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Peoples Bancorp Announces Third Quarter Earnings Results

NEWTON, NC / ACCESSWIRE / October 22, 2018 / Peoples Bancorp of North Carolina, Inc. (PEBK), the parent company of Peoples Bank, reported third quarter earnings results with highlights as follows:

Third quarter highlights:

  • Net earnings were $3.5 million or $0.58 basic net earnings per share and $0.57 diluted net earnings per share for the three months ended September 30, 2018, as compared to $3.2 million or $0.54 basic net earnings per share and $0.52 diluted net earnings per share for the same period one year ago.

Year to date highlights:

  • Net earnings were $9.9 million or $1.66 basic net earnings per share and $1.65 diluted net earnings per share for the nine months ended September 30, 2018, as compared to $8.3 million or $1.38 basic net earnings per share and $1.35 diluted net earnings per share for the same period one year ago.
  • Total loans increased $39.3 million to $786.7 million at September 30, 2018, compared to $747.4 million at September 30, 2017.
  • Core deposits were $875.7 million or 98.0% of total deposits at September 30, 2018, compared to $879.6 million or 97.6% of total deposits at September 30, 2017.

Lance A. Sellers, President and Chief Executive Officer, attributed the increase in third quarter net earnings to an increase in net interest income, which was partially offset by an increase in the provision for loan losses, a decrease in non-interest income and an increase in non-interest expense during the three months ended September 30, 2018, as compared to the three months ended September 30, 2017, as discussed below.

Net interest income was $11.1 million for the three months ended September 30, 2018, compared to $10.0 million for the three months ended September 30, 2017. The increase in net interest income was primarily due to a $910,000 increase in interest income, which was primarily attributable to an increase in the average outstanding balance of loans and a 1.00% increase in the prime rate since September 30, 2017, combined with a $93,000 decrease in interest expense, which was primarily attributable to a decrease in the average outstanding balances of FHLB borrowings during the three months ended September 30, 2018, as compared to the same period one year ago due to the payoff of remaining FHLB borrowings in October 2017. Net interest income after the provision for loan losses was $10.9 million for the three months ended September 30, 2018, compared to $10.3 million for the three months ended September 30, 2017. The provision for loan losses for the three months ended September 30, 2018 was an expense of $110,000, as compared to a credit of $218,000 for the three months ended September 30, 2017. The increase in the provision for loan losses is primarily attributable to a $39.3 million increase in loans from September 30, 2017 to September 30, 2018.

Non-interest income was $3.9 million for the three months ended September 30, 2018, compared to $4.2 million for the three months ended September 30, 2017. The decrease in non-interest income is primarily attributable to a $64,000 decrease in mortgage banking income and a $80,000 decrease in miscellaneous non-interest income during the three months ended September 30, 2018, compared to the same period one year ago.

Non-interest expense was $10.7 million for the three months ended September 30, 2018, compared to $10.0 million for the three months ended September 30, 2017. The increase in non-interest expense was primarily attributable to a $586,000 increase in salaries and benefits expense, which was primarily due to an increase in the number of full-time equivalent employees and annual salary increases.

Year-to-date net earnings as of September 30, 2018 were $9.9 million or $1.66 basic net earnings per share and $1.65 diluted net earnings per share, as compared to $8.3 million or $1.38 basic net earnings per share and $1.35 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 and an increase in non-interest income, which were partially offset by an increase in the provision for loan losses and an increase in non-interest expense, as discussed below.

Year-to-date net interest income as of September 30, 2018 was $31.9 million compared to $29.4 million for the same period one year ago. The increase in net interest income was primarily due to a $2.2 million increase in interest income, which was primarily attributable to an increase in the average outstanding balance of loans and a 1.00% increase in the prime rate since September 2017, combined with a $333,000 decrease in interest expense, which was primarily attributable to a decrease in the average outstanding balances of FHLB borrowings during the nine months ended September 30, 2018, as compared to the same period one year ago due to the payoff of remaining FHLB borrowings in October 2017. Net interest income after the provision for loan losses was $31.5 million for the nine months ended September 30, 2018, compared to $29.8 million for the same period one year ago. The provision for loan losses for the nine months ended September 30, 2018 was an expense of $372,000, as compared to a credit of $405,000 for the nine months ended September 30, 2017. The increase in the provision for loan losses is primarily attributable to a $39.3 million increase in loans from September 30, 2017 to September 30, 2018.

Non-interest income was $11.7 million for the nine months ended September 30, 2018, compared to $11.5 million for the nine months ended September 30, 2017. The increase in non-interest income is primarily attributable to a $438,000 increase in miscellaneous non-interest income, which was partially offset by a $273,000 decrease in mortgage banking income during the nine months ended September 30, 2018, as compared to the nine months ended September 30, 2017. The increase in miscellaneous non-interest income is primarily due to $17,000 in net gains on other real estate owned properties for the nine months ended September 30, 2018, as compared to $240,000 in net losses and write-downs on other real estate owned properties for the nine months ended September 30, 2017. The decrease in mortgage banking income is primarily due to a decrease in mortgage loan volume resulting from an increase in mortgage loan rates.

Non-interest expense was $31.3 million for the nine months ended September 30, 2018, as compared to $30.4 million for the nine months ended September 30, 2017. The increase in non-interest expense was primarily due to a $828,000 increase in salaries and benefits expense and a $386,000 increase in occupancy expense, which were partially offset by a $264,000 decrease in other non-interest expense, during the nine months ended September 30, 2018, as compared to the nine months ended September 30, 2017. The increase in salaries and benefits expense is primarily due to an increase in the number of full-time equivalent employees and annual salary increases. The increase in occupancy expense is primarily due to an increase in depreciation expense during the nine months ended September 30, 2018, as compared to the nine months ended September 30, 2017. The decrease in other non-interest expense is primarily due to decreases in telecommunications expense, debit card expense and internet banking expense during the nine months ended September 30, 2018, as compared to the nine months ended September 30, 2017.

Non-interest income and non-interest expense for the three and nine months ended September 30, 2018 and 2017 reflect the implementation of Financial Accounting Standards Board Accounting Standards Update No. 2014-09, (Topic 606): Revenue from Contracts with Customers, which was effective for the Company's reporting periods beginning after December 15, 2017. Prior to March 31, 2018, appraisal management fee income and expense from the Bank's subsidiary, Community Bank Real Estate Solutions, LLC, was reported as a net amount, which was included in miscellaneous non-interest income. This income and expense is now reported on separate line items under non-interest income and non-interest expense.

Income tax expense was $687,000 for the three months ended September 30, 2018, compared to $1.2 million for the three months ended September 30, 2017. The effective tax rate was 17% for the three months ended September 30, 2018, compared to 27% for the three months ended September 30, 2017. Income tax expense was $1.9 million for the nine months ended September 30, 2018, compared to $2.7 million for the nine months ended September 30, 2017. The effective tax rate was 16% for the nine months ended September 30, 2018, compared to 25% for the nine months ended September 30, 2017. The reduction in the effective tax rate is primarily due to the passing of the Tax Cuts and Jobs Act in December, 2017, which reduced the Company's federal corporate tax rate from 34% to 21% effective January 1, 2018.

Total assets were $1.1 billion as of September 30, 2018 and 2017. Available for sale securities were $206.0 million as of September 30, 2018, compared to $235.7 million as of September 30, 2017. Total loans were $786.7 million as of September 30, 2018, compared to $747.4 million as of September 30, 2017.

Non-performing assets were $3.9 million or 0.36% of total assets at September 30, 2018, compared to $4.9 million or 0.44% of total assets at September 30, 2017. Non-performing loans include $3.7 million in commercial and residential mortgage loans, $39,000 in acquisition, development and construction ("AD&C") loans and $136,000 in other loans at September 30, 2018, as compared to $4.7 million in commercial and residential mortgage loans, $16,000 in AD&C loans and $251,000 in other loans at September 30, 2017.

The allowance for loan losses at September 30, 2018 was $6.3 million or 0.80% of total loans, compared to $6.8 million or 0.92% of total loans at September 30, 2017. 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 $893.5 million at September 30, 2018, compared to $901.6 million at September 30, 2017. Core deposits, which include noninterest-bearing demand deposits, NOW, MMDA, savings and non-brokered certificates of deposit of denominations less than $250,000, were $875.7 million at September 30, 2018, compared to $879.6 million at September 30, 2017. Certificates of deposit in amounts of $250,000 or more totaled $17.0 million at September 30, 2018, as compared to $21.3 million at September 30, 2017.

Securities sold under agreements to repurchase were $55.8 million at September 30, 2018, as compared to $53.3 million at September 30, 2017.

Shareholders' equity was $119.7 million, or 10.88% of total assets, as of September 30, 2018, compared to $116.2 million, or 10.36% of total assets, as of September 30, 2017.

Peoples Bank currently operates 19 banking offices entirely in North Carolina, with offices in Catawba, Alexander, Lincoln, Mecklenburg, Iredell and Wake Counties. The Bank plans to open a new banking office in Cary, North Carolina during the fourth quarter of 2018. Peoples Bank also operates loan production offices in Lincoln 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, 2017.

CONSOLIDATED BALANCE SHEETS
September 30, 2018, December 31, 2017 and September 30, 2017
(Dollars in thousands)


September 30, 2018 December 31, 2017 September 30, 2017
(Unaudited) (Audited) (Unaudited)
ASSETS:
Cashand due from banks
$ 44,743 $ 53,186 $ 55,718
Interest-bearing deposits
12,298 4,118 37,538
Cashand cash equivalents
57,041 57,304 93,256
Investment securities available for sale
205,966 229,321 235,736
Otherinvestments
4,394 1,830 2,680
Totalsecurities
210,360 231,151 238,416
Mortgage loans held for sale
1,740 857 2,623
Loans
786,724 759,764 747,437
Less:Allowance for loan losses
(6,295 ) (6,366 ) (6,844)

Netloans
780,429 753,398 740,593
Premises and equipment, net
19,453 19,911 19,697
Cashsurrender value of life insurance
15,839 15,552 15,452
Accrued interest receivable and other assets
15,430 13,993 11,516
Totalassets
$ 1,100,292 $ 1,092,166 $ 1,121,553
LIABILITIES AND SHAREHOLDERS' EQUITY:
Deposits:
Noninterest-bearing demand
$ 306,834 $ 285,406 $ 287,794
NOW,MMDA & savings
478,898 498,445 486,051
Time,$250,000 or more
17,018 18,756 21,318
Othertime
90,709 104,345 106,476
Totaldeposits
893,459 906,952 901,639
Securities sold under agreements to repurchase
55,766 37,757 53,307
FHLBborrowings
- - 20,000
Junior subordinated debentures
20,619 20,619 20,619
Accrued interest payable and other liabilities
10,729 10,863 9,835
Totalliabilities
980,573 976,191 1,005,400
Shareholders' equity:
5,000,000 shares; no shares issued and outstanding
- - -
Common stock, no par value; authorized
20,000,000 shares; issued and outstanding
5,995,256 shares at 9/30/18 and 12/31/17,
5,450,412 shares at 9/30/17
62,096 62,096 45,102
Retained earnings
57,882 50,286 66,539
Accumulated other comprehensive income
(259 ) 3,593 4,512
Totalshareholders' equity
119,719 115,975 116,153
Totalliabilities and shareholders' equity
$ 1,100,292 $ 1,092,166 $ 1,121,553


CONSOLIDATED STATEMENTS OF INCOME
For the three and nine months ended September 30, 2018 and 2017
(Dollars in thousands, except per share amounts)


Three months ended Nine months ended
September 30, September 30,
2018 2017 2018 2017
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
INTEREST INCOME:
Interest and fees on loans
$ 9,907 $ 8,966 $ 28,362 $ 25,935
Interest on due from banks
86 60 255 138
Interest on investment securities:
U.S. Government sponsored enterprises
591 578 1,721 1,795
State and political subdivisions
974 1,047 2,950 3,198
Other
50 47 138 157
Total interest income
11,608 10,698 33,426 31,223
INTEREST EXPENSE:
NOW, MMDA & savings deposits
189 156 551 431
Time deposits
127 112 342 360
FHLB borrowings
- 211 - 604
Junior subordinated debentures
209 152 578 432
Other
32 19 66 43
Total interest expense
557 650 1,537 1,870
NET INTEREST INCOME
11,051 10,048 31,889 29,353
PROVISION FOR (REDUCTION OF PROVISION
FOR) LOAN LOSSES
110 (218 ) 372 (405 )
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES
10,941 10,266 31,517 29,758
NON-INTEREST INCOME:
Service charges
1,083 1,140 3,163 3,340
Other service charges and fees
173 145 528 447
Gain on sale of securities
- - 50 -
Mortgage banking income
216 280 672 945
Insurance and brokerage commissions
206 221 591 568
Appraisal management fee income
799 855 2,442 2,447
Miscellaneous
1,438 1,518 4,221 3,783
Total non-interest income
3,915 4,159 11,667 11,530
NON-INTEREST EXPENSES:
Salaries and employee benefits
5,519 4,933 15,866 15,038
Occupancy
1,761 1,669 5,367 4,981
Appraisal management fee expense
627 655 1,873 1,869
Other
2,795 2,749 8,198 8,462
Total non-interest expense
10,702 10,006 31,304 30,350
EARNINGS BEFORE INCOME TAXES
4,154 4,419 11,880 10,938
INCOME TAXES
687 1,177 1,934 2,680
NET EARNINGS
$ 3,467 $ 3,242 $ 9,946 $ 8,258
PER SHARE AMOUNTS*
Basic net earnings
$ 0.58 $ 0.54 $ 1.66 $ 1.38
Diluted net earnings
$ 0.57 $ 0.52 $ 1.65 $ 1.35
Cash dividends
$ 0.13 $ 0.11 $ 0.39 $ 0.33
Book value
$ 19.97 $ 19.37 $ 19.97 $ 19.37

*Per share computations have been restated to reflect a 10% stock dividend during the fourth quarter of 2017.


FINANCIAL HIGHLIGHTS
For the three and nine months ended September 30, 2018 and 2017
(Dollars in thousands)


Three months ended Nine months ended
September 30, September 30,
2018 2017 2018 2017
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
SELECTED AVERAGE BALANCES:
Available for sale securities
$ 209,221 $ 231,135 $ 212,221 $ 235,947
Loans
781,596 746,633 771,951 739,857
Earning assets
1,012,946 1,000,792 1,007,183 997,139
Assets
1,104,041 1,101,586 1,095,255 1,096,502
Deposits
907,536 888,746 907,975 892,057
Shareholders' equity
119,710 115,512 121,237 115,161
SELECTED KEY DATA:
Net interest margin (tax equivalent)
4.43 % 4.20 % 4.34 % 4.15 %
Return on average assets
1.25 % 1.17 % 1.21 % 1.01 %
Return on average shareholders' equity
11.49 % 11.14 % 10.97 % 9.59 %
Shareholders' equity to total assets (period end)
10.88 % 10.36 % 10.88 % 10.36 %
ALLOWANCE FOR LOAN LOSSES:
Balance, beginning of period
$ 6,277 $ 7,167 $ 6,366 $ 7,550
Provision for loan losses
110 (218 ) 372 (405 )
Charge-offs
(259 ) (152 ) (766 ) (481 )
Recoveries
167 47 323 180
Balance, end of period
$ 6,295 $ 6,844 $ 6,295 $ 6,844
ASSET QUALITY:
Non-accrual loans
$ 3,920 $ 4,931
90 days past due and still accruing
- -
Other real estate owned
- -
Total non-performing assets
$ 3,920 $ 4,931
Non-performing assets to total assets
0.36 % 0.44 %
Allowance for loan losses to non-performing assets
160.59 % 138.80 %
Allowance for loan losses to total loans
0.80 % 0.92 %
LOAN RISK GRADE ANALYSIS:
Percentage of Loans
By Risk Grade
9/30/2018 9/30/2017
Risk Grade 1 (excellent quality)
0.82 % 1.16 %
Risk Grade 2 (high quality)
26.30 % 25.61 %
Risk Grade 3 (good quality)
60.82 % 60.40 %
Risk Grade 4 (management attention)
9.02 % 8.61 %
Risk Grade 5 (watch)
1.81 % 2.67 %
Risk Grade 6 (substandard)
0.90 % 1.23 %
Risk Grade 7 (doubtful)
0.00 % 0.00 %
Risk Grade 8 (loss)
0.00 % 0.00 %



At September 30, 2018, including non-accrual loans, there were two relationships exceeding $1.0 million in the Watch risk grade (which totaled $3.2 million). There were no relationships exceeding $1.0 million in the Substandard risk grade.

SOURCE: Peoples Bancorp of North Carolina, Inc.