NEWTON, NC / ACCESSWIRE / October 22, 2018 / Peoples Bancorp of North Carolina, Inc. (NASDAQ: PEBK), the parent company of Peoples Bank, reported third quarter earnings results with highlights as follows:
Third quarter highlights:
- Net earnings were $3.5 million or $0.58 basic net earnings per share and $0.57 diluted net earnings per share for the three months ended September 30, 2018, as compared to $3.2 million or $0.54 basic net earnings per share and $0.52 diluted net earnings per share for the same period one year ago.
Year to date highlights:
- Net earnings were $9.9 million or $1.66 basic net earnings per share and $1.65 diluted net earnings per share for the nine months ended September 30, 2018, as compared to $8.3 million or $1.38 basic net earnings per share and $1.35 diluted net earnings per share for the same period one year ago.
- Total loans increased $39.3 million to $786.7 million at September 30, 2018, compared to $747.4 million at September 30, 2017.
- Core deposits were $875.7 million or 98.0% of total deposits at September 30, 2018, compared to $879.6 million or 97.6% of total deposits at September 30, 2017.
Lance A. Sellers, President and Chief Executive Officer, attributed the increase in third quarter net earnings to an increase in net interest income, which was partially offset by an increase in the provision for loan losses, a decrease in non-interest income and an increase in non-interest expense during the three months ended September 30, 2018, as compared to the three months ended September 30, 2017, as discussed below.
Net interest income was $11.1 million for the three months ended September 30, 2018, compared to $10.0 million for the three months ended September 30, 2017. The increase in net interest income was primarily due to a $910,000 increase in interest income, which was primarily attributable to an increase in the average outstanding balance of loans and a 1.00% increase in the prime rate since September 30, 2017, combined with a $93,000 decrease in interest expense, which was primarily attributable to a decrease in the average outstanding balances of FHLB borrowings during the three months ended September 30, 2018, as compared to the same period one year ago due to the payoff of remaining FHLB borrowings in October 2017. Net interest income after the provision for loan losses was $10.9 million for the three months ended September 30, 2018, compared to $10.3 million for the three months ended September 30, 2017. The provision for loan losses for the three months ended September 30, 2018 was an expense of $110,000, as compared to a credit of $218,000 for the three months ended September 30, 2017. The increase in the provision for loan losses is primarily attributable to a $39.3 million increase in loans from September 30, 2017 to September 30, 2018.
Non-interest income was $3.9 million for the three months ended September 30, 2018, compared to $4.2 million for the three months ended September 30, 2017. The decrease in non-interest income is primarily attributable to a $64,000 decrease in mortgage banking income and a $80,000 decrease in miscellaneous non-interest income during the three months ended September 30, 2018, compared to the same period one year ago.
Non-interest expense was $10.7 million for the three months ended September 30, 2018, compared to $10.0 million for the three months ended September 30, 2017. The increase in non-interest expense was primarily attributable to a $586,000 increase in salaries and benefits expense, which was primarily due to an increase in the number of full-time equivalent employees and annual salary increases.
Year-to-date net earnings as of September 30, 2018 were $9.9 million or $1.66 basic net earnings per share and $1.65 diluted net earnings per share, as compared to $8.3 million or $1.38 basic net earnings per share and $1.35 diluted net earnings per share for the same period one year ago. The increase in year-to-date net earnings is primarily attributable to an increase in net interest income and an increase in non-interest income, which were partially offset by an increase in the provision for loan losses and an increase in non-interest expense, as discussed below.
Year-to-date net interest income as of September 30, 2018 was $31.9 million compared to $29.4 million for the same period one year ago. The increase in net interest income was primarily due to a $2.2 million increase in interest income, which was primarily attributable to an increase in the average outstanding balance of loans and a 1.00% increase in the prime rate since September 2017, combined with a $333,000 decrease in interest expense, which was primarily attributable to a decrease in the average outstanding balances of FHLB borrowings during the nine months ended September 30, 2018, as compared to the same period one year ago due to the payoff of remaining FHLB borrowings in October 2017. Net interest income after the provision for loan losses was $31.5 million for the nine months ended September 30, 2018, compared to $29.8 million for the same period one year ago. The provision for loan losses for the nine months ended September 30, 2018 was an expense of $372,000, as compared to a credit of $405,000 for the nine months ended September 30, 2017. The increase in the provision for loan losses is primarily attributable to a $39.3 million increase in loans from September 30, 2017 to September 30, 2018.
Non-interest income was $11.7 million for the nine months ended September 30, 2018, compared to $11.5 million for the nine months ended September 30, 2017. The increase in non-interest income is primarily attributable to a $438,000 increase in miscellaneous non-interest income, which was partially offset by a $273,000 decrease in mortgage banking income during the nine months ended September 30, 2018, as compared to the nine months ended September 30, 2017. The increase in miscellaneous non-interest income is primarily due to $17,000 in net gains on other real estate owned properties for the nine months ended September 30, 2018, as compared to $240,000 in net losses and write-downs on other real estate owned properties for the nine months ended September 30, 2017. The decrease in mortgage banking income is primarily due to a decrease in mortgage loan volume resulting from an increase in mortgage loan rates.
Non-interest expense was $31.3 million for the nine months ended September 30, 2018, as compared to $30.4 million for the nine months ended September 30, 2017. The increase in non-interest expense was primarily due to a $828,000 increase in salaries and benefits expense and a $386,000 increase in occupancy expense, which were partially offset by a $264,000 decrease in other non-interest expense, during the nine months ended September 30, 2018, as compared to the nine months ended September 30, 2017. The increase in salaries and benefits expense is primarily due to an increase in the number of full-time equivalent employees and annual salary increases. The increase in occupancy expense is primarily due to an increase in depreciation expense during the nine months ended September 30, 2018, as compared to the nine months ended September 30, 2017. The decrease in other non-interest expense is primarily due to decreases in telecommunications expense, debit card expense and internet banking expense during the nine months ended September 30, 2018, as compared to the nine months ended September 30, 2017.
Non-interest income and non-interest expense for the three and nine months ended September 30, 2018 and 2017 reflect the implementation of Financial Accounting Standards Board Accounting Standards Update No. 2014-09, (Topic 606): Revenue from Contracts with Customers, which was effective for the Company's reporting periods beginning after December 15, 2017. Prior to March 31, 2018, appraisal management fee income and expense from the Bank's subsidiary, Community Bank Real Estate Solutions, LLC, was reported as a net amount, which was included in miscellaneous non-interest income. This income and expense is now reported on separate line items under non-interest income and non-interest expense.
Income tax expense was $687,000 for the three months ended September 30, 2018, compared to $1.2 million for the three months ended September 30, 2017. The effective tax rate was 17% for the three months ended September 30, 2018, compared to 27% for the three months ended September 30, 2017. Income tax expense was $1.9 million for the nine months ended September 30, 2018, compared to $2.7 million for the nine months ended September 30, 2017. The effective tax rate was 16% for the nine months ended September 30, 2018, compared to 25% for the nine months ended September 30, 2017. The reduction in the effective tax rate is primarily due to the passing of the Tax Cuts and Jobs Act in December, 2017, which reduced the Company's federal corporate tax rate from 34% to 21% effective January 1, 2018.
Total assets were $1.1 billion as of September 30, 2018 and 2017. Available for sale securities were $206.0 million as of September 30, 2018, compared to $235.7 million as of September 30, 2017. Total loans were $786.7 million as of September 30, 2018, compared to $747.4 million as of September 30, 2017.
Non-performing assets were $3.9 million or 0.36% of total assets at September 30, 2018, compared to $4.9 million or 0.44% of total assets at September 30, 2017. Non-performing loans include $3.7 million in commercial and residential mortgage loans, $39,000 in acquisition, development and construction ("AD&C") loans and $136,000 in other loans at September 30, 2018, as compared to $4.7 million in commercial and residential mortgage loans, $16,000 in AD&C loans and $251,000 in other loans at September 30, 2017.
The allowance for loan losses at September 30, 2018 was $6.3 million or 0.80% of total loans, compared to $6.8 million or 0.92% of total loans at September 30, 2017. 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 $893.5 million at September 30, 2018, compared to $901.6 million at September 30, 2017. Core deposits, which include noninterest-bearing demand deposits, NOW, MMDA, savings and non-brokered certificates of deposit of denominations less than $250,000, were $875.7 million at September 30, 2018, compared to $879.6 million at September 30, 2017. Certificates of deposit in amounts of $250,000 or more totaled $17.0 million at September 30, 2018, as compared to $21.3 million at September 30, 2017.
Securities sold under agreements to repurchase were $55.8 million at September 30, 2018, as compared to $53.3 million at September 30, 2017.
Shareholders' equity was $119.7 million, or 10.88% of total assets, as of September 30, 2018, compared to $116.2 million, or 10.36% of total assets, as of September 30, 2017.
Peoples Bank currently operates 19 banking offices entirely in North Carolina, with offices in Catawba, Alexander, Lincoln, Mecklenburg, Iredell and Wake Counties. The Bank plans to open a new banking office in Cary, North Carolina during the fourth quarter of 2018. Peoples Bank also operates loan production offices in Lincoln and Durham 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, 2017.
CONSOLIDATED BALANCE SHEETS
September 30, 2018, December 31, 2017 and September 30, 2017
(Dollars in thousands)
| September 30, 2018 | December 31, 2017 | September 30, 2017 | |||||||||||
| (Unaudited) | (Audited) | (Unaudited) | |||||||||||
ASSETS: | |||||||||||||
Cash
and due from banks | $ | 44,743 | $ | 53,186 | $ | 55,718 | |||||||
Interest-bearing deposits | 12,298 | 4,118 | 37,538 | ||||||||||
Cash
and cash equivalents | 57,041 | 57,304 | 93,256 | ||||||||||
Investment securities available for sale | 205,966 | 229,321 | 235,736 | ||||||||||
Other
investments | 4,394 | 1,830 | 2,680 | ||||||||||
Total
securities | 210,360 | 231,151 | 238,416 | ||||||||||
Mortgage loans held for sale | 1,740 | 857 | 2,623 | ||||||||||
Loans | 786,724 | 759,764 | 747,437 | ||||||||||
Less:
Allowance for loan losses | (6,295 | ) | (6,366 | ) | (6,844) | ||||||||
Net
loans | 780,429 | 753,398 | 740,593 | ||||||||||
Premises and equipment, net | 19,453 | 19,911 | 19,697 | ||||||||||
Cash
surrender value of life insurance | 15,839 | 15,552 | 15,452 | ||||||||||
Accrued interest receivable and other assets | 15,430 | 13,993 | 11,516 | ||||||||||
Total
assets | $ | 1,100,292 | $ | 1,092,166 | $ | 1,121,553 | |||||||
LIABILITIES AND SHAREHOLDERS' EQUITY: | |||||||||||||
Deposits: | |||||||||||||
Noninterest-bearing demand | $ | 306,834 | $ | 285,406 | $ | 287,794 | |||||||
NOW,
MMDA & savings | 478,898 | 498,445 | 486,051 | ||||||||||
Time,
$250,000 or more | 17,018 | 18,756 | 21,318 | ||||||||||
Other
time | 90,709 | 104,345 | 106,476 | ||||||||||
Total
deposits | 893,459 | 906,952 | 901,639 | ||||||||||
Securities sold under agreements to repurchase | 55,766 | 37,757 | 53,307 | ||||||||||
FHLB
borrowings | - | - | 20,000 | ||||||||||
Junior subordinated debentures | 20,619 | 20,619 | 20,619 | ||||||||||
Accrued interest payable and other liabilities | 10,729 | 10,863 | 9,835 | ||||||||||
Total
liabilities | 980,573 | 976,191 | 1,005,400 | ||||||||||
| Shareholders' equity: | |||||||||||||
5,000,000 shares; no shares issued and outstanding | - | - | - | ||||||||||
Common stock, no par value; authorized | |||||||||||||
20,000,000 shares; issued and outstanding | |||||||||||||
5,995,256 shares at 9/30/18 and 12/31/17, | |||||||||||||
5,450,412 shares at 9/30/17 | 62,096 | 62,096 | 45,102 | ||||||||||
Retained earnings | 57,882 | 50,286 | 66,539 | ||||||||||
Accumulated other comprehensive income | (259 | ) | 3,593 | 4,512 | |||||||||
Total
shareholders' equity | 119,719 | 115,975 | 116,153 | ||||||||||
Total
liabilities and shareholders' equity | $ | 1,100,292 | $ | 1,092,166 | $ | 1,121,553 | |||||||
CONSOLIDATED STATEMENTS OF INCOME
For the three and nine months ended September 30, 2018 and 2017
(Dollars in thousands, except per share amounts)
| Three months ended | Nine months ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2018 | 2017 | 2018 | 2017 | |||||||||||||
| (Unaudited) | (Unaudited) | (Unaudited) | (Unaudited) | |||||||||||||
INTEREST INCOME: | ||||||||||||||||
Interest and fees on loans | $ | 9,907 | $ | 8,966 | $ | 28,362 | $ | 25,935 | ||||||||
Interest on due from banks | 86 | 60 | 255 | 138 | ||||||||||||
Interest on investment securities: | ||||||||||||||||
U.S.
Government sponsored enterprises | 591 | 578 | 1,721 | 1,795 | ||||||||||||
State
and political subdivisions | 974 | 1,047 | 2,950 | 3,198 | ||||||||||||
Other | 50 | 47 | 138 | 157 | ||||||||||||
Total
interest income | 11,608 | 10,698 | 33,426 | 31,223 | ||||||||||||
INTEREST EXPENSE: | ||||||||||||||||
NOW,
MMDA & savings deposits | 189 | 156 | 551 | 431 | ||||||||||||
Time
deposits | 127 | 112 | 342 | 360 | ||||||||||||
FHLB
borrowings | - | 211 | - | 604 | ||||||||||||
Junior subordinated debentures | 209 | 152 | 578 | 432 | ||||||||||||
Other | 32 | 19 | 66 | 43 | ||||||||||||
Total
interest expense | 557 | 650 | 1,537 | 1,870 | ||||||||||||
NET INTEREST INCOME | 11,051 | 10,048 | 31,889 | 29,353 | ||||||||||||
PROVISION FOR (REDUCTION OF PROVISION | ||||||||||||||||
FOR) LOAN LOSSES | 110 | (218 | ) | 372 | (405 | ) | ||||||||||
NET INTEREST INCOME AFTER | ||||||||||||||||
PROVISION FOR LOAN LOSSES | 10,941 | 10,266 | 31,517 | 29,758 | ||||||||||||
NON-INTEREST INCOME: | ||||||||||||||||
Service charges | 1,083 | 1,140 | 3,163 | 3,340 | ||||||||||||
Other
service charges and fees | 173 | 145 | 528 | 447 | ||||||||||||
Gain
on sale of securities | - | - | 50 | - | ||||||||||||
Mortgage banking income | 216 | 280 | 672 | 945 | ||||||||||||
Insurance and brokerage commissions | 206 | 221 | 591 | 568 | ||||||||||||
Appraisal management fee income | 799 | 855 | 2,442 | 2,447 | ||||||||||||
Miscellaneous | 1,438 | 1,518 | 4,221 | 3,783 | ||||||||||||
Total
non-interest income | 3,915 | 4,159 | 11,667 | 11,530 | ||||||||||||
NON-INTEREST EXPENSES: | ||||||||||||||||
Salaries and employee benefits | 5,519 | 4,933 | 15,866 | 15,038 | ||||||||||||
Occupancy | 1,761 | 1,669 | 5,367 | 4,981 | ||||||||||||
Appraisal management fee expense | 627 | 655 | 1,873 | 1,869 | ||||||||||||
Other | 2,795 | 2,749 | 8,198 | 8,462 | ||||||||||||
Total
non-interest expense | 10,702 | 10,006 | 31,304 | 30,350 | ||||||||||||
EARNINGS BEFORE INCOME TAXES | 4,154 | 4,419 | 11,880 | 10,938 | ||||||||||||
INCOME TAXES | 687 | 1,177 | 1,934 | 2,680 | ||||||||||||
NET EARNINGS | $ | 3,467 | $ | 3,242 | $ | 9,946 | $ | 8,258 | ||||||||
PER SHARE AMOUNTS* | ||||||||||||||||
Basic
net earnings | $ | 0.58 | $ | 0.54 | $ | 1.66 | $ | 1.38 | ||||||||
Diluted net earnings | $ | 0.57 | $ | 0.52 | $ | 1.65 | $ | 1.35 | ||||||||
Cash
dividends | $ | 0.13 | $ | 0.11 | $ | 0.39 | $ | 0.33 | ||||||||
Book
value | $ | 19.97 | $ | 19.37 | $ | 19.97 | $ | 19.37 | ||||||||
*Per share computations have been restated to reflect a 10% stock dividend during the fourth quarter of 2017.
FINANCIAL HIGHLIGHTS
For the three and nine months ended September 30, 2018 and 2017
(Dollars in thousands)
| Three months ended | Nine months ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2018 | 2017 | 2018 | 2017 | |||||||||||||
| (Unaudited) | (Unaudited) | (Unaudited) | (Unaudited) | |||||||||||||
SELECTED AVERAGE BALANCES: | ||||||||||||||||
Available for sale securities | $ | 209,221 | $ | 231,135 | $ | 212,221 | $ | 235,947 | ||||||||
Loans | 781,596 | 746,633 | 771,951 | 739,857 | ||||||||||||
Earning assets | 1,012,946 | 1,000,792 | 1,007,183 | 997,139 | ||||||||||||
Assets | 1,104,041 | 1,101,586 | 1,095,255 | 1,096,502 | ||||||||||||
Deposits | 907,536 | 888,746 | 907,975 | 892,057 | ||||||||||||
Shareholders' equity | 119,710 | 115,512 | 121,237 | 115,161 | ||||||||||||
SELECTED KEY DATA: | ||||||||||||||||
Net
interest margin (tax equivalent) | 4.43 | % | 4.20 | % | 4.34 | % | 4.15 | % | ||||||||
Return on average assets | 1.25 | % | 1.17 | % | 1.21 | % | 1.01 | % | ||||||||
Return on average shareholders' equity | 11.49 | % | 11.14 | % | 10.97 | % | 9.59 | % | ||||||||
Shareholders' equity to total assets (period end) | 10.88 | % | 10.36 | % | 10.88 | % | 10.36 | % | ||||||||
ALLOWANCE FOR LOAN LOSSES: | ||||||||||||||||
Balance, beginning of period | $ | 6,277 | $ | 7,167 | $ | 6,366 | $ | 7,550 | ||||||||
Provision for loan losses | 110 | (218 | ) | 372 | (405 | ) | ||||||||||
Charge-offs | (259 | ) | (152 | ) | (766 | ) | (481 | ) | ||||||||
Recoveries | 167 | 47 | 323 | 180 | ||||||||||||
Balance, end of period | $ | 6,295 | $ | 6,844 | $ | 6,295 | $ | 6,844 | ||||||||
ASSET QUALITY: | ||||||||||||||||
Non-accrual loans | $ | 3,920 | $ | 4,931 | ||||||||||||
90
days past due and still accruing | - | - | ||||||||||||||
Other
real estate owned | - | - | ||||||||||||||
Total
non-performing assets | $ | 3,920 | $ | 4,931 | ||||||||||||
Non-performing assets to total assets | 0.36 | % | 0.44 | % | ||||||||||||
Allowance for loan losses to non-performing assets | 160.59 | % | 138.80 | % | ||||||||||||
Allowance for loan losses to total loans | 0.80 | % | 0.92 | % | ||||||||||||
LOAN RISK GRADE ANALYSIS: | ||||||||||||||||
| Percentage of Loans | ||||||||||||||||
| By Risk Grade | ||||||||||||||||
| 9/30/2018 | 9/30/2017 | |||||||||||||||
Risk
Grade 1 (excellent quality) | 0.82 | % | 1.16 | % | ||||||||||||
Risk
Grade 2 (high quality) | 26.30 | % | 25.61 | % | ||||||||||||
Risk
Grade 3 (good quality) | 60.82 | % | 60.40 | % | ||||||||||||
Risk
Grade 4 (management attention) | 9.02 | % | 8.61 | % | ||||||||||||
Risk
Grade 5 (watch) | 1.81 | % | 2.67 | % | ||||||||||||
Risk
Grade 6 (substandard) | 0.90 | % | 1.23 | % | ||||||||||||
Risk
Grade 7 (doubtful) | 0.00 | % | 0.00 | % | ||||||||||||
Risk
Grade 8 (loss) | 0.00 | % | 0.00 | % | ||||||||||||
At September 30, 2018, including non-accrual loans, there were two relationships exceeding $1.0 million in the Watch risk grade (which totaled $3.2 million). There were no relationships exceeding $1.0 million in the Substandard risk grade.
SOURCE: Peoples Bancorp of North Carolina, Inc.
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