PBCO Financial Corporation Reports Q4 and 2022 Earnings

MEDFORD, Ore.–(BUSINESS WIRE)–PBCO Financial Corporation (OTC PINK: PBCO), the holding company (Company) of People’s Bank of Commerce (Bank), announced today its financial results for the fourth quarter of 2022 and for year-end 2022.

Highlights

• Net income of $2.0 million in the quarter, or $0.38 per diluted share
• Loan growth of $27.3 million in the quarter, an increase of 6.1{797b2db22838fb4c5c6528cb4bf0d5060811ff68c73c9b00453f5f3f4ad9306b} compared to Q3 2022
• Net interest margin of 3.74{797b2db22838fb4c5c6528cb4bf0d5060811ff68c73c9b00453f5f3f4ad9306b}, an increase of 34 basis points compared to Q3 2022
• Cost of deposits was 0.16{797b2db22838fb4c5c6528cb4bf0d5060811ff68c73c9b00453f5f3f4ad9306b}, an increase of 3 basis points compared to Q3 2022
• Hired team of commercial bankers in Eugene, Oregon
• Net income of $9.9 million for 2022 year-end, or $1.92 per diluted share

The Company reported net income of $2.0 million, or $0.38 per diluted share, for the fourth quarter of 2022 compared to net income of $3.0 million, or $0.56 per diluted share, in the same quarter of 2021. Earnings for the full year 2022 were $9.9 million or $1.92 per share, down from $11.5 million or $2.33 per share for 2021. The reduction in earnings in 2022 is due to lower mortgage income of $1.7 million and absence of PPP fee revenue, which was $4.7 million in 2021, coupled with one-time income and expenses related to the merger with Willamette Community Bank in March 2021.

“Despite a challenging operating environment in 2022, the Company proved resilient with strong profitability in fourth quarter and full year 2022,” commented Ken Trautman, Chief Executive Officer. “Further, we continue to identify opportunities to grow the Bank and remain focused on serving our customers and delivering strong financial results for shareholders. We recently hired a team of commercial bankers to lead our expansion into Eugene, Oregon, and believe we are well positioned to take advantage of growth opportunities in this market.

Deposits decreased $45.8 million in the quarter, a 6.2{797b2db22838fb4c5c6528cb4bf0d5060811ff68c73c9b00453f5f3f4ad9306b} decline from the third quarter of 2022. Over the last twelve months, deposits decreased $71.4 million, a decline of 9.3{797b2db22838fb4c5c6528cb4bf0d5060811ff68c73c9b00453f5f3f4ad9306b}. “A core strength of the Bank is the deposit mix with non-interest bearing balances accounting for 47{797b2db22838fb4c5c6528cb4bf0d5060811ff68c73c9b00453f5f3f4ad9306b} of total deposits at year-end,” commented Joan Reukauf, Chief Operating Officer. “We maintained a low cost of deposits at 0.16{797b2db22838fb4c5c6528cb4bf0d5060811ff68c73c9b00453f5f3f4ad9306b} for the fourth quarter, but total deposit balances declined in the quarter as some customers sought higher yielding rates in alternative investments.”

Loans increased $27.3 million in the quarter, or 6.1{797b2db22838fb4c5c6528cb4bf0d5060811ff68c73c9b00453f5f3f4ad9306b} growth compared to the third quarter of 2022. “We saw higher loan growth in fourth quarter than prior quarters in the year, as we remain focused on quality loan production at attractive rates,” commented Julia Beattie, President. “The Bank had relatively muted loan growth in the first nine months of the year due to our decision to remain disciplined when loans were at historically low interest rates.”

The investment portfolio decreased $5.3 million or 2.2{797b2db22838fb4c5c6528cb4bf0d5060811ff68c73c9b00453f5f3f4ad9306b} from the fourth quarter of 2021. During the most recent quarter, investments decreased $10.2 million from the third quarter of 2022, or 4.2{797b2db22838fb4c5c6528cb4bf0d5060811ff68c73c9b00453f5f3f4ad9306b}, and the average life of the portfolio remained at 4.6 years as short-term investments matured and were not replaced. Securities income was $1.06 million during the quarter, a yield of 1.7{797b2db22838fb4c5c6528cb4bf0d5060811ff68c73c9b00453f5f3f4ad9306b}, versus $979 thousand or a yield of 1.5{797b2db22838fb4c5c6528cb4bf0d5060811ff68c73c9b00453f5f3f4ad9306b} for the third quarter of 2022.

Non-performing assets increased in Q4 as total loans past due or on non-accrual increased to 0.56{797b2db22838fb4c5c6528cb4bf0d5060811ff68c73c9b00453f5f3f4ad9306b}, as a percentage of total loans, versus 0.38{797b2db22838fb4c5c6528cb4bf0d5060811ff68c73c9b00453f5f3f4ad9306b} as of Q3 2022. “The Bank’s overall asset quality remains strong, but we did see an increase in non-performing assets for the quarter. This increase was due to a hospitality credit that has not fully recovered from the pandemic shutdown,” noted Bill Whalen, Chief Credit Officer. During the fourth quarter, the Allowance for Loan and Lease Losses (ALLL) increased by $348 thousand due to new loan growth as well as net charges offs of $56 thousand during the quarter. As of December 31, 2022, the ALLL was 1.09{797b2db22838fb4c5c6528cb4bf0d5060811ff68c73c9b00453f5f3f4ad9306b} of portfolio loans and the unallocated reserve stood at $839 thousand or 16.2{797b2db22838fb4c5c6528cb4bf0d5060811ff68c73c9b00453f5f3f4ad9306b} of the ALLL.

Fourth quarter 2022 non-interest income totaled $2.4 million, a decrease of $583 thousand from the third quarter of 2022. During Q4 2022, Steelhead Finance factoring revenue decreased $341 thousand, an 18.0{797b2db22838fb4c5c6528cb4bf0d5060811ff68c73c9b00453f5f3f4ad9306b} decrease from the prior quarter, while increasing $774 thousand year-over-year, or 11.6{797b2db22838fb4c5c6528cb4bf0d5060811ff68c73c9b00453f5f3f4ad9306b}. “A majority of revenue generated by Steelhead Finance comes from our factoring partnerships in the freight industry,” commented Bill Stewart, Steelhead Division President. “The spot market freight surge, which yielded record freight margins in 2021 and into 2022, came to an end in the fourth quarter of 2022 and has returned to a more normalized level as reflected in Q4 revenue,” added Stewart. Increased mortgage rates in 2022 led to a significant decrease in mortgage production, and consequently, mortgage income decreased $136 thousand, or 48.2{797b2db22838fb4c5c6528cb4bf0d5060811ff68c73c9b00453f5f3f4ad9306b}, from the third quarter of 2022 and decreased $1.7 million, or 54.9{797b2db22838fb4c5c6528cb4bf0d5060811ff68c73c9b00453f5f3f4ad9306b}, for full year compared to 2021. Additionally, the Bank had a non-recurring one-time bargain purchase gain of $1.7 million from its merger with Willamette Community Bank in March of 2021 that inflated non-interest income during 2021.

Non-interest expense totaled $6.2 million in the fourth quarter, up $699 thousand from the previous quarter. The primary reason for the increase in expense was attributed to salaries and personnel benefits due to an accrual adjustment. On an annual basis, salaries and benefits were up $1.2 million, a 9.1{797b2db22838fb4c5c6528cb4bf0d5060811ff68c73c9b00453f5f3f4ad9306b} increase over 2021. Advertising expense was down $1.0 million compared to prior year as the Bank made a one-time donation in 2021 to provide housing relief for the survivors of the 2020 Alameda Fire in Jackson County. In addition, the Bank incurred one-time merger related expenses of $2.5 million during 2021.

As of December 31, 2022, the Tier 1 Capital Ratio for PBCO Financial Corporation was 10.92{797b2db22838fb4c5c6528cb4bf0d5060811ff68c73c9b00453f5f3f4ad9306b} with total shareholder equity of $68.4 million. During the quarter, the Company was able to augment capital through earnings while assets also decreased due to lower deposit balances. The Tier 1 Capital Ratio for the Bank was 12.55{797b2db22838fb4c5c6528cb4bf0d5060811ff68c73c9b00453f5f3f4ad9306b} at quarter-end, down from 12.84{797b2db22838fb4c5c6528cb4bf0d5060811ff68c73c9b00453f5f3f4ad9306b} as of September 30, 2022. The Company had unrealized losses on its investment portfolio, net of taxes, of $22.7 million down from $23.6 million the prior quarter. “The Bank has a very strong capital position that continues to be well above the threshold to be considered well-capitalized, which was augmented by a successful sub debt offering in March of 2022 totaling $25 million,” commented Lindsey Trautman, Chief Financial Officer.

About PBCO Financial Corporation

PBCO Financial Corporation’s stock trades on the over-the-counter market under the symbol PBCO. Additional information about the Company is available in the investor section of the Company’s website at: www.peoplesbank.bank.

Founded in 1998, People’s Bank of Commerce is a full-service, commercial bank headquartered in Medford, Oregon with branches in Albany, Ashland, Central Point, Grants Pass, Jacksonville, Klamath Falls, Lebanon, Medford, and Salem, with a loan production office in Eugene.

“Safe Harbor” Statement under the Private Securities Litigation Reform Act of 1995:

This release includes forward-looking statements intended to qualify for the safe harbor from liability established by the Private Securities Litigation Reform Act of 1995. These forward-looking statements generally can be identified by phrases such as People’s Bank or its management “believes,” “expects,” “anticipates,” “foresees,” “forecasts,” “estimates” or other words or phrases of similar import. Similarly, statements herein that describe People’s Bank’s business strategy, outlook, objectives, plans, intentions or goals also are forward-looking statements. All such forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those in forward-looking statements.

Consolidated Balance Sheets
(Dollars in 000’s)	12/31/2022			9/30/2022			6/30/2022			12/31/2021
BALANCE SHEET
ASSETS
Cash and due from banks	$	5,514		$	14,888		$	14,800		$	5,194
Federal funds sold		–			–			–			–
Interest bearing deposits		10,869			55,770			69,980			77,643
Investment securities		236,284			246,533			244,842			241,564
Loans held for sale		628			894			1,333			1,408
Loans held for investment, net of unearned income		475,024			447,725			447,823			457,224
Total Loans, net of deferred fees and costs		475,652			448,619			449,156			458,632
Allowance for loan losses		(5,190	)		(4,842	)		(4,767	)		(4,376	)
Premises and equipment, net		27,888			27,286			27,657			27,304
Bank owned life insurance		14,179			14,090			13,956			13,759
Other Assets		38,098			41,173			42,081			39,877
Total assets	$	803,294		$	843,517		$	857,705		$	859,597
LIABILITIES
Deposits
Demand – non-interest bearing	$	322,809		$	343,708		$	333,985		$	350,424
Demand – interest bearing		108,972			111,184			101,743			113,154
Money market and savings		244,282			265,628			297,504			276,264
Time deposits of less than $250,000		12,626			13,878			15,429			21,140
Time deposits of more than $250,000		4,106			4,183			2,080			3,247
Total deposits	$	692,795		$	738,581		$	750,741		$	764,229
Borrowed funds		34,449			31,604			31,690			7,437
Other liabilities		7,639			8,320			8,886			8,866
Total liabilities	$	734,883		$	778,505		$	791,317		$	780,532
STOCKHOLDERS’ EQUITY
Common stock, surplus & retained earnings	$	91,133		$	88,660		$	85,649		$	80,805
Accumulated other comprehensive income, net of tax		(22,722	)		(23,648	)		(19,261	)		(1,740	)
Total stockholders’ equity	$	68,411		$	65,012		$	66,388		$	79,065
Total liabilities & stockholders’ equity	$	803,294		$	843,517		$	857,705		$	859,597
**As a result of the PBCO Financial Corporation reorganization and merger effective February 28, 2022, the current and prior quarter financial discussion and summary balance sheet and income statement in this release reflect PBCO Financial Corporation on a consolidated basis, while the comparative prior period for fourth quarter 2021 reflects People’s Bank of Commerce results only. As the results of operations presented are substantially from the performance of People’s Bank of Commerce, management believes there is not a material difference related to disclosing the current and comparative results as presented.

Consolidated Statements of Income
(Dollars in 000’s)	4th Quarter 2022			3rd Quarter 2022			2nd Quarter 2022			4th Quarter 2021
INCOME STATEMENT
INTEREST INCOME
Loans	$	6,042		$	5,744		$	5,552		$	5,974
Investments		1,057			979			903			724
Federal funds sold and due from banks		366			406			135			44
Total interest income		7,465			7,129			6,590			6,742
INTEREST EXPENSE
Deposits		281			244			146			197
Borrowed funds		276			276			273			15
Total interest expense		557			520			419			212
NET INTEREST INCOME		6,908			6,609			6,171			6,530
Provision for loan losses		403			153			113			139
Net interest income after provision for loan losses		6,505			6,456			6,058			6,391
NONINTEREST INCOME
Service charges		122			132			120			117
Mortgage lending income		146			282			505			472
Steelhead finance income		1,555			1,896			1,984			1,984
Bargain purchase gain		–			–			–			(316	)
BOLI Income		87			101			95			72
Other non-interest income		489			571			540			585
Total noninterest income		2,399			2,982			3,244			2,914
NONINTEREST EXPENSE
Salaries and employee benefits		3,868			3,317			3,914			3,416
Occupancy & equipment expense		690			841			898			924
Advertising expense		113			118			113			295
Professional expenses		358			184			192			213
Data processing expense		446			262			292			(197	)
Other operating expenses		676			730			650			699
Total noninterest expense		6,151			5,452			6,059			5,350
Income before taxes		2,753			3,986			3,243			3,955
Provision for income taxes		733			992			799			978
NET INCOME	$	2,020		$	2,994		$	2,444		$	2,977
Shares Outstanding End of Quarter		5,325,035			5,313,424			5,308,066			5,310,072
Average shares outstanding*		5,317,065			5,312,025			5,308,066			5,299,917
Earnings per share	$	0.38		$	0.56		$	0.46		$	0.56
*Adjusted for stock dividend 11/10/22

(Dollars in 000’s)	12/31/2022			9/30/2022			6/30/2022			12/31/2021
Financial Highlights
Total loans	$	475,652		$	448,619		$	449,156		$	458,632
Total deposits	$	692,795		$	738,581		$	750,741		$	764,229
Total assets	$	803,294		$	843,517		$	857,705		$	859,597
Net income	$	2,020		$	2,994		$	2,444		$	2,977
Steelhead Finance contribution, pre-tax	$	454		$	820		$	961		$	1,116
Mortgage contribution, pre-tax	$	(111	)	$	(17	)	$	107		$	(8	)
Performance Ratios
Return on average assets		0.98	{797b2db22838fb4c5c6528cb4bf0d5060811ff68c73c9b00453f5f3f4ad9306b}		1.38	{797b2db22838fb4c5c6528cb4bf0d5060811ff68c73c9b00453f5f3f4ad9306b}		1.11	{797b2db22838fb4c5c6528cb4bf0d5060811ff68c73c9b00453f5f3f4ad9306b}		1.40	{797b2db22838fb4c5c6528cb4bf0d5060811ff68c73c9b00453f5f3f4ad9306b}
Return on average equity		12.34	{797b2db22838fb4c5c6528cb4bf0d5060811ff68c73c9b00453f5f3f4ad9306b}		17.41	{797b2db22838fb4c5c6528cb4bf0d5060811ff68c73c9b00453f5f3f4ad9306b}		14.23	{797b2db22838fb4c5c6528cb4bf0d5060811ff68c73c9b00453f5f3f4ad9306b}		15.32	{797b2db22838fb4c5c6528cb4bf0d5060811ff68c73c9b00453f5f3f4ad9306b}
Net interest margin		3.74	{797b2db22838fb4c5c6528cb4bf0d5060811ff68c73c9b00453f5f3f4ad9306b}		3.40	{797b2db22838fb4c5c6528cb4bf0d5060811ff68c73c9b00453f5f3f4ad9306b}		3.14	{797b2db22838fb4c5c6528cb4bf0d5060811ff68c73c9b00453f5f3f4ad9306b}		3.46	{797b2db22838fb4c5c6528cb4bf0d5060811ff68c73c9b00453f5f3f4ad9306b}
Yield on loans		5.34	{797b2db22838fb4c5c6528cb4bf0d5060811ff68c73c9b00453f5f3f4ad9306b}		5.15	{797b2db22838fb4c5c6528cb4bf0d5060811ff68c73c9b00453f5f3f4ad9306b}		4.98	{797b2db22838fb4c5c6528cb4bf0d5060811ff68c73c9b00453f5f3f4ad9306b}		5.15	{797b2db22838fb4c5c6528cb4bf0d5060811ff68c73c9b00453f5f3f4ad9306b}
Cost of deposits		0.16	{797b2db22838fb4c5c6528cb4bf0d5060811ff68c73c9b00453f5f3f4ad9306b}		0.13	{797b2db22838fb4c5c6528cb4bf0d5060811ff68c73c9b00453f5f3f4ad9306b}		0.08	{797b2db22838fb4c5c6528cb4bf0d5060811ff68c73c9b00453f5f3f4ad9306b}		0.10	{797b2db22838fb4c5c6528cb4bf0d5060811ff68c73c9b00453f5f3f4ad9306b}
Efficiency ratio		66.09	{797b2db22838fb4c5c6528cb4bf0d5060811ff68c73c9b00453f5f3f4ad9306b}		56.84	{797b2db22838fb4c5c6528cb4bf0d5060811ff68c73c9b00453f5f3f4ad9306b}		64.35	{797b2db22838fb4c5c6528cb4bf0d5060811ff68c73c9b00453f5f3f4ad9306b}		56.65	{797b2db22838fb4c5c6528cb4bf0d5060811ff68c73c9b00453f5f3f4ad9306b}
Full-time equivalent employees		146			143			148			140
Capital
Leverage ratio		10.92	{797b2db22838fb4c5c6528cb4bf0d5060811ff68c73c9b00453f5f3f4ad9306b}		10.10	{797b2db22838fb4c5c6528cb4bf0d5060811ff68c73c9b00453f5f3f4ad9306b}		9.58	{797b2db22838fb4c5c6528cb4bf0d5060811ff68c73c9b00453f5f3f4ad9306b}		8.99	{797b2db22838fb4c5c6528cb4bf0d5060811ff68c73c9b00453f5f3f4ad9306b}
Bank Leverage Ratio		12.55	{797b2db22838fb4c5c6528cb4bf0d5060811ff68c73c9b00453f5f3f4ad9306b}		12.84	{797b2db22838fb4c5c6528cb4bf0d5060811ff68c73c9b00453f5f3f4ad9306b}		12.71	{797b2db22838fb4c5c6528cb4bf0d5060811ff68c73c9b00453f5f3f4ad9306b}		8.99	{797b2db22838fb4c5c6528cb4bf0d5060811ff68c73c9b00453f5f3f4ad9306b}
Book value per share	$	12.85		$	12.24		$	12.51		$	14.89
Tangible book value per share	$	12.13		$	11.52		$	11.79		$	14.16
Asset Quality
Allowance for loan losses (ALLL)	$	5,190		$	4,842		$	5,782		$	4,376
Nonperforming loans (NPLs)	$	2,653		$	1,684		$	1,001		$	703
Nonperforming assets (NPAs)	$	2,939		$	1,970		$	1,287		$	1,245
Classified assets(2)	$	5,132		$	1,843		$	1,851		$	2,949
ALLL as a percentage of net loans		1.09	{797b2db22838fb4c5c6528cb4bf0d5060811ff68c73c9b00453f5f3f4ad9306b}		1.08	{797b2db22838fb4c5c6528cb4bf0d5060811ff68c73c9b00453f5f3f4ad9306b}		1.29	{797b2db22838fb4c5c6528cb4bf0d5060811ff68c73c9b00453f5f3f4ad9306b}		0.95	{797b2db22838fb4c5c6528cb4bf0d5060811ff68c73c9b00453f5f3f4ad9306b}
ALLL as a percentage of NPLs		196	{797b2db22838fb4c5c6528cb4bf0d5060811ff68c73c9b00453f5f3f4ad9306b}		288	{797b2db22838fb4c5c6528cb4bf0d5060811ff68c73c9b00453f5f3f4ad9306b}		578	{797b2db22838fb4c5c6528cb4bf0d5060811ff68c73c9b00453f5f3f4ad9306b}		622	{797b2db22838fb4c5c6528cb4bf0d5060811ff68c73c9b00453f5f3f4ad9306b}
Net charge offs (recoveries) to average loans		0.03	{797b2db22838fb4c5c6528cb4bf0d5060811ff68c73c9b00453f5f3f4ad9306b}		0.02	{797b2db22838fb4c5c6528cb4bf0d5060811ff68c73c9b00453f5f3f4ad9306b}		0.00	{797b2db22838fb4c5c6528cb4bf0d5060811ff68c73c9b00453f5f3f4ad9306b}		-0.15	{797b2db22838fb4c5c6528cb4bf0d5060811ff68c73c9b00453f5f3f4ad9306b}
Net NPLs as a percentage of total loans		0.56	{797b2db22838fb4c5c6528cb4bf0d5060811ff68c73c9b00453f5f3f4ad9306b}		0.38	{797b2db22838fb4c5c6528cb4bf0d5060811ff68c73c9b00453f5f3f4ad9306b}		0.23	{797b2db22838fb4c5c6528cb4bf0d5060811ff68c73c9b00453f5f3f4ad9306b}		0.15	{797b2db22838fb4c5c6528cb4bf0d5060811ff68c73c9b00453f5f3f4ad9306b}
Nonperforming assets as a percentage of total assets		0.37	{797b2db22838fb4c5c6528cb4bf0d5060811ff68c73c9b00453f5f3f4ad9306b}		0.23	{797b2db22838fb4c5c6528cb4bf0d5060811ff68c73c9b00453f5f3f4ad9306b}		0.15	{797b2db22838fb4c5c6528cb4bf0d5060811ff68c73c9b00453f5f3f4ad9306b}		0.14	{797b2db22838fb4c5c6528cb4bf0d5060811ff68c73c9b00453f5f3f4ad9306b}
Classified Asset Ratio(3)		6.97	{797b2db22838fb4c5c6528cb4bf0d5060811ff68c73c9b00453f5f3f4ad9306b}		2.64	{797b2db22838fb4c5c6528cb4bf0d5060811ff68c73c9b00453f5f3f4ad9306b}		2.60	{797b2db22838fb4c5c6528cb4bf0d5060811ff68c73c9b00453f5f3f4ad9306b}		3.53	{797b2db22838fb4c5c6528cb4bf0d5060811ff68c73c9b00453f5f3f4ad9306b}
Past due as a percentage of total loans		0.56	{797b2db22838fb4c5c6528cb4bf0d5060811ff68c73c9b00453f5f3f4ad9306b}		0.38	{797b2db22838fb4c5c6528cb4bf0d5060811ff68c73c9b00453f5f3f4ad9306b}		0.22	{797b2db22838fb4c5c6528cb4bf0d5060811ff68c73c9b00453f5f3f4ad9306b}		0.15	{797b2db22838fb4c5c6528cb4bf0d5060811ff68c73c9b00453f5f3f4ad9306b}
End of period balances
Total securities and short term deposits	$	247,153		$	302,303		$	314,822		$	319,207
Total loans, net of allowance	$	470,462		$	443,777		$	444,389		$	454,256
Total earning assets	$	722,805		$	750,922		$	763,978		$	777,839
Intangible Assets	$	3,802		$	3,815		$	3,828		$	3,854
Total assets	$	803,294		$	843,517		$	857,705		$	859,597
Total noninterest bearing deposits	$	322,809		$	343,708		$	333,985		$	350,424
Total deposits	$	692,795		$	738,581		$	750,741		$	764,229
Average balances
Total securities and short term deposits	$	280,254		$	324,448		$	336,810		$	301,297
Total loans, net of allowance	$	452,921		$	445,852		$	445,529		$	449,826
Total earning assets	$	733,175		$	770,301		$	782,340		$	751,123
Total assets	$	828,608		$	866,319		$	880,100		$	848,239
Total noninterest bearing deposits	$	338,418		$	344,623		$	342,067		$	356,832
Total deposits	$	722,840		$	756,539		$	770,019		$	752,255

(1)		Effective March 31, 2020, People’s Bank of Commerce opted into the Community Bank Leverage Ratio and is no longer calculating risk based capital ratios.
(2)		Classified assets are defined as the sum of all loan-related contingent liabilities and loans internally graded substandard or worse, impaired loans (net of government guarantees), adversely classified securities, and other real estate owned.
(3)		Classified asset ratio is defined as the sum of all loan related contingent liabilities and loans internally graded substandard or worse, impaired loans (net of government guarantees), adversely classified securities, and other real estate owned, divided by bank Tier 1 capital, plus the allowance for loan losses.