The following discussion should be read in conjunction with the audited consolidated financial statements and related notes to those statements as of December 31, 2008 and 2007, and for each of the three years in the period ended December 31, 2008, of West Coast Bancorp and its subsidiaries that appear in Item 8 "Financial Statements and Supplementary Data" of this report. References to "we," "our" or "us" refer to West Coast Bancorp and its subsidiaries.

Forward Looking Statement Disclosure

Statements in this Annual Report of West Coast Bancorp ("Bancorp" or the "Company") regarding future events or performance are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995 (the "PSLRA") and are made pursuant to the safe harbors of the PSLRA. The Company's actual results could be quite different from those expressed or implied by the forward-looking statements. Any statements containing the words "could," "may," "should," "plan," "believes," "anticipates," "estimates," "predicts," "expects," "projects," "potential," or "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 factors:

º General economic conditions, whether national or regional, and conditions in the real estate markets that could affect the demand for our loan and other products and ability of borrowers to repay loans, lead to further declines in credit quality and increased loan losses, and continue to negatively affect the value and salability of the real estate that is the collateral for many of our loans or that we own directly;

º Changing business, banking, or regulatory conditions or policies, or new legislation, affecting the financial services industry, including the Emergency Economic Stabilization Act of 2008 and related programs such as the U.S. government's Troubled Assets Relief Program and any new legislation adopted by Congress and the administration of President Barack Obama, that could lead to changes in the competitive balance among financial institutions, restrictions on bank activities, changes in costs, including deposit insurance premiums, for particular financial institutions or financial institutions generally, increase regulatory scrutiny, declines in consumer confidence in depository institutions generally or certain financial institutions in particular or changes in the secondary market for bank loan and other products;

º Competitive factors, including 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;

º Increasing or decreasing interest rate environments, including the slope and level of, as well as changes in, 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;

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

Furthermore, forward-looking statements are subject to risks and uncertainties related to the Company's ability to, among other things, attract and retain 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 and control risk; limit the amount of net loan charge-offs; successfully dispose of properties or other assets obtained through foreclosures, adapt to changing customer deposit, investment and borrowing behaviors; control expense growth; and monitor and manage the Company's financial reporting, operating and disclosure control environments.

Readers are cautioned not to place undue reliance on our forward-looking statements, which reflect management's analysis and assumptions 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").

We have identified our most critical accounting policies to be those related to the allowance for credit losses and valuation of other real estate owned ("OREO").

Allowance for Credit Losses. The allowance for credit losses is comprised of two components: the allowance for loan losses and the reserve for unfunded commitments. The allowance for loan losses is a reserve that relates to outstanding loan balances, while the reserve for unfunded commitments relates to that portion of total loan commitments that have not yet funded as of the date the reserve is calculated.

Our methodology for establishing the allowance for credit losses incorporates a variety of risk considerations, both quantitative and qualitative, that management believes are appropriate at each reporting date. Quantitative factors include our historical loss experience, delinquency and charge-off trends, estimates of, and changes in, collateral values, changes in risk ratings on loans and other factors. Qualitative factors include the general economic environment in our markets and, in particular, the state of the real estate market and specific relevant industries. Other qualitative factors that are considered in our methodology include, 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 loan portfolio growth. As we add new products, increase the complexity of the loan 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 credit losses in any given period. Management believes that our systematic methodology continues to be appropriate given our size and level of complexity. This discussion should be read in conjunction with our audited consolidated financial statements and related notes included in Item 8 of this report, and the section "Allowance for Credit Losses and Net Loan Charge-offs" below.

As of September 30, 2007, we reclassified $1.0 million of the allowance for loan losses to a reserve for unfunded loan commitments. As a result, we are reporting our allowance for credit losses in this report and elsewhere for ease of comparison to prior periods and to give readers information about our entire loan portfolio, including our unfunded commitments. The reclassification of a portion of our allowance to a separate reserve had no impact on our provision for loan losses expense. The reserve for unfunded commitments is evaluated on a quarterly basis and appropriate increases or decreases will be reflected in the income statement. At December 31, 2008, our reserve for unfunded commitments was $1.0 million.

Valuation of OREO. OREO is real property of which the Bank has taken substantial possession or that has been deeded to the Bank through a deed-in-lieu of foreclosure, non-judicial foreclosure, judicial foreclosure or similar process in partial or full satisfaction of a loan or loans. OREO is initially recorded at the lower of the carrying amount of the loan or fair value of the property less estimated costs to sell. This amount becomes the property's new basis. Management considers third party appraisals as well as independent fair market value assessments from realtors or persons involved in selling OREO in determining the fair value of particular properties. Accordingly, the valuation of OREO is subject to significant external and internal judgment. Any differences between management's assessment of fair value, less estimated cost to sell, and the carrying value of the loan at the date a particular property is transferred into OREO are charged to the allowance for credit losses. Thereafter, decreases in the value of OREO are considered valuation adjustments and trigger a corresponding charge to line item "other real estate owned sales and valuation adjustments" within total noninterest income of the consolidated statements of income. Management has policies and procedures in place to review OREO valuation periodically in an effort to ensure the properties are carried at the lower of its new basis or fair value, net of estimated costs to sell. Any subsequent OREO write downs are charged to other real estate owned sales and valuation adjustments. At December 31, 2008, the Bank had $70.1 million of OREO.

Developments. Subsequent to the issuance of our earnings release we made an adjustment that is reflected in the financial results for fourth quarter and the full year 2008. Including these adjustments, our net loss for the full year 2008 was $6.3 million or $.41 per share, as compared to a net loss of $5.8 million or $.38 per share disclosed in our earnings release dated January 19, 2009. Full year return on equity decreased to -3.1% from the previously reported -2.8%. The adjustment related to $.5 million after tax in equity compensation expense, due to a recalculation associated with employees eligible for retirement under certain equity compensation plans. The adjustment only affected the timing of expense recognition as future recorded equity compensation expense will decline by a like amount.

Business Strategies. To sustain future growth and accomplish our financial objectives, we have defined five strategies:

º Focus on profitable customer segments;

º Exploit local market opportunities;

º Design and support value added products;

º Expand branch distribution; and

º Maintain community focus and high employee and customer satisfaction.

Our strategies are designed to direct our tactical investment decisions to accomplish our financial objectives. To produce net interest income, the key component of our revenues, and consistent earnings growth over the long-term, we must generate loan and deposit growth at acceptable interest rate spreads within our markets of operation. However, in the near term, reflecting the challenging economic environment, we will continue to focus on managing our capital resources. This means we are limiting our loan origination volume to control risk weighted asset growth, and tightly controlling expenses in ways that we believe avoid negative impact on our customers. To generate and grow loans and deposits in the long run, we believe we must focus on a number of areas, including but not limited to, the quality and breadth of our branch network, our sales practices, customer and employee satisfaction and retention, technology, product innovation, vendor relationships and competitive pricing of our products. Net interest income is sensitive to our ability to attract and retain lending officers, close loans in the pipeline and maintain asset quality at an acceptable level. Failure in these areas could negatively affect our ability to meet our goals. Our ability to attract and grow low cost deposits is also important to fund loans and grow revenues and maintain adequate liquidity.

We also consider noninterest income important to our continued financial success. Fee income generation is primarily related to our loan and deposit operations, such as deposit service charges, fees from payment system products (interchange, merchant services, ACH, check and credit card) and fees on sales of financial products, including residential mortgages and trust and investment products. Many of the products and services that generate fee income are offered through relationships with third party providers, thus we are dependent on the continuity of 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 areas: 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 businesses. We strive to maintain a local community-based management philosophy in all of our branches. We will continue to emphasize hiring local branch and lending personnel with strong ties to the specific local communities we seek to serve and with expertise in growing and servicing targeted business and consumer customer segments.

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.

Financial Overview for Years Ended December 31, 2008, 2007 and 2006. Our net loss for the full year 2008 was $6.3 million, as compared to income of $16.8 million in 2007 and $29.3 million in 2006. The loss per diluted share for the year ended December 31, 2008, was $.41, while earnings per diluted share for 2007 and 2006 were $1.05, and $1.86, respectively. Return on average equity declined to -3.06% in 2008 from 7.9% in 2007 and 16.5% in 2006. The provision for credit losses for the year ended December 31, 2008, was $40.4 million compared to $38.9 million in 2007 and $2.7 million in 2006.

Income Statement Overview

   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:

   (Dollars in thousands)                                   Year Ended December 31,                             Increase (Decrease)              Percentage Change
                                                 2008                 2007                 2006               08-07             07-06            08-07        07-06
   Interest and fee income (1)             $      142,597       $      184,831       $      152,358       $   (42,234 )     $     32,473        -22.85 %     21.31 %
   Interest expense                        $       48,696       $       68,470       $       49,926       $   (19,774 )     $     18,544        -28.88 %     37.14 %
   Net interest income (1)                 $       93,901       $      116,361       $      102,432       $   (22,460 )     $     13,929        -19.30 %     13.60 %

   Average interest earning assets         $    2,409,896       $    2,394,958       $    2,066,217       $    14,938       $    328,741          0.62 %     15.91 %
   Average interest bearing liabilities    $    1,876,083       $    1,821,299       $    1,525,683       $    54,784       $    295,616          3.01 %     19.38 %
   Average interest earning assets/
      Average interest bearing liabilities         128.45 %             131.50 %             135.43 %           -3.04 %            -3.93 %
   Average yield earned (1)                          5.92 %               7.72 %               7.37 %           -1.80 %             0.35 %
   Average rate paid                                 2.60 %               3.76 %               3.27 %           -1.16 %             0.49 %
   Net interest spread (1)                           3.32 %               3.96 %               4.10 %           -0.64 %            -0.14 %
   Net interest margin (1)                           3.90 %               4.86 %               4.96 %           -0.96 %            -0.10 %

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

Net interest income on a tax equivalent basis totaled $93.9 million for the year ended December 31, 2008, a decrease of $22.5 million, or 19.3%, from $116.4 million for 2007, which by contrast was an increase of $13.9 million from 2006. The decrease in net interest income from 2007 to 2008 was mainly due to declining loan yields caused by materially lower market interest rates which we were unable to fully offset by reducing rates paid on deposits and borrowings. The net interest margin decreased from 4.86% in 2007 to 3.90% in 2008 with the main factors being interest reversals related to nonaccrual loans in the two-step and other than two-step construction loan portfolios, lower construction loan fees and balances, cost of funding nonperforming assets on our balance sheet and the lag in the decline of deposit rates relative to the decline in loan yields. The net interest margin was 4.96% in 2006.

Deposit rates and volumes in 2008 were affected by customers' concerns over the stability of the banking system, the failure of several financial institutions and the uncertainty surrounding the U.S. Treasury Department's Troubled Assets Relief Plan ("TARP") Capital Purchase Plan ("CPP"). Business customers, in particular, allocated their funds among multiple banks. Additionally, certain competitors paid high rates relative to market interest rates to retain deposits. While the increase in FDIC deposit insurance limits in October 2008 helped stabilize deposit volumes, the Company continued to experience deposit decreases in certain time deposits and money market accounts with large deposit balances. However, the number of deposit accounts continued to grow in key core deposit categories.

Changing interest rate environments, including the slope, level of, and changes in the yield curve, and competitive pricing pressure, could lead to higher deposit costs, lower loan yields, reduced net interest margin and spread and lower loan fees, all of which could lead to additional pressure on our net interest income. At December 31, 2008, we remained asset sensitive, meaning that earning assets mature or reprice more quickly than interest bearing liabilities in a given time period. For more information on this topic, see "Quantitative and Qualitative Disclosures about Market Risk" in Item 7A of this report below.

We stop recognizing interest on loans at such time as they are moved to nonaccrual status. Interest income reversals may also be required at such time and consequently decrease interest income. We expect the level of interest reversals associated with borrowers defaulting on two-step loans to continue to decline in 2009 compared to 2008, but increase for loans outside the two-step portfolio and therefore to have some continued negative impact on net interest income and net interest margin. We anticipate construction loan balances and associated loan fee revenue will decline further in 2009. Additionally, the cost of funding nonaccruing loans and OREO and the lower value of noninterest bearing deposits in an anticipated low interest rate environment are projected to put continued pressure on our net interest margin in 2009.

                                                                                                      Year Ended December 31,
(Dollars in thousands)                                    2008                                                  2007                                                 2006
                                        Average                                               Average                                              Average
                                      Outstanding           Interest         Yield/         Outstanding          Interest         Yield/         Outstanding          Interest         Yield/
                                        Balance           Earned/ Paid      Rate (1)          Balance          Earned/ Paid      Rate (1)          Balance          Earned/ Paid      Rate (1)
ASSETS:
   Interest earning balances
      due from banks                $        2,333       $         38          1.63 %     $        1,217       $          51        4.19 %     $        2,118       $         109        5.15 %
   Federal funds sold                       16,867                340          2.02 %             10,813                 513        4.74 %             15,139                 759        5.01 %
   Taxable securities (2)                  157,648              7,700          4.88 %            207,782              10,398        5.00 %            228,434              10,840        4.75 %
   Nontaxable securities (3)                83,826              5,002          5.97 %             76,799               4,689        6.11 %             70,324               4,457        6.34 %
   Loans, including fees (4)             2,149,222            129,517          6.03 %          2,098,347             169,180        8.06 %          1,750,202             136,193        7.78 %
      Total interest earning assets      2,409,896            142,597          5.92 %          2,394,958             184,831        7.72 %          2,066,217             152,358        7.37 %

   Allowance for loan losses               (38,328 )                                             (26,243 )                                            (21,495 )
   Premises and equipment                   34,141                                                32,598                                               30,300
   Other assets                            163,910                                               136,405                                              118,607
      Total assets                  $    2,569,619                                        $    2,537,718                                       $    2,193,629

LIABILITIES AND
STOCKHOLDERS' EQUITY:
   Interest bearing demand          $      279,227       $      1,963          0.70 %     $      278,734       $       3,436        1.23 %     $      259,053       $       2,224        0.86 %
   Savings                                  71,542                578          0.81 %             72,787                 569        0.78 %             80,029                 459        0.57 %
   Money market                            658,360             14,633          2.22 %            665,037              24,953        3.75 %            558,734              19,112        3.42 %
   Time deposits                           566,195             20,375          3.60 %            554,263              26,078        4.70 %            457,077              19,132        4.19 %
   Short-term borrowings (5)               149,016              4,312          2.89 %            136,731               7,057        5.16 %             66,139               3,356        5.07 %
   Long-term borrowings (6)                151,743              6,835          4.50 %            113,747               6,377        5.61 %            104,651               5,643        5.39 %
      Total interest bearing
        liabilities                      1,876,083             48,696          2.60 %          1,821,299              68,470        3.76 %          1,525,683              49,926        3.27 %
   Demand deposits                         470,601                                               479,311                                              466,282
   Other liabilities                        16,409                                                24,759                                               24,016
      Total liabilities                  2,363,093                                             2,325,369                                            2,015,981
   Stockholders' equity                    206,526                                               212,349                                              177,648
      Total liabilities and
        stockholders' equity        $    2,569,619                                        $    2,537,718                                       $    2,193,629
   Net interest income                                   $     93,901                                          $     116,361                                        $     102,432
   Net interest spread                                                         3.32 %                                               3.96 %                                               4.10 %

   Net interest margin                                                         3.90 %                                               4.86 %                                               4.96 %

(1) Yield/rate calculations have been based on more detailed information and therefore may not recompute exactly due to rounding.
(2) Includes Federal Home Loan Bank stock balances.
(3) Interest earned on nontaxable securities has been computed on a 35% tax equivalent basis. The tax equivalent basis adjustment for the years ended December 31, 2008, 2007 and 2006, was $1.8 million, $1.6 million and $1.6 million, respectively.
(4) Includes balances of loans held for sale and nonaccrual loans.
(5) The maximum amount of short-term borrowings was $266.3 million and $193.5 million for the years ended December 31, 2008 and 2007, respectively.
(6) Includes junior subordinated debentures with average balance of $51 million for 2008 and $50 million for 2007.

Our net interest margin declined 96 basis points from 2007 to 2008 due primarily to lower market interest rates, the effect of a materially lower volume of interest accruing construction loans, interest reversals on two-step loans and a higher balance of nonperforming construction loans in our loan portfolio. Also interest earning assets re-priced more quickly than our interest bearing liabilities in the decreasing rate environment during 2008, leading to additional pressure on the net interest margin. From 2006 to 2007 our net interest margin decreased by 10 basis points.

(Dollars in thousands)                                                                       Year Ended December 31,
                                                                2008 compared to 2007                                       2007 compared to 2006
. . .