Business Overview and History
Peoples Bancorp of North Carolina, Inc. (NASDAQ:PEBK) is a bank holding company that operates through its wholly-owned subsidiary, Peoples Bank. Headquartered in Newton, North Carolina, the company has established itself as a prominent financial institution, serving the needs of individuals and businesses across the Catawba Valley region and beyond. With a rich history spanning over a century, Peoples Bancorp has navigated the evolving landscape of the banking industry, adapting to changes in the market and regulatory environment.
Peoples Bancorp traces its roots back to 1912, when it was founded as Peoples Bank in Newton, North Carolina. Over the past 110 years, the company has grown steadily, expanding its footprint through strategic branch openings and acquisitions. Today, Peoples Bank operates 16 banking offices across North Carolina, with a focus on the Catawba Valley region, as well as loan production offices in Charlotte, Denver, Salisbury, and Winston-Salem.
The company's core business activities center around traditional commercial and retail banking services, including deposit-taking, lending, and wealth management. Peoples Bank's loan portfolio is diversified, with a mix of commercial real estate, commercial and industrial, construction and land development, and residential mortgage loans. As of December 31, 2024, the bank's total assets stood at $1.70 billion, with a loan portfolio of $1.10 billion and deposits of $1.50 billion.
Peoples Bancorp of North Carolina, Inc. was formed in 1999 to serve as the holding company for Peoples Bank. During the 2008 financial crisis, the Bank successfully navigated the economic downturn by maintaining strong credit underwriting standards and a diversified loan portfolio, which allowed it to avoid significant loan losses experienced by many of its peers. In 2006, the Company formed a Delaware statutory trust, PEBK Capital Trust II, to facilitate the issuance of $20.6 million in trust preferred securities. The Company later redeemed $5 million of these outstanding securities in 2019 as part of ongoing capital management efforts.
Throughout its history, the Bank has faced challenges of increased competition, both for deposits and loans, from larger regional and national banks entering its local markets. To combat this, the Bank has focused on providing exceptional customer service and developing deep relationships within the communities it serves. This community-focused approach has allowed the Bank to maintain a loyal customer base and steady growth over the decades.
Financial Performance and Ratios
Peoples Bancorp's financial performance has been relatively stable over the past few years, with the company navigating the challenges posed by the COVID-19 pandemic and the recent interest rate environment changes. In the fiscal year ended December 31, 2024, the company reported net income of $16.4 million, or $3.08 per share, compared to $15.5 million, or $2.87 per share, in the previous year. The company's net interest margin, a key metric for banks, was 3.39% in the fourth quarter of 2024, up from 3.32% in the same period of 2023.
For the fourth quarter of 2024, Peoples Bancorp reported quarterly revenue of $17.88 million and quarterly net income of $3.96 million. The company reported net earnings of $3.6 million or $0.67 per share and $0.65 per diluted share for the fourth quarter of 2024, compared to $3.4 million or $0.64 per share and $0.62 per diluted share for the same period in 2023, demonstrating year-over-year growth.
The company's balance sheet remains strong, with a Tier 1 leverage capital ratio of 10.71% and a total risk-based capital ratio of 15.22% as of December 31, 2024. These ratios exceed the regulatory requirements for well-capitalized financial institutions, providing Peoples Bancorp with the flexibility to pursue growth opportunities and navigate potential economic challenges. The company's common equity Tier 1 risk-based capital ratio and Tier 1 risk-based capital ratio both stood at 14.35%.
Liquidity and Solvency
Peoples Bancorp maintains a solid liquidity position, with a cash and cash equivalents balance of $82.38 million as of December 31, 2024. The company's operating cash flow for the fiscal year 2024 was $22.78 million, while its free cash flow totaled $20.83 million. These figures demonstrate Peoples Bancorp's ability to generate sufficient cash to fund its operations, service its debt obligations, and pursue strategic initiatives.
The company's debt levels are relatively low, with a debt-to-equity ratio of 0.15 as of December 31, 2024. Peoples Bancorp's long-term debt, consisting primarily of junior subordinated debentures, amounted to $15.46 million at the end of the fiscal year. This conservative capital structure allows the company to maintain financial flexibility and navigate potential economic downturns.
Investment Portfolio and Asset Management
Peoples Bancorp's investment portfolio is managed to provide flexibility for maintaining satisfactory liquidity while maximizing earnings on available funds. The investment objectives are to provide earnings, ensure safety of principal, manage interest rate risk, and meet pledging requirements. The bank's investment policy is designed to invest in high-quality investment securities in a manner consistent with safe and sound banking practices. As of December 31, 2024, the company's total securities amounted to $390.70 million, contributing to its overall asset base and liquidity position.
Regulatory Landscape and Compliance
As a bank holding company, Peoples Bancorp is subject to extensive regulation and supervision by federal and state authorities, including the Federal Reserve, the Federal Deposit Insurance Corporation (FDIC), and the North Carolina Commissioner of Banks. The company dedicates significant resources to ensure compliance with the ever-evolving regulatory framework, including the Dodd-Frank Wall Street Reform and Consumer Protection Act, the Bank Secrecy Act, and the Sarbanes-Oxley Act.
Peoples Bancorp has consistently maintained a satisfactory Community Reinvestment Act (CRA) rating, demonstrating its commitment to serving the credit needs of the communities in which it operates. The company's compliance efforts extend to areas such as anti-money laundering, cybersecurity, and consumer protection, underscoring its dedication to operating in a safe and sound manner.
Growth Strategies and Challenges
Peoples Bancorp's growth strategy focuses on organic expansion within its existing market footprint, as well as selective acquisitions that align with the company's core competencies and geographic focus. The bank has demonstrated its ability to expand its branch network, having opened new locations in Huntersville, Mooresville, and Raleigh, North Carolina in recent years.
One of the key challenges facing Peoples Bancorp is the highly competitive nature of the banking industry, particularly in its core markets. The company competes with larger regional and national banks, as well as community banks and non-traditional financial service providers, for deposits, loans, and other banking services. Maintaining a strong market position and attracting and retaining customers in this competitive landscape requires continuous innovation and a focus on superior customer service.
Additionally, the company must navigate the evolving regulatory landscape, which can impose additional compliance requirements and operational costs. Peoples Bancorp's management team remains vigilant in monitoring regulatory changes and adapting the company's policies and procedures accordingly.
Pandemic and Economic Conditions
The COVID-19 pandemic presented significant challenges for Peoples Bancorp, as it did for many financial institutions. The company proactively implemented measures to support its customers and employees, including loan deferment programs, remote work arrangements, and enhanced cleaning protocols. While the pandemic's impact on the company's financial performance was relatively modest, Peoples Bancorp remained attentive to the evolving economic conditions and their potential effect on its loan portfolio and asset quality.
As the economy has navigated the post-pandemic recovery, Peoples Bancorp has faced the challenges of rising interest rates and inflationary pressures. The company has worked to manage its interest rate risk, while also adapting its lending and deposit strategies to address the changing market dynamics. Despite these headwinds, Peoples Bancorp has demonstrated its resilience and ability to generate stable financial results.
Subsidiary Operations and Diversification
In addition to its core banking operations, Peoples Bancorp has several subsidiaries that provide complementary services, enhancing its overall value proposition to customers. Peoples Investment Services, Inc. offers investment counseling and non-deposit investment products to the bank's customers, allowing the company to capture a larger share of its clients' financial needs. Real Estate Advisory Services, Inc. provides real estate appraisal and brokerage services, leveraging the bank's expertise in the local real estate market.
Community Bank Real Estate Solutions, LLC serves as a clearinghouse for appraisal services for other community banks, creating an additional revenue stream and strengthening Peoples Bancorp's relationships within the banking industry. PB Real Estate Holdings, LLC is responsible for acquiring, managing, and disposing of real property and other collateral obtained in the course of collecting debts, helping the bank efficiently manage its non-performing assets.
These diversified business lines contribute to Peoples Bancorp's overall financial performance and provide additional avenues for growth and revenue generation beyond traditional banking services.
Market Focus and Customer Base
Peoples Bancorp primarily serves individuals and small to medium-sized businesses within its market area in North Carolina. The bank's lending activities follow written underwriting standards and loan origination procedures established by the Board of Directors. The loan portfolio is diversified, with no foreign loans and few agricultural loans. Real estate loans are predominantly variable rate and fixed rate commercial property loans, which include residential development loans to commercial customers.
Commercial loans are spread throughout a variety of industries, with no single industry or group of related industries accounting for a significant portion of the commercial loan portfolio. This diversification helps to mitigate risk and ensures that the bank's performance is not overly dependent on any single sector of the economy.
The majority of the bank's deposit and loan customers are individuals and small-to-medium-sized businesses located in the bank's market area, primarily in the Catawba Valley region of North Carolina and surrounding communities. This focus on local markets allows Peoples Bancorp to develop deep relationships with its customers and maintain a strong understanding of the economic conditions affecting its client base.
Conclusion
Peoples Bancorp of North Carolina has a long and storied history as a community-focused financial institution. Through prudent management, strategic growth initiatives, and a commitment to regulatory compliance, the company has navigated the evolving landscape of the banking industry. As it looks to the future, Peoples Bancorp faces both opportunities and challenges, from the competitive market environment to the ever-changing regulatory landscape.
By leveraging its strong financial position, dedicated workforce, and deep community ties, the company is well-positioned to continue serving the needs of individuals and businesses across its footprint. With a diversified loan portfolio, a range of complementary services through its subsidiaries, and a focus on maintaining high capital ratios, Peoples Bancorp demonstrates resilience and adaptability in the face of economic uncertainties and industry changes.
As the banking sector continues to evolve, Peoples Bancorp's commitment to its core values of customer service, community engagement, and prudent risk management will likely remain key factors in its ongoing success and growth in the North Carolina market.