Peoples Bancorp Announces Second Quarter Earnings Results

NEWTON, N.C., July 21, 2014 (GLOBE NEWSWIRE) -- 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 $2.6 million or $0.45 basic and diluted net earnings per share for the three months ended June 30, 2014, as compared to $1.6 million or $0.29 basic and diluted net earnings per share, before adjustment for preferred stock dividends and accretion, for the same period one year ago.
• Net earnings available to common shareholders were $2.6 million or $0.45 basic and diluted net earnings per common share for the three months ended June 30, 2014, as compared to $1.5 million or $0.26 basic and diluted net earnings per common share, for the same period one year ago.
• Earnings before securities gains and income taxes were $3.5 million for the three months ended June 30, 2014, compared to $1.7 million for the same period one year ago.
• Total loans increased $15.3 million during the three months ended June 30, 2014, as compared to a $1.9 million decrease during the same period one year ago.

Year to date highlights:

• Net earnings were $5.1 million or $0.91 basic and diluted net earnings per share for the six months ended June 30, 2014, as compared to $3.4 million or $0.60 basic and diluted net earnings per share, before adjustment for preferred stock dividends and accretion, for the same period one year ago.
• Net earnings available to common shareholders were $5.1 million or $0.91 basic and diluted net earnings per common share for the six months ended June 30, 2014, as compared to $3.1 million or $0.55 basic and diluted net earnings per common share, for the same period one year ago.
• Earnings before securities gains and income taxes were $6.9 million for the six months ended June 30, 2014, compared to $3.8 million for the same period one year ago.
• Non-performing assets declined to $14.8 million or 1.4% of total assets at June 30, 2014, compared to $23.4 million or 2.3% of total assets at June 30, 2013.
• Total loans increased $25.3 million to $633.3 million at June 30, 2014, compared to $608.1 million at June 30, 2013.
• Core deposits were $699.1 million, or 86.2% of total deposits at June 30, 2014, compared to $665.4 million, or 84.4% of total deposits at June 30, 2013.

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

Net interest income was $8.5 million for the three months ended June 30, 2014, compared to $7.5 million for the same period one year ago. This increase was primarily due to an increase in interest income due to an increase in the yield on investment securities and an increase in the average outstanding balance of investment securities combined with a decrease in interest expense due to a reduction in the cost of funds. Net interest income after the provision for loan losses increased to $8.4 million during the second quarter of 2014, compared to $6.8 million for the same period one year ago. The provision for loan losses for the three months ended June 30, 2014 was $67,000, as compared to $773,000 for the same period one year ago. The decrease in the provision for loan losses is primarily attributable to a $5.2 million reduction in non-accrual loans from June 30, 2013 to June 30, 2014 and a reduction in net charge-offs of $786,000 during the three months ended June 30, 2014, as compared to the same period one year ago.

Non-interest income was $3.1 million for the three months ended June 30, 2014, compared to $3.3 million for the same period one year ago. This decrease is primarily attributable to a $352,000 decrease in gains on sale of securities and a $127,000 decrease in mortgage banking income, which were partially offset by a $111,000 increase in service charges and fees and a $185,000 increase in miscellaneous non-interest income for the three months ended June 30, 2014, as compared to the same period one year ago.

Non-interest expense was $8.1 million for the three months ended June 30, 2014 and 2013. An increase in occupancy expense was partially offset by decreases in salaries and employee benefits expense and non-interest expenses other than salary, employee benefits and occupancy expenses for the three months ended June 30, 2014, as compared to the same period one year ago.

Year-to-date net earnings as of June 30, 2014 were $5.1 million, or $0.91 basic and diluted net earnings per share, before adjustment for preferred stock dividends and accretion, as compared to $3.4 million, or $0.60 basic and diluted net earnings per share, before adjustment for preferred stock dividends and accretion, for the same period one year ago. After adjusting for dividends and accretion on preferred stock, net earnings available to common shareholders for the six months ended June 30, 2014 were $5.1 million, or $0.91 basic and diluted net earnings per common share, as compared to $3.1 million, or $0.55 basic and diluted net earnings per common share, for the same period one year ago. The increase in year-to-date earnings is primarily attributable to a decrease in the provision for loan losses and an increase in net interest income, which were partially offset by a decrease in non-interest income and an increase in non-interest expense, as discussed below.

Year-to-date net interest income as of June 30, 2014 increased 11.5% to $16.9 million compared to $15.2 million for the same period one year ago. This increase was primarily due to an increase in interest income due to an increase in the yield on investment securities and an increase in the average outstanding balance of investment securities combined with a decrease in interest expense due to a reduction in the cost of funds. Net interest income after the provision for loan losses increased 28.9% to $17.2 million for the six months ended June 30, 2014, compared to $13.4 million for the same period one year ago. The provision for loan losses for the six months ended June 30, 2014 was a credit of $282,000, as compared to an expense of $1.8 million for the same period one year ago. The decrease in the provision for loan losses is primarily attributable to a $1.7 million decrease in net charge-offs during the six months ended June 30, 2014 compared to the same period one year ago and a $5.2 million reduction in non-accrual loans from June 30, 2013 to June 30, 2014.

Non-interest income was $6.0 million for the six months ended June 30, 2014, compared to $6.7 million for the same period one year ago. This decrease is primarily attributable to a $588,000 decrease in gains on sale of securities and a $407,000 decrease in mortgage banking income, which were partially offset by a $246,000 increase in service charges and fees for the six months ended June 30, 2014, as compared to the same period one year ago.

Non-interest expense was $16.2 million for the six months ended June 30, 2014, as compared to $15.7 million for the same period one year ago. This increase is primarily due to a $356,000 increase in occupancy expense, which was primarily due to a $257,000 increase in furniture and equipment depreciation expense during the six months ended June 30, 2014, as compared to the same period one year ago.

Total assets amounted to $1.0 billion as of June 30, 2014 and 2013. Available for sale securities amounted to $297.2 million as of June 30, 2014, compared to $293.2 million as of June 30, 2013. Total loans amounted to $633.3 million as of June 30, 2014, compared to $608.1 million as of June 30, 2013.

Non-performing assets declined to $14.8 million or 1.4% of total assets at June 30, 2014, compared to $23.4 million or 2.3% of total assets at June 30, 2013. The decline in non-performing assets is primarily due to a $5.2 million decrease in non-accrual loans, a $2.5 million decrease in loans 90 days past due and still accruing and a $869,000 decrease in other real estate owned. Non-performing loans include $5.2 million in acquisition, development and construction ("AD&C") loans, $5.5 million in commercial and residential mortgage loans and $558,000 in other loans at June 30, 2014, as compared to $7.7 million in AD&C loans, $10.7 million in commercial and residential mortgage loans and $591,000 in other loans at June 30, 2013. The allowance for loan losses at June 30, 2014 was $12.7 million or 2.0% of total loans, compared to $14.0 million or 2.3% of total loans at June 30, 2013. According to Mr. Sellers, 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 $811.5 million as of June 30, 2014, compared to $788.4 million at June 30, 2013. Core deposits, which include noninterest-bearing demand deposits, NOW, MMDA, savings and non-brokered certificates of deposit of denominations less than $100,000, increased $33.7 million to $699.1 million at June 30, 2014, as compared to $665.4 million at June 30, 2013. Certificates of deposit in amounts of $100,000 or more totaled $112.2 million at June 30, 2014, as compared to $123.6 million at June 30, 2013. This decrease is attributable to a $6.6 million decrease in wholesale certificates of deposit combined with a decrease in retail certificates of deposit as intended 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 $46.8 million at June 30, 2014, as compared to $46.0 million at June 30, 2013.

Shareholders' equity was $93.0 million, or 8.9% of total assets, as of June 30, 2014, compared to $95.4 million, or 9.3% of total assets, as of June 30, 2013. This decrease reflects the Company's repurchase and redemption of its Series A preferred stock, which was partially offset by an increase in retained earnings and an increase in accumulated other comprehensive income resulting from an increase in the unrealized gain on investment securities.

Peoples Bank operates 21 banking offices entirely in North Carolina, with offices in Catawba, Alexander, Lincoln, Mecklenburg, Union, Iredell and Wake Counties. The Bank also operates loan production offices in Lincoln and Wake 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 materially 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, 2013.

CONSOLIDATED BALANCE SHEETS
June 30, 2014, December 31, 2013 and June 30, 2013
(Dollars in thousands)
	June 30, 2014		December 31, 2013		June 30, 2013
	(Unaudited)		(Audited)		(Unaudited)
ASSETS:
Cash and due from banks	$ 54,522		$ 49,902		$ 28,082
Interest-bearing deposits	20,546		26,871		52,634
Cash and cash equivalents	75,068		76,773		80,716
Investment securities available for sale	297,165		297,890		293,151
Other investments	4,706		4,990		5,215
Total securities	301,871		302,880		298,366
Mortgage loans held for sale	2,048		497		6,002
Loans	633,336		620,960		608,072
Less: Allowance for loan losses	(12,675)		(13,501)		(14,029)
Net loans	620,661		607,459		594,043
Premises and equipment, net	16,762		16,358		16,635
Cash surrender value of life insurance	13,914		13,706		13,487
Accrued interest receivable and other assets	17,528		17,011		18,791
Total assets	$ 1,047,852		$ 1,034,684		$ 1,028,040
LIABILITIES AND SHAREHOLDERS' EQUITY:
Deposits:
Noninterest-bearing demand	$ 206,655		$ 195,265		$ 172,055
NOW, MMDA & savings	397,305		386,893		385,014
Time, $100,000 or more	112,201		115,268		123,612
Other time	95,318		101,935		107,752
Total deposits	811,479		799,361		788,433
Securities sold under agreements to repurchase	46,764		45,396		45,971
FHLB borrowings	65,000		65,000		70,000
Junior subordinated debentures	20,619		20,619		20,619
Accrued interest payable and other liabilities	10,943		20,589		7,665
Total liabilities	954,805		950,965		932,688
Shareholders' equity:
Series A preferred stock, $1,000 stated value; authorized
5,000,000 shares; issued and outstanding
12,524 shares at 6/30/13	--		--		12,524
Common stock, no par value; authorized
20,000,000 shares; issued and outstanding
5,617,125 shares at 6/30/14 and
5,613,495 shares at 12/31/13	48,170		48,133		48,133
Retained earnings	41,433		36,758		34,218
Accumulated other comprehensive income (loss)	3,444		(1,172)		477
Total shareholders' equity	93,047		83,719		95,352
Total liabilities and shareholders' equity	$ 1,047,852		$ 1,034,684		$ 1,028,040
CONSOLIDATED STATEMENTS OF INCOME
For the three and six months ended June 30, 2014 and 2013
(Dollars in thousands, except per share amounts)
	Three months ended June 30,		Six months ended June 30,
	2014	2013		2014	2013
	(Unaudited)	(Unaudited)		(Unaudited)	(Unaudited)
INTEREST INCOME:
Interest and fees on loans	$ 7,491	$ 7,439		$ 14,893	$ 15,079
Interest on due from banks	12	28		24	40
Interest on investment securities:
U.S. Government sponsored enterprises	804	286		1,651	664
State and political subdivisions	1,169	1,069		2,346	2,053
Other	100	87		207	176
Total interest income	9,576	8,909		19,121	18,012
INTEREST EXPENSE:
NOW, MMDA & savings deposits	125	200		251	418
Time deposits	303	422		637	889
FHLB borrowings	549	635		1,094	1,296
Junior subordinated debentures	97	100		193	199
Other	11	15		21	32
Total interest expense	1,085	1,372		2,196	2,834
NET INTEREST INCOME	8,491	7,537		16,925	15,178
PROVISION FOR LOAN LOSSES	67	773		(282)	1,827
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES	8,424	6,764		17,207	13,351
NON-INTEREST INCOME:
Service charges	1,223	1,104		2,352	2,143
Other service charges and fees	260	268		679	642
Gain on sale of securities	--	352		26	614
Mortgage banking income	188	315		292	699
Insurance and brokerage commissions	162	178		361	317
Miscellaneous	1,277	1,092		2,242	2,321
Total non-interest income	3,110	3,309		5,952	6,736
NON-INTEREST EXPENSES:
Salaries and employee benefits	4,207	4,240		8,483	8,430
Occupancy	1,466	1,320		2,988	2,632
Other	2,394	2,419		4,720	4,655
Total non-interest expense	8,067	7,979		16,191	15,717
EARNINGS BEFORE INCOME TAXES	3,467	2,094		6,968	4,370
INCOME TAXES	916	461		1,838	979
NET EARNINGS	2,551	1,633		5,130	3,391
Dividends and accretion on preferred stock	--	156		--	313
NET EARNINGS AVAILABLE TO COMMON SHAREHOLDERS	$ 2,551	$ 1,477		$ 5,130	$ 3,078
PER COMMON SHARE AMOUNTS
Basic net earnings	$ 0.45	$ 0.26		$ 0.91	$ 0.55
Diluted net earnings	$ 0.45	$ 0.26		$ 0.91	$ 0.55
Cash dividends	$ 0.04	$ 0.03		$ 0.08	$ 0.06
Book value	$ 16.56	$ 14.76		$ 16.56	$ 14.76
FINANCIAL HIGHLIGHTS
For the three and six months ended June 30, 2014 and 2013
(Dollars in thousands)
	Three months ended June 30,		Six months ended June 30,
	2014	2013		2014	2013
	(Unaudited)	(Unaudited)		(Unaudited)	(Unaudited)
SELECTED AVERAGE BALANCES:
Available for sale securities	$ 295,185	$ 290,995		$ 297,090	$ 288,773
Loans	619,675	607,481		618,574	614,241
Earning assets	938,245	952,898		940,472	944,903
Assets	1,024,988	1,021,044		1,022,147	1,012,697
Deposits	797,820	784,372		798,058	779,038
Shareholders' equity	92,388	100,054		91,331	100,532
SELECTED KEY DATA:
Net interest margin (tax equivalent)	3.88%	3.40%		3.88%	3.46%
Return on average assets	1.00%	0.64%		1.01%	0.68%
Return on average shareholders' equity	11.08%	6.55%		11.33%	6.80%
Shareholders' equity to total assets (period end)	8.88%	9.28%		8.88%	9.28%
ALLOWANCE FOR LOAN LOSSES:
Balance, beginning of period	$ 12,978	$ 14,412		$ 13,501	$ 14,423
Provision for loan losses	67	773		(282)	1,827
Charge-offs	(597)	(1,334)		(1,172)	(2,513)
Recoveries	227	178		628	292
Balance, end of period	$ 12,675	$ 14,029		$ 12,675	$ 14,029
ASSET QUALITY:
Non-accrual loans				$ 10,921	$ 16,107
90 days past due and still accruing				392	2,861
Other real estate owned				3,532	4,401
Total non-performing assets				$ 14,845	$ 23,369
Non-performing assets to total assets				1.42%	2.27%
Allowance for loan losses to non-performing assets				85.38%	60.03%
Allowance for loan losses to total loans				2.00%	2.31%
LOAN RISK GRADE ANALYSIS:				Percentage of Loans By Risk Grade
				6/30/2014	6/30/2013
Risk Grade 1 (excellent quality)				2.17%	2.77%
Risk Grade 2 (high quality)				20.56%	17.03%
Risk Grade 3 (good quality)				50.74%	49.95%
Risk Grade 4 (management attention)				16.75%	18.86%
Risk Grade 5 (watch)				4.84%	4.87%
Risk Grade 6 (substandard)				4.62%	6.17%
Risk Grade 7 (doubtful)				0.00%	0.00%
Risk Grade 8 (loss)				0.01%	0.02%
At June 30, 2014, including non-accrual loans, there were six relationships exceeding $1.0 million in the Watch risk grade (which totaled $12.4 million) and four relationships exceeding $1.0 million in the Substandard risk grade (which totaled $9.8 million).

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

Source: Peoples Bancorp of North Carolina, Inc.

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