Pacific Continental Earnings Call Nuggets: Bottom on Margins and the Flattening of the Yield Curve
Pacific Continental Corp (NASDAQ:PCBK) recently reported its fourth quarter earnings and discussed the following topics in its earnings conference call.
Bottom on Margins
Jeffrey Rulis – D.A. Davidson: Couple, really just housekeeping questions; I think you were pretty thorough on the call, but maybe the first one for MIck on the margin; your sort of guidance on kind of a slower drift down or finding a bottom on margins. Is that inclusive of the Century transaction or is that kind of just the core?
Michael (MIck) Reynolds – EVP and CFO: That would be primarily core, Jeff. And you’re correct that the Century acquisition to some extent could provide a certain amount of lift in the sense of the accretion of the loan marks back into income.
Jeffrey Rulis – D.A. Davidson: And then one for Roger on the OREO balances, kind of the – you outlined sort of the properties within their and your patience on unloading those. Any other color on your expectation for timing of – would you expect it to be – rather won’t be, or any kind of further color on the disposition of those would be helpful?
Casey Hogan – EVP and Chief Credit Officer: Jeff, this is Casey. I’ll take that. I think it’s kind of all of the above. We have some offers – and at least an offer pending that looks like will be accepted on one of the smaller pieces. We have other offers on a regular basis on the other properties. Again, there’s still a disconnect between bid and ask, and so we’re being, as Roger mentioned, patient and thoughtful in reviewing all of those. So, we’ll continue to market aggressively; in the meantime, operate those that have some cash flow opportunities for us.
Jeffrey Rulis – D.A. Davidson: And then just one last one on, do you guys have – or you had a regulatory exam in the quarter, could you confirm that, and if so, is it complete?
Hal M. Brown – CEO: Yeah, Jeff, this is Hal. We did complete our examination in the fourth quarter.
The Flattening of the Yield Curve
Tim Coffey – FIG Partners: Hal and MIck, I have heard other bankers talk recently about how the flattening of the yield curve in 2012 could start showing up in the income statement for 2013 in terms of depressed margins and such. Are you at all concerned about that type of scenario?
Michael (MIck) Reynolds – EVP and CFO: Well, I think it’s already occurred, Tim. I think the flattening of the yield curve occurred during 2012 and you are seeing the impact of that on our quarterly 2012 margin. As you can see every quarter, we’ve had some compression, although the compression that occurred in the fourth quarter, it slowed significantly from the prior quarter.
Tim Coffey – FIG Partners: With that (indiscernible) the guidance you gave earlier, you would anticipate kind of continued slowing?
Michael (MIck) Reynolds – EVP and CFO: Jeff Rulis actually asked a very good question there. We’d expect core margin pre-acquisition to still have some downward pressure, although a significant abatement in the amount of compression as a result of the loan growth and the change in mix earning assets. The acquisition of Century will provide some lift to the margin in terms of the accretion of the loan marks into income over time, and at this point, we’re still just dealing with preliminary. So, it’s difficult to predict what that might be at this point.
Tim Coffey – FIG Partners: Then kind of – want to talk about the dental loans and the concentration levels there. Roger, do you guys still comfortable with the concentration of the portfolio that dental loans represent?
Roger S. Busse – President and COO: Well, we talked earlier in the webcast I think, Tim, are you referring to the percentage of total loans?
Tim Coffey – FIG Partners: Right.
Roger S. Busse – President and COO: Okay. Yeah, I think right now our percentage of loans in the portfolio represents 31.1% of the total loan portfolio and as you might imagine we watch the quality of that portfolio carefully, and as I reported now on a sustained basis we’re well over three years, we’ve had consistent performance in loan losses 0.17 as of 2012 and right now the 30 to 80, 90 delinquency ratio is zero and that was as of year-end, and the classified assets continue to remain fairly steady about 2.7%. So, there is a concentration there, but we continue to see a strong performance and we have a very focused approach as we have mentioned to lending in that segment.
Tim Coffey – FIG Partners: Now, the credit quality that you’re reporting are great. I’m just wondering if there is a level at which you’d be inclined to start selling some of those (indiscernible).
Roger S. Busse – President and COO: Not at present. We continue to see there is plenty of room for growth. We’re well below the 200% capital level and so we continue to see that there is opportunity.
Casey Hogan – EVP and Chief Credit Officer: Tim, this is Casey. I’ll just add on there. We do on occasion take an opportunity to test the market and sell some of these off both matured as well as new opportunities. So, we’ll continue to do that, simply test the market in the event that we ever wanted to execute that as a strategy.
Tim Coffey – FIG Partners: That’s been fairly consistent over the last couple of quarter’s right?
Roger S. Busse – President and COO: Exactly.