##### Table of Contents









SECURITIES & EXCHANGE
COMMISSION

Washington D.C. 20549




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Form 10-K

|  |  |                                                                                                 
|- |  | ------------------------------------------------------------------------------------------------
|þ |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR
    15(d) OF THE SECURITIES EXCHANGE
    ACT OF 1934    
| 
|o |  | TRANSITION REPORT PURSUANT TO SECTION 13
    OR 15(d) OF THE SECURITIES EXCHANGE
    ACT OF 1934
| 
|  |  | For the fiscal year ended December 31,
    2003                                                 

Commission file number 0-30106



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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:

$1.00 Par Value Common Stock


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 þ          No o

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.     þ

Indicate by check mark whether the Registrant is
an accelerated filer (as defined by Exchange Act
Rule 12b-2).     Yes o          No þ

The aggregate market value of the voting stock
held by non-affiliates of the Registrant at June 30, 2003
(the last business day of the most recent second quarter) was
$67,488,616 (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 5,
2004, was 6,818,756 shares of $1.00 par value Common
Stock.

DOCUMENTS INCORPORATED BY REFERENCE

Part III incorporates by reference
information from the registrants definitive proxy
statement for the 2004 annual meeting of shareholders.



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TABLE OF CONTENTS



|                                                                                              |  |  |  |  |  |  |  | 
|--------------------------------------------------------------------------------------------- |  |  |  |  |  |  |  | 
|PART I                                                                                       
|Item 1. Business                                                                             
|Item 2. Properties                                                                           
|Item 3. Legal Proceedings                                                                    
|Item 4. Submissions of Matters to a Vote of Security Holders                                 
|PART II                                                                                      
|Item 5. Market for Registrants Common Equity and Related Stockholder Matters                
|Item 6. Selected Financial Data                                                              
|Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
|Item 7A. Quantitative and Qualitative Disclosures About Market Risk                          
|Item 8. Financial Statements and Supplementary Data                                          
|Item 9. Changes In and Disagreements with Accountants on Accounting and Financial Disclosure 
|Item 9A. Controls and Procedures Evaluation of Disclosure Controls and Procedures            
|PART III                                                                                     
|Item 10. Directors and Executive Officers of the Company                                     
|Item 11. Executive Compensation                                                              
|Item 12. Security Ownership of Certain Beneficial Owners and Management                      
|Item 13. Certain Relationships and Related Transactions                                      
|Item 14. Principal Accountant Fees and Services                                              
|Item 15. Exhibits and Reports on Form 8-K                                                    
|EXHIBIT 14                                                                                   
|EXHIBIT 23.1                                                                                 
|EXHIBIT 31.1                                                                                 
|EXHIBIT 31.2                                                                                 
|EXHIBIT 32.1                                                                                 



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##### Table of Contents



PACIFIC CONTINENTAL CORPORATION

FORM 10-K

ANNUAL REPORT


TABLE OF CONTENTS

|                                                                                                                                                                                                      |  |                                                                                           |    |      |    | 
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------------------------------------------------------------------------------- | -- | ---- | -- | 
|                                                                                                                                                                                                      |  |                                                                                           |    | Page
|                                                                                                                                                                                                      |  |                                                                                           |    |     
|PART I                                                                                                                                                                                               
|Item 1.                                                                                                                                                                                               |  | Business                                                                                  |    |      | 2  | 
|Item 2:                                                                                                                                                                                               |  | Properties                                                                                |    |      | 13 | 
|Item 3:                                                                                                                                                                                               |  | Legal Proceedings                                                                         |    |      | 14 | 
|Item 4:                                                                                                                                                                                               |  | Submission of Matters to a Vote of Security
    Holders                                   |    |      | 14 | 
|PART II                                                                                                                                                                                              
|Item 5:                                                                                                                                                                                               |  | Market for Companys Common Equity and
    Related Stockholder Matters                    |    |      | 14 | 
|Item 6:                                                                                                                                                                                               |  | Selected Financial Data                                                                   |    |      | 15 | 
|Item 7:                                                                                                                                                                                               |  | Managements Discussion and Analysis of
    Financial Condition and Results of Operations |    |      | 16 | 
|Item 7a:                                                                                                                                                                                              |  | Quantitative and Qualitative Disclosures About
    Market Risk                            |    |      | 26 | 
|Item 8:                                                                                                                                                                                               |  | Financial Statements and Supplementary Data                                               |    |      | 28 | 
|Item 9:                                                                                                                                                                                               |  | Changes In and Disagreements with Accountants on
    Accounting and Financial Disclosure  |    |      | 49 | 
|Item 9a:                                                                                                                                                                                              |  | Controls and Procedures                                                                   |    |      | 49 | 
|PART III                                                                                                                                                                                             
|(Items 10 through 13 are incorporated by
    reference from Pacific Continental Corporations definitive
    proxy statement for the annual meeting of shareholders scheduled
    for April 20, 2004) |  |                                                                                           |    |     
|Item 10:                                                                                                                                                                                              |  | Directors and Executive Officers of the Company                                           |    |      | 49 | 
|Item 11:                                                                                                                                                                                              |  | Executive Compensation                                                                    |    |      | 49 | 
|Item 12:                                                                                                                                                                                              |  | Security Ownership of Certain Beneficial Owners
    and Management                        |    |      | 49 | 
|Item 13:                                                                                                                                                                                              |  | Certain Relationships and Related Transactions                                            |    |      | 50 | 
|Item 14:                                                                                                                                                                                              |  | Principal Accountant Fees and Reports                                                     |    |      | 50 | 
|Item 15:                                                                                                                                                                                              |  | Exhibits, Financial Statement Schedules, and
    Reports on Form 8-K                      |    |      | 50 | 
|Signatures                                                                                                                                                                                            |  |                                                                                           | 51 |     

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PART I









|        |         
|------- | --------
|Item 1. | Business

General

Pacific Continental Corporation (the
Company or the Registrant) is an Oregon
corporation and one-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). At
December 31, 2003, the Bank had facilities in seven Oregon
cities and towns and operated ten full-service offices and two
consumer finance lending office. In September 2003, the Company
closed a limited-service facility in Halsey, Oregon. Also,
during 2003, the Company purchased a consumer finance office
from CitiFinancial. This office is located in Coos Bay, Oregon.
The Company continues to look for profitable ways to expand its
business, including branching, new lending offices, and
acquisition opportunities.

Results

For the year ended December 31, 2003, the
operations of the Company on a combined basis earned net income
of $6.8 million or $0.99 per diluted share. At
December 31, 2003, the consolidated equity of the Company
was $42.2 million with 6.8 million shares outstanding
and a book value of $6.22 per share. Total assets were
$425.8 million. Loans, including loans held for sale, net
of allowance for loan losses, were $350.9 million at
December 31, 2003 and represented 82% of total assets.
Deposits totaled $356.1 million at year-end 2003. For more
information regarding the Companys results, see
Managements Discussion and Analysis of Financial
Condition and Results of Operation 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, 2003, the Bank operated ten banking
offices and two consumer finance lending offices serving Western
Oregon and Clark County in Southwest Washington State. The Bank
specializes in meeting the deposit and lending needs of
community-based businesses, professional service groups 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.

Primary Market Area

The Banks markets consist of Lane,
Multnomah, Washington, and Clackamas Counties in the State of
Oregon and Southwest Washington State. The Bank has ten
full-service offices and two consumer finance offices. The Bank
has seven full-service offices and one consumer finance lending
office in Lane County, two full-service offices in Washington
County, one full-service office in Multnomah County and one
consumer finance office in Coos County. Within Lane County, the
Bank has its administrative office and five branch offices and
one consumer finance lending office in Eugene, one branch office
in Springfield, and one branch office in Junction City. Within
Washington County, the Bank has a branch office in Beaverton and
one branch office in Tualatin. Within Multnomah County, the Bank
has one branch office in Portland. Within Coos County, the Bank
has one consumer finance lending office.

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Competition

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

Services Provided



| |                   
| | ------------------
| | Lending Activities

The Bank emphasizes two areas of lending within
its primary market area: loans to community-based businesses,
professional service groups, 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 operating in Lane, Multnomah,
Clackamas, and Washington Counties and surrounding areas,
including Clark County in Southwest Washington. 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 loans guaranteed by the Farm Service
Agency. The Bank has 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. The Bank uses an outside vendor for credit
card processing. In addition, the Bank provides merchant
bankcard processing services to the Banks business
customers through an outside processor.

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 rates, collateral appraisals, and interest rates.
The loan policies also vest varying levels of loan authority in
management, the Banks Loan Committee, and the Board
of Directors. Management of the Bank monitors lending activities
through management meetings, weekly loan committee meetings,
monthly reporting, and periodic review of loans.

During 2002, the Bank opened a consumer finance
lending operation as a division of the Bank. During 2003, the
Bank purchased a consumer finance lending office from
CitiFinancial in Coos Bay, Oregon. Presently, this operation
consists of two lending offices in Eugene and Coos Bay. At
December 31, 2003, this division had approximately
$9.1 million in outstanding loans. This division of the
Bank makes 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.

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| |                 
| | ----------------
| | Deposit Services

The Bank offers a full range of deposit services
that are typically available in most banks and savings banks,
including checking accounts, savings, money market accounts, and
time deposits. The transaction accounts and time deposits are
tailored to the Banks primary market area at rates
competitive with those offered in the area. Additional deposits
are generated through national networks for institutional
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.

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, Explore, and Plus ATM
networks and utilizes an outside processor for the processing of
these automated transactions.

Employees

At December 31, 2003, the Bank employed
156 full-time equivalent employees. None of these employees
are represented by labor unions. 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.



| |                                            
| | -------------------------------------------
| | 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

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which, 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 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.

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.

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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 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 the state, 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 the state.

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,

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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.

Corporate
Governance and Accounting Legislation

Sarbanes-Oxley Act of
2002.On July 30, 2002, the
President signed into law the Sarbanes-Oxley Act of 2002 (the
Act) to address corporate and accounting fraud. The
Act establishes a new accounting oversight board to enforce
auditing standards and restricts the scope of services that
accounting firms may provide to their public company audit
clients. Among other things, 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 disclose 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. We anticipate that we will incur
additional expense as a result of the Act, but we do not expect
that such compliance will have a material impact on our business.

Anti-terrorism
Legislation

USA Patriot Act of
2001.On October 26, 2001,
President Bush signed the Uniting and Strengthening America by
Providing Appropriate Tools Required to Intercept and Obstruct
Terrorism (USA Patriot Act) of 2001. 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

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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.

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 these 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.

8



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##### Table of Contents



Statistical Information

Most of the information is required by Guide 3,
as adopted by the Securities and Exchange Commission.

Selected
Quarterly Information

The following chart contains data for the last
eight quarters ending December 31, 2003. All data, except
per share data, is in thousands of dollars.

|                        |  |        |       |       |  |        |       |       |  |        |       |       |  |        |       |       |  |   |       |  |  |   |       |  |  |   |       |  |  |   |       | 
|----------------------- |  | ------ | ----- | ----- |  | ------ | ----- | ----- |  | ------ | ----- | ----- |  | ------ | ----- | ----- |  | - | ----- |  |  | - | ----- |  |  | - | ----- |  |  | - | ----- | 
|                        |  |        |       |      
|                        |  | 2003   |       | 2002 
|Year                    |  |        |       |      
|Quarter                 |  | Fourth |       | Third |  | Second |       | First |  | Fourth |       | Third |  | Second |       | First
|                        |  |        |       |       |  |        |       |       |  |        |       |       |  |        |       |      
|Interest income         |  | $      | 6,809 |       |  | $      | 6,501 |       |  | $      | 6,742 |       |  | $      | 6,477 |       |  | $ | 6,442 |  |  | $ | 6,195 |  |  | $ | 5,951 |  |  | $ | 5,638 | 
|Interest expense        |  |        | 1,049 |       |  |        | 1,065 |       |  |        | 1,102 |       |  |        | 1,093 |       |  |   | 1,183 |  |  |   | 1,194 |  |  |   | 1,101 |  |  |   | 1,059 | 
|Net interest income     |  |        | 5,760 |       |  |        | 5,436 |       |  |        | 5,640 |       |  |        | 5,384 |       |  |   | 5,259 |  |  |   | 5,001 |  |  |   | 4,850 |  |  |   | 4,579 | 
|Provision for loan loss |  |        | 100   |       |  |        | 0     |       |  |        | 200   |       |  |        | 600   |       |  |   | 600   |  |  |   | 2,050 |  |  |   | 525   |  |  |   | 2,485 | 
|Noninterest income      |  |        | 1,116 |       |  |        | 1,297 |       |  |        | 1,167 |       |  |        | 1,366 |       |  |   | 1,301 |  |  |   | 1,028 |  |  |   | 858   |  |  |   | 1,014 | 
|Noninterest expense     |  |        | 3,879 |       |  |        | 3,744 |       |  |        | 3,779 |       |  |        | 3,800 |       |  |   | 3,330 |  |  |   | 3,266 |  |  |   | 3,069 |  |  |   | 2,930 | 
|Net income              |  |        | 1,795 |       |  |        | 1,847 |       |  |        | 1,743 |       |  |        | 1,446 |       |  |   | 1,606 |  |  |   | 411   |  |  |   | 1,327 |  |  |   | 110   | 
|PER COMMON SHARE DATA   |  |        |       |       |  |        |       |       |  |        |       |       |  |        |       |       |  |   |       |  |  |   |       |  |  |   |       |  |  |   |       | 
|Net income (basic)(1)   |  | $      | 0.27  |       |  | $      | 0.27  |       |  | $      | 0.25  |       |  | $      | 0.22  |       |  | $ | 0.25  |  |  | $ | 0.06  |  |  | $ | 0.19  |  |  | $ | 0.02  | 
|Cash dividends(1)       |  | $      | .07   |       |  | $      | .0675 |       |  | $      | .0675 |       |  | $      | .0675 |       |  | $ | 0.06  |  |  | $ | 0.06  |  |  | $ | 0.06  |  |  | $ | 0.06  | 



---



|    |                                                                                                  
|--- | -------------------------------------------------------------------------------------------------
|(1) | All per share data has been retroactively
    adjusted for 4-for-3 stock split in September 2003.

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 market value.
The difference between estimated fair value and amortized cost,
net of deferred taxes, is a separate component of
stockholders equity.

INVESTMENT PORTFOLIO

ESTIMATED MARKET VALUE


|                                                                                                |       |                        |        |        |  |      |       |        |  |   |        |        | 
|----------------------------------------------------------------------------------------------- | ----- | ---------------------- | ------ | ------ |  | ---- | ----- | ------ |  | - | ------ | ------ | 
|                                                                                                |       |                       
|                                                                                                |       | December 31,          
|                                                                                                |       |                       
|                                                                                                |       | 2003                   |        | 2002   |  | 2001
|                                                                                                |       |                        |        |        |  |     
|                                                                                                |       |                       
|                                                                                                |       | (Dollars in thousands)
|US Treasury, US Government agencies and
    corporations, and agency mortgage-backed securities |       | $                      | 6,477  |        |  | $    | 1,047 |        |  | $ | 3,930  |       
|Obligations of states and political subdivisions                                                |       |                        | 2,993  |        |  |      | 118   |        |  |   | 1,513  |       
|Other mortgage-backed securities &
    corporate notes                                          |       |                        | 20,559 |        |  |      | 9,680 |        |  |   | 14,684 |       
|                                                                                                |       |                        |        |        |  |      |       |        |  |   |        |       
|                                                                                                | Total |                        | $      | 30,029 |  |      | $     | 10,845 |  |   | $      | 20,127 | 

9



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##### Table of Contents



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, 2003 projected
average life.

SECURITIES AVAILABLE-FOR-SALE

DECEMBER 31, 2003


|                                                                              |  |                        |       |            |  |            |      |           |  |        |        |       |  |        |      |       |  |   |       |  |  |  |      |   |  |   |       |  |  |  |      |  
|----------------------------------------------------------------------------- |  | ---------------------- | ----- | ---------- |  | ---------- | ---- | --------- |  | ------ | ------ | ----- |  | ------ | ---- | ----- |  | - | ----- |  |  |  | ---- | - |  | - | ----- |  |  |  | ---- | -
|                                                                              |  |                        |       |            |  |            |      |           |  |        |        |      
|                                                                              |  |                        |       |            |  | After      |      | After     |  |        |        |      
|                                                                              |  |                        |       | One Year   |  | Five Years |      |          
|                                                                              |  | Within                 |       | But Within |  | But Within |      | After    
|                                                                              |  | One Year               |       | Five Years |  | Ten Years  |      | Ten Years
|                                                                              |  |                        |       |            |  |            |      |          
|                                                                              |  | Amount                 |       | Yield      |  | Amount     |      | Yield     |  | Amount |        | Yield |  | Amount |      | Yield
|                                                                              |  |                        |       |            |  |            |      |           |  |        |        |       |  |        |      |      
|                                                                              |  |                       
|                                                                              |  | (Dollars in thousands)
|US Treasury, US Government agencies and agency
    mortgage-backed securities |  | $                      | 1,977 |            |  |            | 1.70 | %         |  | $      | 23,060 |       |  |        | 3.51 | %     |  | $ | 1,999 |  |  |  | 4.38 | % |  | $ |      |  |  |  |     |  
|Obligations of states and political subdivisions                              |  |                        |      |            |  |            |     |           |  |        | 438    |       |  |        | 3.30 | %     |  |   | 1,492 |  |  |  | 3.75 | % |  |   | 1,062 |  |  |  | 3.53 | %
|                                                                              |  |                        |       |            |  |            |      |           |  |        |        |       |  |        |      |       |  |   |       |  |  |  |      |   |  |   |       |  |  |  |      |  
|Total                                                                         |  | $                      | 1,977 |            |  |            | 1.70 | %         |  | $      | 23,498 |       |  |        | 3.51 | %     |  | $ | 3,491 |  |  |  | 4.11 | % |  | $ | 1,062 |  |  |  | 3.53 | %

Loan
Portfolio

The following tables contain information related
to the Companys loan portfolio, including loans held for
sale, for the five-year period ending December 31, 2003.

LOAN PORTFOLIO

|                               |  |                        |         |      |  |      |         |      |  |      |         |   |  |   |         |   |  |   |         |  
|------------------------------ |  | ---------------------- | ------- | ---- |  | ---- | ------- | ---- |  | ---- | ------- | - |  | - | ------- | - |  | - | ------- | -
|                               |  |                       
|                               |  | December 31,          
|                               |  |                       
|                               |  | 2003                   |         | 2002 |  | 2001 |         | 2000 |  | 1999
|                               |  |                        |         |      |  |      |         |      |  |     
|                               |  |                       
|                               |  | (Dollars in thousands)
|Loan Portfolio                 |  |                        |         |      |  |      |         |      |  |      |         |   |  |   |         |   |  |   |         |  
|Commercial Loans               |  | $                      | 89,127  |      |  | $    | 94,345  |      |  | $    | 63,058  |   |  | $ | 54,798  |   |  | $ | 56,485  |  
|Real Estate Loans              |  |                        | 255,150 |      |  |      | 222,727 |      |  |      | 169,776 |   |  |   | 159,481 |   |  |   | 144,869 |  
|Loans held for sale            |  |                        | 1,958   |      |  |      | 5,546   |      |  |      | 1,924   |   |  |   | 814     |   |  |   | 2,767   |  
|Consumer Installment Loans     |  |                        | 11,424  |      |  |      | 9,579   |      |  |      | 9,454   |   |  |   | 10,582  |   |  |   | 8,984   |  
|                               |  |                        |         |      |  |      |         |      |  |      |         |   |  |   |         |   |  |   |         |  
|                               |  |                        | 357,659 |      |  |      | 332,197 |      |  |      | 244,212 |   |  |   | 225,675 |   |  |   | 213,105 |  
|Deferred loan origination fees |  |                        | (1,582  | )    |  |      | (1,394  | )    |  |      | (1,111  | ) |  |   | (1,081  | ) |  |   | (1,125  | )
|                               |  |                        |         |      |  |      |         |      |  |      |         |   |  |   |         |   |  |   |         |  
|                               |  |                        | 356,077 |      |  |      | 330,803 |      |  |      | 243,101 |   |  |   | 224,594 |   |  |   | 211,980 |  
|Allowance for loan loss        |  |                        | (5,225  | )    |  |      | (4,403  | )    |  |      | (3,418  | ) |  |   | (2,149  | ) |  |   | (2,448  | )
|                               |  |                        |         |      |  |      |         |      |  |      |         |   |  |   |         |   |  |   |         |  
|                               |  | $                      | 350,852 |      |  | $    | 326,400 |      |  | $    | 239,683 |   |  | $ | 222,445 |   |  | $ | 209,532 |  

10



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##### Table of Contents



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 $2,051 are included. Loans held
for sale of $1,958 are included in the Real Estate category.

MATURITY AND REPRICING DATA FOR
LOANS

December 31, 2003


|                                    |             |                        |        |             |  |          |        |         |  |   |       |        |  |   |         |         | 
|----------------------------------- | ----------- | ---------------------- | ------ | ----------- |  | -------- | ------ | ------- |  | - | ----- | ------ |  | - | ------- | ------- | 
|                                    |             | Commercial             |        | Real Estate |  | Consumer |        | Total  
|                                    |             |                        |        |             |  |          |        |        
|                                    |             |                       
|                                    |             | (Dollars in thousands)
|Three months or less                |             | $                      | 81,105 |             |  | $        | 97,932 |         |  | $ | 7,875 |        |  | $ | 186,912 |        
|Over three months through 12 months |             |                        | 4,720  |             |  |          | 4,149  |         |  |   | 2,249 |        |  |   | 11,118  |        
|Over 1 year through 3 years         |             |                        | 2,635  |             |  |          | 45,215 |         |  |   | 1,184 |        |  |   | 49,034  |        
|Over 3 years through 5 years        |             |                        | 667    |             |  |          | 61,752 |         |  |   | 102   |        |  |   | 62,521  |        
|Over 5 years through 15 years       |             |                        |       |             |  |          | 48,060 |         |  |   | 14    |        |  |   | 48,074  |        
|                                    |             |                        |        |             |  |          |        |         |  |   |       |        |  |   |         |        
|                                    | Total loans |                        | $      | 89,127      |  |          | $      | 257,108 |  |   | $     | 11,424 |  |   | $       | 357,659 | 

Loan Concentrations

No single industry group in the loan portfolio
represents more than 10% of outstanding loans at
December 31, 2003. However, approximately 70% of the
Banks loans are secured by real estate. The largest
concentrations of loans are residential construction at 7% and
medical professionals at 6%. At year end there were no
nonaccrual loans and no impaired loans in either of these
industries. The granular nature of the portfolio, both from
industry mix and loan size, continues to disburse risk
concentration.

Loans in the hotel/motel industry have contracted
to less than 6% of the total loan portfolio at December 31,
2003, a reduction from 8% at previous fiscal year end. There
were no foreclosed or non-accrual hotel/motel properties
remaining as of year end. One restructured loan in this industry
totaled $1,896 and is performing according to the restructured
terms of the loan. All other hotel/motel loans also are
performing according to their contractual terms. In view of the
uncertainties in the hotel/motel industry, the Company continues
to carefully monitor loans made by the Bank in this industry.

|                                                        |                            |              |       |       |  |      |        |       |  |      |        |       |  |   |      |       |  |   |       |       | 
|------------------------------------------------------- | -------------------------- | ------------ | ----- | ----- |  | ---- | ------ | ----- |  | ---- | ------ | ----- |  | - | ---- | ----- |  | - | ----- | ----- | 
|                                                        |                            |             
|                                                        |                            | December 31,
|                                                        |                            |             
|                                                        |                            | 2003         |       | 2002  |  | 2001 |        | 2000  |  | 1999
|                                                        |                            |              |       |       |  |      |        |       |  |     
|Nonperforming Assets                                    |                            |              |       |       |  |      |        |       |  |      |        |       |  |   |      |       |  |   |       |      
|Nonaccrual loans                                        |                            | $            | 1,506 |       |  | $    | 6,176  |       |  | $    | 6,049  |       |  | $ | 490  |       |  | $ | 1,422 |      
|90 or more days past due and still accruing             |                            |              | 545   |       |  |      | 359    |       |  |      | 953    |       |  |   | 155  |       |  |   | 464   |      
|                                                        |                            |              |       |       |  |      |        |       |  |      |        |       |  |   |      |       |  |   |       |      
|                                                        | Total nonperforming loans  |              |       | 2,051 |  |      |        | 6,535 |  |      |        | 7,002 |  |   |      | 645   |  |   |       | 1,886 | 
|Government guarantees                                   |                            |              | (233  | )     |  |      | (1,563 | )     |  |      | (1,020 | )     |  |   | 0    |       |  |   | (160  | )    
|                                                        |                            |              |       |       |  |      |        |       |  |      |        |       |  |   |      |       |  |   |       |      
|                                                        | Net nonperforming loans    |              |       | 1,818 |  |      |        | 4,972 |  |      |        | 5,982 |  |   |      | 645   |  |   |       | 1,726 | 
|Foreclosed assets                                       |                            |              | 411   |       |  |      | 864    |       |  |      | 0      |       |  |   | 385  |       |  |   | 125   |      
|                                                        |                            |              |       |       |  |      |        |       |  |      |        |       |  |   |      |       |  |   |       |      
|                                                        | Total nonperforming assets |              | $     | 2,229 |  |      | $      | 5,836 |  |      | $      | 5,982 |  |   | $    | 1,030 |  |   | $     | 1,851 | 
|Nonperforming assets as a percentage of total
    loans |                            |              | 0.63  | %     |  |      | 1.76   | %     |  |      | 2.46   | %     |  |   | 0.46 | %     |  |   | 0.87  | %    

If interest on nonaccrual loans had been accrued,
such income would have been approximately $159, $446, and $371,
respectively, for years 2003, 2002 and 2001.

11



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##### Table of Contents





| |                        
| | -----------------------
| | Allowance for Loan Loss

The following chart presents information about
the Companys allowances for loan loss. 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

|                                                           |                                        |                            |       |        |      |      |       |        |        |      |       |       |      |   |       |        |        |   |       |      |      |  
|---------------------------------------------------------- | -------------------------------------- | -------------------------- | ----- | ------ | ---- | ---- | ----- | ------ | ------ | ---- | ----- | ----- | ---- | - | ----- | ------ | ------ | - | ----- | ---- | ---- | -
|                                                           |                                        |                           
|                                                           |                                        | December 31,              
|                                                           |                                        |                           
|                                                           |                                        | 2003                       |       | 2002   |      | 2001 |       | 2000   |        | 1999
|                                                           |                                        |                            |       |        |      |      |       |        |        |     
|                                                           |                                        |                           
|                                                           |                                        | (Dollars in thousands)    
|Allowance for loan losses                                  |                                        |                            |       |        |      |      |       |        |        |      |       |       |      |   |       |        |        |   |       |     
|Balance at beginning of year                               |                                        | $                          | 4,403 |        |      | $    | 3,418 |        |        | $    | 2,149 |       |      | $ | 2,448 |        |        | $ | 2,070 |     
|                                                           | Charges to the allowance               |                            |       |        |      |      |       |        |        |      |       |       |      |   |       |        |        |   |       |      |     
|                                                           |                                        | Real estate loans          |       |        | (843 | )    |       |        | (4,138 | )    |       |       | (54  | ) |       |        | (336   | ) |       |      | (248 | )
|                                                           |                                        | Consumer installment loans |       |        | (104 | )    |       |        | (123   | )    |       |       | (99  | ) |       |        | (208   | ) |       |      | (80  | )
|                                                           |                                        | Commercial                 |       |        | (238 | )    |       |        | (542   | )    |       |       | (121 | ) |       |        | (1,185 | ) |       |      | (49  | )
|                                                           |                                        |                            |       |        |      |      |       |        |        |      |       |       |      |   |       |        |        |   |       |     
|                                                           | Total charges to the allowance         |                            |       | (1,185 | )    |      |       | (4,803 | )      |      |       | (274  | )    |   |       | (1,729 | )      |   |       | (377 | )   
|                                                           | Recoveries against the allowance       |                            |       |        |      |      |       |        |        |      |       |       |      |   |       |        |        |   |       |      |     
|                                                           |                                        | Real estate loans          |       |        | 799  |      |       |        | 49     |      |       |       | 8    |   |       |        | 48     |   |       |      | 1    |  
|                                                           |                                        | Consumer installment loans |       |        | 15   |      |       |        | 10     |      |       |       | 29   |   |       |        | 7      |   |       |      | 5    |  
|                                                           |                                        | Commercial                 |       |        | 103  |      |       |        | 69     |      |       |       | 51   |   |       |        | 35     |   |       |      | 14   |  
|                                                           |                                        |                            |       |        |      |      |       |        |        |      |       |       |      |   |       |        |        |   |       |     
|                                                           | Total recoveries against the allowance |                            |       | 917    |      |      |       | 128    |        |      |       | 88    |      |   |       | 90     |        |   |       | 20   |     
|                                                           |                                        |                            |       |        |      |      |       |        |        |      |       |       |      |   |       |        |        |   |       |     
|                                                           | Acquisition                            |                            |       | 190    |      |      |       | 0      |        |      |       | 0     |      |   |       | 0      |        |   |       | 0    |     
|                                                           | Provisions                             |                            |       | 900    |      |      |       | 5,660  |        |      |       | 1,455 |      |   |       | 1,340  |        |   |       | 735  |     
|                                                           |                                        |                            |       |        |      |      |       |        |        |      |       |       |      |   |       |        |        |   |       |     
|Balance at end of the year                                 |                                        | $                          | 5,225 |        |      | $    | 4,403 |        |        | $    | 3,418 |       |      | $ | 2,149 |        |        | $ | 2,448 |     
|Net charge offs as a percentage of total average
    loans |                                        |                            | 0.08  | %      |      |      | 1.62  | %      |        |      | 0.08  | %     |      |   | 0.72  | %      |        |   | 0.18  | %   

At December 31, 2003, the recorded
investment in certain loans totaling $3,168 (net of government
guarantees), were considered impaired. Impaired loans at
December 31, 2003 consist of $1,276 in nonaccrual loans and
one restructured motel/hotel loan totaling $1,896. A specific
related valuation of $628 is provided for these loans and is
included in the $5,225 ending allowance at December 31,
2003.

In April 2003, the Bank acquired the Coos Bay
Finance office of CitiFinancial for $6,863 in cash. This office
was combined with Pacific Continental Finance, a division of the
Bank. The allocation of the purchase price resulted in a $190
increase in the allowance for loan losses. The acquisition was
accounted for under the purchase method of accounting.

12



---



##### Table of Contents



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
later in this report. The chart below details the Companys
time deposits at December 31, 2003. The Company does not
have any foreign deposits. Variable rate deposits are listed by
first repricing opportunity.

TIME DEPOSITS

|                                        |  |                        |        |               |  |            |        |  |  |   |        | 
|--------------------------------------- |  | ---------------------- | ------ | ------------- |  | ---------- | ------ |  |  | - | ------ | 
|                                        |  | Time Deposits          |        | Time Deposits |  |           
|                                        |  | of $100,000 or         |        | of Less Than  |  | Total Time
|                                        |  | More                   |        | $100,000      |  | Deposits  
|                                        |  |                        |        |               |  |           
|                                        |  |                       
|                                        |  | (Dollars in thousands)
|Three months or less                    |  | $                      | 12,289 |               |  | $          | 3,042  |  |  | $ | 15,331 | 
|Over three months through twelve months |  |                        | 10,449 |               |  |            | 17,960 |  |  |   | 28,409 | 
|Over one year through three years       |  |                        | 5,021  |               |  |            | 4,477  |  |  |   | 9,498  | 
|Over three years                        |  |                        | 202    |               |  |            | 1,068  |  |  |   | 1,270  | 
|                                        |  |                        |        |               |  |            |        |  |  |   |        | 
|                                        |  | $                      | 27,961 |               |  | $          | 26,547 |  |  | $ | 54,508 | 



| |                      
| | ---------------------
| | 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, 2003, the Bank had available unsecured and
secured borrowing lines totaling $145,000. At December 31,
2003, available unsecured borrowing lines with various
correspondent banks and the Federal Reserve Bank of
San Francisco totaled $39,000 ($39,000 available at
December 31, 2003). The Federal Home Loan Bank of
Seattle (FHLB) also provides a secured overnight borrowing
line using a blanket pledge of various Bank assets. The
Banks FHLB borrowing limit, subject to sufficient
collateral and stock investment, was approximately $106,000
($80,000 available) at December 31, 2003.

SHORT-TERM BORROWINGS

|                        |                                             |                        |   |        |      |      |   |        |      |   |   |        |      |  
|----------------------- | ------------------------------------------- | ---------------------- | - | ------ | ---- | ---- | - | ------ | ---- | - | - | ------ | ---- | -
|                        |                                             | 2003                   |   | 2002   |      | 2001
|                        |                                             |                        |   |        |      |     
|                        |                                             |                       
|                        |                                             | (Dollars in thousands)
|Federal Funds Purchased |                                             |                        |   |        |      |      |   |        |      |   |   |       
|                        | Average interest rate                       |                        |   |        |      |      |   |        |      |   |   |        |     
|                        |                                             | At year end            |   |        | 1.10 | %    |   |        | 1.60 | % |   |        | 1.95 | %
|                        |                                             | For the year           |   |        | 1.59 | %    |   |        | 2.00 | % |   |        | 5.01 | %
|                        | Average amount outstanding for the year     |                        | $ | 4,066  |      |      | $ | 3,735  |      |   | $ | 4,577  |     
|                        | Maximum amount outstanding at any month end |                        | $ | 21,710 |      |      | $ | 15,000 |      |   | $ | 10,800 |     
|                        | Amount outstanding at year end              |                        | $ | 0      |      |      | $ | 9,000  |      |   | $ | 0      |     









|        |           
|------- | ----------
|Item 2. | Properties

The principal properties of the registrant are
comprised of the banking facilities owned by the Bank. The Bank
operates ten full service facilities and two consumer finance
offices. The Bank and Bank subsidiaries own a total of six
buildings and owns the land under four of the buildings.
Significant properties owned by the Bank are as follows:



| |    |                                                                                                                                                                                                                                                                                              
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 1) | Three-story building with approximately
    30,000 square feet located on Olive Street in Eugene,
    Oregon. The Bank occupies the first two floors and a portion of
    the third floor. The remainder of the third floor is leased to
    various tenants. The building is on leased land.

13



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##### Table of Contents





| |    |                                                                                                                                                                                                                                                                            
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 2) | Building with approximately 4,000 square
    feet located on West 11th Avenue 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.                                                                                                                                                                               

The Bank leases facilities for branch offices in
Portland, Oregon and Tualatin, Oregon, two branch offices and
one consumer finance lending office located in Eugene, Oregon,
and one consumer finance office in Coos Bay, 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 and anticipated future use.









|        |                  
|------- | -----------------
|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 2003.







PART II









|        |                                                                          
|------- | -------------------------------------------------------------------------
|Item 5. | Market for Registrants Common Equity
    and Related Stockholder Matters

The Companys common stock trades on the
NASDAQ National Market under the symbol PCBK. At March 5,
2004, the Company had 6,818,756 shares of common stock
outstanding held by approximately 1,300 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 a 4-for-3 stock split declared in September 2003.

|              |       |        |   |       |  |        |   |       |  |        |   |       |  |        |   |       |  |  |   |       |  |  |   |       |  |  |   |      |  |  |   |      | 
|------------- | ----- | ------ | - | ----- |  | ------ | - | ----- |  | ------ | - | ----- |  | ------ | - | ----- |  |  | - | ----- |  |  | - | ----- |  |  | - | ---- |  |  | - | ---- | 
|              |       |        |   |      
|              |       | 2003   |   | 2002 
|Year          |       |        |   |      
|Quarter       |       | Fourth |   | Third |  | Second |   | First |  | Fourth |   | Third |  | Second |   | First
|              |       |        |   |       |  |        |   |       |  |        |   |       |  |        |   |      
|Market value: |       |        |   |       |  |        |   |       |  |        |   |       |  |        |   |       |  |  |   |       |  |  |   |       |  |  |   |      |  |  |   |     
|              | High  |        | $ | 15.89 |  |        | $ | 14.51 |  |        | $ | 11.66 |  |        | $ | 11.96 |  |  | $ | 10.95 |  |  | $ | 10.13 |  |  | $ | 9.60 |  |  | $ | 9.68 | 
|              | Low   |        |   | 13.40 |  |        |   | 11.40 |  |        |   | 10.97 |  |        |   | 10.69 |  |  |   | 9.57  |  |  |   | 8.81  |  |  |   | 8.53 |  |  |   | 7.97 | 
|              | Close |        |   | 15.89 |  |        |   | 13.47 |  |        |   | 11.44 |  |        |   | 11.05 |  |  |   | 10.88 |  |  |   | 9.79  |  |  |   | 9.23 |  |  |   | 9.39 | 

14



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##### Table of Contents











|        |                        
|------- | -----------------------
|Item 6. | Selected Financial Data

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

|                         |                                             |                                             |   |         |       |      |   |         |       |      |   |         |       |   |   |         |       |   |   |         |       |  
|------------------------ | ------------------------------------------- | ------------------------------------------- | - | ------- | ----- | ---- | - | ------- | ----- | ---- | - | ------- | ----- | - | - | ------- | ----- | - | - | ------- | ----- | -
|                         |                                             | 2003                                        |   | 2002    |       | 2001 |   | 2000    |       | 1999
|                         |                                             |                                             |   |         |       |      |   |         |       |     
|                         |                                             |                                            
|                         |                                             | ($ in thousands, except for per share data)
|For the year             |                                             |                                             |   |         |       |      |   |         |       |      |   |         |       |   |   |         |       |   |   |        
|                         | Net interest income                         |                                             | $ | 22,220  |       |      | $ | 19,689  |       |      | $ | 18,520  |       |   | $ | 17,262  |       |   | $ | 16,054  |      
|                         | Provision for loan losses                   |                                             | $ | 900     |       |      | $ | 5,660   |       |      | $ | 1,455   |       |   | $ | 1,340   |       |   | $ | 735     |      
|                         | Noninterest income                          |                                             | $ | 4,946   |       |      | $ | 4,200   |       |      | $ | 3,611   |       |   | $ | 2,824   |       |   | $ | 3,320   |      
|                         | Noninterest expense                         |                                             | $ | 15,202  |       |      | $ | 12,594  |       |      | $ | 11,371  |       |   | $ | 10,885  |       |   | $ | 9,901   |      
|                         | Income taxes                                |                                             | $ | 4,233   |       |      | $ | 2,181   |       |      | $ | 3,582   |       |   | $ | 3,053   |       |   | $ | 3,364   |      
|                         | Net income                                  |                                             | $ | 6,831   |       |      | $ | 3,454   |       |      | $ | 5,722   |       |   | $ | 4,808   |       |   | $ | 5,374   |      
|                         | Cash dividends                              |                                             | $ | 1,841   |       |      | $ | 1,610   |       |      | $ | 1,401   |       |   | $ | 1,225   |       |   | $ | 1,323   |      
|Per common share data(1) |                                             |                                             |   |         |       |      |   |         |       |      |   |         |       |   |   |         |       |   |   |        
|                         | Net income:                                 |                                             |   |         |       |      |   |         |       |      |   |         |       |   |   |         |       |   |   |         |      
|                         |                                             | Basic                                       |   | $       | 1.01  |      |   | $       | 0.52  |      |   | $       | 0.86  |   |   | $       | 0.72  |   |   | $       | 0.77  |  
|                         |                                             | Diluted                                     |   | $       | 0.99  |      |   | $       | 0.51  |      |   | $       | 0.84  |   |   | $       | 0.72  |   |   | $       | 0.77  |  
|                         | Cash dividends                              |                                             | $ | 0.27    |       |      | $ | 0.24    |       |      | $ | 0.21    |       |   | $ | 0.19    |       |   | $ | 0.19    |      
|                         | Market value, end of year                   |                                             | $ | 15.89   |       |      | $ | 10.88   |       |      | $ | 9.53    |       |   | $ | 6.05    |       |   | $ | 8.87    |      
|At year end              |                                             |                                             |   |         |       |      |   |         |       |      |   |         |       |   |   |         |       |   |   |        
|                         | Assets                                      |                                             | $ | 425,799 |       |      | $ | 379,846 |       |      | $ | 309,548 |       |   | $ | 294,124 |       |   | $ | 271,088 |      
|                         | Loans, less allowance for loan loss         |                                             | $ | 350,852 |       |      | $ | 326,400 |       |      | $ | 239,683 |       |   | $ | 222,445 |       |   | $ | 209,533 |      
|                         | Deposits                                    |                                             | $ | 356,099 |       |      | $ | 309,909 |       |      | $ | 248,328 |       |   | $ | 250,104 |       |   | $ | 224,175 |      
|                         | Shareholders equity                        |                                             | $ | 42,234  |       |      | $ | 36,698  |       |      | $ | 35,604  |       |   | $ | 30,370  |       |   | $ | 27,111  |      
|Average for the year     |                                             |                                             |   |         |       |      |   |         |       |      |   |         |       |   |   |         |       |   |   |        
|                         | Assets                                      |                                             | $ | 402,195 |       |      | $ | 337,258 |       |      | $ | 299,721 |       |   | $ | 288,589 |       |   | $ | 255,271 |      
|                         | Earning assets                              |                                             | $ | 369,574 |       |      | $ | 305,763 |       |      | $ | 270,702 |       |   | $ | 260,419 |       |   | $ | 230,303 |      
|                         | Loans, less allowance for loan loss         |                                             | $ | 342,192 |       |      | $ | 284,614 |       |      | $ | 234,441 |       |   | $ | 224,119 |       |   | $ | 195,355 |      
|                         | Deposits                                    |                                             | $ | 329,157 |       |      | $ | 271,765 |       |      | $ | 238,856 |       |   | $ | 239,197 |       |   | $ | 207,224 |      
|                         | Interest paying liabilities                 |                                             | $ | 256,442 |       |      | $ | 211,745 |       |      | $ | 195,529 |       |   | $ | 195,214 |       |   | $ | 169,054 |      
|                         | Shareholders equity                        |                                             | $ | 39,758  |       |      | $ | 36,117  |       |      | $ | 33,882  |       |   | $ | 28,626  |       |   | $ | 28,173  |      
|Financial ratios         |                                             |                                             |   |         |       |      |   |         |       |      |   |         |       |   |   |         |       |   |   |        
|                         | Return on average:                          |                                             |   |         |       |      |   |         |       |      |   |         |       |   |   |         |       |   |   |         |      
|                         |                                             | Assets                                      |   |         | 1.70  | %    |   |         | 1.02  | %    |   |         | 1.91  | % |   |         | 1.67  | % |   |         | 2.11  | %
|                         |                                             | Shareholders equity                        |   |         | 17.18 | %    |   |         | 9.56  | %    |   |         | 16.89 | % |   |         | 16.79 | % |   |         | 19.08 | %
|                         | Average shareholders equity/average assets |                                             |   | 9.89    | %     |      |   | 10.71   | %     |      |   | 11.30   | %     |   |   | 9.92    | %     |   |   | 11.04   | %    
|                         | Dividend payout ratio                       |                                             |   | 26.95   | %     |      |   | 46.61   | %     |      |   | 24.48   | %     |   |   | 25.47   | %     |   |   | 24.62   | %    
|                         | Risk-based capital:                         |                                             |   |         |       |      |   |         |       |      |   |         |       |   |   |         |       |   |   |         |      
|                         |                                             | Tier I capital                              |   |         | 10.95 | %    |   |         | 10.23 | %    |   |         | 12.71 | % |   |         | 12.30 | % |   |         | 12.07 | %
|                         |                                             | Tier II capital                             |   |         | 12.20 | %    |   |         | 11.47 | %    |   |         | 13.98 | % |   |         | 13.17 | % |   |         | 13.15 | %



---



|    |                                                                                                                                                  
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Per common share data is retroactively adjusted
    to reflect the 10% stock dividend and 4-for-3 stock split of
    2001 and 2003, respectively.

15



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##### Table of Contents











|        |                                                                                          
|------- | -----------------------------------------------------------------------------------------
|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 thereto 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 certain forward-looking statements
within the meaning of the Private Securities Litigation Reform
Act of 1995 (PSLRA). This statement is included for
the express purpose of availing Pacific Continental Corporation
of the protections of the safe harbor provisions of the PSLRA.
The forward-looking statements contained in this report are
subject to factors, risks, and uncertainties that may cause
actual results to differ materially from those projected.
Important factors that might cause such material differences
include, but are not limited to, those discussed in this section
of the report. In addition, the following items are among the
factors that could cause actual results to differ materially
from the forward-looking statements in this report: general
economic conditions, including their impact on capital
expenditures; business conditions in the banking industry;
recent world events and their impact on interest rates,
businesses and customers; the regulatory environment; new
legislation; heightened national security risks including acts
of terrorism and potential for war; vendor quality and
efficiency; employee retention factors; rapidly changing
technology and evolving banking industry standards; competitive
standards; competitive factors, including increased competition
with community, regional, and national financial institutions;
fluctuating interest rate environments; and similar matters.
Readers are cautioned not to place undue reliance on these
forward-looking statements, which reflect managements
analysis only as of the date of the statement. Pacific
Continental Corporation undertakes no obligation to publicly
revise or update these forward-looking statements to reflect
events or circumstances that arise after the date of this
report. Readers should carefully review the risk factors
described in this and other documents we file from time to time
with the Securities and Exchange Commission.

Highlights

|                     |         |      |         |      |  |          |         |      |  |  |    |    |  
|-------------------- | ------- | ---- | ------- | ---- |  | -------- | ------- | ---- |  |  | -- | -- | -
|                     |         | 2003 |         | 2002 |  | % Growth
|                     |         |      |         |      |  |         
|Operating revenue    |         | $    | 27,166  |      |  | $        | 23,889  |      |  |  | 14 | % 
|Net income           |         | $    | 6,831   |      |  | $        | 3,454   |      |  |  | 98 | % 
|Earnings per share   |         |      |         |      |  |          |         |      |  |  |    |   
|                     | Basic   |      | $       | 1.01 |  |          | $       | 0.52 |  |  |    | 94 | %
|                     | Diluted |      | $       | 0.99 |  |          | $       | 0.51 |  |  |    | 94 | %
|Assets, period-end   |         | $    | 425,799 |      |  | $        | 379,846 |      |  |  | 12 | % 
|Deposits, period-end |         | $    | 356,099 |      |  | $        | 309,909 |      |  |  | 15 | % 
|Return on assets     |         |      | 1.70    | %    |  |          | 1.02    | %    |  |  |    |   
|Return on equity     |         |      | 17.18   | %    |  |          | 9.56    | %    |  |  |    |   

Per share data for 2003 and all prior years was
retroactively adjusted to reflect the 4-for-3 stock split
declared during the third quarter 2003. In addition, the Company
changed its method of reporting merchant bankcard processing
fees. During the fourth quarter 2003, the Company began netting
interchange processing expenses against merchant bankcard
income. Previously, the Company reported interchange processing
expenses as a component of noninterest expense. As a result, all
prior period reported results for noninterest income and
noninterest expense have been reclassified to reflect this
method of financial reporting to enable consistent presentation
of the financial results. The reporting change had no impact on
net income or earnings per share, however, the reclassifications
within the line items noninterest income and
noninterest expense impacts certain ratios commonly
used by investor and others in assessing bank performance. More
details are provided in the discussion of noninterest income
section of this report.

The Company earned $6,831 in 2003 compared to
$3,454 in 2002. Operating revenue growth of 14%, combined with a
significant decrease in the provision for loan losses were key
elements to the improvement in 2003 earnings when compared to
last year. Operating revenue (net interest income plus
noninterest income)

16



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##### Table of Contents



growth was driven by a 21% increase in average
earning assets resulting in a 13% increase in net interest
income and an 18% increase in noninterest income due primarily
from growth in revenues from origination of residential
mortgages. The provision for loan losses for 2003 was $900
compared to $5,660 for the year 2002. The large provision for
loan losses in 2002 was primarily related to problem loans in
the hotel/motel industry.


Assets and deposits at December 31, 2003
showed growth rates of 12% and 15%, respectively over year end
2002. Core deposits, which are defined as demand deposits,
interest checking, money market account, and time deposits taken
in locally, constitute 93% of December 31, 2003 outstanding
deposits. Demand deposits were $125,576 or 35% of total deposits
at year-end December 31, 2003.

During 2004, the Company believes the following
factors could impact reported financial results:



| |   |                                                                                                                                                                                                                                                                                                                                    
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | The Bank is asset sensitive and an increase in
    market interest rates during 2004 will positively impact the
    Banks net interest margin and increase net interest
    income. Conversely, a decline in market interest rates will have
    a negative impact.                                                               
|
| |  | The local and regional economy and its effect on
    loan demand and the credit quality of existing clients with
    lending relationships. Oregon has been in a recession and while
    there are early signs of a recovery, unemployment remains high
    at 7.7%.                                                               
|
| |  | Long-term interest rates and their impact on
    residential construction, residential mortgage lending, and
    refinancing activities of existing homeowners. The Company has
    benefited from refinancings of existing mortgages fueled by low
    interest rates, but these started to slow during the last half
    of 2003.
|
| |  | Increased expenses related to personnel costs and
    the rising costs of providing employee benefits, plus staffing
    and other expense related to compliance with documentation of
    internal control systems required by Section 404 of
    Sarbanes-Oxley Section and FDICIA.                                              
|
| |  | Increased competition as two new banks are
    scheduled to open in the Eugene, Oregon market during 2004.                                                                                                                                                                                                                         

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 change in net
interest income for 2003, 2002, and 2001. 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.

2003
Compared to 2002

Net interest income for 2003 was $22,220, an
increase of $2,531 or 13% over 2002 net interest income of
$19,689. For the year 2003, the net interest margin as a
percentage of earning assets decreased by 43 basis points,
from 6.44% in 2002 to 6.01% in 2003.

Market interest rates were at a 45 year low
for most of 2003. Short-term market rates were relatively stable
for most of 2003, with the exception of a 25 basis point
drop in short-term rates, which lowered the overnight fed funds
borrowing rate and the prime-lending rate in June 2003. As a
result of the drop in the prime-lending rate in June, 2003, the
Company experienced compression of its net interest margin
during the

17



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##### Table of Contents



last half of the year. The net interest margin
averaged 6.20% for the first six months of 2003 as compared to
5.83% for the last six months of 2003. During 2003, earning
asset yields declined as new loans were booked at low interest
rates and existing loans repriced or renewed at lower interest
rates, while the Companys cost of funds remained
relatively stable. The stability in the Companys cost of
funds was due to deposits, specifically interest checking,
savings, and money market accounts, which are priced at their
practical floors in the current interest rate environment. The
high level of liquidity during the last six months of 2003 also
negatively impacted the Companys net interest margin for
the year. During the last six month of 2003, the Company had
excess funds averaging $15,000, which were sold overnight or
placed in short-term investments. These short-term investments
had an average yield of approximately 1.00%, which lowered
earning asset yields in the last half the year, contributing to
some of the margin compression.


Interest and fees earned on earnings assets
during 2003 increased by $2,303 or 10% over 2002. Referring to
Table II, total interest income and fees improved by $4,870
due to increased earnings asset volumes, which was partially
offset by a $2,567 decline in interest income due to lower
yields on earning assets. Average earning assets for 2003 were
$369,599, a 21% increase over 2002 average earning asset levels.
Nearly all of the growth in earning assets was attributable to
loan growth as average loans net of the allowance for loan
losses for the year 2003 were up $57,578 or 20% over 2002.
Referring to Table I, earning asset yields declined by
74 basis points, from 7.92% in 2002 to 7.18% in 2003.
Yields on loans, short-term investments, and securities
available for sale contributed to the overall decline in earning
asset yields during 2003. The yield on average loans, which make
up 93% of earning asset volumes, were primarily responsible for
the decline in earning asset yields during 2003. Loan yields for
2003 were 7.56%, a decline of 61 basis points from loan
yields of 8.17% recorded during 2002. The decline in loan yields
is reflective of the 25 basis point decline in market rates
in June 2003, which lowered yields on existing loan clients, and
new loans booked throughout 2003 lower interest rates.

At December 31, 2003, the Company had
approximately $177,000 in variable rate loans or 50% of the
total loan portfolio. Approximately $150,000 of variable rate
loans had active interest rate floors at December 31, 2003.
The high level of variable rate loans and the maturity structure
of the Companys liabilities, make the Company asset
sensitive, meaning that its loans will reprice faster than
liabilities as interest rates change. An increase in market
interest rates improves loan yields faster than the cost of
funds, thus increasing the net interest margin and net interest
income. Conversely, a decrease in market interest rates lowers
loan yields faster than the cost of liabilities creating
compression in the net interest margin and reducing net interest
income.

Interest expense on interest-bearing liabilities
during 2003 decreased by $230 or 5% from 2002. Referring to
Table I, interest expense increased by $958 due to
increased volumes, which was more than offset by a $1,188
decline in interest expense due to lower rates. Table II
shows that average interest-bearing liabilities for 2003
increased by $44,696 or 21% over 2002, which increased interest
expense for the year. Most of the increase in volume was
attributable to growth in money market and NOW accounts. Rates
paid on interest-bearing liabilities fell 46 basis points,
from 2.14% in 2002 to 1.68% in 2003. Rates on every category of
interest-bearing liabilities showed a decline in 2003 when
compared to 2002.

The Companys net interest margin continued
to benefit from growth in noninterest-bearing deposits. For the
year 2003, average noninterest-bearing deposits grew by $16,704
or 19% over 2002. Average noninterest-bearing deposits funded
26% of total assets. At December 31, 2003, total
non-interest bearing deposits were $125,576 and accounted for
35% of total outstanding deposits.

If the current interest rate environment prevails
throughout 2004, the Company expects the net interest margin to
remain stable or decrease slightly from the net interest margin
experienced during the last six months of 2003. While new loans
are expected to be booked at rates lower than the present
average yield on the loan portfolio, increased loan fees from
construction lending and deposit and alternative funding
repricing opportunities are expected to mitigate some of the
expected decline in the yield on the loan portfolio. The
addition of construction lenders and increased volume of
construction lending is expected to increase loan fees and thus
improve yields on earning assets. In addition, during the first
six months of 2004, approximately $11,800 of national time
deposits with an average rate of 2.68% will mature and $13,000
of FHLB term

18



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##### Table of Contents



advances with an average rate of 5.10%, which
will present repricing opportunities for the Company, which is
expected to lower the cost of interest-bearing liabilities.


2002
Compared to 2001

Net interest income for 2002 was $19,689, an
increase of $1,169 or 6% over 2001 net interest income of
$18,520. For the year 2002, net interest margin as a percentage
of earning assets decreased by 40 basis points from 6.84%
in 2001 to 6.44% in 2002.

Short-term market interest rates were relatively
stable during 2002 with the exception of a 50 basis point
decline in November 2002. The Federal Reserve aggressively
lowered market interest rates during 2001, with the
prime-lending rate falling 525 basis points. During 2001,
the Company was able to maintain a high yield on its earning
assets due to the activation of interest rate floors, while at
the same time lowering its cost of funds. During 2002, the
Companys cost of funds remained relatively stable, while
earning asset yields declined as new loans were booked at low
interest rates and existing loans renewed or repriced, which
deactivated interest rate floors. The high level of
nonperforming loans during 2002 was also a factor in declining
loan yields. This resulted in compression of the net interest
margin throughout 2002 as evidenced by the margins reported on a
quarterly basis of 6.65% in first quarter 2002, 6.63% in second
quarter, and 6.27% in both the third and fourth quarter of 2002.

Interest and fees on earning assets declined by
$1,053 or 4% to $24,226. Referring to Table II, total
interest income and fees improved by $3,821 due to increased
earning asset volumes, which was offset by a $4,874 decline in
interest income due to lower yields on earning assets. Average
earning assets for 2002 were $305,737, up $35,035 or 13% over
2001. All of the growth in earning assets was attributable to
loan growth as average loans increased $50,173 or 21%. A decline
of $17,496 in average securities available-for-sale offset a
portion of the loan growth during 2002. Referring to
Table I, earning asset yields declined by 142 basis
points from 9.34% in 2001 to 7.92% in 2002. This decline
resulted primarily in the drop in loan yields, which were 8.17%
in 2002, down 161 basis points from 2001 as new loans and
existing loans were priced at lower yields throughout 2002. In
addition, interest reversed and forgone on nonaccrual loans
negatively impacted earning asset yields. Interest reversed and
forgone totaled approximately $446 or 0.15% of earning assets.
At December 31, 2002, the Company had approximately
$156,000 variable rate loans or 47% of the total loan portfolio.

Interest expense on interest-bearing liabilities
decreased by $2,222 or 33%. The cost of interest-bearing
liabilities was 2.14% in 2002, down 132 basis points from
2001. Referring to Table II, the decline in interest
expense was entirely due to the decrease in rates paid on
interest-bearing liabilities, which lowered interest expense by
$2,668. Lower rates on money market accounts, NOW accounts, and
time deposits accounted for $2,145 or 97% of the decrease in
interest rates. Changes in liability mix and increased volumes
offset this decrease by $446. The decline in interest expense
due to rates reflects the low market interest rate environment
for the entire year 2002. In addition, the growth in money
market accounts, savings accounts, and non-interest bearing
accounts allowed the Company to minimize dependence on higher
rate sources of funding, specifically time deposits.

The Companys net interest margin continued
to benefit from growth in noninterest bearing deposits. For the
year-ended December 31, 2002, average noninterest-bearing
deposits were $88,132, up $19,560 or 29% over last year. Average
noninterest bearing deposits funded 26% of total assets. At
December 31, 2002, total noninterest-bearing deposits were
$109,082 and represented 35% of total deposits.

19



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##### Table of Contents



Table I


Average Balance Analysis of Net Interest
Earnings


|                                                              |                                    |                               |         |                  |         |              |        |         |        |                  |       |              |      |         |         |                  |         |              |        |        |        |  |       |       |      |   |         |         |         |   |        |        |        |  |       |       |      |  
|------------------------------------------------------------- | ---------------------------------- | ----------------------------- | ------- | ---------------- | ------- | ------------ | ------ | ------- | ------ | ---------------- | ----- | ------------ | ---- | ------- | ------- | ---------------- | ------- | ------------ | ------ | ------ | ------ |  | ----- | ----- | ---- | - | ------- | ------- | ------- | - | ------ | ------ | ------ |  | ----- | ----- | ---- | -
|                                                              |                                    |                               |         |                  |         |             
|                                                              |                                    | 2003                          |         | 2002             |         | 2001        
|                                                              |                                    |                               |         |                  |         |             
|                                                              |                                    | Average                       |         | Interest         |         | Average      |        | Average |        | Interest         |       | Average      |      | Average |         | Interest         |         | Average     
|                                                              |                                    | Balance                       |         | Income/(Expense) |         | Yield/(Cost) |        | Balance |        | Income/(Expense) |       | Yield/(Cost) |      | Balance |         | Income/(Expense) |         | Yield/(Cost)
|                                                              |                                    |                               |         |                  |         |              |        |         |        |                  |       |              |      |         |         |                  |         |             
|                                                              |                                    |                              
|                                                              |                                    | ($ Thousands)                
|Interest Earning Assets                                       |                                    |                               |         |                  |         |              |        |         |        |                  |       |              |      |         |         |                  |         |              |        |        |        |  |       |       |      |   |         |         |         |   |        |        |        |  |       |      
|Federal funds sold and interest bearing deposits
    in banks |                                    | $                             | 8,354   |                  |         | $            | 79     |         |        |                  | 0.95  | %            |      | $       | 4,042   |                  |         | $            | 68     |        |        |  | 1.68  | %     |      | $ | 1,656   |         |         | $ | 51     |        |        |  | 3.08  | %    
|Securities available for sale:                                |                                    |                               |         |                  |         |              |        |         |        |                  |       |              |      |         |         |                  |         |              |        |        |        |  |       |       |      |   |         |         |         |   |        |        |        |  |       |      
|                                                              | Taxable(1)                         |                               | $       | 18,459           |         |              | $      | 554     |        |                  |       | 3.00         | %    |         | $       | 17,108           |         |              | $      | 903    |        |  |       | 5.28  | %    |   | $       | 34,604  |         |   | $      | 2,294  |        |  |       | 6.63  | %   
|                                                              | Tax-exempt                         |                               |         |                  |         |              |        |         |        |                  |       |              |      |         |         |                  |         |              |        |        |        |  |       |       |      |   | $       | 594     |         |   | $      | 22     |        |  |       | 3.71  | %   
|Loans, net of allowance for loan losses(2)(3)(4)              |                                    | $                             | 342,192 |                  |         | $            | 25,874 |         |        |                  | 7.56  | %            |      | $       | 284,614 |                  |         | $            | 23,255 |        |        |  | 8.17  | %     |      | $ | 234,441 |         |         | $ | 22,933 |        |        |  | 9.78  | %    
|                                                              |                                    |                               |         |                  |         |              |        |         |        |                  |       |              |      |         |         |                  |         |              |        |        |        |  |       |       |      |   |         |         |         |   |        |        |        |  |       |      
|                                                              |                                    | Total interest earning assets |         | $                | 369,599 |              |        | $       | 26,529 |                  |       |              | 7.18 | %       |         | $                | 305,763 |              |        | $      | 24,226 |  |       |       | 7.92 | % |         | $       | 270,701 |   |        | $      | 25,279 |  |       |       | 9.34 | %
|Non Earning Assets                                            |                                    |                               |         |                  |         |              |        |         |        |                  |       |              |      |         |         |                  |         |              |        |        |        |  |       |       |      |   |         |         |         |   |        |        |        |  |       |      
|Cash and due from banks                                       |                                    | $                             | 15,983  |                  |         |              |        |         |        |                  |       |              |      | $       | 15,752  |                  |         |              |        |        |        |  |       |       |      | $ | 13,941  |         |         |   |        |        |        |  |       |      
|Premises and equipment                                        |                                    | $                             | 13,215  |                  |         |              |        |         |        |                  |       |              |      | $       | 13,157  |                  |         |              |        |        |        |  |       |       |      | $ | 13,198  |         |         |   |        |        |        |  |       |      
|Interest receivable and other                                 |                                    | $                             | 3,398   |                  |         |              |        |         |        |                  |       |              |      | $       | 2,586   |                  |         |              |        |        |        |  |       |       |      | $ | 1,881   |         |         |   |        |        |        |  |       |      
|                                                              |                                    |                               |         |                  |         |              |        |         |        |                  |       |              |      |         |         |                  |         |              |        |        |        |  |       |       |      |   |         |         |         |   |        |        |        |  |       |      
|                                                              | Total non interest assets          |                               | $       | 32,596           |         |              |        |         |        |                  |       |              |      |         | $       | 31,495           |         |              |        |        |        |  |       |       |      |   | $       | 29,020  |         |   |        |        |        |  |       |       |     
|                                                              |                                    | Total assets                  |         | $                | 402,195 |              |        |         |        |                  |       |              |      |         |         | $                | 337,258 |              |        |        |        |  |       |       |      |   |         | $       | 299,721 |   |        |        |        |  |       |       |      |  
|Interest Bearing Liabilities                                  |                                    |                               |         |                  |         |              |        |         |        |                  |       |              |      |         |         |                  |         |              |        |        |        |  |       |       |      |   |         |         |         |   |        |        |        |  |       |      
|Money market and NOW accounts                                 |                                    | $                             | 140,660 |                  |         | $            | (1,305 | )       |        |                  | (0.93 | )%           |      | $       | 116,836 |                  |         | $            | (1,473 | )      |        |  | (1.26 | )%    |      | $ | 106,851 |         |         | $ | (2,522 | )      |        |  | (2.36 | )%   
|Savings deposits                                              |                                    | $                             | 19,310  |                  |         | $            | (128   | )       |        |                  | (0.66 | )%           |      | $       | 16,607  |                  |         | $            | (134   | )      |        |  | (0.81 | )%    |      | $ | 12,886  |         |         | $ | (218   | )      |        |  | (1.69 | )%   
|Time deposits                                                 |                                    | $                             | 64,350  |                  |         | $            | (1,558 | )       |        |                  | (2.42 | )%           |      | $       | 50,190  |                  |         | $            | (1,515 | )      |        |  | (3.02 | )%    |      | $ | 50,549  |         |         | $ | (2,630 | )      |        |  | (5.20 | )%   
|Federal funds purchased                                       |                                    | $                             | 4,066   |                  |         | $            | (65    | )       |        |                  | (1.59 | )%           |      | $       | 3,735   |                  |         | $            | (75    | )      |        |  | (2.00 | )%    |      | $ | 4,577   |         |         | $ | (229   | )      |        |  | (5.01 | )%   
|Term borrowings                                               |                                    | $                             | 28,055  |                  |         | $            | (1,251 | )       |        |                  | (4.46 | )%           |      | $       | 24,377  |                  |         | $            | (1,340 | )      |        |  | (5.50 | )%    |      | $ | 20,666  |         |         | $ | (1,159 | )      |        |  | (5.61 | )%   
|                                                              |                                    |                               |         |                  |         |              |        |         |        |                  |       |              |      |         |         |                  |         |              |        |        |        |  |       |       |      |   |         |         |         |   |        |        |        |  |       |      
|                                                              | Total interest bearing liabilities |                               | $       | 256,441          |         |              | $      | (4,307  | )      |                  |       | (1.68        | )%   |         | $       | 211,745          |         |              | $      | (4,537 | )      |  |       | (2.14 | )%   |   | $       | 195,529 |         |   | $      | (6,759 | )      |  |       | (3.46 | )%  
|Non Interest Bearing Liabilities                              |                                    |                               |         |                  |         |              |        |         |        |                  |       |              |      |         |         |                  |         |              |        |        |        |  |       |       |      |   |         |         |         |   |        |        |        |  |       |      
|Demand deposits                                               |                                    | $                             | 104,836 |                  |         |              |        |         |        |                  |       |              |      | $       | 88,132  |                  |         |              |        |        |        |  |       |       |      | $ | 68,572  |         |         |   |        |        |        |  |       |      
|Interest payable and other                                    |                                    | $                             | 1,160   |                  |         |              |        |         |        |                  |       |              |      | $       | 1,264   |                  |         |              |        |        |        |  |       |       |      | $ | 1,738   |         |         |   |        |        |        |  |       |      
|                                                              |                                    |                               |         |                  |         |              |        |         |        |                  |       |              |      |         |         |                  |         |              |        |        |        |  |       |       |      |   |         |         |         |   |        |        |        |  |       |      
|                                                              | Total non interest liabilities     |                               | $       | 105,996          |         |              |        |         |        |                  |       |              |      |         | $       | 89,396           |         |              |        |        |        |  |       |       |      |   | $       | 70,310  |         |   |        |        |        |  |       |       |     
|                                                              |                                    |                               |         |                  |         |              |        |         |        |                  |       |              |      |         |         |                  |         |              |        |        |        |  |       |       |      |   |         |         |         |   |        |        |        |  |       |      
|                                                              |                                    | Total liabilities             |         | $                | 362,437 |              |        |         |        |                  |       |              |      |         |         | $                | 301,141 |              |        |        |        |  |       |       |      |   |         | $       | 265,839 |   |        |        |        |  |       |       |      |  
|Stockholders equity                                          |                                    | $                             | 39,758  |                  |         |              |        |         |        |                  |       |              |      | $       | 36,117  |                  |         |              |        |        |        |  |       |       |      | $ | 33,882  |         |         |   |        |        |        |  |       |      
|                                                              |                                    |                               |         |                  |         |              |        |         |        |                  |       |              |      |         |         |                  |         |              |        |        |        |  |       |       |      |   |         |         |         |   |        |        |        |  |       |      
|Total liabilities and stockholders equity                     |                                    | $                             | 402,195 |                  |         |              |        |         |        |                  |       |              |      | $       | 337,258 |                  |         |              |        |        |        |  |       |       |      | $ | 299,721 |         |         |   |        |        |        |  |       |      
|Net Interest Income                                           |                                    |                               |         |                  |         | $            | 22,221 |         |        |                  |       |              |      |         |         |                  |         | $            | 19,689 |        |        |  |       |       |      |   |         |         |         | $ | 18,520 |        |        |  |       |      
|Net Interest Income as a Percent of Earning
    Assets        |                                    |                               |         |                  |         |              | 6.01   | %       |        |                  |       |              |      |         |         |                  |         |              | 6.44   | %      |        |  |       |       |      |   |         |         |         |   | 6.84   | %      |        |  |       |      



---



|    |                                                                                                                                                    
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------
|(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 $1,038, $863, and $811 for the years-ended
    2003, 2002, and 2001, respectively.
|   
|(4) | Total includes loans held for sale.                                                                                                                

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##### Table of Contents



Table II

Analysis of Changes in Interest Income and
Interest Expense


|                                                              |                        |                            |       |                            |       |     |        |        |        |      |       |       |       |   |       |        |       |   |        |        |        |   |       |        |       | 
|------------------------------------------------------------- | ---------------------- | -------------------------- | ----- | -------------------------- | ----- | --- | ------ | ------ | ------ | ---- | ----- | ----- | ----- | - | ----- | ------ | ----- | - | ------ | ------ | ------ | - | ----- | ------ | ----- | 
|                                                              |                        |                            |       |                           
|                                                              |                        | 2003 Compared to 2002      |       | 2002 Compared to 2001     
|                                                              |                        | Increase (Decrease) Due to |       | Increase (Decrease) Due to
|                                                              |                        |                            |       |                           
|                                                              |                        | Volume                     |       | Rate                       |       | Net |        | Volume |        | Rate |       | Net  
|                                                              |                        |                            |       |                            |       |     |        |        |        |      |       |      
|                                                              |                        |                           
|                                                              |                        | (Dollars in thousands)    
|Interest earned on:                                           |                        |                            |       |                            |       |     |        |        |        |      |       |       |       |   |       |        |       |   |        |        |        |   |       |       
|Federal funds sold and interest bearing deposits
    in banks |                        | $                          | 72    |                            |       | $   | (61    | )      |        | $    | 12    |       |       | $ | 73    |        |       | $ | (57    | )      |        | $ | 17    |       
|Securities available-for-sale:                                |                        |                            |       |                            |       |     |        |        |        |      |       |       |       |   |       |        |       |   |        |        |        |   |       |       
|                                                              | Taxable                |                            | $     | 71                         |       |     | $      | (420   | )      |      | $     | (349  | )     |   | $     | (1,160 | )     |   | $      | (231   | )      |   | $     | (1,392 | )    
|                                                              | Tax-exempt             |                            | $     | 22                         |       |     | $      | 0      |        |      | $     | 22    |       |   | $     | 0      |       |   | $      | 0      |        |   | $     | 0      |      
|Loans, net of allowance for loan losses                       |                        | $                          | 4,705 |                            |       | $   | (2,086 | )      |        | $    | 2,618 |       |       | $ | 4,908 |        |       | $ | (4,586 | )      |        | $ | 322   |       
|                                                              |                        |                            |       |                            |       |     |        |        |        |      |       |       |       |   |       |        |       |   |        |        |        |   |       |       
|                                                              | Total interest income  |                            | $     | 4,870                      |       |     | $      | (2,567 | )      |      | $     | 2,303 |       |   | $     | 3,821  |       |   | $      | (4,874 | )      |   | $     | (1,053 | )    
|Interest paid on:                                             |                        |                            |       |                            |       |     |        |        |        |      |       |       |       |   |       |        |       |   |        |        |        |   |       |       
|Money market and NOW accounts                                 |                        | $                          | (300  | )                          |       | $   | 468    |        |        | $    | 168   |       |       | $ | (236  | )      |       | $ | 1,285  |        |        | $ | 1,049 |       
|Savings deposits                                              |                        | $                          | (22   | )                          |       | $   | 29     |        |        | $    | 7     |       |       | $ | (63   | )      |       | $ | 147    |        |        | $ | 84    |       
|Time deposits                                                 |                        | $                          | (427  | )                          |       | $   | 384    |        |        | $    | (43   | )     |       | $ | 19    |        |       | $ | 1,096  |        |        | $ | 1,115 |       
|Federal funds purchased                                       |                        | $                          | (7    | )                          |       | $   | 17     |        |        | $    | 10    |       |       | $ | 42    |        |       | $ | 113    |        |        | $ | 155   |       
|Term borrowings                                               |                        | $                          | (202  | )                          |       | $   | 291    |        |        | $    | 88    |       |       | $ | (208  | )      |       | $ | 28     |        |        | $ | (181  | )     
|                                                              |                        |                            |       |                            |       |     |        |        |        |      |       |       |       |   |       |        |       |   |        |        |        |   |       |       
|                                                              | Total interest expense |                            | $     | (958                       | )     |     | $      | 1,189  |        |      | $     | 230   |       |   | $     | (446   | )     |   | $      | 2,668  |        |   | $     | 2,222  |      
|                                                              |                        |                            |       |                            |       |     |        |        |        |      |       |       |       |   |       |        |       |   |        |        |        |   |       |       
|                                                              |                        | Net interest income        |       | $                          | 3,912 |     |        | $      | (1,380 | )    |       | $     | 2,532 |   |       | $      | 3,375 |   |        | $      | (2,206 | ) |       | $      | 1,169 | 

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 $900 in
2003, $5,660 in 2002, and $1,455 in 2001. The lower provision
for 2003 reflects a reduction in the level of nonperforming
assets throughout the year, recoveries of $785 on a hotel/motel
loan charged off during 2002, and a general improvement in
credit quality of the entire loan portfolio. The larger
provision in 2002 reflects growth in the loan portfolio,
specifically identified risks in the Companys loan
portfolio, increased loan losses in 2002, and a general decline
in economic conditions during 2002, which specifically affected
the hotel/motel industry. Loan losses in the hotel/motel
industry in 2002 included $4,064 related to two borrowers.

The largest reduction in nonperforming assets
during 2003 resulted from the foreclosure and ultimate sale of a
hotel/motel property that was on nonaccrual status during the
first six months of 2003. The Bank foreclosed on this property
during the second quarter 2003 and transferred the property to
other real estate owned. A $447 loan loss was recorded at the
time of the transfer to other real estate owned. The Bank
ultimately sold this property during the fourth quarter 2003.
Also, during 2003, the Bank operated two other motel properties
classified as other real estate owned at December 31, 2002.
Both of these properties were sold during the current year. At
December 31, 2003, the Bank had two properties classified
as other real estate owned at a value of $411.

The allowance for loan losses at
December 31, 2003 was $5,225 (1.47% of loans) compared to
$4,403 (1.33% of loans) and $3,418 (1.41% of loans) at years end
2002 and 2001, respectively. The 2003 amount

21



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##### Table of Contents



includes $628 in specific allowance for impaired
loans. At December 31, 2003, the Company had $3,168 of
impaired loans (net of government guarantees) consisting of one
restructure and performing loan of $1,896 and $1,276 of
nonaccrual loans. At December 31, 2002, the Company had
$6,509 of impaired loans (net of government guarantees) with a
specific allowance assigned of $454. At year end 2001, the
Company classified $5,608 of loans as impaired with a specific
allowance of $1,050.


Net loan charge offs were $268 in 2003 compared
to $4,675 in 2002, and $186 in 2001. Net charge offs during 2002
in the hotel/motel industry accounted for $4,064 or 87% of total
charge offs for the year and related to two borrowers in the
hotel/motel industry.

Management aggressively provided for possible
loan losses during 2002 and the first quarter of 2003. These
provisions were based on the levels of impaired and internally
classified loans, and anticipated foreclosures. Beginning in the
second quarter of 2003 and continuing throughout the remainder
of the year, the Bank resolved the majority of the uncertainties
surrounding its impaired loans. Resolutions were reached through
foreclosure and sales of collateral as well as planned exits of
approximately $13,000 of weaker credits, which resulted in an
improvement in the overall credit quality of the loan portfolio.
The Bank significantly reduced the provision for loan losses
during the last three quarters of 2003 and expects similarly
reduced provisions for the first two quarters of 2004. The
projected provision in the first two quarters of 2004 will be
based on current economic and market conditions. Actual results
may differ materially from projections.

Management believes that the allowance for loan
losses is adequate for estimated loan losses 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.

The Bank is presently evaluating and parallel
testing a new methodology used to calculate the adequacy of the
allowance for loan losses. During 2003, the Bank transitioned
from an eight point risk rating system for rating the credit
quality of individual loans to a ten point risk rating system.
Using the new ten point risk rating system, the Bank is
reviewing historical loss rates, internal migration analysis,
and national loss rates associated with the new risk rating
system that will assign the appropriate level of the loan loss
allowance to each risk rated loan category. The Bank expects to
implement the new methodology for calculating the allowance for
loan losses during the second quarter 2004. The Bank does not
expect the implementation of the new methodology to impact
reported financial results for the year 2004.

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.

As previously mentioned, during the fourth
quarter, the Company changed its method of reporting merchant
bankcard noninterest income by netting interchange processing
expenses against the revenues. Previously, the Company reported
interchange processing expense as a component of noninterest
expense. Prior period reported results for noninterest income
and noninterest expense have been reclassified to reflect this
method of financial reporting. For the year 2003, the Company
reclassified $1,954 of interchange processing expense from
noninterest expense to noninterest income as an offset to
merchant bankcard noninterest income. In order to report
consistent financial information, $1,549 and $1,283 of
interchange processing expense was reclassified as an offset to
merchant bankcard noninterest income for the years 2002 and
2001, respectively. This reporting change had no impact on net
income or earnings per share, however, the reclassifications
within the line items noninterest income and
noninterest expense impacts certain ratios commonly
used by investors and others in assessing bank performance. Most
notably affected is the Companys efficiency ratio, which
measures income generating efficiency. This ratio is calculated
by dividing noninterest expense by operating revenue. The change
in reporting lowered or improved this ratio in 2001, 2002 and
2003. The efficiency ratio reported using the new method of
reporting was 51.38%, 52.72%, and 55.96% in 2001, 2002, and
2003, respectively, compared to 54.04%, 55.60%, and 58.95% under
the previous reporting method.

22



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##### Table of Contents





| |                      
| | ---------------------
| | 2003 Compared to 2002

Year-to-date December 31, 2003 noninterest
income was $4,946, up $746 or 18% over year 2002. The majority
of growth in noninterest income was attributable to three
categories. Service charges on deposit accounts were up $249 or
19% due to an increase in the number of clients, increased fees
on analyzed business accounts, and price increases on NSF/ OD
fees that went into effect during April 2003. Other fee income,
principally merchant bankcard processing fees grew by $43 or 4%
over 2002. During 2003, the Company converted to a new third
party processor for its merchant bankcard processing. During the
conversion process, revenue growth slowed as processing was
temporarily being handled by two different processors, which
increased interchange paid processing expense. Merchant bankcard
revenues historically have grown 20% to 30% annually, and the
Company expects this type of growth rate for the year 2004.
Mortgage banking noninterest income and gains on sales of loans
totaled $1,625 in 2003 compared to $924 for 2002, an improvement
of $701 or 76%. Revenues from the originations of residential
mortgages accounted for $594 of the increase as long-term
interest rates fell sharply during 2003 creating a surge in new
home sales and refinancing of existing mortgages. Gains on the
sales of loans in 2003 were $130, up $107 from the $23 reported
in 2002. Growth in these noninterest income categories was
partially offset by a $102 decline in loan servicing income and
a $149 decline in gains on sales of securities. The decline in
loan servicing income was due to an overall decline in the level
of sold loans. In addition, the early payoff of a participated
loan resulted in a write down of $55 of a previously recorded
servicing asset.



| |                      
| | ---------------------
| | 2002 Compared to 2001

Year-to-date December 31, 2002 noninterest
income was $4,201 up $591 or 16% over 2001. For the year 2002,
noninterest income accounted for 18% of total operating revenue
(net interest income plus noninterest income). Growth in
noninterest income for the year 2002 was attributable to four
categories. Service charges on deposit accounts increased $177
or 37%. The growth in service charges reflects an increase in
new clients and accounts. In addition, lower earnings credit on
analyzed accounts led to higher hard dollar fees as earnings on
balances in demand accounts were not sufficient to cover the
cost of services provided. Revenues from the Companys
merchant bankcard division continued to show double digit
growth. Merchant bankcard fees for the year 2002 were $1,207 up
$279 or 30%. This increase was due to growth in the client base
and an increase in sales volume. Sales volume for 2002 was
approximately $88,000 compared to $73,000 in 2001. Mortgage
banking noninterest income was $877 for the year 2002, an
increase of $375 or 75%. This increase resulted from a
significant increase in loan originations as interest rates were
at 40 year lows. During 2002, the Company originated
$47,000 in residential mortgage loans compared to $27,000 for
the year 2001. The other noninterest income category also showed
significant growth, as the Company entered into new businesses
and developed new revenue sources. The consumer finance division
generated $30 compared to $1 for 2001. In addition, the Company
generated $11 in new revenues from production of CD Rom
statements for clients, a product of investments made in
technology during the fourth quarter of 2001. Finally, more than
$45 in revenues were generated in trustee fees as the Company
used in-house attorneys to process loan documents on real estate
related loans. Increased income in these categories was offset
by declines in three categories. Loan servicing fees were down
$146 or 30% reflecting a decline in the servicing portfolio
throughout the year 2002. Gains on sales of loans were down $86
or 79%. The Company sold approximately $3,200 in loans during
2002 compared to $4,400 during 2001. Finally, gains on sales of
securities for 2002 were $149 compared to $251 in 2001, a
decrease of $102 or 40%.

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.

See Noninterest Income section for impact of
change in reporting merchant bankcard noninterest income and its
effect on noninterest expense reported in 2001, 2002, and 2003.

23



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##### Table of Contents





| |                      
| | ---------------------
| | 2003 Compared to 2002

Year-to-date December 31, 2003 noninterest
expense was $15,202, up $2,608 or 21% over 2002. Three
categories of expenses accounted for $2,714 of the total expense
increase for the year. The increase in salaries and employee
benefits was in three general categories. Salaries accounted for
$364 of the increase. However, salaries in 2002 reflect one-time
executive severance expense of $443. Excluding this one-time
expense from 2002, salaries were up $807 or 16% over last year
and reflect staff additions during the last half of 2002 and the
first half of 2003, primarily related to expansion in the
Portland area market. Commissions paid to residential mortgage
and construction lenders were up $274 over 2002 due to the
higher volume of activity during 2003. Benefits and taxes in
2003 increased by $687 over 2002. Approximately $503 of the
increase was due to incentive based compensation accruals,
including the Banks estimated 401(k) contribution. For the
year 2002, the Banks incentive based compensation and
401(k) match were significantly diminished as key financial
goals were not met for the year. The remainder of the increase
in benefits and taxes resulted from increased group insurance
costs and payroll taxes. Premises and equipment expense in 2003
were up $359 or 25% over 2002. Expense related to premises
accounted for $194 of the increase and reflected increased lease
costs of the Banks KOIN Center office opened earlier this
year. In addition, lease costs on the Coos Bay office of the
Consumer Finance Division and increased lease costs on one of
the Banks Eugene offices contributed to the increase.
Equipment expense accounted for $165 of the increase and
includes costs related to the Portland area market expansion and
increased software maintenance expense on the Banks loan
processing systems. The other expense category of
noninterest expense was $3,359 for 2003, an increase of $1,030
or 44% over 2002. Other real estate expense related to
operations and sales of three motel properties during 2003
accounted for $520 of the increase in the other
expense category. In addition, repossession and collection
expense related to problem loans accounted for $78 of the
increase. Most of the remaining increase in the
other expense category was in professional services,
which was up $187 in 2003 compared to 2002. Professional
services includes legal fees, accounting fees, insurance
expense, and consulting expenses. The growth rate in noninterest
expense in 2004 is expected to significantly decline when
compared to 2003. Salaries and benefits, professional services,
occupancy expense, and expense related to other real estate
owned are all expected to show much lower growth rates or
decline from levels experienced in 2002.



| |                      
| | ---------------------
| | 2002 Compared to 2001

Year-to-date noninterest expense at
December 31, 2002 was $12,594 up $1,223 or 11% over 2001.
During the third quarter 2002, the Company recorded one-time
executive severance expense of $443. Excluding the one-time
severance expense, total noninterest expense was up $780 or 7%.
Total personnel expense for 2002 was up $764 over 2001.
Excluding executive severance expense, personnel expense
increased $321 or 5%. An increase of $571 in employee salaries
and commissions paid on residential mortgage originations was
offset by a $250 decline in Company-wide incentive based
compensation. Other noninterest expense categories that showed
material changes include equipment expense, professional
services, and other data processing expense. Equipment expense
was up $59 or 8% due to increased depreciation and maintenance
costs related to new technology investments made during the
fourth quarter 2001. Professional services were $740 for the
year compared to $625, an increase of $115 or 18%. This increase
reflects higher legal fees during 2002 related to the increase
in problem loans. Other data processing expense increased $86 or
20% resulting primarily from increased on-line banking expense
due to the growth in the client base and transaction volume.

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. 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, 2003 were 93%
of total deposits, the same percentage as December 31,
2002. Because of seasonal construction and economic activity and
client payment of various tax obligations,

24



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##### Table of Contents



the Company traditionally experiences a decline
in core deposits during the first quarter of the year typically
resulting in funding and liquidity pressures. During the first
quarter 2003, the Company had loan production of approximately
$20,000, while core deposits fell by more than $4,000 during the
same time period. The Company sold approximately $8,000 in loans
during the first quarter 2003 and used alternative funding
sources, primarily national market time deposits to fund asset
growth in this time period. In addition, the Company has deposit
relationships with several large clients, the single largest
client representing 7% of total deposits. 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 this concentration.


Overnight-unsecured 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, 2003, the Bank
had overnight borrowing lines totaling approximately $145,000
consisting of $106,000 with the Federal Home Loan Bank of
Seattle, $36,000 with various correspondent banks, and $3,000
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, 2003, the Bank had
approximately $96,000 in commercial real estate loans pledged as
collateral pledged for this line. The $3,500 borrowing line with
the Federal Reserve Bank of San Francisco is also secured.
The $36,000 in borrowing lines with correspondent banks are
unsecured lines. At December 31, 2003, the Bank had $26,000
in borrowings outstanding and approximately $119,000 available
on established lines. In addition, the Bank is part of the State
of Oregon community bank time deposit program and at
December 31, 2003 had $17,500 available from this source.
The Banks loan portfolio also contains approximately
$24,000 in guaranteed government loans, which can be sold on the
secondary market.

Capital Resources

Capital is the shareholders investment in
the Company. Capital grows through the retention of earnings and
the issuance of new stock through the exercise of incentive
options. Capital formation allows the Company to grow assets and
provides flexibility in times of adversity.

Banking regulations require the Company to
maintain minimum levels of capital. The Company manages its
capital to maintain a well capitalized designation
(the FDICs highest rating). At December 31, 2003, the
Companys total capital to risk weighted assets was 12.20%,
compared to 11.47% at December 31, 2002.

In September 2003, the Company paid a 4-for-3
stock split to shareholders of record at October 15, 2003.
All per share data and outstanding shares from prior periods has
been restated to present consistent financial information.

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. During
2003, the Company has declared and paid cash dividends of
$0.27 per share for the year. That compares to cash
dividends of $0.24 paid during 2002.

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.

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.

25



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##### Table of Contents











|         |                                                               
|-------- | --------------------------------------------------------------
|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.
The Company does not 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.

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 2003, the model has shown the Company is
becoming more asset sensitive and projects rising margins in a
rising rate environment and declining margins in a falling rate
environment. The projected decline in margins in a falling rate
environment is due to the inability of the Company to reprice a
large portion of its interest-bearing core deposits, which are
at a practical floor at December 31, 2003. During 2004,
assuming no change in the current interest rate environment, the
Company expects net interest margin to stabilize or decline
slightly.

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 $22,220 used
in both analyses represents actual net interest income for the
year 2003. Due to the

26



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##### Table of Contents



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 | 

|                               |  |                         |        |           |  |           |        |   |  |  |        |   
|------------------------------ |  | ----------------------- | ------ | --------- |  | --------- | ------ | - |  |  | ------ | --
|                               |  |                        
|                               |  | Net Interest Income    
|                               |  |                        
|                               |  | Estimated               |        | $ Change  |  | % Change 
|Projected Interest Rate Change |  | Value                   |        | from Base |  | from Base
|                               |  |                         |        |           |  |          
|                               |  |                        
|                               |  | (Dollars, in thousands)
|+200                           |  | $                       | 25,112 |           |  | $         | 2,893  |   |  |  | 13.02  | % 
|+100                           |  |                         | 23,663 |           |  |           | 1,444  |   |  |  | 6.50   | % 
|Base                           |  |                         | 22,220 |           |  |           | 0      |   |  |  | 0.00   | % 
|-100                           |  |                         | 20,435 |           |  |           | (1,784 | ) |  |  | (8.03  | )%
|-200                           |  |                         | 18,169 |           |  |           | (4,050 | ) |  |  | (18.23 | )%

Gradual Interest Rate Movement
Forecast

|                                                 | 
|------------------------------------------------ | 
|Net Interest Income and Market Value Performance | 

|                               |  |                         |        |           |  |           |        |   |  |  |        |   
|------------------------------ |  | ----------------------- | ------ | --------- |  | --------- | ------ | - |  |  | ------ | --
|                               |  |                        
|                               |  | Net Interest Income    
|                               |  |                        
|                               |  | Estimated               |        | $ Change  |  | % Change 
|Projected Interest Rate Change |  | Value                   |        | from Base |  | from Base
|                               |  |                         |        |           |  |          
|                               |  |                        
|                               |  | (Dollars, in thousands)
|Rising 2.40%                   |  | $                       | 24,236 |           |  | $         | 2,017  |   |  |  | 9.08   | % 
|Base                           |  |                         | 22,220 |           |  |           | 0      |   |  |  | 0.00   | % 
|Declining 2.40%                |  |                         | 19,797 |           |  |           | (2,422 | ) |  |  | (10.90 | )%

27



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##### Table of Contents











|        |                                                
|------- | -----------------------------------------------
|Item 8. | Financial Statements and Supplementary
    Data

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

CERTIFIED PUBLIC ACCOUNTANTS


Eugene, Oregon 97401


INDEPENDENT AUDITORS REPORT

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, 2003 and 2002, 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, 2003. These
consolidated financial statements are the responsibility of the
Companys management. Our responsibility is to express an
opinion on these consolidated financial statements based on our
audits.

We conducted our audits in accordance with
auditing standards generally accepted in the 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. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our
opinion.

In our opinion, 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, 2003 and
2002, and the results of their operations and their cash flows
for each of the three years in the period ended
December 31, 2003 in conformity with accounting principles
generally accepted in the United States of America.



| |                                 
| | --------------------------------
| | ZIRKLE, LONG & TRIGUEIRO, L.L.C.

Eugene, Oregon

January 30, 2004


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##### Table of Contents



PACIFIC CONTINENTAL CORPORATION AND
SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

|                                                   |                                                                                                                                             |                         |                                            |             |             |             |             |             |             |             | 
|-------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------- | ----------------------- | ------------------------------------------ | ----------- | ----------- | ----------- | ----------- | ----------- | ----------- | ----------- | 
|                                                   |                                                                                                                                             |                        
|                                                   |                                                                                                                                             | December 31,           
|                                                   |                                                                                                                                             |                        
|                                                   |                                                                                                                                             | 2003                    |                                            | 2002       
|                                                   |                                                                                                                                             |                         |                                            |            
|ASSETS                                            
|Cash and due from banks                            |                                                                                                                                             | $                       | 24,149,500                                 |             |             | $           | 21,697,004  |            
|                                                   | Federal funds sold                                                                                                                          |                         |                                            | 1,386,854   |             |             |             | 1,654,768   |            
|                                                   |                                                                                                                                             |                         |                                            |             |             |             |             |            
|                                                   |                                                                                                                                             |                         | Total cash and cash equivalents            |             |             | 25,536,354  |             |             |             | 23,351,772  | 
|Securities available-for-sale                      |                                                                                                                                             |                         | 30,028,736                                 |             |             |             | 10,845,313  |            
|Loans held for sale                                |                                                                                                                                             |                         | 1,957,670                                  |             |             |             | 5,546,723   |            
|Loans, less allowance for loan losses              |                                                                                                                                             |                         | 348,894,225                                |             |             |             | 320,853,503 |            
|Interest receivable                                |                                                                                                                                             |                         | 1,585,955                                  |             |             |             | 1,647,608   |            
|Federal Home Loan Bank stock                       |                                                                                                                                             |                         | 2,738,000                                  |             |             |             | 2,612,500   |            
|Property, net of accumulated depreciation          |                                                                                                                                             |                         | 13,059,962                                 |             |             |             | 13,241,800  |            
|Other assets                                       |                                                                                                                                             |                         | 1,997,734                                  |             |             |             | 1,747,054   |            
|                                                   |                                                                                                                                             |                         |                                            |             |             |             |             |            
|                                                   |                                                                                                                                             |                         | Total assets                               |             | $           | 425,798,636 |             |             | $           | 379,846,273 | 
|                                                   |                                                                                                                                             |                         |                                            |             |             |             |             |            
|LIABILITIES AND STOCKHOLDERS
    EQUITY          
|Liabilities:                                       |                                                                                                                                             |                         |                                            |             |             |             |             |            
|                                                   | Deposits:                                                                                                                                   |                         |                                            |             |             |             |             |             |            
|                                                   |                                                                                                                                             | Noninterest-bearing     |                                            | $           | 125,575,941 |             |             | $           | 109,282,326 |            
|                                                   | Savings and interest-bearing demand                                                                                                         |                         |                                            | 176,015,427 |             |             |             | 148,156,732 |            
|                                                   |                                                                                                                                             | Time, $100,000 and over |                                            |             | 27,961,396  |             |             |             | 27,619,814  |            
|                                                   |                                                                                                                                             | Other time              |                                            |             | 26,546,306  |             |             |             | 24,849,824  |            
|                                                   |                                                                                                                                             |                         |                                            |             |             |             |             |            
|                                                   |                                                                                                                                             |                         | 356,099,070                                |             |             |             | 309,908,696 |            
|                                                   | Federal funds purchased                                                                                                                     |                         |                                            |            |             |             |             | 9,000,000   |            
|                                                   | Federal Home Loan Bank term borrowings                                                                                                      |                         |                                            | 26,000,000  |             |             |             | 23,000,000  |            
|                                                   | Accrued interest and other liabilities                                                                                                      |                         |                                            | 1,465,716   |             |             |             | 1,239,043   |            
|                                                   |                                                                                                                                             |                         |                                            |             |             |             |             |            
|                                                   |                                                                                                                                             |                         | Total liabilities                          |             |             | 383,564,786 |             |             |             | 343,147,739 | 
|                                                   |                                                                                                                                             |                         |                                            |             |             |             |             |            
|Commitments and contingencies (Notes 5 and
    16) |                                                                                                                                             |                         |                                            |             |             |             |             |            
|Stockholders equity:                              |                                                                                                                                             |                         |                                            |             |             |             |             |            
|                                                   | Common stock, $1 par value;
    10,000,000 shares authorized; 6,789,787 and
    5,040,448 shares outstanding in 2003 and 2002, respectively |                         |                                            | 6,789,787   |             |             |             | 5,040,448   |            
|                                                   | Additional paid-in capital                                                                                                                  |                         |                                            | 19,829,419  |             |             |             | 20,926,943  |            
|                                                   | Retained earnings                                                                                                                           |                         |                                            | 15,644,669  |             |             |             | 10,655,440  |            
|                                                   | Accumulated other comprehensive income (loss)                                                                                               |                         |                                            | (30,025     | )           |             |             | 75,703      |            
|                                                   |                                                                                                                                             |                         |                                            |             |             |             |             |            
|                                                   |                                                                                                                                             |                         | Total stockholders equity                 |             |             | 42,233,850  |             |             |             | 36,698,534  | 
|                                                   |                                                                                                                                             |                         |                                            |             |             |             |             |            
|                                                   |                                                                                                                                             |                         | Total liabilities and stockholders equity |             | $           | 425,798,636 |             |             | $           | 379,846,273 | 
|                                                   |                                                                                                                                             |                         |                                            |             |             |             |             |            

The accompanying notes are an integral part of
these consolidated financial statements.

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##### Table of Contents



PACIFIC CONTINENTAL CORPORATION AND
SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

|                           |                                                         |                                                         |            |            |            |           |            |            |            |           |            |            |            |           | 
|-------------------------- | ------------------------------------------------------- | ------------------------------------------------------- | ---------- | ---------- | ---------- | --------- | ---------- | ---------- | ---------- | --------- | ---------- | ---------- | ---------- | --------- | 
|                           |                                                         |                                                        
|                           |                                                         | Year Ended December 31,                                
|                           |                                                         |                                                        
|                           |                                                         | 2003                                                    |            | 2002       |            | 2001     
|                           |                                                         |                                                         |            |            |            |          
|Interest income:           |                                                         |                                                         |            |            |            |           |            |            |            |           |            |           
|                           | Loans                                                   |                                                         | $          | 25,873,514 |            |           | $          | 23,255,130 |            |           | $          | 22,933,342 |           
|                           | Securities                                              |                                                         |            | 450,394    |            |           |            | 750,841    |            |           |            | 2,132,074  |           
|                           | Dividends on Federal Home Loan Bank stock               |                                                         |            | 125,723    |            |           |            | 151,924    |            |           |            | 162,198    |           
|                           | Federal funds sold                                      |                                                         |            | 79,218     |            |           |            | 67,717     |            |           |            | 50,970     |           
|                           |                                                         |                                                         |            |            |            |           |            |            |            |           |            |           
|                           |                                                         |                                                         | 26,528,849 |            |            |           | 24,225,612 |            |            |           | 25,278,584 |           
|                           |                                                         |                                                         |            |            |            |           |            |            |            |           |            |           
|Interest expense:          |                                                         |                                                         |            |            |            |           |            |            |            |           |            |           
|                           | Deposits                                                |                                                         |            | 2,993,536  |            |           |            | 3,122,561  |            |           |            | 5,370,134  |           
|                           | Federal Home Loan Bank borrowings                       |                                                         |            | 1,250,700  |            |           |            | 1,339,723  |            |           |            | 1,159,342  |           
|                           | Federal funds purchased                                 |                                                         |            | 64,665     |            |           |            | 74,753     |            |           |            | 229,523    |           
|                           |                                                         |                                                         |            |            |            |           |            |            |            |           |            |           
|                           |                                                         |                                                         | 4,308,901  |            |            |           | 4,537,037  |            |            |           | 6,758,999  |           
|                           |                                                         |                                                         |            |            |            |           |            |            |            |           |            |           
|                           |                                                         | Net interest income                                     |            |            | 22,219,948 |           |            |            | 19,688,575 |           |            |            | 18,519,585 |          
|Provision for loan losses  |                                                         |                                                         | 900,000    |            |            |           | 5,660,000  |            |            |           | 1,455,000  |           
|                           |                                                         |                                                         |            |            |            |           |            |            |            |           |            |           
|                           |                                                         | Net interest income after provision for loan
    losses |            |            | 21,319,948 |           |            |            | 14,028,575 |           |            |            | 17,064,585 |          
|                           |                                                         |                                                         |            |            |            |           |            |            |            |           |            |           
|Noninterest income:        |                                                         |                                                         |            |            |            |           |            |            |            |           |            |           
|                           | Service charges on deposit accounts                     |                                                         |            | 1,568,588  |            |           |            | 1,319,391  |            |           |            | 1,105,636  |           
|                           | Other fee income, principally bankcard processing       |                                                         |            | 1,250,400  |            |           |            | 1,206,873  |            |           |            | 927,609    |           
|                           | Loan servicing                                          |                                                         |            | 241,416    |            |           |            | 342,889    |            |           |            | 489,356    |           
|                           | Mortgage banking income and gains on sales of
    loans |                                                         |            | 1,624,847  |            |           |            | 924,166    |            |           |            | 616,254    |           
|                           | Gains (losses) on sales of securities                   |                                                         |            |           |            |           |            | 149,390    |            |           |            | 251,003    |           
|                           | Other                                                   |                                                         |            | 261,091    |            |           |            | 258,051    |            |           |            | 220,548    |           
|                           |                                                         |                                                         |            |            |            |           |            |            |            |           |            |           
|                           |                                                         |                                                         | 4,946,342  |            |            |           | 4,200,760  |            |            |           | 3,610,406  |           
|                           |                                                         |                                                         |            |            |            |           |            |            |            |           |            |           
|Noninterest expense:       |                                                         |                                                         |            |            |            |           |            |            |            |           |            |           
|                           | Salaries and employee benefits                          |                                                         |            | 8,853,739  |            |           |            | 7,528,777  |            |           |            | 6,764,328  |           
|                           | Premises and equipment                                  |                                                         |            | 1,800,442  |            |           |            | 1,441,393  |            |           |            | 1,353,566  |           
|                           | Bankcard processing                                     |                                                         |            | 365,709    |            |           |            | 487,585    |            |           |            | 452,763    |           
|                           | Business development                                    |                                                         |            | 823,273    |            |           |            | 807,550    |            |           |            | 748,580    |           
|                           | Other                                                   |                                                         |            | 3,359,460  |            |           |            | 2,328,611  |            |           |            | 2,051,483  |           
|                           |                                                         |                                                         |            |            |            |           |            |            |            |           |            |           
|                           |                                                         |                                                         | 15,202,623 |            |            |           | 12,593,916 |            |            |           | 11,370,720 |           
|                           |                                                         |                                                         |            |            |            |           |            |            |            |           |            |           
|                           |                                                         | Income before income taxes                              |            |            | 11,063,667 |           |            |            | 5,635,419  |           |            |            | 9,304,271  |          
|Provision for income taxes |                                                         |                                                         | 4,233,000  |            |            |           | 2,181,000  |            |            |           | 3,582,000  |           
|                           |                                                         |                                                         |            |            |            |           |            |            |            |           |            |           
|                           |                                                         |                                                         | Net income |            | $          | 6,830,666 |            |            | $          | 3,454,419 |            |            | $          | 5,722,271 | 
|                           |                                                         |                                                         |            |            |            |           |            |            |            |           |            |           
|Earnings per share:        |                                                         |                                                         |            |            |            |           |            |            |            |           |            |           
|                           | Basic                                                   |                                                         | $          | 1.01       |            |           | $          | .52        |            |           | $          | .86        |           
|                           | Diluted                                                 |                                                         | $          | .99        |            |           | $          | .51        |            |           | $          | .84        |           

The accompanying notes are an integral part of
these consolidated financial statements.

30



---



##### Table of Contents



PACIFIC CONTINENTAL CORPORATION AND
SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN
STOCKHOLDERS EQUITY

For the Years Ended December 31, 2003,
2002 and 2001


|                           |                                                 |                                        |                            |           |   |            |           |           |   |               |            |            |   |   |            |            |   |   |         |   |          |          |            |            |   |          |  
|-------------------------- | ----------------------------------------------- | -------------------------------------- | -------------------------- | --------- | - | ---------- | --------- | --------- | - | ------------- | ---------- | ---------- | - | - | ---------- | ---------- | - | - | ------- | - | -------- | -------- | ---------- | ---------- | - | -------- | -
|                           |                                                 |                                        |                            |           |   |            |           |           |   | Accumulated   |            |           
|                           |                                                 |                                        |                            |           |   | Additional |           |           |   | Other         |            |           
|                           |                                                 | Number                                 |                            | Common    |   | Paid-in    |           | Retained  |   | Comprehensive |            |           
|                           |                                                 | of Shares                              |                            | Stock     |   | Capital    |           | Earnings  |   | Income (Loss) |            | Total     
|                           |                                                 |                                        |                            |           |   |            |           |           |   |               |            |           
|Balance, January 1, 2001   |                                                 |                                        | 4,535,752                  |           |   | $          | 4,535,752 |           |   | $             | 14,056,333 |            |   | $ | 11,787,069 |            |   | $ | (9,122  | ) |          | $        | 30,370,032 |           
|                           |                                                 |                                        |                            |           |   |            |           |           |   |               |            |            |   |   |            |            |   |   |         |   |          |          |            |           
|                           | Net income                                      |                                        |                            |           |   |            |           |           |   |               |            |            |   |   |            | 5,722,271  |   |   |         |   |          |          |            | 5,722,271  |  
|                           | Other comprehensive income:                     |                                        |                            |           |   |            |           |           |   |               |            |            |   |   |            |            |   |   |         |   |          |          |            |            |  
|                           |                                                 | Unrealized gains on securities         |                            |           |   |            |           |           |   |               |            |            |   |   |            |            |   |   |         |   | 735,649  |          |            |            |   |         
|                           |                                                 | Reclassification of net gains realized |                            |           |   |            |           |           |   |               |            |            |   |   |            |            |   |   |         |   | (251,003 | )        |            |            |   |         
|                           |                                                 | Deferred income taxes                  |                            |           |   |            |           |           |   |               |            |            |   |   |            |            |   |   |         |   | (185,910 | )        |            |            |   |         
|                           |                                                 |                                        |                            |           |   |            |           |           |   |               |            |            |   |   |            |            |   |   |         |   |          |          |            |           
|                           |                                                 |                                        | Other comprehensive loss   |           |   |            |           |           |   |               |            |            |   |   |            |            |   |   |         |   |          | 298,736  |            |            |   | 298,736  |  
|                           |                                                 |                                        |                            |           |   |            |           |           |   |               |            |            |   |   |            |            |   |   |         |   |          |          |            |           
|                           | Comprehensive income                            |                                        |                            |           |   |            |           |           |   |               |            |            |   |   |            |            |   |   |         |   |          |          |            | 6,021,007  |  
|                           | Stock options exercised and related tax benefit |                                        |                            | 81,920    |   |            |           | 81,920    |   |               |            | 687,186    |   |   |            |            |   |   |         |   |          |          |            | 769,106    |  
|                           | 10% stock dividend                              |                                        |                            | 460,719   |   |            |           | 460,719   |   |               |            | 6,012,383  |   |   |            | (6,473,102 | ) |   |         |   |          |          |            |            |  
|                           | Cash dividends                                  |                                        |                            |           |   |            |           |           |   |               |            |            |   |   |            | (1,400,993 | ) |   |         |   |          |          |            | (1,400,993 | )
|                           | Shares repurchased and retired                  |                                        |                            | (12,101   | ) |            |           | (12,101   | ) |               |            | (49,383    | ) |   |            | (93,286    | ) |   |         |   |          |          |            | (154,770   | )
|                           |                                                 |                                        |                            |           |   |            |           |           |   |               |            |            |   |   |            |            |   |   |         |   |          |          |            |           
|Balance, December 31, 2001 |                                                 |                                        | 5,066,290                  |           |   |            | 5,066,290 |           |   |               | 20,706,519 |            |   |   | 9,541,959  |            |   |   | 289,614 |   |          |          | 35,604,382 |           
|                           |                                                 |                                        |                            |           |   |            |           |           |   |               |            |            |   |   |            |            |   |   |         |   |          |          |            |           
|                           | Net income                                      |                                        |                            |           |   |            |           |           |   |               |            |            |   |   |            | 3,454,419  |   |   |         |   |          |          |            | 3,454,419  |  
|                           | Other comprehensive income:                     |                                        |                            |           |   |            |           |           |   |               |            |            |   |   |            |            |   |   |         |   |          |          |            |            |  
|                           |                                                 | Unrealized losses on securities        |                            |           |   |            |           |           |   |               |            |            |   |   |            |            |   |   |         |   | (197,643 | )        |            |            |   |         
|                           |                                                 | Reclassification of net gains realized |                            |           |   |            |           |           |   |               |            |            |   |   |            |            |   |   |         |   | (149,390 | )        |            |            |   |         
|                           |                                                 | Deferred income taxes                  |                            |           |   |            |           |           |   |               |            |            |   |   |            |            |   |   |         |   | 133,122  |          |            |            |   |         
|                           |                                                 |                                        |                            |           |   |            |           |           |   |               |            |            |   |   |            |            |   |   |         |   |          |          |            |           
|                           |                                                 |                                        | Other comprehensive income |           |   |            |           |           |   |               |            |            |   |   |            |            |   |   |         |   |          | (213,911 | )          |            |   | (213,911 | )
|                           |                                                 |                                        |                            |           |   |            |           |           |   |               |            |            |   |   |            |            |   |   |         |   |          |          |            |           
|                           | Comprehensive income                            |                                        |                            |           |   |            |           |           |   |               |            |            |   |   |            |            |   |   |         |   |          |          |            | 3,240,508  |  
|                           | Stock options exercised and related tax benefit |                                        |                            | 76,563    |   |            |           | 76,563    |   |               |            | 638,569    |   |   |            |            |   |   |         |   |          |          |            | 715,132    |  
|                           | Cash dividends                                  |                                        |                            |           |   |            |           |           |   |               |            |            |   |   |            | (1,610,219 | ) |   |         |   |          |          |            | (1,610,219 | )
|                           | Shares repurchased and retired                  |                                        |                            | (102,405  | ) |            |           | (102,405  | ) |               |            | (418,145   | ) |   |            | (730,719   | ) |   |         |   |          |          |            | (1,251,269 | )
|                           |                                                 |                                        |                            |           |   |            |           |           |   |               |            |            |   |   |            |            |   |   |         |   |          |          |            |           
|Balance, December 31, 2002 |                                                 |                                        | 5,040,448                  |           |   |            | 5,040,448 |           |   |               | 20,926,943 |            |   |   | 10,655,440 |            |   |   | 75,703  |   |          |          | 36,698,534 |           
|                           |                                                 |                                        |                            |           |   |            |           |           |   |               |            |            |   |   |            |            |   |   |         |   |          |          |            |           
|                           | Net income                                      |                                        |                            |           |   |            |           |           |   |               |            |            |   |   |            | 6,830,667  |   |   |         |   |          |          |            | 6,830,667  |  
|                           | Other comprehensive income:                     |                                        |                            |           |   |            |           |           |   |               |            |            |   |   |            |            |   |   |         |   |          |          |            |            |  
|                           |                                                 | Unrealized losses on securities        |                            |           |   |            |           |           |   |               |            |            |   |   |            |            |   |   |         |   | (171,525 | )        |            |            |   |         
|                           |                                                 | Reclassification of net gains realized |                            |           |   |            |           |           |   |               |            |            |   |   |            |            |   |   |         |   | 65,797   |          |            |            |   |         
|                           |                                                 | Deferred income taxes                  |                            |           |   |            |           |           |   |               |            |            |   |   |            |            |   |   |         |   |          |          |            |            |   |         
|                           |                                                 |                                        |                            |           |   |            |           |           |   |               |            |            |   |   |            |            |   |   |         |   |          |          |            |           
|                           |                                                 |                                        | Other comprehensive income |           |   |            |           |           |   |               |            |            |   |   |            |            |   |   |         |   |          | (105,728 | )          |            |   | (105,728 | )
|                           |                                                 |                                        |                            |           |   |            |           |           |   |               |            |            |   |   |            |            |   |   |         |   |          |          |            |           
|                           | Comprehensive income                            |                                        |                            |           |   |            |           |           |   |               |            |            |   |   |            |            |   |   |         |   |          |          |            |            |  
|                           | Stock options exercised and related tax benefit |                                        |                            | 56,876    |   |            |           | 56,876    |   |               |            | 598,639    |   |   |            |            |   |   |         |   |          |          |            | 655,515    |  
|                           | Stock split (4 shares for 3)                    |                                        |                            | 1,692,738 |   |            |           | 1,692,738 |   |               |            | (1,692,738 | ) |   |            |            |   |   |         |   |          |          |            |            |  
|                           | Cash dividends                                  |                                        |                            |           |   |            |           |           |   |               |            |            |   |   |            | (1,841,438 | ) |   |         |   |          |          |            | (1,841,438 | )
|                           | Shares repurchased and retired                  |                                        |                            | (275      | ) |            |           | (275      | ) |               |            | (3,425     | ) |   |            |            |   |   |         |   |          |          |            | (3,700     | )
|                           |                                                 |                                        |                            |           |   |            |           |           |   |               |            |            |   |   |            |            |   |   |         |   |          |          |            |           
|Balance, December 31, 2003 |                                                 |                                        | 6,789,787                  |           |   | $          | 6,789,787 |           |   | $             | 19,829,419 |            |   | $ | 15,644,669 |            |   | $ | (30,025 | ) |          | $        | 42,233,850 |           

The accompanying notes are an integral part of
these consolidated financial statements.

31



---



##### Table of Contents



PACIFIC CONTINENTAL CORPORATION AND
SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH
FLOWS

|                                                         |                                                                                       |                                                                           |                                        |                                                         |           |           |             |             |            |            |             |             |           |          |           | 
|-------------------------------------------------------- | ------------------------------------------------------------------------------------- | ------------------------------------------------------------------------- | -------------------------------------- | ------------------------------------------------------- | --------- | --------- | ----------- | ----------- | ---------- | ---------- | ----------- | ----------- | --------- | -------- | --------- | 
|                                                         |                                                                                       |                                                                          
|                                                         |                                                                                       | Year Ended December 31,                                                  
|                                                         |                                                                                       |                                                                          
|                                                         |                                                                                       | 2003                                                                      |                                        | 2002                                                    |           | 2001     
|                                                         |                                                                                       |                                                                           |                                        |                                                         |           |          
|Cash flows from operating activities:                    |                                                                                       |                                                                           |                                        |                                                         |           |           |             |             |            |            |             |            
|                                                         | Net income                                                                            |                                                                           | $                                      | 6,830,667                                               |           |           | $           | 3,454,419   |            |            | $           | 5,722,271   |          
|                                                         | Adjustments to reconcile net income to net cash
    provided by operating activities: |                                                                           |                                        |                                                         |           |           |             |             |            |            |             |             |          
|                                                         |                                                                                       | Depreciation                                                              |                                        |                                                         | 928,818   |           |             |             | 863,152    |            |             |             | 854,997   |         
|                                                         |                                                                                       | Amortization (accretion)                                                  |                                        |                                                         | 340,861   |           |             |             | 48,450     |            |             |             | (92,463   | )       
|                                                         |                                                                                       | Provision for loan losses                                                 |                                        |                                                         | 900,000   |           |             |             | 5,660,000  |            |             |             | 1,455,000 |         
|                                                         |                                                                                       | Losses of foreclosed assets                                               |                                        |                                                         | 613,966   |           |             |             |           |            |             |             |          |         
|                                                         |                                                                                       | Deferred income taxes                                                     |                                        |                                                         | (70,000   | )         |             |             | 327,000    |            |             |             | (522,000  | )       
|                                                         |                                                                                       | Gains on sales of loans                                                   |                                        |                                                         | (129,950  | )         |             |             |           |            |             |             |          |         
|                                                         |                                                                                       | Gains on sales of securities                                              |                                        |                                                         |          |           |             |             | (149,390   | )          |             |             | (251,003  | )       
|                                                         |                                                                                       | Stock dividends from Federal Home Loan Bank                               |                                        |                                                         | (125,500  | )         |             |             | (151,700   | )          |             |             | (162,000  | )       
|                                                         |                                                                                       | Change in:                                                                |                                        |                                                         |           |           |             |             |            |            |             |             |           |         
|                                                         |                                                                                       |                                                                           | Interest receivable                    |                                                         |           | 61,653    |             |             |            | (237,786   | )           |             |           | 304,702  |          
|                                                         |                                                                                       |                                                                           | Deferred loan fees                     |                                                         |           | 188,894   |             |             |            | 282,907    |             |             |           | 29,229   |          
|                                                         |                                                                                       |                                                                           | Capitalized loan servicing rights      |                                                         |           | (13,854   | )           |             |            | 19,039     |             |             |           | 69,799   |          
|                                                         |                                                                                       |                                                                           | Loans held for sale                    |                                                         |           | 2,110,182 |             |             |            | (3,622,965 | )           |             |           | (806,170 | )        
|                                                         |                                                                                       |                                                                           | Accrued interest and other liabilities |                                                         |           | 226,673   |             |             |            | (157,699   | )           |             |           | 239,527  |          
|                                                         |                                                                                       |                                                                           | Income taxes payable                   |                                                         |           | (132,629  | )           |             |            | (485,594   | )           |             |           | 177,210  |          
|                                                         |                                                                                       |                                                                           | Other assets                           |                                                         |           | (30,724   | )           |             |            | (3,503     | )           |             |           | (105,710 | )        
|                                                         |                                                                                       |                                                                           |                                        |                                                         |           |           |             |             |            |            |             |            
|                                                         |                                                                                       |                                                                           |                                        | Net cash provided by operating activities               |           |           | 11,699,057  |             |            |            | 5,846,330   |             |           |          | 6,913,389 | 
|                                                         |                                                                                       |                                                                           |                                        |                                                         |           |           |             |             |            |            |             |            
|Cash flows from investing activities:                    |                                                                                       |                                                                           |                                        |                                                         |           |           |             |             |            |            |             |            
|                                                         | Proceeds from sales and maturities of securities                                      |                                                                           |                                        | 10,749,973                                              |           |           |             | 16,447,917  |            |            |             | 27,382,531  |          
|                                                         | Purchase of securities                                                                |                                                                           |                                        | (30,445,782                                             | )         |           |             | (7,412,561  | )          |            |             | (8,566,206  | )        
|                                                         | Loans made net of principal collections received                                      |                                                                           |                                        | (32,233,581                                             | )         |           |             | (88,882,993 | )          |            |             | (11,710,097 | )        
|                                                         | Proceeds from sales of loans                                                          |                                                                           |                                        | 8,064,258                                               |           |           |             | 3,242,465   |            |            |             | 1,500,000   |          
|                                                         | Purchase of loans                                                                     |                                                                           |                                        | (107,729                                                | )         |           |             | (4,047,504  | )          |            |             | (7,706,625  | )        
|                                                         | Acquisition                                                                           |                                                                           |                                        | (6,863,160                                              | )         |           |             |            |            |            |             |            |          
|                                                         | Purchase of property                                                                  |                                                                           |                                        | (746,980                                                | )         |           |             | (799,217    | )          |            |             | (1,182,911  | )        
|                                                         | Proceeds on sale of foreclosed assets                                                 |                                                                           |                                        | 3,182,775                                               |           |           |             |            |            |            |             | 385,000     |          
|                                                         | Improvements to foreclosed assets                                                     |                                                                           |                                        |                                                        |           |           |             | (212,371    | )          |            |             |            |          
|                                                         |                                                                                       |                                                                           |                                        |                                                         |           |           |             |             |            |            |             |            
|                                                         |                                                                                       |                                                                           |                                        | Net cash provided by (used in) investing
    activities |           |           | (48,400,226 | )           |            |            | (81,664,264 | )           |           |          | 101,692   | 
|                                                         |                                                                                       |                                                                           |                                        |                                                         |           |           |             |             |            |            |             |            
|Cash flows from financing activities:                    |                                                                                       |                                                                           |                                        |                                                         |           |           |             |             |            |            |             |            
|                                                         | Net increase (decrease) in deposits                                                   |                                                                           |                                        | 46,190,374                                              |           |           |             | 61,580,016  |            |            |             | (1,774,876  | )        
|                                                         | Change in federal funds purchased                                                     |                                                                           |                                        | (9,000,000                                              | )         |           |             | 9,000,000   |            |            |             | (900,000    | )        
|                                                         | Change in Federal Home Loan Bank term
    borrowings                                  |                                                                           |                                        | 3,000,000                                               |           |           |             | (1,000,000  | )          |            |             | 12,500,000  |          
|                                                         | Proceeds from stock options exercised                                                 |                                                                           |                                        | 540,515                                                 |           |           |             | 661,132     |            |            |             | 745,106     |          
|                                                         | Dividends paid                                                                        |                                                                           |                                        | (1,841,438                                              | )         |           |             | (1,610,219  | )          |            |             | (1,400,993  | )        
|                                                         | Repurchase of Company shares                                                          |                                                                           |                                        | (3,700                                                  | )         |           |             | (1,251,269  | )          |            |             | (154,770    | )        
|                                                         |                                                                                       |                                                                           |                                        |                                                         |           |           |             |             |            |            |             |            
|                                                         |                                                                                       |                                                                           |                                        | Net cash provided by financing activities               |           |           | 38,885,751  |             |            |            | 67,379,660  |             |           |          | 9,014,467 | 
|                                                         |                                                                                       |                                                                           |                                        |                                                         |           |           |             |             |            |            |             |            
|Net increase (decrease) in cash and cash
    equivalents |                                                                                       |                                                                           | 2,184,582                              |                                                         |           |           | (8,438,274  | )           |            |            | 16,029,548  |            
|Cash and cash equivalents, beginning of year             |                                                                                       |                                                                           | 23,351,772                             |                                                         |           |           | 31,790,046  |             |            |            | 15,760,498  |            
|                                                         |                                                                                       |                                                                           |                                        |                                                         |           |           |             |             |            |            |             |            
|Cash and cash equivalents, end of year                   |                                                                                       | $                                                                         | 25,536,354                             |                                                         |           | $         | 23,351,772  |             |            | $          | 31,790,046  |            
|                                                         |                                                                                       |                                                                           |                                        |                                                         |           |           |             |             |            |            |             |            
|Supplemental information:                                |                                                                                       |                                                                           |                                        |                                                         |           |           |             |             |            |            |             |            
|                                                         | Noncash investing and financing activities:                                           |                                                                           |                                        |                                                         |           |           |             |             |            |            |             |             |          
|                                                         |                                                                                       | Transfers of loans to foreclosed assets                                   |                                        | $                                                       | 3,343,866 |           |             | $           | 651,266    |            |             | $           |          |         
|                                                         |                                                                                       | Transfers of loans held for sale                                          |                                        |                                                         | 1,478,871 |           |             |             | 11,077,383 |            |             |             | 304,037   |         
|                                                         |                                                                                       | Change in unrealized gain on securities, net of
    deferred income taxes |                                        |                                                         | 105,728   |           |             |             | (213,911   | )          |             |             | 298,736   |         
|                                                         | Cash paid during the year for:                                                        |                                                                           |                                        |                                                         |           |           |             |             |            |            |             |             |          
|                                                         |                                                                                       | Income taxes                                                              |                                        |                                                         | 4,436,000 |           |             |             | 2,339,594  |            |             |             | 3,926,790 |         
|                                                         |                                                                                       | Interest                                                                  |                                        |                                                         | 4,325,229 |           |             |             | 4,580,973  |            |             |             | 6,929,933 |         

The accompanying notes are an integral part of
these consolidated financial statements.

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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). The Bank provides commercial banking,
financing, mortgage lending and other services in Western Oregon
and Southwest Washington. All significant intercompany accounts
and transactions have been eliminated in consolidation.

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 the
calculation of the allowance for loan losses.

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 were maintained in cash
at December 31, 2003.

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 mix of bank assets and
liabilities or demand on liquidity. The Bank classified all
securities as available-for-sale throughout 2003 and 2002.
Securities classified as available-for-sale are reported at
estimated fair value, net of deferred taxes. The difference
between estimated fair value and amortized cost is a separate
component of stockholders equity (accumulated other
comprehensive income). Fair values for these investment
securities are based on market prices. Gains and losses on the
sale of available-for-sale securities are determined using the
specific-identification method. Management determines the
appropriate classification of securities at the time of purchase.

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.

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, 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. Loan origination fees 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

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PACIFIC CONTINENTAL CORPORATION AND
SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

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. Interest income is subsequently recognized only to
the extent cash payments are received.

Servicing
Servicing assets are recognized as separate assets when rights
are acquired through 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.

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. For
2003, the minimum required investment was approximately
$250,000. The Bank may request redemption at par value of any
stock in excess of the amount the Bank is required to hold.

Foreclosed
Assets Assets acquired
through foreclosure, or deeds in lieu of foreclosure, are
initially recorded at fair value 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.

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 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 lease
term for leasehold improvements.

Goodwill Goodwill represents the excess of cost
over the fair value of net assets acquired in a 2003 business
combination. Goodwill is not subject to amortization but is
tested annually for impairment.

Advertising
Advertising costs are charged to expense during the year in
which they are incurred.

Income
Taxes 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.

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

34



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PACIFIC CONTINENTAL CORPORATION AND
SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

include the effect of common stock equivalents
that would arise from the exercise of stock options discussed in
Note 12. Weighted shares outstanding are adjusted
retroactively for the effect of stock dividends.

Weighted average shares outstanding at
December 31 are as follows:

|                                                           |  |      |           |      |  |      |           |  |  |  |           | 
|---------------------------------------------------------- |  | ---- | --------- | ---- |  | ---- | --------- |  |  |  | --------- | 
|                                                           |  | 2003 |           | 2002 |  | 2001
|                                                           |  |      |           |      |  |     
|Basic                                                      |  |      | 6,749,945 |      |  |      | 6,712,887 |  |  |  | 6,715,237 | 
|Common stock equivalents attributable to stock
    options |  |      | 138,932   |      |  |      | 59,424    |  |  |  | 67,316    | 
|                                                           |  |      |           |      |  |      |           |  |  |  |           | 
|Diluted                                                    |  |      | 6,888,877 |      |  |      | 6,772,311 |  |  |  | 6,782,553 | 
|                                                           |  |      |           |      |  |      |           |  |  |  |           | 

The Company repurchased and retired
102,405 shares of common stock costing $1,251,269 in 2002;
and 12,101 shares costing $154,770 in 2001. The repurchase
plan expired in 2002.

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.

|                                                                                                                                             |                       |                         |           |      |  |      |           |      |  |   |           |      | 
|-------------------------------------------------------------------------------------------------------------------------------------------- | --------------------- | ----------------------- | --------- | ---- |  | ---- | --------- | ---- |  | - | --------- | ---- | 
|                                                                                                                                             |                       |                        
|                                                                                                                                             |                       | Year Ended December 31,
|                                                                                                                                             |                       |                        
|                                                                                                                                             |                       | 2003                    |           | 2002 |  | 2001
|                                                                                                                                             |                       |                         |           |      |  |     
|Net income  as reported                                                                                                                     |                       | $                       | 6,830,667 |      |  | $    | 3,454,419 |      |  | $ | 5,722,271 |     
|Deduct total stock-based employee compensation
    expense determined under fair value method for all awards, net
    of related tax effects |                       |                         | (322,931  | )    |  |      | (241,066  | )    |  |   | (204,996  | )   
|                                                                                                                                             |                       |                         |           |      |  |      |           |      |  |   |           |     
|Net income  pro forma                                                                                                                       |                       | $                       | 6,507,736 |      |  | $    | 3,213,353 |      |  | $ | 5,517,275 |     
|                                                                                                                                             |                       |                         |           |      |  |      |           |      |  |   |           |     
|Earnings per share:                                                                                                                          |                       |                         |           |      |  |      |           |      |  |   |           |     
|                                                                                                                                             | Basic  as reported   |                         | $         | 1.01 |  |      | $         | 0.52 |  |   | $         | 0.85 | 
|                                                                                                                                             | Basic  pro forma     |                         |           | 0.96 |  |      |           | 0.48 |  |   |           | 0.82 | 
|                                                                                                                                             | Diluted  as reported |                         |           | 0.99 |  |      |           | 0.51 |  |   |           | 0.84 | 
|                                                                                                                                             | Diluted  pro forma   |                         |           | 0.94 |  |      |           | 0.47 |  |   |           | 0.81 | 

The fair value of each option grant ($3.58, $3.00
and $2.35 in 2003, 2002 and 2001, respectively) is estimated on
the date of the grant using the Black-Scholes option-pricing
model with the following weighted average assumptions:

|                        |  |      |          |      |  |      |             |   |  |  |          |  
|----------------------- |  | ---- | -------- | ---- |  | ---- | ----------- | - |  |  | -------- | -
|                        |  | 2003 |          | 2002 |  | 2001
|                        |  |      |          |      |  |     
|Dividend yield          |  |      | 2.81     | %    |  |      | 3.09        | % |  |  | 3.33     | %
|Risk-free interest rate |  |      | 4.00     | %    |  |      | 3.98        | % |  |  | 5.43     | %
|Expected life           |  |      | 4  years |      |  |      | 4.93  years |   |  |  | 4  years |  
|Expected volatility     |  |      | 33.90    | %    |  |      | 40.54       | % |  |  | 31.60    | %

Recently Issued Accounting
Pronouncements In May
2003, the Financial Accounting Standards Board
(FASB) issued FASB No. 150, Accounting for Certain
Financial Instruments with Characteristics of Both Liabilities
and Equity. This statement establishes standards for how an
issuer classifies and measures certain financial instruments
with characteristics of both liabilities and equity. It requires
that an issuer classify a financial instrument that is within
its scope as a liability (or an asset in some circumstances).
Many of those instruments were previously classified as equity.
This statement is effective for financial instruments entered

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PACIFIC CONTINENTAL CORPORATION AND
SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

into or modified after May 31, 2003, and
otherwise is effective at the beginning of the first interim
period beginning after June 15, 2003, except for
mandatorily redeemable financial instruments of nonpublic
entities. The adoption of FASB No. 150 has not had a
material impact on the Companys financial statements.

In December 2003, FASB issued revised
Interpretation No. 46 (FIN 46),
Consolidation of Variable Interest Entities. FIN 46
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 this
Interpretation have multiple effective dates with the final
effective date for reporting periods ending after March 15,
2004. The Company does not expect that the application
provisions of this Interpretation will have a material effect on
the Companys consolidated financial statements.

Reclassifications
The 2002 and 2001 figures have been reclassified where
appropriate to conform with the financial statement presentation
used in 2003. These reclassifications had no effect on
previously reported net income.



|   |                               
|-- | ------------------------------
|2. | Securities Available-for-Sale:

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

|                                                 |  |           |            |            |  |            |         |              |  |   |         |  |  |   |            | 
|------------------------------------------------ |  | --------- | ---------- | ---------- |  | ---------- | ------- | ------------ |  | - | ------- |  |  | - | ---------- | 
|                                                 |  |          
|                                                 |  | 2003     
|                                                 |  |          
|                                                 |  |           |            | Gross      |  | Gross      |         |             
|                                                 |  | Amortized |            | Unrealized |  | Unrealized |         |             
|                                                 |  | Cost      |            | Gains      |  | Losses     |         | Market Value
|                                                 |  |           |            |            |  |            |         |             
|Obligations of U.S. Government agencies          |  | $         | 6,501,178  |            |  | $          | 5,737   |              |  | $ | 29,453  |  |  | $ | 6,477,462  | 
|Obligations of states and political subdivisions |  |           | 3,018,186  |            |  |            | 17,618  |              |  |   | 42,985  |  |  | $ | 2,992,819  | 
|Mortgage-backed securities                       |  |           | 20,558,083 |            |  |            | 95,049  |              |  |   | 94,677  |  |  |   | 20,558,455 | 
|                                                 |  |           |            |            |  |            |         |              |  |   |         |  |  |   |            | 
|                                                 |  | $         | 30,077,447 |            |  | $          | 118,404 |              |  | $ | 167,115 |  |  | $ | 30,028,736 | 
|                                                 |  |           |            |            |  |            |         |              |  |   |         |  |  |   |            | 

|                                                 |  |           |            |            |  |            |         |              |  |   |   |  |  |   |            | 
|------------------------------------------------ |  | --------- | ---------- | ---------- |  | ---------- | ------- | ------------ |  | - | - |  |  | - | ---------- | 
|                                                 |  |          
|                                                 |  | 2002     
|                                                 |  |          
|                                                 |  |           |            | Gross      |  | Gross      |         |             
|                                                 |  | Amortized |            | Unrealized |  | Unrealized |         |             
|                                                 |  | Cost      |            | Gains      |  | Losses     |         | Market Value
|                                                 |  |           |            |            |  |            |         |             
|Obligations of U.S. Government agencies          |  | $         | 1,021,407  |            |  | $          | 26,205  |              |  | $ |  |  |  | $ | 1,047,612  | 
|Obligations of states and political subdivisions |  |           | 118,000    |            |  |            |        |              |  |   |  |  |  |   | 118,000    | 
|Mortgage-backed securities                       |  |           | 9,583,092  |            |  |            | 96,609  |              |  |   |  |  |  |   | 9,679,701  | 
|                                                 |  |           |            |            |  |            |         |              |  |   |   |  |  |   |            | 
|                                                 |  | $         | 10,722,499 |            |  | $          | 122,814 |              |  | $ |  |  |  | $ | 10,845,313 | 
|                                                 |  |           |            |            |  |            |         |              |  |   |   |  |  |   |            | 

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PACIFIC CONTINENTAL CORPORATION AND
SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

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

|                                   |  |           |            |              |  |           |            |              |  |   |            |  |  |   |            | 
|---------------------------------- |  | --------- | ---------- | ------------ |  | --------- | ---------- | ------------ |  | - | ---------- |  |  | - | ---------- | 
|                                   |  |           |            |             
|                                   |  | 2003      |            | 2002        
|                                   |  |           |            |             
|                                   |  | Amortized |            |              |  | Amortized |            |             
|                                   |  | Cost      |            | Market Value |  | Cost      |            | Market Value
|                                   |  |           |            |              |  |           |            |             
|Due in one year or less            |  | $         |           |              |  | $         |           |              |  | $ | 1,021,407  |  |  | $ | 1,047,612  | 
|Due after one year through 5 years |  |           | 6,941,014  |              |  |           | 6,915,521  |              |  |   |           |  |  |   |           | 
|Due after 5 years through 15 years |  |           | 2,578,350  |              |  |           | 2,554,760  |              |  |   | 118,000    |  |  |   | 118,000    | 
|Mortgage-backed securities         |  |           | 20,558,083 |              |  |           | 20,558,455 |              |  |   | 9,583,092  |  |  |   | 9,679,701  | 
|                                   |  |           |            |              |  |           |            |              |  |   |            |  |  |   |            | 
|                                   |  | $         | 30,077,447 |              |  | $         | 30,028,736 |              |  | $ | 10,722,499 |  |  | $ | 10,845,313 | 
|                                   |  |           |            |              |  |           |            |              |  |   |            |  |  |   |            | 

No securities were sold in 2003. Gross realized
gains and losses were $151,098 and $1,708, respectively, in
2002. Gross realized gains and losses were $300,643 and $49,640,
respectively, in 2001.

At December 31, 2003, mortgage-backed
securities with amortized costs of $5,962,776 (estimated market
values of $5,804,986) were pledged to secure certain Treasury
and public deposits as required by law.

3.     Loans:

Major classifications of loans at
December 31 are as follows:

|                               |  |      |             |      |  |   |             |  
|------------------------------ |  | ---- | ----------- | ---- |  | - | ----------- | -
|                               |  | 2003 |             | 2002
|                               |  |      |             |     
|Commercial loans               |  | $    | 89,128,212  |      |  | $ | 94,345,057  |  
|Real estate loans              |  |      | 255,149,823 |      |  |   | 222,726,647 |  
|Consumer loans                 |  |      | 11,424,015  |      |  |   | 9,578,560   |  
|                               |  |      |             |      |  |   |             |  
|                               |  |      | 355,702,050 |      |  |   | 326,650,264 |  
|Deferred loan origination fees |  |      | (1,582,494  | )    |  |   | (1,393,600  | )
|                               |  |      |             |      |  |   |             |  
|                               |  |      | 354,119,556 |      |  |   | 325,256,664 |  
|Allowance for loan losses      |  |      | (5,225,331  | )    |  |   | (4,403,161  | )
|                               |  |      |             |      |  |   |             |  
|                               |  | $    | 348,894,225 |      |  | $ | 320,853,503 |  
|                               |  |      |             |      |  |   |             |  

Scheduled maturities or repricing, if earlier, of
loans at December 31, 2003 are as follows:

|                          |  |   |             | 
|------------------------- |  | - | ----------- | 
|Three months or less      |  | $ | 184,955,626 | 
|Three months to one year  |  |   | 11,117,655  | 
|One year to three years   |  |   | 49,033,735  | 
|Three years to five years |  |   | 62,520,704  | 
|Thereafter                |  |   | 48,074,330  | 
|                          |  |   |             | 
|                          |  | $ | 355,702,050 | 
|                          |  |   |             | 

37



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##### Table of Contents



PACIFIC CONTINENTAL CORPORATION AND
SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

Allowance for Loan Losses:

|                                    |  |      |            |      |  |      |            |   |  |   |           |  
|----------------------------------- |  | ---- | ---------- | ---- |  | ---- | ---------- | - |  | - | --------- | -
|                                    |  | 2003 |            | 2002 |  | 2001
|                                    |  |      |            |      |  |     
|Balance, beginning of year          |  | $    | 4,403,161  |      |  | $    | 3,418,029  |   |  | $ | 2,148,676 |  
|Provision charged to income         |  |      | 900,000    |      |  |      | 5,660,000  |   |  |   | 1,455,000 |  
|Loans charged against the allowance |  |      | (1,185,426 | )    |  |      | (4,802,741 | ) |  |   | (273,232  | )
|Recoveries credited to allowance    |  |      | 917,796    |      |  |      | 127,873    |   |  |   | 87,585    |  
|Acquisition                         |  |      | 189,800    |      |  |      |           |   |  |   |          |  
|                                    |  |      |            |      |  |      |            |   |  |   |           |  
|Balance, end of year                |  | $    | 5,225,331  |      |  | $    | 4,403,161  |   |  | $ | 3,418,029 |  
|                                    |  |      |            |      |  |      |            |   |  |   |           |  

Restructured and other loans considered impaired,
including all nonaccrual loans, totaled $3,168,458 and
$6,509,336 at December 31, 2003 and 2002, respectively. The
specific valuation allowance for loan losses related to these
impaired loans was approximately $628,000 and $454,000 at
December 31, 2003 and 2002, respectively. The average
recorded investment in impaired loans was approximately
$4,594,000 and $5,870,000 in 2003 and 2002, respectively.
Interest income recognized on impaired loans during 2003 and
2002 was approximately $264,000 and $292,000, respectively.
Interest income recognized on impaired loans in 2001 was not
significant. Interest income which would have been realized on
nonaccrual loans if they had remained current and still accruing
was approximately $159,000, $446,000 and $371,000 in 2003, 2002
and 2001, respectively. Loans contractually past due
90 days or more on which interest continued to accrue
totaled approximately $545,000 and $359,000 at December 31,
2003 and 2002, respectively.

A substantial portion of the loan portfolio is
collateralized by real estate and is, therefore, susceptible to
changes in local market conditions. Management believes that the
loan portfolio is diversified among industry groups. At
December 31, 2003, no single industry group in the loan
portfolio represents more than 10% of outstanding loans. 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.

4.     Servicing:

Loans serviced for others are not included in the
accompanying consolidated balance sheets. The unpaid principal
balances of serviced loans at December 31, 2003 and 2002
were $24,483,424 and $26,469,085, respectively.

The balance of capitalized loan servicing rights,
net of valuation allowances, included in other assets was
$78,490 and $64,636 at December 31, 2003 and 2002,
respectively.

5.     Property:

Property at December 31 consists of the
following:

|                              |  |      |            |      |  |   |            | 
|----------------------------- |  | ---- | ---------- | ---- |  | - | ---------- | 
|                              |  | 2003 |            | 2002
|                              |  |      |            |     
|Land                          |  | $    | 2,053,664  |      |  | $ | 2,053,664  | 
|Buildings and improvements    |  |      | 11,455,861 |      |  |   | 11,293,145 | 
|Furniture and equipment       |  |      | 5,617,737  |      |  |   | 5,063,913  | 
|                              |  |      |            |      |  |   |            | 
|                              |  |      | 19,127,263 |      |  |   | 18,410,722 | 
|Less accumulated depreciation |  |      | 6,067,300  |      |  |   | 5,168,922  | 
|                              |  |      |            |      |  |   |            | 
|                              |  | $    | 13,059,962 |      |  | $ | 13,241,800 | 
|                              |  |      |            |      |  |   |            | 

38



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PACIFIC CONTINENTAL CORPORATION AND
SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

Lease
Commitments The Bank
leases certain facilities for office locations under
noncancelable operating lease agreements expiring through 2020.
Rent expense related to these leases totaled $372,357, $262,901
and $253,918 in 2003, 2002 and 2001, respectively.

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

Future minimum payments required under these
leases are:

|           |  |             |           |           |  |   |           | 
|---------- |  | ----------- | --------- | --------- |  | - | --------- | 
|           |  |             |           | Property 
|           |  | Lease       |           | Leased   
|           |  | Commitments |           | to Others
|           |  |             |           |          
|2004       |  | $           | 345,896   |           |  | $ | 334,987   | 
|2005       |  |             | 335,284   |           |  |   | 282,230   | 
|2006       |  |             | 314,048   |           |  |   | 234,955   | 
|2007       |  |             | 239,311   |           |  |   | 110,072   | 
|2008       |  |             | 145,818   |           |  |   | 112,018   | 
|Thereafter |  |             | 967,571   |           |  |   | 249,472   | 
|           |  |             |           |           |  |   |           | 
|           |  | $           | 2,347,928 |           |  | $ | 1,323,734 | 
|           |  |             |           |           |  |   |           | 



|   |              
|-- | -------------
|6. | Other Assets:

|                           |  |      |           |      |  |   |           | 
|-------------------------- |  | ---- | --------- | ---- |  | - | --------- | 
|                           |  | 2003 |           | 2002
|                           |  |      |           |     
|Foreclosed assets          |  | $    | 410,761   |      |  | $ | 863,637   | 
|Servicing asset            |  |      | 78,490    |      |  |   | 64,636    | 
|Deferred taxes             |  |      | 249,740   |      |  |   | 113,944   | 
|Income tax deposits        |  |      | 568,788   |      |  |   | 321,159   | 
|Goodwill                   |  |      | 275,552   |      |  |   |          | 
|Prepaid expenses and other |  |      | 414,403   |      |  |   | 383,678   | 
|                           |  |      |           |      |  |   |           | 
|                           |  | $    | 1,997,734 |      |  | $ | 1,747,054 | 
|                           |  |      |           |      |  |   |           | 



| |            
| | -----------
| | Acquisition

In April, 2003, the Bank acquired, for cash, the
Coos Bay consumer finance office of CitiFinancial for
$6,863,160. This office has been combined with Pacific
Continental Finance, a division of the Bank. The allocation of
the purchase price resulted in goodwill of $275,552, which is
expected to be deductible over 15 years for income tax
purposes. The acquisition was accounted for under the purchase
method of accounting and, accordingly, the results of operations
of the Coos Bay office have been included in the consolidated
financial statements since the date of acquisition. Had this
acquisition occurred on January 1, 2002, consolidated
interest income and net income would not have been significantly
different from the reported amounts for 2002 and 2003.

39



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##### Table of Contents



PACIFIC CONTINENTAL CORPORATION AND
SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)



|   |          
|-- | ---------
|7. | Deposits:

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

|                         |  |      |            |      |  |   |            | 
|------------------------ |  | ---- | ---------- | ---- |  | - | ---------- | 
|                         |  | 2003 |            | 2002
|                         |  |      |            |     
|Less than three months   |  | $    | 15,331,192 |      |  | $ | 18,968,072 | 
|Three months to one year |  |      | 28,409,102 |      |  |   | 16,170,961 | 
|One to three years       |  |      | 9,497,715  |      |  |   | 15,589,208 | 
|Thereafter               |  |      | 1,269,693  |      |  |   | 1,741,397  | 



|   |                         
|-- | ------------------------
|8. | Federal Funds Purchased:

The Bank has uncollateralized federal funds
borrowing lines available with correspondent banks totaling
$36,000,000. There were no borrowings against these lines at
December 31, 2003. At December 31, 2002, $9,000,000 of
federal funds were purchased from correspondent banks.



|   |                                            
|-- | -------------------------------------------
|9. | Federal Home Loan Bank Term
    Borrowings:

Federal Home Loan Bank term borrowings at
December 31 are as follows:

|                         |  |      |            |      |  |   |            | 
|------------------------ |  | ---- | ---------- | ---- |  | - | ---------- | 
|                         |  | 2003 |            | 2002
|                         |  |      |            |     
|Due April 2004, 5.07%    |  | $    | 3,000,000  |      |  | $ | 3,000,000  | 
|Due May 2004, 5.35%      |  |      | 2,000,000  |      |  |   | 2,000,000  | 
|Due June 2004, 4.98%     |  |      | 5,000,000  |      |  |   | 5,000,000  | 
|Due July 2004, 5.16%     |  |      | 3,000,000  |      |  |   | 3,000,000  | 
|Due May 2005, 5.67%      |  |      | 1,000,000  |      |  |   | 1,000,000  | 
|Due June 2005, 5.26%     |  |      | 1,000,000  |      |  |   | 1,000,000  | 
|Due January 2006, 2.56%  |  |      | 1,000,000  |      |  |   |           | 
|Due June 2007, 4.88%     |  |      | 4,000,000  |      |  |   | 4,000,000  | 
|Due July 2007, 4.45%     |  |      | 3,000,000  |      |  |   | 3,000,000  | 
|Due December 2007, 3.61% |  |      | 1,000,000  |      |  |   | 1,000,000  | 
|Due February 2008, 3.26% |  |      | 1,500,000  |      |  |   |           | 
|Due March 2008, 2.99%    |  |      | 500,000    |      |  |   |           | 
|                         |  |      |            |      |  |   |            | 
|                         |  | $    | 26,000,000 |      |  | $ | 23,000,000 | 
|                         |  |      |            |      |  |   |            | 

The Bank has a borrowing limit with the FHLB
equal to 25% of total assets. At December 31, 2003, the
borrowing line was approximately $106,000,000. At
December 31, 2003, there was $26,000,000 borrowed on this
line. 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, 2003, the Bank had pledged approximately
$96,000,000 in real estate loans to the FHLB ($55,000,000 in
discounted pledged collateral).

40



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PACIFIC CONTINENTAL CORPORATION AND
SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)



|    |              
|--- | -------------
|10. | Income Taxes:

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

|                                 |         |      |           |           |   |      |           |           |  |   |           |           |  
|-------------------------------- | ------- | ---- | --------- | --------- | - | ---- | --------- | --------- |  | - | --------- | --------- | -
|                                 |         | 2003 |           | 2002      |   | 2001
|                                 |         |      |           |           |   |     
|Currently payable:               |         |      |           |           |   |      |           |           |  |   |           |          
|                                 | Federal |      | $         | 3,567,000 |   |      | $         | 1,533,000 |  |   | $         | 3,397,000 |  
|                                 | State   |      |           | 736,000   |   |      |           | 321,000   |  |   |           | 707,000   |  
|                                 |         |      |           |           |   |      |           |           |  |   |           |          
|                                 |         |      | 4,303,000 |           |   |      | 1,854,000 |           |  |   | 4,104,000 |          
|                                 |         |      |           |           |   |      |           |           |  |   |           |          
|Deferred:                        |         |      |           |           |   |      |           |           |  |   |           |          
|                                 | Federal |      |           | (57,000   | ) |      |           | 271,000   |  |   |           | (431,000  | )
|                                 | State   |      |           | (13,000   | ) |      |           | 56,000    |  |   |           | (91,000   | )
|                                 |         |      |           |           |   |      |           |           |  |   |           |          
|                                 |         |      | (70,000   | )         |   |      | 327,000   |           |  |   | (522,000  | )        
|                                 |         |      |           |           |   |      |           |           |  |   |           |          
|Total provision for income taxes |         | $    | 4,233,000 |           |   | $    | 2,181,000 |           |  | $ | 3,582,000 |          
|                                 |         |      |           |           |   |      |           |           |  |   |           |          

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:

|                                                                                                       |  |      |          |      |  |      |         |  |  |   |          |  
|------------------------------------------------------------------------------------------------------ |  | ---- | -------- | ---- |  | ---- | ------- |  |  | - | -------- | -
|                                                                                                       |  | 2003 |          | 2002 |  | 2001
|                                                                                                       |  |      |          |      |  |     
|Loan fees and other loan basis adjustment
    differences between financial statement and tax purposes |  | $    | 52,827   |      |  | $    | 133,511 |  |  | $ | (81,770  | )
|Loan loss deduction for tax purposes more (less)
    than provision for financial reporting purposes   |  |      | (206,842 | )    |  |      | 35,254  |  |  |   | (402,135 | )
|Depreciation deduction differences between
    financial statement and tax purposes                    |  |      | 61,355   |      |  |      | 47,291  |  |  |   |         |  
|Federal Home Loan Bank stock dividends                                                                 |  |      | 39,544   |      |  |      | 47,912  |  |  |   | 50,419   |  
|State income tax and other                                                                             |  |      | (16,884  | )    |  |      | 63,032  |  |  |   | (88,514  | )
|                                                                                                       |  |      |          |      |  |      |         |  |  |   |          |  
|                                                                                                       |  | $    | (70,000  | )    |  | $    | 327,000 |  |  | $ | (522,000 | )
|                                                                                                       |  |      |          |      |  |      |         |  |  |   |          |  

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:

|                                                   |  |      |           |      |  |      |           |  |  |   |           | 
|-------------------------------------------------- |  | ---- | --------- | ---- |  | ---- | --------- |  |  | - | --------- | 
|                                                   |  | 2003 |           | 2002 |  | 2001
|                                                   |  |      |           |      |  |     
|Expected federal income tax provision at 34%       |  | $    | 3,762,000 |      |  | $    | 1,916,000 |  |  | $ | 3,163,000 | 
|State income tax, net of federal income tax effect |  |      | 478,000   |      |  |      | 249,000   |  |  |   | 407,000   | 
|Other nondeductible expenses                       |  |      | (7,000    | )    |  |      | 16,000    |  |  |   | 12,000    | 
|                                                   |  |      |           |      |  |      |           |  |  |   |           | 
|Provision for income taxes                         |  | $    | 4,233,000 |      |  | $    | 2,181,000 |  |  | $ | 3,582,000 | 
|                                                   |  |      |           |      |  |      |           |  |  |   |           | 

The tax benefit associated with stock option
plans reduced taxes payable by $115,000, $54,000 and $24,000 at
December 31, 2003, 2002 and 2001, respectively. Such
benefit is credited to additional paid-in capital.

41



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##### Table of Contents



PACIFIC CONTINENTAL CORPORATION AND
SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

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

|                        |                                           |                                |         |           |           |      |         |           |           |   |         |           |           | 
|----------------------- | ----------------------------------------- | ------------------------------ | ------- | --------- | --------- | ---- | ------- | --------- | --------- | - | ------- | --------- | --------- | 
|                        |                                           | 2003                           |         | 2002      |           | 2001
|                        |                                           |                                |         |           |           |     
|Assets:                 |                                           |                                |         |           |           |      |         |           |           |   |         |          
|                        | Allowance for loan losses                 |                                | $       | 1,301,122 |           |      | $       | 1,045,096 |           |   | $       | 1,088,302 |          
|                        | Basis adjustments on loans                |                                |         | 42,652    |           |      |         | 75,104    |           |   |         | 144,507   |          
|                        | Other                                     |                                |         | 15,372    |           |      |         | 12,714    |           |   |         | 15,105    |          
|                        | Net unrealized losses on securities       |                                |         | 18,684    |           |      |         |          |           |   |         |          |          
|                        |                                           |                                |         |           |           |      |         |           |           |   |         |          
|                        |                                           | Total deferred tax assets      |         |           | 1,377,830 |      |         |           | 1,132,914 |   |         |           | 1,247,914 | 
|                        |                                           |                                |         |           |           |      |         |           |           |   |         |          
|Liabilities:            |                                           |                                |         |           |           |      |         |           |           |   |         |          
|                        | Federal Home Loan Bank stock dividends    |                                |         | 539,784   |           |      |         | 492,031   |           |   |         | 433,730   |          
|                        | Excess tax over book depreciation         |                                |         | 332,744   |           |      |         | 255,740   |           |   |         | 195,671   |          
|                        | Net unrealized gains on securities        |                                |         |          |           |      |         | 47,111    |           |   |         | 180,233   |          
|                        | Other, principally loan origination costs |                                |         | 255,562   |           |      |         | 224,088   |           |   |         | 130,458   |          
|                        |                                           |                                |         |           |           |      |         |           |           |   |         |          
|                        |                                           | Total deferred tax liabilities |         |           | 1,128,090 |      |         |           | 1,018,970 |   |         |           | 940,092   | 
|                        |                                           |                                |         |           |           |      |         |           |           |   |         |          
|Net deferred tax assets |                                           | $                              | 249,740 |           |           | $    | 113,944 |           |           | $ | 307,822 |          
|                        |                                           |                                |         |           |           |      |         |           |           |   |         |          

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



|    |                 
|--- | ----------------
|11. | 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 $435,706, $241,785 and
$388,917 in 2003, 2002 and 2001, respectively.

42



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PACIFIC CONTINENTAL CORPORATION AND
SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)



|    |                    
|--- | -------------------
|12. | 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. For employee
options, vesting 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:

|                                           |           |             |         |           |  |             |       |           |  |             |          |           |  |   |      |       |  |  |          |         |  |   |      |      | 
|------------------------------------------ | --------- | ----------- | ------- | --------- |  | ----------- | ----- | --------- |  | ----------- | -------- | --------- |  | - | ---- | ----- |  |  | -------- | ------- |  | - | ---- | ---- | 
|                                           |           |             |         |           |  |            
|                                           |           | 2003        |         | 2002      |  | 2001       
|                                           |           |             |         |           |  |            
|                                           |           |             |         | Average   |  |             |       | Average   |  |             |          | Average  
|                                           |           | Options     |         | Price     |  | Options     |       | Price     |  | Options     |          | Price    
|                                           |           | Outstanding |         | Per Share |  | Outstanding |       | Per Share |  | Outstanding |          | Per Share
|                                           |           |             |         |           |  |             |       |           |  |             |          |          
|Balance, beginning of year                 |           |             | 744,453 |           |  | $           | 8.80  |           |  |             | 614,648  |           |  | $ | 8.21 |       |  |  | 480,064  |         |  | $ | 6.98 |     
|Grants:                                    |           |             |         |           |  |             |       |           |  |             |          |           |  |   |      |       |  |  |          |         |  |   |      |     
|                                           | Employees |             |         | 192,076   |  |             |       | 14.24     |  |             |          | 244,800   |  |   |      | 9.56  |  |  |          | 242,733 |  |   |      | 9.57 | 
|                                           | Directors |             |         | 5,333     |  |             |       | 14.10     |  |             |          | 42,667    |  |   |      | 10.39 |  |  |          | 30,800  |  |   |      | 9.57 | 
|Exercised                                  |           |             | (69,466 | )         |  |             | 7.78  |           |  |             | (102,084 | )         |  |   | 6.48 |       |  |  | (118,916 | )       |  |   | 6.26 |     
|Expired                                    |           |             | (65,660 | )         |  |             |       |           |  |             | (55,577  | )         |  |   |      |       |  |  | (20,033  | )       |  |   |      |     
|                                           |           |             |         |           |  |             |       |           |  |             |          |           |  |   |      |       |  |  |          |         |  |   |      |     
|Balance, end of year                       |           |             | 806,736 |           |  | $           | 10.05 |           |  |             | 744,453  |           |  | $ | 8.80 |       |  |  | 614,648  |         |  | $ | 8.21 |     
|                                           |           |             |         |           |  |             |       |           |  |             |          |           |  |   |      |       |  |  |          |         |  |   |      |     
|Options exercisable at end of year         |           |             | 327,817 |           |  |             |       |           |  |             | 285,465  |           |  |   |      |       |  |  | 288,565  |         |  |   |      |     
|Options available for grant at end of year |           |             | 763,984 |           |  |             |       |           |  |             | 104,000  |           |  |   |      |       |  |  | 348,627  |         |  |   |      |     

Outstanding options at December 31, 2003 are
as follows:

|            |         |       |  |                 |         |            |  |   |       |  |  |  |                | 
|----------- | ------- | ----- |  | --------------- | ------- | ---------- |  | - | ----- |  |  |  | -------------- | 
|Shares      |         |       |  |                 |         |           
|Exercisable |         | Total |  | Price Per Share |         | Expiration
|            |         |       |  |                 |         |           
|            | 105,143 |       |  |                 | 140,709 |            |  | $ | 6.31  |  |  |  | September 2005 | 
|            | 110,417 |       |  |                 | 185,950 |            |  | $ | 9.57  |  |  |  | August 2006    | 
|            | 1,833   |       |  |                 | 7,333   |            |  | $ | 9.57  |  |  |  | September 2006 | 
|            | 8,889   |       |  |                 | 53,334  |            |  | $ | 8.78  |  |  |  | June 2012      | 
|            | 3,333   |       |  |                 | 13,333  |            |  | $ | 9.75  |  |  |  | September 2012 | 
|            | 84,202  |       |  |                 | 208,668 |            |  | $ | 10.39 |  |  |  | December 2007  | 
|            | 8,667   |       |  |                 | 21,333  |            |  | $ | 11.36 |  |  |  | March 2008     | 
|            |        |       |  |                 | 8,743   |            |  | $ | 11.44 |  |  |  | June 2008      | 
|            | 5,333   |       |  |                 | 5,333   |            |  | $ | 14.10 |  |  |  | October 2008   | 
|            |        |       |  |                 | 162,000 |            |  | $ | 14.77 |  |  |  | November 2008  | 
|            |         |       |  |                 |         |            |  |   |       |  |  |  |                | 
|            | 327,817 |       |  |                 | 806,736 |            |  |   |       |  |  |  |                | 
|            |         |       |  |                 |         |            |  |   |       |  |  |  |                | 

43



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##### Table of Contents



PACIFIC CONTINENTAL CORPORATION AND
SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)



|    |                                   
|--- | ----------------------------------
|13. | 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:

|                           |                              |      |           |          |   |   |           |            |  
|-------------------------- | ---------------------------- | ---- | --------- | -------- | - | - | --------- | ---------- | -
|                           |                              | 2003 |           | 2002    
|                           |                              |      |           |         
|Balance, beginning of year |                              | $    | 1,040,914 |          |   | $ | 1,541,519 |           
|                           | Additions or renewals        |      |           | 45,261   |   |   |           | 609,045    |  
|                           | Amounts collected or renewed |      |           | (176,661 | ) |   |           | (1,109,650 | )
|                           |                              |      |           |          |   |   |           |           
|Balance, end of year       |                              | $    | 909,514   |          |   | $ | 1,040,914 |           
|                           |                              |      |           |          |   |   |           |           

In addition, there were $55,218 in commitments to
extend credit to directors and officers at December 31,
2003, which are included as part of commitments in Note 14.

Real estate management fees of $31,786 and
$47,209 were paid to director, Larry Campbell, during 2003 and
2002, respectively.



|    |                                                              
|--- | -------------------------------------------------------------
|14. | Financial Instruments with Off-Balance-Sheet
    Credit Risk:

In order to meet the financing needs of its
customers, 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 customer,
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 customer 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
customer to a third party. The credit risk involved in issuing
letters of credit is essentially the same as that involved in
extending loan facilities to customers.

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

|                                                             |  |      |             |      |  |   |            | 
|------------------------------------------------------------ |  | ---- | ----------- | ---- |  | - | ---------- | 
|                                                             |  | 2003 |             | 2002
|                                                             |  |      |             |     
|Commitments to extend credit (principally
    variable rate) |  | $    | 101,033,184 |      |  | $ | 84,263,897 | 
|Letters of credit and financial guarantees written           |  |      | 4,150,017   |      |  |   | 3,796,945  | 



|    |                                                     
|--- | ----------------------------------------------------
|15. | 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.

44



---



##### Table of Contents



PACIFIC CONTINENTAL CORPORATION AND
SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

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

|                       |                                         |          |   |             |  |          |   |             |  |  |   |             |  |  |   |             | 
|---------------------- | --------------------------------------- | -------- | - | ----------- |  | -------- | - | ----------- |  |  | - | ----------- |  |  | - | ----------- | 
|                       |                                         |          |   |            
|                       |                                         | 2003     |   | 2002       
|                       |                                         |          |   |            
|                       |                                         | Carrying |   |             |  | Carrying |   |            
|                       |                                         | Amount   |   | Fair Value  |  | Amount   |   | Fair Value 
|                       |                                         |          |   |             |  |          |   |            
|Financial assets:      |                                         |          |   |             |  |          |   |             |  |  |   |             |  |  |   |            
|                       | Cash and cash equivalents               |          | $ | 25,536,354  |  |          | $ | 25,536,354  |  |  | $ | 23,351,772  |  |  | $ | 23,351,772  | 
|                       | Securities                              |          |   | 30,028,736  |  |          |   | 30,028,736  |  |  |   | 10,845,313  |  |  |   | 10,845,313  | 
|                       | Loans held for sale                     |          |   | 1,957,670   |  |          |   | 1,984,321   |  |  |   | 5,546,723   |  |  |   | 5,719,427   | 
|                       | Loans, net of allowance for loan losses |          |   | 348,894,225 |  |          |   | 353,009,737 |  |  |   | 320,853,503 |  |  |   | 323,123,362 | 
|                       | Interest receivable                     |          |   | 1,585,955   |  |          |   | 1,585,955   |  |  |   | 1,647,608   |  |  |   | 1,647,608   | 
|                       | Federal Home Loan Bank stock            |          |   | 2,738,000   |  |          |   | 2,738,000   |  |  |   | 2,612,500   |  |  |   | 2,612,500   | 
|Financial liabilities: |                                         |          |   |             |  |          |   |             |  |  |   |             |  |  |   |            
|                       | Deposits                                |          |   | 356,099,070 |  |          |   | 356,321,070 |  |  |   | 309,908,696 |  |  |   | 311,259,696 | 
|                       | Federal funds purchased                 |          |   |            |  |          |   |            |  |  |   | 9,000,000   |  |  |   | 9,000,000   | 
|                       | Federal Home Loan Bank borrowings       |          |   | 26,000,000  |  |          |   | 26,722,000  |  |  |   | 23,000,000  |  |  |   | 24,217,000  | 
|                       | Accrued interest payable                |          |   | 112,797     |  |          |   | 112,797     |  |  |   | 129,125     |  |  |   | 129,125     | 

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

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 from similar
securities.

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

Loans  Fair value of fixed-rate loans
is estimated by discounting the future cash flows using the
current rates at which similar loans would be made to borrowers
with similar credit ratings and for the same remaining
maturities. Variable rate loans not at contractual floors have
carrying amounts that are a reasonable estimate of 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 the 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.

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.



|    |                                     
|--- | ------------------------------------
|16. | Commitments and Legal Contingencies:

During 2002, the Company entered into employment
agreements with two key executives, Hal Brown and Daniel Hempy.
The employment agreements provide for minimum aggregate annual
base salaries of

45



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##### Table of Contents



PACIFIC CONTINENTAL CORPORATION AND
SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

$330,000 in 2003, performance adjustments, life
insurance coverage, incentive compensation, and other
perquisites commonly found in such agreements. Aggregate bonus
expense to these executives of $122,000 was recorded in 2003.
During 2003, Mr. Browns employment agreement was
extended one year and expires in 2006. Mr. Hempys
employment agreement expires in 2005.

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.



|    |                    
|--- | -------------------
|17. | 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, 2003, that
the Bank meets all capital adequacy requirements to which it is
subject.

As of December 31, 2003, 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.

|                         |                                          |        |   |                      |  |                   |  |              |   |                        |   |            |  |  |  |   |   |  |   |            |  |  |  |    |  
|------------------------ | ---------------------------------------- | ------ | - | -------------------- |  | ----------------- |  | ------------ | - | ---------------------- | - | ---------- |  |  |  | - | - |  | - | ---------- |  |  |  | -- | -
|                         |                                          |        |   |                      |  |                   |  |              |   |                       
|                         |                                          |        |   |                      |  |                   |  |              |   | To be Well Capitalized
|                         |                                          |        |   |                      |  |                   |  | Under Prompt
|                         |                                          |        |   | For Capital Adequacy |  | Corrective Action
|                         |                                          | Actual |   | Purposes             |  | Provisions       
|                         |                                          |        |   |                      |  |                  
|                         |                                          | Amount |   | Ratio                |  | Amount            |  | Ratio        |   | Amount                 |   | Ratio     
|                         |                                          |        |   |                      |  |                   |  |              |   |                        |   |           
|As of December 31, 2003: |                                          |        |   |                      |  |                   |  |              |   |                        |   |            |  |  |  |   |   |  |   |            |  |  |  |   
|                         | Total capital (to risk weighted assets)  |        | $ | 46,260,473           |  |                   |  | 12.20        | % |                        | $ | 30,363,200 |  |  |  | 8 | % |  | $ | 37,954,000 |  |  |  | 10 | %
|                         | Tier I capital (to risk weighted assets) |        |   | 41,516,223           |  |                   |  | 10.95        | % |                        |   | 15,181,600 |  |  |  | 4 | % |  |   | 22,772,400 |  |  |  | 6  | %
|                         | Tier I capital (to leverage assets)      |        |   | 41,516,223           |  |                   |  | 9.82         | % |                        |   | 16,903,360 |  |  |  | 4 | % |  |   | 21,129,200 |  |  |  | 5  | %
|As of December 31, 2002: |                                          |        |   |                      |  |                   |  |              |   |                        |   |            |  |  |  |   |   |  |   |            |  |  |  |   
|                         | Total capital (to risk weighted assets)  |        | $ | 40,759,136           |  |                   |  | 11.47        | % |                        | $ | 28,437,520 |  |  |  | 8 | % |  | $ | 35,546,900 |  |  |  | 10 | %
|                         | Tier I capital (to risk weighted assets) |        |   | 36,355,975           |  |                   |  | 10.23        | % |                        |   | 14,219,260 |  |  |  | 4 | % |  |   | 21,328,890 |  |  |  | 6  | %
|                         | Tier I capital (to leverage assets)      |        |   | 36,355,975           |  |                   |  | 9.90         | % |                        |   | 14,695,440 |  |  |  | 4 | % |  |   | 18,369,300 |  |  |  | 5  | %

46



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##### Table of Contents



PACIFIC CONTINENTAL CORPORATION AND
SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)



|    |                                          
|--- | -----------------------------------------
|18. | Parent Company Financial
    Information:

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

BALANCE SHEETS

December 31


|                                      |                                                             |      |            |            |  |   |            |            | 
|------------------------------------- | ----------------------------------------------------------- | ---- | ---------- | ---------- |  | - | ---------- | ---------- | 
|                                      |                                                             | 2003 |            | 2002      
|                                      |                                                             |      |            |           
|Assets:                               |                                                             |      |            |            |  |   |            |           
|                                      | Cash deposited with the Bank                                |      | $          | 222,094    |  |   | $          | 88,856     | 
|                                      | Prepaid expenses                                            |      |            | 4,000      |  |   |            | 4,000      | 
|                                      | Deferred income taxes                                       |      |            | 246,000    |  |   |            | 174,000    | 
|                                      | Investment in the Bank, at cost plus equity in
    earnings |      |            | 41,761,756 |  |   |            | 36,431,678 | 
|                                      |                                                             |      |            |            |  |   |            |           
|                                      |                                                             | $    | 42,233,850 |            |  | $ | 36,698,534 |           
|                                      |                                                             |      |            |            |  |   |            |           
|Liabilities and stockholders equity: |                                                             |      |            |            |  |   |            |           
|                                      | Liabilities                                                 |      | $          |           |  |   | $          |           | 
|                                      | Stockholders equity                                        |      |            | 42,233,850 |  |   |            | 36,698,534 | 
|                                      |                                                             |      |            |            |  |   |            |           
|                                      |                                                             | $    | 42,233,850 |            |  | $ | 36,698,534 |           
|                                      |                                                             |      |            |            |  |   |            |           

STATEMENTS OF INCOME

For the Periods Ended
December 31


|                                             |                                |                                                                                       |           |           |           |      |           |           |           |  |           |           |           | 
|-------------------------------------------- | ------------------------------ | ------------------------------------------------------------------------------------- | --------- | --------- | --------- | ---- | --------- | --------- | --------- |  | --------- | --------- | --------- | 
|                                             |                                | 2003                                                                                  |           | 2002      |           | 2001
|                                             |                                |                                                                                       |           |           |           |     
|Income:                                      |                                |                                                                                       |           |           |           |      |           |           |           |  |           |          
|                                             | Cash dividends from the Bank   |                                                                                       | $         | 1,625,000 |           |      | $         | 1,405,000 |           |  | $         | 1,995,000 |          
|                                             | Interest income                |                                                                                       |           |          |           |      |           | 5,798     |           |  |           | 2,082     |          
|                                             |                                |                                                                                       |           |           |           |      |           |           |           |  |           |          
|                                             |                                |                                                                                       | 1,625,000 |           |           |      | 1,410,798 |           |           |  | 1,997,082 |          
|                                             |                                |                                                                                       |           |           |           |      |           |           |           |  |           |          
|Expenses:                                    |                                |                                                                                       |           |           |           |      |           |           |           |  |           |          
|                                             | Investor relations             |                                                                                       |           | 65,596    |           |      |           | 81,005    |           |  |           | 102,238   |          
|                                             | Legal and registration expense |                                                                                       |           | 70,958    |           |      |           | 42,435    |           |  |           | 46,198    |          
|                                             | Personnel costs paid to Bank   |                                                                                       |           | 50,585    |           |      |           | 32,483    |           |  |           | 46,895    |          
|                                             |                                |                                                                                       |           |           |           |      |           |           |           |  |           |          
|                                             |                                |                                                                                       | 187,139   |           |           |      | 155,923   |           |           |  | 195,331   |          
|                                             |                                |                                                                                       |           |           |           |      |           |           |           |  |           |          
|                                             |                                | Income before income tax benefit and equity in
    undistributed earnings of the Bank |           |           | 1,437,861 |      |           |           | 1,254,875 |  |           |           | 1,801,751 | 
|Income tax benefit                           |                                |                                                                                       | 72,000    |           |           |      | 58,000    |           |           |  | 75,000    |          
|Equity in undistributed earnings of the Bank |                                |                                                                                       | 5,320,806 |           |           |      | 2,141,544 |           |           |  | 3,845,520 |          
|                                             |                                |                                                                                       |           |           |           |      |           |           |           |  |           |          
|                                             |                                | Net income                                                                            |           | $         | 6,830,667 |      |           | $         | 3,454,419 |  |           | $         | 5,722,271 | 
|                                             |                                |                                                                                       |           |           |           |      |           |           |           |  |           |          

47



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##### Table of Contents



PACIFIC CONTINENTAL CORPORATION AND
SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

STATEMENTS OF CASH FLOWS

For the Periods Ended
December 31


|                                      |                                                                                       |                                              |                                           |            |            |            |           |            |            |            |           |            |            |           |  
|------------------------------------- | ------------------------------------------------------------------------------------- | -------------------------------------------- | ----------------------------------------- | ---------- | ---------- | ---------- | --------- | ---------- | ---------- | ---------- | --------- | ---------- | ---------- | --------- | -
|                                      |                                                                                       | 2003                                         |                                           | 2002       |            | 2001      
|                                      |                                                                                       |                                              |                                           |            |            |           
|Cash flows from operating activities: |                                                                                       |                                              |                                           |            |            |            |           |            |            |            |           |           
|                                      | Net income                                                                            |                                              | $                                         | 6,830,667  |            |            | $         | 3,454,419  |            |            | $         | 5,722,271  |           
|                                      | Adjustments to reconcile net income to net cash
    provided by operating activities: |                                              |                                           |            |            |            |           |            |            |            |           |            |           
|                                      |                                                                                       | Equity in undistributed earnings of the Bank |                                           |            | (5,320,806 | )          |           |            | (2,141,544 | )          |           |            | (3,845,520 | )        
|                                      |                                                                                       | Prepaid expenses                             |                                           |            |           |            |           |            | (1,500     | )          |           |            | 5,000      |          
|                                      |                                                                                       | Deferred income taxes                        |                                           |            | (72,000    | )          |           |            | (58,000    | )          |           |            | (75,000    | )        
|                                      |                                                                                       |                                              |                                           |            |            |            |           |            |            |            |           |           
|                                      |                                                                                       |                                              | Net cash provided by operating activities |            |            | 1,437,861  |           |            |            | 1,253,375  |           |            |            | 1,806,751 |  
|                                      |                                                                                       |                                              |                                           |            |            |            |           |            |            |            |           |           
|Cash flows from financing activities: |                                                                                       |                                              |                                           |            |            |            |           |            |            |            |           |           
|                                      | Proceeds from stock options exercised                                                 |                                              |                                           | 540,515    |            |            |           | 661,132    |            |            |           | 745,106    |           
|                                      | Dividends paid                                                                        |                                              |                                           | (1,841,438 | )          |            |           | (1,610,219 | )          |            |           | (1,400,993 | )         
|                                      | Shares repurchased and retired                                                        |                                              |                                           | (3,700     | )          |            |           | (1,251,269 | )          |            |           | (154,770   | )         
|                                      |                                                                                       |                                              |                                           |            |            |            |           |            |            |            |           |           
|                                      |                                                                                       |                                              | Net cash used in financing activities     |            |            | (1,304,623 | )         |            |            | (2,200,356 | )         |            |            | (810,657  | )
|                                      |                                                                                       |                                              |                                           |            |            |            |           |            |            |            |           |           
|Net increase (decrease) in cash       |                                                                                       |                                              | 133,238                                   |            |            |            | (946,981  | )          |            |            | 996,094   |           
|Cash, beginning of period             |                                                                                       |                                              | 88,856                                    |            |            |            | 1,035,837 |            |            |            | 39,743    |           
|                                      |                                                                                       |                                              |                                           |            |            |            |           |            |            |            |           |           
|Cash, end of period                   |                                                                                       | $                                            | 222,094                                   |            |            | $          | 88,856    |            |            | $          | 1,035,837 |           
|                                      |                                                                                       |                                              |                                           |            |            |            |           |            |            |            |           |           

48



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##### Table of Contents











|        |                                                                                         
|------- | ----------------------------------------------------------------------------------------
|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 the Companys disclosure controls
and procedures. Based upon that evaluation, the CEO and CFO have
concluded that as of the end of the period covered by this
report, the Companys disclosure controls and procedures
are effective to provide reasonable assurance that information
required to be disclosed by the Company in reports that are
filed or submitted under the Securities Exchange Act of 1934 is
recorded, processed, summarized, and timely reported as provided
in the SECs rules and forms.

Changes in
Internal Controls

No changes occurred since the quarter end
September 30, 2003 in our internal controls over financial
reporting that have materially affected, or are reasonably
likely to materially affect, our internal control over financial
reporting.







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
PROPOSAL NO. 1  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 2004 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 it
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. The Code of Ethics is filed as
Exhibit 99 to this report and can 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.









|         |                                                                   
|-------- | ------------------------------------------------------------------
|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 sections entitled
PROPOSAL NO. 1  ELECTION OF
DIRECTORS  Nominees and Continuing Directors,
and SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT of the Proxy Statement.

The information concerning Equity
Compensation Plan Information is incorporated by reference
from the section entitled Equity Compensation Plan
Information of the Proxy Statement.

49



---



##### Table of Contents











|         |                                                   
|-------- | --------------------------------------------------
|Item 13. | Certain Relationships and Related
    Transactions

The information regarding Equity
Compensation Plan Information is incorporated by reference
from the section entitled EQUITY COMPENSATION PLAN
INFORMATION 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 Accountants  Fees Paid to
Independent Auditor in the Companys Proxy Statement,
which is incorporated by reference.









|         |                                     
|-------- | ------------------------------------
|Item 15. | Exhibits and Reports on
    Form 8-K

(a)(2) Financial Statement Schedules

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)(3) Exhibit Index

|        |      |  |  |                                                                                                                    
|------- | ---- |  |  | -------------------------------------------------------------------------------------------------------------------
|Exhibit |      | 
|        |      | 
|        | 3.1  |  |  | Articles of Incorporation (1)                                                                                      
|        | 3.2  |  |  | Bylaws (2)                                                                                                         
|        | 10.2 |  |  | 1995 Incentive Stock Option Plan (1)                                                                               
|        | 10.3 |  |  | 1999 Employee Stock Option Plan (1)                                                                                
|        | 10.4 |  |  | 1995 Directors Stock Option Plan
    (1)                                                                          
|        | 10.5 |  |  | 1999 Directors Stock Option Plan
    (1)                                                                          
|        | 10.6 |  |  | Form of Executive Severance Agreement for
    Messrs. Gyde, Hagstrom, Reynolds, and Hansen and
    Ms. Thompson (1)
|        | 10.7 |  |  | Executive Employment Agreement for Daniel J.
    Hempy (2)                                                         
|        | 10.8 |  |  | Executive Employment Agreement for Hal Brown (3)                                                                   
|        | 10.9 |  |  | Executive Severance Agreement for Roger Busse
    (4)                                                              
|        | 14   |  |  | Code of Ethics for Senior Financial Officers and
    Principal Executive Officer                                   
|        | 23.1 |  |  | Accountants Consent of Zirkle, Long &
    Trigueiro, 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 Exhibits 3.1,
    10.2, 10.3, 10.4, 10.5, and 10.6 of the Companys Quarterly
    Report on 10-Q for the Quarter ended June 30, 1999.
|   
|(2) | Incorporated by reference to Exhibit 3.2 of
    the Companys Quarterly Report on 10-Q for the Quarter
    ended March 31, 2003.                                  
|   
|(3) | Incorporated by reference to Exhibit 10.8 of the
    Companys Annual Report on 10-K for the year ended
    December 31, 2002.                                    
|   
|(4) | Incorporated by reference to Exhibit 10.1 of
    the Companys Quarterly Report on 10-Q for the Quarter
    ended September 30, 2003.                             

(b) Reports on Form 8-K

A Report on Form 8-K was filed by Pacific
Continental Corporation on October 15, 2003 that furnished
the earnings release as an exhibit for the third quarter and
year-to-date at September 30, 2003.

50



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##### Table of Contents



SIGNATURES

Pursuant to the requirements of Section 13
or 15(d) of the Securities Exchange Act of 1934, the Company has
duly caused this report to be signed on its behalf by the
undersigned on March 16, 2004.



| |                                
| | -------------------------------
| | 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 16th day of March 2004.

Principal Executive Officer

|   |  |                        |  |                                                    |  | 
|-- |  | ---------------------- |  | -------------------------------------------------- |  | 
|  
|By |  | /s/ HAL BROWNHal Brown |  | President and Chief Executive Officer and Director |  | 

Principal Financial and Accounting
Officer

|   |  |                                            |  |                                                   |  | 
|-- |  | ------------------------------------------ |  | ------------------------------------------------- |  | 
|  
|By |  | /s/ MICHAEL A. REYNOLDSMichael A. Reynolds |  | Senior Vice President and Chief Financial Officer |  | 

Remaining Directors

|   |  |                                                  |  |                                    |  | 
|-- |  | ------------------------------------------------ |  | ---------------------------------- |  | 
|  
|By |  | /s/ ROBERT A. BALLINRobert A. Ballin             |  | Director and Chairman of the Board |  | 
|  
|By |  | /s/ DONALD G. MONTGOMERYDonald G. Montgomery     |  | Director Vice Chairman             |  | 
|  
|By |  | /s/ MICHAEL D. HOLZGANGMichael D. Holzgang       |  | Director                           |  | 
|  
|By |  | /s/ DONALD A. BICKDonald A. Bick                 |  | Director                           |  | 
|  
|By |  | /s/ RONALD F. TAYLORRonald F. Taylor             |  | Director                           |  | 
|  
|By |  | /s/ LARRY G. CAMPBELLLarry G. Campbell           |  | Director                           |  | 
|  
|By |  | /s/ DONALD L. KRAHMER, JR.Donald L. Krahmer, Jr. |  | Director                           |  | 

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##### Table of Contents



|   |  |                                    |  |          |  | 
|-- |  | ---------------------------------- |  | -------- |  | 
|  
|By |  | /s/ MICHAEL HOLCOMBMichael Holcomb |  | Director |  | 
|  
|By |  | /s/ JOHN H. RICKMANJohn H. Rickman |  | Director |  | 

52