BEO Bancorp earnings up 39.4% in 3Q2007

E. George Koffler, President & CEO, (541) 676-020l
Mark Lemmon, EVP & CFO, (541) 676-0201
Joey J. Warmenhoven, McAdams, Wright and Ragan, Market Maker, (866) 662-0351
John T. Cavender, Howe Barnes Hoefer & Arnett, Market Maker, (800) 346-5544
(OTC Bulletin Board: BEOB)
Heppner, Oregon (October 26, 2007) -BEO Bancorp, parent company of Bank of Eastern Oregon, reported a 39.4% increase in earnings in the third quarter of 2007. 
  • Earnings $577,000 in 3Q2007, compared to $414,000 in 3Q2006.
  • Earnings YTD $1,616,000 compared to YTD earnings in 2006 of $1,015,000, a 59.2% increase.
  • Loan growth 9.3% year over year.
  • Total asset growth 6.4% year over year, approaching $200 million.
  • Earnings per share $1.83 YTD versus $1.15 in 2006.
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Financial Performance
Earnings for BEO Bancorp were substantial in 3Q2007 at $577,000 compared to earnings of $414,000 in 3Q2006, an increase of 39.4%. Net Income YTD 2007 was also impressive at $1,616,000 compared to YTD 2006 earnings of $1,015,000, a 59.2% increase.
"Our improved results continue to be driven by increased interest income through moderate loan growth and a very small increase in interest expense through cost containment," said President and CEO, E. George Koffler.   "We are particularly pleased the stock price increased from $19.45 to $26 during the last quarter, adjusted for the stock dividend paid, a 34% increase," Koffler added.
ROAA was 1.17% for 3Q2007 and 1.12% YTD, increases of 31.1% and 49.7% over the same period of 2006. ROAE also is trending positively with ROAE of 22.12% for 3Q2007 compared to 19.23% in 3Q2006, a 15.1% increase.
Revenue and Expense
Interest income continues on a positive trend at $3,629,000 for the quarter compared to $3,190,000 in 2006, a 13.8% increase. YTD interest income grew from $8,841,000 in 2006 to $10,283,000 in 2007, an increase of 16.3%. Both loan interest and securities portfolio interest complement that total.
Loan fee income leads the non-interest income totals, primarily from commercial and Mortgage Division loan fees. Despite the subprime debacle in the real estate markets and the general slowdown in that segment, BEO Mortgage is running 14% ahead of 2006 performance due to targeted marketing, strong local relationships, flexible programs, and branch production.
Interest expense containment continues to drive profitability with interest expense for the third quarter up only 0.6% and 1.9% YTD. Despite this, the bank continues to grow market share.
Loan Growth and Credit Quality
Loan totals continue to grow at a manageable rate, increasing 9.3% year over year from $123,543,000 to $135,072,000. Growth over linked quarters was 2.8%. "We are pleased about the continued quality loan growth we are experiencing," said EVP and Chief Credit Officer, Jeff Bailey. "Our new Enterprise loan production office is averaging $2,000,000 per month in booked loans and our pipeline system wide is adequate to continue growing loans," said Bailey.
Credit quality remains strong with no 30 day past due loans at quarter end and the non accrual loan of the previous quarter was liquidated. There were no loan charge offs or recoveries during the quarter. "Commodity prices, particularly wheat, are stronger than they have been for years. Our loan portfolio quality has strengthened because of that," said Bailey.
Deposit Growth and Operations
Liabilities, including deposits and repurchase agreements, totaled $179,060,000 at quarter end compared to 3Q2006's end of $169,646,000, an increase of 5.6%. "We are completing a successful customer service training program to complement our history of providing service excellence to our customers," said EVP and Chief Operations Officer, Gary Propheter. "We have also bundled a great package of business and municipal products that will come to the market in the fourth quarter that we hope will increase business accounts and deposit and loan totals," Propheter concluded.
Net Interest Margin and Interest Rate Risk
Net interest margin (NIM) average for 3Q2007 was 5.52% compared to 3Q2006 of 4.82%. Comparing linked quarters shows NIM averaged 5.81% in 2Q2007, for a reduction of 29 basis points that was primarily driven by variances in loan fees. "We expect continued pressure on NIM during the remainder of 2007 and into next year," said EVP and Chief Financial Officer, Mark Lemmon. "The market experienced a reduction in rates at the end of the quarter and we are prepared for one or two additional moves in the coming months," said Lemmon.
Interest rate risk continues at a manageable level. The bank is slightly asset sensitive and earnings could be negatively affected short term by downward rate movements. 
Capital and Equity
Capital ratios at the bank level were mixed for the quarter. Tier 1 capital declined by 9 basis points, from 8.87% to 8.78%, primarily as a result of strong quarterly growth of total assets from $186,000,000 to $196,000,000. Tier 1 risk based capital and total risk based capital improved to 10.71% and 11.74% from 10.57% and 11.59% for the previous quarter.
Total equity at the holding company continued to strengthen from $9,015,000 to $10,957,000, year over year, as a result of improved earnings and improvements in the value of the investment portfolio due to market movements.
About BEO Bancorp
BEO Bancorp is the holding company for Bank of Eastern Oregon, which operates 11 branches and three loan production offices in nine eastern Oregon counties. Branches are located in Arlington, Ione, Heppner, Condon, Irrigon, Boardman, Burns, John Day, Prairie City, Fossil and Moro; loan production offices are located in Hermiston, Ontario, and Enterprise. Bank of Eastern Oregon also operates a mortgage division and offers brokerage services through BEO Financial Services. Bank of Eastern Oregon's website is
Forward-Looking Statements
The statements contained in this release that are not historical facts are forward-looking statements based upon management's current expectations and beliefs concerning future
developments and their potential effect on BEO Bancorp. There can be no assurances that future developments affecting BEO Bancorp will be the same as those anticipated by management.
Actual results may differ from those projected in the forward-looking statements. These forward-looking statements involve risks and uncertainties. These risks and uncertainties include, but are not limited to: 
     (1) competitive pressures in the banking and financial industries;
     (2) changes in interest rate environment;
     (3) general economic conditions, nationally, regionally, and in operating markets;
     (4) changes in regulatory environment;
     (5) changes in business conditions and inflation;
     (6) changes in securities markets; and
     (7) future credit loss experience.
Consolidated Financial Highlights 3Q2007...>>>