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Peoples Bancorp Announces Fourth Quarter and Annual Earnings Results

NEWTON, NC / ACCESSWIRE / January 23, 2017 / 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 $1.3 million or $0.24 basic and diluted net earnings per share for the three months ended December 31, 2016, as compared to $2.2 million or $0.40 basic net earnings per share and $0.39 diluted net earnings per share for the same period one year ago.
  • Prepaid $23.5 million FHLB borrowings with weighted average rate of 4.28%. A prepayment penalty of $1.3 million, which is included in other non-interest expenses, was incurred as the result of prepaying $23.5 million in FHLB borrowings.

Year to date highlights:

  • Net earnings were $9.2 million or $1.68 basic net earnings per share and $1.65 diluted net earnings per share for the year ended December 31, 2016, as compared to $9.6 million or $1.73 basic net earnings per share and $1.72 diluted net earnings per share for the same period one year ago.
  • Non-performing assets declined to $4.1 million or 0.4% of total assets at December 31, 2016, compared to $9.1 million or 0.9% of total assets at December 31, 2015.
  • Total loans increased $34.7 million to $723.8 million at December 31, 2016, compared to $689.1 million at December 31, 2015.
  • Core deposits were $865.4 million or 96.9% of total deposits at December 31, 2016, compared to $805.0 million or 96.7% of total deposits at December 31, 2015.
  • 2016 non-interest expense reflects the following non-recurring expenses totaling $2.8 million:

Lance A. Sellers, President and Chief Executive Officer, attributed the decrease in fourth quarter net earnings to an increase in non-interest expense and a decrease in the credit to the provision for loan losses, which were partially offset by an increase in net interest income and an increase in non-interest income.

Net interest income was $9.3 million for the three months ended December 31, 2016, compared to $9.1 million for the three months ended December 31, 2015. The increase in net interest income was primarily due to a $146,000 increase in interest income, which was primarily attributable to an increase in the average outstanding balance of loans and a 0.25% increase in the prime rate in December 2015, combined with a $30,000 decrease in interest expense, which was primarily attributable to a decrease in the average outstanding balance of time deposits and FHLB borrowings during the three months ended December 31, 2016, as compared to the same period one year ago. Net interest income after the provision for loan losses was $9.4 million for the three months ended December 31, 2016, compared to $9.3 million for the three months ended December 31, 2015. The provision for loan losses for the three months ended December 31, 2016 was a credit of $98,000, as compared to a credit of $210,000 for the three months ended December 31, 2015. The decrease in the credit to the provision for loan losses is primarily attributable to a $10.8 million increase in loans outstanding during the fourth quarter of 2016, as compared to a $4.3 million increase in loans outstanding during the fourth quarter of 2015.

Non-interest income was $3.7 million for the three months ended December 31, 2016, compared to $3.5 million for the three months ended December 31, 2015. The increase in non-interest income is primarily attributable to a $405,000 gain on the sale of securities during the three months ended December 31, 2016, compared to no gain on sale of securities for the same period one year ago.

Non-interest expense was $11.8 million for the three months ended December 31, 2016, compared to $10.0 million for the three months ended December 31, 2015. The increase in non-interest expense was primarily due to a $1.4 million increase in other non-interest expense and a $548,000 increase in salaries and benefits expense, during the three months ended December 31, 2016, as compared to the three months ended December 31, 2015. The increase in other non-interest expense is primarily due to a $757,000 increase in FHLB prepayment penalties, a $173,000 increase in consulting fees and a $140,000 increase in marketing expense during the three months ended December 31, 2016, as compared to the three months ended December 31, 2015.

Year-to-date net earnings as of December 31, 2016 were $9.2 million or $1.68 basic net earnings per share and $1.65 diluted net earnings per share, as compared to $9.6 million or $1.73 basic net earnings per share and $1.72 diluted net earnings per share for the same period one year ago. The decrease in year-to-date net earnings is primarily attributable to an increase in non-interest expense, which was partially offset by an increase in net interest income, an increase in the credit to the provision for loan losses and an increase in non-interest income, as discussed below.

Year-to-date net interest income as of December 31, 2016 was $36.5 million compared to $35.2 million for same period one year ago. The increase in net interest income was primarily due to a $1.1 million increase in interest income, which was primarily attributable to an increase in the average outstanding balance of loans and a 0.25% increase in the prime rate in December 2015, combined with a $213,000 decrease in interest expense, which was primarily attributable to a decrease in the average outstanding balance of time deposits and FHLB borrowings during the year ended December 31, 2016, as compared to the same period one year ago. Net interest income after the provision for loan losses was $37.7 million for the year ended December 31, 2016, compared to $35.2 million for the same period one year ago. The provision for loan losses for the year ended December 31, 2016 was a credit of $1.2 million, as compared to a credit of $17,000 for the year ended December 31, 2015. The increase in the credit to the provision for loan losses is primarily attributable to a reduction in the required level of the allowance for loan losses resulting from lower historical loss rates used to calculate the ASC 450-20 reserve as the elevated level of loan losses incurred in 2010 and 2011 are no longer included in the historical loss calculations.

Non-interest income was $14.0 million for the year ended December 31, 2016, compared to $13.3 million for the year ended December 31, 2015. The increase in non-interest income is primarily attributable to $729,000 in gains on the sale of securities during the year ended December 31, 2016 and a $298,000 increase in mortgage banking income during the year ended December 31, 2016, as compared to the year ended December 31, 2015.

Non-interest expense was $40.0 million for the year ended December 31, 2016, as compared to $35.8 million for the year ended December 31, 2015. The increase in non-interest expense was primarily due to a $2.7 million increase in other non-interest expense, a $979,000 increase in salaries and benefits expense and a $477,000 increase in occupancy expense during the year ended December 31, 2016, as compared to the year ended December 31, 2015. The increase in other non-interest expense is primarily due to a $757,000 increase in penalties associated with the prepayment of FHLB borrowings and a $1.2 million increase in consulting fees due to expenses associated with the Order issued in August 2015. The Bank continues to make progress in addressing the issues identified in the Order and expects that it will be able to undertake and implement all required actions within the time periods specified in the Order.

Total assets were $1.1 billion as of December 31, 2016, as compared to $1.0 billion as of December 31, 2015. Available for sale securities were $249.9 million as of December 31, 2016, compared to $268.5 million as of December 31, 2015. Total loans were $723.8 million as of December 31, 2016, compared to $689.1 million as of December 31, 2015.

Non-performing assets declined to $4.1 million or 0.4% of total assets at December 31, 2016, compared to $9.2 million or 0.9% of total assets at December 31, 2015. The decline in non-performing assets is due to a $4.6 million decrease in non-accrual loans and a $456,000 decrease in other real estate owned properties. Non-performing loans include $3.7 million in commercial and residential mortgage loans, $21,000 in acquisition, development, and construction ("AD&C") loans and $55,000 in other loans at December 31, 2016, as compared to $8.1 million in commercial and residential mortgage loans, $146,000 in AD&C loans and $181,000 in other loans at December 31, 2015.

The allowance for loan losses at December 31, 2016 was $7.6 million or 1.0% of total loans, compared to $9.6 million or 1.4% of total loans at December 31, 2015. 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 $892.9 million as of December 31, 2016, compared to $832.2 million at December 31, 2015. Core deposits, which include noninterest-bearing demand deposits, NOW, MMDA, savings and non-brokered certificates of deposit of denominations less than $250,000, increased $60.4 million to $865.4 million at December 31, 2016, as compared to $805.0 million at December 31, 2015. Certificates of deposit in amounts of $250,000 or more totaled $26.8 million at December 31, 2016, as compared to $26.9 million at December 31, 2015.

Securities sold under agreements to repurchase were $36.4 million at December 31, 2016, as compared to $27.9 million at December 31, 2015.

Shareholders' equity was $107.4 million, or 9.9% of total assets, as of December 31, 2016, compared to $104.9 million, or 10.1% of total assets, as of December 31, 2015. The increase in shareholders' equity is primarily due to an increase in retained earnings due to net income, which was partially offset by a decrease in accumulated other comprehensive income resulting from a decrease in the unrealized gain on investment securities and a $2.0 million decrease in common stock due to 92,738 shares of common stock being repurchased under the Company's stock repurchase program implemented during the second quarter of 2016.

Peoples Bank operates 20 banking offices entirely in North Carolina, with offices in Catawba, Alexander, Lincoln, Mecklenburg, Union, Iredell, and Wake Counties. Peoples Bank also operates loan production offices in Lincoln, Durham, and Forsyth 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, 2015.

CONSOLIDATED BALANCE SHEETS
December 31, 2016 and 2015
(Dollars in thousands)

December 30, 2016
December 31,
2015
(Unaudited)
(Audited)
ASSETS:
Cash and due from banks
$ 53,613 $ 29,194
Interest-bearing deposits
16,481 10,569
Cash and cash equivalents
70,094 39,763
Investment securities available for sale
249,946 268,530
Other investments
2,635 3,636
Total securities
252,581 272,166
Mortgage loans held for sale
5,709 4,149
Loans 723,811 689,091
Less: Allowance for loan losses
(7,550 ) (9,589 )
Net loans
716,261 679,502
Premises and equipment, net
16,452 16,976
Cash surrender value of life insurance
14,952 14,546
Accrued interest receivable and other assets
11,942 11,379
Total assets
$ 1,087,991 $ 1,038,481
LIABILITIES AND SHAREHOLDERS' EQUITY:
Deposits:
Non-interest-bearing demand
$ 271,851 $ 244,231
NOW, MMDA & savings
477,054 431,052
Time, $250,000 or more
26,771 26,891
Other time
117,242 130,001
Total deposits
892,918 832,175
Securities sold under agreements to repurchase
36,434 27,874
FHLB borrowings
20,000 43,500
Junior subordinated debentures
20,619 20,619
Accrued interest payable and other liabilities
10,592 9,449
Total liabilities
980,563 933,617
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 5,417,800 shares at 12/31/16 and 5,510,538 shares at 12/31/2015
44,187 46,171
Retained earnings
60,254 53,183
Accumulated other comprehensive income
2,987 5,510
Total shareholders' equity
107,428 104,864
Total liabilities and shareholders' equity
$ 1,087,991 $ 1,038,481

CONSOLIDATED STATEMENTS OF INCOME
For the three months and years ended December 31, 2016 and 2015
(Dollars in thousands, except per share amounts)

Three months ended
Years ended
December 31,
December 31,
2016
2015
2016
2015
(Unaudited)
(Unaudited)
(Unaudited)
(Audited)
INTEREST INCOME:
Interest and fees on loans
$ 8,267 $ 8,082 $ 32,452 $ 31,098
Interest on due from banks
56 5 123 26
Interest on investment securities:
U.S. Government sponsored enterprises
621 657 2,531 2,616
State and political subdivisions
1,105 1,135 4,454 4,600
Other 57 81 249 326
Total interest income
10,106 9,960 39,809 38,666
INTEREST EXPENSE:
NOW, MMDA & savings deposits
128 109 495 432
Time deposits
133 184 586 870
FHLB borrowings
413 441 1,661 1,735
Junior subordinated debentures
132 105 485 402
Other 14 11 44 45
Total interest expense
820 850 3,271 3,484
NET INTEREST INCOME
9,286 9,110 36,538 35,182
PROVISION FOR (REDUCTION OF PROVISION FOR) LOAN LOSSES
(98 ) (210 ) (1,206 ) (17 )
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES
9,384 9,320 37,744 35,199
NON-INTEREST INCOME:
Service charges
1,206 1,149 4,497 4,647
Other service charges and fees
143 214 890 931
Gain on sale of securities
405 - 729 -
Mortgage banking income
340 320 1,428 1,130
Insurance and brokerage commissions
156 170 632 714
Miscellaneous
1,416 1,651 5,800 5,890
Total non-interest income
3,666 3,504 13,976 13,312
NON-INTEREST EXPENSES:
Salaries and employee benefits
5,150 4,602 19,264 18,285
Occupancy 1,522 1,710 6,765 6,288
Other 5,112 3,711 13,953 11,205
Total non-interest expense
11,784 10,023 39,982 35,778
EARNINGS BEFORE INCOME TAXES
1,266 2,801 11,738 12,733
INCOME TAXES
(36 ) 613 2,561 3,100
NET EARNINGS
$ 1,302 $ 2,188 $ 9,177 $ 9,633
PER SHARE AMOUNTS
Basic net earnings
$ 0.24 $ 0.40 $ 1.68 $ 1.73
Diluted net earnings
$ 0.24 $ 0.39 $ 1.65 $ 1.72
Cash dividends $ 0.10 $ 0.08 $ 0.38 $ 0.28
Book value $ 19.83 $ 19.03 $ 19.83 $ 19.03

FINANCIAL HIGHLIGHTS
For the three months and years ended December 31, 2016 and 2015
(Dollars in thousands)

Three months ended
Years ended
December 31,
December 31,
2016
2015
2016
2015
(Unaudited)
(Unaudited)
(Unaudited)
(Audited)
SELECTED AVERAGE BALANCES:
Available for sale securities
$ 248,525 $ 261,512 $ 252,725 $ 266,830
Loans
718,884 687,592 703,484 669,628
Earning assets
1,014,156 951,843 985,236 952,251
Assets
1,112,191 1,043,587 1,076,604 1,038,594
Deposits
880,955 819,638 856,313 816,628
Shareholders' equity
109,286 105,122 113,196 106,644
SELECTED KEY DATA:
Net interest margin (tax equivalent)
3.86 % 3.99 % 3.94 % 3.94 %
Return on average assets
0.47 % 0.83 % 0.85 % 0.93 %
Return on average shareholders' equity
4.74 % 8.26 % 8.11 % 9.03 %
Shareholders' equity to total assets (period end)
9.87 % 10.10 % 9.87 % 10.10 %
ALLOWANCE FOR LOAN LOSSES:
Balance, beginning of period
$ 8,045 $ 10,420 $ 9,589 $ 11,082
Provision for loan losses
(98 ) (210 ) (1,206 ) (17 )
Charge-offs
(484 ) (668 ) (1,238 ) (1,844 )
Recoveries
87 47 405 368
Balance, end of period
$ 7,550 $ 9,589 $ 7,550 $ 9,589
ASSET QUALITY:
Non-accrual loans
$ 3,825 $ 8,432
90 days past due and still accruing
- 17
Other real estate owned
283 739
Total non-performing assets
$ 4,108 $ 9,188
Non-performing assets to total assets
0.38 % 0.88 %
Allowance for loan losses to non-performing assets
183.79 % 104.36 %
Allowance for loan losses to total loans
1.04 % 1.39 %
LOAN RISK GRADE ANALYSIS:
Percentage of Loans
By Risk Grade
12/31/2016
12/31/2015
Risk Grade 1 (excellent quality)
1.32 % 1.66 %
Risk Grade 2 (high quality)
26.82 % 24.40 %
Risk Grade 3 (good quality)
55.10 % 53.64 %
Risk Grade 4 (management attention)
11.99 % 14.26 %
Risk Grade 5 (watch)
3.07 % 3.26 %
Risk Grade 6 (substandard)
1.40 % 2.53 %
Risk Grade 7 (doubtful)
0.00 % 0.00 %
Risk Grade 8 (loss)
0.00 % 0.00 %

At December 31, 2016, including non-accrual loans, there were four relationships exceeding $1.0 million in the Watch risk grade (which totaled $7.2 million) and one relationship exceeding $1.0 million in the Substandard risk grade (which totaled $1.3 million).

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

SOURCE: Peoples Bancorp of North Carolina, Inc.