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Peoples Bancorp Announces Third Quarter Earnings Results

NEWTON, NC / ACCESSWIRE / October 24, 2016 / Peoples Bancorp of North Carolina, Inc. (PEBK), the parent company of Peoples Bank, reported third quarter and year to date earnings results with highlights as follows:

Third quarter highlights:

  • Net earnings were $2.5 million or $0.45 basic net earnings per share and $0.44 diluted net earnings per share for the three months ended September 30, 2016, as compared to $2.5 million or $0.45 basic and diluted net earnings per share for the same period one year ago.

Year to date highlights:

  • Net earnings were $7.9 million or $1.43 basic net earnings per share and $1.42 diluted net earnings per share for the nine months ended September 30, 2016, as compared to $7.4 million or $1.34 basic net earnings per share and $1.32 diluted net earnings per share for the same period one year ago.
  • Non-performing assets declined to $4.8 million or 0.4% of total assets at September 30, 2016, compared to $10.8 million or 1.0% of total assets at September 30, 2015.
  • Total loans increased $28.2 million to $713.0 million at September 30, 2016, compared to $684.8 million at September 30, 2015.
  • Core deposits were $828.1 million or 96.1% of total deposits at September 30, 2016, compared to $771.4 million or 95.6% of total deposits at September 30, 2015.

Lance A. Sellers, President and Chief Executive Officer, attributed the $35,000 decrease in third quarter net earnings to an increase in non-interest expense, which was partially offset by an increase in net interest income, a decrease in the provision for loan losses and an increase in non-interest income.

Net interest income was $9.2 million for the three months ended September 30, 2016, compared to $9.1 million for the three months ended September 30, 2015. The increase in net interest income was primarily due to a $35,000 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 $46,000 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 September 30, 2016, as compared to the same period one year ago. Net interest income after the provision for loan losses was $9.5 million for the three months ended September 30, 2016, compared to $8.8 million for the three months ended September 30, 2015. The provision for loan losses for the three months ended September 30, 2016 was a credit of $360,000, as compared to an expense of $235,000 for the three months ended September 30, 2015. The decrease in 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 Accounting Standards Codification ("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 $3.4 million for the three months ended September 30, 2016, compared to $3.3 million for the three months ended September 30, 2015. The increase in non-interest income is primarily attributable to a $126,000 increase in mortgage banking income during the three months ended September 30, 2016, as compared to the three months ended September 30, 2015.

Non-interest expense was $9.6 million for the three months ended September 30, 2016, compared to $8.7 million for the three months ended September 30, 2015. The increase in non-interest expense was primarily due to a $551,000 increase in other non-interest expense, a $234,000 increase in salaries and benefits expense, and a $144,000 increase in occupancy expense during the three months ended September 30, 2016, as compared to the three months ended September 30, 2015. The increase in other non-interest expense is primarily due to a $173,000 increase in consulting fees and a $140,000 increase in marketing expense.

Year-to-date net earnings as of September 30, 2016 were $7.9 million or $1.43 basic net earnings per share and $1.42 diluted net earnings per share, as compared to $7.4 million or $1.34 basic net earnings per share and $1.32 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, as discussed below.

Year-to-date net interest income as of September 30, 2016 was $27.3 million compared to $26.1 million for same period one year ago. The increase in net interest income was primarily due to a $998,000 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 $184,000 decrease in interest expense, which was primarily attributable to a decrease in the average outstanding balance of time deposits and FHLB borrowings during the nine months ended September 30, 2016, as compared to the same period one year ago. Net interest income after the provision for loan losses was $28.4 million for the nine months ended September 30, 2016, compared to $25.9 million for the same period one year ago. The provision for loan losses for the nine months ended September 30, 2016 was a credit of $1.1 million, as compared to an expense of $193,000 for the nine months ended September 30, 2015. The decrease in 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 $10.3 million for the nine months ended September 30, 2016, compared to $9.8 million for the nine months ended September 30, 2015. The increase in non-interest income is primarily attributable to $324,000 in gains on the sale of securities and a $278,000 increase in mortgage banking income during the nine months ended September 30, 2016, as compared to the nine months ended September 30, 2015.

Non-interest expense was $28.2 million for the nine months ended September 30, 2016, as compared to $25.8 million for the nine months ended September 30, 2015. The increase in non-interest expense was primarily due to a $1.3 million increase in other non-interest expense, a $666,000 increase in occupancy expense, and a $431,000 increase in salaries and benefits expense during the nine months ended September 30, 2016, as compared to the nine months ended September 30, 2015. The increase in other non-interest expense is primarily due to a $1.2 million increase in consulting fees due to expenses associated with the FDIC Consent Order (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 September 30, 2016, as compared to $1.0 billion as of September 30, 2015. Available for sale securities were $262.4 million as of September 30, 2016, compared to $268.8 million as of September 30, 2015. Total loans were $713.0 million as of September 30, 2016, compared to $684.8 million as of September 30, 2015.

Non-performing assets declined to $4.8 million or 0.4% of total assets at September 30, 2016, compared to $10.8 million or 1.0% of total assets at September 30, 2015. The decline in non-performing assets is due to a $3.5 million decrease in non-accrual loans and a $2.3 million decrease in other real estate owned properties. Non-performing loans include $4.6 million in commercial and residential mortgage loans, $31,000 in acquisition, development and construction ("AD&C") loans and $107,000 in other loans at September 30, 2016, as compared to $7.9 million in commercial and residential mortgage loans, $405,000 in AD&C loans and $197,000 in other loans at September 30, 2015.The allowance for loan losses at September 30, 2016 was $8.0 million or 1.1% of total loans, compared to $10.4 million or 1.5% of total loans at September 30, 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 $861.9 million as of September 30, 2016, compared to $806.6 million at September 30, 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 $56.7 million to $828.1 million at September 30, 2016, as compared to $771.4 million at September 30, 2015. Certificates of deposit in amounts of $250,000 or more totaled $26.6 million at September 30, 2016, as compared to $31.0 million at September 30, 2015. The decrease in certificates of deposit in amounts of $250,000 or more is attributable to a decrease in retail certificates of deposit which was expected as part of the Bank's pricing strategy to allow maturing high cost certificates of deposit to roll-off.

Securities sold under agreements to repurchase were $50.9 million at September 30, 2016, as compared to $47.2 million at September 30, 2015.

Shareholders' equity was $110.6 million, or 10.1% of total assets, as of September 30, 2016, compared to $102.9 million, or 9.9% of total assets, as of September 30, 2015. The increase in shareholders' equity is primarily due to an increase in retained earnings due to net income and an increase in accumulated other comprehensive income resulting from an increase in the unrealized gain on investment securities. The increases in retained earnings and accumulated other comprehensive income were partially offset by a $2.3 million decrease in common stock due to 18,000 shares of common stock being repurchased under the Company's stock repurchase program implemented in 2014 and 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.

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

PEOPLES BANCORP ANNOUNCES THIRD QUARTER EARNINGS RESULTS - PAGE FOUR

CONSOLIDATED BALANCE SHEETS
September 30, 2016, December 31, 2015 and September 30, 2015
(Dollars in thousands)

September 30,
2016
December 31,
2015
September 30,
2015
(Unaudited)
(Audited)
(Unaudited)
ASSETS:
Cash and due from banks
$ 47,653 $ 29,194 $ 39,681
Interest-bearing deposits
35,191 10,569 4,944
Cash and cash equivalents
82,844 39,763 44,625
Investment securities available for sale
262,423 268,530 268,821
Other investments
3,634 3,636 3,912
Total securities
266,057 272,166 272,733
Mortgage loans held for sale
2,776 4,149 1,679
Loans
713,019 689,091 684,800
Less: Allowance for loan losses
(8,045 ) (9,589 ) (10,420 )
Net loans
704,974 679,502 674,380
Premises and equipment, net
16,553 16,976 16,831
Cash surrender value of life insurance
14,853 14,546 14,440
Accrued interest receivable and other assets
9,551 11,379 12,507
Total assets
$ 1,097,608 $ 1,038,481 $ 1,037,195
LIABILITIES AND SHAREHOLDERS' EQUITY:
Deposits:
Noninterest-bearing demand
$ 253,134 $ 244,231 $ 217,517
NOW, MMDA & savings
460,767 431,052 423,917
Time, $250,000 or more
26,627 26,891 31,036
Other time
121,419 130,001 134,091
Total deposits
861,947 832,175 806,561
Securities sold under agreements to repurchase
50,920 27,874 47,240
FHLB borrowings
43,500 43,500 50,000
Junior subordinated debentures
20,619 20,619 20,619
Accrued interest payable and other liabilities
9,974 9,449 9,868
Total liabilities
986,960 933,617 934,288
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 9/30/16; 5,510,538 shares at
12/31/15 and 5,528,538 shares at 9/30/15
44,188 46,171 46,512
Retained earnings
59,502 53,183 51,442
Accumulated other comprehensive income
6,958 5,510 4,953
Total shareholders' equity
110,648 104,864 102,907
Total liabilities and shareholders' equity
$ 1,097,608 $ 1,038,481 $ 1,037,195

PEOPLES BANCORP ANNOUNCES THIRD QUARTER EARNINGS RESULTS - PAGE FIVE

CONSOLIDATED STATEMENTS OF INCOME
For the three and nine months ended September 30, 2016 and 2015
(Dollars in thousands, except per share amounts)

Three months ended
Nine months ended
September 30,
September 30,
2016
2015
2016
2015
(Unaudited)
(Unaudited)
(Unaudited)
(Unaudited)
INTEREST INCOME:
Interest and fees on loans
$ 8,188 $ 8,089 $ 24,185 $ 23,015
Interest on due from banks
32 4 67 21
Interest on investment securities:
U.S. Government sponsored enterprises
603 633 1,910 1,959
State and political subdivisions
1,105 1,145 3,350 3,465
Other
54 76 191 245
Total interest income
9,982 9,947 29,703 28,705
INTEREST EXPENSE:
NOW, MMDA & savings deposits
126 106 367 324
Time deposits
142 211 452 685
FHLB borrowings
426 443 1,248 1,294
Junior subordinated debentures
122 101 353 297
Other
12 13 30 34
Total interest expense
828 874 2,450 2,634
NET INTEREST INCOME
9,154 9,073 27,253 26,071
PROVISION FOR (REDUCTION OF PROVISION
FOR) LOAN LOSSES
(360 ) 235 (1,108 ) 193
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES
9,514 8,838 28,361 25,878
NON-INTEREST INCOME:
Service charges
1,163 1,193 3,291 3,498
Other service charges and fees
210 173 746 718
Gain on sale of securities
- - 324 -
Mortgage banking income
426 300 1,088 810
Insurance and brokerage commissions
163 179 476 544
Miscellaneous
1,452 1,421 4,384 4,238
Total non-interest income
3,414 3,266 10,309 9,808
NON-INTEREST EXPENSES:
Salaries and employee benefits
4,830 4,596 14,114 13,683
Occupancy
1,755 1,611 5,243 4,577
Other
3,013 2,462 8,841 7,494
Total non-interest expense
9,598 8,669 28,198 25,754
EARNINGS BEFORE INCOME TAXES
3,330 3,435 10,472 9,932
INCOME TAXES
872 942 2,597 2,487
NET EARNINGS
$ 2,458 $ 2,493 $ 7,875 $ 7,445
PER SHARE AMOUNTS
Basic net earnings
$ 0.45 $ 0.45 $ 1.43 $ 1.34
Diluted net earnings
$ 0.44 $ 0.45 $ 1.42 $ 1.32
Cash dividends
$ 0.10 $ 0.08 $ 0.28 $ 0.20
Book value
$ 20.42 $ 18.61 $ 20.42 $ 18.61

PEOPLES BANCORP ANNOUNCES THIRD QUARTER EARNINGS RESULTS - PAGE SIX

FINANCIAL HIGHLIGHTS
For the three and nine months ended September 30, 2016 and 2015
(Dollars in thousands)

Three months ended
Nine months ended
September 30,
September 30,
2016
2015
2016
2015
(Unaudited)
(Unaudited)
(Unaudited)
(Unaudited)
SELECTED AVERAGE BALANCES:
Available for sale securities
$ 252,281 $ 264,371 $ 254,135 $ 268,622
Loans
709,742 676,049 698,313 663,574
Earning assets
992,602 951,843 975,526 948,782
Assets
1,087,155 1,036,558 1,064,655 1,036,912
Deposits
860,629 810,782 848,041 815,614
Shareholders' equity
112,581 103,400 113,207 104,969
SELECTED KEY DATA:
Net interest margin (tax equivalent)
3.89 % 4.02 % 3.97 % 3.92 %
Return on average assets
0.90 % 0.95 % 0.99 % 0.96 %
Return on average shareholders' equity
8.68 % 9.57 % 9.29 % 9.48 %
Shareholders' equity to total assets (period end)
10.08 % 9.92 % 10.08 % 9.92 %
ALLOWANCE FOR LOAN LOSSES:
Balance, beginning of period
$ 8,540 $ 10,378 $ 9,589 $ 11,082
Provision for loan losses
(360 ) 235 (1,108 ) 193
Charge-offs
(246 ) (315 ) (754 ) (1,176 )
Recoveries
111 122 318 321
Balance, end of period
$ 8,045 $ 10,420 $ 8,045 $ 10,420
ASSET QUALITY:
Non-accrual loans
$ 4,757 $ 8,266
90 days past due and still accruing
- 226
Other real estate owned
26 2,349
Total non-performing assets
$ 4,783 $ 10,841
Non-performing assets to total assets
0.44 % 1.05 %
Allowance for loan losses to non-performing assets
168.20 % 96.12 %
Allowance for loan losses to total loans
1.13 % 1.52 %
LOAN RISK GRADE ANALYSIS:
Percentage of Loans
By Risk Grade
9/30/2016
9/30/2015
Risk Grade 1 (excellent quality)
1.38 % 1.72 %
Risk Grade 2 (high quality)
26.50 % 24.29 %
Risk Grade 3 (good quality)
54.53 % 53.05 %
Risk Grade 4 (management attention)
12.68 % 14.52 %
Risk Grade 5 (watch)
2.74 % 3.71 %
Risk Grade 6 (substandard)
1.86 % 2.47 %
Risk Grade 7 (doubtful)
0.00 % 0.00 %
Risk Grade 8 (loss)
0.00 % 0.00 %

At September 30, 2016, including non-accrual loans, there were three relationships exceeding $1.0 million in the Watch risk grade (which totaled $6.9 million) and one relationship exceeding $1.0 million in the Substandard risk grade (which totaled $1.3 million). There was one relationship with loans in both the Watch and Substandard risk grades, which exceeded $1.0 million for loans in both risk grades combined.


SOURCE: Peoples Bancorp of North Carolina, Inc.