Pacific Financial Corp Earns $2.9 Million, or $0.28 per Diluted Share, for Fourth Quarter 2023, and Record Earnings of $14.6 Million, or $1.40 per Diluted Share, for the full year ended December 31, 2023; Declares Quarterly Cash Dividend of $0.14 per Sha
ABERDEEN, Wash., Jan. 26, 2024 (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 $2.9 million, or $0.28 per diluted share for the fourth quarter of 2023, compared to $3.6 million, or $0.35 per diluted share for the third quarter of 2023, and $4.7 million, or $0.45 per diluted share for the fourth quarter of 2022. For the year ended December 31, 2023, net income was $14.6 million, or $1.40 per diluted share, compared to $10.9 million, or $1.04 per diluted share, for the full year of 2022. All results are unaudited. The board of directors of Pacific Financial declared a quarterly cash dividend of $0.14 per share on January 24, 2024. The dividend will be payable on February 23, 2024 to shareholders of record on February 9, 2024.
“We’re pleased to report another solid quarter, fueling record earnings for the full year of 2023,” said Denise Portmann, President and Chief Executive Officer. “Fourth quarter earnings benefitted from higher yields on interest earning assets as well as strong loan growth, and our full year results were highlighted by pre-provision earnings growth, driven by strong net interest income growth and a wider net interest margin. Current quarter net interest margin was at 4.34%, only a slight decline of 3 basis points from the prior quarter. Credit quality remains solid, with continued low levels of adversely classified and nonperforming loans.”
“Loan growth was strong, increasing 7% year-over-year and 2% over the linked quarter, and we continue to be optimistic about loan demand in our markets,” said Portmann. “We recently announced a new commercial banking center in Lake Oswego, Oregon, supported by a new team of seven seasoned commercial bankers who have established ties to the Portland market and its community. We look forward to the opportunities this new market presents and to establishing new customer relationships within the greater Portland region. This expansion into these new markets aligns with our long-term goals and strategic plans.”
*Fourth Quarter 2023 Financial Highlights: *
· Return on average assets (“ROAA”) was 1.02%, compared to 1.21% for the third quarter 2023, and 1.41% for the fourth quarter 2022.
· Return on average equity (“ROAE”) was 10.88%, compared to 13.16% from the preceding quarter, and 18.70% from the fourth quarter a year earlier.
· Net interest income was $11.7 million, compared to $12.3 million for the third quarter of 2023, and $12.9 million for the fourth quarter 2022.
· Net interest margin (“NIM”) contracted 3 basis points to 4.34%, compared to 4.37% from the preceding quarter, and expanded 22 basis points from 4.12% for the fourth quarter a year ago.
· Provision for credit losses was $111,000 compared to $244,000 for the preceding quarter and no provision in the fourth quarter a year ago.
· Gross loans balances increased $13.4 million, or 2%, to $685.3 million at December 31, 2023, compared to $672.0 from the preceding quarter end and increased 7%, or $44.6 million, compared to $640.7 million at December 31, 2022.
· Total deposits declined $42.0 million to $1.01 billion, compared to $1.05 billion from the third quarter 2023, with core deposits representing 90% of total deposits at December 31, 2023. Non-interest bearing deposits represented 41% of total deposits at December 31, 2023.
· Asset quality remains solid with nonperforming assets to total assets at 0.06%, compared to nonperforming assets to total assets at 0.10% for the preceding quarter, and 0.07% at December 31, 2022.
· At December 31, 2023, Pacific Financial continued to exceed regulatory well-capitalized requirements with a leverage ratio of 11.3% and a total risk-based capital ratio of 17.7%.*Income Statement Review*
*Net interest income* declined 5% to $11.7 million for the current quarter, compared to $12.3 million for the third quarter of 2023, and declined 10% from $12.9 million for the fourth quarter of 2022. For the current quarter, interest and fees on loans continued to increase as a result of both balance and yield increases. These increases were partially offset by deposit interest expense increases as well as the decrease in interest income on interest bearing bank balances. For the year ended December 31, 2023, net interest income increased 20%, or $8.3 million, to $49.2 million compared to $40.9 million for the year 2022.
Net interest margin (NIM) contracted 3 basis points to 4.34% for the fourth quarter of 2023, compared to 4.37% for the third quarter of 2023, primarily due to a higher cost of funds. The NIM expanded 22 basis points in the current quarter compared to 4.12% for the fourth quarter of 2022. Higher market interest rates during most of the year combined with growth of investments and loan balances positively impacted NIM for the current quarter and for the year ended December 31, 2023. For the year ended December 31, 2023, the NIM expanded 110 basis points to 4.39% from 3.29% for the year ended December 31, 2022.
The increase in average yields on interest-earning assets during the current quarter and for the year 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 9 basis points to 5.80% compared to the preceding quarter of 5.71%, and increased 62 basis points from 5.18% from the fourth quarter 2022. In addition, the yield on interest-bearing bank deposits was 5.42% for the current quarter, compared to 5.35% for the preceding quarter, and 3.72% for the fourth quarter 2022. The Bank’s total cost of funds increased to 0.83% for the current quarter, compared to 0.72% for the preceding quarter, and 0.14% for the fourth quarter 2022. Our deposit offering rates have remained relatively unchanged since end of May 2023.
*Noninterest income* decreased to $1.5 million for the current quarter, compared to $1.6 million for the linked quarter and for the fourth quarter a year earlier. On a year-over-year basis, 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 $354,000 or 22% from a year ago. Higher mortgage interest rates and housing prices during most of 2023 continued to negatively impact loan origination volumes for our mortgage banking division and, as a result, gain-on-sale of loans remained at the low end of historic levels. For the year ended December 31, 2023, noninterest income declined 15% to $6.2 million compared to $7.2 million for the year ended December 31, 2022, primarily due to lower gain on sale of loans.
*Noninterest expense *increased 4% to $9.5 million for the fourth quarter of 2023, compared to $9.1 million for the third quarter of 2023, and increased 10% from $8.6 million for the fourth quarter of 2022. Current quarter increases compared to the linked quarter and quarter a year ago were primarily a result of increases in salary and employee benefit costs from salary, recruitment and other hiring costs for the new commercial banking team as well as increased occupancy costs from the relocation of the Vancouver Commercial Banking Center and the Olympia branch. In addition, compared to the quarter a year ago, marketing, professional services and state and local taxes were up for the current quarter.
Noninterest expense for the year ended December 31, 2023 increased 5% to $36.9 million compared to $35.0 million for 2022, primarily due to increased salary and employee benefits, occupancy, FDIC insurance premiums, state and local taxes and data processing costs. Salary expenses increased by 2% for the full year of 2023 compared to the full year of 2022. Salary expenses comprise a large portion of non-interest expenses and continue to be impacted by competitive recruiting and wage pressures. In addition, similar to the quarter, year-over-year salary expenses were also impacted by recruiting and ongoing costs related to the new commercial banking team and an overall increase in the number of employees. Employee staffing numbers, excluding mortgage banking employees, remained relatively stable during most of the year, however staffing numbers increased 9 FTE in the later part of the year. State and local taxes increased $325,000 year-over-year primarily as a result of accrual of not yet settled tax audit assessment which was fully funded at year end.
Federal and Oregon state income tax expense was $608,000 for the current quarter, and $859,000 for the preceding quarter, resulting in effective tax rates of 17.1% and 19.1%, respectively. These income tax expenses reflect the benefits of tax exempt income and tax credits. Income tax expense for the year ended December 31, 2023, was $3.4 million, and $2.3 million for the year ended December 31, 2022, with an effective tax rate of 18.8% and 17.5%, respectively.
*Balance Sheet Review *
*Total Assets* declined by 3% to $1.15 billion at December 31, 2023, compared to $1.18 billion at September 30, 2023 and decreased 12% from $1.31 billion at December 31, 2022.
*Liquidity metrics* continued to remain strong with:
· Cash and cash equivalents of $95.8 million, or 41% of uninsured and uncollateralized deposits, at December 31, 2023 compared to $148 million at September 30, 2023.
· Coverage of short-term funds available to uninsured and uncollateralized deposits was 243% at December 31, 2023 compared to 254% at September 30, 2023.
· Uninsured or uncollateralized deposits were 23% of total deposits at December 31, 2023 and 22% at September 30, 2023.*Investment Securities* increased 2% to $293.6 million at December 31, 2023, compared to $289.2 million at September 30, 2023, and increased 3% from $286.3 million at December 31, 2022. During the year, new purchases totaled $43.5 million at an average yield of 4.93%. In part due to purchases at higher yields, the average portfolio yield increased to 3.48% from 3.36% for the linked quarter and from 2.81% for the like-quarter a year ago. For the twelve months ended December 31, 2023, yields increased 109 basis points to 3.31% compared to the twelve months ended December 31, 2022. The average adjusted duration of the investment securities portfolio was 4.42 years at December 31, 2023.
*Gross loans balances *increased $13.4 million, or 2%, to $685.3 million at December 31, 2023, compared to $672.0 million at September 30, 2023. Year-over-year loan growth was 7%, or $44.6 million, with loan growth occurring in most categories of loans except consumer and C&I. The largest increases were in construction and development, residential 1-4 family and owner-occupied commercial real estate, and increased $11.4 million, $13.6 million and $10.1 million, respectively. C&I balances were impacted by elevated payoffs during the year and in addition, balances continue to be impacted by low utilization on commercial lines-of credit that began during the pandemic. That utilization rate continues to remain low compared to historic levels.
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 its commercial lending teams. In addition, the loan portfolio continues to be well-diversified and is originated predominantly within the Company’s Western Washington and Oregon markets.
*Credit Quality* metrics remain sound with nonperforming assets declining to $664,000, or 0.06% of total assets, at December 31, 2023, compared to nonperforming assets at $1.2 million, or 0.10% of total assets, at September 30, 2023, and $899,000 million, or 0.07% of total assets, at December 31, 2022. Balances related to non-impaired loans, graded watch or other loans especially mentioned, increased $2 million to $15.1 million at December 31, 2023, compared to $13.1 million at September 30, 2023, and $26.4 million at December 31, 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”) for loans was $8.5 million, or 1.24% of gross loans at December 31, 2023, compared to $8.3 million, or 1.24% of gross loans, at September 30, 2023, and $8.2 million, or 1.29%, at December 31, 2022.
Net recoveries for the current quarter totaled $21,000, compared to $125,000 of net charge-offs for the preceding quarter and $13,000 for the fourth quarter a year earlier. For the year ended December 31, 2023, net charge-offs were $183,000, compared to $61,000 for the year ended December 31, 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 $111,000 in the fourth quarter of 2023, compared to $244,000 in the third quarter of 2023. There was no provision for loan losses booked in the fourth quarter a year ago. There was a $520,000 provision for credit losses on loans and unfunded loan commitments in the year ended December 31, 2023, compared to no provision in year ended December 31, 2022. The provision booked in the current quarter was primarily as a result of a 2% or $13.4 million loan growth during the quarter.
*Total Deposits* were $1.01 billion at December 31, 2023, compared to $1.05 billion at September 30, 2023 and $1.18 billion at December 31, 2022. “Deposit balances continued to be impacted by interest rate sensitive customers transferring a portion of their excess deposits funds into higher yielding investments as well as increased business and customer spending and the general market tightening of liquidity,” stated Carla Tucker, Executive Vice-President and Chief Financial Officer.
As some customers continued to seek higher yield, certificate of deposit balances increased $8.1 million from the linked quarter and $52.1 million from the fourth quarter a year ago and represent 10%, 9%, and 4%, of total deposits, at December 31, 2023, September 30, 2023, and December 31, 2022, respectively. At 41%, non-interest bearing demand deposits continues to represent a high percentage of total deposits.
*Shareholder’s Equity *increased 8% to $114.7 million at December 31, 2023, compared to $106.6 million at September 30, 2023 and increased 11% from $103.2 million at December 31, 2022. Book value per common share was $11.04 at December 31, 2023, compared to $10.22 at September 30, 2023, and $9.91 at December 31, 2022. The increase in shareholder’s equity during the current quarter was due to net income during the quarter plus the decrease in unrealized loss on available-for-sale securities which was partially offset by dividends to shareholders and $399,000 in stock repurchases under the Company’s stock repurchase program. The decrease in the unrealized gain/(loss) on available-for-sale investment securities had a positive impact on the Tangible Common Equity Ratio (TCE) increasing the Company’s tangible common equity ratio to 8.92% at December 31, 2023, compared to 7.97% at September 30, 2023 and from 6.94% at December 31, 2022. The gross unrealized loss on available-for-sale securities was $20.8 million at December 31, 2023, compared to $29.8 million at September 30, 2023, and $24.9 million at December 31, 2022. The decline in longer-term market interest rates during the quarter contributed to this change.
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 11.3% and total risk-based capital ratio at 17.7% as of December 31, 2023.
*Financial Performance Overview*
(Unaudited) For the Three Months Ended Dec 31, 2023 Sep 30, 2023 Change Dec 31, 2022 Change
*Performance Ratios*
Return on average assets, annualized 1.02 % 1.21 % (0.19 ) 1.41 % (0.39 )
Return on average equity, annualized 10.88 % 13.16 % (2.28 ) 18.70 % (7.82 )
Efficiency ratio ^(1) 72.22 % 65.78 % 6.44 59.67 % 12.55
^(1) Non-interest expense divided by net interest income plus noninterest income. For the Twelve Months Ended, Dec 31, 2023 Dec 31, 2022 Change
*Performance Ratios*
Return on average assets, annualized 1.22 % 0.82 % 0.40
Return on average equity, annualized 13.48 % 10.24 % 3.24
Efficiency ratio ^(1) 66.56 % 72.60 % (6.04 )
^(1) Non-interest expense divided by net interest income plus noninterest income.
*Balance Sheet Overview*
(Unaudited) Dec 31,
2023 Sep 30,
2023 $
Change %
Change Dec 31,
2022 $
Change %
Change
Assets: (Dollars in thousands, except per share data) Cash on hand and in banks $ 16,716 $ 12,052 $ 4,664 39 % $ 18,673 $ (1,957 ) -10 % Interest bearing deposits 91,355 146,886 (55,531 ) -38 % 299,813 (208,458 ) -70 % Investment securities 293,579 289,152 4,427 2 % 286,297 7,282 3 % Loans held-for-sale 1,103 637 466 73 % - 1,103 100 % Loans, net of deferred fees 684,554 671,134 13,420 2 % 639,958 44,596 7 % Allowance for loan losses (8,530 ) (8,347 ) (183 ) 2 % (8,236 ) (294 ) 4 % Net loans 676,024 662,787 13,237 2 % 631,722 44,302 7 % Federal Home Loan Bank and Pacific Coast Bankers' Bank stock, at cost 1,783 2,567 (784 ) -31 % 2,583 (800 ) -31 % Other assets 68,339 67,894 445 1 % 67,115 1,224 2 % Total assets $ 1,148,899 $ 1,181,975 $ (33,076 ) -3 % $ 1,306,203 $ (157,304 ) -12 %
Liabilities and Shareholders' Equity: Total deposits $ 1,009,292 $ 1,051,256 $ (41,964 ) -4 % $ 1,180,362 $ (171,070 ) -14 % Borrowings 13,403 13,403 - % 13,403 - % Accrued interest payable and other liabilities 11,513 10,715 798 7 % 9,276 2,237 24 % Shareholders' equity 114,691 106,601 8,090 8 % 103,162 11,529 11 % Total liabilities and shareholders' equity $ 1,148,899 $ 1,181,975 $ (33,076 ) -3 % $ 1,306,203 $ (157,304 ) -12 %
Common Shares Outstanding 10,388,724 10,427,224 (38,500 ) % 10,414,276 (25,552 ) %
Book value per common share ^(1) $ 11.04 $ 10.22 $ 0.82 8 % $ 9.91 $ 1.13 11 %
Tangible book value per common share ^(2) $ 9.75 $ 8.93 $ 0.82 9 % $ 8.62 $ 1.13 13 %
^(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, Dec 31,
2023 Sep 30,
2023 $
Change %
Change Dec 31,
2022 $
Change %
Change (Dollars in thousands, except per share data)
Interest and dividend income $ 13,813 $ 14,242 $ (429 ) -3 % $ 13,352 $ 461 3 %
Interest expense 2,161 1,962 199 10 % 417 1,744 418 % Net interest income 11,652 12,280 (628 ) -5 % 12,935 (1,283 ) -10 %
Provision for credit losses 111 244 (133 ) -55 % - 111 100 %
Noninterest income 1,528 1,610 (82 ) -5 % 1,559 (31 ) -2 %
Noninterest expense 9,519 9,142 377 4 % 8,648 871 10 %
Income before income taxes 3,550 4,504 (954 ) -21 % 5,846 (2,296 ) -39 %
Income tax expense 608 859 (251 ) -29 % 1,129 (521 ) -46 % Net Income $ 2,942 $ 3,645 $ (703 ) -19 % $ 4,717 $ (1,775 ) -38 %
Average common shares outstanding - basic 10,411,812 10,427,224 (15,412 ) % 10,407,967 3,845 %
Average common shares outstanding - diluted 10,420,337 10,433,686 (13,349 ) % 10,426,346 (6,009 ) %
Income per common share Basic $ 0.28 $ 0.35 $ (0.07 ) -20 % $ 0.45 $ (0.17 ) -38 % Diluted $ 0.28 $ 0.35 $ (0.07 ) -20 % $ 0.45 $ (0.17 ) -38 %
Effective tax rate 17.1 % 19.1 % -2.0 % 19.3 % -2.2 % For the Twelve Months Ended, Dec 31,
2023 Dec 31,
2022 $
Change %
Change (Dollars in thousands, except per share data)
Interest and dividend income $ 55,480 $ 42,152 $ 13,328 32 %
Interest expense 6,280 1,206 5,074 421 % Net interest income 49,200 40,946 8,254 20 %
Provision for credit losses 520 - 520 100 %
Noninterest income 6,172 7,227 (1,055 ) -15 %
Noninterest expense 36,856 34,974 1,882 5 %
Income before income taxes 17,996 13,199 4,797 36 %
Income tax expense 3,391 2,311 1,080 47 % Net Income $ 14,605 $ 10,888 $ 3,717 34 %
Average common shares outstanding - basic 10,420,431 10,396,268 24,163 %
Average common shares outstanding - diluted 10,429,187 10,423,301 5,886 %
Income per common share Basic $ 1.40 $ 1.05 $ 0.35 33 % Diluted $ 1.40 $ 1.04 $ 0.36 35 %
Effective tax rate 18.8 % 17.5 % 1.3 %
*Noninterest Income*
(Unaudited) For the Three Months Ended, Dec 31,
2023 Sep 30,
2023 $
Change %
Change Dec 31,
2022 $
Change %
Change (Dollars in thousands)
Service charges on deposits $ 478 $ 514 $ (36 ) -7 % $ 404 $ 74 18 %
Gain on sale of loans, net 95 170 (75 ) -44 % 97 (2 ) -2 %
Earnings on bank owned life insurance 176 174 2 1 % 161 15 9 %
Other noninterest income Fee income 764 734 30 4 % 903 (139 ) -15 % Other 15 18 (3 ) -17 % (6 ) 21 -350 %
Total noninterest income $ 1,528 $ 1,610 $ (82 ) -5 % $ 1,559 $ (31 ) -2 % For the Twelve Months Ended, Dec 31,
2023 Dec 31,
2022 $
Change %
Change (Dollars in thousands)
Service charges on deposits $ 1,975 $ 1,621 $ 354 22 %
Gain on sale of loans, net 635 1,406 (771 ) -55 %
Gain(loss) on sale of securities available for sale, net (154 ) - (154 ) -100 %
Earnings on bank owned life insurance 685 682 3 %
Other noninterest income Fee income 2,963 3,518 (555 ) -16 % Other 68 - 68 100 %
Total noninterest income $ 6,172 $ 7,227 $ (1,055 ) -15 %
*Noninterest Expense*
(Unaudited) For the Three Months Ended, Dec 31,
2023 Sep 30,
2023 $
Change %
Change Dec 31,
2022 $
Change %
Change (Dollars in thousands)
Salaries and employee benefits $ 5,787 $ 5,560 $ 227 4 % $ 5,432 $ 355 7 %
Occupancy 679 501 178 36 % 509 170 33 %
Equipment 301 252 49 19 % 296 5 2 %
Data processing 971 925 46 5 % 881 90 10 %
Professional services 238 193 45 23 % 158 80 51 %
State and local taxes 187 446 (259 ) -58 % 197 (10 ) -5 %
FDIC and State assessments 144 140 4 3 % 107 37 35 %
Other noninterest expense: Director fees 82 84 (2 ) -2 % 68 14 21 % Communication 73 67 6 9 % 61 12 20 % Advertising 114 103 11 11 % (31 ) 145 -468 % Professional liability insurance 79 70 9 13 % 68 11 16 % Amortization 43 43 - % 48 (5 ) -10 % Other 821 758 63 8 % 854 (33 ) -4 %
Total noninterest expense $ 9,519 $ 9,142 $ 377 4 % $ 8,648 $ 871 10 % For the Twelve Months Ended, Dec 31,
2023 Dec 31,
2022 $
Change %
Change (Dollars in thousands)
Salaries and employee benefits $ 22,793 $ 22,401 $ 392 2 %
Occupancy 2,215 2,023 192 9 %
Equipment 1,109 1,184 (75 ) -6 %
Data processing 3,770 3,506 264 8 %
Professional services 875 709 166 23 %
State and local taxes 1,018 693 325 47 %
FDIC and State assessments 592 402 190 47 %
Other noninterest expense: Director fees 312 279 33 12 % Communication 261 256 5 2 % Advertising 328 207 121 58 % Professional liability insurance 285 257 28 11 % Amortization 174 185 (11 ) -6 % Other 3,124 2,872 252 9 %
Total noninterest expense $ 36,856 $ 34,974 $ 1,882 5 %
*Investment Securities*
(Unaudited) Dec 31,
2023 % of
Total Sep 30,
2023 % of
Total $
Change %
Change Dec 31,
2022 % of
Total $
Change %
Change (Dollars in thousands)
Investment securities: Collateralized mortgage obligations $ 126,949 43 % $ 126,376 44 % $ 573 % $ 103,330 36 % $ 23,619 23 % Mortgage backed securities 38,103 13 % 38,322 13 % (219 ) -1 % 32,802 11 % 5,301 16 % U.S. Government and agency securities 83,748 29 % 82,292 28 % 1,456 2 % 83,889 29 % (141 ) % Municipal securities 44,779 15 % 42,162 15 % 2,617 6 % 64,277 22 % (19,498 ) -30 % Corporate debt securities - % - % - % 1,999 1 % (1,999 ) -100 % Total $ 293,579 100 % $ 289,152 100 % $ 4,427 2 % $ 286,297 100 % $ 7,282 3 % Held to maturity securities $ 55,454 19 % $ 56,469 20 % $ (1,015 ) -2 % $ 59,513 21 % $ (4,059 ) -7 % Available for sale securities $ 238,125 81 % $ 232,683 80 % $ 5,442 2 % $ 226,784 79 % $ 11,341 5 % Government & Agency securities $ 248,768 85 % $ 246,956 85 % $ 1,812 1 % $ 219,982 77 % $ 28,786 13 % AAA, AA, A rated securities $ 43,687 15 % $ 41,025 14 % $ 2,662 6 % $ 65,024 23 % $ (21,337 ) -33 % Non-rated securities $ 1,124 1 % $ 1,171 1 % $ (47 ) -4 % $ 1,291 % $ (167 ) -13 % AFS Unrealized Gain (Loss) $ (20,808 ) -7 % $ (29,783 ) -10 % $ 8,975 3 % $ (24,927 ) -9 % $ 4,119 2 %
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) Dec 31,
2023 % of
Deposits Sep 30,
2023 % of
Deposits $
Change %
Change Dec 31,
2022 % of
Deposits $
Change %
Change (Dollars in thousands)
Cash and cash equivalents $ 95,781 9 % $ 147,970 14 % $ (52,189 ) -35 % $ 302,178 26 % $ (206,397 ) -68 %
Unencumbered AFS Securities 140,049 14 % 123,842 12 % 16,207 13 % 133,892 11 % 6,157 5 %
Secured lines of Credit (FHLB, FRB) 327,264 32 % 318,557 30 % 8,707 3 % 253,387 21 % 73,877 29 % Total short-term funds available $ 563,094 56 % $ 590,369 56 % $ (27,275 ) -5 % $ 689,457 58 % $ (126,363 ) -18 % Dec 31, 2023 Sep 30, 2023 Dec 31, 2022
Short-term funds available to uninsured/uncollateralized deposits 243 % 254 % 222 %
Uninsured/uncollateralized deposits to total deposits 23 % 22 % 26 %
Gross loans to deposits ratio 67 % 63 % 54 %
*Loans by Category*
(Unaudited) Dec 31,
2023 % of
Gross
Loans Sep 30,
2023 % of
Gross
Loans $
Change %
Change Dec 31,
2022 % of
Gross
Loans $
Change %
Change
Commercial: (Dollars in thousands) Commercial and agricultural $ 75,322 11 % $ 72,901 11 % $ 2,421 3 % $ 75,705 12 % $ (383 ) -1 % PPP 122 % 331 % (209 ) -63 % 515 % (393 ) -76 %
Real estate:
Construction and development 48,720 7 % 42,584 6 % 6,136 14 % 37,287 6 % 11,433 31 %
Residential 1-4 family 96,301 14 % 90,449 14 % 5,852 6 % 82,653 13 % 13,648 17 %
Multi-family 51,025 7 % 49,092 7 % 1,933 4 % 41,122 6 % 9,903 24 %
Commercial real estate -- owner occupied 164,443 24 % 164,057 25 % 386 % 154,380 24 % 10,063 7 %
Commercial real estate -- non owner occupied 155,280 23 % 154,993 23 % 287 % 153,707 24 % 1,573 1 %
Farmland 27,273 4 % 27,641 4 % (368 ) -1 % 26,935 4 % 338 1 %
Consumer 66,863 10 % 69,921 10 % (3,058 ) -4 % 68,412 11 % (1,549 ) -2 % Gross Loans 685,349 100 % 671,969 100 % 13,380 2 % 640,716 100 % 44,633 7 % Less: allowance for loan losses (8,530 ) (8,347 ) (183 ) (8,236 ) (294 ) Less: deferred fees (795 ) (835 ) 40 (758 ) (37 ) Net loans $ 676,024 $ 662,787 $ 13,237 $ 631,722 $ 44,302
*Loan Concentration*
(Unaudited) Dec 31,
2023 % of Risk
Based
Capital Sep 30,
2023 % of Risk
Based
Capital Change Dec 31,
2022 % of Risk
Based
Capital Change
Commercial: (Dollars in thousands) Commercial and agricultural $ 75,322 54 % $ 72,901 53 % 1 % $ 75,705 58 % -4 % PPP 122 % 331 % % 515 % %
Real estate:
Construction and development 48,720 35 % 42,584 31 % 4 % 37,287 29 % 6 %
Residential 1-4 family 96,301 70 % 90,449 66 % 4 % 82,653 64 % 6 %
Multi-family 51,025 37 % 49,092 36 % 1 % 41,122 32 % 5 %
Commercial real estate -- owner occupied 164,443 119 % 164,057 119 % % 154,380 119 % %
Commercial real estate -- non owner occupied 155,280 112 % 154,993 113 % -1 % 153,707 119 % -7 %
Farmland 27,273 20 % 27,641 20 % % 26,935 21 % -1 %
Consumer 66,863 48 % 69,921 51 % -3 % 68,412 53 % -5 % Gross Loans $ 685,349 $ 671,969 $ 640,716
Regulatory Commercial Real Estate $ 252,493 182 % $ 244,277 178 % 4 % $ 229,592 177 % 5 %
Total Risk Based Capital* $ 138,449 $ 137,473 $ 129,551
*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) Dec 31,
2023 % of Total
Multifamily $ 59,557 27 %
Hospitality 31,657 14 %
Retail 29,470 13 %
Mixed Use 26,329 12 %
Office 23,626 11 %
Mini Storage 21,625 10 %
Industrial 11,410 5 %
Special Purpose 7,102 3 %
Warehouse 6,169 3 %
Other 3,326 1 %
Total $ 220,271
*Includes loans in the process of construction and development
*Deposits by Category*
(Unaudited) Dec 31,
2023 % of
Total Sep 30,
2023 % of
Total $
Change %
Change Dec 31
2022 % of
Total $
Change %
Change (Dollars in thousands)
Interest-bearing demand $ 183,436 18 % $ 208,091 20 % $ (24,655 ) -12 % $ 253,272 20 % $ (69,836 ) -28 %
Money market 179,344 17 % 179,367 17 % (23 ) % 195,814 17 % (16,470 ) -8 %
Savings 136,408 14 % 138,981 13 % (2,573 ) -2 % 174,887 16 % (38,479 ) -22 %
Time deposits (CDs) 100,832 10 % 92,720 9 % 8,112 9 % 48,754 4 % 52,078 107 %
Total interest-bearing deposits 600,020 59 % 619,159 59 % (19,139 ) -3 % 672,727 57 % (72,707 ) -11 %
Non-interest bearing demand 409,272 41 % 432,097 41 % (22,825 ) -5 % 507,635 43 % (98,363 ) -19 %
Total deposits $ 1,009,292 100 % $ 1,051,256 100 % $ (41,964 ) -4 % $ 1,180,362 100 % $ (171,070 ) -14 %
Insured Deposits $ 647,330 64 % $ 666,308 63 % $ (18,978 ) -3 % $ 709,468 60 % $ (62,138 ) -9 %
Collaterialized Deposits 129,895 13 % 152,960 15 % (23,065 ) -15 % 160,354 14 % (30,459 ) -19 %
Uninsured Deposits 232,067 23 % 231,988 22 % 79 % 310,540 26 % (78,473 ) -25 %
Total Deposits $ 1,009,292 100 % $ 1,051,256 100 % $ (41,964 ) -4 % $ 1,180,362 100 % $ (171,070 ) -14 %
Consumer Deposits $ 470,425 46 % $ 466,877 44 % $ 3,548 1 % $ 519,948 44 % $ (49,523 ) -10 %
Business Deposits 398,977 40 % 429,443 41 % (30,466 ) -7 % 490,341 42 % (91,364 ) -19 %
Public Deposits 139,890 14 % 154,936 15 % (15,046 ) -10 % 170,073 14 % (30,183 ) -18 %
Total Deposits $ 1,009,292 100 % $ 1,051,256 100 % $ (41,964 ) -4 % $ 1,180,362 100 % $ (171,070 ) -14 % The following table summarizes the capital measures of the Company and the Bank respectively, at the dates listed below.
*Capital Measures*
(unaudited) Dec 31,
2023 Sep 30,
2023 Change Dec 31,
2022 Change Well
Capitalized
Under Prompt
Correction
Action
Regulations
*Pacific Financial Corporation*
Total risk-based capital ratio 17.7 % 17.6 % 0.1 17.1 % 0.6 N/A
Tier 1 risk-based capital ratio 16.5 % 16.5 % - 16.0 % 0.5 N/A
Common equity tier 1 ratio 14.9 % 14.8 % 0.1 14.3 % 0.6 N/A
Leverage ratio 11.3 % 10.7 % 0.6 9.4 % 1.9 N/A
Tangible common equity ratio 8.9 % 8.0 % 0.9 6.9 % 2.0 N/A
*Bank of the Pacific*
Total risk-based capital ratio 17.6 % 17.6 % - 17.0 % 0.6 10.5 %
Tier 1 risk-based capital ratio 16.4 % 16.4 % - 15.9 % 0.5 8.5 %
Common equity tier 1 ratio 16.4 % 16.4 % - 15.9 % 0.5 7.0 %
Leverage ratio 11.2 % 10.6 % 0.6 9.1 % 2.1 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, Dec 31,
2023 Sep 30,
2023 $
Change %
Change Dec 31,
2022 $
Change %
Change
*Average Balances* (Dollars in thousands)
Gross loans $ 675,622 $ 665,300 $ 10,322 2 % $ 629,976 $ 45,646 7 %
Loans held for sale $ 709 $ 497 $ 212 43 % $ 898 $ (189 ) -21 %
Investment securities $ 289,245 $ 284,041 $ 5,204 2 % $ 270,416 $ 18,829 7 %
Federal funds sold & interest bearing deposits in banks $ 105,177 $ 172,119 $ (66,942 ) -39 % $ 352,628 $ (247,451 ) -70 %
Total interest-earning assets $ 1,070,753 $ 1,121,957 $ (51,204 ) -5 % $ 1,253,918 $ (183,165 ) -15 %
Non-interest bearing demand deposits $ 419,994 $ 441,782 $ (21,788 ) -5 % $ 521,133 $ (101,139 ) -19 %
Interest bearing deposits $ 593,464 $ 619,183 $ (25,719 ) -4 % $ 684,377 $ (90,913 ) -13 %
Total Deposits $ 1,013,458 $ 1,060,965 $ (47,507 ) -4 % $ 1,205,510 $ (192,052 ) -16 %
Borrowings $ 13,403 $ 13,403 $ - % $ 13,403 $ - %
Total interest-bearing liabilities $ 606,867 $ 632,586 $ (25,719 ) -4 % $ 697,780 $ (90,913 ) -13 %
Total Equity $ 107,251 $ 109,872 $ (2,621 ) -2 % $ 100,076 $ 7,175 7 % For the Three Months Ended, Dec 31,
2023 Sep 30,
2023 Change Dec 31,
2022 Change
Yield on average gross loans ^(1) 5.80% 5.71% 0.09 5.18 % 0.62
Yield on average investment securities ^(1) 3.48% 3.36% 0.12 2.81 % 0.67
Yield on Fed funds sold & interest bearing deposits in banks 5.42% 5.35% 0.07 3.72 % 1.70
Cost of average interest bearing deposits 1.28% 1.10% 0.18 0.14 % 1.14
Cost of average borrowings 7.31% 7.28% 0.03 5.42 % 1.89
Cost of average total deposits and borrowings 0.83% 0.72% 0.11 0.14 % 0.69
Yield on average interest-earning assets 5.14% 5.06% 0.08 4.25 % 0.89
Cost of average interest-bearing liabilities 1.41% 1.23% 0.18 0.24 % 1.17
Net interest spread 3.73% 3.83% (0.10 ) 4.01 % (0.28 )
Net interest margin ^(1) 4.34% 4.37% (0.03 ) 4.12 % 0.22
^(1) Tax-exempt income has been adjusted to a tax equivalent basis at a rate of 21%. For the Twelve Months Ended, Dec 31,
2023 Dec 31,
2022 $
Change %
Change
*Average Balances* (Dollars in thousands)
Gross loans $ 659,165 $ 617,220 $ 41,945 7 %
Loans held for sale $ 628 $ 2,135 $ (1,507 ) -71 %
Investment securities $ 286,473 $ 261,843 $ 24,630 9 %
Federal funds sold & interest bearing deposits in banks $ 180,781 $ 376,166 $ (195,385 ) -52 %
Interest-earning assets $ 1,127,047 $ 1,257,364 $ (130,317 ) -10 %
Non-interest bearing demand deposits $ 448,234 $ 508,102 $ (59,868 ) -12 %
Interest bearing deposits $ 620,026 $ 693,719 $ (73,693 ) -11 %
Total Deposits $ 1,068,260 $ 1,201,821 $ (133,561 ) -11 %
Borrowings $ 13,401 $ 13,591 $ (190 ) -1 %
Interest-bearing liabilities $ 633,427 $ 707,310 $ (73,883 ) -10 %
Total Equity $ 108,355 $ 106,352 $ 2,003 2 % For the Twelve Months Ended, Dec 31,
2023 Dec 31,
2022 Change
*Net Interest Margin*
Yield on average gross loans ^(1) 5.63% 4.87% 0.76
Yield on average investment securities ^(1) 3.31% 2.22% 1.09
Yield on Fed funds sold & interest bearing deposits in banks 5.04% 1.74% 3.30
Cost of average interest bearing deposits 0.86% 0.11% 0.75
Cost of average borrowings 6.93% 3.41% 3.52
Cost of average total deposits and borrowings 0.58% 0.10% 0.48
Yield on average interest-earning assets 4.94% 3.38% 1.56
Cost of average interest-bearing liabilities 0.99% 0.17% 0.82
Net interest spread 3.95% 3.21% 0.74
Net interest margin ^(1) 4.39% 3.29% 1.10
^(1) Tax-exempt income has been adjusted to a tax equivalent basis at a rate of 21%.
*Adversely Classified Loans and Securities*
(Unaudited) Dec 31,
2023 Sep 30,
2023 $
Change %
Change Dec 31,
2022 $
Change %
Change (Dollars in thousands)
Rated substandard or worse, but not impaired, beginning of three month period $ 5,072 $ 5,186 $ (114 ) -2 % $ 2,814 $ 2,258 80 %
Addition of previously classified pass graded loans 383 107 276 258 % 272 111 41 %
Upgrades to pass or other loans especially mentioned status - - - % (85 ) 85 -100 %
Moved to nonaccrual - - - % - - %
Principal payments, net (430 ) (221 ) (209 ) 95 % (117 ) (313 ) 268 %
Rated substandard or worse, but not impaired, end of three month period $ 5,025 $ 5,072 $ (47 ) -1 % $ 2,884 $ 2,141 74 %
Impaired 664 1,219 (555 ) -46 % 2,452 (1,788 ) -73 %
Total adversely classified loans¹ $ 5,689 $ 6,291 $ (602 ) -10 % $ 5,336 $ 353 7 %
Other loans especially mentioned or watch, but not impaired $ 15,120 $ 13,148 $ 1,972 15 % $ 26,408 $ (11,288 ) -43 %
Gross loans (excluding deferred loan fees) $ 685,349 $ 671,969 $ 13,380 2 % $ 640,716 $ 44,633 7 %
Adversely classified loans to gross loans 0.83 % 0.94 % 0.83 %
Allowance for loan losses $ 8,530 $ 8,347 $ 183 2 % $ 8,236 $ 294 4 %
Allowance for loan losses as a percentage of adversely classified loans 149.94 % 132.68 % 154.35 %
Allowance for loan losses to total impaired loans 1284.64 % 684.74 % 335.89 %
Adversely classified loans to total assets 0.50 % 0.53 % 0.41 %
Delinquent loans to gross loans, not in nonaccrual status ^2 0.08 % 0.25 % 0.08 %
¹Adversely 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) Dec 31,
2023 Sep 30,
2023 $
Change %
Change Dec 31,
2022 $
Change %
Change (Dollars in thousands)
Total nonaccrual loans, beginning of three month period $ 1,219 $ 959 $ 260 27 % $ 899 $ 320 36 %
Transfer to performing loans (478 ) - (478 ) -100 % - (478 ) -100 %
Addition of nonaccrual loans - 288 (288 ) -100 % - - %
Moved to other assets owned - - - % - - %
Principal payments, net (77 ) (28 ) (49 ) 175 % (30 ) (47 ) 157 %
Charge-offs, net - - - % - - %
Total nonaccrual loans, end of three month period $ 664 $ 1,219 $ (555 ) -46 % $ 869 $ (205 ) -24 %
Other real estate owned and foreclosed assets - - - % 30 (30 ) -100 %
Total nonperforming assets $ 664 $ 1,219 $ (555 ) -46 % $ 899 $ (235 ) -26 %
Accruing loans past due 90 days or more $ - $ - $ - % $ - $ - %
Percentage of nonperforming assets to total assets 0.06 % 0.10 % 0.07 %
Nonperforming loans to total loans 0.10 % 0.18 % 0.14 % *Allowance for Credit Losses *
(Unaudited) For the Three Months Ended, Dec 31,
2023 Sep 30,
2023 $
Change %
Change Dec 31,
2022 $
Change %
Change
Loans: (Dollars in thousands)
Gross loans outstanding at end of period $ 685,349 $ 671,969 $ 13,380 2 % $ 640,716 $ 44,633 7 %
Average loans outstanding, gross $ 675,622 $ 665,300 $ 10,322 2 % $ 629,976 $ 45,646 7 %
Allowance for credit losses, beginning of period $ 8,347 $ 8,223 $ 124 2 % $ 8,249 $ 98 1 %
Impact of CECL Adoption (ASC 326) - - - % - - %
Commercial - - - % - - %
Commercial Real Estate - - - % - - %
Residential Real Estate - - - % - - %
Consumer (20 ) (126 ) 106 -84 % (14 ) (6 ) 43 %
Total charge-offs (20 ) (126 ) 106 -84 % (14 ) (6 ) 43 %
Commercial 40 - 40 100 % - 40 100 %
Commercial Real Estate - - - % - - %
Residential Real Estate - - - % - - %
Consumer 1 1 - % 1 - %
Total recoveries 41 1 40 4000 % 1 40 4000 %
Net recoveries/(charge-offs) 21 (125 ) 146 -117 % (13 ) 34 -262 %
Provision (benefit) to income 162 249 (87 ) -35 % - 162 100 %
Allowance for credit losses, end of period $ 8,530 $ 8,347 $ 183 2 % $ 8,236 $ 294 4 %
Ratio of net loans charged-off to average
gross loans outstanding, annualized -0.01 % 0.07 % -0.08 % 0.01 % -0.02 %
Ratio of allowance for credit losses to
gross loans outstanding 1.24 % 1.24 % 0.00 % 1.29 % -0.05 %
Unfunded Loan Commitments:
Allowance for credit losses, beginning of period $ 749 $ 754 $ (5 ) -1 % $ 203 $ 546 269 %
Provision (benefit) to income (51 ) (5 ) (46 ) 920 % - (51 ) -100
Allowance for credit losses, end of period $ 698 $ 749 $ (51 ) -7 % $ 203 $ 495 244 % For the Twelve Months Ended, Dec 31, 2023 Dec 31, 2022 $ Change % Change (Dollars in thousands)
Gross loans outstanding at end of period $ 685,349 $ 640,716 $ 44,633 7 %
Average loans outstanding, gross $ 659,165 $ 617,220 $ 41,945 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 (195 ) (90 ) (105 ) 117 %
Total charge-offs (279 ) (90 ) (189 ) 210 %
Commercial 67 - 67 100 %
Commercial Real Estate - - - %
Residential Real Estate - - - %
Consumer 29 29 - %
Total recoveries 96 29 67 231 %
Net recoveries (charge-offs) (183 ) (61 ) (122 ) 200 %
Provision (benefit) to income 634 - 634 100 %
Allowance for credit losses, end of period $ 8,530 $ 8,236 $ 294 4 %
Ratio of net loans charged-off to average
gross loans outstanding, annualized 0.03 % 0.01 % 0.02 %
Ratio of allowance for credit losses to
gross loans outstanding 1.24 % 1.29 % -0.05 %
Unfunded Loan Commitments:
Allowance for credit losses, beginning of period $ 203 $ 203 $ - %
Impact of CECL Adoption (ASC 326) 609 - 609 100 %
Provision (benefit) to income (114 ) - (114 ) -100 %
Allowance for credit losses, end of period $ 698 $ 203 $ 495 244 %
*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 December 31, 2023, the Company had total assets of $1.15 billion and operated fifteen branches in the communities of Grays Harbor, Pacific, Thurston, 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 Burlington, Washington, Salem, Oregon and Lake Oswego, 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.