PEOPLES BANCORP OF NORTH CAROLINA INC annual report, FY2018

Full document

Business Context and Reporting Period

Peoples Bancorp of North Carolina, Inc. is a bank holding company whose principal business is conducted through Peoples Bank, a North Carolina community bank. This Form 10-K covers the fiscal year ended December 31, 2018; it is an annual report, not a standalone fourth-quarter report. The Bank operated 20 branches and loan production offices in North Carolina, serving individuals and small-to-medium-sized businesses.

Financial Position and Key Metrics

  • At December 31, 2018, the Company reported approximately $1.1 billion in total assets, $797.6 million in net loans, $877.2 million in deposits, $198.9 million in securities, and $123.6 million in shareholders’ equity.
  • Bank regulatory capital ratios were 12.76% Tier 1 leverage, 15.21% common equity Tier 1, 15.21% Tier 1 risk-based, and 15.91% total risk-based. Company ratios were 13.05%, 13.29%, 15.46%, and 16.15%, respectively. Both exceeded applicable requirements.
  • Loan portfolio composition was approximately 34% commercial real estate, 12% commercial, 12% construction and land development, and 36% single-family residential; Banco non-traditional residential loans were approximately 4% of total loans.
  • The Company described $20.6 million of junior subordinated debentures issued in 2006, bearing interest at three-month LIBOR plus 163 basis points and maturing in 2036. The excerpt does not provide a clear year-end debt balance.
  • Revenue, net income, earnings per share, cash flow, net interest margin, credit-loss allowance, and liquidity ratios are not provided in the supplied filing text. The filing incorporates the Annual Report’s financial statements and MD&A by reference.

Changes Versus Prior Comparable Period

The supplied text does not provide comparable 2017 operating results or year-over-year changes in revenue, earnings, cash flow, or margins. The six-year shareholder-return table shows the Company’s cumulative-return index declining from 252.86 at December 31, 2017 to 205.07 at December 31, 2018; the NASDAQ Composite declined from 173.22 to 168.30 and the SNL Southeast Bank Index from 182.06 to 150.42.

Outlook, Risks, Contingencies, and Unusual Items

  • The filing provides no quantified financial guidance. Management identifies competition, interest-rate movements, local and broader economic conditions, credit quality, regulatory change, liquidity, technology and cybersecurity, and retention of key personnel as risks.
  • The Bank received a draft North Carolina Department of Revenue audit report proposing approximately $1.4 million in additional tax, penalties, and interest related to tax credits from 2014–2016. The Bank disputes the adjustments. A related guarantee is believed to limit exposure to approximately $150,000, but recovery under the guarantee is not assured.
  • A 2015 FDIC and North Carolina regulator consent order concerning Bank Secrecy Act compliance was terminated effective August 30, 2017.
  • The Bank’s local lending concentration and real-estate collateral expose it to regional downturns and falling property values. Management also warns that higher interest rates can affect funding costs, asset values, loan demand, and earnings.
  • Management reported effective disclosure controls and effective internal control over financial reporting as of December 31, 2018; no material change in internal control was reported for the quarter.
  • The Bank’s capital ratios were above requirements, but capital rules, dividend limits, and regulatory oversight may constrain distributions or repurchases. The Company states that common-stock dividends could be reduced or eliminated.

Important Facts for Investors to Verify

  1. Review the incorporated Annual Report and audited statements for full-year and quarterly revenue, earnings, cash flow, margins, allowance, nonperforming assets, and year-over-year comparisons; these figures are absent from the supplied text.
  2. Check the status and accounting treatment of the NCDOR tax-credit dispute and the enforceability and collectibility of the guaranty.
  3. Assess loan performance and concentration, particularly commercial real estate, construction and land development, and Banco residential lending.
  4. Confirm current debt balances, funding mix, liquidity measures, and interest-rate sensitivity in the incorporated MD&A and notes.
  5. Review the Bank’s capital headroom, dividend capacity, and any subsequent regulatory or compliance developments.