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Pacific Financial Corp Earns $4.2 Million, or $0.40 per Diluted Share, for First Quarter of 2021; Declares Quarterly Cash Dividend of $0.13 per Share

ABERDEEN, Wash., April 30, 2021 (GLOBE NEWSWIRE) -- Pacific Financial Corporation (OTCQX: PFLC), (“Pacific Financial” or the “Company”), the holding company for Bank of the Pacific (the “Bank”), today reported net income of $4.2 million, or $0.40 per diluted share for the first quarter of 2021, compared to $1.2 million, or $0.11 per diluted share for the first quarter of 2020, and $3.8 million, or $0.37 per diluted share for the fourth quarter of 2020.   First quarter 2021 results included a loan loss provision recapture of $1.4 million compared to recording a $2.0 million loan loss provision for the first quarter of 2020. All results are unaudited.

The board of directors of Pacific Financial declared a quarterly cash dividend of $0.13 per share on April 28, 2021. The dividend will be payable on June 2, 2021, to shareholders of record on May 18, 2021.

“We generated record earnings in the first quarter of 2021, including the recapture of $1.4 million from our allowance for loan losses. Credit quality remains solid and during the quarter $19.0 million in loans were upgraded from the watch or especially mentioned category resulting in a decrease to our allowance for loan losses balance,” said Denise Portmann, President and Chief Executive Officer. “First quarter results were also highlighted by strong deposit growth and an ongoing robust mortgage banking business as the low interest rate environment continued to fuel strong refinance activity and home purchases.” The allowance for loan losses was 1.48% of total loans and 286.05% of impaired loans as of March 31, 2021 compared to 1.65% of total loans and 471.22% of impaired loans as of December 31, 2020.

The Consolidated Appropriations Act, 2021 provided additional COVID-19 stimulus relief, and it included $284 billion allocated for another round of Paycheck Protection Program (PPP) funding, with a date extension by the Small Business Administration (SBA) to May 31, 2021. “From the beginning, the Bank has been providing PPP loans and assisting our customers in keeping their businesses operational, and we continue to actively participate in the latest round of PPP lending,” added Portmann. “As of March 31, 2021, under the latest round of PPP, we have assisted 509 businesses with $55.4 million in PPP loans.”

First Quarter 2021 Financial Highlights (as of, or for the period ended March 31, 2021, except as noted):
  • Net income was $4.2 million, or $0.40 per diluted share, for the first quarter of 2021, compared to $1.2 million, or $0.11 per diluted share, for the first quarter a year ago, and $3.8 million, or $0.37 per diluted share, for the fourth quarter of 2020.
  • Annualized pre-tax pre-provision return on assets (non-GAAP) and annualized pre-tax pre-provision return on equity (non-GAAP) was 1.32% and 13.69% for the first quarter of 2021, compared to 1.53% and 13.16% for the first quarter a year ago, and 1.65% and 16.93% for the fourth quarter of 2020.
  • First quarter 2021 results included $1.4 million in recapture of provision for loan losses, compared to a loan loss provision of $2.0 million in the first quarter a year ago, and no provision for loan losses in the fourth quarter of 2020.
  • Net interest margin (“NIM”) was 3.35% including SBA PPP loans and 3.05% excluding SBA PPP loans for the first quarter of 2021, compared to 4.30% for the first quarter of 2020 with no PPP loans. For the preceding quarter, NIM was 3.53% including SBA PPP loans and 3.27% excluding SBA PPP loans.  
  • Noninterest income was $5.2 million for the first quarter of 2021, an increase of 45% from $3.6 million for the like quarter a year ago and was at $5.8 million for the fourth quarter of 2020.  
  • Total deposits increased by $304.7 million, or 38%, to $1.10 billion at March 31, 2021, compared to $794.6 million at March 31, 2020, and increased by $70.9 million from $1.03 billion at December 31, 2020. Non-interest-bearing deposits grew by 62% from a year ago and represented 35% of total deposits at March 31, 2021.
  • Gross loans increased by $44.1 million, or 6%, to $722.7 million at March 31, 2021, compared to $678.6 million at March 31 2020, and declined by $9.3 million, or 1%, from $732.0 million at December 31, 2020. Included in total loans for the current quarter were $108.4 million in PPP loans.
  • Asset quality remains solid:
    • Loans 30-90 delinquent, still on accrual status, were minimal at 0.21% of gross loans outstanding.
    • Net recoveries totaled $53,000, or 0.03% of average gross loans, for the first quarter of 2021, compared to net recoveries of $66,000, or 0.03% of average gross loans, for the fourth quarter of 2020, and net charge-offs of $207,000, or 0.12%, of average gross loans for the first quarter of 2020.
    • Adversely classified loans were $16.4 million, or 2.28% of gross loans, versus $16.8 million, or 2.29%, at December 31, 2020, and $11.2 million, or 1.65%, at March 31, 2020.
    • Other loans especially mentioned or watch, but not impaired, decreased $29.7 million, or 27%, to $79.6 million at March 31, 2021 compared to $109.3 million at December 31, 2020 and were $105.0 million at March 31, 2020.
  • The company re-confirmed the share repurchase program during the first quarter of 2021. During the quarter ended March 31, 2021, Pacific Financial had repurchased a total of 4,192 shares, or $48,000.  
  • The Company’s consolidated capital ratios continue to exceed regulatory guidelines for a well-capitalized financial institution.
Income Statement Review

Net interest income, before the provision for loan losses, was $9.2 million for the first quarter of 2021, compared to $9.1 million for the first quarter a year ago, and $9.7 million for the fourth quarter of 2020.   The year-over-year growth in net interest income was primarily due to PPP fee income.   For the first quarter of 2021 and the linked quarter, PPP fees and interest totaled $1.6 million.

The net interest margin (“NIM”), including PPP loans, was 3.35% for the first quarter of 2021, compared to 4.30% for the first quarter of 2020, and 3.53% for the fourth quarter of 2020. The NIM, excluding PPP loans, was 3.05% for the first quarter of 2021, compared to 4.30% for the first quarter of 2020, and 3.27% for the preceding quarter.   The low interest rate environment and persistent market competition for loans continues to put downward pressure on loan yields, and in addition, increased balances of lower yielding federal funds sold, from growth in core deposits, negatively impacted net interest margin during the quarter and past year.

During the first quarter of 2021, average interest-earning asset yields declined to 3.49% from 4.62% a year earlier and 3.71% for the linked quarter. Average loan yields declined 29 basis points to 4.87%, from 5.16% a year ago, and remained relatively flat from 4.88% for the fourth quarter of 2020.   Average loan yield including PPP loans and PPP interest and fees can vary on a quarterly basis, as the amortization of PPP fees are typically higher in quarters with higher forgiveness or payoff of PPP loans, thus increasing the average loan yield. During the current quarter, PPP interest and fee amortization impacted loan yields by 24 basis points versus 18 basis points in the fourth quarter 2020. The Bank’s total cost of funds decreased to 0.15% for the first quarter of 2021, from 0.35% from a year earlier, and declined from 0.19% at the linked quarter. Included in the reduction was a decrease in the borrowing rate on the Company’s junior subordinated debentures as well as reduction in deposit account offering rates.

Noninterest income increased 45%, or $1.6 million, to $5.2 million for the first quarter of 2021, compared to $3.6 million for the first quarter of 2020, and declined by 10%, or $592,000, from $5.8 million for the preceding quarter. The largest component of non-interest income is related to mortgage banking activity. Mortgage banking activity has continued to be robust with mortgage originations near record levels set last quarter. Home purchase activity accounted for 31.2% of mortgage loan originations during the quarter compared to 41.7% in the prior quarter and 37.9% in same quarter a year ago. Year-over-year gain on sale of loans increased 78%, or $1.5 million, to $3.5 million in the first quarter of 2021, from $2.0 million for the first quarter a year earlier, and decreased from $4.0 million for the linked quarter.   Partially offsetting this increase year over year was the reduction in overdraft fees of $142,000 for the current quarter compared to the like quarter in 2020.

Noninterest expenses rose 15% to $10.5 million for the first quarter of 2021, compared to $9.1 million for the first quarter of 2020 and decreased by 1% from $10.6 million for the fourth quarter of 2020.   The increase in noninterest expense in the current quarter compared to a year ago was primarily due to increased salary and employee benefits associated with increased mortgage banking staffing and variable compensation. In addition, with the launching of expanded digital tools to enhance online functionality, provide instant issue debit cards, improve international wire capability and upgrade to a more robust Commercial Banking business online platform, information technology expenses increased $85,000 year-over-year. Partially offsetting the increase in digital technology costs was reductions in travel related expenses.

Income tax provision was $1.1 million for the first quarter of 2021, compared to $296,000 for the first quarter of 2020 and $991,000 for the fourth quarter of 2020. The effective tax rate for the first quarter of 2021 was 20.0%, compared to 19.8% for the first quarter of 2020, and 20.5% for the fourth quarter of 2020.   In addition to federal corporate income tax, Pacific Financial also pays Oregon corporate income tax and Washington Business and Occupation tax on revenues.

Balance Sheet Review

Total Assets increased 34% to $1.25 billion, at March 31, 2021, compared to $926.3 million at March 31, 2020, and grew 7% from $1.17 billion at December 31, 2020.

Investment Securities increased 25% to $137.5 million at March 31, 2021, compared to $109.9 million at March 31, 2020 and grew 10% from $125.2 million at December 31, 2020. During the current quarter, the Bank continued to deploy a portion of its lower yielding federal funds sold balances into investment securities. This included $18.8 million in investment purchases, which was partially offset by $6.5 million in calls, maturities and payments. Federal funds balances remained at higher than historical levels, primarily as a result of total deposits increases over the current quarter and over the last twelve months.      

Gross Loans increased 6%, or $44.1 million, to $722.7 million at March 31, 2021, compared to $678.6 million at March 31, 2020, and declined 1%, or $9.3 million, from $732.0 million at March 31, 2020. Total loans at March 31, 2021, included $108.4 million of PPP loans compared to $96.1 million at December 31, 2020. Excluding PPP loans, loan balances declined $64.3 million on a year-over-year basis and $21.6 since December 31, 2020. Loan balances were impacted by commercial and agricultural lines of credit usage which dropped by 71%, or $30.6 million, to $12.6 million at March 31, 2021, compared to $43.2 million a year ago, and dropped by 47%, or $11.1 million from $23.7 million at December 31 2020. Balances were also impacted by the expected payoff of two especially mentioned or watch commercial credit relationships for which the Bank had been working with the customers on an exit strategy.

Loans are predominately originated within our Western Washington and Oregon markets and the Company’s portfolio is well-diversified by collateral type and by industry with a prudent credit discipline. With the risks associated with the COVID-19 pandemic reducing the severity, the Company made reasonable adjustments to incrementally relax certain underwriting guidance, that had been tightened earlier in the pandemic, for non-owner occupied commercial real estate lending. To manage risk, the Company oversees new loan origination volume and current loan balances using concentration limits that establish maximum exposure levels by designated industry segment, real estate product types, geography and single borrower limits.

At March 31, 2021, CRE concentration remained relatively unchanged at 179% of total risk-based capital; well below the regulatory guidance limit of 300%.   Commercial and agricultural loans together with CRE-owner occupied, accounted for 38.8% of total loans outstanding (excluding PPP loans) at March 31, 2021, compared to 40.7% at March 31, 2020 and 40.5% at December 31, 2020. CRE non-owner-occupied and multifamily concentrations accounted for 32.6% of total loans outstanding (excluding PPP loans) at March 31, 2021, compared to 27.0% at March 31, 2020 and 30.9% at December 31, 2020. Hospitality, 5+ unit apartments and commercial properties comprise the largest areas of the commercial real estate non-owner occupied and multi-family property portfolios at $44.2 million, $39.6 million and $32.6 million, respectively, at March 31, 2021.

On the consumer side, loans to finance luxury and classic cars, which encompass most of the consumer loan balances, increased slightly to $47.8 million at March 31, 2021, compared to $46.1 million at March 31, 2020 and $46.5 million at December 31, 2020. As part of our strategic plan, we have been limiting our concentrations in indirect loans to finance luxury and classic cars. As of March 31, 2021, the luxury and classic car portfolio includes 843 loans with an average balance of $57,000. The portfolio continues to perform adequately, though delinquencies increased to by $470,000 to $589,000, or 1.2% of loans to finance luxury and classic car portfolio, at March 31, 2021.

SBA Paycheck Protection Program: SBA PPP was designed to provide crucial relief to small businesses to help sustain operations impacted by COVID-19. Under this program, Bank of the Pacific funded 748 loans totaling $130.7 million for its customers in 2020, and an additional 509 loans totaling $55.4 million in the first quarter of 2021.

  
PPP Loan Detail 
(Unaudited) 
              
  As of March 31, 2021 
  
Total
Balance
 
Total
Originated
 
# of Loans
Originated
 $
Forgiveness
Submitted
 $
Forgiveness
Received
 
Total Fee
Collected
 
 (Dollars in Thousands) 
Agriculture$9,494$13,417 168$6,004$4,039$597 
Construction 26,900 47,984 190 29,209 21,487 1,634 
Manufacturing 12,959 28,079 113 17,422 15,941 1,010 
Wholesale Trade 4,070 8,234 35 4,346 4,264 251 
Retail Trade 6,006 13,682 138 7,754 7,711 569 
Transportation and Warehousing 1,382 5,013 30 3,631 3,631 187 
Professional Services 3,680 8,589 84 4,982 4,955 398 
Waste Mngt & Remediation 5,872 9,700 45 7,574 3,827 292 
Health Care 11,527 13,950 72 2,423 2,217 419 
Accommodation and Food Services 17,785 22,994 168 10,485 5,713 931 
Other Services 4,471 5,304 63 834 834 233 
Other 4,232 9,269 151 5,506 5,022 450 
   PPP Loans$108,377$186,215 1,257$100,170$79,641$6,971 
              

Loan Payment Deferrals: Early in 2020, the Bank provided $106.2 million in 90-day payment deferrals to customers adversely impacted by operating restrictions due to COVID-19. During the third and fourth quarters of 2020, a majority of these loan deferrals returned to regular payment status, reducing the balance of deferrals to $1.9 million at year end 2020. The Bank has continued to provide a payment deferral program during 2021 and as of March 31, 2021, total outstanding deferrals were $7.0 million, with $4.6 million of these deferrals related to the accommodations and food services industry, with rental and leasing real estate, and recreation and leisure comprising a majority of the remaining $2.4 million.

Stressed Sectors as a Result of COVID-19: The Bank continues to identify several industries as being potentially more vulnerable to the economic and business impacts of the Coronavirus pandemic. Those industries include accommodation (hospitality), animal production (primarily dairy), restaurants, retail trade, and recreation and entertainment. Although these industries are potentially more directly impacted by COVID-19, the bank’s customer base within these sectors covers a wide range of clients, including those who operate under diversified business models reaching a broader range of clients, possess necessary financial resources, and are managed by experienced management teams who aid in working through these economic challenges. At March 31, 2021, the total of these industries was $93.6 million, representing 15% of gross loans without PPP.  

Throughout the last few quarters, the Bank has closely monitored the performance and status of loans within these industries. Despite the initial impact to these higher risk industries caused by required shut down measures taken at onset of crises as well as pandemic driven changes to certain client operating models, generally most customers have been able to successfully navigate the challenges faced by their businesses. Certain industries appear to be stabilizing, such as accommodation (hospitality) where clients have generally performed reasonably well through the 2020 summer and early fall months especially for those operators located in coastal markets benefiting from local Pacific Northwest consumers preferring to vacation closer to home. Animal production (primarily dairy) clients were negatively impacted by lower milk prices in early stages of the crisis, but prices have since rebounded along with financial benefits provided under several government programs. Retail trade portfolio is well diversified within the Banks geographic footprint with majority of business located in rural markets versus metropolitan areas that have been more exposed to domestic unrest or protests. There continues to be pandemic driven challenges for selective retail trade credits and commercial real estate retail tenants as local government restrictions have only recently relaxed.   A larger share of the Bank’s restaurant clients are more focused on convenience food and quick service concepts that have performed acceptably well throughout the pandemic. The identified groups of higher risk industries may change over time as conditions improve or worsen. Three industries including healthcare and social service, repair and maintenance, and other services were removed from the stressed sector list at March 31, 2021 as clients have generally performed as agreed with no loans from these groups currently under payment deferral. Nonetheless, the Bank will continue its close monitoring of customer performance in these stressed sectors.

 
Stressed Sectors (without PPP)
(Unaudited)
     
  

Mar 31,
2021

  % of Gross
Loans
(without
PPP)
   
  (Dollars in thousands)
Animal production$18,055  3%
Accommodation 43,003  7%
Restaurants 10,037  2%
Recreation, arts and entertainment 4,941  1%
Retail trade 17,601  3%
    Total stressed sectors$93,637  15%
     

Asset Quality – Nonperforming assets (“NPAs”) increased to $2.5 million, or 0.20% of total assets, at March 31, 2021, compared to $1.6 million, or 0.18% of total assets a year earlier, and remained relatively unchanged compared to $2.4 million, or 0.20% of assets at December 31, 2020. At March 31, 2021, adversely classified loans increased by $5.3 million, to $16.5 million, or 2.68% of adversely classified loans to gross loans (excluding PPP), compared to $11.2 million, or 1.65% of gross loans, at March 31, 2020, and decreased by $315,000 from $16.8 million, or 2.64% of gross loans (excluding PPP), at December 31, 2020. Balances related to loans graded watch or other loans especially mentioned, declined $29.7 during the quarter to $79.6 million, as several credits were upgraded upon resumption of payments after being deferred during 2020.    The adversely classified loans to total assets ratio was 1.32%, at March 31, 2021, compared to 1.21% at March 31, 2020, and 1.44%, at December 31, 2020.

The Allowance for Loan Losses (“ALL”) decreased 1% to $10.7 million, or 1.75% of gross loans (excluding PPP) at March 31, 2021, compared to $10.8 million, or 1.59% of gross loans, at March 31, 2020, and declined 11% from $12.1 million, or 2.01% (excluding PPP), at December 31, 2020. The Bank recorded into income a $1.4 million recapture of loan loss provision during the current quarter. This was primarily the result of $19 million in loan risk rating upgrades as several credits were upgraded upon resumption of payments after being deferred during 2020. No adjustment to qualitative factors were made in the first quarter of 2021. For the same quarter a year ago, the bank recorded a $2.0 million provision and no provision for the fourth quarter of 2020. Net recoveries were $53,000 for the first quarter of 2021, compared to net charge-offs of $207,000 for the first quarter a year earlier, and net recoveries of $66,000 for the fourth quarter of 2020.

Total Deposits increased 38% to $1.10 billion at March 31, 2021, compared to $794.6 million from a year earlier, and grew by 7% from $1.03 billion at December 31, 2020. Year-over-year increases were primarily related to SBA PPP loan proceeds deposited in customers Bank of the Pacific accounts and also a generally higher level of client liquidity from reduced business investment and customer spending and receipt of stimulus funds. “We continue to benefit from our outreach to our existing customers as well as with new customers established through PPP lending,” said Tucker. The growth in noninterest-bearing deposits increased 62% from a year ago and represents 35% of total deposits at March 31, 2021.

Capital Ratios of Pacific Financial Corporation, and its subsidiary Bank of the Pacific, continue to exceed the well-capitalized regulatory thresholds. At March 31, 2021, Pacific Financial Corporation’s leverage ratio was 9.5% and the total risk-based capital ratio was 16.8%. The total risk-based capital ratios of the Company include $13.4 million of junior subordinated debentures, all of which qualified as Tier 1 capital under guidance issued by the Federal Reserve. As provided in the Dodd-Frank Act, the Company expects to continue to rely on these junior subordinated debentures as part of its regulatory capital. The company re-confirmed the share repurchase program during the first quarter of 2021. During the quarter ended March 31, 2021, Pacific Financial had repurchased a total of 4,192 shares, or $48,000.  

  
Balance Sheet Overview 
(Unaudited) 
                 
   Mar 31,
2021
 Dec 31,
2020
 $
Change
 %
Change
 Mar 31,
2020
 
$ Change
 
% Change
 
    
Assets: (Dollars in thousands, except per share data) 
 Cash on hand and in banks$15,175 $12,960 $2,215  17%$40,342 $(25,167) -62% 
 Interest bearing deposits 280,129  182,889  97,240  53% 3,250  276,879  8519% 
 Federal funds sold 23,316  33,024  (9,708) -29% 25,170  (1,854) -7% 
 Investment securities 137,454  125,184  12,270  10% 109,875  27,579  25% 
 Loans held-for-sale 19,439  34,906  (15,467) -44% 21,398  (1,959) -9% 
 Loans, net of deferred fees 719,182  729,398  (10,216) -1% 677,907  41,275  6% 
 Allowance for loan losses (10,721) (12,068) 1,347  -11% (10,786) 65  -1% 
      Net loans 708,461  717,330  (8,869) -1% 667,121  41,340  6% 
 Federal Home Loan Bank and Pacific Coast Bankers' Bank stock, at cost 2,421  2,137  284  13% 2,241  180  8% 
 Other assets 58,679  58,863  (184) 0% 56,947  1,732  3% 
      Total assets$1,245,074 $1,167,293 $77,781  7%$926,344 $318,730  34% 
                 
Liabilities and Shareholders' Equity:               
 Total deposits$1,099,287 $1,028,424 $70,863  7%$794,585 $304,702  38% 
 Borrowings 13,919  13,956  (37) 0% 16,569  (2,650) -16% 
 Accrued interest payable and other liabilities 16,772  10,728  6,044  56% 8,641  8,131  94% 
 Shareholders' equity 115,096  114,185  911  1% 106,549  8,547  8% 
      Total liabilities and shareholders' equity$1,245,074 $1,167,293 $77,781  7%$926,344 $318,730  34% 
                 
Common Stock Shares Outstanding 10,437,378  10,434,533  2,845  0% 10,607,617  (170,239) -2% 
                 
Book value per common share (1)$11.03 $10.94 $0.09  1%$10.04 $0.99  10% 
Tangible book value per common share (2)$9.74 $9.65 $0.09  1%$8.78 $0.96  11% 
Gross loans to deposits ratio 65.4% 70.9% -5.5%   85.3% -19.9%   
                 
(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, 
   Mar 31,
2021
 Dec 31,
2020
 $
Change
 %
Change
 Mar 31,
2020
 
$ Change
 
% Change
 
     
   (Dollars in thousands, except per share data) 
Interest and dividend income$9,612 $10,219 $(607) -6%$9,783 $(171) -2% 
Interest expense 387  492  (105) -21% 700  (313) -45% 
 Net interest income 9,225  9,727  (502) -5% 9,083  142  2% 
Loan loss provision (1,400) -  (1,400) 100% 2,000  (3,400) -170% 
Noninterest income 5,164  5,756  (592) -10% 3,555  1,609  45% 
Noninterest expense 10,504  10,648  (144) -1% 9,142  1,362  15% 
Income before income taxes 5,285  4,835  450  9% 1,496  3,789  253% 
Income tax expense 1,057  991  66  7% 296  761  257% 
 Net Income$4,228 $3,844 $384  10%$1,200 $3,028  252% 
                 
Average common shares outstanding - basic 10,432,040  10,469,896  (37,856) 0% 10,627,160  (195,120) -2% 
Average common shares outstanding - diluted 10,458,794  10,496,840  (38,046) 0% 10,676,227  (217,433) -2% 
                 
Income per common share               
 Basic$0.41 $0.37 $0.04  11%$0.11 $0.30  273% 
 Diluted$0.40 $0.37 $0.03  8%$0.11 $0.29  264% 
                 
Effective tax rate 20.0% 20.5% -0.5%   19.8% 0.2%   
                 
                 

 

Reconciliation of Non-GAAP Measure 
(Unaudited) 
                 
   For the Three Months Ended, 
   Mar 31,
2021
 Dec 31,
2020
 $
Change
 %
Change
 Mar 31,
2020
 
$ Change
 
% Change
 
    
Non-GAAP Net Income (Dollars in thousands) 
Net Income$4,228 $3,844 $384  10%$1,200 $3,028  252% 
 Loan loss provision (1,400) -  (1,400) -100% 2,000  (3,400) -170% 
 Income tax expense 1,057  991  66  7% 296  761  257% 
Pre-tax, pre-provision net income$3,885 $4,835 $(950) -20%$3,496 $389  11% 
                 
Pre-tax, pre-provisions ROA, annualized 1.32% 1.65% (0.33)   1.53% 0.12    
Pre-tax, pre-provisions ROE, annualized 13.69% 16.93% (3.24)   13.16% 3.77    
                 
                 

 

Noninterest Income
(Unaudited)
   For the Three Months Ended,
   Mar 31,
2021
 Dec 31,
2020
 $
Change
 %
Change
 Mar 31,
2020
 
$ Change
 
% Change
    
   (Dollars in thousands)
Service charges on deposits$342$366$(24) -7%$507$(165) -33%
Gain on sale of loans, net 3,535 4,020 (485) -12% 1,990 1,545  78%
Earnings on bank owned life insurance 126 125 1  1% 115 11  10%
Other noninterest income              
 Fee income 1,133 1,117 16  1% 918 215  23%
 Other 28 128 (100) -78% 25 3  12%
Total noninterest income$5,164$5,756$(592) -10%$3,555$1,609  45%
                

 

 
Noninterest Expense
(Unaudited)
                
   For the Three Months Ended,
   Mar 31,
2021
 Dec 31,
2020
 $
Change
 %
Change
 Mar 31,
2020
 
$ Change
 
% Change
    
   (Dollars in thousands)
Salaries and employee benefits$7,333$7,257$76  1%$6,066$1,267  21%
Occupancy 511 516 (5) -1% 522 (11) -2%
Equipment 319 315 4  1% 285 34  12%
Data processing 829 776 53  7% 746 83  11%
Professional services 234 221 13  6% 200 34  17%
State and local taxes 202 193 9  5% 145 57  39%
FDIC and State assessments 81 77 4  5% 8 73  913%
Other noninterest expense:              
 Director fees 77 74 3  4% 74 3  4%
 Communication 71 76 (5) -7% 68 3  4%
 Advertising 29 58 (29) -50% 48 (19) -40%
 Professional liability insurance 59 55 4  7% 55 4  7%
 Amortization 105 122 (17) -14% 97 8  8%
 Other 654 908 (254) -28% 828 (174) -21%
Total noninterest expense$10,504$10,648$(144) -1%$9,142$1,362  15%
                
                

 

Financial Performance Overview 
(Unaudited) 
            
  For the Three Months Ended 
  Mar 31,
2021
 Dec 31,
2020
 
Change
 Mar 31,
2020
 
Change
 
Performance Ratios          
Return on average assets, annualized1.44% 1.31% 0.13 0.52% 0.92 
Return on average equity, annualized14.90% 13.46% 1.44 4.52% 10.38 
Efficiency ratio (1)73.00% 68.77% 4.23 72.34% 0.66 
            
(1) Non-interest expense divided by net interest income plus noninterest income.       
            
            

LIQUIDITY

Cash and Cash Equivalents and Investment Securities 
  
(Unaudited) 
    Mar 31,
2021
 % of
Total
 Dec 31,
2020
 % of
Total
 $
Change
 %
Change
 Mar 31,
2020
 
Total
 $
Change
 %
Change
 
      
    (Dollars in thousands) 
Cash on hand and in banks$15,175 3%$12,960 4%$2,215  17%$13,088 7%$2,087  16% 
Interest bearing deposits 276,879 62% 179,639 51% 97,240  54% 27,254 16% 249,625  916% 
Other interest earning deposits 3,250 1% 3,250 1% -  0% 3,250 2% -  0% 
Federal funds sold 23,316 5% 33,024 9% (9,708) -29% 25,170 14% (1,854) -7% 
 Total 318,620 71% 228,873 65% 89,747  39% 68,762 39% 249,858  363% 
                        
Investment securities:                     
 Collateralized mortgage obligations 47,870 10% 45,358 13% 2,512  6% 43,483 25% 4,387  10% 
 Mortgage backed securities 13,441 3% 11,366 3% 2,075  18% 16,934 9% (3,493) -21% 
 U.S. Government and agency securities 15,263 3% 8,142 2% 7,121  87% 2,010 1% 13,253  659% 
 Municipal securities 58,761 13% 58,228 16% 533  1% 45,518 25% 13,243  29% 
 Corporate debt securities 2,018 0% 2,016 1% 2  0% 1,874 1% 144  8% 
 Equity securities 101 0% 74 0% 27  36% 56 0% 45  80% 
  Total 137,454 29% 125,184 35% 12,270  10% 109,875 61% 27,579  25% 
Total cash equivalents and investment securities$456,074 100%$354,057 100%$102,017  29%$178,637 100%$277,437  155% 
                        
Total cash equivalents and investment securities as a percent of total assets   37%   30%       19%     
                        
                        

LOANS

Loans by Category 
(Unaudited) 
                       
   
Mar 31, 2021
 % of
Gross
Loans
 
Dec 31,
2020
 % of
Gross
Loans
 
$
Change
 

% Change

 
Mar 31,
2020
 % of
Gross
Loans
 
$
Change
 
%
Change
 
    
Commercial: (Dollars in thousands) 
 Commercial and agricultural$83,675   12%$100,801  14%$(17,126) -17%$ 129,085  19%$(45,410) -35% 
 PPP 108,377   15% 96,070  13% 12,307  13%  -  0% 108,377  100% 
Real estate:                     
Construction and development 20,936   3% 20,722  3% 214  1%  47,054  7% (26,118) -56% 
Residential 1-4 family 71,567   10% 77,045  11% (5,478) -7%  84,662  12% (13,095) -15% 
Multi-family 33,950   5% 31,311  4% 2,639  8%  30,368  4% 3,582  12% 
Commercial real estate -- owner occupied 154,850   21% 156,833  21% (1,983) -1%  147,024  22% 7,826  5% 
Commercial real estate -- non owner occupied 166,072   22% 165,365  22% 707  0%  152,830  23% 13,242  9% 
Farmland 27,418   4% 28,516  4% (1,098) -4%  31,500  5% (4,082) -13% 
Consumer 55,868   8% 55,361  8% 507  1%  56,091  8% (223) 0% 
 Gross Loans 722,713   100% 732,024  100% (9,311) -1%  678,614  100% 44,099  6% 
      Less: allowance for loan losses (10,721)   (12,068)   1,347     (10,786)   65    
      Less: deferred fees (3,531)   (2,626)   (905)    (707)   (2,824)   
 Net loans$708,461   $717,330   $(8,869)  $ 667,121   $41,340    
                       
                       
                       
                       
Loan Concentration     
(Unaudited)     
   
Mar 31,
2021
 % of Risk
Based
Capital
 
Dec 31,
2020
 % of Risk
Based
Capital
 

Change

 
Mar 31,
2020
 % of Risk
Based
Capital
 

Change

     
        
Commercial: (Dollars in thousands)     
 Commercial and agricultural$83,675   69%$100,801  93% -24%$129,085   114% -45%     
 PPP 108,377   90% 96,070  113% -23% -   0% 90%     
Real estate:                     
Construction and development 20,936   17% 20,722  30% -13% 47,054   42% -25%     
Residential 1-4 family 71,567   59% 77,045  66% -7% 84,662   75% -16%     
Multi-family 33,950   28% 31,311  31% -3% 30,368   27% 1%     
Commercial real estate -- owner occupied 154,850   128% 156,833  130% -2% 147,024   130% -2%     
Commercial real estate -- non owner occupied 166,072   137% 165,365  139% -2% 152,830   135% 2%     
Farmland 27,418   23% 28,516  26% -3% 31,500   28% -5%     
Consumer 55,868   46% 55,361  45% 1% 56,091   50% -4%     
 Gross Loans$722,713   $732,024     $678,614          
Regulatory Commercial Real Estate$216,687   179%$214,928  181% -2%$220,794   196% -17%     
Total Risk Based Capital*$120,934   $118,961     $112,802          
                       
*Bank of the Pacific                     
                       
                       

DEPOSITS

Deposits by Category 
(Unaudited) 
                      
  Mar 31,
2021
 
% of Total
 Dec 31,
2020
 
% of Total
 $
Change
 %
Change
 Mar 31,
2020
 
% of Total
 $
Change
 %
Change
 
    
  (Dollars in thousands) 
Interest-bearing demand$305,137 28%$292,031 29%$13,106  4%$224,741 29%$80,396  36% 
Money market 186,887 17% 190,174 19% (3,287) -2% 147,412 19% 39,475  27% 
Savings 149,325 14% 137,615 13% 11,710  9% 105,983 13% 43,342  41% 
Time deposits (CDs) 67,861 6% 65,895 6% 1,966  3% 74,972 9% (7,111) -9% 
   Total interest-bearing deposits 709,210 65% 685,715 67% 23,495  3% 553,108 70% 156,102  28% 
Non-interest bearing demand 390,077 35% 342,709 33% 47,368  14% 241,477 30% 148,600  62% 
   Total deposits$1,099,287 100%$1,028,424 100%$70,863  7%$794,585 100%$304,702  38% 
                      
                      

The following table summarizes the capital measures of the Company and the Bank respectively, at the dates listed below.

Capital Measures 
(unaudited) 
 

Mar 31,
2021

 

Dec 31,
2020

 

Change

 

Mar 31,
2020

 

Change

  Well
Capitalized
Under Prompt
Correction
Action
Regulations
 
Pacific Financial Corporation             
Total risk-based capital ratio16.8% 15.9% 0.9  15.1% 1.7   N/A 
Tier 1 risk-based capital ratio15.5% 14.6% 0.9  13.9% 1.6   N/A 
Common equity tier 1 ratio13.7% 12.9% 0.8  12.1% 1.6   N/A 
Leverage ratio9.5% 9.5% -  11.4% (1.9)  N/A 
Tangible common equity ratio8.3% 8.6% (0.3) 10.2% (1.9)  N/A 
              
Bank of the Pacific             
Total risk-based capital ratio16.7% 15.8% 0.9  15.0% 1.7   10.5% 
Tier 1 risk-based capital ratio15.4% 14.5% 0.9  13.8% 1.6   8.5% 
Common equity tier 1 ratio15.4% 14.5% 0.9  13.8% 1.6   7.0% 
Leverage ratio9.5% 9.5% -  11.3% (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, 
                 
   Mar 31,
2021
 Dec 31,
2020
 $
Change
 %
Change
 Mar 31,
2020
 $
Change
 %
Change
 
    
Average Balances (Dollars in thousands) 
Gross loans$724,259 $758,801 $(34,542) -5%$683,096 $41,163  6% 
Gross loans without PPP$620,808 $651,127 $(30,319) -5%$683,096 $(62,288) -9% 
Loans held for sale$27,203 $31,288 $(4,085) -13%$10,293 $16,910  164% 
Investment securities$129,178 $127,808 $1,370  1%$105,202 $23,976  23% 
Federal funds sold & interest bearing deposits in banks$248,252 $185,531 $62,721  34%$59,139 $189,113  320% 
Total interest-earning assets$1,128,892 $1,103,428 $25,464  2%$857,730 $271,162  32% 
Non-interest bearing demand deposits$360,175 $353,686 $6,489  2%$239,280 $120,895  51% 
Interest bearing deposits$689,302 $672,733 $16,569  2%$548,769 $140,533  26% 
Total Deposits$1,049,477 $1,026,419 $23,058  2%$788,049 $261,428  33% 
Borrowings$13,931 $13,969 $(38) 0%$16,581 $(2,650) -16% 
Total interest-bearing liabilities$703,233 $686,702 $16,531  2%$565,350 $137,883  24% 
Total Equity$115,095 $113,306 $1,789  2%$106,853 $8,242  8% 
                 
   For the Three Months Ended,     
   Mar 31,
2021
 Dec 31,
2020
 
Change
 Mar 31,
2020
 
Change
     
Yield on average gross loans (1) 4.87% 4.88% (0.01) 5.16% (0.29)     
Yield on average gross loans without PPP (1) 4.63% 4.70% (0.07) 5.16% (0.53)     
Yield on average investment securities (1) 2.45% 2.31% 0.14  3.02% (0.57)     
Yield on Fed funds sold & interest bearing deposits in banks 0.12% 0.14% (0.02) 1.43% (1.31)     
Cost of average interest bearing deposits 0.19% 0.25% (0.06) 0.42% (0.23)     
Cost of average borrowings 1.83% 1.82% 0.01  3.18% (1.35)     
Cost of average total deposits and borrowings 0.15% 0.19% (0.04) 0.35% (0.20)     
                 
Yield on average interest-earning assets 3.49% 3.71% (0.22) 4.62% (1.13)     
Cost of average interest-bearing liabilities 0.22% 0.28% (0.06) 0.50% (0.28)     
Net interest spread 3.27% 3.43% (0.16) 4.12% (0.85)     
Net interest spread without PPP 2.98% 3.18% (0.20) 4.12% (1.14)     
                 
Net interest margin (1) 3.35% 3.53% (0.18) 4.30% (0.95)     
Net interest margin without PPP (1) 3.05% 3.27% (0.22) 4.30% (1.25)     
                 
(1) Tax-exempt income has been adjusted to a tax equivalent basis at a rate of 21%.           
                 

 

                
Adversely Classified Loans and Securities 
(Unaudited) 
                
  Mar 31,
2021
 Dec 31,
2020
 $
Change
 
% Change
 Mar 31,
2020
 $
Change
 
% Change
 
    
  (Dollars in thousands) 
Rated substandard or worse, but not impaired, beginning of three month period$14,200 $11,605 $2,595  22%$10,400 $3,800  37% 
Addition of previously classified pass graded loans 304  4,219  (3,915) -93% -  304  100% 
Upgrades to pass or other loans especially mentioned status -  -  -  0% -  -  0% 
Moved to nonaccrual -  (616) 616  -100% -  -  0% 
Principal payments, net (1,806) (1,008) (798) 79% (1,131) (675) 60% 
Rated substandard or worse, but not impaired, end of three month period$12,698 $14,200 $(1,502) -11%$9,269 $3,429  37% 
Impaired 3,748  2,561  1,187  46% 1,900  1,848  97% 
Total adversely classified loans1$16,446 $16,761 $(315) -2%$11,169 $5,277  47% 
                
Other loans especially mentioned or watch, but not impaired$79,603 $109,324 $(29,721) -27%$105,008 $(25,405) -24% 
Gross loans (excluding deferred loan fees)$722,713 $732,025 $(9,312) -1%$678,614 $44,099  6% 
Adversely classified loans to gross loans 2.28% 2.29%     1.65%     
Adversely classified loans to gross loans without PPP 2.68% 2.64%     1.65%     
Allowance for loan losses$10,721 $12,068 $(1,347) -11%$10,786 $(65) -1% 
                   
Allowance for loan losses as a percentage of adversely classified loans 65.19% 72.00%     96.57%     
Allowance for loan losses to total impaired loans 286.05% 471.22%     567.68%     
Adversely classified loans to total assets 1.32% 1.44%     1.21%     
Delinquent loans to gross loans, not in nonaccrual status 2 0.21% 0.06%     0.27%     
Delinquent loans to gross loans without PPP, not in nonaccrual status 0.24% 0.07%     0.27%     
                
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) 
                
  Mar 31,
2021
 Dec 31,
2020
 $
Change
 %
Change
 Mar 31,
2020
 $
Change
 %
Change
 
    
  (Dollars in thousands) 
Total nonaccrual loans, beginning of three month period$2,392 $1,623 $769  47%$1,029 $1,363  132% 
Transfer to performing loans -  -  -  0% (127) 127  100% 
Addition of nonaccrual loans 202  1,056  (854) -81% 852  (650) -76% 
Moved to other assets owned (265) -  (265) 100% -  (265) -100% 
Principal payments, net (126) (287) 161  -56% (6) (120) 2000% 
Charge-offs, net -  -  -  0% (126) 126  100% 
Total nonaccrual loans, end of three month period$2,203 $2,392 $(189) -8%$1,622 $581  36% 
                
Other real estate owned and foreclosed assets 265  -  265  100% -  265  100% 
Total nonperforming assets$2,468 $2,392 $76  3%$1,622 $846  52% 
                
                
Total restructured performing loans, beginning of period$168 $174 $(6) -3%$320 $(152) -48% 
Transfer to nonaccrual loans -  -  -  0% (129) 129  100% 
Addition of restructured performing loans 1,382  -  1,382  100% 93  1,289  1386% 
Principal payments, net (5) (6) 1  -17% (6) 1  -17% 
Charge-offs, net -  -  -  0% -  -  0% 
Total restructured performing loans, end of period$1,545 $168 $1,377  820%$278 $1,267  456% 
                
Accruing loans past due 90 days or more$- $- $-  0%$- $-  0% 
Percentage of nonperforming assets to total assets 0.20% 0.20%     0.18%     
Nonperforming loans to total loans 0.30% 0.33%     0.24%     
Nonperforming loans to total loans without PPP 0.36% 0.38%     0.24%     
                
                

 

Allowance for Loan Losses 
(Unaudited) 
                
  For the Three Months Ended, 
  Mar 31,
2021
 Dec 31,
2020
 $
Change
 %
Change
 Mar 31,
2020
 $
Change
 %
Change
 
    
  (Dollars in thousands) 
Gross loans outstanding at end of period$722,713 $732,024 $(9,311) -1%$678,614 $44,099  6% 
Average loans outstanding, gross$724,259 $758,801 $(34,542) -5%$683,096 $41,163  6% 
                       
Allowance for loan losses, beginning of period$12,068 $12,002 $66  1%$8,993 $3,075  34% 
Commercial -  -  -  0% (130) 130  -100% 
Commercial Real Estate -  -  -  0% -  -  0% 
Residential Real Estate -  -  -  0% -  -  0% 
Consumer (46) (10) (36) 360% (80) 34  -43% 
Total charge-offs (46) (10) (36) 360% (210) 164  -78% 
Commercial 38  14  24  171% -  38  100% 
Commercial Real Estate -  -  -  0% -  -  0% 
Residential Real Estate 49  63  (14) -22% -  49  100% 
Consumer 12  (1) 13  -1300% 3  9  300% 
Total recoveries 99  76  23  30% 3  96  3200% 
Net recoveries/(charge-offs) 53  66  (13) -20% (207) 260  -126% 
Provision to income (1,400) -  (1,400) -100% 2,000  (3,400) -170% 
Allowance for loan losses, end of period$10,721 $12,068 $(1,347) -11%$10,786 $(65) -1% 
                
Ratio of net loans charged-off to average gross loans outstanding, annualized -0.03% -0.03% 0.00%   0.12% -0.15%   
Ratio of net loans charged-off to average gross loans outstanding without PPP, annualized -0.03% -0.04% 0.01%   0.12% -0.15%   
Ratio of allowance for loan losses to gross loans outstanding 1.48% 1.65% -0.17%   1.59% -0.11%   
Ratio of allowance for loan losses to gross loans without PPP outstanding 1.75% 2.01% -0.26%   1.59% 0.16%   
                

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 March 31, 2021, the Company had total assets of $1.25 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 Burlington, Washington and Salem and Eugene, 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. These forward-looking statements are subject to risks and uncertainties that could cause actual events or results to differ materially from those projected, anticipated or implied. These risks and uncertainties include various risks associated with growing the Bank and expanding the services it provides, successfully completing and integrating the acquisition of new branches and development of new business lines and markets, competition in the marketplace, general economic conditions, including the current COVID-19 pandemic and government responses thereto, changes in interest rates, extensive and evolving regulation of the banking industry, and many other risks. The pandemic could cause us to experience higher loan losses within our lending portfolio, impairment of goodwill, reduced demand for our products and services and other negative impacts on our financial position or results of operations. The depth, severity and scope of this current recession is uncertain, and our company will not be immune to the effects of the financial stress resulting from a global pandemic and economic shutdown. 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. 

?CONTACTS:
 DENISE PORTMANN, PRESIDENT & CEO
 CARLA TUCKER, EVP & CFO
 360.533.8873

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