PSBC Pacific State Bancorp (CE)

Over 60 Consecutive Quarters of Positive Earnings STOCKTON, Calif., July 17 /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 second quarter 2008 profits and asset growth for the Stockton, California based financial institution: -- Net income for the quarter ended June 30, 2008 decreased 58.6% to $579,000 from the second quarter of 2007. -- Net income for the six months ended June 30, 2008 decreased 38.8% to $1,673,000 from the first half of 2007. -- Total Assets as of June 30, 2008 increased 5.3% or 10.7% annualized to $453,915,000 from December 31, 2007. Mr. Rosso is excited to report that with this quarter's release, the Bank has achieved positive quarterly earnings for over 15 years or 60 consecutive quarters. Despite the troubled economic times for financial institutions, the Company continues to outperform many of its peers and is dedicated to continuing it's successful record. In addition, the Bank remains free of any other real estate owned on its balance sheet. Mr. Rosso noted that the decreased income performance is primarily the result of the Bank experiencing a contraction in its net interest margin and increased provision for loan losses. The contraction of the net interest margin is the result of the more rapid downward repricing of the Bank's interest earning assets, after the Federal Reserve rate cuts, than the Bank's repricing of interest bearing liabilities. For more information on the net interest margin, please see the Yield Analysis statements included below in this report. The increase in the provision for loan losses is the result of a deteriorating economic environment and the inability of specific customers to repay loan commitments. The bank continues to monitor it's non-performing assets very closely. Continuing from the first quarter, the Bank has begun to experience a repricing of liabilities. Repricing of time deposits led to a decrease in deposit interest expense during May and June while average balances increased. In addition to the repricing of the interest bearing deposits, interest rate changes in the market and deposit growth have allowed the Bank to prepay certain borrowings and will allow the bank to reduce wholesale borrowings to $20 million in early July from $35 million at June 30, 2008 and $40 million at December 31, 2007. Management believes a decreased level of borrowing and repricing of interest bearing deposits will have its greatest impact in the third quarter and early fourth quarter of 2008. The Bank has experienced an increase in nonperforming loans from $432,000 at December 31, 2007 to $3,706,000 or 1.14% of gross loans at June 30, 2008. The increase in nonperforming loans is the result of a decline in real estate values in the region where the Bank operates, forcing the Bank to place certain loans into foreclosure. Bank's management has immediately placed on non-accrual status any loan secured by real estate, for which a notice of default has been delivered. The increase in nonperforming loans has prompted Management to increase the provision for loan losses over 2007 levels by $545 thousand for the quarter ended June 30, 2008 and $590 thousand for the six months ended June 30, 2008. At present, management believes that the level of allowance 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 principal and interest owed on the loans, management has reserved for the estimated potential loss. Management has 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 or performance issues. If issues are identified, the debt availability is frozen and reductions or new terms are obtained. Management believes that overall real estate values remain sufficient in a declining market due to the conservative lending policies of the Bank. In addition to a contracting net interest margin, the Bank has also experienced a decline in non-interest income of $109,000 from 2007 second quarter levels. The decline has been the result of decreased mortgage fees and prepayment penalties. PSBC financial performance information for the three month period ending June 30, 2008 compared to the same quarter in the prior year is as follows: Income Statement: -- Total Interest Income: $7,234,000, a decrease of $898,000 or 11%. -- Total Interest Expense: $3,386,000, an increase of $93,000 or 2.7%. -- Net Interest Income: $3,850,000, a decrease of $803,000 or 17.3%. -- Non-Interest Income: $597,000, a decrease of $109,000 or 15.4%. -- Non-Interest Expense: $2,825,000, a decrease of $177,000 or 5.9%. -- Provision for loan losses: $600,000, an increase of $545,000 or 990.9%. -- Net Income: $579,000, a decrease of $819,000 or 58.6%. -- Efficiency Ratio: 63.6% deteriorating from 56.0%. -- Basic Earnings Per Share: $0.16, a decrease of $0.22 per share or 57.9%. -- Diluted Earnings Per Share: $0.15, a decrease of $0.20 per share or 57.1%. -- ROAA: Annualized rate of 0.52%, a decrease of 89 basis points from 1.41% -- ROAE: Annualized rate of 6.64%, a decrease of 11.54% from 18.18% PSBC financial performance information for the six month period ending June 30, 2008 compared to the same time period in the prior year is as follows: Income Statement: -- Total Interest Income: $14,535,000, a decrease of $1,103,000 or 7.1%. -- Total Interest Expense: $6,768,000, an increase of $114,000 or 1.7%. -- Net Interest Income: $7,767,000, a decrease of $1,217,000 or 13.5%. -- Non-Interest Income: $1,069,000, a decrease of $323,000 or 23.2%. -- Non-Interest Expense: $5,320,000, a decrease of $381,000 or 6.7%. -- Provision for loan losses: $810,000, an increase of $590,000 or 268.2%. -- Net Income: $1,673,000, a decrease of $1,062,000 or 38.8%. -- Efficiency Ratio: 60.2% deteriorating from 54.9%. -- Basic Earnings Per Share: $0.45, a decrease of $0.30 per share or 39.8%. -- Diluted Earnings Per Share: $0.43, a decrease of $0.25 per share or 36.8%. -- ROAA: Annualized rate of 0.77%, a decrease of 65 basis points from 1.42% -- ROAE: Annualized rate of 9.60%, a decrease of 8.69% from 18.29% PSBC June 30, 2008 compared to December 31, 2007 annual financial performance information was as follows: Balance Sheet: -- Total Federal Funds and Investment Securities: $82,532,000, an increase of $9,300,000 or an annualized 25.7%. -- Net Loans: $321,502,000, an increase of $13,044,000 or an annualized 8.6%. -- Total Assets: $453,915,000, an increase of $22,841,000 or an annualized 10.7%. -- Non-Interest Bearing Deposits: $67,123,000, an increase of $52,000 or an annualized 0.2%. -- Total Deposits: $371,404,000, an increase of $29,583,000 or an annualized 17.5%. -- Total Borrowings: Decreased from $40,000,000 to $35,000,000. -- Total Shareholders' Equity: $34,955,000, an increase of $919,000 or an annualized 5.5%. 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 and quarterly reports on Form 10-Q. Pacific State Bancorp disclaims any intent or obligation to update these forward-looking statements. PACIFIC STATE BANCORP AND SUBSIDIARY CONDENSED CONSOLIDATED BALANCE SHEETS Unaudited June 30, December 31, (Dollars in thousands) 2008 2007 ASSETS Cash and due from banks $16,079 $13,794 Federal funds sold 35,091 31,880 Total cash and cash equivalents 51,170 45,674 Interest bearing deposits at other banks - 3,000 Investment securities 47,441 41,352 Loans, less allowance for loan losses of $3,427 in 2008 and $3,948 in 2007 321,502 308,458 Premises and equipment, net 15,234 14,269 Company owned life insurance 8,160 8,025 Accrued interest receivable and other assets 10,407 10,296 Total assets $453,914 $431,074 LIABILITIES AND SHAREHOLDERS' EQUITY Deposits: Non-interest bearing $67,123 $67,071 Interest bearing 304,281 274,750 Total deposits 371,404 341,821 Other borrowings 35,000 40,000 Subordinated debentures 8,764 8,764 Accrued interest payable and other liabilities 3,791 6,453 Total liabilities 418,959 397,038 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 - 3,715,598 shares in 2008 and 3,707,698 shares in 2007 10,645 10,418 Retained earnings 25,678 24,004 Accumulated other comprehensive loss, net of taxes (1,368) (386) Total shareholders' equity 34,955 34,036 Total liabilities and shareholders' equity $453,914 $431,074 PACIFIC STATE BANCORP CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) Three Months Ended Six Months Ended (Dollars in thousands, June 30, June 30, except per share data) 2008 2007 2008 2007 Interest income: Interest and fees on loans $6,201 $7,300 $12,677 $14,142 Interest on Federal funds sold 141 348 256 669 Interest on investment securities 892 484 1,602 827 Total interest income 7,234 8,132 14,535 15,638 Interest expense: Interest on deposits 2,860 3,239 5,658 6,156 Interest on other borrowings 418 55 848 121 Interest on subordinated debentures 108 185 262 377 Total interest expense 3,386 3,479 6,768 6,654 Net interest income before provision for loan losses 3,848 4,653 7,767 8,984 Provision for loan losses 600 55 810 220 Net interest income after provision for loan losses 3,248 4,598 6,957 8,764 Non-interest income: Service charges 223 217 460 438 Gain on sale of loans 132 19 151 28 Other income 242 470 458 926 Total non-interest income 597 706 1,069 1,392 Non-interest expenses: Salaries and employee benefits 1,282 1,506 2,550 2,988 Occupancy 302 277 565 563 Furniture and equipment 195 200 374 367 Other expenses 1,046 1,019 1,831 1,783 Total non-interest expenses 2,825 3,002 5,320 5,701 Income before provision for income taxes 1,020 2,302 2,706 4,455 Provision for income taxes 441 904 1,033 1,720 Net income $579 $1,398 $1,673 $2,735 Basic earnings per share $0.16 $0.38 $0.45 $0.75 Diluted earnings per share $0.15 $0.35 $0.43 $0.68 PACIFIC STATE BANCORP Yield Analysis For Three Months Ended June 30, (Dollars in thousands) 2008 2007 Interest Average Interest Average Income Yield Income Yield Average or or Average or or Assets: Balance Expense Cost Balance Expense Cost Interest-earning assets: Loans $329,055 $6,201 7.58% $295,030 $7,300 9.92% Investment securities 51,341 892 7.00% 37,310 484 5.20% Federal funds sold 28,908 129 1.79% 27,424 348 5.09% Interest Bearing Deposits in Banks 1,187 12 4.07% 0 0 0.00% Total average earning assets $410,491 $7,234 7.09% $359,764 $8,132 9.07% Non-earning assets: Cash and due from banks 13,669 16,644 Bank premises and equipment 14,953 12,365 Other assets 15,619 10,480 Allowance for loan loss (3,036) (2,702) Total average assets $451,696 $396,551 Liabilities and Shareholders' Equity: Interest-bearing liabilities: Deposits Interest-bearing Demand $68,752 $399 2.33% $84,522 $622 2.95% Savings 5,394 7 0.52% 5,343 13 0.98% Time Deposits 227,825 2,454 4.33% 196,233 2,604 5.32% Other borrowing 47,857 526 4.42% 13,564 240 7.10% Total average interest-bearing liabilities $349,828 $3,386 3.89% $299,662 $3,479 4.66% Noninterest-bearing liabilities: Demand deposits 62,853 63,893 Other liabilities 3,923 2,157 Total average liabilities 416,604 365,712 Shareholders' equity: 35,092 30,839 Total average liabilities and shareholders' equity $451,696 $396,551 Net interest income $3,848 $4,653 Net interest margin 3.77% 5.19% PACIFIC STATE BANCORP Yield Analysis For Six Months Ended June 30, (Dollars in thousands) 2008 2007 Interest Average Interest Average Income Yield Income Yield Average or or Average or or Assets: Balance Expense Cost Balance Expense Cost Interest-earning assets: Loans $325,236 $12,677 7.84% $293,728 $14,142 9.71% Investment securities 49,561 1,559 6.33% 31,945 821 5.18% Federal funds sold 21,037 256 2.45% 26,393 669 5.11% Interest Bearing Deposits in Banks 2,093 43 4.13% 215 6 5.63% Total average earning assets $397,927 $14,535 7.35% $352,281 $15,638 8.95% Non-earning assets: Cash and due from banks 13,482 16,316 Bank premises and equipment 14,705 12,176 Other assets 15,980 11,454 Allowance for loan loss (3,520) (2,623) Total average assets $438,574 $389,604 Liabilities and Shareholders' Equity: Interest-bearing liabilities: Deposits Interest-bearing Demand $68,917 $788 2.30% $86,181 $1,230 2.88% Savings 5,376 14 0.52% 5,468 27 1.00% Time Deposits 214,217 4,856 4.56% 187,687 4,899 5.26% Other borrowing 48,487 1,110 4.60% 13,677 498 7.34% Total average interest-bearing liabilities $336,997 $6,768 4.04% $293,013 $6,654 4.58% Noninterest-bearing liabilities: Demand deposits 62,229 64,609 Other liabilities 4,309 1,826 Total average liabilities 403,535 359,448 Shareholders' equity: 35,039 30,156 Total average liabilities and shareholders' equity $438,574 $389,604 Net interest income $7,767 $8,984 Net interest margin 3.93% 5.14% DATASOURCE: Pacific State Bancorp CONTACT: Steven A. Rosso, President and C.E.O. of Pacific State Bancorp, +1-209-870-3214 Web site: http://www.pacificstatebank.com/

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