PVBK Pacific Valley Bancorp (PK)

Pacific Valley Bank (OTCBB: PVBK) today announced its unaudited financial results for the quarter and the six months ended June 30, 2009. The Bank recorded a net loss of $1,212,000 or $0.49 per share for the quarter ended June 30, 2009 as compared to a net loss of $552,000 or $0.29 per share in the same quarter last year. Net interest income was lower $179,000 as a decrease in yields on earning assets coupled with a higher level of nonaccrual loans more than offset a favorable $59,000 decrease in interest expense due mostly to lower rates paid on interest-bearing liabilities. The provision for loan losses decreased $416,000 from the second quarter of 2008. However, this favorable variance was more than offset by an $865,000 increase in noninterest expenses. The Bank incurred approximately $1,009,000 of nonrecurring and abnormal recurring expenses related to the relocation of its headquarters in Salinas, a write down of an OREO property, the accrual of the special FDIC insurance assessment and a change in timing of the accrual for ongoing FDIC insurance premiums.

For the first half of 2009, the Bank had a net loss of $2,432,000 or $1.00 per share as compared to a net loss of $1,030,000 or $0.53 per share in 2008. Year-to-date net interest income increased $89,000 as lower rates paid on interest-bearing liabilities more than offset a decrease in interest income. The Bank provided $1,584,000 for the allowance for loan losses an increase of $751,000 over 2008. Overall the Bank has realized favorable trends in lowering its ongoing noninterest expenses. However, the one-time expenses mentioned above offset the expense reductions as total noninterest expenses increased $740,000 in the first half of 2009.

David Warner, CEO, stated that, "During the second quarter, the Bank aggressively addressed continuing credit deterioration due to the weak economy as we worked with our customers to help them through these difficult times. In July, we successfully relocated our corporate offices and loan staff to join forces with our main branch in downtown Salinas. While the one-time costs for this move were significant, we are positioned to achieve continuing savings and operating efficiencies going forward.

At June 30, 2009, the Bank had total assets of $187,695,000 which was an increase of $3,895,000 (2.1%) from the balance at March 31, 2009 and a decrease of $5,029,000 (2.6%) from the December 31, 2008 balance. Loan balances totaled $147,298,000 a decrease of $3,057,000 (2.0%) from March 31, 2009 and a decrease of $6,212,000 (4.0%) from December 31, 2008. The Bank charged off $1,848,000 of loans in the second quarter and had $11,287,000 in nonperforming loans and $805,000 in two foreclosed properties. At June 30, 2009 the allowance for loan losses totaled $2,401,000, which was 1.60% of total loans and 19.8% of nonperforming assets. At June 30, 2009 the Bank had $9.0 million of loans past due 30 to 89 days. Of this amount $5.4 million were matured and in the process of being renewed. At March 31, 2009 the Bank had $5.5 million of loans past due 30 to 89 days. Deposits totaled $152,375,000 at June 30 an increase of $7,565,000 (5.2%) from March 31, and a decrease of $2,813,000 (1.8%) from December 31, 2008.

Shareholders equity was $17,308,000 at June 30 which was a decrease of $1,246,000 from March 31 and a decrease of $895,000 from December 31, 2008. At June 30, 2009 our Tier 1 capital to average assets ratio was 9.13% and our total risk-based capital ratio was 12.19% compared to 9.17% and 12.06%, respectively, at December 31, 2008

Financial Summary

Net interest income before allowance for loan losses for the quarter ended June 30, 2009 was $1,474,000 which was a decrease of $179,000 from the quarter ended June 30, 2008. For the six-month period ended June 30, 2009, the net interest income was $3,178,000 for an increase of $89,000 from the year earlier period.

Interest income for the quarter ended June 30, 2009 was $2,389,000 which was a decrease of $238,000 from the year earlier period. Interest was down for all classes of earning assets mostly due to lower yields earned on those assets. Additionally, the Bank had nonaccrual loans totaling $11,287,000 at June 30, 2009 as compared to $2,247,000 at March 31, 2009. The nonaccrual loans were also a contributing factor to the lower yields. For the six-month periods interest income was $4,988,000 in 2009 and $5,186,000 in 2008. The decrease in yields offset the gains from higher average balances.

Interest expense for the quarter ended June 30, 2009 was $915,000 for a decrease of $59,000 from the year earlier quarter. The average rates paid on interest-bearing liabilities decreased from 2.81% to 2.58%. For the six-month period ended June 30, 2009 interest expense was $1,811,000 for a decrease of $286,000 from the year earlier period. The average rates paid decreased from 3.17% to 2.60%, which more that offset the increase in average balances.

The Bank attained net interest margins of 3.26% and 3.57% for the quarter and six months ended June 30, 2009. This compares to 3.91% and 3.79% in the like periods of 2008. The lower margins are in part the result of lower market rates for earning assets due to the prime rate decreases in the last quarter of 2008.

As previously disclosed, in May 2009, prior to a regulatory examination, management determined that there was deterioration in the performance of several specific loans and the portfolio in general as part of its ongoing review of the Bank's loan portfolio. This deterioration was due primarily to continuing weaknesses in the local and national economies. Based on this review, the Bank recorded a provision of $1,500,000 to the allowance for loan losses. The provision was calculated in accordance with the Bank's loan policies, its allowance for loan loss methodology and generally accepted accounting principles.

A regulatory examination conducted in June 2009 subsequently concluded that the amount of the allowance for loan losses at May 31, 2009 was appropriate. However, the regulatory agencies believed that circumstances surrounding certain loan performance issues indicated that $1,350,000 of the provision should have been recognized in the first quarter of 2009. They recommended that management consider accelerating the recording of this amount into the first quarter. Acknowledging that it is difficult to benchmark the actual timing of such deterioration, management elected to recognize $1,350,000 of the May provision in the first quarter. Thus, the resultant provision recorded in the second quarter 2009 was $194,600 as compared to $610,500 in the second quarter of 2008. For the six-month period ended June 30, 2009, the Bank has provided $1,583,600 as compared to $832,500 in the year earlier period. Based on the recent examination and the Bank's analysis, management believes that the allowance for loan losses was adequate at June 30, 2009.

Noninterest expense for the second quarter ended June 30, 2009 totaled $2,525,000 as compared to $1,661,000 in the year-ago quarter. The $864,000 increase resulted from several significant items. For the 2009 quarter, salaries and employee expenses decreased $146,000 (16.1%) as compared to the prior year quarter. The Bank reduced head count from 55 in June of 2008 to 37 in June of 2009. In the second quarter of 2009 the Bank had nonrecurring and abnormal recurring expenses of approximately $1,009,000. These expenses were related to relocating the main offices to the site of the main branch in downtown Salinas ($464,000); write down of an OREO property ($236,000); the accrual of the special FDIC insurance assessment ($85,000); and a change in timing of the accrual for ongoing FDIC insurance premiums ($224,000). Because of these expenses, noninterest expense for the six-month periods was $740,000 higher in 2009. The Bank had a $358,000 (18.9%) favorable variance in the salary expense and an $89,000 (13.8%) favorable variance in occupancy and equipment which were offset by unfavorable variances in professional services and the above listed expenses.

About Pacific Valley Bank

Pacific Valley Bank is a California banking corporation that commenced operations on September 14, 2004. We offer our services from three locations; our headquarters and Main Street office in Salinas, California, our office located in King City and our office located in Monterey. We provide a broad range of banking products and services, including credit and deposit services to our targeted client base of small and medium sized businesses, agriculture related businesses, non-profit organizations, professionals and individuals primarily in Monterey County. For more information, visit www.pacificvalleybank.com

Forward-Looking Statements

Statements concerning future performance, developments or events, expectations for growth and income forecasts, and any other guidance on future periods, constitute forward-looking statements that are subject to a number of risks and uncertainties. Actual results may differ materially from stated expectations. Specific factors include, but are not limited to, loan production, competitive pressure in the banking industry, balance sheet management, net interest margin variations, the ability to control costs and expenses, changes in the interest rate environment and financial policies of the United States government and general economic conditions. The Bank disclaims any obligation to update any such factors.

Contact: David Warner CEO 831-771-4323