Treasure State Bank Reports Fourth Quarter 2010 Operating Results

The Bank had earnings before provision for loan loss and real estate owned write-downs of $45,000 ($180,000 annualized) for the fourth quarter ended December 31, 2010, as compared with $119,000 ($476,000 annualized) for the fourth quarter of 2009, and $217,000 ($568,000 annualized) for the quarter ended September 30, 2010. The Bank set aside $3.2MM in additional provision for loan loss and real estate owned write-downs for the quarter ended December 31, 2010, as compared with $705,000 for the fourth quarter of 2009, and $860,000 for the quarter ended September 30, 2010. As a result of these provisions and write-downs, the Bank had a $3.1MM net loss for the quarter ended December 31, 2010, as compared with a $586,000 net loss for the same quarter last year and a $643,000 net loss for the quarter ended September 30, 2010.
On a year-to-date basis, the Bank had earnings before provision for loan loss and real estate owned write-downs of $569,000 for the year ended December 31, 2010, as compared with $332,000 for 2009. The Bank set aside $5.1MM in additional provision for loan loss and real estate owned write-downs for the year ended December 31, 2010, as compared with $2.0MM for 2009. As a result of these provisions and write-downs, the Bank had a $4.5MM net loss for the year ended December 31, 2010, as compared to a $1.7MM net loss for 2009.
Earnings, before non-cash expenses of depreciation and amortization, loan loss provisions, real estate owned write-downs and stock option expense, were $71,000 ($284,000 annualized) for the quarter ended December 31, 2010, as compared with $226,000 ($904,000 annualized) for the same period in 2009 and $281,000 ($1.1MM annualized) for the quarter ended September 30, 2010.
Tier 1 leverage capital was 6.12% as of December 31, 2010, as compared with 10.09% for year end 2009, and 9.55% as of September 30, 2010. Risk-based capital was 9.62% as of December 31, 2010, as compared with 14.20% for year end 2009 and 13.56% as of September 30, 2010.
Book value per share was $3.40 as of December 31, 2010 based on 1,559,045 shares outstanding.
Total assets decreased $10.8MM, or 11.8%, to $80.7MM at December 31, 2010, as compared with $91.5MM at December 31, 2009, due to continued progress in the planned reduction of the Banka�s total assets.
Cost of funds at December 31, 2010 was 1.76%. This is a 49.1% decline from the cost of funds of 3.46% at September 30, 2009, a 40.7% decline from 2.97% at December 31, 2009 and a 15.0% decline from 2.07% at September 30, 2010.
The net interest margin (interest income less interest expense divided by average assets) for the quarter ended December 31, 2010 was 3.07%, as compared with 3.46% for the quarter ended September 30, 2010, 3.07% for the quarter ended June 30, 2010, 3.24% for the quarter ended March 31, 2010, 3.03% for the quarter ended December 31, 2009 and 2.76% for the quarter ended September 30, 2009.
Loan loss reserves to total loans were 4.54% at December 31, 2010 as compared with 3.01% at September 30, 2010 and 2.44% as of December 31, 2009.
Total liquidity as of December 31, 2010 was 19.7%, and available liquidity was 16.3%.
Excluding expenses of $670,000 related to foreclosure activity and repossessed assets, the Bank reduced operating expenses $308,000 in 2010 as compared to 2009.

President and Chief Executive Officer Jim Salisbury stated aDuring the quarter just ended, the Bank began a vigorous review of the potential loss imbedded in the loan portfolio and real estate owned acquired by foreclosure within the Bank. As mentioned in the prior quartera�s earnings release, the continued deterioration in the Western Montana economy, the receipt of updated appraisals, the continued volume of foreclosures and the inability to sell repossessed property near the asking price indicated that an additional provision for loan losses would be necessary in the fourth quarter. The review resulted in the Bank adding $3.0MM to loan loss provisions and $150,000 to expense for loss related to the foreclosed properties. While this is a bitter pill to swallow, it positions the Bank to return to profitability in 2011. The Bank now has an allowance for loan losses to gross loans of 4.54% ($2.6MM) to act as a cushion to absorb potential losses on existing troubled loans. The Bank has made substantial headway in its efforts to reduce non-performing assets. During the quarter just ended, the Bank sold $1.2MM of non-performing assets. In addition, as of the date of this letter and since 2010 year end, the Bank has sold an additional $797,000 of non-performing assets. While the $4.5MM loss for the year is very disappointing, the Bank has worked hard to restructure the balance sheet of the Bank. Assets have decreased as planned by 11.8%, which enhances the capital to assets ratio. Nearly twenty cents of every dollar is held in liquid assets to cushion the Bank from a rising interest rate environment. The Bank has positioned itself to be asset sensitive. Therefore, if interest rates were to increase, the effect on the Banka�s net interest income should not be material. The 49.1% reduction in the Banka�s cost of funds has positioned the Bank to maintain a net interest margin sufficient to cover the Banka�s normal operating expenses during these difficult times. Finally, even though the Banka�s Tier 1 leverage ratio has declined to 6.12%, if the Bank is able to successfully implement its business plan for 2011 and beyond, this ratio will improve. Coupled with profitability, the Banka�s return on equity, return on assets and book value should also improve.a

For more information regarding this release, or the Bank in general, you may contact James A. Salisbury, President and CEO at 406-543-8700.

About Treasure State Bank

Treasure State Bank, a Montana chartered community bank, is headquartered in Missoula, Montana. The Bank was founded in January 2007. Treasure State Bank currently trades on the OTCBB under the ticker symbol aTRSUa. Treasure State Bank serves businesses, professionals, non-profit organizations and individuals through customized banking services and products. For more information, please visit [ www.treasurestatebank.com ].

Safe Harbor Statement

This communication contains statements that may constitute "forward-looking statements" within the meaning of the Securities Act of 1933 and the Securities Exchange Act of 1934, as amended by the Private Securities Litigation Reform Act of 1995. Those statements include statements regarding the intent, belief or current expectations of Treasure State Bank and members of its management as well as the assumptions on which such statements are based. Prospective investors are cautioned that any such forward-looking statements are not guarantees of future performance and involve risks and uncertainties, and that actual results may differ materially from those contemplated by such forward-looking statements. Important factors currently known to management that could cause actual results to differ materially from those in forward-statements include fluctuation of operating results, the ability to compete successfully, and the ability to complete before-mentioned transactions. The Bank undertakes no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes to future operating results.

Contributing Sources

Market Wire

N@N

Treasure State Bank Reports Fourth Quarter 2010 Operating Results