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Peoples Bancorp Announces First Quarter Earnings Results

NEWTON, N.C., April 21, 2014 (GLOBE NEWSWIRE) -- Peoples Bancorp of North Carolina, Inc. (Nasdaq:PEBK), the parent company of Peoples Bank, reported first quarter earnings results with highlights as follows:

Highlights:

  • Net earnings were $2.6 million or $0.46 basic and diluted net earnings per share for the three months ended March 31, 2014, as compared to $1.8 million or $0.31 basic and diluted net earnings per share, before adjustment for preferred stock dividends and accretion, for the same period one year ago.
  • Net earnings available to common shareholders were $2.6 million or $0.46 basic and diluted net earnings per common share for the three months ended March 31, 2014, as compared to $1.6 million or $0.29 basic and diluted net earnings per common share, for the same period one year ago.
  • Earnings before securities gains and income taxes were $3.5 million for the three months ended March 31, 2014, compared to $2.0 million for the same period one year ago.
  • Non-performing assets declined to $14.9 million or 1.4% of total assets at March 31, 2014, compared to $24.3 million or 2.4% of total assets at March 31, 2013.
  • Core deposits were $694.2 million, or 85.6% of total deposits at March 31, 2014, compared to $656.0 million, or 83.7% of total deposits at March 31, 2013.

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

Net interest income was $8.4 million for the three months ended March 31, 2014, compared to $7.6 million for the same period one year ago. This increase was primarily due to a decrease in interest expense due to a reduction in the cost of funds combined with an increase in interest income due to an increase in the yield on investment securities and an increase in the average outstanding balance of investment securities. Net interest income after the provision for loan losses increased to $8.8 million during the first quarter of 2014, compared to $6.6 million for the same period one year ago. The provision for loan losses for the three months ended March 31, 2014 was a credit of $349,000, as compared to an expense of $1.1 million for the same period one year ago. The decrease in the provision for loan losses is primarily attributable to a $8.1 million reduction in non-accrual loans from March 31, 2013 to March 31, 2014 and a reduction in net charge-offs of $890,000 during the three months ended March 31, 2014, as compared to the same period one year ago.

Non-interest income was $2.8 million for the three months ended March 31, 2014, compared to $3.4 million for the same period one year ago. This decrease is primarily attributable to a $280,000 decrease in mortgage banking income and a $237,000 decrease in gains on sale of securities for the three months ended March 31, 2014, as compared to the same period one year ago.

Non-interest expense was $8.1 million for the three months ended March 31, 2014, as compared to $7.7 million for the same period one year ago. This increase is attributable to a $86,000 increase in salaries and employee benefits expense, a $209,000 increase in occupancy expense and a $90,000 increase in non-interest expenses other than salary, employee benefits and occupancy expenses for the three months ended March 31, 2014, as compared to the same period one year ago.

Total assets amounted to $1.0 billion as of March 31, 2014 and 2013. Available for sale securities amounted to $300.8 million as of March 31, 2014, compared to $293.9 million as of March 31, 2013. Total loans amounted to $618.0 million as of March 31, 2014, compared to $610.0 million as of March 31, 2013.

Non-performing assets declined to $14.9 million or 1.4% of total assets at March 31, 2014, compared to $24.3 million or 2.4% of total assets at March 31, 2013, primarily due to a $8.1 million decrease in non-accrual loans and a $1.3 million decrease in other real estate owned. Non-performing loans include $5.3 million in acquisition, development and construction ("AD&C") loans, $6.0 million in commercial and residential mortgage loans and $324,000 in other loans at March 31, 2014, as compared to $9.6 million in AD&C loans, $9.4 million in commercial and residential mortgage loans and $729,000 in other loans at March 31, 2013. The allowance for loan losses at March 31, 2014 was $13.0 million or 2.1% of total loans, compared to $14.4 million or 2.4% of total loans at March 31, 2013. According to Mr. Sellers, 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 amounted to $810.5 million as of March 31, 2014, compared to $783.8 million at March 31, 2013. Core deposits, which include non-interest bearing demand deposits, NOW, MMDA, savings and non-brokered certificates of deposit of denominations less than $100,000, increased $38.2 million to $694.2 million at March 31, 2014, as compared to $656.0 million at March 31, 2013. Certificates of deposit in amounts of $100,000 or more totaled $116.2 million at March 31, 2014, as compared to $127.8 million at March 31, 2013. This decrease is attributable to a $7.8 million decrease in wholesale certificates of deposit combined with a decrease in retail certificates of deposit as intended 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 $43.3 million at March 31, 2014, as compared to $37.4 million at March 31, 2013.

Shareholders' equity was $88.4 million, or 8.5% of total assets, as of March 31, 2014, compared to $98.3 million, or 9.7% of total assets, as of March 31, 2013. This decrease reflects the Company's repurchase and redemption of its Series A preferred stock combined with a reduction in accumulated other comprehensive income resulting from a decrease in the unrealized gain on investment securities.

Peoples Bank operates 21 offices entirely in North Carolina, with offices in Catawba, Alexander, Lincoln, Mecklenburg, Union, Iredell and Wake 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 materially 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, 2013.

CONSOLIDATED BALANCE SHEETS
March 31, 2014, December 31, 2013 and March 31, 2013
(Dollars in thousands)
March 31, 2014 December 31, 2013 March 31, 2013
(Unaudited) (Audited) (Unaudited)
ASSETS:
Cash and due from banks $ 50,906 $ 49,902 $ 19,754
Interest bearing deposits 28,006 26,871 52,624
Cash and cash equivalents 78,912 76,773 72,378
Investment securities available for sale 300,756 297,890 293,925
Other investments 4,706 4,990 5,215
Total securities 305,462 302,880 299,140
Mortgage loans held for sale 635 497 3,834
Loans 618,040 620,960 609,965
Less: Allowance for loan losses (12,978) (13,501) (14,412)
Net loans 605,062 607,459 595,553
Premises and equipment, net 16,419 16,358 16,616
Cash surrender value of life insurance 13,809 13,706 13,379
Accrued interest receivable and other assets 18,465 17,011 17,380
Total assets $ 1,038,764 $ 1,034,684 $ 1,018,280
LIABILITIES AND SHAREHOLDERS' EQUITY:
Deposits:
Non-interest bearing demand $ 195,465 $ 195,265 $ 168,156
NOW, MMDA & savings 399,847 386,893 378,755
Time, $100,000 or more 116,200 115,268 127,772
Other time 99,023 101,935 109,149
Total deposits 810,535 799,361 783,832
Securities sold under agreements to repurchase 43,319 45,396 37,388
FHLB borrowings 65,000 65,000 70,000
Junior subordinated debentures 20,619 20,619 20,619
Accrued interest payable and other liabilities 10,880 20,589 8,163
Total liabilities 950,353 950,965 920,002
Shareholders' equity:
Series A preferred stock, $1,000 stated value; authorized 5,000,000 shares; issued and outstanding 12,524 shares at 3/31/13 -- -- 12,524
Common stock, no par value; authorized 20,000,000 shares; issued and outstanding 5,613,495 shares at 3/31/14 and 12/31/13 48,133 48,133 48,133
Retained earnings 39,109 36,758 32,911
Accumulated other comprehensive income (loss) 1,169 (1,172) 4,710
Total shareholders' equity 88,411 83,719 98,278
Total liabilities and shareholders' equity $ 1,038,764 $ 1,034,684 $ 1,018,280
CONSOLIDATED STATEMENTS OF INCOME
For the three months ended March 31, 2014 and 2013
(Dollars in thousands, except per share amounts)
Three months ended
March 31,
2014 2013
(Unaudited) (Unaudited)
INTEREST INCOME:
Interest and fees on loans $ 7,401 $ 7,640
Interest on due from banks 12 12
Interest on investment securities:
U.S. Government sponsored enterprises 847 378
State and political subdivisions 1,177 984
Other 108 89
Total interest income 9,545 9,103
INTEREST EXPENSE:
NOW, MMDA & savings deposits 126 218
Time deposits 334 467
FHLB borrowings 545 661
Junior subordinated debentures 96 100
Other 10 17
Total interest expense 1,111 1,463
NET INTEREST INCOME 8,434 7,640
PROVISION FOR LOAN LOSSES (349) 1,053
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 8,783 6,587
NON-INTEREST INCOME:
Service charges 1,129 1,039
Other service charges and fees 419 373
Gain on sale of securities 26 263
Mortgage banking income 104 384
Insurance and brokerage commissions 198 139
Miscellaneous 965 1,229
Total non-interest income 2,841 3,427
NON-INTEREST EXPENSES:
Salaries and employee benefits 4,276 4,190
Occupancy 1,521 1,312
Other 2,326 2,236
Total non-interest expense 8,123 7,738
EARNINGS BEFORE INCOME TAXES 3,501 2,276
INCOME TAXES 923 518
NET EARNINGS 2,578 1,758
Dividends and accretion on preferred stock -- 157
NET EARNINGS AVAILABLE TO
COMMON SHAREHOLDERS $ 2,578 $ 1,601
PER COMMON SHARE AMOUNTS
Basic net earnings $ 0.46 $ 0.29
Diluted net earnings $ 0.46 $ 0.29
Cash dividends $ 0.04 $ 0.03
Book value $ 15.75 $ 15.28
FINANCIAL HIGHLIGHTS
For the three months ended March 31, 2014 and 2013
(Dollars in thousands)
Three months ended
March 31,
2014 2013
(Unaudited) (Unaudited)
SELECTED AVERAGE BALANCES:
Available for sale securities $ 299,017 $ 286,527
Loans 617,461 621,077
Earning assets 942,723 936,820
Assets 1,019,275 1,004,257
Deposits 798,297 738,222
Shareholders' equity 87,712 99,381
SELECTED KEY DATA:
Net interest margin (tax equivalent) 3.88% 3.52%
Return on average assets 1.03% 0.71%
Return on average shareholders' equity 11.92% 7.17%
Shareholders' equity to total assets (period end) 8.51% 9.65%
ALLOWANCE FOR LOAN LOSSES:
Balance, beginning of period $ 13,501 $ 14,423
Provision for loan losses (349) 1,057
Charge-offs (575) (1,181)
Recoveries 401 113
Balance, end of period $ 12,978 $ 14,412
ASSET QUALITY:
Non-accrual loans $ 11,568 $ 19,667
90 days past due and still accruing 60 50
Other real estate owned 3,282 4,588
Repossessed assets -- 12
Total non-performing assets $ 14,910 $ 24,317
Non-performing assets to total assets 1.44% 2.39%
Allowance for loan losses to non-performing assets 87.04% 59.27%
Allowance for loan losses to total loans 2.10% 2.36%
LOAN RISK GRADE ANALYSIS: Percentage of Loans
By Risk Grade
3/31/2014 3/31/2013
Risk Grade 1 (excellent quality) 2.32% 2.86%
Risk Grade 2 (high quality) 19.32% 17.32%
Risk Grade 3 (good quality) 48.80% 48.29%
Risk Grade 4 (management attention) 18.55% 19.00%
Risk Grade 5 (watch) 5.72% 5.41%
Risk Grade 6 (substandard) 5.00% 6.80%
Risk Grade 7 (doubtful) 0.00% 0.00%
Risk Grade 8 (loss) 0.00% 0.00%
At March 31, 2014, including non-accrual loans, there were six relationships exceeding $1.0 million in the Watch risk grade (which totaled $15.9 million) and four relationships exceeding $1.0 million in the Substandard risk grade (which totaled $10.2 million).

CONTACT: Lance A. Sellers President and Chief Executive Officer A. Joseph Lampron, Jr. Executive Vice President and Chief Financial Officer 828-464-5620, Fax 828-465-6780Source:Peoples Bancorp of North Carolina, Inc.