Le Lézard
Classified in: Business, Covid-19 virus
Subject: EARNINGS

Oregon Pacific Bank Announces Third Quarter Earnings Results


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

Highlights

Oregon Pacific Bancorp, and its wholly owned subsidiary Oregon Pacific Bank, reported quarterly net income of $803 thousand, or $0.11 per diluted share compared to $1.0 million, or $0.15 per diluted share for the quarter ended September 30, 2019. Through September 30, 2020, the Bank recorded year-to-date net income totaling $2.3. million, or $0.32 per diluted share compared to $2.5 million, or $0.35 per diluted share for the same period in 2019. During the nine months ended September 30, 2020 provision for loan losses totaled $2.2 million compared to $205 thousand during the nine months ended September 30, 2019. "2020 has presented many challenges but I continue to be proud of our staff and their commitment to create value for those we support. In light of the pandemic, I am pleased with the results of the third quarter," said Ron Green, President and CEO. "The uncertainty surrounding long-term implications of COVID-19 have not been fully realized, but Oregon Pacific Bank is positioned well with a team of seasoned bankers, ready to assist our clients."

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 September 30, 2020, Oregon Pacific Bank made 752 PPP loans, totaling $125.2 million. In addition, as of September 30, 2020, the Bank had a remaining balance of unearned loan origination fees of $3.3 million which will be recognized over the lives of the loans as an adjustment to yield. During the latter part of the third quarter the Bank's relationship managers began working with borrowers on the PPP forgiveness process. The Bank elected to work with a third-party software provider to help with the data transmission functionality between the Bank and PPP borrowers. As of September 30, 2020, the Bank had approved 75 forgiveness applications totaling $14.3 million, which were awaiting SBA approval.

Period end loans, net of deferred loan origination fees, totaled $428 million, representing net growth of $6.3 million during the quarter. The Bank continued to see loan opportunities during the third quarter, but a competitive rate environment is leading to a declining yield on the overall portfolio and the potential for an increased risk of prepayments in future quarters. The Bank is also seeing an increase in competition from non-bank lenders, offering terms and non-recourse financing Oregon Pacific Bank is unwilling to meet.

The Bank experienced deposit growth totaling $20.3 million during the third quarter. Approximately 80% of PPP loans were made to existing Oregon Pacific Bank clients. As PPP loans funded, most clients and non-clients placed the loan proceeds into a deposit account with Oregon Pacific Bank. This increase in deposits was originally expected to be short-term in nature, but the deposits are remaining with the Bank much longer than expected. Approximately 20% of the PPP loans originated were to non-clients, and the Bank is working to transition those clients from other financial institutions. As of September 30, 2020, deposit accounts opened after June 30, 2020, held deposit dollars totaling $20.0 million. Reductions in PPP related deposit balances are being approximately offset by the typical seasonal deposit growth for existing clients experienced during this part of the year as nearly all deposit growth during the quarter came through accounts opened during the third quarter.

The third quarter net interest margin lowered to 3.50%, down from 3.73.% in second quarter 2020. The yield on non-PPP loans lowered to 4.70%, down from 4.85% in second quarter as new loans are being booked at rates lower than the current portfolio yield. Partially offsetting the decrease in yield on earning assets was a reduction in the cost of interest bearing liabilities, primarily tied to a reduction in the variable interest rate for the Junior Subordinated Debenture, which resets quarterly.

For the quarter ended September 30, 2020, the Bank booked net recoveries of $9 thousand. Quarterly earnings were impacted by provision for loan losses, totaling $900 thousand for the second consecutive quarter. The provision expense 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 $721 thousand during the quarter.

The Bank continued to work with borrowers experiencing financial difficulty related to COVID-19 during the third quarter. As of June 30, 2020, the Bank provided full payment deferral modifications to 31 borrowers totaling $14.5 million. Through September 30, that reduced to seven loan relationships totaling $2.2 million, with $12.3 million in relationships returning to normal payment status. The Bank also provided interest only loan modifications, which as of June 30, 2020, totaled $38.8 million associated with 98 lending relationships. Most of the interest only payment modifications provided a six-month interest only period, with many of the borrowers scheduled to return to full principal and interest payments in October. As of September 30, 2020, the Bank had 61 loans still covered by interest only payment modifications, totaling $29.8 million. The Bank's Credit Administration team is proactively monitoring loan relationships to determine if future downgrades are necessary.

During the third quarter 2020, noninterest income totaled $1.4 million, representing an increase of $213 thousand over the prior quarter. The Bank saw increases across almost all noninterest income categories. The largest increase occurred in the trust fee income category which grew $61 thousand to $628 thousand for the quarter. The increase was partially attributable to extraordinary income fees (XO fees) related to real estate sales which totaled $53 thousand during third quarter, up from $20 thousand during second quarter. The Bank also experienced a quarterly increase in merchant card services income and mortgage loan commission income, which increased $48 thousand and $46 thousand, respectively, during the quarter. During second quarter both income categories were adversely impacted by COVID-19 as uncertainty in the residential mortgage market made it more difficult for clients to qualify for financing and state mandated closures impacted the volume of merchant charges for the Bank's merchant bankcard clients. Fortunately, both areas appear to have rebounded to near pre-pandemic revenue levels during the third quarter.

Noninterest expense in the third quarter totaled $3.8 million, up $425 thousand from the second quarter, but in line with the noninterest expense of $3.8 experienced during first quarter 2020. On a linked-quarter basis, the Bank saw an increase in salaries and employee benefits expense, primarily tied to the deferred loan origination costs associated with the PPP loans, which were booked as a credit to salary expense primarily during second quarter. The Bank also saw an increase in outside service expense, which was partially attributable to an increase in the Bank's core system expense, which is assessed based on asset size and increased $26 thousand over the second quarter. As the Bank's balance sheet contracts through the spending of PPP related deposit dollars that expense should normalize.

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)
 
 

Sept 30,

June 30,

Sept 30,

 

2020

 

 

2020

 

 

2019

 

ASSETS
Cash and due from banks

$

9,996

 

$

6,944

 

$

8,224

 

Interest bearing deposits

 

49,693

 

 

42,291

 

 

29,475

 

Securities

 

32,406

 

 

27,868

 

 

27,152

 

Non PPP Loans, net of deferred fees and costs

 

306,054

 

 

301,598

 

 

281,463

 

PPP Loans, net of deferred fees and costs

 

121,872

 

 

120,043

 

 

-

 

Total Loans, net of deferred fees and costs

 

427,926

 

 

421,641

 

 

281,463

 

Allowance for loan losses

 

(5,782

)

 

(4,873

)

 

(3,484

)

Premises and equipment, net

 

6,917

 

 

7,041

 

 

7,092

 

Bank owned life insurance

 

8,101

 

 

7,549

 

 

7,010

 

Deferred tax asset

 

300

 

 

363

 

 

793

 

Other assets

 

4,899

 

 

4,467

 

 

2,633

 

 
Total assets

$

534,456

 

$

513,291

 

$

360,358

 

 
 
LIABILITIES
Deposits
Demand - non-interest bearing

$

134,574

 

$

125,714

 

$

78,230

 

Demand - interest bearing

 

163,095

 

 

166,562

 

 

98,698

 

Money market

 

106,838

 

 

97,506

 

 

70,197

 

Savings

 

61,964

 

 

57,098

 

 

50,320

 

Certificates of deposit

 

19,118

 

 

18,442

 

 

18,731

 

Total deposits

 

485,589

 

 

465,322

 

 

316,176

 

 
Subordinated debenture

 

4,124

 

 

4,124

 

 

4,124

 

Other liabilities

 

4,423

 

 

4,523

 

 

3,806

 

 
Total liabilities

 

494,136

 

 

473,969

 

 

324,106

 

 
STOCKHOLDERS' EQUITY
Common stock

 

20,721

 

 

20,697

 

 

20,655

 

Retained earnings

 

18,440

 

 

17,636

 

 

15,110

 

Accumulated other comprehensive income, net of tax

 

1,159

 

 

989

 

 

487

 

 
Total stockholders' equity

 

40,320

 

 

39,322

 

 

36,252

 

 
Total liabilities & stockholders' equity

$

534,456

 

$

513,291

 

$

360,358

 

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,

2020

2020

2019

2020

2019

INTEREST INCOME
Non-PPP loans

$

3,607

$

3,606

$

3,547

$

11,070

$

10,075

PPP loans

 

831

 

634

 

-

 

1,465

 

-

Securities

 

162

 

172

 

157

 

496

 

496

Other interest income

 

17

 

14

 

182

 

98

 

401

Total interest income

 

4,617

 

4,426

 

3,886

 

13,129

 

10,972

 
INTEREST EXPENSE
Deposits

 

158

 

141

 

302

 

538

 

829

Borrowed funds

 

34

 

36

 

53

 

115

 

166

Total interest expense

 

192

 

177

 

355

 

653

 

995

 
NET INTEREST INCOME

 

4,425

 

4,249

 

3,531

 

12,476

 

9,977

Provision for loan losses

 

900

 

900

 

95

 

2,178

 

205

Net interest income after provision for loan losses

 

3,525

 

3,349

 

3,436

 

10,298

 

9,772

 
NONINTEREST INCOME
Trust fee income

 

628

 

567

 

541

 

1,767

 

1,565

Service charges

 

233

 

192

 

236

 

647

 

674

Mortgage loan sales and servicing

 

127

 

81

 

132

 

347

 

354

Investment sales commissions

 

63

 

43

 

46

 

154

 

146

Merchant card services

 

107

 

59

 

88

 

230

 

207

RIA income

 

140

 

127

 

125

 

400

 

295

Other income

 

76

 

92

 

71

 

238

 

242

Total noninterest income

 

1,374

 

1,161

 

1,239

 

3,783

 

3,483

 
NONINTEREST EXPENSE
Salaries and employee benefits

 

2,211

 

1,933

 

1,819

 

6,265

 

5,334

Outside services

 

415

 

381

 

329

 

1,223

 

1,032

Occupancy & equipment

 

334

 

315

 

290

 

973

 

890

Trust expense

 

347

 

319

 

340

 

1,024

 

986

Loan and collection, OREO expense

 

95

 

72

 

113

 

321

 

501

Advertising

 

52

 

32

 

50

 

136

 

196

Supplies and postage

 

59

 

62

 

49

 

182

 

150

Other operating expenses

 

319

 

293

 

277

 

934

 

873

Total noninterest expense

 

3,832

 

3,407

 

3,267

 

11,058

 

9,962

 
Income before taxes

 

1,067

 

1,103

 

1,408

 

3,023

 

3,293

Provision for income taxes

 

264

 

273

 

363

 

748

 

829

 
NET INCOME

$

803

$

830

$

1,045

$

2,275

$

2,464

Quarterly Highlights

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

 

2020

 

 

2020

 

 

2020

 

 

2019

 

 

2019

 

 
Earnings
Net interest income

$

4,425

 

$

4,249

 

$

3,799

 

$

3,779

 

$

3,531

 

Provision for loan loss

 

900

 

 

900

 

 

378

 

 

30

 

 

95

 

Noninterest income

 

1,374

 

 

1,161

 

 

1,250

 

 

1,259

 

 

1,239

 

Noninterest expense

 

3,832

 

 

3,407

 

 

3,817

 

 

3,636

 

 

3,267

 

Provision for income taxes

 

264

 

 

273

 

 

212

 

 

318

 

 

363

 

Net income

$

803

 

$

830

 

$

642

 

$

1,054

 

$

1,045

 

 
Average shares outstanding

 

7,008,125

 

 

7,003,125

 

 

7,003,125

 

 

6,975,084

 

 

6,975,084

 

Earnings per share

$

0.11

 

$

0.12

 

$

0.09

 

$

0.15

 

$

0.15

 

 
Performance Ratios
Return on average assets

 

0.60

%

 

0.69

%

 

0.69

%

 

1.14

%

 

1.16

%

Return on average equity

 

8.05

%

 

8.69

%

 

6.87

%

 

11.45

%

 

11.70

%

Net interest margin - tax equivalent

 

3.50

%

 

3.73

%

 

4.39

%

 

4.35

%

 

4.19

%

Yield on loans

 

4.14

%

 

4.33

%

 

5.14

%

 

5.25

%

 

5.09

%

Yield on loans - excluding PPP loans

 

4.70

%

 

4.85

%

 

5.14

%

 

5.25

%

 

5.09

%

Cost of interest bearing liabilities

 

0.13

%

 

0.22

%

 

0.45

%

 

0.54

%

 

0.60

%

Efficiency ratio

 

66.08

%

 

62.98

%

 

75.60

%

 

72.19

%

 

68.49

%

Full-time equivalent employees

 

113

 

 

111

 

 

112

 

 

110

 

 

105

 

 
Capital
Leverage ratio

 

8.14

%

 

8.74

%

 

11.15

%

 

11.13

%

 

11.12

%

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

 

13.83

%

 

14.42

%

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

 

13.83

%

 

14.42

%

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

 

15.06

%

 

15.68

%

Book value per share

$

5.75

 

$

5.61

 

$

5.39

 

$

5.35

 

$

5.20

 

 
Asset quality
Allowance for loan losses (ALLL)

$

5,782

 

$

4,873

 

$

3,966

 

$

3,592

 

$

3,484

 

Nonperforming loans (NPLs)

$

1,596

 

$

1,293

 

$

1,230

 

$

1,614

 

$

1,510

 

Nonperforming assets (NPAs)

$

1,596

 

$

1,293

 

$

1,281

 

$

1,614

 

$

1,510

 

Classified Assets

$

12,667

 

$

11,945

 

$

9,058

 

$

7,834

 

$

5,728

 

Net loan charge offs (recoveries)

$

(9

)

$

(7

)

$

5

 

$

(78

)

$

(8

)

ALLL as a percentage of net loans

 

1.35

%

 

1.16

%

 

1.31

%

 

1.20

%

 

1.24

%

ALLL as a percentage of net loans (excluding PPP)

 

1.89

%

 

1.62

%

 

1.31

%

 

1.20

%

 

1.24

%

ALLL as a percentage of NPLs

 

362.26

%

 

376.98

%

 

322.44

%

 

222.55

%

 

230.73

%

Net charge offs (recoveries) to average loans

 

0.00

%

 

0.00

%

 

0.00

%

 

-0.03

%

 

0.00

%

Net NPLs as a percentage of total loans

 

0.53

%

 

0.44

%

 

0.41

%

 

0.55

%

 

0.54

%

Nonperforming assets as a percentage of total assets

 

0.30

%

 

0.25

%

 

0.33

%

 

0.44

%

 

0.42

%

Classified Asset Ratio

 

31.42

%

 

30.38

%

 

23.99

%

 

17.60

%

 

15.80

%

Past due as a percentage of total loans

 

0.54

%

 

0.53

%

 

0.61

%

 

0.62

%

 

1.00

%

 
End of period balances
Total securities and short term deposits

$

82,099

 

$

70,159

 

$

64,148

 

$

45,112

 

$

56,627

 

Total loans net of allowance

$

300,272

 

$

296,725

 

$

297,212

 

$

295,255

 

$

277,979

 

Total earning assets

$

389,299

 

$

372,903

 

$

366,472

 

$

345,038

 

$

339,169

 

Total assets

$

534,456

 

$

513,291

 

$

385,423

 

$

364,188

 

$

360,358

 

Total noninterest bearing deposits

$

134,574

 

$

125,714

 

$

78,003

 

$

73,771

 

$

78,230

 

Total deposits

$

485,589

 

$

465,322

 

$

339,202

 

$

318,039

 

$

316,176

 

 
Average balances
Total securities and short term deposits

$

80,235

 

$

67,450

 

$

48,764

 

$

57,528

 

$

60,571

 

Total loans net of allowance

$

421,663

 

$

389,275

 

$

298,055

 

$

285,491

 

$

272,845

 

Total earning assets

$

508,244

 

$

462,157

 

$

351,537

 

$

347,646

 

$

337,903

 

Total assets

$

529,784

 

$

484,315

 

$

372,017

 

$

366,647

 

$

356,452

 

Total noninterest bearing deposits

$

134,676

 

$

132,311

 

$

76,653

 

$

74,489

 

$

78,817

 

Total deposits

$

480,742

 

$

436,776

 

$

325,128

 

$

321,687

 

$

312,530

 

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

 


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