Oregon Pacific Bank Announces Second Quarter Earnings Results

Oregon Pacific Bancorp (ORPB) today reported financial results for the second quarter ended June 30, 2021.

Highlights

• Second quarter net income of $1.92 million; $0.27 per diluted share
• Quarterly deposit growth of $24.2 million, a growth rate of 16.73%
• Quarterly non-PPP loan growth of $13.4 million, a growth rate of 16.81%
• Quarterly trust fees of $878 thousand

Oregon Pacific Bancorp, and its wholly owned subsidiary Oregon Pacific Bank, reported quarterly net income of $1.92 million, or $0.27 per diluted share in the second quarter of 2021 compared to $830 thousand, or $0.12 per diluted share for the quarter ended June 30, 2020. Second quarter net income was elevated due to the processing of Paycheck Protection Program (PPP) forgiveness payments, which resulted in increased interest income due to accretion of the remaining loan origination fees at payoff. The Bank made no provision for loan losses during the second quarter as the Bank’s allowance for loan loss methodology indicated no provision was necessary based on current asset quality metrics.

“We are proud to see the continuation of the Bank’s strong performance during the second quarter,” said Ron Green, President and CEO. “Our staff has worked with clients on the PPP forgiveness process, enabling them to shift focus back to core lending, which we believe will continue through the rest of 2021.”

During the quarter, deposit growth totaled $24.2 million, an annualized growth rate of 16.73%. On an annual basis, deposit growth totaled $144.1 million, a 31.0% increase over June 30, 2020. With no new PPP loan production during the second quarter, the deposit growth is attributable to normal seasonal fluctuations, including onboarding of new clients. The Bank still believes a portion of the deposit growth is temporary as some borrowers have delayed investments or capital purchases until the economy has fully recovered from the pandemic.

The Bank continued to maintain funds in the InterFi Network Insured Cash Sweep (ICS) product and expanded to utilize the CDARs time deposit product, all in a “one-way sell” or off-balance sheet capacity. The CDARS product was offered to one large deposit client who has elected to open laddered four-week CDARs deposits. In the event of a decrease in liquidity, the Bank could move all CDARS deposits back onto the balance sheet in a reciprocal deposit within a four-week time horizon. On June 30, 2021, the off-balance sheet ICS deposits totaled $54.3 million, and the CDARS off-balance sheet time deposits totaled $39.5 million.

Period-end non-PPP loans, net of deferred loan origination fees, totaled $335.8 million, representing quarterly net growth of $13.4 million and an annualized growth rate of 16.81%. The effective yield on the non-PPP loan portfolio remained flat at 4.63%. The Bank continued to see loan opportunities during the quarter, but the lending environment remains competitive. At the end of June, the Bank purchased three loans totaling $3.6 million from Network for Oregon Affordable Housing (NOAH). The NOAH loans were purchased at a premium and will result in a yield below the Bank’s current loan portfolio yield but will provide the Bank with tax credits to offset Oregon income tax which will be prorated during 2021 based on the date of the loan purchase. The Bank continued to work with borrowers on the PPP forgiveness process during the second quarter. Through June 30, 2021, 734 of the 752 PPP loans originated in 2020 were forgiven. Additionally, 81 of the 402 loans originated in 2021 were forgiven.

During the quarter, the Bank’s margin contracted to 3.09% from 3.82% in the prior quarter, which was primarily driven by the linked quarter growth in average deposits. The deposit growth increased the balance of interest-bearing deposits held with the Federal Reserve, which yielded 0.10% for most of the quarter. During the second quarter, 29% of the Bank’s interest earning assets were held on deposit with the Federal Reserve, compared to 19% during first quarter 2021, which led to margin contraction. The Bank worked to increase the investment portfolio holdings, with quarterly purchases totaling $15.5 million. The Bank will continue to plan future investment purchases to utilize a portion of the excess funds held at the Federal Reserve and help increase the yield on earning assets.

Second quarter 2021 noninterest income totaled $1.8 million, which represented an increase of $398 thousand over the prior quarter and an increase of $651 thousand over the second quarter 2020. During the quarter, the Bank recognized $878 thousand of trust fee income and increase of $248 thousand over the prior quarter. Trust revenue is comprised of two components: 1) trust management revenue, and 2) transactional revenue or “extraordinary” revenue. Trust management revenue has increased due to onboarding of new clients, with the Bank’s trust assets under management increasing $23.2 million since December 31, 2020. Transactional revenue is related to items outside the scope of standard trust administration. This is primarily comprised of fees for liquidation of real estate and is generally tied to the death of a trust client. As transactional revenue is event based, the current quarter income does not necessarily represent revenue projections for future quarters. Below is a summary of the breakout of trust revenue.

	THREE MONTHS ENDED										SIX MONTHS ENDED
	June 30,			March 31,			June 30,				June 30,			June 30,
	2021			2021			2020				2021			2020
Trust Management Revenue	$	648		$	570		$	546			$	1,218		$	1,092
Transactional Revenue		230			60			21				290			47
Trust fee income	$	878		$	630		$	567			$	1,508		$	1,139

The Bank experienced growth of $11 thousand related to advisory income through the Bank’s wholly owned registered investment advisory (RIA) firm Oregon Pacific Wealth Management, LLC which grew assets under management to $103.4 million as of June 30, 2021. Since inception Oregon Pacific Wealth Management has been a registered investment advisor registered and overseen by the State of Oregon. Once assets under management exceed $100 million, the company is required to move from state specific registration to registration with the SEC. As the assets under management exceeded $100 million at June 30, 2021, the company is beginning the registration process with the SEC and anticipates the registration to be completed by September 30, 2021. This SEC registration is only tied to the registered investment advisory firm and will not impact financial reporting.

Noninterest expense in the second quarter totaled $4.1 million, up $136 thousand over the first quarter. The largest change occurred in the salaries and employee benefits expense which increased $127 thousand from the first quarter 2021. This increase was due to two factors: 1) no additional PPP loan production during the second quarter, which reduced the deferred loan origination costs recognized as a credit to salary expense, and 2) additional stock-based compensation expense associated with accelerated vesting of restricted stock due to retirement.

Forward-Looking Statement Safe Harbor

This release contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 (“PSLRA”). These statements can be identified by the fact that they do not relate strictly to historical or current facts. Forward-looking statements often use words such as “anticipates,” “targets,” “expects,” “estimates,” “intends,” “plans,” “goals,” “believes” and other similar expressions or future or conditional verbs such as “will,” “should,” “would” and “could.” The forward-looking statements made represent Oregon Pacific Bank’s current estimates, projections, expectations, plans or forecasts of its future results and revenues, including but not limited to statements about performance, loan or deposit growth, loan prepayments, investment purchases, strategic focus, capital position, liquidity, credit quality, special asset liquidation, noninterest expense and credit quality trends. These statements are not guarantees of future results or performance and involve certain risks, uncertainties and assumptions that are difficult to predict and are often beyond Oregon Pacific Bank’s control. Actual outcomes and results may differ materially from those expressed in, or implied by, any of these forward-looking statements. You should not place undue reliance on any forward-looking statement and should consider all of the following uncertainties and risks. Oregon Pacific Bancorp undertakes no obligation to publicly revise or update any forward-looking statement to reflect the impact of events or circumstances that arise after the date of this release. This statement is included for the express purpose of invoking the PSLRA’s safe harbor provisions.

CONSOLIDATED BALANCE SHEETS
Unaudited (dollars in thousands)
		June 30,				March 31,				June 30,
			2021				2021				2020
ASSETS
Cash and due from banks		$	12,658			$	9,925			$	6,944
Interest bearing deposits			181,966				161,446				42,291
Securities			65,509				50,543				27,868
Non PPP Loans, net of deferred fees and costs			335,813				322,451				301,598
PPP Loans, net of deferred fees and costs			54,287				78,745				120,043
Total Loans, net of deferred fees and costs			390,100				401,196				421,641
Allowance for loan losses			(6,024	)			(6,020	)			(4,873	)
Premises and equipment, net			6,507				6,621				7,041
Bank owned life insurance			8,282				8,221				7,549
Deferred tax asset			940				1,079				363
Other assets			3,745				3,998				4,467
Total assets		$	663,683			$	637,009			$	513,291
LIABILITIES
Deposits
Demand - non-interest bearing		$	181,406			$	171,750			$	125,714
Demand - interest bearing			188,135				183,537				166,562
Money market			147,506				139,350				97,506
Savings			72,557				70,276				57,098
Certificates of deposit			19,854				20,394				18,442
Total deposits			609,458				585,307				465,322
Subordinated debenture			4,124				4,124				4,124
Other liabilities			3,843				3,695				4,523
Total liabilities			617,425				593,126				473,969
STOCKHOLDERS' EQUITY
Common stock			20,831				20,753				20,697
Retained earnings			24,406				22,484				17,636
Accumulated other comprehensive income, net of tax			1,021				646				989
Total stockholders' equity			46,258				43,883				39,322
Total liabilities & stockholders' equity		$	663,683			$	637,009			$	513,291

CONSOLIDATED STATEMENTS OF INCOME
Unaudited (dollars in thousands, except per share data)
		THREE MONTHS ENDED										SIX MONTHS ENDED
		June 30,			March 31,			June 30,				June 30,			June 30,
		2021			2021			2020				2021			2020
INTEREST INCOME
Non-PPP loans		$	3,758		$	3,649		$	3,606			$	7,407		$	7,464
PPP loans			961			1,460			634				2,421			634
Securities			242			178			172				420			333
Other interest income			51			28			14				79			81
Total interest income			5,012			5,315			4,426				10,327			8,512
INTEREST EXPENSE
Deposits			116			101			141				217			379
Borrowed funds			31			30			36				61			82
Total interest expense			147			131			177				278			461
NET INTEREST INCOME			4,865			5,184			4,249				10,049			8,051
Provision for loan losses			-			-			900				-			1,278
Net interest income after provision for loan losses			4,865			5,184			3,349				10,049			6,773
NONINTEREST INCOME
Trust fee income			878			630			567				1,508			1,139
Service charges			271			248			192				519			413
Mortgage loan sales and servicing			239			148			81				387			219
Investment sales commissions			33			36			43				69			91
Merchant card services			114			86			59				200			123
RIA income			199			188			127				387			260
Other income			78			78			92				156			165
Total noninterest income			1,812			1,414			1,161				3,226			2,410
NONINTEREST EXPENSE
Salaries and employee benefits			2,401			2,274			1,933				4,675			4,055
Outside services			436			436			381				872			808
Occupancy & equipment			348			346			315				694			638
Trust expense			348			354			319				702			677
Loan and collection, OREO expense			29			35			72				64			227
Advertising			75			58			32				133			84
Supplies and postage			61			56			62				117			124
Other operating expenses			407			410			293				817			614
Total noninterest expense			4,105			3,969			3,407				8,074			7,227
Income before taxes			2,572			2,629			1,103				5,201			1,956
Provision for income taxes			650			662			273				1,312			484
NET INCOME		$	1,922		$	1,967		$	830			$	3,889		$	1,472

Quarterly Highlights
	2nd Quarter				1st Quarter				4th Quarter				3rd Quarter				2nd Quarter
		2021				2021				2020				2020				2020
Earnings
Net interest income	$	4,865			$	5,184			$	5,586			$	4,425			$	4,249
Provision for loan loss		-				-				-				900				900
Noninterest income		1,812				1,414				1,363				1,374				1,161
Noninterest expense		4,105				3,969				4,158				3,832				3,407
Provision for income taxes		650				662				713				264				273
Net income	$	1,922			$	1,967			$	2,078			$	803			$	830
Average shares outstanding		7,041,041				7,022,759				7,008,125				7,008,125				7,003,125
Earnings per share	$	0.27			$	0.28			$	0.30			$	0.11			$	0.12
Performance Ratios
Return on average assets		1.17	%			1.38	%			1.52	%			0.60	%			0.69	%
Return on average equity		17.24	%			18.59	%			20.33	%			8.05	%			8.69	%
Net interest margin - tax equivalent		3.09	%			3.82	%			4.29	%			3.50	%			3.73	%
Yield on loans		4.78	%			5.14	%			5.37	%			4.14	%			4.33	%
Yield on loans - excluding PPP loans		4.63	%			4.63	%			4.69	%			4.70	%			4.85	%
Cost of deposits		0.08	%			0.08	%			0.10	%			0.13	%			0.22	%
Efficiency ratio		61.48	%			60.19	%			59.84	%			66.08	%			62.98	%
Full-time equivalent employees		114				116				116				113				111
Capital
Leverage ratio		7.45	%			8.18	%			8.33	%			8.14	%			8.74	%
Common equity tier 1 ratio		15.25	%		NA(1)				NA(1)				NA(1)				NA(1)
Tier 1 risk based ratio		15.25	%		NA(1)				NA(1)				NA(1)				NA(1)
Total risk based ratio		16.51	%		NA(1)				NA(1)				NA(1)				NA(1)
Book value per share	$	6.57			$	6.23			$	6.03			$	5.75			$	5.61
Asset quality
Allowance for loan losses (ALLL)	$	6,024			$	6,020			$	5,791			$	5,782			$	4,873
Nonperforming loans (NPLs)	$	1,517			$	1,558			$	2,521			$	1,596			$	1,293
Nonperforming assets (NPAs)	$	1,517			$	1,558			$	2,521			$	1,596			$	1,293
Classified Assets (2)	$	12,627			$	12,141			$	14,366			$	12,667			$	11,945
Net loan charge offs (recoveries)	$	(3	)		$	(230	)		$	(9	)		$	(9	)		$	(7	)
ALLL as a percentage of net loans		1.54	%			1.50	%			1.48	%			1.35	%			1.16	%
ALLL as a percentage of net loans (excluding PPP)		1.79	%			1.87	%			1.86	%			1.89	%			1.62	%
ALLL as a percentage of NPLs		397.10	%			386.39	%			229.75	%			362.26	%			376.98	%
Net charge offs (recoveries) to average loans		0.00	%			-0.06	%			0.00	%			0.00	%			0.00	%
Net NPLs as a percentage of total loans		0.39	%			0.39	%			0.64	%			0.53	%			0.44	%
Nonperforming assets as a percentage of total assets		0.23	%			0.24	%			0.47	%			0.30	%			0.25	%
Classified Asset Ratio (3)		27.30	%			27.67	%			33.98	%			31.42	%			30.38	%
Past due as a percentage of total loans		0.36	%			0.14	%			0.49	%			0.54	%			0.53	%
Off-balance sheet figures
Off-balance sheet demand deposits (4)	$	54,299			$	56,226			$	50,281			$	24,974			$	14,659
Off-balance sheet time deposits (5)	$	39,500			$	-			$	-			$	-			$	-
Unused credit commitments	$	83,807			$	82,458			$	83,982			$	74,110			$	66,806
End of period balances
Total securities and short term deposits	$	247,475			$	211,989			$	124,375			$	82,099			$	70,159
Total loans net of allowance	$	384,076			$	395,176			$	385,173			$	422,144			$	416,768
Total earning assets	$	638,932			$	614,542			$	516,485			$	511,171			$	492,946
Total assets	$	663,683			$	637,009			$	537,141			$	534,456			$	513,291
Total noninterest bearing deposits	$	181,406			$	171,750			$	136,428			$	134,574			$	125,714
Total deposits	$	609,458			$	585,307			$	486,343			$	485,589			$	465,322
Average balances
Total securities and short term deposits	$	239,921			$	150,214			$	109,006			$	80,235			$	67,450
Total loans net of allowance	$	389,766			$	397,195			$	405,796			$	421,663			$	389,275
Total earning assets	$	637,066			$	554,446			$	521,734			$	508,244			$	462,157
Total assets	$	659,644			$	576,991			$	543,422			$	529,784			$	484,315
Total noninterest bearing deposits	$	178,155			$	167,266			$	138,247			$	134,676			$	132,311
Total deposits	$	606,476			$	525,064			$	493,502			$	480,742			$	436,776

(1) Effective March 31, 2020 Oregon Pacific Bank opted into the Community Bank Leverage Ratio and stopped calculating risked based capital ratios.

(2) Classified assets is defined as the sum of all loan-related contingent liabilities and loans internally graded substandard or worse, impaired loans (net of government guarantees), adversely classified securities, and other real estate owned.

(3) Classified asset ratio is defined as the sum of all loan-related contingent liabilities and loans internally graded substandard or worse, impaired loans (net of government guarantees), adversely classified securities, and other real estate owned, divided by bank Tier 1 capital, plus the allowance for loan losses.

(4) Deposits sold through IntraFi Network Deposits Insured Cash Sweep (ICS) program

(5) Deposits sold through IntraFi Network Deposits CDARs program

 

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