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Oregon Pacific Bank Announces Second Quarter Earnings Results

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

Highlights:

  • Second quarter net income of $2.2 million; $0.31 per diluted share.
  • Quarterly loan growth of $16.8 million or 3.40%.
  • Quarterly tax equivalent net interest margin of 3.72%.
  • Federal Reserve approved conversion of Portland loan production office to full-service branch.

Net income for the quarter ended June 30, 2023, was $2.2 million, or $0.31 per diluted share compared to $1.9 million or $0.27 per diluted share for the quarter ended June 30, 2022. Core earnings remained strong, but the Bank experienced some margin compression as pressure on cost of funds and deposit retention grew. The second quarter margin contracted to 3.72%, down from 3.87% in first quarter 2023, but still remains elevated when compared to the quarterly margin of 3.27% from second quarter 2022. The rapid pace of rate increases occurring between mid-2022 and early-2023 lead to record margin expansion and the industry is seeing some amount of compression as deposit rates lagged the increase in asset yields.

During the quarter the Bank received regulatory approval to convert the Portland loan production office into a full-service Branch. The Bank has identified a permanent branch location located at 16101 SW 72nd Avenue, with an official branch opening anticipated during the third quarter. “Conversion of the Portland Loan Production Office into a full-service branch further demonstrates the Bank’s commitment to growing the Portland Market,” said Ron Green, President and Chief Executive Officer. “We believe the strength of our Portland banking team, led by Market President Kyle Baisch, will have tremendous success as clients continue to see the value of relationships and the community bank model.”

Period-end loans, net of deferred loan origination fees, totaled $510.3 million, representing quarterly growth of $16.8 million. The first quarter loan yield grew to 4.96%, 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 $32.1 million, with a weighted average effective rate of 6.71%.

The Bank experienced quarterly deposit contraction totaling $12.4 million compared to deposit totals at March 31, 2023. During the second quarter two large clients reduced their deposit balances held with the Bank. A large nonprofit utilized excess cash to begin funding a large construction project and a commercial client completed a partner buyout. The deposit reductions associated with these two clients totaled $15.6 million compared to their balances at March 31, 2023. “Deposit migration during the second quarter generally occurred as a result of normal operating activity, with rate-based migration occurring far less,” commented John Raleigh, Chief Lending Officer. "Deposit rates are still top of mind, but the targeted interest rate increases implemented during the second quarter have helped retain rate-sensitive clients while balancing the bank’s total cost of funds.” The Bank’s cost of funds increased to 0.78% during the second quarter, compared to 0.51% during the first quarter, resulting in an increase in interest expense of $453 thousand during the quarter. The Bank continued to utilize Insured Cash Sweep (ICS) deposits to provide added FDIC insurance to customers seeking added protection. ICS deposits grew from $104.3 million at March 31, 2023 to $110.1 million at June 30, 2023 and are reflected in the interest checking line item of the balance sheet. Through June 30, 2023, the Bank’s ICS reciprocal concentration remains below 20% of deposits, so no portion of the ICS deposits are classified as brokered deposits for regulatory reporting purposes.

The securities portfolio contracted to $181.5 million during the quarter, down from $195.6 million at March 31, 2023. The reduction was attributable to an increase in the unrealized loss on the portfolio, normal portfolio cash flows and a sale of $9.5 million in securities. The sale candidates were tax-exempt municipal bonds purchased during 2016, which were able to be liquidated with a minimal loss of $30 thousand to generate cash flow to fund loan growth, while maintaining the overall security portfolio yield.

Noninterest income totaled $1.8 million during the second quarter 2023 and represented growth of $91 thousand over first quarter 2023. The largest increase in non-interest income occurred in the trust fee income category, which increased $59 thousand over first quarter 2023. The increase was primarily attributable to growth in trust assets under management which totaled $222.9 million at June 30, 2023. On a year-over-year basis this represents growth of $27.5 million or 14.26%. “The Trust business continues to be a strong source of non-interest income,” said Beth Knorr, Director of Trust Services. “Demand for Trust Services continues to grow and as a result, during the quarter the Bank added two new Trust Officers, Shaina Peters in Roseburg and Justin Miller in Coos Bay. The investment in additional trust personnel should position the Trust Department for anticipated future business growth.”

Noninterest expense for the second quarter 2023 totaled $5.4 million, representing an increase of $129 thousand over first quarter 2023. The largest expense fluctuation totaled $52 thousand and occurred in the trust expense category due to investment in trust-related personnel. Additionally, the other operating expense line item also grew $48 thousand over the prior quarter. This fluctuation was primarily attributable to increased FDIC insurance assessment as the FDIC approved a final rule in October 2022 to increase the initial base deposit insurance assessment rate by two basis points for the first quarterly assessment period of 2023, which was billed in second quarter 2023. This rate increase occurred before the failure of Silicon Valley Bank, and this line item may see additional fluctuation based on the final Silicon Valley Bank related special assessment.

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)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30,

 

March 31,

 

June 30,

 

 

2023

 

2023

 

2022

ASSETS
Cash and due from banks

$

10,951

 

$

8,783

 

$

11,527

 

Interest bearing deposits

 

22,967

 

 

41,931

 

 

71,429

 

Securities

 

181,530

 

 

195,647

 

 

170,977

 

Loans, net of deferred fees and costs

 

510,264

 

 

493,480

 

 

435,478

 

Allowance for credit losses

 

(6,887

)

 

(6,884

)

 

(6,088

)

Premises and equipment, net

 

11,708

 

 

9,867

 

 

9,558

 

Bank owned life insurance

 

8,738

 

 

8,677

 

 

8,509

 

Deferred tax asset

 

5,978

 

 

5,319

 

 

4,118

 

Other assets

 

7,555

 

 

7,669

 

 

7,024

 

 
Total assets

$

752,804

 

$

764,489

 

$

712,532

 

 
 
LIABILITIES
Deposits
Demand - non-interest bearing

$

159,184

 

$

166,409

 

$

189,112

 

Demand - interest bearing

 

265,550

 

 

264,029

 

 

187,348

 

Money market

 

152,046

 

 

165,118

 

 

163,728

 

Savings

 

75,196

 

 

78,415

 

 

83,517

 

Certificates of deposit

 

25,696

 

 

16,075

 

 

18,948

 

Total deposits

 

677,672

 

 

690,046

 

 

642,653

 

 
Junior subordinated debenture

 

4,124

 

 

4,124

 

 

4,124

 

Subordinated debenture

 

14,677

 

 

14,652

 

 

14,578

 

Other liabilities

 

6,482

 

 

6,300

 

 

6,153

 

 
Total liabilities

 

702,955

 

 

715,122

 

 

667,508

 

 
STOCKHOLDERS' EQUITY
Common stock

 

21,135

 

 

21,103

 

 

20,977

 

Retained earnings

 

39,516

 

 

37,284

 

 

31,707

 

Accumulated other comprehensive income, net of tax

 

(10,802

)

 

(9,020

)

 

(7,660

)

 
Total stockholders' equity

 

49,849

 

 

49,367

 

 

45,024

 

 
Total liabilities & stockholders' equity

$

752,804

 

$

764,489

 

$

712,532

 

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,

2023

2023

2022

2023

2022

INTEREST INCOME
Non-PPP loans

$

6,249

$

5,824

 

$

4,568

$

12,073

 

$

8,854

PPP loans

 

-

 

-

 

 

145

 

-

 

 

349

Securities

 

1,641

 

1,687

 

 

828

 

3,328

 

 

1,383

Other interest income

 

316

 

401

 

 

147

 

717

 

 

202

Total interest income

 

8,206

 

7,912

 

 

5,688

 

16,118

 

 

10,788

 
INTEREST EXPENSE
Deposits

 

1,311

 

858

 

 

108

 

2,169

 

 

217

Borrowed funds

 

229

 

226

 

 

191

 

455

 

 

371

Total interest expense

 

1,540

 

1,084

 

 

299

 

2,624

 

 

588

 
NET INTEREST INCOME

 

6,666

 

6,828

 

 

5,389

 

13,494

 

 

10,200

Provision (credit) for credit losses

 

14

 

(51

)

 

100

 

(37

)

 

150

Net interest income after provision (credit) for credit losses

 

6,652

 

6,879

 

 

5,289

 

13,531

 

 

10,050

 
NONINTEREST INCOME
Trust fee income

 

943

 

884

 

 

804

 

1,827

 

 

1,582

Service charges

 

342

 

325

 

 

322

 

667

 

 

620

Mortgage loan sales

 

28

 

38

 

 

90

 

66

 

 

211

Merchant card services

 

122

 

103

 

 

134

 

225

 

 

242

Oregon Pacific Wealth Management income

 

275

 

252

 

 

252

 

527

 

 

502

Other income

 

82

 

99

 

 

179

 

181

 

 

269

Total noninterest income

 

1,792

 

1,701

 

 

1,781

 

3,493

 

 

3,426

 
NONINTEREST EXPENSE
Salaries and employee benefits

 

3,082

 

3,129

 

 

2,642

 

6,211

 

 

5,256

Outside services

 

588

 

552

 

 

504

 

1,140

 

 

1,023

Occupancy & equipment

 

451

 

448

 

 

412

 

899

 

 

813

Trust expense

 

533

 

481

 

 

402

 

1,014

 

 

794

Loan and collection, OREO expense

 

27

 

24

 

 

23

 

51

 

 

50

Advertising

 

145

 

102

 

 

94

 

247

 

 

188

Supplies and postage

 

79

 

88

 

 

60

 

167

 

 

130

Other operating expenses

 

537

 

489

 

 

326

 

1,026

 

 

716

Total noninterest expense

 

5,442

 

5,313

 

 

4,463

 

10,755

 

 

8,970

 
Income before taxes

 

3,002

 

3,267

 

 

2,607

 

6,269

 

 

4,506

Provision for income taxes

 

771

 

834

 

 

663

 

1,605

 

 

1,118

 
NET INCOME

$

2,231

$

2,433

 

$

1,944

$

4,664

 

$

3,388

Quarterly Highlights
 

2nd Quarter

 

1st Quarter

 

4th Quarter

 

3rd Quarter

 

2nd Quarter

2023

 

2023

 

2022

 

2022

 

2022

 
Earnings
Interest income

$

8,206

 

$

7,912

 

$

7,651

 

$

6,458

 

$

5,688

 

Interest expense

 

1,540

 

 

1,084

 

 

581

 

 

356

 

 

299

 

Net interest income

$

6,666

 

$

6,828

 

$

7,070

 

$

6,102

 

$

5,389

 

Provision for loan loss

 

14

 

 

(51

)

 

335

 

 

209

 

 

100

 

Noninterest income

 

1,792

 

 

1,701

 

 

1,888

 

 

2,042

 

 

1,781

 

Noninterest expense

 

5,442

 

 

5,313

 

 

6,737

 

 

4,811

 

 

4,463

 

Provision for income taxes

 

771

 

 

834

 

 

459

 

 

792

 

 

663

 

Net income

$

2,231

 

$

2,433

 

$

1,427

 

$

2,332

 

$

1,944

 

 
Average shares outstanding

 

7,097,866

 

 

7,085,840

 

 

7,070,425

 

 

7,070,433

 

 

7,070,686

 

Average diluted shares outstanding

 

7,104,366

 

 

7,089,090

 

NA NA NA
Period end shares outstanding

 

7,094,562

 

 

7,102,271

 

 

7,068,659

 

 

7,070,304

 

 

7,070,304

 

Period end diluted shares outstanding

 

7,101,062

 

 

7,108,771

 

NA NA NA
Earnings per share

$

0.31

 

$

0.34

 

$

0.20

 

$

0.33

 

$

0.27

 

Diluted earnings per share

$

0.31

 

$

0.34

 

NA NA NA
 
Performance Ratios
Return on average assets

 

1.19

%

 

1.13

%

 

0.74

%

 

1.28

%

 

1.12

%

Return on average equity

 

18.12

%

 

21.01

%

 

13.34

%

 

20.41

%

 

17.34

%

Net interest margin - tax equivalent

 

3.72

%

 

3.87

%

 

3.87

%

 

3.54

%

 

3.27

%

Yield on loans

 

4.96

%

 

4.85

%

 

4.70

%

 

4.50

%

 

4.45

%

Yield on loans - excluding PPP loans

 

4.96

%

 

4.85

%

 

4.70

%

 

4.50

%

 

4.33

%

Yield on securities

 

3.37

%

 

3.41

%

 

3.02

%

 

2.39

%

 

1.91

%

Cost of deposits

 

0.78

%

 

0.51

%

 

0.21

%

 

0.09

%

 

0.07

%

Cost of interest-bearing liabilities

 

1.15

%

 

0.84

%

 

0.44

%

 

0.29

%

 

0.26

%

Efficiency ratio

 

64.34

%

 

62.29

%

 

75.21

%

 

59.07

%

 

62.21

%

Full-time equivalent employees

 

128

 

 

127

 

 

120

 

 

122

 

 

122

 

 
Capital
Tier 1 capital

$

77,917

 

$

75,684

 

$

73,882

 

$

72,410

 

$

70,041

 

Leverage ratio

 

10.24

%

 

9.94

%

 

9.55

%

 

9.95

%

 

9.96

%

Common equity tier 1 ratio

 

14.18

%

 

14.16

%

 

13.92

%

 

14.81

%

 

14.79

%

Tier 1 risk based ratio

 

14.18

%

 

14.16

%

 

13.92

%

 

14.81

%

 

14.79

%

Total risk based ratio

 

15.43

%

 

15.41

%

 

15.17

%

 

16.06

%

 

16.04

%

Book value per share

$

7.03

 

$

6.97

 

$

6.52

 

$

6.05

 

$

6.37

 

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

2023

 

2023

 

2022

 

2022

 

2022

 
Asset quality
Allowance for loan losses (ALLL)

$

6,887

 

$

6,884

 

$

6,666

 

$

6,328

 

$

6,088

 

Nonperforming loans (NPLs)

$

178

 

$

72

 

$

52

 

$

424

 

$

960

 

Nonperforming assets (NPAs)

$

178

 

$

72

 

$

52

 

$

424

 

$

960

 

Classified Assets (1)

$

3,750

 

$

3,842

 

$

3,877

 

$

4,574

 

$

5,089

 

Net loan charge offs (recoveries)

$

(3

)

$

(88

)

$

(4

)

$

(31

)

$

(29

)

ACL as a percentage of net loans

 

1.35

%

 

1.39

%

 

1.38

%

 

1.39

%

 

1.40

%

ACL as a percentage of NPLs

 

3869.10

%

 

9561.11

%

 

12819.23

%

 

1492.45

%

 

634.17

%

Net charge offs (recoveries) to average loans

 

0.00

%

 

-0.02

%

 

0.00

%

 

-0.01

%

 

-0.01

%

Net NPLs as a percentage of total loans

 

0.03

%

 

0.01

%

 

0.01

%

 

0.09

%

 

0.22

%

Nonperforming assets as a percentage of total assets

 

0.02

%

 

0.10

%

 

0.01

%

 

0.05

%

 

0.13

%

Classified Asset Ratio (2)

 

4.42

%

 

4.65

%

 

4.81

%

 

5.81

%

 

6.68

%

Past due as a percentage of total loans

 

0.12

%

 

0.06

%

 

0.19

%

 

0.13

%

 

0.12

%

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

$

-

 

$

-

 

$

18,976

 

$

60,588

 

$

121,645

 

Unused credit commitments

$

97,111

 

$

85,390

 

$

89,680

 

$

85,880

 

$

93,411

 

Trust assets under management (AUM)

$

222,880

 

$

219,731

 

$

215,736

 

$

193,448

 

$

195,058

 

Oregon Pacific Wealth Management AUM

$

141,990

 

$

133,138

 

$

117,549

 

$

116,193

 

$

114,973

 

 
End of period balances
Total securities

$

181,530

 

$

195,647

 

$

195,881

 

$

188,366

 

$

170,977

 

Total short term deposits

$

22,967

 

$

41,931

 

$

39,863

 

$

97,840

 

$

71,429

 

Total loans net of allowance

$

503,377

 

$

486,596

 

$

476,313

 

$

450,299

 

$

429,390

 

Total earning assets

$

716,793

 

$

733,090

 

$

720,712

 

$

744,786

 

$

679,835

 

Total assets

$

752,804

 

$

764,489

 

$

754,182

 

$

780,711

 

$

712,532

 

Total noninterest bearing deposits

$

159,184

 

$

166,409

 

$

180,589

 

$

195,536

 

$

189,112

 

Total deposits

$

677,672

 

$

690,046

 

$

682,869

 

$

712,710

 

$

642,653

 

 
Average balances
Total securities

$

190,818

 

$

196,060

 

$

192,348

 

$

186,535

 

$

165,729

 

Total short term deposits

$

24,616

 

$

35,240

 

$

68,808

 

$

57,557

 

$

73,515

 

Total loans net of allowance

$

498,069

 

$

480,046

 

$

459,440

 

$

436,522

 

$

418,445

 

Total earning assets

$

722,420

 

$

720,003

 

$

728,980

 

$

688,723

 

$

665,637

 

Total assets

$

751,845

 

$

752,094

 

$

761,361

 

$

720,465

 

$

697,913

 

Total noninterest bearing deposits

$

154,949

 

$

167,863

 

$

178,226

 

$

191,292

 

$

178,626

 

Total deposits

$

675,954

 

$

678,528

 

$

692,412

 

$

648,827

 

$

627,700

 

(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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