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Pacific Financial Corp Earns $3.9 Million, or $0.37 per Diluted Share, for the Third Quarter of 2020; Declares Quarterly Cash Dividend of $0.08 per Share

ABERDEEN, Wash., Oct. 27, 2020 (GLOBE NEWSWIRE) -- Pacific Financial Corporation (OTCQX: PFLC), (Pacific), the holding company (the Company) for Bank of the Pacific (the Bank), today reported net income of $3.9 million, or $0.37 per diluted share for the third quarter of 2020, compared to $3.8 million, or $0.35 per diluted share for the third quarter of 2019, and $2.4 million, or $0.23 per diluted share for the second quarter of 2020. For the first nine months of 2020, net income was $7.5 million, or $0.71 per diluted share, compared to $10.3 million, or $0.97 per diluted share, for the first nine months of 2019.

Pacific Financials board of directors declared a quarterly cash dividend of $0.08 per share on October 21, 2020. The dividend will be payable on November 24, 2020, to shareholders of record on November 10, 2020.

At September 30, 2020 Pacific continues to exceed regulatory well-capitalized requirements with a leverage ratio of 9.51% and a total risk-based capital ratio of 15.38%. During the quarter Pacific resumed our share buyback program announced earlier in year. Since that resumption 108,487 shares of stock totaling $833,000 have been repurchased for a grand-total of 145,731 shares of stock or $1.2 million under the program. We believe our stock is an attractive investment and repurchasing shares affirms our optimism for the future and offers an excellent way to build long-term value for our shareholders, said Denise Portmann, President and Chief Executive Officer.

We delivered solid operating results in the third quarter, bolstered by record mortgage banking production and lower credit costs. Our non-interest income growth has increased substantially year-over-year and from the linked quarter, primarily due to the gain on sale of loans and the growth in fee income, said Portmann. In addition, deposit growth remains robust with growth of 25% year over year with deposits reaching over $1.0 billion. 

While our credit quality metrics remained strong with minimal downgrades and negligible charge-offs in the current quarter, given the continued economic uncertainty from the pandemic we proactively added to our loan loss reserves during the current quarter, resulting in an allowance for loan losses of $12.0 million at September 30, 2020, commented Portmann. We are increasingly more optimistic about credit as most first round payment deferrals have expired, and the second round of deferrals has been limited. We continue to benefit from the Small Business Administration (SBA) Paycheck Protection Program (PPP) loans generated in the second quarter with total PPP interest and fee income of $1.6 million recognized during the year.

COVID-19 Pandemic Update
Branches and Operati ons :    Bank branch lobbies re-opened in June to the public with strict pandemic protocols in place. However, as we remain committed to prioritizing the safety of our customers and employees, the Bank continues to encourage the use of drive up services, and digital and electronic channels, while our bankers proactively reach out to our customers to provide personalized customer service. Many of our front-line customer facing relationship officers are back in offices to provide a high level of service and for more convenient interaction with our customers. Conversely, where practicable, many of our staff in back-office functions including deposit operations, loan documentation and servicing, electronic banking, and network services continue to work from home.

SBA P aycheck P rotection P rogram : SBA PPP was implemented to provide short-term loans to help small businesses impacted by COVID-19. As of September 30, 2020, the Bank has processed and funded 747 applications for a total of $130.7 million with an average loan amount of $176,000. As of the end of the 3 rd quarter, the bank has submitted 45 applications, or $10.5 million, for loan forgiveness for our customers.

 

PPP Loan Detail

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of September 30, 2020

 

 


Total
Balance

 



# of Loans

 



Total Fee

 

YTD
Amortized
Fee

 

#
Forgiveness
Submitted

 

$
Forgiveness
Submitted

 

$
Forgiveness
Received

 

(Dollars in Thousands)

Agriculture

$

9,697

 

74

$

388

$

79

 

2

$

310

$

-

Construction

 

32,920

 

113

 

1,029

 

225

 

5

 

1,487

 

-

Manufacturing

 

20,346

 

74

 

725

 

156

 

6

 

3,026

 

-

Wholesale Trade

 

7,881

 

26

 

231

 

50

 

1

 

261

 

-

Retail Trade

 

11,684

 

107

 

466

 

98

 

6

 

486

 

-

Transportation and Warehousing

 

3,739

 

20

 

134

 

29

 

3

 

262

 

-

Professional Services

 

5,589

 

50

 

249

 

53

 

6

 

437

 

-

Waste Mngt & Remediation

 

8,112

 

31

 

221

 

48

 

2

 

824

 

-

Health Care

 

7,632

 

38

 

229

 

48

 

2

 

374

 

-

Accommodation and Food Services

 

13,220

 

89

 

477

 

101

 

5

 

2,352

 

-

Other Services

 

6,498

 

91

 

290

 

60

 

7

 

699

 

-

Other

 

3,381

 

34

 

139

 

29

 

-

 

-

 

-

PPP Loans

$

130,700

 

747

$

4,577

$

976

 

45

$

10,516

$

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loan Payment Deferrals: At the end of the first quarter, the Company began providing 90-day payment deferrals to customers adversely impacted by operating restrictions due to COVID-19. During the current quarter the Bank made consistent progress reducing modified loans, with a majority of the $106.2 million in the first round of deferrals expiring with loans returning to regular payment status. During the current quarter, the Company also offered a more limited second round deferral program and, as of September 30, 2020, deferrals totaled $16.8 million, or 3.0% of total loans outstanding excluding PPP, compared to $106.2 million or 16.2% as of June 30, 2020.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Payment Deferrals by Industry

 

(Unaudited)

 

 

 

As of June
30, 2020

 

As of September 30, 2020

 

 

 



First Round
Deferrals
Outstanding

 



First Round
Deferrals
Outstanding

 


Second
Round
Deferrals
Outstanding

 



Total
Deferrals
Outstanding

 




% of Total
Deferrals

 

% of Total
Gross
Loans
(without
PPP)

 

 

 

 

 

 

 

(Dollars in thousands)

 

Accommodation and food services

$

33,824

 

$

3,200

 

$

4,140

$

7,340

 

44

%

 

1

%

 

Construction and manufacturing

 

7,254

 

 

-

 

 

-

 

-

 

0

%

 

0

%

 

Health care and social assistance

 

1,231

 

 

1,099

 

 

-

 

1,099

 

7

%

 

0

%

 

Real estate, rental and leasing

 

44,881

 

 

546

 

 

5,436

 

5,982

 

36

%

 

1

%

 

Recreation and leisure

 

2,452

 

 

-

 

 

335

 

335

 

2

%

 

0

%

 

Retail and wholesale trade

 

4,643

 

 

-

 

 

-

 

-

 

0

%

 

0

%

 

Other services (except public admin)

 

4,609

 

 

436

 

 

1,088

 

1,524

 

9

%

 

0

%

 

Consumer loans

 

5,405

 

 

38

 

 

-

 

38

 

0

%

 

0

%

 

Other

 

1,930

 

 

229

 

 

286

 

515

 

3

%

 

0

%

 

Total deferrals

$

106,229

 

$

5,547

 

$

11,286

$

16,833

 

100

%

 

3

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Third quarter of 2020 Financial Highlights (as of, or for the period ended September 30 , 2020, except as noted):

  • Net income was $3.9 million for the third quarter of 2020, compared to $3.8 million for the third quarter a year ago, and $2.4 million for the second quarter of 2020.

  • Diluted earnings per share were $0.37, for the third quarter of 2020, compared to $0.35 for the third quarter 2019, and $0.23 for the second quarter of 2020.

  • Annualized pre-tax pre-provision return on assets (non-GAAP) was 1.89% for the third quarter of 2020, compared to 1.98% for the third quarter a year ago and 1.53% for the second quarter of 2020.

  • Annualized pre-tax pre-provision return on equity (non-GAAP) was 19.24% for the third quarter of 2020, compared to 17.84% for the third quarter of 2019, and 14.70% for the second quarter of 2020.

  • The provision for loan losses was $500,000 for the third quarter of 2020, compared to no provision in the third quarter a year ago, and $1.0 million in the second quarter of 2020.

  • Net interest margin (NIM) was 3.49% including SBA PPP loans, and 3.53% excluding SBA PPP loans, for the third quarter of 2020, compared to 4.57% for the third quarter of 2019, and 3.70% including SBA PPP loans and 3.89% excluding SBA PPP loans for the preceding quarter. Industry peer NIM was 3.36% at June 30, 2020. [Industry peers comprise of approximately 48 2 banks in the SNL Microcap U.S. Bank Index.]

  • Noninterest income for the third quarter of 2020 increased 45% over the like quarter a year ago and 26% from the linked quarter.

  • Total deposits increased by $207.2 million, or 25%, to $1.0 billion at September 30, 2020, compared to $816.1 million at September 30, 2019, and increased by $28.4 million from $995.0 million at June 30, 2020. Non-interest-bearing deposits grew by 34% from a year ago and represented 35% of total deposits at September 30, 2020.

  • Gross loans increased by $96.0 million, or 14%, to $779.8 million at September 30, 2020, compared to $683.8 million at September 30, 2019, and decreased by $7.5 million, or 1%, from $787.3 million at June 30, 2020. Included in total loans for the current quarter were 747 PPP loans totaling $130.7 million.

  • Shareholder equity increased 8% to $112.0 million from the third quarter a year ago and grew 2% from the linked quarter.   Book value per share increased 9% to $10.64 from a year earlier and grew 3% from the second quarter of 2020.

Results of Operations

Net income was $3.9 million for the third quarter of 2020, compared to $3.8 million for the third quarter a year ago, and $2.4 million for second quarter of 2020.   For the first nine months of 2020, net income was $7.5 million, compared to $10.3 million for the first nine months of 2019.

Diluted earnings per share were $0.37 for the third quarter of 2020, compared to $0.35 per diluted share for the third quarter of 2019, and $0.23 for the second quarter of 2020. For the nine months ended September 30, 2020, diluted earnings per share were $0.71, compared to $0.97 for the nine months ended September 30, 2019.

Net interest income , before provision for loan losses, was $9.4 million for the third quarter of 2020, compared to $9.8 million for the third quarter a year ago, and $9.0 million for second quarter of 2020. The increase in net interest income from the linked quarter was primarily due to PPP interest and fee amortization of $1.0 million in the current quarter compared to $600,000 for the linked quarter. For the first nine months of 2020, net interest income was $27.5 million compared to $29.2 million from the first nine months of 2019. The decline in net interest income from a year ago, for both the quarter and nine months, was primarily due to a decline in earning asset yields as interest rates on adjustable rate loans and investments decreased following reductions in short term interest rates. This decrease was partially offset by a decrease in cost of funds. Interest and fee amortization on SBA PPP loans have contributed $1.0 million and $1.6 million, respectively, for the quarter and nine months ended September 30, 2020.

The net interest margin (NIM) was 3.49% including SBA PPP loans, and 3.53% excluding SBA PPP loans, for the third quarter of 2020, compared to 4.57% for the third quarter 2019, and 3.70% including SBA PPP loans and 3.89% excluding SBA PPP loans for the second quarter of 2020. For the first nine months of 2020, the NIM was 3.80% including SBA PPP loans and 3.98% excluding SBA PPP loans, compared to 4.66% for the first nine months of 2019.   As expected, our NIM continued to be under pressure during the quarter, however, with the stabilization in market interest rates and no significant change in asset composition during the current quarter, the compression was less than in the second quarter, said Carla Tucker, Executive Vice President and Chief Financial Officer .   The Federal Reserve rate cuts over the last twelve months, combined with low interest PPP loans and a higher level of liquidity has impacted loan and investment yields and ultimately our NIM during that same time period. The Company continues to maintain a net interest margin above the peer average posted by the SNL Micro Cap U.S. Bank Index as of June 30, 2020 (1) . (1) As of June 30, 2020, the SNL Micro Cap US Bank Index tracked 48 2 banks with total common market capitalization less than $250 million with an average for NIM of 3. 3 6 %.

The yield on average interest-earning assets was 3.69% including SBA PPP and 3.76% excluding SBA PPP loans for the third quarter of 2020, compared to 4.91% for the third quarter a year ago and 3.96% including SBA PPP loans and 4.17% excluding SBA PPP loans for the second quarter of 2020. For the first nine months of 2020, the yield on average interest-earning assets was 4.06% including SBA PPP loans and 4.26% excluding SBA PPP loans, compared to 5.01% for the first nine months of 2019. The Bank earns 1.0% interest on SBA PPP loans as well as a fee from SBA based on the size of the loan. This fee is estimated at $4.6 million and will be recognized over the duration of the respective loans. For the nine months ended September 30, 2020, $976,000 of this fee has been recognized into income. As of September 30, 2020, $213.7 million, or 47%, of total variable rate loans with a weighted average rate of 4.60%, have reached their rate floors.

The cost of deposits continued to decrease during the current quarter due to ongoing reductions in deposit rates, as well as higher growth in low or non-interest earning deposits compared to higher cost certificate of deposits. In addition, the borrowing rate on the Companys junior subordinated debentures has declined to 1.90% for the current quarter compared to 2.61% for the same quarter a year ago and 3.94% for the linked quarter in 2020. The Banks total cost of funds was 0.33% for the third quarter of 2020, compared to 0.51% for the third quarter a year ago and 0.41% for the second quarter of 2020. Year-to-date, the cost of funds was 0.41% compared to 0.53% for the first nine months of 2019.

Provision for l oan l osses was $500,000 for the third quarter of 2020, compared to $1.0 million for the second quarter of 2020. Year-to-date, the provision for loan losses totaled $3.5 million, compared to no provision for the first nine months of 2019. Net charge-offs for the third quarter of 2020 were minimal at $5,000, compared to $279,000 of net charge-offs for the linked quarter which were unrelated to COVID-19.

Noninterest income increased 45%, or $1.9 million, to $6.0 million for the third quarter of 2020, compared to $4.2 million for the third quarter 2019, and grew by 26%, or $1.2 million, from $4.8 million for the second quarter of 2020. The increase in noninterest income in the current quarter was primarily due to the 86%, or $2.0 million, increase in gain on sale of loans to $4.4 million for the third quarter of 2020, from $2.4 million for the third quarter a year ago and increased 31% compared to $3.3 million on a linked quarter basis. In addition, fee income was up 21% to $1.1 million for the third quarter of 2020, compared to $936,000 for the third quarter of 2019, and increased by 14% from $992,000 for the second quarter of 2020. While quarterly service charges on deposits declined on a year over year basis, service charges for the current quarter increased $41,000, or 13%, from the linked quarter.   For the nine months ended September 30, 2020, total noninterest income increased by 44% or $4.4 million to $14.4 million, compared to $10.0 million for the nine months ended September 30, 2019, and similar to the quarter was largely due to significant increases in gain on sale of loans.

Noninterest expense s rose moderately for the third quarter of 2020, increasing 6% to $10.0 million, compared to $9.4 million for the third quarter of 2019, and increasing only 2% from $9.8 million for the second quarter of 2020. The modest increase in noninterest expense in the current quarter was primarily due to higher variable compensation and commissions on higher mortgage banking production, as well as costs associated with the I-5 corridor expansion into the Eugene market and the growing Willamette Valley, which were partially offset by reductions in occupancy costs and professional services expenses. As with the current quarter, for the nine months ended September 30, 2020, noninterest expenses increased with the majority of the increase related to salary and employee benefits including higher variable commission on mortgage banking. Similar to the quarter, these increases were partially offset by reduction in professional services, occupancy, and advertising expenses.

Income tax provision was $1.0 million for the third quarter of 2020, compared to $859,000 for the third quarter 2019 and $569,000 for the second quarter of 2020. The effective tax rate for the third quarter of 2020 was 20.4%, compared to 18.6% for the third quarter of 2019, and 19.1% for the second quarter of 2020.   For the first nine months of 2020 the income tax provision was $1.9 million, down 22% from $2.4 million for the first nine months of 2019. 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 reached $1.2 billion at September 30, 2020, an increase of 23% over $945.2 million at September 30, 2019, and grew by 3% from $1.1 billion at June 30, 2020. The increase in assets on a linked quarter basis was primarily due to the continued inflow of deposits with noninterest-bearing deposits increasing by 4%, or $13.6 million, during the current quarter.

Investment Securities increased 28% to $126.8 million at September 30, 2020, compared to $99.2 million at September 30, 2019, and increased 7% from $118.1 at June 30, 2020. The increase in investment securities on a linked quarter basis and year-over-year was primarily the result of reinvesting a portion of federal funds sold balances into higher yielding investments. The portfolio is comprised mainly of amortizing U.S. agency collateralized mortgage-backed securities, mortgage-backed securities and municipal securities.  

Gross L oan s increased 14%, or $96.0 million, to $779.8 million at September 30, 2020, compared to $683.8 million at September 30, 2019, and were relatively flat from $787.3 million at June 30, 2020. Total loans at September 30, 2020, included $130.7 million of PPP loans. Loan growth during the year has been impacted by commercial and agricultural lines of credit usage which has declined by 13.9%, or $17.9 million, at September 30, 2020, compared to September 30, 2019.

Loans are predominately originated within our Western Washington and Oregon markets and the Companys portfolio is well-diversified by collateral type and by industry with a prudent credit discipline. With the potential increased risk associated with the COVID-19 pandemic, the Company has continued to make prudent enhancements to its credit oversight, such as greater underwriting control of both unsecured and non-owner occupied commercial real estate lending along with the addition of an experienced credit risk officer to the credit administration team to support existing clients as needed.

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 September 30, 2020, CRE concentration remained relatively unchanged at 192% of total risk-based capital; below the regulatory guidance limit of 300%.   Commercial loans together with CRE-owner occupied, account for 40% of total loans outstanding (excluding PPP loans) at September 30, 2020 and remained relatively unchanged compared to 39% at September 30, 2019. CRE non-owner occupied and multifamily concentrations totaled $197.2 million. 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 $44.9 million, $41.7 million and $33.6 million, respectively.

On the consumer side, loans to finance luxury and classic cars, which encompass a majority of the consumer loan balances, were held relatively flat from June 30, 2020 at approximately $45.8 million with September 30, 2020 balances representing a decline of $5.6 million from $51.4 million a year ago. As part of our strategic plan, we have been limiting our concentrations in indirect loans to finance luxury and classic cars. As of September 30, 2020 the luxury and classic car portfolio includes 871 loans resulting in an average balance of $52,600. The portfolio continues to perform well with delinquencies including only two loans for under $25,000, or 5 basis points, as compared to the $45.8 million in total luxury and classic car indirect loan balances.

Higher Risk Industries as a Result of COVID-19: Early in the pandemic, the Company identified several industries as being potentially more vulnerable to the economic and business impacts of the Coronavirus pandemic. Those industries included accommodation (hospitality), animal production (primarily dairy), restaurants, retail trade, healthcare, repair and maintenance (primary automotive) and recreation and entertainment. Although these industries are potentially more directly impacted by COVID-19, the banks 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 September 30, 2020, the total of these industries was $131.3 million, representing 20% 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 well through the 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 crises, but prices have since rebounded in the year 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 are experiencing domestic unrest or protests. Despite business re-openings and rising consumer spending, there continues to be challenges for selective retail trade credits and commercial real estate retail tenants.   A larger share of Banks restaurant clients are more focused on convenience food and quick service concepts that have performed well through-out the pandemic. Although encouraged by the general near term improvement, the Bank will continue its close monitoring of customer performance in higher risk industries.

 

 

 

 

 

 

 

Higher Risk Industries (without PPP)

 

(Unaudited)

 

 

 

 

 

 

 

 

 



Sept 30,
2020

 

% of Gross
Loans
(without
PPP)

 

 

 

 

 

 

 

(Dollars in thousands)

 

Animal production

$

20,380

 

 

3

%

 

Accommodation

 

43,498

 

 

7

%

 

Restaurants

 

12,408

 

 

2

%

 

Recreation, arts and entertainment

 

5,021

 

 

1

%

 

Retail trade

 

18,310

 

 

3

%

 

Repair and maintenance

 

9,262

 

 

1

%

 

Other services

 

7,881

 

 

1

%

 

Health care and social assistance

 

14,522

 

 

2

%

 

Total high risk loans

$

131,282

 

 

20

%

 

 

 

 

 

 

Asset Quality deteriorated slightly during the quarter with nonperforming assets totaling $1.6 million, or 0.14% of total assets, at September 30, 2020, compared to $1.0 million, or 0.11%, of total assets at September 30, 2019, and $1.4 million, or 0.13%, of total assets at June 30, 2020. However, asset quality metrics remain very low by historical standards. At September 30, 2020, delinquent loans to gross loans, excluding PPP loans, were 0.0% at September 30, 2020, compared to 0.25% at September 30, 2019, and 0.03% at June 30, 2020. While delinquencies and nonperforming assets remained low for the quarter, we recognize that the challenges and credit impacts related to the COVID-19 economic downturn may not be realized until later in the year or into next year, added Portmann.

At September 30, 2020, adversely classified loans increased $5.4 million, to $13.4 million, or 2.06% of adversely classified loans to gross loans (excluding PPP), compared to $8.0 million, or 1.17% of gross loans, at September 30, 2019, and increased by $3.7 million from $9.8 million or 1.48% of gross loans (excluding PPP), at June 30, 2020. The increase from June 30, 2020 was largely due to the downgrade of three loan relationships totaling $4.2 million, all from different industries including transportation, tourism and agriculture (dairy). Although limited in impact, the pandemic crisis was a contributor to increase in adversely classified loans as these businesses struggled to adapt restrictive operating models to the new environment.

As of September 30, 2020, the classified coverage ratio was 11.59%, compared to 7.24% at September 30, 2019, and 8.27%, at June 30, 2020. As noted above, the increase from the linked quarter was primarily related to the downgrade of three relationships. The classified coverage ratio is a measurement of asset risk and the capacity for capital to protect against that risk. It reflects the aggregate level of all adversely classified items in relation to Tier 1 Capital and the allowance for loan losses.

The A llowance for L oan L osses (ALL) increased 33% to $12.0 million, or 1.54% of gross loans, or 1.85% of gross loans excluding PPP, at September 30, 2020, compared to $9.0 million, or 1.32% of gross loans, a year earlier and grew 4% from $11.5 million, or 1.75% of gross loans excluding PPP, at June 30, 2020. The provision for loan losses for the third quarter of 2020 was $500,000, compared to no provision for the third quarter of 2019, and $1.0 million provision for the second quarter of 2020. For the nine months ended September 30, 2020, the loan loss provision was $3.5 million, compared to no provision for the nine months ended September 30, 2019.   The increase in reserves during 2020 was driven primarily by increases in adversely classified and watch loan balances as a result of the economic impact of the Coronavirus pandemic, along with adjustments to various qualitative factors within the allowance methodology. Adjustment to certain qualitative factors were made in the third quarter to reflect greater risk associated with the potential of a coronavirus resurgence as the country heads into winter, along with a heightened level of uncertainty caused by a number of other factors related to the current political climate, expiration of existing government stimulus with no clear understanding of additional stimulus, and global recession. Net charge-offs for the third quarter of 2020 were minimal at $5,000, compared to $279,000 of net charge-offs for the preceding quarter which were unrelated to COVID-19 and $29,000 for the like quarter a year ago.   For the first nine months of 2020, net charge-offs were $491,000, compared to net charge-offs of $32,000 for the first nine months of 2019.

Total D eposits increased 25% to $1.0 billion at September 30, 2020, compared to $816.1 million from a year earlier, and grew 3% from $995.0 million at June 30, 2020. The various forms of stimulus including PPP loan proceeds drove the growth in deposits for the current year, and despite those PPP monies seemingly being spent to earn PPP loan forgiveness, the lack of capital spending and higher rate of cash savings of both consumer and commercial clients, continued to drive higher deposit levels. We continue to benefit from the deposit inflows from customers of PPP loan proceeds with the growth in non-interest-bearing deposits, said Tucker. Non-interest-bearing deposits increased by 4% on a linked quarter basis and represented 35% of total deposits at September 30, 2020, while core deposits (consisting of non-interest-bearing, interest-bearing accounts, money market and savings accounts) accounted for 93% of total deposits.

Capital R atios of Pacific Financial Corporation, and its subsidiary Bank of the Pacific, continue to exceed the well-capitalized regulatory thresholds. At September 30, 2020, Pacific Financial Corporations leverage ratio was 9.51% and the total risk-based capital ratio was 15.38%. 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.

 

Balance Sheet Overview

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sept 30,
2020

 

June 30,
2020

 

$
Change

 

%
Change

 

Sept 30,
2019

 

$ Change

 

% Change

 

 

 

Assets:

 

(Dollars in thousands, except per share data)

 

Cash on hand and in banks

$

147,476

 

$

140,132

 

$

7,344

 

 

5

%

$

48,910

 

$

98,566

 

 

202

%

 

Interest bearing deposits

 

3,250

 

 

3,250

 

 

-

 

 

0

%

 

3,250

 

 

-

 

 

0

%

 

Federal funds sold

 

20,735

 

 

17,635

 

 

3,100

 

 

18

%

 

36,876

 

 

(16,141

)

 

100

%

 

Investment securities

 

126,799

 

 

118,078

 

 

8,721

 

 

7

%

 

99,222

 

 

27,577

 

 

28

%

 

Loans held-for-sale

 

37,813

 

 

19,477

 

 

18,336

 

 

94

%

 

23,542

 

 

14,271

 

 

61

%

 

Loans, net of deferred fees

 

775,865

 

 

782,562

 

 

(6,697

)

 

-1

%

 

682,832

 

 

93,033

 

 

14

%

 

Allowance for loan losses

 

(12,002

)

 

(11,507

)

 

(495

)

 

4

%

 

(9,017

)

 

(2,985

)

 

33

%

 

Net loans

 

763,863

 

 

771,055

 

 

(7,192

)

 

-1

%

 

673,815

 

 

90,048

 

 

13

%

 

Federal Home Loan Bank and Pacific Coast Bankers' Bank stock, at cost

 

2,138

 

 

2,140

 

 

(2

)

 

0

%

 

2,218

 

 

(80

)

 

-4

%

 

Other assets

 

59,269

 

 

57,708

 

 

1,561

 

 

3

%

 

57,372

 

 

1,897

 

 

3

%

 

Total assets

$

1,161,343

 

$

1,129,475

 

$

31,868

 

 

3

%

$

945,205

 

$

216,138

 

 

23

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities and Shareholders' Equity:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total deposits

$

1,023,319

 

$

994,960

 

$

28,359

 

 

3

%

$

816,090

 

$

207,229

 

 

25

%

 

Borrowings

 

13,994

 

 

14,031

 

 

(37

)

 

0

%

 

16,644

 

 

(2,650

)

 

-16

%

 

Accrued interest payable and other liabilities

 

11,985

 

 

11,092

 

 

893

 

 

8

%

 

9,000

 

 

2,985

 

 

33

%

 

Shareholders' equity

 

112,045

 

 

109,392

 

 

2,653

 

 

2

%

 

103,471

 

 

8,574

 

 

8

%

 

Total liabilities and shareholders' equity

$

1,161,343

 

$

1,129,475

 

$

31,868

 

 

3

%

$

945,205

 

$

216,138

 

 

23

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Stock Shares Outstanding

 

10,528,290

 

 

10,607,617

 

 

(79,327

)

 

-1

%

 

10,608,558

 

 

(80,268

)

 

-1

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Book value per common share (1)

$

10.64

 

$

10.31

 

$

0.33

 

 

3

%

$

9.75

 

$

0.89

 

 

9

%

Tangible book value per common share (2)

$

9.36

 

$

9.04

 

$

0.32

 

 

4

%

$

8.48

 

$

0.88

 

 

10

%

Gross loans to deposits ratio

 

75.8

%

 

78.7

%

 

-2.9

%

 

 

 

83.7

%

 

-7.9

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(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,

 

 

 

Sept 30,
2020

 

June 30,
2020

 

$
Change

 

%
Change

 

Sept 30,
2019

 


$ Change

 


% Change

 

 

 

 

 

 

 

 

 

 

 

(Dollars in thousands, except per share data)

Interest and dividend income

$

9,964

 

$

9,608

 

$

356

 

 

4

%

$

10,563

 

$

(599

)

 

-6

%

Interest expense

 

562

 

 

625

 

 

(63

)

 

-10

%

 

721

 

 

(159

)

 

-22

%

 

Net interest income

 

9,402

 

 

8,983

 

 

419

 

 

5

%

 

9,842

 

 

(440

)

 

-4

%

Loan loss provision

 

500

 

 

1,000

 

 

(500

)

 

-50

%

 

-

 

 

500

 

 

100

%

Noninterest income

 

6,033

 

 

4,802

 

 

1,231

 

 

26

%

 

4,167

 

 

1,866

 

 

45

%

Noninterest expense

 

9,993

 

 

9,810

 

 

183

 

 

2

%

 

9,390

 

 

603

 

 

6

%

Income before income taxes

 

4,942

 

 

2,975

 

 

1,967

 

 

66

%

 

4,619

 

 

323

 

 

7

%

Income tax expense

 

1,007

 

 

569

 

 

438

 

 

77

%

 

859

 

 

148

 

 

17

%

 

Net Income

$

3,935

 

$

2,406

 

$

1,529

 

 

64

%

$

3,760

 

$

175

 

 

5

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Average common shares outstanding - basic

 

10,599,494

 

 

10,607,617

 

 

(8,123

)

 

0

%

 

10,595,992

 

 

3,502

 

 

0

%

Average common shares outstanding - diluted

 

10,626,598

 

 

10,630,458

 

 

(3,860

)

 

0

%

 

10,669,761

 

 

(43,163

)

 

0

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income per common share

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

$

0.37

 

$

0.23

 

$

0.14

 

 

61

%

$

0.35

 

$

0.02

 

 

6

%

 

Diluted

$

0.37

 

$

0.23

 

$

0.14

 

 

61

%

$

0.35

 

$

0.02

 

 

6

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Effective tax rate

 

20.4

%

 

19.1

%

 

1.3

%

 

 

 

18.6

%

 

1.8

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Nine Months Ended,

 

 

 

 

 

 

 

 

 

Sept 30,
2020

 

Sept 30,
2019

 

$
Change

 

%
Change

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Dollars in thousands, except per share data)

 

 

 

 

 

 

Interest and dividend income

$

29,355

 

$

31,383

 

$

(2,028

)

 

-6

%

 

 

 

 

 

 

Interest expense

 

1,888

 

 

2,198

 

 

(310

)

 

-14

%

 

 

 

 

 

 

 

Net interest income

 

27,467

 

 

29,185

 

 

(1,718

)

 

-6

%

 

 

 

 

 

 

Loan loss provision

 

3,500

 

 

-

 

 

3,500

 

 

100

%

 

 

 

 

 

 

Noninterest income

 

14,389

 

 

10,009

 

 

4,380

 

 

44

%

 

 

 

 

 

 

Noninterest expense

 

28,944

 

 

26,494

 

 

2,450

 

 

9

%

 

 

 

 

 

 

Income before income taxes

 

9,412

 

 

12,700

 

 

(3,288

)

 

-26

%

 

 

 

 

 

 

Income tax expense

 

1,872

 

 

2,387

 

 

(515

)

 

-22

%

 

 

 

 

 

 

 

Net Income

$

7,540

 

$

10,313

 

$

(2,773

)

 

-27

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Average common shares outstanding - basic

 

10,611,380

 

 

10,586,778

 

 

24,602

 

 

0

%

 

 

 

 

 

 

Average common shares outstanding - diluted

 

10,638,484

 

 

10,670,517

 

 

(32,033

)

 

0

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income per common share

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

$

0.71

 

$

0.97

 

$

(0.26

)

 

-27

%

 

 

 

 

 

 

 

Diluted

$

0.71

 

$

0.97

 

$

(0.26

)

 

-27

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Effective tax rate

 

19.9

%

 

18.8

%

 

1.1

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Reconciliation of Non-GAAP Measure

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Three Months Ended,

 

 

 

Sept 30,
2020

 

June 30,
2020

 

$
Change

 

%
Change

 

Sept 30,
2019

 

$ Change

 

% Change

 

 

 

Non-GAAP Net Income

 

(Dollars in thousands)

Net Income

$

3,935

 

$

2,406

 

$

1,529

 

 

64

%

$

3,760

 

$

175

 

 

5

%

 

Loan loss provision

 

500

 

 

1,000

 

 

(500

)

 

-50

%

 

-

 

 

500

 

 

100

%

 

Income tax expense

 

1,007

 

 

569

 

 

438

 

 

77

%

 

859

 

 

148

 

 

17

%

Pre-tax, pre-provision net income

$

5,442

 

$

3,975

 

$

1,467

 

 

37

%

$

4,619

 

$

823

 

 

18

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pre-tax, pre-provisions ROA, annualized

1.89

%

 

1.53

%

 

0.36

 

 

 

 

1.98

%

 

(0.45

)

 

 

Pre-tax, pre-provisions ROE, annualized

19.24

%

 

14.70

%

 

4.54

 

 

 

 

17.84

%

 

(3.14

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Nine Months Ended,

 

 

 

 

 

 

 

 

 

Sept 30,
2020

 

Sept 30,
2019

 

$
Change

 

%
Change

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-GAAP Operating Income

 

(Dollars in thousands)

 

 

 

 

 

 

Net Income

$

7,540

 

$

10,313

 

$

(2,773

)

 

-27

%

 

 

 

 

 

 

 

Loan loss provision

 

3,500

 

 

-

 

 

3,500

 

 

100

%

 

 

 

 

 

 

 

Income tax expense

 

1,872

 

 

2,387

 

 

(515

)

 

-22

%

 

 

 

 

 

 

Pre-tax, pre-provision net income

$

12,912

 

$

12,700

 

$

212

 

 

2

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pre-tax, pre-provisions ROA, annualized

1.67

%

 

1.87

%

 

(0.20

)

 

 

 

 

 

 

 

 

Pre-tax, pre-provisions ROE, annualized

15.81

%

 

17.46

%

 

(1.65

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Noninterest Income

(Unaudited)

 

 

 

For the Three Months Ended,

 

 

 

Sept 30,
2020

 

June 30,
2020

 

$
Change

 

%
Change

 

Sept 30,
2019

 


$ Change

 


% Change

 

 

 

 

 

 

 

(Dollars in thousands)

Service charges on deposits

$

356

$

315

$

41

 

 

13

%

$

493

$

(137

)

 

-28

%

Gain on sale of loans, net

 

4,384

 

3,335

 

1,049

 

 

31

%

 

2,353

 

2,031

 

 

86

%

Earnings on bank owned life insurance

 

130

 

129

 

1

 

 

1

%

 

333

 

(203

)

 

-61

%

Other noninterest income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fee income

 

1,132

 

992

 

140

 

 

14

%

 

936

 

196

 

 

21

%

 

Other

 

31

 

31

 

-

 

 

0

%

 

52

 

(21

)

 

-40

%

Total noninterest income

$

6,033

$

4,802

$

1,231

 

 

26

%

$

4,167

$

1,866

 

 

45

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Nine Months Ended,

 

 

 

 

 

 

 

 

 

Sept 30,
2020

 

Sept 30,
2019

 

$
Change

 

%
Change

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Dollars in thousands)

 

 

 

 

 

 

Service charges on deposits

$

1,178

$

1,529

$

(351

)

 

-23

%

 

 

 

 

 

 

Gain on sale of loans, net

 

9,709

 

4,991

 

4,718

 

 

95

%

 

 

 

 

 

 

Gain on sale of securities available for sale, net

 

-

 

102

 

(102

)

 

-100

%

 

 

 

 

 

 

Earnings on bank owned life insurance

 

373

 

548

 

(175

)

 

-32

%

 

 

 

 

 

 

Other noninterest income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fee income

 

3,042

 

2,649

 

393

 

 

15

%

 

 

 

 

 

 

 

Other

 

87

 

190

 

(103

)

 

-54

%

 

 

 

 

 

 

Total noninterest income

$

14,389

$

10,009

$

4,380

 

 

44

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Noninterest Expense

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Three Months Ended,

 

 

 

Sept 30,
2020

 

June 30,
2020

 

$
Change

 

%
Change

 

Sept 30,
2019

 

$ Change

 

% Change

 

 

 

 

 

 

 

(Dollars in thousands)

Salaries and employee benefits

$

6,940

$

6,781

$

159

 

 

2

%

$

6,058

$

882

 

 

15

%

Occupancy

 

498

 

507

 

(9

)

 

-2

%

 

584

 

(86

)

 

-15

%

Equipment

 

292

 

294

 

(2

)

 

-1

%

 

251

 

41

 

 

16

%

Data processing

 

763

 

803

 

(40

)

 

-5

%

 

737

 

26

 

 

4

%

Professional services

 

208

 

312

 

(104

)

 

-33

%

 

376

 

(168

)

 

-45

%

State and local taxes

 

202

 

112

 

90

 

 

80

%

 

136

 

66

 

 

49

%

FDIC and State assessments

 

35

 

8

 

27

 

 

338

%

 

50

 

(15

)

 

-30

%

Other noninterest expense:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Director fees

 

81

 

83

 

(2

)

 

-2

%

 

67

 

14

 

 

21

%

 

Communication

 

108

 

76

 

32

 

 

42

%

 

74

 

34

 

 

46

%

 

Advertising

 

33

 

33

 

-

 

 

0

%

 

70

 

(37

)

 

-53

%

 

Professional liability insurance

 

53

 

57

 

(4

)

 

-7

%

 

54

 

(1

)

 

-2

%

 

Amortization

 

91

 

101

 

(10

)

 

-10

%

 

114

 

(23

)

 

-20

%

 

Other

 

689

 

643

 

46

 

 

7

%

 

819

 

(130

)

 

-16

%

Total noninterest expense

$

9,993

$

9,810

$

183

 

 

2

%

$

9,390

$

603

 

 

6

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Nine Months Ended,

 

 

 

 

 

 

 

 

 

Sept 30,
2020

 

Sept 30,
2019

 

$
Change

 

%
Change

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Dollars in thousands)

 

 

 

 

 

 

Salaries and employee benefits

$

19,786

$

16,965

$

2,821

 

 

17

%

 

 

 

 

 

 

Occupancy

 

1,527

 

1,595

 

(68

)

 

-4

%

 

 

 

 

 

 

Equipment

 

870

 

734

 

136

 

 

19

%

 

 

 

 

 

 

Data processing

 

2,312

 

2,131

 

181

 

 

8

%

 

 

 

 

 

 

Professional services

 

688

 

1,047

 

(359

)

 

-34

%

 

 

 

 

 

 

State and local taxes

 

459

 

357

 

102

 

 

29

%

 

 

 

 

 

 

FDIC and State assessments

 

51

 

127

 

(76

)

 

-60

%

 

 

 

 

 

 

Other noninterest expense:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Director fees

 

238

 

199

 

39

 

 

20

%

 

 

 

 

 

 

 

Communication

 

252

 

221

 

31

 

 

14

%

 

 

 

 

 

 

 

Advertising

 

115

 

226

 

(111

)

 

-49

%

 

 

 

 

 

 

 

Professional liability insurance

 

164

 

153

 

11

 

 

7

%

 

 

 

 

 

 

 

Amortization

 

289

 

306

 

(17

)

 

-6

%

 

 

 

 

 

 

 

Other

 

2,193

 

2,433

 

(240

)

 

-10

%

 

 

 

 

 

 

Total noninterest expense

$

28,944

$

26,494

$

2,450

 

 

9

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial Performance Overview

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Three Months Ended

 

 

Sept 30,
2020

 

June 30,
2020

 


Change

 

Sept 30,
2019

 


Change

Performance Ratios

 

 

 

 

 

 

 

 

 

Return on average assets, annualized

1.37

%

 

0.93

%

 

0.44

 

 

1.61

%

 

(0.24

)

Return on average equity, annualized

13.91

%

 

8.90

%

 

5.01

 

 

14.52

%

 

(0.61

)

Efficiency ratio (1)

64.74

%

 

71.16

%

 

(6.42

)

 

67.03

%

 

(2.29

)

 

 

 

 

 

 

 

 

 

 

 

(1) Non-interest expense divided by net interest income plus noninterest income.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Nine Months Ended,

 

 

 

 

 

 

Sept 30,
2020

 

Sept 30,
2019

 

Change

 

 

 

 

Performance Ratios

 

 

 

 

 

 

 

 

 

Return on average assets, annualized

0.97

%

 

1.52

%

 

(0.55

)

 

 

 

 

Return on average equity, annualized

9.22

%

 

13.95

%

 

(4.73

)

 

 

 

 

Efficiency ratio (1)

69.15

%

 

67.60

%

 

1.55

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1) Non-interest expense divided by net interest income plus noninterest income.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

LIQUIDITY

 

Cash and Cash Equivalents and Investment Securities

(Unaudited)

 

 

 

 

Sept 30,
2020

 

% of
Total

 

June 30,
2020

 

% of
Total

 

$
Change

 

%
Change

 

Sept 30,
2019

 


Total

 

$
Change

 

%
Change

 

 

 

 

 

 

 

 

 

(Dollars in thousands)

Cash on hand and in banks

$

15,492

 

5

%

$

15,227

 

5

%

$

265

 

 

2

%

$

21,517

 

11

%

$

(6,025

)

 

-28

%

Interest bearing deposits

 

131,984

 

44

%

 

124,905

 

45

%

 

7,079

 

 

6

%

 

27,393

 

15

%

 

104,591

 

 

382

%

Other interest earning deposits

 

3,250

 

1

%

 

3,250

 

1

%

 

-

 

 

0

%

 

3,250

 

2

%

 

-

 

 

0

%

Federal funds sold

 

20,735

 

7

%

 

17,635

 

6

%

 

3,100

 

 

18

%

 

36,876

 

20

%

 

(16,141

)

 

100

%

 

Total

 

171,461

 

57

%

 

161,017

 

57

%

 

10,444

 

 

6

%

 

89,036

 

48

%

 

82,425

 

 

93

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Investment securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Collateralized mortgage obligations

 

46,811

 

16

%

 

44,242

 

16

%

 

2,569

 

 

6

%

 

43,805

 

23

%

 

3,006

 

 

7

%

 

Mortgage backed securities

 

13,194

 

4

%

 

15,366

 

6

%

 

(2,172

)

 

-14

%

 

20,457

 

11

%

 

(7,263

)

 

-36

%

 

U.S. Government and agency securities

 

8,449

 

3

%

 

4,101

 

1

%

 

4,348

 

 

106

%

 

501

 

0

%

 

7,948

 

 

1586

%

 

Municipal securities

 

56,272

 

19

%

 

52,314

 

19

%

 

3,958

 

 

8

%

 

32,378

 

17

%

 

23,894

 

 

74

%

 

Corporate debt securities

 

2,009

 

1

%

 

1,991

 

1

%

 

18

 

 

1

%

 

1,999

 

1

%

 

10

 

 

1

%

 

Equity securities

 

64

 

0

%

 

64

 

0

%

 

-

 

 

0

%

 

82

 

0

%

 

(18

)

 

-22

%

 

 

Total

 

126,799

 

43

%

 

118,078

 

43

%

 

8,721

 

 

7

%

 

99,222

 

52

%

 

27,577

 

 

28

%

Total cash equivalents and investment securities

$

298,260

 

100

%

$

279,095

 

100

%

$

19,165

 

 

7

%

$

188,258

 

100

%

$

110,002

 

 

58

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total cash equivalents and investment securities as a percent of total assets

 

 

 

26

%

 

 

 

25

%

 

 

 

 

 

 

 

20

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

LOANS

 

 

 

Loans by Category

 

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


Sept 30, 2020

 

% of
Gross
Loans

 


June 30, 2020

 

% of
Gross
Loans

 


$
Change

 



% Change

 


Sept 30,
2019

 

% of G
ross
Loans

 


$
Change

 


%
Change

 

 

 

 

 

Commercial:

 

(Dollars in thousands)

 

 

Commercial and agricultural

$

107,187

 

 

14

%

$

111,094

 

 

14

%

$

(3,907

)

 

-4

%

$

134,758

 

 

20

%

$

(27,571

)

 

-20

%

 

 

PPP

 

130,700

 

 

16

%

 

130,507

 

 

17

%

 

193

 

 

100

%

 

-

 

 

0

%

 

130,700

 

 

100

%

 

Real estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Construction and development

 

35,276

 

 

5

%

 

40,462

 

 

5

%

 

(5,186

)

 

-13

%

 

41,663

 

 

6

%

 

(6,387

)

 

-15

%

 

Residential 1-4 family

 

76,856

 

 

10

%

 

82,154

 

 

10

%

 

(5,298

)

 

-6

% 86,771 13% (9,915) -11% Multi-family 36,293 5% 32,955 4% 3,338 10% 32,920 5% 3,373 10% Commercial real estate -- owner occupied 150,211 19% 150,626 19% (415) 0% 142,297 21% 7,914 6% Commercial real estate -- non owner occupied 160,922 20% 156,712 20% 4,210 3% 150,249 21% 10,673 7% Farmland 30,268 4% 31,054 4% (786) -3% 32,448 5% (2,180) -7% Consumer 52,078 7% 51,772 7% 306 1% 62,707 9% (10,629) -17% Gross Loans 779,791 100% 787,336 100% (7,545) -1% 683,813 100% 95,978 14% Less: allowance for loan losses (12,002) (11,507) (495) (9,017) (2,985) Less: deferred fees (3,926) (4,774) 848 (981) (2,945) Net loans$763,863 $771,055 $(7,192) $673,815 $90,048 Loan Concentration (Unaudited)
Sept 30,
2020 % of Risk
Based
Capital
June 30,
2020 % of Risk
Based
Capital

Change
Sept 30,
2019 % of Risk
Based
Capital
Change Commercial: (Dollars in thousands) Commercial and agricultural$107,187 93%$111,094 97% -4%$134,758 123% -30% PPP 130,700 113% 130,507 114% -1% - 0% 113% Real estate: Construction and development 35,276 30% 40,462 35% -5% 41,663 38% -8% Residential 1-4 family 76,856 66% 82,154 72% -6% 86,771 79% -13% Multi-family 36,293 31% 32,955 29% 2% 32,920 30% 1% Commercial real estate -- owner occupied 150,211 130% 150,626 132% -2% 142,297 130% 0% Commercial real estate -- non owner occupied 160,922 139% 156,712 137% 2% 150,249 137% 2% Farmland 30,268 26% 31,054 27% -1% 32,448 30% -4% Consumer 52,078 45% 51,772 45% 0% 62,707 57% -12% Gross Loans$779,791 $787,336 $683,813 Regulatory Commercial Real Estate$222,719 192%$220,042 193% -1%$221,191 202% -10% Total Risk Based Capital*$115,852 $114,216 $109,428 *Bank of the Pacific

DEPOSITS

Deposits by Category

(Unaudited)

Sept 30,
2020


% of Total

June 30,
2020


% of Total

$
Change

%
Change

Sept 30,
2019


% of Total

$
Change

%
Change

(Dollars in thousands)

Interest-bearing demand

$

286,512

28

%

$

288,274

30

%

$

(1,762

)

-1

%

$

222,412

27

%

$

64,100

29

%

Money market

183,425

18

%

168,570

17

%

14,855

9

%

150,655

18

%

32,770

22

%

Savings

126,359

12

%

123,144

12

%

3,215

3

%

106,284

13

%

20,075

19

%

Time deposits (CDs)

70,823

7

%

72,402

7

%

(1,579

)

-2

%

71,501

9

%

(678

)

-1

%

Total interest-bearing deposits

667,119

65

%

652,390

66

%

14,729

2

%

550,852

67

%

116,267

21

%

Non-interest bearing demand

356,200

35

%

342,570

34

%

13,630

4

%

265,238

33

%

90,962

34

%

Total deposits

$

1,023,319

100

%

$

994,960

100

%

$

28,359

2.9

%

$

816,090

100

%

$

207,229

25

%

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

Capital Measures

(unaudited)





Sept 30,
2020





June 30,
2020






Change





Sept 30,
2019






Change

Well
Capitalized
Under Prompt
Correction
Action
Regulations*

Pacific Financial Corporation

Total risk-based capital ratio

15.38

%

15.11

%

0.27

14.30

%

1.08

N/A

Tier 1 risk-based capital ratio

14.13

%

13.86

%

0.27

13.13

%

1.00

N/A

Common equity tier 1 ratio

12.42

%

12.14

%

0.28

11.45

%

0.97

N/A

Leverage ratio

9.51

%

10.17

%

(0.66

)

11.11

%

(1.60

)

N/A

Tangible common equity ratio

8.60

%

8.60

%

-

9.66

%

(1.06

)

N/A

Bank of the Pacific

Total risk-based capital ratio

15.21

%

15.00

%

0.21

14.22

%

0.99

10.5

%

Tier 1 risk-based capital ratio

13.96

%

13.75

%

0.21

13.02

%

0.94

8.5

%

Common equity tier 1 ratio

13.96

%

13.75

%

0.21

13.02

%

0.94

7.0

%

Leverage ratio

9.43

%

10.13

%

(0.70

)

11.01

%

(1.58

)

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,
2020

June 30,
2020

$
Change

%
Change

Sept 30,
2019

$
Change

%
Change

Average Balances

(Dollars in thousands)

Gross loans

$

781,917

$

762,502

$

19,415

3

%

$

688,166

$

93,751

14

%

Gross loans without PPP

$

655,481

$

661,275

$

(5,794

)

100

%

$

-

$

655,481

100

%

Loans held for sale

$

25,002

$

18,287

$

6,715

37

%

$

16,825

$

8,177

49

%

Investment securities

$

124,062

$

112,245

$

11,817

11

%

$

104,236

$

19,826

19

%

Federal funds sold & interest bearing deposits in banks

$

148,970

$

89,941

$

59,029

66

%

$

51,931

$

97,039

187

%

Total interest-earning assets

$

1,735,432

$

1,644,250

$

91,182

6

%

$

861,158

$

874,274

102

%

Non-interest bearing demand deposits

$

349,763

$

307,802

$

41,961

14

%

$

254,184

$

95,579

38

%

Interest bearing deposits

$

655,945

$

601,443

$

54,502

9

%

$

541,200

$

114,745

21

%

Total Deposits

$

1,005,708

$

909,245

$

96,463

11

%

$

795,384

$

210,324

26

%

Borrowings

$

14,018

$

15,832

$

(1,814

)

-11

%

$

16,661

$

(2,643

)

-16

%

Total interest-bearing liabilities

$

669,963

$

617,275

$

52,688

9

%

$

557,861

$

112,102

20

%

Total Equity

$

112,236

$

108,455

$

3,781

3

%

$

102,715

$

9,521

9

%

For the Three Months Ended,

Sept 30,
2020

June 30,
2020


Change

Sept 30,
2019


Change

Yield on average gross loans (1)

4.60

%

4.59

%

0.01

5.47

%

(0.87

)

Yield on average gross loans without PPP (1)

4.87

%

4.96

%

(0.09

)

5.47

%

(0.60

)

Yield on average investment securities (1)

2.43

%

2.71

%

(0.28

)

2.80

%

(0.37

)

Yield on Fed funds sold & interest bearing deposits in banks

0.16

%

0.21

%

(0.05

)

2.24

%

(2.08

)

Cost of average interest bearing deposits

0.30

%

0.35

%

(0.05

)

0.42

%

(0.12

)

Cost of average borrowings

1.90

%

2.56

%

(0.66

)

3.60

%

(1.70

)

Cost of average total deposits and borrowings

0.22

%

0.27

%

(0.05

)

0.35

%

(0.13

)

Yield on average interest-earning assets

3.69

%

3.96

%

(0.27

)

4.91

%

(1.22

)

Cost of average interest-bearing liabilities

0.33

%

0.41

%

(0.08

)

0.51

%

(0.18

)

Net interest spread

3.36

%

3.55

%

(0.19

)

4.40

%

(1.04

)

Net interest spread without PPP

3.43

%

3.76

%

(0.33

)

4.40

%

(0.97

)

Net interest margin (1)

3.49

%

3.70

%

(0.21

)

4.57

%

(1.08

)

Net interest margin without PPP (1)

3.53

%

3.89

%

(0.36

)

4.57

%

(1.04

)

(1) Tax-exempt income has been adjusted to a tax equivalent basis at a rate of 21%.

For the Nine Months Ended,

Sept 30,
2020

Sept 30,
2019

$
Change

%
Change

Average Balances

(Dollars in thousands)

Gross loans

$

742,649

$

693,738

$

48,911

7

%

Gross loans without PPP

$

680,679

$

-

$

680,679

100

%

Loans held for sale

$

17,887

$

10,990

$

6,897

63

%

Investment securities

$

113,873

$

112,511

$

1,362

1

%

Federal funds sold & interest bearing deposits in banks

$

99,531

$

27,912

$

71,619

257

%

Interest-earning assets

$

1,654,619

$

845,151

$

809,468

96

%

Non-interest bearing demand deposits

$

299,134

$

241,188

$

57,946

24

%

Interest bearing deposits

$

602,249

$

539,227

$

63,022

12

%

Total Deposits

$

901,383

$

780,415

$

120,968

16

%

Borrowings

$

15,470

$

19,193

$

(3,723

)

-19

%

Interest-bearing liabilities

$

617,719

$

558,420

$

59,299

11

%

Total Equity

$

109,194

$

98,872

$

10,322

10

%

Total Deposits excl. Brokered CDs

895,718

759,417

136,301

17.9

%

For the Nine Months Ended,

Sept 30,
2020

Sept 30,
2019


Change

Net Interest Margin

Yield on average gross loans (1)

4.77

%

5.48

%

(0.71

)

Yield on average gross loans without PPP (1)

5.10

%

5.48

%

(0.38

)

Yield on average investment securities (1)

2.71

%

2.89

%

(0.18

)

Yield on Fed funds sold & interest bearing deposits in banks

0.42

%

2.40

%

(1.98

)

Cost of average interest bearing deposits

0.35

%

0.42

%

(0.07

)

Cost of average borrowings

2.58

%

3.65

%

(1.07

)

Cost of average total deposits and borrowings

0.28

%

0.37

%

(0.09

)

Yield on average interest-earning assets

4.06

%

5.01

%

(0.95

)

Cost of average interest-bearing liabilities

0.41

%

0.53

%

(0.12

)

Net interest spread

3.65

%

4.48

%

(0.83

)

Net interest spread without PPP

3.85

%

4.48

%

(0.63

)

Net interest margin (1)

3.80

%

4.66

%

(0.86

)

Net interest margin without PPP (1)

3.98

%

4.66

%

(0.68

)

(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,
2020

June 30,
2020

$
Change


% Change

Sept 30,
2019

$
Change


% Change

(Dollars in thousands)

Rated substandard or worse, but not impaired, beginning of period

$

8,144

$

9,269

$

(1,125

)

-12

%

$

6,978

$

1,166

17

%

Addition of previously classified pass graded loans

4,222

126

4,096

100

%

1,166

3,056

262

%

Upgrades to pass or other loans especially mentioned status

(89

)

-

(89

)

0

%

(693

)

604

0

%

Moved to nonaccrual

(486

)

(219

)

(267

)

-100

%

(237

)

(249

)

105

%

Principal payments, net

(186

)

(1,032

)

846

-82

%

(577

)

391

-68

%

Rated substandard or worse, but not impaired, end of period

$

11,605

$

8,144

$

3,461

42

%

$

6,637

$

4,968

75

%

Impaired

1,797

1,606

191

12

%

1,341

456

34

%

Total adversely classified loans¹

$

13,402

$

9,750

$

3,652

37

%

$

7,978

$

5,424

68

%

Other loans especially mentioned or watch, but not impaired

$

122,567

$

132,761

$

(10,194

)

-8

%

$

24,951

$

97,616

391

%

Gross loans (excluding deferred loan fees)

$

779,791

$

787,336

$

(7,545

)

-1

%

$

683,813

$

95,978

14

%

Adversely classified loans to gross loans

1.72

%

1.24

%

1.17

%

Adversely classified loans to gross loans without PPP

2.06

%

1.48

%

1.17

%

Allowance for loan losses

$

12,002

$

11,507

$

495

4

%

$

9,017

$

2,985

33

%

Allowance for loan losses as a percentage of adversely classified loans

89.55

%

118.02

%

113.02

%

Allowance for loan losses to total impaired loans

667.89

%

716.50

%

672.41

%

Adversely classified loans to total assets

1.15

%

0.86

%

0.84

%

Delinquent loans to gross loans, not in nonaccrual status

0.00

%

0.02

%

0.25

%

Delinquent loans to gross loans without PPP, not in nonaccrual status

0.00

%

0.03

%

0.25

%

¹Adversely classified loans are defined as loans having a well-defined weakness or weaknesses related to the borrower's financial capacity or to pledged collateral that may jeopardize the repayment of the debt. They are characterized by the possibility that the Bank may sustain some loss if the deficiencies giving rise to the substandard classification are not corrected. Note that any loans internally rated worse than substandard are included in the impaired loan totals.

Nonperforming Assets

(Unaudited)

Sept 30,
2020

June 30,
2020

$
Change

%
Change

Sept 30,
2019

$
Change

%
Change

(Dollars in thousands)

Total nonaccrual loans, beginning of period

$

1,426

$

1,622

$

(196

)

-12

%

$

773

$

653

84

%

Transfer to performing loans

-

-

-

100

%

-

-

0

%

Addition of nonaccrual loans

543

219

324

148

%

301

242

80

%

Moved to other assets owned

-

(169

)

169

-100

%

-

-

-100

%

Principal payments, net

(346

)

(12

)

(334

)

2783

%

(60

)

(286

)

477

%

Charge-offs, net

-

(234

)

234

-100

%

-

-

-100

%

Total nonaccrual loans, end of period

$

1,623

$

1,426

$

197

14

%

$

1,014

$

609

60

%

Other real estate owned and foreclosed assets

-

-

-

0

%

-

-

0

%

Total nonperforming assets

$

1,623

$

1,426

$

197

14

%

$

1,014

$

609

60

%

Total restructured performing loans, beginning of period

$

180

$

278

$

(98

)

-35

%

$

132

$

48

36

%

Transfer to nonaccrual loans

-

-

-

100

%

-

-

100

%

Addition of restructured performing loans

-

-

-

-100

%

196

(196

)

0

%

Principal payments, net

(6

)

(5

)

(1

)

20

%

(1

)

(5

)

500

%

Charge-offs, net

-

(93

)

93

-100

%

-

-

-100

%

Total restructured performing loans, end of period

$

174

$

180

$

(6

)

-3

%

$

327

$

(153

)

-47

%

Accruing loans past due 90 days or more

$

-

$

-

$

-

0

%

$

-

$

-

0

%

Percentage of nonperforming assets to total assets

0.14

%

0.13

%

0.11

%

Nonperforming loans to total loans

0.21

%

0.18

%

0.15

%

Nonperforming loans to total loans without PPP

0.25

%

0.22

%

0.15

%

Allowance for Loan Losses

(Unaudited)

For the Three Months Ended,

Sept 30,
2020

June 30,
2020

$
Change

%
Change

Sept 30,
2019

$
Change

%
Change

(Dollars in thousands)

Gross loans outstanding at end of period

$

779,791

$

787,336

$

(7,545

)

-1

%

$

683,813

$

95,978

14

%

Average loans outstanding, gross

$

781,917

$

762,502

$

19,415

3

%

$

688,166

$

93,751

14

%

Allowance for loan losses, beginning of period

$

11,507

$

10,786

$

721

7

%

$

9,046

$

2,461

27

%

Commercial

-

(303

)

303

-100

%

-

-

-100

%

Commercial Real Estate

-

-

-

0

%

-

-

0

%

Residential Real Estate

-

-

-

0

%

-

-

0

%

Consumer

(14

)

(51

)

37

-73

%

(33

)

19

-58

%

Total charge-offs

(14

)

(354

)

340

-96

%

(33

)

19

NM

Commercial

5

-

5

0

%

-

5

0

%

Commercial Real Estate

-

-

-

0

%

-

-

0

%

Residential Real Estate

-

72

(72

)

100

%

-

-

100

%

Consumer

4

3

1

33

%

4

-

0

%

Total recoveries

9

75

(66

)

NM

4

5

125

%

Net recoveries/(charge-offs)

(5

)

(279

)

274

-98

%

(29

)

24

NM

Provision charged to income

500

1,000

(500

)

-50

%

-

500

100

%

Allowance for loan losses, end of period

$

12,002

$

11,507

$

495

4

%

$

9,017

$

2,985

33

%

Ratio of net loans charged-off to average gross loans outstanding, annualized

0.00

%

0.15

%

-0.15

%

0.02

%

-0.02

%

Ratio of net loans charged-off to average gross loans outstanding without PPP, annualized

0.00

%

0.17

%

-0.17

%

0.02

%

-0.02

%

Ratio of allowance for loan losses to gross loans outstanding

1.54

%

1.46

%

0.08

%

1.32

%

0.22

%

Ratio of allowance for loan losses to gross loans without PPP outstanding

1.85

%

1.75

%

0.10

%

1.32

%

0.53

%

For the Nine Months Ended,

Sept 30,
2020

Sept 30,
2019

$
Change

%
Change

(Dollars in thousands)

Gross loans outstanding at end of period

$

779,791

$

683,813

$

95,978

14

%

Average loans outstanding, gross

$

742,649

$

693,738

$

48,911

7

%

Allowance for loan losses, beginning of period

$

8,993

$

9,049

$

(56

)

-1

%

Commercial

(433

)

(30

)

(403

)

NM

Commercial Real Estate

-

-

-

0

%

Residential Real Estate

-

-

-

0

%

Consumer

(147

)

(112

)

(35

)

31

%

Total charge-offs

(580

)

(142

)

(438

)

308

%

Commercial

5

56

(51

)

-91

%

Commercial Real Estate

-

-

-

0

%

Residential Real Estate

72

34

38

112

%

Consumer

12

20

(8

)

-40

%

Total recoveries

89

110

(21

)

-19

%

Net (charge-offs)

(491

)

(32

)

(459

)

NM

Provision charged to income

3,500

-

3,500

100

%

Allowance for loan losses, end of period

$

12,002

$

9,017

$

2,985

33

%

Ratio of net loans charged-off to average gross loans outstanding, annualized

0.07

%

0.00

%

0.07

%

Ratio of net loans charged-off to average gross loans outstanding without PPP, annualized

0.07

%

0.00

%

0.07

%

Ratio of allowance for loan losses to gross loans outstanding

1.54

%

1.32

%

0.22

%

Ratio of allowance for loan losses to gross loans without PPP outstanding

1.85

%

1.32

%

0.53

%

ABOUT PACIFIC FINANCIAL CORPORATION

Pacific Financial Corporation of Aberdeen, Washington, is the bank holding company for Bank of the Pacific, a state chartered and federally insured commercial bank. Bank of the Pacific offers banking products and services to small-to-medium sized businesses and professionals in western Washington and Oregon. At September 30, 2020, the Company had total assets of $1.2 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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