UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to
SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): November 1, 2011
PACIFIC FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)
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Washington
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000-29829
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91-1815009
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(State or other jurisdiction
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(SEC File Number)
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(IRS Employer
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of incorporation or organization)
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Identification No.)
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1101 S. Boone St.
Aberdeen, Washington 98520-5244
(360) 533-8870
(Address, including zip code, and telephone number,
including area code, of Registrant's principal executive offices)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
¨ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
¨ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
¨ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
¨ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Item 7.01. Regulation FD Disclosure
Pacific Financial Corporation ("Pacific") is furnishing information in accordance with Regulation FD regarding its financial results for the nine months ended September 30, 2011. This information shall not be deemed "filed" for purposes of Section 18 of the Securities Exchange Act of 1934 or incorporated by reference into any filing under the Securities Act of 1933, except as may be expressly set forth by specific reference in any such filing.
Pacific's net income for the three and nine months ended September 30, 2011, was $1,204,000, and $2,239,000, respectively, compared to $479,000 and $1,616,000 for the three and nine month periods ended September 30, 2010. The increase in net income for the three month period was primarily related to increases in net interest income and gain on sale of investments. The increase in net income for the nine month period was primarily related to an increase in net interest income and a decrease in provision for credit losses which were partially offset by a decrease in gain on sale of loans. Net interest margin increased to 4.02% for the nine months ended September 30, 2011, compared to 3.95% for the same period of the prior year.
Provision for credit losses for the three months ended September 30, 2011, was $1,050,000, compared to $850,000 in the same period a year ago. Net charge-offs for the current three month period were $1,093,000 compared to $583,000 for the same period of the prior year. Provision for credit losses for the nine months ended September 30, 2011, was $1,550,000, compared to $2,850,000 in the same period a year ago. The $1,300,000 decrease in provision for the nine month period was substantially due to a decline in net charge-offs, which totaled $1,137,000 for the nine months ended September 30, 2011 compared to $2,431,000 for the same period in 2010, and a $6,138,000 decrease in loans classified as substandard from year end 2010 through the close of third quarter 2011.
Non-performing loans totaled $9,080,000 (net of government guarantees of $3,198,000) at September 30, 2011, compared to $9,999,000 at December 31, 2010 and $6,590,000 at September 30, 2010. Non-performing assets totaled $20,987,000, or 3.21% of total assets, at September 30, 2011, compared to $16,579,000, or 2.57% of total assets, at December 31, 2010. The increase in non-performing assets is due largely to one loan totaling $3,627,000, of which $3,198,000 is guaranteed by the United States Department of Agriculture.
Net interest income for the three and nine months ended September 30, 2011, increased $327,000 and $395,000, respectively, compared to the same periods of the prior year. The increase is primarily the result of an improvement in funding costs which reflects a decrease in rates paid on certificates of deposits and other deposit rates. The Company continues to roll off brokered deposits as they mature. During the nine months ended September 30, 2011, $10.4 million in brokered deposits matured which contributed to the decrease in the cost of funds.
Non-interest income for the three months ended September 30, 2011 increased by $440,000, or 21.84%, compared to the same period in 2010. The increase was the result of an increase in gain on sale of investments securities of $352,000 and an increase in the gain on sale of loans of $74,000. Non-interest income for the nine months ended September 30, 2011 decreased $1,042,000, or 16.80%, compared to the same period in 2010. The decrease for the nine month period is mostly attributable to a decrease in gain on sales of loans and other real estate owned (“OREO”), as well as an other-than-temporary-impairment loss of $243,000. These were partially offset by an increase in interchange revenue on debit cards. Non-interest expense for the three and nine months ended September 30, 2011 decreased slightly by $271,000 and $127,000, or 4.28% and 0.67%, respectively, compared to the same periods in 2010. The decreases were primarily related to reductions in FDIC assessments, OREO operating costs, and occupancy and equipment expenses. These were partially offset by increases in salaries and employee benefits related to annual performance and merit increases, as well as temporary additions to staff to assist with a core system conversion in April 2011.
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Total assets increased 1.42% to $653.6 million at September 30, 2011, compared to $644.4 million at December 31, 2010. Increases in investments, loans and OREO were the primary contributors to overall asset growth, which were partially offset by a decrease in cash as expected given scheduled maturities for brokered certificates of deposits. Total loans, including loans held for sale, were $486.3 million at September 30, 2011, up $10.5 million from $475.8 million at year-end 2010. The increase in loans was primarily in commercial and industrial loans and commercial real estate loans. The ratio of the allowance for credit losses to total loans outstanding was 2.30%, 2.28% and 2.47% at September 30, 2011, December 31, 2010 and September 30, 2010, respectively.
Capital ratios continue to exceed regulatory requirements for well-capitalized institutions. Tier 1 leverage and total risk based capital ratios at September 30, 2011 for the Company’s subsidiary, Bank of the Pacific, were 10.03% and 14.97%, respectively, compared to 9.80% and 14.62% at December 31, 2010, respectively. Pacific's unaudited consolidated balance sheets at September 30, 2011 and December 31, 2010, and unaudited consolidated statements of operations and selected performance ratios for the three and nine months ended September 30, 2011 and 2010, follow.
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PACIFIC FINANCIAL CORPORATION
Condensed Consolidated Balance Sheets
September 30, 2011 and December 31, 2010
(Dollars in thousands) (Unaudited)
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September 30, 2011
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December 31, 2010
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Assets
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||||||||
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Cash and due from banks
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$ | 12,591 | $ | 7,428 | ||||
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Interest bearing deposits in banks
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39,349 | 54,330 | ||||||
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Investment securities available-for-sale (amortized cost of $49,711 and $42,402)
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50,636 | 41,893 | ||||||
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Investment securities held-to-maturity (fair value of $7,241 and $6,584)
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7,130 | 6,454 | ||||||
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Federal Home Loan Bank stock, at cost
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3,182 | 3,182 | ||||||
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Loans held for sale
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11,845 | 10,144 | ||||||
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Loans
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474,463 | 465,681 | ||||||
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Allowance for credit losses
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10,923 | 10,617 | ||||||
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Loans, net
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463,540 | 455,064 | ||||||
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Premises and equipment
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14,837 | 15,181 | ||||||
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Other real estate owned
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8,696 | 6,580 | ||||||
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Accrued interest receivable
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2,445 | 2,334 | ||||||
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Cash surrender value of life insurance
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17,146 | 16,748 | ||||||
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Goodwill
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11,282 | 11,282 | ||||||
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Other intangible assets
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1,268 | 1,303 | ||||||
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Other assets
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9,610 | 12,480 | ||||||
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Total assets
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$ | 653,557 | $ | 644,403 | ||||
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Liabilities and Shareholders' Equity
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Deposits:
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Demand, non-interest bearing
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$ | 102,527 | $ | 95,115 | ||||
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Savings and interest-bearing demand
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295,018 | 253,347 | ||||||
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Time, interest-bearing
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163,392 | 196,492 | ||||||
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Total deposits
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560,937 | 544,954 | ||||||
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Accrued interest payable
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1,463 | 1,380 | ||||||
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Secured borrowings
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755 | 925 | ||||||
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Short-term borrowings
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— | 10,500 | ||||||
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Long-term borrowings
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10,500 | 10,500 | ||||||
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Junior subordinated debentures
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13,403 | 13,403 | ||||||
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Other liabilities
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3,454 | 2,972 | ||||||
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Total liabilities
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590,512 | 584,634 | ||||||
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Shareholders' Equity
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Common Stock (par value $1); 25,000,000 shares authorized; 10,121,853 shares issued and outstanding at September 30, 2011 and December 31, 2010
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10,122 | 10,122 | ||||||
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Additional paid-in capital
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41,335 | 41,316 | ||||||
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Retained earnings
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11,472 | 9,233 | ||||||
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Accumulated other comprehensive loss
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116 | (902 | ) | |||||
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Total shareholders' equity
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63,045 | 59,769 | ||||||
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Total liabilities and shareholders' equity
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$ | 653,557 | $ | 644,403 | ||||
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PACIFIC FINANCIAL CORPORATION
Condensed Consolidated Statements of Income
Three and nine months ended September 30, 2011 and 2010
(Dollars in thousands, except per share data) (Unaudited)
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Three Months Ended
September 30,
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Nine Months Ended
September 30,
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2011
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2010
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2011
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2010
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Interest and dividend income
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Loans
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$ | 6,861 | $ | 7,086 | $ | 20,459 | $ | 21,499 | ||||||||
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Investment securities and FHLB dividends
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516 | 516 | 1,548 | 1,726 | ||||||||||||
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Deposits with banks and federal funds sold
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29 | 29 | 77 | 92 | ||||||||||||
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Total interest and dividend income
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7,406 | 7,631 | 22,084 | 23,317 | ||||||||||||
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Interest Expense
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Deposits
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1,112 | 1,550 | 3,731 | 5,118 | ||||||||||||
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Other borrowings
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224 | 338 | 833 | 1,074 | ||||||||||||
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Total interest expense
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1,336 | 1,888 | 4,564 | 6,192 | ||||||||||||
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Net Interest Income
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6,070 | 5,743 | 17,520 | 17,125 | ||||||||||||
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Provision for credit losses
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1,050 | 850 | 1,550 | 2,850 | ||||||||||||
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Net interest income after provision for credit losses
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5,020 | 4,893 | 15,970 | 14,275 | ||||||||||||
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Non-interest Income
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||||||||||||||||
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Service charges on deposits
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470 | 464 | 1,350 | 1,338 | ||||||||||||
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Net gain (loss) on sales of other real estate owned
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17 | 19 | (126 | ) | 273 | |||||||||||
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Gain on sales of loans
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1,084 | 1,010 | 2,183 | 2,859 | ||||||||||||
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Net gain on sales of investments available-for-sale
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352 | — | 536 | 402 | ||||||||||||
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Other-than-temporary-impairment loss
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— | — | (243 | ) | — | |||||||||||
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Earnings on bank owned life insurance
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135 | 144 | 398 | 409 | ||||||||||||
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Other operating income
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397 | 378 | 1,061 | 920 | ||||||||||||
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Total non-interest income
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2,455 | 2,015 | 5,159 | 6,201 | ||||||||||||
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Non-interest Expense
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Salaries and employee benefits
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3,363 | 3,378 | 10,188 | 9,913 | ||||||||||||
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Occupancy and equipment
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623 | 669 | 1,908 | 2,043 | ||||||||||||
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Other real estate owned write-downs
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62 | 73 | 599 | 564 | ||||||||||||
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Other real estate owned operating costs
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89 | 166 | 293 | 425 | ||||||||||||
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Professional services
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174 | 204 | 574 | 582 | ||||||||||||
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FDIC and State assessments
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215 | 332 | 711 | 1,043 | ||||||||||||
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Data processing
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336 | 245 | 920 | 802 | ||||||||||||
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Other
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1,198 | 1,264 | 3,600 | 3,548 | ||||||||||||
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Total non-interest expense
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6,060 | 6,331 | 18,793 | 18,920 | ||||||||||||
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Income before income taxes
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1,415 | 577 | 2,336 | 1,556 | ||||||||||||
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Benefit for income taxes
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211 | 98 | 97 | (60 | ) | |||||||||||
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Net Income
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$ | 1,204 | $ | 479 | $ | 2,239 | $ | 1,616 | ||||||||
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Earnings per common share:
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Basic
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$ | 0.12 | $ | 0.05 | $ | 0.22 | $ | 0.16 | ||||||||
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Diluted
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0.12 | 0.05 | 0.22 | 0.16 | ||||||||||||
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Weighted Average shares outstanding:
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Basic
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10,121,853 | 10,121,853 | 10,121,853 | 10,121,853 | ||||||||||||
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Diluted
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10,121,919 | 10,121,853 | 10,121,875 | 10,121,853 | ||||||||||||
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PACIFIC FINANCIAL CORPORATION
Selected Performance Ratios
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Nine months ended September 30,
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2011
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2010
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Net interest margin (1)
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4.02 | % | 3.95 | % | ||||
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Efficiency ratio (2)
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82.87 | % | 81.11 | % | ||||
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Return on average assets
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0.46 | % | 0.33 | % | ||||
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Return on average common equity
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4.87 | % | 3.68 | % | ||||
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As of Period End
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September 30,
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December 31,
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2011
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2010
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Book value per common share
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$ | 6.23 | $ | 5.90 | ||||
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Tangible book value per common share (3)
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$ | 4.99 | $ | 4.66 | ||||
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Tier 1 Leverage Ratio
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10.03 | % | 9.80 | % | ||||
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Tier 1 Risk Based Capital Ratio
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13.70 | % | 13.35 | % | ||||
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Total Risk Based Capital Ratio
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14.97 | % | 14.62 | % | ||||
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(1)
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Net interest income divided by average earnings assets.
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(2)
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Non-interest expense divided by the sum of net interest income and noninterest income.
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(3)
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Total shareholders’ equity less intangibles divided by shares outstanding.
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SUMMARY OF NON-PERFORMING ASSETS
(in thousands)
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September 30,
2011
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December 31,
2010
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September 30,
2010
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Accruing loans past due 90 days or more
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$ | — | $ | — | $ | — | ||||||
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Restructured loans on accrual status
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398 | — | — | |||||||||
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Non-accrual loans (4)
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11,880 | 9,999 | 6,590 | |||||||||
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Total non-performing loans (5)
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12,278 | 9,999 | 6,590 | |||||||||
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Other real estate owned and repossessions
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8,709 | 6,580 | 9,689 | |||||||||
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TOTAL non-performing assets
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$ | 20,987 | $ | 16,579 | $ | 16,279 | ||||||
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Non-performing loans to total loans (6)
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2.59 | % | 2.15 | % | 1.41 | % | ||||||
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Non-performing assets to total assets
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3.21 | % | 2.57 | % | 2.57 | % | ||||||
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Allowance for loan losses to non-performing loans
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88.96 | % | 106.18 | % | 174.67 | % | ||||||
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Allowance for loan losses to total loans (6)
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2.30 | % | 2.28 | % | 2.47 | % | ||||||
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(4)
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Includes $4,942,000 and $932,000 in non-accrual troubled debt restructured loans (“TDRs”) as of September 30, 2011 and December 31, 2010, respectively. There were no TDRs as of September 30, 2010.
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(5)
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Includes one loan totaling $3,627,000 at September 30, 2011 of which $3,198,000 is guaranteed by the United States Department of Agriculture.
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(6)
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Excludes loans held for sale.
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Loan Composition
(in thousands)
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September 30,
2011
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December 31,
2010
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Commercial and industrial
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$ | 91,886 | $ | 84,575 | ||||
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Real estate:
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Construction, land development and other land loans
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46,202 | 46,256 | ||||||
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Residential 1-4 family
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88,960 | 89,212 | ||||||
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Multi-family
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7,433 | 9,113 | ||||||
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Commercial real estate – owner occupied
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118,452 | 109,936 | ||||||
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Commercial real estate – non owner occupied
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103,558 | 106,079 | ||||||
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Farmland
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21,728 | 22,354 | ||||||
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Consumer
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8,957 | 9,128 | ||||||
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Less unearned income
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(868 | ) | (828 | ) | ||||
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Total Loans (6)
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$ | 486,308 | $ | 475,825 | ||||
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(7)
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Includes loans held for sale.
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Deposit Composition
(in thousands)
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September 30,
2011
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December 31,
2010
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Non-interest bearing demand
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$ | 102,527 | $ | 95,115 | ||||
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Interest bearing demand
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122,121 | 103,358 | ||||||
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Money market deposits
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109,423 | 93,996 | ||||||
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Savings deposits
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63,474 | 55,993 | ||||||
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Time deposits
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163,392 | 196,492 | ||||||
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Total deposits
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$ | 560,937 | $ | 544,954 | ||||
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.
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PACIFIC FINANCIAL CORPORATION
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DATED: November 1, 2011
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By:
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/s/ Denise Portmann
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| Denise Portmann | ||
| Chief Financial Officer | ||
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