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Pacific Financial Corp Announces Record Earnings of $3.8 Million, or $0.35 per Share, for Third Quarter 2019, and $10.3 Million, or $0.97 per Share, for the first Nine Months of 2019; Declares Regular Quarterly Cash Dividend of $0.11 per Share

Company Release - 10/29/2019 9:00 AM ET

ABERDEEN, Wash., Oct. 29, 2019 (GLOBE NEWSWIRE) -- Pacific Financial Corporation (OTCQX: PFLC), the holding company for Bank of the Pacific, today reported third quarter net income increased 18% to a record $3.8 million, or $0.35 per diluted share, compared to $3.2 million, or $0.30 per diluted share, in the third quarter of 2018, reflecting higher net interest income and gains on sale of residential mortgage loans.  Net income for the second quarter of 2019 was $3.6 million, or $0.34 per diluted share.  For the nine months ended September 30, 2019, net income was $10.3 million, or $0.97 per diluted share, up 28% from $8.1 million, or $0.76 per diluted share, for the nine months ended September 30, 2018.

The Board of Directors of Pacific Financial Corporation declared a quarterly cash dividend of $0.11 per share on October 23, 2019.  The dividend will be payable on November 25, 2019, to shareholders of record at close of business day on November 12, 2019.

“We again delivered record profits for the current quarter and for the first nine months of the year, fueled by an above industry-average net interest margin of 4.57% and robust growth in noninterest income, mainly due to increased gain on sale of loans,” said Denise Portmann, President and Chief Executive Officer.  “Additionally, we had solid growth in core deposits during the quarter.  Our performance metrics were above average with an annualized return on average assets (“ROAA”) at 1.61% and an annualized return on average equity (“ROAE”) of 14.52%.   

“With the recent opening of our new commercial banking center along the I-5 corridor in the high-growth area of Eugene, Oregon, our talented banking team is actively fostering long-term customer relationships – not only in the surrounding area of Eugene – but throughout the markets we serve,” said Portmann.  “We will continue to invest in our future and are pleased with the progress we have made so far.

“Earlier this month, our Board of Directors also announced the repurchase of up to $2.63 million, or approximately 2%, of the outstanding common stock of the Company, beginning November 1, 2019,” added Portmann.  “The balance between allocating capital to our growing franchise and returning capital to our shareholders through our quarterly cash dividend, is important to our strategic growth initiative.”

Third Quarter 2019 Financial Highlights (as of, or for the period ended September 30, 2019, except as noted):

  • Earnings per share were $0.35, compared to $0.30 for the third quarter of 2018, and $0.34 for the second quarter of 2019.
  • ROAA was 1.61%, compared to 1.38% for the third quarter a year ago.  Industry peer ROAA was 1.02%.  ROAE was 14.52%, compared to 13.89% for the third quarter of 2018.  Industry peer ROAE was 9.69%.  [Industry peers are the 469 banks that make up the SNL Microcap U.S. Bank Index, at June 30, 2019.]
  • Net interest margin remained solid at 4.57% for the third quarter, up 2 basis points from the third quarter a year ago and contracted 17 basis points from the preceding quarter.  Industry peer NIM was 3.71%.  [Industry peers are the 469 banks that comprised the SNL Microcap U.S. Bank Index, at June 30, 2019.]  Net interest margin expanded 16 basis points to 4.66% for the first nine months of 2019 compared to 4.50% for the first nine months of 2018. 
  • Noninterest income increased 57%, or $1.5 million, to $4.2 million in the third quarter, compared to $2.6 million in the third quarter a year ago, and increased 21%, or $723,000, from $3.4 million in the second quarter of 2019.  Positively impacting noninterest income in the current quarter was a gain on sale of loans of $2.4 million.
  • Total assets increased $8.1 million to $945.2 million from $937.1 million a year earlier.
  • Total deposits were $816.1 million, compared to $815.2 million at September 30, 2018, and $795.5 million at June 30, 2019.  This includes a reduction of $20.3 million and $6.5 million in brokered CDs from the year-over-year quarter and the preceding quarter, respectively.  Noninterest-bearing deposits represented 33% of total deposits, at September 30, 2019.
  • Gross loans were $683.8 million at quarter end, compared to $693.1 million a year ago and $689.7 million at June 30, 2019.  This includes a strategic reduction of $10.8 million in indirect consumer loans to finance luxury and classic cars year-over-year.
  • Asset quality remains solid with nonperforming assets to total assets at 0.11% at quarter end.
  • The allowance for loan losses was 1.32% of gross loans outstanding at quarter end.
  • Capital ratios continue to exceed the regulatory guidelines for a well-capitalized financial institution, including a leverage ratio of 11.11% and a total risk based capital ratio of 14.30%.

Results of Operations

Net interest income increased $191,000, or 2%, to $9.8 million in the third quarter of 2019, compared to $9.7 million in the third quarter a year ago, and increased $117,000, or 1%, from $9.7 million in the second quarter of 2019.  In the first nine months of 2019, net interest income increased $1.5 million, or 6%, to $29.2 million from $27.7 million in the first nine months a year ago.  No provision for loan losses has been booked since the third quarter of 2017.

The increases in the current quarter and for the first nine months of 2019, compared to the same periods in 2018, were primarily the result of an increase in yield on loans to 5.47% and 5.48%, compared to 5.35% and 5.24%, respectively.  Increases in market rates during 2017 and 2018 had a positive impact on asset yields in 2018 and early 2019. Increases in loan yields were partially offset by an increase in the cost of funds to 0.35% and 0.37% for the quarter, and nine months ended September 30, 2019, compared to 0.33% and 0.32% in the like periods in 2018.  Again, increases in market rates during 2017 and 2018 resulted in a modest increase in funding costs during 2019.  After a period of expanding earning asset yields and increasing margins, net interest margin and earning asset yields declined during the current quarter to 4.57% and 4.91%, respectively, compared to 4.74% and 5.10% in the quarter ended June 30, 2019, reflecting the recent decline in market interest rates.

Noninterest income increased 57%, or $1.5 million, to $4.2 million for the third quarter of 2019, compared to $2.6 million for the third quarter of 2018, and increased 21%, or $723,000, from $3.4 million in the second quarter of 2019.  This includes an increase in gain on sale of loans to $2.4 million in the current quarter compared to $1.7 million and $1.2 million for the quarters ended June 30, 2019 and September 30, 2018, respectively.  Similarly, for the first of nine months of 2019, noninterest income increased $2.4 million including an increase of $1.8 million in gain on sale of loans.  Recent declines in mortgage rates increased demand for refinancing and encouraged more sellers to add to the supply of housing inventory for sale in several of our Western Washington and Oregon markets.

“The recent decline in mortgage interest rates have encouraged an increase in both home purchase and refinance activities within our markets.  This loan activity has increased contributions to noninterest income during the current quarter and for the first nine months of the year,” added Portmann.  “In addition, we continue to benefit from initiatives introduced last year which have improved workflow efficiencies, revenue and cost management.”  

Noninterest expense increased 12% to $9.4 million compared to $8.4 million in the third quarter of 2018 and grew 8% from $8.7 million on a linked quarter basis.  For the first nine months of 2019, noninterest expense was $26.5 million compared to $25.5 million for the first nine months of 2018.  The increase in operating expenses, year-over-year and for the first nine months of 2019, was primarily due to higher compensation and commissions associated with the growth in residential mortgage production, and expenses for professional services related to executive search, strategic marketing and technology consulting.  These costs were partially offset by declines in occupancy and equipment expense associated with the closure of two branches in first quarter of 2019. 

The efficiency ratio was 67.03% for the third quarter of 2019, compared to 68.23% for the third quarter a year ago, and 66.00% for the second quarter of 2019.  Year-to-date, the efficiency ratio was 67.60% compared to 72.38% for the first nine months of 2018.

Balance Sheet Review

Total assets increased $8.1 million to $945.2 million at September 30, 2019, compared to $937.1 million at September 30, 2018, and grew $20.3 million from $924.9 million at June 30, 2019.

Investment securities decreased $5.1 million to $99.2 million at September 30, 2019, compared to $104.3 million at September 30, 2018, primarily as a result of maturities, payments and sales within the portfolio.  The portfolio is comprised primarily of amortizing U.S. agency collateralized mortgage and mortgage-backed securities.

Liquidity within the company remains strong.  At September 30, 2019, in addition to cash equivalent assets of $89.0 million, the Bank had established borrowing lines with the Federal Home Loan Bank of Des Moines of $174.7 million, with $3.3 million outstanding at September 30, 2019.  The Bank’s borrowing facility with the FHLB is subject to collateral and stock ownership requirements. The Bank also has available a discount window primary credit line with the Federal Reserve Bank of San Francisco of approximately $51.8 million, subject to collateral requirements, and $16.0 million from correspondent banks, with no balance outstanding on any of these facilities.

The loan portfolio remains well-diversified with loans originating predominately within the Western Washington and Oregon markets.  Gross loan balances were $683.8 million at September 30, 2019, compared to $693.1 million at September 30, 2018.  To manage risk, the Company oversees new loan origination volume and current loan balance using concentration limits that establish maximum exposure levels by designated industry segment, real estate product types, geography and single borrower limits.  The portfolio includes $51.4 million in indirect consumer loans to finance luxury and classic cars. “As part of our strategic plan, we have been limiting our concentrations in the indirect consumer loans to finance luxury and classic cars,” said Portmann.  As at September 30, 2019, this portfolio balance totaled $51.4 million, a decline of $10.7 million from $62.1 million a year earlier and down $2.4 million compared to $53.8 million at June 30, 2019.

Total deposits were $816.1 million at September 30, 2019, a slight increase from $815.2 million at September 30, 2018, and an increase of 3% from $795.5 million at June 30, 2019.  Excluding a $20.3 million reduction in brokered deposits, year-over-year deposits increased $21.3 million. Time deposits continue to decline as a component of funding, primarily due to the reduction in brokered deposits.  Noninterest bearing deposits to total deposits ratio remains outstanding at 33%, up from 32% from a year ago. “Liquidity remains strong based on existing levels of combined cash equivalents, investment securities and unused borrowing capacity.  Seasonal inflows, typical for this time of year, impacted total deposits during the current quarter,” said Carla Tucker, EVP and Chief Financial Officer.

Capital ratios of Pacific Financial Corporation, and its subsidiary Bank of the Pacific, continue to exceed the regulatory requirements for the well-capitalized thresholds. At September 30, 2019, Pacific Financial Corporation’s leverage ratio was 11.11% and the total risk-based capital ratio was 14.30%. 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.

Asset Quality

Asset quality continues to be strong, at or near historical low levels, with delinquent loans to gross loans at 0.25% and loan net charge-offs of $29,000 for the third quarter and $32,000 for the first nine months of 2019. Adversely classified loans to total gross loans was 1.17% at the end of the current quarter and linked quarter versus 1.12% a year earlier.  Nonperforming assets were $1.0 million, or 0.11% of total assets, at September 30, 2019, compared to $746,000 or 0.08% of total assets at September 30, 2018, and $773,000, or 0.08% of total assets at June 30, 2019. 

The allowance for loan losses is managed in concert with loan growth, credit quality and market conditions.  The allowance for loan losses to gross loans stood at 1.32% at September 30, 2019, compared to 1.31% a year ago, and 1.31% at June 30, 2019.  No provision for loan losses was incurred in the current quarter, linked quarter or the like quarter a year ago. The overall risk profile of the loan portfolio continues to be conservative, demonstrating the solid credit risk management framework in place.

Income Tax Provision

Income tax provision for the third quarter was $859,000 for an effective tax rate of 18.6%.  For the quarters ended June 30, 2019 and September 30, 2018, a provision for income tax of $870,000 and $724,000 were recorded. Tax expense for the nine months ending September 30, 2019, was $2.4 million versus $1.7 million in the same period for the prior year. A planned reduction in nontaxable municipal securities during the June 30, 2019 quarter contributed to the increase in the effective tax rate.  The remaining tax provision increase can be attributed to growth in pre-tax income.  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 Overview
(Unaudited)
               
  Sept 30,
2019
 June 30,
2019
 $ Change % Change Sept 30,
2018
 $ Change % Change
               
Assets: (Dollars in thousands, except per share data)
Cash on hand and in banks$48,910 $33,158 $15,752  48%$80,121 $(31,211) -39%
Interest bearing deposits 3,250  3,250  -  0% 994  2,256  227%
Federal funds sold 36,876  26,551  10,325  100% -  36,876  100%
Investment securities 99,222  104,143  (4,921) -5% 104,343  (5,121) -5%
Loans held-for-sale 23,542  18,489  5,053  27% 7,745  15,797  204%
Loans, net of deferred fees 682,832  688,684  (5,852) -1% 692,092  (9,260) -1%
Allowance for loan losses (9,017) (9,046) 29  0% (9,067) 50  -1%
Net loans 673,815  679,638  (5,823) -1% 683,025  (9,210) -1%
Federal Home Loan Bank and Pacific Coast Bankers' Bank stock, at cost 2,218  2,220  (2) 0% 2,409  (191) -8%
Other assets 57,372  57,496  (124) 0% 58,455  (1,083) -2%
Total assets$945,205 $924,945 $20,260  2%$937,092 $8,113  1%
               
Liabilities and Shareholders' Equity:              
Total deposits$816,090 $795,504 $20,586  3%$815,153 $937  0%
Borrowings 16,644  16,681  (37) 0% 21,794  (5,150) -24%
Accrued interest payable and other liabilities 9,000  11,534  (2,534) -22% 8,806  194  2%
Shareholders' equity 103,471  101,226  2,245  2% 91,339  12,132  13%
Total liabilities and shareholders' equity$945,205 $924,945 $20,260  2%$937,092 $8,113  1%
               
Common Stock Shares Outstanding 10,608,558  10,593,697  14,861  0% 10,565,034  43,524  0%
               
Book value per common share (1)$9.75 $9.56 $0.19  2%$8.65 $1.10  13%
Tangible book value per common share (2)$8.48 $8.28 $0.20  2%$7.37 $1.11  15%
Gross loans to deposits ratio 83.7% 86.6% -2.9%   84.9% -1.2%  
               
(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,
  Sept 30,
2019
 June 30,
2019
 $ Change % Change Sept 30,
2018
 $ Change % Change
               
  (Dollars in thousands, except per share data)
Interest and dividend income$10,563 $10,460 $103  1%$10,337 $226  2%
Interest expense 721  735  (14) -2% 686  35  5%
Net interest income 9,842  9,725  117  1% 9,651  191  2%
Loan loss provision -  -  -  0% -  -  0%
Noninterest income 4,167  3,444  723  21% 2,648  1,519  57%
Noninterest expense 9,390  8,692  698  8% 8,392  998  12%
Income before income taxes 4,619  4,477  142  3% 3,907  712  18%
Income tax expense 859  870  (11) -1% 724  135  19%
Net Income$3,760 $3,607 $153  4%$3,183 $577  18%
               
Average common shares outstanding - basic 10,595,992  10,587,140  8,852  0% 10,563,104  32,888  0%
Average common shares outstanding - diluted 10,669,761  10,670,586  (825) 0% 10,685,274  (15,513) 0%
               
Income per common share              
Basic$0.35 $0.34 $0.01  3%$0.30 $0.05  17%
Diluted$0.35 $0.34 $0.01  3%$0.30 $0.05  17%
               
Effective tax rate 18.6% 19.4% -0.8%   18.5% 0.1%  
               
  For the Nine Months Ended,      
  Sept 30,
2019
 Sept 30,
2018
 $ Change % Change      
               
  (Dollars in thousands, except per share data)      
Interest and dividend income$31,383 $29,541 $1,842  6%      
Interest expense 2,198  1,890  308  16%      
Net interest income 29,185  27,651  1,534  6%      
Loan loss provision -  -  -  0%      
Noninterest income 10,009  7,622  2,387  31%      
Noninterest expense 26,494  25,529  965  4%      
Income before income taxes 12,700  9,744  2,956  30%      
Income tax expense 2,387  1,658  729  44%      
Net Income$10,313 $8,086 $2,227  28%      
               
Average common shares outstanding - basic 10,586,778  10,546,315  40,463  0%      
Average common shares outstanding - diluted 10,670,517  10,672,184  (1,667) 0%      
               
Income per common share              
Basic$0.97 $0.77 $0.20  26%      
Diluted$0.97 $0.76 $0.21  28%      
               
Effective tax rate 18.8% 17.0% 1.8%        
                  


Noninterest Income
(Unaudited)
 
  For the Three Months Ended,
  Sept 30,
2019
 June 30,
2019
 $ Change % Change Sept 30,
2018
 $ Change % Change
               
  (Dollars in thousands)
Service charges on deposits$493$531$(38) -7%$504$(11) -2%
Gain on sale of loans, net 2,353 1,707 646  38% 1,155 1,198  104%
Gain on sale of securities available for sale, net - 102 (102) 100% - -  100%
Earnings on bank owned life insurance 333 109 224  206% 108 225  208%
Other noninterest income              
Fee income 936 884 52  6% 871 65  7%
Other 52 111 (59) -53% 10 42  420%
Total noninterest income$4,167$3,444$723  21%$2,648$1,519  57%
               
               
  For the Nine Months Ended,      
  Sept 30,
2019
 Sept 30,
2018
 $ Change % Change      
               
  (Dollars in thousands)      
Service charges on deposits$1,529$1,527$2  0%      
Gain on sale of loans, net 4,991 3,163 1,828  58%      
Gain on sale of securities available for sale, net 102 - 102  100%      
Earnings on bank owned life insurance 548 321 227  71%      
Other noninterest income              
Fee income 2,649 2,520 129  5%      
Other 190 91 99  109%      
Total noninterest income$10,009$7,622$2,387  31%      
               


Noninterest Expense 
(Unaudited) 
                
  For the Three Months Ended, 
  Sept 30,
2019
 June 30,
2019
 $ Change % Change Sept 30,
2018
 $ Change % Change 
                
  (Dollars in thousands) 
Salaries and employee benefits$6,058$5,506$552  10%$5,328$730  14% 
Occupancy 584 510 74  15% 524 60  11% 
Equipment 251 241 10  4% 255 (4) -2% 
Data processing 737 701 36  5% 726 11  2% 
Professional services 376 303 73  24% 173 203  117% 
State and local taxes 136 139 (3) -2% 131 5  4% 
FDIC and State assessments 50 69 (19) -28% 84 (34) -40% 
Other noninterest expense:               
Director fees 67 66 1  2% 65 2  3% 
Communication 74 76 (2) -3% 73 1  1% 
Advertising 70 90 (20) -22% 82 (12) -15% 
Professional liability insurance 54 50 4  8% 49 5  10% 
Amortization 114 100 14  14% 92 22  24% 
Other 819 841 (22) -3% 810 9  1% 
Total noninterest expense$9,390$8,692$698  8%$8,392$998  12% 
                
                
  For the Nine Months Ended,       
  Sept 30,
2019
 Sept 30,
2018
 $ Change % Change       
                
  (Dollars in thousands)       
Salaries and employee benefits$16,965$16,079$886  6%       
Occupancy 1,595 1,601 (6) 0%       
Equipment 734 840 (106) -13%       
Data processing 2,131 2,122 9  0%       
Professional services 1,047 562 485  86%       
Other real estate owned operating costs - 6 (6) -100%       
State and local taxes 357 375 (18) -5%       
FDIC and State assessments 127 320 (193) -60%       
Other noninterest expense:               
Director fees 199 198 1  1%       
Communication 221 229 (8) -3%       
Advertising 226 246 (20) -8%       
Professional liability insurance 153 141 12  9%       
Amortization 306 286 20  7%       
Loss on real estate owned, net - - -  0%       
Other 2,433 2,524 (91) -4%       
Total noninterest expense$26,494$25,529$965  4%       
                


Financial Performance Overview
(Unaudited)
           
  For the Three Months Ended
  Sept 30,
2019
 June 30,
2019
 Change Sept 30,
2018
 Change
           
Performance Ratios         
Return on average assets, annualized1.61% 1.62% (0.01) 1.38% 0.23 
Return on average equity, annualized14.52% 14.62% (0.10) 13.89% 0.63 
Efficiency ratio (1)67.03% 66.00% 1.03  68.23% (1.20)
           
(1) Non-interest expense divided by net interest income plus noninterest income.      
           
           
  For the Nine Months Ended,    
  Sept 30,
2019
 Sept 30,
2018
 Change    
           
Performance Ratios         
Return on average assets, annualized1.52% 1.21% 0.31     
Return on average equity, annualized13.95% 12.23% 1.72     
Efficiency ratio (1)67.60% 72.38% (4.78)    
           
(1) Non-interest expense divided by net interest income plus noninterest income.      
           

LIQUIDITY

Cash and Cash Equivalents and Investment Securities
(Unaudited)
 
  Sept 30,
2019
 % of
Total
 June 30,
2019
 % of
Total
 $ Change % Change Sept 30,
2018
 Total $ Change % Change
                     
  (Dollars in thousands)
Cash on hand and in banks$21,517 11%$17,310 11%$4,207  24%$14,767 8%$6,750  46%
Interest bearing deposits 27,393 15% 15,848 9% 11,545  73% 65,354 35% (37,961) -58%
Other interest earning deposits 3,250 2% 3,250 2% -  0% 994 1% 2,256  227%
Federal funds sold 36,876 20% 26,551 16% 10,325  39% - 0% 36,876  100%
Total 89,036 48% 62,959 38% 26,077  41% 81,115 44% 7,921  10%
                     
Investment securities:                    
Collateralized mortgage obligations 43,805 23% 46,712 28% (2,907) -6% 35,980 19% 7,825  22%
Mortgage backed securities 20,457 11% 22,061 13% (1,604) -7% 14,190 8% 6,267  44%
U.S. Government and agency securities 501 0% 536 0% (35) -7% 4,121 2% (3,620) -88%
Municipal securities 32,378 17% 32,766 20% (388) -1% 49,980 27% (17,602) -35%
Corporate debt securities 1,999 1% 1,995 1% 4  0% - 0% 1,999  100%
Equity securities 82 0% 73 0% 9  12% 72 0% 10  14%
Total 99,222 52% 104,143 62% (4,921) -5% 104,343 56% (5,121) -5%
Total cash equivalents and investment securities$188,258 100%$167,102 100%$21,156  13%$185,458 100%$2,800  2%
                     
Total cash equivalents and investment securities                    
as a percent of total assets   20%   18%       14%    
                     

LOANS

Loans by Category
(Unaudited)
                     
  Sept 30,
2019
 % of
Gross
Loans
 June 30,
2019
 % of
Gross
Loans
 $ Change % Change Sept 30,
2018
 % of
Gross Loans
 $ Change % Change
                     
  (Dollars in thousands)
Commercial and agricultural$134,758  20%$142,107  21%$(7,349) -5%$135,204  20%$(446) 0%
Real estate:                    
Construction and development 41,663  6% 41,815  6% (152) 0% 49,697  7% (8,034) -16%
Residential 1-4 family 86,771  13% 88,461  13% (1,690) -2% 90,394  13% (3,623) -4%
Multi-family 32,920  5% 32,010  5% 910  3% 31,134  4% 1,786  6%
Commercial real estate -- owner occupied 142,297  21% 137,565  20% 4,732  3% 144,349  21% (2,052) -1%
Commercial real estate -- non owner occupied 150,249  21% 152,143  21% (1,894) -1% 138,255  20% 11,994  9%
Farmland 32,448  5% 30,043  4% 2,405  8% 29,075  4% 3,373  12%
Consumer 62,707  9% 65,533  10% (2,826) -4% 74,998  11% (12,291) -16%
Gross Loans 683,813  100% 689,677  100% (5,864) -0.9% 693,106  100% (9,293) -1%
Less: allowance for loan losses (9,017)   (9,046)   29    (9,067)   50   
Less: deferred fees (981)   (993)   12    (1,014)   33   
Net loans$673,815   $679,638   $(5,823)  $683,025   $(9,210)  
                     
                     
Loan Concentration
(Unaudited)
     
  Sept 30,
2019
 % of Risk
Based
Capital
 June 30,
2019
 % of Risk
Based
Capital
 Change Sept 30,
2018
 % of Risk
Based
Capital
 Change    
                     
  (Dollars in thousands)    
Commercial and agricultural$134,758  123%$142,107  132% -9%$135,204  134% -11%    
Real estate:                    
Construction and development 41,663  38% 41,815  39% -1% 49,697  49% -11%    
Residential 1-4 family 86,771  79% 88,461  82% -3% 90,394  89% -10%    
Multi-family 32,920  30% 32,010  30% 0% 31,134  31% -1%    
Commercial real estate -- owner occupied 142,297  130% 137,565  128% 2% 144,349  143% -13%    
Commercial real estate -- non owner occupied 150,249  137% 152,143  141% -4% 138,255  137% 0%    
Farmland 32,448  30% 30,043  28% 2% 29,075  29% 1%    
Consumer 62,707  57% 65,533  61% -4% 74,998  74% -17%    
Gross Loans$683,813   $689,677     $693,106         
Regulatory Commercial Real Estate$221,191  202%$221,663  205% -3%$213,891  212% -10%    
Total Risk Based Capital*$109,428   $107,877     $101,031         
                     
*Bank of the Pacific                    
                     

DEPOSITS

Deposits by Category 
(Unaudited) 
                      
  Sept 30,
2019
 % of Total June 30,
2019
 % of Total $ Change % Change Sept 30,
2018
 % of Total $ Change % Change 
                      
  (Dollars in thousands) 
Interest-bearing demand$222,412  27%$218,828 28%$3,584  2%$201,058  24%$21,354  11% 
Money market 150,655  18% 146,886 18% 3,769  3% 161,012  20% (10,357) -6% 
Savings 106,284  13% 102,721 13% 3,563  3% 102,680  13% 3,604  4% 
Time deposits (CDs) 71,501  9% 77,870 10% (6,369) -8% 87,874  11% (16,373) -19% 
Total interest-bearing deposits 550,852  67% 546,305 69% 4,547  1% 552,624  68% (1,772) 0% 
Non-interest bearing demand 265,238  33% 249,199 31% 16,039  6% 262,529  32% 2,709  1% 
Total deposits$816,090  100%$795,504 100%$20,586  2.6%$815,153  100%$937  0% 
                      
                      

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

Capital Measures
(unaudited)
 
 Sept 30,
2019
 June 30,
2019
 Change Sept 30,
2018
 Change  Well
Capitalized
Under Prompt
Correction
Action
Regulations*
Pacific Financial Corporation            
Total risk-based capital ratio14.30% 14.16% 0.14  13.61% 0.69  N/A 
Tier 1 risk-based capital ratio13.13% 12.98% 0.15  12.40% 0.73  N/A 
Common equity tier 1 ratio11.45% 11.28% 0.17  10.67% 0.78  N/A 
Leverage ratio11.11% 11.32% (0.21) 10.30% 0.81  N/A 
              
Tangible common equity ratio9.66% 9.63% 0.03  8.43% 1.23  N/A 
              
Bank of the Pacific             
Total risk-based capital ratio14.22% 14.08% 0.14  13.49% 0.73  10.5%
Tier 1 risk-based capital ratio13.02% 12.88% 0.14  12.26% 0.76  8.5%
Common equity tier 1 ratio13.02% 12.88% 0.14  12.26% 0.76  7.0%
Leverage ratio11.01% 11.24% (0.23) 10.18% 0.83  7.5%
             
*Includes Basel III 2019 Capital Conservation Buffer           
             

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, 
                 
   Sept 30,
2019
 June 30,
2019
 $ Change % Change Sept 30,
2018
 $ Change % Change 
                 
Average Balances (Dollars in thousands) 
Gross loans$688,166 $695,086 $(6,920) -1%$695,011$(6,845) -1% 
Loans held for sale$16,825 $10,746 $6,079  57%$8,860$7,965  90% 
Investment securities$104,236 $110,277 $(6,041) -5%$107,619$(3,383) -3% 
Federal funds sold & interest bearing deposits in banks$51,931 $13,630 $38,301  281%$41,409$10,522  25% 
Total interest-earning assets$861,158 $829,739 $31,419  4%$852,899$8,259  1% 
Non-interest bearing demand deposits$254,184 $231,308 $22,876  10%$251,847$2,337  1% 
Interest bearing deposits$541,200 $534,823 $6,377  1%$543,436$(2,236) 0% 
Total Deposits$795,384 $766,131 $29,253  4%$795,283$101  0% 
Borrowings$16,661 $19,186 $(2,525) -13%$21,943$(5,282) -24% 
Total interest-bearing liabilities$557,861 $554,009 $3,852  1%$565,379$(7,518) -1% 
Total Equity$102,715 $98,965 $3,750  4%$90,903$11,812  13% 
                 
   For the Three Months Ended,     
   Sept 30,
2019
 June 30,
2019
 Change Sept 30,
2018
 Change     
Yield on average gross loans (1) 5.47% 5.52% (0.05) 5.35% 0.12     
Yield on average investment securities (1) 2.80% 2.87% (0.07) 2.80% -     
Yield on Fed funds sold & interest bearing deposits in banks 2.24% 2.68% (0.44) 1.98% 0.26     
Cost of average interest bearing deposits 0.42% 0.42% -  0.37% 0.05     
Cost of average borrowings 3.60% 3.62% (0.02) 3.34% 0.26     
Cost of average total deposits and borrowings 0.35% 0.37% (0.02) 0.33% 0.02     
                 
Yield on average interest-earning assets 4.91% 5.10% (0.19) 4.86% 0.05     
Cost of average interest-bearing liabilities 0.51% 0.53% (0.02) 0.48% 0.03     
Net interest spread 4.40% 4.57% (0.17) 4.38% 0.02     
                 
Net interest margin (1) 4.57% 4.74% (0.17) 4.55% 0.02     
                 
(1) Tax-exempt income has been adjusted to a tax equivalent basis at a rate of 21%.           
                 
   For the Nine Months Ended,       
   Sept 30,
2019
 Sept 30,
2018
 $ Change % Change       
                 
Average Balances (Dollars in thousands)       
Gross loans$693,738 $693,868 $(130) 0%       
Loans held for sale$10,990 $7,949 $3,041  38%       
Investment securities$112,511 $108,479 $4,032  4%       
Federal funds sold & interest bearing deposits in banks$27,912 $22,140 $5,772  26%       
Interest-earning assets$845,151 $832,436 $12,715  2%       
Non-interest bearing demand deposits$241,188 $246,993 $(5,805) -2%       
Interest bearing deposits$539,227 $529,473 $9,754  2%       
Total Deposits$780,415 $776,466 $3,949  1%       
Borrowings$19,193 $22,400 $(3,207) -14%       
Interest-bearing liabilities$558,420 $551,873 $6,547  1%       
Total Equity$98,872 $88,367 $10,505  12%       
                 
Total Deposits excl. Brokered CDs 759,417  736,843  22,574  3.1%       
                 
   For the Nine Months Ended,         
   Sept 30,
2019
 Sept 30,
2018
 Change         
Net Interest Margin               
Yield on average gross loans (1) 5.48% 5.24% 0.24          
Yield on average investment securities (1) 2.89% 2.72% 0.17          
Yield on Fed funds sold & interest bearing deposits in banks 2.40% 1.83% 0.57          
Cost of average interest bearing deposits 0.42% 0.34% 0.08          
Cost of average borrowings 3.65% 3.25% 0.40          
Cost of average total deposits and borrowings 0.37% 0.32% 0.05          
                 
Yield on average interest-earning assets 5.01% 4.80% 0.21          
Cost of average interest-bearing liabilities 0.53% 0.46% 0.07          
Net interest spread 4.48% 4.34% 0.14          
                 
Net interest margin (1) 4.66% 4.50% 0.16          
                 
(1) Tax-exempt income has been adjusted to a tax equivalent basis at a rate of 21%.           
                 



               
Adversely Classified Loans and Securities
(Unaudited)
               
  Sept 30,
2019
 June 30,
2019
 $ Change % Change Sept 30,
2018
 $ Change % Change
               
  (Dollars in thousands)
Rated substandard or worse, but not impaired$6,637 $6,978 $(341) -5%$6,733 $(96) -1%
Impaired 1,341  1,106  235  21% 1,044  297  28%
Total adversely classified loans1$7,978 $8,084 $(106) -1%$7,777 $201  3%
               
               
Gross loans (excluding deferred loan fees)$683,813 $689,677 $(5,864) -1%$693,106 $(9,293) -1%
Adversely classified loans to gross loans 1.17% 1.17%     1.12%    
Allowance for loan losses$9,017 $9,046 $(29) 0%$9,067 $(50) -1%
Allowance for loan losses as a percentage of adversely classified loans 113.02% 111.90%     116.59%    
Allowance for loan losses to total impaired loans 672.41% 817.90%     868.49%    
Adversely classified loans to total assets 0.84% 0.87%     0.83%    
Delinquent loans to gross loans, not in nonaccrual status 0.25% 0.12%     0.18%    
               

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.

Nonperforming Assets
(Unaudited)
               
  Sept 30,
2019
 June 30,
2019
 $ Change % Change Sept 30,
2018
 $ Change % Change
               
  (Dollars in thousands)
Loans on nonaccrual status$1,014 $773 $241  31%$696 $318  46%
Total nonaccrual loans 1,014  773  241  31% 696  318  46%
               
Other real estate owned and foreclosed assets -  -  -  0% 50  (50) -100%
Total nonperforming assets$1,014 $773 $241  31%$746 $268  36%
               
               
Restructured performing loans$327 $132 $195  148%$348 $(21) -6%
Accruing loans past due 90 days or more$- $151 $(151) 100%$- $-  100%
Percentage of nonperforming assets to total assets 0.11% 0.08%     0.08%    
Nonperforming loans to total loans 0.15% 0.11%     0.10%    
               


Allowance for Loan Losses
(Unaudited)
               
  For the Three Months Ended,
  Sept 30,
2019
 June 30,
2019
 $ Change % Change Sept 30,
2018
 $ Change % Change
               
  (Dollars in thousands)
Gross loans outstanding at end of period$683,813 $689,677 $(5,864) -1%$693,106 $(9,293) -1%
Average loans outstanding, gross$688,166 $695,086 $(6,920) -1%$695,011 $(6,845) -1%
Allowance for loan losses, beginning of period$9,046 $9,056 $(10) 0%$9,143 $(97) -1%
Commercial -  -  -  -100% (4) 4  0%
Commercial Real Estate -  -  -  0% -  -  0%
Residential Real Estate -  -  -  0% -  -  0%
Consumer (33) (20) (13) 65% (103) 70  -68%
Total charge-offs (33) (20) (13) 65% (107) 74  -69%
Commercial -  -  -  -100% 23  (23) -100%
Commercial Real Estate -  -  -  0% -  -  0%
Residential Real Estate -  -  -  -100% -  -  0%
Consumer 4  10  (6) -60% 8  (4) -50%
Total recoveries 4  10  (6) -60% 31  (27) -87%
Net recoveries/(charge-offs) (29) (10) (19) 190% (76) 47  -62%
Provision charged to income -  -  -  0% -  -  0%
Allowance for loan losses, end of period$9,017 $9,046 $(29) 0%$9,067 $(50) -1%
Ratio of net loans charged-off to average              
gross loans outstanding, annualized 0.02% 0.01% 0.01%   0.04% -0.02%  
Ratio of allowance for loan losses to              
gross loans outstanding 1.32% 1.31% 0.01%   1.31% 0.01%  
               
               
  For the Nine Months Ended,      
  Sept 30,
2019
 Sept 30,
2018
 $ Change % Change      
               
  (Dollars in thousands)      
Gross loans outstanding at end of period$683,813 $693,106 $(9,293) -1%      
Average loans outstanding, gross$693,738 $693,868 $(130) 0%      
Allowance for loan losses, beginning of period$9,049 $9,092 $(43) 0%      
Commercial (30) (4) (26) 100%      
Commercial Real Estate -  -  -  0%      
Residential Real Estate -  -  -  0%      
Consumer (112) (155) 43  -28%      
Total charge-offs (142) (159) 17  -11%      
Commercial 56  77  (21) -27%      
Commercial Real Estate -  -  -  0%      
Residential Real Estate 34  -  34  100%      
Consumer 20  57  (37) -65%      
Total recoveries 110  134  (24) -18%      
Net (charge-offs) (32) (25) (7) 28%      
Provision charged to income -  -  -  0%      
Allowance for loan losses, end of period$9,017 $9,067 $(50) -1%      
Ratio of net loans charged-off to average              
gross loans outstanding, annualized 0.00% 0.00% 0.00%        
Ratio of allowance for loan losses to              
gross loans outstanding 1.32% 1.31% 0.01%        
               

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 9/30/19, the Company had total assets of $945.2 million 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, changes in interest rates, extensive and evolving regulation of the banking industry, and many other risks. 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
 

pfc logo.jpg

Source: Pacific Financial Corporation