Pacific Continental Reports Third Quarter 2010 Results

Company Reports Profitable Results for Fifth Consecutive Quarter

Oct 20, 2010, 16:45 ET from Pacific Continental Corporation

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.

PACIFIC CONTINENTAL CORPORATION

CONSOLIDATED INCOME STATEMENTS

(In thousands, except share amounts)

(Unaudited)












Three months ended


Nine months ended



September 30,


September 30,



2010


2009


2010


2009

Interest and dividend income









 Loans


$      14,070


$      15,659


$      43,233


$      46,308

 Securities


1,791


1,325


4,745


3,495

 Federal funds sold & interest-bearing deposits with banks


3


2


6


4



15,864


16,986


47,984


49,807










Interest expense









 Deposits


2,395


2,481


7,069


7,080

 Federal Home Loan Bank & Federal Reserve borrowings


563


633


1,788


2,005

 Junior subordinated debentures


133


132


393


392

 Federal funds purchased


15


23


39


76



3,106


3,269


9,289


9,553










    Net interest income


12,758


13,717


38,695


40,254










Provision for loan losses


3,750


8,300


11,750


29,000

    Net interest income after provision for loan losses


9,008


5,417


26,945


11,254










Noninterest income









 Service charges on deposit accounts


418


465


1,247


1,401

 Bankcard fee income


385


317


1,078


899

 Loan servicing fees


31


18


63


55

 Mortgage banking income


69


61


144


247

 Gain on sale of investment securities


-


-


45


-

 Impairment losses on investment securities (OTTI)


-


-


(226)


-

 Other noninterest income


286


248


806


725



1,189


1,109


3,157


3,327










Noninterest expense









 Salaries and employee benefits


4,071


3,810


13,054


12,908

 Premises and equipment


909


747


2,580


2,431

 Bankcard processing


131


135


424


381

 Business development


225


342


931


1,272

 FDIC insurance assessment


491


291


1,477


1,508

 Other real estate expense


803


32


904


597

 Other noninterest expense


1,558


1,657


4,934


4,613



8,188


7,014


24,304


23,710










Income (loss) before provision for income taxes


2,009


(488)


5,798


(9,129)

Provision (benefit) for income taxes


857


(767)


1,897


(4,226)










  Net income (loss)


$        1,152


$           279


$        3,901


$      (4,903)










Earnings (loss) per share:









  Basic


$          0.06


$          0.02


$          0.21


$        (0.38)

  Diluted


$          0.06


$          0.02


$          0.21


$        (0.38)










Weighted average shares outstanding:









  Basic


18,399,442


12,872,781


18,396,990


12,852,063










 Common stock equivalents









    attributable to stock-based awards


16,161


35,869


18,620


-

 Diluted


18,415,603


12,908,650


18,415,610


12,852,063










PERFORMANCE RATIOS









 Return on average assets


0.38%


0.10%


0.44%


-0.59%

 Return on average equity (book)


2.66%


0.92%


3.07%


-5.25%

 Return on average equity (tangible) (1)


3.06%


1.14%


3.54%


-6.42%

 Net interest margin


4.68%


5.24%


4.76%


5.24%

 Efficiency ratio (2)


58.71%


47.31%


58.07%


54.40%










(1) Tangible equity excludes goodwill and core deposit intangible related to acquisitions.

(2) Efficiency ratio is noninterest expense divided by operating revenues.  Operating revenues are net interest income plus noninterest income.



PACIFIC CONTINENTAL CORPORATION

CONSOLIDATED BALANCE SHEETS

(In thousands, except share amounts)

(Unaudited)








September 30,


September 30,



2010


2009

ASSETS





 Cash and due from banks


$         18,424


$         17,624

 Interest-bearing deposits with banks


269


266

           Total cash and cash equivalents


18,693


17,890






 Securities available-for-sale


215,259


115,585

 Loans held for sale


1,397


453

 Loans, less allowance for loan losses and net deferred fees


864,604


940,754

 Interest receivable


4,247


4,110

 Federal Home Loan Bank stock


10,652


10,652

 Property and equipment, net of accumulated depreciation


21,169


20,132

 Goodwill and other intangible assets


22,514


22,737

 Deferred tax asset


9,749


6,301

 Taxes receivable


1,460


4,707

 Other real estate owned


15,422


4,247

 Prepaid FDIC assessment


4,950


-

 Other assets


1,888


2,940






           Total assets


$    1,192,004


$    1,150,508






LIABILITIES AND SHAREHOLDERS' EQUITY





 Deposits





   Noninterest-bearing demand


$       220,104


$       196,320

   Savings and interest-bearing checking


545,032


461,723

   Time $100,000 and over


60,083


71,526

   Other time


99,704


96,951

      Total deposits


924,923


826,520






 Federal funds and overnight funds purchased


12,380


10,000

 Federal Home Loan Bank advances and other borrowings


68,500


181,000

 Junior subordinated debentures


8,248


8,248

 Accrued interest and other payables


5,374


4,430

           Total liabilities


1,019,425


1,030,198






Shareholders' equity





 Common stock, 50,000,000 shares authorized





 issued & outstanding:  18,404,725 at September 30, 2010





 and 12,872,781 at September 30, 2009


136,845


90,522

 Retained earnings


32,962


29,773

 Accumulated other comprehensive gain


2,772


15



172,579


120,310






         Total liabilities and shareholders’ equity


$    1,192,004


$    1,150,508











CAPITAL RATIOS





 Total capital (to risk weighted assets)


17.10%


11.81%

 Tier I capital (to risk weighted assets)


15.85%


10.55%

 Tier I capital (to leverage assets)


13.41%


9.67%






OTHER FINANCIAL DATA





 Shares outstanding at end of period


18,404,725


12,872,781

 Shareholders' equity (tangible) (1)


$       150,065


$         97,573

 Book value per share


$             9.38


$             9.35

 Tangible book value per share (1)


$             8.15


$             7.58






(1) Tangible equity excludes goodwill and core deposit intangible related to acquisitions.



PACIFIC CONTINENTAL CORPORATION

SELECTED OTHER FINANCIAL INFORMATION AND RATIOS

(In thousands)

(Unaudited)














September 30,


September 30,







2010


2009





LOANS BY TYPE









Real estate secured loans:









 Permanent Loans:









  Multifamily residential


$         56,124


$         67,654





  Residential 1-4 family


80,551


95,761





  Owner-occupied commercial


201,075


200,569





  Non-owner-occupied commercial


163,054


145,975





  Other loans secured by real estate


25,013


36,546





   Total permanent real estate loans


525,817


546,505





Construction Loans:









 Multifamily residential


15,279


20,994





 Residential 1-4 family


26,830


42,813





 Commercial real estate


18,077


40,914





 Commercial bare land and acquisition & development


26,073


28,907





 Residential bare land and acquisition & development


18,998


30,879





 Other  


-


5,198





  Total construction real estate loans


105,257


169,705





   Total real estate loans


631,074


716,210





 Commercial loans


242,904


229,881





 Consumer loans


6,742


7,125





 Other loans


2,239


7,420





Gross loans


882,959


960,636





Deferred loan origination fees


(586)


(1,534)







882,373


959,102





Allowance for loan losses


(17,769)


(18,348)







$       864,604


$       940,754














Real estate loans held for sale


$           1,397


$              453
















Three months ended


Nine months ended



September 30,


September 30,



2010


2009


2010


2009

ALLOWANCE FOR LOAN LOSSES









 Balance at beginning of period


$         17,854


$         18,680


$ 13,367


$ 10,980

  Provision for loan losses


3,750


8,300


11,750


29,000

  Loan charge offs


(4,240)


(8,822)


(10,189)


(21,872)

  Loan recoveries


405


190


2,841


240

    Net charge offs


(3,835)


(8,632)


(7,348)


(21,632)

 Balance at end of period


$         17,769


$         18,348


$ 17,769


$ 18,348












PACIFIC CONTINENTAL CORPORATION





SELECTED OTHER FINANCIAL INFORMATION AND RATIOS (Continued)


(In thousands)


(Unaudited)















September 30,


September 30,







2010


2009





NONPERFORMING ASSETS









Non-accrual loans









Real estate secured loans:









 Permanent Loans:









  Multifamily residential


$           6,594


$                  -





  Residential 1-4 family


4,945


1,283





  Owner-occupied commercial


4,306


2,204





  Non-owner-occupied commercial


7,359


-





  Other loans secured by real estate


1,379


-





   Total permanent real estate loans


24,583


3,487





Construction Loans:









 Multifamily residential


2,033


-





 Residential 1-4 family


3,099


2,817





 Commercial real estate


4,262


7,551





 Commercial bare land and acquisition & development


669


8,070





 Residential bare land and acquisition & development


90


71





 Other  


-


-





  Total construction real estate loans


10,153


18,509





   Total real estate loans


34,736


21,996





 Commercial loans


8,602


4,036





 Consumer loans


-


-





 Other loans


-


-





Total nonaccrual loans


43,338


26,032





90 days past due and accruing interest


-


-





Total nonperforming loans


43,338


26,032





Nonperforming loans guaranteed by government


(798)


(136)





Net nonperforming loans


42,540


25,896





Other real estate owned


15,422


4,247





Total nonperforming assets, net of guaranteed loans


$         57,962


$           30,143














LOAN QUALITY RATIOS









 Allowance for loan losses as a percentage of total loans









   outstanding, net of loans held for sale


2.01%


1.91%





 Allowance for loan losses as a percentage of total









   nonperforming loans, net of government guarantees


41.77%


70.85%





 Net loan charge offs (recoveries) as a percentage of









   average loans, annualized


1.69%


3.58%





 Net nonperforming loans as a percentage of total loans


4.82%


2.70%





 Nonperforming assets as a percentage of total assets


4.86%


2.62%







PACIFIC CONTINENTAL CORPORATION

SELECTED OTHER FINANCIAL INFORMATION AND RATIOS (Continued)

(In thousands)

(Unaudited)







Three months ended


Nine months ended



September 30,


September 30,



2010


2009


2010


2009

BALANCE SHEET AVERAGES









 Loans (1)


$    898,642


$    957,602


$    917,781


$    961,704

 Allowance for loan losses


(19,091)


(19,309)


(17,103)


(14,869)

   Loans, net of allowance


879,551


938,293


900,678


946,835

 Securities and short-term deposits


201,861


99,565


187,180


80,698

  Earning assets


1,081,412


1,037,858


1,087,858


1,027,533

 Non-interest-earning assets


109,650


89,395


106,797


87,089

       Assets


$ 1,191,062


$ 1,127,253


$ 1,194,655


$ 1,114,622










 Interest-bearing core deposits (2)


$    627,264


$    536,764


$    600,870


$    506,543

 Non-interest-bearing core deposits (2)


219,512


187,996


211,646


177,047

   Core deposits (2)


846,776


724,760


812,516


683,590

 Non-core interest-bearing deposits


68,015


84,908


79,926


84,810

   Deposits


914,791


809,668


892,442


768,400

 Borrowings


93,219


193,841


122,254


217,567

 Other non-interest-bearing liabilities


10,961


3,617


9,823


3,802

      Liabilities


1,018,971


1,007,126


1,024,519


989,769

 Shareholders' equity (book)


172,091


120,127


170,136


124,853

      Liabilities and equity


$ 1,191,062


$ 1,127,253


$ 1,194,655


$ 1,114,622










 Shareholders' equity (tangible) (3)


$    149,547


$      97,359


$    147,537


$    102,030










SELECTED MARKET DATA









 Eugene market loans, net of fees, period end


$    266,512


$    256,291





 Portland market loans, net of fees, period end


409,702


437,674





 Seattle market loans, net of fees, period end


206,159


265,137





   Total loans, net of fees, period end


$    882,373


$    959,102














 Eugene market core deposits, period end (2)


$    515,165


$    480,033





 Portland market core deposits, period end (2)


221,407


162,574





 Seattle market core deposits, period end (2)


114,323


109,046





   Total core deposits, period end (2)


850,895


751,653





 Other deposits, period end


74,028


74,867





     Total


$    924,923


$    826,520














 Eugene market core deposits, average (2)


$    510,594


$    458,121


$    505,106


$    442,219

 Portland market core deposits, average (2)


216,818


159,670


190,443


137,437

 Seattle market core deposits, average (2)


119,364


106,969


116,967


103,934

   Total core deposits, average (2)


846,776


724,760


812,516


683,590

 Other deposits, average


68,015


84,908


79,926


84,810

     Total


$    914,791


$    809,668


$    892,442


$    768,400










NET INTEREST MARGIN RECONCILIATION









 Yield on average loans


6.35%


6.62%


6.42%


6.54%

 Yield on average securities


3.53%


5.29%


3.39%


5.80%

   Yield on average earning assets


5.82%


6.49%


5.90%


6.48%










 Rate on average interest-bearing core deposits


1.28%


1.57%


1.33%


1.56%

 Rate on average interest-bearing non-core deposits


2.14%


1.67%


1.82%


1.85%

   Rate on average interest-bearing deposits


1.37%


1.59%


1.40%


1.61%










 Rate on average borrowings


3.03%


1.61%


2.43%


1.52%

   Cost of interest-bearing funds


1.56%


1.59%


1.55%


1.58%










   Interest rate spread


4.26%


4.90%


4.35%


4.90%










      Net interest margin


4.68%


5.24%


4.76%


5.24%










(1) Includes loans held-for-sale and loans held-for-investment.









(2) Core deposits include all demand, savings, & interest checking accounts, plus all local time deposits including local time deposits in excess of $100,000.

(3) Tangible equity excludes goodwill and core deposit intangible related to acquisitions.



SOURCE Pacific Continental Corporation



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