Pacific Financial Corp Earns $1.7 Million, or $0.16 per Diluted Share, for First 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 $1.7 million for Q1 2022, translating to $0.16 per diluted share, down from $4.2 million or $0.40 per diluted share in Q1 2021. The board declared a quarterly cash dividend of $0.13 per share, payable on May 27, 2022. Key metrics reveal a 2% increase in core deposits year-over-year and a 3% loan growth (excluding PPP loans). However, the net interest margin fell to 2.71% from 3.35% a year prior, reflecting challenges due to lower loan yields and a low interest rate environment.

Positive

• Declared quarterly cash dividend of $0.13 per share.
• Core deposits increased by 2% from Q1 2021.
• Loan balances excluding PPP loans grew at an annualized rate of 3% during Q1 2022.
• Credit quality improved, with delinquent loans remaining minimal at 0.01%.

Negative

• Net income decreased by 61% year-over-year from $4.2 million in Q1 2021.
• Net interest margin dropped to 2.71% from 3.35% a year ago, due to reduced loan yields.
• Noninterest income fell to $2.1 million, down 59% from Q1 2021.
• Tangible book value per share declined to $9.15 from $10.03 in Q4 2021.

ABERDEEN, Wash., April 29, 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 $1.7 million, or $0.16 per diluted share for the first quarter of 2022, compared to $2.1 million, or $0.20 per diluted share for the fourth quarter of 2021, and $4.2 million, or $0.40 per diluted share for the first quarter of 2021.   All results are unaudited.  

The board of directors of Pacific Financial declared a quarterly cash dividend of $0.13 per share on April 27, 2022. The dividend will be payable on May 27, 2022 to shareholders of record on May 13, 2022

“The company’s earnings came under pressure, as expected, during the quarter with the reduction in PPP interest and fees and mortgage banking income as well as the continued impact of a low rate environment.  While the 25 basis point increase by the Federal Reserve in market rates occurring late in the quarter had a minimal impact on first quarter net interest income, our asset sensitive balance sheet is well positioned to benefit from higher short-term interest rates,” said Denise Portmann, President and Chief Executive Officer. “Our first quarter was highlighted by core deposit growth, continued strength in our asset quality metrics, growth in digital fee income and an increase in investment interest income. In addition, loan balances during the quarter, excluding PPP loans grew at an annualized rate of 3% and our loan pipeline remains active and we are optimistic that loan activity will continue to increase.”

“We remain focused on growing non-cash earning assets including organic loan growth as well as wholesale purchases by pursuing opportunities within our markets and continuing to build new and existing customer relationships.  Our core values of teamwork, integrity and respect for others, professionalism, accountability and commitment provide a foundation for the building of those relationships, allowing our employees to show that we care about our customers,” said Portmann.  “We continue to navigate the economic environment with a disciplined approach and a strong risk culture. Our credit quality metrics remain strong depicting our ongoing commitment to sound underwriting and disciplined approach to client selection and underwriting. We are generating new client relationships and adding to our core funding position while maintaining a moderate risk profile.”

First Quarter 2022 Financial Highlights

• Net income was $1.7 million, or $0.16 per diluted share, for the first quarter of 2022, compared to $2.1 million, or $0.20 per diluted share, for the fourth quarter of 2021, and $4.2 million, or $0.40 per diluted share, for the first quarter of 2021.
• Return on average assets (“ROAA”) was 0.51% for the first quarter of 2022, compared to 0.63% in the fourth quarter of 2021 and 1.44% for the first quarter of 2021.  
• Net interest margin (“NIM”) was 2.71% for the first quarter of 2022, compared to 2.79% for the linked quarter, and 3.35% for the first quarter of 2021.
• Net gain-on-sale of loans from mortgage banking activities was $678,000 for the first quarter of 2022, compared to $1.5 million for the fourth quarter of 2021, and $3.5 million for the first quarter a year ago.  
• Gross loans excluding PPP loans increased 3% quarter-over-quarter on an annualized basis and totaled $608.3 million at March 31, 2022, compared to $604.7 million at December 31, 2021, and decreased from $614.3 million at March 31, 2021.
  
• Core deposits (non-interest bearing and interest-bearing transaction and savings accounts) increased 2% from $1.12 billion at December 31, 2021 and increased 11% from $1.03 billion at March 31, 2021 to $1.14 billion at March 31, 2022. Core deposits represented 95% of total deposits, with non-interest-bearing deposits representing 41% of total deposits, at March 31, 2022.
  
• Asset quality continued to improve and remains strong. Non-impaired watch loans, or other loans especially mentioned, decreased $2.8 million, or by 9%, to $30.0 million at March 31, 2022, compared to $32.8 million at December 31, 2021, and declined $49.6 million, or by 62%, from a year earlier. Delinquent loans to gross loans remained minimal at 0.01% for March 31, 2022 and December 31, 2021, compared to 0.21% at March 31, 2021.
• 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 17.4% as of quarter end.
• Tangible book value per share of $9.15 as of March 31, 2022 declined during the quarter from $10.03 at December 31, 2021 due primarily to increase in the unrealized loss on available-for-sale securities, net of tax.
• Available-for-sale securities were $226.0 million at March 31, 2022, compared to $232.9 million at December 31, 2021. Unrealized losses on the available-for-sale were $10.5 million at March 31, 2022 compared to net unrealized gains of $1.7 million at December 31, 2021, due to increases in market interest rates.
  

Income Statement Review

Net interest income was $8.3 million for the first quarter of 2022, compared to $8.8 million for the fourth quarter of 2021, and $9.2 million for the first quarter of 2021.   Amortized PPP fees and interest totaled $737,000, $1.0 million and $1.6 million, for the quarters ended March 31, 2022, December 31, 2021 and March 31, 2021, respectively.

Net interest margin (“NIM”) was 2.71% for the first quarter of 2022, compared to 2.79% for the fourth quarter of 2021, and 3.35% for the first quarter of 2021. The yield on average earnings assets declined from 3.49% during the first quarter of 2021 to 2.78% during first quarter of 2022 primarily due to the reduced loans yields mainly reflecting a lower level of PPP loan fee amortization, and a change in earning asset mix with an increase in lower yielding interest-earning deposits and federal funds sold. Average loan yields for the current quarter were relatively stable at 4.81% compared to the linked quarter of 4.82%, and down 6 basis points from 4.87% for the first quarter of 2021. Yields on investment securities increased during the quarter to 1.72% compared to 1.65% for the fourth quarter 2021, and declined from 2.45% for the first quarter 2021. Interest income from investment securities and federal funds sold increased $112,000 and $364,000 for the current quarter compared to the linked and year-over-year quarters. The 25 basis point increase by the Federal Reserve in market rates occurring late in the quarter had a minimal impact on first quarter net interest income.

The Bank’s total cost of funds remained low, decreasing one basis point during the quarter to 0.08% compared to the linked quarter at 0.09% and decreasing seven basis points from 0.15% a year earlier. “While our NIM has been adversely impacted by the decrease in earning asset yield, it has benefited from a low costs of funds, which is a function of a low interest rate environment combined with continued discipline in lowering our offered deposit rates during the past several years,” said Carla Tucker, Executive Vice-President and Chief Financial Officer. “In addition, with high levels of liquidity and the asset sensitivity of the Bank, our NIM is poised to benefit from rising interest rates.”

Noninterest income was $2.1 million for the first quarter of 2022, compared to $3.0 million for the fourth quarter of 2021, and $5.2 million for the first quarter of 2021. These decreases were due to decreased gain on sale of loans from mortgage banking activity. Gain-on-sale of loans decreased $791,000 for the current quarter to $678,000, compared to the fourth quarter of 2021, and declined $2.9 million from the first quarter a year ago. The recent increase in mortgage rates adversely impacted mortgage loan production during the current quarter as expected; home purchase activity accounted for 45% of mortgage loan originations during the first quarter, compared to 32% in the fourth quarter of 2021 and 31% in the first quarter of 2021. Service charges on deposits were 12% higher year-over-year and 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 $8.6 million for the first quarter of 2022, compared to $9.3 million for the fourth quarter of 2021, and $10.5 million for the first quarter of 2021. These decreases reflect lower residential mortgage loan commission costs stemming from decreased mortgage banking loan originations during the current quarter. Salary and benefits costs, excluding commissions, also decreased from the year ago quarter as mortgage banking staffing levels and overtime decreased commiserate with lower mortgage loan originations as well as reductions in staffing recruiting costs.

Federal and Oregon state income tax expense was $166,000 for the first quarter of 2022, and $483,000 for the preceding quarter, resulting in effective tax rates of 9.1% and 18.5%, respectively. These income tax expenses reflects the benefits of tax exempt income and an adjustment to deferred tax asset during the current quarter.

Balance Sheet Review

Total Assets remained relatively flat at $1.33 billion, at March 31, 2022, compared to $1.32 billion at December 31, 2021, and increased 6% from $1.25 billion at March 31, 2021. Interest bearing cash balances and federal funds sold were $390.3 million for the current quarter, increasing $22.4 million for the linked quarter, and up substantially year-over-year increasing $90.1 million, primarily as a result of total deposit increases during the same time periods, as well as the receipt of PPP loan forgiveness payments. These increases were partially offset by an increase in investment securities.     

Investment Securities increased 1% to $236.5 million at March 31, 2022, compared to $233.9 million at December 31, 2021 and grew 72% from $137.5 million at March 31, 2021. During 2021 and for the current quarter, the Company continued to deploy a portion of its excess liquidity into investment securities. For the current quarter this included $20.1 million in investment purchases, which was partially offset by $4.7 million in calls, maturities and payments. The average adjusted duration of the investment securities portfolio was approximately 4.6 at March 31, 2022 compared to 4.7 and 4.6 at December 31, 2021 and March 31, 2021

Gross loans balances excluding PPP loans increased 3% quarter-over-quarter on an annualized basis and totaled $608.3 million at March 31, 2022, compared to $604.7 million at December 31, 2021, and decreased from $614.3 million at March 31, 2021.   Loan growth, excluding SBA PPP loans, during the first quarter of 2022 was achieved with new originations and advances more than offsetting approximately $25.5 million in principal paydowns. Within consumer category, loans to finance luxury and classic cars were $50.2 million at March 31, 2022, compared to $48.7 million and $47.8 million at December 31, 2021 and March 31, 2021, respectively.

Gross loan balances including PPP loans were $616.6 million at March 31, 2022, compared to $629.6 million at December 31, 2021, and $722.7 million at March 31, 2021. Declines in loan balances, including PPP loans, for the current quarter compared to December 31, 2021 and to the year-over-year quarter were driven primarily by PPP loan forgiveness during the quarter and over the past twelve months as well as several larger expected pay-offs from customers selling their businesses occurring at year-end 2021. For the quarter the decrease in SBA PPP loans was offset by increases in multifamily and commercial real estate loans as well as construction and development loans, of a combined increase of $6.5 million during the quarter while was partially offset by a combined decrease of $2.9 million in consumer, commercial and other loan categories. The decrease in commercial and agricultural loans of $2.0 million for the quarter and $351,000 compared to March 31, 2021 was due to decreased commercial lines of credit utilization.  

Credit Quality continues the improvement seen throughout 2021 with nonperforming assets at $1.3 million, or 0.10% of total assets, at March 31, 2022, from $1.4 million for the linked quarter, and compared to $2.5 million or 0.20% of total assets at March 31, 2021. In addition, balances related to non-impaired loans, graded watch or other loans especially mentioned, decreased by $2.8 million during the quarter to $30.0 million from the preceding quarter. The level of past due loans remains nominal at 0.01% including for the luxury and classic car portfolio at 0.12% delinquent and non-accruals loans at March 31, 2022.

The Allowance for Loan Losses (“ALL”) was $8.3 million, or 1.36% of gross loans (excluding PPP) at March 31, 2022, compared to $8.3 million, or 1.37% of gross loans, at December 31, 2021, and $10.7 million, or 1.75%, at March 31, 2021.   Net charge-offs remain low and totaled $21,000 for the first quarter of 2022, compared to net charge-offs of $80,000 fourth quarter of 2021, and net recovery of $53,000 for the first quarter of 2021. There was no loan loss provision reserved for the current quarter, compared to a loan loss provision recapture of $150,000 in the preceding quarter, and to a loan loss provision recapture of $1.4 million in the first quarter a year ago.

Total Deposits increased 1% to $1.20 billion at March 31, 2022, compared to $1.18 billion at December 31, 2021, and increased 9% from $1.10 billion at March 31, 2021.   Increases compared to a year ago are primarily related to SBA PPP loan funds deposited into customer accounts as well as an increase in general client liquidity due to reduced business investment and consumer spending, elevated savings patterns and other stimulus related funds.

Noninterest-bearing deposits increased 1%, or $3.4 million, to $495.5 million at March 31, 2022, compared to $492.2 million at December 31, 2021, and grew 27%, or $105.4 million from $390.1 million at March 31, 2021. Term deposits declined 5% to $53.9 million at March 31, 2022, from $58.7 million at December 31, 2021, and were down 21% from $67.9 million at March 31, 2021. Time deposits represented 5% of total deposits at March 31, 2022.

Shareholder’s Equity was $108.5 million at March 31, 2022 down from $117.6 million at December 31, 2021 and $115.1 million at March 31, 2021 primarily due to an increase in the unrealized holding loss on securities available for sale resulting from higher market interest rates. The increase in the unrealized holding loss on securities available for sale also impacted the company’s book value per share which decreased to $10.44 at March 31, 2022 compared to $11.32 at December 31, 2021, and $11.03 one year ago. Regulatory capital ratios continue to exceed the well-capitalized regulatory thresholds, with the company’s leverage ratio at 8.9% and total risk-based capital ratio at 17.4% as of March 31, 2022. The total risk-based capital ratios of the Company include $13.4 million of junior subordinated debentures, all of which qualified as Tier 1 capital under guidance issued by the Federal Reserve.

Balance Sheet Overview
(Unaudited)
			Mar 31, 2022			Dec 31, 2021			$ Change			% Change			Mar 31, 2021			$ Change			% Change
Assets:			(Dollars in thousands, except per share data)
	Cash on hand and in banks	$	19,007		$	18,528		$	479			3	%	$	15,175		$	3,832			25	%
	Interest bearing deposits		312,194			320,207			(8,013	)		-3	%		280,129			32,065			11	%
	Federal funds sold		81,339			50,881			30,458			60	%		23,316			58,023			249	%
	Investment securities		236,542			233,859			2,683			1	%		137,454			99,088			72	%
	Loans held-for-sale		3,703			6,104			(2,401	)		-39	%		19,439			(15,736	)		-81	%
	Loans, net of deferred fees		615,891			628,333			(12,442	)		-2	%		719,182			(103,291	)		-14	%
	Allowance for loan losses		(8,276	)		(8,297	)		21			0	%		(10,721	)		2,445			-23	%
	Net loans		607,615			620,036			(12,421	)		-2	%		708,461			(100,846	)		-14	%
	Federal Home Loan Bank and Pacific Coast Bankers' Bank stock, at cost		2,598			2,416			182			8	%		2,421			177			7	%
	Other assets		62,471			67,935			(5,464	)		-8	%		58,679			3,792			6	%
	Total assets	$	1,325,469		$	1,319,966		$	5,503			0	%	$	1,245,074		$	80,395			6	%
Liabilities and Shareholders' Equity:
	Total deposits	$	1,196,106		$	1,178,940		$	17,166			1	%	$	1,099,287		$	96,819			9	%
	Borrowings		13,769			13,806			(37	)		0	%		13,919			(150	)		-1	%
	Accrued interest payable and other liabilities		7,108			9,578			(2,470	)		-26	%		16,772			(9,664	)		-58	%
	Shareholders' equity		108,486			117,642			(9,156	)		-8	%		115,096			(6,610	)		-6	%
	Total liabilities and shareholders' equity	$	1,325,469		$	1,319,966		$	5,503			0	%	$	1,245,074		$	80,395			6	%
Common Shares Outstanding			10,392,738			10,388,267			4,471			0	%		10,437,378			(44,640	)		0	%
Book value per common share (1)		$	10.44		$	11.32		$	(0.88	)		-8	%	$	11.03		$	(0.59	)		-5	%
Tangible book value per common share (2)		$	9.15		$	10.03		$	(0.88	)		-9	%	$	9.74		$	(0.59	)		-6	%
Gross loans to deposits ratio			51.5	%		53.3	%		-1.8	%					65.4	%		-13.9	%
(1) Book value per common share is calculated as the total common shareholders' equity divided by the period ending number of common stock shares outstanding.
(2) Tangible book value per common share is calculated as the total common shareholders' equity less total intangible assets and liabilities, divided by the period ending number of common stock shares outstanding.

Income Statement Overview
(Unaudited)
			For the Three Months Ended,
			Mar 31, 2022			Dec 31, 2021			$ Change			% Change			Mar 31, 2021			$ Change			% Change
			(Dollars in thousands, except per share data)
Interest and dividend income		$	8,526		$	9,040		$	(514	)		-6	%	$	9,612		$	(1,086	)		-11	%
Interest expense			239			259			(20	)		-8	%		387			(148	)		-38	%
	Net interest income		8,287			8,781			(494	)		-6	%		9,225			(938	)		-10	%
Loan loss provision			-			(150	)		150			-100	%		(1,400	)		1,400			-100	%
Noninterest income			2,112			2,998			(886	)		-30	%		5,164			(3,052	)		-59	%
Noninterest expense			8,577			9,325			(748	)		-8	%		10,504			(1,927	)		-18	%
Income before income taxes			1,822			2,604			(782	)		-30	%		5,285			(3,463	)		-66	%
Income tax expense			166			483			(317	)		-66	%		1,057			(891	)		-84	%
	Net Income	$	1,656		$	2,121		$	(465	)		-22	%	$	4,228		$	(2,572	)		-61	%
Average common shares outstanding - basic			10,390,498			10,385,414			5,084			0	%		10,432,040			(41,542	)		0	%
Average common shares outstanding - diluted			10,415,689			10,412,013			3,676			0	%		10,458,794			(43,105	)		0	%
Income per common share
	Basic	$	0.16		$	0.20		$	(0.04	)		-20	%	$	0.41		$	(0.25	)		-61	%
	Diluted	$	0.16		$	0.20		$	(0.04	)		-20	%	$	0.40		$	(0.24	)		-60	%
Effective tax rate			9.1	%		18.5	%		-9.4	%					20.0	%		-10.9	%

Noninterest Income
(Unaudited)
			For the Three Months Ended,
			Mar 31, 2022		Dec 31, 2021		$ Change			% Change			Mar 31, 2021		$ Change			% Change
			(Dollars in thousands)
Service charges on deposits		$	382	$	387	$	(5	)		-1	%	$	342	$	40			12	%
Gain on sale of loans, net			678		1,469		(791	)		-54	%		3,535		(2,857	)		-81	%
Earnings on bank owned life insurance			184		129		55			43	%		126		58			46	%
Other noninterest income
	Fee income		867		1,007		(140	)		-14	%		1,133		(266	)		-23	%
	Other		1		6		(5	)		-83	%		28		(27	)		-96	%
Total noninterest income		$	2,112	$	2,998	$	(886	)		-30	%	$	5,164	$	(3,052	)		-59	%

Noninterest Expense
(Unaudited)
			For the Three Months Ended,
			Mar 31, 2022		Dec 31, 2021		$ Change			% Change			Mar 31, 2021		$ Change			% Change
			(Dollars in thousands)
Salaries and employee benefits		$	5,516	$	6,057	$	(541	)		-9	%	$	7,333	$	(1,817	)		-25	%
Occupancy			521		483		38			8	%		511		10			2	%
Equipment			286		295		(9	)		-3	%		319		(33	)		-10	%
Data processing			855		813		42			5	%		829		26			3	%
Professional services			202		171		31			18	%		234		(32	)		-14	%
State and local taxes			158		197		(39	)		-20	%		202		(44	)		-22	%
FDIC and State assessments			100		174		(74	)		-43	%		81		19			23	%
Other noninterest expense:
	Director fees		74		69		5			7	%		77		(3	)		-4	%
	Communication		67		75		(8	)		-11	%		71		(4	)		-6	%
	Advertising		25		22		3			14	%		29		(4	)		-14	%
	Professional liability insurance		60		59		1			2	%		59		1			2	%
	Amortization		47		41		6			15	%		105		(58	)		-55	%
	Other		666		869		(203	)		-23	%		654		12			2	%
Total noninterest expense		$	8,577	$	9,325	$	(748	)		-8	%	$	10,504	$	(1,927	)		-18	%

Financial Performance Overview
(Unaudited)
		For the Three Months Ended
		Mar 31, 2022			Dec 31, 2021			Change			Mar 31, 2021			Change
Performance Ratios
Return on average assets, annualized		0.51	%		0.63	%		(0.12	)		1.44	%		(0.93	)
Return on average equity, annualized		5.81	%		7.16	%		(1.35	)		14.90	%		(9.09	)
Efficiency ratio (1)		82.48	%		79.17	%		3.31			73.00	%		9.48
(1) Non-interest expense divided by net interest income plus noninterest income.

LIQUIDITY

Cash and Cash Equivalents and Investment Securities
(Unaudited)
				Mar 31, 2022		% of Total			Dec 31, 2021		% of Total			$ Change			% Change			Mar 31, 2021		Total			$ Change			% Change
				(Dollars in thousands)
Cash on hand and in banks			$	19,007		3	%	$	18,528		3	%	$	479			3	%	$	15,175		3	%	$	3,832			25	%
Interest bearing deposits				308,944		48	%		316,957		51	%		(8,013	)		-3	%		276,879		62	%		32,065			12	%
Other interest earning deposits				3,250		1	%		3,250		1	%		-			0	%		3,250		1	%		-			0	%
Federal funds sold				81,339		13	%		50,881		8	%		30,458			60	%		23,316		5	%		58,023			249	%
	Total			412,540		65	%		389,616		63	%		22,924			6	%		318,620		71	%		93,920			29	%
Investment securities:
	Collateralized mortgage obligations			73,142		11	%		79,614		13	%		(6,472	)		-8	%		47,870		10	%		25,272			53	%
	Mortgage backed securities			24,741		4	%		20,612		3	%		4,129			20	%		13,441		3	%		11,300			84	%
	U.S. Government and agency securities			70,003		10	%		59,164		9	%		10,839			18	%		15,263		3	%		54,740			359	%
	Municipal securities			66,544		10	%		72,335		12	%		(5,791	)		-8	%		58,761		13	%		7,783			13	%
	Corporate debt securities			2,004		0	%		2,010		0	%		(6	)		0	%		2,018		0	%		(14	)		-1	%
	Equity securities			108		0	%		124		0	%		(16	)		-13	%		101		0	%		7			7	%
		Total		236,542		35	%		233,859		37	%		2,683			1	%		137,454		29	%		99,088			72	%
Total cash equivalents and investment securities			$	649,082		100	%	$	623,475		100	%	$	25,607			4	%	$	456,074		100	%	$	193,008			42	%
Total cash equivalents and investment securities as a percent of total assets						49	%				45	%										37	%

LOANS

	Loans by Category
	(Unaudited)
				Mar 31, 2022			% of Gross Loans			Dec 31, 2021			% of Gross Loans			$ Change			% Change			Mar 31, 2021			% of Gross Loans			$ Change			% Change
	Commercial:			(Dollars in thousands)
		Commercial and agricultural	$	83,324			14	%	$	85,309			14	%	$	(1,985	)		-2	%	$	83,675			12	%	$	(351	)		0	%
		PPP		8,290			1	%		25,081			4	%		(16,791	)		-67	%		108,377			15	%		(100,087	)		-92	%
	Real estate:
	Construction and development			31,169			5	%		28,318			3	%		2,851			10	%		20,936			3	%		10,233			49	%
	Residential 1-4 family			66,338			11	%		67,393			11	%		(1,055	)		-2	%		71,567			10	%		(5,229	)		-7	%
	Multi-family			43,226			7	%		39,854			6	%		3,372			8	%		33,950			5	%		9,276			27	%
	Commercial real estate -- owner occupied			152,301			25	%		154,901			25	%		(2,600	)		-2	%		154,850			21	%		(2,549	)		-2	%
	Commercial real estate -- non owner occupied			151,637			25	%		148,730			24	%		2,907			2	%		166,072			22	%		(14,435	)		-9	%
	Farmland			22,734			3	%		23,905			4	%		(1,171	)		-5	%		27,418			4	%		(4,684	)		-17	%
	Consumer			57,590			9	%		56,269			9	%		1,321			2	%		55,868			8	%		1,722			3	%
		Gross Loans		616,609			100	%		629,760			100	%		(13,151	)		-2	%		722,713			100	%		(106,104	)		-15	%
		Less: allowance for loan losses		(8,276	)					(8,297	)					21						(10,721	)					2,445
		Less: deferred fees		(718	)					(1,427	)					709						(3,531	)					2,813
		Net loans	$	607,615					$	620,036					$	(12,421	)				$	708,461					$	(100,846	)
	Loan Concentration
	(Unaudited)
				Mar 31, 2022			% of Risk Based Capital			Dec 31, 2021			% of Risk Based Capital			Change			Mar 31, 2021			% of Risk Based Capital			Change
	Commercial:			(Dollars in thousands)
		Commercial and agricultural	$	83,324			67	%	$	85,309			69	%		-2	%	$	83,675			69	%		-2	%
		PPP		8,290			7	%		25,081			20	%		-13	%		108,377			90	%		-83	%
	Real estate:
	Construction and development			31,169			25	%		28,318			23	%		2	%		20,936			17	%		8	%
	Residential 1-4 family			66,338			53	%		67,393			54	%		-1	%		71,567			59	%		-6	%
	Multi-family			43,226			35	%		39,854			32	%		3	%		33,950			28	%		7	%
	Commercial real estate -- owner occupied			152,301			122	%		154,901			125	%		-3	%		154,850			128	%		-6	%
	Commercial real estate -- non owner occupied			151,637			122	%		148,730			120	%		2	%		166,072			137	%		-15	%
	Farmland			22,734			18	%		23,905			19	%		-1	%		27,418			23	%		-5	%
	Consumer			57,590			46	%		56,269			45	%		1	%		55,868			46	%		0	%
		Gross Loans	$	616,609					$	629,760								$	722,713
	Regulatory Commercial Real Estate		$	223,799			180	%	$	214,910			173	%		7	%	$	216,687			179	%		1	%
	Total Risk Based Capital*		$	124,636					$	124,235								$	120,934
	*Bank of the Pacific

DEPOSITS

Deposits by Category
(Unaudited)
		Mar 31, 2022		% of Total			Dec 31, 2021		% of Total			$ Change			% Change			Mar 31, 2021		% of Total			$ Change			% Change
		(Dollars in thousands)
Interest-bearing demand	$	255,120		21	%	$	242,789		21	%	$	12,331			5	%	$	305,137		28	%	$	(50,017	)		-16	%
Money market		214,840		18	%		210,343		17	%		4,497			2	%		186,887		17	%		27,953			15	%
Savings		176,753		15	%		174,929		15	%		1,824			1	%		149,325		14	%		27,428			18	%
Time deposits (CDs)		53,885		5	%		58,724		5	%		(4,839	)		-8	%		67,861		6	%		(13,976	)		-21	%
Total interest-bearing deposits		700,598		59	%		686,785		58	%		13,813			2	%		709,210		65	%		(8,612	)		-1	%
Non-interest bearing demand		495,508		41	%		492,155		42	%		3,353			1	%		390,077		35	%		105,431			27	%
Total deposits	$	1,196,106		100	%	$	1,178,940		100	%	$	17,166			1	%	$	1,099,287		100	%	$	96,819			9	%

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

Capital Measures
(unaudited)
	Mar 31, 2022			Dec 31, 2021			Change			Mar 31, 2021			Change				Well Capitalized Under Prompt Correction Action Regulations
Pacific Financial Corporation
Total risk-based capital ratio	17.4	%		17.6	%		(0.2	)		16.8	%		0.6				N/A
Tier 1 risk-based capital ratio	16.3	%		16.4	%		(0.1	)		15.5	%		0.8				N/A
Common equity tier 1 ratio	14.4	%		14.6	%		(0.2	)		13.7	%		0.7				N/A
Leverage ratio	8.9	%		8.8	%		0.1			9.5	%		(0.6	)			N/A
Tangible common equity ratio	7.2	%		8.0	%		(0.8	)		8.3	%		(1.1	)			N/A
Bank of the Pacific
Total risk-based capital ratio	17.4	%		17.6	%		(0.2	)		16.7	%		0.7				10.5%
Tier 1 risk-based capital ratio	16.2	%		16.4	%		(0.2	)		15.4	%		0.8				8.5%
Common equity tier 1 ratio	16.2	%		16.4	%		(0.2	)		15.4	%		0.8				7.0%
Leverage ratio	8.8	%		8.8	%		-			9.5	%		(0.7	)			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, 2022			Dec 31, 2021			$ Change			% Change			Mar 31, 2021			$ Change			% Change
Average Balances			(Dollars in thousands)
Gross loans		$	621,412		$	653,908		$	(32,496	)		-5	%	$	724,259		$	(102,847	)		-14	%
Gross loans without PPP		$	603,998		$	617,857		$	(13,859	)		-2	%	$	620,808		$	(16,810	)		-3	%
Loans held for sale		$	3,670		$	12,142		$	(8,472	)		-70	%	$	27,203		$	(23,533	)		-87	%
Investment securities		$	242,084		$	232,083		$	10,001			4	%	$	129,178		$	112,906			87	%
Federal funds sold & interest bearing deposits in banks		$	388,902		$	363,643		$	25,259			7	%	$	248,252		$	140,650			57	%
Total interest-earning assets		$	1,256,068		$	1,261,776		$	(5,708	)		0	%	$	1,128,892		$	127,176			11	%
Non-interest bearing demand deposits		$	496,833		$	501,686		$	(4,853	)		-1	%	$	360,175		$	136,658			38	%
Interest bearing deposits		$	693,350		$	685,789		$	7,561			1	%	$	689,302		$	4,048			1	%
Total Deposits		$	1,190,183		$	1,187,475		$	2,708			0	%	$	1,049,477		$	140,706			13	%
Borrowings		$	13,782		$	13,819		$	(37	)		0	%	$	13,931		$	(149	)		-1	%
Total interest-bearing liabilities		$	707,132		$	699,608		$	7,524			1	%	$	703,233		$	3,899			1	%
Total Equity		$	115,664		$	117,600		$	(1,936	)		-2	%	$	115,095		$	569			0	%
			For the Three Months Ended,
			Mar 31, 2022			Dec 31, 2021			Change			Mar 31, 2021			Change
Yield on average gross loans (1)			4.81	%		4.82	%		(0.01	)		4.87	%		(0.06	)
Yield on average gross loans without PPP (1)			4.45	%		4.45	%		-			4.63	%		(0.18	)
Yield on average investment securities (1)			1.72	%		1.65	%		0.07			2.45	%		(0.73	)
Yield on Fed funds sold & interest bearing deposits in banks			0.20	%		0.16	%		0.04			0.12	%		0.08
Cost of average interest bearing deposits			0.10	%		0.12	%		(0.02	)		0.19	%		(0.09	)
Cost of average borrowings			1.85	%		1.69	%		0.16			1.83	%		0.02
Cost of average total deposits and borrowings			0.08	%		0.09	%		(0.01	)		0.15	%		(0.07	)
Yield on average interest-earning assets			2.78	%		2.87	%		(0.09	)		3.49	%		(0.71	)
Cost of average interest-bearing liabilities			0.14	%		0.15	%		(0.01	)		0.22	%		(0.08	)
Net interest spread			2.64	%		2.72	%		(0.08	)		3.27	%		(0.63	)
Net interest spread without PPP			2.44	%		2.48	%		(0.04	)		2.98	%		(0.54	)
Net interest margin (1)			2.71	%		2.79	%		(0.08	)		3.35	%		(0.64	)
Net interest margin without PPP (1)			2.50	%		2.55	%		(0.05	)		3.05	%		(0.55	)
(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, 2022			Dec 31, 2021			$ Change			% Change			Mar 31, 2021			$ Change			% Change
		(Dollars in thousands)
Rated substandard or worse, but not impaired, beginning of three month period	$	8,980		$	8,785		$	195			2	%	$	14,200		$	(5,220	)		-37	%
Addition of previously classified pass graded loans		174			363			(189	)		-52	%		304			(130	)		-43	%
Upgrades to pass or other loans especially mentioned status		(789	)		-			(789	)		-100	%		-			(789	)		-100	%
Moved to nonaccrual		-			-			-			0	%		-			-			0	%
Principal payments, net		(243	)		(168	)		(75	)		45	%		(1,806	)		1,563			-87	%
Rated substandard or worse, but not impaired, end of three month period	$	8,122		$	8,980		$	(858	)		-10	%	$	12,698		$	(4,576	)		-36	%
Impaired		2,821			2,854			(33	)		-1	%		3,748			(927	)		-25	%
Total adversely classified loans¹	$	10,943		$	11,834		$	(891	)		-8	%	$	16,446		$	(5,503	)		-33	%
Other loans especially mentioned or watch, but not impaired	$	30,018		$	32,848		$	(2,830	)		-9	%	$	79,603		$	(49,585	)		-62	%
Gross loans (excluding deferred loan fees)	$	616,609		$	629,760		$	(13,151	)		-2	%	$	722,713		$	(106,104	)		-15	%
Adversely classified loans to gross loans		1.77	%		1.88	%								2.28	%
Adversely classified loans to gross loans without PPP		1.80	%		1.96	%								2.68	%
Allowance for loan losses	$	8,276		$	8,297		$	(21	)		0	%	$	10,721		$	(2,445	)		-23	%
Allowance for loan losses as a percentage of adversely classified loans		75.63	%		70.11	%								65.19	%
Allowance for loan losses to total impaired loans		293.37	%		290.71	%								286.05	%
Adversely classified loans to total assets		0.83	%		0.90	%								1.32	%
Delinquent loans to gross loans, not in nonaccrual status 2		0.01	%		0.01	%								0.21	%
Delinquent loans to gross loans without PPP, not in nonaccrual status		0.01	%		0.01	%								0.24	%
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, 2022			Dec 31, 2021			$ Change			% Change			Mar 31, 2021			$ Change			% Change
		(Dollars in thousands)
Total nonaccrual loans, beginning of three month period	$	1,221		$	1,800		$	(579	)		-32	%	$	2,392		$	(1,171	)		-49	%
Transfer to performing loans		-			(113	)		113			-100	%		-			-			0	%
Addition of nonaccrual loans		-			-			-			0	%		202			(202	)		-100	%
Moved to other assets owned		-			-			-			0	%		(265	)		265			-100	%
Principal payments, net		(23	)		(466	)		443			-95	%		(126	)		103			-82	%
Charge-offs, net		-			-			-			0	%		-			-			0	%
Total nonaccrual loans, end of three month period	$	1,198		$	1,221		$	(23	)		-2	%	$	2,203		$	(1,005	)		-46	%
Other real estate owned and foreclosed assets		122			200			(78	)		-39	%		265			(143	)		-54	%
Total nonperforming assets	$	1,320		$	1,421		$	(101	)		-7	%	$	2,468		$	(1,148	)		-47	%
Total restructured performing loans, beginning of period	$	1,633		$	1,531		$	102			7	%	$	168		$	1,465			872	%
Transfer to nonaccrual loans		-			-			-			0	%		-			-			0	%
Addition of restructured performing loans		-			109			(109	)		-100	%		1,382			(1,382	)		-100	%
Principal payments, net		(10	)		(7	)		(3	)		43	%		(5	)		(5	)		100	%
Charge-offs, net		-			-			-			0	%		-			-			0	%
Total restructured performing loans, end of period	$	1,623		$	1,633		$	(10	)		-1	%	$	1,545		$	78			5	%
Accruing loans past due 90 days or more	$	-		$	-		$	-			0	%	$	-		$	-			#DIV/0!
Percentage of nonperforming assets to total assets		0.10	%		0.11	%								0.20	%
Nonperforming loans to total loans		0.19	%		0.19	%								0.30	%
Nonperforming loans to total loans without PPP		0.20	%		0.20	%								0.36	%

Allowance for Loan Losses
(Unaudited)
		For the Three Months Ended,
		Mar 31, 2022			Dec 31, 2021			$ Change			% Change			Mar 31, 2021			$ Change			% Change
		(Dollars in thousands)
Gross loans outstanding at end of period	$	616,609		$	629,760		$	(13,151	)		-2	%	$	722,713		$	(106,104	)		-15	%
Average loans outstanding, gross	$	621,412		$	653,908		$	(32,496	)		-5	%	$	724,259		$	(102,847	)		-14	%
Allowance for loan losses, beginning of period	$	8,297		$	8,527		$	(230	)		-3	%	$	12,068		$	(3,771	)		-31	%
Commercial		-			-			-			0	%		-			-			0	%
Commercial Real Estate		-			-			-			0	%		-			-			0	%
Residential Real Estate		-			-			-			0	%		-			-			0	%
Consumer		(25	)		(81	)		56			-69	%		(46	)		21			-46	%
Total charge-offs		(25	)		(81	)		56			-69	%		(46	)		21			-46	%
Commercial		-			-			-			0	%		38			(38	)		-100	%
Commercial Real Estate		-			-			-			0	%		-			-			0	%
Residential Real Estate		-			-			-			0	%		49			(49	)		-100	%
Consumer		4			1			3			300	%		12			(8	)		-67	%
Total recoveries		4			1			3			300	%		99			(95	)		-96	%
Net recoveries/(charge-offs)		(21	)		(80	)		59			-74	%		53			(74	)		-140	%
Provision (benefit) to income		-			(150	)		150			-100	%		(1,400	)		1,400			-100	%
Allowance for loan losses, end of period	$	8,276		$	8,297		$	(21	)		0	%	$	10,721		$	(2,445	)		-23	%
Ratio of net loans charged-off to average gross loans outstanding, annualized		0.01	%		0.05	%		-0.04	%					-0.03	%		0.04	%
Ratio of net loans charged-off to average gross loans outstanding without PPP, annualized		0.01	%		0.05	%		-0.04	%					-0.03	%		0.04	%
Ratio of allowance for loan losses to gross loans outstanding		1.34	%		1.32	%		0.02	%					1.48	%		-0.14	%
Ratio of allowance for loan losses to gross loans without PPP outstanding		1.36	%		1.37	%		-0.01	%					1.75	%		-0.39	%

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, 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, that 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 net income for Pacific Financial Corporation for Q1 2022?

Pacific Financial Corporation reported a net income of $1.7 million for Q1 2022.

What dividend did Pacific Financial Corporation declare?

Pacific Financial Corporation declared a quarterly cash dividend of $0.13 per share.

When will the dividend be paid to shareholders?

The dividend will be payable on May 27, 2022, to shareholders of record on May 13, 2022.

How has the loan balance changed in Q1 2022 for Pacific Financial Corporation?

Loan balances excluding PPP loans increased by 3% on an annualized basis during Q1 2022.

What was the change in net interest margin for Pacific Financial Corporation?

The net interest margin decreased to 2.71% in Q1 2022, down from 3.35% in Q1 2021.