Pacific Continental Corporation Reports Second Quarter Results

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:

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. 

 

 

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:

 

 

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):

 

 

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.

 

 

 

 

 

 

 

 

 

SOURCE Pacific Continental Corporation

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