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):  February 6, 2012

PACIFIC FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)

Washington
(State or other jurisdiction
of incorporation or organization)

 

000-29829
(SEC File Number)

 

91-1815009
(IRS Employer
Identification No.)

 

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 year ended December 31, 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 twelve months ended December 31, 2011, was $579,000, and $2,818,000, respectively, compared to $18,000 and $1,634,000 for the three and twelve month periods ended December 31, 2010.  The improvement in net income for the three month period was primarily related to an increase in net interest income and a decrease in other real estate owned (“OREO”) write downs, which were partially offset by an increase in provision for credit losses.  The increase in net income for the twelve 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 4.08% for the twelve months ended December 31, 2011, compared to 3.96% for the same period of the prior year. 

Provision for credit losses for the three and twelve months ended December 31, 2011, was $950,000 and $2,500,000, compared to $750,000 and $3,600,000 for the same periods a year ago.  The decrease in provision for credit losses in the twelve month period is due to improving credit quality as evidenced by decreases in net charge-offs, substandard loans, and impaired loans.  Net charge-offs totaled $1,990,000 for the twelve months ended December 31, 2011 compared to $4,075,000 for the same period in 2010, and loans classified as substandard decreased $5,285,000 from year end 2010 to December 31, 2011.  Impaired loans decreased $241,000 to $11,432,000 at December 31, 2011.

Non-performing loans totaled $14,433,000 at December 31, 2011, compared to $9,999,000 at December 31, 2010.  Non-performing assets totaled $22,158,000, or 3.46% of total assets, at December 31, 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 commercial real estate loan totaling $3,627,000, which was placed on non-accrual status during the year, and an increase in OREO by $1,145,000.

Net interest income for the three and twelve months ended December 31, 2011, increased $411,000 and $806,000, respectively, compared to the same periods of the prior year.  The increase is primarily the result of lower costs of funds, as rates paid on certificates of deposits and other deposits decreased.  The Company continues to roll off brokered deposits as they mature.  During the twelve months ended December 31, 2011, $10.9 million in brokered deposits matured, contributing to the decrease in the cost of funds. 

Non-interest income for the three months ended December 31, 2011 increased by $202,000, or 8.98%, compared to the same period in 2010.  The increase was mostly the result of an increase in the gain on sale of investments of $142,000 and an increase in the gain on sale of loans of $101,000.  Non-interest income for the twelve months ended December 31, 2011 decreased $837,000, or 9.90%, compared to the same period in 2010.  The decrease for the twelve month period is mostly attributable to decreases in gain on sales of loans and OREO, as well as an other-than-temporary-impairment loss of $330,000.  Non-interest expense for the three and twelve months ended December 31, 2011 decreased by $628,000 and $752,000, or 8.40% and 2.85%, respectively, compared to the same periods in 2010.  The decreases were primarily related to reductions in FDIC assessments, OREO write downs and 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 and data processing costs related to a core system conversion in April 2011.

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Total assets decreased 0.49% to $641.3 million at December 31, 2011, compared to $644.4 million at December 31, 2010.  Increases in investments, loans and OREO were offset by a decrease in cash, which was expected given scheduled maturities of short-term advances and brokered certificates of deposits during 2011.  Total loans, including loans held for sale, were $489.4 million at December 31, 2011, up $13.6 million from $475.8 million at year-end 2010.  The increase in loans was primarily in commercial and industrial loans and owner occupied commercial real estate loans.  The ratio of the allowance for credit losses to total loans outstanding was 2.34% and 2.28% at December 31, 2011 and 2010, respectively. 

Capital ratios continue to exceed regulatory requirements for well-capitalized institutions.  Tier 1 leverage and total risk based capital ratios at December 31, 2011 for the Company’s subsidiary, Bank of the Pacific, were 10.35% and 15.05%, respectively, compared to 9.80% and 14.62% at December 31, 2010, respectively.  Pacific's unaudited consolidated balance sheets at December 31, 2011 and 2010, and unaudited consolidated statements of operations and selected performance ratios for the three and twelve months ended December 31, 2011 and 2010, follow.

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PACIFIC FINANCIAL CORPORATION

Condensed Consolidated Balance Sheets

December 31, 2011 and December 31, 2010

(Dollars in thousands) (Unaudited)

 

 

December 31, 2011

December 31, 2010

Assets

 

 

Cash and due from banks

$ 12,607

$  7,428

Interest bearing deposits in banks

28,525

54,330

Investment securities available-for-sale (amortized cost of

 

 

$47,015 and $42,402)

47,652

41,893

Investment securities held-to-maturity (fair value of $7,118

 

 

and $6,584)

7,025

6,454

Federal Home Loan Bank stock, at cost

3,182

3,182

Loans held for sale

14,541

10,144

 

 

 

Loans

474,893

465,681

Allowance for credit losses

11,127

10,617

Loans, net

463,766

455,064

 

 

 

Premises and equipment

14,884

15,181

Other real estate owned

7,725

6,580

Accrued interest receivable

2,156

2,334

Cash surrender value of life insurance

17,275

16,748

Goodwill

11,282

11,282

Other intangible assets

1,268

1,303

Other assets

9,366

12,480

 

 

 

Total assets

$641,254

$644,403

 

 

 

Liabilities and Shareholders' Equity

 

 

Deposits:

 

 

Demand, non-interest bearing

$108,899

$  95,115

Savings and interest-bearing demand

286,642

253,347

Time, interest-bearing

152,509

196,492

Total deposits

548,050

544,954

 

 

 

Accrued interest payable

1,490

1,380

Secured borrowings

741

925

Short-term borrowings

- -

10,500

Long-term borrowings

10,500

10,500

Junior subordinated debentures

13,403

13,403

Other liabilities

3,800

2,972

Total liabilities

577,984

584,634

 

 

 

Shareholders' Equity

 

 

Common Stock (par value $1); 25,000,000 shares authorized; 10,121,853 shares issued and outstanding at December 31, 2011 and December 31, 2010

 

 

10,122

 

 

10,122

Additional paid-in capital

41,342

41,316

Retained earnings

12,051

9,233

Accumulated other comprehensive loss

(245)

(902)

Total shareholders' equity

63,270

59,769

Total liabilities and shareholders' equity

$641,254

 

$644,403

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PACIFIC FINANCIAL CORPORATION

Condensed Consolidated Statements of Income

Three and twelve months ended December 31, 2011 and 2010

(Dollars in thousands, except per share data) (Unaudited)

 

 

Three Months Ended

December 31,

 

 

Twelve Months Ended

December 31,

 

2011

2010

 

2011

2010

Interest and dividend income

 

 

 

 

 

Loans

$6,727

$7,021

 

$27,186

$28,520

Investment securities and FHLB dividends

492

498

 

2,040

2,224

Deposits with banks and federal funds sold

15

24

 

92

116

Total interest and dividend income

7,234

7,543

 

29,318

30,860

 

 

 

 

 

 

Interest Expense

 

 

 

 

 

Deposits

912

1,457

 

4,643

6,574

Other borrowings

157

332

 

990

1,407

Total interest expense

1,069

1,789

 

5,633

7,981

 

 

 

 

 

 

Net Interest Income

6,165

5,754

 

23,685

22,879

Provision for credit losses

950

750

 

2,500

3,600

Net interest income after provision for credit losses

5,215

5,004

 

21,185

19,279

 

 

 

 

 

 

Non-interest Income

 

 

 

 

 

Service charges on deposits

449

445

 

1,799

1,783

Net gain (loss) on sales of other real estate owned

43

(13)

 

(83)

260

Gain on sales of loans

1,410

1,309

 

3,593

4,168

Net gain on sales of investments available-for-sale

162

20

 

698

422

Other-than-temporary-impairment loss

(87)

- -

 

(330)

- -

Earnings on bank owned life insurance

129

132

 

527

541

Other operating income

346

357

 

1,410

1,277

Total non-interest income

2,452

2,250

 

7,614

8,451

 

 

 

 

 

 

Non-interest Expense

 

 

 

 

 

Salaries and employee benefits

3,535

3,617

 

13,723

13,530

Occupancy and equipment

626

723

 

2,534

2,766

Other real estate owned write-downs

450

708

 

1,049

1,272

Other real estate owned operating costs

157

189

 

450

614

Professional services

165

185

 

739

767

FDIC and State assessments

227

318

 

938

1,361

Data processing

495

445

 

1,415

1,247

Other

1,197

1,295

 

4,800

4,843

Total non-interest expense

6,852

7,480

 

25,648

26,400

 

 

 

 

 

 

Income before income taxes

815

(226)

 

3,151

1,330

Income taxes (benefit)

236

(244)

 

333

(304)

Net Income

$ 579

$ 18

 

$ 2,818

$ 1,634

 

 

 

 

 

 

Earnings per common share:

 

 

 

 

 

Basic

$0.06

$0.00

 

$0.28

$0.16

Diluted

0.06

0.00

 

0.28

0.16

Weighted Average shares outstanding:

 

 

 

 

 

Basic

10,121,853

10,121,853

 

10,121,853

10,121,853

Diluted

10,121,853

10,121,853

 

10,121,870

10,121,853

 

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PACIFIC FINANCIAL CORPORATION
Selected Performance Ratios

 

                     Twelve months ended
                     December 31,

 

                                       2011

                                2010

 

 

 

Net interest margin (1) 

4.08%

3.96%

Efficiency ratio (2) 

81.95%

84.26%

Return on average assets

0.44%

0.25%

Return on average common equity

4.45%

2.77%

 

 

 

 

 

 

 

                     As of Period End

 

                    

                       

 

December 31, 2011

   December 31, 2010

 

 

 

Book value per common share

$6.25

$5.90

Tangible book value per common share (3) 

$5.01

$4.66

 

 

 

Tier 1 Leverage Ratio

10.35%

9.80%

Tier 1 Risk Based Capital Ratio

13.79%

13.35%

Total Risk Based Capital Ratio

15.05%

14.62%

 

 

 

(1)     Net interest income divided by average earnings assets.

(2)     Non-interest expense divided by the sum of net interest income and noninterest income.

(3)     Total shareholders’ equity less intangibles divided by shares outstanding.

 

SUMMARY OF NON-PERFORMING ASSETS

(in thousands)

     
December 31,  2011


December 31, 2010

 

 

 

Accruing loans past due 90 days or more

$       299

$        - -

Restructured loans on accrual status

398

- -

Non-accrual loans (1)

    13,736

     9,999

Total non-performing loans

14,433

9,999

 

 

 

Other real estate owned and repossessions

      7,725

     6,580

 

 

 

TOTAL non-performing assets

$  22,158

$ 16,579

 

 

 

Non-performing loans to total loans (2)

3.04%

2.15%

Non-performing assets to total assets

3.46%

2.57%

Allowance for loan losses to non-performing loans

77.09%

106.18%

Allowance for loan losses to total loans (2)

2.34%

2.28%

 

 

 

(1) Includes $7,734,000 and $932,000 in non-accrual troubled debt restructured loans (“TDRs”) as of December 31, 2011 and December 31, 2010, respectively.

(2) Excludes loans held for sale.

 

 

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Loan Composition

(in thousands)


December 31,  2011


December 31,  2010

 

 

 

Commercial and industrial

$     90,731

$   84,575  

Real estate:

 

 

Construction, land development and other land loans

47,156

46,256

Residential 1-4 family

90,552

89,212

Multi-family

7,682

9,113

Commercial real estate – owner occupied

118,469

109,936

Commercial real estate – non owner occupied

103,005

106,079

Farmland

23,752

22,354

Consumer

8,928

9,128

Less unearned income

        (841)

        (828)

 

Total Loans (1) 

 

$ 489,434

 

$ 475,825

 

(1)  Includes loans held for sale.

 

 

Deposit Composition

(in thousands)

                                

December 31,  2011


December 31,  2010

 

 

 

Non-interest bearing demand

$  108,899

$     95,115

Interest bearing demand

122,160

103,358

Money market deposits

99,031

93,996

Savings deposits

65,451

55,993

Time deposits

     152,509

     196,492

 

Total deposits

 

$ 548,050

 

$ 544,954

 

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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: February 6, 2012

 

By

/s/ Denise Portmann

 

 

 

 

Denise Portmann
Chief Financial Officer

 

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