SOURCE: California Oaks State Bank

California Oaks State Bank

February 17, 2010 02:12 ET

California Oaks State Bank Reports Year End Results

THOUSAND OAKS, CA--(Marketwire - February 17, 2010) - California Oaks State Bank (OTCBB: COSB), a community business bank with assets of $125.4 million, today reported a net loss for 2009 of $563,000 or $0.38 per diluted share, compared to a net loss of $1,088,212 or $0.73 per diluted share in 2008. In addition, the Bank paid $183,042 or $0.12 per share in dividend and accretion costs as a result of the TARP funding received by the Bank from the U.S. Treasury in January, 2009. The loss from operations prior to income taxes for the year totaled $264,000. The Bank was required to write down its deferred tax asset by $299,000 at the end of the year. This increased the overall loss to $563,000.

Total assets ended 2009 at $125.4 million with gross loans and deposits at $99.6 million and $97.1 million, respectively. Total assets by comparison from 2008 were $121.4 million with loans and deposits of $107.6 million and $90.3 million, respectively. The reduction of loans on a year to year basis totaled $8 million while deposit growth totaled $6.8 million.

The Bank saw its net deposit base increase $6.8 million primarily in core deposit growth of $10.9 million while certificates of deposits decreased $4.1 million. FHLB borrowings decreased $5 million in 2009.

The Bank's net interest margin, as a percentage of total average assets for 2009, decreased 91 basis points to 3.98% versus 4.89% in 2008. The Bank's net interest income fell by $972,000 in 2009 as a result of a decrease in the prime lending rate late in 2008, which impacted all of 2009.

There has been a concerted effort to reposition the loan portfolio from riskier construction lending to more typical commercial lending. The Bank ended the year with a land and construction portfolio totaling $8.5 million. Of this portfolio $54,481 was in an active construction loan, the remaining amount is in land loans. The Bank worked off the construction portfolio albeit one construction loan that was on nonaccrual. That loan totaled $54,481 at the end of 2009 compared with $476,255 at the end of 2008. This loan was subsequently paid off during the first quarter of 2010 generating a small loan recovery of $41,826.

The Bank allocated $686,000 to its loan loss reserves to accommodate the increased stress in the loan portfolio. During the fourth quarter of 2009, the Bank saw an increase of past due loans based on continuing economic problems in the US economy. As of 12/31/09, $1.356 million in loans are on nonaccrual and are receiving extra management attention. John Nerland, COSB President & CEO, noted, "We are diligent about problem loan reports and making sure we are recognizing collateral values in these ever changing economic conditions. The important issue is that the Bank aggressively addresses problem loans in a timely manner."

The Bank's capital ratios remain strong with Tier 1 risk based capital at 15.4%. The Bank remains highly capitalized as far as regulatory entities are concerned, with total risk based capital of 16.7% as the Bank received 3.3 million in TARP funding from the U.S. Treasury Capital Program in January, 2009.

Nerland noted, "Over the past year the Bank has made numerous improvements and changes in the way we do business. During the 4th Quarter of 2009, the Bank was able to renegotiate two key contracts the Bank has with respect to its rental and data processing expenses which will positively impact the Bank's operating expenses beginning in 2010. In addition, we have downsized the number of employees of the Bank in an effort to become more efficient while increasing the asset size of the Bank. These two initiatives were not enough to counteract the dropping in rates and the deterioration of credit quality caused by the down turn in the economy. Overall our financial results for 2009 are below our expectations, but the underlying operations of the Bank and the capital that we maintain provide a solid foundation for which we will continue to grow."

Visit the California Oaks State Bank Web site at for more information.

About California Oaks State Bank

California Oaks State Bank (OTCBB: COSB) with $125 million in assets is located in Ventura County with offices in Thousand Oaks and Simi Valley and a Loan Production Office located in Walnut Creek, Calif. California Oaks State Bank was founded in 1998 as a locally owned community business bank. The bank provides a full range of products and services including commercial and real estate loans as well as cash management products and deposit services. Its unique capability in diversified lending in addition to its customary community bank credit products help its customers meet their cash management goals.

Certain matters discussed in this press release constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, and are subject to the safe harbors created by the act. These forward-looking statements refer to the Company's current expectations regarding future operating results, and growth in loans, deposits, and assets. These forward looking statements are subject to certain risks and uncertainties that could cause the actual results, performance, or achievements to differ materially from those expressed, suggested, or implied by the forward looking statements. These risks and uncertainties include, but are not limited to (1) the impact of changes in interest rates, a decline in economic conditions, and increased competition by financial service providers on the Company's results of operation, (2) the Company's ability to continue its internal growth rate, (3) the Company's ability to build net interest spread, (4) the quality of the Company's earning assets, and (5) governmental regulations.

                              BALANCE SHEET
                     December 31, 2009  (000) Audited

                                                 12/31/2009    12/31/2008
                                                ------------  ------------
Cash and Due from Banks                         $      5,260  $      4,517
Interest Bearing Due From Banks                       14,736             0
Federal Funds Sold                                         0         1,280
Investment Securities                                  1,488         4,471
Loans (net)                                           97,692       105,251
OREO                                                       0             0
Other Assets                                           6,251         5,847
                                                ------------  ------------
  Total Assets                                  $    125,427  $    121,366
                                                ============  ============

Demand Deposits                                 $     29,484  $     29,983
Money Market and NOW Accounts                         34,205        22,876
Savings Accounts                                       3,650         3,594
Time Deposits Under $100,000                          13,483        22,585
Time Deposits $100,000 and Over                       16,299        11,274
                                                ------------  ------------
  Total Deposits                                      97,121        90,312
FHLB Borrowings                                       11,000        14,000
Other Liabilities                                        449           835
                                                ------------  ------------
  Total Liabilities                                  108,570       107,147
Treasury Preferred Stock                               3,316             0
Common Shareholders Equity                            13,541        14,219
                                                ------------  ------------
Total Equity                                          16,857        14,219
                                                ------------  ------------

Total Liabilities and Equity                    $    125,427  $    121,366
                                                ============  ============

                          STATEMENT OF EARNINGS
                    December 31, 2009   (000)   Audited

                                                 12/31/2009    12/31/2008
                                                ------------  ------------
  Interest Income                               $      6,637  $      7,883
  Interest Expense                                     1,575         1,849
                                                ------------  ------------
  Net Interest Income                                  5,062         6,034

  Provision for Loan Loss                                686         1,648
                                                ------------  ------------
  Net Interest Income after Provision                  4,376         4,386
  Non Interest Income                                  1,174           873
                                                ------------  ------------
  Total Operating Income                               5,550         5,234

  Total Non Interest Expense                           5,814         6,347
                                                ------------  ------------
  Income (Loss) Before Income Taxes                     (264)       (1,088)
  Income Taxes                                          (299)            0
                                                ------------  ------------
  Net Income (Loss)                             $       (563) $     (1,088)
                                                ============  ============

  Preferred Stock Dividends and
  Accretion of Discount                                 (183)            0
Net Loss to Common Stockholders                 $       (746) $     (1,088)
Net Loss Per Share - Basic                      $      (0.50) $      (0.73)
Net Loss Per Share - Diluted                    $      (0.50) $      (0.73)

                                                    2009          2008
                                               ------------  ------------
Ratios and Other Financial Data
Actual Number of Shares Outstanding               1,494,041     1,484,774
Income per Share                               $      (0.50) $      (0.73)
Book Value per Share                           $       9.06  $       9.58
Return on Average Assets                              (0.44)%       (0.88)%
Return on Average Equity                              (4.23)%       (7.24)%
Net Interest Margin                                    3.98 %        4.89 %
Non-Performing Assets to Total Assets                  1.08 %        2.56 %
Non Performing Loans to Total Loans                    1.36 %        2.95 %
Allowance for Loan Losses to Loans                     1.95 %        2.18 %
Leverage Capital Ratio                                13.16 %       10.70 %
Tier One Risk Based Capital                           15.42 %       11.89 %
Total Risk Based Capital                              16.67 %       13.16 %

Performance Summary

The Bank's total assets ended 2009 at $125.4 million, an increase of $4.1 million over year end 2008. This increase was caused by the Bank continuing its existing marketing and business development efforts which resulted in an increase of $10.9 million in core deposits which enabled the Bank to reduce its reliance on CDs by $4.1 million and FHLB advances of $3.0 million respectively. In addition, the Bank received capital funding in January 2009 for $3.3 million that the government made available under the Treasury Capital Purchase Plan (TARP).

The Bank's net loss for the year ended December 31, 2009 was $563,000 down from a loss of $1,088,000 from the year ended December 31, 2008. The $563,000 was comprised of an operating loss of $264,000 and an adjustment to the deferred tax asset of $299,000. The Bank had a net loss in 2009 as a direct result of increasing its provision for loan loss by $500,585 in the 4th Quarter after management identified five credits that had deteriorated to the point of impairment during the quarter. Accordingly reserves were increased. In the case where a new appraisal was obtained and the appraisal did not support the impairment, the credits were charged off against the loan loss reserve. The earnings for 2009 represented an annualized return on average assets of (0.44%), an increase from the (0.88%) return for the like period in 2008.

Net Interest Income

Net interest income decreased $972,000 in 2009 compared with 2008. The decrease in the net interest income can mainly be attributed to the decrease in the prime lending rate during 2008 which carried into 2009 and the effect it had on income throughout 2009. In addition, net interest income decreased due to the decrease in outstanding loans in 2009 as the Bank concentrated on decreasing the risk in its loan portfolio and also decreased non-core liability leveraging that it had employed in the past. The Bank's Net Interest Margin as a percentage of Average Assets was 3.98% and 4.89%, as of December 31, 2009 and December 31, 2008, respectively.

The Bank's Net Interest Expense decreased as the Bank began to increase as the Bank has been successful in increasing non-interest bearing accounts (checking accounts), and lower cost transaction accounts (NOW and money market account) as a percentage of total deposits. Low cost core deposits as a percentage of total deposits, which increased to 69.3% at December 31, 2009 from 62.5% at December 31, 2008, enabled the Bank to decrease its interest expense in 2009. Interest expense was $1,575,000 at December 31, 2009 compared to $1,849,000 at December 31, 2008. Deposit interest expense during 2009 totaled $1,126,000 while FHLB interest expense totaled $449,000. During 2008, deposit expense totaled $1,227,000 while FHLB interest expense totaled $622,000.

Provision for Loan Losses

The provision to the allowance for loan losses for 2009 was $686,000 compared to $1,648,000 in 2008. The balance in the allowance for loan losses was $1,940,000 and $2,345,000 for December 31, 2009 and December 31, 2008, respectively. The allowance as a percentage of loans was 1.95% and 2.18% for those same periods. Nonperforming assets, made up of non-accruing loans, accruing loans 90 days or more past due and other real estate owned totaled $1,356,000 as of December 31, 2009 and $3,109,000 as of December 31, 2008. Of these non-accruing loans in 2009, $275,000 represents the guarantee provided by the SBA. The Bank did not have any OREO Assets as of those same time periods. The Bank did have two properties in OREO during 2009 but was able to dispose of both properties and generated an $114,000 gain on sale to the Bank. Management continues to believe that the allowance is adequate to cover future losses.

Non-interest Income

Non-interest income for year ended December 31, 2009 was $1,174,000, an increase of $301,000 compared with the year ended December 31, 2008. The primary reasons for the increase was the gain on sale of OREO of $114,000, an increase on the gain on sale of available for sale securities of $48,000, and a gain on insurance proceeds received of $97,000 on one of the Bank's OREO properties sold during 2009.

Non-interest Expense

Non-interest expense decreased from $6,347,000 for the year ended December 31, 2008 to $5,814,000 for the year ended December 31, 2009, a decrease of $533,000, or 8.4%. The decrease in expense is directly attributable to the Bank's continued expense review and its ability to increase its efficiencies. Expense decreases are predominately related to salaries and benefits of $432,000, occupancy and equipment of $71,000. The Bank was also successful in renegotiating various long term contracts that it currently has. The savings on these negotiations will primarily take place in 2010 as a number of the contracts did not get finalized until the 4th quarter. The anticipated reductions in expenses include $156,000 in rental expense, $55,000 in healthcare benefits, and $96,000 in various operating systems.

Income Taxes

The Bank has posted a net average loss over the last 3 years and as a result it was required to record a valuation allowance of $835,000 for its net deferred tax asset as of December 31, 2009. This entry resulted in the reduction of the net deferred tax asset and a tax expense of $299,000. Accordingly, the Bank has amassed a tax loss carry forward of $929,000 for federal tax purposes and $862,000 for state tax purposes as of December 31, 2009. These federal and state net operating loss carry forwards expire through 2029. Due to the valuation allowance, the Bank will expense the minimum California tax payment when made. As the Bank posts profits, the tax accrued will reduce the valuation allowance rather than being deducted from earnings as would be the case in a regular tax accrual situation.

Liquidity and Asset/Liability Management

As of December 31, 2009 and December 31, 2008, the Bank's liquidity ratio was 28.5% and 16.9%, respectively. Management is not aware of any future capital expenditures or other significant demands or commitments that would significantly impact liquidity.

Capital Resources

Total shareholders' equity increased from $14.2 million at December 31, 2008 to $16.9 million at December 31, 2009. The Bank received capital funding in January 2009 for $3.3 million that the government made available under the Treasury Capital Purchase Plan (TARP) which was partially offset by a Net loss in 2009 of ($563,000) and dividends paid of $146,000 on the Bank's Preferred TARP Capital.

The Bank's leverage capital ratio of equity to average assets increased from 10.70% as of December 31, 2008 to 13.16% as of December 31, 2009. Similarly, the Bank's ratios of tier one capital and total capital at risk-adjusted assets also increased.

Asset Quality

Management did a comprehensive evaluation of the credit quality in the loan portfolio during the month of December. This evaluation included receiving new appraisals on troubled clients and updated cash flow analysis. We are not pleased with having nonperforming loans of $1,356,000 and past due loans 30-89 days of $611,217 in the 4th quarter. This was especially disappointing after having no past due loans and only $993,000 in non performing loans in the third quarter.