8-K: Peoples Bancorp Reports Strong Second Quarter 2025 Earnings Growth Driven by Net Interest Income and Non-Interest Income

Peoples Bancorp of North Carolina, Inc. announced increased net earnings and improved net interest margin for the second quarter and first half of 2025, driven by growth in net interest income and non-interest income.

Summary

• Net earnings for the second quarter of 2025 were $5.2 million, or $0.97 per basic share and $0.95 per diluted share, up from $4.9 million, or $0.93 per basic share and $0.89 per diluted share, for the same period in 2024.
• Year-to-date net earnings for the six months ended June 30, 2025, reached $9.5 million, or $1.79 per basic share and $1.74 per diluted share, compared to $8.8 million, or $1.67 per basic share and $1.61 per diluted share, for the prior year period.
• Net interest margin improved to 3.57% for the second quarter of 2025, up from 3.35% in the second quarter of 2024, and to 3.54% year-to-date 2025, up from 3.34% year-to-date 2024.
• Total assets increased to $1.69 billion as of June 30, 2025, from $1.65 billion at December 31, 2024.
• Total loans grew to $1.16 billion at June 30, 2025, from $1.14 billion at December 31, 2024.
• Total deposits increased to $1.51 billion at June 30, 2025, from $1.48 billion at December 31, 2024, with core deposits representing 90.05% of total deposits.
• Non-performing assets remained stable at $4.8 million, representing 0.28% of total assets at June 30, 2025, a slight decrease from 0.29% at December 31, 2024.
• Shareholders' equity increased to $144.0 million, or 8.50% of total assets, at June 30, 2025, from $130.6 million, or 7.90% of total assets, at December 31, 2024.
• Cash dividends per share increased to $0.56 year-to-date 2025, up from $0.54 for the prior year period.

Sentiment

Score: 7

Explanation: The overall sentiment is positive due to strong growth in net earnings, net interest income, and net interest margin, coupled with healthy loan and deposit growth and stable asset quality. While there are some negative trends like increased non-accrual loans and a shift in credit loss provision, the core financial performance is robust.

Positives

• Net earnings increased by $0.3 million for Q2 2025 and $0.7 million year-to-date 2025 compared to the prior year periods.
• Basic and diluted earnings per share increased for both the second quarter and year-to-date periods.
• Net interest margin expanded to 3.57% for Q2 2025 and 3.54% year-to-date 2025, indicating improved profitability from lending activities.
• Net interest income increased by $1.2 million for Q2 2025 and $1.8 million year-to-date 2025.
• Non-interest income increased by $0.2 million for Q2 2025 and $0.6 million year-to-date 2025, primarily due to a significant increase in appraisal management fee income.
• Total loans grew by $20 million from December 31, 2024, to June 30, 2025, reflecting continued loan demand.
• Total deposits increased by $29.1 million from December 31, 2024, to June 30, 2025, indicating strong funding base.
• Core deposits, a low-cost funding source, increased to $1.36 billion.
• Non-performing assets as a percentage of total assets slightly decreased from 0.29% to 0.28%, indicating stable asset quality.
• Shareholders' equity increased by $13.4 million from December 31, 2024, to June 30, 2025, strengthening the capital base.
• Cash dividends per share increased by $0.02 year-to-date 2025.
• Interest expense decreased by $0.531 million for Q2 2025 and $1.0 million year-to-date 2025, primarily due to lower rates paid on interest-bearing liabilities.
• Other non-interest expense decreased by $0.218 million for Q2 2025 and $0.401 million year-to-date 2025, mainly due to lower debit card expense.
• Occupancy expense decreased by $0.047 million for Q2 2025 and $0.130 million year-to-date 2025, primarily due to lower equipment maintenance expense.

Negatives

• The provision for credit losses shifted from a recovery of $468,000 in Q2 2024 to a recovery of $213,000 in Q2 2025, indicating a smaller reduction in reserves.
• Year-to-date, the provision for credit losses became an expense of $55,000 in 2025, compared to a recovery of $377,000 in 2024, primarily due to an increase in provision expense for unfunded construction loans.
• Non-interest expense increased by $0.7 million for Q2 2025 and $0.8 million year-to-date 2025, mainly due to higher appraisal management fee expense and salaries/employee benefits.
• Interest income on balances due from banks decreased due to Federal Reserve rate decreases from September 2024 through December 2024.
• Interest income on investment securities decreased due to a reduction in balances outstanding.
• Miscellaneous non-interest income decreased by $0.628 million for Q2 2025 and $0.802 million year-to-date 2025, primarily due to a decrease in income on small business investment company (SBIC) investments.
• Return on average shareholders' equity decreased to 15.08% for Q2 2025 from 16.46% for Q2 2024, and to 14.06% year-to-date 2025 from 14.69% year-to-date 2024.
• The effective tax rate increased to 22.69% year-to-date 2025 from 19.74% year-to-date 2024.
• The allowance for credit losses on loans decreased by $0.203 million from December 31, 2024, to June 30, 2025, primarily due to a decrease in the allowance on construction loans and removal of a Hurricane Helene reserve.
• Non-accrual loans increased to $4.822 million at June 30, 2025, from $4.440 million at December 31, 2024.
• Loans in Risk Grade 4 (management attention) increased to 6.97% at June 30, 2025, from 5.95% at December 31, 2024.

Risks

• Changes in the interest rate environment could impact profitability.
• Management's business strategy may not achieve anticipated results.
• National, regional, and local market conditions could be less favorable than expected, potentially leading to deterioration in credit quality and impairment of loan collectibility.
• Legislative or regulatory changes, including changes in accounting standards, could affect operations.
• Significant changes in the federal and state legal and regulatory environment and tax laws pose risks.
• The impact of changes in monetary and fiscal policies, laws, rules, and regulations could affect financial performance.
• Competition in the markets served by the Bank could intensify.
• Actual results could differ materially from forward-looking statements due to various factors.

Future Outlook

The document contains forward-looking statements regarding the Company's future performance, which are subject to risks and uncertainties. Management believes the current level of the allowance for credit losses is adequate, but there is no guarantee that additional adjustments will not be required due to changes in economic conditions, regulatory requirements, or other factors. No specific quantitative guidance or future targets are provided.

Management Comments

• William D. Cable, Sr., President and Chief Executive Officer, attributed the increase in second quarter net earnings to increases in net interest income and non-interest income, which were partially offset by an increase in the provision for credit losses and an increase in non-interest expense, compared to the prior year period.
• Management believes the current level of the allowance for credit losses is adequate.

Industry Context

The results reflect a regional banking environment where net interest margin expansion is possible due to effective interest rate management, despite Federal Reserve rate decreases impacting certain interest income streams. The increase in appraisal management fee income suggests a robust real estate market or increased activity in related services. The focus on core deposits highlights a common strategy among banks to maintain a low cost of funds amidst varying interest rate environments.

Comparison to Industry Standards

• The document does not provide specific comparable companies, projects, or results to assess performance against global benchmarks or industry standards.

Stakeholder Impact

• Shareholders are positively impacted by increased net earnings, higher basic and diluted earnings per share, and an increase in cash dividends.
• Employees may benefit from the increase in salaries and employee benefits expense, although this is an increased cost for the company.
• Customers are served by the growth in total loans and deposits, indicating continued banking activity and service provision.

Next Steps

• The Company will continue to file other documents with the Securities and Exchange Commission, including its Annual Report on Form 10-K, which readers should review for additional risk factors.

Key Dates

Recommendation

Keywords

Peoples Bancorp, PEBK, Earnings, Financial Results, Banking, Net Interest Margin, Loans, Deposits, Asset Quality, North Carolina, Regional Bank, SEC Filing, 8-K