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EX-32 - SECTION 1350 CERTIFICATION - PACIFIC CONTINENTAL CORPsection1350certification.htm
As Filed with the Securities & Exchange Commission on November 4, 2010.

SECURITIES & EXCHANGE COMMISSION

FORM 10-Q

[ X ]           Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Actof 1934 for the quarterly period ended September 30, 2010.

[   ]           Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Actof 1934 For the transition period from _______________ to ________________

Commission File Number:        0-30106                                                                           

PACIFIC CONTINENTAL CORPORATION
(Exact Name of Registrant as Specified in Its Charter)

OREGON
93-1269184
(State or Other Jurisdiction of
(I.R.S. Employer
Incorporation or Organization)
Identification Number)

111 West 7th Avenue
Eugene, Oregon  97401
(Address of principal executive offices) (Zip Code)

(541) 686-8685
(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant:  (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes  X No  __

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes __No __

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definition of “large accelerated filer”, “accelerated filer”, and “smaller reporting company” in Rule 12b-2 of the Act.
(Check one).
Large accelerated filer   __                                                      Accelerated filer   X                                               Non-accelerated filer  __
Smaller Reporting company __

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.    Yes  __                   No  X

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practical date:

Common Stock outstanding as of October 31, 2010:                                                                                                   18,404,725

 
 

 

PACIFIC CONTINENTAL CORPORATION
FORM 10-Q
QUARTERLY REPORT
TABLE OF CONTENTS


 
PART I
FINANCIAL INFORMATION
Page
       
 
Item 1.
Financial Statements
 
       
   
     
       
   
     
       
   
     
       
   
     
       
   
       
 
Item 2.
 
   
       
 
Item 3.
       
 
Item 4.
       
 
PART II
OTHER INFORMATION
 
       
 
Item 1.
Legal Proceedings
none
       
 
Item 1a.
       
 
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
none
       
 
Item 3.
Defaults Upon Senior Securities
none
       
 
Item 4.
Removed and Reserved
none
       
 
Item 5.
Other Information                                
none
       
 
Item 6.
       
   


 
 
Page 2

 

Item 1.  Financial Statements

Consolidated Balance Sheets
(In thousands, except share amounts)
(Unaudited)
 
   
September 30,
   
December 31,
   
September 30,
 
   
2010
   
2009
   
2009
 
ASSETS
                 
  Cash and due from banks
  $ 18,424     $ 16,698     $ 17,624  
  Interest-bearing deposits with banks
    269       272       266  
            Total cash and cash equivalents
    18,693       16,970       17,890  
                         
  Securities available-for-sale
    215,259       167,618       115,585  
  Loans held-for-sale
    1,397       745       453  
  Loans, less allowance for loan losses and net deferred fees
    864,604       930,997       940,754  
  Interest receivable
    4,247       4,408       4,110  
  Federal Home Loan Bank stock
    10,652       10,652       10,652  
  Property, plant and equipment, net of accumulated depreciation
    21,169       20,228       20,132  
  Goodwill and other intangible assets
    22,514       22,681       22,737  
  Deferred tax asset
    9,749       7,177       6,301  
  Taxes receivable
    1,460       5,299       4,707  
  Other real estate owned
    15,422       4,224       4,247  
  Prepaid FDIC assessment
    4,950       6,242       -  
  Other assets
    1,888       1,872       2,940  
                         
            Total assets
  $ 1,192,004     $ 1,199,113     $ 1,150,508  
                         
LIABILITIES AND SHAREHOLDERS' EQUITY
                       
  Deposits
                       
    Noninterest-bearing demand
  $ 220,104     $ 202,088     $ 196,320  
    Savings and interest-bearing checking
    545,032       475,869       461,723  
    Time $100,000 and over
    60,083       68,031       71,526  
    Other time
    99,704       81,930       96,951  
       Total deposits
    924,923       827,918       826,520  
                         
  Federal funds and overnight funds purchased
    12,380       63,025       90,000  
  Federal Home Loan Bank advances and other borrowings
    68,500       130,000       101,000  
  Junior subordinated debentures
    8,248       8,248       8,248  
  Accrued interest and other payables
    5,374       4,260       4,430  
            Total liabilities
    1,019,425       1,033,451       1,030,198  
                         
Shareholders' equity
                       
Common stock; authorized 50,000,000 shares; issued and
                       
outstanding 18,404,725 shares (18,393,773 shares at
                       
December 31, 2009 and 12,872,781 shares at September 30, 2009)
    136,845       136,316       90,522  
  Retained earnings
    32,962       29,613       29,773  
  Accumulated other comprehensive income (loss)
    2,772       (267 )     15  
      172,579       165,662       120,310  
                         
             Total liabilities and shareholders’ equity
  $ 1,192,004     $ 1,199,113     $ 1,150,508  
                         
See accompanying notes.
 
                         


 
Page 3

 

 
Consolidated Statements of Operations
(In thousands, except share and per share amounts)
(Unaudited)
 
   
Three months ended
   
Nine months ended
 
   
September 30,
   
September 30,
 
   
2010
   
2009
   
2010
   
2009
 
Interest and dividend income
                       
  Loans
  $ 14,070     $ 15,659     $ 43,233     $ 46,308  
  Securities
    1,791       1,325       4,745       3,495  
  Federal funds sold & interest-bearing deposits with banks
    3       2       6       4  
      15,864       16,986       47,984       49,807  
                                 
Interest expense
                               
  Deposits
    2,395       2,481       7,069       7,080  
  Federal Home Loan Bank & Federal Reserve borrowings
    563       633       1,788       2,005  
  Junior subordinated debentures
    133       132       393       392  
  Federal funds purchased
    15       23       39       76  
      3,106       3,269       9,289       9,553  
                                 
     Net interest income
    12,758       13,717       38,695       40,254  
                                 
Provision for loan losses
    3,750       8,300       11,750       29,000  
     Net interest income after provision for loan losses
    9,008       5,417       26,945       11,254  
                                 
Noninterest income
                               
  Service charges on deposit accounts
    418       465       1,247       1,401  
  Bankcard fee income
    385       317       1,078       899  
  Loan servicing fees
    31       18       63       55  
  Mortgage banking income
    69       61       144       247  
  Gain on sale of investment securities
    -       -       45       -  
  Impairment losses on investment securities (OTTI)
    -       -       (226 )     -  
  Other noninterest income
    286       248       806       725  
      1,189       1,109       3,157       3,327  
                                 
Noninterest expense
                               
  Salaries and employee benefits
    4,071       3,810       13,054       12,908  
  Premises and equipment
    909       747       2,580       2,431  
  Bankcard processing
    131       135       424       381  
  Business development
    225       342       931       1,272  
  FDIC insurance assessment
    491       291       1,477       1,508  
  Other real estate expense
    803       32       904       597  
  Other noninterest expense
    1,558       1,657       4,934       4,613  
      8,188       7,014       24,304       23,710  
                                 
Income (loss) before provision (benefit) for income taxes
    2,009       (488 )     5,798       (9,129 )
Provision (benefit) for income taxes
    857       (767 )     1,897       (4,226 )
                                 
     Net income (loss)
  $ 1,152     $ 279     $ 3,901     $ (4,903 )
                                 
Earnings (loss) per share
                               
   Basic
  $ 0.06     $ 0.02     $ 0.21     $ (0.38 )
   Diluted
  $ 0.06     $ 0.02     $ 0.21     $ (0.38 )
                                 
Weighted average shares outstanding
                               
     Basic
    18,399,442       12,872,781       18,396,990       12,852,063  
     Common stock equivalents
                               
        attributable to stock-based awards
    16,161       35,869       18,620       -  
     Diluted
    18,415,603       12,908,650       18,415,610       12,852,063  
                                 
See accompanying notes.
 


 
Page 4

 


Consolidated Statements of Changes in Shareholders’ Equity
 (In thousands, except share amounts)
(Unaudited)
 
Pacific Continental Corporation and Subsidiaries
 
Consolidated Statements of Changes in Shareholder's Equity
 
(In thousands, except shares)
 
(Unaudited)
 
                               
                     
Accumulated
       
                     
Other
       
   
Number
   
Common
   
Retained
   
Comprehensive
       
   
of Shares
   
Stock
   
Earnings
   
Income (Loss)
   
Total
 
                               
Balance, December 31, 2008
    12,079,691     $ 80,019     $ 37,764     $ (1,618 )   $ 116,165  
                                         
Net loss
                    (4,879 )             (4,879 )
Other comprehensive income:
                                       
Unrealized gain on securities
                            2,158          
Deferred income taxes
                            (807 )        
                                         
Other comprehensive income
                            1,351       1,351  
                                         
Comprehensive loss
                                    (3,528 )
Stock issuance, net of costs
    6,270,000       55,293                       55,293  
Stock options exercised and related tax benefit
    44,082       440                       440  
Share-based compensation
            564                       564  
Cash dividends
                    (3,272 )             (3,272 )
                                         
Balance, December 31, 2009
    18,393,773       136,316       29,613       (267 )     165,662  
                                         
                                         
Net income
                    3,901               3,901  
Other comprehensive income:
                                       
Unrealized gain on securities
                            4,925          
Deferred income taxes
                            (1,886 )        
                                         
Other comprehensive income
                            3,039       3,039  
                                         
Comprehensive income
                                    6,940  
Stock issuance, net of costs
    4,952       38                       38  
Stock options exercised and related tax benefit
    6,000       38                       38  
Share-based compensation
            453                       453  
Cash dividends
                    (552 )             (552 )
                                         
Balance, September 30, 2010
    18,404,725     $ 136,845     $ 32,962     $ 2,772     $ 172,579  


 
Page 5

 

 
Consolidated Statements of Cash Flows
 (Dollars in thousands)
(Unaudited)

   
Nine months ended
September 30,
 
   
2010
   
2009
 
Cash flows from operating activities:
           
Net income (loss)
  $ 3,901     $ (4,903 )
              Adjustments to reconcile net income to net cash
               
from operating activities:
               
              Depreciation and amortization, net of accretion
    3,130       790  
             Other than temporary impairment on investment securities
    226       -  
             Valuation adjustment on foreclosed assets
    762       436  
         Provision for loan losses
    11,750       29,000  
        (Gains) losses on foreclosed assets
    (47 )     (8 )
Deferred income taxes
    349       (1,303 )
         Share-based compensation
    509       407  
              Production of mortgage loans held-for-sale
    (8,086 )     (15,664 )
              Proceeds from the sale of mortgage loans held-for-sale
    7,434       15,621  
Change in:
               
Interest receivable
    161       (89 )
Deferred loan fees
    (1,036 )     (200 )
                            Accrued interest payable and other liabilities
    (2,797 )     (1,402 )
                  Income taxes receivable
    2,955       (6,766 )
Other assets
    1,346       (731 )
                   Net cash provided by operating activities
    20,557       15,188  
                 
Cash flow from investing activities:
               
              Proceeds from maturities of available for sale investment securities
    32,436       20,704  
              Purchase of available for sale investment securities
    (77,237 )     (78,341 )
              Net loan principal collections (originations)
    41,793       (26,239 )
Purchase of loans
    (40 )     (151 )
         Cash paid for acquisitions
    -       (11 )
Purchase of property
    (2,029 )     (438 )
         Proceeds on sale of foreclosed assets
    1,909       3,215  
         Purchase of energy tax credits
    (12 )     (74 )
                Net cash used by investing activities
    (3,180 )     (81,335 )
                 
Cash flow from financing activities:
               
Change in deposits
    97,005       104,083  
              Change in federal funds purchased and FHLB  and FRB
               
             short-term borrowings
    (103,145 )     11,000  
               Proceeds from FHLB term advances originated
    3,500       (581,000 )
          FHLB term advances paid-off
    (12,500 )     522,500  
          Proceeds from stock options exercised
    38       452  
               Proceeds from stock issuance, net of costs
    -       9,635  
 Dividends paid
    (552 )     (3,088 )
              Net cash provided by financing activities
    (15,654 )     63,582  
Net increase in cash and cash equivalents
    1,723       (2,565 )
Cash and cash equivalents, beginning of period
    16,970       20,455  
Cash and cash equivalents, end of period
  $ 18,693     $ 17,890  
                 
Supplemental information:
               
Noncash investing and financing activities:
               
Transfers of loans to foreclosed assets
  $ 13,822     $ 4,100  
Change in unrealized gain on securities, net of
               
    deferred income taxes
  $ 3,039     $ 1,633  
Cash paid during the period for:
               
Income taxes
  $ 4,219     $ 208  
Interest
  $ 8,884     $ 9,680  
                 
See accompanying notes.
 


 
Page 6

 

Notes to Consolidated Financial Statements
(Unaudited)

A complete set of Notes to Consolidated Financial Statements is a part of the Company’s 2009 Form 10-K filed March 16, 2010.  The notes below are included due to material changes in the financial statements or to provide the reader with additional information not otherwise available.  In preparing these financial statements, the Company has evaluated subsequent events and transactions for potential recognition or disclosure in the financial statements.  All dollar amounts in the following notes are expressed in thousands, except share and per share data.

Certain amounts contained in the prior period consolidated financial statements have been reclassified where appropriate to conform to the financial statement presentation used in the current period.  These reclassifications had no effect on previously reported net income.

 
1.  Basis of Presentation
 
The accompanying interim consolidated financial statements include the accounts of Pacific Continental Corporation (the “Company”), a bank holding company, and its wholly-owned subsidiary, Pacific Continental Bank (the “Bank”) and the Bank’s wholly-owned subsidiaries, PCB Services Corporation and PCB Loan Services Corporation (both of which are presently inactive). All significant intercompany accounts and transactions have been eliminated in consolidation.

The accompanying consolidated financial statements have been prepared by the Company without audit and in conformity with generally accepted accounting principles in the United States of America for interim financial information.  The financial statements include all adjustments and normal accruals, which the Company considers necessary for a fair presentation of the results of operations for such interim periods.  In preparing the consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities, as of the date of the balance sheets and income and expenses for the periods.  Actual results could differ from those estimates.

The balance sheet data as of December 31, 2009 was derived from audited financial statements, but does not include all disclosures contained in the Company’s 2009 Form 10-K.  The interim consolidated financial statements should be read in conjunction with the December 31, 2009 consolidated financial statements, including the notes thereto, included in the Company’s 2009 Form 10-K.


 
 
Page 7

 

2.  Securities Available-for-Sale:

The amortized costs, unrealized gains, unrealized losses, and estimated fair values of securities available-for-sale at September 30, 2010 are as follows:

September 30, 2010
                                   
(in thousands)
                                   
                           
Securities in
   
Securities in
 
                           
Continuous
   
Continuous
 
                           
Unrealized
   
Unrealized
 
                           
Loss
   
Loss
 
         
Gross
   
Gross
   
Estimated
   
Position for
   
Position For
 
   
Amortized
   
Unrealized
   
Unrealized
   
Fair
   
Less Than
   
12 Months
 
   
Cost
   
Gains
   
Losses
   
Value
   
12 Months
   
or Longer
 
                                     
Unrealized Loss Positions
                                   
Obligations of states and political subdivisions:
  $ 2,796     $ -     $ (70 )   $ 2,726     $ 2,726     $ -  
Mortgage-backed securities:
                                               
Agency mortgage-backed securities
    31,869       -       (210 )     31,659       31,659       -  
Private-label mortgage-backed securities
    7,424       -       (936 )     6,488       1,188       5,300  
                                                 
    $ 42,089     $ -     $ (1,216 )   $ 40,873     $ 35,573     $ 5,300  
                                                 
Unrealized Gain Positions
                                               
Obligations of U.S. government agencies
  $ 7,054     $ 338     $ -     $ 7,392                  
Obligations of states and political subdivisions
    15,290       715       -       16,005                  
Mortgage-backed securities:
                                               
Agency mortgage-backed securities
    131,111       4,041       -       135,152                  
Private-label mortgage-backed securities
    15,222       615       -       15,837                  
                                                 
      168,677       5,709       -       174,386                  
                                                 
    $ 210,766     $ 5,709     $ (1,216 )   $ 215,259                  
                                                 

At September 30, 2010, there were 46 investment securities in unrealized loss positions, of which 10 have been in a continuous unrealized loss position for twelve months or longer.  The fair value of the investment securities in a continuous loss position for twelve months or longer was $5,300. The unrealized loss associated with these securities was $901 at September 30, 2010.  The projected average life of the securities portfolio is approximately two years.  The Company has no intent, nor is it more likely than not, that it will be required to sell these securities before their recovery.

When a security experiences a decline in fair value below its amortized cost basis, it is deemed to be impaired.  Management reviews the Company’s impaired investment securities on a quarterly basis for the presence of other-than-temporary impairment (“OTTI”).  We assess whether OTTI is present when the fair value of a debt security is less than its amortized cost basis at the balance sheet date. Under these circumstances, OTTI is considered to have occurred, (1) if we intend to sell the security, (2) if it is “more likely than not” we will be required to sell the security before recovery of its amortized cost basis, or (3) the present value of expected cash flows is not sufficient to recover the entire amortized cost basis. The “more likely than not” criteria is a lower threshold than the “probable” criteria used under previous guidance.

At September 30, 2010, impairment exists on certain securities classified as obligations of U.S. government agencies and mortgage-backed securities.  The impairment on obligations of U.S. government agencies is deemed to be temporary.  Additionally, the impairment on agency mortgage-backed securities is deemed to be temporary, as these securities retain strong credit ratings, continue to perform adequately, and are backed by various government-sponsored enterprises (“GSEs”).  These impairments are deemed to be associated with the changes in market interest rates or the widening of market spreads subsequent to the initial purchase of the securities, and not due to concerns regarding the underlying credit of the issuers or the underlying collateral.  The decline in value of these securities has resulted from current economic conditions.  Although yields on these securities may be below market rates during the period, no loss of principal is expected.

During the second quarter 2010, Management performed a detailed review of its private-label mortgage-backed securities and identified five individual securities which were deemed to have OTTI.  Management’s evaluation included the use of independently-generated third-party credit surveillance reports that analyze the loans underlying each security.  These reports include estimates of default rates and severities, life collateral loss rates, and static voluntary prepayment assumptions to generate estimated cash flows at the individual security level.  Additionally, Management considered factors such as downgraded credit ratings, severity and duration of the impairments, the stability of the issuers, and any discounts paid when the securities were purchased.

 
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The OTTI identified during the second quarter 2010 was divided into two components; the amount representing credit loss and the amount related to all other factors.  The amount representing credit loss was $226, and was recognized in the second quarter 2010 against earnings.  The amount representing all other factors was $140, and was recognized in other comprehensive income, net of applicable taxes.    During the third quarter 2010, Management reviewed all of its private-label mortgage-backed securities and identified no additional OTTI.  Management has considered all available information related to the collectability of the impaired investment securities and believes that the estimated credit loss is appropriate.

Following is a tabular roll-forward of the amount of credit-related OTTI recognized in earnings during the three and nine months ended September 30, 2010 and 2009:
 
   
Three months ended
   
Nine months ended
 
   
September 30, 2010
   
September 30, 2009
   
September 30, 2010
   
September 30, 2009
 
Balance, beginning of period:
  $ 226     $ -     $ -     $ -  
Additions:
                               
Initial OTTI credit loss
    -       -       226       -  
Additional OTTI credit loss
    -       -       -       -  
Balance, end of period:
  $ 226     $ -     $ 226     $ -  
                                 

The amortized costs, unrealized gains, unrealized losses, and estimated fair values of securities available-for-sale at December 31, 2009 and September 30, 2009 are as follows:
 
December 31, 2009
                                   
(in thousands)
                                   
                           
Securities in
   
Securities in
 
                           
Continuous
   
Continuous
 
                           
Unrealized
   
Unrealized
 
                           
Loss
   
Loss
 
         
Gross
   
Gross
   
Estimated
   
Position for
   
Position For
 
   
Amortized
   
Unrealized
   
Unrealized
   
Fair
   
Less Than
   
12 Months
 
   
Cost
   
Gains
   
Losses
   
Value
   
12 Months
   
or Longer
 
                                     
Unrealized Loss Positions
                                   
Obligations of U.S. government agencies
  $ 5,047     $ -     $ (47 )   $ 5,000     $ 5,000     $ -  
Mortgage-backed securities
    61,721       -       (2,511 )     59,210       53,048       6,162  
                                                 
    $ 66,768     $ -     $ (2,558 )   $ 64,210     $ 58,048     $ 6,162  
                                                 
Unrealized Gain Positions
                                               
                                                 
Obligations of states and political subdivisions
  $ 6,372     $ 337     $ -     $ 6,709                  
Mortgage-backed securities
    94,910       1,789       -       96,699                  
                                                 
      101,282       2,126       -       103,408                  
                                                 
    $ 168,050     $ 2,126     $ (2,558 )   $ 167,618                  
                                                 
                                                 
September 30, 2009
                                               
(in thousands)
                                               
                                   
Securities in
   
Securities in
 
                                   
Continuous
   
Continuous
 
                                   
Unrealized
   
Unrealized
 
                                   
Loss
   
Loss
 
           
Gross
   
Gross
   
Estimated
   
Position for
   
Position For
 
   
Amortized
   
Unrealized
   
Unrealized
   
Fair
   
Less Than
   
12 Months
 
   
Cost
   
Gains
   
Losses
   
Value
   
12 Months
   
or Longer
 
                                                 
Unrealized Loss Positions
                                               
Mortgage-backed securities
  $ 23,814     $ -     $ 2,270     $ 21,544     $ 14,003     $ 7,541  
                                                 
    $ 23,814     $ -     $ 2,270     $ 21,544     $ 14,003     $ 7,541  
                                                 
Unrealized Gain Positions
                                               
                                                 
Obligations of states and political subdivisions
  $ 6,379     $ 387     $ -     $ 6,766                  
Mortgage-backed securities
    85,368       1,907       -       87,275                  
                                                 
      91,747       2,294       -       94,041                  
                                                 
    $ 115,561     $ 2,294     $ 2,270     $ 115,585                  
                                                 


 
Page 9

 
The amortized costs and estimated fair values of securities at September 30, 2010, December 31, 2009, and September 30, 2009 by maturity are shown below.  Obligations of U.S. government agencies and states and political subdivisions are shown by contractual maturity.  Mortgage-backed securities are shown by projected average life.

   
September 30, 2010
   
December 31, 2009
   
September 30, 2009
 
         
Estimated
         
Estimated
         
Estimated
 
   
Amortized
   
Fair
   
Amortized
   
Fair
   
Amortized
   
Fair
 
   
Cost
   
Value
   
Cost
   
Value
   
Cost
   
Value
 
                                     
Due in one year or less
  $ 24,815     $ 24,961     $ 32,730     $ 33,110     $ 15,766     $ 15,928  
Due after one year through 5 years
    161,574       165,742       122,580       122,063       89,648       89,678  
Due after 5 years through 10 years
    21,212       21,435       12,740       12,445       10,147       9,979  
Due after 10 years
    3,165       3,121       -       -       -       -  
                                                 
    $ 210,766     $ 215,259     $ 168,050     $ 167,618     $ 115,561     $ 115,585  
                                                 


One investment security was sold during the second quarter of 2010 resulting in a gain on sale of $45.
 
At September 30, 2010, securities with amortized costs of $27,512 (estimated market values of $28,910) were pledged to secure certain Treasury and public deposits as required by law, and to secure a borrowing line with the Federal Home Loan Bank of Seattle.

 
 
Page 10

 

 
3.  Loans

Major classifications of period end loans are as follows:

     
September 30,
   
% of gross
   
December 31,
   
% of gross
   
September 30,
   
% of gross
 
     
2010
   
loans
   
2009
   
loans
   
2009
   
loans
 
LOANS BY TYPE
LOANS BY TYPE
                                   
Real estate secured loans:
                                   
Permanent Loans:
                                   
Multifamily residential
  $ 56,124       6.4 %   $ 68,509       7.2 %   $ 67,654       7.0 %
Residential 1-4 family
    80,551       9.1 %     86,795       9.2 %     95,761       10.0 %
Owner-occupied commercial
    201,075       22.8 %     197,884       20.9 %     200,569       20.9 %
Non-owner-occupied commercial
    163,054       18.5 %     147,605       15.6 %     145,975       15.3 %
Other loans secured by real estate
    25,013       2.9 %     37,404       4.0 %     36,546       3.8 %
Total permanent real estate loans
    525,817       59.6 %     538,197       56.9 %     546,505       56.9 %
Construction Loans:
                                               
Multifamily residential
    15,279       1.6 %     18,472       2.0 %     20,994       2.1 %
Residential 1-4 family
    26,830       3.0 %     41,714       4.4 %     42,813       4.5 %
Commercial real estate
    18,077       2.0 %     38,921       4.1 %     40,914       4.3 %
Commercial bare land and acquisition & development
    26,073       3.0 %     30,169       3.2 %     28,907       3.0 %
Residential bare land and acquisition & development
    18,998       2.2 %     30,484       3.2 %     30,879       3.2 %
Other
      -       0.0 %     1,582       0.2 %     5,198       0.5 %
Total construction real estate loans
    105,257       11.9 %     161,342       17.1 %     169,705       17.7 %
Total real estate loans
    631,074       71.5 %     699,539       74.0 %     716,210       74.6 %
Commercial loans
    242,904       27.5 %     233,821       24.7 %     229,881       23.9 %
Consumer loans
    6,742       0.8 %     6,763       0.7 %     7,125       0.7 %
Other loans
      2,239       0.3 %     5,629       0.6 %     7,420       0.8 %
Gross loans
    882,959       100.0 %     945,752       100.0 %     960,636       100.0 %
Deferred loan origination fees
    (586 )             (1,388 )             (1,534 )        
        882,373               944,364               959,102          
Allowance for loan losses
    (17,769 )             (13,367 )             (18,348 )        
Loans, less allowance for loan losses and net deferred fees
  $ 864,604             $ 930,997             $ 940,754          
                                                   
Real estate loans held for sale
  $ 1,397             $ 745             $ 453          

Outstanding loans to dental professionals totaled $172,849 and represented 19.6% of total outstanding loans at September 30, 2010.  At December 31, 2009 and September 30, 2009, loans to dental professionals totaled $158,433 and $150,360 or 16.8% and 15.7% of total outstanding loans, respectively.  There are no other industry concentrations in excess of 10% of total outstanding loans.

At September 30, 2010, outstanding residential construction loans totaled $26,830 and represented 3.0% of total outstanding loans.  In addition, at September 30, 2010, unfunded loan commitments for residential construction totaled $8,823.  Outstanding residential construction loans at December 31, 2009 and September 30, 2009 were $41,714 or 4.4% and $42,813 or 4.5%, respectively, of total outstanding loans, and unfunded commitments for residential construction totaled $9,990 and $11,371, respectively.

Approximately 71.5% of the Bank’s loans are secured by real estate.  Management believes the granular nature of the portfolio, from industry mix, geographic location and loan size, mitigates concentration risk to some degree.


 
 
Page 11

 

4.  Allowance for loan losses

Below is a summary of additions, charge-offs and recoveries within the allowance for loan losses for the three and nine months ended September 30, 2010 and 2009:

   
Three months ended
   
Nine months ended
 
   
September 30,
   
September 30,
 
   
2010
   
2009
   
2010
   
2009
 
                         
Balance, beginning of period
  $ 17,854     $ 18,680     $ 13,367