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Washington, D.C. 20549





(Exact name of registrant as specified in its charter)

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

111 West 7th Avenue
Eugene, Oregon   97401
(Address of principal executive offices and zip code)

(541) 686-8685
(Registrant’s telephone number, including area code)

Securities registered pursuant to section 12(b) of the Act:
Title of Each Class                                           Name of Each Exchange on Which Registered
Common Stock, No par value per share                                                                           NASDAQ Global Select Market

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

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.                    Yes   __No   X

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.                    Yes   __No   X

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   Yes   X   No ___

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes ______                      No _____

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.    ( X )

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See definition of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act:
Large accelerated filer   __                                                                          Accelerated filer   X    Non-accelerated filer   __    Smaller Reporting Company  __


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

The aggregate market value of the voting stock held by non-affiliates of the registrant at June 30, 2010, (the last business day of the most recent second quarter) was $165,247,494 based on the closing price as quoted on the NASDAQ Global Select Market on that date.

The number of shares outstanding of the registrant’s common stock, no par value, as of March 4, 2011, was 18,415,132.


Part III incorporates, by reference, information from the registrant’s definitive proxy statement for the 2011 annual meeting of shareholders.




(Items 10 through 14 are incorporated by reference from Pacific Continental Corporation's definitive proxy statement for the annual meeting of shareholders scheduled for April 18, 2011)




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

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


All dollar amounts in the following sections are in thousands except per share amounts or where otherwise indicated.

For the year ended December 31, 2010, the consolidated net income of the Company was $5,092 or $0.28 per diluted share.  At December 31, 2010, the consolidated shareholders’ equity of the Company was $172,238 with 18,415,132 shares outstanding and a book value of $9.35 per share.  Total assets were $1,210,176.  Loans net of allowance for loan losses and unearned fees, were $839,815 at December 31, 2010 and represented 69.4% of total assets.  Deposits totaled $958,959 at year-end 2010 with core deposits representing $895,838 or 93.4% of total deposits.  Core deposits are defined as all demand, interest checking, money market, savings and local non-public time deposits, including local non-public time deposits in excess of $100.  At December 31, 2010, the Company had a Tier 1 leverage capital ratio, Tier 1 risk-based capital ratio, and total risk-based capital ratio, of 13.38%, 15.86% and 17.10%, respectively, all of which are significantly above the minimum “well-capitalized” level for all capital ratios under FDIC guidelines of 5%, 6% and 10%, respectively.  For more information regarding the Company’s financial condition and results of operations, see Management’s Discussion and Analysis of Financial Condition and Results of Operations and Financial Statements and Supplementary Data in Items 7 and 8 of this Form   10-K.


The Bank commenced operations on August 15, 1972.  The Bank operates in three primary markets: Portland, Oregon / Southwest Washington; Seattle, Washington; and Eugene, Oregon.  At December 31, 2010, the Bank operated fourteen full-service offices in six Oregon and three Washington cities.  The primary business strategy of the Bank is to operate in large commercial markets and to provide comprehensive banking and related services tailored to community-based businesses, not-for-profits, professional service providers and banking services for business owners and executives.  The Bank emphasizes the diversity of its product lines, high levels of personal service, and through technology, offers convenient access typically associated with larger financial institutions, while maintaining local decision-making authority and market knowledge, typical of a local community bank.  More information on the Bank and its banking services can be found on its website.  The Bank operates under the banking laws of the State of Oregon, State of Washington, and the rules and regulations of the FDIC and the Federal Reserve Bank of San Francisco.



Primary Market Area

The Company’s primary markets consist of metropolitan Portland, which includes Southwest Washington, and metropolitan Eugene in the State of Oregon and metropolitan Seattle in the State of Washington.  The Company has five full-service banking offices in the metropolitan Portland and Southwest Washington area, seven full-service banking offices in the metropolitan Eugene area, and two full-service offices in the metropolitan Seattle area.  The Company has its headquarters and administrative office in Eugene, Oregon.


Commercial banking in the states of Oregon and Washington is highly competitive with respect to providing banking services, including making loans and attracting deposits.  The Company competes with other banks, as well as with savings and loan associations, savings banks, credit unions, mortgage companies, investment banks, insurance companies, and other financial institutions.  Banking in Oregon and Washington is dominated by several large banking institutions, including U.S. Bank, Wells Fargo Bank, Bank of America, Key Bank and Chase, which together account for a majority of the total commercial and savings bank deposits in Oregon and Washington.  These competitors have significantly greater financial resources and offer a much greater number of branch locations.  The Company offsets the advantage of the larger competitors by focusing on certain market segments, providing high levels of customization and personal service, and tailoring its technology, products and services to the specific market segments that the Company serves.

In addition to larger institutions, numerous “community” banks and credit unions have been formed, expanded or moved into the Company’s three primary areas and have developed a similar focus to that of the Company.  These institutions have further increased competition in all three of the Company’s primary markets.  This number of similar financial institutions and an increased focus by larger institutions in the Company’s primary markets has led to intensified competition in all aspects of the Company’s business, particularly in the area of loan and deposit pricing.

The adoption of the Gramm-Leach-Bliley Act of 1999 (the “GLB Act”) led to further intensification of competition in the financial services industry.  The GLB Act eliminated many of the barriers to affiliation among providers of various types of financial services and has permitted business combinations among financial service providers such as banks, insurance companies, securities or brokerage firms, and other financial service providers.  Additionally, the rapid adoption of financial services through the Internet has reduced or even eliminated many barriers to entry by financial service providers physically located outside our market area. For example, remote deposit services allow depository companies physically located in other geographical markets to service local businesses with minimal cost of entry.  Although the Company has been able to compete effectively in the financial services business in its markets to date, there can be no assurance that it will be able to continue to do so in the future.

The financial services industry has experienced widespread consolidation over the last decade and more recently this consolidation has accelerated due to closures of banks by applicable regulators.  During the past two years, 20 banks in Oregon and Washington have been closed.  The Company anticipates that closures and consolidation among financial institutions in its market areas will continue.  In particular, the current economic conditions suggest a number of bank failures are possible in 2011 and 2012 in the Company’s market areas that will accelerate consolidation in the region.  In addition, with the recent passage of the Dodd-Frank Act, smaller financial institutions may find it difficult to continue to operate due to higher anticipated regulatory costs.  This may create pressure on these institutions to seek partnerships or mergers with larger companies.  The Company seeks acquisition opportunities, including FDIC assisted transactions, from time-to-time, in its existing markets and in new markets of strategic importance.  However, other financial institutions aggressively compete against the Company in the acquisition market.  Some of these institutions may have greater access to capital markets, larger cash reserves, and stock for use in acquisitions that is more liquid and more highly valued by the market.

In addition, the Company anticipates more competitive pressure for new loans in its markets.  With loan demand relatively weak due to the economic conditions in the region, healthy banks with ample capital and liquidity are expected to aggressively seek to acquire new loan customers.  This may cause pressure on loan pricing and make it more difficult to retain existing loan customers or attract new ones and may create compression in the net interest margin.


Services Provided

The Company offers a full array of financial service products to meet the banking needs of its targeted segments in the market areas served.  The Company regularly reviews the profitability and desirability of various product offerings, particularly new product offerings, to assure on-going viability.

Deposit Services

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

The Company has invested continuously in imaging technology since 1994 for the processing of checks.  The Company was the first financial institution in Lane, Multnomah, Clackamas and Washington Counties to offer this service.  Due to this investment in imaging technology, commencing in July 2007, the Company has been able to accelerate its funds availability by presenting all items for clearing to its correspondent banks via an imaged file. In addition, the Company provides on-line cash management, remote deposit capture, and banking services to businesses and consumers. The Company also allows 24-hour customer access to deposit and loan information via telephone and on-line cash management products.

Lending Activities

The Company emphasizes specific areas of lending within its primary markets.  Secured and unsecured commercial loans are made primarily to professionals, community-based businesses, and not-for-profit organizations.  These loans are available for general operating purposes, acquisition of fixed assets, purchases of equipment and machinery, financing of inventory and accounts receivable and other business purposes.  The Company also originates Small Business Administration (“SBA”) loans and is a national preferred lender.

Within its primary markets, the Company also originates permanent and construction loans financing commercial facilities and pre-sold, custom and speculative home construction.  The major thrust of residential construction lending is smaller in-fill construction projects consisting of single-family residences.  However, due to the rapid deterioration in the national and regional housing market, the Company severely restricted lending on speculative home construction and significantly reduced its exposure to residential construction lending.  In addition, due to the economic recession and softness in commercial real estate markets, the Company has taken steps to reduce its exposure to commercial real estate loans, both for construction of new facilities and permanent loans for commercial facilities, particularly investor-owned facilities.  The focus of the Company’s commercial real estate lending activities is primarily on owner-occupied facilities.  The Company also finances requests for multi-family residences.

Inter-agency guidelines adopted by federal bank regulators mandate that financial institutions establish real estate lending policies with maximum allowable real estate loan-to-value limits, subject to an allowable amount of non-conforming loans as a percentage of capital.  The Board of Directors has approved specific lending policies and procedures for the Company, and management is responsible for implementation of the policies.  The lending policies and procedures include guidelines for loan term, loan-to-value ratios that are within established federal banking guidelines, collateral appraisals and cash flow coverage.  The loan policies also vest varying levels of loan authority in management, the Company’s Loan Committee and the Board of Directors.  Company management monitors lending activities through management meetings, loan committee meetings, monthly reporting, and periodic review of loans by third-party contractors.
Fixed rate and variable rate residential mortgage loans are offered through the Company’s mortgage loan department.  Most residential mortgage loans originated are sold in the secondary market along with the mortgage loan servicing rights.


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

Merchant and Card Services

The Company provides merchant card payment services, through an outside processor, for its client base, including community-based businesses, not-for-profits, and professional service providers.  This includes processing of credit card transactions and issuance of business credit cards.  This service is an integral part of the Company’s strategy to focus on marketing to community-based business, not-for-profits, and professional service providers.  During 2010, the Company processed approximately $205,000 in credit card transactions for its merchant clients.   The Company also offers credit card services to its business customers and uses an outside vendor for credit card processing.  The Company does not issue credit cards to individuals.

Other Services

The Company provides other traditional commercial and consumer banking services, including cash management products for businesses, on-line banking, safe deposit services, debit and ATM cards, ACH transactions, savings bonds, cashier’s checks, travelers’ checks, notary services and others.  The Company is a member of numerous ATM networks and utilizes an outside processor for the processing of these automated transactions.  The Company has an agreement with MoneyPass, an ATM provider that permits Company customers to use MoneyPass ATM’s located throughout the country at no charge to the customer.


At December 31, 2010, the Company employed 263 full-time equivalent (“FTE”) employees with 24 FTE’s in the Seattle market, 51 FTE’s in the Portland market, 83 FTE’s in the Eugene market and 105 FTE’s in administrative functions located in Eugene, Oregon.  None of these employees are represented by labor unions, and management believes that the Company’s relationship with its employees is good.  The Company emphasizes a positive work environment for its employees, which is validated by recognition from independent third-parties.  During 2010, the Company was recognized for the tenth consecutive year by Oregon Business Magazine as one of Oregon’s Best 100 Companies for which to work, and was the highest-rated financial institution in the state.  Additionally, the Company was named one of Oregon’s Most Admired Companies by the Portland Business Journal. The Company and its employees have also been recognized for their involvement in the community.  Management continually strives to retain and attract top talent as well as provide career development opportunities to enhance skill levels.  A number of benefit programs are available to eligible employees, including group medical plans, paid sick leave, paid vacation, group life insurance, 401(k) plans, and equity compensation plans.



Supervision and Regulation


The following discussion provides an overview of certain elements of the extensive regulatory framework applicable to the Company and the Bank. This regulatory framework is primarily designed for the protection of depositors, federal deposit insurance funds and the banking system as a whole, rather than specifically for the protection of shareholders. Due to the breadth and growth of this regulatory framework, our costs of compliance continue to increase in order to monitor and satisfy these requirements.

To the extent that this section describes statutory and regulatory provisions, it is qualified by reference to those provisions. These statutes and regulations, as well as related policies, are subject to change by Congress, state legislatures and federal and state regulators. Changes in statutes, regulations or regulatory policies applicable to us, including the interpretation or implementation thereof, could have a material effect on our business or operations. In light of the recent financial crisis, numerous proposals to modify or expand banking regulation have surfaced. Based on past history, if any are approved, they will add to the complexity and cost of our business.

Federal Bank Holding Company Regulation

General.  The Company is a bank holding company as defined in the Bank Holding Company Act of 1956, as amended (“BHCA”), and is therefore subject to regulation, supervision and examination by the Federal Reserve. In general, the BHCA limits the business of bank holding companies to owning or controlling banks and engaging in other activities closely related to banking. The Company must file reports with and provide the Federal Reserve such additional information as it may require. Under the Financial Services Modernization Act of 1999, a bank holding company may apply to the Federal Reserve to become a financial holding company, and thereby engage (directly or through a subsidiary) in certain expanded activities deemed financial in nature, such as securities brokerage and insurance underwriting.

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

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

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

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


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

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

Federal and State Regulation of Pacific Continental Bank

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

Community Reinvestment.  The Community Reinvestment Act of 1977 (“CRA”) requires that, in connection with examinations of financial institutions within their jurisdiction, the FDIC evaluate the record of the financial institution in meeting the credit needs of its local communities, including low and moderate-income neighborhoods, consistent with the safe and sound operation of the institution. A bank’s community reinvestment record is also considered by the applicable banking agencies in evaluating mergers, acquisitions and applications to open a branch or facility.

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

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

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


Interstate Banking and Branching

The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 (“Interstate Act”) relaxed prior interstate branching restrictions under federal law by permitting nationwide interstate banking and branching under certain circumstances. Generally, bank holding companies may purchase banks in any state, and states may not prohibit these purchases. Additionally, banks are permitted to merge with banks in other states, as long as the home state of neither merging bank has opted out under the legislation. The Interstate Act requires regulators to consult with community organizations before permitting an interstate institution to close a branch in a low-income area. Federal banking agency regulations prohibit banks from using their interstate branches primarily for deposit production and the federal banking agencies have implemented a loan-to-deposit ratio screen to ensure compliance with this prohibition.

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


The principal source of the Company’s cash is from dividends received from the Bank, which are subject to government regulation and limitations.  In addition, capital raises provide another source of cash.  Regulatory authorities may prohibit banks and bank holding companies from paying dividends in a manner that would constitute an unsafe or unsound banking practice or would reduce the amount of its capital below that necessary to meet minimum applicable regulatory capital requirements. Oregon law and Federal Reserve Bank guidelines also limit a bank’s ability to pay dividends that are greater than retained earnings without approval of the applicable state regulators. The Bank entered into an informal agreement with the FDIC, the Oregon Department, and the Federal Reserve, which requires the Bank to obtain advance approval from the FDIC and the Oregon Department prior to paying any dividends or making interest payments on its trust preferred debt. Payment of cash dividends by the Company and the Bank will depend on sufficient earnings to support them and approval of appropriate bank regulatory authorities.
Capital Adequacy

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

Tier 1 and Tier 2 Capital.  Under the guidelines, an institution’s capital is divided into two broad categories, Tier 1 capital and Tier 2 capital.  Tier 1 capital generally consists of common stockholders’ equity, surplus and undivided profits.  Tier 2 capital generally consists of the allowance for loan losses, hybrid capital instruments, and subordinated debt.  The sum of Tier 1 capital and Tier 2 capital represents an institution’s total capital.  The guidelines require that at least 50% of an institution’s total capital consist of Tier 1 capital.

Risk-based Capital Ratios.  The adequacy of an institution’s capital is gauged primarily with reference to the institution’s risk-weighted assets.  The guidelines assign risk weightings to an institution’s assets in an effort to quantify the relative risk of each asset and to determine the minimum capital required to support that risk.  An institution’s risk-weighted assets are then compared with its Tier 1 capital and total capital to arrive at a Tier 1 risk-based ratio and a total risk-based ratio, respectively.  The guidelines provide that an institution must have a minimum Tier 1 risk-based ratio of 4% and a minimum total risk-based ratio of 8%.


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

Prompt Corrective Action.  Under the guidelines, an institution is assigned to one of five capital categories depending on its total risk-based capital ratio, Tier 1 risk-based capital ratio, and leverage ratio, together with certain subjective factors. The categories range from “well-capitalized” to “critically under capitalized.”  Institutions that are “under capitalized” or lower are subject to certain mandatory supervisory corrective actions. At each successively lower capital category, an insured bank is subject to increased restrictions on its operations. During these challenging economic times, the federal banking regulators have actively enforced these provisions.

Regulatory Oversight and Examination

The Federal Reserve conducts periodic inspections of bank holding companies, which are performed both onsite and offsite. The supervisory objectives of the inspection program are to ascertain whether the financial strength of the bank holding company is being maintained on an ongoing basis and to determine the effects or consequences of transactions between a holding company or its non-banking subsidiaries and its subsidiary banks. For holding companies under $10 billion in assets, the inspection type and frequency varies depending on asset size, complexity of the organization and the holding company’s rating at its last inspection.

Banks are subject to periodic examinations by their primary regulators. Bank examinations have evolved from reliance on transaction testing in assessing a bank’s condition to a risk-focused approach. These examinations are extensive and cover the entire breadth of operations of the Bank. Generally, safety and soundness examinations occur on an 18-month cycle for banks under $500 million in total assets that are well-capitalized and without regulatory issues, and on a 12-month cycle otherwise. Examinations alternate between the federal and state bank regulatory agency and may occur on a combined schedule. The frequency of consumer compliance and CRA examinations is linked to the size of the institution and its compliance and CRA ratings at its most recent examinations. However, the examination authority of the Federal Reserve and the FDIC allows them to examine supervised banks as frequently as deemed necessary based on the condition of the Bank or as a result of certain triggering events.  The Bank is party to an informal agreement with the FDIC, the Federal Reserve Bank and the Oregon Department, which outlines specific areas for improvement primarily related to capital levels and levels of classified assets.  In addition, the agreement requires the Bank to obtain advance approval from the FDIC and the Oregon Department before the Bank may pay any dividends to the Company.  At December 31, 2010, management believes it has achieved all objectives and improvements requested in the agreement.

Corporate Governance and Accounting

Sarbanes-Oxley Act of 2002. The Sarbanes-Oxley Act of 2002 (the “Act”) addresses, among other things, corporate governance, auditing and accounting, enhanced and timely disclosure of corporate information, and penalties for non-compliance. Generally, the Act (i) requires chief executive officers and chief financial officers to certify to the accuracy of periodic reports filed with the Securities and Exchange Commission (the “SEC”); (ii) imposes specific and enhanced corporate disclosure requirements; (iii) accelerates the time frame for reporting of insider transactions and periodic disclosures by public companies; (iv) requires companies to adopt and disclose information about corporate governance practices, including whether or not they have adopted a code of ethics for senior financial officers and whether the audit committee includes at least one “audit committee financial expert;” and (v) requires the SEC, based on certain enumerated factors, to regularly and systematically review corporate filings.


As a publicly reporting company, we are subject to the requirements of the Act and related rules and regulations issued by the SEC and NASDAQ. After enactment, we updated our policies and procedures to comply with the Act’s requirements and have found that such compliance, including compliance with Section 404 of the Act relating to internal control over financial reporting, has resulted in significant additional expense for the Company. We anticipate that we will continue to incur such additional expense in our ongoing compliance.


USA Patriot Act of 2001.  The Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001, intended to combat terrorism, was renewed with certain amendments in 2006 (the “Patriot Act”).  Certain provisions of the Patriot Act were made permanent and other sections were made subject to extended “sunset” provisions. The Patriot Act, in relevant part, (i) prohibits banks from providing correspondent accounts directly to foreign shell banks; (ii) imposes due diligence requirements on banks opening or holding accounts for foreign financial institutions or wealthy foreign individuals; (iii) requires financial institutions to establish an anti-money-laundering compliance program; and (iv) eliminates civil liability for persons who file suspicious activity reports.

Financial Services Modernization

Gramm-Leach-Bliley Act of 1999.  The Gramm-Leach-Bliley Financial Services Modernization Act of 1999 brought about significant changes to the laws affecting banks and bank holding companies.  Generally, the Act (i) repeals historical restrictions on preventing banks from affiliating with securities firms; (ii) provides a uniform framework for the activities of banks, savings institutions and their holding companies; (iii) broadens the activities that may be conducted by national banks and banking subsidiaries of bank holding companies; (iv) provides an enhanced framework for protecting the privacy of consumer information and requires notification to consumers of bank privacy policies; and (v) addresses a variety of other legal and regulatory issues affecting both day-to-day operations and long-term activities of financial institutions. Bank holding companies that qualify and elect to become financial holding companies can engage in a wider variety of financial activities than permitted under previous law, particularly with respect to insurance and securities underwriting activities.

The Emergency Economic Stabilization Act of 2008

Emergency Economic Stabilization Act of 2008.  In response to market turmoil and financial crises affecting the overall banking system and financial markets in the United States, the Emergency Economic Stabilization Act of 2008 (“EESA”) was enacted on October 3, 2008. EESA provides the United States Department of the Treasury (the “Treasury”) with broad authority to implement certain actions intended to help restore stability and liquidity to the U.S. financial markets.

Troubled Asset Relief Program. Under the EESA, the Treasury has authority, among other things, to purchase up to $700 billion in mortgage loans, mortgage-related securities and certain other financial instruments, including debt and equity securities issued by financial institutions pursuant to the Troubled Asset Relief Program (“TARP”). The purpose of TARP is to restore confidence and stability to the U.S. banking system and to encourage financial institutions to increase lending to customers and to each other.  Pursuant to the EESA, the Treasury was initially authorized to use $350 billion for TARP. Of this amount, the Treasury allocated $250 billion to the TARP Capital Purchase Program, which funds were used to purchase preferred stock from qualifying financial institutions. After receiving preliminary approval from Treasury to participate in the program, the Company elected not to participate in light of its capital position and due to its ability to raise capital successfully in private equity markets.

Temporary Liquidity Guarantee Program. Another program established pursuant to the EESA is the Temporary Liquidity Guarantee Program (“TLGP”), which (i) removed the limit on FDIC deposit insurance coverage for non-interest bearing transaction accounts through December 31, 2009, and (ii) provided FDIC backing for certain types of senior unsecured debt issued from October 14, 2008, through June 30, 2009. The end-date for issuing senior unsecured debt was later extended to October 31, 2009 and the FDIC also extended the Transaction Account Guarantee portion of the TLGP through December 31, 2010. Financial institutions that did not opt out of unlimited coverage for non-interest bearing accounts were initially charged an annualized 10 basis points on individual account balances exceeding $250,000, and those issuing FDIC-backed senior unsecured debt were initially charged an annualized 75 basis points on all such debt, although those rates were subsequently increased. We elected to fully participate in both parts of the TLGP.


Deposit Insurance

The Bank’s deposits are insured under the Federal Deposit Insurance Act, up to the maximum applicable limits and are subject to deposit insurance assessments designed to tie what banks pay for deposit insurance more closely to the risks they pose. The Bank has prepaid its quarterly deposit insurance assessments for 2011 and 2012 pursuant to applicable FDIC regulations, but the passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) in July 2010 required the FDIC to amend its regulations to redefine the assessment base used for calculating deposit insurance assessments.  As a result, in February 2011, the FDIC approved new rules to, among other things, change the assessment base from one based on domestic deposits (as it has been since 1935) to one based on assets (average consolidated total assets minus average tangible equity).  Since the new assessment base is larger than the base used under prior regulations, the rules also lower assessment rates, so that the total amount of revenue collected by the FDIC from the industry is not significantly altered.  The rule also revises the deposit insurance assessment system for large financial institutions, defined as institutions with at least $10 billion in assets.  The rules revise the assessment rate schedule, effective April 1, 2011, and adopt additional rate schedules that will go into effect when the Deposit Insurance Fund reserve ratio reaches various milestones.

Insurance of Deposit Accounts. The EESA included a provision for a temporary increase from $100,000 to $250,000 per depositor in deposit insurance effective October 3, 2008, through December 31, 2010. On May 20, 2009, the temporary increase was extended through December 31, 2013.  The Dodd-Frank Act permanently raises the current standard maximum deposit insurance amount to $250,000. The FDIC insurance coverage limit applies per depositor, per insured depository institution for each account ownership category.  EESA also temporarily raised the limit on federal deposit insurance coverage to an unlimited amount for non-interest or low-interest bearing demand deposits. Pursuant to the Dodd-Frank Act, unlimited coverage for non-interest transaction accounts will continue upon expiration of the TLGP until December 31, 2012.

Recent Legislation

Dodd-Frank Wall Street Reform and Consumer Protection Act. As a result of the recent financial crises, on July 21, 2010, the Dodd-Frank Act was signed into law.  The Dodd-Frank Act is expected to have a broad impact on the financial services industry, including significant regulatory and compliance changes and changes to corporate governance matters affecting public companies.  Many of the requirements called for in the Dodd-Frank Act will be implemented over time and most will be subject to implementing regulations over the course of several years. Among other things, the legislation (i) centralizes responsibility for consumer financial protection by creating a new agency responsible for implementing, examining and enforcing compliance with federal consumer financial laws; (ii) applies the same leverage and risk-based capital requirements that apply to insured depository institutions to bank holding companies; (iii) requires the FDIC to seek to make its capital requirements for banks countercyclical so that the amount of capital required to be maintained increases in times of economic expansion and decreases in times of economic contraction; (iv) changes the assessment base for federal deposit insurance from the amount of insured deposits to consolidated assets less tangible capital; (v) requires the SEC to complete studies and develop rules or approve stock exchange rules regarding various investor protection issues, including shareholder access to the proxy process, and various matters pertaining to executive compensation and compensation committee oversight; (vi) makes permanent the $250,000 limit for federal deposit insurance and provides unlimited federal deposit insurance until December 31, 2012, for non-interest bearing transaction accounts; and (vii) repeals the federal prohibitions on the payment of interest on demand deposits, thereby permitting depository institutions to pay interest on business transaction and other accounts. Many aspects of the Dodd-Frank Act are subject to rulemaking and will take effect over several years, making it difficult to anticipate the overall financial impact on the Company, the Bank and the financial services industry more generally.  However, based on past experience with new legislation, it can be anticipated that the Dodd-Frank Act, directly and indirectly, will impact the business of the Company and the Bank and increase compliance costs.


American Recovery and Reinvestment Act of 2009. On February 17, 2009, the American Recovery and Reinvestment Act of 2009 (“ARRA”) was signed into law. ARRA is intended to help stimulate the economy through a combination of tax cuts and spending provisions applicable to a broad range of areas with an estimated cost of $787 billion. The impact that ARRA may have on the U.S. economy, the Company and the Bank cannot be predicted with certainty.

Overdrafts. On November 17, 2009, the Board of Governors of the Federal Reserve System promulgated the Electronic Fund Transfer rule with an effective date of January 19, 2010, and a mandatory compliance date of July 1, 2010. The rule, which applies to all FDIC-regulated institutions, prohibits financial institutions from assessing an overdraft fee for paying automated teller machine (“ATM”) and one-time point-of-sale debit card transactions, unless the customer affirmatively opts in to the overdraft service for those types of transactions. The opt-in provision establishes requirements for clear disclosure of fees and terms of overdraft services for ATM and one-time debit card transactions. Since a percentage of the Company’s service charges on deposits are in the form of overdraft fees on point-of-sale transactions, this could have an adverse impact on our non-interest income.

Proposed Legislation

Proposed legislation that may affect the Company and the Bank is introduced in almost every legislative session.  Certain of such legislation could dramatically affect the regulation of the banking industry.  We cannot predict if any such legislation will be adopted or if it is adopted how it would affect the business of the Bank or the Company.  Past history has demonstrated that new legislation or changes to existing laws or regulations usually results in a greater compliance burden and therefore generally increases the cost of doing business.

Effects of Government Monetary Policy

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



Statistical Information

All dollar amounts in the following sections, except per common share data, are in thousands of dollars, except where otherwise indicated.

Selected Quarterly Information
The following chart contains data for the last eight quarters ended December 31, 2010.
Interest income
  $ 15,455     $ 15,864     $ 15,902     $ 16,212     $ 17,079     $ 16,982     $ 16,555     $ 16,259  
Interest expense
    2,888       3,106       3,075       3,103       3,295       3,265       3,168       3,108  
Net interest income
    12,567       12,758       12,827       13,109       13,784       13,717       13,387       13,151  
Provision for loan loss
    3,250       3,750       3,750       4,250       7,000       8,300       19,200       1,500  
Noninterest income
    1,493       1,189       922       1,045       1,079       1,109       1,196       1,021  
Noninterest expense
    8,792       8,188       7,901       8,213       7,452       7,014       8,646       8,050  
Net income (loss)
    1,191       1,152       1,646       1,103       24       279       (8,129 )     2,947  
Net income (loss) - (basic)
  $ 0.07     $ 0.06     $ 0.09     $ 0.06     $ -     $ 0.02     $ (0.63 )   $ 0.23  
Net income (loss) - (diluted)
  $ 0.07     $ 0.06     $ 0.09     $ 0.06     $ -     $ 0.02     $ (0.63 )   $ 0.23  
Cash dividends
  $ 0.01     $ 0.01     $ 0.01     $ 0.01     $ 0.01     $ 0.04     $ 0.10     $ 0.10  
    18,405,939       18,399,442       18,397,691       18,393,773       16,862,572       12,872,781       12,872,781       12,811,842  
    18,417,680       18,415,603       18,443,960       18,440,042       16,903,694       12,908,650       12,872,781       12,856,884  

Investment Portfolio

The following chart contains information regarding the Company’s investment portfolio.  All of the Company’s investment securities are accounted for as available-for-sale and are reported at estimated fair value.  Temporary differences between estimated fair value and amortized cost, net of deferred taxes, are recorded as a separate component of shareholders’ equity.  Credit-related other-than-temporary impairment is recognized against earnings as a realized loss in the period in which it is identified.
December 31,
(dollars in thousands)
U.S. Treasury and other U.S. government
agencies and corporations
  $ 7,262     $ 5,000     $ 2,029  
States of the U.S. and political subdivisions
    32,079       6,709       7,485  
Private label mortgage-backed securities
    20,061       26,621       21,937  
Mortgage-backed securities
    194,505       129,288       23,482  
  $ 253,907     $ 167,618     $ 54,933  



The following chart presents the fair value of each investment category by maturity date and includes a weighted average yield for each period.  Mortgage-backed securities have been classified based on their December 31, 2010 projected average lives.
After One
After Five
One Year
After Ten
or Less
Five Years
Ten Years
(dollars in thousands)
Obligations of U.S. government agencies
  $ -       0.00 %   $ 7,262       2.60 %   $ -       0.00 %   $ -       0.00 %
Obligations of states and political subdivisions
    -       0.00 %     4,435       3.90 %     25,640       3.44 %     2,004       3.40 %
Private label mortgage-backed securities
    3,191       5.91 %     15,084       6.29 %     1,786       5.77 %     -       0.00 %
Mortgage-backed securities
    11,984       3.17 %     157,557       3.36 %     24,964       3.69 %     -       0.00 %
  $ 15,175       3.75 %   $ 184,338       3.58 %   $ 52,390       3.64 %   $ 2,004       3.40 %
Loan Portfolio

Average balances and average rates paid by category of loan for the fourth quarter and full year 2010 are included in the Company’s Management’s Discussion and Analysis of Financial Condition and Results of Operations in Item 7, later in this report.  The following table contains period-end information related to the Company’s loan portfolio for the five years ended December 31, 2010.
December 31,
(dollars in thousands)
Commercial and other loans
  $ 244,764     $ 239,450     $ 233,513     $ 188,940     $ 169,566  
Real estate loans
    522,849       538,197       493,738       402,737       410,821  
Construction loans
    83,455       161,342       223,381       224,403       180,034  
Consumer loans
    5,900       6,763       7,455       8,226       9,168  
      856,968       945,752       958,087       824,306       769,589  
Deferred loan origination fees, net
    (583 )     (1,388 )     (1,730 )     (1,984 )     (2,489 )
      856,385       944,364       956,357       822,322       767,100  
Allowance for loan losses
    (16,570 )     (13,367 )     (10,980 )     (8,675 )     (8,284 )
    $ 839,815     $ 930,997     $ 945,377     $ 813,647     $ 758,816  



The following table presents loan portfolio information by loan category related to maturity and repricing sensitivity.  Variable rate loans are included in the time frame in which the interest rate on the loan could be first adjusted.  At December 31, 2010, the Company had approximately $248,276 of variable rate loans at their floors that are included in the analysis below.

Commercial and Other
Real Estate
(dollars in thousands)
Three months or less
  $ 56,692     $ 68,114     $ 70,644     $ 3,394     $ 198,844  
Over three months through 12 months
    3,862       49,573       3,149       236       56,820  
Over 1 year through 3 years
    37,922       181,539       1,464       317       221,242  
Over 3 years through 5 years
    48,477       184,069       8,198       1,481       242,225  
Over 5 years through 15 years
    97,811       27,303       -       381       125,495  
    -       12,251       -       91       12,342  
   Total loans
  $ 244,764     $ 522,849     $ 83,455     $ 5,900     $ 856,968  

Loan Concentrations

At December 31, 2010, loans to dental professionals totaled $177,229 and represented 20.7% of outstanding loans.  At December 31, 2010, residential construction loans totaled $22,683 and represented 2.6% of outstanding loans.  In addition, at December 31, 2010, unfunded loan commitments for residential construction totaled $7,740.  Approximately 70.7% of the Company’s loans are secured by real estate. Management believes the granular nature of the portfolio, from industry mix, geographic location and loan size, continues to disperse risk concentration to some degree.

Nonperforming Assets

The following table presents period-end nonperforming loans and assets for the five year periods ended December 31, 2010:

December 31,
(dollars in thousands)
Nonaccrual loans
  $ 33,026     $ 32,792     $ 4,137     $ 4,122     $ -  
90 or more days past due and still accruing
    -       -       -       -       -  
   Total nonperforming loans
    33,026       32,792       4,137       4,122       -  
Government guarantees
    (1,056 )     (446 )     (239 )     (451 )     -  
   Net nonperforming loans
    31,970       32,346       3,898       3,671       -  
Other Real Estate Owned
    14,293       4,224       3,806       423       -  
   Total nonperforming assets
  $ 46,263     $ 36,570     $ 7,704     $ 4,094     $ -  
Nonperforming assets as a percentage of
  of total assets
    3.82 %     3.05 %     0.71 %     0.43 %     0.00 %

If interest on nonaccrual loans had been accrued, such income would have been approximately $2,368, $2,610 and $173, respectively, for years 2010, 2009 and 2008.



Allowance for Loan Loss

The following chart presents information about the Company’s allowance for loan losses.  Management and the Board of Directors evaluate the allowance monthly and consider the amount to be adequate to absorb possible loan losses.

December 31,
(dollars in thousands)
Balance at beginning of year
  $ 13,367     $ 10,980     $ 8,675     $ 8,284     $ 7,792  
Charges to the allowance
Commercial and other loans
    (4,521 )     (8,234 )     (124 )     (350 )     (152 )
Real estate loans
    (5,913 )     (4,303 )     (353 )     -       -  
Construction loans
    (4,949 )     (21,146 )     (882 )     -       -  
Consumer loans
    (131 )     (198 )     (118 )     (46 )     (71 )
Total charges to the allowance
    (15,514 )     (33,881 )     (1,477 )     (396 )     (223 )
Recoveries against the allowance
Commercial and other loans
    1,158       56       31       20       91  
Real estate loans
    2,043       196       119       15       4  
Construction loans
    509       7       9       -       -  
Consumer loans
    7       9       23       27       20  
Total recoveries against the allowance
    3,717       268       182       62       115  
    15,000       36,000       3,600       725       600  
Balance at end of the year
  $ 16,570     $ 13,367     $ 10,980     $ 8,675     $ 8,284  
Net charge offs as a percentage of  total
average loans
    1.30 %     3.50 %     0.15 %     0.04 %     0.01 %

The following table sets forth the allowance for loan losses allocated by loan type for the five years ended December 31, 2010:
Percent of loans in each category to total loans
Percent of loans in each category to total loans
Percent of loans in each category to total loans
Percent of loans in each category to total loans
Percent of loans in each category to total loans
Commercial and other loans
  $ 2,230       28.6 %   $ 2,557       25.3 %   $ 2,253       24.4 %   $ 1,515       22.9 %   $ 2,306       22.0 %
Real estate loans
    4,520       61.0 %     4,182       56.9 %     3,534       51.5 %     3,111       48.9 %     4,185       53.4 %
Construction loans
    8,562       9.7 %     4,478       17.1 %     4,052       23.3 %     3,164       27.2 %     1,564       23.4 %
Consumer loans
    64       0.7 %     66       0.7 %     63       0.8 %     87       1.0 %     149       1.2 %
    1,194       N/A       2,084       N/A       1,078       N/A       798       N/A       80       N/A  
Allowance for loan losses
  $ 16,570       100.0 %   $ 13,367       100.0 %   $ 10,980       100.0 %   $ 8,675       100.0 %   $ 8,284       100.0 %

During 2010, the Company recorded a provision for loan losses of $15,000 compared to $36,000 for the year 2009.  The decrease in the loan loss provision was due to a significant reduction in exposure to construction and land development loans.  The reduced exposure to risk was further demonstrated by a substantial decrease in the level of net charge offs during 2010 when compared to 2009.  At December 31, 2010, the Company’s recorded investment in nonperforming loans, net of government guarantees, was  $31,970, with a specific allowance of $86 provided for in the ending allowance for loan losses.

While the Company saw some positive trends in fourth quarter 2010 with regard to the overall credit quality of the loan portfolio, management cannot predict the level of the provision for loan losses, the level of the allowance for loan losses, nor the level of nonperforming assets in future quarters as a result of uncertain economic conditions.  At December 31, 2010, and as shown above, the Company’s unallocated reserves were $1,194 or 7.2% of the total allowance for loan losses at year-end.  The decrease in unallocated reserves compared to 2009 was due to improved market conditions.  Management believes that the allowance for loan losses at December 31, 2010 is adequate and that this level of unallocated reserves was prudent in light of the economic conditions and uncertainty that exists in the Northwest markets that the Company serves.



Average balances and average rates paid by category of deposit are included in the Company’s Management’s Discussion and Analysis of Financial Condition and Results of Operations in Item 7 of this report.  The chart below details period-end information related to the Company’s time deposits at December 31, 2010.  The Company does not have any foreign deposits.  Variable rate deposits are listed by first repricing opportunity.

Time Deposits
Time Deposits
of $100
of less than
Or more
    $ 100    
Time Deposits
(dollars in thousands)
  $ 50,349     $ 65,465     $ 115,814  
    7,982       2,667       10,649  
    4,235       2,036       6,271  
    712       626       1,338  
    120       8,096       8,216  
    106       7,901       8,007  
    $ 63,504     $ 86,791     $ 150,295  


The Company uses short-term borrowings to fund fluctuations in deposits and loan demand.  The Company’s subsidiary, Pacific Continental Bank, has access to both secured and unsecured overnight borrowing lines.  The secured borrowing lines are collateralized by both loans and securities.  At December 31, 2010, the Company had secured borrowing lines with the Federal Home Loan Bank of Seattle (the “FHLB”) and the Federal Reserve Bank of San Francisco (the “FRB”).  The borrowing line at the FHLB is limited by the lesser of the value of discounted collateral pledged or the amount of FHLB stock held.  At December 31, 2010, the FHLB borrowing line was limited by the amount of discounted collateral pledged, which limited total borrowings to $152,237.  The borrowing line with the FRB is limited by the value of discounted collateral pledged, which at December 31, 2010 was $104,950.  At December 31, 2010, the Company also had unsecured borrowing lines with various correspondent banks totaling $88,000.  At December 31, 2010, there was $278,187 available on

secured and unsecured borrowing lines with the FHLB, FRB, and various correspondent banks. The Company did not have any short-term borrowings at December 31, 2010.

(dollars in thousands)
Federal funds purchased, FHLB CMA, Federal Reserve,
           & short-term advances
   Average interest rate
      At year end
      0.34 %     0.48 %
      For the year
    0.48 %     0.49 %     2.25 %
   Average amount outstanding for the year
  $ 34,076     $ 144,026     $ 182,301  
   Maximum amount outstanding at any month end
  $ 77,310     $ 212,001     $ 213,225  
   Amount outstanding at year end
  $ -     $ 118,025     $ 193,000  

At December 31, 2010, the Company had FHLB borrowings totaling $67,000 with a weighted average interest rate of 3.1% and a remaining average maturity of approximately 2.3 years. More information on long-term borrowings can be found in Note 9 in the Notes to Consolidated Financial Statements in Item 8 below.

The Company’s other long-term borrowings consist of $8,248 in junior subordinated debentures originated on November 28, 2005, and due on January 7, 2036.  The interest rate on the debentures was 6.265% until January 2011, after which it was converted to a floating rate of three-month LIBOR plus 135 basis points.  At January 7, 2011 (the most recent rate reset date) the interest rate was 1.65%.

The continued challenging economic environment could have a material adverse effect on our future results of operations or market price of our stock.

The national economy and the financial services sector in particular, are still facing significant challenges.   Substantially all of our loans are to businesses and individuals in western Washington and Oregon, markets facing many of the same challenges as the national economy, including elevated unemployment and declines in commercial and residential real estate values.  Although some economic indicators are improving both nationally and in the markets we serve, unemployment remains high and there remains substantial uncertainty regarding when and how strongly a sustained economic recovery will occur.  A further deterioration in economic conditions in the nation as a whole or in the markets we serve could result in the following consequences, any of which could have an adverse impact, which may be material, on our business, financial condition, results of operations and prospects, and could also cause the market price of our stock to decline:

economic conditions may worsen, increasing the likelihood of credit defaults by borrowers;
loan collateral values, especially as they relate to commercial and residential real estate, may decline further, thereby increasing the severity of loss in the event of loan defaults;
demand for banking products and services may decline, including services for low cost and non-interest-bearing deposits; and
changes and volatility in interest rates may negatively impact the yields on earning assets and the cost of interest-bearing liabilities.



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

We maintain an allowance for loan losses in an amount that we believe is adequate to provide for losses inherent in our loan portfolio.  While we strive to carefully manage and monitor credit quality and to identify loans that may be deteriorating, at any time there are loans included in the portfolio that may result in losses, but that have not yet been identified as potential problem loans.  Through established credit practices, we attempt to identify deteriorating loans and adjust the loan loss reserve accordingly.  However, because future events are uncertain, there may be loans that deteriorate in an accelerated time frame.  As a result, future additions to the allowance at elevated levels may be necessary.  Because the loan portfolio contains a number of commercial real estate loans with relatively large balances, deterioration in the credit quality of one or more of these loans may require a significant increase to the allowance for loan losses.  Future additions to the allowance may also be required based on changes in the financial condition of borrowers, such as have resulted due to the current, and potentially worsening, economic conditions.  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 would have an adverse effect, which may be material, on our financial condition and results of operations.

Concentration in real estate loans and the deterioration in the real estate markets we serve could require material increases in our allowance for loan losses and adversely affect our financial condition and results of operations.

The recent economic downturn and sluggish recovery is significantly impacting our market area.  We have a high degree of concentration in loans secured by real estate (see Note 3 in the Notes to Consolidated Financial Statements included in this report).  Further deterioration in the local economies we serve could have a material adverse effect on our business, financial condition and results of operations due to a weakening of our borrowers’ ability to repay these loans and a decline in the value of the collateral securing them.  Our ability to recover on these loans by selling or disposing of the underlying real estate collateral is adversely impacted by declining real estate values, which increases the likelihood we will suffer losses on defaulted loans secured by real estate beyond the amounts provided for in the allowance for loan losses.  This, in turn, could require material increases in our allowance for loan losses and adversely affect our financial condition and results of operations, perhaps materially.

Non-performing assets take significant time to resolve and adversely affect our results of operations and financial condition.

At December 31, 2010, our non-performing loans (which include all nonaccrual loans, net of government guarantees) were 3.73% of the loan portfolio.  At December 31, 2010, our non-performing assets (which include foreclosed real estate) were 3.82% of total assets.  These levels of non-performing loans and assets are at elevated levels compared to historical norms.  Non-performing loans and assets adversely affect our net income in various ways.  Until economic and market conditions improve, we may expect to continue to incur losses relating to non-performing assets.  We generally do not record interest income on non-performing loans or other real estate owned, thereby adversely affecting our income, and increasing our loan administration costs.  When we take collateral in foreclosures and similar proceedings, we are required to mark the related asset to the then fair market value of the collateral, which may ultimately result in a loss.  An increase in the level of non-performing assets increases our risk profile and may impact the capital levels our regulators believe are appropriate in light of the ensuing risk profile.  While we reduce problem assets through loan sales, workouts, and restructurings and otherwise, decreases in the value of the underlying collateral, or in these borrowers’ performance or financial condition, whether or not due to economic and market conditions beyond our control, could adversely affect our business, results of operations and financial condition, perhaps materially.  In addition, the resolution of non-performing assets requires significant commitments of time from management and our directors, which can be detrimental to the performance of their other responsibilities.  There can be no assurance that we will not experience future increases in non-performing assets.


Tightening of credit markets and liquidity risk could adversely affect our business, financial condition and results of operations.

A tightening of the credit markets or any inability to obtain adequate funds for continued loan growth at an acceptable cost could adversely 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 wholesale funding sources including unsecured borrowing lines with correspondent banks, secured borrowing lines with the Federal Home Loan Bank of Seattle and the Federal Reserve Bank of San Francisco, public time certificates of deposits and out of area and brokered time certificates of deposit.  Our ability to access these sources could be impaired by deterioration in our financial condition as well as factors that are not specific to us, such as a disruption in the financial markets or negative views and expectations for the financial services industry or serious dislocation in the general credit markets.  In the event such disruption should occur, our ability to access these sources could be adversely affected, both as to price and availability, which would limit, or potentially raise the cost of, the funds available to the Company.

The FDIC has increased insurance premiums to rebuild and maintain the federal deposit insurance fund and there may be additional future premium increases and special assessments.

In 2009, the FDIC imposed a special deposit insurance assessment of five basis points on all insured institutions, and also required insured institutions to prepay estimated quarterly risk-based assessments through 2012.

The Dodd-Frank Act established 1.35% as the minimum deposit insurance fund reserve ratio. The FDIC has determined that the fund reserve ratio should be 2.0% and has adopted a plan under which it will meet the statutory minimum fund reserve ratio of 1.35% by the statutory deadline of September 30, 2020. The Dodd-Frank Act requires the FDIC to offset the effect on institutions with assets less than $10 billion of the increase in the statutory minimum fund reserve ratio to 1.35% from the former statutory minimum of 1.15%.  The FDIC has not announced how it will implement this offset or how larger institutions will be affected by it.

Despite the FDIC’s actions to restore the deposit insurance fund, the fund will suffer additional losses in the future due to failures of insured institutions.  There can be no assurance that there will not be additional significant deposit insurance premium increases, special assessments or prepayments in order to restore the insurance fund’s reserve ratio.  Any significant premium increases or special assessments could have a material adverse effect on the Company’s financial condition and results of operations.

We may not have the ability to continue paying dividends on our common stock at current or historic levels.
Our ability to pay dividends on our common stock depends on a variety of factors.  On November 17, 2010, we announced a quarterly dividend of $0.01 per share, payable December 15, 2010, which was a continuation of the prior quarter’s dividend.  For the year 2010, the Company paid $0.04 per share in dividends.  There can be no assurance that we will be able to continue paying quarterly dividends commensurate with historic levels, if at all.   Cash dividends will depend on sufficient earnings to support them and approval of appropriate bank regulatory authorities.

We may be required, in the future, to recognize impairment with respect to investment securities, including the FHLB stock we hold.

Our securities portfolio contains whole loan private mortgage-backed securities and currently includes securities with unrecognized losses.  We may continue to observe volatility in the fair market value of these securities.  We evaluate the securities portfolio for any other-than-temporary-impairment (“OTTI”) each reporting period, as required by generally accepted accounting principles.  In the second quarter of 2010, we recognized OTTI of $226 on five of our private-label mortgage-backed securities.  There can be no assurance that future evaluations of the securities portfolio will not require us to recognize additional impairment charges with respect to these and other holdings.


In addition, as a condition to membership in the Federal Home Loan Bank of Seattle (“FHLB”), we are required to purchase and hold a certain amount of FHLB stock.  Our stock purchase requirement is based, in part, upon the outstanding principal balance of advances from the FHLB.  At December 31, 2010, we had stock in the FHLB of Seattle totaling $10,652.  The FHLB stock held by us is carried at cost and is subject to recoverability testing under applicable accounting standards.  The FHLB has discontinued the repurchase of their stock and discontinued the distribution of dividends.  As of December 31, 2010, we did not recognize an impairment charge related to our FHLB stock holdings.  There can be no assurance, however, that future negative changes to the financial condition of the FHLB will not necessitate the recognition of an impairment charge with respect to such holdings.

If the goodwill we have recorded in connection with acquisitions becomes impaired, it could have an adverse impact on our reported earnings.

At December 31, 2010, we had $22,031 of goodwill on our balance sheet.  In accordance with generally accepted accounting principles, our goodwill is not amortized but rather evaluated for impairment on an annual basis or more frequently if events or circumstances indicate that a potential impairment exists.  Such evaluation is based on a variety of factors, including the quoted price of our common stock, market prices of common stocks of other banking organizations, common stock trading multiples, discounted cash flows, and data from comparable acquisitions.  There can be no assurance that future evaluations of goodwill will not result in findings of impairment and write-downs, which could be material.  At December 31, 2010, we did not recognize an impairment charge related to our goodwill.

Recent levels of market volatility were unprecedented and we cannot predict whether they will return.

From time-to-time over the last few years, the capital and credit markets have experienced volatility and disruption at unprecedented levels.  In some cases, the markets have produced downward pressure on stock prices and credit availability for certain issuers without regard to those issuers’ underlying financial strength.  If similar levels of market disruption and volatility return, there can be no assurance that we will not experience an adverse effect, which may be material, on our ability to access capital and on our business, financial condition and results of operations.

We operate in a highly regulated environment and we cannot predict the effect of recent and pending federal legislation.

As discussed more fully in the section entitled “Supervision and Regulation”, we are subject to extensive regulation, supervision and examination by federal and state banking authorities.  In addition, as a publicly traded company, we are subject to regulation by the Securities and Exchange Commission.  Any change in applicable regulations or federal, state or local legislation could have a substantial impact on us and our operations.  Additional legislation and regulations that could significantly affect our powers, authority and operations may be enacted or adopted in the future, which could have a material adverse effect on our financial condition and results of operations

In that regard, sweeping financial regulatory reform legislation was enacted in July 2010.  Among other provisions, the new legislation (i) creates a new Bureau of Consumer Financial Protection with broad powers to regulate consumer financial products such as credit cards and mortgages, (ii) creates a Financial Stability Oversight Council comprised of the heads of other regulatory agencies, (iii) will lead to new capital requirements from federal banking agencies, (iv) places new limits on electronic debit card interchange fees, and (v) will require the Securities and Exchange Commission and national stock exchanges to adopt significant new corporate governance and executive compensation reforms.  The new legislation and regulations are likely to increase the overall costs of regulatory compliance.


Further, regulators have significant discretion and authority to prevent or remedy unsafe or unsound practices or violations of laws or regulations by financial institutions and holding companies in the performance of their supervisory and enforcement duties.  Recently, these powers have been utilized more frequently due to the serious national, regional and local economic conditions we are facing.  The exercise of regulatory authority may have a negative impact on our financial condition and results of operations.

We cannot accurately predict the ultimate effects of recent legislation or the various governmental, regulatory, monetary and fiscal initiatives which have been and may be enacted on the financial markets, on the Company and on the Bank. The terms and costs of these activities, or the failure of these actions to help stabilize the financial markets, asset prices, market liquidity and a continuation or worsening of current financial market and economic conditions could materially and adversely affect our business, financial condition, results of operations and the trading price of our common stock.

Fluctuating interest rates could adversely affect our profitability.

Our profitability is dependent to a large extent upon our net interest income, which is the difference between the interest earned on loans, securities and other interest-earning assets and interest paid on deposits, borrowings, and other interest-bearing liabilities.  Because of the differences in maturities and repricing characteristics of our interest-earning assets and interest-bearing liabilities, changes in interest rates do not produce equivalent changes in interest income earned on interest-earning assets and interest paid on interest-bearing liabilities.  Accordingly, fluctuations in interest rates could adversely affect our net interest margin, and, in turn, our profitability.  We manage our interest rate risk within established guidelines and generally seek an asset and liability structure that insulates net interest income from large deviations attributable to changes in market rates.  However, our interest rate risk management practices may not be effective in a highly volatile rate environment.

We face strong competition from financial services companies and other companies that offer banking services.

Our three major markets are in Oregon and Washington.  The banking and financial services businesses in our market area are highly competitive and increased competition may adversely impact the level of our loans and deposits.  Ultimately, we may not be able to compete successfully against current and future competitors.  These competitors include national banks, foreign banks, regional banks and other community banks.  We also face competition from many other types of financial institutions, including savings and loan associations, finance companies, brokerage firms, insurance companies, credit unions, mortgage banks and other financial intermediaries.  In particular, our competitors include major financial companies whose greater resources may afford them a marketplace advantage by enabling them to maintain numerous locations and mount extensive promotional and advertising campaigns.  Areas of competition include interest rates for loans and deposits, efforts to obtain loan and deposit customers and a range in quality of products and services provided, including new technology driven products and services.  If we are unable to attract and retain banking customers, we may be unable to continue our loan growth and level of deposits.

Future acquisitions and expansion activities may disrupt our business and adversely affect our operating results.

We regularly evaluate potential acquisitions and expansion opportunities.  To the extent that we grow through acquisitions, we cannot ensure that we will be able to adequately or profitably manage this growth.  Acquiring other banks, branches or other assets, as well as other expansion activities, involve various risks including the risks of incorrectly assessing the credit quality of acquired assets, encountering greater than expected costs of incorporating acquired banks or branches into our Company, and being unable to profitably deploy funds acquired in an acquisition.



We may pursue additional capital in the future, which could dilute the holders of our outstanding common stock and may adversely affect the market price of our common stock.

From time-to-time, particularly in the current uncertain economic environment, we may consider alternatives for raising capital when opportunities present themselves, in order to further strengthen our capital and/or better position ourselves to take advantage of identified or potential opportunities that may arise in the future.  Such alternatives may include issuance and sale of common or preferred stock, trust preferred securities or borrowings by the Company, with proceeds contributed to the Bank.  Any such capital raising alternatives could dilute the holders of our outstanding common stock and may adversely affect the market price of our common stock.

Anti-takeover provisions in our amended and restated articles of incorporation and bylaws and Oregon law could make a third party acquisition of us difficult.

Our amended and restated articles of incorporation contain provisions that could make it more difficult for a third party to acquire us (even if doing so would be beneficial to our shareholders) and for holders of our common stock to receive any related takeover premium for their common stock.  We are also subject to certain provisions of Oregon law that could delay, deter or prevent a change in control of us.  These provisions could limit the price that investors might be willing to pay in the future for shares of our common stock.


The principal properties of the registrant are comprised of the banking facilities owned by the Bank.  The Company operates fourteen full-service facilities.  The Bank owns a total of eight buildings and, with the exception of two buildings, owns the land on which these buildings are situated.  Significant properties owned by the Bank are as follows:

Three-story building and land with approximately 30,000 square feet located on Olive Street in Eugene, Oregon.
Building with approximately 4,000 square feet located on West 11th Avenue in Eugene, Oregon.  The building is on leased land.
Building and land with approximately 8,000 square feet located on High Street in Eugene, Oregon.
Three-story building and land with approximately 31,000 square feet located in Springfield, Oregon.  The Company occupies approximately 5,500 square feet of the first floor and approximately 5,900 square feet on the second floor and leases out, or is seeking to lease out, the remaining space.
Building and land with approximately 3,500 square feet located in Beaverton, Oregon.
Building and land with approximately 2,000 square feet located in Junction City, Oregon.
Building and land with approximately 5,000 square feet located near the Convention Center in Portland, Oregon.
Building with approximately 6,800 square feet located at the Nyberg Shopping Center in Tualatin, Oregon.  The building is on leased land.

The Company leases facilities for branch offices in Eugene, Oregon, Downtown Seattle, Washington, Downtown Bellevue, Washington, Downtown Portland, Oregon, and Vancouver, Washington.  In addition, the Company leases a portion of an adjoining building to the High Street office for administrative and training functions.  Management considers all owned and leased facilities adequate for current use.



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

Market for Company’s Common Equity, Related Shareholder Matters and Purchases of Equity Securities

Market Information and Shareholders

The Company’s common stock is traded on the NASDAQ Global Select Market under the symbol PCBK.  At March 4, 2011, the Company had 18,404,725 shares of common stock outstanding held by approximately 2,498 shareholders of record.

The high, low and closing sales prices (based on daily closing price) for the last eight quarters are shown in the table below.

Market value:
  $ 10.45     $ 9.61     $ 12.19     $ 11.58     $ 12.37     $ 11.78     $ 13.27     $ 14.96  
    8.25       8.05       9.43       9.25       8.54       9.46       10.79       9.99  
    10.06       9.05       9.47       10.50       11.44       10.53       12.13       12.92  


The Company pays cash dividends on a quarterly basis, typically in March, June, September and December of each year.  The Board of Directors considers the dividend amount quarterly and takes a broad perspective in its dividend deliberations including a review of recent operating performance, capital levels, projected capital levels, loan concentrations as a percentage of capital and growth projections.  The Board also considers dividend payout ratios, dividend yield, and other financial metrics in setting the quarterly dividend.   The Company declared and paid cash dividends of $0.04 per share for the year ended December 31, 2010.  That compares to cash dividends of $0.25 per share paid for the year ended December 31, 2009.  Regulatory authorities may prohibit the Company from paying dividends in a manner that would constitute an unsafe or unsound banking practice or would reduce the amount of its capital below that necessary to meet minimum applicable regulatory capital requirements.  Current guidance from the Federal Reserve provides, among other things, that dividends per share generally should not exceed earnings per share, measured over the previous four fiscal quarters.  The Company’s dividends per share did not exceed earnings per share in 2010.  Future dividends will depend on sufficient earnings to support them, along with approval of the Board and appropriate bank regulatory authorities.



Equity Compensation Plan Information
Year Ended December 31, 2010
Number of shares to be issued upon exercise of outstanding options, warrants and rights (2)
Weighted-average exercise price of outstanding options, warrants and rights (2)
Number of shares remaining available for future issuance under equity compensation plans (2)
Equity compensation plans approved
by security holders(1)
    908,608     $ 13.68       183,090  
Equity compensation plans not
approved by security holders
    0     $ 0.00       0  
    908,608     $ 13.68       183,090  
(1) Under the Company’s respective equity compensation plans, the Company may grant incentive stock options and non-qualified stock
options, restricted stock, restricted stock units and stock appreciation rights to its employees and directors, however only employees may
receive incentive stock options.
(2) All amounts have been adjusted to reflect subsequent stock splits and stock dividends.



Performance graph

The information contained in the following chart entitled “Total Return Performance” is not considered to be “soliciting material”, or “filed”, or incorporated by reference in any past or future filing by the Company under the Securities Exchange Act of 1934 or the Securities Act of 1933 unless and only to the extent that the Company specifically incorporates it by reference.

PCBK Stock Performance Graph 2005-2010
The above graph and following table compares the total cumulative shareholder return on the Company’s Common Stock, based on reinvestment of all dividends, to the cumulative total returns of the Russell 2000 Index and SNL Securities $1 Billion to $5 Billion Bank Asset Size Index.  The graph assumes $100 invested on December 31, 2005, in the Company’s Common Stock and each of the indices.
Period Ending
Pacific Continental Corporation
Russell 2000
SNL Bank $1B-$5B



ITEM 6                                Selected Financial Data

Selected financial data for the past five years is shown in the table below.
($ in thousands, except for per share data)

For the year
 Net interest income
  $ 51,261     $ 54,039     $ 49,271     $ 43,426     $ 40,057  
 Provision for loan losses
    15,000       36,000       3,600       725       600  
 Noninterest income
    4,649       4,405       4,269       3,925       4,401  
 Noninterest expense
    33,094       31,162       29,562       25,861       23,791  
 Income tax expense (benefit)
    2,724       (3,839 )     7,439       7,830       7,412  
 Net income (loss)
    5,092       (4,879 )     12,939       12,935       12,655  
 Cash dividends
    736       3,272       4,797       4,175       3,381  
Per common share data (1)
 Net income (loss):
  $ 0.28     $ (0.35 )   $ 1.08     $ 1.09     $ 1.09  
    0.28       (0.35 )     1.08       1.08       1.08  
Cash dividends
    0.04       0.25       0.40       0.35       0.29  
Book value
    9.35       9.01       9.62       9.01       8.17  
Tangible book value
    8.13       7.77       7.72       7.07       6.16  
Market value, end of year
    10.06       11.44       14.97       12.52       17.68  
At year end
  $ 1,210,176     $ 1,199,113     $ 1,090,843     $ 949,271     $ 885,351  
 Loans, less allowance for loan loss (2)
    841,931       930,997       945,787       813,647       760,957  
 Available-for-sale securities
    253,907       167,618       54,933       53,994       38,783  
 Core deposits (3)
    895,838       771,986       615,832       615,892       580,210  
 Total deposits
    958,959       827,918       722,437       644,424       641,272  
 Shareholders' equity
    172,238       165,662       116,165       107,509       95,735  
 Tangible equity (4)
    149,780       142,981       93,261       84,382       72,109  
Average for the year
  $ 1,189,289     $ 1,129,971     $ 1,019,040     $ 903,932     $ 825,671  
 Earning assets
    1,086,677       1,051,315       945,856       832,451       755,680  
 Loans, less allowance for loan loss (2)
    887,594       943,788       882,742       785,132       712,563  
 Available-for-sale securities
    198,507       96,549       51,908       42,857       38,677  
 Core deposits (3)
    827,082       703,894       613,243       590,713       533,861  
 Total deposits
    904,169       782,835       699,623       654,631       605,814  
 Interest-paying liabilities
    799,638       810,380       732,466       627,569       567,708  
 Shareholders' equity
    170,758       135,470       111,868       103,089       90,238  
Financial ratios
 Return on average:
    0.43 %     -0.43 %     1.27 %     1.43 %     1.53 %
    2.98 %     -3.60 %     11.57 %     12.55 %     14.02 %
  Tangible equity (4)
    3.44 %     -4.33 %     14.56 %     16.23 %     19.12 %
 Avg shareholders' equity / avg assets
    14.36 %     11.99 %     10.98 %     11.40 %     10.93 %
 Dividend payout ratio
    14.45 %  
      37.07 %     32.28 %     26.72 %
 Risk-based capital:
  Tier I capital
    15.86 %     14.38 %     10.07 %     10.02 %     9.97 %
  Total capital
    17.10 %     15.63 %     11.16 %     10.98 %     11.01 %
(1) Per common share data is retroactively adjusted to reflect the 10% stock dividend of 2007.
(2) Outstanding loans include loans held-for-sale.
(3) Core deposits include all demand, interest checking, money market, savings and local non-public time deposits,
including local non-public time deposits in excess of $100.
(4) Tangible equity excludes goodwill and core deposit intangible related to acquisitions. See Management's
Discussion and Analysis of Financial Condition and Results of Operations -"Results of Operations Overview"
in Item 7 of this report for a reconciliation of non-GAAP financial measures.
NM - Not meaningful



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

The following discussion is intended to provide a more comprehensive review of the Company’s operating results and financial condition than can be obtained from reading the Consolidated Financial Statements alone.  The discussion should be read in conjunction with the audited financial statements and the notes included later in this report.  All dollar amounts, 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:

local and national economic conditions could be less favorable than expected or could have a more direct and pronounced effect on us than expected and adversely affect our ability to continue internal growth at historical rates and maintain the quality of our earning assets;
the local housing or real estate market could continue to decline;
the risks presented by a continued economic recession, which could adversely affect credit quality, collateral values, including real estate collateral, investment values, liquidity and loan originations and loan portfolio delinquency rates;
interest rate changes could significantly reduce net interest income and negatively affect funding sources;
projected business increases following any future strategic expansion or opening of new branches could be lower than expected;
competition among financial institutions could increase significantly;
the goodwill we have recorded in connection with acquisitions could become impaired, which may have an adverse impact on our earnings and capital;
the reputation of the financial services industry could deteriorate, which could adversely affect our ability to access markets for funding and to acquire and retain customers;
the efficiencies we may expect to receive from any investments in personnel, acquisitions and infrastructure may not be realized;
the level of non-performing assets and charge-offs or changes in the estimates of future reserve requirements based upon the periodic review thereof under relevant regulatory and accounting requirements may increase;
changes in laws and regulations (including laws and regulations concerning taxes, banking, securities, executive compensation and insurance) could have a material adverse effect on our business, financial condition and results of operations;
acts of war or terrorism, or natural disasters, such as the effects of pandemic flu, may adversely impact our business;
the timely development and acceptance of new banking products and services and perceived overall value of these products and services by users may adversely impact our ability to increase market share and control expenses;
changes in accounting policies and practices, as may be adopted by the regulatory agencies, as well as the Public Company Accounting Oversight Board, the Financial Accounting Standards Board and other accounting standard setters may impact the results of our operations;
the costs and effects of legal and regulatory developments including the resolution of legal proceedings or regulatory or other governmental inquiries and the results of regulatory examinations or reviews may adversely impact our ability to increase market share and control expenses; and
our success at managing the risks involved in the foregoing items will have a significant impact upon our results of operations and future prospects.


Additional factors that could cause actual results to differ materially from those expressed in the forward-looking statements are discussed in Risk Factors in Item 1A.  Please take into account that forward-looking statements speak only as of the date of this report or documents incorporated by reference.  The Company does not undertake any obligation to publicly correct or update any forward-looking statement whether as a result of new information, future events or otherwise.


% Change
% Change
2010 vs. 2009
2009 vs. 2008
Net income (loss)
  $ 5,092     $ (4,879 )  
    $ 12,939    
Operating revenue (1)
    55,910       58,444       -4.3 %     53,540       9.2 %
Earnings (loss) per share
  $ 0.28     $ (0.35 )  
    $ 1.08    
  $ 0.28     $ (0.35 )  
    $ 1.08    
Assets, period-end
  $ 1,210,176     $ 1,199,113       0.9 %   $ 1,090,843       9.9 %
Loans, period-end (2)
    856,385       944,364       -9.3 %     956,357       -1.3 %
Core deposits, period-end (3)
    895,838       771,986       16.0 %     615,832       25.4 %
Deposits, period-end
    958,959       827,918       15.8 %     722,437       14.6 %
Return on average assets
    0.43 %     -0.43 %             1.27 %        
Return on average equity
    2.98 %     -3.60 %             11.57 %        
Return on average tangible equity (4)
    3.44 %     -4.33 %             14.56 %        
Net interest margin (5)
    4.72 %     5.19 %             5.27 %        
Efficiency ratio