U.S. Markets closed

Peoples Bancorp Announces Fourth Quarter and Annual Earnings Results

NEWTON, NC / ACCESSWIRE / January 28, 2019 / Peoples Bancorp of North Carolina, Inc. (PEBK), the parent company of Peoples Bank, reported fourth quarter and year to date earnings results with highlights as follows:

Fourth quarter highlights:

  • Net earnings were $3.4 million or $0.57 basic and diluted net earnings per share for the three months ended December 31, 2018, as compared to $2.0 million or $0.34 basic and diluted net earnings per share for the same period one year ago.

Year to date highlights:

  • Net earnings were a record $13.4 million or $2.23 basic net earnings per share and $2.22 diluted net earnings per share for the year ended December 31, 2018, as compared to $10.3 million or $1.71 basic net earnings per share and $1.69 diluted net earnings per share for the same period one year ago.
  • Total loans increased $44.2 million to $804.0 million at December 31, 2018, compared to $759.8 million at December 31, 2017.
  • Core deposits were $859.2 million or 98.0% of total deposits at December 31, 2018, compared to $887.4 million or 97.9% of total deposits at December 31, 2017.

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

Net interest income was $11.3 million for the three months ended December 31, 2018, compared to $10.2 million for the three months ended December 31, 2017. The increase in net interest income was primarily due to a $1.2 million increase in interest income, which was partially offset by a $102,000 increase in interest expense. The increase in interest income was primarily attributable to an increase in the average outstanding balance of loans and a 1.00% increase in the prime rate since December 31, 2017. Net interest income after the provision for loan losses was $10.9 million for the three months ended December 31, 2018, compared to $10.3 million for the three months ended December 31, 2017. The provision for loan losses for the three months ended December 31, 2018 was an expense of $418,000, as compared to a credit of $102,000 for the three months ended December 31, 2017. The increase in the provision for loan losses is primarily attributable to a $44.2 million increase in loans from December 31, 2017 to December 31, 2018.

Non-interest income was $4.5 million for the three months ended December 31, 2018, compared to $3.8 million for the three months ended December 31, 2017. The increase in non-interest income is primarily attributable to a $710,000 increase in miscellaneous non-interest income during the three months ended December 31, 2018, compared to the same period one year ago. The increase in miscellaneous non-interest income was primarily attributable to a $545,000 increase in net gains associated with the disposal of premises and equipment for the three months ended December 31, 2018, as compared to the three months ended December 31, 2017.

Non-interest expense was $11.3 million for the three months ended December 31, 2018, compared to $10.8 million for the three months ended December 31, 2017. The increase in non-interest expense was primarily attributable to a $644,000 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 December 31, 2018 were $13.4 million or $2.23 basic net earnings per share and $2.22 diluted net earnings per share for the year ended December 31, 2018, as compared to $10.3 million or $1.71 basic net earnings per share and $1.69 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 the provision for loan losses and an increase in non-interest expense, as discussed below.

Year-to-date net interest income as of December 31, 2018 was $43.2 million compared to $39.6 million for the same period one year ago. The increase in net interest income was primarily due to a $3.4 million increase in interest income, which was primarily attributable to an increase in the average outstanding balance of loans and a 1.00% increase in the prime rate since December 31, 2017, combined with a $231,000 decrease in interest expense, which was primarily attributable to a decrease in the average outstanding balances of FHLB borrowings during the year ended December 31, 2018, as compared to the same period one year ago due to the payoff of remaining FHLB borrowings in October 2017. Net interest income after the provision for loan losses was $42.4 million for the year ended December 31, 2018, compared to $40.1 million for the same period one year ago. The provision for loan losses for the year ended December 31, 2018 was an expense of $790,000, as compared to a credit of $507,000 for the year ended December 31, 2017. The increase in the provision for loan losses is primarily attributable to a $44.2 million increase in loans from December 31, 2017 to December 31, 2018.

Non-interest income was $16.2 million for the year ended December 31, 2018, compared to $15.4 million for the year ended December 31, 2017. The increase in non-interest income is primarily attributable to a $1.2 million increase in miscellaneous non-interest income, which was partially offset by a $339,000 decrease in mortgage banking income during the year ended December 31, 2018, as compared to the year ended December 31, 2017. The increase in miscellaneous non-interest income is primarily due to a $576,000 increase in net gains associated with the disposal of premises and equipment and a $256,000 increase in net gains on other real estate owned properties for the year ended December 31, 2018, as compared to the year ended December 31, 2017. The decrease in mortgage banking income is primarily due to a decrease in mortgage loan volume resulting from an increase in mortgage loan rates.

Non-interest expense was $42.6 million for the year ended December 31, 2018, as compared to $41.2 million for the year ended December 31, 2017. The increase in non-interest expense was primarily due to a $1.5 million increase in salaries and benefits expense and a $469,000 increase in occupancy expense, which were partially offset by a $477,000 decrease in other non-interest expense, during the year ended December 31, 2018, as compared to the year ended December 31, 2017. The increase in salaries and benefits expense is primarily due to an increase in the number of full-time equivalent employees and annual salary increases. The increase in occupancy expense is primarily due to an increase in depreciation expense during the year ended December 31, 2018, as compared to the year ended December 31, 2017. The decrease in other non-interest expense is primarily due to decreases in advertising expense and telecommunications expense during the year ended December 31, 2018, as compared to the year ended December 31, 2017.

Non-interest income and non-interest expense for the three months and year ended December 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. Prior to March 31, 2018, appraisal management fee income and expense from the Bank's subsidiary, Community Bank Real Estate Solutions, LLC, was 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 $690,000 for the three months ended December 31, 2018, compared to $1.3 million for the three months ended December 31, 2017. The effective tax rate was 17% for the three months ended December 31, 2018, compared to 40% for the three months ended December 31, 2017. The higher effective tax rate for the three months ended December 31, 2017 includes $588,000 additional tax expense incurred due to the revaluation of the Company's deferred tax asset as a result of the Tax Cuts and Jobs Act (TCJA) passed in December 2017.

Income tax expense was $2.6 million for the year ended December 31, 2018, compared to $4.0 million for the year ended December 31, 2017. The effective tax rate was 16% for the year ended December 31, 2018, compared to 28% for the year ended December 31, 2017. The reduction in the effective tax rate is primarily due the TCJA, 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 December 31, 2018 and 2017. Available for sale securities were $194.60 million as of December 31, 2018, compared to $229.3 million as of December 31, 2017. Total loans were $804.0 million as of December 31, 2018, compared to $759.8 million as of December 31, 2017.

Non-performing assets were $3.3 million or 0.31% of total assets at December 31, 2018, compared to $3.8 million or 0.35% of total assets at December 31, 2017. Non-performing loans include $3.2 million in commercial and residential mortgage loans, $1,000 in acquisition, development and construction ("AD&C") loans and $99,000 in other loans at December 31, 2018, as compared to $3.6 million in commercial and residential mortgage loans, $14,000 in AD&C loans and $112,000 in other loans at December 31, 2017.

The allowance for loan losses at December 31, 2018 was $6.4 million or 0.80% of total loans, compared to $6.4 million or 0.84% of total loans at December 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 $877.2 million at December 31, 2018, compared to $907.0 million at December 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, were $887.4 million at December 31, 2018, compared to $859.2 million at December 31, 2017. Certificates of deposit in amounts of $250,000 or more totaled $16.2 million at December 31, 2018, as compared to $18.8 million at December 31, 2017.

Securities sold under agreements to repurchase were $58.1 million at December 31, 2018, as compared to $37.8 million at December 31, 2017.

Shareholders' equity was $123.6 million, or 11.31% of total assets, as of December 31, 2018, compared to $116.0 million, or 10.62% of total assets, as of December 31, 2017.

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 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.

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
December 31, 2018 and 2017
(Dollars in thousands)

December 31, 2018 December 31, 2017
(Unaudited) (Audited)
ASSETS:
Cash and due from banks
$ 40,553 $ 53,186
Interest-bearing deposits
2,817 4,118
Cash and cash equivalents
43,370 57,304
Investment securities available for sale
194,578 229,321
Other investments
4,361 1,830
Total securities
198,939 231,151
Mortgage loans held for sale
680 857
Loans
804,023 759,764
Less: Allowance for loan losses
(6,445 ) (6,366 )
Net loans
797,578 753,398
Premises and equipment, net
18,450 19,911
Cash surrender value of life insurance
15,936 15,552
Accrued interest receivable and other assets
18,298 13,993
Total assets
$ 1,093,251 $ 1,092,166
LIABILITIES AND SHAREHOLDERS' EQUITY:
Deposits:
Noninterest-bearing demand
$ 298,817 $ 285,406
NOW, MMDA & savings
475,223 498,445
Time, $250,000 or more
16,239 18,756
Other time
86,934 104,345
Total deposits
877,213 906,952
Securities sold under agreements to repurchase
58,095 37,757
FHLB borrowings
- -
Junior subordinated debentures
20,619 20,619
Accrued interest payable and other liabilities
13,707 10,863
Total liabilities
969,634 976,191
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 12/31/18 and 12/31/17
62,096 62,096
Retained earnings
60,535 50,286
Accumulated other comprehensive income
986 3,593
Total shareholders' equity
123,617 115,975
Total liabilities and shareholders' equity
$ 1,093,251 $ 1,092,166


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

Three months ended Years ended
December 31, December 31,
2018 2017 2018 2017
(Unaudited) (Unaudited) (Unaudited) (Audited)
INTEREST INCOME:
Interest and fees on loans
$ 10,292 $ 8,953 $ 38,654 $ 34,888
Interest on due from banks
49 81 304 219
Interest on investment securities:
U.S.

Government sponsored enterprises 612 609 2,333 2,404

State and political subdivisions
927 1,038 3,877 4,236
Other
44 45 182 202
Total interest income
11,924 10,726 45,350 41,949
INTEREST EXPENSE:
NOW, MMDA & savings deposits
218 167 769 598
Time deposits
130 106 472 466
FHLB borrowings
- 58 - 662
Junior subordinated debentures
212 158 790 590
Other
49 18 115 61
Total interest expense
609 507 2,146 2,377
NET INTEREST INCOME
11,315 10,219 43,204 39,572
PROVISION FOR (REDUCTION OF PROVISION FOR) LOAN LOSSES
418 (102 ) 790 (507 )
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES
10,897 10,321 42,414 40,079
NON-INTEREST INCOME:
Service charges
1,192 1,113 4,355 4,453
Other service charges and fees
177 146 705 593
Gain on sale of securities
(35 ) - 15 -
Mortgage banking income
179 245 851 1,190
Insurance and brokerage commissions
233 193 824 761
Appraisal management fee income
764 858 3,206 3,306
Miscellaneous
1,989 1,279 6,210 5,061
Total non-interest income
4,499 3,834 16,166 15,364
NON-INTEREST EXPENSES:
Salaries and employee benefits
5,664 5,020 21,530 20,058
Occupancy
1,803 1,720 7,170 6,701
Appraisal management fee expense
587 657 2,460 2,526
Other
3,216 3,429 11,414 11,891
Total non-interest expense
11,270 10,826 42,574 41,176
EARNINGS BEFORE INCOME TAXES
4,126 3,329 16,006 14,267
INCOME TAXES
690 1,319 2,624 3,999
NET EARNINGS
$ 3,436 $ 2,010 $ 13,382 $ 10,268
PER SHARE AMOUNTS*
Basic net earnings
$ 0.57 $ 0.34 $ 2.23 $ 1.71
Diluted net earnings
$ 0.57 $ 0.34 $ 2.22 $ 1.69
Cash dividends
$ 0.13 $ 0.11 $ 0.52 $ 0.44
Book value
$ 20.62 $ 19.34 $ 20.62 $ 19.34

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

Three months ended Years ended
December 31, December 31,
2018 2017 2018 2017
(Unaudited) (Unaudited) (Unaudited) (Audited)
SELECTED AVERAGE BALANCES:
Available for sale securities
$ 202,385 $ 229,323 $ 209,742 $ 234,278
Loans
792,373 746,987 777,098 741,655
Earning assets
1,008,381 1,003,815 1,007,485 998,821
Assets
1,093,082 1,106,381 1,094,707 1,098,992
Deposits
888,713 904,246 903,120 895,129
Shareholders' equity
121,194 116,026 123,796 116,883
SELECTED KEY DATA:
Net interest margin (tax equivalent)
4.55 % 4.25 % 4.39 % 4.18 %
Return on average assets
1.25 % 0.72 % 1.22 % 0.93 %
Return on average shareholders' equity
11.25 % 6.87 % 10.81 % 8.78 %
Shareholders' equity to total assets (period end)
11.31 % 10.62 % 11.31 % 10.62 %
ALLOWANCE FOR LOAN LOSSES:
Balance, beginning of period
$ 6,295 $ 6,844 $ 6,366 $ 7,550
Provision for loan losses
418 (102 ) 790 (507 )
Charge-offs
(367 ) (501 ) (1,133 ) (982 )
Recoveries
99 125 422 305
Balance, end of period
$ 6,445 $ 6,366 $ 6,445 $ 6,366
ASSET QUALITY:
Non-accrual loans
$ 3,314 $ 3,711
90 days past due and still accruing
- -
Other real estate owned
27 118
Total non-performing assets
$ 3,341 $ 3,829
Non-performing assets to total assets
0.31 % 0.35 %
Allowance for loan losses to non-performing assets
192.91 % 166.26 %
Allowance for loan losses to total loans
0.80 % 0.84 %
LOAN RISK GRADE ANALYSIS:


By Risk Grade
12/31/2018 12/31/2017
Risk Grade 1 (excellent quality)
0.73 %
1.07 %
Risk Grade 2 (high quality)
25.47 % 26.23 %
Risk Grade 3 (good quality)
60.73 % 60.62 %
Risk Grade 4 (management attention)
10.19 % 8.19 %
Risk Grade 5 (watch)
1.72 % 2.54 %
Risk Grade 6 (substandard)
0.84 % 1.04 %
Risk Grade 7 (doubtful)
0.00 % 0.00 %
Risk Grade 8 (loss)
0.00 %
0.00 %


At December 31, 2018, including non-accrual loans, there were two relationships exceeding $1.0 million in the Watch risk grade (which totaled $3.2 million). There were no relationships exceeding $1.0 million in the Substandard risk grade.

SOURCE: Peoples Bancorp of North Carolina, Inc.