PR Newswire | Jan 31, 2022 07:53PM EST

01/31 18:52 CST

Valley Republic Bancorp Reports Record Annual and Fourth Quarter 2021 Earnings BAKERSFIELD, Calif., Jan. 31, 2022

BAKERSFIELD, Calif., Jan. 31, 2022 /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 fourth quarter of 2021.

4th Quarter 2021 Compared to 4th Quarter 2020:

* Net income after tax increased 32.8% to $4.7 million or $1.08 per diluted share * Total assets increased 11.7% to $1.4 billion * Deposits increased 12.3% to $1.2 billion * Gross loans, excluding Paycheck Protection Program (PPP) loans increased 16.8% to $787.5 million * Shareholders' equity increased 15.6%% to $110.0 million * Book value increased to $25.75 per share * YTD return on average assets was 1.20% * YTD return on average equity was 16.02%

Overview:

Geraud Smith, President and CEO said, "The Company generated tremendous operating results and double-digit core balance sheet growth in 2021, which is a testament to Valley Republic's dedicated team and the continued support of our loyal and valued customers. The Company performed exceedingly well despite the continued challenges caused by COVID-19, a near zero interest rate environment, and our focus on ensuring a smooth transition for our customers as we work towards our merger with Tri Counties Bank, which was announced in July of 2021. I'm extremely proud of the Bank and all of its accomplishments in 2021 and I look forward to closing our merger with Tri Counties Bank in the 1st quarter of 2022."

Financial Performance

Net income for the fourth quarter of 2021 was $4.7 million compared to $3.5 million reported in the same quarter in the prior year, an increase of $1.2 million or 32.8%. Earnings per share for the fourth quarter of 2021 were $1.08 per diluted share outstanding compared to $0.83 per diluted share reported in the fourth quarter of 2020, an increase of 30.1%. In the fourth quarter of 2021, income before taxes was $6.5 million compared to $4.8 million in the same quarter of 2020. Income before taxes included $264 thousand in merger related expenses. Excluding these expenses, income before taxes would have been $6.8 million, an increase of $2.0 million, or 41.1%, compared to the same quarter in the prior year.

For the year ended December 31, 2021, net income was $16.3 million compared to $12.5 million in the prior year, an increase of $3.8 million or 30.1%. Year to date earnings per diluted share were $3.81 compared to $2.97 in the same period of 2020. For the year ended December 31, 2021, income before taxes was $22.9 million compared to $17.2 million, an increase of $5.7 million, or 33.4%. For the year ended December 31, 2021, income before taxes included $812 thousand in merger related expenses. Excluding these expenses, income before taxes would have been $23.7 million, an increase of $6.6 million, or 38.3%, compared to the prior year.

For the three months and twelve months ended December 31, 2021, the Company's return on average assets was 1.30% and 1.20%, respectively, and the return on average equity was 17.16% and 16.02%, 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 $2.7 million and $1.2 million for the three months ended December 31, 2021 and 2020, respectively. Interest income includes net fees and (costs) of $5.9 million and $1.6 million for the years ended December 31, 2021 and 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 December 31,

2021 2020

(Dollars in thousands) Avg Balance Interest Weighted Avg Yield/Cost Avg Balance Interest Weighted Avg Yield/Cost

ASSETS

Earning assets:

Loans; less PPP, Net of Unearned Income 776,360 8,526 4.36% 652,684 7,188 4.37%

PPP Loans 89,747 3,040 13.44% 197,358 2,018 4.06%

Debt Securities 234,817 974 1.65% 217,286 1,038 1.90%

Fed funds sold and other interest-bearing balances 273,370 102 0.15% 108,778 27 0.10%

Total earning assets 1,374,294 12,642 3.65% 1,176,106 10,271 3.46%

Total nonearning assets 48,453 44,927

Total Assets 1,422,747 1,221,033

LIABILITIES

Interest-bearing liabilities:

MMDA & Interest Checking 717,939 373 0.21% 588,468 329 0.22%

Savings 75,077 30 0.16% 55,912 22 0.16%

Time deposits 30,312 23 0.30% 35,529 69 0.77%

Subordinated Debt 39,505 588 5.91% 39,346 571 5.76%

Total interest-bearing liabilities 862,833 1,014 0.47% 719,255 991 0.55%

Noninterest-bearing deposits 438,854 386,208

Other liabilities 13,195 23,689

Total liabilities 1,314,882 1,129,152

SHAREHOLDERS' EQUITY

Shareholders' equity 107,865 91,881

Total Liabilities and Shareholders' Equity 1,422,747 1,221,033

Net Interest Income and Net Interest Margin 11,628 3.36% 9,280 3.13%

Twelve months ended December 31,

2021 2020

(Dollars in thousands) Avg Balance Interest Weighted Avg Yield/Cost Avg Balance Interest Weighted Avg Yield/Cost

ASSETS

Earning assets:

Loans; less PPP, Net of Unearned Income 742,691 32,204 4.34% 640,812 28,892 4.51%

PPP Loans 168,437 8,188 4.86% 140,688 3,943 2.80%

Debt Securities 224,109 3,936 1.76% 180,252 3,696 2.05%

Fed funds sold and other interest-bearing balances 182,864 229 0.13% 114,672 353 0.31%

Total earning assets 1,318,101 44,557 3.38% 1,076,424 36,884 3.43%

Total nonearning assets 47,374 43,308

Total Assets 1,365,475 1,119,732

LIABILITIES

Interest-bearing liabilities:

MMDA & Interest Checking 682,535 1,472 0.22% 513,476 1,657 0.32%

Savings 68,815 107 0.16% 51,666 120 0.23%

Time deposits 31,460 133 0.42% 51,289 733 1.43%

Subordinated Debt 39,446 2,352 5.96% 26,538 1,544 5.82%

PPPLF - - 0.00% 11,861 42 0.35%

Total interest-bearing liabilities 822,256 4,064 0.49% 654,830 4,096 0.63%

Noninterest-bearing deposits 425,982 359,069

Other liabilities 15,465 19,599

Total liabilities 1,263,703 1,033,498

SHAREHOLDERS' EQUITY

Shareholders' equity 101,772 86,234

Total Liabilities and Shareholders' Equity 1,365,475 1,119,732

Net Interest Income and Net Interest Margin 40,493 3.07% 32,788 3.05%

For the fourth quarter of 2021, the Company's net interest income increased by $2.3 million to $11.6 million. At the same time, the Company's net interest margin increased to 3.36% compared to 3.13% in the same period in 2020. The increase in the net interest income for the fourth quarter of 2021 was driven by an increase in the yield on earning assets primarily due to accretion of fee income on PPP loans.

For the year ended December 31, 2021, the Company's net interest margin increased to 3.07% compared to 3.05% in 2020.

For the fourth quarter of 2021, noninterest income increased from $723 thousand to $977 thousand, an increase of 35.1% for the quarter. The increase was primarily the result of additional service charges on deposits, increases in loan servicing income, and increases in credit card interchange fee income. 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. For the twelve months ended December 31, 2021 and 2020, noninterest income was $3.0 million and $3.5 million, respectively. Excluding the gain on sale of securities that occurred in 2020, noninterest income increased from $2.4 million in 2020 to $3.0 million in 2021, an increase of $587 thousand, or 24.2%.

Noninterest expense increased by 32.4% to $6.1 million in the fourth quarter of 2021 compared to the fourth quarter of 2020. Salaries and employee expense increased $609 thousand or 21.7%. This increase was primarily due to an additional accrual for incentive compensation due to the Bank's record earnings. Noninterest expense for the fourth quarter of 2021 included $264 thousand in merger related expenses. Excluding those expenses, noninterest expense would have only increased by $1.2 million, or 26.7%. In the fourth quarter of 2021 and 2020, the Company's efficiency ratio was 48.1% and 45.8%, respectively. For the years ended December 31, 2021 and 2020, our efficiency ratio was 46.2% and 46.5%, respectively. Excluding the merger related expenses, the Company's efficiency ratio for the three months and twelve months ended December 31, 2021 was 46.0% and 41.6%, 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 $219.4 million to 672 borrowers. PPP2 originations totaled $108.7 million to 527 borrowers. PPP1 forgiveness application submission began in 4th quarter 2020. In the fourth quarter of 2021, the Bank began processing PPP2 forgiveness applications. As of December 31, 2021, total PPP loans outstanding were $40.9 million. As of December 31, 2021, PPP loan fees totaling $780 thousand remain to be accreted as a component of interest and fee income on loans. In the fourth quarter of 2021, PPP loans generated $2.8 million in interest and fee income as compared to $1.5 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) December 31, 2021 December 31, 2020

Real Estate:

Construction and Land Development $ 58,851 $ 67,903

1-4 Family Residential 43,100 50,212

Multifamily Residential 20,953 4,587

Secured by Farmland 74,948 64,029

Commercial Real Estate 385,808 344,642

Total Real Estate Loans 583,660 531,373

Commercial and Industrial 165,475 97,810

Payment Protection Program 40,873 177,304

Agriculture 29,933 33,689

Loans to Municipalities 7,494 10,013

Consumer and Other 901 1,215

Total Loans 828,336 851,404

Deferred Loan (Fees) Costs, Net 860 (2,178)

Loans, Net of Deferred Costs and Fees 829,196 849,226

Allowance for Loan Losses (11,124) (10,624)

Net Loans $ 818,072 $ 838,602

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

Loan Risk Rating (In thousands) December 31, 2021 December 31, 2020

Pass 796,217 814,594

Special Mention 14,588 32,550

Substandard 13,369 -

Substandard-Impaired 4,162 4,260

Total 828,336 851,404

Deferred Loan Fees & Costs, Net 860 (2,178)

Loans Net of Fees & Costs 829,196 849,226

At December 31, 2021, loans past due 30 days or more and still accruing totaled $3.8 million compared to $0 at December 31, 2020. Past due loans at year end consisted of a single PPP loan that is being processed for forgiveness. At December 31, 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 December 31, 2021 decreased to $32.1 million compared to December 31, 2020 of $36.8 million. The $13.4 million increase in Substandard loans at December 31, 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 December 31, 2021 and 2020, the ratio of ALLL to total loans was 1.34% and 1.25%, respectively. Excluding PPP loans that carry an SBA guarantee, reserves have decreased from 1.58% of gross core loans at December 31, 2020 to 1.41% at December 31, 2021. As the trend of adversely classified loans has improved and the economic risks related to the COVID-19 pandemic have moderated, the Bank did not record a provision for loan losses for the fourth quarter of 2021. The provision for the years ended December 31, 2021 and 2020 was $500 thousand and $2.3 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 December 31, 2021 declined to $32.1 million, or 3.87% of gross loans outstanding, from $33.8 million, or 3.82% of gross loans outstanding, at September 30, 2021. Substandard-Impaired loans of $4.2 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 fourth quarter of 2021 were $1.4 billion, which represents a year-over-year increase of $144.3 million, or 11.7%. Total loans were $829.2 million, which represents a year-over-year decrease of $20.5 million, or 2.4%, due to PPP forgiveness. The Bank's PPP loan balance as of December 31, 2021 was $40.8 million, a decrease of $136.4 million compared to December 31, 2020. The Bank's gross core loans increased by $113.3 million, or 16.8%, since year-end 2020. During 2021, total deposits increased $133.5 million, or 12.3%, ending the year at $1.2 billion.

Growth in loans and deposits was primarily due to the addition of 131 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, noted "The Company's financial and operating performance in 2021 was outstanding! To maintain a focus on growing the business while providing exceptional customer service in this COVID environment and ongoing merger environment is remarkable. We are extremely grateful to our employees and customers. In my opinion, the Company's efforts to provide PPP loans to customers and non-customers alike and help Kern County administer its programs have contributed greatly to our community as a whole".

Capital

The Company's total shareholders' equity at December 31, 2021 was $110.0 million. Total shareholders' equity increased by $14.9 million, or 15.6%, over the last 12 months. Book value per share for the same time period grew to $25.75, compared to $22.55 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 first quarter of 2022. Branch and account conversion is expected to occur within the same time frame.

Mr. Voiland also stated, "We believe the pending merger is in its final stage of approval; this has taken longer than we had hoped. The combination of this and the onslaught of the COVID Omicron spike has put much stress on everyone. We appreciate and are thankful for the patience everyone has shown as we work through this together.

The Company's goal is to do our best to provide our customers, employees, and shareholders the most seamless and smooth transition possible. In the long run, the merger will be good for everyone - however, we recognize that it presents a major change. Geraud and his team are doing everything possible to provide the customer service needed to accomplish this successfully. Thank you for being our valued shareholders and customers".

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.) December 31, 2021 December 31, 2020

ASSETS

Cash and Due From Banks $ 10,924 $ 10,585

Federal Funds Sold & Interest-Bearing Deposits in Banks 278,308 130,141

Total Cash and Equivalents 289,232 140,726

Debt Securities 230,529 212,317

Loans, Net of Deferred Fees and Costs 829,196 849,226

Allowance for Loan losses (11,124) (10,624)

Net Loans 818,072 838,602

Premises and Equipment 5,783 6,948

Bank Owned Life Insurance 13,545 13,264

Interest Receivable and Other Assets 23,187 24,153

TOTAL ASSETS $ 1,380,348 $ 1,236,010

LIABILITIES AND SHAREHOLDERS' EQUITY

Liabilities

Deposits

Noninterest-Bearing $ 420,496 $ 381,733

Interest-Bearing 796,859 702,140

Total Deposits 1,217,355 1,083,873

Short-Term FHLB Borrowing - 5,000

Long-Term Debt 39,530 39,371

Accrued Interest Payable and Other Liabilities 13,483 12,652

Total Liabilities 1,270,368 1,140,896

Shareholders' Equity

Common Stock, no Par Value 49,459 48,530

Additional Paid-in Capital 1,106 808

Retained Earnings 58,444 42,143

Accumulated Other Comprehensive Income (Loss) 971 3,633

Total Shareholders' Equity 109,980 95,114

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 1,380,348 $ 1,236,010

Shares of Common Stock Outstanding at End of Period 4,271,811 4,217,267

Book Value per Share $ 25.75 $ 22.55

Valley Republic Bancorp and Subsidiary

Income Statement

(Unaudited. Dollars in thousands, except per share data.) Quarters Ended December 31, Year to Date Ended December 31,

2021 2020 2021 2020

INTEREST INCOME

Loans (Including Fees and Costs) $ 11,566 $ 9,206 $ 40,392 $ 32,835

Debt Securities 974 1,038 3,936 3,696

Other 102 27 229 353

Total Interest Income 12,642 10,271 44,557 36,884

INTEREST EXPENSE

Deposits 426 420 1,713 2,510

Other 588 571 2,352 1,586

Total Interest Expense 1,014 991 4,065 4,096

Net Interest Income 11,628 9,280 40,492 32,788

Provision For Loan Losses - 600 500 2,275

Net Interest Income After Provision for Loan Losses 11,628 8,680 39,992 30,513

NON-INTEREST INCOME

Service Charges and Fees on Deposits 267 183 957 660

Other Non-Interest Income 710 518 2,058 1,768

Gain (Loss) on Sale of Securities - 22 - 1,111

Total Non-Interest Income 977 723 3,015 3,539

NON-INTEREST EXPENSE

Salaries and Employee Benefits 3,410 2,801 11,159 10,016

Occupancy & Equipment 504 501 2,005 1,939

Other 2,147 1,275 6,935 4,930

Total Non-Interest Expense 6,061 4,577 20,099 16,885

Income Before Taxes 6,544 4,826 22,908 17,167

Income Taxes 1,879 1,312 6,607 4,636

NET INCOME $ 4,665 $ 3,514 $ 16,301 $ 12,531

Basic Earnings per Share $ 1.10 $ 0.83 $ 3.85 $ 2.99

Diluted Earnings per Share $ 1.08 $ 0.83 $ 3.81 $ 2.97

Weighted Average Shares 4,255,448 4,210,513 4,236,632 4,193,464

Weighted Average Diluted Shares 4,307,915 4,228,432 4,273,950 4,217,728

Average Assets 1,422,747 1,221,033 1,365,475 1,119,732

Average Equity 107,856 91,881 101,998 86,234

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