ABERDEEN, Wash., April 30, 2021 (GLOBE NEWSWIRE) -- Pacific Financial Corporation (OTCQX: PFLC), (�Pacific Financial� or the �Company�), the holding company for Bank of the Pacific (the �Bank�), today reported net income of $4.2 million, or $0.40 per diluted share for the first quarter of 2021, compared to $1.2 million, or $0.11 per diluted share for the first quarter of 2020, and $3.8 million, or $0.37 per diluted share for the fourth quarter of 2020.�� First quarter 2021 results included a loan loss provision recapture of $1.4 million compared to recording a $2.0 million loan loss provision for the first quarter of 2020. All results are unaudited.

The board of directors of Pacific Financial declared a quarterly cash dividend of $0.13 per share on April 28, 2021. The dividend will be payable on June 2, 2021, to shareholders of record on May 18, 2021.

�We generated record earnings in the first quarter of 2021, including the recapture of $1.4 million from our allowance for loan losses. Credit quality remains solid and during the quarter $19.0 million in loans were upgraded from the watch or especially mentioned category resulting in a decrease to our allowance for loan losses balance,� said Denise Portmann, President and Chief Executive Officer. �First quarter results were also highlighted by strong deposit growth and an ongoing robust mortgage banking business as the low interest rate environment continued to fuel strong refinance activity and home purchases.� The allowance for loan losses was 1.48% of total loans and 286.05% of impaired loans as of March 31, 2021 compared to 1.65% of total loans and 471.22% of impaired loans as of December 31, 2020.

The Consolidated Appropriations Act, 2021 provided additional COVID-19 stimulus relief, and it included $284 billion allocated for another round of Paycheck Protection Program (PPP) funding, with a date extension by the Small Business Administration (SBA) to May 31, 2021. �From the beginning, the Bank has been providing PPP loans and assisting our customers in keeping their businesses operational, and we continue to actively participate in the latest round of PPP lending,� added Portmann. �As of March 31, 2021, under the latest round of PPP, we have assisted 509 businesses with $55.4 million in PPP loans.�

• Net income was $4.2 million, or $0.40 per diluted share, for the first quarter of 2021, compared to $1.2 million, or $0.11 per diluted share, for the first quarter a year ago, and $3.8 million, or $0.37 per diluted share, for the fourth quarter of 2020.
• Annualized pre-tax pre-provision return on assets (non-GAAP) and annualized pre-tax pre-provision return on equity (non-GAAP) was 1.32% and 13.69% for the first quarter of 2021, compared to 1.53% and 13.16% for the first quarter a year ago, and 1.65% and 16.93% for the fourth quarter of 2020.
• First quarter 2021 results included $1.4 million in recapture of provision for loan losses, compared to a loan loss provision of $2.0 million in the first quarter a year ago, and no provision for loan losses in the fourth quarter of 2020.
• Net interest margin (�NIM�) was 3.35% including SBA PPP loans and 3.05% excluding SBA PPP loans for the first quarter of 2021, compared to 4.30% for the first quarter of 2020 with no PPP loans. For the preceding quarter, NIM was 3.53% including SBA PPP loans and 3.27% excluding SBA PPP loans.��
• Noninterest income was $5.2 million for the first quarter of 2021, an increase of 45% from $3.6 million for the like quarter a year ago and was at $5.8 million for the fourth quarter of 2020.��
• Total deposits increased by $304.7 million, or 38%, to $1.10 billion at March 31, 2021, compared to $794.6 million at March 31, 2020, and increased by $70.9 million from $1.03 billion at December 31, 2020. Non-interest-bearing deposits grew by 62% from a year ago and represented 35% of total deposits at March 31, 2021.
• Gross loans increased by $44.1 million, or 6%, to $722.7 million at March 31, 2021, compared to $678.6 million at March 31 2020, and declined by $9.3 million, or 1%, from $732.0 million at December 31, 2020. Included in total loans for the current quarter were $108.4 million in PPP loans.
• Asset quality remains solid:
  • Loans 30-90 delinquent, still on accrual status, were minimal at 0.21% of gross loans outstanding.
  • Net recoveries totaled $53,000, or 0.03% of average gross loans, for the first quarter of 2021, compared to net recoveries of $66,000, or 0.03% of average gross loans, for the fourth quarter of 2020, and net charge-offs of $207,000, or 0.12%, of average gross loans for the first quarter of 2020.
  • Adversely classified loans were $16.4 million, or 2.28% of gross loans, versus $16.8 million, or 2.29%, at December 31, 2020, and $11.2 million, or 1.65%, at March 31, 2020.
  • Other loans especially mentioned or watch, but not impaired, decreased $29.7 million, or 27%, to $79.6 million at March 31, 2021 compared to $109.3 million at December 31, 2020 and were $105.0 million at March 31, 2020.
• The company re-confirmed the share repurchase program during the first quarter of 2021. During the quarter ended March 31, 2021, Pacific Financial had repurchased a total of 4,192 shares, or $48,000.��
• The Company�s consolidated capital ratios continue to exceed regulatory guidelines for a well-capitalized financial institution.

Net interest income, before the provision for loan losses, was $9.2 million for the first quarter of 2021, compared to $9.1 million for the first quarter a year ago, and $9.7 million for the fourth quarter of 2020.�� The year-over-year growth in net interest income was primarily due to PPP fee income.�� For the first quarter of 2021 and the linked quarter, PPP fees and interest totaled $1.6 million.

The net interest margin (�NIM�), including PPP loans, was 3.35% for the first quarter of 2021, compared to 4.30% for the first quarter of 2020, and 3.53% for the fourth quarter of 2020. The NIM, excluding PPP loans, was 3.05% for the first quarter of 2021, compared to 4.30% for the first quarter of 2020, and 3.27% for the preceding quarter.�� The low interest rate environment and persistent market competition for loans continues to put downward pressure on loan yields, and in addition, increased balances of lower yielding federal funds sold, from growth in core deposits, negatively impacted net interest margin during the quarter and past year.

During the first quarter of 2021, average interest-earning asset yields declined to 3.49% from 4.62% a year earlier and 3.71% for the linked quarter. Average loan yields declined 29 basis points to 4.87%, from 5.16% a year ago, and remained relatively flat from 4.88% for the fourth quarter of 2020.�� Average loan yield including PPP loans and PPP interest and fees can vary on a quarterly basis, as the amortization of PPP fees are typically higher in quarters with higher forgiveness or payoff of PPP loans, thus increasing the average loan yield. During the current quarter, PPP interest and fee amortization impacted loan yields by 24 basis points versus 18 basis points in the fourth quarter 2020. The Bank�s total cost of funds decreased to 0.15% for the first quarter of 2021, from 0.35% from a year earlier, and declined from 0.19% at the linked quarter. Included in the reduction was a decrease in the borrowing rate on the Company�s junior subordinated debentures as well as reduction in deposit account offering rates.

Noninterest income increased 45%, or $1.6 million, to $5.2 million for the first quarter of 2021, compared to $3.6 million for the first quarter of 2020, and declined by 10%, or $592,000, from $5.8 million for the preceding quarter. The largest component of non-interest income is related to mortgage banking activity. Mortgage banking activity has continued to be robust with mortgage originations near record levels set last quarter. Home purchase activity accounted for 31.2% of mortgage loan originations during the quarter compared to 41.7% in the prior quarter and 37.9% in same quarter a year ago. Year-over-year gain on sale of loans increased 78%, or $1.5 million, to $3.5 million in the first quarter of 2021, from $2.0 million for the first quarter a year earlier, and decreased from $4.0 million for the linked quarter.�� Partially offsetting this increase year over year was the reduction in overdraft fees of $142,000 for the current quarter compared to the like quarter in 2020.

Noninterest expenses rose 15% to $10.5 million for the first quarter of 2021, compared to $9.1 million for the first quarter of 2020 and decreased by 1% from $10.6 million for the fourth quarter of 2020.�� The increase in noninterest expense in the current quarter compared to a year ago was primarily due to increased salary and employee benefits associated with increased mortgage banking staffing and variable compensation. In addition, with the launching of expanded digital tools to enhance online functionality, provide instant issue debit cards, improve international wire capability and upgrade to a more robust Commercial Banking business online platform, information technology expenses increased $85,000 year-over-year. Partially offsetting the increase in digital technology costs was reductions in travel related expenses.

Income tax provision was $1.1 million for the first quarter of 2021, compared to $296,000 for the first quarter of 2020 and $991,000 for the fourth quarter of 2020. The effective tax rate for the first quarter of 2021 was 20.0%, compared to 19.8% for the first quarter of 2020, and 20.5% for the fourth quarter of 2020.�� In addition to federal corporate income tax, Pacific Financial also pays Oregon corporate income tax and Washington Business and Occupation tax on revenues.

Total Assets increased 34% to $1.25 billion, at March 31, 2021, compared to $926.3 million at March 31, 2020, and grew 7% from $1.17 billion at December 31, 2020.

Investment Securities increased 25% to $137.5 million at March 31, 2021, compared to $109.9 million at March 31, 2020 and grew 10% from $125.2 million at December 31, 2020. During the current quarter, the Bank continued to deploy a portion of its lower yielding federal funds sold balances into investment securities. This included $18.8 million in investment purchases, which was partially offset by $6.5 million in calls, maturities and payments. Federal funds balances remained at higher than historical levels, primarily as a result of total deposits increases over the current quarter and over the last twelve months. �� ��

Gross Loans increased 6%, or $44.1 million, to $722.7 million at March 31, 2021, compared to $678.6 million at March 31, 2020, and declined 1%, or $9.3 million, from $732.0 million at March 31, 2020. Total loans at March 31, 2021, included $108.4 million of PPP loans compared to $96.1 million at December 31, 2020. Excluding PPP loans, loan balances declined $64.3 million on a year-over-year basis and $21.6 since December 31, 2020. Loan balances were impacted by commercial and agricultural lines of credit usage which dropped by 71%, or $30.6 million, to $12.6 million at March 31, 2021, compared to $43.2 million a year ago, and dropped by 47%, or $11.1 million from $23.7 million at December 31 2020. Balances were also impacted by the expected payoff of two especially mentioned or watch commercial credit relationships for which the Bank had been working with the customers on an exit strategy.

Loans are predominately originated within our Western Washington and Oregon markets and the Company�s portfolio is well-diversified by collateral type and by industry with a prudent credit discipline. With the risks associated with the COVID-19 pandemic reducing the severity, the Company made reasonable adjustments to incrementally relax certain underwriting guidance, that had been tightened earlier in the pandemic, for non-owner occupied commercial real estate lending. To manage risk, the Company oversees new loan origination volume and current loan balances using concentration limits that establish maximum exposure levels by designated industry segment, real estate product types, geography and single borrower limits.

At March 31, 2021, CRE concentration remained relatively unchanged at 179% of total risk-based capital; well below the regulatory guidance limit of 300%.�� Commercial and agricultural loans together with CRE-owner occupied, accounted for 38.8% of total loans outstanding (excluding PPP loans) at March 31, 2021, compared to 40.7% at March 31, 2020 and 40.5% at December 31, 2020. CRE non-owner-occupied and multifamily concentrations accounted for 32.6% of total loans outstanding (excluding PPP loans) at March 31, 2021, compared to 27.0% at March 31, 2020 and 30.9% at December 31, 2020. Hospitality, 5+ unit apartments and commercial properties comprise the largest areas of the commercial real estate non-owner occupied and multi-family property portfolios at $44.2 million, $39.6 million and $32.6 million, respectively, at March 31, 2021.

On the consumer side, loans to finance luxury and classic cars, which encompass most of the consumer loan balances, increased slightly to $47.8 million at March 31, 2021, compared to $46.1 million at March 31, 2020 and $46.5 million at December 31, 2020. As part of our strategic plan, we have been limiting our concentrations in indirect loans to finance luxury and classic cars. As of March 31, 2021, the luxury and classic car portfolio includes 843 loans with an average balance of $57,000. The portfolio continues to perform adequately, though delinquencies increased to by $470,000 to $589,000, or 1.2% of loans to finance luxury and classic car portfolio, at March 31, 2021.

SBA Paycheck Protection Program: SBA PPP was designed to provide crucial relief to small businesses to help sustain operations impacted by COVID-19. Under this program, Bank of the Pacific funded 748 loans totaling $130.7 million for its customers in 2020, and an additional 509 loans totaling $55.4 million in the first quarter of 2021.

Loan Payment Deferrals: Early in 2020, the Bank provided $106.2 million in 90-day payment deferrals to customers adversely impacted by operating restrictions due to COVID-19. During the third and fourth quarters of 2020, a majority of these loan deferrals returned to regular payment status, reducing the balance of deferrals to $1.9 million at year end 2020. The Bank has continued to provide a payment deferral program during 2021 and as of March 31, 2021, total outstanding deferrals were $7.0 million, with $4.6 million of these deferrals related to the accommodations and food services industry, with rental and leasing real estate, and recreation and leisure comprising a majority of the remaining $2.4 million.

Stressed Sectors as a Result of COVID-19: The Bank continues to identify several industries as being potentially more vulnerable to the economic and business impacts of the Coronavirus pandemic. Those industries include accommodation (hospitality), animal production (primarily dairy), restaurants, retail trade, and recreation and entertainment. Although these industries are potentially more directly impacted by COVID-19, the bank�s customer base within these sectors covers a wide range of clients, including those who operate under diversified business models reaching a broader range of clients, possess necessary financial resources, and are managed by experienced management teams who aid in working through these economic challenges. At March 31, 2021, the total of these industries was $93.6 million, representing 15% of gross loans without PPP.��

Throughout the last few quarters, the Bank has closely monitored the performance and status of loans within these industries. Despite the initial impact to these higher risk industries caused by required shut down measures taken at onset of crises as well as pandemic driven changes to certain client operating models, generally most customers have been able to successfully navigate the challenges faced by their businesses. Certain industries appear to be stabilizing, such as accommodation (hospitality) where clients have generally performed reasonably well through the 2020 summer and early fall months especially for those operators located in coastal markets benefiting from local Pacific Northwest consumers preferring to vacation closer to home. Animal production (primarily dairy) clients were negatively impacted by lower milk prices in early stages of the crisis, but prices have since rebounded along with financial benefits provided under several government programs. Retail trade portfolio is well diversified within the Banks geographic footprint with majority of business located in rural markets versus metropolitan areas that have been more exposed to domestic unrest or protests. There continues to be pandemic driven challenges for selective retail trade credits and commercial real estate retail tenants as local government restrictions have only recently relaxed.�� A larger share of the Bank�s restaurant clients are more focused on convenience food and quick service concepts that have performed acceptably well throughout the pandemic. The identified groups of higher risk industries may change over time as conditions improve or worsen. Three industries including healthcare and social service, repair and maintenance, and other services were removed from the stressed sector list at March 31, 2021 as clients have generally performed as agreed with no loans from these groups currently under payment deferral. Nonetheless, the Bank will continue its close monitoring of customer performance in these stressed sectors.

Asset Quality � Nonperforming assets (�NPAs�) increased to $2.5 million, or 0.20% of total assets, at March 31, 2021, compared to $1.6 million, or 0.18% of total assets a year earlier, and remained relatively unchanged compared to $2.4 million, or 0.20% of assets at December 31, 2020. At March 31, 2021, adversely classified loans increased by $5.3 million, to $16.5 million, or 2.68% of adversely classified loans to gross loans (excluding PPP), compared to $11.2 million, or 1.65% of gross loans, at March 31, 2020, and decreased by $315,000 from $16.8 million, or 2.64% of gross loans (excluding PPP), at December 31, 2020. Balances related to loans graded watch or other loans especially mentioned, declined $29.7 during the quarter to $79.6 million, as several credits were upgraded upon resumption of payments after being deferred during 2020. �� The adversely classified loans to total assets ratio was 1.32%, at March 31, 2021, compared to 1.21% at March 31, 2020, and 1.44%, at December 31, 2020.

The Allowance for Loan Losses (�ALL�) decreased 1% to $10.7 million, or 1.75% of gross loans (excluding PPP) at March 31, 2021, compared to $10.8 million, or 1.59% of gross loans, at March 31, 2020, and declined 11% from $12.1 million, or 2.01% (excluding PPP), at December 31, 2020. The Bank recorded into income a $1.4 million recapture of loan loss provision during the current quarter. This was primarily the result of $19 million in loan risk rating upgrades as several credits were upgraded upon resumption of payments after being deferred during 2020. No adjustment to qualitative factors were made in the first quarter of 2021. For the same quarter a year ago, the bank recorded a $2.0 million provision and no provision for the fourth quarter of 2020. Net recoveries were $53,000 for the first quarter of 2021, compared to net charge-offs of $207,000 for the first quarter a year earlier, and net recoveries of $66,000 for the fourth quarter of 2020.

Total Deposits increased 38% to $1.10 billion at March 31, 2021, compared to $794.6 million from a year earlier, and grew by 7% from $1.03 billion at December 31, 2020. Year-over-year increases were primarily related to SBA PPP loan proceeds deposited in customers Bank of the Pacific accounts and also a generally higher level of client liquidity from reduced business investment and customer spending and receipt of stimulus funds. �We continue to benefit from our outreach to our existing customers as well as with new customers established through PPP lending,� said Tucker. The growth in noninterest-bearing deposits increased 62% from a year ago and represents 35% of total deposits at March 31, 2021.

Capital Ratios of Pacific Financial Corporation, and its subsidiary Bank of the Pacific, continue to exceed the well-capitalized regulatory thresholds. At March 31, 2021, Pacific Financial Corporation�s leverage ratio was 9.5% and the total risk-based capital ratio was 16.8%. The total risk-based capital ratios of the Company include $13.4 million of junior subordinated debentures, all of which qualified as Tier 1 capital under guidance issued by the Federal Reserve. As provided in the Dodd-Frank Act, the Company expects to continue to rely on these junior subordinated debentures as part of its regulatory capital. The company re-confirmed the share repurchase program during the first quarter of 2021. During the quarter ended March 31, 2021, Pacific Financial had repurchased a total of 4,192 shares, or $48,000.��

�

�

�

�

�

LIQUIDITY

LOANS

DEPOSITS

The following table summarizes the capital measures of the Company and the Bank respectively, at the dates listed below.

The following tables set forth information regarding average balances of interest-earning assets and interest-bearing liabilities and the resultant yields or cost, and the net interest margin on a tax equivalent basis. Loans held for sale and non-accrual loans are included in total loans.

�

�

�

ABOUT PACIFIC FINANCIAL CORPORATION

Pacific Financial Corporation of Aberdeen, Washington, is the bank holding company for Bank of the Pacific, a state chartered and federally insured commercial bank. Bank of the Pacific offers banking products and services to small-to-medium sized businesses and professionals in western Washington and Oregon. At March 31, 2021, the Company had total assets of $1.25 billion and operated fourteen branches in the communities of Grays Harbor, Pacific, Whatcom, Skagit, Clark and Wahkiakum counties in the State of Washington, and two branches in Clatsop County, Oregon. The Company also operated loan production offices in the communities of Burlington, Washington and Salem and Eugene, Oregon. Visit the Company�s website at www.bankofthepacific.com. Member FDIC.

Cautions Concerning Forward-Looking Statements

This press release contains statements that constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and other laws, including all statements in this release that are not historical facts or that relate to future plans or events or projected results of Pacific Financial Corporation and its wholly-owned subsidiary, Bank of the Pacific. These forward-looking statements are subject to risks and uncertainties that could cause actual events or results to differ materially from those projected, anticipated or implied. These risks and uncertainties include various risks associated with growing the Bank and expanding the services it provides, successfully completing and integrating the acquisition of new branches and development of new business lines and markets, competition in the marketplace, general economic conditions, including the current COVID-19 pandemic and government responses thereto, changes in interest rates, extensive and evolving regulation of the banking industry, and many other risks. The pandemic could cause us to experience higher loan losses within our lending portfolio, impairment of goodwill, reduced demand for our products and services and other negative impacts on our financial position or results of operations. The depth, severity and scope of this current recession is uncertain, and our company will not be immune to the effects of the financial stress resulting from a global pandemic and economic shutdown. We undertake no obligation to update or revise any forward-looking statement. Readers of this release are cautioned not to put undue reliance on forward-looking statements.�

?CONTACTS:
�DENISE PORTMANN, PRESIDENT & CEO
�CARLA TUCKER, EVP & CFO
�360.533.8873