SOURCE: Pacific Valley Bank

October 23, 2007 12:48 ET

Pacific Valley Bank Announces Continued Loan and Deposit Growth in the Third Quarter of 2007

SALINAS, CA--(Marketwire - October 23, 2007) - Pacific Valley Bank (OTCBB: PVBK), the Salinas Valley's only locally-owned and managed community bank, today released its unaudited 2007 third quarter financial results.

Summary of Pacific Valley Bank's 3rd Quarter 2007 Financial Results

The Bank closed the third quarter of 2007 with an asset base of $141.9 million, an increase of $33.9 million over December 31, 2006 assets of $108.0 million. This was the 12th consecutive quarter of growth for the Bank. Contributing to the growth was an increase in loans funded by a significant increase in deposits, reflecting our continued penetration of local markets. Our growth through September 2007 has exceeded management's expectations.

Loans, net of deferred loan fees, increased from $73.9 million at December 31, 2006 to $96.8 million at September 30, 2007, an annualized growth of 41%. Total deposits realized an annualized growth of 55% in the same period with deposits increasing from $84.9 million at year end 2006 to $120.0 million at September 30, 2007.

The net loss for the first nine months of 2007 was $2.0 million or $1.04 per share, an increase over the net loss of $483,800 or $0.31 per share in the same period in 2006. The 2007 loss is larger primarily due to the opening expenses of our new branches. We have opened four new branches during the period from July 2006 to May 2007 in Salinas, King City, Hollister and Monterey. This expansion has increased our employee, occupancy and equipment expenses, which is consistent with management's expectations for the implementation of our accelerated growth strategy.

"The opening of our fifth office in downtown Monterey in May caps an aggressive expansion effort that Pacific Valley Bank has pursued in response to a variety of market opportunities," said Pacific Valley Bank President Ben Tinkey. "Our branch expansion has contributed to our strong deposit growth, and now we can focus on utilizing our expanded branch network to fuel our growth. We believe that the special brand of responsive, community banking service we provide is a major factor in our continued growth in both loans and deposits. We continue to be thankful for the support shown us by the communities we serve."

Pacific Valley Bank is a full-service community-based bank organized by local business and community leaders. It opened its doors in September 2004 and has approximately 1100 shareholders. The Bank now has five branches located with two in Salinas, and one each in King City, Hollister and Monterey.

Management's Discussion and Analysis

Result of Operations

Our net loss was $2,004,100, or $1.04 per share, and $483,800, or $0.31 per share, for the nine-month periods ended September 30, 2007 and 2006, respectively. A considerable portion of the expenses in the nine-month period ended September 30, 2007 was due to the opening of our new branches and the related increased occupancy and staffing costs. These expenses were expected by Management and are part of our accelerated growth strategy.

Net Interest Income

Net interest income, the difference between interest earned on loans and investment securities, and the interest paid on deposits and other borrowings, is the principal component of our earnings. Net interest income for the nine months ended September 30, 2007 was $3,376,600, an increase of 45% compared to $2,331,100 for the same period in 2006. Net interest income was higher in 2007 primarily due to an increase in the volume of interest-earning assets, which grew from $103.7 million to $132.7 million during the first nine months of the year. Our Net Interest margin was 3.93% for the first nine months of 2007, compared to 4.05% for the same period in 2006, a 12 bp decrease.

Interest Income

Interest income for the nine months ended September 30, 2007 and 2006 totaled $6,278,700 and $4,011,700, respectively. The primary factor producing our higher interest income this year compared to last year is the increase in interest-earning assets as we continue to grow. In addition, rates during the first half of 2007 were higher than the average rates in the same period of 2006. Our average yield on earning assets was 7.33% for the first nine months of 2007, compared to 6.98% for the same period in 2006, a 35 bp increase.

Interest Expense

Interest expense for the nine months ended September 30, 2007 and 2006 totaled $2,902,100 and $1,680,600, respectively. This increase is primarily due to the significant increase in deposits, but also due to the increase in interest rates discussed above. Our average cost of funds was 4.33% for the first nine months of 2007, compared to 4.14% for the same period in 2006, a 19 bp increase.

Allowance for Loan Losses

We made provisions of $286,000 and $178,100 to the allowance for loan losses during the nine months ended September 30, 2007 and 2006, respectively. The allowance as of September 30, 2007 and 2006 was 1.18% and 1.20% of total loans, respectively.

Non-interest Income

Non-interest income for the nine months ended September 30, 2007 and 2006 was $50,300 and $21,900, respectively. Non-interest income is primarily comprised of account service fees, and while growing, is not as yet a major contributor to our income.

Non-interest Expense

Non-interest expense was $5,144,200 for the nine-month period ending September 30, 2007, as compared to $2,657,900 for the same period in 2006. Almost all of the increases in non-interest expenses have been in Salary and employee benefits, and occupancy and equipment expense, incurred through our rapid branch expansion. Salary and employee benefits have grown as staff has been added to provide the service level we have established at our four new branches; these were $3,075,700 and $1,573,600 for the nine-month periods ended September 30, 2007 and 2006, respectively. Operating expenses for occupancy and equipment are also up in 2007 because of the new branch openings; these were $721,500 and $291,900 for the nine-month periods ended September 30, 2007 and 2006, respectively. Other operating expenses have also increased as we have grown. All of these costs were consistent with management's expectations for both 2007 and 2006, and result from the implementation of our accelerated growth strategy. With the Monterey branch opening it is expected that these expenses will stabilize, resulting in smaller increases in future quarters.

Balance Sheet Management

Loan Related Data

The following table illustrates the growth in loans by loan type from December 31, 2006 through September 30, 2007:

                                        Sept. 30, 2007     Dec. 31, 2006
                                        --------------    --------------
Commercial                              $   10,610,300    $    2,322,000
Real estate - mortgage                      20,261,800         8,996,200
Real estate - commercial                    40,689,100        48,387,200
Real estate - construction and land         13,416,300        11,518,600
Consumer and other                             670,400           511,700
Agriculture                                 10,997,500         2,049,700
                                        --------------    --------------
                                            96,645,400        73,785,400
Deferred loan origination fees, net            150,500            73,200
Allowance for loan losses                   (1,147,400)         (861,400)
                                        --------------    --------------
                                        $   95,648,500    $   72,997,200
                                        ==============    ==============

Fed Funds Sold and Investments

Fed Funds sold was $13.5 million and $22.3 million as of September 30, 2007 and 2006, respectively. We also had $2.3 million in interest-bearing deposits (CDs) at other banks as of September 30, 2006.

At September 30, 2007 and 2006 our security portfolio consisted of:

                                  September 30, 2007   September 30, 2006
                                  -------------------- --------------------
                                                 Avg                  Avg
                                  Market Value   Yld   Market Value   Yld
                                  ------------ ------  ------------ ------

US Government agencies            $  9,200,200   5.52% $  6,061,300   5.24%
Mortgage-backed securities          11,309,500   5.44%    6,428,300   5.10%
SBA pools                            1,931,800   4.72%            -      -
                                  ------------ ------  ------------ ------
                                  $ 22,441,500   5.42% $ 12,489,600   5.17%
                                  ============ ======  ============ ======

Deposits and Other Borrowings

The following table illustrates the growth in deposits from December 31, 2006 through September 30, 2007:

                                        Sept. 30, 2007     Dec. 31, 2006
                                        --------------    --------------

Non-interest bearing                    $   22,713,000    $   17,298,100

Savings                                 $    2,960,000    $    3,247,000
Money market                                53,679,400        39,756,200
NOW accounts                                 4,348,400         3,982,600
Time, $100,000 or more                      13,389,500         9,566,200
Other time                                  22,936,300        11,095,500
                                        --------------    --------------
                                        $  120,026,600    $   84,945,600
                                        ==============    ==============

Based on our total assets at September 30, 2007, we have a line of credit at the Federal Home Loan Bank in the amount of $21.3 million that we could use if loan demand out paced our deposit growth. We have drawn down a total of $3.0 million of this line which has a rate of 4.30% and matures on September 19, 2008. Funds borrowed on this line are collateralized by loans pledged from our portfolio.

We also have uncollateralized lines of credit totaling $4.0 million at our correspondent banks. As of September 30, 2007, none of these lines have been drawn upon.

Capital

Shareholders' equity at September 30, 2007 totaled $17,872,100 compared to $19,519,000 at September 30, 2006. Exercised Stock Options provided additional Capital, but that increase was offset by the losses incurred in 2006 and 2007. We continue to be "Well Capitalized" under the prompt corrective action regulatory framework.

The capital ratios at September 30, 2007 and 2006 are as follows:

                               Regulatory
                             Minimum Ratio Regulatory
                               For Well-    Minimum       September 30,
                              Capitalized    Ratio       2007       2006
                              ----------   ---------  ---------  ---------
Tier I Capital (to Average
 Assets)                           5.00%       4.00%      13.69%     21.25%
Tier I Capital (to Risk Weighted
 Assets)                           6.00%       4.00%      18.51%     34.69%
Total Capital (to Risk Weighted
 Assets)                          10.00%       8.00%      19.69%     35.91%

Forward-looking Statements

The financial results reported in this press release are unaudited. Statements concerning future performance, developments or events, expectations for growth and income forecasts, and any other guidance on future periods, constitute "forward-looking statements" (as such term is defined in the Private Securities Litigation Reform Act of 1995) 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, the current fluctuations in the U.S. and California credit markets, loan production, balance sheet management, expanded net interest margin, the ability to control costs and expenses, interest rate changes and financial policies of the United States government, and general economic conditions. Additional information on these and other factors that could affect financial results are included in filings made by the Bank with the Federal Deposit Insurance Corporation. The Bank disclaims any obligation to update any such factors or to publicly announce the results of any revisions to any forward-looking statements contained herein to reflect future events or developments.

                          PACIFIC VALLEY BANK
                         SUMMARY BALANCE SHEET
                              (Unaudited)


                                           September 30,     December 31,
                                               2007             2006
                                          --------------    --------------
ASSETS
Cash and due from banks                   $    5,741,800    $    2,494,400
Federal funds sold                            13,465,000        14,230,000
Investment securities available for sale
 (market value)                               22,441,500        13,267,400
Interest-bearing deposits held with other
 banks                                                 -         2,368,400
Loans net of deferred loan fees               96,795,900        73,858,600
Allowance for loan losses                     (1,147,400)         (861,400)
Bank premises and equipment, net               2,554,800         1,248,700
Accrued interest receivable and other
 assets                                        2,047,900         1,367,000
                                          --------------    --------------
      Total assets                        $  141,899,500    $  107,973,100
                                          ==============    ==============

LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits                                     120,026,600        84,945,600
Other borrowings                               3,000,000         3,000,000
Accrued interest payable and other
 liabilities                                   1,000,800           474,800
                                          --------------    --------------
      Total liabilities                      124,027,400        88,420,400
                                          --------------    --------------

Shareholders' equity
   Common stock                               22,664,400        22,256,600
   Accumulated deficit                        (4,674,400)       (2,670,400)
   Unrealized loss on securities
    available for sale                          (117,900)          (33,500)
                                          --------------    --------------
      Total shareholders' equity              17,872,100        19,552,700
                                          --------------    --------------
      Total liabilities and
       shareholders' equity               $  141,899,500    $  107,973,100
                                          ==============    ==============





                       SUMMARY STATEMENT OF OPERATIONS
                                  (Unaudited)

                                                    Nine Months Ended
                                                       September 30
                                                    2007          2006

Interest income                                 $  6,278,700  $  4,011,700
Interest expense                                   2,902,100     1,680,600
                                                ------------  ------------
Net interest income                                3,376,600     2,331,100

Provision for loan losses                            286,000       178,100

Non-interest income                                   50,300        21,900

Non-interest expense                               5,144,200     2,657,900
                                                ------------  ------------

Loss before provision for income taxes            (2,003,300)     (483,000)
Provision for income taxes                               800           800
                                                ------------  ------------
Net loss                                        $ (2,004,100) $   (483,800)
                                                ============  ============

Basic loss per share                            $      (1.04) $      (0.31)
                                                ============  ============

Contact Information

  • CONTACTS:

    Ben Tinkey
    President & Chief Executive Officer
    831-771-4306

    Frank H. Lippman
    Senior Vice President & Chief Financial Officer
    831-771-4317