The following discussion should be read in conjunction with the audited consolidated financial statements and related notes to those statements of West Coast Bancorp ("Bancorp" or the "Company") that appear under the heading "Financial Statements and Supplementary Data" in Bancorp's Annual Report on Form 10-K for the year ended December 31, 2008 ("2008 10-K"), as well as the unaudited consolidated financial statements for the current quarter found under Item 1 above.

Forward Looking Statement Disclosure

Statements in this Quarterly Report of West Coast Bancorp ("Bancorp" or the "Company") regarding future events or performance are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995 (the "PSLRA") and are made pursuant to the safe harbors of the PSLRA. The Company's actual results could be quite different from those expressed or implied by the forward-looking statements. 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 Quarterly Report and the 2008 10-K (including under Item 1A. Risk Factors), as well as the following specific factors:

º General economic conditions, whether national or regional, and conditions in real estate markets, that 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 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, policies, or programs, or new legislation or government or regulatory initiatives, affecting the financial services industry that could lead to restrictions on activities of banks generally or the West Coast Bank (the "Bank"), in particular, changes in costs, including deposit insurance premiums, for particular financial institutions or financial institutions generally, declines in consumer confidence in depository institutions generally or the Bank 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; and

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: dispose of properties or other assets obtained through foreclosures at expected prices and within a reasonable period of time; attract and retain key personnel; generate loan and deposit balances at projected spreads; sustain fee generation including gains on sales of loans; maintain asset quality and control risk; limit the amount of net loan charge-offs; adapt to changing customer deposit, investment and borrowing behaviors; control 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 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").

Management has identified our policies regarding our allowance for credit losses as our most critical accounting policies. Calculation of our allowance for credit losses is discussed in our 2008 10-K under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operation - Critical Accounting Policies."

Business Developments

On July 20, 2009, the bank reopened the newly renovated Woodburn West branch in Woodburn, Oregon. In addition, West Coast Bank was voted the number one bank in the Mid-Willamette Valley by the Salem Statesman Journal's website survey of favorite businesses.

As previously reported, we have adjusted our business focus in an effort to respond to adverse economic conditions in the areas in which we do business, as well as precipitous declines in real estate prices and real estate sales activity in our markets. These conditions, together with the particular effects of the Bank's two-step residential construction lending program on our levels of nonperforming assets, have put significant strain on our financial condition and had an adverse effect on our operating results. In response to the situation, we have developed and implemented certain strategies that are expected to be short term in nature. These strategies include to:

º Selectively reduce loan concentrations and manage credit exposures;

º Aggressively reduce nonperforming assets;

º Proactively address pressure on our capital ratios by reducing risk weighted assets;

º Reduce controllable operating expenses; and

º Continually monitor our liquidity position.

In addition to these general areas of focus, we have taken several specific steps. As examples, we have significantly reduced loan balances, risk-weighted assets and our concentration in construction loans over the past six months. We have also increased core deposit balances; the number of checking accounts increased 9% annualized in the second quarter due to successful marketing efforts. Core deposits were also complimented by the use of brokered deposits in the first quarter of 2009 and internet-based deposit listing services in the second quarter. The decrease in loan balances and increase in deposits has enabled us to substantially increase our investment securities portfolio and meet certain pledging requirements for uninsured public deposits and government agency loans. This shift from loans to investment securities has, however, also had a negative impact on our net interest margin and income.

With respect to new term commercial real estate lending, we are focused on owner occupied properties, as opposed to non-owner occupied commercial real estate, in order to reduce our amount of non-owner occupied commercial real estate loans as a percentage of total regulatory capital. Reflecting the challenging economic environment, we are and will continue to focus on operating efficiently and controlling expenses in ways that have the least impact on our customers. Additionally, we are continuing to educate our customers about the availability of unlimited FDIC insurance coverage for noninterest bearing transaction deposits and the temporary increase in coverage from $100,000 to $250,000 for interest bearing deposit accounts, which appears to have reduced customer concern regarding the safety of deposits. Our ability to continue to attract and retain customer deposits will be critical to our financial condition and liquidity.

We continue to believe that in order to achieve long-term growth and accomplish our long-term financial objectives, we will have to successfully execute our five defined long-term 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.

These 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 recognize that we must generate loan and deposit growth at acceptable interest rate spreads. 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. Any failure in that regard could negatively affect our ability to meet our goals. To generate and grow loans and deposits now and in the future, we believe that 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 providing competitive rates. Our ability to continue to attract and retain deposits will be critical to our financial condition and liquidity. Our ability to attract and grow low cost deposits is also important to fund any future loan growth and grow revenues.

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.

Bancorp's net loss was $6.3 million, or $.41 per diluted share, for the three months ended June 30, 2009, compared to earnings of $2.7 million, or $.17 per diluted share, for the three months ended June 30, 2008. The Company's net loss for the six months ended June 30, 2009, was $29.9 million, or $1.91 per diluted share, down from net income of $4.7 million or $.30 per diluted share for the same period in 2008.

Bancorp's net interest income was $20.2 million in the second quarter 2009, a $3.5 million decrease from the same period in 2008. This 15% decrease in revenue was due to a $104.8 million decrease in average earning assets and a 44 basis point compression in net interest margin. Noninterest income was $6.0 million for the second quarter 2009, a decline of $3.1 million compared to the same period in 2008 that was primarily related to other real estate owned ("OREO") sales and valuation adjustments. The Company's return on average equity for the quarters ended June 30, 2009, and 2008 was -14.61% and 5.19%, respectively.

In addition to the financial results reported above that were calculated in accordance with accounting principles generally accepted in the United States of America ("GAAP"), the Company reported an operating net loss for the quarter ended June 30, 2009 of $5.5 million, or $.36 per diluted share, that excludes the special FDIC assessment charge of $.8 million net of tax, or $.05 per diluted share, as well as an operating net loss for the six months ended June 30, 2009 of $16.1 million, or $1.02 per diluted share. Operating net loss and figures derived from operating net loss such as operating net income (loss) per share are non-GAAP financial measures derived by adjusting the Company's net loss under GAAP for second quarter 2009 to exclude the impact of certain charges the Company considers outside normal operations. The operating net loss for the six months ended June 30, 2009 excluded the special FDIC assessment charge in the second quarter and a goodwill impairment charge in the first quarter of 2009. Management uses operating net income (loss) internally and has disclosed it to investors based on its belief that the disclosure provides additional, valuable information relating to financial results derived from its operations in the current periods as compared to prior periods.

The following table reconciles the Company's GAAP net income (loss) to operating net income (loss), including per-share figures, for the periods shown:

                                                  For the three months ended June 30,           For the six months ended June 30,
(Dollars in thousands, unaudited)                      2009                   2008                  2009                  2008
GAAP net income (loss)                          $          (6,339 )     $          2,684     $         (29,938 )     $         4,684
    Add: FDIC assessment charge, net of tax                   777                                          777
    Add: Goodwill impairment charge, net of tax                 -                      -                13,059                     -
Operating net income (loss)                     $          (5,562 )     $          2,684     $         (16,102 )     $         4,684

Diluted earnings (loss) per diluted share
GAAP net income (loss)                          $           (0.41 )     $           0.17     $           (1.91 )     $          0.30
Operating net income (loss)                     $           (0.36 )     $           0.17     $           (1.02 )     $         0.30