Peoples Bancorp Announces Second Quarter Earnings Results

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| Source: Peoples Bancorp of North Carolina, Inc.

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).
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