Peoples Bancorp of North Carolina, Inc. — Q1 2024 Form 10-Q
Business context and reporting period. The company is a North Carolina bank holding company whose primary business is community banking; it also provides appraisal management services through CBRES. This unaudited report covers the three months ended March 31, 2024. Income-statement and cash-flow comparisons are with Q1 2023; balance-sheet comparisons are with December 31, 2023.
Key financial results
Unless otherwise noted, amounts are in millions of dollars.
| Metric | Q1 2024 / March 31, 2024 | Comparable period / prior year-end |
|---|---|---|
| Interest income | $19.81 | $16.80 in Q1 2023 |
| Net interest income | $13.30 | $14.34 in Q1 2023 |
| Net interest margin, tax-equivalent | 3.33% | 3.77% in Q1 2023 |
| Net interest spread | 2.56% | 3.36% in Q1 2023 |
| Provision for credit losses | $0.09 | $0.22 in Q1 2023 |
| Noninterest income | $6.04 | $3.61 in Q1 2023 |
| Noninterest expense | $14.52 | $13.70 in Q1 2023 |
| Net earnings | $3.95 | $3.17 in Q1 2023 |
| Diluted earnings per share | $0.72 | $0.56 in Q1 2023 |
| Cash dividends declared per share | $0.35 | $0.34 in Q1 2023 |
| Total assets | $1,669.6 | $1,635.9 at Dec. 31, 2023 |
| Total loans / net loans | $1,106.7 / $1,095.8 | $1,093.1 / $1,082.0 at Dec. 31, 2023 |
| Total deposits | $1,452.4 | $1,392.0 at Dec. 31, 2023 |
| Cash and cash equivalents | $98.1 | $82.4 at Dec. 31, 2023 |
| Available-for-sale securities | $394.7 | $391.9 at Dec. 31, 2023 |
| Shareholders’ equity | $121.1; 7.25% of assets | $121.0; 7.40% of assets at Dec. 31, 2023 |
Cash flow, funding and capital
- Operating cash flow was $3.7 million, compared with $8.0 million in Q1 2023. Investing cash flow was an outflow of $16.8 million, versus an inflow of $35.2 million; financing cash flow was an inflow of $28.9 million, versus an outflow of $31.9 million. Cash increased $15.7 million during the quarter.
- Repurchase-agreement funding was $59.2 million, down from $86.7 million at year-end. Junior subordinated debentures were $15.5 million. The company reported no FHLB or Federal Reserve borrowings outstanding.
- The Bank’s liquidity ratio was 27.33%, above its stated 10% policy minimum. Available borrowing capacity was $126.5 million at the FHLB, $477.0 million at the Federal Reserve, and up to $110.5 million in overnight federal funds from correspondent institutions.
- The Bank was reported as well-capitalized. Company ratios at March 31 were 12.66% common equity Tier 1, 13.84% Tier 1 risk-based, 14.83% total risk-based, and 10.39% Tier 1 leverage.
Material changes and management commentary
- Net earnings increased to $3.95 million from $3.17 million. Management attributed the improvement mainly to higher noninterest income and lower credit-loss provision, partly offset by weaker net interest income and higher operating expenses.
- Net interest income fell $1.0 million: interest income rose $3.0 million, but interest expense rose $4.0 million. Higher deposit costs were a key factor: average time-deposit balances increased and the average rate paid on certificates of deposit rose to 4.20% from 1.76%. Tax-equivalent net interest margin declined to 3.33% from 3.77%.
- Noninterest income rose $2.4 million, principally because Q1 2023 included a $2.5 million net securities-sale loss; no securities were sold in Q1 2024. Appraisal management fee income also increased. Noninterest expense increased $0.8 million, including higher employee-benefit and appraisal-management costs.
- Average loan yield increased to 5.57% from 5.04%, while the average yield on interest-earning assets rose to 4.96% from 4.41%. Management noted that higher funding costs more than offset the increase in asset yields.
- Deposits increased $60.3 million from year-end; core deposits were $1.30 billion, or 90% of deposits. Estimated uninsured deposits were $390.2 million, or 26.86% of deposits, compared with $382.1 million, or 27.45%, at year-end.
- Nonperforming assets were $4.0 million, or 0.23% of assets, versus $3.9 million, or 0.24%, at year-end. Nonaccrual loans were $4.0 million, or 0.36% of loans. There were no loans 90 days past due and still accruing, and no other real estate owned.
- The allowance for loan losses was $10.8 million, down from $11.0 million at year-end. The filing reports $51.2 million of unrealized losses on available-for-sale debt securities, primarily attributed to interest-rate changes and considered temporary; management identified no credit-related losses requiring a securities allowance.
Outlook, risks and unusual items
- The filing provides no numerical earnings or margin guidance. Management describes its aim to grow in local and nearby markets while maintaining liquidity, managing interest-rate exposure, and monitoring asset quality.
- Management identifies interest-rate movements, competition, economic conditions and potential deterioration in borrower credit quality, regulation, and changes in monetary or fiscal policy as factors that could affect results. A substantial portion of loans is secured by real estate, exposing repayment and collateral values to property-market conditions. The filing reports no material changes to the risk factors in the 2023 Form 10-K.
- Loan commitments were $370.5 million and standby letters of credit were $3.3 million. These off-balance-sheet amounts represent potential funding and credit exposure, not necessarily future cash requirements. The allowance for unfunded commitments was $1.7 million.
- The effective tax rate declined to 16.62% from 21.15%. Management attributed the reduction principally to $322,000 of interest receivable recorded following a settlement with the North Carolina Department of Revenue that allowed previously disputed tax credits. The Bank expects a refund of taxes and associated payments plus interest.
- The company repurchased 78,500 shares under its public repurchase program in Q1 for approximately $2.0 million; the program expired in March 2024. Total repurchases under the program were approximately $4.0 million, or 181,022 shares.
- Management concluded disclosure controls were effective and reported no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether deposit pricing and the shift toward higher-cost time deposits continue to pressure net interest margin and earnings.
- Trends in loan delinquencies, nonaccrual assets, charge-offs, and the adequacy of the loan and unfunded-commitment allowances.
- The sensitivity of the securities portfolio’s $51.2 million unrealized loss to interest rates, and the company’s capacity to hold securities without realizing losses.
- Deposit stability and liquidity, including uninsured deposits, repurchase funding, available contingent borrowing capacity, and substantial unfunded loan commitments.
- Receipt and amount of the anticipated North Carolina tax refund and interest following settlement.