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Peoples Bancorp Announces First Quarter Earnings Results

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.