Pacific Continental's (PCBK) CEO Roger Busse on Q4 2015 Results - Earnings Call Transcript

| About: Pacific Continental (PCBK)

Pacific Continental Corporation (NASDAQ:PCBK)

Q4 2015 Earnings Conference Call

January 20, 2016, 14:00 ET

Executives

Rick Sawyer - EVP & CFO

Roger Busse - President & CEO

Casey Hogan - EVP & COO

Damon Rose - EVP & Chief Credit Officer

Analysts

Jeff Rulis - D.A. Davidson

Tim O'Brien - Sandler O'Neill & Partners

Eric Grubelich - Highlander Capital Group

Tim Coffey - FIG Partners

Don Worthington - Raymond James & Associates

Jacque Chimera - KBW

Operator

Good afternoon. My name is Janicka and I will be your conference operator. At this time I would like to welcome everyone to the year end 2015 earnings call and webcast. [Operator Instructions]. Thank you. I would now like to turn the call over to Rick Sawyer, Chief Financial Officer. You may begin.

Rick Sawyer

Thank you and welcome to Pacific Continental Corporation's conference call and webcast to discuss our fourth quarter and year-end 2015 results. Presenting today will be Roger Busse, President and Chief Operating Officer, Casey Hogan, Executive Vice President and Chief Operating Officer, Damon Rose, Executive Vice President and Chief Credit Officer and me. We will update you on our recent activities and discuss the financial results reported on our press release distributed after market closed January 20, 2016. Our press release is available in the Investor Relations section of our website at therightbank.com.

Before we commence the formal remarks we advise you that this webcast contains forward-looking statements which may include information about future profitability, loan growth, problem asset resolution, changes in the net interest margin and anticipated cost savings. These statements are subject to risks and uncertainties that may cause actual results to differ materially from those projected. We undertake no obligation to publicly revise or update any forward-looking statements to reflect events or circumstances that arise in the future. You should carefully review any risk factors described in the Company's periodic reports on Forms 10-K, 10-Q, 8-K and any other documents filed with or furnished to the Securities and Exchange Commission.

This statement is included for the express purpose of invoking the Safe Harbor provision for forward-looking statements under applicable law.

Now let me introduce and turn the call over to Roger Busse, President and Chief Executive Officer of Pacific Continental Corporation.

Roger Busse

Thank you, Rick. Welcome to today's conference call and webcast. I will begin today with some introductory comments on our core strengths, fourth quarter and year-end highlights and reflect on our strategic direction and position in 2016. At the conclusion, I will provide additional color on our capital and dividend plans.

I will begin with core strengths, results and strategic position. The Bank achieved record fourth quarter earnings of $5.5 million and for the year $18.8 million, driving EPS growth and strengthening the Bank in virtually every core metric. This followed two previous quarters of record growth in earnings. In a moment we will provide additional detail on the factors behind these results. But today I would like to begin by talking about the Bank's position as we enter 2016.

Pacific Continental has solid foundational strength. The Bank maintains a robust liquidity position, strong capital and credit performance and has a proven strategic focus that intertwines with expertise and a depth of talent. Combined, these speak to the vigor of this organization even in a volatile market and with its foundation and liquidity, capital and credit as a backdrop we can build off successes achieved last year. Indeed, our strategic business model, record organic lending and deposit growth, successful acquisition and excellent locations in growing Pacific Northwest markets all drove strong results in the fourth quarter and in 2015.

But more, they underscore how well we're positioned going forward. Our strategic business niche focus in community-based businesses, nonprofits and professionals continues to provide quality growth opportunities in 2016 evidenced by our strong loan and deposit pipelines. In 2015 we invested in training, new client technology and facilities. But most important, we acquired additional talent.

During 2015 we added new lenders and client facing staff in all markets, complementary to our niche focus. And we retained over 91% of the Capital Pacific Bank Loan clients, a testament to the teamwork and synergies of our combined organization in Portland, now with over 100 bankers in that market. This quarter we will open our new Southwest Washington regional office in Vancouver.

Our noninterest revenues are growing due to our Bank partnership with [indiscernible] and the 2015 introduction of a piloted wealth management initiative with Transamerica World Financial Group in Portland. Consequently, we're optimistic that organic growth will continue in the fourth quarter. In addition, we're active in evaluating acquisition opportunities and we will be disciplined in our approach to deal metrics.

Finally, during 2015 PCBK continued to receive numerous accolades. The Bank was named one of the 100 best places to work in Oregon for the 16th consecutive year. In Seattle we were named Business of The Year. Last month we were named one of Oregon's most admired companies by CEOs in the state.

This recognition continues to underscore our strong culture which has been a hallmark of our success in our markets, our niche segments and in attracting talent. As we enter 2016, I am also pleased to report the addition of a new team of lenders from another major competitor in the Eugene market. This talented group of relationship bankers will add again to an already strong team here in Eugene. I couldn't be more proud of our leadership team, officers and employees and the record performance. It is for these reasons I remain optimistic as we enter 2016.

I will now turn the presentation over to Rick Sawyer, Executive Vice President and Chief Financial Officer, who will provide additional color on our financial highlights and first quarter outlook.

Rick Sawyer

Thank you, Roger. For my portion of the presentation I will focus on our net interest margin, securities portfolio activity and provide some additional information regarding noninterest income and noninterest expense. Also when appropriate I will provide our listeners and analysts with first quarter 2016 expectations.

Our fourth quarter 2015 reported net interest margin was 4.36%. Accretion of loan fair value marks and nonrecurring interest in the fourth quarter totaled $687,000 and added 15 basis points to our reported fourth quarter margin. The core net interest margin which removes nonrecurring items and accretion of loan fair value marks, was 4.21% for the fourth quarter compared to 4.19%, 4.2% and 4.19% for the previous three quarters, respectively.

Our core margin continues to run at a fairly consistent level. We would expect this to be the case for the first quarter as the recent increase in short-term rates by the Federal Reserve has minimal impact on our margins. Our margin stability has come primarily from our outstanding loan growth over the past three quarters.

Accretion of loan fair value marks from our last two acquisitions, excluding any prepayments, are expected to add a minimum of $350,000 in interest income during the first quarter which would improve our reported margin by approximately 9 basis points. Please bear in mind that monthly and quarterly accretion can be very volatile and accelerated loan payments, early loan payoffs, refinancings of loans and loan charge-offs in the acquired portfolios can significantly accelerate or reduce accretion of fair value marks. As of December 31, 2015, we had $4 million of fair value adjustment for credit and interest rate remaining on our balance sheet.

Outside of prepayments and refinancing our monthly accretion is accounted for in accordance with GAAP with the majority accretive using the interest method. As I mentioned earlier, the recent increase in short-term rates has minimal impact on our margins. Based on our current analysis of the portfolio, we expect that we need another 25-basis-point increase before we start to see a positive impact. We expect the Federal Reserve will slowly raise rates during 2016 with current indications that will be between 2-4 increases. This slow approach should help the cost of funds from rising too quickly. That along with growth in our portfolio should allow us to keep a fairly stable core margin.

Turning to the investment portfolio, at December 31, 2015, our securities available for sale were $367 million or about 19% of total assets. The portfolio had a pretax unrealized gain of $4.3 million, a decrease of $3.3 million from the prior quarter end. This decrease was primarily due to changes in the long-term market interest rates during the quarter. The average life and duration of the portfolio on December 31 was 4.1 years and 3.7 years. There was no change from what we reported at the end of the third quarter 2015.

During the quarter we sold 20 securities totaling $16.5 million and recorded $337,000 in net gains on these sales. These sales were a result of opportunities in the marketplace to reposition our portfolio and take advantage of some gain opportunities while reinvesting the proceeds in other investments. Our strategy is to take advantage of these opportunities only when we feel we can reinvest proceeds with minimal impacts to our portfolio yields and stay within our policy limits on portfolio duration.

The majority of our fourth quarter sales took place in mid-December and most of the reinvestment will take place in January of 2016. Our strategic target is to maintain a portfolio that is between 19% and 20% of total assets which allows us to maintain appropriate liquidity and generate interest income while remaining within limits from duration and prudently managing our interest rate risk.

Growth in the portfolio will correspond with overall growth in the balance sheet. However, we may move slightly above or below the ranges, depending on the current interest rate environment and associated risks.

Turning the discussion to noninterest income and expense, for the fourth quarter our noninterest income was $2 million. Excluding the gain on sales of securities, our noninterest income was $1.7 million which was slightly better than our estimates of $1.5 million to $1.6 million stated at the last conference call. Excluding gains on security sales, we would expect the first quarter noninterest income to be in the $1.6 million to $1.7 million range.

Our noninterest expense in the fourth quarter was $11.7 million which was higher than the range estimated during last quarter's call. There were two primary reasons for the estimate missed during the quarter. First, we had a $200,000 swing in our fourth quarter expense for liability-based stock appreciation rights accruals, due to the large spike in our stock price during the quarter which affected the weighted average share price for the period. Additionally, I had estimated that we would have net income for the quarter in our OREO expense category.

While preparing my estimates for the quarter I mistakenly used our gross proceeds of $175,000 on an upcoming disposition when, in fact, the gain was only around $10,000. Otherwise, our expenses were basically right on track with what we expected for the fourth quarter. Expectations for the first quarter of 2016 would be operating expenses between $11.5 million and $11.6 million.

Looking at 2016, we would expect to see growth in both noninterest income and noninterest expense. However, we continue to target and efficiency ratio of approximately 56%. That concludes my prepared remarks and I will now turn the call over to Casey Hogan, Chief Operating Officer.

Casey Hogan

Thank you, Rick. For my portion of the presentation today, I will provide more detail with regard to the results, trends and outlook we see on loan and deposit activity and efficiency. Let me begin my comments by reinforcing what we believed to be at the heart of our strong performance, related to loan and deposit growth in the fourth quarter and 2015 as a whole, that being the strong core team of bankers and solid business practices and disciplines that have been assembled in our organization. With the committed professionals that we have serve in all of our markets, at the critical niches we were able to grow loans nearly $50 million in the fourth quarter and $360 million or 34.42% for the year.

You may recall that we reported record loan growth during the past two quarters and the fourth quarter showed very similar positive results, of the $360 million in year-over-year growth, recall that approximately $203 million came as a result of the successful acquisition and integration of Capital Pacific Bank. I would also point out that we saw meaningful growth in all markets, niche areas and most loan types during our reporting periods. Of the note would be our growth in the nonprofit niche which now makes up approximately 10% of our loan portfolio and included approximately $46 million of loan originations in 2015.

Loan growth within this niche is expected to remain strong, especially in the Seattle market, where our nonprofit team of bankers have been very successful in developing notoriety amongst nonprofits. For example, in 2015 we received the Community Impact Business of The Year Award from Seattle Business magazine and the Proud Partner Award from the Washington State Housing Finance Commission for our work in supporting nonprofit tax-exempt bond financing in the Seattle market.

Recognition and connections such as these make us very optimistic about our ability to continue to grow and serve this market in the nonprofit niche as a whole. Looking next at deposits, we reported -- we also saw growth in total deposits of just over $72 million for fourth quarter and $388 million for the 12-month period. We are also pleased to report that nearly 95% of the growth during the fourth quarter was related to core deposits.

For the year, core deposits increased by over $423 million and now make up approximately 96% of our total deposits. Once again, our strong core team of bankers has done an exceptional job at engaging with our niches, our communities and our clients and has been very successful in attracting and retaining as well as deepening and expanding relationships.

Another good example of this relates to the acquisition of Capital Pacific, where we were successful in retaining and actually growing acquired core deposits by 20% since the acquisition. Another reminder -- approximately $228 million in deposits, of which $176 million were considered core -- came as a result of the acquisition. Our success in deposit gathering and retention is a testament to the quality of the team of professionals and the depth of the relationships that have been built over time.

From an efficiency standpoint, 2015 demonstrated our ability to show record organic growth levels, successful completion of a very good acquisition and, at the same time, improving our efficiency ratio from 59.41% to 59.22%. For the fourth quarter we achieved an efficiency ratio of 55.5% which is consistent to what we've reported for the past three quarters. Given our continued focus in efforts to improve efficiency and maintain reasonable overhead cost, we feel that operating within this environment is sustainable.

Finally, as we look forward, we expect to continue to compete against what, at times, seems to be irrational pricing and intense competition in each of our markets. However, given the quality of our bankers and their ability to build lasting relationships and demonstrate the value of the experience with our clients, we remain very optimistic about our ability to continue to compete and be successful.

We continue to have a strong book of unfunded commitments that are expected to be advanced in future quarters and our pipeline of new opportunities remains very active and robust. In short, we have a strong basis for expected success in the future. And that concludes my prepared remarks and I will turn the presentation to Damon Rose, Executive Vice President and Chief Credit Officer.

Damon Rose

In my portion of the presentation, I will be addressing credit quality trends and outlook and outline our current expectations with regard to the allowance for loan loss reserves going forward. Overall, the credit metrics continue their positive trending in the fourth quarter, underscoring the credit quality of the portfolio. As of the fourth quarter end, overall loans 30 to 90 days past due were minimal at .03% of total loans with no loans past due in the dental portfolio. Annualized net losses were nearly nonexistent at 0.002%. Losses associated with dental loans at year end also remained minimal at 0.01% of the total dental portfolio.

Nonperforming loans to period end loans were at 0.19%. Overall, good quality is strong and positive trending is evidenced. As confirmed through recent third-party loan examinations, loan portfolio growth is being achieved without a relaxing of credit standards through prudent credit underwriting and within the bank's core niches.

With regard to the allowance for loan losses, the allowance as a percentage of outstanding loans was 1.23%, similar to the prior two quarter ends. The bank did make a $520,000 provision for loan losses during the quarter, primarily in support of growth. The provision was $105,000 less than last quarter's provision due to recoveries recognized during the quarter.

The coverage ratio of allowance to net nonperforming loans remains very strong at 636%. As a result, we continue to believe that the loan loss reserve is adequate at this time. With current and expected activity we will continue to carefully monitor our reserve adequacy and may find it necessary to continue provisioning in future quarters. While credit quality remains strong, future provisions to loan-loss reserves would be made in support of growth and losses as required. We are not in a position today to predict the timing and amounts that may be necessary.

Looking to the next quarter, our expectations are that credit quality metrics will continue their positive trending and growth will be comprised of quality, prudently underwritten loans. We will not sacrifice quality or loosen credit standards to achieve this growth.

That concludes my prepared remarks and I will now turn the call back over to Roger.

Roger Busse

Thank you, Damon. Based in our comments today you can tell we remain optimistic and look forward to the first quarter of 2016. Concurrent with our earnings release we announced a dividend of $0.11 per share. Our current plan is subject to future Board action, but it's to retain earnings and accumulate capital in the near term while we continue to pay out meaningful dividends.

We continue to enact a strategy of evaluating end market acquisitions in the $100 million-$400 million range. We have identified targets and will be disciplined in our approach to pricing and deal metrics.

In conclusion I would like to again speak to our solid foundation of liquidity, capital and credit. Our added talent or strategic business focus and strategic growth plans, we believe, will provide meaningful value to all of our constituents and shareholders.

With those final comments we want to invite your questions. As a reminder, Rick Sawyer, Executive Vice President and Chief Financial Officer, Casey Hogan, Executive Vice President and Chief Operating Officer, and Damon Rose, Chief Credit Officer, are available to answer your question.

Janicka, please open the lines for questions.

Question-and-Answer Session

Operator

[Operator Instructions]. Your first question comes from the line of Jeff Rulis.

Jeff Rulis

First, on the growth of the team that you hired in Eugene, could you offer a little more detail and if they are loan segment-focused, the background? Is it large or small banks, how many and when do they start?

Roger Busse

Well, we acquired a team from a competitive institution here in Eugene that are highly respected. We are talking about right now three of the team. These are relationship bankers that have a long and distinguished history of growth in deposit gathering as well as lending in the small and middle market categories. Their experiences in C&I and commercial real estate lending as well and one of the leaders was a regional commercial real estate lender. We believe that this is a significant addition to our team, already very talented commercial bankers here in the Eugene market.

Jeff Rulis

And were they on board long in Q4 to impact any results?

Roger Busse

This was a new event that happened just after the end of the quarter and it continues.

Jeff Rulis

And then in the dental portfolio being flat, I guess, will you remind us if there's some seasonality in there? And does the flat nature of how that results came in -- surprised by any of the timing there?

Damon Rose

This is Damon Rose. The production remained strong in the dental portfolio. There are times during or over the years where we've had some spikes in December due to some tax planning and things like that. But this quarter it just worked out where we had strong production, we had a few payoffs which were expected. But pipelines remain strong and we think we will continue to see the growth going forward.

Jeff Rulis

And another question on -- well, the securities gains -- I think maybe Rick had touched on that. Any expectations on that or will it, just on a quarter-by quarter basis, be lumpy?

Rick Sawyer

Jeff, this is Rick. Again, as I said, it's going to depend on what market conditions look like. We will always monitor the portfolio and our strategy will always be if there's gains that we can take and it makes sense and we can reinvest those proceeds and it will minimally impact our yields and stay within all of our [indiscernible] limits, then we will certainly take a good hard look at those. So it might be a little lumpy because it just will depend on what's happening in the market.

Operator

And your next question comes from the line of Tim O'Brien.

Tim O'Brien

Just any ancillary cost associated with the Eugene team hire In the fourth quarter? Or is that a first quarter event, predominantly?

Roger Busse

That will be primarily a first quarter event.

Tim O'Brien

Okay. And that's included in the guidance numbers that Rick gave? You know that range for--?

Roger Busse

Yes, that's correct. That would include those expenses. That is correct.

Tim O'Brien

And as far as first quarter guidance that was given, Rick, do you anticipate any one-time either cost in the first quarter, seasonal cost associated with workmen's comp or anything hitting? If so, do you have an estimate of how much that might be?

Rick Sawyer

I don't have any anticipated one-time costs that are of any material nature, Tim. So I feel pretty confident with the estimates that we gave that that's probably a pretty good normalized run rate, at least for this quarter.

Tim O'Brien

And a question for Casey, do you anticipate any seasonality and relative to the past three quarters of exceptional loan growth, record loan growth and a couple of cases, do you anticipate any seasonality possibly kicking in here in the first quarter? Or is it all systems go?

Casey Hogan

We've, of course, last year saw some seasonality. And we pressed pretty hard to make sure that we captured those loans we could push through or get through last year. But as I said in my comments, we do have a strong pipeline and it's going to continue to fund. It looks pretty strong. I think that we're in the neighborhood of what we have done in the past quarters certainly that would be our expectation.

Tim O'Brien

And then have you guys talked about the Transamerica relationship that you mentioned on the call earlier? Remind me about that. Or can you explain a little bit more how that might impact fee income or where the benefit is going to come and when.

Roger Busse

So we mentioned before we have been looking at wealth management. We have developed a pilot project with Transamerica World Financial Group after a long and exhaustive study of potential partners and they fit all of our criteria and qualifications for this partnership with them.

So it just was piloted this last year. As far as meaningful results, it's going to be a slow growth. And we're not out there trying to take business from our clients. What we have experienced always is that our clients come to us and ask us if we've had wealth management and other type of products, 401(k)s, etcetera., that they can use for investments, nonprofits that look for investment opportunities. We just want to begin to service those.

So we have developed a small group that can handle that and we will continue to move slowly into that as referrals come in. And so, as the next quarter progresses, the next two quarters, we should begin to see some benefit and we will report to you what we think the training will be.

Tim O'Brien

And really where that would impact the P&L is going to be in probably other fee income initially, for a while, right, move the needle slightly there?

Roger Busse

Yes, that's correct.

Operator

Your next question comes from the line of Eric Grubelich.

Eric Grubelich

Just a couple things, one the deposit growth was very strong. Was there any type of seasonality in those numbers this quarter or not?

Casey Hogan

This is Casey. No. We didn't experience any seasonality. This is again good, strong growth throughout our markets.

Eric Grubelich

And then, again, you talked about like targeting the securities portfolio at 19% to 20% of earning assets, if I heard you correctly. Did you look at any type of metric on the deposit side against loans in a similar ratio?

Rick Sawyer

This is Rick. Again, we look at our loan to deposit ratio. I don't have a specific target that I could tell you off the top of my head right now that we look at. But it is something we're focusing on as we head into this year. And try to get all of our metrics under us.

Operator

Your next question comes from the line of Tim Coffey.

Tim Coffey

If we back out the dental portfolio, what were the yields on the loans that you booked during the quarter?

Roger Busse

I don't know, Tim, that we have that information right here at hand. But Rick, do you have any kind of estimation on that?

Rick Sawyer

I would have to dig into that because right now I've been looking at our portfolio as a total. But that's something that we will -- we appreciate that question. So that's something that I will definitely start to try to break out.

Tim Coffey

Yes. Well, I was curious because obviously the yields on the dental portfolio were real strong this quarter and I'm wondering if you think that loan yields going into 2016 can remain above that 5% level for the entire portfolio.

Roger Busse

I think our experience has been that just generally speaking in both the dental and the C&I commercial real estate portfolios has been fairly steady and hovering in that range between high 4s and low 5s. So I believe that it is possible to continue to maintain those yields, yes. I think our outlook would be that we would continue to maintain an overall yield above 5%.

Tim Coffey

Okay. Do you have any concerns right now, especially given where the 10-year seems to be going or has been recently, about prepayments going into the first half of 2016?

Rick Sawyer

I don't have a big concern about prepayments. I think we have seen probably -- if we saw them, we saw them last year as the rate forecast started to look out to the future. So, no. I don't think prepayments are going to be anything that's going to be a big deal for us.

Tim Coffey

Okay. And then, Roger, as you and your team look at leading indicators on the commercial real estate markets and your footprint, have you seen any significant changes in those leading indicators?

Roger Busse

Well, what we look at, for example in Eugene we still have business formation going on here. Unemployment rate dropped to 6%, just over 6%. And we've had recent employment growth of just over 4% in the Eugene market.

Winnebago opened a plant here, Avago which is a company that purchased a chip plant here, is going to grow. And leisure jobs are up 800 with travel and entertainment, etcetera., here. We even have -- I think it's Lamba Valley Cancer Center has announced an expansion of $4 million. So, you just look at the Eugene market and when you talked about business growth, housing, inward migration and unemployment, they are all positive signs.

And similarly, in Portland that has dropped to 5.4%, if I remember correctly. They have had migration in the state now of over 40,000 into Oregon itself and most of that is in Eugene but primarily in Portland. The growth is primarily what they call, I think, route setting which is basically the 20-to-30-year-olds, they're looking to establish their careers and kids, etcetera. But what's really gratifying is Oregon middle wage growth in 2015 was fairly substantive and 30,000 or so jobs and these are primarily white collar, I think sales jobs, tech jobs, those kind of things.

So, really, job growth across all sectors. And with the inward migration and some of the expansion that is taking place with Nike on their campuses, Intel, etcetera., business formation and growth continues to bode well for us. And all of these have ancillary benefits. We are increasing lines of credit needs, opportunities, acquisitions for businesses, growth, hiring, etcetera.

So, I could talk about Seattle, but you know it's an explosive market up there already so I won't go into detail. I think all those indicators show us that 2016 of course, depending on what happens in the market and the global economy -- could continue to drive growth and help us grow as we described.

Tim Coffey

Okay. And this is probably a softball question. How do you feel about your commercial construction portfolio?

Casey Hogan

This is Casey. I'll start and Damon can add, too. But it's very good. As you know, we have seasoned veterans in and primarily associated with our commercial real estate construction program. So it's certainly a high quality. There are opportunities that are out there that present themselves. Some of them we have been working on through a year, a couple years. They mature and work their way through.

So we're seeing our share of opportunities. We are not taking every one of them but we're certainly in a position where we can pick and choose the ones we would like to take a look at with those relationships. And as Roger indicated before, we think we get some additional lift with the team that we just picked up and will have a regional presence as well as the local Eugene market. So Damon may want to add to that.

Damon Rose

I would agree with all of that. I think we're being very picky with the projects that we take on, very well underwritten with appropriate equity. Many are owner-occupied or are pre-leased. So again, I'm very comfortable and satisfied with where we're in our construction lending today.

Operator

[Operator Instructions]. Your next question comes from the line of Don Worthington.

Don Worthington

Circling back a little bit on the healthcare lending, it looks like, excluding dental, you had some growth in other types of healthcare lending. Was that primarily veterinary loans?

Casey Hogan

This is Casey. You are right, our primary pickup in the year was from our vets. Year over year we were up about $15 million in that category, about 53%. So we're getting some traction and very pleased with the results their overall from a lot of the same bankers that work with the dentist also have those same connections with vets. So, we're starting to be very happy with the results coming from that market.

Don Worthington

And then, I think last quarter you said the national program was in 38 states. Were there any states added or are you contemplating expanding the national program to other states beyond the ones that are already established?

Damon Rose

This is Damon. I think we ended the year at actually 39 states. We don't necessarily have plans to target specific states. What we do is make sure that we find those centers of influences that we trust and have the same philosophies that we do. And as we find those referral sources, we may enter different states. But there is no set plan today to, say, target one state over another.

Operator

Your next question is a follow-up from Tim O'Brien.

Tim O'Brien

Could you give a little bit more color about the nonprofit lending? Did you say the nonprofit loans account for 10% of the total loan book now?

Casey Hogan

Getting close to that, it depends on where you slice and dice but a lot of that is, again, related to owner-occupied commercial real estate where we can utilize the tools available through both the states of Washington, Oregon on SNAP and STEP financing programs. We have had some bankers that are very skilled at working through that process and that has been a success for us last year.

Tim O'Brien

So, is it safe to say that that piece of your book of business is backed by mortgages, mostly?

Casey Hogan

Yes, it would be. That's typically what you are going to see there. But occasionally see a small line of credit. We have some that are in construction mode where we will participate in, in that. But generally, it's the building that they are occupying for their operations.

Tim O'Brien

And is the primary source of repayment and underwriting typically cash flow and cash flow valuation? Is that how you want to write those loans?

Casey Hogan

Absolutely. We are a cash flow lender, have been forever, likely always will be. So strong cash--

Tim O'Brien

And what kind of cash flows are those loans typically reliant on?

Casey Hogan

As far as the type of cash flows, you're typically going to see cash from normal operation. Some of that includes contributions and donations. But many of these have a fee for service operations as well. So, as usual, we're pretty diligent about our underwriting and review of the sustainability of those cash flows that are presented from the agencies.

Roger Busse

Most of these are seasoned organizations, Tim, that have proven cash flows. They also have basically cushion and availability. And so, we will only underwrite to historical cash flows that we know can service the obligations.

Tim O'Brien

And are they fixed-rate, typically?

Casey Hogan

They would mirror our typical commercial real estate portfolio, where you will see fixed for a period of five to seven years, typically five, normal amortization periods over 20 to 25 years, typically. So they are going to look like other commercial real estate loans, for sure.

Tim O'Brien

Do you have a sense of the average life of that book of business?

Casey Hogan

I don't have that with me. We could certainly circle back on that.

Operator

Your next question comes from the line of Jacque Chimera.

Jacque Chimera

Did you notice any change in your large depositors following the increase in rates or is it too soon to tell on that? What are your expectations for that particular portfolio?

Rick Sawyer

We really didn't notice any big swing one way or the other. We had our usual fourth quarter activity in all of our deposit base. I don't think rates -- we didn't change rates and I don't think any of our competitors really changed rates on the deposit side with this latest Fed increase. So, we didn't really see any volatility.

Jacque Chimera

Okay. So, no sudden influx of phone calls or any change in behavior or anything like that?

Rick Sawyer

Not that we've seen.

Jacque Chimera

And then you mentioned in the prepared remarks, I'm not sure who it was that had commented on it, but just added color on the nonprofit in the lending opportunities there. Are you seeing a change of sentiment within the nonprofit sector or is it just more of a marketing effort and a concentrated effort on your part that is drumming up that interest?

Casey Hogan

I think that was in my comments. Probably a little bit of both. I think it -- certainly it was the nonprofits. It continues to be very impressive, the level of management and sophistication that our nonprofits in the region, not just any of the markets but throughout, have been bringing to their business, as well as, I think, a renewed focus on our nonprofit bankers, looking for those opportunities and being very comfortable with the tools that we have to provide those relationships, both existing and potential. So, it's an opportunity for us to lead with expertise and a great bunch of bankers.

Jacque Chimera

Okay. And you had specifically mentioned loan growth. Does any of that translate into deposit growth?

Casey Hogan

Absolutely. Again, I've got some anecdotal, but we had over 50 new relationships are close to 50 new relationships established in Seattle alone. And that doesn't start to count for the rest throughout the organization. As you know, Marc Stevenson, the former CEO of Capital Pacific, has been with us and now serves as the chief nonprofit and sustainability officer.

So he is very active with our teams as well, at continuing to look for new opportunities as well as new verticals that we may explore through that nonprofit and sustainability niche. So again, it's one of those underloved niches that we happen to really love. So, we're very active and looking for more and even greater opportunity there.

Jacque Chimera

Okay. And when you had talked about some of the wealth management opportunities that you have with your new relationship at Transamerica, does a lot of that stem from the nonprofit?

Roger Busse

Yes, some of it does. The requests that we receive have been both from business owners and executive directors as well as nonprofits. So it's a balanced request. And typically they are looking for investment opportunities. We've actually had a couple of successes in nonprofits as well, they're looking for some investment opportunities. So we think that there's a good opportunity there to deepen relationships.

Jacque Chimera

And then just one last quick one, with the drop that we've seen in the market, does that impact your view on repurchases at all? I know that you are obviously very open to M&A and are looking in that regard for capital. I was just curious about your thoughts on repurchases, given the change in share price.

Roger Busse

We are paying attention to it, let's put it that way. It's always an active discussion at the Board level as we meet each month about what makes sense for the Company and our shareholders. So, it will continue to be an active discussion.

Operator

Your next question is a follow-up from Eric Grubelich. Eric, your line is open.

Eric Grubelich

What I just wanted to know is that team in Eugene -- do they come with any type of noncompete? And what would your expectations be for them, portfolio size-wise, say over the next 18 months, to build up?

Roger Busse

We will give that more color with regard to size-wise as we get a little bit further into the relationship with them. But it should be meaningful here in the Eugene market. With regard to the noncompete we do not believe we have any restrictions with regard to what kind of growth can take place, Eric.

Operator

And your next question is also a follow-up from Jeff Rulis.

Jeff Rulis

Just a quick follow-up on the accretion, on the margin discussion, for Q1 the expectation of 9 basis points -- that is not in addition to -- it's not above the accretion level of what we saw in Q4? In other words, if you got a core of 421 reported, you are pointing to 430 if we were in a vacuum?

Rick Sawyer

Yes, you are correct. So that 350 is what we would estimate the accretion to be above our normal core net interest income and again, that fluctuates based on payoffs but we would expect that to be the minimum.

Operator

At this time, there are no further questions. Thank you.

Roger Busse

Well, we want to thank all of you for your participation today and we look forward to reporting to you at the next quarter end. We wish you a great day. Thank you very much.

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