People’s Bank Reports First Quarter Earnings

People’s Bank of Commerce (OTCBB: PBCO) announced today its financial results for the first quarter of 2021. The bank reported net income of $2,892,000, or $0.73 per diluted share, for the first quarter of 2021 compared to net income of $1,111,000, or $0.33 per diluted share, in the same quarter of 2020. First quarter earnings in 2021 were impacted by the one-time, non-recurring merger accounting adjustments with Willamette Community Bank totaling $527 thousand or $0.10 per diluted share. Earnings per share for the trailing 12 months were $2.17 per share up from $1.36 per share for the same period of 2020, or a 59% increase.

The first quarter of 2021 reports consolidated numbers after the merger and are compared to PBCO on a standalone basis for the first quarter of 2020:

• Total assets of $808 million, an increase 116%, compared to the first quarter of 2020
• Net loans of $508 million, an increase of 91% compared to the first quarter of 2020
• Deposits of $719 million, an increase of 132% compared to first quarter of 2020
• Tangible book value per share of $14.13, an increase of 15% compared to first quarter of 2020

Acquisition of Willamette Community Bank

On March 1, 2021, the bank completed the acquisition of Willamette Community Bank (“WMCB”). As of the acquisition date, WMCB was merged with and into People’s Bank of Commerce.

As a result of the merger agreement, WMCB shareholders received 0.6665 shares of People’s Bank common stock plus $1.70 in cash per share for each share of WMCB common stock. People’s Bank issued an aggregate 1,238,334 shares of its common stock and paid cash of $3.2 million for total consideration paid of $20.4 million.

Balance Sheet

The bank’s total assets increased $284.7 million, or 54%, to $808.1 million at March 31, 2021, from $523.3 million as of December 31, 2020. The WMCB merger resulted in an increase of total assets, $221.6 million at the merger date.

Investment securities increased $25.7 million, or 99.4%, during the quarter to $51.6 million as of March 31, 2021 from $25.9 million as of December 31, 2020. The increase was primarily the result of investments acquired in the WMCB merger, which the bank has retained within its portfolio.

Total portfolio loans, net of allowance for loan losses, increased $166.4 million, or 48.7%, to $508.2 million as of March 31, 2021, versus $341.7 million at December 31, 2020. Total loans outstanding, excluding loans acquired in the WMCB merger, increased $22.3 million during the quarter.

Total deposits increased $263.6 million, or 57.8%, to $719.3 million as of March 31, 2021 from $455.7 million at December 31, 2020. Of the increase, $197.9 million was attributed to the WMCB merger. The bank completed a one-way sell of $19.5 million in one-month CDARS during the quarter. This sell was designed to reduce the already high liquidity position of the bank.

Total shareholders’ equity increased $19.3 million, or 36.5%, during the quarter. Changes in equity during the three months ended March 31, 2021 were as follows:

(dollars in thousands)		Three Months
		Ended
		March 31, 2021
Balance, beginning of period		52,836
Common stock issued less cash in the WMCB merger		17,205
Capitalized deal costs in WMCB merger		(470	)
Net Income		2,892
Accumulated other comprehensive gain		(331	)
Other		(10	)
Balance, end of period		72,122

Operating Results

Net income increased $1,781,000, or 160%, to $2,892,000 through March 31, 2021 versus the first quarter of 2020.

During the first quarter of 2021, interest income and fee amortization of PPP loans resulted in additional interest income of $1.4 million.

Non-interest income increased by $3,550,000, or 184.2%, versus the same quarter prior year. The increase was attributed to an increase in mortgage lending income of $788 thousand, or 143%, to $1,341,000 through March 31, 2021, and an increase in Steelhead Finance factoring income of $357 thousand, or 38%, to $1,308,000 for the current quarter versus the prior year. In addition, there was a bargain purchase gain of $2,343,000 from the WMCB merger.

Non-interest expense for the first quarter of 2021 was $7.7 million compared to $3.8 million for the same quarter of 2020, significantly impacted by the one-time merger expenses of $2.9 million. Deducting the one-time non-interest expenses associated with the merger of $2.9 million results in core expenses of $4.8 million in the first quarter of 2021, a 28% increase over the prior year. During the first quarter 2021, $361 thousand in PPP fee income was applied as an offset to employee expense for processing of new PPP loans added during the quarter. In addition, the bank has committed to provide $1 million in intermediate and long-term housing relief in Southern Oregon from fires experienced in our community in 2020, of which $250 thousand was expensed in the first quarter of 2021.

The one-time merger expenses in the first quarter of 2021 resulted from the following:

Data processing conversion & termination fees:			$ 1,801,000
Personnel – Change in control and severance payments:			638,000
IT support and maintenance:			283,000
Legal expense:			73,000
Professional expense:			40,000
Shareholder expense:			35,000
Total			$2,870,000

Excluding one-time merger adjustments, diluted earnings per share would have been $0.83 for the quarter ended March 31, 2021, versus $0.33 for the same quarter, prior year. For the twelve months ended March 31, 2021, excluding one-time merger expenses, earnings per share would have been $2.28 as of March 31, 2021, versus $1.36 for the same twelve month’s ended March 31, 2020.

CEO’s Comments

“With the merger of Willamette completed on March 1^st, all anticipated merger expenses have been expensed in the first quarter,” commented Ken Trautman, CEO. “These merger expenses were offset by strong earnings during the quarter, including performance from our factoring company, Steelhead Finance, and from the mortgage division. Steelhead and mortgage combined reported gross income for the current quarter of $2,649,000 vs. $1,504,000 for the same period in 2020, a 76% increase.”

“The loan pipeline for the combined bank continues to be strong with approved credits pending funding totaling $65.3 million as the March 31, 2021. PPP loans outstanding as of quarter end were $102 million, with year-to-date PPP loan fee income of $1.5 million. The balance of the PPP loan fee income expected to be earned in 2021 totals $3.1 million,” commented Trautman.

“The bank worked very hard to respond to the needs within our communities during the COVID pandemic. It was a monumental, unified effort across all departments within the bank to deliver the volume of PPP loans we did and to have had the resulting positive impact on our local economies. Our staff continues to work very hard in providing new Round 2 PPP loans and in facilitating our clients' receipt of forgiveness,” noted Trautman. The table below presents the number and dollar amounts of the bank's PPP activity to date by quarter:

PPP Loan Activity To Date
		As of			As of			As of
	(dollars in thousands)	3/31/2021*			12/31/2020			9/30/2020
		#	$$$		#	$$$		#	$$$
PPP Loans Funded
	Round One (2020 - Phase I & II)	1,204	$	121,199	1,056	$	95,387	1,056	$	95,387
	Round Two (2021)	534	$	45,993	-	$	0	-	$	0
PPP Loans Forgiven
	Round One (2020 - Phase I & II)	437	$	65,540	34	$	14,428	-	$	0
	Round Two (2021)	-	$	0	-	$	0	-	$	0
Net PPP Loans Outstanding
	Round One (2020 - Phase I & II)	767	$	55,659	1,022	$	80,959	1,056	$	95,387
	Round Two (2021)	534	$	45,993	-	$	0	-	$	0
	Total Actual Balances outstanding	1,301	$	101,652	1,022	$	80,959	1,056	$	95,387
*	Includes PPP activity of Willamette Community Bank

Credit Quality & Provision for Credit Losses

Loan quality continues to be strong with 0.22% of loans past due over 30 days or on Non-Accrual at the end of the first quarter of 2021 vs. 0.00% for the same period last year. There were four loans on deferral as of March 31, 2021, with outstanding balances of $3.5 million. Of the deferred loans, two are hospitality loans with outstanding balances of $988 thousand, one loan to a faith-based organization has an outstanding balance of $2 million, and one loan to a national social/service organization has an outstanding balance of $532 thousand.

Now that the bank has a better feel for the effect of COVID in our markets, the bank decreased its reserve to outstanding loans, (excluding PPP loans) to 1.01% at the end of the first quarter in 2021. The Allowance for Loan and Lease losses (ALLL) was reduced 1.45% for People’s Bank portfolio loans and all Willamette Community Bank (WMCB) new loans booked in March of 2021, excluding PPP. The ALLL for WMCB was eliminated at the completion of the merger and a fair value adjustment was applied to the outstanding portfolio per GAAP purchase accounting guidelines. The carrying value of the loans acquired in the WMCB merger was $145.5 million and the related fair value discount was $1.2 million or 0.84% of the acquired balance. The unallocated portion of the reserve stands at $964 thousand or 22.3% of the ALLL.

Capital

At March 31, 2021, tangible capital totaled $67.8 million. The bank’s Tier 1 Capital ratio was 8.44% at the end of the first quarter 2021, compared to 11.64% one year ago. Tangible book value per share was $14.13 on March 31, 2021, compared to $12.32 on March 31, 2020.

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.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, 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.

People's Bank of Commerce
Balance Sheet (unaudited)
(dollars in thousands)		3/31/2021				12/31/2020				9/30/2020				6/30/2020				3/31/2020
Assets
Cash and due from banks		$	4,730			$	2,819			$	3,659			$	3,398			$	7,459
Federal funds sold			-				-				-				-				-
Interest-bearing deposits			163,537				91,103				49,336				57,717				14,899
Investment securities			51,631				25,894				22,910				23,597				27,172
Loans held for sale			4,375				3,407				17,386				8,106				6,648
Loans held for investment,			512,493				346,198				355,855				354,170				269,752
net of unearned income
Allowance for loan and lease losses			(4,325	)			(4,453	)			(4,271	)			(4,024	)			(3,378	)
Loans, net			508,168				341,745				351,584				350,146				266,374
Premises and equipment, net			26,763				21,624				20,664				20,469				20,170
Other assets			48,860				36,738				34,423				30,308				31,383
Total assets		$	808,065			$	523,331			$	499,963			$	493,742			$	374,105
Liabilities
Deposits
Demand noninterest-bearing		$	319,292			$	231,095			$	219,836			$	199,808			$	141,448
Demand interest-bearing			110,350				54,806				54,711				46,396				38,257
Money market and savings			256,462				147,481				134,053				125,023				112,238
Time deposits of less than $250,000			21,022				19,149				20,012				20,897				16,231
Time deposits of more than $250,000			12,208				3,216				3,282				2,318				2,578
Total deposits			719,334				455,747				431,894				394,442				310,752
Other liabilities			16,609				14,748				17,217				50,358				16,603
Total liabilities			735,943				470,495				449,111				444,800				327,355
Capital
Common stock, surplus, retained earnings			71,771				52,154				50,162				48,222				46,622
Accumulated other comprehensive			351				682				690				720				128
income (loss)
Unearned ESOP Shares			-				-				-				-				-
Total shareholders' equity			72,122				52,836				50,852				48,942				46,750
Total Liabilities and Equity		$	808,065			$	523,331			$	499,963			$	493,742			$	374,105
memo:
Total intangible assets and goodwill			3,927				3,486				3,486				3,486				3,486
Current shares outstanding			4,802,978				3,558,581				3,523,078				3,522,857				3,500,065
Tier 1 Leverage Ratio			8.44	%			9.36	%			9.40	%			9.13	%			11.64	%
Non-performing Loans			0.22	%			0.05	%			0.03	%			0.01	%			0.00	%
Non-performing Assets			0.25	%			0.20	%			0.21	%			0.71	%			0.94	%
ALLL to Portfolio Loans, excluding PPP			1.01	%			1.56	%			1.54	%			1.45	%			1.25	%
ALLL to Total Portfolio Loans			0.84	%			1.29	%			1.20	%			1.14	%			1.25	%

People's Bank of Commerce
Income Statement (unaudited)
	Three Months Ended											Twelve Months Ended
(dollars in thousands)	3/31/2021			12/31/2020			3/31/2020					3/31/2021			3/31/2020
Interest Income
Loans	5,195			4,308			3,671					17,442			14,614
Investments	141			155			160					585			607
Federal funds sold and due from banks	53			30			63					136			365
Total interest income	5,389			4,493			3,894					18,163			15,586
Interest Expense
Deposits	200			176			279					733			1,298
Other	14			26			30					149			54
Total interest expense	214			202			309					882			1,352
Net interest income	5,175			4,291			3,585					17,281			14,234
Provision for credit losses	(125	)		182			260					947			496
Net Interest Income after provision	5,300			4,109			3,325					16,334			13,738
for credit losses
Non-Interest Income
Service charges on deposit accounts	78			57			82					245			328
Mortgage lending income	1,341			1,634			553					5,539			1,562
Steelhead Finance income	1,308			1,239			951					4,430			3,961
Bargain Purchase Gain	2,343			-			-					2,343
Other non-interest income	407			335			341					1,364			1,171
Total non-interest income	5,477			3,265			1,927					13,921			7,022
Non-Interest Expense
Salary and Benefits	3,407			3,186			2,443					11,487			9,512
Premises and fixed assets	925			590			532					2,615			2,226
Other	3,353			1,281			786					6,485			3,144
Total non-interest expense	7,685			5,057			3,761					20,587			14,882
Net income before taxes	3,092			2,317			1,491					9,668			5,878
Income taxes	200			619			380					1,757			1,537
Net income	2,892			1,698			1,111					7,911			4,341
Basic earnings per share	0.73			0.48			0.33					2.17			1.36
Diluted earnings per share	0.73			0.48			0.33					2.17			1.36
Average common shares outstanding	3,977,422			3,560,096			3,342,993					3,645,826			3,186,346
Performance Measures
Return on average assets	1.82	%		1.31	%		1.18	%				1.49	%		1.18	%
Return on average equity	19.11	%		13.11	%		10.15	%				15.04	%		10.93	%
Net interest margin	3.64	%		3.75	%		4.43	%				3.67	%		4.55	%
Efficiency ratio	72.15	%		66.93	%		68.23	%				65.98	%		70.01	%

 

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