SECURITIES
& EXCHANGE COMMISSION
 Washington
D.C. 20549
 
 FORM
10-K/A
 (Amendment
No. 1)
 
 [ X
]  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
 
 [    ]  TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
 
 FOR THE
FISCAL YEAR ENDED DECEMBER 31, 2008
 
 COMMISSION
FILE NUMBER 0-30106
 
 PACIFIC
CONTINENTAL CORPORATION
 (Exact
name of registrant as specified in its charter)
 
 OREGON                                                             93-1269184
 (State of
Incorporation)                                                 (IRS
Employer Identification No)
 
 111
West 7th Avenue
 Eugene,
Oregon   97401
 (Address
of principal executive offices)
 
 (541)
686-8685
 (Registrant’s
telephone number)
 
 Securities
registered pursuant to section 12(b) of the Act:
 Title of Each
Class                                                                           Name
of Each Exchange on Which Registered
 
 Common
Stock, No par value per
share                                                                                                           Nasdaq
Global Select Market
 
 Securities
registered pursuant to 12(g) of the Act:
 None
 
 Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities
Act                    Yes   __No  X
 
 Indicate
by check mark if the registrant is not required to file report pursuant to
Section 13 or Section 15(d) of the
Act                    Yes   __No  X
 
 Check
whether the registrant (1) has filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days.   Yes  X  No
___
 
 Check if
there is no disclosure of delinquent filers in response to item 405 of
Regulation S-K contained in this form, and no disclosure will be contained, to
the best of the registrant’s knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this form 10-K or any
amendment to this Form 10-K.    (  )
 
 Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company.
 Large
accelerated
filer   __                                                                          Accelerated
filer   X    Non-accelerated
filer   __    Smaller Reporting
Company  __
 
 Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange
Act     Yes  __                   No  X
 
 The
aggregate market value of the voting stock held by non-affiliates of the
registrant at June 30, 2008 (the last business day of the most recent second
quarter) was $154,698,279 based on the closing price as quoted on the NASDAQ
Global Market on that date.
 
 The
number of shares outstanding of each of the registrant’s classes of common
stock, as of March 6, 2009, was 12,862,691 shares of no par value Common
Stock.
 
 DOCUMENTS
INCORPORATED BY REFERENCE
 
 Part III
incorporates by reference information from the registrant’s definitive proxy
statement for the 2009 annual meeting of shareholders.
  
  
 
 EXPLANATORY
NOTE
  On March
13, 2009 Pacific Continental Corporation (the “Company”) filed with the
Securities and Exchange Commission its Annual Report on Form 10-K for the fiscal
year ended December 31, 2008 (the “10-K Report”). We are filing this Amendment
No. 1 (this “Amendment”) to the 10-K Report to (i) amend Item 7 (Management’s
Discussion and Analysis of Financial Condition and Results of Operations) and
Item 9A (Controls and Procedures) to reflect certain technical changes; and (ii)
Item 15 (Exhibits and Financial Statement Schedules) to re-file the consent of
the independent auditors to include the Company’s S-8 Registration Statements
which were inadvertently omitted from the original consent.
  No other
revisions or amendments have been made to Part II or Part IV of the 10-K
Report.  This Amendment does not reflect events occurring after March
13, 2009, the date of the original filing of our 10-K Report, or modify or
update those disclosures that may have been affected by subsequent
events.  In addition, currently-dated certifications from our Chief
Executive Officer and Chief Financial Officer have been included as exhibits to
this Amendment.
 
  
  PACIFIC
CONTINENTAL CORPORATION
 FORM
10-K/A
 (Amendment
No. 1)
 
 ANNUAL
REPORT
 TABLE OF
CONTENTS
 
 PART
      II
                
                Page
      No.Item 7:
                Management’s Discussion and Analysis of
      Financial
                4Condition and Results of
      OperationsItem 9a:
                Controls and Procedures
                20PART IVItem 15:
                Exhibits and Financial Statement
      Schedules
                20SIGNATURES
                
                22
 
 
  
  
 
 ITEM
7                                Management’s Discussion and
Analysis of Financial Condition and Results of
Operations
 
 The
following discussion is intended to provide a more comprehensive review of the
Company’s operating results and financial condition than can be obtained from
reading the Consolidated Financial Statements alone.  The discussion
should be read in conjunction with the audited financial statements and the
notes included later in this report.  All numbers, except per share
data, are expressed in thousands of dollars.
 
 In
addition to historical information, this report may contain forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995.  These forward-looking statements include, but are not limited
to, statements about management’s plans, objectives, expectations and intentions
that are not historical facts, and other statements identified by words such as
“expects,” “anticipates,” “intends,” “plans,” “believes,” “should,” “projects,”
“seeks,” “estimates” or words of similar meaning. These forward-looking
statements are based on current beliefs and expectations of management and are
inherently subject to significant business, economic and competitive
uncertainties and contingencies, many of which are beyond the Company’s control.
In addition, these forward-looking statements are subject to assumptions with
respect to future business strategies and decisions that are subject to change.
The following factors, among others, could cause actual results to differ
materially from the anticipated results or other expectations in the
forward-looking statements, including those set forth in this report, or the
documents incorporated by reference:
 
 o
              the
      risks associated with lending and potential adverse changes in credit
      quality;
 o
              increased
      loan delinquency rates;
 o
              the
      risks presented by a continued economic slowdown, which could adversely
      affect credit quality, loan collateral values, investment values,
      liquidity levels, and loan
originations;
 o
              changes
      in market interest rates, which could adversely affect our net interest
      income and profitability;
 o
              legislative
      or regulatory changes that adversely affect our business or our ability to
      complete pending or prospective future
  acquisitions;
 o
              reduced
      demand for banking products and
services;
 o
              the
      risks presented by public stock market volatility, which could adversely
      affect the Company’s stock value and the ability to raise capital in the
      future;
 o
              competition
      from other financial services companies in our markets;
  and
 o
              the
      Company’s success in managing risks involved in the
    foregoing.
 
 Additional
factors that could cause actual results to differ materially from those
expressed in the forward-looking statements are discussed in Risk Factors in
Item 1A. Please take into account that forward-looking statements speak only as
of the date of this report or documents incorporated by reference. The Company
does not undertake any obligation to publicly correct or update any
forward-looking statement if we later become aware that it is not likely to be
achieved.
 
  -4-
  HIGHLIGHTS
  %
      Change
                
                
                
                
                
                %
      Change2008
                
                
                2007
                
                
                2008 vs. 2007
                
                
                2006
                
                
                2007 vs. 2006Operating
      revenue (1)
                
                $
                53,540
                
                
                $
                47,351
                
                
                
                13
                %
                
                $
                44,458
                
                
                
                7
                %Net
      income
                
                $
                12,939
                
                
                $
                12,935
                
                
                
                0
                %
                
                $
                12,655
                
                
                
                2
                %Earnings
      per share (2)Basic
                
                $
                1.08
                
                
                $
                1.09
                
                
                
                -1
                %
                
                $
                1.09
                
                
                
                0
                %Diluted
                
                $
                1.08
                
                
                $
                1.08
                
                
                
                0
                %
                
                $
                1.08
                
                
                
                0
                %Assets,
      period-end
                
                $
                1,090,843
                
                
                $
                949,271
                
                
                
                15
                %
                
                $
                885,351
                
                
                
                7
                %Deposits,
      period-end
                
                $
                722,437
                
                
                $
                644,424
                
                
                
                12
                %
                
                $
                641,272
                
                
                
                0
                %Return
      on assets
                
                
                1.27
                %
                
                
                1.43
                %
                
                
                
                
                
                
                1.53
                %Return
      on equity
                
                
                11.57
                %
                
                
                12.55
                %
                
                
                
                
                
                
                14.02
                %Return
      on tangible equity (3)
                
                
                14.56
                %
                
                
                16.23
                %
                
                
                
                
                
                
                19.12
                %(1)
      Operating
      income is defined as net interest income plus noninterest
      income.(2)Per share data for
      2006 was retroactively adjusted to reflect the 10% stock dividend paid in
      June 2007.(3)Tangible equity
      excludes goodwill and core deposit intangible related to
      acquisitions.
   Net
income for the year 2008 was $12,939, an increase of $4 over the $12,935
reported for the year 2007.  Net income improvement in 2008 over 2007
was modest due to a significant increase in the provision for loan losses, plus
growth in noninterest expenses, which offset increased operating
revenues.  Operating revenue for the year 2008 was up 13% over the
year 2007 and was primarily driven by growth in net interest income, which
accounted for 92% of total operating revenue in 2008.  The improvement
in 2008 net interest income was the result of 14% growth in average earning
assets combined with a stable net interest margin.
 
 The
Company earned $12,935 in 2007 compared to $12,655 in 2006.  Growth in
operating revenue was primarily responsible for the increased earnings in 2007
over 2006. Operating revenues were $47,351 in 2007, up $2,893 or 7% over
2006.  Growth in operating revenues resulted from increased net
interest income, which accounted for 92% of total operating revenue in
2007.  While average earning assets increased 10% in 2007 over 2006,
growth in net interest income in 2007 was slowed by an 8 basis point compression
in the net interest margin.
 
 Period-end
assets at December 31, 2008 were $1,090,843, compared to $949,271 at December
31, 2007.  Core deposits, which are defined as demand deposits,
interest checking, money market accounts, and local time deposits (including
local time deposits over $100 thousand) constitute 85% of December 31, 2008
outstanding deposits.  Non-interest bearing deposits were $178,957 or
25% of total deposits at year-end December 31, 2008.
 
 During
2009, the Company believes the following factors could impact reported financial
results:
 
 §
              The
      current national, regional, and local recession and the effect on loan
      demand, the credit quality of existing clients with lending relationships,
      and vacancy rates of commercial real estate properties, since a
      significant portion of our loan portfolio is secured by real
      estate.
 
 §
              A
      slowing real estate market and increases in residential home inventories
      for sale and the impact on residential construction lending, delinquency
      and default rates of existing residential construction loans in the Bank’s
      portfolio, residential mortgage lending, and refinancing activities of
      existing homeowners.
 
 -5-
  §
              The
      ability to grow core deposits during 2009 in a highly competitive
      environment where many financial institutions are experiencing liquidity
      problems.
 
 §
              The
      availability of alternative funding sources due to disruption in the
      financial and capital markets flowing from the significant downturn in the
      housing industry
 
 §
              The
      ability to manage noninterest expense growth in light of anticipated
      significant increases in regulatory
costs.
 
 §
              The
      ability to attract and retain qualified and experienced bankers in all
      markets.
 
 SUMMARY
OF CRITICAL ACCOUNTING POLICIES
 
 The SEC
defines “critical accounting policies” as those that require the application of
management’s most difficult, subjective, or complex judgments, often as a result
of the need to make estimates about the effect of matters that are inherently
uncertain and may change in future periods.  Significant accounting
policies are described in Note 1 of the Notes to Consolidated Financial
Statements for the year ended December 31, 2008 in Item 8 of this
report.  Management believes that the following policies and those
disclosed in the Notes to
Consolidated Financial Statements should be considered critical under the
SEC definition:
 
 Allowance
for Loan Losses and Reserve for Unfunded Commitments
 
 The
allowance for outstanding loans is classified as a contra-asset account
offsetting outstanding loans, and the allowance for unfunded commitments is
classified as an “other” liability on the balance sheet.  The
allowance for loan losses is established through a provision for loan losses
charged against earnings.  The balances of the allowance for loan
losses for outstanding loans and unfunded commitments are maintained at an
amount management believes will be adequate to absorb known and inherent losses
in the loan portfolio and commitments to loan funds.  The appropriate
balance of the allowance for loan losses is determined by applying loss factors
to the credit exposure from outstanding loans and unfunded loan
commitments.  Estimated loss factors are based on subjective
measurements including management’s assessment of the internal risk
classifications, changes in the nature of the loan portfolios, industry
concentrations, and the impact of current local, regional, and national economic
factors on the quality of the loan portfolio.  Changes in these
estimates and assumptions are reasonably possible and may have a material impact
on the Company’s consolidated financial statements, results of operations, or
liquidity.
 
 Goodwill
and Intangible Assets
 
 At
December 31, 2008, the Company had $22,904 in goodwill and other intangible
assets.  SFAS No. 142, Goodwill and Other Intangible
Assets, requires that goodwill be tested for impairment at the reporting
unit level (operating segment or one level below an operating segment) on an
annual basis ([and between annual tests if an event occurs or circumstances
change that would more likely than not reduce the fair value of a reporting unit
below its carrying value. These events or circumstances could include a
significant change in the business climate, legal factors, operating performance
indicators, competition or sale or disposition of a significant portion of a
reporting unit. Application of the goodwill impairment test requires judgment,
including the identification of reporting units, assignment of assets and
liabilities to reporting units, assignment of goodwill to reporting units, and
determination of the fair value of each reporting unit. The fair value of each
reporting unit is estimated using a discounted cash flow of forecasted earnings,
estimated sales price multiples based on recent observable market transactions
and market capitalization based on current stock prices. This analysis requires
significant judgments, including estimation of future cash flows, which is
dependent on internal forecasts, estimation of the long-term rate of growth, the
useful life over which cash flows will occur, and determination of our weighted
average cost of capital. Changes in these estimates and assumptions could
materially affect the determination of fair value and goodwill impairment for
the Company’s single reporting unit. We allocate goodwill to reporting units
based on the reporting unit expected to benefit from the combination. We
evaluate our reporting units on an annual basis and, if necessary, reassign
goodwill using a relative fair value allocation approach.
 
 -6-
  Share-based
Compensation
 
 We
account for stock-based compensation in accordance with SFAS No. 123(R),
Share-Based Payment. Under the fair value recognition provisions of this
statement, share-based compensation cost is measured at the grant date based on
the fair value of the award and is recognized as expense over the requisite
service period.  Liability classified share-based awards are
remeasured at fair value each reporting period. Determining the fair value of
share-based awards at the grant date requires judgment, including estimating
expected dividends. In addition, judgment is also required in estimating the
amount of share-based awards that are expected to be forfeited. If actual
results differ significantly from these estimates, stock-based compensation
expense and our results of operations could be materially impacted.
 
 The
Company adopted SFAS 123(R) using the modified prospective
method.  Therefore, previously reported financial data was not
restated, and expenses related to equity-based payments granted and vesting
during 2006, 2007, and 2008 were recorded as compensation expense.
 
 Recent Accounting
Pronouncements
 
 Recent
accounting pronouncements are discussed in Note 1 of the Notes to the Consolidated Financial
Statements for the year ended December 31, 2008 in item 8 of this
report.  None of these pronouncements are expected to have a
significant effect on the Company’s financial condition or results of
operations.
 
 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.
 
 4th Quarter
2008 Compared to 4th Quarter
2007
 
 Two
tables follow which analyze the changes in net interest income for the fourth
quarter 2008 and fourth quarter 2007.  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.
 
 The
Bank’s net interest margin for the fourth quarter 2008 was 5.28% compared to
5.15% for the fourth quarter 2007.   Table I shows that earning
asset yields for the fourth quarter 2008 of 6.63% were down 135 basis points
from fourth quarter 2007 earning asset yields due primarily to a 144 basis point
decline in the yield on net loans.  The decline in loan yields was due
to the rapid decline in market interest rates during 2008, which lowered yields
on the Bank’s variable rate loan portfolio.  However, the Bank’s
practice of including floors on most of its variable rate loans mitigated
additional declines in loan yields during this falling rate
environment.  During the third and fourth quarters 2008, loan yields
stabilized due to the activation of interest rate floors on approximately
$280,000 of the Bank’s variable rate loan portfolio, thus protecting the net
interest margin.
 
 Table I
shows that the rates paid on interest-bearing core deposits moved down faster
than yields on earning assets as evidenced by the 168 basis point decline from
3.24% to 1.56%.  In addition, the cost of alternative funding has
moved down at a faster rate than core deposits, down 296 basis points from 4.88%
to 1.92%.  This rapid fall in the cost of alternative funding was due
to a planned strategy to maintain a relatively short maturity structure on the
Bank’s alternative funding, which permitted the Bank to refinance this funding
at consistently lower rates during a rapidly declining interest rate
environment.  Overall, the cost of interest-
   -7-
  bearing
liabilities of the Bank, which includes both core deposits and alternative
funding, has fallen by 205 basis points in fourth quarter 2008 from fourth
quarter 2007.
 
 Table I
also shows the difference between the cost of interest-bearing core deposits and
alternative funding.  Overall, interest-bearing core deposits have a
rate of 1.56% or 36 basis points lower than alternative funding costs at
1.92%.  However, this spread between core deposit rates and
alternative funding rates has compressed significantly during the last half of
2008 when compared to the first half of the year when this spread ranged between
140 and 150 basis points.  This narrowing spread is again the result
of the relatively short maturity structure of the Bank’s alternative funding,
Federal Reserve actions to lower rates during the fourth quarter 2008, and the
relatively high cost of core deposits in a very competitive rate
environment.
 
 Table II
shows the changes in net interest income due to rate and volume for the quarter
ended December 31, 2008.  Interest income including loan fees for the
fourth quarter 2008 declined by $806 from the same period last
year.  Higher volumes of earning assets increased interest income by
$2,605, while lower yields on earning assets, primarily loans, decreased
interest income by $3,411.  The rate/volume analysis shows that
interest expense for the quarter ended December 31, 2008 decreased by $2,807
from last year, as changes in mix and higher volumes caused interest expense to
increase by $1,496, which was more than offset by a decrease in interest expense
of $4,303 due to lower rates.  Most of the decline in interest expense
was due to lower rates and was in the Bank’s core deposit base, which
illustrates the Bank’s ability to quickly reprice its core
deposits.  In addition, the Bank also benefited from the short
maturity structure of its alternative funding, which permitted refinancing at
lower rates in a rapidly falling interest rate environment.
   -8-
 Table
I
 Average
Balance Analysis of Net Interest Earnings
 (dollars
in thousands)
  Quarter
      Ended
                  December 31, 2008
                
                
                
                
                
                Quarter
      Ended
                  December 31, 2007Interest
                
                
                Average
                
                
                
                
                
                Interest
                
                
                AverageAverage
                
                
                Income
      or
                
                
                Yields
      or
                
                
                Average
                
                
                Income
      or
                
                
                Yields
      orBalance
                
                
                Expense
                
                
                Rates
                
                
                Balance
                
                
                Expense
                
                
                RatesInterest
      Earning AssetsFederal
      funds sold and interest-bearing
      deposits in banks
                
                $
                497
                
                
                $
                2
                
                
                
                1.60
                %
                
                $
                809
                
                
                $
                10
                
                
                
                4.90
                %Securities
      available for sale:Taxable
      (1)
                
                
                57,972
                
                
                
                627
                
                
                
                4.30
                %
                
                
                52,756
                
                
                
                622
                
                
                
                4.68
                %Tax-exempt
                
                
                5,187
                
                
                
                49
                
                
                
                3.76
                %
                
                
                5,247
                
                
                
                49
                
                
                
                3.71
                %Loans,
      net of allowancefor
      loan losses(2)(3)(4)
                
                
                929,522
                
                
                
                15,866
                
                
                
                6.79
                %
                
                
                803,999
                
                
                
                16,669
                
                
                
                8.23
                %Total
      interest earning assets
                
                
                993,178
                
                
                
                16,544
                
                
                
                6.63
                %
                
                
                862,811
                
                
                
                17,350
                
                
                
                7.98
                %Non-Interest
      Earning AssetsCash
      and due from banks
                
                
                17,928
                
                
                
                
                
                
                
                
                
                
                
                19,623Premises
      and equipment
                
                
                20,892
                
                
                
                
                
                
                
                
                
                
                
                20,856Goodwill
      & other intangibles
                
                
                22,935
                
                
                
                
                
                
                
                
                
                
                
                23,159Interest
      receivable and other
                
                
                14,845
                
                
                
                
                
                
                
                
                
                
                
                6,925Total
      non interest earning assets
                
                
                76,600
                
                
                
                
                
                
                
                
                
                
                
                70,563Total
      assets
                
                $
                1,069,778
                
                
                
                
                
                
                
                
                
                
                $
                933,374Interest-Bearing
      LiabilitiesMoney
      market and NOW accounts
                
                $
                382,144
                
                
                $
                (1,367
                )
                
                
                -1.42
                %
                
                $
                378,845
                
                
                $
                (3,066
                )
                
                
                -3.21
                %Savings
      deposits
                
                
                21,058
                
                
                
                (39
                )
                
                
                -0.74
                %
                
                
                20,650
                
                
                
                (82
                )
                
                
                -1.58
                %Time
      deposits - core (5)
                
                
                44,776
                
                
                
                (355
                )
                
                
                -3.15
                %
                
                
                38,313
                
                
                
                (424
                )
                
                
                -4.39
                %Total
      interest-bearing core deposits
                
                
                447,978
                
                
                
                (1,761
                )
                
                
                -1.56
                %
                
                
                437,808
                
                
                
                (3,572
                )
                
                
                -3.24
                %Time
      deposits - non-core
                
                
                72,052
                
                
                
                (536
                )
                
                
                -2.96
                %
                
                
                49,588
                
                
                
                (651
                )
                
                
                -5.21
                %Federal
      funds purchased
                
                
                9,005
                
                
                
                (24
                )
                
                
                -1.06
                %
                
                
                16,579
                
                
                
                (212
                )
                
                
                -5.07
                %FHLB
      & FRB borrowings
                
                
                239,599
                
                
                
                (904
                )
                
                
                -1.50
                %
                
                
                135,748
                
                
                
                (1,594
                )
                
                
                -4.66
                %Junior
      subordinated debentures
                
                
                8,248
                
                
                
                (125
                )
                
                
                -6.03
                %
                
                
                8,248
                
                
                
                (128
                )
                
                
                -6.16
                %Total
      interest-bearing alternative funding
                
                
                328,904
                
                
                
                (1,589
                )
                
                
                -1.92
                %
                
                
                210,163
                
                
                
                (2,585
                )
                
                
                -4.88
                %Total
      interest-bearing liabilities
                
                
                776,882
                
                
                
                (3,350
                )
                
                
                -1.72
                %
                
                
                647,971
                
                
                
                (6,157
                )
                
                
                -3.77
                %Noninterest-Bearing
      LiabilitiesDemand
      deposits
                
                
                170,897
                
                
                
                
                
                
                
                
                
                
                
                173,706Interest
      payable and other
                
                
                7,040
                
                
                
                
                
                
                
                
                
                
                
                4,326Total
      noninterest liabilities
                
                
                177,937
                
                
                
                
                
                
                
                
                
                
                
                178,032Total
      liabilities
                
                
                954,819
                
                
                
                
                
                
                
                
                
                
                
                826,003Stockholders'
      equity
                
                
                114,959
                
                
                
                
                
                
                
                
                
                
                
                107,371Total
      liabilities and stockholders' equity
                
                $
                1,069,778
                
                
                
                
                
                
                
                
                
                
                $
                933,374Net
      Interest Income
                
                
                
                
                
                $
                13,194
                
                
                
                
                
                
                
                
                
                
                $
                11,193Net
      Interest Income as a Percent of Earning Assets
                
                
                
                5.28
                %
                
                
                
                
                
                
                
                
                
                
                5.15
                %(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 $224 and $447
      for the three months endedDecember
      31, 2008 and 2007, respectively.(4)
      Total includes loans held for sale.(5)
      Core time deposits include all non-public time deposits, including
      non-public time deposits over $100.
  -9-
  Table
II
 Analysis
of Changes in Interest Income and Interest Expense
 (dollars
in thousands)
   Three
      Months Ended
                  December
      31, 2008 compared to December 31, 2007Increase (decrease) due toVolume
                
                
                Rate
                
                
                NetInterest
      earned on:Federal
      funds sold and interestbearing
      deposits in banks
                
                $
                (4
                )
                
                $
                (4
                )
                
                $
                (8
                )Securities
      available-for-sale:Taxable
                
                
                60
                
                
                
                (55
                )
                
                
                5Tax-exempt
                
                
                (1
                )
                
                
                1
                
                
                
                -Loans,
      net of allowance for loan losses
                
                
                2,550
                
                
                
                (3,353
                )
                
                
                (803
                )Total
      interest income
                
                $
                2,605
                
                
                $
                (3,411
                )
                
                $
                (806
                )Interest
      paid on:Money
      market and NOW accounts
                
                
                18
                
                
                
                (1,717
                )
                
                
                (1,699
                )Savings
      deposits
                
                
                1
                
                
                
                (44
                )
                
                
                (43
                )Time
      deposits - core
                
                
                70
                
                
                
                (139
                )
                
                
                (69
                )Total
      interest-bearing core deposits
                
                
                89
                
                
                
                (1,900
                )
                
                
                (1,811
                )Time
      deposits - non-core
                
                
                292
                
                
                
                (407
                )
                
                
                (115
                )Federal
      funds purchased
                
                
                (97
                )
                
                
                (91
                )
                
                
                (188
                )FHLB
      & FRB borrowings
                
                
                1,212
                
                
                
                (1,902
                )
                
                
                (690
                )Junior
      subordinated debentures
                
                
                -
                
                
                
                (3
                )
                
                
                (3
                )Total
      interest-bearing alternative funding
                
                
                1,407
                
                
                
                (2,403
                )
                
                
                (996
                )Total
      interest expense
                
                $
                1,496
                
                
                $
                (4,303
                )
                
                $
                (2,807
                )Net
      interest income
                
                $
                1,109
                
                
                $
                892
                
                
                $
                2,001
   2008
Compared to 2007
 
 Two
tables follow which analyze the changes in net interest income for the years
2008, 2007, and 2006.  Table III “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 IV, “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.
 
 The net
interest margin for the full year 2008 was 5.21%, a decline of 1 basis point
from the 5.22% net interest margin reported for the year 2007.  Table
III shows that earning asset yields declined by 134 basis points for the year
2008 when compared to 2007 from 8.31% to 6.97%.  The decline in
earning assets yields was due primarily to the 141 basis point drop in yields on
loans, which resulted from the rapidly declining interest rate environment
experienced throughout 2008 that lowered yields on the Bank’s variable rate loan
portfolio.  As noted above, the Bank’s use of interest rate floors on
its variable rate loan portfolio mitigated further decline in loan yields during
the last half of 2008.
 
 Table III
also shows the overall cost of interest-bearing liabilities for the year 2008
was down 182 basis points from 4.10% in 2007 to 2.28% in 2008.  This
decline can be also be attributed to the falling rate environment during 2008,
plus the relatively short-maturity structure of the Bank’s alternative funding,
   -10-
  which
permitted rapid refinancing of funding at much lower rates throughout the
year.  Table III also illustrates the difference between the cost of
interest-bearing core deposits for the year 2008 as compared to the cost of
interest-bearing alternative funding.  The cost of interest-bearing
core deposits was 1.85% or 108 basis points less than the 2.93% cost of
alternative funding.
 
 The
year-to-date December 31, 2008 rate/volume analysis shows that interest income
including loan fees declined by $3,221 from last year.  Higher volumes
of earning assets increased interest income by $9,047 and lower yields on loans
decreased interest income by $12,268.  The rate/volume analysis shows
that interest expense for the year 2008 decreased by $9,066 from last year, as
higher volumes on all deposit categories caused interest expense to increase by
$5,045, which was more than offset by lower rates, which decreased interest
expense by $14,111.
 
 2007
Compared to 2006
 
 The net
interest margin for the full year 2007 was 5.22%, a decline of 8 basis points
from the 5.30% net interest margin reported for the year 2006.  Table
III shows that earning asset yields improved by 11 basis points for the year
2007 when compared to 2006 from 8.20% to 8.31%.  Compression in the
net interest margin was primarily due to the increase in the Bank’s cost of
funding, which more than offset the growth in earning asset
yields.  Table III shows the overall cost of interest-bearing
liabilities for the year 2007 was up 24 basis points from 3.86% in 2006 to 4.10%
in 2007.  Table III also illustrates the difference between the cost
of interest-bearing core deposits for the year 2007 as compared to the cost of
interest-bearing alternative funding.  The cost of interest-bearing
core deposits was 3.61% or 150 basis points less than the 5.11% cost of
alternative funding.
 
 The
year-to-date December 31, 2007 rate/volume analysis shows that interest income,
including loan fees, improved by $7,194 over 2006.  Higher volumes of
earning assets increased interest income by $6,301 and higher yields on loans
increased interest income by $893.  The rate/volume analysis shows
that interest expense for the year 2007 increased by $3,825 over last year, as
higher volumes on all deposit categories caused interest expense to increase by
$2,157, combined with higher rates, which increased interest expense by
$1,668.
 
 
   -11-
  Table
      IIIAverage
      Balance Analysis of Net Interest Earnings2008
              
              
              
              
              
              
              
              
              2007
              
              
              
              
              
              
              
              
              2006Average
              
              
              Interest
              
              
              Average
              
              
              Average
              
              
              Interest
              
              
              Average
              
              
              Average
              
              
              Interest
              
              
              AverageBalance
              
              
              Income/(Expense)
              
              
              Yield/(Cost)
              
              
              Balance
              
              
              Income/(Expense)
              
              
              Yield/(Cost)
              
              
              Balance
              
              
              Income/(Expense)
              
              
              Yield/(Cost)(dollars
      in thousands)
              
              
              (dollars
      in thousands)
              
              
              (dollars
      in thousands)Interest
      Earning AssetsFederal
      funds sold and interest-bearing
      deposits in banks
              
              $
              554
              
              
              $
              20
              
              
              
              3.61
              %
              
              $
              981
              
              
              $
              51
              
              
              
              5.20
              %
              
              $
              960
              
              
              $
              44
              
              
              
              4.58
              %Securities
      available for sale:Taxable
      (1)
              
              
              57,260
              
              
              
              2,682
              
              
              
              4.68
              %
              
              
              41,112
              
              
              
              1,837
              
              
              
              4.47
              %
              
              
              38,855
              
              
              
              1,546
              
              
              
              3.98
              %Tax-exempt
              
              
              5,300
              
              
              
              196
              
              
              
              3.70
              %
              
              
              5,226
              
              
              
              156
              
              
              
              2.99
              %
              
              
              3,302
              
              
              
              125
              
              
              
              3.79
              %Loans,
      net of allowance for loanlosses(2)(3)(4)
              
              
              882,742
              
              
              
              63,047
              
              
              
              7.14
              %
              
              
              785,132
              
              
              
              67,122
              
              
              
              8.55
              %
              
              
              712,563
              
              
              
              60,257
              
              
              
              8.46
              %Total
      interest earning assets
              
              
              945,856
              
              
              
              65,945
              
              
              
              6.97
              %
              
              
              832,451
              
              
              
              69,166
              
              
              
              8.31
              %
              
              
              755,680
              
              
              
              61,972
              
              
              
              8.20
              %Non
      Earning AssetsCash
      and due from banks
              
              
              18,241
              
              
              
              
              
              
              
              
              
              
              
              21,662
              
              
              
              
              
              
              
              
              
              
              
              23,272Premises
      and equipment
              
              
              20,955
              
              
              
              
              
              
              
              
              
              
              
              19,755
              
              
              
              
              
              
              
              
              
              
              
              17,694Goodwill
      & other intangibles
              
              
              23,018
              
              
              
              
              
              
              
              
              
              
              
              23,376
              
              
              
              
              
              
              
              
              
              
              
              24,057Interest
      receivable and other
              
              
              10,970
              
              
              
              
              
              
              
              
              
              
              
              6,688
              
              
              
              
              
              
              
              
              
              
              
              4,968Total
      non interest earning assets
              
              
              73,184
              
              
              
              
              
              
              
              
              
              
              
              71,481
              
              
              
              
              
              
              
              
              
              
              
              69,991Total
      assets
              
              $
              1,019,040
              
              
              
              
              
              
              
              
              
              
              $
              903,932
              
              
              
              
              
              
              
              
              
              
              $
              825,671Interest-Bearing
      LiabilitiesMoney
      market and NOW accounts
              
              $
              379,657
              
              
              $
              (6,584
              )
              
              
              -1.73
              %
              
              $
              364,780
              
              
              $
              (13,358
              )
              
              
              -3.66
              %
              
              $
              307,054
              
              
              $
              (10,551
              )
              
              
              -3.44
              %Savings
      deposits
              
              
              21,228
              
              
              
              (183
              )
              
              
              -0.86
              %
              
              
              24,309
              
              
              
              (486
              )
              
              
              -2.00
              %
              
              
              23,559
              
              
              
              (360
              )
              
              
              -1.53
              %Time
      deposits - core
              
              
              42,566
              
              
              
              (1,427
              )
              
              
              -3.35
              %
              
              
              32,589
              
              
              
              (1,381
              )
              
              
              -4.24
              %
              
              
              40,989
              
              
              
              (1,466
              )
              
              
              -3.58
              %Total
      interest-bearing core deposits
              
              
              443,451
              
              
              
              (8,194
              )
              
              
              -1.85
              %
              
              
              421,678
              
              
              
              (15,225
              )
              
              
              -3.61
              %
              
              
              371,602
              
              
              
              (12,377
              )
              
              
              -3.33
              %Time
      deposits - non-core
              
              
              56,380
              
              
              
              (1,948
              )
              
              
              -3.46
              %
              
              
              63,918
              
              
              
              (3,347
              )
              
              
              -5.24
              %
              
              
              71,954
              
              
              
              (3,504
              )
              
              
              -4.87
              %Federal
      funds purchased
              
              
              22,094
              
              
              
              (578
              )
              
              
              -2.62
              %
              
              
              10,128
              
              
              
              (539
              )
              
              
              -5.32
              %
              
              
              7,580
              
              
              
              (380
              )
              
              
              -5.01
              %FHLB
      & FRB borrowings
              
              
              202,293
              
              
              
              (5,456
              )
              
              
              -2.70
              %
              
              
              123,597
              
              
              
              (6,121
              )
              
              
              -4.95
              %
              
              
              108,324
              
              
              
              (5,144
              )
              
              
              -4.75
              %Trust
      preferred
              
              
              8,248
              
              
              
              (498
              )
              
              
              -6.04
              %
              
              
              8,248
              
              
              
              (508
              )
              
              
              -6.16
              %
              
              
              8,248
              
              
              
              (510
              )
              
              
              -6.18
              %Total
      interest-bearing alternative funding
              
              
              289,015
              
              
              
              (8,480
              )
              
              
              -2.93
              %
              
              
              205,891
              
              
              
              (10,515
              )
              
              
              -5.11
              %
              
              
              196,106
              
              
              
              (9,538
              )
              
              
              -4.86
              %Total
      interest-bearing liabilities
              
              
              732,466
              
              
              
              (16,674
              )
              
              
              -2.28
              %
              
              
              627,569
              
              
              
              (25,740
              )
              
              
              -4.10
              %
              
              
              567,708
              
              
              
              (21,915
              )
              
              
              -3.86
              %Noninterest-Bearing
      LiabilitiesDemand
      deposits
              
              
              169,792
              
              
              
              
              
              
              
              
              
              
              
              169,035
              
              
              
              
              
              
              
              
              
              
              
              162,259Interest
      payable and other
              
              
              4,914
              
              
              
              
              
              
              
              
              
              
              
              4,239
              
              
              
              
              
              
              
              
              
              
              
              5,466Total
      noninterest-bearing liabilities
              
              
              174,706
              
              
              
              
              
              
              
              
              
              
              
              173,274
              
              
              
              
              
              
              
              
              
              
              
              167,725Total
      liabilities
              
              
              907,172
              
              
              
              
              
              
              
              
              
              
              
              800,843
              
              
              
              
              
              
              
              
              
              
              
              735,433Stockholders'
      equity
              
              
              111,868
              
              
              
              
              
              
              
              
              
              
              
              103,089
              
              
              
              
              
              
              
              
              
              
              
              90,238Total
      liabilities and stockholders' equity
              
              $
              1,019,040
              
              
              
              
              
              
              
              
              
              
              $
              903,932
              
              
              
              
              
              
              
              
              
              
              $
              825,671Net
      Interest Income
              
              
              
              
              
              $
              49,271
              
              
              
              
              
              
              
              
              
              
              $
              43,426
              
              
              
              
              
              
              
              
              
              
              $
              40,057Net
      Interest Income as a Percent ofEarning
      Assets
              
              
              
              
              
              
              5.21
              %
              
              
              
              
              
              
              
              
              
              
              5.22
              %
              
              
              
              
              
              
              
              
              
              
              5.30
              %(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 $1,843,
      $2,065 and $2,099 for the years ended 2008, 2007, and 2006,
      respectively.(4)
      Total includes loans held for sale.(5)
      Core time deposits include all local time deposits, including local time
      deposits over $100.
    -12-
  Table
      IVAnalysis
      of Changes in Interest Income and Interest Expense2008
      compared to 2007Increase (decrease) due to
                
                
                2007
      compared to 2006
                  Increase
      (decrease) due toVolume
                
                
                Rate
                
                
                Net
                
                
                Volume
                
                
                Rate
                
                
                Net(dollars
      in thousands)Interest
      earned on:Federal
      funds sold and interestbearing
      deposits in banks
                
                $
                (22
                )
                
                $
                (9
                )
                
                $
                (31
                )
                
                $
                1
                
                
                $
                6
                
                
                $
                7Securities
      available-for-sale:Taxable
                
                
                722
                
                
                
                123
                
                
                
                845
                
                
                
                90
                
                
                
                201
                
                
                
                291Tax-exempt
                
                
                2
                
                
                
                38
                
                
                
                40
                
                
                
                73
                
                
                
                (42
                )
                
                
                31Loans,
      net of allowance for loanlosses
                
                
                8,345
                
                
                
                (12,420
                )
                
                
                (4,075
                )
                
                
                6,137
                
                
                
                728
                
                
                
                6,865Total
      interest income
                
                $
                9,047
                
                
                $
                (12,268
                )
                
                $
                (3,221
                )
                
                $
                6,301
                
                
                $
                893
                
                
                $
                7,194Interest
      paid on:Money
      market and NOW accounts
                
                
                545
                
                
                
                (7,319
                )
                
                
                (6,774
                )
                
                
                1,984
                
                
                
                823
                
                
                
                2,807Savings
      deposits
                
                
                (62
                )
                
                
                (241
                )
                
                
                (303
                )
                
                
                11
                
                
                
                115
                
                
                
                126Time
      deposits
                
                
                423
                
                
                
                (377
                )
                
                
                46
                
                
                
                (300
                )
                
                
                215
                
                
                
                (85
                )Total
      interest-bearing core deposits
                
                
                906
                
                
                
                (7,937
                )
                
                
                (7,031
                )
                
                
                1,695
                
                
                
                1,153
                
                
                
                2,848Time
      deposits - non-core
                
                
                (395
                )
                
                
                (1,004
                )
                
                
                (1,399
                )
                
                
                (391
                )
                
                
                234
                
                
                
                (157
                )Federal
      funds purchased
                
                
                637
                
                
                
                (598
                )
                
                
                39
                
                
                
                128
                
                
                
                31
                
                
                
                159FHLB
      borrowings
                
                
                3,897
                
                
                
                (4,562
                )
                
                
                (665
                )
                
                
                725
                
                
                
                252
                
                
                
                977Trust
      preferred
                
                
                -
                
                
                
                (10
                )
                
                
                (10
                )
                
                
                -
                
                
                
                (2
                )
                
                
                (2
                )Total
      interest-bearing alternative funding
                
                
                4,139
                
                
                
                (6,174
                )
                
                
                (2,035
                )
                
                
                462
                
                
                
                515
                
                
                
                977Total
      interest expense
                
                $
                5,045
                
                
                $
                (14,111
                )
                
                $
                (9,066
                )
                
                $
                2,157
                
                
                $
                1,668
                
                
                $
                3,825Net
      interest income
                
                $
                4,002
                
                
                $
                1,843
                
                
                $
                5,845
                
                
                $
                4,144
                
                
                $
                (775
                )
                
                $
                3,369
   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 $3,600 in 2008, $725 in 2007, and $600 in
2006.  The increase in the provision for 2008 when compared to 2007
was due to loan growth, moderate deterioration in credit quality, and an
increase in unallocated reserves in light of significant economic
uncertainty.  The increase in the provision for 2007 when compared to
2006 was due to loan growth and some increased economic
uncertainty.
 
 At
December 31, 2008, the Bank had $7,704 or 0.71% of total assets in nonperforming
assets, net of government guarantees, compared to $4,094 or 0.43% of total
assets at December 31, 2007.  Nonperforming assets at December 31,
2008 consist of $3,898 of nonaccrual loans (net of $239 in government
guarantees) and $3,806 of other real estate owned. Nonperforming assets do not
include $2,234 of impaired loans less than 90 days past due and continuing to
accrue interest as of December 31, 2008.  At December 31, 2008,
approximately $1,181 of the nonaccrual loans were consumer residential
construction loans.  Losses on these or any future nonperforming loans
in the consumer residential construction segment of the loan portfolio are
mitigated due to a cash-secured 20% principal guarantee for each of these loans.
In
   -13-
  a ddition,
no special allocation to the allowance for loan losses for these specific loans
is expected.    Other real estate owned consisted of 17
completed consumer construction residential properties and seven individual
residential building lots.
 
 The
allowance for loan losses at December 31, 2008 was $10,980 (1.15% of outstanding
loans, net of loans held for sale) compared to $8,675 (1.05% of loans) and
$8,284 (1.08% of loans) at years end 2007 and 2006, respectively.  At
December 31, 2008, the Bank also has reserved $196 for possible losses on
unfunded loan commitments, which is classified in other
liabilities.  The 2008 ending allowance includes $887 in specific
allowance for $6,132 in impaired loans (net of government
guarantees).  At December 31, 2007, the Company had $3,671 of impaired
loans (net of government guarantees) with a specific allowance assigned of
$160.
 
 Net loan
charge offs were $1,295 in 2008 compared to $334 in 2007, and $108 in
2006.  Net charge offs as a percentage of average loans were 0.15%,
0.04%, and 0.01% for 2008, 2007, and 2006, respectively.
 
 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.
 
 2008
Compared to 2007
 
 Noninterest
income in 2008 was $4,269, up $344 or 9% from the $3,925 reported for the year
2007.  The increase in 2008 noninterest income when compared to 2007
was primarily attributable to a $267 increase in service charges on deposit
accounts and a $193 increase in other fee income, principally bankcard
processing fee income.  Service charges on deposit accounts increased
due to lower earnings credit rate, which increased fees on analyzed business
accounts.  Bankcard processing fee income accounted for $114 of this
increase.  Increases in these categories were partially offset by a
$15 decrease in mortgage banking income.  The decline in mortgage
banking income was attributable to a significant slow down in the residential
housing market.  The other income category in 2008 was $330, an $87 or
21% decrease from the $417 reported in the other income category for the year
2007.  The decrease in the other income category was due to collection
of approximately $70 in loan referral fees during the year 2007.
 
 2007
Compared to 2006
 
 Noninterest
income in 2007 was $3,925, down $476 or 11% from the $4,401 reported for the
year 2006.  Excluding the one-time gain of $335 on the sale of
property included in 2006 results, noninterest income in 2007 was down $141 or
3% from 2006.  The following discussion excludes the effect of the
gain on sale of property in 2006.  The $141 decline in 2007
noninterest income when compared to 2006 was primarily due to a $435 decrease in
mortgage banking income.  The decline in mortgage banking income was
attributable to a significant slow down in the residential housing
market.  The decline in mortgage banking income was partially offset
by increases in service charges on deposit accounts, other fee income,
principally bankcard processing fee income, and the other income
category.  Service charges on deposit accounts increased $76 or 6% due
to lower earnings credit rate, which increased fees on analyzed business
accounts.  Other fee income, principally bankcard processing fee
income in 2007 increased $135 or 9% over 2006.  Bankcard processing
fee income accounted for $53 of this increase, while other service charge
income, primarily wire transfer fees accounted for $68 of this
increase.  The other income category in 2007 was $417, a $94 or 29%
increase over the $323 reported in the other income category for the year
2006.  The increase in the other income category was due to collection
of approximately $70 in loan referral fees during the year
2007.
  -14-
  
 
 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.
 
 2008
Compared to 2007
 
 Noninterest
expense for the year 2008 was $29,562, up $3,701 or 14% over the $25,861
reported for the year 2007.  Personnel expense in 2008 was up $2,422
and accounted for 65% of the total increase in noninterest expense in the
year.  Total salary expense was up $1,699 or 16% and benefits and
taxes were up $780 or 16% over last year.  Approximately $442 of the
increase in salary expense was due to lower loan origination costs, which are a
direct offset to salary expense.  Higher benefits and taxes expense in
2008 resulted from increased group insurance, and accruals for officer
incentives.  The other expense category accounted for the majority of
the remaining increase in noninterest expense in 2008 over
2007.  Other expenses were $5,490 in 2008, up $588 or 12% over 2007
other expenses of $4,902.  The increase in the other expense category
can be attributed to the following areas: 1) increased FDIC assessment of $231;
2) increased travel expense of $89; 3) increased other real estate expense of
$125 due to increases in other real estate owned; and 4) increased repossession
and collection expense of $23 related to increases in non-performing
loans.
 
 2007
Compared to 2006
 
 Noninterest
expense for the year 2007 was $25,861, up $2,070 or 9% over the $23,791 reported
for the year 2006.  All noninterest expense categories showed an
increase in 2007 when compared to 2006.  Personnel expense in 2007 was
up $1,089 and accounted for 53% of the total increase in noninterest expense in
the year.  Total salary expense was up $515 or 5% and benefits and
taxes were up $823 or 20% over last year due to performance increases for
existing employees, increased group insurance, and increased accruals for
officer incentives.  These increases were partially offset by a
decline in commission expense in 2007 from 2006.  The other expense
category accounted for the majority of the remaining increase in noninterest
expense in 2007 over 2006.  Other expenses were $4,902 in 2007, up
$708 or 17% over 2006 other expenses of $4,194.  The increase in the
other expense category can be attributed to the following areas: 1) increased
FDIC assessment of $146; 2) increased communications expense (primarily armored
car and courier services) of $133; 3) increased other data processing expense of
$199 due to new contracts in place; 4) increased expense related to the unfunded
loan commitment of $196; and 5) increased local taxes (Multnomah County and
State of Washington B&O taxes) of $107.
 
 BALANCE
SHEET
 
 Loans
 
 At
December 31, 2008, outstanding loans, net of deferred loan fees and excluding
loans held for sale, were $956,357, up $134,035 over outstanding loans of
$822,322 at December 31, 2007.  A summary of loan growth by market for
the year 2008 follows:
 Balance
                
                
                Balance
                
                
                $
      Increase
                
                
                %
      IncreaseDec.
      31, 2008
                
                
                Dec.
      31, 2007
                
                
                (Decrease)
                
                
                (Decrease)Eugene
      Market
                
                $
                237,604
                
                
                $
                217,962
                
                
                $
                19,642
                
                
                
                9.01
                %Portland
      Market
                
                
                432,961
                
                
                
                389,053
                
                
                
                43,908
                
                
                
                11.29
                %Seattle
      Market
                
                
                285,792
                
                
                
                215,307
                
                
                
                70,485
                
                
                
                32.74
                %Total
                
                $
                956,357
                
                
                $
                822,322
                
                
                $
                134,035
                
                
                
                16.30
                %
  -15-
 The
Seattle market was primarily responsible for the majority of the growth in
outstanding loans for the Company during 2008, but both the Portland and Eugene
markets also showed solid year-over-year loan growth.  The growth in
all three markets can be attributed to increased commercial real estate lending
and loans to dental professionals throughout the year, combined with a lessening
of competition for loans.  Throughout 2008, many financial
institutions experiencing credit quality problems and significantly reduced
their lending activities, thus increasing the opportunity for the Bank to grow
its loan portfolio.  More information on the loan portfolio can be
found in statistical information in Item 1 and in Note 4 of the Notes to Consolidated Financial
Statements in Item 8 below.
 
 Goodwill
and Intangible Assets
 
 At
December 31, 2008, the Company had a recorded balance of $22,031 in goodwill
from the November 30, 2005 acquisition of NWB Financial Corporation and its
wholly-owned subsidiary Northwest Business Bank (NWBF).  In addition,
at December 31, 2008 the Company had $873 core deposit intangible assets
resulting from the acquisition of NWBF.  The core deposit intangible
was determined to have an expected life of approximately seven years and is
being amortized over that period using the straight-line
method.  During 2008, the Company amortized $223 of the core deposit
intangible.  In accordance with Statement of Financial Accounting
Standard (“SFAS”) 142, Goodwill and Other Intangible
Assets, the Company does not amortize goodwill or other intangible assets
with indefinite lives, but instead periodically tests these assets for
impairment.  Management performed an impairment analysis at December
31, 2008 and determined there was no impairment of the goodwill at the time of
the analysis.
 
 Deposits
 
 Outstanding
deposits at December 31, 2008 were $722,437, an increase of $78,013 over
outstanding deposits of $644,424 at December 31, 2007.  Core deposits,
which are defined by the Company as demand, interest checking, money market,
savings, and local time deposits, including local time deposits in excess of
$100 thousand, were $615,832, down $60 from outstanding core deposits of
$615,892 at December 31, 2007.  At December 31, 2008 and 2007,
respectively, core deposits represented 85% and 96% of total deposits,
respectively.  A summary of deposit growth by market for the year 2008
follows:
  Balance
                
                
                Balance
                
                
                $
      Increase
                
                
                %
      IncreaseDec.
      31, 2008
                
                
                Dec.
      31, 2007
                
                
                (Decrease)
                
                
                (DecreaseEugene
      Market core deposits
                
                $
                406,098
                
                
                $
                405,351
                
                
                $
                747
                
                
                
                0.18
                %Portland
      Market core deposits
                
                
                110,287
                
                
                
                109,698
                
                
                
                589
                
                
                
                0.54
                %Seattle
      Market core deposits
                
                
                99,447
                
                
                
                100,843
                
                
                
                (1,396
                )
                
                
                -1.38
                %Total
      core deposits
                
                
                615,832
                
                
                
                615,892
                
                
                
                (60
                )
                
                
                -0.01
                %Other
      deposits
                
                
                106,605
                
                
                
                28,532
                
                
                
                78,073
                
                
                
                273.63
                %Total
                
                $
                722,437
                
                
                $
                644,424
                
                
                $
                78,013
                
                
                
                12.11
                %
  Outstanding
core deposits at December 31, 2008 in all three markets were virtually flat from
one year ago primarily due to the highly competitive environment for these
deposits with other financial institutions in all three of the Bank’s primary
markets.  This increased competition for core deposits, primarily
based on price, was driven by liquidity problems experienced by the entire
industry during the last six months of 2008 as financial markets experienced
significant disruption.  In addition, core deposit growth was affected
by a deterioration in economic conditions in all three markets that negatively
impacted the cash flow, and thus the deposit levels of many of the Bank’s
existing clients.  As a result of no growth in core deposits, the Bank
experienced growth of more than $78,000 in other deposits, which consisted
primarily of brokered and public time deposits.
 
  -16-
  Junior
Subordinated Debentures
 
 The
Company had $8,248 in junior subordinated debentures at December 31, 2008, which
were issued in conjunction with the acquisition of NWBF.  At December
31, 2008, the entire $8,248 in junior subordinated debentures had an interest
rate of 6.265% that is fixed through November 2010.  As of December
31, 2008, the entire balance of the junior subordinated debentures qualified as
Tier 1 capital under regulatory capital purposes.  Additional
information regarding the terms of the junior subordinated debentures, including
maturity/repricing dates and interest rate, is included in Note 12 of the Notes to Consolidated Financial
Statements in Item 8 below.
 
 CAPITAL
RESOURCES
 
 Capital
is the stockholders’ investment in the Company.  Capital grows through
the retention of earnings and the issuance of new stock through the exercise of
stock options.  Capital formation allows the Company to grow assets
and provides flexibility in times of adversity.
 
 Stockholders’
equity at December 31, 2008 was $116,165, an increase of $8,656 or 8% from
December 31, 2007.  The increase in stockholders’ equity during
2008 was due to the retention of approximately $8,142 net income for the year
and the exercise of stock options and the related tax benefit accounted for
another $1,504.
 
 The
Federal Reserve Board and the FDIC have in place guidelines for risk-based
capital requirements applicable to U.S. banks and bank holding
companies.  These risk-based capital guidelines take into
consideration risk factors, as defined by regulation, associated with various
categories of assets, both on and off-balance sheet.  Under the
guidelines, capital strength is measured in two tiers, which are used in
conjunction with risk-adjusted assets to determine the risk-based capital
ratios.  These guidelines require a minimum of 8% total risk-based
capital ratio, of which 4% must be Tier I capital.  The regulations
also specify that a 10% total risk-based capital ratio is required to be
designated “well-capitalized” (the highest FDIC capital rating) by the
FDIC.  The Company’s Tier I capital, which consists of stockholders’
equity and qualifying trust preferred securities, less other comprehensive
income, goodwill (net of the deferred tax associated with goodwill), and
deposit-based intangibles, totaled $102,424 at December 31,
2008.  Tier II capital components include all, or a portion of the
allowance for loan losses and the portion of trust preferred securities in
excess of Tier I statutory limits.  The total of Tier I and Tier II
capital components is referred to as Total Risk-Based Capital, and was $113,600
at December 31, 2008.  The Bank’s total risk-based capital ratio was
11.11%, at December 31, 2008 compared to 10.97% at December 31,
2007.
 
 Subsequent
to year-end December 31, 2008, the Company raised approximately $9,700 of
additional capital through a private equity placement of 750 thousand shares of
stock at $13.50 per share.  This additional capital is expected to
increase the Company’s total risk-based capital ratio to more than 12% at the
end of first quarter 2009.  In addition, during December 2008, the
Company was granted preliminary approval under TARP by the Treasury to receive
$30 million of additional capital in the form of preferred stock.  In
January 2009, the Company announced it had determined not to participate in this
program.
 
 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 concentrations of loans as a percentage of capital, and growth
projections.  The Board also considers dividend payout ratios,
dividend yield, and other financial metrics in setting the quarterly
dividend.  The Company declared and paid cash dividends of $0.40 per
share for the year 2008.  That compares to dividends of $0.35 per
share for the year 2007 when adjusted for the 10% stock dividend paid in June
2007.
 
 The Board
of Directors, at its February 17, 2009 meeting, approved a dividend of $0.10 per
share for stockholders of record as of March 3, 2009.  If continued
for each quarter during 2009, this would result in no change in 2009 dividends
over 2008 dividends.
 
 -17-
  The
Company projects that earnings retention and existing capital will be sufficient
to fund anticipated organic asset growth, while maintaining a well-capitalized
designation from all regulatory agencies.
 
 OFF-BALANCE
SHEET ARRANGEMENTS AND COMMITMENTS
 
 In the
normal course of business, the Bank commits to extensions of credit and issues
letters of credit.  The Bank uses the same credit policies in making
commitments to lend funds and conditional obligations as it does for other
credit products.  In the event of nonperformance by the customer, the
Bank’s exposure to credit loss is represented by the contractual amount of the
instruments.  Commitments to extend credit are agreements to lend to a
customer as long as there is no violation of any condition established by the
contract.  Since some commitments may expire without being drawn upon,
the total commitment amounts do not necessarily represent future cash
requirements.  At December 31, 2008, the Bank had $182,609 in
commitments to extend credit.
 
 Letters
of credit written are conditional commitments issued by the Bank to guarantee
performance of a customer to a third party.  The credit risk involved
is essentially the same as that involved in extending loan facilities to
customers.  At December 31, 2008, the Bank had $2,298 in letters of
credit and financial guarantees written.
 
 The Bank
also has internal guidance lines of credit established for certain borrowers,
primarily in the residential construction industry.  These guidance
lines are not contractual commitments to extend credit, and may be terminated by
the Bank for any reason without any obligation to the borrower.  These
lines provide the Bank’s lenders limits on future extensions of credit to
certain borrowers.  The Bank uses the same credit policies in
establishing internal guidance lines as it does for other credit
products.  At December 31, 2008, the Bank had established unused and
uncommitted guidance lines totaling approximately $1,387 compared to unused and
uncommitted guidance lines of $38,321 at December 31, 2007.
 
 The
Company has certain other financial commitments.  These future
financial commitments are outlined below:
  Contractual
      Obligations(dollars
      in thousands)
                
                Total
                
                
                Less
      than One Year
                
                
                1
      - 3 Years
                
                
                3
      - 5 Years
                
                
                More
      than 5 YearsJunior
      subordinated debenture
                
                $
                8,248
                
                
                $
                -
                
                
                $
                -
                
                
                $
                -
                
                
                $
                8,248FHLB
      borrowings
                
                
                194,500
                
                
                
                159,500
                
                
                
                21,500
                
                
                
                11,500
                
                
                
                2,000Federal
      Reserve borrowings
                
                
                20,000
                
                
                
                20,000
                
                
                
                -
                
                
                
                -
                
                
                
                -Time
      Deposits
                
                
                150,545
                
                
                
                123,172
                
                
                
                21,482
                
                
                
                5,891
                
                
                
                -Operating
      lease obligations
                
                
                6,848
                
                
                
                954
                
                
                
                1,177
                
                
                
                932
                
                
                
                3,785$
                380,141
                
                
                $
                303,626
                
                
                $
                44,159
                
                
                $
                18,323
                
                
                $
                14,033
  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 through core deposit growth,
maturity of investment securities, and loan payments.  Core deposits
include demand, interest checking, money market, savings, and local time
deposits, including local time deposits in excess of $100. Additional liquidity
and funding sources are provided through the sale of loans, sales of securities,
access to national CD markets, and both secured and unsecured
borrowings.
 
 The
Company uses a number of measurements to monitor its liquidity position on a
daily, weekly, and monthly basis.  During the third and fourth
quarters of 2008 during significant disruption of financial markets that created
liquidity problems for a number of financial institutions, the Company
heightened its
   -18-
  liquidity
monitoring and also put into place a number of programs to increase its core
deposit base, including deposit promotions in all three markets.
 
 Core
deposits at December 31, 2008 were 85% of total deposits compared to 96% at
December 31, 2007.  Core deposits at December 31, 2008 were virtually
flat with one year ago due to increased competition for core deposits by all
financial institutions, combined with deteriorating economic
conditions.  Loan growth was funded primarily through alternative
funding sources, including overnight borrowed funds, Federal Home Loan Bank
advances, Federal Reserve Bank of San Francisco advances, public deposits
available from the State of Oregon and State of Washington, national market time
deposits, and brokered time deposits.
 
 The
Company has deposit relationships with several large clients, which are closely
monitored by Bank officers.  At December 31, 2008, 29 large deposit
relationships with the Bank account for $206,026 or 29% of total
deposits.  The single largest client represented 8% of total deposits
at December 31, 2008.  The loss of this deposit relationship or other
large deposit relationships could cause an adverse effect on short-term
liquidity.  The Company expects to maintain these relationships and
believes it has sufficient sources of liquidity to mitigate the loss of one or
more of these clients.
 
 Borrowing
lines have been established at various correspondent banks, the Federal Home
Loan Bank of Seattle and with the Federal Reserve Bank of San
Francisco.  At December 31, 2008, the Bank had secured and unsecured
borrowing lines totaling approximately $495,188 consisting of $327,253 with the
Federal Home Loan Bank of Seattle, $118,000 with various correspondent banks,
and $49,935 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, 2008, the Bank had collateral pledged to the
FHLB in the form of commercial real estate loans, first and second lien single
family residential loans, multi-family loans, and mortgage-backed securities
that had a discounted collateral value of approximately $273,978 for this
line.  The $49,935 borrowing line with the Federal Reserve Bank of San
Francisco is also secured through the pledging of commercial loans under the
Bank’s Borrower-In-Custody program.  The $118,000 in borrowing lines
with correspondent banks is unsecured.  At December 31, 2008, the Bank
had $194,500 in borrowings outstanding from the FHLB of Seattle and $24,000
outstanding on its overnight correspondent bank lines, and $20,000 outstanding
with the Federal Reserve Bank of San Francisco.  In addition, the Bank
is part of the State of Oregon and State of Washington community bank time
deposit program and at December 31, 2008 had approximately $500 available from
these sources.  The Bank’s loan portfolio also contains approximately
$31,689 in guaranteed government loans, which can be sold on the secondary
market.
 
 Subsequent
to the end of the year, as a result of a financial institution failure in the
State of Washington, the Bank was assessed $9 thousand for uninsured public
deposits at the failed institution.  The assessment was based upon the
Bank’s pro rata share of public deposits as of December 31, 2008, which amounted
to less than one-tenth of one percent.  However, due to the increased risk
of future bank failures in Washington, the Bank chose to exit the public deposit
pool in order to minimize its exposure to possible assessments for uninsured
deposits.  The Bank will continue to have a potential liability for
uninsured deposits for a period of one year following its exit from the state
public deposit pool.
 
 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.
 
  -19-
  ITEM 9AControls and
Procedures
 
 Evaluation
of Disclosure Controls and Procedures
 
 An
evaluation was carried out under the supervision and with the participation of
the Company’s management, including the Chief Executive Officer (“CEO”) and
Chief Financial Officer (“CFO”), of the effectiveness of our disclosure controls
and procedures, as required by Rule 13a-15(b) of the Securities Exchange Act of
1934.  Based on that evaluation, the CEO and CFO have concluded that
as of the end of the period covered by this report, our disclosure controls and
procedures are effective to provide reasonable assurance that information
required to be disclosed by us in reports that we file or submit under the
Securities Exchange Act of 1934 is recorded, processed, summarized, and timely
reported as provided in the SEC rules and forms.  As a result of this
evaluation, there were no significant changes in our internal control over
financial reporting during the three months ended December 31, 2008 that have
materially affected, or are reasonably likely to materially affect, our internal
control over financial reporting.
 
 Management’s
Report on Internal Control Over Financial Reporting
 
 The
management of the Company is responsible for establishing and maintaining
adequate internal control over financial reporting.  This internal
control system has been designed to provide reasonable assurance to the
Company’s management and board of directors regarding the preparation and fair
presentation of the Company’s published financial statements.
 
 All
internal control systems, no matter how well designed, have inherent
limitations.  Therefore, even those systems determined to be effective
can provide only reasonable assurance with respect to financial statement
preparation and presentation.
 
 The
management of Pacific Continental Corporation has assessed the effectiveness of
its internal control over financial reporting at December 31,
2008.  To make this assessment, the Company used the criteria for
effective internal control over financial reporting described in Internal Control – Integrated
Framework, issued by the Committee of Sponsoring Organizations of the
Treadway Commission.  Based on this assessment, the Company concluded
that the internal control system over financial reporting is effective as of
December 31, 2008.
 
 The
Company’s independent auditors, Moss Adams, L.L.P., have issued an attestation
report on the Company’s internal control over financial
reporting.  The attestation report can be found on pages 35 and 36 of
this document.
 
 ITEM
15                           Exhibits and Financial
Statement Schedules
 
 (a)(1)                 See
Index to Consolidated Financial Statements filed under item 8 of this
report.
 
 All other
schedules to the financial statements required by Regulation S-X are omitted
because they are not applicable, not material, or because the information is
included in the financial statements or related notes.
 
 (a)(2)                 Exhibit
Index
 
 Exhibit
 3.1                  
Amended Articles of Incorporation (1)
 3.2                  
Amended and Restated Bylaws (2)
 10.1                 1999
Employee Stock Option Plan (3)
 10.2                 1999
Director’s Stock Option Plan (3)
 10.3                 2006
Stock Option and Equity Compensation Plan (4)
 10.4                 
Form of Restricted Stock Award Agreement (4)
 10.5                 
Form of Stock Option Award Agreement (4)
 10.6                 
Form of Restricted Stock Unit Agreement (4)
 10.7                 
Form of Stock Appreciation Rights Agreement (4)
  -20-
  10.8                 
Change of Control/Salary Continuation Agreement for Michael Reynolds
(5)
 10.9                  Change
of Control/Salary Continuation Agreement for Daniel Hempy (5)
 10.10                Change
of Control/Salary Continuation Agreement for Basant Singh (6)
 10.11                Executive
Employment Agreement for Roger Busse (7)
 10.12                Executive
Employment Agreement for Hal Brown (7)
 10.13                NWB
Financial Corporation Employee Stock Option Plan (8)
 10.14                NWB
Financial Corporation Director Stock Option Plan (8)
 10.15
              Director Fee Schedule, Effective January 1, 2009
  *
 10.16
              Director Stock Trading Plan (7)
 10.17
              Form
      of Common Stock Purchase Agreement between the Company and each of the
      Purchasers, dated as of January 6, 2009
(9)
 10.18
              Form
      of Registration Rights Agreement between the Company and each of the
      Purchasers, dated as of January 6, 2009
(9)
 14                     Code
of Ethics for Senior Financial Officers and Principal Executive Officer
(7)
 23.1                 
Accountants Consent of Moss Adams L.L.P.
 31.1                  302
Certification, Hal Brown, President and Chief Executive Officer
 31.2
              302
      Certification, Michael A. Reynolds, Executive Vice President and Chief
      Financial Officer
 32                     Certifications
Pursuant to 18 U.S.C. Section 1350
 
 (1)
              Incorporated
      by reference to Exhibit 3 of the Company’s Quarterly Report on 10-Q for
      the Quarter ended June 30, 2007.(2)
              Incorporated
      by reference to Exhibit 3.1 of the Company’s Quarterly Report on Form 10-Q
      for the Quarter ended September 30, 2008.(3)
              Incorporated
      by reference to Exhibits 99.1 - 99.4 of the Company’s S-8 Registration
      Statement (File No. 333-109501).(4)
              Incorporated
      by reference to Exhibits 99.1 - 99.5 of the Company’s S-8 Registration
      Statement (File No. 333-134702).(5)
              Incorporated
      by reference to Exhibits 10.1 and 10.2 of the Company’s Quarterly Report
      on 10-Q for the Quarter ended March 31, 2005.(6)
              Incorporated
      by reference to Exhibit 10.10 of the Registration Statement on Form S-4
      (File No. 333-128968).(7)
              Incorporated
      by reference to Exhibits 10.11, 10.12, 10.16 and 14 of the Company’s
      Annual Report on Form 10-K for the fiscal year ended December 31,
      2007.(8)
              Incorporated
      by reference to Exhibits 99.1 and 99.2 of the Company’s S-8 Registration
      Statement (File No. 333-130886).(9)
              Incorporated
      by reference to Exhibits 10.1 and 10.2 of the Company’s Current Report on
      Form 8-K filed January 8, 2009.
 
 
 *
      Previously filed
 
 (a)(3)
              Financial
      Statement Schedules
  -21-
  SIGNATURES
 
 Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the registrant has duly caused this Amendment No. 1 to this report to be
signed on its behalf by the undersigned on March 30, 2009.
 
 PACIFIC
CONTINENTAL CORPORATION
 (Company)
 
 
 
 By:    /s/ Hal M. Brown
 Hal Brown
 Chief Executive Officer
 
  -22-
  CERTIFICATION
  I, Hal
Brown, certify that:
 1.
              I
      have reviewed this Amendment No. 1 to the Form 10-K of Pacific Continental
      Corporation;
  2.
              Based
      on my knowledge, this report does not contain any untrue statement of a
      material fact or omit to state a material fact necessary to make the
      statements made, in light of the circumstances under which such statements
      were made, not misleading with respect to the period covered by this
      report;
  3.
              Based
      on my knowledge, the financial statements, and other financial information
      included in this report, fairly present in all material respects the
      financial condition, results of operations and cash flows of the
      registrant as of, and for, the periods presented in this
      report;
  4.
              The
      registrant's other certifying officer(s) and I are responsible for
      establishing and maintaining disclosure controls and procedures (as
      defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal
      control over financial reporting (as defined in Exchange Act Rules
      13a-15(f) and 15d-15(f)) for the registrant and
  have:
  (a)
              Designed
      such disclosure controls and procedures, or caused such disclosure
      controls and procedures to be designed under our supervision, to ensure
      that material information relating to the registrant, including its
      consolidated subsidiaries, is made known to us by others within those
      entities, particularly during the period in which this report is being
      prepared;
  (b)
              Designed
      such internal control over financial reporting, or caused such internal
      control over financial reporting to be designed under our supervision, to
      provide reasonable assurance regarding the reliability of financial
      reporting and the preparation of financial statements for external
      purposes in accordance with generally accepted accounting
      principles;
  (c)
              Evaluated
      the effectiveness of the registrant's disclosure controls and procedures
      and presented in this report our conclusions about the effectiveness of
      the disclosure controls and procedures, as of the end of the period
      covered by this report based on such evaluation;
  and
  (d)
              Disclosed
      in this report any change in the registrant’s internal control over
      financial reporting that occurred during the registrant’s most recent
      fiscal quarter (the registrant’s fourth fiscal quarter in the case of an
      annual report) that has materially affected, or is reasonably likely to
      materially affect, the registrant’s internal control over financial
      reporting; and
  5.
              The
      registrant's other certifying officer(s) and I have disclosed, based on
      our most recent evaluation of internal control over financial reporting,
      to the registrant's auditors and the audit committee of the registrant's
      board of directors (or persons performing the equivalent
      functions):
 (a)
              All
      significant deficiencies and material weaknesses in the design or
      operation of internal control over financial reporting which are
      reasonably likely to adversely affect the registrant’s ability to record,
      process, summarize and report financial information;
  and
 (b)
              Any
      fraud, whether or not material, that involves management or other
      employees who have a significant role in the registrant's internal control
      over financial reporting.
 
 Date:  March
      30, 2009
              /s/ Hal
      BrownHal
      Brown, Chief Executive Officer
 
  -23-
  
 
 CERTIFICATION
  I,
Michael A. Reynolds, certify that:
 1.
              I
      have reviewed this Amendment No. 1 to the Form 10-K of Pacific Continental
      Corporation;
  2.
              Based
      on my knowledge, this report does not contain any untrue statement of a
      material fact or omit to state a material fact necessary to make the
      statements made, in light of the circumstances under which such statements
      were made, not misleading with respect to the period covered by this
      report;
  3.
              Based
      on my knowledge, the financial statements, and other financial information
      included in this report, fairly present in all material respects the
      financial condition, results of operations and cash flows of the
      registrant as of, and for, the periods presented in this
      report;
  4.
              The
      registrant's other certifying officer(s) and I are responsible for
      establishing and maintaining disclosure controls and procedures (as
      defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal
      control over financial reporting (as defined in Exchange Act Rules
      13a-15(f) and 15d-15(f)) for the registrant and
  have:
  (a)
              Designed
      such disclosure controls and procedures, or caused such disclosure
      controls and procedures to be designed under our supervision, to ensure
      that material information relating to the registrant, including its
      consolidated subsidiaries, is made known to us by others within those
      entities, particularly during the period in which this report is being
      prepared;
  (b)
              Designed
      such internal control over financial reporting, or caused such internal
      control over financial reporting to be designed under our supervision, to
      provide reasonable assurance regarding the reliability of financial
      reporting and the preparation of financial statements for external
      purposes in accordance with generally accepted accounting
      principles;
  (c)
              Evaluated
      the effectiveness of the registrant's disclosure controls and procedures
      and presented in this report our conclusions about the effectiveness of
      the disclosure controls and procedures, as of the end of the period
      covered by this report based on such evaluation;
  and
  (d)
              Disclosed
      in this report any change in the registrant’s internal control over
      financial reporting that occurred during the registrant’s most recent
      fiscal quarter (the registrant’s fourth fiscal quarter in the case of an
      annual report) that has materially affected, or is reasonably likely to
      materially affect, the registrant’s internal control over financial
      reporting; and
  5.
              The
      registrant's other certifying officer(s) and I have disclosed, based on
      our most recent evaluation of internal control over financial reporting,
      to the registrant's auditors and the audit committee of the registrant's
      board of directors (or persons performing the equivalent
      functions):
 (a)
              All
      significant deficiencies and material weaknesses in the design or
      operation of internal control over financial reporting which are
      reasonably likely to adversely affect the registrant’s ability to record,
      process, summarize and report financial information;
  and
 (b)
              Any
      fraud, whether or not material, that involves management or other
      employees who have a significant role in the registrant's internal control
      over financial reporting.
 
 Date:  March
30,
2009                                              /s/ Michael A.
Reynolds
 Michael
A. Reynolds, Executive Vice President & CFO
  -24-
  CERTIFICATION
PURSUANT TO
 18
U.S.C. SECTION 1350,
 AS
ADOPTED PURSUANT TO
 SECTION
906 OF THE SARBANES-OXLEY ACT OF 2002
 
 
 
 In
connection with the Amendment No. 1 to the Annual Report of Pacific Continental
Corporation (the “Company”) on Form 10-K for the period ending December 31, 2008
as filed with the Securities and Exchange Commission on the date hereof (the
“Report”), we, Hal M. Brown, Chief Executive Officer, and Michael A. Reynolds,
Chief Financial Officer, certify, pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
 
 (1)
              The
      Report fully complies with the requirements of Section 13(a) or 15(d) of
      the Securities Exchange Act of 1934;
and
 
 (2)
              The
      information contained in the Report fairly presents, in all material
      respects, the financial condition and results of operations of the
      Company.
 
 
 /s/ Hal M.
      Brown
              /s/ Michael A.
      ReynoldsHal
      M. Brown
              Michael
      A. ReynoldsChief
      Executive Officer
              Chief
      Financial Officer
 
 Dated:  March
30, 2009
  -25-