PEBK's Q3 Net Earnings Dip, But YTD Shows Growth Amidst Asset Expansion

TL;DR

**PEBK's Q3 earnings dip is a red flag, despite year-to-date growth, signaling potential headwinds for this regional bank.**

AI Summary

PEOPLES BANCORP OF NORTH CAROLINA INC (PEBK) reported a mixed financial performance for the nine months ended September 30, 2025. Net earnings increased by 3.15% to $13.197 million from $12.794 million in the prior year period. This was driven by a 8.42% increase in net interest income to $43.660 million, up from $40.269 million, primarily due to a 6.5% rise in interest and fees on loans to $49.838 million. However, net earnings for the three months ended September 30, 2025, decreased by 6.72% to $3.692 million compared to $3.958 million in the same period of 2024. Total assets grew by 5.23% to $1.738 billion at September 30, 2025, from $1.652 billion at December 31, 2024, largely due to a significant increase in interest-bearing deposits to $88.302 million from $28.347 million. The allowance for credit losses increased slightly to $10.206 million from $9.995 million, and the provision for credit losses for the nine months ended September 30, 2025, was $585,000, a notable shift from a recovery of $80,000 in the prior year. Total deposits also saw a healthy increase of 4.59% to $1.553 billion from $1.485 billion.

Why It Matters

For investors, PEBK's mixed results highlight a challenging interest rate environment where net interest income is growing year-to-date, but quarterly net earnings are declining. The increase in the allowance for credit losses and provision for credit losses suggests a more cautious outlook on loan quality, which could impact future profitability and dividend sustainability. Employees might see stable operations given the overall asset growth and consistent dividend declarations, though the slight dip in quarterly net earnings could signal cost-control pressures. Customers benefit from a growing deposit base, indicating stability, but potential shifts in lending strategies due to credit loss provisions could affect loan availability or terms. Competitively, PEBK's ability to grow its deposit base and loan portfolio in a dynamic market is crucial for maintaining its regional presence against larger financial institutions.

Risk Assessment

Risk Level: medium — The risk level is medium due to the decrease in net earnings for the three months ended September 30, 2025, by 6.72% to $3.692 million, compared to $3.958 million in the prior year. Additionally, the provision for credit losses for the nine months ended September 30, 2025, was $585,000, a significant increase from a recovery of $80,000 in the same period of 2024, indicating potential deterioration in credit quality or a more conservative lending stance.

Analyst Insight

Investors should closely monitor PEBK's upcoming earnings reports for trends in net interest margin and credit quality. Given the increase in provision for credit losses, a deeper dive into the loan portfolio's health is warranted. Consider holding existing positions but deferring new investments until a clearer picture of sustained quarterly earnings growth emerges.

Financial Highlights

debt To Equity

N/A

revenue

$43.660M

operating Margin

N/A

total Assets

$1.738B

total Debt

$15.464M

net Income

$13.197M

eps

$2.49

gross Margin

N/A

cash Position

$117.016M

revenue Growth

+8.42%

Revenue Breakdown

Key Numbers

• $13.197M — Net Earnings (9 months) (Increased 3.15% from $12.794M in 2024)
• $3.692M — Net Earnings (3 months) (Decreased 6.72% from $3.958M in 2024)
• $43.660M — Net Interest Income (9 months) (Increased 8.42% from $40.269M in 2024)
• $1.738B — Total Assets (Increased 5.23% from $1.652B at Dec 31, 2024)
• $1.553B — Total Deposits (Increased 4.59% from $1.485B at Dec 31, 2024)
• $585K — Provision for Credit Losses (9 months) (Shifted from a recovery of $80K in 2024)
• $10.206M — Allowance for Credit Losses (Increased from $9.995M at Dec 31, 2024)
• $0.70 — Basic Net Earnings Per Share (3 months) (Decreased from $0.74 in 2024)
• $2.49 — Basic Net Earnings Per Share (9 months) (Increased from $2.41 in 2024)
• $0.20 — Cash Dividends Declared Per Share (3 months) (Increased from $0.19 in 2024)

Key Players & Entities

• PEOPLES BANCORP OF NORTH CAROLINA INC (company) — registrant
• Peoples Bank (company) — wholly owned subsidiary
• CBRES (company) — significant operating segment
• $13.197 million (dollar_amount) — net earnings for nine months ended September 30, 2025
• $3.692 million (dollar_amount) — net earnings for three months ended September 30, 2025
• $1.738 billion (dollar_amount) — total assets at September 30, 2025
• $10.206 million (dollar_amount) — allowance for credit losses at September 30, 2025
• $585,000 (dollar_amount) — provision for credit losses for nine months ended September 30, 2025
• $1.553 billion (dollar_amount) — total deposits at September 30, 2025

FAQ

Risk Factors

• Credit Risk and Loan Portfolio Quality [medium — financial]: The company's net loans were $1.173 billion at September 30, 2025. The allowance for credit losses increased to $10.206 million from $9.995 million at December 31, 2024. A provision for credit losses of $585,000 was recorded for the nine months ended September 30, 2025, a significant shift from a $80,000 recovery in the prior year, indicating potential deterioration in loan quality or increased economic uncertainty.
• Interest Rate Sensitivity [medium — market]: Fluctuations in interest rates can impact net interest income and the fair value of investment securities. The company holds $376.868 million in investment securities available for sale. Changes in market interest rates could affect the company's profitability and the value of its investment portfolio.
• Cybersecurity and Data Breach Risks [high — operational]: As a financial institution, the company is a target for cyberattacks. A successful breach could lead to significant financial losses, reputational damage, and regulatory penalties. The company's reliance on technology for operations makes it vulnerable to these threats.
• Regulatory Compliance and Changes [medium — regulatory]: The banking industry is subject to extensive regulation. Changes in regulations, compliance failures, or increased compliance costs could adversely affect the company's operations and profitability. The company must continually adapt to evolving regulatory requirements.
• Liquidity Risk [medium — financial]: The company relies on deposits for funding, with total deposits at $1.553 billion as of September 30, 2025. A sudden withdrawal of deposits or inability to access funding sources could impact the company's ability to meet its obligations and fund its operations.

Industry Context

The banking industry is characterized by intense competition, stringent regulatory oversight, and sensitivity to interest rate fluctuations. Community banks like PEBK focus on local markets, offering personalized services while navigating challenges such as digital transformation, cybersecurity threats, and evolving customer expectations. Profitability is heavily influenced by net interest margins and the ability to manage credit risk effectively.

Regulatory Implications

PEBK operates within a highly regulated environment. Compliance with banking laws, capital requirements, and consumer protection regulations is paramount. Any changes in monetary policy or new regulatory mandates could impact the bank's operations, profitability, and strategic decisions, requiring continuous adaptation and investment in compliance.

What Investors Should Do

1. Monitor credit quality trends
2. Analyze interest rate sensitivity
3. Evaluate deposit growth drivers
4. Assess operational risk management

Key Dates

• 2025-09-30: Quarterly Financial Reporting — Reported financial results for the nine months and three months ended September 30, 2025, showing mixed performance with increased net interest income but a decrease in quarterly net earnings.
• 2025-12-31: Year-End Financial Reporting (Audited) — Provided audited financial statements for the fiscal year ending December 31, 2024, against which current performance is compared.

Glossary

Net Interest Income

The difference between the interest income generated by a bank and the interest it pays out to its depositors and lenders. (A key driver of profitability for banks, showing the core lending and borrowing business performance. PEBK's net interest income increased by 8.42% for the nine months.)

Allowance for Credit Losses

An estimate of the amount of loans in a portfolio that are expected to be uncollectible. (Indicates the bank's assessment of potential loan defaults. PEBK's allowance increased slightly, and the provision for credit losses shifted from a recovery to an expense.)

Provision for Credit Losses

The expense recognized in a period for the estimated losses on loans and other credit exposures. (Reflects the current period's charge for anticipated loan losses. PEBK's provision for the nine months was $585,000, a change from a prior year recovery.)

Interest-bearing deposits

Deposits held by a bank that earn interest for the depositor. (A significant source of funding for banks. PEBK saw a substantial increase in interest-bearing deposits, contributing to asset growth.)

Accumulated other comprehensive loss

Unrealized gains and losses on certain investments and other items that are not included in net income but affect shareholders' equity. (Reflects unrealized losses on available-for-sale securities, which decreased from a loss of $39.157 million to $29.346 million, indicating an improvement in the market value of these investments.)

Year-Over-Year Comparison

PEOPLES BANCORP OF NORTH CAROLINA INC (PEBK) shows a mixed financial picture compared to the prior year. While net interest income for the nine months increased by 8.42% to $43.660 million, driven by loan growth, net earnings for the most recent quarter declined by 6.72%. Total assets grew by 5.23% to $1.738 billion, largely due to a significant rise in interest-bearing deposits. A notable shift occurred in credit loss provisioning, moving from a recovery to an expense, with the allowance for credit losses also seeing a slight increase, indicating a more cautious outlook on loan portfolio quality.

Key Financial Figures

• $250,000 — savings 779,939 741,363 Time, over $250,000 160,704 145,939 Other time 201,44

Filing Documents

• pebk_10q.htm (10-Q) — 3123KB
• pebk_ex31a.htm (EX-31.A) — 9KB
• pebk_ex31b.htm (EX-31.B) — 12KB
• pebk_ex32.htm (EX-32) — 5KB
• 0001654954-25-012570.txt ( ) — 13960KB
• pebk-20250930.xsd (EX-101.SCH) — 70KB
• pebk-20250930_lab.xml (EX-101.LAB) — 365KB
• pebk-20250930_cal.xml (EX-101.CAL) — 65KB
• pebk-20250930_pre.xml (EX-101.PRE) — 319KB
• pebk-20250930_def.xml (EX-101.DEF) — 183KB
• pebk_10q_htm.xml (XML) — 4277KB

FINANCIAL INFORMATION

PART I. FINANCIAL INFORMATION PAGE(S) Item 1.

Financial Statements

Financial Statements 4 Consolidated Balance Sheets at September 30, 2025 (Unaudited) and December 31, 2024 (Audited) 4 Consolidated Statements of Earnings for the three and nine months ended September 30, 2025 and 2024 (Unaudited) 5 Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2025 and 2024 (Unaudited) 6 Consolidated Statements of Changes in Shareholders' Equity for the three and nine months ended September 30, 2025 and 2024 (Unaudited) 7 Consolidated Statements of Cash Flows for the nine months ended September 30, 2025 and 2024 (Unaudited) 8-9

Notes to Consolidated Financial Statements (Unaudited)

Notes to Consolidated Financial Statements (Unaudited) 10-28 Item 2.

Management's Discussion and Analysis of Financial Condition and Results of Operations

Management's Discussion and Analysis of Financial Condition and Results of Operations 29-40 Item 3.

Quantitative and Qualitative Disclosures About Market Risk

Quantitative and Qualitative Disclosures About Market Risk 41 Item 4.

Controls and Procedures

Controls and Procedures 41

OTHER INFORMATION

PART II. OTHER INFORMATION Item 1.

Legal Proceedings

Legal Proceedings 42 Item 1A.

Risk Factors

Risk Factors 42 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 42 Item 3. Defaults upon Senior Securities 42 Item 5. Other Information 42 Item 6. Exhibits 43

Signatures

Signatures 44 Certifications 2 Table of Contents

FORWARD-LOOKING STATEMENTS

FORWARD-LOOKING STATEMENTS 3 Table of Contents

FINANCIAL INFORMATION

PART I. FINANCIAL INFORMATION

Financial Statements

Item 1. Financial Statements PEOPLES BANCORP OF NORTH CAROLINA, INC. Consolidated Balance Sheets September 30, 2025 and December 31, 2024 (Dollars in thousands) September 30, December 31, Assets 2025 2024 (Unaudited) (Audited) Cash and due from banks $ 28,714 30,919 Interest-bearing deposits 88,302 28,347 Cash and cash equivalents 117,016 59,266 Investment securities available for sale 376,868 388,003 Other investments 2,621 2,728 Total securities 379,489 390,731 Mortgage loans held for sale 1,390 1,367 Loans 1,183,442 1,138,404 Less allowance for credit losses ( 10,206 ) ( 9,995 ) Net loans 1,173,236 1,128,409 Premises and equipment, net 14,417 14,847 Cash surrender value of life insurance 17,710 17,675 Other real estate - 369 Right of use lease asset 3,663 4,013 Accrued interest receivable and other assets 31,415 35,285 Total assets $ 1,738,336 1,651,962 Liabilities and Shareholders' Equity Deposits: Noninterest-bearing demand $ 410,802 402,254 Interest-bearing demand, MMDA & savings 779,939 741,363 Time, over $250,000 160,704 145,939 Other time 201,445 195,175 Total deposits 1,552,890 1,484,731 Junior subordinated debentures 15,464 15,464 Lease liability 3,796 4,136 Accrued interest payable and other liabilities 16,719 17,068 Total liabilities 1,588,869 1,521,399 Commitments and Contingencies Shareholders' equity: Preferred stock, no par value; authorized 5,000,000 shares; no shares issued and outstanding - - Common stock, no par value; authorized 20,000,000 shares; issued and outstanding 5,459,441 shares at September 30, 2025 and 5,457,646 shares at December 31, 2024 48,708 48,658 Common stock held by deferred compensation trust, at cost; 150,423 shares at September 30, 2025 and 158,580 shares at December 31, 2024 ( 1,523 ) ( 1,757 ) Deferred compensation 1,523 1,757 Retained earnings 130,105

Notes to Consolidated Financial Statements ( Unaudited )

Notes to Consolidated Financial Statements ( Unaudited ) (1) Summary of Significant Accounting Policies The Consolidated Financial Statements include the financial statements of Peoples Bancorp of North Carolina, Inc. (the "Company") and its wholly owned subsidiary, Peoples Bank (the "Bank"), along with the Bank's wholly owned subsidiaries, Peoples Investment Services, Inc. ("PIS"), Real Estate Advisory Services, Inc. ("REAS"), Community Bank Real Estate Solutions, LLC ("CBRES") and PB Real Estate Holdings, LLC. All significant intercompany balances and transactions have been eliminated in consolidation. In June 2006, the Company formed a wholly owned Delaware statutory trust, PEBK Capital Trust II ("PEBK Trust II"), to facilitate the issuance of $ 20.6 million of trust preferred securities. PEBK Trust II is not included in the Consolidated Financial Statements. The Consolidated Financial Statements in this report (other than the Consolidated Balance Sheet at December 31, 2024) are unaudited. In the opinion of management, all adjustments necessary for a fair presentation of the financial position and results of operations for the periods presented have been included. Management has made a number of estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities to prepare these Consolidated Financial Statements in conformity with generally accepted accounting principles in the United States ("GAAP"). Actual results could differ from those estimates. Operating segments are components of an enterprise about which separate financial information is available that is evaluated regularly by management in deciding how to allocate resources and in assessing performance. Management has determined that the Company has two significant operating segment: Banking Operations and CBRES, as discussed more fully in Note 9. In determining the appropriateness of segment definition, the Company considers the c

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