Peoples Bancorp of North Carolina, Inc. — 2020 Form 10-K
Business context and reporting period
For the fiscal year ended December 31, 2020. Peoples Bancorp is a bank holding company whose principal business is Peoples Bank, a North Carolina community bank serving the Catawba Valley and surrounding communities through 18 banking offices and loan production offices.
Financial position and key metrics
- At year-end, total assets were approximately $1.4 billion; net loans were $938.7 million; deposits were $1.2 billion; securities totaled $249.4 million; and shareholders’ equity was $139.9 million.
- Bank regulatory capital ratios were 10.04% Tier 1 leverage, 14.85% common equity Tier 1, 14.85% Tier 1 risk-based, and 15.85% total risk-based. The company’s corresponding ratios were 10.24%, 13.56%, 15.07%, and 16.07%. The filing says both exceeded applicable requirements.
- The five largest deposit relationships, including repurchase agreements, totaled $122.0 million, or 9.78% of combined deposits and repurchase agreements. The filing identifies possible liquidity exposure if a major relationship is lost.
- Commercial real estate, commercial, construction and land development, and single-family residential loans represented approximately 35%, 17%, 10%, and 32% of the loan portfolio, respectively. Commercial loans included $75.8 million of PPP loans.
- The excerpt does not provide clear values for annual revenue, net income, margins, operating cash flow, or total borrowings. It refers readers to financial statements and MD&A incorporated by reference.
Changes versus prior periods
- The excerpt does not provide a complete comparable-year financial results table, so year-over-year changes in revenue, earnings, margins, or cash flow cannot be assessed from the supplied text.
- FDIC insurance expense was approximately $263,000 in 2020, compared with $119,000 in 2019 and $328,000 in 2018. Assessment credits received in 2019 were fully used in the first quarter of 2020.
- The Bank originated PPP loans amid the COVID-19 pandemic; the filing reports $75.8 million outstanding in PPP loans as part of commercial lending.
Outlook, risks, contingencies and unusual items
- No quantified earnings guidance or specific financial outlook is provided in the excerpt. Management highlights uncertainty from COVID-19, including potential effects on borrowers, loan demand, credit quality, collateral values, employees, and financial markets.
- Key risks include local economic and real-estate concentration, credit losses and allowance adequacy, interest-rate changes, dependence on large deposit relationships, competition, cybersecurity and third-party systems, regulation, and the transition from LIBOR. The company expected to implement CECL beginning in 2023 and noted it could increase or make credit-loss allowances more volatile.
- The Bank is contesting North Carolina Department of Revenue adjustments seeking to disallow tax credits for 2014–2016. The proposed amount was approximately $1.4 million; the Bank paid $1.2 million in taxes and interest in 2019 while contesting the matter. Management believes a guaranty limits exposure to approximately $125,000, but recovery is not assured.
- The Bank warns of potential PPP-related litigation and SBA guarantee risk if origination, funding, or servicing deficiencies are found.
- Management reported effective disclosure controls and internal control over financial reporting as of December 31, 2020; the independent auditor also audited internal-control effectiveness. No material control changes were reported during the fourth quarter.
- The filing describes $20.6 million of junior subordinated debentures issued in connection with trust preferred securities, bearing interest at three-month LIBOR plus 163 basis points and maturing in 2036. The excerpt does not state the year-end carrying amount.
Most important facts for investors to verify
- Review the incorporated annual report’s financial statements and MD&A for full-year earnings, net interest margin, cash flows, credit-loss provision, nonperforming assets, and year-over-year trends.
- Check the year-end loan quality, allowance for credit losses, borrower payment deferrals, and subsequent performance of PPP and other pandemic-affected loans.
- Confirm the current status and expected resolution of the NCDOR tax-credit dispute and the collectability and scope of the guaranty.
- Assess deposit concentration, available borrowing capacity, and the company’s LIBOR transition plan, including the trust-preferred-related debentures.
- Review dividend and repurchase activity, capital levels, and any subsequent developments after the December 31, 2020 reporting date.