PSBC Pacific State Bancorp (CE)

STOCKTON, Calif., Feb. 19 /PRNewswire-FirstCall/ -- Rick D. Simas, President of Pacific State Bank, the wholly owned subsidiary of Pacific State Bancorp (the "Company") (NASDAQ:PSBC), today reported an after tax net loss of $5,654,000 for the fourth quarter of 2008 and an after tax net loss $5,190,000 for the year ended December 31, 2008 for the Stockton, California based bank holding company. The fourth quarter net loss of $5,654,000 reflects a provision for loan losses of $5,591,000, a loss on the sale of securities of $1,291,000 and an other than temporary impairment charge of $2,425,000 on a single issue trust preferred security held by the Company. These pretax losses were offset by a $3,901,000 tax benefit related to these charges. The increased level of provision for loan losses is the result of the continuing deteriorating real estate values and economic environment in the region where the Company operates requiring additional funding to the allowance for loan losses. The loss on the sale of securities was primarily related to a private label mortgage backed security which was downgraded to below investment grade by rating agencies and was subsequently sold at a loss. The other than temporary impairment ("OTTI") charge was the result of a single issue trust preferred security deferring interest payments on a $2,500,000 security. After the other than temporary impairment charge, the Company now carries the security at $75,000. The issuer of the trust preferred security can defer interest payments up to 5 years. In addition to the OTTI charge taken in the fourth quarter, the Company also recorded an OTTI charge in the third quarter of $6,498,000. 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 position in the securities was liquidated in the fourth quarter at an additional loss of $345,000. The OTTI charges were partially offset by a non-taxable gain on Bank-owned life insurance of $2,574,000 in the third quarter. In addition, the Company sold real estate owned by the Bank for a gain of $465,000 or $307,000 net of tax in the third quarter. The Company has experienced an increase in nonperforming loans from $432,000 or 0.14% of gross loans at December 31, 2007 to $23,560,000 or 7.7% of gross loans at December 31, 2008. The increase in nonperforming loans is the result of the continuing economic downturn resulting in increased loan delinquencies and the inability of certain borrowers to repay their original loan as agreed. The increase in nonperforming loans has resulted in management increasing the provision for loan losses over 2007 levels by $4,426,000 for the three months ended December 31, 2008 and by $5,576,000 for the year ended December 31, 2008. Management believes that the level of allowance for loan losses of 1.96% of gross loans at December 31, 2008 is sufficient to provide for probable losses. The Company's management has been proactive in working with borrowers having problems repaying loans that have become delinquent or have the potential to become delinquent. In most cases, collateral values are sufficient to repay outstanding principal and interest. In the cases where collateral values have fallen short of the principle and interest owed on the loans, management has reserved for the estimated potential loss. Mr. Simas 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. Despite the loss reported for 2008, Pacific State Bancorp remains well capitalized with a total risk based capital ratio of 11.50% for the Company and 11.34% for the Bank. To maintain liquidity, 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 December 31, 2008, the Bank maintained open lines with correspondent banks of $26 million with no advances outstanding. The Bank participates in the FHLB blanket lien program in which the Bank has a total borrowing capacity of $93.1 million with $26.8 million available at December 31, 2008. The Bank currently has pledged approximately $6 million in securities to the Federal Reserve. This allows the Bank a total borrowing capacity of approximately $6 million with no advances taken at the Federal Reserve as of December 31, 2008. These lines coupled with $21.8 million of federal funds sold at December 31, 2008, provide the Bank with $80.7 million of immediate liquidity to draw on. As a result the Company has been able to maintain a strong liquidity position. The Company's financial performance information for the three month period ending December 31, 2008 compared to the same quarter in the prior year is as follows: Income Statement: -- Total Interest Income: $5,792,000, a decrease of $1,875,000 or 24% -- Total Interest Expense: $2,572,000, a decrease of $920,000 or 26% -- Net Interest Income: $3,220,000, a decrease of $955,000 or 23% -- Non-Interest Income (Loss): ($3,400,000), a decrease of $3,884,000 or 802% -- Non-Interest Expense: $4,450,000, an increase of $1,865,000 or 72% -- Provision for Loan Losses: $5,591,000, an increase of $4,426,000 or 380% -- Net Loss: $5,654,000, a decrease of $6,167,000 or 1,202% -- Basic Loss Per Share: $1.52, a decrease of $1.66 per share or 1,187% -- Diluted Loss Per Share: $1.52, a decrease of $1.65 per share or 1,271% -- Loss on Average Assets: Annualized loss rate of 5.33%, a decrease of 5.82% from earnings of 0.49% -- Loss on Average Equity: Annualized loss rate of 67.45%, a decrease of 73.22% from earnings of 5.77% The Company's financial performance information for the year ending December 31, 2008 compared to the same time period in the prior year is as follows: Income Statement: -- Total Interest Income: $27,275,000, a decrease of $3,967,000 or 13% -- Total Interest Expense: $12,240,000, a decrease of $1,602,000 or 12% -- Net Interest Income: $15,035,000, a decrease of $2,365,000 or 14% -- Non-Interest Income (Loss): ($5,268,000), a decrease of $7,733,000 or 314% -- Non-Interest Expense: $13,328,000, an increase of $2,331,000 or 21% -- Provision for Loan Losses: $7,001,000, an increase of $5,576,000 or 391% -- Net Loss: $5,190,000, a decrease of $9,739,000 or 214% -- Basic Loss Per Share: $1.40, a decrease of $2.63 per share or 214% -- Diluted Loss Per Share: $1.40, a decrease of $2.54 per share or 223% -- Loss on Average Assets: 1.20%, a decrease of 2.33% from earnings of 1.13% -- Loss on Average Equity: 14.95%, a decrease of 29.17% from earnings of 14.22% The Company's balance sheet information as of December 31, 2008 compared to December 31, 2007 was as follows: -- Total Federal Funds and Investment Securities: $61,549,000, a decrease of $11,683,000 or 16% -- Net Loans: $301,945,000, a decrease of $6,513,000 or 2% -- Total Assets: $421,453,000, a decrease of $9,621,000 or 2% -- Non-Interest Bearing Deposits: $69,874,000, an increase of $2,803,000 or 4% -- Total Deposits: $340,980,000, a decrease of $841,000 or 0.25% -- Total Borrowings: $40,000,000, remained unchanged -- Total Shareholders' Equity: $27,284,000, a decrease of $6,752,000 or 20% -- Total Tier 1 Risk Based Capital Ratio of 10.25% -- Total Tier 1 Leverage Capital Ratio of 8.63% -- Total Risk Based Capital Ratio of 11.50% Attached are certain unaudited financial statements supporting the financial information summarized above. Further inquiries should be directed to Mr. Simas 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 December 31, December 31, (Dollars in thousands) 2008 2007 ASSETS Cash and due from banks $16,700 $13,794 Federal funds sold 21,811 31,880 Total cash and cash equivalents 38,511 45,674 Interest-bearing deposits at other banks - 3,000 Investment securities 39,738 41,352 Loans, less allowance for loan losses of $6,019 in 2008 and $3,948 in 2007 301,945 308,458 Premises and equipment, net 16,811 14,269 Other real estate owned 2,029 - Company owned life insurance 6,751 8,025 Accrued interest receivable and other assets 15,668 10,296 Total assets $421,453 $431,074 LIABILITIES AND SHAREHOLDERS' EQUITY Deposits: Non-interest bearing $69,874 $67,071 Interest bearing 271,106 274,750 Total deposits 340,980 341,821 Other borrowings 40,000 40,000 Subordinated debentures 8,764 8,764 Accrued interest payable and other liabilities 4,425 6,453 Total liabilities 394,169 397,038 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 3,704,698 shares in 2007 10,767 10,418 Retained earnings 18,814 24,004 Accumulated other comprehensive loss, net of taxes (2,297) (386) Total shareholders' equity 27,284 34,036 Total liabilities and shareholders' equity $421,453 $431,074 PACIFIC STATE BANCORP CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS Three Months Ended Year Ended Unaudited December 31, December 31, (Dollars in thousands) 2008 2007 2008 2007 Interest income: Interest and fees on loans 5,567 $6,754 $24,565 $27,902 Interest on Federal funds sold 35 220 376 1,285 Interest on investment securities 190 693 2,334 2,055 Total interest income 5,792 7,667 27,275 31,242 Interest expense: Interest on deposits 2,180 3,221 10,425 12,844 Interest on borrowings 287 85 1,351 296 Interest on subordinated debentures 105 186 464 702 Total interest expense 2,572 3,492 12,240 13,842 Net interest income before provision for loan losses 3,220 4,175 15,035 17,400 Provision for loan losses 5,591 1,165 7,001 1,425 Net interest income (loss) after provision for loan losses (2,371) 3,010 8,034 15,975 Non-interest income: Service charges 167 243 823 889 Gain on sale of loans - 3 188 150 Gain on sale of assets - - 471 - Gain on bank owned life insurance - - 2,574 - Other income 149 238 890 1,426 Other than temporary impairment charge (2,425) - (8,923) - Loss on sale of securities (1,291) - (1,291) - Total non-interest income (loss) (3,400) 484 (5,268) 2,465 Non-interest expenses: Salaries and employee benefits 1,598 1,084 5,546 5,336 Occupancy 370 325 1,251 1,180 Furniture and equipment 399 184 1,032 708 Other expenses 2,083 992 5,499 3,773 Total non-interest expenses 4,450 2,585 13,328 10,997 (Loss) income before (benefit) provision for income taxes (10,221) 909 (10,562) 7,443 (Benefit) provision for income taxes (4,567) 396 (5,372) 2,894 Net (loss) income $(5,654) $513 $(5,190) $ 4,549 Basic (loss) earnings per share $(1.52) $0.14 $(1.40) $1.23 Diluted (loss) earnings per share $ (1.52) $0.13 $(1.40) $1.14 PACIFIC STATE BANCORP Yield Analysis For Three Months Ended December 31, (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 $315,026 $5,567 7.03% $308,776 $6,754 8.68% Investment securities 43,410 190 1.74% 44,413 685 6.12% Federal funds sold 20,434 35 0.68% 17,011 220 5.13% Interest Bearing Deposits in Banks 2 - 0.00% 3,000 8 1.06% Total average earning assets $378,872 $5,792 6.08% $373,200 $7,667 8.15% Non-earning assets: Cash and due from banks 13,780 14,653 Bank premises and equipment 16,714 13,964 Other assets 17,920 20,114 Allowance for loan loss (4,918) (2,707) Total average assets $422,368 $419,224 Liabilities and Shareholders' Equity: Interest-bearing liabilities: Deposits Interest- bearing Demand $ 76,428 $403 2.10% $79,034 $463 2.32% Savings 7,603 20 1.05% 5,189 8 0.61% Time Deposits 187,862 1,757 3.72% 208,783 2,750 5.23% Other borrowing 44,728 392 3.49% 12,795 271 8.40% Total average interest- bearing liabilities $316,621 $2,572 3.23% $305,801 $3,492 4.53% Noninterest- bearing liabilities: Demand deposits 67,628 63,153 Other liabilities 4,773 14,972 Total average liabilities 389,022 383,926 Shareholders' equity 33,346 35,298 Total average liabilities and shareholders' equity $422,368 $419,224 Net interest income $3,220 $4,175 Net interest margin 3.38% 4.44% PACIFIC STATE BANCORP Yield Analysis For Year Ended December 31, (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 $322,489 $24,565 7.62% $300,239 $27,902 9.29% Investment securities 48,306 2,290 4.74% 37,089 2,033 5.48% Federal funds sold 20,057 376 1.87% 25,115 1,285 5.12% Interest-Bearing Deposits in Banks 1,041 44 4.23% 1,077 22 2.04% Total average earning assets $391,893 $27,275 6.96% $363,520 $31,242 8.59% Non-earning assets: Cash and due from banks 13,522 15,398 Bank premises and equipment 15,399 12,940 Other assets 16,629 13,322 Allowance for loan loss (3,939) (2,665) Total average assets $433,504 $402,515 Liabilities and Shareholders' Equity: Interest-bearing liabilities: Deposits Interest- bearing Demand $71,935 $1,618 2.25% $81,898 $2,231 2.72% Savings 6,122 42 0.69% 5,352 46 0.86% Time Deposits 207,848 8,765 4.22% 200,154 10,567 5.28% Other borrowing 44,265 1,815 4.10% 14,359 998 6.95% Total average interest- bearing liabilities $330,170 $12,240 3.71% $301,763 $13,842 4.59% Noninterest- bearing liabilities: Demand deposits 64,242 64,242 Other liabilities 4,378 4,524 Total average liabilities 398,790 370,529 Shareholders' equity: 34,714 31,986 Total average liabilities and shareholders' equity $433,504 $402,515 Net interest income $15,035 $17,400 Net interest margin 3.84% 4.79% DATASOURCE: Pacific State Bancorp CONTACT: Rick D. Simas, President of Pacific State Bank, +1-209-870-3214 Web site: http://www.pacificstatebank.com/

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