Pacific Valley Bank (OTCQB: PVBK) today announced that the Audit Committee of the Board of Directors of Pacific Valley Bank, after consultation with management, determined that the company's financial statements for the fiscal year ended December 31, 2013 and the three month period ended March 31, 2014, can no longer be relied upon as being in compliance with generally accepted accounting principles. Accordingly, the company will restate such financial statements.
Similarly, related press releases and shareholder communications describing the company's financial statements for these periods should no longer be relied upon.
The Audit Committee's decision to restate these financial statements follows a recent examination of the company by the Federal Deposit Insurance Corporation ("FDIC") and a recommendation by management that the allowance for loan losses and the level of non-performing and classified loans in these previously issued financial statements should be adjusted due to errors in calculating the level of nonperforming and classified loans.
Preliminary indications from the company's evaluation are that the changes will result in an increase in the company's allowance for loan losses and a decrease in the company's net income for the year ended December 31, 2013 and possibly the three months ended March 31, 2014.
In addition, the company is in the process of conducting a thorough review of the loan portfolio to determine if loan grades are appropriate, if additional provisions to the allowance for loan losses should be made and if adjustments should be made to any prior periods. Further, the company will be conducting a complete review of its policies, procedures and internal controls and the company's corporate governance policy, procedures and framework, to ensure that certain problem loans and loan grading issues and corporate governance deficiencies will not occur in the future.
The cause of the restatement is primarily related to the company granting lines of credit to certain borrowers who then made loans to other company borrowers whose loans were not performing. The Board of Directors believes that all such lines of credit will be paid off and that no loss will result to the company, although no assurance can be given that this will occur. The deficiencies noted in the loan portfolio, in the company's policies, procedures and internal controls, and in the company's corporate governance framework, may result in increased levels of expenses to remedy.
In connection with the potential for increased expenses to remedy, the company may need to reevaluate the projected level of such expenses and their potential impact on the company's ability to realize its net deferred tax assets. Consequently, if deemed appropriate under generally accepted accounting principles, the company's restatement of its December 31, 2013 financial statements could also include the reestablishment of a full valuation allowance against its net deferred tax assets as of December 31, 2013, and a corresponding increase to its income tax expense for the year then ended. This would also require reassessment of the income tax expense reported in the March 31, 2014 financial statements.
The company intends to amend its consolidated reports of condition and income ("Call Reports") for December 31, 2013 and March 31, 2014, as appropriate, as soon as reasonably practicable after this release. The Board of Directors and Management have also considered the effect of the matters that led to the restatement on the company's prior conclusions of the adequacy of its internal controls and procedures, and its corporate governance policy, procedures, practices and framework, as of the end of each of the applicable restatement periods.
The Board of Directors has also appointed Mr. Joe Robello as Chairman of the Board and formed an executive committee composed of Messrs. Rodney Braga, Mike Cling and Joe Robello to assist the company with the day-to-day management of the company.
About Pacific Valley Bank
Pacific Valley Bank is a California state-chartered bank that commenced operations in September 2004. The company serves three locations; administrative headquarters and branch offices in Salinas, King City and Monterey, California. The company 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 company serves customers primarily in Monterey County. For more information, visit www.pacificvalleybank.com.
Cautionary Statement Regarding Forward-Looking Statements
Certain statements contained herein constitute forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934. Forward-looking statements are indicated by words or phrases such as "anticipates," "estimates," "projects," "believes," "intends," "expects" and similar words and phrases. These statements are based upon beliefs and assumptions by the company's management and on information currently available to management. These involve risks and uncertainties.
Such risks and uncertainties include, but are not limited to: the timing and nature of the final resolution of the accounting issues discussed in this press release; any delay in the filing of call reports with the FDIC; the timing and results of the review of the loan portfolio and the allowance for loan losses; the timing, requirements, and expenses of potential remedies; the timing and results of the review of the company's ability to realize its net deferred tax assets and the appropriateness of reestablishing a valuation allowance against its net deferred tax assets; the timing and results of review of the effectiveness of the company's system of internal controls and procedures including its corporate governance policies and structural framework; changes in the ranges of estimates and adjustments in this press release due to the audit of the company's financial statements; whether a restatement of financial results will be required for other accounting issues for the same or other periods in addition to the restatement currently expected by management; additional uncertainties related to accounting issues generally; adverse effects on the company's business as a result of the restatement process or the review of the effectiveness of internal control over financial reporting, rumors or otherwise; and adverse developments in existing legal proceedings or the initiation of new legal proceedings; and volatility of the company's stock price.
Actual outcomes and results may differ materially from what is expressed, estimated or implied in any guidance, preliminary revenue estimate or any other forward-looking statement. The company undertakes no obligation to update or correct any forward-looking statement made herein due to the occurrence of events after the issuance of this press release, except as required under applicable securities law.
Chairman of the Board
Chairman of the Audit Committee
SOURCE: Pacific Valley Bank