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Peoples Bancorp Announces Second Quarter Earnings Results

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

Second quarter highlights:

  • Net earnings were $2.6 million or $0.45 basic and diluted net earnings per share for the three months ended June 30, 2014, as compared to $1.6 million or $0.29 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 $0.45 basic and diluted net earnings per common share for the three months ended June 30, 2014, as compared to $1.5 million or $0.26 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 June 30, 2014, compared to $1.7 million for the same period one year ago.
  • Total loans increased $15.3 million during the three months ended June 30, 2014, as compared to a $1.9 million decrease during the same period one year ago.

Year to date highlights:

  • Net earnings were $5.1 million or $0.91 basic and diluted net earnings per share for the six months ended June 30, 2014, as compared to $3.4 million or $0.60 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 $5.1 million or $0.91 basic and diluted net earnings per common share for the six months ended June 30, 2014, as compared to $3.1 million or $0.55 basic and diluted net earnings per common share, for the same period one year ago.
  • Earnings before securities gains and income taxes were $6.9 million for the six months ended June 30, 2014, compared to $3.8 million for the same period one year ago.
  • Non-performing assets declined to $14.8 million or 1.4% of total assets at June 30, 2014, compared to $23.4 million or 2.3% of total assets at June 30, 2013.
  • Total loans increased $25.3 million to $633.3 million at June 30, 2014, compared to $608.1 million at June 30, 2013.
  • Core deposits were $699.1 million, or 86.2% of total deposits at June 30, 2014, compared to $665.4 million, or 84.4% of total deposits at June 30, 2013.

Lance A. Sellers, President and Chief Executive Officer, attributed the increase in second 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.

Net interest income was $8.5 million for the three months ended June 30, 2014, compared to $7.5 million for the same period one year ago. This increase was primarily due to 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 combined with a decrease in interest expense due to a reduction in the cost of funds. Net interest income after the provision for loan losses increased to $8.4 million during the second quarter of 2014, compared to $6.8 million for the same period one year ago. The provision for loan losses for the three months ended June 30, 2014 was $67,000, as compared to $773,000 for the same period one year ago. The decrease in the provision for loan losses is primarily attributable to a $5.2 million reduction in non-accrual loans from June 30, 2013 to June 30, 2014 and a reduction in net charge-offs of $786,000 during the three months ended June 30, 2014, as compared to the same period one year ago.

Non-interest income was $3.1 million for the three months ended June 30, 2014, compared to $3.3 million for the same period one year ago. This decrease is primarily attributable to a $352,000 decrease in gains on sale of securities and a $127,000 decrease in mortgage banking income, which were partially offset by a $111,000 increase in service charges and fees and a $185,000 increase in miscellaneous non-interest income for the three months ended June 30, 2014, as compared to the same period one year ago.

Non-interest expense was $8.1 million for the three months ended June 30, 2014 and 2013. An increase in occupancy expense was partially offset by decreases in salaries and employee benefits expense and non-interest expenses other than salary, employee benefits and occupancy expenses for the three months ended June 30, 2014, as compared to the same period one year ago.

Year-to-date net earnings as of June 30, 2014 were $5.1 million, or $0.91 basic and diluted net earnings per share, before adjustment for preferred stock dividends and accretion, as compared to $3.4 million, or $0.60 basic and diluted net earnings per share, before adjustment for preferred stock dividends and accretion, for the same period one year ago. After adjusting for dividends and accretion on preferred stock, net earnings available to common shareholders for the six months ended June 30, 2014 were $5.1 million, or $0.91 basic and diluted net earnings per common share, as compared to $3.1 million, or $0.55 basic and diluted net earnings per common share, for the same period one year ago. The increase in year-to-date earnings is primarily attributable 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, as discussed below.

Year-to-date net interest income as of June 30, 2014 increased 11.5% to $16.9 million compared to $15.2 million for the same period one year ago. This increase was primarily due to 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 combined with a decrease in interest expense due to a reduction in the cost of funds. Net interest income after the provision for loan losses increased 28.9% to $17.2 million for the six months ended June 30, 2014, compared to $13.4 million for the same period one year ago. The provision for loan losses for the six months ended June 30, 2014 was a credit of $282,000, as compared to an expense of $1.8 million for the same period one year ago. The decrease in the provision for loan losses is primarily attributable to a $1.7 million decrease in net charge-offs during the six months ended June 30, 2014 compared to the same period one year ago and a $5.2 million reduction in non-accrual loans from June 30, 2013 to June 30, 2014.

Non-interest income was $6.0 million for the six months ended June 30, 2014, compared to $6.7 million for the same period one year ago. This decrease is primarily attributable to a $588,000 decrease in gains on sale of securities and a $407,000 decrease in mortgage banking income, which were partially offset by a $246,000 increase in service charges and fees for the six months ended June 30, 2014, as compared to the same period one year ago.

Non-interest expense was $16.2 million for the six months ended June 30, 2014, as compared to $15.7 million for the same period one year ago. This increase is primarily due to a $356,000 increase in occupancy expense, which was primarily due to a $257,000 increase in furniture and equipment depreciation expense during the six months ended June 30, 2014, as compared to the same period one year ago.

Total assets amounted to $1.0 billion as of June 30, 2014 and 2013. Available for sale securities amounted to $297.2 million as of June 30, 2014, compared to $293.2 million as of June 30, 2013. Total loans amounted to $633.3 million as of June 30, 2014, compared to $608.1 million as of June 30, 2013.

Non-performing assets declined to $14.8 million or 1.4% of total assets at June 30, 2014, compared to $23.4 million or 2.3% of total assets at June 30, 2013. The decline in non-performing assets is primarily due to a $5.2 million decrease in non-accrual loans, a $2.5 million decrease in loans 90 days past due and still accruing and a $869,000 decrease in other real estate owned. Non-performing loans include $5.2 million in acquisition, development and construction ("AD&C") loans, $5.5 million in commercial and residential mortgage loans and $558,000 in other loans at June 30, 2014, as compared to $7.7 million in AD&C loans, $10.7 million in commercial and residential mortgage loans and $591,000 in other loans at June 30, 2013. The allowance for loan losses at June 30, 2014 was $12.7 million or 2.0% of total loans, compared to $14.0 million or 2.3% of total loans at June 30, 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 $811.5 million as of June 30, 2014, compared to $788.4 million at June 30, 2013. Core deposits, which include noninterest-bearing demand deposits, NOW, MMDA, savings and non-brokered certificates of deposit of denominations less than $100,000, increased $33.7 million to $699.1 million at June 30, 2014, as compared to $665.4 million at June 30, 2013. Certificates of deposit in amounts of $100,000 or more totaled $112.2 million at June 30, 2014, as compared to $123.6 million at June 30, 2013. This decrease is attributable to a $6.6 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 $46.8 million at June 30, 2014, as compared to $46.0 million at June 30, 2013.

Shareholders' equity was $93.0 million, or 8.9% of total assets, as of June 30, 2014, compared to $95.4 million, or 9.3% of total assets, as of June 30, 2013. This decrease reflects the Company's repurchase and redemption of its Series A preferred stock, which was partially offset by an increase in retained earnings and an increase in accumulated other comprehensive income resulting from an increase in the unrealized gain on investment securities.

Peoples Bank operates 21 banking offices entirely in North Carolina, with offices in Catawba, Alexander, Lincoln, Mecklenburg, Union, Iredell and Wake Counties. The Bank also operates loan production offices in Lincoln 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
June 30, 2014, December 31, 2013 and June 30, 2013
(Dollars in thousands)
June 30, 2014 December 31, 2013 June 30, 2013
(Unaudited) (Audited) (Unaudited)
ASSETS:
Cash and due from banks $ 54,522 $ 49,902 $ 28,082
Interest-bearing deposits 20,546 26,871 52,634
Cash and cash equivalents 75,068 76,773 80,716
Investment securities available for sale 297,165 297,890 293,151
Other investments 4,706 4,990 5,215
Total securities 301,871 302,880 298,366
Mortgage loans held for sale 2,048 497 6,002
Loans 633,336 620,960 608,072
Less: Allowance for loan losses (12,675) (13,501) (14,029)
Net loans 620,661 607,459 594,043
Premises and equipment, net 16,762 16,358 16,635
Cash surrender value of life insurance 13,914 13,706 13,487
Accrued interest receivable and other assets 17,528 17,011 18,791
Total assets $ 1,047,852 $ 1,034,684 $ 1,028,040
LIABILITIES AND SHAREHOLDERS' EQUITY:
Deposits:
Noninterest-bearing demand $ 206,655 $ 195,265 $ 172,055
NOW, MMDA & savings 397,305 386,893 385,014
Time, $100,000 or more 112,201 115,268 123,612
Other time 95,318 101,935 107,752
Total deposits 811,479 799,361 788,433
Securities sold under agreements to repurchase 46,764 45,396 45,971
FHLB borrowings 65,000 65,000 70,000
Junior subordinated debentures 20,619 20,619 20,619
Accrued interest payable and other liabilities 10,943 20,589 7,665
Total liabilities 954,805 950,965 932,688
Shareholders' equity:
Series A preferred stock, $1,000 stated value; authorized
5,000,000 shares; issued and outstanding
12,524 shares at 6/30/13 -- -- 12,524
Common stock, no par value; authorized
20,000,000 shares; issued and outstanding
5,617,125 shares at 6/30/14 and
5,613,495 shares at 12/31/13 48,170 48,133 48,133
Retained earnings 41,433 36,758 34,218
Accumulated other comprehensive income (loss) 3,444 (1,172) 477
Total shareholders' equity 93,047 83,719 95,352
Total liabilities and shareholders' equity $ 1,047,852 $ 1,034,684 $ 1,028,040
CONSOLIDATED STATEMENTS OF INCOME
For the three and six months ended June 30, 2014 and 2013
(Dollars in thousands, except per share amounts)
Three months ended June 30, Six months ended June 30,
2014 2013 2014 2013
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
INTEREST INCOME:
Interest and fees on loans $ 7,491 $ 7,439 $ 14,893 $ 15,079
Interest on due from banks 12 28 24 40
Interest on investment securities:
U.S. Government sponsored enterprises 804 286 1,651 664
State and political subdivisions 1,169 1,069 2,346 2,053
Other 100 87 207 176
Total interest income 9,576 8,909 19,121 18,012
INTEREST EXPENSE:
NOW, MMDA & savings deposits 125 200 251 418
Time deposits 303 422 637 889
FHLB borrowings 549 635 1,094 1,296
Junior subordinated debentures 97 100 193 199
Other 11 15 21 32
Total interest expense 1,085 1,372 2,196 2,834
NET INTEREST INCOME 8,491 7,537 16,925 15,178
PROVISION FOR LOAN LOSSES 67 773 (282) 1,827
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 8,424 6,764 17,207 13,351
NON-INTEREST INCOME:
Service charges 1,223 1,104 2,352 2,143
Other service charges and fees 260 268 679 642
Gain on sale of securities -- 352 26 614
Mortgage banking income 188 315 292 699
Insurance and brokerage commissions 162 178 361 317
Miscellaneous 1,277 1,092 2,242 2,321
Total non-interest income 3,110 3,309 5,952 6,736
NON-INTEREST EXPENSES:
Salaries and employee benefits 4,207 4,240 8,483 8,430
Occupancy 1,466 1,320 2,988 2,632
Other 2,394 2,419 4,720 4,655
Total non-interest expense 8,067 7,979 16,191 15,717
EARNINGS BEFORE INCOME TAXES 3,467 2,094 6,968 4,370
INCOME TAXES 916 461 1,838 979
NET EARNINGS 2,551 1,633 5,130 3,391
Dividends and accretion on preferred stock -- 156 -- 313
NET EARNINGS AVAILABLE TO COMMON SHAREHOLDERS $ 2,551 $ 1,477 $ 5,130 $ 3,078
PER COMMON SHARE AMOUNTS
Basic net earnings $ 0.45 $ 0.26 $ 0.91 $ 0.55
Diluted net earnings $ 0.45 $ 0.26 $ 0.91 $ 0.55
Cash dividends $ 0.04 $ 0.03 $ 0.08 $ 0.06
Book value $ 16.56 $ 14.76 $ 16.56 $ 14.76
FINANCIAL HIGHLIGHTS
For the three and six months ended June 30, 2014 and 2013
(Dollars in thousands)
Three months ended
June 30,
Six months ended
June 30,
2014 2013 2014 2013
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
SELECTED AVERAGE BALANCES:
Available for sale securities $ 295,185 $ 290,995 $ 297,090 $ 288,773
Loans 619,675 607,481 618,574 614,241
Earning assets 938,245 952,898 940,472 944,903
Assets 1,024,988 1,021,044 1,022,147 1,012,697
Deposits 797,820 784,372 798,058 779,038
Shareholders' equity 92,388 100,054 91,331 100,532
SELECTED KEY DATA:
Net interest margin (tax equivalent) 3.88% 3.40% 3.88% 3.46%
Return on average assets 1.00% 0.64% 1.01% 0.68%
Return on average shareholders' equity 11.08% 6.55% 11.33% 6.80%
Shareholders' equity to total assets (period end) 8.88% 9.28% 8.88% 9.28%
ALLOWANCE FOR LOAN LOSSES:
Balance, beginning of period $ 12,978 $ 14,412 $ 13,501 $ 14,423
Provision for loan losses 67 773 (282) 1,827
Charge-offs (597) (1,334) (1,172) (2,513)
Recoveries 227 178 628 292
Balance, end of period $ 12,675 $ 14,029 $ 12,675 $ 14,029
ASSET QUALITY:
Non-accrual loans $ 10,921 $ 16,107
90 days past due and still accruing 392 2,861
Other real estate owned 3,532 4,401
Total non-performing assets $ 14,845 $ 23,369
Non-performing assets to total assets 1.42% 2.27%
Allowance for loan losses to non-performing assets 85.38% 60.03%
Allowance for loan losses to total loans 2.00% 2.31%
LOAN RISK GRADE ANALYSIS: Percentage of Loans
By Risk Grade
6/30/2014 6/30/2013
Risk Grade 1 (excellent quality) 2.17% 2.77%
Risk Grade 2 (high quality) 20.56% 17.03%
Risk Grade 3 (good quality) 50.74% 49.95%
Risk Grade 4 (management attention) 16.75% 18.86%
Risk Grade 5 (watch) 4.84% 4.87%
Risk Grade 6 (substandard) 4.62% 6.17%
Risk Grade 7 (doubtful) 0.00% 0.00%
Risk Grade 8 (loss) 0.01% 0.02%
At June 30, 2014, including non-accrual loans, there were six relationships exceeding $1.0 million in the Watch risk grade (which totaled $12.4 million) and four relationships exceeding $1.0 million in the Substandard risk grade (which totaled $9.8 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.