Pacific Continental Corporation Reports Second Quarter Results

Record Loan Growth and Margin Stability Drive Quality Balance Sheet Expansion

News provided by

Pacific Continental Corporation

Jul 20, 2016, 04:31 ET

EUGENE, Ore., July 20, 2016 /PRNewswire/ -- Pacific Continental Corporation (Nasdaq: PCBK), the holding company of Pacific Continental Bank, today reported financial results for the second quarter ended June 30, 2016.

Second Quarter highlights:

  • Total assets surpassed $2.0 billion for the first time.
  • Record quarterly loan growth of $54.8 million.
  • Announced agreement on April 27, 2016 to acquire Foundation Bank, a $422 million bank in Bellevue, WA.
  • Tax-equivalent net interest margin of 4.27%, compared to 4.27% for the first quarter 2016.
  • Net income of $2.6 million, or $0.13 per diluted share.
  • Completed an offering for $35 million of subordinated debt on June 27, 2016 with a coupon of 5.875%.
  • Declared third quarter 2016 regular quarterly cash dividend of $0.11 per share.
  • Grand opening of our new office in Vancouver, WA.
  • Recognized by Seattle Business Magazine as one of the Top 100 Companies for the 6th consecutive year.
  • Recognized by Smart Asset as the #7 best performing public company in Oregon.

Net Income Highlights
Net income for the second quarter 2016 of $2.6 million, or $0.13 per diluted share, included non-core costs associated with our pending acquisition of Foundation Bank, which were approximately $2.0 million, or $0.07 per diluted share.  In addition, we reported in our first quarter 2016 10-Q that we had reached a tentative settlement on our pending litigation, subject to court approval, which we do not expect to have an material impact on our financial condition.  Legal costs associated with the litigation were $195 thousand during the second quarter, or about $0.01 per diluted share.  Additionally, we incurred unusually higher costs associated with our partially self-funded group insurance plan due to several large claims.  Our healthcare costs during the second quarter 2016 were approximately $550 thousand higher than our actuarial forecast, which equates to approximately $0.02 per share.  Lastly, our provision expense for the second quarter 2016 was higher than normal due to record loan growth, as well as provisions associated with minor charge-offs and primarily one downgrade.  The provision expense related to the downgrade and charge-offs equated to approximately $1.3 million, or $0.04 per diluted share, of our $2.0 million of provision expense for the quarter.

Annualized returns on average assets, average equity and average tangible equity for second quarter 2016 were 0.53%, 4.67%, and 5.80%, respectively, compared to 1.12%, 9.92%, and 12.35% for first quarter 2016. Annualized returns on average assets, average equity, and average tangible equity for the six months ended June 30, 2016 were 0.82%, 7.28%, and 9.05%, respectively, compared to 0.94%, 7.89%, and 9.68% for the same time period in 2015.

"We are very proud of the many significant achievements that took place during the second quarter," said Roger Busse, chief executive officer.  "We have a talented team of management and staff that are uniformly focused on strategic growth and building future earnings strength and value."

Second quarter 2016 noninterest income was $1.7 million, basically flat from the first quarter 2016.  The minor decrease in linked-quarter noninterest income of $60 thousand was due to gains on sales of securities, which were $166 thousand lower than the first quarter 2016. 

Noninterest expense for the second quarter 2016 was $14.9 million, an increase of $2.9 million from the first quarter of 2016. As discussed above, the increase resulted primarily from extraordinary items, including costs associated with the pending acquisition of Foundation Bank, legal costs related to litigation, and high claim activity on our partially self-funded insurance plan.  We incurred approximately $240 thousand in expenses, reported in legal and professional fees, related to the annual stock grant to our board of directors.  

Net Interest Margin
The second quarter 2016 net interest margin was 4.27%, equal to the net interest margin from the first quarter 2016. Accretion income for the second quarter 2016 was $156 thousand compared to $409 thousand for the first quarter 2016.  As outlined below, the core margin was 4.20% for the second quarter 2016 compared to 4.17% for the first quarter 2016. 

Second Quarter 2016

First Quarter 2016

Average
Balance

Income
(Expense)

Yield

Average
Balance

Income
(Expense)

Yield

Federal funds sold and interest-bearing deposits

$        14,393

$            19

0.53%

$        34,380

$            45

0.53%

Federal Home Loan Bank stock

7,004

20

1.15%

4,058

28

2.78%

Securities available-for-sale (1)

385,777

2,550

2.66%

379,001

2,422

2.57%

Net loans(2)

1,444,956

17,891

4.98%

1,403,115

17,480

5.01%

Earning assets

1,852,130

20,480

4.45%

1,820,554

19,975

4.41%










Interest bearing liabilities

1,121,088

(1,137)

-0.41%

1,110,173

(1,083)

-0.39%










Core margin (non-GAAP)

1,852,130

19,343

4.20%

1,820,554

18,892

4.17%

Acquired loan accretion

156

0.03%


409

0.09%

Prepayment penalties on loans

166

0.04%


84

0.02%

Prepayment penalties on brokered deposits

-

0.00%


(61)

-0.01%

Net interest margin

$  1,852,130

$    19,665

4.27%

$  1,820,554

$    19,324

4.27%











(1)Tax-exempt security income has been adjusted to a tax-equivalent basis at a 35% tax rate.  The amount of such adjustment was an addition to recorded income of approximately $256 and $257 for the three months ended June 30, 2016  and March 31, 2016, respectively. Net interest margin was positively impacted by 6 basis points in each period.

(2) Tax-exempt loan income has been adjusted to a tax-equivalent basis at a 35% tax rate.  The amount of such adjustment was an addition to recorded income of approximately $262 and $258 for the three months ended June 30, 2016 and March 31, 2016, respectively. Net interest margin was positively impacted by 6 basis points in each period.

Balance Sheet Highlights
Gross loans grew by $54.8 million in second quarter 2016, and totaled $1.49 billion at June 30, 2016.  Second quarter loan growth marked the highest quarterly growth in our history.  This loan growth came primarily from the non-owner occupied commercial real estate, real estate construction, and commercial loan categories.  Net loan growth occurred in the Eugene, Portland, and National Health-care markets, with a slight contraction in the Seattle market due to normal amortizations and anticipated payoffs outpacing new loan production.  Gross loan growth through the first six months of 2016 was $80.1 million, or 11.52% annualized.  At June 30, 2016, loans to dental practitioners increased to $369.8 million and represented 24.88% of the loan portfolio.  Loans to dental practitioners represented 24.52% of the loan portfolio at March 31, 2016.

Period-end Company-defined core deposits at June 30, 2016, were $1.51 billion, a decrease of $125.9 million from the first quarter 2016.  Approximately 65% of the deposit decrease came from one client relationship.  As we have disclosed in previous 10-Q filings, we had a large local client that was purchased by a national entity.  Based on initial conversations with the buyer, we anticipated that the deposit funds would remain until sometime in 2017; however this client accelerated the withdrawal during the second quarter.  We had already excluded this deposit relationship from our liquidity analysis and have contingency plans in place to replace the funds.  Another 25% of the deposit decrease related to the withdrawal of excess funds held by a large client relationship which had placed a large deposit of sales proceeds into the Bank during the first quarter 2016.  In the first half of 2016, this client has grown its deposit relationship by $15.2 million.  The remainder of the deposit decrease relates to normal seasonal fluctuations, primarily from our large construction industry clients. At June 30, 2016, noninterest-bearing demand deposits totaled $624.1 million and represented 41.39% of Company-defined core deposits.  Cost of funds on core interest-bearing deposits was 0.26% for the second quarter 2016, unchanged from first quarter 2016.  In the first half of 2016, core-deposits have decreased by $25.9 million and total deposits have increased by $3.0 million.  Deposit run-off and earning asset growth were funded with a combination of overnight borrowings from the Federal Home Loan Bank of Des Moines (FHLB) and Brokered Certificates of Deposit (Brokered CD's).  The brokered CD's totaled $28.8 million and were laddered into 2 - 4 year term buckets, with a blended rate of 1.25%. 

"We are proud of our outstanding team of bankers as they produced record loan growth for the second quarter," said Casey Hogan, chief operating officer.  "While deposits declined, these decreases came from a very limited number of clients, and were mostly expected.  We continue to focus on growing earning assets and driving future revenue."

Asset Quality
As of June 30, 2016, the allowance for loan losses as a percentage of outstanding loans was 1.29%, an increase from the 1.23% reported at March 31, 2016.  At June 30, 2016, the allowance for loan losses as a percentage of nonperforming loans, net of government guarantees, increased to 1,172.72% from 666.01% at March 31, 2016. During the second quarter 2016, the Company recorded net loan losses of $419 thousand, compared to net recoveries of $50 thousand during the first quarter 2016.  During the second quarter, the Company made a $2.0 million provision for loan losses compared to $245 thousand in the first quarter 2016. Second quarter 2016 provision for loan losses was primarily related to the record loan growth experienced during the quarter, along with the impact of $419 thousand in net loan losses, and the impact of downgrading one lending relationship of $2.3 million.

At June 30, 2016, nonperforming assets, net of government guarantees, totaled $13.7 million, or 0.68% of total assets, compared to $14.4 million, or 0.73% of total assets at March 31, 2016. Nonperforming assets at June 30, 2016, were comprised of $1.6 million of nonperforming loans, net of government guarantees of $2.7 million, and $12.1 million in other real estate owned. Loans past-due 30-89 days were 0.02% of total loans at June 30, 2016, compared to 0.07% of total loans at March 31, 2016. 

Capital Adequacy
The Company's consolidated capital ratios continued to be above the minimum thresholds for the FDIC's "well-capitalized" designation. At June 30, 2016, the Company's capital ratios were as follows:

June 30, 2016

Minimum dollar requirements

Pacific
Continental
Corporation

Regulatory
Minimum (Well-
Capitalized)

Excess

Tier I capital (to leverage assets)

$   186,654

$              97,038

$ 89,616

Common equity tier 1 capital (to risk weighted assets)

$   178,654

$           115,333

$ 63,321

Tier I capital (to risk weighted assets)

$   186,654

$           141,948

$ 44,706

Total capital (to risk weighted assets)

$   240,233

$           177,435

$ 62,798

Minimum percentage requirements

Pacific
Continental
Corporation

Regulatory
Minimum (Well-
Capitalized)

Tier I capital (to leverage assets)

9.62%

5.00%

Common equity tier 1 capital (to risk weighted assets)

10.07%

6.50%

Tier I capital (to risk weighted assets)

10.52%

8.00%

Total capital (to risk weighted assets)

13.54%

10.00%

Non-GAAP Financial Measures
In addition to results presented in accordance with generally accepted accounting principles (GAAP), this press release contains certain non-GAAP financial measures. The Company believes that such non-GAAP financial measures provide investors with information useful in understanding the Company's financial performance; however, readers of this release are urged to review these non-GAAP financial measures in conjunction with the GAAP results as reported.

Financial measures such as tangible shareholders' equity, and tangible assets, are considered non-GAAP measures. Management believes including non-GAAP measures along with GAAP measures provides investors with a broader understanding of capital adequacy, funding sources and revenue trends. Tangible shareholders' equity is calculated as total shareholders' equity less goodwill and core deposit intangible assets. Additionally, tangible assets are calculated as total assets less goodwill and core deposit intangible assets.

The following table presents a reconciliation of ending total shareholders' equity (GAAP) to ending tangible shareholders' equity (non-GAAP), and total assets (GAAP) to total tangible assets (non-GAAP):

June 30,

March 31,

June 30,

2016

2016

2015

(In thousands)





Total shareholders' equity

$     226,426

$     224,879

$     212,015

Subtract:





Goodwill

40,027

40,027

39,075

Core deposit intangible assets

3,657

3,781

4,150

Tangible shareholders' equity (non-GAAP)

$     182,742

$     181,071

$     168,790





Total assets

$  2,025,410

$  1,965,705

$  1,830,942

Subtract:





Goodwill

40,027

40,027

39,075

Core deposit intangible assets

3,657

3,781

4,150

Total tangible assets (non-GAAP)

$  1,981,726

$  1,921,897

$  1,787,717

Conference Call and Audio Webcast
Management will conduct a live conference call and audio webcast for interested parties relating to the Company's results for the second quarter 2016 on Thursday, July 21, 2016, at 11:00 a.m. Pacific / 2:00 p.m. Eastern. To listen to the conference call, interested parties should call: (855) 215-7498 Passcode: 1554389. Following the formal remarks, a question and answer session will be open to all interested parties. The webcast will be available via Pacific Continental's website www.therightbank.com. To listen to the live audio webcast, click on the webcast presentation link on the Company's home page a few minutes before the presentation is scheduled to begin. An audio webcast replay is typically available within twenty-four hours following the live webcast and will be archived for one year on the Pacific Continental website. Any questions regarding the conference call presentation or webcast should be directed to Shannon Coffin, executive administrative assistant, at 541-686-8685.

About Pacific Continental Bank
Pacific Continental Bank, the wholly-owned operating subsidiary of Pacific Continental Corporation, delivers highly personalized services through fourteen banking offices in Oregon and Washington. The Bank also operates loan production offices in Tacoma, Washington and Denver, Colorado. Pacific Continental, with slightly more than $2.0 billion in assets, has established one of the most unique and attractive metropolitan branch networks in the Pacific Northwest with offices in three of the region's largest markets, including Seattle, Portland and Eugene. Pacific Continental targets the banking needs of community-based businesses, health care professionals, professional service providers and nonprofit organizations.

Since its founding in 1972, Pacific Continental Bank has been honored with numerous awards and recognitions from highly regarded third-party organizations including The Seattle Times, the Portland Business Journal, the Seattle Business magazine and Oregon Business magazine. A complete list of the company's awards and recognitions – as well as supplementary information about Pacific Continental Bank – can be found online at www.therightbank.com. Pacific Continental Corporation's shares are listed on the Nasdaq Global Select Market under the symbol "PCBK" and are a component of the Russell 2000 Index.

Forward-Looking Statement Safe Harbor
This release contains "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995 ("PSLRA"). These statements can be identified by the fact that they do not relate strictly to historical or current facts. Forward-looking statements often use words such as "anticipates," "targets," "expects," "estimates," "intends," "plans," "goals," "believes" and other similar expressions or future or conditional verbs such as "will," "should," "would" and "could." The forward-looking statements made represent Pacific Continental's current estimates, projections, expectations, plans or forecasts of its future results and revenues, including but not limited to statements about performance, loan or deposit growth, contingency plans to replace deposit declines, strategic focus,  capital position, liquidity, credit quality, credit quality trends, and the impact and effects of recent or pending acquisitions. These statements are not guarantees of future results or performance and involve certain risks, uncertainties and assumptions that are difficult to predict and are often beyond Pacific Continental's control. Actual outcomes and results may differ materially from those expressed in, or implied by, any of these forward-looking statements. You should not place undue reliance on any forward-looking statement and should consider all of the following uncertainties and risks, as well as those more fully discussed under "Risk Factors", "Business", and "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Pacific Continental's most recent Annual Report on Form 10-K, Quarterly Report on Form 10-Q, and in any of Pacific Continental's subsequent SEC filings, including the high concentration of loans of the Company's banking subsidiary in commercial and residential real estate lending and in loans to dental professionals; adverse economic trends in the United States and the markets we serve affecting the Bank's borrower base; continued erosion or sustained low levels of consumer confidence; changes in the Federal Reserve's monetary policies and the regulatory environment and increases in associated costs, particularly ongoing compliance expenses and resource allocation needs; vendor quality and efficiency; the Company's ability to control risks associated with rapidly changing technology both from an internal perspective as well as for external providers; operational systems or infrastructure failures; increased competition; fluctuating interest rates; a tightening of available credit; the potential adverse impact of legal or regulatory proceedings; and risks related to acquisitions, including integration, retention of key personnel and business, anticipated cost savings and results and performance of the acquired company or the combined entity. Pacific Continental Corporation undertakes no obligation to publicly revise or update any forward-looking statement to reflect the impact of events or circumstances that arise after the date of this release. This statement is included for the express purpose of invoking the PSLRA's safe harbor provisions.

PACIFIC CONTINENTAL CORPORATION and subsidiary

Consolidated Income Statements

(In thousands, except share and per share amounts)

(Unaudited)











Three months ended

Linked 

Year over

June 30,

March 31,

June 30,

Quarter

Year  

2016

2016

2015

% Change

% Change

Interest and dividend income









Loans

$       17,951

$       17,714

$       16,594

1.34%

8.18%

Taxable securities

1,838

1,717

1,736

7.05%

5.88%

Tax-exempt securities

476

477

499

-0.21%

-4.61%

Federal funds sold and interest-bearing deposits with banks

19

45

11

-57.78%

72.73%

20,284

19,953

18,840

1.66%

7.66%









Interest expense









Deposits

797

897

845

-11.15%

-5.68%

Federal Home Loan Bank & Federal Reserve borrowings

282

189

239

49.21%

17.99%

Junior subordinated debentures

56

56

56

0.00%

0.00%

Federal funds purchased

2

2

4

0.00%

-50.00%

1,137

1,144

1,144

-0.61%

-0.61%









Net interest income

19,147

18,809

17,696

1.80%

8.20%









Provision for loan losses

1,950

245

550

695.92%

254.55%

Net interest income after provision for loan losses

17,197

18,564

17,146

-7.36%

0.30%









Noninterest income









Service charges on deposit accounts

688

693

661

-0.72%

4.08%

Bankcard income

294

290

214

1.38%

37.38%

Bank-owned life insurance income

145

146

170

-0.68%

-14.71%

Gain on sale of investment securities

71

237

139

-70.04%

-48.92%

Impairment losses on investment securities (OTTI)

-

(17)

(13)

-100.00%

-100.00%

Other noninterest income

549

458

456

19.87%

20.39%

1,747

1,807

1,627

-3.32%

7.38%









Noninterest expense









Salaries and employee benefits

8,005

7,559

6,744

5.90%

18.70%

Premises and equipment

1,087

1,115

1,094

-2.51%

-0.64%

Data processing

893

864

821

3.36%

8.77%

Legal and professional fees

1,140

611

739

86.58%

54.26%

Business development

516

516

411

0.00%

25.55%

FDIC insurance assessment

286

288

273

-0.69%

4.76%

Other real estate (income) expense, net

(113)

10

(60)

-1230.00%

88.33%

Merger related expenses(1)

1,978

-

-

NA

NA

Other noninterest expense

1,140

1,044

1,008

9.20%

13.10%

14,932

12,007

11,030

24.36%

35.38%









Income before provision for income taxes

4,012

8,364

7,743

-52.03%

-48.19%

Provision for income taxes

1,406

2,905

2,648

-51.60%

-46.90%









Net income

$         2,606

$         5,459

$         5,095

-52.26%

-48.85%









Earnings per share:









Basic

$           0.13

$           0.28

$           0.26

-53.57%

-50.00%

Diluted

$           0.13

$           0.28

$           0.26

-53.57%

-50.00%









Weighted average shares outstanding:









Basic

19,697,314

19,607,106

19,562,363














Common stock equivalents attributable to stock-based awards

171,653

175,176

226,521



Diluted

19,868,967

19,782,282

19,788,884














PERFORMANCE RATIOS









Return on average assets 

0.53%

1.12%

1.14%



Return on average equity (book) 

4.67%

9.92%

9.68%



Return on average equity (tangible) (2)

5.80%

12.35%

12.18%



Net interest margin - fully tax-equivalent yield (3)

4.27%

4.27%

4.37%



Efficiency ratio (4)

70.60%

57.52%

56.30%

















(1)

Represents expenses associated with the pending acquisition of Foundation Bank.  

(2)

Tangible equity excludes goodwill and core deposit intangible assets related to acquisitions.

(3)

Net interest margin is reported on a tax-equivalent yield basis at a 35% tax rate.

(4)

Efficiency ratio is noninterest expense as a percent of net interest income (on a tax-equivalent basis) plus noninterest income.

NA  Not applicable

PACIFIC CONTINENTAL CORPORATION and subsidiary

Year-to-Date Consolidated Income Statements

(In thousands, except share and per share amounts)

(Unaudited)







Six months ended

Year over

June 30,

Year  

2016

2015

% Change

Interest and dividend income





Loans

$       35,665

$       30,780

15.87%

Taxable securities

3,555

3,112

14.24%

Tax-exempt securities

952

1,002

-4.99%

Federal funds sold and interest-bearing deposits with banks

64

16

300.00%

40,236

34,910

15.26%





Interest expense





Deposits

1,694

1,655

2.36%

Federal Home Loan Bank and Federal Reserve borrowings

471

468

0.64%

Junior subordinated debentures

113

112

0.89%

Federal funds purchased

4

5

-20.00%

2,282

2,240

1.88%





Net interest income

37,954

32,670

16.17%





Provision for loan losses

2,195

550

299.09%

Net interest income after provision for loan losses

35,759

32,120

11.33%





Noninterest income





Service charges on deposit accounts

1,381

1,236

11.73%

Bankcard income

585

411

42.34%

Bank-owned life insurance income

291

279

4.30%

Gain on sale of investment securities

309

192

-60.94%

Impairment losses on investment securities (OTTI)

(17)

(13)

30.77%

Other noninterest income

1,008

798

26.32%

3,557

2,903

22.53%





Noninterest expense





Salaries and employee benefits

15,564

13,153

18.33%

Premises and equipment

2,202

2,073

6.22%

Data processing

1,758

1,505

16.81%

Legal and professional fees

1,752

1,138

53.95%

Business development

1,032

765

34.90%

FDIC insurance assessment

574

486

18.11%

Other real estate (income) expense, net

(103)

181

-156.91%

Merger related expense(1)

1,978

1,836

7.73%

Other noninterest expense

2,183

1,867

16.93%

26,940

23,004

17.11%





Income before provision for income taxes

12,376

12,019

2.97%

Provision for income taxes

4,311

4,122

4.59%





Net income

$         8,065

$         7,897

2.13%





Earnings per share:





Basic

$           0.41

$           0.42

-2.38%

Diluted

$           0.41

$           0.41

0.00%





Weighted average shares outstanding:





Basic

19,652,231

18,900,895








Common stock equivalents attributable to stock-based awards

153,667

227,090

Diluted

19,805,898

19,127,985








PERFORMANCE RATIOS





Return on average assets 

0.82%

0.94%

Return on average equity (book) 

7.28%

7.89%

Return on average equity (tangible) (2)

9.05%

9.68%

Net interest margin - fully tax-equivalent yield (3)

4.27%

4.34%

Efficiency ratio(4)

64.11%

63.70%










(1)

Represents expenses associated with the pending  acquisition of Foundation Bank and the acquisition of Capital Pacific Bank, completed during the first quarter 2015.

(2)

Tangible equity excludes goodwill and core deposit intangible assets related to acquisitions.

(3)

Net interest margin is reported on a tax-equivalent yield basis at a 35% tax rate.

(4)

Efficiency ratio is noninterest expense as a percent of net interest income (on a tax-equivalent basis) plus noninterest income.

PACIFIC CONTINENTAL CORPORATION and subsidiary

Consolidated Balance Sheets

(In thousands, except share and per share amounts)

(Unaudited)






Linked 

Year over

June 30,

March 31,

June 30,

Quarter

Year  

2016

2016

2015

% Change

% Change

ASSETS








Cash and due from banks

$       25,238

$       24,628

$       29,812

2.48%

-15.34%

Interest-bearing deposits with banks

18,151

29,831

9,790

-39.15%

85.40%

Total cash and cash equivalents

43,389

54,459

39,602

-20.33%

9.56%








Securities available-for-sale

396,230

383,442

383,618

3.34%

3.29%








Loans, net of deferred fees

1,484,152

1,429,734

1,304,932

3.81%

13.73%

Allowance for loan losses

(19,127)

(17,596)

(16,013)

8.70%

19.45%

   Net Loans

1,465,025

1,412,138

1,288,919












Interest receivable

6,334

6,003

5,833

5.51%

8.59%

Federal Home Loan Bank stock

8,351

3,511

5,468

137.85%

52.72%

Property and equipment, net of accumulated depreciation

19,086

18,900

17,854

0.98%

6.90%

Goodwill and intangible assets, net

43,684

43,808

43,225

-0.28%

1.06%

Deferred tax asset

2,797

3,523

6,036

-20.61%

-53.66%

Other real estate owned

12,108

11,747

12,666

3.07%

-4.41%

Bank-owned life insurance

23,174

23,030

22,571

0.63%

2.67%

Other assets

5,232

5,144

5,150

1.71%

1.59%








Total assets

$ 2,025,410

$ 1,965,705

$ 1,830,942

3.04%

10.62%








LIABILITIES AND SHAREHOLDERS' EQUITY








Deposits








Noninterest-bearing demand

$    624,146

$    675,296

$    531,697

-7.57%

17.39%

Savings and interest-bearing checking

826,854

887,873

825,858

-6.87%

0.12%

Core time deposits

57,019

70,772

87,663

-19.43%

-34.96%

Total core deposits (2)

1,508,019

1,633,941

1,445,218

-7.71%

4.35%








Non-core time deposits

92,113

62,647

68,963

47.03%

33.57%

Total deposits

1,600,132

1,696,588

1,514,181

-5.69%

5.68%








Securities sold under agreements to repurchase

1,029

478

368

115.27%

179.62%

Federal funds and overnight funds purchased

-

-

5,500

NA

-100.00%

Federal Home Loan Bank borrowings

151,500

30,500

84,000

396.72%

80.36%

Subordinated debentures

34,092

-

-

NA

NA

Junior subordinated debentures

8,248

8,248

8,248

0.00%

0.00%

Accrued interest and other payables

3,983

5,012

6,630

-20.53%

-39.92%

Total liabilities

1,798,984

1,740,826

1,618,927

3.34%

11.12%








Shareholders' equity








Common stock: 50,000,000 shares authorized.  Shares issued and outstanding: 19,731,925 at June 30, 2016, 19,621,625 at March 31, 2016 and 19,591,532 at June 30, 2015

156,678

156,703

155,325

-0.02%

0.87%

Retained earnings

63,431

62,996

53,150

0.69%

19.34%

Accumulated other comprehensive income

6,317

5,180

3,540

21.95%

78.45%

226,426

224,879

212,015

0.69%

6.80%








Total liabilities and shareholders' equity

$ 2,025,410

$ 1,965,705

$ 1,830,942

3.04%

10.62%


















CAPITAL RATIOS








Total capital (to risk weighted assets)

13.54%

12.46%

12.88%


Tier I capital (to risk weighted assets)

10.52%

11.37%

11.78%


Common equity tier 1 capital (to risk weighted assets)

10.07%

10.88%

11.27%


Tier I capital (to leverage assets)

9.62%

9.75%

10.01%


Tangible common equity (to tangible assets)(1)

9.22%

9.42%

9.44%


Tangible common equity (to risk-weighted assets)(1)

10.30%

11.05%

11.32%












OTHER FINANCIAL DATA








Shares outstanding at end of period

19,731,925

19,621,625

19,591,532


Tangible shareholders' equity(1)

$    182,742

$    181,071

$    168,790


Book value per share

$         11.48

$         11.46

$         10.82


Tangible book value per share

$           9.26

$           9.23

$           8.62














(1)

Tangible common equity excludes goodwill and core deposit intangible assets related to acquisitions.

(2)

Core deposits include demand, interest checking, money market, savings, and local time deposits, including local nonpublic time deposits in excess of $100 thousand.  

NA Not applicable

PACIFIC CONTINENTAL CORPORATION and subsidiary

Loans by Type

(In thousands)

(Unaudited)

















Linked 

Year over

June 30,

March 31,

June 30,

Quarter

Year  

2016

2016

2015

% Change

% Change

LOANS BY TYPE









Real estate secured loans:









Permanent loans:









Multi-family residential

$       66,403

$       66,419

$       68,289

-0.02%

-2.76%

Residential 1-4 family

51,652

51,356

57,112

0.58%

-9.56%

Owner-occupied commercial

375,911

373,002

346,065

0.78%

8.62%

Nonowner-occupied commercial

339,444

320,485

275,077

5.92%

23.40%

Total permanent real estate loans

833,410

811,262

746,543

2.73%

11.64%

Construction loans:









Multi-family residential

16,743

8,747

6,590

91.41%

154.07%

Residential 1-4 family

34,372

29,261

30,145

17.47%

14.02%

Commercial real estate

57,790

40,635

31,659

42.22%

82.54%

Commercial bare land and acquisition and development

10,551

20,518

15,870

-48.58%

-33.52%

Residential bare land and acquisition and development

6,658

6,562

7,074

1.46%

-5.88%

Total construction real estate loans

126,114

105,723

91,338

19.29%

38.07%

Total real estate loans

959,524

916,985

837,881

4.64%

14.52%

Commercial loans

518,529

505,845

459,458

2.51%

12.86%

Consumer loans

3,313

2,948

3,783

12.38%

-12.42%

Other loans

4,737

5,525

5,025

-14.26%

-5.73%

Gross loans

1,486,103

1,431,303

1,306,147

3.83%

13.78%

Deferred loan origination fees

(1,951)

(1,569)

(1,215)

24.35%

60.58%

1,484,152

1,429,734

1,304,932

3.81%

13.73%

Allowance for loan losses

(19,127)

(17,596)

(16,013)

8.70%

19.45%

$ 1,465,025

$ 1,412,138

$ 1,288,919

3.75%

13.66%









SELECTED MARKET LOAN DATA









  Eugene market gross loans, period-end

$    396,260

$    372,137

$    358,806

6.48%

10.44%

  Portland market gross loans, period-end

697,664

684,025

631,420

1.99%

10.49%

  Seattle market gross loans, period-end

141,788

144,524

134,341

-1.89%

5.54%

  National health care gross loans, period-end (1)

250,391

230,617

181,580

8.57%

37.90%

    Total gross loans, period-end

$ 1,486,103

$ 1,431,303

$ 1,306,147

3.83%

13.78%









DENTAL LOAN DATA (2)









  Local dental gross loans, period-end

$    152,109

$    149,698

$    156,315

1.61%

-2.69%

  National dental gross loans, period-end

217,701

201,243

164,740

8.18%

32.15%

    Total gross dental loans, period-end

$    369,810

$    350,941

$    321,055

5.38%

15.19%






















(1)

National health care loans include loans to health care professionals, including dental and veterinary practitioners, operating outside of Pacific Continental Bank's market area.  The market area is defined as Oregon and Washington, west of the Cascade Mountain Range.  

(2)

Dental loans include loans to dental professionals for the purpose of practice expansion, acquisition or other purpose, supported by the cash flows of a dental practice.

PACIFIC CONTINENTAL CORPORATION and subsidiary

Selected Other Financial Information and Ratios

(In thousands)

(Unaudited)











Three months ended

Six months ended

June 30,

March 31,

June 30,

June 30,

June 30,

2016

2016

2015

2016

2015

BALANCE SHEET AVERAGES









  Loans, net of deferred fees

$ 1,463,112

$ 1,420,582

$ 1,273,148

$ 1,441,847

$ 1,183,761

  Allowance for loan losses

(18,156)

(17,467)

(15,782)

(17,812)

(15,729)

    Loans, net of allowance

1,444,956

1,403,115

1,257,366

1,424,035

1,168,032

  Securities, short-term deposits and FHLB stock

407,174

417,439

407,579

412,307

394,465

   Earning assets

1,852,130

1,820,554

1,664,945

1,836,342

1,562,497

  Noninterest-earning assets

136,855

135,858

135,582

136,357

125,276

        Assets

$ 1,988,985

$ 1,956,412

$ 1,800,527

$ 1,972,699

$ 1,687,773









  Interest-bearing core deposits(1)

$    921,219

$    988,876

$    901,577

$    955,048

$    831,596

  Noninterest-bearing core deposits(1)

637,987

617,672

508,259

627,830

474,209

    Core deposits(1)

1,559,206

1,606,548

1,409,836

1,582,878

1,305,805

  Noncore interest-bearing deposits

68,536

63,683

73,469

66,110

78,201

    Deposits

1,627,742

1,670,231

1,483,305

1,648,988

1,384,006

  Borrowings

130,681

57,570

100,747

94,125

95,925

  Other noninterest-bearing liabilities

6,120

7,186

5,466

6,652

6,117

       Liabilities

1,764,543

1,734,987

1,589,518

1,749,765

1,486,048

  Shareholders' equity (book)

224,442

221,425

211,009

222,934

201,725

       Liabilities and equity

$ 1,988,985

$ 1,956,412

$ 1,800,527

$ 1,972,699

$ 1,687,773









  Shareholders' equity (tangible)(2)

$    180,691

$    177,814

$    167,757

$    179,253

$    164,516









Period-end earning assets

$ 1,879,406

$ 1,825,411

$ 1,682,327














SELECTED MARKET DEPOSIT DATA









  Eugene market core deposits, period-end(1)

$    712,061

$    790,435

$    759,079



  Portland market core deposits, period-end(1)

590,880

649,089

521,317



  Seattle market core deposits, period-end(1)

205,078

194,417

164,822



    Total core deposits, period-end(1)

1,508,019

1,633,941

1,445,218



  Other deposits, period-end

92,113

62,647

68,963



      Total

$ 1,600,132

$ 1,696,588

$ 1,514,181














  Eugene market core deposits, average(1)

$    738,435

$    799,583

$    742,252



  Portland market core deposits, average(1)

624,490

615,929

508,547



  Seattle market core deposits, average(1)

196,281

191,036

159,037



    Total core deposits, average(1)

1,559,206

1,606,548

1,409,836



  Other deposits, average

68,536

63,683

73,469



      Total

$ 1,627,742

$ 1,670,231

$ 1,483,305














NET INTEREST MARGIN RECONCILIATION









  Yield on average loans (3)

5.07%

5.15%

5.34%

5.11%

5.36%

  Yield on average securities(4)

2.66%

2.57%

2.61%

2.61%

2.52%

    Yield on average earning assets(4)

4.52%

4.52%

4.67%

4.52%

4.63%









  Rate on average interest-bearing core deposits

0.26%

0.26%

0.27%

0.26%

0.27%

  Rate on average interest-bearing non-core deposits

1.19%

1.67%

1.33%

1.43%

1.37%

    Rate on average interest-bearing deposits

0.32%

0.34%

0.35%

0.33%

0.37%









  Rate on average borrowings

1.06%

1.73%

1.19%

1.27%

1.23%

    Cost of interest-bearing funds

0.41%

0.41%

0.43%

0.41%

0.45%









    Interest rate spread(4)

4.11%

4.11%

4.24%

4.11%

4.19%









       Net interest margin- fully tax equivalent yield(4)

4.27%

4.27%

4.37%

4.27%

4.32%









Acquired loan fair value accretion impact to net interest margin (5)

0.03%

0.09%

0.16%

0.07%

0.13%











(1)

Core deposits include demand, interest checking, money market, savings, and local time deposits, including local nonpublic time deposits in excess of $100 thousand.  

(2)

Tangible equity excludes goodwill and core deposit intangible assets related to acquisitions.

(3)

Interest income includes recognized loan origination fees of $231, $205, and $180 for the three months ended June 30, 2016, March 31, 2016, and June 30, 2015, respectively, and $436 and $327 for the six months ended June 30, 2016 and 2015, respectively.   

(4)

Tax-exempt income has been adjusted to a tax-equivalent basis at a 35% tax rate.  The tax equivalent yield adjustment to interest earned on loans was $262, $258 and $158 for the three months ended June 30, 2016, March 31, 2016, and June 30, 2015 , respectively, and $521 and $241 for the six months ended June 30, 2016 and 2015, respectively.  The tax equivalent yield adjustment to interest earned on tax exempt securities was $256, $257 and $268 for the three months ended June 30, 2016, March 31, 2016, and June 30, 2015 , respectively, and $513 and $539 for the six months ended June 30, 2016 and 2015, respectively.

(5)

During the three months ended June 30, 2016, March 31, 2016, and June 30, 2015, accretion of the fair  value adjustment on acquired loans contributed to interest income  was $156, $409, and $635, respectively, and $565 and $1,004 for the six months ended June 30, 2016 and 2015, respectively.  

PACIFIC CONTINENTAL CORPORATION and subsidiary

Nonperforming Assets, Asset Quality Ratios and Allowance for Loan Losses

(Dollars in thousands)

(Unaudited)






















June 30,

March 31,

June 30,











2016

2016

2015







NONPERFORMING ASSETS









Non-accrual loans










Real estate secured loans:











Permanent loans:












Multi-family residential

$             -

$             -

$            -







Residential 1-4 family

408

710

688







Owner-occupied commercial

1,662

2,309

1,117







Nonowner-occupied commercial

727

761

878








Total permanent real estate loans

2,797

3,780

2,683






Construction loans:












Multi-family residential

-

-

-







Residential 1-4 family

-

53

-







Commercial real estate

-

-

-







Commercial bare land and acquisition & development

-

-

-







Residential bare land and acquisition & development

-

-

-








Total construction real estate loans

-

53

-









Total real estate loans

2,797

3,833

2,683





Commercial loans

1,501

1,529

955










Total nonaccrual loans

4,298

5,362

3,638




90-days past due and accruing interest

-

-

-





Total nonperforming loans

4,298

5,362

3,638






Nonperforming loans guaranteed by government

(2,667)

(2,720)

(1,380)







Net nonperforming loans

1,631

2,642

2,258




Other real estate owned

12,108

11,747

12,666







Total nonperforming assets, net of guaranteed loans

$ 13,739

$  14,389

$ 14,924
























ASSET QUALITY RATIOS










Allowance for loan losses as a percentage of total loans outstanding

1.29%

1.23%

1.23%





Allowance for loan losses as a percentage of total nonperforming loans, net of government guarantees

1172.72%

666.01%

709.17%





Quarter-to-date net loan charge offs (recoveries) as a percentage of average loans, annualized

0.12%

-0.01%

0.05%





Net nonperforming loans as a percentage of total loans

0.11%

0.18%

0.17%





Nonperforming assets as a percentage of total assets

0.68%

0.73%

0.82%





Consolidated classified asset ratio(1)

20.81%

20.96%

26.52%





Past due as a percentage of total loans(2)

0.02%

0.07%

0.19%




























Three months ended

Six months ended





June 30,

March 31,

June 30,

June 30,

June 30,





2016

2016

2015

2016

2015

ALLOWANCE FOR LOAN LOSSES









Balance at beginning of period

$ 17,596

$  17,301

$ 15,724

$           17,301

$           15,637

Provision for loan losses

1,950

245

550

2,195

550

Loan charge-offs

(668)

-

(454)

(668)

(527)

Loan recoveries

249

50

193

299

353

Net (charge-offs) recoveries 

(419)

50

(261)

(369)

(174)

Balance at end of period

$ 19,127

$  17,596

$ 16,013

$           19,127

$           16,013

















(1)

Consolidated classified asset ratio is defined as the sum of all loan-related contingent liabilities and loans internally graded substandard or worse, impaired loans (net of government guarantees), adversely classified securities, and other real estate owned, divided by total consolidated Tier 1 capital plus the allowance  for loan losses.

(2)

Defined as loans past due more than 30 days and still accruing interest, as a percentage of total loans, net of deferred fees.

PACIFIC CONTINENTAL CORPORATION and subsidiary

Consolidated Financial Highlights

(Dollars in thousands, except share and per share data)

(Unaudited)





2nd Quarter

1st Quarter

4th Quarter

3rd Quarter

2nd Quarter

2016

2016

2015

2015

2015

EARNINGS




Net interest income

$        19,147

$        18,809

$        18,822

$        18,308

$        17,696

Provision for loan loss

$          1,950

$              245

$              520

$              625

$              550

Noninterest income

$          1,747

$          1,807

$          2,008

$          1,714

$          1,627

Noninterest expense

$        14,932

$        12,007

$        11,706

$        11,182

$        11,030

Net income

$          2,606

$          5,459

$          5,528

$          5,325

$          5,095

Basic earnings per share

$            0.13

$            0.28

$            0.28

$            0.27

$            0.26

Diluted earnings per share

$            0.13

$            0.28

$            0.28

$            0.27

$            0.26

Average shares outstanding

19,697,314

19,607,106

19,598,484

19,591,666

19,562,363

Average diluted shares outstanding

19,868,967

19,782,282

19,766,098

19,816,770

19,788,884




PERFORMANCE RATIOS




Return on average assets

0.53%

1.12%

1.16%

1.14%

1.14%

Return on average equity (book)

4.67%

9.92%

10.10%

9.91%

9.68%

Return on average equity (tangible) (1)

5.80%

12.35%

12.60%

12.42%

12.18%

Net interest margin - fully tax equivalent yield (2)

4.27%

4.27%

4.35%

4.31%

4.37%

Efficiency ratio (tax equivalent) (3)

70.60%

57.52%

55.50%

55.12%

56.30%

Full-time equivalent employees

333

339

322

321

322




CAPITAL




Tier 1 leverage ratio

9.62%

9.75%

9.93%

9.88%

10.01%

Common Equity tier 1 ratio

10.07%

10.88%

10.97%

11.00%

11.27%

Tier 1 risk based ratio

10.52%

11.37%

11.47%

11.49%

11.78%

Total risk based ratio

13.54%

12.46%

12.58%

12.58%

12.88%

Book value per share

$          11.48

$          11.46

$          11.15

$          11.06

$          10.82

Regular cash dividend per share

$            0.11

$            0.11

$            0.11

$            0.11

$            0.10




ASSET QUALITY




Allowance for loan losses (ALL)

$        19,127

$        17,596

$        17,301

$        16,612

$        16,013

Non performing loans (NPLs) net of government guarantees

$          1,631

$          2,642

$          2,719

$          2,231

$          2,258

Non performing assets (NPAs) net of government guarantees

$        13,739

$        14,389

$        14,466

$        14,085

$        14,924

Net loan (recoveries) charge offs 

$              419

$              (50)

$           (169)

$                26

$              261

ALL as a percentage of gross loans

1.29%

1.23%

1.23%

1.23%

1.23%

ALL as a % NPLs, net of government guarantees

1172.72%

666.01%

636.30%

744.60%

709.17%

Net loan charge offs (recoveries) to average loans

0.12%

-0.01%

-0.02%

0.00%

0.05%

Net NPLs as a percentage of total loans

0.11%

0.18%

0.19%

0.16%

0.17%

Nonperforming assets as a percentage of total assets

0.68%

0.73%

0.76%

0.75%

0.82%

Consolidated classified asset ratio(4)

20.81%

20.96%

23.03%

25.14%

26.52%

Past due as a percentage of total loans(5)

0.02%

0.07%

0.03%

0.14%

0.19%




END OF PERIOD BALANCES




Total securities and short term deposits

$     414,381

$     413,273

$     379,454

$     398,366

$     393,408

Total loans net of allowance

$  1,465,025

$  1,412,138

$  1,387,181

$  1,339,195

$  1,288,919

Total earning assets

$  1,887,757

$  1,828,922

$  1,771,843

$  1,744,329

$  1,687,795

Total assets

$  2,025,410

$  1,965,705

$  1,909,478

$  1,878,283

$  1,830,942

Total non-interest bearing deposits

$     624,146

$     675,296

$     568,688

$     544,009

$     531,697

Core deposits(6)

$  1,508,019

$  1,633,941

$  1,533,942

$  1,465,547

$  1,445,218

Total deposits

$  1,600,132

$  1,696,588

$  1,597,093

$  1,524,954

$  1,514,181




AVERAGE BALANCES




Total securities and short term deposits

$     407,174

$     417,439

$     401,870

$     405,776

$     407,579

Total loans net of allowance

$  1,444,956

$  1,403,115

$  1,357,461

$  1,319,622

$  1,257,366

Total earning assets

$  1,852,130

$  1,820,554

$  1,759,331

$  1,725,398

$  1,664,945

Total assets

$  1,988,985

$  1,956,412

$  1,893,262

$  1,859,418

$  1,800,527

Total non-interest bearing deposits

$     637,987

$     617,672

$     584,445

$     538,768

$     508,259

Core deposits(6)

$  1,559,206

$  1,606,548

$  1,526,805

$  1,482,984

$  1,409,836

Total deposits

$  1,627,742

$  1,670,231

$  1,586,791

$  1,545,465

$  1,483,305






(1)

Tangible equity excludes goodwill and core deposit intangible assets related to acquisitions.

(2)

Net interest margin is reported on a tax-equivalent yield basis at a 35% tax rate.

(3)

Efficiency ratio is noninterest expense as a percent of net interest income (on a tax-equivalent basis) plus noninterest income.

(4)

The sum of all loan-related contingent liabilities and loans internally graded substandard or worse, impaired loans (net of government guarantees), adversely classified securities, and other real estate owned, divided by total consolidated Tier 1 capital plus the allowance for loan losses.

(5)

Defined as loans past due more than 30 days and still accruing interest, as a percentage of total loans, net of deferred fees.

(6)

Core deposits include demand, interest checking, money market, savings, and local time deposits, including local nonpublic time deposits in excess of $100 thousand.  

FOR MORE INFORMATION CONTACT:

Michael Dunne


Public Information Officer

541-338-1428     








www.therightbank.com

Email: [email protected]









SOURCE Pacific Continental Corporation