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Peoples Bancorp Announces First Quarter Earnings Results

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NEWTON, NC / ACCESSWIRE / April 23, 2018 / Peoples Bancorp of North Carolina, Inc. (PEBK), the parent company of Peoples Bank, reported first quarter earnings results with highlights as follows:

First quarter highlights:

  • Net earnings were $3.3 million or $0.55 basic and diluted net earnings per share for the three months ended March 31, 2018, as compared to $2.2 million or $0.37 basic net earnings per share and $0.36 diluted net earnings per share for the same period one year ago.

  • Total loans increased $29.9 million to $765.8 million at March 31, 2018, compared to $735.9 million at March 31, 2017.

  • Core deposits were $889.0 million or 97.94% of total deposits at March 31, 2018, compared to $883.4 million or 97.25% of total deposits at March 31, 2017.

Lance A. Sellers, President and Chief Executive Officer, attributed the increase in first quarter net earnings to an increase in net interest income, an increase in non-interest income and a decrease in non-interest expense, which were partially offset by an increase in the provision for loan losses during the three months ended March 31, 2018, as compared to the three months ended March 31, 2017, as discussed below.

Net interest income was $10.3 million for the three months ended March 31, 2018, compared to $9.5 million for the three months ended March 31, 2017. The increase in net interest income was primarily due to a $695,000 increase in interest income, which was primarily attributable to an increase in the average outstanding balance of loans and a 0.75% increase in the prime rate since March 31, 2017, combined with a $131,000 decrease in interest expense, which was primarily attributable to a decrease in the average outstanding balances of FHLB borrowings during the three months ended March 31, 2018, as compared to the same period one year ago. Net interest income after the provision for loan losses was $10.3 million for the three months ended March 31, 2018, compared to $9.7 million for the three months ended March 31, 2017. The provision for loan losses for the three months ended March 31, 2018 was an expense of $31,000, as compared to a credit of $236,000 for the three months ended March 31, 2017.

Non-interest income was $3.7 million for the three months ended March 31, 2018, compared to $3.4 million for the three months ended March 31, 2017. The increase in non-interest income is primarily attributable to a $421,000 increase in miscellaneous non-interest income, which was partially offset by a $130,000 decrease in mortgage banking income during the three months ended March 31, 2018, compared to the same period one year ago. The increase in miscellaneous non-interest income is primarily due to $6,000 in net gains on other real estate owned properties for the three months ended March 31, 2018, as compared to $283,000 in net losses and write-downs on other real estate owned properties for the three months ended March 31, 2017.

Non-interest expense was $10.0 million for the three months ended March 31, 2018, compared to $10.4 million for the three months ended March 31, 2017. The decrease in non-interest expense was primarily due to a $272,000 decrease in salaries and benefits expense and a $316,000 decrease in other non-interest expense, which were partially offset by a $243,000 increase in occupancy expense during the three months ended March 31, 2018, as compared to the three months ended March 31, 2017. The decrease in salaries and benefits expense is primarily due to a decrease in expense associated with restricted stock units issued to officers. The decrease in other non-interest expense is primarily due to reductions in expense associated with restricted stock units issued to directors, debit card expense and fraud/forgery expense. The increase in occupancy expense is primarily due to an increase in depreciation and maintenance expense.

Non-interest income and non-interest expense for the three months ended March 31, 2018 and 2017 reflect the implementation of Financial Accounting Standards Board Accounting Standards Update No. 2014-09, (Topic 606): Revenue from Contracts with Customers, which was effective for the Company's reporting periods beginning after December 15, 2017. Appraisal management fee income and expense from the Bank's subsidiary, Community Bank Real Estate Solutions, LLC, was previously reported as a net amount, which was included in miscellaneous non-interest income. This income and expense is now reported on separate line items under non-interest income and non-interest expense.

Income tax expense was $652,000 for the three months ended March 31, 2018, compared to $578,000 for the three months ended March 31, 2017. The effective tax rate was 16% for the three months ended March 31, 2018, compared to 21% for the three months ended March 31, 2017. The reduction in the effective tax rate was primarily due to the passing of the Tax Cuts and Jobs Act in December, 2017, which reduced the Company's federal corporate tax rate from 34% to 21% effective January 1, 2018.

Total assets were $1.1 billion as of March 31, 2018 and 2017. Available for sale securities were $213.3 million as of March 31, 2018, compared to $244.9 million as of March 31, 2017. Total loans were $765.8 million as of March 31, 2018, compared to $735.9 million as of March 31, 2017.

Non-performing assets were $3.7 million or 0.34% of total assets at March 31, 2018, compared to $3.6 million or 0.32% of total assets at March 31, 2017. Non-performing loans include $3.4 million in commercial and residential mortgage loans, $130,000 in acquisition, development and construction (''AD&C'') loans and $114,000 in other loans at March 31, 2018, as compared to $3.5 million in commercial and residential mortgage loans, $20,000 in AD&C loans and $28,000 in other loans at March 31, 2017.

The allowance for loan losses at March 31, 2018 was $6.4 million or 0.83% of total loans, compared to $7.3 million or 0.99% of total loans at March 31, 2017. 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 $907.6 million at March 31, 2018, compared to $908.4 million at March 31, 2017. Core deposits, which include noninterest-bearing demand deposits, NOW, MMDA, savings and non-brokered certificates of deposit of denominations less than $250,000, increased $5.6 million to $889.0 million at March 31, 2018, as compared to $883.4 million at March 31, 2017. Certificates of deposit in amounts of $250,000 or more totaled $17.9 million at March 31, 2018, as compared to $24.3 million at March 31, 2017.

Securities sold under agreements to repurchase were $38.3 million at March 31, 2018, as compared to $42.2 million at March 31, 2017.

Shareholders' equity was $116.5 million, or 10.65% of total assets, as of March 31, 2018, compared to $110.1 million, or 9.92% of total assets, as of March 31, 2017.

Peoples Bank operates 19 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 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, 2017.

CONSOLIDATED BALANCE SHEETS
March 31, 2018, December 31, 2017 and March 31, 2017
(Dollars in thousands)



March 31,

2018

December 31,

2017

March 31,

2017

(Unaudited)

(Audited)

(Unaudited)

ASSETS:

Cash and due from banks

$

32,849

$

53,186

$

55,491

Interest-bearing deposits

34,985

4,118

31,959

Cash and cash equivalents

67,834

57,304

87,450

Investment securities available for sale

213,299

229,321

244,863

Other investments

1,834

1,830

2,679

Total securities

215,133

231,151

247,542

Mortgage loans held for sale

503

857

1,340

Loans

765,824

759,764

735,861

Less: Allowance for loan losses

(6,373)

(6,366)


(7,263)


Net loans

759,451

753,398

728,598

Premises and equipment, net

19,732

19,911

18,597

Cash surrender value of life insurance

15,647

15,552

15,251

Accrued interest receivable and other assets

14,931

13,993

11,496

Total assets

$

1,093,231

$

1,092,166

$

1,110,274

LIABILITIES AND SHAREHOLDERS' EQUITY:

Deposits:

Noninterest-bearing demand

$

294,998

$

285,406

$

275,369

NOW, MMDA & savings

496,044

498,445

494,273

Time, $250,000 or more

17,927

18,756

24,262

Other time

98,655

104,345

114,510

Total deposits

907,624

906,952

908,414

Securities sold under agreements to repurchase

38,257

37,757

42,163

FHLB borrowings

-

-

20,000

Junior subordinated debentures

20,619

20,619

20,619

Accrued interest payable and other liabilities

10,249

10,863

8,941

Total liabilities

976,749

976,191

1,000,137

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

5,995,256 shares at 3/31/18 and 12/31/17,

5,437,740 shares at 3/31/17

62,096

62,096

44,745

Retained earnings

52,806

50,286

61,801

Accumulated other comprehensive income

1,580

3,593

3,591

Total shareholders' equity

116,482

115,975

110,137

Total liabilities and shareholders' equity

$

1,093,231

$

1,092,166

$

1,110,274


CONSOLIDATED STATEMENTS OF INCOME
For the three months ended March 31, 2018 and 2017
(Dollars in thousands, except per share amounts)



Three months ended

March 31,

2018

2017

(Unaudited)

(Unaudited)

INTEREST INCOME:

Interest and fees on loans

$

9,069

$

8,280

Interest on due from banks

45

30

Interest on investment securities:

U.S. Government sponsored enterprises

606

604

State and political subdivisions

996

1,084

Other

43

66

Total interest income

10,759

10,064

INTEREST EXPENSE:

NOW, MMDA & savings deposits

176

132

Time deposits

105

128

FHLB borrowings

-

192

Junior subordinated debentures

171

135

Other

15

11

Total interest expense

467

598

NET INTEREST INCOME

10,292

9,466

PROVISION FOR (REDUCTION OF PROVISION

FOR) LOAN LOSSES

31

(236)


NET INTEREST INCOME AFTER

PROVISION FOR LOAN LOSSES

10,261

9,702

NON-INTEREST INCOME:

Service charges

1,024

1,106

Other service charges and fees

180

155

Mortgage banking income

216

346

Insurance and brokerage commissions

182

168

Appraisal management fee income

789

743

Miscellaneous

1,345

924

Total non-interest income

3,736

3,442

NON-INTEREST EXPENSES:

Salaries and employee benefits

4,962

5,234

Occupancy

1,856

1,613

Appraisal management fee expense

592

566

Other

2,632

2,948

Total non-interest expense

10,042

10,361

EARNINGS BEFORE INCOME TAXES

3,955

2,783

INCOME TAXES

652

578

NET EARNINGS

$

3,303

$

2,205

PER SHARE AMOUNTS*

Basic net earnings

$

0.55

$

0.37

Diluted net earnings

$

0.55

$

0.36

Cash dividends

$

0.13

$

0.11

Book value

$

19.43

$

18.41

*Per share computations have been restated to reflect a 10% stock dividend during the fourth quarter of 2017.


FINANCIAL HIGHLIGHTS
For the three months ended March 31, 2018 and 2017
(Dollars in thousands)



Three months ended

March 31,

2018

2017

(Unaudited)

(Unaudited)

SELECTED AVERAGE BALANCES:

Available for sale securities

$

217,437

$

240,796

Loans

765,670

729,475

Earning assets

998,226

988,864

Assets

1,080,772

1,086,469

Deposits

900,679

890,402

Shareholders' equity

116,578

108,385

SELECTED KEY DATA:

Net interest margin (tax equivalent)

4.29%


4.11%


Return on average assets

1.24%


0.82%


Return on average shareholders' equity

11.49%


8.25%


Shareholders' equity to total assets (period end)

10.65%


9.92%


ALLOWANCE FOR LOAN LOSSES:

Balance, beginning of period

$

6,366

$

7,550

Provision for loan losses

31

(236)


Charge-offs

(106)

(131)


Recoveries

82

80

Balance, end of period

$

6,373

$

7,263

ASSET QUALITY:

Non-accrual loans

$

3,665

$

3,584

90 days past due and still accruing

-

-

Other real estate owned

62

-

Total non-performing assets

$

3,727

$

3,584

Non-performing assets to total assets

0.34%


0.32%


Allowance for loan losses to non-performing assets

171.00%


202.65%


Allowance for loan losses to total loans

0.83%


0.99%



LOAN RISK GRADE ANALYSIS:



Percentage of Loans

By Risk Grade

3/31/2018

3/31/2017

Risk Grade 1 (excellent quality)

0.95%


1.31%


Risk Grade 2 (high quality)

26.20%


25.52%


Risk Grade 3 (good quality)

60.94%


57.57%


Risk Grade 4 (management attention)

8.33%


11.09%


Risk Grade 5 (watch)

2.31%


3.14%


Risk Grade 6 (substandard)

0.99%


1.09%


Risk Grade 7 (doubtful)

0.00%


0.00%


Risk Grade 8 (loss)

0.00%


0.00%


At March 31, 2018, including non-accrual loans, there were three relationships exceeding $1.0 million in the Watch risk grade (which totaled $5.1 million). There were no relationships exceeding $1.0 million in the Substandard risk grade.

SOURCE: Peoples Bancorp of North Carolina, Inc.