ABERDEEN, Wash., July 26, 2024 (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 $2.1 million, or $0.21 per diluted share for the second quarter of 2024, compared to $2.7 million, or $0.26 per diluted share for the first quarter of 2024, and $3.9 million, or $0.37 per diluted share for the second quarter of 2023. All results are unaudited. Pacific Financials' second quarter 2024 operating results reflected the following changes from the first quarter of 2024: (1) lower net interest income as deposit costs increased; (2) higher provision for credit losses due primarily to a larger loan portfolio and changes in the economic forecast and assumptions; (3) higher non-interest income due to larger gains on the sale of loans and investment securities; (4) higher non-interest expenses due to increased health insurance claims and the hiring, building and marketing of new commercial loan and deposit teams; and (5) a 1.4% increase in gross loans. The board of directors of Pacific Financial declared a quarterly cash dividend of $0.14 per share on July 17, 2024. The dividend will be payable on August 23, 2024 to shareholders of record on August 9, 2024. "We are pleased to report continued growth in our loan portfolio, both during the quarter and year-over-year, which speaks volumes for our relationship banking model and our reputation in the industry for responsiveness and delivery. Bank consolidation in the Northwest markets has provided opportunities for Bank of the Pacific to continue building out our teams. We have filled several open positions that meet our strategic objectives, including growth in our newest Lake Oswego market," said Denise Portmann, President and Chief Executive Officer. "Our net interest margin remains high as the Bank has been well positioned for rising interest rates. In addition, our capital levels remain strong and that combined with our financial performance provides the Company with strategic capital management opportunities such as regular quarterly cash dividend payments and stock repurchases that benefit our shareholders. Our existing stock repurchase plan has approximately $1.5 million available for future repurchases." Second Quarter 2024 Financial Highlights: Return on average assets ("ROAA") was 0.76%, compared to 0.95% for the first quarter 2024, and 1.30% for the second quarter 2023. Return on average equity ("ROAE") was 7.47%, compared to 9.32% from the preceding quarter, and 14.30% from the second quarter a year earlier. Net interest income was $10.8 million, compared to $11.4 million for the first quarter of 2024, and $12.2 million for the second quarter 2023. Net interest margin ("NIM") contracted to 4.15%, compared to 4.38% from the preceding quarter, and 4.33% for the second quarter a year ago. The decline was partially due to an increase in higher-costing time deposit balances as well as the decline in percentage of non-interest bearing deposits. Provision for credit losses was $304,000 compared to $33,000 for the preceding quarter and $8,000 in the second quarter a year ago. Gross loans balances grew by $9.8 million, or 1%, to $704.0 million at June 30, 2024, compared to $694.2 million at March 31, 2024, and increased by $45.3 million, or 7%, from $658.7 million at June 30, 2023. Total deposits declined $10.1 million to $985.7 million, compared to $995.8 million at March 31, 2024, and from $1.08 billion at June 30, 2023. Core deposits represented 87% of total deposits, with non-interest bearing deposits representing 39% of total deposits at June 30, 2024. Coverage of short-term funds available to uninsured and uncollateralized deposits was 229% at June 30, 2024 compared to 251% at March 31, 2024. Uninsured or uncollateralized deposits were 24% of total deposits at June 30, 2024, and 22% at March 31, 2024. Asset quality remains solid with nonperforming assets to total assets at 0.12%, compared to 0.13% three months earlier, and 0.08% at June 30, 2023. At June 30, 2024, Bank of the Pacific continued to exceed regulatory well-capitalized requirements with a leverage ratio of 11.7% and a total risk-based capital ratio of 17.6%. Balance Sheet Review Total assets declined by 1% to $1.12 billion at June 30, 2024, compared to $1.13 billion at March 31, 2024, and decreased 7% from $1.21 billion at June 30, 2023. Liquidity metrics continued to remain strong with total liquidity, both on and off balance sheet sources, at $535.4 million as of June 30, 2024. The Bank has established collateralized credit lines with borrowing capacity from the Federal Home Loan Bank of Des Moines (FHLB) and from the Federal Reserve Bank of San Francisco, as well as $60.0 million in unsecured borrowing lines from various correspondent banks. There was no balance outstanding on any of these facilities at quarter-end. The following table summarize the Bank's available liquidity: LIQUIDITY (unaudited) Period Ended   Change from   % of Deposits   ($ in 000s)                                                 Jun 30,   Mar 31,   Jun 30,     Mar 31, 2024 Jun 30, 2023   Jun 30, Mar 31, Jun 30,       2024   2024   2023     $ %   $ %   2024 2024 2023   Short-term Funding                                     Cash and cash equivalents $ 63,183   $ 80,052   $ 199,707     $ (16,869 ) -21 % $ (136,524 ) -68 %   6 % 8 % 21 %   Unencumbered AFS Securities   139,581     139,144     104,898       437   0 %   34,683   33 %   14 % 14 % 11 %   Secured lines of Credit (FHLB, FRB)   332,674     337,553     316,214       (4,879 ) -1 %   16,460   5 %   34 % 34 % 29 %   Short-term Funding $ 535,438   $ 556,749   $ 620,819     $ (21,311 ) -4 % $ (85,381 ) -14 %   54 % 56 % 61 %                                         Investment securities: Activity within the portfolio was minimal during the current quarter with portfolio balances decreasing 3% to $278.7 million compared to $288.4 million at March 31, 2024, while increasing slightly compared to the like period a year ago. The decrease from the prior quarter was primarily due to scheduled principal repayments as well as the sale of Farmer Mac equity stock. U.S. Treasury bonds, and securities issued by the U.S. Government sponsored agencies accounted for 85%, 85%, and 84% of the investment portfolio as of June 30, 2024, March 31, 2024 and June 30, 2023. The average adjusted duration to reset of the investment securities portfolio was 4.3 years at June 30, 2024. Net unrealized losses on the AFS totaled $22.0 million ($17.1 million after-tax) at June 30, 2024, or 8% of AFS portfolio. Gross loans balances increased $9.8 million, or 1%, to $704.0 million at June 30, 2024, compared to $694.2 million at March 31, 2024 and included growth in most loan segments, including commercial and agricultural with growth of $3.6 million or 5%. Year-over-year loan growth was 7%, or $45.3 million, with the largest increases in residential 1-4 family, multi-family and construction and development loans which increased $18.8 million, $13.1 million and $10.1 million, respectively. In addition, commercial loans increased $4.2 million during the same period. Loans classified as commercial real estate for regulatory concentration purposes totaled $260.1 million at June 30, 2024, or 186% of total risk based capital. The Bank originated $35.4 million in portfolio credit commitments in the 2nd quarter of 2024 and $61.5 million during the first half of 2024. The loan pipeline continues to be supported by sustained business development activity of its commercial lending teams including in our newest Lake Oswego market. The Company manages new loan origination volume and the portfolio using concentration limits that establish maximum exposure levels by certain industry segments, loan product types, geography and single borrower limits. In addition, the loan portfolio continues to be well-diversified and is collateralized with assets predominantly within the Company's Western Washington and Oregon markets. Credit quality: Non-performing assets remain minimal and decreased to $1.4 million, or 0.12% of total assets at June 30, 2024, compared to $1.5 million, or 0.13% at March 31, 2024, and $959,000, or 0.08% at June 30, 2023. The Company has zero other real estate owned as of June 30, 2024. Allowance for credit losses ("ACL") for loans was $8.8 million, or 1.26% of gross loans at June 30, 2024, compared to $8.6 million or 1.24% of loans at March 31, 2024 and $8.2 million or 1.25% at June 30, 2023. A provision for credit losses of $304,000 was recorded in the current quarter (comprised of a $335,000 provision for credit losses – loans and a $31,000 benefit for credit losses – unfunded loan commitments). This compares to $33,000 in the first quarter of 2024 and $8,000 for the second quarter of 2023. The provision during the current quarter is a product of loan growth and updated economic forecasts and assumptions. Net charge-offs for the current quarter remained minimal and totaled $56,000, compared to $33,000 for the preceding quarter and $79,000 for the second quarter a year ago. Total deposits decreased to $985.6 million at June 30, 2024, compared to $995.8 million at March 31, 2024 and $1.08 billion at June 30, 2023. The bank has continued to retain customer relationships, though the bank has experienced a decline in deposits from a year ago primarily due to interest rate sensitive clients shifting a portion of their non-operating deposit balances to higher yielding investments including time deposits as well as increased business and customer spending and the general market tightening of liquidity. Certificate of deposit balances increased $10.9 million from the linked quarter and $50.2 million from the same quarter a year ago and represent 13%, 12%, and 7%, of total deposits, at June 30, 2024, March 31, 2024, and June 30, 2023, respectively. Non-interest-bearing account balances decreased 6% to $378.2 million at June 30, 2024, compared to $404.5 million at March 31, 2024 and decreased 15% compared to $446.8 million at June 30, 2023. The change in the deposit mix is expected to have an impact on the net interest margin as funding costs continue to increase. However, at 39%, non-interest bearing demand deposits supported by the commercial customers continue to represent a high percentage of total deposits. Additionally, Pacific Financial continues to benefit from a strong core deposit base, with core deposits representing 87% of total deposits at quarter end. Shareholder's equity increased slightly to $114.9 million at June 30, 2024, compared to $114.7 million at March 31, 2024, and increased $6.1 million compared to $108.9 million at June 30, 2023. The increase in shareholder's equity during the current quarter was due to quarterly net income which was partially offset by the increase in unrealized losses on available-for-sale securities and dividends to shareholders. Net unrealized losses (after-tax) on available-for-sale securities increased slightly during the quarter and were $17.1 million at June 30, 2024 compared to $16.2 million at March 31, 2024, and $18.5 million at June 30, 2023. This increase in net unrealized losses reflects the slight increases in longer-term market interest rates during the quarter. At June 30, 2024, the stock repurchase program had approximately $1.5 million available for future stock repurchases. Book value per common share was $11.12 at June 30, 2024, compared to $11.10 at March 31, 2024, and $10.44 at June 30, 2023. The Company's tangible common equity ratio was 9.1% at June 30, 2024 compared to 9.0% at March 31, 2024 and 8.0% at June 30, 2023. 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 11.7% and total risk-based capital ratio at 17.6% as of June 30, 2024. Income Statement Review Net interest income decreased $635,000 to $10.8 million for the second quarter of 2024, compared to $11.4 million for the first quarter of 2024, and decreased $1.4 million compared to $12.2 million for the second quarter a year ago. The change in the current quarter compared to the preceding quarter reflects the increase in funding costs primarily as a result of market interest rate pressures. For the current quarter compared to the like period a year ago, in addition to increased funding costs, the change was driven by decreased interest on reduced balances of interest bearing cash which was partially offset by increased income from growth in the loan portfolio. The Bank's net interest margin continued to remain strong; above 4.00%, however it did contract 23 basis points to 4.15% for the current quarter, compared to 4.38% for the first quarter of 2024 and contracted 18 basis points compared to 4.33% for the second quarter of 2023. For the current quarter compared to the preceding quarter, the net interest margin was impacted by declining asset yields as well as increased cost of funds. Yields on total interest earning assets decreased 9 basis points to 5.15% for the second quarter of 2024 compared to 5.24% for the prior quarter and increased 27 basis points from 4.88% in the like quarter a year ago. Average loan yields decreased to 5.80% during the current quarter, compared to 5.97% for the preceding quarter and increased from 5.55% for the second quarter 2023. The Bank's total cost of funds increased to 1.05% for the current quarter, compared to 0.90% for the preceding quarter, and 0.58% for the second quarter 2023. The increase in the costs of deposits was due to a higher percentage mix of higher cost CDs as well as a larger percentage of core deposits being in interest bearing accounts. The percentage of non-interest bearing deposits remained high at 39% for the quarter, but down relative to prior periods. Noninterest income increased 36% to $2.0 million for the current quarter, compared to $1.4 million for the linked quarter and increased 12% from $1.7 million a year earlier. The increase compared to the linked quarter and the like quarter a year ago was primarily due to increased mortgage banking loan production and related gains, as well as a gain on sale of Farmer Mac stock. Mortgage banking loan production increased during the current quarter compared to the prior quarter and the like quarter a year ago. Gains-on-sale of loans were $445,000 for the current quarter compared to $152,000 for the prior quarter and $260,000 for the like quarter a year ago. While mortgage banking activity picked up in the current quarter, a challenging mortgage market remains, including the higher interest rate environment and limited residential inventory levels in the Bank's markets. Fee and service charge income increased for the second quarter of 2024 to $1.2 million compared to $1.1 million the previous quarter and decreased from $1.3 million for the second quarter 2023 due primarily to fluctuations in debit and credit card interchange revenue. Noninterest expenses were $9.8 million for the second quarter of 2024 compared to $9.5 million for the prior quarter and $9.0 million for the second quarter of 2023. Within the total of noninterest expense for the current quarter compared to the prior quarter, salaries and employee benefits increased $327,000 reflecting higher staffing levels related to commercial lending and deposit team strategic initiatives and increased health insurance claims. In addition, salary expenses continue to be impacted by competitive recruiting and wage pressures. The increase in non-interest expense for the current quarter compared to the same quarter a year ago also reflects increases in salaries and employee benefits as well as occupancy expenses, and marketing expenses related to the building and marketing of new commercial loan and deposit teams. The company's efficiency ratio increased to 77.34% for the second quarter of 2024, compared to 74.21% in the preceding quarter and 64.26% in the same quarter a year ago. The increase in the efficiency ratio primarily relates to the decreased net interest margin and higher overhead expenses related to the hiring, building and marketing of new commercial loan and deposit teams. Income tax expense: Federal and Oregon state income tax expenses totaled $454,000 for the current quarter, and $630,000 for the preceding quarter, resulting in effective tax rates of 17.6% and 19.2%, respectively. These income tax expenses reflect the benefits of tax exempt income and credits on tax-exempt loans and investments, affordable housing tax credit financing, and investments in bank owned life insurance. FINANCIAL HIGHLIGHTS (unaudited) Quarter Ended   Change From   Six Months Ended   Change           (In 000s, except per share data)                                                 Jun 30,   Mar 31,   Jun 30,     Mar 31, 2024   Jun 30, 2023   Jun 30,   Jun 30,               2024   2024   2023     $ %   $ %   2024   2023     $ %   Earnings Ratios & Data                                             Net Income $ 2,126   $ 2,650   $ 3,909     $ (524 ) -20 % $ (1,783 ) -46 % $ 4,776   $ 8,019     $ (3,243 ) -40 %   Return on average assets   0.76 %   0.95 %   1.30 %     -0.19 %     -0.54 %     0.85 %   1.31 %     -0.46 %     Return on average equity   7.47 %   9.32 %   14.30 %     -1.85 %     -6.83 %     8.40 %   14.95 %     -6.55 %     Efficiency ratio (1)   77.34 %   74.21 %   64.26 %     3.13 %     13.08 %     75.77 %   64.08 %     11.69 %     Net-interest margin %(2)   4.15 %   4.38 %   4.33 %     -0.23 %     -0.18 %     4.27 %   4.42 %     -0.15 %                                                   Share Ratios & Data                                             Basic earnings per share $ 0.21   $ 0.26   $ 0.37     $ (0.05 ) -19 % $ (0.16 ) -43 % $ 0.46   $ 0.77     $ (0.31 )     Diluted earning per share $ 0.21   $ 0.26   $ 0.37     $ (0.05 ) -19 % $ (0.16 ) -43 % $ 0.46   $ 0.77     $ (0.31 )     Book value per share(3) $ 11.12   $ 11.10   $ 10.44     $ 0.02   0 % $ 0.68   7 %                   Tangible book value per share(4) $ 9.82   $ 9.80   $ 9.15     $ 0.02   0 % $ 0.67   7 %                   Common shares outstanding   10,336     10,336     10,427       -   0 %   (91 ) -1 %                   PFLC stock price $ 9.76   $ 10.00   $ 9.60     $ (0.24 ) -2 % $ 0.16   2 %                   Dividends paid per share $ 0.14   $ 0.14   $ 0.13     $ -   0 % $ 0.01   8 % $ 0.28   $ 0.26     $ 0.02   8 %                                                 Balance Sheet Data                                             Assets $ 1,124,295   $ 1,134,586   $ 1,208,555     $ (10,291 ) -1 % $ (84,260 ) -7 %                   Portfolio Loans $ 703,977   $ 694,229   $ 658,699     $ 9,748   1 % $ 45,278   7 %                   Deposits $ 985,627   $ 995,756   $ 1,077,493     $ (10,129 ) -1 % $ (91,866 ) -9 %                   Investments $ 278,728   $ 288,439   $ 276,366     $ (9,711 ) -3 % $ 2,362   1 %                   Shareholders equity $ 114,923   $ 114,725   $ 108,865     $ 198   0 % $ 6,058   6 %                                                                 Liquidity Ratios                                             Short-term funding to uninsured                                             and uncollateralized deposits   229 %   251 %   261 %     -22 %     -32 %                     Uninsured and uncollateralized                                             deposits to total deposits   24 %   22 %   22 %     2 %     2 %                     Portfolio loans to deposits ratio   71 %   69 %   60 %     2 %     11 %                                                                   Asset Quality Ratios                                             Non-performing assets to assets   0.12 %   0.13 %   0.08 %     -0.01 %     0.04 %                     Non-accrual loans to portfolio loans   0.19 %   0.22 %   0.15 %     -0.03 %     0.04 %                     Loan losses to avg portfolio loans   0.03 %   0.02 %   0.05 %     0.01 %     -0.02 %     0.03 %   0.01 %     0.02 %     ACL to portfolio loans   1.26 %   1.24 %   1.25 %     0.02 %     0.01 %                                                                   Capital Ratios (PFC)                                             Total risk-based capital ratio   17.6 %   17.6 %   17.8 %     0.0 %     -0.2 %                     Tier 1 risk-based capital ratio   16.4 %   16.5 %   16.6 %     -0.1 %     -0.2 %                     Common equity tier 1 ratio   14.8 %   14.8 %   14.9 %     0.0 %     -0.1 %                     Leverage ratio   11.7 %   11.6 %   10.8 %     0.1 %     0.9 %                     Tangible common equity ratio   9.1 %   9.0 %   8.0 %     0.1 %     1.1 %                                                                   (1) Non-interest expense divided by net interest income plus noninterest income.                (2) Tax-exempt income has been adjusted to a tax equivalent basis at a rate of 21%.                (3) Book value per share is calculated as the total common shareholders' equity divided by the period ending number of common stock shares outstanding.     (4) Tangible book value per 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 (unaudited) Quarter Ended   Change From   Six Months Ended   Change           ($ in 000s)                                                 Jun 30,   Mar 31,   Jun 30,     Mar 31, 2024   Jun 30, 2023   Jun 30,   Jun 30,               2024   2024   2023     $ %   $ %   2024   2023     $ %   Interest Income                                             Loan interest & fee income $ 10,109   $ 10,224   $ 8,997     $ (115 ) -1 % $ 1,112   12 % $ 20,333   $ 17,617     $ 2,716   15 %   Interest bearing cash income   847     935     2,493       (88 ) -9 %   (1,646 ) -66 %   1,782     5,347       (3,565 ) -67 %   Investment income   2,410     2,475     2,245       (65 ) -3 %   165   7 %   4,885     4,461       424   10 %   Interest Income   13,366     13,634     13,735       (268 ) -2 %   (369 ) -3 %   27,000     27,425       (425 ) -2 %                                                 Interest Expense                                             Deposits interest expense   2,358     1,991     1,341       367   18 %   1,017   76 %   4,349     1,721       2,628   153 %   Other borrowings interest expense   242     242     223       -   0 %   19   9 %   484     436       48   11 %   Interest Expense   2,600     2,233     1,564       367   16 %   1,036   66 %   4,833     2,157       2,676   124 %   Net Interest Income   10,766     11,401     12,171       (635 ) -6 %   (1,405 ) -12 %   22,167     25,268       (3,101 ) -12 %   Provision (benefit) for credit losses   304     33     8       271   821 %   296   3700 %   337     165       172   104 %   Net Interest Income after provision   10,462     11,368     12,163       (906 ) -8 %   (1,701 ) -14 %   21,830     25,103       (3,273 ) -13 %                                                 Non-Interest Income                                             Fees and service charges   1,198     1,101     1,268       97   9 %   (70 ) -6 %   2,299     2,447       (148 ) -6 %   Gain on sale of investments, net   121     -     -       121   100 %   121   100 %   121     (154 )     275   -179 %   Gain on sale of loans, net   445     152     260       293   193 %   185   71 %   597     371       226   61 %   Income on bank-owned insurance   182     180     172       2   1 %   10   6 %   362     336       26   8 %   Other noninterest income   17     11     47       6   55 %   (30 ) -64 %   27     34       (7 ) -21 %   Non-Interest Income   1,963     1,444     1,747       519   36 %   216   12 %   3,406     3,034