PBCO Financial : Audited Financial Statements (Opens in a new Window) (Opens in a new Window)

REPORT OF INDEPENDENT AUDITORS AND

CONSOLIDATED FINANCIAL STATEMENTS

PBCO FINANCIAL CORPORATION

December 31, 2023 and 2022

Table of Contents

	PAGE
Report of Independent Auditors	1-2
Consolidated Financial Statements
Consolidated balance sheets	3
Consolidated statements of income	4
Consolidated statements of comprehensive income (loss)	5
Consolidated statements of changes in stockholders' equity	6
Consolidated statements of cash flows	7-8
Notes to consolidated financial statements	9-40

Note: These consolidated financial statements have not been reviewed or confirmed for accuracy or relevance by the Federal Deposit Insurance Corporation.

[This page intentionally left blank]

Report of Independent Auditors

The Board of Directors and Stockholders

PBCO Financial Corporation

Report on the Audit of the Consolidated Financial Statements

Opinion

We have audited the consolidated financial statements of PBCO Financial Corporation, which comprise the consolidated balance sheets as of December 31, 2023 and 2022, and the related consolidated statements of income, comprehensive income (loss), changes in stockholders' equity, and cash flows for the years then ended, and the related notes to the consolidated financial statements.

In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the financial position of PBCO Financial Corporation as of December 31, 2023 and 2022, and the results of its operations and its cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America.

Basis for Opinion

We conducted our audits in accordance with auditing standards generally accepted in the United States of America (GAAS). Our responsibilities under those standards are further described in the Auditor's Responsibilities for the Audit of the Financial Statements section of our report. We are required to be independent of PBCO Financial Corporation and to meet our other ethical responsibilities, in accordance with the relevant ethical requirements relating to our audits. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Emphasis of Matter - Change in Accounting Principle

As discussed in Note 1 to the consolidated financial statements, PBCO Financial Corporation changed its method of accounting for credit losses effective January 1, 2023, due to the adoption of Accounting Standards Codification Topic 326, Financial Instruments - Credit Losses ("Topic 326"). PBCO Financial Corporation adopted the new credit loss standard using the modified retrospective approach such that prior period amounts are not adjusted and continue to be reported in accordance with previously applicable generally accepted accounting principles. Our opinion is not modified with respect to this matter.

Responsibilities of Management for the Financial Statements

Management is responsible for the preparation and fair presentation of the financial statements in accordance with accounting principles generally accepted in the United States of America, and for the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.

1

In preparing the financial statements, management is required to evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about PBCO Financial Corporation's ability to continue as a going concern within one year after the date that the financial statements are available to be issued.

Auditor's Responsibilities for the Audit of the Financial Statements

Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance but is not absolute assurance and therefore is not a guarantee that an audit conducted in accordance with GAAS will always detect a material misstatement when it exists. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. Misstatements are considered material if there is a substantial likelihood that, individually or in the aggregate, they would influence the judgment made by a reasonable user based on the financial statements.

In performing an audit in accordance with GAAS, we:

• Exercise professional judgment and maintain professional skepticism throughout the audit.
• Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, and design and perform audit procedures responsive to those risks. Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.
• Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of PBCO Financial Corporation's internal control. Accordingly, no such opinion is expressed.
• Evaluate the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluate the overall presentation of the financial statements.
• Conclude whether, in our judgment, there are conditions or events, considered in the aggregate, that raise substantial doubt about PBCO Financial Corporation's ability to continue as a going concern for a reasonable period of time.

We are required to communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit, significant audit findings, and certain internal control-related matters that we identified during the audit.

Portland, Oregon

March 8, 2024

2

PBCO Financial Corporation

Consolidated Balance Sheets

			December 31,
			2023			2022
ASSETS
Cash and cash equivalents	$	19,557,402	$	15,886,562
Time deposits with other institutions		496,000			496,000
Investment securities, available-for-sale, at fair value;
amortized cost of $173,145,374 and $267,408,885
at December 31, 2023 and 2022, respectivley		154,228,009			236,283,195
Federal Home Loan Bank (FHLB) stock		1,412,000			1,231,700
Loans held-for-sale		-			627,542
Factored accounts receivable, net of allowance for credit losses
of $0 and $0 at December 31, 2023 and 2022,
respectively		13,038,501			16,714,999
Loans, net of allowance for credit losses of $5,862,594 and
$5,189,866 at December 31, 2023 and 2022, respectively,
and unearned income		510,834,155			469,834,264
Premises, equipment, and leasehold improvements,
net of accumulated depreciation and amortization		25,766,977			23,176,477
Right-of-use asset, net		4,256,513			4,756,769
Other real estate owned, net		206,072			286,072
Bank-owned life insurance (BOLI)		16,636,599			14,178,661
Goodwill		3,335,384			3,335,384
Investment in real estate joint venture		2,213,498			2,262,615
Deferred tax assets, net		7,127,610			10,235,190
Accrued interest receivable and other assets		4,243,894			4,944,835
Total assets	$	763,352,614	$	804,250,265
LIABILITIES
Noninterest-bearing demand deposits	$	272,944,725	$	322,808,505
Interest-bearing demand and money market accounts		286,478,494			291,743,977
Savings deposits		42,439,573			61,509,636
Time deposits			27,917,762			16,733,087
Total deposits		629,780,554			692,795,205
FHLB Advances		20,650,000			5,000,000
Subordinated notes, net		24,530,182			24,470,504
Accrued interest payable and other liabilities		6,228,023			8,595,572
Lease liability			4,575,594			4,978,187
Total liabilities			685,764,353			735,839,468
COMMITMENTS AND CONTINGENCIES (Notes 8, 10, and 11)
STOCKHOLDERS' EQUITY
Common stock, $5 par value, 10,000,000 shares authorized;
5,327,035 and 5,325,035 shares issued and outstanding
at December 31, 2023 and 2022, respectively		83,720,599			83,710,599
Surplus		2,387,448			2,609,462
Retained earnings		5,289,892			4,812,490
Accumulated other comprehensive income (loss)			(13,809,677)			(22,721,754)
Total stockholders' equity			77,588,261			68,410,797
Total liabilities and stockholders' equity	$	763,352,614	$	804,250,265

3

PBCO Financial Corporation

Consolidated Statements of Income

			Years Ended December 31,
			2023			2022
INTEREST INCOME
Interest and fees on loans	$	27,576,409	$	22,852,938
Asset-based financing income		3,916,119			6,070,957
Interest on investment securities		3,579,178			3,737,127
Interest on federal funds sold		751,525			1,026,734
Total interest income			35,823,231			33,687,756
INTEREST EXPENSE
Interest-bearing deposit and savings accounts		4,874,159			716,223
Time deposit accounts		754,375			118,666
Other borrow ings			2,694,170			890,313
Total interest expense			8,322,704			1,725,203
NET INTEREST INCOME BEFORE PROVISION FOR CREDIT
LOSSES		27,500,527			31,962,553
PROVISION FOR CREDIT LOSSES			509,129			934,957
NET INTEREST INCOME AFTER PROVISION FOR CREDIT
LOSSES			26,991,398			31,027,596
NONINTEREST INCOME
Gain on sale of loans		468,834			1,004,475
Service charges and other fees		3,537,865			3,682,791
Mortgage loan fees		208,331			308,325
Loss on sale of OREO		-			(4,720)
Other noninterest income			926,568			826,049
Total noninterest income			5,141,598			5,816,920
NONINTEREST EXPENSE
Salaries and employee benefits		15,126,324			14,795,682
Occupancy and equipment		4,016,551			3,686,973
Professional fees		818,621			956,419
Advertising and promotional		358,721			349,436
Data processing		915,747			920,035
OREO w ritedow n		80,000			-
Loss on sale of investments		6,813,526			-
Other noninterest expense			2,688,301			2,965,510
Total noninterest expense			30,817,792			23,674,055
INCOME BEFORE PROVISION FOR INCOME TAXES		1,315,204			13,170,461
PROVISION FOR INCOME TAXES			336,692			3,313,578
NET INCOME	$	978,512	$	9,856,883
Basic earnings per share of common stock	$	0.18	$	1.92
Diluted earnings per share of common stock	$	0.18	$	1.92

4

PBCO Financial Corporation

Statements of Comprehensive Income (Loss)

		Years Ended December 31,
		2023			2022
NET INCOME	$	978,512	$	9,856,883
Unrealized gains (losses) on securities available for sale
Unrealized holding gains (losses) arising during the period, pre-tax		5,394,798			(29,060,742)
Tax effect of unrealized holding gains (losses) arising during the period		(1,456,595)			8,079,403
Reclassification for losses realized in earnings, pre-tax		6,813,526			-
Tax effect of reclassification adjustment for losses realized in earnings		(1,839,652)			-
Other comprehensive income (loss)		8,912,077			(20,981,339)
COMPREHENSIVE INCOME (LOSS)	$	9,890,589	$	(11,124,455)

5

PBCO Financial Corporation

Statements of Changes in Stockholders' Equity

														Accumulated
														Other			Total
	Common Stock						Retained		Comprehensive		Stockholders'
	Shares			Amount				Surplus			Earnings		Income (Loss)			Equity
BALANCE, December 31, 2021	5,057,211	$	25,297,545		$	36,042,613	$	19,465,704	$	(1,740,415)	$	79,065,447
Holding company reorganization	-			57,073,935				(36,042,866)			(21,031,069)			-			-
and merger
Net income	-			-				-			9,856,883			-			9,856,883
Net unrealized loss on
investment securities
available-for-sale, net of taxes	-			-				-			-			(20,981,339)			(20,981,339)
Options exercised	3,103			15,515				1,179			-			-			16,694
Restricted stock grants issued	14,000			70,000				(70,000)			-			-			-
Stock-based compensation expense	-			-				458,464			-			-			458,464
Restricted stock forfeited	(1,910)			(9,550)				9,550									-
5% Stock Dividend	252,631			1,263,154				2,210,522			(3,479,028)						(5,352)
BALANCE, December 31, 2022	5,325,035	$	83,710,599		$	2,609,462	$	4,812,490	$	(22,721,754)	$	68,410,797
Net income	-			-				-			978,512			-			978,512
Effect of adoption of ASC 326											(501,111)						(501,111)
Net unrealized loss on
investment securities
available-for-sale, net of taxes	-			-				-			-			8,912,077			8,912,077
Stock repurchase for restricted grant awards	(49,500)			(247,500)				(382,437)									(629,937)
Restricted stock grants issued	51,500			257,500				(257,500)			-			-			-
Stock-based compensation expense	-			-				417,923			-			-			417,923
BALANCE, December 31, 2023	5,327,035	$	83,720,599		$	2,387,448	$	5,289,892	$	(13,809,677)	$	77,588,261

6