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Oregon Pacific Bank Announces Second Quarter Earnings Results

ORPB

FLORENCE, Ore.

Oregon Pacific Bancorp (ORPB) today reported financial results for the second quarter ended June 30, 2020.

Highlights

  • Second quarter net income of $830 thousand; $0.12 per diluted share
  • Quarterly deposit growth of $126.1 million
  • Quarterly loan growth of $120.5 million
  • Processed 708 Paycheck Protection Program (PPP) loans totaling $123.8 million

Oregon Pacific Bancorp, and its wholly owned subsidiary Oregon Pacific Bank, reported quarterly net income of $830 thousand, or $0.12 per diluted share compared to $1.0 million, or $0.15 per diluted share for the quarter ended June 30, 2019. Through June 30, 2020, the Bank recorded year-to-date net income totaling $1.5 million, or $0.21 per diluted share compared to $1.4 million, or $0.20 per diluted share for the same period in 2019. During the six months ended June 30, 2020 provision for loan losses grew to $1.3 million compared to $110 thousand during the six months ended June 30, 2019. “I am pleased with the results of the second quarter amidst the current economic uncertainty surrounding COVID-19,” said Ron Green, President and CEO. “Our clients have experienced many struggles and our bankers have risen to the challenge, providing assistance through this difficult time.”

In the beginning of April, the Small Business Administration (SBA) opened the Paycheck Protection Program (PPP), which enabled eligible businesses and non-profit agencies to receive loans with forgiveness provisions to support payroll and other eligible expenses during the COVID-19 crisis. The PPP loans also carry a 100% SBA guarantee. Through June 30, 2020, Oregon Pacific Bank had 708 PPP loans approved through the SBA, totaling $123.8 million. “As the Paycheck Protection Program progressed our bankers worked to secure loans for clients of all sizes, with an average loan size of $124 thousand,” said John Raleigh, Executive Vice President and Chief Lending Officer. “Oregon Pacific Bank recognizes the impact of businesses large and small in our community and is happy to provide the support borrowers desperately needed.”

Period end loans, net of deferred loan origination fees, totaled $421.6 million, representing growth of $120.5 million during the quarter. The majority of that growth was attributable to the PPP loan portfolio, with $420 thousand of loan growth attributable to the non-PPP loan portfolio. The prepayment activity experienced during first quarter 2020 and fourth quarter 2019 decreased significantly as economic uncertainty made the prospects of refinancing more difficult for some borrowers.

The Bank experienced deposit growth totaling $126.1 million during the second quarter. As PPP loans were initially funded most clients placed the loan proceeds into a deposit account with Oregon Pacific Bank. This resulted in a deposit increase approximately equal to the PPP loan growth. During the month of April $95.4 million of PPP loans were funded. It was originally assumed that the increase in deposits would be temporary, and the bank would move into a borrowing position, utilizing the PPP Liquidity Facility through the Federal Reserve, as clients spent their PPP funds. This has not materialized through June, due to two factors: clients spending PPP funds slower than expected and onboarding of new deposit accounts for clients migrating their full relationship to Oregon Pacific Bank due to the Paycheck Protection Program. The Bank has enrolled in the Paycheck Protection Program Liquidity Facility, which enables the Bank to pledge PPP loans as collateral and borrow against that collateral for a term equal to the PPP loan term, at a cost of 0.35%. The Bank is ready to execute borrowings once current liquidity is depleted.

The second quarter net interest margin lowered to 3.73%, down from 4.39% in first quarter 2020. Contributing to a reduction in the margin were the PPP Loans, which have a contractual effective interest rate of 1.0%. In addition to the contractual rate, the Bank is amortizing the PPP loan fees as an adjustment to yield over the term of the loan, which added an additional 1.70% to the loan yield, for a total second quarter PPP loan yield of 2.70%. The projected yield is expected to improve slightly in the third quarter as the loans booked later in the quarter tended to be smaller in size, which had a 5% loan fee, compared to the 3% loan fee for loans over $350 thousand and a 1% loan fee for loans over $2 million.

The effective yield on non-PPP loans during the second quarter totaled 4.85%, down from 5.14% in the first quarter. Included in the first quarter yield on loans was a prepayment penalty totaling $141 thousand, which when excluded would have made the first quarter yield 4.95% representing a 0.10% linked quarter reduction. The Bank also saw a reduction in the cost of funds to 0.22%, down from 0.45% in first quarter 2020 as deposit rate reductions were implemented in mid-March. An additional factor impacting the net interest margin was the interest rate paid on excess balances through the Federal Reserve. On March 16, 2020, the rate was dropped from 1.10% to 0.10% while the Bank’s quarterly average excess balance increased to $40.5 million in second quarter 2020, up from $21.8 million in first quarter 2020.

On June 5, 2020, the Paycheck Protection Program Flexibility Act of 2020, became law and made significant changes to the Paycheck Protection Program. The legislation expanded the covered period during which PPP loan recipients can spend the funds and still qualify for loan forgiveness from eight weeks to 24 weeks. It also lowered the portion of PPP funding that must be used on payroll costs to qualify for full forgiveness from 75% to 60%. The Bank assumes this program change will result in a larger portion of the loans qualifying for forgiveness, but it will also prolong the period for which the Bank will hold the PPP loans. This will lead to a longer period of reduced net interest margin associated with the low yield of the PPP loans.

For the quarter ended June 30, 2020, the Bank booked net recoveries of $7 thousand. Quarterly earnings were impacted by an increase in provision for loan losses, totaling $900 thousand for the quarter. The increase in provision was in response to COVID-19 and the economic factors impacting the allowance for loan losses calculation. The Bank continues to monitor credit quality statistics and saw classified asset totals increase from $9.1 million at March 31, 2020, to $11.9 million at June 30, 2020. Through June 30, 2020, the Bank worked with borrowers to initiate COVID-19 related loan modifications totaling $53.3 million, with ninety-eight relationships totaling $38.8 million on interest only payment structures, and thirty-one relationships totaling $14.5 million are on six-month full payment deferral. The Bank’s Credit Administration is proactively monitoring loan relationships to determine if future downgrades are necessary. The Bank also liquidated its only residential other real estate property, which resulted in a gain on sale of $22 thousand.

During the second quarter 2020, noninterest income was $1.2 million, unchanged from the $1.2 million earned in the first quarter of 2020. The biggest reduction in noninterest income was attributable to the mortgage loan sales and servicing category, as tighter underwriting guidelines implemented by the Bank’s wholesale mortgage partners, in response to COVID-19, limited borrowers’ abilities to qualify for financing.

Noninterest expense in the second quarter totaled $3.4 million, down $410 thousand from the first quarter 2020. On a linked quarter basis, the Bank saw a decrease in salaries and employee benefits expense, primarily tied to the deferred loan origination costs associated with the PPP loans, which is booked as a credit to salary expense. The Bank also saw a reduction in outside services, primarily tied to the timing of the Bank’s external audit, which occurred during the first quarter 2020. The Bank continued to incur loan and collection expense as one of the Bank’s problem assets, an agricultural property, is requiring ongoing assistance from a receiver to support maintenance of the property. The Bank is continuing to work through issues associated with the liquidation.

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, strategic focus, capital position, liquidity, credit quality 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 30

June 30,

2020

2020

2019

ASSETS
Cash and due from banks

$

6,944

$

4,840

$

6,240

Interest bearing deposits

42,291

38,142

29,522

Securities

27,868

26,006

27,410

Non PPP Loans, net of deferred fees and costs

301,598

301,178

269,817

PPP Loans, net of deferred fees and costs

120,043

-

-

Total Loans, net of deferred fees and costs

421,641

301,178

269,817

Allowance for loan losses

(4,873

)

(3,966

)

(3,380

)

Premises and equipment, net

7,041

7,025

7,121

Bank owned life insurance

7,549

7,494

6,953

Other real estate owned

-

51

-

Deferred tax asset

363

625

836

Other assets

4,467

4,028

2,672

Total assets

$

513,291

$

385,423

$

347,191

LIABILITIES
Deposits

Demand - non-interest bearing

$

125,714

$

78,003

$

80,785

Demand - interest bearing

166,562

110,519

93,799

Money market

97,506

79,510

60,830

Savings

57,098

52,790

50,035

Certificates of deposit

18,442

18,380

18,983

Total deposits

465,322

339,202

304,432

Subordinated debenture

4,124

4,124

4,124

Other liabilities

4,523

4,335

3,552

Total liabilities

473,969

347,661

312,108

STOCKHOLDERS' EQUITY
Common stock

20,697

20,675

20,648

Retained earnings

17,636

16,806

14,064

Accumulated other comprehensive income/(loss), net of tax

989

281

371

Total stockholders' equity

39,322

37,762

35,083

Total liabilities & stockholders' equity

$

513,291

$

385,423

$

347,191

CONSOLIDATED STATEMENTS OF INCOME
Unaudited (dollars in thousands, except per share data)

THREE MONTHS ENDED

SIX MONTHS ENDED

June 30,

March 30

June 30,

June 30,

June 30,

2020

2020

2019

2020

2019

INTEREST INCOME
Non-PPP loans

$

3,606

$

3,857

$

3,380

$

7,464

$

6,528

PPP loans

634

-

-

634

-

Securities

172

161

181

333

339

Other interest income

14

67

156

81

219

Total interest income

4,426

4,085

3,717

8,512

7,086

INTEREST EXPENSE
Deposits

141

240

279

379

528

Borrowed funds

36

46

55

82

113

Total interest expense

177

286

334

461

641

NET INTEREST INCOME

4,249

3,799

3,383

8,051

6,445

Provision for loan losses

900

378

110

1,278

110

Net interest income after provision for loan losses

3,349

3,421

3,273

6,773

6,335

NONINTEREST INCOME
Trust fee income

567

572

535

1,139

1,025

Service charges

192

221

230

413

438

Mortgage loan sales and servicing

81

139

151

219

222

Investment sales commissions

43

48

52

91

100

Merchant card services

59

64

68

123

119

RIA income

127

134

86

260

169

Other income

92

72

87

165

171

Total noninterest income

1,161

1,250

1,209

2,410

2,244

NONINTEREST EXPENSE
Salaries and employee benefits

1,933

2,124

1,720

4,055

3,515

Outside services

381

427

333

808

703

Occupancy & equipment

315

324

318

638

599

Trust expense

319

356

320

677

648

Loan and collection, OREO expense

72

154

30

227

387

Advertising

32

51

75

84

146

Supplies and postage

62

61

19

124

51

Other operating expenses

293

320

299

614

645

Total noninterest expense

3,407

3,817

3,114

7,227

6,694

Income before taxes

1,103

854

1,368

1,956

1,885

Provision for income taxes

273

212

349

484

466

NET INCOME

$

830

$

642

$

1,019

$

1,472

$

1,419

Quarterly Highlights

2nd Quarter

1st Quarter

4th Quarter

3rd Quarter

2nd Quarter

2020

2020

2019

2019

2019

Earnings
Net interest income

$

4,249

$

3,799

$

3,779

$

3,531

$

3,383

Provision for loan loss

900

378

30

95

110

Noninterest income

1,161

1,250

1,259

1,239

1,209

Noninterest expense

3,407

3,817

3,636

3,267

3,114

Provision for income taxes

273

212

318

363

349

Net income

$

830

$

642

$

1,054

$

1,045

$

1,019

Average shares outstanding

7,003,125

7,003,125

6,975,084

6,975,084

6,973,431

Earnings per share

$

0.12

$

0.09

$

0.15

$

0.15

$

0.15

Performance Ratios
Return on average assets

0.69

%

0.69

%

1.14

%

1.16

%

1.21

%

Return on average equity

8.69

%

6.87

%

11.45

%

11.70

%

12.05

%

Net interest margin - tax equivalent

3.73

%

4.39

%

4.35

%

4.19

%

4.30

%

Yield on loans

4.33

%

5.14

%

5.25

%

5.09

%

5.12

%

Yield on loans - excluding PPP loans

4.85

%

5.14

%

5.25

%

5.09

%

5.12

%

Cost of interest bearing liabilities

0.22

%

0.45

%

0.54

%

0.60

%

0.60

%

Efficiency ratio

62.98

%

75.60

%

72.19

%

68.49

%

67.77

%

Full-time equivalent employees

111

112

110

105

102

Capital
Leverage ratio

8.74

%

11.15

%

11.13

%

11.12

%

11.44

%

Common equity tier 1 ratio NA(1) NA(1)

13.83

%

14.42

%

14.62

%

Tier 1 risk based ratio NA(1) NA(1)

13.83

%

14.42

%

14.62

%

Total risk based ratio NA(1) NA(1)

15.06

%

15.68

%

15.87

%

Book value per share

$

5.61

$

5.39

$

5.35

$

5.20

$

5.03

Asset quality
Allowance for loan losses (ALLL)

$

4,873

$

3,966

$

3,592

$

3,484

$

3,380

Nonperforming loans (NPLs)

$

1,293

$

1,230

$

1,614

$

1,510

$

1,693

Nonperforming assets (NPAs)

$

1,293

$

1,281

$

1,614

$

1,510

$

1,693

Classified Assets

$

11,945

$

9,058

$

7,834

$

5,728

$

5,258

Net loan charge offs (recoveries)

$

(7

)

$

5

$

(78

)

$

(8

)

$

(7

)

ALLL as a percentage of net loans

1.62

%

1.31

%

1.20

%

1.24

%

1.26

%

ALLL as a percentage of NPLs

376.98

%

322.44

%

222.55

%

230.73

%

199.65

%

Net charge offs (recoveries) to average loans

0.00

%

0.00

%

-0.03

%

0.00

%

0.00

%

Net NPLs as a percentage of total loans

0.44

%

0.41

%

0.55

%

0.54

%

0.64

%

Nonperforming assets as a percentage of total assets

0.25

%

0.33

%

0.44

%

0.42

%

0.49

%

Classified Asset Ratio

30.38

%

23.99

%

17.60

%

15.80

%

14.99

%

Past due as a percentage of total loans

0.53

%

0.61

%

0.62

%

1.00

%

0.74

%

End of period balances
Total securities and short term deposits

$

70,159

$

64,148

$

45,112

$

56,627

$

56,932

Total loans net of allowance

$

296,725

$

297,212

$

295,255

$

277,979

$

266,437

Total earning assets

$

372,903

$

366,472

$

345,038

$

339,169

$

327,828

Total assets

$

513,291

$

385,423

$

364,188

$

360,358

$

347,191

Total noninterest bearing deposits

$

125,714

$

78,003

$

73,771

$

78,230

$

80,785

Total deposits

$

465,322

$

339,202

$

318,039

$

316,176

$

304,432

Average balances
Total securities and short term deposits

$

67,450

$

48,764

$

57,528

$

60,571

$

52,991

Total loans net of allowance

$

389,275

$

298,055

$

285,491

$

272,845

$

261,487

Total earning assets

$

462,157

$

351,537

$

347,646

$

337,903

$

318,838

Total assets

$

484,315

$

372,017

$

366,647

$

356,452

$

337,585

Total noninterest bearing deposits

$

132,311

$

76,653

$

74,489

$

78,817

$

77,694

Total deposits

$

436,776

$

325,128

$

321,687

$

312,530

$

295,451

(1) Effective March 31, 2020 Oregon Pacific Bank opted into the Community Bank Leverage Ratio and is no longer calculating risk based capital ratios.

Ron Green, President & Chief Executive Officer
ron.green@opbc.com
(541) 902-9800



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