Pacific Valley Bank Announces Third Quarter 2012 Financial Results

"This recent Third Quarter has been the best quarterly financial performance in the history of Pacific Valley Bank. It was also our 8^th consecutive quarter of profitability." stated David B. Warner, President and Chief Executive Officer. "During the quarter, we experienced a combination of growth in the loan portfolio and gains on sales of OREO properties that had previously been written off, both of which contributed to our strong earnings."   

Balance Sheet and Loan Quality Review:

Total assets were $176.98 million at September 30, 2012, which is an increase of $3.18 million from the same period last year when assets were $173.80 million.  Our gross loans at September 30, 2012 were $137.62 million, which is an increase of $10.45 million as compared to $127.17 million at September 30, 2011. 

The allowance for loan losses as of September 30, 2012 was $3.58 million, which is a lower level than the same quarter last year when it was $3.72 million.  The percentage of allowance for loan losses to gross loans outstanding at September 30, 2012 was 2.61% as compared to 2.93% in the same quarter last year.  The lower allowance for loan losses is occurring as a result of the improvement in loan quality, thereby requiring a lower amount of reserves for future probable and estimated losses.

Our allowance for loan losses is based on management's judgment that is derived from two separate measurements in order to maintain a level considered adequate to provide for losses that can be estimated based on general and specific conditions.  The measurement for contingent losses are measured for impairment at the individual loan level, whereas the general conditions of the loan portfolio are analyzed by applying loss rates to aggregate groups of loan balances with common risk characteristics.

Management measures individual loans for impairment when it is probable that the Bank will be unable to collect in entirety both the principal and interest according to the contractual terms of the loan agreement.  The individual reserves required for specific reserves as of September 30, 2012 were $104,000 as compared to $503,000 as of September 30, 2011.

The loans that do not meet this definition are aggregated into separate pools based on loan type and loan risk (grade) to measure and assess general reserves.  Some of the key qualitative factors credit administration monitors include; 1) non-accruing loans, which declined to $1.70 million as of September 30, 2012 as compared to $5.36 million as of September 30, 2011: 2) loans past due from 30 – 89 days, of which there were $1.14 million as of September 30, 2012 as compared to $84,000 at September 30, 2011; 3) net recoveries were $4,700 for the quarter ending September 30, 2012 as compared to net charge-offs of $55,000 for the quarter ending September 30, 2011; and 4) non-performing assets ratio, which declined to 1.19% as of September 30, 2012 as compared to 3.45% at September 30, 2011. 

Based on management's methodology, we measured the general reserve portion of the allowance to be $3.48 million as of September 30, 2012 as compared to $3.22 million as of September 30, 2011.  Included in the general reserve portion of the allowance was $672,000 unallocated reserves as of September 30, 2012 as compared as of $357,000 as of September 30, 2011.  The unallocated reserves are an amount that is over and above the estimated inherent losses.  Management believes the unallocated reserves are prudent and address the imperfect nature of measuring contingent losses.

A significant component of our current liquidity position is reflected in our excess balances held at the Federal Reserve, which totals $26.21 million as of September 30, 2012 as compared to $30.29 million as of September 30, 2011.  The Bank's liquidity is in a good position to support future loan growth.  Deposits trended up at $155.35 million as of September 30, 2012 as compared to $151.79 million in the same quarter a year ago. 

Stockholders' equity at September 30, 2012 was $20.76 million as compared to $19.08 million from the quarter ending September 30, 2011.  At September 30, 2012 our Tier 1 capital to average assets ratio was 11.83% and our total risk-based capital ratio was 16.56% as compared to 10.93% and 14.76% as of September 30, 2011, respectively.

Review of Operations:

The core earnings of the Bank are measured by the interest income plus non-interest income less interest expense.  During the current third quarter, core earnings of the Bank were $2.08 million, which is higher by comparison to $1.78 million for the same quarter a year ago.  The core earnings for the nine month period ending September 30, 2012 were $5.88 million as compared to the same period ending September 30, 2011 when the core earnings were $5.53 million.

Interest income for the quarter ending September 30, 2012 was $2.16 million as compared to $2.05 million in the same quarter a year ago.  The interest income for the nine month period ending September 30, 2012 was $6.32 million as compared to the same period ending September 30, 2011 when it was $6.17 million.  Interest expense during the current quarter was $254,000 as compared to $316,000 in the same quarter a year ago.  The interest expense for the nine month period ending September 30, 2012 was $780,000 as compared to the same period ending September 30, 2011 when it was $973,000.  Our interest costs continue to benefit from a low rate environment that allows us to gradually re-price maturing deposits into current lower market rates.  The Bank achieved net interest margins of 4.49% and 4.16% for the quarter-ending periods September 30, 2012 and September 30, 2011, respectively.  On a year-to-date basis, the Bank achieved net interest margins of 4.59% and 4.21% for the periods ending September 30, 2012 and September 30, 2011, respectively. 

There were no provisions for loan losses in the current quarter as compared to $115,000 for the same quarter a year ago.  The Bank's methodology did not identify the need for a provision for loan loss due to management's judgment regarding adequate reserves to cover measured probable losses in our loan portfolio.  On a year-to-date basis, there were no provisions for loan losses in 2012 as compared to $265,000 for the same period during 2011.

Non-interest expenses during the current quarter totaled $1.39 million for the quarter ending September 30, 2012.  This compares to $1.46 million for the same period ending in 2011.  The non-interest expenses for the nine month period ending September 30, 2012 were $4.42 million as compared to the same period ending September 30, 2011 when they were $4.35 million.  The efficiency ratio, which measures the amount of overhead expense per net interest income plus noninterest income, was 66.80% for the third quarter of this year as compared to 81.85% for the same period ending in 2011.  The efficiency ratio moved lower primarily due to higher net interest income.   On a year-to-date basis, the Bank's efficiency ratios were 75.16% and 78.68% for the periods ending September 30, 2012 and September 30, 2011, respectively. 

FINANCIAL HIGHLIGHTS
Assets	9/30/2011		9/30/2012		Y-O-Y Change
Cash and Due From Bank	$  7,451		$  5,350		($  2,101)
Investment Securities	8,671		7,906		(765)
Federal Funds Sold	30,290		26,210		(4,080)
Loans, gross	127,172		137,619		10,447
Loan Loss Reserve	(3,719)		(3,582)		137
Other Assets	3,939		3,475		(464)
Total Assets	$  173,804		$  176,978		$  3,174
Liabilities and Capital	9/30/2011		9/30/2012		Y-O-Y Change
Deposits	$  151,793		$  155,349		$  3,556
Borrowings	2,000		-		(2,000)
Other Liabilities	929		871		(58)
Equity	19,082		20,758		1,676
Total Liabilities and Capital	$  173,804		$  176,978		$  3,174
	Three Months Ended
Income Statement	9/30/2011		9/30/2012		Q-O-Q Change
Interest Income	$  2,054		$  2,160		$  106
Interest Expense	316		254		(63)
Net Interest Income	1,738		1,906		168
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