A Bank On A Mission

| About: Mission Valley (MVLY)


Mission Valley Bancorp is a small bank making big moves.

The company had a record breaking year with expectations of continued success.

Mission Valley is a great example of a quietly growing bank, continuing to increase the underlying value of its business.

Mission Valley Bancorp (OTCQX:MVLY) is the holding company of Mission Valley Bank, which is a three branch community bank located in Sun Valley, CA. Mission Valley Bancorp was formed in 2001 in order to provide a local banking experience that was lost through the mergers and acquisitions in the industry.

Source: Mission Valley Bank

For a more detailed summary on the bank and the holding company visit the webpages here and here.

A Record Breaking Year on Multiple Fronts

The year of 2015 was a record breaking year for the company. First, 2015 was the most profitable year in the company's history, letting the company end the full year reporting net income of $3,144,000. Not only was this the highest net income the company has ever reported, but it was an increase of 81% from the full year of 2014. It should be noted that the asset quality improvement in 2015 allowed the company to reverse loan losses of $1.0 million. Although, even without the loan loss reversal, 2015 still would have been the banks most profitable year in the history.

The reason for the tremendous profitability lies not only with the turnaround in the overall economy, but also from management's ability to cut operating expenses and focus on asset quality during the downturn. Focusing on the former two metrics allowed the company to survive the Great Recession and has helped to streamline their operations today.

Total assets also grew to $289 million or 9% from $265 million, which was a record breaking number for the company. The reason for the record breaking asset growth was due to the 7% growth in net loans and loans held for sale-which was partially funded by the 9% growth in deposits.

Remarkably, the company increased total interest income to $11.6 million from $11.2 million YOY, despite the flat interest rate environment. One reason for the total interest income growth was due to the 13% decline in the interest expense from $644,000 in 2014 to $561,000 in 2015.

Finally, the company grew non-interest income at a 9% rate to $3,495,000 in 2015, from $3,196,000 in 2014. The reason for the dramatic improvement in non-interest income was due to the realignment of two business units; SBA Lending and Merchant Bankcard Processing. Thus, the sale of their SBA loans in the secondary market resulted in a 73% increase in the Gain on Sale of Loans. Furthermore, income received from Merchant Services Department increased more than 12% YOY.

Focused on Shareholders

It is in my opinion that Mission Valley Bancorp is focused on creating shareholder value. For an example, since inception, Mission Valley has issued four stock splits. I have never been one to tout trading a dime for two nickels, though, I do see the added benefit of splitting a stock, in order to attempt to provide liquidity and gain attention from the investment community as a whole.

The company also issued its first ever common stock dividend of $0.05/share on March 16ht, 2015. It is in my opinion that if the company continues to have record breaking years or even steady results, the payment of the dividend will continue, giving shareholders an added benefit to holding this local community bank.

Finally, in 2014, the company elected to list its shares on the OTCQX trading platform. The OTCQX is the most visible OTC trading platform and will greatly improve the liquidity of the stock for shareholders. Not only will liquidity be improved, but the OTCQX has high standards for the companies listed, providing shareholders with a type of comfort knowing the bank is listed among other quality companies holding to similar standards.

Loan Book

Mission Valley has a tougher-end loan book with 87.47% of their loans in 'commercial owned occupied', 'other commercial non-farm/non-residential', and 'commercial and industrial' loans.

Source: Created By CompleteBankData

Despite the fact that Mission Valley has a 'risker' loan book, the company has done remarkable well, within their underwriting process and loan collection. For an example, the highest the noncurrent loans to loans has gotten in the past ten years was 3.79%, in 2009-which was in the midst of the Great Recession. Furthermore, the company has continued to bring down their noncurrent loans to loans to a historical low of 0.49% in the most recent quarter.

In short, yes, the company does have a riskier loan book, however, management has shown investors that they can manage a riskier loan book. Thus, their loan book is on the riskier-side of the spectrum, although, given the company's experience with these types of loans, the risk of the loans is offset.

Valuation-Focus on bottom-line expansion

Mission Valley looks decently cheap and has much improving profitability metrics. For an example, at the end of 2011, ROE and ROA were 3.89% and 0.47%, respectively. As of the last filing as a holding company, 4Q15, ROE and ROA were 12.79% and 1.52%, respectively.

Even more interesting, the efficiency ratio has continued to trend downward (besides the bump up in 4Q13 and 2Q14) from 69.19% in 4Q11 to 64.79% in 4Q15. Furthermore, OREO has continued to stay at zero, NPA/Assets are now 0.38% and the Texas Ratio is a low 3.26%.

Based upon the last quarterly filing, the company has a P/TBV of 97.09 and a TTM trailing P/E of 7.26x. Thus, the P/TBV is trading near full value yet P/E is typically on the lower side of the spectrum. In my opinion, this is decent value for a bank that is continuing to grow its net income (up 17.44% YOY) and continuing to grow its deposit base (up 9.59% YOY).

The bank also has $17,704,000 in cash and $19,950,000 in deposits that it could put to work to further drive earnings, thus increasing the underlying business value of the company as a whole. Additionally, interest expense is down -9.09% YOY and total operating expense is down -7.70% YOY. If the company puts more of their cash/securities to work, while decreasing expenses further, or even keeping expenses steady here on out, the bottom-line will experience significant expansion going forward.

I believe that the bank has good value at these levels and should experience further value from continual bottom-line appreciation and from other shareholder friendly actions such as: more dividends and the added liquidity from stock splits and the up-listing to the OTCQX exchange. To end, I would like to leave off with a quote from the CEO…

2015 was a very good year for Mission Valley and as we enter into 2016, our 15th year of operation, we are starting strong. We have a sound, diversified balance sheet, a solid capital base to carry us forward and a tremendous team dedicated to our success and to the success of our clients and shareholders. Mission Valley Bancorp is well positioned to maintain our course of steady and controlled growth throughout 2016 and beyond.


The company has exposure to a significant amount of commercial loans, which typically are riskier. This is offset due to the company's historical non-performing asset quality.

Mission Valley is a small community bank located in California. California is a tough market for small banks and the company may experience added competition. This is offset given the historical results the company has posted and the M&A in the industry, which may benefit the company, due to the fact that they make a good M&A candidate.

Regulation governing the entire industry will put a damper on the company, potentially increasing operating expenses. This is offset due to the fact that operating expenses continue to decrease.


Mission Valley is a unique micro-cap bank located in the growing state of California. Not many investors know the bank exists and fewer will take advantage of the company's steady growth, tight expense structure and shareholder friendly management team. In my opinion, Mission Valley makes for a good investment candidate-for a basket portfolio of small community banks.

- Nick Bodnar

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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