ABERDEEN, Wash., April 28, 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 $4.1 million, or $0.39 per diluted share for the first quarter 2023, compared to $4.7 million, or $0.45 per diluted share for the fourth quarter of 2022, and $1.7 million, or $0.16 per diluted share for the first quarter of 2022. All results are unaudited.       

The board of directors of Pacific Financial declared a quarterly cash dividend of $0.13 per share on April 26, 2023. The dividend will be payable on May 26, 2023 to shareholders of record on May 12, 2023.

“First quarter 2023 operating results of $4.1 million were driven by steady loan growth, higher net interest income and an improved net interest margin. Our net interest margin continued to benefit from rising short-term rates as yields on interest-earning bank deposits as well on variable rate loans and investments increased during the quarter, while our cost of funding increased at a slower pace,” said Denise Portmann, President and Chief Executive Officer.

“Our liquidity metrics remain robust with high levels of on-balance sheet interest earning cash and unencumbered available for sale securities. Additionally, our funds available to uninsured and uncollateralized deposits stands at 259%, and uninsured and uncollateralized deposits represent only 23% of total deposits,” said Portmann. “Although deposits have decreased during the quarter as experienced industry-wide, the Bank has a long history of strong core deposit funding. Our core deposit funding represents 94% of deposits with non-interest and interest-bearing demand deposits at 63% of total deposits,” Portmann stated.

"We continued to build on an already strong capital base during the quarter, while maintaining our $0.13 quarterly dividend, with the company’s leverage ratio at 9.9% and total risk-based capital ratio at 17.5%,” stated Portmann. “Together with our good earnings performance, robust liquidity metrics, strong core deposit base, solid loan growth and conservative risk practices, we have a solid foundation upon which to continue to grow our Company.”

First Quarter 2023 Financial Highlights

Liquidity

Liquidity metrics were robust with:

As shown below the Bank has established credit lines with borrowing capacity from the Federal Home Loan Bank of Des Moines (FHLB) and from the Federal Reserve Bank of San Francisco, both of which are subject to collateral requirements. In addition, the Bank has $60.0 million in unsecured borrowing capacity from various correspondent banks. There is no balance outstanding on any of these facilities.

 
Liquidity
(Unaudited)
    Mar 31,
2023		 % of
Deposits		 Dec 31,
2022		 % of
Deposits		 $
Change		 %
Change		 Mar 31,
2022		 % of
Deposits		 $
Change		 %
Change
    (Dollars in thousands)
Cash on hand and in banks$237,704 21%$302,178  26%$(64,474) -21%$400,561 33%$(162,857) -41%
Unencumbered AFS Securities 116,886 11% 133,892  11% (17,006) -13% 125,622 11% (8,736) -7%
Secured lines of Credit (FHLB, FRB) 318,179 29% 253,387  21% 64,792  26% 236,019 20% 82,160  35%
 Total short-term funds available$672,769 61%$689,457  58%$(16,688) -2%$762,202 64%$(89,433) -12%
                       
                       
        Mar 31,
2023		 Dec 31,
2022		 Mar 31,
2022		          
Short-term funds available to uninsured/uncollateralized deposits 259% 222% 250%          
Uninsured/uncollateralized deposits to total deposits   23% 26% 25%          
Gross loans to deposits ratio     57% 54% 51%          
                       

Income Statement Review

Net interest income increased 1% to $13.10 million for the first quarter of 2023, compared to $12.94 million for the fourth quarter of 2022, and grew 58% from $8.29 million for the first quarter of 2022.

Net interest margin (“NIM”), expanded 39 basis points to 4.51% for the first quarter of 2023, compared to 4.12% for the fourth quarter of 2022, and expanded 180 basis points from 2.71% for the first quarter of 2022. Average interest-earning asset yield was 4.72% for the current quarter, compared to 4.25% for the preceding quarter and 2.78% for the first quarter in 2022. 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. Average loan yields for the current quarter increased 27 basis points to 5.44% compared to the preceding quarter of 5.17%, and increased 99 basis points from 4.45% from the first quarter of 2022. Yields on investment securities also increased during the first quarter to 3.20%, compared to 2.81% for the fourth quarter 2022, and 1.72% for the first quarter a year ago. The recent hikes in interest rates had a positive impact on earning asset yields, including yields on interest-earning bank deposits. The yield on interest-bearing bank deposits increased 89 basis points to 4.61% for the current quarter, compared to 3.72% for the preceding quarter, and increased 441 basis points from 0.20% from the first quarter of 2022.

As expected, the Bank’s total cost of funds increased to 0.21% for the current quarter, compared to 0.14% for the preceding quarter and 0.08% for the first quarter of 2022.   The increases are primarily a result of the increase in TRUPS borrowing costs as well as increased cost of funds on interest bearing deposits of 10 and 14 basis points from the preceding quarter and first quarter of 2022, respectively.   As noted above, while the Bank’s cost of funds continued to remain low for the current quarter, we expect that rate increases put in place late in the quarter as well as continued rate increases will increase cost of funds in the coming quarters.

Noninterest income was $1.3 million for the first quarter of 2023, compared to $1.6 million for the fourth quarter of 2022, and $2.1 million for the first quarter of 2022. The decrease in noninterest income was primarily due to the sale of securities during the quarter and the decline in gain on sale of loans and other mortgage banking revenue. The sale of securities represented an opportunity to take advantage of an investment strategy, with the sale of $20 million in securities with a small loss on sale of $154,000 and an earn-back of less than one year, by re-investing in higher-yielding securities at an average yield of 4.79% compared to a 3.76% yield on sold securities. With continued higher mortgage rates, residential mortgage volume continued to be compressed and as a result gain-on-sale of loans decreased by $75,000 for the current quarter to $111,000, compared to $186,000 for the fourth quarter 2022, and declined by $684,000 from $795,000 for the first quarter a year ago. Service charges on deposits increased 24% to $473,000 from a year and was primarily the result of the Bank’s review and implementation of updated service charges and fees as the beginning of 2023.

Noninterest expense was $9.2 million for the first quarter of 2023, compared to $8.6 million for the fourth quarter of 2022, and $8.6 million for the first quarter of 2022. Competition for experienced and knowledgeable personnel combined with high inflation impacted and increased salary and employee benefits compared to prior quarters, in addition to higher payroll taxes and benefits typically experienced in the first quarter. Professional services fees primarily increased due to FDICIA testing and audit services, as the company reached $1.0 billion in 2021 and became subject to the FDICIA internal control testing and audit requirements. In addition, FDIC assessments, data processing and advertising increased during the same time periods.

Federal and Oregon state income tax expense was $930,000 for the current quarter, and $1.1 million for the preceding quarter, resulting in effective tax rates of 18.5% and 19.3%, respectively. These income tax expenses reflect the benefits of tax exempt income and tax credits.  

Balance Sheet Review

Total Assets declined 5% to $1.2 billion at March 31, 2023, compared to $1.3 billion at December 31, 2022 and declined 6% from $1.3 billion at March 31, 2022. The decrease in total assets from the linked quarter and year-over-year was primarily due to the decrease in deposits during the current quarter.

Investment Securities totaled $285.9 million at March 31, 2023, relatively flat compared to $286.3 million at December 31, 2022, and up 21% from $236.4 million at March 31, 2022. The average portfolio yield increased to 3.20% for the current quarter, compared to 2.81% for the linked quarter, and 1.72% for the like quarter a year ago and for the current quarter compared to the linked quarter was primarily related to the increase in interest rates. The average adjusted duration of the investment securities portfolio was 4.5 at March 31, 2023.  

Gross loans balances increased $4.9 million, or 1%, to $645.6 million at March 31, 2023, compared to $640.7 million at December 31, 2022. Owner-occupied commercial real estate increased $6.2 million or 4%, and residential 1-4 family loans increased $2.7 million or 3% while construction and development and commercial real estate non-owner occupied decreased. The Bank’s commercial real estate loan portfolio is prudently managed to meet regulatory concentration guidelines. Within the consumer loan category, loans to finance luxury and classic cars were $62.1 million at March 31, 2023, compared to $60.7 million at December 31, 2022 and $50.2 million at March 31, 2022. Our loan pipeline continues to be strongly supported by continued business development activity by our commercial lending teams.

The Company manages new loan origination volume using concentration limits that establish maximum exposure levels by certain industry segments, loan product types, geography and single borrower limits. The loan portfolio continues to be well-diversified and is originated predominately within our Western Washington and Oregon markets.

Credit Quality metrics remain low and below historical norms with nonperforming assets at $961,000, or 0.08% of total assets at March 31, 2023, compared to nonperforming assets of $899, 000, or 0.07% of total assets at December 31, 2022, and $1.3 million of nonperforming assets, or 0.10% of total assets, at March 31, 2022. Balances related to non-impaired loans, graded watch or other loans especially mentioned, decreased substantially to $12.7 million at March 31, 2023, compared to $26.4 million at December 31, 2022, and decreased from $30.0 million at March 31, 2022. This decrease was primarily related to risk rating upgrades.

Adoption of New Accounting Standard In June 2016, Financial Accounting Standards Board issued Accounting Standard Update No. 2016-13, Measurement of Credit Losses on Financial Instruments (ASU 2016-13). The allowance for credit losses under ASU 2016-13 utilizes a Current Expected Credit Losses (“CECL”) methodology which estimates the expected loan losses over the contractual life of the loans. GAAP prior to ASU 2016-13 required an “incurred loss” methodology for recognizing credit losses that delays recognition until it is probable a loss has been incurred. ASU 2016-13 became effective for the Company on January 1, 2023. The day 1 adoption of ASU 2016-13 and related amendments resulted in a decrease of $157,000 to the Bank’s allowance for credit losses-loans and an increase of $609,000 to the Bank’s allowance for credit losses-unfunded loan commitments for a cumulative-effect adjustment of $452,000 to decrease the beginning balance of retained earnings.

Allowance for Credit Losses (“ACL”) remained flat at $8.2 million, or 1.28% of gross loans (excluding PPP) at March 31, 2023, compared to $8.2 million, or 1.29% of gross loans, at December 31, 2022, and $8.3 million, or 1.36%, at March 31, 2022. Net recoveries totaled $1,000 for the current quarter, compared to net charge-offs of $13,000 for the fourth quarter of 2022 and net charge-offs of $21,000 for the first quarter 2022. A provision for credit losses of $150,000 was booked in the first quarter of 2023 compared to zero provision for credit losses in the fourth quarter of 2022 and for the first quarter a year earlier. The $150,000 provision booked in the current quarter was primarily as a result of loan growth and an increase to the Federal Open Market Committee’s (FOMC) forecasted national unemployment rate. In addition to the allowance for credit losses - loans, the Bank maintains an allowance for credit losses - unfunded loan commitments, which was $817,000 at March 31, 2023, compared to $203,000 at December 31, 2022 and at March 31, 2022.

Total Deposits were $1.11 billion at March 31, 2023, compared to $1.18 billion at December 31, 2022 and $1.19 billion at March 31, 2022. The decrease was primarily due to seasonal outflows typical for this time of year combined with competitive pricing pressures and interest rate sensitive customers moving a portion of their excess deposits funds to alternative higher yielding investments such as treasury bonds or money market funds. As customers sought higher yields, we saw the demand for our certificates of deposits (“CD’s”) increase, increasing $16.5 million from December 31, 2022 and $11.3 from March 31, 2022. Time deposits represented 6%, 4%, and 5%, of total deposits, as of March 31, 2023, December 31, 2022 and March 31, 2022, respectively. Noninterest-bearing deposits represent 43% of total deposits and declined $27.1 million or 5% from December 31, 2022, and decreased $15.0 million or 3% from a year ago for reasons noted above. The Bank has a strong core deposit track record as shown by our core deposit ratios. Core deposits were 94% of total deposits at March 31, 2023, compared to 95% at March 31, 2022.

Shareholder’s Equity was $108.9 million at March 31, 2023, an increase of 6% from $103.2 million at December 31, 2022 and remained relatively flat from $108.5 million at March 31, 2022. Book value per common share increased 5% to $10.45, at March 31, 2023, compared to $9.91 at December 31, 2022, and $10.44 at March 31, 2022. The increase in shareholder’s equity during the current quarter was due to net income during the quarter plus the decrease in unrealized loss on available-for-sale securities which was partially offset by dividends to shareholders. The decrease in the unrealized gain/(loss) on available-for-sale investment securities had a positive impact on the Tangible Common Equity Ratio (TCE) increasing the Company’s tangible common equity ratio to 7.8% at March 31, 2023, compared to 6.9% at December 31, 2022 and from 7.2% at March 31, 2022. The unrealized loss on available for sale securities was $20.5 million; $24.9 million; and $10.5 million as of March 31, 2023, December 31, 2022 and March 31, 2022, respectively. The decline in longer-term rates during the quarter contributed to this change, coupled with the restructure of $20 million in securities during the quarter and subsequent reinvestment at current market rates. Regulatory capital ratios of both the company and the Bank continue to exceed the well-capitalized regulatory thresholds, with the company’s leverage ratio at 9.9% and total risk-based capital ratio at 17.5% as of March 31, 2023.  

           
Financial Performance Overview
(Unaudited)
           
  For the Three Months Ended
  Mar 31,
2023		 Dec 31,
2022		 
Change		 Mar 31,
2022		 
Change
Performance Ratios         
Return on average assets, annualized1.33% 1.41% (0.08) 0.51% 0.82 
Return on average equity, annualized15.63% 18.70% (3.07) 5.81% 9.82 
Efficiency ratio (1)63.91% 59.67% 4.24  82.48% (18.57)
           
(1) Non-interest expense divided by net interest income plus noninterest income.      
           


Balance Sheet Overview
(Unaudited)
                 
    Mar 31,
2023		 Dec 31,
2022		 $
Change		 %
Change		 Mar 31,
2022		 $
Change		 %
Change
Assets: (Dollars in thousands, except per share data)
 Cash on hand and in banks $16,593 $18,673 $(2,080) -11%$19,007 $(2,414) -13%
 Interest bearing deposits  235,958  299,813  (63,855) -21% 312,194  (76,236) -24%
 Federal funds sold  -  -  -  0% 81,339  (81,339) -100%
 Investment securities  285,925  286,296  (371) 0% 236,434  49,491  21%
 Loans held-for-sale  249  -  249  100% 3,703  (3,454) -93%
 Loans, net of deferred fees  644,901  639,958  4,943  1% 615,891  29,010  5%
 Allowance for loan losses  (8,231) (8,236) 5  0% (8,276) 45  -1%
      Net loans  636,670  631,722  4,948  1% 607,615  29,055  5%
 Federal Home Loan Bank and Pacific Coast Bankers' Bank stock, at cost  2,567  2,583  (16) -1% 2,598  (31) -1%
 Other assets  65,572  67,116  (1,544) -2% 62,579  2,993  5%
      Total assets $1,243,534 $1,306,203 $(62,669) -5%$1,325,469 $(81,935) -6%
                 
Liabilities and Shareholders' Equity:              
 Total deposits $1,110,368 $1,180,362 $(69,994) -6%$1,196,106 $(85,738) -7%
 Borrowings  13,403  13,403  -  0% 13,769  (366) -3%
 Accrued interest payable and other liabilities  10,848  9,276  1,572  17% 7,108  3,740  53%
 Shareholders' equity  108,915  103,162  5,753  6% 108,486  429  0%
      Total liabilities and shareholders' equity $1,243,534 $1,306,203 $(62,669) -5%$1,325,469 $(81,935) -6%
                 
Common Shares Outstanding 10,424,294  10,414,276  10,018  0% 10,392,738  31,556  0%
                 
Book value per common share (1)$10.45 $9.91 $0.54  5%$10.44 $0.01  0%
Tangible book value per common share (2)$9.16 $8.62 $0.54  6%$9.15 $0.01  0%
                 
(1) Book value per common share is calculated as the total common shareholders' equity divided by the period ending number of common stock shares outstanding.
(2) Tangible book value per common share is calculated as the total common shareholders' equity less total intangible assets and liabilities, divided by the period ending number of common stock shares outstanding.
                 


Income Statement Overview
(Unaudited)
                 
    For the Three Months Ended,
    Mar 31,
2023		 Dec 31,
2022		 $
Change		 %
Change		 Mar 31,
2022		 $
Change		 %
Change
    (Dollars in thousands, except per share data)
Interest and dividend income$13,690 $13,352 $338  3%$8,526 $5,164  61%
Interest expense 593  417  176  42% 239  354  148%
 Net interest income  13,097  12,935  162  1% 8,287  4,810  58%
Loan loss provision 151  -  151  100% -  151  100%
Noninterest income 1,287  1,559  (272) -17% 2,112  (825) -39%
Noninterest expense 9,193  8,648  545  6% 8,577  616  7%
Income before income taxes 5,040  5,846  (806) -14% 1,822  3,218  177%
Income tax expense 930  1,129  (199) -18% 166  764  460%
 Net Income $4,110 $4,717 $(607) -13%$1,656 $2,454  148%
                 
Average common shares outstanding - basic 10,418,292  10,407,967  10,325  0% 10,390,498  27,794  0%
Average common shares outstanding - diluted 10,432,245  10,426,346  5,899  0% 10,415,689  16,556  0%
                 
Income per common share              
 Basic $0.39 $0.45 $(0.06) -13%$0.16 $0.23  144%
 Diluted $0.39 $0.45 $(0.06) -13%$0.16 $0.23  144%
                 
Effective tax rate 18.5% 19.3% -0.8%   9.1% 9.4%  
                 


Noninterest Income
(Unaudited)
   For the Three Months Ended,
   Mar 31,
2023		 Dec 31,
2022		 $
Change		 %
Change		 Mar 31,
2022		 $
Change		 %
Change
   (Dollars in thousands)
Service charges on deposits$473 $404 $69  17%$382$91  24%
Gain on sale of loans, net 111  186  (75) -40% 795 (684) -86%
Gain on sale of securities available for sale, net (154) -  (154) 0% - (154) 0%
Earnings on bank owned life insurance 164  161  3  2% 184 (20) -11%
Other noninterest income              
 Fee income 705  814  (109) -13% 750 (45) -6%
 Other (12) (6) (6) 100% 1 (13) -1300%
Total noninterest income$1,287 $1,559 $(272) -17%$2,112$(825) -39%
                


Noninterest Expense
(Unaudited)
                
   For the Three Months Ended,
   Mar 31,
2023		 Dec 31,
2022		 $
Change		 %
Change		 Mar 31,
2022		 $
Change		 %
Change
   (Dollars in thousands)
Salaries and employee benefits$5,785$5,432 $353  6%$5,516$269  5%
Occupancy 531 509  22  4% 521 10  2%
Equipment 287 296  (9) -3% 286 1  0%
Data processing 951 881  70  8% 855 96  11%
Professional services 241 158  83  53% 202 39  19%
State and local taxes 178 197  (19) -10% 158 20  13%
FDIC and State assessments 154 107  47  44% 100 54  54%
Other noninterest expense:              
 Director fees 71 68  3  4% 74 (3) -4%
 Communication 59 61  (2) -3% 67 (8) -12%
 Advertising 60 (31) 91  294% 25 35  140%
 Professional liability insurance 67 68  (1) -1% 60 7  12%
 Amortization 44 48  (4) -8% 47 (3) -6%
 Other 765 854  (89) -10% 666 99  15%
Total noninterest expense$9,193$8,648 $545  6%$8,577$616  7%
                


Investment Securities
(Unaudited)
    Mar 31,
2023		 % of
Total		 Dec 31,
2022		 % of
Total		 $
Change		 %
Change		 Mar 31,
2022		 % of
Total		 $
Change		 %
Change
    (Dollars in thousands)
Investment securities:                    
 Collateralized mortgage obligations$122,992  43%$103,330  37%$19,662  19%$73,142  31%$49,850  68%
 Mortgage backed securities 32,294  11% 32,801  11% (507) -2% 24,741  10% 7,553  31%
 U.S. Government and agency securities 84,814  30% 83,889  29% 925  1% 70,003  30% 14,811  21%
 Municipal securities 44,827  16% 64,277  22% (19,450) -30% 66,544  28% (21,717) -33%
 Corporate debt securities 998  0% 1,999  1% (1,001) -50% 2,004  1% (1,006) -50%
  Total$285,925  100%$286,296  100%$(371) 0%$236,434  100%$49,491  21%
                       
 Held to maturity securities$58,595  20%$59,513  21%$(918) -2%$10,389  4%$48,206  464%
 Available for sale securities$227,330  80%$226,783  79%$547  0%$226,045  96%$1,285  1%
                       
 Government & Agency securities$240,061  84%$219,981  77%$20,080  9%$167,829  71%$72,232  43%
 AAA, AA, A rated securities$44,614  16%$65,024  23%$(20,410) -31%$67,181  28%$(22,567) -34%
 Non-rated securities$1,250  0%$1,291  0%$(41) -3%$1,424  1%$(174) -12%
                       
 AFS Unrealized Gain (Loss)$(20,518) -7%$(24,926) -9%$4,408  2%$(10,537) -4%$(9,981) -3%
                       


 Loans by Category
 (Unaudited)
                       
    
Mar 31,
2023		 % of
Gross
Loans		 
Dec 31,
2022		 % of
Gross
Loans		 
$
Change		 
%
Change		 
Mar 31,
2022		 % of
Gross
Loans		 
$
Change		 
%
Change
 Commercial: (Dollars in thousands)
  Commercial and agricultural$75,279  12%$75,705  12%$(426) -1%$83,324  14%$(8,045) -10%
  PPP 405  0% 515  0% (110) -21% 8,290  4% (7,885) -95%
 Real estate:                    
 Construction and development 34,918  5% 37,287  6% (2,369) -6% 31,169  3% 3,749  12%
 Residential 1-4 family 85,380  13% 82,653  13% 2,727  3% 66,338  11% 19,042  29%
 Multi-family 40,882  6% 41,122  7% (240) -1% 43,226  6% (2,344) -5%
 Commercial real estate -- owner occupied 160,534  25% 154,380  24% 6,154  4% 152,301  25% 8,233  5%
 Commercial real estate -- non owner occupied 151,923  24% 153,707  24% (1,784) -1% 151,637  24% 286  0%
 Farmland 26,451  4% 26,935  4% (484) -2% 22,734  4% 3,717  16%
 Consumer 69,867  11% 68,412  10% 1,455  2% 57,590  9% 12,277  21%
  Gross Loans 645,639  100% 640,716  100% 4,923  1% 616,609  100% 29,030  5%
  Less: allowance for loan losses (8,231)   (8,236)   5    (8,276)   45   
  Less: deferred fees (738)   (758)   20    (718)   (20)  
  Net loans$636,670   $631,722   $4,948   $607,615   $29,055   
                       
                       
 Loan Concentration    
 (Unaudited)    
    
Mar 31,
2023		 % of Risk
Based
Capital		 
Dec 31,
2022		 % of Risk
Based
Capital		 

Change		 
Mar 31,
2022		 % of Risk
Based
Capital		 

Change		    
 Commercial: (Dollars in thousands)    
  Commercial and agricultural$75,279  57%$75,705  58% -1%$83,324  69% -12%    
  PPP 405  0% 515  0% 0% 8,290  20% -20%    
 Real estate:                    
 Construction and development 34,918  26% 37,287  28% -2% 31,169  23% 3%    
 Residential 1-4 family 85,380  64% 82,653  63% 1% 66,338  54% 10%    
 Multi-family 40,882  31% 41,122  33% -2% 43,226  32% -1%    
 Commercial real estate -- owner occupied 160,534  121% 154,380  119% 2% 152,301  125% -4%    
 Commercial real estate -- non owner occupied 151,923  115% 153,707  118% -3% 151,637  120% -5%    
 Farmland 26,451  20% 26,935  20% 0% 22,734  19% 1%    
 Consumer 69,867  53% 68,412  52% 1% 57,590  45% 8%    
  Gross Loans$645,639   $640,716     $616,609         
 Regulatory Commercial Real Estate$225,163  170%$229,592  177% -7%$223,799  173% -3%    
 Total Risk Based Capital*$132,579   $129,551     $124,636         
                       
 *Bank of the Pacific                    
                       


Deposits by Category
(Unaudited)
                     
  Mar 31,
2023		 % of
Total		 Dec 31,
2022		 % of
Total		 $
Change		 %
Change		 Mar 31,
2022		 % of
Total		 $
Change		 %
Change
  (Dollars in thousands)
Interest-bearing demand$215,853 20%$253,272 20%$(37,419) -15%$255,120 21%$(39,267) -15%
Money market 183,066 16% 195,814 17% (12,748) -7% 214,840 17% (31,774) -15%
Savings 165,694 15% 174,887 15% (9,193) -5% 176,753 15% (11,059) -6%
Time deposits (CDs) 65,231 6% 48,754 4% 16,477  34% 53,885 5% 11,346  21%
   Total interest-bearing deposits 629,844 57% 672,727 57% (42,883) -6% 700,598 58% (70,754) -10%
Non-interest bearing demand 480,524 43% 507,635 43% (27,111) -5% 495,508 42% (14,984) -3%
   Total deposits$1,110,368 100%$1,180,362 100%$(69,994) -6%$1,196,106 100%$(85,738) -7%
                     
                     
Insured Deposits$700,960 64%$709,468 60%$(8,508) -1%$749,175 63%$(48,215) -6%
Collateralized Deposits 149,856 13% 160,354 14% (10,498) -7% 142,262 12% 7,594  5%
Uninsured Deposits 259,552 23% 310,540 26% (50,988) -16% 304,669 25% (45,117) -15%
Total Deposits$1,110,368 100%$1,180,362 100%$(69,994) -6%$1,196,106 100%$(85,738) -7%
                     
Consumer Deposits$502,430 45%$519,948 44%$(17,518) -3%$558,136 46%$(55,706) -10%
Business Deposits 447,778 40% 490,341 42% (42,563) -9% 486,702 41% (38,924) -8%
Public Deposits 160,160 15% 170,073 14% (9,913) -6% 151,268 13% 8,892  6%
Total Deposits$1,110,368 100%$1,180,362 100%$(69,994) -6%$1,196,106 100%$(85,738) -7%
                            

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

 
Capital Measures
(unaudited)
 



Mar 31,
2023		 



Dec 31,
2022		 




Change		 



Mar 31,
2022		 




Change		  Well
Capitalized
Under Prompt
Correction
Action
Regulations
Pacific Financial Corporation            
Total risk-based capital ratio17.5% 17.1% 0.4 17.4% 0.1  N/A
Tier 1 risk-based capital ratio16.3% 16.0% 0.3 16.3% -  N/A
Common equity tier 1 ratio14.6% 14.3% 0.3 14.4% 0.2  N/A
Leverage ratio9.9% 9.4% 0.5 8.9% 1.0  N/A
Tangible common equity ratio7.8% 6.9% 0.9 7.2% 0.6  N/A
             
Bank of the Pacific            
Total risk-based capital ratio17.4% 17.0% 0.4 17.4% -  10.5%
Tier 1 risk-based capital ratio16.2% 15.9% 0.3 16.2% -  8.5%
Common equity tier 1 ratio16.2% 15.9% 0.3 16.2% -  7.0%
Leverage ratio9.8% 9.1% 0.7 8.8% 1.0  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,
2023		 Dec 31,
2022		 $
Change		 %
Change		 Mar 31,
2022		 $
Change		 %
Change
Average Balances (Dollars in thousands)
Gross loans$643,851 $629,976 $13,875  2%$621,412$22,439  4%
Gross loans without PPP$643,414 $629,439 $13,975  2%$603,998$39,416  7%
Loans held for sale$584 $898 $(314) -35%$3,670$(3,086) -84%
Investment securities$287,714 $270,416 $17,298  6%$242,084$45,630  19%
Federal funds sold & interest bearing deposits in banks$251,118 $352,628 $(101,510) -29%$388,902$(137,784) -35%
Total interest-earning assets$1,183,267 $1,253,918 $(70,651) -6%$1,256,068$(72,801) -6%
Non-interest bearing demand deposits$483,135 $521,133 $(37,998) -7%$496,833$(13,698) -3%
Interest bearing deposits$643,972 $684,377 $(40,405) -6%$693,350$(49,378) -7%
Total Deposits$1,127,107 $1,205,510 $(78,403) -7%$1,190,183$(63,076) -5%
Borrowings$13,403 $13,403 $-  0%$13,782$(379) -3%
Total interest-bearing liabilities$657,375 $697,780 $(40,405) -6%$707,132$(49,757) -7%
Total Equity$106,612 $100,076 $6,536  7%$115,664$(9,052) -8%
                
   For the Three Months Ended,    
   Mar 31,
2023		 Dec 31,
2022		 
Change		 Mar 31,
2022		 
Change		    
Yield on average gross loans (1) 5.44% 5.18% 0.26  4.81% 0.63    
Yield on average gross loans without PPP (1) 5.44% 5.17% 0.27  4.45% 0.99    
Yield on average investment securities (1) 3.20% 2.81% 0.39  1.72% 1.48    
Yield on Fed funds sold & interest bearing deposits in banks 4.61% 3.72% 0.89  0.20% 4.41    
Cost of average interest bearing deposits 0.24% 0.14% 0.10  0.10% 0.14    
Cost of average borrowings 6.45% 5.42% 1.03  1.85% 4.60    
Cost of average total deposits and borrowings 0.21% 0.14% 0.07  0.08% 0.13    
                
Yield on average interest-earning assets 4.72% 4.25% 0.47  2.78% 1.94    
Cost of average interest-bearing liabilities 0.37% 0.24% 0.13  0.14% 0.23    
Net interest spread 4.35% 4.01% 0.34  2.64% 1.71    
Net interest spread without PPP 4.35% 4.01% 0.34  2.44% 1.91    
                
Net interest margin (1) 4.51% 4.12% 0.39  2.71% 1.80    
Net interest margin without PPP (1) 4.51% 4.12% 0.39  2.50% 2.01    
                
(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,
2023		 Dec 31,
2022		 $
Change		 %
Change		 Mar 31,
2022		 $
Change		 %
Change
  (Dollars in thousands)
Rated substandard or worse, but not impaired, beginning of three month period$2,884 $2,814 $70  2%$8,980 $(6,096) -68%
Addition of previously classified pass graded loans 2,237  272  1,965  722% 174  2,063  1186%
Upgrades to pass or other loans especially mentioned status -  (85) 85  -100% (789) 789  -100%
Moved to nonaccrual (241) -  (241) -100% -  (241) -100%
Principal payments, net (125) (117) (8) 7% (243) 118  -49%
Rated substandard or worse, but not impaired, end of three month period$4,755 $2,884 $1,871  65%$8,122 $(3,367) -41%
Impaired 961  2,452  (1,491) -61% 2,821  (1,860) -66%
Total adversely classified loans¹$5,716 $5,336 $380  7%$10,943 $(5,227) -48%
               
Other loans especially mentioned or watch, but not impaired$12,666 $26,408 $(13,742) -52%$30,018 $(17,352) -58%
Gross loans (excluding deferred loan fees)$645,639 $640,716 $4,923  1%$616,609 $29,030  5%
Adversely classified loans to gross loans 0.89% 0.83%     1.77%    
Adversely classified loans to gross loans without PPP 0.89% 0.83%     1.80%    
Allowance for loan losses$8,231 $8,236 $(5) 0%$8,276 $(45) -1%
                  
Allowance for loan losses as a percentage of adversely classified loans 144.00% 154.35%     75.63%    
Allowance for loan losses to total impaired loans 856.50% 335.89%     293.37%    
Adversely classified loans to total assets 0.46% 0.41%     0.83%    
Delinquent loans to gross loans, not in nonaccrual status 2 0.03% 0.08%     0.01%    
Delinquent loans to gross loans without PPP, not in nonaccrual status 0.03% 0.08%     0.01%    
               
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,
2023		 Dec 31,
2022		 $
Change		 %
Change		 Mar 31,
2022		 $
Change		 %
Change
  (Dollars in thousands)
Total nonaccrual loans, beginning of three month period$869 $899 $(30) -3%$1,221 $(352) -29%
Transfer to performing loans (21) -  (21) -100% -  (21) -100%
Addition of nonaccrual loans 241  -  241  100% -  241  100%
Moved to other assets owned -  -  -  0% -  -  0%
Principal payments, net (128) (30) (98) 327% (23) (105) 457%
Charge-offs, net -  -  -  0% -  -  0%
Total nonaccrual loans, end of three month period$961 $869 $92  11%$1,198 $(237) -20%
               
Other real estate owned and foreclosed assets -  30  (30) -100% 122  (122) -100%
Total nonperforming assets$961 $899 $62  7%$1,320 $(359) -27%
               
               
Accruing loans past due 90 days or more$- $- $-  0%$- $-  0%
Percentage of nonperforming assets to total assets 0.08% 0.07%     0.10%    
Nonperforming loans to total loans 0.15% 0.14%     0.19%    
Nonperforming loans to total loans without PPP 0.15% 0.14%     0.20%    
               


Allowance for Credit Losses
(Unaudited)
                
   For the Three Months Ended,
   Mar 31,
2023		 Dec 31,
2022		 $
Change		 %
Change		 Mar 31,
2022		 $
Change