**SECURITIES
      & EXCHANGE COMMISSION**


**Washington
      D.C. 20549**





**FORM
      10-K**





[
      X ]
      ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
      OF
      1934.





[ ]
      TRANSITION REPORT PURSUANT
      TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934





FOR
      THE
      FISCAL YEAR ENDED DECEMBER 31, 2005





COMMISSION
      FILE NUMBER 0-30106





**PACIFIC
      CONTINENTAL CORPORATION**


(Exact
      name of registrant as specified in its charter)


**OREGON**
              **93-1269184**(State
                  of Incorporation)
              (IRS
                  Employer Identification No)


**111
      West 7th Avenue**


**Eugene,
      Oregon 97401**


(Address
      of principal executive offices)





**(541)
      686-8685**


(Registrant’s
      telephone number)





Securities
      registered pursuant to 12(b) of the Act: None





Securities
      registered pursuant to 12(g) of the Act:


**No
      Par Value Common Stock**





Indicate
      by check mark if the registrant is a well-known seasoned issuer, as defined
      in
      Rule 405 of the Securities Act  Yes __   No X





Indicate
      by check mark if the registrant is not required to file report pursuant to
      Section 13 or Section 15(d) of the Act  Yes X   No
      __





Check
      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
      ___





Check
      if
      there is no disclosure of delinquent filers in response to item 405 of
      Regulation S-K contained in this form, and no disclosure will be contained,
      to
      the best of the registrant’s knowledge, in definitive proxy or information
      statements incorporated by reference in Part III of this form 10-K or any
      amendment to this Form 10-K. ( X )





Indicate
      by check mark whether the Registrant is a large accelerated filer, an
      accelerated filer, or a non-accelerated filer.


Large
      accelerated filer __   Accelerated
      filer X   Non-accelerated
      filer __





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





The
      aggregate market value of the voting stock held by non-affiliates of the
      Registrant at June 30, 2005 (the last business day of the most recent second
      quarter) was $133,146,000 based on the closing price as quoted on the NASDAQ
      National Market on that date.








The
      number of shares outstanding of each of the registrant’s classes of common
      stock, as of March 3, 2006, was 10,482,860 shares of no par value Common
      Stock.





DOCUMENTS
      INCORPORATED BY REFERENCE





Part
      III
      incorporates by reference information from the registrant’s definitive proxy
      statement for the 2006 annual meeting of shareholders.








**PACIFIC
      CONTINENTAL CORPORATION**


**FORM
      10-K**


**ANNUAL
      REPORT**


**TABLE
      OF CONTENTS**





**PART
                  1**
              
              **Page**Item
                  1:
              Business
              3Item
                  1a:
              Risk
                  Factors
              16Item
                  1b:
              Unresolved
                  Staff
                  Comments
              17Item
                  2:
              Properties
              17Item
                  3:
              Legal
                  Proceedings
              17Item
                  4:
              Submission
                  of Matters to a Vote of
                  Security Holders
              17**PART
                  II**Item
                  5:
              Market
                  for Company’s Common Equity,
                  Related
              18Stockholder
                  Matters, and Issuer
                  Purchases of Equity SecuritiesItem
                  6:
              Selected
                  Financial
                  Data
              20Item
                  7:
              Management’s
                  Discussion and
                  Analysis of Financial
              21Condition
                  and Results of OperationsItem
                  7a:
              Quantitative
                  and Qualitative
                  Disclosures About Market Risk
              34Item
                  8:
              Financial
                  Statements and
                  Supplementary Data
              36Item
                  9:
              Changes
                  In and Disagreements
                  with Accountants
              66on
                  Accounting and Financial
                  DisclosureItem
                  9a:
              Controls
                  and
                  Procedures
              66Item
                  9b:
              Other
                  Information
              67**PART
                  III**
              (Items
                  10 through 13 are incorporated by reference fromPacific
                  Continental Corporation’s definitive proxy statement
                  for theannual
                  meeting of shareholders scheduled for April 18,
                  2006)Item
                  10:
              Directors
                  and Executive
                  Officers of the Company
              67Item
                  11:
              Executive
                  Compensation
              67Item
                  12:
              Security
                  Ownership of Certain
                  Beneficial Owners
              67and
                  ManagementItem
                  13:
              Certain
                  Relationships and
                  Related Transactions
              68Item
                  14:
              Principal
                  Accountant Fees and
                  Services
              68Item
                  15:
              Exhibits
                  and Financial Statement
                  Schedules
              68**SIGNATURES**
              
              70


**CERTIFICATIONS**
              71








**PART
      I**





**Item
      1.**  **Business**




**General**





Pacific
      Continental Corporation (the “Company” or the “Registrant”) is an Oregon
      corporation and registered bank holding company located in Eugene, Oregon.
      The
      Company was organized on June 7, 1999, pursuant to a holding company
      reorganization of Pacific Continental Bank, its wholly owned
      subsidiary.





The
      Company’s principal business activities are conducted through its full-service
      commercial bank subsidiary, Pacific Continental Bank (the “Bank”), an Oregon
      state-chartered bank with deposits insured by the Federal Deposit Insurance
      Corporation (“FDIC”). The Bank has two subsidiaries, PCB Service Corporation,
      which holds and manages Bank property, and PCB Loan Services (presently
      inactive), which manages certain other real estate owned.





On
      November 30, 2005, the Company acquired NWB Financial Corporation (“NWBF”) for a
      combination of stock and cash and entered the metropolitan Seattle market in
      the
      State of Washington. Combined, the stock and cash transaction was valued at
      approximately $40.4 million. The acquisition was accounted for under the
      purchase-method of accounting and, accordingly, the results of operations of
      NWBF have been included in the consolidated financial statements only since
      the
      date of acquisition. For more information regarding the Company’s acquisition of
      NWBF see “Management’s Discussion and Analysis of Financial Condition and
      Results of Operations” and “Financial Statements and Supplementary Data” in
      Items 7 and 8 of this Form 10-K.





In
      addition to entering the Seattle, Washington market, the Bank continued its
      expansion in the Portland, Oregon market. The Bank opened its fourth
      full-service office in the Portland, Oregon market during the fourth quarter
      2005. At December 31, 2005, the Bank operated thirteen full-service offices
      and
      three consumer finance lending offices in eight Oregon and two Washington
      cities.





**Results**





For
      the
      year ended December 31, 2005, the consolidated net income of the Company was
      $9.6 million or $1.05 per diluted share. At December 31, 2005, the consolidated
      equity of the Company was $81.4 million with 10.2 million shares outstanding
      and
      a book value of $7.96 per share. Total assets were $791.9 million. Loans,
      including loans held for sale, net of allowance for loan losses, were $671.2
      million at December 31, 2005 and represented 85% of total assets. Deposits
      totaled $604.3 million at year-end 2005. For more information regarding the
      Company’s financial condition and results of operations, see “Management’s
      Discussion and Analysis of Financial Condition and Results of Operations” and
“Financial Statements and Supplementary Data” in sections 7 and 8 of this Form
      10-K.





**THE
      BANK**




**General**





The
      Bank
      commenced operations on August 15, 1972. At December 31, 2005, the Bank operated
      thirteen banking offices and three consumer finance lending offices in Oregon
      and Washington. The Bank specializes in meeting the deposit and lending needs
      of
      community-based businesses, professional service providers and not-for-profit
      organizations. More information on the Bank and its banking services can be
      found on its website www.therightbank.com. The Bank operates under the banking
      laws of the State of Oregon and the rules and regulations of the FDIC and the
      Federal Reserve Bank.





**Primary
      Market Area**





The
      Bank’s primary markets consist of the metropolitan Portland and Eugene areas in
      the State of Oregon and the metropolitan Seattle area in the State of
      Washington. The Bank has four full-service banking offices in the metropolitan
      Portland area, seven full-service banking offices in the metropolitan Eugene
      area, and two full-service offices in the metropolitan Seattle area. In
      addition, the Bank operates three consumer finance lending offices in three
      Oregon cities, Eugene, Coos Bay, and Roseburg. The Bank has its headquarters
      and
      administrative office in the city of Eugene.





3


**Competition**





The
      Bank
      competes with a number of national commercial banks, local community banks,
      savings banks, and credit unions. Commercial banking within the States of Oregon
      and Washington is highly competitive for both deposits and loans. The Bank
      differentiates itself through market selection, business focus, technology
      and
      brand and by providing superior levels of service for its selected client base.
      The Bank focuses on community-based businesses, professional service providers,
      and not-for-profit organizations in addition to local construction
      lending.





**Services
      Provided**





**Lending
      Activities**





The
      Bank
      emphasizes specific areas of lending within its primary market area: loans
      to
      community-based businesses, including professional service providers and
      not-for-profit organizations and loans to builders for the construction of
      commercial facilities and single-family residences.





Commercial
      loans, secured and unsecured, are made primarily to professionals,
      community-based businesses, and not-for-profit organizations. These loans are
      available for general operating purposes, acquisition of fixed assets, purchases
      of equipment and machinery, financing of inventory and accounts receivable,
      and
      other business purposes. The Bank also originates Small Business Administration
      (“SBA”) loans and enjoys a preferred lender status with the SBA.





Within
      its primary markets, the Bank also concentrates on construction loan financing
      for commercial facilities and for pre-sold, custom, and speculative home
      construction. The major thrust of residential construction lending is for the
      construction of single-family residences. The Bank also finances requests for
      duplexes and other multi-family residences.





Fixed-rate
      and variable rate residential mortgage loans are offered through the Bank’s
      mortgage loan department. Most residential mortgage loans originated are sold
      in
      the secondary market along with the mortgage loan servicing rights.





The
      Bank
      makes secured and unsecured loans to individuals for various purposes including
      purchases of automobiles, mobile homes, boats, and other recreational vehicles,
      home improvements, education, and personal investment.





The
      Bank
      offers credit card services to its business customers and uses an outside vendor
      for credit card processing. In addition, the Bank provides merchant bankcard
      processing services, through an outside processor, for its business
      customers.





The
      Board
      of Directors has approved specific lending policies and procedures for the
      Bank
      and management is responsible for implementation of the policies. The lending
      policies and procedures include guidelines for loan term, loan-to-value ratios,
      collateral appraisals, and cash flow coverage. The loan policies also vest
      varying levels of loan authority in management, the Bank’s Loan Committee, and
      the Board of Directors. Bank management monitors lending activities through
      management meetings, weekly loan committee meetings, monthly reporting, and
      periodic review of loans by third-party contractors.





The
      Bank
      has a Consumer Finance Division which operates under the business name Pacific
      Continental Finance. At December 31, 2005, this Division had approximately
      $11.2
      million in outstanding loans which are primarily secured loans to individuals
      for various purposes including automobiles, mobile homes, boats, and home
      improvements or home equity loans. A small percentage of loans made by this
      division are unsecured. The majority of loans made by the Consumer Finance
      Division are classified as sub-prime lending and have yields appropriate to
      the
      credit risk assumed.





4


**Deposit
      Services**





The
      Bank
      offers a full range of deposit services that are typically available in most
      banks and savings banks, including checking, savings, money market accounts,
      and
      time deposits. The transaction accounts and time deposits are tailored to the
      Bank’s primary markets at rates competitive with those offered in the area.
      Additional deposits are generated through national networks for institutional
      deposits and the State of Oregon for public time deposits. All deposit accounts
      are insured by the FDIC to the maximum amount permitted by law.





The
      Bank
      has invested in image technology for the processing of checks. The Bank was
      the
      first financial institution in Lane, Multnomah, Clackamas, and Washington
      Counties to offer this service. In addition, the Bank allows 24-hour customer
      access to deposit and loan information via telephone and on-line cash management
      products.





**Merchant
      Card Services**





The
      Bank
      provides merchant card services to its clients, which includes processing of
      credit card transactions and issuance of business credit cards. This service
      is
      an integral part of the Bank’s business focus to market to community-based
      business, not-for-profits, and service providers. During 2005, the Company
      processed approximately $140 million in credit card transactions for its
      clients.





**Other
      Services**





The
      Bank
      provides other traditional commercial and consumer banking services, including
      safe deposit services, debit and ATM cards, ACH transactions, savings bonds,
      cashier’s checks, travelers checks, notary services and others. The Bank is a
      member of the Star and Plus ATM networks and utilizes an outside processor
      for
      the processing of these automated transactions.





**Employees**





At
      December 31, 2005, the Bank employed 229 full-time equivalent employees with
      211
      in Oregon and 18 in Washington. None of these employees are represented by
      labor
      unions. The Company considers its relationships with its employees to be good.
      A
      number of benefit programs are available to eligible employees, including group
      medical plans, paid sick leave, paid vacation, group life insurance, 401(k)
      plans, and stock option plans.





**Supervision
      and Regulation**





*General*





We
      are
      extensively regulated under federal and state law. These laws and regulations
      are primarily intended to protect depositors, not shareholders. The discussion
      below describes and summarizes certain statutes and regulations. These
      descriptions and summaries are qualified in their entirety by reference to
      the
      particular statute or regulation. Changes in applicable laws or regulations
      may
      have a material effect on our business and prospects. Our operations may also
      be
      affected by changes in the policies of banking and other government regulators.
      We cannot accurately predict the nature or extent of the possible future effects
      on our business and earnings of changes in fiscal or monetary policies, or
      new
      federal or state laws and regulations.


5





*Federal
      Bank Holding Company Regulation*





General .
      The
      Company is a bank holding company as defined in the Bank Holding Company Act
      of
      1956, as amended, and is therefore subject to regulation, supervision and
      examination by the Federal Reserve. In general, the Bank Holding Company Act
      limits the business of bank holding companies to owning or controlling banks
      and
      engaging in other activities closely related to banking. The Company must file
      reports with the Federal Reserve and must provide it with such additional
      information as it may require.





Holding
      Company Bank Ownership .
      The
      Bank Holding Company Act requires every bank holding company to obtain the
      prior
      approval of the Federal Reserve before (1) acquiring, directly or indirectly,
      ownership or control of any voting shares of another bank or bank holding
      company if, after such acquisition, it would own or control more than 5% of
      such
      shares, **** (2)
      acquiring all or substantially all of the assets of another bank or bank holding
      company, or (3) merging or consolidating with another bank holding company.





Holding
      Company Control of Nonbanks .
      With
      some exceptions, the Bank Holding Company Act also prohibits a bank holding
      company from acquiring or retaining direct or indirect ownership or control
      of
      more than 5% of the voting shares of any company which is not a bank or bank
      holding company, or from engaging directly or indirectly in activities other
      than those of banking, managing or controlling banks, or providing services
      for
      its subsidiaries. The principal exceptions to these prohibitions involve certain
      non-bank activities that, by statute or by Federal Reserve regulation or order,
      have been identified as activities closely related to the business of banking
      or
      of managing or controlling banks.





Transactions
      with Affiliates .
      Subsidiary banks of a bank holding company are subject to restrictions imposed
      by the Federal Reserve Act on extensions of credit to the holding company or
      its
      subsidiaries, on investments in their securities and on the use of their
      securities as collateral for loans to any borrower. These regulations and
      restrictions may limit the Company’s ability to obtain funds from the Bank for
      its cash needs, including funds for payment of dividends, interest and
      operational expenses.





Tying
      Arrangements .
      We are
      prohibited from engaging in certain tie-in arrangements in connection with
      any
      extension of credit, sale or lease of property or furnishing of services. For
      example, with certain exceptions, neither the Company nor its subsidiaries
      may
      condition an extension of credit to a customer on either (1) a requirement
      that
      the customer obtain additional services provided by us or (2) an agreement
      by
      the customer to refrain from obtaining other services from a competitor.





Support
      of Subsidiary Banks .
      Under
      Federal Reserve policy, the Company is expected to act as a source of financial
      and managerial strength to the Bank. This means that the Company is required
      to
      commit, as necessary, resources to support the Bank. Any capital loans a bank
      holding company makes to its subsidiary banks are subordinate to deposits and
      to
      certain other indebtedness of those subsidiary banks.




State
      Law Restrictions .
      As an
      Oregon corporation, the Company is subject to certain limitations and
      restrictions under applicable Oregon corporate law. For example, state law
      restrictions in Oregon include limitations and restrictions relating to lending
      limits related to individual borrowers, indemnification of directors,
      distributions to shareholders, transactions involving directors, officers or
      interested shareholders, maintenance of books, records, and minutes, and
      observance of certain corporate formalities.





*Federal
      and State Regulation of Pacific Continental Bank*





General .
      The
      Bank is an Oregon commercial bank operating in Oregon and Washington with
      deposits insured by the FDIC. As a result, the Bank is subject to supervision
      and regulation by the Oregon Department of Consumer and Business Services and
      the FDIC. These agencies have the authority to prohibit banks from engaging
      in
      what they believe constitute unsafe or unsound banking practices. Additionally,
      the Bank’s branches in Washington are subject to supervision and regulation by
      the Washington Department of Financial Institutions and must comply with
      applicable Washington laws regarding community reinvestment, consumer
      protection, fair lending and intrastate branching.





6


Community
      Reinvestment .
      The
      Community Reinvestment Act requires that, in connection with examinations of
      financial institutions within their jurisdiction, the Federal Reserve or the
      FDIC evaluate the record of the financial institution in meeting the credit
      needs of its local communities, including low and moderate income neighborhoods,
      consistent with the safe and sound operation of the institution. These factors
      are also considered in evaluating mergers, acquisitions and applications to
      open
      a branch or facility.





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





Regulation
      of Management .
      Federal
      law (1) sets forth circumstances under which officers or directors of a bank
      may
      be removed by the institution's federal supervisory agency; (2) places
      restraints on lending by a bank to its executive officers, directors, principal
      shareholders, and their related interests; and (3) prohibits management
      personnel of a bank from serving as a director or in other management positions
      of another financial institution whose assets exceed a specified amount or
      which
      has an office within a specified geographic area.





Safety
      and Soundness Standards .
      Federal
      law imposes upon banks certain non-capital safety and soundness standards.
      These
      standards cover internal controls, information systems and internal audit
      systems, loan documentation, credit underwriting, interest rate exposure, asset
      growth, compensation, fees and benefits, such other operational and managerial
      standards as the agency determines to be appropriate, and standards for asset
      quality, earnings and stock valuation. An institution that fails to meet these
      standards must develop a plan acceptable to its regulators, specifying the
      steps
      that the institution will take to meet the standards. Failure to submit or
      implement such a plan may subject the institution to regulatory sanctions.





*Interstate
      Banking And Branching*





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


FDIC
      regulations prohibit banks from using their interstate branches primarily for
      deposit production. The FDIC has implemented a loan-to-deposit ratio screen
      to
      ensure compliance with this prohibition.





Oregon
      and Washington have both enacted "opting in" legislation in accordance with
      the
      Interstate Act provisions allowing banks to engage in interstate merger
      transactions, subject to certain "aging" requirements. Oregon restricts an
      out-of-state bank from opening de novo branches. However, once an out-of-state
      bank has acquired a bank within Oregon, either through merger or acquisition
      of
      all or substantially all of the bank's assets, the out-of-state bank may open
      additional branches within Oregon. In 2005, Washington interstate branching
      laws
      were amended so that an out-of-state bank may, subject to Department of
      Financial Institutions’ approval, open de novo branches in Washington or acquire
      an in-state branch so long as the home state of the out-of-state bank has
      reciprocal laws with respect to de novo branching or branch
      acquisitions.





7


*Deposit
      Insurance*





The
      Bank’s deposits are currently insured to a maximum of $100,000 per depositor
      through the Bank Insurance Fund administered by the FDIC. The Bank is required
      to pay deposit insurance premiums, which are assessed semiannually and paid
      quarterly. The premium amount is based upon a risk classification system
      established by the FDIC. Banks with higher levels of capital and a low degree
      of
      supervisory concern are assessed lower premiums than banks with lower levels
      of
      capital or a higher degree of supervisory concern.





The
      FDIC
      is also empowered to make special assessments on insured depository institutions
      in amounts determined by the FDIC to be necessary to give it adequate assessment
      income to repay amounts borrowed from the U.S. Treasury and other sources or
      for
      any other purpose the FDIC deems necessary.





*Dividends*





The
      principal source of the Company’s cash reserves is dividends received from the
      Bank. The payment of dividends is subject to government regulation, in that
      regulatory authorities may prohibit banks and bank holding companies from paying
      dividends in a manner that would constitute an unsafe or unsound banking
      practice. In addition, a bank may not pay cash dividends if doing so would
      reduce the amount of its capital below that necessary to meet minimum applicable
      regulatory capital requirements. State laws also limit a bank's ability to
      pay
      dividends.





*Capital
      Adequacy*





Regulatory
      Capital Guidelines .
      Federal
      bank regulatory agencies use capital adequacy guidelines in the examination
      and
      regulation of bank holding companies and banks. The guidelines are “risk-based,”
      meaning that they are designed to make capital requirements more sensitive
      to
      differences in risk profiles among banks and bank holding companies.





Tier
      I
      and Tier II Capital .
      Under
      the guidelines, an institution’s capital is divided into two broad categories,
      Tier I capital and Tier II capital. Tier I capital generally consists of common
      stockholders’ equity, surplus and undivided profits. Tier II capital generally
      consists of the allowance for loan losses, hybrid capital instruments, and
      subordinated debt. The sum of Tier I capital and Tier II capital represents
      an
      institution’s total capital. The guidelines require that at least 50% of an
      institution’s total capital consist of Tier I capital.





Risk-based
      Capital Ratios .
      The
      adequacy of an institution’s capital is gauged primarily with reference to the
      institution’s risk-weighted assets. The guidelines assign risk weightings to an
      institution’s assets in an effort to quantify the relative risk of each asset
      and to determine the minimum capital required to support that risk. An
      institution’s risk-weighted assets are then compared with its Tier I capital and
      total capital to arrive at a Tier I risk-based ratio and a total risk-based
      ratio, respectively. The guidelines provide that an institution must have a
      minimum Tier I risk-based ratio of 4% and a minimum total risk-based ratio
      of
      8%.





Leverage
      Ratio .
      The
      guidelines also employ a leverage ratio, which is Tier I capital as a percentage
      of average total assets, less intangibles. The principal objective of the
      leverage ratio is to constrain the maximum degree to which a bank holding
      company may leverage its equity capital base. The minimum leverage ratio is
      3%;
      however, for all but the most highly rated bank holding companies and for bank
      holding companies seeking to expand, regulators expect an additional cushion
      of
      at least 1% to 2%.





Prompt
      Corrective Action .
      Under
      the guidelines, an institution is assigned to one of five capital categories
      depending on its total risk-based capital ratio, Tier I risk-based capital
      ratio, and leverage ratio, together with certain subjective factors. The
      categories range from “well capitalized” to “critically undercapitalized.”
      Institutions that are "undercapitalized" or lower are subject to certain
      mandatory supervisory corrective actions.




8


*Corporate
      Governance and Accounting Legislation*





Sarbanes-Oxley
      Act of 2002 . ****** The
      Sarbanes-Oxley Act of 2002 (the “Act”) addresses, among other things, accounting
      fraud and corporate governance matters. The Act establishes an accounting
      oversight board to enforce auditing standards and restricts the scope of
      services that accounting firms may provide to their public company audit
      clients. In addition, it also (i) requires chief executive officers and chief
      financial officers to certify to the accuracy of periodic reports filed with
      the
      Securities and Exchange Commission (the “SEC”); (ii) imposes new disclosure
      requirements regarding internal controls, off-balance-sheet transactions, and
      pro forma (non-GAAP) disclosures; (iii) accelerates the time frame for reporting
      of insider transactions and periodic disclosures by public companies; and (iv)
      requires companies to adopt and disclose information about corporate governance
      practices, including whether or not they have adopted a code of ethics for
      senior financial officers and whether the audit committee includes at least
      one
“audit committee financial expert.”





The
      Act
      also requires the SEC, based on certain enumerated factors, to regularly and
      systematically review corporate filings. To deter wrongdoing, the Act: (i)
      subjects bonuses issued to top executives to disgorgement if a restatement
      of a
      company's financial statements was due to corporate misconduct; (ii) prohibits
      an officer or director misleading or coercing an auditor; (iii) prohibits
      insider trades during pension fund “blackout periods”; (iv) imposes new criminal
      penalties for fraud and other wrongful acts; and (v) extends the period during
      which certain securities fraud lawsuits can be brought against a company or
      its
      officers.





As
      a
      publicly reporting company, we are subject to the requirements of the Act and
      related rules and regulations issued by the SEC and Nasdaq. In 2004, we were
      required for the first time to comply with the requirements of Section 404
      of
      the Act regarding management control over financial reporting, and such
      compliance resulted in a significant expense for the Company. We anticipate
      that
      we will continue to incur additional expense, including ongoing compliance
      with
      Section 404, as a result of the Act and the related rules and regulations issued
      by the SEC and Nasdaq.





*Anti-terrorism
      Legislation*





USA
      Patriot Act of 2001 .
      The
      Uniting and Strengthening America by Providing Appropriate Tools Required to
      Intercept and Obstruct Terrorism Act of 2001 (“USA Patriot Act”) is intended to
      combat terrorism. Among other things, the USA Patriot Act (1) prohibits banks
      from providing correspondent accounts directly to foreign shell banks; (2)
      imposes due diligence requirements on banks opening or holding accounts for
      foreign financial institutions or wealthy foreign individuals (3) requires
      financial institutions to establish an anti-money-laundering compliance program,
      and (4) eliminates civil liability for persons who file suspicious activity
      reports. The Act also increases governmental powers to investigate terrorism,
      including expanded government access to account records. The Department of
      the
      Treasury is empowered to administer and make rules to implement the Act. While
      we believe the USA Patriot Act may, to some degree, affect our record keeping
      and reporting expenses, we do not believe that the Act will have a material
      adverse effect on our business and operations.




*Financial
      Services Modernization*





Gramm-Leach-Bliley
      Act of 1999 .
      The
      Financial Services Modernization Act of 1999, also known as the
      Gramm-Leach-Bliley Act, brought about significant changes to the laws affecting
      banks and bank holding companies. Generally, the Act (i) repealed the historical
      restrictions on preventing banks from affiliating with securities firms, (ii)
      provided a uniform framework for the activities of banks, savings institutions
      and their holding companies, (iii) broadened the activities that may be
      conducted by national banks and banking subsidiaries of bank holding companies,
      (iv) provided an enhanced framework for protecting the privacy of consumer
      information and (v) addressed a variety of other legal and regulatory issues
      affecting both day-to-day operations and long-term activities of financial
      institutions.




9


Bank
      holding companies that qualify and elect to become financial holding companies
      can engage in a wider variety of financial activities than permitted under
      previous law, particularly with respect to insurance and securities underwriting
      activities. In addition, in a change from previous law, bank holding companies
      will be in a position to be owned, controlled or acquired by any company engaged
      in financially related activities, so long as the company meets certain
      regulatory requirements. The act also permits national banks (and, in states
      with wildcard statutes, certain state banks), either directly or through
      operating subsidiaries, to engage in certain non-banking financial
      activities.





We
      do not
      believe that the act will negatively affect our operations in the short term.
      However, to the extent the legislation permits banks, securities firms and
      insurance companies to affiliate, the financial services industry may experience
      further consolidation. This consolidation could result in a growing number
      of
      larger financial institutions that offer a wider variety of financial services
      than we currently offer, and those companies may be able to aggressively compete
      in the markets we currently serve.





*Effects
      Of Government Monetary Policy*





Our
      earnings and growth are affected not only by general economic conditions, but
      also by the fiscal and monetary policies of the federal government, particularly
      the Federal Reserve. The Federal Reserve can and does implement national
      monetary policy for such purposes as curbing inflation and combating recession,
      but its open market operations in U.S. government securities, control of the
      discount rate applicable to borrowings from the Federal Reserve, and
      establishment of reserve requirements against certain deposits, influence the
      growth of bank loans, investments and deposits, and also affect interest rates
      charged on loans or paid on deposits. The nature and impact of future changes
      in
      monetary policies and their impact on us cannot be predicted with certainty.





**Statistical
      Information**





*Selected
      Quarterly Information*





The
      following chart contains data for the last eight quarters ending December 31,
      2005. All data, except per share data, is in thousands of dollars.





YEAR
            
            2005
            
            2004QUARTER
            
            Fourth
            
            Third
            
            Second
            
            First
            
            Fourth
            
            Third
            
            Second
            
            FirstInterest
                income
            
            $
            11,697
            
            $
            9,791
            
            $
            9,432
            
            $
            8,673
            
            $
            8,235
            
            $
            7,492
            
            $
            6,894
            
            $
            6,714Interest
                expense
            
            
            3,150
            
            
            2,323
            
            
            2,111
            
            
            1,769
            
            
            1,341
            
            
            1,100
            
            
            1,012
            
            
            1,020Net
                interest income
            
            
            8,547
            
            
            7,468
            
            
            7,321
            
            
            6,904
            
            
            6,894
            
            
            6,392
            
            
            5,972
            
            
            5,694Provision
                for loan loss
            
            
            300
            
            
            250
            
            
            325
            
            
            225
            
            
            200
            
            
            125
            
            
            75
            
            
            100Noninterest
                income
            
            
            970
            
            
            1,050
            
            
            1,091
            
            
            972
            
            
            1,102
            
            
            1,132
            
            
            1,152
            
            
            1,077Noninterest
                expense
            
            
            5,191
            
            
            4,253
            
            
            4,360
            
            
            4,330
            
            
            4,201
            
            
            4,065
            
            
            3,899
            
            
            3,877Net
                income
            
            
            2,754
            
            
            2,469
            
            
            2,305
            
            
            2,050
            
            
            2,219
            
            
            2,058
            
            
            1,948
            
            
            1,724PER
                COMMONSHARE
                DATANet
                income (basic) (1)
            
            $
            0.30
            
            $
            0.28
            
            $
            0.26
            
            $
            0.24
            
            $
            0.26
            
            $
            0.24
            
            $
            0.23
            
            $
            0.20Net
                income (diluted) (1)
            
            $
            0.29
            
            $
            0.27
            
            $
            0.26
            
            $
            0.23
            
            $
            0.25
            
            $
            0.23
            
            $
            0.22
            
            $
            0.20Cash
                dividends (1)
            
            $
            0.07
            
            $
            0.07
            
            $
            0.07
            
            $
            0.07
            
            $
            0.06
            
            $
            0.064
            
            $
            0.064
            
            $
            0.064WEIGHTED
                AVERAGE SHARES OUTSTANDINGBasic
            
            
            9,307,691
            
            
            8,782,476
            
            
            8,747,028
            
            
            8,697,517
            
            
            8,640,405
            
            
            8,591,725
            
            
            8,557,125
            
            
            8,499,891Diluted
            
            
            9,591,642
            
            
            9,002,313
            
            
            8,990,960
            
            
            8,955,573
            
            
            8,958,675
            
            
            8,867,231
            
            
            8,776,284
            
            
            8,739,293





(1)
      All
      prior year per share data has been retroactively adjusted for the 5-for-4 stock
      split in September 2004.





10


**Investment
      Portfolio**





The
      following chart contains information regarding the Company’s investment
      portfolio. All of the Company’s investment securities are accounted for as
      available-for-sale and are reported at estimated fair value. The difference
      between estimated fair value and amortized cost, net of deferred taxes, is
      recorded as a separate component of stockholders’ equity.





**INVESTMENT
                PORTFOLIO****ESTIMATED
                FAIR VALUE**(dollars
                in thousands)December
                31,2005
            2004
            2003US
                Treasury, US Government agencies and corporations,and
                agency mortgage-backed securities
            $
                16,757
            $
                6,390
            $
                6,477Obligations
                of states and political subdivisions
            4,820
            3,059
            2,993Other
                mortgage-backed securities
            17,768
            18,109
            20,559Total
            $
                39,345
            $
                27,558
            $
                30,029





The
      following chart presents the amount of each investment category by maturity
      date
      and includes a weighted average yield for each period. Mortgage-backed
      securities have been classified based on their December 31, 2005 projected
      average life.





**SECURITIES
                AVAILABLE-FOR-SALE**(dollars
                in thousands)After
                One
            
            After
                FiveYear
                But
            
            Years
                ButWithin
            
            Within
            
            Within
            
            AfterOne
                Year
            
            Five
                Years
            
            Ten
                Years
            
            Ten
                YearsAmount
            
            Yield
            
            Amount
            
            Yield
            
            Amount
            
            Yield
            
            Amount
            
            YieldUS
                Treasury, US Government
                agenciesand
                agency mortgage-backed
                securities
            
            $
            2,559
            
            
            4.50
            %
            $
            28,912
            
            
            4.92
            %
            $
            2,313
            
            
            5.00
            %
            $
            741
            
            
            5.24
            %Obligations
                of states andpolitical
                subdivisions
            
            
            -
            
            
            -
            
            
            1,456
            
            
            4.82
            %
            
            2,031
            
            
            3.69
            %
            
            1,333
            
            
            3.75
            %Total
            
            $
            2,559
            
            
            4.50
            %
            $
            30,368
            
            
            4.92
            %
            $
            4,344
            
            
            4.38
            %
            $
            2,074
            
            
            4.28
            %





11


**Loan
      Portfolio**





Loans
      represent a significant portion of the Company’s total assets. Average balance
      and average rates paid by category of loan is included in Table I, Average
      Balance Analysis of Net Interest Earnings, on page 25 of the Company’s
“Management’s Discussion and Analysis of Financial Condition and Results of
      Operations” included later in this report. The following tables contain
      information related to the Company’s loan portfolio, including loans held for
      sale, for the five-year period ended December 31, 2005.





**LOAN
                PORTFOLIO**(dollars
                in thousands)December
                31,2005
            
            2004
            
            2003
            
            2002
            
            2001Commercial
                Loans
            
            $
            160,988
            
            $
            107,538
            
            $
            89,127
            
            $
            94,345
            
            $
            63,058Real
                Estate Loans
            
            
            507,479
            
            
            341,111
            
            
            255,150
            
            
            222,727
            
            
            169,776Loans
                held for sale
            
            
            642
            
            
            2,072
            
            
            1,958
            
            
            5,546
            
            
            1,924Consumer
                Loans
            
            
            12,463
            
            
            10,380
            
            
            11,424
            
            
            9,579
            
            
            9,454681,572
            
            
            461,101
            
            
            357,659
            
            
            332,197
            
            
            244,212Deferred
                loan origination fees
            
            
            (2,609
            )
            
            (2,061
            )
            
            (1,582
            )
            
            (1,394
            )
            
            (1,111
            )678,963
            
            
            459,040
            
            
            356,077
            
            
            330,803
            
            
            243,101Allowance
                for loan losses
            
            
            (7,792
            )
            
            (5,224
            )
            
            (5,225
            )
            
            (4,403
            )
            
            (3,418
            )$
            671,171
            
            $
            453,816
            
            $
            350,852
            
            $
            326,400
            
            $
            239,683








The
                following table presents loan portfolio information by loan category
                related to maturity and repricing sensitivity. Variable rate loans
                are
                included in the time frame in which the interest rate on the loan
                could be
                first adjusted. Nonperforming loans totaling $180 are included in
                the
                table. Loans held for sale of $642 are included in the Real Estate
                category.**MATURITY
                AND REPRICING DATA FOR LOANS**(dollars
                in thousands)Commercial
            
            Real
                Estate
            
            Consumer
            
            TotalThree
                months or less
            
            $
            108,298
            
            $
            187,545
            
            $
            7,767
            
            $
            303,610Over
                three months through 12 months
            
            
            3,202
            
            
            35,884
            
            
            851
            
            
            39,937Over
                1 year through 3 years
            
            
            15,295
            
            
            115,068
            
            
            1,124
            
            
            131,487Over
                3 years through 5 years
            
            
            24,991
            
            
            115,778
            
            
            1,509
            
            
            142,278Over
                5 years through 15 years
            
            
            9,202
            
            
            53,846
            
            
            1,212
            
            
            64,260Total
                loans
            
            $
            160,988
            
            $
            508,121
            
            $
            12,463
            
            $
            681,572





**Loan
      Concentrations**





At
      December 31, 2005, residential construction loans totaled $79,797 and
      represented 11.7% of outstanding loans. In addition, at December 31, 2005,
      unfunded loan commitments for residential construction totaled approximately
      $51,347. At year end there were no nonaccrual loans and no impaired loans in
      this industry. No other single industry group represents more than 10% of
      outstanding loans. Approximately 74% of the Bank’s loans are secured by real
      estate. The granular nature of the portfolio, both from industry mix and loan
      size, continues to disburse risk concentration.





12


Within
      the loan portfolio, loans in the hotel/motel industry account for less than
      4.0%
      of the total loan portfolio at December 31, 2005. There were no foreclosed
      or
      non-accrual hotel/motel properties as of year end December 31, 2005. All
      hotel/motel loans are performing according to their contractual terms. In view
      of the uncertainties in this industry, the Company continues to carefully
      monitor loans made by the Bank in this industry.








**NONPERFORMING
                ASSETS**(dollars
                in thousands)December
                31,2005
            
            2004
            
            2003
            
            2002
            
            2001Nonaccrual
                loans
            
            $
            180
            
            $
            1,004
            
            $
            1,506
            
            $
            6,176
            
            $
            6,04990
                or more days past due and still accruing
            
            
            -
            
            
            213
            
            
            545
            
            
            359
            
            
            953Total
                nonperforming loans
            
            
            180
            
            
            1,217
            
            
            2,051
            
            
            6,535
            
            
            7,002Government
                guarantees
            
            
            (28
            )
            
            (101
            )
            
            (233
            )
            
            (1,563
            )
            
            (1,020
            )Net
                nonperforming loans
            
            
            152
            
            
            1,116
            
            
            1,818
            
            
            4,972
            
            
            5,982Foreclosed
                assets
            
            
            131
            
            
            262
            
            
            411
            
            
            864
            
            
            0Total
                nonperforming assets
            
            $
            283
            
            $
            1,378
            
            $
            2,229
            
            $
            5,836
            
            $
            5,982Nonperforming
                assets as a percentage ofof
                total assets
            
            
            0.04
            %
            
            0.27
            %
            
            0.52
            %
            
            1.54
            %
            
            1.93
            %





If
      interest on nonaccrual loans had been accrued, such income would have been
      approximately $89, $98, and $159, respectively, for years 2005, 2004 and 2003.


13





**Allowance
      for Loan Loss**





The
      following chart presents information about the Company’s allowances for loan
      losses. The Company does not allocate the allowance among specific loan types
      or
      categories. Management evaluates the allowance monthly and considers the amount
      to be adequate to absorb possible loan losses.





**ALLOWANCE
                FOR LOAN LOSS**(dollars
                in thousands)December
                31,2005
            
            2004
            
            2003
            
            2002
            
            2001Balance
                at beginning of year
            
            $
            5,224
            
            $
            5,225
            
            $
            4,403
            
            $
            3,418
            
            $
            2,149Charges
                to the allowanceReal
                estate loans
            
            
            (214
            )
            
            (79
            )
            
            (843
            )
            
            (4,138
            )
            
            (54
            )Consumer
                loans
            
            
            (106
            )
            
            (269
            )
            
            (104
            )
            
            (123
            )
            
            (99
            )Commercial
            
            
            (316
            )
            
            (168
            )
            
            (238
            )
            
            (542
            )
            
            (121
            )Total
                charges to the allowance
            
            
            (636
            )
            
            (516
            )
            
            (1,185
            )
            
            (4,803
            )
            
            (274
            )Recoveries
                against the allowanceReal
                estate loans
            
            
            37
            
            
            73
            
            
            799
            
            
            49
            
            
            8Consumer
                loans
            
            
            56
            
            
            54
            
            
            15
            
            
            10
            
            
            29Commercial
            
            
            31
            
            
            70
            
            
            103
            
            
            69
            
            
            51Total
                recoveries against the allowance
            
            
            124
            
            
            197
            
            
            917
            
            
            128
            
            
            88Acquisition
            
            
            2,014
            
            
            0
            
            
            190
            
            
            0
            
            
            0Provisions
            
            
            1,100
            
            
            500
            
            
            900
            
            
            5,660
            
            
            1,455Unfunded
                commitments *
            
            
            (34
            )
            
            (182
            )
            
            0
            
            
            0
            
            
            0Balance
                at end of the year
            
            $
            7,792
            
            $
            5,224
            
            $
            5,225
            
            $
            4,403
            
            $
            3,418Net
                charge offs as a percentage of total average loans
            
            
            0.10
            %
            
            0.08
            %
            
            0.08
            %
            
            1.62
            %
            
            0.08
            %


*
      Allowance for unfunded commitments is presented as part of the other liabilities
      in the balance sheet.





The
      allowance for loan losses as of December 31, 2005 is allocated to real estate,
      commercial, and consumer loans that approximate their respective percentages
      of
      the total loan portfolio or approximately 74%, 24%, and 2% for real estate,
      commercial, and consumer loans, respectively.





During
      2005, the Bank recorded a provision for loan losses of $1,100 of which $34
      was
      reserved for unfunded loan commitments and recorded in other liabilities. The
      increase in the loan loss provision has reflected growth in outstanding loans.
      On November 30, 2005, the Company completed its acquisition of NWBF, which
      added
      $2,014 to the allowance for loan losses at year-end December 31, 2005. At
      December 31, 2005, the recorded investment in certain loans totaling $676 (net
      of government guarantees), were considered impaired. Impaired loans at December
      31, 2005 consist of $152 in nonperforming loans and two loans to a single
      borrower totaling $524 that are performing under revised terms. A specific
      related valuation of $238 is provided for these loans and is included in the
      $7,792 ending allowance at December 31, 2005.


14





**Deposits**





Deposits
      represent a significant portion of the Company’s liabilities. Average balance
      and average rates paid by category of deposit is included in Table I, Average
      Balance Analysis of Net Interest Earnings, within the Company’s “Management’s
      Discussion and Analysis of Financial Condition and Results of Operations”
      included on page 25 of this report. The chart below details the Company’s time
      deposits at December 31, 2005. The Company does not have any foreign deposits.
      Variable rate deposits are listed by first repricing opportunity.





**TIME
                DEPOSITS**(dollars
                in thousands)Time
                Deposits
            
            Time
                Depositsof
                $100,000
            
            of
                less than
            
            TotalOr
                more
            
            $100,000
            
            Time
                DepositsThree
                months or less
            
            $
            40,789
            
            $
            11,578
            
            $
            52,367Over
                three months through twelve months
            
            
            16,206
            
            
            32,050
            
            
            48,256Over
                one year through three years
            
            
            3,079
            
            
            18,246
            
            
            21,325Over
                three years
            
            
            5,048
            
            
            1,340
            
            
            6,388$
            65,122
            
            $
            63,214
            
            $
            128,336





**Short-term
      Borrowings**





The
      Company uses short-term borrowings to fund fluctuations in deposits and loan
      demand. The Company’s only subsidiary, Pacific Continental Bank, has access to
      both secured and unsecured overnight borrowing lines. At December 31, 2005,
      the
      Bank had unsecured and secured borrowing lines totaling approximately $281,000.
      At December 31, 2005, available unsecured borrowing lines with various
      correspondent banks and a secured line with the Federal Reserve Bank of San
      Francisco was approximately $83,000. The Federal Home Loan Bank of Seattle
      (FHLB) also provides a secured borrowing line using a blanket pledge of
      commercial real estate loans. The Bank’s FHLB borrowing limit at December 31,
      2005 was 25% of assets or $198,000, subject to sufficient collateral and stock
      investment.





**SHORT-TERM
                BORROWINGS**(dollars
                in thousands)2005
            
            2004
            
            2003Federal
                Funds Purchased & FHLB Cash Management AdvancesAverage
                interest rateAt
                year end
            
            
            4.33
            %
            
            2.75
            %
            
            1.10
            %For
                the year
            
            
            3.35
            %
            
            2.46
            %
            
            1.59
            %Average
                amount outstanding for the year
            
            $
            17,693
            
            $
            12,596
            
            $
            4,066Maximum
                amount outstanding at any month end
            
            $
            34,825
            
            $
            31,790
            
            $
            21,710Amount
                outstanding at year end
            
            $
            24,000
            
            $
            31,790
            
            $
            0








15


**Long-term
      Borrowings**





The
      Company acquired $8,248 in junior subordinated debentures on November 28, 2005,
      due on January 7, 2036, to help fund the acquisition of NWBF. These debentures
      are priced at 6.265% for five years and then convert to a floating rate
      instrument at 135 basis points over the 3-month LIBOR.





ITEM
      1A  Risk
      Factors





*Our
      business exposes us to certain risks. The following is a discussion of the
      most
      significant risks and uncertainties that may affect our business, financial
      condition and future results.*





**Fluctuating
      interest rates can adversely affect our profitability**





Our
      profitability is dependent to a large extent upon net interest income, which
      is
      the difference (or “spread”) between the interest earned on loans, securities
      and other interest-earning assets and interest paid on deposits, borrowings,
      and
      other interest-bearing liabilities. Because of the differences in maturities
      and
      repricing characteristics of our interest-earning assets and interest-bearing
      liabilities, changes in interest rates do not produce equivalent changes in
      interest income earned on interest-earning assets and interest paid on
      interest-bearing liabilities. Accordingly, fluctuations in interest rates could
      adversely affect our interest rate spread, and, in turn, our profitability.
      Because our Company is asset sensitive, we seek to manage our interest rate
      risk
      within well established guidelines. Generally, the Company seeks an asset and
      liability structure that insulates net interest income from large deviations
      attributable to changes in market rates.





**Our
      allowance for loan losses may not be adequate to cover actual loan losses,
      which
      could adversely affect our earnings**





We
      maintain an allowance for loan losses in an amount that we believe is adequate
      to provide for losses inherent in the portfolio. While we strive to carefully
      manage and monitor credit quality and to identify loans that may become
      nonperforming, at any time there are loans included in the portfolio that will
      result in losses, but that have not been identified as nonperforming or
      potential problem loans. By managing our credit quality, we attempt to identify
      deteriorating loans before they become nonperforming assets and adjust the
      loan
      loss reserve accordingly. However, because future events are uncertain, there
      may be loans that deteriorate to a nonperforming status in a relatively short
      time frame. As a result of these types of situations, future additions to the
      allowance may be necessary. Because the loan portfolio contains a significant
      number of commercial and commercial real estate loans with relatively large
      balances, the deterioration of one or a few of these loans may cause a
      significant increase in nonperforming loans, requiring an increase to the loan
      loss allowance. Additionally, future additions to the allowance may be required
      based on changes in the loans comprising the portfolio and changes in the
      financial condition of borrowers, such as may result from changes in economic
      conditions, or as a result of incorrect assumptions by management in determining
      the allowance. Additionally, federal banking regulators, as an integral part
      of
      their supervisory function, periodically review our allowance for loan losses.
      These regulatory agencies may require us to recognize further loan loss
      provisions or charge-offs based upon their judgments, which may be different
      from ours. Any increase in the allowance for loan losses could have a negative
      effect on our financial condition and results of operation.





**An
      economic downturn in the market areas we serve may cause us to have lower
      earnings and could increase our credit risk associated with our loan
      portfolio**





The
      inability of borrowers to repay loans can erode our earnings. Substantially
      all
      of our loans are to businesses and individuals in Oregon and Washington, and
      any
      decline in the economy of these market areas could impact us adversely. As
      a
      lender, we are exposed to the risk that our customers will be unable to repay
      their loans in accordance with their terms, and that any collateral securing
      the
      payment of their loans may not be sufficient to assure
      repayment.


16





ITEM
      1B  Unresolved
      Staff Comments





None





ITEM
      2 
Properties





The
      principal properties of the registrant are comprised of the banking facilities
      owned by the Bank. The Bank operates thirteen full service facilities and three
      consumer finance offices. The Bank and Bank subsidiaries own a total of seven
      buildings and with the exception of one building, owns the land on which these
      buildings are situated. Significant properties owned by the Bank are as
      follows:





1)
            Three-story
                building and land with approximately 30,000 square feet located on
                Olive
                Street in Eugene, Oregon.





2)
            Building
                with approximately 4,000 square feet located on West 11thAvenue in Eugene, Oregon. The building is on leased
                land.





3)
            Building
                and land with approximately 8,000 square feet located on High Street
                in
                Eugene, Oregon.





4)
            Three-story
                building and land with approximately 31,000 square feet located in
                the
                Gateway area of Springfield, Oregon. The Bank occupies approximately
                5,500
                square feet of the first floor and leases out, or is seeking to lease
                out,
                the remaining space.





5)
            Building
                and land with approximately 3,500 square feet located in Beaverton,
                Oregon.





6)
            Building
                and land with approximately 2,000 square feet located in Junction
                City,
                Oregon.





7)
            Building
                and land with approximately 5,000 square feet located in Portland,
                Oregon.





The
      Bank
      leases facilities for branch offices in Seattle, Washington, Bellevue,
      Washington, Portland, Oregon and Tualatin, Oregon; two branch offices and one
      consumer finance lending office located in Eugene, Oregon and one consumer
      finance office in both Coos Bay, Oregon and Roseburg, Oregon. In addition,
      the
      Bank leases a portion of an adjoining building to the High Street office for
      administrative and training functions. Management considers all owned and leased
      facilities adequate for current use. The Bank is presently investigating
      additional space in Eugene, Oregon to house various Bank administrative
      departments.





ITEM
      3 Legal
      Proceedings





As
      of the
      date of this report, neither the Company nor the Bank or any of its subsidiaries
      is party to any material pending legal proceedings, including proceedings of
      governmental authorities, other than ordinary routine litigation incidental
      to
      the business of the Bank.








ITEM
      4  Submissions
      of Matters to a Vote of Security
      Holders





There
      were no matters submitted to a vote of security holders during the fourth
      quarter of 2005.


17





**PART
      II**





ITEM
      5   Market
      for Company’s Common Equity, Related Stockholder
      Matters and Purchases ofEquity
      Securities





*Issuer
      Purchases of Securities*





The
      Company did not repurchase any shares of its common stock during the fourth
      quarter of 2005. The Company had no sales of securities during the past three
      years, other than those issued pursuant to its stock option plans.





*Dividends*





The
      Company pays cash dividends on a quarterly basis, typically in March, June,
      September and December of each year. The Board of Directors considers the
      dividend amount quarterly and takes a broad perspective in its dividend
      deliberations including a review of recent operating performance, capital
      levels, and growth projections. The Board also considers dividend payout ratios,
      dividend yield, and other financial metrics in setting the quarterly dividend.
      The Company declared and paid cash dividends of $0.28 per share for the year
      2005. That compares to cash dividends of $0.25 per share paid for the year
      2004.





*Equity
      Compensation Plan Information*





**Year
                Ended December 31, 2005****Number
                of Shares to be Issued Upon Exercise of Outstanding Options, Warrants
                and
                Rights****(2)(3)**
            **Weighted-Average
                Exercise Price of Outstanding Options, Warrants and Rights****(3)**
            **Number
                of Shares Remaining Available for Future Issuance Under Equity
                Compensation Plans****(2)****Equity
                compensation plans approved by security holders****(1)**
            1,114,232
            $
                10.82
            721,671**Equity
                compensation plans not approved by security
                holders**
            0
            $0
            0





(1)
            Under
                the Company’s respective equity compensation plans, the Company may grant
                incentive stock options and non-qualified stock options to employees
                and
                non-qualified stock options to
                directors.





(2)
            All
                amounts have been adjusted to reflect subsequent stock splits and
                stock
                dividends.





(3)
            Includes
                219,599 shares reserved for issuance under the NWB Plans that were
                assumed
                by the Company in


connection
      with the acquisition of NWB Financial Corporation in November 2005. No
      additional shares are available for future issuance under these plans.


18





*Market
      Information*





The
      Company’s common stock trades on the NASDAQ National Market under the symbol
      PCBK. At March 3, 2006, the Company had 10,482,860 shares of common stock
      outstanding held by approximately 693 shareholders.





The
      high,
      low and closing sales prices (based on daily closing price) for the last eight
      quarters are shown in the table below. All prices have been adjusted
      retroactively to reflect the 5-for-4 stock split declared in September 2004.





**YEAR**
            ****
            ****
            ****
            **2005**
            ****
            ****
            ****
            ****
            ****
            ****
            ****
            **2004**
            ****
            ****
            ****
            ****
            ******QUARTER**
            ****
            **Fourth**
            ****
            **Third**
            ****
            **Second**
            ****
            **First**
            ****
            **Fourth**
            ****
            **Third**
            ****
            **Second**
            ****
            **First**Market
                value:High
            
            $
            16.20
            
            $
            16.30
            
            $
            16.25
            
            $
            16.25
            
            $
            16.74
            
            $
            15.19
            
            $
            12.80
            
            $
            12.48Low
            
            
            15.10
            
            
            13.75
            
            
            15.00
            
            
            15.45
            
            
            14.40
            
            
            12.26
            
            
            10.88
            
            
            11.42Close
            
            
            15.89
            
            
            15.75
            
            
            15.20
            
            
            15.75
            
            
            15.75
            
            
            14.94
            
            
            12.38
            
            
            12.38








19


ITEM
      6  Selected
      Financial Data





Selected
      financial data for the past five years is shown in the table below.


($
      in
      thousands, except for per share data)


**2005**
              
              **2004**
              
              **2003**
              
              **2002**
              
              **2001**For
                  the yearNet
                  interest income
              
              $
              30,240
              
              $
              24,952
              
              $
              22,220
              
              $
              19,689
              
              $
              18,520Provision
                  for loan losses
              
              $
              1,100
              
              $
              500
              
              $
              900
              
              $
              5,660
              
              $
              1,455Noninterest
                  income
              
              $
              4,083
              
              $
              4,463
              
              $
              4,946
              
              $
              4,200
              
              $
              3,611Noninterest
                  expense
              
              $
              18,134
              
              $
              16,041
              
              $
              15,202
              
              $
              12,594
              
              $
              11,371Income
                  taxes
              
              $
              5,511
              
              $
              4,925
              
              $
              4,233
              
              $
              2,181
              
              $
              3,582Net
                  income
              
              $
              9,578
              
              $
              7,948
              
              $
              6,831
              
              $
              3,454
              
              $
              5,722Cash
                  dividends
              
              $
              2,556
              
              $
              2,164
              
              $
              1,841
              
              $
              1,610
              
              $
              1,401Per
                  common share data (1)Net
                  income:Basic
              
              $
              1.08
              
              $
              0.93
              
              $
              0.81
              
              $
              0.41
              
              $
              0.69Diluted
              
              $
              1.05
              
              $
              0.90
              
              $
              0.79
              
              $
              0.41
              
              $
              0.67Cash
                  dividends
              
              $
              0.28
              
              $
              0.25
              
              $
              0.22
              
              $
              0.19
              
              $
              0.17Market
                  value, end of year
              
              $
              15.89
              
              $
              15.75
              
              $
              12.71
              
              $
              8.70
              
              $
              7.62At
                  year endAssets
              
              $
              791,794
              
              $
              516,630
              
              $
              425,799
              
              $
              379,846
              
              $
              309,548Loans,
                  less allowance for loan loss (2)
              
              $
              671,171
              
              $
              453,817
              
              $
              350,852
              
              $
              326,400
              
              $
              239,683Deposits
              
              $
              604,271
              
              $
              403,791
              
              $
              356,099
              
              $
              309,909
              
              $
              248,328Shareholders'
                  equity
              
              $
              81,412
              
              $
              49,392
              
              $
              42,234
              
              $
              36,698
              
              $
              35,604Average
                  for the yearAssets
              
              $
              573,717
              
              $
              463,509
              
              $
              402,195
              
              $
              337,258
              
              $
              299,721Earning
                  assets
              
              $
              533,930
              
              $
              431,374
              
              $
              369,574
              
              $
              305,763
              
              $
              270,702Loans,
                  less allowance for loan losses
              
              $
              501,541
              
              $
              398,739
              
              $
              342,192
              
              $
              284,614
              
              $
              234,441Deposits
              
              $
              461,013
              
              $
              379,618
              
              $
              329,157
              
              $
              271,765
              
              $
              238,856Interest-paying
                  liabilities
              
              $
              372,880
              
              $
              290,569
              
              $
              256,441
              
              $
              211,745
              
              $
              195,529Shareholders'
                  equity
              
              $
              54,528
              
              $
              46,043
              
              $
              39,758
              
              $
              36,117
              
              $
              33,882Financial
                  ratiosReturn
                  on average:Assets
              
              
              1.67
              %
              
              1.71
              %
              
              1.70
              %
              
              1.02
              %
              
              1.91
              %Equity
              
              
              17.57
              %
              
              17.26
              %
              
              17.18
              %
              
              9.56
              %
              
              16.89
              %Avg
                  shareholders' equity / avg assets
              
              
              9.50
              %
              
              9.93
              %
              
              9.89
              %
              
              10.71
              %
              
              11.30
              %Dividend
                  payout ratio
              
              
              26.69
              %
              
              27.23
              %
              
              26.95
              %
              
              46.61
              %
              
              24.48
              %Risk-based
                  capital:Tier
                  I capital
              
              
              9.32
              %
              
              10.19
              %
              
              10.95
              %
              
              10.23
              %
              
              12.71
              %Tier
                  II capital
              
              
              10.48
              %
              
              11.29
              %
              
              12.20
              %
              
              11.47
              %
              
              13.98
              %(1)
                  Per common share data is retroactively adjusted to reflect the
                  5-for-4
                  stock split, 4-for-3 stock split, and
                  10% stock dividend of 2004, 2003, and 2001,
                  respectively.(2)
                  Outstanding loans include loans held for sale.


20


ITEM
      7   Management’s
      Discussion and Analysis of Financial
      Condition and Results of Operations





The
      following discussion is intended to provide a more comprehensive review of
      the
      Company’s operating results and financial condition than can be obtained from
      reading the Consolidated Financial Statements alone. The discussion should
      be
      read in conjunction with the audited financial statements and the notes included
      later in this report. All numbers, except per share data, are expressed in
      thousands of dollars.







In
      addition to historical information, this report contains ``forward-looking
      statements'' within the meaning of the Private Securities Litigation Reform
      Act
      of 1995 (``PSLRA''). Such “forward-looking” statements are subject to risks and
      uncertainties that may cause actual results to differ materially from those
      projected, including but not limited to the following: the concentration of
      loans of the Company’s banking subsidiary, particularly with respect to
      commercial and residential real estate lending; changes in the regulatory
      environment and increases in associated costs, particularly on-going compliance
      expenses and resource allocation needs in response to the Sarbanes-Oxley Act
      and
      related rules and regulations; vendor quality and efficiency; employee
      recruitment and retention, specifically in the Bank’s Portland and Seattle
      markets; the Company’s ability to control risks associated with rapidly changing
      technology both from an internal perspective as well as for external providers;
      increased competition among financial institutions; fluctuating interest rate
      environments; and similar matters. With regard to the NWBF transaction, specific
      risks include that it may be more difficult, costly or time-consuming to combine
      the two companies than anticipated, thereby creating disruption and difficulties
      during the integration process. In addition, the combined company may fail
      to
      realize projected cost savings and revenue enhancements that are accretive
      to
      the Company’s earnings. Readers are cautioned not to place undue reliance on the
      forward-looking statements. The Company undertakes no obligation to publicly
      revise or update the forward-looking statements to reflect events or
      circumstances that arise after the date of this release. Readers should also
      carefully review any risk factors described in its Annual Report on Form 10-K,
      Quarterly Reports on Form 10-Q and other documents, including any Current
      Reports on Form 8-K furnished to or filed from time-to-time with the Securities
      Exchange Commission. This statement is included for the express purpose of
      invoking PSLRA's safe harbor provisions.







**HIGHLIGHTS**





**2005**(2)
            
            **2004**
            
            **%
                Change**
              **2005
                vs. 2004**
            
            **2003**
            
            **%
                Change**
              **2004
                vs. 2003**Operating
                revenue (1)
            
            $
            34,323
            
            $
            29,415
            
            
            17
            %
            $
            27,166
            
            
            8
            %Net
                income
            
            $
            9,578
            
            $
            7,948
            
            
            21
            %
            $
            6,831
            
            
            16
            %Earnings
                per share (3)Basic
            
            $
            1.08
            
            $
            0.93
            
            
            16
            %
            $
            0.81
            
            
            15
            %Diluted
            
            $
            1.05
            
            $
            0.90
            
            
            17
            %
            $
            0.79
            
            
            14
            %Assets,
                period-end
            
            $
            791,794
            
            $
            516,630
            
            
            53
            %
            $
            425,799
            
            
            21
            %Deposits,
                period-end
            
            $
            604,271
            
            $
            403,791
            
            
            50
            %
            $
            356,099
            
            
            13
            %Return
                on assets
            
            
            1.67
            %
            
            1.71
            %
            
            
            
            
            1.70
            %Return
                on equity
            
            
            17.57
            %
            
            17.26
            %
            
            
            
            
            17.18
            %





(1)
            Operating
                income is defined as net interest income plus noninterest
                income





(2)
            On
                November 30, 2005, the Company acquired NWBF for a combination of
                stock
                and cash. Combined, the stock and cash transaction was valued at
                approximately $40,400. The acquisition was accounted for under the
                purchase-method of accounting and accordingly, the results of operations
                of NWBF have been included in the consolidated financial statement
                only
                since the date of acquisition.





21


(3)
            Per
                share data for 2004 and 2003 was retroactively adjusted to reflect
                the
                5-for 4 and 4-for-3 stock splits declared in September 2004 and September
                2003, respectively.





The
      Company earned $9,578 in 2005 compared to $7,948 in 2004. Growth in operating
      revenue, which consists of net interest income plus noninterest income was
      primarily responsible for the increased earnings in 2005 over 2004. Operating
      revenues in 2005 grew by $4,908 or 17% over 2004. Operating revenue growth
      was
      driven by a 24% increase in average earning assets resulting in a 21% increase
      in net interest income. The increase in net interest income was partially offset
      by a 9% decline in noninterest income due to lower service charges on deposit
      accounts, other deposit related service fees, and income from the origination
      of
      residential mortgages.





The
      Company earned $7,948 in 2004 compared to $6,831 in 2003. Operating revenue
      growth of 8%, combined with a decrease in the provision for loan losses, were
      key elements for the improvement in 2004 earnings when compared to 2003.
      Operating revenue growth was driven by a 17% increase in average earning assets,
      resulting in a 12% increase in net interest income. The provision for loan
      losses for 2004 was $500 compared to $900 for the year 2003 due to improved
      credit quality in the loan portfolio and reductions in nonperforming assets.





Period-end
      assets at December 31, 2005, including assets acquired from NWBF, were $791,794,
      compared to $516,630 at December 31, 2004. Core deposits, which are defined
      as
      demand deposits, interest checking, money market accounts, and local time
      deposits (including local time deposits over $100 thousand) constitute 88%
      of
      December 31, 2005 outstanding deposits. Demand deposits were $164,626 or 27%
      of
      total deposits at year-end December 31, 2005.





During
      2006, the Company believes the following factors could impact reported financial
      results:





§
            A
                flat or inverted yield curve that would reduce spreads between the
                Bank’s
                yield on fixed rate loans and the Bank’s short-term borrowing costs and
                costs of core deposits, which could negatively affect the net interest
                margin.





§
            The
                ability to successfully integrate NWBF operations and convert data
                processing systems.





§
            The
                ability to grow core deposits, to fund expected loan growth during
                2006.





§
            The
                local and regional economies and their effect on loan demand, the
                credit
                quality of existing clients with lending relationships, and vacancy
                rates
                of commercial real estate properties, since a significant portion
                of our
                loan portfolio is secured by real
                estate.





§
            Any
                further increases in long-term interest rates and their impact on
                residential construction, residential mortgage lending, and refinancing
                activities of existing homeowners.





§
            Increased
                expenses related to personnel costs and the rising costs of providing
                employee benefits, plus staffing, consulting, audit fees, and other
                expense related to internal auditing and ongoing compliance with
                Section
                404 of Sarbanes-Oxley Act.





§
            The
                ability to attract and retain qualified and experienced commercial
                bankers
                in all markets.





§
            The
                performance of new offices in the metropolitan Portland
                area.


22





**SUMMARY
      OF CRITICAL ACCOUNTING POLICIES**





The
      SEC
      defines “critical accounting policies” as those that require the application of
      management’s most difficult, subjective, or complex judgments, often as a result
      of the need to make estimates about the effect of matters that are inherently
      uncertain and may change in future periods. Significant accounting policies
      are
      described in Note 1 of the *Notes
      to Consolidated Financial Statements* for the
      year ended December 31, 2005 in Item 8 of this report. Management believes
      that
      the following policies and those disclosed in the *Notes
      to Consolidated Financial Statements* should
      be considered critical under the SEC definition:





***Allowance
      for Loan Losses and Reserve for Unfunded Commitments***





The
      allowance for outstanding loans is classified as a contra-asset account
      offsetting outstanding loans, and the allowance for unfunded commitments is
      classified as an other liability on the balance sheet. The allowance for loan
      losses is established through a provision for loan losses charged against
      earnings. The balance of the allowance for loan losses for outstanding loans
      and
      unfunded commitments are maintained at an amount management believes will be
      adequate to absorb known and inherent losses in the loan portfolio and
      commitments to loan funds. The appropriate balance of the allowance for loan
      losses is determined by applying loss factors to the credit exposure from
      outstanding loans and unfunded loan commitments. Estimated loss factors are
      based on subjective measurements including management’s assessment of the
      internal risk classifications, changes in the nature of the loan portfolios,
      industry concentrations, and the impact of current local, regional, and national
      economic factors on the quality of the loan portfolio. Changes in these
      estimates and assumptions are reasonably possible and may have a material impact
      on the Company’s consolidated financial statements, results of operations, or
      liquidity.





***Goodwill
      and Intangible Assets***





At
      December 31, 2005, the Company had $24,201 in goodwill and other intangible
      assets. In accordance with Financial Accounting Standard 142, *Goodwill
      and Other Intangible Assets* ,
      which
      was effective January 1, 2002, these assets with indefinite lives are no longer
      amortized, but instead are periodically tested for impairment. Management
      performs an impairment analysis for the intangible assets with indefinite lives
      at least annually and has determined that there was no impairment as of
      December 31, 2005.





***Recent
      Accounting Pronouncements***





In
      December 2004, the Financial Accounting Standards Board (“FASB”) issued FAS 123
      (R), Share Based Payment, a revision to the previously issued guidance on
      accounting for stock options and other forms of equity-based forms of
      compensation issued to employees. This standard will become effective in the
      first quarter of 2006.





The
      method of determining the grant date fair value of stock options under FAS
      123
      (R) is the same as the method currently being used by the Company to calculate
      the pro forma impact on net income and earnings per share as presented in Note
      1
      of the Notes to Consolidated Financial Statements in Item 8 below. Accordingly,
      we do not expect the impact of the adoption of FAS 123 (R) on net income and
      earnings per share will be materially different from the current pro forma
      disclosures.





The
      Company may elect one of two methods for adoption of FAS 123 (R). Under the
      modified prospective method, any awards that are granted or modified after
      the
      date of adoption will be measured and accounted for under FAS 123(R). The
      unvested portion of previously granted awards will continue to be accounted
      for
      under FAS 123, Accounting for Stock-Based Compensation, except that the
      compensation expense associated with the unvested portions will be recognized
      in
      the income statement. Under the modified retrospective method, all amounts
      previously reported are restated to reflect the amounts previously reported
      in
      FAS 123 pro forma disclosure.


23





The
      Company has elected to adopt FAS 123 (R) using the modified prospective method.
      Therefore, previously reported financial data will not be restated, and expense
      related to stock options vesting during 2006 and later will be recorded as
      additional compensation expense. During 2006, the Company estimates noninterest
      expense related to stock options vesting during the year will be approximately
      $549 before taxes, which will reduce net income by approximately $337 or $0.03
      per basic share. This estimate is subject to change due to the number of options
      actually granted or forfeited during the year.





**RESULTS
      OF OPERATIONS**





***Net
      Interest Income***





The
      largest component of the Company’s earnings is net interest income. Net interest
      income is the difference between interest income derived from earning assets,
      principally loans, and the interest expense associated with interest bearing
      liabilities, principally deposits. The volume and mix of earning assets and
      funding sources, market rates of interest, demand for loans, and the
      availability of deposits affect net interest income.





Two
      tables follow which analyze the changes in net interest income for 2005, 2004,
      and 2003. Table I, Average Balance Analysis of Net Interest Earnings, provides
      information with regard to average balances of assets and liabilities, as well
      as associated dollar amounts of interest income and interest expense, relevant
      average yields or rates, and net interest income as a percent of average earning
      assets. Table II, Analysis of Changes in Interest Income and Interest Expense,
      shows the increase (decrease) in the dollar amount of interest income and
      interest expense and the differences attributable to changes in either volume
      or
      rates. Changes not solely due to volume or rate are allocated to
      rate.





***2005
      Compared to 2004***





Net
      interest income for 2005 was $30,240, an increase of $5,288 over 2004 net
      interest income of $24,952. For the year 2005, the net interest income as a
      percentage of earning assets decreased by 12 basis points from 5.78% to 5.66%.
      Generally, the decline in the net interest margin in 2005 when compared to
      2004
      can be attributed to the Bank’s cost of funds rising faster than the yield on
      its loan portfolio.





For
      the
      year 2005, interest and fees earned on earning assets increased by $10,168
      or
      35% over 2004. Referring to Table II, total interest income and fees improved
      by
      $7,329 due to increased earning asset volumes and improved $2,839 due to higher
      yields on earning assets. Average earning assets for 2005 were $533,930, a
      24%
      increase over 2004 average earning assets. Growth in earning assets was
      primarily attributable to loan growth as average loans, net of the allowance
      for
      loan losses for the year 2005, were up $102,802 or 26% over 2004. Referring
      to
      Table I, earning asset yields increased by 60 basis points, from 6.82% in 2004
      to 7.42% in 2005. The improvement in earning asset yield was primarily due
      to
      increased loan yields, which were up 55 basis points in 2005 over 2004. The
      increase in loan yields is reflective of the consistent increase in the
      prime-lending rate throughout the year 2005.





Interest
      expense on interest-bearing liabilities during 2005 increased by $4,880 or
      109%
      over 2004. Referring to Table I, overall average interest-bearing liabilities
      in
      2005 increased by $82,311 or 28% over 2004, while the average rate paid on
      interest-bearing liabilities increased by 97 basis points from 1.54% to 2.51%.
      Referring to Table II, interest expense increased by $1,901 due to the change
      in
      the mix and increased volumes of interest-bearing liabilities. Table II also
      indicates that interest expense for the year increased an additional $2,979
      due
      to higher rates, a direct result of the increase in short-term market interest
      rates throughout the year 2005. Table II shows the increase in the average
      volumes of money market and NOW accounts, time deposits, and FHLB borrowings,
      were primarily responsible for the increase in interest expense due to higher
      volumes for 2005 when compared to 2004. Again referring to Table II, the
      increase in interest expense for the year 2005 over 2004 resulting from higher
      rates was primarily due to increased rates paid on money market and NOW accounts
      and time deposits. Table I shows the 2005 average volume of money market and
      NOW
      accounts increased $41,166 or 23% and average time deposit volume increased
      $20,584 or 38% over 2004 average volumes, while the rate on these deposits
      increased 110 basis points and 97 basis points, respectively. The increase
      in
      time deposit volume primarily involved local market time deposits in excess
      of
      $100, national time deposits, and public deposits. Table II shows that the
      increase in the average volume of FHLB term borrowings accounted for $1,084
      or
      57% of the total increase in interest expense for the year 2005 over 2004 that
      was related to volume. However, lower rates paid on FHLB advances during the
      year 2005 when compared to 2004 mitigated a portion of the increase in interest
      expense from the higher usage of FHLB advances.





24


The
      Company’s 2005 net interest margin benefited from growth in noninterest-bearing
      deposits. For the year 2005, average noninterest-bearing deposits grew by
      $16,962 or 14% over 2004. Average noninterest-bearing deposits funded 25% of
      total average assets for the year 2005.





During
      2005, the Federal Reserve continued to increase short-term rates as they did
      during the last six month of 2004. From January 2005 through December 2005,
      the
      Federal Reserve increased short-term interest rates by 200 basis points on
      top
      of the 125 basis point increase in short-term rates during the last six months
      of 2004. The increase in market interest rates during 2005 increased the Bank’s
      prime-lending rate from 5.25% at the beginning of the year to 7.25% at year
      end
      2005. Although the Bank is asset sensitive, meaning the net interest margin
      should improve during a rising rate environment, the increases in market
      interest rates during 2005 had little positive effect on the net interest
      margin. This was primarily the result of two factors. First, a flattening yield
      curve, where long-term rates rose at a much slower pace than short-term rates
      keeping the yields on fixed rate loans low, thus narrowing the spread between
      the Bank’s borrowing and core deposit costs and the yield on its fixed rate loan
      portfolio. Second, consistently throughout the year 2005, there was a timing
      lag
      between the increases in short-term money market rates, which moved borrowing
      costs and deposit rates up in advance of the Bank’s prime-lending rate also
      creating margin compression.





The
      month
      of December 2005 was the first full month of financial results that included
      activity from the NWBF acquisition. The Bank’s net interest income as a
      percentage of average earning assets for the full month of December 2005 was
      5.46%. The drop in the net interest margin was expected as a result of the
      combination of the two entities due to the higher level of wholesale funding
      and
      lower net interest margin for NWBF. Prior to the acquisition, NWBF’s net
      interest margin ranged from 4.20% to 4.35% on a monthly basis.





Looking
      forward to the first quarter 2006, the Company expects the net interest margin
      to be flat to down slightly from the 5.46% net interest margin recorded for
      the
      month of December 2005. Historically, the Bank’s Oregon market experiences flat
      to negative growth in its core deposit base during the first quarter of each
      year, while loan activity remains strong. This would potentially decrease the
      Bank’s net interest margin as the reduction in core deposits typically occurs in
      lower cost demand and commercial money market accounts. However, further
      increases in market interest rates, plus a more normal yield curve, where
      long-term rates are higher than short-term rates, could mitigate any decline
      in
      the net interest margin due to a reduction in the Bank’s core deposit base.





The
      Company believes there are opportunities during the course of 2006 to improve
      the net interest margin through core deposit growth. The Company believes that
      when NWBF operations and systems are fully integrated and converted, that the
      Company’s image technology and on-line cash management products geared to the
      specific market segments the Bank desires, will provide a competitive advantage
      in the new Seattle market. In addition, the new office in the Bank’s Portland
      market is expected to contribute to core deposit growth in the Oregon market
      during 2006.





**2004
      Compared to 2003**





Net
      interest income for 2004 was $24,952, an increase of $2,732 or 12% over 2003
      net
      interest income of $22,220. For the year 2004, the net interest income as a
      percentage of earning assets decreased by 23 basis points, from 6.01% in 2003
      to
      5.78%.





25


Short-term
      market interest rates were stable during the first six months of 2004 and were
      at a 45 year low. Beginning on June 30, 2004, the Federal Reserve began to
      take
      measured steps to increase short-term market rates during the last half of
      2004.
      During this six month period, short-term market interest rates moved up on
      five
      occasions in 25 basis point increments for a total increase of 125 basis points.
      During this period, the prime-lending rate increased from 4.00% to 5.25%. The
      Bank’s net interest margin did not immediately benefit from the increase in the
      prime-rate as approximately $90,000 of the Bank’s variable rate loan portfolio
      had active floors above the calculated rate. The 25 basis point increase in
      the
      prime-lending rate in November 2004 removed all active loan floors on variable
      rate loans. As a result, the Bank’s net interest margin improved during the
      fourth quarter to 5.87%. That compares to net interest margins of 5.78%, 5.74%,
      and 5.74% for the first, second, and third quarters of 2004,
      respectively.





Interest
      and fees earned on earning assets during 2004 increased by $2,896 or 11% over
      2003. Referring to Table II, total interest income and fees improved by $4,577
      due to increased earning asset volumes, which was partially offset by a $1,681
      decline in interest income due to lower yields on earning assets. Average
      earning assets for 2004 were $431,374, a 17% increase over 2003 average earning
      asset levels. Growth in earning assets was primarily attributable to loan growth
      as average loans, net of the allowance for loan losses for the year 2004, were
      up $56,547 or 17% over 2003. Referring to Table I, earning asset yields declined
      by 36 basis points, from 7.18% in 2003 to 6.82% in 2004. Yields on loans and
      securities available for sale contributed to the overall decline in earning
      asset yields during 2004. The yield on average loans, which made up 92% of
      earning asset volumes during 2004, was primarily responsible for the decline
      in
      earning asset yields during 2004. Loan yields for 2004 were 7.13%, a decline
      of
      43 basis points from loan yields of 7.56% recorded during 2003. The decline
      in
      loan yields is reflective of fixed rate loans booked during the prolonged low
      interest rate environment during the past two years, combined with active floors
      on variable rate loans above the calculated rate.





Interest
      expense on interest-bearing liabilities during 2004 increased by $166 or 4%
      over
      2003. Referring to Table I, overall average interest-bearing liabilities in
      2004
      increased by $34,128 or 13% over 2003, while the average rates paid on
      interest-bearing liabilities dropped by 14 basis points from 1.68% to 1.54%.
      Referring to Table II, interest expense increased by $59 due to the change
      in
      the mix and increased volumes of interest-bearing liabilities. Table II also
      indicates that interest expense for the year increased an additional $107 due
      to
      rates as a result of the increase in short-term market interest rates during
      the
      last half of 2004. Table II shows the increase in the volume and the increase
      in
      the rate on money market and NOW accounts were primarily responsible for the
      increased interest expense during 2004. Referring to Table I the 2004 average
      volume of money market and NOW accounts increased $38,155 or 27% over 2003,
      while the rates on these deposits increased 17 basis points from 0.93% in 2003
      to 1.10% in 2004. A portion of the increase in interest expense due to increased
      volume and rate of money market and NOW accounts was offset by a decline in
      volume and rate of time deposits. Referring to Table I, average time deposits
      in
      2004 were $10,351 or 16% below 2003 and the rate paid on time deposits dropped
      by 31 basis points from 2.42% in 2003 to 2.11% in 2004. Table II shows that
      the
      decline in volume and rate for the time deposit category reduced noninterest
      expense in 2004 by $251 and $166, respectively, or a total of $417. The decline
      in time deposit volume was primarily the result of national time deposits that
      matured during 2004 and were not renewed. The decline in the rates on time
      deposits is reflective of the lag effect on time deposit rates in a rising
      rate
      environment. Although market interest rates moved up during the last six months
      of the year, time deposit rates remained low as many of these deposits were
      booked during the prolonged low interest rate environment during 2003 and the
      first half of 2004.





The
      Company’s 2004 net interest margin benefited from growth in noninterest-bearing
      deposits. For the year 2004, average noninterest-bearing deposits grew by
      $20,503 or 20% over 2003. Average noninterest-bearing deposits funded 27% of
      total assets in 2004.





26




**Table
                I****Average
                Balance Analysis of Net Interest Earnings**(dollars
                in thousands)**2005**
            
            
            
            
            
            **2004**
            
            
            
            
            
            **2003****Average**
            
            **Interest**
            
            **Average**
            
            **Average**
            
            **Interest**
            
            **Average**
            
            **Average**
            
            **Interest**
            
            **Average****Balance**
            
            **Income/(Expense)**
            
            **Yield/(Cost)**
            
            **Balance**
            
            **Income/(Expense**
            
            **Yield/(Cost)**
            
            **Balance**
            
            **Income/(Expense**
            
            **Yield/(Cost)****Interest
                Earning Assets**Federal
                funds sold and interest-bearing
                deposits in banks
            
            $
            1,002
            
            $
            26
            
            
            2.62
            %
            $
            1,248
            
            $
            16
            
            
            1.24
            %
            $
            8,354
            
            $
            79
            
            
            0.95
            %Securities
                available for sale:Taxable
                (1)
            
            $
            29,142
            
            $
            965
            
            
            3.31
            %
            $
            30,009
            
            $
            936
            
            
            3.12
            %
            $
            18,459
            
            $
            554
            
            
            3.00
            %Tax-exempt
            
            $
            2,245
            
            $
            82
            
            
            3.64
            %
            $
            1,378
            
            $
            50
            
            
            3.61
            %
            $
            594
            
            $
            22
            
            
            3.71
            %Loans,
                net of allowance for loan losses(2)(3)(4)
            
            $
            501,541
            
            $
            38,520
            
            
            7.68
            %
            $
            398,739
            
            $
            28,424
            
            
            7.13
            %
            $
            342,192
            
            $
            25,874
            
            
            7.56
            %Total
                interest earning assets
            
            $
            533,930
            
            $
            39,593
            
            
            7.42
            %
            $
            431,374
            
            $
            29,425
            
            
            6.82
            %
            $
            369,599
            
            $
            26,529
            
            
            7.18
            %**Non
                Earning Assets**Cash
                and due from banks
            
            $
            19,324
            
            
            
            
            
            
            
            $
            16,523
            
            
            
            
            
            
            
            $
            15,983Premises
                and equipment
            
            $
            14,923
            
            
            
            
            
            
            
            $
            12,898
            
            
            
            
            
            
            
            $
            13,215Interest
                receivable and other
            
            $
            5,540
            
            
            
            
            
            
            
            $
            2,714
            
            
            
            
            
            
            
            $
            3,398Total
                non interest assets
            
            $
            39,787
            
            
            
            
            
            
            
            $
            32,135
            
            
            
            
            
            
            
            $
            32,596Total
                assets
            
            $
            573,717
            
            
            
            
            
            
            
            $
            463,509
            
            
            
            
            
            
            
            $
            402,195**Interest-Bearing
                Liabilities**Money
                market and NOW accounts
            
            $
            219,981
            
            
            ($4,840
            )
            
            -2.20
            %
            $
            178,815
            
            
            ($1,960
            )
            
            -1.10
            %
            $
            140,660
            
            
            ($1,305
            )
            
            -0.93
            %Savings
                deposits
            
            $
            24,148
            
            
            ($222
            )
            
            -0.92
            %
            $
            21,465
            
            
            ($130
            )
            
            -0.61
            %
            $
            19,310
            
            
            ($128
            )
            
            -0.66
            %Time
                deposits
            
            $
            74,583
            
            
            ($2,299
            )
            
            -3.08
            %
            $
            53,999
            
            
            ($1,142
            )
            
            -2.11
            %
            $
            64,350
            
            
            ($1,558
            )
            
            -2.42
            %Federal
                funds purchased
            
            $
            4,730
            
            
            ($113
            )
            
            -2.39
            %
            $
            12,596
            
            
            ($213
            )
            
            -1.69
            %
            $
            4,066
            
            
            ($65
            )
            
            -1.59
            %FHLB
                borrowings
            
            $
            48,670
            
            
            ($1,831
            )
            
            -3.76
            %
            $
            23,694
            
            
            ($1,028
            )
            
            -4.34
            %
            $
            28,055
            
            
            ($1,251
            )
            
            -4.46
            %Trust
                preferred
            
            $
            768
            
            
            ($48
            )
            
            -6.27
            %
            $
            0
            
            $
            0
            
            
            
            
            $
            0
            
            $
            0Total
                interest-bearing liabilities
            
            $
            372,880
            
            
            ($9,353
            )
            
            -2.51
            %
            $
            290,569
            
            
            ($4,473
            )
            
            -1.54
            %
            $
            256,441
            
            
            ($4,307
            )
            
            -1.68
            %**Noninterest-Bearing
                Liabilities**Demand
                deposits
            
            $
            142,301
            
            
            
            
            
            
            
            $
            125,339
            
            
            
            
            
            
            
            $
            104,836Interest
                payable and other
            
            $
            4,008
            
            
            
            
            
            
            
            $
            1,558
            
            
            
            
            
            
            
            $
            1,160Total
                noninterest liabilities
            
            $
            146,309
            
            
            
            
            
            
            
            $
            126,897
            
            
            
            
            
            
            
            $
            105,996Total
                liabilities
            
            $
            519,189
            
            
            
            
            
            
            
            $
            417,466
            
            
            
            
            
            
            
            $
            362,437Stockholders'
                equity
            
            $
            54,528
            
            
            
            
            
            
            
            $
            46,043
            
            
            
            
            
            
            
            $
            39,758Total
                liabilities and stockholders' equity
            
            $
            573,717
            
            
            
            
            
            
            
            $
            463,509
            
            
            
            
            
            
            
            $
            402,195**Net
                Interest Income**
            
            
            
            
            $
            30,240
            
            
            
            
            
            
            
            $
            24,952
            
            
            
            
            
            
            
            $
            22,221**Net
                Interest Income as a Percent of Earning Assets**
            
            
            
            
            
            5.66
            %
            
            
            
            
            
            
            
            5.78
            %
            
            
            
            
            
            
            
            6.01
            %(1)
                Federal Home Loan Bank stock is included in securities available
                for
                sale.(2)
                Nonaccrual loans have been included in average balance
                totals.(3)
                Interest income includes recognized loan origination fees of $1,642,
                $1,295 and $1,038 for the years ended 2005, 2004, and 2003,
                respectively.(4)
                Total includes loans held for sale.







27





**Table
                  II****Analysis
                  of Changes in Interest Income and Interest
                  Expense****(dollars
                  in thousands)****2005
                    compared to 2004**
              
              
              
              
              
              **2004
                    compared to 2003****Increase
                    (decrease) due to**
              
              
              
              
              
              **Increase
                    (decrease) due to****Volume**
              
              **Rate**
              
              **Net**
              
              **Volume**
              
              **Rate**
              
              **Net****Interest
                  earned on:**Federal
                  funds sold and interestbearing
                  deposits in banks
              
              
              ($3
              )
              $
              14
              
              $
              11
              
              
              ($67
              )
              $
              4
              
              
              ($64
              )Securities
                  available-for-sale:Taxable
              
              
              ($27
              )
              $
              57
              
              $
              30
              
              $
              347
              
              $
              35
              
              $
              382Tax-exempt
              
              $
              31
              
              $
              1
              
              $
              32
              
              $
              22
              
              $
              6
              
              $
              28Loans,
                  net of allowance for loan losses
              
              $
              7,328
              
              $
              2,768
              
              $
              10,096
              
              $
              4,276
              
              
              ($1,725
              )
              $
              2,550Total
                  interest income
              
              $
              7,329
              
              $
              2,839
              
              $
              10,168
              
              $
              4,577
              
              
              ($1,681
              )
              $
              2,896**Interest
                  paid on:**Money
                  market and NOW accounts
              
              
              ($451
              )
              
              ($2,429
              )
              
              ($2,880
              )
              
              ($354
              )
              
              ($301
              )
              
              ($655
              )Savings
                  deposits
              
              
              ($16
              )
              
              ($76
              )
              
              ($92
              )
              
              ($14
              )
              $
              12
              
              
              ($2
              )Time
                  deposits
              
              
              ($435
              )
              
              ($722
              )
              
              ($1,157
              )
              $
              251
              
              $
              166
              
              $
              417Federal
                  funds purchased
              
              $
              133
              
              
              ($33
              )
              $
              100
              
              
              ($136
              )
              
              ($13
              )
              
              ($148
              )Term
                  borrowings
              
              
              ($1,084
              )
              $
              281
              
              
              ($803
              )
              $
              194
              
              $
              29
              
              $
              224Trust
                  preferred
              
              
              ($48
              )
              $
              0
              
              
              ($48
              )
              $
              0
              
              $
              0
              
              $
              0Total
                  interest expense
              
              
              ($1,901
              )
              
              ($2,979
              )
              
              ($4,880
              )
              
              ($59
              )
              
              ($107
              )
              
              ($164
              )Net
                  interest income
              
              $
              5,428
              
              
              ($140
              )
              $
              5,288
              
              $
              4,518
              
              
              ($1,788
              )
              $
              2,732




***Provision
      for Possible Loan Losses***





Management
      provides for possible loan losses by maintaining an allowance. The level of
      the
      allowance is determined based upon judgments regarding the size and nature
      of
      the loan portfolio, historical loss experience, the financial condition of
      borrowers, the level of nonperforming loans, and current general economic
      conditions. Additions to the allowance are charged to expense. Loans are charged
      against the allowance when management believes the collection of principal
      is
      unlikely.





The
      provision for loan losses totaled $1,100 in 2005, $500 in 2004, and $900 in
      2003. The higher provision for 2005 reflected growth in the Bank’s outstanding
      loans during the year. The lower provision in 2004 compared to 2003 reflected
      improved credit quality in the Bank’s loan portfolio and a reduction in the
      level of nonperforming assets throughout the year.





Nonperforming
      assets at December 31, 2005 were $283 or 0.04% of year-end assets. That compares
      to $1,378 of nonperforming assets at December 31, 2004 or 0.27% of year-end
      assets. At December 31, 2005, the Bank had two residential properties in
      foreclosed assets with a value of $131. Subsequent to the end of the year,
      the
      Bank sold one of these properties for a gain on sale of $21. A sale on the
      second property is pending and is expected to close prior to the end of the
      first quarter 2006.





The
      allowance for loan losses at December 31, 2005 was $7,792 (1.15% of outstanding
      loans) compared to $5,224 (1.14% of loans) and $5,225 (1.47% of loans) at years
      end 2004 and 2003, respectively. The December 31, 2005 allowance for loan losses
      included $2,014 in allowance added through the acquisition of NWBF. At December
      31, 2005, the Bank also has reserved $301 for possible losses on unfunded loan
      commitments, which is classified in other liabilities on the balance sheet.
      At
      December 31, 2005, the allowance for loan losses for outstanding loans
      was
      5,126% or more than 51 times the level of the total nonperforming loans. That
      compares to 468% at year-end December 31, 2004. The 2005 ending allowance
      includes $238 in specific allowance for impaired loans. At December 31, 2005,
      the Company had $676 of impaired loans (net of government guarantees) consisting
      of $152 in nonperforming loans and two loans to a single borrower totaling
      $524
      that are performing under revised terms. These loans to the single borrower
      had
      a specific allowance of $179. At December 31, 2004, the Company had $2,799
      of
      impaired loans (net of government guarantees) with a specific allowance assigned
      of $510.





28


Net
      loan
      charge offs were $512 in 2005 compared to $319 in 2004, and $268 in 2003. Net
      charge offs as a percentage of average loans were 0.10%, 0.08%, and 0.08% for
      2005, 2004, and 2003, respectively.





Going
      forward into 2006, the provision for loans losses will be contingent on current
      economic and market conditions, the successful integration of NWBF’s loan
      portfolio, and overall loan growth, as there is only limited benefit available
      from further improvement in the loan portfolio credit statistics.





Management
      believes that the allowance for loan losses is adequate for estimated loan
      losses in the portfolio at year-end based on management’s assessment of various
      factors including present past due and impaired loans, past history and loss
      experience, loan concentrations in specific industries, and current economic
      conditions.





***Noninterest
      Income***





Noninterest
      income is derived from sources other than fees and interest on earning assets.
      The Company’s primary sources of noninterest income are service charge fees on
      deposit accounts, merchant bankcard activity, income derived from mortgage
      banking services, and gains on the sale of loans.





**2005
      Compared to 2004**





Noninterest
      income in 2005 was $4,083, a decrease of $380 or 9% from 2004. The decline
      in
      noninterest income was primarily due to five categories: account service
      charges; NSF/OD fees; residential mortgage revenues; merchant bankcard fees;
      and
      loan servicing fees. Account service charges were down $168 or 24% from last
      year as the increase in the 91-day Treasury bill rate increased the earnings
      credit on analyzed business demand accounts, which lowered hard dollar fee
      income on these accounts. NSF/OD fees in 2005 dropped $92,000 or 14% from 2004
      due to lower transaction volume. Revenues from the origination of residential
      mortgages were down $79 or 8% from 2004 as a result of higher long-term interest
      rates during the year that slowed loan originations. The merchant bankcard
      division achieved a 14% growth in sales transaction volume in 2005 over 2004.
      However, competitive pricing pressures resulted in a lower profit margin, thus
      reducing noninterest income from this division by $58 or 5% from 2004. Loan
      servicing fees in 2005 declined by $31 or 17% from 2004 due to a decline in
      the
      level of loans serviced for and participated to other financial
      institutions.





For
      the
      month of December 2005, total noninterest income was $323, with the newly
      acquired Seattle market contributing approximately $9 to the total. Although
      the
      fee schedule for the Seattle market is lower than the Oregon markets, the Bank
      will not consider any changes in the Seattle fee structure until after systems
      conversion, which is scheduled for the first quarter 2006. In the Oregon market,
      new fee increases went into effect on January 1, 2006, which is expected to
      add
      approximately $50 to total noninterest income during the year.





**2004
      Compared to 2003**





Noninterest
      income in 2004 was $4,463, down $483 or 10% from year 2003. The decline in
      noninterest income was attributable to two categories. Mortgage banking income
      and gains on sales of loans in 2004 decreased $618 or 38% from the previous
      year. Mortgage banking revenues accounted for $488 of the decline in this
      category as higher long term interest rates significantly reduced the level
      of
      refinancing. Gains on the sales of loans were down $130 as the Bank recorded
      a
      one-time gain on the sale of loans of $130 in 2003. There were no loan sales
      during 2004. In addition to the decline in mortgage banking revenues and gains
      on sales of loans, the Bank’s loan servicing income decreased by $58 due to an
      overall decline in the level of participated loans. The decrease in these two
      noninterest income categories was partially offset by a $159 or 13% increase
      in
      other fee income, principally merchant bankcard processing
      revenues.





29


***Noninterest
      Expense***





Noninterest
      expense represents all expenses other than the provision for loan losses and
      interest costs associated with deposits and other interest-bearing liabilities.
      It incorporates personnel, premises and equipment, data processing and other
      operating expenses.





**2005
      Compared to 2004**





Noninterest
      expense in 2005 was $18,134, up $2,093 or 13% over 2004. The acquisition of
      NWBF
      accounted for approximately $133 of the total expense increase. In addition,
      the
      Bank incurred approximately $35 in merger related expenses that will ultimately
      be eliminated following the systems conversion scheduled for first quarter
      2006.
      The increase in expenses in 2005 over 2004 resulted primarily from increased
      personnel expense, premises and equipment expense, advertising, and various
      other expenses. Personnel expenses were up $1,234 or 12% in 2005 over 2004
      reflecting increased staffing, increased accruals for incentive compensation,
      and higher group insurance costs. Group insurance expense accounted for $179
      of
      the total increase in personnel cost for the year 2005. Occupancy and equipment
      expense in 2005 was up $273 or 15% over 2004 reflecting remodeling costs of
      the
      Bank’s Olive Street office in Eugene, Oregon, elimination of rental income from
      the Bank’s Olive Street office, and rent expense for the Seattle market offices.
      The increase in business development expense of $246 in 2005 over 2004 was
      primarily the result of a planned increase in advertising expense related to
      production costs of new media campaigns and increased media and specialty
      advertising in the Portland market. Various other expense categories, primarily
      sundry losses, travel, and subscription expenses, accounted for the increase
      in
      the other expense category.





Beginning
      with the first quarter 2006, the Company will begin to record noninterest
      expense related to stock option grants vesting during the year as required
      by
      FAS 123 (R). The Company estimates that this non-cash expense will be
      approximately $549 for the year 2006, but is subject to change depending on
      the
      number of options granted and forfeited during the year. In addition, the Bank
      will record approximately $223 in noninterest expense during 2006 for the
      amortization of the core deposit intangible related to the acquisition of NWBF.





**2004
      Compared to 2003**





Noninterest
      expense in 2004 was $16,041, an increase of $838 or 6% over the same period
      in
      2003. Comparing 2004 to 2003, the largest increase was in personnel expense,
      which grew by $1,110 or 13% over the previous year, reflecting personnel costs
      for staff added during the last half 2003 and 2004 and increased group insurance
      expense. Staff additions were primarily related to expansion in the Portland
      market. Increased salaries, incentive compensation, 401k contribution and
      payroll taxes accounted for $851 of the increase in personnel expense for the
      year 2004 when compared to 2003. Increased group insurance costs, primarily
      medical insurance, accounted for $251 of the increase in personnel expense.
      For
      the year 2004, group insurance expense was 41% above the previous year for
      the
      same period. Business development expense in 2004 was $1,017, a $194 or 24%
      increase as the Bank’s new branding campaign was implemented during the year.
      Growth in these noninterest expense categories was offset by a decrease in
      other
      real estate expense. Other real estate expense in 2004 declined by approximately
      $600 as 2003 included expenses related to write downs and operating losses
      associated with motel and hotel properties which were sold during 2003.





During
      2004, the Company incurred incremental expenses totaling $91, primarily in
      the
      fourth quarter, related to compliance with Section 404 of Sarbanes-Oxley in
      terms of software, audit fees and professional consulting services. The
      incremental expense related to compliance with Section 404 does not include
      substantial staff time spent on this project.





30


**BALANCE
      SHEET**





***Loans***





At
      December 31, 2005, outstanding loans, excluding loans held for sale, were
      $678,321, up $221,353 over outstanding loans of $456,968 at December 31, 2004.
      A
      summary of loan growth for the year 2005 follows:


Outstanding
                    loans January 1, 2005
                
                $
                456,968Oregon
                    loan growth January 1 through December 31, 2005
                
                
                68,458Acquisition
                    of NWBF loans on November 30, 2005
                
                
                143,042Seattle
                    loan growth November 30 through December 31, 2005
                
                
                9,853Outstanding
                    loans December 31, 2005
                
                $
                678,321





The
      $68,458 increase in outstanding loans during 2005 for the Oregon market
      represented a 15% growth rate. More information on the loan portfolio can be
      found in statistical information in Item 1 and in Note 3 of the *Notes
      to Consolidated Financial Statements* in Item
      8 below.





***Goodwill
      and Intangible Assets***





At
      December 31, 2005, the Company had a recorded balance of $22,659 in goodwill
      of
      which $22,384 was from the November 30, 2005 acquisition of NWBF and
      $275
      from the 2003 acquisition of the Coos Bay consumer finance office. In addition,
      at December 31, 2005, the Company had $1,542 in core deposit intangible assets
      resulting from the acquisition of NWBF. In accordance with Financial Accounting
      Standard (“FAS”) 142, *Goodwill
      and Other Intangible Assets* ,
      the
      Company does not amortize goodwill or other intangible assets with indefinite
      lives, but instead periodically tests these assets for impairment. Management
      is
      required to perform an impairment analysis for the intangible assets (goodwill)
      with indefinite lives at least annually. Management did perform an impairment
      analysis at December 31, 2005 and determined there was no impairment to the
      goodwill on its books at that time. The core deposit intangible of $1,542 was
      determined to have an expected life of approximately seven and one-half years
      and will be amortized over that period using the straight-line
      method.





***Deposits***





Outstanding
      deposits at December 31, 2005 were $604,271, an increase of $200,480 over
      outstanding deposits of $403,791 at December 31, 2004. Core deposits, which
      are
      defined by the Company as demand, interest checking, money market, savings,
      and
      local time deposits, including local time deposits in excess of $100 thousand,
      were $529,794 and $381,601 at December 31, 2005 and 2004, respectively, and
      represented 88% and 95% of total deposits, respectively. A summary of deposit
      growth for the year 2005 follows:


Outstanding
                      deposits January 1, 2005
                  
                  $
                  403,791Oregon
                      deposit growth January 1 through December 31, 2005
                  
                  
                  84,704Acquisition
                      of NWBF deposits on November 30, 2005
                  
                  
                  124,551Seattle
                      deposit decline November 30 through December 31, 2005
                  
                  
                  (8,775
                  )Outstanding
                      deposits December 31, 2005
                  
                  $
                  604,271





Core
      deposit growth in the Oregon market accounted for approximately $80,300 or
      about
      95% of the total deposit growth of $84,704. The growth in outstanding core
      deposits during 2005 in the Oregon market represented a 21% increase over 2004.
      The decline in the Seattle deposit base during the month of December 2005
      following the acquisition was primarily brokered time deposits that matured
      during the month and were replaced with other less expensive funding
      sources.








31


***Junior
      Subordinated Debentures***





The
      Company had $8,248 in junior subordinated debenture at December 31, 2005, which
      was issued in conjunction with the acquisition of NWBF. At December 31, 2005,
      the entire $8,248 in junior subordinated debenture had an interest rate of
      6.265% that is fixed for a five year period. As of December 31, 2005, the entire
      balance of the junior subordinated debentures qualified as Tier 1 capital under
      regulatory capital purposes. Additional information regarding the terms of
      the
      junior subordinated debentures, including maturity/repricing dates and interest
      rate, is included in Note 12 of the *Notes
      to Consolidated Financial Statements* in Item
      8 below.





**CAPITAL
      RESOURCES**





Capital
      is the shareholders’ investment in the Company. Capital grows through the
      retention of earnings and the issuance of new stock through the exercise of
      stock options. Capital formation allows the Company to grow assets and provides
      flexibility in times of adversity. In September 2004, the Company declared
      a
      5-for-4 stock split which was paid to shareholders in October 2004. All per
      share data and outstanding shares from prior periods have been restated to
      present consistent financial information.





Shareholders’
      equity at December 31, 2005 was $81,412, an increase of $32,020 or 65% from
      December 31, 2004. The increase in shareholders’ equity during 2005 was
      principally due to the issuance of shares and options valued at $23,880 in
      conjunction with the November 30, 2005 acquisition of NWBF, stock options
      exercised and the related tax benefit of $1,363, and the retention of
      approximately $7,022 net income for the year.





The
      Federal Reserve Board and the FDIC has in place guidelines for risk-based
      capital requirements applicable to U.S. banks and bank holding companies. These
      risk-based capital guidelines take into consideration risk factors, as defined
      by regulation, associated with various categories of assets, both on and
      off-balance sheet. Under the guidelines, capital strength is measured in two
      tiers, which are used in conjunction with risk-adjusted assets to determine
      the
      risk-based capital ratios. These guidelines require a minimum 8% total
      risk-based capital ratio, of which 4% must be Tier I capital. The regulations
      also specify that a 10% total risk-based capital ratio is required to be
      designated “well-capitalized” (the highest FDIC capital rating) by the FDIC. The
      Company’s Tier I capital, which consists of shareholders’ equity and qualifying
      trust preferred securities, less other comprehensive income, goodwill, and
      deposit-based intangibles, totaled $65,549 at December 31, 2005. Tier II capital
      components include all, or a portion of the allowance for loan losses and the
      portion of trust preferred securities in excess of Tier I statutory limits.
      The
      total of Tier I and Tier II capital components is referred to as Total
      Risk-Based Capital, and was $73,051 at December 31, 2005. The Company’s total
      risk-based capital ratio was 10.48%, compared to 11.29% at December 31,
      2004.





The
      Company pays cash dividends on a quarterly basis, typically in March, June,
      September and December of each year. The Board of Directors considers the
      dividend amount quarterly and takes a broad perspective in its dividend
      deliberations including a review of recent operating performance, capital
      levels, and growth projections. The Board also considers dividend payout ratios,
      dividend yield, and other financial metrics in setting the quarterly dividend.
      The Company declared and paid cash dividends of $0.28 per share for the year
      2005. That compares to cash dividends of $0.25 paid during 2004.





The
      Company projects that earnings retention and existing capital will be sufficient
      to fund anticipated asset growth, while maintaining a well-capitalized
      designation from the FDIC.





**OFF-BALANCE
      SHEET ARRANGEMENTS AND COMMITMENTS**





In
      the
      normal course of business, the Bank commits to extensions of credit and issues
      letters of credit. The Bank uses the same credit policies in making commitments
      to lend funds and conditional obligations as it does for other credit products.
      In the event of nonperformance by the customer, the Bank’s exposure to credit
      loss is represented by the contractual amount of the instruments. Commitments
      to
      extend credit are agreements to lend to a customer as long as there is no
      violation of any condition established by the contract. Since some commitments
      may expire without being drawn upon, the total commitment amounts do not
      necessarily represent future cash requirements. At December 31, 2005, the Bank
      had $175,922 in commitments to extend credit.





32


Letters
      of credit written are conditional commitments issued by the Bank to guarantee
      performance of a customer to a third party. The credit risk involved is
      essentially the same as that involved in extending loan facilities to customers.
      At December 31, 2005, the Bank had $6,168 in letters of credit and financial
      guarantees written.





The
      Bank
      also has internal guidance lines of credit established for certain borrowers,
      primarily in the residential construction industry. These guidance lines are
      not
      contractual commitments to extend credit, and may be terminated by the Bank
      for
      any reason without any obligation to the borrower. These lines provide the
      Bank’s lenders limits on future extensions of credit to certain borrowers. The
      Bank uses the same credit policies in establishing internal guidance lines
      as it
      does for other credit products. At December 31, 2005, the Bank had established
      unused and uncommitted guidance lines totaling approximately $34,700.





The
      Company has entered into three year employment agreements with two executives,
      Hal Brown, President and Chief Executive Officer and Basant Singh, Executive
      Vice President and Director of Seattle Operations. The agreements provide for
      a
      minimum aggregate annual base salary of $216 for Mr. Brown and $181 for Mr.
      Singh, plus performance adjustments, incentives, life insurance coverage, and
      other perquisites commonly found in such agreements.





The
      Company has certain other financial commitments. These future financial
      commitments are outlined below:


**Contractual
                  Obligations**(dollars
                  in thousands)
              
              **Total**
              
              **Less
                  than One Year**
              
              1-3
                  Years
              
              3-5
                Years
              
              More
                than 5 YearsJunior
                  subordinated debenture
              
              $
              8,248
              
              $
              -
              
              $
              -
              
              $
              -
              
              $
              8,248FHLB
                  borrowings
              
              $
              80,804
              
              $
              47,500
              
              $
              21,804
              
              $
              11,500
              
              $
              -Time
                  Deposits
              
              $
              128,336
              
              $
              100,658
              
              $
              21,290
              
              $
              6,388
              
              $
              -Operating
                  lease obligations
              
              $
              3,424
              
              $
              660
              
              $
              1,102
              
              $
              933
              
              $
              729$
              220,812
              
              $
              148,818
              
              $
              44,196
              
              $
              18,821
              
              $
              8,977




**LIQUIDITY**





Liquidity
      is the term used to define the Company’s ability to meet its financial
      commitments. The Company maintains sufficient liquidity to ensure funds are
      available for both lending needs and the withdrawal of deposit funds. The
      Company derives liquidity primarily through core deposit growth, maturity of
      investment securities, and loan payments. Core deposits include demand, interest
      checking, money market, savings, and local time deposits, including local time
      deposits in excess of $100. Additional liquidity and funding sources are
      provided through the sale of loans, sales of securities, access to national
      CD
      markets, and both secured and unsecured borrowings.





Core
      deposits at December 31, 2005 were 88% of total deposits compared to 95% at
      December 31, 2004. The decrease in the 2005 percentage of core deposits to
      total
      deposits from 2004 was due to the acquisition of NWBF. Prior to the November
      30,
      2005 acquisition, NWBF’s core deposits as a percentage of total deposits was
      approximately 60%. Excluding the acquisition of NWBF, core deposit growth of
      approximately $80,300 in the Oregon market funded 100% of loan growth during
      the
      year 2005. Following the acquisition of NWBF on November 30, 2005, the Bank
      increased its alternative funding sources, including overnight borrowed funds,
      Federal Home Loan Bank term advances, public deposits available from the State
      of Oregon, State of Washington, and national market time deposits.




33


The
      Company has deposit relationships with several large clients, which are closely
      monitored by Bank officers. At December 31, 2005, thirteen large deposit
      relationships with the Bank account for $152,090 or 29% of total deposits.
      The
      single largest client represented 7% of total deposits at December 31, 2005.
      The
      loss of this deposit relationship or other large deposit relationships could
      cause an adverse effect on short-term liquidity. The Company expects to maintain
      these relationships and believes it has sufficient sources of liquidity to
      mitigate the loss of one or more of these clients.





Borrowing
      lines have been established at various correspondent banks, the Federal Home
      Loan Bank of Seattle and with the Federal Reserve Bank of San Francisco. At
      year-end December 31, 2005, the Bank had secured and unsecured borrowing lines
      totaling approximately $284,000 consisting of $198,000 with the Federal Home
      Loan Bank of Seattle, $75,000 with various correspondent banks, and $8,000
      with
      the Federal Reserve Bank of San Francisco. The Federal Home Loan Bank borrowing
      line is limited to the amount of collateral pledged. At December 31, 2005,
      the
      Bank had approximately $251,000 in commercial real estate loans pledged as
      collateral (discounted collateral value of $145,000) for this line. The $8,000
      borrowing line with the Federal Reserve Bank of San Francisco is also secured.
      The $75,000 in borrowing lines with correspondent banks are unsecured lines.
      At
      December 31, 2005, the Bank had $80,804 in borrowings outstanding all from
      the
      FHLB of Seattle. In addition, the Bank is part of the State of Oregon and State
      of Washington community bank time deposit program and at December 31, 2005
      had
      $4,000 available from these sources. The Bank’s loan portfolio also contains
      approximately $28,500 in guaranteed government loans, which can be sold on
      the
      secondary market.





**INFLATION**





Substantially
      all of the assets and liabilities of the Company are monetary. Therefore,
      inflation has a less significant impact on the Company than does fluctuation
      in
      market interest rates. Inflation can lead to accelerated growth in noninterest
      expenses, which impacts net earnings. During the last two years, inflation,
      as
      measured by the Consumer Price Index, has not changed significantly. The effects
      of this inflation have not had a material impact on the Company.





ITEM
      7A  Quantitative
      and Qualitative Disclosures About Market
      Risk





The
      Company’s results of operations are largely dependent upon its ability to manage
      market risks. Changes in interest rates can have a significant effect on the
      Company’s financial condition and results of operations. Although permitted by
      its funds management policy, the Company does not presently use derivatives
      such
      as forward and futures contracts, options, or interest rate swaps to manage
      interest rate risk. Other types of market risk such as foreign currency exchange
      rate risk and commodity price risk do not arise in the normal course of the
      Company’s business activities.





Interest
      rate risk generally arises when the maturity or repricing structure of the
      Company’s assets and liabilities differ significantly. Asset and liability
      management, which among other things addresses such risk, is the process of
      developing, testing and implementing strategies that seek to maximize net
      interest income while maintaining sufficient liquidity. This process includes
      monitoring contractual maturity and prepayment expectations together with
      expected repricing of assets and liabilities under different interest rate
      scenarios. Generally, the Company seeks a structure that insulates net interest
      income from large deviations attributable to changes in market
      rates.





Interest
      rate risk is managed through the monitoring of the Company’s balance sheet by
      subjecting various asset and liability categories to interest rate shocks and
      gradual interest rate movements over a one-year period of time. Interest rate
      shocks use an instantaneous adjustment in market rates of large magnitudes
      on a
      static balance sheet to determine the effect such a change in interest rates
      would have on the Company’s net interest income and capital for the succeeding
      twelve-month period. Such an extreme change in interest rates and the assumption
      that management would take no steps to restructure the balance sheet does limit
      the usefulness of this type of analysis. This type of analysis tends to provide
      a best-case or worst-case scenario. A more reasonable approach utilizes gradual
      interest rate movements over a one-year period of time to determine the effect
      on the Company’s net interest income.





34


The
      Company utilizes the services of the Federal Home Loan Bank’s asset/liability
      modeling software to determine the effect changes in interest rates have on
      net
      interest income. Interest rate shock scenarios are modeled in 100 basis point
      increments (plus or minus) in the federal funds rate. The more realistic
      forecast assumes a gradual interest rate movement of plus or minus 240 basis
      points change in the federal funds rate over a one-year period of time with
      rates moving up or down 60 basis points each quarter. The model used is based
      on
      the concept that all rates do not move by the same amount. Although certain
      assets and liabilities may have similar repricing characteristics, they may
      not
      react correspondingly to changes in market interest rates. In the event of
      a
      change in interest rates, prepayment of loans and early withdrawal of time
      deposits would likely deviate from those previously assumed. Increases in market
      rates may also affect the ability of certain borrowers to make scheduled
      principal payments.





The
      model
      attempts to account for such limitations by imposing weights on the differences
      between repricing assets and repricing liabilities within each time segment.
      These weights are based on the ratio between the amount of rate change of each
      category of asset or liability, and the amount of change in the federal funds
      rate. Certain non-maturing liabilities such as checking accounts and money
      market deposit accounts are allocated among the various repricing time segments
      to meet local competitive conditions and management’s strategies.





During
      2005, the model indicated that the Company continued to be asset sensitive
      and
      projects rising margins in a rising rate environment and declining margins
      in a
      falling rate environment. The Company’s interest rate risk profile at December
      31, 2005 is not materially different from its interest rate risk profile at
      December 31, 2004. The
      following tables show the estimated impact of interest rate changes on net
      interest income. Tables show results of Company supplied data for both the
      rate
      shock and gradual interest rate scenarios. The base figure of $30,240 used
      in
      both analyses represents actual net interest income for the year 2005. Due
      to
      the various assumptions used for this modeling, no assurance can be given that
      projections will reflect actual results.





**Interest
      Rate Shock Analysis**


**Net
      Interest Income and Market Value Performance**


($
      in
      thousands)





Projected
            
            Net
                Interest IncomeInterest
            
            Estimated
            $
                Change
            %
                ChangeRate
                Change
            
            Value
            From
                Base
            From
                Base+200
            
            $
                33,509
            $
                3,269
            10.81%+100
            
            31,818
            1,578
            5.22%Base
            
            30,240
            0
            0.00%-100
            
            28,093
            (2,147)
            (7.10)%-200
            
            25,719
            (4,521)
            (14.95)%





**Gradual
      Interest Rate Movement Forecast**


**Net
      Interest Income and Market Value Performance**


($
      in
      thousands)





Projected
            
            Net
                Interest IncomeInterest
            
            Estimated
            $
                Change
            %
                ChangeRate
                Change
            
            Value
            From
                Base
            From
                BaseRising
                2.40%
            
            $
                34,564
            $
                4,324
            14.33%Base
            
            30,240
            0
            0.00%Declining
                2.40%
            
            27,131
            (3,109)
            (10.28)%








During
      the fourth quarter 2005, the FHLB of Seattle informed the Bank that it would
      no
      longer provide interest rate risk modeling services after the completion of
      the
      December 31, 2005 interest rate risk report. The Bank has purchased in-house
      software and beginning in the first quarter 2006 will use this software to
      measure its interest rate risk position.


35





ITEM
      8   Financial
      Statements and Supplementary
      Data




**Moss
      Adams,** **LLP**


805
      SW Broadway STE 1200


Portland,
      OR 7205






**Report
      of Independent Registered Public Accounting Firm**








To
      the
      Board of Directors and Stockholders


Pacific
      Continental Corporation








We
      have
      audited the accompanying consolidated balance sheet of Pacific Continental
      Corporation (Company) as of December 31, 2005, and the related consolidated
      statement of income, changes in stockholders’ equity, and cash flows for the
      year ended December 31, 2005. We also have audited management’s assessment
      included in the accompanying Management Report on Internal Control over
      Financial Reporting that the Company maintained effective internal control
      over
      financial reporting as of December 31, 2005, based on criteria established
      in Internal Control - Integrated Framework issued by the Committee of Sponsoring
      Organizations of the Treadway Commission (COSO). The Company’s management is
      responsible for these financial statements, for maintaining effective internal
      control over financial reporting, and for its assessment of the effectiveness
      of
      internal control over financial reporting. Our responsibility is to express
      an
      opinion on these financial statements, an opinion on management's assessment,
      and an opinion on the effectiveness of the Company's internal control over
      financial reporting based on our audit.





We
      conducted our audit in accordance with auditing standards of the Public Company
      Accounting Oversight Board (United States). Those standards require that we
      plan
      and perform the audits to obtain reasonable assurance about whether the
      financial statements are free of material misstatement and whether effective
      internal control over financial reporting was maintained in all material
      respects. Our audit of the financial statements included examining, on a test
      basis, evidence supporting the amounts and disclosures in the financial
      statements, assessing the accounting principles used and significant estimates
      made by management, and evaluating the overall financial statement presentation.
      Our audit of internal control over financial reporting included obtaining an
      understanding of internal control over financial reporting, evaluating
      management's assessment, testing and evaluating the design and operating
      effectiveness of internal control, and performing such other procedures as
      we
      considered necessary in the circumstances. We believe that our audits provide
      a
      reasonable basis for our opinions.





The
      Company’s internal control over financial reporting is a process designed to
      provide reasonable assurance regarding the reliability of financial reporting
      and the preparation of financial statements for external purposes in accordance
      with generally accepted accounting principles. The Company’s internal control
      over financial reporting includes those policies and procedures that (1) pertain
      to the maintenance of records that, in reasonable detail, accurately and fairly
      reflect the transactions and dispositions of the assets of the Company; (2)
      provide reasonable assurance that transactions are recorded as necessary to
      permit preparation of financial statements in accordance with generally accepted
      accounting principles, and that receipts and expenditures of the Company are
      being made only in accordance with authorizations of management and Directors
      of
      the Company; and (3) provide reasonable assurance regarding prevention or timely
      detection of unauthorized acquisition, use, or disposition of the Company's
      assets that could have a material effect on the financial statements.





Because
      of its inherent limitations, internal control over financial reporting may
      not
      prevent or detect misstatements. Also, projections of any evaluation of
      effectiveness to future periods are subject to the risk that controls may become
      inadequate because of changes in conditions, or that the degree of compliance
      with the policies or procedures may deteriorate.





36


In
      our
      opinion, the consolidated financial statements referred to above present fairly,
      in all material respects, the consolidated financial position of Pacific
      Continental Corporation as of December 31, 2005, and the results of their
      operations and their cash flows for the year ended December 31, 2005, in
      conformity with accounting principles generally accepted in the United States
      of
      America. Also in our opinion, management’s
      assessment that Pacific Continental Corporation maintained effective internal
      control over financial reporting as of December 31, 2005 is fairly stated,
      in
      all material respects, based on criteria established in Internal Control -
      Integrated Framework issued by the Committee of Sponsoring Organizations of
      the
      Treadway Commission (COSO). Furthermore, in our opinion, Pacific Continental
      Corporation maintained, in all material respects, effective internal control
      over financial reporting as of December 31, 2005 based on criteria established
      in Internal Control - Integrated Framework issued by the Committee of Sponsoring
      Organizations of the Treadway Commission (COSO).













Portland,
      Oregon


March
      13,
      2005





37


**ZIRKLE,
      LONG, TRIGUEIRO & WARD** , L.L.C.


CERTIFIED
      PUBLIC ACCOUNTANTS


Eugene,
      Oregon 97401

















**Report
      of Independent Registered Public Accounting Firm**








The
      Board
      of Directors and Stockholders


Pacific
      Continental Corporation and Subsidiaries:








We
      have
      audited the accompanying consolidated balance sheets of Pacific Continental
      Corporation and Subsidiaries as of December 31, 2004 and 2003, and the related
      consolidated statements of income, changes in stockholders’ equity, and cash
      flows for each of the three years in the period ended December 31, 2004. We
      have
      also audited management’s assessment, included in management’s report at page
      55, that the Company maintained effective control over financial reporting
      as of
      December 31, 2004, based on “criteria established in Internal Control -
      Integrated Framework issued by the Committee of Sponsoring Organizations of
      the
      Treadway Commission (COSO)”. The Company’s management is responsible for these
      consolidated financial statements, for maintaining effective internal control
      over financial reporting, and for its assessment of the effectiveness of
      internal control over financial reporting. Our responsibility is to express
      an
      opinion on these consolidated financial statements, an opinion on management’s
      assessment, and an opinion of the effectiveness of the Company’s internal
      control over financial reporting based on our audits.





We
      conducted our audits in accordance with the standards of the Public Company
      Accounting Oversight Board (United States of America). Those standards require
      that we plan and perform the audits to obtain reasonable assurance about whether
      the consolidated financial statements are free of material misstatement and
      whether effective internal control over financial reporting was maintained
      in
      all material respects. Our audit of the financial statements included examining,
      on a test basis, evidence supporting the amounts and disclosures in the
      financial statements. The audit also included assessing the accounting
      principles used and significant estimates made by management, as well as
      evaluating the overall financial statement presentation. Our audit of internal
      control over financial reporting included obtaining an understanding of internal
      control over financial reporting, evaluating management’s assessment, testing
      and evaluating the design and operating effectiveness of internal control,
      and
      performing such other procedures as we considered necessary in the
      circumstances. We believe that our audits provide a reasonable basis for our
      opinions.





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


Because
      of its inherent limitations, internal control over financial reporting may
      not
      prevent or detect misstatements. Also, projections of any evaluation of
      effectiveness to future periods are subject to the risk that controls may become
      inadequate because of changes in conditions, or that the degree of compliance
      with the policies or procedures may deteriorate.





38


In
      our
      opinion, the consolidated financial statements referred to above present fairly,
      in all material respects, the financial position of Pacific Continental
      Corporation and Subsidiaries as of December 31, 2004 and 2003, and the results
      of their operations and their cash flows for each of the three years in the
      period ended December 31, 2004 in conformity with accounting principles
      generally accepted in the United States of America. Also in our opinion,
      management’s assessment that the Company maintained effective internal control
      over financial reporting as of December 31, 2004, is fairly stated, in all
      material respects, based on “criteria established in Internal Control -
      Integrated Framework issued by the Committee of Sponsoring Organizations of
      the
      Treadway Commission (COSO)”. Furthermore, in our opinion the Company maintained
      , in all material respects, effective control over financial reporting as of
      December 31, 2004, based on “criteria established in Internal Control -
      Integrated Framework issued by the Committee of Sponsoring Organizations of
      the
      Treadway Commission (COSO)”.








**Zirkle,
      Long, Trigueiro & Ward, L.L.C.**











Eugene,
      Oregon


January
      31, 2005


39


**Pacific
      Continental Corporation and Subsidiaries**


**Consolidated
      Balance Sheets**


**December
                    31****2005**
                
                **2004****ASSETS**Cash
                    and due from banks
                
                $
                27,519,763
                
                $
                15,449,945Interest-bearing
                    deposits with banks
                
                
                500,000
                
                
                200,000Federal
                    funds sold
                
                
                3,823,583
                
                
                432,337Total
                    cash and cash equivalents
                
                
                31,843,346
                
                
                16,082,282Securities
                    available-for-sale, at fair value
                
                
                39,344,924
                
                
                27,557,731Loans
                    held for sale
                
                
                642,180
                
                
                2,072,351Loans,
                    less allowance for loan losses and unearned fees
                
                
                670,529,157
                
                
                451,744,165Interest
                    receivable
                
                
                3,343,920
                
                
                1,969,181Federal
                    Home Loan Bank stock
                
                
                3,479,900
                
                
                2,807,600Property,
                    net of accumulated depreciation
                
                
                17,002,931
                
                
                13,182,407Goodwill
                    and other intangible assets
                
                
                24,201,458
                
                
                275,552Other
                    assets
                
                
                1,406,366
                
                
                939,103Total
                    assets
                
                $
                791,794,182
                
                $
                516,630,372**LIABILITIES
                    and STOCKHOLDERS' EQUITY**Liabilities:Deposits:Noninterest-bearing
                
                $
                164,625,571
                
                $
                132,249,496Savings
                    and interest-bearing demand
                
                
                311,308,780
                
                
                219,681,434Time,
                    $100,000 and over
                
                
                65,122,341
                
                
                31,114,564Other
                    time
                
                
                63,213,928
                
                
                20,745,813604,270,620
                
                
                403,791,306Federal
                    funds purchased
                
                
                -
                
                
                10,290,000Federal
                    Home Loan Bank borrowings
                
                
                80,803,763
                
                
                51,000,000Junior
                    subordinated debentures
                
                
                8,248,000
                
                
                -Accrued
                    merger consideration liability
                
                
                13,005,313
                
                
                -Accrued
                    interest and other liabilities
                
                
                4,054,492
                
                
                2,157,009Total
                    liabilities
                
                
                710,382,188
                
                
                467,238,315Commitments
                    and contingencies (Notes 6, 17 and 19)Stockholders'
                    equity:Common
                    stock, no par value; 25,000,000 sharesauthorized;
                    10,233,580 and 8,655,535 sharesoutstanding
                    in 2005 and 2004, respectively
                
                
                53,318,970
                
                
                28,076,125Retained
                    earnings
                
                
                28,452,155
                
                
                21,429,633Accumulated
                    other comprehensive loss
                
                
                (359,131
                )
                
                (113,701
                )Total
                    stockholders' equity
                
                
                81,411,994
                
                
                49,392,057Total
                    liabilities and stockholders' equity
                
                $
                791,794,182
                
                $
                516,630,372The
                    accompanying notes are an integral part of these consolidated
                    financial
                    statements.


40


**Pacific
      Continental Corporation and Subsidiaries**


**Consolidated
      Statements of Income**


**Year
                  Ended December 31****2005**
              
              **2004**
              
              **2003**Interest
                  income:Loans
              
              $
              38,519,936
              
              $
              28,423,964
              
              $
              25,873,514Investment
                  securities
              
              
              1,058,761
              
              
              892,503
              
              
              450,394Federal
                  funds sold and FHLB stock dividends
              
              
              14,599
              
              
              108,486
              
              
              204,94139,593,296
              
              
              29,424,953
              
              
              26,528,849Interest
                  expense:Deposits
              
              
              7,361,230
              
              
              3,232,397
              
              
              2,993,536Federal
                  Home Loan Bank borrowings
              
              
              1,830,984
              
              
              1,027,525
              
              
              1,250,700Federal
                  funds purchased and junior subordinated debentures
              
              
              161,002
              
              
              213,174
              
              
              64,6659,353,216
              
              
              4,473,096
              
              
              4,308,901Net
                  interest income
              
              
              30,240,080
              
              
              24,951,857
              
              
              22,219,948Provision
                  for loan losses
              
              
              1,100,000
              
              
              500,000
              
              
              900,000Net
                  interest income after provision forloan
                  losses
              
              
              29,140,080
              
              
              24,451,857
              
              
              21,319,948Noninterest
                  income:Service
                  charges on deposit accounts
              
              
              1,377,695
              
              
              1,603,440
              
              
              1,568,588Other
                  fee income, principally bankcard processing
              
              
              1,384,728
              
              
              1,409,283
              
              
              1,250,400Loan
                  servicing
              
              
              151,878
              
              
              183,267
              
              
              241,416Mortgage
                  banking income and gains on salesof
                  loans
              
              
              922,991
              
              
              1,006,920
              
              
              1,624,847Losses
                  on sales of securities
              
              
              (10,674
              )
              
              (12,820
              )
              
              -Other
              
              
              256,214
              
              
              272,579
              
              
              261,0914,082,832
              
              
              4,462,669
              
              
              4,946,342Noninterest
                  expense:Salaries
                  and employee benefits
              
              
              11,197,445
              
              
              9,963,554
              
              
              8,853,739Premises
                  and equipment
              
              
              2,153,967
              
              
              1,881,202
              
              
              1,800,442Bankcard
                  processing
              
              
              485,327
              
              
              475,639
              
              
              365,709Business
                  development
              
              
              1,263,467
              
              
              1,017,214
              
              
              823,273Other
              
              
              3,033,931
              
              
              2,703,163
              
              
              3,359,46018,134,137
              
              
              16,040,772
              
              
              15,202,623Income
                  before income taxes
              
              
              15,088,774
              
              
              12,873,753
              
              
              11,063,667Provision
                  for income taxes
              
              
              5,510,475
              
              
              4,925,000
              
              
              4,233,000Net
                  income
              
              $
              9,578,299
              
              $
              7,948,752
              
              $
              6,830,667Earnings
                  per share:Basic
              
              $
              1.08
              
              $
              .93
              
              $
              .81Diluted
              
              $
              1.05
              
              $
              .90
              
              $
              .79The
                  accompanying notes are an integral part of these consolidated financial
                  statements.





41




**Pacific
      Continental Corporation and Subsidiaries**


**Consolidated
      Statements of Changes in Stockholders’ Equity**


For
      the
      Years Ended December 31, 2005, 2004, and 2003


**Accumulated****Other****Number**
              
              **Common**
              
              **Retained**
              
              **Comprehensive****of
                  Shares**
              
              **Stock**
              
              **Earnings**
              
              **Income
                  (Loss)**
              
              **Total**Balance,
                  January 1, 2003
              
              
              5,040,448
              
              $
              25,967,391
              
              $
              10,655,441
              
              $
              75,703
              
              $
              36,698,535Net
                  income
              
              
              
              
              
              
              
              
              6,830,666
              
              
              
              
              
              6,830,666Other
                  comprehensive loss:Unrealized
                  losses on securities
              
              
              
              
              
              
              
              
              
              
              
              (171,525
              )Deferred
                  income taxes
              
              
              
              
              
              
              
              
              
              
              
              65,797Other
                  comprehensive loss
              
              
              
              
              
              
              
              
              
              
              
              (105,728
              )
              
              (105,728
              )Comprehensive
                  income
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              6,724,938Stock
                  opt. exercised and related tax ben.
              
              
              56,876
              
              
              655,515
              
              
              
              
              
              
              
              
              655,515Stock
                  split (4 shares for 3)
              
              
              1,692,738Cash
                  dividends
              
              
              
              
              
              
              
              
              (1,841,438
              )
              
              
              
              
              (1,841,438
              )Shares
                  repurchased and retired
              
              
              (275
              )
              
              (3,700
              )
              
              
              
              
              
              
              
              (3,700
              )Balance,
                  December 31, 2003
              
              
              6,789,787
              
              
              26,619,206
              
              
              15,644,669
              
              
              (30,025
              )
              
              42,233,850Net
                  income
              
              
              
              
              
              
              
              
              7,948,752
              
              
              
              
              
              7,948,752Other
                  comprehensive loss:Unrealized
                  losses on securities
              
              
              
              
              
              
              
              
              
              
              
              (148,568
              )Reclassification
                  of net losses realized
              
              
              
              
              
              
              
              
              
              
              
              12,820Deferred
                  income taxes
              
              
              
              
              
              
              
              
              
              
              
              52,072Other
                  comprehensive loss
              
              
              
              
              
              
              
              
              
              
              
              (83,676
              )
              
              (83,676
              )Comprehensive
                  income
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              7,865,076Stock
                  opt. exercised and related tax ben.
              
              
              141,360
              
              
              1,459,879
              
              
              
              
              
              
              
              
              1,459,879Stock
                  split (5 shares for 4)
              
              
              1,724,586Cash
                  dividends
              
              
              
              
              
              
              
              
              (2,163,788
              )
              
              
              
              
              (2,163,788
              )Shares
                  repurchased and retired
              
              
              (198
              )
              
              (2,960
              )
              
              
              
              
              
              
              
              (2,960
              )Balance,
                  December 31, 2004
              
              
              8,655,535
              
              
              28,076,125
              
              
              21,429,633
              
              
              (113,701
              )
              
              49,392,057Net
                  income
              
              
              
              
              
              
              
              
              9,578,299
              
              
              
              
              
              9,578,299Other
                  comprehensive loss:Unrealized
                  losses on securities
              
              
              
              
              
              
              
              
              
              
              
              (408,817
              )Reclassification
                  of net losses realized
              
              
              
              
              
              
              
              
              
              
              
              10,674Deferred
                  income taxes
              
              
              
              
              
              
              
              
              
              
              
              152,713Other
                  comprehensive loss
              
              
              
              
              
              
              
              
              
              
              
              (245,430
              )
              
              (245,430
              )Comprehensive
                  income
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              9,332,869Stock
                  opt. exercised and related tax ben.
              
              
              166,615
              
              
              1,363,033
              
              
              
              
              
              
              
              
              1,363,033Stock
                  issued in NWBF acq. and fract. shares
              
              
              1,411,430
              
              
              23,879,812
              
              
              
              
              
              
              
              
              23,879,812Cash
                  dividends
              
              
              
              
              
              
              
              
              (2,555,777
              )
              
              
              
              
              (2,555,777
              )Balance,
                  December 31, 2005
              
              
              10,233,580
              
              $
              53,318,970
              
              $
              28,452,155
              
              $
              (359,131
              )
              $
              81,411,994The
                  accompanying notes are an integral part of these consolidated financial
                  statements.


42




**Pacific
      Continental Corporation and Subsidiaries**


**Consolidated
      Statements of Cash Flows**


**Year
                  Ended December 31****2005**
              
              **2004**
              
              **2003**Cash
                  flows from operating activities:Net
                  income
              
              $
              9,578,299
              
              $
              7,948,752
              
              $
              6,830,667Adjustments
                  to reconcile net income to net cashprovided
                  by operating activities:Depreciation
              
              
              942,426
              
              
              936,319
              
              
              928,818Amortization
              
              
              227,383
              
              
              411,782
              
              
              340,861Provision
                  for loan losses
              
              
              1,100,000
              
              
              500,000
              
              
              900,000(Gains)/Losses
                  on foreclosed assets
              
              
              (60,391
              )
              
              1,643
              
              
              613,966Deferred
                  income taxes
              
              
              33,000
              
              
              44,000
              
              
              (70,000
              )Gains
                  on sales of loans
              
              
              -
              
              
              -
              
              
              (129,950
              )Losses
                  on sales of securities
              
              
              10,674
              
              
              12,820
              
              
              -Stock
                  dividends from Federal Home Loan Bank
              
              
              (11,200
              )
              
              (91,900
              )
              
              (125,500
              )Tax
                  benefit of stock options exercised
              
              
              324,000
              
              
              332,000
              
              
              115,000Change
                  in:Interest
                  receivable
              
              
              (620,238
              )
              
              (383,226
              )
              
              61,653Deferred
                  loan fees
              
              
              548,177
              
              
              478,454
              
              
              188,894Capitalized
                  loan servicing rights
              
              
              23,098
              
              
              50,633
              
              
              (13,854
              )Loans
                  held for sale
              
              
              1,430,171
              
              
              (114,681
              )
              
              2,110,182Accrued
                  interest payable and other liabilities
              
              
              167,955
              
              
              242,401
              
              
              226,673Income
                  taxes payable
              
              
              (363,288
              )
              
              835,680
              
              
              (247,629
              )Other
                  assets
              
              
              (212,046
              )
              
              23,040
              
              
              (30,724
              )Net
                  cash provided by operating activities
              
              
              13,118,020
              
              
              11,227,717
              
              
              11,699,057Cash
                  flows from investing activities:Proceeds
                  from sales and maturities of investment securities
              
              
              8,148,608
              
              
              8,126,633
              
              
              10,749,973Purchase
                  of investment securities
              
              
              (10,092,408
              )
              
              (6,193,678
              )
              
              (30,445,782
              )Loans
                  made net of principal collections received
              
              
              (72,806,087
              )
              
              (103,131,306
              )
              
              (32,233,581
              )Proceeds
                  from sales of loans
              
              
              -
              
              
              595,153
              
              
              8,064,258Purchase
                  of loans
              
              
              (7,715,383
              )
              
              (1,372,313
              )
              
              (107,729
              )Cash
                  paid for acquisitions
              
              
              3,003,468
              
              
              -
              
              
              (6,863,160
              )Purchase
                  of property
              
              
              (4,208,717
              )
              
              (1,058,764
              )
              
              (746,980
              )Proceeds
                  on sale of foreclosed assets
              
              
              880,281
              
              
              409,118
              
              
              3,182,775Purchase
                  of equity investments
              
              
              (258,000
              )
              
              -
              
              
              -Net
                  cash provided by investing activities
              
              
              (83,048,238
              )
              
              (102,625,157
              )
              
              (48,400,226
              )Cash
                  flows from financing activities:Net
                  increase in deposits
              
              
              76,663,834
              
              
              47,692,238
              
              
              46,190,374Change
                  in federal funds purchased
              
              
              (10,290,000
              )
              
              31,790,000
              
              
              (9,000,000
              )Change
                  in Federal Home Loan Bank borrowings
              
              
              12,586,192
              
              
              3,500,000
              
              
              3,000,000Acquisition
                  of junior subordinated debentures
              
              
              8,248,000
              
              
              -
              
              
              -Proceeds
                  from stock options exercised
              
              
              1,039,033
              
              
              1,127,879
              
              
              540,515Dividends
                  paid
              
              
              (2,555,777
              )
              
              (2,163,789
              )
              
              (1,841,438
              )Repurchase
                  of Company shares
              
              
              -
              
              
              (2,960
              )
              
              (3,700
              )Net
                  cash provided by financing activities
              
              
              85,691,282
              
              
              81,943,368
              
              
              38,885,751Net
                  increase (decrease) in cash and cash equivalents
              
              
              15,761,064
              
              
              (9,454,072
              )
              
              2,184,582Cash
                  and cash equivalents, beginning of year
              
              
              16,082,282
              
              
              25,536,354
              
              
              23,351,772Cash
                  and cash equivalents, end of year
              
              $
              31,843,346
              
              $
              16,082,282
              
              $
              25,536,354Supplemental
                  information:Noncash
                  investing and financing activities:Transfers
                  of loans to foreclosed assets
              
              $
              508,501
              
              $
              262,071
              
              $
              3,343,866Transfers
                  of loans held for sale
              
              
              -
              
              
              -
              
              
              1,478,871Change
                  in unrealized gain on securities, net ofdeferred
                  income taxes
              
              
              245,431
              
              
              83,675
              
              
              105,728Cash
                  paid during the year for:Income
                  taxes
              
              $
              5,429,003
              
              $
              3,713,320
              
              $
              4,436,000Interest
              
              $
              9,005,443
              
              $
              4,468,436
              
              $
              4,325,229Acquisitions:Assets
                  acquired
              
              $
              (177,072,077
              )
              
              
              
              $
              (7,191,712
              )Goodwill
                  and core deposit intangible
              
              
              23,944,489
              
              
              
              
              
              275,552Liabilities
                  assumed
              
              
              142,085,273
              
              
              
              
              
              53,000Compensation
                  due NWBF shareholders, deferred taxes, other liab.
              
              
              14,045,783
              
              
              
              
              
              -Net
                  Cash received (paid)
              
              $
              3,003,468
              
              
              
              
              $
              (6,863,160
              )The
                  accompanying notes are an integral part of these consolidated financial
                  statements.




43


**Pacific
      Continental Corporation and Subsidiaries**


**Notes
      to Consolidated Financial Statements**














1. **Summary
      of Significant Accounting Policies** :





**Principles
      of Consolidation** - The
      consolidated financial statements include the accounts of Pacific Continental
      Corporation (the “Company”), a bank holding company, and its wholly-owned
      subsidiary, Pacific Continental Bank (the “Bank”) and the Bank’s wholly-owned
      subsidiaries, PCB Service Corporation (which owns and operates bank-related
      real
      estate) and PCB Loan Services Corporation (which owns and operates certain
      repossessed or foreclosed collateral but is currently inactive). The Bank
      provides commercial banking, financing, mortgage lending and other services
      in
      Western Oregon and Western Washington. All significant intercompany accounts
      and
      transactions have been eliminated in consolidation.





In
      November 2005, the Company formed a wholly-owned Delaware statutory business
      trust subsidiary, Pacific Continental Corporation Capital Trust (the “Trust”),
      which issued $8,248,000 of guaranteed undivided beneficial interests in the
      Pacific Continental’s Junior Subordinated Deferrable Interest Debentures (“Trust
      Preferred Securities”). Pacific Continental has not consolidated the accounts of
      the Trust in its consolidated financial statements in accordance with FASB
      FIN
      46R, *Consolidation
      of Variable Interest Entities.* As a
      result, the junior subordinated debentures issued by Pacific Continental to
      the
      issuer trust, totaling $8,248,000, are reflected on Pacific Continental’s
      consolidated balance sheet at December 31, 2005, under the caption, “Junior
      Subordinated Debentures”. Pacific Continental also recognized its $248,000
      investment in the Trust, which is recorded among “Other Assets” in its
      consolidated balance sheet at December 31, 2005.





**Use
      of Estimates** - 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 most significant
      estimations made by management involve fair value calculations made in
      connection with accounting for business combinations, the calculation of the
      allowance for loan losses, the fair value of investment securities, and the
      impairment calculation for goodwill.





**Cash
      and Cash Equivalents** - For
      purposes of reporting cash flows, cash and cash equivalents include cash on
      hand, amounts due from or deposited with banks, interest-bearing balances due
      from banks, and federal funds sold. Generally, federal funds are sold for
      one-day periods.





The
      Bank
      is required to maintain certain reserves as defined by regulation. Such reserves
      totaling $1,616,000 and $1,213,000 were maintained in cash at December 31,
      2005
      and 2004, respectively.





**Securities
      Available-for-Sale** -
      Securities available-for-sale are held for indefinite periods of time and may
      be
      sold in response to movements in market interest rates, changes in the maturity
      or mix of Bank assets and liabilities or demand on liquidity. Although
      management determines the appropriate classification of securities at the time
      of purchase, the Bank classified all securities as available-for-sale throughout
      2005 and 2004. Securities classified as available-for-sale are reported at
      estimated fair value. The difference between estimated fair value and amortized
      cost is recorded as a separate component of stockholders’ equity (accumulated
      other comprehensive income). Fair values for these investment securities are
      based on available market prices. Gains and losses on the sale of
      available-for-sale securities are determined using the specific-identification
      method.




Interest
      income on debt securities is included in income using the level yield method.
      Gains and losses on sales of securities are recognized on the specific
      identification basis.




44


Declines
      in fair value of individual available-for-sale securities below their cost
      that
      are other than temporary would result in write-downs of the individual
      securities to their fair value. The related write-downs would be included in
      earnings as realized losses. Management believes that all unrealized losses
      on
      investment securities at December 31, 2005 and 2004 are temporary.




**Loans
      Held for Sale and Mortgage Banking Activities** - The
      Bank originates residential real estate loans for resale in the secondary
      market. Sales are without recourse. Loans held for sale are carried at the
      lower
      of cost or market. Market value is determined on an aggregate loan
      basis.





**Loans
      and Income Recognition** - Loans
      are stated at the amount of unpaid principal plus loan premiums for purchased
      loans, reduced by deferred loan origination fees, discounts associated with
      retained portions of loans sold, and an allowance for loan losses. Interest
      on
      loans is calculated using the simple-interest method on daily balances of the
      principal amount outstanding. Accrual of interest is discontinued on
      contractually delinquent loans when management believes, after considering
      economic and business conditions and collection efforts that the borrower’s
      financial condition is such that collection of the interest is doubtful.
      Interest income is subsequently recognized only to the extent cash payments
      are
      received or the principal balance of the loan is brought current. Loan
      origination fees, net of origination costs and discounts, are amortized over
      the
      lives of the loans as adjustments to yield.





**Allowance
      for Loan Losses** - The
      allowance for loan losses is established through a provision for loan losses
      charged to expense. Loans are charged against the allowance for loan losses
      when
      management believes that the collectibility of the principal is unlikely. The
      allowance is an amount that management considers adequate to absorb possible
      losses on existing loans that may become uncollectible based on evaluations
      of
      the collectibility of loans and prior loss experience. The evaluations take
      into
      consideration such factors as changes in the nature of the loan portfolio,
      overall portfolio quality, review of specific loans, estimated value of
      underlying collateral, and current economic conditions that may affect the
      borrower’s ability to pay. This evaluation is inherently subjective as it
      requires estimates that are susceptible to significant subsequent revision
      as
      more information becomes available.





A
      loan is
      considered impaired when management believes that it is probable that all
      amounts will not be collected according to the contractual terms. An impaired
      loan is valued using the present value of expected cash flows discounted at
      the
      loan’s effective interest rate, the observable market price of the loan or the
      estimated fair value of the loan’s collateral or related guaranty. Loans deemed
      impaired are specifically allocated for in the allowance for loan
      losses **.**





**Servicing
      Assets** -
      Servicing assets are recognized as separate assets when rights are retained
      on
      sales of loans. Capitalized servicing rights are reported in other assets and
      are amortized into noninterest income in proportion to, and over the period
      of,
      the estimated future net servicing income of the underlying loans. Servicing
      assets are evaluated for impairment based upon the fair value of the rights
      as
      compared to amortized cost. Fair value is determined based upon discounted
      cash
      flows using market-based assumptions. Servicing rights are not retained on
      residential real estate loans originated for sale.





**Federal
      Home Loan Bank Stock** - The
      investment in Federal Home Loan Bank (“FHLB”) stock is carried at par value,
      which approximates its fair value. As a member of the FHLB system, the Bank
      is
      required to maintain a minimum level of investment in FHLB stock based on
      specific percentages of its outstanding mortgages, total assets or FHLB
      advances. As of December 31, 2005, the minimum required investment was approximately
      $3,643,000 .
      The
      Bank may request redemption at par value of any stock in excess of the amount
      the Bank is required to hold. Stock redemptions are at the discretion of the
      FHLB.





**Foreclosed
      Assets** - Assets
      acquired through foreclosure, or deeds in lieu of foreclosure, are initially
      recorded at fair value, less the estimated cost of disposal, at the date of
      foreclosure. Any excess of the loan’s balance over the fair value of its
      foreclosed collateral is charged to the allowance for loan losses.





45


Improvements
      to foreclosed assets are capitalized. Subsequent to foreclosure, management
      performs periodic valuations and the assets are carried at the lower of carrying
      amount or fair value less costs to sell. Write downs to net realizable value,
      if
      any, or any disposition gains or losses are included in noninterest income
      or
      expense.





**Property** -
      Property is stated at cost, net of accumulated depreciation. Additions,
      betterments and replacements of major units are capitalized. Expenditures for
      normal maintenance, repairs and replacements of minor units are charged to
      expense as incurred. Gains or losses realized from sales or retirements are
      reflected in operations currently.





Depreciation
      is computed by the straight-line method over the estimated useful lives of
      the
      assets. Estimated useful lives are 30 to 40 years for buildings, 3 to 10 years
      for furniture and equipment, and up to the lesser of the useful life or lease
      term for leasehold improvements.




**Goodwill
      and Other Intangible Assets-** Goodwill
      represents the excess of cost over the fair value of net assets acquired in
      business combinations in 2003 and 2005. Goodwill is not subject to amortization
      but is tested annually for impairment. Under Statement of Financial Accounting
      Standard (SFAS) No. 142, *Goodwill
      and Other Intangible Assets* ,
      the
      Bank does not amortize the balance of goodwill, but completes periodic
      assessments of goodwill impairment. Goodwill impairment is deemed to exist
      if
      the net book value of a reporting unit giving rise to the recognition of
      goodwill exceeds the estimated fair value. The Bank’s assessments have not
      identified impairment of goodwill such that the net book value of the applicable
      reporting unit exceeded its estimated fair value as of December 31, 2005 and
      2004.







**Advertising** -
      Advertising costs are charged to expense during the year in which they are
      incurred. Advertising expenses were $780,033 and $621,419 for the years ended
      December 31, 2005 and 2004, respectively.





**Income
      Taxes** - Income
      taxes are accounted for using the asset and liability method. Deferred tax
      assets and liabilities are recognized for the expected future tax consequences
      attributable to differences between financial statement carrying amounts of
      existing assets and liabilities and their respective tax bases. Deferred tax
      assets and liabilities are calculated using tax rates in effect for the year
      in
      which the differences are expected to reverse. Valuation allowances are
      established to reduce the net carrying amount of deferred tax assets if it
      is
      determined to be more likely than not, that all or some of the potential
      deferred tax asset will not be realized.





**Stockholders’
      Equity and Earnings Per Share** - Basic
      earnings per share are computed by dividing net income by the weighted average
      number of shares outstanding during the period. Diluted earnings per share
      include the effect of common stock equivalents that would arise from the
      exercise of stock options discussed in Note 15. Weighted shares outstanding
      are
      adjusted retroactively for the effect of stock dividends.





Weighted
      average shares outstanding at December 31 are as follows:


**2005**
              
              **2004**
              
              **2003**Basic
              
              
              8,885,181
              
              
              8,572,526
              
              
              8,437,431Common
                  stock equivalentsattributable
                  to stock options
              
              
              255,576
              
              
              235,623
              
              
              173,665Diluted
              
              
              9,140,757
              
              
              8,808,149
              
              
              8,611,096




**Stock
      Option Plans** -
      The
      Company applies the recognition and measurement principles of APB Opinion No.
      25, *Accounting
      for Stock Issued to Employees* ,
      and
      related Interpretations in accounting for its stock option plans. No stock-based
      employee compensation expense is reflected in net income as all option grants
      under those plans had an exercise price equal to the market value of the
      underlying common stock on the date of grant. The following table illustrates
      the effect on net income and earnings per share if the Company had applied
      the
      optional fair value recognition provisions of FASB Statement No. 123 *,
      Accounting for Stock-Based Compensation* ,
      to
      stock-based employee compensation.





46


**Year
                  Ended December 31****2005**
              
              **2004**
              
              **2003**Net
                  income - as reported
              
              $
              9,578,299
              
              $
              7,948,752
              
              $
              6,830,667Deduct
                  total stock-basedemployee
                  compensationexpense
                  determined underfair
                  value method for allawards,
                  net of related taxeffects
              
              
              (514,866
              )
              
              (429,832
              )
              
              (380,542
              )Net
                  income - pro forma
              
              $
              9,063,433
              
              $
              7,518,920
              
              $
              6,450,125Earnings
                  per share:Basic
                  - as reported
              
              
              1.08
              
              
              0.93
              
              
              0.81Basic
                  - pro forma
              
              
              1.02
              
              
              0.88
              
              
              0.76Diluted
                  - as reported
              
              
              1.05
              
              
              0.90
              
              
              0.79Diluted
                  - pro forma
              
              
              0.99
              
              
              0.85
              
              
              0.75




The
      fair
      value of each option grant ($2.90, $2.86 and $2.86 in 2005, 2004 and 2003,
      respectively) is estimated on the date of the grant using the Black-Scholes
      option-pricing model with the following weighted average
      assumptions:





**2005**
              
              **2004**
              
              **2003**Dividend
                  yield
              
              
              1.77
              %
              
              1.91
              %
              
              2.81
              %Risk-free
                  interest rate
              
              
              4.22
              %
              
              3.23
              %
              
              4.00
              %Expected
                  life
              
              
              4
                  years
              
              
              4
                  years
              
              
              4
                  yearsExpected
                  volatility
              
              
              19.20
              %
              
              22.57
              %
              
              33.90
              %


**Recently
      Issued Accounting Pronouncements** - In
      December 2004, the FASB issued a statement, *Shared-Based
      Payment* ,
      Statement 123(R), that addresses the accounting for share-based payment
      transactions (for example, stock options) in which an employer receives
      employee-services in exchange for equity securities of the Company or
      liabilities that are based on the fair value of the Company’s equity securities.
      This statement eliminates the use of the intrinsic value method of APB 25 and
      generally requires that such transactions be accounted for using a fair-value
      based method for recording compensation expense. The statement substantially
      amends SFAS No. 123. The statement is effective for the first fiscal year
      beginning after June 15, 2005. When adopted in the first quarter of 2006, the
      Company expects to use the modified prospective method, therefore, previously
      reported financial data will not be restated and expense related to stock
      options vesting during 2006 will be recognized on the income statement. The
      method of determining the grant date fair value of stock options under FAS
      123
      (R) is the same as the method currently being used by the Company to calculate
      the pro forma impact on net income and earnings per share as presented above.
      Accordingly, we do not expect the impact of the adoption of FAS 123 (R) on
      earnings per share will be materially different from the current pro forma
      disclosures.





47


In
      November 2005, the Financial Accounting Standards Board (“FASB”) issued FASB
      Staff Position (“FSP”) Nos. FAS 115-1 and FAS 124-1, *The
      Meaning of Other-Than-Temporary Impairment and its Application to Certain
      Investments* .
      The FSP
      provides guidance on determining when an investment is considered impaired,
      whether that impairment is other than temporary, and the measurement of an
      impairment loss. Additionally, the FSP provides accounting considerations
      subsequent to the recognition of an other-than-temporary impairment and requires
      certain disclosures about unrealized losses that have not been recognized as
      other-than-temporary impairments. The guidance applies to reporting periods
      beginning after December 15, 2005 and is not expected to have a significant
      impact on the Company’s consolidated financial condition or results of
      operations.


In
      December 2005, FASB issued FSP No. SOP 94-6-1, *Terms
      of Loan Products That May Give Rise to a Concentration of Credit
      Risk.* This FSP
      addresses (1) the circumstances under which the terms of loan products give
      rise
      to a concentration of credit risk and (2) the disclosures or other accounting
      considerations that apply for entities that originate, hold, guarantee, service,
      or invest in loan products with terms that may give rise to a concentration
      of
      credit risk. The guidance applies to reporting periods ending after December
      19,
      2005 and is not expected to have a significant impact on the Company’s
      consolidated financial condition or results of operations.





In
      January 2003, the FASB issued Interpretation No. 46 (“FIN 46”), Consolidation of
      Variable Interest Entities (revised December 2003). In December 2003, the FASB
      made revisions and delayed implementation of certain provisions of FIN 46 with
      the issuance of FIN 46R. FIN 46R provides guidance on how to identify the
      primary beneficiary of a variable interest entity and determine when the
      variable interest entity should be consolidated by the primary beneficiary.
      The
      recognition and measurement provisions of FIN 46 and FIN 46R, were adopted
      for
      our Trust subsidiary for the quarter ended December 31, 2005. The adoption
      did
      not have a material impact on our financial condition or results of
      operations.





**Reclassifications** -
      Certain amounts contained in the 2004 and 2003 consolidated financial statements
      have been reclassified where appropriate to conform with the financial statement
      presentation used in 2005. These reclassifications had no effect on previously
      reported net income.


48


2. **Acquisition
      NWB Financial Corporation:**





On
      November 30, 2005, Pacific Continental Corporation completed its acquisition
      of
      NWB Financial Corporation and its wholly-owned subsidiary Northwest Business
      Bank. The aggregate purchase price was $40,433,525 and included 1,411,430 shares
      of common stock, stock options valued at $1,760,737, cash of $15,472,364, and
      direct merger costs of $970,402. The value of the 1,411,430 was determined
      based
      on the $15.75 average closing market price of the Company’s common stock, on
      August 17, 2005 when the merger agreement was announced.





The
      fair
      values of the NWB Financial Corporation assets acquired and liabilities assumed
      as of November 30, 2005 were recorded as follows:


AssetsCash
                  and due from banks
              
              $
              5,446,721Investment
                  securities
              
              
              11,122,138Loans,
                  net of allowance for loan losses
              
              
              140,566,274Property
                  and equipment
              
              
              554,233Goodwill
                  and core deposit intangible
              
              
              23,944,489Other
                  assets
              
              
              884,942Total
                  assets acquired
              
              $
              182,518,797LiabilitiesDeposits
              
              $
              123,815,478Borrowings
              
              
              17,217,571Other
                  liabilities
              
              
              1,052,223Total
                  liabilities assumed
              
              
              142,085,272Net
                  assets acquired
              
              
              40,433,525Total
                  liabilities assumed and net assets acquired
              
              $
              182,518,797The
                  acquisition cost of the net assets acquired are summarized as
                  follows:Fair
                  value of common stock issued to
              
              $
              22,230,023NWBF
                  shareholdersFair
                  value of stock options
              
              
              1,760,737Cash
                  paid to NWBF shareholders
              
              
              2,467,051Cash
                  payable to NWBF shareholders
              
              
              13,005,313Direct
                  transaction costs incurred
              
              
              404,360Restructuring
                  charges in the form ofseverance
                  and other payments
              
              
              566,041Total
                  acquisition cost
              
              $
              40,433,525


49


The
      following information presents unaudited pro forma results of operations for
      the
      years ended December 31, 2005 and 2004, as though the NWB Financial Corporation
      acquisition had occurred on January 1, 2004. The pro forma results do not
      necessarily indicate the results that would have been obtained had the
      acquisition actually occurred on January 1, 2004.





**Years
                  Ended December 31****2005**
              
              **2004**Total
                  interest income and noninterest income
              
              $
              44,100,000
              
              $
              37,450,000Net
                  income
              
              $
              11,774,700
              
              $
              10,007,000Basic
                  earnings per share
              
              $
              1.16
              
              $
              1.00Diluted
                  earnings per share
              
              $
              1.12
              
              $
              0.97Basic
                  shares outstanding
              
              
              10,172,869
              
              
              9,980,789Diluted
                  shares outstanding
              
              
              10,529,280
              
              
              10,323,607





The
      following table summarizes activity in the Company’s accrued restructuring
      charges:





Restructuring
                  charge liability balance at the time
              
              $
              566,041of
                  acquisition, November 30, 2005Payments
                  made for restructuring charges
              
              
              (112,296
              )Restructuring
                  charge liability balance as ofDecember
                31, 2005
              
              $
              453,745





The
      remaining liability for restructuring charges is recorded among other
      liabilities as of December 31, 2005. The amount represents the Company’s
      anticipated obligations to convert Northwest Business Bank systems, terminate
      data processing contracts, retention bonuses and severance pay for former
      Northwest Business Bank employees, and other direct related merger
      costs.





The
      Company’s financial statements report the combined operations from November 30,
      2005 forward.


50


3. **Securities
      Available-for-Sale** :





The
      amortized cost and estimated fair values of securities available-for-sale at
      December 31, 2005 are as follows:





**Securities
                  in**
              
              **Securities
                  in****Continuous**
              
              **Continuous****Unrealized**
              
              **Unrealized****Loss**
              
              **Loss****Gross**
              
              **Gross**
              
              **Estimated**
              
              **Position
                  for**
              
              **Position
                  For****Amortized**
              
              **Unrealized**
              
              **Unrealized**
              
              **Fair**
              
              **Less
                  Than**
              
              **12
                  Months****Cost**
              
              **Gains**
              
              **Losses**
              
              **Value**
              
              **12
                  Months**
              
              **or
                  Longer****Unrealized
                  Loss Positions**Obligations
                  of U.S.Government
                  agencies
              
              $
              16,080,896
              
              $
              -
              
              $
              210,374
              
              $
              15,870,522
              
              $
              10,559,727
              
              $
              5,310,795Obligations
                  of states andpolitical
                  subdivisions
              
              
              4,957,016
              
              
              -
              
              
              136,731
              
              
              4,820,285
              
              
              1,996,204
              
              
              2,824,081Mortgage-backed
                  securities
              
              
              15,481,573
              
              
              -
              
              
              242,043
              
              
              15,239,530
              
              
              6,905,044
              
              
              8,334,486$
              36,519,485
              
              $
              -
              
              $
              589,148
              
              $
              35,930,337
              
              $
              19,460,975
              
              $
              16,469,362**Unrealized
                  Gain Positions**Obligations
                  of U.S.Government
                  agencies
              
              $
              886,312
              
              $
              368
              
              $
              -
              
              $
              886,680Obligations
                  of states andpolitical
                  subdivisions
              
              
              -
              
              
              -
              
              
              -
              
              
              0Mortgage-backed
                  securities
              
              
              2,521,716
              
              
              6,191
              
              
              -
              
              
              2,527,9073,408,028
              
              
              6,559
              
              
              -
              
              
              3,414,587$
              39,927,513
              
              $
              6,559
              
              $
              589,148
              
              $
              39,344,924


At
      December 31, 2005, there were 63 investment securities in unrealized loss
      positions. The decline in value of these securities has resulted from increases
      in market interest rates during 2004 and 2005. The projected average life of
      the
      securities portfolio is approximately three years. Although yields on these
      securities may be below market rates during that period, no loss of principal
      is
      expected.





The
      amortized cost and estimated fair values of securities available-for-sale at
      December 31, 2004 are as follows:





**Gross**
                
                **Gross**
                
                **Estimated****Amortized**
                
                **Unrealized**
                
                **Unrealized**
                
                **Fair****Cost**
                
                **Gains**
                
                **Losses**
                
                **Value**Obligations
                    of U.S. Government agencies
                
                $
                6,447,851
                
                $
                7,814
                
                $
                65,960
                
                $
                6,389,705Obligations
                    of states and political subdivisions
                
                
                3,113,592
                
                
                -
                
                
                54,169
                
                $
                3,059,423Mortgage-backed
                    securities
                
                
                18,180,751
                
                
                26,957
                
                
                99,105
                
                
                18,108,603$
                27,742,194
                
                $
                34,771
                
                $
                219,234
                
                $
                27,557,731


51


The
      amortized cost and estimated fair value of securities at December 31, 2005
      and
      2004 by contractual maturity, are shown below. Expected maturities will differ
      from contractual maturities because issuers may have the right to call or prepay
      obligations.





**2005**
              
              
              
              **2004****Estimated**
              
              
              
              **Estimated****Amortized**
              
              **Fair**
              
              **Amortized**
              
              **Fair****Cost**
              
              **Value**
              
              **Cost**
              
              **Value**Due
                  in one year or less
              
              $
              1,871,416
              
              $
              1,871,058
              
              $
              -
              
              $
              -Due
                  after one year through 5 years
              
              
              16,606,177
              
              
              16,342,251
              
              
              7,946,427
              
              
              7,860,637Due
                  after 5 years through 10 years
              
              
              1,163,280
              
              
              1,140,967
              
              
              885,303
              
              
              870,761Due
                  after 10 years
              
              
              2,283,351
              
              
              2,223,211
              
              
              729,713
              
              
              717,727Mortgage-backed
                  securities
              
              
              18,003,289
              
              
              17,767,437
              
              
              18,180,751
              
              
              18,108,606$
              39,927,513
              
              $
              39,344,924
              
              $
              27,742,194
              
              $
              27,557,731


Gross
      realized losses on the sale of investment securities were $10,674 in 2005 and
      $12,820 in 2004. No securities were sold in 2003.




At
      December 31, 2005, securities with amortized costs of $10,585,258 (estimated
      market values of $10,387,521) were pledged to secure certain Treasury and public
      deposits as required by law.








4. **Loans** :





Major
      classifications of loans at December 31 are as follows:


**2005**
              
              **2004**Commercial
                  loans
              
              $
              160,988,179
              
              $
              107,537,680Real
                  estate loans
              
              
              507,479,398
              
              
              341,110,848Consumer
                  loans
              
              
              12,462,830
              
              
              10,380,565680,930,407
              
              
              459,029,093Deferred
                  loan origination fees
              
              
              (2,609,125
              )
              
              (2,060,949
              )678,321,282
              
              
              456,968,144Allowance
                  for loan losses
              
              
              (7,792,125
              )
              
              (5,223,979
              )$
              670,529,157
              
              $
              451,744,165




Scheduled
      maturities or repricing, if earlier, of loans at December 31, 2005 are as
      follows:





Three
                  months or less
              
              $
              302,969,063Three
                  months to one year
              
              
              39,936,262One
                  year to three years
              
              
              131,486,962Three
                  years to five years
              
              
              142,278,107Thereafter
              
              
              64,260,013$
              680,930,407


52





**Allowance
      for Loan Losses** :





**2005**
              
              **2004**
              
              **2003**Balance,
                  beginning of year
              
              $
              5,223,979
              
              $
              5,225,331
              
              $
              4,403,161Provision
                  charged to income
              
              
              1,100,000
              
              
              500,000
              
              
              900,000Transfer
                  of reserve for unfunded commitmentsto
                  accrued liabilities
              
              
              (34,000
              )
              
              -
              
              
              -Loans
                  charged against the allowance
              
              
              (636,267
              )
              
              (516,071
              )
              
              (1,185,426
              )Recoveries
                  credited to allowance
              
              
              123,789
              
              
              196,719
              
              
              917,796Reclassify
                  unfunded loan commitments
              
              
              -
              
              
              (182,000
              )
              
              -Additional
                  allowance resulting from acquisition
              
              
              2,014,624
              
              
              -
              
              
              189,800Balance,
                  end of year
              
              $
              7,792,125
              
              $
              5,223,979
              
              $
              5,225,331


It
      is
      management’s opinion that the allowance for loan losses is adequate to absorb
      known and inherent risks in the loan portfolio. However, actual results may
      differ from estimates.





Restructured
      and other loans considered impaired, including all nonaccrual loans, totaled
      $675,714, $2,799,762, and $3,168,458 at December 31, 2005, 2004, and 2003,
      respectively. The specific valuation allowance for loan losses related to these
      impaired loans was approximately $238,000, $510,000 and $628,000 at
      December 31, 2005, 2004, and 2003, respectively. The average recorded
      investment in impaired loans was approximately $1,218,000, $3,206,000, and
      $4,594,000 in 2005, 2004, and 2003, respectively. Interest income recognized
      on
      impaired loans during 2005, 2004, and 2003 was approximately $103,000, $120,000,
      and $264,000, respectively. Additional interest income which would have been
      realized on nonaccrual and impaired loans if they had remained current and
      still
      accruing interest would have been approximately $89,000, $98,000 and $159,000
      in
      2005, 2004 and 2003, respectively. There were no loans 90 days contractually
      past due and continuing to accrue interest as of December 31, 2005. Loans
      contractually past due 90 days or more on which interest continued to accrue
      totaled approximately $213,000, and $545,000 at December 31, 2004 and 2003,
      respectively.





A
      substantial portion of the loan portfolio is collateralized by real estate
      and
      is, therefore, susceptible to changes in local market conditions. However,
      management believes that the loan portfolio is diversified among industry
      groups. At December 31, 2005, outstanding residential construction loans totaled
      approximately $79,787,000 and represented 11.7% of total outstanding loans.
      In
      addition, at December 31, 2005, unfunded loan commitments for residential
      construction totaled approximately $51,347,000. At year end there were no
      nonaccrual loans and no impaired loans in this industry. There are no other
      industry concentrations in excess of 10%.








5. **Loan
      Participations and**  **Servicing** :





In
      the
      normal course of business, the Bank has sold portions of loans to other
      institutions in order to extend the Bank’s lending capacity or to mitigate risk.
      Servicing rights are retained for these loan participations. The unpaid
      principal balances of these serviced loans at December 31, 2005 and 2004 were
      $17,807,942 and $22,317,357, respectively. These loans are not included in
      the
      accompanying consolidated balance sheets.




The
      balance of capitalized loan servicing rights, net of valuation allowances,
      included in other assets was $4,759 and $27,857 at December 31, 2005 and 2004,
      respectively.







53


6. **Property** :





The
      balance of property and accumulated depreciation at December 31 consists of
      the
      following:





**2005**
              
              **2004**Land
              
              $
              3,898,164
              
              $
              2,480,664Buildings
                  and improvements
              
              
              13,537,177
              
              
              11,616,582Furniture
                  and equipment
              
              
              7,502,537
              
              
              6,068,39724,937,878
              
              
              20,165,643Less
                  accumulated depreciation & amortization
              
              
              7,934,947
              
              
              6,983,236$
              17,002,931
              
              $
              13,182,407


**Lease
      Commitments** - The
      Bank leases certain facilities for office locations under noncancellable
      operating lease agreements expiring through 2020. Rent expense related to these
      leases totaled $387,562, $366,716 and $372,357 in 2005, 2004 and 2003,
      respectively.





**Property
      Leased to Others** - The
      Bank leases approximately 82% of its Springfield Gateway building to others
      under noncancellable operating lease agreements extending through
      2011.





Future
      minimum payments required and anticipated lease revenues under these leases
      are:





**Property****Lease**
              
              **Leased****Commitments**
              
              **to
                  Others**2006
              
              $
              659,722
              
              $
              287,8782007
              
              
              593,488
              
              
              184,4042008
              
              
              508,641
              
              
              164,2752009
              
              
              511,149
              
              
              127,1812010
              
              
              422,061
              
              
              116,066Thereafter
              
              
              729,461
              
              
              7,562$
              3,424,522
              
              $
              887,366





**7.
      Goodwill and Core Deposit Intangibles:**





The
      following table summarizes the changes in the Company’s goodwill and core
      deposit intangible asset for the years ended December 31, 2005 and 2004.





**Core****Deposit**
              
              **Total****Goodwill**
              
              **Intangible**
              
              **Intangibles**Balance,
                  December 31, 2004
              
              $
              275,552
              
              $
              -
              
              $
              275,552Additions
              
              
              22,383,545
              
              
              1,560,944
              
              
              23,944,489Amortization
              
              
              -
              
              
              (18,583
              )
              
              (18,583
              )Balance,
                  December 31, 2005
              
              $
              22,659,097
              
              $
              1,542,361
              
              $
              24,201,458




The
      goodwill and core deposit intangible asset additions in 2005 were related to
      the
      NWBF acquisition which is more fully described in Note 2. In accordance with
      SFAS No. 142, *Goodwill
      and Other Intangible Assets* ,
      the
      Company does not recognize amortization expense related to its goodwill but
      completes periodic assessments of goodwill impairment. Impairment, if deemed
      to
      exist, would be charged to noninterest expense in the period
      identified.





Forecasted
      amortization expense for 2006 through 2010 for the core deposit intangible
      assets acquired during 2005 are anticipated to be $222,922 per year for
      approximately seven years.





54





8. **Other
      Assets:**





Other
      assets are comprised of the following for the periods indicated:




**2005**
              
              **2004**Foreclosed
                  assets
              
              
              130,758
              
              
              262,071Servicing
                  asset
              
              
              4,759
              
              
              27,857Deferred
                  taxes
              
              
              -
              
              
              257,814Prepaid
                  expenses and other
              
              
              1,270,849
              
              
              391,361$
              1,406,366
              
              $
              939,103





9. **Deposits** :





Scheduled
      maturities or repricing of time deposits at December 31 are as
      follows:





**2005**
              
              **2004**Less
                  than three months
              
              $
              52,366,906
              
              $
              17,279,958Three
                  months to one year
              
              
              48,256,863
              
              
              18,372,317One
                  to three years
              
              
              21,324,757
              
              
              8,524,511Thereafter
              
              
              6,387,743
              
              
              7,683,591$
              128,336,269
              
              $
              51,860,377





10. **Federal
      Funds Purchased:**





The
      Bank
      has unsecured federal funds borrowing lines with correspondent banks totaling
      $75,000,000 at December 31, 2005 of which no balance was outstanding as of
      December 31, 2005. There were $10,290,000 in borrowings against these lines
      at
      December 31, 2004.





The
      Bank
      also has a secured federal funds borrowing line with the Federal Reserve Bank
      totaling $8,000,000 at December 31, 2005. No balance was outstanding against
      this line as of December 31, 2005 or December 31, 2004.





55


11. **Federal
      Home Loan Bank Borrowings** :





The
      Bank
      has a borrowing limit with the FHLB equal to 25% of total assets. At December
      31, 2005, the borrowing line was approximately $198,000,000. At December 31,
      2005, there was $80,803,763 borrowed on this line, including a $24,000,000
      Cash
      Management Advance and $56,803,763 in term advances. The FHLB borrowing line
      is
      limited to discounted pledged collateral. FHLB stock, funds


on
      deposit with FHLB, and loans are pledged as collateral for borrowings from
      FHLB.
      At December 31, 2005, the Bank had pledged approximately $250,902,000
      in
      real estate loans to the FHLB ($145,272,000 in discounted pledged collateral).





Federal
      Home Loan Bank borrowings by year of maturity and applicable interest rate
      are
      summarized as follows as of December 31:







**Rate**
              
              **2005**
              
              **2004**Cash
                  Management Advance
              
              
              4.325
              %
              $
              24,000,000
              
              $
              21,500,0002005
              
              
              5.26
                  - 5.67
              %
              
              -
              
              
              2,000,0002006
              
              
              2.56
                  - 4.70
              %
              
              23,500,000
              
              
              5,500,0002007
              
              
              3.23
                  - 4.88
              %
              
              11,303,763
              
              
              10,500,0002008
              
              
              2.99
                  - 3.89
              %
              
              10,500,000
              
              
              7,000,0002009
              
              
              3.05
                  - 4.04
              %
              
              7,000,000
              
              
              4,500,0002010
              
              
              4.12
                  - 4.96
              %
              
              4,500,000
              
              
              -$
              80,803,763
              
              $
              51,000,000





12. **Junior
      Subordinated Debentures:**





In
      November 2005, the Company formed a wholly-owned Delaware statutory business
      trust subsidiary, Pacific Continental Corporation Capital Trust (the “Trust”),
      which issued $8,248,000 of guaranteed undivided beneficial interests in the
      Pacific Continental’s Junior Subordinated Deferrable Interest Debentures (“Trust
      Preferred Securities”). These debentures qualify as Tier 1 capital under Federal
      Reserve Board guidelines. All of the common securities of the Trust are owned
      by
      Pacific Continental. The proceeds from the issuance of the common securities
      and
      the Trust Preferred Securities were used by the Trust to purchase $8,248,000
      of
      junior subordinated debentures of Pacific Continental. The debentures which
      represent the sole asset of the Trust accrue and pay distributions quarterly
      at
      a fixed rate of 6.265% per annum of the stated liquidation value of $1,000
      per
      capital security.




Pacific
      Continental has entered into contractual arrangements which, taken collectively,
      fully and unconditionally guarantee payment of: (1) accrued and unpaid
      distributions required to be paid on the Trust Preferred Securities, (2) the
      redemption price with respect to any Trust Preferred Securities called for
      redemption by the Trust, and (3) payments due upon a voluntary or involuntary
      dissolution, winding up, or liquidation of the Trust. The Trust Preferred
      Securities are mandatorily redeemable upon maturity of the debentures on January
      7, 2036, or upon earlier redemption as provided in the indenture. Pacific
      Continental has the right to redeem the debentures purchased by the Trust in
      whole or in part, on or after, January, 7, 2011. As specified in the indenture,
      if the debentures are redeemed prior to maturity, the redemption price will
      be
      the principal amount and any accrued interest. For the years ended December
      31,
      2005, Pacific Continental accrued interest expense related to the Trust
      Preferred Securities of $48,000.




Pacific
      Continental has not consolidated the accounts of the Trust in its consolidated
      financial statements in accordance with FASB FIN 46R, *Consolidation
      of Variable Interest Entities.* As a
      result, the junior subordinated debentures issued by Pacific Continental to
      the
      issuer trust, totaling $8,248,000, are reflected on Pacific Continental’s
      consolidated balance sheet at December 31, 2005, under the caption, “Junior
      Subordinated Debentures”. Pacific Continental also recognized its $248,000
      investment in the Trust, which is recorded among “Other Assets” in its
      consolidated balance sheet at December 31, 2005.








56


13. **Income
      Taxes** :





The
      provision for income taxes for the years ended December 31 consists of the
      following:





**2005**
              
              **2004**
              
              **2003**Currently
                  payable:Federal
              
              $
              4,862,000
              
              $
              4,033,000
              
              $
              3,567,000State
              
              
              615,000
              
              
              848,000
              
              
              736,0005,477,000
              
              
              4,881,000
              
              
              4,303,000Deferred:Federal
              
              
              29,000
              
              
              36,000
              
              
              (57,000
              )State
              
              
              4,000
              
              
              8,000
              
              
              (13,000
              )33,000
              
              
              44,000
              
              
              (70,000
              )Total
                  provision for income taxes
              
              $
              5,510,000
              
              $
              4,925,000
              
              $
              4,233,000





The
      provision for deferred income taxes results from timing differences in the
      recognition of revenue and expenses for financial statement and tax purposes.
      The nature and tax effect of these differences for the years ended December
      31
      are as follows:




**2005**
              
              **2004**
              
              **2003**Loan
                  fees and other loan basis adjustmentdifferences
                  between financialstatement
                  and tax purposes
              
              $
              192,242
              
              $
              92,618
              
              $
              52,827Loan
                  loss deduction for tax purposesmore
                  (less) than provision for financialreporting
                  purposes
              
              
              (255,356
              )
              
              (89,962
              )
              
              (206,842
              )Depreciation
                  deduction differencesbetween
                  financial statement andtax
                  purposes
              
              
              (16,637
              )
              
              8,878
              
              
              61,355Federal
                  Home Loan Bank stock dividends
              
              
              4,322
              
              
              35,249
              
              
              39,544Reserve
                  for self-funded health insurance
              
              
              (44,270
              )
              
              (28,350
              )
              
              -Prepaid
                  expenses
              
              
              127,070
              
              
              -
              
              
              -Other
              
              
              25,629
              
              
              25,567
              
              
              (16,884
              )$
              33,000
              
              $
              44,000
              
              $
              (70,000
              )


57


The
      provision for income taxes results in effective tax rates which are different
      than the federal income tax statutory rate. The nature of the differences for
      the years ended December 31 was as follows:





**2005**
              
              
              
              **2004**
              
              
              
              **2003**Expected
                  federal incometax
                  provision at 34%
              
              $
              5,130,000
              
              
              34.00
              %
              $
              4,377,000
              
              
              34.00
              %
              $
              3,762,000
              
              
              34.00
              %State
                  income tax, net offederal
                  income tax effect
              
              
              402,000
              
              
              2.66
              %
              
              521,000
              
              
              4.05
              %
              
              478,000
              
              
              4.32
              %Deferred
                  tax rate adjustmentsand
                  other
              
              
              (22,000
              )
              
              -0.14
              %
              
              27,000
              
              
              0.21
              %
              
              (7,000
              )
              
              -0.06
              %Provision
                  for income taxes
              
              $
              5,510,000
              
              
              36.52
              %
              $
              4,925,000
              
              
              38.26
              %
              $
              4,233,000
              
              
              38.26
              %




The
      tax
      benefit associated with stock option plans reduced taxes payable by $324,000,
      $332,000 and $115,000 at December 31, 2005, 2004 and 2003, respectively. Such
      benefit is credited to additional paid-in capital.





The
      components of deferred tax assets and liabilities at December 31 are as
      follows:





**2005**
              
              **2004**
              
              **2003**Assets:Allowance
                  for loan losses
              
              $
              2,027,720
              
              $
              1,390,044
              
              $
              1,301,122Basis
                  adjustments on loans
              
              
              47,579
              
              
              59,310
              
              
              42,652Reserve
                  for self-funded insurance
              
              
              71,568
              
              
              28,350
              
              
              -Other
              
              
              104,131
              
              
              5,626
              
              
              15,372Net
                  unrealized losses on securities
              
              
              223,496
              
              
              70,758
              
              
              18,684Total
                  deferred tax assets
              
              
              2,474,494
              
              
              1,554,088
              
              
              1,377,830Liabilities:Federal
                  Home Loan Bank stock dividends
              
              
              579,329
              
              
              575,033
              
              
              539,784Excess
                  tax over book depreciation
              
              
              339,222
              
              
              352,905
              
              
              332,744Prepaid
                  expenses
              
              
              127,070
              
              
              -
              
              
              -NWBF
                  acquisition adjustments
              
              
              587,439
              
              
              -
              
              
              -Other,
                  principally loan orig. costs and deferred fees
              
              
              950,433
              
              
              368,336
              
              
              255,562Total
                  deferred tax liabilities
              
              
              2,583,493
              
              
              1,296,274
              
              
              1,128,090Net
                  deferred tax assets/(liabilities)
              
              $
              (108,999
              )
              $
              257,814
              
              $
              249,740




Management
      believes that net deferred tax assets will be recognized in the normal course
      of
      operations and, accordingly, they have not been reduced by a valuation
      allowance.








14. **Retirement
      Plan** :





The
      Bank
      has a 401(k) profit sharing plan covering substantially all employees. The
      plan
      provides for employee and employer contributions. The total plan expenses,
      including employer contributions, were $532,251, $503,586 and $435,706 in 2005,
      2004 and 2003, respectively.


58


15. **Stock
      Option Plans** :





The
      Company has Employee and Nonemployee Director Stock Option Plans that reserve
      shares of stock for issuance to employees and directors. Under the plans, the
      exercise price of each option must equal the greater of market price or net
      book
      value of the Company’s stock on the date of the grant, and the option’s maximum
      term is ten years. The Company exchanged option grants issued pursuant to the
      NWBF Employee and Nonemployee Director Stock Option Plans with options under
      the
      Company’s plans as a result of the NWBF acquisition. All outstanding options
      became 100% vested as of the merger date, November 30, 2005.





Vesting
      for the Stock Option Plans occurs over three- and four-year periods. Information
      with respect to options granted under the stock option plans, adjusted for
      stock
      splits and dividends, is as follows:





**2005**
              
              
              
              **2004**
              
              
              
              **2003****Average**
              
              
              
              **Average**
              
              
              
              **Average****Options**
              
              **Price**
              
              **Options**
              
              **Price**
              
              **Options**
              
              **Price****Outstanding**
              
              **Per
                  Share**
              
              **Outstanding**
              
              **Per
                  Share**
              
              **Outstanding**
              
              **Per
                  Share**Balance,
                  beginning ofBalance,
                  beginning of year
              
              
              1,006,542
              
              $
              10.37
              
              
              1,006,646
              
              $
              8.04
              
              
              930,567
              
              $
              7.04Options
                  issued in NWBF acq.
              
              
              219,599
              
              $
              7.88
              
              
              -
              
              
              
              
              
              -Grants:Employees
              
              
              57,000
              
              
              15.95
              
              
              223,299
              
              
              15.91
              
              
              240,095
              
              
              11.39Directors
              
              
              22,500
              
              
              15.74
              
              
              45,000
              
              
              12.24
              
              
              6,666
              
              
              11.28Exercised
              
              
              (166,615
              )
              
              6.48
              
              
              (167,975
              )
              
              6.71
              
              
              (86,833
              )
              
              6.22Expired
              
              
              (24,794
              )
              
              11.96
              
              
              (100,428
              )
              
              6.29
              
              
              (83,849
              )
              
              8.66Balance,
                  end of year
              
              
              1,114,232
              
              $
              10.82
              
              
              1,006,542
              
              $
              10.37
              
              
              1,006,646
              
              $
              8.04Options
                  exercisableat
                  end of year
              
              
              723,531
              
              
              
              
              
              444,938
              
              
              
              
              
              409,771Options
                  available forgrant
                  at end of year
              
              
              721,671
              
              
              
              
              
              776,401
              
              
              
              
              
              954,980





59


Outstanding
      options at December 31, 2005 are as follows:


**Shares****Expiration**
              
              **Weighted
                  Average Price Per Share**
              
              **Exercisable**
              
              **Outstanding**2006
              
              $
              7.66
              
              
              124,908
              
              
              127,2002007
              
              
              8.31
              
              
              144,661
              
              
              185,9522008
              
              
              10.39
              
              
              114,497
              
              
              210,7682009
              
              
              14.82
              
              
              76,562
              
              
              261,2492010
              
              
              9.22
              
              
              83,425
              
              
              145,4192011
              
              
              7.43
              
              
              34,061
              
              
              34,0612012
              
              
              7.57
              
              
              82,701
              
              
              86,8682013
              
              
              7.99
              
              
              8,014
              
              
              8,0142014
              
              
              9.00
              
              
              39,672
              
              
              39,6722015
              
              
              13.48
              
              
              15,029
              
              
              15,029723,531
              
              
              1,114,232





16. **Transactions
      with Related Parties** :





The
      Bank
      has granted loans to officers and directors and to companies with which they
      are
      associated. Such loans are made on substantially the same terms, including
      interest rates and collateral, as those prevailing at the time for comparable
      transactions with unrelated parties. Activity with respect to these loans during
      the year ended December 31 was as follows:





**2005**
              
              **2004**Balance,
                  beginning of year
              
              $
              710,346
              
              $
              784,304Additions
                  or renewals
              
              
              122,430
              
              
              63,000Amounts
                  collected or renewed
              
              
              (61,775
              )
              
              (136,958
              )Balance,
                  end of year
              
              $
              771,001
              
              $
              710,346




In
      addition, there were $160,428 in commitments to extend credit to directors
      and
      officers at December 31, 2005, which are included among loan commitments
      disclosed Note 7.





Real
      estate management fees of $3,287 and $24,956 were paid to a director, during
      2005 and 2004, respectively.





60


17. **Financial
      Instruments with Off-Balance-Sheet Credit Risk** :





In
      order
      to meet the financing needs of its clients, the Bank commits to extensions
      of
      credit and issues letters of credit. The Bank uses the same credit policies
      in
      making commitments and conditional obligations as it does for other products.
      In
      the event of nonperformance by the client, the Bank’s exposure to credit loss is
      represented by the contractual amount of the instruments. The Bank’s collateral
      policies related to financial instruments with off-balance-sheet risk conform
      with its general underwriting guidelines.





Commitments
      to extend credit are agreements to lend to a client as long as there is no
      violation of any condition established in the contract. Commitments generally
      have expiration dates or other termination clauses and may require payment
      of a
      fee. Since some of the commitments may expire without being drawn upon, the
      total commitment amounts do not necessarily represent future cash
      requirements.





Letters
      of credit written are conditional commitments issued by the Bank to guarantee
      the performance of a client to a third party. The credit risk involved in
      issuing letters of credit is essentially the same as that involved in extending
      loan facilities to clients.





Off-balance-sheet
      instruments at December 31 consist of the following:





**2005**
            
            **2004**Commitments
                to extend credit (principallyvariable
                rate)
            
            $
            175,922,000
            
            $
            130,808,454Letters
                of credit and financial guarantees written
            
            
            6,168,000
            
            
            3,686,695


61








18. **Fair
      Value Disclosures of Financial Instruments** :





The
      following disclosures are made in accordance with provisions of SFAS No. 107, *Disclosures
      About Fair Value of Financial Instruments* .
      The use
      of different assumptions and estimation methods could have a significant effect
      on fair value amounts. Accordingly, the estimates of fair value herein are
      not
      necessarily indicative of the amounts that might be realized in a current market
      exchange.





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





**2005**
              
              
              
              **2004****Carrying**
              
              
              
              **Carrying****Amount**
              
              **Fair
                  Value**
              
              **Amount**
              
              **Fair
                  Value**Financial
                  assets:Cash
                  and cash equivalents
              
              $
              31,843,346
              
              $
              31,843,346
              
              $
              16,082,282
              
              $
              16,082,282Securities
              
              
              39,344,924
              
              
              39,344,924
              
              
              27,557,731
              
              
              27,557,731Loans
                  held for sale
              
              
              642,180
              
              
              642,180
              
              
              2,072,351
              
              
              2,109,351Loans,
                  net of allowancefor
                  loan losses
              
              
              670,529,157
              
              
              662,446,824
              
              
              451,744,165
              
              
              451,731,286Interest
                  receivable
              
              
              3,343,920
              
              
              3,343,920
              
              
              1,969,181
              
              
              1,969,181Federal
                  Home LoanBank
                  stock
              
              
              3,479,900
              
              
              3,479,900
              
              
              2,807,600
              
              
              2,807,600Financial
                  liabilities:Deposits
              
              
              604,270,620
              
              
              603,200,365
              
              
              403,791,306
              
              
              403,739,404Federal
                  funds purchased
              
              
              -
              
              
              -
              
              
              10,290,000
              
              
              10,290,000Federal
                  Home LoanBank
                  borrowings
              
              
              80,803,763
              
              
              79,822,626
              
              
              51,000,000
              
              
              51,029,583Junior
                  subordinated debentures
              
              
              8,248,000
              
              
              8,248,000
              
              
              -
              
              
              -Accrued
                  interest payable
              
              
              1,062,828
              
              
              1,062,828
              
              
              117,457
              
              
              117,457


Cash
      and
      Cash Equivalents - The carrying amount approximates fair value.





Securities
      - Fair value is based on quoted market prices. If a quoted market price is
      not
      available, fair value is estimated using quoted market prices for similar
      securities.





Loans
      Held for Sale - Fair value represents the anticipated proceeds from the sale
      of
      related loans.





Loans
      -
      For variable-rate loans that reprice frequently and have no significant change
      in credit risk, fair values are based on carrying values. Fair value of
      fixed-rate loans is estimated by discounting the future cash flows using current
      rates at which similar loans would be made to borrowers with similar credit
      ratings and for the same remaining maturities. Fair values for impaired loans
      are estimated using discounted cash flow analyses or underlying collateral
      values, where applicable.





Long
      Term
      Debt - The fair values of the Company’s long term debt is estimated using
      discounted cash flow analyses based on the Company’s current incremental
      borrowing rate for similar type of borrowing arrangements.





Interest
      receivable and payable - The carrying amounts of accrued interest receivable
      and
      payable approximate their fair value.





Deposits
      - Fair value of demand, interest-bearing demand and savings deposits is the
      amount payable on demand at the reporting date. Fair value of time deposits
      is
      estimated using the interest rates currently offered for deposits of similar
      remaining maturities. In accordance with provisions of SFAS No. 107, the
      estimated fair values of deposits do not take into account the benefit that
      results from low-cost funding such deposits provide.





62


Federal
      Funds Purchased - The carrying amount is a reasonable estimate of fair value
      because of the short-term nature of these borrowings.





Federal
      Home Loan Bank Borrowings - Fair value of Federal Home Loan Bank borrowings
      is
      estimated by discounting future cash flows at rates currently available for
      debt
      with similar terms and remaining maturities.





Off-Balance-Sheet
      Financial Instruments - The carrying amount and fair value are based on fees
      charged for similar commitments and are not material.








19. **Commitments
      and**  **Legal
      Contingencies** :





The
      Company has entered into employment agreements with two key executive officers.
      The employment agreements provide for minimum aggregate annual base salaries
      of
      $397,000, plus performance adjustments, life insurance coverage, and other
      perquisites commonly found in such agreements. Both employment agreements expire
      in 2008 unless extended or terminated earlier.





Various
      legal claims arise from time to time in the normal course of business which,
      in
      the opinion of management, will have no material effect on the Company’s
      consolidated financial statements.








20. **Regulatory
      Matters** :





The
      Bank
      is subject to the regulations of certain federal and state agencies and receives
      periodic examinations by those regulatory authorities. In addition, the Bank
      is
      subject to various regulatory capital requirements administered by federal
      banking agencies. Failure to meet minimum capital requirements can initiate
      certain mandatory - and possibly additional discretionary - actions by
      regulators that, if undertaken, could have a direct material effect on the
      Bank’s financial statements. Under capital adequacy guidelines and the
      regulatory framework for prompt corrective action, the Bank must meet specific
      capital guidelines that involve quantitative measures of the Bank’s assets,
      liabilities, and certain off-balance-sheet items as calculated under regulatory
      accounting practices. The Bank’s capital amounts and classification are also
      subject to qualitative judgments by the regulators about components, risk
      weightings and other factors.





Quantitative
      measures established by regulation to ensure capital adequacy require the Bank
      to maintain minimum amounts and ratios of Total and Tier I capital to
      risk-weighted assets, and of Tier I capital to leverage assets. Management
      believes, as of December 31, 2005, that the Bank meets all capital adequacy
      requirements to which it is subject.


63





As
      of
      December 31, 2005, the most recent notification from the FDIC categorized the
      Bank as well capitalized. To be categorized as well capitalized, the Bank must
      maintain minimum Total risk-based, Tier I risk-based, and Tier I leverage ratios
      as set forth in the following table. There are no conditions or events since
      that notification that management believes have changed the institution’s
      category.


The
      Bank’s actual capital amounts and ratios are presented in the table (the
      Company’s capital ratios do not differ significantly from those of the
      Bank).





**To
                  Be Well****Capitalized
                  Under****For
                  Capital**
              
              
              
              **Prompt
                  Corrective****Actual**
              
              
              
              **Adequacy
                  Purposes**
              
              
              
              **Action
                  Provisions****Amount**
              
              **Ratio**
              
              **Amount**
              
              **Ratio**
              
              **Amount**
              
              **Ratio**As
                  of December 31, 2005:Total
                  capital (to riskweighted
                  assets)
              
              $
              73,050,575
              
              
              10.48
              %
              $
              55,744,800
              
              
              8
              %
              $
              69,681,000
              
              
              10
              %Tier
                  I capital (to riskweighted
                  assets)
              
              
              64,957,450
              
              
              9.32
              %
              
              27,872,400
              
              
              4
              %
              
              41,808,600
              
              
              6
              %Tier
                  I capital (to leverageassets)
              
              
              64,957,450
              
              
              10.32
              %
              
              25,188,400
              
              
              4
              %
              
              31,485,500
              
              
              5
              %As
                  of December 31, 2004:Total
                  capital (to riskweighted
                  assets)
              
              $
              53,861,279
              
              
              11.29
              %
              $
              38,166,400
              
              
              8
              %
              $
              47,708,000
              
              
              10
              %Tier
                  I capital (to riskweighted
                  assets)
              
              
              48,637,300
              
              
              10.19
              %
              
              19,083,200
              
              
              4
              %
              
              28,624,800
              
              
              6
              %Tier
                  I capital (to leverageassets)
              
              
              48,637,300
              
              
              9.71
              %
              
              20,034,440
              
              
              4
              %
              
              25,043,050
              
              
              5
              %





21. **Parent
      Company Financial Information** :





Financial
      information for Pacific Continental Corporation (Parent Company only) is
      presented below:





**BALANCE
      SHEETS**


December
      31


**2005**
              
              **2004**Assets:Cash
                  deposited with the Bank
              
              $
              660,335
              
              $
              265,907Prepaid
                  expenses
              
              
              -
              
              
              4,000Deferred
                  income taxes
              
              
              -
              
              
              323,000Equity
                  in Trust
              
              
              248,000
              
              
              -Investment
                  in the Bank, at cost plus equityin
                  earnings
              
              
              88,799,776
              
              
              48,799,150$
              89,708,111
              
              $
              49,392,057Liabilities
                  and stockholders' equity:Liabilities
              
              $
              48,117
              
              $
              -Junior
                  subordinated debentures
              
              
              8,248,000
              
              
              -Stockholders'
                  equity
              
              
              81,411,994
              
              
              49,392,057$
              89,708,111
              
              $
              49,392,057


64





**STATEMENTS
      OF INCOME**


For
      the
      Periods Ended December 31


**2005**
              
              **2004**
              
              **2003**Income:Cash
                  dividends from the Bank
              
              $
              2,495,000
              
              $
              1,280,000
              
              $
              1,625,0002,495,000
              
              
              1,280,000
              
              
              1,625,000Expenses:Interest
                  expense
              
              
              48,117
              
              
              -
              
              
              -Investor
                  relations
              
              
              86,381
              
              
              61,937
              
              
              65,596Legal
                  and registration expense
              
              
              55,009
              
              
              71,549
              
              
              70,958Personnel
                  costs paid to Bank
              
              
              267,698
              
              
              63,781
              
              
              50,585457,205
              
              
              197,267
              
              
              187,139Income
                  before income tax benefitand
                  equity in undistributedearnings
                  of the Bank
              
              
              2,037,795
              
              
              1,082,733
              
              
              1,437,861Income
                  tax benefit
              
              
              -
              
              
              77,000
              
              
              72,000Equity
                  in undistributed earnings of the Bank
              
              
              7,540,504
              
              
              6,789,019
              
              
              5,320,806Net
                  income
              
              $
              9,578,299
              
              $
              7,948,752
              
              $
              6,830,667


65


**STATEMENTS
      OF CASH FLOWS**


For
      the
      Periods Ended December 31


**2005**
              
              **2004**
              
              **2003**Cash
                  flows from operating activities:Net
                  income
              
              $
              9,578,299
              
              $
              7,948,752
              
              $
              6,830,667Adjustments
                  to reconcile net incometo
                  net cash provided by operatingactivities:Equity
                  in undistributed earnings of
              
              
              (7,540,504
              )
              
              (6,789,069
              )
              
              (5,320,806
              )the
                  BankOther,
                  net
              
              
              (154,572
              )
              
              (77,000
              )
              
              (72,000
              )Net
                  cash provided by operating activities
              
              
              1,883,223
              
              
              1,082,683
              
              
              1,437,861Cash
                  flows from investing activities:Dividend
                  received from bank subsidiary
              
              
              2,495,000
              
              
              -
              
              
              -Cash
                  paid to shareholders of NWBF
              
              
              (2,467,051
              )
              
              -
              
              
              -Investment
                  in subsidiary
              
              
              (8,000,000
              )
              
              -
              
              
              -Investment
                  in Trust
              
              
              (248,000
              )Net
                  cash used in investing activities
              
              
              (8,220,051
              )
              
              -
              
              
              -Cash
                  flows from financing activities:Proceeds
                  from stock options exercised
              
              
              1,039,033
              
              
              1,127,879
              
              
              540,515Dividends
                  paid
              
              
              (2,555,777
              )
              
              (2,163,789
              )
              
              (1,841,438
              )Issuance
                  of trust preferreds
              
              
              8,248,000Shares
                  repurchased and retired
              
              
              -
              
              
              (2,960
              )
              
              (3,700
              )Net
                  cash provided (used in) financing activities
              
              
              6,731,256
              
              
              (1,038,870
              )
              
              (1,304,623
              )Net
                  increase in cash
              
              
              394,428
              
              
              43,813
              
              
              133,238Cash,
                  beginning of period
              
              
              265,907
              
              
              222,094
              
              
              88,856Cash,
                  end of period
              
              $
              660,335
              
              $
              265,907
              
              $
              222,094





ITEM
      9  Changes
      In and Disagreements with Accountants on
      Accounting and Financial Disclosure





None





ITEM
      9A  Controls
      and Procedures





*Evaluation
      of Disclosure Controls and Procedures*





An
      evaluation was carried out under the supervision and with the participation
      of
      the Company’s management, including the Chief Executive Officer (“CEO”) and
      Chief Financial Officer (“CFO”), of the effectiveness of our disclosure controls
      and procedures, as required by Rule 13a-15(b) of the Securities Exchange Act
      of
      1934. Based on that evaluation, the CEO and CFO have concluded that as of the
      end of the period covered by this report, our disclosure controls and procedures
      are effective to provide reasonable assurance that information required to
      be
      disclosed by us in reports that we file or submit under the Securities Exchange
      Act of 1934 is recorded, processed, summarized, and timely reported as provided
      in the SEC rules and forms. As a result of this evaluation, there were no
      significant changes in our internal control over financial reporting during
      the
      three months ended December 31, 2005 that have materially affected, or are
      reasonably likely to materially affect, our internal control over financial
      reporting.





66


*Management’s
      Report on Internal Control Over Financial Reporting*





The
      management of the Company is responsible for establishing and maintaining
      adequate internal control over financial reporting. This internal control system
      has been designed to provide reasonable assurance to the Company’s management
      and board of directors regarding the preparation and fair presentation of the
      Company’s published financial statements.





All
      internal control systems, no matter how well designed, have inherent
      limitations. Therefore, even those systems determined to be effective can
      provide only reasonable assurance with respect to financial statement
      preparation and presentation.





The
      management of Pacific Continental Corporation has assessed the effectiveness
      of
      its internal control over financial reporting at December 31, 2005. To make
      this
      assessment, the Company used the criteria for effective internal control over
      financial reporting described in *Internal
      Control - Integrated Framework* ,
      issued
      by the Committee of Sponsoring Organizations of the Treadway Commission. Based
      on this assessment, the Company believes that as of December 31, 2005, the
      internal control system over financial reporting met those
      criteria.





The
      Company’s independent auditors, Moss Adams ,
      L.L.P.,
      have issued an attestation report on the Company’s internal control over
      financial reporting. The attestation report can be found on pages 35 and 36
      of
      this document.








ITEM
      9b.  Other
      Information





None





**PART
      III**





ITEM
      10   Directors
      and Executive Officers of the
      Company





The
      information regarding “Directors and Executive Officers of the Registrant” of
      the Bank is incorporated by reference from the sections entitled “ELECTION OF
      DIRECTORS—Nominees and Continuing Directors,”“SECURITY OWNERSHIP OF CERTAIN
      BENEFICIAL OWNERS AND MANAGEMENT” and “COMPLIANCE WITH SECTION 16(a) FILING
      REQUIREMENTS” of the Company’s 2006 Annual Meeting Proxy Statement (the “Proxy
      Statement”).





Information
      regarding the Company’s Audit Committee financial expert appears under the
      section entitled “Information Regarding the Board of Directors and its
      Committees - Certain Committees of the Board” in the Company’s Proxy Statement
      and is incorporated by reference.





In
      September of 2003, consistent with the requirements of Sarbanes-Oxley, the
      Company adopted a Code of Ethics applicable to senior financial officers
      including the principal executive officer. There have been no changes in the
      Code of Ethics since that time. The Code of Ethics was filed as Exhibit 14
      to
      the Company’s Annual Report on Form 10-K for the year-end December 31, 2003. The
      Code of Ethics can also be accessed electronically by visiting the Company’s
      website at www.therightbank.com .








ITEM
      11   Executive
      Compensation





The
      information regarding “Executive Compensation” is incorporated by reference from
      the sections entitled “INFORMATION REGARDING THE BOARD OF DIRECTORS AND ITS
      COMMITTEES—Compensation of Directors,” and “EXECUTIVE COMPENSATION” of the Proxy
      Statement.


67





ITEM
      12   Security
      Ownership of Certain Beneficial Owners and
      Management





The
      information regarding “Security Ownership of Certain Beneficial Owners and
      Management” is incorporated by reference from the section entitled “SECURITY
      OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT” of the Proxy
      Statement.








ITEM
      13   Certain
      Relationships and Related
      Transactions





The
      information regarding “Certain Relationships and Related Transactions” is
      incorporated by reference from the section entitled “Transactions with
      Management” of the Proxy Statement.







ITEM
      14   Principal
      Accountant Fees and
      Services





For
      information concerning principal accountant fees and services as well as related
      pre-approval policies, see “Independent Public Auditors - Fees Paid to
      Independent Auditor” in the Company’s Proxy Statement, which is incorporated by
      reference.








ITEM
      15  Exhibits
      and Financial Statement Schedules





(a)(1)   See
      Index
      to Consolidated Financial Statements filed under item 8 of this
      report.





All
      other
      schedules to the financial statements required by Regulation S-X are omitted
      because they are not applicable, not material, or because the information is
      included in the financial statements or related notes





(a)(2)   Exhibit
      Index





Exhibit


3.1
            Amended
                Articles of Incorporation (1)


3.2
            Amended
                and Restated Bylaws (2)


10.1
      1999
      Employee Stock Option Plan (3)


10.2
      1999
      Director’s Stock Option Plan (3)


10.3
      Form
      of Incentive Stock Option Agreement (3)


10.4
      Form
      of Nonqualified Stock Option Agreement (3)


10.5
      Executive Severance/Change of Control Agreement for Roger Busse (2)


10.6  Executive
      Severance/Change of Control Agreement for Mitch Hagstrom (2)


10.7  Executive
      Severance/Change of Control Agreement for Daniel Hempy (2)


10.8  Executive
      Severance/Change of Control Agreement for Michael Reynolds (2)


10.9
      Executive Employment Agreement for Hal Brown (4)


10.10
      Director Fee Schedule, Effective January 1, 2005 (2)


10.11
      NWB
      Financial Corporation Employee Stock Option Plan (5)


10.12
      NWB
      Financial Corporation Director Stock Option Plan (5)


14 Code
      of
      Ethics for Senior Financial Officers and


Principal
      Executive Officer (6)


23.1
      Accountants Consent of Moss Adams L.L.C.


23.2
      Accountants Consent of Zirkle Long Triguerio & Ward L.L.C.


31.1  302
      Certification, Hal Brown, President and Chief Executive Officer


31.2  302
      Certification, Michael A. Reynolds, Senior Vice President and


Chief
      Financial Officer


32
      Certifications Pursuant to 18 U.S.C. Section 1350





(1)
            Incorporated
                by reference to Exhibit 3.1 of the Company’s Quarterly Report on 10-Q for
                the Quarter ended March 31, 2004.





(2)
            Incorporated
                by reference to Exhibit 3.1, 10.1, 10.2, 10.3, 10.4, and 10.5 of
                the
                Company’s Quarterly Report on 10-Q for the Quarter ended March 31,
                2005.





(3)
            Incorporated
                by reference to Exhibits 99.1 - 99.4 of the Company’s S-8 Registration
                Statement (File No. 333-109501).





(4)
            Incorporated
                by reference to Exhibit 10.8 of the Company’s Annual Report on Form 10-K
                for the year ended December 31,
                2002.





(5)
            Incorporated
                by reference to Exhibits 99.1 and 99.2 of the Company’s S-8 Registration
                Statement (File No. 333-130886).





(6)
            Incorporated
                by reference to Exhibit 14 of the Company’s Annual Report on 10-K for the
                year ended December 31, 2003.





(a)(3)   Financial
      Statement Schedules








68








**SIGNATURES**





Pursuant
      to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
      1934, the registrant has duly caused this report to be signed on its behalf
      by
      the undersigned on March 8, 2006.





**PACIFIC
      CONTINENTAL CORPORATION**


(Company)











By:  /s/
      Hal Brown


Hal
      Brown


President
      and Chief Executive Officer





Pursuant
      to the requirements of the Securities Exchange Act of 1934, this report has
      been
      signed below by the following persons on behalf of the Company and in the
      capacities indicated on the 4th day of March, 2005.





**Principal
      Executive Officer**








By  /s/
      Hal Brown    President
      and Chief Executive Officer


Hal
      Brown    and
      Director





**Principal
      Financial and Accounting Officer**








By  /s/
      Michael A. Reynolds    Executive
      Vice President and


Michael
      A. Reynolds    Chief
      Financial Officer





**Remaining
      Directors**








By  /s/
      Robert A. Ballin    Chairman
      of the Board


Robert
      A.
      Ballin





By  /s/
      Donald G. Montgomery    Vice
      Chairman  By  /s/
      Michael D. Holzgang   Director


Donald
      G.
      Montgomery      Michael
      D. Holzgang








By  /s/
      Donald A. Bick    Director  By  /s/
      Ronald F. Taylor   Director


Donald
      A.
      Bick      Ronald
      F.
      Taylor








By  /s/
      Larry G. Campbell    Director  By  /s/
      Donald L. Krahmer   Director


Larry
      G.
      Campbell      Donald
      L.
      Krahmer, Jr.








By  /s/
      Michael Holcomb    Director  By /s/
      John H. Rickman   Director


Michael
      Holcomb      John
      H.
      Rickman








By  /s/
      Michael Heijer    Director


Michael
      Heijer










69


**CERTIFICATION**




I,
      Hal
      Brown, certify that:


1.
            I
                have reviewed this Form 10-K of Pacific Continental
                Corporation;




2.
            Based
                on my knowledge, this report does not contain any untrue statement
                of a
                material fact or omit to state a material fact necessary to make
                the
                statements made, in light of the circumstances under which such statements
                were made, not misleading with respect to the period covered by this
                report;




3.
            Based
                on my knowledge, the financial statements, and other financial information
                included in this report, fairly present in all material respects
                the
                financial condition, results of operations and cash flows of the
                registrant as of, and for, the periods presented in this report;




4.
            The
                registrant's other certifying officer(s) and I are responsible for
                establishing and maintaining disclosure controls and procedures (as
                defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal
                control over financial reporting (as defined in Exchange Act Rules
                13a-15(f) and 15d-15(f)) for the registrant and
                have:




(a)
            Designed
                such disclosure controls and procedures, or caused such disclosure
                controls and procedures to be designed under our supervision, to
                ensure
                that material information relating to the registrant, including its
                consolidated subsidiaries, is made known to us by others within those
                entities, particularly during the period in which this report is
                being
                prepared;




(b)
            Designed
                such internal control over financial reporting, or caused such internal
                control over financial reporting to be designed under our supervision,
                to
                provide reasonable assurance regarding the reliability of financial
                reporting and the preparation of financial statements for external
                purposes in accordance with generally accepted accounting
                principles;




(c)
            Evaluated
                the effectiveness of the registrant's disclosure controls and procedures
                and presented in this report our conclusions about the effectiveness
                of
                the disclosure controls and procedures, as of the end of the period
                covered by this report based on such evaluation;
                and




(d)
            Disclosed
                in this report any change in the registrant’s internal control over
                financial reporting that occurred during the registrant’s most recent
                fiscal quarter (the registrant’s fourth fiscal quarter in the case of an
                annual report) that has materially affected, or is reasonably likely
                to
                materially affect, the registrant’s internal control over financial
                reporting; and




5.
            The
                registrant's other certifying officer(s) and I have disclosed, based
                on
                our most recent evaluation of internal control over financial reporting,
                to the registrant's auditors and the audit committee of the registrant's
                board of directors (or persons performing the equivalent
                functions):


(a)
            All
                significant deficiencies and material weaknesses in the design or
                operation of internal control over financial reporting which are
                reasonably likely to adversely affect the registrant’s ability to record,
                process, summarize and report financial information;
                and


(b)
            Any
                fraud, whether or not material, that involves management or other
                employees who have a significant role in the registrant's internal
                control
                over financial reporting.





Date:
                March 3, 2006
            /s/ Hal
                BrownHal
                Brown, President & CEO





70








**CERTIFICATION**




I,
      Michael A. Reynolds, certify that:


1.
            I
                have reviewed this Form 10-K of Pacific Continental
                Corporation;




2.
            Based
                on my knowledge, this report does not contain any untrue statement
                of a
                material fact or omit to state a material fact necessary to make
                the
                statements made, in light of the circumstances under which such statements
                were made, not misleading with respect to the period covered by this
                report;




3.
            Based
                on my knowledge, the financial statements, and other financial information
                included in this report, fairly present in all material respects
                the
                financial condition, results of operations and cash flows of the
                registrant as of, and for, the periods presented in this report;




4.
            The
                registrant's other certifying officer(s) and I are responsible for
                establishing and maintaining disclosure controls and procedures (as
                defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal
                control over financial reporting (as defined in Exchange Act Rules
                13a-15(f) and 15d-15(f)) for the registrant and
                have:




(a)
            Designed
                such disclosure controls and procedures, or caused such disclosure
                controls and procedures to be designed under our supervision, to
                ensure
                that material information relating to the registrant, including its
                consolidated subsidiaries, is made known to us by others within those
                entities, particularly during the period in which this report is
                being
                prepared;




(b)
            Designed
                such internal control over financial reporting, or caused such internal
                control over financial reporting to be designed under our supervision,
                to
                provide reasonable assurance regarding the reliability of financial
                reporting and the preparation of financial statements for external
                purposes in accordance with generally accepted accounting
                principles;




(c)
            Evaluated
                the effectiveness of the registrant's disclosure controls and procedures
                and presented in this report our conclusions about the effectiveness
                of
                the disclosure controls and procedures, as of the end of the period
                covered by this report based on such evaluation;
                and




(d)
            Disclosed
                in this report any change in the registrant’s internal control over
                financial reporting that occurred during the registrant’s most recent
                fiscal quarter (the registrant’s fourth fiscal quarter in the case of an
                annual report) that has materially affected, or is reasonably likely
                to
                materially affect, the registrant’s internal control over financial
                reporting; and




5.
            The
                registrant's other certifying officer(s) and I have disclosed, based
                on
                our most recent evaluation of internal control over financial reporting,
                to the registrant's auditors and the audit committee of the registrant's
                board of directors (or persons performing the equivalent
                functions):


(a)
            All
                significant deficiencies and material weaknesses in the design or
                operation of internal control over financial reporting which are
                reasonably likely to adversely affect the registrant’s ability to record,
                process, summarize and report financial information;
                and


(b)
            Any
                fraud, whether or not material, that involves management or other
                employees who have a significant role in the registrant's internal
                control
                over financial reporting.





Date:
      March 3, 2006     /s/
      Michael A. Reynolds


Michael
      A. Reynolds,
      Executive Vice President & CFO





71


**CERTIFICATION
      PURSUANT TO**


**18
      U.S.C. SECTION 1350,**


**AS
      ADOPTED PURSUANT TO**


**SECTION
      906 OF THE SARBANES-OXLEY ACT OF 2002**











In
      connection with the Annual Report of Pacific Continental Corporation (the
“Company”) on Form 10-K for the period ending December 31, 2005 as filed with
      the Securities and Exchange Commission on the date hereof (the “Report”), we,
      Hal M. Brown, Chief Executive Officer, and Michael A. Reynolds, Chief Financial
      Officer, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
      Section 906 of the Sarbanes-Oxley Act of 2002, that:





(1)
            The
                Report fully complies with the requirements of Section 13(a) or 15(d)
                of
                the Securities Exchange Act of 1934;
                and





(2)
            The
                information contained in the Report fairly presents, in all material
                respects, the financial condition and results of operations of the
                Company.








/s/
                Hal M. Brown
            /s/
                Michael A. ReynoldsHal
                M. Brown
            Michael
                A. ReynoldsChief
                Executive Officer
            Chief
                Financial Officer