8-K
PEOPLES BANCORP OF NORTH CAROLINA INC (PEBK)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): January 16, 2020
Peoples Bancorp of North Carolina, Inc.
(Exact Name of Registrant as Specified in Its Charter)
North Carolina
(State or Other Jurisdiction of Incorporation)
| 000-27205 | 56-2132396 | |
|---|---|---|
| (Commission File<br>No.) | (IRS Employer<br>Identification No.) | |
| 518 West C Street, Newton, North Carolina | 28658 | |
| --- | --- | |
| (Address<br>of Principal Executive Offices) | (Zip<br>Code) | |
| (828) 464-5620 | ||
| --- | ||
| (Registrant’s<br>Telephone Number, Including Area Code) | ||
| Check<br>the appropriate box below if the Form 8-K filing is intended to<br>simultaneously satisfy the filing obligation of the registrant<br>under any of the following provisions: | ||
| --- | --- | --- |
| ☐ | Written<br>communications pursuant to Rule 425 under the Securities Act (17<br>CFR 230.425) | |
| ☐ | Soliciting<br>material pursuant to Rule 14a-12 under the Exchange Act (17 CFR<br>240.14a-12) | |
| ☐ | Pre-commencement<br>communications pursuant to Rule 14d-2(b) under the Exchange Act (17<br>CFR 240.14d-2(b)) | |
| ☐ | Pre-commencement<br>communications pursuant to Rule 13e-4(c) under the Exchange Act (17<br>CFR 240.13e-4(c)) | |
| Peoples<br>Bancorp of North Carolina, Inc. | ||
| --- | --- | |
| INDEX | ||
| Page | ||
| Item<br>2.02 – Results of Operations and Financial<br>Condition | 3 | |
| Item 8.01 – Other Events | 3 | |
| Item<br>9.01 – Financial Statements and Exhibits | 3 | |
| Signatures | 4 | |
| Exhibit (99)(a) Press Release dated January 23,<br>2020 | 5 |
Item 2.02. Results of Operations and Financial Condition
On January 23, 2020, Peoples Bancorp of North Carolina, Inc. issued a press release announcing fourth quarter and annual 2019 earnings results.
A copy of the press release is attached hereto as Exhibit (99)(a) and is incorporated by reference herein.
Item 8.01. Other Events
On January 16, 2020, the Board of Directors of Peoples Bancorp of North Carolina, Inc. declared a special cash dividend in the amount of $0.15 per share. The special cash dividend will be paid on February 14, 2020 to shareholders of record on February 3, 2020.
The special cash dividend was announced in a press release attached hereto as Exhibit (99)(a) and is incorporated by reference herein.
Item 9.01. Financial Statements and Exhibits
(d) Exhibits
(99)(a) Press Release dated January 23, 2020
Disclosure about forward-looking statements
Statements made in this Form 8-K, 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 report 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 might cause such a difference include, but are not limited to, changes in interest rate environment, management’s business strategy, national, regional, and local market conditions and legislative and regulatory conditions.
The Company undertakes no obligation to publicly revise these forward-looking statements to reflect subsequent events or circumstances. Readers should also carefully review the risk factors described in other documents the Company files from time to time with the Securities and Exchange Commission.
3
| SIGNATURES | ||
|---|---|---|
| Pursuant<br>to the requirements of the Securities Exchange Act of 1934, the<br>registrant has duly caused this report to be signed on its behalf<br>by the undersigned hereunto duly authorized. | ||
| PEOPLES<br>BANCORP OF NORTH CAROLINA, INC. | ||
| Date:<br>January 23, 2020 | By: | /s/ A.<br>Joseph Lampron, Jr. |
| A.<br>Joseph Lampron, Jr. | ||
| Executive<br>Vice President and Chief Financial Officer |
4
Blueprint
EXHIBIT (99)(a)
NEWS RELEASE
January 23, 2020
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
For Immediate Release
PEOPLES BANCORP ANNOUNCES FOURTH QUARTER EARNINGS RESULTS, ANNUAL EARNINGS RESULTS AND A SPECIAL CASH DIVIDEND
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 $3.0 million or $0.50 basic and diluted net earnings per share for the three months ended December 31, 2019, as compared to $3.4 million or $0.57 basic and diluted net earnings per share for the same period one year ago.
●
The Company redeemed $5.0 million of outstanding trust preferred securities in December 2019.
Year to date highlights:
●
Net earnings were a record $14.1 million or $2.37 basic net earnings per share and $2.36 diluted net earnings per share for the year ended December 31, 2019, as compared to $13.4 million or $2.23 basic net earnings per share and $2.22 diluted net earnings per share for the same period one year ago.
●
Total loans increased $45.9 million to $849.9 million at December 31, 2019, compared to $804.0 million at December 31, 2018.
●
Core deposits were $932.2 million or 96.45% of total deposits at December 31, 2019, compared to $859.2 million or 97.95% of total deposits at December 31, 2018.
Lance A. Sellers, President and Chief Executive Officer, attributed the decrease in fourth quarter net earnings to an increase in non-interest expense, which was partially offset by an increase in net interest income and a decrease in the provision for loan losses during the three months ended December 31, 2019, compared to the three months ended December 31, 2018, as discussed below.
Net interest income was $11.4 million for the three months ended December 31, 2019, compared to $11.3 million for the three months ended December 31, 2018. The increase in net interest income was primarily due to a $689,000 increase in interest income, which was partially offset by a $616,000 increase in interest expense. The increase in interest income was primarily attributable to an increase in the average outstanding balance of loans, compared to the same period last year. The increase in interest expense was primarily due to an increase in interest rates on deposits. Net interest income after the provision for loan losses was $11.2 million for the three months ended December 31, 2019, compared to $10.9 million for the three months ended December 31, 2018. The provision for loan losses for the three months ended December 31, 2019 was $186,000, compared to $418,000 for the three months ended December 31, 2018. The decrease in the provision for loan losses is primarily attributable to a reduction in the required level of the allowance for loan losses resulting from lower historical loss rates used to calculate the reserve in accordance with Accounting Standards Codification 450-20.
Non-interest income was $4.5 million for the three months ended December 31, 2019 and 2018.
Non-interest expense was $12.1 million for the three months ended December 31, 2019, compared to $11.3 million for the three months ended December 31, 2018. The increase in non-interest expense was primarily attributable to a $514,000 increase in salaries and benefits expense and a $296,000 increase in appraisal management fee expense. The increase in salaries and benefits expense was primarily attributable to an increase in salary expense primarily due to annual salary increases, an increase in insurance costs and an increase in commission expense primarily due to an increase in mortgage loan production. The increase in appraisal management fee expense was primarily due to an increase in the volume of appraisals.
Year-to-date net earnings as of December 31, 2019 were $14.1 million or $2.37 basic net earnings per share and $2.36 diluted net earnings per share for the year ended December 31, 2019, as compared to $13.4 million or $2.23 basic net earnings per share and $2.22 diluted net earnings per share for the same period one year ago. The increase in year-to-date net earnings is primarily attributable to an increase in net interest income and an increase in non-interest income, which were partially offset by an increase in 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, 2019 was $45.8 million, compared to $43.2 million for the same period one year ago. The increase in net interest income was primarily due to a $4.3 million increase in interest income, which was partially offset by a $1.6 million increase in interest expense. The increase in interest income was primarily attributable to an increase in the average outstanding balance of loans and a higher average prime rate during the year ended December 31, 2019, compared to the same period last year. The increase in interest expense was primarily due to an increase in interest rates on deposits. Net interest income after the provision for loan losses was $45.0 million for the year ended December 31, 2019, compared to $42.4 million for the same period one year ago. The provision for loan losses for the year ended December 31, 2019 was $863,000, compared to $790,000 for the year ended December 31, 2018. The increase in the provision for loan losses is primarily attributable to a $45.9 million increase in loans from December 31, 2018 to December 31, 2019.
Non-interest income was $17.7 million for the year ended December 31, 2019, compared to $16.2 million for the year ended December 31, 2018. The increase in non-interest income is primarily attributable to a $1.3 million increase in appraisal management fee income due to an increase in the volume of appraisals and a $413,000 increase in mortgage banking income due to an increase in mortgage loan volume.
Non-interest expense was $45.5 million for the year ended December 31, 2019, compared to $42.6 million for the year ended December 31, 2018. The increase in non-interest expense was primarily due to a $1.7 million increase in salaries and benefits expense and a $961,000 increase in appraisal management fee expense. The increase in salaries and benefits expense was primarily attributable to an increase in salary expense primarily due to annual salary increases, an increase in incentive compensation expense, an increase in insurance costs and an increase in commission expense primarily due to an increase in mortgage loan production. The increase in appraisal management fee expense was primarily due to an increase in the volume of appraisals.
Income tax expense was $672,000 for the three months ended December 31, 2019, compared to $690,000 for the three months ended December 31, 2018. The effective tax rate was 18.47% for the three months ended December 31, 2019, compared to 16.72% for the three months ended December 31, 2018. Income tax expense was $3.1 million for the year ended December 31, 2019, compared to $2.6 million for the year ended December 31, 2018. The effective tax rate was 18.23% for the year ended December 31, 2019, compared to 16.39% for the year ended December 31, 2018.
Total assets were $1.2 billion as of December 31, 2019, compared to $1.1 billion at December 31, 2018. Available for sale securities were $195.7 million as of December 31, 2019, compared to $194.6 million as of December 31, 2018. Total loans were $849.9 million as of December 31, 2019, compared to $804.0 million as of December 31, 2018.
Non-performing assets were $3.6 million or 0.31% of total assets at December 31, 2019, compared to $3.3 million or 0.31% of total assets at December 31, 2018. Non-performing assets include $3.4 million in commercial and residential mortgage loans and $154,000 in other loans at December 31, 2019, compared to $3.2 million in commercial and residential mortgage loans, $1,000 in acquisition, development and construction loans, $99,000 in other loans and $27,000 in other real estate owned at December 31, 2018.
The allowance for loan losses at December 31, 2019 was $6.7 million or 0.79% of total loans, compared to $6.4 million or 0.80% of total loans at December 31, 2018. 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 were $966.5 million at December 31, 2019, compared to $877.2 million at December 31, 2018. Core deposits, which include noninterest-bearing demand deposits, NOW, MMDA, savings and non-brokered certificates of deposit of denominations less than $250,000, were $932.2 million at December 31, 2019, compared to $859.2 million at December 31, 2018. Certificates of deposit in amounts of $250,000 or more totaled $34.3 million at December 31, 2019, compared to $16.2 million at December 31, 2018. The increase in certificates of deposit in amounts of $250,000 or more is primarily attributable to an $18.9 million increase in wholesale certificates of deposit from December 31, 2018 to December 31, 2019.
Securities sold under agreements to repurchase were $24.2 million at December 31, 2019, compared to $58.1 million at December 31, 2018. The decrease in securities sold under agreements to repurchase is primarily due to approximately $21.0 million transferred from securities sold under agreements to repurchase to MMDA during the third quarter of 2019.
Junior subordinated debentures were $15.6 million at December 31, 2019, compared to $20.6 million at December 31, 2018. The decrease in junior subordinated debentures is the result of a $5.0 million redemption of the Company’s outstanding trust preferred securities during the fourth quarter of 2019.
Shareholders’ equity was $134.1 million, or 11.59% of total assets, at December 31, 2019, compared to $123.6 million, or 11.31% of total assets, at December 31, 2018. The Company repurchased 90,354 shares of its common stock during the year ended December 31, 2019 under the Company’s stock repurchase program, which was funded in February 2019.
The Company’s Board of Directors declared a special cash dividend in the amount of $0.15 per share at their most recent meeting. The special cash dividend will be paid on February 14, 2020 to shareholders of record on February 3, 2020. Shareholders are encouraged to enroll in the Company’s Dividend Reinvestment and Stock Purchase Plan. For details, contact Krissy Price at (828) 464-5620 or (800) 948-7195 or you may email any questions to our transfer agent, Broadridge Corporate Issuer Solutions, Inc. at shareholder@broadridge.com.
Peoples Bank currently operates 20 banking offices entirely in North Carolina, with offices in Catawba, Alexander, Lincoln, Mecklenburg, Iredell and Wake Counties. Peoples Bank also operates loan production offices in Lincoln, Mecklenburg 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, 2018.
CONSOLIDATED BALANCE SHEETS
December 31, 2019 and 2018
(Dollars in thousands)
| December 31,<br><br><br>2019 | December<br>31,<br><br><br>2018 | |
|---|---|---|
| (Unaudited) | (Audited) | |
| ASSETS: | ||
| Cash<br>and due from banks | $48,337 | $40,553 |
| Interest-bearing<br>deposits | 720 | 2,817 |
| Federal<br>funds sold | 3,330 | - |
| Cash<br>and cash equivalents | 52,387 | 43,370 |
| Investment<br>securities available for sale | 195,746 | 194,578 |
| Other<br>investments | 4,231 | 4,361 |
| Total<br>securities | 199,977 | 198,939 |
| Mortgage<br>loans held for sale | 4,417 | 680 |
| Loans | 849,874 | 804,023 |
| Less:<br>Allowance for loan losses | (6,680) | (6,445) |
| Net<br>loans | 843,194 | 797,578 |
| Premises<br>and equipment, net | 18,604 | 18,450 |
| Cash<br>surrender value of life insurance | 16,319 | 15,936 |
| Accrued<br>interest receivable and other assets | 19,984 | 18,298 |
| Total<br>assets | $1,154,882 | $1,093,251 |
| LIABILITIES AND SHAREHOLDERS' EQUITY: | ||
| Deposits: | ||
| Noninterest-bearing<br>demand | $338,004 | $298,817 |
| NOW,<br>MMDA & savings | 516,757 | 475,223 |
| Time,<br>$250,000 or more | 34,269 | 16,239 |
| Other<br>time | 77,487 | 86,934 |
| Total<br>deposits | 966,517 | 877,213 |
| Securities<br>sold under agreements to repurchase | 24,221 | 58,095 |
| FHLB<br>borrowings | - | - |
| Junior<br>subordinated debentures | 15,619 | 20,619 |
| Accrued<br>interest payable and other liabilities | 14,405 | 13,707 |
| Total<br>liabilities | 1,020,762 | 969,634 |
| Shareholders'<br>equity: | ||
| Series<br>A preferred stock, $1,000 stated value; authorized<br>5,000,000<br>shares; no shares issued and outstanding | - | - |
| Common<br>stock, no par value; authorized 20,000,000<br>shares; issued and outstanding 5,912,300<br>shares 12/31/19 and 5,995,256<br>shares 12/31/18 | 59,813 | 62,096 |
| Retained<br>earnings | 70,663 | 60,535 |
| Accumulated<br>other comprehensive income | 3,644 | 986 |
| Total<br>shareholders' equity | 134,120 | 123,617 |
| Total<br>liabilities and shareholders' equity | $1,154,882 | $1,093,251 |
CONSOLIDATED STATEMENTS OF INCOME
For the three months and years ended December 31, 2019 and 2018
(Dollars in thousands, except per share amounts)
| Three months ended | Years ended | |||
|---|---|---|---|---|
| December 31, | December 31, | |||
| 2019 | 2018 | 2019 | 2018 | |
| (Unaudited) | (Unaudited) | (Unaudited) | (Audited) | |
| INTEREST INCOME: | ||||
| Interest<br>and fees on loans | $10,784 | $10,292 | $43,301 | $38,654 |
| Interest<br>on due from banks | 77 | 49 | 213 | 304 |
| Interest<br>on federal funds sold | 331 | - | 331 | - |
| Interest<br>on investment securities: | ||||
| U.S.<br>Government sponsored enterprises | 728 | 612 | 2,670 | 2,333 |
| State<br>and political subdivisions | 650 | 927 | 2,915 | 3,877 |
| Other | 43 | 44 | 171 | 182 |
| Total<br>interest income | 12,613 | 11,924 | 49,601 | 45,350 |
| INTEREST EXPENSE: | ||||
| NOW,<br>MMDA & savings deposits | 539 | 218 | 1,596 | 769 |
| Time<br>deposits | 328 | 130 | 909 | 472 |
| FHLB<br>borrowings | 135 | - | 205 | - |
| Junior<br>subordinated debentures | 188 | 212 | 844 | 790 |
| Other | 35 | 49 | 203 | 115 |
| Total<br>interest expense | 1,225 | 609 | 3,757 | 2,146 |
| NET INTEREST INCOME | 11,388 | 11,315 | 45,844 | 43,204 |
| PROVISION FOR (REDUCTION OF PROVISION | ||||
| FOR) LOAN LOSSES | 186 | 418 | 863 | 790 |
| NET INTEREST INCOME AFTER | ||||
| PROVISION FOR LOAN LOSSES | 11,202 | 10,897 | 44,981 | 42,414 |
| NON-INTEREST INCOME: | ||||
| Service<br>charges | 1,167 | 1,192 | 4,576 | 4,355 |
| Other<br>service charges and fees | 166 | 177 | 714 | 705 |
| Gain<br>on sale of securities | - | (35) | 226 | 15 |
| Mortgage<br>banking income | 430 | 179 | 1,264 | 851 |
| Insurance<br>and brokerage commissions | 235 | 233 | 877 | 824 |
| Appraisal<br>management fee income | 1,199 | 764 | 4,484 | 3,206 |
| Miscellaneous | 1,329 | 1,989 | 5,598 | 6,210 |
| Total<br>non-interest income | 4,526 | 4,499 | 17,739 | 16,166 |
| NON-INTEREST EXPENSES: | ||||
| Salaries<br>and employee benefits | 6,178 | 5,664 | 23,238 | 21,530 |
| Occupancy | 1,955 | 1,803 | 7,364 | 7,170 |
| Appraisal<br>management fee expense | 883 | 587 | 3,421 | 2,460 |
| Other | 3,074 | 3,216 | 11,494 | 11,414 |
| Total<br>non-interest expense | 12,090 | 11,270 | 45,517 | 42,574 |
| EARNINGS<br>BEFORE INCOME TAXES | 3,638 | 4,126 | 17,203 | 16,006 |
| INCOME<br>TAXES | 672 | 690 | 3,136 | 2,624 |
| NET EARNINGS | $2,966 | $3,436 | $14,067 | $13,382 |
| PER SHARE AMOUNTS | ||||
| Basic<br>net earnings | $0.50 | $0.57 | $2.37 | $2.23 |
| Diluted<br>net earnings | $0.50 | $0.57 | $2.36 | $2.22 |
| Cash<br>dividends | $0.14 | $0.13 | $0.66 | $0.52 |
| Book<br>value | $22.68 | $20.62 | $22.68 | $20.62 |
FINANCIAL HIGHLIGHTS
For the three months and years ended December 31, 2019 and 2018
(Dollars in thousands)
| Three months ended | Years ended | |||
|---|---|---|---|---|
| December 31, | December 31, | |||
| 2019 | 2018 | 2019 | 2018 | |
| (Unaudited) | (Unaudited) | (Unaudited) | (Audited) | |
| SELECTED AVERAGE BALANCES: | ||||
| Available<br>for sale securities | $185,880 | $202,385 | $185,302 | $209,742 |
| Loans | 849,745 | 792,373 | 834,517 | 777,098 |
| Earning<br>assets | 1,136,318 | 1,008,381 | 1,055,730 | 1,007,485 |
| Assets | 1,225,963 | 1,093,082 | 1,143,338 | 1,094,707 |
| Deposits | 980,795 | 888,713 | 932,646 | 903,120 |
| Shareholders'<br>equity | 133,630 | 121,194 | 134,669 | 123,796 |
| SELECTED KEY DATA: | ||||
| Net<br>interest margin (tax equivalent) | 4.04% | 4.55% | 4.42% | 4.39% |
| Return<br>on average assets | 0.96% | 1.25% | 1.23% | 1.22% |
| Return<br>on average shareholders' equity | 8.81% | 11.25% | 10.45% | 10.81% |
| Shareholders'<br>equity to total assets (period end) | 11.61% | 11.31% | 11.61% | 11.31% |
| ALLOWANCE FOR LOAN LOSSES: | ||||
| Balance,<br>beginning of period | $6,578 | $6,295 | $6,445 | $6,366 |
| Provision<br>for loan losses | 186 | 418 | 863 | 790 |
| Charge-offs | (166) | (367) | (1,076) | (1,133) |
| Recoveries | 82 | 99 | 448 | 422 |
| Balance,<br>end of period | $6,680 | $6,445 | $6,680 | $6,445 |
| ASSET QUALITY: | ||||
| Non-accrual<br>loans | $3,553 | $3,314 | ||
| 90<br>days past due and still accruing | - | - | ||
| Other<br>real estate owned | - | 27 | ||
| Total<br>non-performing assets | $3,553 | $3,341 | ||
| Non-performing<br>assets to total assets | 0.31% | 0.31% | ||
| Allowance<br>for loan losses to non-performing assets | 188.01% | 192.91% | ||
| Allowance<br>for loan losses to total loans | 0.79% | 0.80% |
LOAN RISK GRADE ANALYSIS:
| Percentage of Loans | ||
|---|---|---|
| By Risk Grade | ||
| 12/31/2019 | 12/31/2018 | |
| Risk<br>Grade 1 (excellent quality) | 0.59% | 0.73% |
| Risk<br>Grade 2 (high quality) | 24.45% | 25.47% |
| Risk<br>Grade 3 (good quality) | 62.73% | 61.05% |
| Risk<br>Grade 4 (management attention) | 10.02% | 10.19% |
| Risk<br>Grade 5 (watch) | 1.45% | 1.72% |
| Risk<br>Grade 6 (substandard) | 0.76% | 0.84% |
| Risk<br>Grade 7 (doubtful) | 0.00% | 0.00% |
| Risk<br>Grade 8 (loss) | 0.00% | 0.00% |
At December 31, 2019, including non-accrual loans, there were two relationships exceeding $1.0 million in the Watch risk grade (which totaled $3.1 million). There were no relationships exceeding $1.0 million in the Substandard risk grade.
(END)