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Peoples Bancorp Announces Third Quarter Earnings Results

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NEWTON, NC / ACCESSWIRE / October 19, 2020 / Peoples Bancorp of North Carolina, Inc. (NASDAQ:PEBK), the parent company of Peoples Bank, reported third quarter earnings results with highlights as follows:

Third quarter highlights:

  • Net earnings were $4.5 million or $0.78 basic and diluted net earnings per share for the three months ended September 30, 2020, as compared to $3.6 million or $0.62 basic net earnings per share and $0.61 diluted net earnings per share for the same period one year ago.

Year to date highlights:

  • Net earnings were $9.4 million or $1.62 basic and diluted net earnings per share for the nine months ended September 30, 2020, as compared to $11.1 million or $1.87 basic net earnings per share and $1.86 diluted net earnings per share for the same period one year ago.

  • Total loans increased $128.3 million to $973.9 million at September 30, 2020, compared to $845.6 million at September 30, 2019.

  • The Bank originated 1,127 Small Business Administration (SBA) Paycheck Protection Program (PPP) loans, totaling $99.0 million, during the nine months ended September 30, 2020. The Bank has received $4.0 million in fees from the SBA for PPP loans originated as of September 30, 2020. The Bank has recognized $361,000 PPP loan fee income as of September 30, 2020.

  • Core deposits were $1.2 billion or 97.92% of total deposits at September 30, 2020, compared to $928.3 million or 96.54% of total deposits at September 30, 2019.

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

Net interest income was $10.9 million for the three months ended September 30, 2020, compared to $11.4 million for the three months ended September 30, 2019. The decrease in net interest income was primarily due to a $562,000 decrease in interest income, which was partially offset by a $52,000 decrease in interest expense. The decrease in interest income was primarily due to a $497,000 decrease in interest income on loans resulting from the 1.50% reduction in the Prime Rate in March 2020. The decrease in interest expense was primarily due to a decrease in the average outstanding balance of junior subordinated debentures. Net interest income after the provision for loan losses was $10.4 million for the three months ended September 30, 2020, compared to $11.0 million for the three months ended September 30, 2019. The provision for loan losses for the three months ended September 30, 2020 was $522,000, compared to $422,000 for the three months ended September 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 $29.8 million increase in loans, excluding $98.4 million in SBA PPP loans, from September 30, 2019 to September 30, 2020. PPP loans are excluded from ALLL as PPP loans are 100 percent guaranteed by SBA. The ALLL model also includes reserves on $119.7 million in loans with payment modifications made in 2020 as a result of the COVID-19 pandemic.

Non-interest income was $7.1 million for the three months ended September 30, 2020, compared to $4.7 million for the three months ended September 30, 2019. The increase in non-interest income is primarily attributable to a $1.7 million increase in gains on sale of securities, a $560,000 increase in appraisal management fee income due to an increase in the volume of appraisals and a $374,000 increase in mortgage banking income due to increased mortgage loan volume, which were partially offset by a $383,000 decrease in service charges and fees primarily due to service charge and fee concessions associated with the COVID-19 pandemic.

Non-interest expense was $11.9 million for the three months ended September 30, 2020, compared to $11.3 million for the three months ended September 30, 2019. The increase in non-interest expense was primarily attributable to a $466,000 increase in appraisal management fee expense due to an increase in the volume of appraisals.

Year-to-date net earnings as of September 30, 2020 were $9.4 million or $1.62 basic and diluted net earnings per share for the nine months ended September 30, 2020, as compared to $11.1 million or $1.87 basic net earnings per share and $1.86 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 September 30, 2020 was $32.9 million, compared to $34.5 million for the same period one year ago. The decrease in net interest income was primarily due to a $1.2 million decrease in interest income and a $363,000 increase in interest expense. The decrease in interest income was primarily due to a $1.2 million decrease in interest income on loans resulting from the 1.50% reduction in the Prime Rate in March 2020. The increase in interest expense was primarily due to an increase in average outstanding balances of interest-bearing deposits and FHLB borrowings. Net interest income after the provision for loan losses was $29.4 million for the nine months ended September 30, 2020, compared to $33.8 million for the same period one year ago. The provision for loan losses for the nine months ended September 30, 2020 was $3.5 million, compared to $677,000 for the nine months ended September 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 $29.8 million increase in loans, excluding $98.4 million in SBA PPP loans, from September 30, 2019 to September 30, 2020. PPP loans are excluded from ALLL as PPP loans are 100 percent guaranteed by SBA. The ALLL model also includes reserves on $119.7 million in loans with payment modifications made in 2020 as a result of the COVID-19 pandemic.

Non-interest income was $17.0 million for the nine months ended September 30, 2020, compared to $13.2 million for the nine months ended September 30, 2019. The increase in non-interest income is primarily attributable to a $1.9 million increase in gains on sale of securities, a $1.7 million increase in appraisal management fee income due to an increase in the volume of appraisals and a $801,000 increase in mortgage banking income due to increased mortgage loan volume, which were partially offset by a $779,000 decrease in service charges and fees primarily due to service charge and fee concessions associated with the COVID-19 pandemic.

Non-interest expense was $34.8 million for the nine months ended September 30, 2020, compared to $33.4 million for the nine months ended September 30, 2019. The increase in non-interest expense was primarily due to an $1.3 million increase in appraisal management fee expense due to an increase in the volume of appraisals.

Income tax expense was $1.1 million for the three months ended September 30, 2020, compared to $834,000 for the three months ended September 30, 2019. The effective tax rate was 19.80% for the three months ended September 30, 2020, compared to 18.72% for the three months ended September 30, 2019. Income tax expense was $2.1 million for the nine months ended September 30, 2020, compared to $2.5 million for the nine months ended September 30, 2019. The effective tax rate was 18.31% for the nine months ended September 30, 2020, compared to 18.16% for the nine months ended September 30, 2019.

Total assets were $1.5 billion as of September 30, 2020, compared to $1.2 billion at September 30, 2019. Available for sale securities were $223.0 million as of September 30, 2020, compared to $186.3 million as of September 30, 2019. Total loans were $973.9 million as of September 30, 2020, compared to $845.6 million as of September 30, 2019.

Non-performing assets were $3.7 million or 0.25% of total assets at September 30, 2020, compared to $3.3 million or 0.27% of total assets at September 30, 2019. Non-performing assets include $3.3 million in commercial and residential mortgage loans, $272,000 in other loans and $128,000 in other real estate owned at September 30, 2020, compared to $3.1 million in commercial and residential mortgage loans, $146,000 in other loans and $26,000 in other real estate owned at September 30, 2019.

The allowance for loan losses at September 30, 2020 was $9.9 million or 1.02% of total loans, compared to $6.6 million or 0.78% of total loans at September 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 September 30, 2020, compared to $961.6 million at September 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 $1.2 billion at September 30, 2020, compared to $928.3 million at September 30, 2019. Certificates of deposit in amounts of $250,000 or more totaled $24.7 million at September 30, 2020, compared to $33.1 million at September 30, 2019.

Securities sold under agreements to repurchase were $34.2 million at September 30, 2020, compared to $21.9 million at September 30, 2019.

FHLB borrowings totaled $70.0 million at September 30, 2020 and 2019.

Junior subordinated debentures were $15.5 million at September 30, 2020, compared to $20.6 million at September 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 $139.5 million, or 9.54% of total assets, at September 30, 2020, compared to $132.7 million, or 10.85% of total assets, at September 30, 2019. The Company repurchased 126,800 shares of its common stock during the nine months ended September 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. The Bank opened a new branch office on Westchase Boulevard in Raleigh, NC in August 2020 to relocate the Raleigh office from its previous location, which was closed in February 2020. The Bank closed its branch on Central Avenue in Charlotte, NC on October 2, 2020 due to space limitations. Central Avenue branch customers have been transferred to the Bank's South Boulevard, Charlotte, NC branch. The Bank also operates loan production offices in Lincoln and Mecklenburg 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.

CONSOLIDATED BALANCE SHEETS
September 30, 2020, December 31, 2019 and September 30, 2019
(Dollars in thousands)

September 30,
2020

December 31,
2019

September 30,
2019

(Unaudited)

(Audited)

(Unaudited)

ASSETS:

Cash and due from banks

$

48,355

$

48,337

$

48,605

Interest-bearing deposits

15,778

720

80,948

Federal funds sold

140,095

3,330

-

Cash and cash equivalents

204,228

52,387

129,553

Investment securities available for sale

222,991

195,746

186,263

Other investments

7,163

4,231

7,239

Total securities

230,154

199,977

193,502

Mortgage loans held for sale

8,960

4,417

4,263

Loans

973,871

849,874

845,599

Less: Allowance for loan losses

(9,892)

(6,680

)

(6,578)

Net loans

963,979

843,194

839,021

Premises and equipment, net

19,057

18,604

18,730

Cash surrender value of life insurance

16,742

16,319

16,222

Accrued interest receivable and other assets

19,128

19,984

21,908

Total assets

$

1,462,248

$

1,154,882

$

1,223,199

LIABILITIES AND SHAREHOLDERS' EQUITY:

Deposits:

Noninterest-bearing demand

$

455,199

$

338,004

$

339,081

NOW, MMDA & savings

626,674

516,757

509,611

Time, $250,000 or more

24,717

34,269

33,082

Other time

79,806

77,487

79,794

Total deposits

1,186,396

966,517

961,568

Securities sold under agreements to repurchase

34,151

24,221

21,927

FHLB borrowings

70,000

-

70,000

Junior subordinated debentures

15,464

15,619

20,619

Accrued interest payable and other liabilities

16,786

14,405

16,402

Total liabilities

1,322,797

1,020,762

1,090,516

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 9/30/20

5,912,300 shares 12/31/19, 5,912,300 shares 9/30/19

56,871

59,813

59,813

Retained earnings

76,580

70,663

68,528

Accumulated other comprehensive income

6,000

3,644

4,342

Total shareholders' equity

139,451

134,120

132,683

Total liabilities and shareholders' equity

$

1,462,248

$

1,154,882

$

1,223,199

CONSOLIDATED STATEMENTS OF INCOME

For the three and nine months ended September 30, 2020 and 2019
(Dollars in thousands, except per share amounts)

Three months ended

Nine months ended

September 30,

September 30,

2020

2019

2020

2019

(Unaudited)

(Unaudited)

(Unaudited)

(Unaudited)

INTEREST INCOME:

Interest and fees on loans

$

10,507

$

11,004

$

31,367

$

32,517

Interest on due from banks

19

87

103

136

Interest on federal funds sold

33

-

178

-

Interest on investment securities:

U.S. Government sponsored enterprises

528

628

1,864

1,942

State and political subdivisions

717

671

2,042

2,265

Other

64

40

202

128

Total interest income

11,868

12,430

35,756

36,988

INTEREST EXPENSE:

NOW, MMDA & savings deposits

482

455

1,455

1,057

Time deposits

224

259

725

581

FHLB borrowings

103

21

269

70

Junior subordinated debentures

76

210

296

656

Other

57

49

150

168

Total interest expense

942

994

2,895

2,532

NET INTEREST INCOME

10,926

11,436

32,861

34,456

PROVISION FOR LOAN LOSSES

522

422

3,460

677

NET INTEREST INCOME AFTER

PROVISION FOR LOAN LOSSES

10,404

11,014

29,401

33,779

NON-INTEREST INCOME:

Service charges

809

1,178

2,635

3,409

Other service charges and fees

188

202

543

548

Gain/(loss) on sale of securities

1,688

(5

)

2,145

226

Mortgage banking income

750

376

1,635

834

Insurance and brokerage commissions

200

206

647

642

Appraisal management fee income

1,871

1,311

4,955

3,285

Miscellaneous

1,626

1,440

4,406

4,269

Total non-interest income

7,132

4,708

16,966

13,213

NON-INTEREST EXPENSES:

Salaries and employee benefits

5,737

5,695

16,996

17,060

Occupancy

1,943

1,861

5,725

5,409

Appraisal management fee expense

1,478

1,012

3,845

2,538

Other

2,756

2,699

8,249

8,420

Total non-interest expense

11,914

11,267

34,815

33,427

EARNINGS BEFORE INCOME TAXES

5,622

4,455

11,552

13,565

INCOME TAXES

1,113

834

2,115

2,464

NET EARNINGS

$

4,509

$

3,621

$

9,437

$

11,101

PER SHARE AMOUNTS

Basic net earnings

$

0.78

$

0.62

$

1.62

$

1.87

Diluted net earnings

$

0.78

$

0.61

$

1.62

$

1.86

Cash dividends

$

0.15

$

0.14

$

0.60

$

0.52

Book value

$

24.10

$

22.44

$

24.10

$

22.44

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

Three months ended

Nine months ended

September 30,

September 30,

2020

2019

2020

2019

(Unaudited)

(Unaudited)

(Unaudited)

(Unaudited)

SELECTED AVERAGE BALANCES:

Available for sale securities

$

200,101

$

180,439

$

194,710

$

185,107

Loans

970,529

840,523

926,663

829,385

Earning assets

1,343,323

1,044,159

1,235,660

1,028,573

Assets

1,438,238

1,139,256

1,332,249

1,122,226

Deposits

1,170,627

939,254

1,083,089

916,420

Shareholders' equity

140,007

131,890

140,191

132,053

SELECTED KEY DATA:

Net interest margin (tax equivalent)

3.28%

4.41%

3.60%

4.56%

Return on average assets

1.25%

1.26%

0.95%

1.32%

Return on average shareholders' equity

12.81%

10.89%

8.99%

11.24%

Shareholders' equity to total assets (period end)

9.54%

10.85%

9.54%

10.85%

ALLOWANCE FOR LOAN LOSSES:

Balance, beginning of period

$

9,433

$

6,541

$

6,680

$

6,445

Provision for loan losses

522

422

3,460

677

Charge-offs

(152)

(551

)

(529)

(911

)

Recoveries

89

166

281

367

Balance, end of period

$

9,892

$

6,578

$

9,892

$

6,578

ASSET QUALITY:

Non-accrual loans

$

3,475

$

3,258

90 days past due and still accruing

84

-

Other real estate owned

128

26

Total non-performing assets

$

3,687

$

3,284

Non-performing assets to total assets

0.25%

0.27%

Loans modifications related to COVID-19

$

119,706

$

-

Allowance for loan losses to non-performing assets

268.29%

200.30%

Allowance for loan losses to total loans

1.02%

0.78%

LOAN RISK GRADE ANALYSIS:

Percentage of Loans

By Risk Grade

9/30/20

9/30/19

Risk Grade 1 (excellent quality)

0.68%

0.60%

Risk Grade 2 (high quality)

20.89%

25.00%

Risk Grade 3 (good quality)

65.93%

61.91%

Risk Grade 4 (management attention)

9.89%

10.32%

Risk Grade 5 (watch)

1.90%

1.43%

Risk Grade 6 (substandard)

0.71%

0.74%

Risk Grade 7 (doubtful)

0.00%

0.00%

Risk Grade 8 (loss)

0.00%

0.00%

At September 30, 2020, including non-accrual loans, there were three relationships exceeding $1.0 million in the Watch risk grade (which totaled $8.0 million). There were no relationships exceeding $1.0 million in the Substandard risk grade.

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

SOURCE: Peoples Bancorp of North Carolina, Inc.



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