PVBK Pacific Valley Bancorp (PK)

Pacific Valley Bank (OTCBB: PVBK) announced the fourth quarter 2009 net loss of ($2.04) million as compared to a net loss of ($1.24) million in the prior quarter and a net loss of ($1.25) million for the same quarter last year. Contributing to the current quarter loss was a provision for loan losses of $2.49 million. "During the quarter we made steady progress in addressing problem loans and taking advantage of our strong deposit base to deleverage the balance sheet by paying off borrowings," stated David Warner, Chief Executive Officer. For the year 2009, the net loss was ($5.71) million as compared to a net loss of ($2.35) million for the year 2008, an increase in the loss by $3.36 million due primarily to provisions for loan losses. "We still have work ahead in addressing credit quality issues, but the cost cutting measures taken in 2009 are at the desired target levels we set by lowering many of our expense categories within a range of 10% to 25% as compared to the prior year," stated Greg Spear, Chief Financial Officer. "The net interest income plus non-interest income in the current quarter exceeds the non-interest expense by $457,000, which compares to the same quarter last year when this figure was a negative ($354,000). This demonstrates an overall improvement from our deliberate management of the overhead expenses in order to right-size our bank in relationship to its current revenue generation and size."

During the fourth quarter 2009, we strengthened our Board of Directors with the addition of our newest director, Joe Robello. Mr. Robello is the former owner of Eden Communications, a successful local communications company that was sold to its employees in 2001. Furthermore, we added a new member to our special assets team in January 2010 with the hiring of Henry "Pete" Welton III, who has over 32 years of banking experience and strong relationships in our community.

During the fourth quarter 2009, we completed the final phase of our private placement in the amount of $500,000 through a capital raise of common stock that was initiated September 2009. The total amount of capital raised through this private placement was $2.37 million.

Balance Sheet and Loan Quality Review:

Total assets were $180.88 million at December 31, 2009, which is a decrease of $7.63 million from September 30, 2009 when assets were $188.52 million and down by $11.84 million from December 31, 2008 when assets were $192.72 million. The gross loans at December 31, 2009 were $139.10 million compared to $141.77 million at September 30, 2009 and $153.51 million at December 31, 2008. We continue to strategically deleverage the balance sheet by isolating the affects of problem loans while at the same time we remain committed to our existing relationships to meet their business borrowing needs. The deleveraging of our balance sheet is beneficial to prudently manage our capital and liquidity.

The allowance for loan losses as of December 31, 2009 was $3.67 million, which reflects an increase from the preceding quarter when it was $3.01 million and $2.70 million as of December 31, 2008. The percentage of allowance for loan losses to gross loans outstanding at December 31, 2009 was 2.64% as compared to 2.13% in the prior quarter and 1.76% as of December 31, 2008. "The increase in the allowance for loan losses is due in part to specific losses identified in our problem loans and the increased risk profile for estimated losses in our performing loan portfolio based on such factors as historical loss rates," stated Tom Van der Ploeg, Chief Credit Officer. "Our view of the current economic climate and the improvements in our underwriting and special assets team gives rise to cautious optimism that a gradual improvement is likely during the second half of 2010." The allowance for loan losses is measured using such factors that take into account current market valuations of our problem loans and qualitative factors for all other loans based on various analytics including the trends in non-accruing loans, delinquent loans and net charge-offs. The key trends in our qualitative measures include non-accruing loans, which were $11.00 million as of December 31, 2009 as compared to $11.56 million as of September 30, 2009 and $1.01 million as of the same quarter a year ago. The level of delinquent loans that were past due from 30 - 89 days have been improving as reflected by $1.17 million for the quarter ending December 31, 2009 as compared to $5.51 million at September 30, 2009 and $7.89 million as of December 31, 2008. The net charge-offs for the quarter ending December 31, 2009 were $1.84 million as compared to $688,000 at the quarter ended September 30, 2009 and $399,000 for the same quarter a year ago.

The Bank continues to manage and maintain an adequate level of liquidity. The Bank's Fed Funds Sold balances are available to meet current obligations, which totaled $23.04 million as of December 31, 2009, nearly unchanged from $23.07 million as of September 30, 2009 and above the $11.76 million from the same quarter a year ago. The Bank's liquidity position remains stable and the quality of deposits has improved by replacing brokered CDs and other out-of-market deposits with local deposits. Deposits were $154.65 million as of December 31, 2009 as compared to $153.37 million in the prior quarter and $155.19 million from the same quarter a year ago. "We have successfully increased our core deposits and strengthened our relationships while carefully exiting those deposit relationships that were originated outside our market area," stated David Warner. "We are excited about the new products we rolled out in 2009 for our small business customers, such as remote deposit capture. We believe businesses in Monterey County value relationship banking and can best succeed as a partner with Pacific Valley Bank."

Stockholders' equity at December 31, 2009 was $16.47 million as compared to $18.02 from the prior quarter and $18.20 million from December 31, 2008. During the fourth quarter, additional capital was infused in a private placement transaction that contributed $500,000. At December 31, 2009 our Tier 1 capital to average assets ratio was 8.68% and our total risk-based capital ratio was 12.27% as compared to 9.41% and 12.87% as of September 30, 2009 and 9.17% and 12.06% as of December 31, 2008, on a respective basis.

Review of Operations:

The core earnings (interest income plus non-interest income less interest expense) of the Bank were $2.01 million for the current quarter as compared to $1.69 million for the quarter ending September 30, 2009 and $1.85 million for the same quarter a year ago. "Despite the challenges we face from non-accrual loans, a positive trend in our core earnings is that they have trended upward, even after excluding a one-time gain of $91,000 during the fourth quarter of 2009 from the sale of other real estate owned," said Greg Spear.

The interest income for quarter ending December 31, 2009 was $2.48 million as compared to $2.51 million in the prior quarter and $2.78 million as of the same quarter a year ago. Interest expenses during the current quarter were $677,000 as compared to $874,000 for the preceding quarter and $996,000 in the same quarter a year ago. Our interest costs continue to trend downward as maturing deposits and borrowings reprice from higher rates into current lower rates. During the year 2009, the net interest margin was 3.72%, which is just slightly below the net interest margin for year 2008 when it was 3.79%. The Bank is benefiting from the decline in interest expense from the repricing of its deposits and borrowings.

Provisions for loan losses were $2.48 million for the current quarter as compared to $1.30 million for the quarter ending September 30, 2009 and $900,000 for the same quarter last year. The higher level of provision for loan losses was deemed appropriate to support the allowance for loan losses on the balance sheet due to charge-offs and to adjust for estimated losses in our loan portfolio. Many of the market valuations we rely upon for valuing collateral dependent loans in our problem loan portfolio reflect current market valuations that are lower from those obtained a year ago.

Non-interest expenses during the current quarter totaled $1.56 million, which compares favorably to $1.63 million in the prior quarter and $2.20 million in the same quarter a year ago. "We are pleased with the progress we've made in reducing the overall cost of providing quality bank products and services to our customers by making selective reductions in our work force, renegotiating vendor contracts and downsizing the amount of space needed for our administration," stated Mr. Warner. "At this point, we believe we have reached the appropriate level of cost savings for the size and complexity of our bank to meet the current and future needs of our customers, employees and shareholders. We anticipate that a few of our expenses will run above normal levels in the future, which include legal expenses related to loan workouts and FDIC insurance premiums. We look forward to returning to normal expense levels once our problem loans have been significantly reduced."

Progress on Regulatory Agreement:

On November 24, 2009, Pacific Valley Bank entered into a formal agreement with the Federal Deposit Insurance Corporation ('FDIC') and the State of California Department of Financial Institutions ("DFI"). The agreement contained target dates to achieve certain objectives as disclosed in our 8K filing on November 30, 2009, which is available on our website (www.pacificvalleybank.com) under 'Regulatory Filings.' Some of the key provisions of the Order require us to retain qualified management, continue board oversight, maintain Tier 1 Leverage Capital above 9.00% and total risk-based capital above 11.00%, review the appropriateness of the allowance for loan losses, reduce problem loans to no more than 35% of Tier 1 Capital plus the allowance for loan losses, develop a written plan to reduce delinquent loans, implement written lending and collection policies, implement a written plan to retain profits and reduce overhead expenses, implement a written three-year strategic plan, eliminate and correct violations of law, develop a comprehensive audit policy, designate the audit committee as responsible for the Order, provide advance notice to public announcements and provide a quarterly progress report. The Bank continues to address the requirements of the provisions of the Order including the Tier 1 Leverage Capital ratio, which was 8.68% as of December 31, 2009 and below the regulatory target of 9.00%. Management and the Board are working on plans to address this issue by deleveraging the balance sheet and initiating a private placement in order to raise capital to a level that exceeds the minimum target.

About Pacific Valley Bank

Pacific Valley Bank is a California State chartered bank that commenced operations in September 2004. Pacific Valley Bank serves three locations; administrative headquarters and branch offices in Salinas, King City and Monterey, California. The Bank offers a broad range of banking products and services, including credit and deposit services to small and medium sized businesses, agriculture related businesses, non-profit organizations, professional service providers and individuals. The Bank serves customers primarily in Monterey County. For more information, visit www.pacificvalleybank.com.

Safe Harbor Statement:

Except for the historical information in this news release, the matters described herein are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and are subject to risks and uncertainties that could cause actual results to differ materially. Such risks and uncertainties include: the credit risks of lending activities, including changes in the level and trend of loan delinquencies and charge-offs, results of examinations by our banking regulators and our ability to comply with the regulatory formal agreement with our regulators, our ability to increase capital and manage our liquidity, our ability to manage loan delinquency rates, our ability to price deposits to retain existing customers and achieve low-cost deposit growth, manage expenses and lower the efficiency ratio, expand or maintain the net interest margin, mitigate interest rate risk for changes in the interest rate environment, competitive pressures in the banking industry, access to available sources of credit to manage liquidity, the local and national economic environment, and other risks and uncertainties as discussed in Pacific Valley Bank's filings with the FDIC. Accordingly, undue reliance should not be placed on forward-looking statements. These forward-looking statements speak only as of the date of this release. Pacific Valley Bank undertakes no obligation to update publicly any forward-looking statements to reflect new information, events or circumstances after the date of this release or to reflect the occurrence of unanticipated events. Investors are encouraged to read the FDIC filing reports of Pacific Valley Bank which are available on our website, Form 10-Q for Third Quarter 2009 and Form 10-K for fiscal year ended December 31, 2008. They contain meaningful cautionary language and discussion why actual results may vary from those anticipated by management.

Contacts: David B. Warner CEO (831) 771-4323 Greg B. Spear CFO (831) 771-4317