Peoples Bancorp of North Carolina : Announces Fourth Quarter and Annual Earnings Results

NEWTON, NC--(Marketwired - Jan 25, 2016) - 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 $2.2 million or $0.40 basic net earnings per share and $0.39 diluted net earnings per share for the three months ended December 31, 2015, as compared to $1.8 million or $0.32 basic and diluted net earnings per share for the same period one year ago.

Year to date highlights:

• Net earnings were $9.6 million or $1.73 basic net earnings per share and $1.72 diluted net earnings per share for the year ended December 31, 2015, as compared to $9.4 million or $1.67 basic net earnings per share and $1.66 diluted net earnings per share for the same period one year ago.
• Non-performing assets declined to $9.2 million or 0.88% of total assets at December 31, 2015, compared to $12.7 million or 1.2% of total assets at December 31, 2014.
• Total loans increased $37.2 million to $689.1 million at December 31, 2015, compared to $651.9 million at December 31, 2014.
• Core deposits were $801.2 million or 96.3% of total deposits at December 31, 2015, compared to $755.8 million or 92.8% of total deposits at December 31, 2014.

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

Net interest income was $9.1 million for the three months ended December 31, 2015, compared to $8.7 million for the three months ended December 31, 2014. The increase in net interest income was primarily due to a $243,000 increase in interest income, which was primarily attributable to an increase in the average outstanding balance of loans, and a $164,000 decrease in interest expense, which was primarily attributable to a decrease in the average outstanding balances of FHLB borrowings and time deposits during the three months ended December 31, 2015, as compared to the same period one year ago. Net interest income after the provision for loan losses was $9.3 million for the three months ended December 31, 2015, compared to $9.4 million for the three months ended December 31, 2014. The provision for loan losses for the three months ended December 31, 2015 was a credit of $210,000, as compared to a credit of $672,000 for the three months ended December 31, 2014. 

Non-interest income was $3.5 million for the three months ended December 31, 2015, compared to $3.0 million for the three months ended December 31, 2014. The increase in non-interest income is primarily attributable to a $576,000 increase in miscellaneous non-interest income and a $64,000 increase in mortgage banking income, which were partially offset by a $132,000 decrease in services charges and fees. The $576,000 increase in miscellaneous non-interest income is primarily due to $263,000 in net MasterCard debit card incentives recognized in fourth quarter 2015 and a $237,000 decrease in net losses on other real estate owned properties for the three months ended December 31, 2015, as compared to the three months ended December 31, 2014. 

Non-interest expense was $10.0 million for the three months ended December 31, 2015, compared to $10.9 million for the three months ended December 31, 2014. The decrease in non-interest expense was primarily due to a $145,000 decrease in salaries and benefits expense, a $65,000 decrease in occupancy expense and a $708,000 decrease in other non-interest expense during the three months ended December 31, 2015, as compared to the three months ended December 31, 2014. The decrease in other non-interest expenses is primarily due to $653,000 amortization expense incurred during the three months ended December 31, 2014 that was associated with North Carolina income tax credits purchased in 2014 that was not incurred in 2015. The decrease in income tax credit amortization expense was partially offset by a $318,000 increase in consulting fees for the three months ended December 31, 2015, as compared to the three months ended December 31, 2014. The increase in consulting fees is primarily 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. 

Year-to-date net earnings as of December 31, 2015 were $9.6 million, or $1.73 basic net earnings per share and $1.72 diluted net earnings per share, as compared to $9.4 million, or $1.67 basic net earnings per share and $1.66 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 and an increase in non-interest income, which were partially offset by a decrease in the credit to 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, 2015 was $35.2 million compared to $34.1 million for same period one year ago. The increase in net interest income was primarily due to a $793,000 increase in loan interest income, which was primarily attributable to an increase in the average outstanding balance of loans and a $803,000 decrease in interest expense, which was primarily attributable to a decrease in the average outstanding balance of FHLB borrowings and time deposits, which were partially offset by a $379,000 decrease in interest income on investment securities due to a decrease in the average outstanding balance of available for sale securities during the year ended December 31, 2015, as compared to the year ended December 31, 2014. Net interest income after the provision for loan losses was $35.2 million for the year ended December 31, 2015, compared to $34.8 million for the year ended December 31, 2014. The provision for loan losses for the year ended December 31, 2015 was a credit of $17,000, as compared to a credit of $699,000 for the year ended December 31, 2014. 

Non-interest income was $13.3 million for the year ended December 31, 2015, compared to $12.2 million for the year ended December 31, 2014. The increase in non-interest income is primarily attributable to a $1.5 million increase in miscellaneous non-interest income and a $326,000 increase in mortgage banking income, which were partially offset by a $463,000 decrease in service charges and fees. The $1.5 million increase in miscellaneous non-interest income is primarily due to $245,000 in net gains on other real estate owned properties for the year ended December 31, 2015, as compared to $622,000 in net losses and write-downs on other real estate owned properties for the year ended December 31, 2014 combined with a $282,000 increase in debit card income for the year ended December 31, 2015, as compared to the year ended December 31, 2014 and $263,000 in net MasterCard debit card incentives recognized in fourth quarter 2015.

Non-interest expense was $35.8 million for the year ended December 31, 2015, as compared to $35.7 million for the year ended December 31, 2014. The increase in non-interest expense was primarily due to a $755,000 increase in salaries and benefits expense resulting primarily from an increase in the number of full-time equivalent employees and annual salary increases, which was partially offset by a $685,000 decrease in other non-interest expenses during the year ended December 31, 2015, as compared to the year ended December 31, 2014. The decrease in other non-interest expenses is primarily due to $870,000 amortization expense incurred during 2014 that was associated with North Carolina income tax credits purchased in 2014.

Total assets were $1.0 billion as of December 31, 2015 and 2014. Available for sale securities were $268.5 million as of December 31, 2015, compared to $281.1 million as of December 31, 2014. Total loans were $689.1 million as of December 31, 2015, compared to $651.9 million as of December 31, 2014.

Non-performing assets declined to $9.2 million or 0.88% of total assets at December 31, 2015, compared to $12.7 million or 1.2% of total assets at December 31, 2014. The decline in non-performing assets is due to a $2.3 million decrease in non-accrual loans and a $1.3 million decrease in other real estate owned properties. Non-performing loans include $8.1 million in commercial and residential mortgage loans, $146,000 in acquisition, development and construction ("AD&C") loans and $181,000 in other loans at December 31, 2015, as compared to $6.6 million in commercial and residential mortgage loans, $3.9 million in AD&C loans and $251,000 in other loans at December 31, 2014. The allowance for loan losses at December 31, 2015 was $9.6 million or 1.4% of total loans, compared to $11.1 million or 1.7% of total loans at December 31, 2014. 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 $832.2 million as of December 31, 2015, compared to $814.7 million at December 31, 2014. Core deposits, which include noninterest-bearing demand deposits, NOW, MMDA, savings and non-brokered certificates of deposit of denominations less than $250,000, increased $45.4 million to $801.2 million at December 31, 2015, as compared to $755.8 million at December 31, 2014. Certificates of deposit in amounts of $250,000 or more totaled $26.9 million at December 31, 2015, as compared to $47.9 million at December 31, 2014. The decrease in certificates of deposit in amounts of $250,000 or more is attributable to a $7.1 million decrease in wholesale certificates of deposit combined with 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 $27.9 million at December 31, 2015, as compared to $48.4 million at December 31, 2014. This decrease is primarily due to a customer transferring $13.0 million from securities sold under agreements to repurchase to a non-interest bearing demand account in December 2015.

Shareholders' equity was $104.9 million, or 10.1% of total assets, as of December 31, 2015, compared to $98.7 million, or 9.5% of total assets, as of December 31, 2014. This increase is primarily due to an increase in retained earnings due to net income, which was partially offset by a decrease in common stock due to 102,050 shares of common stock repurchased during 2015 under the Company's stock repurchase program implemented in September 2014.

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 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, 2014.

                            
At December 31, 2015, including non-accrual loans, there were five relationships exceeding $1.0 million in the Watch risk grade (which totaled $10.6 million) and one relationship exceeding $1.0 million in the Substandard risk grade (which totaled $1.3 million). There were two relationship with loans in both the Watch and Substandard risk grades, which exceeded $1.0 million for loans in both risk grades combined.