Pacific Valley Bank (PVBK) in Salinas, Calif., will restate certain earnings after a review of its loan portfolio caused it to question certain loan classifications.

The $212 million-asset company said in a press release Friday that its decision came after an examination by the Federal Deposit Insurance Corp. Management then recommended that the company increase its loan-loss allowance for loan losses and the level of nonperforming and classified loans for the fourth quarter and possibly this year's first quarter.

The issue involves certain lines of credit Pacific Valley extended to creditworthy borrowers who, in turn, made loans to borrowers with nonperforming loans at the bank. Pacific Valley said its board believes the loans will be paid off. Still, the company is conducting a thorough review of its loan portfolio to determine if other loans should be reclassified.

Pacific Valley also said it is reviewing its policies, procedures and corporate governance policy to prevent future problems with its loan portfolio and loan-grading practices. It also said that Joe Robello, a retired telecommunications executive, had become its chairman, succeeding Peter Shah, and that it had created an executive committee comprised of three directors to assist "with the day-to-day management of the company."

The company said the higher loan-loss allowance will lower if 2013 earnings, though it did not specify how large a hit it expected. The adjustment may also lower its first-quarter earnings. Pacific Valley said in the release that it will detail its restated earnings "as soon as reasonably practical."

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