$ORPB Oregon Pacific Bank Announces Third Quarter Earnings Results
Press Release | 10/21/2021
Oregon Pacific Bancorp (ORPB), the holding company of Oregon Pacific Bank, today reported financial results for the third quarter ended September 30, 2021.
Third quarter highlights:
Net income of $2.04 million; $0.29 per diluted share.
Non-PPP loan growth of $25.8 million.
Issued $15 million in aggregate principal amount of fixed-to-floating rate subordinated notes.
$13.5 million capital investment in Oregon Pacific Bancorp, increasing Tier 1 leverage to 9.70%.
Net income for the third quarter was $2.0 million, or $0.29 per diluted share compared to $803 thousand, or $0.11 per diluted share for the quarter ended September 30, 2020. Third quarter net income continued to be 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. During the quarter the Bank saw outstanding PPP loans reduce to $30.1 million. Through September 30, 2021, 749 of the 752 PPP loans originated in 2020 and 267 of the 402 loans originated in 2021 were forgiven.
Period-end non-PPP loans, net of deferred loan origination fees, totaled $361.6 million, representing quarterly net growth of $25.8 million and year-to-date net growth of $49.7 million or an annualized increase of 21.30%. The growth in non-PPP loans was spread across nearly all loan categories, with the largest growth experienced in investor commercial real estate, construction, and owner-occupied commercial real estate, totaling $7.8 million, $6.9 million, and $5.1 million, respectively. The Bank continued to experience non-PPP loan demand, but pricing pressures remain strong. The effective yield on the non-PPP loan portfolio lowered to 4.49%, down from 4.63% in second quarter, primarily related to new production occurring at rates below the current effective yield of the portfolio.
“The Bank’s loan growth reflects the success we have had in executing our business strategies to leverage the goodwill from originating PPP loans to our local businesses,” said Ron Green, President and CEO. “Our clients continue to see value in community banking, which we believe will result in continued opportunities and long-term shareholder returns.”
During the quarter the Bank saw improvement in credit metrics as classified assets reduced to $8.2 million, down from $12.6 million in second quarter. The reduction was primarily related to improved credit performance, resulting in five separate credits totaling $4.2 million moving from substandard to pass classification. The remaining classified assets on September 30, 2021, consisted of loans across several different loan types and markets, with the largest exposure being a $2.3 million owner-occupied commercial real estate loan in Roseburg. COVID modifications totaled only $3.3 million as of September 30, 2021, with only one $1.5 million individual credit on full payment deferral.
During the quarter, deposit growth slowed, but still totaled $3.5 million. Quarterly growth was partially reduced as the Bank migrated $12.8 million of additional deposits into off balance sheet products through the InterFi Network’s Insured Cash Sweep (ICS) and CDARS products, bringing total off-balance sheet deposits to $106.6 million on September 30, 2021. The off-balance sheet deposits remain a source of liquidity, with the ICS deposits available on demand and the CDARs deposits had a maximum maturity of four weeks.
Third quarter 2021 noninterest income totaled $1.6 million, which represented a decrease of $183 thousand from second quarter 2021 and an increase of $255 thousand over third quarter 2020. During the third quarter trust fee income contracted to $703 thousand, down from $878 thousand during second quarter. The second quarter trust revenue contained $230 thousand of event-based transactional revenue, typically tied to liquidation of real estate due to the death of a trust client. This transactional revenue is tied to events outside of the Bank’s control and it contracted to $30 thousand during third quarter, but trust management revenue increased to $673 thousand, up $25 thousand over second quarter 2021 and up $98 thousand over third quarter 2020. Below is a summary of the breakout of trust revenue.
THREE MONTHS ENDED NINE MONTHS ENDED
Sept 30,
June 30,
Sept 30,
Sept 30,
Sept 30,
2021
2021
2020
2021
2020
Trust Management Revenue
$
673
$
648
$
575
$
1,891
$
1,667
Transactional Revenue
30
230
53
320
100
Trust fee income
$
703
$
878
$
628
$
2,211
$
1,767
The Bank experienced an increase in service charge revenue of $29 thousand compared to prior quarter. This increase was partially attributable to a change in the Bank’s consumer account service charge structure which became effective on August 1, 2021. The Bank implemented this fee change after careful review of market-based pricing and this was the first change in account fees in more than ten years.
Noninterest expense in the third quarter totaled $4.2 million, up $47 thousand over the second quarter. The largest change occurred in the outside services category, which was primarily due to legal expenses associated with review and update to the Bank’s Deferred Compensation Plan and update of the Bank’s Stock Incentive Plan. The 2012 Stock Incentive plan is set to expire in February 2022 and the Bank will be presenting an updated plan for shareholder approval in the 2022 proxy. This expense totaled $33 thousand during the quarter and will not be a reoccurring expense.
On September 29, 2021, Oregon Pacific Bancorp, the holding company for Oregon Pacific Bank, completed a private placement of $15 million in aggregate principal amount of fixed-to-floating rate subordinated notes (the “Notes”) to certain qualified institutional buyers and accredited investors. The Notes will initially bear interest at 3.375% per annum payable semi-annually until September 30, 2026, and thereafter pay a quarterly floating interest rate based on the then-current Three-Month Term Secured Overnight Financing Rate (SOFR) plus 266 basis points, payable quarterly in arrears. Beginning on September 30, 2026, the Notes may be redeemed, in whole or in part, at the Company’s option. The Notes will mature on September 30, 2031. Included in the proceeds from the debenture were various expenses, including commission, legal expenses, and various filing and paying agent expenses. The total of the issuance cost was $508 thousand and will be amortized over the life of the debt as an increase to interest expense.
Subsequent to the subordinated debt issuance, Oregon Bancorp made a capital investment in Oregon Pacific Bank totaling $13.5 million. This capital injection qualified as Tier 1 capital at the Bank and helped to increase the tier 1 leverage ratio as of September 30, 2021, to 9.70%, up from 7.45% as of June 30, 2021.
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)
Sept 30,
June 30,
Sept 30,
2021
2021
2020
ASSETS
Cash and due from banks
$
10,496
$
12,658
$
9,996
Interest bearing deposits
186,565
181,966
49,693
Securities
82,398
65,509
32,406
Non PPP Loans, net of deferred fees and costs
361,573
335,813
306,054
PPP Loans, net of deferred fees and costs
30,073
54,287
121,872
Total Loans, net of deferred fees and costs
391,646
390,100
427,926
Allowance for loan losses
(6,026)
(6,024)
(5,782)
Premises and equipment, net
6,351
6,507
6,917
Bank owned life insurance
8,342
8,282
8,101
Deferred tax asset
1,111
940
300
Other assets
3,431
3,745
4,899
Total assets
$
684,314
$
663,683
$
534,456
LIABILITIES
Deposits
Demand - non-interest bearing
$
180,991
$
181,406
$
134,574
Demand - interest bearing
177,404
188,135
163,095
Money market
158,392
147,506
106,838
Savings
75,710
72,557
61,964
Certificates of deposit
20,453
19,854
19,118
Total deposits
612,950
609,458
485,589
Junior subordinated debenture
4,124
4,124
4,124
Subordinated debenture
14,492
-
-
Other liabilities
4,874
3,843
4,423
Total liabilities
636,440
617,425
494,136
STOCKHOLDERS' EQUITY
Common stock
20,866
20,831
20,721
Retained earnings
26,448
24,406
18,440
Accumulated other comprehensive income, net of tax
560
1,021
1,159
Total stockholders' equity
47,874
46,258
40,320
Total liabilities & stockholders' equity
$
684,314
$
663,683
$
534,456
CONSOLIDATED STATEMENTS OF INCOME
Unaudited (dollars in thousands, except per share data)
THREE MONTHS ENDED
NINE MONTHS ENDED
Sept 30,
June 30,
Sept 30,
Sept 30,
Sept 30,
2021
2021
2020
2021
2020
INTEREST INCOME
Non-PPP loans
$
3,973
$
3,758
$
3,607
$
11,380
$
11,070
PPP loans
1,100
961
831
3,520
1,465
Securities
262
242
162
682
496
Other interest income
69
51
17
148
98
Total interest income
5,404
5,012
4,617
15,730
13,129
INTEREST EXPENSE
Deposits
119
116
158
336
538
Borrowed funds
34
31
34
95
115
Total interest expense
153
147
192
431
653
NET INTEREST INCOME
5,251
4,865
4,425
15,299
12,476
Provision for loan losses
-
-
900
-
2,178
Net interest income after provision for loan losses
5,251
4,865
3,525
15,299
10,298
NONINTEREST INCOME
Trust fee income
703
878
628
2,211
1,767
Service charges
300
271
233
819
647
Mortgage loan sales and servicing
138
239
127
526
347
Investment sales commissions
29
33
63
98
154
Merchant card services
151
114
107
351
230
Oregon Pacific Wealth Management income
224
199
140
611
400
Other income
84
78
76
240
238
Total noninterest income
1,629
1,812
1,374
4,856
3,783
NONINTEREST EXPENSE
Salaries and employee benefits
2,305
2,401
2,211
6,979
6,265
Outside services
506
436
415
1,378
1,223
Occupancy & equipment
362
348
334
1,057
973
Trust expense
364
348
347
1,066
1,024
Loan and collection, OREO expense
30
29
95
95
321
Advertising
95
75
52
229
136
Supplies and postage
71
61
59
188
182
Other operating expenses
419
407
319
1,234
934
Total noninterest expense
4,152
4,105
3,832
12,226
11,058
Income before taxes
2,728
2,572
1,067
7,929
3,023
Provision for income taxes
686
650
264
1,998
748
NET INCOME
$
2,042
$
1,922
$
803
$
5,931
$
2,275
Quarterly Highlights
3rd Quarter 2nd Quarter 1st Quarter 4th Quarter 3rd Quarter
2021
2021
2021
2020
2020
Earnings
Net interest income
$
5,251
$
4,865
$
5,184
$
5,586
$
4,425
Provision for loan loss
-
-
-
-
900
Noninterest income
1,629
1,812
1,414
1,363
1,374
Noninterest expense
4,152
4,105
3,969
4,158
3,832
Provision for income taxes
686
650
662
713
264
Net income
$
2,042
$
1,922
$
1,967
$
2,078
$
803
Average shares outstanding
7,042,478
7,041,041
7,022,759
7,008,125
7,008,125
Earnings per share
$
0.29
$
0.27
$
0.28
$
0.30
$
0.11
Performance Ratios
Return on average assets
1.22
%
1.17
%
1.38
%
1.52
%
0.60
%
Return on average equity
17.24
%
17.24
%
18.59
%
20.33
%
8.05
%
Net interest margin - tax equivalent
3.25
%
3.09
%
3.82
%
4.29
%
3.50
%
Yield on loans
5.11
%
4.78
%
5.14
%
5.37
%
4.14
%
Yield on loans - excluding PPP loans
4.49
%
4.63
%
4.63
%
4.69
%
4.70
%
Cost of deposits
0.08
%
0.08
%
0.08
%
0.10
%
0.13
%
Efficiency ratio
60.35
%
61.48
%
60.19
%
59.84
%
66.08
%
Full-time equivalent employees
116
114
116
116
113
Capital
Leverage ratio
9.70
%
7.45
%
8.18
%
8.33
%
8.14
%
Common equity tier 1 ratio
18.50
%
15.25
%
NA(1) NA(1) NA(1)
Tier 1 risk based ratio
18.50
%
15.25
%
NA(1) NA(1) NA(1)
Total risk based ratio
19.75
%
16.51
%
NA(1) NA(1) NA(1)
Book value per share
$
6.80
$
6.57
$
6.23
$
6.03
$
5.75
Asset quality
Allowance for loan losses (ALLL)
$
6,026
$
6,024
$
6,020
$
5,791
$
5,782
Nonperforming loans (NPLs)
$
1,388
$
1,517
$
1,558
$
2,521
$
1,596
Nonperforming assets (NPAs)
$
1,388
$
1,517
$
1,558
$
2,521
$
1,596
Classified Assets (2)
$
8,156
$
12,627
$
12,141
$
14,366
$
12,667
Net loan charge offs (recoveries)
$
(2
)
$
(3
)
$
(230
)
$
(9
)
$
(9
)
ALLL as a percentage of net loans
1.54
%
1.54
%
1.50
%
1.48
%
1.35
%
ALLL as a percentage of net loans (excluding PPP)
1.67
%
1.79
%
1.87
%
1.86
%
1.89
%
ALLL as a percentage of NPLs
434.15
%
397.10
%
386.39
%
229.75
%
362.26
%
Net charge offs (recoveries) to average loans
0.00
%
0.00
%
-0.06
%
0.00
%
0.00
%
Net NPLs as a percentage of total loans
0.35
%
0.39
%
0.39
%
0.64
%
0.53
%
Nonperforming assets as a percentage of total assets
0.20
%
0.23
%
0.24
%
0.47
%
0.30
%
Classified Asset Ratio (3)
17.04
%
27.30
%
27.67
%
33.98
%
31.42
%
Past due as a percentage of total loans
0.03
%
0.36
%
0.14
%
0.49
%
0.54
%
Off-balance sheet figures
Off-balance sheet demand deposits (4)
$
57,105
$
54,299
$
56,226
$
50,281
$
24,974
Off-balance sheet time deposits (5)
$
49,500
$
39,500
$
-
$
-
$
-
Unused credit commitments
$
86,816
$
83,807
$
82,458
$
83,982
$
74,110
End of period balances
Total securities and short term deposits
$
268,963
$
247,475
$
211,989
$
124,375
$
82,099
Total loans net of allowance
$
385,620
$
384,076
$
395,176
$
385,173
$
422,144
Total earning assets
$
661,966
$
638,932
$
614,542
$
516,485
$
511,171
Total assets
$
684,314
$
663,683
$
637,009
$
537,141
$
534,456
Total noninterest bearing deposits
$
180,991
$
181,406
$
171,750
$
136,428
$
134,574
Total deposits
$
612,950
$
609,458
$
585,307
$
486,343
$
485,589
Average balances
Total securities and short term deposits
$
250,185
$
239,921
$
150,214
$
109,006
$
80,235
Total loans net of allowance
$
388,212
$
389,766
$
397,195
$
405,796
$
421,663
Total earning assets
$
645,779
$
637,066
$
554,446
$
521,734
$
508,244
Total assets
$
666,455
$
659,644
$
576,991
$
543,422
$
529,784
Total noninterest bearing deposits
$
183,950
$
178,155
$
167,266
$
138,247
$
134,676
Total deposits
$
610,247
$
606,476
$
525,064
$
493,502
$
480,742
(1) Effective March 31, 2020 through March 31, 2021 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
