Peoples Bancorp Announces Third Quarter 2023 Results

NEWTON, NC / ACCESSWIRE / October 23, 2023 / Peoples Bancorp of North Carolina, Inc. (NASDAQ:PEBK) (the "Company"), the parent company of Peoples Bank (the "Bank"), reported third quarter 2023 results with highlights as follows:

Third quarter 2023 highlights:

• Net earnings were $4.1 million or $0.76 per share and $0.74 per diluted share for the three months ended September 30, 2023, as compared to $5.3 million or $0.96 per share and $0.93 per diluted share for the same period one year ago.
• Net interest margin was 3.39% for the three months ended September 30, 2023 and September 30, 2022.

Year to date highlights:

• Net earnings were $12.1 million or $2.22 per share and $2.15 per diluted share for the nine months ended September 30, 2023, as compared to $12.0 million or $2.18 per share and $2.11 per diluted share for the same period one year ago.
• Cash dividends were $0.72 per share during the nine months ended September 30, 2023, as compared to $0.69 per share for the prior year period.
• Total loans were $1.1 billion at September 30, 2023, as compared to $1.0 billion at December 31, 2022.
• Non-performing assets were $3.7 million or 0.23% of total assets at September 30, 2023 and December 31, 2022.
• Total deposits were $1.4 billion at September 30, 2023 and December 31, 2022.
• Core deposits, a non-GAAP measure, were $1.2 billion or 90.03% of total deposits at September 30, 2023, compared to $1.4 billion or 98.14% of total deposits at December 31, 2022.
• Net interest margin was 3.57% for the nine months ended September 30, 2023, compared to 3.02% for the nine months ended September 30, 2022.

Net earnings were $4.1 million or $0.76 per share and $0.74 per diluted share for the three months ended September 30, 2023, as compared to $5.3 million or $0.96 per share and $0.93 per diluted share for the prior year period. Lance A. Sellers, President and Chief Executive Officer, attributed the decrease in third quarter net earnings to a decrease in net interest income, an increase in the provision for credit losses and an increase in non-interest expense, compared to the prior year period, as discussed below.

Net interest income was $13.3 million for the three months ended September 30, 2023, compared to $13.8 million for the three months ended September 30, 2022. The decrease in net interest income is due to a $4.1 million increase in interest expense, partially offset by a $3.7 million increase in interest income. The increase in interest expense is primarily due to an increase in time deposits and an increase in rates paid on interest-bearing liabilities. The increase in interest income is due to a $3.1 million increase in interest income and fees on loans and a $895,000 increase in interest income on investment securities, which were partially offset by a $294,000 decrease in interest income on balances due from banks. The increase in interest income and fees on loans is primarily due to an increase in total loans and rate increases by the Federal Reserve, partially offset by a $54,000 decrease in fee income on SBA PPP loans. The increase in interest income on investment securities is primarily due to higher yields on securities purchased after June 30, 2022. The decrease in interest income on balances due from banks is primarily due to a reduction in balances outstanding. Net interest income after the provision for loan losses was $12.8 million for the three months ended September 30, 2023, compared to $13.4 million for the three months ended September 30, 2022. The provision for credit losses for the three months ended September 30, 2023 was $562,000, compared to $408,000 for the three months ended September 30, 2022. The increase in the provision for credit losses is primarily attributable to an increase in qualitative adjustments for economic conditions and other factors at September 30, 2023, compared to September 30, 2022.

Non-interest income was $6.8 million for the three months ended September 30, 2023 and September 30, 2022.

Non-interest expense was $14.3 million for the three months ended September 30, 2023, compared to $13.5 million for the three months ended September 30, 2022. The increase in non-interest expense is primarily attributable to a $545,000 increase in salaries and employee benefits expense primarily due to a reduction in loan origination costs due to lower loan demand and a $274,000 increase in other non-interest expenses primarily due to increases in debit card expense and FDIC insurance expense.

Net earnings were $12.1 million or $2.22 per share and $2.15 per diluted share for the nine months ended September 30, 2023, as compared to $12.0 million or $2.18 per share and $2.11 per diluted share for the prior year period. The increase in year-to-date net earnings is primarily attributable to an increase in net interest income, which was partially offset by a decrease in non-interest income, an increase in non-interest expense and an increase in the provision for credit losses, compared to the prior year period, as discussed below.

Net interest income was $41.4 million for the nine months ended September 30, 2023, compared to $35.8 million for the nine months ended September 30, 2022. The increase in net interest income is due to a $14.8 million increase in interest income, partially offset by a $9.1 million increase in interest expense. The increase in interest income is due to a $10.0 million increase in interest income and fees on loans, a $53,000 increase in interest income on balances due from banks and a $4.8 million increase in interest income on investment securities. The increase in interest income and fees on loans is primarily due to an increase in total loans and rate increases by the Federal Reserve, partially offset by a $893,000 decrease in fee income on SBA PPP loans. The increase in interest income on balances due from banks is primarily due to rate increases by the Federal Reserve. The increase in interest income on investment securities is primarily due to higher yields on securities purchased after June 30, 2022. The increase in interest expense is primarily due to an increase in time deposits and an increase in rates paid on interest-bearing liabilities. Net interest income after the provision for loan losses was $40.3 million for the nine months ended September 30, 2023, compared to $34.9 million for the nine months ended September 30, 2022. The provision for credit losses for the nine months ended September 30, 2023 was $1.2 million, compared to $889,000 for the nine months ended September 30, 2022. The increase in the provision for credit losses is primarily attributable to an increase in loan balances and in qualitative adjustments for economic conditions and other factors at September 30, 2023, compared to September 30, 2022.

Non-interest income was $16.8 million for the nine months ended September 30, 2023, compared to $21.2 million for the nine months ended September 30, 2022. The decrease in non-interest income is primarily attributable to a $2.5 million net loss on the sale of securities and a $2.2 million decrease in appraisal management fee income due to a decrease in appraisal volume related to national trends in real estate purchases, which were partially offset by a $382,000 increase in miscellaneous non-interest income primarily due to an increase in deferred compensation income due to an increase in valuations for the assets in the deferred compensation plan. The securities sales referenced above were executed in January and February 2023 to reduce risk in the investment portfolio, at a time when favorable sale conditions had developed for municipal securities. These sales also provided the Bank with more flexibility to support loan growth and reduce the need for other borrowings.

Non-interest expense was $41.6 million for the nine months ended September 30, 2023, compared to $41.0 million for the nine months ended September 30, 2022. The increase in non-interest expense is primarily attributable to a $1.0 million increase in salaries and employee benefits expense primarily due to a reduction in loan origination costs due to lower loan demand and an increase in supplemental retirement plan expense, and a $1.2 million increase in other non-interest expenses primarily due to an increase in deferred compensation expense due to an increase in valuations for the assets in the deferred compensation plan, which were partially offset by a $1.8 million decrease in appraisal management fee expense due to a decrease in appraisal volume related to national trends in real estate purchases.

Income tax expense was $1.2 million for the three months ended September 30, 2023, compared to $1.4 million for the three months ended September 30, 2022. The effective tax rate was 22.09% for the three months ended September 30, 2023, compared to 21.06% for the three months ended September 30, 2022. Income tax expense was $3.4 million for the nine months ended September 30, 2023, compared to $3.1 million for the nine months ended September 30, 2022. The effective tax rate was 21.89% for the nine months ended September 30, 2023, compared to 20.40% for the nine months ended September 30, 2022. The increase in the effective tax rate is primarily due to a reduction in non-taxable investments.

Total assets were $1.6 billion as of September 30, 2023 and December 31, 2022. Available for sale securities were $378.8 million as of September 30, 2023, compared to $445.4 million as of December 31, 2022. Total loans were $1.1 billion as of September 30, 2023, compared to $1.0 billion as of December 31, 2022.

Non-performing assets were $3.7 million or 0.23% of total assets at September 30, 2023 and December 31, 2022. Non-performing assets include $3.6 million in commercial and residential mortgage loans and $134,000 in other loans at September 30, 2023, compared to $3.7 million in commercial and residential mortgage loans and $8,000 in other loans at December 31, 2022.

On January 1, 2023, the Company adopted Accounting Standards Codification ("ASC") 326 ("CECL"), which replaced incurred loss methodology with current expected loss methodology. This new guidance resulted in an initial reduction to retained earnings of $838,000, net of tax, due to a $1.1 million increase in the allowance for credit losses, comprised of a $2.3 million increase in the allowance for credit losses on unfunded commitments and a $1.2 million decrease in the allowance for credit losses on loans. The allowance for credit losses on loans was $10.3 million or 0.95% of total loans at September 30, 2023, compared to $10.5 million or 1.02% at December 31, 2022. The allowance for credit losses on unfunded commitments was $2.1 million at September 30, 2023 in the Company's CECL calculation, compared to zero at December 31, 2022 in the Company's incurred loss calculation. Management believes the current level of the allowance for credit 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 $1.4 billion at September 30, 2023 and December 31, 2022. Core deposits, a non-GAAP measure, which include noninterest-bearing demand deposits, NOW, MMDA, savings and non-brokered certificates of deposit of denominations of $250,000 or less, were $1.2 billion at September 30, 2023, compared to $1.4 billion at December 31, 2022. Management believes it is useful to calculate and present core deposits because of the positive impact this low cost funding source provides to the Bank's overall cost of funds and profitability. Certificates of deposit in amounts of more than $250,000 totaled $137.7 million at September 30, 2023, compared to $31.0 million at December 31, 2022. Other time deposits totaled $165.4 million at September 30, 2023, compared to $67.0 million at December 31, 2022. The increases in certificates of deposit in amounts of more than $250,000 and other time deposits are primarily due to promotional rates offered on select certificate of deposit products during the nine months ended September 30, 2023.

Securities sold under agreements to repurchase were $83.0 million at September 30, 2023, compared to $47.7 million at December 31, 2022. The increase in securities sold under agreements to repurchase is primarily due to customers that transferred funds from deposits to securities sold under agreements to repurchase during the nine months ended September 30, 2023. Junior subordinated debentures were $15.5 million at September 30, 2023 and December 31, 2022. Shareholders' equity was $107.4 million, or 6.68% of total assets, at September 30, 2023, compared to $105.2 million, or 6.49% of total assets, at December 31, 2022.

Peoples Bank operates 17 banking offices in North Carolina, with offices in Catawba, Alexander, Lincoln, Mecklenburg, Iredell and Wake Counties. The Bank also operates loan production offices in Lincoln, Mecklenburg, Rowan and Forsyth Counties. The Company's common stock is publicly traded and is listed on the Nasdaq Global Market under the symbol "PEBK."

Statements made in this earnings 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 the 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, 2022.

CONSOLIDATED BALANCE SHEETS
September 30, 2023, December 31, 2022 and September 30, 2022
(Dollars in thousands)

		September 30, 2023				December 31, 2022				September 30, 2022
		(Unaudited)				(Audited)				(Unaudited)
ASSETS:
Cash and due from banks		$	35,762			$	50,061			$	55,063
Interest-bearing deposits			40,857				21,535				100,398
Cash and cash equivalents			76,619				71,596				155,461
Investment securities available for sale			378,794				445,394				444,367
Other investments			2,900				2,656				2,762
Total securities			381,694				448,050				447,129
Mortgage loans held for sale			1,848				211				975
Loans			1,078,173				1,032,608				1,004,907
Less: Allowance for credit losses on loans			(10,285)				(10,494)				(10,030)
Net loans			1,067,888				1,022,114				994,877
Premises and equipment, net			16,782				18,205				18,508
Cash surrender value of life insurance			18,021				17,703				17,601
Accrued interest receivable and other assets			44,412				43,048				41,739
Total assets		$	1,607,264			$	1,620,927			$	1,676,290
LIABILITIES AND SHAREHOLDERS' EQUITY:
Deposits:
Noninterest-bearing demand		$	444,627			$	523,088			$	563,142
Interest-bearing demand, MMDA & savings			633,003				814,128				839,532
Time, over $250,000			137,715				31,001				30,118
Other time			165,423				66,998				68,299
Total deposits			1,380,768				1,435,215				1,501,091
Securities sold under agreements to repurchase			83,024				47,688				37,986
Junior subordinated debentures			15,464				15,464				15,464
Accrued interest payable and other liabilities			20,656				17,365				17,825
Total liabilities			1,499,912				1,515,732				1,572,366
Shareholders' equity:
Preferred stock, no par value; authorized
5,000,000 shares; no shares issued and outstanding			-				-				-
Common stock, no par value; authorized
20,000,000 shares; issued and outstanding
5,549,799 at 9/30/23, 5,636,830 shares at 12/31/22,
5,641,030 shares at 9/30/22			50,969				52,636				52,752
Common stock held by deferred compensation trust,
at cost; 167,193 shares at 9/30/23, 169,094 shares
at 12/31/22, 167,889 shares at 9/30/22			(2,011)				(2,181)				(2,150)
Deferred compensation			2,011				2,181				2,150
Retained earnings			107,372				100,156				97,029
Accumulated other comprehensive loss			(50,989)				(47,597)				(45,857)
Total shareholders' equity			107,352				105,195				103,924
Total liabilities and shareholders' equity		$	1,607,264			$	1,620,927			$	1,676,290

CONSOLIDATED STATEMENTS OF INCOME
For the three and nine months ended September 30, 2023 and 2022
(Dollars in thousands, except per share amounts)

		Three months ended								Nine months ended
		September 30,								September 30,
		2023				2022				2023				2022
		(Unaudited)				(Unaudited)				(Unaudited)				(Unaudited)
INTEREST INCOME:
Interest and fees on loans		$	14,145			$	11,051			$	40,695			$	30,727
Interest on due from banks			606				900				1,506				1,453
Interest on investment securities:
U.S. Government sponsored enterprises			2,358				1,288				6,868				2,280
State and political subdivisions			696				1,056				2,254				3,009
Other			501				316				1,383				463
Total interest income			18,306				14,611				52,706				37,932
INTEREST EXPENSE:
Interest-bearing demand, MMDA & savings deposits			1,752				494				4,888				1,263
Time deposits			2,512				134				4,666				421
Junior subordinated debentures			284				146				791				324
Other			418				44				912				117
Total interest expense			4,966				818				11,257				2,125
NET INTEREST INCOME			13,340				13,793				41,449				35,807
PROVISION FOR CREDIT LOSSES			562				408				1,161				889
NET INTEREST INCOME AFTER
PROVISION FOR CREDIT LOSSES			12,778				13,385				40,288				34,918
NON-INTEREST INCOME:
Service charges			1,412				1,458				4,081				4,000
Other service charges and fees			165				169				510				540
Loss on sale of securities			-				-				(2,488)				-
Mortgage banking income			72				59				204				358
Insurance and brokerage commissions			291				213				725				709
Appraisal management fee income			2,785				2,711				7,469				9,656
Miscellaneous			2,049				2,183				6,286				5,904
Total non-interest income			6,774				6,793				16,787				21,167
NON-INTEREST EXPENSES:
Salaries and employee benefits			6,722				6,177				19,508				18,469
Occupancy			1,988				2,038				5,983				5,886
Appraisal management fee expense			2,182				2,151				5,881				7,680
Other			3,363				3,089				10,204				9,004
Total non-interest expense			14,255				13,455				41,576				41,039
EARNINGS BEFORE INCOME TAXES			5,297				6,723				15,499				15,046
INCOME TAXES			1,170				1,416				3,393				3,070
NET EARNINGS		$	4,127			$	5,307			$	12,106			$	11,976
PER SHARE AMOUNTS
Basic net earnings		$	0.76			$	0.96			$	2.22			$	2.18
Diluted net earnings		$	0.74			$	0.93			$	2.15			$	2.11
Cash dividends		$	0.19			$	0.18			$	0.72			$	0.69
Book value		$	19.94			$	18.99			$	19.94			$	18.99

FINANCIAL HIGHLIGHTS
For the three and nine months ended September 30, 2023 and 2022, and the year ended December 31, 2022
(Dollars in thousands)

	Three months ended						Nine months ended						Year ended
	September 30,						September 30,						December 31,
	2023			2022			2023			2022			2022
	(Unaudited)			(Unaudited)			(Unaudited)			(Unaudited)			(Audited)
SELECTED AVERAGE BALANCES:
Available for sale securities	$	448,042		$	490,617		$	458,216		$	453,371		$	467,484
Loans		1,064,135			971,592			1,052,540			925,178			949,175
Earning assets		1,561,298			1,624,128			1,553,689			1,595,485			1,601,168
Assets		1,602,799			1,686,147			1,601,117			1,665,600			1,663,665
Deposits		1,373,251			1,506,666			1,397,975			1,477,264			1,480,113
Shareholders' equity		111,527			114,289			115,879			127,835			123,886
SELECTED KEY DATA:
Net interest margin (tax equivalent) (1)		3.39%			3.39%			3.57%			3.02%			3.22%
Return on average assets		1.02%			1.25%			1.01%			0.96%			0.97%
Return on average shareholders' equity		14.68%			18.42%			13.97%			12.53%			13.01%
Average shareholders' equity to total average assets		6.96%			6.78%			7.24%			7.68%			7.45%

	Three months ended						Nine months ended						Year ended
	September 30,						September 30,						December 31,
	2023			2022			2023			2022			2022
	(Unaudited)			(Unaudited)			(Unaudited)			(Unaudited)			(Audited)
SELECTED AVERAGE BALANCES:
Available for sale securities	$	448,042		$	490,617		$	458,216		$	453,371		$	467,484
Loans		1,064,135			971,592			1,052,540			925,178			949,175
Earning assets		1,561,298			1,624,128			1,553,689			1,595,485			1,601,168
Assets		1,602,799			1,686,147			1,601,117			1,665,600			1,663,665
Deposits		1,373,251			1,506,666			1,397,975			1,477,264			1,480,113
Shareholders' equity		111,527			114,289			115,879			127,835			123,886
SELECTED KEY DATA:
Net interest margin (tax equivalent) (1)		3.39%			3.39%			3.57%			3.02%			3.22%
Return on average assets		1.02%			1.25%			1.01%			0.96%			0.97%
Return on average shareholders' equity		14.68%			18.42%			13.97%			12.53%			13.01%
Average shareholders' equity to total average assets		6.96%			6.78%			7.24%			7.68%			7.45%
							September 30, 2023			September 30, 2022			December 31, 2022
							(Unaudited)			(Unaudited)			(Audited)
ALLOWANCE FOR CREDIT LOSSES:
Allowance for credit losses on loans							$	10,285		$	9,355		$	10,494
Allowance for credit losses on unfunded commitments								2,131			-			-
Provision for credit losses (2)								1,161			889			1,472
Charge-offs (2)								(579)			(590)			(752)
Recoveries (2)								282			376			419
ASSET QUALITY:
Non-accrual loans							$	3,614		$	3,708		$	3,728
90 days past due and still accruing								99			-			-
Other real estate owned								-			-			-
Total non-performing assets							$	3,713		$	3,708		$	3,728
Non-performing assets to total assets								0.23%			0.22%			0.23%
Allowance for credit losses on loans to non-performing assets								277.00%			270.50%			281.49%
Allowance for credit losses on loans to total loans								0.95%			1.00%			1.02%
LOAN RISK GRADE ANALYSIS:
Percentage of loans by risk grade
Risk Grade 1 (excellent quality)								0.44%			0.57%			0.45%
Risk Grade 2 (high quality)								19.74%			19.68%			19.70%
Risk Grade 3 (good quality)								73.35%			72.87%			73.03%
Risk Grade 4 (management attention)								5.15%			5.63%			5.49%
Risk Grade 5 (watch)								0.78%			0.59%			0.68%
Risk Grade 6 (substandard)								0.54%			0.66%			0.65%
Risk Grade 7 (doubtful)								0.00%			0.00%			0.00%
Risk Grade 8 (loss)								0.00%			0.00%			0.00%

At September 30, 2023, including non-accrual loans, there were two relationships exceeding $1.0 million in the Watch risk grade, which totaled $4.7 million. There were no relationships exceeding $1.0 million in the Substandard risk grade.

(1) This amount reflects the tax benefit that the Company receives related to its tax-exempt loans and securities, which carry interest rates lower than similar taxable investments due to their tax-exempt status. This amount has been computed using an effective tax rate of 22.98% and is reduced by the related nondeductible portion of interest expense.

(2) For the nine months ended September 30, 2023 and 2022 and the year ended December 31, 2022.

Contact:

Lance A. Sellers
President and Chief Executive Officer

Jeffrey N. Hooper
Executive Vice President and Chief Financial Officer

828-464-5620, Fax [phone]

SOURCE: Peoples Bancorp of North Carolina, Inc.

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The Peoples Bancorp of North Carolina Stock at the time of publication of the news with a raise of +0,09 % to 21,73USD on Nasdaq stock exchange (21. Oktober 2023, 02:00 Uhr).