Peoples Bancorp Announces Fourth Quarter and Annual Earnings Results


NEWTON, N.C., Jan. 27, 2014 (GLOBE NEWSWIRE) -- Peoples Bancorp of North Carolina, Inc. (Nasdaq:PEBK), the parent company of Peoples Bank, reported fourth quarter and annual earnings results with highlights as follows:

Highlights:

  • Net earnings were $1.4 million or $0.25 basic and diluted net earnings per share for the three months ended December 31, 2013, before adjustment for preferred stock dividends and accretion, as compared to $1.2 million or $0.22 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 $1.2 million or $0.21 basic and diluted net earnings per common share for the three months ended December 31, 2013, as compared to $1.1 million or $0.19 basic and diluted net earnings per common share, for the same period one year ago.
  • Earnings before securities gains and income taxes were $8.0 million for the year ended December 31, 2013, compared to $6.2 million for the year ended December 31, 2012.
  • Core deposits were $683.9 million, or 85.6% of total deposits at December 31, 2013, compared to $646.4 million, or 82.7% of total deposits at December 31, 2012.
  • Non-performing assets declined to $16.4 million or 1.6% of total assets at December 31, 2013, compared to $26.3 million or 2.6% of total assets at December 31, 2012.
  • The Company received regulatory approval in December 2013 to repurchase and redeem the remaining 12,524 outstanding shares of its Series A preferred stock. The repurchase and redemption, which was completed January 17, 2014, is reflected on the Company's Consolidated Balance Sheets as of December 31, 2013. "Accrued interest payable and other liabilities" at December 31, 2013 includes a $12.6 million payable for the preferred stock principal and accrued dividends paid to preferred shareholders on January 17, 2014.

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

Net interest income was $8.3 million for the three months ended December 31, 2013, compared to $7.7 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 and a reduction in interest bearing liabilities combined with an increase in interest income due to an increase in the average outstanding balance of investment securities. Net interest income after the provision for loan losses increased to $7.8 million during the fourth quarter of 2013, compared to $7.2 million for the same period one year ago. The provision for loan losses for the three months ended December 31, 2013 was $419,000, as compared to $511,000 for the same period one year ago. The decrease in the provision for loan losses is primarily attributable to a $3.8 million reduction in non-accrual loans from December 31, 2012 to December 31, 2013 and a reduction in net charge-offs of $1.9 million during the three months ended December 31, 2013, as compared to the same period one year ago.

Non-interest income was $2.8 million for the three months ended December 31, 2013, compared to $2.7 million for the same period one year ago. This increase is primarily attributable to a $128,000 reduction in losses and write-downs on other real estate owned properties for the three months ended December 31, 2013, as compared to the same period one year ago.

Non-interest expense was $9.2 million for the three months ended December 31, 2013, as compared to $8.5 million for the same period one year ago. This increase is primarily attributable to a $746,000 increase in non-interest expenses other than salary, employee benefits and occupancy expenses, which was primarily due to a $530,000 prepayment penalty on a $5 million FHLB borrowing that was repaid in the fourth quarter of 2013.

Year-to-date net earnings as of December 31, 2013 were $6.7 million, or $1.19 basic and diluted net earnings per share, before adjustment for preferred stock dividends and accretion, as compared to $5.8 million, or $1.04 basic and diluted net earnings per share, before adjustment for preferred stock dividends and accretion, for the year ended December 31, 2012. After adjusting for dividends and accretion on preferred stock, net earnings available to common shareholders for the year ended December 31, 2013 were $6.0 million, or $1.08 basic net earnings per common share and $1.07 diluted net earnings per common share, as compared to $4.8 million, or $0.86 basic and diluted net earnings per common share, for the year ended December 31, 2012. The increase in year-to-date earnings is primarily attributable to a decrease in the provision for loan losses and an increase in non-interest income, which were partially offset by a decrease in net interest income and an increase in non-interest expense, as discussed below. 

Year-to-date net interest income as of December 31, 2013 was $31.3 million, compared to $31.5 million for the year ended December 31, 2012.   This decrease is primarily attributable to a decrease in interest income resulting from decreases in the year-to-date average balances outstanding on loans and a decrease in the yield on earning assets, which were partially offset by a decrease in interest expense due to a reduction in the cost of funds and a reduction in interest bearing liabilities. Net interest income after the provision for loan losses increased 8.0% to $28.8 million for the year ended December 31, 2013, compared to $26.6 million for the year ended December 31, 2012. The provision for loan losses for the year ended December 31, 2013 was $2.6 million, as compared to $4.9 million for the year ended December 31, 2012. The decrease in the provision for loan losses is primarily attributable to a $3.6 million decrease in net charge-offs during the year ended December 31, 2013, compared to the year ended December 31, 2012 and a $3.8 million reduction in non-accrual loans from December 31, 2012 to December 31, 2013.

Non-interest income was $12.7 million for the year ended December 31, 2013, compared to $12.5 million for the year ended December 31, 2012. This increase is primarily attributable to a $554,000 reduction in losses and write-downs on other real estate owned properties and a $144,000 increase in income from the Bank's subsidiary, Peoples Investment Services, Inc., and was partially offset by a $604,000 decrease in the gain on sale of securities for the year ended December 31, 2013, as compared to the year ended December 31, 2012.

Non-interest expense was $32.8 million for the year ended December 31, 2013, as compared to $31.8 million for the year ended December 31, 2012. This increase is primarily due to the $530,000 FHLB prepayment penalty paid during the fourth quarter of 2013 and a $425,000 increase in salaries and employee benefits expense, which was primarily due to salary increases, an increase in the number of full-time equivalent employees and an increase in sales incentive expense during the year ended December 31, 2013, as compared to the year ended December 31, 2012.

Total assets amounted to $1.0 billion as of December 31, 2013 and 2012. Available for sale securities amounted to $297.9 million as of December 31, 2013, compared to $297.8 million as of December 31, 2012. Total loans amounted to $621.0 million as of December 31, 2013, compared to $620.0 million as of December 31, 2012.

Non-performing assets declined to $16.4 million or 1.6% of total assets at December 31, 2013, compared to $26.3 million or 2.6% of total assets at December 31, 2012, primarily due to a $3.8 million decrease in non-accrual loans and a $4.6 million decrease in other real estate owned. Non-performing loans include $6.5 million in acquisition, development and construction ("AD&C") loans, $7.9 million in commercial and residential mortgage loans and $277,000 in other loans at December 31, 2013, as compared to $9.2 million in AD&C loans, $10.4 million in commercial and residential mortgage loans and $415,000 in other loans at December 31, 2012. The allowance for loan losses at December 31, 2013 was $13.5 million or 2.2% of total loans, compared to $14.4 million or 2.3% of total loans at December 31, 2012. 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 $799.4 million as of December 31, 2013, compared to $781.5 million at December 31, 2012. 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 $37.5 million to $683.9 million at December 31, 2013, as compared to $646.4 million at December 31, 2012. Certificates of deposit in amounts of $100,000 or more totaled $115.3 million at December 31, 2013, as compared to $134.7 million at December 31, 2012. 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 $45.4 million at December 31, 2013, as compared to $34.6 million at December 31, 2012. 

Shareholders' equity was $83.7 million, or 8.1% of total assets, as of December 31, 2013, compared to $97.7 million, or 9.6% of total assets, as of December 31, 2012. 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. Management expects the repurchase of the Company's preferred stock, which has a liquidation preference of $12,524,000, to be approximately $0.18 accretive to the Company's diluted earnings per common share in 2014 based on current interest rates.

Peoples Bank operates 22 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, 2012.

CONSOLIDATED BALANCE SHEETS    
December 31, 2013 and December 31, 2012     
(Dollars in thousands)    
     
   December 31, 2013  December 31, 2012
   (Unaudited)   (Audited) 
ASSETS:    
Cash and due from banks  $ 49,833  $ 32,617
Interest bearing deposits  26,940  16,226
Cash and cash equivalents  76,773  48,843
     
Investment securities available for sale  297,890  297,823
Other investments  4,990  5,599
Total securities  302,880  303,422
     
Mortgage loans held for sale  497  6,922
     
Loans  620,960  619,974
Less: Allowance for loan losses  (13,501)  (14,423)
Net loans  607,459  605,551
     
Premises and equipment, net  16,358  15,874
Cash surrender value of life insurance  13,706  13,273
Accrued interest receivable and other assets  17,011  19,631
Total assets  $ 1,034,684  $ 1,013,516
     
     
LIABILITIES AND SHAREHOLDERS' EQUITY:    
Deposits:    
Non-interest bearing demand  $ 195,265  $ 161,582
NOW, MMDA & savings  386,893  371,719
Time, $100,000 or more  115,268  134,733
Other time   101,935  113,491
Total deposits  799,361  781,525
     
Securities sold under agreements to repurchase  45,396  34,578
FHLB borrowings  65,000  70,000
Junior subordinated debentures  20,619  20,619
Accrued interest payable and other liabilities  20,589  9,047
Total liabilities  950,965  915,769
     
Shareholders' equity:    
Series A preferred stock, $1,000 stated value; authorized 5,000,000 shares; issued and outstanding 12,524 shares at 12/31/12  --   12,524
Common stock, no par value; authorized 20,000,000 shares; issued and outstanding 5,613,495 shares at 12/31/13 and 12/31/12  48,133  48,133
Retained earnings  36,758  31,478
Accumulated other comprehensive (loss) income  (1,172)  5,612
Total shareholders' equity  83,719  97,747
     
Total liabilities and shareholders' equity  $ 1,034,684  $ 1,013,516
         
CONSOLIDATED STATEMENTS OF INCOME         
For the three months and years ended December 31, 2013 and 2012      
(Dollars in thousands, except per share amounts)        
         
   Three months ended
December 31, 
 Years ended 
December 31, 
   2013   2012   2013   2012 
   (Unaudited)   (Unaudited)   (Unaudited)   (Audited) 
INTEREST INCOME:        
Interest and fees on loans  $ 7,523  $ 7,936  $ 30,194  $ 32,758
Interest on due from banks  23  16  85  51
Interest on investment securities:        
U.S. Government sponsored enterprises  669  419  1,639  2,746
State and political subdivisions  1,194  940  4,427  3,403
Other  86  81  351  287
Total interest income  9,495  9,392  36,696  39,245
         
INTEREST EXPENSE:        
NOW, MMDA & savings deposits  154  267  732  1,180
Time deposits  365  572  1,650  3,205
FHLB borrowings  604  680  2,518  2,744
Junior subordinated debentures  99  105  398  438
Other  12  25  55  129
Total interest expense  1,234  1,649  5,353  7,696
         
NET INTEREST INCOME  8,261  7,743  31,343  31,549
PROVISION FOR LOAN LOSSES  419  511  2,584  4,924
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES  7,842  7,232  28,759  26,625
         
NON-INTEREST INCOME:        
Service charges  1,233  1,162  4,566  4,764
Other service charges and fees  272  268  1,172  1,096
Gain on sale of securities  --   15  614  1,218
Mortgage banking income  228  436  1,228  1,229
Insurance and brokerage commissions  183  114  661  517
Miscellaneous   888  684  4,411  3,713
Total non-interest income  2,804  2,679  12,652  12,537
         
NON-INTEREST EXPENSES:        
Salaries and employee benefits  4,237  4,466  16,851  16,426
Occupancy  1,551  1,345  5,539  5,236
Other  3,446  2,700  10,451  10,120
Total non-interest expense  9,234  8,511  32,841  31,782
         
EARNINGS BEFORE INCOME TAXES  1,412  1,400  8,570  7,380
INCOME TAXES  31  187  1,879  1,587
         
NET EARNINGS  1,381  1,213  6,691  5,793
         
Dividends and accretion on preferred stock  186  157  656  1,010
         
NET EARNINGS AVAILABLE TO COMMON SHAREHOLDERS  $ 1,195  $ 1,056  $ 6,035  $ 4,783
         
PER COMMON SHARE AMOUNTS        
Basic net earnings  $ 0.21  $ 0.19  $ 1.08  $ 0.86
Diluted net earnings  $ 0.21  $ 0.19  $ 1.07  $ 0.86
Cash dividends  $ 0.03  $ 0.07  $ 0.12  $ 0.18
Book value  $ 14.91  $ 15.18  $ 14.91  $ 15.18
         
FINANCIAL HIGHLIGHTS        
For the three months and years ended December 31, 2013 and 2012      
(Dollars in thousands)        
       
   Three months ended
December 31, 
 Years ended
December 31, 
   2013   2012   2013   2012 
   (Unaudited)   (Unaudited)   (Unaudited)   (Audited) 
SELECTED AVERAGE BALANCES:        
Available for sale securities  $ 300,433  $ 279,800  $ 293,770  $ 289,010
Loans  616,920  629,368  614,532  648,595
Earning assets  960,687  942,051  950,451  965,994
Assets  1,040,563  1,008,543  1,023,609  1,029,612
Deposits  800,212  773,015  787,640  786,976
Shareholders' equity  97,271  98,552  100,275  103,805
         
         
SELECTED KEY DATA:        
Net interest margin (tax equivalent) 3.66% 3.46% 3.53% 3.44%
Return on average assets 0.53% 0.48% 0.65% 0.56%
Return on average shareholders' equity 5.63% 4.90% 6.67% 5.58%
Shareholders' equity to total assets (period end) 8.09% 9.64% 8.09% 9.64%
         
         
ALLOWANCE FOR LOAN LOSSES:        
Balance, beginning of period  $ 13,854  $ 16,551  $ 14,423  $ 16,604
Provision for loan losses  419  511  2,584  4,924
Charge-offs  (888)  (2,688)  (4,372)  (8,331)
Recoveries  116  49  866  1,226
Balance, end of period  $ 13,501  $ 14,423  $ 13,501  $ 14,423
         
         
ASSET QUALITY:        
Non-accrual loans      $ 13,836  $ 17,630
90 days past due and still accruing      882  2,403
Other real estate owned      1,679  6,256
Repossessed assets      --   10
Total non-performing assets      $ 16,397  $ 26,299
Non-performing assets to total assets     1.58% 2.60%
Allowance for loan losses to non-performing assets      82.34% 54.84%
Allowance for loan losses to total loans     2.17% 2.33%
         
         
LOAN RISK GRADE ANALYSIS:     Percentage of Loans
      By Risk Grade
      12/31/2013 12/31/2012
Risk Grade 1 (excellent quality)     2.40% 2.93%
Risk Grade 2 (high quality)     18.82% 16.94%
Risk Grade 3 (good quality)     49.49% 47.74%
Risk Grade 4 (management attention)     18.69% 20.70%
Risk Grade 5 (watch)     5.05% 5.07%
Risk Grade 6 (substandard)     5.25% 6.26%
Risk Grade 7 (doubtful)     0.00% 0.00%
Risk Grade 8 (loss)     0.00% 0.00%
         
At December 31, 2013, including non-accrual loans, there were five relationships exceeding $1.0 million in the Watch risk grade (which totaled $10.6 million) and four relationships exceeding $1.0 million in the Substandard risk grade (which totaled $10.4 million). There was one relationship with loans in both the Watch and Substandard risk grades, which totaled $1.2 million for loans in both risk grades combined. 


            

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