1
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarter ended June 30, 2002
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from to
Commission File Number 000-29829
PACIFIC FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)
Washington 91-1815009
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
300 East Market Street
Aberdeen, Washington 98520-5244
(360) 533-8870
(Address, including zip code, and telephone number,
including area code, of Registrant's principal executive offices)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days:
Yes X No
------- -------
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Title of Class Outstanding at June 30, 2002
-------------- ----------------------------
Common Stock, par value $1.00 per share 2,491,629 shares
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1
TABLE OF CONTENTS
PART I FINANCIAL INFORMATION 3
ITEM 1. FINANCIAL STATEMENTS 3
CONDENSED CONSOLIDATED BALANCE SHEETS
JUNE 30, 2002 AND DECEMBER 31, 2001 3
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
THREE AND SIX MONTHS ENDED JUNE 30, 2002 AND 2001 4
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 2002 AND 2001 5
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY SIX
MONTH PERIODS ENDED JUNE 30, 2002 AND 2001 6
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 10
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK 13
PART II OTHER INFORMATION 13
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 13
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 14
SIGNATURES 14
2
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheets
(Dollars in thousands)
Pacific Financial Corporation
June 30, 2002 and December 31, 2001
June 30, December 31,
2002 2001
(Unaudited)
Assets
Cash and due from banks $ 10,267 $ 10,231
Interest bearing balances with banks 3,147 1,468
Federal funds sold ---- 3,505
Investment securities available for sale 39,995 31,673
Investment securities held-to-maturity 4,862 4,945
Federal Home Loan Bank stock, at cost 3,927 3,813
Loans 177,172 176,604
Allowance for credit losses 2,559 2,109
----- -----
Loans, net 174,613 174,495
Premises and equipment 3,907 4,014
Foreclosed real estate 722 1,040
Accrued interest receivable 1,447 1,405
Cash surrender value of life insurance 5,746 5,579
Other assets 1,140 1,449
----- -----
Total assets $249,773 $243,617
Liabilities and Shareholders' Equity
Deposits:
Non-interest bearing $ 35,507 $ 38,437
Interest bearing 183,094 176,207
------- -------
Total deposits 218,601 214,644
Accrued interest payable 351 441
Long-term borrowings 4,000 ---
Other liabilities 1,602 5,018
----- -----
Total liabilities 224,554 220,103
Shareholders' Equity
Common Stock (par value $1); authorized: 2,492 2,492
25,000,000 shares; issued March 31,2002-2,491,629 shares;
December 31, 2001-2,491,629 shares
Additional paid-in capital 9,524 9,524
Retained earnings 12,744 11,090
Accumulated other comprehensive income 459 408
--- ---
Total shareholders' equity 25,219 23,514
-------- --------
Total liabilities and shareholders' equity $249,773 $243,617
3
Condensed Consolidated Statements of Income
(Dollars in thousands, except per share)
(Unaudited)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
2002 2001 2002 2001
Interest Income
Loans $3,336 $3,884 $6,630 $8,027
Securities held to maturity - tax exempt 64 22 126 45
Securities available for sale:
Taxable 348 488 708 1,116
Tax-exempt 143 140 289 276
Deposits with banks
and federal funds sold 39 137 57 192
----- -------- ------ --------
Total interest income 3,930 4,671 7,810 9,656
Interest Expense
Deposits 944 1,727 1,882 3,788
Other borrowings 37 39 70 129
------ ------ ----- -------
Total interest expense 981 1,766 1,952 3,917
Net Interest Income 2,949 2,905 5,858 5,739
Provision for credit losses ---- 98 954 200
--------- ------- ------ -------
Net interest income after provision
for credit losses 2,949 2,807 4,904 5,539
Non-interest Income
Service charges 294 205 528 379
Mortgage loan origination fees ---- 10 ---- 14
Gain on sale of foreclosed real estate 158 0 141 0
Other operating income 252 131 489 267
--- --- --- ---
Total non-interest income 704 346 1,158 660
Non-interest Expense
Salaries and employee benefits 1,032 1,011 2,022 2,058
Occupancy and equipment 250 236 484 470
Other 591 512 1,186 1,039
------ ------ ----- -----
Total non-interest expense 1,873 1,759 3,692 3,567
Income before income taxes 1,780 1,394 2,370 2,632
Provision for income taxes 534 429 716 790
---- ------ ----- ------
Net Income $1,246 $965 $1,654 $1,842
Earnings per common share:
Basic $ .50 $.39 $ .66 $ .74
Diluted .50 .38 .66 .73
Average shares outstanding:
Basic 2,491,629 2,499,013 2,491,629 2,500,509
Diluted 2,508,248 2,521,205 2,512,369 2,523,913
4
Condensed Consolidated Statements of Cash Flows
Six months ended June 30, 2002 and 2001
(Dollars in thousands)
(Unaudited)
2002 2001
OPERATING ACTIVITIES
Net income $1,654 $1,842
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for credit losses 954 200
Depreciation and amortization 216 212
Stock dividends received (114) (120)
Gain on sale of premises and equipment ---- (1)
Gain on sale of foreclosed real estate (158) ----
(Increase) decrease in accrued interest receivable (42) 539
Decrease in accrued interest payable (90) (130)
Write-down of foreclosed real estate 288 ----
Other 15 (385)
---- -------
Net cash provided by operating activities 2,691 2,159
INVESTING ACTIVITIES
Net (increase) decrease in federal funds sold 3,505 (9,982)
Increase in interest bearing
deposits with banks (1,679) (2,824)
Purchases of securities available for sale (11,325) (9,256)
Proceeds from maturities of securities held to maturity 82 71
Proceeds from maturities of securities available for sale 3,036 21,169
Proceeds from sales of securities available for sale ---- 6,614
Net decrease (increase) in loans (1,082) 6,373
Proceeds from sales of foreclosed real estate 222 ----
Additions to foreclosed real estate (22) ----
Additions to premises and equipment (92) (202)
Proceeds from sales of premises and equipment ---- 16
---- --
Net cash provided by (used in) investing activities (7,355) 11,981
FINANCING ACTIVITIES
Net increase (decrease) in deposits 3,957 (1,355)
Net decrease in short-term borrowings ---- (8,358)
Proceeds from issuance of long-term debt 4,000 ----
Repurchase and retirement of common stock ---- (90)
Payment of dividends (3,289) (3,204)
------- -------
Net cash provided by (used in) financing activities $4,668 $(13,007)
Net increase in cash and due from banks 36 1,133
5
CASH AND DUE FROM BANKS
Beginning of period $10,231 $8,619
End of period $10,267 $9,752
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash payments for:
Interest $2,042 $3,918
Income Taxes 740 740
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING ACTIVITIES
Foreclosed real estate acquired in settlement of loans $ (639) $ (780)
Financed sale of foreclosed real estate 628 ----
Change in fair value of securities available
for sale, net of tax $ 51 $ 552
6
Condensed Consolidated Statements of Shareholders' Equity
Six months ended June 30, 2002 and 2001
(Dollars in thousands) (Unaudited)
ACCUMULATED
OTHER
ADDITIONAL COMPREHENSIVE
COMMON PAID-IN RETAINED INCOME
STOCK CAPITAL EARNINGS (LOSS) TOTAL
Balance December 31, 2000 $2,503 $9,859 $10,572 $(191) $22,743
Stock re-purchase (4) (86) (90)
Other comprehensive income:
Net income 1,842 1,842
Change in fair value of
securities available for sale, net 552 552
Comprehensive income 2,394
---- ----- ------ ----- ------
Balance June 30, 2001 $2,499 $9,773 $12,414 $361 $25,047
Balance December 31, 2001 $2,492 $9,524 $11,090 $408 $23,514
Other comprehensive income:
Net income 1,654 1,654
Change in fair vale of
securities available for sale, net 51 51
Comprehensive income 1,705
---- ------ ------ ------ ------
Balance June 30, 2002 $2,492 $9,524 $12,744 $459 $25,219
7
NOTES TO FINANCIAL STATEMENTS
1. Basis of Presentation
The accompanying unaudited financial statements have been prepared by Pacific
Financial Corporation ("Pacific" or the "Company") in accordance with accounting
principles generally accepted in the United States of America for interim
financial information and with instructions to Form 10-Q. Accordingly, they do
not include all of the information and footnotes required by accounting
principles generally accepted in the United States of America for complete
financial statements. In the opinion of management, adjustments (consisting of
normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the six months ended June 30, 2002, are not
necessarily indicative of the results anticipated for the year ending December
31, 2002. The December 31, 2001 condensed balance sheet is derived from the
audited consolidated financial statements.
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting periods. Actual results could differ from those estimates.
All dollar amounts in tables, except per share information, are stated in
thousands.
2. Investment Securities
Investment securities consist principally of short and intermediate term debt
instruments issued by the U.S. Treasury, other U.S. government agencies, state
and local government units, and other corporations.
SECURITIES HELD TO MATURITY AMORTIZED UNREALIZED FAIR
COST GAINS VALUE
(LOSSES)
June 30, 2002
State and Municipal Securities $ 4,862 $ 3 $ 4,865
SECURITIES AVAILABLE FOR SALE AMORTIZED UNREALIZED FAIR
COST GAINS VALUE
(LOSSES)
June 30, 2002
U.S. Government Securities $ 10,799 $ 129 $ 10,928
State and Municipal Securities 10,979 468 11,447
Corporate Securities 7,385 95 7,480
Mutual Funds 10,132 8 10,140
------ ------ ------
TOTAL $39,295 $ 700 $ 39,995
8
3. Allowance for Credit Losses
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
2002 2001 2002 2001
Balance at beginning of period $2,656 $1,805 $2,109 $2,026
Provision for possible credit losses ---- 98 954 200
Charge-offs (107) (30) (523) (356)
Recoveries 10 2 19 5
Net charge-offs (97) (28) (504) (351)
---- ---- ---- ----
Balance at end of period $2,559 $1,875 $2,559 $1,875
4. Computation of Basic Earnings per Share:
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
2002 2001 2002 2001
Net Income $1,246,000 $965,000 $1,654,000 $1,8420,000
Shares Outstanding,
Beginning of Period 2,491,629 2,500,505 2,491,629 2,503,130
Shares Repurchased During Period Times
Average Time Outstanding ---- (1,492) ---- (2,621)
Average Shares Outstanding 2,491,629 2,499,013 2,491,629 2,500,509
Basic Earnings Per Share $.50 $.39 $.66 $.74
5. Computation of Diluted Earnings Per Share:
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
2002 2001 2002 2001
Net Income $1,246,000 $965,000 $1,654,000 $1,842,000
Options Outstanding 177,046 170,300 177,046 170,300
Proceeds Were Options Exercised $3,752,911 $3,410,930 $3,752,911 $3,410,930
Average Share Price During Period $23.52 $23.03 $24.01 $23.22
Proceeds Divided By Average Share Price 159,563 148,108 156,306 146,896
Incremental Shares 17,483 22,192 20,740 23,404
Average Shares Outstanding 2,491,629 2,499,013 2,491,629 2,500,509
Incremental Shares
Plus Outstanding Shares 2,509,112 2,521,205 2,512,369 2,523,913
Diluted Earnings Per Share $.50 $.38 $.66 $.73
9
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
A Warning About Forward-Looking Information
This document contains forward-looking statements that are subject to risks
and uncertainties. These statements are based on the beliefs and assumptions of
our management, and on information currently available to them. Forward-looking
statements include the information concerning our possible future results of
operations set forth under "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and statements preceded by, followed by or
that include the words "believes," "expects," "anticipates," "intends," "plans,"
"estimates" or similar expressions.
Any forward-looking statements in this document are subject to risks
relating to, among other things, the following:
1. competitive pressures among depository and other financial institutions
may impede our ability to attract and retain customers;
2. changes in the interest rate environment may reduce margins;
3. general economic or business conditions, either nationally or in the
state or regions in which we do business, may be less favorable than expected,
resulting in, among other things, a deterioration in credit quality, including
as a result of lower prices in the real estate market, or a reduced demand for
credit;
4. legislative or regulatory changes may adversely affect the businesses in
which we are engaged; and
5. the securities markets may continue to experience a downturn.
Our management believes the forward-looking statements are reasonable;
however, you should not place undue reliance on them. Forward-looking statements
are not guarantees of performance. They involve risks, uncertainties and
assumptions. Many of the factors that will determine our future results and
share value are beyond our ability to control or predict.
NET INCOME. For the six months ended June 30, 2002, Pacific's net income was
$1,654,000 compared to $1,842,000 for the same period in 2001. The most
significant factor contributing to the decrease was a significant increase in
the provision for credit losses. Net income for the three months ended June 30,
2002 was $1,246,000, which compared to $965,000 during the same period in 2001.
The increase was attributable to increased net interest income, lower loan loss
provision and increased non-interest income.
10
NET INTEREST INCOME. Net interest income for the three months ended June 30,
2002 increased $44,000, or 1.6% compared to the same period in 2001. Net
interest income for the six months ended June 30, 2002 increased $119,000 over
the comparable period in 2001.
Interest income for the three months ended June 30, 2002, decreased $741,000, or
15.9%, compared to the comparable period in 2001, and for the first six months
of 2002 decreased $1,846,000 or 19.1% from the same period in 2001. The lower
interest rates earned on loans and securities during the six month period ending
June 30, 2002 was the primary reason for the decline in interest income. In
addition, federal funds sold decreased during the three and six month periods
ended June 30, 2002 resulting in decreases of $98,000 and $135,000 respectively,
in interest income compared to the same periods in 2001. Average total loans
outstanding for the six months ended June 30, 2002, and June 30, 2001, were
$180,799,000, and $173,607,000, respectively, or an increase of 4.1%.
Interest expense for the three months ended June 30, 2002 decreased $785,000, or
44.5%, compared to the same period in 2001, and decreased $1,965,000 or 50.2%
for the six months ended June 30, 2001 over the comparable period in 2001.
Average interest-bearing deposit balances for the six months ended June 30, 2002
and June 30, 2001 were $180,007,000 and $184,614,000, respectively, while short
term borrowings and federal funds purchased for the periods were $218,000 and
$4,821,000, respectively, a decrease of 95.5% over the 2001 period. Average long
term borrowings for the periods were $3,666,000 and none, respectively.
PROVISION AND ALLOWANCE FOR CREDIT LOSSES. The allowance for credit losses
reflects management's current estimate of the amount required to absorb losses
on existing loans and commitments to extend credit. Loans deemed uncollectible
are charged against and reduce the allowance. Periodically, a provision for
credit losses is charged to current expense. This provision acts to replenish
the allowance for credit losses and to maintain the allowance at a level that
management deems adequate. There is no precise method of predicting specific
loan losses or amounts that ultimately may be charged off on segments of the
loan portfolio. The determination that a loan may become uncollectible, in whole
or in part, is a matter of judgment. Similarly, the adequacy of the allowance
for credit losses can be determined only on a judgmental basis, after full
review, including (a) consideration of economic conditions and the effect on
particular industries and specific borrowers; (b) a review of borrowers'
financial data, together with industry data, the competitive situation, the
borrowers' management capabilities and other factors; (c) a continuing
evaluation of the loan portfolio, including monitoring by lending officers and
staff credit personnel of all loans which are identified as being of less than
acceptable quality; (d) an in-depth appraisal, on a monthly basis, of all loans
judged to present a possibility of loss (if, as a result of such monthly
appraisals, the loan is judged to be not fully collectible, the carrying value
of the loan is reduced to that portion considered collectible); and (e) an
evaluation of the underlying collateral for secured lending, including the use
of independent appraisals of real estate properties securing loans. A formal
analysis of the adequacy of the allowance is conducted monthly and is reviewed
by the Board of Directors. Based on this analysis, management considers the
allowance for credit losses to be adequate. Periodic provisions for loan losses
are made to maintain the allowance for credit losses at an appropriate level.
The provisions are based on an analysis of various factors including historical
loss experience based on volumes and types of loans, volumes and trends in
delinquencies and non-accrual loans, trends in portfolio volume, results of
internal and independent external credit reviews, and anticipated economic
conditions.
11
During the three months ended June 30, 2002, no provision was provided for
possible credit losses, compared to $98,000 provided in the same period in 2001.
For the six months ended June 30, 2002 $954,000 was provided for possible credit
losses compared to $200,000 for the comparable period in 2001. The higher
provision in 2002 results from increased net charge-offs experienced in 2002.
For the six months ended June 30, 2002, net charge-offs were $504,000, compared
to net charge-offs of $351,000 during the same period in 2001. The charge-offs
for the period ending June 30, 2002 are primarily related to commercial loan
write downs of $203,419 and an additional write down of a commercial real estate
property which the Company foreclosed on.
At June 30, 2002, the allowance for credit losses stood at $2,559,000 compared
to $2,109,000 at December 31, 2001, and $1,875,000 at June 30, 2001. The ratio
of the allowance to total loans outstanding was 1.44%, 1.19% and 1.10%,
respectively, at June 30, 2002, December 31, 2001, and June 30, 2001. Management
considers the allowance for possible credit losses to be adequate for the
periods indicated.
NON-PERFORMING ASSETS AND FORECLOSED REAL ESTATE OWNED. Non-performing assets
totaled $1,535,000 at June 30, 2002. This represents .97% of total loans,
compared to $2,373,000 or 1.34% at December 31, 2001, and $2,799,000 or 1.59% at
June 30, 2001. The primary reason for the decrease during the period ended June
30, 2002, was the sale of foreclosed real estate and loans which reverted from
non-accrual to accrual status. Non-accrual loans at June 30, 2002 totaled
$812,000 of which $674,000 are secured by real estate. Based on current
analysis, management believes losses associated with non-accrual loans will be
minimal.
ANALYSIS OF NON-PERFORMING ASSETS
JUNE 30 DECEMBER 31 JUNE 30
(in thousands) 2002 2001 2001
Accruing loans past due 90 days or more $1 $79 $246
Non-accrual loans 812 1,254 1,773
Foreclosed real estate 722 1,040 780
--- ----- ---
TOTAL $1,535 $2,373 $2,799
NON-INTEREST INCOME AND EXPENSES. Non-interest income for the three and six
month periods ended June 30, 2002 increased $358,000 and $498,000, respectively,
compared to the same periods in 2001. Service charges on deposit accounts
increased $89,000 and $149,000 compared to the same three and six month periods
in 2001, due primarily to the new customer overdraft protection program
implemented mid 2001. Mortgage loan origination fees decreased $10,000 and
$14,000 compared to the same periods in 2001. Gain on sale of foreclosed real
estate was $158,000 and $141,000 for the three and six month periods ended June
30, 2002, compared to none for the same periods in 2001 due to the sale of two
foreclosed properties. Other operating income for the three and six months ended
June 30, 2002 increased $121,000 and $222,000, respectively, compared to the
same period in 2001,
12
primarily due to income from operations on real estate owned and earnings on
bank owned life insurance.
Non-interest expense for the three and six months ended June 30, 2002 increased
$114,000 and $125,000, respectively, compared to the same period in 2001. For
the three-month period in 2002, salaries and benefits increased $21,000,
occupancy expense increased $14,000, and other expenses increased $79,000,
compared to the same period in 2001. The increase in salaries and benefits was
primarily due to increased staffing levels. Increased maintenance costs were the
reason for the increase in occupancy expense. Costs of $71,000 related to the
operations on real estate owned, were the primary cause of the increase in other
expense. For the six months ended June 30, 2002, salaries and benefits decreased
$36,000, occupancy expense increased $14,000 due to maintenance costs, and other
expenses increased $147,000 related primarily to operations on real estate
owned.
INCOME TAXES. The federal income tax provision for the six months ended June 30,
2002 was $716,000, a decrease of $74,000 compared to the same period in 2001.
FINANCIAL CONDITION. Total assets were $249,773,000 at June 30, 2002, an
increase of $6,156,000, or 2.5%, over year-end 2001. Loans were $177,172,000 at
June 30, 2002, an increase of $5,689,000, or .3%, over year-end 2001. Total
deposits were $218,601,000 at June 30, 2002, an increase of $3,957,000, or 1.8%,
compared to December 31, 2001.
LOANS. Loan detail by category as of June 30, 2002 and December 31, 2001 were as
follows:
June 30, December 31,
2002 2001
Commercial and industrial $57,908 $62,595
Agricultural 8,699 9,832
Real estate mortgage 97,138 91,714
Real estate construction 7,234 6,554
Installment 5,201 4,941
Credit cards and other 992 968
--- ---
Total Loans 177,172 176,604
Allowance for credit losses (2,559) (2,109)
------ -------
Net Loans $174,613 $174,495
LIQUIDITY. Adequate liquidity is available to accommodate fluctuations in
deposit levels, fund operations, and provide for customer credit needs and meet
obligations and commitments on a timely basis. The Company has no brokered
deposits. It generally has been a net seller of federal funds. When necessary,
liquidity can be increased by taking advances available from the Federal Home
Loan Bank of Seattle.
SHAREHOLDERS' EQUITY. Total shareholders' equity was $25,219,000 at June 30,
2002, an increase of $1,705,000, or 7.3%, compared to December 31, 2001. The
increase was due to net income and an increase in the fair value of securities
available for sale. Book value per share increased to $10.12 at June 30, 2002
compared to $9.44 at December 31, 2001. Book value is calculated by dividing
total equity capital by total shares outstanding.
13
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest rate, credit, and operations risks are the most significant market
risks which affect the Company's performance. The Company relies on loan review,
prudent loan underwriting standards and an adequate allowance for possible
credit losses to mitigate credit risk.
An asset/liability management simulation model is used to measure interest rate
risk. The model produces regulatory oriented measurements of interest rate risk
exposure. The model quantifies interest rate risk through simulating forecasted
net interest income over a 12 month time period under various interest rate
scenarios, as well as monitoring the change in the present value of equity under
the same rate scenarios. The present value of equity is defined as the
difference between the market value of assets less current liabilities. By
measuring the change in the present value of equity under various rate
scenarios, management is able to identify interest rate risk that may not be
evident in changes in forecasted net interest income.
The Company is currently asset sensitive, meaning that interest earning assets
mature or re-price more quickly than interest-bearing liabilities in a given
period. Therefore, a significant increase in market rates of interest could
improve net interest income. Conversely, a decreasing rate environment may
adversely affect net interest income.
It should be noted that the simulation model does not take into account future
management actions that could be undertaken should actual market rates change
during the year. An important point should be kept in mind; the model simulation
results are not exact measures of the Company's actual interest rate risk. They
are rather only indicators of rate risk exposure, based on assumptions produced
in a simplified modeling environment designed to heighten sensitivity to changes
in interest rates. The rate risk exposure results of the simulation model
typically are greater than the Company's actual rate risk. That is due to the
conservative modeling environment, which generally depicts a worst-case
situation. Management has assessed the results of the simulation reports as of
June 30, 2002, and believes that there has been no material change since
December 31, 2001.
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
NONE
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
No exhibits are filed with this report.
(b) Reports on Form 8-K:
No reports on Form 8-K were filed during the quarter ended June 30, 2002.
14
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PACIFIC FINANCIAL CORPORATION
DATED: August 9, 2002 By: /s/ Dennis A. Long
-------------------------
Dennis A. Long
President
By: /s/ John Van Dijk
--------------------------
John Van Dijk, Secretary/Treasurer
(Principal Financial and
Accounting Officer)
The undersigned certify, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to
ss. 906 of the Sarbanes-Oxley Act of 2002, that the preceding Quarterly Report
on Form 10-Q fully complies with the requirements of Section 13(a) or 15(d) of
the Securities Exchange Act of 1934, and the information contained therein
fairly presents, in all material respects, the financial condition and results
of operations of Pacific Financial Corporation.
/s/ Dennis A. Long /s/ John Van Dijk
- ------------------------ ---------------------------
Dennis A. Long John Van Dijk
President Treasurer
Chief Executive Officer August 13, 2002
August 13, 2002