Peoples Bancorp of North Carolina(PEBK) - 2023 Q2 - Quarterly Report

Credit Losses and Allowances - The adoption of ASC 326 resulted in an initial reduction to retained earnings of $838,000, net of tax, due to a $1.1 million increase in the allowance for credit losses[38]. - As of June 30, 2023, the allowance for credit losses on loans is estimated using relevant available information, with no loans individually evaluated[41]. - The Company has identified various portfolio segments for calculating the allowance for credit losses, using a Weighted Average Remaining Maturity (WARM) methodology[42]. - The allowance for credit losses on off-balance sheet credit exposures is estimated by loan segment at each balance sheet date under the current expected credit loss model[47]. - The allowance for credit losses on unfunded commitments is included in other liabilities on the Company's consolidated balance sheets[47]. - The allowance for credit losses decreased to $9.8 million as of June 30, 2023, from $10.5 million at December 31, 2022, showing a reduction of about 6.7%[56]. - The total impaired real estate loans as of December 31, 2022, amounted to $15,252,000, with a related allowance of $682,000[72]. - The bank's allowance for credit losses increased by $1,058,000 due to the implementation of the CECL methodology[76]. - The allowance for credit losses as of June 30, 2023, was $12,048,000, reflecting an increase from the previous balance due to adjustments and provisions for loan losses[76]. - The provision for loan losses for the six months ended June 30, 2023, was $617,000, indicating a proactive approach to managing credit risk[76]. - The average impaired loan balance for the twelve months ended December 31, 2022, was $16,190,000, with interest income recognized totaling $862,000[74]. - The bank closely monitors modified loans to assess the effectiveness of its modification efforts, ensuring financial stability for borrowers[69]. - The provision for credit losses for the three months ended June 30, 2023, was $375, compared to $410 for the same period in 2022, indicating a slight decrease of 8.5%[118]. Investment Securities - The total amortized cost of investment securities available for sale as of June 30, 2023, is $450,873,000, with a fair value of $394,084,000, reflecting unrealized losses of $56,856,000[48]. - The fair value of mortgage-backed securities as of June 30, 2023, is $264,779,000, with unrealized losses of $28,480,000[50]. - The fair value of investment securities available for sale was $394.1 million as of June 30, 2023, compared to an amortized cost of $450.9 million, resulting in an unrealized loss of $56.8 million[54]. - No securities available for sale were sold during the three months ended June 30, 2023, while proceeds from sales during the six months ended June 30, 2023, were $51.0 million, resulting in gross losses of $2.7 million[54]. - The company executed a securities sale transaction in January and February 2023, resulting in a $2.5 million net loss, aimed at reducing risk in the investment portfolio[4]. - The company has not recorded an allowance for credit losses on available-for-sale securities as of June 30, 2023, indicating a stable credit environment[52]. Loans and Deposits - The total net loans increased to $1,047.9 million as of June 30, 2023, compared to $1,022.1 million at December 31, 2022, reflecting a growth of about 2.5%[56]. - The total loans outstanding as of June 30, 2023, were $1,057.7 million, up from $1,032.6 million at December 31, 2022, representing an increase of approximately 2.4%[56]. - The total real estate loans amounted to $960.1 million as of June 30, 2023, compared to $929.0 million at December 31, 2022, reflecting an increase of approximately 3.3%[56]. - Total loans were $1.1 billion as of June 30, 2023, compared to $1.0 billion as of December 31, 2022[9]. - Total deposits as of June 30, 2023, were $1,369,524, down from $1,435,215 as of December 31, 2022, reflecting a decrease of approximately 4.6%[108]. - Total deposits remained stable at $1.4 billion as of June 30, 2023, with core deposits decreasing to $1.3 billion from $1.4 billion at December 31, 2022[178]. - Estimated uninsured deposits decreased to $361.8 million, or 26.42% of total deposits, from $439.8 million, or 30.64% at December 31, 2022[179]. Financial Performance - As of June 30, 2023, basic earnings per share were $0.88, with diluted earnings per share at $0.85, compared to $0.59 and $0.57 for the same period in 2022, representing an increase of 49.15% and 48.25% respectively[85]. - For the six months ended June 30, 2023, basic earnings per share were $1.46, while diluted earnings per share were $1.41, compared to $1.21 and $1.18 for the same period in 2022, indicating a growth of 20.67% and 19.49% respectively[86]. - The company reported a net income of $4,808 for the three months ended June 30, 2023, compared to $3,217 for the same period in 2022, marking an increase of 49.5%[119]. - Year-to-date net earnings for the first half of 2023 were $8.0 million, or $1.46 per share, compared to $6.7 million, or $1.21 per share, in the same period last year[133]. - Net interest income for Q2 2023 was $13.8 million, up from $11.3 million in Q2 2022, driven by a $5.6 million increase in interest income[137]. - Interest income for the six months ended June 30, 2023, was $34.4 million, compared to $23.3 million for the same period in 2022, reflecting an increase of $11.1 million[145]. - The annualized return on average assets for the first half of 2023 was 1.01%, compared to 0.81% for the same period last year[134]. - The annualized return on average equity for the six months ended June 30, 2023, was 14.12%, compared to 10.39% for the same period in 2022[198]. Capital and Liquidity - The Company's Tier 1 capital ratio was 13.80% at June 30, 2023, up from 13.21% at December 31, 2022[201]. - The total risk-based capital ratio was 14.77% at June 30, 2023, compared to 14.04% at December 31, 2022[201]. - The common equity Tier 1 capital ratio increased to 12.59% at June 30, 2023, from 12.03% at December 31, 2022[201]. - The Company's Tier 1 leverage capital ratio was 10.41% at June 30, 2023, an increase from 9.82% at December 31, 2022[201]. - The liquidity ratio was 26.98% at June 30, 2023, down from 30.32% at December 31, 2022, with a minimum required ratio of 10%[196]. - The Bank was considered "well capitalized" at June 30, 2023, based on regulatory capital guidelines[203]. Interest Rates and Expenses - Interest expense for Q2 2023 was $3.8 million, compared to $644,000 in Q2 2022, primarily due to increased rates on interest-bearing liabilities[139]. - The average rate paid on certificates of deposit rose to 3.19% in Q2 2023 from 0.56% in the same period last year[139]. - Interest expense for the six months ended June 30, 2023, was $6.3 million, up from $1.3 million for the same period in 2022, indicating a significant increase due to higher rates on interest-bearing liabilities[146]. - The average rate paid on interest-bearing liabilities increased to 1.31% for the six months ended June 30, 2023, from 0.27% for the same period in 2022[146]. Miscellaneous - The company has not experienced any material impact on its results of operations or financial position from the recent accounting standards updates adopted[34]. - The company has no material subsequent events as of the date the financial statements were issued[120]. - The company aims to achieve growth through local market expansion and potential acquisitions, although acquisitions are not deemed necessary for continued shareholder returns[126]. - The company maintains high levels of balance sheet liquidity and actively monitors asset quality to mitigate risks from unfavorable economic trends[126].