Valley Commerce Bancorp Reports Earnings For Second Quarter 2014

VISALIA, Calif., July 24, 2014 /PRNewswire/ -- Valley Commerce Bancorp, (OTCBB: VCBP), a bank holding company and the parent company of Valley Business Bank, today announced second quarter 2014 net income of $1.5 million or $0.52 per diluted share.  This compared to earnings of $1.6 million, or $0.55 per diluted share, for the second quarter of 2013.  For the six months ended June 30, 2014, the Company reported net income of $2.3 million, or $0.77 per diluted share.  This compared to earnings of $2.4 million, or $0.80 per diluted share, for the six months ended June 30, 2013.

Allan W. Stone, President and Chief Executive Officer, remarked, "Our second quarter and year to date core earnings, comprised primarily of earnings exclusive of adjustments to loan loss reserves, are up approximately $300,000 over 2013.  The major contributor to the increased core earnings was the $17 million increase in year to date average loans outstanding for 2014 compared to 2013.  Due to continued positive trends in the quality of the loan portfolio and recoveries of prior year loan losses we reversed a portion of our allowance for loan and lease losses for the second consecutive year.  We reversed $1.0 million of loss reserves in 2014 and $1.5 million in 2013.  These adjustments were made after thorough consideration of all relevant factors and are not uncommon following a recession.  In the longer term, reversals of loss reserves cannot be relied upon as a source of earnings, so our focus is always on producing steady, sustainable earnings. In this regard, I am pleased to report favorable trends in loans, deposits, net interest income, and non-interest income.  We are working very diligently to make sure these trends continue and our shareholders can feel confident that their investment will continue to gain value in the years ahead.  During the second quarter, we paid a cash dividend of eight cents per share and issued a five percent stock dividend.  Our board of directors looks forward to taking additional actions to benefit our shareholders."

Selected financial information is presented in the following table:

Loans

Net loans were $247.1 million at June 30, 2014, an increase of $12.5 million or 5% from the $234.6 million at December 31, 2013.  The increase occurred primarily in real estate-construction and real estate-mortgage loans.  Average gross loans were $244.8 million for the six months ended June 30, 2014 and $228.0 million for the six months ended June 30, 2013, an increase of $16.8 million or 7%.

Net loans at June 30, 2014, December 31, 2013, and June 30, 2013 are summarized in the following table:

Investment Securities

Available-for-sale investment securities were $66.7 million at June 30, 2014 compared to $66.5 million at December 31, 2013, an increase of $160 thousand or 0.2%.  There were $7.4 million of investment securities purchased during the six months ended June 30, 2014 which were offset by normal repayments, maturities, calls, and sales.  Gain on sale of investment securities was $155 thousand for the first six months of 2014 compared to $126 thousand for the same period in 2013. 

The amortized cost and estimated fair value of available-for-sale investment securities at the dates indicated consisted of the following:

Deposits

Total deposits increased by $12.0 million or 4%, from $317.9 million at December 31, 2013 to $329.9 million at June 30, 2014.  Average total deposits were $337.7 million for the six months ended June 30, 2014, a $19.4 million or 6% increase from the $318.3 million in average total deposits for the six months ended June 30, 2013.

Total deposits at June 30, 2014, December 31, 2013, and June 30, 2013 are summarized in the following table:

Shareholders' Equity

Total shareholders' equity was $42.5 million at June 30, 2014, an increase of $3.3 million or 8%, from the $39.8 million at December 31, 2013.  The increase was due to earnings of $2.3 million and a $654 thousand increase in accumulated other comprehensive income that resulted from increased value of investment securities.  During the six months ended June 30, 2014 and 2013 the Company paid common stock cash dividends totaling $393 thousand and $168 thousand, respectively.  Common stock repurchased during the six months ended June 30, 2014 totaled $236 thousand at an average of $14.38 per share.  Common stock repurchased during the year ended December 31, 2013 totaled $788 thousand at an average of $13.59 per share.

Asset Quality

Nonperforming assets at June 30, 2014 were comprised of nine nonaccrual loans spread among five customer relationships with an aggregate balance of $3.0 million compared with nine nonaccrual loans spread among five customer relationships at December 31, 2013 with an aggregate balance of $3.2 million.  The Company had no other real estate owned at June 30, 2014 or December 31, 2013.

Impaired loans totaled $6.0 million and $6.6 million at June 30, 3014 and December 31, 2013, respectively, and were comprised of the nonaccrual loans included in nonperforming assets and certain accruing loans whose terms have been modified from the original loan agreement.

A summary of nonperforming assets is set forth below:

The following table summarizes the changes in the allowance for loan and lease losses (ALLL) for the periods indicated:

The Company's ALLL was $3.9 million at December 31, 2013 and $3.2 million at June 30, 2014 due to a $1.0 million reversal of loan loans provisions offset by $342 thousand in net recoveries during the six months ending June 30, 2014.  The ALLL represented 1.28% of total loans at June 30, 2014 compared to 1.62% at December 31, 2013.  The ALLL percentage decreased due to increased loan volume as well as the factors described above.  In determining the amount of ALLL required at June 30, 2014, management analyzed the composition and strength of the Company's loan portfolio, including borrower performance trends, the potential for losses in loans classified nonperforming, the potential for loan loss recoveries, and the results of recent credit reviews.  Based on this detailed analysis, management determined that the reversal was appropriate.

Net Interest Income and Net Interest Margin

The following table presents the Company's average balance sheet, including weighted average yields and rates on a taxable-equivalent basis, for the six-month periods indicated:

Net interest income for the periods ended June 30, 2014 and 2013 was $7.0 million and $6.5 million, respectively, an increase of $500 thousand or 8%.  Net interest income increased during the 2014 period due to a more favorable mix of earning assets attributable to growth in higher yielding asset categories.  This included a $17.0 million or 8 percent increase in average loans and a $15.6 million or 30 percent increase in average securities.

Net interest margin was 4.17% and 4.16% for the periods ended June 30, 2014 and 2013, a 1 basis point (bps) increase.  Average loan yield was 5.36% and 5.61% for the six months ended June 30, 2014 and 2013, respectively, a decrease of 25 bps, which reflected the competitive environment for high quality loan customers.  This decrease was offset by a 5 bps decrease in the average rate paid on deposits and other interest-bearing liabilities that reflected weak competition for deposits as well as a reduction in average time deposits.

The 2014 net interest margin was also impacted by a $17.4 million or 15 percent increase in average noninterest-bearing deposits during the first half of the year.  A portion of these funds was considered transitory and therefore deployed into low yielding overnight deposits.

Non-Interest Income

The following table describes the components of non-interest income for the six-month periods ended June 30, 2014 and 2013:

For the period ended June 30, 2014, non-interest income totaled $817 thousand, an increase of $59 thousand or 8% from the $758 thousand recorded during the first half of 2013.  The improvement reflected increases in service charges, gains on sales of investment securities and FHLB dividends included in the other category.  Mortgage loan underwriting fees decreased in the 2014 period due to a slowing of residential refinance activity. 

Non-Interest Expense

The following table describes the components of non-interest expense for the six-month periods ended June 30, 2014 and 2013:

For the periods ended June 30, 2014 and 2013, total non-interest expense was $5.3 million and $5.1 million, respectively, an increase of $183 thousand or 4%.  Salaries and employee benefits increased by $209 thousand or 7% due to normal employee cost increases and increased stock option expense.  Professional and legal expense increased by $24 thousand or 16% due primarily to higher internal audit costs.  Advertising and business development expense increased by $20 thousand or 17% due primarily to lending promotions in 2014.  Telephone and postal increased $39 thousand or 35% due to transitional costs of changing data service plans.  These were offset by a $50 thousand or 7% decrease in occupancy and equipment due to timing of upgrades related to growth and risk management initiatives.  Operational costs decreased by $28 thousand or 17% due to higher new product costs in the 2013 period.  There was also a $20 thousand or 11% decrease in FDIC insurance and assessment expense which reflected the Company's improved risk profile.

For the six month periods ended June 30, 2014 and 2013 the effective tax rate increased to 35.7% from 35.3% as certain tax credits and deductions previously allowed by California were curtailed after December 31, 2013.

OTHER INFORMATION:  Valley Commerce Bancorp stock trades on NASDAQ's Over the Counter Bulletin Board under the symbol VCBP.  Valley Business Bank, the wholly owned subsidiary of Valley Commerce Bancorp, is a commercial bank that commenced operations in 1996.  Valley Business Bank operates through Business Banking Centers in Visalia, Tulare, and Fresno, California and has branch offices in Woodlake and Tipton, California.  Additional information about Valley Business Bank is available from the Bank's website at http://www.valleybusinessbank.net.

FORWARD-LOOKING STATEMENTS:  In addition to historical information, this release includes forward-looking statements, which reflect management's current expectations for Valley Commerce Bancorp's future financial results, business prospects and business developments.  Management's expectations for Valley Commerce Bancorp's future necessarily involve assumptions, estimates and the evaluation of risks and uncertainties. Various factors could cause actual events or results to differ materially from those expectations.  The forward-looking statements contained herein represent management's expectations as of the date of this release. Valley Commerce Bancorp undertakes no obligation to release publicly the results of any revisions to the forward-looking statements included herein to reflect events or circumstances after today, or to reflect the occurrence of unanticipated events.  For those statements, the Company claims the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995.

SOURCE Valley Commerce Bancorp