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Peoples Bancorp Announces Second Quarter Earnings Results

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NEWTON, NC / ACCESSWIRE / July 19, 2021 / 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 $4.6 million or $0.82 basic net earnings per share and $0.80 diluted net earnings per share for the three months ended June 30, 2021, as compared to $2.6 million or $0.46 basic net earnings per share and $0.44 diluted net earnings per share for the same period one year ago.

  • The Bank originated 72 Small Business Administration (SBA) Paycheck Protection Program (PPP) loans, totaling $3.3 million, during the three months ended June 30, 2021. The Bank recognized $1.5 million in PPP loan fee income during the three months ended June 30, 2021.

Year to date highlights:

  • Net earnings were $8.7 million or $1.55 basic net earnings per share and $1.51 diluted net earnings per share for the six months ended June 30, 2021, as compared to $4.9 million or $0.87 basic net earnings per share and $0.84 diluted net earnings per share for the same period one year ago.

  • The Bank originated 419 SBA PPP loans, totaling $29.1 million, during the six months ended June 30, 2021. The Bank recognized $2.5 million in PPP loan fee income during the six months ended June 30, 2021.

  • Core deposits were $1.4 billion or 98.09% of total deposits at June 30, 2021, compared to $1.1 billion or 97.88% of total deposits at June 30, 2020.

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, 2021, compared to the three months ended June 30, 2020, as discussed below.

Net interest income was $11.7 million for the three months ended June 30, 2021, compared to $10.7 million for the three months ended June 30, 2020. The increase in net interest income was due to a $879,000 increase in interest income and a $70,000 decrease in interest expense. The increase in interest income was primarily due to a $823,000 increase in interest income and fees on loans, which was primarily due to a $1.5 million increase in fee income on SBA PPP loans. The decrease in interest expense was primarily due to a decrease in Federal Home Loan Bank ("FHLB") borrowings. Net interest income after the provision for loan losses was $11.9 million for the three months ended June 30, 2021, compared to $9.3 million for the three months ended June 30, 2020. The provision for loan losses for the three months ended June 30, 2021 was a credit of $226,000, compared to an expense of $1.4 million for the three months ended June 30, 2020. The decrease in the provision for loan losses is primarily attributable to a decrease in reserves on loans with payment modifications made as a result of the COVID-19 pandemic and a decrease in reserves due to a net decrease in the volume of loans in the general reserve pool. At June 30, 2021, the balance of loans with existing modifications as a result of the COVID-19 pandemic was $283,000. At December 31, 2020, the balance of loans with existing modifications as a result of the COVID-19 pandemic was $18.3 million. The Company continues to track all loans that are currently modified or have been modified as a result of the COVID-19 pandemic. The loan balances associated with COVID-19 pandemic related modifications have been grouped into their own pool within the Company's Allowance for Loan and Lease Losses ("ALLL") model as they have a higher likelihood of risk, and a higher reserve rate has been applied to that pool. Of all loans modified as a result of the COVID-19 pandemic, $108.2 million have returned to their original terms; however, the effects of stimulus in the current environment are still unknown, and additional losses may be present in loans that are currently modified and/or loans that were once modified. At December 31, 2020, the balance for all loans that were then currently modified or previously modified but returned to their original terms was $119.6 million. The $11.4 million decrease from December 31, 2020 to June 30, 2021 in the balance of currently or previously modified loans that had returned to their original terms is primarily due to loans paid off during the six months ended June 30, 2021.

Non-interest income was $6.0 million for the three months ended June 30, 2021, compared to $5.2 million for the three months ended June 30, 2020. The increase in non-interest income is primarily attributable to a $593,000 increase in miscellaneous non-interest income primarily due to an increase in debit card income resulting from increased debit card activity and an increase in income on Small Business Investment Company ("SBIC") investments, and a $271,000 increase in appraisal management fee income due to an increase in the volume of appraisals.

Non-interest expense was $12.1 million for the three months ended June 30, 2021, compared to $11.5 million for the three months ended June 30, 2020. The increase in non-interest expense was primarily attributable to a $301,000 increase in appraisal management fee expense due to an increase in the volume of appraisals and a $170,000 increase in other non-interest expenses.

Year-to-date net earnings as of June 30, 2021 were $8.7 million or $1.55 basic net earnings per share and $1.51 diluted net earnings per share for the six months ended June 30, 2021, as compared to $4.9 million or $0.87 basic net earnings per share and $0.84 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, 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 six months ended June 30, 2021, compared to the six months ended June 30, 2020, as discussed below.

Year-to-date net interest income as of June 30, 2021 was $22.8 million, compared to $21.9 million for the same period one year ago. The increase in net interest income was due to a $551,000 increase in interest income and a $296,000 decrease in interest expense. The increase in interest income was primarily due to a $807,000 increase in interest income and fees on loans, which was primarily due to a $2.5 million increase in fee income on SBA PPP loans. The decrease in interest expense was primarily due to a decrease in rates paid on interest-bearing liabilities and a decrease in FHLB borrowings. Net interest income after the provision for loan losses was $23.5 million for the six months ended June 30, 2021, compared to $19.0 million for the same period one year ago. The provision for loan losses for the six months ended June 30, 2021 was a credit of $681,000, compared to an expense of $2.9 million for the six months ended June 30, 2020. The decrease in the provision for loan losses is primarily attributable to a decrease in reserves on loans with payment modifications made as a result of the COVID-19 pandemic and a decrease in reserves due to a net decrease in the volume of loans in the general reserve pool.

Non-interest income was $11.9 million for the six months ended June 30, 2021, compared to $9.8 million for the six months ended June 30, 2020. The increase in non-interest income is primarily attributable to a $708,000 increase in mortgage banking income due to an increase in mortgage loan volume, a $737,000 increase in appraisal management fee income due to an increase in the volume of appraisals and a $1.0 million increase in miscellaneous non-interest income primarily due to an increase in debit card income resulting from increased debit card activity and an increase in income on SBIC investments.

Non-interest expense was $24.4 million for the six months ended June 30, 2021, compared to $22.9 million for the six months ended June 30, 2020. The increase in non-interest expense was primarily attributable to a $723,000 increase in appraisal management fee expense due to an increase in the volume of appraisals and a $590,000 increase in salaries and employee benefits expense primarily due to increases in insurance costs and incentive compensation.

Income tax expense was $1.2 million for the three months ended June 30, 2021, compared to $535,000 for the three months ended June 30, 2020. The effective tax rate was 20.55% for the three months ended June 30, 2021, compared to 17.28% for the three months ended June 30, 2020. Income tax expense was $2.2 million for the six months ended June 30, 2021, compared to $1.0 million for the six months ended June 30, 2020. The effective tax rate was 20.41% for the six months ended June 30, 2021, compared to 16.90% for the six months ended June 30, 2020.

Total assets were $1.6 billion as of June 30, 2021, compared to $1.4 billion at December 31, 2020. Available for sale securities were $367.5 million as of June 30, 2021, compared to $245.2 million as of December 31, 2020. Total loans were $888.4 million as of June 30, 2021, compared to $948.6 million as of December 31, 2020. The decrease in loans is primarily due to a $38.3 million decrease in PPP loans primarily due to PPP loans being forgiven by the SBA during the six months ended June 30, 2021 and a $33.7 million decrease in commercial loans due to loan payoffs during the six months ended June 30, 2021. The Company had $37.5 million and $75.8 million in PPP loans at June 30, 2021 and December 31, 2020, respectively.

Non-performing assets were $3.4 million or 0.21% of total assets at June 30, 2021, compared to $3.9 million or 0.27% of total assets at December 31, 2020. Non-performing assets include $3.3 million in commercial and residential mortgage loans and $67,000 in other loans at June 30, 2021, compared to $3.5 million in commercial and residential mortgage loans, $226,000 in other loans, and $128,000 in other real estate owned at December 31, 2020.

The allowance for loan losses at June 30, 2021 was $9.3 million or 1.05% of total loans, compared to $9.9 million or 1.04% of total loans at December 31, 2020. 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 $1.4 billion at June 30, 2021, compared to $1.2 billion at December 31, 2020. Core deposits, which include noninterest-bearing demand deposits, NOW, MMDA, savings and non-brokered certificates of deposit of denominations less than $250,000, were $1.4 billion at June 30, 2021, compared to $1.2 billion at December 31, 2020. Certificates of deposit in amounts of $250,000 or more totaled $26.6 million at June 30, 2021, compared to $25.8 million at December 31, 2020.

Securities sold under agreements to repurchase were $31.2 million at June 30, 2021, compared to $26.2 million at December 31, 2020. Junior subordinated debentures were $15.5 million at June 30, 2021 and December 31, 2020. Shareholders' equity was $145.4 million, or 9.09% of total assets, at June 30, 2021, compared to $139.9 million, or 9.89% of total assets, at December 31, 2020.

Peoples Bank currently operates 17 banking offices entirely in North Carolina, with offices in Catawba, Alexander, Lincoln, Mecklenburg, Iredell and Wake Counties. The Bank also operates loan production offices in Lincoln, Mecklenburg and Rowan 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, 2020.

Contact: Lance A. Sellers
President and Chief Executive Officer

Jeffrey N. Hooper
Executive Vice President and Chief Financial Officer
828-464-5620, Fax 828-465-6780

CONSOLIDATED BALANCE SHEETS
June 30, 2021, December 31, 2020 and June 30, 2020
(Dollars in thousands)

June 30,
2021

December 31,
2020

June 30,
2020

(Unaudited)

(Audited)

(Unaudited)

ASSETS:

Cash and due from banks

$

47,151

$

42,737

$

48,990

Interest-bearing deposits

240,158

118,843

15,694

Federal funds sold

-

-

124,955

Cash and cash equivalents

287,309

161,580

189,639

Investment securities available for sale

367,529

245,249

207,469

Other investments

3,758

4,155

7,196

Total securities

371,287

249,404

214,665

Mortgage loans held for sale

5,501

9,139

10,594

Loans

888,360

948,639

966,543

Less: Allowance for loan losses

(9,287

)

(9,908

)

(9,433

)

Net loans

879,073

938,731

957,110

Premises and equipment, net

17,217

18,600

18,480

Cash surrender value of life insurance

17,164

16,968

16,507

Accrued interest receivable and other assets

22,022

21,753

19,994

Total assets

$

1,599,573

$

1,416,175

$

1,426,989

LIABILITIES AND SHAREHOLDERS' EQUITY:

Deposits:

Noninterest-bearing demand

$

512,577

$

456,980

$

457,637

Interest-bearing demand, MMDA & savings

775,009

657,834

594,948

Time, $250,000 or more

26,631

25,771

24,477

Other time

77,837

80,501

77,267

Total deposits

1,392,054

1,221,086

1,154,329


Securities sold under agreements to repurchase

31,249

26,201

31,747

FHLB borrowings

-

-

70,000

Junior subordinated debentures

15,464

15,464

15,464

Accrued interest payable and other liabilities

15,432

13,525

18,408

Total liabilities

1,454,199

1,276,276

1,289,948

Shareholders' equity:

Preferred stock, no par value; authorized

5,000,000 shares; no shares issued and outstanding

-

-

-

Common stock, no par value; authorized

20,000,000 shares; issued and outstanding

5,789,166 shares at 6/30/21,

5,787,504 shares at 12/31/20 and 6/30/20

56,910

56,871

56,871

Common stock held by deferred compensation trust,

at cost; 158,985 shares at 6/30/21, 155,469 shares

at 12/31/20 and 150,309 shares at 6/30/20

(1,901

)

(1,796

)

(1,700

)

Deferred compensation

1,901

1,796

1,700

Retained earnings

84,504

77,628

72,942

Accumulated other comprehensive income

3,960

5,400

7,228

Total shareholders' equity

145,374

139,899

137,041

Total liabilities and shareholders' equity

$

1,599,573

$

1,416,175

$

1,426,989

CONSOLIDATED STATEMENTS OF INCOME
For the three and six months ended June 30, 2021 and 2020
(Dollars in thousands, except per share amounts)

Three months ended

Six months ended

June 30,

June 30,

2021

2020

2021

2020

(Unaudited)

(Unaudited)

(Unaudited)

(Unaudited)

INTEREST INCOME:

Interest and fees on loans

$

11,003

$

10,180

$

21,667

$

20,860

Interest on due from banks

48

41

83

84

Interest on federal funds sold

-

22

-

145

Interest on investment securities:

U.S. Government sponsored enterprises

682

651

1,220

1,336

State and political subdivisions

758

684

1,397

1,325

Other

26

60

72

138

Total interest income

12,517

11,638

24,439

23,888

INTEREST EXPENSE:

Interest-bearing demand, MMDA & savings deposits

543

448

1,040

973

Time deposits

191

224

403

501

FHLB borrowings

-

102

-

166

Junior subordinated debentures

71

90

142

220

Other

37

48

72

93

Total interest expense

842

912

1,657

1,953

NET INTEREST INCOME

11,675

10,726

22,782

21,935

PROVISION FOR (RECOVERY OF) LOAN LOSSES

(226

)

1,417

(681

)

2,938

NET INTEREST INCOME AFTER

PROVISION FOR LOAN LOSSES

11,901

9,309

23,463

18,997


NON-INTEREST INCOME:

Service charges

910

718

1,836

1,826

Other service charges and fees

171

162

383

355

Mortgage banking income

723

563

1,593

885

Insurance and brokerage commissions

238

205

498

447

Appraisal management fee income

2,005

1,734

3,821

3,084

Miscellaneous

1,993

1,400

3,782

2,780

Total non-interest income

6,040

5,239

11,913

9,834

NON-INTEREST EXPENSES:

Salaries and employee benefits

5,666

5,535

11,849

11,259

Occupancy

1,939

1,861

3,892

3,782

Appraisal management fee expense

1,634

1,333

3,090

2,367

Other

2,893

2,723

5,569

5,493

Total non-interest expense

12,132

11,452

24,400

22,901

EARNINGS BEFORE INCOME TAXES

5,809

3,096

10,976

5,930

INCOME TAXES

1,194

535

2,240

1,002


NET EARNINGS

$

4,615

$

2,561

$

8,736

$

4,928


PER SHARE AMOUNTS

Basic net earnings

$

0.82

$

0.46

$

1.55

$

0.87

Diluted net earnings

$

0.80

$

0.44

$

1.51

$

0.84

Cash dividends

$

0.16

$

0.15

$

0.32

$

0.45

Book value

$

25.82

$

24.82

$

25.82

$

24.82

FINANCIAL HIGHLIGHTS
For the three and six months ended June 30, 2021 and 2020, and the year ended December 31, 2020
(Dollars in thousands)


Three months ended

Six months ended

Year ended


June 30,

June 30,

December 31,


2021

2020

2021

2020

2020


(Unaudited)

(Unaudited)

(Unaudited)

(Unaudited)

(Audited)

SELECTED AVERAGE BALANCES:






Available for sale securities

$

346,889

$

195,101

$

305,127

$

191,986

$

200,821

Loans

916,393

947,344

931,714

904,489

935,970

Earning assets

1,477,256

1,258,583

1,425,990

1,181,237

1,271,764

Assets

1,563,570

1,360,408

1,510,789

1,278,673

1,365,642

Deposits

1,370,159

1,104,394

1,319,755

1,038,839

1,115,019

Shareholders' equity

141,167

134,803

142,566

135,775

141,287


SELECTED KEY DATA:

Net interest margin (tax equivalent)

3.20

%

3.48

%

3.26

%

3.79

%

3.52

%

Return on average assets

1.18

%

0.76

%

1.17

%

0.78

%

0.83

%

Return on average shareholders' equity

13.11

%

7.64

%

12.36

%

7.30

%

8.04

%

Average shareholders' equity to total average assets

9.03

%

9.91

%

9.44

%

9.91

%

9.89

%


ALLOWANCE FOR LOAN LOSSES:

Balance, beginning of period

$

9,532

$

8,112

$

9,908

$

6,680

$

6,680

Provision for (Recovery of) loan losses

(226

)

1,417

(681

)

2,938

4,259

Charge-offs

(151

)

(168

)

(236

)

(378

)

(1,414

)

Recoveries

132

72

296

193

383

Balance, end of period

$

9,287

$

9,433

$

9,287

$

9,433

$

9,908

June 30,
2021

June 30,
2020

December 31,
2020

(Unaudited)

(Unaudited)

(Audited)

ASSET QUALITY:

Non-accrual loans

$

3,378

$

3,999

$

3,758

90 days past due and still accruing

-

-

-

Other real estate owned

-

-

128

Total non-performing assets

$

3,378

$

3,999

$

3,886

Non-performing assets to total assets

0.21

%

0.28

%

0.27

%

Loans modifications related to COVID-19

$

283

$

120,569

$

18,246

Allowance for loan losses to non-performing assets

274.93

%

235.88

%

254.97

%

Allowance for loan losses to total loans

1.05

%

0.98

%

1.04

%

Allowance for loan losses to total loans, excluding PPP loans

1.09

%

1.09

%

1.14

%

LOAN RISK GRADE ANALYSIS:

Percentage of loans by risk grade

Risk Grade 1 (excellent quality)

0.63

%

1.58

%

1.18

%

Risk Grade 2 (high quality)

19.16

%

21.64

%

20.45

%

Risk Grade 3 (good quality)

68.78

%

65.35

%

65.70

%

Risk Grade 4 (management attention)

8.68

%

9.39

%

9.75

%

Risk Grade 5 (watch)

1.97

%

1.26

%

2.20

%

Risk Grade 6 (substandard)

0.78

%

0.78

%

0.72

%

Risk Grade 7 (doubtful)

0.00

%

0.00

%

0.00

%

Risk Grade 8 (loss)

0.00

%

0.00

%

0.00

%

At June 30, 2021, including non-accrual loans, there were three relationships exceeding $1.0 million in the Watch risk grade (which totaled $8.3 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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