Oregon Pacific Bank Announces Second Quarter Earnings Results

FLORENCE, Ore., July 20, 2023--(BUSINESS WIRE)--Oregon Pacific Bancorp (ORPB), the holding company of Oregon Pacific Bank, today reported financial results for the second quarter ended, June 30, 2023.

Highlights:

• Second quarter net income of $2.2 million; $0.31 per diluted share.

• Quarterly loan growth of $16.8 million or 3.40%.

• Quarterly tax equivalent net interest margin of 3.72%.

• Federal Reserve approved conversion of Portland loan production office to full-service branch.

Net income for the quarter ended June 30, 2023, was $2.2 million, or $0.31 per diluted share compared to $1.9 million or $0.27 per diluted share for the quarter ended June 30, 2022. Core earnings remained strong, but the Bank experienced some margin compression as pressure on cost of funds and deposit retention grew. The second quarter margin contracted to 3.72%, down from 3.87% in first quarter 2023, but still remains elevated when compared to the quarterly margin of 3.27% from second quarter 2022. The rapid pace of rate increases occurring between mid-2022 and early-2023 lead to record margin expansion and the industry is seeing some amount of compression as deposit rates lagged the increase in asset yields.

During the quarter the Bank received regulatory approval to convert the Portland loan production office into a full-service Branch. The Bank has identified a permanent branch location located at 16101 SW 72nd Avenue, with an official branch opening anticipated during the third quarter. "Conversion of the Portland Loan Production Office into a full-service branch further demonstrates the Bank’s commitment to growing the Portland Market," said Ron Green, President and Chief Executive Officer. "We believe the strength of our Portland banking team, led by Market President Kyle Baisch, will have tremendous success as clients continue to see the value of relationships and the community bank model."

Period-end loans, net of deferred loan origination fees, totaled $510.3 million, representing quarterly growth of $16.8 million. The first quarter loan yield grew to 4.96%, representing an increase of 0.11% over the prior quarter as new loan production is occurring at a rate higher than the portfolio yield. Quarterly loan production for new and renewed loans totaled $32.1 million, with a weighted average effective rate of 6.71%.

The Bank experienced quarterly deposit contraction totaling $12.4 million compared to deposit totals at March 31, 2023. During the second quarter two large clients reduced their deposit balances held with the Bank. A large nonprofit utilized excess cash to begin funding a large construction project and a commercial client completed a partner buyout. The deposit reductions associated with these two clients totaled $15.6 million compared to their balances at March 31, 2023. "Deposit migration during the second quarter generally occurred as a result of normal operating activity, with rate-based migration occurring far less," commented John Raleigh, Chief Lending Officer. "Deposit rates are still top of mind, but the targeted interest rate increases implemented during the second quarter have helped retain rate-sensitive clients while balancing the bank’s total cost of funds." The Bank’s cost of funds increased to 0.78% during the second quarter, compared to 0.51% during the first quarter, resulting in an increase in interest expense of $453 thousand during the quarter. The Bank continued to utilize Insured Cash Sweep (ICS) deposits to provide added FDIC insurance to customers seeking added protection. ICS deposits grew from $104.3 million at March 31, 2023 to $110.1 million at June 30, 2023 and are reflected in the interest checking line item of the balance sheet. Through June 30, 2023, the Bank’s ICS reciprocal concentration remains below 20% of deposits, so no portion of the ICS deposits are classified as brokered deposits for regulatory reporting purposes.

The securities portfolio contracted to $181.5 million during the quarter, down from $195.6 million at March 31, 2023. The reduction was attributable to an increase in the unrealized loss on the portfolio, normal portfolio cash flows and a sale of $9.5 million in securities. The sale candidates were tax-exempt municipal bonds purchased during 2016, which were able to be liquidated with a minimal loss of $30 thousand to generate cash flow to fund loan growth, while maintaining the overall security portfolio yield.

Noninterest income totaled $1.8 million during the second quarter 2023 and represented growth of $91 thousand over first quarter 2023. The largest increase in non-interest income occurred in the trust fee income category, which increased $59 thousand over first quarter 2023. The increase was primarily attributable to growth in trust assets under management which totaled $222.9 million at June 30, 2023. On a year-over-year basis this represents growth of $27.5 million or 14.26%. "The Trust business continues to be a strong source of non-interest income," said Beth Knorr, Director of Trust Services. "Demand for Trust Services continues to grow and as a result, during the quarter the Bank added two new Trust Officers, Shaina Peters in Roseburg and Justin Miller in Coos Bay. The investment in additional trust personnel should position the Trust Department for anticipated future business growth."

Noninterest expense for the second quarter 2023 totaled $5.4 million, representing an increase of $129 thousand over first quarter 2023. The largest expense fluctuation totaled $52 thousand and occurred in the trust expense category due to investment in trust-related personnel. Additionally, the other operating expense line item also grew $48 thousand over the prior quarter. This fluctuation was primarily attributable to increased FDIC insurance assessment as the FDIC approved a final rule in October 2022 to increase the initial base deposit insurance assessment rate by two basis points for the first quarterly assessment period of 2023, which was billed in second quarter 2023. This rate increase occurred before the failure of Silicon Valley Bank, and this line item may see additional fluctuation based on the final Silicon Valley Bank related special assessment.

Forward-Looking Statement Safe Harbor

This release contains "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995 ("PSLRA"). These statements can be identified by the fact that they do not relate strictly to historical or current facts. Forward-looking statements often use words such as "anticipates," "targets," "expects," "estimates," "intends," "plans," "goals," "believes" and other similar expressions or future or conditional verbs such as "will," "should," "would" and "could." The forward-looking statements made represent Oregon Pacific Bank’s current estimates, projections, expectations, plans or forecasts of its future results and revenues, including but not limited to statements about performance, loan or deposit growth, loan prepayments, investment purchases, investment yields, strategic focus, capital position, liquidity, credit quality, special asset liquidation, noninterest income, noninterest expense and credit quality trends. These statements are not guarantees of future results or performance and involve certain risks, uncertainties and assumptions that are difficult to predict and are often beyond Oregon Pacific Bank’s control. Actual outcomes and results may differ materially from those expressed in, or implied by, any of these forward-looking statements. You should not place undue reliance on any forward-looking statement and should consider all of the following uncertainties and risks. Oregon Pacific Bancorp undertakes no obligation to publicly revise or update any forward-looking statement to reflect the impact of events or circumstances that arise after the date of this release. This statement is included for the express purpose of invoking the PSLRA’s safe harbor provisions.

CONSOLIDATED BALANCE SHEETS
Unaudited (dollars in thousands)
		June 30,				March 31,				June 30,
		2023				2023				2022
ASSETS
Cash and due from banks		$	10,951			$	8,783			$	11,527
Interest bearing deposits			22,967				41,931				71,429
Securities			181,530				195,647				170,977
Loans, net of deferred fees and costs			510,264				493,480				435,478
Allowance for credit losses			(6,887	)			(6,884	)			(6,088	)
Premises and equipment, net			11,708				9,867				9,558
Bank owned life insurance			8,738				8,677				8,509
Deferred tax asset			5,978				5,319				4,118
Other assets			7,555				7,669				7,024
Total assets		$	752,804			$	764,489			$	712,532
LIABILITIES
Deposits
Demand - non-interest bearing		$	159,184			$	166,409			$	189,112
Demand - interest bearing			265,550				264,029				187,348
Money market			152,046				165,118				163,728
Savings			75,196				78,415				83,517
Certificates of deposit			25,696				16,075				18,948
Total deposits			677,672				690,046				642,653
Junior subordinated debenture			4,124				4,124				4,124
Subordinated debenture			14,677				14,652				14,578
Other liabilities			6,482				6,300				6,153
Total liabilities			702,955				715,122				667,508
STOCKHOLDERS' EQUITY
Common stock			21,135				21,103				20,977
Retained earnings			39,516				37,284				31,707
Accumulated other comprehensive income, net of tax			(10,802	)			(9,020	)			(7,660	)
Total stockholders' equity			49,849				49,367				45,024
Total liabilities & stockholders' equity		$	752,804			$	764,489			$	712,532

CONSOLIDATED STATEMENTS OF INCOME
Unaudited (dollars in thousands, except per share data)
		THREE MONTHS ENDED										SIX MONTHS ENDED
		June 30,			March 31,				June 30,			June 30,				June 30,
		2023			2023				2022			2023				2022
INTEREST INCOME
Non-PPP loans		$	6,249		$	5,824			$	4,568		$	12,073			$	8,854
PPP loans			-			-				145			-				349
Securities			1,641			1,687				828			3,328				1,383
Other interest income			316			401				147			717				202
Total interest income			8,206			7,912				5,688			16,118				10,788
INTEREST EXPENSE
Deposits			1,311			858				108			2,169				217
Borrowed funds			229			226				191			455				371
Total interest expense			1,540			1,084				299			2,624				588
NET INTEREST INCOME			6,666			6,828				5,389			13,494				10,200
Provision (credit) for credit losses			14			(51	)			100			(37	)			150
Net interest income after provision (credit) for credit losses			6,652			6,879				5,289			13,531				10,050
NONINTEREST INCOME
Trust fee income			943			884				804			1,827				1,582
Service charges			342			325				322			667				620
Mortgage loan sales			28			38				90			66				211
Merchant card services			122			103				134			225				242
Oregon Pacific Wealth Management income			275			252				252			527				502
Other income			82			99				179			181				269
Total noninterest income			1,792			1,701				1,781			3,493				3,426
NONINTEREST EXPENSE
Salaries and employee benefits			3,082			3,129				2,642			6,211				5,256
Outside services			588			552				504			1,140				1,023
Occupancy & equipment			451			448				412			899				813
Trust expense			533			481				402			1,014				794
Loan and collection, OREO expense			27			24				23			51				50
Advertising			145			102				94			247				188
Supplies and postage			79			88				60			167				130
Other operating expenses			537			489				326			1,026				716
Total noninterest expense			5,442			5,313				4,463			10,755				8,970
Income before taxes			3,002			3,267				2,607			6,269				4,506
Provision for income taxes			771			834				663			1,605				1,118
NET INCOME		$	2,231		$	2,433			$	1,944		$	4,664			$	3,388

Quarterly Highlights
		2nd Quarter				1st Quarter				4th Quarter				3rd Quarter				2nd Quarter
		2023				2023				2022				2022				2022
Earnings
Interest income		$	8,206			$	7,912			$	7,651			$	6,458			$	5,688
Interest expense			1,540				1,084				581				356				299
Net interest income		$	6,666			$	6,828			$	7,070			$	6,102			$	5,389
Provision for loan loss			14				(51	)			335				209				100
Noninterest income			1,792				1,701				1,888				2,042				1,781
Noninterest expense			5,442				5,313				6,737				4,811				4,463
Provision for income taxes			771				834				459				792				663
Net income		$	2,231			$	2,433			$	1,427			$	2,332			$	1,944
Average shares outstanding			7,097,866				7,085,840				7,070,425				7,070,433				7,070,686
Average diluted shares outstanding			7,104,366				7,089,090				NA				NA				NA
Period end shares outstanding			7,094,562				7,102,271				7,068,659				7,070,304				7,070,304
Period end diluted shares outstanding			7,101,062				7,108,771				NA				NA				NA
Earnings per share		$	0.31			$	0.34			$	0.20			$	0.33			$	0.27
Diluted earnings per share		$	0.31			$	0.34				NA				NA				NA
Performance Ratios
Return on average assets			1.19	%			1.13	%			0.74	%			1.28	%			1.12	%
Return on average equity			18.12	%			21.01	%			13.34	%			20.41	%			17.34	%
Net interest margin - tax equivalent			3.72	%			3.87	%			3.87	%			3.54	%			3.27	%
Yield on loans			4.96	%			4.85	%			4.70	%			4.50	%			4.45	%
Yield on loans - excluding PPP loans			4.96	%			4.85	%			4.70	%			4.50	%			4.33	%
Yield on securities			3.37	%			3.41	%			3.02	%			2.39	%			1.91	%
Cost of deposits			0.78	%			0.51	%			0.21	%			0.09	%			0.07	%
Cost of interest-bearing liabilities			1.15	%			0.84	%			0.44	%			0.29	%			0.26	%
Efficiency ratio			64.34	%			62.29	%			75.21	%			59.07	%			62.21	%
Full-time equivalent employees			128				127				120				122				122
Capital
Tier 1 capital		$	77,917			$	75,684			$	73,882			$	72,410			$	70,041
Leverage ratio			10.24	%			9.94	%			9.55	%			9.95	%			9.96	%
Common equity tier 1 ratio			14.18	%			14.16	%			13.92	%			14.81	%			14.79	%
Tier 1 risk based ratio			14.18	%			14.16	%			13.92	%			14.81	%			14.79	%
Total risk based ratio			15.43	%			15.41	%			15.17	%			16.06	%			16.04	%
Book value per share		$	7.03			$	6.97			$	6.52			$	6.05			$	6.37

Quarterly Highlights
		2nd Quarter				1st Quarter				4th Quarter				3rd Quarter				2nd Quarter
		2023				2023				2022				2022				2022
Asset quality
Allowance for loan losses (ALLL)		$	6,887			$	6,884			$	6,666			$	6,328			$	6,088
Nonperforming loans (NPLs)		$	178			$	72			$	52			$	424			$	960
Nonperforming assets (NPAs)		$	178			$	72			$	52			$	424			$	960
Classified Assets (1)		$	3,750			$	3,842			$	3,877			$	4,574			$	5,089
Net loan charge offs (recoveries)		$	(3	)		$	(88	)		$	(4	)		$	(31	)		$	(29	)
ACL as a percentage of net loans			1.35	%			1.39	%			1.38	%			1.39	%			1.40	%
ACL as a percentage of NPLs			3869.10	%			9561.11	%			12819.23	%			1492.45	%			634.17	%
Net charge offs (recoveries) to average loans			0.00	%			-0.02	%			0.00	%			-0.01	%			-0.01	%
Net NPLs as a percentage of total loans			0.03	%			0.01	%			0.01	%			0.09	%			0.22	%
Nonperforming assets as a percentage of total assets			0.02	%			0.10	%			0.01	%			0.05	%			0.13	%
Classified Asset Ratio (2)			4.42	%			4.65	%			4.81	%			5.81	%			6.68	%
Past due as a percentage of total loans			0.12	%			0.06	%			0.19	%			0.13	%			0.12	%
Off-balance sheet figures
Off-balance sheet demand deposits (3)		$	-			$	-			$	18,976			$	60,588			$	121,645
Unused credit commitments		$	97,111			$	85,390			$	89,680			$	85,880			$	93,411
Trust assets under management (AUM)		$	222,880			$	219,731			$	215,736			$	193,448			$	195,058
Oregon Pacific Wealth Management AUM		$	141,990			$	133,138			$	117,549			$	116,193			$	114,973
End of period balances
Total securities		$	181,530			$	195,647			$	195,881			$	188,366			$	170,977
Total short term deposits		$	22,967			$	41,931			$	39,863			$	97,840			$	71,429
Total loans net of allowance		$	503,377			$	486,596			$	476,313			$	450,299			$	429,390
Total earning assets		$	716,793			$	733,090			$	720,712			$	744,786			$	679,835
Total assets		$	752,804			$	764,489			$	754,182			$	780,711			$	712,532
Total noninterest bearing deposits		$	159,184			$	166,409			$	180,589			$	195,536			$	189,112
Total deposits		$	677,672			$	690,046			$	682,869			$	712,710			$	642,653
Average balances
Total securities		$	190,818			$	196,060			$	192,348			$	186,535			$	165,729
Total short term deposits		$	24,616			$	35,240			$	68,808			$	57,557			$	73,515
Total loans net of allowance		$	498,069			$	480,046			$	459,440			$	436,522			$	418,445
Total earning assets		$	722,420			$	720,003			$	728,980			$	688,723			$	665,637
Total assets		$	751,845			$	752,094			$	761,361			$	720,465			$	697,913
Total noninterest bearing deposits		$	154,949			$	167,863			$	178,226			$	191,292			$	178,626
Total deposits		$	675,954			$	678,528			$	692,412			$	648,827			$	627,700

(1)		Classified assets is defined as the sum of all loan-related contingent liabilities and loans internally graded substandard or worse, impaired loans (net of government guarantees), adversely classified securities, and other real estate owned.
(2)		Classified asset ratio is defined as the sum of all loan-related contingent liabilities and loans internally graded substandard or worse, impaired loans (net of government guarantees), adversely classified securities, and other real estate owned, divided by bank Tier 1 capital, plus the allowance for loan losses.
(3)		Deposits sold through IntraFi Network Deposits Insured Cash Sweep (ICS) program.

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Contacts

Ron Green, President & Chief Executive Officer
ron.green@opbc.com
(541) 902-9800