Your Story is Our Story
Lynden
Bellingham
(3 Locations)
Anacortes
Burlington (ATM/ITM)
Taholah
Ocean Shores
Hoquiam
Montesano
Aberdeen
Olympia
Ocean Park
Long Beach
Warrenton
Seaside
Raymond
Naselle (ATM/ITM)
Cathlamet
Vancouver
Lake Oswego
Salem
Pacific Financial Corporation | 1216 Skyview Drive | Aberdeen, WA 98520
360-533-8873 | BankofthePacific.com
NMLS #417480
Annual Report
2023
Dear Fellow Shareholders:
For over 50 years our Company has prospered from our humble beginnings on the Washington coast to
operating in two states with record earnings in 2023. Our long-term success stems from strong board
oversight and exceptional employees who are committed to our values, with unwavering dedication to
our customers and communities.
We are very pleased with our financial performance in the recent year, especially against the backdrop of
deposit volatility in the industry and the fastest increase in interest rates in several decades. Pacific
Financial reported record net income of $14.6 million, or $1.40 per diluted share, compared to $10.9
million, or $1.04 per diluted share, for the full year of 2022. Earnings for 2023 were fueled by strong loan
growth of over 7%, an excellent core deposit franchise and an increase in our net interest margin. Coming
into 2023, the board and management positioned the Bank well for a rising rate environment, benefitting
from a large cash position which repriced immediately with the Federal Reserve’s 500 basis point interest
rate increases throughout the last two years, and a deposit base comprised of over 40% non-interest
bearing balances. Leadership of the Bank resisted the temptation to invest long-term in a low rate
environment through the pandemic and remained disciplined in pricing and duration of our loans and
investments. As a result, our operating performance and healthy net interest margin positively set us
apart from our peers.
In consideration of the Company’s outstanding earnings and strong capital position, the board of directors
of Pacific Financial increased dividends paid to our shareholders to $5.5 million during the four quarter
period. This represented a dividend yield of 5.16% for our shareholders. Additionally, during 2023, the
Company’s tangible book value per share increased 13% to $9.75 per share, up from $8.62 in 2022.
Given our strong financial results, our strategic initiatives for 2023 included investing in our Company for
the long-term by enhancing our presence and visibility in Western Washington and Oregon. In November
2023, we celebrated the relocation of our offices in Olympia and Vancouver, WA. These branch and
commercial banking centers feature a blend of new technology including Interactive Teller Machines and
a team of relationship bankers ready to serve the community. Also, in December 2023, we announced the
addition of a new commercial banking team in the Portland suburb of Lake Oswego, OR. These growth
markets are an important component of our long-term strategic plan. We see great opportunity here and
look forward to contributing to the positive momentum in those markets.
As we look to 2024, we do expect some headwinds on earnings related to persistent elevated interest
rates and the impact on deposit costs and mortgage volume. Our focus for 2024 includes executing on
our growth initiatives set forth in 2023, managing expenses amidst ongoing wage pressures and the
continued high cost of technology and regulatory compliance, while helping our customers achieve
success in order to drive long-term shareholder value.
Lastly, on behalf of management and the board, I’d like to express our deepest appreciation for retiring
board member, Randy Rust. Thank you Randy for your 21 years of remarkable leadership, fiscal
responsibility, thoughtful guardianship of the Company’s capital, and steadfast support of our mission,
vision and values.
Please join us for our annual Shareholders’ meeting to be held via webcast on Wednesday, April 24, 2024
at 10:00 a.m. Pacific Time. You may access the meeting virtually via the
internet at
www.virtualshareholdermeeting.com/PFLC2024.
Thank you for your investment and continued confidence in Pacific Financial Corporation.
Sincerely,
Denise Portmann
President & CEO
$
$
$
$
$
$
$
$
$
Operations Data
Interest and dividend income
Interest expense
Net interest income
Provision (benefit) for credit losses
Noninterest income
Noninterest expense
Income before income taxes
Income tax expense
Net income
Net income per share:
Basic
Diluted
Dividends declared per share(1)
Dividends declared
Dividend payout ratio
Performance Ratios
Return on average equity
Return on average assets
Net interest margin
Efficiency ratio
Balance Sheet Data
Total assets
Loans, net
Total deposits
Total borrowings
Shareholders' equity
Equity to assets ratio
Book value per share
Tangible book value per share
Asset Quality Ratios
Allowance for credit losses to total loans
Allowance for credit losses to
nonperforming loans
Nonperforming loans to total loans
Nonperforming assets to total assets
2023
55,480 $
6,280
49,200
520
6,172
36,856
17,996
3,391
14,605 $
1.40 $
1.40 $
0.53 $
5,524 $
38%
2022
For the Year Ended December 31,
2021
(dollars in thousands, except per share data)
(unaudited)
2020
42,152 $
1,206
40,946
-
7,227
34,974
13,199
2,311
10,888 $
37,159 $
1,254
35,905
(3,650)
16,729
40,702
15,582
2,885
12,697 $
39,574 $
2,380
37,194
3,500
20,146
39,594
14,246
2,862
11,384 $
1.05 $
1.04 $
1.22 $
1.22 $
1.08 $
1.07 $
0.52 $
5,407 $
50%
0.52 $
5,418 $
43%
0.38 $
4,023 $
35%
13.48%
1.22%
4.39%
66.56%
10.24%
0.82%
3.29%
72.60%
10.85%
1.00%
3.00%
77.33%
10.33%
1.07%
3.73%
69.05%
2019
41,570
2,928
38,642
-
13,895
35,556
16,981
3,223
13,758
1.30
1.29
0.31
3,288
24%
13.70%
1.50%
4.58%
67.68%
1,148,899 $
676,023
1,009,292
13,403
114,691
1,306,203 $
631,722
1,180,362
13,403
103,162
1,319,966 $
620,036
1,178,940
13,806
117,642
1,167,293 $
717,330
1,028,424
13,956
114,186
929,415
675,445
798,638
16,606
105,293
9.98%
11.04 $
9.75 $
7.90%
9.91 $
8.62 $
8.91%
11.32 $
10.03 $
9.78%
10.94 $
9.65 $
11.33%
9.90
8.64
1.25%
1.29%
1.32%
1.65%
1.31%
1284.64%
0.10%
0.06%
947.76%
0.14%
0.07%
679.52%
0.19%
0.11%
504.52%
0.33%
0.20%
873.96%
0.15%
0.11%
(1) In 2019, the Company transitioned to a quarterly cash dividend. The fourth quarter dividend of $0.11 per common share
paid on February 26, 2020. This fourth quarter dividend is not included in the 2019 dividend declared number, as it was
not declared until January 2020.
CliftonLarsonAllen LLP
CLAconnect.com
INDEPENDENT AUDITORS’ REPORT
Board of Directors
Pacific Financial Corporation and Subsidiary
Aberdeen, Washington
Report on the Audit of the Consolidated Financial Statements
Opinion
We have audited the accompanying consolidated financial statements of Pacific Financial Corporation
and Subsidiary (the Company), which comprise the consolidated statements of financial condition, as
of December 31, 2023 and 2022, and the related consolidated statements of income, comprehensive
income, shareholders’ equity, and cash flows for the years then ended, and the related notes to the
consolidated financial statements.
In our opinion, the consolidated financial statements referred to above present fairly, in all material
respects, the financial position of Pacific Financial Corporation and Subsidiary as of December 31,
2023 and 2022, and the results of their operations and their cash flows for the years then ended in
accordance with accounting principles generally accepted in the United States of America.
We have also audited in accordance with auditing standards generally accepted in the United States of
America, Pacific Financial Corporation and Subsidiary’s internal control over financial reporting,
including controls over the preparation of regulatory financial statements in accordance with the Federal
Financial Institutions Examination Council Instructions for Consolidated Reports of Condition and
Income (call report instructions) and the Board of Governors of the Federal Reserve System
Instructions for Preparation of Parent Company Only Financial Statements for Small Holding
Companies (FR Y-9SP instructions) as of December 31, 2023, based on criteria established in Internal
Control – Integrated Framework (2013), issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO), and our report dated March 14, 2024, expressed an unqualified
opinion.
Basis for Opinion
We conducted our audits in accordance with auditing standards generally accepted in the United States
of America (GAAS). Our responsibilities under those standards are further described in the Auditors’
Responsibilities for the Audit of the Consolidated Financial Statements section of our report. We are
required to be independent of Pacific Financial Corporation and Subsidiary and to meet our other
ethical responsibilities in accordance with the relevant ethical requirements relating to our audits. We
believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our
audit opinion.
CLA (CliftonLarsonAllen LLP) is an independent network member of CLA Global. See CLAglobal.com/disclaimer.
Board of Directors
Pacific Financial Corporation and Subsidiary
Change in Accounting Principle
As discussed in Note 1 to the consolidated financial statements, effective January 1, 2023, Pacific
Financial Corporation and Subsidiary, Bank of the Pacific adopted new accounting guidance for the
measurement of credit losses on financial instruments through a cumulative-effect adjustment to
retained earnings. Our opinion is not modified with respect to this matter.
Responsibilities of Management for the Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of the consolidated financial
statements in accordance with accounting principles generally accepted in the United States of
America, and for the design, implementation, and maintenance of internal control relevant to the
preparation and fair presentation of consolidated financial statements that are free from material
misstatement, whether due to fraud or error.
In preparing the consolidated financial statements, management is required to evaluate whether there
are conditions or events, considered in the aggregate, that raise substantial doubt about Pacific
Financial Corporation and Subsidiary’s ability to continue as a going concern for one year after the date
the consolidated financial statements are available to be issued.
Auditors’ Responsibilities for the Audit of the Consolidated Financial Statements
Our objectives are to obtain reasonable assurance about whether the consolidated financial statements
as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors’
report that includes our opinion. Reasonable assurance is a high level of assurance but is not absolute
assurance and therefore is not a guarantee that an audit conducted in accordance with GAAS will
always detect a material misstatement when it exists. The risk of not detecting a material misstatement
resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery,
intentional omissions, misrepresentations, or the override of internal control. Misstatements are
considered material if there is a substantial likelihood that, individually or in the aggregate, they would
influence the judgment made by a reasonable user based on the consolidated financial statements.
In performing an audit in accordance with GAAS, we:
! Exercise professional judgment and maintain professional skepticism throughout the audit.
!
Identify and assess the risks of material misstatement of the consolidated financial statements,
whether due to fraud or error, and design and perform audit procedures responsive to those
risks. Such procedures include examining, on a test basis, evidence regarding the amounts and
disclosures in the consolidated financial statements.
! Obtain an understanding of internal control relevant to the audit in order to design audit
procedures that are appropriate in the circumstances.
! Evaluate the appropriateness of accounting policies used and the reasonableness of significant
accounting estimates made by management, as well as evaluate the overall presentation of the
consolidated financial statements.
! Conclude whether, in our judgment, there are conditions or events, considered in the aggregate,
that raise substantial doubt about Pacific Financial Corporation and Subsidiary’s ability to
continue as a going concern for a reasonable period of time.
Board of Directors
Pacific Financial Corporation and Subsidiary
We are required to communicate with those charged with governance regarding, among other matters,
the planned scope and timing of the audit, significant audit findings, and certain internal control related
matters that we identified during the audit.
Other Information Included in the Annual Report
Management is responsible for the other information included in the annual report. The other
information comprises the letter to the shareholders, financial information, and nonfinancial information
but does not include the consolidated financial statements and our auditors’ report thereon. Our opinion
on the consolidated financial statements does not cover the other information, and we do not express
an opinion or any form of assurance thereon.
In connection with our audit of the consolidated financial statements, our responsibility is to read the
other information and consider whether a material inconsistency exists between the other information
and the consolidated financial statements, or the other information otherwise appears to be materially
misstated. If, based on the work performed, we conclude that an uncorrected material misstatement of
the other information exists, we are required to describe it in our report.
CliftonLarsonAllen LLP
Bellevue, Washington
March 14, 2024
Pacific Financial Corporation
Consolidated Statements of Financial Condition
(Dollars in thousands, except per share data)
ASSETS
Ca s h on ha nd a nd i n ba nks
Interes t bea ri ng depos i ts
Ca s h a nd ca s h equi va l ents
Other i nteres t earni ng depos i ts
Inves tment s ecuri ti es avai l abl e for s a l e, a t fa i r va l ue
Inves tment s ecuri ti es hel d to ma turi ty (fai r va l ue of $53,235 a nd $56,513, res pecti vel y)
Loa ns hel d for s a l e
Loa ns , net of deferred fees
Al l owance for credi t l os s es
Tota l l oa ns , net
Nonma rketa bl e equi ty s ecuri ti es
Premi s es a nd equi pment, net
Opera ti ng l ea s e ri ght-of-us e a s s ets
Ca s h s urrender va l ue of l i fe i ns ura nce
Goodwi l l
Other i nta ngi bl e a s s ets , net
Accrued i nteres t recei va bl e
Prepa i d expens es a nd other as s ets
Tota l as s ets
LIABILITIES AND SHAREHOLDERS' EQUITY
Depos i ts
Juni or s ubordi na ted debentures
Opera ti ng l ea s e l i a bi l i ti es
Accrued expens es a nd other l i abi l i ti es
Tota l l i abi l i ti es
Shareholders' Equity:
Preferred Stock, no pa r va l ue; 5,000,000 s ha res a uthori zed; no s ha res i s s ued
or outs ta ndi ng at December 31, 2023 a nd December 31, 2022
Common Stock, $1 par val ue; 25,000,000 s ha res a uthori zed, 10,388,724 a nd 10,414,276,
s ha res i s s ued a nd outs ta ndi ng at December 31, 2023 a nd 2022, res pecti vel y
Addi ti onal pa i d-i n-capi ta l
Reta i ned ea rni ngs
Accumul a ted other comprehens i ve l os s , net
Tota l s harehol ders ' equi ty
Tota l l i a bi l i ti es a nd s harehol ders ' equi ty
$
$
$
2023
2022
$
16,716 $
90,105
18,673
295,563
314,236
4,250
226,784
59,513
-
639,958
(8,236)
631,722
2,583
12,871
1,077
26,776
12,168
1,268
4,044
8,911
1,306,203
1,180,362
13,403
1,149
8,127
1,203,041
106,821
1,250
238,125
55,454
1,103
684,553
(8,530)
676,023
1,783
13,136
2,443
27,497
12,168
1,268
4,434
7,394
1,148,899 $
1,009,292 $
13,403
2,567
8,946
1,034,208
-
-
10,389
41,793
78,473
(15,964)
114,691
1,148,899 $
10,414
42,065
69,844
(19,161)
103,162
1,306,203
See accompanying Notes to Consolidated Financial Statements.
1
Pacific Financial Corporation
Consolidated Statements of Income
(Dollars in thousands, except per share data)
INTEREST AND DIVIDEND INCOME
Interes t and fees on l oa ns
Ta xa bl e i nteres t on i nves tment s ecuri ti es
Nontaxabl e i nteres t on i nves tment s ecuri ti es
Interes t and di vi dends on other i nteres t ea rni ng a s s ets
Tota l i nteres t a nd di vi dend i ncome
INTEREST EXPENSE
Depos i ts
Juni or s ubordi na ted debentures
Federa l Home Loa n Ba nk a dvances
Tota l i nteres t expens e
Net i nteres t i ncome
Provi s i on for credi t l os s es
Net i nteres t i ncome after provi s i on for credi t l os s es
NONINTEREST INCOME
Servi ce cha rges on depos i ts
Ga i n on s a l e of l oans , net
Los s on s al e of i nves tment s ecuri ti es , net
Ea rni ngs on bank owned l i fe i ns ura nce
Other i ncome
Tota l noni nteres t i ncome
NONINTEREST EXPENSE
Compens ati on and empl oyee benefi ts
Occupa ncy
Equi pment
Da ta proces s i ng
Profes s i onal s ervi ces
Ma rketi ng
Sta te a nd l oca l ta xes
Federa l depos i t i ns urance premi um
Other expens e
Tota l noni nteres t expens e
Income before i ncome ta xes
Income ta x expens e
Net i ncome
Bas i c ea rni ngs per common s ha re
Di l uted ea rni ngs per common s ha re
Twelve Months Ended
December 31,
2023
2022
$
$
$
$
37,038 $
8,665
585
9,192
55,480
5,351
929
-
6,280
49,200
520
48,680
1,975
635
(154)
685
3,031
6,172
22,793
2,215
1,109
3,770
875
549
1,018
550
3,977
36,856
17,996
3,391
14,605 $
1.40 $
1.40 $
30,079
4,418
1,048
6,607
42,152
742
460
4
1,206
40,946
-
40,946
1,621
1,812
-
682
3,112
7,227
22,401
2,023
1,184
3,506
709
400
693
357
3,701
34,974
13,199
2,311
10,888
1.05
1.04
See accompanying Notes to Consolidated Financial Statements.
2
Pacific Financial Corporation
Consolidated Statements of Comprehensive Income
(Dollars in thousands)
Net Income
Other comprehens i ve i ncome (l os s ), net of ta x:
Cha nge i n unreal i zed ga i n (l os s )—
s ecuri ti es a va i l a bl e for s a l e, net of tax
Recl a s s i fi ca ti on for net l os s on s ecuriti es —
Twelve Months Ended
December 31,
2023
2022
$
14,605
$
10,888
3,146
(20,707)
a va i l abl e-for-s a l e rea l i zed i n earni ngs , net of ta x
Defi ned benefi t pl a ns , net of tax
Tota l other comprehens i ve i ncome (l os s ), net of ta x
122
(71)
3,197
Comprehens i ve i ncome (l os s )
$
17,802
$
-
539
(20,168)
(9,280)
See accompanying Notes to Consolidated Financial Statements.
3
Pacific Financial Corporation
Consolidated Statements of Shareholders’ Equity
(Dollars in thousands, except share amounts)
Balance at December 31, 2021
Net income
Other comprehensive loss, net of tax
Stock option exercises/stock unit vested
Stock based compensation expense
Cash dividends declared ($0.52 per share)
Balance at December 31, 2022
Adoption of new accounting standard
Net income
Other comprehensive income, net of tax
Stock option exercises/stock unit vested
Stock based compensation expense
Stock repurchase and cancellation of shares
Cash dividends declared ($0.53 per share)
Balance at December 31, 2023
Number of
Common
Shares
10,388,267 $
-
-
26,009
-
-
10,414,276 $
-
-
-
12,948
-
(38,500)
-
10,388,724 $
Common
Stock
Additional
Paid-in Capital
Retained
Earnings
10,388 $
41,884 $
-
-
26
-
-
-
-
31
150
-
10,414 $
42,065 $
-
-
-
13
-
(38)
-
-
-
-
(56)
145
(361)
-
10,389 $
41,793 $
64,363 $
10,888
-
-
-
(5,407)
69,844 $
(452)
14,605
-
-
-
-
(5,524)
78,473 $
Accumulated
Other
Comprehensive
Income (Loss) ,
net
Total
Shareholders'
Equity
1,007 $
-
(20,168)
-
-
-
(19,161) $
-
-
3,197
-
-
-
-
(15,964) $
117,642
10,888
(20,168)
57
150
(5,407)
103,162
(452)
14,605
3,197
(43)
145
(399)
(5,524)
114,691
See accompanying Notes to Consolidated Financial Statements.
4
Pacific Financial Corporation
Consolidated Statements of Cash Flows
(Dollars in thousands)
Cash flows from operating activities:
Net Income
Adjus tme nts to re conci l e ne t i ncome to ne t ca s h on ha nd a nd i n ba nks
from ope ra ti ng a cti vi ti e s
Provi s i on for cre di t l os s es
De preci a ti on a nd a morti za ti on
De fe rred i ncome ta xe s
Ori gi na ti ons of l oa ns he l d for s a l e
Procee ds from s a l e s of l oa ns
Ga i n on s a l e of l oa ns , ne t
Los s on s a l e of premi s e s a nd e qui pme nt
Los s on s a l e of s ecuri ti e s , ne t
Ea rni ngs on ba nk owned l i fe i ns ura nce
Ne t cha nge i n a ccrue d i nte res t recei va bl e
Ne t cha nge i n a ccrue d i nte res t pa ya bl e
Ne t cha nge i n pre pa i d expe ns e s
Othe r opera ti ng a cti vi ti e s
Ne t ca s h provi de d by opera ti ng a cti vi ti e s
Cash flows from investing activities:
Net cha nge i n l oa ns
Ma turi ti e s a nd pa ydowns of i nves tme nt s e curi ti e s he l d to ma turi ty
Ma turi ti e s a nd pa ydowns of i nves tme nt s e curi ti e s a va i l a bl e for s a l e
Purcha s e of i nves tme nt s e curi ti e s a va i l a bl e for s a l e
Purcha s e of i nves tme nt s e curi ti e s he l d to ma turi ty
Purcha s e s of nonma rke ta bl e equi ty s e curi ti es
Decrea s e (Increa s e) i n othe r i nte res t ea rni ng de pos i ts
Purcha s e of ba nk owned l i fe i ns ura nce
Purcha s e s of pre mi s es a nd e qui pment
Proce eds from s a l e s of i nves tme nt s e curi ti e s a va i l a bl e for s a l e
Proce eds from s a l e s of nonma rke ta bl e e qui ty s ecuri ti e s
Proce eds from ba nk owne d l i fe i ns ura nce de a th be ne fi t
Proce eds from s a l e s of pre mi s e s a nd e qui pme nt
Ne t ca s h us e d i n i nve s ti ng a cti vi ti e s
Cash flows from financing activities:
Net (decrea s e) i ncre a s e i n de pos i ts
Re pa yme nts of FHLB Adva nces
Net ca s h from s tock opti on e xe rci s e s
Re purcha s e of common s tock
Stock a wa rds i s s ue d
Ta xe s re l a te d to net s ha re s e ttl e ment for e qui ty a wa rds
Ca s h di vi de nds pa i d
Ne t ca s h us e d i n fi na nci ng a cti vi ti e s
Ne t de cre a s e i n ca s h a nd ca s h e qui va l e nts
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
Supplemental disclosures of cash flow information:
Ca s h pa i d for i ntere s t
Ca s h pa i d for ta xe s
Supplemental non-cash disclosures of cash flow information:
Tra ns fe r of l oa ns he l d for s a l e to l oa ns he l d for i nve s tme nt
Twelve Months Ended
December 31,
2023
2022
$
14,605
$
10,888
520
1,335
(270)
(22,734)
22,266
(635)
11
154
(685)
(390)
385
173
1,082
15,817
(44,972)
4,504
14,663
(43,533)
-
-
3,000
(36)
(1,347)
20,709
800
-
5
(46,207)
(171,070)
-
6
(399)
-
(38)
(5,524)
(177,025)
(207,415)
314,236
106,821
5,895
4,252
$
$
$
-
3,357
59
(65,030)
71,690
(1,812)
13
-
(682)
(687)
73
(184)
7,689
25,374
(10,150)
3,470
18,047
(40,309)
(61,839)
(184)
(1,000)
(36)
(1,174)
-
17
14
-
(93,144)
1,422
(403)
52
-
-
(24)
(5,407)
(4,360)
(72,130)
386,366
314,236
1,133
115
-
$
850
$
$
$
$
See accompanying Notes to Consolidated Financial Statements.
5
Pacific Financial Corporation and Subsidiary
Notes to Consolidated Financial Statements
For the Years Ended December 31, 2023 and December 31, 2022
NOTE 1 – ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization: Pacific Financial Corporation (the “Company”) is a bank holding company headquartered in Aberdeen, Washington. The
Company owns one banking subsidiary, Bank of the Pacific (the “Bank”), which is also headquartered in Aberdeen, Washington. The
Company was incorporated in the State of Washington in February, 1997, pursuant to a holding company reorganization of the Bank.
The Company has two wholly owned subsidiaries, PFC Statutory Trust I and II (the “Trusts”), which do not meet the criteria for
consolidation, and therefore, are not consolidated in the Company’s financial statements.
The Company conducts its banking business through the Bank, which operates fifteen branches located in communities in Grays
Harbor, Pacific, Thurston, Whatcom, Clark, Skagit and Wahkiakum counties in the state of Washington and two branches in Clatsop
County, Oregon. In addition, the Bank operates loan production offices in Burlington, Washington; Salem, Oregon; and Lake Oswego,
Oregon; and a residential real estate mortgage department.
Basis of presentation: The consolidated financial statements include the accounts of Pacific Financial Corporation and its wholly-
owned subsidiary. All intercompany accounts and transactions have been eliminated in consolidation.
The interim consolidated financial statements are not audited, but include all adjustments that Management considers necessary for
a fair presentation of consolidated financial condition and results of operations for the interim periods presented.
Certain prior year amounts have been reclassified to conform with the 2023 presentation. These reclassifications did not change
previously reported net income or shareholders’ equity.
Method of accounting and use of estimates: The Company prepares its consolidated financial statements in conformity with
accounting principles generally accepted in the United States of America and prevailing practices within the banking industry. This
requires Management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of
contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of income and expenses
during the reporting periods. Actual results could differ from those estimates. Significant estimates made by Management involve the
calculation of the provision and allowance for credit losses, the valuation and identification of deferred tax assets, the valuation of
goodwill, and the estimate of the fair value of financial instruments.
The Company utilizes the accrual method of accounting, which recognizes income when earned and expenses when incurred.
Subsequent events: The Company performed an evaluation of subsequent events through March 14, 2024, the date these financial
statements were available to be issued.
Securities available for sale: Securities available for sale consist of debt securities that the Company intends to hold for an indefinite
period, but not necessarily to maturity. Securities available for sale are reported at fair value. Unrealized gains and losses, net of the
related deferred tax effect, are reported net as a separate component of shareholders' equity entitled “accumulated other
comprehensive income.” Realized gains and losses on securities available for sale, determined using the specific identification method,
are included in earnings. Amortization of premiums and accretion of discounts are recognized in interest income over the period to
maturity. For mortgage backed securities and collateralized mortgage obligations, actual maturity may differ from contractual maturity
due to principal payments and amortization of premiums and accretion of discounts may vary due to prepayment speed assumptions.
For callable securities amortization of premiums are recognized over the period to first call date.
Securities held to maturity: Debt securities for which the Company has the positive intent and ability to hold to maturity are reported
at cost, adjusted for amortization of premiums and accretion of discounts. Amortization of premiums and accretion of discounts are
recognized in interest income over the period to maturity. For mortgage backed securities and collateralized mortgage obligations,
actual maturity may differ from contractual maturity due to principal payments and amortization of premiums and accretion of
discounts may vary due to prepayment speed assumptions. For callable securities amortization of premiums are recognized over the
period to first call date.
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Nonmarketable equity securities: The Company’s investment in Federal Home Loan Bank (“FHLB”) stock is carried at cost and cash
and stock dividends are recorded as income. The Company’s investment in Pacific Coast Bankers Bank ("PCBB”) stock is carried at
cost, less impairment and plus or minus observable prices, if any, and cash and stock dividends are recorded as income. Nonmarketable
equity securities are periodically evaluated for impairment based on ultimate recovery of par value.
The Company is required to maintain a minimum level of investment in FHLB stock based on specific percentages of its outstanding
total assets and FHLB advances. At December 31, 2023 and 2022 the stock was that of FHLB of Des Moines.
Loans held for sale: Mortgage loans originated for sale in the foreseeable future in the secondary market are carried at the lower of
aggregate cost or estimated fair value. Gains and losses on sales of loans are recognized at settlement date and are determined by
the difference between the sales proceeds and the carrying value of the loans. Net unrealized losses are recognized through a
valuation allowance established by charges to income. Loans held for sale that are unable to be sold in the secondary market are
transferred to loans receivable when identified.
Loans receivable: Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are
reported at amortized cost. Amortized cost is the principal balance outstanding, net of purchase premiums and discounts and deferred
fees and costs. Accrued interest receivable related to loans totaled $3.2 million at December 31, 2023 and was reported in accrued
interest receivable on the consolidated balance sheets. Interest income is accrued on the unpaid principal balance. Loan origination
fees, net of certain direct origination costs, are deferred and recognized in interest income using methods that approximate a level
yield without anticipating prepayments.
The accrual of interest is generally discontinued when a loan becomes 90 days past due and is not well collateralized and in the process
of collection, or when management believes, after considering economic and business conditions and collection efforts, that the
principal or interest will not be collectible in the normal course of business. Past due status is based on contractual terms of the loan.
Loans with payments scheduled monthly are reported as past due when the borrower is in arrears two or more monthly payments.
Loans with payment obligations other than monthly, are reported as past due when one scheduled payment is due and unpaid for 30
days or more.
All accrued interest is reversed against interest income when a loan is placed on nonaccrual status. Interest received on such loans is
accounted for using the cost-recovery method, until qualifying for return to accrual. Under the cost-recovery method, interest income
is not recognized until the loan balance is reduced to zero. Loans are returned to accrual status when all the principal and interest
amounts contractually due are brought current, there is a sustained period of repayment performance, and future payments are
reasonably assured.
Purchased credit deteriorated (PCD) loans: The Company may purchase loans, some of which have experienced more than
insignificant credit deterioration since origination. In those cases, the Company will consider internal loan grades, delinquency status
and other relevant factors in assessing whether purchased loans are PCD. PCD loans are recorded at the amount paid. An initial
allowance for credit losses is determined using the same methodology as other loans held for investment, but with no impact to
earnings. The initial allowance for credit losses determined on a collective basis is allocated to individual loans. The sum of the loan's
purchase price and allowance for credit losses becomes its initial amortized cost basis. The difference between the initial amortized
cost basis and the par value of the loan is a noncredit discount or premium, which is amortized into interest income over the life of
the loan. Subsequent to initial recognition, PCD loans are subject to the same interest income recognition and impairment model as
non-PCD loans, with changes to the allowance for credit losses recorded through provision expense.
Allowance for credit losses–Held-to-Maturity securities: Management measures expected credit losses on held-to-maturity debt
securities on a collective basis by major security type. The Company’s held-to maturity portfolio contains securities issued by U.S.
government entities and agencies. These securities are either explicitly or implicitly guaranteed by the U.S. government, are highly
rated by major rating agencies and have a long history of no credit losses. The Company’s held-to-maturity portfolio also contains
municipal bonds that are rated at an equivalent of Moody’s Aaa or Aa2. The Company has never incurred a loss on a municipal bond,
therefore the expectation of credit losses on these securities is insignificant. The Company uses industry historical default information
adjusted for current conditions to establish the allowance for credit losses on the municipal bond portfolio. Accrued interest receivable
on held-to-maturity debt securities was excluded from the estimate of credit losses. As a result, no allowance for credit losses was
recorded on held-to-maturity securities at December 31, 2023.
Allowance for credit losses–Available-for-Sale securities: For available-for-sale securities, management evaluates all investments in
an unrealized loss position on a quarterly basis, and more frequently when economic or market conditions warrant such evaluation.
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If the Company has the intent to sell the security, or it is more likely than not that the Company will be required to sell the security,
the security is written down to fair value, and the entire loss is recorded in earnings.
If either of the above criteria is not met, the Company evaluates whether the decline in fair value is the result of credit losses or other
factors. In making the assessment, the Company may consider various factors including the extent to which fair value is less than
amortized cost, performance on any underlying collateral, downgrades in the ratings of the security by a rating agency, the failure of
the issuer to make scheduled interest or principal payments and adverse conditions specifically related to the security. If the
assessment indicates that a credit loss exists, the present value of cash flows expected to be collected is compared to the amortized
cost basis of the security and any excess is recorded as an allowance for credit losses, limited to the amount that the fair value is less
than the amortized cost basis. Any amount of unrealized loss that has not been recorded through an allowance for credit losses is
recognized in other comprehensive income.
Changes in the allowance for credit losses are recorded as provision for (or reversal of) credit loss expense. Losses are charged against
the allowance for credit losses when management believes an available-for-sale security is confirmed to be uncollectible or when
either of the criteria regarding intent or requirement to sell is met. Accrued interest receivable on available-for-sale debt securities
was excluded from the estimate of credit losses. At December 31, 2023, there was no allowance for credit losses related to the
available-for-sale portfolio.
Allowance for credit losses (ACL)–Loans: The allowance for credit losses is a valuation account that is deducted from the loans'
amortized cost basis to present the net amount expected to be collected on the loans. Loans are charged off against the allowance
when management believes the uncollectibility of a loan balance is confirmed. Expected recoveries do not exceed the aggregate of
amounts previously charged-off and expected to be charged-off. Accrued interest receivable is excluded from the estimate of credit
losses.
The ACL represents management’s estimate of lifetime credit losses inherent in loans as of the balance sheet date. The allowance for
credit losses is estimated by management using relevant available information, from both internal and external sources, relating to
past events, current conditions, and reasonable and supportable forecasts.
Management assesses the adequacy of the ACL on loans on a quarterly basis. The ACL on loans are calculated either on a pooled basis,
when similar risk characteristics exist, or individually evaluated if they do not share similar risk characteristics, including nonaccrual
loans. Loans evaluated individually are not included in the pool evaluations and typically represent collateral dependent loans. The
Company has elected to use the practical expedient to measure individually evaluated loans as collateral dependent when repayment
is expected to be provided substantially through the operation or sale of the collateral. The credit loss is measured as the difference
between the amortized cost basis of the loan and the fair value of the underlying collateral. The fair value of the collateral is adjusted
for the estimated costs to sell as appropriate.
The allowance for pooled basis loans is comprised of the quantitative and qualitative allowance. The quantitative allowance is
calculated using either a discounted cash flow methodology (DCF) or a weighted-average remaining maturity (WARM) methodology.
Under the DCF quantitative approach the probability of default is an assumption derived from regression models which determines
the relationship between historical defaults and national unemployment. The Company determines a reasonable and supportable
forecast and applies that forecast to the regression model to determine defaults over the forecast period. The Company leverages
economic projections from independent third-parties on quarterly basis. Following the forecast period, the economic variables used
to calculate the probability of default reverts to its historical mean on a straight-line basis. Management selected a reasonable and
supportable forecast period of 4 quarters with a reversion period of 4 quarters. Both the reasonable and supportable forecast period
and the reversion period are periodically reviewed by management. Other assumptions relevant to the DCF model to derive the
quantitative allowance include the loss given default, which is the estimate of loss for a defaulted loan, the discount rate, and
prepayment speed applied to future cash flows. The DCF model calculates the net present value of each loan using both the
contractual and expected cash flows, respectively.
The Company has identified the following portfolio segments and calculates the allowance for credit losses using the DCF
methodology:
Commercial: Commercial loans generally are loans to sole proprietorships, partnerships, corporations, and other business enterprises
to finance working capital, capital investment, or for other business related purposes. Collateral generally consists of pledges of
business assets or interests, including but not limited to accounts receivable, inventory, plant and equipment, and real estate interests,
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if applicable. The primary repayment sources for commercial loans are the cash flow of the operating businesses which can be
adversely affected by company, industry and economic business cycles. Commercial loans may be secured or unsecured.
Commercial Real Estate Owner Occupied: Owner occupied commercial real estate loans are properties that are owned and operated
by the borrower and the primary source for repayment is the cash flow from the ongoing operations and activities conducted by the
borrower’s business. The primary risk characteristics are specific to the underlying business and its ability to generate sustainable
profitability and positive cash flow. Also, certain types of businesses also may require specialized facilities that can increase costs and
may not be economically feasible to an alternative user, which could adversely impact the market value of the collateral. Factors that
may influence a borrower's ability to repay their loan include demand for the business’ products or services, the quality and depth of
management, the degree of competition, regulatory changes, and general economic conditions.
Commercial Real Estate Non-Owner Occupied: Non-owner occupied commercial real estate loans are investment properties and the
primary source for repayment of the loan is derived from rental income associated with the property or proceeds of the sale of the
property. Non-owner occupied commercial real estate loans consist of mortgage loans to finance investments in real property that
may include, but are not limited to, commercial/retail office space, multifamily properties, industrial/warehouse space, hotels,
assisted living facilities and other specific use properties. The primary risk characteristics include impacts of overall leasing rates,
absorption timelines, levels of vacancy rates and operating expenses, and general economic conditions.
HELOC & Consumer: Home equity line of credit (HELOC) and consumer loans generally include personal lines of credit and amortizing
loans made to qualified individuals for various purposes such as auto loans, debt consolidation loans, home improvements, and
personal expense. The primary risk characteristics associated with HELOC and consumer loans typically include major changes to the
borrower’s financial or personal circumstances, including unemployment or other loss of income, unexpected significant expenses,
such as for major medical expenses, catastrophic events, divorce or death. In addition, fluctuations in collateral values can significantly
impact the credit quality of these loans.
Land & Land Development: Land and development loans are generally loans to acquire raw land or finance land development of
industrial, commercial, or multifamily buildings secured by real estate. The primary risk characteristics are specific to the uncertainty
on whether the development will be completed according to the specifications and schedules and the reliance on the sale of the
completed project as the primary repayment source for the loan. Factors that may influence the development may be customer
specific, such as the quality and depth of property management, or related to changes in general economic conditions. Trends in the
commercial and residential construction industries can significantly impact the credit quality of these loans due to supply and demand
imbalances. In addition, fluctuations in real estate values can significantly impact the credit quality of these loans, as property values
may determine the economic viability of construction projects and adversely impact the value of the collateral securing the loan.
Residential Real Estate: Residential real estate loans are 1-4 family mortgage loans generally to finance loans on owner occupied and
non-owner occupied properties. Residential real estate loans are secured by first or second liens on the property. The degree of risk
in residential mortgage lending involving owner occupied properties depends primarily on the borrower’s ability to repay and the loan
amount in relation to collateral value. Economic trends determined by unemployment rates and other key economic indicators are
closely correlated to the credit quality of these loans. Weak economic trends indicate that the borrower’s capacity to repay their
obligations may be deteriorating. Residential real estate loans include credits to finance non-owner occupied properties used as
rentals. These loans can involve additional risks as the borrower’s ability to repay is based on the net operating income from the
property which can be impacted by occupancy levels, rental rates, and operating expenses. Declines in net operating income can
negatively impact the value of the property which increases the credit risk in the event of default.
Speculative Residential Construction: Speculative residential construction loans are generally loans to finance the construction of new
structures, additions or alterations to existing structures, or the demolition of existing structures to make way for new residential
structures. Speculative residential construction loans are generally secured by real estate. The primary risk characteristics are specific
to the uncertainty on whether the construction will be completed according to the specifications and schedules. Factors that may
influence the completion of residential construction may be customer specific or related to changes in general economic conditions.
Under the WARM quantitative approach relevant historical loss experience from peer bank data over a specific lookback period, and
an estimated life for each segment, are applied to current segment loan balances to calculate the allowance for credit losses.
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The Company has identified the following portfolio segments and calculates the allowance for credit losses using the WARM
methodology:
Credit Card Receivables: Credit card receivables include personal and business lines of credit for various personal and business
purposes. The primary risk characteristics associated typically include the borrower’s financial circumstances including loss of income,
and/or unexpected significant expense(s).
Farmland: Farmland loans are loans secured by farmland and improvements thereon. Farmland includes all land known to be used or
usable for agriculture purposes, such as crops and livestock production. The primary repayment sources for farmland loans are the
cash flow of the agriculture business, therefore primary risk characteristics can be adversely affected by weather conditions, disease,
and commodity prices.
Ready Reserve, Overdrafts, & Fresh Start Loans: Ready Reserve, Overdrafts, & Fresh Start loans generally include unsecured smaller
balance loans, at the individual and aggregate level, resulting from overdrawing deposit accounts. The primary risk characteristics
associated with these loans typically include the borrower’s financial or personal circumstances.
In addition to the quantitative portion of the allowance for credit losses, qualitative factors are used to cover losses that are expected
but, in the Company’s assessment, may not be adequately represented in the quantitative analysis. These qualitative factors serve to
compensate for additional areas of uncertainty inherent in the portfolio. Each qualitative loss factor, for each loan segment within
the portfolio, incorporates consideration for a minimum to maximum range for loss factors. These qualitative factor adjustments may
increase or decrease the Company’s estimate of expected credit losses and are applied to each loan segment. The qualitative factors
applied to each loan segment include:
Economic conditions
Changes in nature and volume of the portfolio
Credit and lending staff/administration
Problem loan trends
Concentrations
Loan review results
Collateral values
Regulatory and business environment
Allowance for credit losses–Unfunded Commitments: In the ordinary course of business, the Company has entered into commitments
to extend credit, including commitments under credit arrangements, commercial letters of credit, and standby letters of credit. Such
financial instruments are recorded on the balance sheet when they are funded. The Company’s exposure to credit loss in the event of
nonperformance by the other party to the financial instrument for off-balance sheet loan commitments is represented by the
contractual amount of those instruments.
The Company records an allowance for credit losses on off-balance sheet credit exposures, unless the commitments to extend credit
are unconditionally cancelable, through a charge to provision for unfunded commitments in the Company’s income statements. The
allowance for credit losses on off-balance sheet credit exposures is estimated by loan segment at each balance sheet date under the
current expected credit loss model using the same methodologies as portfolio loans, taking into consideration the likelihood that
funding will occur as well as any third-party guarantees. The allowance for unfunded commitments is included in other liabilities on
the Company’s consolidated balance sheets.
Premises and equipment: Premises and equipment are stated at cost less accumulated depreciation, which is computed on the
straight-line method over the estimated useful lives of the assets. Asset lives range from 3 to 39 years. Leasehold improvements are
amortized over the terms of the respective leases or the estimated useful lives of the improvements, whichever is less. Gains or losses
on dispositions are reflected in earnings.
Right of Use Lease Asset & Lease Liability: The Company leases retail space, office space and equipment under operating leases. For
operating leases greater than 12 months, an operating right of use (ROU) asset and an operating lease liability (lease liability) is
recorded on the consolidated financial statements. The Company elected not to include short-term leases (i.e., leases with initial
terms of twelve months or less), or equipment leases (deemed immaterial) on the consolidated financial statements.
The calculated amount of the ROU assets and lease liabilities are impacted by the length of the lease term and the discount rates used
to calculate the present value of minimum lease payments. For the discount rate the Company utilizes its incremental borrowing rate
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at lease inception over a similar term. For operating leases existing prior to January 1, 2019, the rate for the remaining lease term as
of January 1, 2019 was used.
Other real estate owned: Real estate properties acquired through, or in lieu of, foreclosure are to be sold and are initially recorded at
the fair value of the properties less estimated costs of disposal. Any write-down to fair value at the time of transfer to other real
estate owned (“OREO”) is charged to the allowance for credit losses. Properties are evaluated regularly to ensure that the recorded
amounts are supported by their current fair values, and that write-downs to reduce the carrying amounts to fair value less estimated
costs to dispose are recorded as necessary. Any subsequent reductions in carrying values, and revenue and expense from the
operations of properties, are charged to operations.
Bank-owned life insurance: Bank owned life insurance is carried at the amount due upon surrender of the policy, which is also the
estimated fair value. This amount was provided by the insurance companies based on the terms of the underlying insurance contract.
Goodwill and other intangible assets: At December 31, 2023 the Company had $13.4 million in goodwill and other intangible assets.
Goodwill is initially recorded when the purchase price paid for an acquisition exceeds the estimated fair value of the net identified
tangible and intangible assets acquired. Goodwill is reviewed for potential impairment on an annual basis or more frequently if events
or circumstances indicate a potential impairment, at the reporting unit level. The Company has one reporting unit, the Bank, for
purposes of computing goodwill. An assessment of qualitative factors is completed to determine if it is more likely than not that the
fair value of a reporting unit is less than its carrying amount. If the qualitative analysis concludes that further analysis is required, then
a quantitative impairment test would be completed. The quantitative goodwill impairment test is used to identify the existence of
impairment and the amount of impairment loss and compares the reporting unit’s estimated fair value, including goodwill, to its
carrying amount. If the fair value exceeds the carrying amount then goodwill is not considered impaired. If the carrying amount
exceeds its fair value, an impairment loss would be recognized equal to the amount of excess, limited to the amount of total goodwill
allocated to that reporting unit. The impairment loss would be recognized as a charge to earnings.
For the years ended December 31, 2023 and 2022, the Company’s goodwill impairment evaluation, based on its qualitative
assessment, indicated there was no impairment. No assurance can be given that the Company will not record an impairment loss on
goodwill in the future.
In 2006, the Bank completed a deposit transfer and assumption transaction with an Oregon-based bank for a $1.3 million premium. In
connection with completion of the transaction, the Oregon Department of Consumer and Business Services issued a Certificate of
Authority to the Bank authorizing it to conduct a banking business in the State of Oregon. The premium, and the resultant right to
conduct business in Oregon, is recorded as an indefinite-lived intangible asset.
Impairment of long-lived assets: Management periodically reviews the carrying value of its long-lived assets to determine if
impairment has occurred or whether changes in circumstances have occurred that would require a revision to the remaining useful
life, of which there have been none. In making such determination, management evaluates the performance, on an undiscounted
basis, of the underlying operations or assets which give rise to such amount.
Transfers of financial assets: Transfers of financial assets, including cash, investment securities, loans and loans held for sale, are
accounted for as sales when control over the assets has been surrendered. Control over transferred assets is deemed to be
surrendered when (1) the assets have been isolated from the Company, (2) the transferee obtains the right (free of conditions that
constrain it from taking advantage of that right) to pledge or exchange the transferred assets, and (3) the Company does not maintain
effective control over the transferred assets through either an agreement to repurchase them before their maturity, or the ability to
cause the buyer to return specific assets.
Advertising: Advertising costs are expensed as incurred.
Income taxes: Deferred tax assets and liabilities result from differences between the financial statement carrying amounts and the
tax bases of assets and liabilities, and are reflected at currently enacted income tax rates applicable to the period in which the deferred
tax assets or liabilities are expected to be realized or settled. Deferred tax assets are reduced by a valuation allowance when
management determines that it is more likely than not that some portion or all of the deferred tax assets will not be realized. As
changes in tax laws or rates are enacted, deferred tax assets and liabilities are adjusted through the provision for income taxes.
The Company files a consolidated federal income tax return. The Bank provides for income taxes separately and remits to the Company
amounts currently due in accordance with a tax allocation agreement between the Company and the Bank.
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As of December 31, 2023, the Company had no unrecognized tax benefits. The Company’s policy is to recognize interest and penalties
on unrecognized tax benefits in “Income Taxes” in the consolidated statements of income. The amount of interest and penalties
accrued as of December 31, 2023 and December 31, 2022 and recognized during the years ended December 31, 2023, and 2022 were
immaterial. The tax years that remain subject to examination by federal and state taxing authorities are the years ended December
31, 2022, 2021 and 2020.
Stock-based compensation: Accounting guidance requires measurement of compensation cost for all stock based awards based on
the grant date fair value and recognition of compensation cost over the service period of stock based awards. The fair value of stock
options is determined using the Black-Scholes valuation model. The Company’s stock compensation plans are described more fully in
Note 16.
Cash equivalents and cash flows: The Company considers all amounts included in the balance sheet caption “Cash and due from
banks” to be cash equivalents. Cash and cash equivalents have a maturity of 90 days or less at the time of purchase. Cash flows from
loans, interest bearing deposits in banks, federal funds sold, short-term borrowings, secured borrowings and deposits are reported
net. The Company maintains balances in depository institution accounts which, at times, may exceed federally insured limits. The
Company has not experienced any losses in such accounts.
Certificates of deposit held for investment: Certificates of deposit held for investments include amounts invested with financial
institutions for a stated interest rate and maturity date and are included in the balance sheet caption “Other interest earning deposits”.
Early withdrawal penalties apply, however the Company plans to hold these investments to maturity.
Earnings per share: Basic earnings per share excludes dilution and is computed by dividing net income by the weighted average
number of common shares outstanding. Diluted earnings per share reflect the potential dilution that could occur if common shares
were exercised or issued under the Company’s stock compensation plans. Stock options and restricted stock units excluded from the
calculation of diluted earnings per share because they are antidilutive, were 182,000 and 122,000 in 2023 and 2022, respectively.
Comprehensive income: Recognized revenue, expenses, gains and losses are included in net income. Certain changes in assets and
liabilities, such as prior service costs and amortization of prior service costs related to defined benefit plans and unrealized gains and
losses on securities available for sale, are reported within equity in other accumulated comprehensive loss in the consolidated balance
sheet. Such items, along with net income, are components of comprehensive loss. Gains and losses on securities available for sale
are reclassified to net income as the gains or losses are realized upon sale of the securities.
Business segment: The Company operates a single business segment. The financial information that is used by the chief operating
decision maker in allocating resources and assessing performance is only provided for one reportable segment as of December 31,
2023 and 2022.
Revenue Recognition: The Company recognizes revenue as it is earned based on contractual terms, as transactions occur, or as
services are provided and collectability is reasonably assured. The principal source of revenue is interest income from loans and
investments, which is out of scope of ASC 606 Revenue Recognition. The Company also earns non-interest income from various
banking services offered to its customers. Gain on sales of loans, investment securities, earnings on bank-owned life insurance, and
other income are not within the scope of ASC 606. The Company’s revenue from contracts with customers within the scope of ASC
606 is recognized in non-interest income. Certain specific policies related to those in scope with revenue streams income include the
following:
Service Charges on Deposit Accounts – The Company earns fees from its deposit customers by providing contractual transaction-
based, account maintenance, and overdraft services. Transaction-based fees, which include services such as ATM use fees, stop
payment charges, statement rendering, and ACH fees, are recognized at the time the transaction is executed at the point in time the
Company fulfills the customer’s request for product or service. Fees, which relate primarily to deposit account maintenance, are
earned over the course of a month, representing the period over which the Company satisfies its performance obligation. Fees for
performing that service are then assessed at the close of the statement period. Overdraft fees are recognized at the point in time that
the overdraft is created by the payment of a check against a deposit account in which there are not sufficient funds to pay that item.
Service charges on deposits are collected directly from the customer’s account balance per the terms of the contract with the
depositor.
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Interchange and Other Fees – The Company earns interchange fees from debit or credit cardholder transactions, from cards issued
by the Company to its customers or processed for non-customers, conducted through various card payment networks. Interchange
fees from cardholder transactions represent a percentage of the underlying transaction value and are recognized daily, concurrently
with the transaction processing services provided to the cardholder. Other service charges include revenue from processing wire
transfers, bill pay service, cashier’s checks, and other services. The Company’s performance obligation for interchange and other
service charges are largely satisfied, and related revenue recognized, when completion of the services are rendered at a point in time.
The following table presents the Company’s noninterest income by revenue stream and reportable segment for the years ended
December 31, 2023 and 2022. Items outside the scope of ASC 606 are noted as such.
Twelve Months Ended
December 31,
2023
2022
(i n thous a nds )
1,975 $
1,621
635
(154)
685
2,963
68
6,172 $
1,812
-
682
3,113
(1)
7,227
$
Servi ce charges on depos i ts
Gai n on s a l e of l oa ns , net (1)
Los s on s a le of i nves tment s ecuri ti es , net (1)
Ea rni ngs on bank owned l i fe i ns ura nce (1)
Intercha nge a nd other fees
Other (1)
Tota l noninteres t i ncome $
(1) Not wi thi n the s cope of ASC 606
Accounting Standards Adopted in 2023: On January 1, 2023, the Company adopted ASU 2016-13 Financial Instruments – Credit Losses
(Topic 326): Measurement of Credit Losses on Financial Instruments (ASC 326). This standard replaced the incurred loss methodology
with an expected loss methodology that is referred to as the current expected credit loss (“CECL”) methodology. CECL requires an
estimate of credit losses for the remaining estimated life of the financial asset using historical experience, current conditions, and
reasonable and supportable forecasts and generally applies to financial assets measured at amortized cost, including loan receivables
and held-to-maturity debt securities, and some off-balance sheet credit exposures such as unfunded commitments to extend credit.
Financial assets measured at amortized cost will be presented at the net amount expected to be collected by using an allowance for
credit losses.
In addition, CECL made changes to the accounting for available-for-sale debt securities. One such change is to require credit losses to
be presented as an allowance rather than as a write-down on available-for-sale debt securities if management does not intend to sell
and does not believe that it is more likely than not they will be required to sell.
The Company adopted ASC 326 and all related subsequent amendments thereto effective January 1, 2023, using the modified
retrospective approach for all financial assets measured at amortized cost and off-balance sheet credit exposures. The transition
adjustment of the adoption of CECL included a decrease in the allowance for credit losses on loans of $157,000, which is presented as
a reduction to net loans outstanding, and an increase in the allowance for credit losses on unfunded loan commitments of $609,000,
which is recorded within Other Liabilities. The adoption of CECL had an insignificant impact on the Company's held-to-maturity and
available-for-sale securities portfolios. The Company recorded a net decrease to retained earnings of $452,000 as of January 1, 2023,
for the cumulative effect of adopting CECL. Results for reporting periods beginning after January 1, 2023, are presented under CECL
while prior period amounts continue to be reported in accordance with previously applicable accounting standards (“Incurred Loss”).
13
The following table presents the impact of adopting CECL:
As s ets :
Loans
Commerci al a nd a gri cul tural
Rea l es tate:
Cons tructi on a nd devel opment
Res i denti a l 1-4 fami l y
Mul ti -fami l y
Commerci a l real es ta te -- owner occupi ed
Commerci a l real es ta te -- non owner occupi ed
Fa rml a nd
Total real es ta te
Cons umer
Una l l oca ted
Total
Li a bi l i ti es :
Al l owa nce for Credi t Los s es on Off-ba la nce Sheet Credi t Expos ures
January 1,
2023 Pre-
CECL
Adoption
Impact of
CECL
Adoption
(i n thous ands )
As Reported
Under CECL
$
980
$
348
$
1,328
497
706
362
1,047
1,468
409
4,489
1,874
893
8,236 $
(98)
911
(7)
509
(230)
(163)
922
(534)
(893)
(157) $
399
1,617
355
1,556
1,238
246
5,411
1,340
-
8,079
203 $
609 $
812
$
$
The Company elected not to measure an allowance for credit losses for accrued interest receivable and instead elected to reverse
interest income on loans or securities that are placed on nonaccrual status, which is generally when the instrument is 90 days past
due, or earlier if the Company believes the collection of interest is doubtful. The Company has concluded that this policy results in the
timely reversal of uncollectible interest.
In March 2022, the FASB issued ASU 2022-02, Financial Instruments – Credit Losses (Topic 326): Troubled Debt Restructurings and
Vintage Disclosures. This ASU updates guidance in Topic 326 to eliminate the accounting guidance for troubled debt restructurings, or
TDRs, by creditors in Subtopic 310-40, Receivables – Troubled Debt Restructurings by Creditors, while enhancing disclosure
requirements for certain loan refinancing and restructuring activities by creditors when a borrower is experiencing financial difficulty.
Additionally, the amendments to ASC 326 require that an entity disclose current period gross write offs by year of origination within
the vintage disclosures, which requires that an entity disclose the amortized cost basis of financial receivables by credit quality
indicator and class of financing receivables by year of origination. The Company adopted this standard during the first quarter of 2023
and the adoption of this standard did not have a material impact on the Company’s consolidated financial statements.
NOTE 2 – RESTRICTED ASSETS
The Federal Reserve has the authority to establish reserve requirements on transaction accounts or non-personal time deposits. These
reserves may be in the form of cash or deposits with the Federal Reserve Bank. Effective on March 26, 2020, the Federal Reserve
reduced requirements to zero percent. The Federal Reserve may adjust reserve requirement ratios in the future at its discretion.
NOTE 3 – INVESTMENT SECURITIES AND NONMARKETABLE INVESTMENT SECURITIES
Investment securities
Investment securities consist principally of short and intermediate term debt instruments issued by the U.S. Treasury, other U.S.
government agencies, state and local governments, other corporations, collateralized mortgage obligations and mortgaged backed
securities (“MBS”). Investment securities have been classified according to management’s intent. There was no allowance for credit
losses on investment securities as of December 31, 2023.
14
The amortized cost of securities and their approximate fair value were as follows:
Available for Sale
Col l a teral i zed mortga ge obl i ga ti ons
Mortgage ba cked s ecuri ti es
Muni ci pa l s ecuri ti es
U.S. government and agency obl i ga ti ons
Total a va i l a bl e for s a l e
Held to maturity
Col l a teral i zed mortga ge obl i ga ti ons
Mortgage ba cked s ecuri ti es
Muni ci pa l s ecuri ti es
U.S. government
Total hel d to ma turi ty
Available for Sale
Col l a teral i zed mortga ge obl i ga ti ons
Mortgage ba cked s ecuri ti es
Muni ci pa l s ecuri ti es
Corporate debt s ecuri ti es
U.S. government and agency obl i ga ti ons
Total a va i l a bl e for s a l e
Held to maturity
Col l a teral i zed mortga ge obl i ga ti ons
Mortgage ba cked s ecuri ti es
Muni ci pa l s ecuri ti es
U.S. government
Total hel d to ma turi ty
Amortized
Cost
December 31, 2023
Gross
Unrealized
Gains
Gross
Unrealized
Losses
(i n thous a nds )
135,658 $
19,635
48,474
55,165
258,932 $
15,656 $
8,049
2,354
29,395
55,454 $
194 $
67
9
-
270 $
- $
-
10
-
10 $
8,368 $
722
6,058
5,929
21,077 $
1,110 $
429
22
668
2,229 $
Amortized
Cost
December 31, 2022
Gross
Unrealized
Gains
Gross
Unrealized
Losses
(i n thous a nds )
110,573 $
14,023
69,707
2,000
55,407
251,710 $
18,072 $
9,857
2,506
29,078
59,513 $
8 $
9
84
-
-
101 $
- $
-
32
-
32 $
8,623 $
922
8,020
1
7,461
25,027 $
1,219 $
558
38
1,217
3,032 $
$
$
$
$
$
$
$
$
Fair
Value
127,484
18,980
42,425
49,236
238,125
14,546
7,620
2,342
28,727
53,235
Fair
Value
101,958
13,110
61,771
1,999
47,946
226,784
16,853
9,299
2,500
27,861
56,513
15
Unrealized losses and fair value for which an allowance for credit losses has not been recorded, aggregated by investment category
and length of time that individual securities have been in continuous unrealized loss position, as of December 31, 2023 and 2022 were
as follows:
Available for sale
(in thous ands )
Less Than 12 Months
December 31, 2023
12 Months or More
Total
Fair Value
Unrealized
Losses
Fair Value
Unrealized
Losses
Fair Value
Unrealized
Losses
Col la teral ized mortgage obli ga tions
Mortga ge ba cked s ecuri ti es
Muni cipa l s ecurities
U.S. government and a gency obli ga ti ons
Tota l
Held to maturity
Col la teral ized mortgage obli ga tions
Mortga ge ba cked s ecuri ti es
Muni cipa l s ecurities
U.S. government and a gency obli ga ti ons
Tota l
Available for sale
Col la teral ized mortgage obli ga tions
Mortga ge ba cked s ecuri ti es
Muni cipa l s ecurities
Corpora te debt s ecurities
U.S. government and a gency obli ga ti ons
Tota l
Held to maturity
Col la teral ized mortgage obli ga tions
Mortga ge ba cked s ecuri ti es
Muni cipa l s ecurities
U.S. government and a gency obli ga ti ons
Tota l
$
$
$
$
$
$
$
$
36,248 $
3,277
2,191
-
41,716 $
609 $
17
58
-
684 $
71,580 $
10,406
37,828
49,236
169,050 $
7,759 $
705
6,000
5,929
20,393 $
107,828 $
13,683
40,019
49,236
210,766 $
8,368
722
6,058
5,929
21,077
Less Than 12 Months
December 31, 2023
12 Months or More
Total
Fair Value
Unrealized
Losses
Fair Value
Unrealized
Losses
Fair Value
Unrealized
Losses
(in thous ands )
$
$
628
1
628 $
1 $
14,546 $
7,620
712
28,727
51,605 $
1,110 $
429
21
668
2,228 $
14,546 $
7,620
1,340
28,727
52,233 $
1,110
429
22
668
2,229
Less Than 12 Months
December 31, 2022
12 Months or More
Total
Fair Value
Unrealized
Losses
Fair Value
Unrealized
Losses
Fair Value
Unrealized
Losses
(in thous ands )
44,373 $
7,239
33,564
1,999
-
87,175 $
1,557 $
370
1,884
1
-
3,812 $
56,895 $
5,545
20,497
-
47,946
130,883 $
7,066 $
552
6,136
-
7,461
21,215 $
101,268 $
12,784
54,061
1,999
47,946
218,058 $
8,623
922
8,020
1
7,461
25,027
Less Than 12 Months
December 31, 2022
12 Months or More
Total
Fair Value
Unrealized
Losses
Fair Value
Unrealized
Losses
Fair Value
Unrealized
Losses
(in thous ands )
16,853 $
9,299
1,340
27,862
55,354 $
1,219 $
558
38
1,217
3,032 $
- $
-
-
-
- $
- $
-
-
-
- $
16,853 $
9,299
1,340
27,862
55,354 $
1,219
558
38
1,217
3,032
At December 31, 2023, there were 220 available for sale and held to maturity investment securities in an unrealized loss position. The
unrealized losses on these securities were caused by changes in interest rates and widening pricing spreads, leading to a decline in the
16
fair value subsequent to their purchase. The Company has evaluated the securities shown above and anticipates full recovery of
amortized cost with respect to these securities at maturity or sooner in the event of a more favorable market environment
For collateralized mortgage obligations (“CMOs”) the Company estimates expected future cash flows of the underlying collateral,
together with any credit enhancements. The expected future cash flows of the underlying collateral are determined using the
remaining contractual cash flows adjusted for future expected credit losses (which considers current delinquencies, future expected
default rates and collateral value by vintage) and prepayments. The expected cash flows of the security are then discounted to arrive
at a present value amount. The Company has not recorded impairments related to credit losses through earnings for the years ended
December 31, 2023.
At December 31, 2022, there were 241 available for sale and held to maturity investment securities in an unrealized loss position. For
periods prior to adoption of ASC 326, management conducted a review and evaluation of its securities for other than temporary
impairment. The Company evaluated the securities and anticipates full recovery of amortized cost with respect to these securities at
maturity or sooner in the event of a more favorable market environment. Based on management’s evaluation, and because the
Company does not have the intent to sell these securities and it is not more likely than not that it will have to sell the securities before
recovery of cost basis, these investments were not considered to be other-than-temporarily impaired at December 31, 2022.
The following table provides gross realized gains and losses on the sales of securities for the periods indicated:
Twelve Months Ended
December 31,
2023
2022
(i n thous a nds )
Gros s rea l i zed ga i n on s a l e of s ecuri ti es
Gros s rea l i zed l os s on s a l e of s ecuri ti es
$
Net rea l i zed l os s on s a l e of s ecuri ti es $
92 $
(246)
(154) $
-
-
-
The Company did not engage in originating subprime mortgage loans, and it does not believe that it has material exposure to subprime
mortgage loans or subprime mortgage backed securities.
The amortized cost and estimated fair value of investment securities at December 31, 2023 by maturity is presented in the following
table. The amortized cost and estimated fair value of CMOs and MBS are presented by the contractual maturity date. Expected
maturities may differ from contractual maturities because borrowers may have the right to prepay underlying loans without
prepayment penalties.
December 31, 2023
Held to Maturity
Available for Sale
Amortized
Cost
Fair Value
Amortized
Cost
Fair Value
Due i n one yea r or l es s
Due a fter one yea r through fi ve years
Due a fter fi ve yea rs through ten yea rs
Due a fter ten yea rs
Tota l i nves tment s ecuri ti es
$
$
9,984 $
21,388
7,037
17,045
55,454 $
(i n thous a nds )
9,899 $
20,778
6,715
15,843
53,235 $
5,764 $
37,500
63,054
152,614
258,932 $
5,629
34,134
56,781
141,581
238,125
At December 31, 2023, the Company had no securities held-to-maturity that were past due 30 days or more as to principal or interest
payments. The Company had no securities held-to-maturity classified as nonaccrual for the year ended December 31, 2023.
At December 31, 2023 and 2022, investment securities with an estimated fair value of $197.3 million and $135.3 million were pledged
to secure public deposits, certain nonpublic deposits and borrowings, respectively.
17
Nonmarketable investment securities
As required of all members of the FHLB system, the Company maintains an investment in the capital stock of the FHLB in an amount
of 0.06% of total assets plus 4.50% of outstanding advances. Participating banks record the value of FHLB stock equal to its par value
at $100 per share. At December 31, 2023 and 2022 the Company held $783,000 and $1.6 million in FHLB stock, respectively.
The Company owns $1.0 million in common stock in PCBB, from which the Company receives a variety of corresponding banking
services through its banking subsidiary Pacific Coast Bankers Bank. When evaluating this investment for impairment, the value is
determined based on the recovery of the par value through any redemption by PCBB or from the sale to another eligible purchaser,
rather than by recognizing temporary declines in value. PCBB disclosed that it reported net income for the twelve month period ended
December 31, 2023 and maintains capital ratios that exceed “well capitalized” standards for regulatory purposes.
NOTE 4 – LOANS AND ALLOWANCE FOR CREDIT LOSSES AND CREDIT QUALITY
Loans held in the portfolio at December 31, 2023 and 2022 were as follows:
Commerci a l a nd a gri cul tura l
PPP
Rea l es ta te:
December 31,
2023
2022
(i n thous ands )
75,322 $
122
75,705
515
$
Cons tructi on a nd devel opment
Res i denti a l 1-4 fa mi l y
Mul ti -fa mi l y
Commerci a l rea l es tate -- owner occupi ed
Commerci a l rea l es tate -- non owner occupi ed
Fa rml a nd
Total rea l es tate
Cons umer
Gros s l oans
48,720
96,301
51,025
164,443
155,280
27,273
543,042
66,863
685,349
Deferred fees , net
Loa ns , net of deferred fees
(796)
684,553 $
$
37,287
82,653
41,122
154,380
153,707
26,935
496,084
68,412
640,716
(758)
639,958
Commercial and Agricultural. The Company's commercial and agricultural loans consist primarily of secured revolving operating lines
of credit, equipment financing, accounts receivable and inventory financing and business term loans, some of which may be partially
guaranteed by the Small Business Administration or the U.S. Department of Agriculture. The Company’s credit policies determine
advance rates against the different forms of collateral that can be pledged against commercial loans. Typically, the majority of loans
will be limited to a percentage of the underlying collateral values such as equipment, eligible accounts receivable and finished
inventory. Individual advance rates may be higher or lower depending upon the financial strength of the borrower, quality of the
collateral and/or term of the loan.
Paycheck Protection Program (“PPP”). This program was established by the Coronavirus Aid, Relief and Economic Security Act (“CARES
Act”), enacted on March 27, 2020, in response to the Coronavirus Disease 2019 (“COVID-19”) pandemic. The PPP was administered
by the Small Business Administration (SBA). PPP loans may be forgiven by the SBA and are 100 percent guaranteed by the SBA. These
loans have either a two-year or five-year maturity date and earn interest at 1%. The Bank also earns a fee based on the size of the
loan, which is recognized over the life of the loan. The balance of unamortized net deferred fees on SBA PPP loans was $4,000 and
$17,000 at December 31, 2023 and 2022, respectively.
Real Estate. The Company originates owner occupied and non-owner occupied commercial real estate and multifamily loans within
its primary market areas. Commercial real estate and multifamily loans typically involve a greater degree of risk than single-family
residential mortgage loans. Payments on loans secured by multifamily and commercial real estate properties are dependent on
18
successful operation and management of the properties and repayment of these loans is affected by adverse conditions in the real
estate market or the economy. The Company seeks to minimize these risks by scrutinizing the financial condition of the borrower, the
quality and value of the collateral, and the management of the property securing the loan. In addition, commercial real estate loan
portfolios are reviewed annually to evaluate the performance of individual loans that are $1 million and larger for potential changes
in interest rates, occupancy, and collateral values.
Non-owner occupied commercial real estate loans are loans in which less than 50% of the property is occupied by the owner and
include loans such as apartment complexes, hotels and motels, retail centers and mini-storage facilities. Repayment of non-owner
occupied commercial real estate loans is dependent upon the lease or resale of the subject property. Loan amortizations range from
10 to 30 years, although terms typically do not exceed 10 years. Interest rates can be either floating or fixed. Floating rates are
typically indexed to the prime rate, SOFR, or Federal Home Loan Bank advance rates plus a defined margin. Fixed rates are generally
set for periods of three to ten years with either a rate reset provision or a payment due at maturity. Prepayment penalties are often
sought on term commercial real estate loans.
The Company originates single-family residential construction loans for custom homes where the home buyer is the borrower. It has
also provided financing to builders for the construction of pre-sold homes and to builders for the construction of speculative residential
property. The Company endeavors to limit construction lending risks through adherence to specific underwriting guidelines and
procedures. Repayment of construction loans is dependent upon the sale of individual homes to consumers or in some cases to other
developers. Construction loans are generally short-term in nature and most loans mature in one to two years. Interest rates are
usually floating and fully indexed to a short-term rate index. The Company's credit policies address maximum loan to value, cash
equity requirements, inspection requirements, and overall credit strength.
The majority of one-to-four family residential loans are secured by single-family residences located in the Company’s primary market
areas. Single-family portfolio loans are generally owner-occupied with terms typically ranging from 15 to 30 years. Repayment of
these loans comes from the borrower’s personal cash flows and liquidity, and collateral values are a function of residential real estate
values in the markets we serve. These loans include primary residences, second homes, rental homes and home equity loans and
home equity lines of credit.
Consumer. The Company originates consumer loans and lines of credit that are both secured and unsecured. Underwriting standards
ensures a qualifying primary and secondary source of repayment. Underwriting standards for home equity loans are significantly
influenced by statutory requirements. To monitor and manage consumer loan risk, policies and procedures are developed and
modified, as needed. The majority of consumer loans are disbursed among many individual borrowers which reduces the credit risk
for this type of loan. The Company also purchases indirect consumer loans for classic and exotic cars. Deposit account overdrafts
reported as consumer loans totaled $104,000 and $108,000 at December 31, 2023 and 2022, respectively.
At December 31, 2023 and 2022, $395.6 million and $289.1 million, respectively, of loans were pledged as collateral on FHLB advances.
The Company has also pledged $89.4 million and $80.8 million of loans to the FRB for additional borrowing capacity at December 31,
2023 and 2022, respectively.
Allowance for credit losses and credit quality
The following table summarizes the activity related to the allowance for credit losses for the year ended December 31, 2023 under
the CECL methodology. Balance(s) as of December 31, 2022, reflect CECL methodology adoption loan segment reclassifications from
under the incurred loss methodology.
Commercial and
agricultural
Construction and
development
Residential 1-4
family
Multi-family
CRE -- non
owner
occupied
CRE -- owner
occupied
(in thous a nds )
Farmland
Consumer
Unallocated
Total
Bal ance, December 31, 2022
Impact of CECL adopti on
Charge-offs
Recoveri es
Provis ion for credit los s es
Bal ance, December 31, 2023
$
$
980 $
348
(83)
77
(22)
1,300 $
497 $
(98)
-
-
102
501 $
706 $
911
-
-
338
1,955 $
362 $
(7)
-
-
72
427 $
1,047 $
509
-
-
45
1,601 $
1,468 $
(230)
-
-
(18)
1,220 $
409 $
(163)
-
-
3
249 $
1,874 $
(534)
(196)
20
113
1,277 $
893 $
(893)
-
-
-
- $
8,236
(157)
(279)
97
633
8,530
19
Prior to the adoption of ASC 326 on January 1, 2023, the Company calculated the allowance for credit losses under the incurred loss
methodology. The following table is disclosures related to the allowance for credit losses in prior periods.
Balance at
Beginning of
Year
$
$
668 $
-
1,071
1,299
2,479
478
5,327
1,464
838
8,297 $
Twelve Months Ended December 31, 2022
Charge-offs
Recoveries
(i n thous a nds )
Provision
(benefit) for
Loan Losses
Balance at
End of Year
- $
-
-
-
-
-
-
(90)
-
(90) $
- $
-
-
-
-
-
-
29
-
29 $
336 $
-
132
(252)
(673)
(69)
(862)
471
55
- $
1,004
-
1,203
1,047
1,806
409
4,465
1,874
893
8,236
Commerci a l and agri cul tural
PPP
Rea l es ta te:
Res i denti a l 1-4, Mul ti fa mi l y, Cons t & Dev
Commerci a l rea l es ta te -- owner occupi ed
Commerci a l rea l es ta te -- non owner occupi ed
Fa rml and
Tota l rea l es ta te
Cons umer
Unal l oca ted
Tota l
Credit Quality Indicators
As part of the on-going monitoring of the credit quality of the Bank’s loan portfolio, management tracks certain credit quality indicators
including trends related to risk rating classifications of loans, the level of classified loans, net charge-offs, past due and non-performing
loans, as well as general economic conditions of the United States of America and specifically the states of Washington and Oregon.
Numerical risk rating classifications for loans are established at origination. Changes to the risk rating classification are considered as
new information about the performance of the loan becomes available, including but not limited to receipt of updated financial
information from the borrower, results of annual term loan reviews and scheduled loan reviews.
Federal regulations require that the Bank periodically evaluate the risks inherent in its loan portfolios. In addition, the Washington
Division of Banks and the Federal Deposit Insurance Corporation (“FDIC”) have authority to identify problem loans and, if appropriate,
require them to be reclassified.
There are three classifications for problem loans: Substandard, Doubtful, and Loss. These terms are used as follows:
“Substandard” loans have one or more defined weaknesses and are characterized by the distinct possibility some loss will be
sustained if the deficiencies are not corrected.
“Doubtful” loans have the weaknesses of loans classified as "Substandard," with additional characteristics that suggest the
weaknesses make collection or recovery in full after liquidation of collateral questionable on the basis of currently existing facts,
conditions, and values. There is a high possibility of loss in loans classified as "Doubtful."
“Loss” loans are considered uncollectible and of such little value that continued classification of the credit as a loan is not
warranted. If a loan or a portion thereof is classified as "Loss," it must be charged-off; meaning the amount of the loss is charged
against the allowance for credit losses, thereby reducing that reserve.
The Bank also classifies some loans as “Pass” or Other Loans Especially Mentioned (“OLEM”). Within the “Pass” classification certain
loans are “Watch” rated because they have elements of risk that require more monitoring than other performing loans. “Pass” grade
loans include a range of loans from very high credit quality to acceptable credit quality. These borrowers generally have strong to
acceptable capital levels and consistent earnings and debt service capacity. Loans with higher grades within the “Pass” category may
include borrowers who are experiencing unusual operating difficulties, but have acceptable payment performance to date. Overall,
loans with a “Pass” grade show no immediate loss exposure. Loans classified as OLEM continue to perform but have shown
deterioration in credit quality and require close monitoring.
20
The following table presents the Company’s recorded investment in loans by credit quality indicators by year of origination as of
December 31, 2023:
Term Loans by Year of Origination
2023
2022
2021
2020
2019
Prior
Revolving
Total
(i n thous a nds )
Pa s s
$
Tota l cons tructi on and devel opment l oans $
32,467 $ 13,754 $
32,467 $ 13,754 $
1,300 $
1,300 $
289 $
289 $
241 $
241 $
560 $
560 $
109 $ 48,720
109 $ 48,720
Commerci a l a nd a gri cul tura l
Pa s s
Other l oa ns es peci a l l y menti oned
Subs ta nda rd
Tota l commerci a l and agri cul ture l oa ns
Current peri od gros s wri te-offs
PPP
Pa s s
Tota l PPP l oa ns
Cons tructi on a nd devel opment
Res i denti a l 1-4 fami l y
Pa s s
Other l oa ns es peci a l l y menti oned
Subs ta nda rd
Tota l res i denti a l 1-4 fa mi l y l oa ns
Mul ti -fa mi l y
Pa s s
Tota l Mul ti -fa mi l y l oa ns
CRE -- owner occupi ed
Pa s s
Subs ta nda rd
Tota l CRE --owner occupi ed l oa ns
CRE -- non owner occupi ed
Pa s s
Other l oa ns es peci a l l y menti oned
Tota l CRE -- non owner occupi ed l oans
Fa rml and
Pa s s
Other l oa ns es peci a l l y menti oned
Subs ta nda rd
Tota l Fa rml and l oans
Cons umer
Pa s s
Subs ta nda rd
Tota l cons umer l oa ns
Current peri od gros s wri te-offs
Tota l l oa ns
Tota l peri od gros s wri te-offs
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
20,825 $ 13,414 $
5,296 $ 6,221 $ 5,418 $ 5,508 $
447
395
-
534
-
121
-
505
-
-
-
-
21,667 $ 13,948 $
3 $
- $
5,417 $ 6,726 $ 5,418 $ 5,508 $
- $
80 $
- $
- $
14,866 $ 71,548
447
-
3,327
1,772
16,638 $ 75,322
- $
83
- $
- $
- $
- $
122 $
122 $
- $
- $
- $
- $
- $
- $
- $
- $
122
122
$
20,794 $ 23,178 $
9,530 $ 6,023 $ 3,506 $ 15,947 $
-
-
-
-
-
-
-
-
-
-
-
-
17,046 $ 96,024
53
224
53
224
20,794 $ 23,178 $
9,530 $ 6,023 $ 3,506 $ 15,947 $
17,323 $ 96,301
11,251 $
11,251 $
6,231 $
6,231 $
9,799 $ 9,096 $ 7,450 $ 7,198 $
9,799 $ 9,096 $ 7,450 $ 7,198 $
- $ 51,025
- $ 51,025
25,438 $ 38,114 $ 34,039 $ 29,394 $ 8,625 $ 28,568 $
55
-
-
-
-
-
25,493 $ 38,114 $ 34,039 $ 29,394 $ 8,625 $ 28,568 $
19,510 $ 34,193 $ 35,242 $ 32,032 $ 9,810 $ 22,861 $
-
-
-
1,385
-
-
19,510 $ 34,193 $ 35,242 $ 33,417 $ 9,810 $ 22,861 $
210 $ 164,388
55
210 $ 164,443
-
247 $ 153,895
1,385
247 $ 155,280
-
5,414 $
-
-
5,414 $
5,493 $
2,784
110
8,387 $
3,396 $ 1,712 $ 3,047 $ 3,676 $
-
-
-
-
-
-
-
1,591
3,396 $ 1,712 $ 3,047 $ 5,267 $
16,847 $ 22,048 $
9,889 $ 5,116 $ 2,015 $ 7,738 $
277
-
16
14
-
73
17,124 $ 22,048 $
- $
92 $
9,905 $ 5,130 $ 2,015 $ 7,811 $
- $
21 $
2 $
- $
$ 153,720 $ 159,853 $ 108,750 $ 91,787 $ 40,112 $ 93,720 $
- $
21 $
$
80 $
92 $
2 $
3 $
21
50 $ 22,788
2,784
1,701
50 $ 27,273
-
-
2,830 $ 66,483
380
2,830 $ 66,863
-
81 $
196
37,407 $ 685,349
279
81 $
Credit Quality indicators as of December 31, 2022 were as follows:
December 31, 2022
Other Loans
Especially
Mentioned
Substandard
(i n thous ands )
Doubtful
Total
5,453 $
-
-
53
-
-
1,411
-
1,464
-
6,917 $
1,180 $
-
-
394
-
220
-
1,908
2,522
51
3,753 $
- $
-
-
-
-
-
-
-
-
-
- $
75,705
515
37,287
82,653
41,122
154,380
153,707
26,935
496,084
68,412
640,716
Pass
69,072 $
515
37,287
82,206
41,122
154,160
152,296
25,027
492,098
68,361
630,046 $
$
$
Commerci a l a nd a gri cul tura l
PPP
Rea l es ta te:
Cons tructi on a nd devel opment
Res i denti a l 1-4 fa mi l y
Mul ti -fa mi l y
Commerci a l rea l es tate -- owner occupi ed
Commerci a l rea l es tate -- non owner occupi ed
Fa rml a nd
Tota l rea l es tate
Cons umer
Gros s Loa ns
Insider Loans
Certain related parties of the Company, principally directors and their affiliates, were loan customers of the Bank in the ordinary course
of business during 2023 and 2022. Total related party loans outstanding at December 31, 2023 and 2022 to executive officers and
directors were $2.6 million and $2.6 million, respectively. During 2023 and 2022, new loans or advances on existing loans of $12,000
and $350,000, respectively, were made, and repayments totaled $72,000 and $490,000, respectively. In management’s opinion, these
loans and transactions were on the same terms as those for comparable loans and transactions with non-related parties. No loans to
related parties were on non-accrual, past due or restructured at December 31, 2023.
Aging Analysis and Nonaccrual Loans
The following tables summarize the Company’s loans past due, both accruing and non-accruing, by type as of December 31, 2023 and
2022. The Company did not recognize any interest income on non-accrual loans during the years ended December 31, 2023 and 2022.
No allowance was established on non-accrual loans as of December 31, 2023 and 2022.
2023
30-59 Days
Past Due
60-89 Days
Past Due
Total Past
Due
Nonaccrual
with ACL
Nonaccrual
without ACL
Loans Not
Past Due
Total
(i n thous a nds )
Commercia l a nd a gri cultura l
PPP
Rea l es ta te:
Cons tructi on a nd development
Res i dentia l 1-4 fa mi ly
Multi-fa mily
Commercia l rea l es ta te -- owner occupied
Commercia l rea l es ta te -- non owner occupied
Fa rmla nd
Tota l rea l es ta te
Cons umer
Gros s Loa ns
$
$
227 $
-
-
289
-
-
-
-
289
12
528 $
241 $
-
-
289
-
38
-
-
327
22
590 $
- $
-
-
-
-
-
-
-
-
-
- $
264 $
-
-
50
-
-
-
-
50
350
664 $
74,817 $
122
75,322
122
48,720
95,962
51,025
164,405
155,280
27,273
542,665
66,491
684,095 $
48,720
96,301
51,025
164,443
155,280
27,273
543,042
66,863
685,349
14 $
-
-
-
-
38
-
-
38
10
62 $
22
2022
30-59 Days
Past Due
60-89 Days
Past Due
Total Past
Due
Nonaccrual
with ACL
Nonaccrual
without ACL
Loans Not
Past Due
Total
(i n thous a nds )
Commercia l a nd a gri cultura l
PPP
Rea l es ta te:
Cons tructi on a nd development
Res i dentia l 1-4 fa mi l y
Multi-fa mily
Commercia l rea l es ta te -- owner occupied
Commercia l rea l es ta te -- non owner occupied
Fa rmla nd
Tota l rea l es ta te
Cons umer
Gros s Loa ns
$
$
199 $
-
-
49
-
-
-
-
49
101
349 $
191 $
-
-
-
-
-
-
-
-
4
195 $
390 $
-
-
49
-
-
-
-
49
105
544 $
- $
-
-
-
-
-
-
-
-
-
- $
336 $
-
-
313
-
220
-
-
533
-
869 $
74,979 $
515
75,705
515
37,287
82,291
41,122
154,160
153,707
26,935
495,502
68,307
639,303 $
37,287
82,653
41,122
154,380
153,707
26,935
496,084
68,412
640,716
The following table represents the accrued interest receivable written off by reversing interest income during the year ended
December 31, 2023:
Commerci a l a nd a gri cul tura l
Res i denti a l 1-4 fa mi l y
Cons umer
Gros s Loa ns
Collateral Dependent Loans
For the Year Ended
December 31, 2023
(in thousands)
13
1
11
25
$
$
The Company designates individually evaluated loans on nonaccrual status as collateral-dependent loans, as well as other loans that
management of the Company designates as having higher risk. Collateral-dependent loans are loans for which the repayment is
expected to be provided substantially through the operation or sale of the collateral and the borrower is experiencing financial
difficulty. These loans do not share common risk characteristics and are not included within the collectively evaluated loans for
determining the allowance for credit losses. Under CECL, for collateral-dependent loans, the Company has adopted the practical
expedient to measure the allowance for credit losses based on the fair value of collateral. The allowance for credit losses is calculated
on an individual loan basis based on the shortfall between the fair value of the loan's collateral, which is adjusted for liquidation
costs/discounts, and amortized cost. If the fair value of the collateral exceeds the amortized cost, no allowance is required.
The following table presents an analysis of collateral-dependent loans of the Company as of December 31, 2023:
Commerci a l a nd a gri cul tura l
Res i denti a l 1-4 fami l y
Cons umer
Tota l
Real Estate
$
$
215 $
50
-
265 $
Primary Type of Collateral
Business
Assets
Automobile
(i n thous a nds )
49 $
-
-
49 $
- $
-
350
350 $
Total
264
50
350
664
23
Impaired Loans
Prior to the adoption of ASU 2016-13, loans were considered impaired when, based on current information and events, it was probable
the Company would be unable to collect all amounts due in accordance with the original contractual terms of the loan agreements.
Impaired loans include loans on nonaccrual status and accruing troubled debt restructurings. When determining if the Company would
be unable to collect all principal and interest payments due in accordance with the contractual terms of the loan agreement, the
Company considered the borrower’s capacity to pay, which included such factors as the borrower’s current financial statements, an
analysis of global cash flow sufficient to pay all debt obligations and an evaluation of secondary sources of repayment, such as
guarantor support and collateral value. The Company individually assessed for impairment all nonaccrual loans and all troubled debt
restructurings. The tables below include all loans deemed impaired, whether or not individually assessed for impairment. If a loan was
deemed impaired, a specific valuation allowance was allocated, if necessary, so that the loan was reported net, at the present value
of estimated future cash flows using the loan’s existing rate or at the fair value of collateral if repayment was expected solely from the
collateral. Interest payments on impaired loans were typically applied to principal unless collectability of the principal amount was
reasonably assured, in which case interest was recognized on a cash basis.
The following table presents loans individually evaluated for impairment by class of loans, excluding PCI loans, as of December 31,
2022:
December 31, 2022
Recorded
Investment
With No
Specific
Valuation
Allowance
Recorded
Investment
With Specific
Valuation
Allowance
Total
Recorded
Investment
Unpaid
Contractual
Principal
Balance
(in thous a nds )
Related
Specific
Valuation
Allowance
Average
Recorded
Investment
Interest
Income
Recognized
454 $
-
313
220
-
-
533
101
1,088 $
- $
-
-
1,070
-
294
1,364
-
1,364 $
454 $
-
313
1,290
-
294
1,897
101
2,452 $
494 $
-
352
1,316
-
295
1,963
127
2,584 $
- $
-
-
-
48
-
1
49
-
49 $
506 $
-
357
1,328
-
297
1,982
132
2,620 $
28
-
20
69
-
15
104
9
141
Commercia l a nd a gricul tura l
PPP
Rea l Es tate:
Res i denti al 1-4, Mul ti fa mi ly, Cons t & Dev
Commerci al real es ta te -- owner occupied
Commerci al real es ta te -- non owner occupied
Fa rmla nd
Total real es ta te
Cons umer
Tota l
$
$
Purchased Credit Deteriorated
Loans purchased or acquired in business combinations are recorded at their fair value at the acquisition date. Acquired loans are
evaluated upon acquisition and classified as either purchased credit-deteriorated (PCD) or purchase non-credit-deteriorated. There
were no PCD loans at December 31, 2023.
Modifications Made to Borrowers Experiencing Financial Difficulty
The allowance for credit losses incorporates an estimate of lifetime expected credit losses and is recorded on each asset upon asset
origination or acquisition. The starting point for the estimate of the allowance for credit losses is historical loss information, which
includes losses from modifications of receivables to borrowers experiencing financial difficulty. The Company uses a probability of
default/loss given default model to determine the allowance for credit losses. An assessment of whether a borrower is experiencing
financial difficulty is made on the date of a modification.
Because the effect of most modifications made to borrowers experiencing financial difficulty is already included in the allowance for
credit losses because of the measurement methodologies used to estimate the allowance, a change to the allowance for credit losses
is generally not recorded upon modification. Occasionally, the Company modifies loans by providing principal forgiveness on its real
estate loans. When principal forgiveness is provided, the amortized cost basis of the asset is written off against the allowance for
credit losses. The amount of the principal forgiveness is deemed to be uncollectible; therefore, that portion of the loan is written off,
resulting in a reduction of the amortized cost basis and a corresponding adjustment to the allowance for credit losses.
In some cases, the Company will modify a certain loan by providing multiple types of concessions. Typically, one type of concession,
such as a term extension, is granted initially. If the borrower continues to experience financial difficulty, another concession, such as
24
principal forgiveness, may be granted. For the real estate loans included in the “combination” columns below, multiple types of
modifications have been made on the same loan within the current reporting period. The combination is at least two of the following:
a term extension, principal forgiveness, and interest rate reduction.
Upon the Company's determination that a modified loan (or portion of a loan) has subsequently been deemed uncollectible, the loan
(or a portion of the loan) is written off. Therefore, the amortized cost basis of the loan is reduced by the uncollectible amount and the
allowance for credit losses is adjusted by the same amount.
For the twelve months ended December 31, 2023, the Company modifications to borrowers experiencing financial difficulty were
immaterial to the financial statements.
Troubled Debt Restructured Loans
Prior to the adoption of ASU 2016-13 and ASU 2022-02, a modification of a loan constitutes a troubled debt restructuring (“TDR”)
when a borrower is experiencing financial difficulty and the modification constitutes a concession. There are various types of
concessions when modifying a loan, however, forgiveness of principal is rarely granted by the Company. Commercial and industrial
loans modified in a TDR may involve term extensions, below market interest rates and/or interest-only payments wherein the delay
in the repayment of principal is determined to be significant when all elements of the loan and circumstances are
considered. Additional collateral, a co-borrower, or a guarantor is often required. Commercial mortgage and construction loans
modified in a TDR often involve reducing the interest rate for the remaining term of the loan, extending the maturity date at an interest
rate lower than the current market rate for new debt with similar risk, or substituting or adding a new borrower or
guarantor. Construction loans modified in a TDR may also involve extending the interest-only payment period. Residential mortgage
loans modified in a TDR are primarily comprised of loans where monthly payments are lowered to accommodate the borrowers’
financial needs. Land loans are typically structured as interest-only monthly payments with a balloon payment due at maturity. Land
loans modified in a TDR typically involve extending the balloon payment by one to three years, and providing an interest rate
concession. Home equity modifications are made infrequently and are uniquely designed to meet the specific needs of each
borrower.
Loans modified in a TDR are considered impaired loans and typically already on non-accrual status. Partial charge-offs have in some
cases already been taken against the outstanding loan balance. Loans modified in a TDR for the Company may have the financial effect
of increasing the specific allowance associated with the loan. An allowance for impaired loans that have been modified in a TDR is
measured based on the present value of expected future cash flows discounted at the loan’s effective interest rate, or the estimated
fair value of the collateral, less any selling costs, if the loan is collateral dependent. The Company’s practice is to re-appraise collateral
dependent loans every six to twelve months.
Effective January 1, 2023 the Company adopted the provision of ASU 2022-02, which eliminated the accounting for TDRs, while
expanding loan modification and vintage disclosure requirements. Prior to the adoption of ASU 2022-02, during the twelve months
ended December 31, 2022, there was a $63,000 decrease on the allowance from TDRs during the period. The Company had $87,000
in commitments to lend additional funds for loans classified as TDRs at December 31, 2022.
25
The following table presents TDRs by type as of December 31, 2022 all of which were modified due to financial stress of the borrower:
Number
of Loans
Commerci a l a nd a gri cul ture
Commerci a l rea l es tate -- owner occupi ed
Fa rml a nd
Cons umer
Tota l TDRs (1)
2
1
1
1
5
December 31, 2022
Pre-TDR
Outstanding
Recorded
Investment
Post-TDR
Outstanding
Recorded
Investment
(dol l ars i n thous ands )
$
554 $
1,080
303
137
2,074 $
$
340
1,070
295
101
1,806
(1) The peri od end ba l a nces are i ncl us i ve of a l l pa rti a l pa y-downs and
cha rge-offs s i nce the modi fi ca ti on date.
The following table presents TDRs modified or recorded during the year ended December 31, 2022.
December 31, 2022
Commerci al a nd a gri cul ture
Total
Recorded
Number
of Loans
Investment
(doll a rs i n thous a nds )
222
222
1
1
$
$
The following tables present troubled debt restructurings by accrual or nonaccrual status as of December 31, 2022:
Accrual
Status
December 31, 2022
Non-Accrual
Status
(i n thous a nds )
Total TDRs
Commerci al a nd a gri cul ture
Commerci al real es ta te -- owner occupi ed
Fa rml a nd
Cons umer
Total TDRs
$
$
118 $
1,070
295
101
1,584 $
222 $
-
-
-
222 $
340
1,070
295
101
1,806
Unfunded Commitments
The Company maintains a separate reserve for credit losses on off-balance-sheet credit exposures, including unfunded loan
commitments, which is included in other liabilities on the consolidated balance sheet. The reserve for credit losses on off-balance-
sheet credit exposures is adjusted as a provision for credit losses in the income statement. The estimate includes consideration of the
likelihood that funding will occur and an estimate of expected credit losses on commitments expected to be funded over its estimated
life, utilizing the same models and approaches for the Company's other loan portfolio segments described above, as these unfunded
commitments share similar risk characteristics as its loan portfolio segments. The Company has identified the unfunded portion of
certain lines of credit as unconditionally cancellable credit exposures, meaning the Company can cancel the unfunded commitment at
any time. No credit loss estimate is reported for off-balance-sheet credit exposures that are unconditionally cancellable by the
Company or for undrawn amounts under such arrangements that may be drawn prior to the cancellation of the arrangement.
On January 1, 2023, the Company recorded an adjustment for unfunded commitments of $609,000 for the adoption of ASC Topic 326.
For the year ended December 31, 2023, the Company recorded a reversal for credit losses for unfunded commitments of $113,000.
At December 31, 2023, the liability for credit losses on off-balance-sheet credit exposures included in other liabilities was $698,000.
26
NOTE 5 – ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
The following table presents the changes in each component of accumulated other comprehensive income (loss), net of tax, for the
twelve months ended December 31, 2023 and 2022.
Bal a nce, December 31, 2022
Cha nge i n fa i r val ue of i nves tment s ecuri ti es a va i l a bl e for s a l e, net of ta x
Recl as s i fi cati on a djus tment of net l os s from s a l e of i nves tment s ecuri ti es
avai l a bl e for s a l e i ncl uded i n i ncome, net of ta x
Unrecogni zed net a ctua ri al l os s duri ng the peri od, net of tax
Amorti za ti on of net actua ri a l l os s i ncl uded i n i ncome, net of tax
Net current peri od other comprehens i ve i ncome (l os s )
Bal a nce, December 31, 2023
Bal a nce, December 31, 2021
Cha nge i n fa i r val ue of i nves tment s ecuri ti es a va i l a bl e for s a l e, net of ta x
Unrecogni zed net a ctua ri al gai n duri ng the peri od, net of ta x
Amorti za ti on of net actua ri a l ga i n i ncl uded i n i ncome, net of ta x
Net current peri od other comprehens i ve i ncome (l os s )
Bal a nce, December 31, 2022
$
$
$
$
Investment
Securities
Defined
Benefit
Plans
(i n thous a nds )
203 $
-
(19,364) $
3,146
122
-
-
3,268
(16,096) $
-
(31)
(40)
(71)
132 $
Investment
Securities
Defined
Benefit
Plans
(i n thous a nds )
(336) $
-
483
56
539
203 $
1,343 $
(20,707)
-
-
(20,707)
(19,364) $
Total
(19,161)
3,146
122
(31)
(40)
3,197
(15,964)
Total
1,007
(20,707)
483
56
(20,168)
(19,161)
The following table presents the components of other comprehensive income for the twelve months ended December 31, 2023 and
2022. Reclassification adjustments related to losses on securities available-for-sale are included in loss on sale of investment
securities, net, in the accompanying consolidated statements of income. Reclassification adjustments related to defined benefit plans
are included in compensation and employee benefits in the accompanying consolidated statements of income.
Before Tax
Twelve Months Ended December 31, 2023
Tax Effect
Net of Tax
(i n thous a nds )
897 $
32
929
4,043 $
154
4,197
3,146
122
3,268
(39)
(51)
(90)
4,107 $
(8)
(11)
(19)
910 $
(31)
(40)
(71)
3,197
Net unrea l i zed l os s es on i nves tment s ecuri ti es :
Net unrea l i zed l os s es a ri s i ng duri ng the peri od
Recl a s s i fi ca ti on a djus tments for net l os s real i zed i n net i ncome
Net unrea l i zed l os s es on i nves tment s ecuri ti es
Defi ned benefi t pl ans :
Net unrecogni zed a ctuari a l l os s
Recl a s s i fi ca ti on a djus tment of amorti za ti on of net a ctua ri a l l os s
Net pens i on pl an l i a bi l i ty a djus tment
Other comprehens i ve i ncome (l os s )
$
$
27
Net unrea l i zed l os s es on i nves tment s ecuri ti es :
Net unrea l i zed l os s es a ri s i ng duri ng the peri od
Recl a s s i fi ca ti on a djus tments for net ga i ns rea l i zed i n net i ncome
Net unrea l i zed l os s es on i nves tment s ecuri ti es
Defi ned benefi t pl ans :
Net unrecogni zed a ctuari a l ga i n
Recl a s s i fi ca ti on a djus tment of amorti za ti on of net a ctua ri a l l os s
Net pens i on pl an l i a bi l i ty a djus tment
Other comprehens i ve i ncome (l os s )
Before Tax
Twelve Months Ended December 31, 2022
Tax Effect
Net of Tax
(i n thous a nds )
$
(26,595) $
-
(26,595)
611
71
682
(25,913) $
$
(5,888) $
-
(5,888)
128
15
143
(5,745) $
(20,707)
-
(20,707)
483
56
539
(20,168)
NOTE 6 – PREMISES AND EQUIPMENT
The components of premises and equipment at December 31, 2023 and 2022 were as follows:
La nd a nd premi s es
Equi pment, furni ture a nd fi xtures
Cons tructi on i n progres s
Les s accumul a ted depreca ti on a nd a morti za ti on
Tota l premi s es a nd equi pment
December 31,
2023
2022
(i n thous a nds )
$
$
21,118 $
10,427
104
31,649
(18,513)
13,136 $
20,535
10,030
78
30,643
(17,772)
12,871
Depreciation expense was $1.1 million for years ending December 31, 2023 and 2022.
NOTE 7 – OPERATING LEASE RIGHT-OF-USE ASSET
Future minimum payments for operating leases with initial or remaining terms of one year or more as of December 31, 2023 are as
follows:
2024
2025
2026
2027
Therea fter
$
Tota l future mi ni mum l ea s e pa yments $
Amounts repres enti ng i nteres t
Tota l opera ti ng l ea s e l i a bi l i ti es $
December 31,
2023
(i n thous ands )
683
544
386
374
972
2,959
(392)
2,567
At December 31, 2023 the weighted-average remaining lease term was 5.5 years and the weighted-average discount rate was 4.07%.
Amortization of ROU assets, short term lease cost, interest on lease liabilities and non-lease component expenses was $755,000 and
$647,000 for the years ending December 31, 2023 and 2022, respectively.
NOTE 8 – OTHER REAL ESTATE OWNED
The Company had no activity related to OREO for the years ended December 31, 2023 and 2022 and had no properties classified as
OREO at December 31, 2023 and 2022.
28
NOTE 9 – DEPOSITS
Time deposits that meet or exceed the FDIC Insurance limit of $250,000 at December 31, 2023 and 2022 were $36.5 million and $9.8
million, respectively.
The composition of deposits at December 31, 2023 and 2022 was as follows:
December 31,
2023
2022
(i n thous a nds )
Interes t-bea ri ng dema nd ("NOW") $
Money ma rket depos i ts
Sa vi ngs depos i ts
Ti me depos i ts ("CDs ")
Tota l i nteres t-bea ri ng depos i ts
Non-i nteres t bea ri ng dema nd
Tota l depos i ts
$
183,436 $
179,344
136,408
100,832
600,020
409,272
1,009,292 $
253,272
195,814
174,887
48,754
672,727
507,635
1,180,362
Scheduled maturities of CDs were as follows for future years ending December 31 (in thousands):
$
2024
2025
2026
2027
2028
Tota l
$
Maturities
71,011
24,517
3,143
1,157
1,004
100,832
NOTE 10 – BORROWINGS
Advances from the Federal Home Loan Bank
Utilizing a pledge agreement, qualifying securities and loans receivable at December 31, 2023 and 2022, were pledged as security for
Federal Home Loan Bank (FHLB) borrowings. At December 31, 2023, the Bank had no outstanding borrowings against its $260.1 million
borrowing capacity with the FHLB, as compared to no outstanding against a borrowing capacity of $195.8 million at December 31,
2022. The Bank’s borrowing facility with the FHLB is subject to collateral and stock ownership requirements.
A summary of FHLB advances as of December 31, 2023 and 2022 is as follows:
Amount outs ta ndi ng a t end of peri od
Average ba l a nce duri ng the yea r
Average i nteres t ra te duri ng the yea r(1)
$
$
(1) Fi xed ra te
December 31,
2022
2023
(dol l ars i n thous a nds )
- $
- $
-
190
2.23%
Federal Reserve Bank of San Francisco and Other Borrowings
The Bank may borrow funds on an overnight basis from the Federal Reserve Bank through the Borrower-In-Custody program. Such
borrowings are secured by a pledge of eligible loans. At December 31, 2023, the Bank had an available discount window primary credit
line with the Federal Reserve Bank of San Francisco of approximately $66.3 million with no balance outstanding. The Company did
not utilize any Federal Reserve borrowing facility, other than for operational testing, during the twelve months ended December 31,
2023.
29
At December 31, 2023, the Bank had unsecured federal funds lines of credit agreements with other financial institutions totaling $60.0
million. No balances were outstanding under these agreements as of December 31, 2023. Availability of lines is subject to continued
borrower eligibility.
NOTE 11 – JUNIOR SUBORDINATED DEBENTURES
At December 31, 2023, two wholly-owned subsidiary grantor trusts established by the Company had outstanding $13.4 million of Trust
Preferred Securities. Trust preferred securities accrue and pay distributions periodically at specified annual rates as provided in the
indentures. The trusts used the net proceeds from the offering of trust preferred securities to purchase a like amount of Junior
Subordinated Debentures (the “Debentures”) of the Company. The Debentures are the sole assets of the trusts. The Company’s
obligations under the Debentures and the related documents, taken together, constitute a full and unconditional guarantee by the
Company of the obligations of the trusts. The trust preferred securities are mandatorily redeemable upon the maturity of the
Debentures, or upon earlier redemption as provided in the indentures. The Company has the right to redeem the Debentures in whole
or in part, at a redemption price specified in the indentures plus any accrued but unpaid interest to the redemption date.
The Debentures issued by the Company to the grantor trusts totaling $13.0 million are reflected in the consolidated balance sheet in
the liabilities section under the caption “junior subordinated debentures.” The Company records interest expense on the
corresponding junior subordinated debentures in the consolidated statements of income. The Company recorded $403,000 in the
consolidated balance sheet at December 31, 2023 and 2022 for the common capital securities issued by the issuer trusts.
As of December 31, 2023 and 2022, regular accrued interest on junior subordinated debentures totaled $155,000 and $126,000,
respectively, and is included in accrued expenses and other liabilities on the consolidated balance sheet.
The terms of the junior subordinated debentures as of December 31, 2023 and 2022 are:
Maturity
Date
Ma rch
2036
Jul y
2036
Trust Name
Issue Date
Issued
Amount
(dol l a rs i n thous a nds )
Rate
Pa ci fi c Fi na nci a l Corpora ti on
December
Sta tutory Trus t I
Pa ci fi c Fi na nci a l Corpora ti on
Sta tutory Trus t II
2005
June
2006
$
5,000
7.10% (1)
8,000
13,000
$
7.26% (2)
(1) Va ri a bl e ra te of 3-month CME Term SOFR pl us 1.71%, a djus ted quaterl y
3-month SOFR 5.38% a t December 13, 2023
(1) Va ri a bl e ra te of 3-month l i bor pl us 1.45%, adjus ted quaterl y
3-month LIBOR 4.77% a t December 13, 2022
(2) Va ri a bl e ra te of 3-month CME Term SOFR pl us 1.86%, a djus ted quaterl y
3-month LIBOR 5.39% a t October 13, 2023
(2) Va ri a bl e ra te of 3-month l i bor pl us 1.60%, adjus ted quaterl y
3-month LIBOR 4.08% a t October 13, 2022
NOTE 12 – INCOME TAXES
The Company recorded an income tax provision for the twelve months ended December 31, 2023 and 2022. 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 December 31, 2023, the Company believes that it is more likely than not that it will be able to fully realize its deferred tax asset
and therefore has not recorded a valuation allowance.
The Company's provision for income taxes includes both federal and state income taxes and reflects the application of federal and
state statutory rates to the Company's income before taxes. The principal difference between statutory tax rates and the Company's
effective tax rate is the benefit derived from investing in tax-exempt securities, tax-exempt loans and bank owned life insurance.
30
Income taxes are accounted for using the asset and liability method. Under this method, a deferred tax asset or liability is determined
based on the enacted tax rates which will be in effect when the differences between the financial statement carrying amounts and tax
basis of existing assets and liabilities are expected to be reported in the Company’s income tax returns. The effect on deferred taxes
of a change in tax rates is recognized in income in the period that includes the enactment date. Valuation allowances are established
to reduce the net carrying amount of deferred tax assets if it is determined to be more likely than not that all or some portion of the
potential deferred tax asset will not be realized.
The Company applies the provisions of ASC 740, “Income Taxes”, relating to the accounting for uncertainty in income taxes. The
Company periodically reviews its income tax positions based on tax laws and regulations, and financial reporting considerations, and
records adjustments as appropriate. This review takes into consideration the status of current taxing authorities’ examinations of the
Company’s tax returns, recent positions taken by the taxing authorities on similar transactions, if any, and the overall tax environment.
The Company did not have any uncertain tax positions as of December 31, 2023.
Income taxes for the years ended December 31, 2023 and 2022 was as follows:
Current
Deferred
Tota l i ncome tax expens e
December 31,
2023
2022
(i n thous a nds )
3,661 $
(270)
3,391 $
2,252
59
2,311
$
$
The tax effects of temporary differences that give rise to significant portions of deferred tax assets and liabilities and net deferred tax
assets (liabilities) are recorded in prepaid expenses and other assets in the consolidated financial statements at December 31, 2023
and 2022 are:
Deferred Tax Assets
Al l owa nce for credi t l os s es
Deferred compens a ti on
Suppl emental executive reti rement pl an
Compens ati on expens e
Unrea l i zed l os s on s ecuri ti es a va i l abl e for s a l e
Other
Total deferred ta x a s s ets
Deferred Tax Liabilities
Depreci a tion
Loan fees /cos ts
Prepa i d expens es
Other
Total deferred ta x l i abi l i ti es
Net deferred tax assets
December 31,
2023
2022
(i n thous a nds )
2,043 $
4
663
45
4,577
223
7,555 $
1,868
7
689
64
5,506
335
8,469
199 $
2,306
272
210
2,987
4,568 $
189
2,534
245
273
3,241
5,228
$
$
$
$
31
The following is a reconciliation between the statutory and effective federal income tax rate for the years ended December 31, 2023
and 2022:
December 31,
2023
2022
Amount
3,779
43
(182)
(144)
(105)
3,391
$
$
Percent
of Pre-tax
Income
Amount
(dol l a rs i n thous a nds )
21.0% $
2,772
0.2%
-1.0%
-0.8%
-0.6%
18.8% $
95
(291)
(143)
(122)
2,311
Percent
of Pre-tax
Income
21.0%
0.7%
-2.2%
-1.1%
-0.9%
17.5%
Income tax a t s ta tutory rate
Adjus tments res ul ti ng from:
Sta te i ncome ta xes , net of federa l benefi t
Ta x-exempt i ncome
Net ea rni ngs on l i fe i ns ura nce pol i ci es
Other
Tota l i ncome ta x expens e
NOTE 13 – EMPLOYEE BENEFITS
Incentive Compensation Plan – The Bank has a plan that provides incentive compensation to key employees if the Bank meets certain
performance criteria established by the Board of Directors. The cost of this plan was $1.7 million and $1.0 million in 2023 and 2022,
respectively.
401(k) Plans – The Bank has established a 401(k) plan for those employees who meet the eligibility requirements set forth in the plan.
During any calendar year, eligible employees may contribute up to an amount of salary compensation as allowed by applicable IRS
code. Matching contributions by the Bank are at the discretion of the Board of Directors. Contributions totaled $703,000 and $743,000
for 2023 and 2022, respectively.
Director and Employee Deferred Compensation Plans – The Company has director and employee deferred compensation plans.
Under the terms of the plans, a director or employee may participate upon approval by the Board. The participant may then elect to
defer a portion of his or her earnings (directors’ fees or salary) as designated at the beginning of each plan year. Payments begin upon
retirement, termination, death or permanent disability, sale of the Company, the ten-year anniversary of the participant’s participation
date, or at the discretion of the Company. There is currently one participant receiving payments in the director and employee deferred
compensation plan. There were no deferrals or ongoing expense to the Company for these plans in 2023 and 2022. The directors of
a bank acquired by the Company in 1999 adopted two deferred compensation plans for directors. One plan provides retirement
income benefits for all directors and the other, a deferred compensation plan, covers only those directors who have chosen to
participate in the plan. At the time of adopting these plans, the Bank purchased life insurance policies on directors participating in
both plans which may be used to fund payments to them under these plans. Cash surrender values on these policies were $3.2 million
and $3.1 million at December 31, 2023 and 2022, respectively. In 2023 and 2022, the net benefit recorded from these plans, including
the cost of the related life insurance, was $121,000 and $183,000, respectively. Both of these plans were fully funded and frozen as
of September 30, 2001. Plan participants were given the option to either remain in the plan until reaching the age of 70 or to receive
a lump-sum distribution. Participants electing to remain in the plan will receive annual payments over a ten-year period upon reaching
70 years of age. The liability associated with these plans totaled $19,000 and $34,000 at December 31, 2023 and 2022, respectively.
Long-Term Compensation Agreements – The Company has long-term compensation agreements with selected employees that
provide incentive for those covered employees to remain employed with the Company for a defined period of time. A cost of $61,000
and a benefit of $42,000 was recorded for these agreements for the years ended December 31, 2023 and 2022, respectively.
Supplemental Executive Retirement Plan – Effective January 1, 2007, the Company adopted a non-qualified Supplemental Executive
Retirement Plan (“SERP”) that provides retirement benefits to key officers. The SERP is unsecured and unfunded and there are no
plan assets. The post-retirement benefit provided by the SERP is designed to supplement a participating officer’s retirement benefits
from social security, in order to provide the officer with a certain percentage of final average income at retirement age. The benefit
is generally based on average earnings, years of service and age at retirement. At the inception of the SERP, the Company recorded a
prior service cost to accumulated other comprehensive income of $704,000. The Company has purchased bank owned life insurance
covering all participants in the SERP. The cash surrender value of these policies totaled $7.5 million and $7.3 million at December 31,
2023 and 2022, respectively.
32
The following table sets forth the net periodic pension cost and obligation assumptions used in the measurement of the benefit
obligation for the years ended December 31, 2023 and 2022:
Net periodic pension cost:
Service cost
Interest cost
Amortization of net (gain) loss
Net periodic pension cost
December 31,
2023
2022
(dollars in thousands)
$
$
45 $
117
(40)
122 $
58
69
56
183
The following table sets forth the change in benefit obligation at December 31, 2023 and 2022:
Cha nge i n benefi t obl i ga ti on:
Benefi t obl i ga ti on a t the begi nni ng of yea r $
Servi ce cos t
Interes t cos t
Benefi ts pa i d
Actuari al l os s (ga i n)
Benefi t obl i ga ti on a t end of year
$
December 31,
2023
2022
(i n thous a nds )
2,428 $
45
117
(234)
31
2,387 $
3,018
58
69
(234)
(483)
2,428
Amounts recognized in accumulated other comprehensive income at December 31, 2023 and 2022 was as follows:
Gain
Prior service cost
Total recognized in AOCI
December 31,
2023
2022
(in thousands)
(132) $
-
(132) $
(203)
-
(203)
$
$
The following table summarizes the projected and accumulated benefit obligations at December 31, 2023 and 2022:
Projected benefi t obl i ga ti on
Accumul a ted benefi t obl i gati on
$
$
December 31,
2023
2022
(i n thous a nds )
2,387 $
2,387 $
2,429
2,429
Estimated future benefit payments as of December 31, 2023 were as follows (in thousands):
$
2024
2025
2026
2027
2028
2029-2033
Total $
234
234
234
234
328
1,140
2,404
33
NOTE 14 – COMMITMENTS AND CONTINGENCIES
The Bank is party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of
its customers. These financial instruments include commitments to extend credit and standby letters of credit, and involve, to varying
degrees, elements of credit risk in excess of the amount recognized on the consolidated balance sheets.
The Bank’s exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to
extend credit and standby letters of credit is represented by the contractual amount of those instruments. The Bank uses the same
credit policies in making commitments and conditional obligations as they do for on-balance-sheet instruments. A summary of the
Bank’s off-balance sheet commitments at December 31, 2023 and 2022 is as follows:
December 31,
2023
2022
Commi tments to extend credi t $
$
Sta ndby l etters of credi t
(i n thous a nds )
$
$
183,593
4,451
202,331
4,420
Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in
the contract. Many of the commitments expire without being drawn upon; therefore total commitment amounts do not necessarily
represent future cash requirements. The Bank evaluates each customer’s creditworthiness on a case-by-case basis. The amount of
collateral obtained, if deemed necessary upon extension of credit, is based on management’s credit evaluation of the customer.
Collateral held varies, but may include accounts receivable, inventory, property and equipment, residential real estate, and income-
producing commercial properties.
Standby letters of credit are conditional commitments issued by the Bank to guarantee the performance of a customer to a third party.
The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers.
Certain executive officers have entered into employment contracts with the Bank which provide for contingent payments subject to
future events.
In connection with certain loans held for sale, the Bank typically makes representations and warranties that the underlying loans
conform to specified guidelines. If the underlying loans do not conform to the specifications, the Bank may have an obligation to
repurchase the loans or indemnify the purchaser against loss. The Bank believes that the potential for loss under these arrangements
is remote. Accordingly, no contingent liability is recorded in the consolidated financial statements.
The Company is currently not party to any material pending litigation. However, because of the nature of its activities, the Company
may be subject to or threatened with legal actions in the ordinary course of business. In the opinion of management, liabilities arising
from these claims, if any, will not have a material effect on the results of operations or financial condition of the Company.
NOTE 15 – SIGNIFICANT CONCENTRATION OF CREDIT RISK
Most of the Bank’s business activity is with customers and governmental entities located in the states of Washington and Oregon.
Loans to any single borrower or group of borrowers are generally limited by state banking regulations to 20% of the Bank’s capital and
surplus, excluding accumulated other comprehensive income (loss). Standby letters of credit were granted primarily to commercial
borrowers. The Bank, as a matter of practice, generally does not extend credit to any single borrower or group of borrowers in excess
of $13.0 million.
NOTE 16 – STOCK BASED COMPENSATION
The Company’s 2021 Equity Incentive Plan, (the “2021 Equity Plan”), provides for the issuance of up to 750,000 shares in connection
with incentive and nonqualified stock options, restricted stock, restricted stock units and other equity-based awards.
34
Stock Options
The 2021 Plan authorizes the issuance of incentive and non-qualified stock options, as defined under current tax laws, to key
personnel. Options granted under the 2021 Plan either become exercisable ratably over five years or in a single installment five years
from the date of grant.
The Company uses the Black-Scholes option pricing model to calculate the fair value of stock option awards based on assumptions in
the following table. Expected volatility is based on historical volatility of the Company’s common stock. The expected term of stock
options granted is based on the simplified method, which is the simple average between contractual term and vesting period. The
risk-free rate is based on the expected term of stock options and the applicable U.S. Treasury yield in effect at the time of grant.
Grant period ended
December 31, 2023
December 31, 2022
Expected
Life
6.5 yea rs
6.5 yea rs
Risk Free
Interest
Rate
3.58%
4.18%
Expected
Stock
Price
Volatility
27.24%
27.42%
Dividend
Yield
4.82%
4.98%
Weighted
Average
Fair Value
of Options
Granted
$
1.92
$
1.93
The following tables summarize the stock option activity for the years ended December 31, 2023 and 2022:
Outs ta ndi ng at December 31, 2021
Gra nted
Exerci s ed
Forfei ted or ca ncel ed
Expi red
Outs ta ndi ng at December 31, 2022
Gra nted
Exerci s ed
Forfei ted or ca ncel ed
Expi red
Outs ta ndi ng at December 31, 2023
Weighted
Average
Exercise Price
10.42
10.45
5.11
12.47
12.69
11.25
10.81
5.14
11.82
12.05
11.18
Shares
174,150 $
5,000
(25,500)
(3,900)
(2,400)
147,350 $
86,000
(7,500)
(12,400)
(17,200)
196,250 $
Ves ted a nd exerci s a bl e a t December 31, 2023
86,450 $
11.52
Weighted
Average
Remaining
Contractual
Term
(in Years)
7.21
5.46
35
The following table summarizes nonvested stock option activity for the years ended December 31, 2023 and 2022:
Nonves ted Outs ta ndi ng a t December 31, 2021
Gra nted
Ves ted
Forfei ted
Nonves ted Outs ta ndi ng a t December 31, 2022
Gra nted
Ves ted
Forfei ted
Nonves ted Outs ta ndi ng a t December 31, 2022
Weighted
Average Grant
Date Fair
Value
1.18
1.93
1.15
1.03
1.28
1.92
1.09
1.21
1.82
Shares
78,800 $
5,000
(25,400)
(3,900)
54,500 $
86,000
(18,300)
(12,400)
109,800 $
Information related to the stock option plan during each year follows:
Intri ns i c va l ue of opti ons exerci s ed
Ca s h recei ved from opti on exerci s es
$
$
46 $
39 $
142
130
2023
2022
(i n thous a nds )
The Company accounts for stock based compensation in accordance with GAAP, which requires measurement of compensation cost
for all stock-based awards based on grant date fair value and recognition of compensation cost over the service period of each award.
The following information summarizes information about stock option compensation expense for the years ended December 31, 2023
and 2022:
Compens a ti on Expens e
Ta x Effect
Compens a ti on Expens e, net
Twelve Months Ended
December 31,
2023
2022
(i n thous a nds )
$
$
48 $
10
38 $
31
7
24
As of December 31, 2023, there was $165,000 of total unrecognized compensation cost related to stock options. The cost is expected
to be recognized over a weighted-average period of 2.42 years.
Restricted Stock Units
The Company grants restricted stock units (“RSUs”) to employees qualifying for awards under the Company’s Annual Incentive
Compensation Plan. Recipients of RSUs will be issued a specified number of shares of common stock under the 2021 Plan upon the
lapse of applicable restrictions. Outstanding RSUs are subject to forfeiture if the recipient’s employment terminates prior to
expiration.
36
The following table summarizes RSU activity during the twelve months ended December 31, 2023 and 2022:
Weighted
Average
Grant
Date Fair
Value
11.85
Shares
25,850
11,000 $
(7,100)
-
29,750
2,000 $
11.00
(11,750)
-
20,000
Outs ta ndi ng a t December 31, 2021
Granted
Ves ted
Forfei ted
Outs ta ndi ng a t December 31, 2022
Granted
Ves ted
Forfei ted
Outs ta ndi ng a t December 31, 2023
The following table summarizes RSU compensation expense during the twelve months ended December 31, 2023 and 2022:
Compens a ti on Expens e
Ta x Effect
Compens a ti on Expens e, net
$
$
Twelve Months Ended
2023
2022
(i n thous a nds )
97 $
20
77 $
119
25
94
As of December 31, 2023, there was $67,000 of total unrecognized compensation cost related to nonvested RSUs. The cost is expected
to be recognized over a weighted-average period of 1.4 years.
NOTE 17 – REGULATORY MATTERS
The Company and the Bank are subject to various regulatory capital requirements administered by the federal banking agencies.
Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by
regulators that, if undertaken, could have a material adverse effect on the Company’s consolidated financial statements. Under capital
adequacy guidelines on the regulatory framework for prompt corrective action, the Bank must meet specific capital adequacy
guidelines that involve quantitative measures of the Bank’s assets, liabilities and certain off-balance-sheet items as calculated under
regulatory accounting practices. The Bank’s capital classification is also subject to qualitative judgments by the regulators about
components, risk weightings and other factors.
Effective January 1, 2015 (with some changes transitioned into full effectiveness over two to four years), the Bank became subject to
new capital adequacy requirements approved by the Federal Reserve and the FDIC that implement the revised standards of the Basel
Committee on Banking Supervision, commonly called Basel III, and address relevant provisions of the Dodd-Frank Act. Pursuant to
minimum capital requirements of the FDIC effective on January 1, 2015, all FDIC-insured financial institutions are required to maintain
a minimum common equity Tier 1 risk-based capital to risk-weighted assets ratio of 4.5%, a minimum Tier 1 leverage ratio to average
assets of 4.0% and minimum risk-based capital ratios of Tier 1 capital to risk-weighted assets and total capital to risk-weighted assets
of 6.0% and 8.0%, respectively.
The Company is subject to the Basel III regulatory capital framework ("Basel III Capital Rules"), which includes a 2.5% capital
conservation buffer. The capital conservation buffer is designed to absorb losses during periods of economic stress and requires
increased capital levels for the purpose of capital distributions and other payments. Failure to meet the full amount of the buffer will
result in restrictions on the Company's ability to make capital distributions, which includes dividend payments, and stock repurchases
and certain discretionary bonus payments based on percentages of eligible retained income that could be utilized for such actions.
As of December 31, 2023 and 2022, the Bank was well capitalized under the regulatory framework for prompt corrective action. To
be categorized as well capitalized, the Bank must maintain minimum total risk-based, Tier 1 risk-based, and Tier 1 leverage ratios as
37
set forth in the table. There are no conditions or events since that notification that management believes have changed the
institution’s category.
Actual capital amounts and ratios for December 31, 2023 and 2022 are presented in the table below.
Actual
Minimum
Requirements
Well-Capitalized
Requirements
Amount
Ratio
Amount
Ratio
Amount
Ratio
(dol l ars i n thous ands )
As of December 31, 2023
Compa ny
Common equi ty Ti er 1 capi ta l to
ri s k-wei ghted as s ets
Ti er 1 l everage capi ta l to avera ge a s s ets
Ti er 1 ca pi tal to ri s k-wei ghted as s ets
Tota l ca pi ta l to ri s k-wei ghted a s s ets
$
Ba nk
Common equi ty Ti er 1 capi ta l to
ri s k-wei ghted as s ets
Ti er 1 l everage capi ta l to avera ge a s s ets
Ti er 1 ca pi tal to ri s k-wei ghted as s ets
Tota l ca pi ta l to ri s k-wei ghted a s s ets
As of December 31, 2022
Compa ny
Common equi ty Ti er 1 capi ta l to
ri s k-wei ghted as s ets
Ti er 1 l everage capi ta l to avera ge a s s ets
Ti er 1 ca pi tal to ri s k-wei ghted as s ets
Tota l ca pi ta l to ri s k-wei ghted a s s ets
$
Ba nk
Common equi ty Ti er 1 capi ta l to
ri s k-wei ghted as s ets
Ti er 1 l everage capi ta l to avera ge a s s ets
Ti er 1 ca pi tal to ri s k-wei ghted as s ets
Tota l ca pi ta l to ri s k-wei ghted a s s ets
117,220
130,220
130,220
139,448
129,220
129,220
129,220
138,448
108,888
121,888
121,888
130,327
121,112
121,112
121,112
129,551
14.9% $
11.3%
16.5%
17.7%
16.4%
11.2%
16.4%
17.6%
14.3% $
9.4%
16.0%
17.1%
15.9%
9.1%
15.9%
17.0%
35,402
46,096
47,353
63,027
35,457
46,150
47,276
62,931
34,265
51,867
45,708
60,972
34,277
53,236
45,703
60,965
4.5%
4.0%
6.0%
8.0%
N/A
N/A
N/A
N/A
4.5% $
4.0%
6.0%
8.0%
51,215
57,688
63,034
78,664
4.5%
4.0%
6.0%
8.0%
N/A
N/A
N/A
N/A
4.5% $
4.0%
6.0%
8.0%
49,511
66,545
60,937
76,206
N/A
N/A
N/A
N/A
6.5%
5.0%
8.0%
10.0%
N/A
N/A
N/A
N/A
6.5%
5.0%
8.0%
10.0%
NOTE 18 – FAIR VALUE MEASUREMENTS
Fair Value Hierarchy
The Company uses an established hierarchy for measuring fair value that is intended to maximize the use of observable inputs and
minimize the use of unobservable inputs. This hierarchy uses three levels of inputs to measure the fair value of assets and liabilities
as follows:
Level 1 – Valuations based on quoted prices in active exchange markets for identical assets or liabilities; also includes certain corporate
debt securities actively traded in over-the-counter markets.
Level 2 – Valuations of assets and liabilities traded in less active dealer or broker markets. Valuations include quoted prices for similar
assets and liabilities traded in the same market; quoted prices for identical or similar instruments in markets that are not active; and
model–derived valuations whose inputs are observable or whose significant value drivers are observable. Valuations may be obtained
from, or corroborated by, third-party pricing services. This category generally includes certain U.S. Government, agency and non-
agency securities, state and municipal securities, mortgage backed securities, corporate securities, and residential mortgage loans
held for sale.
38
Level 3 – Valuation based on unobservable inputs supported by little or no market activity for financial instruments whose value is
determined using pricing models, discounted cash flow methodologies, yield curves and similar techniques, as well as instruments for
which the determination of fair value requires significant management judgment or estimation. Level 3 valuations incorporate certain
assumptions and projections in determining the fair value assigned to such assets or liabilities, but in all cases are corroborated by
external data, which may include third-party pricing services.
Investment Securities Available for Sale
The Company uses an independent pricing service to assist management in determining fair values of investment securities available
for sale. This service provides pricing information by utilizing evaluated pricing models supported with market based information.
Standard inputs include benchmark yields, reported trades, broker/dealer quotes, credit ratings, bids and offers, relative credit
information and reference data from market research publications. Investment securities that are deemed to have been trading in
illiquid or inactive markets may require the use of significant unobservable inputs.
The pricing service provides quoted market prices when available. Quoted prices are not always available due to bond market
inactivity. For securities where quoted prices or market prices of similar securities are not available, fair values are calculated using
discounted cash flows. Discounted cash flows are calculated using yield curves models that incorporate loss severities, volatility, credit
spread and optionality. Additionally, the pricing service may obtain a broker quote when sufficient information is not available to
produce a valuation. Valuations and broker quotes are non-binding and do not represent quotes on which one may execute the
disposition of the assets.
The Company generally obtains one value from its primary external third-party pricing service. The Company’s third-party pricing
service has established processes for us to submit inquiries regarding quoted prices. The Company’s third-party pricing service will
review the inputs to the evaluation in light of any new market data presented by us. The Company’s third-party pricing service may
then affirm the original quoted price or may update the evaluation on a going forward basis.
Management reviews the pricing information received from the third party-pricing service through a combination of procedures that
include an evaluation of methodologies used by the pricing service, analytical reviews and performance analyses of the prices against
statistics and trends. Based on this review, management determines whether the current placement of the security in the fair value
hierarchy is appropriate or whether transfers may be warranted. As necessary, the Company compares prices received from the
pricing service to discounted cash flow models or through performing independent valuations of inputs and assumptions similar to
those used by the pricing service in order to ensure prices represent a reasonable estimate of fair value. Although the Company does
identify differences from time to time as a result of these validation procedures, the Company did not make any significant adjustments
as of December 31, 2023 or 2022.
The following table presents the balances of assets measured at fair value on a recurring basis at December 31, 2023 and 2022.
At December 31, 2023
Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Description
Fair Value
Ava i la bl e-for-s a l e s ecuri ti es :
(i n thous ands )
Col l a tera l i zed mortga ge obl i ga ti ons
$
127,484 $
- $
127,484 $
Mortga ge-ba cked s ecuri ti es
Muni ci pal s ecuri ti es
18,980
42,425
-
-
U.S. government a nd a gency obl i ga ti ons
Tota l a s s ets mea s ured at fa i r va l ue
49,236
238,125 $
$
49,236
49,236 $
18,980
41,815
-
188,279 $
-
-
610
-
610
39
At December 31, 2022
Description
Fair Value
Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Avai l a bl e-for-s a l e s ecuri ti es :
(i n thous a nds )
Col l a tera l i zed mortga ge obl i ga tions
$
101,958 $
- $
101,958 $
Mortga ge-ba cked s ecuri ti es
Muni ci pal s ecuri ti es
Corpora te debt s ecuri ti es
13,110
61,771
1,999
-
-
-
U.S. government a nd a gency obl i gati ons
Tota l a s s ets mea s ured a t fa i r val ue
47,946
226,784 $
$
47,946
47,946 $
13,110
61,131
1,999
-
178,198 $
-
-
640
-
-
640
As of December 31, 2023, the Company had one available-for-sale security classified as a Level 3 investment which consists of a non-
rated municipal bond. The valuation of this security is supported by analysis prepared by an independent third party. Their approach
to determining fair value involves using recently executed transactions and market quotations for similar securities. The security is
not rated by the rating agencies and there is no trading volume, management determined that this security should be classified as
Level 3 within the fair value hierarchy.
Transfers between level categorizations may occur due to changes in the availability of market observable inputs, which generally are
caused by changes in market conditions such as liquidity, trading volume or bid-ask spreads. Transfers between level categorizations
may also occur due to changes in the valuation source. For example, in situations where a fair value quote is not provided by the
Company’s independent third-party valuation service provider, and as a result the price is stale, the security is transferred into Level
3. There were no transfers in or out of Level 3 during the years ended December 31, 2023 and 2022.
The following table presents a reconciliation of assets that are measured at fair value on a recurring basis using significant
unobservable inputs (Level 3) during the twelve months ended December 31, 2023 and 2022, respectively.
Twelve Months Ended
December 31,
2023
2022
(i n thous ands )
Bal a nce begi nni ng of peri od
Tra ns fers i n to l evel 3
Cha nge i n FV (i ncl uded i n other comprehens i ve i ncome)
Bal a nce end of peri od
$
$
640 $
-
(30)
610 $
680
-
(40)
640
Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis
Certain assets and liabilities are measured at fair value on a nonrecurring basis after initial recognition such as loans individually
evaluated, loans held for sale and other real estate owned. The following methods were used to estimate the fair value of each such
class of financial instrument:
Loans individually evaluated (Impaired Loans prior to January 1, 2023) – The Company individually evaluates loans when a loan over
$5,000 is in nonaccrual status or, prior to 2023, when a loan had its terms restructured in a trouble-debt-restructuring (TDR). On
January 1, 2023, the Company adopted ASU 2022-02 prospectively. As a result, loans that were restructured prior to adoption are no
longer considered TDRs and are not individually evaluated.
In accordance with the provisions of the individually evaluated loan guidance, credit loss is measured on loans when it is probable that
payment of interest and principal will not be made in accordance with the contractual terms of the loan agreement. The Company has
elected to use the practical expedient to measure individually evaluated loans as collateral dependent when repayment is expected
40
to be provided substantially through the operation or sale of the collateral. The credit loss is measured as the difference between the
amortized cost basis of the loan and the fair value of the underlying collateral. The fair value of the collateral is adjusted for the
estimated cost to sell if repayment or satisfaction of a loan is dependent on the sale of the collateral. Those individually evaluated
loans not requiring an allowance represent loans for which the fair value of the expected repayments or collateral exceeds the
recorded investments in such loans. Individually evaluated loans for which an allowance is established based on the fair value of
collateral require classification in the fair value hierarchy. Collateral values are estimated using Level 3 inputs based on customized
discounting criteria.
Credit loss amounts on individually evaluated loans represent specific valuation allowance and write-downs during the period
presented that were individually evaluated for impairment based on the estimated fair value of the collateral less estimated selling
costs, excluding impaired loans fully charged-off.
Other real estate owned – OREO is initially recorded at the fair value of the property less estimated costs to sell. This amount becomes
the property’s new basis. Management considers third party appraisals in determining the fair value of particular properties. These
appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income
approach.
Adjustments are routinely made in the appraisal process by the appraisers to adjust for differences between the comparable sales and
income data available and include consideration for variations in location, size, and income production capacity of the property.
Additionally, the appraisals are periodically further adjusted by the Company based on management’s historical knowledge, changes
in business factors and changes in market conditions.
Any write-downs based on the property fair value less estimated costs to sell at the date of acquisition are charged to the allowance
for credit losses. Management periodically reviews OREO to ensure the property is carried at the lower of its new basis or fair value,
net of estimated costs to sell. Any additional write-downs based on re-evaluation of the property fair value are charged to non-interest
expense. Because of the high degree of judgment required in estimating the fair value of OREO and because of the relationship
between fair value and general economic conditions, we consider the fair value of OREO to be sensitive to changes in market
conditions.
There were no assets held at the end of December 31, 2023 that were measured at fair value on a nonrecurring basis. The following
table present the Company’s assets that were held at the end of December 31, 2022 that were measured at fair value on a nonrecurring
basis:
Description
Fair Value
Loans meas ured for i mpa i rment, net of s peci fi c res erves
Tota l a s s ets mea s ured on a nonrecurri ng ba s i s
$
$
1,316 $
1,316 $
At December 31, 2022
Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
(i n thous a nds )
- $
- $
- $
- $
1,316
1,316
The following table presents quantitative information about Level 3 inputs for financial instruments measured at fair value on a
nonrecurring basis at December 31, 2022 (dollars in thousands):
Description
Fair
Value
Valuation Technique
Significant Unobservable Inputs
Range
(Weighted
Average)
At December 31, 2022
Loa ns mea s ured for impa irment, net of s peci fi c res erves $
1,316
Income a pproa ch
Proba bil ity of defa ult, dis count ra te
3.95%, 5.12%
41
The estimated fair value of the Company’s financial instruments at December 31, 2023 and 2022 was as follows:
Fi na nci al a s s ets :
As of December 31, 2023
Fair Value Hierarchy
Level
Carrying
Value
(i n thous a nds )
Estimated
Fair Value
$
Ca s h a nd ca s h equi val ents
Other i nteres t ea rni ng depos i ts
Inves tment s ecuri ti es a va i l abl e-for-s a l e
Inves tment s ecuri ti es hel d-to-ma turi ty
Inves tment s ecuri ti es hel d-to-ma turi ty
Inves tment s ecuri ti es hel d-to-ma turi ty
Loa ns hel d-for-s a l e
Loa ns recei vabl e, net
Accrued i nteres t recei vabl e
Level 1
Level 1
See previ ous ta bl e
Level 1
Level 2
Level 3
Level 2
Level 3
Level 1
106,821 $
1,250
238,125
24,727
30,212
515
1,103
676,023
4,434
106,821
1,250
238,125
24,211
28,509
515
1,103
654,594
4,434
Fi na nci al l i a bi l i ti es :
Depos i ts
Juni or s ubordi na ted debentures
Accrued i nteres t pa ya bl e
Fi na nci al a s s ets :
Level 2
Level 3
Level 1
$ 1,009,292 $
13,403
540
1,008,028
14,023
540
As of December 31, 2022
Fair Value Hierarchy
Level
Carrying
Value
(i n thous a nds )
Estimated
Fair Value
Ca s h a nd ca s h equi val ents
Other i nteres t ea rni ng depos i ts
Inves tment s ecuri ti es a va i l abl e-for-s a l e
Inves tment s ecuri ti es hel d-to-ma turi ty
Inves tment s ecuri ti es hel d-to-ma turi ty
Inves tment s ecuri ti es hel d-to-ma turi ty
Loa ns recei vabl e, net
Accrued i nteres t recei vabl e
Level 1
Level 1
See previ ous ta bl e
Level 1
Level 2
Level 3
Level 3
Level 1
$
314,236 $
4,250
226,784
24,517
34,345
651
631,722
4,044
314,236
4,250
226,784
23,544
32,318
651
617,533
4,044
Fi na nci al l i a bi l i ti es :
Depos i ts
Juni or s ubordi na ted debentures
Accrued i nteres t pa ya bl e
Level 2
Level 3
Level 1
$ 1,180,362 $
13,403
155
1,178,435
13,785
155
NOTE 19 – SHAREHOLDERS’ EQUITY
Earnings Per Share
The Company’s basic earnings per common share is computed by dividing net income available to common shareholders (net income
less dividends declared by the weighted average number of common shares outstanding during the period). The Company’s diluted
earnings per common share is computed similar to basic earnings per common share except that the numerator is equal to net income
available to common shareholders and the denominator is increased to include the number of additional common shares that would
have been outstanding if dilutive potential common shares had been issued. Included in the denominator are the dilutive effects of
stock options and restricted stock awards computed under the treasury stock method as if converted to common stock.
42
The following table illustrates the computation of basic and diluted earnings per share:
For the Year Ended
December 31,
2023
2022
Bas i c:
Net i ncome (numera tor)
Wei ghted a vera ge s ha res outs ta ndi ng (denomi nator)
Bas i c earni ngs per s ha re
Di l uted:
Net i ncome (numera tor)
Wei ghted a vera ge s ha res outs ta ndi ng
Effect of di l uti ve s tock opti ons
Wei ghted a vera ge s ha res outs ta ndi ng a s s umi ng di l uti on (denomi nator)
Di l uted earni ngs per s ha re
$
$
$
$
Sha res s ubject to outs ta ndi ng opti ons
(dol l ars i n thous a nds ,
except per s ha re amounts )
10,888
10,396,268
1.05
10,420,431
14,605 $
1.40 $
14,605 $
10,420,431
8,756
10,429,187
1.40 $
10,888
10,396,268
27,033
10,423,301
1.04
For the Year Ended
December 31,
2023
155,500
2022
82,600
Shares subject to outstanding options had exercise prices in excess of the current market value. Those specific shares are not included
in the computation of earnings per share above, as exercise of these options would not be dilutive to shareholders.
Stock Repurchase Program
On September 21, 2023 the Board of Directors for the Company authorized the repurchase of up to $2.5 million, or approximately 2%,
of the outstanding common stock of the Company. Stock repurchases may be made from time to time on the open market or through
privately negotiated transactions. The timing of purchases and the exact number of shares to be purchased are subject to market
conditions and may be suspended as deemed appropriate.
The Company repurchased 38,500 shares, at a weighted average share price of $10.37, during the year ended December 31, 2023. No
shares were repurchased during the year ended December 31, 2022
43
NOTE 20 – CONDENSED FINANCIAL INFORMATION – PARENT COMPANY ONLY
Pacific Financial Corporation – Parent Company Only
Consolidated Statements of Financial Condition
(in thousands)
ASSETS
Ca s h a nd ca s h equi val ents :
Inves tment i n ba nk
Other a s s ets
Total a s s ets
LIABILITIES AND SHAREHOLDERS' EQUITY
Juni or s ubordi na ted debentures
Other l i abi l i ti es
Tota l l i a bi l i ti es
$
$
$
Tota l s ha rehol ders ' equi ty
Total l i a bi l i ti es a nd s ha rehol ders ' equi ty
$
December 31,
2023
December 31,
2022
582
126,692
975
128,249
13,403
155
13,558
114,691
128,249
$
$
$
$
593
115,386
711
116,690
13,403
125
13,528
103,162
116,690
Pacific Financial Corporation – Parent Company Only
Consolidated Statements of Income
(in thousands)
INTEREST EXPENSE
Juni or s ubordi na ted debentures
Total i nteres t expens e
NONINTEREST INCOME
Di vi dends from s ubs i di ary ba nk
Equi ty i n undi s tri buted i ncome from s ubs i di a ry ba nk
Other i ncome
Total noni nteres t i ncome
NONINTEREST EXPENSE
Other expens e
Total noni nteres t i ncome
Income before i ncome ta xes
Income ta x benefi t
Net i ncome
Comprehens i ve i ncome (l os s )
Twelve Months Ended
December 31,
2023
2022
$
$
$
929 $
929
7,124
8,560
32
15,716
451
451
14,336
269
14,605 $
17,802 $
460
460
6,207
5,370
11
11,588
454
454
10,674
214
10,888
(9,280)
44
Pacific Financial Corporation – Parent Company Only
Consolidated Statements of Cash Flows
(Dollars in thousands)
Twelve Months Ended
December 31,
2023
2022
$
14,605
$
10,888
(8,560)
(264)
30
145
5,956
6
(50)
(399)
(5,524)
(5,967)
(11)
593
582
$
(5,370)
(77)
88
149
5,678
83
(24)
-
(5,407)
(5,348)
330
263
593
Cash flows from operating activities:
Net Income
Adjus tments to reconci l e net i ncome to ca s h a nd ca s h
equi va l ents from operati ng a cti vi ti es
Equi ty i n undi s tri buted i ncome of s ubs i di a ry
Net change i n other a s s ets
Net change i n other l i a bi l i ti es
Stock compens ati on expens e
Net cas h provi ded by opera ti ng a cti vi ti es
Cash flows from financing activities:
Net cas h from s tock opti on exerci s es
Taxes pa i d rel a ted to net s ha re s ettl ement for equi ty a wa rds
Repurchas e of common s tock
Cas h di vi dends pai d
Net cas h us ed i n fi nanci ng a cti vi ti es
Net increa s e (decrea s e) i n ca s h and cas h equi val ents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
$
45
NOTE 21 – SELECTED DATA
Results of operations on a quarterly basis were as follows (unaudited):
Year Ended December 31, 2023
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
Interes t a nd di vi dend i ncome
Interes t expens e
Net interest income
Provis i on for l oa n l os s es
Noninteres t i ncome
Noninteres t expens e
Income before income taxes
Income tax expens e
Net income
Earnings per common share
Bas i c
Di l uted
Interes t a nd di vi dend i ncome
Interes t expens e
Net interest income
Benefi t for l oan l os s es
Noninteres t i ncome
Noninteres t expens e
Income before income taxes
Income tax expens e
Net income
Earnings per common share
Bas i c
Di l uted
$
$
$
$
$
$
$
$
(dol l ars i n thous ands , except per s ha re a mounts )
13,690 $
593
13,097
156
1,287
9,188
5,040
930
4,110 $
14,242 $
1,962
12,280
245
1,610
9,142
4,503
859
3,644 $
13,735 $
1,564
12,171
8
1,747
9,007
4,903
994
3,909 $
13,813
2,161
11,652
111
1,528
9,519
3,550
608
2,942
0.39 $
0.39 $
0.38 $
0.38 $
0.35 $
0.35 $
0.28
0.28
Year Ended December 31, 2022
First
Quarter
Third
Quarter
Second
Quarter
Fourth
Quarter
(dol l ars i n thous ands , except per s ha re a mounts )
8,526 $
238
8,288
-
2,112
8,576
1,824
167
1,657 $
11,177 $
298
10,879
-
1,692
8,950
3,621
705
2,916 $
9,097 $
253
8,844
-
1,864
8,800
1,908
310
1,598 $
13,352
417
12,935
-
1,559
8,648
5,846
1,129
4,717
0.17
0.16
$
$
0.15
0.15
$
$
0.28
0.28
$
$
0.45
0.45
46
GENERAL CORPORATE AND SHAREHOLDER INFORMATION (unaudited)
Administrative Headquarters
1216 Skyview Drive
Aberdeen, WA 98520
(360) 533-8870
Independent Auditors
CliftonLarsonAllen LLP
Transfer Agent and Registrar
Broadridge Financial Solutions, Inc.
51 Mercedes Way
Edgewood, NY 11717
www.broadridge.com
Shareholder Services
Broadridge, our transfer agent, maintains the records for our registered shareholders and can help you with a variety of shareholder
related services at no charge including:
Change of name or address Lost stock certificates
Consolidation of accounts Transfer of stock to another person
Duplicate mailings Additional administrative services
As a Pacific Financial Corporation shareholder, you are invited to take advantage of our convenient shareholder services or request
more information about Pacific Financial Corporation. Access your account directly through Client Support at www.broadridge.com.
Annual Meeting
The annual meeting of shareholders will be held via webcast on April 24th, 2024, at 10:00 AM, Pacific Time.
Annual Report
This annual report, including accompanying financial statements and schedules, is available without charge to shareholders or
beneficial owners of our common stock upon written request to Darla Johnson, Corporate Secretary, Pacific Financial Corporation,
1216 Skyview Drive, Aberdeen, Washington 98520. It is also furnished upon request to customers of Bank of the Pacific pursuant to
the requirements of the FDIC to provide an annual disclosure statement. This statement has not been reviewed or confirmed for
accuracy or relevance by the FDIC.
Subsidiaries
Bank of the Pacific
1216 Skyview Drive
Aberdeen, WA 98520
(360) 533-8870
www.bankofthepacific.com
Officers
Denise J. Portmann
President and Chief Executive Officer of the Company and the Bank
Carla Tucker
Executive Vice President and Chief Financial Officer of the Company and the Bank
Daniel E. Kuenzi
Vice President of the Company and Executive Vice President and Chief Credit Officer of the Bank
Terri McKinnis
Vice President of the Company and Executive Vice President and Chief Operating Officer of the Bank
Walker Evans
Vice President of the Company and Executive Vice President and Chief Lending Officer of the Bank
Darla Johnson
Corporate Secretary
47
Board of Directors
Randy W. Rognlin, Chairman
Co-Owner
Rognlins, Inc
Susan C. Freese
Pharmacist
Douglas M. Schermer, Vice Chairman
Owner and President
Schermer Construction Inc. & Wishkah Rock Products
Doug Biddle
Retired CFO
Pacific Financial Corporation and Bank of the Pacific
Denise Portmann
President & CEO
Pacific Financial Corporation and Bank of the Pacific
Dwayne Carter
Retired President & General Manager
Brooks Manufacturing Co.
Randy J. Rust
Private Investor
Daniel Tupper
Vice President & General Manager
Crown Distributing Co. of Aberdeen, Inc.
Kristi Gundersen
Partner & Chief Financial Officer
Knutzen Farms, LP
Benjamin Ertischek
Chief Financial Officer
EOS Worldwide
48
Your Story is Our Story
Lynden
Bellingham
(3 Locations)
Anacortes
Burlington (ATM/ITM)
Taholah
Ocean Shores
Hoquiam
Montesano
Aberdeen
Olympia
Ocean Park
Long Beach
Warrenton
Seaside
Raymond
Naselle (ATM/ITM)
Cathlamet
Vancouver
Lake Oswego
Salem
Pacific Financial Corporation | 1216 Skyview Drive | Aberdeen, WA 98520
360-533-8873 | BankofthePacific.com
NMLS #417480
Annual Report
2023