PBCO Financial Corporation Reports Q1 2023 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 first quarter of 2023.

Highlights

  • Net income of $1.7 million in the quarter, or $0.31 per diluted share
  • Loan growth of $13.0 million in the quarter, an increase of 2.74% compared to Q4 2022
  • Net interest margin of 3.49%, a decrease of 0.25% compared to Q4 2022
  • Cost of deposits was 44 basis points, an increase of 28 basis points when compared to Q4 2022
  • Opened a full-service branch in Eugene, Oregon

The Company reported net income of $1.7 million, or $0.31 per diluted share, for the first quarter of 2023 compared to net income of $2.4 million, or $0.45 per diluted share, in the same quarter of 2022. The reduction in earnings for the first quarter is primarily due to the rising cost of deposits as depositors sought higher yields and reduced mortgage lending and Steelhead revenue due to inflationary pressures.

“Despite higher funding costs and increased competition for deposits as liquidity left the banking system, the bank is well positioned with a strong core deposit base and capital to support future growth and economic challenges,” commented Ken Trautman, Chief Executive Officer. “The bank recently opened a new branch in Eugene as part of its strategic growth initiative,” added Trautman. “The banking industry is resilient, and in spite of recent challenges, remains strong overall versus the last economic downturn.”

Deposits decreased $19.1 million during the quarter, a 2.8% decline from the fourth quarter of 2022. Over the last twelve months, deposits decreased $124.4 million, a decline of 15.6%. “The deposit outflow over the last year was expected considering the large deposit inflow as a result of government stimulus during the COVID-19 Pandemic,” commented Joan Reukauf, Chief Operating Officer. “Competition for deposits increased as the government began its quantitative tightening initiative in 2022, in combination with steep Fed Funds rate increases to combat persistent inflation, which incented depositors to seek higher yields on their liquid balances.”

Loans increased $13.0 million in the quarter, or 2.7% growth compared to the fourth quarter of 2022. “The bank continued to grow its loan portfolio during first quarter, with demand for loans staying strong in spite of significantly higher borrowing costs than the same period last year,” commented Julia Beattie, President.

The investment portfolio decreased to $234.6 million in Q1 2023 from $236.3 million at the end of Q4 2022, a 0.7% decrease. The average life of the portfolio decreased to 4.5 years from 4.6 years during the quarter as short-term investments matured and were not replaced. Securities income was $1.04 million during the quarter, a yield of 1.76%, versus $1.06 million or a yield of 1.79% for the fourth quarter of 2022. “The bank’s investment portfolio is classified as available-for-sale, meaning there are no undisclosed, unrealized losses that could negatively impact the bank,” noted Lindsey Trautman, Chief Financial Officer. “While rising interest rates have negatively impacted the market value of our investment portfolio, the bank continues to be well-capitalized when considering the impact on capital of the unrealized loss,” added Trautman. As of March 31, 2023, the net after tax unrealized loss on the investment portfolio was $18.9 million versus $22.7 million as of December 31, 2022. Highly rated government agency and government sponsored agency investments comprise 94.8% of the investment portfolio with the balance of approximately 4.5% held in municipal investments and 0.7% held in corporate sub-debt issued by community banks. As of Q1 2023, liquid assets to total assets were 24.0%, including the market value of the investment portfolio, less pledged investments of $53.7 million.

Non-performing assets improved in Q1 as total loans past due or on non-accrual decreased to 0.26%, as a percentage of total loans, versus 0.56% as of Q4 2022. “Credit quality has remained strong during the first quarter, with past due loans improving from the prior quarter,” noted Bill Whalen, Chief Credit Officer. During the first quarter, the Allowance for Loan and Lease Losses (ALLL) increased by $318 thousand. Of the increase, $261 thousand was attributed to implementation of the new Current Expected Credit Losses (CECL) accounting standard, which went into effect on January 1st and provides for an accounting adjustment as an offset to retained earnings, net of deferred taxes. The difference of $57 thousand was the loan loss provision for the quarter under the new standard. As of March 31, 2023, the ALLL was 1.13% of portfolio loans.

First quarter 2023 non-interest income totaled $2.2 million, a decrease of $222 thousand from the fourth quarter of 2022. During Q1 2023, Steelhead Finance factoring revenue decreased $90 thousand, a 5.8% decrease from the prior quarter. “Although factoring revenue decreased during the 2nd half of 2022 and Q1 of 2023, overall activity is strong and will continue to provide a diversified income source outside of the bank’s traditional banking products” commented Bill Stewart, President of Steelhead Finance. Increased mortgage rates have continued to negatively impact mortgage production, and consequently, mortgage income decreased $87 thousand, or 59.6%, from the fourth quarter of 2022. “Although mortgage production continued to trend negatively during the first quarter, mortgage rates have improved recently,” commented Echo Hutto, the mortgage division manager. “The bank recently hired a new team of seasoned mortgage lenders to increase production in our northern market going into the spring and summer months,” added Hutto.

Non-interest expenses totaled $6.2 million in the first quarter, up $54 thousand from the previous quarter. The primary reason for the increase in expenses was attributed to salary adjustments implemented at the start of the year. “The bank has focused on improving efficiency in 2023 as a strategic objective for the year,” noted Beattie. “The board and management have set a goal to be more efficient as the bank matures into its existing infrastructure. The Eugene expansion and the recent increase in the mortgage lending team will have a short-term impact on efficiency that should correct as we penetrate new markets,” added Beattie.

As of March 31, 2023, the Tier 1 Capital Ratio for PBCO Financial Corporation was 10.98% with total shareholder equity of $73.6 million. During the quarter, the Company was able to augment capital through earnings, while the unrealized loss on the investment portfolio also improved, as noted above. The Tier 1 Capital Ratio for the Bank was 12.60% at quarter-end, up from 12.55% as of December 31, 2022. Tangible Capital was $69.8 million, or 8.60% as of March 31, 2023, versus Q4 2022 at $64.6 million or 8.04%.

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, Eugene, Grants Pass, Jacksonville, Klamath Falls, Lebanon, Medford, 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.

 
1st Quarter 2023 4th Quarter 2022 3rd Quarter 2022 1st Quarter 2022
Consolidated Balance Sheets
(Dollars in 000's) 3/31/2023 12/31/2022 9/30/2022 3/31/2022
BALANCE SHEET
ASSETS
Cash and due from banks

$

5,097

 

$

5,514

 

$

14,888

 

$

13,019

 

Federal funds sold

 

-

 

 

-

 

 

-

 

 

-

 

Interest bearing deposits

 

8,224

 

 

10,869

 

 

55,770

 

 

113,055

 

Investment securities

 

234,647

 

 

236,284

 

 

246,533

 

 

249,850

 

Loans held for sale

 

299

 

 

628

 

 

894

 

 

1,549

 

Loans held for investment, net of unearned income

 

488,025

 

 

475,024

 

 

447,725

 

 

452,296

 

Total Loans, net of deferred fees and costs

 

488,324

 

 

475,652

 

 

448,619

 

 

453,845

 

Allowance for loan losses

 

(5,508

)

 

(5,190

)

 

(4,842

)

 

(4,646

)

Premises and equipment, net

 

27,659

 

 

27,888

 

 

27,286

 

 

27,979

 

Bank owned life insurance

 

16,210

 

 

14,179

 

 

14,090

 

 

13,861

 

Other Assets

 

36,450

 

 

38,098

 

 

41,173

 

 

43,186

 

Total assets

$

811,103

 

$

803,294

 

$

843,517

 

$

910,149

 

 
LIABILITIES
Deposits
Demand - non-interest bearing

$

299,535

 

$

322,809

 

$

343,708

 

$

355,358

 

Demand - interest bearing

 

123,494

 

 

108,972

 

 

111,184

 

 

98,064

 

Money market and savings

 

222,834

 

 

244,282

 

 

265,628

 

 

320,677

 

Time deposits of less than $250,000

 

19,579

 

 

12,626

 

 

13,878

 

 

21,027

 

Time deposits of more than $250,000

 

8,236

 

 

4,106

 

 

4,183

 

 

2,959

 

Total deposits

$

673,678

 

$

692,795

 

$

738,581

 

$

798,085

 

 
Borrowed funds

 

54,860

 

 

34,449

 

 

31,604

 

 

31,788

 

Other liabilities

 

9,013

 

 

7,639

 

 

8,320

 

 

8,997

 

Total liabilities

$

737,551

 

$

734,883

 

$

778,505

 

$

838,870

 

 
STOCKHOLDERS' EQUITY
Common stock, surplus & retained earnings

$

92,433

 

$

91,133

 

$

88,660

 

$

83,204

 

Accumulated other comprehensive income, net of tax

 

(18,881

)

 

(22,722

)

 

(23,648

)

 

(11,925

)

Total stockholders' equity

$

73,552

 

$

68,411

 

$

65,012

 

$

71,279

 

 
Total liabilities & stockholders' equity

$

811,103

 

$

803,294

 

$

843,517

 

$

910,149

 

 

**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. 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) 1st Quarter 2023 4th Quarter 2022 3rd Quarter 2022 1st Quarter 2022
INCOME STATEMENT
INTEREST INCOME
Loans

$

6,350

$

6,042

$

5,744

$

5,515

Investments

 

1,035

 

1,057

 

979

 

864

Federal funds sold and due from banks

 

61

 

366

 

406

 

52

Total interest income

 

7,446

 

7,465

 

7,129

 

6,431

 
INTEREST EXPENSE
Deposits

 

746

 

281

 

244

 

162

Borrowed funds

 

382

 

276

 

276

 

66

Total interest expense

 

1,128

 

557

 

520

 

228

 
NET INTEREST INCOME

 

6,318

 

6,908

 

6,609

 

6,203

Provision for loan losses

 

57

 

403

 

153

 

266

Net interest income after provision for loan losses

 

6,261

 

6,505

 

6,456

 

5,937

 
NONINTEREST INCOME
Service charges

 

119

 

122

 

132

 

115

Mortgage lending income

 

59

 

146

 

282

 

476

Steelhead finance income

 

1,465

 

1,555

 

1,896

 

2,001

Bargain purchase gain

 

-

 

-

 

-

 

-

BOLI Income

 

108

 

87

 

101

 

96

Other non-interest income

 

426

 

489

 

571

 

580

Total noninterest income

 

2,177

 

2,399

 

2,982

 

3,268

 
NONINTEREST EXPENSE
Salaries and employee benefits

 

4,000

 

3,868

 

3,317

 

3,697

Occupancy & equipment expense

 

877

 

690

 

841

 

869

Advertising expense

 

119

 

113

 

118

 

119

Professional expenses

 

214

 

358

 

184

 

283

Data processing expense

 

321

 

446

 

262

 

244

Other operating expenses

 

674

 

676

 

730

 

805

Total noninterest expense

 

6,205

 

6,151

 

5,452

 

6,017

 
Income before taxes

 

2,233

 

2,753

 

3,986

 

3,188

Provision for income taxes

 

560

 

733

 

992

 

789

 
NET INCOME

$

1,673

$

2,020

$

2,994

$

2,399

 
Shares Outstanding End of Quarter

 

5,325,035

 

5,325,035

 

5,313,424

 

5,308,066

Average shares outstanding*

 

5,317,065

 

5,317,065

 

5,312,025

 

5,309,403

Earnings per share

$

0.31

$

0.38

$

0.56

$

0.45

*Adjusted for stock dividend 11/10/22
(Dollars in 000's) 3/31/2023 12/31/2022 9/30/2022 3/31/2022
Financial Highlights
Total loans

$

488,324

 

$

475,652

 

$

448,619

 

$

453,845

 

Total deposits

$

673,678

 

$

692,795

 

$

738,581

 

$

798,085

 

Total assets

$

811,103

 

$

803,294

 

$

843,517

 

$

910,149

 

Net income

$

1,673

 

$

2,020

 

$

2,994

 

$

2,399

 

Steelhead Finance contribution, pre-tax

$

481

 

$

454

 

$

820

 

$

1,109

 

Mortgage contribution, pre-tax

$

(259

)

$

(111

)

$

(17

)

$

48

 

 
Performance Ratios
Return on average assets

 

0.83

%

 

0.98

%

 

1.38

%

 

1.10

%

Return on average equity

 

9.48

%

 

12.34

%

 

17.41

%

 

12.33

%

Net interest margin

 

3.49

%

 

3.74

%

 

3.40

%

 

3.17

%

Yield on loans

 

5.36

%

 

5.34

%

 

5.15

%

 

4.84

%

Cost of deposits

 

0.44

%

 

0.16

%

 

0.13

%

 

0.08

%

Efficiency ratio

 

73.04

%

 

66.09

%

 

56.84

%

 

63.53

%

Full-time equivalent employees

 

146

 

 

146

 

 

143

 

 

149

 

 
Capital
Leverage ratio

 

10.98

%

 

10.92

%

 

10.10

%

 

8.76

%

Bank Leverage Ratio

 

12.60

%

 

12.55

%

 

12.84

%

 

11.25

%

Book value per share

$

13.81

 

$

12.85

 

$

12.24

 

$

13.43

 

Tangible book value per share

$

13.10

 

$

12.13

 

$

11.52

 

$

12.70

 

 
Asset Quality
Allowance for loan losses (ALLL)

$

5,508

 

$

5,190

 

$

5,782

 

$

4,646

 

Nonperforming loans (NPLs)

$

1,280

 

$

2,653

 

$

1,684

 

$

959

 

Nonperforming assets (NPAs)

$

1,566

 

$

2,939

 

$

1,970

 

$

1,245

 

Classified assets(2)

$

6,984

 

$

5,132

 

$

1,843

 

$

1,874

 

ALLL as a percentage of net loans

 

1.13

%

 

1.09

%

 

1.29

%

 

1.02

%

ALLL as a percentage of NPLs

 

430

%

 

196

%

 

343

%

 

484

%

Net charge offs (recoveries) to average loans

 

0.00

%

 

0.03

%

 

0.02

%

 

0.00

%

Net NPLs as a percentage of total loans

 

0.27

%

 

0.56

%

 

0.38

%

 

0.21

%

Nonperforming assets as a percentage of total assets

 

0.19

%

 

0.37

%

 

0.23

%

 

0.14

%

Classified Asset Ratio(3)

 

8.83

%

 

6.97

%

 

2.64

%

 

2.47

%

Past due as a percentage of total loans

 

0.26

%

 

0.56

%

 

0.38

%

 

0.21

%

 
End of period balances
Total securities and short term deposits

$

242,871

 

$

247,153

 

$

302,303

 

$

362,905

 

Total loans, net of allowance

$

482,816

 

$

470,462

 

$

443,777

 

$

449,199

 

Total earning assets

$

731,195

 

$

722,805

 

$

750,922

 

$

816,750

 

Intangible Assets

$

3,790

 

$

3,802

 

$

3,815

 

$

3,841

 

Total assets

$

811,103

 

$

803,294

 

$

843,517

 

$

910,149

 

Total noninterest bearing deposits

$

299,535

 

$

322,809

 

$

343,708

 

$

355,358

 

Total deposits

$

673,678

 

$

692,795

 

$

738,581

 

$

798,085

 

 
Average balances
Total securities and short term deposits

$

245,101

 

$

280,254

 

$

324,448

 

$

328,747

 

Total loans, net of allowance

$

473,919

 

$

452,921

 

$

445,852

 

$

450,861

 

Total earning assets

$

719,020

 

$

733,175

 

$

770,301

 

$

779,609

 

Total assets

$

803,116

 

$

828,608

 

$

866,319

 

$

870,794

 

Total noninterest bearing deposits

$

318,548

 

$

338,418

 

$

344,623

 

$

353,917

 

Total deposits

$

685,318

 

$

722,840

 

$

756,539

 

$

771,160

 

 
(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.
Division Financial Information
Three Months Ended March 31, 2023
(Dollars in 000's) Bank Steelhead Mortgage Holding Co. Consolidated
 
Net interest income (expense)

$

6,606

$

(171

)

$

7

 

$

(124

)

$

6,318

Provision for credit losses

$

15

$

(12

)

$

54

 

$

-

 

$

57

Noninterest income

$

651

$

1,466

 

$

60

 

$

-

 

$

2,177

Noninterest expense

$

4,955

$

885

 

$

335

 

$

30

 

$

6,205

Income (loss) before income taxes

 

2,287

 

422

 

 

(322

)

 

(154

)

 

2,233

Income tax expense (benefit)

 

574

 

108

 

 

(82

)

 

(40

)

 

560

Net income (loss)

 

1,713

 

314

 

 

(240

)

 

(114

)

 

1,673

 

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