UNITED STATESSECURITIES AND EXCHANGE
COMMISSIONWashington, D.C.
20549FORM 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,
2007

Commission file number 0-10997

|**WEST
      COAST BANCORP** (Exact
      name of registrant as specified in its charter)
|-----------------------------------------------------------------------------------------
|Oregon                                                                                   
|(State or other
      jurisdiction of                                                    
|incorporation or
      organization)                                                     

|5335 Meadows Road 
      Suite 201                                                                                                                                                                                                                                 | 97035       
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------
|Lake Oswego,
      Oregon                                                                                                                                                                                                                                           | (Zip
  Code)
|(Address of principal
      executive offices)                                                                                                                                                                                                                      |             
|Registrants
      telephone number, including area code: (503) 684-0884 Securities
      registered pursuant to Section 12(g) 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
[   ] 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 [   ] 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
[   ]

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. [   ]

|Indicate by check mark whether the
      registrant is a large accelerated filer, an accelerated filer, a
      non-accelerated filer, or a smaller reporting company.  See
      definition of large accelerated filer, accelerated filer and smaller
      reporting company in Rule 12b-2 of the Exchange Act (check
      one):
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|[   ] Large
      Accelerated Filer                                                                                                                                                                                                                                                                                                      

Indicate by check mark whether the registrant is a
shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [  
] No [X]

The aggregate market value of registrants Common
Stock held by non-affiliates of the registrant on June 30, 2007, was
approximately $478,569,000.

The number of shares of registrants Common Stock
outstanding on February 29, 2008, was 15,592,025.

DOCUMENTS INCORPORATED BY
REFERENCE

Portions of the West Coast Bancorp Definitive
Proxy Statement for the 2008 annual meeting of shareholders are incorporated by reference into Part III of this
Form 10-K.

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|Table of
      Contents
|-----------------------
|PART
      I           
|                       
|Item 1.                
|Item
      1A.         
|Item 1B.               
|Item
      2.          
|Item 3.                
|Item
      4.          
|PART
      II          
|Item
      5.          
|                       
|Item 6.                
|Item
      7.          
|                       
|Item 7A.               
|Item
      8.          
|Item 9.                
|                       
|Item
      9A.         
|Item 9B.               
|PART III               
|Item 10.               
|Item
      11.         
|Item 12.               
|                       
|Item
      13.         
|Item 14.               
|PART IV                
|Item 15.               
|Signatures             
|Index to
      Exhibits

i

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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, 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,
  and conditions in the real estate markets, that could affect the demand for
  loans, lead to declining 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 may own directly;
- 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 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;
- 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, restrictions on bank activities, or changes in the secondary
  market for bank loan products; 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, among other things, attract and retain key personnel;
close loans in the pipeline; 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 lending 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).

2

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PART I

ITEM 1.
BUSINESS

General

Bancorp is a financial holding
company 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 and its subsidiaries.

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,
2007, the Bank had facilities in 41 cities and towns in western Oregon and
southwestern Washington, operating a total of 59 full-service and four
limited-service branches. In addition, the Bank operates a mortgage loan office
in Bend, Oregon and a mortgage loan office and Small Business Administration
(SBA) lending office in Vancouver, Washington. Bancorp also owns West Coast
Trust Company, Inc. (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, 2007, totaled $461.3 million.

Bancorps net income for 2007 was
$16.8 million, or $1.05 per diluted share, and its consolidated equity at
December 31, 2007, was $208.2 million, with 15.6 million common shares
outstanding and a book value of $13.35 per common share. Net loans of $2.1
billion at December 31, 2007, represented approximately 80% of total assets of
$2.6 billion. Bancorp had deposits totaling $2.1 billion at December 31, 2007.
For more information regarding Bancorps operating results and financial
condition, 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 and West Coast Trust and parent company related operations. For more
information regarding Bancorps operating segments, see Note 23 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 and application of new
technology, including a full range of transaction and payment system
capabilities. Bancorp may from time to time seek acquisition opportunities with
other community banks that share its business philosophies.

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.comas 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 athttp://www.sec.govthat
contains reports, proxy and information statements, and other information
regarding issuers with publicly traded securities, including the Company.

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

The primary business strategy of the
Bank is to provide comprehensive banking and related financial services tailored
to individuals, professionals and 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 areas: 1) high
value consumers (including the mature market), 2) small businesses that desire
streamlined packaged products, 3) commercial businesses that benefit from
customized lending, depository and investment solutions and 4) real estate
finance including construction of commercial and residential projects in
addition to permanent financing for income producing properties.

For consumer banking
customers, the Bank offers a variety of flexible checking and savings accounts
and check cards, as well as competitive borrowing products, such as personal
lines of credit, credit cards and a variety of first and second lien residential
mortgage products and other types of consumer loans. The consumer products
consist of free checking and six other account types, each specifically designed
to meet the needs of a unique market segment. The small business package of
deposit accounts includes free business checking and an interest-bearing account
for eligible organizations. Because of the straightforward and streamlined
product design, our personal bankers are able to quickly and easily identify the
best account for our clients. In 2006, the Bank introduced iDeposit, a remote
deposit service that allows business customers to make deposits electronically
without leaving their office. Customers have access to the Banks products and
services through a variety of convenient channels such as 24 hour -7 days a week
automated phone and 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 provide businesses
with a comprehensive suite of credit facilities that include general commercial
purpose loans (short and intermediate term), revolving lines of credit, real
estate loans and lines to support construction, owner-occupied and investor
financing and SBA loans. The Banks loan portfolio has some concentration in
loans secured by real estate. The Bank also offers business credit cards (VISA)
and equipment leasing through vendor alliances and other types of business
credit.

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. West Coast Trust 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 West Coast
Trust 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.

4

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West Coast Statutory Trusts III, IV, V, VI, VII
and VIII

West Coast Statutory Trusts III, IV,
V, VI, VII and VIII are wholly-owned subsidiary trusts of Bancorp formed to
facilitate the issuance of Pooled Trust Preferred Securities (trust preferred
securities). The trusts were organized in September 2003, March 2004, April
2006, December 2006, March 2007 and June 2007 respectively, in connection with
six offerings of trust preferred securities. For more information regarding
Bancorps issuance of trust preferred securities, see Note 10 Junior
Subordinated Debentures to Bancorps audited consolidated financial statements
included in Item 8 of this report.

Employees

At December 31, 2007, Bancorp and
its subsidiaries had approximately 850 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 and our work environment 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 2005, 2006, and 2007 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 stock purchase 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 loans and 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 deliver
contemporary product solutions and 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 growth in past years 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, 2007, the Bank had approximately 3%
and 17% of the deposit market share in the Portland, Oregon, and Salem Oregon
areas, respectively, excluding credit unions. In Lincoln County on the Oregon
coast, the Bank had over 28% of the deposit market share at June 30, 2007.
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 competition in
the financial services industry. The GLB Act eliminated many of the barriers to
affiliation among providers of various types of financial services and 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 areas. For example, remote
deposit services, partly developed in response to the 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.

5

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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 areas will
continue. As noted, Bancorp may seek 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

Bancorp is an Oregon
corporation headquartered in Lake Oswego, Oregon, and is registered with the
Federal Reserve as a bank holding company and a financial holding company. The
Bank is organized as an Oregon non-member state bank.

The laws and
regulations applicable to Bancorp and its subsidiaries are primarily intended to
protect depositors of the Bank and not stockholders of Bancorp. Proposals to
change the laws and regulations governing the banking industry are frequently
introduced in Congress, in the state legislatures and before the various bank
regulatory agencies. The likelihood and timing of any such proposals or
legislation and the impact they might have on Bancorp and its subsidiaries
cannot be determined. 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. Violation of the laws and regulations applicable
to Bancorp and its subsidiaries may result in assessment of substantial civil
monetary penalties, the imposition of a cease and desist order, and other
regulatory sanctions.

The following is a brief description
of the significant laws and regulations that govern our activities.

Bank Holding Company Regulation

As a registered bank
holding company and financial holding company, Bancorp is subject to the
supervision of, and regular inspection by, the Federal Reserve pursuant to the
Bank Holding Company Act of 1956, as amended (the BHCA). Bancorp must file
reports with the Federal Reserve and must provide it with such additional
information as it may require.

Bank holding
companies like Bancorp 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 bank holding company; or (3) acquire substantially all
of the assets of another bank or bank holding company. In acting on applications
for such prior approval, the Federal Reserve considers various factors,
including, without limitation, the effect of the proposed transaction on
competition in relevant geographic and product markets, and each transaction
partys financial condition, managerial resources and performance record under
the Community Reinvestment Act.

Bank 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 bank holding company, such as payment of cash
dividends, would constitute unsafe and unsound banking practices.

Financial holding
companies are a special type of bank holding company that is authorized to
engage in activities considered to be financial in nature. A financial holding
company may engage in a broader range of activities than those permitted of a
bank holding company, which may only engage, directly or indirectly, in the
business of banking and activities that are closely related or incidental to
banking. Bancorp could lose its qualification as a financial holding company if
the Bank becomes less than well capitalized or if the Bank is rated as less
than well managed by the FDIC or the Federal Reserve. If that were to occur,
the Federal Reserve could mandate that Bancorp divest itself of certain assets
or limit its activities to those activities permitted of bank holding companies.

Financial
subsidiaries of a financial holding company continue to be regulated by their
functional regulator. For example, if a Bancorp subsidiary engages in certain
insurance activities the applicable state insurance regulator regulates the
insurance activities. The Federal Reserve maintains umbrella supervision over
all subsidiary activities, but will generally only intervene in the regulation
of a financial subsidiary if its activities endanger the safety and soundness of
an affiliated bank.

Subsidiary banks of
a bank 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.

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Bank Regulation

General.The Bank is an Oregon state-chartered non-member (of the
Federal Reserve System) commercial bank operating in Oregon and Washington with
deposits insured by the FDIC in an amount up to $100,000 per customer, and
certain self-directed retirement accounts insured by the FDIC up to $250,000 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.

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.The Bank 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
November 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.

Consumer
Privacy.Bancorp and Bank are subject to laws and
regulations that impose 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 bank holding companies and banks. If capital falls below minimum
guideline levels, the bank 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 bank holding companies.
Risk-based guidelines are designed to make capital requirements more sensitive
to differences in risk profiles among banks and bank 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 bank 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 bank 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).

7

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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 bank 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 bank holding companies and for bank holding companies
seeking to expand, the Federal Reserve expects an additional cushion of at least
1% to 2%.

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 ration 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. The banking
regulators may prohibit banks and bank holding companies from paying dividends
that would constitute an unsafe or unsound banking practice. In addition, a bank
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 a bank's ability to pay dividends.

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, bank 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.

The USA Patriot Act

Enacted in 2001, the
Uniting and Strengthening America by Providing Appropriate Tools Required to
Intercept and Obstruct Terrorism Act of 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. Among other
requirements, the USA Patriot Act requires banks to implement additional
policies and procedures with respect to money laundering, suspicious activities
and currency transaction reporting and currency crimes.

Monetary and Fiscal Policy Effects on Interest
Rates

Banking is a
business which 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.

8

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ITEM 1A. RISK
FACTORS

The following are 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 that borrowers will fail to repay loans in accordance with their
terms. A downturn in the economy or a specific industry sector or a rapid change
in interest rates could adversely affect our borrowers ability to repay loans.
A downturn in the relevant real estate markets could adversely affect the value
of the collateral for many of our loans. Developments of this nature could
result in losses in excess of our allowance for loan losses. In addition, to the
extent that loan payments from borrowers are not timely, the loans will be
placed on nonaccrual status, thereby reducing and/or reversing previously
accrued interest income.

We maintain an allowance for loan
losses that represents managements best estimate, as of a particular date, of
the probable amount of loan receivables that the Bank will be unable to collect.
When available information confirms that specific loans or portions of loans are
uncollectible, those amounts are charged off against the allowance for loan
losses. Our management establishes the allowance for loan losses based on a
continual evaluation of lending concentrations, specific credit risks, past loan
loss experience, loan portfolio and collateral quality, and relevant economic,
political, and regulatory conditions. Adverse changes in any of these or other
factors that management considers relevant may result in an increase in the
allowance for loan losses. In addition, federal and state banking regulators
periodically review the allowance for loan losses and may require that the Bank
increase the allowance or recognize loan charge-offs. Any additional provision
for loan losses to increase the allowance for loan losses results in a decrease
in net income, and possibly risk-based capital, and may have a material adverse
effect on our financial condition and results of operations. For more
information on this topic, see Critical Accounting Policies and Allowance for
Credit Losses and Net Loan Charge-offs under Item 7 of this report
below.

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
are 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 and rapid
decreases in interest rates could result in interest income decreasing faster
than interest expense, for example, when management is unable to match decreases
in market interest rates, lowering earning assets yield, with reduced rates paid
on deposits or borrowings. 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. For more information on this topic see Quantitative and Qualitative
Disclosures about Market Risk.

Defaults and related losses in our two-step
residential construction loan portfolio (two-step loan portfolio) could be
greater than currently anticipated and are expected to result in a significant
increase in other real estate owned (OREO) balances and number of properties
to be disposed.

In January 2008, we announced a
provision for credit losses in the amount of $27.8 million, pre-tax, for
expected losses associated with our two-step loan portfolio. For additional
information, see Provision for Credit Losses and Two-Step Loan Portfolio
under Item 7 of this report below. Actual losses related to loans in the
two-step loan portfolio (two-step loans) may be greater then anticipated,
resulting in additional provision for credit losses in future
periods.

Construction lending has been an
important source of revenue and profitability for the Bank, but it is riskier
than other forms of lending due in part to risks inherent in construction,
including the possibility of delays and cost overruns, and the additional risks
that may arise out of the extended time period between a loan commitment and the
projects eligibility for permanent financing, which may, among other things,
allow for significant changes in the financial position of borrowers or changes
in market conditions.

As part of our collection process
for all nonperforming loans, including nonperforming two-step loans, we may
foreclose on and take title to the real estate serving as collateral for the
loan. Real estate owned by the Bank and not used in the ordinary course of its
operations is referred to as other real estate owned or OREO property.
Increased OREO balances lead to greater expenses as we incur costs to manage and
dispose of the properties and, in certain cases, complete construction of
residences prior to sale. Any decrease in sale prices on homes may lead to OREO
write-downs with a corresponding expense in our income statement. We expect that
our earnings over the next several quarters will be negatively affected by
various expenses associated with OREO, including personnel costs, insurance and
taxes, completion and repair costs, and other costs associated with property
ownership, as well as by the funding costs associated with assets that are tied
up in real estate properties during the period they are held in OREO.

9

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We may be subject to environmental liability
risk associated with lending activities.

A significant
portion of our loan portfolio is secured by real property. In the ordinary
course of business, we may foreclose on and take title to properties securing
loans. There is a risk that hazardous or toxic substances will be found on these
properties, in which case we may be liable for remediation costs and related
personal injury and property damage. Compliance with environmental laws may
require us to incur substantial expenses and may materially reduce the affected
propertys value or limit our ability to use or sell the affected property.
Environmental indemnifications obtained from borrowers and their principals or
affiliates may not adequately compensate the Bank for losses related to
environmental conditions. The remediation costs and financial liabilities
associated with environmental conditions could have a material adverse effect on
our financial condition and results of operations.

Recent disruptions in the subprime mortgage
market and weakness in the real estate market that seems, in part, related to
problems in the subprime market may continue to impact our operations.

Subprime mortgages
are residential mortgage loans intended for borrowers who are perceived to have
high credit risk. Subprime lenders and other participants in the subprime
mortgage market have recently experienced higher than anticipated levels of
borrower defaults and lender foreclosures in the past year, which in turn has
caused significant adverse economic consequences to many participants in the
subprime lending market, including loan originators, loan servicers, and
participants in the secondary loan markets. These consequences have spread to
other markets, including, most significantly, the general credit markets and
real estate markets. In the past year, federal banking regulators, including the
Federal Reserve and the FDIC, issued statements in support of loan modification
programs for existing subprime loans. Federal and state legislators and
regulators may pursue increased regulation of how loans are originated,
purchased, and sold, regardless of whether those loans are made to subprime
borrowers. Disruptions in the lending market and related regulatory responses
may impact how the Bank buys and sells loans in the future or how the Bank
underwrites loans that it originates, any of which could have a negative impact
on our operations, capital, revenues, and net earnings, or materially reduce the
liquidity provided to us by the secondary loan market. We have experienced a
high rate of default in connection with our two-step loan portfolio, which we
believe is due, in part, to the disruptions in the lending and real estate
markets. We expect to experience further defaults and the rate of defaults may
worsen if the lending and real estate markets do not stabilize and eventually
begin to improve.

Significant legal and regulatory actions could
subject us to uninsured liabilities and associated reputational risk.

From time to time,
we are sued for damages or threatened with lawsuits relating to various aspects
of our operations. We may also be subject to investigations and possibly
substantial civil money penalties assessed by federal or state regulators in
connection with violations of applicable laws and regulations. We may incur
substantial attorney fees and expenses in the process of defending against
lawsuits or regulatory actions and our insurance policies may not cover, or
cover adequately, the costs of adverse judgments, civil money penalties, and
attorney fees and expenses. As a result, we may be exposed to substantial
uninsured liabilities, which could adversely affect our results of operations,
capital, and financial condition.

We are subject to
reputational risk, which is the potential that negative publicity regarding our
business practices, whether true or not, could cause a decline in our customer
base, stock price, or general reputation in the markets in which we operate.
Reputational risk is heightened in the instance of publicity surrounding
lawsuits or regulatory actions.

Slower than anticipated growth and/or revenues
from new branches and 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 in new branches and products as
well as associated revenues. Lower than expected loan and deposit growth at new
branches and lower than expected demand for new product offerings may decrease
anticipated revenues and net income. Opening new branches and introducing new
products may result in more expenses than anticipated and divert financial and
personnel resources from current core operations.

Decreased volumes and lower gains on sales of
mortgage and SBA loans, and loan repurchase obligations, could adversely affect
our net income.

We originate and sell mortgage loans
and the guaranteed portion of SBA loans. Changes in interest rates affect demand
for our loan products and the revenue realized on the sale of the loans. A
decrease in the volume of loans sold may reduce associated revenues and net
income. In the event of certain breaches of warranties and representations made
by us in connection with loan sales, we may be contractually obligated to
repurchase loans sold to correspondent lenders in the secondary market. Any
repurchases would alter our financial assumptions which were based on
recognizing the revenue associated with the original sale of the loans, and
could adversely affect the results of our lending operations.

10

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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, but not limited to, 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 affect our revenues and earnings. In
addition, loss of key personnel could result in increased recruiting and hiring
expenses, which could cause a decrease in our net income.

We face operational risks that may result in
unexpected losses.

We face various operational risk
that arise from the potential that inadequate information systems, operational
problems, failures in internal controls, breaches of our security systems,
fraud, the execution of unauthorized transactions by employees, or any number of
unforeseen catastrophes could result in unexpected losses. Additionally, third
party vendors provide key components of our business infrastructure such as
internet connections, network access, data reporting, and data processing. Any
problems caused by third parties could adversely affect our ability to deliver
products and services to our customers and our revenues, expenses, and earnings.
Replacing third party vendors, should that be necessary, may entail significant
delay and expense.

The financial services industry is very
competitive.

We face competition
in attracting and retaining deposits, making loans and providing other financial
services. Our competitors include other community banks, larger banking
institutions and a wide range of other financial institutions such
ascredit 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. We are currently in a particularly
competitive market for low cost deposits, which has led to increased pressure on
our net interest margin.

11

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**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, the Bank owns 26 buildings, primarily to house
branch offices. The Bank leases the land under six buildings and owns the land
under 20 of these buildings. In addition, the Bank leases 45 office spaces and
buildings for branch locations.

Other non-branch
office facilities are located in leased office space, including our 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 three smaller
office spaces for lending personnel in Lake Oswego, as well as space in downtown
Portland, Oregon, and Tukwila, Washington.

The aggregate
monthly rental on 52 leased properties is approximately $319,000.

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 material adverse effect on Bancorps financial
condition and results of operations.

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

None.

12

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PART II

|**ITEM 5.** |  | MARKET FOR REGISTRANTS COMMON EQUITY,
      RELATED STOCKHOLDERMATTERS ANDISSUER PURCHASES OF EQUITY
      SECURITIES
|----------- |  | ----------------------------------------------------------------------------------------------------------------------

Stock Price and Dividends

Bancorp common stock
trades on the NASDAQ Global Select 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, 2007, we had approximately 2,162
holders of record.

| |                   | 2007         |        | 2006               
| | ----------------- | ------------ | ------ | -------------------
| |                   | Market Price |        | Cash
      dividend
| |                   |              | High   |                    
| | 1st
      Quarter |              | $34.44 |                    
| | 2nd Quarter       |              | $32.49 |                    
| | 3rd
      Quarter |              | $31.85 |                    
| | 4th Quarter       |              | $30.78 |                    

Dividends are
limited under federal and Oregon laws and regulations pertaining to Bancorps
financial condition. Payment of dividends by the Bank may also be subject to
restriction by state and federal banking regulators. See Business  Supervision
and Regulation.

Information regarding securities
authorized for issuance under equity compensation plans is incorporated by
reference into 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, 2007:

| |                          |                              |  |                          |  | Total Number of
      Shares        |  |                                          
| | ------------------------ | ---------------------------- |  | ------------------------ |  | ----------------------------------- |  | -----------------------------------------
| |                          |                              |  |                          |  | Purchased as Part of
      Publicly |  | Maximum Number of Shares
      Remaining 
| |                          | Total Number of
      Shares |  | Average Price
      Paid |  | Announced Plans or
      Programs   |  | at Period End that May Be
      Purchased
| | Period                   | Purchased/Cancelled (1)      |  | per Share                |  | (2)                                 |  | Under the Plans or Programs              
| | 10/1/07 - 10/31/07       | 705                          |  | $28.80                   |  | 15,000                              |  | 1,051,821                                
| | 11/1/07 -
      11/30/07 | -                            |  |                          |  | -                                   |  | 1,051,821                                
| | 12/1/07 - 12/31/07       | -                            |  |                          |  | -                                   |  | 1,051,821                                
| | Total for quarter        | 705                          |  |                          |  | 15,000                              |  |                                          



|(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 705 shares, 0
      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, and by 1.0
      million shares in September 2007 for a total authorized repurchase amount
      as of December 31, 2007, of approximately 4.9 million
  shares.   

13

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Five-Year Stock Performance Graph

The following chart
compares the yearly percentage change in the cumulative shareholder return on
our common stock during the five years ended December 31, 2007, with (1) the
Total Return Index for the NASDAQ Stock Market (U.S. Companies) and (2) the
Total Return Index for NASDAQ Bank Stocks. This comparison assumes $100.00 was
invested on December 31, 2002, in our common stock and the comparison groups and
assumes the reinvestment of all cash dividends prior to any tax effect and
retention of all stock dividends. West Coast Bancorps total cumulative return
was 32.5% over the five year period ended December 31, 2007 compared to 34.7%
and 104.8% for the NASDAQ Bank Stocks and NASDAQ composite, respectively.



| |                          | Period
      Ended
| | ------------------------ | ------------------
| | Index                    | 12/31/02          
| | West Coast
      Bancorp | 100.0             
| | NASDAQ
      Composite   | 100.0             
| | NASDAQ Bank
      Index  | 100.0             

14

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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.

|(Dollars in thousands,
      except per share data)         | As of and For the Year ended December 31,
|----------------------------------------------------------- | -----------------------------------------
|                                                            | 2007                                     
|Interest
      income                                       | $                                        
|Interest
      expense                                      |                                          
|Net
      interest income                                   |                                          
|Provision for credit
      losses                           |                                          
|Net
      interest income after provision for credit losses |                                          
|Noninterest
      income                                    |                                          
|Noninterest
      expense                                   |                                          
|Income before income
      taxes                            |                                          
|Provision
      for income taxes                            |                                          
|Net income                                                  | $                                        
|                                                           
|Net
      interest income on a tax equivalent basis         | $                                        
|                                                           
|Per share
      data:                                       |                                          
|Basic earnings per share                                    | $                                        
|Diluted
      earnings per share                            | $                                        
|Cash dividends                                              | $                                        
|Period end book
      value                                 | $                                        
|Weighted average common shares outstanding                  |                                          
|Weighted
      average diluted shares outstanding           |                                          
|                                                           
|Total
      assets                                          | $                                        
|Total deposits                                              | $                                        
|Total
      long-term borrowings                            | $                                        
|Total loans,
      net                                      | $                                        
|Stockholders equity                                        | $                                        
|Financial
      ratios:                                     |                                          
|Return on
      average assets                              |                                          
|Return on average equity                                    |                                          
|Average equity
      to average assets                      |                                          
|Dividend payout ratio                                       |                                          
|Efficiency
      ratio (1)                                  |                                          
|Net loans to assets                                         |                                          
|Average yields
      earned (2)                             |                                          
|Average rates paid                                          |                                          
|Net interest
      spread (2)                               |                                          
|Net interest margin (2)                                     |                                          
|Nonperforming
      assets to total assets (3)              |                                          
|Allowance for loan losses to total loans                    |                                          
|Allowance for
      credit losses to total loans            |                                          
|Net loan charge-offs to average loans                       |                                          
|Allowance for
      loan loss to                            |                                          
|nonperforming assets (3)                                    |                                          

|(1) |  | The efficiency ratio has been computed as
      noninterest expense divided by the sum of net interest income on a tax
      equivalent basis and noninterest income excluding gains/losses on sales of
      securities.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(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.                                                                                                                                    

15

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Consolidated Quarterly Financial Data

The following table
presents selected consolidated quarterly financial data for each quarter of 2007
and 2006. 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.

|(Dollars in thousands,
      except per share data)         | 2007 Quarters ended (unaudited)
|----------------------------------------------------------- | -------------------------------
|                                                            | Dec. 31,                       
|Interest
      income                                       | $                              
|Interest
      expense                                      |                                
|Net
      interest income                                   |                                
|Provision for credit
      losses                           |                                
|Net
      interest income (expense)                         |                                
|after provision for credit
      losses                     |                                
|Noninterest
      income                                    |                                
|Noninterest
      expense                                   |                                
|Income
      (loss) before income taxes                     |                                
|Provision
      (benefit) for income taxes                  |                                
|Net (loss)
      income                                     | $                              
|                                                           
|Basic
      (loss) earnings per share                       | $                              
|Diluted (loss) earnings per
      share                     | $                              
|                                                           
|Return on
      average assets (1)                          |                                
|Return on average equity
      (1)                          |                                
|                                                           
|(Dollars in thousands,
      except per share data)         | 2006 Quarters ended (unaudited)
|                                                            | Dec. 31,                       
|Interest
      income                                       | $                              
|Interest
      expense                                      |                                
|Net
      interest income                                   |                                
|Provision for credit
      losses                           |                                
|Net
      interest income after provision for credit losses |                                
|Noninterest
      income                                    |                                
|Noninterest
      expense                                   |                                
|Income before income
      taxes                            |                                
|Provision
      for income taxes                            |                                
|Net income                                                  | $                              
|                                                           
|Basic
      earnings per share                              | $                              
|Diluted earnings per
      share                            | $                              
|                                                           
|Return on
      average assets (1)                          |                                
|Return on average equity
      (1)                          |                                

|(1) |  | Ratios have been
  annualized.
|--- |  | ------------------------------

16

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ITEM 7. MANAGEMENTS DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION ANDRESULTSOF
OPERATIONS

The following
discussion should be read in conjunction with the audited consolidated financial
statements and related notes to those statements as of December 31, 2007 and
2006, and for each of the three years in the period ended December 31, 2007, of
West Coast Bancorp and its subsidiaries that appear under the heading 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 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, 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,
  and conditions in the real estate markets, that could affect the demand for
  loans, lead to declining 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 may own directly;
- 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 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;
- 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 and product mix;
  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, 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; control the level of net loan 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).

17

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Critical Accounting Policies

We have identified
our most critical accounting policy to be that related to the allowance for
credit losses, which 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 consolidated financial
statements and related notes included elsewhere in 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. Expense in the fourth quarter of 2007 related to provision for losses
associated with unfunded commitments was recorded in the provision for credit
losses in the income statement, and this practice will continue in the future.

The reserve for
unfunded commitments was established in the third quarter of 2007 to recognize
the loan and related unfunded commitment growth that had occurred in our loan
portfolio. The reserve for unfunded commitments will be evaluated on a quarterly
basis and appropriate increases or decreases will be reflected in the income
statement. At December 31, 2007, our reserve for unfunded commitments was $8.0
million, with a significant portion of that related to unfunded commitments in
our two-step loan portfolio. See Financial Overview below.

18

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Developments and Financial Overview

**Developments.**Subsequent
to year end 2007 we made two adjustments that are reflected in the financial
results for the fourth quarter and full year 2007. Including these adjustments,
our net income for full year 2007 was $16.8 million or $1.05 per diluted share,
as compared to $16.7 million or $1.04 per diluted share disclosed in our
earnings release dated January 15, 2008. Full year return on equity increased to
7.93% from the previously reported 7.86%. The two adjustments include the
reversal of an accrued liability of $1.4 million pretax relating to a legal
matter that ended in a settlement following a jury verdict in our favor and a
charge of $1.1 million pretax to cover restitution to certain borrowers arising
out of our failure to comply with certain loan disclosure requirements. The $1.1
million in restitution was recorded as a decrease to interest and fees on loans
in the consolidated statements of income for the year ended December 31, 2007,
with a corresponding accrued liability recorded in other liabilities on the
consolidated balance sheet as of December 31, 2007.

Moreover, subsequent to December 31,
2007, the Bank amended its loan policy regarding the timing of placing certain
segments of the Banks real estate construction loan portfolio on nonaccrual
status, including, as examples, loans that are over 30 days past due and
construction is incomplete, loans that are 60 days past due and construction is
completed, and all loans made to borrowers that have not commenced
construction.  The amendments to our loan policy will apply to the entire
construction loan portfolio; however, primarily the two-step loan portfolio is
affected by the amended loan policy.  For more information, see the
subheading Real Estate Construction under Loan Portfolio and Loan
Portfolio generally below.

Had the amended loan policy been in
effect at December 31, 2007, nonaccrual two-step loans would have increased by
$28.9 million, while delinquent 30-89 days past due two-step loans would have
decreased by $24.4 million to $12.4 million.  The adoption of the
amendments to the loan policy would not have had a material effect on the
December 31, 2007 financial statements.  Under the amended loan policy, we
will cease interest accruals on certain segments of the construction loan
portfolio earlier and reverse previously accrued interest sooner than we would
have under the previous loan policy.  We do not believe the amendments to
our loan policy materially affect the required allowance for credit losses for
the two-step portfolio at December 31, 2007 or the provision for credit losses
associated with the two-step portfolio for prior periods.

**Overview for****Years Ended December 31, 2007, 2006 and
2005.** Our net income for the full year
2007 was $16.8 million, as compared to $29.3 million in 2006 and $23.8 million
in 2005. Diluted earnings per share for the years ended December 31, 2007, 2006,
and 2005 were $1.05, $1.86, and $1.55, respectively, while return on average
equity decreased to 7.9% in 2007 from 16.5% in 2006 and 15.8% in 2005. The
decrease in net income and decline in our return on equity was primarily due to
a $30.0 million pre-tax provision for credit losses recorded in the fourth
quarter of 2007, of which $27.8 million was associated with our two-step
residential construction loan portfolio(the two-step loan portfolio). The
provision for credit losses for the year ended December 31, 2007 was $38.9
million compared to $2.7 million in 2006 and $2.2 million in 2005.

Our
financial objectives are primarily focused on diluted earnings per share growth
of 10% or higher and return on average equity, tangible of 15% or higher. For
the first time in three years, we failed to achieve our financial objectives in
2007, as our diluted earnings per share fell by 44% and our return on equity,
tangible was 8.7%. Return on average equity, tangible is a non-GAAP financial
measure used by the Company that eliminates the effects of merger-related
intangible assets from the return on equity calculation. We calculate return on
average equity, tangible by dividing net income less amortization on
intangibles, after tax, by average shareholders equity less average intangible
assets.

The
following table presents return on average equity and return on average equity,
tangible, for the years ended December 31, 2007, 2006 and 2005, together with
the components of our calculation of return on average equity, tangible.

| | (Dollars in
      thousands)                              |  | For the years ended December
    31,
| | --------------------------------------------------------- |  | ------------------------------------
| |                                                           |  | 2007                                
| | Net income                                                |  | $                                   
| | Less: intangible asset amortization, net of tax
      (1) |  |                                     
| | Net income, tangible                                      |  | $                                   
| |                                                          
| | Average shareholders' equity                              |  | $                                   
| | Less: average intangibles                                 |  |                                     
| | Average shareholders' equity, tangible                    |  | $                                   
| | (1) Federal
      income tax provision applied at 35%.    |  |                                     
| |                                                          
| | Return on average equity                                  |  |                                     
| | Return on
      average equity, tangible                  |  |                                     

19

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Management uses return on equity, tangible internally and has disclosed
it to investors based on its belief that the figure is commonly used in the
industry and makes it easier to compare the Company's performance to other
financial institutions that do not have merger-related intangible assets.

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

- Focus on profitable customer segments;
- Exploit local market opportunities;
- Design and support value added products;
- Expand branch distribution; and
- Maintain community focus and high employee and customer
  satisfaction.

Our
strategies are designed to direct our tactical investment decisions to support
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. To generate and grow loans and deposits, 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. Net interest income is sensitive
to our ability to attract and retain lending officers and close loans in the
pipeline, so any failure in that regard could negatively affect our ability to
meet our goals. In addition, a decline in general economic conditions, as well
as competitive pricing pressures on both loans and deposits, could limit our
ability to generate net interest income.

We also
consider non-interest 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 successful
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 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.

To
support growth in targeted customer segments, we have added 23 branch locations,
or 37% of total current branches, since January 1, 2000, including four branches
acquired in our acquisition of Mid-Valley Bank that closed in June 2006. Our
financial statements and related disclosures include the financial condition and
results of operations of Mid-Valley since its acquisition. The results produced
by our new branches have met our expectations.With all of ournew and existing branches, we strive
to maintain a local community-based management philosophy. We will continue to
emphasizehiring local branch and lending personnel with strong ties to the
specific local communities we enter and seek to serve and with expertise in
growing and servicing targeted business and consumer customer
segments.

iDeposit is an example of new
products we have introduced over the last few years. iDeposit is a remote
capture product which allows customers to deposit their checks electronically
from their office. Through 2007 the Company has over 500 remote capture
terminals serving customers. In addition, the Company offered new products such
as payroll cards, upgrades to our electronic bill pay product, electronic
statement delivery, check images online, and our automated wire transfer
program. These are just a sample of the new and upgraded products that have been
introduced over the past several years.

To limit
the risks associated with doing business and growing revenues,we haveput 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.

20

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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) |  | Change
| | ------------------------------------------ |  | ----------------------- | --------- | ------------------- |  | ------
| |                                            |  | 2007                    |           | 2006                |  | 2005  
| | Interest and fee income (1)                |  | $                       | 184,831   |                     |  | $     
| | Interest
      expense                     |  | $                       | 68,470    |                     |  | $     
| | Net interest income (1)                    |  | $                       | 116,361   |                     |  | $     
| |                                           
| | Average interest earning assets            |  | $                       | 2,394,958 |                     |  | $     
| | Average interest
      bearing liabilities |  | $                       | 1,821,299 |                     |  | $     
| | Average interest earning assets/           |  |                         |           |                     |  |       
| | Average interest bearing liabilities       |  |                         | 131.50    | %                   |  |       
| | Average yield
      earned (1)             |  |                         | 7.72      | %                   |  |       
| | Average rate paid                          |  |                         | 3.76      | %                   |  |       
| | Net interest
      spread (1)              |  |                         | 3.96      | %                   |  |       
| | Net interest margin (1)                    |  |                         | 4.86      | %                   |  |       

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

Net
interest income on a tax equivalent basis totaled $116.4 million for the year
ended December 31, 2007, an increase of $13.9 million, or 13.6%, from $102.4
million for 2006, which in turn was up $14.4 million from full year 2005. The
increase in net interest income from 2006 to 2007 was mainly due to increased
loan volumes. Average total loans grew by $349.2 million, or 20.0%, in 2007
compared to 2006. The net interest margin decreased from 4.96% in 2006 to 4.86%
in 2007 with the main factors being interest reversals related to nonaccrual
loans in the two-step loan portfolio, interest restitution costs for failure to
comply with certain loan disclosure rules and a lag in the decline of deposit
rates relative to the decline in asset yields in the second half of 2007 which
was caused by lower market interest rates.

During
2007, we generated an increase of $13.0 million, or 3%, in average demand
deposits over 2006 due in part to the continued emphasis on business clients
along with free checking products. Average savings, money market balances and
time deposits increased $196 million, or 18%, over 2006 as consumers shifted
funds toward higher rate products.

Changing interest rate environments,
including but not limited to the shape, change in and level of the yield curve,
could lead to lower net interest income, and competitive pricing pressure could
lead to increased deposit costs and lower loan yields and/or fees.

Loans
transitioning into nonaccrual status require interest income reversals,
consequently decreasing interest income as collection of principal and accrued
interest becomes uncertain. We expect an increased level of interest reversals
in 2008 associated with borrowers defaulting on loans in the two-step loan
portfolio (two-step loans.) We also expect declining construction loan
balances, and lower loan fee revenues due to the closing of the two-step loan
program. The closure of the two-step loan program, along with interest
reversals, cost of holding other real estate owned (OREO) properties, and the
significant reduction in market interest rates in January 2008, are projected to
further compress our net interest margin in 2008 compared to 2007.

21

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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,
|----------------------------- |  | -------------------------
|(Dollars in
      thousands)  |  | 2007                     
|                              |  | Average                  
|                              |  | Outstanding              
|                              |  | Balance                  
|ASSETS:                       |  |                          
|Interest earning balances     |  |                          
|due from banks                |  | $                        
|Federal funds sold            |  |                          
|Taxable securities            |  |                          
|Nontaxable securities(2)      |  |                          
|Loans, including fees(3)      |  |                          
|Total interest earning assets |  |                          
|                             
|Allowance for loan losses     |  |                          
|Premises and equipment        |  |                          
|Other assets                  |  |                          
|Total assets                  |  | $                        
|                             
|LIABILITIES AND               |  |                          
|STOCKHOLDERS' EQUITY:         |  |                          
|Interest bearing demand       |  | $                        
|Savings                       |  |                          
|Money market                  |  |                          
|Time deposits                 |  |                          
|Short-term borrowings         |  |                          
|Long-term borrowings (4)      |  |                          
|Total interest bearing        |  |                          
|liabilities                   |  |                          
|Demand deposits               |  |                          
|Other liabilities             |  |                          
|Total liabilities             |  |                          
|Stockholders' equity          |  |                          
|Total liabilities and         |  |                          
|stockholders' equity          |  | $                        
|Net interest income           |  |                          
|Net interest spread           |  |                          
|                             
|Net interest margin           |  |                          

|(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. The
      tax equivalent basis adjustment for the years ended December 31, 2007,
      2006 and 2005, was $1.6 million, $1.6 million and $1.5 million,
      respectively.
|(3) |  | Includes balances of
      loans held for sale and nonaccrual loans.                                                                                                                                                                                                      
|(4) |  | Includes junior
      subordinated debentures with average balance of $50 million for 2007 and
      $32 million for 2006.                                                                                                                                                

Our net
interest spread declined 47 basis points from 2005 to 2007 mainly due to our
earning asset yields failing to increase as quickly as the rates on our interest
bearing liabilities in what was an increasing interest rate environment.
However, increases in demand deposit balances as well as increases in the
overall level of interest rates in 2005 and early 2006 helped to limit the
compression in the net interest margin despite a declining net interest spread.
Non-interest bearing demand deposits contribute more to the net interest margin
in higher rate environments as these low-cost funds are invested in higher
earning assets. The strong growth in construction loan balances caused our
average short-term borrowings to more than double from 2006.

22

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The
fourth quarter 2007 net interest margin of 4.62% compressed from 4.94% in the
third quarter as a result of a declining rate environment, interest reversals on
two-step loans and interest restitution costs for failure to comply with certain
loan disclosure rules. As noted above, with the significant reduction in
short-term market interest rates in the early part of 2008 and other factors, we
expect the net interest margin to further contract in 2008.

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, if any, are allocated to volume.

|(Dollars in
      thousands)                   |  | Year Ended December 31,    
|---------------------------------------------- |  | ---------------------------
|                                               |  | 2007 compared to 2006      
|                                              
|                                               |  | Increase (Decrease) due to:
|                                               |  | Volume                     
|Interest income:                               |  |                            
|Interest earning balances due                  |  |                            
|from banks                                     |  | $                          
|Federal funds sold                             |  |                            
|Investment security income:                    |  |                            
|Interest on taxable securities                 |  |                            
|Interest on nontaxable securities (1)          |  |                            
|Loans, including fees on loans                 |  |                            
|Total interest income (1)                      |  |                            
|                                              
|Interest expense:                              |  |                            
|Savings and interest bearing demand            |  |                            
|Time deposits                                  |  |                            
|Short-term borrowings                          |  |                            
|Long-term borrowings (2)                       |  |                            
|Total interest expense                         |  |                            
|Increase (decrease) in net interest income (1) |  | $                          

|(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.                                         

Higher
loan balances continued to be the main driver of the $13.9 million increase in
net interest income in 2007 over 2006. Interest income from the investment
portfolio declined in 2007 as we reduced the size of the portfolio to partially
fund loan growth. Although higher earning asset yields boosted interest income
attributable to rates, higher interest expense, primarily caused by higher
deposit rates caused the overall impact to the change in net interest income
attributable to rates to be negative $3.2 million. The cost of borrowings in
2007 increased, as short-term borrowings were used to fund the growth in
residential construction loans.

Fourth
quarter net interest income on a tax equivalent basis was $28.7 million, a
decline from $30.2 million in the third quarter of 2007. The decline was due to
a positive volume variance more than offset by a negative rate variance. The
declining rate environment depressed net interest income due to the lower
contribution of demand deposits and the lagging nature of deposit rates. We also
experienced increased interest reversals on two-step loans becoming nonaccrual
and the previously noted interest restitution costs. The combination of the
projected increase in non-performing assets, which is likely to cause a higher
levels of interest reversal and increased non-earning assets to be funded on our
balance sheet, and deposit rates lagging the greater than expected reduction in
Federal Funds rate of 1.25% in January 2008, is projected to put further
pressure on our net interest margin and net interest income in 2008.

23

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Provision for Credit Losses. The
provision for credit losses is comprised of two components, a provision for
loans losses to accommodate increases in our allowance for loan losses related
to outstanding loans and a provision for unfunded commitments to address
increases in our reserve for unfunded commitments. The provision for credit
losses is recorded to bring the allowance for loan losses and the reserve for
unfunded commitments to amounts considered appropriate by management based on
factors which are described in the Credit Management and Allowance for Credit
Losses and Net Loan Charge-offs sections of this report.

Provisions for credit losses of $38.9 million, $2.7 million, and $2.2
million, were recorded for the years ended December 31, 2007, 2006 and 2005,
respectively, while net loan charge-offs were $7.1 million, $1.1 million, and
$.7 million, over those same years. The provision for credit losses of $38.9
million increased $36.2 million in 2007 compared to 2006, largely due to the
significant fourth quarter provision for credit losses of $27.8 million
associated with our two-step loan portfolio as well as higher net loan
charge-offs in the commercial and residential construction loan portfolios. In
addition, a portion of the increase in the provision was consistent with the
current credit cycle and reflected the impact of loan growth, loan mix changes,
changes in the formula allowance for loan losses and a moderately unfavorable
migration in our loan risk ratings outside the two-step loan portfolio. During
2007, we have had a greater proportion of our loan portfolio in construction
loans than in 2006. Construction loans involve a higher inherent risk profile
and are therefore allocated a higher provision for loan losses relative to most
other loans in the portfolio.

On
January 8, 2008, we announced a fourth quarter provision charge of $30 million,
of which $27.8 million was related to the two-step loan portfolio. In estimating
the amount of provision required for the two-step loan portfolio, a number of
factors were considered, including, among others:

- Residential real estate market conditions in the market areas
  in which we have made two-step loans are deteriorating and the market for
  permanent take-out financing has tightened significantly. Those factors have
  put downward pressure on home values and updated appraisals, slowed home
  sales, increased the inventory of houses for sale, and increased our potential
  loss exposure.
- Concentrations in the two-step loan portfolio, such as
  concentrations by loan origination channel (ie. broker, non-broker) and
  collateral location, may expose us to higher losses.
- We have and will take unfinished homes into OREO. To complete
  unfinished homes, we may invest incremental amounts that will be difficult to
  recover but are necessary in order to facilitate home sales.

In
establishing our fourth quarter provision for credit losses related to the
two-step loan portfolio, we looked at the entire two-step loan portfolio as a
homogenous pool of loans with the exception of impaired two-step loans which are
measured individually. We then developed estimates for the probability of
default and the loss percentage and related amount of loss given default. The
estimate for defaults was based on actual trends in repayment, delinquencies,
and nonperforming assets experienced over the last six months. Our percentage
and amount of loss estimate was based on an analysis of changes in appraised
values for completed properties between appraisals received at the time of loan
origination and appraisals that have been recently updated. Analysis of current
appraisals reveals a decline in appraised value to a degree that varies by
market and property. At the present time, we are relying on changes in appraised
values because we are not able to rely on the predictive value of actual
two-step properties loss history. Our first loss in the two-step loan portfolio
was recorded in second quarter 2007, and there were only two OREO sales as of
year end 2007. Consequently, we consider our actual loss experience too limited
and unseasoned to be used to establish reliable loss estimates.

In
addition to the changes in appraised values, our loss estimates included
expected sales costs associated with disposing properties. Furthermore, we
utilized the commitment amount rather than the outstanding loan balance in
projecting our potential loss exposure. Substantially all completed homes where
borrowers default have drawn the commitment amount and except for unusual
circumstances, we believe that unfinished homes taken into OREO will need to be
completed to facilitate buyers in obtaining mortgage financing and to minimize
loss exposure on properties that we sell. For more information, see section
Allowance for Credit Losses - Two-Step Loans below.

Noninterest Income. Noninterest income
remains a key focus for Bancorp, particularly revenues generated by our deposit
accounts and payment systems products. Our noninterest income for the year ended
December 31, 2007, was $33.5 million up $5.4 million or 19%, compared to $28.1
million in 2006, which was up 22% from $23.1 million in 2005. The full year 2005
noninterest income included a $1.3 million impairment charge recognized on a
security held in our investment portfolio. Service charges on deposit accounts
were up over 16% in 2007 and payment systems related revenues increased 19% or
$1.3 million compared to 2006. These increases resulted from successful product
introductions, new branch locations and marketing efforts that increased the
number of transaction deposit accounts and improved the number of debit and
credit card sales to our customer base. In 2007, gains on sales of loans were
$3.4 million, or up 14% compared to 2006. This increase was driven by higher
gains on sales of single family residential loans, which offset lower realized
gains on sales of SBA loans. Trust and investment service revenue was up 17% or
$.9 million in 2007 compared to 2006. Both transaction based sales and the
volume of insurance and recurring fee accounts increased year over year for
investment services, while West Coast Trust grew all core business lines as a
result of new account sales and the strong stock market through most of
2007.

24

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Changing
interest rate environments, including the shape, change in 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.

Noninterest Expense. Noninterest
expense was $85.3 in 2007, $81.7 million in 2006, and $72.6 million in 2005.
Noninterest expense increased $3.6 million, or 4% in 2007 compared to 2006, with
$2.5 million of the increase due to salaries and employee benefits expense
growth. Higher salaries, additional team members and increased performance-based
compensation were the key drivers of increased personnel expense.

Occupancy
expense was $8.5 million in 2007 compared to $7.0 million in 2006, with the 21%
increase in 2007 primarily caused by the addition of new locations. Professional
fee expense decreased $.4 million in 2007 compared to 2006. Marketing expenses
decreased $.4 million in 2007 due to decreased promotional expenses relating to
high performance checking. Other noninterest expense decreased $2.0 million in
2007 compared to 2006 primarily due to the fourth quarter 2007 reversal of an
accrued liability of $1.4 million pretax for management's estimate of loss
exposure relating to a legal matter. Management determined that it was
appropriate to reverse the accrued liability as a result of a favorable jury
verdict and settlement of the matter.

We expect
noninterest expenses associated with nonperforming two-step assets to increase
materially in 2008 over 2007, including higher personnel costs, insurance and
taxes, completion and repair costs, and other costs associated with property
ownership, along with no further deferrals of two-step loan origination costs.
Changing business conditions, increased costs in connection with retention of,
or a failure to retain key employees, lower loan production volumes causing
deferred loan origination costs to decline, or a failure to manage the our
operating and control environments could adversely affect our ability to limit
expense growth in the future.

Income
Taxes. Our income tax expense for 2007 was
$7.1 million, or 29.7% of income before income taxes, compared to $15.3 million
or 34.4% of income before income taxes in 2006. Bancorps income tax expense
decreased significantly in 2007 compared to 2006 due to lower pre-tax income.
Taxes as a percentage of pretax income decreased in 2007 compared to 2006 due to
the dollar amount of nontaxable income and tax credits increasing as a
percentage of pretax net income. Income tax expense in 2005 was $11.1 million or
31.6% of income before income taxes. In 2005, the Company recorded the impact of
a state of Oregon corporate income tax credit of $.3 million. 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.

Balance Sheet Overview

Period
end total assets increased 7% to $2.6 billion as of December 31, 2007, from $2.5
billion at December 31, 2006. Period end loans grew by 12% or $225 million since
December 31, 2006, while deposits increased 4% or $88 million in the same
period. Our balance sheet management efforts are focused on growth in targeted
areas that support our corporate objectives and include:

- Small business and middle market commercial
  lending;
- Commercial, commercial real estate and construction
  lending;
- Home equity lending; and
- Core deposit production.

Over the
past two years we generated strong growth in commercial, construction, and
mortgage loan categories as a result of our investments in new products,
branches, and most importantly people with experience in the local markets in
which we are operating. In order to fund that growth, we put emphasis on
launching depository services to support the transaction needs for business
customers with a need to manage their cash and deposit balances. The increase in
and retention of low cost demand deposit balances can also be attributed to the
continued emphasis on our free checking products for both the business and
consumer segments. Additionally, customer demand deposit balances and the
attractiveness of interest bearing deposit products, such as money market and
time deposit products will also be influenced by the level and shape of the
yield curve. This in turn influences whether we pursue time deposits or other
funding sources on a short term basis.

We
anticipate real estate construction loan balances to materially contract in 2008
due to discontinuance of the two-step loan program and slowing demand for
borrowings by builders and developers. As a result, we anticipate slower overall
asset growth and total loan balances may be lower at the end of 2008 when
compared to year end 2007. Our ability to achieve loan and deposit growth in the
future will be dependent on many factors, including the effects of competition,
health of the real estate market, economic conditions in our markets, retention
of key personnel and valued customers, and our ability to close loans in the
pipeline.

25

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Investment Portfolio

The following table shows the
amortized cost and fair value of Bancorps investment portfolio. At December 31,
2007, Bancorp had no securities classified as held to maturity.

| | (Dollars in
      thousands)                    |  | 2007      |         | 2006      
| | ----------------------------------------------- |  | --------- | ------- | ----------
| |                                                 |  | Amortized |         |           
| | Available for
      sale                        |  | Cost      |         | Fair value
| | U.S. Treasury securities                        |  | $         | 200     |           
| | U.S. Government
      Agency securities         |  |           | 60,554  |           
| | Obligations of state and political subdivisions |  |           | 85,876  |           
| | Other
      securities                          |  |           | 123,509 |           
| | Total                                           |  | $         | 270,139 |           

Bancorp decreased its investment
portfolio by $59 million, or 18%, from December 31, 2006, to December 31, 2007
to fund loan growth during 2007. At December 31, 2007, the net unrealized loss
on the investment portfolio was $.7 million representing .26% of the total
portfolio compared to .15% at year end 2006. 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
periodically considers the duration and amount of each unrealized loss, the
financial condition of the issuer and the prospects for a change in market value
within a reasonable period of time.

The following table summarizes the
contractual maturities and weighted average yields on Bancorps investment
securities.

|                                   |  |                |        |       |      | After             |  |       |        | After              |      |       |  |                 |        |       |      |       |  |      
|---------------------------------- |  | -------------- | ------ | ----- | ---- | ----------------- |  | ----- | ------ | ------------------ | ---- | ----- |  | --------------- | ------ | ----- | ---- | ----- |  | -----
|(Dollars in
      thousands)       |  | One
      year |        |       |      | One
      through |  |       |        | Five
      through |      |       |  | Due
      after |        |       |      |       |  |      
|                                   |  | or less        |        | Yield |      | five years        |  | Yield |        | ten years          |      | Yield |  | ten years       |        | Yield |      | Total |  | Yield
|U.S. Treasury securities           |  | $              | -      |       | -    |                   |  | $     | 207    |                    | 4.51 | %     |  | $               | -      |       | -    |       |  | $    
|U.S. Govt.
      Agency securities |  |                | 9,139  |       | 5.30 | %                 |  |       | 49,412 |                    | 5.38 | %     |  |                 | 2,003  |       | 5.27 | %     |  |      
|Obligations of state and           |  |                |        |       |      |                   |  |       |        |                    |      |       |  |                 |        |       |      |       |  |      
|political subdivisions (1)         |  |                | 3,185  |       | 6.21 | %                 |  |       | 26,887 |                    | 6.23 | %     |  |                 | 34,509 |       | 5.75 | %     |  |      
|Other securities
      (2)         |  |                | 2,005  |       | 5.76 | %                 |  |       | 2,838  |                    | 4.34 | %     |  |                 | 26,612 |       | 5.24 | %     |  |      
|Total (1)                          |  | $              | 14,329 |       | 5.57 | %                 |  | $     | 79,344 |                    | 5.63 | %     |  | $               | 63,124 |       | 5.52 | %     |  | $    

|(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 4.0 years at December 31, 2006 to 4.7 years
at December 31, 2007. 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.

26

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Loan Portfolio

The
Companys loan portfolio was $2.2 billion at December 31, 2007, an increase of
$225 million or 12% from December 31, 2006. Approximately two-thirds of the loan
growth in 2007 was attributable to the $152 million, or 42%, increase in the
real estate construction loan category. Of the $152 million growth in total real
estate construction loans, two-step loans accounted for $91 million, or 60%, of
this growth. Commercial loans grew 9% or $41 million in 2007. The real estate
mortgage category grew to $235 million of home equity lines and home equity
loans and $96 million in single family residential loans, representing a 9% and
33% increase, respectively, over year end 2006. Commercial real estate, our
largest loan category, declined slightly during 2007 due to competitive pricing
pressures that prevented us from growing this portfolio consistent with our
financial return targets.

Partly
as a result of no new two-step loan commitments being made after October 19,
2007, the slowdown in the origination of residential construction loans to
builders and residential subdivision or site development loans, and certain
sizeable pay-offs in the commercial loan portfolio, the total loan portfolio
declined $11 million during the fourth quarter of 2007. As previously noted, we
anticipate total loan balances may be less at the end of 2008 when compared to
year end 2007. A sustained slow rate of home sales and an elevated housing
inventory level, or negative impacts from worsening economic conditions could
hinder our efforts to grow our loan portfolio in 2008. Interest and fees earned
on our loan portfolio is our primary source of revenue, and a decline in loan
originations will have a negative impact on loan balances (growth), interest
income, and loan fees earned.

The
following table provides the composition of the loan portfolio and the balance
of our allowance for loan losses for the periods shown.

|                               |  | December 31,
|------------------------------ |  | ------------
|(Dollars in
      thousands)   |  | 2007        
|                               |  | Amount      
|Commercial                     |  | $           
|Real estate
      construction |  |             
|Real estate mortgage           |  |             
|Commercial real
      estate   |  |             
|Installment and other          |  |             
|consumer                       |  |             
|Total loans                    |  |             
|                              
|Allowance for loan losses      |  |             
|                              
|Total
      loans, net         |  | $           

The following table presents the
maturity distribution and interest rate sensitivity of the Companys loan
portfolio by category at December 31, 2007.

|(Dollars in
      thousands)                        |  | Commercial |         | Real
      Estate |   | Real
      Estate |  | Real
      Estate |         | Installment |   |        
|--------------------------------------------------- |  | ---------- | ------- | ----------------- | - | ----------------- |  | ----------------- | ------- | ----------- | - | -------
|                                                    |  | Loans      |         | Construction      |   | Mortgage          |  | Commercial        |         | and other   |   | Total  
|Maturity distribution:                              |  |            |         |                   |   |                   |  |                   |         |             |   |        
|Due within one year                                 |  | $          | 275,275 |                   | $ | 495,285           |  | $                 | 31,326  |             | $ | 54,789 
|Due after one through five years                    |  |            | 154,106 |                   |   | 14,711            |  |                   | 71,326  |             |   | 48,096 
|Due after five years                                |  |            | 74,720  |                   |   | 7,992             |  |                   | 228,151 |             |   | 693,737
|Total                                               |  | $          | 504,101 |                   | $ | 517,988           |  | $                 | 330,803 |             | $ | 796,622
|Interest rate
      sensitivity:                    |  |            |         |                   |   |                   |  |                   |         |             |   |        
|Fixed-interest rate loans                           |  | $          | 140,956 |                   | $ | 272,876           |  | $                 | 126,536 |             | $ | 141,885
|Floating or adjustable interest rate
      loans(1) |  |            | 363,145 |                   |   | 245,112           |  |                   | 204,267 |             |   | 654,737
|Total                                               |  | $          | 504,101 |                   | $ | 517,988           |  | $                 | 330,803 |             | $ | 796,622

|(1) |  | Certain loans contain
      provisions which place maximum or minimum limits on interest rate changes.
      In addition, the portfolio contains loans in which rates change less
      frequently than annually. The above table is based on stated
      maturity.
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

27

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As part of our
strategic efforts over the last several years, we have placed an emphasis on
increasing the commercial, real estate construction, and home equity loan
(included under Real Estate Mortgage below) segments of our loan portfolio. As
a result, the commercial portfolio has more than doubled in size and increased
to 23% of the loan portfolio at year end 2007 compared to 19% at December 31,
2003 and the real estate construction loan portfolio has increased to 24% of the
loan portfolio from 9% over that same period. We believe our focus on commercial
businesses has been and remains a key contributor to growing low cost deposits.
Real estate construction loans represented 24%, or $518 million, of the loan
portfolio at December 31, 2007 compared to 9% at year end 2003. Due to the
growth in the residential construction portfolio, the majority of which are
short-term fixed rate loans, our overall loan portfolio has become more interest
rate sensitive compared to prior years. Meanwhile, the commercial real estate
portfolio declined from 54% of the loan portfolio at year end 2003 to 37% of the
loan portfolio at the end of 2007.

Loans
held for sale at December 31, 2007, were $3.2 million compared to $7.6 million
at December 31, 2006. The majority of our loan sales are residential real estate
mortgage loans and the guaranteed portion of SBA loans. These loans are sold on
an individual basis. Residential real estate mortgage loans have been sold
without retaining servicing rights or obligations. The guaranteed portion of SBA
loans have been sold from time to time, with servicing rights and obligations
usually retained.

As of
December 31, 2007, and 2006, we had $18.9 million and $8.6 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, 2007,
and 2006, the Bank had no bankers acceptances. As a result of discontinuing the
two-step loan program and the rapid increase in the inventory of residential
homes for sale within our markets, we expect real estate construction loan
balances to decrease materially in the coming year. See Two-Step Loan
Portfolio below. Below is a discussion of our loan portfolio by category.

Commercial.Expanding our commercial
and industrial loan portfolio has been a major component of our strategic
initiatives since 2000. The 9%, or $41 million, growth in this portfolio in 2007
end was driven by new customer relationships, revolving credit line utilization
by commercial clients and growth in commercial term loans. At year end 2007, the
commercial loan line utilization was consistent with past seasonality trends. We
believe we have been successful in growing our commercial portfolio as a result
of strong, experienced commercial lending teams throughout our market areas,
including our agricultural lending group. In addition, over the past several
years developments in our treasury management product line, including our
iDeposit product, have enhanced our ability to attract and retain commercial
lending and core deposit relationships. We also believe that our expanding
branch network continues to be an important point of service contact for our
commercial relationships.

Real
Estate Construction.The composition of real
estate construction loans as of December 31, 2007, 2006, and 2005 is presented
in the following table.

|                                            |  | December
      31,
|------------------------------------------- |  | ------------------
|                                            |  | 2007              
|(Dollars in thousands)                      |  |                   
|Commercial construction                     |  | $                 
|Two-step residential construction loans     |  |                   
|Residential construction to builder         |  |                   
|Residential subdivision or site development |  |                   
|Net deferred fees                           |  |                   
|Total real estate construction
      loans  |  | $                 

At
December 31, 2007, real estate construction loans were $518 million, up $152
million or 42% compared to $366 million at December 31, 2006. Over half of our
construction loan growth since December 31, 2006, has been in two-step loans.
See Two-Step Loan Portfolio below. The two-step loans category is comprised of
loans that were made to an individual who expressed intent at the time of loan
origination to construct a primary residence, a second home, or a
rental/investment property. We have found that the actual use of the constructed
property may change depending on various factors, such as market conditions and
construction related contingencies. Commercial construction, residential
construction, and residential subdivision or site development loans also
contributed to overall growth in the total real estate construction portfolio.
Commercial construction loans include financing provided for non-residential
business properties and multifamily dwellings, while residential construction to
builder loans are generally made to finance commercial builders and developers
of residential properties. Subdivision or site development loans are also
generally made to builders and developers of residential properties.

28

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Real
Estate Mortgage.At December 31, 2007, real estate mortgage loan balances were $331
million or approximately 15% of the Companys total loan portfolio. Home equity
loans and lines represented about $235 million or 71% of the real estate
mortgage portfolio. The Banks home equity loans and lines are substantially
generated by our branches within our market areas. Our underwriting is based on
income that is verified through customary means, borrower debt repayment
capacity, and loan to value ratios that we believe are prudent. At December 31,
2007, slightly less than half of our home equity portfolio was secured by a
first lien, with the remainder of the portfolio generally secured by junior
liens. In excess of 77% of our home equity loans had an original loan to value
ratio of less than 85%.

**Commercial Real Estate.**The composition of commercial real
estate loan types based on collateral is as follows:

| | (Dollars in
      thousands)             | December 31, 2007 |         | December 31, 2006
| | ---------------------------------------- | ----------------- | ------- | -----------------
| |                                          | Amount            |         | Percent          
| | Office Buildings                         | $                 | 179,000 |                  
| | Retail
      Facilities                  |                   | 110,100 |                  
| | Multi-Family - 5+ Residential            |                   | 61,600  |                  
| | Hotels/Motels                            |                   | 42,100  |                  
| | Medical Offices                          |                   | 51,400  |                  
| | Industrial parks
      and related       |                   | 48,800  |                  
| | Commercial/Agricultural                  |                   | 54,400  |                  
| | Assisted
      Living                    |                   | 12,400  |                  
| | Manufacturing Plants                     |                   | 39,200  |                  
| | Land Development
      and Raw Land      |                   | 25,000  |                  
| | Mini Storage                             |                   | 17,000  |                  
| | Food
      Establishments                |                   | 18,300  |                  
| | Other                                    |                   | 137,300 |                  
| | Total commercial
      real estate loans | $                 | 796,600 |                  

The
commercial real estate portfolio declined $8.2 million from December 31, 2006 to
December 31, 2007. Continued market pressure on the pricing of such loans has
been the primary cause of the lack of growth in this portfolio. Office
buildings, retail facilities, and multi-family residential categories account
for 44% of the collateral securing the commercial real estate portfolio, down
from 48% at year end 2006. While the office building category has decreased to
23%, it remains a substantial portion of the Banks commercial real estate
portfolio at year end 2007. We believe Bancorps underwriting of commercial real
estate loans is adequate with loan to value ratios at origination generally not
exceeding 75% and debt service coverage ratios generally at 120% or better.

The composition of the commercial
real estate loan portfolio by occupancy type is as follows:

| |                                          | December 31, |         | December 31, |      |        |   |         |  |       
| | ---------------------------------------- | ------------ | ------- | ------------ | ---- | ------ | - | ------- |  | ------
| |                                          | 2007         |         | 2006         |      | Change
| | (Dollars in thousands)                   | Amount       |         | Percent      |      | Amount |   | Percent |  | Amount
| | Owner-occupied                           | $            | 382,387 |              | 48%  |        | $ | 349,341 |  | 43%   
| | Non owner-occupied                       |              | 414,235 |              | 52%  |        |   | 455,524 |  | 57%   
| | Total commercial real estate
      loans | $            | 796,622 |              | 100% |        | $ | 804,865 |  | 100%  

The
owner-occupied commercial real estate loan portfolio increased $33 million since
December 31, 2006, while the non-owner occupied segment declined $41 million,
and as a result the owner-occupied segment now accounts for 48% of the
commercial real estate portfolio, up from 43% at December 31, 2006. The shift to
owner-occupied commercial real estate loans was primarily caused by significant
pricing pressure on non-owner occupied loan rates from secondary market
participants. In addition, owner-occupied commercial real estate loans tend to
be relationship driven. As a consequence, we have increased the number of
owner-occupied commercial real estate loans in our portfolio.

Credit Management.

Credit
risk is inherent in our lending activities. We manage 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
that are designed to help ensure compliance with our credit standards. Through
the credit review function we monitor all credit related policies and practices
on a post approval basis. The findings of these reviews are communicated to the
chief credit officer and chief executive officer and the Loan, Investment, and
Asset Liability Committee, which is made up of certain directors.

29

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As part
of our ongoing lending process, internal risk ratings are assigned to each
commercial, commercial real estate and commercial real estate construction loan
before the funds are advanced to the customer. Credit risk ratings are based on
our assessment of the borrowers credit worthiness and the quality of our
collateral position at the time a particular loan is made. Thereafter, credit
risk ratings are evaluated on an ongoing basis focusing on our interpretation of
relevant risk factors known to us at the time of each evaluation. Large balance
loans have the credit risk rating reviewed on at least an annual basis. The
internal risk ratings are important when estimating the required allowance for
credit losses. Credit files are examined periodically on a sample test basis by
our credit review department and internal auditors, as well as by regulatory
examiners. Our relationship managers are also responsible for evaluating the
ongoing financial condition of each borrower in their respective portfolio of
loans. These activities include, but are not limited to, maintaining open
communication channels with borrowers, analyzing periodic financial statements
and cash flow projections, evaluating collateral, and monitoring covenant
compliance.

Although
a risk of nonpayment exists with respect to all loans, certain specific types of
risks are associated with different types of loans. The expected source of
repayment of Bancorps loans is generally the cash flow of a particular project,
income from the borrower's business, proceeds from the sale of real property,
proceeds of refinancing, or personal income. As a result of the nature of our
customer base and the growth experienced in the market areas we serve, real
estate is frequently a material component of collateral for the Companys loans.
Risks associated with loans secured by real estate include decreasing land and
property values, material increases in interest rates, deterioration in local
economic conditions, changes in tax policies, tightening credit or refinancing
markets, and a concentration of loans within any one area. See Risk Factors in
Item 1A of this report.

Nonperforming Assets and
Delinquencies

Nonperforming assets.Nonperforming assets
consist of nonaccrual loans, loans past due more than 90 days and still accruing
interest, and OREO. The following table presents information with respect to
nonaccrual loans by category and OREO for the periods presented.

| |                                             | December 31, |          
| | ------------------------------------------- | ------------ | ---------
| | (Dollars in
      thousands)                | 2007         |          
| | Commercial                                  | $            | 2,401    
| | Real estate
      construction              |              | 22,121   
| | Real estate mortgage                        |              | 552      
| | Commercial real
      estate                |              | 1,353    
| | Installment and other consumer              |              | -        
| | Total loans on nonaccrual status            |              | 26,427   
| | Loans past due 90 days or more but not on   |              |          
| | nonaccrual
      status                     |              | -        
| | Other real
      estate owned               |              | 3,255    
| | Total nonperforming assets                  | $            | 29,682   
| | Percentage of
      nonperforming assets to |              |          
| | total assets                                |              | 1.12     
| |                                             |             
| | Total assets                                | $            | 2,646,614

At
December 31, 2007, total nonperforming assets were $29.7 million, or 1.12% of
total assets, compared to $1.5 million, or .06% of total assets, at December 31,
2006. Nonaccrual loans increased to $26.4 million at December 31, 2007, from
$1.5 million at December 31, 2006, a substantial portion of which relate to the
two-step loan portfolio. For additional information, see Nonperforming Assets
and Delinquencies  Two-Step Loans below. The amount of nonaccrual loans
depends on portfolio growth, portfolio seasoning, problem loan recognition and
resolution through collections, sales or charge-offs. The performance of any one
loan can be affected by external factors, such as economic or market conditions,
or factors particular to a borrower, such as actions of a borrowers management
or conditions affecting a borrowers business.

OREO is
real property of which the Bank has taken 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. The Company had 15 OREO properties at December 31, 2007, with a
total net book value of $3.3 million. All but one of these 15 properties was
attributable to the two-step loan portfolio. OREO is recorded at the lower of
the carrying amount of the loan or fair value less estimated costs to sell.
Management utilizes appraisal valuations and judgment in its assessment of fair
market value and estimated selling costs. This amount becomes the propertys
book value at the time it is taken into OREO. Any write-downs based on our
determination of fair market value less estimated cost to sell at the date a
particular property is acquired are charged to the allowance for loan losses.
Management then periodically reviews OREO to determine whether the property
continues to be carried at the lower of its recorded book value or fair value,
net of estimated costs to sell. Any further OREO write-downs or gains on the
sale of OREO are charged to other noninterest income. Expenses from the
maintenance and operations of OREO properties are included in other noninterest
expense in the statements of income. While OREO operational expense was minimal
in 2007, we expect this expense to increase significantly in 2008 as a result of
the projected increase in the number of OREO properties held.

30

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Interest
income on loans is accrued daily on the principal balance outstanding.
Generally, loans are placed on nonaccrual status and no interest is accrued 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. For such loans, previously accrued but uncollected interest is
reversed and charged against current earnings and additional 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 $1.4 million, $.1 million, and $.1 million in 2007, 2006 and 2005
respectively. We anticipate foregone interest to significantly increase in 2008.

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 delay that is 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. Loans that are measured at lower of cost or fair value
and certain large groups of smaller balance homogeneous loans collectively
measured for impairment, are excluded from impairment measurement. Impaired
loans are charged to the allowance for loan losses when management believes,
after considering economic, market, and business conditions, collection efforts,
collateral position, and other factors deemed relevant, that the borrowers
financial condition is such that collection of principal and interest is not
probable.

At
December 31, 2007 and 2006, Bancorps recorded investment in certain loans that
were considered to be impaired was $33.2 million and $6.2 million, respectively.
Of these impaired loans, $21.7 million and $2.5 million had a specific related
valuation allowance of $3.6 million and $1.2 million, respectively, while $11.5
million and $3.7 million did not require a specific valuation allowance at the
same dates. The average recorded investment in impaired loans for the years
ended December 31, 2007, 2006, and 2005 was approximately $15.5 million, $3.8
million and $4.4 million, respectively. For the years ended December 31, 2007,
2006, and 2005, interest income recognized on impaired loans totaled $23,000,
$220,000, and $272,000, respectively, all of which was recognized on a cash
basis. For more information, see Allowance for Credit Losses - Two-Step Loans
below.

Delinquencies.Bancorp also monitors
delinquencies, defined as balances over 30-89 days past due, not in nonaccrual
status, as an important indicator for future nonperforming assets. Total
delinquencies were 2.05% of total loans at December 31, 2007, up from .51% at
December 31, 2006. The majority of the increase in the delinquencies since year
end 2006 was associated with the residential construction portfolio, and
specifically, the two-step loan portfolio. For further discussion, see section
Nonperforming Assets and Delinquencies  Two-Step Loans below. Delinquencies
of commercial loans increased from $3.2 million to $6.1 million, while
delinquent commercial real estate and installment and other consumer loans
declined from year end 2006.

The following table summarizes total
delinquent loan balances by type of loan for the periods shown:

| | (Dollars in thousands)                     | December 31, 2007 |        | December 31, 2006
| | ------------------------------------------ | ----------------- | ------ | -----------------
| |                                            | Amount            |        | Amount           
| | Commercial                                 | $                 | 6,086  |                  
| | Real estate construction                   |                   | 36,941 |                  
| | Real estate mortgage                       |                   | 531    |                  
| | Commercial real estate                     |                   | 792    |                  
| | Installment and other consumer             |                   | 134    |                  
| |                                            |                   |        |                  
| | Total loans 30-89 days past
      due, not |                   |        |                  
| | in nonaccrual status                       | $                 | 44,484 |                  
| |                                           
| | Delinquent loans to total loans            |                   | 2.05%  |                  

31

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Allowance for Credit Losses and Net
Loan Charge-offs

Allowance for Credit Losses.An
allowance for credit losses has been established based on managements best
estimate, as of the balance sheet date, of probable losses inherent in the loan
portfolio. See Critical Accounting Policies above. The allowance for credit
losses is comprised of two components: the allowance for loan losses, which is
the sum of the specific, formula and unallocated allowance, and the reserve for
unfunded commitments. Our methodology for determining the allowance for credit
losses consists of several key elements, which include:

- Specific Allowances.Specific
  allowances are generally established when management has identified unique or
  particular risks that are related to specific loans that demonstrate risk
  characteristics consistent with impairment.Specific allowances may also be established to address the unique risks
  associated with a group of loans or particular type of credit exposure, for
  example, potential losses associated with overdrafts.
- Formula Allowance.The formula allowance is calculated by
  applying loss factors to individual loans based on the assignment of risk
  ratings, or through the assignment of loss factors to homogenous 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 such other data as management believes to be
  pertinent, and may be adjusted for significant factors that, in managements
  judgment, affect the collectibility of the portfolio as of the evaluation
  date. For instance, management believes that commercial and industrial loans
  and real estate construction loans have produced significant losses at
  particular points in time. Therefore, management believes it is appropriate to
  use a reserve higher than recent charge-off experience would suggest in these
  categories of loans.
- Unallocated Allowance.The unallocated loan loss allowance
  represents an amount for imprecision or uncertainty that is inherent in
  estimates used for the allowance, which may change from period to period. This
  portion of the allowance for loan losses currently applies to other than
  two-step loans, and is the result of our judgment about risks inherent in the
  portfolio, economic uncertainties, historical loss experience relative to
  current trends, and other subjective factors.Other considerations include: regional economic and business conditions
  that impact important segments of our portfolio, loan growth rates, depth and
  skill of lending staff, the interest rate environment, and bank regulatory
  examination results and findings of our internal credit examiners. Prior to
  September 30, 2007, the unallocated portion of our allowance also covered
  expected losses associated with unfunded commitments.
- Reserve for Unfunded Commitments.A reserve for unfunded commitments is
  maintained at a level that, in the opinion of management, is adequate to
  absorb probable losses associated with commitments to lend funds under
  existing agreements; for example, the banks commitment to fund advances under
  lines of credit. The reserve amount for unfunded commitments is determined
  based on our methodologies described above with respect to the formula
  allowance. As our unfunded commitments decrease due to the transition to a
  funded loan, the corresponding reserve for unfunded commitments will decrease.
  The decrease to the provision for credit losses associated with decreases in
  the balance of unfunded commitments will be offset at least in part by an
  increase in the allowance for loan losses related to an additional amount
  funded. For further information, see Critical Accounting Policies above. The
  reserve for unfunded commitments was $8.0 million at December 31, 2007, due
  mainly to the estimated required allowance for unfunded commitments associated
  with the two-step portfolio. For more information, see Allowance for Credit
  Losses - Two-Step Loans below.

At
December 31, 2007, the allowance for credit losses was $54.9 million, consisting
of a $41.4 million formula allowance, a $3.6 million specific allowance, a $1.9
million unallocated allowance and an $8.0 million reserve for unfunded
commitments. At December 31, 2006, the allowance for loan losses of $23.0
million (inclusive of the reserve for unfunded commitments, which was zero)
consisted of a $20.7 million formula allowance, a $1.2 million specific
allowance, and a $1.1 million unallocated allowance. The increase in the
allowance was significantly driven by the allowance for credit losses required
for the two-step loan program. For more information, see Allowance for Credit
Losses - Two-Step Loans below.

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. In addition, net overdraft losses are included in the
calculation of the allowance for credit losses per the guidance provided by
regulatory authorities early in 2005, Joint Guidance on Overdraft Protection
Programs.

32

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Changes in the total allowance for
credit losses for full years ended December 31, 2007 through December 31, 2003,
are presented in the following table.

|                                                   | December 31,
|-------------------------------------------------- | ------------
|(Dollars in
      thousands)                       | 2007        
|Loans outstanding at end of period                 | $           
|Average loans
      outstanding during the period  | $           
|                                                  
|Allowance for loan loss, beginning of period       | $           
|Allowance for
      loan loss, from acquisition    |             
|Loans charged off:                                 |             
|Commercial                                         |             
|Real estate                                        |             
|Installment and consumer                           |             
|Overdraft                                          |             
|Total loans charged off                            |             
|Recoveries:                                        |             
|Commercial                                         |             
|Real estate                                        |             
|Installment and consumer                           |             
|Overdraft                                          |             
|Total recoveries                                   |             
|Net loans charged off                              |             
|Provision for
      credit loss                    |             
|Allowance for credit loss, end of period           | $           
|                                                  
|Components of allowance for credit losses          |             
|Allowance for loan losses                          | $           
|Reserve for unfunded
      commitments             |             
|Total allowance
      for credit losses            | $           
|                                                  
|Ratio of net loans charged off to average          |             
|loans
      outstanding                            |             
|Ratio of
      allowance for loan losses to end of |             
|period loans                                       |             
|Ratio of allowance for credit losses to end of     |             
|period
      loans                                 |             

The
increase in the total allowance for credit losses in 2007 was primarily due to a
higher reserve for credit losses associated with the two-step loan portfolio,
including its commitments, delinquencies, nonaccrual loans, and related
charge-offs. At December 31, 2007, our allowance for credit losses was 2.53% of
total loans and 185% of total nonperforming loans, compared with an allowance
for credit losses at December 31, 2006, of 1.18% of total loans, and 1568% of
total nonperforming loans, respectively. For more information, see Allowance
for Credit Losses - Two-Step Loans below.

At
December 31, 2007, our total allowance for loan losses was $46.9 million, or
2.16% of total loans, and 158% of total nonperforming assets, compared with an
allowance for loan losses at December 31, 2006, of $23.0 million, or 1.18% of
total loans, and 1568% of total nonperforming assets.

33

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The following table presents the
composition of the Companys total allowance for loan losses.

| | (Dollars in
      thousands)    | December 31,
| | ------------------------------- | ------------
| |                                 | 2007        
| |                                 |             
| |                                 |             
| |                                 |             
| |                                 | Amount      
| | Commercial                      | $           
| | Real estate
      construction  |             
| | Real estate mortgage            |             
| | Commercial real
      estate    |             
| | Installment and other           |             
| | Unallocated                     |             
| | Total allowance for loan losses | $           

The
allowance for loan losses is based upon estimates of probable losses inherent in
the loan portfolio. The actual losses may vary significantly from the estimated
amounts. Our methodology discussed previously 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.

Overall,
we believe that the allowance for credit losses is adequate to absorb losses in
the loan portfolio at December 31, 2007. The process for determining the
adequacy of the allowance for credit losses is critical to our financial
results. It requires difficult, subjective and complex judgments as a result of
the need to make estimates about the effect of matters that are uncertain.
Therefore, we cannot provide assurance that, in any particular period, we will
not have sizeable credit losses in relation to the amount reserved. We may later
need to significantly adjust the allowance for credit losses considering factors
in existence at such time, including economic, market, or business conditions
and the results of ongoing internal and external examination processes.

Net Loan Charge-offs.During 2007, total
net loan charge-offs were $7.1 million compared to $1.1 million in 2006. Net
loan charge-offs reflect the realization of net losses in the loan portfolio
that were recognized previously through the provision for credit losses. The net
loan charge-offs average to total average loans outstanding was .34% for the
year ended 2007, up from .12% in 2006. Since December 31, 1999, the total annual
net loan charge-off percentage has ranged from .05% to .34%, an unusually low
range compared to the long term historical experience. We expect our total net
loan charge-off percentage to increase significantly above this range in 2008 as
we recognize loan losses on the two-step loan portfolio and we anticipate a more
challenging stage in the credit cycle.

34

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Additional Loan Portfolio Disclosure

We are
providing additional information below regarding nonperforming assets and the
allowance for credit losses that distinguishes loans other than two-step loans
from those in our two-step loan portfolio. Management is providing this
information to aid in the readers understanding of the impact of the two-step
loan portfolio on our entire loan portfolio.

The first
section includes additional information regarding loans in our loan portfolio
other than two-step loans. The second section includes information solely
relating to loans in our two-step loan portfolio. For information regarding our
total loan portfolio, please see the preceding section.

Loans Other Than Two-Step
Loans

The
following table shows our total loan portfolio by category, as well as the
breakout of the two-step loan portfolio from our other real estate construction
loans.

| | (Dollars in
      thousands, unaudited)     | December 31, |           | September 30,
| | ------------------------------------------- | ------------ | --------- | -------------
| |                                             | 2007         |           | 2006         
| | Commercial loans                            | $            | 504,101   |              
| | Real estate
      construction loans1       |              | 517,988   |              
| | Real estate mortgage loans                  |              | 330,803   |              
| | Commercial real
      estate loans          |              | 796,622   |              
| | Installment and other consumer loans        |              | 23,155    |              
| | Total loans                                 | $            | 2,172,669 |              
| |                                            
| | 1Two-step loans                             | $            | 262,952   |              
| | All other construction
      loans          |              | 255,036   |              
| | Total real estate construction loans        | $            | 517,988   |              
| |                                            
| | Two-step loans                              |              | 262,952   |              
| | Total loans
      other than two-step loans |              | 1,909,717 |              
| | Total loans                                 | $            | 2,172,669 |              

As shown
above, loans other than two-step loans were $1.91 billion at year end 2007, up
$134 million, or 8%, from December 31, 2006.

Nonperforming Assets and
Delinquencies  Loans Other Than Two-Step Loans

Nonperforming assets - Loans Other Than Two-Step Loans.Nonperforming assets among loans other than two-step loans
increased from $.9 million at year end 2006 to $5.9 million or .31% of the other
than two-step loan portfolio at year end 2007. The increase in nonperforming
assets in this portfolio was due to higher levels of nonaccrual loans, largely
represented by one commercial real estate construction loan in the amount of
$1.5 million and one commercial loan in the amount of $1.2 million.

The
following table presents information about our nonperforming assets,
delinquencies and the allowance for loan losses relating to loans other than
two-step loans at the dates shown.

|                                                                                                                 | December 31, |       | Sept. 30,
|---------------------------------------------------------------------------------------------------------------- | ------------ | ----- | ---------
|(Dollars in thousands, unaudited)                                                                                | 2007         |       | 2006     
|Non-accruing loans other than two-step loans                                                                     | $            | 5,882 |          
|90
      day past due and accruing interest                                                                      |              | -     |          
|Total nonperforming loans other
      than two-step loans                                                        |              | 5,882 |          
|                                                                                                                 |             
|Other real estate owned other than two-step loans                                                                |              | -     |          
|Total nonperforming assets other than two-step loans                                                             | $            | 5,882 |          
|                                                                                                                 |             
|Delinquent other than two-step loans 30-89 days past
      due                                                   | $            | 7,706 |          
|                                                                                                                 |             
|Nonperforming loans other than two-step loans to total
      loans other than two-step loans                     |              | 0.31  | %        
|Nonperforming assets other than two-step assets to total
      assets                                            |              | 0.22  | %        
|Allowance for loan losses other than two-step loan
      losses to nonperforming loans other than two-step loans |              | 391   | %        
|Delinquent loans other than two-step loans to total loans other
      than two-step loans                        |              | 0.40  | %        

35

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**Delinquencies -
Loans Other Than Two-Step Loans.**Delinquencies in the other than two-step loan portfolio, defined as loans
30 to 89 days past due, was basically unchanged at 40basis points at December 31, 2007,
compared to 39 basis points at December 31, 2006, and remained low relative to
our historical range.

Allowance for Credit Losses and Net
Loan Charge-offs  Loans Other Than Two-Step Loans

**Allowance for Credit Losses
- Loans Other Than Two-Step Loans.**The
provision for credit losses for loans other than two-step loans during 2007 was
$8.0 million, up from $1.3 million in 2006. The largest driver of the higher
provision for credit losses for this category was net loan charge-offs, with
risk rating migration accounting for the majority of the remaining increase. Net
loan charge-offs were $4.5 million for the year ended December 31, 2007 compared
to $1.1 million for the year ended December 31, 2006. The risk rating migration
largely consisted of commercial loans and residential construction loans to
builders being moved to higher risk rating categories. At December 31, 2007, the
allowance for credit losses for loans other than two-step loans of $23.8 million
consisted of a $20.3 million formula allowance, a $.7 million specific
allowance, a $1.9 million unallocated allowance, and a $.9 million reserve for
unfunded commitments. At December 31, 2006, the allowance for loan losses for
loans other than two-step loans of $23.0 million consisted of a $20.7 million
formula allowance, a $1.2 million specific allowance, and a $1.1 million
unallocated allowance.

The
following table presents information with respect to the change in our allowance
for credit losses relating to loans other than two-step loans.

| | (Dollars in
      thousands)                                                             | December 31,
| | ---------------------------------------------------------------------------------------- | ------------
| |                                                                                          | 2007        
| | Allowance for credit losses other than two-step loans, beginning of
      period         | $           
| | Provision for credit losses other than
      two-step loans                              |             
| |                                                                                         
| | Charge-offs other than two-step
      loans                                              |             
| | Recoveries other than two-step
      loans                                               |             
| | Net Charge-offs other than two-step loans                                                |             
| |                                                                                         
| | Allowance for credit losses, from acquisition                                            |             
| |                                                                                         
| | Total allowance for credit losses other than two-step loans                              | $           
| |                                                                                         
| | Components of allowance for credit losses other than two-step
      loans                |             
| | Allowance for loan losses other than two-step
      loans                                | $           
| | Reserve for unfunded
      commitments other than two-step loans                         |             
| | Total allowance
      for credit losses other than two-step loans                        | $           
| |                                                                                         
| | Net loan charge-offs to average loans other than two-step
      loans                    |             
| | Allowance for
      other than two-step loan losses to total other than two-step loans   |             
| | Allowance for other than two-step credit losses to total other than
      two-step loans |             

Net
Loan Charge-offs  Loans Other Than Two-Step Loans.The $4.5 million net loancharge-offs for loans other than two-step
loans in 2007 were largely attributable to losses related to commercial loans
and overdrafts. Losses on two commercial relationships amounted to $3.6 million.
The total loss through the third quarter of 2007 associated with one of the
commercial borrowers was previously reported in the amount of $2.4 million; the
loss on the second commercial borrower occurred late in fourth quarter 2007 in
the amount of $1.2 million. In both cases, losses were related to unique
circumstances with each business and management does not believe those losses
are indicative of a deterioration in overall asset quality in the commercial
loan portfolio. Net overdraft losses were $.8 million in 2007 compared to $.7
million for 2006. Net overdraft losses were spread across the Banks retail and
business customers. Overdrafts are actively managed and specifically reserved
for under our allowance for credit losses.

36

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Two-Step Loan
Portfolio

As discussed previously, the real
estate construction loan category expanded rapidly over the past few years,
reflecting the high levels of construction activity and related lending in the
markets in which we operate. Our two-step loan program, which involved loans to
individual borrowers to finance construction of residential properties, began in
the first quarter 2002, but activity in the two-step loan portfolio accelerated
significantly beginning in the first quarter of 2005. The program was referred
to as the two-step loan program because each project involved two steps;
initial construction financing that was provided by the Bank and secondary, or
take-out, financing that was intended to be provided by third parties. The
program was discontinued on October 19, 2007.

At
December 31, 2007, the outstanding balance of loans originated in the two-step
loan program was $263.0 million compared to $172 million at December 31, 2006.
The majority of the two-step loan portfolio is scheduled to mature by June 30,
2008.

The Bank
originated $252.7 million in two-step loans in the twelve months ended December
31, 2007, compared to $297.6 million in the same period of 2006. The following
table presents two-step loan originations by quarter for the past two years:

| | (Dollars in
      thousands) | Two-step residential
| | ---------------------------- | --------------------
| |                              | construction loan   
| | Period ended                 | originations        
| | First quarter 2006           | $                   
| | Second quarter
      2006    |                     
| | Third quarter 2006           |                     
| | Fourth quarter
      2006    |                     
| | Total 2006                   | $                   
| |                             
| | First quarter 2007           | $                   
| | Second quarter
      2007    |                     
| | Third quarter 2007           |                     
| | Fourth quarter
      2007    |                     
| | Total 2007                   | $                   

The
combination of tighter underwriting criteria implemented in the second and third
quarters of 2007 and a softer residential housing market slowed origination
volumes within the two-step loan program in the second and third quarters. The
continued sharp decline in the fourth quarter of 2007 reflects the impact of
discontinuing the two-step loan program.

The
following table presents two-step loan balance, unused commitment and total
commitment detail as of the end of each period presented:

| | (Dollars in
      thousands) |              |         |                    |   |                          |  | Two-step commitments
| | ---------------------------- | ------------ | ------- | ------------------ | - | ------------------------ |  | --------------------
| |                              | Two-step     |         | Two-step loan      |   | (
      loan balance    
| | Period ended                 | loan balance |         | unused commitments |   | plus unused commitments)
| | First quarter 2006           | $            | 85,129  |                    | $ | 66,914                   |  | $                   
| | Second quarter
      2006    |              | 111,256 |                    |   | 77,846                   |  |                     
| | Third quarter 2006           |              | 138,939 |                    |   | 105,246                  |  |                     
| | Fourth quarter
      2006    |              | 171,692 |                    |   | 132,732                  |  |                     
| | First quarter 2007           |              | 216,371 |                    |   | 160,918                  |  |                     
| | Second quarter
      2007    |              | 256,332 |                    |   | 149,902                  |  |                     
| | Third quarter 2007           |              | 274,747 |                    |   | 123,447                  |  |                     
| | Fourth quarter
      2007    |              | 262,952 |                    |   | 78,585                   |  |                     

Total
two-step loan balances plus unused commitments peaked in the second quarter of
2007. Moreover, two-step unused commitments at December 31, 2007, declined 51%
from its peak at the end of the first quarter of 2007, reflecting the lower
volume of new two-step loan originations combined with a higher level of draws
on more mature two-step loans in our two-step loan portfolio. As a result of the
significantly lower amount of two-step unused commitments at year end 2007
compared to prior periods in 2007 and no further commitments being issued, it is
anticipated that the two-step loan balances will run-off over the next nine to
twelve months.

37

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The
following table presents two-step commitments outstanding at December 31, 2007,
by the period in which the loan commitments mature.

| | (Dollars in
      thousands) | Two-step residential 
| | ---------------------------- | ---------------------
| |                              | construction loan    
| | Period ended                 | commitment maturities
| | Maturities in 2007           | $                    
| | First quarter
      2008     |                      
| | Second quarter 2008          |                      
| | Third quarter
      2008     |                      
| | Fourth quarter 2008          |                      
| | Total                        | $                    

Approximately 84% of 2008 maturities are scheduled to occur by the end of
the second quarter. Actual maturities may occur somewhat later as certain
commitments are projected to be extended in the regular course of our
construction lending business. The majority of the $51.4 million in two-step
loans that matured during 2007 were either delinquent or nonperforming loans at
year end 2007.

The following table illustrates
two-step loan commitments by geographic areas.

| |                                                                    | December 31,
| | ------------------------------------------------------------------ | ------------
| | Region                                                             | 2007        
| | Portland, Oregon / Vancouver, Washington                           | $           
| | Western
      Washington (Olympia, Seattle)                        |             
| | Central Oregon (Bend, Redmond)                                     |             
| | Oregon Coast
      (Newport, Lincoln City)                         |             
| | Willamette Valley (Salem, Eugene)                                  |             
| | Southern Oregon
      (Medford, Roseburg)                          |             
| | Total residential real estate construction
      loan originations | $           

Credit Management - Two-Step
Loans



- Increasing customer contact prior to loan
  maturity and encouraging early action to secure permanent financing or
  identify reasonable alternatives. We are initiating customer contact up to 120
  days prior to maturity in order to determine the best strategy for each
  borrower. At this point, this typically includes helping the borrower identify
  permanent mortgage programs, extending the construction period for successful
  home completion and if third party or company take-out mortgage financing is
  not expected to materialize, attempting to pursue the least costly alternative
  in terms of property disposition.
- Identifying higher risk elements within the
  portfolio and developing risk mitigation strategies. As patterns emerge that
  allow us to isolate risk elements, we evaluate appropriate action steps for
  risk mitigation and appropriate reserve adequacy.
- Adding resources to assist with collection
  efforts and the management and sale of OREO property. We have expanded our
  capacity to address troubled loans by increasing staffing levels in our
  special assets and collections groups. We have also increased our capacity by
  contracting with a third party collection service and a work out
  specialist.
- Providing mortgage loans to two-step borrowers
  who qualify. We have developed a set of mortgage loan products to provide
  bridge financing or permanent mortgage loans, collectively called replacement
  financing, to qualified borrowers with maturing two-step loans. This program
  is designed to assist two-step borrowers in their transition from a
  construction loan to permanent financing. Financing terms are generally more
  flexible than our standard products; however, in all cases, each loan request
  is considered based on a thorough review of the borrowers repayment capacity.
  Under certain circumstances, we may consider discounting debt in order to
  restructure the loan to fit the borrowers debt service
  capacity.

Since
October 31, 2007, the number of active two-step loans has been reduced by 109
and total two-step loan commitments have decreased by $47 million. From October
31, 2007 to year end, we made 20 real estate mortgage loans totaling 7.5 million
that were underwritten by the Bank as replacement loans for loans in the
two-step loan portfolio. We believe replacement loans will fully perform
relative to the terms and conditions of the loan contract, provided
circumstances do not change. At December 31, 2007, we had 55 additional
applications in process for mortgage loans totaling $17.8 million. Mortgage
loans funded by the Bank in this program will be identified and internally
segregated into a separate loan portfolio for ongoing credit management and
monitoring purposes.

38

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Nonperforming Assets and
Delinquencies  Two-Step Loans

**Nonperforming Assets 
Two-Step Loans.**The deterioration of
asset quality in our two-step loan portfolio became significantly more
pronounced in the fourth quarter of 2007. Nonperforming two-step assets were
$23.8 million or 80% of total nonperforming assets at December 31, 2007. At
December 31, 2007, total nonperforming two-step assets consisted of $20.5
million in loans placed on nonaccrual, and the book value of 14 residential
properties carried in OREO in the amount of $3.3 million. We anticipate
nonperforming assets associated with the two-step loan portfolio will continue
to increase significantly in 2008.

Subsequent to December 31, 2007, the
Bank amended its loan policy regarding the timing of placing certain segments of
the real estate construction loan portfolio on nonaccrual status, including, as
examples, loans that are over 30 days past due and construction is incomplete,
loans that are 60 days past due and construction is completed, and all loans
made to borrowers that have not commenced construction.  The amendments to
our loan policy will apply to the entire construction loan portfolio; however,
primarily the two-step loan portfolio is affected by the amended loan
policy.  Had the amended loan policy been in effect at December 31, 2007,
nonaccrual two-step loans would have increased by $28.9 million, while
delinquent 30-89 days past due two-step loans would have decreased by $24.4
million to $12.4 million.

Two-step
OREO property represents real property which the Bank has taken possession of
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. It typically takes two to seven months
following initial delinquency before property is recorded into OREO depending
upon the resolution strategy and the complexities associated with the specific
property. At year end 2007, we had approximately 95 properties in various stages
of foreclosure, representing $32.0 million in loan balances. We expect the
majority of these properties to be recorded into OREO during the second and
third quarters of 2008. As this occurs, loan charge-offs will increase against
our two-step allowance for loan losses. To date, the majority of the OREO
properties were acquired through non-judicial foreclosures, as the borrowers
have not shown capacity to support the debt. Additional recoveries from two-step
loan borrowers are expected to be limited.

The
following table presents information about our nonperforming assets,
delinquencies and the allowance for credit losses relating to two-step loans at
the dates shown.

| | Dollars in
      thousands                                                | December 31, |        | September 30,
| | ------------------------------------------------------------------------- | ------------ | ------ | -------------
| |                                                                           | 2007         |        | 2006         
| | Non-accruing two-step loans                                               | $            | 20,545 |              
| | 90 day past and
      accruing interest two-step loans                    |              | -      |              
| | Total nonperforming two-step loans                                        |              | 20,545 |              
| |                                                                          
| | Other real estate owned two-step                                          |              | 3,255  |              
| | Total
      nonperforming two-step assets                                 | $            | 23,800 |              
| |                                                                          
| | Delinquent two-step loans 30-89 days past due                             | $            | 36,778 |              
| |                                                                          
| | Nonperforming two-step loans to total two-step loans                      |              | 7.81   | %            
| | Nonperforming
      two-step assets to total assets                       |              | 0.90   | %            
| | Allowance for two-step loan losses to nonperforming two-step
      loans  |              | 116    | %            
| | Allowance for
      two-step loan losses to nonperforming two-step assets |              | 100    | %            
| | Delinquent two-step loans to total two-step loans                         |              | 13.99  | %            

**Delinquencies - Two-Step
Loans.**Delinquencies in the two-step
loan portfolio increased significantly to $36.8 million at December 31, 2007
from $3.0 million at year end 2006. Delinquent two-step loans were 13.99% of
total two-step loans at December 31, 2007, up from 1.73% at December 31, 2006
and 3.60% at September 30, 2007. Common issues causing delinquency among
two-step borrowers include: difficulties obtaining permanent financing,
construction delays or cost overruns, valuations on completed projects below
expectations, borrower cash flow limitations, and borrowing that appears to have
been for investment purposes without the capacity to carry the property through
a down sales cycle.

39

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Allowance for Credit Losses and Net
Loan Charge-offs  Two-Step Loans

**Allowance for Credit Losses
- Two-Step Loans.**As mentioned under
Provision for CreditLosses above, a $27.8 million provision for credit losses associated
with the two-step portfolio was recorded in the fourth quarter of 2007. Net
charge-offs in the two-step portfolio were $2.5 million in 2007, of which $1.9
million occurred in the fourth quarter, compared to no net charge-offs in 2006.
The allowance for credit losses associated with the two-step loan portfolio
increased to $31.1 million or 11.8% of total two-step loans at December 31,
2007, up significantly from $2.6 million and 1.52%, respectively, at year end
2006. The two-step allowance for credit losses is allocated into three separate
components as follows: a pool based formula allowance of $21.1 million, specific
reserves for impaired two-step loans totaling $2.9 million, and a $7.1 million
reserve for unfunded commitments. We will record actual future charge-offs in
the two-step loan portfolio against the allowance for loan losses assigned to
the portfolio. We anticipate that the allowance for credit losses relating to
the two-step loan portfolio at December 31, 2007 is adequate to cover credit
losses inherent in the two-step loan portfolio as of that date based on our
knowledge at that time; however, there are a number of factors that could cause
results to differ, perhaps materially, from our expectations, including further
deterioration in credit quality, declining home values, extraordinary
construction costs to complete unfinished homes, or various economic
factors.

The
following table presents information with respect to the change in our allowance
for credit losses relating to the two-step loan portfolio.

| |                                                                       |              |        | Quarter to date
| | --------------------------------------------------------------------- | ------------ | ------ | ---------------
| | (Dollars in
      thousands)                                          | December 31, |        | September 30,  
| |                                                                       | 2007         |        | 2006           
| | Allowance for credit losses two-step loans, beginning of
      period | $            | 2,618  |                
| | Provision for credit losses two-step loans                            |              | 30,980 |                
| |                                                                      
| | Charge-offs two-step loans                                            |              | (2,540 | )              
| | Recoveries two-step loans                                             |              | 7      |                
| | Net loan charge-offs two-step loans                                   |              | (2,533 | )              
| |                                                                       |              |        |                
| | Total allowance for credit losses two-step loans                      | $            | 31,065 |                
| |                                                                      
| | Components of allowance for credit losses two-step
      loans        |              |        |                
| | Allowance for loan losses two-step loans                              | $            | 23,917 |                
| | Reserve for unfunded commitments two-step loans                       |              | 7,148  |                
| | Total allowance for credit losses two-step loans                      | $            | 31,065 |                
| |                                                                      
| | Net two-step loan charge-offs to average total loans                  |              | 0.12   | %              
| | Allowance for
      two-step loan losses to total two-step loans      |              | 9.10   | %              
| | Allowance for two-step credit losses to total two-step
      loans    |              | 11.81  | %              

Net
Loan Charge-offs  Two-Step Loans.Net
loancharge-offs in the two-step loan portfolio increased from $0 in 2006 to
$2.5 million in 2007. It is anticipated that net charge-offs against the
established allowance for credit losses for the two-step loan portfolio will
increase significantly in the first and subsequent quarters in 2008, as
additional two-step loans are impaired and more properties are recorded into
OREO.

40

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Deposits and Borrowings

We use a mix of deposits and
borrowings to fund earning asset growth. The composition of the mix depends in
part on our interest rate risk position, funding costs of the various
alternatives, the level and shape of the yield curve, collateral requirements
and overall customer demand, and on credit market conditions. Our marketing
efforts are primarily focused on growing business and consumer accounts and
balances in lower cost products such as demand deposits, interest bearing demand
and money market accounts. Borrowings are used to manage short-term volatility
in funding needs and when they are less expensive than deposits or when
necessary to adjust our interest rate risk position.

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.

| |                                     | 2007            |           | 2006      |      | 2005           
| | ----------------------------------- | --------------- | --------- | --------- | ---- | ---------------
| | (Dollars in
      thousands)        | Average Balance |           | Rate Paid |      | Average Balance
| | Demand                              | $               | 479,310   |           | -    |                
| | Interest bearing
      demand       |                 | 278,734   |           | 1.23 | %              
| | Savings                             |                 | 72,787    |           | 0.78 | %              
| | Money
      Market                  |                 | 665,037   |           | 3.75 | %              
| | Time deposits                       |                 | 554,263   |           | 4.70 | %              
| | Short-term
      borrowings         |                 | 136,731   |           | 5.16 | %              
| | Long-term borrowings (1)            |                 | 113,748   |           | 5.61 | %              
| | Total deposits
      and borrowings | $               | 2,300,610 |           | 3.76 | %              

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

Average
core deposits consisting of demand, interest bearing demand, savings, and money
market deposits increased 10% in 2007 compared to 2006. We believe 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;
- Continued promotion of free checking
  products; and
- Active marketing efforts within our
  markets.

The
Companys total average demand balances, of which approximately 90% are related
to business customers, are driven primarily by the number of accounts and the
seasonal fluctuation in average balances per account, peaking in late fall with
a trough in the first quarter. The overall level of short-term market interest
rates and the shape of the yield curve influence average demand balances as
certain account analysis and other business customers seek to maintain balances
necessary to cover service charges.

Growth in
time deposits is primarily driven by the rates paid by the Company. We adjust
the relative attractiveness of these deposits based on loan growth, borrowing
costs and other factors. In 2007, we promoted money market accounts with high
introductory rates. We retained, and continue to retain, the majority of the new
balances generated in this promotion.

Average
short-term borrowings during the year ended December 31, 2007, were $118 million
higher than the year ended December 31, 2005. The growth in short-term
borrowings since 2005 was primarily used to fund the growth in the two-step loan
portfolio. Similar to short-term borrowings, two-step loans typically mature
within one year of origination. We use longer term borrowing to match fund
longer term loans and investments.

41

---

As of December 31, 2007, time
deposits are presented below at the earlier of the next repricing date or
maturity.

| |                                                        | Time
      Deposits |         |                     |       |                    
| | ------------------------------------------------------ | ------------------- | ------- | ------------------- | ----- | -------------------
| | (Dollars in
      thousands)                           | of $100,000 or More |         | Other Time Deposits |       | Total Time Deposits
| |                                                        | Amount              |         | Percent             |       | Amount             
| | Reprice/mature in 3 months or less                     | $                   | 146,963 |                     | 50.8  | %                  
| | Reprice/mature
      after 3 months through 6 months   |                     | 61,939  |                     | 21.4  | %                  
| | Reprice/mature after 6 months through one year         |                     | 61,484  |                     | 21.2  | %                  
| | Reprice/mature
      after one year through five years |                     | 19,081  |                     | 6.6   | %                  
| | Reprice/mature after five years                        |                     | -       |                     | 0.0   | %                  
| | Total                                                  | $                   | 289,467 |                     | 100.0 | %                  

Average
time deposits increased $97.2 million, or 21.3% in 2007, compared to 2006, due
to a shift in consumer demand toward time deposits and more aggressive pricing
of time deposits in the second-half of the year to support the strong loan
growth during this period. Over 90% of time deposits will mature and reprice in
the next 12 months. 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 more than anticipated. The level of time deposits in the future depends
not only on customer preferences for time deposits but also our need for deposit
funding volume as well as the required pricing to retain and attract time
deposits relative to other funding alternatives including borrowings from
Federal Home Loan Bank of Seattle (FHLB).

As of
December 31, 2007, long-term and short-term borrowings through FHLB had the
following items remaining to contractual maturity.

| | (Dollars in
      thousands)   | Due
      in three |         | three
      months |   | Due
      after one year |  | Due
      after |        |      
| | ------------------------------ | ------------------ | ------- | ------------------ | - | ------------------------ |  | --------------- | ------ | -----
| |                                | months or less     |         | through one year   |   | through five years       |  | five years      |        | Total
| | Short-term borrowings          | $                  | 157,000 |                    | $ | 10,000                   |  | $               | -      |      
| | Long-term
      borrowings (1) |                    | -       |                    |   | -                        |  |                 | 83,100 |      
| | Total borrowings               | $                  | 157,000 |                    | $ | 10,000                   |  | $               | 83,100 |      

|(1) |  | Based on contractual
      maturities and may vary based on call
dates.
|--- |  | -----------------------------------------------------------------------

Deposit growth remains a key
strategic focus for us and our ability to achieve deposit growth, particularly
growth in core deposits, is subject to many risk factors including the effects
of 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 our ability to attract and
retain deposits and could have a material negative impact on net income.

42

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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 of the impact of trust
preferred securities on capital adequacy requirements. As of December 31, 2007,
Bancorp and the Bank were considered Well Capitalized under the regulatory
risk based capital guidelines.

Stockholders equity was $208.2 million at December 31, 2007, compared to
$200.9 million at December 31, 2006, an increase of $7.3 million or 4% over that
period of time. At December 31, 2007, the Banks total capital was 10.54% of
risk weighted assets, compared to 10.23% at December 31, 2006. The Banks total
capital stood at $260.1 million at year end 2007 compared to $235.7 million at
year end 2006. Regulatory capital guidelines required the Bank's total capital
to be $246.7 million or 10% or higher as a percent of total risk weighted assets
at December 31, 2007, in order for the Bank to be designated "Well
Capitalized".

As the following table indicates,
Bancorp and the Bank currently exceed the regulatory minimum capital ratio
requirements.

| |                              |        |           |       |       | Required For Minimum |  |                              
| | ---------------------------- | ------ | --------- | ----- | ----- | -------------------- |  | -----------------------------
| | (Dollars in
      thousands) |        |           |       |       | Capital Adequacy     |  | Required For Well Capitalized
| | December 31,
      2007      | Actual |           |       |       |                      |  |                              
| |                              | Amount |           | Ratio |       | Amount               |  | %                            
| | Tier 1 Capital               |        |           |       |       |                      |  |                              
| | West Coast
      Bancorp     | $      | 244,165   |       | 9.88  | %                    |  | $                            
| | West Coast Bank              |        | 228,976   |       | 9.28  | %                    |  |                              
| |                              |        |           |       |       |                      |  |                              
| | Total
      Capital          |        |           |       |       |                      |  |                              
| | West Coast Bancorp           | $      | 275,306   |       | 11.15 | %                    |  | $                            
| | West Coast
      Bank        |        | 260,080   |       | 10.54 | %                    |  |                              
| |                              |        |           |       |       |                      |  |                              
| | Leverage Ratio               |        |           |       |       |                      |  |                              
| | West Coast
      Bancorp     | $      | 244,165   |       | 9.41  | %                    |  | $                            
| | West Coast Bank              |        | 228,976   |       | 8.83  | %                    |  |                              
| |                              |        |           |       |       |                      |  |                              
| | Risk weighted
      assets   |        |           |       |       |                      |  |                              
| | West Coast Bancorp           | $      | 2,470,097 |       |       |                      |  |                              
| | West Coast
      Bank        |        | 2,467,165 |       |       |                      |  |                              
| |                              |        |           |       |       |                      |  |                              
| | Adjusted total assets        |        |           |       |       |                      |  |                              
| | West Coast
      Bancorp     | $      | 2,595,174 |       |       |                      |  |                              
| | West Coast Bank              |        | 2,594,280 |       |       |                      |  |                              
| |                              |        |           |       |       |                      |  |                              
| | December 31,
      2006      |        |           |       |       |                      |  |                              
| | Tier 1 Capital               |        |           |       |       |                      |  |                              
| | West Coast
      Bancorp     | $      | 227,165   |       | 9.85  | %                    |  | $                            
| | West Coast Bank              |        | 212,446   |       | 9.22  | %                    |  |                              
| |                             
| | Total Capital                |        |           |       |       |                      |  |                              
| | West Coast
      Bancorp     | $      | 250,406   |       | 10.85 | %                    |  | $                            
| | West Coast Bank              |        | 235,688   |       | 10.23 | %                    |  |                              
| |                             
| | Leverage Ratio               |        |           |       |       |                      |  |                              
| | West Coast
      Bancorp     | $      | 227,165   |       | 9.64  | %                    |  | $                            
| | West Coast Bank              |        | 212,446   |       | 9.01  | %                    |  |                              
| |                             
| | Risk weighted assets         |        |           |       |       |                      |  |                              
| | West Coast
      Bancorp     | $      | 2,306,935 |       |       |                      |  |                              
| | West Coast Bank              |        | 2,303,893 |       |       |                      |  |                              
| |                             
| | Adjusted total assets        |        |           |       |       |                      |  |                              
| | West Coast
      Bancorp     | $      | 2,357,369 |       |       |                      |  |                              
| | West Coast Bank              |        | 2,356,715 |       |       |                      |  |                              

Adjusted total assets
used in the calculation of the leverage ratio are based on quarterly average
total assets as defined for regulatory reporting purposes.

43

---

In July 2000, we
announced a stock repurchase program that was expanded in September 2000, June
2001, September 2002, April 2004, and most recently by 1.0 million shares in
September 2007. Under this plan, the Company can purchase up to 4.88 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. When evaluating timing and amount of common stock repurchases,
management considers a number of factors including, but not limited to, its
projected earnings generation, risk weighted asset growth, capital ratios
relative to regulatory capital guidelines, cash dividends on its common stock,
availability and cost of other capital sources, and the market valuation of its
stock price. We do not anticipate material share repurchases in the first half
of 2008.

Total shares available for
repurchase under this plan were approximately 1,052,000 at December 31, 2007.
The following table presents information with respect to Bancorps stock
repurchase program.

| |                                         |                              |  |                            |        | Average cost per
| | --------------------------------------- | ---------------------------- |  | -------------------------- | ------ | ----------------
| | (Shares and
      dollars in thousands) | Shares repurchased in period |  | Cost of shares repurchased |        | share           
| | Year ended 2000                         | 573                          |  | $                          | 5,264  |                 
| | Year ended
      2001                   | 534                          |  |                            | 6,597  |                 
| | Year ended 2002                         | 866                          |  |                            | 13,081 |                 
| | Year ended
      2003                   | 587                          |  |                            | 10,461 |                 
| | Year ended 2004                         | 484                          |  |                            | 10,515 |                 
| | Year ended
      2005                   | 484                          |  |                            | 11,815 |                 
| | Year ended 2006                         | 95                           |  |                            | 2,770  |                 
| | Year ended
      2007                   | 205                          |  |                            | 5,847  |                 
| | Plan to date
      total                | 3,828                        |  | $                          | 66,350 |                 

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. 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 $2.1 billion at December 31, 2007, up from $2.0 billion at December 31,
2006.

The holding company 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. Trust preferred securities are an important source of liquidity for the
holding company and provide regulatory capital for the Company.

At
December 31, 2007, six wholly-owned subsidiary grantor trusts established by
Bancorp had issued and sold $51 million of pooled trust preferred securities
that remain outstanding. Trust preferred securities accrue and pay distributions
periodically at specified annual rates as provided in each indenture. The trusts
used all of the net proceeds from each sale of trust preferred securities 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 and may be subject to 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
outstanding trust preferred securities at December 31, 2007.

| | (Dollars in
      thousands)          |                     |  |                       |        |               |          |              |               |          |       |              
| | ------------------------------------- | ------------------- |  | --------------------- | ------ | ------------- | -------- | ------------ | ------------- | -------- | ----- | -------------
| |                                       |                     |  | Trust
      preferred |        |               |          |              |               | Rate at  |       |              
| | Issuance Trust                        | Issuance date       |  | security amount       |        | Rate type (1) |          | Initial rate |               | 12/31/07 |       | Maturity date
| | West Coast Statutory Trust III        | September 2003      |  | $                     | 7,500  |               | Fixed    |              | 6.75%         |          | 6.75% |              
| | West Coast
      Statutory Trust IV   | March
      2004    |  | $                     | 6,000  |               | Fixed    |              | 5.88%         |          | 5.88% |              
| | West Coast Statutory Trust V          | April 2006          |  | $                     | 15,000 |               | Variable |              | 6.79%         |          | 6.42% |              
| | West Coast
      Statutory Trust VI   | December
      2006 |  | $                     | 5,000  |               | Variable |              | 7.04%         |          | 6.67% |              
| | West Coast Statutory Trust VII        | March 2007          |  | $                     | 12,500 |               | Variable |              | 6.90%         |          | 6.54% |              
| | West Coast
      Statutory Trust VIII | June 2007           |  | $                     | 5,000  |               | Variable |              | 6.74%         |          | 6.37% |              
| |                                       | Total               |  | $                     | 51,000 |               |          |              | Weighted rate |          | 6.45% |              

|(1) |  | The variable rate
      preferred securities reprice quarterly.
|--- |  | ---------------------------------------------------------------

44

---

The total
amount of trust preferred securities outstanding at December 31, 2007, was $51
million. The interest rates on the trust preferred securities issued in April
2006, December 2006, March 2007 and June 2007 reset quarterly and are tied to
the London Interbank Offered Rate (LIBOR) rate. The Company has the right to
redeem the debentures of the September 2003 issuance in September 2008; the
March 2004 issuance in March 2009; the April 2006 issuance in June 2011, the
December 2006 issuance in December 2011, the March 2007 issuance in March 2012
and June 2007 issuance in June 2012. In December 2006, Bancorp redeemed $5
million of trust preferred securities issued in December 2001. Bancorp expensed
$.1 million in deferred costs associated with this redemption. In June 2007,
Bancorp redeemed $7.5 million of trust preferred securities issued in June 2002.
Bancorp expensed $.1 million in deferred costs associated with this redemption.

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, see our consolidated financial statements and related notes included
elsewhere in this report including Note 10, Junior Subordinated
Debentures.

The Company has an agreement with
Promontory Interfinancial Network that makes it possible to offer FDIC insured
deposits in excess of the current deposit limits. This Certificate of Deposit
Account Registry Service (CDARS) uses a deposit-matching program to match
CDARS deposits in other participating banks, dollar for dollar. This product is
designed to enhance our ability to attract and retain customers and increase
deposits, by providing additional FDIC coverage to customers. CDARS deposits can
be reciprocal or one-way. Due to the nature of the placement of funds, CDARS
deposits are defined as "brokered deposits" by regulatory agencies. The
Companys CDARS balance at December 31, 2007, was $7.3 million in reciprocal
balances. The Bank does not currently have any additional brokered deposits.

The
holding company is a separate entity from the Bank and must provide for its own
liquidity. An important source of the holding companys liquidity is dividends
declared and paid by the Bank to the holding company. There are statutory and
regulatory provisions that could limit the ability of the Bank to pay dividends
to the holding company. We believe that such restrictions will not have an
adverse impact on the ability of the holding company to meet its liquidity needs
which include quarterly cash dividend distributions to shareholders and debt
service on the $51 million of outstanding junior subordinated debentures. In
addition, the holding company receives cash from the exercise of options and the
issuance of trust preferred securities. As of December 31, 2007, the holding
company did not have any borrowing arrangements of its own.

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, duration, or repricing intervals of assets.
The sources of such funds may include, but are not limited to Federal Funds
purchased, reverse repurchase agreements and borrowings from the FHLB.

45

---

Off Balance Sheet Arrangements

At
December 31, 2007, the Bank had commitments to extend credit of $962 million,
down 3%, compared to $989 million at December 31, 2006. For additional
information regarding off balance sheet arrangements and future financial
commitments, see our consolidated financial statements and related notes
included elsewhere in this report including Note 21 Financial instruments with
off balance sheet risk.

We are 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 required under retirement plans
which are included in Other long-term liabilities below.

| |                                                   | Payments due within time period at
      December 31, 2007
| | ------------------------------------------------- | ----------------------------------------------------------
| | (Dollars in
      thousands)                      |                                                           
| |                                                   | 0-12 Months                                               
| | Operating leases(1)                               | $                                                         
| | Junior
      subordinated debentures(2)
      (3) |                                                           
| | Long-term borrowings(3)                           |                                                           
| | Other long-term
      liabilities                 |                                                           
| | Total                                             | $                                                         

|(1) |  | Operating leases do not include
      increases in common area charges.                                                                                                     
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(2) |  | Junior subordinated debenture
      obligations reflect contractual maturities which are 30 years from
      origination and do not reflect possible call dates.            
|(3) |  | Long-term borrowings and junior
      subordinated debenture obligations reflect interest payment obligations
      based on December 31, 2007 contractual interest
  rates.

46

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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 credit losses to attempt 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 by 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 the sections, Forward Looking Statement Disclosure and
Risk Factors of this report 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 | Base Case            | Falling
      Rates  | Rising
      Rates   
| | ------------------------------------- | --------------------------- | -------------------- | -------------------- | ---------------------
| |                                       | 31, 2007                    | 2008
      (average) | 2008
      (average) | 2008
      (average) 
| | Federal Funds Rate                    | 4.25%                       | 3.82%                | 2.87%                | 5.74%                
| | Prime Rate                            | 7.25%                       | 6.82%                | 5.87%                | 8.74%                
| | Treasury
      Yield Curve Spread 10- | 79 basis points             | 84 basis points      | 71 basis points      | 93 basis
      points
| | year to 3 month                       |                             |                      |                      |                      

| | Stable rate scenario compared to: |  | Percent Change in   | 
| | --------------------------------- |  | ------------------- | 
| |                                   |  | Net Interest Income | 
| | Rising                            |  | +2.5%               | 
| | Base Case                         |  | +.2%                | 
| | Falling                           |  | -2.3%               | 

As
illustrated in the above table, at December 31, 2007, 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, 2007. 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, 2007              |  | Percent Change in       |  
| | ------------------------------ |  | ----------------------- | -
| | Change in Interest
      Rates |  | Present Value of Equity |  
| | Up 200 basis points            |  | 4.0                     | %
| | Up 100 basis points            |  | 2.9                     | %
| | Down 100 basis points          |  | -1.1                    | %
| | Down 200 basis points          |  | -3.5                    | %

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.

47

---

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, 2007.
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, 2007
| | ---------------------------------------------- | ----------------------------------------------------------
| | (Dollars in
      thousands)                   |                                                           
| |                                                | 0-3 Months                                                
| | Interest Earning Assets:                       |                                                           
| | Interest earning balances due from banks       | $                                                         
| | Federal funds sold                             |                                                           
| | Trading assets                                 |                                                           
| | Investments
      available for sale(1)(2)     |                                                           
| | Loans held for
      sale                      |                                                           
| | Loans, including
      fees                    |                                                           
| | Total interest earning assets                  | $                                                         
| | Allowance for
      loan losses                |                                                           
| | Cash and due from
      banks                  |                                                           
| | Other
      assets                             |                                                           
| | Total assets                                   |                                                           
| |                                               
| | Interest Bearing Liabilities:                  |                                                           
| | Savings,interest bearing
      demand          |                                                           
| | and money markets(3)                           | $                                                         
| | Time
      deposits                            |                                                           
| | Borrowings (2)                                 |                                                           
| | Junior
      subordinated debentures           |                                                           
| | Total interest bearing liabilities             | $                                                         
| | Other
      liabilities                        |                                                           
| | Total liabilities                              |                                                           
| | Stockholders'
      equity                     |                                                           
| | Total liabilities & stockholders'
      equity |                                                           
| |                                               
| | Interest
      sensitivity gap                 | $                                                         
| | Cumulative interest
      sensitivity gap      | $                                                         
| | Cumulative
      interest sensitivity gap      |                                                           
| | as a percentage of total assets                |                                                           

|(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.

48

---

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
    50Consolidated Balance
      Sheets
    51Consolidated Statements of Income
    52Consolidated Statements
      of Cash Flows
    53Consolidated Statements of Changes in Stockholders
      Equity
    54Notes to Consolidated
      Financial Statements
    55


49

---

REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM





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

We have audited the accompanying
consolidated balance sheets of West Coast Bancorp and subsidiaries (the
Company) as of December 31, 2007 and 2006, 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, 2007. 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, 2007 and
2006, and the results of their operations and their cash flows for each of the
three years in the period ended December 31, 2007, 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 Companys internal control over financial reporting as of December
31, 2007, based on the criteria established inInternal Control  Integrated Frameworkissued by the Committee of Sponsoring Organizations of the Treadway
Commission, and our report dated March 5, 2008, expressed an unqualified opinion
on the Companys internal control over financial reporting.



/s/ DELOITTE & TOUCHE LLP

March 5, 2008

50

---

WEST COAST BANCORP CONSOLIDATED
BALANCE SHEETS

|As of December 31 (Dollars in
      thousands)                 | 2007 |           | 2006
|-------------------------------------------------------------- | ---- | --------- | ----
|ASSETS:                                                        |      |           |     
|Cash and cash
      equivalents:                               |      |           |     
|Cash and due from banks                                        | $    | 81,666    |     
|Federal funds sold                                             |      | 31,512    |     
|Interest-bearing deposits in other
      banks                 |      | 624       |     
|Total cash and cash equivalents                                |      | 113,802   |     
|Trading assets                                                 |      | 1,582     |     
|Investment
      securities available for sale, at fair value  |      |           |     
|(amortized cost: $270,139 and $329,142)                        |      | 269,425   |     
|Loans held for sale                                            |      | 3,187     |     
|Loans                                                          |      | 2,172,669 |     
|Allowance for loan losses                                      |      | (46,917   | )   
|Loans, net                                                     |      | 2,125,752 |     
|Premises and equipment, net                                    |      | 34,733    |     
|Goodwill                                                       |      | 13,059    |     
|Core deposit intangible, net                                   |      | 1,432     |     
|Bank owned life
      insurance                                |      | 22,612    |     
|Other assets (Note 8)                                          |      | 61,030    |     
|Total assets                                                   | $    | 2,646,614 |     
|                                                              
|LIABILITIES AND STOCKHOLDERS' EQUITY                           |      |           |     
|                                                              
|Deposits:                                                      |      |           |     
|Demand deposits                                                | $    | 501,506   |     
|Savings and interest-bearing demand
      deposits             |      | 364,971   |     
|Money market                                                   |      | 678,090   |     
|Time deposits                                                  |      | 550,265   |     
|Total deposits                                                 |      | 2,094,832 |     
|Short-term borrowings                                          |      | 167,000   |     
|Long-term
      borrowings                                     |      | 83,100    |     
|Junior subordinated debentures                                 |      | 51,000    |     
|Reserve for
      unfunded commitments                         |      | 7,986     |     
|Other liabilities                                              |      | 34,455    |     
|Total liabilities                                              |      | 2,438,373 |     
|                                                              
|Commitments and contingent liabilities (Notes 11 and
      21) |      |           |     
|                                                              
|STOCKHOLDERS' EQUITY:                                          |      |           |     
|Preferred stock:
      no par value, none issued;              |      |           |     
|10,000,000 shares authorized                                   |      | -         |     
|Common stock: no par value, 50,000,000 shares                  |      |           |     
|authorized; 15,592,821 and 15,585,882 shares
      issued      |      |           |     
|and outstanding, respectively                                  |      | 19,491    |     
|Additional
      paid-in capital                               |      | 70,391    |     
|Retained earnings                                              |      | 118,792   |     
|Accumulated
      other comprehensive loss                     |      | (433      | )   
|Total stockholders' equity                                     |      | 208,241   |     
|Total liabilities and stockholders' equity                     | $    | 2,646,614 |     

See notes to consolidated financial
statements

51

---

WEST COAST BANCORPCONSOLIDATED STATEMENTS OF INCOME

|Year ended December 31 (In thousands,
      except per share amounts) | 2007 |         | 2006 |  | 2005
|--------------------------------------------------------------------- | ---- | ------- | ---- |  | ----
|INTEREST INCOME:                                                      |      |         |      |  |     
|Interest and
      fees on loans                                      | $    | 169,180 |      |  | $   
|Interest on taxable investment securities                             |      | 10,398  |      |  |     
|Interest on
      nontaxable investment securities                    |      | 3,048   |      |  |     
|Interest on deposits in other banks                                   |      | 51      |      |  |     
|Interest on
      federal funds sold                                  |      | 513     |      |  |     
|Total interest income                                                 |      | 183,190 |      |  |     
|                                                                     
|INTEREST EXPENSE:                                                     |      |         |      |  |     
|Savings and
      interest-bearing demand                             |      | 28,958  |      |  |     
|Time deposits                                                         |      | 26,078  |      |  |     
|Short-term
      borrowings                                           |      | 7,057   |      |  |     
|Long-term borrowings                                                  |      | 2,765   |      |  |     
|Junior
      subordinated debentures                                  |      | 3,612   |      |  |     
|Total interest expense                                                |      | 68,470  |      |  |     
|NET INTEREST
      INCOME                                             |      | 114,720 |      |  |     
|Provision for credit losses                                           |      | 38,956  |      |  |     
|Net interest
      income after provision for credit losses           |      | 75,764  |      |  |     
|                                                                     
|NONINTEREST INCOME:                                                   |      |         |      |  |     
|Service charges
      on deposit accounts                             |      | 12,932  |      |  |     
|Payment systems related revenue                                       |      | 8,009   |      |  |     
|Trust and
      investment services revenue                           |      | 6,390   |      |  |     
|Gains on sales of loans                                               |      | 3,364   |      |  |     
|Other                                                                 |      | 2,870   |      |  |     
|Loss on impairment of securities                                      |      | -       |      |  |     
|Losses on sales
      of securities                                   |      | (67     | )    |  |     
|Total noninterest income                                              |      | 33,498  |      |  |     
|                                                                     
|NONINTEREST EXPENSE:                                                  |      |         |      |  |     
|Salaries and
      employee benefits                                  |      | 49,787  |      |  |     
|Equipment                                                             |      | 6,544   |      |  |     
|Occupancy                                                             |      | 8,548   |      |  |     
|Payment systems related expense                                       |      | 3,143   |      |  |     
|Professional
      fees                                               |      | 2,072   |      |  |     
|Postage, printing and office supplies                                 |      | 3,896   |      |  |     
|Marketing                                                             |      | 4,524   |      |  |     
|Communications                                                        |      | 1,624   |      |  |     
|Other
      noninterest expense                                       |      | 5,161   |      |  |     
|Total noninterest expense                                             |      | 85,299  |      |  |     
|                                                                     
|INCOME BEFORE INCOME TAXES                                            |      | 23,963  |      |  |     
|PROVISION FOR
      INCOME TAXES                                      |      | 7,121   |      |  |     
|NET INCOME                                                            | $    | 16,842  |      |  | $   
|                                                                     
|Basic earnings per share                                              | $    | 1.09    |      |  | $   
|Diluted earnings per share                                            | $    | 1.05    |      |  | $   
|                                                                     
|Weighted average common shares                                        |      | 15,507  |      |  |     
|Weighted average diluted shares                                       |      | 16,045  |      |  |     

See notes to
consolidated financial statements

52

---

WEST COAST BANCORPCONSOLIDATED STATEMENTS OF CASH FLOWS

|Year ended December 31 (Dollars in
      thousands)                          | 2007 |          | 2006 |  | 2005
|---------------------------------------------------------------------------- | ---- | -------- | ---- |  | ----
|CASH FLOWS FROM OPERATING ACTIVITIES:                                        |      |          |      |  |     
|Net
      income                                                             | $    | 16,842   |      |  | $   
|Adjustments to reconcile net income to net cash                              |      |          |      |  |     
|provided by operating
      activities:                                      |      |          |      |  |     
|Depreciation and
      amortization                                          |      | 4,747    |      |  |     
|Amortization of tax credits                                                  |      | 916      |      |  |     
|Deferred income
      tax expense                                            |      | 12,879   |      |  |     
|Amortization of intangibles                                                  |      | 541      |      |  |     
|Provision for
      credit losses                                            |      | 38,956   |      |  |     
|Federal Home Loan Bank stock dividend                                        |      | -        |      |  |     
|(Decrease)
      increase in accrued interest receivable                     |      | 80       |      |  |     
|Increase in other assets                                                     |      | (34,695  | )    |  |     
|Loss on
      impairment of securities                                       |      | -        |      |  |     
|Losses on sales of securities                                                |      | 67       |      |  |     
|Realized net
      (loss) gain on derivatives                                |      | 34       |      |  |     
|(Gain) loss on sale of fixed assets                                          |      | (63      | )    |  |     
|Net gain on sale
      of other real estate owned                            |      | (27      | )    |  |     
|Gains on sale of loans                                                       |      | (3,364   | )    |  |     
|Origination of
      loans held for sale                                     |      | (93,213  | )    |  |     
|Proceeds from sales of loans held for sale                                   |      | 100,976  |      |  |     
|Increase in
      interest payable                                           |      | 140      |      |  |     
|Increase in other liabilities                                                |      | 13,572   |      |  |     
|Increase in cash
      surrender value of bank owned life insurance          |      | (894     | )    |  |     
|Stock based compensation expense                                             |      | 2,030    |      |  |     
|Tax benefit
      associated with stock options                              |      | -        |      |  |     
|Excess tax benefit from stock based compensation                             |      | (144     | )    |  |     
|Decrease
      (increase) in trading assets                                  |      | (507     | )    |  |     
|Net cash provided by operating activities                                    |      | 58,873   |      |  |     
|                                                                            
|CASH FLOWS FROM INVESTING ACTIVITIES:                                        |      |          |      |  |     
|Proceeds from
      maturities of available for sale securities              |      | 109,658  |      |  |     
|Proceeds from sales of available for sale securities                         |      | 2,718    |      |  |     
|Purchase of
      available for sale securities                              |      | (52,961  | )    |  |     
|Acquisition, net of cash received                                            |      | -        |      |  |     
|Purchase of
      Federal Home Loan Bank stock                               |      | (385     | )    |  |     
|Investments in tax credits                                                   |      | (140     | )    |  |     
|Loans made to
      customers greater than principal collected on loans      |      | (237,832 | )    |  |     
|Purchase of loans                                                            |      | (2,203   | )    |  |     
|Proceeds from
      the sale of other real estate owned                      |      | 565      |      |  |     
|Proceeds from the sales of fixed assets                                      |      | 442      |      |  |     
|Capital
      expenditures                                                   |      | (7,645   | )    |  |     
|Net cash used in investing activities                                        |      | (187,783 | )    |  |     
|                                                                            
|CASH FLOWS FROM FINANCING ACTIVITIES:                                        |      |          |      |  |     
|Net increase in
      demand, savings and interest                           |      |          |      |  |     
|bearing transaction
      accounts                                           |      | 61,695   |      |  |     
|Net increase in time deposits                                                |      | 26,785   |      |  |     
|Proceeds from
      issuance of junior subordinated debentures, net of costs |      | 17,500   |      |  |     
|Redemption of junior subordinated debentures                                 |      | (7,500   | )    |  |     
|Proceeds from
      issuance of long-term borrowings                         |      | 40,100   |      |  |     
|Repayment of long-term borrowings                                            |      | (15,000  | )    |  |     
|Net increase in
      short-term borrowings                                  |      | 36,582   |      |  |     
|Repurchase of common stock                                                   |      | (5,847   | )    |  |     
|Net proceeds
      from issuance of common stock                             |      | 2,455    |      |  |     
|Excess tax benefit from stock based compensation                             |      | 144      |      |  |     
|Dividends paid
      and cash paid for fractional shares                     |      | (8,002   | )    |  |     
|Net cash provided by financing activities                                    |      | 148,912  |      |  |     
|                                                                            
|NET INCREASE IN CASH AND CASH EQUIVALENTS                                    |      | 20,002   |      |  |     
|CASH AND CASH
      EQUIVALENTS AT BEGINNING OF YEAR                         |      | 93,800   |      |  |     
|CASH AND CASH EQUIVALENTS AT END OF YEAR                                     | $    | 113,802  |      |  | $   

See notes to consolidated financial
statements.

53

---

WEST COAST BANCORPCONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS'
EQUITY

|                                                      |              |   |  |         |        |          |  |            |         |               |  |               |         |       |  |   |        |       |  | Accumulated |        |   |  |  
|----------------------------------------------------- | ------------ | - |  | ------- | ------ | -------- |  | ---------- | ------- | ------------- |  | ------------- | ------- | ----- |  | - | ------ | ----- |  | ----------- | ------ | - |  | -
|                                                      |              |   |  |         |        |          |  | Additional |         |               |  |               |         |       |  |   |        | Other |  |             |        |  
|(Shares and Dollars in
      thousands)               | Common Stock |   |  | Paid-In |        | Retained |  | Deferred   |         | Comprehensive |  |               |         |      
|                                                      | Shares       |   |  | Amount  |        | Capital  |  | Earnings   |         | Compensation  |  | Income (loss) |         | Total
|BALANCE, January 1, 2005                              | 14,872       |   |  | $       | 18,590 |          |  | $          | 60,730  |               |  | $             | 69,612  |       |  | $ | (1,486 | )     |  | $           | 408    |   |  | $
|                                                     
|Comprehensive income:                                 |              |   |  |         |        |          |  |            |         |               |  |               |         |       |  |   |        |       |  |             |        |   |  |  
|Net income                                            | -            |   |  |         | -      |          |  |            | -       |               |  |               | 23,840  |       |  |   | -      |       |  |             | -      |   |  | $
|Other comprehensive loss, net of tax:                 |              |   |  |         |        |          |  |            |         |               |  |               |         |       |  |   |        |       |  |             |        |   |  |  
|Net unrealized investment/derivative losses           | -            |   |  |         | -      |          |  |            | -       |               |  |               | -       |       |  |   | -      |       |  |             | (1,463 | ) |  |  
|Other comprehensive loss, net of tax                  |              |   |  |         |        |          |  |            |         |               |  |               |         |       |  |   |        |       |  |             |        |   |  |  
|Comprehensive income                                  |              |   |  |         |        |          |  |            |         |               |  |               |         |       |  |   |        |       |  |             |        |   |  | $
|Cash dividends, $.40 per common share                 | -            |   |  |         | -      |          |  |            | -       |               |  |               | (5,841  | )     |  |   | -      |       |  |             | -      |   |  |  
|                                                     
|Issuance of common stock-stock options                | 286          |   |  |         | 357    |          |  |            | 2,988   |               |  |               | -       |       |  |   | -      |       |  |             | -      |   |  |  
|Redemption of stock pursuant to stock plans           | (42          | ) |  |         | (53    | )        |  |            | (955    | )             |  |               | -       |       |  |   | 31     |       |  |             | -      |   |  |  
|Activity in deferred compensation plan                | (2           | ) |  |         | (3     | )        |  |            | (60     | )             |  |               | -       |       |  |   | -      |       |  |             | -      |   |  |  
|Issuance of common stock-restricted stock             | 62           |   |  |         | 78     |          |  |            | 1,228   |               |  |               | -       |       |  |   | (1,306 | )     |  |             | -      |   |  |  
|Amortization of deferred compensation                 |              |   |  |         |        |          |  |            |         |               |  |               |         |       |  |   |        |       |  |             |        |   |  |  
|restricted stock                                      | -            |   |  |         | -      |          |  |            | -       |               |  |               | -       |       |  |   | 988    |       |  |             | -      |   |  |  
|Common stock repurchased and retired                  | (484         | ) |  |         | (605   | )        |  |            | (11,210 | )             |  |               | -       |       |  |   | -      |       |  |             | -      |   |  |  
|Tax benefit associated with stock plans               | -            |   |  |         | -      |          |  |            | 1,255   |               |  |               | -       |       |  |   | -      |       |  |             | -      |   |  |  
|BALANCE, December 31, 2005                            | 14,692       |   |  |         | 18,364 |          |  |            | 53,976  |               |  |               | 87,611  |       |  |   | (1,773 | )     |  |             | (1,055 | ) |  |  
|                                                     
|Comprehensive income:                                 |              |   |  |         |        |          |  |            |         |               |  |               |         |       |  |   |        |       |  |             |        |   |  |  
|Net income                                            | -            |   |  |         | -      |          |  |            | -       |               |  |               | 29,260  |       |  |   | -      |       |  |             | -      |   |  | $
|Other comprehensive income, net of tax:               |              |   |  |         |        |          |  |            |         |               |  |               |         |       |  |   |        |       |  |             |        |   |  |  
|Net unrealized investment/derivative gains            | -            |   |  |         | -      |          |  |            | -       |               |  |               | -       |       |  |   | -      |       |  |             | 741    |   |  |  
|Other comprehensive income, net of tax                |              |   |  |         |        |          |  |            |         |               |  |               |         |       |  |   |        |       |  |             |        |   |  |  
|Comprehensive income                                  |              |   |  |         |        |          |  |            |         |               |  |               |         |       |  |   |        |       |  |             |        |   |  | $
|Cash dividends, $.45 per common share                 | -            |   |  |         | -      |          |  |            | -       |               |  |               | (6,919  | )     |  |   | -      |       |  |             | -      |   |  |  
|                                                     
|Issuance of common stock-stock options                | 367          |   |  |         | 459    |          |  |            | 4,248   |               |  |               | -       |       |  |   | -      |       |  |             | -      |   |  |  
|Redemption of stock pursuant to stock plans           | (39          | ) |  |         | (48    | )        |  |            | (1,034  | )             |  |               | -       |       |  |   | -      |       |  |             | -      |   |  |  
|Activity in deferred compensation plan                | (5           | ) |  |         | (6     | )        |  |            | (160    | )             |  |               | -       |       |  |   | -      |       |  |             | -      |   |  |  
|Issuance of common stock-restricted stock             | 58           |   |  |         | 72     |          |  |            | (72     | )             |  |               | -       |       |  |   | -      |       |  |             | -      |   |  |  
|Transition adjustment for the adoption of SFAS 123(R) | -            |   |  |         | -      |          |  |            | (1,773  | )             |  |               | -       |       |  |   | 1,773  |       |  |             |        |   |  |  
|Issuance of common stock-acquisition related          | 608          |   |  |         | 760    |          |  |            | 15,712  |               |  |               |         |       |  |   |        |       |  |             |        |   |  |  
|Common stock repurchased and retired                  | (95          | ) |  |         | (119   | )        |  |            | (2,651  | )             |  |               | -       |       |  |   | -      |       |  |             | -      |   |  |  
|Stock based compensation expense                      | -            |   |  |         | -      |          |  |            | 1,641   |               |  |               | -       |       |  |   | -      |       |  |             | -      |   |  |  
|Tax benefit associated with stock plans               | -            |   |  |         | -      |          |  |            | 1,875   |               |  |               | -       |       |  |   | -      |       |  |             | -      |   |  |  
|BALANCE, December 31, 2006                            | 15,586       |   |  |         | 19,482 |          |  |            | 71,762  |               |  |               | 109,952 |       |  |   | -      |       |  |             | (314   | ) |  | $
|                                                     
|Comprehensive income:                                 |              |   |  |         |        |          |  |            |         |               |  |               |         |       |  |   |        |       |  |             |        |   |  |  
|Net income                                            |              |   |  |         |        |          |  |            |         |               |  |               | 16,842  |       |  |   |        |       |  |             |        |   |  | $
|Other comprehensive income, net of tax:               |              |   |  |         |        |          |  |            |         |               |  |               |         |       |  |   |        |       |  |             |        |   |  |  
|Net unrealized investment/derivative gains            |              |   |  |         |        |          |  |            |         |               |  |               |         |       |  |   |        |       |  |             | (119   | ) |  |  
|Other comprehensive income, net of tax                |              |   |  |         |        |          |  |            |         |               |  |               |         |       |  |   |        |       |  |             |        |   |  |  
|Comprehensive income                                  |              |   |  |         |        |          |  |            |         |               |  |               |         |       |  |   |        |       |  |             |        |   |  | $
|Cash dividends, $.51 per common share                 |              |   |  |         |        |          |  |            |         |               |  |               | (8,002  | )     |  |   |        |       |  |             |        |   |  |  
|                                                     
|Issuance of common stock-stock options                | 162          |   |  |         | 202    |          |  |            | 2,123   |               |  |               |         |       |  |   |        |       |  |             |        |   |  |  
|Redemption of stock pursuant to stock plans           | (22          | ) |  |         | (28    | )        |  |            | (611    | )             |  |               |         |       |  |   |        |       |  |             |        |   |  |  
|Activity in deferred compensation plan                | (2           | ) |  |         | (2     | )        |  |            | (82     | )             |  |               |         |       |  |   |        |       |  |             |        |   |  |  
|Issuance of common stock-restricted stock             | 74           |   |  |         | 93     |          |  |            | (93     | )             |  |               |         |       |  |   |        |       |  |             |        |   |  |  
|Common stock repurchased and retired                  | (205         | ) |  |         | (256   | )        |  |            | (5,591  | )             |  |               |         |       |  |   |        |       |  |             |        |   |  |  
|Stock based compensation expense                      |              |   |  |         |        |          |  |            | 2,030   |               |  |               |         |       |  |   |        |       |  |             |        |   |  |  
|Tax benefit associated with stock plans               |              |   |  |         |        |          |  |            | 853     |               |  |               |         |       |  |   |        |       |  |             |        |   |  |  
|BALANCE, December 31, 2007                            | 15,593       |   |  | $       | 19,491 |          |  | $          | 70,391  |               |  | $             | 118,792 |       |  | $ | -      |       |  | $           | (433   | ) |  | $

See notes to
consolidated financial statements

54

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WEST COAST BANCORPNOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES

Nature
of Operations.West Coast Bancorps
activities include offering a full range of financial services through 63 branch
offices in western Oregon and Washington. West Coast Trust Company, Inc. (West
Coast Trust) provides fiduciary, agency, trust and related services, and life
insurance products.

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. West Coast
Statutory Trusts III, IV, V, VI, VII and VIII are considered related parties to
West Coast Bancorp and their financial results are not consolidated in West
Coast Bancorps financial statements.

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.

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 include transactions of West Coast Trust. See
Note 23, Segment and related information for more detail.

Cash
and Cash Equivalents.Cash and cash
equivalents include cash on hand, interest bearing deposits in other banks,
amounts due from banks and federal funds sold. Generally, federal funds are
purchased or sold for one-day periods.

**Supplemental Cash Flow
Information.**For purposes of reporting
cash flows, cash and cash equivalents include cash on hand, amounts due from
banks and federal funds sold. The following table presents supplemental cash
flow information for the years ended December 31, 2007, 2006 and 2005. See note
2, Acquisition, for additional information.

(Dollars in
      thousands)
    December 31,2007
    
    2006
    
    2005Supplemental cash flow information:Cash paid in the year for:Interest
    $
    68,330
    
    
    $
    49,155
    
    $
    26,171Income taxes
    $
    19,131
    
    
    $
    14,119
    
    $
    13,641Noncash investing and financing activities:Change in unrealized gain (loss) on availablefor sale securities and derivatives, net of
      tax
    $
    (119
    )
    
    $
    741
    
    $
    (1,463
    )Dividends declared and accrued in other
      liabilities
    $
    2,110
    
    
    $
    1,873
    
    $
    1,550Net activity in other real estate owned
    $
    3,793
    
    
    $
    -
    
    $
    -Stock issued for acquisition
    $
    -
    
    
    $
    16,472
    
    $
    -


**Trading Securities.**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, 2007
and 2006 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, 2007 or 2006. 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.

55

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1. SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (continued)

Federal Home Loan Bank Stock.Included
in investment securities available for sale is the Banks investment in Federal
Home Loan Bank of Seattle (FHLB) stock, which 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.

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 unpaid
principal balance outstanding as earned.

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.

Commitments to Extend Credit.Unfunded
loan commitments are generally related to providing credit facilities to
customers of the bank and are not actively traded financial instruments. These
unfunded commitments are disclosed as commitments to extend credit in Note 21 in
the Notes to Consolidated Financial Statements.

Nonaccrual Loans.Loans (including
impaired loans) are placed on nonaccrual status when the collection of interest
or principal has become 90 days past due or is otherwise considered doubtful.
When a loan is placed on nonaccrual status, unpaid accrued interest is reversed.
Future interest payments are generally applied against principal. Certain
customers having financial difficulties may have the terms of their loan
agreements modified to require only principal payments and, as such, are
reported as nonaccrual.

Subsequent to December 31, 2007,
management amended the Banks loan policy in a manner that will accelerate the
timing of placement of certain segments of the construction loan portfolio on
nonaccrual status.  As a consequence of this policy change, interest
reversals recorded in interest income related to loans placed on nonaccrual will
occur sooner.  The amendment to the loan policy will also restrict the
permitted use and timing of the method for capitalizing construction loan
interest into the unpaid balance of construction loans.  See note 5, Loans
and Allowance for Credit Losses, for additional information.  The adoption
of the amendments to the loan policy did not have a material impact on the
December 31, 2007 financial statements.

**Impaired Loans.**A loan is considered to be impaired
when, based on current information and events, it is probable that the Company
will be unable to collect all amounts due (both interest and principal)
according to the contractual terms of the loan agreement. 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 and certain large groups of smaller balance
homogeneous loans that are collectively measured for impairment are
excluded.

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 calculation applied to outstanding loan balances, while the reserve
for unfunded commitments is based upon a calculation applied to that portion of
total loan commitments not yet funded for the period reported.

The
allowance for credit losses is based on managements estimates. Management
determines the adequacy of the allowance for credit 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
credit 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 credit losses is increased by provisions for credit losses in
operating earnings. Losses are charged to the allowance while recoveries are
credited to the allowance.

56

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1.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(continued)

Reserve for Unfunded Commitments.A
reserve for unfunded commitments is maintained at a level that, in the opinion
of management, is adequate to absorb losses associated with the Banks
commitment to lend funds under existing agreements such as letters or lines of
credit or construction loans. Management determines the adequacy of the reserve
for unfunded commitments based upon reviews of individual credit facilities,
current economic conditions, the risk characteristics of the various categories
of commitments as well as pooled commitments with similar risk characteristics
and other relevant factors. The reserve is based on estimates, and ultimate
losses may vary from the current estimates. These estimates are evaluated on a
regular basis and, as adjustments become necessary, they are reported in the
provision for credit losses in the income statement in the periods in which they
become known.

As of
September 30, 2007, we reclassified $1.0 million of the allowance for loan
losses to a reserve for unfunded loan commitments. The reclassification of a
portion of our allowance for loans losses to a separate reserve had no impact on
our provision for loan losses expense. Expense associated with unfunded
commitments was recorded in the provision for credit losses in the income
statement, and this practice will continue in the future.

Other
Real Estate Owned.Other real estate owned
(OREO) is real property that the Bank has taken ownership of in partial or
full satisfaction of a loan or loans. OREO is recorded at the lower of the
carrying amount of the loan or fair value less estimated costs to sell. This
amount becomes the propertys new basis. Any write-downs based on the property
fair value less estimated cost to sell at the date of acquisition are charged to
the allowance for credit losses. Management periodically reviews OREO in an
effort to ensure the property is carried at the lower of its new basis or fair
value, net of estimated costs to sell. Any further OREO write-downs are charged
to other noninterest expense. Net expenses from operations of OREO properties
are included in other noninterest expense in the statements of income.

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 recorded with a useful life of 3 to 10
years, software and computer related equipment is recorded for 3 to 5 years and
buildings are recorded 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.

Goodwill and Intangible Assets.At
December 31, 2007, Bancorp had $14.5 million in goodwill and other intangible
assets. Goodwill and other intangibles are periodically tested for impairment
when impairment indicators exist, and at least once annually. If impairment was
deemed to exist, the asset would be written down, with a charge to earnings.

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 2007, 2006, or
2005.

**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.

**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. Long-term borrowed funds extend beyond one year.

**Earnings Per Share
Calculation.**Earnings per share is
calculated by dividing net income by the weighted average number of common
shares outstanding during the year. Diluted earnings per share is calculated by
adjusting income and outstanding shares, assuming conversion of all potentially
dilutive securities, using the treasury stock method.

Service Charges on Deposit Accounts.Service charges on deposit accounts primarily represent monthly fees
based on minimum balances or transaction-based fees. These fees are recognized
as earned or as transactions occur and services are provided.

57

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1. SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (continued)

Payment Systems Revenue.Credit and
debit card revenue includes interchange income from credit and debit cards,
annual fees, and other transaction and account management fees. Interchange
income is a fee paid by a merchant bank to the card-issuing bank through the
interchange network. Interchange fees are set by the credit card associations
and are based on cardholder purchase volumes. The Company records interchange
income as transactions occur. Transaction and account management fees are
recognized as transactions occur or services are provided, except for annual
fees, which are recognized over the applicable period. Volume-related payments
to partners and credit card associations and expenses for rewards programs are
also recorded within credit and debit card revenue. Payments to partners and
expenses related to rewards programs are recorded when earned by the partner or
customer.Merchant processing services revenue consists principally of transaction
and account management fees charged to merchants for the electronic processing
of transactions, net of interchange fees paid to the credit card issuing bank,
card association assessments, and revenue sharing amounts, and are all
recognized at the time the merchants transactions are processed or other
services are performed. The Company may enter into revenue sharing agreements
with referral partners or in connection with purchases of merchant contracts
from sellers. The revenue sharing amounts are determined primarily on sales
volume processed or revenue generated for a particular group of merchants.
Merchant processing revenue also includes revenues related to point-of -sale
equipment recorded as sales when the equipment is shipped or as earned for
equipment rentals.

Trust
and Investment Services Revenue.Trust and
investment management fees are recognized over the period in which services are
performed and are based on a percentage of the fair value of the assets under
management or administration, fixed based on account type, or transaction-based
fees.

New
Accounting Pronouncements.On January 1,
2007, Bancorp adopted Financial Accounting Standards Board (FASB)
Interpretation No. 48 (FIN 48), Accounting for Uncertainty in Income Taxes -
an Interpretation of FASB Statement No. 109. FIN 48 prescribes a comprehensive
model for how a company should recognize, measure, present, and disclose in its
financial statements uncertain tax positions that it has taken or expects to
take on a tax return. The adoption of this accounting standard did not have a
material impact on the Company.

In September 2006, the FASB issued
SFAS No. 157, Fair Value Measurements. This statement defines fair value,
establishes a framework for measuring fair value and expands disclosures about
fair value measurements. This statement applies under other accounting
pronouncements that require or permit fair value measurements. This statement is
effective for fiscal year and interim periods 2008. Management is currently
evaluating the potential impact of this statement on the Company.

In
February 2007, the FASB issued SFAS No. 159, The Fair Value Option for
Financial Assets and Financial Liabilities. SFAS No. 159 provides entities with
an option to report certain financial assets and liabilities at fair value with
changes in fair value reported in earnings. In addition, it requires disclosures
related to an entitys election to use fair value reporting. It also requires
entities to display the fair value of those assets and liabilities for which the
entity has elected to use fair value on the face of the balance sheet. SFAS No.
159 is effective for fiscal year 2008. Management is currently evaluating the
potential impact of this statement on the Company.

On
December 4, 2007, the FASB issued SFAS No. 141(Revised), Business Combinations
(SFAS No. 141(R)), and SFAS No. 160, Noncontrolling Interests in Consolidated
Financial Statements, an amendment of ARB No. 51 (SFAS No. 160). These new
standards are the outcome of a joint project with the International Accounting
Standards Board (IASB). SFAS No. 141(R) and SFAS No. 160 introduce significant
changes in the accounting for and reporting of business acquisitions and
noncontrolling interests in a subsidiary. SFAS No. 141(R) and SFAS No. 160
continue the movement toward the greater use of fair values in financial
reporting and increased transparency through expanded disclosures. SFAS No.
141(R) changes how business acquisitions are accounted for and will impact
financial statements at the acquisition date and in subsequent periods. SFAS No.
160 requires noncontrolling interests (previously referred to as minority
interests) to be reported as a component of equity, which changes the accounting
for transactions with noncontrolling interest holders. SFAS No. 141(R) and SFAS
No. 160 are effective for fiscal year 2010. Management is currently evaluating
the potential impact of SFAS No. 141(R) and SFAS No. 160 on the Company.

In
September 2006, the FASB's Emerging Issues Task Force ("EITF") reached a
consensus on EITF Issue No. 06-4, "Accounting for Deferred Compensation and
Postretirement Benefits Aspects of Endorsement Split-Dollar Life Insurance
Arrangements" ("EITF 06-4"). This addresses endorsement split-dollar life
insurance arrangements that provide a benefit to an employee that extends to
postretirement periods. In an endorsement split-dollar arrangement, the employer
owns and controls the policy, and the employer and an employee split the
insurance policy's cash surrender value and/or death benefits.

The EITF consensus would require that
the deferred compensation or postretirement benefit aspects of an
endorsement-type split-dollar life insurance arrangement be recognized as a
liability by the employer and that the obligation is not effectively settled by
the purchase of a life insurance policy. The liability for future benefits would
be recognized based on the substantive agreement with the employee, which may be
either to provide a future death benefit or to pay for the future cost of the
life insurance.

EITF 06-4
is effective for fiscal year 2008. Management is currently evaluating the
potential impact of EITF 06-04 on the Company.

58

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2.ACQUISITION

On June
23, 2006, the Company completed a merger transaction in which it acquired
Mid-Valley Bank (Mid-Valley), headquartered in Woodburn, Oregon. This
acquisition was consistent with the Companys strategy of expanding its
operations and market share in Oregon and Washington. Mid-Valley had a similar
focus on community banking, as well as commercial and agricultural lending, as
West Coast Bank. The results of operations of Mid-Valley have been included in
the Companys consolidated financial statements since the acquisition date.

The aggregate purchase price for the
acquisition was $22.0 million which included cash of $5.0 million, direct merger
costs of $.5 million, and approximately .6 million shares of common stock with
an aggregate value of $16.5 million. The aggregate value of the common stock was
calculated for this purpose using a $27.10 per share value based on the average
closing price of Bancorp stock beginning two days prior to the acquisition
announcement date of February 1, 2006, and ending two days after the
announcement date. In addition, all outstanding options to purchase Mid-Valley
stock were settled for cash payments totaling $3.6 million, which represented
the aggregate difference between the transaction value of $19.19 per share of
outstanding Mid-Valley stock and the exercise prices of the options.

The transaction was accounted for
under the purchase method of accounting, with Mid-Valleys assets and
liabilities being recorded at their estimated fair values. Mid-Valleys
allowance for loan losses was recorded at carrying value and contained no
specific reserves. The purchase price in excess of the net fair value of the
assets and liabilities acquired was recorded as goodwill. The amount of goodwill
recorded was $13.1 million. The goodwill will not be tax deductible for federal
income tax purposes because the transaction is treated as a tax free
reorganization.

The following table summarizes the
estimated fair value of assets and liabilities purchased at the date of
acquisition.

| | (Dollars in
      thousands)   |   |         | 
| | ------------------------------ | - | ------- | 
| | ASSETS ACQUIRED:               |   |        
| | Cash and cash equivalents      | $ | 11,924 
| | Investment securities          |   | 18,152 
| | Loans, net                     |   | 71,950 
| | Premises and equipment, net    |   | 953    
| | Core deposit intangible assets |   | 2,228  
| | Goodwill                       |   | 13,059 
| | Other assets, net              |   | 3,499  
| | Total assets
      acquired    | $ | 121,765
| | LIABILITIES ASSUMED:           |   |        
| | Deposits                       | $ | 85,547 
| | Borrowings                     |   | 9,604  
| | Other liabilities              |   | 5,134  
| | Total liabilities assumed      | $ | 100,285
| | Net assets purchased           | $ | 21,480 

The
Company is amortizing the resulting core deposit intangible of $2.2 million
using the sum of the years digits method over seven years.

59

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2. ACQUISITION (continued)

The
following unaudited adjusted pro forma financial information for the years ended
December 31, 2006, and 2005 assumes that the Mid-Valley acquisition occurred as
of January 1, 2005. The pro forma results have been prepared for comparative
purposes only and are not necessarily indicative of the results of operations
which may occur in the future or that would have occurred had the Mid-Valley
acquisition been consummated on the date indicated.

| | (In thousands,
      except per share amounts) | December 31,
| | ---------------------------------------------- | ------------
| |                                                | 2006        
| | Net interest income                            | $           
| | Provision for
      loan loss                  |             
| | Noninterest income                             |             
| | Noninterest
      expense                      |             
| | Income before income taxes                     |             
| | Provision for
      income taxes               |             
| | Net income                                     | $           
| |                                               
| | Basic earnings per share                       | $           
| | Diluted earnings
      per share               | $           
| |                                               
| | Weighted average common shares                 |             
| | Weighted average
      dilutive shares         |             

3. INVESTMENT SECURITIES

The following table presents the
available for sale investment portfolio as of December 31, 2007 and 2006:

| | (Dollars in
      thousands)                          |           |         |             |   |              |  |            |        |   |  |   |        
| | ----------------------------------------------------- | --------- | ------- | ----------- | - | ------------ |  | ---------- | ------ | - |  | - | -------
| | December 31,
      2007                               | Amortized |         | Unrealized  |   | Unrealized   |  |            |       
| |                                                       | Cost      |         | Gross Gains |   | Gross Losses |  | Fair Value
| | U.S. Treasury securities                              | $         | 200     |             | $ | 7            |  | $          | -      |   |  | $ | 207    
| | U.S. Government
      agency securities               |           | 60,554  |             |   | 1,009        |  |            | (6     | ) |  |   | 61,557 
| | Corporate securities                                  |           | 20,201  |             |   | 14           |  |            | (647   | ) |  |   | 19,568 
| | Mortgage-backed
      securities                      |           | 85,050  |             |   | 135          |  |            | (988   | ) |  |   | 84,197 
| | Obligations of state and political subdivisions       |           | 85,876  |             |   | 577          |  |            | (347   | ) |  |   | 86,106 
| | Equity
      investments and other securities         |           | 18,258  |             |   | 7            |  |            | (475   | ) |  |   | 17,790 
| | Total                                                 | $         | 270,139 |             | $ | 1,749        |  | $          | (2,463 | ) |  | $ | 269,425
| |                                                      
| |                                                      
| | (Dollars in
      thousands)                          |           |         |             |   |              |  |            |        |   |  |   |        
| | December 31,
      2006                               | Amortized |         | Unrealized  |   | Unrealized   |  |            |       
| |                                                       | Cost      |         | Gross Gains |   | Gross Losses |  | Fair Value
| | U.S. Government agency securities                     | $         | 125,428 |             | $ | 377          |  | $          | (350   | ) |  | $ | 125,455
| | Corporate
      securities                            |           | 23,753  |             |   | 206          |  |            | (74    | ) |  |   | 23,885 
| | Mortgage-backed securities                            |           | 85,675  |             |   | 88           |  |            | (1,286 | ) |  |   | 84,477 
| | Obligations of
      state and political subdivisions |           | 75,670  |             |   | 534          |  |            | (331   | ) |  |   | 75,873 
| | Equity investments and other securities               |           | 18,616  |             |   | 556          |  |            | (210   | ) |  |   | 18,962 
| | Total                                                 | $         | 329,142 |             | $ | 1,761        |  | $          | (2,251 | ) |  | $ | 328,652

Gross
realized gains in 2007, 2006, and 2005 were $96,000, $43,000, and $0,
respectively. Gross realized losses in 2007, 2006, and 2005 were $163,000,
$729,000, and $2,032,000, respectively. Dividends on investment securities for
the years 2007, 2006, and 2005 were $302,000, 280,000, and 301,000,
respectively. Securities with a fair value of approximately $89.1 million and
$91.6 million were pledged to secure public deposits at December 31, 2007 and
2006, respectively. At December 31, 2007 and December 31, 2006, Bancorp had no
reverse repurchase agreements. No outstanding mortgage-backed securities were
classified as high risk at December 31, 2007 or 2006, under applicable
regulatory guidelines.

60

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3. INVESTMENT SECURITIES (continued)

The
following table provides information on investment securities with 12 month or
greater continuous unrealized losses as of December 31, 2007:

| | (Dollars in
      thousands)                    | Amortized cost of         |        | Fair
      value of       |   |              |  |  
| | ----------------------------------------------- | ------------------------- | ------ | ------------------------- | - | ------------ |  | -
| | December 31,
      2007                         | securities with an        |        | securities with an        |   |              |  |  
| |                                                 | unrealized loss more than |        | unrealized loss more than |   | Unrealized  
| |                                                 | 12 continuous months      |        | 12 continuous months      |   | Gross Losses
| | U.S. Government agency securities               | $                         | 675    |                           | $ | 672          |  | $
| | Mortgage-backed
      securities                |                           | 45,116 |                           |   | 44,261       |  |  
| | Obligations of state and political subdivisions |                           | 10,025 |                           |   | 9,916        |  |  
| | Equity
      investments and other securities   |                           | 5,007  |                           |   | 4,880        |  |  
| | Total                                           | $                         | 60,823 |                           | $ | 59,729       |  | $

There
were 45 investment securities with a 12 month or greater continuous unrealized
loss in the investment portfolio at December 31, 2007, with a total unrealized
loss of $1.1 million. At December 31, 2006, there were 73 investment securities
with a 12 month or greater, continuous unrealized loss in the investment
portfolio, with a total unrealized loss of $1.9 million. The unrealized loss on
these securities was primarily due to changes in interest rates subsequent to
their purchase. The value of most of our securities fluctuates as market
interest rates change. Based on managements evaluation and intent, none of the
unrealized losses summarized in this table are considered other-than-temporary.
The Company has the ability and intent to hold securities with unrealized losses
until their values recover.

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, 2007:

| | (Dollars in
      thousands)                          | Amortized cost of         |        | Fair
      value of       |   |              |  |  
| | ----------------------------------------------------- | ------------------------- | ------ | ------------------------- | - | ------------ |  | -
| | December 31,
      2007                               | securities with an        |        | securities with an        |   |              |  |  
| |                                                       | unrealized loss less than |        | unrealized loss less than |   | Unrealized  
| |                                                       | 12 continuous months      |        | 12 continuous months      |   | Gross Losses
| | U.S. Government agency securities                     | $                         | 504    |                           | $ | 501          |  | $
| | Corporate
      securities                            |                           | 14,189 |                           |   | 13,542       |  |  
| | Mortgage-backed securities                            |                           | 21,928 |                           |   | 21,795       |  |  
| | Obligations of
      state and political subdivisions |                           | 22,555 |                           |   | 22,317       |  |  
| | Equity investments and other securities               |                           | 2,947  |                           |   | 2,599        |  |  
| | Total                                                 | $                         | 62,123 |                           | $ | 60,754       |  | $

There
were a total of 47 securities in Bancorps investment portfolio at December 31,
2007, that have been in a continuous unrealized loss position for less than 12
months, with a book value of $62.1 million and a total unrealized loss of $1.4
million. At December 31, 2006, there were a total of 39 securities in Bancorps
investment portfolio that have been in a continuous unrealized loss position for
less than 12 months, with a book value of $59.7 million and a total unrealized
loss of $.3 million. The unrealized loss on our investment securities portfolio
was substantially due to an increase in interest rates subsequent to purchasing
these securities. The fair value of these securities fluctuates as market
interest rates change. Based on managements evaluation and intent, none of the
unrealized losses summarized in this table are considered other-than-temporary.
The Company has the ability and intent to hold securities with a stated maturity
until the value recovers.

61

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4. MATURITIES OF INVESTMENT
SECURITIES

The follow table presents the
maturities of the investment portfolio at December 31, 2007:

| | (Dollars in
      thousands)                     | Available for sale
| | ------------------------------------------------ | ------------------
| | December 31,
      2007                          | Amortized cost    
| | U.S. Treasury securities                         |                   
| | One year or less                                 | $                 
| | After one year through
      five years          |                   
| | After five through ten years                     |                   
| | Due after ten
      years                        |                   
| | Total                                            |                   
| |                                                 
| | U.S. Government agency securities:               |                   
| | One year or less                                 | $                 
| | After one year through
      five years          |                   
| | After five through ten years                     |                   
| | Due after ten
      years                        |                   
| | Total                                            |                   
| |                                                 
| | Corporate securities:                            |                   
| | One year or less                                 |                   
| | After one year through
      five years          |                   
| | After five through ten years                     |                   
| | Due after ten
      years                        |                   
| | Total                                            |                   
| |                                                 
| | Obligations of state and political subdivisions: |                   
| | One year or less                                 |                   
| | After one year through
      five years          |                   
| | After five through ten years                     |                   
| | Due after ten
      years                        |                   
| | Total                                            |                   
| |                                                  |                   
| | Sub-total                                        |                   
| |                                                 
| | Mortgage-backed securities                       |                   
| | Equity investments and other
      securities    |                   
| | Total securities                                 | $                 

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.

62

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5. LOANS AND ALLOWANCE FOR CREDIT
LOSSES

The following table presents the
loan portfolio as of December 31, 2007 and 2006:

| | (Dollars in
      thousands)   | December 31,
| | ------------------------------ | ------------
| |                                | 2007        
| | Commercial loans               | $           
| | Real estate
      construction |             
| | Real estate mortgage           |             
| | Commercial real
      estate   |             
| | Installment and other consumer |             
| | Total loans                    |             
| | Allowance for loan losses      |             
| | Total loans, net               | $           

As of
September 30, 2007, we reclassified a portion of the allowance for loan losses
and recorded a reserve for unfunded loan commitments. The amount reclassified
into a reserve for unfunded commitments on the balance sheet was $1.0 million or
..05% of total loans. At December 31, 2007, the reserve for unfunded commitments
was $8.0 million. For purposes of comparison to prior periods, the combined
allowance for loan losses and reserve for unfunded commitments, defined as the
total allowance for credit losses, is presented in the table below.

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

| | (Dollars in
      thousands)                | Year Ending December 31,
| | ------------------------------------------- | ------------------------
| |                                             | 2007                    
| | Balance, beginning of period                | $                       
| | Provision for
      credit losses           |                         
| | Losses charged to the allowance             |                         
| | Recoveries
      credited to the allowance  |                         
| | Allowance for loan losses, from acquisition |                         
| | Balance, end of
      period                | $                       
| |                                            
| | Components of allowance for credit losses   |                         
| | Allowance for loan losses                   | $                       
| | Reserve for unfunded
      commitments      |                         
| | Total allowance
      for credit losses     | $                       

The
provision for credit losses of $38.9 million increased $36.2 million in 2007
compared to 2006, largely due to the significant fourth quarter provision for
credit losses of $27.8 million associated with our two-step loan portfolio as
well as higher net loan charge-offs in the commercial and residential
construction loan portfolios.

Loans on
which the accrual of interest has been discontinued amounted to approximately
$26.4 million, $1.5 million and $1.1 million at December 31, 2007, 2006, and
2005, respectively. Subsequent to December 31, 2007, management amended the
Banks loan policy in a manner that will accelerate the timing of placement of
certain segments of the construction loan portfolio on nonaccrual status. 
As a consequence of this policy change, interest reversals recorded in interest
income related to loans placed on nonaccrual will occur sooner.  If the
revised loan policy was in place as of December 31, 2007, nonaccrual loans would
have been approximately $55.3 million compared to the reported 26.4
million.

Interest
income foregone on nonaccrual loans was approximately $1.4 million, $.1 million
and $.1 million in 2007, 2006, and 2005, respectively.

At
December 31, 2007 and 2006, Bancorps recorded investment in certain loans that
were considered to be impaired was $33.2 million and $6.2 million, respectively.
Of these impaired loans, $21.7 million and $2.5 million, respectively, had a
specific related valuation allowance of $3.6 million and $1.2 million,
respectively, while $11.5 million and $3.7 million did not require a specific
valuation allowance at the same dates. Management believes the balance of the
allowance for credit losses in excess of these specific reserves is adequate to
absorb losses on all loans and loan commitments in the portfolio. The process
for determining the adequacy of the allowance for credit losses is critical to
our financial results. It requires difficult, subjective and complex judgments,
as a result of the need to make estimates about the effect of matters that are
uncertain. Therefore, we cannot provide assurance that, in any particular
period, we will not have sizeable credit losses in relation to the amount
reserved. We may need to significantly adjust the allowance for credit losses,
considering current factors at the time, including economic or market condition
and ongoing internal and external examination processes.

63

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5. LOANS AND ALLOWANCE FOR CREDIT
LOSSES (continued)

The average recorded investment in
impaired loans for the years ended December 31, 2007, 2006, and 2005 was
approximately, $15.5 million, $3.8 million and $4.4 million, respectively. For
the years ended December 31, 2007, 2006 and 2005, interest income recognized on
impaired loans totaled $23,000, $220,000, and $272,000, respectively, all of
which was recognized on a cash basis.

At
December 31, 2007 and 2006, Bancorp had $1.4 million and $.9 million,
respectively, of overdrafts classified as loans in the installment and other
consumer loan category.

The Bank
makes commercial, residential and consumer loans to customers primarily
throughout Oregon and Washington. The Banks strategy for credit risk management
includes well defined credit policies, specific underwriting criteria, and
ongoing risk monitoring and review processes for all credit exposures. The
Banks exposure to credit risk associated with its lending activities is
measured on groups of loans with similar characteristics or on individual loans.
Although the Bank has a diversified loan portfolio, a substantial portion of the
loans in the portfolio were made to borrowers whose ability to honor their loan
contracts is dependent upon the economies of Oregon and/or Washington. In
addition, we have identified the Banks two-step residential construction loan
(two-step loan) portfolio, which is a portion of our real estate construction
loan portfolio, as having a concentration of credit risk.

Given
certain market disruptions occurring over the second half of 2007, loans in the
two-step loan portfolio (two-step loan) have demonstrated a greater rate of
nonpayment than other categories of loans in the Banks loan portfolio. Common
issues giving rise to nonpayment by two-step loan borrowers include:
difficulties obtaining permanent financing, construction delays or cost
overruns, valuations on completed projects below expectations, borrower cash
flow limitations, and borrowing for investment purposes without the capacity to
carry the property through a down sales cycle.

The
following table presents information on the Banks real estate construction
loans including two-step loans for the dates shown:

| |                                                   | December
      31,
| | ------------------------------------------------- | ------------------
| |                                                   | 2007              
| | (Dollars in
      thousands)                      |                   
| | Commercial construction                           | $                 
| | Two-step residential construction
      loans     |                   
| | Residential construction to
      builder         |                   
| | Residential subdivision or site
      development |                   
| | Net deferred fees                                 |                   
| | Total real estate
      construction loans        | $                 

6. PREMISES AND EQUIPMENT

Premises and equipment consists of
the following:

| | (Dollars in
      thousands)     | December 31,
| | -------------------------------- | ------------
| |                                  | 2007        
| | Land                             | $           
| | Buildings and
      improvements |             
| | Furniture and equipment          |             
| | Construction in
      progress   |             
| |                                  |             
| | Accumulated
      depreciation   |             
| | Total                            | $           

Depreciation included in occupancy and
equipment expense amounted to $4.6 million, $3.6 million, and $3.0 million for
the years ended December 31, 2007, 2006, and 2005, respectively. The Company
periodically reviews the recorded value of its long-lived assets, specifically
premises and equipment, to determine whether impairment exists.

64

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7. GOODWILL AND INTANGIBLE ASSETS

The
following table summarizes the changes in Bancorps goodwill and core deposit
intangible asset for the years ended December 31, 2007 and 2006:

| | (Dollars in thousands)     |          |        |            | Core deposit
| | -------------------------- | -------- | ------ | ---------- | ------------
| |                            | Goodwill |        | intangible
| | Balance, January 1, 2006   | $        | -      |            | $           
| | Additions                  |          | 13,059 |            |             
| | Amortization               |          | -      |            |             
| | Balance, December 31, 2006 | $        | 13,059 |            | $           
| | Amortization               |          | -      |            |             
| | Balance, December 31, 2007 | $        | 13,059 |            | $           

Acquired goodwill and core deposit
intangible are related to the acquisition of Mid-Valley Bank. Management
evaluates goodwill on an annual basis as of April 30, or when other impairment
indicators exist. All acquired goodwill resides in the Bank operating segment.

The following table presents the
forecasted core deposit intangible asset amortization expense for 2008 through
2012.

| | (Dollars in
      thousands) | Full
      year
| | ---------------------------- | ---------------
| |                              | expected       
| | Year                         | amortization   
| | 2008                         | $              
| | 2009                         |                
| | 2010                         |                
| | 2011                         |                
| | 2012                         |                

8. OTHER ASSETS

The following table summarizes
Bancorps other assets for the years ended December 31, 2007 and 2006:

| | (Dollars in
      thousands)                 | December 31,
| | -------------------------------------------- | ------------
| |                                              | 2007        
| | Deferred tax assets, net                     | $           
| | Accrued interest
      receivable            |             
| | Investment in affordable housing tax credits |             
| | Other real
      estate owned                |             
| | Other                                        |             
| | Total other
      assets                     | $           

Bancorp has invested in two limited
partnerships that operate qualified affordable housing properties. Tax credits
and tax deductions from operating losses are passed through the partnerships to
Bancorp. The Company accounts for these investments using the equity
method.

65

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9. BORROWINGS

The following table summarizes
Bancorps borrowings for the years ended December 31, 2007 and 2006:

| | (Dollars in thousands)      | December
      31,
| | --------------------------- | ------------------
| |                             | 2007              
| | Short-term borrowings-      |                   
| | FHLB advances               | $                 
| | Long-term borrowings-       |                   
| | FHLB non-putable advances   |                   
| | FHLB putable
      advances |                   
| | Total long-term borrowings  |                   
| | Total borrowings            | $                 

Long-term
borrowings at December 31, 2007 consist of notes with fixed maturities and
putable advances with the FHLB totaling $83.1 million. Total long-term
borrowings with fixed maturities were $68.1 million with rates ranging from
3.72% to 5.42%. Bancorp had two putable advances totaling $15.0 million with
original terms of three and five years at a rate of 3.36 % to 4.46%, with
various put options and final maturities in September 2010 and June 2009.
Principal payments due at maturity on Bancorps long-term borrowings at December
31, 2007 are $25.0 million in 2009, $32.6 million in 2010, $5.4 million in 2011,
and $20.1 million in 2012, with no balances due thereafter.

Long-term
borrowings at December 31, 2006 consisted of notes with fixed maturities and
putable advances with the FHLB totaling $58.0 million. Total long-term
borrowings with fixed maturities were $53.0 million with rates ranging from
3.13% to 5.43% 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.

FHLB
advances are collateralized as provided for in the advance, pledge and security
agreements with the FHLB, by certain investment securities and mortgage-backed
securities, stock owned by Bancorp including deposits at the FHLB and certain
qualifying loans. At December 31, 2007 the Company had additional borrowing
capacity available at the FHLB of $269.2 million. In addition, we had credit
lines which totaled $145.0 million at five institutions. The maximum amount
outstanding from the FHLB under term advances at month end during 2007 and 2006
was $193.5 million and $130.4 million, respectively.

Bancorp had no outstanding Federal
Funds purchased or reverse repurchase agreements at December 31, 2007 and
2006.

66

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10. JUNIOR SUBORDINATED DEBENTURES

At
December 31, 2007, six wholly-owned subsidiary grantor trusts established by
Bancorp had issued and sold $51 million of pooled trust preferred securities
(trust preferred securities). Trust preferred securities accrue and pay
distributions periodically at specified annual rates as provided in each
indenture. The trusts used all of the net proceeds from each sale of trust
preferred securities 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 and may be subject to 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
outstanding trust preferred securities at December 31, 2007:

| | (Dollars in
      thousands)                                        |  |                     |  |                       |  |               |  |               |  |          |  |                    
| | ------------------------------------------------------------------- |  | ------------------- |  | --------------------- |  | ------------- |  | ------------- |  | -------- |  | -------------------
| |                                                                     |  |                     |  | Trust
      preferred |  |               |  |               |  | Rate at  |  |                    
| | Issuance Trust                                                      |  | Issuance date       |  | security amount       |  | Rate type (1) |  | Initial rate  |  | 12/31/07 |  | Maturity date      
| | 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   
| | West Coast Statutory Trust V                                        |  | April 2006          |  | $15,000               |  | Variable      |  | 6.79%         |  | 6.42%    |  | June 2036          
| | West Coast
      Statutory Trust VI                                 |  | December
      2006 |  | $5,000                |  | Variable      |  | 7.04%         |  | 6.67%    |  | December
      2036
| | West Coast Statutory Trust VII                                      |  | March 2007          |  | $12,500               |  | Variable      |  | 6.90%         |  | 6.54%    |  | March 2037         
| | West Coast
      Statutory Trust VIII                               |  | June 2007           |  | $5,000                |  | Variable      |  | 6.74%         |  | 6.37%    |  | June
      2037    
| |                                                                     |  | Total               |  | $51,000               |  |               |  | Weighted rate |  | 6.45%    |  |                    
| | (1) The
      variable rate preferred securities reprice quarterly. |  |                     |  |                       |  |               |  |               |  |          | 

The total
amount of trust preferred securities outstanding at December 31, 2007, was $51
million. The interest rates on the trust preferred securities issued in April
2006, December 2006, March 2007, and June 2007 reset quarterly and are tied to
the London Interbank Offered Rate (LIBOR) rate. The Company has the right to
redeem the debentures of the September 2003 issuance in September 2008; the
March 2004 issuance in March 2009; the April 2006 issuance in June 2011; the
December 2006 issuance in December 2011; the March 2007 issuance in March 2012,
and the June 2007 issuance in June 2012.

The
junior subordinated debentures issued by Bancorp to the grantor trusts, totaling
$51 million, are reflected in our consolidated balance sheet in the liabilities
section at December 31, 2007 and 2006, under the caption junior subordinated
debentures. Bancorp records interest expense on the corresponding junior
subordinated debentures in the consolidated statements of income. Bancorp
recorded $1.6 and $1.3 million in other assets in the consolidated balance sheet
at December 31, 2007 and 2006, respectively, for the common capital securities
issued by the issuing trusts.

67

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11. COMMITMENTS AND CONTINGENT
LIABILITIES

The
Company leases land and office space under 52 leases, of which 49 are long-term
operating leases that expire between 2008 and 2023. 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, 2007, minimum future lease payments under these
leases and other operating leases were:

| | (Dollars in
      thousands) |  | Minimum Future
| | ---------------------------- |  | --------------
| | Year                         |  | Lease Payments
| | 2008                         |  | $             
| | 2009                         |  |               
| | 2010                         |  |               
| | 2011                         |  |               
| | 2012                         |  |               
| | Thereafter                   |  |               
| | Total                        |  | $             

Rental
expense for all operating leases was $3.7 million, $3.0 million, and $2.6
million for the years ended December 31, 2007, 2006, and 2005, respectively.

For the
year ended December 31, 2007, the Company reversed an accrued liability in the
amount of $1.4 million pretax for managements estimate of loss exposure with
respect to a legal matter as a result of a favorable jury verdict and settlement
of the matter. The reversal of this accrued liability is reflected in the
consolidated statements of income for the year ended December 31, 2007, as a
decrease in noninterest expense.

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, cashflow, or liquidity.

12. INCOME TAXES

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

| | (Dollars in
      thousands) | Year ended December 31,
| | ---------------------------- | -----------------------
| |                              | 2007                   
| | Current                      |                        
| | Federal                      | $                      
| | State                        |                        
| |                              |                        
| | Deferred                     |                        
| | Federal                      |                        
| | State                        |                        
| |                              |                        
| | Total                        |                        
| | Federal                      |                        
| | State                        |                        
| | Total                        | $                      

68

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12. 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, 2007 and
2006 are presented below:

| | (Dollars in
      thousands)                 | December 31,
| | -------------------------------------------- | ------------
| |                                              | 2007        
| | Deferred tax assets:                         |             
| | Allowance for
      loan losses              | $           
| | Reserve for unfunded commitments             |             
| | Net unrealized
      loss on investments     |             
| | available for sale                           |             
| | Net unrealized loss on                       |             
| | derivatives-Swap                             |             
| | Deferred
      employee benefits             |             
| | Accrued contingency expense                  |             
| | Loss on
      impairment of securities       |             
| | Stock option and restricted stock            |             
| | Other                                        |             
| | Total deferred tax assets                    |             
| |                                             
| | Deferred tax liabilities:                    |             
| | Accumulated
      depreciation               |             
| | Loan origination costs                       |             
| | Federal Home
      Loan Bank stock dividends |             
| | Intangible assests                           |             
| | Other                                        |             
| | Total deferred tax liabilities               |             
| | Net deferred tax assets                      | $           

Based on
historical performance, the Company believes it is more likely than not that the
net deferred tax assets at December 31, 2007 and 2006 will be used to reduce
future taxable income and therefore no valuation allowance associated with
deferred tax assets has been established at December 31, 2007 and 2006.

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

| | (Dollars in
      thousands)                                | Year ended December 31,
| | ----------------------------------------------------------- | -----------------------
| |                                                             | 2007                   
| | Expected federal income tax provision (1)                   | $                      
| | State income
      tax, net of federal income tax effect    |                        
| | Interest on obligations of state and political subdivisions |                        
| | exempt from federal tax                                     |                        
| | Investment tax
      credits                                |                        
| | Bank owned life insurance                                   |                        
| | Stock
      options                                         |                        
| | Other, net                                                  |                        
| | Total                                                       | $                      
| |                                                             |                        
| | (1) Federal
      income tax provision applied at 35%.      |                        

Bancorp
is subject to U.S. federal income tax and income tax of the State of Oregon. The
years 2004 through 2006 remain open to examination for federal income taxes, and
years 2003 through 2006 remain open for State examination. As of January 1,
2007, and December 31, 2007, Bancorp had no unrecognized tax benefits or
uncertain tax positions. In addition, Bancorp had no accrued interest or
penalties as of January 1, 2007 or December 31, 2007. It is Bancorps policy to
record interest and penalties as a component of income tax expense.

69

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13. 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, 2007, or 2006.

In July
2000, Bancorp announced a stock repurchase program that was expanded in
September 2000, June 2001, September 2002, April 2004, and by 1.0 million shares
in September 2007. Under this plan, the Company can purchase up to 4.88 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 1,052,000 at December 31, 2007. The following
table presents information with respect to Bancorps stock repurchase program.

| |                                         |                              |  |                            |          |       | Average cost per
| | --------------------------------------- | ---------------------------- |  | -------------------------- | -------- | ----- | ----------------
| | (Shares and
      dollars in thousands) | Shares repurchased in period |  | Cost of shares repurchased |          | share
| | Year ended 2000                         | 573                          |  |                            | $  5,264 |       |                 
| | Year ended
      2001                   | 534                          |  |                            | 6,597    |       |                 
| | Year ended 2002                         | 866                          |  |                            | 13,081   |       |                 
| | Year ended
      2003                   | 587                          |  |                            | 10,461   |       |                 
| | Year ended 2004                         | 484                          |  |                            | 10,515   |       |                 
| | Year ended
      2005                   | 484                          |  |                            | 11,815   |       |                 
| | Year ended 2006                         | 95                           |  |                            | 2,770    |       |                 
| | Year ended
      2007                   | 205                          |  |                            | 5,847    |       |                 
| | Plan
      to date total                | 3,828                        |  |                            | $66,350  |       |                 

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 the Bank 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%. 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, 2007, Bancorp and its subsidiary bank are considered Well Capitalized
under current risk based capital regulatory guidelines, which require well
capitalized 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%. Management believes that no events or changes in conditions have
subsequently occurred which would significantly change Bancorps capital
position. Dividends are limited under federal and Oregon laws and regulations
pertaining to Bancorps financial condition. Payment of dividends by the Bank
may also be subject to restriction by state and federal banking regulators.
Under the restrictions of maintaining adequate minimum capital, as of December
31, 2007, the Bank could have declared dividends totaling $62.8 million without
obtaining prior regulatory approval.

The following table presents
selected risk adjusted capital information as of December 31, 2007 and 2006:

|                             | 2007   |         | 2006 
|---------------------------- | ------ | ------- | -----
|                            
|                            
|                             |        |         |      
|                             |        |         |      
|(Dollars in
      thousands) |        |         |      
|                             | Amount |         | Ratio
|Tier 1 Capital               |        |         |      
|West Coast
      Bancorp     | $      | 244,165 |      
|West Coast Bank              |        | 228,976 |      
|                             |        |         |      
|Total
      Capital          |        |         |      
|West Coast Bancorp           | $      | 276,306 |      
|West Coast
      Bank        |        | 260,080 |      
|                             |        |         |      
|Leverage Ratio               |        |         |      
|West Coast
      Bancorp     | $      | 244,165 |      
|West Coast Bank              |        | 228,976 |      

70

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14. 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 $5.0 million and $4.9 million during the years ended December 31, 2007
and 2006, respectively.

15. EARNINGS PER SHARE

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

| |                                         |                                            | Weighted Average |        |       
| | --------------------------------------- | ------------------------------------------ | ---------------- | ------ | ------
| | (Dollars and
      shares in thousands) | Net Income                                 |                  | Shares |       
| |                                        
| |                                         | For the year ended December 31,
      2007
| | Basic earnings                          | $                                          | 16,842           |        | 15,507
| | Stock options                           |                                            |                  |        | 497   
| | Restricted stock                        |                                            |                  |        | 41    
| | Diluted
      earnings                  | $                                          | 16,842           |        | 16,045
| |                                        
| |                                         | For the year ended December 31,
      2006
| | Basic earnings                          | $                                          | 29,260           |        | 15,038
| | Stock options                           |                                            |                  |        | 648   
| | Restricted stock                        |                                            |                  |        | 44    
| | Diluted
      earnings                  | $                                          | 29,260           |        | 15,730
| |                                        
| |                                         | For the year ended December 31,
      2005
| | Basic earnings                          | $                                          | 23,840           |        | 14,658
| | Stock options                           |                                            |                  |        | 642   
| | Restricted stock                        |                                            |                  |        | 44    
| | Diluted
      earnings                  | $                                          | 23,840           |        | 15,344

Bancorp
had no reconciling items between net income and income available to common
stockholders for the periods reported. There were 145,454 shares having an
antidilutive effect on earnings per share in 2007, and there were no shares
having an antidilutive effect on earnings per share in 2006 and 2005.
Antidilutive shares are excluded from Bancorps earnings per share
calculations.

71

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16. COMPREHENSIVE INCOME

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

| | (Dollars in
      thousands)                                                 | Year ended December 31,
| | ---------------------------------------------------------------------------- | -----------------------
| |                                                                              | 2007                   
| | Net income as reported                                                       | $                      
| |                                                                             
| | Unrealized
      holding gains (losses) on securities:                       |                        
| | Unrealized holding gains (losses) arising during the
      year              |                        
| | Tax (provision)
      benefit                                                |                        
| | Unrealized holding gains (losses) arising during the year, net of
      tax  |                        
| |                                                                             
| | Unrealized (losses) gains on derivatives- cash flow
      hedges             |                        
| | Tax benefit
      (provision)                                                |                        
| | Unrealized (losses) gains on derivatives- cash flow hedges, net of
      tax |                        
| |                                                                             
| | Less: Reclassification adjustment for impairment and                         |                        
| | losses on sales
      of securities                                          |                        
| | Tax
      benefit                                                            |                        
| | Net realized losses, net of tax                                              |                        
| |                                                                              |                        
| | Total comprehensive income                                                   | $                      

17. TIME DEPOSITS

Included
in time deposits are deposits in denominations of $100,000 or greater, totaling
$286.1 million and $250.5 million at December 31, 2007 and 2006, respectively.
Interest expense relating to time deposits in denominations of $100,000 or
greater was $14.0 million, $9.8 million and $5.2 million for the years ended
December 31, 2007, 2006 and 2005, respectively. Maturity amounts on Bancorps
time deposits include $497.8 million in 2008, $28.4 million in 2009, $7.3
million in 2010, $4.8 million in 2011, and $12.0 million in 2012. Included in
the maturity amounts are $2.1 million in variable rate time deposits that
reprice monthly with maturities in the first quarter of 2008.

72

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18. 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 three
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 and with immediate vesting.
Bancorps 401(k) plan related expenses totaled $.94 million, $.82 million and
$1.17 million for 2007, 2006, and 2005, respectively, of which $0, $0, and $.4
million, respectively, were discretionary.

Bancorp
provides separate non-qualified deferred compensation plans for directors and
executive officers (collectively, 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,
including with respect to officers, amounts they otherwise might not be able to
defer under the 401(k) plan due to specified Internal Revenue Code restrictions
on the maximum deferral that may be allowed under that plan. Under the plans, an
amount equal to compensation being deferred by participants is placed in a rabbi
trust, the assets of which are available to Bancorps creditors, and invested
consistent with the participants direction among a variety of investment
alternatives. A deferred compensation liability of $2.4 million was accrued as
of December 31, 2007, compared to $2.5 million at December 31, 2006.

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

| | (Dollars in
      thousands) | Year ended December 31,
| | ---------------------------- | -----------------------
| |                              | 2007                   
| | Beginning balance            | $                      
| | Benefit
      expense        |                        
| | Benefit payments             |                        
| | Ending
      balance         | $                      

Bancorps
obligations under supplemental executive retirement agreements are unfunded
plans and have no plan assets. The benefit obligation represents the vested net
present value of future payments to individuals under the agreements. Bancorps
benefit expense, as specified in the agreements for the entire year 2008, is
expected to be $.3 million. The benefits expected to be paid are presented in
the following table:

| | (Dollars in
      thousands) |  |                      |    
| | ---------------------------- |  | -------------------- | ---
| |                             
| |                              |  | Benefits expected to
| | Year                         |  | be paid             
| | 2008                         |  | $                    | 115
| | 2009                         |  |                      | 220
| | 2010                         |  |                      | 185
| | 2011                         |  |                      | 174
| | 2012                         |  |                      | 167
| | 2013 through
      2017      |  |                      | 835

73

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19. STOCK PLANS

At
December 31, 2007, Bancorp maintains multiple stock option plans. Bancorps
stock option plans include the 2002 Stock Incentive Plan (2002 Plan), the 1999
Stock Option Plan, the Combined 1991 Employee Stock Option Plan and
Non-Qualified Stock Option Plan, and the 1995 Directors Stock Option Plan. No
additional grants may be made under plans other than the 2002 Plan. The 2002
Plan, which is shareholder approved, permits the grant of stock options and
restricted stock awards for up to 1.9 million shares, of which .45 million
shares remain available for issue, of which .18 million shares may be allocated
to restricted stock awards.

All stock
options have an exercise price that is equal to the closing fair market value of
Bancorps stock on the date the options were granted. Options granted under the
2002 Plan generally vest over a three or four-year vesting period; however,
certain grants have been made that vested immediately. Stock options granted
have a ten-year maximum term. Options previously issued under the 1999 or prior
plans are fully vested.

The following table presents
information on stock options outstanding for the periods shown.

| |                                |  |                          |   | 2007     |   |                          |  | 2006      |   |                          |   | 2005    
| | ------------------------------ |  | ------------------------ | - | -------- | - | ------------------------ |  | --------- | - | ------------------------ | - | --------
| |                                |  |                          |   | Weighted |   |                          |  | Weighted  |   |                          |   | Weighted
| |                                |  |                          |   | Avg. Ex. |   |                          |  | Avg. Ex.  |   |                          |   | Avg. Ex.
| |                                |  | 2007 Common
      Shares |   | Price    |   | 2006 Common
      Shares |  | Price     |   | 2005 Common
      Shares |   | Price   
| | Balance, beginning of year     |  | 1,470,036                |   |          | $ | 16.61                    |  | 1,693,135 |   |                          | $ | 14.80   
| | Granted                        |  | 11,900                   |   |          |   | 31.53                    |  | 157,775   |   |                          |   | 27.65   
| | Exercised                      |  | (161,834                 | ) |          |   | 14.36                    |  | (366,893  | ) |                          |   | 12.83   
| | Forfeited                      |  | (8,517                   | ) |          |   | 25.17                    |  | (13,981   | ) |                          |   | 21.71   
| | Balance, end of year           |  | 1,311,585                |   |          | $ | 16.97                    |  | 1,470,036 |   |                          | $ | 16.61   
| | Exercisable, end
      of year |  | 1,099,940                |   |          |   |                          |  | 1,151,694 |   |                          |   |         

As
of December 31, 2007, outstanding stock options consist of the following:

| |                            |       |                           |        | Weighted Avg.  |           | Weighted
      Avg. |   |                     |  | Weighted Avg. 
| | -------------------------- | ----- | ------------------------- | ------ | -------------- | --------- | ------------------- | - | ------------------- |  | --------------
| | Exercise Price
      Range |       | Options
      Outstanding |        | Exercise Price |           | Remaining Life      |   | Options Exercisable |  | Exercise Price
| | $                          | 8.44  | -                         | $12.27 |                | 381,398   |                     | $ | 10.53               |  | 2.69          
| |                            | 12.50 | -                         | 16.24  |                | 395,836   |                     |   | 15.18               |  | 4.34          
| |                            | 16.49 | -                         | 21.32  |                | 358,997   |                     |   | 20.64               |  | 6.35          
| |                            | 21.92 | -                         | 34.13  |                | 175,354   |                     |   | 27.48               |  | 8.26          
| |                            | Total |                           |        |                | 1,311,585 |                     | $ | 16.97               |  | 4.93          

74

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19. STOCK PLANS (continued)

The average fair value of options
granted is estimated on the date of grant using the Black-Scholes option-pricing
model. There were no non-qualified director options granted in 2007. The
following table presents the assumptions used in the fair value calculation:

| |                               |  | Non-Qualified Director Options |      | Employee Options
| | ----------------------------- |  | ------------------------------ | ---- | ----------------
| |                               |  | 2006                           |      | 2005            
| | Risk Free interest rates      |  |                                | 4.95 | %               
| | Expected
      dividend       |  |                                | 1.64 | %               
| | Expected lives, in years      |  |                                | 4    |                 
| | Expected
      volatility     |  |                                | 23   | %               
| | Fair value of options granted |  | $                              | 6.12 |                 

The following table presents
information on stock options outstanding for the periods shown, less estimated
forfeitures.

| | (Dollars in
      thousands, except share and per share data) |  | Year ended December
  31,
| | ------------------------------------------------------------- |  | -------------------------
| |                                                               |  | 2007                     
| | Intrinsic value of options exercised in the period            |  | $                        
| |                                                              
| | Stock options fully vested and expected to vest:              |  |                          
| | Number                                                        |  |                          
| | Weighted avg. exercise price                                  |  | $                        
| | Aggregate intrinsic value                                     |  | $                        
| | Weighted avg. contractual term of
      options               |  |                          
| |                                                              
| | Stock options vested and currently exercisable                |  |                          
| | Number                                                        |  |                          
| | Weighted avg. exercise price                                  |  | $                        
| | Aggregate intrinsic value                                     |  | $                        
| | Weighted avg. contractual term of
      options               |  |                          

Bancorp
grants restricted stock periodically as a part of the 2002 Plan for the benefit
of employees and directors. At December 31, 2007, 271,000 shares remained
available for grants under the 2002 Plan, of which not more than 178,000 shares
can be awarded as 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 & Personnel Committee. Compensation expense for restricted
stock is based on the market price of the Company stock at the date 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. Recipients of restricted
stock do not pay any cash consideration to the Company for the shares, 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, 2007, 2006 and 2005:

| |                            |  |                 |   | Weighted         |   |                       |  | Weighted         |   |                       |   | Weighted        
| | -------------------------- |  | --------------- | - | ---------------- | - | --------------------- |  | ---------------- | - | --------------------- | - | ----------------
| |                            |  |                 |   | Average          |   |                       |  | Average          |   |                       |   | Average         
| |                            |  | 2007 Restricted |   | Grant
      Date |   | 2006
      Restricted |  | Grant
      Date |   | 2005
      Restricted |   | Grant
      Date
| |                            |  | Shares          |   | Fair Value       |   | Shares                |  | Fair Value       |   | Shares                |   | Fair Value      
| | Balance, beginning of year |  | 123,746         |   |                  | $ | 24.22                 |  | 123,027          |   |                       | $ | 20.24           
| | Granted                    |  | 74,170          |   |                  |   | 31.68                 |  | 57,840           |   |                       |   | 27.67           
| | Vested                     |  | (47,583         | ) |                  |   | 23.93                 |  | (55,715          | ) |                       |   | 19.07           
| | Forfeited                  |  | (2,016          | ) |                  |   | 30.09                 |  | (1,406           | ) |                       |   | 22.47           
| | Balance, end of year       |  | 148,317         |   |                  | $ | 27.97                 |  | 123,746          |   |                       | $ | 24.22           

75

---

19. STOCK PLANS (continued)

The
balance of unearned compensation related to these restricted shares as of
December 31, 2007 and 2006 was $3.1 million and $2.3 million, respectively.
Total pre-tax compensation and professional expense recognized for the
restricted shares granted to employees and directors was $1.5 million, $1.0
million and $1.0 million in 2007, 2006 and 2005, respectively.

It is Bancorps policy to issue new
shares for stock option exercises and restricted stock, rather than issue
treasury shares. Bancorp expenses stock options on a straight line basis over
the options related vesting term. Bancorp recognized pre-tax compensation and
professional expense related to stock options of $.5 million and $.6 million in
2007 and 2006, respectively.

20. 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 time 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.

76

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20. FAIR VALUES OF FINANCIAL
INSTRUMENTS (continued)

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.

The estimated fair values of
financial instruments at December 31, 2007 are as follows:

| | (Dollars in
      thousands)                | Carrying
      Value |           | Fair
      Value
| | ------------------------------------------- | -------------------- | --------- | ----------------
| | FINANCIAL ASSETS:                           |                      |           |                 
| | Cash and cash
      equivalents             | $                    | 113,802   |                 
| | Trading assets                              |                      | 1,582     |                 
| | Investment
      securities                 |                      | 269,425   |                 
| | Net loans (net of allowance for loan losses |                      |           |                 
| | and including
      loans held for sale)    |                      | 2,128,939 |                 
| | Bank owned life
      insurance             |                      | 22,612    |                 
| |                                            
| | FINANCIAL LIABILITIES:                      |                      |           |                 
| | Deposits                                    | $                    | 2,094,832 |                 
| | Short-term borrowings                       |                      | 167,000   |                 
| | Long-term
      borrowings                  |                      | 83,100    |                 
| |                                            
| | Junior subordinated debentures-variable     |                      | 37,500    |                 
| | Junior
      subordinated debentures-fixed  |                      | 13,500    |                 

The estimated fair values of
financial instruments at December 31, 2006 are as follows:

| | (Dollars in
      thousands)                | Carrying
      Value |           | Fair
      Value
| | ------------------------------------------- | -------------------- | --------- | ----------------
| | FINANCIAL ASSETS:                           |                      |           |                 
| | Cash and cash
      equivalents             | $                    | 93,800    |                 
| | Trading assets                              |                      | 1,075     |                 
| | Investment
      securities                 |                      | 328,652   |                 
| | Net loans (net of allowance for loan losses |                      |           |                 
| | and including
      loans held for sale)    |                      | 1,932,259 |                 
| | Bank owned life
      insurance             |                      | 21,718    |                 
| |                                            
| | Derivative instruments - Swaps              |                      | 27        |                 
| |                                            
| | FINANCIAL LIABILITIES:                      |                      |           |                 
| | Deposits                                    | $                    | 2,006,352 |                 
| | Short-term borrowings                       |                      | 130,418   |                 
| | Long-term
      borrowings                  |                      | 57,991    |                 
| |                                            
| | Junior subordinated debentures-variable     |                      | 20,000    |                 
| | Junior
      subordinated debentures-fixed  |                      | 21,000    |                 

77

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21. 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,
2007, outstanding commitments consist of the following:

| | (Dollars in
      thousands)                                              | Contract or       |         | Contract or        
| | ------------------------------------------------------------------------- | ----------------- | ------- | -------------------
| |                                                                           | Notional Amount   |         | Notional Amount    
| |                                                                           | December 31, 2007 |         | December 31,
  2006
| | Financial instruments whose contract amounts represent credit
      risk: |                   |         |                    
| | Commitments to extend credit in the form of loans                         |                   |         |                    
| | Commercial                                                                | $                 | 395,203 |                    
| | Real estate construction                                                  |                   | 228,418 |                    
| | Real
      estate mortgage                                                |                   | 205,651 |                    
| | Commercial real estate                                                    |                   | 27,116  |                    
| | Installment and consumer                                                  |                   | 19,232  |                    
| | Other1                                                                    |                   | 24,223  |                    
| | Standby letters of credit and financial guarantees                        |                   | 8,081   |                    
| | Account
      overdraft protection instruments                            |                   | 54,093  |                    
| |                                                                           |                   |         |                    
| | Total                                                                     | $                 | 962,017 |                    

|1 |  | The category other
      represents commitments extended to clients or borrowers that have been
      extended but not yet fully executed. These extended commitments are not
      yet classified nor have they been placed into our loan
  system.
|- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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 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 real property, accounts
receivable, inventory, property, plant and equipment, and income-producing
commercial properties.

Standby
letters of credit are conditional commitments issued to support a customers
performance or payment obligation 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 1-4 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 may 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 Bank are not expected to have a material
impact to operations. This activity is managed daily.

78

---

22. 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)  
| | Assets:                                         
| | Cash and cash equivalents                       
| | Investment in bank subsidiary                   
| | Investment in other subsidiaries                
| | Other assets                                    
| | Total
      assets                              
| |                                                 
| | Liabilities and stockholders equity:           
| | Junior subordinated debentures                  
| | Other liabilities                               
| | Total
      liabilities                         
| | Stockholders equity                            
| | Total
      liabilities and stockholders equity

| | WEST COAST
      BANCORP                                  
| | ----------------------------------------------------------
| | UNCONSOLIDATED STATEMENTS OF INCOME                       
| |                                                           
| | Year ended December 31 (Dollars in
      thousands)       
| | Income:                                                   
| | Cash dividends from Bank                                  
| | Other income                                              
| | Total income                                              
| | Expenses:                                                 
| | Interest expense                                          
| | Other expense                                             
| | Total expense                                             
| | Income before income taxes and equity in undistributed    
| | earnings of the subsidiaries                              
| | Income tax
      benefit                                  
| | Net income before equity in undistributed earnings        
| | of the subsidiaries                                       
| | Equity in
      undistributed earnings of the subsidiaries
| | Net income                                                

79

---

22. PARENT COMPANY ONLY FINANCIAL DATA
(continued)

| | WEST COAST
      BANCORP                                   
| | -----------------------------------------------------------
| | UNCONSOLIDATED STATEMENTS OF CASH FLOWS                    
| |                                                            
| | Year ended December 31 (Dollars in
      thousands)        
| | CASH FLOWS FROM OPERATING ACTIVITIES:                      
| | Net
      income                                           
| | Adjustments to reconcile net income to net cash            
| | provided by operating activities:                          
| | Undistributed earnings of subsidiaries                     
| | Increase in other assets                                   
| | Increase (decrease) in other liabilities                   
| | Tax
      benefit associated with stock options            
| | Net
      cash provided by operating activities            
| |                                                            
| | CASH FLOWS FROM INVESTING ACTIVITIES:                      
| | Purchase of Mid-Valley Bank stock                          
| | Capital contribution to subsidiaries                       
| | Net cash used in
      investing activities                
| |                                                            
| | CASH FLOWS FROM FINANCING ACTIVITIES:                      
| | Proceeds from issuance of junior subordinated notes        
| | Redemption from maturity of junior subordinated
      notes
| | Net
      proceeds from issuance of common stock           
| | Repurchase of common stock                                 
| | Dividends paid and cash paid for fractional shares         
| | Other, net                                                 
| | Net cash provided by (used in) financing
      activities  
| |                                                            
| | Net increase (decrease) in cash and cash equivalents       
| | Cash and cash
      equivalents at beginning of year       
| | Cash and cash equivalents at end of year                   

80

---

23. 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 activity relating to trust preferred
securities. 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
| | ------------------------------------------ | ----------------------------------
| | (Dollars in
      thousands)               | December 31, 2007                 
| |                                            | Banking                           
| | Interest income                            | $                                 
| | Interest
      expense                     |                                   
| | Net
      interest income (expense)        |                                   
| | Provision for
      credit losses          |                                   
| | Noninterest income                         |                                   
| | Noninterest
      expense                  |                                   
| | Income (loss) before income taxes          |                                   
| | Provision
      (benefit) for income taxes |                                   
| | Net income (loss)                          | $                                 
| |                                           
| | Depreciation and amortization              | $                                 
| | Assets                                     | $                                 
| | Goodwill                                   | $                                 
| | Loans,
      net                           | $                                 
| | Deposits                                   | $                                 
| | Equity                                     | $                                 
| |                                           
| |                                            | As
      of and for the year ended
| | (Dollars in
      thousands)               | December 31, 2006                 
| |                                            | Banking                           
| | Interest income                            | $                                 
| | Interest
      expense                     |                                   
| | Net
      interest income (expense)        |                                   
| | Provision for
      credit losses          |                                   
| | Noninterest income                         |                                   
| | Noninterest
      expense                  |                                   
| | Income (loss) before income taxes          |                                   
| | Provision
      (benefit) for income taxes |                                   
| | Net
      income (loss)                    | $                                 
| |                                           
| | Depreciation and amortization              | $                                 
| | Assets                                     | $                                 
| | Goodwill                                   | $                                 
| | Loans,
      net                           | $                                 
| | Deposits                                   | $                                 
| | Equity                                     | $                                 

81

---

23. SEGMENT AND RELATED INFORMATION
(continued)

| |                                            | As
      of and for the year ended
| | ------------------------------------------ | ----------------------------------
| | (Dollars in
      thousands)               | December 31, 2005                 
| |                                            | Banking                           
| | Interest income                            | $                                 
| | Interest
      expense                     |                                   
| | Net
      interest income (expense)        |                                   
| | Provision for
      credit losses          |                                   
| | Noninterest income                         |                                   
| | Noninterest
      expense                  |                                   
| | Income (loss) before income
      taxes    |                                   
| | Provision
      (benefit) for income taxes |                                   
| | Net income (loss)                          | $                                 
| |                                           
| | Depreciation and amortization              | $                                 
| | Assets                                     | $                                 
| | Loans, net                                 | $                                 
| | Deposits                                   | $                                 
| | Equity                                     | $                                 

24. RELATED PARTY
TRANSACTIONS

As of December 31, 2007 and 2006,
the Bank had loan commitments to directors, senior officers, principal
stockholders and their related interests totaling $20.9 million and $20.2
million, respectively. These commitments and the loan balances below 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 balances for loans made to
directors, senior officers, and principal stockholders of the Company and their
related interests:

| | (Dollars in
      thousands)   | December 31,
| | ------------------------------ | ------------
| |                                | 2007        
| | Balance, beginning of period   | $           
| | New loans and
      advances   |             
| | Principal payments and payoffs |             
| | Balance, end of
      period   | $           

82

---

QUARTERLY FINANCIAL INFORMATION
(unaudited)

| | 2007                                                |             
| | --------------------------------------------------- | ------------
| | (Dollars in
      thousands, except per share data) | December 31,
| | Interest income                                     | $           
| | Interest
      expense                              |             
| | Net
      interest income                           |             
| | Provision for
      credit losses                   |             
| | Noninterest income                                  |             
| | Noninterest
      expense                           |             
| | Income before income taxes                          |             
| | Provision
      (benefit) for income taxes          |             
| | Net
      income (loss)                             | $           
| |                                                    
| | Earnings (loss) per common share:                   |             
| | Basic (loss)                                        |             
| | Diluted (loss)                                      |             
| |                                                    
| | 2006                                                |             
| | (Dollars in
      thousands, except per share data) | December 31,
| | Interest income                                     | $           
| | Interest expense                                    |             
| | Net
      interest income                           |             
| | Provision for
      credit losses                   |             
| | Noninterest income                                  |             
| | Noninterest
      expense                           |             
| | Income before income taxes                          |             
| | Provision for
      income taxes                    |             
| | Net
      income                                    | $           
| |                                                    
| | Earnings per common share:                          |             
| | Basic                                               | $           
| | Diluted                                             | $           

83

---

ITEM 9.CHANGES IN AND
DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING ANDFINANCIAL 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
within the time periods specified in the SECs rules and forms. 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

None.

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 regarding the preparation,
reliability and fair presentation of published financial statements for external
purposes in accordance with accounting principles generally accepted in the
United States of America. Management is also responsible for ensuring compliance
with the federal laws and regulations concerning loans to insiders and the
federal and state laws and regulations concerning dividend restrictions, both of
which are designated by the Federal Deposit Insurance Corporation (FDIC) as
safety and soundness laws and regulations. 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, 2007. In making this
assessment, management used the criteria set forth by the Committee of
Sponsoring Organizations of the Treadway Commission inInternal ControlIntegrated Framework. Based on our assessment, we believe that, as of December 31,
2007, the Companys internal control over financial reporting is effective based
on those criteria.

The
Companys management has assessed its compliance with the designated safety and
soundness laws and regulations and has maintained records of its determinations
and assessments as required by the FDIC. Based on this assessment, management
believes that West Coast Bancorp has complied, in all material respects, with
the designated safety and soundness laws and regulations for the year ended
December 31, 2007.

The
Companys independent registered public accounting firm has audited the
Companys internal control over financial reporting as of December 31, 2007, as
stated in their report appearing below.

84

---

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 internal control
over financial reporting of West Coast Bancorp and subsidiaries (the Company)
as of December 31, 2007, based on criteria established inInternal Control  Integrated Frameworkissued 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 Consolidated
Financial Statements for Bank Holding Companies (Form FR Y-9C). 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 included in the accompanying managements
report on internal control over financial reporting and compliance with
designated laws and regulations. Our responsibility is to express an opinion on
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, assessing the
risk that a material weakness exists, testing and evaluating the design and
operating effectiveness of internal control based on the assessed risk, and
performing such other procedures as we considered necessary in the
circumstances. We believe that our audit provides a reasonable basis for our
opinion.

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, the Company maintained,
in all material respects, effective internal control over financial reporting as
of December 31, 2007, based on the criteria established inInternal Control  Integrated Frameworkissued by the Committee of Sponsoring Organizations of the
Treadway Commission.

We have not examined and, accordingly,
we do not express an opinion or any other form of assurance on managements
statement referring to compliance with laws and regulations.

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, 2007, of the Company and our report dated March 5, 2008, expressed
an unqualified opinion on those financial statements.

/s/ DELOITTE & TOUCHE LLP

Portland, Oregon March 5, 2008

85

---

ITEM 9B.OTHER
INFORMATION

None.

86

---

PART III

ITEM 10.DIRECTORS,
EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

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
2008 Annual Meeting of Stockholders to be filed within 120 days of Bancorps
fiscal year end of December 31, 2007 (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 independence for audit
committee members is defined under NASDAQ listing standards applicable to the
Company.

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 407(d)(5) of Regulation
S-K of the Exchange Act and is independent as independence for audit committee
members is defined under NASDAQ listing standards applicable to the Company.

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
Meadows Road, Suite 201

Lake
Oswego, Oregon 97035

(503)
684-0884

ITEM 11.EXECUTIVE
COMPENSATION

Information concerning executive and
director compensation and certain matters regarding participation in Bancorps
compensation committee required by this item is set forth under the headings
Executive Compensation and Board of Directors in the Proxy Statement and is
incorporated into this report by reference.

87

---

|**ITEM
      12.** |  | **SECURITY
      OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT ANDRELATED STOCK HOLDER
  MATTERS**
|------------------ |  | ----------------------------------------------------------------------------------------------------------

Security Ownership

Information concerning the security
ownership of certain beneficial owners and management required by this item is
set forth under the heading 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, AND DIRECTORINDEPENDENCE

Certain Relationships and Related
Transactions

Information concerning certain
relationships and related transactions required by this item is set forth under
the heading Transactions with Related Persons in the Proxy Statement and is
incorporated into this report by reference.

Director Independence

Information concerning the
independence of Bancorp directors required by this item is set forth under the
heading Election of Directors 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 Matters Related to our AuditorsFees Paid to
Independent Registered Public Accounting Firm in the Proxy Statement and is
incorporated into this report by reference.

88

---

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.                                                                  

89

---

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 March 5, 2008.

| | WEST
      COAST BANCORP
| | ------------------------
| | (Registrant)            
| |                         
| | By:                     
| |                         
| |                         

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 March 5, 2008.

|Principal Executive Officer:      |  |                         
|--------------------------------- |  | ------------------------
|                                  |  |                         
|/s/ Robert D. Sznewajs            |  |                         
|Robert
      D. Sznewajs          |  |                         
|                                  |  |                         
|Principal Financial Officer:      |  |                         
|                                  |  |                         
|/s/ Anders Giltvedt               |  |                         
|Anders
      Giltvedt             |  |                         
|                                  |  |                         
|Principal Accounting Officer:     |  |                         
|                                  |  |                         
|/s/ Kevin M. McClung              |  |                         
|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        

90

---

Index to Exhibits

|Exhibit No. |  | Exhibit                                                                                                                                                                                                                                                                                                                      
|----------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|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 3.1 to the Companys Current Report on Form 8-K dated
      October 24, 2006.                                                                                                                                                                                    
|           
|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 Hadley Robbins dated March 5, 2007. Incorporated
      by reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q for the
      quarter ended March 31, 2007 (the March 2007 10-Q).*                                                                      
|           
|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.*                                                                                                         

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

91

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Index to Exhibits (continued)

|Exhibit No. |  | Exhibit                                                                                                                                                                                                                                                                                                                                                                                              
|----------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.17       |  | 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.*                                                                                                                                                                         
|           
|10.18       |  | 2002 Stock Incentive Plan, as
      amended. Incorporated by reference to Exhibit 10.2 to the Companys
      Quarterly Report on Form 10-Q for the quarter ended September 30, 2006
      (the September 2006 10-Q).*                                                                                                                                                                             
|           
|10.19       |  | Forms of Option Agreements and
      Restricted Stock Agreements under the 2002 Stock Incentive Plan.
      Incorporated by reference to Exhibits 10.3 through 10.7 to the September
      2006 10-Q.                                                                                                                                                                                                
|           
|10.20       |  | 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 (the
      September 2005 10-Q).*
|           
|10.21       |  | 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 September 2005 10-Q.*                                                                                                  
|           
|10.22       |  | 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 10.1 to the September 2005
      10-Q.*                                                                                                  
|           
|10.23       |  | 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 10.3 to the September 2005
      10-Q.*                                                                                                 
|           
|10.24       |  | Supplemental Executive Retirement
      Plan adopted by West Coast Bank, the Company and Hadley Robbins dated
      April 1, 2007. Incorporated by reference to Exhibit 10.2 to the March 2007
      10-Q.*                                                                                                                                                                                          
|           
|10.25       |  | Directors Deferred Compensation
      Plan (Interim Document for Operational Compliance with the American Jobs
      Creation Act). Incorporated by reference to Exhibit 10.26 to the Companys
      Annual Report on Form 10-K for the year ended December 31, 2005 (the 2005
      10-K).*                                                                                                     
|           
|10.26       |  | 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.*                                                                                                                                                                                            
|           
|10.27       |  | Employment Agreement dated
      effective as of January 1, 2008, between Robert D. Sznewajs and the
      Company.****Incorporated by reference to Exhibit 10.1 to the Companys
      Current Report on Form 8-K dated December 20, 2007.*                                                                                                                                                         
|           
|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.

92

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