Pacific Continental Reports Third Quarter 2010 Results

EUGENE, Ore., Oct. 20 /PRNewswire-FirstCall/ -- Pacific Continental Corporation (Nasdaq: PCBK), the holding company for Pacific Continental Bank, today reported financial results for the third quarter ended September 30, 2010.

Third quarter highlights:

• Achieved fifth consecutive quarter of profitability.
• Strong growth in core deposits continues.
• Total risk-based capital ratio of 17.10%, significantly above the 10.0% minimum for "well-capitalized" designation.
• Pre-tax pre-provision core earnings remain strong.
• Recognized by the Portland Business Journal for service to the community and nonprofit organizations at the 2010 Corporate Philanthropy Awards ceremony.

"I am pleased with the progress we have made in this challenging economy and reporting our fifth consecutive quarter of profitability," said Hal Brown, chief executive officer. "While the economic conditions continue to remain difficult and uncertain, as evidenced by an increase in our nonperforming assets, we remain cautiously optimistic that we have turned the corner on this deep credit cycle," added Brown.

Net income for the third quarter 2010 was $1.2 million, compared to net income of $279 thousand for the third quarter 2009. On a linked-quarter basis, net income for the third quarter 2010 was down $500 thousand from the second quarter 2010 and was primarily the result of increased other real estate expense due to valuation write-downs on certain properties.

Earnings per diluted share were $0.06 for the third quarter 2010, compared to $0.02 for the prior year third quarter. For the nine months ended September 30, 2010, net income was $3.9 million compared to net loss of $4.9 million for the same period during 2009. Net income per diluted share was $0.21 for the first nine months of 2010, compared to net loss per diluted share of $0.38 for the first nine months of 2009.

Improved capital levels

During the third quarter 2010, the Company's capital levels continued to improve through retained earnings and unrealized gains in its securities portfolio. At September 30, 2010, the Company's Tier 1 leverage ratio, Tier 1 risk-based capital ratio, and Total risk-based capital ratio were 13.41%, 15.85%, and 17.10% as compared to 13.21%, 15.75%, and 17.01% at June 30, 2010. All three ratios at September 30, 2010, significantly exceed the FDIC's minimum well-capitalized designation levels of 5.00%, 6.00%, and 10.00%, respectively.

Core earnings and net interest margin

Core earnings, defined as earnings before loan-loss provisions and taxes, were $5.8 million in the third quarter 2010, the same as reported for second quarter 2010, but down from the $7.8 million reported for third quarter 2009. The significant decrease in year-over-year core earnings was due to an $879 thousand decline in operating income combined with a $1.2 million increase in noninterest expenses.

The quarter-over-quarter increase in noninterest expense was due to a number of factors including a $771 thousand increase in other real estate expense related to valuation write-downs and a $200 thousand increase in FDIC insurance premiums. In addition, the third quarter 2009 results benefited from one-time reversals of expense accruals related to incentive, 401k contributions, and group insurance that totaled approximately $417 thousand.

On a linked-quarter basis, the third quarter 2010 noninterest expense was up $287 thousand over the second quarter 2010 that was entirely attributable to an increase in other real estate valuation write-downs. The increase in other real estate expense on a linked-quarter basis was partially offset by declines in personnel expense and business development costs.

The net interest margin for the current quarter was 4.68%, down 6 basis points from the 4.74% margin reported for second quarter 2010, and down 56 basis points from the net interest margin reported for third quarter 2009. Presentation of the net interest margin for third quarter 2009 was revised to eliminate FHLB stock of approximately $10.7 million from earning assets. This change resulted in a 5 basis points increase to the previously reported third quarter 2009 net interest margin. A decline in the net interest margin had been expected due to a decrease in loan volumes and an increase in lower-yielding investment securities. In addition, the third-quarter 2010 net interest margin was negatively impacted by interest reversals of $232 thousand for loans placed on nonaccrual status during the quarter.

Core deposit growth continues while loan demand remains soft

During the third quarter 2010, the Company continued to experience strong growth in its company-defined core deposit base. Quarterly average core deposit figures, a measure which reduces daily deposit volatility, show third-quarter 2010 average core deposits of $846.8 million, an increase of $35.2 million or 4.3% over the second-quarter 2010 average and an increase of $122.0 million or 16.8% over the third quarter 2009 average. At September 30, 2010, period-end core deposits totaled $850.9 million, up $78.9 million from December 31, 2009, and up $99.3 million from September 30, 2009.

Loan activity continues to reflect the weak economic conditions and together with the planned contraction in the construction and land development portfolios led to a continued decline in period-end gross loans. Outstanding loans at September 30, 2010, were $883.0 million, down $21.0 million from the end of second quarter 2010. The decline in loans was expected due to transfers of problem loans to other real estate owned and the planned contraction in the Bank's construction and land development portfolios which have declined $64.4 million over the past year and currently represent 11.9% of total gross loans, compared to 17.7% of total gross loans at September 30, 2009. This decline in construction financing was partially offset by increases in the permanent real estate and commercial loan portfolios primarily as they relate to dental and small business financing. Conversely, the Company's securities portfolio grew by $99.7 million or 86.2% during the period from September 30, 2009, to September 30, 2010.

Non-performing assets, provisioning, and loan statistics

Non-performing assets ("NPAs") at September 30, 2010, totaled $58.0 million or 4.86% of total assets, an increase of $9.0 million during the quarter from $48.9 million or 4.16% of total assets at June 30, 2010.

"Planned resolutions of three problem assets anticipated during the late third quarter 2010 were unexpectedly delayed creating higher level of NPAs at quarter-end than we had anticipated," said Roger Busse, president and chief operating officer. "However, those resolutions remain on track, and are expected to be executed during the fourth quarter, which should offset the increases and potentially provide a sizeable recovery. We also continued to take possession of real estate collateral during the third quarter, which we believe will allow for a reduction in non-performing assets through sale of foreclosed properties," added Busse.

The Company's third-quarter 2010 provision for loan losses was $3.8 million, the same as reported for second quarter 2010. While the provision remains elevated when compared to pre-recession periods, it has been trending down over the past six quarters. During the third quarter of 2010, the Bank recognized net loan charge-offs of $3.8 million, down significantly from the $8.6 million recorded in the same quarter last year. For the first nine months of 2010, net loan charge-offs totaled $7.3 million compared to $21.6 million for the same period last year. The allowance for loan losses as a percentage of outstanding loans at September 30, 2010, was 2.01%, compared to 1.42%, and 1.91% at December 31, 2009, and September 30, 2009, respectively.

Conference Call and Audio Webcast:

Management will conduct a live conference call and audio webcast for interested parties relating to its results for the third quarter 2010 on Thursday, October 21, 2010, at 2:00 p.m. Eastern Time / 11:00 a.m. Pacific Time. To listen to the conference call, interested parties should call (866) 292-1418. The webcast will be available via Pacific Continental's website (http://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 Maecey Castle, vice president and director of corporate communications, 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. Pacific Continental, with $1.2 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, healthcare professionals, professional service providers, and nonprofit organizations.

Since its founding in 1972, Pacific Continental Bank (PCB) has been honored with numerous business and community-service awards from highly regarded third-party organizations. Most recently, in September 2010, PCB was recognized as a top-ten company by the Portland Business Journal in the publication's annual corporate philanthropy awards; in June 2010, The Seattle Times selected the Bank  as one of the Top 20 Companies of the Decade and - for the tenth consecutive year - named Pacific Continental to its  "Best of the Northwest" ranking of top publicly rated companies headquartered in the Pacific Northwest; and, in March 2010, Oregon Business magazine recognized PCB as the top-ranked financial institution to work for in the publication's large company category, making it the tenth consecutive year Pacific Continental has been recognized as one of the 100 Best Companies to work for in Oregon.

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. Supplementary information about Pacific Continental can be found online at www.therightbank.com

Forward-Looking Statement Safe Harbor

This release contains "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995 ("PSLRA"). Such forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those projected, including but not limited to the following: the high concentration of loans of the company's banking subsidiary in commercial and residential real estate lending; 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 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; increased competition among financial institutions; fluctuating interest rate environments; a tightening of available credit and other risks and uncertainties discussed in the sections titled "Risk Factors", "Business" and "Management Discussion and Analysis of Financial Condition and Results of Operations", as applicable, from Pacific Continental's most recent Annual Report on Form 10-K and Quarterly Report on Form 10-Q. Readers are cautioned not to place undue reliance on the forward-looking statements, which speak only as of the date on which they are made and reflect management's current estimates, projections, expectations and beliefs. Pacific Continental Corporation undertakes no obligation to publicly revise or update the forward-looking statements to reflect events or circumstances that arise after the date of this release. This statement is included for the express purpose of invoking PSLRA's safe harbor provisions.

SOURCE Pacific Continental Corporation