8-K: Peoples Bancorp Reports Mixed Q3 2025 Earnings

Peoples Bancorp of North Carolina, Inc. announced third quarter 2025 earnings with a decrease in net earnings but growth in net interest income and total loans.

Summary

• Net earnings for the third quarter of 2025 were $3.7 million, or $0.70 per basic share and $0.67 per diluted share, a decrease from $4.0 million, or $0.74 per basic share and $0.72 per diluted share, for the same period in 2024.
• Year-to-date net earnings for the nine months ended September 30, 2025, increased to $13.2 million, or $2.49 per basic share and $2.41 per diluted share, compared to $12.8 million, or $2.41 per basic share and $2.33 per diluted share, for the prior year period.
• Net interest margin expanded to 3.58% for Q3 2025, up from 3.35% in Q3 2024, and to 3.55% year-to-date 2025, up from 3.34% year-to-date 2024.
• Total loans grew to $1.18 billion at September 30, 2025, from $1.14 billion at December 31, 2024.
• Total deposits increased to $1.55 billion at September 30, 2025, from $1.48 billion at December 31, 2024.
• Non-performing assets were $5.1 million, or 0.29% of total assets, at September 30, 2025, a slight increase from $4.8 million, or 0.29% of total assets, at December 31, 2024.
• The provision for credit losses increased to $530,000 for Q3 2025, compared to $297,000 for Q3 2024, primarily due to increased reserves on construction loans.
• Non-interest expense rose to $16.9 million for Q3 2025, up from $15.0 million for Q3 2024, driven by increases in legal fees, debit card expense, salaries, employee benefits, and appraisal management fee expense.

Sentiment

Score: 6

Explanation: The filing presents a mixed financial picture. While Q3 net earnings and EPS declined, year-to-date earnings, net interest margin, total loans, and deposits all showed growth. The favorable eminent domain settlement is a significant positive. However, increased provision for credit losses and non-interest expenses are areas of concern, leading to a moderately positive but cautious sentiment.

Positives

• Net interest margin expanded to 3.58% in Q3 2025 from 3.35% in Q3 2024, and to 3.55% year-to-date 2025 from 3.34% year-to-date 2024.
• Net interest income increased to $15.1 million in Q3 2025 from $13.5 million in Q3 2024, and to $43.7 million year-to-date 2025 from $40.3 million year-to-date 2024.
• Year-to-date net earnings increased to $13.2 million in 2025 from $12.8 million in 2024.
• Total loans grew by $45.0 million from December 31, 2024, to September 30, 2025, reaching $1.18 billion.
• Total deposits increased to $1.55 billion at September 30, 2025, from $1.48 billion at December 31, 2024.
• Shareholders' equity increased to $149.5 million, or 8.60% of total assets, at September 30, 2025, from $130.6 million, or 7.90% of total assets, at December 31, 2024, primarily due to a decrease in unrealized loss on investment securities.
• A September 2025 bench ruling awarded the Bank a total of $5.1 million for its Mooresville branch property acquired by NCDOT, with an expected additional gain of $3.6 million after receiving the formal written order.

Negatives

• Net earnings for Q3 2025 decreased to $3.7 million from $4.0 million in Q3 2024.
• Basic EPS for Q3 2025 decreased to $0.70 from $0.74 in Q3 2024, and diluted EPS decreased to $0.67 from $0.72.
• The provision for credit losses increased significantly to $530,000 in Q3 2025 from $297,000 in Q3 2024, and to an expense of $585,000 year-to-date 2025 from a recovery of $80,000 year-to-date 2024.
• Non-interest expense increased to $16.9 million in Q3 2025 from $15.0 million in Q3 2024, and to $47.3 million year-to-date 2025 from $44.7 million year-to-date 2024.
• Non-performing assets increased in absolute terms to $5.1 million at September 30, 2025, from $4.8 million at December 31, 2024.
• Allowance for credit losses on loans to non-performing assets decreased to 199.61% at September 30, 2025, from 207.84% at December 31, 2024.

Risks

• Changes in the interest rate environment could materially affect financial results.
• Competition in the markets served by the Bank may intensify.
• General national, regional, or local economic conditions may be less favorable than expected, potentially leading to a deterioration in credit quality and impairment of loan collectibility.
• Legislative or regulatory changes, including changes in accounting standards, could impact 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 the Company.
• There is no guarantee that additional adjustments to the allowance for credit losses will not be required due to changes in economic conditions, regulatory requirements, or other factors.

Future Outlook

Management believes the current level of the allowance for credit losses is adequate, though there is no guarantee that additional adjustments will not be required due to changes in economic conditions, regulatory requirements, or other factors. The Bank expects to realize an additional $3.6 million gain on the involuntary disposal of its Mooresville property after receiving the formal written order for the September 2025 bench ruling.

Management Comments

• William D. Cable, Sr., President and Chief Executive Officer, attributed the decrease in third quarter net earnings to increases in the provision for credit losses and non-interest expense, which were partially offset by increases in net interest income and non-interest income, compared to the prior year period.
• Management believes the current level of the allowance for credit losses is adequate; however, there is no guarantee that additional adjustments to the allowance will not be required because of changes in economic conditions, regulatory requirements or other factors.

Industry Context

The banking sector continues to navigate a dynamic interest rate environment, with the Federal Reserve's rate decreases impacting interest expense on liabilities and interest income on balances due from banks. Peoples Bancorp's expanded net interest margin suggests effective management of its asset-liability mix in this environment, while increased provision for credit losses and non-performing assets reflect ongoing credit quality considerations common in the lending industry.

Legal Proceedings

• A bench ruling in September 2025 favored the Bank in an eminent domain acquisition case with the North Carolina Department of Transportation (NCDOT) for its Mooresville branch property. The ruling awarded the Bank a total of $5.1 million, including a $1.5 million payment received in 2023. The Bank recorded $553,000 in legal expenses associated with this settlement.

Stakeholder Impact

• Shareholders: Experienced a decrease in Q3 net earnings and EPS, but an increase in year-to-date net earnings and cash dividends. The expected gain from the NCDOT settlement could positively impact future equity.
• Employees: Salaries and employee benefits expense increased, indicating potential growth in compensation or headcount.
• Customers: Loan and deposit growth suggests continued engagement and trust in the Bank's services.
• Creditors: The increase in total assets and shareholders' equity, alongside stable non-performing asset ratios, indicates a generally healthy financial position, which is positive for creditors.

Next Steps

• The Bank expects to receive the formal written order for the September 2025 bench ruling regarding the NCDOT eminent domain settlement, which will enable it to realize an additional $3.6 million gain.

Key Dates

Recommendation

The filing presents a mixed financial performance. While Q3 net earnings declined due to higher provisions for credit losses and increased non-interest expenses, the year-to-date results show growth in net earnings, net interest margin, total loans, and deposits. The favorable resolution of the NCDOT eminent domain case, with an expected future gain, is a positive development. However, the increase in non-performing assets and the higher provision for credit losses warrant caution. The overall picture suggests a stable company with some operational headwinds and a significant one-time gain, making a 'Hold' recommendation appropriate for a seasoned investor awaiting clearer trends in profitability and asset quality.

Keywords

Peoples Bancorp, PEBK, earnings, Q3 2025, financial results, banking, North Carolina, net interest margin, loans, deposits, non-performing assets, credit losses, eminent domain, financial services