Pacific Continental Corporation Reports Record Net Income

EUGENE, Ore., Jan. 26, 2017 /PRNewswire/ -- Pacific Continental Corporation (Nasdaq: PCBK), the holding company of Pacific Continental Bank, today reported financial results for the fourth quarter and year ended December 31, 2016.

Fourth Quarter 2016 Highlights:

• Record fourth quarter net income of $6.9 million - $0.30 per diluted share.
• Quarterly organic loan growth of $51.1 million.
• Fourth quarter tax-equivalent net interest margin of 4.38%.
• Paid fourth quarter 2016 regular quarterly cash dividend of $0.11 per share.
• Recognized by Portland Business Journal as one of Oregon's "Most Admired Companies".
• Recognized for the 17^th consecutive year by Oregon Business magazine as one of the Top 100 Companies to Work For.

Full Year 2016 Highlights:

• Record annual net income of $19.8 million - $0.95 per diluted share.
• Annual organic loan growth of $183.2 million, or 13.03%.
• Annual organic core deposit growth of $104.6 million, or 6.82%.
• Achieved a tax-equivalent net interest margin of 4.29%.
• Acquired and integrated Foundation Bank, a $450 million institution, located in Bellevue, Washington.

Merger Update

On January 9, 2017, Pacific Continental Corporation entered into a definitive agreement to merge with Columbia Banking System, Inc., headquartered in Tacoma, Washington.  Upon completion of the merger, the combined company will operate under the Columbia Bank name and brand.  The agreement was approved by the Board of Directors of each company. Closing of the transaction, which is expected to occur in mid-2017, is contingent on shareholder approval and receipt of necessary regulatory approvals, along with satisfaction of other customary closing conditions.

Net Income Highlights

Net income for the fourth quarter 2016 was a record $6.9 million, or $0.30 per diluted share. Included in our net income were non-core costs associated with our acquisition of Foundation Bank of approximately $1.2 million, or approximately $0.03 per diluted share.  Additionally, we incurred $250 thousand of legal expenses associated with our recent merger announcement with Columbia Bank.  The provision for loan losses expense in the fourth quarter was $1.9 million, compared to $1.4 million for the third quarter.  Annualized returns on average assets, average equity and average tangible equity for fourth quarter 2016 were 1.08%, 9.93%, and 13.35%, respectively, compared to 0.89%, 8.05%, and 10.14% for third quarter 2016.

Net income for the full year 2016 was a record $19.8 million, or $0.95 per diluted share, compared to $18.8 million, or $0.97 per diluted share for the full year 2015. Included in net income was $4.9 million of pre-tax non-core costs associated with our acquisition of Foundation Bank, compared to $1.8 million of pre-tax non-core expenses incurred in 2015 related to our acquisition of Capital Pacific Bank.  Returns on average assets, average equity and average tangible equity for the full year 2016 were 0.92%, 8.23%, and 10.5%, respectively, compared to 1.05%, 8.99%, and 11.14% for full year 2015.

"I am extremely proud of our entire team on a successful 2016, which included record net income, the successful acquisition and integration of Foundation Bank, and double-digit organic loan growth", said Roger Busse, chief executive officer. "Our 2016 accomplishments illustrate the legacy of Pacific Continental Bank: outstanding results driven by outstanding people.  This should provide solid momentum as we move towards our merger with Columbia Bank."

Fourth quarter 2016 noninterest income was $2.3 million, an increase of $423 thousand from the third quarter 2016.  Approximately $327 thousand of the increase related to gains from the termination of several debt swap agreements that were "in the money" due to the recent increase in long-term rates.  The remainder of the increase related primarily to the additional service charge on deposits of Foundation Bank clients. 

Noninterest expense for the fourth quarter 2016 was $15.8 million, which represented an increase of $2.0 million from the third quarter of 2016. The increase relates primarily to the acquisition of Foundation Bank, which occurred on September 6, 2016.  The fourth quarter was the first full quarter of expenses related to the new office and additional employees acquired through the Foundation Bank acquisition. Additionally, we incurred $150 thousand of stock compensation expense related to the valuation of Stock Appreciation Rights and our increased market price during the fourth quarter.  We also incurred $250 thousand of legal expenses related to our recently announced merger with Columbia Bank.

Net Interest Margin

The fourth quarter 2016 net interest margin was 4.38%, an increase of 16 basis points from the third quarter net interest margin.  Accretion income for the fourth quarter 2016 was $2.2 million compared to $877 thousand for the third quarter 2016. As of December 31, 2016, there was $11.3 million fair value discount remaining on acquired loan portfolios. Accretion of loan fair value discount from our two prior acquisitions, in 2013 and 2015, and now the recent Foundation Bank acquisition, excluding any prepayments, are expected to add a minimum of $1.2 million in interest income during the first quarter of 2017, which would improve our reported margin by approximately 20 basis points.   Monthly accretion is accounted for in accordance with GAAP with the majority using the interest-method however, prepayment or refinancing can accelerate monthly expected accretion income

The core net interest margin, which removes nonrecurring items and accretion of loan fair value marks, was 3.96% for the fourth quarter 2016 compared to 3.99% for the third quarter 2016.  An outline of our core and reported net interest margins is as follows:

	Dollars in thousands
	Fourth Quarter 2016						Third Quarter 2016
	Average Balance		Income (Expense)		Yield		Average Balance		Income (Expense)		Yield
Federal funds sold and interest-bearing deposits	$        40,436		$            50		0.49%		$        28,811		$            40		0.55%
Federal Home Loan Bank stock	5,834		47		3.20%		6,975		46		2.62%
Securities available-for-sale (1)	477,953		2,925		2.43%		421,085		2,691		2.54%
Net loans(2)	1,808,408		22,271		4.90%		1,558,018		19,315		4.93%
Earning assets	2,332,631		25,293		4.31%		2,014,889		22,092		4.36%
Interest bearing liabilities	1,381,915		(2,058)		-0.59%		1,230,806		(1,891)		-0.61%
Core margin (non-GAAP)	2,332,631		23,235		3.96%		2,014,889		20,201		3.99%
Acquired loan accretion			2,244		0.38%				877		0.17%
Prepayment penalties on loans			211		0.04%				276		0.05%
Net interest margin	$  2,332,631		$    25,690		4.38%		$  2,014,889		$    21,354		4.22%

(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 $273 and $260 for the three months ended December 31, 2016  and September 30, 2016, respectively. Net interest margin was positively impacted by 5 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 $432 and $323 for the three months ended December 31, 2016  and September 30, 2016, respectively. Net interest margin was positively impacted by 6 basis points in each period.

Balance Sheet Highlights

Gross loans grew by $51.1 million in the fourth quarter 2016, and totaled $1.86 billion at December 31, 2016.  Gross loan growth through the full year 2016 was $453.3 million.  Excluding the $270.5 million in loans acquired from our Foundation Bank acquisition, organic loan growth was $183.2 million, or 13.03%.  At December 31, 2016, loans to dental practitioners totaled $377.5 million and represented 20.30% of the loan portfolio. This represented an increase of $7.3 million over third quarter 2016, when loans to dental practitioners represented 20.46% of the loan portfolio.  For the full year 2016, loans to dental practitioners grew by $37.3 million, or 10.97%.

Period-end Company-defined core deposits at December 31, 2016, were $2.04 billion, a decrease of $14.3 million from the third quarter 2016.  The decrease was in large part expected, as one client increased its deposits by $64.3 million at the end of the third quarter due to the sale of a business unit.  During the fourth quarter this client decreased its deposits by $51.0 million. 

Core deposit growth for the full year 2016 was $501.1 million.  Excluding the $396.5 million in deposits acquired from Foundation Bank during the third quarter, our full year organic core deposit growth was $104.6 million, or 6.82%.

"Our 2016 results were yet another opportunity to demonstrate the outstanding work of our highly talented team of bankers,' said Casey Hogan, chief operating officer. "Impressive organic loan growth and solid gains in the deposit portfolio should provide a robust tailwind heading into our merger with Columbia Bank."

Asset Quality

As of December 31, 2016, the allowance for loan losses as a percentage of outstanding loans was 1.21%, an increase from the 1.14% reported at September 30, 2016.  At December 31, 2016, the allowance for loan losses as a percentage of nonperforming loans, net of government guarantees, increased to 236.88% from 210.23% at September 30, 2016. During the fourth quarter 2016, the Company recorded net recoveries of $48 thousand, compared to net loan recoveries of $24 thousand during the third quarter 2016.  During the fourth quarter, the Company made a $1.9 million provision for loan losses compared to a $1.4 million provision in the third quarter 2016. For the full year 2016, the Company made a $5.5 million provision for loan losses, compared to $1.7 million for the full year 2015.

At December 31, 2016, nonperforming assets, net of government guarantees, totaled $21.5 million, or 0.85% of total assets, compared to $22.8 million, or 0.90% of total assets, at September 30, 2016. Nonperforming assets at December 31, 2016, were comprised of $9.5 million of nonperforming loans, net of government guarantees of $2.4 million, and $12.1 million in other real estate owned. Loans past-due 30-89 days were 0.06% of total loans at December 31, 2016, compared to 0.01% of total loans at September 30, 2016. 

Capital Adequacy

The Company's consolidated capital ratios continued to be above the minimum thresholds for the FDIC's "well-capitalized" designation. At December 31, 2016, the Company's capital ratios were as follows:

		December 31, 2016
Minimum dollar requirements		Pacific Continental Corporation		Regulatory Minimum (Well- Capitalized)		Excess
Tier I capital (to leverage assets)		$               221,346		$                   122,770		$ 98,576
Common equity tier 1 capital (to risk weighted assets)		$               208,873		$                   142,672		$ 66,201
Tier I capital (to risk weighted assets)		$               221,346		$                   175,597		$ 45,749
Total capital (to risk weighted assets)		$               278,444		$                   219,496		$ 58,948
Minimum percentage requirements		Pacific Continental Corporation		Regulatory Minimum (Well- Capitalized)
Tier I capital (to leverage assets)		9.01%		5.00%
Common equity tier 1 capital (to risk weighted assets)		9.52%		6.50%
Tier I capital (to risk weighted assets)		10.08%		8.00%
Total capital (to risk weighted assets)		12.69%		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.

Certain 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):

		December 31,		September 30,		December 31,
		2016		2016		2015
		(In thousands)
Total shareholders' equity		$         273,755		$           276,471		$         218,491
Subtract:
	Goodwill	61,401		61,436		39,255
	Core deposit intangible assets	8,981		9,248		3,904
Tangible shareholders' equity (non-GAAP)		$         203,373		$           205,787		$         175,332
Total assets		$      2,541,437		$       2,539,060		$      1,909,478
Subtract:
	Goodwill	61,401		61,436		39,255
	Core deposit intangible assets	8,981		9,248		3,904
Total tangible assets (non-GAAP)		$      2,471,055		$       2,468,376		$      1,866,319

About Pacific Continental Bank

Pacific Continental Bank, the wholly-owned operating subsidiary of Pacific Continental Corporation, delivers highly personalized services through fifteen banking offices in Oregon and Washington. The Bank also operates loan production offices in Tacoma, Washington and Denver, Colorado. Pacific Continental, with more than $2.5 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"). All statements other than statements of historical fact are forward looking statements.  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, net interest margin compression, strategic focus,  capital position, liquidity, credit quality, credit quality trends, fair value accretion,  the impact and effects of recent or pending acquisitions and the benefits of the business combination transaction involving Pacific Continental and Columbia, including future financial and operating results, and the combined company's plans, objectives and expectations. 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 and Columbia's most recent Annual Report on Form 10-K, Quarterly Report on Form 10-Q, and in any of Pacific Continental's and Columbia'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 the business combination transaction involving Pacific Continental and Columbia, including (i) the possibility that the merger does not close when expected or at all because required regulatory, shareholder or other approvals and other conditions to closing are not received or satisfied on a timely basis or at all; (ii) changes in Columbia's stock price before closing, including as a result of the financial performance of Pacific Continental prior to closing, or more generally due to broader stock market movements, and the performance of financial companies and peer group companies; (iii) the risk that the benefits from the transaction may not be fully realized or may take longer to realize than expected, including as a result of changes in general economic and market conditions, interest and exchange rates, monetary policy, laws and regulations and their enforcement, and the degree of competition in the geographic and business areas in which Columbia and Pacific Continental operate; (iv) the ability to promptly and effectively integrate the businesses of Columbia and Pacific Continental; (v) the reaction to the transaction of the companies' customers, employees and counterparties; (vi) diversion of management time on merger-related issues; (vii) lower than expected revenues, credit quality deterioration or a reduction in real estate values or a reduction in net earnings; and (viii) other risks that are described in Columbia's and Pacific Continental's public filings with the SEC. 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.

IMPORTANT INFORMATION FOR INVESTORS AND SHAREHOLDERS

This communication is being made in respect of the proposed merger transaction involving Columbia Banking System and Pacific Continental. This communication does not constitute an offer to sell or the solicitation of an offer to buy any securities or a solicitation of any vote or approval, nor shall there be any sale of securities in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of such jurisdiction.  In connection with the proposed transaction, Columbia will file with the SEC a Registration Statement on Form S-4 that will include a Joint Proxy Statement of Columbia and Pacific Continental and a Prospectus of Columbia, as well as other relevant documents concerning the proposed transaction. Shareholders of Columbia and Pacific Continental are urged to carefully read the Registration Statement and the Joint Proxy Statement/Prospectus regarding the transaction in their entirety when they become available and any other relevant documents filed with the SEC, as well as any amendments or supplements to those documents, because they will contain important information. A definitive Joint Proxy Statement/Prospectus will be sent to the shareholders of each institution seeking any required shareholder approvals. The Joint Proxy Statement/Prospectus and other relevant materials (when they become available) filed with the SEC may be obtained free of charge at the SEC's Website at http://www.sec.gov. Columbia and Pacific Continental shareholders are urged to read the Joint Proxy Statement/Prospectus and the other relevant materials before voting on the transaction. Investors will also be able to obtain these documents, free of charge, from Pacific Continental by accessing Pacific Continental's website at www.therightbank.com under the link "Investor Relations" or from Columbia at www.columbiabank.com under the tab "About Us" and then under the heading "Investor Relations." Copies can also be obtained, free of charge, by directing a written request to Columbia Banking System, Inc., Attention: Corporate Secretary, 1301 A Street, Suite 800, Tacoma, Washington 98401-2156 or to Pacific Continental Corporation, Attention: Corporate Secretary, 111 West Seventh Avenue, P.O. Box 10727, Eugene, Oregon 97440-2727.

Pacific Continental and Columbia and their respective directors and executive officers and certain other persons may be deemed to be participants in the solicitation of proxies from the shareholders of Columbia and Pacific Continental in connection with the merger. Information about the directors and executive officers of Columbia and their ownership of Columbia common stock is set forth in the proxy statement for Columbia's 2016 annual meeting of shareholders, as filed with the SEC on a Schedule 14A on March 16, 2016. Information about the directors and executive officers of Pacific Continental and their ownership of Pacific Continental common stock is set forth in the proxy statement for Pacific Continental's 2016 annual meeting of shareholders, as filed with the SEC on a Schedule 14A on March 15, 2016. Additional information regarding the interests of those participants and other persons who may be deemed participants in the transaction may be obtained by reading the Joint Proxy Statement/Prospectus regarding the merger when it becomes available. Free copies of this document may be obtained as described in the preceding paragraph.

FOR MORE INFORMATION CONTACT:	Michael Dunne
	Public Information Officer
	541-338-1428
	www.therightbank.com
	Email: [e-mail]

 

PACIFIC CONTINENTAL CORPORATION and subsidiary
Consolidated Income Statements
(Dollars in thousands, except share and per share amounts)
(Unaudited)
		Three months ended						Linked		Year over
		December 31,		September 30,		December 31,		Quarter		Year
		2016		2016		2015		% Change		% Change
Interest and dividend income
Loans		$        24,294		$         20,145		$        17,674		20.60%		37.46%
Taxable securities		2,192		1,995		1,707		9.87%		28.41%
Tax-exempt securities		507		482		485		5.19%		4.54%
Federal funds sold and interest-bearing deposits with banks		50		40		11		25.00%		354.55%
		27,043		22,662		19,877		19.33%		36.05%
Interest expense
Deposits		1,171		984		805		19.00%		45.47%
Federal Home Loan Bank & Federal Reserve Bank borrowings		196		286		191		-31.47%		2.62%
Subordinated debentures		590		553		-		6.69%		NA
Junior subordinated debentures		100		66		57		51.52%		75.44%
Federal funds purchased		1		2		2		-50.00%		-50.00%
		2,058		1,891		1,055		8.83%		95.07%
Net interest income		24,985		20,771		18,822		20.29%		32.74%
Provision for loan losses		1,875		1,380		520		35.87%		260.58%
Net interest income after provision for loan losses		23,110		19,391		18,302		19.18%		26.27%
Noninterest income
Service charges on deposit accounts		777		717		705		8.37%		10.21%
Bankcard income		316		314		342		0.64%		-7.60%
Bank-owned life insurance income		239		172		156		38.95%		53.21%
Gain on sale of investment securities		64		-		337		NA		-81.01%
Impairment losses on investment securities (OTTI)		(1)		(2)		(8)		-50.00%		-87.50%
Other noninterest income		947		718		476		31.89%		98.95%
		2,342		1,919		2,008		22.04%		16.63%
Noninterest expense
Salaries and employee benefits		8,789		7,520		7,278		16.88%		20.76%
Premises and equipment		1,338		1,202		1,126		11.31%		18.83%
Data processing		1,027		924		916		11.15%		12.12%
Legal and professional fees		976		569		538		71.53%		81.41%
Business development		557		460		507		21.09%		9.86%
FDIC insurance assessment		242		273		282		-11.36%		-14.18%
Other real estate (income) expense, net		(4)		71		42		-105.63%		-109.52%
Merger related expenses(1)		1,189		1,767		-		-32.71%		NA
Other noninterest expense		1,715		1,039		1,017		65.06%		68.63%
		15,829		13,825		11,706		14.50%		35.22%
Income before provision for income taxes		9,623		7,485		8,604		28.56%		11.84%
Provision for income taxes		2,763		2,634		3,076		4.90%		-10.18%
Net income		$          6,860		$           4,851		$          5,528		41.41%		24.10%
Earnings per share:
Basic		$             0.30		$              0.24		$             0.28		25.00%		7.14%
Diluted		$             0.30		$              0.23		$             0.28		30.43%		7.14%
Weighted average shares outstanding:
Basic		22,606,539		20,511,392		19,598,484
Common stock equivalents attributable to stock-based awards		215,856		165,572		167,614
Diluted		22,822,395		20,676,964		19,766,098
PERFORMANCE RATIOS
Return on average assets		1.08%		0.89%		1.16%
Return on average equity (book)		9.93%		8.05%		10.10%
Return on average equity (tangible) (2)		13.35%		10.14%		12.60%
Net interest margin - fully tax-equivalent yield (3)		4.38%		4.22%		4.36%
Efficiency ratio (4)		57.35%		60.24%		55.50%

(1) Represents expenses associated with the 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 Ended Consolidated Income Statements
(Dollars in thousands, except share and per share amounts)
(Unaudited)
		Year Ended				Year over
		December 31,				Year
		2016		2015		% Change
Interest and dividend income
Loans		$       80,104		$       65,694		21.94%
Taxable securities		7,743		6,532		18.54%
Tax-exempt securities		1,942		1,976		-1.72%
Federal funds sold and interest-bearing deposits with banks		154		34		352.94%
		89,943		74,236		21.16%
Interest expense
Deposits		3,848		3,314		16.11%
Federal Home Loan Bank and Federal Reserve Bank borrowings		954		885		7.80%
Subordinated debentures		1,143		-		NA
Junior subordinated debentures		279		226		23.45%
Federal funds purchased		8		11		-27.27%
		6,232		4,436		40.49%
Net interest income		83,711		69,800		19.93%
Provision for loan losses		5,450		1,695		221.53%
Net interest income after provision for loan losses		78,261		68,105		14.91%
Noninterest income
Service charges on deposit accounts		2,876		2,644		8.77%
Bankcard income		1,214		1,029		17.98%
Bank-owned life insurance income		702		592		18.58%
Gain on sale of investment securities		373		672		-44.49%
Impairment losses on investment securities (OTTI)		(21)		(22)		-4.55%
Other noninterest income		2,673		1,710		56.32%
		7,817		6,625		17.99%
Noninterest expense
Salaries and employee benefits		31,873		27,501		15.90%
Premises and equipment		4,742		4,347		9.09%
Data processing		3,709		3,259		13.81%
Legal and professional fees		3,297		1,924		71.36%
Business development		2,049		1,640		24.94%
FDIC insurance assessment		1,089		1,051		3.62%
Other real estate (income) expense, net		(36)		346		-110.40%
Merger related expense(1)		4,934		1,836		168.74%
Other noninterest expense		4,936		3,986		23.83%
		56,593		45,890		23.32%
Income before provision for income taxes		29,485		28,840		2.24%
Provision for income taxes		9,709		10,089		-3.77%
Net income		$       19,776		$       18,751		5.47%
Earnings per share:
Basic		$           0.96		$           0.97		-1.03%
Diluted		$           0.95		$           0.97		-2.06%
Weighted average shares outstanding:
Basic		20,610,808		19,250,838
Common stock equivalents attributable to stock-based awards		179,187		141,487
Diluted		20,789,995		19,392,325
PERFORMANCE RATIOS
Return on average assets		0.92%		1.05%
Return on average equity (book)		8.23%		8.99%
Return on average equity (tangible) (2)		10.50%		11.14%
Net interest margin - fully tax-equivalent yield (3)		4.29%		4.34%
Efficiency ratio(4)		61.13%		59.22%

(1) Represents expenses associated with the 2016 acquisition of Foundation Bank and the 2015 acquisition of Capital Pacific 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 at a 35% tax rate) plus noninterest income.

 

PACIFIC CONTINENTAL CORPORATION and subsidiary
Consolidated Balance Sheets
(Dollars in thousands, except share and per share amounts)
(Unaudited)
								Linked	Year over
		December 31,		September 30,		December 31,		Quarter	Year
		2016		2016		2015		% Change	% Change
ASSETS
Cash and due from banks		$       30,154		$         35,819		$        23,819		-15.82%	26.60%
Interest-bearing deposits with banks		36,959		71,353		12,856		-48.20%	187.48%
Total cash and cash equivalents		67,113		107,172		36,675		-37.38%	82.99%
Securities available-for-sale		470,996		482,408		366,598		-2.37%	28.48%
Loans, net of deferred fees		1,857,767		1,806,736		1,404,482		2.82%	32.27%
Allowance for loan losses		(22,454)		(20,531)		(17,301)		9.37%	29.78%
Net Loans		1,835,313		1,786,205		1,387,181
Interest receivable		7,107		5,957		5,721		19.31%	24.23%
Federal Home Loan Bank stock		5,423		4,643		5,208		16.80%	4.13%
Property and equipment, net of accumulated depreciation		20,208		19,656		18,014		2.81%	12.18%
Goodwill and intangible assets, net		70,382		70,684		43,159		-0.43%	63.08%
Deferred tax asset		12,722		7,380		5,670		72.38%	124.37%
Other real estate owned		12,068		13,066		11,747		-7.64%	2.73%
Bank-owned life insurance		35,165		34,927		22,884		0.68%	53.67%
Other assets		4,940		6,962		6,621		-29.04%	-25.39%
Total assets		$ 2,541,437		$    2,539,060		$   1,909,478		0.09%	33.10%
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits
Noninterest-bearing demand		$    858,996		$       901,290		$      568,688		-4.69%	51.05%
Savings and interest-bearing checking		1,110,224		1,082,202		889,802		2.59%	24.77%
Core time deposits		65,847		65,860		75,452		-0.02%	-12.73%
Total core deposits (2)		2,035,067		2,049,352		1,533,942		-0.70%	32.67%
Non-core time deposits		113,036		113,281		63,151		-0.22%	78.99%
Total deposits		2,148,103		2,162,633		1,597,093		-0.67%	34.50%
Securities sold under agreements to repurchase		1,966		1,107		71		77.60%	2669.01%
Federal Home Loan Bank borrowings		65,000		45,500		77,500		42.86%	-16.13%
Subordinated debentures		34,096		34,072		-		0.07%	313.39%
Junior subordinated debentures		11,311		11,272		8,248		0.35%	40.07%
Accrued interest and other payables		7,206		8,005		8,075		-9.98%	NA
Total liabilities		2,267,682		2,262,589		1,690,987		0.23%	34.10%
Shareholders' equity
Common stock: 50,000,000 shares authorized.  Shares issued and outstanding: 22,611,535 at December 31, 2016, 22,603,421 at September 30, 2016, and 19,604,182 at December 31, 2015		205,584		205,120		156,099		0.23%	31.70%
Retained earnings		70,486		66,112		59,693		6.62%	18.08%
Accumulated other comprehensive (loss) income		(2,315)		5,239		2,699		-144.19%	-185.77%
		273,755		276,471		218,491		-0.98%	25.29%
Total liabilities and shareholders' equity		$ 2,541,437		$   2,539,060		$  1,909,478		0.09%	33.10%
CAPITAL RATIOS
Total capital (to risk weighted assets)		12.69%		12.55%		12.58%
Tier I capital (to risk weighted assets)		10.08%		9.99%		11.47%
Common equity tier 1 capital (to risk weighted assets)		9.52%		9.43%		10.97%
Tier I capital (to leverage assets)		9.01%		10.33%		9.93%
Tangible common equity (to tangible assets)(1)		8.23%		8.34%		9.39%
Tangible common equity (to risk-weighted assets)(1)		9.27%		9.55%		10.96%
OTHER FINANCIAL DATA
Shares outstanding at end of period		22,611,535		22,603,421		19,604,192
Tangible shareholders' equity(1)		$     203,373		$        205,787		$       175,332
Book value per share		$         12.11		$            12.23		$           11.15
Tangible book value per share		$           8.99		$              9.10		$             8.94

(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.
NA Not applicable

 

PACIFIC CONTINENTAL CORPORATION and subsidiary
Loans by Type
(Dollars in thousands)
(Unaudited)
								Linked		Year over
		December 31,		September 30,		December 31,		Quarter		Year
		2016		2016		2015		% Change		% Change
LOANS BY TYPE
Real estate secured loans:
Permanent loans:
Multi-family residential		$        74,340		$         79,126		$        66,445		-6.05%		11.88%
Residential 1-4 family		61,548		61,498		53,776		0.08%		14.45%
Owner-occupied commercial		461,557		425,879		364,742		8.38%		26.54%
Nonowner-occupied commercial		451,893		431,119		300,774		4.82%		50.24%
Total permanent real estate loans		1,049,338		997,622		785,737		5.18%		33.55%
Construction loans:
Multi-family residential		22,252		24,567		7,027		-9.42%		216.66%
Residential 1-4 family		43,532		42,130		30,856		3.33%		41.08%
Commercial real estate		76,301		78,369		42,680		-2.64%		78.77%
Commercial bare land and acquisition and development		15,081		19,050		20,537		-20.83%		-26.57%
Residential bare land and acquisition and development		10,645		8,852		7,268		20.26%		46.46%
Total construction real estate loans		167,811		172,968		108,368		-2.98%		54.85%
Total real estate loans		1,217,149		1,170,590		894,105		3.98%		36.13%
Commercial loans		630,491		630,091		501,976		0.06%		25.60%
Consumer loans		2,922		3,201		3,351		-8.72%		-12.80%
Other loans		9,225		4,764		6,580		93.64%		40.20%
Gross loans		1,859,787		1,808,646		1,406,012		2.83%		32.27%
Deferred loan origination fees		(2,020)		(1,910)		(1,530)		5.76%		32.03%
		1,857,767		1,806,736		1,404,482		2.82%		32.27%
Allowance for loan losses		(22,454)		(20,531)		(17,301)		9.37%		29.78%
		$  1,835,313		$   1,786,205		$  1,387,181		2.75%		32.31%
SELECTED MARKET LOAN DATA
Eugene market gross loans, period-end		$      442,556		$       404,858		$      379,048		9.31%		16.75%
Portland market gross loans, period-end		747,037		728,749		667,995		2.51%		11.83%
Seattle market gross loans, period-end		405,843		423,581		142,104		-4.19%		185.60%
National health care gross loans, period-end (1)		264,351		251,458		216,865		5.13%		21.90%
Total gross loans, period-end		$  1,859,787		$   1,808,646		$  1,406,012		2.83%		32.27%
DENTAL LOAN DATA (2)
Local dental gross loans, period-end		$      150,268		$       150,898		$      145,817		-0.42%		3.05%
National dental gross loans, period-end		227,210		219,237		194,345		3.64%		16.91%
Total gross dental loans, period-end		$      377,478		$       370,135		$      340,162		1.98%		10.97%

(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
(Dollars in thousands)
(Unaudited)
		Three months ended						Twelve months ended
		December 31,		September 30,		December 31,		December 31,		December 31,
		2016		2016		2015		2016		2015
BALANCE SHEET AVERAGES
Loans, net of deferred fees		$  1,829,408		$    1,577,365		$   1,374,281		$  1,573,331		$   1,270,129
Allowance for loan losses		(21,000)		(19,347)		(16,820)		(18,999)		(16,142)
Loans, net of allowance		1,808,408		1,558,018		1,357,461		1,554,332		1,253,987
Securities, short-term deposits and FHLB stock		524,223		456,871		396,852		452,140		391,888
Earning assets		2,332,631		2,014,889		1,754,313		2,006,472		1,645,875
Noninterest-earning assets		191,571		149,098		138,949		152,939		136,957
Assets		$  2,524,202		$    2,163,987		$   1,893,262		$  2,159,411		$   1,782,832
Interest-bearing core deposits(1)		$  1,145,533		$       960,974		$      942,360		$  1,004,419		$      887,901
Noninterest-bearing core deposits(1)		859,492		687,803		584,445		701,137		518,267
Core deposits(1)		2,005,025		1,648,777		1,526,805		1,705,556		1,406,168
Noncore interest-bearing deposits		114,091		107,753		59,986		88,638		69,647
Deposits		2,119,116		1,756,530		1,586,791		1,794,194		1,475,815
Borrowings		121,155		161,299		81,872		117,805		91,700
Other noninterest-bearing liabilities		9,141		6,374		7,501		7,207		6,817
Liabilities		2,249,412		1,924,203		1,676,164		1,919,206		1,574,332
Shareholders' equity (book)		274,790		239,784		217,098		240,205		208,500
Liabilities and equity		$   2,524,202		$    2,163,987		$   1,893,262		$   2,159,411		$   1,782,832
Shareholders' equity (tangible)(2)		$      204,474		$       190,267		$      174,051		$      188,363		$      168,317
Period-end earning assets		$  2,343,268		$   2,339,966		$  1,766,635
SELECTED MARKET DEPOSIT DATA
Eugene market core deposits, period-end(1)		$      815,674		$       785,053		$      787,521
Portland market core deposits, period-end(1)		630,806		671,747		552,283
Seattle market core deposits, period-end(1)		588,587		592,552		194,138
Total core deposits, period-end(1)		2,035,067		2,049,352		1,533,942
Other deposits, period-end		113,036		113,281		63,151
Total		$   2,148,103		$    2,162,633		$   1,597,093
Eugene market core deposits, average(1)		$      770,123		$       721,271		$      783,391
Portland market core deposits, average(1)		644,037		631,440		562,026
Seattle market core deposits, average(1)		590,865		296,066		181,388
Total core deposits, average(1)		2,005,025		1,648,777		1,526,805
Other deposits, average		114,091		107,753		59,986
Total		$  2,119,116		$   1,756,530		$  1,586,791
NET INTEREST MARGIN RECONCILIATION
Yield on average loans (3)		5.44%		5.23%		5.22%		5.24%		5.29%
Yield on average securities(4)		2.43%		2.54%		2.55%		2.54%		2.53%
Yield on average earning assets(4)		4.73%		4.59%		4.60%		4.60%		4.61%
Rate on average interest-bearing core deposits		0.29%		0.26%		0.26%		0.27%		0.26%
Rate on average interest-bearing non-core deposits		1.22%		1.29%		1.30%		1.31%		1.40%
Rate on average interest-bearing deposits		0.37%		0.37%		0.32%		0.35%		0.35%
Rate on average borrowings		2.89%		2.23%		1.21%		2.01%		1.22%
Cost of interest-bearing funds		0.59%		0.61%		0.39%		0.51%		0.42%
Interest rate spread(4)		4.14%		3.98%		4.21%		4.08%		4.19%
Net interest margin- fully tax equivalent yield(4)		4.38%		4.22%		4.36%		4.29%		4.34%
Acquired loan fair value accretion impact to net interest margin (5)		0.38%		0.16%		0.15%		0.18%		0.14%

(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 $316, $340, and $223 for the three months ended December 31, 2016, September 30, 2016, and December 31, 2015, respectively, and $1,091 and $702 for the year ended December 31, 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 $432, $323 and $198 for the three months ended December 31, 2016, September 30, 2016, and December 31, 2015 , respectively, and $1,276 and $612 for the twelve months ended December 31, 2016 and 2015, respectively.  The tax equivalent yield adjustment to interest earned on tax exempt securities was $273, $260 and $261 for the three months ended December 31, 2016, September 30, 2016, and December 31, 2015 , respectively, and $1,046 and $1,064 for the twelve months ended December 31, 2016, and 2015 respectively.

(5)During the three months ended December 31, 2016, September 30, 2016, and December 31, 2015, accretion of the fair  value adjustment on acquired loans contributed to interest income  was $2,244, $877, and $671, respectively, and $3,686 and $2,291 for the twelve months ended December 31, 2016 and 2015, respectively.

 

PACIFIC CONTINENTAL CORPORATION and subsidiary
Nonperforming Assets, Asset Quality Ratios and Allowance for Loan Losses
(Dollars in thousands)
(Unaudited)
							December 31,		September 30,		December 31,
							2016		2016		2015
			NONPERFORMING ASSETS
Non-accrual loans
	Real estate secured loans:
		Permanent loans:
			Multi-family residential				$                    -		$                      -		$                    -
			Residential 1-4 family				1,294		1,465		733
			Owner-occupied commercial				1,605		1,634		2,369
			Nonowner-occupied commercial				3,374		3,475		790
				Total permanent real estate loans			6,273		6,574		3,892
		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		6,273		6,574		3,945
	Commercial loans						5,560		5,619		1,564
						Total nonaccrual loans	11,833		12,193		5,509
90-days past due and accruing interest							-		-		-
	Total nonperforming loans						11,833		12,193		5,509
		Nonperforming loans guaranteed by government					(2,354)		(2,427)		(2,790)
			Net nonperforming loans				9,479		9,766		2,719
Other real estate owned							12,068		13,066		11,747
			Total nonperforming assets, net of guaranteed loans				$         21,547		$           22,832		$         14,466
			ASSET QUALITY RATIOS
	Allowance for loan losses as a percentage of total loans outstanding						1.21%		1.14%		1.23%
	Allowance for loan losses as a percentage of total nonperforming loans, net of government guarantees						236.88%		210.23%		636.30%
	Quarter-to-date net loan (recoveries), charge offs, as a percentage of average loans, annualized						-0.01%		-0.01%		-0.02%
	Net nonperforming loans as a percentage of total loans						0.51%		0.54%		0.19%
	Nonperforming assets as a percentage of total assets						0.85%		0.90%		0.76%
	Consolidated classified asset ratio(1)						23.51%		23.80%		23.03%
	Past due as a percentage of total loans(2)						0.06%		0.01%		0.03%
							Three months ended							Twelve months ended
							December 31,		September 30,		December 31,			December 31,		December 31,
							2016		2016		2015			2016		2015
			ALLOWANCE FOR LOAN LOSSES
Balance at beginning of period							$         20,531		$           19,127		$         16,612			$        17,301		$        15,637
Provision for loan losses							1,875		1,380		520			5,450		1,695
Loan charge-offs							(13)		(44)		(69)			(725)		(700)
Loan recoveries							61		68		238			428		669
Net (charge-offs) recoveries							48		24		169			(297)		(31)
Balance at end of period							$         22,454		$           20,531		$         17,301			$        22,454		$        17,301

(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)
	4th Quarter	3rd Quarter	2nd Quarter	1st Quarter	4th Quarter
	2016	2016	2016	2016	2015
EARNINGS
Net interest income	$        24,985	$        20,771	$        19,147	$        18,809	$        18,822
Provision for loan loss	$          1,875	$          1,380	$          1,950	$             245	$             520
Noninterest income	$          2,342	$          1,919	$          1,747	$          1,807	$          2,008
Noninterest expense	$        15,829	$        13,825	$        14,932	$        12,007	$        11,706
Net income	$          6,860	$          4,851	$          2,606	$          5,459	$          5,528
Basic earnings per share	$            0.30	$            0.24	$            0.13	$            0.28	$            0.28
Diluted earnings per share	$            0.30	$            0.23	$            0.13	$            0.28	$            0.28
Average shares outstanding	22,606,539	20,511,392	19,697,314	19,607,106	19,598,484
Average diluted shares outstanding	22,822,395	20,676,964	19,868,967	19,782,282	19,766,098
PERFORMANCE RATIOS
Return on average assets	1.08%	0.89%	0.53%	1.12%	1.16%
Return on average equity (book)	9.93%	8.05%	4.67%	9.92%	10.10%
Return on average equity (tangible) (1)	13.35%	10.14%	5.80%	12.35%	12.60%
Net interest margin - fully tax equivalent yield (2)	4.38%	4.22%	4.27%	4.27%	4.35%
Efficiency ratio (tax equivalent) (3)	57.35%	60.24%	70.60%	57.52%	55.50%
Full-time equivalent employees	374	366	333	339	322
CAPITAL
Tier 1 leverage ratio	9.01%	10.33%	9.62%	9.75%	9.93%
Common Equity tier 1 ratio	9.52%	9.43%	10.07%	10.88%	10.97%
Tier 1 risk based ratio	10.08%	9.99%	10.52%	11.37%	11.47%
Total risk based ratio	12.69%	12.55%	13.54%	12.46%	12.58%
Book value per share	$          12.11	$          12.23	$          11.48	$          11.46	$          11.15
Regular cash dividend per share	$            0.11	$            0.11	$            0.11	$            0.11	$            0.11
ASSET QUALITY
Allowance for loan losses (ALL)	$        22,454	$        20,531	$        19,127	$        17,596	$        17,301
Non performing loans (NPLs) net of government guarantees	$          9,479	$          9,766	$          1,631	$          2,642	$          2,719
Non performing assets (NPAs) net of government guarantees	$        21,547	$        22,832	$        13,739	$        14,389	$        14,466
Net loan (recoveries) charge offs	$            (48)	$            (24)	$             419	$            (50)	$          (169)
ALL as a percentage of gross loans	1.21%	1.14%	1.29%	1.23%	1.23%
ALL as a % NPLs, net of government guarantees	236.88%	210.23%	1172.72%	666.01%	636.30%
Net loan charge offs (recoveries) to average loans	-0.01%	-0.01%	0.12%	-0.01%	-0.02%
Net NPLs as a percentage of total loans	0.51%	0.54%	0.11%	0.18%	0.19%
Nonperforming assets as a percentage of total assets	0.85%	0.90%	0.68%	0.73%	0.76%
Consolidated classified asset ratio(4)	23.51%	23.80%	20.81%	20.96%	23.03%
Past due as a percentage of total loans(5)	0.06%	0.01%	0.02%	0.07%	0.03%
END OF PERIOD BALANCES
Total securities and short term deposits	$     507,955	$     553,761	$     414,381	$     413,273	$     379,454
Total loans net of allowance	$  1,835,313	$  1,786,205	$  1,465,025	$  1,412,138	$  1,387,181
Total earning assets	$  2,348,691	$  2,344,609	$  1,887,757	$  1,828,922	$  1,771,843
Total assets	$  2,541,437	$  2,539,060	$  2,025,410	$  1,965,705	$  1,909,478
Total non-interest bearing deposits	$     858,996	$     901,290	$     624,146	$     675,296	$     568,688
Core deposits(6)	$  2,035,067	$  2,049,352	$  1,508,019	$  1,633,941	$  1,533,942
Total deposits	$  2,148,103	$  2,162,633	$  1,600,132	$  1,696,588	$  1,597,093
AVERAGE BALANCES
Total securities and short term deposits	$     524,223	$     456,871	$     408,378	$     417,439	$     396,852
Total loans net of allowance	$  1,808,408	$  1,558,018	$  1,444,956	$  1,403,115	$  1,357,461
Total earning assets	$  2,332,631	$  2,014,889	$  1,853,334	$  1,820,554	$  1,759,331
Total assets	$  2,524,202	$  2,163,987	$  1,988,985	$  1,956,412	$  1,893,262
Total non-interest bearing deposits	$     859,492	$     687,803	$     637,987	$     617,672	$     584,445
Core deposits(6)	$  2,005,025	$  1,648,777	$  1,559,206	$  1,606,548	$  1,526,805
Total deposits	$  2,119,116	$  1,756,530	$  1,627,742	$  1,670,231	$  1,586,791

(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 at a 35% tax rate) 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.

 

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SOURCE Pacific Continental Corporation

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