The net operating loss recorded in the second quarter 2010 resulted from a $7.4 million provision to the allowance for loan and lease losses along with $3.5 million in OREO expenses.The Company is required to mark collateral dependent, impaired loans to the net realizable collateral liquidation value.As commercial real estate values, in particular land values, continue to decrease, the Company has experienced a tremendous increase in required loan impairments.The required loss reserve component for impairments alone increased to $9.3 million at June 30, 2010 from $3.7 million at March 31, 2010.The remaining increase in the loan loss reserve was to replenish $2.3 million in net credit losses during the quarter.In addition, the Company sold $6.6 million of Other Real Estate Owned resulting in a loss on sale of $3.3 million.
Until real estate values stabilize, we will be forced to recognize collateral devaluation through increased loan impairments.Many impaired loans continue to perform as agreed so we are hopeful that these reserves will not be fully utilized, commented Brian M. Riley, President < CEO.
Excluding the provision for loan losses and other real estate owned expense, the Company would have reported net income of $750,000 for the second quarter and $1.7 million for the six months ended June 30, 2010.
The Companys net interest margin continues to show improvement after several quarters of nonaccrual activity.The net interest margin increased to 3.99 percent during the quarter ended June 30, 2010.The yield on loans increased to 6.10 percent while the cost of funds continued to decrease to 1.20 percent.Cost control remains a focus of the Company; however, the cost of loan collection, FDIC insurance and OREO disposition continue to increase.
As previously announced, the Company is pursuing a deleveraging strategy to enhance its capital position.As of June 30, 2010, total assets were $350.7 million, a decrease of $22.4 million from $373.1 million at December 31, 2009.Total loans were $236.5 million at June 30, 2010 as compared to $252.4 million at December 31, 2009.Total deposits were $298.4 million at June 30, 2010 as compared to $311.7 million at December 31, 2009.
Nonperforming assets were $23.7 million at June 30, 2010, a decrease of $2.5 million from $26.2 million at December 31, 2009.Nonperforming assets represented 6.7 percent of total assets at June 30, 2010 as compared to 7.0 percent at December 31, 2009. The allowance for loan and lease losses totaled $13.2 million, or 5.56 percent of total loans, at June 30, 2010. The Company continues to carefully monitor its level of loss reserves and will proactively make additions as necessary to protect against an uncertain economic environment.
Shareholder equity decreased to $26.7 million at June 30, 2010 from $34.3 million at December 31, 2009. The Bank must meet certain minimum capital requirements to satisfy federal and state laws.The following table provides the Banks capital ratio at June 30, 2010:
Actual Ratio
Ratio to be well capitalized
Consent Order Requirement
Leverage Ratio
Tier 1 Capital to Risk-Weighted Assets
Total Capital to Risk-Weighted Assets
7.52%
9.81%
11.10%
5.00%
6.00%
10.00%
9.25%
N/A
12.00%
The reduction in capital was not due to operational losses, but rather attributable to the write down of loans and collateral values.Without these reductions, the Company would have posted an operating profit and attained the capital levels required by the Consent Order.Since the Bank failed to meet its Consent Order capital requirements at June 30, 2010, the Company is currently weighing options for a secondary stock offering, along with further active balance sheet management strategies, in order to bring capital ratios in compliance with all regulatory orders.
About the Company
State Bank Corp., headquartered in Lake Havasu City, Arizona, is the parent company of Mohave State Bank, the largest locally-owned bank in Mohave County. Mohave State Bank is a full-service bank providing deposit and loan products, and convenient on-line banking to individuals, businesses and professionals. The Bank was established in October 1991, and the holding company was formed in 2004. The Bank has six full-service branches: two in Lake Havasu City, two in Kingman, one in Bullhead City, and one in Yuma, Arizona. The Company is traded over-the-counter as SBAZ. For further information, please visit the web site: www.mohavestbank.com.
Forward-looking Statements
This press release may include forward-looking statements about State Bank Corp. and its subsidiary, Mohave State Bank, for which the Company claims the protection of safe harbor provisions contained in the Private Securities Litigation Reform Act of 1995. Forward-looking statements are based on managements knowledge and belief as of today and include information concerning the Companys possible or assumed future financial condition, and its results of operations and business. Forward-looking statements are subject to risks and uncertainties. A number of important factors could cause actual results to differ materially from those in the forward-looking statements. Those factors include fluctuations in interest rates, government policies and regulations (including monetary and fiscal policies), legislation, economic conditions, borrower capacity to repay, operational factors and competition in the geographic and business areas in which the Company conducts its operations. All forward-looking statements included in this press release are based on information available at the time of the release, and the Company assumes no obligation to update any forward-looking statement.
UNAUDITED FINANCIAL STATEMENTS FOLLOW
State Bank Corp.
Five-Quarter Performance Summary
For the Quarter Ended
Dollars in thousands - Unaudited
6/30/2010
3/31/2010
12/31/2009
9/30/2009
6/30/2009
Performance Highlights
Earnings:
Total revenue (Net int. income + nonint. income)
$3,660
$3,767
$3,749
$3,659
$3,859
Net interest income
$3,185
$2,979
$3,290
$3,165
$3,267
Provision for loan losses
$7,400
$1,315
$1,250
$600
$2,900
Noninterest income
$475
$788
$459
$494
$592
Noninterest expense
$5,954
$2,357
$3,744
$2,690
$2,421
Net income (loss)
$(7,647)
$129
$(356)
$236
$(950)
Per Share Data:
Net income (loss), basic
$(1.98)
$0.03
$(0.09)
$0.06
$(0.25)
Net income (loss), diluted
$(1.98)
$0.03
$(0.09)
$0.06
$(0.25)
Cash dividends declared
$--
$--
$--
$--
$--
Book value
$6.92
$8.91
$8.91
$9.07
$8.86
Tangible book value
$6.92
$8.91
$8.91
$9.07
$8.86
Performance Ratios:
Return on average assets
-8.39%
0.14%
-0.38%
0.25%
-1.04%
Return on average equity
-101.38%
1.50%
-4.10%
2.74%
-11.13%
Net interest margin, taxable equivalent
3.99%
3.67%
4.01%
3.87%
4.01%
Average cost of funds
1.20%
1.46%
1.54%
1.70%
1.76%
Average yield on loans
6.10%
5.92%
6.41%
6.26%
6.07%
Efficiency ratio
162.68%
62.57%
99.87%
74.14%
63.18%
Non-interest income to total revenue
12.98%
20.92%
12.24%
13.50%
15.34%
Capital < Liquidity:
Total equity to total assets (EOP)
7.61%
9.27%
9.20%
9.36%
9.51%
Tangible equity to tangible assets
7.61%
9.27%
9.20%
9.36%
9.51%
Total loans to total deposits
79.63%
80.42%
81.55%
83.87%
93.14%
Mohave State Bank
Tier 1 leverage ratio
7.52%
9.32%
9.07%
9.05%
9.15%
Tier 1 risk based capital
9.81%
11.77%
11.41%
11.12%
10.87%
Total risk based capital
11.10%
13.04%
12.68%
12.39%
12.13%
Asset Quality:
Gross charge-offs
$2,409
$2,076
$1,244
$813
$1,085
Net charge-offs (NCOs)
$2,344
$2,019
$1,128
$813
$1,085
NCO to average loans, annualized
3.77%
3.19%
1.76%
1.24%
1.56%
Non-accrual loans
$8,759
$9,215
$6,698
$9,846
$12,913
Other real estate owned
$14,893
$19,328
$19,501
$21,465
$16,936
Repossessed assets
$--
$50
$50
$50
$50
Non-performing assets (NPAs)
$23,652
$28,593
$26,249
$31,361
$29,899
NPAs to total assets
6.74%
7.72%
7.03%
8.40%
8.33%
Loans 90 days past due
$379
$27
$523
$3,221
$5,195
NPAs + 90 days past due
$24,031
$28,620
$26,772
$34,582
$35,094
NPAs + loans 90 days past due to total assets
6.85%
7.72%
7.17%
9.26%
9.78%
Allowance for loan losses to total loans
5.56%
3.26%
3.50%
3.42%
3.33%
Allowance for loan losses to NPAs
55.82%
28.69%
33.93%
28.01%
30.09%
Period End Balances:
Assets
$350,723
$370,592
$373,143
$373,290
$358,916
Total Loans (before reserves)
$237,629
$251,786
$254,188
$257,059
$269,611
Deposits
$298,404
$313,075
$311,714
$306,485
$289,467
Stockholders equity
$26,675
$34,346
$34,312
$34,924
$34,134
Common stock market capitalization
$15,342
$13,491
$13,483
$12,520
$24,076
Full-time equivalent employees
81
80
80
80
78
Shares outstanding
3,854,714
3,854,714
3,852,199
3,852,199
3,852,199
Average Balances:
Assets
$364,604
$376,792
$379,442
$374,297
$366,362
Earning assets
$326,374
$333,505
$336,009
$335,828
$334,335
Total Loans (before reserves)
$248,432
$252,781
$256,326
$261,220
$277,385
Deposits
$308,763
$315,849
$314,279
$302,011
$287,523
Other borrowings
$24,704
$25,474
$28,195
$36,739
$42,413
Stockholders equity
$30,173
$34,448
$34,760
$34,488
$34,134
Shares outstanding, basic - wtd
3,854,714
3,853,876
3,852,199
3,852,199
3,851,567
Shares outstanding, diluted - wtd
3,857,634
3,856,796
3,854,714
3,855,003
3,855,806
State Bank Corp.
Balance Sheets
Dollars in thousands - Unaudited
6/30/2010
12/31/2009
Consolidated Balance Sheets
Assets
Cash and cash equivalents
$5,684
$5,202
Fed funds sold
33,980
21,000
Held for maturity securities
1,027
1,086
Available for sale securities
43,460
54,740
Total cash and securities
84,151
82,028
Loans held for sale, before reserves
1,150
1,762
Gross loans held for investment
236,479
252,426
Loan loss reserve
(13,202)
(8,907)
Total net loans
224,427
245,281
Premises and equipment, net
11,070
11,218
Other real estate owned
14,893
19,501
Federal Home Loan Bank and other stock
3,048
3,158
Company owned life insurance
5,236
5,147
Other assets
7,898
6,810
Total Assets
$350,723
$373,143
Liabilities
Non interest bearing demand
$43,833
$38,409
Money market, NOW and savings
132,178
126,416
Time deposits >$100K
60,590
76,974
Time deposits $100K
61,803
69,915
Total Deposits
298,404
311,714
Securities sold under repurchase agreements
20,958
17,940
Federal Home Loan Bank advances
2,000
7,000
Subordinated debt
1,812
1,112
Total Debt
24,770
26,052
Other Liabilities
874
1,065
Total Liabilities
324,048
338,831
Shareholders Equity
Common stock
21,655
21,644
Accumulated retained earnings
4,490
12,009
Accumulated other comprehensive income
530
659
Total shareholders equity
26,675
34,312
Total liabilities and shareholders equity
$350,723
$373,143
State Bank Corp.
Statement of Operations
For the Quarter Ended
Year to Date
Dollars in thousands - Unaudited
6/30/2010
6/30/2009
6/30/2010
6/30/2009
Statements of Operations
Interest income
Loans, including fees
$3,787
$4,207
$7,528
$8,379
Securities
381
482
852
980
Fed funds and other
18
4
35
6
Total interest income
4,186
4,693
8,415
9,365
Interest expense
Deposits
921
1,251
2,003
2,545
Borrowings
80
200
248
409
Total interest expense
1,001
1,451
2,251
2,954
Net interest income
3,185
3,242
6,164
6,411
Provision for loan losses
7,400
2,900
8,715
5,500
Net interest income after loan loss provision
(4,215)
342
(2,551)
911
Noninterest income
Service charges on deposits
168
168
339
350
Mortgage loan fees
6
17
21
30
Gain on sale of loans
215
296
357
521
Other income
86
183
546
269
Total noninterest income
475
664
1,263
1,170
Noninterest expense
Salaries and employee benefits
1,146
1,172
2,259
2,528
Net occupancy expense
85
72
175
156
Equipment expense
54
66
107
127
Data processing
275
310
549
629
Director fees < expenses
63
68
127
139
Insurance
19
22
36
44
Marketing < promotion
81
85
173
187
Professional fees
131
96
188
134
Office expense
58
58
115
118
Regulatory assessments
339
238
571
364
OREO and repossessed assets
3,544
176
3,786
500
Other expenses
159
105
225
214
Total noninterest expense
5,954
2,468
8,311
5,140
Income (loss) before provision (benefit) for income taxes
(9,694)
(1,462)
(9,599)
(3,059)
Provision (benefit) for income taxes
(2,047)
(512)
(2,081)
(1,071)
Net Income (Loss)
$(7,647)
$(950)
$(7,518)
$(1,988)
Per Share Data
Basic EPS
$(1.98)
$(0.25)
$(1.95)
$(0.52)
Diluted EPS
$(1.98)
$(0.25)
$(1.95)
$(0.51)
Average shares outstanding
Basic
3,854,714
3,851,567
3,848,703
3,848,703
Effect of dilutive shares
2,920
4,239
13,713
13,713
Diluted
3,857,634
3,855,806
3,862,416
3,862,416
