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

People’s 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 4^th 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 20^th 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 bank’s 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 bank’s 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 bank’s 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.

President’s Commentary

“As noted by the list of accomplishments above, 2018 was a year of growth, both for the balance sheet as well as the bank’s 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 shareholder’s equity totaled $32.08 million, compared to $28.00 million at December 31, 2017. The bank’s 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 People’s Bank of Commerce

People’s Bank of Commerce’s 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 bank’s website at: www.peoplesbankofcommerce.com.

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 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 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.

People's Bank of Commerce
Balance Sheet (unaudited)
(dollars in thousands)		12/31/2018			9/30/2018			6/30/2018			3/31/2018			12/31/2017
Assets
Cash and due from banks		9,382			3,928			2,431			11,918			14,046
Federal funds sold
Interest-bearing deposits		17,127			21,381			15,713			13,948			8,209
Investment securities		25,878			24,462			26,198			26,871			28,538
Loans held for sale		2,084			215			1,381			1,862			2,191
Loans held for investment,		249,949			240,093			233,600			219,359			208,657
net of unearned income
Allowance for loan and lease losses		(2,812	)		(2,701	)		(2,631	)		(2,523	)		(2,400	)
Loans, net		247,137			237,392			230,969			216,836			206,257
Premises and equipment, net		16,807			16,387			16,165			14,806			12,196
Other assets		31,110			32,730			34,064			32,581			31,004
Total assets		349,525			336,495			326,921			318,822			302,441
Liabilities
Deposits
Demand noninterest-bearing		124,866			120,679			131,743			126,424			118,948
Demand interest-bearing		48,813			44,661			29,300			27,188			26,218
Money market and savings		117,714			112,728			107,634			108,666			101,141
Time deposits of less than $250,000		15,300			15,017			16,136			16,483			16,555
Time deposits of more than $250,000		1,317			2,081			2,074			2,067			2,060
Total deposits		308,010			295,166			286,887			280,828			264,922
Other liabilities		6,062			7,290			7,022			5,983			6,103
Total liabilities		314,072			302,456			293,909			286,811			271,025
Capital
Common stock, surplus, retained earnings		36,011			34,920			33,891			32,901			32,152
Accumulated other comprehensive		(113	)		(319	)		(278	)		(249	)		(56	)
income (loss)
Unearned ESOP Shares		(445	)		(562	)		(601	)		(641	)		(680	)
Total shareholders' equity		35,453			34,039			33,012			32,011			31,416
Total Liabilities and Equity		349,525			336,495			326,921			318,822			302,441
memo:
Total intangible assets and goodwill		3,486			3,468			3,468			3,468			3,468
Current shares outstanding		2,953,434			2,915,752			2,902,164			2,747,164			2,745,758

People's Bank of Commerce
Income Statement (unaudited)
		Three Months Ended						Twelve Months Ended
(dollars in thousands)		12/31/2018		9/30/2018		12/31/2017		12/31/2018		12/31/2017
Interest Income
Loans		3,343		3,152		2,678		12,193		10,367
Investments		162		152		164		658		703
Federal funds sold and due from banks		161		182		61		534		175
Total interest income		3,666		3,486		2,903		13,385		11,245
Interest Expense
Deposits		278		241		129		850		435
Other		75		77		-		282		-
Total interest expense		353		318		129		1,132		435
Net interest income		3,313		3,169		2,774		12,253		10,810
Provision for credit losses		112		69		72		406		52
Net Interest Income after provision		3,201		3,100		2,702		11,847		10,758
for credit losses
Non-Interest Income
Service charges on deposit accounts		78		76		73		308		290
Mortgage lending income		150		130		191		615		805
Steelhead Finance income		1,179		1,339		1,072		4,915		1,398
Gain (loss) on other real estate		-		-				-		22
Other non-interest income		118		199		151		817		755
Total non-interest income		1,525		1,744		1,487		6,655		3,270
Non-Interest Expense
Salary and Benefits		2,346		2,297		1,954		8,955		6,210
Premises and fixed assets		554		460		419		1,877		1,473
Other		825		828		724		3,348		2,634
Total non-interest expense		3,725		3,585		3,097		14,180		10,317
Net income before taxes		1,001		1,259		1,092		4,322		3,711
Income taxes		119		311		779		924		1,650
Net income		882		948		313		3,398		2,061
Basic earnings per share *		0.30		0.33		0.11		1.18		0.80
Diluted earnings per share *		0.30		0.32		0.11		1.18		0.80
Average common shares outstanding *		2,926,964		2,909,889		2,725,925		2,870,220		2,570,472
Performance Measures
Return on average assets		1.03%		1.11%		0.41%		1.00%		0.73%
Return on average equity		10.25%		11.43%		3.87%		10.29%		7.18%
Net interest margin		4.11%		4.05%		4.12%		4.18%		4.22%
Efficiency ratio		76.99%		72.97%		72.68%		74.99%		73.23%
* adjusted for 5% stock dividend May 2017, May 2018

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