Oregon Pacific Bancorp : News Release

Florence, Ore., October 21, 2021 - Oregon Pacific Bancorp (ORPB), the holding company of Oregon Pacific Bank, today reported financial results for the third quarter ended September 30, 2021.

Third quarter highlights:

• Net income of $2.04 million; $0.29 per diluted share.
• Non-PPP loan growth of $25.8 million
• Issued $15 million in aggregate principal amount of fixed-to-floating rate subordinated notes.
• $13.5 million capital investment in Oregon Pacific Bancorp, increasing Tier 1 leverage to 9.70%.

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Net income for the third quarter was $2.0 million, or $0.29 per diluted share compared to $803 thousand, or $0.11 per diluted share for the quarter ended September 30, 2020. Third quarter net income continued to be elevated due to the processing of Paycheck Protection Program (PPP) forgiveness payments, which resulted in increased interest income due to accretion of the remaining loan origination fees at payoff. During the quarter the Bank saw outstanding PPP loans reduce to $30.1 million. Through September 30, 2021, 749 of the 752 PPP loans originated in 2020 and 267 of the 402 loans originated in 2021 were forgiven.

Period-end non-PPP loans, net of deferred loan origination fees, totaled $361.6 million, representing quarterly net growth of $25.8 million and year-to-date net growth of $49.7 million or an annualized increase of 21.30%. The growth in non-PPP loans was spread across nearly all loan categories, with the largest growth experienced in investor commercial real estate, construction, and owner-occupied commercial real estate, totaling $7.8 million, $6.9 million, and $5.1 million, respectively. The Bank continued to experience non-PPP loan demand, but pricing pressures remain strong. The effective yield on the non-PPP loan portfolio lowered to 4.49%, down from 4.63% in second quarter, primarily related to new production occurring at rates below the current effective yield of the portfolio.

"The Bank's loan growth reflects the success we have had in executing our business strategies to leverage the goodwill from originating PPP loans to our local businesses," said Ron Green, President and CEO. "Our clients continue to see value in community banking, which we believe will result in continued opportunities and long-term shareholder returns."

During the quarter the Bank saw improvement in credit metrics as classified assets reduced to $8.2 million, down from $12.6 million in second quarter. The reduction was primarily related to improved credit performance, resulting in five separate credits totaling $4.2 million moving from substandard to pass classification. The remaining classified assets on September 30, 2021, consisted of loans across several different loan types and markets, with the largest exposure being a $2.3 million owner-occupied commercial real estate loan in Roseburg. COVID modifications totaled only $3.3 million as of September 30, 2021, with only one $1.5 million individual credit on full payment deferral.

During the quarter, deposit growth slowed, but still totaled $3.5 million. Quarterly growth was partially reduced as the Bank migrated $12.8 million of additional deposits into off balance sheet products through the InterFi Network's Insured Cash Sweep (ICS) and CDARS products, bringing total off-balance sheet deposits to $106.6 million on September 30, 2021. The off-balance sheet deposits remain a source of liquidity, with the ICS deposits available on demand and the CDARs deposits had a maximum maturity of four weeks.

Third quarter 2021 noninterest income totaled $1.6 million, which represented a decrease of $183 thousand from second quarter 2021 and an increase of $255 thousand over third quarter 2020. During the third quarter trust fee income contracted to $703 thousand, down from $878 thousand during second quarter. The second quarter trust revenue contained $230 thousand of event-based transactional revenue, typically tied to liquidation of real estate due to the death of a trust client. This transactional revenue is tied to events outside of the Bank's control and it contracted to $30 thousand during third quarter, but trust management revenue increased to $673 thousand, up $25 thousand over second quarter 2021 and up $98 thousand over third quarter 2020. Below is a summary of the breakout of trust revenue.

The Bank experienced an increase in service charge revenue of $29 thousand compared to prior quarter. This increase was partially attributable to a change in the Bank's consumer account service charge structure which became effective on August 1, 2021. The Bank implemented this fee change after careful review of market-based pricing and this was the first change in account fees in more than ten years.

Noninterest expense in the third quarter totaled $4.2 million, up $47 thousand over the second quarter. The largest change occurred in the outside services category, which was primarily due to legal expenses associated with review and update to the Bank's Deferred Compensation Plan and update of the Bank's Stock Incentive Plan. The 2012 Stock Incentive plan is set to expire in February 2022 and the Bank will be presenting an updated plan for shareholder approval in the 2022 proxy. This expense totaled $33 thousand during the quarter and will not be a reoccurring expense.

On September 29, 2021, Oregon Pacific Bancorp, the holding company for Oregon Pacific Bank, completed a private placement of $15 million in aggregate principal amount of fixed-to-floating rate subordinated notes (the "Notes") to certain qualified institutional buyers and accredited investors. The Notes will initially bear interest at 3.375% per annum payable semi-annually until September 30, 2026, and thereafter pay a quarterly floating interest rate based on the then-current Three-Month Term Secured Overnight Financing Rate (SOFR) plus 266 basis points, payable quarterly in arrears. Beginning on September 30, 2026, the Notes may be redeemed, in whole or in part, at the Company's option. The Notes will mature on September 30, 2031. Included in the proceeds from the debenture were various expenses, including commission, legal expenses, and various filing and paying agent expenses. The total of the issuance cost was $508 thousand and will be amortized over the life of the debt as an increase to interest expense.

Subsequent to the subordinated debt issuance, Oregon Bancorp made a capital investment in Oregon Pacific Bank totaling $13.5 million. This capital injection qualified as Tier 1 capital at the Bank and helped to increase the tier 1 leverage ratio as of September 30, 2021, to 9.70%, up from 7.45% as of June 30, 2021.

Forward-Looking Statement Safe Harbor

This release contains "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995 ("PSLRA"). These statements can be identified by the fact that they do not relate strictly to historical or current facts. Forward-looking statements often use words such as "anticipates," "targets," "expects," "estimates," "intends," "plans," "goals," "believes" and other similar expressions or future or conditional verbs such as "will," "should," "would" and "could." The forward-looking statements made represent Oregon Pacific Bank's current estimates, projections, expectations, plans or forecasts of its future results and revenues, including but not limited to statements about performance, loan or deposit growth, loan prepayments, investment purchases, strategic focus, capital position, liquidity, credit quality, special asset liquidation, noninterest expense and credit quality trends. These statements are not guarantees of future results or performance and involve certain risks, uncertainties and assumptions that are difficult to predict and are often beyond Oregon Pacific Bank's control. Actual outcomes and results may differ materially from those expressed in, or implied by, any of these forward-looking statements. You should not place undue reliance on any forward-looking statement and should consider all of the following uncertainties and risks. Oregon Pacific Bancorp undertakes no obligation to publicly revise or update any forward-looking statement to reflect the impact of events or circumstances that arise after the date of this release. This statement is included for the express purpose of invoking the PSLRA's safe harbor provisions.