Valley Commerce Bancorp, a bank holding company and the parent company of Valley Business Bank, announced unaudited fourth quarter 2013 net income of $775 thousand or $0.27 per diluted share.
In a release on January 27, the Company noted that this compared to earnings of $642 thousand, or $0.23 per diluted share, for the fourth quarter of 2012. For the year ended December 31, 2013, the Company reported unaudited net income of $4.1 million, or $1.43 per diluted share. This compared to earnings of $3.2 million, or $1.12 per diluted share, for the year ended December 31, 2012.
Allan W. Stone, President and Chief Executive Officer, remarked, "It is once again my privilege to report the Company's annual earnings. With net income of $4.1 million, 2013 is our third straight year of record earnings. Our favorable loan portfolio credit quality contributed to 2013 earnings in the form of loan loss reserves being reversed in mid-year. We also improved our earnings by growing our loan and investment portfolios, lowering our cost of funds, and controlling our non-interest expenses. Our record earnings results for 2013 represents the fourth straight year that current year earnings exceeded prior year earnings. During that four year period the Company earned $12.5 million for our shareholders prompting the board to pay cash dividends in 2012 and 2013, and repurchase common stock in 2013."
Stone attributed the modest growth in the Company's loan and deposit totals to management's efforts to strengthen the overall credit quality of the loan portfolio and reduce high cost accounts within the deposit portfolio. "Our portfolios are in the best shape they have been in some years," he noted.
Stone added, "Anybody knowledgeable about banking will tell you that the industry is being reshaped by economic, technological, and regulatory forces. While I am obviously proud of our financial accomplishments for 2013, I am equally proud to say we have a team of banking professionals that is embracing the challenges of the industry. With our financial strength and dedicated, innovative team, we are well positioned to continue building value for our shareholders in 2014."
Net loans were $234.6 million at December 31, 2013, an increase of $7.4 million or 3 percent from the $227.3 million at December 31, 2012. The increase occurred in real estate-mortgage and construction loans. Average gross loans were $231.6 million for the year ended December 31, 2013 and $228.0 million for the year ended December 31, 2012, an increase of $3.6 million or 2 percent.
Available-for-sale investment securities were $66.5 million at December 31, 2013 compared to $53.0 million at December 31, 2012, an increase of $13.5 million or 26 percent. There were $29.2 million of investment securities purchased during the year ended December 31, 2013 which were offset by normal repayments, maturities, calls, and sales. Gain on sale of investment securities was $126 thousand for the year ended December 31, 2013 compared to $152 thousand for 2012.
Total deposits increased by $2.4 million or 1 percent, from $315.5 million at December 31, 2012 to $317.9 million at December 31, 2013. The increase resulted from a $2.9 million or 2 percent increase in noninterest bearing deposits and a $4.0 million or 3 percent increase in interest bearing deposits which were offset by a $4.5 million or 7 percent decrease in time deposits. Average total deposits were $318.5 million for the year ended December 31, 2013, a $13.9 million or 5 percent increase from the $304.6 million in average total deposits for the year ended December 31, 2012.
Total shareholders' equity was $39.8 million at December 31, 2013, an increase of $1.9 million or 5 percent, from the $37.9 million at December 31, 2012. The increase was due to earnings of $4.1 million offset by a reduction in accumulated other comprehensive income of $1.2 million resulting from a decrease in the value of investment securities. Shareholders' equity was also reduced by the repurchase of common stock and cash dividends paid. During the years ended December 31, 2013 and 2012 the Company paid common stock cash dividends totaling $502 thousand or $0.18 per share and $448 thousand or $0.16 per share, respectively. Common stock repurchases during the year ended December 31, 2013 totaled $788 thousand, at an average of $13.59 per share. There were no common stock repurchases during 2012.
Nonperforming loans at December 31, 2013 were comprised of nine nonaccrual loans spread among five customer relationships with an aggregate balance of $3.2 million compared with twelve nonaccrual loans spread among eight customer relationships at December 31, 2012 with an aggregate balance of $4.4 million. The Company had no other real estate owned at December 31, 2012 or December 31, 2013.
Impaired loans totaled $6.6 million and $8.0 million at December 31, 3013 and December 31, 2012, 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 at December 31, 2013, including the nonaccrual loans described above.
During the year ended December 31, 2013 we recorded a $1.5 million reversal of provision for loan losses. The reversal was recorded during the second quarter. There was no loan loss provisioning for the year ended 2012. In determining the amount of ALLL required at December 31, 2013, 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 internal credit reviews.
Net Interest Income and Net Interest Margin
Net interest income before provision for loan losses for the year ended December 31, 2013 and 2012 was $13.3 million and $13.6 million, respectively, a decrease of $259 thousand or 2 percent. Net interest income decreased during the 2013 period due to a decrease in the average yields of loans and investment securities offset by reduced cost of interest-bearing liabilities. The impact of decreasing loan yield was slightly offset by a $3.6 million or 2 percent increase in the average balance of loans.
Net interest margin was 4.21 percent and 4.50 percent for the years December 31, 2013 and 2012, a 29 basis point (bps) decrease. Average loan yield was 5.51 percent and 5.77 percent for the years ended December 31, 2013 and 2012, respectively, a decrease of 26 bps, which reflected the strongly competitive environment for high quality loan customers. This decrease was offset by a 12 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 the average balances of time deposits. Average noninterest-bearing deposits increased by $13.6 million or 12 percent. These funds were primarily deployed into low yielding overnight deposits which adversely impacted the net interest margin for the 2013 period but provided an overall beneficial contribution to net interest income and net income.
For the year ended December 31, 2013, non-interest income totaled $1.4 million, a decrease of $69 thousand or 5 percent from the $1.5 million recorded during the year ended December 31, 2012. Decreases in service charges, reduced gains on sales of investment securities, mortgage loan underwriting fees and cash surrender value of life insurance policies contributed to the decrease in non-interest income during the 2013 period, which were offset by an increase in FHLB stock dividends included in other. Service charge income decreased due to fewer occurrences of non-sufficient funds and account analysis charges.
For the years ended December 31, 2013 and 2012, non-interest expense was $10.2 million and $10.5 million, respectively, a decrease of $268 thousand or 3 percent. Occupancy and equipment expense increased by $99 thousand or 7 percent due to contracted costs for new software applications, supplies increased by $32 thousand or 18 percent due to replenishment of forms, and other expenses increased by $162 thousand or 32 percent due to increased training expense, sundry losses and other employee benefits. These were offset by a $309 thousand or 5 percent decrease in salaries and employee benefit expense due to deferred loan origination costs attributed to salaries, retirement benefit expense reductions and reductions in stock option expense. In addition, FDIC insurance and assessment expense decreased by $13 thousand or 4 percent due to more favorable methodology for calculating insurance premiums. There also was a $133 thousand or 21 percent decrease in data processing costs due to renegotiation of data processing service contracts.
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