Pacific Continental 10Q 2008 Q2 Quarterly report

As Filed with the Securities & Exchange Commission on August 7, 2008

SECURITIES & EXCHANGE COMMISSION

FORM 10-Q

[ X ] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended June 30, 2008.

[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from _______________ to ________________

SEC File Number: 0-30106

PACIFIC CONTINENTAL CORPORATION

(Exact Name of Registrant as Specified in Its Charter)

OREGON	93-1269184
(State or Other Jurisdiction of	(I.R.S. Employer
Incorporation or Organization)	Identification Number)

111 West 7th Avenue

Eugene, Oregon 97401

(address of Principal Executive Offices) (Zip Code)

(541) 686-8685

(Registrant’s Telephone Number, Including Area Code)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No __

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definition of “large accelerated filer”, “accelerated filer”, and “smaller reporting company” in Rule 12b-2 of the Act.

(Check one).

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

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

Common Stock outstanding as of July 31, 2008: 11,973,551

Page

PACIFIC CONTINENTAL CORPORATION

FORM 10-Q

QUARTERLY REPORT

TABLE OF CONTENTS

PART I	FINANCIAL INFORMATION	Page

Item 1.	Financial Statements

	Consolidated Income Statements (unaudited):	3
	Three and six months ended June 30, 2008 and June 30, 2007

	Consolidated Statements of Comprehensive Income (unaudited):	4
	Three and six months ended June 30, 2008 and June 30, 2007

	Consolidated Balance Sheets (unaudited):	5
	June 30, 2008, December 31, 2007 and June 30, 2007

	Consolidated Statements of Cash Flows (unaudited):	6
	Six months ended June 30, 2008 and June 30, 2007

	Notes to Consolidated Financial Statements (unaudited)	7

Item 2.	Management’s Discussion and Analysis of Financial	14
	Condition and Results of Operations

Item 3.	Quantitative and Qualitative Disclosures on Market Risk	27

Item 4.	Controls and Procedures	27


PART II	OTHER INFORMATION

Item 1.	Legal Proceedings	none

Item 1a.	Risk Factors	27

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	none

Item 3.	Defaults Upon Senior Securities	none

Item 4.	Submission of Matters to a Vote of Security Holders	29

Item 5.	Other Information	none

Item 6.	Exhibits	30


SIGNATURES		31

CONSOLIDATED INCOME STATEMENTS

Amounts in $ 000’s, Except for Per Share Data

(Unaudited)

	Three months ended June 30,				Six months ended June 30,
	2008		2007		2008		2007
Interest and dividend income
Loans	$	15,461	$	17,315	$	31,162	$	33,522
Securities		691		419		1,423		838
Dividends on Federal Home Loan Bank stock		60		6		123		9
Federal funds sold		3		11		13		29
		16,215		17,751		32,721		34,398

Interest expense
Deposits		2,184		4,782		5,148		9,404
Federal Home Loan Bank & Federal Reserve borrowings		1,514		1,854		3,089		3,389
Trust preferred securities		125		127		246		252
Federal funds purchased		234		50		464		97
		4,057		6,813		8,947		13,142

Net interest income		12,158		10,938		23,774		21,256

Provision for loan losses		925		125		1,500		325
Net interest income after provision for loan losses		11,233		10,813		22,274		20,931

Noninterest income
Service charges on deposit accounts		402		355		796		690
Other fee income, principally bankcard		480		412		908		780
Loan servicing fees		22		25		48		49
Mortgage banking income		126		81		219		189
Other noninterest income		133		76		209		189
		1,163		949		2,180		1,897

Noninterest expense
Salaries and employee benefits		4,684		3,820		9,035		7,835
Premises and equipment		969		774		1,972		1,532
Bankcard processing		143		133		278		256
Business development		327		511		651		822
Other noninterest expense		1,340		1,275		2,694		2,426
		7,463		6,513		14,630		12,871

Income before provision for income taxes		4,933		5,249		9,824		9,957
Provision for income taxes		1,926		2,038		3,738		3,751

Net income	$	3,007	$	3,211	$	6,086	$	6,206

Earnings per share
Basic	$	0.25	$	0.27	$	0.51	$	0.53
Diluted	$	0.25	$	0.27	$	0.51	$	0.52

Weighted average shares outstanding
Basic		11,962		11,815		11,951		11,788

Common stock equivalents
attributable to stock-based awards		67		155		66		174
Diluted		12,029		11,970		12,017		11,962

See accompanying notes.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

Amounts in $ 000’s

(Unaudited)

	June 30,						June 30,
	2008			2007			2008			2007

Net income	$	3,007		$	3,211		$	6,086		$	6,206

Other comprehensive income:
Unrealized gains arising during the period		(844	)		(234	)		(798	)		(171	)

Income tax expense		324			90			306			66
Net unrealized gains on securities
available for sale		(520	)		(144	)		(492	)		(105	)
Comprehensive Income	$	2,487		$	3,067		$	5,594		$	6,101

See accompanying notes.

CONSOLIDATED BALANCE SHEETS

Amounts in $ 000’s

(Unaudited)

	June 30,			Dec. 31,			June 30,
	2008			2007			2007
ASSETS
Cash and due from banks	$	30,837		$	23,809		$	27,150
Interest-bearing deposits with banks		1,118			410			408
Federal funds sold		-			1,857			101
Total cash and cash equivalents		31,955			26,076			27,659

Securities available-for-sale		51,785			53,994			39,049
Loans held for sale		-			-			615
Loans, less allowance for loan losses		887,570			813,647			786,536
Interest receivable		4,047			3,652			3,959
Federal Home Loan Bank stock		9,198			3,795			3,480
Property, net of accumulated depreciation		20,967			20,876			18,880
Goodwill and other intangible assets		23,015			23,127			23,238
Other assets		7,234			4,104			3,249

Total assets	$	1,035,771		$	949,271		$	906,665

LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits
Noninterest-bearing demand	$	181,560		$	175,941		$	172,145
Savings and interest-bearing checking		378,549			401,714			426,255
Time $100,000 and over		61,867			31,856			43,783
Other time		52,939			34,913			57,219
Total deposits		674,915			644,424			699,402

Federal funds purchased		18,770			5,360			94,054
Federal Home Loan Bank and Federal Reserve borrowings		219,770			179,500			8,248
Junior subordinated debentures		8,248			8,248			247
Accrued interest and other payables		2,683			4,230			3,279
Total liabilities		924,386			841,762			805,230

Stockholders' equity
Common stock, 225,000,000 shares authorized
issued & outstanding: 11,973,551 at June 30, 2008,
11,934,866 at December 31, 2007, and
11,835,380 at June 30, 2007		61,719			77,909			59,889
Retained earnings		50,180			29,622			41,897
Accumulated other comprehensive loss		(514	)		(22	)		(351	)
		111,385			107,509			101,435

Total liabilities and stockholders’ equity	$	1,035,771		$	949,271		$	906,665

See accompanying notes.

CONSOLIDATED STATEMENTS OF CASH FLOWS

Amounts in $ 000’s

(Unaudited)

	For six months ended June 30,
	2008			2007

Net cash provided by operating activities	$	6,104		$	8,426

Cash flows from investing activities
Proceeds from sales and maturities of investment securities		10,537			2,897
Purchase of available for sale investment securities		(9,021	)		(3,293	)
Loans made net of principal collections received		(78,836	)		(47,358	)
Proceeds from sale of loans		-			20,031
Purchase of loans		(120	)		(98	)
Cash paid for acquisitions		(2	)		(10	)
Purchase of property		(813	)		(930	)
Proceeds on sale of foreclosed assets		1,314			-
Purchase of FHLB stock		(5,403	)		-

Net cash provided by investing activities		(82,344	)		(28,761	)

Cash flow from financing activities
Change in deposits		30,491			58,130
Change in federal funds purchased and
FHLB & FRB short-term borrowings		142,180			(52,410	)
Proceeds from FHLB term advances		633,000			356,500
FHLB term advances paid-off		(721,500	)		(346,250	)
Proceeds from stock options exercised		339			1,156
Excess tax benefit of stock options exercised		-			125
Dividends paid		(2,391	)		(2,035	)

Net cash provided by financing activities		82,119			15,216

Net increase (decrease) in cash and cash equivalents		5,879			(5,119	)

Cash and cash equivalents, beginning of period		26,076			32,778

Cash and cash equivalents, end of period	$	31,955		$	27,659

See accompanying notes.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

A complete set of Notes to Consolidated Financial Statements is a part of the Company’s 2007 Form 10-K filed March 14, 2008. The notes below are included due to material changes in the financial statements or to provide the reader with additional information not otherwise available. All numbers in the following notes are expressed in thousands, except per share data.

1. Basis of Presentation

The accompanying interim consolidated financial statements include the accounts of Pacific Continental Corporation (the “Company”), a bank holding company, and its wholly-owned subsidiary, Pacific Continental Bank (the “Bank”) and the Bank’s wholly-owned subsidiaries, PCB Services Corporation and PCB Loan Services Corporation (both of which are presently inactive). All significant intercompany accounts and transactions have been eliminated in consolidation.

The accompanying consolidated financial statements have been prepared by the Company without audit and in conformity with generally accepted accounting principles in the United States of America for interim financial information. The financial statements include all adjustments and normal accruals, which the Company considers necessary for a fair presentation of the results of operations for such interim periods. In preparing the consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities, as of the date of the balance sheets and income and expenses for the periods. Actual results could differ from those estimates.

The balance sheet data as of December 31, 2007 was derived from audited financial statements, but does not include all disclosures contained in the Company’s 2007 Form 10-K. The interim consolidated financial statements should be read in conjunction with the December 31, 2007 consolidated financial statements, including the notes thereto, included in the Company’s 2007 Form 10-K.

2. Stock Option Plans

Pursuant to the approval of the 2006 Stock Option and Equity Compensation Plan (the “2006 SOEC Plan”) at the annual shareholders’ meeting in April 2006, incentive stock options, nonqualified stock options, restricted stock, restricted stock units, or stock appreciation rights may be awarded to attract and retain the best available personnel for positions of responsibility with the Company and its subsidiaries. Upon adoption of the 2006 SOEC Plan, the Company’s 1999 Employees’ Stock Option Plan (“1999 ESOP Plan”) and the Directors’ Stock Option Plan (“1999 DSOP Plan”) were cancelled and no longer available for future grants. The exercise price for shares of common stock subject to an option under the 2006 SOEC Plan shall not be less than 100% of the fair market value of a share of common stock as of the date of grant of the option; provided, however, that in the case of an incentive stock option granted to an employee who immediately before the grant of such incentive stock option is a shareholder-employee, the incentive stock option exercise price shall be at least 110% of the fair value of the common stock as of the date of grant of the incentive stock option. The Compensation Committee of the Board of Directors may impose any terms or conditions on the vesting of an award that it determines to be appropriate. For the quarter ended June 30, 2008, the Company issued 2 incentive stock options, with fair values of $2.40 to selected employees.

Pursuant to the Company’s 2006 SOEC Plan, stock appreciation rights (SARs) may be granted to employees. The stock appreciation rights may be settled in cash or cash and common stock as determined at the date of issuance. The Compensation Committee of the Board of Directors determines vesting provisions when awards are granted, and the awards granted generally vest over three or four years and have a maximum life of ten years. SARs settled in stock are recognized as equity-based awards while SARs settled in cash are recognized on the balance sheet as liability-based awards, both of which are granted at the fair market value of our common stock at the grant date. The grant-date fair value of the liability based awards vesting in the current period, along with the change in fair value of the awards during the period, are recognized as compensation expense and as an adjustment to the recorded liability. For the quarter ended June 30, 2008, the Company issued 8 SARs, of which 1 have a fair value of $1.63 and are to be settled in cash and 7 have a fair value of $1.87 and are to be settled in stock.

Also, pursuant to the Company’s 2006 SOEC Plan, non-qualified options and restricted stock awards may be granted to directors. Stock options may be granted at exercise prices of not less than 100% of the fair market value of our common stock at the grant date. Restricted stock awards may be granted at the fair market value on the date of the grant. The maximum life of options granted under this plan is ten years from the grant date. For the quarter ended June 30, 2008, the Company issued no stock options or restricted stock awards to its Directors.

The following tables identify the compensation expenses and tax benefits received by the Company according to the compensation plans and awards described above for the three and six months ended June 30, 2008 and 2007:

	Three months ended						Three months ended
	June 30, 2008						June 30, 2007
	Comp. Exp.			Tax Benefit			Comp. Exp.		Tax Benefit
1999 ESOP Plan	$	43		$	-		$	75	$	-
1999 DSOP Plan		-			-			-		-
2006 SOEC - ISOs		41			-			28		-
2006 SOEC - SARS stock		47			18			34		13
2006 SOEC - SARS cash		(17	)		(7	)		19		7
2006 SOEC - DSOs		7			3			7		3
2006 SOEC - DRSA		18			7			-		-
Total	$	139		$	21		$	163	$	23

	Six months ended						Six months ended
	June 30, 2008						June 30, 2007
	Comp. Exp.			Tax Benefit			Comp. Exp.		Tax Benefit
1999 ESOP Plan	$	88		$	-		$	153	$	-
1999 DSOP Plan		-			-			7		3
2006 SOEC - ISOs		77			-			51		-
2006 SOEC - SARS stock		89			34			61		23
2006 SOEC - SARS cash		(9	)		(3	)		25		10
2006 SOEC - DSOs		14			5			12		5
2006 SOEC - DRSA		24			9			-		-
Total	$	283		$	45		$	309	$	41

Stock Options –

The following table provides the weighted-average fair values for stock options granted during the three and six months ended June 30, 2008 and 2007. These values were estimated using the Black-Scholes option valuation model with the following weighted-average assumptions:

	Three Months Ended June 30,						Six Months Ended June 30,
	2008			2007			2008			2007

Expected life in years (1)		7.00			-			7.01			5.61
Volatility (1)		18.75	%		0.00	%		18.93	%		17.87	%
Interest Rate (2)		3.09	%		0.00	%		3.44	%		4.81	%
Yield Rate (3)		2.81	%		0.00	%		2.77	%		1.58	%

Average Fair-Value	$	2.40		$	-		$	2.59		$	4.18

(1)	Volatility and expected life are based on historical experience over a period equivalent to the expected life in years.

(2)	Interest rates are based on the U.S. Treasury constant maturity interest rate with a term consistent with the expected life of the options granted.

(3)	The Company has paid cash dividends on common stock since 1985. Each grant’s dividend yield is calculated by annualizing the most recent quarterly cash dividend and dividing that amount by the market price of the Company’s common stock as of the grant date.

For any future grants, as required by FAS 123R, the Company will estimate the impact of forfeitures based on our historical experience with previously granted stock options, and consider the impact of the forfeitures when determining the amount of expense to record for the stock options granted. For stock options issued prior to the adoption of FAS 123R, forfeitures were recognized when the stock option was actually forfeited. The Company issues new shares of common stock to satisfy stock option exercises.

A summary of stock option activity for all Company plans for the fiscal year ending June 30, 2008 is presented below:

Total Stock Options	Shares			Average Price Per Share		Weighted-Average Remaining Contractual Life		Aggregate Intrinsic Value
Outstanding at December 31, 2007		698		$	13.46
Granted		94			14.44
Exercised		(35	)		9.90
Forfeited or expired		(2	)		15.38
Outstanding at June 30 ,2008		755		$	13.74		3.95	$	355

Exercisable at June 30, 2008		458		$	12.39		2.19	$	355

Nonvested Options	Shares			Weighted-Average Grant Date Fair Value
Outstanding at December 31, 2007		233		$	3.48
Granted		94			2.59
Vested		(28	)		(4.65	)
Forfeited or expired		(2	)		2.73
Outstanding at June 30, 2008		297		$	3.98

A summary of value received by employees and directors exercising stock options for the three and six month periods ending June 30, 2008 and 2007 is presented below:

	Three months ended June 30,				Six months ended June 30,
	2008		2007		2008		2007
Total intrinsic value of
stock options exercised	$	75	$	278	$	157	$	991

Stock Appreciation Rights -

The following table provides the weighted-average fair values for stock appreciation rights (SARs) to be settled in stock and granted during the six months ended June 30, 2008. These are considered to be equity-based awards. The values were estimated using the Black-Scholes option valuation model with the following weighted-average assumptions:

	Three months ended June 30,						Six months ended June 30,
	2008			2007			2008			2007

Expected life in years (1)		6.00			6.00			6.01			6.00
Volatility (1)		16.73	%		18.68	%		16.99	%		18.68	%
Interest Rate (2)		2.80	%		4.81	%		3.21	%		4.81	%
Yield Rate (3)		2.89	%		1.58	%		2.78	%		1.58	%

Average Fair-Value	$	1.87		$	4.45		$	2.15		$	4.45

(1)	Volatility and expected life are based on historical experience over a period equivalent to the expected life in years.

(2)	Interest rates are based on the U.S. Treasury constant maturity interest rate with a term consistent with the expected life of the options granted.

(3)	The Company has paid cash dividends on common stock since 1985. Each grant’s dividend yield is calculated by annualizing the most recent quarterly cash dividend and dividing that amount by the market price of the Company’s common stock as of the grant date.

A summary of SAR – stock award activity during the current fiscal year is presented below:

Total SAR - Stock Awards	Awards			Average Price Per Award		Weighted-Average Remaining Contractual Life
Outstanding at December 31, 2007		155		$	17.44
Granted		128			14.40
Exercised		-			-
Forfeited or expired		(2	)		16.93
Outstanding at June 30, 2008		281		$	16.06		8.99

Exercisable at June 30, 2008		38		$	17.45		8.43

Nonvested SAR - Stock Awards	Awards			Weighted-Average Grant Date Fair Value
Outstanding at December 31, 2007		137		$	4.22
Granted		128			2.15
Vested		(21	)		4.45
Forfeited or expired		(1	)		3.86
Outstanding at June 30, 2008		243		$	3.11

The following table provides the weighted-average fair values for stock appreciation rights (SARs) to be settled in cash granted during the six months ended June 30, 2008. These are considered to be liability-based awards. The values were estimated using the Black-Scholes option valuation model with the following weighted-average assumptions:

	Three months ended June 30,						Six months ended June 30,
	2008			2007			2008			2007

Expected life in years (1)		5.00			6.00			5.01			6.00
Volatility (1)		15.96	%		18.68	%		15.89	%		18.68	%
Interest Rate (2)		2.60	%		4.81	%		3.01	%		4.81	%
Yield Rate (3)		2.89	%		1.58	%		2.77	%		1.58	%

Average Fair-Value	$	1.63		$	4.45		$	1.85		$	4.45

1)	Volatility and expected life are based on historical experience over a period equivalent to the expected life in years.

2)	Interest rates are based on the U.S. Treasury constant maturity interest rate with a term consistent with the expected life of the options granted.

3)	The Company has paid cash dividends on common stock since 1985. Each grant’s dividend yield is calculated by annualizing the most recent quarterly cash dividend and dividing that amount by the market price of the Company’s common stock as of the grant date.

A summary of SAR – cash awards activity during the current fiscal year is presented below:

Total SAR - Cash Awards	Shares			Average Price Per Share		Weighted-Average Remaining Contractual Life
Outstanding at December 31, 2007		116		$	17.41
Granted		93			14.43
Exercised		-			-
Forfeited or expired		(4	)		17.04
Outstanding at June 30, 2008		205		$	16.06		8.91

Exercisable at June 30, 2008		28		$	17.40		8.43

Nonvested SAR - Cash Awards	Shares			Weighted-Average Grant Date Fair Value
Outstanding at December 31, 2007		102		$	4.22
Granted		93			1.85
Vested		(15	)		4.45
Forfeited or expired		(3	)		3.76
Outstanding at June 30, 2008		177		$	2.95

At June 30, 2008, the Company has estimated unrecognized compensation expense of approximately $598, $522 and $145 for unvested stock options, SAR – stock awards and SAR – cash awards, respectively. These amounts are based on forfeiture rates of 20% for all awards granted to employees. The weighted-average period of time the unrecognized compensation expense will be recognized for the unvested stock options, SAR – stock awards and SAR – cash awards is approximately 2.56, 2.92 and 3.31 years, respectively.

3. Loans

Major classifications of period end loans are as follows:

	June 30, 2008			December 31, 2007			June 30, 2007

Commercial loans	$	204,355		$	188,940		$	180,160
Real estate loans		679,444			627,140			610,097
Consumer loans		15,322			8,226			7,046

		899,121			824,306			797,303
Deferred loan origination fees		(1,655	)		(1,984	)		(2,172	)

		897,466			822,322			795,131
Allowance for loan losses		(9,896	)		(8,675	)		(8,595	)

	$	887,570		$	813,647		$	786,536

Allowance for loan losses

Below is a summary of additions, charge-offs and recoveries within the allowance for loan losses for the six month periods ending June 30, 2008 and 2007:

	2008			2007

Balance, January 1	$	8,675		$	8,284
Provision charged to income		1,500			325
Loans charged against allowance		(413	)		(43	)
Recoveries credited to allowance		134			29

Balance, June 30	$	9,896		$	8,595

The recorded investment in impaired loans, net of government guarantees, totaled $4,610 and $103 at June 30, 2008 and 2007, respectively. The specific valuation allowance for impaired loans was $516 and $27 at June 30, 2008 and 2007, respectively, and is included in the ending allowance shown above. The average recorded investment in impaired loans was approximately $5,494 and $766 during the first six months of 2008 and 2007, respectively. Interest income recognized on impaired loans was $525 and $44 in the first six months of 2008 and 2007, respectively.

A substantial portion of the loan portfolio is collateralized by real estate, and is, therefore, susceptible to changes in local market conditions. Management believes that the loan portfolio is diversified among industry groups. At June 30, 2008, outstanding residential construction loans totaled $100,760 and represented 11.2% of total outstanding loans. In addition, at June 30, 2008, unfunded loan commitments for residential construction totaled $32,165. Outstanding residential construction loans at December 31, 2007 were $96,918 or 11.8% of total outstanding loans, and unfunded commitments for residential construction totaled $46,461. Outstanding loans to dental practitioners totaled $93,628 and represented 10.4% of total outstanding loans at June 30, 2008. There are no other industry concentrations in excess of 10% of total outstanding loans. It is management’s opinion that the allowance for loan losses is adequate to absorb known and inherent risks in the loan portfolio. However, actual results may differ from these estimates.

4. Fair Value

Effective January 1, 2008, the Company adopted SFAS No. 157, “Fair Value Measures”. This statement defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles and expands disclosures about fair value measurements. The statement requires fair value measurement disclosure of all assets and liabilities that are carried at fair value on either a recurring or non-recurring basis. The Company determines fair value based upon quoted prices when available or through the use of alternative approaches, such as matrix or model pricing, when market quotes are not readily accessible or available. The valuation techniques used are based on observable and unobservable inputs. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Company’s market assumptions. These two types of inputs create the following fair value hierarchy:

Level 1 – Quoted priced for identical instruments in active markets.

Level 2 – Quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active and model-derived valuations whose inputs are observable or whose significant value drivers are observable.

Level 3 – Unobservable inputs are used to measure fair value to the extent that observable inputs are not available. The Company’s own data used to develop unobservable inputs shall be adjusted for market consideration when reasonably available.

Financial instruments are broken down in the table below by recurring or nonrecurring measurement status. Recurring assets are initially measured at fair value and are required to be remeasured at fair value in the financial statements at each reporting date. Assets measured on a nonrecurring basis are assets that, due to an event or circumstance, were required to be remeasured at fair value after initial recognition in the financial statements at some time during the reporting period.

The table below shows assets measured at fair value as of June 30, 2008:

					Fair Value
	Carrying Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)

Recurring Items
Available-for-sale securities	$	51,785	$	-	$	51,875	$	-

Non-Recurring Items
Loans measured for impairment
(net of guarantees)		4,610		-		-		4,610

Total	$	56,395	$	-	$	51,875	$	4,610

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

The following discussion contains a review of Pacific Continental Corporation and its wholly-owned subsidiary Pacific Continental Bank operating results and financial condition for the six and three months ended June 30, 2008. When warranted, comparisons are made to the same period in 2007 and to the previous year ended December 31, 2007. The discussion should be read in conjunction with the financial statements (unaudited) and related notes contained elsewhere in this report. The reader is assumed to have access to the Company’s Form 10-K for the previous year ended December 31, 2007, which contains additional statistics and explanations. All numbers, except per share data, are expressed in thousands of dollars.

In addition to historical information, this report contains "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995 ("PSLRA"). Such forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those projected, including but not limited to the following: the concentration of loans of the company's banking subsidiary, particularly with respect to commercial and residential real estate lending; a continued decline in the housing and real estate market, changes in the regulatory environment and increases in associated costs, particularly ongoing compliance expenses and resource allocation needs in response to the Sarbanes-Oxley Act and related rules and regulations; vendor quality and efficiency; employee recruitment and retention, specifically in the Bank's Portland and Seattle markets; the company's ability to control risks associated with rapidly changing technology both from an internal perspective as well as for external providers; increased competition among financial institutions; fluctuating interest rate environments; a tightening of available credit, and similar matters. Readers are cautioned not to place undue reliance on the forward-looking statements. Pacific Continental Corporation undertakes no obligation to publicly revise or update the forward-looking statements to reflect events or circumstances that arise after the date of this release. Readers should carefully review any risk factors described in Pacific Continental’s Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and other documents, including any Current Reports on Form 8-K furnished to or filed from time to time with the Securities & Exchange Commission. This statement is included for the express purpose of invoking PSLRA's safe harbor provisions.

SUMMARY OF CRITICAL ACCOUNTING POLICIES AND ESTIMATES

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, 2007 in Item 8. 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 loan losses 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 objective and 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 June 30, 2008, the Company had $23,015 in goodwill and other intangible assets. In accordance with Financial Accounting Standard 142, Goodwill and Other Intangible Assets, assets with indefinite lives are no longer amortized, but instead are periodically tested for impairment. Management performs an impairment analysis of the intangible assets with indefinite lives at least annually. The last impairment test was performed at December 31, 2007. At June 30, 2008, an interim analysis was not deemed necessary.

Share-based Compensation

In December 2004, the Financial Accounting Standards Board (“FASB”) issued FAS 123(R), Share Based Payment, a revision to the previously issued guidance on accounting for stock options and other forms of equity-based forms of compensation issued to employees. This standard became effective in the first quarter of 2006. The method for determining the grant date fair value of equity based payments under FAS 123(R) is presented above in the footnotes to the consolidated financial statements.

The Company adopted FAS 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 2008 and 2007 were recorded as compensation expense.

Recent Accounting Pronouncements

On February 15, 2007, the Financial Accounting Standards Board (“FASB”) issued FASB Statement No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities - Including an Amendment of FASB Statement No. 115”. This standard permits an entity to choose to measure many financial instruments and certain other items at fair value. Most of the provisions in Statement 159 are elective; however, the amendment to FASB Statement No. 115, Accounting for Certain Investments in Debt and Equity Securities, applies to all entities with available-for-sale and trading securities. The FASB's stated objective is "to improve financial reporting by providing entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions.”

The fair value option established by Statement 159 permits all entities to choose to measure eligible items at fair value at specified election dates. A business entity will report unrealized gains and losses on items for which the fair value option has been elected in earnings at each subsequent reporting date. The fair value option: (a) may be applied instrument by instrument, with a few exceptions, such as investments otherwise accounted for by the equity method; (b) is irrevocable (unless a new election date occurs); and (c) is applied only to entire instruments and not to portions of instruments.

The Company did not elect the fair value option on financial assets and liabilities, other than investment securities held for sale already so stated. Implementation of SFAS 159 is not expected to impact the Company’s consolidated financial statements.

HIGHLIGHTS

													As of and
	For the three months ended Jun. 30,									For the six months ended Jun. 30,
	2008			2007			% Change			2008			2007			% Change

Net income	$	3,007		$	3,211			-6.35	%	$	6,086		$	6,206			-1.93	%

Earnings per share
Basic (1)	$	0.25		$	0.27			-7.41	%	$	0.51		$	0.53			-3.77	%
Diluted (1)	$	0.25		$	0.27			-7.41	%	$	0.51		$	0.52			-1.92	%

Assets, period-end										$	1,035,771		$	906,665			14.24	%
Loans, period-end										$	897,466		$	795,746			12.78	%
Core Deposits, period end (2) (3)										$	606,238		$	626,809			-3.28	%
Deposits, period-end (3)										$	674,915		$	699,402			-3.50	%

Return on avg. assets (4)		1.20	%		1.42	%					1.24	%		1.40	%
Return on avg. equity (4)		11.02	%		12.66	%					11.15	%		12.47	%
Return on avg. tangible equity (4) (5)		13.95	%		16.48	%					14.11	%		16.30	%

(1) All per share data have been retroactively adjusted to reflect
10% stock dividend declared and paid during second quarter 2007.
(2) Defined by the Company as demand, interest checking, money market, savings, and local time deposits,
including local time deposits in excess of $100 thousand.
(3) Included a temporary deposit of $25,000 at June 30, 2007, which was subsequently withdrawn from the
Bank after the end of that quarter.
(4) Amounts annualized.
(5) Tangible equity excludes goodwill and core deposit intangibles related to acquisitions.

The Company earned $3,007 in the second quarter 2008, a 6% decrease from net income of $3,211 for the same quarter last year. The decline in net income in second quarter 2008 was due to a higher provision for loan losses, combined with growth in noninterest expenses. Operating revenue consists of net interest income and noninterest income, each of which grew by $2,518 or 11.8% and $283 or 14.9%, respectively. The growth in net interest income resulted from growth in average earning assets, which were up 11.5% in second quarter 2008 over second quarter 2007, and a stable net interest margin.

Period-end loans at June 30, 2008 showed growth of 12.8% over June 30, 2007. Core deposits at June 30, 2008 were down 3.3% from June 30, 2007. Excluding the temporary balance of $25,000 from June 30, 2007, core deposits at June 30, 2008 were up 0.7% over prior year. Core deposits, which are defined as demand deposits, interest checking, money market account, and local time deposits (including local time deposits in excess of $100 thousand), constitute 90% of June 30, 2008 and 2007 outstanding deposits. Noninterest-bearing demand deposits were $181,560 or 29.9% of outstanding core deposits at June 30, 2008.

RESULTS OF OPERATIONS

Net Interest Income

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

The net interest margin as a percentage of earning assets for the second quarter 2008 was 5.24%, the same net interest margin as reported in second quarter 2007. On a linked-quarter basis, the second quarter 2008 net interest margin of 5.24% was up 1 basis point from the first quarter 2008 net interest margin of 5.23%. However, excluding the recovery of $116 of interest on a loan charged off in a previous period, the second quarter 2008 net interest margin would have been 5.19%. There were a number of factors that contributed to the second quarter 2008 net interest margin compared to the first quarter 2008 net interest margin including the following: 1) a relatively balanced interest rate risk profile that permitted the Bank to lower rates on core deposits to match the rapid decline in short-term interest rates and the fact the Bank funds only a small percentage of its balance sheet with time deposits, thus reducing the lag effect of interest rate changes; 2) the activation of interest rate floors on a portion of the Bank’s variable rate loan portfolio; 3) the short maturity structure of the Bank’s alternative or wholesale funding, which allowed the Bank to refinance borrowings at much lower interest rates during the rapidly falling interest rate environment; and 4) the full impact of imaged cash letters presentment that lowered average cash and due from bank balances, thus reducing borrowed funds. However, as the Company advised in its first quarter 2008 Form 10-Q, many of our core deposit rates were at or near practical floors, and when market interest rates last moved down on April 29, 2008, the Bank was unable to lower its core deposit rates, thus creating margin compression in the latter part of the second quarter.

There are a number of factors that suggest a lower net interest margin in the third and fourth quarters of 2008. First, the Company continues to see a highly competitive environment for core deposits in terms of pricing as banks and other financial institutions strive to improve their liquidity positions. In line with this competition, late in the second quarter 2008, the Bank implemented a bank-wide deposit promotion program that through June 30, 2008 had brought in approximately $38,000 in new deposits, however, at an average rate of approximately 3.30%. Second, active interest rate floors that provided some protection during falling market interest rates are beginning to expire. Based on June 30, 2008 data, active floors on approximately $44,000 of loans will expire during third quarter 2008 and an additional $30,000 will expire during fourth quarter 2008. Third, during the latter part of the second quarter 2008, the Bank extended the maturities on approximately $30,000 of its overnight funding, at approximately 130 basis points over short-term borrowing rates. Fourth, liquidity conditions for the financial services industry continue to keep deposit costs high relative to historical trends as evidenced by short-term national and brokered time deposit rates in the range of 3.40% to 3.80% or more than 100 basis points over current short-term borrowing rates.

The following table presents the condensed balance sheet information, together with interest income and yields on average interest-earning assets, and interest expense and rates on interest-bearing liabilities for the quarter ended June 30, 2008 compared to the quarter ended June 30, 2007:

Table I

Average Balance Analysis of Net Interest Earnings

(dollars in thousands)

	Quarter Ended June 30, 2008								Quarter Ended June 30, 2007
			Interest			Average					Interest			Average
	Average		Income or			Yields or			Average		Income or			Yields or
	Balance		Expense			Rates			Balance		Expense			Rates
Interest Earning Assets
Federal funds sold and interest-
bearing deposits in banks	$	461	$	3			2.62	%	$	920	$	11			4.80	%
Securities available for sale (1):
Taxable		57,938		702			4.87	%		37,455		389			4.17	%
Tax-exempt		5,366		49			3.67	%		3,878		36			3.72	%
Loans, net of allowance for loan losses(2)(3)(4)		868,968		15,461			7.16	%		794,288		17,315			8.74	%
Total interest earning assets		932,733		16,215			6.99	%		836,541		17,751			8.51	%

Non Earning Assets
Cash and due from banks		18,257								24,003
Premises and equipment		20,943								19,213
Goodwill & other intangibles		23,046								23,537
Interest receivable and other		9,572								6,880
Total non interest assets		71,818								73,633

Total assets	$	1,004,551							$	910,174

Interest-Bearing Liabilities
Money market and NOW accounts	$	362,010	$	(1,423	)		-1.58	%	$	353,263	$	(3,381	)		-3.84	%
Savings deposits		20,956		(44	)		-0.84	%		25,429		(131	)		-2.07	%
Time deposits - core (5)		41,322		(324	)		-3.15	%		29,652		(306	)		-4.14	%
Total interest-bearing core deposits		424,288		(1,791	)		-1.70	%		408,344		(3,818	)		-3.75	%

Time deposits - non-core		43,077		(393	)		-3.67	%		73,290		(964	)		-5.28	%
Federal funds purchased		36,948		(234	)		-2.55	%		4,007		(56	)		-5.61	%
FHLB & FRB borrowings		208,989		(1,514	)		-2.91	%		144,132		(1,848	)		-5.14	%
Junior subordinated debentures		8,248		(125	)		-6.10	%		8,248		(127	)		-6.18	%
Total interest-bearing alternative funding		297,262		(2,266	)		-3.07	%		229,677		(2,995	)		-5.23	%
Total interest-bearing liabilities		721,550		(4,057	)		-2.26	%		638,021		(6,813	)		-4.28	%

Noninterest-Bearing Liabilities
Demand deposits		169,850								166,596
Interest payable and other		3,637								3,848
Total noninterest liabilities		173,487								170,444
Total liabilities		895,037								808,465
Stockholders' equity		109,514								101,709
Total liabilities and stockholders' equity	$	1,004,551							$	910,174
Net Interest Income			$	12,158							$	10,938
Net Interest Income as a Percent of Earning Assets				5.24	%							5.24	%

(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 $539 and $605 for the quarters ended
June 30, 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.

Table I above shows that earning asset yields for the second quarter 2008 of 6.99% were down 152 basis points from second quarter 2007 due to the effect of the falling rate environment. However, the cost of interest-bearing liabilities moved down more than earning asset yields dropping 202 basis points from 4.28% in second quarter 2007 to 2.26% in second quarter 2008. The decline in the cost of interest-bearing core deposits of 205 basis points illustrates the Bank’s ability to reprice its core deposit base during a falling rate environment. The decline of 216 basis points in the cost the Bank’s interest-bearing alternative funding from 5.23% in second quarter 2007 to 3.07% in second quarter 2008 reflected the relatively short maturity structure of the Bank’s alternative funding, which permitted repricing of this debt during the falling rate environment.

The following table sets forth a summary of changes in net interest income due to changes in average asset and liability balances (volume) and changes in average rates (rate) for the quarters ended June 30, 2008 and June 30, 2007.

Table II

Analysis of Changes in Interest Income and Interest Expense

(dollars in thousands)

	Three Months Ended June 30, 2008 compared to June 30, 2007
	Increase (decrease) due to
	Volume			Rate			Net
Interest earned on:
Federal funds sold and interest
bearing deposits in banks	$	(6	)	$	(2	)	$	(8	)
Securities available-for-sale:
Taxable		211		$	102			313
Tax-exempt		14		$	(1	)		13
Loans, net of allowance for loan losses		1,576		$	(3,430	)		(1,854	)
Total interest income		1,795			(3,331	)		(1,536	)


Interest paid on:
Money market and NOW accounts		(25	)		1,983			1,958
Savings deposits		10			77			87
Time deposits - core		(91	)		73			(18	)
Total interest-bearing core deposits		(106	)		2,133			2,027

Time deposits - non-core		278			293			571
Federal funds purchased		(208	)		30			(178	)
FHLB &FRB borrowings		(465	)		799			334
Junior subordinated debentures		0			2			2
Total interest-bearing alternative funding		(395	)		1,124			729

Total interest expense		(501	)		3,257			2,756

Net interest income	$	1,295		$	(75	)	$	1,220

The rate/volume analysis for the quarter ended June 30, 2008 in Table II above shows that interest income including loan fees declined by $1,536 from the same period last year. Higher volumes of earning assets increased interest income by $1,795, while lower yields on earnings assets, primarily loans decreased interest income by $3,331. The rate/volume analysis shows that interest expense for the quarter ended June 30, 2008 decreased by $2,756 from the same period last year, as changes in mix and higher volumes caused interest expense to increase by $501, which was more than offset by a decrease in interest expense of $3,257 due to lower rates. Most of the decline in interest expense due to lower rates was generated by the Bank’s core deposit base and illustrates the Bank’s ability to reprice its core deposits.

The following table presents the condensed balance sheet information, together with interest income and yields on average interest-earning assets, and interest expense and rates on interest-bearing liabilities for the six months ended June 30, 2008 compared to June 30, 2007:

Table III

Average Balance Analysis of Net Interest Earnings

(dollars in thousands)


	Six Months Ended June 30, 2008								Six Months Ended June 30, 2007
			Interest			Average					Interest			Average
	Average		Income or			Yields or			Average		Income or			Yields or
	Balance		Expense			Rates			Balance		Expense			Rates
Interest Earning Assets
Federal funds sold and interest-
bearing deposits in banks	$	580	$	13			4.51	%	$	1,196	$	29			4.89	%
Securities available for sale (1):
Taxable		58,527		1,448			4.98	%		37,693		781			4.18	%
Tax-exempt		5,377		98			3.67	%		3,740		66			3.56	%
Loans, net of allowance for loan losses(2)(3)(4)		848,733		31,162			7.38	%		775,659		33,522			8.72	%
Total interest earning assets		913,217		32,721			7.21	%		818,288		34,398			8.48	%

Non Earning Assets
Cash and due from banks		18,258								23,204
Premises and equipment		20,941								19,275
Goodwill & other intangibles		23,074								23,569
Interest receivable and other		8,715								6,681
Total non interest assets		70,988								72,729

Total assets	$	984,205							$	891,017

Interest-Bearing Liabilities
Money market and NOW accounts	$	373,996	$	(3,501	)		-1.88	%	$	349,680	$	(6,705	)		-3.87	%
Savings deposits		20,929		(98	)		-0.94	%		25,728		(272	)		-2.13	%
Time deposits - core (5)		40,216		(716	)		-3.58	%		31,150		(638	)		-4.13	%
Total interest-bearing core deposits		435,141		(4,315	)		-1.99	%		406,558		(7,615	)		-3.78	%

Time deposits - non-core		40,664		(833	)		-4.12	%		69,368		(1,788	)		-5.20	%
Federal funds purchased		31,886		(464	)		-2.93	%		3,713		(98	)		-5.32	%
FHLB & FRB borrowings		185,634		(3,089	)		-3.35	%		133,358		(3,389	)		-5.12	%
Junior subordinated debentures		8,248		(246	)		-6.00	%		8,248		(252	)		-6.16	%
Total interest-bearing alternative funding		266,432		(4,632	)		-3.50	%		214,687		(5,527	)		-5.19	%
Total interest-bearing liabilities		701,573		(8,947	)		-2.56	%		621,245		(13,142	)		-4.27	%

Noninterest-Bearing Liabilities
Demand deposits		168,571								165,345
Interest payable and other		4,091								4,061
Total noninterest liabilities		172,662								169,406
Total liabilities		874,235								790,651
Stockholders' equity		109,970								100,366
Total liabilities and stockholders' equity	$	984,205							$	891,017
Net Interest Income			$	23,774							$	21,256
Net Interest Income as a Percent of Earning Assets				5.24	%							5.24	%

(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 $1,023 and $1,097 for the six months ended
June 30, 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.

Table III shows that earning asset yields declined by 127 basis points through June 30, 2008 from June 30, 2007 from 8.48% to 7.21%. The decline in earning asset yields was attributable to a 134 basis point drop in average loan yields, which resulted primarily from the recent rapid decline in short-term market interest rates, including the Bank’s prime-lending rate. However, some of this decline was offset by improvement in the yield on the Bank’s securities portfolio, which was up 75 basis points in second quarter 2008 when compared to second quarter 2007. This increase in the yield on securities was the direct result of the Bank’s purchase of approximately $25,000 in new securities from September 2007 through March 2008.

Table III also shows that rates paid on interest-bearing core deposits have moved down faster than yields on earning assets as evidenced by the 179 basis point decline. Overall, the cost of interest-bearing liabilities of the Bank, which includes core deposits and alternative funding, has fallen 171 basis points in second quarter 2008 from second quarter 2007.

Finally, Table III illustrates the full effect of presentment of imaged cash letters to correspondent banks, which has significantly increased funds availability and reduced float, a non-earning asset. This is evidenced by the $4,946 decline in average cash and due from bank balances in the non-earning asset section of the table. This reduction in average cash and due from bank balances allowed the Bank to reduce its borrowed funds by a corresponding amount, thus decreasing interest expense and improving the net interest margin.

Table IV

Analysis of Changes in Interest Income and Interest Expense

(dollars in thousands)

	Six Months Ended June 30, 2008 compared to June 30, 2007
	Increase (decrease) due to
	Volume			Rate			Net
Interest earned on:
Federal funds sold and interest
bearing deposits in banks	$	(15	)	$	(1	)	$	(16	)
Securities available-for-sale:
Taxable		435			232			667
Tax-exempt		29			3			32
Loans, net of allowance for loan losses		3,260			(5,620	)		(2,360	)
Total interest income		3,709			(5,386	)		(1,677	)

Interest paid on:

Money market and NOW accounts		(247	)		3,451			3,204
Savings deposits		22			152			174
Time deposits - core		(163	)		85			(78	)
Total interest-bearing core deposits		(388	)		3,688			3,300

Time deposits - non-core		583			372			955
Federal funds purchased		(410	)		44			(366	)
FHLB & FRB borrowings		(879	)		1,179			300
Junior subordinated debentures		(1	)		7			6
Total interest-bearing alternative funding		(707	)		1,602			895

Total interest expense		(1,095	)		5,290			4,195

Net interest income	$	2,614		$	(96	)	$	2,518

The year-to-date June 30, 2008 rate/volume analysis in Table IV above shows that interest income including loan fees declined by $1,677 from the same period last year. Higher volumes of earning assets increased interest income by $3,709, while lower yields on earnings assets, primarily loans, decreased interest income by $5,386. The rate/volume analysis shows that interest expense through June 30, 2008 decreased by $4,195 from the same period last year, as changes in mix and higher volumes caused interest expense to increase by $1,096, which was more than offset by a decrease in interest expense of $5,290 due to lower rates. Most of the decline in interest expense due to lower rates was generated by the Bank’s core deposit base and illustrates the Bank’s ability to reprice its core deposits.

Loan Loss Provision and Allowance

Below is a summary of the Company’s allowance for loan losses for the first six months of 2008 and 2007:

	2008			2007

Balance, January 1	$	8,675		$	8,284
Provision charged to income		1,500			325
Loans charged against allowance		(413	)		(43	)
Recoveries credited to allowance		134			29

Balance, June 30	$	9,896		$	8,595

The year-to-date June 30, 2008 provision for loan losses was $1,500, compared to $325 for the same period last year. The increase in the provision for loan losses was primarily attributable to the loan growth experienced during the first six months of 2008, and was not related to any identified deterioration in the overall credit quality of the loan portfolio. The provision for loan losses in the third and fourth quarters 2008 is expected to be dependent mostly upon loan growth, however there is no certainty that a continued downturn in the economy may not cause deterioration in credit quality.

Year-to-date June 30, 2008 net charge offs were $279, compared to $14 in net charge offs reported for the same period in 2007. Annualized net loan losses to average outstanding loans were 0.07% for second quarter 2008 compared to an insignificant amount for second quarter 2007.

The allowance for loan losses at June 30, 2008 was 1.10% of the period end loans, excluding loans held for sale, compared to 1.05% and 1.08% at December 31, 2007 and June 30, 2007, respectively. At June 30, 2008, the allowance for loan losses as a percentage of net nonperforming loans was 214.66% or 2.1 times the level of net nonperforming loans. At June 30, 2008, unallocated portion of the allowance for loan losses was above 9.5% and at the high end of the approved range. The allowance at June 30, 2008 includes $516 in specific allowance (included in the ending allowance above) for impaired loans, which total $4,610, net of government guarantees. At December 31, 2007, the Company had $3,671 of impaired loans with a specific allowance of $160 assigned.

The following table shows a summary of nonaccrual loans, loans past due 90 days or more, and other real estate owned for the periods covered in this report:

	June 30, 2008			Dec. 31, 2007			June 30, 2007
Nonaccrual loans	$	5,156		$	4,122		$	103
90 days past due and accruing interest		-			-			-
Total nonperforming loans		5,156			4,122			103
Nonperforming loans guaranteed by government		(546	)		(451	)		-
Net nonperforming loans		4,610			3,671			103
Foreclosed assets		3,030			423			-
Total nonperforming assets, net of guaranteed loans	$	7,640		$	4,094		$	103


Non performing assets as a percentage of total assets		0.74	%		0.43	%		0.01	%

Nonperforming assets increased by $1,643 during second quarter from the end of first quarter 2008. This increase was primarily attributable to the addition of a single loan of $1,660 to nonaccrual status during the second quarter 2008. This loan had previously been discussed in the Bank’s first quarter 2008 Form 10-Q. Nonaccrual loans at June 30, 2008 consist of 19 residential consumer construction loans totaling approximately $2,900 and the single loan of $1,660 noted above. Losses on the nonperforming loans in the consumer residential construction portfolio are not expected to be significant due to their collateral value as well as a cash-secured 20% guarantee for these loans. The other real estate owned of $3,030 at June 30, 2008 consists of 17 residential properties. Although this number has increased from the five properties owned at March 31, 2008, two of those properties were sold subsequent to the end of the first quarter and an additional sale has closed subsequent to the end of the second quarter. In addition, eight properties are currently listed for sale.

Noninterest Income

Noninterest income was $2,180 through June 30, 2008, up $283 or 15% over the same period in 2007. The increase in year-to-date noninterest income when compared to 2007 was attributable to increased account service charges, up $106 or 15%, increased merchant bankcard fees, which were up $65 or 12%, and increased other income of $107 or 26%. The increase in account service charges was directly related to lower market interest rates, which lowered the earnings credit on analyzed business accounts to 1.6%, down more than 350 basis points from a year ago. This has increased fee income as the earnings on many business accounts were not sufficient to cover the costs. The increase in merchant bankcard fees was due to higher sales volume and improved margins. The increase in the other income category was primarily due to a $71 gain on the disposal of assets from insurance proceeds related to the Bellevue, Washington office.

On a linked quarter basis, noninterest income in second quarter 2008 of $1,163 was up $146 over first quarter 2008 noninterest income of $1,017. The increase in linked quarter noninterest income can be primarily attributable to the gain on disposal previously mentioned. Looking forward to third quarter 2008, the Company expects noninterest income to be similar to second quarter 2008.

Noninterest Expense

Noninterest expense through June 30, 2008 was $14,630, an increase of $1,759 or 14% over the same period in 2007. Year-to-date June 30, 2008 personnel expense increased 15% and accounted for $1,200 of the total expense increase. Increased salary expense and increased benefits and taxes accounted for $838 and $419 of the increase in personnel expense, respectively. Approximately $273 of the increase in salary expense was due to lower loan origination costs, which are a direct offset to salary expense, while $565 of the increase in salaries was due to staff additions and salary increases. The increase in benefits and taxes was primarily attributable to higher group insurance costs, up $185 over last year and increased incentive compensation accruals, up $165 over last year. A number of other expense categories also showed increases for year-to-date June 30, 2008 when compared to year-to-date June 30, 2007, including premises and equipment expense, legal fees, FDIC insurance, and correspondent bank fees. Premises and equipment expense increased $440 or 29% through June 30, 2008 over the same period last year due to the new Tualatin office coming on line in December 2007, the reopening of the Bellevue office, which was closed last year in the first quarter due to a crane accident, and the expansion of space at the Bank’s KOIN Center office in downtown Portland. Year-to-date June 30, 2008 legal fees were up $82 over the same period in 2007 and were related primarily to work on resolving problem credits. FDIC insurance through June 30, 2008 was up $149 from the same period last year as the credit the Bank received from the FDIC when the new pricing was implemented was exhausted during 2007.

On a linked-quarter basis, second quarter 2008 noninterest expense was up $296 from first quarter 2008. The linked-quarter increase in noninterest expense was primarily attributable to increased personnel expense, with salary expense up approximately $160 due to the full quarter effect of officer salary increases, which were all effective on March 1st each year. In addition, a linked quarter increase in group insurance expense of $159 occurred due to higher claim levels experienced in the Bank’s self-insured medical plan. Looking forward to third quarter 2008, the Company expects group insurance expense to abate somewhat and that noninterest expense in third quarter 2008 will be comparable to second quarter 2008 expense levels.

BALANCE SHEET

Loans

At June 30, 2008, outstanding loans net of deferred loan fees and excluding loans held for sale, were $897,466, up $101,720 or 13% over outstanding loans of $795,746 at June 30, 2007 and up $75,144 or 9% from December 31, 2007 outstanding loans of $822,322. A summary of outstanding loans by market at June 30, 2008, December 31, 2007 and June 30, 2007 follows:

	Balance		Balance		Balance
	June 30, 2008		Dec. 31, 2007		June 30, 2007

Lane County Market	$	224,276	$	217,962	$	217,148

Portland Market		412,566		389,053		389,804

Seattle Market		260,624		215,307		188,794

Total	$	897,466	$	822,322	$	795,746

While the Bank’s new loan pipelines are good in all three of the Bank’s principal markets, prevailing economic conditions in the Northwest and the expected continued contraction of the Bank’s residential construction loan portfolio suggest slower loan growth in subsequent quarters.

Securities

At June 30, 2008, the Bank had $51,785 in securities classified as available-for-sale. At June 30, 2008, $26,437 of these securities were pledged as collateral for FHLB of Seattle borrowings, public deposits in Oregon and Washington, and to the Federal Reserve Bank of San Francisco to support balances in its Treasury, Tax and Loan deposit account.

Goodwill and Intangible Assets

At June 30, 2008, the Company had a recorded balance of $22,030 in goodwill from the November 30, 2005 acquisition of Northwest Business Financial Corporation (NWBF). In addition, at June 30, 2008 the Company had $985 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 and has approximately five years remaining on the amortization schedule. In accordance with Financial Accounting Standard (“FAS”) 142, Goodwill and Other Intangible Assets, the Company does not amortize goodwill or other intangible assets with indefinite lives, but instead periodically tests these assets for impairment. Management performs an impairment analysis of the intangible assets with indefinite lives at least annually. The last impairment test was performed at December 31, 2007. At June 30, 2008, an interim analysis was not deemed necessary.

Deposits

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 $606,238 and represented 90% of total deposits at June 30, 2008. Outstanding core deposits at June 30, 2008 were down $20,571 or 3% from outstanding core deposits at June 30, 2007. However, approximately $25,000 of core deposits at June 30, 2007 in the Portland market were temporary in nature and were withdrawn from the Bank shortly following the end of the quarter. Total outstanding deposits at June 30, 2008 were $674,915, an increase of $24,487 over outstanding deposits of $699,402 at June 30, 2007 and an increase of $30,491 over December 31, 2007 deposits of $644,424. A summary of outstanding core deposits by market and other deposits classified as alternative funding at June 30, 2008, December 31, 2007, and June 30, 2007 follows:

	Balance		Balance		Balance
	June 30, 2008		Dec. 31, 2007		June 30, 2007

Lane County Market core deposits	$	406,300	$	405,351	$	382,873

Portland Market core deposits		111,817		109,698		156,806

Seattle Market core deposits		88,121		100,843		87,130

Total core deposits		606,238		615,892		626,809

Other deposits		68,677		28,532		72,593

Total	$	674,915	$	644,424	$	699,402

The prospects for core deposit growth in the third quarter 2008 are good as the Bank’s new business opportunity pipelines are increasing in all three of the Bank’s principal markets. In addition, the Bank implemented a core deposit promotion during the latter part of second quarter 2008, which is expected to accelerate core deposit growth in the third quarter, which historically has been a quarter of strong core deposit growth.

Junior Subordinated Debentures

The Company had $8,248 in junior subordinated debentures at June 30, 2008, which were issued in conjunction with the acquisition of NWBF. At June 30, 2008, the entire $8,248 in junior subordinated debentures had an interest rate of 6.265% that is fixed through November 2010 and 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 the Company’s 2007 annual Form 10-K.

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 and decreases through the payment of dividends and share repurchase programs. Capital formation allows the Company to grow assets and provides flexibility in times of adversity.

Banking regulations require the Company to maintain minimum levels of capital. The Company manages its capital to maintain a “well capitalized” designation (the FDIC’s highest rating). A “well-capitalized” rating from the FDIC requires that the Company maintain risk-based capital levels of 10% of total risk-based assets. At June 30, 2008, the Company’s total capital to risk weighted assets was 10.69% compared to 10.84% at June 30, 2007.

The Company’s Board of Directors reviews its dividend considerations so that cash dividends, when and if declared by the Company, would typically be paid in mid-March, June, September, and December of each year. During the first two quarters of 2008, the Company declared quarterly dividends of $0.10 per share paid on March 14, 2008 and June 13, 2008 to shareholders of record on March 4, 2008 and June 3, 2008, respectively. If the Company maintains the $0.10 per share dividend amount for each quarter during 2008, that would result in an annual dividend of $0.40 per share, and would equate to a 14% increase over the prior year.

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

OFF-BALANCE SHEET ARRANGEMENTS AND COMMITMENTS

In the normal course of business, the Bank commits to extensions of credit and issues letters of credit. The Bank uses the same credit policies in making commitments to lend funds and conditional obligations as it does for other credit products. In the event of nonperformance by the customer, the Bank’s exposure to credit loss is represented by the contractual amount of the instruments. Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established by the contract. Since some commitments may expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. At June 30, 2008, the Bank had $235,043 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 June 30, 2008, the Bank had $2,037 in letters of credit and financial guarantees written.

In prior quarterly reports on the Form 10-Q, the Company reported that the Bank had internal guidance lines of credit established for certain borrowers, primarily in the residential construction industry. These guidance lines were not contractual commitments to extend credit, and could be terminated by the Bank for any reason without any obligation to the borrower. On June 30, 2008, the Bank suspended all internal guidance lines for residential construction loans.

LIQUIDITY

Liquidity is the term used to define the Company’s ability to meet its financial commitments. The Company maintains sufficient liquidity to ensure funds are available for both lending needs and the withdrawal of deposit funds. The Company derives liquidity primarily through core deposit growth, the 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 is provided through sales of loans, sales of securities, and access to alternative funding sources. National time deposits, public deposits, Federal Home Loan Bank borrowings, and unsecured overnight fed funds borrowings are referred to as alternative funding sources.

Core deposits represented 90% of total deposits at June 30, 2008 and June 30, 2007. The growth in average core deposits was not sufficient to fund loan growth during the quarter as the Bank experienced strong quarterly loan growth during the second quarter 2008 of approximately $31,500. The majority of the loan growth during the quarter was funded through the use of alternative funding sources. At June 30, 2008, alternative funding sources were funding 30% of total Company assets compared to 22% and 18% of total assets at December 31, 2007 and June 30, 2007, respectively. Historically, the Bank does experience growth in its core deposit base over the entire course of the third quarter, and combined with the current deposit promotion in all three markets, this core deposit growth is expected to fund projected loan growth in the third quarter of 2008.

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 June 30, 2008, the Bank had secured and unsecured borrowing lines totaling approximately $440,000 consisting of $299,000 with the Federal Home Loan Bank of Seattle, $118,000 with various correspondent banks, and $23,000 with the Federal Reserve Bank of San Francisco. The Federal Home Loan Bank borrowing line is limited to the amount of collateral pledged. At June 30, 2008, the Bank had collateral pledged to the FHLB in the form of commercial real estate loans and securities that had a discounted collateral value of approximately $219,000 for this line. The $23,000 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 June 30, 2008, the Bank had $220,000 in borrowings outstanding from the FHLB of Seattle and the Federal Reserve Bank of San Francisco and $19,000 outstanding on its overnight correspondent bank lines. In addition, the Bank is part of the State of Oregon and State of Washington community bank time deposit programs and at June 30, 2008 had approximately $4,500 available from these sources. The Bank’s loan portfolio also contains approximately $25,000 in unpledged securities and $29,895 in guaranteed government loans, which can be sold on the secondary market.

Item 3. Quantitative and Qualitative Disclosures on Market Risk

There has been no material change in the Bank’s exposure to market risk. Readers are referred to the Bank’s Form 10-K and the Annual Report to Shareholders for the period ending December 31, 2007, for specific discussion.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

The Company’s Chief Executive Officer and Chief Financial Officer have reviewed and evaluated the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rules 240.13a-14(c) and 15d-14(c)) as of June 30, 2008, the date of this quarterly report. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that the Company’s current disclosure controls and procedures are effective and timely, providing them with material information relating to the Company required to be disclosed in the reports we file or submit under the Exchange Act.

Changes in Internal Controls

There have not been any significant changes in our internal controls or in other factors during the first six months of 2008 that could significantly affect these controls subsequent to the date of their evaluation. We are not aware of any significant deficiencies or material weaknesses in our internal controls, therefore no corrective actions were taken.

PART II. Other Information

Item 1A. Risk Factors

The following is a discussion of the most significant risks and uncertainties that may affect our business, financial condition and future results.

Fluctuating interest rates can adversely affect our profitability

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

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

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

Concentration in real estate market

The Company has a concentration of loans secured by real estate and additional downturn in the real estate market, for any reason, could hurt our business and our prospects. Our business activities and credit exposure are concentrated in loans secured by real estate. A further decline in the real estate market could negatively affect our business because the collateral securing those loans may decrease in value. Additional downturn in the local economy could have a material adverse effect both on the borrowers’ ability to repay these loans, as well as the value of the real property held as collateral. Our ability to recover on defaulted loans by foreclosing and selling the real estate collateral would then be diminished and we be would more likely to suffer losses on defaulted loans.

Tightening of credit markets and liquidity risk

A tightening of the credit market and the inability to obtain adequate money to fund continued loan growth may negatively affect our asset growth and liquidity position and, therefore, our earnings capability. In addition to core deposit growth, maturity of investment securities and loan payments, the Company also relies on alternative funding sources through correspondent banking, national certificates of deposit and borrowing lines with the Federal Reserve Bank and FHLB to fund loans. In the event of a downturn in the economy, particularly in the housing market, these resources could be negatively affected, both as to price and availability, which would limit and or raise the cost of the funds available to the Company.

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

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

The FDIC likely will increase insurance premiums to rebuild and maintain the federal deposit insurance fund.

Based on recent events and the state of the economy, it is likely that the FDIC may increase federal deposit insurance premiums as early as September 2008. Depending on circumstances, this increase may be relatively significant and will add to our cost of operations. It is too soon to predict the exact amount of any premium increase or the impact on the Company.

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

(a)	Pacific Continental Corporation’s Annual Shareholders’ Meeting was held on April 21, 2008

(b)	Not Applicable

(c)	A brief description of the matter voted upon at the Annual Meeting and number of votes cast for or withheld, including a separate tabulation with respect to each nominee to serve on the Board is presented below:

1)	Election of (11) eleven Directors for a one-year term expiring in 2009.

Directors:

Robert Ballin
	Votes Cast For:	10,050,446
	Votes Withheld:	277,806

Hal M. Brown
	Votes Cast For:	10,256,102
	Votes Withheld:	72,150

Larry G. Campbell
	Votes Cast For:	10,056,631
	Votes Withheld:	271,621

Cathi Hatch
	Votes Cast For:	10,030,889
	Votes Withheld:	297,363

Michael E. Heijer
	Votes Cast For:	10,265,948
	Votes Withheld:	62,304

Michael S. Holcomb
	Votes Cast For:	10,265539
	Votes Withheld:	62,713

Michael D. Holzgang
	Votes Cast For:	10,208,200
	Votes Withheld:	120,052

Donald L. Krahmer, Jr.
	Votes Cast For:	10,135,661
	Votes Withheld:	192,591

Donald G. Montgomery
	Votes Cast For:	10,050,746
	Votes Withheld:	277,506

John H. Rickman
	Votes Cast For:	10,269,255
	Votes Withheld:	58,997

R. Jay Tejera
	Votes Cast For:	10,265,948
	Votes Withheld:	62,304

Item 6. Exhibits

(a)

Exhibits

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

SIGNATURES

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

PACIFIC CONTINENTAL CORPORATION

(Registrant)

	Dated August 7, 2008	/s/ Hal Brown
		Hal Brown
		President and Chief Executive Officer



	Dated August 7, 2008	/s/ Michael A. Reynolds
		Michael A. Reynolds
		Executive Vice President and Chief Financial Officer

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Pacific Continental Inactive 10-Q2008 Q2 Quarterly report

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