Peoples Bancorp Announces Second Quarter Earnings Results

NEWTON, NC / ACCESSWIRE / July 22, 2019 / Peoples Bancorp of North Carolina, Inc. (NASDAQ: PEBK), the parent company of Peoples Bank, reported second quarter earnings results with highlights as follows:

Second quarter highlights:

  • Net earnings were $3.8 million or $0.64 basic and diluted net earnings per share for the three months ended June 30, 2019, compared to $3.2 million or $0.53 basic and diluted net earnings per share for the same period one year ago.
  • The Company announced the launch of PB Insurance Agency, which will be part of Community Bank Real Estate solutions (CBRES), a wholly owned subsidiary of Peoples Bank.

Year to date highlights:

  • Net earnings were $7.5 million or $1.25 basic and diluted net earnings per share for the six months ended June 30, 2019, compared to $6.5 million or $1.08 basic and diluted net earnings per share for the same period one year ago.
  • Total loans increased $51.5 million to $833.4 million at June 30, 2019, compared to $781.9 million at June 30, 2018.
  • Core deposits were $889.8 million or 98.41% of total deposits at June 30, 2019, compared to $896.8 million or 98.01% of total deposits at June 30, 2018.

Lance A. Sellers, President and Chief Executive Officer, attributed the increase in second quarter net earnings to an increase in net interest income, a decrease in the provision for loan losses and an increase in non-interest income, which were partially offset by an increase in non-interest expense during the three months ended June 30, 2019, compared to the three months ended June 30, 2018, as discussed below.

Net interest income was $11.6 million for the three months ended June 30, 2019, compared to $10.5 million for the three months ended June 30, 2018. The increase in net interest income was primarily due to a $1.3 million increase in interest income, which was partially offset by a $268,000 increase in interest expense. The increase in interest income was primarily attributable to an increase in the average outstanding balance of loans and a 0.50% increase in the prime rate since June 30, 2018. The increase in interest expense was primarily due to an increase in interest rates on deposits. Net interest income after the provision for loan losses was $11.5 million for the three months ended June 30, 2019, compared to $10.3 million for the three months ended June 30, 2018. The provision for loan losses for the three months ended June 30, 2019 was $77,000, compared to $231,000 for the three months ended June 30, 2018. The decrease in the provision for loan losses is primarily attributable to a reduction in the required level of the allowance for loan losses in the Company’s Accounting Standards Codification (“ASC”) 450-20 reserve calculation resulting from lower historical loss rates and lower qualitative adjustments for economic conditions and other factors.

Non-interest income was $4.4 million for the three months ended June 30, 2019, compared to $4.0 million for the three months ended June 30, 2018. The increase in non-interest income is primarily attributable to a $258,000 increase in appraisal management fee income due to an increase in volume.

Non-interest expense was $11.2 million for the three months ended June 30, 2019, compared to $10.6 million for the three months ended June 30, 2018. The increase in non-interest expense was primarily attributable to a $333,000 increase in salaries and benefits expense, which was primarily due to an increase in the number of full-time equivalent employees and annual salary increases.

Year-to-date net earnings as of June 30, 2019 were $7.5 million or $1.25 basic and diluted net earnings per share, compared to $6.5 million or $1.08 basic and diluted net earnings per share for the same period one year ago. The increase in year-to-date net earnings is primarily attributable to an increase in net interest income and an increase in non-interest income, which were partially offset by an increase in non-interest expense, as discussed below.

Year-to-date net interest income as of June 30, 2019 was $23.0 million, compared to $20.8 million for the same period one year ago. The increase in net interest income was primarily due to a $2.7 million increase in interest income, which was partially offset by a $558,000 increase in interest expense. The increase in interest income was primarily attributable to an increase in the average outstanding balance of loans and a 0.50% increase in the prime rate since June 30, 2018. The increase in interest expense was primarily due to an increase in interest rates on deposits. Net interest income after the provision for loan losses was $22.8 million for the six months ended June 30, 2019, compared to $20.6 million for the same period one year ago. The provision for loan losses for the six months ended June 30, 2019 was $255,000, compared to $262,000 for the six months ended June 30, 2018.

Non-interest income was $8.5 million for the six months ended June 30, 2019, compared to $7.8 million for the six months ended June 30, 2018. The increase in non-interest income is primarily attributable to a $331,000 increase in appraisal management fee income due to an increase in volume.

Non-interest expense was $22.2 million for the six months ended June 30, 2019, compared to $20.6 million for the six months ended June 30, 2018. The increase in non-interest expense was primarily due to a $1.0 million increase in salaries and benefits expense primarily due to an increase in the number of full-time equivalent employees and annual salary increases.

Income tax expense was $845,000 for the three months ended June 30, 2019, compared to $595,000 for the three months ended June 30, 2018. The effective tax rate was 18.14% for the three months ended June 30, 2019, compared to 15.78% for the three months ended June 30, 2018. Income tax expense was $1.6 million for the six months ended June 30, 2019, compared to $1.2 million for the six months ended June 30, 2018. The effective tax rate was 17.89% for the six months ended June 30, 2019, compared to 16.14% for the six months ended June 30, 2018.

Total assets were $1.1 billion as of June 30, 2019 and 2018. Available for sale securities were $189.0 million as of June 30, 2019, compared to $210.1 million as of June 30, 2018. Total loans were $833.4 million as of June 30, 2019, compared to $781.9 million as of June 30, 2018.

Non-performing assets were $3.0 million or 0.27% of total assets at June 30, 2019, compared to $4.4 million or 0.39% of total assets at June 30, 2018. Non-performing assets include $2.9 million in commercial and residential mortgage loans and $102,000 in other loans at June 30, 2019, compared to $4.2 million in commercial and residential mortgage loans, $123,000 in acquisition, development and construction loans and $104,000 in other loans at June 30, 2018.

The allowance for loan losses at June 30, 2019 was $6.5 million or 0.78% of total loans, compared to $6.3 million or 0.80% of total loans at June 30, 2018. Management believes the current level of the allowance for loan losses is adequate; however, there is no assurance that additional adjustments to the allowance will not be required because of changes in economic conditions, regulatory requirements or other factors.

Deposits were $904.2 million at June 30, 2019, compared to $915.0 million at June 30, 2018. Core deposits, which include noninterest-bearing demand deposits, NOW, MMDA, savings and non-brokered certificates of deposit of denominations less than $250,000, were $889.8 million at June 30, 2019, compared to $896.8 million at June 30, 2018. Certificates of deposit in amounts of $250,000 or more totaled $14.1 million at June 30, 2019, compared to $17.4 million at June 30, 2018.

Securities sold under agreements to repurchase were $47.7 million at June 30, 2019, compared to $46.6 million at June 30, 2018.

Shareholders’ equity was $129.9 million, or 11.64% of total assets, at June 30, 2019, compared to $118.2 million, or 10.63% of total assets, at June 30, 2018. The Company repurchased 69,514 shares of its common stock during the six months ended June 30, 2019 under the Company’s stock repurchase program, which was funded in February 2019.

Peoples Bank currently operates 20 banking offices entirely in North Carolina, with offices in Catawba, Alexander, Lincoln, Mecklenburg, Iredell and Wake Counties. Peoples Bank also operates loan production offices in Lincoln, Mecklenburg and Durham Counties. The Company’s common stock is publicly traded and is quoted on the Nasdaq Global Market under the symbol “PEBK.”

Statements made in this press release, other than those concerning historical information, should be considered forward-looking statements pursuant to the safe harbor provisions of the Securities Exchange Act of 1934 and the Private Securities Litigation Act of 1995. These forward-looking statements involve risks and uncertainties and are based on the beliefs and assumptions of management and on the information available to management at the time that this release was prepared. These statements can be identified by the use of words like “expect,” “anticipate,” “estimate,” and “believe,” variations of these words and other similar expressions. Readers should not place undue reliance on forward-looking statements as a number of important factors could cause actual results to differ materially from those in the forward-looking statements. Factors that could cause actual results to differ include, but are not limited to, (1) competition in the markets served by Peoples Bank, (2) changes in the interest rate environment, (3) general national, regional or local economic conditions may be less favorable than expected, resulting in, among other things, a deterioration in credit quality and the possible impairment of collectibility of loans, (4) legislative or regulatory changes, including changes in accounting standards, (5) significant changes in the federal and state legal and regulatory environment and tax laws, (6) the impact of changes in monetary and fiscal policies, laws, rules and regulations and (7) other risks and factors identified in the Company’s other filings with the Securities and Exchange Commission, including but not limited to those described in the Company’s annual report on Form 10-K for the year ended December 31, 2018.

Contact:

Lance A. Sellers
President and Chief Executive Officer

A. Joseph Lampron, Jr.
Executive Vice President and Chief Financial Officer

828-464-5620, Fax 828-465-6780

CONSOLIDATED BALANCE SHEETS
June 30, 2019, December 31, 2018 and June 30, 2018
(Dollars in thousands)

June 30, 2019 December 31, 2018 June 30, 2018
(Unaudited) (Audited) (Unaudited)
ASSETS:
Cash and due from banks
$ 38,138 $ 40,553 $ 45,481
Interest-bearing deposits
684 2,817 24,074
Cash and cash equivalents
38,822 43,370 69,555
Investment securities available for sale
188,972 194,578 210,055
Other investments
4,296 4,361 4,427
Total securities
193,268 198,939 214,482
Mortgage loans held for sale
2,309 680 671
Loans
833,367 804,023 781,884
Less: Allowance for loan losses
(6,541) (6,445 ) (6,277)
Net loans
826,826 797,578 775,607
Premises and equipment, net
19,184 18,450 19,606
Cash surrender value of life insurance
16,126 15,936 15,743
Accrued interest receivable and other assets
20,037 18,298 15,508
Total assets
$ 1,116,572 $ 1,093,251 $ 1,111,172
LIABILITIES AND SHAREHOLDERS’ EQUITY:
Deposits:
Noninterest-bearing demand
$ 321,154 $ 298,817 $ 313,976
NOW, MMDA & savings
488,461 475,223 489,426
Time, $250,000 or more
14,096 16,239 17,371
Other time
80,516 86,934 94,239
Total deposits
904,227 877,213 915,012
Securities sold under agreements to repurchase
47,733 58,095 46,570
FHLB borrowings
Junior subordinated debentures
20,619 20,619 20,619
Accrued interest payable and other liabilities
14,066 13,707 10,805
Total liabilities
986,645 969,634 993,006
Shareholders’ equity:
Series A preferred stock, $1,000 stated value; authorized
5,000,000 shares; no shares issued and outstanding
Common stock, no par value; authorized
20,000,000 shares; issued and outstanding
5,933,140 shares 6/30/19,
5,995,256 shares 12/31/18 and 6/30/18
60,390 62,096 62,096
Retained earnings
65,738 60,535 55,198
Accumulated other comprehensive income
3,799 986 872
Total shareholders’ equity
129,927 123,617 118,166
Total liabilities and shareholders’ equity
$ 1,116,572 $ 1,093,251 $ 1,111,172

CONSOLIDATED STATEMENTS OF INCOME
For the three and six months ended June 30, 2019 and 2018
(Dollars in thousands, except per share amounts)

Three months ended Six months ended
June 30, June 30,
2019 2018 2019 2018
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
INTEREST INCOME:
Interest and fees on loans
$ 10,894 $ 9,386 $ 21,513 $ 18,455
Interest on due from banks
35 124 49 169
Interest on investment securities:
U.S. Government sponsored enterprises
641 524 1,314 1,130
State and political subdivisions
760 980 1,594 1,976
Other
45 45 88 88
Total interest income
12,375 11,059 24,558 21,818
INTEREST EXPENSE:
NOW, MMDA & savings deposits
320 186 602 362
Time deposits
171 110 322 215
FHLB borrowings
3 49
Junior subordinated debentures
220 198 446 369
Other
67 19 119 34
Total interest expense
781 513 1,538 980
NET INTEREST INCOME
11,594 10,546 23,020 20,838
PROVISION FOR (REDUCTION OF PROVISION
FOR) LOAN LOSSES
77 231 255 262
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES
11,517 10,315 22,765 20,576
NON-INTEREST INCOME:
Service charges
1,138 1,056 2,231 2,080
Other service charges and fees
177 175 346 355
Gain on sale of securities
50 231 50
Mortgage banking income
311 240 458 456
Insurance and brokerage commissions
205 203 436 385
Appraisal management fee income
1,112 854 1,974 1,643
Miscellaneous
1,442 1,438 2,829 2,783
Total non-interest income
4,385 4,016 8,505 7,752
NON-INTEREST EXPENSES:
Salaries and employee benefits
5,718 5,385 11,365 10,347
Occupancy
1,811 1,750 3,548 3,606
Appraisal management fee expense
864 654 1,526 1,246
Other
2,851 2,771 5,721 5,403
Total non-interest expense
11,244 10,560 22,160 20,602
EARNINGS BEFORE INCOME TAXES
4,658 3,771 9,110 7,726
INCOME TAXES
845 595 1,630 1,247
NET EARNINGS
$ 3,813 $ 3,176 $ 7,480 $ 6,479
PER SHARE AMOUNTS
Basic net earnings
$ 0.64 $ 0.53 $ 1.25 $ 1.08
Diluted net earnings
$ 0.64 $ 0.53 $ 1.25 $ 1.08
Cash dividends
$ 0.14 $ 0.13 $ 0.28 $ 0.26
Book value
$ 21.90 $ 19.71 $ 21.90 $ 19.71

FINANCIAL HIGHLIGHTS
For the three and six months ended June 30, 2019 and 2018
(Dollars in thousands)

Three months ended Six months ended
June 30, June 30,
2019 2018 2019 2018
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
SELECTED AVERAGE BALANCES:
Available for sale securities
$ 185,195 $ 210,097 $ 187,480 $ 213,746
Loans
832,150 768,411 823,723 767,048
Earning assets
1,027,721 1,010,215 1,020,556 1,004,253
Assets
1,114,880 1,100,666 1,103,415 1,090,579
Deposits
913,820 915,634 904,814 908,198
Shareholders’ equity
127,865 117,350 128,510 118,545
SELECTED KEY DATA:
Net interest margin (tax equivalent)
4.61% 4.29% 4.63% 4.29%
Return on average assets
1.37% 1.16% 1.37% 1.20%
Return on average shareholders’ equity
11.96% 10.86% 11.74% 11.02%
Shareholders’ equity to total assets (period end)
11.64% 10.63% 11.64% 10.63%
ALLOWANCE FOR LOAN LOSSES:
Balance, beginning of period
$ 6,561 $ 6,373 $ 6,445 $ 6,366
Provision for loan losses
77 231 255 262
Charge-offs
(196) (401 ) (360) (507 )
Recoveries
99 74 201 156
Balance, end of period
$ 6,541 $ 6,277 $ 6,541 $ 6,277
ASSET QUALITY:
Non-accrual loans
$ 3,027 $ 4,292
90 days past due and still accruing
Other real estate owned
10 90
Total non-performing assets
$ 3,037 $ 4,382
Non-performing assets to total assets
0.27 % 0.39 %
Allowance for loan losses to non-performing assets
215.38 % 143.25 %
Allowance for loan losses to total loans
0.78 % 0.80 %
LOAN RISK GRADE ANALYSIS:
Percentage of Loans
By Risk Grade
6/30/19 6/30/18
Risk Grade 1 (excellent quality)
1.11% 0.92%
Risk Grade 2 (high quality)
25.25% 26.30%
Risk Grade 3 (good quality)
61.16% 61.13%
Risk Grade 4 (management attention)
10.28% 8.47%
Risk Grade 5 (watch)
1.47% 2.11%
Risk Grade 6 (substandard)
0.73% 1.05%
Risk Grade 7 (doubtful)
0.00% 0.00%
Risk Grade 8 (loss)
0.00% 0.00%

At June 30, 2019, including non-accrual loans, there were two relationships exceeding $1.0 million in the Watch risk grade (which totaled $3.1 million). There were no relationships exceeding $1.0 million in the Substandard risk grade.

SOURCE: Peoples Bancorp of North Carolina, Inc.

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