Pacific Financial Corp Earns $4.1 Million, or $0.39 per Diluted Share, for First Quarter of 2023; Declares Quarterly Cash Dividend of $0.13 per Share

Pacific Financial Corporation

ABERDEEN, Wash., April 28, 2023 (GLOBE NEWSWIRE) -- Pacific Financial Corporation (OTCQX: PFLC), (“Pacific Financial”) or the (“Company”), the holding company for Bank of the Pacific (the “Bank”), reported net income of $4.1 million, or $0.39 per diluted share for the first quarter 2023, compared to $4.7 million, or $0.45 per diluted share for the fourth quarter of 2022, and $1.7 million, or $0.16 per diluted share for the first quarter of 2022. All results are unaudited.     

The board of directors of Pacific Financial declared a quarterly cash dividend of $0.13 per share on April 26, 2023. The dividend will be payable on May 26, 2023 to shareholders of record on May 12, 2023.

“First quarter 2023 operating results of $4.1 million were driven by steady loan growth, higher net interest income and an improved net interest margin. Our net interest margin continued to benefit from rising short-term rates as yields on interest-earning bank deposits as well on variable rate loans and investments increased during the quarter, while our cost of funding increased at a slower pace,” said Denise Portmann, President and Chief Executive Officer.

“Our liquidity metrics remain robust with high levels of on-balance sheet interest earning cash and unencumbered available for sale securities. Additionally, our funds available to uninsured and uncollateralized deposits stands at 259%, and uninsured and uncollateralized deposits represent only 23% of total deposits,” said Portmann. “Although deposits have decreased during the quarter as experienced industry-wide, the Bank has a long history of strong core deposit funding. Our core deposit funding represents 94% of deposits with non-interest and interest-bearing demand deposits at 63% of total deposits,” Portmann stated.

"We continued to build on an already strong capital base during the quarter, while maintaining our $0.13 quarterly dividend, with the company’s leverage ratio at 9.9% and total risk-based capital ratio at 17.5%,” stated Portmann. “Together with our good earnings performance, robust liquidity metrics, strong core deposit base, solid loan growth and conservative risk practices, we have a solid foundation upon which to continue to grow our Company.”

First Quarter 2023 Financial Highlights

• Return on average assets (“ROAA”) was 1.33%, compared to 1.41% for the fourth quarter 2022, and 0.51% for the first quarter 2022.

• Return on average equity (“ROAE”) was 15.63%, compared to 18.70% from the preceding quarter, and 5.81% from the first quarter a year earlier.

• Net interest income increased 1%, or $162,000, to $13.1 million, compared to $12.9 million for the fourth quarter of 2022, and increased 58%, or $4.8 million, from $8.3 million from the first quarter a year ago.

• Net interest margin (“NIM”) improved 39 basis points to 4.51% compared to 4.12% from the preceding quarter and expanded 180 basis points from 2.71% in the first quarter a year ago.

• Gross loans balances increased $4.9 million, or 1%, to $645.6 million at March 31, 2023, compared to $640.7 from the preceding quarter end.

• Total deposits declined $70.0 million to $1.11 billion, compared to $1.18 billion from the fourth quarter 2022, with core deposits representing 94% of total deposits at March 31, 2023. Non-interest bearing deposits represented 43% of total deposits at March 31, 2023.

• Asset quality remains solid with nonperforming assets to total assets at 0.08%, compared to nonperforming assets to total assets at 0.07% for the preceding quarter.

• Tangible book value per common share increased to $9.16, compared to $8.62 at December 31, 2022 and $9.15 at March 31, 2022.

Liquidity

Liquidity metrics were robust with:

• Cash on hand or in banks of $238 million at March 31, 2023 compared to $302 million at December 31, 2022

• Coverage of short-term funds available to uninsured and uncollateralized deposits was 259% at March 31, 2023 compared to 222% at December 31, 2022.

• Uninsured or uncollateralized deposits were 23% of total deposits at March 31, 2023 compared to 26% as of December 31, 2022.
  

As shown below the Bank has established credit lines with borrowing capacity from the Federal Home Loan Bank of Des Moines (FHLB) and from the Federal Reserve Bank of San Francisco, both of which are subject to collateral requirements. In addition, the Bank has $60.0 million in unsecured borrowing capacity from various correspondent banks. There is no balance outstanding on any of these facilities.

Liquidity
(Unaudited)
				Mar 31, 2023		% of Deposits			Dec 31, 2022			% of Deposits			$ Change			% Change			Mar 31, 2022		% of Deposits			$ Change			% Change
				(Dollars in thousands)
Cash on hand and in banks			$	237,704		21	%	$	302,178			26	%	$	(64,474	)		-21	%	$	400,561		33	%	$	(162,857	)		-41	%
Unencumbered AFS Securities				116,886		11	%		133,892			11	%		(17,006	)		-13	%		125,622		11	%		(8,736	)		-7	%
Secured lines of Credit (FHLB, FRB)				318,179		29	%		253,387			21	%		64,792			26	%		236,019		20	%		82,160			35	%
	Total short-term funds available		$	672,769		61	%	$	689,457			58	%	$	(16,688	)		-2	%	$	762,202		64	%	$	(89,433	)		-12	%
									Mar 31, 2023			Dec 31, 2022			Mar 31, 2022
Short-term funds available to uninsured/uncollateralized deposits									259	%		222	%		250	%
Uninsured/uncollateralized deposits to total deposits									23	%		26	%		25	%
Gross loans to deposits ratio									57	%		54	%		51	%

Income Statement Review

Net interest income increased 1% to $13.10 million for the first quarter of 2023, compared to $12.94 million for the fourth quarter of 2022, and grew 58% from $8.29 million for the first quarter of 2022.

Net interest margin (“NIM”), expanded 39 basis points to 4.51% for the first quarter of 2023, compared to 4.12% for the fourth quarter of 2022, and expanded 180 basis points from 2.71% for the first quarter of 2022. Average interest-earning asset yield was 4.72% for the current quarter, compared to 4.25% for the preceding quarter and 2.78% for the first quarter in 2022. The increase in average yields on interest-earning assets during the current quarter reflects the benefit of variable rate interest-earning assets repricing higher, as well as new loans being originated at higher interest rates. Average loan yields for the current quarter increased 27 basis points to 5.44% compared to the preceding quarter of 5.17%, and increased 99 basis points from 4.45% from the first quarter of 2022. Yields on investment securities also increased during the first quarter to 3.20%, compared to 2.81% for the fourth quarter 2022, and 1.72% for the first quarter a year ago. The recent hikes in interest rates had a positive impact on earning asset yields, including yields on interest-earning bank deposits. The yield on interest-bearing bank deposits increased 89 basis points to 4.61% for the current quarter, compared to 3.72% for the preceding quarter, and increased 441 basis points from 0.20% from the first quarter of 2022.

As expected, the Bank’s total cost of funds increased to 0.21% for the current quarter, compared to 0.14% for the preceding quarter and 0.08% for the first quarter of 2022.   The increases are primarily a result of the increase in TRUPS borrowing costs as well as increased cost of funds on interest bearing deposits of 10 and 14 basis points from the preceding quarter and first quarter of 2022, respectively.   As noted above, while the Bank’s cost of funds continued to remain low for the current quarter, we expect that rate increases put in place late in the quarter as well as continued rate increases will increase cost of funds in the coming quarters.

Noninterest income was $1.3 million for the first quarter of 2023, compared to $1.6 million for the fourth quarter of 2022, and $2.1 million for the first quarter of 2022. The decrease in noninterest income was primarily due to the sale of securities during the quarter and the decline in gain on sale of loans and other mortgage banking revenue. The sale of securities represented an opportunity to take advantage of an investment strategy, with the sale of $20 million in securities with a small loss on sale of $154,000 and an earn-back of less than one year, by re-investing in higher-yielding securities at an average yield of 4.79% compared to a 3.76% yield on sold securities. With continued higher mortgage rates, residential mortgage volume continued to be compressed and as a result gain-on-sale of loans decreased by $75,000 for the current quarter to $111,000, compared to $186,000 for the fourth quarter 2022, and declined by $684,000 from $795,000 for the first quarter a year ago. Service charges on deposits increased 24% to $473,000 from a year and was primarily the result of the Bank’s review and implementation of updated service charges and fees as the beginning of 2023.

Noninterest expense was $9.2 million for the first quarter of 2023, compared to $8.6 million for the fourth quarter of 2022, and $8.6 million for the first quarter of 2022. Competition for experienced and knowledgeable personnel combined with high inflation impacted and increased salary and employee benefits compared to prior quarters, in addition to higher payroll taxes and benefits typically experienced in the first quarter. Professional services fees primarily increased due to FDICIA testing and audit services, as the company reached $1.0 billion in 2021 and became subject to the FDICIA internal control testing and audit requirements. In addition, FDIC assessments, data processing and advertising increased during the same time periods.

Federal and Oregon state income tax expense was $930,000 for the current quarter, and $1.1 million for the preceding quarter, resulting in effective tax rates of 18.5% and 19.3%, respectively. These income tax expenses reflect the benefits of tax exempt income and tax credits.

Balance Sheet Review

Total Assets declined 5% to $1.2 billion at March 31, 2023, compared to $1.3 billion at December 31, 2022 and declined 6% from $1.3 billion at March 31, 2022. The decrease in total assets from the linked quarter and year-over-year was primarily due to the decrease in deposits during the current quarter.

Investment Securities totaled $285.9 million at March 31, 2023, relatively flat compared to $286.3 million at December 31, 2022, and up 21% from $236.4 million at March 31, 2022. The average portfolio yield increased to 3.20% for the current quarter, compared to 2.81% for the linked quarter, and 1.72% for the like quarter a year ago and for the current quarter compared to the linked quarter was primarily related to the increase in interest rates. The average adjusted duration of the investment securities portfolio was 4.5 at March 31, 2023.

Gross loans balances increased $4.9 million, or 1%, to $645.6 million at March 31, 2023, compared to $640.7 million at December 31, 2022. Owner-occupied commercial real estate increased $6.2 million or 4%, and residential 1-4 family loans increased $2.7 million or 3% while construction and development and commercial real estate non-owner occupied decreased. The Bank’s commercial real estate loan portfolio is prudently managed to meet regulatory concentration guidelines. Within the consumer loan category, loans to finance luxury and classic cars were $62.1 million at March 31, 2023, compared to $60.7 million at December 31, 2022 and $50.2 million at March 31, 2022. Our loan pipeline continues to be strongly supported by continued business development activity by our commercial lending teams.

The Company manages new loan origination volume using concentration limits that establish maximum exposure levels by certain industry segments, loan product types, geography and single borrower limits. The loan portfolio continues to be well-diversified and is originated predominately within our Western Washington and Oregon markets.

Credit Quality metrics remain low and below historical norms with nonperforming assets at $961,000, or 0.08% of total assets at March 31, 2023, compared to nonperforming assets of $899, 000, or 0.07% of total assets at December 31, 2022, and $1.3 million of nonperforming assets, or 0.10% of total assets, at March 31, 2022. Balances related to non-impaired loans, graded watch or other loans especially mentioned, decreased substantially to $12.7 million at March 31, 2023, compared to $26.4 million at December 31, 2022, and decreased from $30.0 million at March 31, 2022. This decrease was primarily related to risk rating upgrades.

Adoption of New Accounting Standard In June 2016, Financial Accounting Standards Board issued Accounting Standard Update No. 2016-13, Measurement of Credit Losses on Financial Instruments (ASU 2016-13). The allowance for credit losses under ASU 2016-13 utilizes a Current Expected Credit Losses (“CECL”) methodology which estimates the expected loan losses over the contractual life of the loans. GAAP prior to ASU 2016-13 required an “incurred loss” methodology for recognizing credit losses that delays recognition until it is probable a loss has been incurred. ASU 2016-13 became effective for the Company on January 1, 2023. The day 1 adoption of ASU 2016-13 and related amendments resulted in a decrease of $157,000 to the Bank’s allowance for credit losses-loans and an increase of $609,000 to the Bank’s allowance for credit losses-unfunded loan commitments for a cumulative-effect adjustment of $452,000 to decrease the beginning balance of retained earnings.

Allowance for Credit Losses (“ACL”) remained flat at $8.2 million, or 1.28% of gross loans (excluding PPP) at March 31, 2023, compared to $8.2 million, or 1.29% of gross loans, at December 31, 2022, and $8.3 million, or 1.36%, at March 31, 2022. Net recoveries totaled $1,000 for the current quarter, compared to net charge-offs of $13,000 for the fourth quarter of 2022 and net charge-offs of $21,000 for the first quarter 2022. A provision for credit losses of $150,000 was booked in the first quarter of 2023 compared to zero provision for credit losses in the fourth quarter of 2022 and for the first quarter a year earlier. The $150,000 provision booked in the current quarter was primarily as a result of loan growth and an increase to the Federal Open Market Committee’s (FOMC) forecasted national unemployment rate. In addition to the allowance for credit losses - loans, the Bank maintains an allowance for credit losses - unfunded loan commitments, which was $817,000 at March 31, 2023, compared to $203,000 at December 31, 2022 and at March 31, 2022.

Total Deposits were $1.11 billion at March 31, 2023, compared to $1.18 billion at December 31, 2022 and $1.19 billion at March 31, 2022. The decrease was primarily due to seasonal outflows typical for this time of year combined with competitive pricing pressures and interest rate sensitive customers moving a portion of their excess deposits funds to alternative higher yielding investments such as treasury bonds or money market funds. As customers sought higher yields, we saw the demand for our certificates of deposits (“CD’s”) increase, increasing $16.5 million from December 31, 2022 and $11.3 from March 31, 2022. Time deposits represented 6%, 4%, and 5%, of total deposits, as of March 31, 2023, December 31, 2022 and March 31, 2022, respectively. Noninterest-bearing deposits represent 43% of total deposits and declined $27.1 million or 5% from December 31, 2022, and decreased $15.0 million or 3% from a year ago for reasons noted above. The Bank has a strong core deposit track record as shown by our core deposit ratios. Core deposits were 94% of total deposits at March 31, 2023, compared to 95% at March 31, 2022.

Shareholder’s Equity was $108.9 million at March 31, 2023, an increase of 6% from $103.2 million at December 31, 2022 and remained relatively flat from $108.5 million at March 31, 2022. Book value per common share increased 5% to $10.45, at March 31, 2023, compared to $9.91 at December 31, 2022, and $10.44 at March 31, 2022. The increase in shareholder’s equity during the current quarter was due to net income during the quarter plus the decrease in unrealized loss on available-for-sale securities which was partially offset by dividends to shareholders. The decrease in the unrealized gain/(loss) on available-for-sale investment securities had a positive impact on the Tangible Common Equity Ratio (TCE) increasing the Company’s tangible common equity ratio to 7.8% at March 31, 2023, compared to 6.9% at December 31, 2022 and from 7.2% at March 31, 2022. The unrealized loss on available for sale securities was $20.5 million; $24.9 million; and $10.5 million as of March 31, 2023, December 31, 2022 and March 31, 2022, respectively. The decline in longer-term rates during the quarter contributed to this change, coupled with the restructure of $20 million in securities during the quarter and subsequent reinvestment at current market rates. Regulatory capital ratios of both the company and the Bank continue to exceed the well-capitalized regulatory thresholds, with the company’s leverage ratio at 9.9% and total risk-based capital ratio at 17.5% as of March 31, 2023.

Financial Performance Overview
(Unaudited)
		For the Three Months Ended
		Mar 31, 2023			Dec 31, 2022			Change			Mar 31, 2022			Change
Performance Ratios
Return on average assets, annualized		1.33	%		1.41	%		(0.08	)		0.51	%		0.82
Return on average equity, annualized		15.63	%		18.70	%		(3.07	)		5.81	%		9.82
Efficiency ratio (1)		63.91	%		59.67	%		4.24			82.48	%		(18.57	)
(1) Non-interest expense divided by net interest income plus noninterest income.

Balance Sheet Overview
(Unaudited)
				Mar 31, 2023			Dec 31, 2022			$ Change			% Change			Mar 31, 2022			$ Change			% Change
Assets:				(Dollars in thousands, except per share data)
	Cash on hand and in banks		$	16,593		$	18,673		$	(2,080	)		-11	%	$	19,007		$	(2,414	)		-13	%
	Interest bearing deposits			235,958			299,813			(63,855	)		-21	%		312,194			(76,236	)		-24	%
	Federal funds sold			-			-			-			0	%		81,339			(81,339	)		-100	%
	Investment securities			285,925			286,296			(371	)		0	%		236,434			49,491			21	%
	Loans held-for-sale			249			-			249			100	%		3,703			(3,454	)		-93	%
	Loans, net of deferred fees			644,901			639,958			4,943			1	%		615,891			29,010			5	%
	Allowance for loan losses			(8,231	)		(8,236	)		5			0	%		(8,276	)		45			-1	%
	Net loans			636,670			631,722			4,948			1	%		607,615			29,055			5	%
	Federal Home Loan Bank and Pacific Coast Bankers' Bank stock, at cost			2,567			2,583			(16	)		-1	%		2,598			(31	)		-1	%
	Other assets			65,572			67,116			(1,544	)		-2	%		62,579			2,993			5	%
	Total assets		$	1,243,534		$	1,306,203		$	(62,669	)		-5	%	$	1,325,469		$	(81,935	)		-6	%
Liabilities and Shareholders' Equity:
	Total deposits		$	1,110,368		$	1,180,362		$	(69,994	)		-6	%	$	1,196,106		$	(85,738	)		-7	%
	Borrowings			13,403			13,403			-			0	%		13,769			(366	)		-3	%
	Accrued interest payable and other liabilities			10,848			9,276			1,572			17	%		7,108			3,740			53	%
	Shareholders' equity			108,915			103,162			5,753			6	%		108,486			429			0	%
	Total liabilities and shareholders' equity		$	1,243,534		$	1,306,203		$	(62,669	)		-5	%	$	1,325,469		$	(81,935	)		-6	%
Common Shares Outstanding				10,424,294			10,414,276			10,018			0	%		10,392,738			31,556			0	%
Book value per common share (1)			$	10.45		$	9.91		$	0.54			5	%	$	10.44		$	0.01			0	%
Tangible book value per common share (2)			$	9.16		$	8.62		$	0.54			6	%	$	9.15		$	0.01			0	%
(1) Book value per common share is calculated as the total common shareholders' equity divided by the period ending number of common stock shares outstanding.
(2) Tangible book value per common share is calculated as the total common shareholders' equity less total intangible assets and liabilities, divided by the period ending number of common stock shares outstanding.

Income Statement Overview
(Unaudited)
				For the Three Months Ended,
				Mar 31, 2023			Dec 31, 2022			$ Change			% Change			Mar 31, 2022			$ Change			% Change
				(Dollars in thousands, except per share data)
Interest and dividend income			$	13,690		$	13,352		$	338			3	%	$	8,526		$	5,164			61	%
Interest expense				593			417			176			42	%		239			354			148	%
	Net interest income			13,097			12,935			162			1	%		8,287			4,810			58	%
Loan loss provision				151			-			151			100	%		-			151			100	%
Noninterest income				1,287			1,559			(272	)		-17	%		2,112			(825	)		-39	%
Noninterest expense				9,193			8,648			545			6	%		8,577			616			7	%
Income before income taxes				5,040			5,846			(806	)		-14	%		1,822			3,218			177	%
Income tax expense				930			1,129			(199	)		-18	%		166			764			460	%
	Net Income		$	4,110		$	4,717		$	(607	)		-13	%	$	1,656		$	2,454			148	%
Average common shares outstanding - basic				10,418,292			10,407,967			10,325			0	%		10,390,498			27,794			0	%
Average common shares outstanding - diluted				10,432,245			10,426,346			5,899			0	%		10,415,689			16,556			0	%
Income per common share
	Basic		$	0.39		$	0.45		$	(0.06	)		-13	%	$	0.16		$	0.23			144	%
	Diluted		$	0.39		$	0.45		$	(0.06	)		-13	%	$	0.16		$	0.23			144	%
Effective tax rate				18.5	%		19.3	%		-0.8	%					9.1	%		9.4	%

Noninterest Income
(Unaudited)
			For the Three Months Ended,
			Mar 31, 2023			Dec 31, 2022			$ Change			% Change			Mar 31, 2022		$ Change			% Change
			(Dollars in thousands)
Service charges on deposits		$	473		$	404		$	69			17	%	$	382	$	91			24	%
Gain on sale of loans, net			111			186			(75	)		-40	%		795		(684	)		-86	%
Gain on sale of securities available for sale, net			(154	)		-			(154	)		0	%		-		(154	)		0	%
Earnings on bank owned life insurance			164			161			3			2	%		184		(20	)		-11	%
Other noninterest income
	Fee income		705			814			(109	)		-13	%		750		(45	)		-6	%
	Other		(12	)		(6	)		(6	)		100	%		1		(13	)		-1300	%
Total noninterest income		$	1,287		$	1,559		$	(272	)		-17	%	$	2,112	$	(825	)		-39	%

Noninterest Expense
(Unaudited)
			For the Three Months Ended,
			Mar 31, 2023		Dec 31, 2022			$ Change			% Change			Mar 31, 2022		$ Change			% Change
			(Dollars in thousands)
Salaries and employee benefits		$	5,785	$	5,432		$	353			6	%	$	5,516	$	269			5	%
Occupancy			531		509			22			4	%		521		10			2	%
Equipment			287		296			(9	)		-3	%		286		1			0	%
Data processing			951		881			70			8	%		855		96			11	%
Professional services			241		158			83			53	%		202		39			19	%
State and local taxes			178		197			(19	)		-10	%		158		20			13	%
FDIC and State assessments			154		107			47			44	%		100		54			54	%
Other noninterest expense:
	Director fees		71		68			3			4	%		74		(3	)		-4	%
	Communication		59		61			(2	)		-3	%		67		(8	)		-12	%
	Advertising		60		(31	)		91			294	%		25		35			140	%
	Professional liability insurance		67		68			(1	)		-1	%		60		7			12	%
	Amortization		44		48			(4	)		-8	%		47		(3	)		-6	%
	Other		765		854			(89	)		-10	%		666		99			15	%
Total noninterest expense		$	9,193	$	8,648		$	545			6	%	$	8,577	$	616			7	%

Investment Securities
(Unaudited)
				Mar 31, 2023			% of Total			Dec 31, 2022			% of Total			$ Change			% Change			Mar 31, 2022			% of Total			$ Change			% Change
				(Dollars in thousands)
Investment securities:
	Collateralized mortgage obligations		$	122,992			43	%	$	103,330			37	%	$	19,662			19	%	$	73,142			31	%	$	49,850			68	%
	Mortgage backed securities			32,294			11	%		32,801			11	%		(507	)		-2	%		24,741			10	%		7,553			31	%
	U.S. Government and agency securities			84,814			30	%		83,889			29	%		925			1	%		70,003			30	%		14,811			21	%
	Municipal securities			44,827			16	%		64,277			22	%		(19,450	)		-30	%		66,544			28	%		(21,717	)		-33	%
	Corporate debt securities			998			0	%		1,999			1	%		(1,001	)		-50	%		2,004			1	%		(1,006	)		-50	%
		Total	$	285,925			100	%	$	286,296			100	%	$	(371	)		0	%	$	236,434			100	%	$	49,491			21	%
	Held to maturity securities		$	58,595			20	%	$	59,513			21	%	$	(918	)		-2	%	$	10,389			4	%	$	48,206			464	%
	Available for sale securities		$	227,330			80	%	$	226,783			79	%	$	547			0	%	$	226,045			96	%	$	1,285			1	%
	Government & Agency securities		$	240,061			84	%	$	219,981			77	%	$	20,080			9	%	$	167,829			71	%	$	72,232			43	%
	AAA, AA, A rated securities		$	44,614			16	%	$	65,024			23	%	$	(20,410	)		-31	%	$	67,181			28	%	$	(22,567	)		-34	%
	Non-rated securities		$	1,250			0	%	$	1,291			0	%	$	(41	)		-3	%	$	1,424			1	%	$	(174	)		-12	%
	AFS Unrealized Gain (Loss)		$	(20,518	)		-7	%	$	(24,926	)		-9	%	$	4,408			2	%	$	(10,537	)		-4	%	$	(9,981	)		-3	%

	Loans by Category
	(Unaudited)
				Mar 31, 2023			% of Gross Loans			Dec 31, 2022			% of Gross Loans			$ Change			% Change			Mar 31, 2022			% of Gross Loans			$ Change			% Change
	Commercial:			(Dollars in thousands)
		Commercial and agricultural	$	75,279			12	%	$	75,705			12	%	$	(426	)		-1	%	$	83,324			14	%	$	(8,045	)		-10	%
		PPP		405			0	%		515			0	%		(110	)		-21	%		8,290			4	%		(7,885	)		-95	%
	Real estate:
	Construction and development			34,918			5	%		37,287			6	%		(2,369	)		-6	%		31,169			3	%		3,749			12	%
	Residential 1-4 family			85,380			13	%		82,653			13	%		2,727			3	%		66,338			11	%		19,042			29	%
	Multi-family			40,882			6	%		41,122			7	%		(240	)		-1	%		43,226			6	%		(2,344	)		-5	%
	Commercial real estate -- owner occupied			160,534			25	%		154,380			24	%		6,154			4	%		152,301			25	%		8,233			5	%
	Commercial real estate -- non owner occupied			151,923			24	%		153,707			24	%		(1,784	)		-1	%		151,637			24	%		286			0	%
	Farmland			26,451			4	%		26,935			4	%		(484	)		-2	%		22,734			4	%		3,717			16	%
	Consumer			69,867			11	%		68,412			10	%		1,455			2	%		57,590			9	%		12,277			21	%
		Gross Loans		645,639			100	%		640,716			100	%		4,923			1	%		616,609			100	%		29,030			5	%
		Less: allowance for loan losses		(8,231	)					(8,236	)					5						(8,276	)					45
		Less: deferred fees		(738	)					(758	)					20						(718	)					(20	)
		Net loans	$	636,670					$	631,722					$	4,948					$	607,615					$	29,055
	Loan Concentration
	(Unaudited)
				Mar 31, 2023			% of Risk Based Capital			Dec 31, 2022			% of Risk Based Capital			Change			Mar 31, 2022			% of Risk Based Capital			Change
	Commercial:			(Dollars in thousands)
		Commercial and agricultural	$	75,279			57	%	$	75,705			58	%		-1	%	$	83,324			69	%		-12	%
		PPP		405			0	%		515			0	%		0	%		8,290			20	%		-20	%
	Real estate:
	Construction and development			34,918			26	%		37,287			28	%		-2	%		31,169			23	%		3	%
	Residential 1-4 family			85,380			64	%		82,653			63	%		1	%		66,338			54	%		10	%
	Multi-family			40,882			31	%		41,122			33	%		-2	%		43,226			32	%		-1	%
	Commercial real estate -- owner occupied			160,534			121	%		154,380			119	%		2	%		152,301			125	%		-4	%
	Commercial real estate -- non owner occupied			151,923			115	%		153,707			118	%		-3	%		151,637			120	%		-5	%
	Farmland			26,451			20	%		26,935			20	%		0	%		22,734			19	%		1	%
	Consumer			69,867			53	%		68,412			52	%		1	%		57,590			45	%		8	%
		Gross Loans	$	645,639					$	640,716								$	616,609
	Regulatory Commercial Real Estate		$	225,163			170	%	$	229,592			177	%		-7	%	$	223,799			173	%		-3	%
	Total Risk Based Capital*		$	132,579					$	129,551								$	124,636
	*Bank of the Pacific

Deposits by Category
(Unaudited)
		Mar 31, 2023		% of Total			Dec 31, 2022		% of Total			$ Change			% Change			Mar 31, 2022		% of Total			$ Change			% Change
		(Dollars in thousands)
Interest-bearing demand	$	215,853		20	%	$	253,272		20	%	$	(37,419	)		-15	%	$	255,120		21	%	$	(39,267	)		-15	%
Money market		183,066		16	%		195,814		17	%		(12,748	)		-7	%		214,840		17	%		(31,774	)		-15	%
Savings		165,694		15	%		174,887		15	%		(9,193	)		-5	%		176,753		15	%		(11,059	)		-6	%
Time deposits (CDs)		65,231		6	%		48,754		4	%		16,477			34	%		53,885		5	%		11,346			21	%
Total interest-bearing deposits		629,844		57	%		672,727		57	%		(42,883	)		-6	%		700,598		58	%		(70,754	)		-10	%
Non-interest bearing demand		480,524		43	%		507,635		43	%		(27,111	)		-5	%		495,508		42	%		(14,984	)		-3	%
Total deposits	$	1,110,368		100	%	$	1,180,362		100	%	$	(69,994	)		-6	%	$	1,196,106		100	%	$	(85,738	)		-7	%
Insured Deposits	$	700,960		64	%	$	709,468		60	%	$	(8,508	)		-1	%	$	749,175		63	%	$	(48,215	)		-6	%
Collateralized Deposits		149,856		13	%		160,354		14	%		(10,498	)		-7	%		142,262		12	%		7,594			5	%
Uninsured Deposits		259,552		23	%		310,540		26	%		(50,988	)		-16	%		304,669		25	%		(45,117	)		-15	%
Total Deposits	$	1,110,368		100	%	$	1,180,362		100	%	$	(69,994	)		-6	%	$	1,196,106		100	%	$	(85,738	)		-7	%
Consumer Deposits	$	502,430		45	%	$	519,948		44	%	$	(17,518	)		-3	%	$	558,136		46	%	$	(55,706	)		-10	%
Business Deposits		447,778		40	%		490,341		42	%		(42,563	)		-9	%		486,702		41	%		(38,924	)		-8	%
Public Deposits		160,160		15	%		170,073		14	%		(9,913	)		-6	%		151,268		13	%		8,892			6	%
Total Deposits	$	1,110,368		100	%	$	1,180,362		100	%	$	(69,994	)		-6	%	$	1,196,106		100	%	$	(85,738	)		-7	%

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

Capital Measures
(unaudited)
	Mar 31, 2023			Dec 31, 2022			Change		Mar 31, 2022			Change			Well Capitalized Under Prompt Correction Action Regulations
Pacific Financial Corporation
Total risk-based capital ratio	17.5	%		17.1	%		0.4		17.4	%		0.1			N/A
Tier 1 risk-based capital ratio	16.3	%		16.0	%		0.3		16.3	%		-			N/A
Common equity tier 1 ratio	14.6	%		14.3	%		0.3		14.4	%		0.2			N/A
Leverage ratio	9.9	%		9.4	%		0.5		8.9	%		1.0			N/A
Tangible common equity ratio	7.8	%		6.9	%		0.9		7.2	%		0.6			N/A
Bank of the Pacific
Total risk-based capital ratio	17.4	%		17.0	%		0.4		17.4	%		-			10.5	%
Tier 1 risk-based capital ratio	16.2	%		15.9	%		0.3		16.2	%		-			8.5	%
Common equity tier 1 ratio	16.2	%		15.9	%		0.3		16.2	%		-			7.0	%
Leverage ratio	9.8	%		9.1	%		0.7		8.8	%		1.0			7.5	%

The following tables set forth information regarding average balances of interest-earning assets and interest-bearing liabilities and the resultant yields or cost, and the net interest margin on a tax equivalent basis. Loans held for sale and non-accrual loans are included in total loans.

Net Interest Margin
(Unaudited)
(Annualized, tax-equivalent basis)
			For the Three Months Ended,
			Mar 31, 2023			Dec 31, 2022			$ Change			% Change			Mar 31, 2022		$ Change			% Change
Average Balances			(Dollars in thousands)
Gross loans		$	643,851		$	629,976		$	13,875			2	%	$	621,412	$	22,439			4	%
Gross loans without PPP		$	643,414		$	629,439		$	13,975			2	%	$	603,998	$	39,416			7	%
Loans held for sale		$	584		$	898		$	(314	)		-35	%	$	3,670	$	(3,086	)		-84	%
Investment securities		$	287,714		$	270,416		$	17,298			6	%	$	242,084	$	45,630			19	%
Federal funds sold & interest bearing deposits in banks		$	251,118		$	352,628		$	(101,510	)		-29	%	$	388,902	$	(137,784	)		-35	%
Total interest-earning assets		$	1,183,267		$	1,253,918		$	(70,651	)		-6	%	$	1,256,068	$	(72,801	)		-6	%
Non-interest bearing demand deposits		$	483,135		$	521,133		$	(37,998	)		-7	%	$	496,833	$	(13,698	)		-3	%
Interest bearing deposits		$	643,972		$	684,377		$	(40,405	)		-6	%	$	693,350	$	(49,378	)		-7	%
Total Deposits		$	1,127,107		$	1,205,510		$	(78,403	)		-7	%	$	1,190,183	$	(63,076	)		-5	%
Borrowings		$	13,403		$	13,403		$	-			0	%	$	13,782	$	(379	)		-3	%
Total interest-bearing liabilities		$	657,375		$	697,780		$	(40,405	)		-6	%	$	707,132	$	(49,757	)		-7	%
Total Equity		$	106,612		$	100,076		$	6,536			7	%	$	115,664	$	(9,052	)		-8	%
			For the Three Months Ended,
			Mar 31, 2023			Dec 31, 2022			Change			Mar 31, 2022			Change
Yield on average gross loans (1)			5.44	%		5.18	%		0.26			4.81	%		0.63
Yield on average gross loans without PPP (1)			5.44	%		5.17	%		0.27			4.45	%		0.99
Yield on average investment securities (1)			3.20	%		2.81	%		0.39			1.72	%		1.48
Yield on Fed funds sold & interest bearing deposits in banks			4.61	%		3.72	%		0.89			0.20	%		4.41
Cost of average interest bearing deposits			0.24	%		0.14	%		0.10			0.10	%		0.14
Cost of average borrowings			6.45	%		5.42	%		1.03			1.85	%		4.60
Cost of average total deposits and borrowings			0.21	%		0.14	%		0.07			0.08	%		0.13
Yield on average interest-earning assets			4.72	%		4.25	%		0.47			2.78	%		1.94
Cost of average interest-bearing liabilities			0.37	%		0.24	%		0.13			0.14	%		0.23
Net interest spread			4.35	%		4.01	%		0.34			2.64	%		1.71
Net interest spread without PPP			4.35	%		4.01	%		0.34			2.44	%		1.91
Net interest margin (1)			4.51	%		4.12	%		0.39			2.71	%		1.80
Net interest margin without PPP (1)			4.51	%		4.12	%		0.39			2.50	%		2.01
(1) Tax-exempt income has been adjusted to a tax equivalent basis at a rate of 21%.

Adversely Classified Loans and Securities
(Unaudited)
		Mar 31, 2023			Dec 31, 2022			$ Change			% Change			Mar 31, 2022			$ Change			% Change
		(Dollars in thousands)
Rated substandard or worse, but not impaired, beginning of three month period	$	2,884		$	2,814		$	70			2	%	$	8,980		$	(6,096	)		-68	%
Addition of previously classified pass graded loans		2,237			272			1,965			722	%		174			2,063			1186	%
Upgrades to pass or other loans especially mentioned status		-			(85	)		85			-100	%		(789	)		789			-100	%
Moved to nonaccrual		(241	)		-			(241	)		-100	%		-			(241	)		-100	%
Principal payments, net		(125	)		(117	)		(8	)		7	%		(243	)		118			-49	%
Rated substandard or worse, but not impaired, end of three month period	$	4,755		$	2,884		$	1,871			65	%	$	8,122		$	(3,367	)		-41	%
Impaired		961			2,452			(1,491	)		-61	%		2,821			(1,860	)		-66	%
Total adversely classified loans¹	$	5,716		$	5,336		$	380			7	%	$	10,943		$	(5,227	)		-48	%
Other loans especially mentioned or watch, but not impaired	$	12,666		$	26,408		$	(13,742	)		-52	%	$	30,018		$	(17,352	)		-58	%
Gross loans (excluding deferred loan fees)	$	645,639		$	640,716		$	4,923			1	%	$	616,609		$	29,030			5	%
Adversely classified loans to gross loans		0.89	%		0.83	%								1.77	%
Adversely classified loans to gross loans without PPP		0.89	%		0.83	%								1.80	%
Allowance for loan losses	$	8,231		$	8,236		$	(5	)		0	%	$	8,276		$	(45	)		-1	%
Allowance for loan losses as a percentage of adversely classified loans		144.00	%		154.35	%								75.63	%
Allowance for loan losses to total impaired loans		856.50	%		335.89	%								293.37	%
Adversely classified loans to total assets		0.46	%		0.41	%								0.83	%
Delinquent loans to gross loans, not in nonaccrual status 2		0.03	%		0.08	%								0.01	%
Delinquent loans to gross loans without PPP, not in nonaccrual status		0.03	%		0.08	%								0.01	%
1 Adversely classified loans are defined as loans having a well-defined weakness or weaknesses related to the borrower's financial capacity or to pledged collateral that may jeopardize the repayment of the debt. They are characterized by the possibility that the Bank may sustain some loss if the deficiencies giving rise to the substandard classification are not corrected. Note that any loans internally rated worse than substandard are included in the impaired loan totals.
2 Delinquent loans are defined as loans past due 30-90 days and still accruing

Nonperforming Assets
(Unaudited)
		Mar 31, 2023			Dec 31, 2022			$ Change			% Change			Mar 31, 2022			$ Change			% Change
		(Dollars in thousands)
Total nonaccrual loans, beginning of three month period	$	869		$	899		$	(30	)		-3	%	$	1,221		$	(352	)		-29	%
Transfer to performing loans		(21	)		-			(21	)		-100	%		-			(21	)		-100	%
Addition of nonaccrual loans		241			-			241			100	%		-			241			100	%
Moved to other assets owned		-			-			-			0	%		-			-			0	%
Principal payments, net		(128	)		(30	)		(98	)		327	%		(23	)		(105	)		457	%
Charge-offs, net		-			-			-			0	%		-			-			0	%
Total nonaccrual loans, end of three month period	$	961		$	869		$	92			11	%	$	1,198		$	(237	)		-20	%
Other real estate owned and foreclosed assets		-			30			(30	)		-100	%		122			(122	)		-100	%
Total nonperforming assets	$	961		$	899		$	62			7	%	$	1,320		$	(359	)		-27	%
Accruing loans past due 90 days or more	$	-		$	-		$	-			0	%	$	-		$	-			0	%
Percentage of nonperforming assets to total assets		0.08	%		0.07	%								0.10	%
Nonperforming loans to total loans		0.15	%		0.14	%								0.19	%
Nonperforming loans to total loans without PPP		0.15	%		0.14	%								0.20	%

Allowance for Credit Losses
(Unaudited)
			For the Three Months Ended,
			Mar 31, 2023			Dec 31, 2022			$ Change			% Change			Mar 31, 2022			$ Change			% Change
			(Dollars in thousands)
Gross loans outstanding at end of period		$	645,639		$	640,716		$	4,923			1	%	$	616,609		$	29,030			5	%
Average loans outstanding, gross		$	643,851		$	629,976		$	13,875			2	%	$	621,412		$	22,439			4	%
Allowance for credit losses, beginning of period		$	8,236		$	8,249		$	(13	)		0	%	$	8,297		$	(61	)		-1	%
Impact of CECL Adoption (ASC 326)			(157	)		-			(157	)		-100	%		-			(157	)		-100	%
Commercial			-			-			-			0	%		-			-			0	%
Commercial Real Estate			-			-			-			0	%		-			-			0	%
Residential Real Estate			-			-			-			0	%		-			-			0	%
Consumer			(39	)		(14	)		(25	)		179	%		(25	)		(14	)		56	%
Total charge-offs			(39	)		(14	)		(25	)		179	%		(25	)		(14	)		56	%
Commercial			27			-			27			100	%		-			27			100	%
Commercial Real Estate			-			-			-			0	%		-			-			0	%
Residential Real Estate			-			-			-			0	%		-			-			0	%
Consumer			13			1			12			1200	%		4			9			225	%
Total recoveries			40			1			39			3900	%		4			36			900	%
Net recoveries/(charge-offs)			1			(13	)		14			-108	%		(21	)		22			-105	%
Provision (benefit) to income			151			-			151			100	%		-			151			100	%
Allowance for credit losses, end of period		$	8,231		$	8,236		$	(5	)		0	%	$	8,276		$	(45	)		-1	%
Ratio of net loans charged-off to average gross loans outstanding, annualized			0.00	%		0.01	%		-0.01	%					0.01	%		-0.01	%
Ratio of net loans charged-off to average gross loans outstanding without PPP, annualized			0.00	%		0.01	%		-0.01	%					0.01	%		-0.01	%
Ratio of allowance for credit losses to gross loans outstanding			1.27	%		1.29	%		-0.02	%					1.34	%		-0.07	%
Ratio of allowance for loan credit to gross loans without PPP outstanding			1.28	%		1.29	%		-0.01	%					1.36	%		-0.08	%

ABOUT PACIFIC FINANCIAL CORPORATION

Pacific Financial Corporation of Aberdeen, Washington, is the bank holding company for Bank of the Pacific, a state chartered and federally insured commercial bank. Bank of the Pacific offers banking products and services to small-to-medium sized businesses and professionals in western Washington and Oregon. At March 31, 2023, the Company had total assets of $1.24 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 Olympia and Burlington, Washington and Salem, Oregon. Visit the Company’s website at www.bankofthepacific.com. Member FDIC.

Cautions Concerning Forward-Looking Statements
This press release contains statements that constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and other laws, including all statements in this release that are not historical facts or that relate to future plans or events or projected results of Pacific Financial Corporation and its wholly-owned subsidiary, Bank of the Pacific. Such statements are based on information available at the time of communication and are based on current beliefs and expectations of the Company’s management and are subject to risks and uncertainties, many of which are beyond our control, which could cause actual events or results to differ materially from those projected, anticipated or implied, and could negatively impact the Company’s operating and stock price performance. These risks and uncertainties include various risks associated with growing the Bank and expanding the services it provides, development of new business lines and markets, competition in the marketplace, general economic conditions, including the COVID-19 pandemic and government responses thereto, changes in interest rates, extensive and evolving regulation of the banking industry, and many other risks. Any forward-looking statements in this communication are based on information at the time the statement is made. We undertake no obligation to update or revise any forward-looking statement. Readers of this release are cautioned not to put undue reliance on forward-looking statements.

Contacts:
 Denise Portmann, President & CEO
 Carla Tucker, EVP & CFO
 360.533.8873