Valley Commerce Bancorp Reports Third Quarter 2016 Results

VISALIA, Calif., Oct. 26, 2016 /PRNewswire/ -- Valley Commerce Bancorp, (OTCBB: VCBP), a bank holding company and the parent company of Valley Business Bank, today announced unaudited results for third quarter 2016.  For the three months ended September 30, 2016 net income was $1.1 million or $0.37 per diluted share.  This compared to net income of $1.3 million, or $0.43 per diluted share, for the third quarter of 2015.  For the nine months ended September 30, 2016, the Company reported earnings of $3.2 million, or $1.12 per diluted share.  This compared to earnings of $3.0 million, or $1.00 per diluted share, for the nine months ended September 30, 2015.

Allan W. Stone, President and Chief Executive Officer, remarked, "I'm very pleased to announce that our company is poised to complete both this year and its 20-year career with a very solid earnings performance.  Over the past twelve months, we've grown loans by over $20 million and deposits by over $22 million while maintaining a favorable net interest margin.  Coming off five consecutive years of record earnings, it is certainly a pleasure to note that our 2016 earnings are ahead of last year's pace despite economic and regulatory challenges."

Stone added, "As previously announced, we anticipate that our merger into Citizens Business Bank will be completed early next year.  I believe it will unquestionably be a win for the shareholders of both companies.  Valley Business Bank has steadily moved up the ladder of financial performance rankings among community banks and Citizens Business Bank was recently ranked at the top of the industry.  In addition, there are many similarities between the business models and underlying philosophies of the two companies.  I am very confident that post-merger our customers will be served by a strong business banking team with even greater capability to add value to customer relationships."

 Selected financial information is presented in the following table:

Loans

Net loans were $306.4 million at September 30, 2016, an increase of $7.9 million or 3% from the $298.5 million of net loans at December 31, 2015 and an increase of $20.5 million or 7% from the $285.9 million of net loans at September 30, 2015.  The Bank's historical pattern is for loan growth to accelerate in the latter half of the year.  Average gross loans were $304.0 million for the nine months ended September 30, 2016 and $270.7 million for the nine months ended September 30, 2015, an increase of $33.3 million or 12%.

Net loans at September 30, 2016, December 31, 2015, and September 30, 2015 are summarized in the following table:

Investment Securities

Available-for-sale investment securities were $49.1 million at September 30, 2016 compared to $71.1 million at December 31, 2015, a decrease of $22.0 million or 83%.  The decrease was attributable to $15.3 million of investment securities sold during the nine months ended September 30, 2016 along with normal repayments and calls.  During the nine months ended September 30, 2015 proceeds from the sale of investment securities totaled $5.2 million.  Proceeds from the sale of investment securities were $1.0 million for the three month period ending September 30, 2015.  There were no investment security sales for the three month period ended September 30, 2016.  Gain from the sales of investment securities was $458 thousand for the first nine months of 2016 compared to $140 thousand for the same period in 2015.  Gains from the sale of investment securities during the three months ended September 30, 2016 and 2015 were $334 thousand and $81 thousand, respectively.

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 $22.2 million or 6%, from $352.2 million at December 31, 2015 to $374.4 million at September 30, 2016.  There were increases of $18.5 million or 12% in noninterest bearing deposits and $3.6 million or 2% in interest bearing deposits.  Average total deposits were $362.3 million for the nine months ended September 30, 2016, a $1.3 million or 0.4% increase from the $360.9 million in average total deposits for the nine months ended September 30, 2015. 

Total deposits at September 30, 2016, December 31, 2015, and September 30, 2015 are summarized in the following table:

Shareholders' Equity

Total shareholders' equity was $50.7 million at September 30, 2016, an increase of $3.9 million or 8%, from the $46.8 million at December 31, 2015.  The increase was due to earnings of $3.3 million and $1.9 million of common stock issued due to the exercise of stock options.  These increases were offset by the repurchase of common stock and cash dividends paid.  During the nine months ended September 30, 2016 and 2015 the Company paid common stock cash dividends totaling $858 thousand and $813 thousand, respectively.  Common stock repurchased during the nine months ended September 30, 2016 totaled $485 thousand at an average cost of $15.59 per share.  Common stock repurchased during the year ended December 31, 2015 totaled $752 thousand at an average cost of $15.57 per share. 

Asset Quality

Nonperforming assets at September 30, 2016 were comprised of four nonaccrual loans spread among two customer relationships with an aggregate balance of $1.4 million compared with five nonaccrual loans spread among three customer relationships at December 31, 2015 with an aggregate balance of $1.8 million.  The Company had no other real estate owned at September 30, 2016 or December 31, 2015.

Impaired loans totaled $3.3 million at September 30, 2016 and $4.4 million at December 31, 2015, 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.  The Company had no loans over 30 days past due, including nonaccrual loans, at September 30, 2016.  There were $249 thousand of loans over 30 days past due at December 31, 2015.

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

The Company's ALLL was $3.3 million at December 31, 2015 and $3.4 million at September 30, 2016 due to $839 thousand in net recoveries during the nine months ending September 30, 2016 reduced by the reversal of $770 thousand of provision for loan losses.  The ALLL represented 1.10% of total loans at September 30, 2016 compared to 1.11% at December 31, 2015.  The slight decrease in ALLL percentage was due to increased loan volume.  In determining the amount of ALLL required at September 30, 2016, management analyzed the composition and strength of the Company's loan portfolio, including borrower performance trends, the potential for losses in loans identified as being classified or nonperforming, and the results of recent credit reviews.

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 nine-month periods indicated:

Net interest income before provision for loan losses for the periods ended September 30, 2016 and 2015 was $11.7 million and $11.2 million, respectively, an increase of $497 thousand or 4%.  There was a $731 thousand or 7% increase in interest income from loans that resulted from a $33.4 million or 12% increase in average loan volume.  There was a $271 thousand decrease in interest income from available-for-sale investment securities due to primarily to a decrease in average volume due to sales, calls, and scheduled repayments.

Net interest margin was 4.28% and 4.21% for the periods ended September 30, 2016 and 2015.  The 7 basis points (bps) improvement was attributable to a more favorable mix of earning assets that offset declining asset yields.  The previously noted $33.4 million increase in average loans in the 2016 period resulted in greater overall revenue despite average loan yield decreasing 26 bps, from 5.19% in the 2015 period to 4.93% in the 2016 period.  The $13.5 million decrease in cash equivalent accounts in the 2016 period was not significant despite a 38 bps increase in average yield, from 0.29% in the 2015 period to 0.67% in the 2016 period.  The decrease in average loan yield is reflective of the highly competitive lending environment for quality customers.

The average rate paid on interest-bearing deposits was 0.33% for the nine months ended September 30, 2016 and 0.34% at September 30, 2015.  Average interest-bearing deposits decreased by $3.1 million or 2 percent from $202.0 million at September 30, 2015 to $198.9 million at September 30, 2016 while average noninterest bearing deposits increased by $4.4 million or 3%.

Non-Interest Income

The following table describes the components of non-interest income for the nine-month periods ended September 30, 2016 and 2015:

For the period ended September 30, 2016, non-interest income totaled $1.7 million, a decrease of $101 thousand or 6% from the $1.8 million recorded during the nine months ended September 30, 2015.  The change primarily reflected increased income from service charges and gains on sales of investment securities offset by the absence of gains from sale of loans in the 2016 period.  In 2015, certain nonperforming loans were sold as a collection mechanism.  The Other category, which includes Federal Home Loan Bank of San Francisco (FHLBSF) dividends, decreased by $54 thousand in the 2016 period.  FHLBSF paid a special dividend in the first half of 2015 that was not repeated in 2016.

Non-Interest Expense

The following table describes the components of non-interest expense for the nine-month periods ended September 30, 2016 and 2015:

For the periods ended September 30, 2016 and 2015, total non-interest expense was $9.3 million and $8.5 million, respectively, an increase of $785 thousand or 9%.  Salaries and employee benefits increased by $332 thousand or 6% due primarily to adjustments to post-retirement benefits.  Full-time equivalent employees totaled 80.5 and 88.8 at September 30, 2016 and 2015, respectively.  The other expenses category increased $161 thousand or 31% due to nonrecurring expenses within director fees and increased sundry losses.  Occupancy and equipment increased $108 thousand or 10% due primarily to risk management and security software costs.  There was a $98 thousand or 62% increase in telephone and postal due to changes in communications services that generated a refund in the 2015 period.  Professional and legal costs increased by $59 thousand or 21% due to an increase in consulting fees, some of which were incurred in connection with the pending merger.  Data processing costs increased by $55 thousand or 12% due to expenses associated with growth and implementation of new banking products.  Assessment and insurance decreased by $26 thousand or 10% due to decreases in insurance premiums.

For the nine-month periods ended September 30, 2016 and 2015, the effective tax rate decreased to 33.0% from 33.8% due primarily to $150 thousand in solar tax credits recorded in the third quarter of 2016.

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, Fresno and Woodlake, 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