Peoples Bancorp of North Carolina(US:PEBK)2025-07-21 13:30Executive Summary Peoples Bancorp reported strong financial performance for Q2 and YTD 2025, with increased net earnings, improved net interest margin, and growth in loans and deposits, while maintaining stable asset quality Second Quarter 2025 Performance Highlights Peoples Bancorp reported increased net earnings for Q2 2025, driven by higher net interest income and non-interest income, partially offset by increased provision for credit losses and non-interest expense. The net interest margin also improved significantly | Metric | Q2 2025 | Q2 2024 | Change (YoY) | | :----------------------- | :------ | :------ | :----------- | | Net Earnings | $5.2M | $4.9M | +6.12% | | Basic EPS | $0.97 | $0.93 | +4.30% | | Diluted EPS | $0.95 | $0.89 | +6.74% | | Net Interest Margin | 3.57% | 3.35% | +0.22 pp | Year-to-Date 2025 Performance Highlights For the first six months of 2025, the Company achieved higher net earnings and EPS compared to the prior year, supported by growth in total loans and deposits, and an improved net interest margin. Non-performing assets remained stable | Metric | YTD 2025 | YTD 2024 | Change (YoY) | | :----------------------- | :------- | :------- | :----------- | | Net Earnings | $9.5M | $8.8M | +7.95% | | Basic EPS | $1.79 | $1.67 | +7.19% | | Diluted EPS | $1.74 | $1.61 | +8.07% | | Cash Dividends per Share | $0.56 | $0.54 | +3.70% | | Net Interest Margin | 3.54% | 3.34% | +0.20 pp | | Metric | June 30, 2025 | Dec 31, 2024 | Change (vs. Dec 31, 2024) | | :------------------- | :------------ | :----------- | :------------------------ | | Total Loans | $1.16B | $1.14B | +1.75% | | Non-Performing Assets| $4.8M | $4.8M | 0.00% | | Total Deposits | $1.51B | $1.48B | +2.03% | | Core Deposits | $1.36B | $1.34B | +1.49% | Consolidated Statements of Income Analysis The company experienced increased net earnings driven by higher net interest and non-interest income, despite rising provision for credit losses and non-interest expenses Net Earnings Net earnings increased for both the second quarter and year-to-date periods in 2025, primarily due to growth in net interest income and non-interest income, despite higher provision for credit losses and non-interest expenses | Metric | Q2 2025 ($ thousands) | Q2 2024 ($ thousands) | YTD 2025 ($ thousands) | YTD 2024 ($ thousands) | | :---------------- | :-------------------- | :-------------------- | :--------------------- | :--------------------- | | Net Earnings | $5,160 | $4,888 | $9,505 | $8,836 | | Basic Net Earnings| $0.97 | $0.93 | $1.79 | $1.67 | | Diluted Net Earnings| $0.95 | $0.89 | $1.74 | $1.61 | Net Interest Income Net interest income saw an increase in both Q2 and YTD 2025, driven by higher interest income from loans and a decrease in interest expense due to lower rates on interest-bearing liabilities, despite reduced interest income from bank balances and investment securities | Metric | Q2 2025 ($ thousands) | Q2 2024 ($ thousands) | YTD 2025 ($ thousands) | YTD 2024 ($ thousands) | | :---------------- | :-------------------- | :-------------------- | :--------------------- | :--------------------- | | Net Interest Income | $14,597 | $13,416 | $28,541 | $26,720 | | Total Interest Income | $20,720 | $20,070 | $40,690 | $39,880 | | Total Interest Expense| $6,123 | $6,654 | $12,149 | $13,160 | - Increase in interest income and fees on loans was primarily due to an increase in total loans4[9](index=9&type=chunk] - Decrease in interest income on balances due from banks was due to Federal Reserve rate decreases (Sept-Dec 2024)[4](index=4&type=chunk] - Decrease in interest expense was primarily due to a decrease in rates paid on interest-bearing liabilities4[9](index=9&type=chunk] Provision for Credit Losses The provision for credit losses shifted from a recovery in Q2 2024 to a smaller recovery in Q2 2025, and from a recovery to an expense for YTD 2025. This change is mainly attributed to a smaller reduction in reserves on construction loans in Q2 2025 and an increase in provision expense for unfunded construction loans YTD 2025 | Metric | Q2 2025 ($ thousands) | Q2 2024 ($ thousands) | YTD 2025 ($ thousands) | YTD 2024 ($ thousands) | | :------------------------ | :-------------------- | :-------------------- | :--------------------- | :--------------------- | | Provision for Credit Losses | $(213) | $(468) | $55 | $(377) | - The decrease in recovery for Q2 2025 was due to a smaller reduction in reserves on construction loans compared to Q2 2024[4](index=4&type=chunk][9](index=9&type=chunk] - The increase in provision for YTD 2025 was due to a reduction in construction loan reserves in YTD 2024 and an increase in provision expense for unfunded construction loans in YTD 2025[4](index=4&type=chunk][9](index=9&type=chunk] Non-Interest Income Non-interest income increased for both Q2 and YTD 2025, primarily driven by a significant increase in appraisal management fee income due to higher appraisal volume, partially offset by a decrease in miscellaneous non-interest income | Metric | Q2 2025 ($ thousands) | Q2 2024 ($ thousands) | YTD 2025 ($ thousands) | YTD 2024 ($ thousands) | | :------------------------ | :-------------------- | :-------------------- | :--------------------- | :--------------------- | | Total Non-Interest Income | $7,693 | $7,521 | $14,222 | $13,559 | | Appraisal Management Fee Income | $3,973 | $3,181 | $7,015 | $5,595 | | Miscellaneous Income | $1,893 | $2,521 | $3,522 | $4,324 | - Appraisal management fee income increased due to higher appraisal volume[6](index=6&type=chunk][10](index=10&type=chunk] - Miscellaneous non-interest income decreased primarily due to lower income from small business investment company (SBIC) investments[6](index=6&type=chunk][10](index=10&type=chunk] Non-Interest Expense Non-interest expense rose in both Q2 and YTD 2025, mainly due to increased appraisal management fee expense and salaries and employee benefits, partially offset by decreases in other non-interest expenses like debit card and equipment maintenance | Metric | Q2 2025 ($ thousands) | Q2 2024 ($ thousands) | YTD 2025 ($ thousands) | YTD 2024 ($ thousands) | | :------------------------ | :-------------------- | :-------------------- | :--------------------- | :--------------------- | | Total Non-Interest Expense| $15,840 | $15,131 | $30,413 | $29,647 | | Salaries and Employee Benefits | $7,168 | $6,827 | $13,956 | $13,807 | | Appraisal Management Fee Expense | $3,156 | $2,523 | $5,575 | $4,427 | - Increases in appraisal management fee expense were due to higher appraisal volume[7](index=7&type=chunk][11](index=11&type=chunk] - Salaries and employee benefits increased due to higher salary and insurance expenses[7](index=7&type=chunk][11](index=11&type=chunk] - These were partially offset by decreases in other non-interest expense (debit card) and occupancy expense (equipment maintenance)[7](index=7&type=chunk][11](index=11&type=chunk] Income Taxes Income tax expense increased for both Q2 and YTD 2025, with a notable rise in the effective tax rate for the year-to-date period, primarily due to a specific interest receivable booked in the prior year related to a tax settlement | Metric | Q2 2025 ($ thousands) | Q2 2024 ($ thousands) | YTD 2025 ($ thousands) | YTD 2024 ($ thousands) | | :---------------- | :-------------------- | :-------------------- | :--------------------- | :--------------------- | | Income Tax Expense| $1,503 | $1,386 | $2,790 | $2,173 | | Effective Tax Rate| 22.56% | 22.09% | 22.69% | 19.74% | - The increase in the effective tax rate for YTD 2025 was primarily due to a $322,000 interest receivable booked during YTD 2024 on a deposit for taxes paid prior to a settlement with the NCDOR[12](index=12&type=chunk] Consolidated Balance Sheets Analysis Total assets and liabilities grew, primarily due to increases in loans and deposits, while shareholders' equity also improved Assets Total assets increased as of June 30, 2025, primarily driven by growth in total loans and interest-bearing deposits, while available for sale securities decreased | Metric | June 30, 2025 ($ thousands) | Dec 31, 2024 ($ thousands) | Change ($ thousands) | | :-------------------------- | :-------------------------- | :------------------------- | :------------------- | | Total Assets | $1,693,845 | $1,651,962 | +$41,883 | | Available for Sale Securities | $371,614 | $388,003 | -$16,389 | | Total Loans | $1,157,975 | $1,138,404 | +$19,571 | | Cash and Cash Equivalents | $102,000 | $59,266 | +$42,734 | Liabilities Total deposits increased as of June 30, 2025, with growth in both interest-bearing and noninterest-bearing demand deposits, contributing to a higher proportion of core deposits. Junior subordinated debentures remained stable | Metric | June 30, 2025 ($ thousands) | Dec 31, 2024 ($ thousands) | Change ($ thousands) | | :-------------------------- | :-------------------------- | :------------------------- | :------------------- | | Total Deposits | $1,513,819 | $1,484,731 | +$29,088 | | Core Deposits | $1,363,761 | $1,338,792 | +$24,969 | | Core Deposits as % of Total Deposits | 90.09% | 90.17% | -0.08 pp | | Junior Subordinated Debentures | $15,464 | $15,464 | $0 | Shareholders' Equity Shareholders' equity significantly increased as of June 30, 2025, improving its percentage of total assets, primarily driven by an increase in retained earnings and a reduction in accumulated other comprehensive loss | Metric | June 30, 2025 ($ thousands) | Dec 31, 2024 ($ thousands) | Change ($ thousands) | | :-------------------------- | :-------------------------- | :------------------------- | :------------------- | | Total Shareholders' Equity | $144,005 | $130,563 | +$13,442 | | Shareholders' Equity as % of Total Assets | 8.50% | 7.90% | +0.60 pp | Asset Quality and Loan Portfolio Asset quality remained stable with non-performing assets largely unchanged, and the allowance for credit losses adjusted for specific loan categories Non-Performing Assets Non-performing assets remained stable in total value as of June 30, 2025, with a slight decrease as a percentage of total assets. The composition shifted with an increase in residential mortgage loans and a decrease in other real estate owned | Metric | June 30, 2025 ($ thousands) | Dec 31, 2024 ($ thousands) | Change ($ thousands) | | :-------------------------- | :-------------------------- | :------------------------- | :------------------- | | Total Non-Performing Assets | $4,822 | $4,809 | +$13 | | Non-Performing Assets to Total Assets | 0.28% | 0.29% | -0.01 pp | - Composition of non-performing assets at June 30, 2025 included $4.2 million in residential mortgage loans, $442,000 in commercial mortgage loans, and $216,000 in other loans[14](index=14&type=chunk] - This compares to $3.7 million in residential mortgage loans, $463,000 in commercial mortgage loans, $257,000 in other loans, and $369,000 in other real estate owned at December 31, 2024[14](index=14&type=chunk] Allowance for Credit Losses The allowance for credit losses on loans slightly decreased, while the allowance for unfunded commitments increased due to higher unfunded construction loan commitments. Management believes the current allowance level is adequate | Metric | June 30, 2025 ($ thousands) | Dec 31, 2024 ($ thousands) | Change ($ thousands) | | :-------------------------- | :-------------------------- | :------------------------- | :------------------- | | Allowance for Credit Losses on Loans | $9,792 | $9,995 | -$203 | | Allowance for Credit Losses on Unfunded Commitments | $1,258 | $1,101 | +$157 | | Allowance for Credit Losses on Loans to Total Loans | 0.85% | 0.88% | -0.03 pp | | Allowance for Credit Losses on Loans to Non-Performing Assets | 203.07% | 207.84% | -4.77 pp | - The decrease in allowance for credit losses on loans was primarily due to a $90,000 decrease in allowance on construction loans and the removal of a $60,000 Hurricane Helene reserve[15](index=15&type=chunk] - The increase in allowance for unfunded commitments was due to a $161,000 increase for unfunded construction loans[15](index=15&type=chunk] Loan Risk Grade Analysis The loan portfolio maintained a strong credit quality profile, with the majority of loans classified as good or high quality. There was one significant relationship exceeding $1.0 million in the Watch risk grade, consistent with the prior period | Risk Grade | June 30, 2025 | Dec 31, 2024 | | :-------------------------- | :------------ | :----------- | | Risk Grade 1 (excellent quality) | 0.29% | 0.29% | | Risk Grade 2 (high quality) | 20.23% | 19.57% | | Risk Grade 3 (good quality) | 71.53% | 72.99% | | Risk Grade 4 (management attention) | 6.97% | 5.95% | | Risk Grade 5 (watch) | 0.46% | 0.66% | | Risk Grade 6 (substandard) | 0.52% | 0.54% | | Risk Grade 7 (doubtful) | 0.00% | 0.00% | | Risk Grade 8 (loss) | 0.00% | 0.00% | - At June 30, 2025, there was one relationship exceeding $1.0 million in the Watch risk grade, totaling $1.4 million, consistent with $1.5 million at December 31, 2024[24](index=24&type=chunk] - No relationships exceeded $1.0 million in the Substandard risk grade at either period[24](index=24&type=chunk] Financial Highlights and Key Ratios Key financial ratios demonstrated improved profitability and balance sheet growth for both the quarter and year-to-date periods Selected Average Balances Average balances for loans, earning assets, total assets, deposits, and shareholders' equity all increased for both the second quarter and year-to-date periods in 2025 compared to the prior year, indicating overall growth in the balance sheet | Metric | Q2 2025 ($ thousands) | Q2 2024 ($ thousands) | YTD 2025 ($ thousands) | YTD 2024 ($ thousands) | | :-------------------------- | :-------------------- | :-------------------- | :--------------------- | :--------------------- | | Average Loans | $1,156,140 | $1,108,684 | $1,149,274 | $1,100,671 | | Average Earning Assets | $1,639,475 | $1,610,811 | $1,625,624 | $1,608,396 | | Average Assets | $1,680,854 | $1,650,008 | $1,666,177 | $1,648,905 | | Average Deposits | $1,513,519 | $1,461,596 | $1,502,234 | $1,444,950 | | Average Shareholders' Equity| $137,223 | $119,443 | $136,373 | $120,927 | Key Performance Ratios Key performance ratios showed improvement in profitability, with net interest margin, return on average assets, and return on average shareholders' equity all increasing for both Q2 and YTD 2025 compared to the prior year | Metric | Q2 2025 | Q2 2024 | YTD 2025 | YTD 2024 | | :-------------------------- | :------ | :------ | :------- | :------- | | Net Interest Margin (tax equivalent) | 3.57% | 3.35% | 3.54% | 3.34% | | Return on Average Assets | 1.23% | 1.19% | 1.15% | 1.08% | | Return on Average Shareholders' Equity | 15.08% | 16.46% | 14.06% | 14.69% | | Average Shareholders' Equity to Total Average Assets | 8.16% | 7.24% | 8.18% | 7.33% | Company Operations and Forward-Looking Statements Peoples Bank maintains a strong regional presence with multiple banking offices and provides standard forward-looking statement disclaimers regarding potential risks Company Operations Peoples Bank operates 16 banking offices across six counties in North Carolina and maintains loan production offices in four additional counties, demonstrating its regional presence - Peoples Bank operates 16 banking offices in Catawba, Alexander, Lincoln, Mecklenburg, Iredell, and Wake Counties in North Carolina[18](index=18&type=chunk] - The Bank also operates loan production offices in Lincoln, Mecklenburg, Rowan, and Forsyth Counties[18](index=18&type=chunk] Forward-Looking Statements The report includes a standard disclaimer regarding forward-looking statements, highlighting various risks and uncertainties that could cause actual results to differ materially from projections, including competition, interest rate changes, economic conditions, and regulatory shifts - Forward-looking statements are subject to risks and uncertainties, including competition, changes in the interest rate environment, general economic conditions, legislative or regulatory changes (including accounting standards), significant changes in the legal and regulatory environment and tax laws, and the impact of monetary and fiscal policies[18](index=18&type=chunk]