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 three months ended March 31, 2009. When warranted, comparisons are made to the same period in 2008 and to the previous year ended December 31, 2008. 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, 2008, 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 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 Part II, 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.

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 in the Company's Form 10-K. 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 March 31, 2009, the Company had $22,848 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 judgment, 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.

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 2008 and 2009 were recorded as compensation expense.

Recent Accounting Pronouncements

In December 2007, FASB issued SFAS No. 141 (revised), Business Combinations. SFAS No. 141R establishes principles and requirements for how an acquirer recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, any noncontrolling interest in the acquired entity and the goodwill acquired. Furthermore, acquisition-related and other costs will now be expensed rather than treated as cost components of the acquisition. SFAS No. 141R also establishes disclosure requirements to enable the evaluation of the nature and financial effects of the business combination. This statement applies prospectively to business combinations for which the acquisition date is on or after January 1, 2009. We do not expect the adoption of SFAS No. 141R will have a material

impact on our consolidated financial statements as related to business combinations consummated prior to January 1, 2009. We expect the adoption of SFAS No. 141R will increase the costs charged to operations for acquisitions consummated on or after January 1, 2009.

In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interest in Consolidated Financial Statements, an amendment to ARD No 51. SFAS No. 160 establishes accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. The standard also requires additional disclosures that clearly identify and distinguish between the interest of the parent's owners and the interest of the noncontrolling owners of the subsidiary. This statement is effective on January 1, 2009 for the Company, to be applied prospectively. We do not expect the adoption of SFAS No. 160 will have a material impact on the Company's consolidated financial statements.

In March 2008, FASB issued SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities-an amendment of FASB Statement No. 133. SFAS No. 161 expands the disclosure requirements in SFAS No. 133 about an entity's derivative instruments and hedging activities. This includes enhanced disclosures regarding how and why an entity uses derivative instruments, how derivative instruments and related hedged items are accounted for under SFAS 133 and its related interpretations, and how derivative instruments and related hedged items affect an entity's financial position, financial performance, and cash flows. Provisions of this statement are to be applied prospectively, and comparative disclosures for earlier periods are encouraged. We have adopted the provisions of SFAS 161 for the year ended December 31, 2008, and the impact was not material to our consolidated financial statements.

In May 2008, FASB issued SFAS No. 162, The Hierarchy of Generally Accepted Accounting Principles. Under SFAS 162, the U.S. GAAP hierarchy will now reside in the accounting literature established by the FASB. SFAS No. 162 identifies the sources of accounting principles and the framework for selecting the principles used in the preparation of financial statements in conformity with U.S. GAAP for nongovernmental entities. This statement is effective 60 days after the U.S. Securities and Exchange Commission approves the Public Company Accounting Oversight Board's amendments to AU Section 411, The Meaning of Present Fairly in Conformity With Generally Accepted Accounting Principles. We do not expect the adoption of SFAS No 162 will have a material impact on the Company's consolidated financial statements.

In June 2008, FASB issued FSP EITF 03-6-1, Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities. FSP EITF 03-6-1 concludes that nonvested share-based payment awards that contain nonforfeitable rights to dividends or dividend equivalents are participating securities and shall be included in the computation of EPS pursuant to the two-class method. This statement is effective for fiscal years beginning after December 15, 2008, to be applied retrospectively. The Company had no restricted stock that qualifies as participating securities as described under this pronouncement. The impact of adoption of FSP EITF 03-6-1 did not have a material impact on the Company's consolidated financial statements.

In October 2008, FASB issued FSP No. 157-3, Determining the Fair Value of a Financial Asset When the Market for That Asset Is Not Active. FSP No. 157-3 clarifies the application of SFAS 157 in a market that is not active and provides an example to illustrate key considerations in determining the fair value of a financial asset when the market for that financial asset is not active. The FSP does not change existing generally accepted accounting principles. This FSP was effective immediately upon issuance, including prior periods for which financial statements have not been issued. The impact of adoption did not have a material impact on the Company's consolidated financial statements.

On January 12, 2009, FASB issued FSP EITF 99-20-1, Amendments to the Impairment Guidance of EITF Issue No. 99-20. FSP EITF 99-20-1 addresses certain practice issues in EITF No. 99-20, Recognition of Interest Income and Impairment on Purchased Beneficial Interests and Beneficial Interests That Continue to Be Held by a Transferor in Securitized Financial Assets, by making its other-than-temporary impairment assessment guidance consistent with SFAS No. 115, Accounting for Certain Investments in Debt and Equity Securities. FSP EITF 99-20-1 removes the reference to the consideration of a market participant's estimates of cash flows in EITF 99-20, and instead requires an assessment of whether it is probable, based on current information and events, that the holder of the security will be unable to collect all amounts due according to

the contractual terms. If it is probable that there has been an adverse change in estimated cash flows, an other-than-temporary impairment is deemed to exist, and a corresponding loss shall be recognized in earnings equal to the entire difference between the investment's carrying value and its fair value at the balance sheet date of the reporting period for which the assessment is made. This FSP is effective for interim and annual reporting periods ending after December 15, 2008, and shall be applied prospectively. The impact of adoption did not have a material impact on the Company's consolidated financial statements.

On April 1, 2009, the FASB issued FSP No. FAS 141(R)-1, Accounting for Assets Acquired and Liabilities Assumed in a Business Combination That Arise from Contingencies. FSP FAS 141(R)-1 amends and clarifies FASB Statement No. 141 (revised 2007), Business Combinations, to address application issues raised by preparers, auditors, and members of the legal profession on initial recognition and measurement, subsequent measurement and accounting, and disclosure of assets and liabilities arising from contingencies in a business combination. This FSP is effective for assets or liabilities arising from contingencies in business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. The impact of adoption is not expected to have a material impact on the Company's consolidated financial statements.

On April 9, 2009, the FASB issued FSP No. FAS 157-4, Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly. FSP FAS 157-4 clarifies the application of SFAS 157 when the volume and level of activity for the asset or liability has significantly decreased and guidance on identifying circumstances when a transaction may not be considered orderly. This FSP is effective for interim and annual reporting periods ending after June 15, 2009.
The impact of adoption is not expected to have a material impact on the Company's consolidated financial statements.

On April 9, 2009, the FASB issued FSP No. 115-2 and FAS 124-2, Recognition and Presentation of Other-Than-Temporary Impairments. FSP FAS 115-2 and FAS 124-2 clarify the interaction of the factors that should be considered when determining whether a debt security is other-than-temporarily impaired. For debt securities, management must assess whether (a) it has the intent to sell the security and (b) it is more likely than not that it will be required to sell the security prior to its anticipated recovery. These steps are done before assessing whether the entity will recover the cost basis of the investment. Previously, this assessment required management to assert it has both the intent and the ability to hold a security for a period of time sufficient to allow for an anticipated recovery in fair value to avoid recognizing an other-than-temporary impairment. This change does not affect the need to forecast recovery of the value of the security through either cash flows or market price. In instances when a determination is made that an other-than-temporary impairment exists but the investor does not intend to sell the debt security and it is not more likely than not that it will be required to sell the debt security prior to its anticipated recovery, FSP FAS 115-2 and FAS 124-2 changes the presentation and amount of the other-than-temporary impairment recognized in the income statement. The other-than-temporary impairment is separated into (a) the amount of the total other-than-temporary impairment related to a decrease in cash flows expected to be collected from the debt security (the credit loss) and (b) the amount of the total other-than-temporary impairment related to all other factors. The amount of the total other-than-temporary impairment related to the credit loss is recognized in earnings. The amount of the total other-than-temporary impairment related to all other factors is recognized in other comprehensive income. This FSP is effective for interim and annual reporting periods ending after June 15, 2009.
The impact of adoption is not expected to have a material impact on the Company's consolidated financial statements.

On April 9, 2009, the FASB issued FSP No. FAS 107-1 and APB 28-1, Interim Disclosures about Fair Value of Financial Instruments. FSP FAS 107-1 and APB 28-1 amends FASB Statement No. 107, Disclosures about Fair Value of Financial Instruments, to require disclosures about fair value of financial instruments for interim reporting periods of publicly traded companies as well as in annual financial statements. This FSP also amends APB Opinion No. 28, Interim Financial Reporting, to require those disclosures in summarized financial information at interim reporting periods. This FSP is effective for interim and annual reporting periods ending after June 15, 2009. The impact of adoption is not expected to have a material impact on the Company's consolidated financial statements.

HIGHLIGHTS


                                                               For the quarter ended March 31,
                                                            2009                 2008         % Change

Net income                                            $           2,947        $   3,079           -4.3 %

Earnings per share
  Basic                                               $            0.23        $    0.26          -11.5 %
  Diluted                                             $            0.23        $    0.26          -11.5 %

Assets, period-end                                    $       1,116,537        $ 997,135           12.0 %
Loans, period-end (1)                                 $         966,187        $ 866,647           11.5 %
Core Deposits, period end (2)                         $         667,484        $ 603,888           10.5 %
Deposits, period-end                                  $         733,847        $ 640,318           14.6 %

Return on avg. assets (3)                                          1.09 %           1.28 %
Return on avg. equity (3)                                          9.47 %          11.21 %
Return on avg. tangible equity (3) (4)                            11.57 %          14.18 %

(1) Excludes loans held for sale.
(2) Defined by the Company as demand, interest checking, money market, savings, and local time deposits, including local time deposits in excess of $100.
(3) Amounts annualized.
(4) Tangible equity excludes goodwill and core deposit intangibles related to acquisitions.

The Company earned $2,947 in the first quarter 2009, a decrease of $132 from first quarter 2008. The decline in net income in first quarter 2009 was due to a higher provision for loan losses, combined with growth in noninterest expenses. However, operating revenue, which consists of net interest income and noninterest income, continued to be strong. Operating revenue for the first quarter 2009 was $14,172, up $1,539 or 12.2% over first quarter 2008. Net interest income in the current quarter increased by $1,535 or 13.2%, and noninterest income was virtually flat compared to the same quarter last year. The improvement in net interest income resulted from a stable net interest margin, combined with 14.2% growth in average earning assets.

Loan growth abated significantly during the first quarter 2009 as outstanding loans grew by only $8,000, or less than 1.0%, from December 31, 2008 outstanding loans. However, the Company had record quarterly growth in its core deposit base during the first quarter 2009 as outstanding core deposits increased by $51,652 or 8.4% over December 31, 2008 outstanding core deposits. On a linked-quarter basis, growth in average core deposits during the current quarter showed similar results, up more than $25,000 over the prior quarter. 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), constitute 91.0% of March 31, 2009 outstanding deposits. Noninterest-bearing demand deposits were $177,176 or 26.5% of outstanding core deposits at March 31, 2009 and funded 15.9% of total assets.

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 average earning assets for the first quarter 2009 was 5.23%, the same net interest margin reported for the first quarter 2008. On a linked-quarter basis, the first quarter 2009 net interest margin was down 5 basis points from fourth quarter 2008.

When comparing the quarter-over-quarter results, the following factors contributed to the stability of the first quarter 2009 net interest margin when compared to the first quarter 2008: 1) the activation of interest rate floors on approximately $290,000 of the Bank's variable rate loan portfolio; 2) the availability of multiple alternative funding sources that permitted the Bank to use the lowest marginal cost of funds; 3) the historically low interest rate environment that allowed short-term funding at an average rate of 0.43% during the current quarter; and, 4) the ability to obtain improved rates on new and renewed loans due to reduced competitive pressures and pricing for risk in a down economy.

When comparing linked-quarter results, the decline of 5 basis points in the first quarter 2009 net interest margin compared to fourth quarter 2008 can be attributed to the strong core deposit growth experienced during the current quarter. In this unusual interest rate environment, the cost of core deposits exceeded the cost of short-term alternative funding, thus the overall impact of the core deposit growth was to increase the Bank's cost of funds during the current quarter, while earning asset yields remained stable. Table I that follows illustrates this fact. Expectations of continued slow loan growth and core deposit growth, suggests some margin compression during the second quarter 2009.

The following table presents 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 March 31, 2009 compared to the quarter ended March 31, 2008:

                                    Table I
               Average Balance Analysis of Net Interest Earnings
                             (dollars in thousands)


                             Three Months Ended                              Three Months Ended
                               March 31, 2009                                  March 31, 2008
                                          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                    $       413     $         1            0.54 %   $      699     $        10            5.75 %
Securities available
for sale:
 Taxable (1)                  64,443             888            5.59 %       59,116             746            5.08 %
 Tax-exempt                    5,448              49            3.65 %        5,388              49            3.66 %
Loans, net of
allowance for loan
losses(2)(3)(4)              950,310          15,321            6.54 %      828,498          15,701            7.62 %

 Total interest
earning assets             1,020,614          16,259            6.46 %      893,701          16,506            7.43 %

Non Earning Assets
Cash and due from
banks                         17,128                                         18,259
Premises and equipment        20,675                                         20,939
Goodwill & other
intangibles                   22,879                                         23,102
Interest receivable
and other                     14,834                                          7,858
 Total non interest
assets                        75,516                                         70,158

 Total assets            $ 1,096,130                                     $  963,859

Interest-Bearing
Liabilities
Money market and NOW
accounts                     402,172          (1,306 )         -1.32 %      385,982          (2,078 )         -2.17 %
Savings deposits              20,503             (68 )         -1.35 %       20,902             (54 )         -1.04 %
Time deposits - core
(5)                           55,935            (440 )         -3.19 %       39,110            (392 )         -4.03 %
 Total
interest-bearing core
deposits                     478,610          (1,814 )         -1.54 %      445,994          (2,524 )         -2.28 %

. . .