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Pacific Continental buying Washington-based Foundation Bancorp in $67.1M cash-and-stock deal

Eugene, Ore.-based PacificContinental Corp. ($1.97 billion) agreed to acquire Bellevue, Wash.-basedFoundation Bancorp Inc.($422.4 million) in a cash-and-stock deal valued at about $67.1 million, or $13.02per share. The deal is slated to close by the end of the third quarter, subjectto approvals from shareholders and regulators.

Upon closing, Pacific Continental Corp. will appoint two representativesfrom Foundation Bancorp to serve as board members of Pacific Continental Corp. andits unit, Pacific Continental Bank.Foundation Bancorp is the parent of FoundationBank.

Foundation had $422.4 million in total assets, $299.3 millionin gross loans, and $367.5 million in total deposits as of March 31.

On a pro forma combined basis, the company would have total assetsof $2.4 billion, total loans outstanding of $1.7 billion and total deposits of $2.1billion as of March 31, including $443.8 million in loans and $561.9 million indeposits in the Seattle metropolitan area.

SNL'svaluations for bank and thrift targets in the West region between April 26, 2015,and April 26, 2016, averaged 136.63% of book, 139.73% of tangible book and had amedian of 28.10x LTM Earnings, on an aggregate basis, and averaged 138.92% of book,143.02% of tangible book and had a median of 25.61x LTM earnings, on a per-sharebasis.

Theone-day premium is 28.28% based on Foundation's closingprice of $10.15 per share on April 25, while the one-month premium is 28.91% based on Foundation's closing price of $10.10per share on March 28.

According to a slide presentation, Pacific Continental expectsthe deal to be immediately accretive to earnings, with 6.5% earnings per share accretionin 2017 and 10.1% in 2018. It also projects an internal rate of return in excessof 15%. Tangible book value per share dilution is estimated to be 5.8% at closing,with a payback period of approximately three years.

The bank said it will take a fair value adjustment on acquiredloans of -3.70%, or approximately $11.1 million, which includes a credit mark of$9.0 million and an interest rate mark of $2.1 million. It will also take a fairvalue adjustment on acquired TruPS of -46.95%, or $2.9 million.

Pre-tax nonrecurring merger expenses are estimated to be $8.4million.

Foundation shareholders may opt to get either 0.7911 share ofPacific Continental common stock, $12.50 per share in cash or a combination of thetwo for each share of Foundation common stock they hold. Foundation preferred stockwill become convertible into the right to receive the merger consideration withrespect to 1.5 million shares of Foundation Bancorp common stock, together withcumulative cash dividends payable to such holders.

The aggregate and per-share consideration for Foundation is basedon the $16.74 closing share price of Pacific Continental on April 26.

The number of shares of Pacific Continental common stock to beissued to Foundation shareholders is based on a fixed exchange ratio. The valueof the stock portion of the consideration will fluctuate based on the value of PacificContinental common stock. To the extent there are under or over subscriptions forcash election shares by Foundation shareholders, there will be a reallocation ofthe merger consideration for such Foundation shareholders such that the aggregatecash consideration shall equal about $19.3 million.

Pacific Continental expects the transaction to be immediatelyaccretive to EPS, excluding nonrecurring merger-related expenses.

D.A. Davidson & Co. served as financial adviser, with PillsburyWinthrop Shaw Pittman LLP acting as legal counsel to Pacific Continental. KeefeBruyette & Woods Inc. served as financial adviser and provided a fairness opinionto Foundation's board. Sidley Austin LLP served as legal counsel to Foundation.

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