NEWTON, NC / ACCESSWIRE / October 21, 2019 / Peoples Bancorp of North Carolina, Inc. (NASDAQ:PEBK), the parent company of Peoples Bank, reported third quarter earnings results with highlights as follows:

Third quarter highlights:

• Net earnings were $3.6 million or $0.62 basic net earnings per share and $0.61 diluted net earnings per share for the three months ended September 30, 2019, compared to $3.5 million or $0.58 basic net earnings per share and $0.57 diluted net earnings per share for the same period one year ago.
• Total assets reached $1.2 billion at September 30, 2019 primarily due to a new $70 million borrowing from the Federal Home Loan Bank of Atlanta ('FHLB') in September 2019.

Year to date highlights:

• Net earnings were $11.1 million or $1.87 basic net earnings per share and $1.86 diluted net earnings per share for the nine months ended September 30, 2019, compared to $9.9 million or $1.66 basic net earnings per share and $1.65 diluted net earnings per share for the same period one year ago.
• Total loans increased $58.9 million to $845.6 million at September 30, 2019, compared to $786.7 million at September 30, 2018.
• Core deposits were $928.3 million or 96.54% of total deposits at September 30, 2019, compared to $875.7 million or 98.01% of total deposits at September 30, 2018.

Lance A. Sellers, President and Chief Executive Officer, attributed the increase in third quarter net earnings 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 during the three months ended September 30, 2019, compared to the three months ended September 30, 2018, as discussed below.

Net interest income was $11.4 million for the three months ended September 30, 2019, compared to $11.1 million for the three months ended September 30, 2018. The increase in net interest income was primarily due to a $822,000 increase in interest income, which was partially offset by a $437,000 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 third quarter of 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 $11.0 million for the three months ended September 30, 2019, compared to $10.9 million for the three months ended September 30, 2018. The provision for loan losses for the three months ended September 30, 2019 was $422,000, compared to $110,000 for the three months ended September 30, 2018. The increase in the provision for loan losses is primarily attributable to a $58.9 million increase in loans from September 30, 2018 to September 30, 2019.

Non-interest income was $4.7 million for the three months ended September 30, 2019, compared to $3.9 million for the three months ended September 30, 2018. The increase in non-interest income is primarily attributable to a $512,000 increase in appraisal management fee income due to an increase in the volume of appraisals.

Non-interest expense was $11.3 million for the three months ended September 30, 2019, compared to $10.7 million for the three months ended September 30, 2018. The increase in non-interest expense was primarily attributable to a $385,000 increase in appraisal management fee expense due to an increase in the volume of appraisals and a $176,000 increase in salaries and benefits expense, which was primarily due to an increase in the number of full-time equivalent employees and annual salary increases.

Year-to-date net earnings as of September 30, 2019 were $11.1 million or $1.87 basic net earnings per share and $1.86 diluted net earnings per share, compared to $9.9 million or $1.66 basic net earnings per share and $1.65 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 September 30, 2019 was $34.5 million, compared to $31.9 million for the same period one year ago. The increase in net interest income was primarily due to a $3.6 million increase in interest income, which was partially offset by a $995,000 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 nine months ended September 30 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 $33.8 million for the nine months ended September 30, 2019, compared to $31.5 million for the same period one year ago. The provision for loan losses for the nine months ended September 30, 2019 was $677,000, compared to $372,000 for the nine months ended September 30, 2018. The increase in the provision for loan losses is primarily attributable to a $58.9 million increase in loans from September 30, 2018 to September 30, 2019.

Non-interest income was $13.2 million for the nine months ended September 30, 2019, compared to $11.7 million for the nine months ended September 30, 2018. The increase in non-interest income is primarily attributable to an $843,000 increase in appraisal management fee income due to an increase in the volume of appraisals.

Non-interest expense was $33.4 million for the nine months ended September 30, 2019, compared to $31.3 million for the nine months ended September 30, 2018. The increase in non-interest expense was primarily due to a $665,000 increase in appraisal management fee expense due to an increase in the volume of appraisals and a $1.2 million increase in salaries and benefits expense primarily due to an increase in the number of full-time equivalent employees and annual salary increases.

Income tax expense was $834,000 for the three months ended September 30, 2019, compared to $687,000 for the three months ended September 30, 2018. The effective tax rate was 18.72% for the three months ended September 30, 2019, compared to 16.54% for the three months ended September 30, 2018. Income tax expense was $2.5 million for the nine months ended September 30, 2019, compared to $1.9 million for the nine months ended September 30, 2018. The effective tax rate was 18.16% for the nine months ended September 30, 2019, compared to 16.28% for the nine months ended September 30, 2018.

Total assets were $1.2 billion as of September 30, 2019, compared to $1.1 billion at September 30, 2018. Available for sale securities were $186.3 million as of September 30, 2019, compared to $206.0 million as of September 30, 2018. Total loans were $845.6 million as of September 30, 2019, compared to $786.7 million as of September 30, 2018.

Non-performing assets were $3.3 million or 0.27% of total assets at September 30, 2019, compared to $3.9 million or 0.36% of total assets at September 30, 2018. Non-performing assets include $3.1 million in commercial and residential mortgage loans, $146,000 in other loans and $26,000 in other real estate owned at September 30, 2019, compared to $3.7 million in commercial and residential mortgage loans, $39,000 in acquisition, development and construction loans and $136,000 in other loans at September 30, 2018.

The allowance for loan losses at September 30, 2019 was $6.6 million or 0.78% of total loans, compared to $6.3 million or 0.80% of total loans at September 30, 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 $961.6 million at September 30, 2019, compared to $893.5 million at September 30, 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 $928.3 million at September 30, 2019, compared to $875.7 million at September 30, 2018. Certificates of deposit in amounts of $250,000 or more totaled $33.1 million at September 30, 2019, compared to $17.0 million at September 30, 2018. The increase in certificates of deposit in amounts of $250,000 or more is primarily attributable to a $18.5 million increase in wholesale certificates of deposit from September 30, 2018 to September 30, 2019.

Securities sold under agreements to repurchase were $21.9 million at September 30, 2019, compared to $55.8 million at September 30, 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.

Borrowings from the FHLB totaled $70.0 million at September 30, 2019, compared to zero at September 30, 2018. The increase in FHLB borrowings reflects a new $70.0 million FHLB advance executed in September 2019 to take advantage of a ten-year convertible advance program available from the FHLB of Atlanta at a rate of 0.83%. The funds will be utilized to replace higher cost funding along with investing in low risk, short-term assets at yields higher than the advance rate in order to increase the Bank's net interest income.

Shareholders' equity was $132.7 million, or 10.85% of total assets, at September 30, 2019, compared to $119.7 million, or 10.88% of total assets, at September 30, 2018. The Company repurchased 90,354 shares of its common stock during the nine months ended September 30, 2019 under the Company's stock repurchase program, which was funded in February 2019.

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.

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

CONSOLIDATED BALANCE SHEETS
September 30, 2019, December 31, 2018 and September 30, 2018
(Dollars in thousands)

CONSOLIDATED STATEMENTS OF INCOME
For the three and nine months ended September 30, 2019 and 2018
(Dollars in thousands, except per share amounts)

Three months ended

Nine months ended

September 30,

September 30,

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