Pacific Financial Corp Earns $3.6 Million, or $0.35 per Diluted Share, for Third Quarter of 2023, and $11.7 Million, or $1.12 per Diluted Share, for the First Nine Months of 2023; Declares Quarterly Cash Dividend of $0.14 per Share
ABERDEEN, Wash., Oct. 27, 2023 (GLOBE NEWSWIRE) -- *Pacific Financial Corporation (OTCQX: PFLC), *(“Pacific Financial”) or the (“Company”), the holding company for Bank of the Pacific (the “Bank”), reported net income of $3.6 million, or $0.35 per diluted share for the third quarter of 2023, compared to $3.9 million, or $0.37 per diluted share for the second quarter of 2023, and $2.9 million, or $0.28 per diluted share for the third quarter of 2022. For the first nine months of 2023, net income was $11.7 million, or $1.12 per diluted share, compared to $6.2 million, or $0.59 per diluted share, for the first nine months of 2022. All results are unaudited. The board of directors of Pacific Financial declared a quarterly cash dividend of $0.14 per share on October 18, 2023, an increase of $0.01 per share from the previous quarter. The dividend will be payable on November 24, 2023 to shareholders of record on November 10, 2023.
The Board of Directors of Pacific Financial authorized the repurchase of up to $2.5 million, or approximately 2% of shares outstanding. Beginning November 1, 2023, stock repurchases may be made from time to time on the open market or through privately negotiated transactions. The timing of purchases and the exact number of shares purchased will be subject to market conditions and may be suspended at any time. “We believe our stock is an attractive investment and repurchasing shares affirms our optimism for the future and offers an excellent way to build long-term value for our shareholders,” said Denise Portmann, President and Chief Executive Officer.
“We are pleased with our third quarter operating results, posting solid profits for the quarter and record earnings for the first nine months of 2023,” said Portmann. “Earnings for the current quarter and year-to-date were fueled by higher loan growth and a strong net interest margin (“NIM”). We are encouraged by the steady loan demand as loan balances grew 2%, or $13.3 million during the quarter and 8%, or $50.4 million from a year earlier. We remain optimistic about the opportunities in our markets as loan pipelines and overall business activity looks solid.”
“Although the higher interest rate environment continued to impact funding costs, our NIM remained strong expanding 4 basis points from the linked quarter, 95 basis points from the like period a year ago and improved 139 basis points to 4.40% for the nine months ended September 30, 2023 compared to the like-period in 2022,” said Portmann. “In addition, on a linked quarter basis, solid loan pricing discipline combined with higher longer-term market interest rates contributed to an increase in loan yields.”
“Our prudent risk management protocols guide the growth of our loan portfolio and our credit metrics remained solid with only a slight elevation in net charge-offs,” said Portmann. “While we experienced some deposit decline during the current quarter, our balance sheet remains strong with diversified loan portfolio and deposit mix as well as strong liquidity metrics and capital ratios that exceed regulatory well-capitalized requirements.”
*Third Quarter 2023 Financial Highlights: *
· Return on average assets (“ROAA”) was 1.21%, compared to 1.30% for the second quarter 2023, and 0.86% for the third quarter 2022.
· Return on average equity (“ROAE”) was 13.16%, compared to 14.30% from the preceding quarter, and 11.13% from the third quarter a year earlier.
· Net interest income was $12.3 million, up 1% compared to $12.2 million for the second quarter of 2023, and increased 13% from $10.9 million for the third quarter 2022.
· Net interest margin (“NIM”) expanded four basis points to 4.37%, compared to 4.33% from the preceding quarter, and improved by 95 basis points from 3.42% for the third quarter a year ago.
· Provision for credit losses was $249,000 compared to $71,000 for the preceding quarter and no provision in the like-quarter a year ago.
· Gross loans balances increased $13.3 million, or 2%, to $672.0 million at September 30, 2023, compared to $658.7 from the preceding quarter end and increased 8%, or $50.4 million, compared to $621.5 million at September 30, 2022.
· Total deposits declined $26.2 million to $1.05 billion, compared to $1.08 billion from the second quarter 2023, with core deposits representing 91% of total deposits at September 30, 2023. Non-interest bearing deposits represented 41% of total deposits at September 30, 2023.
· Asset quality remains solid with nonperforming assets to total assets at 0.10%, compared to nonperforming assets to total assets at 0.08% for the preceding quarter, and 0.07% at September 30, 2022.
· At September 30, 2023, Pacific Financial continued to exceed regulatory well-capitalized requirements with a leverage ratio of 10.7% and a total risk-based capital ratio of 17.6%.*Liquidity*
Liquidity metrics were robust with:
· Cash and cash equivalents of $148 million, or 64% of uninsured and uncollateralized deposits, at September 30, 2023 compared to $200 million at June 30, 2023.
· Coverage of short-term funds available to uninsured and uncollateralized deposits was 254% at September 30, 2023 compared to 261% at June 30, 2023.
· Uninsured or uncollateralized deposits were 22% of total deposits at September 30, 2023 and June 30, 2023.As shown below, the Bank has established credit lines with borrowing capacity from the Federal Home Loan Bank of Des Moines (FHLB) and from the Federal Reserve Bank of San Francisco, both of which are subject to collateral requirements. In addition, the Bank has $60.0 million in unsecured borrowing capacity from various correspondent banks. There was no balance outstanding on any of these facilities at quarter-end.
*Liquidity*
(Unaudited) Sep 30,
2023 % of
Deposits Jun 30,
2023 % of
Deposits $
Change %
Change Sep 30,
2022 % of
Deposits $
Change %
Change (Dollars in thousands)
Cash and cash equivalents $ 147,970 14 % $ 199,707 19 % $ (51,737 ) -26 % $ 415,349 33 % $ (267,379 ) -64 %
Unencumbered AFS Securities 123,842 12 % 104,898 10 % 18,944 18 % 116,879 9 % 6,963 6 %
Secured lines of Credit (FHLB, FRB) 318,557 30 % 316,214 29 % 2,343 1 % 245,012 20 % 73,545 30 % Total short-term funds available $ 590,369 56 % $ 620,819 58 % $ (30,450 ) -5 % $ 777,240 62 % $ (186,871 ) -24 % Sep 30, 2023 Jun 30, 2023 Sep 30, 2022
Short-term funds available to uninsured/uncollateralized deposits 254 % 261 % 217 %
Uninsured/uncollateralized deposits to total deposits 22 % 22 % 29 %
Gross loans to deposits ratio 63 % 60 % 49 %
*Income Statement Review*
*Net interest income* increased 1% to $12.3 million during the current quarter compared to $12.2 million for the second quarter of 2023, and grew 13% from $10.9 million for the third quarter 2022. For the current quarter compared to the linked quarter, interest and fees on loans continued to increase as a result of both balances and yield increases. This increase was partially offset by deposit interest expense increases as well as the decrease in interest income on interest bearing bank balances. Interest income on these interest bearing bank balances decreased as a result of declining balances during the quarter. Year-over-year for the nine months ended September 30, 2023 and 2022, net interest income increased 34%, or $9.5 million, to $37.5 million.
Higher market interest rates combined with growth of investments and loan balances positively impacted net interest margin for the current quarter and for the nine months ended September 30, 2023. The current quarter net interest margin improved by 4 basis points to 4.37% for the third quarter of 2023, compared to 4.33% for the second quarter of 2023, and expanded 95 basis points from 3.42% compared to the third quarter 2022. For the first nine months of 2023, the NIM expanded 139 basis points to 4.40% from 3.01% for the first nine months of 2022.
The increase in average yields on interest-earning assets during the current quarter and first nine months of 2023 reflects the benefit of variable rate interest-earning assets repricing higher, as well as new loans being originated at higher interest rates. For the current quarter, loan yields increased 16 basis points to 5.71% compared to the preceding quarter of 5.55%, and increased 91 basis points from 4.80% from the third quarter 2022. In addition, the yield on interest-bearing bank deposits increased and was 5.35% for the quarter, compared to 5.09% for the preceding quarter, and 2.31% for the third quarter 2022. Cost of funds continued to increase during the quarter primarily due to the full quarter impact of deposit rate changes in money market accounts made in the second quarter 2023, as well as a slight change in deposit mix with higher costing term deposits representing a higher percentage of total deposits. The Bank’s total cost of funds increased to 0.72% for the current quarter, compared to 0.58% for the preceding quarter, and 0.10% for the third quarter 2022.
*Noninterest income* has remained relatively unchanged at $1.6 million to $1.7 million for the current quarter, linked quarter and like-quarter a year ago. Higher mortgage interest rates and housing prices continue to impact loan origination volumes for our mortgage banking division and as a result gain-on-sale of loans remains lower compared to historical levels. The company’s focused initiative on fee revenue growth in 2023, in which deposit service charges and other related fees were increased consistent with product pricing in our market, has positively impacted service charges on deposits. These service charges increased $279,000 or 23% from a year ago. For the first nine months of 2023, noninterest income declined to $4.6 million compared to $5.7 million for the nine months ended September 30, 2022, primarily due to lower gain on sale of loans.
*Noninterest expense *was $9.1 million for the third quarter of 2023, compared to $8.9 million and $9.0 million for the second quarter of 2023, and for the third quarter 2022, respectively. Although relatively flat for the quarters noted, within total noninterest expenses, state and local taxes were higher for the current quarter as a result of both higher revenue as well as the accrual of not yet settled tax assessments. These tax assessments were fully funded at quarter end. Partially offsetting higher state and local taxes were lower salaries and employee benefits expenses related to lower mortgage banking commissions consistent with lower loan originations in that department as noted above, as well as decreased health-care costs. Noninterest expense for the first nine months of 2023 increased 4% to $27.3 million compared to $26.3 million for the first nine months of 2022, primarily due to increased FDIC insurance premiums, state and local taxes and data processing costs. Salary expenses comprise a large portion of non-interest expenses and continue to be impacted by competitive recruiting and wage pressures. Employee staffing numbers, excluding mortgage banking employees, have remained relatively stable during the last 12 months.
Federal and Oregon state income tax expense was $859,000 for the current quarter, and $994,000 for the preceding quarter, resulting in effective tax rates of 19.1% and 20.3%, respectively. These income tax expenses reflect the benefits of tax exempt income and tax credits. Income tax expense for the nine months ended September 30, 2023 was $2.8 million, and $1.2 million for the nine months ended September 30, of 2022, with an effective tax rate of 19.3% and 16.1%, respectively.
*Balance Sheet Review *
*Total Assets* declined by 2% to $1.18 billion at September 30, 2023, compared to $1.21 billion at June 30, 2023 and decreased 14% from $1.38 billion at September 30, 2022.
*Investment Securities* increased 5% to $289.2 million at September 30, 2023, compared to $276.4 million at June 30, 2023, and increased 11% from $261.2 million at September 30, 2022. New purchases in the current quarter were $22.7 million at an average yield of 5.19%. In part due to purchases at higher yields, the average portfolio yield increased to 3.36% from 3.21% for the linked quarter and 2.33% for the like-quarter a year ago. The average adjusted duration of the investment securities portfolio was 4.5 years at September 30, 2023.
*Gross loans balances *increased $13.3 million, or 2%, to $672.0 million at September 30, 2023, compared to $658.7 million at June 30, 2023. Year-over-year loan growth was 8%, or $50.4 million.
Year-over-year the Bank experienced growth in most loan categories, with the exception in C&I loans. C&I balances have been impacted by continued low utilization on commercial lines-of credit that began during the pandemic and that utilization rate continues to remain low compared to historic levels. The largest growth categories year-over-year were construction, residential 1-4 family, multi-family and owner-occupied commercial real estate.
The Bank maintains a portfolio of loans to finance luxury and classic cars and as part of our risk management program the Bank manages the concentration levels of that portfolio. Loans to finance luxury and classic cars decreased 2% to $61.7 million at September 30, 2023 compared to $62.8 million at June 30, 2023, and increased 7% or $4.1 million compared to $57.6 million a year ago.
The Company manages new loan origination volume using concentration limits that establish maximum exposure levels by certain industry segments, loan product types, geography and single borrower limits. The loan pipeline continues to be supported by sustained business development activity by our commercial lending teams. In addition, the loan portfolio continues to be well-diversified and is originated predominantly within our Western Washington and Oregon markets.
*Credit Quality* metrics remain sound with nonperforming assets at $1.2 million, or 0.10% of total assets at September 30, 2023, compared to nonperforming assets of $959,000, or 0.08% of total assets at June 30, 2023, and $989,000 of nonperforming assets, or 0.07% of total assets, at September 30, 2022. Balances related to non-impaired loans, graded watch or other loans especially mentioned, increased $51,000 to $13.1 million at September 30, 2023, compared to $13.1 million at June 30, 2023, and $31.5 million at September 30, 2022.
*Adoption of New Accounting Standard* In June 2016, Financial Accounting Standards Board issued Accounting Standard Update No. 2016-13, Measurement of Credit Losses on Financial Instruments (ASU 2016-13). The allowance for credit losses under ASU 2016-13 utilizes a Current Expected Credit Losses (“CECL”) methodology which estimates the expected loan losses over the contractual life of the loans. GAAP prior to ASU 2016-13 required an “incurred loss” methodology for recognizing credit losses that delays recognition until it is probable a loss has been incurred. ASU 2016-13 became effective for the Company on January 1, 2023. The day 1 adoption of ASU 2016-13 and related amendments resulted in a decrease of $157,000 to the Bank’s allowance for credit losses-loans and an increase of $609,000 to the Bank’s allowance for credit losses-unfunded loan commitments for a cumulative-effect adjustment of $452,000 to decrease the beginning balance of retained earnings.
*Allowance for Credit Losses* (“ACL”) was $8.3 million, or 1.24% of gross loans at September 30, 2023, compared to $8.2 million, or 1.25% of gross loans, at June 30, 2023, and $8.2 million, or 1.33%, at September 30, 2022. Net charge-offs for the current quarter totaled $125,000, compared to $79,000 for the preceding quarter. A partial loan charge-off of $89,000 on one loan represented 71% of the net charge-offs for the current quarter. For the first nine months of 2023, net charge-offs were $204,000, compared to $48,000 for the first nine months of 2022. The total provision for credit losses, which includes a provision for credit losses on loans as well as a provision for credit losses for unfunded loan commitments, was $249,000 in the third quarter of 2023, compared to $71,000 in the second quarter of 2023. There was no provision booked in the third quarter a year ago. There was a $472,000 provision for credit losses in the first nine months of 2023, compared to no provision in the first nine months of 2022. The provisions were primarily as a result of the growth in loan balances during the quarter and the year.
*Total Deposits* were $1.05 billion at September 30, 2023, compared to $1.08 billion at June 30, 2023 and $1.25 billion at September 30, 2022. During the second quarter 2023, deposit balances were impacted by industry-wide pressure on deposits and competitive pricing pressures as well as interest rate sensitive customers transferring a portion of their excess deposits funds into higher yielding investments and increased customer spending. Deposits continued to decline during the third quarter although at a slower rate than during the first half of 2023. The demand for certificates of deposits (“CD’s”) increased as some customers continued to seek higher yield. Certificate of deposit balances increased $17.3 million from the linked quarter and $40.2 million from the third quarter a year ago and represent 9%, 7%, and 4%, of total deposits, at September 30, 2023, June 30, 2023, and September 30, 2022, respectively. At 41%, Non-interest bearing demand deposits continues to represent a high percentage of total deposits.
*Shareholder’s Equity *declined 2% to $106.6 million at September 30, 2023 compared to $108.9 million at June 30, 2023 and increased 8% from $98.3 million at September 30, 2022. Book value per common share was $10.22 at September 30, 2023, compared to $10.44 at June 30, 2023, and $9.45 at September 30, 2022. During the quarter as a result of higher market interest rates, the unrealized loss on available-for-sale investment securities increased and impacted shareholder’s equity by $4.6 million. The unrealized loss on available for sale securities was $29.8 million and $23.9 million as of September 30, 2023, and June 30, 2023, respectively. Tangible Common Equity Ratio (TCE) remained unchanged at 8.0% for September 30, 2023, compared to June 30, 2023. Regulatory capital ratios of both the company and the Bank continue to exceed the well-capitalized regulatory thresholds, with the company’s leverage ratio at 10.7% and total risk-based capital ratio at 17.6% as of September 30, 2023.
*Financial Performance Overview*
(Unaudited) For the Three Months Ended Sep 30,
2023 Jun 30,
2023 Change Sep 30,
2022 Change
*Performance Ratios*
Return on average assets, annualized 1.21 % 1.30 % (0.09 ) 0.86 % 0.35
Return on average equity, annualized 13.16 % 14.30 % (1.14 ) 11.13 % 2.03
Efficiency ratio ^(1) 65.78 % 64.26 % 1.52 71.20 % (5.42 )
^(1) Non-interest expense divided by net interest income plus noninterest income. For the Nine Months Ended, Sep 30,
2023 Sep 30,
2022 Change
*Performance Ratios*
Return on average assets, annualized 1.28 % 1.31 % (0.03 )
Return on average equity, annualized 14.34 % 14.95 % (0.61 )
Efficiency ratio ^(1) 64.64 % 64.08 % 0.56
^(1) Non-interest expense divided by net interest income plus noninterest income.
*Balance Sheet Overview*
(Unaudited) Sep 30,
2023 Jun 30,
2023 $
Change %
Change Sep 30,
2022 $
Change %
Change
Assets: (Dollars in thousands, except per share data)
Cash on hand and in banks $ 12,052 $ 14,880 $ (2,828 ) -19 % $ 29,361 $ (17,309 ) -59 %
Interest bearing deposits 146,886 197,952 (51,066 ) -26 % 401,873 (254,987 ) -63 %
Investment securities 289,152 276,366 12,786 5 % 261,165 27,987 11 %
Loans held-for-sale 637 590 47 8 % 700 (63 ) -9 %
Loans, net of deferred fees 671,134 657,950 13,184 2 % 620,850 50,284 8 %
Allowance for loan losses (8,347 ) (8,223 ) (124 ) 2 % (8,249 ) (98 ) 1 %
Net loans 662,787 649,727 13,060 2 % 612,601 50,186 8 %
Federal Home Loan Bank and Pacific Coast Bankers' Bank stock, at cost 2,567 2,567 - % 2,583 (16 ) -1 %
Other assets 67,894 66,473 1,421 2 % 66,990 904 1 %
Total assets $ 1,181,975 $ 1,208,555 $ (26,580 ) -2 % $ 1,375,273 $ (193,298 ) -14 %
Liabilities and Shareholders' Equity:
Total deposits $ 1,051,256 $ 1,077,493 $ (26,237 ) -2 % $ 1,254,323 $ (203,067 ) -16 %
Borrowings 13,403 13,403 - % 13,403 - %
Accrued interest payable and other liabilities 10,715 8,794 1,921 22 % 9,267 1,448 16 %
Shareholders' equity 106,601 108,865 (2,264 ) -2 % 98,280 8,321 8 %
Total liabilities and shareholders' equity $ 1,181,975 $ 1,208,555 $ (26,580 ) -2 % $ 1,375,273 $ (193,298 ) -14 %
Common Shares Outstanding 10,427,224 10,427,224 - % 10,395,110 32,114 %
Book value per common share ^(1) $ 10.22 $ 10.44 $ (0.22 ) -2 % $ 9.45 $ 0.77 8 %
Tangible book value per common share ^(2) $ 8.93 $ 9.15 $ (0.22 ) -2 % $ 8.16 $ 0.77 9 %
^(1) Book value per common share is calculated as the total common shareholders' equity divided by the period ending number of common stock shares outstanding.
^(2) Tangible book value per common share is calculated as the total common shareholders' equity less total intangible assets and liabilities, divided by the period ending number of common stock shares outstanding.
*Income Statement Overview*
(Unaudited) For the Three Months Ended, Sep 30,
2023 Jun 30,
2023 $
Change %
Change Sep 30,
2022 $
Change %
Change (Dollars in thousands, except per share data)
Interest and dividend income $ 14,242 $ 13,735 $ 507 4 % $ 11,177 $ 3,065 27 %
Interest expense 1,962 1,564 398 25 % 298 1,664 558 % Net interest income 12,280 12,171 109 1 % 10,879 1,401 13 %
Loan loss provision 249 71 178 251 % - 249 100 %
Noninterest income 1,610 1,747 (137 ) -8 % 1,692 (82 ) -5 %
Noninterest expense 9,137 8,944 193 2 % 8,950 187 2 %
Income before income taxes 4,504 4,903 (399 ) -8 % 3,621 883 24 %
Income tax expense 859 994 (135 ) -14 % 705 154 22 % Net Income $ 3,645 $ 3,909 $ (264 ) -7 % $ 2,916 $ 729 25 %
Average common shares outstanding - basic 10,427,224 10,424,391 2,833 % 10,393,705 33,519 %
Average common shares outstanding - diluted 10,433,686 10,430,494 3,192 % 10,423,404 10,282 %
Income per common share Basic $ 0.35 $ 0.37 $ (0.02 ) -5 % $ 0.28 $ 0.07 25 % Diluted $ 0.35 $ 0.37 $ (0.02 ) -5 % $ 0.28 $ 0.07 25 %
Effective tax rate 19.1 % 20.3 % -1.2 % 19.5 % -0.4 % For the Nine Months Ended, Sep 30,
2023 Sep 30,
2022 $
Change %
Change (Dollars in thousands, except per share data)
Interest and dividend income $ 41,667 $ 28,800 $ 12,867 45 %
Interest expense 4,119 789 3,330 422 % Net interest income 37,548 28,011 9,537 34 %
Loan loss provision 472 - 472 100 %
Noninterest income 4,644 5,668 (1,024 ) -18 %
Noninterest expense 27,273 26,326 947 4 %
Income before income taxes 14,447 7,353 7,094 96 %
Income tax expense 2,784 1,182 1,602 136 % Net Income $ 11,663 $ 6,171 $ 5,492 89 %
Average common shares outstanding - basic 10,423,335 10,392,325 31,010 %
Average common shares outstanding - diluted 10,432,155 10,423,504 8,651 %
Income per common share Basic $ 1.12 $ 0.59 $ 0.53 90 % Diluted $ 1.12 $ 0.59 $ 0.53 90 %
Effective tax rate 19.3 % 16.1 % 3.2 %
*Noninterest Income*
(Unaudited) For the Three Months Ended, Sep 30,
2023 Jun 30,
2023 $
Change %
Change Sep 30,
2022 $
Change %
Change (Dollars in thousands)
Service charges on deposits $ 514 $ 509 $ 5 1 % $ 415 $ 99 24 %
Gain on sale of loans, net 170 260 (90 ) -35 % 265 (95 ) -36 %
Earnings on bank owned life insurance 174 172 2 1 % 167 7 4 %
Other noninterest income Fee income 734 759 (25 ) -3 % 841 (107 ) -13 % Other 18 47 (29 ) -62 % 4 14 350 %
Total noninterest income $ 1,610 $ 1,747 $ (137 ) -8 % $ 1,692 $ (82 ) -5 % For the Nine Months Ended, Sep 30,
2023 Sep 30,
2022 $
Change %
Change (Dollars in thousands)
Service charges on deposits $ 1,496 $ 1,217 $ 279 23 %
Gain on sale of loans, net 540 1,309 (769 ) -59 %
Gain on sale of securities available for sale, net (154 ) - (154 ) -100 %
Earnings on bank owned life insurance 509 521 (12 ) -2 %
Other noninterest income Fee income 2,199 2,616 (417 ) -16 % Other 54 5 49 980 %
Total noninterest income $ 4,644 $ 5,668 $ (1,024 ) -18 %
*Noninterest Expense*
(Unaudited) For the Three Months Ended, Sep 30,
2023 Jun 30,
2023 $
Change %
Change Sep 30,
2022 $
Change %
Change (Dollars in thousands)
Salaries and employee benefits $ 5,560 $ 5,661 $ (101 ) -2 % $ 5,792 $ (232 ) -4 %
Occupancy 501 504 (3 ) -1 % 489 12 2 %
Equipment 252 269 (17 ) -6 % 289 (37 ) -13 %
Data processing 925 922 3 % 881 44 5 %
Professional services 193 204 (11 ) -5 % 154 39 25 %
State and local taxes 446 207 239 115 % 176 270 153 %
FDIC and State assessments 140 154 (14 ) -9 % 93 47 51 %
Other noninterest expense: Director fees 84 76 8 11 % 62 22 35 % Communication 67 62 5 8 % 60 7 12 % Advertising 103 52 51 98 % 95 8 8 % Professional liability insurance 70 69 1 1 % 67 3 4 % Amortization 43 43 - % 45 (2 ) -4 % Other 753 721 32 4 % 747 6 1 %
Total noninterest expense $ 9,137 $ 8,944 $ 193 2 % $ 8,950 $ 187 2 % For the Nine Months Ended, Sep 30,
2023 Sep 30,
2022 $
Change %
Change (Dollars in thousands)
Salaries and employee benefits $ 17,006 $ 16,969 $ 37 %
Occupancy 1,536 1,515 21 1 %
Equipment 808 887 (79 ) -9 %
Data processing 2,799 2,625 174 7 %
Professional services 638 551 87 16 %
State and local taxes 831 495 336 68 %
FDIC and State assessments 448 294 154 52 %
Other noninterest expense: Director fees 230 211 19 9 % Communication 188 195 (7 ) -4 % Advertising 214 238 (24 ) -10 % Professional liability insurance 206 189 17 9 % Amortization 131 138 (7 ) -5 % Other 2,238 2,019 219 11 %
Total noninterest expense $ 27,273 $ 26,326 $ 947 4 %
*Investment Securities*
(Unaudited) Sep 30,
2023 % of
Total Jun 30,
2023 % of
Total $
Change %
Change Sep 30,
2022 % of
Total $
Change %
Change (Dollars in thousands)
Investment securities:
Collateralized mortgage obligations $ 126,376 44 % $ 117,448 43 % $ 8,928 8 % $ 78,741 30 % $ 47,635 60 %
Mortgage backed securities 38,322 13 % 31,346 11 % 6,976 22 % 33,415 13 % 4,907 15 %
U.S. Government and agency securities 82,292 28 % 83,319 30 % (1,027 ) -1 % 84,028 32 % (1,736 ) -2 %
Municipal securities 42,162 15 % 44,253 16 % (2,091 ) -5 % 62,986 24 % (20,824 ) -33 %
Corporate debt securities - % - % - % 1,995 1 % (1,995 ) -100 % Total $ 289,152 100 % $ 276,366 100 % $ 12,786 5 % $ 261,165 100 % $ 27,987 11 %
Held to maturity securities $ 56,469 20 % $ 57,464 21 % $ (995 ) -2 % $ 60,722 23 % $ (4,253 ) -7 %
Available for sale securities $ 232,683 80 % $ 218,902 79 % $ 13,781 6 % $ 200,443 77 % $ 32,240 16 %
Government & Agency securities $ 246,956 85 % $ 232,076 84 % $ 14,880 6 % $ 196,136 75 % $ 50,820 26 %
AAA, AA, A rated securities $ 41,025 14 % $ 43,086 16 % $ (2,061 ) -5 % $ 63,679 24 % $ (22,654 ) -36 %
Non-rated securities $ 1,171 1 % $ 1,204 % $ (33 ) -3 % $ 1,350 1 % $ (179 ) -13 %
AFS Unrealized Gain (Loss) $ (29,783 ) -10 % $ (23,900 ) -9 % $ (5,883 ) -1 % $ (26,090 ) -10 % $ (3,693 ) %
*Loans by Category*
(Unaudited) Sep 30,
2023 % of
Gross
Loans Jun 30,
2023 % of
Gross
Loans $
Change %
Change Sep 30,
2022 % of
Gross
Loans $
Change %
Change
Commercial: (Dollars in thousands) Commercial and agricultural $ 72,901 11 % $ 70,422 11 % $ 2,479 4 % $ 73,788 12 % $ (887 ) -1 % PPP 331 % 370 % (39 ) -11 % 553 % (222 ) -40 %
Real estate:
Construction and development 42,584 6 % 37,781 6 % 4,803 13 % 35,500 6 % 7,084 20 %
Residential 1-4 family 90,449 14 % 87,002 13 % 3,447 4 % 79,497 13 % 10,952 14 %
Multi-family 49,092 7 % 44,854 7 % 4,238 9 % 41,473 7 % 7,619 18 %
Commercial real estate -- owner occupied 164,057 25 % 166,594 24 % (2,537 ) -2 % 150,598 24 % 13,459 9 %
Commercial real estate -- non owner occupied 154,993 23 % 155,002 24 % (9 ) % 149,627 24 % 5,366 4 %
Farmland 27,641 4 % 25,936 4 % 1,705 7 % 25,140 4 % 2,501 10 %
Consumer 69,921 10 % 70,738 11 % (817 ) -1 % 65,365 10 % 4,556 7 % Gross Loans 671,969 100 % 658,699 100 % 13,270 2 % 621,541 100 % 50,428 8 % Less: allowance for loan losses (8,347 ) (8,223 ) (124 ) (8,249 ) (98 ) Less: deferred fees (835 ) (749 ) (86 ) (691 ) (144 ) Net loans $ 662,787 $ 649,727 $ 13,060 $ 612,601 $ 50,186
*Loan Concentration*
(Unaudited) Sep 30,
2023 % of Risk Based
Capital Jun 30,
2023 % of Risk Based
Capital Change Sep 30,
2022 % of Risk Based
Capital Change
Commercial: (Dollars in thousands) Commercial and agricultural $ 72,901 53 % $ 70,422 52 % 1 % $ 73,788 58 % -5 % PPP 331 % 370 % % 553 % %
Real estate:
Construction and development 42,584 31 % 37,781 28 % 3 % 35,500 28 % 3 %
Residential 1-4 family 90,449 66 % 87,002 64 % 2 % 79,497 63 % 3 %
Multi-family 49,092 36 % 44,854 33 % 3 % 41,473 33 % 3 %
Commercial real estate -- owner occupied 164,057 119 % 166,594 123 % -4 % 150,598 119 % %
Commercial real estate -- non owner occupied 154,993 113 % 155,002 115 % -2 % 149,627 118 % -5 %
Farmland 27,641 20 % 25,936 19 % 1 % 25,140 20 % %
Consumer 69,921 51 % 70,738 52 % -1 % 65,365 52 % -1 % Gross Loans $ 671,969 $ 658,699 $ 621,541
Regulatory Commercial Real Estate $ 244,277 178 % $ 235,318 174 % 4 % $ 224,100 177 % 1 %
Total Risk Based Capital* $ 137,473 $ 135,106 $ 126,526
*Bank of the Pacific
The following table presents the Commercial real estate – non owner occupied loan balances, including loans in the process of construction and development, by collateral type:
*Non-Owner Occupied Commercial Real Estate Composition**
(Unaudited) Sep 30,
2023 % of Total
Multifamily $ 54,677 26 %
Hospitality 32,190 15 %
Retail 28,657 13 %
Office 27,075 13 %
Mixed Use 22,457 11 %
Mini Storage 20,977 10 %
Industrial 10,898 5 %
Special Purpose 7,146 3 %
Warehouse 6,204 3 %
Other 3,380 1 %
Total $ 213,661
*Includes loans in the process of construction and development
*Deposits by Category*
(Unaudited) Sep 30,
2023 % of
Total Jun 30,
2023 % of
Total $
Change %
Change Sep 30,|
2022 % of
Total $
Change %
Change (Dollars in thousands)
Interest-bearing demand $ 208,091 20 % $ 226,696 22 % $ (18,605 ) -8 % $ 268,874 20 % $ (60,783 ) -23 %
Money market 179,367 17 % 177,210 16 % 2,157 1 % 208,486 17 % (29,119 ) -14 %
Savings 138,981 13 % 151,406 14 % (12,425 ) -8 % 184,229 16 % (45,248 ) -25 %
Time deposits (CDs) 92,720 9 % 75,403 7 % 17,317 23 % 52,550 4 % 40,170 76 %
Total interest-bearing deposits 619,159 59 % 630,715 59 % (11,556 ) -2 % 714,139 57 % (94,980 ) -13 %
Non-interest bearing demand 432,097 41 % 446,778 41 % (14,681 ) -3 % 540,184 43 % (108,087 ) -20 %
Total deposits $ 1,051,256 100 % $ 1,077,493 100 % $ (26,237 ) -2 % $ 1,254,323 100 % $ (203,067 ) -16 %
Insured Deposits $ 666,308 63 % $ 678,027 63 % $ (11,719 ) -2 % $ 744,406 59 % $ (78,098 ) -10 %
Collaterialized Deposits 152,960 15 % 161,482 15 % (8,522 ) -5 % 151,293 12 % 1,667 1 %
Uninsured Deposits 231,988 22 % 237,984 22 % (5,996 ) -3 % 358,624 29 % (126,636 ) -35 %
Total Deposits $ 1,051,256 100 % $ 1,077,493 100 % $ (26,237 ) -2 % $ 1,254,323 100 % $ (203,067 ) -16 %
Consumer Deposits $ 466,877 44 % $ 479,665 45 % $ (12,788 ) -3 % $ 549,581 44 % $ (82,704 ) -15 %
Business Deposits 429,443 41 % 427,025 40 % 2,418 1 % 544,349 43 % (114,906 ) -21 %
Public Deposits 154,936 15 % 170,803 15 % (15,867 ) -9 % 160,393 13 % (5,457 ) -3 %
Total Deposits $ 1,051,256 100 % $ 1,077,493 100 % $ (26,237 ) -2 % $ 1,254,323 100 % $ (203,067 ) -16 %
The following table summarizes the capital measures of the Company and the Bank respectively, at the dates listed below.
*Capital Measures*
(unaudited) Sep 30,
2023 Jun 30,
2023 Change Sep 30,
2022 Change Well
Capitalized
Under Prompt
Correction
Action
Regulations
*Pacific Financial Corporation*
Total risk-based capital ratio 17.6 % 17.8 % (0.2 ) 17.4 % 0.2 N/A
Tier 1 risk-based capital ratio 16.5 % 16.6 % (0.1 ) 16.2 % 0.3 N/A
Common equity tier 1 ratio 14.8 % 14.9 % (0.1 ) 14.4 % 0.4 N/A
Leverage ratio 10.7 % 10.8 % (0.1 ) 8.7 % 2.0 N/A
Tangible common equity ratio 8.0 % 8.0 % - 6.2 % 1.8 N/A
*Bank of the Pacific*
Total risk-based capital ratio 17.6 % 17.7 % (0.1 ) 17.3 % 0.3 10.5%
Tier 1 risk-based capital ratio 16.4 % 16.5 % (0.1 ) 16.2 % 0.2 8.5%
Common equity tier 1 ratio 16.4 % 16.5 % (0.1 ) 16.2 % 0.2 7.0%
Leverage ratio 10.6 % 10.5 % 0.1 8.8 % 1.8 7.5%
The following tables set forth information regarding average balances of interest-earning assets and interest-bearing liabilities and the resultant yields or cost, and the net interest margin on a tax equivalent basis. Loans held for sale and non-accrual loans are included in total loans.
*Net Interest Margin*
(Unaudited)
(Annualized, tax-equivalent basis) For the Three Months Ended, Sep 30,
2023 Jun 30,
2023 $
Change %
Change Sep 30,
2022 $
Change %
Change
*Average Balances* (Dollars in thousands)
Gross loans $ 665,300 $ 651,472 $ 13,828 2 % $ 610,146 $ 55,154 9 %
Loans held for sale $ 497 $ 722 $ (225 ) -31 % $ 1,448 $ (951 ) -66 %
Investment securities $ 284,041 $ 284,902 $ (861 ) % $ 274,773 $ 9,268 3 %
Federal funds sold & interest bearing deposits in banks $ 172,119 $ 196,409 $ (24,290 ) -12 % $ 387,437 $ (215,318 ) -56 %
Total interest-earning assets $ 1,121,957 $ 1,133,505 $ (11,548 ) -1 % $ 1,273,804 $ (151,847 ) -12 %
Non-interest bearing demand deposits $ 441,782 $ 448,788 $ (7,006 ) -2 % $ 521,119 $ (79,337 ) -15 %
Interest bearing deposits $ 619,183 $ 624,051 $ (4,868 ) -1 % $ 702,476 $ (83,293 ) -12 %
Total Deposits $ 1,060,965 $ 1,072,839 $ (11,874 ) -1 % $ 1,223,595 $ (162,630 ) -13 %
Borrowings $ 13,403 $ 13,403 $ - % $ 13,451 $ (48 ) %
Total interest-bearing liabilities $ 632,586 $ 637,454 $ (4,868 ) -1 % $ 715,927 $ (83,341 ) -12 %
Total Equity $ 109,872 $ 109,662 $ 210 % $ 103,945 $ 5,927 6 % For the Three Months Ended, Sep 30,
2023 Jun 30,
2023 Change Sep 30,
2022 Change
Yield on average gross loans ^(1) 5.71 % 5.55 % 0.16 4.80 % 0.91
Yield on average investment securities ^(1) 3.36 % 3.21 % 0.15 2.33 % 1.03
Yield on Fed funds sold & interest bearing deposits in banks 5.35 % 5.09 % 0.26 2.31 % 3.04
Cost of average interest bearing deposits 1.10 % 0.86 % 0.24 0.09 % 1.01
Cost of average borrowings 7.28 % 6.67 % 0.61 3.86 % 3.42
Cost of average total deposits and borrowings 0.72 % 0.58 % 0.14 0.10 % 0.62
Yield on average interest-earning assets 5.06 % 4.88 % 0.18 3.51 % 1.55
Cost of average interest-bearing liabilities 1.23 % 0.98 % 0.25 0.16 % 1.07
Net interest spread 3.83 % 3.90 % (0.07 ) 3.35 % 0.48
Net interest margin ^(1) 4.37 % 4.33 % 0.04 3.42 % 0.95
^(1) Tax-exempt income has been adjusted to a tax equivalent basis at a rate of 21%. For the Nine Months Ended, Sep 30,
2023 Sep 30,
2022 $
Change %
Change
*Average Balances* (Dollars in thousands)
Gross loans $ 653,619 $ 612,922 $ 40,697 7 %
Loans held for sale $ 601 $ 2,551 $ (1,950 ) -76 %
Investment securities $ 285,538 $ 258,953 $ 26,585 10 %
Federal funds sold & interest bearing deposits in banks $ 206,259 $ 382,835 $ (176,576 ) -46 %
Interest-earning assets $ 1,146,017 $ 1,257,261 $ (111,244 ) -9 %
Non-interest bearing demand deposits $ 457,750 $ 503,710 $ (45,960 ) -9 %
Interest bearing deposits $ 628,978 $ 696,866 $ (67,888 ) -10 %
Total Deposits $ 1,086,728 $ 1,200,576 $ (113,848 ) -9 %
Borrowings $ 13,401 $ 13,656 $ (255 ) -2 %
Interest-bearing liabilities $ 642,379 $ 710,522 $ (68,143 ) -10 %
Total Equity $ 108,727 $ 108,467 $ 260 % For the Nine Months Ended, Sep 30,
2023 Sep 30,
2022 Change
*Net Interest Margin*
Yield on average gross loans ^(1) 5.57 % 4.77 % 0.80
Yield on average investment securities ^(1) 3.26 % 2.02 % 1.24
Yield on Fed funds sold & interest bearing deposits in banks 4.97 % 1.13 % 3.84
Cost of average interest bearing deposits 0.73 % 0.10 % 0.63
Cost of average borrowings 6.80 % 2.75 % 4.05
Cost of average total deposits and borrowings 0.50 % 0.09 % 0.41
Yield on average interest-earning assets 4.88 % 3.09 % 1.79
Cost of average interest-bearing liabilities 0.86 % 0.15 % 0.71
Net interest spread 4.02 % 2.94 % 1.08
Net interest margin ^(1) 4.40 % 3.01 % 1.39
^(1) Tax-exempt income has been adjusted to a tax equivalent basis at a rate of 21%.
*Adversely Classified Loans and Securities*
(Unaudited) Sep 30,
2023 Jun 30,
2023 $
Change %
Change Sep 30,
2022 $
Change %
Change (Dollars in thousands)
Rated substandard or worse, but not impaired, beginning of three month period $ 5,186 $ 4,755 $ 431 9 % $ 7,100 $ (1,914 ) -27 %
Addition of previously classified pass graded loans 107 981 (874 ) -89 % 365 (258 ) -71 %
Upgrades to pass or other loans especially mentioned status - - - % (4,536 ) 4,536 -100 %
Moved to nonaccrual - - - % - - %
Principal payments, net (221 ) (550 ) 329 -60 % (115 ) (106 ) 92 %
Rated substandard or worse, but not impaired, end of three month period $ 5,072 $ 5,186 $ (114 ) -2 % $ 2,814 $ 2,258 80 %
Impaired 1,219 959 260 27 % 2,499 (1,280 ) -51 %
Total adversely classified loans¹ $ 6,291 $ 6,145 $ 146 2 % $ 5,313 $ 978 18 %
Other loans especially mentioned or watch, but not impaired $ 13,148 $ 13,097 $ 51 % $ 31,452 $ (18,304 ) -58 %
Gross loans (excluding deferred loan fees) $ 671,969 $ 658,699 $ 13,270 2 % $ 621,541 $ 50,428 8 %
Adversely classified loans to gross loans 0.94 % 0.93 % 0.85 %
Allowance for loan losses $ 8,347 $ 8,223 $ 124 2 % $ 8,249 $ 98 1 %
Allowance for loan losses as a percentage of adversely classified loans 132.68 % 133.82 % 155.26 %
Allowance for loan losses to total impaired loans 684.74 % 857.46 % 330.09 %
Adversely classified loans to total assets 0.53 % 0.51 % 0.39 %
Delinquent loans to gross loans, not in nonaccrual status ^2 0.25 % 0.01 % 0.01 %
^1 Adversely classified loans are defined as loans having a well-defined weakness or weaknesses related to the borrower's financial capacity or to pledged collateral that may
jeopardize the repayment of the debt. They are characterized by the possibility that the Bank may sustain some loss if the deficiencies giving rise to the substandard
classification are not corrected. Note that any loans internally rated worse than substandard are included in the impaired loan totals.
^2 Delinquent loans are defined as loans past due 30-90 days and still accruing
*Nonperforming Assets*
(Unaudited) Sep 30,
2023 Jun 30,
2023 $
Change %
Change Sep 30,
2022 $
Change %
Change (Dollars in thousands)
Total nonaccrual loans, beginning of three month period $ 959 $ 961 $ (2 ) % $ 1,240 $ (281 ) -23 %
Transfer to performing loans - - - % (334 ) 334 -100 %
Addition of nonaccrual loans 288 93 195 210 % - 288 100 %
Moved to other assets owned - - - % - - %
Principal payments, net (28 ) (95 ) 67 -71 % (7 ) (21 ) 300 %
Charge-offs, net - - - % - - %
Total nonaccrual loans, end of three month period $ 1,219 $ 959 $ 260 27 % $ 899 $ 320 36 %
Other real estate owned and foreclosed assets - - - % 90 (90 ) -100 %
Total nonperforming assets $ 1,219 $ 959 $ 260 27 % $ 989 $ 230 23 %
Accruing loans past due 90 days or more $ - $ - $ - % $ - $ - %
Percentage of nonperforming assets to total assets 0.10 % 0.08 % 0.07 %
Nonperforming loans to total loans 0.18 % 0.15 % 0.14 %
*Allowance for Credit Losses*
(Unaudited) For the Three Months Ended, Sep 30,
2023 Jun 30,
2023 $
Change %
Change Sep 30,
2022 $
Change %
Change (Dollars in thousands)
Gross loans outstanding at end of period $ 671,969 $ 658,699 $ 13,270 2 % $ 621,541 $ 50,428 8 %
Average loans outstanding, gross $ 665,300 $ 651,472 $ 13,828 2 % $ 610,146 $ 55,154 9 %
Allowance for credit losses, beginning of period $ 8,223 $ 8,231 $ (8 ) % $ 8,282 $ (59 ) -1 %
Impact of CECL Adoption (ASC 326) - - - % - - %
Commercial - (84 ) 84 -100 % - - %
Commercial Real Estate - - - % - - %
Residential Real Estate - - - % - - %
Consumer (126 ) (10 ) (116 ) 1160 % (34 ) (92 ) 271 %
Total charge-offs (126 ) (94 ) (32 ) 34 % (34 ) (92 ) 271 %
Commercial - - - % - - %
Commercial Real Estate - - - % - - %
Residential Real Estate - - - % - - %
Consumer 1 15 (14 ) -93 % 1 - %
Total recoveries 1 15 (14 ) -93 % 1 - %
Net recoveries/(charge-offs) (125 ) (79 ) (46 ) 58 % (33 ) (92 ) 279 %
Provision (benefit) to income 249 71 178 251 % - 249 100 %
Allowance for credit losses, end of period $ 8,347 $ 8,223 $ 124 2 % $ 8,249 $ 98 1 %
Ratio of net loans charged-off to average
gross loans outstanding, annualized 0.07 % 0.05 % 0.02 % 0.02 % 0.05 %
Ratio of allowance for credit losses to
gross loans outstanding 1.24 % 1.25 % -0.01 % 1.33 % -0.09 % For the Nine Months Ended, Sep 30,
2023 Sep 30,
2022 $
Change %
Change (Dollars in thousands)
Gross loans outstanding at end of period $ 671,969 $ 621,541 $ 50,428 8 %
Average loans outstanding, gross $ 653,619 $ 612,922 $ 40,697 7 %
Allowance for credit losses, beginning of period $ 8,236 $ 8,297 $ (61 ) -1 %
Impact of CECL Adoption (ASC 326) (157 )
Commercial (84 ) - (84 ) -100 %
Commercial Real Estate - - - %
Residential Real Estate - - - %
Consumer (175 ) (76 ) (99 ) 130 %
Total charge-offs (259 ) (76 ) (183 ) 241 %
Commercial 27 - 27 100 %
Commercial Real Estate - - - %
Residential Real Estate - - - %
Consumer 28 28 - %
Total recoveries 55 28 27 96 %
Net recoveries (charge-offs) (204 ) (48 ) (156 ) 325 %
Provision (benefit) to income 472 - 472 100 %
Allowance for credit losses, end of period $ 8,347 $ 8,249 $ 98 1 %
Ratio of net loans charged-off to average
gross loans outstanding, annualized 0.04 % 0.01 % 0.03 %
Ratio of allowance for credit losses to
gross loans outstanding 1.24 % 1.33 % -0.09 %
*ABOUT PACIFIC FINANCIAL CORPORATION*
Pacific Financial Corporation of Aberdeen, Washington, is the bank holding company for Bank of the Pacific, a state chartered and federally insured commercial bank. Bank of the Pacific offers banking products and services to small-to-medium sized businesses and professionals in western Washington and Oregon. At September 30, 2023, the Company had total assets of $1.18 billion and operated fourteen branches in the communities of Grays Harbor, Pacific, Whatcom, Skagit, Clark and Wahkiakum counties in the State of Washington, and two branches in Clatsop County, Oregon. The Company also operated loan production offices in the communities of Olympia and Burlington, Washington and Salem, Oregon. Visit the Company’s website at www.bankofthepacific.com. Member FDIC.
*Cautions Concerning Forward-Looking Statements*
This press release contains statements that constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and other laws, including all statements in this release that are not historical facts or that relate to future plans or events or projected results of Pacific Financial Corporation and its wholly-owned subsidiary, Bank of the Pacific. Such statements are based on information available at the time of communication and are based on current beliefs and expectations of the Company’s management and are subject to risks and uncertainties, many of which are beyond our control, which could cause actual events or results to differ materially from those projected, anticipated or implied, and could negatively impact the Company’s operating and stock price performance. These risks and uncertainties include various risks associated with growing the Bank and expanding the services it provides, development of new business lines and markets, competition in the marketplace, general economic conditions, including the COVID-19 pandemic and government responses thereto, changes in interest rates, extensive and evolving regulation of the banking industry, and many other risks. Any forward-looking statements in this communication are based on information at the time the statement is made. We undertake no obligation to update or revise any forward-looking statement. Readers of this release are cautioned not to put undue reliance on forward-looking statements.