Peoples Bancorp Announces Fourth Quarter Earnings Results and Special Dividend

NEWTON, N.C., Jan. 30, 2012 (GLOBE NEWSWIRE) — Peoples Bancorp of North Carolina, Inc. (Nasdaq:PEBK), the parent company of Peoples Bank, reported net income of $1.8 million for the three months ended December 31, 2011, resulting in $0.32 basic and diluted net earnings per share, before adjustment for preferred stock dividends and accretion, as compared to a net loss of $439,000 or $0.08 basic and diluted net loss per share, for the same period one year ago. After adjusting for dividends and accretion on preferred stock, net earnings available to common shareholders for the three months ended December 31, 2011, were $1.4 million or $0.26 basic and diluted net earnings per common share as compared to a $787,000 net loss available to common shareholders or $0.14 basic and diluted net loss per common share, for the same period one year ago. Tony W. Wolfe, President and Chief Executive Officer, attributed the increase in fourth quarter earnings to a decrease in the provision for loan losses and an increase in non-interest income, which were partially offset by an increase in non-interest expense.

Year-to-date net earnings as of December 31, 2011 were $5.2 million, or $0.93 basic and diluted net earnings per share, before adjustment for preferred stock dividends and accretion, as compared to $1.8 million, or $0.33 basic and diluted net earnings per share, 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, 2011 were $3.8 million or $0.68 basic and diluted net earnings per common share as compared to $447,000, or $0.08 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 aggregate increases in net interest income and non-interest income and a decrease in the provision for loan losses, which were partially offset by an increase in non-interest expense, as discussed below.

As a result of the increase in annual earnings, the Board of Directors of the Company authorized a $0.05 per share special cash dividend. This cash dividend will be distributed on February 17, 2012 to shareholders of record on February 6, 2012. 

Net interest income was $8.6 million for the three months ended December 31, 2011 and December 31, 2010. Net interest income after the provision for loan losses increased to $5.6 million during the fourth quarter of 2011, compared to $2.3 million for the same period one year ago. The provision for loan losses for the three months ended December 31, 2011, was $2.9 million as compared to $6.2 million for the same period one year ago. The decrease in the provision for loan losses is primarily attributable to a $18.3 million reduction in non-accrual loans from December 31, 2010 to December 31, 2011 and a $5.8 million decrease in net charge-offs during fourth quarter 2011 compared to fourth quarter 2010.

Non-interest income increased 5% to $4.5 million for the three months ended December 31, 2011, as compared to $4.3 million for the same period last year. This increase is primarily attributable to a $402,000 increase in the gains on sale of securities.

Non-interest expense increased 1% to $7.6 million for the three months ended December 31, 2011, as compared to $7.5 million for the same period last year. This increase is primarily due a $277,000 increase in salaries and benefits expense, which was partially offset by a $141,000 decrease in occupancy expense.

Year-to-date net interest income as of December 31, 2011 increased 3% to $34.3 million compared to $33.3 million for the same period one year ago. This increase is primarily attributable to a reduction in interest expense due to a decrease in the cost of funds for deposits. Net interest income after the provision for loan losses increased 28% to $21.7 million for the year ended December 31, 2011, compared to $16.9 million for the same period one year ago. The provision for loan losses for the year ended December 31, 2011 was $12.6 million as compared to $16.4 million for the same period one year ago. The decrease in the provision for loan losses is primarily attributable to a $18.3 million reduction in non-accrual loans from December 31, 2010 to December 31, 2011 and a $4.8 million decrease in net charge-offs during the year ended December 31, 2011 compared to the same period last year.

Non-interest income increased 5% to $14.5 million for the year ended December 31, 2011, as compared to $13.9 million for the same period one year ago. This increase is primarily attributable to a $1.2 million increase in gains on the sale of securities, which was partially offset by a $625,000 reduction in service charges and fees.

Non-interest expense increased 2% to $29.6 million for the year ended December 31, 2011, as compared to $28.9 million for the same period last year. This increase is primarily due a $642,000 increase in salaries and benefits expense, which was partially offset by a $97,000 decrease in occupancy expense.

Total assets amounted to $1.1 billion as of December 31, 2011 and December 31, 2010. Available for sale securities increased 18% to $321.4 million as of December 31, 2011, compared to $272.4 million as of December 31, 2010. This increase reflects the investment of funds received from the decrease in loans. Total loans amounted to $670.5 million as of December 31, 2011, compared to $726.2 million as of December 31, 2010. The decrease is primarily due to the anticipated reduction in existing loans as the Bank continues to work through problem loans and the continuing decline in loan originations.

Non-performing assets decreased 32% to $32.1 million or 3.01% of total assets at December 31, 2011, compared to $46.9 million or 4.40% of total assets at December 31, 2010 primarily due to a decrease in non-accrual loans. Non-performing loans include $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, as compared to $23.1 million in AD&C loans, $16.2 million in commercial and residential mortgage loans and $1.0 million in other loans as of December 31, 2010. The allowance for loan losses at December 31, 2011, amounted to $16.6 million or 2.48% of total loans compared to $15.5 million or 2.13% of total loans at December 31, 2010. According to Mr. Wolfe, 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 $827.1 million as of December 31, 2011, compared to $838.7 million at December 31, 2010. 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 $40.3 million or 7% to $633.0 million at December 31, 2011, as compared to $592.7 million at December 31, 2010. Certificates of deposit in amounts greater than $100,000 or more totaled $193.0 million at December 31, 2011, as compared to $241.4 million at December 31, 2010. This decrease is primarily due to a $24.5 million decrease in certificates of deposit issued through the Certificate of Deposit Account Registry Service (CDARS) and a $12.7 million decrease in brokered certificates of deposit as of December 31, 2011, compared to December 31, 2010.

Securities sold under agreement to repurchase amounted to $39.6 million at December 31, 2011, as compared to $34.1 million at December 31, 2010. 

Shareholders’ equity was $103.0 million, or 9.66% of total assets, at December 31, 2011, as compared to $96.9 million, or 9.07% of total assets, at December 31, 2010.

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 Peoples Bancorp of North Carolina, Inc.’s annual report on Form 10-K for the year ended December 31, 2010.

CONSOLIDATED BALANCE SHEETS    
December 31, 2011 and December 31, 2010     
(Dollars in thousands)    
     
  December 31, 2011 December 31, 2010
   (Unaudited)   (Audited) 
ASSETS:    
Cash and due from banks  $ 28,467  $ 22,521
Interest bearing deposits  769  1,456
Cash and cash equivalents  29,236  23,977
     
Certificates of deposits  —   735
     
Investment securities available for sale  321,388  272,449
Other investments  5,712  5,761
Total securities  327,100  278,210
     
Mortgage loans held for sale  5,146  3,814
     
Loans  670,497  726,160
Less: Allowance for loan losses  (16,604)  (15,493)
Net loans  653,893  710,667
     
Premises and equipment, net  16,896  17,334
Cash surrender value of life insurance  12,835  7,539
Accrued interest receivable and other assets  21,957  25,376
Total assets  $ 1,067,063  $ 1,067,652
     
     
LIABILITIES AND SHAREHOLDERS’ EQUITY:    
Deposits:    
Non-interest bearing demand  $ 136,878  $ 114,792
NOW, MMDA & Savings  366,133  332,511
Time, $100,000 or more  193,045  241,366
Other time   131,055  150,043
Total deposits  827,111  838,712
     
Demand notes payable to U.S. Treasury  —   1,600
Securities sold under agreement to repurchase  39,600  34,094
FHLB borrowings  70,000  70,000
Junior subordinated debentures  20,619  20,619
Accrued interest payable and other liabilities  6,706  5,769
Total liabilities  964,036  970,794
     
Shareholders’ equity:    
Series A preferred stock, $1,000 stated value; authorized  
5,000,000 shares; issued and outstanding    
25,054 shares in 2011 and 2010  24,758  24,617
Common stock, no par value; authorized    
20,000,000 shares; issued and outstanding    
5,544,160 shares in 2011 and 5,541,413 in 2010  48,298  48,281
Retained earnings  26,895  23,573
Accumulated other comprehensive income  3,076  387
Total shareholders’ equity  103,027  96,858
     
Total liabilities and shareholders’ equity  $ 1,067,063  $ 1,067,652
         
         
CONSOLIDATED STATEMENTS OF INCOME         
For the three months and years ended December 31, 2011 and 2010      
(Dollars in thousands, except per share amounts)        
         
   Three months ended   Years ended 
   December 31,   December 31, 
   2011   2010   2011   2010 
   (Unaudited)   (Unaudited)   (Unaudited)   (Audited) 
INTEREST INCOME:        
Interest and fees on loans  $ 8,712  $ 10,031  $ 36,407  $ 40,267
Interest on investment securities:        
U.S. Government sponsored enterprises  1,416  1,068  5,414  5,035
States and political subdivisions  793  725  3,180  2,173
Other  68  51  258  205
Total interest income  10,989  11,875  45,259  47,680
         
INTEREST EXPENSE:        
NOW, MMDA & savings deposits  428  829  2,263  3,472
Time deposits  1,134  1,527  5,035  6,786
FHLB borrowings  698  780  2,956  3,285
Junior subordinated debentures  106  101  407  411
Other  54  88  285  394
Total interest expense  2,420  3,325  10,946  14,348
         
NET INTEREST INCOME  8,569  8,550  34,313  33,332
PROVISION FOR LOAN LOSSES  2,936  6,221  12,632  16,438
NET INTEREST INCOME AFTER        
PROVISION FOR LOAN LOSSES  5,633  2,329  21,681  16,894
         
NON-INTEREST INCOME:        
Service charges  1,261  1,433  5,106  5,626
Other service charges and fees  488  511  2,090  2,195
Gain on sale of securities  1,767  1,365  4,262  3,057
Mortgage banking income  226  160  757  532
Insurance and brokerage commission  120  114  471  390
Miscellaneous   620  704  1,827  2,084
Total non-interest income  4,482  4,287  14,513  13,884
         
NON-INTEREST EXPENSES:        
Salaries and employee benefits  3,937  3,660  14,766  14,124
Occupancy  1,309  1,450  5,339  5,436
Other  2,384  2,410  9,467  9,388
Total non-interest expense  7,630  7,520  29,572  28,948
         
EARNINGS (LOSS) BEFORE INCOME TAXES  2,485  (904)  6,622  1,830
INCOME TAXES  708  (465)  1,463  (11)
         
NET EARNINGS (LOSS)  1,777  (439)  5,159  1,841
         
Dividends and accretion on preferred stock  348  348  1,393  1,394
         
NET EARNINGS (LOSS) AVAILABLE TO        
COMMON SHAREHOLDERS  $ 1,429  $ (787)  $ 3,766  $ 447
         
PER COMMON SHARE AMOUNTS        
Basic net earnings  $ 0.26  $ (0.14)  $ 0.68  $ 0.08
Diluted net earnings  $ 0.26  $ (0.14)  $ 0.68  $ 0.08
Cash dividends  $ 0.02  $ 0.02  $ 0.08  $ 0.08
Book value  $ 14.06  $ 12.96  $ 14.06  $ 12.96
         
         
FINANCIAL HIGHLIGHTS        
For the three months and years ended December 31, 2011 and 2010      
(Dollars in thousands)        
         
   Three months ended   Years ended 
   December 31,   December 31, 
   2011   2010   2011   2010 
   (Unaudited)   (Unaudited)   (Unaudited)   (Audited) 
SELECTED AVERAGE BALANCES:        
Available for sale securities  $ 312,699  $ 242,793  $ 295,413  $ 219,797
Loans  677,539  740,249  697,527  757,532
Earning assets  1,022,341  1,016,888  1,015,451  999,054
Assets  1,084,473  1,088,333  1,074,248  1,078,140
Deposits  838,566  854,745  835,549  840,343
Shareholders’ equity  103,169  100,187  102,568  101,529
         
         
SELECTED KEY DATA:        
Net interest margin (tax equivalent) 3.48% 3.49% 3.55% 3.46%
Return of average assets 0.65% -0.16% 0.48% 0.17%
Return on average shareholders’ equity 6.83% -1.71% 5.03% 1.81%
Shareholders’ equity to total assets (period end) 9.66% 9.07% 9.66% 9.07%
         
         
ALLOWANCE FOR LOAN LOSSES:        
Balance, beginning of period  $ 16,348  $ 17,718  $ 15,493  $ 15,413
Provision for loan losses  2,936  6,221  12,632  16,438
Charge-offs  (2,726)  (8,548)  (12,260)  (16,910)
Recoveries  46  102  739  552
Balance, end of period  $ 16,604  $ 15,493  $ 16,604  $ 15,493
         
         
ASSET QUALITY:        
Non-accrual loans      $ 21,785  $ 40,062
90 days past due and still accruing      2,709  210
Other real estate owned      7,576  6,673
Total non-performing assets      $ 32,070  $ 46,945
Non-performing assets to total assets     3.01% 4.40%
Allowance for loan losses to non-performing assets      51.77% 33.00%
Allowance for loan losses to total loans     2.48% 2.13%
         
         
LOAN RISK GRADE ANALYSIS:     Percentage of Loans
      By Risk Grade*
      12/31/2011 12/31/2010
Risk Grade 1 (excellent quality)     3.12% 3.36%
Risk Grade 2 (high quality)     16.58% 16.60%
Risk Grade 3 (good quality)     49.30% 47.00%
Risk Grade 4 (management attention)     19.65% 21.36%
Risk Grade 5 (watch)     4.76% 2.84%
Risk Grade 6 (substandard)     6.21% 8.12%
Risk Grade 7 (low substandard)     0.00% 0.37%
Risk Grade 8 (doubtful)     0.00% 0.07%
Risk Grade 9 (loss)     0.00% 0.00%
         
At December 31, 2011, including non-accrual loans, there were eight relationships exceeding $1.0 million (which totaled $14.3 million) in the Watch risk grade, seven relationships exceeding $1.0 million in the Substandard risk grade (which totaled $17.8 million) and no relationships exceeding $1.0 million in the Low Substandard risk grade. There were two relationships with loans in the Watch risk grade and the Substandard risk grade exceeding $1.0 million total (which totaled $6.7 million). 
CONTACT: Tony W. Wolfe          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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