debentures” to Bancorp’s audited consolidated financial statements included in Item 8 of this report.

Employees

          At December 31, 2005, Bancorp and its subsidiaries had approximately 746 employees.  None of these employees are represented by labor unions and management believes that Bancorp’s relationship with its employees is good.  Bancorp emphasizes a positive work environment for its employees which is measured annually utilizing an anonymous employee survey.  Results indicate a high level of employee satisfaction with their work as well as with Bancorp in general.  In addition, West Coast Bank was recognized in 2004 and 2005 as one of Oregon’s Best 100 Companies for which to work.  Management continually strives to retain top talent as well as provide career development opportunities to enhance skill levels.  A number of benefit programs are available to eligible employees, including group medical plans, paid sick leave, paid vacation, group life insurance, a 401(k) plan and a stock incentive plan.  Employees are also eligible to purchase Bancorp’s common stock through direct payroll deductions under the Company’s dividend reinvestment plan.  In addition, bank owned life insurance, a deferred compensation plan and supplemental retirement benefits are available to certain officers and executives of Bancorp.

Competition

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

          In addition to larger institutions, numerous “community” banks or credit unions have been formed, expanded, or moved into Bancorp’s market areas and have developed a similar focus to Bancorp.  These institutions have further increased competition, particularly in the Portland metropolitan area where Bancorp has enjoyed significant recent growth and focused much of its expansion efforts.  This growing number of similar financial institutions and an increased focus by larger institutions on the Bank’s market segments in response to declining market perception and/or market share has led to intensified competition in all aspects of Bancorp’s business.  At June 30, 2005, the Bank had approximately 4% and 14% of the deposit market share in the Portland, Oregon, and Salem Oregon areas, respectively, excluding credit unions, which makes it a market share leader among community banks in these highly competitive markets.  In Lincoln County, on the Oregon coast, where the Bank is the market share leader, the Bank had over 27% of the deposit market share at June 30, 2005.  Increased competitive pressure and changing customer deposit behaviors could adversely affect the Bank’s market share of deposits.

          The adoption of the Gramm-Leach-Bliley Act of 1999 (the “GLB Act”) has led to further intensification of competition in the financial services industry.  The GLB Act has eliminated many of the barriers to affiliation among providers of various types of financial services and has permitted business combinations among financial service providers such as banks, insurance companies, securities or brokerage firms, and other financial service providers.  Additionally, the rapid adoption of financial services through the Internet has reduced or even eliminated many barriers to entry by financial services providers physically located outside our market area. For example, remote deposit services, partly developed in response to the recently adopted Check 21 law, allow depository companies physically located in other geographical markets to service local businesses with minimal cost of entry.  Although Bancorp has been able to compete effectively in the financial services business in its markets to date, there can be no assurance that it will be able to continue to do so in the future.

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          The financial services industry has experienced widespread consolidation over the last decade.  Bancorp anticipates that consolidation among financial institutions in its market area will continue.  As noted, Bancorp seeks acquisition opportunities in markets of strategic importance to it from time to time.  However, other financial institutions aggressively compete against Bancorp in the acquisition market.   Some of these institutions may have greater access to capital markets, larger cash reserves, and stock for use in acquisitions that is more liquid and more highly valued by the market.

Supervision and Regulation

Introduction

          We are subject to extensive regulation under federal and state law.  These laws and regulations are primarily intended to protect depositors and borrowers, not stockholders.  Changes in applicable laws or regulations or in the policies of banking and other government regulators may have a material effect on our business and prospects.  The following is a brief description of the significant laws and regulations that govern our activities.   

Holding Company Regulation

          Bank holding companies, including those like Bancorp that have elected to become financial holding companies (together, “holding companies”), are subject to the Bank Holding Company Act of 1956, as amended (the “BHCA”).  As such, Bancorp is regulated by, and under the supervision of, the Board of Governors of the Federal Reserve System (the “Federal Reserve”).  Bancorp must file reports with the Federal Reserve and must provide it with such additional information as it may require.  In addition, the Federal Reserve periodically examines Bancorp and its subsidiaries, including the Bank.

          Holding companies must, among other things, obtain prior Federal Reserve approval before they:  (1) acquire direct or indirect ownership or control of any voting shares of any bank that results in total ownership or control, directly or indirectly, of more than 5% of the voting shares of such bank; (2) merge or consolidate with another holding company; or (3) acquire substantially all of the assets of another bank or holding company.

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

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

Bank Regulation

          General.  The Bank is an Oregon state-chartered commercial bank operating in Oregon and Washington with deposits insured by the FDIC in an amount up to $100,000 per customer.  As a result, the Bank is subject to supervision and regulation by the Oregon Department of Consumer and Business Services and the FDIC, and to a lesser extent, the Washington Department of Financial Institutions.  The Bank’s regulators engage in regular examinations of the Bank and have the authority to prohibit the Bank from engaging in activities they believe constitute unsafe or unsound banking practices.

          Insider Credit Transactions.  Banks are subject to certain restrictions imposed by the Federal Reserve Act on extensions of credit to executive officers, directors, principal shareholders or any related interests of such persons.  Extensions of credit (1) must be made on substantially the same terms, including interest rates and collateral, as, and follow credit underwriting procedures that are not less stringent than, those prevailing at the time for comparable transactions with others, and (2) must not involve more than the normal risk of repayment or present other unfavorable features.  Banks are also subject to certain lending limits and restrictions on overdrafts to insiders.  A violation of these restrictions may result in the assessment of substantial civil monetary penalties, the imposition of a cease and desist order, and other regulatory sanctions.

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          Premiums for Deposit Insurance.  The Bank is required to pay semiannual deposit insurance premiums to the FDIC.  Premiums are based on how much risk a particular institution presents to the Bank Insurance Fund.  Banks with higher levels of capital and a low degree of supervisory concern are assessed lower premiums than banks with lower levels of capital or a higher degree of supervisory concern.  The Bank presently qualifies for the lowest premium level.  The FDIC may terminate deposit insurance if it determines the institution involved has engaged in or is engaging in unsafe or unsound banking practices, is in unsafe or unsound condition, or has violated applicable laws, regulations or orders. 

          Community Reinvestment Act and Fair Lending and Reporting Requirements.  Bancorp is subject to the Community Reinvestment Act (“CRA”) and to certain fair lending and reporting requirements that relate primarily to home mortgage lending operations.  The CRA generally requires the federal banking agencies to evaluate the record of a financial institution in meeting the credit needs of its local communities, including low- and moderate-income neighborhoods, consistent with the safe and sound operation of the institution.  The federal banking agencies may take into account compliance with the CRA when regulating and supervising other activities, such as evaluating mergers, acquisitions and applications to open a branch or facility.  In connection with its assessment of CRA performance, the FDIC assigns a rating of “outstanding,” “satisfactory,” “needs to improve” or “substantial noncompliance.”  The Bank received a CRA rating of satisfactory during its most recent CRA examination in July 2005.

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

          The GLB Act (Financial Services Modernization Act)

          The GLB Act, adopted in November 1999, significantly changed the regulatory structure and oversight of the financial services industry.  The GLB Act repealed provisions of the Glass-Steagall Act that prohibited affiliations among bank holding companies, securities firms and insurance companies.  The law allows qualifying bank holding companies to elect financial holding company status and, after approval thereof, to engage in a full range of financial services, including banking, securities, insurance and other activities.  During 2005, Bancorp elected to become a financial holding company.

          Separately, the GLB Act and related regulations imposed privacy standards that limit the ability of banks and other financial institutions to disclose non-public information about consumers to nonaffiliated third parties.  These limitations require disclosure of privacy policies to consumers and, in some circumstances, allow consumers to prevent disclosure of certain personal information to a nonaffiliated third party. 

Capital Adequacy

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

          The FDIC and Federal Reserve use risk-based capital guidelines for banks and holding companies.  Risk-based guidelines are designed to make capital requirements more sensitive to differences in risk profiles among banks and holding companies, to account for off-balance sheet exposure and to minimize disincentives for holding liquid assets.  Assets and off-balance sheet items are assigned to broad risk categories, each with appropriate weights.  The resulting capital ratios represent capital as a percentage of total risk-weighted assets and off-balance sheet items.  The guidelines are minimums, and the Federal Reserve may require that a banking organization maintain ratios in excess of the minimums, particularly organizations contemplating significant expansion.  Current guidelines require all holding companies and federally-regulated banks to maintain a minimum risk-based total capital ratio equal to 8%, of which at least 4% must be Tier I capital.  Tier I capital for holding companies includes common stockholders’ equity, qualifying preferred stock and minority interests in equity accounts of consolidated subsidiaries, minus specified intangibles and accumulated other comprehensive income (loss).

          The Federal Reserve also employs a leverage ratio, which is Tier I capital as a percentage of total assets minus intangibles, to be used as a supplement to risk-based guidelines.  The principal objective of the leverage ratio is to constrain the maximum degree to which a holding company may leverage its equity capital base.  The Federal Reserve requires a minimum leverage ratio of 3%.  However, for all but the most highly rated holding companies and for holding companies seeking to expand, the Federal Reserve expects an additional cushion of at least 1% to 2%.

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          The Federal Deposit Insurance Corporation Improvement Act (“FDICIA”), among other things, created a statutory framework of supervisory actions indexed to the capital level of the individual institution.  Under regulations adopted by the FDIC, an institution is assigned to one of five capital categories – well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, and critically undercapitalized -- depending on its total risk-based capital ratio, Tier I risk-based capital ratio, and leverage ratio, together with certain subjective factors.  Institutions which are deemed to be “undercapitalized” depending on the category to which they are assigned are subject to certain mandatory supervisory corrective actions.  Under current regulations, a “well-capitalized” institution must have a Tier 1 risk-based capital ratio of at least 6%, a total risk-based capital ratio of at least 10%, and a leverage ratio of at least 5% and not be subject to a capital directive order.  Under these guidelines, Bancorp is considered well capitalized as of the end of the fiscal year.

          FDICIA.  Under FDICIA, each federal banking agency has prescribed, by regulation, non-capital safety and soundness standards for institutions under its authority.  These standards cover internal controls, information systems and internal audit systems, loan documentation, credit underwriting, interest rate exposure, asset growth, compensation, fees and benefits, such other operational and managerial standards as the agency determines to be appropriate, and standards for asset quality, earnings and stock valuation.  An institution which fails to meet these standards must develop a plan acceptable to the agency, specifying the steps that the institution will take to meet the standards.  Failure to submit or implement such a plan may subject the institution to regulatory sanctions.  Management believes that the Bank currently satisfies all such standards.

Dividends

          The principal source of Bancorp’s cash reserves is dividends received from the Bank.  In addition, Bancorp has issued Trust Preferred Securities through wholly owned subsidiary grantor trusts.  The banking regulators may prohibit banks and holding companies from paying dividends that would constitute an unsafe or unsound banking practice.  In addition, a bank or holding company may not pay cash dividends if doing so would reduce the amount of its capital below that necessary to meet minimum applicable regulatory capital requirements.  Oregon law also limits the Bank’s and Bancorp’s ability to pay dividends.  Under the restrictions of maintaining adequate minimum capital, as of December 31, 2005, the Bank could have declared dividends to the holding company totaling $47.2 million without obtaining prior regulatory approval. 

Stock Repurchases

          A holding company, except for certain “well-capitalized” and highly rated holding companies, is required to give the Federal Reserve prior written notice of any purchase or redemption of its outstanding equity securities if the gross consideration for the purchase or redemption, when combined with the net consideration paid for all such purchases or redemptions during the preceding 12 months, is equal to 10% or more of its consolidated net worth.  The Federal Reserve may disapprove such a purchase or redemption if it determines that the proposal would constitute an unsafe or unsound practice or would violate any law, regulation, Federal Reserve order, or any condition imposed by, or written agreement with, the Federal Reserve.  We have in place a stock repurchase program that complies with current banking regulations.  See “Management Discussion and Analysis – Capital Resources.”  Our stock repurchase program is partly dependent upon our ability to issue trust preferred securities which may be used to fund stock repurchases.  See “Management Discussion and Analysis – Liquidity and Sources of Funds.”

Interstate Banking and Branching

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

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The USA Patriot Act 

          The USA Patriot Act was signed into law on October 26, 2001.  The USA Patriot Act gives the federal government new powers to address terrorist threats through enhanced domestic security measures, expanded surveillance powers, increased information sharing, and broadened anti-money laundering requirements.  By way of amendments to the Bank Secrecy Act, the USA Patriot Act takes measures intended to encourage information sharing among bank regulatory agencies and law enforcement bodies.  Among other requirements, the USA Patriot Act requires banks to establish anti-money laundering programs, to adopt procedures and controls to detect and report money laundering, and to comply with certain enhanced recordkeeping obligations with respect to correspondent accounts of foreign banks.  Compliance with these new requirements has not had a material effect on our operations.

Monetary and Fiscal Policy Effects on Interest Rates

          Community banking is a business which, to a large extent, depends on interest rate differentials.  In general, the differences between the interest paid by a bank on its deposits and its other borrowings and the interest received by a bank on loans extended to its customers and securities held in its investment portfolio constitute the major portion of a bank’s earnings.  Thus, our earnings and growth are constantly subject to the influence of economic conditions generally, both domestic and foreign, and also to the monetary and fiscal policies of the United States and its agencies, particularly the Federal Reserve.  The nature and timing of changes in such policies and their impact cannot be predicted.

Future Legislation

          Various legislation ranging from consumer protection legislation to additional legislation proposing to substantially change the financial institution regulatory system is considered by Congress from time to time.  Future legislation may change banking statutes and our operating environment in substantial and unpredictable ways.  For instance, new legislation could increase or decrease the cost of doing business, limit or expand permissible activities, or change the competitive balance among various types of financial institutions.  We cannot predict whether any legislation will be enacted that would have a material effect on our business.

9

ITEM 1A. RISK FACTORS

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

Future loan losses may exceed our allowance for loan losses

          We are subject to credit risk, which is the risk of losing principal or interest due to borrowers’ failure to repay loans in accordance with their terms.  A downturn in the economy or the real estate market in our market areas or a rapid change in interest rates could have a negative effect on collateral values and borrowers’ ability to repay. This deterioration in economic conditions could result in losses to the Bank in excess of loan loss allowances. To the extent loans are not paid timely by borrowers, the loans are placed on non-accrual, thereby reducing interest income. To the extent loan charge-offs exceed our financial models, increased amounts charged to the provision for loan losses would reduce income.

Rapidly changing interest rate environments could reduce our net interest margin, net interest income, fee income and net income

          Interest and fees on loans and securities, net of interest paid on deposits and borrowings, are a large part of our net income.  Interest rates are key drivers of our net interest margin and subject to many factors beyond the control of management.  As interest rates change, net interest income is affected. Rapid increases in interest rates in the future could result in interest expense increasing faster than interest income because of mismatches in financial instrument maturities. Further, substantially higher interest rates generally reduce loan demand and may result in slower loan growth particularly in construction lending, an important factor in Bancorp’s revenue growth over the past two years. Decreases or increases in interest rates could have a negative effect on the spreads between the interest rates earned on assets and the rates of interest paid on liabilities, and therefore decrease net interest income. See “Quantitative and Qualitative Disclosures about Market Risk.”

Slower than anticipated growth in new branches and new product and service offerings could result in reduced net income

          We have placed a strategic emphasis on expanding our branch network and product offerings.  Executing this strategy carries risks of slower than anticipated growth both in new branches and new products.  New branches and products require a significant investment of both financial and personnel resources.  Lower than expected loan and deposit growth in new investments can decrease anticipated revenues and net income generated by those investments, and opening new branches and introducing new products could result in more additional expenses than anticipated and divert resources from current core operations.

The financial services industry is very competitive

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

Decreased volumes and lower gains on sales of mortgage and SBA loans sold could adversely impact net income

          We originate and sell mortgage and certain Small Business Administration (“SBA”) loans.  Changes in interest rates affect demand for our loan products and the revenue realized on the sale of loans.  A decrease in the volume of loans sold can decrease our revenues and net income.

We may fail to complete or fail to realize anticipated benefits from our proposed acquisition of Mid-Valley Bank

          On February 1, 2006, Bancorp entered into a definitive agreement pursuant to which it agreed to acquire Mid-Valley Bank by means of a merger of Mid-Valley into West Coast Bank in which outstanding shares of Mid-Valley common stock will be exchanged for cash and common shares of Bancorp.  Completion of the merger is subject to satisfaction of various conditions set forth in the merger agreement, including regulatory and Mid-Valley shareholder approvals, and therefore may or may not be completed.  In addition, the combined bank may fail to realize some or all of the anticipated cost savings and other benefits of the transaction and integration issues could cause higher than anticipated expenses and lower benefits from the merger than currently anticipated.

10

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

          We rely on key personnel to manage and operate our business, including major revenue generating functions such as our loan and deposit portfolios. The loss of key staff may adversely affect our ability to maintain and manage these portfolios effectively, which could negatively effect our revenues.  In addition, loss of key personnel could result in increased recruiting and hiring expenses, which could cause a decrease in our net income.

ITEM 1B. UNRESOLVED STAFF COMMENTS

          None.

ITEM 2. PROPERTIES

          The principal properties owned by the Bank include a 40,000-square-foot office and branch facility in downtown Salem, Oregon, a 15,600-square-foot office and branch facility in Newport, Oregon, and a 12,000-square-foot branch and office facility in Lacey, Washington.  In total, we own 28 buildings, primarily to house branch offices.  We lease the land under 6 buildings and own the land under 22 buildings.  In addition, Bancorp leases 31 office spaces and buildings for branch locations.  As part of Bancorp’s proposed acquisition of Mid-Valley Bank, expected to close late in the second quarter of 2006, Bancorp expects to assume the leases for six leased facilities, four of which are branch locations, in Woodburn, Mt. Angel, and Wilsonville, Oregon areas.

          Other non-branch office facilities are located in leased office space, including the Bank’s headquarters office in Lake Oswego, Oregon, office and processing space in Salem, Oregon, where the Bank’s data center is located, space in Wilsonville, Oregon, where its loan servicing and operations center is located, space in Vancouver, Washington, where we have a mortgage and SBA lending office, and space in Bend, Oregon, where we have a residential mortgage office.  In addition, we lease 2 smaller office spaces for lending personnel in Lake Oswego and downtown Portland, Oregon. 

          The aggregate monthly rental on 37 leased properties is approximately $222,000.

ITEM 3. LEGAL PROCEEDINGS

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

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

          None.

11

PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Stock Price and Dividends

          Bancorp common stock trades on the NASDAQ National Market under the symbol “WCBO.”  The high and low closing sale prices per share of our common stock for each quarter during the last two years are shown in the table below, together with dividend information for each period.  The prices below do not include retail mark-ups, mark-downs or commissions, may not represent actual transactions and are not adjusted for dividends.  As of December 31, 2005, we had approximately 1,490 holders of record.

	2005						2004
	Market Price				Cash dividend declared		Market Price				Cash dividend declared
	High		Low				High		Low
1st Quarter	$	24.99	$	23.30	$	0.0925	$	22.75	$	21.05	$	0.0850
2nd Quarter	$	24.41	$	20.43	$	0.0925	$	23.37	$	20.74	$	0.0850
3rd Quarter	$	26.95	$	23.93	$	0.1050	$	22.29	$	19.43	$	0.0925
4th Quarter	$	27.87	$	23.47	$	0.1050	$	27.11	$	20.87	$	0.0925

          Dividends are limited under federal and Oregon laws and regulations pertaining to Bancorp’s financial condition.  Payment of dividends may also be subject to restriction by state banking regulators.  See “Business – Supervision and Regulation.”

          Information regarding securities authorized for issuance under equity compensation plans appears in Part III, Item 12 of this report.

Issuer Purchases of Equity Securities

          The following table provides information about purchases of common stock by the Company during the quarter ended December 31, 2005: 

Period	Total Number of Shares Purchased/Cancelled (1)		Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (2)		Maximum Number of Shares Remaining at Period End that May Be Purchased Under the Plans or Programs
10/1/05 - 10/31/05		32,541	$	24.43		30,900		423,921
11/1/05 - 11/30/05		38,183	$	25.96		37,500		386,421
12/1/05 - 12/31/05		34,400	$	26.91		34,400		352,021
Total for quarter		105,124				102,800

(1)

Shares purchased by Bancorp during the quarter include: (1) shares purchased pursuant to the Company’s corporate stock repurchase program publicly announced in July 2000 (the “Repurchase Program”) and described in footnote 2 below, and (2) shares purchased from employees in connection with stock option swap exercises and cancellation of restricted stock to pay withholding taxes totaling 1,641 shares, 683 shares, and 0 shares, respectively, for the periods indicated.

(2)

Under the Repurchase Program, the board of directors originally authorized the Company to purchase up to 330,000 common shares, which amount was increased by 550,000 shares in September 2000, by 1.0 million shares in September 2001, by 1.0 million shares in September 2002, and by 1.0 million shares in April 2004, for a total authorized repurchase amount as of December 31, 2005, of approximately 3.9 million shares.

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ITEM 6. SELECTED FINANCIAL DATA

Consolidated five year financial data

          The following selected consolidated five year financial data should be read in conjunction with Bancorp’s consolidated financial statements and the accompanying notes presented in this report.  The per share information has been adjusted retroactively for all stock dividends and splits.

	As of and For the Year ended December 31,
(Dollars in thousands, except per share data)	2005			2004			2003			2002			2001
Interest income	$	112,991		$	92,988		$	89,678		$	96,028		$	100,277
Interest expense		26,430			18,115			20,639			28,532			40,572
Net interest income		86,561			74,873			69,039			67,496			59,705
Provision for loan losses		2,175			2,260			3,800			4,979			3,282
Net interest income after provision for loan losses		84,386			72,613			65,239			62,517			56,423
Noninterest income		23,099			22,463			22,046			18,694			17,031
Noninterest expense		72,634			63,371			58,150			54,018			51,999
Income before income taxes		34,851			31,705			29,135			27,193			21,455
Provision for income taxes		11,011			9,697			9,338			8,990			6,695
Net income	$	23,840		$	22,008		$	19,797		$	18,203		$	14,760
Per share data:
Basic earnings per share	$	1.63		$	1.48		$	1.31		$	1.17		$	0.92
Diluted earnings per share	$	1.55		$	1.42		$	1.26		$	1.13		$	0.90
Cash dividends	$	0.40		$	0.36		$	0.32		$	0.30		$	0.28
Period end book value	$	10.69		$	9.94		$	9.29		$	8.70		$	8.04
Weighted average common  shares outstanding		14,658			14,849			15,077			15,575			16,126
Weighted average diluted  shares outstanding		15,344			15,526			15,674			16,069			16,453
Total assets	$	1,997,138		$	1,790,919		$	1,662,882		$	1,532,327		$	1,435,701
Total deposits	$	1,649,462		$	1,472,709		$	1,404,859		$	1,266,453		$	1,171,433
Total long-term borrowings	$	83,100		$	85,500		$	78,000		$	98,000		$	90,500
Total loans, net	$	1,533,985		$	1,409,023		$	1,202,750		$	1,143,077		$	1,069,798
Stockholders’ equity	$	157,123		$	147,854		$	140,053		$	133,387		$	128,790
Financial ratios:
Return on average assets		1.28	%		1.28	%		1.24	%		1.22	%		1.08	%
Return on average equity		15.76	%		15.45	%		14.52	%		13.96	%		11.72	%
Average equity to average assets		8.09	%		8.29	%		8.57	%		8.76	%		9.21	%
Dividend payout ratio		24.50	%		25.00	%		25.73	%		26.55	%		29.89	%
Efficiency ratio (1)		64.19	%		64.01	%		62.64	%		61.32	%		65.98	%
Net loans to assets		76.81	%		78.68	%		72.33	%		74.60	%		74.51	%
Average yields earned (2)		6.49	%		5.84	%		6.08	%		6.99	%		8.00	%
Average rates paid		2.06	%		1.50	%		1.78	%		2.56	%		3.90	%
Net interest spread (2)		4.43	%		4.34	%		4.29	%		4.43	%		4.10	%
Net interest margin (2)		4.99	%		4.72	%		4.70	%		4.95	%		4.83	%
Nonperforming assets to total assets (3)		0.05	%		0.12	%		0.27	%		0.44	%		0.54	%
Allowance for loan loss to total loans		1.32	%		1.33	%		1.49	%		1.45	%		1.41	%
Net loan charge-offs to average loans		0.05	%		0.11	%		0.21	%		0.30	%		0.22	%
Allowance for loan loss to nonperforming assets (3)		1881.86	%		867.48	%		411.08	%		248.81	%		198.00	%

(1)	The efficiency ratio has been computed as noninterest expense divided by the sum of net interest income on a taxable-equivalent basis and noninterest income.
(2)	Interest earned on nontaxable securities has been computed on a 35% tax equivalent basis.
(3)	Nonperforming assets include litigation settlement property in certain periods.

13

Consolidated quarterly financial data

          The following table presents selected consolidated quarterly financial data for each quarter of 2005 and 2004.  The financial information contained in this table reflects all adjustments, which, in the opinion of management, are necessary for a fair presentation of the results of the interim periods.

	2005 Quarters ended (unaudited)
(Dollars in thousands, except per share data)	March 31,			June 30,			Sept. 30,			Dec. 31,
Interest income	$	25,202		$	27,321		$	29,158		$	31,310
Interest expense		5,328			6,293			6,886			7,923
Net interest income		19,874			21,028			22,272			23,387
Provision for loan losses		—			825			400			950
Net interest income after provision for loan losses		19,874			20,203			21,872			22,437
Noninterest income		4,272			6,139			6,119			6,569
Noninterest expense		17,474			17,165			18,434			19,561
Income before income taxes		6,672			9,177			9,557			9,445
Provision for income taxes		2,153			3,031			2,844			2,983
Net income	$	4,519		$	6,146		$	6,713		$	6,462
Basic earnings per share	$	0.31		$	0.42		$	0.46		$	0.44
Diluted earnings per share	$	0.29		$	0.40		$	0.44		$	0.42
Return on average assets (1)		1.14	%		1.34	%		1.41	%		1.31	%
Return on average equity (1)		13.78	%		16.61	%		17.40	%		16.49	%

(1) Ratios have been annualized.

	2004 Quarters ended (unaudited)
(Dollars in thousands, except per share data)	March 31,			June 30,			Sept. 30,			Dec. 31,
Interest income	$	22,432		$	22,472		$	23,373		$	24,711
Interest expense		4,195			4,180			4,510			5,229
Net interest income		18,237			18,292			18,863			19,482
Provision for loan losses		900			1,000			225			135
Net interest income after provision for loan losses		17,337			17,292			18,638			19,347
Noninterest income		5,508			5,774			5,678			5,502
Noninterest expense		15,188			15,301			16,142			16,740
Income before income taxes		7,657			7,765			8,174			8,109
Provision for income taxes		2,486			2,483			2,462			2,266
Net income	$	5,171		$	5,282		$	5,712		$	5,843
Basic earnings per share	$	0.35		$	0.35		$	0.39		$	0.40
Diluted earnings per share	$	0.33		$	0.34		$	0.37		$	0.38
Return on average assets (1)		1.25	%		1.25	%		1.31	%		1.31	%
Return on average equity (1)		14.79	%		15.04	%		16.04	%		15.90	%

(1) Ratios have been annualized.

14

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

          The following discussion should be read in conjunction with our audited consolidated financial statements and related notes to those statements as of December 31, 2005 and 2004 and for each of the three years in the period ended December 31, 2005, that appear under the heading “Financial Statements and Supplementary Data” of this report. 

Forward Looking Statement Disclosure

          Statements in this Annual Report regarding future events or performance are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 (the “PSLRA”) and are made pursuant to the safe harbors of the PSLRA.  Actual results of West Coast Bancorp (“Bancorp,” the “Company,” or “we,” “us,” or “our”) could be quite different from those expressed or implied by the forward-looking statements.  Any statements containing the words “could,” “may,” “will,” “should,” “plan,” “believes,” “anticipates,” “estimates,” “predicts,” “expects,” “projections,” “potential,” “continue,” or words of similar import, constitute “forward-looking statements,” as do any other statements that expressly or implicitly predict future events, results, or performance.    Factors that could cause results to differ from results expressed or implied by our forward-looking statements include, among others, risks discussed in the text of this Annual Report as well as the following specific items:

• 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 that reduce yields Bancorp achieves on loans and increase rates Bancorp pays on deposits, loss of Bancorp’s most valued customers, defection of key employees or groups of employees, or other losses;

• Increasing or decreasing interest rate environments, including the shape and level of the yield curve, that could lead to decreases in net interest margin, lower net interest and fee income, including lower gains on sales of loans, and changes in the value of Bancorp’s investment securities;

• Changing business or regulatory conditions, or new legislation, affecting the financial services industry that could lead to increased costs, changes in the competitive balance among financial institutions, or revisions to our strategic focus;

• Our proposed acquisition of Mid-Valley Bank, which may result in costs and expenses that are greater, or benefits that are less, than we currently anticipate, or the assumption of unanticipated liabilities; and

• Changes or failures in technology or third party vendor relationships in important revenue production or service areas, or increases in required investments in technology that could reduce our revenues, increase our costs or lead to disruptions in our business.

          Furthermore, forward-looking statements are subject to risks and uncertainties related to the Company’s ability to: satisfy conditions to the proposed acquisition of Mid-Valley Bank, including regulatory and Mid-Valley shareholder approvals; attract and retain lending officers and other key personnel; close loans in the pipeline; generate loan and deposit balances at projected spreads; sustain fee generation and gains on sales of loans; maintain asset quality; control the level of net charge-offs; adapt to changing customer deposit, investment, and lending behaviors; generate retail investments; control expense growth; monitor and manage the Company’s financial reporting, operating and disclosure control environments, and other matters.

          Readers are cautioned not to place undue reliance on our forward-looking statements, which reflect management’s analysis only as of the date of the statements.  Bancorp does not intend to publicly revise or update forward-looking statements to reflect events or circumstances that arise after the date of this report.  Readers should carefully review all disclosures we file from time to time with the Securities and Exchange Commission (“SEC”).

15

West Coast Bancorp

          West Coast Bancorp is a Northwest financial holding company headquartered in Lake Oswego, Oregon, with $2.0 billion in assets, operating 52 branches and two mortgage loan offices. West Coast Bank serves clients who seek the resources, sophisticated products and expertise of larger financial institutions, along with the local decision making, market knowledge, and customer service orientation of a community bank. It is our mission to consistently produce superior earnings, meet the financial needs of the communities we serve, provide excellent service to our customers, and provide a rewarding environment for our employees.

          At West Coast Bancorp, we have a proven management team committed to enhancing earnings per share and long-term stockholder value.  We have recruited experienced sales teams, supported by a contemporary full service product line, that take advantage of new growth opportunities in local markets we serve.  We maintain and value local decision making and a community bank culture to distinguish our brand.  We offer a broad range of banking, payment system, investment, fiduciary and trust services to the markets we serve. For more information, please visit the Company’s web site at www.wcb.com.  By making this reference to our website, we do not intend to incorporate into this report any information contained in the website, and the website should not be considered part of this report.

Financial Overview

Years Ended December 31, 2005, 2004 and 2003.

          The Company’s financial objectives are focused on diluted earnings per share growth and return on average equity.  Over the last three years, our compounded annual diluted earnings per share growth has been 12%, while our return on average equity improved from 11.7% in 2001 to 15.8% in 2005.  The compounded annual growth rate for period end loans and deposits for the last three years were 10% and 9%, respectively.  To sustain future growth and accomplish our financial objectives, we have defined five strategies:

• Focus on profitable customer segments

• Improve franchise performance levels

• Leverage technology

• Expand branch distribution

• Maintain local community and customer ownership

          Our strategies are designed to direct our tactical investment decisions supporting our financial objectives.  Our most significant revenue source continues to be net interest income, defined as total interest income less interest expense, which in 2005 accounted for approximately 79% of our total revenue.  To produce net interest income and consistent earnings growth over the long-term, we must generate loan and deposit growth at acceptable economic spreads within our market of operation.  To generate and grow loans and deposits, the Company must focus on a number of areas including, but not limited to, the economy, branch expansion, sales practices, customer and employee satisfaction and retention, competition, evolving customer behavior, technology, product innovation, interest rates, credit performance of customers, and vendor relationships.  Net interest income is sensitive to our ability to attract and retain lending officers and close loans in the pipeline.  In addition, general economic conditions, as well as competitive pricing pressures on both loans and deposits, could limit our ability to grow net interest income.

          We also consider non-interest income important to our continued financial success.  Fee income generation is mostly related to our loan and deposit operations, such as deposit service charges, fees on our payment system products (interchange, merchant services, ACH, check and credit card), and fees on sales of financial products, including residential mortgages, but we also generate fee income from trust and investment products and services.  Many of the products and services that generate fee income are offered through relationships with third party providers, so we are somewhat dependent on those relationships to continue this important source of income. 

          While we review and manage all customer segments, we have focused increased efforts on four targeted segments:  1) high value consumers (including the mature market), 2) smaller businesses with credit needs under $250,000, 3) medium-sized commercial businesses with credit needs over $250,000 up to $20 million, and 4) commercial real estate and construction-related businesses.  These efforts have resulted in material growth in our commercial, construction, and home equity loan portfolios as well as core deposits over the last two years.

16

          To support growth in targeted customer segments, we have opened 13, or 25% of total current branches, over the last five years.  The results produced by these branches have met our expectations.  On February 1, 2006, we entered into a definitive agreement pursuant to which we agreed to acquire Mid-Valley Bank in exchange for cash and common shares of Bancorp.  As part of that proposed acquisition, we anticipate the addition of four new full-service branches in the Woodburn, Mt. Angel, and Wilsonville, Oregon, areas.  With all of our new and existing branches, the Company strives to maintain a local community management based philosophy and we believe Mid-Valley has been operated with a philosophy consistent to our own.  We will continue to emphasize hiring local branch and lending personnel with strong ties to the specific local communities we enter and seek to serve.  For additional information regarding our proposed acquisition of Mid-Valley Bank and certain conditions to completion of the transaction, please see the discussion under the sub-heading “Recent Developments” in this Item below.

          To limit the risks associated with doing business and growing revenues, we have put in place numerous policies, processes, and controls.  We rely on these controls to produce information for management and the public that is accurate and complete and to help us to protect our assets.  A failure or failures in our control environment could have an adverse effect on our results of operations or financial condition.

Critical Accounting Policies

          We have identified our most critical accounting policy to be that related to the allowance for loan losses.  Bancorp’s allowance for loan losses methodology incorporates a variety of risk considerations, both quantitative and qualitative, in establishing an allowance for loan losses 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 the 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 have a significant effect on the calculation of the allowance for loan losses 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 consolidated financial statements and related notes included elsewhere in this report, including the section “Loan Loss Allowance and Provision.”

17

Income Statement Overview

          Our net income for the full year 2005 was $23.8 million, compared with $22.0 million in 2004 and $19.8 million in 2003. Diluted earnings per share for the years ended 2005, 2004 and 2003 were $1.55, $1.42, and $1.26, respectively.  Our return on equity for the years ended December 31, 2005, 2004, and 2003, was 15.8%, 15.5%, and 14.5%, respectively. 

          Net Interest Income.  The following table displays information on net interest income, average yields earned and rates paid, as well as net interest spread and margin information on a tax equivalent basis for the periods indicated.  This information can be used to follow the changes in our yields and rates and the changes in our earning assets and liabilities over the past three years:

	Year Ended December 31,									Increase (Decrease)						Change
(Dollars in thousands)	2005			2004			2003			05-04			04-03			05-04			04-03
Interest and fee income (1)	$	114,456		$	94,641		$	91,432		$	19,815		$	3,209			20.94	%		3.51	%
Interest expense	$	26,430		$	18,115		$	20,639		$	8,315		$	(2,524	)		45.90	%		-12.23	%
Net interest income (1)	$	88,026		$	76,526		$	70,793		$	11,500		$	5,733			15.03	%		8.10	%
Average interest earning assets	$	1,764,209		$	1,621,683		$	1,504,950		$	142,526		$	116,733			8.79	%		7.76	%
Average interest bearing liabilities	$	1,281,441		$	1,210,290		$	1,158,755		$	71,151		$	51,535			5.88	%		4.45	%
Average interest earning assets/ Average interest bearing liabilities		137.67	%		133.99	%		129.88	%		3.68	%		4.11	%
Average yield earned (1)		6.49	%		5.84	%		6.08	%		0.65	%		-0.24	%
Average rate paid		2.06	%		1.50	%		1.78	%		0.56	%		-0.28	%
Net interest spread (1)		4.43	%		4.34	%		4.29	%		0.09	%		0.05	%
Net interest margin (1)		4.99	%		4.72	%		4.70	%		0.27	%		0.02	%

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

          Net interest income on a tax equivalent basis totaled $88.0 million for the year ended December 31, 2005, an increase of $11.5 million, or 15.03%, from $76.5 million for 2004, which was up $5.7 million from the year ended 2003. The increase in net interest income from 2004 to 2005 was mainly due to increased loan volumes and rates earned on loans and much greater volume of low cost demand deposit balances partly offset by higher rates paid on overall interest bearing liabilities. Average total loans grew by $178.5 million or 13.7% in 2005 compared to 2004.  The net interest margin increased from 4.72% in 2004 to 4.99% in 2005 reflecting the net interest margin benefit from increased variable rate loans, higher loan fees and a positive change in deposit mix towards low cost demand deposit and money market products and the lagging nature of rates paid on these deposits as short-term market interest rates continued to increase in 2005. 

          During 2005, we had a strong increase of $70.3 million, or 20%, in average demand deposits over 2004 due in part to the introduction of our free checking product in Oregon.

          Changing interest rate environments, including the shape and level of the yield curve, could lead to lower net interest income, and competitive pricing pressure could lead to lower loan yields and fees.

18

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

	Year Ended December 31,
	2005								2004								2003
(Dollars in thousands)	Average Outstanding Balance			Interest Earned/ Paid		Yield/ Rate (1)			Average Outstanding Balance			Interest Earned/ Paid		Yield/ Rate (1)			Average Outstanding Balance			Interest Earned/ Paid		Yield/ Rate (1)
ASSETS:
Interest earning balances due from banks	$	2,375		$	88		3.71	%	$	5,089		$	75		1.48	%	$	8,307		$	76		0.91	%
Federal funds sold		16,713			564		3.37	%		9,212			121		1.31	%		13,959			133		0.95	%
Taxable securities		197,098			8,201		4.16	%		232,225			9,819		4.23	%		207,620			8,891		4.28	%
Nontaxable securities(2)		65,036			4,183		6.43	%		69,975			4,723		6.75	%		72,409			5,011		6.92	%
Loans, including fees(3)		1,482,987			101,419		6.84	%		1,305,182			79,903		6.12	%		1,202,655			77,321		6.43	%
Total interest earning assets		1,764,209			114,455		6.49	%		1,621,683			94,641		5.84	%		1,504,950			91,432		6.08	%
Allowance for loan loss		(19,517	)							(19,083	)							(17,868	)
Premises and equipment		29,286								27,102								26,682
Other assets		95,782								87,980								76,478
Total assets	$	1,869,760							$	1,717,682							$	1,590,242
LIABILITIES AND STOCKHOLDERS’  EQUITY:
Savings and interest bearing demand deposits	$	789,054		$	10,166		1.29	%	$	737,409		$	3,426		0.46	%	$	669,689		$	4,492		0.67	%
Certificates of deposit		362,035			10,331		2.85	%		336,623			7,789		2.31	%		371,533			10,639		2.86	%
Short-term borrowings		18,512			543		2.93	%		26,817			371		1.38	%		17,799			277		1.56	%
Long-term borrowings (4)		111,840			5,390		4.82	%		109,441			6,529		5.97	%		99,734			5,231		5.24	%
Total interest bearing liabilities		1,281,441			26,430		2.06	%		1,210,290			18,115		1.50	%		1,158,755			20,639		1.78	%
Demand deposits		421,766								351,432								283,504
Other liabilities		15,290								13,533								11,666
Total liabilities		1,718,497								1,575,255								1,453,925
Stockholders’ equity		151,263								142,427								136,317
Total liabilities and stockholders’ equity	$	1,869,760							$	1,717,682							$	1,590,242
Net interest income				$	88,025							$	76,526							$	70,793
Net interest spread							4.43	%							4.34	%							4.29	%
Net interest margin							4.99	%							4.72	%							4.70	%

(1)	Yield/rate calculations have been based on more detailed information and therefore may not recompute exactly due to rounding.
(2)	Interest earned on nontaxable securities has been computed on a 35% tax equivalent basis.
(3)	Includes balances for loans held for sale.
(4)	Includes junior subordinated debentures with average balance of $26.0 million for both 2005 and 2004.

19

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

	Year Ended December 31,
	2005 compared to 2004									2004 compared to 2003
	Increase (Decrease) due to:						Total Increase (Decrease)			Increase (Decrease) due to:						Total Increase (Decrease)
(Dollars in thousands)	Volume			Yield/Rate						Volume			Yield/Rate
Interest income:
Interest earning balances due from banks	$	(101	)	$	114		$	13		$	(45	)	$	44		$	(1	)
Federal funds sold		253			190			443			(61	)		49			(12	)
Investment security income:
Interest on taxable securities		(1,462	)		(156	)		(1,618	)		1,178			(250	)		928
Interest on nontaxable securities (1)		(318	)		(221	)		(539	)		(164	)		(124	)		(288	)
Loans, including fees on loans		12,160			9,356			21,516			5,716			(3,134	)		2,582
Total interest income (1)		10,532			9,283			19,815			6,624			(3,415	)		3,209
Interest expense:
Savings and interest bearing demand		665			6,076			6,741			336			(1,402	)		(1,066	)
Certificates of deposit		725			1,817			2,542			(863	)		(1,987	)		(2,850	)
Short-term borrowings		(244	)		416			172			124			(30	)		94
Long-term borrowings (2)		116			(1,256	)		(1,140	)		640			658			1,298
Total interest expense		1,262			7,053			8,315			237			(2,761	)		(2,524	)
Increase (decrease) in net interest income (1)	$	9,270		$	2,230		$	11,500		$	6,387		$	(654	)	$	5,733

(1)  Tax exempt income has been adjusted to a tax-equivalent basis using a 35% tax equivalent basis.

(2)  Long-term borrowings include junior subordinated debentures.

          As the table above indicates, increased loan volumes continued to be the main driver of higher net interest income for the Company in 2005.

          Provision for Loan Losses.  The provision for loan losses 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.  Provisions for loan losses of $2.2 million, $2.3 million, and $3.8 million were recorded for the years ended December 31, 2005, 2004 and 2003, respectively, while net charge-offs were $.7 million, $1.4 million, and $2.5 million over the same years, respectively.  The provision for loan losses decreased $.1 million in 2005 compared to 2004 due to lower net charge-offs and overall improved credit quality of the loan portfolio.  The provision for loan losses is highly dependent on our ability to manage asset quality and control the level of net charge-offs through prudent credit underwriting standards.  In addition, a decline in general economic conditions could increase future provisions for loan loss.

          Noninterest Income.  Noninterest income remains a key focus for Bancorp, specifically revenue generated by our deposit accounts and payment systems areas.  Our noninterest income for the year ended December 31, 2005 was $23.1 million, up .6 million, compared to $22.5 million in 2004 and up from $22.0 million in 2003.  The full year 2005 noninterest income includes a $1.3 million impairment charge recognized on certain securities in our portfolio. Excluding this charge, noninterest income for 2005 would have increased $1.9 million or 8%.  Service charges on deposit accounts were up over 16% in 2005 due to increases in deposit accounts and fees associated with overdraft protection activity. Payment systems related revenues increased 26% or $1.0 million compared to 2004.  The increased payment system revenue reflects a strategic focus and was driven by strong interchange income and merchant services revenue.  In 2005, gains on sales of loans decreased $.9 million or 22% from 2004.  This was driven by a decrease in demand for single family residential loans, which was influenced by higher interest rates and lower refinance activity.  We also maintain a strategy of selling certain originated SBA loans.  Gains on the sales of SBA loans were down $.5 million compared to 2004.  Trust and investment service revenue was up 13% or $.6 million in 2005 compared to 2004, due to a stronger stock market and increased net inflow of funds in assets under management.  Other noninterest income increased $.7 million in 2005, primarily due to the sale of our credit card portfolio in 2005.  Changing interest rate environments, including the shape and level of the yield curve, could lead to decreases in fee income, including lower gains on sales of loans, a key component of our noninterest income.  Also, increased competition and other competitive factors could adversely affect our ability to sustain fee generation from payment systems related revenue and the sales of investment products.

20

          Noninterest Expense.  Noninterest expenses were $72.6 million in 2005, $63.4 million in 2004 and $58.1 million in 2003.  Noninterest expense increased $9.3 million in 2005 compared to 2004, with approximately $4.3 million of the increase due to salaries and employee benefits expense growth.  Investments in our commercial banking sales teams, new branches and higher performance-based compensation were the key drivers of increased personnel expense.  Overall, we increased our full-time equivalent employees from 620 in 2004 to 675 in 2005.

          Occupancy expenses were $6.3 million in 2005 compared to $5.7 million in 2004.  Our occupancy expense increased 9.5% in 2005 primarily due to increased amortization of investments in tax credits, rent and utility expenses on properties.  Professional fee expense increased $.7 million in 2005 compared to 2004 primarily due to increased legal expense associated with litigation matters.  Marketing expenses increased $1.4 million in 2005 due to greater volume of direct mailing campaigns associated with new product offerings in Oregon.  Other noninterest expense increased $1.9 million due to the $.8 million settlement of a lawsuit in the second quarter of 2005 and a $1.0 million charge in the fourth quarter of 2005 relating to a legal matter. Should Bancorp ultimately be determined to be liable in this matter, Bancorp believes it could face additional liability up to $1.0 million and that the risk its liability will exceed such amount is remote.   Changing business conditions, increased costs in connection with retention of, or a failure to retain, key employees, or a failure to manage the Company’s operating and control environments could adversely affect our ability to limit expense growth in the future.

          On January 1, 2006, the Company was required to adopt Statement of Financial Accounting Standards (“SFAS”) 123 (revised), which, among other things, requires the recording in the financial statements of non-cash compensation expense related to stock options.  Prior to 2006, the Company had only shown, as permitted by SFAS 123 (revised), pro forma financial results including the effects of share-based compensation expense in the footnotes to the financial statements. See Note 1, “Summary of significant accounting policies,” to the Consolidated Financial Statements for these pro forma results related to years 2005, 2004, and 2003.  As a result of the adoption of SFAS No. 123 (revised), the Company estimates it will recognize an additional compensation expense of approximately $.4 million after tax, or $.03 per diluted share for the full year 2006. Estimated future levels of compensation expense recognized related to stock based awards would be impacted by new awards, modifications to awards, or cancellation of awards after the adoption of SFAS No. 123 (revised).

          Income Taxes.  Our income tax expense for 2005 was $11.0 million, or 31.6% of income before income taxes, compared to $9.7 million or 30.6% of income before income taxes in 2004. Income tax expense in 2003 was $9.3 million or 32.1% of income before income taxes.  Bancorp’s income tax expense over the last three years has increased due to increased pre-tax income offset in part by the beneficial impact of a State corporate income tax credit in 2005.  Our effective tax rate remains lower than the statutory tax rate due to our nontaxable income generated from investments in bank owned life insurance, tax-exempt municipal bonds, business energy tax credits, and low income housing credits.  We continue to evaluate strategies to manage our income tax expense on an on-going basis, including additional investments in tax credits or other non-taxable income.

21

Balance Sheet Overview

          Period end total assets increased 11.5% to $2.0 billion as of December 31, 2005, from $1.79 billion at December 31, 2004. Period end loans and deposits grew by 8.9% and 12.0%, respectively, since December 31, 2004.  Our balance sheet management efforts have been focused on growth in targeted areas that support our corporate objectives and include:

• Small business and middle market commercial lending

• Commercial and residential construction lending

• Home equity lending

• Core deposit production

Average non-interest bearing demand deposits grew $70.3 million or 20% in 2005 compared to 2004.  The increase in demand deposits and the value of those deposits in the higher interest rate environment contributed to positive interest rate margin growth.  The increase was in part driven by new free checking product offerings.

          Our 2005 period end construction loans were up 80% or $94 million over 2004, primarily generated from the very strong local residential real estate market, while real estate mortgage loans were up 14% over the same time period. 

          In November 2004, the Bank purchased a significant portion of Washington Mutual Bank’s Oregon and Washington agricultural loan portfolio from Seneca Street, Inc., a subsidiary of Washington Mutual. The portfolio included $56 million in outstanding loans and $42 million in undisbursed commitments on the purchase date.  This purchase increased our percentage of agriculture loans in our loan portfolio to approximately 10%.  A few sizeable acquired relationships chose to leave the bank primarily due to our lack of branches in their communities.  Partly resulting from this, commercial loans increased a modest 2% in 2005 compared to 2004.

          We decreased our average investments in securities in 2005, mainly due to strong loan growth; however, period end investments increased approximately 10% as we invested additional funds in securities at the end of the year. 

          The Company’s ability to sustain continued loan and deposit growth is dependent on many factors, including the effects of competition, economic conditions in our markets, retention of key personnel and valued customers, and our ability to close loans in the pipeline.

22

Investment Portfolio

          The following table shows the amortized cost and fair value of Bancorp’s investment portfolio.  At December 31, 2005, Bancorp had no securities classified as held to maturity.

	2005				2004
(Dollars in thousands)	Amortized Cost		Fair value		Amortized Cost		Fair value
Available for sale
U.S. Government Agency securities	$	90,338	$	89,517	$	82,507	$	82,362
Obligations of state and political subdivisions		69,986		70,493		68,711		70,906
Other securities		134,058		132,654		114,080		112,994
Total	$	294,382	$	292,664	$	265,298	$	266,262

          Bancorp’s investment portfolio increased by $26.4 million, or 10%, from December 31, 2004 to December 31, 2005, as deposit growth significantly outpaced loan growth.  At December 31, 2005, the net unrealized loss on the investment portfolio was $1.7 million representing .59% of the total portfolio. Bancorp regularly reviews its investment portfolio to determine whether any of its securities are other than temporarily impaired.  In addition to accounting and regulatory guidance, in determining whether a security is other-than temporarily impaired, Bancorp regularly considers the duration and amount each unrealized loss, the financial condition of the issuer, and the prospects for a change in market value within a reasonable period of time.  At March 31, 2005, the Company recorded an other-than-temporary impairment charge of approximately $1.3 million pretax, or $.8 million, after tax, or $.05 per fully diluted share, related to declines in the value of Freddie Mac preferred stock held in the Company’s available for sale investment portfolio.  The Company owns 100,000 shares of Freddie Mac Preferred Series L shares which were acquired November 5, 1999, at a cost (book value) of $5,000,000, which was also the book value of these securities as of March 31, 2005, prior to the impairment charge. The market value of the securities as of March 31, 2005 was $3,684,000, which is our current book value on these securities. As of December 31, 2005, the market value was $3,620,000. The rate at which interest accrues on these shares resets every five years, most recently on December 31, 2004.  The current interest rate of 3.58% is fixed until December 31, 2009, at which time it will reset to the 5 year treasury rate. The shares may be called at each reset date.

          The following table summarizes the contractual maturities and weighted average yields of investment securities.

(Dollars in thousands)	One year or less		Yield			After One through five years		Yield			After Five through ten years		Yield			Due after ten years		Yield			Total		Yield
U.S. Government Agency securities	$	19,303		4.06	%	$	55,939		4.38	%	$	14,275		5.46	%	$	—		—		$	89,517		4.48	%
Obligations of state and political subdivisions (1)		8,302		4.33	%		27,966		4.71	%		28,497		3.95	%		5,728		3.68	%		70,493		7.28	%
Other securities (2)		2,763		2.85	%		7,008		4.80	%		7,623		4.88	%		115,260		4.22	%		132,654		4.26	%
Total (1)	$	30,368		4.02	%	$	90,913		4.51	%	$	50,395		4.52	%	$	120,988		4.19	%	$	292,664		4.33	%

(1)	Yields are stated on a federal tax equivalent basis at 35%.
(2)	Does not reflect anticipated maturity from prepayments on mortgage-based and asset-based securities.
	Anticipated lives are significantly shorter than contractual maturities.

          The average life of Bancorp’s investment portfolio increased from 4.2 years at December 31, 2004 to 4.6 years at December 31, 2005, as investments were made in medium term bonds and as prepayments decelerated on mortgage backed securities.  Management will consider realizing gains and/or losses on the Company’s investment portfolio on an on-going basis as part of Bancorp’s overall business strategy. 

23

Loan Portfolio and Credit Management

          Interest and fees earned on the loan portfolio is our primary source of revenue.  Loans represented 78% of total assets, or $1.56 billion as of December 31, 2005, compared to 80% or $1.43 billion at December 31, 2004. A certain degree of credit risk is inherent in our lending activities. The Bank manages the general risks inherent in the loan portfolio by following loan policies and underwriting practices designed to result in prudent lending activities.  In addition, we attempt to manage our risk through our credit administration and credit review functions, which are designed to help ensure compliance with our credit standards.  Through the Credit Review function the Bank is able to monitor all credit-related policies and practices on a post approval basis, ensuring uniform application.  The findings of these reviews are communicated with senior management and the Loan, Investment, and Asset Liability Committee, which is made up of certain directors.  As part of our ongoing lending process, internal risk ratings are assigned to each Commercial and Commercial Real Estate credit before the funds are extended 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.  Credit files are examined periodically on a sample test basis, by internal and external auditors, as well as regulatory examiners.

          Although a risk of nonpayment exists with respect to all loans, certain specific types of risks are associated with different types of loans.  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 the Bank’s loans.  The expected source of repayment of these loans is generally the cash flow of the project, operations of the borrower’s business, or personal income. Risks associated with real estate loans include decreasing land values, material increases in interest rates, deterioration in local economic conditions, changes in tax policies, and a concentration of loans within any one area.

          Loans held for sale at December 31, 2005, were $3.2 million compared to $2.7 million at December 31, 2004.  The majority of Bancorp’s loan sales are residential real estate mortgage loans and the guaranteed portion of SBA loans.  These loans are sold on an individual basis.  Real estate mortgage loans have generally been sold without recourse and without retaining servicing rights or obligations.  Gains on sales of residential real estate mortgage loans decreased in 2005 compared to 2004, as the rate environment slowed production of mortgage loans.  The guaranteed portion of SBA loans has been sold from time to time, without recourse, and with servicing rights and obligations usually retained.  Gains on sales of loans totaled $3.0 million in 2005 compared to $3.9 million in 2004 and $5.1 million in 2003. 

          As of December 31, 2005 and 2004, we had $1.2 million and $.7 million, respectively, in outstanding loans to persons serving as directors, senior officers, principal stockholders and their related interests.  These loans were made substantially on the same terms, including interest rates, maturities and collateral, as those made to other customers of the Bank. At December 31, 2005 and 2004, the Bank had no bankers acceptances.

          As part of our strategic efforts, we have placed an emphasis on increasing the commercial, construction, and home equity loan segments of our portfolio.  Average commercial and home equity loans for 2005 grew 30% and 6% compared to 2004.  Real estate commercial loans continue to be the largest segment of our loan portfolio at 46%, but down from 58% at the end of 2001.  We believe our focus on commercial business loans is a key contributor to our strategy of core deposit growth.

          The following table is the composition of the loan portfolio and allowance for loan losses as of:

	Year Ended December 31,
	2005						2004						2003						2002						2001
(Dollars in thousands)	Amount			Percent			Amount			Percent			Amount			Percent			Amount			Percent			Amount			Percent
Commercial loans	$	364,604			23.5	%	$	357,776			25.1	%	$	236,949			19.4	%	$	205,725			17.7	%	$	198,252			18.3	%
Real estate construction		210,828			13.6	%		116,974			8.2	%		112,732			9.2	%		121,711			10.5	%		94,470			8.7	%
Real estate-mortgage		242,015			15.6	%		212,959			14.9	%		179,331			14.7	%		148,350			12.8	%		113,462			10.5	%
Real estate-commercial		709,176			45.6	%		704,390			49.3	%		652,882			53.5	%		637,978			55.0	%		633,216			58.4	%
Installment and other consumer		27,831			1.7	%		35,895			2.5	%		38,987			3.2	%		46,151			4.0	%		45,650			4.2	%
Total loans		1,554,454			100	%		1,427,994			100	%		1,220,881			100	%		1,159,915			100	%		1,085,050			100	%
Allowance for loan losses		(20,469	)		1.32	%		(18,971	)		1.33	%		(18,131	)		1.49	%		(16,838	)		1.45	%		(15,252	)		1.41	%
Total loans, net	$	1,533,985					$	1,409,023					$	1,202,750					$	1,143,077					$	1,069,798

24

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

	December 31,
	2005					2004
(Dollars in thousands)	Amount		Percent			Amount		Percent
Office Buildings	$	156,900		22.1	%	$	155,600		22.1	%
Retail Facilities		102,200		14.4	%		89,900		12.7	%
Multi-Family - 5+ Residential		64,100		9.0	%		65,900		9.3	%
Hotels/Motels		50,600		7.1	%		62,900		8.9	%
Medical Offices		48,400		6.8	%		38,600		5.5	%
Industrial parks and related		45,800		6.5	%		37,000		5.3	%
Commercial/Agricultural		30,400		4.3	%		27,500		3.9	%
Assisted Living		29,200		4.1	%		39,600		5.6	%
Manufacturing Plants		23,400		3.3	%		21,200		3.0	%
Land Development and Raw Land		21,700		3.1	%		23,600		3.4	%
Mini Storage		17,000		2.4	%		18,900		2.7	%
Food Establishments		16,100		2.3	%		18,900		2.7	%
Other		103,400		14.6	%		104,800		14.9	%
Total real estate commercial loans	$	709,200		100.0	%	$	704,400		100.0	%

          The maturity distribution of the categories of Bancorp’s loan portfolio at December 31, 2005 and the interest sensitivity are estimated in the following table.

(Dollars in thousands)	Commercial Loans		Real Estate Construction		Real Estate Mortgage		Real Estate Commercial		Installment and other		Total
Maturity distribution:
Due within one year	$	207,284	$	189,037	$	12,519	$	32,031	$	5,793	$	446,664
Due after one through five years		112,317		20,666		58,661		50,245		8,939		250,828
Due after five years		45,003		1,125		170,835		626,900		13,099		856,962
Total	$	364,604	$	210,828	$	242,015	$	709,176	$	27,831	$	1,554,454
Interest sensitivity:
Fixed-interest rate loans	$	106,585	$	64,876	$	89,620	$	73,534	$	13,648	$	348,263
Floating or adjustable interest rate loans(1)		258,019		145,952		152,395		635,642		14,183		1,206,191
Total	$	364,604	$	210,828	$	242,015	$	709,176	$	27,831	$	1,554,454

(1) Certain loans contain provisions which place maximum or minimum limits on interest rate changes, as well as loans where interest rates change less frequently than annually.  Table based on stated maturity.

25

Loan Loss Allowance and Provision

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

• Specific allowances for identified problem loans and portfolio segments,

• The formula allowance, and

• The unallocated allowance.

          The evaluation of each element 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.  Management believes that the allowance for loan losses is adequate at December 31, 2005.  

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

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

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

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

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

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

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

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

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

• Loan growth rates and concentrations,

• Specific industry conditions within portfolio segments,

• Recent loss experience in particular segments of the portfolio,

• Interest rate environment,

• Duration of the current business cycle, and

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

          Executive credit management reviews these conditions quarterly in discussion with our senior credit officers and credit review.  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 this credit or portfolio segment.  Where any of these conditions is not evidenced by a specifically identifiable problem credit or portfolio segment as of the evaluation date, management’s evaluation of the probable loss concerning this condition is reflected in the unallocated allowance.

26

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

          At December 31, 2005, our allowance for loan losses was $20.5 million, or 1.32% of total loans, and 1882% of total non-performing assets, compared with an allowance for loan losses at December 31, 2004 of $19.0 million, or 1.33% of total loans, and 867% of total non-performing assets.

          At December 31, 2005, the allowance for loan losses of $20.5 million consisted of an $18.3 million formula allowance, a $.9 million specific allowance and a $1.3 million unallocated allowance.  At December 31, 2004, the allowance for loan losses of $19.0 million consisted of a $17.3 million formula allowance, a $.3 million specific allowance and a $1.4 million unallocated allowance.  The increase in allowance for loan losses from 2004, despite a slightly lower loan loss provision in 2005, reflects accelerated loan portfolio growth and particularly strong growth in construction loans.  The unallocated reserve decreased to $1.3 million in 2005 from $1.4 million in 2004. 

          The following table presents the composition of the allowance for loan losses.

	December 31,
	2005					2004
(Dollars in thousands)	Amount		Percentage of loans in each category to total loans			Amount		Percentage of loans in each category to total loans
Commercial loans	$	7,457		23.5	%	$	5,856		25.1	%
Real estate-commercial		9,507		59.2	%		8,437		57.5	%
Real estate-mortagage		1,265		15.6	%		2,663		14.9	%
Installment and other		907		1.7	%		569		2.5	%
Unallocated		1,333		—			1,446		—
Total allowance for loan losses	$	20,469		100.0	%	$	18,971		100.0	%

27

Asset Quality

          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 in accordance with the contractual terms is doubtful or when the principal or interest payment becomes 90 days past due.  Nonaccrual loans consist of a number of loans in different categories and are largely secured.  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 and the loan comes out of nonaccrual status.  Interest income foregone on nonaccrual loans was approximately $73,000, $204,000 and $231,000 in 2005, 2004 and 2003 respectively.

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

          At December 31, 2005 and 2004, Bancorp’s recorded investment in certain loans that were considered to be impaired was $5.1 million and $1.9 million, respectively.  Of these impaired loans, $4.1 million and $1.0 million had a specific related valuation allowance of $.9 million, and $.3 million respectively, while $1.0 million and $.9 million did not require a specific valuation allowance.  The balance of the allowance for loan losses in excess of these specific reserves is available to absorb the inherent losses from all loans in the portfolio.  The average recorded investment in impaired loans for the years ended December 31, 2005, 2004, and 2003 was approximately $4.4 million, $3.6 million, and $4.0 million, respectively.  For the years ended December 31, 2005, 2004 and 2003, interest income recognized on impaired loans totaled $272,000, $187,000, and $193,000, respectively, all of which was recognized on a cash basis.

          The following table presents information with respect to the change in the allowance for loan losses and other loan information.

	December 31,
(Dollars in thousands)	2005			2004			2003			2002			2001
Loans outstanding at end of period	$	1,554,454		$	1,427,994		$	1,220,881		$	1,159,915		$	1,085,050
Average loans outstanding during the period	$	1,479,933		$	1,301,447		$	1,196,962		$	1,127,761		$	1,017,536
Allowance for loan loss, beginning of period	$	18,971		$	18,131		$	16,838		$	15,252		$	14,244
Loans charged off:
Commercial		634			1,149			1,494			1,878			1,542
Real estate		33			527			844			526			310
Installment and consumer		957			698			760			1,276			698
Total loans charged off		1,624			2,374			3,098			3,680			2,550
Recoveries:
Commercial		478			438			380			160			205
Real estate		108			340			70			25			7
Installment and consumer		361			176			141			102			64
Total recoveries		947			954			591			287			276
Net loans charged off		(677	)		(1,420	)		(2,507	)		(3,393	)		(2,274	)
Provision for loan loss		2,175			2,260			3,800			4,979			3,282
Allowance for loan loss, end of period	$	20,469		$	18,971		$	18,131		$	16,838		$	15,252
Ratio of net loans charged off to average loans outstanding		0.05	%		0.11	%		0.21	%		0.30	%		0.22	%
Ratio of allowance for loan losses to end of period loans		1.32	%		1.33	%		1.49	%		1.45	%		1.41	%

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          During 2005, net loans charged off were $.7 million, compared to $1.4 million during 2004.  The percentage of net loans charged off to average loans outstanding was 0.05% during 2005, compared to 0.11% and 0.21% for the years ended December 31, 2004 and 2003, respectively.  Charge-offs of loans generally reflects the realization of losses in the portfolio that were recognized previously through provisions for loan losses.  Recoveries are comprised of balances previously charged off that were collected in the period.  The provision for loan losses exceeded the net loans charged off during 2005, reflecting continued loan growth and management’s belief, based on the foregoing analysis, that there are additional losses inherent in the portfolio. 

          The following table presents information with respect to nonperforming assets.

	December 31,
(Dollars in thousands)	2005			2004			2003			2002			2001
Commercial	$	625		$	436		$	403		$	780		$	1,918
Real estate construction		—			—			—			1,653			329
Real estate mortgage		228			—			498			—			210
Real estate commercial		231			1,367			1,689			2,486			3,790
Installment and other consumer		4			—			79			161			144
Loans on nonaccrual status		1,088			1,803			2,669			5,080			6,391
Loans past due 90 days or more but not on nonaccrual status		—			—			—			15			4
Other real estate owned (1)		—			384			1,741			1,672			1,308
Total nonperforming assets	$	1,088		$	2,187		$	4,410		$	6,767		$	7,703
Percentage of nonperforming assets to total assets		0.05	%		0.12	%		0.27	%		0.44	%		0.54	%
Total assets	$	1,997,138		$	1,790,919		$	1,662,882		$	1,532,327		$	1,435,701

(1) Nonperforming assets include litigation settlement property in 2001.

29

Deposits and Borrowings

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

	2005					2004					2003
(Dollars in thousands)	Average Balance		Rate Paid			Average Balance		Rate Paid			Average Balance		Rate Paid
Demand	$	421,766		—		$	351,432		—		$	283,504		—
Savings, money market and interest bearing demand		789,054		1.29	%		737,409		0.46	%		669,689		0.67	%
Certificates of deposit		362,035		2.85	%		336,623		2.31	%		371,533		2.86	%
Short-term borrowings		18,512		2.93	%		26,818		1.38	%		17,799		1.56	%
Long-term borrowings (1)		111,840		4.82	%		109,441		5.97	%		99,734		5.24	%
Total deposits and borrowings	$	1,703,207		2.06	%	$	1,561,723		1.50	%	$	1,442,259		1.78	%

(1) Long-term borrowings include junior subordinated debentures.

          Average core deposits consisting of demand and savings, money market and interest bearing demand deposits increased 10% in 2005 compared to 2004.  Our core deposit increase was mainly due to:

• Consistent sales practices by branch and commercial teams resulting in both consumer and business core deposit growth.

• New free checking products introduced in Oregon during 2005; and

• Businesses maintaining higher balances to avoid service charges in the low rate environment.

          Average time deposits increased $25.4 million, or 7.5% in 2005 compared to 2004, despite the fact that the Company did not price time deposits aggressively for growth.  Although a significant amount of time deposits will mature and reprice in the next twelve months, we expect to retain the majority of these deposits.   In the short term, time deposits have limited impact on the liquidity of the Company and these deposits can generally be retained and/or expanded with increases in rates paid which might, however, increase our cost of funds.  As of December 31, 2005, time deposit liabilities are presented below at the earlier of the next repricing date or maturity.

	Time Deposits of $100,000 or More					Other Time Deposits					Total time deposits
(Dollars in thousands)	Amount		Percent			Amount		Percent			Amount		Percent
Reprice/mature in 3 months or less	$	53,750		32.01	%	$	31,091		15.79	%	$	84,841		23.25	%
Reprice/mature after 3 months through 6 months		45,924		27.35	%		46,145		23.44	%		92,069		25.24	%
Reprice/mature after 6 months through one year		40,438		24.08	%		67,160		34.11	%		107,598		29.50	%
Reprice/mature after one year through five years		27,696		16.49	%		52,468		26.65	%		80,164		21.98	%
Reprice/mature after five years		105		0.07	%		16		0.01	%		121		0.03	%
Total	$	167,913		100.00	%	$	196,880		100.00	%	$	364,793		100.00	%

          As of December 31, 2005, long term and short term borrowings had the following items remaining to contractual maturity.

(Dollars in thousands)	Due in three months or less		Due after three months through one year		Due after one year through five years		Due after five years		Total
Short-term borrowings	$	61,350	$	—	$	—	$	—	$	61,350
Long-term borrowings (1)		5,000		15,500		62,600		—		83,100
Total borrowings	$	66,350	$	15,500	$	62,600	$	—	$	144,450

(1) Based on contractual maturities, and may vary based on possible call dates.

          Deposit growth remains a key strategic focus for the Company and is subject to many risk factors including competitive pricing pressure, changing customer deposit behavior, and increasing or decreasing interest rate environments.  Adverse developments with respect to any of these risk factors could limit the Bank’s ability to attract and retain deposits and could have a material negative impact on revenues and net income.

30

Capital Resources

          The Federal Reserve and 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 Federal Reserve and FDIC risk-based capital guidelines require banks and bank holding companies to have a ratio of Tier 1 capital to total risk-weighted assets of at least 4% and a ratio of total capital to total risk-weighted assets of 8% or greater.  In addition, the leverage ratio of Tier 1 capital to total assets less intangibles is required to be at least 3%.  See “Liquidity and Sources of Funds” for further discussion on impact of trust preferred securities on capital adequacy requirements.  As of December 31, 2005, Bancorp and the Bank were considered “Well Capitalized” under the regulatory risk based capital guidelines.

          Stockholders’ equity was $157.1 million at December 31, 2005, compared to $147.9 million at December 31, 2004, an increase of $9.2 million, or 6%, over that period of time.  At December 31, 2005, stockholders’ equity, as a percentage of total assets, was 7.87%, compared to 8.26% at December 31, 2004.  Share repurchases were the main factor reducing the equity to assets ratio.

          As the following table indicates, Bancorp currently exceeds the regulatory minimum capital ratio requirements.

	December 31, 2005
(Dollars in thousands)	Amount		Ratio
Tier 1 capital	$	183,935		9.97	%
Tier 1 capital minimum requirement		73,826		4.00	%
Excess Tier 1 capital	$	110,109		5.97	%
Total capital	$	204,404		11.07	%
Total capital minimum requirement		147,652		8.00	%
Excess total capital	$	56,752		3.07	%
Risk-adjusted assets	$	1,845,649
Leverage ratio				9.42	%
Minimum leverage requirement				3.00	%
Excess leverage ratio				6.42	%
Adjusted total assets	$	1,952,637

          In July 2000, Bancorp announced a stock repurchase program that was expanded in September 2000, June 2001, September 2002 and again in April 2004.  Under this plan, the Company can purchase up to 3.88 million shares of the Company’s common stock, including completed purchases.  The Company intends to use existing funds and/or long-term borrowings to finance the repurchases.  Total shares available for repurchase under this plan were approximately 352,000 at December 31, 2005.  The following table presents information with respect to Bancorp’s July 2000 stock repurchase program.

(Shares and dollars in thousands)	Shares repurchased in period		Cost of shares repurchased		Average cost per share
Year ended 2000		573	$	5,264	$	9.19
Year ended 2001		534		6,597		12.35
Year ended 2002		866		13,081		15.11
Year ended 2003		587		10,461		17.81
Year ended 2004		484		10,515		21.73
Year ended 2005		484		11,815		24.41
Plan to date total		3,528	$	57,733	$	16.36

31

Liquidity and Sources of Funds

          The Bank’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 FHLB, and the use of Federal Funds markets.  The holding company specifically relies on dividends from the Bank and proceeds from the issuance of trust preferred securities for its funds, which are used for various corporate purposes, including dividends and stock repurchases under Bancorp’s stock repurchase program.

          At December 31, 2005, four wholly-owned subsidiary grantor trusts established by Bancorp had issued $26 million of pooled trust preferred securities.  Trust preferred securities accrue and pay distributions periodically at specified annual rates as provided in the indentures.  The trusts use the net proceeds from the offering to purchase a like amount of Junior Subordinated Debentures (the “debentures”) of the Company. The debentures are the sole assets of the trusts.  The Company’s obligations under the Junior Subordinated Debentures and related documents, taken together, constitute a full and unconditional guarantee by the Company of the obligations of the trusts.  The trust preferred securities are mandatorily redeemable upon the maturity of the 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 is a summary of current trust preferred securities at December 31, 2005.

(Dollars in thousands) Issuance Trust	Issuance date		Preferred security amount		Rate type (1)		Initial rate			Rate at 12/31/05			Maturity date
West Coast Statutory Trust I		December 2001	$	5,000		Variable		5.60	%		8.10	%		December 2031
West Coast Statutory Trust II		June 2002	$	7,500		Variable		5.34	%		7.97	%		June 2032
West Coast Statutory Trust III		September 2003	$	7,500		Fixed		6.75	%		6.75	%		September 2033
West Coast Statutory Trust IV		March 2004	$	6,000		Fixed		5.88	%		5.88	%		March 2034

(1)  The variable rate preferred securities reprice quarterly.

          The total amount of trust preferred securities outstanding at December 31, 2005, 2004, and 2003, was $26 million, $26 million and $20 million, respectively. The interest rates on the trust preferred securities issued in December 2001, and June 2002 reset quarterly and are tied to the London Interbank Offered Rate (“LIBOR”) rate.  In connection with these two variable rate offerings, Bancorp entered into swap agreements that will result in a fixed interest rate on the securities for five years, equal to 8.62% and 8.14%, respectively.  The Company has the right to redeem the debentures of the December 2001 issuance in December 2006; the June 2002 issuance in June 2007; the September 2003 issuance in September 2008 and the March 2004 issuance in March 2009.   

          On July 2, 2003, the Federal Reserve issued Supervisory Letter SR 03-13 clarifying that Bank Holding Companies should continue to report trust preferred securities in accordance with current Federal Reserve Bank instructions which allows trust preferred securities to be counted in Tier 1 capital subject to certain limitations.  The Federal Reserve has indicated it will review the implications of any accounting treatment changes and, if necessary or warranted, will provide appropriate guidance.  For additional information regarding trust preferred securities, this discussion and analysis should be read in conjunction with our consolidated financial statements and related notes included elsewhere in this report including Footnote 7, “Junior Subordinated Debentures.”

          Scheduled loan repayments are a relatively stable source of funds, while deposit inflows and unscheduled loan prepayments are not.  Deposit inflows and unscheduled loan prepayments are influenced by general interest rate levels, interest rates available on other investments, competition, economic conditions, and other factors.

          Deposits are the primary source of new funds.  Total deposits were $1.6 billion at December 31, 2005, up from $1.5 billion at December 31, 2004.  Brokered deposits are generally not accepted, and we have none outstanding at December 31, 2005.  We have attempted to attract deposits in our market areas through competitive pricing and delivery of quality products.

          Management expects to continue relying on customer deposits, maturity of investment securities, sales of “Available for Sale” securities, loan sales, loan repayments, net income, Federal Funds markets, advances from the FHLB, and other borrowings to provide liquidity.  Management may also consider engaging in further offerings of trust preferred securities if the opportunity presents an attractive means of raising funds in the future.  Although deposit balances at times have shown historical growth, such balances may be influenced by changes in the financial services industry, interest rates available on other investments, general economic conditions, competition, customer management of cash resources and other factors.  Borrowings may be used on a short-term and long-term basis to compensate for reductions in other sources of funds.  Borrowings may also be used on a long-term basis to support expanded lending activities and to match maturities or repricing intervals of assets.  The sources of such funds will include Federal Funds purchased, reverse repurchase agreements and borrowings from the FHLB.

32

          Bancorp is party to many contractual financial obligations, including repayment of borrowings, operating lease payments and commitments to extend credit.  The table below presents certain future financial obligations including payments obligated under retirement plans.

	Payments due within time period at December 31, 2005
(Dollars in thousands)	0-12 Months		1-3 Years		4-5 Years		Due After Five Years		Total
Operating leases	$	2,718	$	5,193	$	4,282	$	10,842	$	23,035
Junior subordinated debentures		5,000		15,000		6,000		—		26,000
Long-term borrowings		20,500		20,000		42,600		—		83,100
Other long-term liabilities		67		441		401		789		1,698
Total	$	28,285	$	40,634	$	53,283	$	11,631	$	133,833

          The table above does not include interest payments on borrowings or junior subordinated debentures, deposit liabilities or increases in common area charges on operating leases.

          At December 31, 2005, Bancorp had commitments to extend credit of $774 million, up 27%, compared to $608 million at December 31, 2004.  A significant part of this growth was attributed to the expansion of the residential construction business.  For additional information regarding future financial commitments, this discussion and analysis should be read in conjunction with our consolidated financial statements and related notes included elsewhere in this report including Footnote 18 “Financial instruments with off-balance sheet risk.”

Recent Developments

          On February 1, 2006, Bancorp entered into a definitive agreement pursuant to which it agreed to acquire Mid-Valley Bank by means of a merger of Mid-Valley into West Coast Bank in which outstanding shares of Mid-Valley common stock will be exchanged for cash and common shares of Bancorp.   Under the terms of the agreement, Bancorp will issue approximately 607,800 shares of its common stock and pay approximately $5.0 million in cash in exchange for the outstanding Mid-Valley common stock. Completion of the merger is subject to various conditions, including receipt of regulatory approvals and approval by Mid-Valley shareholders.

          Mid-Valley is headquartered in Woodburn, Oregon.  At year-end 2005, Mid-Valley had total assets of approximately $100 million and operated full-service branches in communities just south of Portland, Oregon, including Woodburn (2), Wilsonville (1), and Mount Angel (1).

33

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

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

          The following tables show the approximate percentage change in forecasted net interest income over a 12-month period and the percentage change in the present value of equity under several rate scenarios.  For the net interest income analysis, three rate scenarios provided by Global Insight, an outside economic service, are compared to a stable (flat) rate scenario: 

	Actual rates December 31, 2005			Base Case 2006 (average)			Falling Rates 2006 (average)			Rising Rates 2006 (average)
Federal Funds Rate		4.25	%		4.67	%		3.54	%		5.88	%
Prime Rate		7.25	%		7.67	%		6.54	%		8.88	%
Treasury Yield Curve Spread 10-year to 3 month		40 basis points			38 basis points			70 basis points			164 basis points

Stable rate scenario compared to:	Percent Change in Net Interest Income
Rising		+6.7	%
Base Case		+.7	%
Falling		-1.4	%

          As illustrated in the above table, at December 31, 2005, we estimate our balance sheet was asset sensitive over a 12 month horizon, meaning that interest earning assets mature or reprice more quickly than interest-bearing liabilities in a given period.  Therefore, a significant decrease in market rates of interest could adversely affect net interest income, while an increase in market rates may increase net interest income. We attempt to limit our interest rate risk through managing the repricing characteristics of our assets and liabilities.

          For the present value of equity analysis, the results are compared to the net present value of equity using the yield curve as of December 31, 2005.  This curve is then shifted up and down and the net present value of equity is computed.  This table does not include flattening or steepening yield curve effects. 

December 31, 2005 Change in Interest Rates	Percent Change in Present Value of Equity
Up 200 basis points		5.87	%
Up 100 basis points		2.71	%
Down 100 basis points		-5.03	%
Down 200 basis points		-10.48	%

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

34

Interest Rate Sensitivity (Gap) Table

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

          The following table sets forth the estimated maturity and repricing and the resulting interest rate gap between interest earning assets and interest bearing liabilities at December 31, 2005.  The amounts in the table are derived from internal data from the Bank based on maturities and next repricing dates including contractual repayments.

	Estimated Maturity or Repricing at December 31, 2005
(Dollars in thousands)	0-3 Months			4-12 Months			1-5 Years			Due After Five Years			Total
Interest Earning Assets:
Interest earning balances due from banks	$	7		$	—		$	—		$	—		$	7
Federal funds sold		12,625			—			—			—			12,625
Trading assets		945			—			—			—			945
Investments available for sale(1)(2)		38,081			40,053			148,153			66,377			292,664
Loans held for sale		3,220			—			—			—			3,220
Loans, including fees		692,119			284,357			550,800			27,178			1,554,454
Total interest earning assets	$	746,997		$	324,410		$	698,953		$	93,555			1,863,915
Allowance for loan losses														(20,469	)
Cash and due from banks														75,737
Other assets														77,955
Total assets													$	1,997,138
Interest Bearing Liabilities:
Savings and interest bearing demand deposits(3)	$	88,088		$	207,183		$	281,391		$	251,247		$	827,909
Certificates of deposit		77,617			202,996			84,059			121			364,793
Borrowings (2)		66,350			15,500			62,600			—			144,450
Junior subordinated debentures		—			5,000			21,000			—			26,000
Total interest bearing liabilities	$	232,055		$	430,679		$	449,050		$	251,368			1,363,152
Other liabilities														476,863
Total liabilities														1,840,015
Stockholders’ equity														157,123
Total liabilities & stockholders’ equity													$	1,997,138
Interest sensitivity gap	$	514,942		$	(106,269	)	$	249,903		$	(157,813	)	$	500,763
Cumulative interest sensitivity gap	$	514,942		$	408,673		$	658,576		$	500,763
Cumulative interest sensitivity gap as a percentage of total assets		26	%		20	%		33	%		25	%

(1)	Equity investments have been placed in the 0-3 month category.
(2)	Repricing is based on anticipated call dates, and may vary from contractual maturities.
(3)	Repricing is based on estimated average lives.

          Certain shortcomings are inherent in the method of analysis presented in the foregoing table.  For example, although certain assets and liabilities may have similar maturities and periods of repricing, they may react differently to changes in market interest rates.  Also, interest rates on assets and liabilities may fluctuate in advance of changes in market interest rates, while interest rates on other assets and liabilities may follow changes in market interest rates.  Given these shortcomings, management believes that rate risk is best measured by simulation modeling as opposed to measuring interest rate risk through interest rate gap measurement.

35

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

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

Report of Independent Registered Public Accounting Firm	37
Consolidated Balance Sheets	38
Consolidated Statements of Income	39
Consolidated Statements of Cash Flows	40
Consolidated Statements of Changes in Stockholders’ Equity	41
Notes to Consolidated Financial Statements	42

36

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

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

We have audited the accompanying consolidated balance sheets of West Coast Bancorp and subsidiaries (the “Company”) as of December 31, 2005 and 2004, and the related consolidated statements of income, cash flows, and changes in stockholders’ equity for each of the three years in the period ended December 31, 2005. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

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

In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of West Coast Bancorp and subsidiaries as of December 31, 2005 and 2004, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2005, in conformity with accounting principles generally accepted in the United States of America.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of the Company’s internal control over financial reporting as of December 31, 2005, based on the criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 8, 2006 expressed an unqualified opinion on management’s assessment of the effectiveness of the Company’s internal control over financial reporting and an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.

DELOITTE & TOUCHE LLP

Portland, Oregon

February 8, 2006

37

WEST COAST BANCORP
CONSOLIDATED BALANCE SHEETS

As of December 31 (Dollars in thousands)	2005			2004
ASSETS:
Cash and cash equivalents:
Cash and due from banks	$	75,737		$	40,751
Federal funds sold		7			101
Interest-bearing deposits in other banks		12,625			2
Total cash and cash equivalents		88,369			40,854
Trading assets		945			958
Investment securities available for sale, at fair value (amortized cost: $294,382 and $265,298)		292,664			266,262
Loans held for sale		3,220			2,706
Loans		1,554,454			1,427,994
Allowance for loan losses		(20,469	)		(18,971	)
Loans, net		1,533,985			1,409,023
Premises and equipment, net		29,825			29,117
Intangible assets		180			519
Bank owned life insurance		19,734			18,885
Other assets		28,216			22,595
Total assets	$	1,997,138		$	1,790,919
LIABILITIES AND STOCKHOLDERS’ EQUITY
Deposits:
Demand deposits	$	456,760		$	391,746
Savings and interest-bearing demand deposits		827,909			738,402
Certificates of deposit		364,793			342,561
Total deposits		1,649,462			1,472,709
Short-term borrowings		61,350			41,782
Long-term borrowings		83,100			85,500
Junior subordinated debentures		26,000			26,000
Other liabilities		20,103			17,074
Total liabilities		1,840,015			1,643,065
Commitments and contingent liabilities (Note 8)
STOCKHOLDERS’ EQUITY:
Preferred stock:  no par value, none issued; 10,000,000 shares authorized		—			—
Common stock:  no par value, 55,000,000 shares authorized;  14,691,586 and 14,872,290 shares issued and outstanding, respectively		18,364			18,590
Additional paid-in capital		53,976			60,730
Retained earnings		87,611			69,612
Deferred compensation		(1,773	)		(1,486	)
Accumulated other comprehensive (loss) income		(1,055	)		408
Total stockholders’ equity		157,123			147,854
Total liabilities and stockholders’ equity	$	1,997,138		$	1,790,919

See notes to consolidated financial statements

38

WEST COAST BANCORP
CONSOLIDATED STATEMENTS OF INCOME

Year ended December 31  (In thousands, except per share amounts)	2005			2004			2003
INTEREST INCOME:
Interest and fees on loans	$	101,419		$	79,903		$	77,321
Interest on taxable investment securities		8,201			9,819			8,891
Interest on nontaxable investment securities		2,719			3,070			3,257
Interest on deposits in other banks		88			75			76
Interest on federal funds sold		564			121			133
Total interest income		112,991			92,988			89,678
INTEREST EXPENSE:
Savings and interest-bearing demand		10,166			3,425			4,492
Certificates of deposit		10,331			7,789			10,639
Short-term borrowings		543			371			277
Long-term borrowings		3,467			4,679			4,023
Junior subordinated debentures		1,923			1,851			1,208
Total interest expense		26,430			18,115			20,639
NET INTEREST INCOME		86,561			74,873			69,039
Provision for loan losses		2,175			2,260			3,800
Net interest income after provision for loan losses		84,386			72,613			65,239
NONINTEREST INCOME:
Service charges on deposit accounts		8,686			7,474			6,960
Payment systems related revenue		4,900			3,878			3,432
Trust and investment services revenue		5,151			4,558			3,772
Gains on sales of loans		3,046			3,906			5,124
Other		3,348			2,667			2,566
Loss on impairment of securities		(1,316	)		—			—
Net gains (losses) on sales of securities		(716	)		(20	)		192
Total noninterest income		23,099			22,463			22,046
NONINTEREST EXPENSE:
Salaries and employee benefits		40,606			36,297			32,487
Equipment		4,837			4,917			4,862
Occupancy		6,267			5,722			4,901
Payment systems related expense		1,739			1,449			1,307
Professional fees		2,984			2,314			2,314
Postage, printing and office supplies		2,833			2,616			2,590
Marketing		3,830			2,402			2,047
Communications		1,210			1,182			1,166
Other noninterest expense		8,328			6,472			6,476
Total noninterest expense		72,634			63,371			58,150
INCOME BEFORE INCOME TAXES		34,851			31,705			29,135
PROVISION FOR INCOME TAXES		11,011			9,697			9,338
NET INCOME	$	23,840		$	22,008		$	19,797
Basic earnings per share	$	1.63		$	1.48		$	1.31
Diluted earnings per share	$	1.55		$	1.42		$	1.26
Weighted average common shares		14,658			14,849			15,077
Weighted average diluted shares		15,344			15,526			15,674

See notes to consolidated financial statements

39

WEST COAST BANCORP
CONSOLIDATED STATEMENTS OF CASH FLOWS

Year ended December 31 (Dollars in thousands)	2005			2004			2003
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	23,840		$	22,008		$	19,797
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		3,415			3,469			3,611
Amortization of tax credits		750			589			129
Deferred income tax (benefit) expense		(1,719	)		1,405			(689	)
Amortization of intangibles		339			346			353
Provision for loan losses		2,175			2,260			3,800
Federal Home Loan Bank dividend		(39	)		(268	)		(552	)
Increase in interest receivable		(2,044	)		(397	)		(38	)
(Increase) decrease in other assets		(1,075	)		810			2,745
Loss on impairment of securities		1,316			—			—
Losses (gains) on sales of securities		716			20			(192	)
Realized net (gain) loss on derivatives		(55	)		(6	)		22
Gains on sale of loans		(3,046	)		(3,906	)		(5,124	)
Origination of loans held for sale		(85,966	)		(136,527	)		(182,630	)
Proceeds from sales of loans held for sale		88,498			142,456			193,949
Increase (decrease) in interest payable		259			41			(342	)
Increase in other liabilities		4,025			3,436			3,932
Increase in cash surrender value of bank owned life insurance		(849	)		(823	)		(743	)
Gain on benefit of proceeds from bank owned life insurance		—			—			(202	)
Stock based compensation expense		988			782			679
Tax benefit associated with stock options		(1,255	)		(1,348	)		(732	)
Decrease (increase) in trading assets		13			33			(24	)
Net cash provided by operating activities		30,286			34,380			37,749
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities of available for sale securities		30,903			99,738			115,606
Proceeds from sales of available for sale securities		49,253			8,982			4,158
Purchase of available for sale securities		(111,629	)		(58,478	)		(179,136	)
Federal Home Loan Bank redemption		—			393			924
Purchase of bank owned life insurance		—			—			(16,000	)
Investments in tax credits		(260	)		(54	)		(151	)
Proceeds from death benefit paid on bank owned life insurance		—			—			640
Loans made to customers greater than principal collected on loans		(127,137	)		(152,994	)		(63,473	)
Purchase of loans		—			(55,539	)		—
Net capital expenditures		(3,726	)		(4,858	)		(3,269	)
Net cash used in investing activities		(162,596	)		(162,810	)		(140,701	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in demand, savings and interest bearing transaction accounts		154,521			71,257			163,665
Net increase (decrease) in certificates of deposit		22,232			(3,407	)		(25,259	)
Proceeds from issuance of junior subordinated debentures		—			6,000			7,500
Proceeds from issuance of long-term borrowings		22,600			50,000			5,000
Repayment of long-term borrowings		(25,000	)		(42,500	)		(25,000	)
Net increase (decrease) in short-term borrowings		19,568			36,755			(4,875	)
Repurchase of common stock		(11,815	)		(10,515	)		(10,461	)
Net proceeds from issuance of common stock		3,560			3,502			3,081
Dividends paid and cash paid for fractional shares		(5,841	)		(5,312	)		(4,928	)
Net cash provided by financing activities		179,825			105,780			108,723
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		47,515			(22,650	)		5,771
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR		40,854			63,504			57,733
CASH AND CASH EQUIVALENTS AT END OF YEAR	$	88,369		$	40,854		$	63,504
Supplemental cash flow information:
Cash paid in the year for:
Interest	$	26,171		$	18,074		$	20,981
Income taxes	$	13,641		$	6,358		$	9,158
Noncash investing and financing activities:
Change in unrealized loss on available for sale securities and derivatives, net of tax	$	(1,463	)	$	(2,664	)	$	(1,502	)
Dividends declared and accrued in other liabilities	$	1,550		$	1,381		$	1,287

See notes to consolidated financial statements.

40

WEST COAST BANCORP
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

																Accumulated Other Comprehensive Income (loss)			Total
	Common Stock						Additional Paid-In Capital			Retained Earnings			Deferred Compensation
(Shares and Dollars in thousands)	Shares			Amount
BALANCE, January 1, 2003		15,326		$	19,158		$	72,279		$	38,047		$	(671	)	$	4,574		$	133,387
Comprehensive income:
Net income		—			—			—			19,797			—			—		$	19,797
Other comprehensive loss, net of tax:
Net unrealized investment/derivative losses		—			—			—			—			—			(1,502	)		(1,502	)
Other comprehensive loss, net of tax																				(1,502	)
Comprehensive income																			$	18,295
Cash dividends, $.32 per common share		—			—			—			(4,928	)		—			—			(4,928	)
Issuance of common stock pursuant to option plans		291			363			2,500			—			—			—			2,863
Redemption of stock pursuant to stock plans		(29	)		(36	)		(457	)		—			27			—			(466	)
Activity in Deferred Compensation Plan		(3	)		(3	)		(45	)		—			—			—			(48	)
Issuance of common stock pursuant to restricted stock plans		78			97			1,180			—			(1,277	)		—			—
Amortization of deferred compensation restricted stock		—			—			—			—			679			—			679
Common stock repurchased and retired		(587	)		(734	)		(9,727	)		—			—			—			(10,461	)
Tax benefit associated with stock options		—			—			732			—			—			—			732
BALANCE, December 31, 2003		15,076		$	18,845		$	66,462		$	52,916		$	(1,242	)	$	3,072		$	140,053
Comprehensive income:
Net income		—			—			—			22,008			—			—		$	22,008
Other comprehensive loss, net of tax:
Net unrealized investment/derivative losses		—			—			—			—			—			(2,664	)		(2,664	)
Other comprehensive loss, net of tax																				(2,664	)
Comprehensive income																			$	19,344
Cash dividends, $.36 per common share		—			—			—			(5,312	)		—			—			(5,312	)
Issuance of common stock pursuant to option plans		279			348			2,854			—			—			—			3,202
Redemption of stock pursuant to stock plans		(49	)		(61	)		(995	)		—			69			—			(987	)
Activity in Deferred Compensation Plan		(1	)		(1	)		(60	)		—			—			—			(61	)
Issuance of common stock pursuant to restricted stock plans		51			64			1,031			—			(1,095	)		—			—
Amortization of deferred compensation restricted stock		—			—			—			—			782			—			782
Common stock repurchased and retired		(484	)		(605	)		(9,910	)		—			—			—			(10,515	)
Tax benefit associated with stock plans		—			—			1,348			—			—			—			1,348
BALANCE, December 31, 2004		14,872			18,590			60,730			69,612			(1,486	)		408			147,854
Comprehensive income:
Net income		—			—			—			23,840			—			—		$	23,840
Other comprehensive loss, net of tax:
Net unrealized investment/derivative losses		—			—			—			—			—			(1,463	)		(1,463	)
Other comprehensive loss, net of tax																				(1,463	)
Comprehensive income																			$	22,377
Cash dividends, $.40 per common share		—			—			—			(5,841	)		—			—			(5,841	)
Issuance of common stock pursuant to option plans		286			357			2,988			—			—			—			3,345
Redemption of stock pursuant to stock plans		(42	)		(53	)		(955	)		—			31			—			(977	)
Activity in Deferred Compensation Plan		(2	)		(3	)		(60	)		—			—			—			(63	)
Issuance of common stock pursuant to restricted stock plans		62			78			1,228			—			(1,306	)		—			—
Amortization of deferred compensation restricted stock		—			—			—			—			988			—			988
Common stock repurchased and retired		(484	)		(605	)		(11,210	)		—			—			—			(11,815	)
Tax benefit associated with stock plans		—			—			1,255			—			—			—			1,255
BALANCE, December 31, 2005		14,692		$	18,364		$	53,976		$	87,611		$	(1,773	)	$	(1,055	)	$	157,123

See notes to consolidated financial statements

41

WEST COAST BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.          SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

             Principles of Consolidation.  The accompanying consolidated financial statements include the accounts of West Coast Bancorp (“Bancorp” or “the Company”), which operates its wholly-owned subsidiaries, West Coast Bank (the “Bank”), West Coast Trust, and Totten, Inc., after elimination of intercompany transactions and balances. In accordance with Financial Accounting Standards Board Interpretation No. 46 (revised), “Consolidation of Variable Interest Entities,” (“FIN No. 46 (revised)”), West Coast Statutory Trust I, II, III and IV are considered related parties to West Coast Bancorp and their financial results are not consolidated in West Coast Bancorp’s financial statements effective December 31, 2004.

             Nature of Operations. West Coast Bancorp’s activities include offering a full range of financial services through 52 branch offices in western Oregon and Washington.  West Coast Trust provides fiduciary, agency, trust and related services, and life insurance products.

             Cash and Cash Equivalents. Cash and cash equivalents include cash on hand, amounts due from banks, and federal funds sold.  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.

             Trading Assets.   Debt and equity securities that are bought and held principally for the purpose of selling them in the near term are classified as trading securities and reported at fair value, with unrealized gains and losses included in earnings.  Trading assets held at December 31, 2005 and 2004 are related solely to assets held in a Rabbi Trust for benefit of the Company’s deferred compensation plans. 

             Investment Securities.  Investment securities are classified as either available for sale or held to maturity.  For purposes of computing gains and losses, cost of securities sold is determined using the specific identification method.  Available for sale securities are carried at fair value with unrealized gains and losses, net of any tax effect, added to or deducted directly from stockholders’ equity.  Held to maturity securities are carried at amortized cost.  The Company does not have any held to maturity securities as of December 31, 2005 or 2004.  The Company analyzes investment securities for other than temporary impairment on a periodic basis.  Declines in fair value that are deemed other than temporary, if any, are reported in non-interest income.

             Loans Held for Sale.  Loans held for sale are carried at the lower of cost or market.  Market value is determined in the aggregate.  When a loan is sold, the gain is recognized in the consolidated statement of income as the proceeds less the book value of the loan including unamortized fees and capitalized direct costs. In addition, we originate loans to customers under Small Business Administration (“SBA”) programs that generally provide for SBA guarantees of 50% to 85% of each loan. We periodically sell the guaranteed portion of certain SBA loans to investors and retain the unguaranteed portion and servicing rights in our loan portfolio. Gains on these sales are earned through the sale of the guaranteed portion of the loan for an amount in excess of the adjusted carrying value of the portion of the loan sold. We allocate the carrying value of such loans between the portion sold, the portion retained and a value assigned to the right to service the loan. The difference between the adjusted carrying value of the portion retained and the face amount of the portion retained is amortized to interest income over the life of the related loan using a straight-line method over the anticipated lives of the pool of SBA loans.

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

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

42

1.          SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

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

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

             Servicing of Financial Assets.  Bancorp originates loans under SBA loan programs.  Bancorp periodically sells such loans, and retains servicing rights on the loans originated and sold.  The fair value of the servicing rights are determined based upon discounted cash flow analysis and such servicing rights are being amortized in proportion to, and over the period of, estimated future net servicing income.  The servicing rights are periodically evaluated for impairment.  No impairment was recognized during 2005, 2004, or 2003.

             Intangible Assets.  Intangible assets are composed of deposit premiums of $.2 million and $.5 million (net of accumulated amortization of $3.0 million and $2.7 million), at December 31, 2005 and 2004, respectively.  These deposit premiums are being amortized over a ten-year period.

             Other Borrowings.  Federal funds purchased and securities sold under agreements to repurchase generally mature within one to four days from the transaction date.  Other short-term borrowed funds mature within one year from the transaction date.  Other long-term borrowed funds extend beyond one year.

             Income Taxes.  Income taxes are accounted for using the asset and liability method.  Under this method, a deferred tax asset or liability is determined based on the enacted tax rates that will be in effect when the differences between the financial statement carrying amounts and tax basis of existing assets and liabilities are expected to be reported in Bancorp’s income tax returns.  The deferred tax provision for the year is equal to the net change in the net deferred tax asset from the beginning to the end of the year, less amounts applicable to the change in value related to investments available for sale as well as value changes in interest rate swaps accounted for as hedges.  The effect on deferred taxes of a change in tax rates is recognized in income in the period that includes the enactment date.

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

             Use Of Estimates In The Preparation Of 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.

             Loan Fees and Direct Loan Origination Costs.  Loan origination and commitment fees and direct loan origination costs are deferred and recognized as an adjustment to the yield over the life of the related loans.

             Federal Home Loan Bank Stock.  Included in investment securities available for sale is the Bank’s investment in Federal Home Loan Banks of Seattle and of San Francisco (“FHLB”) stock and is carried at par value, which reasonably approximates its fair value. The Bank is required to maintain a minimum level of investment in FHLB stock based on specific percentages of its outstanding mortgages, total assets or FHLB advances. Stock redemptions are at the discretion of the FHLB.

43

1.          SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

             Operating Segments.  Statement of Financial Accounting Standards (“SFAS”) No. 131, Disclosure about Segments of an Enterprise and Related Information, requires public enterprises to report certain information about their operating segments in the financial statements. The basis for determining the Company’s operating segments is the way in which management operates the businesses.  Bancorp has identified two business segments, Banking and other which includes transactions of West Coast Trust.  See footnote 20, “Segment and related information” for more detail.

             Reclassifications. Certain amounts reported in prior years’ financial statements have been reclassified to conform to the current presentation. The effects of the reclassifications are not considered material. 

             New Accounting Pronouncements.  In December 2004, the Financial Accounting Standards Board (“FASB”) issued a revision to SFAS No. 123 (Revised), Share-Based Payment.  This statement establishes standards for the accounting for transactions in which an entity exchanges its equity instruments for goods or services.  This statement requires that the cost resulting from all share-based payment transactions be recognized in the financial statements.  In addition, this statement establishes fair value as the measurement objective in accounting for share-based payment arrangements and requires all entities to apply a fair-value based measurement method in accounting for share-based payment transactions.  This statement replaces SFAS No. 123, Accounting for Stock-Based Compensation, and supersedes Accounting Principles Board (“APB”) Opinion No. 25, Accounting for Stock Issued to Employees.  In addition, this statement amends SFAS No. 95, Statement of Cash Flows, to require that excess tax benefits be reported as a financing cash inflow rather than as a reduction of taxes paid.  Bancorp would have recognized $.7 million, $.6 million and $.8 million, after tax, in 2005, 2004 and 2003, respectively, had SFAS No. 123 been applied to those years.  This statement is effective for Bancorp as of January 1, 2006.

             As a result of the adoption of SFAS No. 123 (revised), the Company estimates it will recognize an additional compensation expense of approximately $.4 million after tax, or $.03 per diluted share for the full year 2006.  Estimated future levels of compensation expense recognized related to stock based awards would be impacted by new awards, modifications to awards, or cancellation of awards after the adoption of SFAS No. 123 (revised).

             At its November 12-13, 2003 meeting, the Emerging Issues Task Force (“EITF”) reached a consensus on Issue 03-01, “The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments,” that certain quantitative and qualitative disclosures should be required for debt and marketable equity securities classified as available-for-sale or held-to-maturity under SFAS No. 115 and 124 that are impaired at the balance sheet date but for which an other-than-temporary impairment has not been recognized.  The Company adopted the disclosure requirements in fiscal year 2003.  At the March 17-18, 2004 meeting, the EITF reached a consensus, which approved an impairment model for debt and equity securities.  In FASB Staff Position (“FSP”) 03-01-01, issued in September 2004, the effective date for the measurement and recognition guidance contained in paragraphs 10-20 of Issue 03-01 was delayed. 

             On November 3, 2005, FSP FAS Nos. 115-1 and FAS 124-1 “The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments,” was issued.  This FSP nullifies certain requirements of Issue 03-1 and supersedes EITF Topic No. D-44, “Recognition of Other-Than-Temporary Impairment upon the Planned Sale of a Security Whose Cost Exceeds Fair Value.”  This FSP nullified the requirements of paragraphs 10-18 of Issue 03-1, carried forward the requirements of paragraph 8 and 9 of Issue 03-1 with respect to cost-method investments and carries forward the disclosure requirements included in paragraphs 21 and 22 of Issue 03-1 and related examples.  The guidance in this FSP shall be applied to reporting periods beginning after December 15, 2005.  The Company believes the adoption of this FSP in 2006 will not materially impact our results of operations, financial condition, or related disclosures.

44

1.          SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

             Accounting for Stock-Based Compensation.  At December 31, 2005, Bancorp has multiple stock option plans, which are described in Note 16.  In addition, Bancorp has a stock compensation plan under which both restricted stock and stock options are granted.  Bancorp recognizes compensation expense for restricted stock granted.  Bancorp accounts for its stock option plans using the intrinsic value method under APB Opinion 25, under which no compensation cost has been recognized in the periods presented. All options granted under our stock option plans had an exercise price equal to the market value of the underlying common stock on the date of grant.  The following table illustrates the effect on net income and earnings per share if the fair value based method established in SFAS No. 123, Accounting for Stock-Based Compensation had been applied to all outstanding and unvested awards in each period.

	Year ended December 31
(Dollars in thousands, except per share data)	2005			2004			2003
Net income, as reported	$	23,840		$	22,008		$	19,797
Add:  Restricted stock compensation expense included in reported net income, net of related tax effects		603			477			414
Deduct:  Total stock-based compensation expense including both restricted stock and stock options, determined under fair value based method, net of related tax effects		(1,294	)		(1,048	)		(1,207	)
Pro forma net income	$	23,149		$	21,437		$	19,004
Earnings per share:
Basic-as reported	$	1.63		$	1.48		$	1.31
Basic-proforma	$	1.58		$	1.44		$	1.26
Diluted-as reported	$	1.55		$	1.42		$	1.26
Diluted-proforma	$	1.51		$	1.38		$	1.21

45

2.          INVESTMENT SECURITIES

             The following table presents the investment portfolio as of December 31, 2005 and 2004:

	AVAILABLE FOR SALE
(Dollars in thousands) December 31, 2005	Amortized Cost		Unrealized Gross Gains		Unrealized Gross Losses			Fair Value
U.S. Government agency securities	$	90,338	$	126	$	(947	)	$	89,517
Corporate securities		22,748		61		(124	)		22,685
Mortgage-backed securities		96,066		88		(1,323	)		94,831
Obligations of state and political subdivisions		69,986		876		(369	)		70,493
Equity investments and other securities		15,244		11		(117	)		15,138
Total	$	294,382	$	1,162	$	(2,880	)	$	292,664

	AVAILABLE FOR SALE
(Dollars in thousands) December 31, 2004	Amortized Cost		Unrealized Gross Gains		Unrealized Gross Losses			Fair Value
U.S. Government agency securities	$	82,507	$	405	$	(550	)	$	82,362
Corporate securities		17,890		173		(34	)		18,029
Mortgage-backed securities		81,669		205		(520	)		81,354
Obligations of state and political subdivisions		68,711		2,282		(87	)		70,906
Equity investments and other securities		14,521		20		(930	)		13,611
Total	$	265,298	$	3,085	$	(2,121	)	$	266,262

             Gross realized gains in 2005, 2004 and 2003 were $0, $75,000, and $192,000, respectively. Gross realized losses in 2005, 2004, and 2003 were $2,032,000, $95,000 and $0 respectively. Securities with a fair value of approximately $68.3 million and $42.8 million were pledged to secure public deposits at December 31, 2005 and 2004, respectively.  At December 31, 2005 and December 31, 2004, Bancorp had no reverse repurchase agreements.  Under regulatory guidelines, no outstanding mortgage-backed securities were classified as high risk at December 31, 2005 or 2004.

             The following table provides information on investment securities with 12 month or greater continuous unrealized losses as of December 31, 2005:

(Dollars in thousands) December 31, 2005	Amortized cost of securities with an unrealized loss more than 12 continuous months		Fair value of securities with an unrealized loss more than 12 continuous months		Unrealized Gross Losses
U.S. Government agency securities	$	20,254	$	19,781	$	(473	)
Mortgage-backed securities		27,331		26,662		(669	)
Obligations of state and political subdivisions		3,688		3,547		(141	)
Other		7,581		7,503		(78	)
Total	$	58,854	$	57,493	$	(1,361	)

             There were 33 investment securities with a 12 month or greater continuous unrealized loss of $1.4 million in the investment portfolio at December 31, 2005.  There were 9 investment securities with a 12 month or greater continuous unrealized loss of $.3 in the investment portfolio at December 31, 2004.  At December 31, 2005 there were a total of 112 securities with unrealized losses totaling $2.9 million, while there were approximately 60 securities with a total unrealized loss of $2.1 million at December 31, 2004.  The increase in the unrealized loss on these securities was primarily due to an increase in interest rates subsequent to their purchase.  The value of these securities will fluctuate as market interest rates change.  The Company has the ability and intent to hold them until the value recovers.

46

2.          INVESTMENT SECURITIES (continued)

             The following table provides information on investment securities which have an unrealized loss and have been in an unrealized loss position for less than 12 months as of December 31, 2005:

(Dollars in thousands) December 31, 2005	Amortized cost of securities with an unrealized loss less than 12 continuous months		Fair value of securities with an unrealized loss less than 12 continuous months		Unrealized Gross Losses
U.S. Government agency securities	$	65,655	$	65,181	$	(474	)
Corporate securities		4,163		4,116		(47	)
Mortgage-backed securities		46,705		46,052		(653	)
Obligations of state and political subdivisions		17,832		17,604		(228	)
Equity investments and other securities		5,684		5,567		(117	)
Total	$	140,039	$	138,520	$	(1,519	)

             At March 31, 2005, the Company recorded an other-than-temporary impairment charge of approximately $1.3 million, pretax or $803,000, after tax, or $.05 per fully diluted share, related to declines in the value of Freddie Mac preferred stock held in the Company’s available for sale investment portfolio.  The Company owns 100,000 shares of Freddie Mac Preferred Series L shares which were acquired November 5, 1999, at a cost (book value) of $5,000,000, which was also the book value of these securities as of March 31, 2005, prior to the impairment charge. The market value of the securities as of March 31, 2005 was $3,684,000, which is our current book value on these securities As of December 31, 2005, the market value was $3,620,000. The rate at which interest accrues on these shares resets every five years, most recently on December 31, 2004.  The current interest rate of 3.58% is fixed until December 31, 2009, at which time it will reset to the 5 year treasury rate. The shares may be called at each reset date.

3.          MATURITIES OF INVESTMENT SECURITIES

             The follow table presents the maturities of the investment portfolio at December 31, 2005:     

	Available for sale
(Dollars in thousands) December 31, 2005
	Amortized cost		Fair value
U.S. Government agency securities:
One year or less	$	19,373	$	19,303
After one year through five years		56,573		55,939
After five through ten years		14,392		14,275
		90,338		89,517
Corporate Securities:
One year or less		2,581		2,546
After one year through five years		3,607		3,593
After five through ten years		2,560		2,552
Due after ten years		14,000		13,994
Total		22,748		22,685
Obligations of state and political subdivisions:
One year or less		8,257		8,302
After one year through five years		27,481		27,966
After five through ten years		28,460		28,497
Due after ten years		5,788		5,728
Total		69,986		70,493
Sub-total		183,072		182,695
Mortgage-backed securities		96,066		94,831
Equity investments and other securities		15,244		15,138
Total securities	$	294,382	$	292,664

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

47

4.          LOANS AND ALLOWANCE FOR LOAN LOSSES

             The following table presents the loan portfolio as of December 31, 2005 and 2004:

	December 31,
(Dollars in thousands)	2005			2004
Commercial loans	$	364,604		$	357,776
Real estate – construction		210,828			116,974
Real estate – mortgage		242,015			212,959
Real estate – commercial		709,176			704,390
Installment and other consumer		27,831			35,895
Total loans		1,554,454			1,427,994
Allowance for loan losses		(20,469	)		(18,971	)
Total loans, net	$	1,533,985		$	1,409,023

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

	Year Ending December 31,
(Dollars in thousands)	2005			2004			2003
Balance, beginning of period	$	18,971		$	18,131		$	16,838
Provision for loan loss		2,175			2,260			3,800
Losses charged to the allowance		(1,624	)		(2,374	)		(3,098	)
Recoveries credited to the allowance		947			954			591
Balance, end of period	$	20,469		$	18,971		$	18,131

             Loans, on which the accrual of interest has been discontinued, amounted to approximately $1.1 million, $1.8 million and $2.7 million at December 31, 2005, 2004, and 2003, respectively.  Interest income foregone on non-accrual loans was approximately $73,000, $204,000 and $231,000 in 2005, 2004, and 2003, respectively.

             At December 31, 2005 and 2004, Bancorp’s recorded investment in certain loans that were considered to be impaired was $5.1 million and $1.9 million, respectively.  Of these impaired loans, $4.1 million and $1.0 million had a specific related valuation allowance of $.9 million and $.3 million, respectively, while $1.0 million and $.9 million did not require a specific valuation allowance.  The balance of the allowance for loan losses in excess of these specific reserves is available to absorb the inherent losses from all loans in the portfolio.  The average recorded investment in impaired loans for the years ended December 31, 2005, 2004, and 2003 was approximately, $4.4 million, $3.6 million and $4.0 million, respectively.  For the years ended December 31, 2005, 2004 and 2003, interest income recognized on impaired loans totaled $272,000, $187,000, and $193,000, respectively, all of which was recognized on a cash basis.

             The Bank makes commercial and residential loans to customers primarily throughout Oregon and Washington.  Although the Bank has a diversified loan portfolio, a substantial portion of the portfolio belongs to debtors whose ability to honor their contracts is dependent upon the economies of Oregon and/or Washington.

48

5.          PREMISES AND EQUIPMENT

             Premises and equipment consists of the following:

	December 31,
(Dollars in thousands)	2005			2004
Land	$	4,796		$	4,796
Buildings and improvements		25,622			24,680
Furniture and equipment		26,182			26,177
Construction in progress		269			490
		56,869			56,143
Accumulated depreciation		(27,044	)		(27,026	)
Total	$	29,825		$	29,117

             Depreciation included in net occupancy and equipment expense amounted to $3.0 million, $2.9 million and $2.7 million for the years ended December 31, 2005, 2004, and 2003, respectively.  The Company periodically reviews the recorded value of its long-lived assets, specifically premises and equipment, to determine whether impairment exists.  No impairment write-downs occurred in 2005 or 2004. 

6.          BORROWINGS

             Borrowings consist of the following:

	December 31,
(Dollars in thousands)	2005		2004
Short-term borrowings:
FHLB advances	$	61,350	$	41,782
Long-term borrowings:
FHLB advances		83,100		85,500
Total borrowings	$	144,450	$	127,282

             Short-term borrowings consist of FHLB borrowings. Bancorp had no outstanding Federal Funds purchased or reverse repurchase agreements at December 31, 2005 and 2004.  Bancorp had $5.0 million in reverse repurchase agreements that matured in March 2004.

             Long-term borrowings at December 31, 2005 consist of notes with fixed maturities, balloon payments and putable advances with the FHLB totaling $83.1 million.  Total long-term borrowings with fixed maturities were $78.1 million with rates ranging from 2.88% to 5.63%.  Bancorp’s putable advances total $5.0 million with an original term of five years at a rate of 3.36%, quarterly put options if LIBOR exceeds 6% and a final maturity in June 2009.  Principal balloon payments due on Bancorp’s long-term borrowings at December 31, 2005 are $20.5 million in 2006, $10.0 million in 2007, $10.0 million in 2008, and $20.0 million in 2009, and $22.6 million in 2010, with no balances due thereafter.  Bancorp refinanced $5 million of long-term FHLB debt at a pretax cost of approximately $.1 million during 2005.  Bancorp refinanced $30 million of long-term FHLB debt at a pretax cost of approximately $.9 million during 2004.

             Long-term borrowings at December 31, 2004 consisted of notes with fixed maturities, balloon payments and putable advances with the FHLB totaling $85.5 million.  Total long-term borrowings with fixed maturities were $70.5 million with rates ranging from 2.88% to 5.63%.  

             FHLB advances are collateralized as provided for in the advance, pledge and security agreements with the FHLB, by certain security investments and mortgage-backed securities, stock owned by Bancorp including deposits at the FHLB and certain qualifying loans.  At December 31, 2005 the Company had additional borrowing capacity available of $142.1 million at the FHLB.

49

7.          JUNIOR SUBORDINATED DEBENTURES

             At December 31, 2005, four wholly-owned subsidiary grantor trusts established by Bancorp had issued $26 million of pooled Trust Preferred Securities (“trust preferred securities”).  Trust preferred securities accrue and pay distributions periodically at specified annual rates as provided in the indentures.  The trusts used the net proceeds from the offering to purchase a like amount of Junior Subordinated Debentures (the “Debentures”) of the Company. The Debentures are the sole assets of the trusts.  The Company’s obligations under the Debentures and related documents, taken together, constitute a full and unconditional guarantee by the Company of the obligations of the trusts.  The trust preferred securities are mandatorily redeemable upon the maturity of the 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 is a summary of current trust preferred securities at December 31, 2005:

(Dollars in thousands) Issuance Trust	Issuance date		Preferred security amount		Rate type (1)		Initial rate			Rate at 12/31/05			Maturity date
West Coast Statutory Trust I		December 2001	$	5,000		Variable		5.60	%		8.10	%		December 2031
West Coast Statutory Trust II		June 2002	$	7,500		Variable		5.34	%		7.97	%		June 2032
West Coast Statutory Trust III		September 2003	$	7,500		Fixed		6.75	%		6.75	%		September 2033
West Coast Statutory Trust IV		March 2004	$	6,000		Fixed		5.88	%		5.88	%		March 2034

(1)  The variable rate preferred securities reprice quarterly.

             The total amount of trust preferred securities outstanding at December 31, 2005, and 2004, was $26 million. The interest rates on the trust preferred securities issued in December 2001, and June 2002 reset quarterly and are tied to the London Interbank Offered Rate (“LIBOR”).  In connection with the variable rate offerings, Bancorp entered into swap agreements that will result in a fixed interest rate on the securities for five years, equal to 8.62% and 8.14%, respectively.  The Company has the right to redeem the debentures issued in the December 2001 offering in December 2006; the June 2002 offering in June 2007, the September 2003 offering in September 2008, and the March 2004 offering in March 2009.

             With the adoption of FIN No. 46 (revised), Bancorp deconsolidated the three grantor trusts as of December 31, 2003.  As a result, the junior subordinated debentures issued by Bancorp to the grantor trusts, totaling $26 million, are reflected in our consolidated balance sheet in the liabilities section at December 31, 2005, under the caption “junior subordinated debentures.”  Bancorp records interest expense on the corresponding junior subordinated debentures in the consolidated statements of income. Bancorp recorded $.8 million in other assets in the consolidated balance sheet at December 31, 2005 and 2004, respectively, for the common capital securities issued by the issuer trusts.

             On July 2, 2003, the Federal Reserve Bank (“Federal Reserve”) issued Supervisory Letter SR 03-13 clarifying that Bank Holding Companies should continue to report trust preferred securities in accordance with current Federal Reserve Bank instructions which allows trust preferred securities to be counted in Tier 1 capital subject to certain limitations.  The Federal Reserve has indicated it will review the implications of any accounting treatment changes and, if necessary or warranted, will provide appropriate guidance.

50

8.          COMMITMENTS AND CONTINGENT LIABILITIES

             The Company leases land and office space under 37 leases, of which 35 are long-term operating leases that expire between 2006 and 2021.  At the end of most of the respective lease terms, Bancorp has the option to renew the leases at fair market value.  At December 31, 2005, minimum future lease payments under these leases and other operating leases were:

(Dollars in thousands) Year	Minimum Future Lease Payments
2006	$	2,718
2007		2,717
2008		2,476
2009		2,325
2010		1,957
Thereafter		10,842
Total	$	23,035

             Rental expense for all operating leases was $2.6 million, $2.4 million, and $2.1 million for the years ended December 31, 2005, 2004, and 2003, respectively.

             Included in “other liabilities” is a fourth quarter charge in the amount of $1.0 million for management’s estimate of loss exposure with respect to a legal matter.  Should Bancorp ultimately be determined to be liable in this matter, Bancorp believes it could face additional liability up to $1.0 million and that the risk its liability will exceed such amount is remote. Bancorp is in the process of determining the likelihood that insurance will cover any loss Bancorp incurs in connection with this matter.

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

9.          INCOME TAXES

             The provision (benefit) for income taxes for the last three years consisted of the following:  

	Year ended December 31,
(Dollars in thousands)	2005		2004		2003
Current
Federal	$	8,510	$	6,977	$	8,332
State		782		1,315		1,695
		9,292		8,292		10,027
Deferred
Federal		1,489		1,217		(575	)
State		230		188		(114	)
		1,719		1,405		(689	)
Total
Federal		9,999		8,194		7,757
State		1,012		1,503		1,581
Total	$	11,011	$	9,697	$	9,338

51

9.          INCOME TAXES (continued)

             Net deferred taxes are included in other assets on the Company’s balance sheet. The tax effect of temporary differences that give rise to significant portions of deferred tax assets and deferred tax liabilities as of December 31, 2005 and 2004 are presented below:

	December 31,
(Dollars in thousands)	2005		2004
Deferred tax assets:
Allowance for loan losses	$	8,042	$	7,454
Net unrealized loss on investments available for sale		675		—
Net unrealized loss on derivatives-Swap		9		115
Deferred employee benefits		1,273		992
Loss on impairment of securities		517		—
Other		645		175
Total deferred tax assets		11,161		8,736
Deferred tax liabilities:
Accumulated depreciation		1,485		1,756
Loan origination costs		2,096		1,687
Federal Home Loan Bank stock dividends		1,860		1,844
Net unrealized gains on investments available for sale		—		379
Intangible assets		40		47
Other		269		278
Total deferred tax liabilities		5,750		5,991
Net deferred tax assets	$	5,411	$	2,745

             Based on historical performance, the Company believes it is more likely than not that the net deferred tax assets at December 31, 2005 and 2004 will be used to reduce future taxable income and therefore no valuation allowance associated with deferred tax assets has been established at December 31, 2005 and 2004.

             The effective tax rate varies from the federal income tax statutory rate.  The reasons for the variance are as follows:

	Year ended December 31,
(Dollars in thousands)	2005			2004			2003
Expected federal income tax provision (1)	$	12,198		$	11,097		$	10,197
State income tax, net of federal income tax effect		658			977			1,029
Interest on obligations of state and political subdivisions exempt from federal tax		(973	)		(1,078	)		(1,144	)
Investment tax credits		(521	)		(520	)		(520	)
Bank owned life insurance		(291	)		(277	)		(285	)
Other, net		(60	)		(502	)		61
Total	$	11,011		$	9,697		$	9,338

(1) Federal income tax provision applied at 35%.

52

10.          STOCKHOLDERS’ EQUITY AND REGULATORY REQUIREMENTS

               Authorized capital of Bancorp includes 10,000,000 shares of Preferred Stock no par value, none of which were issued at December 31, 2005, or 2004.  No stock dividend was declared in 2005, 2004, or 2003. 

               In July 2000, Bancorp announced a stock repurchase program that was expanded in September 2000, June 2001, September of 2002 and again in April of 2004. Under this plan, the Company can purchase up to 3.88 million shares of the Company’s common stock.  The Company intends to use existing funds and/or long-term borrowings to finance the repurchases.  Total shares available for repurchase under this plan are 352,000 at December 31, 2005.  The following table presents information with respect to Bancorp’s July 2002 stock repurchase program.

(Shares and dollars in thousands)	Shares repurchased in period		Cost of shares repurchased		Average cost per share
Year ended 2000		573	$	5,264	$	9.19
Year ended 2001		534		6,597		12.35
Year ended 2002		866		13,081		15.11
Year ended 2003		587		10,461		17.81
Year ended 2004		484		10,515		21.73
Year ended 2004		484		11,815		24.41
Plan to date total		3,528	$	57,733	$	16.36

               The Federal Reserve and Federal Deposit Insurance Corporation (“FDIC”) have established minimum requirements for capital adequacy for bank holding companies and member banks.  Under capital adequacy guidelines and the regulatory framework for prompt corrective action, Bancorp and its significant bank subsidiaries must meet specific capital guidelines that involve quantitative measures of assets, liabilities and certain off-balance sheet items.  The Federal Reserve and FDIC risk based capital guidelines require banks and bank holding companies to have a ratio of Tier 1 capital to total risk weighted assets of at least 4%, and a ratio of total capital to total risk weighted assets of 8% or greater.  In addition, the leverage ratio of Tier 1 capital to total average assets less intangibles is required to be at least 3%.  Well capitalized guidelines require banks and bank holding companies to maintain Tier 1 capital of at least 6%, total risk based capital of at least 10% and a leverage ratio of at least 5%.  Bancorp and its bank subsidiary’s capital components, classification, risk weightings and other factors are also subject to qualitative judgments by regulators.  Failure to meet minimum capital requirements can initiate certain action by regulators that, if undertaken, could have a material effect on Bancorp’s financial statements.  As of December 31, 2005, Bancorp and its subsidiary bank are considered “Well Capitalized” under current risk based capital regulatory guidelines.  Management believes that no events or changes in conditions have subsequently occurred which would significantly change Bancorp’s capital position.  Under the restrictions of maintaining adequate minimum capital, as of December 31, 2005, the Bank could have declared dividends totaling $47.2 million without obtaining prior regulatory approval.

               The following table presents selected risk adjusted capital information as of December 31, 2005 and 2004:

	2005									2004
	Actual					Amount Required For Minimum Capital Adequacy		Percent required for Minimum Capital Adequacy		Actual					Amount Required For Minimum Capital Adequacy		Percent required for Minimum Capital Adequacy
(Dollars in thousands)	Amount		Ratio			Amount				Amount		Ratio			Amount
Tier 1 Capital
West Coast Bancorp	$	183,935		9.97	%	$	73,826		4%	$	172,366		10.40	%	$	66,281		4%
West Coast Bank		174,212		9.45	%		73,752		4%		165,286		9.99	%		66,215		4%
Total Capital
West Coast Bancorp	$	204,404		11.07	%	$	147,652		8%	$	191,337		11.55	%	$	132,561		8%
West Coast Bank		194,681		10.56	%		147,504		8%		184,257		11.13	%		132,431		8%
Leverage Ratio
West Coast Bancorp	$	183,935		9.42	%	$	58,579		3%	$	172,366		9.72	%	$	53,215		3%
West Coast Bank		174,212		8.92	%		58,560		3%		165,286		9.32	%		53,178		3%

53

11.          BALANCES WITH THE FEDERAL RESERVE BANK

               The Bank is required to maintain cash reserves or deposits with the Federal Reserve equal to a percentage of reservable deposits.  The average required reserves for the Bank were $4.7 million and $3.5 million during December 31, 2005 and 2004, respectively.

12.          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)	Net Income		Weighted Average Shares		Per Share Amount
For the year ended December 31, 2005
Basic earnings	$	23,840		14,658	$	1.63
Stock options				642
Restricted stock				44
Diluted earnings	$	23,840		15,344	$	1.55
For the year ended December 31, 2004
Basic earnings	$	22,008		14,849	$	1.48
Stock options				637
Restricted stock				40
Diluted earnings	$	22,008		15,526	$	1.42
For the year ended December 31, 2003
Basic earnings	$	19,797		15,077	$	1.31
Stock options				561
Restricted stock				36
Diluted earnings	$	19,797		15,674	$	1.26

               Bancorp, for the periods reported, had no reconciling items between net income and income available to common stockholders.  There were no shares having an antidilutive effect on earnings per share in 2005, 2004, and 2003. 

13.          COMPREHENSIVE INCOME

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

	Year ended December 31,
(Dollars in thousands)	2005			2004			2003
Net income as reported	$	23,840		$	22,008		$	19,797
Unrealized holding losses on securities:
Unrealized holding losses arising during the year		(4,713	)		(4,789	)		(2,528	)
Tax benefit		1,852			1,866			994
Unrealized holding losses arising during the year, net of tax		(2,861	)		(2,923	)		(1,534	)
Unrealized gains on derivatives - cash flow hedges		270			408			246
Tax provision		(106	)		(160	)		(97	)
Unrealized gains on derivatives - cash flow hedges, net of tax		164			248			149
Less:  Reclassification adjustment for impairment and losses (gains) on sales of securities		2,032			20			(192	)
Tax (benefit) provision		(798	)		(9	)		75
Net realized losses (gains), net of tax		1,234			11			(117	)
Total comprehensive income	$	22,377		$	19,344		$	18,295

54

14.          CERTIFICATES OF DEPOSIT

               Included in certificates of deposit are certificates in denominations of $100,000 or greater, totaling $167.3 million and $160.8 million at December 31, 2005 and 2004, respectively.  Interest expense relating to certificates of deposit in denominations of $100,000 or greater was $5.2 million, $3.3 million and $4.7 million for the years ended December 31, 2005, 2004 and 2003, respectively.  Maturity amounts on Bancorp’s certificates of deposit include $282.3 million in 2006, $66.6 million in 2007, $7.0 million in 2008, $5.6 million in 2009, and $3.2 million in 2010, with $.1 million due thereafter.  Included in the maturity amounts are $1.6 million in variable rate certificates of deposit that reprice monthly with maturities in the first quarter of 2006. 

15.          EMPLOYEE BENEFIT PLANS

               West Coast Bancorp employee benefits include a plan established under section 401(k) of the Internal Revenue Code for certain qualified employees (the “401(k) plan”).  Employee contributions up to 100 percent of salaries under the Internal Revenue Code guidelines can be made under the 401(k) plan, of which Bancorp matches 50 percent of the employees’ contributions up to a maximum of 6 percent of the employees’ eligible compensation.  Bancorp may also elect to make discretionary contributions to the plan.  Employees vest immediately in their own contributions and earnings thereon and vest in Bancorp’s contributions over five years of eligible service.  In 2005 Bancorp made a Qualified Non-Elective Contribution in the amount of $700 per full-time employee, excluding certain executive officers, prorated for part time employees with immediate vesting. Bancorp’s 401k related expenses totaled $1.17 million, $.67 million and $.52 million for 2005, 2004, and 2003, respectively, of which $.4 million, $0, and $0, respectively, were discretionary.

               Bancorp provides a non-qualified Deferred Compensation Plan for Directors and a non-qualified Deferred Compensation Plan for Executive Officers (“Deferred Compensation Plans”) as supplemental benefit plans which permit directors and selected officers to elect to defer receipt of all or any portion of their future salary, bonus or directors’ fees.  In addition, the Deferred Compensation Plans restore benefits lost by employees under the 401(k) plan due to specified Internal Revenue Code restrictions on the maximum benefits that may be paid under those plans.  All contributions are invested at the participants’ direction among a variety of investment alternatives.  A deferred compensation liability of $2.1 million was accrued as of December 31, 2005.

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

	Year ended December 31,
(Dollars in thousands)	2005			2004
Beginning balance	$	866		$	427
Benefit expense		575			550
Benefit payments		(70	)		(111	)
Ending balance	$	1,371		$	866

               Bancorp’s deferred compensation contracts and supplemental executive retirement plans are unfunded plans and have no plan assets.  The benefit obligation represents the vested net present value of future payments to individuals under the deferred compensation contracts.  Bancorp’s deferred compensation benefit expense, as specified in the plans, for the entire year 2006 is expected to be $.7 million.  The benefits expected to be paid are presented in the following table:

(Dollars in thousands)	Benefits expected to be paid
2006	$	67
2007		63
2008		131
2009		247
2010		212
2011 through 2015		978

55

16.          STOCK PLANS

               Bancorp’s stock option plans include the 2002 Stock Incentive Plan (2002 Plan), 1999 Stock Option Plan (1999 Plan), the Combined 1991 Employee Stock Option Plan and Non-Qualified Stock Option Plan (1991 Plan), and the 1995 Directors Stock Option Plan (1995 Plan). At December 31, 2005, the 2002 Plan had 420,000 shares available for future grants.  No additional grants may be made under plans other than the 2002 Plan.

               All stock options have an exercise price that is equal to the fair market value of Bancorp’s stock on the date the options were granted.  Options granted under the 2002 Plan are generally exercisable over a three or four year period.  Options previously issued under the 1999 or prior plans are fully vested.

	2005 Common Shares			2005 Weighted Avg. Ex. Price		2004 Common Shares			2004 Weighted Avg. Ex. Price		2003 Common Shares			2003 Weighted Avg. Ex. Price
Balance, beginning of year		1,777,854		$	13.61		1,868,798		$	12.48		1,935,937		$	11.53
Granted		217,475			20.76		196,550			21.44		277,530			16.47
Exercised		(285,944	)		11.70		(278,718	)		11.49		(290,920	)		9.84
Forfeited		(16,250	)		19.06		(8,776	)		15.23		(53,749	)		13.20
Balance, end of year		1,693,135		$	14.80		1,777,854		$	13.61		1,868,798		$	12.48
Exercisable, end of year		1,392,283					1,340,974					1,279,856
Avg. fair value of options granted				$	4.35				$	4.09				$	3.40

               As of December 31, 2005, outstanding stock options consist of the following:

Exercise Price Range	Options Outstanding		Weighted Avg. Exercise Price		Weighted Avg. Remaining Life		Options Exercisable		Weighted Avg. Exercise Price
$   7.31 - $ 10.28		497,606	$	9.73		4.65		497,606	$	9.73
10.71 -    15.09		470,633		13.69		4.80		468,883		13.68
15.10 -    20.64		529,088		18.07		7.23		361,313		17.73
21.07 -    26.85		195,808		21.54		8.36		64,481		21.51
Total		1,693,135	$	14.80		5.93		1,392,283	$	13.68

56

16.          STOCK PLANS, (Continued)

               Bancorp accounts for these plans under APB Opinion No. 25, under which no compensation cost has been recognized.  See footnote 1, “Summary of significant accounting policies,” for further information.

               The average fair value of options granted is estimated on the date of grant using the Black-Scholes option-pricing model.  The following table presents the assumptions used in the fair value calculation:

	Non-Qualified Director Options									Employee Options
	2005			2004			2003			2005			2004			2003
Risk Free interest rates		3.88	%		3.02	%		2.95	%		3.82%-4.46	%		3.03	%		2.32%-3.21	%
Expected dividend		1.75	%		1.67	%		1.80	%		1.52%-1.75	%		1.67	%		1.80	%
Expected lives, in years		4			4			5			4			4			5
Expected volatility		24	%		23	%		23	%		24	%		23	%		23	%

               Bancorp grants restricted stock periodically as a part of the 2002 Plan for the benefit of employees and directors.  At December 31, 2005, there were 288,000 shares authorized for restricted stock grants under this plan and 78,000 shares remained available for restricted stock grants.  Restricted stock grants are made at the discretion of the Board of Directors, except with regard to grants to Bancorp’s Section 16 officers, which are made at the discretion of the Board’s Compensation and Personnel Committee.  Restricted shares issued currently vest over one, three and four years.  Compensation expense for restricted stock is based on the market price of the Company stock at the time of the grant and amortized on a straight-line basis over the vesting period which is currently one, three or four years for all grants issued. Recipients of restricted stock do not pay any cash consideration to the Company for the shares, and have the right to vote all shares subject to such grant, and receive all dividends with respect to such shares, whether or not the shares have vested.  The restriction is based upon continuous service. Restricted stock consists of the following for the years ended December 31, 2005, 2004 and 2003:

	2004 Restricted Shares			Average Market Price at Grant		2004 Restricted Shares			Average Market Price at Grant		2003 Restricted Shares			Average Market Price at Grant
Balance, beginning of year		107,271					104,250					86,359
Granted		62,050		$	21.05		51,007		$	21.46		77,650		$	16.45
Forfeited/vested		(46,294	)				(47,986	)				(59,759	)
Balance, end of year		123,027					107,271					104,250

               The balance of unearned compensation related to these restricted shares as of December 31, 2005 and 2004 was $1.77 million and $1.49 million respectively.  Total compensation and professional expense recognized for the restricted shares granted to employees and directors was $1.0 million, $.8 million and $.7 million in 2005, 2004 and 2003, respectively.

57

17.          FAIR VALUES OF FINANCIAL INSTRUMENTS

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

               Fair value is defined as the amount at which a financial instrument could be exchanged in a current transaction between willing parties, other than in a forced sale or liquidation, and is best evidenced by a quoted market price if one exists.

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

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

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

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

               Investment Securities - For securities held for investment purposes, fair values are based on quoted market prices or dealer quotes.  If a quoted market price is not available, fair value is estimated using quoted market prices for similar securities.

               Loans - The fair value of loans is estimated by discounting the future cash flows using the current rate at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities.

               Bank owned life insurance – The carrying amount is the cash surrender value of all policies.

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

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

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

               Junior subordinated debentures - The carrying amount for the variable rate junior subordinated debentures is a reasonable estimate of fair value given the quarterly repricing characteristics.  The fair value of the fixed rate junior subordinated debentures and trust preferred securities approximates the pricing of a preferred security offering at current market prices. 

               Commitments to Extend Credit, Standby Letters of Credit and Financial Guarantees - The majority of our commitments to extend credit carry current market interest rates if converted to loans. Because these commitments are generally unassignable by either the borrower or us, they only have value to the borrower and us.

58

17.          FAIR VALUES OF FINANCIAL INSTRUMENTS (Continued)

               The estimated fair values of financial instruments at December 31, 2005 are as follows:

(Dollars in thousands)	Carrying Value		Fair Value
FINANCIAL ASSETS:
Cash and cash equivalents	$	88,369	$	88,369
Trading assets		945		945
Investment securities		292,664		292,664
Net loans (net of allowance for loan losses and including loans held for sale)		1,537,205		1,529,826
Bank owned life insurance		19,734		19,734
Derivative instruments - Swaps		9		9
FINANCIAL LIABILITIES:
Deposits	$	1,649,462	$	1,645,727
Short-term borrowings		61,350		61,350
Long-term borrowings		83,100		80,823
Junior subordinated debentures-variable		12,500		12,500
Junior subordinated debentures-fixed		13,500		13,946

               The estimated fair values of financial instruments at December 31, 2004 are as follows:

(Dollars in thousands)	Carrying Value		Fair Value
FINANCIAL ASSETS:
Cash and cash equivalents	$	40,854	$	40,854
Trading assets		958		958
Investment securities		266,262		266,262
Net Loans (net of allowance for loan losses and including loans held for sale)		1,411,729		1,415,258
Bank owned life insurance		18,885		18,885
FINANCIAL LIABILITIES:
Deposits	$	1,472,709	$	1,470,763
Short-term borrowings		41,782		41,782
Long-term borrowings		85,500		85,292
Junior subordinated debentures-variable		12,500		12,500
Junior subordinated debentures-fixed		13,500		14,620
Derivative instruments - Swaps		354		354

59

18.          FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK

               Financial instruments held or issued for lending-related purposes.

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

               The Bank’s exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit and standby letters of credit is represented by the contractual notional amount of those instruments.  The Bank uses the same credit policies in making commitments and conditional obligations as for on-balance sheet instruments. As of December 31, 2005, outstanding commitments consist of the following:

(Dollars in thousands)	Contract or Notional Amount		Contract or Notional Amount
	2005		2004
Financial instruments whose contract amounts represent credit risk:
Commitments to extend credit
Real estate secured for commercial construction or land development	$	202,586	$	102,349
Revolving open-end lines secured by 1-4 family residential properties		145,422		118,086
Credit card lines		—		31,715
Other		391,040		320,637
Standby letters of credit and financial guarantees		4,724		4,115
Account overdraft protection instruments		30,535		31,326
Total	$	774,307	$	608,228

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

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

               Interest rates on residential one- to -four family mortgage loan applications are typically rate locked during the application stage for periods ranging from 15 to 45 days, the most typical period being 30 days.  These loans are locked with various qualified investors under a best-efforts delivery program.  The Company makes every effort to deliver these loans before their rate locks expire. This arrangement generally requires the Bank to deliver the loans prior to the expiration of the rate lock.  Delays in funding the loans can require a lock extension.  The cost of a lock extension at times is borne by the borrower and at times by the Bank. These lock extension costs paid by the Company are not expected to have a material impact to operations.  This activity is managed daily.

60

18.          FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK (continued)

               Financial instruments held or issued for asset and liability management purposes.

               Bancorp currently uses single interest-rate swaps to convert its variable rate trust preferred securities to fixed rates. These swaps have been entered into concurrently with the issuance of the trust preferred securities. These swaps are accounted for as cash flow hedges under SFAS No. 133. The swaps possess a term equal to the non-callable term of the trust preferred securities, with a fixed pay rate and a receive rate indexed to rates paid on the trust preferred securities and a notional amount equal to the amount of the trust preferred securities being hedged.  The specific terms and notional amount of the swaps exactly match those of the trust preferred securities being hedged with the exception that the trust preferred securities have an interest rate cap of 12.5%.  As such the swaps are not considered to be 100% effective and changes in the fair value of the hedge are recorded in other comprehensive income and the measure of the ineffective portion is recorded in other expense on the statements of income. For the year ended December 31, 2005, the income recognized for hedge ineffectiveness was $92,000 while in 2004 and 2003 the expense recognized for hedge ineffectiveness was $14,000 and $37,000, respectively.  The floating rate combined with the cash flow hedge created a synthetic fixed rate debt instrument. The unrealized gain on the cash flow hedge approximated the unrealized gain the Company would have incurred if it had issued a fixed rate debt instrument.

               The total notional amount of the swaps are $12.5 million at December 31, 2005.  These swaps of $5.0 million and $7.5 million have a term of 5 years expiring December 2006 and June 2007, respectively. The Company intends to use the swaps as a hedge of the related debt for 5 years. The periodic settlement date of the swaps result in reclassifying as earnings the gains or losses that are reported in accumulated other comprehensive income.  The estimated amount of existing unrealized gains that will be reclassified into earnings in 2006 is approximately $22,000.  The fair value of Bancorp’s swaps recorded in other assets was $9,000 at December 31, 2005. The fair value of Bancorp’s swaps recorded in other liabilities was $.4 million at December 31, 2004.

61

19.          PARENT COMPANY ONLY FINANCIAL DATA

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

WEST COAST BANCORP
UNCONSOLIDATED BALANCE SHEETS

As of December 31 (Dollars in thousands)	2005		2004
Assets:
Cash and cash equivalents	$	3,437	$	7,194
Investment in subsidiaries		176,377		169,510
Other assets		6,241		1,453
Total assets	$	186,055	$	178,157
Liabilities and stockholders’ equity:
Junior subordinated debentures	$	26,000	$	26,000
Other liabilities		2,932		4,303
Total liabilities		28,932		30,303
Stockholders’ equity		157,123		147,854
Total liabilities and stockholders’ equity	$	186,055	$	178,157

WEST COAST BANCORP
UNCONSOLIDATED STATEMENTS OF INCOME

Year ended December 31 (Dollars in thousands)	2005		2004		2003
Income:
Cash dividends from Bank	$	17,787	$	2,000	$	10,000
Other income from subsidiaries		—		—		7
Other income		15		12		10
Total income		17,802		2,012		10,017
Expenses:
Interest expense		3,215		1,435		758
Other expense		533		197		—
Total expense		3,748		1,632		758
Income before income taxes and equity in undistributed earnings of the subsidiaries		14,054		380		9,259
Income tax benefit		1,456		632		286
Net income before equity in undistributed earnings of the subsidiaries		15,510		1,012		9,545
Equity in undistributed earnings of the bank		8,330		20,996		10,252
Net income	$	23,840	$	22,008	$	19,797

62

19.          PARENT COMPANY ONLY FINANCIAL DATA (Continued)

WEST COAST BANCORP
UNCONSOLIDATED STATEMENTS OF CASH FLOWS

Year ended December 31 (Dollars in thousands)	2005			2004			2003
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	23,840		$	22,008		$	19,797
Adjustments to reconcile net income to net cash provided by operating activities:
Undistributed earnings of subsidiaries		(8,330	)		(20,996	)		(10,252	)
Increase in other assets		(4,788	)		(834	)		(619	)
Increase (decrease) in other liabilities		(116	)		2,775			1,576
Tax benefit associated with stock options		(1,255	)		(1,348	)		(732	)
Net cash provided by operating activities		9,351			1,605			9,770
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of junior subordinated debentures		—			6,000			7,500
Net proceeds from issuance of common stock		3,560			3,504			3,081
Repurchase of common stock		(11,815	)		(10,515	)		(10,461	)
Dividends paid and cash paid for fractional shares		(5,841	)		(5,312	)		(4,928	)
Other, net		988			1,398			448
Net cash used in financing activities		(13,108	)		(4,925	)		(4,360	)
Net increase (decrease) in cash and cash equivalents		(3,757	)		(3,320	)		5,410
Cash and cash equivalents at beginning of year		7,194			10,514			5,104
Cash and cash equivalents at end of year	$	3,437		$	7,194		$	10,514

63

20.          SEGMENT AND RELATED INFORMATION

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

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

	As of and for the year ended December 31, 2005
(Dollars in thousands)	Banking		Other			Intercompany			Consolidated
Interest income	$	112,909	$	82		$	—		$	112,991
Interest expense		23,215		3,215			—			26,430
Net interest income (expense)		89,694		(3,133	)		—			86,561
Provision for loan losses		2,175		—			—			2,175
Noninterest income		21,146		2,753			(800	)		23,099
Noninterest expense		70,462		2,972			(800	)		72,634
Income (loss) before income taxes		38,203		(3,352	)		—			34,851
Provision (benefit) for income taxes		12,318		(1,307	)		—			11,011
Net income (loss)	$	25,885	$	(2,045	)	$	—		$	23,840
Depreciation and amortization	$	3,963	$	8		$	—		$	3,971
Assets	$	1,993,627	$	8,320		$	(4,809	)	$	1,997,138
Loans, net	$	1,533,985	$	—		$	—		$	1,533,985
Deposits	$	1,653,754	$	—		$	(4,292	)	$	1,649,462
Equity	$	173,408	$	(16,285	)	$	—		$	157,123

	As of and for the year ended December 31, 2004
(Dollars in thousands)	Banking		Other			Intercompany			Consolidated
Interest income	$	92,913	$	75		$	—		$	92,988
Interest expense		16,680		1,435			—			18,115
Net interest income (expense)		76,233		(1,360	)		—			74,873
Provision for loan losses		2,260		—			—			2,260
Noninterest income		20,587		2,335			(459	)		22,463
Noninterest expense		61,378		2,452			(459	)		63,371
Income (loss) before income taxes		33,182		(1,477	)		—			31,705
Provision (benefit) for income taxes		10,273		(576	)		—			9,697
Net income (loss)	$	22,909	$	(901	)	$	—		$	22,008
Depreciation and amortization	$	3,788	$	6		$	—		$	3,794
Assets	$	1,787,928	$	11,724		$	(8,733	)	$	1,790,919
Loans, net	$	1,409,023	$	—		$	—		$	1,409,023
Deposits	$	1,480,987	$	—		$	(8,278	)	$	1,472,709
Equity	$	166,752	$	(18,898	)	$	—		$	147,854

64

20.          SEGMENT AND RELATED INFORMATION (Continued)

	As of and for the year ended December 31, 2003
(Dollars in thousands)	Banking		Other			Intercompany			Consolidated
Interest income	$	89,601	$	91		$	(14	)	$	89,678
Interest expense		19,895		758			(14	)		20,639
Net interest income (expense)		69,706		(667	)		—			69,039
Provision for loan losses		3,800		—			—			3,800
Noninterest income		20,405		1,886			(245	)		22,046
Noninterest expense		56,401		1,994			(245	)		58,150
Income (loss) before income taxes		29,910		(775	)		—			29,135
Provision (benefit) for income taxes		9,637		(299	)		—			9,338
Net income (loss)	$	20,273	$	(476	)	$	—		$	19,797
Depreciation and amortization	$	3,180	$	4		$	—		$	3,184
Assets	$	1,660,072	$	14,632		$	(11,822	)	$	1,662,882
Loans, net	$	1,202,750	$	—		$	—		$	1,202,750
Deposits	$	1,416,287	$	—		$	(11,428	)	$	1,404,859
Equity	$	148,490	$	(8,437	)	$	—		$	140,053

21.          QUARTERLY FINANCIAL INFORMATION (unaudited)

2005 (Dollars in thousands, except per share data)	March 31,		June 30,		September 30,		December 31,
Interest income	$	25,202	$	27,321	$	29,158	$	31,310
Interest expense		5,328		6,293		6,886		7,923
Net interest income		19,874		21,028		22,272		23,387
Provision for loan losses		—		825		400		950
Noninterest income		4,272		6,139		6,119		6,569
Noninterest expense		17,474		17,165		18,434		19,561
Income before income taxes		6,672		9,177		9,557		9,445
Provision for income taxes		2,153		3,031		2,844		2,983
Net income	$	4,519	$	6,146	$	6,713	$	6,462
Earnings per common share:
Basic	$	0.31	$	0.42	$	0.46	$	0.44
Diluted	$	0.29	$	0.40	$	0.44	$	0.42

2004 (Dollars in thousands, except per share data)	March 31,		June 30,		September 30,		December 31,
Interest income	$	22,432	$	22,472	$	23,373	$	24,711
Interest expense		4,195		4,180		4,510		5,229
Net interest income		18,237		18,292		18,863		19,482
Provision for loan loss		900		1,000		225		135
Noninterest income		5,508		5,774		5,678		5,502
Noninterest expense		15,188		15,301		16,142		16,740
Income before income taxes		7,657		7,765		8,174		8,109
Provision for income taxes		2,486		2,483		2,462		2,266
Net income	$	5,171	$	5,282	$	5,712	$	5,843
Earnings per common share:
Basic	$	0.35	$	0.35	$	0.39	$	0.40
Diluted	$	0.33	$	0.34	$	0.37	$	0.38

65

22.          RELATED PARTY TRANSACTIONS

               As of December 31, 2005 and 2004, the Bank had loans and loan commitments to persons serving as directors, senior officers, principal stockholders and their related interests totaling $2.0 million and $1.4 million, respectively.  These loans were made substantially on the same terms in the course of ordinary banking business, including interest rates, maturities and collateral as those made to other customers of the Bank.

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

	December 31,
(Dollars in thousands)	2005			2004
Balance, beginning of period	$	706		$	3,338
New loans and advances		1,145			154
Principal payments and payoffs		(688	)		(2,786	)
Balance, end of period	$	1,163		$	706

23.          SUBSEQUENT EVENT

               On February 1, 2006, Bancorp entered into a definitive agreement pursuant to which it agreed to acquire Mid-Valley Bank by means of a merger of Mid-Valley into West Coast  Bank in which outstanding shares of Mid-Valley common stock will be exchanged for cash and common shares of Bancorp.   Mid-Valley is headquartered in Woodburn, Oregon.  At year-end 2005, Mid-Valley had total assets of approximately $100 million and operated four full-service branches in communities just south of Portland, Oregon, including Woodburn (2), Wilsonville (1), and Mount Angel (1).  Under the terms of the agreement, Bancorp will issue approximately 607,800 shares of its common stock and pay approximately $5.0 million in cash in exchange for the outstanding Mid-Valley common stock. Completion of the merger is subject to various conditions, including receipt of regulatory approvals and approval by Mid-Valley shareholders.

66

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.

               None.

ITEM 9A. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

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

Material Changes in Internal Control over Financial Reporting

               During the quarter ended December 31, 2005, the Company successfully switched the proofing of deposit account, loan account and general ledger items from the Federal Reserve Bank to an in-house operation.  Also during the quarter, the Company changed the format of the cash letters it sends to the Federal Reserve Bank from a paper-based system to an electronic image file.  Cash letters contain checks and other items received by but not drawn on the Company.  The Company considers the changes to have materially affected or to be reasonably likely to materially affect the Company’s internal control over financial reporting.

Management’s Report on Internal Control Over Financial Reporting

               The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting.  The Company’s internal control system is designed to provide reasonable assurance to our management and the board of directors regarding the preparation and fair presentation of published financial statements.  Nonetheless, all internal control systems, no matter how well designed, have inherent limitations.  Even systems determined to be effective as of a particular date can provide only reasonable assurance with respect to financial statement preparation and presentation and may not eliminate the need for restatements.

               The Company’s management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2005.  In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control—Integrated Framework.  Based on our assessment, we believe that, as of December 31, 2005, the Company’s internal control over financial reporting is effective based on those criteria.

               The Company’s independent registered public accounting firm has audited management’s assessment of the effectiveness of the Company’s internal control over financial reporting as of December 31, 2005, as stated in their report appearing on page 68.

67

ITEM 9A. CONTROLS AND PROCEDURES (continued)

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

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

We have audited management’s assessment, included in the accompanying Management’s Report on Internal Control Over Financial Reporting, that West Coast Bancorp and subsidiaries (the “ Company”) maintained effective internal control over financial reporting as of December 31, 2005, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Because management’s assessment and our audit were conducted to meet the reporting requirements of Section 112 of the Federal Deposit Insurance Corporation Improvement Act (FDICIA), management’s assessment and our audit of the Company’s internal control over financial reporting included controls over the preparation of the schedules equivalent to the basic financial statements in accordance with the instructions for the Federal Financial Institutions Examination Council Instructions for Consolidated Reports of Condition and Income for Schedules RC, RI, and RI-A. The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on management’s assessment and an opinion on the effectiveness of the Company’s internal control over financial reporting based on our audit.

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

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

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

In our opinion, management’s assessment that the Company maintained effective internal control over financial reporting as of December 31, 2005, is fairly stated, in all material respects, based on the criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Also, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2005, based on the criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements as of and for the year ended December 31, 2005, of the Company and our report dated February 8, 2006 expressed an unqualified opinion on those financial statements.

DELOITTE & TOUCHE LLP

Portland, Oregon
February 8, 2006

68

ITEM 9B. OTHER INFORMATION

               None.

69

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

               Information concerning directors and executive officers of Bancorp required to be included in this item is set forth under the headings “Election of Directors,” “Section 16(a) Beneficial Ownership Reporting Compliance,” and “Management” in Bancorp’s Proxy Statement for its 2006 Annual Meeting of Stockholders to be filed within 120 days of Bancorp’s fiscal year end of December 31, 2005 (the “Proxy Statement”), and is incorporated into this report by reference.

Audit and Compliance Committee

               Bancorp has a separately-designated standing Audit and Compliance Committee established in accordance with Section 3(a)(58)(A) of the Exchange Act.  The members of the Audit and Compliance Committee are Steven Spence (Chair), Lloyd D. Ankeny, Duane C. McDougall,  and Nancy Wilgenbusch, each of whom is independent as that term is used in Item 7(d)(3)(iv) of Schedule 14A under the Exchange Act.

Audit Committee Financial Expert

               Bancorp’s Board of Directors has determined that Duane C. McDougall, an Audit and Compliance Committee member, is an audit committee financial expert as defined in Item 401(h) of Regulation S-K of the Exchange Act and is independent as that term is used in Item 7(d)(3)(iv) of Schedule 14A under the Exchange Act.

Code of Ethics

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

West Coast Bancorp

Attention:  Secretary

5335 S.W. Meadows Road, Suite 201

Lake Oswego, Oregon  97035

(503) 684-0884

ITEM 11. EXECUTIVE COMPENSATION

               Information concerning executive and director compensation required by this item is set forth under the headings “Executive Compensation,” “Management” and “Election of Directors – Compensation of Directors” in the Proxy Statement and is incorporated into this report by reference.

70

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCK HOLDER MATTERS

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

Equity Compensation Plan Information

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

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

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

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

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

71

PART IV

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a)(1)      Financial Statements:

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

(2)          Financial Statements Schedules:

All other schedules to the consolidated financial statements are omitted because they are not applicable or not material or because the information is included in the consolidated financial statements or related notes in Item 8 above.

(3)          Exhibits:

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

72

SIGNATURES

          Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on the 10th day of February, 2006.

WEST COAST BANCORP
(Registrant)
By:	/s/ Robert D. Sznewajs
	Robert D. Sznewajs
	President and CEO

          Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated on the 10th day of February, 2006.

Principal Executive Officer:
/s/ Robert D. Sznewajs	President and CEO and Director
Robert D. Sznewajs
Principal Financial Officer:
/s/ Anders Giltvedt	Executive Vice President and Chief Financial Officer
Anders Giltvedt
Principal Accounting Officer:
/s/ Kevin M. McClung	Vice President and Controller
Kevin M. McClung

Remaining Directors:

*Lloyd D. Ankeny, Chairman

*Michael J. Bragg

*Duane C. McDougall

*Steven J. Oliva

*J.F. Ouderkirk

*Steven N. Spence

*David J. Truitt

*Nancy A. Wilgenbusch, PhD.

*By	/s/ Robert D. Sznewajs
	Robert D. Sznewajs
	Attorney-in-Fact

73

Index To Exhibits

Exhibit No.	Exhibit
2.1	Agreement and Plan of Merger dated February 1, 2006, among the Company, West Coast Bank, and Mid-Valley Bank.  Incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K dated February 1, 2006.
3.1	Restated Articles of Incorporation.  Incorporated by reference to Exhibit 3.1 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2003 (the “2003 10-K”).
3.2	Restated Bylaws. Incorporated by reference to Exhibit 3.2 to the Company’s 2003 10-K.
4	The Company has incurred long-term indebtedness as to which the amount involved is less than ten percent of the total assets of the Company and its subsidiaries on a consolidated basis.  The Company agrees to furnish instruments relating to such indebtedness to the Commission upon its request.
10.1	Form of Indemnification Agreement for all directors and executive officers.  Incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 1999.*
10.2	Change in Control Agreement between the Company and Robert D. Sznewajs dated January 1, 2003.  Incorporated by reference to Exhibit 10.2 to the 2003 10-K. *
10.3	Change in Control Agreement between the Company and Anders Giltvedt dated January 1, 2003.  Incorporated by reference to Exhibit 10.3 to the 2003 10-K. *
10.4	Change in Control Agreement between the Company and Xandra McKeown dated January 1, 2003.  Incorporated by reference to Exhibit 10.4 to the 2003 10-K. *
10.5	Change in Control Agreement between the Company and James D. Bygland dated January 1, 2003.  Incorporated by reference to Exhibit 10.5 to the 2003 10-K. *
10.6	Change in Control Agreement between the Company and David Prysock dated January 1, 2003.  Incorporated by reference to Exhibit 10.6 to the 2003 10-K.*
10.7	401(k) Profit Sharing Plan.  Incorporated by reference to Exhibit 99.1 to the Company’s Registration Statement on Form S-8 (Reg. No. 333-01649) filed March 12, 1996.*
10.8	Directors’ Deferred Compensation Plan.  Incorporated by reference to Exhibit 4.3 to the Company’s Registration Statement on Form S-8 (Reg. No. 333-104835) filed April 30, 2003 (the “April 2003 S-8”).*
10.9	Amendment No. 2 (Freeze Amendment) to the Directors’ Deferred Compensation Plan.  Incorporated by reference to Exhibit 10.9 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2004 (the “2004 10-K”).*
10.10	Executives’ Deferred Compensation Plan.  Incorporated by reference to Exhibit 4.4 to the April 2003 S-8.*
10.11	Amendment No. 4 (Freeze Amendment) to the Executives’ Deferred Compensation Plan.  Incorporated by reference to Exhibit 10.11 to the 2004 10-K.*
10.12	Combined 1991 Incentive Stock Option Plan and 1991 Nonqualified Stock Option Plan.  Incorporated by reference to Exhibit 99.1 to the Company’s Registration Statement on Form S-8 (Reg. No. 333-01651) filed March 12, 1996. *
10.13	Directors’ Stock Option Plan and Form of Agreement.  Incorporated by Reference to Exhibits 99.1 and 99.2 to the Company’s Registration Statement on Form S-8 (Reg. No. 033-60259) filed June 15, 1995 (the “1995 S-8”). *
10.14	Incentive Stock Option Plan and Form of Agreement.  Incorporated by reference to Exhibits 99.3 and 99.4 to the 1995 S-8. *
10.15	Nonqualified Stock Option Plan and Form of Agreement.  Incorporated by reference to Exhibits 99.5 and 99.6 to the 1995 S-8.*
10.16	1999 Stock Option Plan and Form of Agreement.  Incorporated by reference to Exhibits 99.1 and 99.2 to the Company’s Registration Statement on Form S-8 (Reg. No. 333-86113) filed August 30, 1999. *
10.17	2000 Restricted Stock Plan.  Incorporated by reference to Exhibit 99.2 to the Company’s Registration Statement on Form S-8 (Reg. No. 333-35208) filed April 20, 2000.*

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

74

Index To Exhibits (continued)

Exhibit No.	Exhibit
10.18	1999 Director Stock Option Plan and Form of Agreement.  Incorporated by reference to Exhibits 99.1 and 99.2 to the Company’s Registration Statement on Form S-8 (Reg. No. 333-35318) filed April 21, 2000. *
10.19	2002 Stock Incentive Plan, as amended.  Incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2004.*
10.20	Forms of Option Agreement and Restricted Stock Agreement under the 2002 Stock Incentive Plan.  Incorporated by reference to Exhibits 10.2 and 10.3 to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2002.*
10.21	Supplemental Executive Retirement Plan adopted by West Coast Bank, the Company and Robert D. Sznewajs dated August 1, 2003, and amended as of July 1, 2005.  Incorporated by reference to Exhibit 10.18 to the Company’s 2003 10-K and Exhibit 10.5 to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2005. *
10.22	Supplemental Executive Retirement Plan adopted by West Coast Bank, the Company and Anders Giltvedt dated August 1, 2003, and amended as of July 1, 2005.  Incorporated by reference to Exhibit 10.19 to the Company’s 2003 10-K and Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2005. *
10.23	Supplemental Executive Retirement Plan adopted by West Coast Bank, the Company and Xandra McKeown dated August 1, 2003, and amended as of July 1, 2005.  Incorporated by reference to Exhibit 10.20 to the Company’s 2003 10-K and Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2005. *
10.24	Supplemental Executive Retirement Plan adopted by West Coast Bank, the Company and James D. Bygland dated August 1, 2003, and amended as of July 1, 2005. Incorporated by reference to Exhibit 10.21 to the Company’s 2003 10-K and Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2005. *
10.25	Supplemental Executive Retirement Plan adopted by West Coast Bank, the Company and David Prysock dated August 1, 2003, and amended as of July 1, 2005. Incorporated by reference to Exhibit 10.22 to the Company’s 2003 10-K and Exhibit 10.4 to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2005. *
10.26	Directors’ Deferred Compensation Plan (Interim Document for Operational Compliance with the American Jobs Creation Act).  Incorporated by reference to Exhibit 10.26 to the 2005 10-K.*
10.27	Executives’ Deferred Compensation Plan (Interim Document for Operational Compliance with the American Jobs Creation Act).  Incorporated by reference to Exhibit 10.27 to the 2005 10-K.*
10.28	Updated Summary of Director Compensation Policies.*
10.29	Employment Agreement dated effective as of January 1, 2005, between Robert D. Sznewajs and the Company executed March 1, 2005.  Incorporated by reference to Exhibit 10.29 to the 2005 10-K.*
21	Subsidiaries of the Company.
23	Consent of Deloitte & Touche LLP.
24	Power of Attorney.
31.1	Certification of Chief Executive Officer under Section 302 of the Sarbanes-Oxley Act.
31.2	Certification of Chief Financial Officer under Section 302 of the Sarbanes-Oxley Act.
32	Certification of Chief Executive Officer and Chief Financial Officer under Section 906 of the Sarbanes-Oxley Act.

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

75

EX-10.28

Exhibit 10.28

Summary of Director Compensation Policies
(As of February 10, 2006)

Retainers and Fees.  Non employee directors serving on the board of directors of West Coast Bancorp (“Bancorp”) are paid annual retainers for board service and meeting fees.  Directors who are employees of Bancorp or the Bank receive no fees for their services as a director.

The chairman of the board of directors receives annual cash compensation of $38,000 per year, the chairman of the audit & compliance committee receives $32,000 per year, and each other committee chair receives $26,000 per year.  All other directors receive annual cash compensation of $20,000.

All directors also receive $300 for each committee meeting that they attend (whether as a member of a committee or at the request of a committee).  Directors who also serve on the board of directors of Bancorp’s subsidiary, West Coast Trust Company, Inc. (“West Coast Trust”), also receive $300 for each meeting of the board of directors of West Coast Trust.  The chairman of the West Coast Trust board receives an additional $1,000 per year.

In addition, members of the Company’s audit & compliance committee receive $300 for attending meetings with the committee’s chairman, the Company’s management, and/or the Company’s independent auditors for analysis, review, and discussion of the Company’s quarterly earnings releases, Form 10 Ks and 10 Qs, and related matters.

Equity Incentive Awards.  Directors are entitled to participate in Bancorp’s 2002 Stock Incentive Plan.  Recent practice has been to grant all directors a fully vested option to purchase shares of Bancorp’s common stock on an annual basis and to make periodic restricted stock grants to directors.  In 2005, each director was granted a fully vested option to purchase 2,050 shares with an exercise price equal to the market price on the date of grant.  Each director was also granted 700 shares of restricted stock vesting in a single installment on the first anniversary of the date of grant.  Whether to grant awards, the type of award, the number of shares to be granted each year, and the terms of each award are at the discretion of Bancorp’s board of directors.

Reimbursement and Fees for Attendance at Director Education Programs.  Directors are entitled to payment or reimbursement of all out of pocket costs of attendance at approved director education programs.  In addition, Bancorp will compensate directors for time spent at education programs at a rate of $200 per day (or partial day) spent at an approved program.

Directors’ Deferred Compensation Plan.  Non employee directors are also entitled to participate in Bancorp’s Directors’ Deferred Compensation Plan (“Directors’ DCP”).  Under the Directors’ DCP, directors may elect to defer payment of some or all of their directors’ fees.  Contributions are transferred to a so called “rabbi trust” and may be invested in a number of investment funds or in Bancorp common stock.

EX-21

Exhibit 21

Schedule of Subsidiaries

The following is a list of the registrant’s subsidiaries at February 10, 2006.

Name of Organization	State of Incorporation
West Coast Bank	Oregon
West Coast Trust Company, Inc.	Oregon
Totten Inc.	Washington
West Coast Statutory Trusts I-IV	Connecticut

EX-23

Exhibit 23

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the incorporation by reference in Registration Statement Nos. 333-104835, 333-104458, 333-88382, 333-35318, 333-35208, 333-86113, 333-09721, 333-01649, 333-01651, and 033-60259 on Form S-8 of our reports dated February 8, 2006, relating to the consolidated financial statements of West Coast Bancorp and management’s report on the effectiveness of internal control over financial reporting, appearing in this Annual Report on Form 10-K of West Coast Bancorp for the year ended December 31, 2005.

DELOITTE & TOUCHE LLP

Portland, Oregon

February 8, 2006

EX-24

Exhibit 24

Power of Attorney

          Each person below designates and appoints ROBERT D. SZNEWAJS and ANDERS GILTVEDT, and each of them, his or her true and lawful attorney-in-fact and agent, with full power of substitution, to sign the Annual Report on Form 10-K for the year ended December 31, 2005, of West Coast Bancorp, an Oregon corporation, and any amendments thereto, and to file said report and amendments, with all exhibits thereto, in such form as they or either of them may approve with the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended.  Each person whose signature appears below also grants to these attorneys-in-fact and agents full power and authority to perform every act and execute any instruments that they deem necessary or desirable in connection with said report, as fully as he or she could do in person, hereby ratifying and confirming all that the attorneys-in-fact and agents or their substitutes may lawfully do or cause to be done.

          IN WITNESS WHEREOF, this power of attorney has been executed by each of the undersigned as of the 24th day of January, 2006.

Signature	Title
/s/ Lloyd D. Ankeny
Lloyd D. Ankeny	Director and Chairman of the Board
/s/ Michael J. Bragg
Michael J. Bragg	Director
/s/ Duane C. McDougall
Duane C. McDougall	Director
/s/ Steven J. Oliva
Steven J. Oliva	Director
/s/ J.F. Ouderkirk
J.F. Ouderkirk	Director
/s/ Steven N. Spence
Steven N. Spence	Director
/s/ David J. Truitt
David J. Truitt	Director
/s/ Nancy A. Wilgenbusch
Nancy A. Wilgenbusch, PhD.	Director

EX-31.1

Exhibit 31.1

Certification of Chief Executive Officer

I, Robert D. Sznewajs, certify that:

1.	I have reviewed this Annual Report on Form 10-K of West Coast Bancorp;
2.	Based on my knowledge, this 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 report;
3.	Based on my knowledge, the financial statements, and other financial information included in this 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 report;
4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and we have:
	(a)          Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, 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 report is being prepared;
	(b)          Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
	(c)          Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
	(d)          Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most-recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting;
5.	The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
	(a)          All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; 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 over financial reporting.

Dated:  February 10, 2006

/s/ Robert D. Sznewajs

President and Chief Executive Officer

EX-31.2

Exhibit 31.2

Certification of Chief Financial Officer

I, Anders Giltvedt, certify that:

1.	I have reviewed this Annual Report on Form 10-K of West Coast Bancorp;
2.	Based on my knowledge, this 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 report;
3.	Based on my knowledge, the financial statements, and other financial information included in this 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 report;
4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and we have:
	(a)          Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, 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 report is being prepared;
	(b)          Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
	(c)          Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
	(d)          Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most-recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting;
5.	The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
	(a)          All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; 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 over financial reporting.

Dated:  February 10, 2006

/s/ Anders Giltvedt

Executive Vice President and Chief Financial Officer

EX-32

Exhibit 32

Certification Pursuant To
18 U.S.C. Section 1350,
As Adopted Pursuant To
Section 906 of  the Sarbanes-Oxley Act of 2002

In connection with the Annual Report of West Coast Bancorp (the “Company”) on Form 10-K for the period ending December 31, 2005, as filed with the Securities and Exchange Commission on the date hereof (the “Report”),  the undersigned certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

(1)	The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2)	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Robert D. Sznewajs	/s/ Anders Giltvedt
President and Chief Executive Officer	Executive Vice President and Chief Financial Officer
February 10, 2006	February 10, 2006