Pacific Financial Corp Earns $2.2 Million, or $0.21 per Diluted Share for Fourth Quarter 2024; Reports Fiscal 2024 Earnings of $9.5 Million, or $0.92 per Diluted Share; Declares Quarterly Cash Dividend of $0.14 per Share

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ABERDEEN, Wash., Jan. 31, 2025 (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 $2.2 million, or $0.21 per diluted share for the fourth quarter of 2024, compared to $2.6 million, or $0.25 per diluted share for the third quarter of 2024, and $2.9 million, or $0.28 per diluted share for the fourth quarter of 2023. For the year ended December 31, 2024, the Company reported net income of $9.5 million, or $0.92 per share compared to $14.6 million, or $1.40 for the year ended December 31, 2023. Except for year-end December 31, 2023, all results are unaudited.

The board of directors of Pacific Financial declared a quarterly cash dividend of $0.14 per share on January 22, 2025. The dividend will be payable on February 28, 2025 to shareholders of record on February 14, 2025.

"During the quarter we finalized the closure of our mortgage banking division recording termination costs of $773,000 impacting our fourth quarter 2024 operating results. Excluding those expenses adjusted net income was $2.8 million for the fourth quarter, an increase from the prior quarter. As we begin 2025, we expect the benefit of this closure to translate to improved efficiency of our operations moving forward,” said Denise Portmann, President and Chief Executive Officer.

"Though the loan portfolio increased at a slower rate during the quarter, we continue to have healthy customer activity as pipelines began to improve with the decrease in index rates experienced early in the quarter. In addition, earnings for the year benefited from solid year over year growth in average loan balances. Our history of a strong net interest margin continued to be supported by solid relationships with our depositors with a strong core deposit base. Core deposits represented 87% of total deposits at year end,” said Portmann. "In addition, our overall credit quality metrics remained strong with nonperforming assets remaining low at $1.1 million or 0.09% of total assets and with a net recovery to the ACL for the quarter. Our capital base and ratios continue to be robust and exceed regulatory well-capitalized ratios. This robust capital base allowed for the continued repurchase of shares during the year. With our strong capital ratios and strong balance sheet, we believe we remain well-positioned for the future.”

Fourth Quarter 2024 Financial Highlights:

• Return on average assets ("ROAA”) was 0.74%, compared to 0.90% for the third quarter 2024, and 1.02% for the fourth quarter 2023.
• Return on average equity ("ROAE”) was 7.27%, compared to 8.77% from the preceding quarter, and 10.88% from the fourth quarter a year earlier.
• Net interest income was $10.9 million, compared to $11.2 million for the third quarter of 2024, and $11.7 million for the fourth quarter of 2023.
• Net interest margin ("NIM”) decreased to 3.99%, compared to 4.19% from the preceding quarter, and 4.34% for the fourth quarter a year ago.
• Provision for credit losses was a benefit of $103,000 for the fourth quarter ended December 31, 2024, compared to a benefit of $66,000 for the preceding quarter and a provision of $111,000 in the fourth quarter a year ago.
• Gross loans balances held in portfolio increased by $5.3 million, or less than 1% to $704.9 million at December 31, 2024, compared to $699.6 million at September 30, 2024, and increased by $19.5 million, or 3%, from $685.3 million at December 31, 2023.
• Total deposits remained at $1.01 billion at December 31, 2024 relative to the previous quarter and one year earlier. Core deposits represented 87% of total deposits, with non-interest bearing deposits representing 38% of total deposits at December 31, 2024.
• Asset quality remains solid with nonperforming assets to total assets declining to 0.09%, compared to 0.10% three months earlier, and increasing from 0.06% at December 31, 2023. Substandard loans decreased $911,000 to $2.7 million at December 31, 2024 from $3.6 million the prior quarter.
• Shareholder equity decreased $7.2 million during the quarter largely due to accumulated other comprehensive income marks on the investment portfolio, stock repurchases and dividend payments offset by net income. Tangible book value per share was $9.93 at December 31, 2024.
• Pacific Financial and Bank of the Pacific continues to exceed regulatory well-capitalized requirements. At December 31, 2024 Pacific Financial's estimated leverage ratio was 11.3% and its estimated total risk-based capital ratio was 17.5%.

Balance Sheet Review

Total assets decreased slightly to $1.15 billion at December 31, 2024, compared to $1.16 billion at September 30, 2024, and was unchanged relative to December 31, 2023.

Liquidity metrics continued to remain strong with total liquidity, both on and off balance sheet sources, at $550.6 million as of December 31, 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 Company's available liquidity sources at December 31, 2024 represented a coverage of short-term funds available to uninsured and uncollateralized deposits of 217%. Uninsured or uncollateralized deposits were 25% of total deposits at December 31, 2024.

The following table summarizes the Bank's available liquidity:

Investment securities: The investment securities portfolio increased 3% to $304.5 million, compared to $296.8 million at September 30, 2024 and increased 4% compared to the like period a year ago. The increase from the prior quarter was primarily due to the purchase of $19.8 million of collateralized mortgage obligations and mortgage backed securities. These purchases were partially offset by an increase in net unrealized losses on available for sale investments which increased $7.6 million to $22.4 million ($17.5 million after-tax) at December 31, 2024, which represents 7% of the AFS portfolio.

U.S. Treasury bonds and securities issued by the U.S. Government sponsored agencies accounted for 86%, 85%, and 85%, of the investment portfolio as of December 31, 2024, September 30, 2024, and December 31, 2023. The largest investment category is collateralized mortgage obligations which accounted for 48% of the investment portfolio at December 31, 2024, compared to 43% one year earlier. The average adjusted duration to reset of the investment securities portfolio was 4.19 years at December 31, 2024.

Gross loans balances increased $5.3 million, or 1%, to $704.9 million at December 31, 2024, compared to $699.6 million at September 30, 2024. During the fourth quarter, new multi-family loans more than offset the decline in construction and development loans and the decline in residential 1-4 family loans.

Year-over-year loan growth was 3%, or $19.5 million, with the largest increases in residential 1-4 family and multi-family loans increasing $7.2 million and $18.0 million, respectively. Loans classified as commercial real estate for regulatory concentration purposes totaled $267.9 million at December 31, 2024, or 192% of total risk-based capital.

The Company continues to manage 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: Nonperforming assets were minimal and remained at $1.1 million, or 0.09% of total assets at December 31, 2024, compared to $664,000, or 0.06% at December 31, 2023. The Company has zero other real estate owned as of December 31, 2024 and accruing loans past due more than 30 days represent only 0.14% of total loans. Total loans designated as special mention increased by $6.0 million to $10.8 million at December 31, 2024 compared to $4.8 million at September 30, 2024 and was primarily related to a downgrade of one agriculture credit relationship of $4.2 million.

Allowance for credit losses ("ACL”) for loans was $8.9 million, or 1.26% of gross loans at December 31, 2024, compared to $8.9 million or 1.27% of loans at September 30, 2024 and $8.5 million or 1.24% at December 31, 2023. A benefit for credit losses on loans of $119,000 was recorded in the current quarter. This compares to a provision for credit losses on loans of $27,000 in the third quarter of 2024 and a provision for credit losses on loans of $162,000 for the fourth quarter of 2023. The benefit for credit losses in the current quarter largely reflects net loan recoveries of $73,000 realized during the quarter, compared to a net recovery of $11,000 for the preceding quarter and $21,000 for the fourth quarter one year ago. Provisions for unfunded loans was $16,000 for the fourth quarter compared to a benefit of $93,000 the previous quarter and a benefit of $51,000 one year earlier.

Total deposits remained at $1.01 billion at December 31, 2024 compared to the prior quarter and one year earlier. Deposit composition between non-maturity deposits and time deposit CDs also remained relatively unchanged for the quarter. Within non-maturity deposits, non-interest bearing demand deposits decreased which was more than offset by the growth in interest bearing demand deposits and reflects the Bank's continued focused efforts on retaining core customer relationships. Pacific Financial continues to benefit from a strong core deposit base which positively impacts our net interest margin. Non-interest bearing deposits continues to remain the largest concentration of deposits and represented 38% of deposits at December 31, 2024 and September 30, 2024. Interest-bearing demand and money market deposits both represent 19% of total deposits at December 31, 2024.

Year-over-year the deposit composition changed slightly, primarily as a result of customers transferring balances to higher yielding accounts, and as a result, time deposits increased to $135.5 million, or 13% of total deposits at December 31, 2024 compared to $100.8 million or 10% of total deposits at December 31, 2023.

Shareholders' equity was $113.9 million at December 31, 2024, compared to $121.1 million at September 30, 2024, and $114.7 million at December 31, 2023. The decrease in shareholders' equity during the current quarter was due to repurchases of common stock, dividend payments and an increase in unrealized losses on available-for-sale securities due to increases in interest rates. Net unrealized losses (after-tax) included in shareholders' equity on available-for-sale securities was $17.5 million at December 31, 2024 compared to $11.5 million at September 30, 2024, and $16.1 million at December 31, 2023.

Book value per common share was $11.26 at December 31, 2024, compared to $11.78 at September 30, 2024, and $11.04 at December 31, 2023. The Company's tangible common equity ratio was 8.8% at December 31, 2024 and 9.4% at September 30, 2024, compared to 8.9% at December 31, 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 11.3% and total risk-based capital ratio at 17.5% as of December 31, 2024. These regulatory capital ratios are estimates, pending completion and filing of regulatory reports.

In anticipation of the expiration of the stock repurchase plan authorized in 2023, in September 2024, the Board of Directors authorized an additional $2.6 million toward future repurchases; approximately 2.0% of total shares outstanding.

Income Statement Review

Net interest income decreased $353,000 to $10.9 million for the fourth quarter of 2024, compared to $11.2 million for the third quarter of 2024, and decreased $801,000 compared to $11.7 million for the fourth quarter a year ago. The change in the current quarter compared to the preceding quarter reflects lower overall loan and interest bearing cash yields. Though yields for newly originated loans and other variable rate loans plus purchased investments were recorded at higher yields, the downward repricing of floating rate loans and interest-earning cash tied to short term rate indexes as well as decreased balances of interest earning cash and increasing deposit costs impacted total net interest income.

The decrease in net interest income compared to the year ago quarter reflects the increase in funding costs, with interest income remaining relatively flat, reflecting lower interest earning deposit balances offset by increased loan interest income as the Bank re-deployed interest earning deposit balances into higher yielding assets including both loans and investments.

Though decreasing from 4.19% for the preceding quarter and 4.34% for the fourth quarter ended December 31, 2023, the Bank's net interest margin continued to remain strong at 3.99% for the quarter ended December 31, 2024. Yields on total interest earning assets decreased 19 basis points to 5.10% for the fourth quarter of 2024 compared to 5.29% for the prior quarter and 5.14% in the like quarter a year ago. Average loan yields decreased 15 basis points to 5.84% during the current quarter, compared to 5.99% for the preceding quarter and 5.80% for the fourth quarter 2023. The Bank's total cost of funds increased only 2 basis points to 1.17% for the current quarter, compared to 1.15% for the preceding quarter, and 0.83% for the fourth quarter 2023. The small increase in the costs of deposits was due to retention efforts and competitive pricing of deposit products. As mentioned earlier, the large balance of non-interest bearing deposits at 38% has helped minimize volatility in deposit costs.

Noninterest income increased to $1.8 million for the current quarter, compared to $1.7 million for the linked quarter and increased from $1.5 million a year earlier. The increase compared to the linked quarter was primarily due to $60,000 of death benefit income from a bank-owned life insurance policy. Fee and service charge income increased slightly in the fourth quarter of 2024 to $1.3 million compared to $1.2 million in the previous quarter and the fourth quarter of 2023.

The company closed its mortgage banking division in the fourth quarter. The elimination of the mortgage banking division is expected to improve the efficiency of the company in 2025.

Noninterest expenses increased to $10.1 million for the fourth quarter of 2024 compared to $9.7 million for the prior quarter and increased from $9.5 million for the fourth quarter of 2023. The current quarter reflects increased expenses associated with closing the mortgage division. Salaries and employee benefit expenses were elevated in the current quarter due to severance and retention payments while occupancy expenses were also elevated due to lease contract termination costs associated with our mortgage operations center. In addition, data processing and IT costs increased related to the termination of mortgage origination software contracts. Overall, expenses associated with closing the mortgage division were approximately $773,000. Excluding the mortgage division termination costs, total non-interest expenses would have been $9.3 million for the current quarter.

The company's efficiency ratio increased to 79.80% for the fourth quarter of 2024, compared to 75.48% in the preceding quarter and increased from 72.22% in the same quarter a year ago. The efficiency ratio is expected to decline in 2025 with the elimination of expenses associated with the closed mortgage division.

Income tax expense: Federal and Oregon state income tax expenses totaled $492,000 for the current quarter, and $633,000 for the preceding quarter, resulting in effective tax rates of 18.5% and 19.6%, respectively. These income tax expenses reflect the benefits of tax exempt income on tax-exempt loans and investments, affordable housing tax credit financing, and investments in bank-owned life insurance.