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

FORM 10-Q

[X] Quarterly Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934

For the quarterly period ended: September 30, 2007

Commission file number: 0-10997

      WEST COAST BANCORP
(Exact name of registrant as specified in its charter)

  Oregon   93-0810577
 (State or other jurisdiction of  (I.R.S. Employer
 incorporation or organization)  Identification No.)

5335 Meadows Road – Suite 201
Lake Oswego, Oregon 97035
(Address of principal executive offices, including zip code)

(503) 684-0884
(Registrant’s telephone number, including area code)

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

[  ] Large Accelerated Filer      [X] Accelerated Filer      [  ] Non-accelerated Filer

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

Yes [  ] No [ X ]

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Common Stock, no par value: 15,589,978 shares outstanding as of October 31, 2007

WEST COAST BANCORP

TABLE OF CONTENTS

PART I: FINANCIAL INFORMATION    
   
Item 1.   Financial Statements (unaudited)    
 
  Consolidated Balance Sheets:    
  September 30, 2007 and December 31, 2006     3
 
  Consolidated Statements of Income:    
  Three and nine months ended September 30, 2007 and 2006     4
 
  Consolidated Statements of Cash Flows:    
  Nine months ended September 30, 2007 and 2006     5
 
  Consolidated Statements of Changes in Stockholders’ Equity:    
  Nine months ended September 30, 2007 and year ended December 31, 2006     6
 
  Notes to Consolidated Financial Statements     7
 
Item   2. Management’s Discussion and Analysis of Financial    
  Condition and Results of Operations     20
 
Item 3.   Quantitative and Qualitative Disclosures About Market Risk     41
 
Item 4.   Controls and Procedures     41
 
PART II: OTHER INFORMATION    
 
Item 1.   Legal Proceedings     42
 
Item 1A.   Risk Factors     42
 
Item 2.   Unregistered Sales of Equity Securities and Use of Proceeds     43
 
Item 3.   Defaults Upon Senior Securities     43
 
Item 4.   Submission of Matters to a Vote of Security Holders     43
 
Item 5.   Other Information     43
 
Item 6.   Exhibits     43
 
SIGNATURES     44

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PART I: FINANCIAL INFORMATION
Item 1. Financial Statements

WEST COAST BANCORP
CONSOLIDATED BALANCE SHEETS
(Unaudited)

    September 30,   December 31,
(Dollars and shares in thousands)     2007        2006
ASSETS:        
Cash and cash equivalents:        
      Cash and due from banks   $ 72,223   $   83,252  
      Federal funds sold   29,143     10,062  
      Interest-bearing deposits in other banks     6      486  
            Total cash and cash equivalents   101,372     93,800  
Trading assets   1,750     1,075  
Investment securities available for sale, at fair value        
      (amortized cost: $271,723 and $329,142)   271,409     328,652  
Loans held for sale   2,508     7,586  
Loans   2,183,301     1,947,690  
Allowance for loan losses     (27,534 )     (23,017 )
            Loans, net   2,155,767     1,924,673  
Premises and equipment, net   33,318     32,087  
Goodwill   13,059     13,059  
Core deposit intangible, net   1,552     1,973  
Bank owned life insurance   22,361     21,718  
Other assets     44,515      40,749  
            Total assets   $    2,647,611   $   2,465,372  
 
LIABILITIES AND STOCKHOLDERS' EQUITY:        
 
Deposits:        
      Demand   $ 500,120   $   496,676  
      Savings and interest-bearing demand   347,560     333,273  
      Money market   666,352     652,923  
      Time deposits     597,421      523,480  
            Total deposits   2,111,453     2,006,352  
Short-term borrowings   161,941     130,418  
Long-term borrowings   72,200     57,991  
Junior subordinated debentures   51,000     41,000  
Other liabilities     33,106      28,729  
            Total liabilities   2,429,700     2,264,490  
 
Commitments and contingent liabilities (Note 7)        
 
STOCKHOLDERS' EQUITY:        
Preferred stock: no par value, none issued; 10,000 shares authorized   -        -      
Common stock: no par value, 50,000 shares        
      authorized; 15,604 and 15,586 shares issued        
      and outstanding, respectively   19,505     19,482  
Additional paid-in capital   70,211     71,762  
Retained earnings   128,386     109,952  
Accumulated other comprehensive loss     (191 )    (314 )
      Total stockholders' equity     217,911      200,882  
            Total liabilities and stockholders' equity   $        2,647,611     $        2,465,372  

See notes to consolidated financial statements.

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WEST COAST BANCORP
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)

    Three months ended         Nine months ended
    September 30,            September 30,
(In thousands, except per share amounts)     2007        2006        2007        2006
INTEREST INCOME:          
Interest and fees on loans   $   44,517   $   36,748   $ 127,065   $ 98,056  
Interest on taxable investment securities   2,410   2,734   8,071   7,778  
Interest on nontaxable investment securities   719   751   2,197   2,143  
Interest on deposits in other banks   2   31   36   50  
Interest on federal funds sold     94     285     293     469  
      Total interest income   47,742   40,549   137,662   108,496  
 
INTEREST EXPENSE:          
Savings and interest-bearing demand deposits   7,678   6,190   21,726   14,662  
Time deposits   6,826   5,670   19,289   12,779  
Short-term borrowings   1,908   896   5,612   2,912  
Long-term borrowings   616   756   1,872   2,210  
Junior subordinated debt     877     742     2,717     1,901  
      Total interest expense     17,905     14,254     51,216     34,464  
NET INTEREST INCOME   29,837   26,295   86,446   74,032  
Provision for loan losses     2,700     625     9,000     1,533  
Net interest income after provision for loan loss   27,137   25,670   77,446   72,499  
 
NONINTEREST INCOME:          
Service charges on deposit accounts   3,213   2,897   9,234   8,262  
Payment systems related revenue   2,122   2,116   5,812   5,000  
Trust and investment services revenue   1,662   1,322   4,803   3,997  
Gains on sales of loans   650   748   2,921   2,141  
Other   661   591   2,180   1,875  
Losses on sales of securities     (163 )   (206 )   (67 )   (686 )
      Total noninterest income   8,145   7,468   24,883   20,589  
 
NONINTEREST EXPENSE:          
Salaries and employee benefits   13,312   12,209   38,369   35,223  
Equipment   1,593   1,412   4,693   4,022  
Occupancy   2,099   1,855   6,306   5,127  
Payment systems related expense   843   666   2,333   1,754  
Professional fees   485   680   1,451   1,837  
Postage, printing and office supplies   973   996   2,818   2,639  
Marketing   1,298   1,103   3,292   3,708  
Communications   415   372   1,202   982  
Other noninterest expense     1,584     1,845       4,677     4,994  
      Total noninterest expense     22,602     21,138     65,141     60,286  
 
INCOME BEFORE INCOME TAXES   12,680   12,000   37,188   32,802  
PROVISION FOR INCOME TAXES     4,350     4,131     12,859     11,241  
NET INCOME   $   8,330   $   7,869   $ 24,329   $ 21,561  
 
      Basic earnings per share   $ 0.54   $ 0.51   $ 1.57   $ 1.45  
      Diluted earnings per share   $        0.52   $        0.49   $        1.51   $        1.38  
 
      Weighted average common shares   15,536   15,386     15,528       14,904  
      Weighted average diluted shares     16,035       16,053     16,108   15,587  

See notes to consolidated financial statements.

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WEST COAST BANCORP
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

    Nine months ended
    September 30,
(Dollars in thousands)     2007        2006
CASH FLOWS FROM OPERATING ACTIVITIES:        
Net income   $         24,329   $         21,561  
Adjustments to reconcile net income to net cash        
      provided by operating activities:        
Depreciation and amortization   3,714     2,663  
Amortization of tax credits   685     637  
Deferred income tax expense (benefit)   2,941     (528 )
Amortization of intangibles   421     285  
Provision for loan losses   9,000     1,533  
Increase in interest receivable   (744 )   (2,975 )
Increase in other assets   (6,808 )   (583 )
Losses on sales of securities   67     686  
Realized net loss (gain) on derivatives   34     (34 )
Net gain on sale of fixed assets   (66 )   -     
Gains on sale of loans   (2,921 )   (2,141 )
Origination of loans held for sale   (74,535 )   (63,929 )
Proceeds from sales of loans held for sale   82,534     63,853  
Increase in interest payable   349     402  
Increase (decrease) in other liabilities   4,028     (3,812 )
Increase in cash surrender value of bank owned life insurance   (643 )   (604 )
Stock based compensation expense   1,492     1,252  
Excess tax benefit from stock based compensation expense   (146 )   (198 )
Increase in trading assets     (675 )    (101 )
          Net cash provided by operating activities   43,056     17,967  
 
CASH FLOWS FROM INVESTING ACTIVITIES:        
Proceeds from maturities of available for sale securities   84,137     29,430  
Proceeds from sales of available for sale securities   2,622     33,163  
Purchase of available for sale securities   (29,428 )   (46,485 )
Acquisition, net of cash received   -         6,915  
Investments in tax credits   (138 )   (454 )
Loans made to customers greater than principal collected on loans   (240,094 )   (241,759 )
Proceeds from the sales of fixed assets   350     -      
Net capital expenditures     (4,988 )    (3,088 )
          Net cash used in investing activities   (187,539 )   (222,278 )
 
CASH FLOWS FROM FINANCING ACTIVITIES:        
Net increase in demand, savings and interest        
      bearing transaction accounts   31,160     140,801  
Net increase in time deposits   73,941     131,437  
Proceeds from issuance of junior subordinated debentures   17,500     15,000  
Repayment of junior subordinated debentures   (7,500 )   -      
Proceeds from issuance of long-term borrowings   29,200     105,400  
Repayment of long-term borrowings   (15,000 )   (127,087 )
Net increase (decrease) in short-term borrowings   31,523     (27,256 )
Repurchase of common stock   (5,415 )   (2,161 )
Net proceeds from issuance of common stock   2,395     3,958  
Excess tax benefit from stock based compensation   146     198  
Dividends paid and cash paid for fractional shares     (5,895 )    (5,047 )
          Net cash provided by financing activities     152,055      235,243  
 
NET INCREASE IN CASH AND CASH EQUIVALENTS   7,572     30,932  
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD     93,800      88,369  
CASH AND CASH EQUIVALENTS AT END OF PERIOD   $         101,372     $         119,301  

See notes to consolidated financial statements.

- 5 -

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

                Accumulated    
          Additional       Other    
    Common Stock   Paid-In   Retained   Deferred   Comprehensive    
(Dollars and shares in thousands)     Shares        Amount        Capital        Earnings        Compensation        Loss        Total
BALANCE, January 1, 2006   14,692   $   18,364   $ 53,976   $ 87,611   $ (1,773 ) $ (1,055 ) $   157,123  
 
Comprehensive income:                      
Net income   -         -       -       29,260   -       -       $   29,260  
      Other comprehensive income, net of tax:                      
           Net unrealized investment/derivative gains   -         -       -       -      -       741     741  
      Other comprehensive income, net of tax                     741  
Comprehensive income                   $   30,001  
Cash dividends, $.45 per common share   -         -       -       (6,919 ) -       -         (6,919 )
 
Issuance of common stock-stock options   367     459   4,248   -       -       -         4,707  
Redemption of common stock-options and restricted stock (39 )   (48 ) (1,034 ) -       -       -         (1,082 )
Activity in Deferred Compensation Plan   (5 )   (6 ) (160 ) -       -       -         (166 )
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             16,472  
Common stock repurchased and retired   (95 )   (119 ) (2,651 ) -       -       -         (2,770 )
Stock based compensation expense   -         -       1,641   -       -       -         1,641  
Tax benefit associated with stock plans   -            -           1,875       -           -           -            1,875  
BALANCE, December 31, 2006   15,586     19,482   71,762   109,952   -       (314 )   200,882  
 
Comprehensive income:                      
Net income   -         -       -       24,329   -       -       $   24,329  
      Other comprehensive income, net of tax:                      
           Net unrealized investment/derivative gains   -         -       -       -       -       123     123  
      Other comprehensive gain, net of tax                     123  
Comprehensive income                   $   24,452  
Cash dividends, $.38 per common share   -         -       -       (5,895 ) -       -         (5,895 )
 
Issuance of common stock-stock options   157     196   2,042   -       -       -         2,238  
Redemption of common stock-options and restricted stock (21 )   (26 ) (626 ) -       -       -         (652 )
Activity in Deferred Compensation Plan   (1 )   (1 ) (65 ) -       -       -         (66 )
Issuance of common stock-restricted stock   73     92   (59 ) -       -       -         33  
Common stock repurchased and retired   (190 )   (238 ) (5,177 ) -       -       -         (5,415 )
Stock based compensation expense   -         -       1,492   -       -       -         1,492  
Tax benefit associated with stock plans   -            -            842       -           -           -            842  
BALANCE, September 30, 2007        15,604     $      19,505     $      70,211     $      128,386     $      -         $      (191 )   $      217,911  

See notes to consolidated financial statements.

- 6 -

WEST COAST BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

1. BASIS OF PRESENTATION

     The interim unaudited consolidated financial statements have been prepared by management in accordance with accounting principles generally accepted in the United States of America (“generally accepted accounting principles”) for interim financial information. In addition, this report has been prepared in accordance with the instructions for Form 10-Q, and therefore, these financial statements do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. The accompanying interim consolidated financial statements include the accounts of West Coast Bancorp (“Bancorp” or the “Company”), and its wholly-owned subsidiaries, West Coast Bank (the “Bank”), West Coast Trust, and Totten, Inc., after elimination of intercompany transactions and balances. Certain reclassifications of prior year amounts have been made to conform to current classifications, including the tax benefit associated with stock options and net proceeds from issuance of common stock categories of the consolidated statements of cash flows. The Company’s interim consolidated financial statements and related notes, including our significant accounting policies, should be read in conjunction with the audited financial statements and related notes, including our significant accounting policies, contained in Bancorp's Annual Report on Form 10-K for the year ended December 31, 2006 (“2006 10-K”). There have been no significant changes to our accounting policies from the 2006 10-K.

     The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The financial information contained in this report reflects all adjustments that, in the opinion of management, are necessary for a fair presentation of the results of the interim periods. The results of operations and cash flows for the three and nine months ended September 30, 2007 are not necessarily indicative of the results that may be expected for the year ending December 31, 2007, or other future periods.

     Supplemental cash flow information. The following table presents supplemental cash flow information for the nine months ended September 30, 2007, and 2006.

(Dollars in thousands)     Nine months ended
    September 30,
Cash paid in the period for:     2007        2006
      Interest   $   50,867   $   34,062  
      Income taxes   $   14,181   $   11,384  
Noncash investing and financing activities:          
      Change in unrealized (loss) on available for sale securities          
      and derivatives, net of tax   $   123   $   1,097  
Dividends declared and accrued in other liabilities   $   2,115     $   1,869  
Stock issued for acquisition   $         -     $         16,472  

     Other real estate owned. Other real estate owned (“OREO”) is real property which the Bank has taken possession of in partial or full satisfaction of a loan or loans. OREO is booked 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 loan 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.

- 7 -

1. BASIS OF PRESENTATION (continued)

      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.

      Bancorp is subject to U.S. federal income tax and income tax of the State of Oregon. The years 2003 through 2005 remain open to examination for federal income taxes, and years 2002 through 2005 remain open for State examination. As of January 1, 2007, and September 30, 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 September 30, 2007. It is Bancorp’s policy to record interest and penalties as a component of income tax expense. The adoption of this accounting standard did not have a material impact on the Company.

      In September 2006, the FASB issued Statement of Financial Accounting Standards (“SFAS”) No. 157, “Fair Value Measurements.” This statement defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, 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 financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those years. Management is currently evaluating the potential impact of this standard 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 years beginning after November 15, 2007. Management is currently evaluating the potential impact of this standard on the Company.

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 is consistent with the Company’s strategy of expanding its operations and market share in Oregon and Washington. In addition, both companies have a similar focus on community banking, as well as commercial and agricultural lending. 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, the aggregate difference between the transaction value of $19.19 per share of outstanding Mid-Valley stock and the exercise prices of the options.

- 8 -

2. ACQUISITION (continued)

      The transaction was accounted for under the purchase method of accounting, with Mid-Valley’s assets and liabilities being recorded at their 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 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 core deposit intangibles (“CDI”) using an accelerated method over seven years. The Company evaluates goodwill for impairment at least annually, or if there is an indication that goodwill might be impaired. Goodwill was reviewed for impairment at April 30, 2007, and there was no impairment recorded for the nine months ending September 30, 2007.

      The following unaudited adjusted pro forma financial information for the nine months ended September 30, 2006, 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.

    Nine months  
    ended  
(In thousands, except per share amounts)   September 30, 2006
Net interest income $   76,262
Provision for loan loss     1,533
Noninterest income     20,710
Noninterest expense      63,197
Income before income taxes     32,242
Provision for income taxes      11,103
      Net income $   21,139
 
Basic earnings per share $   1.38
Diluted earnings per share $           1.32
 
Weighted average common shares     15,285
Weighted average dilutive shares     15,968

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3. STOCK PLANS AND STOCK BASED COMPENSATION

      At September 30, 2007, Bancorp had multiple stock option plans. Bancorp’s stock option plans include the 2002 Stock Incentive Plan (“2002 Plan”), the 1999 Stock Option Plan (“1999 Plan”), the Combined 1991 Employee Stock Option Plan and Non-Qualified Stock Option Plan (“1991 Plan”), and the 1995 Directors Stock Option Plan (“1995 Plan”). 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 .4 million shares remain available for issue, of which .18 million may be allocated to restricted stock awards.

      All stock options have an exercise price that is equal to the closing 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 10 year maximum term. Options previously issued under the 1999 Plan or prior plans are fully vested.

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

    Nine months ended          Year ended  
    September 30, 2007     December 31, 2006  
      Weighted Avg.       Weighted Avg.  
    Common Shares          Ex. Price          Common Shares          Ex. Price  
Balance, beginning of period   1,470,036   $   16.61   1,693,135   $   14.80  
      Granted   11,900     31.53   157,775     27.65  
      Exercised   (157,060 )     14.25   (366,893 )     12.83  
      Forfeited     (5,411 )       23.28     (13,981 )       21.71  
Balance, end of period           1,319,465     $         17.00             1,470,036     $         16.61  

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

    Nine months ended     Year ended  
(Dollars in thousands, except share and per share data)     September 30, 2007          December 31, 2006  
Intrinsic value of options exercised in the period           $   2,686           $   6,227  
 
Stock options vested and expected to vest:          
      Number     1,242,741     1,453,658  
      Weighted avg. exercise price           $   16.88           $   16.51  
      Aggregate intrinsic value           $   16,793           $   26,350  
      Weighted avg. contractual term of options     5.4 years     5.7 years  
 
Stock options vested and currently exercisable          
      Number     1,101,295     1,151,694  
      Weighted avg. exercise price           $   15.45           $   14.55  
      Aggregate intrinsic value           $   14,276           $   23,132  
      Weighted avg. contractual term of options     4.6 years       4.9 years  

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3. STOCK PLANS AND STOCK BASED COMPENSATION (continued)

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

    Nine months ended   Year ended
(Dollars in thousands, except share and per share data)     September 30, 2007   December 31, 2006
    Restricted   Average Market   Restricted   Average Market
    Shares        Price at Grant        Shares        Price at Grant
Balance, beginning of period   123,746   $   24.22   123,027   $   20.24  
      Awarded   72,870     31.83   57,840     27.67  
      Forfeited/vested     (47,521 )        23.87     (57,121 )        19.15  
Balance, end of period     149,095      $   28.01     123,746      $   24.22  
 
Fair value of shares vesting in the period       $   1,486       $   1,581  
Unrecognized compensation cost of nonvested shares                 $         3,516                 $         2,318  
Weighted average recognition period       1.6 years       1.4 years  

      At January 1, 2006, Bancorp began recognizing compensation expense for stock options with the adoption of SFAS 123R, “Share-Based Payment.” The fair value of each stock option granted is estimated on the date of grant using the Black-Scholes based stock option valuation model. This model uses the assumptions listed in the table below. Expected volatilities are based on implied volatilities from Bancorp’s stock, historical volatility of Bancorp’s stock, and other factors. Expected dividends are based on dividend trends and the market price of Bancorp’s stock price at grant. Bancorp uses historical data to estimate option exercises and employee terminations within the valuation model. The risk-free rate for periods within the contractual life of the option is based on the U.S. Treasury yield curve in effect at the time of grant.

    Black-Scholes assumptions
    Nine months ended   Year ended
    September 30, 2007         December 31, 2006
Risk Free interest rates     4.44%-4.78 %     4.35%-5.13 %  
Expected dividend     1.48%-1.66 %     1.44%-1.65 %  
Expected lives, in years     4     4  
Expected volatility     23 %        23 %  
Fair value of options granted in period   $         6.80     $         6.15  

      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 and restricted stock on a straight line basis over the related vesting term. Stock option expense decreased compared to prior periods and reflects the Company’s recent trend toward granting restricted stock versus stock options while managing the overall compensation expense associated with equity grants. The following table presents stock-based compensation expense for the periods shown.

    Three months ended   Nine months ended
    September 30,   September 30,
(Dollars in thousands, pretax     2007        2006        2007        2006
Restricted stock expense   $   410   $   268   $   1,119   $   778  
Stock option expense     125        124          373         474  
      Total stock-based compensation expense   $         535     $         392     $         1,492      $         1,252  

      The income tax benefit recognized in the income statement for restricted stock compensation expense in the three and nine months ended September 30, 2007, was $158,000 and $430,000, respectively, compared to $103,000 and $299,000 for the three and nine months ended September 30, 2006, respectively.

      The Company’s tax benefits from disqualifying dispositions for the exercise of incentive stock options, the exercise of non-qualified stock options, and the vesting and release of restricted stock for the three months ended September 30, 2007 and 2006, were $.1 million and $.6 million, respectively. For the nine months ended September 30, 2007 and 2006, the Company recognized income tax benefits of $.8 million and $1.4 million, respectively. These tax benefits lower the Company’s tax liability and increase additional paid in capital.

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4. INVESTMENT SECURITIES AVAILABLE FOR SALE

      The composition of Bancorp’s investment portfolio is as follows:

    September 30,     December 31,  
(Dollars in thousands)   2007        2006
Investments available for sale (At fair value)          
Treasury Securities $ 202 $ -   
U.S. Government agency securities   75,167   125,455
Corporate securities   20,156   23,885
Mortgage-backed securities   75,712   84,477
Obligations of state and political subdivisions   82,015   75,873
Equity and other securities   18,157   18,962
     Total investment securities available for sale $        271,409   $        328,652

      With an unrealized loss of $.3 million, the fair value of the securities in the investment portfolio was $271.4 million at September 30, 2007, while the carrying, or book, value of Bancorp’s investment portfolio was $271.7 million on September 30, 2007.

      The following table provides information on investment securities with 12 month or greater continuous unrealized losses as of September 30, 2007:

(Dollars in thousands)   Amortized cost of   Fair value of      
    securities with an   securities with an    
    unrealized loss for more   unrealized loss for more   Unrealized
    than 12 months        than 12 months        Gross Losses
U.S. Government agency securities $ 15,350 $ 15,265 $ (85 )
Corporate securities   2,045   2,016   (29 )
Mortgage-backed securities   55,042   53,857   (1,185 )
Obligations of state and political subdivisions   10,288   10,126   (162 )
Equity and other securities   2,000      1,931     (69 )
     Total $        84,725   $        83,195   $              (1,530 )

      At September 30, 2007, the Company had 62 investment securities with a book value of $84.7 million and an unrealized loss of $1.5 million that have been in a continuous unrealized loss position for more than 12 months. The Company has the ability and intent to hold securities with a stated maturity until the value recovers. The unrealized loss on our investment securities portfolio was substantially due to an increase in interest rates subsequent to purchasing these securities. Based on management’s evaluation and intent, none of the unrealized losses summarized in this table are considered other-than-temporary. In addition to accounting and regulatory guidance, in determining whether a security is other-than-temporarily impaired, the Company regularly considers the duration and amount of the unrealized loss, the financial condition of the issuer, and the prospects for a change in market value within a reasonable period of time.

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4. INVESTMENT SECURITIES AVAILABLE FOR SALE (continued)

      The following table provides information on investment securities which have unrealized losses and have been in an unrealized loss position for less than 12 months as of September 30, 2007:

(Dollars in thousands)     Amortized cost of   Fair value of    
    securities with an   securities with an    
    unrealized loss for less   unrealized loss for less      Unrealized
    than 12 months        than 12 months        Gross Losses
Corporate securities   $   4,147   $   3,989   $   (158 )  
Mortgage-backed securities     3,908     3,886     (22 )  
Obligations of state and political subdivisions     25,196     24,904     (292 )  
Equity and other securities     3,009       2,852       (157 )  
     Total   $         36,260     $         35,631     $         (629 )  

      There were a total of 48 securities in Bancorp’s investment portfolio at September 30, 2007, that have been in a continuous unrealized loss position for less than 12 months, with a book value of $36.3 million and a total unrealized loss of $.6 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.

- 13 -

5. LOANS AND ALLOWANCE FOR LOAN LOSSES

      The composition and carrying value of Bancorp’s loan portfolio, excluding loans held for sale, is as follows:

(Dollars in thousands)     September 30, 2007          December 31, 2006  
Commercial   $ 530,196     $ 463,188  
Real estate construction     519,870     365,954  
Real estate mortgage     305,675     287,495  
Commercial real estate     804,200     804,865  
Installment and other consumer     23,360     26,188  
Total loans     2,183,301     1,947,690  
Allowance for loan losses     (27,534 )     (23,017 )
Total loans, net   $            2,155,767   $            1,924,673  

      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 other liabilities was $1.0 million or .05% of total loans. 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 table presents activity in the allowance for loan losses for the three and nine months ended September 30, 2007, and 2006:

    Three months ended
(Dollars in thousands)     September 30, 2007        September 30, 2006
Balance at beginning of period   $ 26,496     $ 21,883  
Provision for loan losses     2,700     625  
Reclassification to reserve for unfunded commitments     (972 )   -      
 
Loan charge-offs     (990 )   (330 )
Loan recoveries     300     226  
      Total allowance for loan losses, end of period   $ 27,534   $ 22,404  
Reserve for unfunded commitments     972     -       
      Total allowance for credit losses   $                28,506   $                22,404  
 
 
    Nine months ended  
(Dollars in thousands)     September 30, 2007          September 30, 2006  
Balance at beginning of period   $   23,017   $ 20,469  
Provision for loan losses     9,000     1,533  
Reclassification to reserve for unfunded commitments     (972 )   -    
Allowance for loan losses from acquisition     -          887  
 
Loan charge-offs     (4,076 )   (1,147 )
Loan recoveries     565       662  
      Total allowance for loan losses, end of period   $   27,534   $ 22,404  
Reserve for unfunded commitments     972     -      
      Total allowance for credit losses   $   28,506   $   22,404  

      Any future adjustment related to a provision for unfunded commitments will be recorded in other noninterest expense.

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6. EARNINGS PER SHARE

      Basic earnings per share is computed by dividing net income available to common shareholders by the weighted average number shares of common stock outstanding during the period. Diluted earnings per share is computed in the same manner as basic earnings per share except that the denominator is increased to include the number of additional common shares that would have been outstanding if certain shares issueable upon exercise of options and non-vested restricted stock were included. For the periods reported, Bancorp had no reconciling items between net income and income available to common stockholders.

      The following tables reconcile the numerator and denominator of the basic and diluted earnings per share computations:

          Per Share
(Dollars and shares in thousands, except per share data)   Net Income   Weighted Average Shares   Amount
        Three months    
        ended    
            September 30, 2007         
Basic earnings $ 8,330 15,536 $   0.54
Common stock equivalents from:          
      Stock options     478    
      Restricted stock          21      
Diluted earnings $ 8,330   16,035 $   0.52
 
        Three months    
        ended    
            September 30, 2006        
Basic earnings $ 7,869 15,386 $  0.51
Common stock equivalents from:          
      Stock options     638    
      Restricted stock         29      
Diluted earnings $ 7,869    16,053 $   0.49
 
        Nine months    
        ended    
             September 30, 2007        
Basic earnings $ 24,329 15,528 $   1.57
Common stock equivalents from:          
      Stock options     539    
      Restricted stock         41      
Diluted earnings $ 24,329   16,108 $   1.51
 
        Nine months    
        ended    
               September 30, 2006           
Basic earnings $ 21,561 14,904 $   1.45
Common stock equivalents from:          
      Stock options     641    
      Restricted stock          42      
Diluted earnings $         21,561           15,587   $           1.38

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7. COMMITMENTS AND CONTINGENT LIABILITIES

      Included in "other liabilities" at September 30, 2007 and December 31, 2006, is a reserve in the amount of $1.4 million for management’s estimate of loss exposure with respect to a legal matter. Should Bancorp ultimately be determined to be liable in this matter, Bancorp believes there is a remote possibility that it could incur a liability materially in excess of the reserve.

      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 or results of operations.

8. COMPREHENSIVE INCOME

      The components of comprehensive income are as follows:

  Three months ended Nine months ended
  September 30, September 30,
(Dollars in thousands)        2007      2006      2007      2006
Net income as reported     $   8,330   $   7,869   $   24,329   $   21,561  
 
Unrealized gains on securities arising during the period     2,517     4,704       107     1,142  
Tax expense     (989 )     (1,848 )   (42 )     (449 )
Net unrealized gains on securities     1,528     2,856     65     693  
 
Less: Reclassification adjustment for losses on sales of securities     163     206     67     686  
Tax benefit     (64 )   (81 )   (26 )   (269 )
Net losses on sales of securities     99     125     41     417  
 
Unrealized gains (losses) on derivatives- cash flow hedges     -         15     28     (29 )
Tax (provision) benefit     -         (6 )   (11 )   16  
Net unrealized gains (losses) on derivatives- cash flow hedges     -         9     17     (13 )
                       
Total comprehensive income   $           9,957   $          10,859   $          24,452   $          22,658  

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9. JUNIOR SUBORDINATED DEBT

     At September 30, 2007, six wholly-owned subsidiary grantor trusts established by Bancorp had an outstanding balance of $51 million in pooled trust preferred securities. The following table is a summary of current trust preferred securities issued by the grantor trusts and guaranteed by Bancorp:

(Dollars in thousands)                
 
    Preferred security     Current stated     Next possible  
Issuance Trust      Issuance date      amount        Rate type (1)      rate      Maturity date      redemption date  
West Coast Statutory Trust III   September 2003     $   7,500 Fixed   6.75 %   September 2033   September 2008  
West Coast Statutory Trust IV     March 2004     6,000 Fixed   5.88 %   March 2034   March 2009  
West Coast Statutory Trust V   April 2006     15,000 Variable   7.12 %   June 2036     June 2011  
West Coast Statutory Trust VI   December 2006     5,000 Variable   7.37 %   December 2036   December 2011  
West Coast Statutory Trust VII   March 2007     12,500   Variable     7.24 %     March 2037   March 2012  
West Coast Statutory Trust VIII   June 2007     5,000 Variable   7.07 %   June 2037   June 2012  
     Total     $   51,000        

(1) The variable rate preferred securities reprice quarterly.

- 17 -

10. 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 provision of accounting, human resources, data processing and marketing services.

      Summarized financial information concerning Bancorp’s reportable segments and the reconciliation to Bancorp’s consolidated results are shown in the following table. The “Other” column includes Bancorp’s trust operations and corporate-related items, including interest expense related to trust preferred securities. Investment in subsidiaries is netted out of the presentations below. The “Intersegment” column identifies the intersegment activities of revenues, expenses and other assets between the “Banking” and “Other” segments.

(Dollars in thousands)   Three months ended September 30, 2007
       Banking      Other      Intersegment        Consolidated
Interest income   $ 47,709   $ 33     $ -          $ 47,742
Interest expense     17,027     878       -            17,905
     Net interest income (expense)     30,682     (845 )     -            29,837
Provision for loan losses     2,700     -           -            2,700
Noninterest income     7,405     983       (243 )     8,145
Noninterest expense     21,910     935       (243 )     22,602
     Income (loss) before income taxes     13,477     (797 )     -            12,680
Provision (benefit) for income taxes     4,660     (310 )     -            4,350
     Net income (loss)   $ 8,817   $ (487 )   $ -          $ 8,330
 
Depreciation and amortization   $ 1,214   $ 6     $ -          $ 1,220
Assets   $ 2,643,356   $ 12,978     $ (8,723 )   $ 2,647,611
Loans, net     $ 2,155,767   $ -          $ -          $ 2,155,767
Deposits   $ 2,119,427   $ -          $ (7,974 )   $ 2,111,453
Equity   $ 251,199   $ (33,288 )   $ -          $ 217,911
 
 
(Dollars in thousands)   Three months ended September 30, 2006
    Banking   Other   Intersegment   Consolidated
Interest income   $ 40,527     $ 22     $ -         $ 40,549
Interest expense     13,512     742       -           14,254
     Net interest income (expense)     27,015     (720 )     -           26,295
Provision for loan losses     625     -           -           625
Noninterest income     6,973     714       (219 )     7,468
Noninterest expense     20,481     876       (219 )     21,138
     Income (loss) before income taxes     12,882     (882 )     -           12,000
Provision (benefit) for income taxes     4,474     (343 )       -           4,131
     Net income (loss)   $ 8,408     $ (539 )   $ -          $ 7,869
 
Depreciation and amortization   $ 932     $ 4     $ -         $ 936
Assets   $ 2,364,497     $ 11,465     $ (6,521 )   $ 2,369,441
Loans, net     $ 1,846,165     $ -         $ (5 )   $ 1,846,160
Deposits   $           2,013,100     $ -         $           (5,853 )   $           2,007,247
Equity   $ 222,261     $           (28,005 )   $ -         $ 194,256

- 18 -

10. SEGMENT AND RELATED INFORMATION (Continued)

(Dollars in thousands)      Nine months ended September 30, 2007
  Banking      Other      Intersegment      Consolidated
Interest income $ 137,572 $ 90   $ -   $ 137,662
Interest expense   48,499     2,717       -       51,216
      Net interest income (expense)   89,073     (2,627 )     -       86,446
Provision for loan losses 9,000     -     -     9,000
Noninterest income   22,787   2,807     (711 )   24,883
Noninterest expense   63,074     2,778       (711 )     65,141
      Income (loss) before income taxes 39,786   (2,598 )   -     37,188
Provision (benefit) for income taxes   13,872     (1,013 )     -       12,859
      Net income (loss) $ 25,914   $ (1,585 )   $ -     $ 24,329
 
Depreciation and amortization $ 3,696 $ 18   $ -   $ 3,714
Assets $ 2,643,356 $ 12,978   $ (8,723 ) $ 2,647,611
Loans, net   $ 2,155,767 $ -   $ -   $ 2,155,767
Deposits $ 2,119,427 $ -   $ (7,974 ) $ 2,111,453
Equity $ 251,199 $ (33,288 ) $ -   $ 217,911
 
(Dollars in thousands) Nine months ended September 30, 2006
  Banking   Other   Intersegment   Consolidated
Interest income $ 108,428 $ 68   $ -   $ 108,496
Interest expense   32,562     1,902       -       34,464
      Net interest income (expense)     75,866     (1,834 )     -       74,032
Provision for loan losses   1,533   -     -     1,533
Noninterest income 18,812   2,435     (658 )     20,589
Noninterest expense   58,394     2,550       (658 )     60,286
      Income (loss) before income taxes 34,751   (1,949 )   -     32,802
Provision (benefit) for income taxes   12,001     (760 )     -       11,241
      Net income (loss) $ 22,750   $ (1,189 )   $ -     $ 21,561
 
Depreciation and amortization $ 2,654 $ 9   $ -   $ 2,663
Assets $ 2,364,497 $ 11,465   $           (6,521 ) $ 2,369,441
Loans, net   $ 1,846,165 $ -   $ (5 ) $ 1,846,160
Deposits $           2,013,100 $ -   $ (5,853 ) $           2,007,247
Equity $ 222,261 $           (28,005 ) $ -   $ 194,256

- 19 -

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

      The following discussion should be read in conjunction with the audited consolidated financial statements and related notes to those statements of West Coast Bancorp (“Bancorp” or the “Company”) that appear under the heading “Financial Statements and Supplementary Data” in Bancorp's Annual Report on Form 10-K for the year ended December 31, 2006 (“2006 10-K”), as well as the unaudited financial statements for the current quarter found under Item 1 above.

Forward Looking Statement Disclosure

      Statements in this 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 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,” “forecasts,” “estimates,” “predicts,” “expects,” “projects,” “potential,” 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 forward-looking statements include, among others, risks discussed in the text of the 2006 10-K 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 loans;
  • 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 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 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; 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”).

- 20 -

Critical Accounting Policies

      Management has identified our allowance for loan losses as a critical accounting policy. Calculation of our allowance for loan losses is discussed in our 2006 10-K under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operation – Critical Accounting Policies.” That discussion highlights estimates the Company makes that involve uncertainty or potential for substantial change.

      As of September 30, 2007, we reclassified $1.0 million of the allowance for loan losses as a reserve for unfunded loan commitments. The amount reclassified into other liabilities was $1.0 million or .05% of total loans. This reclassification had no impact on our provision for loan losses expense. Any future expense related to a provision for unfunded commitments will be recorded in other noninterest expense.

      The reserve for unfunded commitments was established to recognize the loan and related unfunded commitment growth that has occurred in our loan portfolio since December 31, 2005. Unfunded commitments increased from $.7 billion at December 31, 2005 to $1.0 billion at September 30, 2007. In addition, our current unfunded loans by category analysis model indicated a reserve for unfunded commitments is significant to the Company’s financial statements. The industry and the majority of the Company’s peers have established a reserve for unfunded commitments separate from the allowance for loan losses. Management has also established better information systems and data gathering to improve our estimates of probable losses from unfunded commitments. The reserve for unfunded commitments will be evaluated on a quarterly basis and appropriate increases or decreases will be reflected in the income statement.

- 21 -

Business Developments

      On October 19, 2007, the Company discontinued its two-step residential construction loan program (the “two-step program”). The two-step program, which involved loans to individual borrowers wishing to finance construction of residential properties, began in first quarter 2002, but activity in the program accelerated significantly beginning in first quarter 2005. The program was referred to as the "two-step" program because each project involved a two-step financing process -- initial construction financing that was provided by Bancorp and secondary, or "take-out," financing typically provided by third parties. As of September 30, 2007, the outstanding balance of loans originated in the two-step program was $275 million. We expect outstanding loan balances in the program to peak in late 2007 or early 2008, as borrowers draw down on current commitments, and then run off over the next 12-15 months. Total loan commitments in the two-step program peaked early in third quarter 2007. For additional details, see the discussion under the subheading “Loan Portfolio” below.

      The portfolio of loans originated in the two-step program has been affected by certain negative trends in the markets in which we operate. First, there has been softening in the residential housing market in our region. Home and lot inventories have increased significantly and are beginning to put downward pressure on valuations. Second, underwriting standards for permanent residential financing have tightened and several mortgage companies have stopped taking new applications or gone out of business, making it more difficult for some borrowers to secure permanent take-out financing. As a result, the Company has experienced increased nonperforming assets and delinquencies within the two-step program loan portfolio, a trend that accelerated in September and has continued in the month of October. For further detail, including management’s estimates for nonperforming assets and net loan charge-offs in the two-step program loan portfolio in fourth quarter 2007, see the discussion under the subheadings “Nonperforming Assets” and “Allowance for Loan Losses and Net Loan Charge-offs” below. The Company is actively assessing the expected effects of recent developments, but given how recently these developments have occurred, we believe it is too early to provide a meaningful estimate of provision for loan losses related to the two-step program for fourth quarter 2007 and periods thereafter.

      In other developments, the Company opened a new branch in west Eugene on October 15, 2007. This branch is the 62 nd in our network along the I-5 corridor in Oregon and Washington and the Central Oregon Coast. Consistent with our strategy of enchancing our distribution in the Portland/Vancouver market area, the Bank also opened a new branch at Martin Luther King and Main, on the inner east side of Portland, on July 2, 2007.

      During the second quarter of 2007, the Company introduced an enhanced website to improve access to our electronic banking platforms. West Coast Bank (the “Bank”) also launched a mobile ATM van that allows the Bank to service customers at a variety of events and non-branch locations and installed West Coast Bank Coin Centers at selected branches, as previously announced. The Company also began offering Certificate of Deposit Account Registry Service (“CDARS”), a product that allows customers increased deposit insurance. For more information see the heading “Liquidity and Sources of Funds.”

      In the first quarter of 2007, the Bank relocated three branches to new facilities: North Plains, Oregon, Mt. Angel, Oregon, and Salmon Creek, Washington. The Bank opened a new branch on the east side of Bend, Oregon. In addition, the Bank implemented an ATM fee refund program.

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Income Statement Overview

Three and nine months ended September 30, 2007, and 2006

      Net Income Bancorp’s net income was $8.3 million, or $.52 per diluted share, for the three months ended September 30, 2007, compared to $7.9 million, or $.49 per diluted share, for the three months ended September 30, 2006. Net income for the nine months ended September 30, 2007, was $24.3 million, or $1.51 per diluted share, compared to $21.6 million, or $1.38 per diluted share, for the same period last year.

      Bancorp’s net interest income and noninterest income combined was $38.0 million in the third quarter, a $4.2 million increase over the same period in 2006. This 13% increase in revenue growth allowed us to grow our earnings in the third quarter and year to date September 30, 2007, despite the $2.1 million increase in the Company’s provision for loan losses in the third quarter of 2007 compared to 2006.

      The Company’s return on average equity for the quarters ended September 30, 2007, and 2006 was 15.3% and 16.6%, respectively. Bancorp’s return on average equity, tangible for the quarters ended September 30, 2007, and 2006 was 16.6% and 18.2%, respectively. Return on average equity, tangible is a non-GAAP financial measure used by the Company that eliminates the effects of the amortization of merger-related intangible assets from the return on equity calculation. The Company calculates 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 a reconciliation to return on average equity:

West Coast Bancorp
Return on average equity tangible reconciliation 1

(Dollars in thousands)   Three months ended September 30,   Nine months ended September 30,
       2007        2006        2007        2006
Net income   $ 8,330   $ 7,869   $ 24,329 $ 21,561
     Less: intangible asset amortization, net of tax*     78     99     274       185  
Net income, tangible $ 8,408   $ 7,968   $ 24,603   $ 21,746  
 
Average shareholders' equity $ 215,550 $ 188,496 $ 209,808 $ 171,254
     Less: average intangibles   (14,660 )   (15,266 )   (14,805 )   (5,658 )
Average shareholders' equity, tangible $           200,890   $           173,230   $           195,003   $           165,596  
*Federal income tax provision applied at 35%.
 
Return on average equity 15.3 % 16.6 % 15.5 % 16.8 %
Return on average equity, tangible 16.6 % 18.2 % 16.9 % 17.6 %

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

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      Net Interest Income For the quarter ended September 30, 2007, net interest income on a tax equivalent basis was $30.2 million, compared with $26.7 million in the third quarter of 2006. Net interest income for the three months ended September 30, 2007, includes a $.39 million adjustment to a tax equivalent basis, while the adjustment included in the prior period was $.40 million. Growth in average loan balances of 17% was the primary contributor to the 13% increase in net interest income from the third quarter of 2006 to the same period in 2007. Other factors included 8% growth in average deposit balances, higher amortized loan fees, and a shift in loan mix toward higher yielding construction loans. We expect loan growth to slow significantly, as the two-step residential construction loan portfolio contracts as a result of the closure of the two-step program and less favorable market conditions in our region.

      Net interest income on a tax equivalent basis for the nine months ended September 30, 2007, increased $12.4 million to $87.6 million from $75.2 million for the same period in 2006.

      The following table presents information regarding yields on interest earning assets, expense on interest-bearing liabilities, and net interest margin on average interest-earning assets for the periods indicated on a tax equivalent basis:

  Three months ended   Increase   Percentage
(Dollars in thousands)   September 30,     (Decrease)     Change
       2007        2006        2007-2006        2007-2006
Interest and fee income (1) $ 48,130 $ 40,953 $ 7,177          17.5 %
Interest expense   17,905       14,254       3,651     25.6 %
Net interest income (1) $ 30,225     $ 26,699     $ 3,526     13.2 %
 
Average interest earning assets   $ 2,426,360 $ 2,167,250 $     259,110 12.0 %
Average interest bearing liabilities $ 1,839,387   $ 1,612,796 $ 226,591 14.0 %
Average interest earning assets/
     Average interest bearing liabilities 131.91 % 134.38 % (2.47 )
 
Average yields earned (1) 7.87 % 7.50 % 0.37
Average rates paid 3.86 % 3.51 % 0.35
Net interest spread (1) 4.01 % 3.99 % 0.02
Net interest margin (1) 4.94 % 4.89 % 0.05
 
   Nine months ended    Increase   Percentage
(Dollars in thousands)    September 30,      (Decrease)     Change
   2007      2006     2007-2006     2007-2006
Interest and fee income (1) $ 138,845 $ 109,651 $ 29,194 26.6 %
Interest expense   51,216       34,464       16,752     48.6 %
Net interest income (1) $ 87,629     $ 75,187     $ 12,442     16.5 %
 
Average interest earning assets $ 2,370,055 $ 2,009,767 $ 360,288 17.9 %
Average interest bearing liabilities $ 1,804,853 $ 1,488,273 $ 316,580 21.3 %
Average interest earning assets/
     Average interest bearing liabilities 131.32 % 135.04 % (3.72 )
 
Average yields earned (1) 7.83 % 7.29 % 0.54
Average rates paid 3.79 % 3.10 % 0.69
Net interest spread (1) 4.04 % 4.19 % (0.15 )
Net interest margin (1) 4.94 % 5.00 % (0.06 )  

      (1)       Interest earned on nontaxable securities has been computed on a 35% tax equivalent basis.
  Ratios for the three and nine months ended September 30, 2007, and 2006 have been annualized where appropriate.

      The net interest margin for the third quarter of 2007 increased to 4.94% from 4.89% in the third quarter of 2006, mainly due to higher rates earned on earning assets that were only partially offset by the higher rates paid on interest bearing liabilities. The third quarter 2007 net interest margin of 4.94% was slightly higher than our expectations despite higher than expected interest bearing liability costs. Stronger than anticipated construction loan balances and fees helped offset the increased costs of interest bearing deposits. Again, we expect contraction in the higher yielding two-step residential construction loan portfolio over the next 12-15 months. Closure of the two-step program will eliminate an important source of loans and related loan fees and make it difficult for Bancorp to maintain its net interest margin at recent levels. For more information, see the discussion under the subheading “Loan Portfolio” below.

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      Average yields on earning assets increased 37 basis points to 7.87% in the third quarter of 2007 from 7.50% in the third quarter of 2006. Average interest earning assets increased $259 million, or 12%, to $2.4 billion in the third quarter of 2007 from $2.2 billion for the same period in 2006. Third quarter 2007 average rates paid on interest bearing liabilities increased 35 basis points to 3.86%, from 3.51% for the same period in 2006, while average interest bearing liabilities increased $226.6 million, or 14%, to $1.8 billion.

      Changing interest rate environments, including the slope and level of, as well as changes in, the yield curve, and competitive pricing pressure, could lead to higher deposit costs, lower loan yields, reduced net interest margin and spread, and lower loan fees, all of which could lead to a decrease in net interest income.

      Provision for Loan Losses Bancorp recorded provision for loan losses for the third quarters of 2007 and 2006 of $2.7 million and $.6 million, respectively. The higher provision in the third quarter of 2007 was due to a negative trend in the loan portfolio risk ratings as well as higher nonperforming assets and loan delinquencies, particularly with respect to the two-step program, compared to an improving trend that occurred during the third quarter in 2006. Net loan charge-offs, which are an important component of our calculation of required provision for loan losses, increased to $.7 million from $.1 million in the same period in 2006. Approximately $1.1 million of the Company's provision for loan losses in the third quarter was associated with net loan charge-offs and valuation allowances related to the two-step program. The Company expects the provision for loan losses from weakness in the two-step program loan portfolio to increase in the fourth quarter.

      The provision for loan losses for the nine months ended September 30, 2007, was $9.0 million, up from $1.5 million in the same period in 2006. The increased provision for loan losses in the nine months ended September 30, 2007, compared to the same period in 2006 was generally consistent with the current credit cycle and reflects the impact of loan growth, loan mix changes, higher net loan charge-offs, and a moderately unfavorable migration in our loan risk ratings reserve percentage. During 2007, we have had a greater proportion of our loan portfolio in construction loans. Construction loans involve a higher inherent risk profile and are therefore allocated a higher provision for loan losses relative to other loans in the portfolio.

      The provision for loan losses is recorded to bring the allowance for loan losses to an amount considered appropriate by management based on factors which are described in the “Credit Management” and “Allowance for Loan Losses” sections of this report. The provision for loan losses is highly dependent on the local economy and real estate markets and our ability to manage asset quality and control the level of net loan charge-offs through prudent credit underwriting standards. For additional details, see the discussion under the subheadings “Loan Portfolio” and “Credit Management” below. A greater than expected decline in general economic conditions, the permanent residential mortgage market, or the real estate market in our region could increase future provision for loan losses.

      Noninterest Income Total noninterest income was $8.1 million for the three months ended September 30, 2007, an increase of 9% compared to $7.5 million in the third quarter of 2006. In the third quarter 2007, deposit service charges increased $.3 million, or 11%. Payment systems revenue remained flat for third quarter 2007, due to the $.4 million one-time contract adjustment for merchant services that benefited third quarter 2006 results. Solid trust and investment management account growth and improved mutual fund sales, resulted in trust and investment services revenue growing 25% from the same quarter of 2006.

      Changing interest rate environments, including the slope and level of, as well as changes in, the yield curve, could lead to decreases in fee income, including lower gains on sales of loans and reduced deposit service charges, two key components of our noninterest income. Also, increased competition and other competitive factors could adversely affect our ability to sustain fee generation.

      Noninterest Expense Noninterest expense for the three months ended September 30, 2007, was $22.6 million, an increase of $1.5 million, or 7%, compared to $21.1 million for the same period in 2006. Payment systems and marketing expenses, both of which are directly associated with revenue generation, increased 27% and 18%, respectively, over third quarter 2006. Salaries and employee benefits expense increased $1.1 million, or 9%, primarily due to additional team members and regular annual merit increases. Equipment expense increased 13% over third quarter 2006, mainly because of technology investments to support our products and delivery capabilities, including those in the payment systems area. Occupancy expense increased 13% from the same quarter in 2006, with a large portion of the increase caused by rent and depreciation on new or relocated branches.

      Income taxes The provision for income taxes increased in the three and nine months ended September 30, 2007, from the same periods in 2006, primarily due to an increase in income before taxes. Bancorp’s effective tax rate for the three and nine months ended September 30, 2007, remained flat compared to the same periods in 2006.

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Balance Sheet Overview

      Period end total assets increased to $ 2.6 billion as of September 30, 2007 , up from $2.4 billion at September 30, 2006. Our balance sheet growth has reflected successful efforts in targeted areas that support our corporate objectives, including small business and middle market commercial lending, construction and home equity lending, as well as core deposit production.

      Investment Portfolio The investment portfolio at September 30, 2007, decreased $57.2 million compared to December 31, 2006. At September 30, 2007, total investment securities available for sale had a pre-tax net unrealized loss of $.3 million. The decrease in our investment portfolio reflects recent strong loan growth as investment maturities have been utilized to fund loans. The composition and carrying value of Bancorp’s investment portfolio is as follows:

Investments available for sale (at fair value)     September 30,   December 31,  
(Dollars in thousands)      2007      2006
Treasury securities $ 202 $ -    
U.S. Government agency securities 75,167                125,455
Corporate securities 20,156 23,885
Mortgage-backed securities 75,712   84,477
Obligations of state and political subdivisions 82,015 75,873
Equity and other securities   18,157   18,962
     Total Investment Portfolio $                271,409 $ 328,652

      Bancorp’s investment portfolio has very limited exposure to “subprime” mortgages. The majority of our mortgage-backed securities portfolio is comprised of 15 year fully amortizing jumbo loans. All of our non-agency mortgage-backed securities are rated AAA or Aaa. For additional detail, see Note 4 of our interim financial statements included under Item 1 of our report above.

      Loan Portfolio Interest and fees earned on our loan portfolio is our primary source of revenue . Loans were 82% of total assets or $2.2 billion as of September 30, 2007, compared to 79% or $1.9 billion at December 31, 2006.

      Total loan growth was 17% or $315 million through September 30, 2007 from September 30, 2006. A significant portion of this growth was generated by construction loans which increased $211 million or 68%. Of that amount, $132 million or 63% were loans originated in the two-step program, which has since been discontinued. Commercial loans also exhibited strong growth of $78 million or 17% over the same period.

      The composition of Bancorp’s loan portfolio as of September 30, 2007, as compared to December 31, 2006 is as follows:

(Dollars in thousands)     September 30, 2007   December 31, 2006
       Amount        Percent        Amount        Percent
Commercial   $ 530,196                24.3 % $ 463,188                23.8 %
Real estate construction 519,870 23.8 % 365,954 18.8 %
Real estate mortgage 305,675 14.0 %   287,495   14.8 %
Commercial real estate 804,200 36.8 % 804,865 41.3 %
Installment and other consumer   23,360     1.1 %   26,188   1.3 %
     Total loans   2,183,301 100 % 1,947,690 100 %
Allowance for loan losses   (27,534 ) 1.26 %   (23,017 ) 1.18 %
     Total loans, net $           2,155,767   $           1,924,673    

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      As part of our strategic efforts over the last several years, we have placed an emphasis on increasing the commercial, construction and home equity loan segments of our loan portfolio. As a result of implementing this strategy, commercial loans have increased to 24% of the loan portfolio as of the end of third quarter 2007 compared to 16% at December 31, 2000, while commercial real estate loans have declined from 58% to less than 37% of the loan portfolio over the same time period. We believe our focus on commercial businesses has been and remains a key contributor to growing low cost deposits. Construction loans represent 24% of the loan portfolio as of the end of the third quarter, compared to 19% at December 31, 2000. Much of the growth in our construction loan portfolio has occurred in the last 18 months, consistent with the robust construction market in our region that has recently slowed in the residential segment.

      Our overall strategy has resulted in the loan portfolio being more interest rate sensitive. In addition, while our loan portfolio is more diversified from a credit risk perspective, historically, commercial loans have exhibited more credit losses than commercial real estate loans. This is partly due to the collateral not being based in real estate but rather assets such as inventory, accounts receivable, and other corporate assets. Construction loans have also been historically more risky due to the additional risks associated with construction projects, such as the risk of market changes between the time of loan origination and project completion, the possibility of delays, cost overruns, and other construction-related problems, and the uncertain value of collateral for those loans.

      As of September 30, 2007, the Company had outstanding loans to persons serving as directors, officers, principal stockholders and their related interests. These loans, when made, were on substantially the same terms, including interest rates, maturities and collateral, as comparable loans made to other customers of the Company. At September 30, 2007, and December 31, 2006, Bancorp had no bankers’ acceptances.

      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. With 17% or $78 million in growth of this portfolio over the prior year, we have continued to produce strong growth in this area. 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 most recently the introduction of our iDeposit product, have enhanced our ability to attract and retain commercial core deposit and lending relationships. We also believe that our expanding branch network continues to be an important point of service contact for our commercial relationships.

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      Real Estate Construction The composition of real estate construction loans by type of project as of September 30, 2007 and 2006, is as follows:

  September 30,  
  2007   2006   Change
(Dollars in thousands)          Amount        Percent        Amount        Percent        Amount        Percent
Commercial construction $ 94,278   18 % $ 49,242 16 % $ 45,036 91 %
Residential construction to individuals 287,428 55 % 155,896   51 %   131,532 84 %
Residential construction to builder 58,965 12 % 43,402 14 % 15,563 36 %
Residential subdivision or site development   80,370 16 % 61,083 20 % 19,287   32 %
Net deferred fees   (1,171 )   -1 %   (737 )   -1 %   (434 )   59 %
     Total real estate construction loans $           519,870               100 % $           308,886               100 % $           210,984             68 %

      At September 30, 2007, real estate construction loans were $520 million, up $211 million or 68% compared to $308 million at September 30, 2006. Over half of our construction loan growth since September 30, 2006, has been in residential construction to individuals, a category that is primarily comprised of loans originated in the two-step program. The residential construction to individuals category is comprised of loans that were made to an individual who expressed an intent to construct a primary residence, a second home, or a rental/investment property. The actual use of the constructed property may change depending on a number of factors, such as market conditions or construction related contingencies. Commercial construction and residential subdivision or site development loans accounted for the majority of the remainder of the real estate construction portfolio expansion. 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 builders and developers of residential properties.

      The following table further illustrates the growth and changes in the Company’s real estate construction loan portfolio over the last three fiscal years. The composition of real estate construction loans for the past three years ended December 31, is as follows:

  December 31,
  2006   2005   2004
(Dollars in thousands)          Amount        Percent        Amount        Percent        Amount        Percent
Commercial construction $ 63,592 17 %   $ 45,278   21 % $ 39,564 35 %
Residential construction to individuals 187,596 51 % 82,427 39 % 30,421   26 %
Residential construction to builder   46,805 13 % 31,375 15 % 17,982 15 %
Residential subdivision or site development 70,351 20 % 53,367 26 %   29,632 25 %
Net deferred fees   (2,390 )   -1 %     (1,619 )   -1 %     (625 )   -1 %
     Total real estate construction loans $           365,954               100 %   $           210,828               100 %   $           116,974               100 %  

      As indicated in the two tables above, the real estate construction loan category has expanded rapidly in recent periods, with continuing acceleration in the past 12 months, reflecting the high levels of construction activity in the markets in which we operate. The residential construction to individuals sub-category has been an important contributor to the overall loan revenue and earnings growth for the Company over this period. This growth trend is not expected to continue. The closing of the two-step program and less favorable market conditions, as evidenced by the increase in average monthly inventory of homes for sale in our markets to 8.9 months in September 2007, or double that of September 2006, are expected to lead to declining balances in the overall real estate construction portfolio. With residential housing markets entering the historically slower home sales season in our region, we are concerned with the market’s ability to absorb the rising available housing supply in the near term.

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      The Bank originated $238.3 million in two-step residential construction loans in the nine months ending September 30, 2007, compared to $202.9 million in the same period of 2006. The following table presents two-step residential construction loan originations as of the end of each period presented:

(Dollars in thousands)        Two-step residential
  construction loan
Period ended       originations
First quarter 2006 $ 49,443
Second quarter 2006 60,553
Third quarter 2006 92,867
Fourth quarter 2006 94,751
First quarter 2007 115,715
Second quarter 2007 76,969
Third quarter 2007 45,646

      As shown in the table above, tighter underwriting criteria implemented in second quarter 2007 and a softer residential housing market slowed origination volumes within the two-step program during the second and third quarters. Third quarter originations declined over 60% from first quarter 2007 to $45.6 million. The following table presents two-step residential construction loan information as of the end of each period presented:

(Dollars in thousands)     Two-step residential   Two-step residential   Two-step residential
  construction loan   construction   construction loan
Period ended       balance        unused commitments        commitments
First quarter 2006 $ 85,129   $ 66,914   $ 152,043
Second quarter 2006                     111,256 77,846                     189,102
Third quarter 2006 138,939                     105,246 244,185
Fourth quarter 2006 171,692 132,732 304,424
First quarter 2007 216,371 160,918 377,289
Second quarter 2007 256,332 149,902 406,234
Third quarter 2007 274,747 123,447 398,194

      As the table above indicates, two-step residential construction loan commitments peaked late in the second quarter. Moreover, two step residential construction unused commitments at September 30, 2007 declined 23% from the end of the first quarter of 2007 reflecting the lower volume of new two-step program originations combined with the higher level of draws on more mature two-step residential construction loans in our portfolio.

      The following tables illustrate two-step residential construction loan originations by region and by quarter. The Portland/Vancouver market area accounted for the largest origination volume year to date September 30, 2007, at nearly $90 million or 37% of total originations.

(Dollars in thousands)   Period ended Period ended
September 30,      September 30,
Region      2007 2006
Portland, Oregon / Vancouver, Washington $ 88,803 $ 46,643
Western Washington (Olympia, Seattle)   53,737 87,778
Central Oregon (Bend, Redmond) 45,846 19,300
Oregon Coast (Newport, Lincoln City) 15,230 14,021
Willamette Valley (Salem, Eugene) 25,417 26,028
Southern Oregon (Medford, Roseburg)   9,297   9,093
     Total residential real estate construction loan originations $          238,330 $          202,863

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      Real Estate Mortgage At September 30, 2007, real estate mortgage loan balances were $306 million or approximately 14% of the Company’s total loan portfolio. Home equity loans and lines represented about 73% or $224 million of the real estate mortgage portfolio. The Bank’s home equity loans and lines are substantially generated by our branches within our market area. As of September 30, 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 97% of our home equity loans had an original loan to value ratio of less than 85%, and the average FICO credit score for originations since January 1, 2005, was approximately 748. A study by the Consumer Bankers Association found that the average home equity borrower in 2006 had a FICO credit score of 730, which is about the same as the prior year.

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

(Dollars in thousands)   September 30, 2007   December 31, 2006
     Amount      Percent      Amount        Percent
Office Buildings   $ 182,200 22.7 %   $ 205,100 25.5 %
Retail Facilities 109,200 13.5 % 103,900 12.9 %
Multi-Family - 5+ Residential 72,300 9.0 %   78,200 9.7 %
Medical Offices 50,800 6.3 % 54,700 6.8 %
Hotels/Motels   41,400 5.1 %   52,400 6.5 %
Commercial/Agricultural 51,100 6.4 % 47,300 5.9 %
Industrial parks and related 46,600 5.8 % 50,300 6.2 %
Manufacturing Plants 40,800 5.1 % 29,700 3.7 %
Assisted Living 16,600 2.1 % 22,200 2.8 %
Land Development and Raw Land 23,500 2.9 % 19,300 2.4 %
Food Establishments 19,500 2.4 % 17,500 2.2 %
Mini Storage   16,200 2.0 % 16,100   2.0 %
Other            134,000           16.7 %   108,200             13.4 %
     Total commercial real estate loans $ 804,200 100 % $          804,900 100 %

      The commercial real estate portfolio balance was unchanged from December 31, 2006 to September 30, 2007. Continued market pressure on the pricing of such loans has been the primary cause of the lack of growth. Office buildings, retail facilities, and multi-family residential categories account for nearly half of the collateral securing our $804 million commercial real estate portfolio, down slightly from year end 2006. We believe Bancorp’s underwriting of commercial real estate loans is acceptable with loan to value ratios 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:

  September 30,   December 31,  
  2007   2006   Change
(Dollars in thousands)          Amount        Percent        Amount      Percent        Amount        Percent
Owner-occupied   $ 385,805 48 % $ 349,341   43 %   $ 36,464        10 %
Non-owner occupied   418,395   52 %     455,524   57 %          (37,129 )   -8 %
     Total commercial real estate loans $        804,200          100 % $        804,865          100 % $ (665 )   0 %

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      Credit Management Credit risk is inherent in our lending activities. The Company manages the general risks inherent in the loan portfolio by adopting loan policies and underwriting practices that are designed to result in prudent lending practices. In addition, we attempt to manage our risk through our credit administration and credit review functions, which are designed to help ensure compliance with our credit standards. Through the credit review function, the Company is able to monitor all credit-related policies and practices on a post approval basis, as part of its efforts to ensure uniform application of these policies and practices. The findings of these reviews are communicated to senior management and the Loan, Investment, and Asset/Liability Committee of Bancorp’s board of directors.

      As part of our ongoing lending process, internal risk ratings are assigned to each commercial, commercial real estate, and commercial real estate construction loans, before the funds are extended 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 centered upon our interpretation of relevant risk factors. Large balance accounts have the credit risk rating reviewed on at least an annual basis. Credit files are examined periodically on a sample test basis by our credit review department and internal auditors, as well as by regulatory examiners.

      Although a risk of nonpayment exists with respect to all loans, certain specific types of risks are associated with different types of loans. 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.

      We became concerned about the rapid growth and risk characteristics in the two-step program in the second quarter of 2007. In response, during the second quarter and with additional steps taken in this most recent period, we tightened our two-step program credit policies. Significant changes included increasing minimum FICO scores of borrowers, increasing loan to value ratio limits, increasing loan to cost limits, verifying the financial strength of builders, and limiting the number of homes financed in any one sub-division. We believe implementation of these changes was a primary factor in the slowing of loan originations in the two-step program in the second and third quarters of 2007.

      As described elsewhere in this report, the asset quality of loans in the two-step program has deteriorated, particularly over the last 60 days. Delinquencies (30-89 days past due) in the two-step program as a percentage of our total loans has increased from .32% at June 30, 2007 to .45% at September 30, 2007. We continue to analyze factors driving delinquency; however, common issues found during our review to date of the pool of delinquent loans 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 collective impact of internal and external factors has led to increased delinquencies, nonperforming assets and net loan charge-offs. We anticipate that these trends will continue until the portfolio runs off or the inventory of single family residences for sale in our region declines and the permanent mortgage market stabilizes.

      Credit management activities are now focused on managing the risk exposure to loans in the existing two-step program portfolio as they progress to maturity. Actions include, among others:

  • Increasing customer contact prior to loan maturity and encouraging early action to secure permanent financing or identify alternatives;
  • Identifying higher risk segments within the portfolio and developing risk mitigation strategies;
  • Adding resources to assist with collection efforts and the management and sale of OREO property; and
  • Developing internal mortgage products that will be made available to two-step program borrowers who qualify.  

      During the fourth quarter and continuing into 2008, a key credit management priority will be transitioning two-step program borrowers into permanent mortgages with the Bank or a third party, and proactively managing problem loan situations in order to minimize loss exposure. Alternatives for borrowers include refinancing with permanent mortgages with a third party or the Bank, short sales of the property, delivery of deeds in lieu of foreclosure or judicial or non-judicial foreclosure proceedings.

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      Nonperforming Assets Nonperforming assets consist of nonaccrual loans, loans past due more than 90 days and still accruing, and other real estate owned properties (“OREO”). Generally, no interest is accrued on loans and they are shifted to nonaccrual status when factors indicate collection of all contractually due interest or principal is doubtful or when the principal or interest payment becomes 90 days past due. In the two-step program the Bank maintains a security interest in the land that the home is being constructed on and the value of the home as it progresses through its construction phase to completion.

      Nonperforming assets at September 30, 2007 and December 31, 2006 were as follows:

(Dollars in thousands)     September 30, 2007         December 31, 2006
Loans on nonaccrual status:                
      Commercial   $            388   $            385  
      Real estate construction     6,695     567  
      Real estate mortgage     306     -      
      Commercial real estate     478     516  
      Installment and consumer      -         -      
Total nonaccrual loans   $   7,867   $   1,468  
Loans past due greater than 90 days          
      not on nonaccrual status     -         -      
Other real estate owned     1,183     -      
Total nonperforming assets   $   9,050   $   1,468  
 
Nonperforming loans to total loans     0.36 %     0.08 %  
Nonperforming assets to total assets     0.34 %     0.06 %  
Allowance for loan losses to non-performing assets     304 %     1568 %  

      At September 30, 2007, nonperforming assets of all types were $9.1 million, or 0.34%, of total assets, compared to $2.7 million, or 0.11%, at September 30, 2006. Nonaccrual loans increased to $7.9 million at September 30, 2007, from $2.7 million at September 30, 2006.

      Real estate construction loans comprised $6.7 million, or 85%, of the $7.9 million total nonaccrual loan balance at September 30, 2007. The entire $6.7 million of real estate construction loans on nonaccrual were originated as part of the two-step program. Nonaccrual loans outside the real estate construction category were $.4 million in commercial loans, $.5 million in commercial real estate loans, and $.3 million in real estate mortgage loans.

      Other real estate owned, or 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 six OREO properties at September 30, 2007, with a total net book value of $1.2 million, all of which were attributable to the two-step program. OREO is booked 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 are charged to other noninterest expense. Net expenses from operations of OREO properties are included in other noninterest expense in the statements of income.

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

(Dollars in thousands)     September 30, 2007           December 31, 2006  
    Amount           Amount  
Commercial   $            1,187   $            3,170  
Real estate construction     9,878     2,969  
Real estate mortgage     591     147  
Commercial real estate     2,575     2,076  
Installment and other consumer     596     1,560  
 
      Total loans 30-89 days pastdue, not              
        in nonaccrual status   $   14,827   $   9,922  
 
Delienquent loans to total loans     0.68 %     0.51 %  

      Bancorp also monitors delinquencies (defined as balances over 30-89 days past due, not in nonaccrual status) since they are an important indicator for future nonperforming assets. Delinquencies were .68% of total loans at September 30, 2007, up from .51% at December 31, 2006, due to increased delinquencies in loans originated in the two-step program. The overall combined delinquency and nonaccrual loan ratio of 1.04% at September 30, 2007, was well within the historical range of .25% to 2.07% over the past seven years.

      The increase in delinquencies was largely attributable to delinquencies in loans originated in the two-step program, which rose to $9.9 million at September 30, 2007 from $3.0 million at year end 2006. Delinquent two-step residential construction loans were 3.6% of total two-step residential construction loans at September 30, 2007, up from 1.7% at December 31, 2006. We expect delinquent and nonperforming two-step residential construction assets to continue to rise over the next few quarters. Based on currently available information, we believe nonperforming assets within the two-step program will be between $16 million and $24 million at year end 2007.

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      Allowance for Loan Losses and Net Loan Charge-offs The Company maintains its allowance for loan losses by charging a provision for loan losses against income in periods in which management believes additional allowance is appropriate to accommodate its estimate of losses in the loan portfolio. The evaluation of the adequacy of specific and general valuation allowances is an ongoing process. This process includes analysis of information derived from many sources: historical loss trends, portfolio risk rating migrations, delinquency and nonaccrual loans, growth portfolio diversification, current and anticipated economic conditions, the effectiveness of loan policies and collection practices, expertise of credit personnel, regulatory guidance and other factors. Please see the Company’s 2006 10-K under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Loan Loss Allowance and Provision” for a discussion of Bancorp’s methodologies underlying the calculation of the Company’s allowance for loan losses.

      In the current period, we established a reserve for unfunded commitments and reclassified $1.0 million of our allowance for loan losses into that reserve. For further information, see the discussion under the subheading “Critical Accounting Policies” above.

      Changes in the allowance for loan losses for year to date September 30, 2007, and full year ended December 31, 2006, are presented in the following table. We also present information with respect to our total allowance for credit losses, which we define to include both the allowance for loan losses and the reserve for unfunded commitments, for ease of comparison to prior periods.

    Nine months ended   Year ended
(Dollars in thousands)     September 30, 2007         December 31, 2006
Loans outstanding at end of period   $            2,183,301   $            1,947,690  
Average loans outstanding during the period     2,069,076     1,745,777  
 
Allowance for loan losses, beginning of period     23,017     20,469  
Allowance for loan losses, from acquisition     -         887  
Reclassification to reserve for unfunded commitments     (972 )     -      
Loans charged off:          
      Commercial     (2,466 )     (831 )  
      Real estate construction     (673 )     -      
      Real estate mortgage     (7 )     (48 )  
      Commercial real estate     -         -      
      Installment and consumer     (182 )     (130 )  
      Overdraft     (748 )     (912 )  
      Total loans charged off     (4,076 )     (1,921 )  
Recoveries:          
      Commercial     268     501  
      Real estate construction     7     -      
      Real estate mortgage     33     36  
      Commercial real estate     2     4  
      Installment and consumer     89     75  
      Overdraft     166     233  
      Total recoveries     565     849  
Net loans charged-offs     (3,511 )     (1,072 )  
 
Provision for loan losses     9,000     2,733  
Allowance for loan losses, end of period   $   27,534   $   23,017  
 
Reserve for unfunded commitments     972     -      
      Total allowance for credit losses   $   28,506   $   23,017  
 
Net loan charge-offs to average loans annualized     0.23 %     0.06 %  
Allowance for loan losses to total loans     1.26 %     1.18 %  
Allowance for credit losses to total loans     1.31 %     1.18 %  

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      At September 30, 2007, the Company’s allowance for loan losses was $27.5 million, consisting of a $24.4 million formula allowance, a $1.1 million specific allowance, and a $2.0 million unallocated allowance. At December 31, 2006, our allowance for loan losses was $23.0 million, consisting of a $20.7 million formula allowance, a $1.2 million specific allowance, and a $1.1 million unallocated allowance. We believe that the allowance for loan losses is adequate as of September 30, 2007, although there can be no assurance that future loan losses will not exceed our current estimates. Please see risk factors under Part II, Item 1A “Risk Factors” in this report and in our 2006 10-K. For further information regarding our allowance for loan losses, please see our 2006 10-K.

      Changes in the allocation of the allowance for loan losses in the first nine months of 2007 were due primarily to changes in the loan portfolio and its mix and changes in the risk ratings and delinquencies of our loans, as well as loan charge-offs and recovery activities.

      At September 30, 2007, Bancorp’s allowance for loan losses was 1.26% of total loans and 350% of total nonperforming loans, compared with an allowance for loan losses at December 31, 2006, of 1.18% of total loans, and 1568% of total nonperforming loans, respectively.

      During the first nine months of 2007, net loan charge-offs were $3.5 million compared to $.5 million for the same period in 2006. Net loan charge-offs reflect the realization of net losses in the loan portfolio that were recognized previously through the provision for loan losses. The annualized percentage of net loan charge-offs year to date to average loans outstanding was 0.23% for the nine months ended September 30, 2007, up from of 0.04% in the nine months ended September 30, 2006. Since December 31, 1999, the overall net loan charge-off percentage has ranged from .05% to .30%, an unusually low range compared to a longer term historical experience. One commercial relationship represented $2.4 million, or the majority, of the total net loan charge-offs during the first nine months of 2007. At September 30, 2007, the remaining commitment with this commercial relationship is $.4 million. The remaining loan charge-offs during the first nine months of 2007 were largely the result of overdraft losses.

      During the three months ended September 30, 2007, two-step program charge-offs were $.7 million. Management expects net loan charge-offs in two-step program loans to increase as we write down nonperforming loans in this portfolio. Based on currently available information, we estimate net loan charge-offs in the two-step program during the fourth quarter of 2007 to be between $1.6 million and $2.2 million.

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      Deposits and Borrowings The following table summarizes the quarterly average amount in, and the average interest rate paid on, each of the deposit and borrowing categories for the third quarters of 2007 and 2006.

    Third Quarter 2007   Third Quarter 2006
    Quarterly Average         Rate   Quarterly Average      
(Dollars in thousands)     Balance           Percent         Paid         Balance           Percent         Rate Paid
Demand deposits   $           490,336 24 %   -       $           489,796 26 %   -     
Interest bearing demand     267,588 13 %   1.07 %     259,198 13 %   0.94 %  
Savings     73,909 4 %   0.84 %     79,445 4 %   0.67 %  
Money market     680,027 33 %   3.97 %     587,174 31 %   3.68 %  
Time deposits     565,550   27 %   4.79 %     504,894   26 %   4.46 %  
Total deposits     2,077,410 100 %       1,920,507   100 %    
 
Short-term borrowings     144,711   5.23 %     66,750   5.32 %  
Long-term borrowings (1)     107,602     5.51 %     115,335     5.15 %  
Total deposits and borrowings   $   2,329,723     3.86 %   $   2,102,592     3.51 %  

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

      Third quarter 2007 average total deposits increased 8%, or $157 million, from the third quarter 2006. Our average deposits increase was mainly due to the combination of higher interest rates on and therefore, increased customer demand for money market and time deposits, the Mid-Valley acquisition, and consistent sales practices by the branches and commercial teams resulting in both consumer and business deposit growth. The Company believes interest bearing deposits such as money market and time deposits can be generated with competitive interest rate pricing.

      Primarily as a result of a deposit mix change toward higher rate categories and higher rates paid on those categories, our deposit and borrowing cost increased 35 basis points since the third quarter of 2006. Additionally, the local market areas in which we operate have exhibited strong loan growth and consequently the market participants have experienced a need for a robust deposit funding growth as well.

      While perhaps not quite as drastic of a change in deposit mix as our Pacific Northwest peers, we have not escaped the deposit mix migration caused by changing customer behavior from the sustained flat yield curve. Growth in average noninterest demand deposits and interest bearing demand deposit balances slowed materially with the rate driven time deposits and money market categories picking up the pace to support our earning asset expansion. Average noninterest bearing demand balances declined to 24% of total deposits from 26% prior year third quarter. However, on a linked quarter basis, the noninterest bearing demand deposit to total deposits percentage increased to 24% from 23%.

      The current balance of junior subordinated debentures of $51 million includes $5 million in debentures issued by Bancorp in June 2007 and $12.5 million issued in March 2007. For additional detail regarding Bancorp’s outstanding debentures, see Note 9 in the financial statements included under Item 1 of this report and our 2006 10-K under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Sources of Funds.”

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Capital Resources

      The Federal Reserve Bank (“FRB”) and the Federal Deposit Insurance Corporation (“FDIC”) have established minimum requirements for capital adequacy for bank holding companies and state non-member banks. The requirements address both risk-based capital and leveraged capital. The regulatory agencies may establish higher minimum requirements if, for example, a corporation has previously received special attention or has a high susceptibility to interest rate risk. The FRB and FDIC risk-based capital guidelines require banks and bank holding companies to have a ratio of tier one capital to total risk-weighted assets of at least 4%, and a ratio of total capital to total risk-weighted assets of 8% or greater. In addition, the leverage ratio of tier one capital to total assets less intangibles is required to be at least 3%. As of September 30 2007, Bancorp and the Bank are considered “Well Capitalized” under the regulatory risk based capital guidelines.

      The following table summarizes the consolidated risk based capital ratios of Bancorp and the Bank at September 30, 2007, and December 31, 2006.

    September 30, 2007     December 31, 2006  
                           Amount           Percent                         Amount          Percent
        Required For     required for       Required For     required for
        Minimum     Minimum       Minimum       Minimum
        Capital     Capital       Capital     Capital
(Dollars in thousands)     Actual       Adequacy     Adequacy   Actual       Adequacy     Adequacy
    Amount       Ratio     Amount           Amount       Ratio     Amount          
Tier 1 Capital                                  
West Coast Bancorp   $       254,491         10.16 %   $         100,150   4 %   $       227,165   9.85 %   $       92,277   4 %  
West Coast Bank   236,780   9.47 %     100,063   4 %   212,446   9.22 %     92,156   4 %  
 
Total Capital                      
West Coast Bancorp   $ 282,145   11.27 %   $   200,301   8 %   $ 250,406       10.85 %   $   184,555   8 %  
West Coast Bank   264,434   10.57 %     200,126   8 %   235,688   10.23 %     184,311   8 %  
 
Risk weighted assets                      
West Coast Bancorp   $ 2,503,757           $ 2,306,935          
West Coast Bank   2,501,580           2,303,893          
 
Leverage Ratio                      
West Coast Bancorp   $ 254,491   9.95 %   $   76,719   3 %   $ 227,165   9.64 %   $   70,721   3 %  
West Coast Bank   236,780   9.26 %     76,704   3 %   212,446   9.01 %     70,701   3 %  
 
Average total assets                      
West Coast Bancorp   $ 2,557,310           $ 2,357,369          
West Coast Bank   2,556,813           2,356,715          

      Stockholders' equity was $218 million at September 30, 2007, up from $201 million at December 31, 2006. The increase was due to net income, restricted stock grants and stock option exercises, including tax benefits associated with those option exercises, offset in part by unrealized losses on the investment portfolio, quarterly cash dividends to shareholders and Bancorp’s activity in its corporate stock repurchase program. The total capital ratio at the Bank was 10.57% at September 30, 2007, 57 basis points over minimum for well capitalized status. Stock repurchase activity and the actual number of shares to be repurchased in the near term will in large part be dictated by Bancorp’s earnings and risk weighted asset growth.

      The risk based capital ratios of Bancorp include $51 million of trust preferred securities that qualify as tier 1 capital at September 30, 2007, under guidance issued by the Board of Governors of the Federal Reserve System. Bancorp will continue to rely upon trust preferred securities to remain well-capitalized. For a further discussion of the amount and terms of issuances of pooled trust preferred securities, see Bancorp’s 2006 10-K under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operation – Liquidity and Sources of Funds,” and Note 9 in the financial statements including under Item 1 of this report.

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      In July 2000, the Company announced a corporate stock repurchase program that was expanded in September 2000, September 2001, September 2002, April 2004, and most recently by 1.0 million shares in September 2007. Under this plan, the Company may buy up to a total of 4.88 million shares of the Company’s common stock, including completed purchases. The Company anticipates using existing funds, future net income, and/or long-term borrowings to finance future repurchases. During the first nine months of 2007, the Company repurchased 190,000 common shares pursuant to its corporate stock repurchase program and redeemed 19,665 shares related to its incentive plans. Since initiating its stock repurchase plan in the year 2000 and including shares repurchased related to stock plans, the Company has repurchased approximately 4.1 million shares or 26% of currently outstanding shares at an average price of $17.47 per share. Total shares available for repurchase under the Company’s stock repurchase program were approximately 1,067,000 at September 30, 2007.

      The following table presents information with respect to Bancorp’s stock repurchases.

    Shares repurchased           Shares repurchased as           Total shares           Total cost of          
(Shares and dollars in thousands, other than     related to stock options     part of the corporate       repurchased in the     shares     Average price  
per share amounts)     and restricted stock       stock repurchase plan       period       repurchased       per share  
Year ended 2000   15   573   588   $ 5,454 $ 9.28
Year ended 2001   28   534   562   6,879 12.24
Year ended 2002   35   866   901   13,571 15.06
Year ended 2003   29   587   616   10,927 17.74
Year ended 2004   49   484   533   11,502 21.58
Year ended 2005   44   484   528   12,856 24.35
Year ended 2006   37   95   132   3,852 29.18
Nine months ended September 30, 2007   21     190     211       6,067 28.75
      Total   258   3,813   4,071   $ 71,108 $ 17.47

      Please also see discussion of stock repurchase activity during the quarter ended September 30, 2007, under Part II, Item 2, “Unregistered Sales of Equity Securities and Use of Proceeds” below.

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Liquidity and Sources of Funds

      The Company’s primary sources of funds are customer deposits, maturities of investment securities, sales of "Available for Sale" securities, loan sales, loan repayments, net income, advances from the Federal Home Loan Bank (“FHLB”), and the use of Federal Funds markets. The Company specifically relies on dividends from the Bank and proceeds from the issuance of trust preferred securities to fund dividends to stockholders and stock repurchases.

      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 September 30, 2007, up from $2.0 billion at December 31, 2006.

      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 September 30, 2007, was $18.4 million including $15 million in one-way and $3.4 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. Substantially all of the holding company’s liquidity comes from dividends declared and paid by the Bank. 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 September 30, 2007, the holding company did not have any borrowing arrangements of its own.

      Management expects to continue relying on customer deposits, cash flow from 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.

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Off-Balance Sheet Arrangements

      The Company’s primary off-balance sheet arrangements consist of commitments to make loans and extend credit. The follow table summarizes the Bank’s off balance sheet commitments as of the dates displayed.

(Dollars in thousands)     Contract or           Contract or  
    Notional Amount     Notional Amount  
    September 30, 2007       December 31, 2006  
Financial instruments whose contract amounts represent credit risk:          
Commitments to extend credit in the form of loans          
      Commercial   $            392,080 $            379,090
      Real estate construction     270,150   291,485
      Real estate mortgage     196,658   184,571
      Commercial real estate     25,462   16,452
      Installment and consumer     19,870   19,100
      Other 1     24,029   58,816
Standby letters of credit and financial guarantees     6,753   6,837
Account overdraft protection instruments     61,501   32,714
           Total   $   996,503 $   989,065

1 The category “other” represents commitments extended to clients or borrowers that have been extended but not yet fully executed. While we believe these commitments to be binding, they are not yet classified nor have they been placed into our loan system.

      The Bank’s commitments to make loans decreased slightly since December 31, 2006 as a result of lower unused commitments in its real estate construction portfolio. Loan commitments qualify as risk weighted assets and impact our risk based capital ratios by decreasing them.

      For a further discussion of off-balance sheet arrangements, see Bancorp’s 2006 10-K financials statements, Note 20, “Financial Instruments with Off-Balance Sheet Risk.”

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Item 3. Quantitative and Qualitative Disclosures About Market Risk

      There has not been any material change in the market risks disclosure under Item 7A “Quantitative and Qualitative Disclosures about Market Risk” in the Company’s 2006 10-K.

Item 4. Controls and Procedures

      Our disclosure controls and procedures are designed to ensure that information the Company must disclose in its reports filed or submitted under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized, and reported on a timely basis. 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.

      No change in the Company’s internal control over financial reporting occurred during our last fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

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PART II: OTHER INFORMATION

Item 1. Legal Proceedings  

     Not applicable  

Item 1A.   Risk Factors   

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

Future loan losses may exceed our allowance for loan losses

     We are subject to credit risk, which is the risk of losing principal or interest due to borrowers' failure to repay loans in accordance with their terms. A downturn in the economy, a specific industry sector, or the real estate market in our market areas or a rapid change in interest rates could have an adverse effect on borrowers' ability to repay loans and the value of our collateral. Developments of this nature could result in losses in excess of the Bank's allowance for loan losses. In addition, to the extent loan payments from borrowers are not timely, the loans will be placed on non-accrual status, thereby reducing interest income. In addition, to the extent loan charge-offs exceed our financial models, additional amounts will be charged to the provision for loan losses, further reducing income. Construction lending, recently a very important source of revenues and profitability for the Bank, has inherently more risk than other forms of lending in part due to risks in construction, including possible delays and cost overruns and the extended time period between a loan commitment and eligibility for permanent financing.

Future losses in our two-step program could result in higher provisions for loan losses and an increase in Other Real Estate Owned (“OREO”) balances

     We have experienced rapid growth in two-step residential construction loans. As these loans mature, borrowers may find it difficult to find permanent financing. If they are unable to find permanent financing or sell the home, as part of our collection process the Bank may take ownership of the property, which could include fully or partially constructed homes. This would lead to increases in OREO balances. Increased OREO balances lead to greater expenses as we incur costs to manage and dispose of properties. Any decrease in sale prices on homes may lead to further OREO write-downs.

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

     Interest and fees on loans and securities, net of interest paid on deposits and borrowings, are a large part of our net income. Interest rates are key drivers of our net interest margin and subject to many factors beyond the control of management. As interest rates change, net interest income is affected. Rapid increases in interest rates in the future could result in interest expense increasing faster than interest income because of mismatches in financial instrument maturities and rapid decreases in interest rates could result in interest income decreasing faster than interest expense. Further, substantially higher interest rates generally reduce loan demand and may result in slower loan growth particularly in construction lending, an important factor in Bancorp’s revenue growth over the past two years. Decreases or increases in interest rates could have a negative effect on the spreads between the interest rates earned on assets and the rates of interest paid on liabilities, and therefore decrease net interest income. See “Quantitative and Qualitative Disclosures about Market Risk” in Bancorp's 2006 Form 10-K.

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. New branches and products require a significant investment of both financial and personnel resources. Lower than expected loan and deposit growth in new investments can decrease anticipated revenues and net income generated by those investments, and opening new branches and introducing new products could result in more additional expenses than anticipated and divert resources from current core operations .

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Item 2. Unregistered Sales of Equity Securities and Use of Proceed s  

(c)       The following table provides information about repurchases of common stock by the Company during the quarter ended September 30, 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 (1)           per Share         (2)       Under the Plans or Programs  
7/1/07 - 7/30/07     221 $ 26.85 47,200   194,621
8/1/07 - 8/31/07    -    $ 28.79 92,800   101,821
9/1/07 - 9/30/07     122 $ 28.65 35,000   1,066,821
      Total for quarter     343   175,000    

      (1)       Shares repurchased by Bancorp during the quarter include: (a) shares repurchased pursuant to the Company’s corporate stock repurchase program publicly announced in July 2000 (the “Repurchase Program”) and described in footnote 2 below, and (b) shares repurchased from employees in connection with stock option swap exercises and cancellation of restricted stock to pay withholding taxes totaling 221 shares, 0 shares, and 122 shares, respectively, for the periods indicated.
 
(2) Under the Repurchase Program, the board of directors originally authorized the Company to repurchase 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, 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 September 30, 2007, of approximately 4.9 million shares.

Item 3. Defaults Upon Senior Securities  

      None

Item 4. Submission of Matters to a Vote of Security Holders  

      None

Item 5. Other Information  

      None

Item 6. Exhibits  

      Exhibit No .       Exhibit  
31.1   Certification of CEO under Rule 13(a) – 14(a) of the Exchange Act.  
31.2   Certification of CFO under Rule 13(a) – 14(a) of the Exchange Act.  
32   Certification of CEO and CFO under 18 U.S.C. Section 1350.  

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, this registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

  WEST COAST BANCORP  
  (Registrant)  
 
 
 
Dated: November 9, 2007   /s/ Robert D. Sznewajs    
  Robert D. Sznewajs  
  Chief Executive Officer and President  
 
 
 
Dated: November 9, 2007   /s/ Anders Giltvedt                                                    
  Anders Giltvedt  
  Executive Vice President and Chief Financial Officer  


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