Home Valley Bancorp Reports 3rd Quarter, and YTD – 2008 Earnings

GRANTS PASS, Ore.--(BUSINESS WIRE)--Home Valley Bancorp (Company) (OTCBB:HVYB), the parent company of Home Valley Bank (Bank), reported earnings of $403,000 for the second quarter of 2008, and $908,000 for year-to-date 2008. Additional highlights were as follows:

• COST OF FUNDS DROPS 20% TO 2.79% FROM ONE YEAR AGO
• NET INTEREST INCOME UP 9% FROM SEPTEMBER 30, 2007
• YTD LOAN GROWTH UP $21.1 MILLION OR 12% FROM YEAR-END
• NO CHARGE-OFFS IN THIRD QUARTER
• LOAN LOSS RESERVES UP 36% FROM YEAR-END AND ONE YEAR AGO

For further information on the Company or to access Internet banking, please visit our web site at http://www.homevalleybank.com.

FINANCIAL PERFORMANCE:

Home Valley Bancorp today reported quarterly earnings of $403,000 or $.20 per diluted share, a decrease of 4% from $419,000 for the third quarter of 2007. For the first nine-months of 2008, net income totaled $908,000, or $.44 per diluted share, a decrease of 26% from $1.2 million for the same period last year. The first nine-months of 2008 included interest charges on trust preferred securities of $153,000 – net of tax. Net interest income was up 9% to $5.5 million for 2008 compared to one year ago. Return on Equity (ROE) for the first nine-months of 2008 was 8.6% down 36% from the same period one year ago. Return on Assets (ROA) decreased to .55% at September, 2008, a drop of 32% vs. the corresponding period in 2007. The primary reason for both of the drops in ROE and ROA is attributed to the recording of the impaired loan relationship reported in the press release for the first quarter of 2008. This relationship has continued to contractually perform with all loans current as of September, 2008.

LOAN GROWTH AND CREDIT QUALITY:

The Company continued to experience strong lending demand in the third quarter of 2008, although the Company has begun curtailing new loan relationships due to the current declining economy. Lower than budgeted loan growth is currently projected for the fourth-quarter of 2008, due to this curtailment. Year to date growth at September 30, 2008 was $21.1 million, a 12% increase from December, 2007. September-2008 vs. September-2007 grew 16% or $26.9 million. The Company’s underlying loan credit quality remains sound, with one significant borrowing relationship remaining in an impaired status. As mentioned in the above discussion this relationship continues to contractually perform. Since the charge-off of the impairment the customer has provided additional collateral and subsequently sold previously impaired assets. These changes have substantially mitigated the previous impairment. For a full explanation of the impaired relationship, please see the Company’s first quarter press release of April 29, 2008.

The Company continues to monitor asset quality on an ongoing basis. As mentioned in the June 30, 2008 Press Release the Company elected to classify one additional significant relationship in a non-accrual status in the previous quarter, this classification remains at this time. This relationship continues to be monitored. Currently, $850K of this relationship is in escrow, with the remaining $3.8 million being evaluated for possible work-out solutions. The borrower in this relationship has offered additional collateral to strengthen a possible work-out solution.

The Allowance for Loan Losses as a percentage of outstanding loans at September 30, 2008 stands at .79% up 18% from one year ago and up 23% from year-end. The Company will continue to examine its loan portfolio and take all action it deems necessary. Based upon Management’s analytical and evaluative assessment of loan quality, the Company believes that its Reserve for Loan Losses is at an appropriate level under current circumstances and prevailing economic conditions in our area.

DEPOSIT GROWTH:

Deposit growth in the third-quarter was an issue due to the publicity surrounding the economic events of September. The Company saw a $5.0 million decrease in deposits during the period September 15^th, to September 18^th in conjunction with perceived weakness in the banking industry. The Company took several actions during this time period to reassure its customer base and has since been proactive in its market area to stabilize its deposit environment. At September 18, 2008 the Company saw its deposit base drop to $176.2 million, a $5.2 million or 3% drop from August 31, 2008. As of this press release date the deposit base has returned to its August 31, 2008 level of $181.4 million.

Deposit growth in the first nine-months of 2008 was $8.5 million or 6.7% on an annual basis. At September 30, 2008 deposits were $177.4 million. Most of this growth was in NOW accounts with a portion being in local CDs, the Company does not use brokered deposits. Traditional core deposits still account for 87% of the current deposit portfolio. As of September 30, 2008 the Bank had $23.4 million of CD’s over $100,000.

BORROWINGS:

The Company had a slight decrease in debt in the third quarter of 2008, and one significant change in the structure of its FHLB borrowings. The Company at September 30, 2008 had total borrowings of $29.4 million, with $29.0 million in FHLB advances. During August, 2008 the Company retired $11.8 million of 5.44% debt, and replaced it with $11.0 million of 2.25% debt maturing in August, 2009. This change in rates helped drop the Company’s cost of funds from 2.96% to 2.79%.

TARP Capital Purchase Program:

The Company has reviewed the recently announced Troubled Asset Relief Program (TARP) from the Department of Treasury. Although, the Company at this time has no troubled assets that qualify for this program, it does believe it’s in the best interest of its customers, employees, and shareholders to apply for the additional capital protection offered within the program. The economic future of the national economy is uncertain, and protection of the Bank and its future is paramount. To not strengthen the Bank’s capital in this environment could be a catastrophic decision based on events the Company cannot control.

CAPITAL RATIOS (Bank):

Leverage, Tier-1, and Total Risk Based at September 30, 2008 stood at 8.51%, 10.33%, and 11.19% respectively, compared to 8.51%, 10.06% and 10.90% one quarter ago. The Company still maintains a well capitalized position as defined by regulatory statutes.

NON-INTEREST INCOME:

Non-Interest Income for the first nine-months of 2008 was down 4% to $734,000 (adjusting for gain on sale) from a year ago. This decrease is attributed to a system change that increased overdraft privilege income in the third-quarter of 2007; this abnormal growth has since returned to normal standards.

NON-INTEREST EXPENSE:

At September 2008 non-interest expense increased 9% to $4.2 million from one year ago; this increase is consistent with growth and projections. The efficiency ratio for the nine-month and quarter-end 2008 was 68.31% and 68.76%, respectively, up 2.0% from the corresponding periods in 2007. This increase reflects the impact of the North Valley branch that opened in July, 2007. Salary and benefit expense (annualized) as a percentage of average assets were 1.39% at September 30, 2008, compared to 1.55% one year ago.

Home Valley Bancorp
Selected Financial Results - Unaudited
(in thousands, except per share data)
				Quarter Ended				%		Year-to-Date				%
				9/30/2008		9/30/2007		Change		9/30/2008		9/30/2007		Change
Summary of Operations
	Interest income			3,406		3,456		-1%		10,162		10,086		1%
	Interest expense			1,456		1,680		-13%		4,457		4,814		-7%
	Interest expense - trust preferred			81		81		0%		242		242		0%
	Net Interest Income			1,869		1,695		10%		5,463		5,030		9%
	Provision for loan losses			45		0		100%		1,006		0		100%
	Net Interest Income after provision			1,824		1,695		8%		4,457		5,030		-11%
	Non-interest income			237		289		-18%		1,204		762		58%
	Non-interest expense			1,448		1,337		8%		4,232		3,866		9%
	Income before taxes			613		647		-5%		1,429		1,926		-26%
	Income taxes			210		228		-8%		521		700		-26%
	Net Income			403		419		-4%		908		1,226		-26%
Share Data
	Basic earnings per share			0.20		0.21		-5%		0.45		0.61		-27%
	Diluted earnings per share			0.20		0.20		-4%		0.44		0.60		-26%
	Book value per share			7.10		6.33		12%		7.10		6.33		12%
	Basic shares outstanding			2,034,122		2,017,052		1%		2,033,744		2,012,773		1%
	Diluted shares outstanding			2,052,878		2,048,052		0%		2,047,984		2,047,028		0%
	Share Price			6.00		10.95		-45%		6.00		10.95		-45%
	Price Earnings Ratio			7.68		13.49		-43%		10.09		13.68		-26%
Balance Sheet Data (at period end)
	Investment securities			16,393		23,161		-29%		16,393		23,161		-29%
	Total loans (net)			197,237		170,296		16%		197,237		170,296		16%
	Total assets			227,088		209,527		8%		227,088		209,527		8%
	Total deposits			177,391		174,141		2%		177,391		174,141		2%
	Borrowings			29,351		16,871		74%		29,351		16,871		74%
	Trust Preferred Securities			5,000		5,000		0%		5,000		5,000		0%
	Total shareholders' equity			14,435		12,866		12%		14,435		12,866		12%
Average Balances
	Investment securities			19,046		24,718		-23%		19,260		22,032		-13%
	Total loans (net)			195,244		169,140		15%		188,201		166,902		13%
	Total assets			227,163		208,025		9%		220,761		203,225		9%
	Total deposits			179,426		172,872		4%		172,359		164,091		5%
	Borrowings			27,819		16,873		65%		29,032		21,410		36%
	Total shareholders' equity			14,258		12,571		13%		14,105		12,198		16%
Selected Ratios
	Return on average assets (ROA)			0.71%		0.80%		-12%		0.55%		0.81%		-32%
	Return on average equity (ROE)			11.24%		13.22%		-15%		8.60%		13.44%		-36%
	Net interest margin			3.47%		3.47%		0%		3.52%		3.56%		-1%
	Net interest margin (1)			3.62%		3.63%		0%		3.67%		3.73%		-2%
	Cost of funds			2.79%		3.51%		-20%		2.96%		3.47%		-15%
	Efficiency ratio			68.76%		67.39%		2%		68.31%		66.75%		-5%
	Total risk based capital ratio			11.19%		11.50%		-84%		11.19%		11.50%		-5%
	Tier-One risk based ratio			10.33%		10.80%		-13%		10.33%		10.80%		-7%
	Tier-One leverage ratio			8.51%		8.55%		-21%		8.51%		8.55%		0%
	(1) Adjusted for trust preferred.
Asset Quality Data
	Allowance for loan losses			1,568		1,149		36%		1,568		1,149		36%
	Allowance to ending loans			0.79%		0.67%		18%		0.79%		0.67%		18%
	Net charge offs			-6		0		100%		537		-1		100%
	Net charge offs to average loans			0.00%		0.00%		100%		0.29%		0.00%		100%
	Non performing assets			4,890		0		100%		4,890		0		100%
	Non performing assets to total assets			2.15%		0.00%		100%		2.15%		0.00%		100%

This Press Release may contain forward-looking statements with respect to the financial condition, results of operations and the business of Home Valley Bancorp and its subsidiary, which are subject to certain risks and uncertainties that could cause actual results to differ materially from those set forth in such statements. These include, without limitation, the local economic climate, the impact of competition on revenues and margins, and other risks and uncertainties as may be detailed from time to time in public announcements. Forward-looking statements can be identified by the use of forward-looking terminology, such as ``may,'' ``will,'' ``should,'' ``expect,'' ``anticipate,'' ``estimate,'' ``continue,'' ``plans,'' ``intends,'' or other similar terminology. Home Valley Bancorp does not intend to publicly release any revisions to these forward-looking statements to reflect events or circumstances after the date of this Press Release, or to reflect the occurrence of unanticipated events.