Temecula Valley Bancorp Reports First Quarter 2009 Results

Other first quarter 2009 highlights include:

-- Total Loans Held in Portfolio remained relatively flat at $1.1 Billion.

-- Total deposits increased nearly 10% year-over-year to $1.33 billion; while core deposits increased 5% over previous quarter.

-- The balance of loans 90 days or more past due and still accruing was at zero for the quarter.

-- Total Non Interest expense was essentially flat at $11.7 million despite achieving a 25% reduction in year over year Salaries and Employee Benefits expense. The effect of this improvement was negated by increased loan collection and REO related expenses.

-- The company significantly expanded the size and scope of its Special Assets Group (SAG), charged with managing the collection activity of all SBA, conventional and OREO portfolios.

Frank Basirico, Chief Executive Officer of Temecula Valley Bancorp, said, "Although the economy and real estate markets remain challenging, we continued to make progress this quarter against our strategic plan to deleverage our balance sheet, increase deposits, maintain solid liquidity and reduce our costs. As part of this effort, we've taken a number of steps intended to diversify our sources of stable funding, reduce classified assets, shrink our land and construction loans and strengthen our ability to collect on existing loans through our newly expanded Special Assets Group. At the same time, we are continuing to move forward with Stifel, Nicolaus & Co. on exploring capital alternatives, and we hope to reach the end of that process in the near future if the opportunities we've identified progress. We have also submitted a new capital raising plan to our regulators and are working closely with them to ensure that Temecula Valley Bank is taking all of the necessary steps to enhance its strength, security and performance."

Marty Plourd, President and COO, said, "Our increase in deposits - which grew by $36 million since year end, despite the current unfavorable economic environment-reflects the success of our efforts to return to our roots as a traditional community-focused bank, one that puts the needs and interests of our local customers before anything else. Similarly, we've also transformed our SBA program from 'niche' property financing to lower risk multi-purpose property financing, and we are steadily reducing our reliance on brokered deposits. Looking ahead, we are highly focused on continuing to deliver the highest levels of service and quality that our customers have come to expect for all of their savings needs."

Asset Quality

Gross non-performing assets were $182.3 million, or 12.2% of total assets, at the end of the first quarter. The balance of loans 90 days or more past due and still accruing was zero at March 31, 2009, compared to $1.5 million at the end of the fourth quarter of 2008.

At the end of the first quarter, net other real estate owned (OREO) consisted of 35 properties totaling $35.7 million. The four properties in San Bernardino County totaling $6.3 million include a restaurant, an eight acre commercial lot, residential lots and a development project for 14 condos and 28 lots. The seven properties in San Diego County totaling $7.3 million include four homes, two lots and an 11 unit condo project with six sales completed. The five properties in Riverside County totaling $3.0 million consist of two duplexes, a home, a land development project and a commercial building. There were ten properties in other California counties totaling $13.2 million and seven properties outside of California totaling $2.4 million, all net of SBA guarantees. By type of properties, there are 12 SBA properties totaling $5.2 million and 18 construction related properties totaling $22.1 million, with the remainder in other real estate loans.

Net Non-Accrual Loans by Type
(dollars in 000's)
                                  March 31, 2009     December 31, 2008
                                  Amount   %         Amount   %
Construction - SFR                8,583    6   %     1,291    1    %
Construction - SFR - speculative  11,809   9   %     13,598   12   %
Construction - multifamily        31,980   23  %     26,889   25   %
Construction - commercial         13,926   10  %     3,797    4    %
Construction - land development   14,641   11  %     4,619    4    %
Construction - tract              5,945    4   %     13,212   12   %
Construction - SBA                545      0   %     3,597    3    %
Total Construction                87,429   63  %     67,003   61   %
Commercial real estate            21,795   16  %     18,414   17   %
SBA                               29,991   21  %     23,751   21   %
Commercial                        182      0   %     667      1    %
Consumer                          0        0   %     0        0    %
                                  139,397  100 %     109,835  100  %
Net Non-Accrual Loans by Market
(dollars in 000's)
                                  March 31, 2009     December 31, 2008
                                  Amount   %         Amount   %
San Diego County                  38,381   28  %     24,063   22   %
Riverside County                  17,228   12  %     10,606   10   %
San Bernardino County             10,053   7   %     4,746    4    %
Other California counties         54,685   39  %     55,284   50   %
Outside California                19,050   14  %     15,136   14   %
Total Construction                139,397  100 %     109,835  100  %

Temecula Valley Bancorp's provision for loan losses for the first quarter of 2009 was $22.5 million, compared to $2.2 million in the same period for 2008. As a result, the total allowance for loan losses increased to $55.9 million as of March 31, 2009, as compared to $51.5 million as of December 31, 2008. The allowance for loan loss during the quarter increased to 5.11% of total loans, up from 4.71% of total loans in the immediate prior quarter and 1.34% from a year ago.

Net charge-offs in the first quarter of 2009 were $18.1 million, or an annualized rate of 5.37% of average total loans.

Balance Sheet

Total assets at March 31, 2009 were $1.5 billion, compared to $1.4 billion during the same quarter last year and $1.5 billion at December 31, 2008. Total Loans Held in Portfolio plus Loans Held for Sale were $1.3 billion at March 31, 2009, compared to $1.4 billion at December 31, 2008. Construction and Loans Held for Sale decreased by $25 million and $52 million, respectively since year end. SBA loans increased by 8.0 % during the first quarter to $ 241.9 million. Commercial loans also increased by 5.1% from the previous quarter and are now $ 101.3 million.

Total Deposits at March 31, 2009 were $1.3 billion, a year-over-year increase of 9.7%. Core deposits (excluding CD's of $100,000 or more) increased nearly 5% over the immediate prior quarter to $1.03 billion and account for 77% of total deposits. Time deposits under $100,000 increased to $819.7 million, or 8.5%, from $755.3 million in the immediate prior quarter.

The cost of interest-bearing deposits decreased 107 basis points to 3.28% for the first three months of 2009, compared to 4.31% for the first three months of 2008, as a result of the overall decreases in interest rates between periods.

The Capital Ratios of the Company and the Bank were as follows:

   Holding Company (1)      March 31, 2009  December 31, 2008
   Tier 1 Leverage Ratio    0.63      %     3.49      %
   Tier 1 Risk Based Ratio  0.66      %     3.61      %
   Total Risk Based Ratio   1.31      %     6.69      %
   Bank Only (1)
   Tier 1 Leverage Ratio    3.99      %     6.00      %
   Tier 1 Risk Based Ratio  4.16      %     6.22      %
   Total Risk Based Ratio   5.44      %     7.49      %
   (1) The principal difference between the Capital Ratios for the Bank
   and the Company relates to the Regulatory treatment of junior
   Subordinated debt.

Shareholder equity was $10.5 million at March 31, 2009, or $1.04 per share, a decrease from $46.6 million, or $4.64 per share, at December 31, 2008. Liquidity remains solid with a variety of funding sources and borrowing capacity.

Income Statement

Total revenue, consisting of net interest income and non interest income, was $1.06 million for the first quarter of 2009, compared with $16.2 million in the immediate prior quarter and $16.2 million for the first quarter of 2008. Net interest income was $5.9 million, compared to $13.5 million in the first quarter a year ago. The decline in net interest income includes $1.8 million in reversal of interest of non accrual loans in the first quarter.

Net interest margin was 1.70% in the first quarter, compared to 4.16% for the three months ending March 31, 2008. This compression was principally due to reduced loan yields as the result of a lower interest rate environment and increased non accruing loans.

Non interest income was negative at $4.9 million for the first quarter of 2009, compared to negative $5.8 million in the fourth quarter of 2008 and positive at $2.8 million in the first quarter a year ago, primarily due to losses on the sale of loans, an increase in the provision for fair value adjustment on loans held for sale and losses on OREO. For the first quarter of 2009, the SBA net servicing income was $729,000 compared to a negative $29,000 in the first quarter of 2008. Gains on the sale of loans were negative at $1.5 million in the first three months of 2009, compared to negative at $0.8 million in the immediate prior quarter.

Salaries and employee benefits decreased by $1.9 million, or 25%, to $5.7 million in the first three months of 2009, compared to $7.6 million for the same period in 2008. The decreases are primarily a result of lower commissions on SBA brokered loan sales, lower bonus accruals and lower full-time equivalent. Non interest expense for the first quarter was $11.8 million, compared to $11.6 million for the same period in 2008.

About Temecula Valley Bank

Temecula Valley Bank was established in 1996 and operates eleven full service banking offices in California, in the communities of Temecula, Murrieta, Corona, Carlsbad, El Cajon, Escondido, Fallbrook, Rancho Bernardo, San Marcos, Solana Beach and Ontario. The Bank is an SBA Preferred Lender. Temecula Valley Bancorp Inc. was established in June 2002 and operates as a bank holding company for the Bank. For more information about the Company, visit Temecula's website at www.temvalbank.com.

Statements concerning future performance, developments, or events concerning expectations for growth and market forecasts, and any other guidance on future periods, constitute forward-looking statements 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 effect of interest rate changes, the ability to control costs and expenses, the impact of consolidation in the banking industry, financial policies of the U.S. government, and general economic conditions. Additional information on these and other factors that could affect financial results are included in the filings made with the Securities and Exchange Commission by Temecula Valley Bancorp Inc. The Company undertakes no obligation to update forward-looking statements, whether as a result of new information, future events, or otherwise.

TEMECULA VALLEY BANCORP INC. AND SUBSIDIARY
Consolidated Statements of Financial Condition
(Stated in Thousands, Except Per Share Data)
                                                                     March 31, 2009        December 31, 2008
ASSETS                                                               (Unaudited)           (Audited)
Cash and Due from Banks                                              $    18,562           $     22,817
Federal Funds Sold                                                        42,400                 -
TOTAL CASH AND CASH EQUIVALENTS                                           60,962                 22,817
Interest-bearing deposits in financial institutions                       1,000                  1,000
Investment securities available-for-sale                                  19,317                 20,283
Investment securities held-to-maturity                                    3,162                  3,168
(fair value of $3,318 at March 31, 2009 and $3,297 at December 31,
2008)
Loans Held for Sale                                                       228,772                280,483
Loans:
Commercial                                                                101,276                96,371
Real Estate - Construction                                                424,807                450,184
Real Estate - Other                                                       320,885                316,927
SBA                                                                       241,868                224,022
Consumer and other                                                        6,404                  6,402
TOTAL LOANS HELD IN PORTFOLIO                                             1,095,240              1,093,906
Net Deferred Loan Cost                                                    5,193                  5,490
Allowance for Loan Losses                                                 (55,941   )            (51,537   )
TOTAL NET LOANS HELD IN PORTFOLIO                                         1,044,492              1,047,859
Federal Home Loan Bank Stock, at Cost                                     5,592                  5,592
Premises and Equipment                                                    5,096                  5,510
Other Real Estate Owned                                                   35,660                 33,739
Cash Surrender Value of Life Insurance                                    31,293                 30,999
Deferred Tax Assets, Net of Valuation Allowance                           14,136                 16,335
Income Taxes Receivable                                                   17,303                 18,097
SBA Servicing Assets                                                      5,501                  4,966
SBA Interest-Only Strips Receivable                                       6,825                  6,983
Accrued Interest Receivable                                               4,413                  6,045
Other Assets                                                              11,840                 9,566
TOTAL ASSETS                                                         $    1,495,364        $     1,513,442
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Non Interest-Bearing Demand                                          $    124,708          $     128,049
Money Market and NOW                                                      63,812                 76,760
Savings                                                                   21,522                 21,970
Time Deposits, Under $100,000                                             819,737                755,341
Time Deposits, $100,000 and Over                                          301,577                312,924
TOTAL DEPOSITS                                                            1,331,356              1,295,044
Accrued Interest Payable                                                  4,650                  3,477
Federal Reserve Bank, Discount Window Advance                             -                      13,400
Federal Home Loan Bank, Advance                                           81,500                 88,500
Junior Subordinated Debt                                                  56,924                 56,924
Other Liabilities                                                         10,481                 9,482
TOTAL LIABILITIES                                                         1,484,911              1,466,827
Shareholders' Equity:
Common Stock No Par Value; 40,000,000 Shares Authorized; 10,040,267
Issued and Outstanding at March 31, 2009 and December 31, 2008            36,262                 36,219
Retained (Deficit) Earnings                                               (25,679   )            10,536
Accumulated other comprehensive loss                                      (130      )            (140      )
TOTAL SHAREHOLDERS' EQUITY                                                10,453                 46,615
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY                           $    1,495,364        $     1,513,442

TEMECULA VALLEY BANCORP INC. AND SUBSIDIARY
Consolidated Statements of Operations
(Stated in Thousands, Except Per Share Data)
                                                            For the Three Months Ended
                                                            March 31,
                                                            2009                   2008
INTEREST INCOME                                             (Unaudited)
Loans, including fees                                       $    16,398            $    25,646
Investment Securities                                            106                    45
Interest-bearing deposits in financial institutions              8                      13
Federal Funds Sold                                               11                     225
TOTAL INTEREST INCOME                                            16,523                 25,929
INTEREST EXPENSE
Money Market and NOW                                             129                    669
Savings Deposits                                                 30                     31
Time Deposits                                                    9,469                  10,695
Other Borrowings                                                 138                    -
Junior Subordinated Debt                                         847                    1,038
TOTAL INTEREST EXPENSE                                           10,613                 12,433
NET INTEREST INCOME                                              5,910                  13,496
Provision for Loan Losses                                        22,500                 2,200
NET INTEREST (LOSS) INCOME AFTER PROVISION FOR LOAN LOSSES       (16,590    )           11,296
NON INTEREST INCOME
Service Charges and Fees                                         154                    152
(Loss) Gain on Sale of Loans                                     (1,461     )           830
Provision for fair value adjustment on Loans Held for sale       (1,524     )           -
Impairment of Loans Held for sale                                (1,435     )           -
(Loss) Gain on Other Real Estate Owned                           (2,019     )           52
(Loss) Gain on Sale of Premises and Equipment                    (2         )           -
Servicing Income (loss)                                          729                    (29        )
Loan Broker Income                                               4                      616
Loan Related Income                                              159                    413
Cash Surrender Value of Life Insurance                           334                    299
Other Income                                                     208                    418
TOTAL NON INTEREST (LOSS) INCOME                                 (4,853     )           2,751
NON INTEREST EXPENSE
Salaries and Employee Benefits                                   5,746                  7,612
Occupancy Expenses                                               940                    846
Furniture and Equipment                                          354                    490
Data Processing                                                  368                    347
Marketing and Business Promotion                                 92                     263
Legal and Professional                                           820                    381
Regulatory Assessments                                           1,019                  244
Travel & Entertainment                                           53                     211
Loan Related Expense                                             174                    468
Office Expenses                                                  537                    582
Loan Collection Expenses                                         577                    140
Other Real Estate Owned Expenses                                 1,011                  -
Other Expenses                                                   81                     61
TOTAL NON INTEREST EXPENSE                                       11,772                 11,645
(LOSS) INCOME BEFORE INCOME TAX EXPENSE                          (33,215    )           2,402
Income Tax Expense                                               3,000                  944
NET (LOSS) INCOME                                           $    (36,215    )      $    1,458
Per Share Data:
Earnings (Loss) Per Share - Basic                           $    (3.61      )      $    0.14
Earnings (Loss) Per Share - Diluted                         $    (3.61      )      $    0.14
Cash Dividend Per Share                                          -                 $    0.04
Average number of shares outstanding                             10,040,267             10,100,558
Average number of shares and equivalents                         10,040,267             10,217,048

SELECTED BALANCE SHEET DATA                            March 31, 2009    December 31, 2008
Book value per share, end of period                    $    1.04         $     4.64
Tier 1 leverage capital ratio                               0.63  %            3.49  %
Tier 1 risk-based capital ratio                             0.66  %            3.61  %
Total risk-based capital ratio                              1.31  %            6.69  %
Allowance for loan losses as a % of total loans             4.21  %            3.73  %
Gross nonperforming assets as a % of total assets           9.81  %            9.78  %
Net nonperforming assets as a % of total assets             11.37 %            9.31  %
Net chargeoffs as a % of ytd average loans annualized       5.37  %            3.25  %

SOURCE: Temecula Valley Bancorp Inc.

Temecula Valley Bancorp Inc. 
Frank Basirico, CEO 
951-694-9940