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PBCO Financial Corporation Reports Q3 2022 Earnings

PBCO Financial Corporation (OTC PINK: PBCO), the holding company (Company) of People’s Bank of Commerce (Bank), announced today its financial results for the 3rd quarter 2022.

Highlights

  • Third quarter net income of $3.0 million, or $0.59 per diluted share
  • Steelhead gross factoring revenue of $1.9 million, a 6.2% increase from Q3 2021
  • Core earnings (excluding PPP fee income) up 73.9% from Q3 2021
  • Investment securities increased $42.6 million, or 20.9%, over Q3 2021

The Company reported quarterly net income of $3.0 million, or $0.59 per diluted share, for the 3rd quarter of 2022 compared to net income of $2.7 million, or $0.53 per diluted share, in the same quarter of 2021. Earnings per share for the trailing 12 months were $2.14 per share, down from $2.28 per share for the prior twelve-month period.

Deposits decreased $12.2 million, a 1.6% decline from the prior quarter ending June 30, 2022. Over the last 12 months, deposits contracted by $12.1 million, also a decline of 1.6%. “During 3rd quarter, the Bank experienced a decrease in deposits as customers sought alternative investments at higher yields on their non-operating cash balances,” commented Joan Reukauf, Chief Operating Officer. “The Bank is in a position where it does not have to aggressively compete for high-cost deposits and some deposit runoff was expected. Although deposits declined during the quarter and year to date, the Bank continues to have excess liquidity available to fund loans and add to the investment portfolio,” added Reukauf.

“Portfolio loans were flat during the 3rd quarter of 2022, compared to 2nd quarter of 2022,” commented Julia Beattie, President. Excluding PPP loans in the portfolio as of 9/30/21, portfolio loans were up $11.4 million from the same quarter, prior year, a 2.6% increase. “Loans have been relatively flat during the year as the Bank made a conscious decision this year not to compete for loans based on historically low rates until the markets stabilize, instead focusing on high quality loan growth,” added Beattie. “These kinds of economic cycles do not favor a high growth strategy - quality and safety tend to win out as consumers and businesses adjust to the new reality.” Future reports will exclude commentary on the PPP program as it is no longer relevant to the financial statement discussion.

The investment portfolio increased $42.6 million or 20.9% from the 3rd quarter of 2021. During the most recent quarter, investments increased $1.7 million from June 30, 2022, or 0.7%, and the average life of the portfolio decreased from 5.0 to 4.6 years. With the steep rise in market rates during 2022, the Bank has limited investment purchases to short-term maturities of less than 2 years. As of September 30, 2022, the gross unrealized loss on the investment portfolio grew to $32.4 million or 11.6% of book value. Securities income was $979 thousand during the quarter, or a yield of 1.5%, versus $903 thousand or a yield of 1.4% for the 2nd quarter of 2022.

Classified assets were up modestly from the prior quarter as total loans past due or on non-accrual increased slightly, as a percentage of total loans, from the prior quarter to 0.38% versus 0.22% as of Q2 2022. During the 3rd quarter, the Allowance for Loan and Lease Losses (ALLL) was updated based on changes in loans and updated economic expectations, which were factored into the Bank’s analysis. As of September 30, 2022, the ALLL was 1.08% of portfolio loans and the unallocated reserve stood at $790 thousand or 16.3% of the ALLL.

Third quarter 2022 non-interest income totaled $3.0 million, an increase of $245 thousand from the 3rd quarter of 2021. During Q3 2022, Steelhead Finance factoring revenue increased $111 thousand, a 6.2% increase over the same quarter of 2021. Conversely, mortgage income decreased $333 thousand, or 54.1%, from the 3rd quarter of 2021, a trend that began with the rising interest rates in Q1 2022. “Today’s mortgage rates, although up significantly from a year ago, are still reasonable when compared to long-term averages,” commented Echo Hutto, SVP and Manager of the Mortgage Division for People’s Bank. “As home purchasers, home sellers and real estate professionals become more comfortable with the new rate cycle, home prices should reflect borrower’s ability to pay and activity should pick up,” added Hutto.

Non-interest expense totaled $5.5 million in the 3rd quarter, down $332 thousand from the same period in 2021. Notably, advertising expenses were the largest driver for the decrease, down $278 thousand in the 3rd quarter of 2022 versus the same period in 2021 when the Bank expensed $250 thousand in donations toward housing relief support for survivors of the 2020 Alameda Fire. Also notable was the decrease in personnel expense of $597 from the prior quarter of 2022. The Bank did not accrue for a quarterly bonus during 3rd quarter as loans and deposits have not tracked with goals established for 2022, the result of the Bank adjusting its strategy to deal with higher interest rates. Salaries and commissions were down $70 thousand and $64 thousand during 3rd quarter, respectively, due to several vacant positions and the slowdown in mortgage production noted above.

As of September 30, 2022, the Tier 1 Capital Ratio for PBCO Financial Corporation was 10.1% with total shareholder equity of $65.0 million. During the quarter, the Company was able to augment capital through earnings while assets also decreased with the decrease in deposits. The Bank’s Tier 1 Capital Ratio was 12.8% at quarter-end, up from 12.7% as of June 30, 2022. The Company also had unrealized losses on its investment portfolio, net of taxes, of $23.6 million, which is attributed to changes in market value in the current rising rate environment. The net unrealized losses in the investment portfolio resulted in the decline in Book Value Per Share and Tangible Book Value per share from prior periods. “Although the unrealized loss in the investment portfolio increased from the prior quarter with the increase in market rates during the same period, the Bank continues to maintain strong liquidity and access to multiple alternative sources of liquidity. The Bank has a very strong capital position that continues to be well above the threshold to be considered well-capitalized,” commented Lindsey Trautman, Chief Financial Officer.

“While the Company’s total assets shrank from the prior quarter, the Company continued to provide solid core earnings, which has allowed the Company to maintain a strong position given the current economic uncertainty,” commented Julia Beattie.

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 the only locally owned and managed community bank in Southern Oregon. People’s Bank of Commerce is a full-service, commercial bank headquartered in Medford, Oregon with branches in Albany, Medford, Ashland, Central Point, Grants Pass, Jacksonville, Klamath Falls, Lebanon, and Salem.

"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) 9/30/2022 6/30/2022 3/31/2022 9/30/2021
BALANCE SHEET
ASSETS
Cash and due from banks

$

14,888

 

$

14,800

 

$

13,019

 

$

4,561

 

Federal funds sold

 

-

 

 

-

 

 

-

 

 

-

 

Interest bearing deposits

 

55,770

 

 

69,980

 

 

113,055

 

 

100,429

 

Investment securities

 

246,533

 

 

244,842

 

 

249,850

 

 

203,913

 

Loans held for sale

 

894

 

 

1,333

 

 

1,549

 

 

2,802

 

Loans held for investment, net of unearned income

 

447,725

 

 

447,823

 

 

452,296

 

 

459,883

 

Total Loans, net of deferred fees and costs

 

448,619

 

 

449,156

 

 

453,845

 

 

462,685

 

Allowance for loan losses

 

(4,842

)

 

(4,767

)

 

(4,646

)

 

(4,302

)

Premises and equipment, net

 

27,286

 

 

27,657

 

 

27,979

 

 

27,567

 

Bank owned life insurance

 

14,090

 

 

13,956

 

 

13,861

 

 

13,689

 

Other Assets

 

41,173

 

 

42,081

 

 

43,186

 

 

37,070

 

Total assets

$

843,517

 

$

857,705

 

$

910,149

 

$

845,612

 

 
LIABILITIES
Deposits
Demand - non-interest bearing

$

343,708

 

$

333,985

 

$

355,358

 

$

358,013

 

Demand - interest bearing

 

111,184

 

 

101,743

 

 

98,064

 

 

100,341

 

Money market and savings

 

265,628

 

 

297,504

 

 

320,677

 

 

266,004

 

Time deposits of less than $250,000

 

13,878

 

 

15,429

 

 

21,027

 

 

22,670

 

Time deposits of more than $250,000

 

4,183

 

 

2,080

 

 

2,959

 

 

3,645

 

Total deposits

$

738,581

 

$

750,741

 

$

798,085

 

$

750,673

 

 
Borrowed funds

 

31,604

 

 

31,690

 

 

31,788

 

 

7,529

 

Other liabilities

 

8,320

 

 

8,886

 

 

8,997

 

 

9,887

 

Total liabilities

$

778,505

 

$

791,317

 

$

838,870

 

$

768,089

 

 
STOCKHOLDERS' EQUITY
Common stock

$

61,357

 

$

61,340

 

$

61,340

 

$

60,879

 

Retained earnings

 

27,303

 

 

24,309

 

 

21,864

 

 

16,489

 

Accumulated other comprehensive income,
net of tax

 

(23,648

)

 

(19,261

)

 

(11,925

)

 

155

 

Total stockholders' equity

$

65,012

 

$

66,388

 

$

71,279

 

$

77,523

 

 
Total liabilities & stockholders' equity

$

843,517

 

$

857,705

 

$

910,149

 

$

845,612

 

Consolidated Statements of Income
(Dollars in 000's) 3rd Quarter

2022
2nd Quarter

2022
1st Quarter

2022
3rd Quarter

2021
INCOME STATEMENT
INTEREST INCOME
Loans

$

5,744

 

$

5,552

 

$

5,515

 

$

6,632

 

Investments

 

979

 

 

903

 

 

864

 

 

544

 

Federal funds sold and due from banks

 

406

 

135

 

52

 

58

 

Total interest income

 

7,129

 

 

6,590

 

 

6,431

 

 

7,234

 

 
INTEREST EXPENSE
Deposits

 

244

 

 

146

 

 

162

 

 

218

 

Borrowed funds

 

276

 

 

273

 

 

66

 

 

15

 

Total interest expense

 

520

 

 

419

 

 

228

 

 

233

 

 
NET INTEREST INCOME

 

6,609

 

 

6,171

 

 

6,203

 

 

7,001

 

Provision for loan losses

 

153

 

 

113

 

 

266

 

 

347

 

Net interest income after provision for
loan losses

 

6,456

 

 

6,058

 

 

5,937

 

 

6,654

 

 
NONINTEREST INCOME
Service charges

 

132

 

 

120

 

 

115

 

 

106

 

Mortgage lending income

 

282

 

 

505

 

 

476

 

 

615

 

Steelhead finance income

 

1,896

 

 

1,984

 

 

2,001

 

 

1,785

 

Bargain purchase gain

 

-

 

 

-

 

 

-

 

 

(316

)

BOLI Income

 

101

 

 

95

 

 

96

 

 

73

 

Other non-interest income

 

571

 

 

540

 

 

580

 

 

474

 

Total noninterest income

 

2,982

 

 

3,244

 

 

3,268

 

 

2,737

 

 
NONINTEREST EXPENSE
Salaries and employee benefits

 

3,317

 

 

3,914

 

 

3,697

 

 

3,354

 

Occupancy & equipment expense

 

841

 

 

898

 

 

869

 

 

893

 

Advertising expense

 

118

 

 

113

 

 

119

 

 

396

 

Professional expenses

 

184

 

 

192

 

 

283

 

 

254

 

Data processing expense

 

262

 

 

292

 

 

244

 

 

324

 

Other operating expenses

 

730

 

 

650

 

 

805

 

 

563

 

Total noninterest expense

 

5,452

 

 

6,059

 

 

6,017

 

 

5,784

 

 
Income before taxes

 

3,986

 

 

3,243

 

 

3,188

 

 

3,608

 

Provision for income taxes

 

992

 

 

799

 

 

789

 

 

958

 

 
NET INCOME

$

2,994

 

$

2,444

 

$

2,399

 

$

2,650

 

 
Shares Outstanding End of Quarter

 

5,060,404

 

 

5,055,301

 

 

5,055,301

 

 

5,042,704

 

Average shares outstanding*

 

5,059,071

 

 

5,055,301

 

 

5,056,574

 

 

5,042,704

 

Earnings per share

$

0.59

 

$

0.48

 

$

0.47

 

$

0.53

 

*Adjusted for stock dividend 9/22/21

*Does not reflect the 5% stock dividend announced in September with a record date of October 10, 2022, to be paid on or about November 10, 2022.

**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 3rd 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.

(Dollars in 000's) 9/30/2022 6/30/2022 3/31/2022 9/30/2021
Financial Highlights
Total loans

$

448,619

 

$

449,156

 

$

453,845

 

$

462,685

 

Total deposits

$

738,581

 

$

750,741

 

$

798,085

 

$

750,673

 

Total assets

$

843,517

 

$

857,705

 

$

910,149

 

$

845,612

 

Net income

$

2,994

 

$

2,444

 

$

2,399

 

$

2,650

 

Steelhead Finance contribution, pre-tax

$

820

 

$

961

 

$

1,109

 

$

1,089

 

Mortgage contribution, pre-tax

$

(17

)

$

107

 

$

48

 

$

212

 

 
Performance Ratios
Return on average assets

 

1.38

%

 

1.11

%

 

1.10

%

 

1.27

%

Return on average equity

 

17.41

%

 

14.23

%

 

12.33

%

 

13.79

%

Net interest margin

 

3.40

%

 

3.14

%

 

3.17

%

 

3.70

%

Yield on loans

 

5.15

%

 

4.98

%

 

4.84

%

 

5.53

%

Cost of deposits

 

0.13

%

 

0.08

%

 

0.08

%

 

0.12

%

Efficiency ratio

 

56.84

%

 

64.35

%

 

63.53

%

 

59.39

%

Full-time equivalent employees

 

143

 

 

148

 

 

149

 

 

140

 

 
Capital
Leverage ratio

 

10.10

%

 

9.58

%

 

8.76

%

 

8.73

%

Common equity tier 1 ratio N/A(1) N/A(1) N/A(1) N/A(1)
Tier 1 risk based ratio N/A(1) N/A(1) N/A(1) N/A(1)
Total risk based ratio N/A(1) N/A(1) N/A(1) N/A(1)
Book value per share

$

12.85

 

$

13.13

 

$

14.10

 

$

15.37

 

Tangible book value per share

$

12.09

 

$

12.38

 

$

13.34

 

$

14.61

 

 
Asset Quality
Allowance for loan losses (ALLL)

$

4,842

 

$

4,767

 

$

5,782

 

$

4,302

 

Nonperforming loans (NPLs)

$

1,684

 

$

1,001

 

$

959

 

$

665

 

Nonperforming assets (NPAs)

$

1,970

 

$

1,287

 

$

1,245

 

$

1,443

 

Classified assets(2)

$

1,843

 

$

1,851

 

$

1,874

 

$

3,275

 

ALLL as a percentage of net loans

 

1.08

%

 

1.06

%

 

1.27

%

 

0.93

%

ALLL as a percentage of NPLs

 

288

%

 

476

%

 

603

%

 

647

%

Net charge offs (recoveries) to average loans

 

0.02

%

 

0.00

%

 

0.00

%

 

0.03

%

Net NPLs as a percentage of total loans

 

0.38

%

 

0.23

%

 

0.21

%

 

0.15

%

Nonperforming assets as a percentage of total assets

 

0.23

%

 

0.15

%

 

0.14

%

 

0.17

%

Classified Asset Ratio(3)

 

2.64

%

 

2.60

%

 

2.47

%

 

4.00

%

Past due as a percentage of total loans

 

0.38

%

 

0.22

%

 

0.21

%

 

0.18

%

 
End of period balances
Total securities and short term deposits

$

302,303

 

$

314,822

 

$

362,905

 

$

304,342

 

Total loans, net of allowance

$

443,777

 

$

444,389

 

$

449,199

 

$

458,383

 

Total earning assets

$

750,922

 

$

763,978

 

$

816,750

 

$

767,027

 

Intangible Assets

$

3,815

 

$

3,828

 

$

3,841

 

$

3,872

 

Total assets

$

843,517

 

$

857,705

 

$

910,149

 

$

845,612

 

Total noninterest bearing deposits

$

343,708

 

$

333,985

 

$

355,358

 

$

358,013

 

Total deposits

$

738,581

 

$

750,741

 

$

798,085

 

$

750,673

 

 
Average balances
Total securities and short term deposits

$

324,448

 

$

336,810

 

$

328,747

 

$

278,310

 

Total loans, net of allowance

$

445,852

 

$

445,529

 

$

450,861

 

$

465,410

 

Total earning assets

$

770,301

 

$

782,340

 

$

779,609

 

$

743,719

 

Total assets

$

866,319

 

$

880,100

 

$

870,794

 

$

834,485

 

Total noninterest bearing deposits

$

344,623

 

$

342,067

 

$

353,917

 

$

336,375

 

Total deposits

$

756,539

 

$

770,019

 

$

771,160

 

$

739,372

 

(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.

 

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