PBCO PBCO Financial Corporation (PK)

People�s Bank of Commerce (OTCBB: PBCO) reports results for the second quarter ending June 30, 2009:

• Assets up 15% to $96.9 million compared to $84.6 million during the same period in 2008.
• Tier one leverage capital at $10.7 million or 11% capital-to-asset ratio.
• Net loss after tax for the quarter of $534,000 compared to second quarter 2008 profit of $3,500, or $0.59 loss per share, adjusted for a recent 5% stock dividend compared to an adjusted gain of $0.004 per share for the 2nd quarter of 2008.
• Portfolio loans up 8% to $73 million compared to $67 million during the second quarter of 2008.
• Deposits up 25% to $85 million over the $68 million during the same time in 2008.
• Gross income from residential lending activities up 66% over the second quarter of 2008.
• Provision for loan losses increased by $387,000 to 1.7% of total loans as of June 30, 2009 versus 1.2% at the end of the same period in 2008.

Ken Trautman, President and CEO of People�s Bank of Commerce said, �Like many other local banks, negative trends in loan quality have caused us to make substantial additions to our reserve for loan losses. We continue to diligently evaluate our loan portfolio to identify and reserve for credit risk as needed. People�s Bank recognizes that State and Federal bank regulators have encouraged banks in our region to take aggressive action with loan loss provisions in this environment.� As a result, Trautman reports that they have funded loan loss reserves by $994,000 in the second quarter of 2009 compared to $96,000 in the same period last year.

�By aggressively managing our credit quality and strategically replacing real estate and development loans with high quality commercial loans, as well as growing deposits to provide for sufficient liquidity, we have positioned ourselves for growth and success as the economy recovers.�

Adjusting out the loan loss provision increase during the second quarter, the bank made significant improvement in income from operations compared to 2008. The bank�s second quarter 2009 pre-tax income, without loan loss provision, was $117,000 compared to $72,000 for the same quarter in 2008.

EARNINGS

The Bank reported a loss of $534,000, or $0.59 per share, for the quarter ended June 30, 2009 compared to a profit of $3,500 during the same period in 2008. Modest earnings during the first quarter helped to reduce the year-to-date loss to $482,000, or $0.53 per share, for the first six months of 2009 compared to a profit of $79,000, or $0.09 per share, adjusted for a stock dividend, in 2008.

Total interest income for the second quarter 2009 was $1.3 million, 6% lower than the second quarter of 2008, primarily the result of an increase in non-accrual loans and the historically low prime rate. Interest expense for the current quarter was $366,000 versus $448,000 for the prior year�s quarter, a decrease of 15%. Net interest income prior to the provision for loan losses was down 1% over the prior year�s quarter and 3% for the first six months. The bank�s net interest margin decreased the first six months of 2009 compared to the same period in 2008 to 4.59% from 4.77%.

NON-INTEREST INCOME

People�s Bank was able to show a significant increase in non-interest income for the second quarter and year-to-date 2009, which on a year-over-year comparison was up 55% and 36% respectively. This large increase is primarily from its residential lending revenues, which for the six months of 2009, was up 31% over 2008, $632,000 compared to $481,000 respectively. During the quarter People�s Bank provided over $20 million in home loans to Rogue Valley residents. People�s Bank consistently ranks among the top home mortgage lenders in Jackson County, Oregon.

NON-INTEREST EXPENSE

Non-interest expense of $1.3 million for the second quarter 2009 exceeded the prior year�s quarter by 12%, primarily the result of the increase in FDIC insurance premiums and expenses associated with foreclosed properties. Non-interest expense for the first six months of 2009 was $2.6 million compared to $2.4 million in 2008, an 8% increase. A year-over-year comparison of salaries and benefits showed a reduction of 1%.

CAPITAL

As the chart below indicates, People�s Bank continues to significantly exceed the government�s standards established to be considered �Well Capitalized.�

June 30, 2009

� � � �

For Capital

�

To Be Well

(000�s omitted)

Actual

Adequacy Purposes

Capitalized

Amount

� �

Ratio

Amount

� �

Ratio

Amount

� �

Ratio

Total capital to risk weighted assets $ 11,540 14.7 % $ 6,286 ?8.0% $ 7,858

�

?10.0% � Tier 1 capital to risk weighted assets $ 10,545 13.4 % $ 3,143 ?4.0% $ 4,715 ?6.0% � Tier 1 capital to average assets $ 10,545 11.3 % $ 3,749 >4.0% $ 4,687

?5.0%

�

It should be noted that even after aggressive second quarter additions to the loan loss reserve of $994,000, People�s Bank still has an extremely strong total risk weighted capital to asset ratio of 14.7%. This ratio significantly exceeds federal regulatory guidelines.

CREDIT QUALITY

As a result of the continuing economic down turn, the bank has increased its scrutiny of all loans, particularly loans that require real estate to be sold for repayment. This review resulted in the bank funding over $1 million to its allowance for loan and lease losses during the first six months 2009.

The breakdown for the first six months of each year is as follows:

�

6/30/09

�

6/30/08

Beginning balance of ALLL $ 836,863 $ 968,887 Provision added during the year 1,039,100 116,300 Net Charge-offs during the year

(666,693

) (263,145 ) Ending balance of ALLL $ 1,209,270 $ 822,042 Percent of Total Portfolio Loans 1.66 % 1.22 % �

During the second quarter 2009, $395,000 of the $1 million in year-to-date loan loss reserve additions was the result of the bank preemptively writing down 10 commercial real estate loans to their collateral values. In addition, the bank wrote down by $242,000, a loan on a newly constructed home, which is in the process of foreclosure. These additions increased the bank�s reserve relative to total loans to 1.66%, up from 1.22%. The breakdown of the $395,000 provision is as follows:

71% allocated for loans that were current or less than 30 days past due; 20% allocated for loans that were less than 90 days past due; 9% allocated for loans that were over 90 days past due. �

Of the total non-current and non-accrual loans outstanding at the end of the second quarter 2009, 39% were guaranteed by either SBA or other government agencies. A summary of the banks non-current loans is as follows:

Non-current loans (NCL)

�

6-30-09

�

6-30-08

30 � 89 days past due $ 3,853 $ 1,209,186 90 days and more -0- -0- Non-accrual loans 2,192,332

1,239,172

Total non-current and non-accrual $ 2,196,185 $ 2,448,358 NCL to total loans 3.01 % 3.63 % � Other Real Estate Owned (OREO) $ 1,016,048 $ 1,034,015 NCL + OREO to total loans 4.40 % 5.17 % �

The bank has acquired four properties totaling $1,016,000 as part of debt settlement and lists these on its balance sheet as Other Real Estate Owned (OREO). Included in this total, the bank acquired an 11 unit multifamily residential property south of Grants Pass, Oregon and is currently negotiating its sale. Subsequent to the end of the second quarter, the bank entered into a contract to sell one piece of OREO, which will reduce the total by over $200,000. The other two properties consist of a new home in Rogue River that is in the process of foreclosure, as well as four building lots near Eagle Point golf course.

A breakdown of the loan charge-offs for the first six months of 2009 versus 2008 is as follows:

Net Loan Charge-offs

� � � � � �

6-30-09

percent

6-30-08

percent

Construction $ 279,729 42 % $ 143,531 54 %

1-4 family 1st liens

24,916 4 % 86,185 33 % 1-4 family junior liens 164,196 25 % -0- N/A Commercial RE conventional 70,480 11 % -0- N/A Commercial SBA 49,777 7 % 34,301 13 % Commercial other 76,296 11 % (872 ) N/A Consumer

1,299

00 % -0- � N/A � � Total $ 666,693 100.00 $ 263,145 100.00 �

The bank is aggressively pursuing collection efforts on all loan charge-offs.

LOANS AND DEPOSITS

At June 30, 2009 deposits totaled $85 million compared to $72 million at the end of the first quarter and $68 million one year ago. �The growth of our deposits has provided additional liquidity for the bank, which increases a bank�s safety by relying on the liquidity from its own balance sheet, while holding borrowing lines in reserve,� Trautman said. �This provides multiple layers of safety for a bank during tumultuous times.�

Portfolio loans at June 30, 2009 totaled $73 million compared to $72 million at the end of the first quarter and $67 million at the end of the second quarter in 2008. A breakdown of loans by major category follows:

Loans: �

June 30, 2009

� � �

June 30, 2008

Commercial $ 53,600,000 $ 49,700,000 Real Estate 15,400,000 14,700,000 Consumer 4,000,000 2,900,000 Overdrafts � 35,000 � 16,000 Total $ 73,035,000 $ 67,316,000 � Loans Held for Sale $ 2,500,000 $ 2,100,000 �

�Branch activity remains strong at all locations and new opportunities to increase the bank�s business base have been abundant,� commented Trautman. �We believe this reflects favorably on the bank�s philosophy of relationship banking and our longstanding commitment to support our customers locally. The bank is solid and we remain committed to the fundamentals of common sense banking. We continue to realize favorable earnings before loan loss reserve, a true measure of a bank�s core earnings strength. Our strong capital position, adequate loan loss provision and balance sheet liquidity, coupled with a well-defined strategy and our steadfast commitment to only serving our local community, positions the bank for success as the economy improves.�

People�s Bank of Commerce July 23, 2009 � � � � �

2009

2008 �

Quarter ended June 30:

Net income $ (534,000 ) $ 3,500 EPS (0.59 ) 0.004 �

Quarter ended March 31:

Net income $ 52,000 $ 76,000 EPS 0.06 0.09 �

Six months ended June 30:

Net income $ (482,000 ) $ 79,100 EPS (0.53 ) 0.09 �

At June 30:

Total Portfolio Loans $ 73,021,000 $ 67,412,000 Total Reserve for Loan Losses 1,209,000 822,000 Total Deposits 84,966,000 68,103,000 Total Assets 96,889,000 84,573,000 Total Shareholders' Equity 10,717,000 11,487,000 No. of shares outstanding 910,176 910,176 * Book Value, per share 11.77 12.62 * �

At March 31:

Total Portfolio Loans $ 71,844,000 $ 71,446,000 Total Reserve for Loan Losses 882,000 983,000 Total Deposits 72,166,000 74,432,000 Total Assets 86,540,000 86,546,000 Total Shareholders' Equity 11,278,000 11,582,000 Book Value, per share 12.39 12.72 * � * 2008 data adjusted retroactively for stock dividend paid 4/16/09. �

FORWARD-LOOKING STATEMENTS

This release contains forward-looking statements that are subject to risks and uncertainties that could cause actual results to differ materially from those expressed or implied by such forward-looking statements. Such risks and uncertainties may include but are not necessarily limited to general and local economic conditions, including the residential and commercial real estate markets; changes in interest rates, including timing or relative degree of change; inflation; credit quality and concentrations; competition within the business areas in which People�s Bank is conducting its operations; changes in regulatory conditions or requirements or new legislation; and changes in accounting policies. These statements include, among others, statements related to future profitability levels and future earnings. When used in this release, the words or phrases such as "will likely result in," "management expects that," "will continue," "is anticipated," "estimate," "projected," or similar expressions constitute forward-looking statements, as do any other statements that expressly or implicitly predict future events, results or performance, and such statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Readers should not place undue reliance on the forward-looking statements, which reflect management's view only as of the date hereof. People�s Bank undertakes no obligation to publicly revise these forward-looking statements to reflect subsequent events or circumstances.