SOURCE: Peoples Bancorp of North Carolina, Inc.

Peoples Bancorp of North Carolina, Inc.

July 25, 2016 09:00 ET

Peoples Bancorp Announces Second Quarter Earnings Results and Stock Repurchase Plan

NEWTON, NC--(Marketwired - Jul 25, 2016) - 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 $3.0 million or $0.54 basic net earnings per share and $0.53 diluted net earnings per share for the three months ended June 30, 2016, as compared to $2.6 million or $0.47 basic and diluted net earnings per share for the same period one year ago.
  • On June 16, 2016, The North Carolina Business Court ended a lawsuit filed against Peoples Bank that began in 2013. The lawsuit, which alleged unfair overdraft practices, was dismissed by the Business Court on June 10, 2015. The Plaintiff appealed to the North Carolina Court of Appeals which, on May 3, 2016, in a unanimous opinion, affirmed the dismissal of the lawsuit by the Business Court. As a result of the dismissal of the lawsuit, the Company was able to recognize, during second quarter 2016, the reimbursement of $277,000 in legal fees from the Company's insurance carrier.

Year to date highlights:

  • Net earnings were $5.4 million or $0.98 basic net earnings per share and $0.97 diluted net earnings per share for the six months ended June 30, 2016, as compared to $5.0 million or $0.89 basic net earnings per share and $0.88 diluted net earnings per share for the same period one year ago.
  • Non-performing assets declined to $6.2 million or 0.6% of total assets at June 30, 2016, compared to $11.1 million or 1.1% of total assets at June 30, 2015.
  • Total loans increased $35.2 million to $702.0 million at June 30, 2016, compared to $666.8 million at June 30, 2015.
  • Core deposits were $810.5 million or 96.3% of total deposits at June 30, 2016, compared to $768.3 million or 95.0% of total deposits at June 30, 2015.

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

Net interest income was $9.0 million for the three months ended June 30, 2016, compared to $8.3 million for the three months ended June 30, 2015. The increase in net interest income was primarily due to a $626,000 increase in interest income, which was primarily attributable to an increase in the average outstanding balance of loans, and a $62,000 decrease in interest expense, which was primarily attributable to a decrease in the average outstanding balances of time deposits and FHLB borrowings during the three months ended June 30, 2016, as compared to the same period one year ago. Net interest income after the provision for loan losses was $9.5 million for the three months ended June 30, 2016, compared to $8.5 million for the three months ended June 30, 2015. The provision for loan losses for the three months ended June 30, 2016 was a credit of $531,000, as compared to a credit of $214,000 for the three months ended June 30, 2015. The increase in the credit to the provision for loan losses is primarily attributable to a reduction in the required level of the allowance for loan losses resulting from lower historical loss rates used to calculate the ASC 450-20 reserve as the elevated level of loan losses incurred in 2011 and 2012 are no longer included in the historical loss calculations.

Non-interest income was $3.6 million for the three months ended June 30, 2016, compared to $3.3 million for the three months ended June 30, 2015. The increase in non-interest income is primarily attributable to $324,000 in gains on the sale of securities during the second quarter of 2016, compared to none for the same period in 2015.

Non-interest expense was $9.1 million for the three months ended June 30, 2016, compared to $8.3 million for the three months ended June 30, 2015. The increase in non-interest expense was primarily due to a $418,000 increase in salaries and benefits expense resulting primarily from an increase in the number of full-time equivalent employees and annual salary increases combined with a $252,000 increase in occupancy expense and a $102,000 increase in other non-interest expenses during the three months ended June 30, 2016, as compared to the three months ended June 30, 2015. 

Year-to-date net earnings as of June 30, 2016 were $5.4 million or $0.98 basic net earnings per share and $0.97 diluted net earnings per share, as compared to $5.0 million or $0.89 basic net earnings per share and $0.88 diluted net earnings per share for the same period one year ago. The increase in year-to-date earnings is primarily attributable to an increase in net interest income, an increase in the credit to the provision for loan losses and an increase in non-interest income, which were partially offset by an increase in non-interest expense, as discussed below. 

Year-to-date net interest income as of June 30, 2016 was $18.1 million compared to $17.0 million for same period one year ago. The increase in net interest income was primarily due to a $962,000 increase in interest income, which was primarily attributable to an increase in the average outstanding balance of loans, and a $137,000 decrease in interest expense, which was primarily attributable to a decrease in the average outstanding balances of time deposits and FHLB borrowings during the six months ended June 30, 2016, as compared to the same period one year ago. Net interest income after the provision for loan losses was $18.8 million for the six months ended June 30, 2016, compared to $17.0 million for the same period one year ago. The provision for loan losses for the six months ended June 30, 2016 was a credit of $748,000, as compared to a credit of $41,000 for the six months ended June 30, 2015. The increase in the credit to the provision for loan losses is primarily attributable to a reduction in the required level of the allowance for loan losses resulting from lower historical loss rates used to calculate the ASC 450-20 reserve as the elevated level of loan losses incurred in 2011 and 2012 are no longer included in the historical loss calculations.

Non-interest income was $6.9 million for the six months ended June 30, 2016, compared to $6.5 million for the six months ended June 30, 2015. The increase in non-interest income is primarily attributable to $324,000 in gains on the sale of securities during the second quarter of 2016 and a $151,000 increase in mortgage banking income during the six months ended June 30, 2016, as compared to the six months ended June 30, 2015.

Non-interest expense was $18.6 million for the six months ended June 30, 2016, as compared to $17.1 million for the six months ended June 30, 2015. The increase in non-interest expense was primarily due to a $795,000 increase in other non-interest expense, a $522,000 increase in occupancy expense, and a $199,000 increase in salaries and benefits expense during the six months ended June 30, 2016, as compared to the six months ended June 30, 2015. The increase in other non-interest expense is primarily due to a $1.0 million increase in consulting fees due to expenses associated with the FDIC Consent Order (the "Order") issued in August 2015. The Bank continues to make progress in addressing the issues identified in the Order and expects that it will be able to undertake and implement all required actions within the time periods specified in the Order. 

Total assets were $1.1 billion and $1.0 billion as of June 30, 2016 and 2015, respectively. Available for sale securities were $265.3 million as of June 30, 2016, compared to $273.5 million as of June 30, 2015. Total loans were $702.0 million as of June 30, 2016, compared to $666.8 million as of June 30, 2015.

Non-performing assets declined to $6.2 million or 0.6% of total assets at June 30, 2016, compared to $11.1 million or 1.1% of total assets at June 30, 2015. The decline in non-performing assets is due to a $3.2 million decrease in other real estate owned properties and a $1.6 million decrease in non-accrual loans. Non-performing loans include $5.8 million in commercial and residential mortgage loans, $36,000 in acquisition, development and construction ("AD&C") loans and $184,000 in other loans at June 30, 2016, as compared to $7.0 million in commercial and residential mortgage loans, $546,000 in AD&C loans and $177,000 in other loans at June 30, 2015. The allowance for loan losses at June 30, 2016 was $8.5 million or 1.2% of total loans, compared to $10.4 million or 1.6% of total loans at June 30, 2015. 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 $841.4 million as of June 30, 2016, compared to $808.8 million at June 30, 2015. Core deposits, which include noninterest-bearing demand deposits, NOW, MMDA, savings and non-brokered certificates of deposit of denominations less than $250,000, increased $42.3 million to $810.5 million at June 30, 2016, as compared to $768.3 million at June 30, 2015. Certificates of deposit in amounts of $250,000 or more totaled $25.7 million at June 30, 2016, as compared to $33.3 million at June 30, 2015. The decrease in certificates of deposit in amounts of $250,000 or more is attributable to a decrease in retail certificates of deposit which was expected 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 $42.7 million at June 30, 2016, as compared to $48.3 million at June 30, 2015. 

Shareholders' equity was $111.8 million, or 10.4% of total assets, as of June 30, 2016, compared to $100.4 million, or 9.7% of total assets, as of June 30, 2015. The increase in shareholders' equity is primarily due to an increase in retained earnings due to net income and an increase in accumulated other comprehensive income resulting from an increase in the unrealized gain on investment securities.

The Company recently received regulatory acceptance for a stock repurchase program, whereby up to $2 million will be allocated to repurchase the Company's common stock. Any purchases under the Company's repurchase program may be made periodically as permitted by securities laws and other legal requirements in the open market or in privately negotiated transactions. The timing and amount of any repurchase of shares will be determined by the Company's management, based on its evaluation of market conditions and other factors. The repurchase program may be suspended at any time or from time-to-time without prior notice.

Peoples Bank operates 20 banking offices entirely in North Carolina, with offices in Catawba, Alexander, Lincoln, Mecklenburg, Union, Iredell and Wake Counties. Peoples Bank also operates loan production offices in Lincoln, Durham and Forsyth 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, 2015.

                   
   
CONSOLIDATED BALANCE SHEETS  
June 30, 2016, December 31, 2015 and June 30, 2015  
(Dollars in thousands)  
                   
    June 30, 2016     December 31, 2015     June 30, 2015  
    (Unaudited)     (Audited)     (Unaudited)  
ASSETS:                        
Cash and due from banks   $ 47,524     $ 29,194     $ 45,725  
Interest-bearing deposits     17,150       10,569       9,954  
    Cash and cash equivalents     64,674       39,763       55,679  
                         
Investment securities available for sale     265,114       268,530       273,469  
Other investments     3,634       3,636       3,911  
    Total securities     268,748       272,166       277,380  
                         
Mortgage loans held for sale     3,024       4,149       2,063  
                         
Loans     702,031       689,091       666,767  
  Less: Allowance for loan losses     (8,540 )     (9,589 )     (10,378 )
    Net loans     693,491       679,502       656,389  
                         
Premises and equipment, net     16,209       16,976       16,503  
Cash surrender value of life insurance     14,753       14,546       14,333  
Accrued interest receivable and other assets     9,450       11,379       14,864  
    Total assets   $ 1,070,349     $ 1,038,481     $ 1,037,211  
                         
                         
LIABILITIES AND SHAREHOLDERS' EQUITY:                        
Deposits:                        
  Noninterest-bearing demand   $ 238,542     $ 244,231     $ 216,475  
  NOW, MMDA & savings     452,247       431,052       417,026  
  Time, $250,000 or more     25,675       26,891       33,252  
  Other time     124,936       130,001       142,048  
    Total deposits     841,400       832,175       808,801  
                         
Securities sold under agreements to repurchase     42,715       27,874       48,285  
FHLB borrowings     43,500       43,500       50,000  
Junior subordinated debentures     20,619       20,619       20,619  
Accrued interest payable and other liabilities     10,331       9,449       9,120  
    Total liabilities     958,565       933,617       936,825  
                         
Shareholders' equity:                        
  Series A preferred stock, $1,000 stated value; authorized 5,000,000 shares; no shares issued and outstanding     -       -       -  
  Common stock, no par value; authorized 20,000,000 shares; issued and outstanding 5,510,538 shares at 6/30/16 and 12/31/15; 5,540,838 shares at 6/30/15     46,171       46,171       46,748  
  Retained earnings     57,594       53,183       49,397  
  Accumulated other comprehensive income     8,019       5,510       4,241  
    Total shareholders' equity     111,784       104,864       100,386  
                             
    Total liabilities and shareholders' equity   $ 1,070,349     $ 1,038,481     $ 1,037,211  
                             
                         
CONSOLIDATED STATEMENTS OF INCOME  
For the three and six months ended June 30, 2016 and 2015  
(Dollars in thousands, except per share amounts)  
                         
    Three months ended     Six months ended  
    June 30,     June 30,  
    2016     2015     2016     2015  
    (Unaudited)     (Unaudited)     (Unaudited)     (Unaudited)  
INTEREST INCOME:                                
  Interest and fees on loans   $ 7,973     $ 7,333     $ 15,996     $ 14,926  
  Interest on due from banks     18       7       35       17  
  Interest on investment securities:                                
    U.S. Government sponsored enterprises     649       613       1,307       1,326  
    State and political subdivisions     1,118       1,157       2,245       2,320  
    Other     59       81       137       169  
      Total interest income     9,817       9,191       19,720       18,758  
                                 
INTEREST EXPENSE:                                
  NOW, MMDA & savings deposits     122       106       241       218  
  Time deposits     148       226       310       474  
  FHLB borrowings     415       433       822       851  
  Junior subordinated debentures     118       99       231       196  
  Other     10       11       18       20  
    Total interest expense     813       875       1,622       1,759  
                                 
NET INTEREST INCOME     9,004       8,316       18,098       16,999  
PROVISION FOR (REDUCTION OF PROVISION FOR) LOAN LOSSES     (531 )     (214 )     (748 )     (41 )
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES     9,535       8,530       18,846       17,040  
                                 
NON-INTEREST INCOME:                                
  Service charges     1,088       1,171       2,128       2,305  
  Other service charges and fees     202       190       536       545  
  Gain on sale of securities     324       -       324       -  
  Mortgage banking income     292       271       661       510  
  Insurance and brokerage commissions     155       203       314       365  
  Miscellaneous     1,510       1,462       2,933       2,817  
    Total non-interest income     3,571       3,297       6,896       6,542  
                                 
NON-INTEREST EXPENSES:                                
  Salaries and employee benefits     4,704       4,286       9,285       9,086  
  Occupancy     1,734       1,482       3,488       2,966  
  Other     2,671       2,569       5,828       5,033  
    Total non-interest expense     9,109       8,337       18,601       17,085  
                                 
EARNINGS BEFORE INCOME TAXES     3,997       3,490       7,141       6,497  
INCOME TAXES     1,033       866       1,723       1,545  
                                 
NET EARNINGS   $ 2,964     $ 2,624     $ 5,418     $ 4,952  
                                 
PER SHARE AMOUNTS                                
Basic net earnings   $ 0.54     $ 0.47     $ 0.98     $ 0.89  
Diluted net earnings   $ 0.53     $ 0.47     $ 0.97     $ 0.88  
Cash dividends   $ 0.10     $ 0.06     $ 0.18     $ 0.12  
Book value   $ 20.29     $ 18.12     $ 20.29     $ 18.12  
                                 
                         
FINANCIAL HIGHLIGHTS  
For the three and six months ended June 30, 2016 and 2015  
(Dollars in thousands)  
                         
    Three months ended     Six months ended  
    June 30,     June 30,  
    2016     2015     2016     2015  
    (Unaudited)     (Unaudited)     (Unaudited)     (Unaudited)  
SELECTED AVERAGE BALANCES:                                
  Available for sale securities   $ 253,226     $ 269,470     $ 255,074     $ 270,783  
  Loans     693,238       659,712       692,536       657,234  
  Earning assets     965,846       946,185       966,895       947,226  
  Assets     1,059,550       1,037,899       1,053,282       1,037,103  
  Deposits     844,369       816,503       841,677       818,070  
  Shareholders' equity     111,130       102,137       111,066       103,040  
                                 
SELECTED KEY DATA:                                
  Net interest margin (tax equivalent)     3.99 %     3.77 %     4.00 %     3.87 %
  Return on average assets     1.13 %     1.01 %     1.03 %     0.96 %
  Return on average shareholders' equity     10.73 %     10.30 %     9.81 %     9.69 %
  Shareholders' equity to total assets (period end)     10.44 %     9.68 %     10.44 %     9.68 %
                                 
ALLOWANCE FOR LOAN LOSSES:                                
  Balance, beginning of period   $ 9,116     $ 10,843     $ 9,589     $ 11,082  
  Provision for loan losses     (531 )     (214 )     (748 )     (41 )
  Charge-offs     (186 )     (332 )     (508 )     (862 )
  Recoveries     141       81       207       199  
  Balance, end of period   $ 8,540     $ 10,378     $ 8,540     $ 10,378  
                                 
ASSET QUALITY:                                
  Non-accrual loans                   $ 5,985     $ 7,596  
  90 days past due and still accruing                     -       100  
  Other real estate owned                     235       3,424  
  Total non-performing assets                   $ 6,220     $ 11,120  
  Non-performing assets to total assets                     0.58 %     1.07 %
  Allowance for loan losses to non-performing assets                     137.30 %     93.33 %
  Allowance for loan losses to total loans                     1.22 %     1.56 %
                                 
LOAN RISK GRADE ANALYSIS:                                
                Percentage of Loans  
                By Risk Grade  
                6/30/2016     6/30/2015  
  Risk Grade 1 (excellent quality)                     1.49 %     1.91 %
  Risk Grade 2 (high quality)                     25.22 %     24.60 %
  Risk Grade 3 (good quality)                     54.87 %     49.96 %
  Risk Grade 4 (management attention)                     13.26 %     16.37 %
  Risk Grade 5 (watch)                     2.81 %     4.20 %
  Risk Grade 6 (substandard)                     2.04 %     2.73 %
  Risk Grade 7 (doubtful)                     0.00 %     0.00 %
  Risk Grade 8 (loss)                     0.00 %     0.00 %
                                 
At June 30, 2016, including non-accrual loans, there were three relationships exceeding $1.0 million in the Watch risk grade (which totaled $7.5 million) and one relationship exceeding $1.0 million in the Substandard risk grade (which totaled $1.3 million). There was one relationship with loans in both the Watch and Substandard risk grades, which exceeded $1.0 million for loans in both risk grades combined.  

Contact Information

  • Contact:
    Lance A. Sellers
    President and Chief Executive Officer


    A. Joseph Lampron, Jr.
    Executive Vice President and Chief Financial Officer


    828-464-5620
    Fax 828-465-6780