Peoples Bancorp Of North Carolina Inc 10-Q for FY2022 Q3

Peoples Bancorp Of North Carolina Inc (PEBK)

10-Q 2022-11-04 For: 2022-09-30

Added on April 12, 2026

About this 10-Q

Peoples Bancorp Of North Carolina Inc filed this 10-Q on November 4, 2022, covering the quarter ended September 30, 2022 (FY2022 Q3).

Headline figures

Quarter ended September 30, 2022, as reported in this filing, compared with the same period a year earlier where the filing states it.

Net income: $5.31M; up 56.5% from net income of $3.39M a year earlier
Diluted EPS: $0.93; up 57.6% from $0.59 a year earlier

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North Carolina		56-2132396
(State or other jurisdiction of incorporation or organization)		(IRS Employer Identification No.)


518 West C Street, Newton, North Carolina		28658
(Address of principal executive offices)		(Zip Code)

Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated Filer	☒	Smaller reporting company	☒
		Emerging growth company	☐

		PAGE(S)
Item 1.	Financial Statements	4

	Consolidated Balance Sheets at September 30, 2022 (Unaudited) and December 31, 2021 (Audited)	4

	Consolidated Statements of Earnings for the three and nine months ended September 30, 2022 and 2021 (Unaudited)	5

	Consolidated Statements of Comprehensive Income (Loss) for the three and nine months ended September 30, 2022 and 2021 (Unaudited)	6

	Consolidated Statements of Changes in Shareholders' Equity for the three and nine months ended September 30, 2022 and 2021 (Unaudited)	7

	Consolidated Statements of Cash Flows for the nine months ended September 30, 2022 and 2021 (Unaudited)	8

	Notes to Consolidated Financial Statements (Unaudited)	10

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	27

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	39

Item 4.	Controls and Procedures	39

Item 1.	Legal Proceedings	40
Item 1A.	Risk Factors	40
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	41
Item 3.	Defaults upon Senior Securities	41
Item 5.	Other Information	41
Item 6.	Exhibits	42
Signatures		43
Certifications

PEOPLES BANCORP OF NORTH CAROLINA, INC.

Consolidated Balance Sheets

September 30, 2022 and December 31, 2021

(Dollars in thousands)
	September 30,			December 31,
Assets	2022			2021
	(Unaudited)			(Audited)

Cash and due from banks, including reserve requirements of $0 at both 9/30/22 and 12/31/21	$	55,063			44,711
Interest-bearing deposits		100,398			232,788
Cash and cash equivalents		155,461			277,499

Investment securities available for sale		444,367			406,549
Other investments		2,762			3,668
Total securities		447,129			410,217

Mortgage loans held for sale		975			3,637

Loans		1,004,907			884,869
Less allowance for loan losses		(10,030	)		(9,355	)
Net loans		994,877			875,514

Premises and equipment, net		18,508			16,104
Cash surrender value of life insurance		17,601			17,365
Right of use lease asset		5,770			4,612
Accrued interest receivable and other assets		35,969			19,245
Total assets	$	1,676,290			1,624,193

Liabilities and Shareholders' Equity

Deposits:
Noninterest-bearing demand	$	563,142			514,319
Interest-bearing demand, MMDA & savings		839,532			797,179
Time, $250,000 or more		30,118			26,333
Other time		68,299			74,917
Total deposits		1,501,091			1,412,748

Securities sold under agreements to repurchase		37,986			37,094
Junior subordinated debentures		15,464			15,464
Lease liability		5,847			4,677
Accrued interest payable and other liabilities		11,978			11,841
Total liabilities		1,572,366			1,481,824

Commitments

Shareholders' equity:
Preferred stock, no par value; authorized 5,000,000 shares; no shares issued and outstanding		-			-
Common stock, no par value; authorized 20,000,000 shares; issued and outstanding 5,641,030 shares at September 30, 2022 and 5,661,569 shares at December 31, 2021		52,752			53,305
Common stock held by deferred compensation trust, at cost; 167,889 shares at September 30, 2022 and 162,193 shares at December 31, 2021		(2,150	)		(1,992	)
Deferred compensation		2,150			1,992
Retained earnings		97,029			88,968
Accumulated other comprehensive income (loss)		(45,857	)		96
Total shareholders' equity		103,924			142,369

Total liabilities and shareholders' equity	$	1,676,290			1,624,193

See accompanying Notes to Consolidated Financial Statements.

Title of each class	Trading Symbol(s)	Name on each exchange on which registered

PEOPLES BANCORP OF NORTH CAROLINA, INC.

Consolidated Statements of Earnings

Three and Nine Months Ended September 30, 2022 and 2021

(Dollars in thousands, except per share amounts)

	Three months ended					Nine months ended
	September 30,					September 30,
	2022		2021			2022		2021
	(Unaudited)		(Unaudited)			(Unaudited)		(Unaudited)

Interest income:
Interest and fees on loans	$	11,051		9,807			30,727		31,474
Interest on due from banks		900		89			1,453		172
Interest on investment securities:
U.S. Government sponsored enterprises		1,580		679			2,676		1,899
State and political subdivisions		1,056		825			3,009		2,222
Other		24		21			67		93
Total interest income		14,611		11,421			37,932		35,860

Interest expense:
NOW, MMDA & savings deposits		494		577			1,263		1,617
Time deposits		134		181			421		584
Junior subordinated debentures		146		69			324		211
Other		44		34			117		106
Total interest expense		818		861			2,125		2,518

Net interest income		13,793		10,560			35,807		33,342

Provision for (recovery of) loan losses		408		(182	)		889		(863	)

Net interest income after provision for loan losses		13,385		10,742			34,918		34,205

Non-interest income:
Service charges		1,458		1,023			4,000		2,859
Other service charges and fees		169		187			540		570
Mortgage banking income		59		516			358		2,109
Insurance and brokerage commissions		213		266			709		764
Appraisal management fee income		2,711		1,954			9,656		5,775
Gain on sale of other assets		-		104			-		104
Gain on sale of other real estate		-		-			-		21
Miscellaneous		2,183		1,990			5,904		5,751
Total non-interest income		6,793		6,040			21,167		17,953

Non-interest expense:
Salaries and employee benefits		6,177		6,054			18,469		17,903
Occupancy		2,038		1,999			5,886		5,891
Professional fees		413		582			1,241		1,354
Advertising		175		91			509		388
Debit card expense		228		244			826		740
FDIC Insurance		121		108			346		304
Appraisal management fee expense		2,151		1,556			7,680		4,646
Miscellaneous		2,152		1,934			6,082		5,742
Total non-interest expense		13,455		12,568			41,039		36,968

Earnings before income taxes		6,723		4,214			15,046		15,190

Income tax expense		1,416		824			3,070		3,064

Net earnings	$	5,307		3,390			11,976		12,126

Basic net earnings per share	$	0.96		0.61			2.18		2.16
Diluted net earnings per share	$	0.93		0.59			2.11		2.10
Cash dividends declared per share	$	0.18		0.17			0.69		0.49

See accompanying Notes to Consolidated Financial Statements.

PEOPLES BANCORP OF NORTH CAROLINA, INC.

Consolidated Statements of Comprehensive Income (Loss)

Three and Nine Months Ended September 30, 2022 and 2021

(Dollars in thousands)

	Three months ended						Nine months ended
	September 30,						September 30,
	2022			2021			2022			2021
	(Unaudited)			(Unaudited)			(Unaudited)			(Unaudited)

Net earnings	$	5,307			3,390			11,976			12,126

Other comprehensive loss:
Unrealized holding losses on securities
available for sale		(16,578	)		(844	)		(59,661	)		(2,714	)

Income tax benefit related to other
comprehensive loss:

Unrealized holding losses on securities
available for sale		(3,808	)		(194	)		(13,708	)		(624	)

Total other comprehensive loss,
net of tax		(12,770	)		(650	)		(45,953	)		(2,090	)

Total comprehensive income (loss)	$	(7,463	)		2,740			(33,977	)		10,036

See accompanying Notes to Consolidated Financial Statements.

PEOPLES BANCORP OF NORTH CAROLINA, INC.

Consolidated Statements of Changes in Shareholders' Equity

Three and Nine Months Ended September 30, 2022 and 2021

(Dollars in thousands)

												Common Stock
												Held By			Accumulated
												Deferred			Other
	Common Stock						Retained			Deferred		Compensation			Comprehensive
	Shares			Amount			Earnings			Compensation		Trust			Income (Loss)			Total
	(Unaudited)			(Unaudited)			(Unaudited)			(Unaudited)		(Unaudited)			(Unaudited)			(Unaudited)

Balance, December 31, 2021		5,661,569		$	53,305			88,968			1,992		(1,992	)		96			142,369

Common stock repurchase		(7,000	)		(199	)		-			-		-			-			(199	)
Cash dividends declared on
common stock		-			-			(1,877	)		-		-			-			(1,877	)
Restricted stock units exercised		1,461			41			-			-		-			-			41
Equity incentive plan, net		-			-			-			50		(50	)		-			-
Net earnings		-			-			3,452			-		-			-			3,452
Change in accumulated other
comprehensive loss, net of tax		-			-			-			-		-			(18,342	)		(18,342	)
Balance, March 31, 2022		5,656,030		$	53,147			90,543			2,042		(2,042	)		(18,246	)		125,444

Common stock repurchase		(15,000	)		(395	)		-			-		-			-			(395	)
Cash dividends declared on
common stock		-			-			(1,019	)		-		-			-			(1,019	)
Equity incentive plan, net		-			-			-			57		(57	)		-			-
Net earnings		-			-			3,217			-		-			-			3,217
Change in accumulated other
comprehensive loss, net of tax		-			-			-			-		-			(14,841	)		(14,841	)
Balance, June 30, 2022		5,641,030		$	52,752			92,741			2,099		(2,099	)		(33,087	)		112,406

Cash dividends declared on
common stock		-			-			(1,019	)		-		-			-			(1,019	)
Equity incentive plan, net		-			-			-			51		(51	)		-			-
Net earnings		-			-			5,307			-		-			-			5,307
Change in accumulated other
comprehensive loss, net of tax		-			-			-			-		-			(12,770	)		(12,770	)
Balance, September 30, 2022		5,641,030		$	52,752			97,029			2,150		(2,150	)		(45,857	)		103,924

Balance, December 31, 2020		5,787,504		$	56,871			77,628			1,796		(1,796	)		5,400			139,899

Cash dividends declared on
common stock		-			-			(930	)		-		-			-			(930	)
Restricted stock units exercised		1,662			39			-			-		-			-			39
Equity incentive plan, net		-			-			-			53		(53	)		-			-
Net earnings		-			-			4,121			-		-			-			4,121
Change in accumulated other
comprehensive loss, net of tax		-			-			-			-		-			(3,100	)		(3,100	)
Balance, March 31, 2021		5,789,166			56,910			80,819			1,849		(1,849	)		2,300			140,029

Cash dividends declared on
common stock		-			-			(930	)		-		-			-			(930	)
Equity incentive plan, net		-			-			-			52		(52	)		-			-
Net earnings		-			-			4,615			-		-			-			4,615
Change in accumulated other
comprehensive income, net of tax		-			-			-			-		-			1,660			1,660
Balance, June 30, 2021		5,789,166		$	56,910			84,504			1,901		(1,901	)		3,960			145,374

Common stock repurchase		(127,597	)		(3,605	)		-			-		-			-			(3,605	)
Cash dividends declared on
common stock		-			-			(967	)		-		-			-			(967	)
Equity incentive plan, net		-			-			-			45		(45	)		-			-
Net earnings		-			-			3,390			-		-			-			3,390
Change in accumulated other
comprehensive loss, net of tax		-			-			-			-		-			(650	)		(650	)
Balance, September 30, 2021		5,661,569		$	53,305			86,927			1,946		(1,946	)		3,310			143,542

See accompanying Notes to Consolidated Financial Statements.

PEOPLES BANCORP OF NORTH CAROLINA, INC.

Consolidated Statements of Cash Flows

Nine Months Ended September 30, 2022 and 2021

(Dollars in thousands)

	2022			2021
	(Unaudited)			(Unaudited)

Cash flows from operating activities:
Net earnings	$	11,976			12,126
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation, amortization and accretion		4,914			3,991
Provision for (recovery of) loan losses		889			(863	)
Deferred income taxes		(31	)		(27	)
Gain on sale of other real estate		-			(21	)
Gain on sale of other assets		-			(104	)
Restricted stock expense		(95	)		(166	)
Proceeds from sales of mortgage loans held for sale		20,475			76,086
Origination of mortgage loans held for sale		(17,813	)		(76,033	)
Change in:
Cash surrender value of life insurance		(301	)		(297	)
Right of use lease asset		568			562
Other assets		(2,944	)		455
Lease liability		(556	)		(549	)
Other liabilities		232			2,138

Net cash provided by operating activities		17,314			17,298

Cash flows from investing activities:
Purchases of investment securities available for sale		(139,657	)		(186,793	)
Proceeds from sales, calls and maturities of investment securities
available for sale		7,870			6,010
Proceeds from paydowns of investment securities available for sale		31,186			18,335
Proceeds from paydowns on other investments		1,011			132
Redemptions (purchases) of FHLB stock		(105	)		331
Net change in loans		(120,252	)		57,552
Purchases of premises and equipment		(4,196	)		(379	)
Proceeds from sale of other assets		-			515
Proceeds from sale of other real estate		-			149
Proceeds from bank owned life insurance		65			-

Net cash used by investing activities		(224,078	)		(104,148	)

Cash flows from financing activities:
Net change in deposits		88,343			188,879
Net change in securities sold under agreement to repurchase		892			6,131
Common stock repurchased		(594	)		(3,605	)
Cash dividends paid on common stock		(3,915	)		(2,827	)

Net cash provided by financing activities		84,726			188,578

Net change in cash and cash equivalents		(122,038	)		101,728

Cash and cash equivalents at beginning of period		277,499			161,580

Cash and cash equivalents at end of period	$	155,461			263,308

PEOPLES BANCORP OF NORTH CAROLINA, INC.

Consolidated Statements of Cash Flows, continued

Nine Months Ended September 30, 2022 and 2021

(Dollars in thousands)

	2022			2021
	(Unaudited)			(Unaudited)

Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest	$	2,112			1,658
Income taxes	$	3,069			3,221

Noncash investing and financing activities:
Change in unrealized loss on investment securities
available for sale, net	$	(45,953	)		(2,090	)
Issuance of accrued restricted stock units	$	41			39
Transfer of premises and equipment to other assets held for sale	$	-			408
Initial recognition of lease right-of-use asset and lease liability	$	1,726			952

See accompanying Notes to Consolidated Financial Statements.

ASU	Description	Effective Date	Effect on Financial Statements or Other Significant Matters
ASU 2016-13: Measurement of Credit Losses on Financial Instruments	Provides guidance to change the accounting for credit losses and modify the impairment model for certain debt securities.	See ASU 2019-10 below.	The Company will apply this guidance through a cumulative-effect adjustment to retained earnings as of the beginning of the year of adoption. The Company is still evaluating the impact of this guidance on its consolidated financial statements. The Company has formed a Current Expected Credit Losses (“CECL”) committee and implemented a model from a third-party vendor for running CECL calculations. The Company has developed CECL model assumptions and is comparing results to current allowance for loan loss calculations. Parallel processing of the existing allowance for loan losses model with the CECL model will occur during the fourth quarter of 2022. The Company is currently evaluating the impact of this adoption on its financial statements and disclosures and currently expects to record a one-time adjustment to retained earnings to increase the allowance for loan losses. In addition to the Company’s allowance for loan losses, it will also review an allowance for credit losses on debt securities instead of applying the impairment model currently utilized. The amount of the adjustments will be impacted by each portfolio’s composition and credit quality at the adoption date as well as economic conditions and forecasts at that time. Based on implementation progress to date, the Company believes the capital adequacy requirements to which it and the Bank are subject to, and its business strategies and practices, will not be materially impacted following the adoption on January 1, 2023.

(Dollars in thousands)
	September 30, 2022
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
U.S. Treasuries	$	10,946		-		1,169		9,777
U.S. Government
sponsored enterprises		12,827		-		685		12,142
Mortgage-backed securities		296,204		271		24,576		271,899
State and political subdivisions		183,924		14		33,389		150,549
Total	$	503,901		285		59,819		444,367

(Dollars in thousands)
	December 31, 2021
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
U.S Treasuries	$	7,964		-		75		7,889
U.S. Government
sponsored enterprises		14,252		200		185		14,267
Mortgage-backed securities		218,402		1,769		3,019		217,152
State and political subdivisions		165,804		3,694		2,257		167,241
Total	$	406,422		5,663		5,536		406,549

(Dollars in thousands)
	September 30, 2022
	Less than 12 Months				12 Months or More				Total
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
U.S. Treasuries	$	2,868		109		6,909		1,060		9,777		1,169
U.S. Government
sponsored enterprises		5,098		513		7,044		172		12,142		685
Mortgage-backed securities		136,374		9,243		109,222		15,333		245,596		24,576
State and political subdivisions		90,030		14,557		57,040		18,832		147,070		33,389
Total	$	234,370		24,422		180,215		35,397		414,585		59,819

ASU	Description	Effective Date	Effect on Financial Statements or Other Significant Matters
ASU 2018-19: Codification Improvements to Topic 326, Financial Instruments—Credit Losses	Aligns the implementation date of the topic for annual financial statements of nonpublic companies with the implementation date for their interim financial statements. The guidance also clarifies that receivables arising from operating leases are not within the scope of the topic, but rather, should be accounted for in accordance with the leases topic.	See ASU 2019-10 below.	The adoption of this guidance is not expected to have a material impact on the Company’s results of operations, financial position or disclosures. See ASU 2016-13 above.
ASU 2019-04: Codification Improvements to Topic 326, Financial Instruments—Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments	Addresses unintended issues accountants flagged when implementing ASU 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities, ASU 2016-13, Measurement of Credit Losses on Financial Instruments, and ASU 2017-12, Targeted Improvements to Accounting for Hedging Activities.	See ASU 2019-10 below.	The adoption of this guidance is not expected to have a material impact on the Company’s results of operations, financial position or disclosures. See ASU 2016-13 above.
ASU 2019-05: Financial Instruments—Credit Losses (Topic 326): Targeted Transition Relief	Guidance to provide entities with an option to irrevocably elect the fair value option, applied on an instrument-by-instrument basis for eligible instruments, upon adoption of ASU 2016-13, Measurement of Credit Losses on Financial Instruments.	See ASU 2019-10 below.	The adoption of this guidance is not expected to have a material impact on the Company’s results of operations, financial position or disclosures. See ASU 2016-13 above.
ASU 2019-10: Financial Instruments—Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842): Effective Dates	Guidance to defer the effective dates for private companies, not-for-profit organizations, and certain smaller reporting companies applying standards on current expected credit losses (CECL), leases and hedging.	January 1, 2023	The adoption of this guidance is not expected to have a material impact on the Company’s results of operations, financial position or disclosures.
ASU 2019-11: Codification Improvements to Topic 326, Financial Instruments—Credit Losses	Guidance that addresses issues raised by stakeholders during the implementation of ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The amendments affect a variety of Topics in the ASC.	January 1, 2023	The adoption of this guidance is not expected to have a material impact on the Company’s results of operations, financial position or disclosures.
ASU 2020-03: Codification Improvements to Financial Instruments	Guidance to clarify that the contractual term of a net investment in a lease, determined in accordance with the leases standard, should be the contractual term used to measure expected credit losses under ASC 326.	January 1, 2023	The adoption of this guidance is not expected to have a material impact on the Company’s results of operations, financial position or disclosures.
ASU 2020-04: Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting	Guidance that provides optional expedients and exceptions for applying GAAP to contract modifications and hedging relationships, subject to meeting certain criteria, that reference LIBOR or another reference rate expected to be discontinued. The ASU is intended to help stakeholders during the global market-wide reference rate transition period. Therefore, it will be in effect for a limited time through December 31, 2022.	March 12, 2020 through December 31, 2022	The adoption of this guidance is not expected to have a material impact on the Company’s results of operations, financial position or disclosures.
ASU 2022-02: Financial Instruments - Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures	Eliminates the guidance on troubled debt restructurings (TDRs) for creditors in ASC 310-40 2 and amends the guidance on “vintage disclosures” to require disclosure of current-period gross write-offs by year of origination.	January 1, 2023	The adoption of this guidance is not expected to have a material impact on the Company’s results of operations, financial position or disclosures.

September 30, 2022
(Dollars in thousands)
	Amortized Cost		Fair Value
Due within one year	$	2,395		2,396
Due from one to five years		9,173		8,962
Due from five to ten years		59,376		51,386
Due after ten years		136,753		109,724
Mortgage-backed securities		296,204		271,899
Total	$	503,901		444,367

(Dollars in thousands)
	September 30, 2022			December 31, 2021
Real estate loans:
Construction and land development	$	112,854			95,760
Single-family residential		312,208			266,111
Single-family residential -
Banco de la Gente non-traditional		20,469			23,147
Commercial		399,015			337,841
Multifamily and farmland		62,040			58,366
Total real estate loans		906,586			781,225

Loans not secured by real estate:
Commercial loans		76,434			91,172
Farm loans		961			796
Consumer loans		6,438			6,436
All other loans		14,488			5,240

Total loans		1,004,907			884,869

Less allowance for loan losses		(10,030	)		(9,355	)

Total net loans	$	994,877			875,514

	·	Construction and land development loans – The risk of loss is largely dependent on the initial estimate of whether the property’s value at completion equals or exceeds the cost of property construction and the availability of take-out financing. During the construction phase, a number of factors can result in delays or cost overruns. If the estimate is inaccurate or if actual construction costs exceed estimates, the value of the property securing the loan may be insufficient to ensure full repayment when completed through a permanent loan, sale of the property, or by seizure of collateral.

	·	Single-family residential loans – Declining home sales volumes, decreased real estate values and higher than normal levels of unemployment could contribute to losses on these loans.

	·	Commercial real estate loans – Repayment is dependent on income being generated in amounts sufficient to cover operating expenses and debt service. These loans also involve greater risk because they are generally not fully amortizing over the loan period, but rather have a balloon payment due at maturity. A borrower’s ability to make a balloon payment typically will depend on being able to either refinance the loan or timely sell the underlying property.

	·	Commercial loans – Repayment is generally dependent upon the successful operation of the borrower’s business. In addition, the collateral securing the loans may depreciate over time, be difficult to appraise, be illiquid, or fluctuate in value based on the success of the business.

	·	Multifamily and farmland loans – Decreased real estate values and higher than normal levels of unemployment could contribute to losses on these loans.

September 30, 2022
(Dollars in thousands)
	Loans 30-89 Days Past Due		Loans 90 or More Days Past Due		Total Past Due Loans		Total Current Loans		Total Current Loans		Total Loans		Accruing Loans 90 or More Days Past Due
Real estate loans:
Construction and land development	$	513		-		513		112,341		-		112,854		-
Single-family residential		1,050		158		1,208		311,000		-		312,208		-
Single-family residential -
Banco de la Gente non-traditional		602		191		793		19,676		-		20,469		-
Commercial		123		-		123		398,892		-		399,015		-
Multifamily and farmland		-		-		-		62,040		-		62,040		-
Total real estate loans		2,288		349		2,637		903,949		-		906,586		-

Loans not secured by real estate:
Commercial loans		1,237		-		1,237		75,197		-		76,434		-
Farm loans		-		-		-		961		-		961		-
Consumer loans		41		3		44		6,394		-		6,438		-
All other loans		-		-		-		14,488		-		14,488		-
Total loans	$	3,566		352		3,918		1,000,989		-		1,004,907		-

December 31, 2021
(Dollars in thousands)
	Loans 30-89 Days Past Due		Loans 90 or More Days Past Due		Total Past Due Loans		Total Current Loans		Total Loans		Accruing Loans 90 or More Days Past Due
Real estate loans:
Construction and land development	$	-		-		-		95,760		95,760		-
Single-family residential		2,323		634		2,957		263,154		266,111		-
Single-family residential -
Banco de la Gente non-traditional		2,593		112		2,705		20,442		23,147		-
Commercial		488		-		488		337,353		337,841		-
Multifamily and farmland		-		-		-		58,366		58,366		-
Total real estate loans		5,404		746		6,150		775,075		781,225		-

Loans not secured by real estate:
Commercial loans		43		-		43		91,129		91,172		-
Farm loans		-		-		-		796		796		-
Consumer loans		38		-		38		6,398		6,436		-
All other loans		-		-		-		5,240		5,240		-
Total loans	$	5,485		746		6,231		878,638		884,869		-

September 30, 2022
(Dollars in thousands)

	Unpaid Contractual Principal Balance		Recorded Investment With No Allowance		Recorded Investment With Allowance		Recorded Investment in Impaired Loans		Related Allowance
Real estate loans:
Construction and land development	$	59		-		59		59		1
Single-family residential		3,929		240		3,381		3,621		62
Single-family residential -
Banco de la Gente non-traditional		10,557		-		9,890		9,890		619
Commercial		1,996		426		1,502		1,928		9
Multifamily and farmland		107		-		96		96		-
Total impaired real estate loans		16,648		666		14,928		15,594		691

Loans not secured by real estate:
Commercial loans		130		-		130		130		1
Consumer loans		21		-		20		20		-
Total impaired loans	$	16,799		666		15,078		15,744		692

(Dollars in thousands)
	Real Estate Loans
	Construction and Land Development		Single-Family Residential			Single-Family Residential - Banco de la Gente Non-traditional			Commercial			Multifamily and Farmland			Commercial			Farm		Consumer and All Other			Unallocated			Total
Nine months ended September 30, 2022:
Allowance for loan losses:
Beginning balance	$	1,193		2,013			864			2,234			150			711			-		110			2,080			9,355
Charge-offs		-		(120	)		-			-			-			(20	)		-		(450	)		-			(590	)
Recoveries		-		219			-			6			-			64			-		87			-			376
Provision		180		78			(101	)		885			5			(14	)		-		467			(611	)		889
Ending balance	$	1,373		2,190			763			3,125			155			741			-		214			1,469			10,030

Three months ended September 30, 2022:
Allowance for loan losses:
Beginning balance	$	1,272		2,171			813			3,156			157			633			-		216			1,371			9,789
Charge-offs		-		(89	)		-			-			-			(13	)		-		(204	)		-			(306	)
Recoveries		-		92			-			2			-			8			-		37			-			139
Provision		101		16			(50	)		(33	)		(2	)		113			-		165			98			408
Ending balance	$	1,373		2,190			763			3,125			155			741			-		214			1,469			10,030

Allowance for loan losses at September 30, 2022:
Ending balance: individually
evaluated for impairment	$	-		37			605			6			-			-			-		-			-			648
Ending balance: collectively
evaluated for impairment		1,373		2,153			158			3,119			155			741			-		214			1,469			9,382
Ending balance	$	1,373		2,190			763			3,125			155			741			-		214			1,469			10,030

Loans at September 30, 2022:
Ending balance	$	112,854		312,208			20,469			399,015			62,040			76,434			961		20,926			-			1,004,907

Ending balance: individually
evaluated for impairment	$	-		547			8,703			1,401			-			-			-		-			-			10,651
Ending balance: collectively
evaluated for impairment	$	112,854		311,661			11,766			397,614			62,040			76,434			961		20,926			-			994,256

	·	Risk Grade 1 – Excellent Quality: Loans are well above average quality and a minimal amount of credit risk exists. CD or cash secured loans or properly margined actively traded stock or bond secured loans would fall in this grade.

	·	Risk Grade 2 – High Quality: Loans are of good quality with risk levels well within the Bank’s range of acceptability. The organization or individual is established with a history of successful performance though somewhat susceptible to economic changes.

	·	Risk Grade 3 – Good Quality: Loans of average quality with risk levels within the Bank’s range of acceptability but higher than normal. This may be a new organization or an existing organization in a transitional phase (e.g. expansion, acquisition, market change). PPP loans are classified as risk grade 3.

	·	Risk Grade 4 – Management Attention: These loans have higher risk and servicing needs but still are acceptable. Evidence of marginal performance or deteriorating trends is observed. These are not problem credits presently, but may be in the future if the borrower is unable to change its present course.

	·	Risk Grade 5 – Watch: These loans are currently performing satisfactorily, but there has been some recent past due history on repayment and there are potential weaknesses that may, if not corrected, weaken the asset or inadequately protect the Bank’s position at some future date.

	·	Risk Grade 6 – Substandard: A Substandard loan is inadequately protected by the current sound net worth and paying capacity of the obligor or the collateral pledged (if there is any). There is a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. There is a distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected.

	·	Risk Grade 7 – Doubtful: Loans classified as Doubtful have all the weaknesses inherent in loans classified Substandard, plus the added characteristic that the weaknesses make collection or liquidation in full on the basis of currently existing facts, conditions, and values highly questionable and improbable. Doubtful is a temporary grade where a loss is expected but is presently not quantified with any degree of accuracy. Once the loss position is determined, the amount is charged off.

	·	Risk Grade 8 – Loss: Loans classified as Loss are considered uncollectable and of such little value that their continuance as bankable assets is not warranted. This classification does not mean that the asset has absolutely no recovery or salvage value, but rather that it is not practical or desirable to defer writing off this worthless loan even though partial recovery may be realized in the future. Loss is a temporary grade until the appropriate authority is obtained to charge the loan off.

For the three months ended September 30, 2022
	Net Earnings (Dollars in thousands)		Weighted Average Number of Shares		Per Share Amount
Basic earnings per share	$	5,307		5,473,443	$	0.96
Effect of dilutive securities:
Restricted stock units - unvested				17,188
Shares held in deferred comp plan
by deferred compensation trust				166,937
Diluted earnings per share	$	5,307		5,657,568	$	0.93

For the nine months ended September 30, 2022
	Net Earnings (Dollars in thousands)		Weighted Average Number of Shares		Per Share Amount
Basic earnings per share	$	11,976		5,484,063	$	2.18
Effect of dilutive securities:
Restricted stock units - unvested				15,090
Shares held in deferred comp plan
by deferred compensation trust				165,041
Diluted earnings per share	$	11,976		5,664,194	$	2.11

	·	Level 1 – Valuation is based upon quoted prices for identical instruments traded in active markets.

	·	Level 2 – Valuation is based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market.

	·	Level 3 – Valuation is generated from model-based techniques that use at least one significant assumption not observable in the market. These unobservable assumptions reflect estimates of assumptions that market participants would use in pricing the asset or liability. Valuation techniques include use of option pricing models, discounted cash flow models and similar techniques.

(Dollars in thousands)
	Fair Value Measurements September 30, 2022		Level 1 Valuation		Level 2 Valuation		Level 3 Valuation
Mortgage loans held for sale	$	975		-		-		975
Impaired loans	$	15,052		-		-		15,052

(Dollars in thousands)
	Fair Value Measurements December 31, 2021		Level 1 Valuation		Level 2 Valuation		Level 3 Valuation
Mortgage loans held for sale	$	3,637		-		-		3,637
Impaired loans	$	17,475		-		-		17,475

(Dollars in thousands)
			Fair Value Measurements at September 30, 2022
	Carrying Amount		Level 1		Level 2		Level 3		Total
Assets:
Cash and cash equivalents	$	155,461		155,461		-		-		155,461
Investment securities available for sale		444,367		-		444,367		-		444,367
Other investments		2,762		-		-		2,762		2,762
Mortgage loans held for sale		975		-		-		975		975
Loans, net		994,877		-		-		970,038		970,038
Mutual funds held in deferred
compensation trust		1,288		-		1,288		-		1,288

Liabilities:
Deposits	$	1,501,091		-		-		1,500,613		1,500,613
Securities sold under agreements
to repurchase		37,986		-		37,986		-		37,986
Junior subordinated debentures		15,464		-		15,464		-		15,464

(Dollars in thousands)
			Fair Value Measurements at December 31, 2021
	Carrying Amount		Level 1		Level 2		Level 3		Total
Assets:
Cash and cash equivalents	$	277,499		277,499		-		-		277,499
Investment securities available for sale		406,549		-		406,549		-		406,549
Other investments		3,668		-		-		3,668		3,668
Mortgage loans held for sale		3,637		-		-		3,637		3,637
Loans, net		875,514		-		-		855,814		855,814
Mutual funds held in deferred
compensation trust		1,510		-		1,510		-		1,510

Liabilities:
Deposits	$	1,412,748		-		-		1,401,833		1,401,833
Securities sold under agreements
to repurchase		37,094		-		37,094		-		37,094
Junior subordinated debentures		15,464		-		15,464		-		15,464

(Dollars in thousands)
	September 30, 2022			September 30, 2021

Operating lease cost	$	617		$	538

Other information:
Cash paid for amounts included in the measurement of lease liabilities		605			520
Operating cash flows from operating leases		-			-
Right-of-use assets obtained in exchange for new lease liabilities - operating leases		1,726			952
Weighted-average remaining lease term - operating leases		9.01			6.72
Weighted-average discount rate - operating leases		2.30	%		2.71	%

(Dollars in thousands)

Maturity Analysis of Operating Lease Liabilities:	September 30,2022

2022	$	229
2023		922
2024		867
2025		812
2026		694
Thereafter		2,975
Total		6,499
Less: Imputed Interest		(652	)
Operating Lease Liability	$	5,847

	Three months ended September 30, 2022 compared to three months ended September 30, 2021										Nine months ended September 30, 2022 compared to nine months ended September 30, 2021

(Dollars in thousands)	Changes in average volume			Changes in average rates			Total Increase (Decrease)			Changes in average volume	Changes in average rates			Total Increase (Decrease)
Interest income:
Loans: Net of unearned income	$	920			324			1,244				260			(1,007	)	(747	)
Investments - taxable		566			851			1,417				1,379			914		2,293
Investments - nontaxable		(109	)		(176	)		(285	)			(45	)		(778	)	(823	)
Other		(311	)		1,121			810				9			1,272		1,281
Total interest income		1,066			2,120			3,186				1,603			401		2,004

Interest expense:
NOW, MMDA & savings deposits		37			(120	)		(83	)			169			(523	)	(354	)
Time deposits		(6	)		(41	)		(47	)			(27	)		(136	)	(163	)
Trust preferred securities		-			77			77				-			113		113
Other		10			-			10				30			(19	)	11
Total interest expense		41			(84	)		(43	)			172			(565	)	(393	)
Net interest income	$	1,025			2,204			3,229				1,431			966		2,397

	·	the Bank’s loan loss experience;

	·	the amount of past due and non-performing loans;

	·	specific known risks;

	·	the status and amount of other past due and non-performing assets;

	·	underlying estimated values of collateral securing loans;

	·	current and anticipated economic conditions (including those arising out of the COVID-19 pandemic); and

	·	other factors which management believes affect the allowance for potential credit losses.

	Percentage of Loans
	By Risk Grade
Risk Grade	9/30/2022			12/31/2021
Risk Grade 1 (Excellent Quality)		0.57	%		0.78	%
Risk Grade 2 (High Quality)		19.68	%		19.12	%
Risk Grade 3 (Good Quality)		72.87	%		70.41	%
Risk Grade 4 (Management Attention)		5.63	%		7.70	%
Risk Grade 5 (Watch)		0.59	%		1.23	%
Risk Grade 6 (Substandard)		0.66	%		0.76	%
Risk Grade 7 (Doubtful)		0.00	%		0.00	%
Risk Grade 8 (Loss)		0.00	%		0.00	%

ISSUER PURCHASES OF EQUITY SECURITIES

Period	Total Number of Shares Purchased (1)		Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (2)		Maximum Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased Under the Plans or Programs (3)

July 1 - 31, 2022		1,297	$	27.10		-	$	1,405,790

August 1 - 31, 2022		320	$	26.20		-	$	1,405,790

September 1 - 30, 2022		288	$	25.91		-	$	1,405,790

Total		1,905	$	26.81		-

(1) The Company purchased 1,905 shares on the open market in the three months ended September 30, 2022 for its deferred compensation plan. All purchases were funded by participant contributions to the plan.

(2) Reflects shares purchased under the Company's publicly announced stock repurchase program.

(3) Reflects dollar value of balance available for repurchase at end of period under the Company's stock repurchase program, which was authorized in February 2022 and expires in February 2023.

Exhibit (3)(i)(a)		Articles of Incorporation of the Registrant, incorporated by reference to Exhibit (3)(i) to the Form 8-A filed with the Securities and Exchange Commission on September 2, 1999

Exhibit (3)(i)(b)		Articles of Amendment dated December 19, 2008, regarding the Series A Preferred Stock, incorporated by reference to Exhibit (3)(1) to the Form 8-K filed with the Securities and Exchange Commission on December 29, 2008

Exhibit (3)(i)(c)		Articles of Amendment dated February 26, 2010, incorporated by reference to Exhibit (3)(2) to the Form 10-K filed with the Securities and Exchange Commission on March 25, 2010

Exhibit (3)(i)(d)		Articles of Amendment dated May 6, 2021, incorporated by reference to Exhibit (3)(i)(d) to the Form 10-K filed with the Securities and Exchange Commission on March 18, 2022

Exhibit (3)(ii)		Second Amended and Restated Bylaws of the Registrant, incorporated by reference to Exhibit (3)(ii) to the Form 8-K filed with the Securities and Exchange Commission on June 24, 2015

Exhibit (4)(i)		Specimen Stock Certificate, incorporated by reference to Exhibit (4) to the Form 8-A filed with the Securities and Exchange Commission on September 2, 1999

Exhibit (31)(a)		Certification of principal executive officer pursuant to section 302 of the Sarbanes-Oxley Act of 2002

Exhibit (31)(b)		Certification of principal financial officer pursuant to section 302 of the Sarbanes-Oxley Act of 2002

Exhibit (32)		Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

Exhibit (101)		The following materials from the Company’s 10-Q Report for the quarterly period ended September 30, 2022, formatted in eXtensible Business Reporting Language (“XBRL”): (i) the Condensed Consolidated Balance Sheets, (ii) the Condensed Consolidated Statements of Earnings, (iii) the Condensed Consolidated Statements of Comprehensive Income (iv) the Condensed Consolidated Statements of Changes in Shareholders’ Equity, (v) the Condensed Consolidated Statements of Cash Flows, and (vi) the Notes to the Condensed Consolidated Financial Statements.

	1.	I have reviewed this quarterly report on Form 10-Q of Peoples Bancorp of North Carolina Inc.;

	2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

	3.	Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

	4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

		a)	designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

		b)	designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

		c)	evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

		d)	disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect the registrant’s internal control over financial reporting; and