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Peoples Bancorp Announces Third Quarter Earnings Results

Monday, 19 October 2020 09:00 AM

Peoples Bancorp of North Carolina, Inc.

Topic:
Earnings

NEWTON, NC / ACCESSWIRE / October 19, 2020 / 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 $4.5 million or $0.78 basic and diluted net earnings per share for the three months ended September 30, 2020, as compared to $3.6 million or $0.62 basic net earnings per share and $0.61 diluted net earnings per share for the same period one year ago.

Year to date highlights:

  • Net earnings were $9.4 million or $1.62 basic and diluted net earnings per share for the nine months ended September 30, 2020, as compared to $11.1 million or $1.87 basic net earnings per share and $1.86 diluted net earnings per share for the same period one year ago.
  • Total loans increased $128.3 million to $973.9 million at September 30, 2020, compared to $845.6 million at September 30, 2019.
  • The Bank originated 1,127 Small Business Administration (SBA) Paycheck Protection Program (PPP) loans, totaling $99.0 million, during the nine months ended September 30, 2020. The Bank has received $4.0 million in fees from the SBA for PPP loans originated as of September 30, 2020. The Bank has recognized $361,000 PPP loan fee income as of September 30, 2020.
  • Core deposits were $1.2 billion or 97.92% of total deposits at September 30, 2020, compared to $928.3 million or 96.54% of total deposits at September 30, 2019.

Lance A. Sellers, President and Chief Executive Officer, attributed the increase in third quarter net earnings to an increase in non-interest income, which was partially offset by a decrease in net interest income, an increase in the provision for loan losses and an increase in non-interest expense during the three months ended September 30, 2020, compared to the three months ended September 30, 2019, as discussed below.

Net interest income was $10.9 million for the three months ended September 30, 2020, compared to $11.4 million for the three months ended September 30, 2019. The decrease in net interest income was primarily due to a $562,000 decrease in interest income, which was partially offset by a $52,000 decrease in interest expense. The decrease in interest income was primarily due to a $497,000 decrease in interest income on loans resulting from the 1.50% reduction in the Prime Rate in March 2020. The decrease in interest expense was primarily due to a decrease in the average outstanding balance of junior subordinated debentures. Net interest income after the provision for loan losses was $10.4 million for the three months ended September 30, 2020, compared to $11.0 million for the three months ended September 30, 2019. The provision for loan losses for the three months ended September 30, 2020 was $522,000, compared to $422,000 for the three months ended September 30, 2019. The increase in the provision for loan losses is primarily attributable to increases in the qualitative factors applied in the Company's Allowance for Loan and Lease Losses ("ALLL") model due to the impact to the economy from the COVID-19 pandemic and a $29.8 million increase in loans, excluding $98.4 million in SBA PPP loans, from September 30, 2019 to September 30, 2020. PPP loans are excluded from ALLL as PPP loans are 100 percent guaranteed by SBA. The ALLL model also includes reserves on $119.7 million in loans with payment modifications made in 2020 as a result of the COVID-19 pandemic.

Non-interest income was $7.1 million for the three months ended September 30, 2020, compared to $4.7 million for the three months ended September 30, 2019. The increase in non-interest income is primarily attributable to a $1.7 million increase in gains on sale of securities, a $560,000 increase in appraisal management fee income due to an increase in the volume of appraisals and a $374,000 increase in mortgage banking income due to increased mortgage loan volume, which were partially offset by a $383,000 decrease in service charges and fees primarily due to service charge and fee concessions associated with the COVID-19 pandemic.

Non-interest expense was $11.9 million for the three months ended September 30, 2020, compared to $11.3 million for the three months ended September 30, 2019. The increase in non-interest expense was primarily attributable to a $466,000 increase in appraisal management fee expense due to an increase in the volume of appraisals.

Year-to-date net earnings as of September 30, 2020 were $9.4 million or $1.62 basic and diluted net earnings per share for the nine months ended September 30, 2020, as compared to $11.1 million or $1.87 basic net earnings per share and $1.86 diluted net earnings per share for the same period one year ago. The decrease in year-to-date net earnings is primarily attributable to a decrease in net interest income, an increase in the provision for loan losses and an increase in non-interest expense, which were partially offset by an increase in non-interest income, as discussed below.

Year-to-date net interest income as of September 30, 2020 was $32.9 million, compared to $34.5 million for the same period one year ago. The decrease in net interest income was primarily due to a $1.2 million decrease in interest income and a $363,000 increase in interest expense. The decrease in interest income was primarily due to a $1.2 million decrease in interest income on loans resulting from the 1.50% reduction in the Prime Rate in March 2020. The increase in interest expense was primarily due to an increase in average outstanding balances of interest-bearing deposits and FHLB borrowings. Net interest income after the provision for loan losses was $29.4 million for the nine months ended September 30, 2020, compared to $33.8 million for the same period one year ago. The provision for loan losses for the nine months ended September 30, 2020 was $3.5 million, compared to $677,000 for the nine months ended September 30, 2019. The increase in the provision for loan losses is primarily attributable to increases in the qualitative factors applied in the Company's ALLL model due to the impact to the economy from the COVID-19 pandemic and a $29.8 million increase in loans, excluding $98.4 million in SBA PPP loans, from September 30, 2019 to September 30, 2020. PPP loans are excluded from ALLL as PPP loans are 100 percent guaranteed by SBA. The ALLL model also includes reserves on $119.7 million in loans with payment modifications made in 2020 as a result of the COVID-19 pandemic.

Non-interest income was $17.0 million for the nine months ended September 30, 2020, compared to $13.2 million for the nine months ended September 30, 2019. The increase in non-interest income is primarily attributable to a $1.9 million increase in gains on sale of securities, a $1.7 million increase in appraisal management fee income due to an increase in the volume of appraisals and a $801,000 increase in mortgage banking income due to increased mortgage loan volume, which were partially offset by a $779,000 decrease in service charges and fees primarily due to service charge and fee concessions associated with the COVID-19 pandemic.

Non-interest expense was $34.8 million for the nine months ended September 30, 2020, compared to $33.4 million for the nine months ended September 30, 2019. The increase in non-interest expense was primarily due to an $1.3 million increase in appraisal management fee expense due to an increase in the volume of appraisals.

Income tax expense was $1.1 million for the three months ended September 30, 2020, compared to $834,000 for the three months ended September 30, 2019. The effective tax rate was 19.80% for the three months ended September 30, 2020, compared to 18.72% for the three months ended September 30, 2019. Income tax expense was $2.1 million for the nine months ended September 30, 2020, compared to $2.5 million for the nine months ended September 30, 2019. The effective tax rate was 18.31% for the nine months ended September 30, 2020, compared to 18.16% for the nine months ended September 30, 2019.

Total assets were $1.5 billion as of September 30, 2020, compared to $1.2 billion at September 30, 2019. Available for sale securities were $223.0 million as of September 30, 2020, compared to $186.3 million as of September 30, 2019. Total loans were $973.9 million as of September 30, 2020, compared to $845.6 million as of September 30, 2019.

Non-performing assets were $3.7 million or 0.25% of total assets at September 30, 2020, compared to $3.3 million or 0.27% of total assets at September 30, 2019. Non-performing assets include $3.3 million in commercial and residential mortgage loans, $272,000 in other loans and $128,000 in other real estate owned at September 30, 2020, compared to $3.1 million in commercial and residential mortgage loans, $146,000 in other loans and $26,000 in other real estate owned at September 30, 2019.

The allowance for loan losses at September 30, 2020 was $9.9 million or 1.02% of total loans, compared to $6.6 million or 0.78% of total loans at September 30, 2019. 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 $1.2 billion at September 30, 2020, compared to $961.6 million at September 30, 2019. Core deposits, which include noninterest-bearing demand deposits, NOW, MMDA, savings and non-brokered certificates of deposit of denominations less than $250,000, were $1.2 billion at September 30, 2020, compared to $928.3 million at September 30, 2019. Certificates of deposit in amounts of $250,000 or more totaled $24.7 million at September 30, 2020, compared to $33.1 million at September 30, 2019.

Securities sold under agreements to repurchase were $34.2 million at September 30, 2020, compared to $21.9 million at September 30, 2019.

FHLB borrowings totaled $70.0 million at September 30, 2020 and 2019.

Junior subordinated debentures were $15.5 million at September 30, 2020, compared to $20.6 million at September 30, 2019. The decrease in junior subordinated debentures is the result of a $5.0 million redemption of the Company's outstanding trust preferred securities during the fourth quarter of 2019.

Shareholders' equity was $139.5 million, or 9.54% of total assets, at September 30, 2020, compared to $132.7 million, or 10.85% of total assets, at September 30, 2019. The Company repurchased 126,800 shares of its common stock during the nine months ended September 30, 2020 under the Company's stock repurchase program, which was funded in January 2020.

Peoples Bank currently operates 19 banking offices entirely in North Carolina, with offices in Catawba, Alexander, Lincoln, Mecklenburg, Iredell and Wake Counties. The Bank opened a new branch office on Westchase Boulevard in Raleigh, NC in August 2020 to relocate the Raleigh office from its previous location, which was closed in February 2020. The Bank closed its branch on Central Avenue in Charlotte, NC on October 2, 2020 due to space limitations. Central Avenue branch customers have been transferred to the Bank's South Boulevard, Charlotte, NC branch. The Bank also operates loan production offices in Lincoln and Mecklenburg 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, 2019.

CONSOLIDATED BALANCE SHEETS
September 30, 2020, December 31, 2019 and September 30, 2019
(Dollars in thousands)

 
  September 30,
2020
    December 31,
2019
    September 30,
2019
 
 
  (Unaudited)     (Audited)     (Unaudited)  
ASSETS:
                 
Cash and due from banks
  $ 48,355     $ 48,337     $ 48,605  
Interest-bearing deposits
    15,778       720       80,948  
Federal funds sold
    140,095       3,330       -  
Cash and cash equivalents
    204,228       52,387       129,553  
 
                       
Investment securities available for sale
    222,991       195,746       186,263  
Other investments
    7,163       4,231       7,239  
Total securities
    230,154       199,977       193,502  
 
                       
Mortgage loans held for sale
    8,960       4,417       4,263  
 
                       
Loans
    973,871       849,874       845,599  
Less: Allowance for loan losses
    (9,892)       (6,680 )     (6,578)  
Net loans
    963,979       843,194       839,021  
 
                       
Premises and equipment, net
    19,057       18,604       18,730  
Cash surrender value of life insurance
    16,742       16,319       16,222  
Accrued interest receivable and other assets
    19,128       19,984       21,908  
Total assets
  $ 1,462,248     $ 1,154,882     $ 1,223,199  
 
                       
 
                       
LIABILITIES AND SHAREHOLDERS' EQUITY:
                       
Deposits:
                       
Noninterest-bearing demand
  $ 455,199     $ 338,004     $ 339,081  
NOW, MMDA & savings
    626,674       516,757       509,611  
Time, $250,000 or more
    24,717       34,269       33,082  
Other time
    79,806       77,487       79,794  
Total deposits
    1,186,396       966,517       961,568  
 
                       
Securities sold under agreements to repurchase
    34,151       24,221       21,927  
FHLB borrowings
    70,000       -       70,000  
Junior subordinated debentures
    15,464       15,619       20,619  
Accrued interest payable and other liabilities
    16,786       14,405       16,402  
Total liabilities
    1,322,797       1,020,762       1,090,516  
 
                       
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
                       
5,787,504 shares 9/30/20
                       
5,912,300 shares 12/31/19, 5,912,300 shares 9/30/19
    56,871       59,813       59,813  
Retained earnings
    76,580       70,663       68,528  
Accumulated other comprehensive income
    6,000       3,644       4,342  
Total shareholders' equity
    139,451       134,120       132,683  
 
                       
Total liabilities and shareholders' equity
  $ 1,462,248     $ 1,154,882     $ 1,223,199  

CONSOLIDATED STATEMENTS OF INCOME

For the three and nine months ended September 30, 2020 and 2019
(Dollars in thousands, except per share amounts)

 
  Three months ended     Nine months ended  
 
  September 30,     September 30,  
 
  2020     2019     2020     2019  
 
  (Unaudited)     (Unaudited)     (Unaudited)     (Unaudited)  
INTEREST INCOME:
                       
Interest and fees on loans
  $ 10,507     $ 11,004     $ 31,367     $ 32,517  
Interest on due from banks
    19       87       103       136  
Interest on federal funds sold
    33       -       178       -  
Interest on investment securities:
                               
U.S. Government sponsored enterprises
    528       628       1,864       1,942  
State and political subdivisions
    717       671       2,042       2,265  
Other
    64       40       202       128  
Total interest income
    11,868       12,430       35,756       36,988  
 
                               
INTEREST EXPENSE:
                               
NOW, MMDA & savings deposits
    482       455       1,455       1,057  
Time deposits
    224       259       725       581  
FHLB borrowings
    103       21       269       70  
Junior subordinated debentures
    76       210       296       656  
Other
    57       49       150       168  
Total interest expense
    942       994       2,895       2,532  
 
                               
NET INTEREST INCOME
    10,926       11,436       32,861       34,456  
PROVISION FOR LOAN LOSSES
    522       422       3,460       677  
NET INTEREST INCOME AFTER
                               
PROVISION FOR LOAN LOSSES
    10,404       11,014       29,401       33,779  
 
                               
NON-INTEREST INCOME:
                               
Service charges
    809       1,178       2,635       3,409  
Other service charges and fees
    188       202       543       548  
Gain/(loss) on sale of securities
    1,688       (5 )     2,145       226  
Mortgage banking income
    750       376       1,635       834  
Insurance and brokerage commissions
    200       206       647       642  
Appraisal management fee income
    1,871       1,311       4,955       3,285  
Miscellaneous
    1,626       1,440       4,406       4,269  
Total non-interest income
    7,132       4,708       16,966       13,213  
 
                               
NON-INTEREST EXPENSES:
                               
Salaries and employee benefits
    5,737       5,695       16,996       17,060  
Occupancy
    1,943       1,861       5,725       5,409  
Appraisal management fee expense
    1,478       1,012       3,845       2,538  
Other
    2,756       2,699       8,249       8,420  
Total non-interest expense
    11,914       11,267       34,815       33,427  
 
                               
EARNINGS BEFORE INCOME TAXES
    5,622       4,455       11,552       13,565  
INCOME TAXES
    1,113       834       2,115       2,464  
 
                               
NET EARNINGS
  $ 4,509     $ 3,621     $ 9,437     $ 11,101  
 
                               
PER SHARE AMOUNTS
                               
Basic net earnings
  $ 0.78     $ 0.62     $ 1.62     $ 1.87  
Diluted net earnings
  $ 0.78     $ 0.61     $ 1.62     $ 1.86  
Cash dividends
  $ 0.15     $ 0.14     $ 0.60     $ 0.52  
Book value
  $ 24.10     $ 22.44     $ 24.10     $ 22.44  

FINANCIAL HIGHLIGHTS
For the three and nine months ended September 30, 2020 and 2019
(Dollars in thousands)

 
  Three months ended     Nine months ended  
 
  September 30,     September 30,  
 
  2020     2019     2020     2019  
 
  (Unaudited)     (Unaudited)     (Unaudited)     (Unaudited)  
SELECTED AVERAGE BALANCES:
                       
Available for sale securities
  200,101     180,439     194,710     185,107  
Loans
    970,529       840,523       926,663       829,385  
Earning assets
    1,343,323       1,044,159       1,235,660       1,028,573  
Assets
    1,438,238       1,139,256       1,332,249       1,122,226  
Deposits
    1,170,627       939,254       1,083,089       916,420  
Shareholders' equity
    140,007       131,890       140,191       132,053  
 
                               
SELECTED KEY DATA:
                               
Net interest margin (tax equivalent)
    3.28%       4.41%       3.60%       4.56%  
Return on average assets
    1.25%       1.26%       0.95%       1.32%  
Return on average shareholders' equity
    12.81%       10.89%       8.99%       11.24%  
Shareholders' equity to total assets (period end)
    9.54%       10.85%       9.54%       10.85%  
 
                               
ALLOWANCE FOR LOAN LOSSES:
                               
Balance, beginning of period
  9,433     6,541     6,680     6,445  
Provision for loan losses
    522       422       3,460       677  
Charge-offs
    (152)       (551 )     (529)       (911 )
Recoveries
    89       166       281       367  
Balance, end of period
  9,892     6,578     9,892     6,578  
 
                               
ASSET QUALITY:
                               
Non-accrual loans
                  3,475     3,258  
90 days past due and still accruing
                    84       -  
Other real estate owned
                    128       26  
Total non-performing assets
                  3,687     3,284  
Non-performing assets to total assets
                    0.25%       0.27%  
Loans modifications related to COVID-19
                  119,706     -  
Allowance for loan losses to non-performing assets
                    268.29%       200.30%  
Allowance for loan losses to total loans
                    1.02%       0.78%  
             
LOAN RISK GRADE ANALYSIS:
           
 
  Percentage of Loans  
 
  By Risk Grade  
 
  9/30/20     9/30/19  
Risk Grade 1 (excellent quality)
    0.68%       0.60%  
Risk Grade 2 (high quality)
    20.89%       25.00%  
Risk Grade 3 (good quality)
    65.93%       61.91%  
Risk Grade 4 (management attention)
    9.89%       10.32%  
Risk Grade 5 (watch)
    1.90%       1.43%  
Risk Grade 6 (substandard)
    0.71%       0.74%  
Risk Grade 7 (doubtful)
    0.00%       0.00%  
Risk Grade 8 (loss)
    0.00%       0.00%  

At September 30, 2020, including non-accrual loans, there were three relationships exceeding $1.0 million in the Watch risk grade (which totaled $8.0 million). There were no relationships exceeding $1.0 million in the Substandard risk grade.

CONTACT:

Lance A. Sellers
President and Chief Executive Officer
Jeffrey N. Hooper
Executive Vice President and Chief Financial Officer
828-464-5620, Fax 828-465-6780

SOURCE: Peoples Bancorp of North Carolina, Inc.

Topic:
Earnings
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