Pacific Continental Corporation Reports Third Quarter 2014 Results

EUGENE, Ore., Oct. 22, 2014 /PRNewswire/ -- Pacific Continental Corporation (Nasdaq: PCBK), the holding company of Pacific Continental Bank, today reported financial results for the third quarter 2014.

Recent highlights:

• Net income of $4.4 million for the quarter, up 12.46% over third quarter last year.
• Repurchased 132,358 shares during the third quarter 2014.
• Average core deposits increased $26.6 million or 2.63% during third quarter.
• Efficiency ratio continued to improve and remained below 60.00% during third quarter 2014
• Declared fourth quarter 2014 regular quarterly cash dividend of $0.10 per share and a special cash dividend of $0.05 per share.
• Received Spotlight on Business Award for large business from the Tacoma-Pierce County Chamber of Commerce for members that have set the standard for exemplary business practices.

Net income
Net income for third quarter 2014 was $4.4 million or $0.25 per diluted share compared to net income of $3.9 million or $0.22 per diluted share in third quarter 2013. Third quarter 2014 financial results included the recovery of $300 thousand of legal fees expensed in prior reporting periods that improved earnings per diluted share by $0.01.  Return on average assets, average book equity, and average tangible equity were 1.18%, 9.69%, and 11.13%, respectively, in third quarter 2014, compared to 1.09%, 8.77%, and 10.12% in third quarter 2013.  The Company's efficiency ratio was 57.04% for the third quarter 2014, compared to 62.81% in third quarter 2013.

"Our current quarter results reflect the success we have had in executing our business strategies," said Hal Brown, chief executive officer. "We continue to be pleased with our efforts to improve our processes and efficiency, which we believe will result in long-term shareholder returns."

Capital levels
The Company's capital ratios continued to be well above the minimum for the FDIC's minimum "well-capitalized" designation. At September 30, 2014, the Company's Tier 1 leverage ratio, Tier 1 risk-based capital ratio, and Total risk-based capital ratios were 11.20%, 14.44% and 15.69%, respectively, as compared to 11.26%, 14.48% and 15.73% at June 30, 2014. The FDIC's minimum "well-capitalized" designation ratios for these metrics are 5.00%, 6.00% and 10.00%, respectively.

On May 6, 2014, the Company's board of directors authorized the repurchase of up to five percent or approximately 893,000 of the Company's shares with purchases to take place over the next 12 months.  During the third quarter 2014, the Company repurchased 132,358 shares at a weighted average price of $13.60 per share.  Since the inception of the share repurchase plan, the Company has repurchased 267,080 shares at a weighted average price of $13.48 per share.  Share repurchases and cash dividend payments to shareholders combined to maintain capital levels for third quarter 2014 relatively unchanged from December 31, 2011 levels.

Core deposits
Period-end Company-defined core deposits at September 30, 2014, were $1.05 billion, up $20.7 million from June 30, 2014, and were consistent with typical third quarter seasonal patterns. Average core deposits, which removes daily volatility in balances, for the third quarter 2014 were $1.04 billion compared to $1.01 billion and $972.4 million for second quarter 2014 and third quarter 2013, respectively.  At period-end September 30, 2014, noninterest-bearing demand deposits totaled $390.8 million and represented 37.32% of core deposits.

"The success of our well-established business model in attracting core deposits and our focus on building long-term client relationships resulted in acceleration of our core deposit growth," said Roger Busse, president and chief operating officer. "We continue to provide high levels of personal and technological service to our clients, which build a strong and stable core deposit base to support our lending activities."

Loans
Outstanding gross loans at September 30, 2014, were $1.04 billion, up $4.7 million from June 30, 2014 and up $57.2 million over September 30, 2013. Loan growth for the first nine months of 2014 represented an annualized growth rate of 5.52%.  This growth rate excludes unfunded construction and related lending commitments made during the last two quarters that total $31.5 million.  Overall, loan growth during 2014 was primarily attributable to local real estate lending. Loan growth slowed in the current quarter due to pay offs on completed construction loans, early pay offs, and amortization of the portfolio. Loans to dental professionals expanded during the current quarter.  At September 30, 2014, loans to dental practitioners totaled $307.1 million and represented 29.65% of the loan portfolio compared to 29.37% and 31.05% of the loan portfolio at June 30, 2014 and September 30, 2013, respectively.  National dental loans at September 30, 2014, were $142.8 million, up $9.1 million over June 30, 2014.

Credit quality and statistics
For the sixth consecutive quarter, the Company made no provision for loan losses, reflecting the credit quality of the loan portfolio. With the growth in the loan portfolio, the allowance for loan losses as a percentage of outstanding loans at September 30, 2014, declined to 1.52% compared to 1.72% at September 30, 2013.  The allowance for loan losses as a percentage of nonperforming loans net of guarantees remained very strong at 536.22%. During the third quarter 2014, the Company recorded net loan recoveries totaling $47 thousand.  Through September 30, 2014, net loan charge offs were $195 thousand compared to net loan recoveries of $206 thousand for the same period in 2013.

At September 30, 2014, nonperforming assets, net of government guarantees, totaled $16.1 million, or 1.08% of total assets, unchanged from June 30, 2014, but a decrease from the September 30, 2013 ratio of 1.50%. Nonperforming assets at September 30, 2014 were comprised of $2.9 million of nonperforming loans, net of government guarantees, and $13.2 million in other real estate owned. During the third quarter 2014, the Company transferred a $1.2 million nonaccrual commercial real estate loan into other real estate owned that resulted in no additional charge-off.  Classified assets at September 30, 2014, totaled $43.5 million, a decrease of $600 thousand from the end of the prior quarter and a decline of $11 million from September 30, 2013. Loans past-due 30-89 days were 0.16% of total loans at September 30, 2014, compared to 0.08% of total loans at June 30, 2014.

"We are pleased with the continued incremental improvement of the overall credit quality of our loan portfolio," said Casey Hogan, executive vice president and chief credit officer. "We are particularly pleased with the collection efforts of our Special Asset Group that resulted in a large recovery of legal expenses during the quarter."

Net interest margin
The third quarter 2014 net interest margin averaged 4.28%, a decline of 6 basis points and 29 basis points from second quarter 2014 and third quarter 2013, respectively. The decline in the linked-quarter net interest margin was due to lower earning asset yields as the yield on both the loan and securities portfolio fell slightly.  The decline in the current quarter net interest margin from last year of 30 basis points was due to nonrecurring interest income recoveries of $982 thousand recorded in third quarter 2013, which resulted in an increase of 30 basis points in the reported margin in that period.  During the third quarter 2014, the accretion of loan fair value marks was $95 thousand and positively impacted the net interest margin by 3 basis points.

Noninterest income and expense
Third quarter 2014 noninterest income was $1.2 million, up $41 thousand from second quarter 2014, and down $250 thousand from third quarter 2013. Third quarter 2014 noninterest income also reflected lower merchant processing revenues resulting from the outsourcing of this activity that occurred during the fourth quarter 2013.  The outsourcing of merchant processing also eliminated related processing expense. 

Noninterest expense in third quarter 2014 was down $120 thousand and $1.3 million from second quarter 2014 and third quarter 2013, respectively. The decrease in noninterest expense on a linked-quarter basis was primarily due to the recovery of legal fees totaling $300 thousand recorded in prior reporting periods.  The decline in year-over-year noninterest expense was also due to lower legal fees and reductions in other real estate expense.  Third quarter 2013 results included other real estate valuation write-downs totaling $728 thousand that accounted for most of the decline in this category.  Year-to-date September 30, 2014, noninterest expense of $27.9 million was down $1.5 million from 2013, when merger-related expense of $1.2 million was excluded from 2013 results.    

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 certain non-GAAP financial measures provide investors with information useful in understanding the Company's financial performance; however, readers of this report are urged to review these non-GAAP financial measures in conjunction with the GAAP results as reported.

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

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

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 third quarter 2014 on Thursday, October 23, 2014, at 11:00 a.m. Pacific / 2:00 p.m. Eastern. To listen to the conference call, interested parties should call 866-292-1418. 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 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 $1.5 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" "anticipates" 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 growth, capital position, liquidity, credit quality, credit quality trends, competition and economic conditions generally. 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 our significant concentration in loans to dental professionals; adverse economic trends in the United States and the markets we serve affecting the Bank's borrower base; a continued decline in the housing and real estate market; a continued increase in unemployment or sustained high levels of unemployment; 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 PSLRA's safe harbor provisions.