“We also hired two exceptional loan production executives to join our lending team and support our new Vancouver LPO. At the end of 2012, we hired two commercial banking officers in Pierce County,” added Long. “All four professionals are well-respected in their local markets and highly experienced commercial lenders. We are delighted to have them on board and look forward to continuing to build our commercial and industrial and commercial real estate lending business.”
Western Washington Economic Update
Following a strong year of exports across the Port of Grays Harbor’s docks, the first quarter of 2013 continued to be a busy time for waterfront workers. Thirty seven vessels and barges called at Grays Harbor, loading automobiles, grains, liquid bulks, logs and woodchips for export. According to data provided by the Port of Grays Harbor, the result was more than 45,000 hours worked by local longshore workers during January through March, which is the equivalent of 90 full-time jobs for the quarter.
Grays Harbor is among the fastest growing export hubs on the west coast of the U.S., and is a recognized leader in auto exports while dry bulk cargo shipments have tripled in five years. The navigation channel is maintained annually by the US Army Corps of Engineers to accommodate the deep-water vessels.
“We are excited about the level of employment we are seeing within the marine industrial area of Grays Harbor, which can only be good news for our community and for Pacific Financial as we go forward and grow our franchise.” said Long.
“Further south in the coastal communities of Southern Washington and Northern Oregon, unemployment is gradually declining, although both regions remain above their state averages,” continued Long. “Tourism and forest products are both showing signs of a gradual recovery, which is benefiting the small business owners in these communities.”
“We also operate five branches in Western Washington’s two northern most counties, Whatcom and Skagit,” Long noted. “Home sales volumes and prices increased moderately in these markets during the first few months of 2013 compared to year ago levels, according to data provided by the North West Multiple Listing Service April 4, 2013 Newsletter. ”
Balance Sheet Review
Total assets increased 3% to $664.3 million at March 31, 2013, compared to $643.6 million at year-end 2012 and $644.7 million at March 31, 2012.
Net loans were $461.8 million at March 31, 2013, up 5%, or $23.0 million, from $438.8 million at December 31, 2012, which represented an increase of 1%, or $4.6 million, from $457.2 million at March 31, 2012. “Loan demand has been improving, particularly in the commercial and industrial and commercial real estate sectors, and one to four-unit residential investment properties,” noted Long. “We expect loan demand to continue to grow throughout the company, spurred in part by the opening of our LPOs in Burlington, Washington and, more recently in Vancouver, Washington.”
The Bank of the Pacific’sloan portfolio was well-diversified at the end of March 2013, with owner-occupied commercial real estate loans representing 23% of the portfolio; investor-owned commercial real estate loans at 23%; commercial and industrial loans representing 20%; residential real estate loans at 19%; construction and consumer loans, together totaling 8%; and farmland and installment loans representing 7% of the loan portfolio.
Investment securities totaled $80.4 million at March 31, 2013, compared to $71.2 million at December 31, 2012 and $59.7 million a year prior.
Noninterest-bearing deposits increased 31% at March 31, 2013, from the year prior, while savings and interest-bearing demand deposits increased 1% over the same period. Total deposits were $569.2 million at March 31, 2013, compared to $550.4 million a year ago and $548.1 at year-end 2012. Core deposits, which exclude certificates of deposits, accounted for 77% of total deposits at March 31, 2013. “Once we complete and integrate the acquisition of the three Sterling Bank branches, we expect an additional boost in core deposits,” added Long.
Shareholders’ equity totaled $67.3 million, or $6.65 per share at March 31, 2013, compared to $66.7 million, or $6.59 per share at December 31, 2012, and $64.3 million, or $6.35 per share at the end of first quarter 2012. Tangible book value per share was $5.41 at March 31, 2013, compared to $5.35 per share at December 31, 2012, and $5.11 per share at March 31, 2012.
Nonperforming assets declined to $17.3 million, or 2.61% of total assets at March 31, 2013, compared to $19.8 million or 3.08% of total assets at year-end 2012, and $20.0 million or 3.11% at March 31, 2012. Nonperforming loans declined to $13.2 million at March 31, 2013, compared to $15.1 million at December 31, 2012, and $12.1 million at March 31, 2012. Of the $13.2 million in outstanding nonperforming loans at the close of first quarter 2013, $4.0 million is guaranteed by the United States Department of Agriculture. Other real estate owned (OREO), which primarily consists of properties obtained upon foreclosure, totaled $4.1 million at the end of the first quarter of 2013, down from $8.0 million at the end of the first quarter of 2012. “As we secure title to these foreclosed properties we begin actively marketing them. We feel confident about moving these properties in a reasonable amount of time, as over the past six months there has been a resurgence of buying, particularly by home builders,” Long said.
Performing restructured loans were $2.6 million at March 31, 2013, compared to $444,000 at the end of fourth quarter 2012. There were no performing restructured loans at the end of the first quarter a year ago.
The allowance for loan losses was 70.98% of nonperforming loans at March 31, 2013, compared to 61.92% three months prior, and 90.06% a year earlier. The allowance for loan losses was $9.3 million, or 1.98% of total loans, at March 31, 2013, compared to $9.4 million, or 2.09% of total loans at the end of the preceding quarter and $10.9 million, or 2.32% of total loans, at the end of the first quarter a year ago.
Review of Operations
Total revenue (net interest income plus noninterest income) for the first quarter was $8.2 million, compared to $8.6 million in the fourth quarter of 2012 and $7.9 million in the like quarter a year ago, as the low interest rate environment and slow economic recovery continued to put pressure on revenue generation.
First quarter 2013 net interest income declined 8% to $5.6 million compared to $6.1 million in the first quarter of 2012. Net interest income was $5.9 million for fourth quarter 2012. Non-interest income was $2.6 million in the first quarter of 2013, compared to $1.8 million in the first quarter a year ago and $2.7 million in the fourth quarter of 2012. Gain on sales of loans, the largest component of non-interest income, was $1.5 million during the first quarter compared to $0.8 million one year ago and $1.6 million in the last quarter of 2012. Refinance activity continues to be strong, driven by the low rate environment and improving market conditions.
The net interest margin was 3.84% for the first quarter of 2013, compared to 4.24% in the first quarter of 2012 and 4.20% for the fourth quarter of 2012. “The decline in our net interest margin and net interest income has been largely due to lower yields from the growing investment portfolio and reinvestment of principal payments in securities at near historically low interest rates,” said Denise Portmann, Chief Financial Officer. “Net interest margin compression remains one of the primary headwinds for the banking industry, and we are no exception. However, we have a healthy mix of deposit balances, and as we begin to deploy lower yielding securities into higher yielding loans, our net interest margin should offset overall declines in yields and gradually begin to improve.”
First quarter non-interest expense totaled $7.4 million, compared to $6.6 million in the like period a year ago and $7.8 million in the fourth quarter of 2012. “Operating expenses were down in the first quarter as a result of lower OREO write-downs and related OREO operating costs,” commented Portmann.
“Because credit quality continues to improve, as evidenced by a decrease in classified loans and minimal net loan charge-offs in the first quarter, it was not necessary to set aside a provision for loan losses in the first quarter of 2013,” Portmann added. The loan loss provision was $100,000 in the first quarter of 2012.
Annual Meeting of Shareholders
Pacific Financial Corporation will hold its Annual Meeting of Shareholders at its Company’s administrative headquarters at 1101 Boone Street, Aberdeen, WA 98520 on April 24, at 7:00 p.m. (PDT).
About 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 Washington and Oregon. As of March 31, 2013, the Company has assets of $664.3 million and operated 16 branches in the communities of Grays Harbor, Pacific, Whatcom, Skagit and Wahkiakum counties in the State of Washington, and one branch in Clatsop County, Oregon. The Company also operates loan production offices in the communities of Vancouver and Burlington in Washington. Visit the Company’s website at www.bankofthepacific.com.
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 (“Company”) and its wholly-owned subsidiary, Bank of the Pacific (“Bank”). These forward-looking statements are subject to risks and uncertainties that could cause actual events or results to differ materially from those projected, anticipated or implied. These risks and uncertainties include various risks associated with growing the Bank and expanding the services it provides, successfully completing and integrating the acquisition of new branches and development of new business lines and markets, competition in the marketplace, general economic conditions, extensive and evolving regulation of the banking industry, and many other risks described in the Company’s filings with the Securities and Exchange Commission. The most significant of these uncertainties are described in the Company’s Annual Report on Form 10-K and subsequent Quarterly Reports on Form 10-Q, which any reader of this release is encouraged to study (including all amendments and exhibits to those reports). 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.
|Pacific Financial Corporation (OTCQB: PFLC)|
|Income Statement||Quarter Ended:||Sequential||Year over|
|(Dollars in thousands, except per share data)||March 31,||December 31,||March 31,||Quarter||Year|
|(Unaudited)||2013||2012||2012||% Change||% Change|
|Interest and fees on loans||$ 5,873||$ 6,246||$ 6,546||-6%||-10%|
|Interest on investments||370||398||470||-7%||-21%|
|Interest on deposits in banks||28||29||18||-3%||56%|
|Total interest income||6,271||6,673||7,034||-6%||-11%|
|Interest expense on deposits||567||624||825||-9%||-31%|
|Interest expense on borrowings||122||140||159||-13%||-23%|
|Total interest expense||689||764||984||-10%||-30%|
|Net Interest Income||5,582||5,909||6,050||-6%||-8%|
|Provision for (recapture of) credit losses||0||(1,500)||100||-100%||-100%|
|Net interest income after provision for credit losses||5,582||7,409||5,950||-25%||-6%|
|Service charges on deposits||410||430||413||-5%||-1%|
|Net gain (loss) on sales of other real estate owned||(20)||38||172||-153%||-112%|
|Gain on sales of loans||1,509||1,557||799||-3%||89%|
|Net gain on sales of investments available-for-sale||58||139||10||-58%||480%|
|Earnings on bank owned life insurance||121||122||131||-1%||-8%|
|Other operating income||548||473||393||16%||39%|
|Total Noninterest Income||2,626||2,691||1,848||-2%||42%|
|Salaries and employee benefits||4,386||4,392||3,758||0%||17%|
|Occupancy and equipment||604||609||613||-1%||-1%|
|Other real estate owned write-downs||352||616||107||-43%||229%|
|Other real estate owned operating costs||84||149||122||-44%||-31%|
|FDIC and State assessments||136||142||194||-4%||-30%|
|Total Noninterest Expense||7,419||7,838||6,599||-5%||12%|
|Income Before Income Taxes||789||2,262||1,199||-65%||-34%|
|Provision for Taxes||88||583||181||-85%||-51%|
|Effective Tax Rate (%)||11.15%||25.77%||15.10%||-57%||-26%|
|Net Income||$ 701||$ 1,679||$ 1,018||-58%||-31%|
|Basic earnings per share ($)||0.07||0.16||0.10|
|Diluted earnings per share ($)||0.07||0.16||0.10|
|Average basic shares||10,121,853||10,121,853||10,121,853|
|Average diluted shares||10,162,075||10,138,450||10,121,861|
|Balance Sheet||Quarter Ended:||Sequential||Year over|
|(Dollars in Thousands, unaudited)||March 31,||December 31,||March 31,||Quarter||Year|
|2013||2012||2012||% Change||% Change|
|Cash and Due from Banks||$ 11,088||$ 14,168||$ 11,905||-22%||-7%|
|Interest Bearing Deposits in Banks||35,820||42,687||39,341||-16%||-9%|
|Certificates of Deposits held for Investment||2,235||2,985||–||-25%||0%|
|Cash and Cash Equivalents||49,143||59,840||51,246||-18%||-4%|
|Investment Securities Available for Sale||70,372||61,106||49,515||15%||42%|
|Investment Securities Held to Maturity||6,919||6,937||6,997||0%||-1%|
|Federal Home Loan Bank Stock||3,098||3,126||3,182||-1%||-3%|
|Loans Held for Sale||11,937||12,950||11,581||-8%||3%|
|Loans Held for Investments||471,171||448,196||468,102||5%||1%|
|Allowancefor Credit Losses||9,348||9,358||10,863||0%||-14%|
|Total Net Loans||461,823||438,838||457,239||5%||1%|
|Other Intangible Assets||1,268||1,268||1,268||0%||0%|
|Total Intangible Assets||12,550||12,550||12,550||0%||0%|
|Other Real Estate Owned||4,148||4,679||7,956||-11%||-48%|
|Premises and Equipment||15,133||14,593||14,754||4%||3%|
|Accrued Interest Receivable||2,358||2,079||2,407||13%||-2%|
|Cash Surrender Value of Life Insurance||17,905||17,784||17,406||1%||3%|
|Total Other Assets||48,427||48,247||52,365||0%||-8%|
|Total Assets||$ 664,269||$ 643,594||$ 644,675||3%||3%|
|Liabilities and Shareholders’ Equity:|
|Demand, Non-Interest Bearing||$ 128,867||$ 115,138||$ 98,286||12%||31%|
|Savings and Interest Bearing Demand||307,291||295,100||302,835||4%||1%|
|Time, Interest Bearing||133,037||138,005||149,298||-4%||-11%|
|Junior subordinated debentures||13,403||13,403||13,403||0%||0%|
|Accrued Interest Payable||205||213||1,548||-4%||-87%|
|Total Other Liabilities||4,128||4,514||3,794||-9%||9%|
|Additional Paid-in Capital||41,383||41,366||41,346||0%||0%|
|Accumulated Other Comprehensive Income (Loss)||320||421||(253)||-24%||-226%|
|Total Shareholders’ Equity||67,338||66,721||64,284||1%||5%|
|Total Liabilities and Shareholders’ Equity||$ 664,269||$ 643,594||$ 644,675||3%||3%|
|Asset Quality and Capital Adequacy||Period Ended|
|(Dollars in thousands, except per share data)||March 31,||December 31,||March 31,|
|Loans 90 days past due & still accruing interest||$ –||$ –||$ 270|
|Nonaccrual loans (1)||13,170||15,112||11,792|
|Total nonperforming loans||13,170||15,112||12,062|
|OREO and repossessed assets, net||4,148||4,679||7,956|
|Total Nonperforming Assets||$ 17,318||$ 19,791||$ 20,018|
|Performing restructed loans on accrual status||$ 2,576||$ 444||$ –|
|Nonperforming loans to portfolio loans||2.80%||3.37%||2.57%|
|Nonperforming assets to total assets||2.61%||3.08%||3.11%|
|Allowance for loan losses to total loans||1.98%||2.09%||2.32%|
|Allowance for loan losses to nonperforming loans||70.98%||61.92%||90.06%|
|(1) Includes $4.0 million in loans guaranteed by the United States Department of Agriculture.|
|Capital Data (at quarter end)|
|Book value per share||$ 6.65||$ 6.59||$ 6.35|
|Tangible book value per share||$ 5.41||$ 5.35||$ 5.11|
|Tangible common equity to tangible assets||8.36%||8.52%||8.22%|
|Profitability Ratios (year-to-date)|
|Net interest margin||3.84%||4.20%||4.24%|
|Return on average assets||0.43%||0.75%||0.64%|
|Return on average equity||4.17%||7.28%||6.35%|
|Tier 1 leverage ratio||10.71%||10.69%||10.68%|
|Tier 1 risk-based capital ratio||14.34%||14.96%||14.29%|
|Total risk-based capital ratio||15.60%||16.22%||15.55%|