Pacific State Bancorp (PSBC, Financial) filed Quarterly Report for the period ended 2009-09-30.
Pacific State Bancorp is a holding company with one bank subsidiary, Pacific State Bank, and two unconsolidated subsidiary guarantor trusts, Pacific State Statutory Trusts I and II. The Bank's primary source of revenue is providing loans to customers who are predominantly small to middle-market businesses and middle-income individuals. Pacific State Bancorp has a market cap of $3.31 million; its shares were traded at around $0.89 with and P/S ratio of 0.15.
The Company recorded a net loss of $12.733 million for the first nine months of 2009, compared to net income of $464 thousand for the same time period in 2008. The decrease in net income in 2009 compared to the first nine months of 2008 was primarily driven by significant increases in the provision for loan losses of $4.742 million, increase in tax expense of $3.467 million, other real estate expense of $2.315 million, a $2.574 million gain on bank owned life insurance recorded in 2008 which did not occur in 2009 and a decrease in net interest income of $2.300 million. The decrease in performance is primarily related to deterioration in credit quality throughout 2009 which was the result of a longer and deeper than normal recessionary cycle. The recessionary cycle drove down real estate valuations and economic activity within the Company s service area, creating difficulty for the Company s borrowers to repay loans.
The 2009 third quarter net loss of $7.874 million compares to a net loss of $1.209 million for the third quarter of 2008. The increased net loss for the third quarter 2009 compared to the third quarter of 2008 was primarily related to a deferred tax valuation allowance recorded in 2009 of $6.978 resulting in third quarter tax expense of $6.259 million compared to a tax benefit of $1.838 million recorded in 2008. During the third quarter of 2009, the Company experienced increased credit costs associated with deteriorating credit quality and an elevated level of nonperforming assets. Decreased credit quality led the Company to record $1 million in provision for loan losses for the third quarter of 2009 compared to $600 thousand recorded for the same time period in 2008. The elevated level of nonperforming assets, decreased level of earning assets and decreased rate earned on earning assets offset by a decrease in interest-bearing deposits and decreased rate paid on those deposits led to a decrease of net interest income of $906 thousand for the third quarter of 2009, compared to the same time period in 2008. In addition to increased credit costs, the Company recorded an other than temporary impairment charge on an investment security in the amount of $746 thousand for the third quarter 2009 related to a pooled trust preferred security which has experienced significant deferrals and defaults. This compares to an other than temporary impairment charge of $6.498 million recorded in the third quarter of 2008 which was related to Fannie Mae and Freddie Mac preferred stock holdings. The third quarter of 2008 also benefited from a nontaxable gain on bank owned life insurance of $2.574 million which was not received in 2009.
The decreased net interest income performance is primarily the result of the Bank experiencing a contraction in its net interest margin. The contraction of the net interest margin is the result of an increased level of nonaccrual loans and nonperforming assets. Increased levels of nonaccrual loans have the effect of reducing loan yields over the time period. Increased levels of nonaccrual loans coupled with decreasing market rates charged on loan balances have caused the yields earned on the loan portfolio to decrease from 7.75% for the third quarter of 2008 to 6.61% for the third quarter of 2009. The yield earned on all interest earning assets in the third quarter of 2009 totaled 5.79% compared to 7.03% for the same time period in 2008. In addition to the decrease in yields earned on assets, total average earning assets decreased $51.931 million to $341.112 million for the third quarter of 2009 from $393.043 million for the same time period in 2008. The decrease in average earning assets occurred primarily in the loan portfolio where average balances decreased $46.328 million or 14.3% to $278.220 million in the third quarter of 2009 from $324.548 million for the same time period in 2008.
The net interest margin for the three months ended September 30, 2009 decreased 45 basis points to 3.65%, from 4.10% for the same period in 2008. The decrease in interest income described above was offset by a decrease in the level of funding and rate paid for the funding of assets during the third quarter of 2009 compared to the same time period in 2008. The cost of funding in the third quarter of 2009 totaled 2.32% compared to 3.49% in the third quarter of 2008. The cost of funding decreased primarily because of decreased market rates paid for deposits and borrowings during the third quarter of 2009 compared to the same time period in 2008. In addition to decreased rates paid on deposits, the average balance on which interest was paid decreased by $16.644 million to $313.643 million for the third quarter of 2009 from $330.287 million for the same period in 2008. The decrease was primarily attributable to a decrease of $28,166,000 in time deposits to $187.137 million for the third quarter of 2009 from $215.303 million for the same time period in 2008.
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Pacific State Bancorp is a holding company with one bank subsidiary, Pacific State Bank, and two unconsolidated subsidiary guarantor trusts, Pacific State Statutory Trusts I and II. The Bank's primary source of revenue is providing loans to customers who are predominantly small to middle-market businesses and middle-income individuals. Pacific State Bancorp has a market cap of $3.31 million; its shares were traded at around $0.89 with and P/S ratio of 0.15.
Highlight of Business Operations:
The 2009 third quarter net loss of $7.874 million compares to a net loss of $1.209 million for the third quarter of 2008. The increased net loss for the third quarter 2009 compared to the third quarter of 2008 was primarily related to a deferred tax valuation allowance recorded in 2009 of $6.978 resulting in third quarter tax expense of $6.259 million compared to a tax benefit of $1.838 million recorded in 2008. During the third quarter of 2009, the Company experienced increased credit costs associated with deteriorated credit quality and an elevated level of nonperforming assets. Decreased credit quality led the Company to record $1 million in provision for loan losses for the third quarter of 2009 compared to $600 thousand recorded for the same time period in 2008. The elevated level of nonperforming assets led to a decrease of net interest income of $906 thousand for the third quarter of 2009, compared to the same time period in 2008. In addition to increased credit costs, the Company recorded an other than temporary impairment charge on an investment security in the amount of $746 thousand for the third quarter 2009 related to a pooled trust preferred security which has experienced significant deferrals and defaults. This compares to an other than temporary impairment charge of $6.498 million recorded in the third quarter of 2008 which was related to Fannie Mae and Freddie Mac preferred stock holdings. The third quarter of 2008 also benefited from a nontaxable gain on bank owned life insurance of $2.574 million which was not received in 2009.The Company recorded a net loss of $12.733 million for the first nine months of 2009, compared to net income of $464 thousand for the same time period in 2008. The decrease in net income in 2009 compared to the first nine months of 2008 was primarily driven by significant increases in the provision for loan losses of $4.742 million, increase in tax expense of $3.467 million, other real estate expense of $2.315 million, a $2.574 million gain on bank owned life insurance recorded in 2008 which did not occur in 2009 and a decrease in net interest income of $2.300 million. The decrease in performance is primarily related to deterioration in credit quality throughout 2009 which was the result of a longer and deeper than normal recessionary cycle. The recessionary cycle drove down real estate valuations and economic activity within the Company s service area, creating difficulty for the Company s borrowers to repay loans.
The 2009 third quarter net loss of $7.874 million compares to a net loss of $1.209 million for the third quarter of 2008. The increased net loss for the third quarter 2009 compared to the third quarter of 2008 was primarily related to a deferred tax valuation allowance recorded in 2009 of $6.978 resulting in third quarter tax expense of $6.259 million compared to a tax benefit of $1.838 million recorded in 2008. During the third quarter of 2009, the Company experienced increased credit costs associated with deteriorating credit quality and an elevated level of nonperforming assets. Decreased credit quality led the Company to record $1 million in provision for loan losses for the third quarter of 2009 compared to $600 thousand recorded for the same time period in 2008. The elevated level of nonperforming assets, decreased level of earning assets and decreased rate earned on earning assets offset by a decrease in interest-bearing deposits and decreased rate paid on those deposits led to a decrease of net interest income of $906 thousand for the third quarter of 2009, compared to the same time period in 2008. In addition to increased credit costs, the Company recorded an other than temporary impairment charge on an investment security in the amount of $746 thousand for the third quarter 2009 related to a pooled trust preferred security which has experienced significant deferrals and defaults. This compares to an other than temporary impairment charge of $6.498 million recorded in the third quarter of 2008 which was related to Fannie Mae and Freddie Mac preferred stock holdings. The third quarter of 2008 also benefited from a nontaxable gain on bank owned life insurance of $2.574 million which was not received in 2009.
The decreased net interest income performance is primarily the result of the Bank experiencing a contraction in its net interest margin. The contraction of the net interest margin is the result of an increased level of nonaccrual loans and nonperforming assets. Increased levels of nonaccrual loans have the effect of reducing loan yields over the time period. Increased levels of nonaccrual loans coupled with decreasing market rates charged on loan balances have caused the yields earned on the loan portfolio to decrease from 7.75% for the third quarter of 2008 to 6.61% for the third quarter of 2009. The yield earned on all interest earning assets in the third quarter of 2009 totaled 5.79% compared to 7.03% for the same time period in 2008. In addition to the decrease in yields earned on assets, total average earning assets decreased $51.931 million to $341.112 million for the third quarter of 2009 from $393.043 million for the same time period in 2008. The decrease in average earning assets occurred primarily in the loan portfolio where average balances decreased $46.328 million or 14.3% to $278.220 million in the third quarter of 2009 from $324.548 million for the same time period in 2008.
The net interest margin for the three months ended September 30, 2009 decreased 45 basis points to 3.65%, from 4.10% for the same period in 2008. The decrease in interest income described above was offset by a decrease in the level of funding and rate paid for the funding of assets during the third quarter of 2009 compared to the same time period in 2008. The cost of funding in the third quarter of 2009 totaled 2.32% compared to 3.49% in the third quarter of 2008. The cost of funding decreased primarily because of decreased market rates paid for deposits and borrowings during the third quarter of 2009 compared to the same time period in 2008. In addition to decreased rates paid on deposits, the average balance on which interest was paid decreased by $16.644 million to $313.643 million for the third quarter of 2009 from $330.287 million for the same period in 2008. The decrease was primarily attributable to a decrease of $28,166,000 in time deposits to $187.137 million for the third quarter of 2009 from $215.303 million for the same time period in 2008.
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