PSBC Pacific State Bancorp (CE)

STOCKTON, Calif., Oct. 16 /PRNewswire-FirstCall/ -- Steven A. Rosso, President and C.E.O. of Pacific State Bancorp (NASDAQ:PSBC), the parent company of Pacific State Bank, today reported a net loss of $1,209,000 for the third quarter of 2008 for the Stockton, California based financial institution. The loss was the result of an other than temporary impairment charge on the Bank's securities portfolio offset by a gain on bank owned life insurance discussed below. On a year-to-date basis Pacific State Bancorp remains profitable through the third quarter, earning $464,000. The bank remains well capitalized in these uncertain times with a total risk based capital ratio of 11.62%. Mr. Rosso is disappointed to report that with this quarter's release, the Company experienced its first quarterly loss in over 15 years. Mr. Rosso emphasizes that the loss is the result of an "other than temporary impairment" ("OTTI") charge of $6,498,000 or $4,255,000 net of tax benefit. The impairment charge is the result of the actions taken by the United States Treasury Department of placing into conservatorship the government sponsored enterprises, Fannie Mae and Freddie Mac. The Company owned approximately $7 million in shares of Fannie Mae and Freddie Mac preferred stock which declined significantly in value after the Treasury Department announced the cancellation of preferred stock dividends. The OTTI charge was calculated based upon the market value of the shares on September 30, 2008. The amount of this OTTI charge is subject to material change in the future as a result of significant uncertainties related to Fannie Mae's and Freddie Mac's business operations and the Federal conservatorship and the continuing impact of such factors on the market value of the preferred stock. The OTTI charge was partially offset by a non-taxable gain on Bank-owned life insurance of $2,574,000. In addition, the Company sold real estate owned by the Bank for a gain of $465,000 or $307,000 net of tax. With the exception of the OTTI charge, management believes that the Company continues to perform well despite the troubled economic times for financial institutions. Mr. Rosso noted that the decreased income performance, other than the individual items discussed above, compared to 2007 is primarily the result of the Bank experiencing a contraction in its net interest margin, increased provision for loan losses and an increase in legal expenses associated with the collection of loans. The contraction of the net interest margin is the result of the Bank's interest earning assets re-pricing downward more quickly, after the 325 basis points reductions in the federal reserve federal funds rate since September 2007, than the Bank's interest bearing liabilities. In addition, the Bank has experienced higher levels of nonearning assets as a result of loans being placed on nonaccrual status. The Bank has continued to experience decreasing interest expense throughout 2008 as interest bearing liabilities continue to re-price. Net interest income continues to improve quarter after quarter through 2008. For more information on the net interest margin, please see the Yield Analysis statements included as part of this report below. The increase in the provision for loan losses is the result of a deteriorating economic environment and the concern that the overall credit quality in the bank's service area is declining. The Bank will monitor nonperforming assets very closely and work to collect them in full where possible. Subsequent to the end of the third quarter, Pacific State Bank received a recovery of approximately $875,000. The receipt of this recovery on a loan previously charged-off will bring our allowance for loan losses to $4,767,000 or 1.46% of gross loans. The Bank has experienced an increase in nonperforming loans from $432,000 or 0.14% of gross loans at December 31, 2007 to $7,639,000 or 2.34% of gross loans at September 30, 2008. The increase in nonperforming loans is the result of a decline in real estate values in the region where the Bank operates; resulting in the Bank placing certain loans into foreclosure. Bank's management has immediately placed any loan secured by real estate, which has had a notice of default filed, on non-accrual status. The increase in nonperforming loans has prompted management to increase the provision for loan losses over 2007 levels by $560 thousand for the quarter ended September 30, 2008 and $1.15 million for the nine months ended September 30, 2008. At present, management believes that the level of allowance of 1.19% of total loans at September 30, 2008 compared to 1.26% at December 31, 2007 for loan losses currently recorded is sufficient to provide for both specifically identified and probable losses. Management has been proactive in working with problem customers to repay loans that have become delinquent or have the potential to become delinquent. In most cases, personal guarantees and collateral value are sufficient to repay outstanding principal and interest. In the cases where collateral value and personal guarantees have fallen short of the principle and interest owed on the loans, management has reserved for the estimated potential loss. Management has also ordered real estate appraisals on all new or renewed loans and on loans which are in foreclosure that are secured by real estate. Management has also been proactive in ordering real estate appraisals on loans with potential problems. Appraisals received thus far indicate generally that overall collateral levels remain sufficient to repay the loans secured by the real estate in case of default. Management has also reviewed all home equity lines of credit for current loan to values, credit quality and performance issues. If issues are identified, the debt availability is frozen and reductions or new terms are obtained. The Bank believes that real estate values remain sufficient in a declining market due to the conservative lending policies of the Bank. Pacific State Bank continues to have more than sufficient liquidity to operate. The Bank utilizes borrowing lines from correspondent banks, the Federal Home Loan Bank ("FHLB"), and the discount window with the Federal Reserve for additional liquidity purposes. At September 30, 2008, the Bank maintained open lines with correspondent banks of $21 million with no advances outstanding. The Bank participates in the FHLB blanket lien program in which the Bank has a total borrowing capacity of $88.6 million with $27.2 million available at September 30, 2008. The Bank currently has pledged approximately $16 million in securities to the Federal Reserve. This allows the Bank a total borrowing capacity of approximately $14 million with no advances taken at the Federal Reserve as of September 30, 2008. These lines coupled with $10.75 million of federal funds sold at September 30, 2008, provide the Bank with $76 million of immediate liquidity to draw on. PSBC financial performance information for the three month period ending September 30, 2008 compared to the same quarter in the prior year is as follows: Income Statement: -- Total Interest Income: $6,948,000, a decrease of $989,000 or 13%. -- Total Interest Expense: $2,900,000, a decrease of $796,000 or 22%. -- Net Interest Income: $4,048,000, a decrease of $193,000 or 5%. -- Non-Interest Income: $3,561,000, an increase of $2,972,000 or 505%. -- Non-Interest Expense: $10,056,000, an increase of $7,345,000 or 271%. -- Provision for loan losses: $600,000, an increase of $560,000 or 1,400%. -- Net Loss: $1,209,000, a decrease of $2,510,000 or 193%. -- Efficiency Ratio: 102% deteriorating from 56%. -- Basic Loss Per Share: $0.33, a decrease of $0.68 per share or 194%. -- Diluted Loss Per Share: $0.33, a decrease of $0.66 per share or 200%. -- Loss on Average Assets: Annualized loss rate of 1.11%, a decrease of 237 basis points from 1.26% -- Loss on Average Equity: Annualized loss rate of 11.56%, a decrease of 27.55% from 15.99% PSBC financial performance information for the nine month period ending September 30, 2008 compared to the same time period in the prior year is as follows: Income Statement: -- Total Interest Income: $18,998,000, a decrease of $2,150,000 or 10%. -- Total Interest Expense: $9,668,000, a decrease of $682,000 or 7%. -- Net Interest Income: $11,815,000, a decrease of $1,410,000 or 11%. -- Non-Interest Income: $4,630,000, an increase of $2,649,000 or 134%. -- Non-Interest Expense: $15,376,000, an increase of $6,964,000 or 83%. -- Provision for loan losses: $1,410,000, an increase of $1,150,000 or 442%. -- Net Income: $464,000, a decrease of $3,572,000 or 89%. -- Efficiency Ratio: 93% deteriorating from 55%. -- Basic Earnings Per Share: $0.13, a decrease of $0.97 per share or 88%. -- Diluted Earnings Per Share: $0.12, a decrease of $0.89 per share or 88%. -- ROAA: Annualized rate of 0.14%, a decrease of 122 basis points from 1.36% -- ROAE: Annualized rate of 1.76%, a decrease of 15.72% from 17.48% PSBC September 30, 2008 compared to December 31, 2007 annual financial performance information was as follows: Balance Sheet: -- Total Federal Funds and Investment Securities: $52,717,000, a decrease of $20,515,000 or an annualized 39%. -- Net Loans: $322,420,000, an increase of $13,962,000 or an annualized 6%. -- Total Assets: $427,822,000, a decrease of $3,253,000 or an annualized 1%. -- Non-Interest Bearing Deposits: $69,019,000, an increase of $1,948,000 or an annualized 4%. -- Total Deposits: $345,166,000, an increase of $3,345,000 or an annualized 1%. -- Total Borrowings: decreased from $40,000,000 to $35,000,000. -- Total Shareholders' Equity: $34,000,000, a decrease of $36,000 or an annualized 1%. -- Total Tier 1 Risk Based Capital Ratio of 10.61%. -- Total Tier 1 Leverage Capital Ratio of 9.40%. -- Total Risk Based Capital Ratio of 11.62%. Attached are certain unaudited financial statements supporting the financial information summarized above. Further inquiries should be directed to Mr. Rosso at 209-870-3214, or by mail to P.O. Box 1649, Stockton, California 95201. Additional information also can be obtained by visiting the Company website - http://www.pacificstatebank.com/. SAFE HARBOR: Except for historical information contained herein, the statements contained in this press release include forward-looking statements within the meaning of the "safe harbor" provisions of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements are subject to risks and uncertainties. Actual results may differ materially from those set forth in or implied by forward-looking statements. These risks are described from time to time in Pacific State Bancorp's Securities and Exchange Commission filings, including its Annual Reports on Form 10-K, quarterly reports on Form 10-Q and Current Reports on Form 8-K. Pacific State Bancorp disclaims any intent or obligation to update these forward-looking statements. PACIFIC STATE BANCORP AND SUBSIDIARY CONDENSED CONSOLIDATED BALANCE SHEETS Unaudited September 30, December 31, (Dollars in thousands) 2008 2007 ASSETS Cash and due from banks $13,198 $13,794 Federal funds sold 10,750 31,880 Total cash and cash equivalents 23,948 45,674 Interest bearing deposits at other banks - 3,000 Investment securities 41,967 41,352 Loans, less allowance for loan losses of $3,892 in 2008 and $3,948 in 2007 322,420 308,458 Premises and equipment, net 15,977 14,269 Other real estate owned 190 - Company owned life insurance 6,682 8,025 Accrued interest receivable and other assets 16,638 10,296 Total assets $427,822 $431,074 LIABILITIES AND SHAREHOLDERS' EQUITY Deposits: Non-interest bearing $69,019 $67,071 Interest bearing 276,147 274,750 Total deposits 345,166 341,821 Other borrowings 35,000 40,000 Subordinated debentures 8,764 8,764 Accrued interest payable and other liabilities 4,892 6,453 Total liabilities 393,822 397,038 Commitments and contingencies Shareholders' equity: Preferred stock - 2,000,000 shares authorized; none issued or outstanding - - Common stock - no par value; 24,000,000 shares authorized; issued and outstanding -3,718,598 shares in 2008 and 3,707,698 shares in 2007 10,753 10,418 Retained earnings 24,468 24,004 Accumulated other comprehensive loss, net of taxes (1,221) (386) Total shareholders' equity 34,000 34,036 Total liabilities and shareholders' equity $427,822 $431,074 PACIFIC STATE BANCORP CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS Three Months Ended Nine Months Ended (Unaudited) September 30, September 30, (Dollars in thousands, except per share data) 2008 2007 2008 2007 Interest income: Interest and fees on loans $6,321 $7,006 $18,998 $21,148 Interest on Federal funds sold 85 396 341 1,065 Interest on investment securities 542 535 2,144 1,362 Total interest income 6,948 7,937 21,483 23,575 Interest expense: Interest on deposits 2,587 3,467 8,245 9,623 Interest on borrowings 216 90 1,064 211 Interest on subordinated debentures 97 139 359 516 Total interest expense 2,900 3,696 9,668 10,350 Net interest income before provision for loan losses 4,048 4,241 11,815 13,225 Provision for loan losses 600 40 1,410 260 Net interest income after provision for loan losses 3,448 4,201 10,405 12,965 Non-interest income: Service charges 196 208 656 646 Gain on sale of loans 37 119 188 147 Gain on sale of assets 471 - 471 - Gain on bank owned life insurance 2,574 - 2,574 - Other income 283 262 741 1,188 Total non-interest income 3,561 589 4,630 1,981 Non-interest expenses: Salaries and employee benefits 1,398 1,264 3,948 4,252 Occupancy 316 292 881 855 Furniture and equipment 259 157 633 524 Other than temporary impairment charge 6,498 - 6,498 - Other expenses 1,585 998 3,416 2,781 Total non-interest expenses 10,056 2,711 15,376 8,412 (Loss) income before provision for income taxes (3,047) 2,079 (341) 6,534 (Benefit) provision for income taxes (1,838) 778 (805) 2,498 Net (loss) income $(1,209) $1,301 $464 $4,036 Basic (loss) earnings per share $(0.33) $0.35 $0.13 $1.10 Diluted (loss) earnings per share $(0.33) $0.33 $0.12 $1.01 PACIFIC STATE BANCORP Yield Analysis For Three Months Ended September 30, (Dollars in thousands) 2008 2007 Interest Average Interest Average Average Income or Yield or Average Income or Yield or Assets: Balance Expense Cost Balance Expense Cost Interest- earning assets: Loans $324,545 $6,321 7.75% $303,858 $7,006 9.15% Investment securities 53,019 542 4.07% 39,733 521 5.20% Federal funds sold 17,739 85 1.91% 30,697 396 5.12% Interest bearing deposits in banks - - - 867 14 6.41% Total average earning assets $ 395,303 $6,948 6.99% $375,155 $7,937 8.39% Non-earning assets: Cash and due from banks 13,342 14,354 Bank premises and equipment 15,393 13,421 Other assets 12,010 11,051 Allowance for loan loss (3,785) (2,704) Total average assets $432,263 $411,277 Liabilities and Shareholders' Equity: Interest- bearing liabilities: Deposits Interest- bearing demand $ 73,397 $126 0.68% $76,347 $538 2.80% Savings 6,113 7 0.46% 5,288 11 0.83% Time deposits 215,307 2,454 4.53% 216,093 2,918 5.36% Other borrowing 26,685 313 4.67% 17,264 229 5.26% Total average interest- bearing liabilities $321,502 $2,900 3.59% $314,992 $3,696 4.66% Noninterest- bearing liabilities: Demand deposits 65,098 61,010 Other liabilities 4,045 2,995 Total average liabilities 390,645 378,997 Shareholders' equity: 41,618 32,280 Total average liabilities and shareholders' equity $432,263 $411,277 Net interest income $4,048 $4,241 Net interest margin 4.07% 4.49% PACIFIC STATE BANCORP Yield Analysis For Nine Months Ended September 30, (Dollars in thousands) 2008 2007 Interest Average Interest Average Average Income or Yield or Average Income or Yield or Assets: Balance Expense Cost Balance Expense Cost Interest- earning assets: Loans $325,004 $18,998 7.81% $297,362 $21,148 9.51% Investment securities 49,956 2,100 5.62% 34,621 1,348 5.21% Federal funds sold 19,930 341 2.29% 27,846 1,065 5.11% Interest bearing deposits in banks 1,391 44 4.23% 429 14 4.36% Total average earning assets $396,281 $21,483 7.24% $360,258 $23,575 8.75% Non-earning assets: Cash and due from banks 13,435 15,649 Bank premises and equipment 14,956 12,595 Other assets 16,194 11,033 Allowance for loan loss (3,609) (2,651) Total average assets $437,257 $396,884 Liabilities and Shareholders' Equity: Interest- bearing liabilities: Deposits Interest- bearing demand $70,421 $1,215 2.30% $ 82,863 $1,768 2.85% Savings 5,623 22 0.52% 5,407 38 0.94% Time deposits 214,583 7,008 4.36% 197,246 7,817 5.30% Other borrowing 44,109 1,423 4.31% 14,886 727 6.53% Total average interest- bearing liabilities $334,736 $9,668 3.86% $300,402 $10,350 4.61% Noninterest- bearing liabilities: Demand deposits 63,101 64,609 Other liabilities 4,245 1,003 Total average liabilities 402,082 366,014 Shareholders' equity: 35,175 30,870 Total average liabilities and shareholders' equity $437,257 $396,884 Net interest income $11,815 $13,225 Net interest margin 3.98% 4.91% DATASOURCE: Pacific State Bancorp CONTACT: Steven A. Rosso of Pacific State Bancorp, +1-209-870-3214 Web site: http://www.pacificstatebank.com/

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