Valley Republic Bancorp Reports Third Quarter 2021 Earnings

Published: Oct. 22, 2021 at 2:56 PM MDT

BAKERSFIELD, Calif., Oct. 22, 2021 /PRNewswire/ -- Valley Republic Bancorp (the "Company") (OTCQX: VLLX), the parent company of Valley Republic Bank (the "Bank"), today announced its unaudited financial results for the third quarter of 2021.

3rd Quarter 2021 Compared to 3rd Quarter 2020:

  • Net income after tax increased 9.8% to $3.4 million or $0.79 per diluted share
  • Total assets increased 18.2% to $1.4 billion
  • Deposits increased 20.4% to $1.3 billion
  • Total Loans increased 2.4% to $885.9 million
  • Gross loans, excluding Paycheck Protection Program (PPP) loans increased 17.0% to $768.3 million
  • Shareholders' equity increased 21.8% to $106.0 million
  • Book value increased to $24.96 per share
  • YTD return on average assets was 1.16%
  • YTD return on average equity was 15.57%

Overview:

Geraud Smith, President and CEO said, "The Company announced its merger with Tri Counties Bank in the 3rd quarter of 2021. Since the announcement, the Valley Republic Bank team has been working closely with the Tri Counties team toward a seamless integration of our two institutions while simultaneously continuing our commitment to deliver uncommon service to our customers. We look forward to closing the transaction and moving forward as one bank. The merger with Tri Counties will provide our existing clients with a broader product offering and increased lending capacity. In addition, the larger combined organization will allow us to increase our community development investments in Kern County."

Financial Performance

Net income for the third quarter of 2021 was $3.4 million compared to $3.1 million reported in the same quarter in the prior year, an increase of $301 thousand or 9.8%. Earnings per share for the third quarter of 2021 were $0.79 per diluted share outstanding compared to $0.73 per diluted share reported in the third quarter of 2020, an increase of 8.2%. In the third quarter of 2021, income before taxes was $4.7 million compared to $4.2 million in the same quarter of 2020. Income before taxes included $548 thousand in merger related expenses. Excluding these expenses, income before taxes would have been $5.2 million, an increase of $992 thousand, or 23.5%, compared to the same quarter in the prior year.

For the nine months ended September 30, 2021, net income was $11.6 million compared to $9.0 million in the same period in the prior year, an increase of $2.6 million or 29.2%. Year to date earnings per diluted share were $2.73 compared to $2.14 in the same period of 2020. For the nine months ended September 30, 2021, income before taxes was $16.4 million compared to $12.3 million, an increase of $4.0 million, or 32.7%. For the nine months ended September 30, 2021, income before taxes included $548 thousand in merger related expenses. Excluding these expenses, income before taxes would have been $16.9 million, an increase of $4.6 million,  or 37.1%, compared to the same quarter in the prior year.

For the three months and nine months ended September 30, 2021, the Company's return on average assets was 0.96% and 1.16%, respectively, and the return on average equity was 12.76% and 15.57%, respectively.

The following tables set forth a summary of average balances and rates for the periods presented. Average loans include nonaccrual loans. Interest income includes fee income of $478 thousand and $387 thousand for the three months ended September 30, 2021 and September 30, 2020, respectively. Interest income includes net fees and (costs) of $3.1 million and $371 thousand for the nine months ended September 30, 2021 and September 30, 2020, respectively. Certain loans and debt securities were tax exempt, however, the income derived from these earning assets was not significant, therefore there have been no adjustments made to reflect interest earned on these earning assets on a tax-equivalent basis.

                                             Three months ended September 30,                                            



2021



2020


 

 

(In Thousands)

 

Avg
    Balance

 

 

  Interest  

Weighted
Avg
  Yield/Cost  

 

Avg
     Balance    

 

 

  Interest  

Weighted
Avg
  Yield/Cost  

ASSETS







Earning assets:







Core Loans, Net of Unearned Income

751,777

7,871

4.15%

640,880

7,112

4.45%

PPP Loans

144,097

1,211

3.33%

210,878

1,249

2.38%

Debt Securities

240,807

1,025

1.69%

194,282

885

1.83%

Fed funds sold and other
interest-bearing balances

 

221,825

 

375

 

0.13%

 

112,515

 

32

 

0.11%

Total earning assets

1,358,506

10,182

2.97%

1,158,555

9,278

2.97%

Total nonearning assets

44,482



43,287



 

Total Assets

 

1,402,988



 

1,201,842



LIABILITIES







Interest-bearing liabilities:







MMDA & Interest Checking

722,823

394

0.22%

549,340

294

0.21%

Savings

71,959

29

0.16%

55,034

21

0.15%

Time deposits

29,218

25

0.34%

46,764

147

1.26%

Subordinated Debt

39,465

588

5.91%

27,348

402

5.90%

PPPLF

-

-

0.00%

25,527

22

0.35%

Total interest-bearing liabilities

863,465

1,036

0.48%

704,013

886

0.50%

Noninterest-bearing deposits

423,822



388,661



Other liabilities

10,488



19,104



Total liabilities

1,297,775



1,111,778



SHAREHOLDERS' EQUITY







Shareholders' equity

105,213



90,064



 

Total Liabilities and Shareholders' Equity

 

1,402,988



 

1,201,842



 

Net Interest Income and Net Interest Margin


 

9,146

 

2.67%


 

8,392

 

2.91%

                                               Nine months ended September 30,                                              



2021



2020


 

 

(In Thousands)

 

Avg
     Balance    

 

 

  Interest  

Weighted
Avg
  Yield/Cost  

 

Avg
     Balance    

 

 

  Interest  

Weighted
Avg
  Yield/Cost  

ASSETS







Earning assets:







Core Loans, Net of Unearned Income

731,343

23,679

4.33%

636,635

21,670

4.55%

PPP Loans

194,955

5,148

3.53%

121,851

1,959

2.15%

Debt Securities

220,501

2,963

1.80%

167,818

2,658

2.12%

Fed funds sold and other
interest-bearing balances

 

152,363

 

128

 

0.11%

 

116,701

 

326

 

0.37%

Total earning assets

1,299,162

31,918

3.28%

1,043,005

26,613

3.41%

Total nonearning assets

45,820



44,881



 

Total Assets

 

1,347,129



 

1,087,886



LIABILITIES







Interest-bearing liabilities:







MMDA & Interest Checking

670,604

1,100

0.22%

488,297

1,352

0.37%

Savings

66,705

77

0.15%

50,240

74

0.20%

Time deposits

31,847

110

0.46%

56,581

664

1.57%

Subordinated Debt

39,426

1,764

5.98%

22,237

1,005

6.04%

PPPLF

-

-

0.00%

15,843

42

0.35%

Total interest-bearing liabilities

808,582

3,051

0.50%

633,198

3,137

0.66%

Noninterest-bearing deposits

423,609



352,073



Other liabilities

14,940



18,280



Total liabilities

1,247,131



1,003,551



SHAREHOLDERS' EQUITY







Shareholders' equity

99,998



84,335



 

Total Liabilities and Shareholders' Equity

 

1,347,129



 

1,087,886



Net Interest Income and Net Interest Margin


 

28,867

 

2.97%


 

23,476

 

3.01%

For the third quarter of 2021, the Company's net interest income increased by $754 thousand to $9.1 million. At the same time, the Company's net interest margin decreased to 2.67% compared to 2.91% in the same period in 2020. The increase in the net interest income for the third quarter of 2021 was driven by an increase in earning assets while the increased volume of deposits and a declining yield on earning assets, particularly the higher average balance on low yielding federal funds sold and other interest-bearing balances, resulted in a decrease in the net interest margin.

For the nine months ended September 30, 2021, the Company's net interest margin decreased to 2.97% compared to 3.01% in the same period in 2020. The decrease was primarily the result of an increase in low yielding federal funds sold and other interest-bearing balances as well as there being 1 day less in the period since the prior year was leap year.

For the three months and nine months ended September 30, 2021, federal funds sold and other interest-bearing balances have increased because deposit growth has exceeded loan demand. At the same time, the forbearances contained in the merger agreement prevent us from purchasing additional debt securities.

For the third quarter of 2021, non-interest income decreased from $618 thousand to $605 thousand, a decrease of 2% for the quarter. The decrease was primarily the result of a decrease in miscellaneous noninterest income. In the third quarter of 2020, the bank participated in the Kern Small Business Relief Program (KSBRP). The program was a one-time program sponsored by the County of Kern whereby the Bank assisted the county in helping deliver grants to small businesses. For the third quarter of 2020, income from the program was $231 thousand. The bank did not receive any fee income from the program in 2021. At the same time, service charges and fees on deposits increased by $97 thousand, or 58.4%. Management is focused on helping customers identify additional treasury management products that will be accretive to our customers' businesses while driving service charge income growth for the Company.

Noninterest expense increased by 21.2% to $5.1 million in the third quarter of 2021. Salaries and employee expense increased as the number of full-time equivalent employees increased from 110 to 117. Noninterest expense for the third quarter of 2021 included $548 thousand in merger related expenses. Excluding those expenses, noninterest expense would have only increased by $349 thousand, or 8.3%. In the third quarter of 2021 and 2020, the Company's efficiency ratio was 52.2% and 46.5%, respectively. For the nine months ended September 30, 2021 and 2020, our efficiency ratio was 45.4% and 46.7%, respectively. Excluding the merger related expenses, the Company's efficiency ratio for the three months and nine months ended September 30, 2021 was 46.6% and 46.0%, respectively.

PPP Loans

The Bank began originating PPP loans to both customers and noncustomers at the outset of the program in 2020 and continued to do so until funding was exhausted in the third quarter of 2021. PPP1 originations totaled $219.4 million to 672 borrowers. PPP2 originations totaled $108.7 million to 527 borrowers. PPP1 forgiveness application submission began in 4th quarter 2020 and nine loans totaling $19.0 million remained outstanding as of September 30, 2021. In the third quarter of 2021, the Bank began processing PPP2 forgiveness applications. As of September 30, 2021, total PPP loans outstanding were $119.8 million. As of September 30, 2021, PPP loan fees totaling $3.8 million remain to be accreted as a component of interest and fee income on loans. In the third quarter of 2021, PPP loans generated $1.2 million in interest and fee income as compared to $1.2 million in the same quarter of the prior year. These amounts are included in interest income  on loans in the income statement.

Loan Portfolio Composition & Credit Quality

The following table sets forth information concerning the composition of our loan portfolio as of the dates presented:

(In thousands)

September 30, 2021

December 31, 2020

September 30, 2020

Real Estate:




Construction and Land Development

$ 54,853

$ 67,903

$ 66,585

1-4 Family Residential

42,440

50,212

42,558

Multifamily Residential

17,844

4,587

3,659

Secured by Farmland

68,534

64,029

64,482

Commercial Real Estate

395,568

344,642

330,001

Total Real Estate Loans

579,239

531,373

507,285

Commercial and Industrial

152,467

97,810

92,821

Payment Protection Program

119,767

177,304

212,179

Agriculture

25,489

33,689

54,578

Loans to Municipalities

10,000

10,013

23

Consumer and Other

1,123

1,215

1,731

Total Loans

888,085

851,404

868,617

Deferred Loan (Fees) Costs, Net

(2,182)

(2,178)

(3,656)

Loans, Net of Deferred Costs and Fees

885,903

849,226

864,961

Allowance for Loan Losses

(11,124)

(10,624)

(10,024)

Net Loans

$874,779

$838,602

$854,937

The following table sets forth the Company's loan portfolio allocated by Management's internal risk ratings:

Loan Risk Rating (In thousands)

September 30, 2021

December 31, 2020

September 30, 2020

Pass

854,247

814,594

828,372

Special Mention

16,515

32,550

35,989

Substandard

13,114

-

-

Substandard-Impaired

4,209

4,260

4,256

Total

888,085

851,404

868,617

Deferred Loan Fees & Costs, Net

(2,182)

(2,178)

(3,656)

Loans Net of Fees & Costs

$885,903

$849,226

864,961

At September 30, 2021, loans past due 30 days or more and still accruing totaled $2.6 million compared to $0 at December 31, 2020. At September 30, 2021, non-accrual loans totaled $2.3 million compared to $1.1 million at December 31, 2020. The total of Adversely Classified loans – Special Mention, Substandard and Substandard-Impaired – at September 30, 2021 decreased to $33.8 million compared to December 31, 2020 of $36.8 million and improved year over year from $40.2 million at September 30, 2020. The $13.1 million increase in Substandard loans at September 30, 2021 is from the reclassification of a borrowing relationship that was previously rated Special Mention. The reclassified relationship is well-collateralized. Despite a loan's adverse classification, management maintains an active dialogue with all borrowers in order to maximize the opportunity for full collection of the balances owed to the Bank.

The Company assesses and manages credit risk on an ongoing basis through formal lending policies of the Bank, internal monitoring and formal credit reviews by an outside firm. The Company believes that the Bank's ability to identify and assess risk and return characteristics of the loan portfolio is critical for profitability and growth. The Company emphasizes credit quality in the loan approval process and engages in active credit administration and regular monitoring. Management has designed and implemented a comprehensive loan review and grading system that functions to monitor and assess the credit risk inherent in the loan portfolio. This system is incorporated in an incurred loss methodology used to determine an appropriate Allowance for Loan and Lease Loss ("ALLL") reserve for the Bank. As of September 30, 2021 and September 30, 2020, the ratio of ALLL to total loans was 1.25% and 1.15%, respectively. Excluding PPP loans that carry an SBA guarantee, reserves have decreased from 1.53% of gross core loans, at September 30, 2020 to 1.45% at September 30, 2021. As the trend of adversely classified loans has improved and the economic risks related to the COVID-19 pandemic have moderated, the Bank recorded a provision for loan losses for the third quarter of 2021 of $0 compared to $600 thousand for the third quarter of 2020. The provision for the nine months ended September 30, 2021 and 2020 was $500 thousand and $1.7 million, respectively. The loans downgraded to substandard did not have a material impact on the level of the ALLL.

John C. Smith, Executive Vice President & Chief Credit Officer said, "Credit quality trends continue to be positive. The Bank's loan portfolio is very sound. Despite the reclassification in the 2nd quarter that increased substandard loans, the total of Special Mention, Substandard and Impaired loans at September 30, 2021 declined to $33.838 million, or 3.82% of gross loans outstanding, from $38.383 million, or 4.23% of gross loans outstanding, at June 30, 2021.  Substandard-Impaired loans of $4.209 million are comprised of four loans, all secured by 1st Deeds of Trust with LTV estimates less than 60%, and no calculated estimated loss.

Growth

Total assets for the third quarter ended September 30, 2021 were $1.4 billion, which represents a year-over- year increase of $217.2 million, or 18.2%. Total loans were $885.9 million, which represents a year-over-year increase of $20.3 million, or 2.4%. The Bank's PPP loan balance as of the quarter ended September 30, 2021 was $119.8 million, a decrease of $57.5 million from December 31, 2020 and a decrease of $92.4 million compared to September 30, 2020. The Bank's gross core loans increased by $94.2 million, or 14.0%, since year-end 2020 and $111.9 million, or 17.0%, compared to September 30, 2020. During the first nine months of 2021, total deposits increased $170.6 million, or 15.7%, ending the quarter at $1.3 billion.

Growth in loans and deposits was primarily due to the addition of 135 new relationships. Developing new banking relationships and enhancing the Bank's non-interest income remain a major focus of Valley Republic Bank.

Eugene Voiland, Chairman of the Board of Directors, said, "Given the great uncertainty and volatility of these times, we are very pleased with the Company's performance. I believe this occurred because of our reputation in the community as a whole, our customers, our shareholders, and mostly our loyal employees. I am particularly proud of how our employees have maintained focus on our business and  high quality service in spite of the many unknowns and uncertainties that have existed this year."

Capital

The Company's total shareholders' equity at September 30, 2021 was $106.0 million. Total shareholders' equity increased by $15.0 million, or 16.5%, over the last 12 months. Book value per share for the same time period grew to $24.96, compared to $21.60 for the same period last year.

Merger

During the Third quarter of 2021, the Company, together with TriCo Bancshares, announced a strategic merger. The merger is expected to close in the fourth quarter of 2021 or the first quarter of 2022. Branch and account conversion is expected to occur in the first quarter of 2022.

Mr. Voiland said, "I believe the pending merger of Valley Republic Bancorp and TriCo Bancshares will be good for all. However, this is a big change for all who have ties to our bank. Our board and management and our new partners are committed to make this transition to the new organization as seamless as possible. This will be a major effort, but everything I have seen to date suggests we will accomplish this."

About Valley Republic Bancorp and Valley Republic Bank

Valley Republic Bancorp is a bank holding company formed in 2016. Valley Republic Bank, established in 2009, is a wholly owned subsidiary of Valley Republic Bancorp, headquartered in Bakersfield, California. The Bancorp is subject to the regulatory oversight of the Federal Reserve Bank, and the Bank is subject to the regulatory oversight of the Federal Deposit Insurance Corporation and the California Department of Financial Protection and Innovation. Valley Republic Bank is an insured, state-chartered, non-member bank of the Federal Reserve System. Valley Republic Bank is a full-service, community bank with three full-service banking offices in Bakersfield, one full-service banking office in Delano, and a loan production office in Fresno. Valley Republic Bank emphasizes professional, high quality banking services provided to a wide range of businesses and professionals. The Bank also provides a full complement of banking services that are available to individuals and non-profit organizations.

Valley Republic Bancorp and Subsidiary
Balance Sheet


(Unaudited. Dollars in thousands, except per share data.)

September 30, 2021

December 31, 2020

September 30, 2020

 

ASSETS

 




Cash and Due From Banks

$                    10,667

$                    10,585

$                     12,389

Federal Funds Sold & Interest-Bearing Deposits in Banks

245,263

130,141

70,199

Total Cash and Equivalents

255,930

140,726

82,588

Debt Securities

237,653

212,317

215,464

Loans, Net of Deferred Fees and Costs

885,903

849,226

864,961

Allowance for Loan losses

(11,124)

(10,624)

(10,024)

Net Loans

874,779

838,602

854,937

Premises and Equipment

6,103

6,948

7,204

Bank Owned Life Insurance

13,475

13,264

12,908

Interest Receivable and Other Assets

23,985

24,153

21,613

TOTAL ASSETS

 

$              1,411,925

 

$              1,236,010

 

$               1,194,714





LIABILITIES AND SHAREHOLDERS' EQUITY

 




Liabilities




Deposits




Noninterest-Bearing

$                  426,522

$                  381,733

$                   383,384

Interest-Bearing

827,965

702,140

658,480

Total Deposits

1,254,487

1,083,873

1,041,864

Short-Term FHLB Borrowing

-

5,000

5,000

Long-Term Debt

39,491

39,371

45,000

Accrued Interest Payable and Other Liabilities

11,931

12,652

11,875

Total Liabilities

1,305,909

1,140,896

1,103,739

Shareholders' Equity




Common Stock, no Par Value

49,193

48,530

47,395

Additional Paid-in Capital

1,058

808

702

Retained Earnings

53,789

42,143

39,634

Accumulated Other Comprehensive Income (Loss)

1,976

3,633

3,244

Total Shareholders' Equity

106,016

95,114

90,975

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY

 

$              1,411,925

 

$              1,236,010

 

$               1,194,714

 

Shares of Common Stock Outstanding at End of Period

 

 

4,246,666

 

 

4,217,267

 

 

4,211,188

Book Value per Share

$                      24.96

$                      22.55

$                       21.60

Valley Republic Bancorp and Subsidiary
Income Statement


(Unaudited. Dollars in thousands, except per share data.)

Quarters Ended September 30,


Year to Date Ended September 30,


2021


2020


2021


2020

INTEREST INCOME








Loans (Including Fees and Costs)

$             9,082


$          8,361


$        28,827


$        23,629

Debt Securities

1,025


885


2,963


2,658

Other

75


32


128


326

Total Interest Income

10,182


9,278


31,918


26,613









INTEREST EXPENSE








Deposits

448


461


1,287


2,090

Other

588


425


1,764


1,047

Total Interest Expense

1,036


886


3,051


3,137









Net Interest Income

9,146


8,392


28,867


23,476

Provision For Loan Losses

-


600


500


1,675

Net Interest Income After Provision for Loan Losses

9,146


7,792


28,367


21,801









NON-INTEREST INCOME








Service Charges and Fees on Deposits

263


166


690


477

Other Non-Interest Income

342


452


1,348


1,250

Gain (Loss) on Sale of Securities

-


-


-


1,088

Total Non-Interest Income

605


618


2,038


2,815









NON-INTEREST EXPENSE








Salaries and Employee Benefits

2,633


2,324


7,750


7,215

Occupancy & Equipment

549


494


1,501


1,438

Other

1,907


1,374


4,779


3,623

Total Non-Interest Expense

5,089


4,192


14,030


12,276









Income Before Taxes

4,662


4,218


16,375


12,340

Income Taxes

1,277


1,134


4,728


3,324









NET INCOME

$             3,385


$          3,084


$        11,647


$          9,016









Basic Earnings per Share

$               0.80


$            0.73


$            2.75


$            2.15









Diluted Earnings per Share

$               0.79


$            0.73


$            2.73


$            2.14

















Weighted Average Shares

4,240,880


4,203,183


4,230,305


4,187,185

Weighted Average Diluted Shares

4,293,347


4,221,102


4,267,623


4,211,449









Average Assets

1,402,988


1,202,489


1,345,091


1,085,719

Average Equity

105,213


88,782


99,998


84,335

Company Website: https://www.valleyrepublic.bank/investor-relations

Forward Looking Statements

This news release may include forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Exchange Act of 1934, as amended and Valley Republic Bancorp and Valley Republic Bank (together, the "Company") intend for such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. Future events are difficult to predict, and the expectations described above are necessarily subject to risk and uncertainty that may cause actual results to differ materially and adversely.

Forward-looking statements can be identified by the fact that they do not relate strictly to historical or current facts. They often include the words "believe," "expect," "anticipate," "intend," "plan," "estimate," or words of similar meaning, or future or conditional verbs such as "will," "would," "should," "could," or "may." These forward-looking statements are not guarantees of future performance, nor should they be relied upon as representing management's views as of any subsequent date. Forward-looking statements involve significant risks and uncertainties and actual results may differ materially from those presented, either expressed or implied, in this news release. Factors that might cause such differences include, but are not limited to: the Company's ability to successfully execute its business plans and achieve its objectives; changes in general economic and financial market conditions, either nationally or locally, in areas in which the Company conducts its operations; changes in interest rates; continuing consolidation in the financial services industry; new litigation or changes in existing litigation; increased competitive challenges and expanding product and pricing pressures among financial institutions; legislation or regulatory changes which adversely affect the Company's operations or business; loss of key personnel; and changes in accounting policies or procedures as may be required by the Financial Accounting Standards Board or other regulatory agencies.

The Company undertakes no obligation to publicly revise these forward-looking statements to reflect subsequent events or circumstances.

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SOURCE Valley Republic Bancorp

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