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Oregon Pacific Bancorp Announces Third Quarter Earnings Results

Oregon Pacific Bancorp (ORPB), the holding company of Oregon Pacific Bank, today reported financial results for the third quarter ended, September 30, 2023.

Highlights:

  • Net income of $2.3 million; $0.33 per diluted share.
  • Return on average assets of 1.22%
  • Quarterly loan growth of $15.0 million or 2.93%.
  • Net interest margin increased to 3.74%

Net income for the quarter ended September 30, 2023, was $2.3 million, or $0.33 per diluted share compared to $2.2 million or $0.31 per diluted share for the quarter ended June 30, 2023. Core earnings remained strong, with net interest income expanding to $6.8 million, up from $6.7 million during the second quarter 2023. The third quarter net interest margin increased to 3.74%, up from 3.72% in the second quarter 2023. “We are pleased with the margin expansion experienced during the third quarter and strong loan production,” said Ron Green, President and Chief Executive Officer. “The higher interest rate environment has been challenging for many community banks, but Oregon Pacific has focused on relationship deposits, which enabled us to maintain strong financial performance and continue to serve our clients.”

The Bank’s cost of funds moved to 0.86% during the third quarter, compared to 0.78% during the second quarter, resulting in an increase in interest expense of $174 thousand during the quarter. The Bank experienced quarterly deposit contraction totaling $7.8 million compared to deposit totals at June 30, 2023. During the third quarter a large client continued to utilize excess cash to fund a large construction project, with funding beginning in the second quarter 2023 and expecting to continue into fourth quarter. Third quarter funding totaled $7.2 million and is anticipated to draw on an additional $3 million of deposits into the fourth quarter. The Bank experienced a reduction in the savings and money market deposit totals, which decreased by a total of $19.2 million during the third quarter, primarily tied to clients seeking higher yields. A reduction in money market and savings deposits was partially offset by an increase in interest bearing and non-interest-bearing demand deposits of $6.2 million. Additionally, the Bank saw certificates of deposit grow to $30.9 million, with clients looking to secure higher deposit rates. Disruption in the market due to a recent large merger has provided great opportunities for the transition of operating accounts looking for stable and available customer service. The Bank anticipates this activity will continue into the fourth quarter and 2024.

Period-end loans, net of deferred loan origination fees, totaled $525.2 million, representing quarterly growth of $15 million, which is 2.9% or 11.7% annualized. The third quarter loan yield grew to 5.07%, representing an increase of 0.11% over the prior quarter as new loan production is occurring at a rate higher than the portfolio yield. Quarterly loan production for new and renewed loans totaled $39.5 million, with a weighted average effective rate of 7.38% and a weighted-average repricing life of 4.32 years. During the quarter the Bank recorded a credit to the provision for loan losses totaling $123 thousand. This was primarily tied to a reduction in the reserve for unfunded commitments.

During the quarter the Bank saw a small increase in classified assets totaling $502 thousand. This increase was attributable to downgrades of two loans totaling $589 thousand, which was partially offset by the payoff of one relationship. The downgrades represent two lending relationships, both of which are secured by commercial real estate. The Bank believes both relationships are adequately collateralized and does not currently recognize any impairment. The Bank’s credit administration team continues to proactively work with lending staff to identify any possible credit stress, placing particular attention on the office sector. At September 30, 2023, commercial real estate loans classified as office loans totaled $78.3 million, with an average loan size of $850 thousand, with 31.7%, or $24.9 million classified as owner-occupied. 98.2% of the office portfolio is located within the state of Oregon. The aggregate loan-to-value of the office portfolio was 45.4%.

Noninterest income totaled $1.8 million during the third quarter 2023 and represented growth of $13 thousand over second quarter 2023. The largest increase in non-interest income occurred in the Merchant card services category which grew $40 thousand over the prior quarter. This fluctuation is typical of seasonal merchant activity as many Florence-based merchant clients experience an increase in tourism during the summer. Offsetting that growth was a quarterly reduction in trust income of $95 thousand. The Bank’s trust department experienced a small reduction in assets under management (AUM) of $3.6 million or 1.62% during the third quarter. The trust business includes terminating trusts which occur typically after the death of the grantor, and assets are distributed to beneficiaries over a period of 12 to 24 months. This can cause occasional reductions in AUM due to the temporary nature of some trust assets.

Noninterest expense for the third quarter 2023 totaled $5.6 million, representing an increase of $133 thousand over the quarter ended June 30, 2023. The largest expense fluctuation totaled $90 thousand and occurred in the outside services category. A portion of the increase was due to the one-time data conversion from the Bank’s prior loan imaging software to a new software, which totaled $38 thousand. Salaries and benefits also increased during the quarter by $82 thousand. This increase was attributable to two factors 1) growth in salary expense due to the hiring of operational staff for the Portland office and the full quarter of salary expense for the second quarter new hires, which grew $37 thousand and 2) a reduction in the number of new and renewed loans during the quarter which impacted the deferred loan origination costs, which are reflected as a credit to salary expense. The third quarter ASC 310-20 loan origination costs totaled $164 thousand, a reduction of $41 thousand from the prior quarter. These variances were partially offset by a reduction in advertising expense of $52 thousand as the bank discontinued its Money Matters television advertising, which was airing on loan KVAL news.

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, investment yields, strategic focus, capital position, liquidity, credit quality, special asset liquidation, noninterest income, 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)

 

 

 

 

 

 

 

 

 

September 30,

 

June 30,

 

September 30,

 

 

 

2023

 

 

 

2023

 

 

 

2022

 

ASSETS
Cash and due from banks

$

8,925

 

$

10,951

 

$

13,402

 

Interest bearing deposits

 

11,216

 

 

22,967

 

 

97,840

 

Securities

 

176,593

 

 

181,530

 

 

188,366

 

Loans, net of deferred fees and costs

 

525,231

 

 

510,264

 

 

456,627

 

Allowance for credit losses

 

(6,892

)

 

(6,887

)

 

(6,328

)

Premises and equipment, net

 

13,024

 

 

11,708

 

 

9,501

 

Bank owned life insurance

 

8,801

 

 

8,738

 

 

8,563

 

Deferred tax asset

 

6,604

 

 

5,978

 

 

5,836

 

Other assets

 

8,986

 

 

7,555

 

 

6,904

 

 
Total assets

$

752,488

 

$

752,804

 

$

780,711

 

 
 
LIABILITIES
Deposits
Demand - non-interest bearing

$

160,272

 

$

159,184

 

$

195,536

 

Demand - interest bearing

 

270,677

 

 

265,550

 

 

242,974

 

Money market

 

139,033

 

 

152,046

 

 

170,439

 

Savings

 

69,018

 

 

75,196

 

 

85,548

 

Certificates of deposit

 

30,917

 

 

25,696

 

 

18,213

 

Total deposits

 

669,917

 

 

677,672

 

 

712,710

 

FHLB borrowings

 

5,000

 

 

-

 

 

-

 

Junior subordinated debenture

 

4,124

 

 

4,124

 

 

4,124

 

Subordinated debenture

 

14,702

 

 

14,677

 

 

14,603

 

Other liabilities

 

8,168

 

 

6,482

 

 

6,499

 

 
Total liabilities

 

701,911

 

 

702,955

 

 

737,936

 

 
STOCKHOLDERS' EQUITY
Common stock

 

21,212

 

 

21,135

 

 

21,042

 

Retained earnings

 

41,859

 

 

39,516

 

 

34,038

 

Accumulated other comprehensive
income, net of tax

 

(12,494

)

 

(10,802

)

 

(12,305

)

 
Total stockholders' equity

 

50,577

 

 

49,849

 

 

42,775

 

 
Total liabilities &
stockholders' equity

$

752,488

 

$

752,804

 

$

780,711

 

 

CONSOLIDATED STATEMENTS OF INCOME

Unaudited (dollars in thousands, except per share data)

 

 

 

THREE MONTHS ENDED

 

 

NINE MONTHS ENDED

 

 

September 30,

June 30,

 

September 30,

 

 

September 30,

 

September 30,

 

 

2023

 

2023

 

2022

 

 

2023

 

2022

INTEREST INCOME
Non-PPP loans

$

6,587

 

$

6,249

$

5,022

$

18,660

 

$

13,875

PPP loans

 

-

 

 

-

 

-

 

-

 

 

349

Securities

 

1,568

 

 

1,641

 

1,131

 

4,896

 

 

2,514

Other interest income

 

373

 

 

316

 

305

 

1,090

 

 

507

Total interest income

 

8,528

 

 

8,206

 

6,458

 

24,646

 

 

17,245

 
INTEREST EXPENSE
Deposits

 

1,483

 

 

1,311

 

152

 

3,653

 

 

368

Borrowed funds

 

231

 

 

229

 

204

 

686

 

 

575

Total interest expense

 

1,714

 

 

1,540

 

356

 

4,339

 

 

943

 
NET INTEREST INCOME

 

6,814

 

 

6,666

 

6,102

 

20,307

 

 

16,302

(Credit) provision for credit losses

 

(123

)

 

14

 

209

 

(160

)

 

359

Net interest income after
(credit) provision for credit losses

 

6,937

 

 

6,652

 

5,893

 

20,467

 

 

15,943

 
NONINTEREST INCOME
Trust fee income

 

848

 

 

943

 

783

 

2,675

 

 

2,366

Service charges

 

359

 

 

342

 

324

 

1,026

 

 

944

Mortgage loan sales

 

25

 

 

28

 

29

 

91

 

 

240

Merchant card services

 

162

 

 

122

 

153

 

386

 

 

394

Oregon Pacific Wealth Management income

 

294

 

 

275

 

239

 

821

 

 

741

Other income

 

117

 

 

82

 

514

 

299

 

 

783

Total noninterest income

 

1,805

 

 

1,792

 

2,042

 

5,298

 

 

5,468

 
NONINTEREST EXPENSE
Salaries and employee benefits

 

3,164

 

 

3,082

 

2,787

 

9,374

 

 

8,043

Outside services

 

678

 

 

588

 

583

 

1,818

 

 

1,606

Occupancy & equipment

 

456

 

 

451

 

413

 

1,355

 

 

1,226

Trust expense

 

545

 

 

533

 

432

 

1,560

 

 

1,226

Loan and collection, OREO expense

 

9

 

 

27

 

21

 

60

 

 

71

Advertising

 

93

 

 

145

 

141

 

339

 

 

329

Supplies and postage

 

98

 

 

79

 

74

 

264

 

 

204

Other operating expenses

 

532

 

 

537

 

360

 

1,558

 

 

1,077

Total noninterest expense

 

5,575

 

 

5,442

 

4,811

 

16,328

 

 

13,782

 
Income before taxes

 

3,167

 

 

3,002

 

3,124

 

9,437

 

 

7,629

Provision for income taxes

 

820

 

 

771

 

792

 

2,424

 

 

1,909

 
NET INCOME

$

2,347

 

$

2,231

$

2,332

$

7,013

 

$

5,720

 
Quarterly Highlights
 
3rd Quarter 2nd Quarter 1st Quarter 4th Quarter 3rd Quarter

 

2023

 

 

2023

 

 

2023

 

 

2022

 

 

2022

 

 
Earnings
Interest income

$

8,528

 

$

8,206

 

$

7,912

 

$

7,651

 

$

6,458

 

Interest expense

 

1,714

 

 

1,540

 

 

1,084

 

 

581

 

 

356

 

Net interest income

$

6,814

 

$

6,666

 

$

6,828

 

$

7,070

 

$

6,102

 

Provision for loan loss

 

(123

)

 

14

 

 

(51

)

 

335

 

 

209

 

Noninterest income

 

1,805

 

 

1,792

 

 

1,701

 

 

1,888

 

 

2,042

 

Noninterest expense

 

5,575

 

 

5,442

 

 

5,313

 

 

6,737

 

 

4,811

 

Provision for income taxes

 

820

 

 

771

 

 

834

 

 

459

 

 

792

 

Net income

$

2,347

 

$

2,231

 

$

2,433

 

$

1,427

 

$

2,332

 

 
Average shares outstanding

 

7,094,180

 

 

7,097,866

 

 

7,085,840

 

 

7,070,425

 

 

7,070,433

 

Average diluted shares outstanding

 

7,100,680

 

 

7,104,366

 

 

7,089,090

 

NA NA
Period end shares outstanding

 

7,094,180

 

 

7,094,562

 

 

7,102,271

 

 

7,068,659

 

 

7,070,304

 

Period end diluted shares outstanding

 

7,100,680

 

 

7,101,062

 

 

7,108,771

 

NA NA
Earnings per share

$

0.33

 

$

0.31

 

$

0.34

 

$

0.20

 

$

0.33

 

Diluted earnings per share

$

0.33

 

$

0.31

 

$

0.34

 

NA NA
 
Performance Ratios
Return on average assets

 

1.22

%

 

1.19

%

 

1.13

%

 

0.74

%

 

1.28

%

Return on average equity

 

18.65

%

 

18.12

%

 

21.01

%

 

13.34

%

 

20.41

%

Net interest margin - tax equivalent

 

3.74

%

 

3.72

%

 

3.87

%

 

3.87

%

 

3.54

%

Yield on loans

 

5.07

%

 

4.96

%

 

4.85

%

 

4.70

%

 

4.50

%

Yield on securities

 

3.43

%

 

3.37

%

 

3.41

%

 

3.02

%

 

2.39

%

Cost of deposits

 

0.86

%

 

0.78

%

 

0.51

%

 

0.21

%

 

0.09

%

Cost of interest-bearing liabilities

 

1.26

%

 

1.15

%

 

0.84

%

 

0.44

%

 

0.29

%

Efficiency ratio

 

64.73

%

 

64.34

%

 

62.29

%

 

75.21

%

 

59.07

%

Full-time equivalent employees

 

131

 

 

128

 

 

127

 

 

120

 

 

122

 

 
Capital
Tier 1 capital

$

80,082

 

$

77,917

 

$

75,684

 

$

73,882

 

$

72,410

 

Leverage ratio

 

10.40

%

 

10.24

%

 

9.94

%

 

9.55

%

 

9.95

%

Common equity tier 1 ratio

 

14.34

%

 

14.18

%

 

14.16

%

 

13.92

%

 

14.81

%

Tier 1 risk based ratio

 

14.34

%

 

14.18

%

 

14.16

%

 

13.92

%

 

14.81

%

Total risk based ratio

 

15.59

%

 

15.43

%

 

15.41

%

 

15.17

%

 

16.06

%

Book value per share

$

7.13

 

$

7.03

 

$

6.97

 

$

6.52

 

$

6.05

 

 

Quarterly Highlights

 

 

3rd Quarter

 

2nd Quarter

 

1st Quarter

 

4th Quarter

 

3rd Quarter

 

 

2023

 

 

 

2023

 

 

 

2023

 

 

 

2022

 

 

 

2022

 

 
Asset quality
Allowance for loan losses (ALLL)

$

6,892

 

$

6,887

 

$

6,884

 

$

6,666

 

$

6,328

 

Nonperforming loans (NPLs)

$

456

 

$

178

 

$

72

 

$

52

 

$

424

 

Nonperforming assets (NPAs)

$

456

 

$

178

 

$

72

 

$

52

 

$

424

 

Classified Assets (1)

$

4,252

 

$

3,750

 

$

3,842

 

$

3,877

 

$

4,574

 

Net loan charge offs (recoveries)

$

(6

)

$

(3

)

$

(88

)

$

(4

)

$

(31

)

ACL as a percentage of net loans

 

1.31

%

 

1.35

%

 

1.39

%

 

1.38

%

 

1.39

%

ACL as a percentage of NPLs

 

1511.40

%

 

3869.10

%

 

9561.11

%

 

12819.23

%

 

1492.45

%

Net charge offs (recoveries)
to average loans

 

0.00

%

 

0.00

%

 

-0.02

%

 

0.00

%

 

-0.01

%

Net NPLs as a percentage of
total loans

 

0.09

%

 

0.03

%

 

0.01

%

 

0.01

%

 

0.09

%

Nonperforming assets as a
percentage of total assets

 

0.06

%

 

0.02

%

 

0.10

%

 

0.01

%

 

0.05

%

Classified Asset Ratio (2)

 

4.89

%

 

4.42

%

 

4.65

%

 

4.81

%

 

5.81

%

Past due as a percentage of
total loans

 

0.12

%

 

0.12

%

 

0.06

%

 

0.19

%

 

0.13

%

 
Off-balance sheet figures
Off-balance sheet demand deposits (3)

$

-

 

$

-

 

$

-

 

$

18,976

 

$

60,588

 

Unused credit commitments

$

103,163

 

$

97,111

 

$

85,390

 

$

89,680

 

$

85,880

 

Trust assets under management (AUM)

$

219,268

 

$

222,880

 

$

219,731

 

$

215,736

 

$

193,448

 

Oregon Pacific Wealth Management AUM

$

140,153

 

$

141,990

 

$

133,138

 

$

117,549

 

$

116,193

 

 
End of period balances
Total securities

$

176,593

 

$

181,530

 

$

195,647

 

$

195,881

 

$

188,366

 

Total short term deposits

$

11,216

 

$

22,967

 

$

41,931

 

$

39,863

 

$

97,840

 

Total loans net of allowance

$

518,339

 

$

503,377

 

$

486,596

 

$

476,313

 

$

450,299

 

Total earning assets

$

715,273

 

$

716,793

 

$

733,090

 

$

720,712

 

$

744,786

 

Total assets

$

752,488

 

$

752,804

 

$

764,489

 

$

754,182

 

$

780,711

 

Total noninterest bearing deposits

$

160,272

 

$

159,184

 

$

166,409

 

$

180,589

 

$

195,536

 

Total deposits

$

669,917

 

$

677,672

 

$

690,046

 

$

682,869

 

$

712,710

 

 
Average balances
Total securities

$

180,344

 

$

190,818

 

$

196,060

 

$

192,348

 

$

186,535

 

Total short term deposits

$

27,510

 

$

24,616

 

$

35,240

 

$

68,808

 

$

57,557

 

Total loans net of allowance

$

508,385

 

$

498,069

 

$

480,046

 

$

459,440

 

$

436,522

 

Total earning assets

$

725,179

 

$

722,420

 

$

720,003

 

$

728,980

 

$

688,723

 

Total assets

$

759,592

 

$

751,845

 

$

752,094

 

$

761,361

 

$

720,465

 

Total noninterest bearing deposits

$

163,669

 

$

154,949

 

$

167,863

 

$

178,226

 

$

191,292

 

Total deposits

$

681,749

 

$

675,954

 

$

678,528

 

$

692,412

 

$

648,827

 

 
 
(1) 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.
(2) 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.
(3) Deposits sold through IntraFi Network Deposits Insured Cash Sweep (ICS) program

 

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