Pacific Financial Corp Earns Record $4.7 Million, or $0.45 per Diluted Share, for Fourth Quarter of 2022; Declares Quarterly Cash Dividend of $0.13 per Share

Rhea-AI Summary

Pacific Financial Corporation (OTCQX: PFLC) reported net income of $4.7 million ($0.45 per diluted share) for Q4 2022, a 62% increase from Q3 2022. Yearly net income decreased 14% to $10.9 million. Key highlights for Q4 include a 19% increase in net interest income to $12.9 million and a 70 basis points expansion in net interest margin (NIM) to 4.12%. The company declared a quarterly cash dividend of $0.13 per share, payable on February 24, 2023. Despite an annual decrease in net income and core deposits, the bank achieved strong asset quality and capital ratios exceeding regulatory requirements.

Positive

• Q4 2022 net income increased 62% to $4.7 million.
• Net interest income rose 19% to $12.9 million.
• NIM expanded 70 basis points to 4.12%.
• Quarterly cash dividend declared at $0.13 per share.
• Strong asset quality with low nonperforming assets.

Negative

• Annual net income decreased 14% to $10.9 million.
• Core deposits declined by $70.2 million to $1.13 billion.
• Total assets declined 5% to $1.3 billion.

ABERDEEN, Wash., Jan. 27, 2023 (GLOBE NEWSWIRE) -- Pacific Financial Corporation (OTCQX: PFLC), (“Pacific Financial”) or the (“Company”), the holding company for Bank of the Pacific (the “Bank”), reported net income of $4.7 million, or $0.45 per diluted share for the fourth quarter, a 62% increase compared to $2.9 million, or $0.28 per diluted share for the third quarter of 2022, and a 122% increase compared to $2.1 million, or $0.20 per diluted share for the fourth quarter of 2021. Third and fourth quarter results include zero provision for loan losses while fourth quarter of 2021 included the recapture of provision for loan losses of $150,000. For the year ended December 31, 2022, net income decreased 14% to $10.9 million, or $1.04 per diluted share, compared to $12.7 million, or $1.22 per diluted share, for the year ended December 31, 2021. Annual 2022 results included zero provision for loan losses while annual 2021 results included a recapture of $3.7 million to the provision for loan losses. All results are unaudited.

The board of directors of Pacific Financial declared a quarterly cash dividend of $0.13 per share on January 25, 2023. The dividend will be payable on February 24, 2023 to shareholders of record on February 10, 2023.

“We are very pleased with our results, achieving record quarterly net income for the fourth quarter 2022. Fourth quarter earnings benefited from higher yields on interest earning assets as well as solid loan growth. Our loan portfolio increased 3%, or 12% on annualized basis, during the fourth quarter and excluding PPP, loans increased 6% from a year ago,” said Denise Portmann, President and Chief Executive Officer. “In addition, our strong financial results during the second half of 2022 reflect a significantly higher level of net interest income, solid growth in the loan and investment portfolios, disciplined overhead cost management, solid capital levels, and ongoing strength in asset quality metrics. The increased net interest income, in large part reflects higher yields on interest earning assets, and more than offsets a decline in mortgage banking income. As we begin a new year we will continue to focus on maintaining a healthy balance sheet with strong capital and liquidity positions and as well as on growing our loan portfolio in a cautious and disciplined manner."

Fourth Quarter 2022 Financial Highlights

• Net interest income increased 19% to $12.9 million from the third quarter of 2022 and increased 47% compared to $8.8 million from the like quarter a year ago.
• Net interest margin (“NIM”) expanded 70 basis points to 4.12% compared to 3.42% from the preceding quarter and expanded 133 basis points from 2.79% in the like quarter a year ago.
• Gross loans balances increased 3% or $19.2 million to $640.7 million at December 31, 2022, compared to $621.5 from the preceding quarter end.
• Return on average assets (“ROAA”) was 1.41%, compared to 0.86% for the preceding quarter and 0.63% for the fourth quarter of 2021.
• Core deposits declined by $70.2 million to $1.13 billion, compared to $1.20 billion from the third quarter 2022, with core deposits representing 96% of total deposits as of December 31, 2022. Non-interest bearing deposits represented 43% of total deposits at December 31, 2022.
• Sustained strong asset quality with low levels of nonperforming assets with nonperforming assets declining 9% to $899,000, at December 31, 2022 compared to three months earlier, and decreased by 37% from a year ago.
• Tangible book value per common share increased to $8.62, compared to $8.16 at September 30, 2022 and decreased from $10.03 at December 31, 2021.
• Strong capital with capital ratios exceeding regulatory well-capitalized guidelines with a leverage ratio at 9.4% and total risk-based capital ratio at 17.1% as of December 31, 2022.

Income Statement Review

Net interest income increased 19% to $12.9 million for the fourth quarter of 2022, compared to $10.9 million for the third quarter of 2022, and grew 47% from $8.8 million for the fourth quarter of 2021. For the year ended December 31, 2022, net interest income was $40.9 million, compared to $35.9 million for the year ended December 31, 2021. “Rising market interest rates continued to have a positive impact on earnings as yields on loans, interest-earning cash and investments increased resulting in an improved net interest margin,” said Carla Tucker, Executive Vice-President and Chief Financial Officer.

Net interest margin (“NIM”), increased to 4.12% for the fourth quarter of 2022, compared to 3.42% for the third quarter of 2022, and 2.79% for the fourth quarter of 2021. Average interest-earning asset yield, was 4.25% for the current quarter, compared to 3.51% for the preceding quarter and 2.87% for the like quarter in 2021. The increase in average yields on interest-earning assets during the current quarter reflects the benefit of variable rate interest-earning assets repricing higher, as well as new loans being originated at higher interest rates and higher yields on investment purchases. Average loan yields excluding PPP loans, for the current quarter increased 37 basis points to 5.17% compared to the preceding quarter of 4.80%, and increased 72 basis points from 4.45% from the fourth quarter of 2021. Yields on investment securities also increased during the quarter to 2.81% compared to 2.33% and 1.65% for the third quarter 2022, the fourth quarter 2021, respectively. During 2022, in response to inflation, the Federal Reserve increased the target range for the federal funds rate by 425 basis points. These increases had a positive impact on earning asset yields, including yields on interest-earning bank deposits. Yields on interest-bearing bank deposits increased 141 basis points to 3.72% for the current quarter compared to 2.31% for the preceding quarter and increased 356 basis points from 0.16% from the fourth quarter of 2021. For the year ended December 31, 2022, the NIM increased 29 basis points to 3.29% compared to 3.00% for the year ended December 31, 2021.

The Bank’s total cost of funds increased to 0.14% for the current quarter, compared to 0.10% for the preceding quarter and 0.09% for the fourth quarter of 2021. This increase was primarily a result of the increase in TRUPS borrowing costs. For the year, the Bank’s total cost of funds decreased from 0.11% to 0.10% compared to the prior year.

Noninterest income was $1.6 million for the fourth quarter of 2022, compared to $1.7 million for the third quarter of 2022, and $3.0 million for the fourth quarter of 2021. For the year ended December 31, 2022, non-interest income totaled $7.2 million, compared to $16.7 million for the year ended December 31, 2021. The decrease in noninterest income was primarily due to the decline in gain on sale of loans and other mortgage banking revenue. Gain-on-sale of loans decreased $168,000 for the current quarter to $97,000 compared to $265,000 for the third quarter of 2022, and declined $1.4 million from $1.5 million for the fourth quarter a year ago. For the year ended December 31, 2022, gain on sale of loans decreased $8.0 million compared to the 2021. In addition, on a year-over-year comparison, 2021 results included an unexpected bank-owned life insurance event of $875,000 recorded into income. Service charges on deposits increased 12% from a year earlier with the increase primarily related to increased overdraft charges.

Noninterest expense was $8.6 million for the fourth quarter of 2022, compared to $9.0 million for the third quarter of 2022, and $9.3 million for the fourth quarter of 2021. For the year ended December 31, 2022, noninterest expense declined 14% to $35.0 million compared to $40.7 million for the year ended December 31, 2021. The decrease from the linked quarter and prior year like-quarter and for the year-ended December 31, 2022 compared to the year-ended December 31, 2021 is primarily the result of decreases in lower variable commissions on mortgage banking due to the decline in loan originations during those time periods. In addition, an annual basis, professional service, communication, state and local taxes, and FDIC and state assessments as well as other miscellaneous expense declined.

Federal and Oregon state income tax expense was $1.1 million for the current quarter, and $705,000 for the preceding quarter, resulting in effective tax rates of 19.3% and 19.5%, respectively. These income tax expenses reflect the benefits of tax exempt income and tax credits.

Balance Sheet Review

Total Assets declined 5% to $1.3 billion at December 31, 2022, compared to $1.4 billion at September 30, 2022 and remained relatively unchanged compared to December 31, 2021. The decrease was primarily due to a $74.0 million decrease in deposits during the current quarter.

Investment Securities increased 10% to $286.4 million at December 31, 2022, compared to $261.3 million at September 30, 2022, and grew 22% from $233.9 million at December 2021. For the year ended December 31, 2022, the Company purchased $103.6 million in investments at an average yield of 3.25%. These purchases along with the adjustments in yield for floating rate securities increased the average portfolio yield to 2.81% for the current quarter compared to 2.33% for the linked quarter and 1.65% for the like quarter a year ago. The average adjusted duration of the investment securities portfolio was 4.9 at December 31, 2022.

Gross loans balances increased 3% or $19.2 million during the quarter to $640.7 million at December 31, 2022, compared to $621.5 million at September 30, 2022, and increased 2% or $11.0 million from $629.8 million a year earlier. Residential loans increased 4% to $82.7 million at quarter end compared to the preceding quarter and increased 23% from a year ago with a combination of organic growth and the purchase of $10 million in residential mortgage loans located within, or adjacent to our current markets. Residential loans represented 13% of total loans at December 31, 2022. Commercial real estate both owner-occupied and non-owner-occupied increased 3% respectively and represented 48% combined of gross loans at year end 2022. Within the consumer loan category, loans to finance luxury and classic cars were $60.7 million at December 31, 2022, compared to $57.6 million at September 30, 2022 and $48.7 million at December 31, 2021. “We are pleased with the level of loan growth during the second half of 2022. This loan growth was a result of strong loan production during the entire year and the abatement of higher levels of pre-payments in the last half of the year. This combined with ongoing strength in our loan pipeline and continued business development activity by our commercial team provides momentum as we head into the new year,” stated Walker Evans, Executive Vice-President and Chief Lending Officer.

Credit Quality remained strong with nonperforming assets declining 9% to $899,000, or 0.07% of total assets at December 31, 2022, compared to $989,000, or 0.07% of total assets at September 30, 2022, and decreasing 37% from $1.4 million, or 0.11%, at December 31, 2021. Balances related to non-impaired loans, graded watch or other loans especially mentioned, decreased to $26.4 million at December 31, 2022, compared to $31.5 million at September 30, 2022, and decreased from $32.8 million at December 31, 2021. These outstanding asset quality metrics reflect the company’s commitment to underwriting loans in a disciplined and conservative manner.

“We are very pleased that our asset quality metrics have remained strong amid the ongoing uncertain economic environment, which is a testament to our steadfast focus on underwriting and borrowers’ ability to effectively navigate through the various operating challenges, including high levels of inflation, adverse labor market conditions, and continuing supply chain issues,” said Dan Kuenzi, Executive Vice-President and Chief Credit Officer. “We continue to experience low levels of nonperforming assets, past due loans, and loan charge-offs, and we did not repossess any parcels of other real estate throughout 2022.”

The Allowance for Loan Losses (“ALL”) remained flat at $8.2 million, or 1.29% of gross loans (excluding PPP) at December 31, 2022, compared to $8.2 million, or 1.33% of gross loans, at September 30, 2022, and $8.3 million, or 1.32%, at December 31, 2021. Net charge-offs declined to $13,000 for the current quarter, compared to net charge-offs of $33,000 for the third quarter of 2022 and net charge-offs of $80,000 for the for the fourth quarter 2021. There was no loan loss provision booked for the third or fourth quarters of 2022, compared to a recapture of $150,000 in the fourth quarter a year ago. There was no provision for loan losses for 2022, compared to a recapture of $3.7 million during for the year ended December 31, 2021.

Total Deposits decreased to $1.18 billion at December 31, 2022, compared to $1.25 billion at September 30, 2022 and $1.18 billion at December 31, 2021. Noninterest-bearing deposits declined 6% from September 30, 2022 and increased 3% from a year ago and represented 43% of total deposits. Core deposits were 96% of total deposits at December 31, 2022 compared to 95% at December 31, 2021. Term deposits represented only 4% of total deposits at quarter end compared to 5% at December 31, 2021.

Shareholder’s Equity was $103.2 million at December 31, 2022, an increase of 5% from $98.3 million at September 30, 2022 and a decrease of 12% from $117.6 million at December 31, 2021. The increase in shareholders’ equity at December 31, 2022 compared to September 30, 2022 was primarily due to net income of $4.7 million and a $1.4 million increase in accumulated other comprehensive income from unrealized loss on the available-for-sale securities portfolio, partially offset by the payment of cash dividends during the quarter. The decrease from December 31, 2022 compared to December 31, 2021 was primarily due net income of $10.9 million and a $20.2 million decrease in accumulated other comprehensive income from unrealized loss on the available-for-sale securities portfolio and the payment of cash dividends during the year.

Tangible book value per common share increased 6% to $8.62 at December 31, 2022, compared to $8.16 at September 30, 2022 and decreased 14% from $10.03 at December 31, 2021. The Company’s tangible common equity ratio was 6.9% at December 31, 2022, an increase of 0.7% compared to 6.2% at September 30, 2022 and declined from 8.0% at December 31, 2021. Regulatory capital ratios of both the company and the Bank continue to exceed the well-capitalized regulatory thresholds, with the company’s leverage ratio at 9.4% and total risk-based capital ratio at 17.1% as of December 31, 2022.

Balance Sheet Overview
(Unaudited)
			Dec 31, 2022			Sep 30, 2022			$ Change			% Change			Dec 31, 2021			$ Change			% Change
Assets:			(Dollars in thousands, except per share data)
	Cash on hand and in banks	$	18,673		$	19,904		$	(1,231	)		-6	%	$	18,528		$	145			1	%
	Interest bearing deposits		299,813			411,330			(111,517	)		-27	%		320,207			(20,394	)		-6	%
	Federal funds sold		-			-			-			0	%		50,881			(50,881	)		-100	%
	Investment securities		286,409			261,264			25,145			10	%		233,859			52,550			22	%
	Loans held-for-sale		-			700			(700	)		-100	%		6,104			(6,104	)		-100	%
	Loans, net of deferred fees		639,958			620,850			19,108			3	%		628,333			11,625			2	%
	Allowance for loan losses		(8,236	)		(8,249	)		13			0	%		(8,297	)		61			-1	%
	Net loans		631,722			612,601			19,121			3	%		620,036			11,686			2	%
	Federal Home Loan Bank and Pacific Coast
	Bankers' Bank stock, at cost		2,583			2,583			-			0	%		2,416			167			7	%
	Other assets		67,003			66,891			112			0	%		67,935			(932	)		-1	%
	Total assets	$	1,306,203		$	1,375,273		$	(69,070	)		-5	%	$	1,319,966		$	(13,763	)		-1	%
Liabilities and Shareholders' Equity:
	Total deposits	$	1,180,362		$	1,254,323		$	(73,961	)		-6	%	$	1,178,940		$	1,422			0	%
	Borrowings		13,403			13,403			-			0	%		13,806			(403	)		-3	%
	Accrued interest payable and other liabilities		9,276			9,267			9			0	%		9,578			(302	)		-3	%
	Shareholders' equity		103,162			98,280			4,882			5	%		117,642			(14,480	)		-12	%
	Total liabilities and shareholders' equity	$	1,306,203		$	1,375,273		$	(69,070	)		-5	%	$	1,319,966		$	(13,763	)		-1	%
Common Shares Outstanding			10,414,276			10,395,110			19,166			0	%		10,388,267			26,009			0	%
Book value per common share (1)		$	9.91		$	9.45		$	0.46			5	%	$	11.32		$	(1.41	)		-12	%
Tangible book value per common share (2)		$	8.62		$	8.16		$	0.46			6	%	$	10.03		$	(1.41	)		-14	%
Gross loans to deposits ratio			54.2	%		49.5	%		4.7	%					53.3	%		0.9	%
(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,
			Dec 31, 2022			Sep 30, 2022			$ Change			% Change			Dec 31, 2021			$ Change			% Change
			(Dollars in thousands, except per share data)
Interest and dividend income		$	13,352		$	11,177		$	2,175			19	%	$	9,040		$	4,312			48	%
Interest expense			417			298			119			40	%		259			158			61	%
	Net interest income		12,935			10,879			2,056			19	%		8,781			4,154			47	%
Loan loss provision			-			-			-			100	%		(150	)		150			-100	%
Noninterest income			1,559			1,692			(133	)		-8	%		2,998			(1,439	)		-48	%
Noninterest expense			8,648			8,950			(302	)		-3	%		9,325			(677	)		-7	%
Income before income taxes			5,846			3,621			2,225			61	%		2,604			3,242			125	%
Income tax expense			1,129			705			424			60	%		483			646			134	%
	Net Income	$	4,717		$	2,916		$	1,801			62	%	$	2,121		$	2,596			122	%
Average common shares outstanding - basic			10,407,967			10,393,705			14,262			0	%		10,385,414			22,553			0	%
Average common shares outstanding - diluted			10,426,346			10,423,404			2,942			0	%		10,412,013			14,333			0	%
Income per common share
	Basic	$	0.45		$	0.28		$	0.17			61	%	$	0.20		$	0.25			125	%
	Diluted	$	0.45		$	0.28		$	0.17			61	%	$	0.20		$	0.25			125	%
Effective tax rate			19.3	%		19.5	%		-0.2	%					18.5	%		0.8	%
			For the Twelve Months Ended,
			Dec 31, 2022			Dec 31, 2021			$ Change			% Change
			(Dollars in thousands, except per share data)
Interest and dividend income		$	42,152		$	37,159		$	4,993			13	%
Interest expense			1,206			1,254			(48	)		-4	%
	Net interest income		40,946			35,905			5,041			14	%
Loan loss provision			-			(3,650	)		3,650			-100	%
Noninterest income			7,227			16,729			(9,502	)		-57	%
Noninterest expense			34,974			40,702			(5,728	)		-14	%
Income before income taxes			13,199			15,582			(2,383	)		-15	%
Income tax expense			2,311			2,885			(574	)		-20	%
	Net Income	$	10,888		$	12,697		$	(1,809	)		-14	%
Average common shares outstanding - basic			10,396,268			10,412,845			(16,577	)		0	%
Average common shares outstanding - diluted			10,423,301			10,441,415			(18,114	)		0	%
Income per common share
	Basic	$	1.05		$	1.22		$	(0.17	)		-14	%
	Diluted	$	1.04		$	1.22		$	(0.18	)		-15	%
Effective tax rate			17.5	%		18.5	%		-1.0	%

Noninterest Income
(Unaudited)
			For the Three Months Ended,
			Dec 31, 2022			Sep 30, 2022		$ Change			% Change			Dec 31, 2021		$ Change			% Change
			(Dollars in thousands)
Service charges on deposits		$	404		$	415	$	(11	)		-3	%	$	387	$	17			4	%
Gain on sale of loans, net			97			265		(168	)		-63	%		1,469		(1,372	)		-93	%
Earnings on bank owned life insurance			161			167		(6	)		-4	%		129		32			25	%
Other noninterest income
	Fee income		903			841		62			7	%		1,007		(104	)		-10	%
	Other		(6	)		4		(10	)		-250	%		6		(12	)		-200	%
Total noninterest income		$	1,559		$	1,692	$	(133	)		-8	%	$	2,998	$	(1,439	)		-48	%
			For the Twelve Months Ended,
			Dec 31, 2022			Dec 31, 2021		$ Change			% Change
			(Dollars in thousands)
Service charges on deposits		$	1,621		$	1,446	$	175			12	%
Gain on sale of loans, net			1,406			9,448		(8,042	)		-85	%
Earnings on bank owned life insurance			682			1,384		(702	)		-51	%
Other noninterest income
	Fee income		3,518			4,383		(865	)		-20	%
	Other		-			68		(68	)		-100	%
Total noninterest income		$	7,227		$	16,729	$	(9,502	)		-57	%

Noninterest Expense
(Unaudited)
			For the Three Months Ended,
			Dec 31, 2022			Sep 30, 2022		$ Change			% Change			Dec 31, 2021		$ Change			% Change
			(Dollars in thousands)
Salaries and employee benefits		$	5,432		$	5,792	$	(360	)		-6	%	$	6,057	$	(625	)		-10	%
Occupancy			509			489		20			4	%		483		26			5	%
Equipment			296			289		7			2	%		295		1			0	%
Data processing			881			881		-			0	%		813		68			8	%
Professional services			158			154		4			3	%		171		(13	)		-8	%
State and local taxes			197			176		21			12	%		197		-			0	%
FDIC and State assessments			107			93		14			15	%		174		(67	)		-39	%
Other noninterest expense:
	Director fees		68			62		6			10	%		69		(1	)		-1	%
	Communication		61			60		1			2	%		75		(14	)		-19	%
	Advertising		(31	)		95		(126	)		-133	%		22		(53	)		-241	%
	Professional liability insurance		68			67		1			1	%		59		9			15	%
	Amortization		48			45		3			7	%		41		7			17	%
	Other		854			747		107			14	%		869		(15	)		-2	%
Total noninterest expense		$	8,648		$	8,950	$	(302	)		-3	%	$	9,325	$	(677	)		-7	%
			For the Twelve Months Ended,
			Dec 31, 2022			Dec 31, 2021		$ Change			% Change
			(Dollars in thousands)
Salaries and employee benefits		$	22,401		$	27,114	$	(4,713	)		-17	%
Occupancy			2,023			1,978		45			2	%
Equipment			1,184			1,244		(60	)		-5	%
Data processing			3,506			3,288		218			7	%
Professional services			709			952		(243	)		-26	%
State and local taxes			693			858		(165	)		-19	%
FDIC and State assessments			402			462		(60	)		-13	%
Other noninterest expense:
	Director fees		279			303		(24	)		-8	%
	Communication		256			288		(32	)		-11	%
	Advertising		207			141		66			47	%
	Professional liability insurance		257			238		19			8	%
	Amortization		185			304		(119	)		-39	%
	Other		2,872			3,532		(660	)		-19	%
Total noninterest expense		$	34,974		$	40,702	$	(5,728	)		-14	%

Financial Performance Overview
(Unaudited)
	For the Three Months Ended
	Dec 31, 2022			Sep 30, 2022			Change			Dec 31, 2021			Change
Performance Ratios
Return on average assets, annualized	1.41	%		0.86	%		0.55			0.63	%		0.78
Return on average equity, annualized	18.70	%		11.13	%		7.57			7.16	%		11.54
Efficiency ratio (1)	59.67	%		71.20	%		(11.53	)		79.17	%		(19.50	)
(1) Non-interest expense divided by net interest income plus noninterest income.
	For the Twelve Months Ended,
	Dec 31, 2022			Dec 31, 2021			Change
Performance Ratios
Return on average assets, annualized	0.82	%		1.00	%		(0.18	)
Return on average equity, annualized	10.24	%		10.85	%		(0.61	)
Efficiency ratio (1)	72.60	%		77.33	%		(4.73	)
(1) Non-interest expense divided by net interest income plus noninterest income.

LIQUIDITY

Cash and Cash Equivalents and Investment Securities
(Unaudited)
				Dec 31, 2022		% of Total			Sep 30, 2022		% of Total			$ Change			% Change			Dec 31, 2021		Total			$ Change			% Change
				(Dollars in thousands)
Cash on hand and in banks			$	18,673		3	%	$	19,904		4	%	$	(1,231	)		-6	%	$	18,528		3	%	$	145			1	%
Interest bearing deposits				295,563		49	%		407,580		57	%		(112,017	)		-27	%		316,957		51	%		(21,394	)		-7	%
Other interest earning deposits				4,250		1	%		3,750		1	%		500			13	%		3,250		1	%		1,000			31	%
Federal funds sold				-		0	%		-		0	%		-			0	%		50,881		8	%		(50,881	)		-100	%
	Total			318,486		53	%		431,234		62	%		(112,748	)		-26	%		389,616		63	%		(71,130	)		-18	%
Investment securities:
	Collateralized mortgage obligations			103,330		17	%		78,741		11	%		24,589			31	%		79,614		13	%		23,716			30	%
	Mortgage backed securities			32,801		5	%		33,415		5	%		(614	)		-2	%		20,612		3	%		12,189			59	%
	U.S. Government and agency securities			83,889		14	%		84,028		13	%		(139	)		0	%		59,164		9	%		24,725			42	%
	Municipal securities			64,277		11	%		62,986		9	%		1,291			2	%		72,335		12	%		(8,058	)		-11	%
	Corporate debt securities			1,999		0	%		1,995		0	%		4			0	%		2,010		0	%		(11	)		-1	%
	Equity securities			113		0	%		99		0	%		14			14	%		124		0	%		(11	)		-9	%
		Total		286,409		47	%		261,264		38	%		25,145			10	%		233,859		37	%		52,550			22	%
Total cash equivalents and investment securities			$	604,895		100	%	$	692,498		100	%	$	(87,603	)		-13	%	$	623,475		100	%	$	(18,580	)		-3	%
Total cash equivalents and investment securities
	as a percent of total assets					46	%				50	%										47	%

LOANS

Loans by Category
(Unaudited)
			Dec 31, 2022			% of Gross Loans			Sep 30, 2022			% of Gross Loans			$ Change			% Change			Dec 31, 2021			% of Gross Loans			$ Change			% Change
Commercial:			(Dollars in thousands)
	Commercial and agricultural	$	75,705			12	%	$	73,788			12	%	$	1,917			3	%	$	85,309			14	%	$	(9,604	)		-11	%
	PPP		515			0	%		553			0	%		(38	)		-7	%		25,081			4	%		(24,566	)		-98	%
Real estate:
Construction and development			37,287			6	%		35,500			6	%		1,787			5	%		28,318			3	%		8,969			32	%
Residential 1-4 family			82,653			13	%		79,497			13	%		3,156			4	%		67,393			11	%		15,260			23	%
Multi-family			41,122			6	%		41,473			7	%		(351	)		-1	%		39,854			6	%		1,268			3	%
Commercial real estate -- owner occupied			154,380			24	%		150,598			24	%		3,782			3	%		154,901			25	%		(521	)		0	%
Commercial real estate -- non owner occupied			153,707			24	%		149,627			24	%		4,080			3	%		148,730			24	%		4,977			3	%
Farmland			26,935			4	%		25,140			4	%		1,795			7	%		23,905			4	%		3,030			13	%
Consumer			68,412			11	%		65,365			10	%		3,047			5	%		56,269			9	%		12,143			22	%
	Gross Loans		640,716			100	%		621,541			100	%		19,175			3	%		629,760			100	%		10,956			2	%
	Less: allowance for loan losses		(8,236	)					(8,249	)					13						(8,297	)					61
	Less: deferred fees		(758	)					(691	)					(67	)					(1,427	)					669
	Net loans	$	631,722					$	612,601					$	19,121					$	620,036					$	11,686
Loan Concentration
(Unaudited)
			Dec 31, 2022			% of Risk Based Capital			Sep 30, 2022			% of Risk Based Capital			Change			Dec 31, 2021			% of Risk Based Capital			Change
Commercial:			(Dollars in thousands)
	Commercial and agricultural	$	75,705			58	%	$	73,788			58	%		0	%	$	85,309			69	%		-11	%
	PPP		515			0	%		553			0	%		0	%		25,081			20	%		-20	%
Real estate:
Construction and development			37,287			29	%		35,500			28	%		1	%		28,318			23	%		6	%
Residential 1-4 family			82,653			64	%		79,497			63	%		1	%		67,393			54	%		10	%
Multi-family			41,122			32	%		41,473			33	%		-1	%		39,854			32	%		0	%
Commercial real estate -- owner occupied			154,380			119	%		150,598			119	%		0	%		154,901			125	%		-6	%
Commercial real estate -- non owner occupied			153,707			119	%		149,627			118	%		1	%		148,730			120	%		-1	%
Farmland			26,935			21	%		25,140			20	%		1	%		23,905			19	%		2	%
Consumer			68,412			53	%		65,365			52	%		1	%		56,269			45	%		8	%
	Gross Loans	$	640,716					$	621,541								$	629,760
Regulatory Commercial Real Estate		$	229,592			177	%	$	224,100			177	%		0	%	$	214,910			173	%		4	%
Total Risk Based Capital*		$	129,551					$	126,526								$	124,235
*Bank of the Pacific

DEPOSITS

Deposits by Category
(Unaudited)
		Dec 31, 2022		% of Total			Sep 30, 2022		% of Total			$ Change			% Change			Dec 31, 2021		% of Total			$ Change			% Change
		(Dollars in thousands)
Interest-bearing demand	$	253,272		20	%	$	268,874		20	%	$	(15,602	)		-6	%	$	242,789		21	%	$	10,483			4	%
Money market		195,814		17	%		208,486		17	%		(12,672	)		-6	%		210,343		17	%		(14,529	)		-7	%
Savings		174,887		15	%		184,229		15	%		(9,342	)		-5	%		174,929		15	%		(42	)		0	%
Time deposits (CDs)		48,754		4	%		52,550		4	%		(3,796	)		-7	%		58,724		5	%		(9,970	)		-17	%
Total interest-bearing deposits		672,727		57	%		714,139		57	%		(41,412	)		-6	%		686,785		58	%		(14,058	)		-2	%
Non-interest bearing demand		507,635		43	%		540,184		43	%		(32,549	)		-6	%		492,155		42	%		15,480			3	%
Total deposits	$	1,180,362		100	%	$	1,254,323		100	%	$	(73,961	)		-6	%	$	1,178,940		100	%	$	1,422			0	%

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

Capital Measures
(unaudited)
	Dec 31, 2022			Sep 30, 2022			Change			Dec 31, 2021			Change			Well Capitalized Under Prompt Correction Action Regulations
Pacific Financial Corporation
Total risk-based capital ratio	17.1	%		17.4	%		(0.3	)		17.6	%		(0.5	)		N/A
Tier 1 risk-based capital ratio	16.0	%		16.2	%		(0.2	)		16.4	%		(0.4	)		N/A
Common equity tier 1 ratio	14.3	%		14.4	%		(0.1	)		14.6	%		(0.3	)		N/A
Leverage ratio	9.4	%		8.7	%		0.7			8.8	%		0.6			N/A
Tangible common equity ratio	6.9	%		6.2	%		0.7			8.0	%		(1.1	)		N/A
Bank of the Pacific
Total risk-based capital ratio	17.0	%		17.3	%		(0.3	)		17.6	%		(0.6	)		10.5	%
Tier 1 risk-based capital ratio	15.9	%		16.2	%		(0.3	)		16.4	%		(0.5	)		8.5	%
Common equity tier 1 ratio	15.9	%		16.2	%		(0.3	)		16.4	%		(0.5	)		7.0	%
Leverage ratio	9.1	%		8.8	%		0.3			8.8	%		0.3			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,
		Dec 31, 2022			Sep 30, 2022			$ Change			% Change			Dec 31, 2021		$ Change			% Change
Average Balances		(Dollars in thousands)
Gross loans	$	629,976		$	610,146		$	19,830			3	%	$	653,908	$	(23,932	)		-4	%
Gross loans without PPP	$	629,439		$	609,587		$	19,852			3	%	$	617,857	$	11,582			2	%
Loans held for sale	$	898		$	1,448		$	(550	)		-38	%	$	12,142	$	(11,244	)		-93	%
Investment securities	$	270,416		$	274,773		$	(4,357	)		-2	%	$	232,083	$	38,333			17	%
Federal funds sold & interest bearing deposits in banks	$	352,628		$	387,437		$	(34,809	)		-9	%	$	363,643	$	(11,015	)		-3	%
Total interest-earning assets	$	1,253,918		$	1,273,804		$	(19,886	)		-2	%	$	1,261,776	$	(7,858	)		-1	%
Non-interest bearing demand deposits	$	521,133		$	521,119		$	14			0	%	$	501,686	$	19,447			4	%
Interest bearing deposits	$	684,377		$	702,476		$	(18,099	)		-3	%	$	685,789	$	(1,412	)		0	%
Total Deposits	$	1,205,510		$	1,223,595		$	(18,085	)		-1	%	$	1,187,475	$	18,035			2	%
Borrowings	$	13,403		$	13,451		$	(48	)		0	%	$	13,819	$	(416	)		-3	%
Total interest-bearing liabilities	$	697,780		$	715,927		$	(18,147	)		-3	%	$	699,608	$	(1,828	)		0	%
Total Equity	$	100,076		$	103,945		$	(3,869	)		-4	%	$	117,600	$	(17,524	)		-15	%
		For the Three Months Ended,
		Dec 31, 2022			Sep 30, 2022			Change			Dec 31, 2021			Change
Yield on average gross loans (1)		5.18	%		4.80	%		0.38			4.82	%		0.36
Yield on average gross loans without PPP (1)		5.17	%		4.80	%		0.37			4.45	%		0.72
Yield on average investment securities (1)		2.81	%		2.33	%		0.48			1.65	%		1.16
Yield on Fed funds sold & interest bearing deposits in banks		3.72	%		2.31	%		1.41			0.16	%		3.56
Cost of average interest bearing deposits		0.14	%		0.09	%		0.05			0.12	%		0.02
Cost of average borrowings		5.42	%		3.86	%		1.56			1.69	%		3.73
Cost of average total deposits and borrowings		0.14	%		0.10	%		0.04			0.09	%		0.05
Yield on average interest-earning assets		4.25	%		3.51	%		0.74			2.87	%		1.38
Cost of average interest-bearing liabilities		0.24	%		0.16	%		0.08			0.15	%		0.09
Net interest spread		4.01	%		3.35	%		0.66			2.72	%		1.29
Net interest spread without PPP		4.01	%		3.35	%		0.66			2.48	%		1.53
Net interest margin (1)		4.12	%		3.42	%		0.70			2.79	%		1.33
Net interest margin without PPP (1)		4.12	%		3.42	%		0.70			2.55	%		1.57
(1) Tax-exempt income has been adjusted to a tax equivalent basis at a rate of 21%.
		For the Twelve Months Ended,
		Dec 31, 2022			Dec 31, 2021			$ Change			% Change
Average Balances		(Dollars in thousands)
Gross loans	$	617,220		$	689,265		$	(72,045	)		-10	%
Gross loans without PPP	$	612,025		$	616,488		$	(4,463	)		-1	%
Loans held for sale	$	2,135		$	22,673		$	(20,538	)		-91	%
Investment securities	$	261,843		$	174,120		$	87,723			50	%
Federal funds sold & interest bearing deposits in banks	$	376,166		$	321,287		$	54,879			17	%
Interest-earning assets	$	1,257,364		$	1,207,345		$	50,019			4	%
Non-interest bearing demand deposits	$	508,102		$	449,853		$	58,249			13	%
Interest bearing deposits	$	693,719		$	680,832		$	12,887			2	%
Total Deposits	$	1,201,821		$	1,130,685		$	71,136			6	%
Borrowings	$	13,591		$	13,873		$	(282	)		-2	%
Interest-bearing liabilities	$	707,310		$	694,705		$	12,605			2	%
Total Equity	$	106,352		$	116,972		$	(10,620	)		-9	%
		For the Twelve Months Ended,
		Dec 31, 2022			Dec 31, 2021			Change
Net Interest Margin
Yield on average gross loans (1)		4.87	%		4.81	%		0.06
Yield on average gross loans without PPP (1)		4.76	%		4.56	%		0.20
Yield on average investment securities (1)		2.22	%		1.95	%		0.27
Yield on Fed funds sold & interest bearing deposits in banks		1.74	%		0.14	%		1.60
Cost of average interest bearing deposits		0.11	%		0.15	%		(0.04	)
Cost of average borrowings		3.41	%		1.75	%		1.66
Cost of average total deposits and borrowings		0.10	%		0.11	%		(0.01	)
Yield on average interest-earning assets		3.38	%		3.11	%		0.27
Cost of average interest-bearing liabilities		0.17	%		0.18	%		(0.01	)
Net interest spread		3.21	%		2.93	%		0.28
Net interest spread without PPP		3.15	%		2.68	%		0.47
Net interest margin (1)		3.29	%		3.00	%		0.29
Net interest margin without PPP (1)		3.22	%		2.75	%		0.47
(1) Tax-exempt income has been adjusted to a tax equivalent basis at a rate of 21%.

Adversely Classified Loans and Securities
(Unaudited)
		Dec 31, 2022			Sep 30, 2022			$ Change			% Change			Dec 31, 2021			$ Change			% Change
		(Dollars in thousands)
Rated substandard or worse, but not impaired, beginning of three month period	$	2,814		$	7,100		$	(4,286	)		-60	%	$	8,785		$	(5,971	)		-68	%
Addition of previously classified pass graded loans		272			365			(93	)		-25	%		363			(91	)		-25	%
Upgrades to pass or other loans especially mentioned status		(85	)		(4,536	)		4,451			-98	%		-			(85	)		-100	%
Moved to nonaccrual		-			-			-			0	%		-			-			0	%
Principal payments, net		(117	)		(115	)		(2	)		2	%		(168	)		51			-30	%
Rated substandard or worse, but not impaired, end of three month period	$	2,884		$	2,814		$	70			2	%	$	8,980		$	(6,096	)		-68	%
Impaired		2,452			2,499			(47	)		-2	%		2,854			(402	)		-14	%
Total adversely classified loans¹	$	5,336		$	5,313		$	23			0	%	$	11,834		$	(6,498	)		-55	%
Other loans especially mentioned or watch, but not impaired	$	26,408		$	31,452		$	(5,044	)		-16	%	$	32,848		$	(6,440	)		-20	%
Gross loans (excluding deferred loan fees)	$	640,716		$	621,541		$	19,175			3	%	$	629,760		$	10,956			2	%
Adversely classified loans to gross loans		0.83	%		0.85	%								1.88	%
Adversely classified loans to gross loans without PPP		0.83	%		0.86	%								1.96	%
Allowance for loan losses	$	8,236		$	8,249		$	(13	)		0	%	$	8,297		$	(61	)		-1	%
Allowance for loan losses as a percentage of adversely classified loans		154.35	%		155.26	%								70.11	%
Allowance for loan losses to total impaired loans		335.89	%		330.09	%								290.71	%
Adversely classified loans to total assets		0.41	%		0.39	%								0.90	%
Delinquent loans to gross loans, not in nonaccrual status 2		0.08	%		0.01	%								0.01	%
Delinquent loans to gross loans without PPP, not in nonaccrual status		0.08	%		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)
		Dec 31, 2022			Sep 30, 2022			$ Change			% Change			Dec 31, 2021			$ Change			% Change
		(Dollars in thousands)
Total nonaccrual loans, beginning of three month period	$	899		$	1,240		$	(341	)		-28	%	$	1,800		$	(901	)		-50	%
Transfer to performing loans		-			(334	)		334			-100	%		(113	)		113			-100	%
Addition of nonaccrual loans		-			-			-			0	%		-			-			0	%
Moved to other assets owned		-			-			-			0	%		-			-			0	%
Principal payments, net		(30	)		(7	)		(23	)		329	%		(466	)		436			-94	%
Charge-offs, net		-			-			-			0	%		-			-			0	%
Total nonaccrual loans, end of three month period	$	869		$	899		$	(30	)		-3	%	$	1,221		$	(352	)		-29	%
Other real estate owned and foreclosed assets		30			90			(60	)		-67	%		200			(170	)		-85	%
Total nonperforming assets	$	899		$	989		$	(90	)		-9	%	$	1,421		$	(522	)		-37	%
Total restructured performing loans, beginning of period	$	1,600		$	1,614		$	(14	)		-1	%	$	1,531		$	69			5	%
Transfer to nonaccrual loans		-			-			-			0	%		-			-			0	%
Addition of restructured performing loans		-			-			-			0	%		109			(109	)		-100	%
Principal payments, net		(16	)		(14	)		(2	)		14	%		(7	)		(9	)		129	%
Charge-offs, net		-			-			-			0	%		-			-			0	%
Total restructured performing loans, end of period	$	1,584		$	1,600		$	(16	)		-1	%	$	1,633		$	(49	)		-3	%
Accruing loans past due 90 days or more	$	-		$	-		$	-			0	%	$	-		$	-			0	%
Percentage of nonperforming assets to total assets		0.07	%		0.07	%								0.11	%
Nonperforming loans to total loans		0.14	%		0.14	%								0.19	%
Nonperforming loans to total loans without PPP		0.14	%		0.14	%								0.20	%

Allowance for Loan Losses
(Unaudited)
		For the Three Months Ended,
		Dec 31, 2022			Sep 30, 2022			$ Change			% Change			Dec 31, 2021			$ Change			% Change
		(Dollars in thousands)
Gross loans outstanding at end of period	$	640,716		$	621,541		$	19,175			3	%	$	629,760		$	10,956			2	%
Average loans outstanding, gross	$	629,976		$	610,146		$	19,830			3	%	$	653,908		$	(23,932	)		-4	%
Allowance for loan losses, beginning of period	$	8,249		$	8,282		$	(33	)		0	%	$	8,527		$	(278	)		-3	%
Commercial		-			-			-			0	%		-			-			0	%
Commercial Real Estate		-			-			-			0	%		-			-			0	%
Residential Real Estate		-			-			-			0	%		-			-			0	%
Consumer		(14	)		(34	)		20			-59	%		(81	)		67			-83	%
Total charge-offs		(14	)		(34	)		20			-59	%		(81	)		67			-83	%
Commercial		-			-			-			0	%		-			-			0	%
Commercial Real Estate		-			-			-			0	%		-			-			0	%
Residential Real Estate		-			-			-			0	%		-			-			0	%
Consumer		1			1			-			0	%		1			-			0	%
Total recoveries		1			1			-			0	%		1			-			0	%
Net recoveries/(charge-offs)		(13	)		(33	)		20			-61	%		(80	)		67			-84	%
Provision (benefit) to income		-			-			-			0	%		(150	)		150			-100	%
Allowance for loan losses, end of period	$	8,236		$	8,249		$	(13	)		0	%	$	8,297		$	(61	)		-1	%
Ratio of net loans charged-off to average
gross loans outstanding, annualized		0.01	%		0.02	%		-0.01	%					0.05	%		-0.04	%
Ratio of net loans charged-off to average
gross loans outstanding without PPP, annualized		0.01	%		0.02	%		-0.01	%					0.05	%		-0.04	%
Ratio of allowance for loan losses to
gross loans outstanding		1.29	%		1.33	%		-0.04	%					1.32	%		-0.03	%
Ratio of allowance for loan losses to
gross loans without PPP outstanding		1.29	%		1.33	%		-0.04	%					1.37	%		-0.08	%
		For the Twelve Months Ended,
		Dec 31, 2022			Dec 31, 2021			$ Change			% Change
		(Dollars in thousands)
Gross loans outstanding at end of period	$	640,716		$	629,760		$	10,956			2	%
Average loans outstanding, gross	$	617,220		$	689,265		$	(72,045	)		-10	%
Allowance for loan losses, beginning of period	$	8,297		$	12,068		$	(3,771	)		-31	%
Commercial		-			(34	)		34			-100	%
Commercial Real Estate		-			-			-			0	%
Residential Real Estate		-			-			-			0	%
Consumer		(90	)		(196	)		106			-54	%
Total charge-offs		(90	)		(230	)		140			-61	%
Commercial		-			42			(42	)		-100	%
Commercial Real Estate		-			-			-			0	%
Residential Real Estate		-			49			(49	)		-100	%
Consumer		29			18			11			61	%
Total recoveries		29			109			(80	)		-73	%
Net recoveries (charge-offs)		(61	)		(121	)		60			-50	%
Provision (benefit) to income		-			(3,650	)		3,650			-100	%
Allowance for loan losses, end of period	$	8,236		$	8,297		$	(61	)		-1	%
Ratio of net loans charged-off to average
gross loans outstanding, annualized		0.01	%		0.02	%		-0.01	%
Ratio of net loans charged-off to average
gross loans outstanding without PPP, annualized		0.01	%		0.02	%		-0.01	%
Ratio of allowance for loan losses to
gross loans outstanding		1.29	%		1.32	%		-0.03	%
Ratio of allowance for loan losses to
gross loans without PPP outstanding		1.29	%		1.37	%		-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 December 31, 2022, the Company had total assets of $1.31 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, 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.

 

FAQ

What is the net income of Pacific Financial Corporation for Q4 2022?

Pacific Financial Corporation reported a net income of $4.7 million for Q4 2022.

What is the cash dividend amount and payment date for PFLC?

Pacific Financial Corporation declared a quarterly cash dividend of $0.13 per share, payable on February 24, 2023.

How did net interest income perform in Q4 2022 compared to Q3 2022?

Net interest income increased by 19% to $12.9 million in Q4 2022 compared to Q3 2022.

What was the net interest margin for PFLC in Q4 2022?

The net interest margin for Pacific Financial Corporation in Q4 2022 was 4.12%, an increase of 70 basis points from the previous quarter.

How did the core deposits change for PFLC in Q4 2022?

Core deposits decreased by $70.2 million to $1.13 billion in Q4 2022.