ABERDEEN, Wash., July 28, 2014 (GLOBE NEWSWIRE) -- Pacific Financial Corporation (OTCQB:PFLC), the holding company for Bank of the Pacific today reported profits increased 36% to $1.4 million, or $0.14 per share, for the second quarter of 2014, compared to $1.0 million, or $0.10 per share for the first quarter of 2014, and grew 5% from $1.3 million, or $0.13 per share for the second quarter a year ago. For the first six months of 2014, profits increased 20% to $2.4 million, or $0.24 per share, from $2.0 million, or $0.20 per share, for the like period in 2013. Fueling profitability in 2014 was robust loan growth, strong net interest margin and solid credit quality. In the year ago periods, earnings were impacted by a credit to the provision for losses of $450,000, and a one-time conversion cost of $395,000 for the branches purchased from Sterling Savings Bank. All results are unaudited.
"We are in our fifth year of consecutive profitability, and our second quarter results continue to demonstrate the fundamental strength of our franchise," said Dennis A. Long, President & Chief Executive Officer, Pacific Financial Corporation. "Once again, we delivered strong performance across key metrics. Loan growth was vigorous, with total loans growing 16% year-over-year and 6% on a linked quarter basis. Credit quality also continued to improve with nonperforming assets declining 47% year-over-year, and down 24% from the preceding quarter. We will continue to build on our franchise and our commitment to serving our customers and communities while creating value for our shareholders."
"As part of our continuing expansion plans, we received regulatory approval in May to convert our loan production office in Vancouver, Washington, into a full-service commercial banking center. We expect this commercial banking center to be operational in the third quarter of 2014." The banking center will complement Bank of Pacific's 19 full-service branches in Washington and Oregon, and the two loan production offices in DuPont and Burlington, Washington.
Second Quarter 2014 Highlights (as of, or for the period ended June 30, 2014, except as noted):
-
Earnings per share (EPS) increased 40% to $0.14, compared to $0.10 in first quarter 2014, and grew 8% from $0.13 in second quarter 2013. Year-to-date, EPS increased 20% to $0.24, from $0.20 for the first half of 2013.
-
Net interest income grew $241,000, or 4%, to $6.8 million, compared to $6.6 million in first quarter 2014, and grew $844,000, or 14%, from $6.0 million in second quarter 2013. For the six months of 2014, net interest income increased $1.8 million, or 16%, to $13.4 million, from $11.5 million for the like period in 2013.
-
Net interest margin (NIM) remained stable at 4.28%, compared to 4.27% for the preceding quarter, and improved 19 basis points from 4.09% for second quarter 2013. Year-to-date, net interest margin expanded 22 basis points to 4.27%, compared to 4.05% for the first half of 2013.
-
Gross loans increased 6% to $547.3 million, up from $518.6 million at March 31, 2014, and grew 15% from $474.6 million a year ago.
-
Nonperforming assets declined to $7.4 million, or 1.03% of total assets, down from $9.7 million, or 1.35% of total assets, at March 31, 2014 and $13.8 million, or 2.01% of total assets a year ago.
-
Classified loans decreased to $16.0 million, or 2.91% of gross loans, from $16.8 million, or 3.23% of gross loans, at March 31, 2014, and dropped from $17.0 million, or 3.59% of gross loans at June 30, 2013.
-
Net charge-offs totaled $73,000, compared to $71,000 in first quarter 2014 and $64,000 in net recoveries for second quarter 2013. Year-to-date, net charge-offs were $144,000, compared to net recoveries of $54,000 for the first half of 2013.
- Capital levels exceeded regulatory requirements for a well-capitalized financial institution, with a total risk-based capital ratio of 13.50% and a leverage ratio of 9.83%, at quarter end.
"We are expanding our real estate lending services into our branches. Our customers now have a one-stop-shop for all of their banking needs with the added convenience of applying for a mortgage loan at many of our local branches," said Denise Portmann, President and Chief Executive Officer of Bank of the Pacific. "More and more of our branch staff are being certified as real estate lending specialists in order to meet the increasing financial needs of our customers. As our customers establish that one-on-one relationship with their local banker, we expect to grow customer relationships, as well as gain new customers and market share."
"We are making excellent progress in further reducing credit resolution costs, primarily due to sustained improvements in asset quality," added Portman. "The addition of veteran loan teams over the past several years is contributing to our strong loan growth, which has driven net interest income up 14% and net interest margin up 19 basis points from year ago. At the same time, we are prudently managing our expenses and, together with our earnings growth, our efficiency ratio is improving."
Management continues to execute strategies to build on a platform for sustainable profitability. Recent accomplishments include:
-
Successfully establishing loan production offices in Clark, Skagit and Thurston Counties, Washington.
-
Receiving regulatory approval to convert our Vancouver, WA loan production office into a full-service commercial banking center.
-
Reducing non-accrual loans and other-real-estate-owned, resulting in a further reduction in nonperforming assets.
- Certifying additional banking professionals to provide home mortgages throughout our branch network to meet the increasing banking needs of our customers.
OPERATING RESULTS
Net Interest Income
Net interest income for the quarter and six month ended June 30, 2014 increased from the quarter and six month ended June, 30, 2013. This increase was primarily due to the growth in earning assets. Changes in the balance sheet mix also contributed to increases in net interest income during these periods. Loan balances increased due to the production generated predominately within the Company's primary market area of Western Washington. Investment securities and federal funds sold declined as a proportion of the balance sheet, due to the strong loan demand during the past several quarters. Funding costs remained low due to the shift in mix toward non-interest bearing and lower-cost deposits, and continued historically low interest rates. As a result, the net interest margin improved.
Net interest income for the current quarter increased from the quarter ended March 31, 2014 primarily for the same reasons noted above. However, funding costs were unchanged when comparing the periods. Given the lengthy period of very low interest rates over the past several years, additional reductions in funding costs are becoming more difficult to achieve. This is primarily because certificates of deposit renewing during the most recent quarters are receiving rates as low as those granted at previous renewals.
Certain reclassifications have been made to the March 31, 2014 and June 30, 2013 financial table presentations to conform to current year presentations. These reclassifications have no effect on previously reported net income per share.
INCOME STATEMENT OVERVIEW | |||||||
(Unaudited) | |||||||
(Dollars in Thousands, Except for Loss per Share Data) | |||||||
For the Three Months Ended June 30, 2014 |
For the Three Months Ended March 31, 2014 |
$ Change |
% Change |
For the Three Months Ended June 30, 2013 |
$ Change |
% Change |
|
Interest and dividend income | $ 7,337 | $ 7,085 | $ 252 | 4% | $ 6,600 | $ 737 | 11% |
Interest expense | 541 | 530 | 11 | 2% | 648 | (107) | -17% |
Net interest income | 6,796 | 6,555 | 241 | 4% | 5,952 | 844 | 14% |
Loan loss provision | 100 | -- | 100 | 100% | (450) | 550 | -122% |
Non-interest income | 2,176 | 1,608 | 568 | 35% | 3,175 | (999) | -31% |
Non-interest expense | 7,066 | 6,830 | 236 | 3% | 7,872 | (806) | -10% |
INCOME BEFORE PROVISION FOR INCOME TAXES | 1,806 | 1,333 | 473 | 35% | 1,705 | 101 | 6% |
PROVISION FOR INCOME TAXES | 403 | 305 | 98 | 32% | 373 | 30 | 8% |
NET INCOME | $ 1,403 | $ 1,028 | $ 375 | 36% | $ 1,332 | $ 71 | 5% |
INCOME PER COMMON SHARE: | |||||||
BASIC (1) | $ 0.14 | $ 0.10 | $ 0.04 | 40% | $ 0.13 | $ 0.01 | 8% |
DILUTED (1) | $ 0.14 | $ 0.10 | $ 0.04 | 40% | $ 0.13 | $ 0.01 | 8% |
Average common shares outstanding - basic (1) | 10,189,386 | 10,182,083 | 7,303.00 | 0% | 10,121,853 | 67,533 | 1% |
Average common shares outstanding - diluted (1) | 10,275,628 | 10,272,341 | 3,287.00 | 0% | 10,182,524 | 93,104 | 1% |
For the Six Months Ended June 30, 2014 |
For the Six Months Ended June 30, 2013 |
$ Change |
% Change |
||||
Interest and dividend income | $ 14,422 | 12,871 | 1,551 | 12% | |||
Interest expense | 1,071 | 1,337 | (266) | -20% | |||
Net interest income | 13,351 | 11,534 | 1,817 | 16% | |||
Loan loss provision | 100 | (450) | 550 | 100% | |||
Non-interest income | 3,784 | 5,801 | (2,017) | -35% | |||
Non-interest expense | 13,896 | 15,291 | (1,395) | -9% | |||
INCOME BEFORE PROVISION FOR INCOME TAXES | 3,139 | 2,494 | 645 | 26% | |||
PROVISION FOR INCOME TAXES | 708 | 461 | 247 | 54% | |||
NET INCOME | $ 2,431 | 2,033 | 398 | 20% | |||
INCOME PER COMMON SHARE: | |||||||
BASIC (1) | $ 0.24 | 0.20 | 0.04 | 20% | |||
DILUTED (1) | $ 0.24 | 0.20 | 0.04 | 20% | |||
Average common shares outstanding - basic (1) | 10,185,755 | 10,121,853 | 63,902 | 1% | |||
Average common shares outstanding - diluted (1) | 10,273,994 | 10,172,356 | 101,638 | 1% |
The following tables provide reconciliations of net income to pre-tax, pre-credit cost operating income and to tax equivalent net income (each non-GAAP financial measures) for the periods presented:
Reconciliation of Non-GAAP Measure: | |||||||
Non-GAAP Operating Income | |||||||
(Dollars in Thousands) | |||||||
For The Three Months Ended |
June 30, 2014 |
March 31, 2014 |
$ Change |
% Change |
June 30, 2013 |
$ Change |
% Change |
Net income | $ 1,403 | $ 1,028 | $ 375 | 36% | $ 1,332 | $ 71 | 5% |
Provision for loan losses | 100 | -- | 100 | 100% | (450) | 550 | -122% |
Other real estate owned write-downs | 54 | 12 | 42 | 350% | 108 | (54) | -50% |
Other real estate owned operating costs | 30 | 61 | (31) | -51% | 125 | (95) | -76% |
Provision for income taxes | 403 | 305 | 98 | 32% | 373 | 30 | 8% |
Pre-tax, pre-credit cost operating income | $ 1,990 | $ 1,406 | $ 584 | 42% | $ 1,488 | $ 502 | 34% |
For The Six Months Ended |
June 30, 2014 |
June 30, 2013 |
$ Change |
% Change |
|||
Net income | $ 2,431 | $ 2,033 | $ 398 | 20% | |||
Provision for loan losses | 100 | (450) | 550 | -122% | |||
Other real estate owned write-downs | 66 | 460 | (394) | -86% | |||
Other real estate owned operating costs | 91 | 209 | (118) | -56% | |||
Provision for income taxes | 708 | 461 | 247 | 54% | |||
Pre-tax, pre-credit cost operating income | $ 3,396 | $ 2,713 | $ 683 | 25% | |||
Reconciliation of Non-GAAP Measure: | |||||||
Tax Equivalent Net Income | |||||||
(Dollars in Thousands) | |||||||
For the Three Months ended |
June 30, 2014 |
March 31, 2014 |
$ Change |
% Change |
June 30, 2013 |
$ Change |
% Change |
Net interest income | $ 6,796 | $ 6,555 | $ 241 | 4% | $ 5,952 | $ 844 | 14% |
Tax equivalent adjustment for municipal loan interest | 46 | 46 | -- | 0% | 60 | (14) | -23% |
Tax equivalent adjustment for municipal bond interest | 120 | 118 | 2 | 2% | 135 | (15) | -11% |
Tax equivalent net interest income | 6,962 | 6,719 | 243 | 4% | 6,147 | 815 | 13% |
Provision for loan losses | 100 | -- | 100 | 100% | (450) | 550 | -122% |
Non-interest income | 2,176 | 1,608 | 568 | 35% | 3,175 | (999) | -31% |
Non-interest expense | 7,066 | 6,830 | 236 | 3% | 7,872 | (806) | -10% |
Provision for income taxes | 403 | 305 | 98 | 32% | 373 | 30 | 8% |
Tax equivalent net income | 1,569 | 1,192 | 377 | 32% | 1,527 | 42 | 3% |
Accumulative tax adjustment | (166) | (164) | (2) | 1% | (195) | 29 | -15% |
Common stock dividends | -- | -- | -- | 0% | -- | -- | 0% |
Net income | $ 1,403 | $ 1,028 | $ 377 | 37% | $ 1,332 | $ 71 | 5% |
For the Six Months ended |
June 30, 2014 |
June 30, 2013 |
$ Change |
% Change |
|||
Net interest income | $ 13,351 | $ 11,534 | $ 1,817 | 16% | |||
Tax equivalent adjustment for municipal loan interest | 92 | 117 | (25) | -21% | |||
Tax equivalent adjustment for municipal bond interest | 238 | 272 | (34) | -13% | |||
Tax equivalent net interest income | 13,681 | 11,923 | 1,758 | 15% | |||
Provision for loan losses | 100 | (450) | 550 | 100% | |||
Non-interest income | 3,784 | 5,801 | (2,017) | -35% | |||
Non-interest expense | 13,896 | 15,291 | (1,395) | -9% | |||
Provision for income taxes | 708 | 461 | 247 | 54% | |||
Tax equivalent net income | 2,761 | 2,422 | 339 | 14% | |||
Accumulative tax adjustment | (330) | (389) | 59 | -15% | |||
Common stock dividends | -- | -- | -- | 0% | |||
Net income | $ 2,431 | $ 2,033 | $ 398 | 20% |
*Pre-tax, pre-credit cost operating income and tax equivalent net income are non-GAAP financial measures. Non-GAAP financial measures have inherent limitations and are not required to be uniformly applied. Management believes that presentation of these non-GAAP financial measures provides useful information that is frequently used by shareholders and analysts in the evaluation of financial institutions. Non-GAAP financial measures have limitations as analytical tools and should not be considered in isolation or as a substitute for information reported in accordance with GAAP. |
Noninterest Income
Noninterest income for the second quarter 2014 was up compared to the first quarter 2014, but down significantly from second quarter 2013, driven primarily by changes in gains from sales of loans and securities available for sale, as described in further detail below. Service charges on deposit accounts grew during the current quarter due to an increase in new deposit relationships as a result of the acquisition of three branches from Sterling Savings Bank completed in the second quarter of 2013. Losses on sale of other real estate owned (OREO) were higher in the current period as compared to the most recent quarter and were in contrast to a small gain in second quarter in 2013. This was primarily due to a larger volume of sales in the current quarter as compared to the prior periods. A small OTTI impairment charge was taken in both first quarter 2014 and second quarter 2013 to reflect a reduction in fair value of a private-label CMO investment security.
Gains on sale of residential mortgage loans and related fee income rose in second quarter 2014 compared to first quarter 2014, but was below second quarter 2013. The recent rebound in home purchases throughout many of our markets is fueling new residential mortgage originations, but were not sufficient to offset the high volumes of both purchase and refinancing activity generated in 2013. In addition, net gains on sales of securities available for sale were taken in first quarter 2014 and second quarter 2013 for the purpose of adjusting the mix of securities to mitigate the impact of changes in market rates on the value of the portfolio.
Noninterest income for the six months ended June 30, 2014 was down as compared to the same period in 2013, impacted by the decline in gains on sale of residential mortgage loans and securities available for sale and increase in losses on sale of OREO, as noted above.
Noninterest income | |||||||
(Unaudited) | |||||||
(Dollars in Thousands) | |||||||
For The Three Months Ended | |||||||
June 30, 2014 |
March 31, 2014 |
$ Change | % Change |
June 30, 2013 |
$ Change | % Change | |
Service charges on deposit accounts | $ 474 | $ 435 | $ 39 | 9.0% | $ 431 | $ 43 | 10% |
Net (loss) on sale of other real estate owned | (57) | (36) | (21) | 58.3% | 45 | (102) | -227% |
Net gains from sales of loans | 968 | 627 | 341 | 54.4% | 1,669 | (701) | -42% |
Net gains on sales of securities available for sale | (2) | 52 | (54) | -103.8% | 329 | (331) | -101% |
Net other-than-temporary impairment (net of $0, $15, and $3, respectively recognized other comprehensive income before taxes) | (3) | (45) | 42 | 100.0% | (34) | 31 | -91% |
Earnings on bank owned life insurance | 140 | 111 | 29 | 26.1% | 116 | 24 | 21% |
Other operating income | |||||||
Fee income | 442 | 364 | 78 | 21.4% | 504 | (62) | -12% |
Income from other real estate owned | 17 | 11 | 6 | 54.5% | 14 | 3 | 21% |
Other non-interest income | 197 | 89 | 108 | 121.3% | 101 | 96 | 95% |
Total non-interest income | $ 2,176 | $ 1,608 | $ 568 | 35.3% | $ 3,175 | $ (999) | -31% |
For The Six Months Ended | |||||||
June 30, 2014 |
June 30, 2013 |
$ Change | % Change | ||||
Service charges on deposit accounts | $ 909 | $ 841 | $ 68 | 8.1% | |||
Net (loss) on sale of other real estate owned | (93) | 25 | (118) | -472.0% | |||
Net gains from sales of loans | 1,596 | 3,178 | (1,582) | -49.8% | |||
Net gains on sales of securities available for sale | 50 | 387 | (337) | -87.1% | |||
Net other-than-temporary impairment (net of $15, and $3, respectively recognized other comprehensive income before taxes) | (48) | (34) | (14) | 41.2% | |||
Earnings on bank owned life insurance | 251 | 237 | 14 | 5.9% | |||
Other operating income | |||||||
Fee income | 806 | 970 | (164) | -16.9% | |||
Income from other real estate owned | 28 | 29 | (1) | -3.4% | |||
Other non-interest income | 285 | 168 | 117 | 69.6% | |||
Total non-interest income | $ 3,784 | $ 5,801 | $ (2,017) | -34.8% |
Noninterest Expense
Noninterest expense for the three months ended June 30, 2014 increased compared to the three months ended March 31, 2014. This was primarily due to increases in commissions expense associated with recent growth in real estate mortgage purchase lending activity and bonus accruals related to other incentive compensation plans. This increase was partially offset by decreases in OREO write-downs and expenses and professional service costs associated with the reduction of non-performing assets.
Noninterest expense for second quarter 2014 declined versus the quarter ended June 30, 2013. This was primarily due to a decrease of $471,000 in personnel costs associated with the reduction in staff initiated in first quarter 2014 commensurate with the decline in residential mortgage loan refinance activity referred to above. Also, in second quarter 2013 the Bank incurred one-time expenses of $395,000 in conversion costs associated with the acquisition of three branches from Sterling Savings Bank in June 2013. Total costs associated with OREO and related third-party loan expenses also decreased due to the decline in OREO balances and stabilization in real estate valuations. This was partially offset by an increase in occupancy and equipment expense primarily associated with the Sterling branch acquisitions and the opening of the Warrenton, OR branch in October 2013. Noninterest expense for the six months ended June 30, 2014 was down as compared to the same period in 2013, primarily related to lower residential real estate mortgage personnel costs, OREO write-downs and expenses and one-time costs associated with the Sterling branch acquisitions, as noted above.
Noninterest expense | |||||||
(Unaudited) | |||||||
(Dollars in Thousands) | |||||||
For The Three Months Ended | |||||||
June 30, 2014 |
March 31, 2014 |
$ Change | % Change |
June 30, 2013 |
$ Change | % Change | |
Salaries and employee benefits | $ 4,283 | $ 4,055 | $ 228 | 6% | $ 4,499 | $ (216) | -5% |
Occupancy | 504 | 506 | (2) | 0% | 452 | 52 | 12% |
Equipment | 263 | 252 | 11 | 4% | 195 | 68 | 35% |
Data processing | 462 | 433 | 29 | 7% | 809 | (347) | -43% |
Professional services | 201 | 185 | 16 | 9% | 236 | (35) | -15% |
Other real estate owned write-downs | 54 | 12 | 42 | 350% | 108 | (54) | -50% |
Other real estate owned operating costs | 30 | 61 | (31) | -51% | 125 | (95) | -76% |
State taxes | 107 | 97 | 10 | 10% | 133 | (26) | -20% |
FDIC and state assessments | 129 | 134 | (5) | -4% | 130 | (1) | -1% |
Other non-interest expense: | |||||||
Director fees | 72 | 56 | 16 | 29% | 70 | 2 | 3% |
Communication | 53 | 37 | 16 | 43% | 42 | 11 | 26% |
Advertising | 76 | 78 | (2) | -3% | 68 | 8 | 12% |
Professional liability insurance | 19 | 23 | (4) | -17% | 23 | (4) | -17% |
Amortization | 98 | 95 | 3 | 3% | 98 | 0 | 0% |
Other non-interest expense | 715 | 806 | -91 | -11% | 884 | (169) | -19% |
Total non-interest expense | $ 7,066 | $ 6,830 | $ 236 | 3% | $ 7,872 | $ (806) | -10% |
For The Six Months Ended | |||||||
June 30, 2014 |
June 30, 2013 |
$ Change | % Change | ||||
Salaries and employee benefits | $ 8,338 | $ 8,885 | $ (547) | -6% | |||
Occupancy | 1,010 | 865 | 145 | 17% | |||
Equipment | 515 | 386 | 129 | 33% | |||
Data processing | 895 | 1,239 | (344) | -28% | |||
Professional services | 386 | 498 | (112) | -22% | |||
Other real estate owned write-downs | 66 | 460 | (394) | -86% | |||
Other real estate owned operating costs | 91 | 209 | (118) | -56% | |||
State taxes | 204 | 250 | (46) | -18% | |||
FDIC and state assessments | 263 | 266 | (3) | -1% | |||
Other non-interest expense: | |||||||
Director fees | 128 | 115 | 13 | 11% | |||
Communication | 90 | 88 | 2 | 2% | |||
Advertising | 154 | 146 | 8 | 5% | |||
Professional liability insurance | 41 | 46 | (5) | -11% | |||
Amortization | 192 | 195 | (3) | -2% | |||
Other non-interest expense | 1,523 | 1,643 | (120) | -7% | |||
Total non-interest expense | $ 13,896 | $ 15,291 | $ (1,395) | -9% |
Income Taxes
The Company recorded an income tax provision for the three months ended June 30, 2014, March 31, 2014 and June 30, 2013. The amount of the provision for each period was commensurate with the estimated tax liability associated with the net income earned during the period.
As of June 30, 2014, the Company maintained a deferred tax asset balance of $4.1 million. The Company believes it will be fully utilized in the normal course of business, thus no valuation allowance is maintained against this asset.
SUMMARY BALANCE SHEET OVERVIEW | |||||||
(Unaudited) | |||||||
(Dollars in Thousands) | |||||||
June 30, | March 31, | % | June 30, | % | |||
2014 | 2014 | $ Change | Change | 2013 | $ Change | Change | |
Assets: | |||||||
Cash and cash equivalents | $ 17,694 | $ 35,619 | $ (17,925) | -50% | $ 54,243 | $ (36,549) | -67% |
Interest-bearing certificates of deposit | 2,727 | 2,727 | 0 | 0% | 2,235 | 492 | 22% |
Federal Home Loan Bank stock, at cost | 2,956 | 2,985 | (29) | -1% | 3,069 | (113) | -4% |
Investment securities | 90,583 | 97,239 | (6,656) | -7% | 89,551 | 1,032 | 1% |
Loans held-for-sale | 7,632 | 7,997 | (365) | -5% | 10,855 | (3,223) | -30% |
Gross loans, net of deferred fees | 547,283 | 518,552 | 28,731 | 6% | 474,580 | 72,703 | 15% |
Allowance for loan losses | (8,315) | (8,288) | (27) | 0% | (8,962) | 647 | -7% |
Net loans | 538,968 | 510,264 | 28,704 | 6% | 465,618 | 73,350 | 16% |
Other assets | 58,912 | 60,609 | (1,697) | -3% | 60,763 | (1,851) | -3% |
Total assets | $ 719,472 | $ 717,440 | $ 2,032 | 0% | $ 686,334 | $ 33,138 | 5% |
Liabilities and shareholders' equity | |||||||
Total deposits | $ 619,301 | $ 620,456 | $ (1,155) | 0% | $ 591,147 | $ 28,154 | 5% |
Accrued interest payable | 151 | 166 | (15) | -9% | 185 | (34) | -18% |
Borrowings | 23,743 | 23,403 | 340 | 1% | 23,403 | 340 | 1% |
Other liabilities | 5,417 | 4,820 | 597 | 12% | 4,750 | 667 | 14% |
Shareholders' equity | 70,860 | 68,595 | 2,265 | 3% | 66,849 | 4,011 | 6% |
Total liabilities and shareholders' equity | $ 719,472 | $ 717,440 | $ 2,032 | 0% | $ 686,334 | $ 33,138 | 5% |
Cash and Cash Equivalents and Investment Securities | ||||||||||
(Unaudited) | ||||||||||
(Dollars in Thousands) | ||||||||||
June 30, 2014 |
% of Total |
March 31, 2014 |
% of Total |
$ Change | % Change |
June 30, 2013 |
% of Total |
$ Change | % Change | |
Cash and due from banks | $ 17,455 | 15% | $ 15,747 | 11% | $ 1,708 | 11% | $ 18,158 | 12% | $ (703) | -4% |
Cash equivalents: | ||||||||||
Interest-bearing deposits | 239 | 0% | 19,872 | 14% | (19,633) | -99% | 36,085 | 24% | (35,846) | -99% |
Interest-bearing certificates of deposit | 2,727 | 2% | 2,727 | 2% | -- | 0% | 2,235 | 1% | 492 | 22% |
Total cash equivalents | 20,421 | 18% | 38,346 | 28% | (17,925) | -47% | 56,478 | 38% | (36,057) | -64% |
Investment securities: | ||||||||||
Collateralized mortgage obligations: agency issued | 38,822 | 34% | 37,567 | 27% | 1,255 | 3% | 30,085 | 20% | 8,737 | 29% |
Collateralized mortgage obligations: non-agency issued | 604 | 1% | 1,974 | 1% | (1,370) | -69% | 2,349 | 2% | (1,745) | -74% |
Mortgage-backed securities: agency issued | 12,059 | 11% | 13,182 | 10% | (1,123) | -9% | 12,038 | 8% | 21 | 0% |
U.S. Government and agency securities | 8,721 | 8% | 9,828 | 7% | (1,107) | -11% | 8,874 | 6% | (153) | -2% |
State and municipal securities | 30,377 | 27% | 34,688 | 25% | (4,311) | -12% | 33,635 | 23% | (3,258) | -10% |
Corporate bonds | -- | 0% | -- | 0% | -- | 0% | 2,570 | 2% | (2,570) | -100% |
FHLB Stock | 2,956 | 3% | 2,985 | 2% | (29) | -1% | 3,069 | 2% | (113) | -4% |
Total investment securities | 93,539 | 82% | 100,224 | 72% | (6,685) | -7% | 92,620 | 62% | 919 | 1% |
Total cash equivalents and investment securities | $ 113,960 | 100% | $ 138,570 | 100% | $ (24,610) | -18% | $ 149,098 | 100% | $ (35,138) | -24% |
Total cash equivalents and investment securities as a % of total assets | 16% | 19% | 22% |
Investment securities and interest-bearing certificates of deposit | |||||||
(Unaudited) | |||||||
(Dollars in Thousands) | |||||||
For the Three Months Ended |
June 30, 2014 |
March 31, 2014 |
$ Change | % Change |
June 30, 2013 |
$ Change | % Change |
Balance beginning of period | $ 102,951 | $ 104,016 | $ (1,065) | -1% | $ 82,624 | $ 20,327 | 25% |
Principal purchases | 3,806 | 5,741 | (1,935) | -34% | 24,688 | (20,882) | -85% |
Proceeds from sales | (8,979) | (4,849) | (4,130) | 85% | (2,987) | (5,992) | 201% |
Principal paydowns, maturities, and calls | (2,144) | (2,259) | 115 | -5% | (6,568) | 4,424 | -67% |
Gains on sales of securities | 159 | 62 | 97 | 156% | 329 | (170) | -52% |
Losses on sales of securities | (161) | (10) | (151) | 1510% | -- | (161) | 100% |
OTTI loss writedown | (3) | (45) | 42 | -93% | (51) | 48 | -94% |
Change in unrealized gains (loss) before tax | 903 | 555 | 348 | 63% | (2,840) | 3,743 | -132% |
Amortization and accretion of discounts and premiums | (266) | (260) | (6) | 2% | (340) | 74 | -22% |
Total investment portfolio | $ 96,266 | $ 102,951 | $ (6,685) | -6% | $ 94,855 | $ 1,411 | 1% |
Liquidity remains strong based on the current level of combined cash equivalents and investment securities. We also have unsecured lines of credit totaling $16.0 million with correspondent banks, all of which is currently available. In addition, we have a secured borrowing facility with the Federal Home Loan Bank of Seattle of $143.4 million, of which $10.3 million is currently outstanding. In an effort to enhance our net interest income and margin, we reduced our cash equivalents and investment securities portfolio to fund loan growth. The expected modified duration (adjusted for calls, consensus pre-payment speeds and rate adjustment dates) of the investment portfolio was 4.5 years at June 30, 2014, 4.2 years at March 31, 2014 and 4.4 years at June 30, 2013.
LOANS
Loans by category | ||||||||||
(Unaudited) | June 30, | % of | March 31, | % of | $ | June 30, | % of | $ | ||
(Dollars in Thousands) | 2014 | Gross Loans | 2014 | Gross Loans | Change | % Change | 2013 | Gross Loans | Change | % Change |
Commercial and agricultural | $ 109,368 | 20% | $ 101,971 | 20% | $ 7,397 | 7% | $ 89,894 | 19% | $ 19,474 | 22% |
Real estate: | ||||||||||
Construction and development | 32,071 | 6% | 30,765 | 6% | 1,306 | 4% | 25,804 | 6% | 6,267 | 24% |
Residential 1-4 family | 90,549 | 17% | 89,244 | 17% | 1,305 | 1% | 83,896 | 18% | 6,653 | 8% |
Multi-family | 20,110 | 4% | 18,982 | 4% | 1,128 | 6% | 13,978 | 3% | 6,132 | 44% |
Commercial real estate -- owner occupied | 117,203 | 22% | 112,771 | 22% | 4,432 | 4% | 112,148 | 24% | 5,055 | 5% |
Commercial real estate -- non owner occupied | 124,929 | 23% | 119,803 | 23% | 5,126 | 4% | 109,323 | 23% | 15,606 | 14% |
Farmland | 23,900 | 4% | 22,940 | 4% | 960 | 4% | 24,717 | 5% | (817) | -3% |
Consumer | 30,241 | 6% | 23,156 | 5% | 7,085 | 31% | 15,841 | 3% | 14,400 | 91% |
Gross loans | 548,371 | 519,632 | 28,739 | 6% | 475,601 | 72,770 | 15% | |||
Less: allowance for loan losses | (8,315) | -2% | (8,288) | -2% | (27) | 0% | (8,962) | -2% | 647 | -7% |
Less: deferred fees | (1,088) | 0% | (1,080) | 0% | (8) | 1% | (1,021) | 0% | (67) | 7% |
Loans, net | $ 538,968 | $ 510,264 | $ 28,704 | 6% | $ 465,618 | $ 73,350 | 16% |
Loan portfolio growth continues to be well diversified, with higher balances in all lending categories. The recent loan growth was generated predominately within our Washington and Oregon markets. The portfolio includes $37.5 million in purchased government-guaranteed commercial and commercial real estate loans. In addition, the portfolio contains $20.7 million in indirect consumer loans to individuals with high credit scores to finance luxury and classic cars as a part of a strategy to diversify the loan portfolio.
Our ability to continue loan growth will be dependent on many factors, including the effects of competition, economic conditions in our markets, retention of key personnel and valued customers, and our ability to close loans in the pipeline. The Company manages new loan origination volume using concentration limits that establish maximum exposure levels by designated industry segment, real estate product types, geography, and single borrower limits.
DEPOSITS
Deposits | ||||||||
(Unaudited) | ||||||||
(Dollars in Thousands) | June 30, 2014 |
Percent of Total |
March 31, 2014 |
Percent of Total |
$ Change | June 30, 2013 |
Percent of Total |
$ Change |
Interest-bearing demand and money market | $ 268,480 | 43.4% | $ 263,953 | 42.5% | $ 4,527 | $ 259,956 | 44.0% | $ 8,524 |
Savings | 74,336 | 12.0% | 78,055 | 12.6% | (3,719) | 64,360 | 10.9% | 9,976 |
Time deposits | 119,531 | 19.3% | 125,532 | 20.2% | (6,001) | 141,246 | 23.9% | (21,715) |
Total interest-bearing deposits | 462,347 | 74.7% | 467,540 | 75.4% | (5,193) | 465,562 | 78.8% | (3,215) |
Non-interest bearing demand | 156,954 | 25.3% | 152,916 | 24.6% | 4,038 | 125,585 | 21.2% | 31,369 |
Total deposits | $ 619,301 | 100.0% | $ 620,456 | 100.0% | $ (1,155) | $ 591,147 | 100.0% | $ 28,154 |
Total deposits were virtually unchanged at June 30, 2014 versus first quarter of this year and up 5% from the second quarter a year ago. Non-interest bearing, interest bearing demand and money market deposits continued to grow. This increase is due recent success in acquiring business deposit relationships in conjunction with the growth in lending achieved over the past year and the deposits obtained in the Sterling acquisition last year. Time deposits continued to decline as a percentage of total deposits. The combination of our efforts to reduce higher-cost time deposits through lowering interest rates paid and offering non-insured deposit products, when appropriate, reduced the average rate paid on total deposits in second quarter 2014 from second quarter in 2013.
Total brokered deposits were $22.9 million at June 30, 2014, which included $2.9 million via reciprocal deposit arrangements. This compares to $24.2 million and $24.6 million at March 31, 2014 and June 30, 2013, respectively. In addition, the Company's funding structure contains $10.0 million in borrowings from the Federal Home Loan Bank. Doug Biddle, Executive Vice President and Chief Financial Officer, observed, "We view the prudent use of brokered deposits and borrowings to be an appropriate funding tool to support interest rate risk mitigation strategies."
CAPITAL
Pacific Financial Corporation, and its subsidiary Bank of the Pacific, met the thresholds to be considered "Well-Capitalized" under published regulatory standards for total risk-based capital, Tier 1 risk-based capital and Tier 1 leverage capital at June 30, 2014. Capital ratios decreased slightly as compared to the linked quarter and the second quarter of 2013, primarily due to the successful execution of the Company's growth strategy and shift in the balance sheet mix to higher risk-weighted loan assets.
The Board of Governors of the Federal Reserve System ("Federal Reserve") and the FDIC have established minimum requirements for capital adequacy for bank holding companies and state non-member banks. For more information on these topics, see the discussions under the subheading "Capital Adequacy" in the section "Business" included in Item 1, of the Company's 2013 Form 10-K. The following table summarizes the capital measures of the Company and the Bank, respectively, at the dates listed below.
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 at June 30, 2014, 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.
June 30, 2014 |
March 31, 2014 |
Change |
June 30, 2013 |
Change |
Regulatory Minimum to be "Adequately Capitalized" |
Regulatory Minimum to be "Well Capitalized" |
|
greater than or equal to | greater than or equal to | ||||||
Pacific Financial Corporation | |||||||
Total risk-based capital ratio | 13.50% | 13.88% | (0.38) | 15.24% | (1.74) | 8% | n/a |
Tier 1 risk-based capital ratio | 12.25% | 12.62% | (0.37) | 13.98% | (1.73) | 4% | n/a |
Leverage ratio | 9.83% | 10.02% | (0.19) | 10.44% | (0.61) | 4% | n/a |
Tangible common equity ratio | 8.11% | 7.81% | 0.30 | 7.90% | 0.21 | n/a | n/a |
Bank of the Pacific | |||||||
Total risk-based capital ratio | 13.73% | 13.93% | (0.20) | 15.21% | (1.48) | 8% | 10% |
Tier 1 risk-based capital ratio | 12.48% | 12.67% | (0.19) | 13.96% | (1.48) | 4% | 6% |
Leverage ratio | 10.01% | 9.99% | 0.02 | 10.42% | (0.41) | 4% | 5% |
FINANCIAL PERFORMANCE OVERVIEW | |||||
(Unaudited) | |||||
(Dollars in Thousands, Except per Share Data) | |||||
For The Three Months Ended | |||||
June 30, 2014 |
March 31, 2014 |
Change |
June 30, 2013 |
Change | |
Selective quarterly performance ratios | |||||
Return on average assets, annualized | 0.79% | 0.59% | 0.20 | 0.81% | (0.02) |
Return on average equity, annualized | 8.04% | 6.12% | 1.92 | 7.83% | 0.21 |
Efficiency ratio (1) | 78.76% | 83.67% | (4.91) | 86.25% | (7.49) |
Share and per share information | |||||
Average common shares outstanding - basic | 10,189,386 | 10,182,083 | 7,303 | 10,121,853 | 67,533 |
Average common shares outstanding - diluted | 10,275,628 | 10,272,341 | 3,287 | 10,182,524 | 93,104 |
Basic income per common share | 0.14 | 0.10 | 0.04 | 0.13 | 0.01 |
Diluted income per common share | 0.14 | 0.10 | 0.04 | 0.13 | 0.01 |
Book value per common share (2) | 6.95 | 6.74 | 0.21 | 6.60 | 0.35 |
Tangible book value per common share (3) | 5.62 | 5.34 | 0.28 | 5.10 | 0.52 |
For The Six Months Ended | |||||
June 30, 2014 |
June 30, 2013 |
Change | |||
Selective quarterly performance ratios | |||||
Return on average assets, annualized | 0.69% | 0.63% | 0.06 | ||
Return on average equity, annualized | 7.10% | 6.05% | 1.05 | ||
Efficiency ratio (1) | 81.10% | 88.21% | (7.11) | ||
Share and per share information | |||||
Average common shares outstanding - basic | 10,185,755 | 10,121,853 | 63,902 | ||
Average common shares outstanding - diluted | 10,273,994 | 10,172,356 | 101,638 | ||
Basic income per common share | 0.24 | 0.20 | 0.04 | ||
Diluted income per common share | 0.24 | 0.20 | 0.04 | ||
Book value per common share (2) | 6.96 | 6.60 | 0.36 | ||
Tangible book value per common share (3) | 5.62 | 5.10 | 0.52 | ||
(1) Non-interest expense divided by net interest income plus non-interest income. | |||||
(2) Book value is calculated as the total common equity divided by the period ending number of common shares outstanding. | |||||
(3) Tangible book value is calculated as the total common equity less total intangible assets and liabilities divided by the period ending number of common shares outstanding. |
NET INTEREST MARGIN | |||||
(Annualized, tax-equivalent basis) | |||||
(Unaudited) | |||||
For The Three Months Ended | |||||
June 30, 2014 |
March 31, 2014 |
Change |
June 30, 2013 |
Change | |
Selective quarterly performance ratios | |||||
Yield on average gross loans (1) | 5.04% | 5.13% | (0.09) | 5.17% | (0.13) |
Yield on average investment securities (1) | 2.54% | 2.37% | 0.17 | 1.91% | 0.63 |
Cost of average interest bearing deposits | 0.37% | 0.37% | -- | 0.48% | (0.11) |
Cost of average borrowings | 1.90% | 1.96% | (0.06) | 1.99% | (0.09) |
Cost of average total deposits and borrowings | 0.34% | 0.34% | -- | 0.44% | (0.10) |
Cost of average interest-bearing liabilities | 0.44% | 0.44% | -- | 0.55% | (0.11) |
Yield on average interest-earning assets | 4.61% | 4.61% | -- | 4.53% | 0.08 |
Cost of average interest-bearing liabilities | 0.44% | 0.44% | -- | 0.55% | (0.11) |
Net interest spread | 4.17% | 4.17% | -- | 3.98% | 0.19 |
Net interest margin (1) | 4.28% | 4.27% | 0.01 | 4.09% | 0.19 |
For The Six Months Ended | |||||
June 30, 2014 |
June 30, 2013 |
Change | |||
Selective quarterly performance ratios | |||||
Yield on average gross loans (1) | 5.09% | 5.14% | (0.05) | ||
Yield on average investment securities (1) | 2.45% | 1.91% | 0.54 | ||
Cost of average interest bearing deposits | 0.37% | 0.50% | (0.13) | ||
Cost of average borrowings | 1.93% | 2.04% | (0.11) | ||
Cost of average total deposits and borrowings | 0.34% | 0.46% | (0.12) | ||
Cost of average interest-bearing liabilities | 0.44% | 0.58% | (0.14) | ||
Yield on average interest-earning assets | 4.61% | 4.51% | 0.10 | ||
Cost of average interest-bearing liabilities | 0.44% | 0.58% | (0.14) | ||
Net interest spread | 4.17% | 3.93% | 0.24 | ||
Net interest margin (1) | 4.27% | 4.05% | 0.22 | ||
(1) Tax-exempt income has been adjusted to a tax equivalent basis at a 34% rate. |
Net Interest Margin
Net interest margin remained virtually unchanged as compared to first quarter 2014, as improvement in investment securities yields offset slight declines in loan yields. Improvements in yields on investment securities were partially due to the decline in amortization expense associated with the decrease in prepayment speeds of mortgage-backed securities. Loan yield declines resulted from increased competition for high quality borrowing relationships in the marketplace. Net interest margin improved when compared to second quarter 2013, predominantly due to a shift in the mix of earning assets toward higher-yielding loans and the lower cost of interest bearing liabilities. The growth in the proportion of noninterest bearing deposits over the past several quarters has supported the improvement in net interest margin as well. In second quarter 2014, loan yields and net interest margin were enhanced by 9 and 7 basis points, respectively, due to the collection of $115,000 in non-accrual interest during the current period. A similar enhancement to loan yields occurred in first quarter 2014 due to the collection of $108,000 in non-accrual interest. There was no similar collection of non-accrual interest during the corresponding periods in 2013.
The improvement in yields on investment securities also enhanced net interest margin between the six months ending June 30, 2014 and the same period in 2013. This was partially due to the decline in amortization expense associated with the decrease in prepayment speeds of mortgage-backed securities between the two periods. In addition, we reduced the proportion of lower yielding cash-equivalent investments and increased the proportion of relatively higher-yielding federal government guaranteed and municipal securities.
The following tables set forth information with regard to average balances of interest earning assets and interest bearing liabilities and the resultant yields or cost, net interest income, and the net interest margin on a tax equivalent basis. Loans held for sale and non-accrual loans are included in total loans.
Average Interest Earning Balances: | For the Three Months Ended | ||||||||
June 30, 2014 | March 31, 2014 | June 30, 2013 | |||||||
Average Balance |
Interest Income or Expense |
Average Yields or Rates |
Average Balance |
Interest Income or Expense |
Average Yields or Rates |
Average Balance |
Interest Income or Expense |
Average Yields or Rates |
|
(Dollars in 000's) | |||||||||
ASSETS: | |||||||||
Interest bearing certificate of deposit | $ 2,727 | $ 10 | 1.47% | $ 2,727 | $ 10 | 1.49% | $ 2,235 | $ 7 | 1.21% |
Interest bearing deposits in banks | 12,552 | 9 | 0.29% | 17,954 | 12 | 0.27% | 29,544 | 17 | 0.23% |
Investments - taxable | 65,964 | 343 | 2.09% | 67,695 | 339 | 2.03% | 51,990 | 145 | 1.12% |
Investments - nontaxable | 31,607 | 352 | 4.47% | 32,770 | 347 | 4.29% | 34,857 | 397 | 4.57% |
Gross loans (1) | 532,490 | 6,718 | 5.06% | 511,200 | 6,492 | 5.15% | 474,403 | 6,149 | 5.20% |
Loans held for sale | 7,685 | 71 | 3.71% | 5,436 | 49 | 3.66% | 9,170 | 80 | 3.50% |
Total interest earning assets | 653,025 | 7,503 | 4.61% | 637,782 | 7,249 | 4.61% | 602,199 | 6,795 | 4.53% |
Cash and due from banks | 13,135 | 11,989 | 11,321 | ||||||
Bank premises and equipment (net) | 16,703 | 16,806 | 15,499 | ||||||
Other real estate owned | 2,088 | 2,565 | 3,776 | ||||||
Deferred fees | (1,068) | (1,137) | (1,032) | ||||||
Allowance for loan losses | (8,271) | (8,388) | (9,375) | ||||||
Other assets | 40,705 | 41,129 | 40,666 | ||||||
Total assets | $ 716,317 | $ 700,746 | $ 663,054 | ||||||
LIABILITIES AND SHAREHOLDERS' EQUITY: | |||||||||
Interest-bearing deposits | $ 345,116 | 140 | 0.16% | $ 336,201 | 141 | 0.17% | $ 312,459 | 181 | 0.23% |
Time deposits | 122,134 | 290 | 0.95% | 126,841 | 276 | 0.88% | 135,107 | 351 | 1.04% |
FHLB borrowings | 10,000 | 60 | 2.41% | 10,000 | 53 | 2.15% | 10,000 | 62 | 2.49% |
Short term borrowings | 6 | -- | 0.00% | -- | -- | 0.00% | -- | -- | 0.00% |
Junior subordinated debentures | 13,403 | 51 | 1.53% | 13,403 | 60 | 1.82% | 13,403 | 54 | 1.62% |
Total interest bearing liabilities | 490,659 | 541 | 0.44% | 486,445 | 530 | 0.44% | 470,969 | 648 | 0.55% |
Non-interest-bearing deposits | 150,776 | 140,980 | 119,499 | ||||||
Other liabilities | 4,928 | 5,196 | 4,316 | ||||||
Equity | 69,954 | 68,125 | 68,270 | ||||||
Total liabilities and shareholders' equity | $ 716,317 | $ 700,746 | $ 663,054 | ||||||
Net interest income (3) | $ 6,962 | $ 6,719 | $ 6,147 | ||||||
Net interest spread | 4.17% | 243 | 4.17% | 815 | 3.98% | ||||
Average yield on earning assets (2) (3) | 4.61% | 4.61% | 4.53% | ||||||
Interest expense to earning assets | 0.19% | 0.19% | 0.24% | ||||||
Net interest income to earning assets (2) (3) | 4.28% | 4.27% | 4.09% | ||||||
Reconciliation of Non-GAAP measure: | |||||||||
Tax Equivalent Net Interest Income | |||||||||
Net interest income | $ 6,796 | $ 6,555 | $ 5,952 | ||||||
Tax equivalent adjustment for municipal loan interest | 46 | 46 | 60 | ||||||
Tax equivalent adjustment for municipal bond interest | 120 | 118 | 135 | ||||||
Tax equivalent net interest income | $ 6,962 | $ 6,719 | $ 6,147 | ||||||
Non-GAAP financial measures have inherent limitations, are not required to be uniformly applied, and are not audited. | |||||||||
Management believes that presentation of this non-GAAP measure provides useful information frequently used by shareholders in the evaluation of a company. | |||||||||
Non-GAAP financial measures have limitations as analytical tools and should not be considered in isolation or as a substitute for analyses of results as reported under GAAP. | |||||||||
(1) Non-accrual loans of approximately $6.4 million at 06/30/14, $7.3 million at 03/31/2014, and $10.4 million for 06/30/2013 are included in the average loan balances. | |||||||||
(2) Loan interest income includes loan fee income of $180,000, $149,000, and $131,000 for the three months ended 06/30/2014, 03/31/2014, and 06/30/2013, respectively. | |||||||||
(3) Tax-exempt income has been adjusted to a tax equivalent basis at a 34% effective rate. The amount of such adjustment was an addition to recorded pre-tax income of $166,000, $164,000, and $195,000 for the three months ended June 30, 2014, March 31, 2014, and June 30, 2013, respectively. |
For the Three Months Ended | For the Three Months Ended | |||||
June 30, 2014 vs. March 31, 2014 | June 30, 2014 vs. June 30, 2013 | |||||
Increase (Decrease) Due To | Increase (Decrease) Due To | |||||
(Dollars in 000's) | Net | Net | ||||
Volume | Rate | Change | Volume | Rate | Change | |
ASSETS: | ||||||
Interest bearing certificate of deposit | $ -- | $ -- | $ -- | $ 1 | $ 2 | $ 3 |
Interest bearing deposits in banks | (4) | 1 | (3) | (10) | 2 | (8) |
Investments - taxable | (9) | 13 | 4 | 39 | 159 | 198 |
Investments - nontaxable | (12) | 17 | 5 | (37) | (8) | (45) |
Gross loans | 273 | (47) | 226 | 753 | (184) | 569 |
Loans held for sale | 21 | 1 | 22 | (13) | 4 | (9) |
Total interest earning assets | $ 269 | $ (15) | $ 254 | $ 733 | $ (25) | $ 708 |
LIABILITIES AND SHAREHOLDERS' EQUITY: | ||||||
Interest-bearing deposits | $ 4 | $ (5) | $ (1) | $ 19 | $ (60) | $ (41) |
Time deposits | (10) | 24 | 14 | (34) | (27) | (61) |
FHLB borrowings | -- | 7 | 7 | -- | (2) | (2) |
Short-term borrowings | -- | -- | -- | -- | -- | -- |
Long-term borrowings | -- | (9) | (9) | -- | (3) | (3) |
Total interest bearing liabilities | (6) | 17 | 11 | (15) | (92) | (107) |
Net increase (decrease) in net interest income | $ 275 | $ (32) | $ 243 | $ 748 | $ 67 | $ 815 |
Average Interest Earning Balances: | For the Six Months Ended | |||||
June 30, 2014 | June 30, 2013 | |||||
Average Balance |
Interest Income or Expense |
Average Yields or Rates |
Average Balance |
Interest Income or Expense |
Average Yields or Rates |
|
(Dollars in 000's) | ||||||
ASSETS: | ||||||
Interest bearing certificate of deposit | $ 2,727 | $ 21 | 1.55% | $ 2,536 | $ 14 | 1.11% |
Interest bearing deposits in banks | 15,238 | 19 | 0.25% | 32,629 | 37 | 0.23% |
Investments - taxable | 66,825 | 682 | 2.06% | 46,747 | 250 | 1.08% |
Investments - nontaxable | 32,185 | 700 | 4.39% | 34,319 | 800 | 4.70% |
Gross loans (1) | 521,904 | 13,210 | 5.10% | 465,727 | 11,982 | 5.19% |
Loans held for sale | 6,567 | 120 | 3.68% | 11,268 | 177 | 3.17% |
Total interest earning assets | 645,446 | 14,752 | 4.61% | 593,226 | 13,260 | 4.51% |
Cash and due from banks | 12,565 | 11,028 | ||||
Bank premises and equipment (net) | 16,755 | 15,231 | ||||
Other real estate owned | 2,325 | 4,095 | ||||
Deferred fees | (1,104) | (989) | ||||
Allowance for loan losses | (8,330) | (9,371) | ||||
Other assets | 40,917 | 40,910 | ||||
Total assets | $ 708,574 | $ 654,130 | ||||
LIABILITIES AND SHAREHOLDERS' EQUITY: | ||||||
Interest-bearing deposits | $ 340,683 | 281 | 0.17% | $ 306,297 | 381 | 0.25% |
Time deposits | 124,475 | 566 | 0.92% | 135,898 | 718 | 1.07% |
FHLB borrowings | 10,000 | 120 | 2.42% | 10,099 | 124 | 2.48% |
Short term borrowings | 3 | -- | 0.00% | -- | -- | 0.00% |
Junior subordinated debentures | 13,403 | 104 | 1.56% | 13,403 | 114 | 1.72% |
Total interest bearing liabilities | 488,564 | 1,071 | 0.44% | 465,697 | 1,337 | 0.58% |
Non-interest-bearing deposits | 145,905 | 116,240 | ||||
Other liabilities | 5,060 | 4,413 | ||||
Equity | 69,045 | 67,780 | ||||
Total liabilities and shareholders' equity | $ 708,574 | $ 654,130 | ||||
Net interest income (3) | $ 13,681 | $ 11,923 | ||||
Net interest spread | 4.17% | 1,758 | 3.93% | |||
Average yield on earning assets (2) (3) | 4.61% | 4.51% | ||||
Interest expense to earning assets | 0.33% | 0.45% | ||||
Net interest income to earning assets (2) (3) | 4.27% | 4.05% | ||||
Reconciliation of Non-GAAP measure: | ||||||
Tax Equivalent Net Interest Income | ||||||
Net interest income | $ 13,351 | $ 11,534 | ||||
Tax equivalent adjustment for municipal loan interest | 92 | 117 | ||||
Tax equivalent adjustment for municipal bond interest | 238 | 272 | ||||
Tax equivalent net interest income | $ 13,681 | $ 11,923 | ||||
Non-GAAP financial measures have inherent limitations, are not required to be uniformly applied, and are not audited. | ||||||
Management believes that presentation of this non-GAAP measure provides useful information frequently used by shareholders in the evaluation of a company. | ||||||
Non-GAAP financial measures have limitations as analytical tools and should not be considered in isolation or as a substitute for analyses of results as reported under GAAP. | ||||||
(1) Non-accrual loans of approximately $6.4 million at 06/30/14 and $10.4 million for 06/30/2013 are included in the average loan balances. | ||||||
(2) Loan interest income includes loan fee income of $330,000 and $226,000 for the six months ended 06/30/2014 and 06/30/2013, respectively. | ||||||
(3) Tax-exempt income has been adjusted to a tax equivalent basis at a 34% effective rate. The amount of such adjustment was an addition to recorded pre-tax income of $330,000 and $389,000 for the six months ended June 30, 2014 and June 30, 2013, respectively. |
For the Six Months Ended | |||
June 30, 2014 vs. June 30, 2013 | |||
Increase (Decrease) Due To | |||
(Dollars in 000's) | Net | ||
Volume | Rate | Change | |
ASSETS: | |||
Interest bearing certificate of deposit | $ 1 | $ 6 | $ 7 |
Interest bearing deposits in banks | (20) | 2 | (18) |
Investments - taxable | 108 | 324 | 432 |
Investments - nontaxable | (50) | (50) | (100) |
Gross loans | 1,446 | (218) | 1,228 |
Loans held for sale | (74) | 17 | (57) |
Total interest earning assets | $ 1,411 | $ 81 | $ 1,492 |
LIABILITIES AND SHAREHOLDERS' EQUITY: | |||
Interest-bearing deposits | $ 43 | $ (143) | $ (100) |
Time deposits | (61) | (91) | (152) |
FHLB borrowings | (1) | (3) | (4) |
Short-term borrowings | -- | -- | -- |
Long-term borrowings | -- | (10) | (10) |
Total interest bearing liabilities | (19) | (247) | (266) |
Net increase (decrease) in net interest income | $ 1,430 | $ 328 | $ 1,758 |
SUMMARY AVERAGE BALANCE SHEETS | |||||||
(Unaudited) | |||||||
(Dollars in Thousands) | |||||||
Averages for the Three Months Ended | June 30, | March 31, | June 30, | ||||
2014 | 2014 | $ Change | % Change | 2013 | $ Change | % Change | |
Assets: | |||||||
Cash and due from banks | $ 13,135 | $ 11,989 | $ 1,146 | 10% | $ 11,321 | $ 1,814 | 16% |
Interest-bearing deposits in banks | 12,552 | 17,954 | (5,402) | -30% | 29,544 | (16,992) | -58% |
Interest bearing certificate of deposit | 2,727 | 2,727 | 0 | 0% | 2,235 | 492 | 22% |
Investment securities | 97,571 | 100,465 | (2,894) | -3% | 86,847 | 10,724 | 12% |
Loans, net of deferred loan fees | 539,106 | 515,499 | 23,607 | 5% | 482,541 | 56,565 | 12% |
Allowance for loan losses | (8,271) | (8,388) | 117 | -1% | (9,375) | 1,104 | -12% |
Net loans | 530,835 | 507,111 | 23,724 | 5% | 473,166 | 57,669 | 12% |
Other assets | 59,497 | 60,500 | (1,003) | -2% | 59,941 | (444) | -1% |
Total assets | $ 716,317 | $ 700,746 | $ 15,571 | 2% | $ 663,054 | $ 53,263 | 8% |
Liabilities: | |||||||
Total deposits | $ 618,026 | $ 604,022 | $ 14,004 | 2% | $ 567,065 | $ 50,961 | 9% |
Borrowings | 23,409 | 23,403 | 6 | 0% | 23,403 | 6 | 0% |
Other liabilities | 4,928 | 5,196 | (268) | -5% | 4,316 | 612 | 14% |
Total liabilities | 646,363 | 632,621 | 13,742 | 2% | 594,784 | 51,579 | 9% |
Equity: | |||||||
Common equity | 69,954 | 68,125 | 1,829 | 3% | 68,270 | 1,684 | 2% |
Total equity | 69,954 | 68,125 | 1,829 | 3% | 68,270 | 1,684 | 2% |
Total liabilities and shareholders' equity | $ 716,317 | $ 700,746 | $ 15,571 | 2% | $ 663,054 | $ 53,263 | 8% |
Averages for the Six Months Ended | June 30, | June 30, | |||||
2014 | 2013 | $ Change | % Change | ||||
Assets: | |||||||
Cash and due from banks | $ 12,565 | $ 11,028 | $ 1,537 | 14% | |||
Interest-bearing deposits in banks | 15,238 | 32,629 | (17,391) | -53% | |||
Interest bearing certificate of deposit | 2,727 | 2,536 | 191 | 8% | |||
Investment securities | 99,010 | 81,066 | 17,944 | 22% | |||
Loans, net of deferred loan fees | 527,367 | 476,006 | 51,361 | 11% | |||
Allowance for loan losses | (8,330) | (9,371) | 1,041 | -11% | |||
Net loans | 519,037 | 466,635 | 52,402 | 11% | |||
Other assets | 59,997 | 60,236 | (239) | 0% | |||
Total assets | $ 708,574 | $ 654,130 | $ 54,444 | 8% | |||
Liabilities: | |||||||
Total deposits | $ 611,063 | $ 558,435 | $ 52,628 | 9% | |||
Borrowings | 23,406 | 23,502 | (96) | 0% | |||
Other liabilities | 5,060 | 4,413 | 647 | 15% | |||
Total liabilities | 639,529 | 586,350 | 53,179 | 9% | |||
Equity: | |||||||
Common equity | 69,045 | 67,780 | 1,265 | 2% | |||
Total equity | 69,045 | 67,780 | 1,265 | 2% | |||
Total liabilities and shareholders' equity | $ 708,574 | $ 654,130 | $ 54,444 | 8% | |||
ASSET QUALITY
At June 30, 2014, total classified loans declined in dollars and as a percentage of total loans as compared to March 31, 2014, and June 30, 2013. Nonperforming loans consist primarily of commercial real estate loans. Total loans on accruing status 30-89 days past due also continue to remain below 0.50% of gross loans, mirroring the improvement in overall credit quality noted previously. "We monitor delinquencies, defined as loans on accruing status 30-89 days past due, as an indicator of future adversely classified loans," Biddle continued.
At June 30, 2014, total nonperforming loans were also down compared to March 31, 2014 and June 30, 2013. Nonperforming assets also declined during this period in terms of total outstanding loans and as a percentage of total assets. This was primarily due to the payoff of a $1.8 million non-accrual commercial real estate loan during the current quarter, which was partially offset by the placement on non-accrual of a $1.2 million commercial real estate loan relationship. Reductions in nonperforming assets were also achieved through sales of OREO, as write-downs were minimal during the current period.
Adversely classified loans | |||||||
(Unaudited) | |||||||
(Dollars in Thousands) | |||||||
June 30, 2014 |
March 31, 2014 |
$ Change |
% Change |
June 30, 2013 |
$ Change |
% Change |
|
Rated substandard or worse, but not impaired | $ 6,938 | $ 6,842 | $ 96 | 1% | $ 4,113 | $ 2,825 | 69% |
Impaired | 9,025 | 9,952 | (927) | -9% | 12,859 | (3,834) | -30% |
Total adversely classified loans* | $ 15,963 | $ 16,794 | $ (831) | -5% | $ 16,972 | $ (1,009) | -6% |
Gross loans | $ 548,371 | $ 519,632 | $ 28,739 | 6% | $ 472,186 | $ 76,185 | 16% |
Adversely classified loans to gross loans | 2.91% | 3.23% | -0.32% | 3.59% | -0.68% | ||
Allowance for loan losses | $ 8,315 | $ 8,288 | $ 27 | 0% | $ 9,348 | $ (1,033) | -11% |
Allowance for loan losses as a percentage of adversely classified loans | 52.09% | 49.35% | 2.74% | 55.08% | -2.99% | ||
Allowance for loan losses to total impaired loans | 92.13% | 83.28% | 8.85% | 72.70% | 19.43% | ||
* Adversely classified loans are defined as loans having a well-defined weakness or weaknesses related to the borrower's financial capacity or to pledged collateral that may jeopardize the repayment of the debt. They are characterized by the possibility that the Bank may sustain some loss if the deficiencies giving rise to the substandard classification are not corrected. Note that any loans internally rated worse than substandard are included in the impaired loan totals. |
30-89 DPD by type | ||||||||||
(Unaudited) | ||||||||||
(Dollars in Thousands) | ||||||||||
June 30, 2014 |
% of Category |
March 31, 2014 |
% of Category |
$ Change | % Change |
June 30, 2013 |
% of Category |
$ Change | % Change | |
Commercial and agricultural | $ 23 | 16.5% | $ 32 | 4.1% | $ (9) | -28% | $ 355 | 11.8% | $ (332) | -94% |
Real estate: | ||||||||||
Construction and development | -- | 0.0% | -- | 0.0% | -- | 0% | -- | 0.0% | -- | 0% |
Residential 1-4 family | 53 | 38.1% | 180 | 23.1% | (127) | -71% | 517 | 17.2% | (464) | -90% |
Multi-family | -- | 0.0% | -- | 0.0% | -- | 0% | -- | 0.0% | -- | 0% |
Commercial real estate -- owner occupied | -- | 0.0% | 309 | 39.6% | (309) | -100% | 314 | 10.4% | (314) | -100% |
Commercial real estate -- non owner occupied | -- | 0.0% | 251 | 32.2% | (251) | -100% | 1,745 | 58.1% | (1,745) | -100% |
Farmland | -- | -- | 0.0% | -- | 0% | 55 | 1.8% | (55) | -100% | |
Total real estate | $ 53 | $ 740 | $ (687) | -93% | $ 2,631 | $ (2,578) | ||||
Consumer | 63 | 45.3% | 8 | 1.0% | 55 | 688% | 20 | 0.7% | 43 | 215% |
Total loans 30-89 days past due, not in nonaccrual status | $ 139 | 100.0% | $ 780 | 100.0% | $ (641) | -82% | $ 3,006 | 100.0% | $ (2,867) | -95% |
Delinquent loans to total loans, not in nonaccrual status | 0.03% | 0.15% | 0.66% |
Non-performing assets | |||||||
(Unaudited) | |||||||
(Dollars in Thousands) |
June 30, 2014 |
March 31, 2014 |
$ Change | % Change |
June 30, 2013 |
$ Change | % Change |
Loans on nonaccrual status | $ 6,388 | $ 7,296 | $ (908) | -12% | $ 10,368 | $ (3,980) | -38% |
Loans past due greater than 90 days but not on nonaccrual status | -- | -- | -- | -- | -- | ||
Total non-performing loans | 6,388 | 7,296 | (908) | -12% | 10,368 | (3,980) | -38% |
Other real estate owned and foreclosed assets | 991 | 2,386 | (1,395) | -58% | 3,451 | (2,460) | -71% |
Total nonperforming assets | $ 7,379 | $ 9,682 | $ (2,303) | -24% | $ 13,819 | $ (6,440) | -47% |
Percentage of nonperforming assets to total assets | 1.03% | 1.35% | 2.01% |
OREO declined during the second quarter 2014, and year-over year. Additional real estate properties taken into the OREO portfolio during the quarter was modest. OREO properties sold with a larger book value in the quarter compared to prior periods. OREO valuation adjustments continued to be minimal. At June 30, 2014, the OREO portfolio consisted of 10 properties, down in number and balance from both the first quarter 2014 and second quarter 2013. The largest balances in the OREO portfolio at the end of the quarter were attributable to commercial properties, followed by residential properties, all of which are located within our market area.
Other real estate owned and foreclosed assets | ||||||||||
(Unaudited) | ||||||||||
(Dollars in Thousands) | ||||||||||
For the Three Months Ended |
June 30, 2014 |
% of Category |
March 31, 2014 |
% of Category |
$ Change | % Change |
June 30, 2013 |
% of Category |
$ Change | % Change |
Other real estate owned, beginning of period | $ 2,386 | 240.8% | $ 2,771 | 116.1% | $ (385) | -14% | $ 4,148 | 120.2% | $ (1,762) | -42% |
Transfers from outstanding loans | 206 | 20.8% | 111 | 4.7% | 95 | 86% | -- | 0.0% | 206 | 100% |
Improvements and other additions | -- | 0.0% | -- | 0.0% | -- | 0% | -- | 0.0% | -- | 0% |
Proceeds from sales | (1,490) | -150.4% | (448) | -18.8% | (1,042) | 233% | (634) | -18.4% | (856) | 135% |
Net gain (loss) on sales | (57) | -5.8% | (36) | -1.5% | (21) | 58% | 45 | 1.3% | (102) | -227% |
Impairment charges | (54) | -5.4% | (12) | -0.5% | (42) | 350% | (108) | -3.1% | 54 | -50% |
Total other real estate owned | $ 991 | 100.0% | $ 2,386 | 100.0% | $ (1,395) | -58% | $ 3,451 | 100.0% | $ (2,460) | -71% |
For the Six Months Ended |
June 30, 2014 |
% of Category |
June 30, 2013 |
% of Category |
$ Change | % Change | ||||
Other real estate owned, beginning of period | $ 2,771 | 279.6% | $ 4,678 | 135.6% | $ (1,907) | -41% | ||||
Transfers from outstanding loans | 317 | 32.0% | 209 | 6.1% | 108 | 52% | ||||
Improvements and other additions | -- | 0.0% | -- | 0.0% | -- | 0% | ||||
Proceeds from sales | (1,938) | -195.6% | (1,001) | -29.0% | (937) | 94% | ||||
Net gain (loss) on sales | (93) | -9.4% | 25 | 0.7% | (118) | -472% | ||||
Impairment charges | (66) | -6.7% | (460) | -13.3% | 394 | -86% | ||||
Total other real estate owned | $ 991 | 100.0% | $ 3,451 | 100.0% | $ (2,460) | -71% |
Other real estate owned and foreclosed assets by type | ||||||||||
(Unaudited) | ||||||||||
(Dollars in Thousands) | ||||||||||
June 30, 2014 |
# of Properties |
March 31, 2014 |
# of Properties |
$ Change | % Change |
June 30, 2013 |
# of Properties |
$ Change | % Change | |
Construction, Land Dev & Other Land | $ 46 | 2 | $ 60 | 3 | $ (14) | -23% | $ 1,041 | 8 | $ (995) | -96% |
1-4 Family Residential Properties | 317 | 4 | 789 | 7 | (472) | -60% | 570 | 4 | (253) | -44% |
Nonfarm Nonresidential Properties | 628 | 4 | 1,537 | 8 | (909) | -59% | 1,840 | 11 | (1,212) | -66% |
Total OREO by type | $ 991 | 10 | $ 2,386 | 18 | $ (1,395) | -58% | $ 3,451 | 23 | $ (2,460) | -71% |
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses continues to decline in relation to total loans in concert with the general trend of reduced levels of classified loans, loan delinquencies and other relevant credit metrics. With the reduction in delinquencies, changes in the loan portfolio composition over the past several years and overall improvement in credit quality, loss factors used in estimates to establish reserve levels have declined commensurately. A provision was made to the allowance for loan losses in second quarter 2014 corresponding to recent growth in the loan portfolio, as compared to no provision in the linked quarter and a reverse provision in second quarter 2013.
For the quarter ended June 30, 2014, total net loan charge-offs were unchanged compared to the quarter ended March 31, 2014, but up versus the quarter ended June 30, 2013. The charge-offs incurred in the second quarter 2014 were primarily centered in one commercial real estate loan, which was written down $371,000 due to an impairment of the collateral securing the loan. This was partially offset by a $337,000 recovery resulting from the pay off of a $1.8 million commercial real estate loan. The ratio of net loan charge-offs to average gross loans (annualized) for the current quarter was unchanged compared to the linked quarter, but up slightly compared to the second quarter one year ago.
The overall risk profile of the loan portfolio continues to improve, as stated above. However, the trend of future provision for loan losses will depend primarily on economic conditions, growth in the loan portfolio, level of adversely-classified assets, and changes in collateral values.
Allowance for Loan Losses | |||||||
(Unaudited) | |||||||
(Dollars in Thousands) | |||||||
For the Three Months Ended |
June 30, 2014 |
March 31, 2014 |
$ Change |
% Change |
June 30, 2013 |
$ Change |
% Change |
Gross loans outstanding at end of period | $ 548,371 | $ 519,632 | $ 28,739 | 6% | $ 475,601 | $ 72,770 | 15% |
Average loans outstanding, gross | $ 532,490 | $ 511,200 | $ 21,290 | 4% | $ 474,403 | $ 58,087 | 12% |
Allowance for loan losses, beginning of period | $ 8,288 | $ 8,359 | $ (71) | -1% | $ 9,348 | $ (1,060) | -11% |
Commercial | (9) | (17) | 8 | -47% | -- | (9) | -100% |
Commercial Real Estate | (389) | (7) | (382) | 5457% | (42) | (347) | 826% |
Residential Real Estate | (4) | (40) | 36 | -90% | (61) | 57 | -93% |
Consumer | (29) | (18) | (11) | 61% | (49) | 20 | -41% |
Total charge-offs | (431) | (82) | (349) | 426% | (152) | (279) | 184% |
Commercial | 1 | 1 | 0 | 0% | 5 | (4) | -80% |
Commercial Real Estate | 347 | 5 | 342 | 6840% | 209 | 138 | 66% |
Residential Real Estate | 9 | 4 | 5 | 125% | 2 | 7 | 350% |
Consumer | 1 | 1 | -- | 0% | -- | 1 | 100% |
Total recoveries | 358 | 11 | 347 | 3155% | 216 | 142 | 66% |
Net charge-offs | (73) | (71) | (2) | 3% | 64 | (137) | -214% |
Provision charged to income | 100 | -- | 100 | 100% | (450) | 550 | -122% |
Allowance for loan losses, end of period | $ 8,315 | $ 8,288 | $ 27 | 0% | $ 8,962 | $ (647) | -7% |
Ratio of net loans charged-off to average gross loans outstanding, annualized | 0.05% | 0.06% | -0.01% | -17% | -0.05% | 0.10% | -200% |
Ratio of allowance for loan losses to gross loans outstanding | 1.52% | 1.59% | -0.07% | -4% | 1.88% | -0.36% | -19% |
For the Six Months Ended |
June 30, 2014 |
June 30, 2013 |
$ Change |
% Change |
|||
Gross loans outstanding at end of period | $ 519,632 | $ 472,186 | $ 47,446 | 10% | |||
Average loans outstanding, gross | $ 511,200 | $ 456,954 | $ 54,246 | 12% | |||
Allowance for loan losses, beginning of period | $ 8,359 | $ 9,358 | $ (999) | -11% | |||
Commercial | (26) | -- | (26) | -100% | |||
Commercial Real Estate | (396) | (47) | (349) | 743% | |||
Residential Real Estate | (44) | (71) | 27 | -38% | |||
Consumer | (47) | (60) | 13 | -22% | |||
Total charge-offs | (513) | (178) | (335) | 188% | |||
Commercial | 2 | 15 | (13) | -87% | |||
Commercial Real Estate | 352 | 214 | 138 | 64% | |||
Residential Real Estate | 13 | 2 | 11 | 550% | |||
Consumer | 2 | 1 | 1 | 100% | |||
Total recoveries | 369 | 232 | 137 | 59% | |||
Net charge-offs | (144) | 54 | (198) | -367% | |||
Provision charged to income | 100 | (450) | 550 | 100% | |||
Allowance for loan losses, end of period | $ 8,315 | $ 8,962 | $ (647) | -7% | |||
Ratio of net loans charged-off to average gross loans outstanding, annualized | 0.00% | 0.00% | 0.00% | 0% | |||
Ratio of allowance for loan losses to gross loans outstanding | 1.60% | 1.90% | -0.30% | -16% |
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. As of June 30, 2014, the Company had total assets of $719 million and operated sixteen branches in the communities of Grays Harbor, Pacific, Whatcom, Skagit and Wahkiakum counties in the State of Washington, and three branches in Clatsop County, Oregon. The Company also operates loan production offices in the communities of Vancouver, DuPont and Burlington in Washington. 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, changes in interest rates, extensive and evolving regulation of the banking industry, and many other risks described in the Company's filings with the Securities and Exchange Commission. The most significant of these uncertainties are described in the Company's Annual Report on Form 10-K for the year ended December 31, 2013, which readers of this release are encouraged to review. 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.