Pacific Continental Corporation (NASDAQ:PCBK)
Q2 2008 Earnings Call
July 17, 2008 2:00 pm ET
Michael Reynolds – Chief Financial Officer
Hal Brown – Chief Executive Officer
Roger Busse – President and Chief Operating Officer
Charlotte Boxer - Executive Vice-President and Director of Real State
Casey Hogan, Executive Vice-President and Chief Credit Officer
Jeff Ruiz – DA Davidson & Co.
Kristin Hottie - Howe, Barnes, Hoefer & Arnett, Inc
Tim O’Brien - Sandler O’Neil
Welcome you to today’s event, Pacific Continental Bank second quarter webcast. (Operator Instructions) Now without any further delay, I would like to introduce our presenters, Hal Brown, Chief Executive Officer, Mick Reynolds, Chief Financial Officer and Roger Busse, President and Chief Operating Officer.
Welcome to Pacific Continental Corporation’s Conference Call and webcast to discuss our second quarter 2008 results. Presenting today will be Hal Brown, Roger Busse and me. We will update you on our recent activities and discuss the financial results recorded in the press release distributed after market close, July 16, 2008.
At the conclusion of our prepared remarks we will provide analysts and institutional investors with the question-and-answer opportunity where we will address any questions and provide additional background information where appropriate.
During the Q&A session, Casey Hogan, Executive Vice-President and Chief Credit Officer and Charlotte Boxer, Executive Vice-President and Director of Real State will also be available to answer questions. Today’s press release is available in the investor relations section of our website at www.therightbank.com.
Before we commence the formal remarks, we advise you that this webcast contains forward-looking statements. Statements made are factual as of the time of this webcast. Such forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those projected.
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 the company’s second quarter 2008 earnings release represented in this webcast and the date of this webcast.
Participants and listeners should also carefully review any risk factors described in the company’s periodic reports on forms 10-K, 10-Q, 8-K and any other documents furnished or in file from time to time with the Securities and Exchange Commission. This statement is included for the expressed purpose of invoking the Safe Harbor provision.
Now let me introduce and turn the call over to Hal Brown, Chief Executive Officer of Pacific Continental Corporation.
If you have not already done so, please refer to the previously distributed press release as today’s comments will be restricted to providing additional color and clarity that was not otherwise included in the press release. We appreciate your joining us today.
I am generally pleased to at the quarter and year-to-date performance of our bankers and management team. With a few exceptions, our results are very much in line with our discussions in the last quarter’s conference call. We continue to benefit from our credit practices as evidenced by the solid credit statistics and we continue to good asset growth rate experienced in the first quarter.
Our interest margin held steady and in fact, it is exactly the same as that achieved a year ago. Earnings however, were depressed slightly which can be attributed to the increased loan loss provision that was necessary to support our loan growth and to provide a prudent strengthening of our unallocated reserves.
Resolution of the residential consumer construction portfolio has continued to migrate through the collection process as we previously described. And perhaps most importantly, we have no additional problem credits to share with you that have not been previously discussed.
Nevertheless, the year 2008 continues to be a great challenging year for the industry and although Pacific Continental continues to perform quite well, we are facing stronger headwinds. The Northwest economy remains one of the strongest in the country but it is no longer immune to the effects of the housing crisis or the growing weakness in consumer confidence.
Economic uncertainty which could lead to deterioration on our credit quality, strong competition for core deposits, potential slowing on demand and expected interest margin compression, are all elements on which our management team is especially focused.
I want to be very clear on this point; we are not experiencing any current evidence of weakening or negative migration within our portfolio. However, in any sustained economic downturn, one can expect such migration and no financial institution will be immune.
Our exposure is well diversified, all geographically and by industry segment. Our underwriting and credit practices remain well managed. We will continue to practice full transparency by describing the headwinds we see facing the bank today and in subsequent quarters.
So today, in addition to providing information relating to Q2 results and please understand, we are operating as noted in our heightened degree of uncertainty, we will provide a best outlook for the third quarter and the remainder of the year.
Mick will provide information concerning our net interest margin, non-interest income and expense results and Roger will provide market specific loan and deposit data and describe the strength, practices and migration of our credit portfolio. Following our prepared remarks, Charlotte and Casey will join us and we will be happy to address your individual questions.
So with that as an introduction, I will now ask Mick to continue with the presentation.
In my portion of the presentation I will be covering our net interest margin, non-interest income and non-interest expense. In addition to making year-over-year comparisons, I will be discussing comparisons on the link quarter basis. Also when appropriate, I will provide listeners and analysts with third quarter 2008 expectations.
The net interest margin for the second quarter 2008 and year-to-date 2008 was 5.24%, the same net interest margin as we reported in second quarter 2007 and year-to-date 2007. Excluding the one-time recovery of $116,000 of interest on a loan charge off in the previous period, our second quarter net interest margin would have been 5.19% and in line with our comment from the first quarter conference call regarding the expected second quarter margin compression.
There were a number of factors that contributed to the stable net interest margin during the first six months of 2008, including our relatively balanced interest rate risk profile that permitted the bank to lower rates on core deposits in a rapidly falling interest rate environment and the fact that the bank funds only a small percentage of its balance sheet with time deposits thus reducing the lag effect of interest rates changes.
The activation of interest rate floors on a portion of the bank’s variable rate loan portfolio and three, the short maturity structure of the bank’s alternative or wholesale funding which allowed the bank to refinance borrowings at a much lower interest rates during the falling interest rate environment. Four, the full year impact of image cash letter presentment that lowered average cash and due from balances thus producing needed borrowings.
However, and as we advised on our first quarter 2008 conference call, many of our core deposit rates were at practical floors and when market interests rate last moved down on April 29, 2008, the bank was unable to lower its core deposit rate thus creating some margin compression in the latter part of the second quarter.
As Hal mentioned in his opening remarks, we are facing some headwinds and seeing a number of factors that suggest they lower net interest margin for the second half of the year. First, we continue to see a highly competitive environment for core deposits in terms of pricing as banks and other financial institutions strive to improve their liquidity positions.
We implemented a bank wide deposit promotion program late in the second quarter that has to date brought in approximately $38 million in new deposits, however, at an average rate of approximately 3.30%. Second, the interest rate floors that provided some protection to falling rates during the first half of 2008 are beginning to expire as these loans reached their renewal date.
Based on June 30, 2008 data, active floors on $44 million in loans will expire in third quarter 2008 and an additional $30 million will expire in fourth quarter 2008. Third, during the latter part of the second quarter, the bank extended the maturities on $30 million of its short-term debt at approximately 130 basis points over short-term borrowing rate.
And fourth, the continued liquidity squeeze for financial services industry continues to keep spreads relatively high to historical costs as evidenced by the short-term brokerage CD rates in the range of 3.40% to 3.80% or more than 100 basis points over current short-term borrowing rate. Considering these factors and using the assumption that short-term rates remain stable suggests the third quarter interest margin nearer 5%.
Turning to non-interest income on a link quarter basis, non-interest income was $1.2 million in the second quarter, up approximately $146,000 over first quarter. Second quarter 2008; non-interest income did include one unusual item, a gain on the disposal of assets of $71,000 from insurance proceeds related to the 2006 Bellevue office screen accident.
For the first six months of 2008, non-interest income was $2.2 million, an increase of $283,000 or 15% from the same period in 2007. Excluding the unusual gain, the increase on year-over-year non-interest income was primarily attributable to increased account service charges and increased merchant bankcard fees which were up 102,000 and 65,000 respectively.
The increase in account service charges was directly related to lower market interest rates which reduced earnings credit on an analyzed business accounts and resulted in increase hard dollar fee income. Increased merchant bankcard fees were due both to higher sales volume and improved margins. Looking forward to the third quarter 2008, the bank expects non-interest income will be similar to that of the second quarter 2008.
Last, our report on our non-interest expense for the year. For the first six months of 2008, non-interest expense was $14.6 million, an increase of $1.8 million or 14% over the same period last year. Personnel expense accounted for the majority of the increase up $1.2 million on the year-over-year basis.
Increased salary expense and increased benefits and taxes accounted [for $138,000 and] $419,000 of the increase respectively. Approximately $273,000 of the increase in salaries was due to lower loan origination costs which are a direct offset to salary expense. With the remaining $565,000 related to staff additions and performance increases. The increase in benefits and taxes are primarily attributable to higher group insurance cost of $185,000 over the last year, an increase accrual for incentive compensation of $165,000 over the last year.
Other expense category show a material 2008 year-over-year increase including occupancy expense, legal fees and FDIC insurance. For June 30, 2008, occupancy expense increased $283,000 over the last year due to the new Tualatin office coming online, the reopening of the Bellevue office and the expansion of the space in the bank’s KOIN Center office.
Legal fees were up $82,000 over the last year and related to problem loan resolution and FDIC insurance increased $149,000 as the assessment credit was exhausted in 2007. On a link quarter basis, our second quarter non-interest expense of $7.5 million was up $296,000 for the first quarter. The increase was primarily attributable to increased personnel expense with salary expense up approximately $160,000 due to the full quarter effect of officer salary increases which are all effective on March 1 each year.
In addition, on a link quarter increase in group insurance expense of $159,000 was necessary due to a higher claim levels experienced in the bank’s self-insured medical plan. Looking forward to the third quarter 2008, we expect group insurance expense will abate somewhat and that non-interest expense in the third quarter will be comparable with second quarter 2008 expense levels. However, this expectation is somewhat dependent upon the level of loan origination costs that are a direct offset to salary expense and are difficult to project.
That completes my prepared remarks and Roger will now continue with the presentation.
My portion of the presentation will update you on important market specific data not contained in our press release. I will speak about our core deposit trends and loan activity as well as our credit quality and provisioning requirements.
After our formal comments are completed, Casey Hogan, Chief Credit Officer and Charlotte Boxer, President of Commercial Real State will join us. And they will answer any additional questions to provide more background you might have concerning the lending environment.
Allow me to first provide a brief set of contextual comments on loans and core deposits before I go into market specific detail. After our record first quarter growth of $42.4 million, we saw a more moderate phase in the second quarter with net loan growth of $31.5 million.
Quality and granular growth continued particularly in our niche segments namely loans to professionals, doctors, dentists and lawyers and community-based businesses. Our commercial and residential construction portfolios remained solid and actually inventories contracted as expected.
Evidence seems to have healthy and normal churn particularly in the number of spec homes which showed a decline 54.6% from year-end inventories. The consumer construction portfolio was also reduced by 29.7% since year-end 2007.
I must reiterate as I did last quarter that while other banks continue to focus internally, we were opportunistic in selecting and acquiring quality recourse credits. With regard to period end core deposits, we were down year-over-year 3.2% or $20.6 million but as we have noted in previous conference calls, $25 million of the June 30, 2007 core deposits were temporary and expected to exit the bank.
In addition, our large depositor sold their business during the second quarter in 2008 and another continued to draw down cash as it completed construction of a major new facility. These unique events accounted for another $20 million in core deposit contraction.
Now, it is important to note that this was offset by a granular $21 million new client core growth deposits. To delineate this more fully and this is important, this core deposit growth was centered in two of our niche segments during the second quarter. Professional’s group 58 relationships for $8.1 million and non-profits group 50 relationships per $10.5 million in core deposits.
So while the core deposit trend for the bank netted a slight reduction year-to-date of 1.6% to $9.7 million, it is clearly evident that longer term, sustained growth is likely given the continued trend of deposit expansion in our niche segments.
Indeed, while the typical second quarter core deposit expansion did not materialize, new client acquisition was evident throughout the portfolio and this trend is continuing. In sum, core deposits remained stable despite unique and one-time events with an over-all positive outlook for core deposit growth into the third quarter and through the year.
Now let’s turn to specific core deposit and loan growth beginning with Seattle. Seattle’s second quarter 2008 average core deposits grew a modest 4.2% or $3.5 million over the second quarter 2007 to $87.1 million. Period end core deposits fell 12.6% from December 31, 2007 as was partially expected as funds held by a major client for a development project were dispersed. The decline in period end core deposits can be further explained due to the unexpected sale of a large client’s business who was a major depositor.
While we continue to see steady and granular growth in our niche segments such as non-profit and professionals, the competitive environment for business money market, CDs and business DDA has intensified, with the extraordinary rates being offered by virtually all deposit competitors. While we do not compete exclusively on rate, we remain competitive and we have seen no evidence of client migration to other institutions.
During the quarter, the bank completed preparation to begin offering broader array of private banking products to clients to deepen and expand these important relationships in Seattle as well. Period end loans in Seattle grew by 38% over June 30, 2007 to $260.6 million.
Year-to-date loans grew $45.3 million or 21%. This growth represented granular, high quality recourse credits with strong cash flows; primarily in our niche business segments particularly professionals and non-profit organizations.
Loans to doctors and non-profit businesses accounted for 53% of the second quarter loan growth in Seattle. Our high quality bankers and strong leadership in Seattle combined with still a well-diversified and mostly stable Seattle economy continues to present high quality opportunities in community based businesses, non-profit organizations, professionals and private banking.
However, it is essential to note and we are all well aware that future loan growth will require core deposit expansion. As a result, we are now even more selective in new client acquisition decision ensuring that strong depository potential is both evident and obtained and supported any new asset relationship. In sum, we are pleased with our results in the Seattle market and see a continuation of positive trends into the third quarter.
Next, let’s turn to the greater Portland markets. In the second quarter of 2008, Portland average core deposits declined by 4.7% to $110.9 million when compared to the same period last year. Period end core deposits were $111.8 million up a modest 1.9% however year-to-date.
Growth in core deposits through 2008 will continue to be challenging due to similar competitive landscape as I described for the Seattle region. New business money market promotions by the bank are garnering new relationships but at a slower phase than anticipated.
However, the overall deposit pipeline evidences a stronger growth outlook, as the impact banker added to the staff late last quarter is having a noticeable impact. When this banker alone having over $16 million in their deposit pipeline with $3.7 million confirmed to close in the next 60 days.
Consequently, our outlet for accelerated core deposit expansion in Portland is very positive for the third quarter and the remainder of the year. Portland’s June 30, 2008 period end loans totaled $412.6 million, a $22.8 million or 5.8% increase over June 30, 2007.
Year-to-date loans grew 6% worth $23.5 million. There continued to be substantial growth in loans to professionals, doctors and dentists with over 47 new high quality relationships for $14.8 million in commitment added during the second quarter, 95% of these brought new deposits.
In the Portland metropolitan area, chaos in residential constructions were moving at a rapid pace particularly with regard to spec homes where they contracted 16.2% since year end in line with expectations.
Additionally, there is no evidence of deterioration in pre-sold inventories or unexpected cancellations. Portland’s Multnomah County absorption rates were most of our Portland projects reside and please recall we have funded only well-seasoned smaller infield builders in very selective areas is at a better than national average of 8.2 months. Under strong leadership, we specifically avoided projects in Clackamas and Clark Counties where inventories continue to run 16.6 and 14.2 months respectively.
Finally, the loan pipeline in our especially niche segments particularly professionals and professional’s lending also remained at solid, although slightly more modest than in the first quarter. When this is combined with the anticipated continued contraction in pre-sold and spec home inventories, the net loan growth for the Portland market will continue to be modest and in line with year-to-date results.
Now, let’s turn to our Eugene market. Second quarter 2008 average core deposits grew 5.7% over the same period last year or $21.5 million to $396.5 million. June 30, 2008 period end core deposits remained virtually unchanged from year-end 2007.
As in our other markets, there are intense deposit competitions and a typical seasonal and second quarter core deposit growth did not materialize. We have not seen any noticeable trends of our client migration, however and our deposit pipeline has contracted and is more modest than in the past.
The demand deposit balances contracted during the second quarter perhaps indicating a draw of funds as the economy slows but this is unconfirmed and may simply reflect more companies deciding to self fund non-sales seasonal expenses.
Again, I would reiterate, there remains exuberant pricing in all of our markets, we will not compete for these deposits on price alone as we are determined to maintain a rational pricing strategy while protecting our strong client-base.
In the interim, our Eugene area core deposit base remains very stable and modest growth is anticipated during the third quarter and through the remainder of this year. I can say that we have seen an unexpected growth in deposits not related to the pipeline expectations as we enter the third quarter.
The Eugene area period end loan portfolio grew 3.6% or $7.7 million to $224.3 million over June 30, 2007. Year-to-date, Eugene loans grew 2.9% or $6.3 million. The growth results are muted somewhat due to contraction in residential construction portfolio and now represent a very small segment of lending in this market.
The loan pipeline remains modest but should continue to reflect similar growth rate into the third quarter. In sum, period end loans for Seattle, Portland and Eugene were at $260.6 million, $412.6 million and $224.3 million respectively. Average second quarter core deposits for Seattle, Portland and Eugene were $87.1 million, $110.9 million and $396.5 million respectively.
I will now provide an update on our credit quality which I will continue to typify as solid and most importantly, stable. I can speak with even greater confidence today with respect to our credit quality particularly since our Annual Safety and Soundness Examination was recently completed and again confirmed our internal evaluations.
Further support of this conclusion is evident, as I will not be discussing any new problem credits in this conference call. Our percentage of non-performing assets finished almost exactly as estimated in the last quarter’s conference call at $7.6 million or 0.74% of total assets. This includes the addition of one credit we discussed during that webcast.
As a reminder, this CRE loan is a well-secured 68% LTV desired real state business park development site near major Northwest Corporations and their camps. There remained strong interests in this property and there is no anticipation of loss.
You recalled that the other NPAs are centered in an isolated consumer residential construction segment of the portfolio, supported by a 20% guarantee that is cash security with minimum risk of loss anticipated. As we previously reported, we anticipated loans in this segment to peak at $6.1 million which in fact has occurred. There were virtually and are virtually no other delinquencies developing in other similar portfolios.
So, our outlook in this segment is for continued contraction in NPAs and OREOs through the remainder of the year. Please note, those individual credits that did have exposure have been aggressively recognized and are reflected in the nominal year-to-date losses and we expect only minimal losses going forward in this portfolio overall. Annualized our net charge offs are 0.07% of outstanding loans or $561,000.
Finally, all of our builders remained cash rated. Validated by third party examiners while at this time there are currently no other pending non-performing credit issues of note, the recent evidence of modest economic weakness developing in Seattle and Portland, if unabated, could create market uncertainties. It could also really affect credits and performance in the portfolio. My point is we will continue to be transparent with you if issues arise but at present we do not have any new issues to report.
During the quarter, a $925,000 provision was made to the reserve for loan losses. This was to support loan growth and to enhance unallocated reserves to above 9% of the total allowance for loan loss. This places our unallocated reserves at the upper end of our approved range as is prudent in today’s uncertain environment. At quarter end the reserve grows to 1.10% of total loans, a five basis point increase of the 1.05% of December 31, 2007.
This ratio given our unallocated reserve position is deemed sufficient, further evidenced by continued third party and safety and soundness examinations. It is expected that provisions in the third quarter will be lower than that of the second quarter and closely related to net loan growth.
This concludes my remarks for today; I will now turn the presentation back to Hal who will conclude our prepared remarks.
It seems that in this quarter, investors are once again focused on credit quality and in light of the current economic condition that is, of course, appropriate. We have consistently provided clear and transparent discussions regarding our current and prospective position. For the last four quarters, we have addressed our residential real state portfolio, discussed our strong credit practices and accurately assessed credit quality migration and if necessary we will continue to do so.
I hope that through having listened to these candid discussions, you have gained the necessary confidence in our practices and management to know that our portfolio is very well managed. During the years leading to the ever so now apparent problems in the residential real state market, Pacific Continental continues to abide by the overriding principle of quality first, profitability second and growth third. Abiding by this principle led to a slower growth rates and those of many of our Northwest peers.
At times and in certain circles, we were criticized for not achieving top tier growth rate. Instead, we took a more disciplined approach passing on many of the opportunities that were presented ensuring quality and foregoing growth.
Now please understand, I am not claiming that Pacific Continental will never again have a credit issue. After all, we have shared with you the heightened economic uncertainty facing us going forward. But I do believe that the disciplines in force through credit practices and our team of talented and experienced professionals will deliver a top tier group performance for our shareholders.
I believe it is a good time to remind you of our strong business model and to confirm for you that while much of our energy has been applied to monitoring and assessing credit quality, others in our organization have not been idle and are exhibiting good success. After all, there are other business segments besides residential real estate, which by the way represents just 11.2% of the total loan portfolio.
So, allow me to share with you a few of those successes using June 30, 2007 as a base of other lines of business specifically professional service providers and non-profit businesses have expanded. Over this one-year period, loans to professionals, a segment with extremely low historical default and loss ratios have grown $32.3 million and deposits have grown $13.6 million. Growth rates of 28% and 14% respectively.
Similarly, our non-profit segment had seen growth in loans and deposits of $9.5 million and $24.7 million, rates of 52% and 38% respectively. And through the use of special marketing programs, the prospects for sustained growth in these segments remain very good.
Our business model calls for operating a multiple, large commercial markets to an increased geographic diversity and to ensure plenty of quality prospects. We are a business bank focusing on community-based businesses, professional service providers, non-profit organizations and the private banking needs of business owners and their key employees who provide us with the unique funding strategy. Our company culture provides our bankers with the tools and support necessary to grow strong consultative relationships with their clients and innovative ways to approach new prospects.
This model together with our strong governance and recognized practices provides me with confidence in the future. We know that eventually there will be an end to this down cycle and Pacific Continental is well positioned to succeed today and accelerate into the future.
I am very proud to be part of an extraordinary group of bankers who have consistently demonstrated the discipline at the expense of short-term gain to deliver strong performance. I wish to thank our bankers for their hard work, our directors for their guidance and our investors for their support and patience.
This concludes our prepared remarks and we will now take your specific questions.
(Operator Instructions)Your first question comes from Jeff Ruiz - DA Davidson & Company.
Jeff Ruiz –DA Davidson & Co.
Hey, Roger, did you say that you expect the NPAs to contract though the end of the year?
Yes, that is correct.
Jeff Ruiz –DA Davidson & Co.
Could you provide any comments on the 30 to 89 days past due any trends there either specific or non-specific?
Yes, I can tell you that our 30 to 89-day delinquencies dropped quarter-over-quarter and net of non-performing assets 90-day past dues, we are looking at 0.22 almost; I think its 0.22, so, very low.
Jeff Ruiz –DA Davidson & Co.
What is the total construction piece at the end of the quarter for the total portfolio?
The total outstanding at the other portfolio is right out of a $100 million, Jeff or over. .
Jeff Ruiz –DA Davidson & Co.
Residential, what percent of that?
That was the residential piece.
Jeff Ruiz –DA Davidson & Co.
But the total construction and all inclusive is?
Jeff, if you look at our CRE construction, it is a 36.9, if you look at our residential construction it is mixed set, it is just a hair over a $100 million, which includes all of that. So that would be the primary bulk of our construction portfolio.
Jeff Ruiz –DA Davidson & Co.
You said that your current capital ratios on hand?
As of the end of the second quarter, we are right at 10.7%, Jeff, of risk based capital ratio. We have got right at $7 million of excess capital above the low capitalized level.
Jeff Ruiz –DA Davidson & Co.
And that’s at the bank level?
Your next question comes from Kristin Hottie - Howe, Barnes, Hoefer & Arnett.
Kristin Hottie - Howe, Barnes, Hoefer & Arnett, Inc.
I was wondering with respect to the construction loan portfolio. How recent appraisals are reviewed or reappraised and whether or not you had seen any recent deterioration in values in any of your market?
We are getting real [creditors] on all of our projects in a very timely manner again. Most certainly if we were to give any extension we have to reappraise so we are having projects reappraised within the term of the original construction loan to assure that our values are consistent with what the original value was.
We are seeing very, very little deterioration, spec loan we have seen probably less than 1% to 2% in our changing value and certainly all of that is attributable to the locations of where we are during our lending. Is it closer to inner city? Is your project or those projects are not losing any value? Where we have seen the largest drop in value, they are in the suburban market that we did not venture into those markets, on apartments or retailer any of those we are not seeing any deterioration of value at all projects and we are having those reappraised and redeem if necessary.
Your last question comes from Tim O’Brien - Sandler O’Neil.
Tim O’Brien - Sandler O’Neil
Was residential construction, total residential construction at the end of the first quarter $94 million?
Total residential construction was $103.9 million, clarification for Jeff and for the webcast site said 30, for CRE construction, only a portion of that is actually $116.3 million. So, it is $116.3 million for CRE construction and $103.8 million for residential construction and that was at second quarter. Yes, I want to say was about $96 million, I think that’s about right so it is right about $95, $94 or $96.
Tim O’Brien - Sandler O’Neil
Can you give a color on the increase, it wasn’t new loans as I’m expecting.
No, it was the actual inventory that dropped particularly in spec as I mentioned in the webcast. We simply have the build up securing during the seasonal peak in residential construction and more on their completion period, 100% and ready for sale. I think Charlotte would that be accurate?
That is accurate. Also on some projects that are in the Seattle region that were sluggish in the first quarter starts to ramp-up again.
Tim if you take total of the commitments and the outstanding, you see a very significant decrease as from the prior year that has been decreasing or perhaps any commitments on that area at the end of the quarter or just a hair over $30 million where they have been running in the $60 million and $70 million range.
Yes, they’re coming down as we expected and we’re seeing good sharing in the portfolio and particularly reduction in specs and Charlotte continues to adhere to a very strict policy for any new specs, in fact she has to personally approve any and I think there has only been a handful that have been approved for highly desirable areas.
Tim O’Brien - Sandler O’Neil
And at the end of the first quarter, as I recall, you had 257 projects underway, do you happen to have the number at the end of this quarter for residential construction?
I don’t have it with me, Tim but I can get that for you.
Tim O’Brien - Sandler O’Neil
Residential acquisition in development based on the investor presentation you gave, mid-quarter 4.3% at $865 million, so that’s $37 million and then also commercial acquisition and development of $80 million. You have updated numbers on that for this quarter?
Yes, residential acquisition and land developments dropped to $34.5 million, 3.86% of the total portfolio and CRE acquisition and development is $37.6 million and that is at 4.2%.
Tim O’Brien - Sandler O’Neil
It is $37.6 million and down from $80 million? Maybe my numbers are wrong. It must be wrong.
It could be wrong.
Tim O’Brien - Sandler O’Neil
Are you involved in any construction participation loans? Probably not, I think you talked about this before, but just to refresh my memory.
We are not involved in any. Where we have a bought in, we do have a couple of projects where we sold some out but none where [the sector of the bank]
Tim O’Brien - Sandler O’Neil
Lastly, so you passed your exit exam interview? That’s completed?
That is correct.
And at this time, there are no further questions.
Thank you everybody for your interests in Pacific Continental and we look forward to talking with you again at the end of the next quarter.
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