Pacific Financial Corp Earns $1.6 Million, or $0.15 per Diluted Share, for Second Quarter of 2022; Declares Quarterly Cash Dividend of $0.13 per Share

Rhea-AI Summary

Pacific Financial Corporation (OTCQX: PFLC) reported a net income of $1.6 million, or $0.15 per diluted share for Q2 2022, a decline from $1.7 million in Q1 2022 and $3.7 million in Q2 2021. Year-to-date net income was $3.3 million, down 59% from $8.0 million in the same period last year. The company declared a quarterly cash dividend of $0.13 per share, to be paid on August 25, 2022. Despite pressures from declining mortgage volume and lower net interest margins, the rising interest rate environment is expected to benefit future earnings.

Positive

• Quarterly cash dividend of $0.13 per share declared.
• Nonperforming assets decreased by 34% year-over-year.
• Net interest income increased by 7% from Q1 2022 to Q2 2022.

Negative

• Net income decreased by 57% year-over-year.
• Noninterest income declined by 60% year-over-year, largely due to decreased mortgage banking revenue.
• Year-to-date net interest income down 6% compared to the first half of 2021.

ABERDEEN, Wash., July 28, 2022 (GLOBE NEWSWIRE) -- Pacific Financial Corporation (OTCQX: PFLC), (“Pacific Financial”) or the (“Company”), the holding company for Bank of the Pacific (the “Bank”), today reported net income of $1.6 million, or $0.15 per diluted share for the second quarter of 2022, compared to $1.7 million, or $0.16 per diluted share for the first quarter of 2022, and $3.7 million, or $0.36 per diluted share for the second quarter of 2021. There was no provision for loan losses booked during the second and first quarters of 2022. Included in earnings for the second quarter of 2021 was the recapture of $1.6 million from the provision for loan losses. For the first six months of 2022, net income was $3.3 million, or $0.31 per diluted share, compared to $8.0 million, or $0.76 per diluted share, for the first six months of 2021. There were no provision for loan losses in the first half of 2022, compared to a recapture of $3.0 million from the provision for loan losses in the first half of 2021. All results are unaudited.

The board of directors of Pacific Financial declared a quarterly cash dividend of $0.13 per share on July 20, 2022. The dividend will be payable on August 25, 2022 to shareholders of record on August 11, 2022.

“We knew coming into 2022 that earnings were going to be under significant pressure the first half of the year due to declining mortgage volume, diminishing PPP revenue and lower net interest margin from a high liquidity position. However, with increases in interest rates, particularly in the 2^nd quarter and expected to continue in the 3^rd quarter, we are positioned well for a rising rate environment,” said Denise Portmann, President and Chief Executive Officer. “During the current quarter, we began to see the positive impact of rising interest rates with the expansion of our net interest income, excluding PPP interest and fees. At the same time, our deposit costs remained low and our on-balance sheet liquidity and deposit mix should help mitigate potential rising deposit costs.”

“While loan balances declined during the quarter with PPP loan forgiveness and continued elevated payoffs, loan origination volume has steadily increased. We continue to focus on pursuing opportunities within our markets; building existing customer relationships as well as cultivating new customer relationships,” said Portmann. “Our asset quality metrics remain strong, largely due to our disciplined and strong underwriting standards; nonperforming assets decreased 34% from a year ago, while especially mentioned adversely classified loans were down 33% from a year ago. With a balance sheet well positioned for a rising interest rate environment, together with a large core deposit base, strong regulatory capital ratios, excellent credit quality and continued focus on loan growth opportunities, we believe we have a good foundation from which to continue to grow our franchise.”

Second Quarter 2022 Financial Highlights

• Quarterly Net Income was $1.6 million, or $0.15 per diluted share.
• Return on average assets (“ROAA”) was 0.49% for the second quarter of 2022.
• Net interest margin (“NIM”), excluding PPP loans was 2.82%, an increase of 32 basis points from the linked quarter.
• Gross loans balances, excluding PPP loans, totaled $606.3 million at June 30, 2022, remaining relatively unchanged compared to the preceding quarter.
• Investment Securities increased 16% to $274.4 million during the quarter and interest income from investment securities and federal funds sold increased $825,000 compared to the linked quarter.
• Core deposits grew 1% during the quarter and represent 96% of total deposits.
• Asset quality is strong with delinquency ratio remaining low, at 0.09% as of quarter end.
• The Company’s consolidated capital ratios exceed regulatory guidelines for a well-capitalized financial institution with leverage ratio at 8.9% and total risk-based capital ratio at 16.7% as of quarter end.

Income Statement Review

Net interest income was $8.8 million for the second quarter of 2022, compared to $8.3 million for the first quarter of 2022, and $9.0 million for the second quarter of 2021. During the quarter, the recognition of deferred loan fee income due from PPP loan repayments continued to decline with amortized PPP fees and interest totaling $222,000, $738,000 and $1.4 million, for the quarters ended June 30, 2022, March 31, 2022 and June 30, 2021, respectively. For the first six months of 2022, net interest income was $17.1 million, compared to $18.2 million for the first six months of 2021 and PPP interest and fees was $960,000 and $3.0 million, respectively.

Net interest margin (“NIM”), excluding PPP loans, was 2.82% for the second quarter of 2022, compared to 2.50% for the first quarter of 2022, and 2.83% for the second quarter of 2021. In March 2022, in response to inflation, the Federal Open Market Committee (“FOMC”) of the Federal Reserve System began increasing the target range for the federal funds rate by implementing a 25 basis point increase. During the second quarter of 2022, the FOMC increased the target range for the federal funds rate by an additional 125 basis points to a range of 1.50% to 1.75%. The increase in average yields on interest-earnings assets during the current quarter reflects the lagging benefit of variable rate interest-earnings assets beginning to reprice higher as well as the deployment of a portion of lower yielding federal funds sold into higher-yield investment securities. In addition, rising interest rates positively impacted yields on loans, excluding PPP loans, yields on investment securities and yields on interest bearing deposits which resulted in an increased net interest margin.

Average loan yields, excluding PPP loans, for the current quarter were 4.57% compared to the linked quarter of 4.45%, and were 4.58% for the second quarter of 2021. Yields on investment securities also increased during the quarter to 1.96% compared to 1.72% for the first quarter 2022, and declined from 2.12% for the second quarter 2021. Since 12/31/2020, investment securities have increased 119% or $149 million as a result of securities purchased both in 2021 and 2022. Interest income from investment securities and federal funds sold increased $825,000 and $1.2 million for the current quarter compared to the linked and year-over-year quarters. “The current higher rate environment has had a favorable impact on new loan production pricing as well yields on investment securities purchases. This impact combined with impact on loans, federal funds sold and investment securities repricing should support further margin expansion, commented Carla Tucker, Executive Vice-President and Chief Financial Officer.” For the first six months of 2022, the NIM, excluding PPP loans, was 2.66% compared to 2.93% for the first six months of 2021. Year-over-year the decrease was primarily related to a decreased in loan yields and in investment yields, which as noted above has begun to increase during the current quarter. The Bank’s total cost of funds remained low during the last two quarters at 0.08%, respectively, compared to 0.12% for the second quarter 2021.

Noninterest income was $1.9 million for the second quarter of 2022, compared to $2.1 million for the first quarter of 2022, and $4.6 million for the second quarter of 2021. For the six months of 2022, non-interest income totaled $4.0 million, compared to $9.8 million for the first six months of 2021. The decrease in noninterest income for the first half of 2022 and for the current quarter compared to the preceding quarter and year-over-year was largely due to the decline in gain on sale of loans and other mortgage banking revenue. As expected, the recent rise in interest rates adversely impacted mortgage loan production during the first and second quarters of 2022, with home refinance activity accounting for only 31% of mortgage loan originations compared to 50% in the preceding quarter and 60% in the second quarter of 2021. Gain-on-sale of loans decreased $312,000 for the current quarter to $366,000 from first quarter of 2022, and declined $2.5 million from $2.9 million for the second quarter a year ago.

These decreases in mortgage banking income during the year more than offset increases in several key fee income sources, including service charges on accounts, credit and debit card income. Service charges on deposits increased 10% quarter-over-quarter and grew 20% from a year ago, while debit card income grew 7.5% quarter-over-quarter. Debit and credit card fees as well as ATM fees continued to trend upwards as our customers increasingly adopt and use the Bank’s digital delivery channels.

Noninterest expenses were $8.8 million for the second quarter of 2022, compared to $8.6 million for the first quarter of 2022, and $10.5 million for the second quarter of 2021. The increases in noninterest expenses on a linked quarter basis was primarily due to increases in advertising and health insurance costs. The decreases in expenses from a year ago reflect reductions in several expense categories with the largest being reductions of mortgage origination commissions that have decreased commensurate with lower mortgage loan originations and revenues. For the first six months of the year, non-interest income declined 17% to $17.4 million, compared to $21.0 million for the first six months of 2021.

Federal and Oregon state income tax expense was $310,000 for the current quarter, and $166,000 for the preceding quarter, resulting in effective tax rates of 16.2% and 9.1%, respectively. These income tax expenses reflects the benefits of tax exempt income and an adjustment to deferred tax asset during the preceding quarter.

Balance Sheet Review

Total Assets remained relatively flat at $1.33 billion, at June 30, 2022, compared to the preceding quarter and increased 3% from $1.29 billion at June 30, 2021. With the purchase of investment securities and deposits balances increasing minimally, interest bearing cash balances and federal funds sold declined $24.5 million to $369.0 million for the current quarter, compared to $393.5 million for the linked quarter, while increasing $37.3 million from $331.7 million for the second quarter of 2021 as a result of more significant deposit increases.

Investment Securities increased 16% to $274.4 million at June 30, 2022, compared to $236.5 million at March 31, 2022 and grew 73% from $158.4 million at June 30, 2021 as the Company continued to deploy a portion of its excess liquidity into higher-earning assets, i.e. investment securities. For the second quarter of 2022 this included $53.1 million in investment purchases, which was partially offset by $7.0 million in calls, maturities and payments. The average yield on purchases was 3.0% with an adjusted duration of 3.7, which increased the average portfolio yield to 1.96% for the quarter compared to 1.72% for the linked quarter and 2.12% to the quarter ended June 30, 2021. The average adjusted duration of the investment securities portfolio was approximately 4.6 at June 30, 2022.

Gross loans balances, excluding PPP loans, totaled $606.3 million at June 30, 2022, remaining relatively flat compared to the preceding quarter and declined 3% from $624.3 million at June 30, 2021. While loan balances have remained relatively flat or declined slightly from the prior year, loan production has seen a positive increase during 2022. Also impacting loan balances during the year was loan payoffs relating to several customers selling their businesses. Within the consumer category, loans to finance luxury and classic cars were $55.2 million at June 30, 2022, compared to $50.2 million at March 31, 2022 and $50.1 million at June 30, 2021. Due to the strength of our commercial customers, commercial lines of credit utilization continues to be below pre-pandemic levels impacting commercial loan balances. With the receipt of PPP forgiveness funds, SBA PPP loan balances continued to decline and were $570,000 at June 30, 2022, compared to $8.3 million at March 31, 2022, and $69.6 million at June 30, 2021. The decrease in SBA PPP loans during the current quarter was partially offset by increases in construction and development loans and farmland.

Credit Quality remained strong with nonperforming assets at $1.4 million, or 0.10% of total assets, at June 30, 2022, from $1.3 million for the linked quarter, and compared to $2.1 million or 0.16% of total assets at June 30, 2021. Balances related to non-impaired loans, graded watch or other loans especially mentioned, increased 5% to $31.4 million compared to $30.0 million at March 31, 2022, and declined substantially from $46.7 million at June 30, 2021. The level of past due loans, not in accrual status, was 0.09% at June 30, 2022. These outstanding asset quality metrics reflect the company’s commitment to underwriting loans in a disciplined and conservative manner. The company monitors its portfolio on an ongoing basis for potential signs of distress stemming from the current economic environment and associated challenges and will take action as needed to mitigate the impact of credit issues to the portfolio.

The Allowance for Loan Losses (“ALL”) remained relatively unchanged compared to the linked quarter at $8.3 million, or 1.37% of gross loans (excluding PPP) at June 30, 2022, compared to $8.3 million, or 1.36% of gross loans, at March 31, 2022, while declining from $9.1 million, or 1.45%, at June 30, 2021. Net recoveries and/or charge-offs remain low with net recoveries of $6,000 for the current quarter, compared to net charge-offs of $21,000 for the first quarter of 2022 and $43,000 for the second quarter of 2021. There was no loan loss provision for the second or first quarter of 2022, compared to a recapture of $1.6 million in the second quarter a year ago. Net recoveries and/or charge-offs remain low with net charge-offs of $15,000 for the six months ended June 30, 2002 , compared to net recoveries of $10,000 for the like period in 2021. There were no provision for loan losses in the first half of 2022, compared to a recapture of $3.0 million during the first half of 2021.

Total Deposits increased slightly by $7.4 million and balances were $1.20 billion at June 30, 2022 and at March 31, 2022, and increased 5% from $1.14 billion at June 30, 2021. Noninterest-bearing deposits, representing 42% of total deposits, continued to remain strong and to increase though at slower levels than in 2021 and 2020. Non-interest bearing deposits increased 1%, or $4.0 million, to $500.0 million at June 30, 2022, compared to $495.5 million at March 31, 2022, and grew 7%, or $33.0 million from $466.5 million at June 30, 2021. Term deposits make up the smallest portion of our total deposits at only 4% of total deposits and as in previous quarters have continued to decline.

Shareholder’s Equity was $102.8 million at June 30, 2022, down from $108.5 million at March 31, 2022 and $118.0 million at June 30, 2021. The company’s tangible book value per share was $8.59 at June 20, 2022, compared to $9.15 at March 31, 2022, and $10.03 at June 30, 2021. These decreases are primarily due to an increase in the unrealized holding loss on securities available for sale resulting from higher market interest rates, impacting tangible book value by $1.51 during 2022. Available-for-sale securities, net of taxes were $212.8 million at June 30, 2022, compared to $226.0 million at March 31, 2022. Unrealized losses on available-for-sale securities, net of taxes were $14.2 million at June 30, 2022 compared to net unrealized losses of $8.2 million at March 31, 2022, due to increases in market interest 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 8.9% and total risk-based capital ratio at 16.7% as of June 30, 2022.

Balance Sheet Overview
(Unaudited)
			Jun 30, 2022			Mar 31, 2022			$ Change			% Change			Jun 30, 2021			$ Change			% Change
Assets:			(Dollars in thousands, except per share data)
	Cash on hand and in banks	$	16,434		$	19,007		$	(2,573	)		-14	%	$	20,128		$	(3,694	)		-18	%
	Interest bearing deposits		199,431			312,194			(112,763	)		-36	%		307,773			(108,342	)		-35	%
	Federal funds sold		169,597			81,339			88,258			109	%		23,965			145,632			608	%
	Investment securities		274,427			236,542			37,885			16	%		158,379			116,048			73	%
	Loans held-for-sale		2,477			3,703			(1,226	)		-33	%		37,777			(35,300	)		-93	%
	Loans, net of deferred fees		606,336			615,891			(9,555	)		-2	%		690,607			(84,271	)		-12	%
	Allowance for loan losses		(8,282	)		(8,276	)		(6	)		0	%		(9,078	)		796			-9	%
	Net loans		598,054			607,615			(9,561	)		-2	%		681,529			(83,475	)		-12	%
	Federal Home Loan Bank and Pacific Coast Bankers' Bank stock, at cost		2,596			2,598			(2	)		0	%		2,419			177			7	%
	Other assets		64,870			62,471			2,399			4	%		58,841			6,029			10	%
	Total assets	$	1,327,886		$	1,325,469		$	2,417			0	%	$	1,290,811		$	37,075			3	%
Liabilities and Shareholders' Equity:
	Total deposits	$	1,203,509		$	1,196,106		$	7,403			1	%	$	1,144,033		$	59,476			5	%
	Borrowings		13,731			13,769			(38	)		0	%		13,881			(150	)		-1	%
	Accrued interest payable and other liabilities		7,892			7,108			784			11	%		14,884			(6,992	)		-47	%
	Shareholders' equity		102,754			108,486			(5,732	)		-5	%		118,013			(15,259	)		-13	%
	Total liabilities and shareholders' equity	$	1,327,886		$	1,325,469		$	2,417			0	%	$	1,290,811		$	37,075			3	%
Common Shares Outstanding			10,392,738			10,392,738			-			0	%		10,429,133			(36,395	)		0	%
Book value per common share (1)		$	9.89		$	10.44		$	(0.55	)		-5	%	$	11.32		$	(1.43	)		-13	%
Tangible book value per common share (2)		$	8.59		$	9.15		$	(0.56	)		-6	%	$	10.03		$	(1.44	)		-14	%
Gross loans to deposits ratio			50.4	%		51.5	%		-1.1	%					60.4	%		-10.0	%
(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,
			Jun 30, 2022			Mar 31, 2022			$ Change			% Change			Jun 30, 2021			$ Change			% Change
			(Dollars in thousands, except per share data)
Interest and dividend income		$	9,097		$	8,526		$	571			7	%	$	9,318		$	(221	)		-2	%
Interest expense			253			239			14			6	%		324			(71	)		-22	%
	Net interest income		8,844			8,287			557			7	%		8,994			(150	)		-2	%
Loan loss provision			-			-			-			100	%		(1,600	)		1,600			-100	%
Noninterest income			1,864			2,112			(248	)		-12	%		4,616			(2,752	)		-60	%
Noninterest expense			8,800			8,577			223			3	%		10,497			(1,697	)		-16	%
Income before income taxes			1,908			1,822			86			5	%		4,713			(2,805	)		-60	%
Income tax expense			310			166			144			87	%		977			(667	)		-68	%
	Net Income	$	1,598		$	1,656		$	(58	)		-4	%	$	3,736		$	(2,138	)		-57	%
Average common shares outstanding - basic			10,392,738			10,390,498			2,240			0	%		10,429,181			(36,443	)		0	%
Average common shares outstanding - diluted			10,422,073			10,415,689			6,384			0	%		10,461,046			(38,973	)		0	%
Income per common share
	Basic	$	0.15		$	0.16		$	(0.01	)		-6	%	$	0.36		$	(0.21	)		-58	%
	Diluted	$	0.15		$	0.16		$	(0.01	)		-6	%	$	0.36		$	(0.21	)		-58	%
Effective tax rate			16.2	%		9.1	%		7.1	%					20.7	%		-4.5	%
			For the Six Months Ended,
			Jun 30, 2022			Jun 30, 2021			$ Change			% Change
			(Dollars in thousands, except per share data)
Interest and dividend income		$	17,623		$	18,930		$	(1,307	)		-7	%
Interest expense			492			711			(219	)		-31	%
	Net interest income		17,131			18,219			(1,088	)		-6	%
Loan loss provision			-			(3,000	)		3,000			-100	%
Noninterest income			3,976			9,780			(5,804	)		-59	%
Noninterest expense			17,376			21,000			(3,624	)		-17	%
Income before income taxes			3,731			9,999			(6,268	)		-63	%
Income tax expense			476			2,035			(1,559	)		-77	%
	Net Income	$	3,255		$	7,964		$	(4,709	)		-59	%
Average common shares outstanding - basic			10,391,624			10,430,602			(38,978	)		0	%
Average common shares outstanding - diluted			10,423,499			10,459,731			(36,232	)		0	%
Income per common share
	Basic	$	0.31		$	0.76		$	(0.45	)		-59	%
	Diluted	$	0.31		$	0.76		$	(0.45	)		-59	%
Effective tax rate			12.8	%		20.4	%		-7.6	%

Noninterest Income
(Unaudited)
			For the Three Months Ended,
			Jun 30, 2022			Mar 31, 2022		$ Change			% Change			Jun 30, 2021		$ Change			% Change
			(Dollars in thousands)
Service charges on deposits		$	420		$	382	$	38			10	%	$	351	$	69			20	%
Gain on sale of loans, net			366			678		(312	)		-46	%		2,882		(2,516	)		-87	%
Earnings on bank owned life insurance			170			184		(14	)		-8	%		126		44			35	%
Other noninterest income
	Fee income		909			867		42			5	%		1,248		(339	)		-27	%
	Other		(1	)		1		(2	)		-200	%		9		(10	)		-111	%
Total noninterest income		$	1,864		$	2,112	$	(248	)		-12	%	$	4,616	$	(2,752	)		-60	%
			For the Six Months Ended,
			Jun 30, 2022			Jun 30, 2021		$ Change			% Change
			(Dollars in thousands)
Service charges on deposits		$	802		$	693	$	109			16	%
Gain on sale of loans, net			1,044			6,417		(5,373	)		-84	%
Earnings on bank owned life insurance			354			253		101			40	%
Other noninterest income
	Fee income		1,775			2,381		(606	)		-25	%
	Other		1			36		(35	)		-97	%
Total noninterest income		$	3,976		$	9,780	$	(5,804	)		-59	%

Noninterest Expense
(Unaudited)
			For the Three Months Ended,
			Jun 30, 2022		Mar 31, 2022		$ Change			% Change			Jun 30, 2021		$ Change			% Change
			(Dollars in thousands)
Salaries and employee benefits		$	5,661	$	5,516	$	145			3	%	$	7,148	$	(1,487	)		-21	%
Occupancy			506		521		(15	)		-3	%		481		25			5	%
Equipment			311		286		25			9	%		316		(5	)		-2	%
Data processing			889		855		34			4	%		804		85			11	%
Professional services			195		202		(7	)		-3	%		296		(101	)		-34	%
State and local taxes			161		158		3			2	%		273		(112	)		-41	%
FDIC and State assessments			101		100		1			1	%		82		19			23	%
Other noninterest expense:
	Director fees		75		74		1			1	%		80		(5	)		-6	%
	Communication		68		67		1			1	%		72		(4	)		-6	%
	Advertising		118		25		93			372	%		59		59			100	%
	Professional liability insurance		63		60		3			5	%		60		3			5	%
	Amortization		46		47		(1	)		-2	%		110		(64	)		-58	%
	Other		606		666		(60	)		-9	%		716		(110	)		-15	%
Total noninterest expense		$	8,800	$	8,577	$	223			3	%	$	10,497	$	(1,697	)		-16	%
			For the Six Months Ended,
			Jun 30, 2022		Jun 30, 2021		$ Change			% Change
			(Dollars in thousands)
Salaries and employee benefits		$	11,177	$	14,481	$	(3,304	)		-23	%
Occupancy			1,026		992		34			3	%
Equipment			598		634		(36	)		-6	%
Data processing			1,744		1,633		111			7	%
Professional services			397		522		(125	)		-24	%
State and local taxes			319		475		(156	)		-33	%
FDIC and State assessments			201		163		38			23	%
Other noninterest expense:
	Director fees		150		158		(8	)		-5	%
	Communication		135		144		(9	)		-6	%
	Advertising		144		87		57			66	%
	Professional liability insurance		122		119		3			3	%
	Amortization		92		215		(123	)		-57	%
	Other		1,271		1,377		(106	)		-8	%
Total noninterest expense		$	17,376	$	21,000	$	(3,624	)		-17	%

Financial Performance Overview
(Unaudited)
	For the Three Months Ended
	Jun 30, 2022			Mar 31, 2022			Change			Jun 30, 2021			Change
Performance Ratios
Return on average assets, annualized	0.49	%		0.51	%		(0.02	)		1.19	%		(0.70	)
Return on average equity, annualized	6.05	%		5.81	%		0.24			12.87	%		(6.82	)
Efficiency ratio (1)	82.18	%		82.48	%		(0.30	)		77.13	%		5.05
(1) Non-interest expense divided by net interest income plus noninterest income.
	For the Six Months Ended,
	Jun 30, 2022			Jun 30, 2021			Change
Performance Ratios
Return on average assets, annualized	0.50	%		1.31	%		(0.81	)
Return on average equity, annualized	5.93	%		13.87	%		(7.94	)
Efficiency ratio (1)	82.32	%		75.00	%		7.32
(1) Non-interest expense divided by net interest income plus noninterest income.

LIQUIDITY

Cash and Cash Equivalents and Investment Securities
(Unaudited)
				Jun 30, 2022		% of Total			Mar 31, 2022		% of Total			$ Change			% Change			Jun 30, 2021		Total			$ Change			% Change
				(Dollars in thousands)
Cash on hand and in banks			$	16,434		2	%	$	19,007		3	%	$	(2,573	)		-14	%	$	20,128		4	%	$	(3,694	)		-18	%
Interest bearing deposits				196,181		30	%		308,944		48	%		(112,763	)		-36	%		304,523		60	%		(108,342	)		-36	%
Other interest earning deposits				3,250		0	%		3,250		1	%		-			0	%		3,250		1	%		-			0	%
Federal funds sold				169,597		26	%		81,339		13	%		88,258			109	%		23,965		5	%		145,632			608	%
	Total			385,462		58	%		412,540		65	%		(27,078	)		-7	%		351,866		70	%		33,596			10	%
Investment securities:
	Collateralized mortgage obligations			84,807		13	%		73,142		11	%		11,665			16	%		65,102		12	%		19,705			30	%
	Mortgage backed securities			35,017		5	%		24,741		4	%		10,276			42	%		9,459		2	%		25,558			270	%
	U.S. Government and agency securities			86,988		14	%		70,003		10	%		16,985			24	%		19,235		4	%		67,753			352	%
	Municipal securities			65,538		10	%		66,544		10	%		(1,006	)		-2	%		62,467		12	%		3,071			5	%
	Corporate debt securities			1,979		0	%		2,004		0	%		(25	)		-1	%		2,017		0	%		(38	)		-2	%
	Equity securities			98		0	%		108		0	%		(10	)		-9	%		99		0	%		(1	)		-1	%
	Total			274,427		42	%		236,542		35	%		37,885			16	%		158,379		30	%		116,048			73	%
Total cash equivalents and investment securities			$	659,889		100	%	$	649,082		100	%	$	10,807			2	%	$	510,245		100	%	$	149,644			29	%
Total cash equivalents and investment securities
	as a percent of total assets					50	%				49	%										40	%

LOANS

	Loans by Category
	(Unaudited)
				Jun 30, 2022			% of Gross Loans			Mar 31, 2022			% of Gross Loans			$ Change			% Change			Jun 30, 2021			% of Gross Loans			$ Change			% Change
	Commercial:			(Dollars in thousands)
		Commercial and agricultural	$	80,041			13	%	$	83,324			14	%	$	(3,283	)		-4	%	$	91,038			13	%	$	(10,997	)		-12	%
		PPP		570			0	%		8,290			1	%		(7,720	)		-93	%		69,621			10	%		(69,051	)		-99	%
	Real estate:
	Construction and development			34,750			6	%		31,169			5	%		3,581			11	%		31,429			5	%		3,321			11	%
	Residential 1-4 family			63,377			10	%		66,338			11	%		(2,961	)		-4	%		68,238			10	%		(4,861	)		-7	%
	Multi-family			39,428			6	%		43,226			7	%		(3,798	)		-9	%		38,764			6	%		664			2	%
	Commercial real estate -- owner occupied			150,533			25	%		152,301			25	%		(1,768	)		-1	%		149,209			22	%		1,324			1	%
	Commercial real estate -- non owner occupied			149,093			25	%		151,637			25	%		(2,544	)		-2	%		161,450			22	%		(12,357	)		-8	%
	Farmland			26,051			5	%		22,734			3	%		3,317			15	%		26,047			4	%		4			0	%
	Consumer			63,047			10	%		57,590			9	%		5,457			9	%		58,092			8	%		4,955			9	%
		Gross Loans		606,890			100	%		616,609			100	%		(9,719	)		-2	%		693,888			100	%		(86,998	)		-13	%
		Less: allowance for loan losses		(8,282	)					(8,276	)					(6	)					(9,078	)					796
		Less: deferred fees		(554	)					(718	)					164						(3,281	)					2,727
		Net loans	$	598,054					$	607,615					$	(9,561	)				$	681,529					$	(83,475	)
	Loan Concentration
	(Unaudited)
				Jun 30, 2022			% of Risk Based Capital			Mar 31, 2022			% of Risk Based Capital			Change			Jun 30, 2021			% of Risk Based Capital			Change
	Commercial:			(Dollars in thousands)
		Commercial and agricultural	$	80,041			64	%	$	83,324			67	%		-3	%	$	91,038			74	%		-10	%
		PPP		570			0	%		8,290			7	%		-7	%		69,621			57	%		-57	%
	Real estate:
	Construction and development			34,750			28	%		31,169			25	%		3	%		31,429			26	%		2	%
	Residential 1-4 family			63,377			51	%		66,338			53	%		-2	%		68,238			55	%		-4	%
	Multi-family			39,428			32	%		43,226			35	%		-3	%		38,764			32	%		0	%
	Commercial real estate -- owner occupied			150,533			121	%		152,301			122	%		-1	%		149,209			121	%		0	%
	Commercial real estate -- non owner occupied			149,093			119	%		151,637			122	%		-3	%		161,450			131	%		-12	%
	Farmland			26,051			21	%		22,734			18	%		3	%		26,047			21	%		0	%
	Consumer			63,047			51	%		57,590			46	%		5	%		58,092			47	%		4	%
		Gross Loans	$	606,890					$	616,609								$	693,888
	Regulatory Commercial Real Estate		$	220,881			177	%	$	223,799			180	%		-3	%	$	219,091			178	%		-1	%
	Total Risk Based Capital*		$	124,810					$	124,636								$	123,048
	*Bank of the Pacific

DEPOSITS

Deposits by Category
(Unaudited)
		Jun 30, 2022		% of Total			Mar 31, 2022		% of Total			$ Change			% Change			Jun 30, 2021		% of Total			$ Change			% Change
		(Dollars in thousands)
Interest-bearing demand	$	260,712		21	%	$	255,120		21	%	$	5,592			2	%	$	264,470		22	%	$	(3,758	)		-1	%
Money market		214,218		18	%		214,840		18	%		(622	)		0	%		192,653		17	%		21,565			11	%
Savings		176,790		15	%		176,753		15	%		37			0	%		156,123		14	%		20,667			13	%
Time deposits (CDs)		52,241		4	%		53,885		5	%		(1,644	)		-3	%		64,269		6	%		(12,028	)		-19	%
Total interest-bearing deposits		703,961		58	%		700,598		59	%		3,363			0	%		677,515		59	%		26,446			4	%
Non-interest bearing demand		499,548		42	%		495,508		41	%		4,040			1	%		466,518		41	%		33,030			7	%
Total deposits	$	1,203,509		100	%	$	1,196,106		100	%	$	7,403			1	%	$	1,144,033		100	%	$	59,476			5	%

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

Capital Measures
(unaudited)
	Jun 30, 2022			Mar 31, 2022			Change			Jun 30, 2021			Change				Well Capitalized Under Prompt Correction Action Regulations
Pacific Financial Corporation
Total risk-based capital ratio	16.7	%		17.4	%		(0.7	)		16.7	%		-				N/A
Tier 1 risk-based capital ratio	15.6	%		16.3	%		(0.7	)		15.4	%		0.2				N/A
Common equity tier 1 ratio	13.9	%		14.4	%		(0.5	)		13.7	%		0.2				N/A
Leverage ratio	8.9	%		8.9	%		-			9.1	%		(0.2	)			N/A
Tangible common equity ratio	6.8	%		7.2	%		(0.4	)		8.2	%		(1.4	)			N/A
Bank of the Pacific
Total risk-based capital ratio	16.7	%		17.4	%		(0.7	)		16.6	%		0.1				10.5%
Tier 1 risk-based capital ratio	15.6	%		16.2	%		(0.6	)		15.4	%		0.2				8.5%
Common equity tier 1 ratio	15.6	%		16.2	%		(0.6	)		15.4	%		0.2				7.0%
Leverage ratio	8.9	%		8.8	%		0.1			9.1	%		(0.2	)			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,
		Jun 30, 2022			Mar 31, 2022			$ Change			% Change			Jun 30, 2021			$ Change			% Change
Average Balances		(Dollars in thousands)
Gross loans	$	607,332		$	621,412		$	(14,080	)		-2	%	$	709,818		$	(102,486	)		-14	%
Gross loans without PPP	$	604,824		$	603,998		$	826			0	%	$	612,907		$	(8,083	)		-1	%
Loans held for sale	$	2,561		$	3,670		$	(1,109	)		-30	%	$	28,236		$	(25,675	)		-91	%
Investment securities	$	259,643		$	242,084		$	17,559			7	%	$	144,927		$	114,716			79	%
Federal funds sold & interest bearing deposits in banks	$	372,181		$	388,902		$	(16,721	)		-4	%	$	308,196		$	63,985			21	%
Total interest-earning assets	$	1,241,717		$	1,256,068		$	(14,351	)		-1	%	$	1,191,177		$	50,540			4	%
Non-interest bearing demand deposits	$	492,912		$	496,833		$	(3,921	)		-1	%	$	452,149		$	40,763			9	%
Interest bearing deposits	$	694,671		$	693,350		$	1,321			0	%	$	662,573		$	32,098			5	%
Total Deposits	$	1,187,583		$	1,190,183		$	(2,600	)		0	%	$	1,114,722		$	72,861			7	%
Borrowings	$	13,745		$	13,782		$	(37	)		0	%	$	13,894		$	(149	)		-1	%
Total interest-bearing liabilities	$	708,416		$	707,132		$	1,284			0	%	$	676,467		$	31,949			5	%
Total Equity	$	105,922		$	115,664		$	(9,742	)		-8	%	$	116,399		$	(10,477	)		-9	%
		For the Three Months Ended,
		Jun 30, 2022			Mar 31, 2022			Change			Jun 30, 2021			Change
Yield on average gross loans (1)		4.70	%		4.81	%		(0.11	)		4.72	%		(0.02	)
Yield on average gross loans without PPP (1)		4.57	%		4.45	%		0.12			4.58	%		(0.01	)
Yield on average investment securities (1)		1.96	%		1.72	%		0.24			2.12	%		(0.16	)
Yield on Fed funds sold & interest bearing deposits in banks		0.84	%		0.20	%		0.64			0.12	%		0.72
Cost of average interest bearing deposits		0.10	%		0.10	%		-			0.16	%		(0.06	)
Cost of average borrowings		2.54	%		1.85	%		0.69			1.76	%		0.78
Cost of average total deposits and borrowings		0.08	%		0.08	%		-			0.12	%		(0.04	)
Yield on average interest-earning assets		2.97	%		2.78	%		0.19			3.17	%		(0.20	)
Cost of average interest-bearing liabilities		0.14	%		0.14	%		-			0.19	%		(0.05	)
Net interest spread		2.83	%		2.64	%		0.19			2.98	%		(0.15	)
Net interest spread without PPP		2.76	%		2.44	%		0.32			2.76	%		-
Net interest margin (1)		2.89	%		2.71	%		0.18			3.06	%		(0.17	)
Net interest margin without PPP (1)		2.82	%		2.50	%		0.32			2.83	%		(0.01	)
(1) Tax-exempt income has been adjusted to a tax equivalent basis at a rate of 21%.
		For the Six Months Ended,
		Jun 30, 2022			Jun 30, 2021			$ Change			% Change
Average Balances		(Dollars in thousands)
Gross loans	$	614,333		$	716,999		$	(102,666	)		-14	%
Gross loans without PPP	$	604,414		$	617,957		$	(13,543	)		-2	%
Loans held for sale	$	3,112		$	27,722		$	(24,610	)		-89	%
Investment securities	$	250,912		$	137,096		$	113,816			83	%
Federal funds sold & interest bearing deposits in banks	$	380,495		$	278,390		$	102,105			37	%
Interest-earning assets	$	1,248,852		$	1,160,207		$	88,645			8	%
Non-interest bearing demand deposits	$	494,862		$	406,416		$	88,446			22	%
Interest bearing deposits	$	694,015		$	675,864		$	18,151			3	%
Total Deposits	$	1,188,877		$	1,082,280		$	106,597			10	%
Borrowings	$	13,761		$	13,910		$	(149	)		-1	%
Interest-bearing liabilities	$	707,776		$	689,774		$	18,002			3	%
Total Equity	$	110,766		$	115,751		$	(4,985	)		-4	%
		For the Six Months Ended,
		Jun 30, 2022			Jun 30, 2021			Change
Net Interest Margin
Yield on average gross loans (1)		4.75	%		4.80	%		(0.05	)
Yield on average gross loans without PPP (1)		4.51	%		4.60	%		(0.09	)
Yield on average investment securities (1)		1.85	%		2.28	%		(0.43	)
Yield on Fed funds sold & interest bearing deposits in banks		0.52	%		0.12	%		0.40
Cost of average interest bearing deposits		0.10	%		0.18	%		(0.08	)
Cost of average borrowings		2.20	%		1.80	%		0.40
Cost of average total deposits and borrowings		0.08	%		0.13	%		(0.05	)
Yield on average interest-earning assets		2.88	%		3.32	%		(0.44	)
Cost of average interest-bearing liabilities		0.14	%		0.21	%		(0.07	)
Net interest spread		2.74	%		3.11	%		(0.37	)
Net interest spread without PPP		2.60	%		2.86	%		(0.26	)
Net interest margin (1)		2.80	%		3.20	%		(0.40	)
Net interest margin without PPP (1)		2.66	%		2.93	%		(0.27	)
(1) Tax-exempt income has been adjusted to a tax equivalent basis at a rate of 21%.

Adversely Classified Loans and Securities
(Unaudited)
		Jun 30, 2022			Mar 31, 2022			$ Change			% Change			Jun 30, 2021			$ Change			% Change
		(Dollars in thousands)
Rated substandard or worse, but not impaired, beginning of three month period	$	8,122		$	8,980		$	(858	)		-10	%	$	12,698		$	(4,576	)		-36	%
Addition of previously classified pass graded loans		-			174			(174	)		-100	%		589			(589	)		-100	%
Upgrades to pass or other loans especially mentioned status		(601	)		(789	)		188			-24	%		(4,605	)		4,004			-87	%
Moved to nonaccrual		(174	)		-			(174	)		-100	%		-			(174	)		-100	%
Principal payments, net		(247	)		(243	)		(4	)		2	%		(644	)		397			-62	%
Rated substandard or worse, but not impaired, end of three month period	$	7,100		$	8,122		$	(1,022	)		-13	%	$	8,038		$	(938	)		-12	%
Impaired		2,853			2,821			32			1	%		3,357			(504	)		-15	%
Total adversely classified loans¹	$	9,953		$	10,943		$	(990	)		-9	%	$	11,395		$	(1,442	)		-13	%
Other loans especially mentioned or watch, but not impaired	$	31,395		$	30,018		$	1,377			5	%	$	46,723		$	(15,328	)		-33	%
Gross loans (excluding deferred loan fees)	$	606,890		$	616,609		$	(9,719	)		-2	%	$	693,888		$	(86,998	)		-13	%
Adversely classified loans to gross loans		1.64	%		1.77	%								1.64	%
Adversely classified loans to gross loans without PPP		1.64	%		1.80	%								1.83	%
Allowance for loan losses	$	8,282		$	8,276		$	6			0	%	$	9,078		$	(796	)		-9	%
Allowance for loan losses as a percentage of adversely classified loans		83.21	%		75.63	%								79.67	%
Allowance for loan losses to total impaired loans		290.29	%		293.37	%								270.42	%
Adversely classified loans to total assets		0.75	%		0.83	%								0.88	%
Delinquent loans to gross loans, not in nonaccrual status 2		0.09	%		0.01	%								0.01	%
Delinquent loans to gross loans without PPP, not in nonaccrual status		0.09	%		0.01	%								0.01	%
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.
2 Delinquent loans are defined as loans past due 30-90 days and still accruing

Nonperforming Assets
(Unaudited)
		Jun 30, 2022			Mar 31, 2022			$ Change			% Change			Jun 30, 2021			$ Change			% Change
		(Dollars in thousands)
Total nonaccrual loans, beginning of three month period	$	1,198		$	1,221		$	(23	)		-2	%	$	2,203		$	(1,005	)		-46	%
Transfer to performing loans		-			-			-			0	%		(138	)		138			-100	%
Addition of nonaccrual loans		113			-			113			100	%		-			113			100	%
Moved to other assets owned		-			-			-			0	%		-			-			0	%
Principal payments, net		(71	)		(23	)		(48	)		209	%		(246	)		175			-71	%
Charge-offs, net		-			-			-			0	%		-			-			0	%
Total nonaccrual loans, end of three month period	$	1,240		$	1,198		$	42			4	%	$	1,819		$	(579	)		-32	%
Other real estate owned and foreclosed assets		122			122			-			0	%		241			(119	)		-49	%
Total nonperforming assets	$	1,362		$	1,320		$	42			3	%	$	2,060		$	(698	)		-34	%
Total restructured performing loans, beginning of period	$	1,623		$	1,633		$	(10	)		-1	%	$	1,545		$	78			5	%
Transfer to nonaccrual loans		-			-			-			0	%		-			-			0	%
Addition of restructured performing loans		-			-			-			0	%		-			-			0	%
Principal payments, net		(9	)		(10	)		1			-10	%		(7	)		(2	)		29	%
Charge-offs, net		-			-			-			0	%		-			-			0	%
Total restructured performing loans, end of period	$	1,614		$	1,623		$	(9	)		-1	%	$	1,538		$	76			5	%
Accruing loans past due 90 days or more	$	-		$	-		$	-			0	%	$	-		$	-			0	%
Percentage of nonperforming assets to total assets		0.10	%		0.10	%								0.16	%
Nonperforming loans to total loans		0.20	%		0.19	%								0.26	%
Nonperforming loans to total loans without PPP		0.20	%		0.20	%								0.29	%

Allowance for Loan Losses
(Unaudited)
		For the Three Months Ended,
		Jun 30, 2022			Mar 31, 2022			$ Change			% Change			Jun 30, 2021			$ Change			% Change
		(Dollars in thousands)
Gross loans outstanding at end of period	$	606,890		$	616,609		$	(9,719	)		-2	%	$	693,888		$	(86,998	)		-13	%
Average loans outstanding, gross	$	607,332		$	621,412		$	(14,080	)		-2	%	$	709,818		$	(102,486	)		-14	%
Allowance for loan losses, beginning of period	$	8,276		$	8,297		$	(21	)		0	%	$	10,721		$	(2,445	)		-23	%
Commercial		-			-			-			0	%		-			-			0	%
Commercial Real Estate		-			-			-			0	%		-			-			0	%
Residential Real Estate		-			-			-			0	%		-			-			0	%
Consumer		(17	)		(25	)		8			-32	%		(48	)		31			-65	%
Total charge-offs		(17	)		(25	)		8			-32	%		(48	)		31			-65	%
Commercial		-			-			-			0	%		4			(4	)		-100	%
Commercial Real Estate		-			-			-			0	%		-			-			0	%
Residential Real Estate		-			-			-			0	%		-			-			0	%
Consumer		23			4			19			475	%		1			22			2200	%
Total recoveries		23			4			19			475	%		5			18			360	%
Net recoveries/(charge-offs)		6			(21	)		27			-129	%		(43	)		49			-114	%
Provision (benefit) to income		-			-			-			0	%		(1,600	)		1,600			-100	%
Allowance for loan losses, end of period	$	8,282		$	8,276		$	6			0	%	$	9,078		$	(796	)		-9	%
Ratio of net loans charged-off to average
gross loans outstanding, annualized		0.00	%		0.01	%		-0.01	%					0.02	%		-0.02	%
Ratio of net loans charged-off to average
gross loans outstanding without PPP, annualized		0.00	%		0.01	%		-0.01	%					0.03	%		-0.03	%
Ratio of allowance for loan losses to
gross loans outstanding		1.36	%		1.34	%		0.02	%					1.31	%		0.05	%
Ratio of allowance for loan losses to
gross loans without PPP outstanding		1.37	%		1.36	%		0.01	%					1.45	%		-0.08	%
		For the Six Months Ended,
		Jun 30, 2022			Jun 30, 2021			$ Change			% Change
		(Dollars in thousands)
Gross loans outstanding at end of period	$	606,890		$	693,888		$	(86,998	)		-13	%
Average loans outstanding, gross	$	614,333		$	716,999		$	(102,666	)		-14	%
Allowance for loan losses, beginning of period	$	8,297		$	12,068		$	(3,771	)		-31	%
Commercial		-			-			-			0	%
Commercial Real Estate		-			-			-			0	%
Residential Real Estate		-			-			-			0	%
Consumer		(42	)		(95	)		53			-56	%
Total charge-offs		(42	)		(95	)		53			-56	%
Commercial		-			42			(42	)		-100	%
Commercial Real Estate		-			-			-			0	%
Residential Real Estate		-			50			(50	)		-100	%
Consumer		27			13			14			108	%
Total recoveries		27			105			(78	)		-74	%
Net recoveries (charge-offs)		(15	)		10			(25	)		-250	%
Provision (benefit) to income		-			(3,000	)		3,000			-100	%
Allowance for loan losses, end of period	$	8,282		$	9,078		$	(796	)		-9	%
Ratio of net loans charged-off to average
gross loans outstanding, annualized		0.00	%		0.00	%		0.00	%
Ratio of net loans charged-off to average
gross loans outstanding without PPP, annualized		0.00	%		0.00	%		0.00	%
Ratio of allowance for loan losses to
gross loans outstanding		1.36	%		1.31	%		0.05	%
Ratio of allowance for loan losses to
gross loans without PPP outstanding		1.37	%		1.45	%		-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 June 30, 2022, the Company had total assets of $1.33 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. 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

FAQ

What is the latest net income for Pacific Financial Corporation (PFLC)?

As of Q2 2022, Pacific Financial Corporation reported a net income of $1.6 million.

When is the next dividend payment for PFLC shareholders?

The next dividend payment of $0.13 per share will be made on August 25, 2022.

What were the main factors affecting PFLC's earnings in 2022?

Earnings were under pressure due to declining mortgage volume and lower net interest margins.

How much did PFLC's noninterest income decrease in Q2 2022?

Noninterest income decreased by 60% year-over-year in Q2 2022.

What impact did rising interest rates have on PFLC's financial performance?

Rising interest rates positively impacted net interest income, expected to support future margin expansion.