Peoples Bancorp Announces Fourth Quarter And Record Full Year 2021 Results

NEWTON, NC / ACCESSWIRE / January 24, 2022 / Peoples Bancorp of North Carolina, Inc. (NASDAQ:PEBK) (the "Company"), the parent company of Peoples Bank (the "Bank"), reported fourth quarter and full year 2021 results with highlights as follows:

Fourth quarter 2021 highlights:

• Net earnings were $3.0 million or $0.55 per share and $0.53 per diluted share for the three months ended December 31, 2021, as compared to $1.9 million or $0.34 per share and $0.33 per diluted share for the same period one year ago.
• The Bank recognized $338,000 in Small Business Administration (SBA) Paycheck Protection Program (PPP) loan fee income during the three months ended December 31, 2021, as compared to $1.0 million in PPP loan fee income for the same period one year ago.

Full year 2021 highlights:

• Net earnings were a record $15.1 million or $2.71 per share and $2.63 per diluted share for the year ended December 31, 2021, as compared to $11.4 million or $2.01 per share and $1.95 per diluted share for the year ended December 31, 2020.
• The Bank originated 419 PPP loans, totaling $29.1 million, during the year ended December 31, 2021. The Bank recognized $3.4 million in PPP loan fee income during the year ended December 31, 2021, as compared to $1.4 million in PPP loan fee income for the year ended December 31, 2020.
• Core deposits were $1.4 billion or 98.14% of total deposits at December 31, 2021, compared to $1.2 billion or 97.92% of total deposits at December 31, 2020.

Net earnings were $3.0 million or $0.55 per share and $0.53 per diluted share for the three months ended December 31, 2021, as compared to $1.9 million or $0.34 per share and $0.33 per diluted share for the prior year. Lance A. Sellers, President and Chief Executive Officer, attributed the increase in fourth quarter net earnings to a recovery in the provision for loan losses and an increase in non-interest income, which were partially offset by a decrease in net interest income and an increase in non-interest expense compared to the prior year period, as discussed below.

Net interest income was $10.6 million for the three months ended December 31, 2021, compared to $11.3 million for the three months ended December 31, 2020. The decrease in net interest income is due to a $883,000 decrease in interest income, which was partially offset by a $254,000 decrease in interest expense. The decrease in interest income is primarily due to a $1.2 million decrease in interest income and fees on loans, which was partially offset by an increase in interest income on investment securities. The decrease in interest income and fees on loans is primarily due to a decrease in total loans and a decrease in fee income on SBA PPP loans. The increase in interest income on investment securities is primarily due to additional securities purchased due to an increase in cash. The decrease in interest expense is primarily due to a decrease in Federal Home Loan Bank ("FHLB") borrowings and a decrease in rates paid on interest-bearing liabilities. Net interest income after the provision for loan losses was $10.9 million for the three months ended December 31, 2021, compared to $10.5 million for the three months ended December 31, 2020. The provision for loan losses for the three months ended December 31, 2021 was a recovery of $300,000, compared to a provision of $799,000 for the three months ended December 31, 2020. The recovery in the provision for loan losses is primarily attributable to a decrease in reserves on loans that were previously modified as a result of the COVID-19 pandemic combined with net recoveries of $692,000 in the fourth quarter of 2021. Loans that were previously modified have been separated from the pools for the general reserve to recognize their heightened susceptibility to an environment still affected by the spread of the virus. Separating the previously modified loans into their own pool allows for more specific factors to be considered for their reserve pool, that would not be applicable to loans in the pools for the general reserve. There were no loans at December 31, 2021 with modifications as a result of the COVID-19 pandemic. By way of comparison, at December 31, 2020, the balance of loans with existing modifications as a result of the COVID-19 pandemic was $18.3 million. The Bank continues to track all loans that were previously modified as a result of the COVID-19 pandemic. The loan balances associated with COVID-19 pandemic related modifications have been grouped into their own pool within the Bank's Allowance for Loan and Lease Losses ("ALLL") model as management considers that they have a higher likelihood of risk, and a higher reserve rate has been applied to that pool. Loans included in this pool totaled $88.7 million at December 31, 2021. The full effects of stimulus in the current environment are still unknown, and additional losses in this pool of loans may be present but not as yet identified. At December 31, 2020, the balance for all loans that were then currently modified or previously modified but returned to their original terms was $119.6 million. The $30.9 million decrease from December 31, 2020 to December 31, 2021 in the balance of currently or previously modified loans that had returned to their original terms is primarily due to loans paid off during the year ended December 31, 2021.

Non-interest income was $6.7 million for the three months ended December 31, 2021, compared to $5.9 million for the three months ended December 31, 2020. 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, which was partially offset by a $494,000 decrease in gains on sale of securities and a $438,000 decrease in mortgage banking income due to a decrease in mortgage loan volume, and additional loans being retained for the Bank's portfolio.

Non-interest expense was $14.2 million for the three months ended December 31, 2021, compared to $14.1 million for the three months ended December 31, 2020. The increase in non-interest expense is primarily attributable to a $1.0 million increase in appraisal management fee expense due to an increase in the volume of appraisals, which was partially offset by a $241,000 decrease in occupancy expense primarily due to a reduction in maintenance expense and a $814,000 decrease in other non-interest expenses primarily due to a $1.1 million FHLB borrowings prepayment penalty in December 2020.

Net earnings were $15.1 million or $2.71 per share and $2.63 per diluted share for the year ended December 31, 2021, as compared to $11.4 million or $2.01 per share and $1.95 per diluted share for the prior year. The increase in year-to-date net earnings is primarily attributable to a recovery in the provision for loan losses and an increase in non-interest income, which were partially offset by a decrease in net interest income and an increase in non-interest expense for the year ended December 31, 2021, compared to the year ended December 31, 2020, as discussed below.

Net interest income in 2021 was $44.0 million, compared to $44.1 million in 2020. The decrease in net interest income is due to a $779,000 decrease in interest income, which was partially offset by a $631,000 decrease in interest expense. The decrease in interest income was primarily due to a $1.1 million decrease in interest income and fees on loans, which was primarily due to a decrease in interest income on loans resulting from a decrease in total loans, which was partially offset by an increase in fee income on SBA PPP loans. The decrease in interest expense was primarily due to a decrease in rates paid on interest-bearing liabilities and a decrease in FHLB borrowings. Net interest income after the provision for loan losses was $45.1 million for the year ended December 31, 2021, compared to $39.9 million for the prior year. The provision for loan losses for the year ended December 31, 2021 was a recovery of $1.2 million, compared to a provision of $4.3 million for the year ended December 31, 2020. The decrease in the provision for loan losses is primarily attributable to a decrease in reserves on loans with payment modifications made as a result of the COVID-19 pandemic and a decrease in reserves due to a net decrease in the volume of loans in the general reserve pool.

Non-interest income was $24.9 million for the year ended December 31, 2021, compared to $22.9 million for the year ended December 31, 2020. The increase in non-interest income is primarily attributable to a $2.1 million increase in appraisal management fee income due to an increase in the volume of appraisals and a $1.9 million increase in miscellaneous non-interest income primarily due to an increase in debit card income resulting from increased debit card activity and an increase in income on Small Business Investment Company ("SBIC") investments. These increases in non-interest income were partially offset by a $2.6 million decrease in gains on sale of securities.

Non-interest expense was $51.1 million for the year ended December 31, 2021, compared to $48.9 million for the year ended December 31, 2020. The increase in non-interest expense was primarily attributable to a $968,000 increase in salaries and employee benefits expense primarily due to an increase in incentive compensation and a $1.8 million increase in appraisal management fee expense due to an increase in the volume of appraisals.

Income tax expense was $732,000 for the three months ended December 31, 2021, compared to $374,000 for the three months ended December 31, 2020. The effective tax rate was 19.58% for the three months ended December 31, 2021, compared to 16.30% for the three months ended December 31, 2020. Income tax expense was $3.8 million for the year ended December 31, 2021, compared to $2.5 million for the year ended December 31, 2020.

The effective tax rate was 20.05% for the year ended December 31, 2021, compared to 17.98% for the year ended December 31, 2020. The increase in the effective tax rate is primarily due to a reduction in non-taxable investments combined with an increase in earnings before income taxes.

Total assets were $1.6 billion as of December 31, 2021, compared to $1.4 billion at December 31, 2020. Available for sale securities were $406.5 million as of December 31, 2021, compared to $245.2 million as of December 31, 2020. Total loans were $884.9 million as of December 31, 2021, compared to $948.6 million as of December 31, 2020. The decrease in loans is primarily due to a $57.7 million decrease in PPP loans due to PPP loans being forgiven by the SBA during the year ended December 31, 2021 and a $39.6 million decrease in commercial loans due to loan payoffs during the year ended December 31, 2021. The Bank had $18.0 million and $75.8 million in PPP loans at December 31, 2021 and December 31, 2020, respectively.

Non-performing assets were $3.2 million or 0.20% of total assets at December 31, 2021, compared to $3.9 million or 0.27% of total assets at December 31, 2020. Non-performing assets include $3.2 million in commercial and residential mortgage loans and $51,000 in other loans at December 31, 2021, compared to $3.5 million in commercial and residential mortgage loans, $226,000 in other loans, and $128,000 in other real estate owned at December 31, 2020.

The allowance for loan losses at December 31, 2021 was $9.4 million or 1.06% of total loans, compared to $9.9 million or 1.04% of total loans at December 31, 2020. 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 $1.4 billion at December 31, 2021, compared to $1.2 billion at December 31, 2020. Core deposits, which include noninterest-bearing demand deposits, NOW, MMDA, savings and non-brokered certificates of deposit of denominations less than $250,000, were $1.4 billion at December 31, 2021, compared to $1.2 billion at December 31, 2020. Certificates of deposit in amounts of $250,000 or more totaled $26.3 million at December 31, 2021, compared to $25.8 million at December 31, 2020.

Securities sold under agreements to repurchase were $37.1 million at December 31, 2021, compared to $26.2 million at December 31, 2020. Junior subordinated debentures were $15.5 million at December 31, 2021 and December 31, 2020. Shareholders' equity was $142.4 million, or 8.77% of total assets, at December 31, 2021, compared to $139.9 million, or 9.88% of total assets, at December 31, 2020. The Company repurchased 127,597 shares of its common stock during the year ended December 31, 2021 under the Company's stock repurchase program, which was authorized in February 2021.

Peoples Bank currently operates 17 banking offices entirely 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 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, 2020.

Contact:

Lance A. Sellers
President and Chief Executive Officer
Jeffrey N. Hooper
Executive Vice President and Chief Financial Officer
828-464-5620, Fax 828-465-6780

CONSOLIDATED BALANCE SHEETS
December 31, 2021 and 2020
(Dollars in thousands)

CONSOLIDATED STATEMENTS OF INCOME
For the three months and years ended December 31, 2021 and 2020
(Dollars in thousands, except per share amounts)

FINANCIAL HIGHLIGHTS
For the three months and years ended December 31, 2021 and 2020
(Dollars in thousands)

At December 31, 2021, including non-accrual loans, there were two relationships exceeding $1.0 million in the Watch risk grade, which totaled $3.4 million. There were no relationships exceeding $1.0 million in the Substandard risk grade.

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SOURCE: Peoples Bancorp of North Carolina, Inc.