People’s Bank of Commerce Reports 47% Increase in Earnings Per Share

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Peoples Bank of Commerce (OTCBB: PBCO) announced today its financial results for the fourth quarter and full year 2018 operations. The bank reported net income of $3,398,000 for the full year of 2018 compared to $2,061,000 in 2017, a 65% increase. In 2018 earnings per diluted share were $1.18 compared $0.80 per diluted share during 2017, a 47% increase. Net income for the 4th quarter of 2018, totaled $882,000 or $0.30 per diluted share compared to $313,000 or $0.11 per diluted share for 2017.

When comparing the full year 2018 net income to 2017, several significant items impact the comparison. First, the bank owned Steelhead Finance for a full 12 months in 2018 compared to only 4 months in 2017, contributing $0.48 of earning per share in 2018 compared to $0.14 per share in 2017. Second, passage of the Tax Cuts and Jobs Act (Tax Reform) for corporations resulted in a one-time, non-cash income tax expense of $413,000 in the fourth quarter of 2017 while 2018 benefited from the reduction in Federal Income tax rate from 34% to 21%. Additionally, the bank was able to lower its tax expense in 2018 by over $100,000, recovering taxes paid in earlier years by accelerating depreciation expense. Examples of the other one-time events that affected bottom line income include:

  • The bank was able to provide a tax reform bonus to all non-executives of $500 to $2,000 per employee based on time with the company. Plus, the bank established a minimum wage of $14 per hour for all bank employees.
  • The bank opened a new 3-story headquarters building in April 2018.
  • The bank established a full-service branch in Klamath Falls, Oregon in January 2018
  • The bank celebrated its 20th anniversary including pay it forward gifts to the community.
  • The bank increased outstanding loans by almost 20% resulting in an increase to the loan and lease loss provision.

Highlights for the quarter and year included:

  • Total loans increased $9.9 million or 4.1% during the fourth quarter 2018 and $41.3 million or 20% for the entire year.
  • Deposits increased $12.8 million or 4.4% over the past 3 months and increased $43.1 million or 16.3% for the entire year.
  • The banks total assets increased $13.0 million during the fourth quarter and increased $47.1 million or 15.6% for the entire year.
  • Net interest income for 2018 totaled $12.3 million dollars compared to $10.8 million in 2017, a 13.3% increase.
  • Non-Interest income totaled $6.7 million in 2018 versus $3.3 million in 2017, a 104% increase. This increase was the result of activity from the banks factoring company, Steelhead Finance, which provided $4.9 million of gross revenue during 2018.
  • Non-interest expenses totaled $14.2 million in 2018 compared to $10.3 million in 2017, a 37.4% increase. $2.8 million of this increase was the result of the purchase of Steelhead Financial with the balance attributed to the bank.
  • The banks year-to-date efficiency ratio was 75% in 2018 and 73.23% in 2017.
  • ROAE was 10.29% in 2018 and 7.18% in 2017.
  • ROAA was 1.00% in 2018, 0.73% in 2017.
  • EPS was $1.18 in 2018 compared to $0.80 in 2017.
  • Loans on non-accrual or past due more than 90 days at the end 2018 were 0.16% of loans outstanding, compared to zero at the end of 2017.

Presidents Commentary

As noted by the list of accomplishments above, 2018 was a year of growth, both for the balance sheet as well as the banks image in the community, noted Ken Trautman, bank President and CEO. Because many of the expenses incurred in 2018 were one-time in nature, the bank is positioned for strong performance in the next year and the years to come. Expansion of the national and local economies has been a great tailwind, but the level of service from our employees has been a real driving force. Rising short-term interest rates and a flat yield curve will be a challenge to all banks, as the cost of funds will rise more than the yield on assets. Despite this, the bank has maintained a net interest margin superior to our FDIC peer group. With many one-time expenses behind us, the bank can continue to look for additional opportunities to diversify its non-interest income and increase efficiency.

Provision for Credit Losses

Strong loan growth and credit quality prompted a provision expense of $406,000 in 2018 compared to $52,000 in 2017. At yearend 2018, the allowance for loan and lease losses totaled 1.125% of loans held for investment compared to 1.15% at the end of 2017. Net loan charge offs in 2018 were ($6,645) versus ($4,978) the prior year.

Capital

At December 31, 2018, tangible shareholders equity totaled $32.08 million, compared to $28.00 million at December 31, 2017. The banks tangible leverage ratio was 9.27% at year-end 2018, compared to 9.37% at December 31, 2017. The completion of the Steelhead acquisition resulted in approximately $3.3 million in goodwill reflected above in the tangible shareholder equity and leverage ratios. Tangible book value per share was $10.86 at December 31, 2018, compared to $9.71 one year earlier.

About Peoples Bank of Commerce

Peoples Bank of Commerces stock trades on the over-the-counter market under the symbol PBCO. Additional information about the Bank is available in the investor section of the banks website at: www.peoplesbankofcommerce.com.

Founded in 1998, Peoples Bank of Commerce is the only locally owned and managed community bank in Southern Oregon. Peoples Bank of Commerce is a full service bank headquartered in Medford, Oregon with branches in Medford, Ashland, Central Point, Grants Pass and Klamath Falls.

“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 Peoples Bank or its management “believes,” “expects,” “anticipates,” “foresees,” “forecasts,” “estimates” or other words or phrases of similar import. Similarly, statements herein that describe Peoples Banks 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.

People’s Bank of Commerce
Balance Sheet (unaudited)
(dollars in thousands)12/31/20189/30/20186/30/20183/31/201812/31/2017
Assets
Cash and due from banks9,3823,9282,43111,91814,046
Federal funds sold
Interest-bearing deposits17,12721,38115,71313,9488,209
Investment securities25,87824,46226,19826,87128,538
Loans held for sale2,0842151,3811,8622,191
Loans held for investment,249,949240,093233,600219,359208,657
net of unearned income
Allowance for loan and lease losses(2,812)(2,701)(2,631)(2,523)(2,400)
Loans, net247,137237,392230,969216,836206,257
Premises and equipment, net16,80716,38716,16514,80612,196
Other assets31,11032,73034,06432,58131,004
Total assets349,525336,495326,921318,822302,441
Liabilities
Deposits
Demand noninterest-bearing124,866120,679131,743126,424118,948
Demand interest-bearing48,81344,66129,30027,18826,218
Money market and savings117,714112,728107,634108,666101,141
Time deposits of less than $250,00015,30015,01716,13616,48316,555
Time deposits of more than $250,0001,3172,0812,0742,0672,060
Total deposits308,010295,166286,887280,828264,922
Other liabilities6,0627,2907,0225,9836,103
Total liabilities314,072302,456293,909286,811271,025
Capital
Common stock, surplus, retained earnings36,01134,92033,89132,90132,152
Accumulated other comprehensive(113)(319)(278)(249)(56)
income (loss)
Unearned ESOP Shares(445)(562)(601)(641)(680)
Total shareholders’ equity35,45334,03933,01232,01131,416
Total Liabilities and Equity349,525336,495326,921318,822302,441
memo:
Total intangible assets and goodwill3,4863,4683,4683,4683,468
Current shares outstanding2,953,4342,915,7522,902,1642,747,1642,745,758
People’s Bank of Commerce
Income Statement (unaudited)
Three Months EndedTwelve Months Ended
(dollars in thousands)12/31/20189/30/201812/31/201712/31/201812/31/2017
Interest Income
Loans3,3433,1522,67812,19310,367
Investments162152164658703
Federal funds sold and due from banks16118261534175
Total interest income3,6663,4862,90313,38511,245
Interest Expense
Deposits278241129850435
Other7577282
Total interest expense3533181291,132435
Net interest income3,3133,1692,77412,25310,810
Provision for credit losses112697240652
Net Interest Income after provision3,2013,1002,70211,84710,758
for credit losses
Non-Interest Income
Service charges on deposit accounts787673308290
Mortgage lending income150130191615805
Steelhead Finance income1,1791,3391,0724,9151,398
Gain (loss) on other real estate22
Other non-interest income118199151817755
Total non-interest income1,5251,7441,4876,6553,270
Non-Interest Expense
Salary and Benefits2,3462,2971,9548,9556,210
Premises and fixed assets5544604191,8771,473
Other8258287243,3482,634
Total non-interest expense3,7253,5853,09714,18010,317
Net income before taxes1,0011,2591,0924,3223,711
Income taxes1193117799241,650
Net income8829483133,3982,061
Basic earnings per share *0.300.330.111.180.80
Diluted earnings per share *0.300.320.111.180.80
Average common shares outstanding *2,926,9642,909,8892,725,9252,870,2202,570,472
Performance Measures
Return on average assets1.03%1.11%0.41%1.00%0.73%
Return on average equity10.25%11.43%3.87%10.29%7.18%
Net interest margin4.11%4.05%4.12%4.18%4.22%
Efficiency ratio76.99%72.97%72.68%74.99%73.23%
* adjusted for 5% stock dividend May 2017, May 2018

Ken Trautman, President and CEO
541-774-7654, [email protected]