January 28, 2013 at 09:00 AM EST
Peoples Bancorp Announces Fourth Quarter and Annual Earnings Results

NEWTON, N.C., Jan. 28, 2013 (GLOBE NEWSWIRE) -- Peoples Bancorp of North Carolina, Inc. (Nasdaq:PEBK), the parent company of Peoples Bank, reported fourth quarter and annual earnings results with highlights as follows:

Highlights:

  • Earnings before securities gains and income taxes were $1.4 million for the three months ended December 31, 2012 compared to $718,000 for the same period one year ago.
  • Earnings before securities gains and income taxes were $6.2 million for the year ended December 31, 2012 compared to $2.4 million for the year ended December 31, 2011.
  • Net earnings were $1.2 million or $0.22 basic and diluted net earnings per share for the three months ended December 31, 2012, before adjustment for preferred stock dividends and accretion, as compared to $1.8 million or $0.32 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 $1.1 million or $0.19 basic and diluted net earnings per common share for the three months ended December 31, 2012, as compared to $1.4 million or $0.26 basic and diluted net earnings per common share, for the same period one year ago.
  • Core deposits were $646.4 million, or 82.7% of total deposits at December 31, 2012, compared to $633.0 million, or 76.5% of total deposits at December 31, 2011.

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

Year-to-date net earnings as of December 31, 2012 were $5.8 million, or $1.04 basic and diluted net earnings per share, before adjustment for preferred stock dividends and accretion, as compared to $5.2 million, or $0.93 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 year ended December 31, 2012 were $4.8 million, or $0.86 basic and diluted net earnings per common share, as compared to $3.8 million, or $0.68 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, which was partially offset by aggregate decreases in net interest income and non-interest income and aggregate increases in non-interest expense, as discussed below.

Net interest income was $7.7 million for the three months ended December 31, 2012, compared to $8.6 million for the same period one year ago. This decrease was primarily due to a decrease in interest income resulting from decreases in loans and investment securities and a decrease in the yield on earning assets, which were partially offset by a decrease in interest expense due to a reduction in the cost of funds and a reduction in interest bearing liabilities. Net interest income after the provision for loan losses increased to $7.2 million during the fourth quarter of 2012, compared to $5.6 million for the same period one year ago. The provision for loan losses for the three months ended December 31, 2012, was $511,000, as compared to $2.9 million for the same period one year ago. The decrease in the provision for loan losses is primarily attributable to a $4.2 million reduction in non-accrual loans from December 31, 2011 to December 31, 2012.

Non-interest income was $2.7 million for the three months ended December 31, 2012, as compared to $4.5 million for the same period one year ago. This decrease is primarily attributable to a $1.8 million decrease in the gains on sale of securities, which was partially offset by a $210,000 increase in mortgage banking income, for the three months ended December 31, 2012, as compared to the same period one year ago.

Non-interest expense was $8.5 million for the three months ended December 31, 2012, as compared to $7.6 million for the same period one year ago. This increase is attributable to a $529,000 increase in salaries and employee benefits expense, which was primarily due to salary increases in 2012 and bonuses accrued in the fourth quarter 2012, and a $316,000 increase in non-interest expenses other than salary, employee benefits and occupancy expenses for the three months ended December 31, 2012, as compared to the same period one year ago. 

Year-to-date net interest income as of December 31, 2012 decreased 8.1% to $31.5 million compared to $34.3 million for the same period one year ago.   This decrease is primarily attributable to a decrease in interest income resulting from decreases in loans and investment securities and a decrease in the yield on earning assets, which were partially offset by a decrease in interest expense due to a reduction in the cost of funds and a reduction in interest bearing liabilities. Net interest income after the provision for loan losses increased 22.8% to $26.6 million for the year ended December 31, 2012, compared to $21.7 million for the same period one year ago. The provision for loan losses for the year ended December 31, 2012 was $4.9 million, as compared to $12.6 million for the same period one year ago. The decrease in the provision for loan losses is primarily attributable to a $4.4 million decrease in net charge-offs during the year ended December 31, 2012 compared to the same period one year ago and a $4.2 million reduction in non-accrual loans from December 31, 2011 to December 31, 2012.

Non-interest income was $12.5 million for the year ended December 31, 2012, as compared to $14.5 million for the year ended December 31, 2011. This decrease is primarily attributable to $3.0 million decrease in the gains on sale of securities, which was partially offset by a $472,000 increase in mortgage banking income and a $362,000 increase in income from the Company's appraisal management company subsidiary, for the year ended December 31, 2012, as compared to the year ended December 31, 2011.

Non-interest expense was $31.8 million for the year ended December 31, 2012, as compared to $29.6 million for the year ended December 31, 2011. This increase is primarily due to a $1.7 million increase in salaries and employee benefits expense and a $653,000 increase in non-interest expenses other than salary, employee benefits and occupancy expenses for the year ended December 31, 2012, as compared to the same period one year ago. The increase in salaries and employee benefits expense was primarily due to salary increases and bonuses accrued in 2012, along with an increase in commissions on mortgage and real estate appraisal sales. The increase in non-interest expenses other than salary, employee benefits and occupancy expenses included $232,000 in expenses associated with the Company's purchase of preferred stock and a common stock warrant from the U.S. Department of the Treasury ("UST"), which was issued to the UST in connection with the Company's participation in the Capital Purchase Program ("CPP") under the Troubled Asset Relief Program ('TARP") in 2008.

Total assets amounted to $1.0 billion as of December 31, 2012, as compared to $1.1 billion as of December 31, 2011. Available for sale securities decreased 7.3% to $297.8 million as of December 31, 2012, compared to $321.4 million as of December 31, 2011. This decrease reflects investment securities sold and paydowns of mortgage-backed securities during the year ended December 31, 2012, which were partially offset by purchases of investment securities. Total loans amounted to $620.0 million as of December 31, 2012, compared to $670.5 million as of December 31, 2011. This decrease is primarily due to the anticipated reduction in existing loans through the work-through of problem loans and normal principal repayments, which have exceeded the diminished level of loan originations, due primarily to the current level of slow economic growth.

Non-performing assets declined to $26.3 million or 2.6% of total assets at December 31, 2012, compared to $32.1 million or 3.0% of total assets at December 31, 2011 primarily due to a decrease in non-accrual loans. Non-performing loans include $9.2 million in acquisition, development and construction ("AD&C") loans, $10.4 million in commercial and residential mortgage loans and $415,000 in other loans at December 31, 2012, as compared to $13.2 million in AD&C loans, $10.7 million in commercial and residential mortgage loans and $554,000 in other loans at December 31, 2011. The allowance for loan losses at December 31, 2012 was $14.4 million or 2.3% of total loans, compared to $16.6 million or 2.5% of total loans at December 31, 2011. 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 $781.5 million as of December 31, 2012, compared to $827.1 million at December 31, 2011. Core deposits, which include non-interest bearing demand deposits, NOW, MMDA, savings and non-brokered certificates of deposit of denominations less than $100,000, increased $13.4 million to $646.4 million at December 31, 2012, as compared to $633.0 million at December 31, 2011. Certificates of deposit in amounts greater than $100,000 or more totaled $134.7 million at December 31, 2012, as compared to $193.0 million at December 31, 2011. This decrease is attributable to a $25.6 million decrease in brokered 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 agreement to repurchase were $34.6 million at December 31, 2012, as compared to $39.6 million at December 31, 2011. 

Shareholders' equity was $97.7 million, or 9.6% of total assets, as of December 31, 2012, compared to $103.0 million, or 9.7% of total assets, as of December 31, 2011. This decrease reflects the Company's repurchase and retirement of a portion of its preferred shares in the second quarter of 2012. The Company purchased 12,530 shares of the Company's 25,054 outstanding shares of preferred stock from the UST, which was issued to the UST in connection with the Company's participation in the CPP under TARP in 2008. 

Peoples Bank operates 22 offices entirely in North Carolina, with offices in Catawba, Alexander, Lincoln, Mecklenburg, Union, Iredell 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, 2011.

CONSOLIDATED BALANCE SHEETS  
December 31, 2012 and December 31, 2011 
(Dollars in thousands)  
   
  December 31, 2012 December 31, 2011
  (Unaudited)  (Audited) 
ASSETS:
Cash and due from banks $ 32,617  $ 22,532
Interest bearing deposits 16,226  6,704
Cash and cash equivalents 48,843  29,236
Investment securities available for sale 297,823  321,388
Other investments 5,599  5,712
Total securities303,422  327,100
Mortgage loans held for sale6,922  5,146
Loans619,974  670,497
Less: Allowance for loan losses (14,423)  (16,604)
Net loans605,551  653,893
Premises and equipment, net15,874  16,896
Cash surrender value of life insurance13,273  12,835
Accrued interest receivable and other assets 19,631  21,957
Total assets$ 1,013,516  $ 1,067,063
LIABILITIES AND SHAREHOLDERS' EQUITY:
Deposits:
Non-interest bearing demand $ 161,582  $ 136,878
NOW, MMDA & savings371,719  366,133
Time, $100,000 or more134,733  193,045
Other time 113,491  131,055
Total deposits781,525  827,111
Securities sold under agreement to repurchase34,578  39,600
FHLB borrowings 70,000  70,000
Junior subordinated debentures20,619  20,619
Accrued interest payable and other liabilities9,047  6,706
Total liabilities915,769  964,036
Shareholders' equity:
Series A preferred stock, $1,000 stated value; authorized 5,000,000 shares; issued and outstanding 12,524 shares in 2012 and 25,054 shares in 201112,524  24,758
Common stock, no par value; authorized 20,000,000 shares; issued and outstanding 5,613,495 shares in 2012 and 5,544,160 shares in 201148,133  48,298
Retained earnings31,478  26,895
Accumulated other comprehensive income 5,612  3,076
Total shareholders' equity 97,747  103,027
Total liabilities and shareholders' equity$ 1,013,516  $ 1,067,063
CONSOLIDATED STATEMENTS OF INCOME 
For the three months and years ended December 31, 2012 and 2011
(Dollars in thousands, except per share amounts)
 Three months ended December 31,  Years ended December 31, 
 2012   2011  2012   2011 
 (Unaudited)  (Unaudited)  (Unaudited)  (Audited) 
INTEREST INCOME:
Interest and fees on loans $ 7,936  $ 8,697 $ 32,758  $ 36,374
Interest on due from banks 16  15 51  33
Interest on investment securities:
U.S. Government sponsored enterprises 419  1,416 2,746  5,414
State and political subdivisions 940  793 3,403  3,180
Other 81  68 287  258
Total interest income 9,392  10,989 39,245  45,259
INTEREST EXPENSE:
NOW, MMDA & savings deposits 267  428 1,180  2,263
Time deposits 572  1,134 3,205  5,035
FHLB borrowings 680  698 2,744  2,956
Junior subordinated debentures 105  106 438  407
Other 25  54 129  285
Total interest expense 1,649  2,420 7,696  10,946
NET INTEREST INCOME 7,743  8,569 31,549  34,313
PROVISION FOR LOAN LOSSES 511  2,936 4,924  12,632
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 7,232  5,633 26,625  21,681
NON-INTEREST INCOME:
Service charges 1,162  1,261 4,764  5,106
Other service charges and fees 408  488 1,940  2,090
Gain on sale of securities 15  1,767 1,218  4,262
Mortgage banking income 436  226 1,229  757
Insurance and brokerage commissions 114  120 517  471
Miscellaneous  544  620 2,869  1,827
Total non-interest income 2,679  4,482 12,537  14,513
NON-INTEREST EXPENSES:
Salaries and employee benefits 4,466  3,937 16,426  14,766
Occupancy 1,345  1,309 5,236  5,339
Other 2,700  2,384 10,120  9,467
Total non-interest expense 8,511  7,630 31,782  29,572
EARNINGS BEFORE INCOME TAXES 1,400  2,485 7,380  6,622
INCOME TAXES 187  708 1,587  1,463
NET EARNINGS 1,213  1,777 5,793  5,159
Dividends and accretion on preferred stock 157  348 1,010  1,393
NET EARNINGS AVAILABLE TO COMMON SHAREHOLDERS $ 1,056  $ 1,429 $ 4,783  $ 3,766
PER COMMON SHARE AMOUNTS
Basic net earnings $ 0.19  $ 0.26 $ 0.86  $ 0.68
Diluted net earnings $ 0.19  $ 0.26 $ 0.86  $ 0.68
Cash dividends $ 0.07  $ 0.02 $ 0.18  $ 0.08
Book value $ 15.18  $ 14.06 $ 15.18  $ 14.06
FINANCIAL HIGHLIGHTS
For the three months and years ended December 31, 2012 and 2011
(Dollars in thousands)
 Three months ended 
December 31, 
 Years ended
December 31, 
 2012   2011  2012   2011 
 (Unaudited)  (Unaudited)  (Unaudited)  (Audited) 
SELECTED AVERAGE BALANCES:
Available for sale securities $ 279,800  $ 312,699 $ 289,010  $ 295,413
Loans 629,368  677,539 648,595  697,527
Earning assets 943,051  1,022,341 965,994  1,015,451
Assets 1,008,543  1,084,473 1,029,612  1,074,248
Deposits 773,015  838,566 786,976  835,549
Shareholders' equity 98,552  103,169 103,805  102,568
SELECTED KEY DATA:
Net interest margin (tax equivalent)3.46% 3.48%3.44% 3.55%
Return on average assets0.48% 0.65%0.56% 0.48%
Return on average shareholders' equity4.90% 6.83%5.58% 5.03%
Shareholders' equity to total assets (period end)9.64% 9.66%9.64% 9.66%
ALLOWANCE FOR LOAN LOSSES:
Balance, beginning of period $ 16,551  $ 16,348 $ 16,604  $ 15,493
Provision for loan losses 511  2,936 4,924  12,632
Charge-offs (2,688)  (2,726) (8,331)  (12,260)
Recoveries 49  46 1,226  739
Balance, end of period $ 14,423  $ 16,604 $ 14,423  $ 16,604
ASSET QUALITY:
Non-accrual loans $ 17,630  $ 21,785
90 days past due and still accruing 2,403  2,709
Other real estate owned 6,256  7,576
Repossessed assets 10  -- 
Total non-performing assets $ 26,299  $ 32,070
Non-performing assets to total assets2.60% 3.01%
Allowance for loan losses to non-performing assets 54.84% 51.77%
Allowance for loan losses to total loans2.33% 2.48%
LOAN RISK GRADE ANALYSIS:Percentage of Loans
By Risk Grade
12/31/2012 12/31/2011
Risk Grade 1 (excellent quality)2.93% 3.12%
Risk Grade 2 (high quality)16.94% 16.58%
Risk Grade 3 (good quality)47.74% 49.30%
Risk Grade 4 (management attention)20.70% 19.65%
Risk Grade 5 (watch)5.07% 4.76%
Risk Grade 6 (substandard)6.26% 6.21%
Risk Grade 7 (low substandard)0.00% 0.00%
Risk Grade 8 (doubtful)0.00% 0.00%
Risk Grade 9 (loss)0.00% 0.00%
At December 31, 2012, including non-accrual loans, there were nine relationships exceeding $1.0 million (which totaled $17.2 million) in the Watch risk grade, four relationships exceeding $1.0 million in the Substandard risk grade (which totaled $11.1 million) and no relationships exceeding $1.0 million in the Low Substandard risk grade. There were three relationships with loans in the Watch risk grade and the Substandard risk grade exceeding $1.0 million total (which totaled $4.6 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
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