Oregon Pacific Bank Announces Fourth Quarter and Full Year Earnings Results

Rhea-AI Summary

Oregon Pacific Bancorp (ORPB) reported a strong fourth quarter with a net income of $2.1 million or $0.30 per diluted share, up from $1.1 million the previous year. Annual net income stood at $4.4 million, reflecting a 23.74% increase. The bank experienced significant annual loan growth of $92.1 million (30.32%) and deposit growth of $168.3 million (52.92%). Notably, no provision for loan losses was necessary, while non-PPP loan growth totaled $5.8 million. The bank actively participated in the PPP, facilitating $125.2 million in loans. However, competitive rates affected non-PPP loan yields, indicating potential challenges ahead.

Positive

• Fourth quarter net income increased to $2.1 million from $1.1 million YoY.
• Annual loan growth of $92.1 million (30.32%).
• Annual deposit growth of $168.3 million (52.92%).
• No provision for loan losses recorded for the fourth quarter.

Negative

• Decline in the effective yield on non-PPP loans to 4.69%, down from 4.70% QoQ.
• Increased classified assets due to COVID-19, including downgrades on hotel and residential real estate loans.
• Incurred a loss of $45 thousand from the sale of mortgage servicing rights.

Oregon Pacific Bancorp (ORPB) today reported financial results for the fourth quarter and year ended December 31, 2020.

Highlights

• Fourth quarter net income of $2.1 million; $0.30 per diluted share
• Quarterly non-PPP loan growth of $5.8 million
• Tax equivalent fourth quarter net interest margin of 4.29%
• Annual loan growth of $92.1 million or 30.32%
• Annual deposit growth of $168.3 million or 52.92%
• Annual net income of $4.4 million, representing growth of 23.74% over 2019

Oregon Pacific Bancorp, and its wholly-owned subsidiary Oregon Pacific Bank, reported quarterly net income of $2.1 million, or $0.30 per diluted share compared to $1.1 million, or $0.15 per diluted share for the quarter ended December 31, 2019. On an annual basis, the Bank recorded net income totaling $4.4 million, or $0.62 per diluted share compared to $3.5 million, or $0.51 per diluted share for the same period in 2019. Fourth quarter net income was elevated primarily due to the processing of Paycheck Protection Program (PPP) forgiveness payments, which resulted in increased interest income due to amortization of the remaining loan origination fees at payoff. In addition, the Bank made no provision for loan losses during the fourth quarter as the Bank’s allowance for loan loss methodology indicated no provision was necessary based on current credit metrics. At year end, the Bank’s coverage level of non-PPP loans was 1.86%, up from 1.20% as of December 31, 2019, representing growth of $2.2 million.

“Oregon Pacific Bank has built its foundation and overall culture on creating value for our shareholders, clients, communities, and staff,” said Ron Green, President and CEO. “Although there continues to be much uncertainty relating to the pandemic and its effect on our local economies, Oregon Pacific Bank is positioned well to continue creating value for all we serve. Our value proposition is our staff. I have never been so proud and honored to work side by side with such amazing and committed professionals.”

At the beginning of April, the Small Business Administration (SBA) opened the Paycheck Protection Program (PPP), which enabled eligible businesses and non-profit agencies to receive loans with forgiveness provisions to support payroll and other eligible expenses during the COVID-19 crisis. The PPP loans also carry a 100% SBA guarantee. During the first round of PPP loan production, Oregon Pacific Bank made 752 PPP loans, totaling $125.2 million. Through December 31, 2020, the Bank received forgiveness and borrower payments totaling $44.4 million. As a result of the loan payoffs, the bank recognized quarterly PPP fee income of $1.6 million. Below is a summary of the third and fourth quarter PPP loan and income totals to illustrate how the PPP forgiveness payments affected PPP-related interest income during the periods.

	Quarter ended December 31, 2020		Quarter ended September 30, 2020
PPP interest income	$ 270		$ 315
PPP fee income	1,641		516
Total PPP income	$ 1,911		$ 831
	Period ended December 31, 2020		Period ended September 30, 2020
PPP outstanding loan balance	$ 80,766		$ 125,198
PPP deferred loan origination fees	(1,685	)	(3,326	)
PPP loans net of deferred loan origination fees	$ 79,081		$ 121,872

Subsequent to the end of the year, the Paycheck Protection Program (PPP) was expanded to allow certain eligible borrowers that previously received a PPP loan to apply for a Second Draw PPP Loan. Oregon Pacific Bank is participating in the program, and through Monday, January 25, 2020, the Bank received borrower applications totaling $40.5 million, of which $23.0 have been approved by the SBA at the time of this release.

Period-end non-PPP loans, net of deferred loan origination fees, totaled $311.8 million, representing quarterly net growth of $5.8. million. The effective yield on the non-PPP loan portfolio declined to 4.69%, down from 4.70% in the quarter ended September 30, 2020. During the fourth quarter, the Bank received loan prepayment penalties totaling $17 thousand. Without the prepayment penalties, the non-PPP loan yield would have been 4.67% representing a decrease of 0.03%. In total, the Bank recognized prepayment penalties of $241 thousand during 2020, compared to $132 thousand during 2019. The Bank continued to see loan opportunities during the fourth quarter. However, a competitive rate environment has led to a declining yield on the non-PPP portfolio and the potential for an increased risk of prepayments in future quarters.

On an annual basis, deposit growth totaled $168.3 million. A large portion of the deposit growth came through the PPP as proceeds of PPP loans were credited to internal deposit accounts. Client utilization of the PPP deposits was slower than originally anticipated and was partially offset by onboarding new client relationships. During the quarter, deposit growth totaled $754 thousand. Deposit growth experienced during the quarter was partially masked due to changes in the Bank’s reciprocal brokered deposits. The Bank participates in the InterFi Network (formerly Promontory Interfinancial Network) Insured Cash Sweep (ICS) product. Historically the Bank utilized this product in a reciprocal manner, maintaining the ICS deposits on-balance sheet. Due to elevated levels of liquidity, the Bank migrated a portion of the reciprocal deposits into a one-way sell position, removing those deposits from the balance sheet. As of December 31, 2020, the sold deposits totaled $35.8 million, all of which were included in the Bank’s deposit totals as of September 30, 2020. The off-balance sheet deposits continue to remain a source of liquidity and can be moved back into a reciprocal position at any point.

The Bank continued to work with borrowers experiencing financial difficulty related to COVID-19 during the fourth quarter. As of December 30, 2020, the Bank had remaining borrowers with full payment deferral modifications totaling $812 thousand to two individual borrowers. COVID modification on interest only status totaled $4.9 million to ten individual borrowers. During the quarter, the Bank did see an increase in classified assets as there was some migration of substandard credits, primarily due to COVID-19. The Bank downgraded two hospitality-related hotel loans, to separate borrowers, with exposures totaling $534 thousand and $301 thousand, respectively. Additionally, the Bank downgraded three residential real estate loans to separate borrowers, totaling $987 thousand. The Bank’s Credit Administration team is proactively monitoring loan relationships to determine if future downgrades are necessary.

During the fourth quarter of 2020, noninterest income totaled $1.4 million, which was flat with the income recognized during the third quarter and representing an increase of $104 thousand over the fourth quarter of 2019. On an annual basis, the Bank experienced growth in noninterest income of $403 thousand over the prior year, which was primarily related to growth in both trust fee income and income from the Bank’s wholly-owned registered investment advisory (RIA) firm Oregon Pacific Wealth Management LLC.

Noninterest expense in the fourth quarter totaled $4.2 million, up $326 thousand from the quarter. The largest change occurred in the salaries and employee benefits expense which increased $131 thousand over the third quarter. This increase was primarily attributable to an increase in the bonus accrual related to the level of Bank profitability experienced during the fourth quarter. There was also an increase in the other operating expense category of $122 thousand, which was partially tied to two different non-recurring expenses. During the fourth quarter, the Bank sold the servicing rights on a residential mortgage portfolio originated by the Bank over ten years ago. Due to changes in interest rates, the Bank saw the outstanding loan totals dwindle, with the overhead associated with servicing the portfolio more than offset any servicing income. During the fourth quarter, the mortgage servicing rights were sold, resulting in a loss of $45 thousand, which included both a write-down of the remaining MSRs and the fees paid to third parties to transfer the loans. The Bank also saw increased expense associated with the processing of PPP forgiveness applications. The Bank contracted with a third party to facilitate the initial PPP forgiveness application review. The Bank recognized an expense of $33 thousand during the fourth quarter associated with the third-party review, which alleviated a portion of the forgiveness burden from the market staff.

Lastly, the Bank saw an increase in the Trust expense category, which was partially due to succession planning for the Trust Department. Effective September 11, 2020, Beth Knorr was promoted to Director of Trust Services, succeeding Jay Boelter. Jay Boelter will remain with the Trust Department on a part-time basis before he retires in June of 2021. During this time, there is some duplication of salary expense, which is expected to be temporary, and the Bank believes it will help in the transition. “We are proud to announce the promotion of Beth Knorr to Director of Trust Services,” said Ron Green, President and CEO. “Beth has been a trust officer with Oregon Pacific Bank since 2012 and has over nineteen years of trust experience. She has the knowledge to successfully lead this Department into the future. We are also thankful to Jay for his leadership and wish him well upon his upcoming retirement.”

Forward-Looking Statement Safe Harbor

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

CONSOLIDATED BALANCE SHEETS
Unaudited (dollars in thousands)
		Dec 31,			Sept 30,			Dec 31,
		2020			2020			2019
ASSETS
Cash and due from banks		$ 7,785			$ 9,996			$ 4,982
Interest bearing deposits		86,570			49,693			17,511
Securities		37,805			32,406			27,601
Non PPP Loans, net of deferred fees and costs		311,883			306,054			298,847
PPP Loans, net of deferred fees and costs		79,081			121,872			-
Total Loans, net of deferred fees and costs		390,964			427,926			298,847
Allowance for loan losses		(5,791	)		(5,782	)		(3,592	)
Premises and equipment, net		6,770			6,917			7,042
Bank owned life insurance		8,160			8,101			7,066
Deferred tax asset		943			300			535
Other assets		3,935			4,899			4,196
Total assets		$ 537,141			$ 534,456			$ 364,188
LIABILITIES
Deposits
Demand - non-interest bearing		$ 136,428			$ 134,574			$ 73,771
Demand - interest bearing		146,202			163,095			106,242
Money market		116,505			106,838			71,027
Savings		66,936			61,964			48,398
Certificates of deposit		20,272			19,118			18,601
Total deposits		486,343			485,589			318,039
Subordinated debenture		4,124			4,124			4,124
Other liabilities		4,399			4,423			4,674
Total liabilities		494,866			494,136			326,837
STOCKHOLDERS' EQUITY
Common stock		20,745			20,721			20,663
Retained earnings		20,517			18,440			16,164
Accumulated other comprehensive
income, net of tax		1,013			1,159			524
Total stockholders' equity		42,275			40,320			37,351
Total liabilities &
stockholders' equity		$ 537,141			$ 534,456			$ 364,188

CONSOLIDATED STATEMENTS OF INCOME
Unaudited (dollars in thousands, except per share data)
		THREE MONTHS ENDED							TWELVE MONTHS ENDED
		Dec 31,	Sept 30,			Dec 31,			Dec 31,		Dec 31,
		2020		2020		2019			2020		2019
INTEREST INCOME
Non-PPP loans		$ 3,640		$ 3,607		$ 3,823			$ 14,711		$ 13,898
PPP loans		1,911		831		-			3,376		-
Securities		174		162		170			670		666
Other interest income		21		17		128			119		529
Total interest income		5,746		4,617		4,121			18,876		15,093
INTEREST EXPENSE
Deposits		129		158		291			667		1,120
Borrowed funds		31		34		51			146		217
Total interest expense		160		192		342			813		1,337
NET INTEREST INCOME		5,586		4,425		3,779			18,063		13,756
Provision for loan losses		-		900		30			2,178		235
Net interest income after
provision for loan losses		5,586		3,525		3,749			15,885		13,521
NONINTEREST INCOME
Trust fee income		635		628		576			2,401		2,141
Service charges		248		233		229			896		903
Mortgage loan sales and servicing		132		127		145			477		498
Investment sales commissions		37		63		51			190		197
Merchant card services		94		107		67			325		273
RIA income		144		140		119			545		414
Other income		73		76		72			312		317
Total noninterest income		1,363		1,374		1,259			5,146		4,743
NONINTEREST EXPENSE
Salaries and employee benefits		2,342		2,211		1,942			8,608		7,276
Outside services		423		415		359			1,648		1,391
Occupancy & equipment		339		334		325			1,310		1,215
Trust expense		398		347		353			1,422		1,339
Loan and collection, OREO expense		91		95		211			413		712
Advertising		63		52		82			198		278
Supplies and postage		61		59		57			244		208
Other operating expenses		441		319		307			1,374		1,180
Total noninterest expense		4,158		3,832		3,636			15,217		13,599
Income before taxes		2,791		1,067		1,372			5,814		4,665
Provision for income taxes		713		264		318			1,461		1,147
NET INCOME		$ 2,078		$ 803		$ 1,054			$ 4,353		$ 3,518

Quarterly Highlights
	4th Quarter			3rd Quarter			2nd Quarter			1st Quarter			4th Quarter
	2020			2020			2020			2020			2019
Earnings
Net interest income	$ 5,586			$ 4,425			$ 4,249			$ 3,799			$ 3,779
Provision for loan loss	-			900			900			378			30
Noninterest income	1,363			1,374			1,161			1,250			1,259
Noninterest expense	4,158			3,832			3,407			3,817			3,636
Provision for income taxes	713			264			273			212			318
Net income	$ 2,078			$ 803			$ 830			$ 642			$ 1,054
Average shares outstanding	7,008,125			7,008,125			7,003,125			7,003,125			6,975,084
Earnings per share	$ 0.30			$ 0.11			$ 0.12			$ 0.09			$ 0.15
Performance Ratios
Return on average assets	1.52	%		0.60	%		0.69	%		0.69	%		1.14	%
Return on average equity	20.33	%		8.05	%		8.69	%		6.87	%		11.45	%
Net interest margin - tax equivalent	4.29	%		3.50	%		3.73	%		4.39	%		4.35	%
Yield on loans	5.37	%		4.14	%		4.33	%		5.14	%		5.25	%
Yield on loans - excluding PPP loans	4.69	%		4.70	%		4.85	%		5.14	%		5.25	%
Cost of interest bearing liabilities	0.10	%		0.13	%		0.22	%		0.45	%		0.54	%
Efficiency ratio	59.84	%		66.08	%		62.98	%		75.60	%		72.19	%
Full-time equivalent employees	116			113			111			112			110
Capital
Leverage ratio	8.33	%		8.14	%		8.74	%		11.15	%		11.13	%
Common equity tier 1 ratio	NA(1)			NA(1)			NA(1)			NA(1)			13.83	%
Tier 1 risk based ratio	NA(1)			NA(1)			NA(1)			NA(1)			13.83	%
Total risk based ratio	NA(1)			NA(1)			NA(1)			NA(1)			15.06	%
Book value per share	$ 6.03			$ 5.75			$ 5.61			$ 5.39			$ 5.35
Asset quality
Allowance for loan losses (ALLL)	$ 5,791			$ 5,782			$ 4,873			$ 3,966			$ 3,592
Nonperforming loans (NPLs)	$ 2,521			$ 1,596			$ 1,293			$ 1,230			$ 1,614
Nonperforming assets (NPAs)	$ 2,521			$ 1,596			$ 1,293			$ 1,281			$ 1,614
Classified Assets (2)	$ 14,366			$ 12,667			$ 11,945			$ 9,058			$ 7,834
Net loan charge offs (recoveries)	$ (9	)		$ (9	)		$ (7	)		$ 5			$ (78	)
ALLL as a percentage of net loans	1.48	%		1.35	%		1.16	%		1.31	%		1.20	%
ALLL as a percentage of net loans (excluding PPP)	1.86	%		1.89	%		1.62	%		1.31	%		1.20	%
ALLL as a percentage of NPLs	229.75	%		362.26	%		376.98	%		322.44	%		222.55	%
Net charge offs (recoveries)
to average loans	0.00	%		0.00	%		0.00	%		0.00	%		-0.03	%
Net NPLs as a percentage of
total loans	0.64	%		0.53	%		0.44	%		0.41	%		0.55	%
Nonperforming assets as a
percentage of total assets	0.47	%		0.30	%		0.25	%		0.33	%		0.44	%
Classified Asset Ratio (3)	33.98	%		31.42	%		30.38	%		23.99	%		17.60	%
Past due as a percentage of
total loans	0.49	%		0.54	%		0.53	%		0.61	%		0.62	%
End of period balances
Total securities and short
term deposits	$ 124,375			$ 82,099			$ 70,159			$ 64,148			$ 45,112
Total loans net of allowance	$ 306,092			$ 300,272			$ 296,725			$ 297,212			$ 295,255
Total earning assets	$ 437,404			$ 389,299			$ 372,903			$ 366,472			$ 345,038
Total assets	$ 537,141			$ 534,456			$ 513,291			$ 385,423			$ 364,188
Total noninterest bearing deposits	$ 136,428			$ 134,574			$ 125,714			$ 78,003			$ 73,771
Total deposits	$ 486,343			$ 485,589			$ 465,322			$ 339,202			$ 318,039
Average balances
Total securities and short
term deposits	$ 109,006			$ 80,235			$ 67,450			$ 48,764			$ 57,528
Total loans net of allowance	$ 405,796			$ 421,663			$ 389,275			$ 298,055			$ 285,491
Total earning assets	$ 521,734			$ 508,244			$ 462,157			$ 351,537			$ 347,646
Total assets	$ 543,422			$ 529,784			$ 484,315			$ 372,017			$ 366,647
Total noninterest bearing deposits	$ 138,247			$ 134,676			$ 132,311			$ 76,653			$ 74,489
Total deposits	$ 493,502			$ 480,742			$ 436,776			$ 325,128			$ 321,687

(1) Effective March 31, 2020 Oregon Pacific Bank opted into the Community Bank Leverage Ratio and is no longer calculating risk based capital ratios.
(2) Consolidated classified assets is defined as the sum of all loan-related contingent liabilities and loans internally graded substandard or worse, impaired loans (net of government guarantees), adversely classified securities, and other real estate owned.
(3) Consolidated classified asset ratio is defined as the sum of all loan-related contingent liabilities and loans internally graded substandard or worse, impaired loans (net of government guarantees), adversely classified securities, and other real estate owned, divided by bank Tier 1 capital, plus the allowance for loan losses.

 

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FAQ

What were the earnings results for Oregon Pacific Bancorp (ORPB) in Q4 2020?

Oregon Pacific Bancorp reported a net income of $2.1 million or $0.30 per diluted share for Q4 2020.

How much did Oregon Pacific Bancorp (ORPB) grow its loans and deposits in 2020?

In 2020, Oregon Pacific Bancorp achieved a loan growth of $92.1 million (30.32%) and deposit growth of $168.3 million (52.92%).

What challenges did Oregon Pacific Bancorp (ORPB) face in the fourth quarter?

The bank experienced a decline in non-PPP loan yields and an increase in classified assets due to COVID-19.

How did the Paycheck Protection Program (PPP) impact Oregon Pacific Bancorp (ORPB)?

Oregon Pacific Bancorp facilitated $125.2 million in PPP loans, contributing significantly to its interest income.