Business Overview
Peoples Bancorp of North Carolina, Inc. (PEBK) is a well-capitalized, profitable, and independent community-oriented financial institution dedicated to providing quality customer service. The company has demonstrated its ability to navigate challenging economic environments, delivering consistent financial performance for its shareholders.Peoples Bancorp of North Carolina, Inc. is the parent company of Peoples Bank, a North Carolina-chartered bank with offices in Catawba, Lincoln, Alexander, Mecklenburg, Iredell, Wake, Rowan, and Forsyth counties. The bank's primary focus is attracting deposits from the general public and investing these funds in commercial loans, real estate mortgage loans, real estate construction loans, and consumer loans. The company's profitability is driven by its net interest income, which is the difference between the income it receives on its loan and investment securities portfolios and the cost of funds, consisting of interest paid on deposits and borrowed funds.
In addition to its core banking operations, the company operates a subsidiary, Community Bank Real Estate Solutions, LLC (CBRES), which provides appraisal management services to community banks. This diversified business model has helped Peoples Bancorp of North Carolina, Inc. maintain a balanced revenue stream and mitigate risks.
Financial Performance
Peoples Bancorp of North Carolina, Inc. has demonstrated consistent financial performance, even in the face of challenging economic conditions. For the fiscal year ended December 31, 2023, the company reported annual net income of $15.5 million, annual revenue of $94.6 million, annual operating cash flow of $23.3 million, and annual free cash flow of $21.3 million.In the first quarter of 2024, the company continued to deliver solid results. Net earnings for the three months ended March 31, 2024, were $3.9 million, or $0.74 per share and $0.72 per diluted share, compared to $3.2 million, or $0.58 per share and $0.56 per diluted share, for the same period in the prior year. The increase in first quarter 2024 net earnings is primarily the result of an increase in non-interest income and a decrease in the provision for credit losses, which were partially offset by a decrease in net interest income and an increase in non-interest expense, compared to the prior year period.
The company's annualized return on average assets was 0.96% for the three months ended March 31, 2024, compared to 0.81% for the same period one year ago, and annualized return on average shareholders' equity was 13.51% for the three months ended March 31, 2024, compared to 11.78% for the same period one year ago.
Net Interest Income and Margin
Net interest income, the major component of the company's net income, was $13.3 million for the three months ended March 31, 2024, compared to $14.3 million for the three months ended March 31, 2023. The decrease in net interest income is due to a $4.0 million increase in interest expense, partially offset by a $3.0 million increase in interest income.The company's net interest margin, calculated by dividing tax-equivalent net interest income by average interest-earning assets, was 3.33% for the three months ended March 31, 2024, compared to 3.77% for the same period one year ago. The decrease in net interest margin is primarily attributable to the increase in interest expense, which outpaced the increase in interest income.
Provision for Credit Losses
The provision for credit losses for the three months ended March 31, 2024, was $91,000, compared to $224,000 for the three months ended March 31, 2023. The decrease in the provision for credit losses is primarily attributable to a reduction in reserves on unfunded loan commitments, which was partially offset by reserves on loans individually evaluated at March 31, 2024.Non-Interest Income and Expense
Non-interest income was $6.0 million for the three months ended March 31, 2024, compared to $3.6 million for the three months ended March 31, 2023. The increase in non-interest income is primarily attributable to a $2.5 million net loss on the sales of securities during the three months ended March 31, 2023, and no comparable losses in the three months ended March 31, 2024.Non-interest expense was $14.5 million for the three months ended March 31, 2024, compared to $13.7 million for the three months ended March 31, 2023. The increase in non-interest expense is primarily attributable to a $480,000 increase in salaries and employee benefits expense and a $254,000 increase in appraisal management fee expense.
Asset Quality and Allowance for Credit Losses
The company's non-performing assets were $4.0 million, or 0.23% of total assets, at March 31, 2024, compared to $3.9 million, or 0.24% of total assets, at December 31, 2023. Non-accrual loans were $4.0 million, or 0.36% of total loans outstanding, at March 31, 2024, compared to $3.8 million, or 0.36% of total loans outstanding, at December 31, 2023.The allowance for credit losses was $10.8 million at March 31, 2024, compared to $11.0 million at December 31, 2023. The decrease in the allowance for credit losses is primarily attributable to a reduction in reserves on unfunded loan commitments and a decrease in reserves on loans secured by owner-occupied, nonfarm nonresidential properties, partially offset by an increase in reserves on individually evaluated loans.
Liquidity and Capital Resources
Peoples Bancorp of North Carolina, Inc. maintains a strong liquidity position, with core deposits, a non-GAAP measure, totaling $1.30 billion, or 90% of total deposits, as of March 31, 2024. The company's liquidity ratio, defined as net cash, interest-bearing deposits, federal funds sold, and certain investment securities as a percentage of net deposits and short-term liabilities, was 27.33% at March 31, 2024, well above the minimum required ratio of 10%.The company's capital position remains robust, with a Tier 1 risk-based capital ratio of 13.84% and a total risk-based capital ratio of 14.83% at March 31, 2024. These ratios exceed the regulatory requirements for a "well-capitalized" institution, providing the company with the financial flexibility to support its growth and withstand potential economic challenges.