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Peoples Bancorp Announces Second Quarter Earnings Results

NEWTON, NC / ACCESSWIRE / July 20, 2020 / 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 $2.6 million or $0.44 basic and diluted net earnings per share for the three months ended June 30, 2020, as compared to $3.8 million or $0.64 basic and diluted net earnings per share for the same period one year ago.

  • The Bank originated 1,116 Small Business Administration (SBA) Paycheck Protection Program (PPP) loans, totaling $98.8 million, during the second quarter of 2020. The Bank has received $4.0 million in fees from the SBA for PPP loans originated as of June 30, 2020.

Year to date highlights:

  • Net earnings were $4.9 million or $0.84 basic and diluted net earnings per share for the six months ended June 30, 2020, as compared to $7.5 million or $1.25 basic and diluted net earnings per share for the same period one year ago.

  • Total loans increased $133.2 million to $966.5 million at June 30, 2020, compared to $833.3 million at June 30, 2019.

  • Core deposits were $1.1 billion or 97.88% of total deposits at June 30, 2020, compared to $889.8 million or 98.41% of total deposits at June 30, 2019.

Lance A. Sellers, President and Chief Executive Officer, attributed the decrease in second quarter net earnings to a decrease in net interest income, an increase in the provision for loan losses and an increase in non-interest expense, which were partially offset by an increase in non-interest income during the three months ended June 30, 2020, compared to the three months ended June 30, 2019, as discussed below.

Net interest income was $10.7 million for the three months ended June 30, 2020, compared to $11.6 million for the three months ended June 30, 2019. The decrease in net interest income was primarily due to a $737,000 decrease in interest income and a $131,000 increase in interest expense. The decrease in interest income was primarily due to a $714,000 decrease in interest income on loans resulting from the 1.50% reduction in Prime Rate in March 2020. The increase in interest expense was primarily due to an increase in interest bearing deposits and borrowings from the Federal Home Loan Bank of Atlanta (FHLB). Net interest income after the provision for loan losses was $9.3 million for the three months ended June 30, 2020, compared to $11.5 million for the three months ended June 30, 2019. The provision for loan losses for the three months ended June 30, 2020 was $1.4 million, compared to $77,000 for the three months ended June 30, 2019. The increase in the provision for loan losses is primarily attributable to increases in the qualitative factors applied in the Company's Allowance for Loan and Lease Losses ("ALLL") model due to the impact to the economy from the COVID-19 pandemic and a $133.2 million increase in loans from June 30, 2019 to June 30, 2020. The ALLL model also includes reserves on $120.6 million in loans with payment modifications made in 2020 as a result of the COVID-19 pandemic. Reserves associated with COVID-19 payment modifications increased $1.2 million from $439,000 at March 31, 2020 to $1.6 million at June 30, 2020.

Non-interest income was $5.2 million for the three months ended June 30, 2020, compared to $4.4 million for the three months ended June 30, 2019. The increase in non-interest income is primarily attributable to a $622,000 increase in appraisal management fee income due to an increase in the volume of appraisals, a $457,000 increase in gains on the sale of securities and a $252,000 increase in mortgage banking income, which were partially offset by a $435,000 decrease in service charges and fees primarily due to service charge and fee concessions associated with the COVID-19 pandemic.

Non-interest expense was $11.5 million for the three months ended June 30, 2020, compared to $11.2 million for the three months ended June 30, 2019. The increase in non-interest expense was primarily attributable to a $469,000 increase in appraisal management fee expense due to an increase in the volume of appraisals.

Year-to-date net earnings as of June 30, 2020 were $4.9 million or $0.84 basic and diluted net earnings per share for the six months ended June 30, 2020, as compared to $7.5 million or $1.25 basic and diluted net earnings per share for the same period one year ago. The decrease in year-to-date net earnings is primarily attributable to a decrease in net interest income, an increase in the provision for loan losses and an increase in non-interest expense, which were partially offset by an increase in non-interest income, as discussed below.

Year-to-date net interest income as of June 30, 2020 was $21.9 million, compared to $23.0 million for the same period one year ago. The decrease in net interest income was primarily due to a $670,000 decrease in interest income and a $415,000 increase in interest expense. The decrease in interest income was primarily due to a $653,000 decrease in interest income on loans resulting from the 1.50% reduction in Prime Rate in March 2020. The increase in interest expense was primarily due to an increase in interest bearing deposits and FHLB borrowings. Net interest income after the provision for loan losses was $19.0 million for the six months ended June 30, 2020, compared to $22.8 million for the same period one year ago. The provision for loan losses for the six months ended June 30, 2020 was $2.9 million, compared to $255,000 for the six months ended June 30, 2019. The increase in the provision for loan losses is primarily attributable to increases in the qualitative factors applied in the Company's ALLL model due to the impact to the economy from the COVID-19 pandemic and a $133.2 million increase in loans from June 30, 2019 to June 30, 2020. The ALLL model also includes reserves on $120.6 million in loans with payment modifications made in 2020 as a result of the COVID-19 pandemic. Reserves associated with COVID-19 payment modifications increased $1.2 million from $439,000 at March 31, 2020 to $1.6 million at June 30, 2020.

Non-interest income was $9.8 million for the six months ended June 30, 2020, compared to $8.5 million for the six months ended June 30, 2019. The increase in non-interest income is primarily attributable to a $1.1 million increase in appraisal management fee income due to an increase in the volume of appraisals, a $427,000 increase in mortgage banking income and a $226,000 increase in gains on the sale of securities, which were partially offset by a $396,000 decrease in service charges and fees primarily due to service charge and fee concessions associated with the COVID-19 pandemic.

Non-interest expense was $22.9 million for the six months ended June 30, 2020, compared to $22.2 million for the six months ended June 30, 2019. The increase in non-interest expense was primarily due to an $841,000 increase in appraisal management fee expense due to an increase in the volume of appraisals.

Income tax expense was $535,000 for the three months ended June 30, 2020, compared to $845,000 for the three months ended June 30, 2019. The effective tax rate was 17.28% for the three months ended June 30, 2020, compared to 18.14% for the three months ended June 30, 2019. Income tax expense was $1.0 million for the six months ended June 30, 2020, compared to $1.6 million for the six months ended June 30, 2019. The effective tax rate was 16.90% for the six months ended June 30, 2020, compared to 17.89% for the six months ended June 30, 2019.

Total assets were $1.4 billion as of June 30, 2020, compared to $1.1 billion at June 30, 2019. Available for sale securities were $207.5 million as of June 30, 2020, compared to $189.0 million as of June 30, 2019. Total loans were $966.5 million as of June 30, 2020, compared to $833.4 million as of June 30, 2019.

Non-performing assets were $4.0 million or 0.28% of total assets at June 30, 2020, compared to $3.0 million or 0.27% of total assets at June 30, 2019. Non-performing assets include $3.7 million in commercial and residential mortgage loans and $299,000 in other loans at June 30, 2020, compared to $2.9 million in commercial and residential mortgage loans and $102,000 in other loans at June 30, 2019.

The allowance for loan losses at June 30, 2020 was $9.4 million or 0.98% of total loans, compared to $6.5 million or 0.78% of total loans at June 30, 2019. 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 $1.2 billion at June 30, 2020, compared to $904.2 million at June 30, 2019. Core deposits, which include noninterest-bearing demand deposits, NOW, MMDA, savings and non-brokered certificates of deposit of denominations less than $250,000, were $1.1 billion at June 30, 2020, compared to $889.8 million at June 30, 2019. Certificates of deposit in amounts of $250,000 or more totaled $24.5 million at June 30, 2020, compared to $14.1 million at June 30, 2019.

Securities sold under agreements to repurchase were $31.7 million at June 30, 2020, compared to $47.7 million at June 30, 2019. The decrease in securities sold under agreements to repurchase is primarily due to approximately $21.0 million transferred from securities sold under agreements to repurchase to MMDA during the third quarter of 2019.

FHLB borrowings totaled $70.0 million at June 30, 2020, compared to zero at June 30, 2019. The increase in FHLB borrowings reflects a new $70.0 million FHLB advance executed in February 2020 to take advantage of a ten-year convertible advance program available from the FHLB at a rate of 0.58%.

Junior subordinated debentures were $15.5 million at June 30, 2020, compared to $20.6 million at June 30, 2019. The decrease in junior subordinated debentures is the result of a $5.0 million redemption of the Company's outstanding trust preferred securities during the fourth quarter of 2019.

Shareholders' equity was $137.0 million, or 9.61% of total assets, at June 30, 2020, compared to $130.0 million, or 11.64% of total assets, at June 30, 2019. The Company repurchased 126,800 shares of its common stock during the six months ended June 30, 2020 under the Company's stock repurchase program, which was funded in January 2020.

Peoples Bank currently 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, Mecklenburg 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, 2019.

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, 2020, December 31, 2019 and June 30, 2019
(Dollars in thousands)

June 30,
2020

December 31,
2019

June 30,
2019

(Unaudited)

(Audited)

(Unaudited)

ASSETS:

Cash and due from banks

$

48,990

$

48,337

$

38,138

Interest-bearing deposits

15,694

720

684

Federal funds sold

124,955

3,330

-

Cash and cash equivalents

189,639

52,387

38,822

Investment securities available for sale

207,469

195,746

188,972

Other investments

7,196

4,231

4,296

Total securities

214,665

199,977

193,268

Mortgage loans held for sale

10,594

4,417

2,309

Loans

966,543

849,874

833,367

Less: Allowance for loan losses

(9,433)

(6,680

)

(6,541)

Net loans

957,110

843,194

826,826

Premises and equipment, net

18,480

18,604

19,184

Cash surrender value of life insurance

16,507

16,319

16,126

Accrued interest receivable and other assets

18,886

19,984

20,037

Total assets

$

1,425,881

$

1,154,882

$

1,116,572

LIABILITIES AND SHAREHOLDERS' EQUITY:

Deposits:

Noninterest-bearing demand

$

457,637

$

338,004

$

321,154

NOW, MMDA & savings

594,948

516,757

488,461

Time, $250,000 or more

24,477

34,269

14,096

Other time

77,267

77,487

80,516

Total deposits

1,154,329

966,517

904,227

Securities sold under agreements to repurchase

31,747

24,221

47,733

FHLB borrowings

70,000

-

-

Junior subordinated debentures

15,464

15,619

20,619

Accrued interest payable and other liabilities

17,300

14,405

14,066

Total liabilities

1,288,840

1,020,762

986,645

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

5,787,504 shares 6/30/20

5,912,300 shares 12/31/19, 5,933,140 shares 6/30/19

56,871

59,813

60,390

Retained earnings

72,942

70,663

65,738

Accumulated other comprehensive income

7,228

3,644

3,799

Total shareholders' equity

137,041

134,120

129,927

Total liabilities and shareholders' equity

$

1,425,881

$

1,154,882

$

1,116,572

CONSOLIDATED STATEMENTS OF INCOME
For the three and six months ended June 30, 2020 and 2019
(Dollars in thousands, except per share amounts)

Three months ended

Six months ended

June 30,

June 30,

2020

2019

2020

2019

(Unaudited)

(Unaudited)

(Unaudited)

(Unaudited)

INTEREST INCOME:

Interest and fees on loans

$

10,180

$

10,894

$

20,860

$

21,513

Interest on due from banks

41

35

84

49

Interest on federal funds sold

22

-

145

-

Interest on investment securities:

U.S. Government sponsored enterprises

651

641

1,336

1,314

State and political subdivisions

684

760

1,325

1,594


Other

60

45

138

88

Total interest income

11,638

12,375

23,888

24,558

INTEREST EXPENSE:

NOW, MMDA & savings deposits

448

320

973

602

Time deposits

224

171

501

322

FHLB borrowings

102

3

166

49

Junior subordinated debentures

90

220

220

446

Other

48

67

93

119

Total interest expense

912

781

1,953

1,538

NET INTEREST INCOME

10,726

11,594

21,935

23,020

PROVISION FOR LOAN LOSSES

1,417

77

2,938

255

NET INTEREST INCOME AFTER

PROVISION FOR LOAN LOSSES

9,309

11,517

18,997

22,765

NON-INTEREST INCOME:

Service charges

718

1,138

1,826

2,231

Other service charges and fees

162

177

355

346

Gain on sale of securities

457

-

457

231

Mortgage banking income

563

311

885

458

Insurance and brokerage commissions

205

205

447

436

Appraisal management fee income

1,734

1,112

3,084

1,974

Miscellaneous

1,400

1,442

2,780

2,829

Total non-interest income

5,239

4,385

9,834

8,505

NON-INTEREST EXPENSES:

Salaries and employee benefits

5,535

5,718

11,259

11,365

Occupancy

1,861

1,811

3,782

3,548

Appraisal management fee expense

1,333

864

2,367

1,526

Other

2,723

2,851

5,493

5,721

Total non-interest expense

11,452

11,244

22,901

22,160

EARNINGS BEFORE INCOME TAXES

3,096

4,658

5,930

9,110

INCOME TAXES

535

845

1,002

1,630

NET EARNINGS

$

2,561

$

3,813

$

4,928

$

7,480

PER SHARE AMOUNTS

Basic net earnings

$

0.44

$

0.64

$

0.84

$

1.25

Diluted net earnings

$

0.44

$

0.64

$

0.84

$

1.25

Cash dividends

$

0.15

$

0.14

$

0.45

$

0.38

Book value

$

23.68

$

21.90

$

23.68

$

21.90

FINANCIAL HIGHLIGHTS
For the three and six months ended June 30, 2020 and 2019
(Dollars in thousands)

Three months ended

Six months ended

June 30,

June 30,

2020

2019

2020

2019

(Unaudited)

(Unaudited)

(Unaudited)

(Unaudited)

SELECTED AVERAGE BALANCES:

Available for sale securities

$

195,101

$

185,195

$

191,986

$

187,480

Loans

947,344

832,150

904,489

823,723

Earning assets

1,258,583

1,027,721

1,181,237

1,020,556

Assets

1,360,408

1,114,880

1,278,673

1,103,415

Deposits

1,104,394

913,820

1,038,839

904,814

Shareholders' equity

134,803

127,865

135,775

128,510

SELECTED KEY DATA:

Net interest margin (tax equivalent)

3.48

%

4.61

%

3.79

%

4.63

%

Return on average assets

0.76

%

1.37

%

0.78

%

1.37

%

Return on average shareholders' equity

7.64

%

11.96

%

7.30

%

11.74

%

Shareholders' equity to total assets (period end)

9.61

%

11.64

%

9.61

%

11.64

%

ALLOWANCE FOR LOAN LOSSES:

Balance, beginning of period

$

8,112

$

6,561

$

6,680

$

6,445

Provision for loan losses

1,417

77

2,938

255

Charge-offs

(168

)

(196

)

(378

)

(360

)

Recoveries

72

99

193

201

Balance, end of period

$

9,433

$

6,541

$

9,433

$

6,541

ASSET QUALITY:

Non-accrual loans

$

3,999

$

3,027

90 days past due and still accruing

-

-

Other real estate owned

-

10

Total non-performing assets

$

3,999

$

3,037

Non-performing assets to total assets

0.28

%

0.27

%

Loans modifications related to COVID-19

$

120,569

$

-

Allowance for loan losses to non-performing assets

235.88

%

215.38

%

Allowance for loan losses to total loans

0.98

%

0.78

%

LOAN RISK GRADE ANALYSIS:

Percentage of Loans

By Risk Grade

6/30/2020

6/30/2019

Risk Grade 1 (excellent quality)

0.57

%

0.71

%

Risk Grade 2 (high quality)

21.64

%

25.25

%

Risk Grade 3 (good quality)

66.34

%

61.56

%

Risk Grade 4 (management attention)

9.39

%

10.28

%

Risk Grade 5 (watch)

1.26

%

1.47

%

Risk Grade 6 (substandard)

0.78

%

0.73

%

Risk Grade 7 (doubtful)

0.00

%

0.00

%

Risk Grade 8 (loss)

0.00

%

0.00

%

At June 30, 2020, including non-accrual loans, there were two relationships exceeding $1.0 million in the Watch risk grade (which totaled $3.1 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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