Peoples Bancorp Announces Fourth Quarter Earnings Results, Annual Earnings Results and a Special Cash Dividend

NEWTON, NC / ACCESSWIRE / January 23, 2020 / Peoples Bancorp of North Carolina, Inc. (NASDAQ:PEBK), the parent company of Peoples Bank, reported fourth quarter and year to date earnings results with highlights as follows:

Fourth quarter highlights:

• Net earnings were $3.0 million or $0.50 basic and diluted net earnings per share for the three months ended December 31, 2019, as compared to $3.4 million or $0.57 basic and diluted net earnings per share for the same period one year ago.
• The Company redeemed $5.0 million of outstanding trust preferred securities in December 2019.

Year to date highlights:

• Net earnings were a record $14.1 million or $2.37 basic net earnings per share and $2.36 diluted net earnings per share for the year ended December 31, 2019, as compared to $13.4 million or $2.23 basic net earnings per share and $2.22 diluted net earnings per share for the same period one year ago.
• Total loans increased $45.9 million to $849.9 million at December 31, 2019, compared to $804.0 million at December 31, 2018.
• Core deposits were $932.2 million or 96.45% of total deposits at December 31, 2019, compared to $859.2 million or 97.95% of total deposits at December 31, 2018.

Lance A. Sellers, President and Chief Executive Officer, attributed the decrease in fourth quarter net earnings to an increase in non-interest expense, which was partially offset by an increase in net interest income and a decrease in the provision for loan losses during the three months ended December 31, 2019, compared to the three months ended December 31, 2018, as discussed below.

Net interest income was $11.4 million for the three months ended December 31, 2019, compared to $11.3 million for the three months ended December 31, 2018. The increase in net interest income was primarily due to a $689,000 increase in interest income, which was partially offset by a $616,000 increase in interest expense. The increase in interest income was primarily attributable to an increase in the average outstanding balance of loans, compared to the same period last year. The increase in interest expense was primarily due to an increase in interest rates on deposits. Net interest income after the provision for loan losses was $11.2 million for the three months ended December 31, 2019, compared to $10.9 million for the three months ended December 31, 2018. The provision for loan losses for the three months ended December 31, 2019 was $186,000, compared to $418,000 for the three months ended December 31, 2018. The decrease in 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 reserve in accordance with Accounting Standards Codification 450-20.

Non-interest income was $4.5 million for the three months ended December 31, 2019 and 2018.

Non-interest expense was $12.1 million for the three months ended December 31, 2019, compared to $11.3 million for the three months ended December 31, 2018. The increase in non-interest expense was primarily attributable to a $514,000 increase in salaries and benefits expense and a $296,000 increase in appraisal management fee expense. The increase in salaries and benefits expense was primarily attributable to an increase in salary expense primarily due to annual salary increases, an increase in insurance costs and an increase in commission expense primarily due to an increase in mortgage loan production. The increase in appraisal management fee expense was primarily due to an increase in the volume of appraisals.

Year-to-date net earnings as of December 31, 2019 were $14.1 million or $2.37 basic net earnings per share and $2.36 diluted net earnings per share for the year ended December 31, 2019, as compared to $13.4 million or $2.23 basic net earnings per share and $2.22 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 December 31, 2019 was $45.8 million, compared to $43.2 million for the same period one year ago. The increase in net interest income was primarily due to a $4.3 million increase in interest income, which was partially offset by a $1.6 million increase in interest expense. The increase in interest income was primarily attributable to an increase in the average outstanding balance of loans and a higher average prime rate during the year ended December 31, 2019, compared to the same period last year. The increase in interest expense was primarily due to an increase in interest rates on deposits. Net interest income after the provision for loan losses was $45.0 million for the year ended December 31, 2019, compared to $42.4 million for the same period one year ago. The provision for loan losses for the year ended December 31, 2019 was $863,000, compared to $790,000 for the year ended December 31, 2018. The increase in the provision for loan losses is primarily attributable to a $45.9 million increase in loans from December 31, 2018 to December 31, 2019.

Non-interest income was $17.7 million for the year ended December 31, 2019, compared to $16.2 million for the year ended December 31, 2018. The increase in non-interest income is primarily attributable to a $1.3 million increase in appraisal management fee income due to an increase in the volume of appraisals and a $413,000 increase in mortgage banking income due to an increase in mortgage loan volume.

Non-interest expense was $45.5 million for the year ended December 31, 2019, compared to $42.6 million for the year ended December 31, 2018. The increase in non-interest expense was primarily due to a $1.7 million increase in salaries and benefits expense and a $961,000 increase in appraisal management fee expense. The increase in salaries and benefits expense was primarily attributable to an increase in salary expense primarily due to annual salary increases, an increase in incentive compensation expense, an increase in insurance costs and an increase in commission expense primarily due to an increase in mortgage loan production. The increase in appraisal management fee expense was primarily due to an increase in the volume of appraisals.

Income tax expense was $672,000 for the three months ended December 31, 2019, compared to $690,000 for the three months ended December 31, 2018. The effective tax rate was 18.47% for the three months ended December 31, 2019, compared to 16.72% for the three months ended December 31, 2018. Income tax expense was $3.1 million for the year ended December 31, 2019, compared to $2.6 million for the year ended December 31, 2018. The effective tax rate was 18.23% for the year ended December 31, 2019, compared to 16.39% for the year ended December 31, 2018.

Total assets were $1.2 billion as of December 31, 2019, compared to $1.1 billion at December 31, 2018. Available for sale securities were $195.7 million as of December 31, 2019, compared to $194.6 million as of December 31, 2018. Total loans were $849.9 million as of December 31, 2019, compared to $804.0 million as of December 31, 2018.

Non-performing assets were $3.6 million or 0.31% of total assets at December 31, 2019, compared to $3.3 million or 0.31% of total assets at December 31, 2018. Non-performing assets include $3.4 million in commercial and residential mortgage loans and $154,000 in other loans at December 31, 2019, compared to $3.2 million in commercial and residential mortgage loans, $1,000 in acquisition, development and construction loans, $99,000 in other loans and $27,000 in other real estate owned at December 31, 2018.

The allowance for loan losses at December 31, 2019 was $6.7 million or 0.79% of total loans, compared to $6.4 million or 0.80% of total loans at December 31, 2018. 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 $966.5 million at December 31, 2019, compared to $877.2 million at December 31, 2018. Core deposits, which include noninterest-bearing demand deposits, NOW, MMDA, savings and non-brokered certificates of deposit of denominations less than $250,000, were $932.2 million at December 31, 2019, compared to $859.2 million at December 31, 2018. Certificates of deposit in amounts of $250,000 or more totaled $34.3 million at December 31, 2019, compared to $16.2 million at December 31, 2018. The increase in certificates of deposit in amounts of $250,000 or more is primarily attributable to an $18.9 million increase in wholesale certificates of deposit from December 31, 2018 to December 31, 2019.

Securities sold under agreements to repurchase were $24.2 million at December 31, 2019, compared to $58.1 million at December 31, 2018. The decrease in securities sold under agreements to repurchase is primarily due to approximately $21.0 million transferred from securities sold under agreements to repurchase to MMDA during the third quarter of 2019.

Junior subordinated debentures were $15.6 million at December 31, 2019, compared to $20.6 million at December 31, 2018. 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 $134.1 million, or 11.59% of total assets, at December 31, 2019, compared to $123.6 million, or 11.31% of total assets, at December 31, 2018. The Company repurchased 90,354 shares of its common stock during the year ended December 31, 2019 under the Company's stock repurchase program, which was funded in February 2019.

The Company's Board of Directors declared a special cash dividend in the amount of $0.15 per share at their most recent meeting. The special cash dividend will be paid on February 14, 2020 to shareholders of record on February 3, 2020. Shareholders are encouraged to enroll in the Company's Dividend Reinvestment and Stock Purchase Plan. For details, contact Krissy Price at (828) 464-5620 or (800) 948-7195 or you may email any questions to our transfer agent, Broadridge Corporate Issuer Solutions, Inc. at shareholder@broadridge.com.

Peoples Bank currently operates 20 banking offices entirely in North Carolina, with offices in Catawba, Alexander, Lincoln, Mecklenburg, Iredell and Wake Counties. Peoples Bank also operates loan production offices in Lincoln, Mecklenburg 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, 2018.

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

CONSOLIDATED BALANCE SHEETS
December 31, 2019 and 2018
(Dollars in thousands)

CONSOLIDATED STATEMENTS OF INCOME
For the three months and years ended December 31, 2019 and 2018
(Dollars in thousands, except per share amounts)

FINANCIAL HIGHLIGHTS
For the three months and years ended December 31, 2019 and 2018
(Dollars in thousands)

At December 31, 2019, including non-accrual loans, there were two relationships exceeding $1.0 million in the Watch risk grade (which totaled $3.1 million). There were no relationships exceeding $1.0 million in the Substandard risk grade.

SOURCE: Peoples Bancorp of North Carolina, Inc.