Valley Republic Bancorp Reports Record Earnings

BAKERSFIELD, Calif., July 21, 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 quarter ended June 30, 2021.

2^nd Quarter 2021 Compared to 2^nd Quarter 2020:

• Net income after tax increased 23.8% to $4.554 million or $1.07 per diluted share
• Total assets increased 12.0% to $1.366 billion
• Deposits increased 14.4% to $1.212 billion
• Total Loans increased 5.4% to $903.661 million
• Gross loans, excluding Paycheck Protection Program (PPP) loans increased 12.7% to $735.923 million
• Shareholders' equity increased 18.5% to $103.103 million
• Book value increased to $24.32 per share
• YTD return on average assets was 1.27%
• YTD return on average equity was 17.11%

Overview:

Geraud Smith, President and CEO stated, "Given the difficult interest rate environment, I am extremely pleased with our Company's financial performance.  Our dedicated team remains laser focused on serving our existing customers and bringing net new names into the Bank, which is evidenced by our core balance sheet growth during the first six months of the year.   In addition, our intentional focus on non-interest income through an expansion of our Treasury Management capabilities drove our 29%, year-to-date, year-over-year increase in non-interest income, when excluding our previous years gain on sale of securities.   Non-interest income and the development of net new relationships remain top priorities for our Company." 

Financial Performance

Net income for the second quarter of 2021 was $4.554 million compared to $3.678 million reported in the same quarter in the prior year, an increase of $876 thousand or 23.8%. Earnings per share for the second quarter of 2021 were $1.07 per diluted share outstanding compared to $0.87 per diluted share reported in the second quarter of 2020, an increase 23.0%.

For the six months ended June 30, 2021, net income was $8.262 million compared to $5.933 million in the same period in the prior year, an increase of $2.329 million or 39.3%. Year to date earnings were $1.94 per diluted share compared to $1.41 in the same period of 2020.

For the three months and six months ended June 30, 2021, the Company's return on average assets was 1.34% and 1.27%, respectively, and the return on average equity was 18.51% and 17.11%, 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 $1.843 million and $126 thousand for the three months ended June 30, 2021 and June 30, 2020, respectively. Interest income includes fees and (costs), net, of $2.661 million and $(16) thousand for the six months ended June 30, 2021 and June 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.

Average Balances, Average Yields & Rates
	Three months ended June 30,
	2021						2020
	Average Balance		Interest		Weighted Average Yield/Cost		Average Balance		Interest		Weighted Average Yield/Cost
ASSETS
Earning assets:
Core Loans, Net of Unearned Income	729,590		8,174		4.49%		643,752		7,172		4.47%
PPP Loans	229,294		2,314		4.05%		153,136		710		1.86%
Debt Securities	210,423		970		1.85%		141,993		768		2.17%
Fed funds sold and other interest-bearing balances	141,731		32		0.09%		151,575		34		0.09%
Total earning assets	1,311,038		11,490		3.52%		1,090,456		8,684		3.19%
Total nonearning assets	48,779						41,528
Total Assets	1,359,817						1,131,984
LIABILITIES
Interest-bearing liabilities:
MMDA & Interest Checking	675,005		375		0.22%		499,375		260		0.21%
Savings	67,069		26		0.16%		50,903		19		0.15%
Time deposits	31,863		37		0.47%		61,081		247		1.62%
Long-term Debt	39,425		588		5.98%		19,729		300		6.10%
PPPLF	-		-		0.00%		21,897		19		0.35%
Total interest-bearing liabilities	813,362		1,026		0.51%		652,985		845		0.52%
Noninterest-bearing deposits	431,706						378,277
Other liabilities	16,091						17,154
Total liabilities	1,261,159						1,048,416
SHAREHOLDERS' EQUITY
Shareholders' equity	98,658						83,568
Total Liabilities and Shareholders' Equity	1,359,817						1,131,984
Net Interest Income and Net Interest Margin			10,464		3.20%				7,839		2.88%

 

	Six months ended June 30,
	2021						2020
	Average Balance		Interest		Weighted Average Yield/Cost		Average Balance		Interest		Weighted Average Yield/Cost
ASSETS
Earning assets:
Core Loans, Net of Unearned Income	720,545		15,809		4.42%		634,497		14,556		4.61%
PPP Loans	221,237		3,937		3.59%		76,841		711		1.86%
Debt Securities	210,202		1,937		1.86%		154,491		1,773		2.31%
Fed funds sold and other interest-bearing balances	117,169		53		0.09%		118,893		295		0.50%
Total earning assets	1,269,153		21,736		3.45%		984,722		17,335		3.55%
Total nonearning assets	47,611						41,479
Total Assets	1,316,764						1,026,694
LIABILITIES
Interest-bearing liabilities:
MMDA & Interest Checking	644,160		705		0.22%		457,439		1,057		0.46%
Savings	64,027		49		0.15%		47,817		53		0.22%
Time deposits	33,184		85		0.52%		61,543		518		1.69%
Long-term Debt	39,406		1,176		6.02%		19,720		603		6.15%
PPPLF	-		-		0.00%		10,948		19		0.35%
Total interest-bearing liabilities	780,777		2,015		0.52%		597,467		2,250		0.76%
Noninterest-bearing deposits	421,325						331,604
Other liabilities	17,308						15,528
Total liabilities	1,219,410						944,599
SHAREHOLDERS' EQUITY
Shareholders' equity	97,354						82,095
Total Liabilities and Shareholders' Equity	1,316,764						1,026,694
Net Interest Income and Net Interest Margin			19,721		3.13%				15,085		3.08%

For the second quarter of 2021, the Company's net interest margin increased to 3.20% compared to 2.88% in the same period in 2020. For the six months ended June 30, 2021, the Company's net interest margin increased to 3.13% compared to 3.08% in the same period in 2020.

The increase in the net interest margin and net interest income for the second quarter of 2021 was driven by an increased volume in earning assets, prepayment penalties, and increased yields on PPP loans resulting from accelerated fee accretion when the loans were forgiven by the SBA. At the same time, there were a number of time deposits that were originated in a higher rate environment that matured. This was partially offset by additional interest expense associated with the year over year increase in the volume of subordinated debt.

In the second quarter of 2021 and 2020, the Company recorded a pretax gain on the sale of securities of $0 and $1.088 million, respectively. Excluding the gain, non-interest income increased from $750 thousand to $915 thousand, an increase of 22% for the quarter. The increase was primarily the result of increases in service charges on deposits and income related to the origination of Farmer Mac loans. 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 18.0% to $4.637 million in the second quarter of 2021. Salaries and employee expense increased as the number of full-time equivalent employees increased from 111 to 124. Data processing expense also increased due to the increase in our asset size.  In the second quarter of 2021 and 2020, our efficiency ratio was 40.8% and 40.6%, respectively. For the six months ended June 30, 2021 and 2020, our efficiency ratio was 42.3% and 46.8%, 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 second quarter of 2021.  PPP1 originations totaled $219.389 million to 672 borrowers. PPP2 originations totaled $108.711 million to 527 borrowers.  PPP1 forgiveness application submission began in 4th quarter 2020 and was nearly completed by June 30, 2021. As of June 30, 2021, total PPP loans outstanding totaled $170.908 million. As of June 30, 2021, PPP loan fees net of costs totaling $4.449 million had yet to be accreted as a component of interest and fees on loans.  In the second quarter of 2021, PPP loans generated $2.314 million in interest and fee income as compared to $711 thousand 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)	June 30, 2021	December 31, 2020	June 30, 2020
Real Estate:
Construction and Land Development	$        71,037	$                67,903	$        67,778
1-4 Family Residential	47,829	50,212	44,065
Multifamily Residential	17,494	4,587	3,359
Secured by Farmland	69,445	64,029	72,979
Commercial Real Estate	352,585	344,642	316,816
Total Real Estate Loans	558,390	531,373	504,997
Commercial and Industrial	143,013	97,810	107,249
Payment Protection Program	170,908	177, 304	208,608
Agriculture	22,954	33,689	39,795
Loans to Municipalities	10,000	10,013	34
Consumer and Other	1,566	1,215	1,025
Total Loans	906,831	851,404	861,708
Deferred Loan (Fees) Costs, Net	(        3,170)	(                 2,178)	(        4,444)
Loans, Net of Deferred Costs and Fees	903,661	849,226	857,264
Allowance for Loan Losses	(      11,124)	(               10,624)	(        9,424)
Net Loans	$      892,537	$               838,602	$      847,840

 

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

Loan Risk Rating (In thousands)	June 30, 2021	December 31, 2020	June 30, 2020
Pass	868,448	814,594	818,577
Special Mention	19,259	32,550	38,893
Substandard	14,869	-	-
Substandard-Impaired	4,255	4,260	4,238
Total	906,831	851,404	861,708
Deferred Loan Fees & Costs, Net	(3,170)	(2,178)	(4,444)
Loans Net of Fees & Costs	903,661	849,226	857,264

At June 30, 2021, loans past due 30 days or more and still accruing totaled $4.500 million compared to $0 at December 31, 2020. At June 30, 2021, non-accrual loans totaled $2.345 million compared to $1.121 million at December 31, 2020. The total of Adversely Classified loans – Special Mention, Substandard and Substandard-Impaired at June 30, 2021 of $38.383 million is slightly elevated compared to December 31, 2020 of $36.810 million, but improved year over year from $43.131 million at June 30, 2020.  The $14.869 million increase in Substandard loans at June 30, 2021 is from the reclassification of a borrowing relationship that was previously rated Special Mention.  Despite a loans 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 a result of this methodology, Management has increased its allowance for loan losses year over year. As of June 30, 2021 and June 30, 2020, the ratio of ALLL to total loans was 1.23% and 1.10%, respectively. Excluding PPP loans that carry an SBA guarantee, reserves have been increased from $9.424 million or 1.44% of gross core loans at June 30, 2020 to $11.124 million or 1.51% at June 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 second quarter of 2021 of $125 thousand compared to $700 thousand for the second quarter of 2020.   The provision for the six months ended June 30, 2021 and 2020 was $500 thousand and $1.075 million, respectively. The loans downgraded to substandard did not have a material impact on the level of the ALLL.

Jack Smith, Executive Vice President & Chief Credit Officer stated, "In 2020, our loan teams were very proactive working with customers to modify loans with a variety of payment deferral arrangements that assisted businesses to navigate pandemic cash flow impacts.  At the peak, there were $76 million in loan payment deferrals.  During the first half of 2021, all borrowers have been able to return to original repayment terms.  The Bank's loan portfolio is very sound, overall.  Despite the reclassification that increased Substandard loans, Adversely Classified loans at June 30, 2021 declined to $38.383 million or 4.23% of gross loans outstanding from $43.131 million or 5.01% of gross loans outstanding at June 30, 2020.  Along with very modest delinquencies and improving financial trends in many of the industries we are engaged in, the Bank is positioned for loan growth and support of the businesses and communities it serves."

Growth

Total assets for the second quarter ended June 30, 2021 were $1.366 billion, which represents a year-over- year increase of $146.780 million, or 12.0%.  Total loans were $903.661 million, which represents a year-over- year increase of $46.397 million, or 5.4%. The Bank's PPP loan balance as of the quarter ended June 30, 2021 was $170.908 million, a decrease of $6.396 million from December 31, 2020 and a decrease of $37.700 million compared to June 30, 2020.  The Bank's gross core loans increased by $61.823 million or 9.2% since year-end 2020.  During the first six months of 2021, total deposits increased $127.870 million, or 11.8%, ending the quarter at $1.212 billion.

Growth in loans and deposits for the first six months was primarily due to the addition of 121 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, "Our Bank and its employees continue to perform at a very high level. We are very vigilant as to the economic environment, low interest rates, potential inflationary pressures, COVID issues, and changing government policies. We believe we are well positioned to manage through these uncertainties."

Capital

The Company's total shareholders' equity at June 30, 2021 was $103.103 million. Total shareholders' equity increased by $16.074 million, or 18.5%, over the last 12 months.  Book value per share for the same time period grew to $24.32, compared to $20.73 for the same period last year. 

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.)	June 30, 2021		December 31, 2020		June 30, 2020
ASSETS
Cash and Due From Banks	$                22,162		$                10,585		$                15,020
Federal Funds Sold & Interest-Bearing Deposits in Banks	173,478		130,141		155,785
Total Cash and Equivalents	195,640		140,726		170,805
Debt Securities	234,157		212,317		160,447
Loans, Net of Deferred Fees and Costs	903,661		849,226		857,264
Allowance for Loan losses	(11,124)		(10,624)		(9,424)
Net Loans	892,537		838,602		847,840
Premises and Equipment	6,409		6,948		7,371
Bank Owned Life Insurance	13,401		13,264		12,839
Interest Receivable and Other Assets	24,104		24,153		20,166
TOTAL ASSETS	$           1,366,248		$           1,236,010		$           1,219,468
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Deposits
Noninterest-Bearing	$              412,145		$              381,733		$              404,944
Interest-Bearing	799,598		702,140		653,856
Total Deposits	1,211,743		1,083,873		1,058,800
PPPLF Borrowing	-		-		30,899
Short-Term FHLB Borrowing	-		5,000		10,000
Long-Term Debt	39,451		39,371		19,740
Accrued Interest Payable and Other Liabilities	11,951		12,652		13,000
Total Liabilities	1,263,145		1,140,896	-	1,132,439
Shareholders' Equity
Common Stock, no Par Value	48,967		48,530		47,144
Additional Paid-in Capital	970		808		710
Retained Earnings	50,404		42,143		36,551
Accumulated Other Comprehensive Income (Loss)	2,762		3,633		2,624
Total Shareholders' Equity	103,103		95,114		87,029
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY	$           1,366,248		$           1,236,010		$           1,219,468
Shares of Common Stock Outstanding at End of Period	4,239,279		4,217,267		4,198,100
Book Value per Share	$                  24.32		$                  22.55		$                  20.73

 

Valley Republic Bancorp and Subsidiary Income Statement
(Unaudited. Dollars in thousands, except per share data.)	Quarters Ended June 30,				Year to Date Ended June 31,
	2021		2020		2021		2020
INTEREST INCOME
Loans (Including Fees and Costs)	$           10,488		$          7,882		$        19,746		$        15,267
Debt Securities, Available-for-Sale	970		768		1,937		1,773
Other	32		34		53		295
Total Interest Income	11,490		8,684		21,736		17,335
INTEREST EXPENSE
Deposits	438		526		839		1,628
Other	588		319		1,176		622
Total Interest Expense	1,026		845		2,015		2,250
Net Interest Income	10,464		7,839		19,721		15,085
Provision For Loan Losses	125		700		500		1,075
Net Interest Income After Provision for Loan Losses	10,339		7,139		19,221		14,010
NON-INTEREST INCOME
Service Charges and Fees on Deposits	237		156		428		311
Other Non-Interest Income	678		594		1,006		799
Gain (Loss) on Sale of Securities	-		1,088		-		1,088
Total Non-Interest Income	915		1,838		1,434		2,198
NON-INTEREST EXPENSE
Salaries and Employee Benefits	2,748		2,272		5,117		4,892
Occupancy & Equipment	466		475		952		944
Other	1,423		1,180		2,872		2,249
Total Non-Interest Expense	4,637		3,927		8,941		8,085
Income Before Taxes	6,617		5,050		11,714		8,123
Income Taxes	2,063		1,372		3,452		2,190
NET INCOME	$             4,554		$          3,678		$          8,262		$          5,933
Basic Earnings per Share	$               1.08		$            0.88		$            1.96		$            1.42
Diluted Earnings per Share	$               1.07		$            0.87		$            1.94		$            1.41
Weighted Average Shares	4,229,778		4,182,252		4,224,930		4,179,099
Weighted Average Diluted Shares	4,275,527		4,204,616		4,256,385		4,209,401
Average Assets	$      1,359,817		$     1,131,984		$   1,316,764		$  1,026,694
Average Equity	$           98,658		$          83,568		$        97,354		$       83,123

 

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