Accounting Standards and Credit Losses - The Company adopted ASC 326 on January 1, 2023, resulting in an initial reduction to retained earnings of $838,000 due to a $1.1 million increase in the allowance for credit losses[34]. - The allowance for credit losses on loans is estimated using relevant information, with no loans individually evaluated as of March 31, 2023[38]. - The allowance for credit losses on off-balance sheet credit exposures is estimated using the same methodologies as portfolio loans[43]. - The allowance for credit losses on unfunded commitments increased by $2.3 million as part of the ASC 326 adoption[34]. - The allowance for credit losses decreased to $9.617 million as of March 31, 2023, from $10.494 million at December 31, 2022, indicating a reduction of about 8.3%[52]. - The total allowance for credit losses on loans was $9,617,000 as of March 31, 2023, with $2,075,000 allocated for loan commitments[72]. - The allowance for credit losses reflects management's assessment of credit risks, with qualitative adjustments for economic conditions[147]. - Provision for credit losses was $224,000 for the three months ended March 31, 2023, compared to $71,000 for the same period in 2022, indicating increased credit risk assessment[134]. - Provision for credit losses increased to $224,000 in Q1 2023 from $71,000 in Q1 2022, attributed to higher loan balances and economic adjustments[140]. Investment Securities - The Company’s total investment securities available for sale as of March 31, 2023, amounted to $399,148,000, with unrealized losses of $50,719,000[45]. - The fair value of U.S. Treasuries decreased to $10,008,000 as of March 31, 2023, with unrealized losses of $949,000[45]. - The Company’s mortgage-backed securities had a fair value of $273,820,000 with unrealized losses of $23,040,000 as of March 31, 2023[45]. - The Company did not have any other than-temporarily impaired investment securities as of December 31, 2022[35]. - As of March 31, 2023, unrealized losses in the investment securities portfolio related to debt securities totaled $50.7 million, down from $62.3 million at December 31, 2022, indicating a reduction of approximately 18.5%[48]. - The total amortized cost of investment securities available for sale was $449.031 million, with a fair value of $399.148 million, reflecting a decrease in fair value of about 11.1%[50]. - During the three months ended March 31, 2023, proceeds from sales of securities available for sale were $53.5 million, resulting in gross losses of $2.7 million and gross gains of $177,000[50]. - The fair value of investment securities available for sale was $399,148,000 as of March 31, 2023, down from $445,394,000 as of December 31, 2022[106][107]. Loans and Lending Operations - Total loans increased to $1.050871 billion as of March 31, 2023, compared to $1.032608 billion at December 31, 2022, representing a growth of approximately 1.8%[52]. - The total net loans amounted to $1.041254 billion as of March 31, 2023, compared to $1.022114 billion at December 31, 2022, reflecting an increase of about 1.9%[52]. - The company has a diversified loan portfolio, with real estate loans making up a significant portion, totaling $947.425 million as of March 31, 2023[52]. - The company reported that no securities available for sale were sold during the three months ended March 31, 2022, highlighting a change in strategy in the current period[50]. - The average balance of impaired loans collectively evaluated for impairment was $5.3 million at March 31, 2022, and $4.9 million at December 31, 2022[70]. - The total impaired real estate loans included $10,441,000 in non-traditional single-family residential loans, with an allowance of $611,000[67]. - The total loans not secured by real estate reached $103,446,000, indicating a diverse loan portfolio[80]. - The company’s commercial loans totaled $410,775,000, demonstrating strong performance in this segment[80]. - The company has a total of $1,050,871,000 in loans, reflecting a robust lending operation[80]. Financial Performance - The company reported net earnings of $3,172,000 for the three months ended March 31, 2023, resulting in a basic earnings per share of $0.58 and diluted earnings per share of $0.56[84]. - Net income for the three months ended March 31, 2023, was $3.2 million, or $0.58 per share, compared to $3.5 million, or $0.63 per share, for the same period in 2022, reflecting a decrease in non-interest income and an increase in non-interest expense[131]. - Net interest income increased to $14.3 million for the three months ended March 31, 2023, from $10.7 million for the same period in 2022, driven by a $5.5 million increase in interest income[134]. - Interest income rose to $16.8 million for the three months ended March 31, 2023, compared to $11.3 million for the same period in 2022, primarily due to a $3.1 million increase in interest income and fees on loans[135]. - The annualized return on average assets was 0.81% for the three months ended March 31, 2023, down from 0.85% for the same period in 2022[132]. - The annualized return on average shareholders' equity increased to 11.78% for the three months ended March 31, 2023, compared to 10.10% for the same period in 2022[132]. - Total assets as of March 31, 2023, were $1.602 billion, compared to $1.663 billion as of March 31, 2022[134]. - Non-interest expense increased to $12.1 million for the three months ended March 31, 2023, from $10.6 million for the same period in 2022[134]. Deposits and Funding - The company reported total deposits of $1,413,441,000 as of March 31, 2023, with a fair value of $1,415,287,000[107]. - Total deposits were $1.4 billion at March 31, 2023, consistent with December 31, 2022[162]. - Core deposits totaled $1.3 billion at March 31, 2023, down from $1.4 billion at December 31, 2022, representing 96.33% of total deposits[175]. - Estimated uninsured deposits were $407.8 million, or 28.85% of total deposits, at March 31, 2023, compared to $439.8 million, or 30.64% at December 31, 2022[163]. - The Bank's ratio of wholesale funding to total assets was 1.29% as of March 31, 2023, compared to 0.92% at December 31, 2022[176]. Capital and Liquidity - Shareholders' equity increased to $114.8 million, or 7.16% of total assets, at March 31, 2023, compared to $105.2 million, or 6.49% of total assets, at December 31, 2022[182]. - The liquidity ratio decreased to 28.23% at March 31, 2023, from 30.32% at December 31, 2022, while the minimum required liquidity ratio remained at 10%[180]. - The Company's Tier 1 capital ratio was 13.34% at March 31, 2023, compared to 13.21% at December 31, 2022[186]. - The total risk-based capital ratio was 14.27% at March 31, 2023, up from 14.04% at December 31, 2022[186]. - The Bank's Tier 1 risk-based capital ratio was 13.24% at March 31, 2023, compared to 13.10% at December 31, 2022[187]. - The Company has authorized a stock repurchase program of up to $2.0 million, with no shares repurchased as of March 31, 2023[184]. - The Bank had no borrowings from the Federal Reserve Bank (FRB) as of March 31, 2023, and the availability under the line of credit with the FRB was $449.2 million[178]. Other Financial Metrics - The average yield on loans for the three months ended March 31, 2023, was 5.04%, compared to 4.46% for the same period in 2022[135]. - The average number of shares outstanding for diluted earnings per share calculation was 5,656,250 for the first quarter of 2023[84]. - The total carrying amount of loans, net, was $1,041,254,000 as of March 31, 2023, with a fair value of $1,021,007,000[106]. - The fair value of mortgage loans held for sale increased to $417,000 as of March 31, 2023, compared to $211,000 as of December 31, 2022[104][106]. - The total operating lease liability as of March 31, 2023, was $5,033,000 after accounting for imputed interest[111]. - The fair value of mutual funds held in deferred compensation trust was $1,787,000 as of March 31, 2023, compared to $1,327,000 as of December 31, 2022[106][107]. - The total proposed adjustments sought by the North Carolina Department of Revenue (NCDOR) was approximately $1.4 million, which the Bank is contesting[190].

[Part I](index=3&type=section&id=PART%20I) [Business](index=3&type=section&id=Item%201.%20Business) Peoples Bancorp of North Carolina, Inc is a bank holding company for Peoples Bank, a state-chartered commercial bank with **$1.6 billion in assets**, a **$1.0 billion loan portfolio**, and **$1.4 billion in deposits** as of December 31, 2022 Financial Metric | Financial Metric | Value (as of Dec 31, 2022) | | :--- | :--- | | Total Assets | $1.6 billion | | Net Loans | $1.0 billion | | Deposits | $1.4 billion | | Total Securities | $448.1 million | | Shareholders' Equity | $105.2 million | - The Company operates as the holding company for Peoples Bank, with its primary income derived from dividends paid by the Bank[13](index=13&type=chunk) - The Bank serves its market through 17 banking offices and several loan production offices across various communities in North Carolina, including Charlotte, Raleigh, and Cary[14](index=14&type=chunk) - As of December 31, 2022, the Company had **291 full-time equivalent employees**[17](index=17&type=chunk)[41](index=41&type=chunk) [General Business and Subsidiaries](index=3&type=section&id=General%20Business%20and%20Subsidiaries) The Company's primary operation is owning Peoples Bank, which has four main subsidiaries for investment and real estate services, and a trust that issued **$20.6 million** in securities - The Bank's subsidiaries provide a range of financial services including investment counseling, real estate appraisal, brokerage, and management of foreclosed assets[19](index=19&type=chunk) - The Company formed PEBK Capital Trust II, a Delaware statutory trust, to issue **$20.6 million** of trust preferred securities, of which **$5.0 million** was redeemed in 2019[20](index=20&type=chunk) - The Bank's loan portfolio includes Individual Taxpayer Identification Number (ITIN) mortgage loans originated through its former Banco de la Gente offices, which are now integrated under the Peoples Bank name[15](index=15&type=chunk)[16](index=16&type=chunk) [Market Area and Competition](index=4&type=section&id=Market%20Area%20and%20Competition) The Bank's primary market is the competitive Catawba Valley region of North Carolina, where it holds a significant deposit market share in its core counties Deposit Market Share (as of June 30, 2022) | County | Deposit Market Share (as of June 30, 2022) | Rank | | :--- | :--- | :--- | | Catawba County | 20.73% | 2nd of 11 banks | | Lincoln County | 18.98% | 2nd of 9 banks | | Alexander County | 17.57% | 4th of 5 banks | - The Bank's primary market area is diversified across manufacturing, retail, technology, services, and utilities, with major employers including Catawba County Schools, CommScope, and Duke LifePoint/Frye Regional Medical Center[22](index=22&type=chunk) [Lending and Investment Policies](index=4&type=section&id=Lending%20and%20Investment%20Policies) The Bank's lending and investment activities are governed by Board-approved policies focused on sound portfolio management, liquidity, and safety of principal - The Bank's legal lending limit was **$26.5 million** as of December 31, 2022, with the largest credit relationship at **$19.7 million**[28](index=28&type=chunk) - The Bank Board receives monthly, quarterly, semi-annual, and annual reports to monitor the loan portfolio's quality, performance, and risk concentrations[30](index=30&type=chunk)[31](index=31&type=chunk)[32](index=32&type=chunk) - Investment objectives include maximizing earnings, providing liquidity, mitigating interest rate risk, ensuring principal safety, managing tax liabilities, and meeting pledging requirements[34](index=34&type=chunk)[35](index=35&type=chunk)[36](index=36&type=chunk) [Human Capital Management](index=6&type=section&id=Human%20Capital%20Management) The Company employed **291 full-time equivalent employees** at year-end 2022 and fosters a culture built on integrity, customer service, and diversity, equity, and inclusion - The company's culture is guided by core values including being informed, fair, accountable, progressive, and focused on exceptional customer service[43](index=43&type=chunk)[50](index=50&type=chunk) - The company promotes a culture of diversity and inclusion, embracing employee differences and providing training on valuing differences, supported by a "Courageous Conversations" initiative[43](index=43&type=chunk)[46](index=46&type=chunk) [Supervision and Regulation](index=7&type=section&id=Supervision%20and%20Regulation) The Company and Bank are subject to extensive regulation, adhere to Basel III standards, exceeded all minimum capital requirements as of year-end 2022, and adopted the CECL standard in 2023 Capital Ratios (as of Dec 31, 2022) | Capital Ratios (as of Dec 31, 2022) | The Bank | The Company | | :--- | :--- | :--- | | Tier 1 Leverage Capital Ratio | 9.68% | 9.82% | | Common Equity Tier 1 Risk-Based Capital | 13.10% | 12.03% | | Tier 1 Risk-Based Capital Ratio | 13.10% | 13.21% | | Total Risk-Based Capital Ratio | 13.93% | 14.04% | - The Company adopted the Current Expected Credit Loss (CECL) accounting standard on January 1, 2023, which requires recognizing lifetime expected credit losses on financial assets[79](index=79&type=chunk) - The Bank received a **"satisfactory" rating** in its last Community Reinvestment Act (CRA) examination conducted in January 2020[69](index=69&type=chunk) - FDIC insurance expense was approximately **$461,000 in 2022**, compared to **$415,000 in 2021** and **$263,000 in 2020**[66](index=66&type=chunk) [Risk Factors](index=15&type=section&id=Item%201A.%20Risk%20Factors) The Company faces material risks from economic conditions, credit concentrations, interest rate fluctuations, cybersecurity, and common stock volatility [Risks Related to Our Business](index=15&type=section&id=RISK%20FACTORS%20RELATED%20TO%20OUR%20BUSINESS) Business risks include economic downturns, credit concentration in the Catawba Valley, interest rate changes, cybersecurity threats, and the impact of adopting the CECL standard - The adoption of the **CECL accounting standard** on January 1, 2023, requires estimating lifetime credit losses and may increase the allowance for loan losses and its volatility[104](index=104&type=chunk)[106](index=106&type=chunk)[107](index=107&type=chunk) - The Bank's five largest deposit relationships accounted for **$117.0 million**, or **7.89% of total deposits** and repurchase agreements, as of December 31, 2022, posing a concentration risk[111](index=111&type=chunk) - The available-for-sale investment securities portfolio had **unrealized losses of $62.3 million** at year-end 2022, and sales in early 2023 resulted in a **net loss of approximately $2.5 million**[133](index=133&type=chunk) - The company faces risks from extensive regulation, including potential noncompliance with the Bank Secrecy Act (BSA) and fair lending laws, which could result in fines and reputational damage[123](index=123&type=chunk)[125](index=125&type=chunk)[126](index=126&type=chunk) [Risks Related to the Company's Stock](index=24&type=section&id=RISKS%20RELATED%20TO%20THE%20COMPANY'S%20STOCK) The Company's common stock (PEBK) is subject to price volatility from low trading volume, is not FDIC insured, and dividend payments are not guaranteed - The trading volume for the company's common stock (PEBK) is **relatively low**, which could lead to price volatility and difficulty in reselling shares[157](index=157&type=chunk) - The ability to pay dividends on common stock is **not guaranteed** and depends on the Bank's financial condition and regulatory guidelines from the Federal Reserve[159](index=159&type=chunk) - The company's common stock is not a deposit and is **not insured by the FDIC** or any other government agency, subjecting it to investment risk, including the possible loss of principal[158](index=158&type=chunk) [Unresolved Staff Comments](index=25&type=section&id=Item%201B.%20Unresolved%20Staff%20Comments) The Company reports no unresolved staff comments from the SEC - There are no unresolved staff comments[162](index=162&type=chunk) [Properties](index=25&type=section&id=Item%202.%20Properties) The Company owns its corporate office and 13 other properties while leasing 9 locations, including branches and loan production offices - The company **owns its corporate office** in Newton, NC, and 13 other properties[163](index=163&type=chunk)[164](index=164&type=chunk) - The company **leases 9 properties**, which include branch offices and loan production offices in key growth markets such as Charlotte, Raleigh, Cary, and Winston-Salem[163](index=163&type=chunk)[165](index=165&type=chunk) [Legal Proceedings](index=26&type=section&id=Item%203.%20Legal%20Proceedings) The Company is in a dispute with the NCDOR over a **$1.4 million** tax credit adjustment, though potential exposure is believed to be limited to approximately **$125,000** - The NCDOR is seeking to disallow tax credits from 2014-2016, with a proposed adjustment of approximately **$1.4 million** (including tax, penalties, and interest)[166](index=166&type=chunk) - The Bank paid **$1.2 million** to the NCDOR to halt interest accrual while contesting the disallowance[166](index=166&type=chunk) - Management believes a purchased Guaranty Agreement limits the Bank's potential exposure in the NCDOR matter to approximately **$125,000**[166](index=166&type=chunk) [Mine Safety Disclosures](index=27&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) The Company has no mine safety disclosures to report - There are no mine safety disclosures[168](index=168&type=chunk) [Part II](index=28&type=section&id=PART%20II) [Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=28&type=section&id=Item%205.%20Market%20for%20Registrant's%20Common%20Equity%2C%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) The Company's stock (PEBK) trades on NASDAQ, with dividend payments subject to regulatory limits, and **4,200 shares** were repurchased in Q4 2022 - The Company's common stock is listed on the NASDAQ Global Market under the symbol **"PEBK"**[170](index=170&type=chunk) Issuer Purchases of Equity Securities | Period (2022) | Total Shares Purchased | Average Price Paid per Share | Shares Purchased as Part of Program | | :--- | :--- | :--- | :--- | | Oct 1 - 31 | 3,200 | $27.50 | 3,200 | | Nov 1 - 30 | 2,446 | $28.43 | 1,000 | | Dec 1 - 31 | 269 | $30.71 | 0 | | **Q4 Total** | **5,915** | **$28.03** | **4,200** | - The stock repurchase program authorized in February 2022 expired in February 2023; as of December 31, 2022, approximately **$1.29 million remained available** for repurchase under the plan[176](index=176&type=chunk)[178](index=178&type=chunk) [Selected Financial Data](index=30&type=section&id=Item%206.%20Selected%20Financial%20Data) Information for this item is incorporated by reference from the "Selected Financial Data" section of the Company's 2022 Annual Report - Selected Financial Data is incorporated by reference from page A-3 of the Annual Report (Exhibit 13)[179](index=179&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=30&type=section&id=Item%207.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Information for this item is incorporated by reference from the "Management's Discussion and Analysis" section of the Company's 2022 Annual Report - Management's Discussion and Analysis is incorporated by reference from pages A-4 through A-18 of the Annual Report (Exhibit 13)[180](index=180&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=30&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The Company has no information to report for this item - This item is not applicable[181](index=181&type=chunk) [Financial Statements and Supplementary Data](index=30&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data) The consolidated financial statements and supplementary data are incorporated by reference from the Company's 2022 Annual Report - The consolidated financial statements and supplementary data are incorporated by reference from pages A-19 through A-59 of the Annual Report (Exhibit 13)[181](index=181&type=chunk) [Changes in and Disagreements with Accountants on Accounting and Financial Disclosure](index=31&type=section&id=Item%209.%20Changes%20in%20and%20Disagreements%20with%20Accountants%20on%20Accounting%20and%20Financial%20Disclosure) The Company reports no changes in or disagreements with its accountants on accounting and financial disclosure - This item is not applicable[182](index=182&type=chunk) [Controls and Procedures](index=31&type=section&id=Item%209A.%20Controls%20and%20Procedures) Management concluded that the Company's disclosure controls and internal control over financial reporting were effective as of December 31, 2022 - Management concluded that the Company's disclosure controls and procedures were **effective** as of the end of the period covered by this report[182](index=182&type=chunk) - Management assessed internal control over financial reporting based on the COSO framework and believes it was **effective** as of December 31, 2022[187](index=187&type=chunk) - As a smaller reporting company, this annual report **does not include an attestation report** from its independent registered public accounting firm regarding internal control over financial reporting[188](index=188&type=chunk) [Other Information](index=31&type=section&id=Item%209B.%20Other%20Information) The Company has no other information to report - This item is not applicable[189](index=189&type=chunk) [Part III](index=32&type=section&id=PART%20III) [Directors and Executive Officers and Corporate Governance](index=32&type=section&id=Item%2010.%20Directors%20and%20Executive%20Officers%20and%20Corporate%20Governance) Information on directors, executive officers, and corporate governance is incorporated by reference from the Company's 2023 Proxy Statement - Information regarding directors, executive officers, and corporate governance is incorporated by reference from the Proxy Statement[191](index=191&type=chunk) [Executive Compensation](index=32&type=section&id=Item%2011.%20Executive%20Compensation) Information on executive compensation is incorporated by reference from the Company's 2023 Proxy Statement - Information regarding executive compensation is incorporated by reference from the Proxy Statement[192](index=192&type=chunk) [Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](index=32&type=section&id=Item%2012.%20Security%20Ownership%20of%20Certain%20Beneficial%20Owners%20and%20Management%20and%20Related%20Stockholder%20Matters) Security ownership information is incorporated by reference, with **279,920 securities available for future issuance** under approved equity compensation plans Equity Compensation Plan Information | Plan Category | Securities to be Issued Upon Exercise | Weighted-Average Exercise Price | Securities Remaining for Future Issuance | | :--- | :--- | :--- | :--- | | Equity compensation plans approved by security holders | 28,440 | $0.00 | 279,920 | | Equity compensation plans not approved by security holders | - | - | - | | **Total** | **28,440** | **$0.00** | **279,920** | - The securities to be issued consist of restricted stock units granted under the 2009 and 2020 Omnibus Stock Ownership and Long Term Incentive Plans, which do not have an exercise price[195](index=195&type=chunk)[196](index=196&type=chunk) [Certain Relationships and Related Transactions and Director Independence](index=33&type=section&id=Item%2013.%20Certain%20Relationships%20and%20Related%20Transactions%20and%20Director%20Independence) Information on related transactions and director independence is incorporated by reference from the Company's 2023 Proxy Statement - Information regarding related transactions and director independence is incorporated by reference from the Proxy Statement[197](index=197&type=chunk) [Principal Accountant Fees and Services](index=33&type=section&id=Item%2014.%20Principal%20Accountant%20Fees%20and%20Services) Information on principal accountant fees and services is incorporated by reference from the Company's 2023 Proxy Statement - Information regarding principal accountant fees and services is incorporated by reference from the Proxy Statement[198](index=198&type=chunk) [Part IV](index=34&type=section&id=PART%20IV) [Exhibits and Financial Statement Schedules](index=34&type=section&id=Item%2015.%20Exhibits%20and%20Financial%20Statement%20Schedules) This section lists all exhibits filed with the Form 10-K, including the 2022 Annual Report, material contracts, and required SOX certifications - The Company's 2022 Annual Report is attached as **Exhibit (13)** and contains the consolidated financial statements[202](index=202&type=chunk)[207](index=207&type=chunk) - Exhibits include key corporate governance documents, material contracts such as employment agreements and trust agreements for securities, and required **SOX certifications**[204](index=204&type=chunk)[205](index=205&type=chunk)[206](index=206&type=chunk) - Financial data formatted in eXtensible Business Reporting Language (XBRL) is included as **Exhibit (101)**[207](index=207&type=chunk)

[PART I. FINANCIAL INFORMATION](index=2&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) This part presents the company's unaudited consolidated financial statements and management's discussion and analysis of financial condition and results of operations [Item 1. Financial Statements](index=2&type=section&id=Item%201.%20Financial%20Statements) This section presents the unaudited consolidated financial statements for Peoples Bancorp of North Carolina, Inc. for the three and nine months ended September 30, 2022, and the audited balance sheet as of December 31, 2021 [Consolidated Balance Sheets](index=3&type=section&id=Consolidated%20Balance%20Sheets) This section provides a snapshot of the company's financial position, detailing assets, liabilities, and shareholders' equity at specific dates Consolidated Balance Sheets Table | Metric | Sep 30, 2022 (Unaudited, in millions) | Dec 31, 2021 (Audited, in millions) | | :-------------------------------- | :----------------------- | :--------------------- | | Total assets | $1,676.3 million | $1,624.2 million | | Total liabilities | $1,572.4 million | $1,481.8 million | | Total shareholders' equity | $103.9 million | $142.4 million | [Consolidated Statements of Earnings](index=4&type=section&id=Consolidated%20Statements%20of%20Earnings) This section outlines the company's financial performance over periods, showing net interest income, non-interest income and expense, and net earnings Consolidated Statements of Earnings Table | Metric | 3 Months Ended Sep 30, 2022 (in millions, except per share) | 3 Months Ended Sep 30, 2021 (in millions, except per share) | 9 Months Ended Sep 30, 2022 (in millions, except per share) | 9 Months Ended Sep 30, 2021 (in millions, except per share) | | :-------------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Net interest income | $13.8 million | $10.6 million | $35.8 million | $33.3 million | | Provision for (recovery of) loan losses | $0.4 million | ($0.2 million) | $0.9 million | ($0.9 million) | | Total non-interest income | $6.8 million | $6.0 million | $21.2 million | $18.0 million | | Total non-interest expense | $13.5 million | $12.6 million | $41.0 million | $37.0 million | | Net earnings | $5.3 million | $3.4 million | $12.0 million | $12.1 million | | Basic net earnings per share | $0.96 | $0.61 | $2.18 | $2.16 | | Diluted net earnings per share | $0.93 | $0.59 | $2.11 | $2.10 | | Cash dividends declared per share | $0.18 | $0.17 | $0.69 | $0.49 | [Consolidated Statements of Comprehensive Income (Loss)](index=5&type=section&id=Consolidated%20Statements%20of%20Comprehensive%20Income%20(Loss)) This section presents net earnings alongside other comprehensive income or loss components, reflecting changes in equity not from transactions with owners Consolidated Statements of Comprehensive Income (Loss) Table | Metric | 3 Months Ended Sep 30, 2022 (in millions) | 3 Months Ended Sep 30, 2021 (in millions) | 9 Months Ended Sep 30, 2022 (in millions) | 9 Months Ended Sep 30, 2021 (in millions) | | :-------------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Net earnings | $5.3 million | $3.4 million | $12.0 million | $12.1 million | | Unrealized holding losses on securities available for sale | ($16.6 million) | ($0.8 million) | ($59.7 million) | ($2.7 million) | | Total comprehensive income (loss) | ($7.5 million) | $2.7 million | ($34.0 million) | $10.0 million | [Consolidated Statements of Changes in Shareholders' Equity](index=5&type=section&id=Consolidated%20Statements%20of%20Changes%20in%20Shareholders'%20Equity) This section details the movements in shareholders' equity, including common stock repurchases, cash dividends, net earnings, and other comprehensive loss Consolidated Statements of Changes in Shareholders' Equity Table | Metric | 9 Months Ended Sep 30, 2022 (in millions) | 9 Months Ended Sep 30, 2021 (in millions) | | :-------------------------------------- | :-------------------------- | :-------------------------- | | Common stock repurchase | ($0.6 million) | ($3.6 million) | | Cash dividends declared on common stock | ($3.9 million) | ($2.8 million) | | Net earnings | $12.0 million | $12.1 million | | Change in accumulated other comprehensive loss, net of tax | ($46.0 million) | ($2.1 million) | | Total shareholders' equity (End of Period) | $103.9 million | $143.5 million | [Consolidated Statements of Cash Flows](index=6&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) This section categorizes cash inflows and outflows from operating, investing, and financing activities, showing the net change in cash and cash equivalents Consolidated Statements of Cash Flows Table | Metric | 9 Months Ended Sep 30, 2022 (in millions) | 9 Months Ended Sep 30, 2021 (in millions) | | :-------------------------------------- | :-------------------------- | :-------------------------- | | Net cash provided by operating activities | $17.3 million | $17.3 million | | Net cash used by investing activities | ($224.1 million) | ($104.1 million) | | Net cash provided by financing activities | $84.7 million | $188.6 million | | Net change in cash and cash equivalents | ($122.0 million) | $101.7 million | | Cash and cash equivalents at end of period | $155.5 million | $263.3 million | [Notes to Consolidated Financial Statements (Unaudited)](index=8&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements%20(Unaudited)) This section provides detailed disclosures and explanations supporting the consolidated financial statements, including accounting policies and specific account breakdowns [Summary of Significant Accounting Policies](index=8&type=section&id=(1)%20Summary%20of%20Significant%20Accounting%20Policies) This section outlines the key accounting principles and methods used in preparing the consolidated financial statements, including consolidation scope - The Consolidated Financial Statements include Peoples Bancorp of North Carolina, Inc. and its wholly owned subsidiary, Peoples Bank, along with the Bank's wholly owned subsidiaries (Peoples Investment Services, Inc., Real Estate Advisory Services, Inc., Community Bank Real Estate Solutions, LLC, and PB Real Estate Holdings, LLC)[22](index=22&type=chunk) - PEBK Capital Trust II, a wholly owned Delaware statutory trust, is not included in the Consolidated Financial Statements[23](index=23&type=chunk) - The Bank operates three banking offices focused on the Latino population, formerly known as Banco de la Gente, which now operate under the same name as other offices but continue to categorize mortgage loans originated from these offices separately[24](index=24&type=chunk) [Recent Accounting Pronouncements](index=8&type=section&id=Recent%20Accounting%20Pronouncements) This section discusses the potential impact of recently issued accounting standards on the company's financial reporting and operations - The Company is evaluating the impact of ASU 2016-13 (CECL) and expects to record a one-time adjustment to retained earnings to increase the allowance for loan losses upon adoption on January 1, 2023[28](index=28&type=chunk) - The adoption of other ASUs (2018-19, 2019-04, 2019-05, 2019-10, 2019-11, 2020-03, 2020-04, 2022-02) is not expected to have a material impact on the Company's results of operations, financial position, or disclosures[31](index=31&type=chunk)[32](index=32&type=chunk)[33](index=33&type=chunk) [Investment Securities](index=10&type=section&id=(2)%20Investment%20Securities) This section details the company's investment securities portfolio, including fair values, amortized costs, and unrealized gains or losses Investment Securities Table | Metric | Sep 30, 2022 (in millions) | Dec 31, 2021 (in millions) | | :-------------------------------------- | :----------- | :----------- | | Investment securities available for sale (Fair Value) | $444.4 million | $406.5 million | | Total amortized cost | $503.9 million | $406.4 million | | Total gross unrealized losses | $59.8 million | $5.5 million | - Unrealized losses on debt securities totaled **$59.8 million** at September 30, 2022, primarily due to changing interest rates, and are considered temporary[37](index=37&type=chunk) - Securities with a fair value of approximately **$101.8 million** at September 30, 2022, were pledged to secure public deposits and for other purposes[39](index=39&type=chunk) [Loans](index=11&type=section&id=(3)%20Loans) This section provides a comprehensive breakdown of the loan portfolio, including classifications, past due status, impaired loans, and the allowance for loan losses Loans Table | Loan Classification | Sep 30, 2022 (in millions) | Dec 31, 2021 (in millions) | | :--------------------------------- | :----------- | :----------- | | Total loans | $1,004.9 million | $884.9 million | | Less allowance for loan losses | ($10.0 million) | ($9.4 million) | | Net loans | $994.9 million | $875.5 million | Past Due Loans Table | Past Due Loans | Sep 30, 2022 (in millions) | Dec 31, 2021 (in millions) | | :------------------------------ | :----------- | :----------- | | Total Past Due Loans (30-89 days & 90+ days) | $3.9 million | $6.2 million | | Non-accrual loans | $3.7 million | $3.2 million | | Impaired loans | $15.7 million | $18.3 million | Allowance for Loan Losses Table | Allowance for Loan Losses | 9 Months Ended Sep 30, 2022 (in millions) | 9 Months Ended Sep 30, 2021 (in millions) | | :--------------------------------------- | :-------------------------- | :-------------------------- | | Beginning balance | $9.4 million | $9.9 million | | Charge-offs | ($0.6 million) | ($0.5 million) | | Recoveries | $0.4 million | $0.5 million | | Provision | $0.9 million | ($0.9 million) | | Ending balance | $10.0 million | $9.0 million | Loan Risk Grade Table | Loan Risk Grade | Sep 30, 2022 | Dec 31, 2021 | | :---------------------- | :----------- | :----------- | | 1- Excellent Quality | 0.57% | 0.78% | | 2- High Quality | 19.68% | 19.12% | | 3- Good Quality | 72.87% | 70.41% | | 4- Management Attention | 5.63% | 7.70% | | 5- Watch | 0.59% | 1.23% | | 6- Substandard | 0.66% | 0.76% | | 7- Doubtful | 0.00% | 0.00% | | 8- Loss | 0.00% | 0.00% | - Outstanding PPP loans decreased significantly from **$18.0 million** at December 31, 2021, to **$103,000** at September 30, 2022[63](index=63&type=chunk) [Net Earnings Per Share](index=18&type=section&id=(4)%20Net%20Earnings%20Per%20Share) This section presents the calculation of basic and diluted net earnings per share, along with weighted average shares outstanding Net Earnings Per Share Table | Metric | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | | :-------------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Basic earnings per share | $0.96 | $0.61 | $2.18 | $2.16 | | Diluted earnings per share | $0.93 | $0.59 | $2.11 | $2.10 | | Weighted average shares outstanding (basic) | 5,473,443 | 5,544,596 | 5,484,063 | 5,601,879 | | Weighted average shares outstanding (diluted) | 5,657,568 | 5,719,083 | 5,664,194 | 5,773,108 | [Fair Value](index=19&type=section&id=(5)%20Fair%20Value) This section describes the methodologies and classifications used for fair value measurements of financial instruments, categorizing them into Level 1, 2, and 3 - The Company classifies financial instruments into Level 1 (quoted prices in active markets), Level 2 (observable inputs other than quoted prices), and Level 3 (unobservable inputs) for fair value measurement[69](index=69&type=chunk)[70](index=70&type=chunk) Fair Value Table | Asset/Liability | Fair Value Sep 30, 2022 (in millions) | Fair Value Dec 31, 2021 (in millions) | | :----------------------------- | :---------------------- | :---------------------- | | Investment securities available for sale | $444.4 million (Level 2) | $406.5 million (Level 2) | | Loans, net | $970.0 million (Level 3) | $855.8 million (Level 3) | | Deposits | $1,500.6 million (Level 3) | $1,401.8 million (Level 3) | - Mortgage loans held for sale and impaired loans are measured at Level 3 fair value, relying on certified appraisals and management judgment[84](index=84&type=chunk)[87](index=87&type=chunk) [Leases](index=22&type=section&id=(6)%20Leases) This section details the company's lease obligations, including operating lease costs, right-of-use assets, and weighted-average lease terms and discount rates Leases Table | Metric | Sep 30, 2022 (in millions, except years/percent) | Sep 30, 2021 (in millions, except years/percent) | | :-------------------------------------- | :----------- | :----------- | | Operating lease cost | $0.6 million | $0.5 million | | Right-of-use assets obtained in exchange for new lease liabilities - operating leases | $1.7 million | $1.0 million | | Weighted-average remaining lease term - operating leases | 9.01 years | 6.72 years | | Weighted-average discount rate - operating leases | 2.30% | 2.71% | | Operating Lease Liability | $5.8 million | N/A | [Subsequent Events](index=23&type=section&id=(7)%20Subsequent%20Events) This section discloses any material events that occurred after the balance sheet date but before the financial statements were issued - Management has reviewed and concluded that there were no material subsequent events through the date the financial statements were issued[95](index=95&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=23&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on the company's financial performance and condition, including an overview of its business, significant accounting policies, operating results, and financial condition [Introduction & Overview](index=23&type=section&id=Introduction%20%26%20Overview) This section provides an overview of the company's business model, primary revenue drivers, and the significant external factors influencing its operations - The Company's business primarily involves attracting deposits and investing these funds in commercial, real estate mortgage, real estate construction, and consumer loans[98](index=98&type=chunk) - Profitability is mainly driven by net interest income, which is the difference between income from loans/investments and the cost of deposits/borrowed funds, alongside other income and operating expenses[98](index=98&type=chunk) - Operations are significantly influenced by local economic conditions, regulatory policies, and interest rate changes, with the Federal Reserve increasing the target federal funds rate by **300 basis points** in 2022[99](index=99&type=chunk)[100](index=100&type=chunk) [Summary of Significant Accounting Policies](index=24&type=section&id=Summary%20of%20Significant%20Accounting%20Policies) This section highlights critical accounting policies and estimates, such as the allowance for loan losses, which require significant management judgment - The allowance for loan losses (ALLL) is a critical accounting policy, reflecting management's assessment of credit risks and loan portfolio quality[104](index=104&type=chunk) - Many assets and liabilities are recorded using techniques requiring significant judgment, particularly regarding recoverability of loans and fair value measurements[105](index=105&type=chunk) - The preparation of Consolidated Financial Statements in conformity with GAAP involves numerous estimates and assumptions, which could lead to actual results differing from these estimates[107](index=107&type=chunk) [Results of Operations](index=25&type=section&id=Results%20of%20Operations) This section analyzes the company's financial performance over the reporting periods, focusing on key income and expense components [Summary of Net Earnings](index=25&type=section&id=Summary%20of%20Net%20Earnings) This section summarizes the company's net earnings and key profitability metrics, including return on average assets and shareholders' equity Summary of Net Earnings Table | Metric | 3 Months Ended Sep 30, 2022 (in millions, except per share/percent) | 3 Months Ended Sep 30, 2021 (in millions, except per share/percent) | 9 Months Ended Sep 30, 2022 (in millions, except per share/percent) | 9 Months Ended Sep 30, 2021 (in millions, except per share/percent) | | :-------------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Net earnings (in millions) | $5.3 | $3.4 | $12.0 | $12.1 | | Basic net earnings per share | $0.96 | $0.61 | $2.18 | $2.16 | | Diluted net earnings per share | $0.93 | $0.59 | $2.11 | $2.10 | | Annualized return on average assets | 1.25% | 0.83% | 0.96% | 1.05% | | Annualized return on average shareholders' equity | 18.42% | 9.30% | 12.53% | 11.04% | [Net Interest Income](index=25&type=section&id=Net%20Interest%20Income) This section analyzes the components of net interest income, including interest income from assets and interest expense on liabilities, and related spreads Net Interest Income Table | Metric | 3 Months Ended Sep 30, 2022 (in millions, except percent) | 3 Months Ended Sep 30, 2021 (in millions, except percent) | 9 Months Ended Sep 30, 2022 (in millions, except percent) | 9 Months Ended Sep 30, 2021 (in millions, except percent) | | :-------------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Net interest income | $13.8 million | $10.6 million | $35.8 million | $33.3 million | | Total interest income | $14.6 million | $11.4 million | $37.9 million | $35.9 million | | Total interest expense | $0.8 million | $0.9 million | $2.1 million | $2.5 million | | Net interest spread | 3.26% | 2.62% | 2.91% | 2.93% | | Net yield on interest-earning assets | 3.39% | 2.76% | 3.02% | 3.08% | - The increase in net interest income for the three months ended September 30, 2022, was driven by a **$3.2 million** increase in interest income and a **$43,000** decrease in interest expense, primarily due to higher loan and investment securities balances and Federal Reserve rate increases, partially offset by lower PPP loan fee income[113](index=113&type=chunk) - For the nine months ended September 30, 2022, net interest income increased due to a **$2.1 million** increase in interest income and a **$393,000** decrease in interest expense, with investment securities and balances due from banks contributing to interest income growth, while PPP loan fee income declined[118](index=118&type=chunk)[119](index=119&type=chunk)[120](index=120&type=chunk) [Provision for Loan Losses](index=29&type=section&id=Provision%20for%20Loan%20Losses) This section discusses the provision for loan losses, reflecting management's assessment of credit risk and changes in the loan portfolio Provision for Loan Losses Table | Metric | 3 Months Ended Sep 30, 2022 (in millions) | 3 Months Ended Sep 30, 2021 (in millions) | 9 Months Ended Sep 30, 2022 (in millions) | 9 Months Ended Sep 30, 2021 (in millions) | | :-------------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Provision for (recovery of) loan losses | $0.4 million | ($0.2 million) | $0.9 million | ($0.9 million) | - The increase in provision for loan losses for both the three and nine months ended September 30, 2022, is primarily due to an increase in reserves from a net increase in the volume of loans in the general reserve pool[126](index=126&type=chunk)[127](index=127&type=chunk) [Non-Interest Income](index=29&type=section&id=Non-Interest%20Income) This section details the various sources of non-interest income, such as appraisal management fees, service charges, and mortgage banking income Non-Interest Income Table | Metric | 3 Months Ended Sep 30, 2022 (in millions) | 3 Months Ended Sep 30, 2021 (in millions) | 9 Months Ended Sep 30, 2022 (in millions) | 9 Months Ended Sep 30, 2021 (in millions) | | :-------------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Total non-interest income | $6.8 million | $6.0 million | $21.2 million | $18.0 million | | Appraisal management fee income | $2.7 million | $2.0 million | $9.7 million | $5.8 million | | Service charges | $1.5 million | $1.0 million | $4.0 million | $2.9 million | | Mortgage banking income | $0.1 million | $0.5 million | $0.4 million | $2.1 million | - The increase in non-interest income was primarily driven by a **$757,000** increase in appraisal management fee income and a **$435,000** increase in service charge income for the three months ended September 30, 2022, partially offset by a **$457,000** decrease in mortgage banking income[128](index=128&type=chunk) [Non-Interest Expense](index=29&type=section&id=Non-Interest%20Expense) This section outlines the company's non-interest operating expenses, including appraisal management fees and salaries and employee benefits Non-Interest Expense Table | Metric | 3 Months Ended Sep 30, 2022 (in millions) | 3 Months Ended Sep 30, 2021 (in millions) | 9 Months Ended Sep 30, 2022 (in millions) | 9 Months Ended Sep 30, 2021 (in millions) | | :-------------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Total non-interest expense | $13.5 million | $12.6 million | $41.0 million | $37.0 million | | Appraisal management fee expense | $2.2 million | $1.6 million | $7.7 million | $4.6 million | | Salaries and employee benefits | $6.2 million | $6.1 million | $18.5 million | $17.9 million | - The increase in non-interest expense for the three months ended September 30, 2022, was mainly due to a **$595,000** increase in appraisal management fee expense and a **$123,000** increase in salaries and employee benefits[130](index=130&type=chunk) [Income Taxes](index=29&type=section&id=Income%20Taxes) This section presents the company's income tax expense and effective tax rates for the reported periods Income Taxes Table | Metric | 3 Months Ended Sep 30, 2022 (in millions, except percent) | 3 Months Ended Sep 30, 2021 (in millions, except percent) | 9 Months Ended Sep 30, 2022 (in millions, except percent) | 9 Months Ended Sep 30, 2021 (in millions, except percent) | | :-------------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Income tax expense | $1.4 million | $0.8 million | $3.1 million | $3.1 million | | Effective tax rate | 21.06% | 19.55% | 20.40% | 20.17% | [Analysis of Financial Condition](index=29&type=section&id=Analysis%20of%20Financial%20Condition) This section provides an in-depth review of the company's balance sheet accounts, including assets, liabilities, and capital resources [Investment Securities](index=29&type=section&id=Investment%20Securities) This section analyzes the company's investment securities portfolio, focusing on available-for-sale securities and average balances Investment Securities Table | Metric | Sep 30, 2022 (in millions) | Dec 31, 2021 (in millions) | | :-------------------------------------- | :----------- | :----------- | | Available for sale securities | $444.4 | $406.5 | | Average investment securities available for sale (9 months) | $490.6 | $349.6 (Year Ended) | [Loans](index=29&type=section&id=Loans) This section details the composition and changes in the company's loan portfolio, including PPP loans, mortgage loans, and commercial loans Loans Table | Metric | Sep 30, 2022 | Dec 31, 2021 | | :-------------------------------------- | :----------- | :----------- | | Total loans | $1.0 billion | $884.9 million | | PPP loans outstanding | $0.103 million | $18.0 million | | Mortgage loans held for sale | $0.975 million | $3.6 million | | Residential mortgage loans | $97.7 million | $101.5 million | | Home equity loans | $97.4 million | $85.6 million | | Commercial mortgage loans | $596.4 million | $494.4 million | - Total loans increased to **$1.0 billion** at September 30, 2022, despite a **$17.9 million** reduction in PPP loans during the nine months ended September 30, 2022[135](index=135&type=chunk) - Past due TDR loans and non-accrual TDR loans totaled **$2.4 million** at September 30, 2022, with no new TDR modifications during the three and nine months ended September 30, 2022 and 2021[138](index=138&type=chunk)[139](index=139&type=chunk) [Allowance for Loan Losses (ALLL)](index=29&type=section&id=Allowance%20for%20Loan%20Losses%20(ALLL)) This section explains the methodology and components of the allowance for loan losses, including specific, general, and unallocated reserves - The ALLL is comprised of specific, general, and unallocated reserves, with general reserves based on historical net charge-offs adjusted for current conditions[146](index=146&type=chunk)[147](index=147&type=chunk) - Loans previously modified due to COVID-19, totaling **$74.0 million** at September 30, 2022, are grouped into a higher-risk pool with a higher reserve rate[147](index=147&type=chunk) - PPP loans are excluded from the ALLL as they are **100%** guaranteed by the SBA[151](index=151&type=chunk) [Credit Risk Profile](index=31&type=section&id=Credit%20Risk%20Profile) This section presents the credit quality of the loan portfolio through various risk grades, indicating the percentage of loans in each category Credit Risk Profile Table | Risk Grade | Sep 30, 2022 | Dec 31, 2021 | | :---------------------- | :----------- | :----------- | | 1- Excellent Quality | 0.57% | 0.78% | | 2- High Quality | 19.68% | 19.12% | | 3- Good Quality | 72.87% | 70.41% | | 4- Management Attention | 5.63% | 7.70% | | 5- Watch | 0.59% | 1.23% | | 6- Substandard | 0.66% | 0.76% | | 7- Doubtful | 0.00% | 0.00% | | 8- Loss | 0.00% | 0.00% | [Non-performing Assets](index=31&type=section&id=Non-performing%20Assets) This section provides an overview of non-performing assets, including non-accrual loans and their ratios to total assets and loans Non-performing Assets Table | Metric | Sep 30, 2022 (in millions, except percent) | Dec 31, 2021 (in millions, except percent) | | :-------------------------------------- | :----------- | :----------- | | Total non-performing assets | $3.7 | $3.2 | | Non-accrual loans | $3.7 | $3.2 | | Non-performing assets as % of total assets | 0.22% | 0.20% | | Non-accrual loans as % of total loans | 0.37% | 0.37% | [Deposits](index=31&type=section&id=Deposits) This section analyzes the company's deposit base, including total deposits and core deposits, and their proportion to total deposits Deposits Table | Metric | Sep 30, 2022 (in billions, except percent) | Dec 31, 2021 (in billions, except percent) | | :-------------------------------------- | :----------- | :----------- | | Total deposits | $1.5 | $1.4 | | Core deposits (non-GAAP) | $1.5 | $1.4 | | Core deposits as % of total deposits | 97.99% | 98.14% | [Borrowed Funds](index=31&type=section&id=Borrowed%20Funds) This section details the company's borrowed funds, including FHLB borrowings, securities sold under repurchase agreements, and junior subordinated debentures Borrowed Funds Table | Metric | Sep 30, 2022 (in millions) | Dec 31, 2021 (in millions) | | :-------------------------------------- | :----------- | :----------- | | FHLB borrowings outstanding | $0 | $0 | | Securities sold under agreements to repurchase | $38.0 | $37.1 | | Junior subordinated debentures | $15.5 | $15.5 | - Junior subordinated debentures are tied to three-month LIBOR, which will continue to be published through June 30, 2023[161](index=161&type=chunk) [Asset Liability and Interest Rate Risk Management](index=32&type=section&id=Asset%20Liability%20and%20Interest%20Rate%20Risk%20Management) This section describes the company's strategies for managing interest rate risk and maintaining a balanced asset/liability structure - The Asset/Liability Committee (ALCO) manages interest rate risk by minimizing fluctuations in net interest income due to interest rate movements[162](index=162&type=chunk)[163](index=163&type=chunk) - Average rate sensitive assets exceeded average rate sensitive liabilities by **$619.1 million** for the nine months ended September 30, 2022[164](index=164&type=chunk) - The Company had no interest rate derivatives outstanding at September 30, 2022, but utilizes interest rate floors on **$110.8 million** in variable rate loans[165](index=165&type=chunk)[166](index=166&type=chunk) [Liquidity](index=32&type=section&id=Liquidity) This section outlines the company's liquidity sources, unfunded commitments, and standby letters of credit, along with its liquidity ratio - Primary liquidity sources include core deposits, FHLB lines of credit (**$88.2 million** available at Sep 30, 2022), FRB lines of credit (**$427.2 million** available at Sep 30, 2022), and correspondent bank lines (**$110.5 million** available)[168](index=168&type=chunk)[170](index=170&type=chunk)[171](index=171&type=chunk) Liquidity Table | Metric | Sep 30, 2022 (in millions, except percent) | Dec 31, 2021 (in millions, except percent) | | :-------------------------------------- | :----------- | :----------- | | Unfunded commitments to extend credit | $373.9 million | $304.3 million | | Standby letters of credit | $5.5 million | $4.9 million | | Liquidity ratio | 34.62% | 43.28% | [Contractual Obligations and Off-Balance Sheet Arrangements](index=33&type=section&id=Contractual%20Obligations%20and%20Off-Balance%20Sheet%20Arrangements) This section details the company's future financial commitments and off-balance sheet arrangements, such as debentures and lease obligations Contractual Obligations and Off-Balance Sheet Arrangements Table | Obligation | Sep 30, 2022 (in millions) | Dec 31, 2021 (in millions) | | :-------------------------------------- | :----------- | :----------- | | Junior subordinated debentures | $15.5 million | $15.5 million | | Operating lease obligations | $6.5 million | $5.2 million | | Commitments to extend credit | $373.9 million | $304.3 million | | Standby letters of credit and financial guarantees written | $5.5 million | $4.9 million | [Capital Resources](index=33&type=section&id=Capital%20Resources) This section analyzes the company's capital structure, including shareholders' equity, capital ratios, and compliance with regulatory requirements Capital Resources Table | Metric | Sep 30, 2022 (in millions, except percent) | Dec 31, 2021 (in millions, except percent) | | :-------------------------------------- | :----------- | :----------- | | Shareholders' equity | $103.9 million | $142.4 million | | Shareholders' equity as % of total assets | 6.78% | 8.77% | | Annualized return on average equity (9 months) | 12.53% | 11.04% | | Total cash dividends paid on common stock (9 months) | $3.9 million | $2.8 million | | Common stock repurchased (9 months) | $0.6 million (22,000 shares) | N/A | Regulatory Capital Ratios Table | Regulatory Capital Ratios | Company Sep 30, 2022 | Company Dec 31, 2021 | Bank Sep 30, 2022 | Bank Dec 31, 2021 | | :-------------------------------------- | :------------------- | :------------------- | :---------------- | :---------------- | | Tier 1 capital ratio | 13.39% | 15.43% | 13.27% | 15.27% | | Total risk-based capital ratio | 14.20% | 16.35% | 14.08% | 16.19% | | Common equity Tier 1 capital ratio | 12.17% | 13.96% | 13.27% | 15.27% | | Tier 1 leverage capital ratio | 9.58% | 9.64% | 9.43% | 9.50% | - The Bank was considered 'well capitalized' at September 30, 2022, meeting all minimum regulatory capital requirements[181](index=181&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=34&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This section confirms no material changes in the company's quantitative and qualitative disclosures about market risk since its last annual report - There have been no material changes in the Quantitative and Qualitative Disclosures About Market Risk from those previously disclosed in Item 7A of Part II of the Company's Annual Report on Form 10-K[182](index=182&type=chunk) [Item 4. Controls and Procedures](index=34&type=section&id=Item%204.%20Controls%20and%20Procedures) This section reports on the effectiveness of the company's disclosure controls and procedures and internal control over financial reporting - The chief executive officer and chief financial officer concluded that the disclosure controls and procedures were effective as of September 30, 2022[183](index=183&type=chunk) - No change in internal control over financial reporting occurred during the period that has materially affected, or is reasonably likely to materially affect, internal control over financial reporting[183](index=183&type=chunk) [PART II. OTHER INFORMATION](index=34&type=section&id=PART%20II.%20OTHER%20INFORMATION) This part includes disclosures on legal proceedings, risk factors, equity security sales, defaults, other information, exhibits, and signatures [Item 1. Legal Proceedings](index=34&type=section&id=Item%201.%20Legal%20Proceedings) This section details an ongoing legal dispute with the NCDOR regarding disallowed tax credits, where the Bank believes its exposure is limited by a Guaranty Agreement - The Bank is contesting proposed adjustments from the NCDOR regarding disallowed tax credits for tax years 2014-2016, totaling approximately **$1.4 million**[184](index=184&type=chunk) - The Bank paid **$1.2 million** in taxes and interest to the NCDOR, stopping the accrual of interest, and believes its exposure is limited to approximately **$125,000** due to a Tax Credit Guaranty Agreement[184](index=184&type=chunk) [Item 1A. Risk Factors](index=34&type=section&id=Item%201A.%20Risk%20Factors) This section refers to the risk factors previously disclosed in the company's Annual Report on Form 10-K, confirming no material changes have occurred - There have been no material changes to the risk factors previously disclosed in the Form 10-K filed on March 18, 2022[185](index=185&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=35&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) This section reports on the Company's purchases of its own equity securities for its deferred compensation plan and the status of its publicly announced stock repurchase program Unregistered Sales of Equity Securities and Use of Proceeds Table | Period | Total Number of Shares Purchased | Average Price Paid per Share | | :--------------------- | :----------------------------- | :--------------------------- | | July 1 - 31, 2022 | 1,297 | $27.10 | | August 1 - 31, 2022 | 320 | $26.20 | | September 1 - 30, 2022 | 288 | $25.91 | | Total (3 months) | 1,905 | $26.81 | - The Company purchased **1,905 shares** for its deferred compensation plan during the three months ended September 30, 2022, funded by participant contributions[186](index=186&type=chunk) - As of September 30, 2022, **$1,405,790** remained available for repurchase under the stock repurchase program authorized in February 2022[186](index=186&type=chunk)[187](index=187&type=chunk) [Item 3. Defaults Upon Senior Securities](index=35&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) This section states that there are no applicable defaults upon senior securities - Not applicable[188](index=188&type=chunk) [Item 5. Other Information](index=35&type=section&id=Item%205.%20Other%20Information) This section states that there is no other information to report - Not applicable[188](index=188&type=chunk) [Item 6. Exhibits](index=35&type=section&id=Item%206.%20Exhibits) This section lists all exhibits filed as part of the Form 10-Q, including corporate governance documents, certifications, and XBRL financial statements - Exhibits include Articles of Incorporation, Articles of Amendment, Bylaws, Specimen Stock Certificate, Certifications (302 and 906), and XBRL formatted financial statements[189](index=189&type=chunk) [SIGNATURES](index=36&type=section&id=SIGNATURES) This section contains the required signatures from the company's principal executive and financial officers, certifying the accuracy of the report - The report is signed by Lance A. Sellers, President and Chief Executive Officer, and Jeffrey N. Hooper, Executive Vice President and Chief Financial Officer, on November 4, 2022[192](index=192&type=chunk)

[Filing Information](index=1&type=section&id=Filing%20Information) This section details the company's registrant information, SEC filer status, and common stock outstanding [Registrant Details](index=1&type=section&id=Registrant%20Details) This section provides essential identification details including the company's address, contact information, and SEC filing status - Registrant Name: **PEOPLES BANCORP OF NORTH CAROLINA, INC.**[2](index=2&type=chunk) - Address: 518 West C Street, Newton, North Carolina 28658[3](index=3&type=chunk) - Telephone Number: (828) 464-5620[3](index=3&type=chunk) [Filer Status](index=1&type=section&id=Filer%20Status) The company is categorized as a Non-accelerated Filer and a Smaller Reporting Company under SEC regulations Filer Status | Filer Status | Indication | | :------------- | :--------- | | Non-accelerated Filer | ☒ | | Smaller reporting company | ☒ | [Shares Outstanding](index=1&type=section&id=Shares%20Outstanding) As of July 31, 2022, the company had 5,641,030 shares of common stock outstanding - **5,641,030 shares of common stock outstanding** at July 31, 2022[4](index=4&type=chunk) [Table of Contents](index=2&type=section&id=INDEX) This section provides an organized list of all major sections and subsections within the report for easy navigation [Forward-Looking Statements](index=2&type=section&id=FORWARD-LOOKING%20STATEMENTS) This section outlines cautionary statements regarding future expectations, risks, and uncertainties that could cause actual results to differ materially from projections [PART I. FINANCIAL INFORMATION](index=3&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) This part presents the company's unaudited consolidated financial statements and management's discussion and analysis of financial condition and results of operations [Item 1. Financial Statements](index=3&type=section&id=Item%201.%20Financial%20Statements) This section presents the unaudited consolidated financial statements, including balance sheets, statements of earnings, comprehensive income, changes in shareholders' equity, and cash flows, along with detailed notes [Consolidated Balance Sheets](index=3&type=section&id=Consolidated%20Balance%20Sheets) This section provides a snapshot of the company's assets, liabilities, and shareholders' equity at specific points in time Consolidated Balance Sheet Highlights (Dollars in millions) | Item | June 30, 2022 (Unaudited) | December 31, 2021 (Audited) | Change (vs. Dec 31, 2021) | | :------------------------------------------ | :-------------------------- | :-------------------------- | :------------------------ | | Cash and cash equivalents | $223.7 | $277.5 | $(53.8) | | Total securities | $429.6 | $410.2 | $19.4 | | Loans, net | $949.7 | $875.5 | $74.2 | | Total assets | $1,676.9 | $1,624.2 | $52.7 | | Total deposits | $1,494.0 | $1,412.7 | $81.2 | | Total liabilities | $1,564.5 | $1,481.8 | $82.7 | | Total shareholders' equity | $112.4 | $142.4 | $(29.9) | - Total assets increased by **$52.7 million** to **$1.68 billion** at June 30, 2022, from $1.62 billion at December 31, 2021[9](index=9&type=chunk) - Total shareholders' equity decreased by **$29.9 million** to **$112.4 million** at June 30, 2022, from $142.4 million at December 31, 2021, primarily due to accumulated other comprehensive loss[9](index=9&type=chunk) [Consolidated Statements of Earnings](index=4&type=section&id=Consolidated%20Statements%20of%20Earnings) This section details the company's revenues, expenses, and net earnings over specific periods Consolidated Statements of Earnings Highlights (Dollars in millions, except per share amounts) | Item | Three months ended June 30, 2022 | Three months ended June 30, 2021 | Change (YoY) | Six months ended June 30, 2022 | Six months ended June 30, 2021 | Change (YoY) | | :----------------------------------- | :------------------------------- | :------------------------------- | :----------- | :------------------------------- | :------------------------------- | :----------- | | Total interest income | $12.0 | $12.5 | $(0.5) | $23.3 | $24.4 | $(1.1) | | Total interest expense | $0.6 | $0.8 | $(0.2) | $1.3 | $1.7 | $(0.4) | | Net interest income | $11.3 | $11.7 | $(0.3) | $22.0 | $22.8 | $(0.8) | | Provision for (recovery of) loan losses | $0.4 | $(0.2) | $0.6 | $0.5 | $(0.7) | $1.2 | | Total non-interest income | $7.3 | $6.0 | $1.3 | $14.4 | $11.9 | $2.5 | | Total non-interest expense | $14.2 | $12.1 | $2.1 | $27.6 | $24.4 | $3.2 | | Net earnings | $3.2 | $4.6 | $(1.4) | $6.7 | $8.7 | $(2.1) | | Basic net earnings per share | $0.59 | $0.82 | $(0.23) | $1.21 | $1.55 | $(0.34) | | Diluted net earnings per share | $0.57 | $0.80 | $(0.23) | $1.18 | $1.51 | $(0.33) | | Cash dividends declared per share | $0.18 | $0.16 | $0.02 | $0.51 | $0.32 | $0.19 | - Net earnings decreased by **$1.4 million (30.3%)** for the three months ended June 30, 2022, and by **$2.1 million (23.7%)** for the six months ended June 30, 2022, compared to the prior year periods[11](index=11&type=chunk) - Provision for loan losses increased significantly from a recovery in 2021 to a provision in 2022, impacting net earnings[11](index=11&type=chunk) [Consolidated Statements of Comprehensive Income (Loss)](index=5&type=section&id=Consolidated%20Statements%20of%20Comprehensive%20Income%20(Loss)) This section presents the company's net earnings adjusted for other comprehensive income or loss, such as unrealized gains or losses on available-for-sale securities Consolidated Statements of Comprehensive Income (Loss) Highlights (Dollars in millions) | Item | Three months ended June 30, 2022 | Three months ended June 30, 2021 | Change (YoY) | Six months ended June 30, 2022 | Six months ended June 30, 2021 | Change (YoY) | | :--------------------------------------------------- | :------------------------------- | :------------------------------- | :----------- | :------------------------------- | :------------------------------- | :----------- | | Net earnings | $3.2 | $4.6 | $(1.4) | $6.7 | $8.7 | $(2.1) | | Unrealized holding gains (losses) on securities available for sale | $(19.3) | $2.2 | $(21.4) | $(43.1) | $(1.9) | $(41.2) | | Total other comprehensive income (loss), net of tax | $(14.8) | $1.7 | $(16.5) | $(33.2) | $(1.4) | $(31.7) | | Total comprehensive income (loss) | $(11.6) | $6.3 | $(17.9) | $(26.5) | $7.3 | $(33.8) | - The company reported a significant **total comprehensive loss** for both the three and six months ended June 30, 2022, primarily driven by large unrealized holding losses on available-for-sale securities due to changing interest rates[13](index=13&type=chunk) [Consolidated Statements of Changes in Shareholders' Equity](index=5&type=section&id=Consolidated%20Statements%20of%20Changes%20in%20Shareholders'%20Equity) This section outlines the changes in the company's shareholders' equity over time, reflecting net earnings, dividends, and other comprehensive income or loss Consolidated Statements of Changes in Shareholders' Equity Highlights (Dollars in millions) | Item | Balance, December 31, 2021 | Six months ended June 30, 2022 | Balance, June 30, 2022 | | :----------------------------------- | :------------------------- | :----------------------------- | :--------------------- | | Common Stock Amount | $53.3 | $(0.6) | $52.8 | | Retained Earnings | $89.0 | $3.8 | $92.7 | | Accumulated Other Comprehensive Income (Loss) | $0.1 | $(33.2) | $(33.1) | | Total Shareholders' Equity | $142.4 | $(29.9) | $112.4 | - Shareholders' equity decreased by **$29.9 million** during the first six months of 2022, primarily due to a significant change in accumulated other comprehensive income (loss) from a gain to a substantial loss[15](index=15&type=chunk)[17](index=17&type=chunk) - Common stock repurchases totaled **$0.6 million** for the six months ended June 30, 2022[15](index=15&type=chunk)[17](index=17&type=chunk) [Consolidated Statements of Cash Flows](index=6&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) This section categorizes cash inflows and outflows into operating, investing, and financing activities, providing insight into the company's liquidity Consolidated Statements of Cash Flows Highlights (Dollars in millions) | Cash Flow Activity | Six months ended June 30, 2022 | Six months ended June 30, 2021 | Change (YoY) | | :-------------------------------- | :------------------------------- | :------------------------------- | :----------- | | Net cash provided by operating activities | $8.9 | $16.4 | $(7.5) | | Net cash used by investing activities | $(140.4) | $(64.8) | $(75.6) | | Net cash provided by financing activities | $77.8 | $174.2 | $(96.4) | | Net change in cash and cash equivalents | $(53.8) | $125.7 | $(179.5) | | Cash and cash equivalents at end of period | $223.7 | $287.3 | $(63.6) | - Net cash provided by operating activities decreased by **$7.5 million**, while net cash used by investing activities more than doubled, primarily due to increased purchases of investment securities and net change in loans[19](index=19&type=chunk) - Net cash provided by financing activities decreased significantly, mainly due to a lower net change in deposits and common stock repurchases[19](index=19&type=chunk) [Notes to Consolidated Financial Statements (Unaudited)](index=7&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements%20(Unaudited)) This section provides detailed explanations and additional information about the figures presented in the consolidated financial statements [Summary of Significant Accounting Policies](index=7&type=section&id=(1)%20Summary%20of%20Significant%20Accounting%20Policies) This section outlines the company's consolidation principles, the unaudited nature of interim financial statements, and key accounting policies, including the evaluation of recent accounting pronouncements - The Consolidated Financial Statements include Peoples Bancorp of North Carolina, Inc. and its wholly-owned subsidiary, Peoples Bank, along with the Bank's subsidiaries[23](index=23&type=chunk) - Interim financial statements (except for the December 31, 2021 balance sheet) are unaudited, with all necessary adjustments for fair presentation included[26](index=26&type=chunk) - The company is evaluating ASU 2016-13 (CECL) for credit losses, which will involve a cumulative-effect adjustment to retained earnings upon adoption on January 1, 2023, and is developing CECL model assumptions[29](index=29&type=chunk)[32](index=32&type=chunk) [Investment Securities](index=10&type=section&id=(2)%20Investment%20Securities) This note details the composition and fair value of investment securities available for sale, highlighting a significant increase in unrealized losses primarily due to changing interest rates Investment Securities Available for Sale (Dollars in millions) | Category | June 30, 2022 Fair Value | December 31, 2021 Fair Value | Change | | :------------------------------ | :----------------------- | :----------------------- | :----- | | U.S Treasuries | $10.1 | $7.9 | $2.2 | | U.S. Government sponsored enterprises | $12.7 | $14.3 | $(1.6) | | Mortgage-backed securities | $248.2 | $217.2 | $31.0 | | State and political subdivisions | $155.9 | $167.2 | $(11.4) | | Total | $426.8 | $406.5 | $20.3 | Unrealized Losses on Investment Securities (Dollars in millions) | Category | June 30, 2022 Unrealized Losses | December 31, 2021 Unrealized Losses | Change | | :------------------------------ | :-------------------------------- | :-------------------------------- | :----- | | U.S Treasuries | $0.9 | $0.1 | $0.8 | | U.S. Government sponsored enterprises | $0.5 | $0.2 | $0.3 | | Mortgage-backed securities | $16.2 | $3.0 | $13.2 | | State and political subdivisions | $26.0 | $2.3 | $23.7 | | Total | $43.6 | $5.5 | $38.0 | - Unrealized losses on debt securities increased from **$5.5 million** at December 31, 2021, to **$43.6 million** at June 30, 2022, primarily due to changing interest rates, but are considered temporary[37](index=37&type=chunk) [Loans](index=11&type=section&id=(3)%20Loans) This note provides a detailed breakdown of the loan portfolio, including classifications, delinquency status, non-accrual and impaired loan figures, and the methodology for the allowance for loan losses [Loan Classifications](index=11&type=section&id=Loan%20Classifications) This section categorizes the company's loan portfolio by type, providing insight into its lending activities and concentrations Major Classifications of Loans (Dollars in millions) | Loan Type | June 30, 2022 | December 31, 2021 | Change | | :------------------------------------ | :-------------- | :---------------- | :----- | | Real estate loans: | | | | | Construction and land development | $103.2 | $95.8 | $7.5 | | Single-family residential | $292.7 | $266.1 | $26.6 | | Single-family residential - Banco de la Gente non-traditional | $21.4 | $23.1 | $(1.8) | | Commercial | $386.4 | $337.8 | $48.5 | | Multifamily and farmland | $62.7 | $58.4 | $4.3 | | Total real estate loans | $866.4 | $781.2 | $85.1 | | Loans not secured by real estate: | | | | | Commercial loans | $70.7 | $91.2 | $(20.5) | | Farm loans | $1.0 | $0.8 | $0.2 | | Consumer loans | $6.3 | $6.4 | $(0.2) | | All other loans | $15.1 | $5.2 | $9.9 | | Total loans | $959.5 | $884.9 | $74.6 | | Less allowance for loan losses | $(9.8) | $(9.4) | $(0.4) | | Total net loans | $949.7 | $875.5 | $74.2 | - Total loans increased by **$74.6 million** to **$959.5 million** at June 30, 2022, primarily driven by growth in real estate loans, especially commercial real estate[42](index=42&type=chunk) - Commercial loans not secured by real estate decreased by **$20.5 million**, while commercial real estate loans increased by **$48.5 million**[42](index=42&type=chunk) [Past Due and Non-Accrual Loans](index=12&type=section&id=Past%20Due%20and%20Non-Accrual%20Loans) This section provides an analysis of loans that are past due or no longer accruing interest, indicating potential credit quality issues Age Analysis of Past Due Loans (Dollars in millions) | Loan Type | June 30, 2022 (30-89 Days Past Due) | June 30, 2022 (90+ Days Past Due) | December 31, 2021 (30-89 Days Past Due) | December 31, 2021 (90+ Days Past Due) | | :------------------------------------ | :---------------------------------- | :--------------------------------- | :----------------------------------- | :--------------------------------- | | Real estate loans: | | | | | | Construction and land development | $0.04 | - | - | - | | Single-family residential | $1.0 | $0.4 | $2.3 | $0.6 | | Single-family residential - Banco de la Gente non-traditional | $0.5 | $0.2 | $2.6 | $0.1 | | Commercial | $0.3 | - | $0.5 | - | | Total real estate loans | $1.8 | $0.5 | $5.4 | $0.7 | | Loans not secured by real estate: | | | | | | Commercial loans | $0.1 | - | $0.04 | - | | Consumer loans | $0.1 | - | $0.04 | - | | Total loans past due | $2.0 | $0.5 | $5.5 | $0.7 | Non-Accrual Loans (Dollars in millions) | Loan Type | June 30, 2022 | December 31, 2021 | Change | | :------------------------------------ | :-------------- | :---------------- | :----- | | Real estate loans: | | | | | Single-family residential | $1.9 | $1.6 | $0.3 | | Single-family residential - Banco de la Gente non-traditional | $1.4 | $1.2 | $0.2 | | Commercial | $0.1 | $0.2 | $(0.1) | | Multifamily and farmland | $0.1 | $0.1 | $(0.01) | | Total real estate loans | $3.6 | $3.2 | $0.4 | | Loans not secured by real estate: | | | | | Commercial loans | - | $0.05 | $(0.05) | | Consumer loans | $0.02 | $0.002 | $0.02 | | Total non-accrual loans | $3.6 | $3.2 | $0.4 | - Total past due loans (30+ days) decreased from **$6.2 million** at December 31, 2021, to **$2.6 million** at June 30, 2022[44](index=44&type=chunk)[46](index=46&type=chunk) - Non-accrual loans increased by **$0.4 million** to **$3.6 million** at June 30, 2022, primarily in single-family residential loans[47](index=47&type=chunk) [Impaired Loans](index=13&type=section&id=Impaired%20Loans) This section details loans for which it is probable that the company will be unable to collect all amounts due according to the contractual terms - Impaired loans totaled **$16.5 million** at June 30, 2022, a decrease from $18.3 million at December 31, 2021[47](index=47&type=chunk) Impaired Loans (Dollars in millions) | Loan Type | June 30, 2022 Recorded Investment | December 31, 2021 Recorded Investment | | :------------------------------------ | :-------------------------------- | :-------------------------------- | | Real estate loans: | | | | Construction and land development | $0.06 | $0.07 | | Single-family residential | $3.9 | $4.9 | | Single-family residential - Banco de la Gente non-traditional | $10.4 | $10.9 | | Commercial | $1.9 | $2.0 | | Multifamily and farmland | $0.1 | $0.1 | | Total impaired real estate loans | $16.4 | $18.0 | | Loans not secured by real estate: | | | | Commercial loans | $0.1 | $0.2 | | Consumer loans | $0.02 | $0.004 | | Total impaired loans | $16.5 | $18.3 | - Interest income recognized on accruing impaired loans was **$0.4 million** for the six months ended June 30, 2022, down from $0.5 million in the prior year period[47](index=47&type=chunk)[51](index=51&type=chunk) [Allowance for Loan Losses](index=15&type=section&id=Allowance%20for%20Loan%20Losses) This section explains the methodology and changes in the allowance for loan losses, which is an estimate of probable credit losses in the loan portfolio Allowance for Loan Losses (Dollars in millions) | Item | Six months ended June 30, 2022 | Six months ended June 30, 2021 | | :------------------------------------ | :----------------------------- | :----------------------------- | | Beginning balance | $9.4 | $9.9 | | Charge-offs | $(0.3) | $(0.2) | | Recoveries | $0.2 | $0.3 | | Provision | $0.5 | $(0.7) | | Ending balance | $9.8 | $9.3 | - The allowance for loan losses increased to **$9.8 million** at June 30, 2022, from $9.4 million at December 31, 2021, with a provision of **$0.5 million** for the six months ended June 30, 2022, compared to a recovery of $0.7 million in the prior year[55](index=55&type=chunk)[56](index=56&type=chunk) - PPP loans are excluded from the allowance for loan losses due to their **100% guarantee by the SBA**[54](index=54&type=chunk)[160](index=160&type=chunk) [Credit Risk Profile by Risk Grade](index=17&type=section&id=Credit%20Risk%20Profile%20by%20Risk%20Grade) This section categorizes the loan portfolio by internal credit risk grades, providing an overview of the overall credit quality and potential areas of concern Percentage of Loans by Risk Grade | Risk Grade | June 30, 2022 | December 31, 2021 | | :-------------------------- | :-------------- | :---------------- | | 1 (Excellent Quality) | 0.57% | 0.78% | | 2 (High Quality) | 19.38% | 19.12% | | 3 (Good Quality) | 72.85% | 70.41% | | 4 (Management Attention) | 5.79% | 7.70% | | 5 (Watch) | 0.71% | 1.23% | | 6 (Substandard) | 0.70% | 0.76% | | 7 (Doubtful) | 0.00% | 0.00% | | 8 (Loss) | 0.00% | 0.00% | - The majority of the loan portfolio (**72.85%**) is classified as 'Good Quality' (Risk Grade 3) at June 30, 2022, an increase from 70.41% at December 31, 2021[163](index=163&type=chunk) - Loans in higher risk categories (Management Attention, Watch, Substandard) generally decreased as a percentage of total loans[163](index=163&type=chunk) [Paycheck Protection Program (PPP) Loans](index=18&type=section&id=Paycheck%20Protection%20Program%20(PPP)%20Loans) This section provides an update on the company's involvement with the Paycheck Protection Program, including outstanding loan balances and associated fee income PPP Loan Balances and Fee Income (Dollars in millions) | Item | June 30, 2022 | December 31, 2021 | Change | | :------------------------------------ | :-------------- | :---------------- | :----- | | Outstanding balance of PPP loans | $1.4 | $18.0 | $(16.6) | | PPP loan fee income (3 months ended) | $0.3 | $1.5 | $(1.2) | | PPP loan fee income (6 months ended) | $0.9 | $2.5 | $(1.6) | - The outstanding balance of PPP loans significantly decreased to **$1.4 million** at June 30, 2022, from $18.0 million at December 31, 2021[63](index=63&type=chunk) - PPP loan fee income declined substantially in 2022 compared to 2021, reflecting the reduction in outstanding PPP loan balances[63](index=63&type=chunk) [Net Earnings Per Share](index=19&type=section&id=(4)%20Net%20Earnings%20Per%20Share) This note reconciles basic and diluted net earnings per share, detailing the weighted average number of shares outstanding and the impact of dilutive securities Net Earnings Per Share (Dollars in millions, except per share amounts) | Item | Three months ended June 30, 2022 | Three months ended June 30, 2021 | Six months ended June 30, 2022 | Six months ended June 30, 2021 | | :------------------------------------ | :------------------------------- | :------------------------------- | :------------------------------- | :------------------------------- | | Net Earnings | $3.2 | $4.6 | $6.7 | $8.7 | | Basic Weighted Average Number of Shares | 5,481,899 | 5,630,580 | 5,489,461 | 5,630,995 | | Basic EPS | $0.59 | $0.82 | $1.21 | $1.55 | | Diluted Weighted Average Number of Shares | 5,661,712 | 5,801,160 | 5,667,574 | 5,800,649 | | Diluted EPS | $0.57 | $0.80 | $1.18 | $1.51 | - Both basic and diluted EPS decreased for the three and six months ended June 30, 2022, compared to the prior year periods, reflecting lower net earnings[65](index=65&type=chunk)[66](index=66&type=chunk)[67](index=67&type=chunk) - Dilutive securities, including unvested restricted stock units and shares in the deferred compensation trust, increased the weighted average shares for diluted EPS calculations[65](index=65&type=chunk)[66](index=66&type=chunk)[67](index=67&type=chunk) [Fair Value Measurements](index=19&type=section&id=(5)%20Fair%20Value) This note describes the company's methodology for estimating the fair value of financial instruments, categorizing them into a three-level hierarchy based on input observability - Fair value measurements are categorized into **Level 1** (quoted prices in active markets), **Level 2** (observable inputs other than quoted prices), and **Level 3** (unobservable inputs)[81](index=81&type=chunk) Financial Instruments Measured at Fair Value on a Recurring Basis (Dollars in millions) | Item | June 30, 2022 Fair Value | December 31, 2021 Fair Value | | :------------------------------------ | :----------------------- | :----------------------- | | U.S. Treasuries | $10.1 | $7.9 | | U.S. Government sponsored enterprises | $12.7 | $14.3 | | Mortgage-backed securities | $248.2 | $217.2 | | State and political subdivisions | $155.9 | $167.2 | | Mutual funds held in deferred compensation trust | $1.3 | $1.5 | Fair Value Measurements for Mortgage Loans Held for Sale and Impaired Loans (Non-Recurring, Dollars in millions) | Item | June 30, 2022 Fair Value | December 31, 2021 Fair Value | | :------------------------------------ | :----------------------- | :----------------------- | | Mortgage loans held for sale | $1.3 | $3.6 | | Impaired loans | $15.8 | $17.5 | [Leases](index=22&type=section&id=(6)%20Leases) This note details the company's operating lease assets and liabilities, primarily for branch facilities and loan production offices, including lease costs, cash payments, and weighted-average terms - As of June 30, 2022, the Bank had operating right-of-use assets of **$6.0 million** and operating lease liabilities of **$6.0 million**[94](index=94&type=chunk) Lease Information (Dollars in millions) | Item | June 30, 2022 | June 30, 2021 | | :---------------------------------------------------------- | :-------------- | :-------------- | | Operating lease cost | $0.4 | $0.4 | | Cash paid for amounts included in the measurement of lease liabilities | $0.7 | $0.4 | | Right-of-use assets obtained in exchange for new lease liabilities - operating leases | $1.7 | $0.9 | | Weighted-average remaining lease term - operating leases | 8.54 years | 6.84 years | | Weighted-average discount rate - operating leases | 2.14% | 2.71% | - Lease maturities extend significantly beyond 2026, with total undiscounted payments of **$6.7 million** at June 30, 2022[97](index=97&type=chunk) [Subsequent Events](index=23&type=section&id=(7)%20Subsequent%20Events) Management has reviewed and concluded that there were no material subsequent events requiring disclosure through the date the financial statements were issued - No material subsequent events were identified through the financial statement issuance date[98](index=98&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=23&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on the company's financial performance and condition, discussing key drivers of earnings, economic impacts, and strategies for managing assets, liabilities, and capital [Introduction and Overview](index=23&type=section&id=Introduction%20and%20Overview) The company primarily generates income by attracting deposits and investing in various loan types and investment securities, with profitability driven by net interest income, non-interest income, and controlled operating expenses - The Company's business consists principally of attracting deposits and investing these funds in commercial, real estate mortgage, real estate construction, and consumer loans[102](index=102&type=chunk) - Profitability depends primarily on net interest income (interest income from loans/investments minus cost of funds) and is also affected by other income and operating expenses[102](index=102&type=chunk) - Operations are significantly influenced by local economic conditions, financial institution regulatory authorities, and Federal Reserve interest rate policies[103](index=103&type=chunk) [COVID-19 Impact](index=24&type=section&id=COVID-19%20Impact) The COVID-19 pandemic caused significant economic disruption, leading to interest rate changes, the CARES Act, and regulatory guidance on loan modifications, to which the company responded with a Pandemic Plan and PPP participation - COVID-19 adversely affected economic activity, leading the FOMC to reduce the target federal funds rate significantly in March 2020, and subsequently increase it by **225 basis points** in 2022 due to inflation concerns[104](index=104&type=chunk) - Policy responses included the CARES Act (establishing the PPP loan program) and regulatory guidance encouraging loan modifications without automatic TDR classification[112](index=112&type=chunk) - The company's response included enacting a Pandemic Plan, offering prudent loan modification terms, promoting digital banking, and participating as a PPP lender[113](index=113&type=chunk) [Summary of Significant Accounting Policies](index=26&type=section&id=Summary%20of%20Significant%20Accounting%20Policies) This section reiterates the importance of management's judgment in applying accounting policies, particularly concerning the allowance for loan losses and the fair value estimation of assets and liabilities - The allowance for loan losses reflects management's assessment of credit risks and loan portfolio quality[115](index=115&type=chunk) - Many assets and liabilities are recorded using techniques requiring significant judgment, such as the collectability of loans and the estimation of fair value for financial instruments[116](index=116&type=chunk) - Management's estimates and assumptions are crucial for preparing Consolidated Financial Statements in conformity with GAAP, and actual results could differ[118](index=118&type=chunk) [Results of Operations](index=26&type=section&id=Results%20of%20Operations) The company experienced a decline in net earnings for both the three and six months ended June 30, 2022, primarily due to decreased net interest income, increased provision for loan losses, and higher non-interest expenses [Overall Summary](index=26&type=section&id=Overall%20Summary) This section provides a high-level overview of the company's financial performance, including net earnings and key profitability ratios Net Earnings and Performance Ratios | Metric | 3 Months Ended June 30, 2022 | 3 Months Ended June 30, 2021 | Change (YoY) | 6 Months Ended June 30, 2022 | 6 Months Ended June 30, 2021 | Change (YoY) | | :-------------------------------- | :--------------------------- | :--------------------------- | :----------- | :--------------------------- | :--------------------------- | :----------- | | Net earnings (in thousands) | $3,217 | $4,615 | $(1,398) | $6,669 | $8,736 | $(2,067) | | Basic net earnings per share | $0.59 | $0.82 | $(0.23) | $1.21 | $1.55 | $(0.34) | | Diluted net earnings per share | $0.57 | $0.80 | $(0.23) | $1.18 | $1.51 | $(0.33) | | Annualized return on average assets | 0.77% | 1.18% | -0.41% | 0.81% | 0.89% | -0.08% | | Annualized return on average shareholders' equity | 11.02% | 13.11% | -2.09% | 10.39% | 9.43% | 0.96% | - Net earnings decreased by **$1.4 million (30.3%)** for the second quarter and **$2.1 million (23.7%)** year-to-date, primarily due to lower net interest income, higher loan loss provision, and increased non-interest expense[119](index=119&type=chunk)[121](index=121&type=chunk) - Annualized return on average assets declined for both periods, while annualized return on average shareholders' equity decreased for the quarter but increased year-to-date[120](index=120&type=chunk)[122](index=122&type=chunk) [Net Interest Income](index=26&type=section&id=Net%20Interest%20Income) This section analyzes the difference between interest earned on assets and interest paid on liabilities, a primary driver of the company's profitability Net Interest Income (Dollars in millions) | Metric | 3 Months Ended June 30, 2022 | 3 Months Ended June 30, 2021 | Change (YoY) | 6 Months Ended June 30, 2022 | 6 Months Ended June 30, 2021 | Change (YoY) | | :-------------------------------- | :--------------------------- | :--------------------------- | :----------- | :--------------------------- | :--------------------------- | :----------- | | Net interest income | $11.3 | $11.7 | $(0.3) | $22.0 | $22.8 | $(0.8) | | Total interest income | $12.0 | $12.5 | $(0.5) | $23.3 | $24.4 | $(1.1) | | Total interest expense | $0.6 | $0.8 | $(0.2) | $1.3 | $1.7 | $(0.4) | | Average yield on earning assets | 3.03% | 3.43% | -0.40% | 3.00% | 3.49% | -0.49% | | Average rate paid on interest-bearing liabilities | 0.26% | 0.38% | -0.12% | 0.27% | 0.39% | -0.12% | - Net interest income decreased by **$0.3 million** for the quarter and **$0.8 million** year-to-date, primarily due to a decrease in interest income from loans (driven by lower PPP fee income) partially offset by lower interest expense on deposits[124](index=124&type=chunk)[130](index=130&type=chunk) - Average yield on loans decreased from **4.82% to 4.34%** for the quarter and from **4.69% to 4.40%** year-to-date[125](index=125&type=chunk)[131](index=131&type=chunk) [Provision for Loan Losses](index=30&type=section&id=Provision%20for%20Loan%20Losses) This section discusses the amount set aside to cover potential future loan defaults, reflecting changes in credit quality and loan portfolio size Provision for Loan Losses (Dollars in millions) | Metric | 3 Months Ended June 30, 2022 | 3 Months Ended June 30, 2021 | Change (YoY) | 6 Months Ended June 30, 2022 | 6 Months Ended June 30, 2021 | Change (YoY) | | :-------------------------------- | :--------------------------- | :--------------------------- | :----------- | :--------------------------- | :--------------------------- | :----------- | | Provision for loan losses | $0.4 | $(0.2) | $0.6 | $0.5 | $(0.7) | $1.2 | - The company recorded a provision for loan losses of **$0.4 million** for the three months and **$0.5 million** for the six months ended June 30, 2022, a significant increase from recoveries in the prior year periods[136](index=136&type=chunk)[137](index=137&type=chunk) - The increase in provision is primarily due to an increase in reserves resulting from a net increase in the volume of loans in the general reserve pool[136](index=136&type=chunk)[137](index=137&type=chunk) [Non-Interest Income](index=30&type=section&id=Non-Interest%20Income) This section details income generated from sources other than interest on loans and investments, such as service charges, appraisal management fees, and mortgage banking income Non-Interest Income (Dollars in millions) | Metric | 3 Months Ended June 30, 2022 | 3 Months Ended June 30, 2021 | Change (YoY) | 6 Months Ended June 30, 2022 | 6 Months Ended June 30, 2021 | Change (YoY) | | :-------------------------------- | :--------------------------- | :--------------------------- | :----------- | :--------------------------- | :--------------------------- | :----------- | | Total non-interest income | $7.3 | $6.0 | $1.3 | $14.4 | $11.9 | $2.5 | | Appraisal management fee income | $3.4 | $2.0 | $1.4 | $6.9 | $3.8 | $3.1 | | Mortgage banking income | $0.1 | $0.7 | $(0.6) | $0.3 | $1.6 | $(1.3) | | Service charges | $1.4 | $0.9 | $0.5 | $2.5 | $1.8 | $0.7 | - Total non-interest income increased by **$1.3 million** for the quarter and **$2.5 million** year-to-date, primarily driven by a significant increase in appraisal management fee income and service charges[138](index=138&type=chunk)[139](index=139&type=chunk) - Mortgage banking income decreased substantially due to lower mortgage loan volume and more loans being retained for the Bank's portfolio[138](index=138&type=chunk)[139](index=139&type=chunk) [Non-Interest Expense](index=30&type=section&id=Non-Interest%20Expense) This section outlines the company's operating expenses excluding interest expense, such as salaries, employee benefits, and appraisal management fees Non-Interest Expense (Dollars in millions) | Metric | 3 Months Ended June 30, 2022 | 3 Months Ended June 30, 2021 | Change (YoY) | 6 Months Ended June 30, 2022 | 6 Months Ended June 30, 2021 | Change (YoY) | | :-------------------------------- | :--------------------------- | :--------------------------- | :----------- | :--------------------------- | :--------------------------- | :----------- | | Total non-interest expense | $14.2 | $12.1 | $2.1 | $27.6 | $24.4 | $3.2 | | Appraisal management fee expense | $2.8 | $1.6 | $1.1 | $5.5 | $3.1 | $2.4 | | Salaries and employee benefits | $6.4 | $5.7 | $0.8 | $12.3 | $11.8 | $0.4 | - Total non-interest expense increased by **$2.1 million** for the quarter and **$3.2 million** year-to-date, primarily driven by higher appraisal management fee expense and salaries and employee benefits[140](index=140&type=chunk)[141](index=141&type=chunk) - The increase in appraisal management fee expense corresponds to the increase in appraisal management fee income[140](index=140&type=chunk)[141](index=141&type=chunk) [Income Taxes](index=30&type=section&id=Income%20Taxes) This section details the company's income tax expense and effective tax rate, reflecting its tax obligations based on earnings Income Tax Expense and Effective Tax Rate | Metric | 3 Months Ended June 30, 2022 | 3 Months Ended June 30, 2021 | Change (YoY) | 6 Months Ended June 30, 2022 | 6 Months Ended June 30, 2021 | Change (YoY) | | :-------------------------------- | :--------------------------- | :--------------------------- | :----------- | :--------------------------- | :--------------------------- | :----------- | | Income tax expense (in thousands) | $806 | $1,194 | $(388) | $1,654 | $2,240 | $(586) | | Effective tax rate | 20.03% | 20.55% | -0.52% | 19.87% | 20.41% | -0.54% | - Income tax expense decreased for both periods, reflecting lower earnings before income taxes[142](index=142&type=chunk) - The effective tax rate slightly decreased for both the three and six months ended June 30, 2022, compared to the prior year periods[142](index=142&type=chunk) [Analysis of Financial Condition](index=31&type=section&id=Analysis%20of%20Financial%20Condition) This section analyzes key balance sheet components, including investment securities, loans, allowance for loan losses, non-performing assets, deposits, and borrowed funds, along with strategies for managing interest rate risk, liquidity, and capital [Investment Securities](index=31&type=section&id=Investment%20Securities) This section analyzes the company's investment portfolio, including available-for-sale securities and their fair value changes Investment Securities Available for Sale (Dollars in millions) | Metric | June 30, 2022 | December 31, 2021 | Change | | :------------------------------------ | :-------------- | :---------------- | :----- | | Available for sale securities | $426.8 | $406.5 | $20.3 | | Average investment securities available for sale (6 months ended) | $434.4 | $349.6 (year ended) | $84.8 | - Available for sale securities increased by **$20.3 million** to **$426.8 million** at June 30, 2022[143](index=143&type=chunk) [Loans](index=31&type=section&id=Loans) This section provides a detailed analysis of the company's loan portfolio, including growth trends, composition, and credit quality indicators Loan Balances (Dollars in millions) | Metric | June 30, 2022 | December 31, 2021 | Change | | :------------------------------------ | :-------------- | :---------------- | :----- | | Total loans | $959.5 | $884.9 | $74.6 | | PPP loans | $1.4 | $18.0 | $(16.6) | | Mortgage loans held for sale | $1.3 | $3.6 | $(2.3) | | Residential mortgage loans | $93.1 | $101.5 | $(8.4) | | Home equity loans | $92.3 | $85.6 | $6.7 | | Commercial mortgage loans | $574.0 | $494.4 | $79.6 | - Total loans increased by **$74.6 million** to **$959.5 million** at June 30, 2022, with commercial mortgage loans showing significant growth[144](index=144&type=chunk)[146](index=146&type=chunk) - PPP loans decreased substantially, and mortgage loans held for sale also declined[144](index=144&type=chunk)[145](index=145&type=chunk) - Past due TDR loans and non-accrual TDR loans increased to **$2.4 million** at June 30, 2022, from $2.2 million at December 31, 2021[147](index=147&type=chunk) [Allowance for Loan Losses (ALLL)](index=31&type=section&id=Allowance%20for%20Loan%20Losses%20(ALLL)) This section discusses the company's methodology for estimating and maintaining the allowance for loan losses, reflecting its assessment of credit risk within the loan portfolio - The ALLL reflects management's assessment of credit risks, considering factors like loan loss experience, past due loans, collateral values, and economic conditions[149](index=149&type=chunk)[154](index=154&type=chunk) - The Bank uses an internal loan grading system (**1 to 8 risk grades**) and engages an independent third party for credit review to monitor asset quality[150](index=150&type=chunk)[151](index=151&type=chunk) - The ALLL is comprised of specific, general, and unallocated reserves, with a higher reserve rate applied to a pool of loans previously modified due to COVID-19 (**$77.9 million** at June 30, 2022)[155](index=155&type=chunk)[156](index=156&type=chunk)[157](index=157&type=chunk) [Non-performing Assets](index=32&type=section&id=Non-performing%20Assets) This section analyzes assets that are not generating income or are experiencing payment defaults, indicating potential asset quality issues Non-performing Assets (Dollars in millions) | Metric | June 30, 2022 | December 31, 2021 | Change | | :------------------------------------ | :-------------- | :---------------- | :----- | | Total non-performing assets | $3.6 | $3.2 | $0.4 | | Non-accrual loans | $3.6 | $3.2 | $0.4 | | Non-accrual loans as % of total loans | 0.37% | 0.37% | 0.00% | | Non-performing assets as % of total assets | 0.21% | 0.20% | 0.01% | - Total non-performing assets increased to **$3.6 million** at June 30, 2022, from $3.2 million at December 31, 2021[164](index=164&type=chunk) - Non-accrual loans remained at **0.37%** of total loans outstanding at both periods[164](index=164&type=chunk) [Deposits](index=33&type=section&id=Deposits) This section analyzes the company's deposit base, including total deposits and the proportion of core deposits, which are a stable and low-cost funding source Deposits (Dollars in billions) | Metric | June 30, 2022 | December 31, 2021 | Change | | :------------------------------------ | :-------------- | :---------------- | :----- | | Total deposits | $1.5 | $1.4 | $0.1 | | Core deposits | $1.5 | $1.4 | $0.1 | | Core deposits as % of total deposits | 97.93% | 98.14% | -0.21% | - Total deposits increased to **$1.5 billion** at June 30, 2022, from $1.4 billion at December 31, 2021[165](index=165&type=chunk) - Core deposits, a low-cost funding source, remained a substantial portion of total deposits, at **97.93%** at June 30, 2022[165](index=165&type=chunk) [Borrowed Funds](index=33&type=section&id=Borrowed%20Funds) This section details the company's use of borrowed funds, such as FHLB advances, securities sold under repurchase agreements, and junior subordinated debentures - No FHLB borrowings were outstanding at June 30, 2022, or December 31, 2021[166](index=166&type=chunk) - Securities sold under agreements to repurchase remained stable at **$37.1 million** at both periods[167](index=167&type=chunk) - Junior subordinated debentures were **$15.5 million** at both periods, with interest tied to three-month LIBOR, which will continue to be published through June 30, 2023[167](index=167&type=chunk)[171](index=171&type=chunk) [Asset Liability and Interest Rate Risk Management](index=33&type=section&id=Asset%20Liability%20and%20Interest%20Rate%20Risk%20Management) This section describes the company's strategies and policies for managing the sensitivity of its net interest income to changes in interest rates - The company's strategy aims to manage the sensitivity of net interest income to changing interest rates and minimize interest rate risk[172](index=172&type=chunk) - The Asset/Liability Committee (ALCO) is responsible for approving policies, formulating strategies, and reviewing interest rate sensitivity[173](index=173&type=chunk) - Average rate sensitive assets exceeded average rate sensitive liabilities by **$621.6 million** for the six months ended June 30, 2022[174](index=174&type=chunk) - The company utilizes interest rate floors on **$113.2 million** in variable rate loans to protect against downward movements in the prime rate[176](index=176&type=chunk) [Liquidity](index=33&type=section&id=Liquidity) This section outlines the company's liquidity management policy, including primary funding sources, available borrowing capacity, and key liquidity ratios - The company's liquidity policy aims to provide adequate funds for loan demand, deposit withdrawals, maturing liabilities, and regulatory requirements[177](index=177&type=chunk) - Primary liquidity sources include core deposits (**$1.5 billion** at June 30, 2022, representing **97.93%** of total deposits) and wholesale funding options[179](index=179&type=chunk) - The Bank had significant available borrowing capacity from FHLB (**$85.9 million**) and FRB (**$410.4 million**) at June 30, 2022[181](index=181&type=chunk) - The liquidity ratio was **38.50%** at June 30, 2022, well above the minimum required 10%[183](index=183&type=chunk) [Contractual Obligations and Off-Balance Sheet Arrangements](index=34&type=section&id=Contractual%20Obligations%20and%20Off-Balance%20Sheet%20Arrangements) This section details the company's future cash payment obligations under various contracts and its off-balance sheet commitments and arrangements Contractual Cash Obligations (Dollars in millions) | Obligation | June 30, 2022 | December 31, 2021 | | :------------------------------------ | :-------------- | :---------------- | | Junior subordinated debentures | $15.5 | $15.5 | | Operating lease obligations | $6.7 | $5.2 | | Total | $22.2 | $20.6 | Other Commitments (Dollars in millions) | Commitment | June 30, 2022 | December 31, 2021 | | :------------------------------------ | :-------------- | :---------------- | | Commitments to extend credit | $359.0 | $304.3 | | Standby letters of credit and financial guarantees written | $4.9 | $4.9 | | SBIC Investments | $1.8 | $2.2 | | Income tax credits | $0.1 | $0.1 | | Total | $365.8 | $311.5 | - Commitments to extend credit increased significantly to **$359.0 million** at June 30, 2022, from $304.3 million at December 31, 2021[178](index=178&type=chunk)[185](index=185&type=chunk) [Capital Resources](index=34&type=section&id=Capital%20Resources) This section analyzes the company's capital position, including shareholders' equity and regulatory capital ratios, demonstrating its financial strength and compliance Capital Ratios (Company) | Metric | June 30, 2022 | December 31, 2021 | | :------------------------------------ | :-------------- | :---------------- | | Shareholders' equity (in millions) | $112.4 | $142.4 | | Shareholders' equity as % of total assets | 6.70% | 8.77% | | Tier 1 capital ratio | 13.79% | 15.43% | | Total risk-based capital ratio | 14.63% | 16.35% | | Common equity Tier 1 capital ratio | 12.50% | 13.96% | | Tier 1 leverage capital ratio | 9.47% | 9.64% | - Shareholders' equity decreased by **$30 million** to **$112.4 million** at June 30, 2022, primarily due to increased unrealized losses on investment securities[186](index=186&type=chunk) - The company's capital ratios (Tier 1, Total Risk-Based, Common Equity Tier 1, and Tier 1 Leverage) all decreased from December 31, 2021, to June 30, 2022, but remained well above regulatory minimums[189](index=189&type=chunk) - The Bank was considered 'well capitalized' at June 30, 2022, meeting all regulatory guidelines[191](index=191&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=35&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) There have been no material changes in the company's quantitative and qualitative disclosures about market risk since the last Annual Report on Form 10-K - No material changes in market risk disclosures from the Annual Report on Form 10-K filed March 18, 2022[193](index=193&type=chunk) [Item 4. Controls and Procedures](index=35&type=section&id=Item%204.%20Controls%20and%20Procedures) The company's management, including the CEO and CFO, evaluated the effectiveness of disclosure controls and procedures, concluding they are effective, with no material changes to internal control over financial reporting - Disclosure controls and procedures were evaluated and deemed effective by the CEO and CFO[194](index=194&type=chunk) - No material changes in internal control over financial reporting occurred during the period[194](index=194&type=chunk) [PART II. OTHER INFORMATION](index=36&type=section&id=PART%20II.%20OTHER%20INFORMATION) This part includes information on legal proceedings, risk factors, equity security sales, defaults, and exhibits [Item 1. Legal Proceedings](index=36&type=section&id=Item%201.%20Legal%20Proceedings) The Bank is contesting a **$1.4 million** proposed adjustment from the North Carolina Department of Revenue regarding disallowed tax credits, with a Guaranty Agreement expected to limit its exposure to approximately **$0.1 million** - The Bank is contesting a **$1.4 million** proposed adjustment from the NCDOR for disallowed tax credits from 2014-2016[195](index=195&type=chunk) - The Bank paid **$1.2 million** in taxes and interest to stop accrual, with associated penalties waived[195](index=195&type=chunk) - A Guaranty Agreement is expected to limit the Bank's exposure to approximately **$0.1 million**[195](index=195&type=chunk) [Item 1A. Risk Factors](index=36&type=section&id=Item%201A.%20Risk%20Factors) There have been no material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K filed on March 18, 2022 - No material changes to risk factors previously disclosed in the Form 10-K[196](index=196&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=36&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company repurchased 17,101 shares of its common stock during the three months ended June 30, 2022, at an average price of **$26.42** per share, with **$1.4 million** remaining available for repurchase Issuer Purchases of Equity Securities (Three months ended June 30, 2022) | Period | Total Number of Shares Purchased | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | | :----------------- | :------------------------------- | :--------------------------- | :----------------------------------------------------------------- | | April 1 - 30, 2022 | - | $- | - | | May 1 - 31, 2022 | 13,533 | $26.47 | 12,000 | | June 1 - 30, 2022 | 3,568 | $26.22 | 3,000 | | Total | 17,101 | $26.42 | 15,000 | - The company repurchased **15,000 shares** under its stock repurchase program during the quarter, with an additional **2,101 shares** purchased for its deferred compensation plan[197](index=197&type=chunk) - As of June 30, 2022, **$1.4 million** remained available for repurchase under the stock repurchase program, which expires in February 2023[197](index=197&type=chunk)[198](index=198&type=chunk) [Item 3. Defaults Upon Senior Securities](index=36&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) This item is not applicable to the company for the reporting period - Not applicable[199](index=199&type=chunk) [Item 5. Other Information](index=36&type=section&id=Item%205.%20Other%20Information) This item is not applicable to the company for the reporting period - Not applicable[199](index=199&type=chunk) [Item 6. Exhibits](index=37&type=section&id=Item%206.%20Exhibits) This section lists all exhibits filed with the Form 10-Q, including articles of incorporation, bylaws, specimen stock certificate, and certifications required by the Sarbanes-Oxley Act, along with XBRL formatted financial statements - Includes Articles of Incorporation and Amendments, Second Amended and Restated Bylaws, and Specimen Stock Certificate[200](index=200&type=chunk) - Certifications from the principal executive officer and principal financial officer (Sections 302 and 906 of Sarbanes-Oxley Act) are included[200](index=200&type=chunk) - XBRL formatted financial statements and notes are provided as Exhibit 101[200](index=200&type=chunk) [Signatures and Certifications](index=37&type=section&id=Signatures) The report is duly signed by Lance A. Sellers, President and Chief Executive Officer, and Jeffrey N. Hooper, Executive Vice President and Chief Financial Officer, on August 5, 2022, certifying its contents - Signed by Lance A. Sellers, President and Chief Executive Officer, and Jeffrey N. Hooper, Executive Vice President and Chief Financial Officer[203](index=203&type=chunk) - Date of signing: August 5, 2022[203](index=203&type=chunk)

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended: March 31, 2022 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from __________ to __________ 000-27205 (Commission File No.) PEOPLES BANCORP OF NORTH CAROLINA, INC. (Exact name of registrant as specified in its charter) North Carolina 5 ...

FORM 10-K UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 518 West C Street, Newton, North Carolina 28658 (Address of Principal Executive Offices) (Zip Code) (828) 464-5620 ANNUAL REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the fiscal year ended: December 31, 2021 000-27205 (Commission File No.) Peoples Bancorp of North Carolina, Inc. (Exact Name of Registrant as Specified in Its Charter) North Carolina 56-2132396 (State or Other Jurisdiction of ...

For the quarterly period ended: September 30, 2021 OR UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FORM 10-Q For the transition period from __________ to __________ ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 000-27205 (Commission File No.) PEOPLES BANCORP OF NORTH CAROLINA, INC. (Exact name of registrant as specified in its charter) North Caroli ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended: June 30, 2021 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from __________ to __________ 000-27205 (Commission File No.) PEOPLES BANCORP OF NORTH CAROLINA, INC. (Exact name of registrant as specified in its charter) North Carolina 56 ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q [ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended: March 31, 2021 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from __________ to __________ 000-27205 (Commission File No.) PEOPLES BANCORP OF NORTH CAROLINA, INC. (Exact name of registrant as specified in its charter) North Caro ...

Part I [Business](index=5&type=section&id=Item%201%20-%20Business) Peoples Bancorp of North Carolina, Inc. is a bank holding company for Peoples Bank, offering diversified financial services with $1.4 billion in assets [General Business](index=5&type=section&id=General%20Business) Peoples Bancorp operates Peoples Bank, providing commercial banking services through 18 branches and two loan production offices, managing a diversified loan portfolio Key Financial Metrics as of December 31, 2020 | Metric | Value (USD) | | :--- | :--- | | Total Assets | $1.4 billion | | Net Loans | $938.7 million | | Deposits | $1.2 billion | | Shareholders' Equity | $139.9 million | - The company employed **307 full-time equivalent employees** as of December 31, 2020[22](index=22&type=chunk) - The Bank operates three former Banco de la Gente offices, now integrated as standard branches, which previously focused on the Latino population[19](index=19&type=chunk) [Subsidiaries](index=5&type=section&id=Subsidiaries) The Bank operates four subsidiaries providing investment, real estate, and insurance services, and formed PEBK Capital Trust II which issued $20.0 million in trust preferred securities - The Bank's subsidiaries offer investment counseling, real estate appraisal and brokerage, and foreclosed property management, with PB Insurance Agency launched in 2019[23](index=23&type=chunk) - In 2006, the Company formed PEBK Capital Trust II, issuing **$20.0 million** in trust preferred securities, of which **$5.0 million** was redeemed in 2019[24](index=24&type=chunk) [Market Area and Competition](index=6&type=section&id=Market%20Area%20and%20Competition) The Bank's primary market is the Catawba Valley region of North Carolina, facing strong competition despite holding significant deposit market share Deposit Market Share (as of June 30, 2020) | County | Deposit Share | Rank | | :--- | :--- | :--- | | Catawba County | 20.32% | 2nd of 11 banks | | Lincoln County | 16.20% | 2nd of 10 banks | | Alexander County | 14.01% | 4th of 6 banks | - The Bank's primary market, a **50-mile radius** around Newton, NC, is significantly influenced by its proximity to Charlotte[27](index=27&type=chunk) [Lending Policies and Procedures](index=7&type=section&id=Lending%20Policies%20and%20Procedures) Lending activities are governed by Board-approved underwriting standards, aiming for a sound loan portfolio, local economic growth, and regulatory compliance, with regular monitoring - The Bank's legal lending limit is **15% of capital** for unsecured loans, with an additional **10%** for fully secured loans[35](index=35&type=chunk) - The Board of Directors receives structured reports, including monthly updates on new loans and delinquencies, and quarterly reports on portfolio status and stress tests, to monitor the loan portfolio[37](index=37&type=chunk)[38](index=38&type=chunk)[49](index=49&type=chunk) [Investment Policies and Procedures](index=8&type=section&id=Investment%20Policies%20and%20Procedures) The Bank's investment policy aims to maximize earnings and liquidity while managing risk, with objectives including principal safety and tax management, overseen by the Board and CFO - Primary investment objectives include generating earnings, maintaining liquidity, mitigating interest rate risk, ensuring principal safety, managing tax liabilities, and meeting pledging requirements[42](index=42&type=chunk)[43](index=43&type=chunk)[44](index=44&type=chunk) - The Primary Investment Officer can approve transactions up to **$8 million**, with larger transactions requiring ALCO or Board approval based on thresholds relative to GAAP capital[48](index=48&type=chunk) [Human Capital Management](index=10&type=section&id=Human%20Capital%20Management) As of year-end 2020, the company employed 307 full-time equivalent staff, fostering a culture of diversity and inclusion, and supported employees during the COVID-19 pandemic without layoffs - The company employed **290 full-time** and **27 part-time employees** as of December 31, 2020[51](index=51&type=chunk) - The company fosters a culture of diversity and inclusion through initiatives like annual diversity training and the **'Courageous Conversations'** program launched in 2020[52](index=52&type=chunk)[56](index=56&type=chunk) - In response to the COVID-19 pandemic, the company facilitated remote work and provided family support without any employee layoffs or furloughs[57](index=57&type=chunk) [Supervision and Regulation](index=11&type=section&id=Supervision%20and%20Regulation) The company and Bank are extensively regulated by federal and state authorities, exceeding all capital requirements as of December 31, 2020, and received a 'satisfactory' CRA rating Capital Adequacy Ratios as of December 31, 2020 | Ratio | The Bank | The Company | | :--- | :--- | :--- | | Tier 1 Leverage Capital | 10.04% | 10.24% | | Common Equity Tier 1 Risk-Based Capital | 14.85% | 13.56% | | Tier 1 Risk-Based Capital | 14.85% | 15.07% | | Total Risk-Based Capital | 15.85% | 16.07% | - The company is subject to Basel III capital rules, requiring a minimum **4.5% common equity Tier 1 ratio** and a **2.5% capital conservation buffer**, fully phased in by January 1, 2019[67](index=67&type=chunk)[68](index=68&type=chunk) - The Bank received a **'satisfactory'** rating in its January 2020 Community Reinvestment Act (CRA) examination[79](index=79&type=chunk) - FDIC insurance expense was approximately **$263,000 in 2020**, **$119,000 in 2019**, and **$328,000 in 2018**, with the Bank fully utilizing its FDIC assessment credits in Q1 2020[76](index=76&type=chunk) [Risk Factors](index=17&type=section&id=Item%201A%20-%20Risk%20Factors) The company faces diverse business, operational, regulatory, and stock-related risks, including COVID-19 impacts, credit risk, cybersecurity, and stock price volatility [Risks Related to Our Business](index=18&type=section&id=RISK%20FACTORS%20RELATED%20TO%20OUR%20BUSINESS) The company faces significant business risks including COVID-19 impacts, credit risk from its loan portfolio, CECL implementation, cybersecurity threats, and the LIBOR transition - The COVID-19 pandemic continues to pose risks, potentially leading to declines in credit quality, reduced loan demand, and remote work disruptions[102](index=102&type=chunk)[103](index=103&type=chunk) Loan Portfolio Composition by Risk Category (as of Dec 31, 2020) | Loan Category | % of Total Loan Portfolio | | :--- | :--- | | Commercial Real Estate | ~35% | | Commercial Loans (incl. PPP) | ~17% | | Construction & Land Development | ~10% | | Single-Family Residential | ~32% | - The Current Expected Credit Loss (CECL) standard, effective January 1, 2023, is expected to cause earlier recognition of credit losses and may increase the allowance for loan losses[112](index=112&type=chunk)[113](index=113&type=chunk)[114](index=114&type=chunk) - The company faces significant cybersecurity risks and relies on third-party vendors for critical infrastructure, creating potential vulnerabilities[120](index=120&type=chunk)[126](index=126&type=chunk) - The transition from LIBOR as a reference rate for numerous loans and borrowings presents considerable costs and risks[141](index=141&type=chunk)[142](index=142&type=chunk) [Risks Related to the Company's Stock](index=30&type=section&id=RISKS%20RELATED%20TO%20THE%20COMPANY%27S%20STOCK) Risks related to the company's stock include price volatility, lower trading liquidity, non-FDIC insurance, and the non-guaranteed nature of future dividend payments - The company's stock price is subject to volatility, and its relatively low trading volume may affect shareholder liquidity[169](index=169&type=chunk)[170](index=170&type=chunk) - The common stock is not an FDIC-insured deposit and is subject to investment risk, including potential loss of principal[171](index=171&type=chunk) - Future dividend payments are not guaranteed and may be reduced or eliminated based on economic conditions, Board decisions, and regulatory limitations[172](index=172&type=chunk) [Unresolved Staff Comments](index=31&type=section&id=Item%201B%20-%20Unresolved%20Staff%20Comments) The company reports no unresolved staff comments - Not applicable[175](index=175&type=chunk) [Properties](index=31&type=section&id=Item%202%20-%20Properties) As of December 31, 2020, the company operates from 19 offices and two loan production offices, owning 14 properties and leasing 7 - The company owns **14 properties**, including its corporate office and branches, and leases **7 properties** for branch and loan production office operations[177](index=177&type=chunk)[178](index=178&type=chunk) [Legal Proceedings](index=32&type=section&id=Item%203%20-%20Legal%20Proceedings) The company is contesting a $1.4 million NCDOR tax credit disallowance, with management believing exposure is limited to $125,000 due to a guaranty - The NCDOR is seeking to disallow tax credits from 2014-2016, with a proposed adjustment of approximately **$1.4 million**[179](index=179&type=chunk) - The Bank has paid **$1.2 million** to the NCDOR to halt interest accrual while challenging the proposed adjustments[179](index=179&type=chunk) - A Guaranty Agreement is in place, which management believes limits the Bank's potential loss to approximately **$125,000**[179](index=179&type=chunk) [Mine Safety Disclosures](index=32&type=section&id=Item%204%20-%20Mine%20Safety%20Disclosures) This item is reported as not applicable - Not applicable[180](index=180&type=chunk) Part II [Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=32&type=section&id=Item%205%20-%20Market%20for%20Registrant%27s%20Common%20Equity%2C%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) The company's common stock trades on NASDAQ, with dividend payments subject to regulatory limits, and the company engaged in share repurchases and equity awards in 2020 Comparison of Six-Year Cumulative Total Returns | Index | 12/31/15 | 12/31/16 | 12/31/17 | 12/31/18 | 12/31/19 | 12/31/20 | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Peoples Bancorp of North Carolina, Inc. | 100.00 | 132.06 | 180.73 | 146.57 | 201.50 | 146.15 | | NASDAQ Composite Index | 100.00 | 108.87 | 141.13 | 137.12 | 187.44 | 271.64 | | SNL Southeast Bank Index | 100.00 | 132.75 | 164.21 | 135.67 | 191.06 | 172.07 | Issuer Purchases of Equity Securities in 2020 | Description | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | For Deferred Compensation Plan | 10,150 | $20.46 | | Under Stock Repurchase Program | 126,800 | $28.39 (Feb 2020) | - On May 7, 2020, the Company awarded **7,635 restricted stock units** to employees under its 2020 Omnibus Stock Ownership and Long Term Incentive Plan[194](index=194&type=chunk) [Selected Financial Data](index=35&type=section&id=Item%206%20-%20Selected%20Financial%20Data) Selected financial data is incorporated by reference from page A-3 of the company's 2020 Annual Report (Exhibit 13) - Selected Financial Data is incorporated by reference from page A-3 of the Annual Report (Exhibit 13)[195](index=195&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=35&type=section&id=Item%207%20-%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management's discussion and analysis of financial condition and results of operations is incorporated by reference from pages A-4 through A-23 of the 2020 Annual Report (Exhibit 13) - Management's Discussion and Analysis is incorporated by reference from pages A-4 through A-23 of the Annual Report (Exhibit 13)[196](index=196&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=35&type=section&id=Item%207A%20-%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) Quantitative and qualitative disclosures about market risk are incorporated by reference from page A-24 of the 2020 Annual Report (Exhibit 13) - Quantitative and Qualitative Disclosures About Market Risk are incorporated by reference from page A-24 of the Annual Report (Exhibit 13)[197](index=197&type=chunk) [Financial Statements and Supplementary Data](index=35&type=section&id=Item%208%20-%20Financial%20Statements%20and%20Supplementary%20Data) Consolidated financial statements and supplementary data are incorporated by reference from pages A-26 through A-71 of the 2020 Annual Report (Exhibit 13) - The consolidated financial statements and supplementary data are incorporated by reference from pages A-26 through A-71 of the Annual Report (Exhibit 13)[198](index=198&type=chunk) [Changes in and Disagreements with Accountants on Accounting and Financial Disclosure](index=35&type=section&id=Item%209%20-%20Changes%20in%20and%20Disagreements%20with%20Accountants%20on%20Accounting%20and%20Financial%20Disclosure) The company reports no changes or disagreements with accountants on accounting and financial disclosure - None[199](index=199&type=chunk) [Controls and Procedures](index=35&type=section&id=Item%209A%20-%20Controls%20and%20Procedures) Management concluded disclosure controls and internal control over financial reporting were effective as of December 31, 2020, with no material changes during Q4 2020 - Management concluded that the Company's disclosure controls and procedures were effective as of the end of the reporting period[200](index=200&type=chunk) - Management believes the Company maintained effective internal control over financial reporting as of December 31, 2020, based on COSO framework criteria[205](index=205&type=chunk) - No material changes to internal control over financial reporting occurred during the quarter ended December 31, 2020[201](index=201&type=chunk) [Other Information](index=36&type=section&id=Item%209B%20-%20Other%20Information) The company reports no other information for this item - None[207](index=207&type=chunk) Part III [Directors and Executive Officers and Corporate Governance](index=36&type=section&id=Item%2010%20-%20Directors%20and%20Executive%20Officers%20and%20Corporate%20Governance) Information on directors, executive officers, and corporate governance is incorporated by reference from the 2021 Proxy Statement - Information regarding directors, executive officers, and corporate governance is incorporated by reference from the Proxy Statement[208](index=208&type=chunk) [Executive Compensation](index=36&type=section&id=Item%2011%20-%20Executive%20Compensation) Information on executive compensation is incorporated by reference from the 2021 Proxy Statement - Information regarding executive compensation is incorporated by reference from the Proxy Statement[209](index=209&type=chunk) [Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](index=37&type=section&id=Item%2012%20-%20Security%20Ownership%20of%20Certain%20Beneficial%20Owners%20and%20Management%20and%20Related%20Stockholder%20Matters) Security ownership information is incorporated by reference from the Proxy Statement, detailing equity compensation plan securities authorized for issuance and future availability Equity Compensation Plan Information | Plan Category | Number of securities to be issued upon exercise of outstanding options, warrants and rights | Weighted average exercise price of outstanding options, warrants and rights | Number of securities remaining available for future issuance under equity compensation plans | | :--- | :--- | :--- | :--- | | Equity compensation plans approved by security holders | 25,868 | $ - | 292,365 | | Equity compensation plans not approved by security holders | - | - | - | | Total | 25,868 | $ - | 292,365 | [Certain Relationships and Related Transactions and Director Independence](index=37&type=section&id=Item%2013%20-%20Certain%20Relationships%20and%20Related%20Transactions%20and%20Director%20Independence) Information on certain relationships, related transactions, and director independence is incorporated by reference from the 2021 Proxy Statement - Information regarding certain relationships, related transactions, and director independence is incorporated by reference from the Proxy Statement[217](index=217&type=chunk) [Principal Accountant Fees and Services](index=37&type=section&id=Item%2014%20-%20Principal%20Accountant%20Fees%20and%20Services) Information on principal accountant fees and services is incorporated by reference from the 2021 Proxy Statement - Information regarding principal accountant fees and services is incorporated by reference from the Proxy Statement[218](index=218&type=chunk) Part IV [Exhibits and Financial Statement Schedules](index=38&type=section&id=Item%2015%20-%20Exhibits%20and%20Financial%20Statement%20Schedules) This section lists consolidated financial statements, schedules, and numerous exhibits, with financial statements incorporated by reference from the 2020 Annual Report - The Consolidated Financial Statements are contained in the Annual Report, attached as Exhibit (13) and incorporated by reference[220](index=220&type=chunk) - A comprehensive list of exhibits is provided, including corporate governance documents, material agreements, compensation plans, and required certifications[220](index=220&type=chunk)[221](index=221&type=chunk)[222](index=222&type=chunk)