Premiere Service Bank (fka PSBK)

[Enterprising Investor]

Premier Service Bank Announces Financial Results for the Third Quarter of 2013 (11/13/13)

RIVERSIDE, Calif.--(BUSINESS WIRE)--Premier Service Bank (OTCBB:PSBK) today announced its unaudited financial results for the third quarter of 2013.

For the quarter ended September 30, 2013, the Bank reported net loss of $212 thousand, or <$0.18> per diluted share, compared to net income of $161 thousand, or $0.12 per diluted share, for the quarter ended September 30, 2012. The decrease in earnings between the respective periods is attributed to the decrease in the net interest income due to the decrease in the net loan portfolio. There was no additional provision to the allowance for loan losses required for the third quarter of 2013 and for the same period in 2012.

At September 30, 2013, the Bank had $5.5 million of non-performing loans, representing 8.29% of the Bank’s total loans, compared to $5.3 million of non-performing loans, or 5.93% of total loans, at September 30, 2012. The Bank had foreclosed real estate of $539 thousand at September 30, 2013, compared to foreclosed real estate of $2.2 million at September 30, 2012. At September 30, 2013, non-accrual loans totaled $5.5 million, representing 8.29% of total loans at that date, compared to non-accrual loans of $5.3 million at September 30, 2012, representing 5.93% of total loans at that date. The allowance for loan losses totaled $2.4 million at September 30, 2013, or 3.70% of total loans as of that date, compared to $2.9 million at September 30, 2012, or 3.22% of total loans as of that date.

At September 30, 2013, the Bank had total assets of $128 million, representing a decrease of $10 million, or 7.20%, compared to total assets of $138 million at September 30, 2012. The Bank had $2 million in FHLB borrowings at September 30, 2013, representing a decrease of nine million, or 81.8%, from the FHLB borrowings of $11 million at September 30, 2012. Total deposits at September 30, 2013 were $114.8 million, representing a decrease of 0.99% compared to total deposits of $115.9 million at September 30, 2012. Non-interest bearing demand deposits totaled $45.7 million at September 30, 2013, representing 39.81% of total deposits at that date, compared to $44.7 million of non-interest bearing demand deposits at September 30, 2012, which represented 38.57% of total deposits at that date.

The Bank’s gross loan portfolio decreased to $65.7 million at September 30, 2013, representing a 26.70% decrease compared to gross loans of $89.7 million at September 30, 2012. Unfunded credit commitments stood at $7.8 million at September 30, 2013, representing the same level when compared to unfunded commitments of $7.8 million at September 30, 2012.

The Bank’s net interest margin for the quarter ended September 30, 2013 was 3.50%, a decrease of 111 basis points as compared to the net interest margin of 4.61% for the third quarter of 2012.

Total shareholders’ equity at September 30, 2013 was $10.7 million, representing an increase of $261 thousand, or 2.49%, compared to total shareholders’ equity of $10.5 million at September 30, 2012. On December 1, 2010, the Bank entered into a Consent Order with the Federal Deposit Insurance Corporation and the predecessor to the Bank’s current California regulator, the California Department of Business Oversight (the “DBO”). The Consent Order requires the Bank, within 90 days from the effective date of the Order (by February 28, 2011), to increase and thereafter maintain its Tier I capital in such an amount to ensure that the Bank’s leverage ratio equals or exceeds 9.50% and its total risk-based capital ratio equals or exceeds 12%. As of September 30, 2013, these capital ratios were 8.35% and 16.15%, respectively. As a result, the Bank was not in compliance, as of September 30, 2013, with the leverage capital ratio, but was in compliance with the total risk-based capital ratio requirement as of that date. Although not in full compliance with the capital ratios required by the Consent Order as of September 30, 2013, the Bank was adequately capitalized as of that date under applicable regulatory guidelines.

On November 4, 2013, the Bank entered into a Plan and Agreement of Merger with Independence Bank (“Independence”), Newport Beach, California (the “Merger Agreement”), pursuant to which Independence will acquire the Bank. It is anticipated that the transaction will close during the first or second quarter of 2014, and assuming it does close at that time, the Bank’s capital requirements will be resolved under its Consent Order. The transaction has been approved unanimously by the boards of directors of Independence and the Bank, and remains subject to approval by the shareholders of Independence and the Bank, bank regulatory agencies, and other customary conditions of closing.

Under the terms of the Merger Agreement, the Bank’s shareholders will receive per share consideration of $6.85, or $8.6 million in aggregate. The Bank’s shareholders will have the option of exchanging each share for either cash or Independence common stock, subject to an overall consideration mix of 55% cash and 45% Independence common stock. Independence Bank plans to list its stock on the Over-the-Counter Bulletin Board after closing of the transaction.

Upon the closing of the transaction, it is presently anticipated that Kerry Pendergast, Premier’s President and CEO, and Ken Stream, Premier’s Chairman, will join the Board of Directors of Independence, and Mr. Pendergast will serve as Regional President of Independence.

The Bank’s President and Chief Executive Officer, Kerry L. Pendergast, stated, “I am confident that the transaction with Independence will provide the Bank with the balance sheet strength and product platform that will allow us to continue to improve service to our customers and to add new customers. Until the transaction closes, we will continue to operate the Bank to provide the best possible service to our customers, and will work with Independence to prepare for the combination of the two banks.”

Mr. Pendergast continued, “While we are excited about the pending merger with Independence, we are continuing our efforts to strengthen the Bank until the transaction closes. This was the sixth consecutive quarter during which the Bank was not required to make any provision expense to its Allowance for loan losses. Based on management’s analysis as of September 30, 2013, the Bank concluded not only that a provision to the Allowance was not required, but that, as of that date, the Bank had a reserve surplus of $1.4 million. As stated above in this release, the Bank’s Allowance for loan losses, as a percentage of total loans, was 3.70% as of September 30, 2013, compared to 3.22% of total loans as of September 30, 2012. Trends within the Bank’s lending portfolio continue to be improving, which is representative of the improving outlook for the local, regional and State economy.”

Pendergast went on to say, “The reserve surplus not only provides an additional cushion for unforeseen issues that might surface within the portfolio, but it is also available to support loan growth as the Bank intensifies its business development efforts and focuses on building a strong loan pipeline. Our marketing and business development efforts continue to be focused on capturing new lending and banking relationships from individuals and companies who are looking to establish ‘personal banking’ relationships with a local community bank.”

Pendergast said in closing, “We are continuing to have success in disposing of real estate that we acquired through foreclosure. We closed the quarter ended September 30, 2013 with $539 thousand of OREO, as compared to $946 thousand and $2.2 million at the quarters ended June 30, 2013 and September 30, 2012, respectively. As of the date of this release, the Bank had entered into escrow to dispose of the remaining Bank Owned property; it is anticipated that the escrow will close during the fourth quarter of 2013. While the level of non-performing loans remained relatively unchanged at the end of the third quarter of 2013, we expect that this trend will reverse itself and become more favorable in the fourth quarter of this year as a result of anticipated payoffs.”

Premier Service Bank is a California state-chartered bank with two offices, its headquarters office in Riverside and a full-service banking office in Corona. The Bank provides commercial banking services, including a wide variety of checking accounts, investment services with competitive deposit rates, on-line banking products, and real estate, construction, commercial and consumer loans, to small and medium-sized businesses, professionals and individuals. Additional information about Premier Service Bank is available at its website at www.premierservicebank.com.

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