Oregon Bank Ready to Raise Cash as It Stays Deal-Picky

When Pacific Continental Corp. says it is going to be picky, it has credibility.

After all, the $1.1 billion-asset company in Eugene, Ore., has made only one acquisition since 1972.

But the plethora of failed and troubled banks in the Pacific Northwest will be tempting — especially for a company that recently filed a $75 million shelf registration.

Analysts said they expect no shortage of deal opportunities in markets the company has historically focused on — urban areas of Oregon and Washington — but predicted that Pacific Continental would stick to being selective.

"Their focus would be on doing deals that fit with their long-term banking strategy," said Tim O'Brien, an analyst at Sandler O'Neill & Partners LP. "I can't imagine they would look at any deal. There are distressed banks out there that wouldn't fit the criteria Pacific Continental would find attractive in an acquisition."

In recent weeks, several Oregon and Washington banking companies have announced that their auditors found reason to doubt whether the companies would survive. Frontier Financial Corp. in Everett, Wash.; Sterling Financial Corp. in Spokane and Cascade Bancorp in Bend, Ore., have raised this specter in Securities and Exchange Commission filings.

If Pacific Continental decides to go forward with raising capital, it would be the second round for it in this down cycle. The company raised $35 million last fall.

That left the company with capital ratios high enough to do a small deal without having to go back to the markets for more, said analysts who follow the company. Pacific Continental's tangible common equity ratio was 12.15% at Dec. 31, according to O'Brien. Six percent is often considered sufficient.

Despite not having extensive experience with acquisitions, Pacific Continental's management team is well equipped to do deals, analysts said.

"Their history is less relevant than right now," said Jeffrey A. Rulis, an analyst at D.A. Davidson. Their capital moves "may signal they will be more aggressive than they have been in the past."

Hal Brown, the company's chief executive officer, said Pacific Continental is seeking failed banks that are inside its current geographic footprint and have assets of $700 million or less.

He emphasized that the company wants to stick with the philosophy that has carried it for years.

"Our strategy is to grow organically and stay within that business model that has worked for us for a long time," he said in an interview. Any acquisition would "need to be molded into that model," he said.

Rulis said waiting to raise funds until a deal is imminent is the right approach.

"For a company who hasn't been an aggressive acquirer, it is a nice approach to say, 'Let's get this in order and then couple it with a deal,' " he said. "That makes a lot of sense given this bank's history and approach."

And though Pacific Continental's loan portfolio is not pristine, the company is faring better than others in the Pacific Northwest. It reported a 3.05% ratio of nonperforming assets to total assets at the end of December. This was much better than the results at many other banking companies in the region.

"There are some issues there, but they are doing better than their peers," according to Davidson's Rulis. "I don't know if we have hit the peak for nonperforming assets for them. I think they can manage the credit cycle and look at acquiring at the same time. I don't think that is a dangerous approach for them."

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