Peoples Bancorp of North Carolina : 2022 Summary Annual Report

2022 ANNUAL REPORT

Our Promise

Our Core Values:

We strive to be exceptional and inspire others to be exceptional too.

Employees

We are informed, encouraged, and committed.

Integrity

We are fair and truthful.

Our Vision

To be the bank that's exceptional at serving our communities, including employees, customers and shareholders.

Exceptional Customer Service

We surpass our customers' expectations.

Accountability

We are accountable for our own actions and bank goals.

Progressive and Positive

Our Mission

We see change as an opportunity.

To provide exceptional customer service while selling to customer needs.

Table of Contents

Message from the President 2

Financial Highlights 4

Report of Independent Registered Public Accounting Firm 5

Consolidated Balance Sheets 6

Consolidated Statements of Earnings 7

Our Leadership 8

From the President

"Being there for our customers and communities with financial services solutions and education has produced another successful year."

2022 was the Bank's 110th consecutive year of business, continuing to build relationships, achieve goals, and contribute to making communities stronger. Once again, this year's annual report will reflect the continued dedication of our employees who go the extra mile to serve, inform, and support our customers and are always willing to give back to the communities where we live and work. Thank you for all you do to help others reach their potential.

Year-to-date highlights are as follows:

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Net earnings were $16.1 million or $2.94 per share and $2.85 per diluted share for the year ended December 31, 2022, as compared to $15.1 million or $2.71 per share and $2.63 per diluted share for the year ended December 31, 2021.

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Total loans increased $147.7 million to $1.0 billion at December 31, 2022, compared to $884.9 million at December 31, 2021.

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Core deposits were $1.4 billion or 97.84% of total deposits at December 31, 2022,compared to $1.4 billion or 98.14% of total deposits at December 31, 2021.

Peoples Bank continues to be a well-capitalized Bank with strong earnings and operating standards. In addition to extending our gratitude to our employees for our many successes, we must also recognize our board of directors who lead with extraordinary insights and vision. Thank you for your guidance and strength, and for helping us make a difference.

Here is a recap of some of our more noteworthy achievements and announcements this year.

Many people rely on Peoples Bank. It's important to be where we are needed most, and to be easily accessible for our customers. To that end, we relocated our Cornelius office to Huntersville, North Carolina. The new full-service branch opened for business on May 3, 2022, at 9617 Holly Point Drive. This location allows us to extend service to more people and local businesses. Also, it provides a drive-thru service and an easily accessible ATM for customers.

Our customers-both consumer and business-rely on lending solutions to get ahead in life and in business. Loans have the power to turn challenges into opportunities, and are often necessary to start a business, buy a home, achieve a goal, or pursue a passion. It's a privilege to announce that our loan performance has been exceptional this year, particularly in our newer markets. Through our competitive loans and superior service, Peoples Bank has played a significant role in helping our communities flourish.

At Peoples Bank, we don't just offer financial services solutions, we also educate. We want our customers to make smart decisions when it comes to saving, spending, and managing their finances. It's important that our customers know we have the resources and knowledge to guide them to stronger financial wellness. Having made financial education a key focus, we launched our Financial Wellness Learning Center, which provides online financial education. Also, we provide resources to our community's teachers to use in the classroom.

In addition to the Bank, which operates as a wholly-owned subsidiary of the Company, we would like to remind you of our three subsidiary companies:

Peoples Investment Services, Inc., licensed financial advisors who provide access to investment products, which include stocks, bonds, mutual funds, annuities, and other suitable monetary investments through our affiliation with Raymond James Financial Services, Inc.

Real Estate Advisory Services, Inc., which provides real estate appraisals (both residential and commercial) to the Peoples Bank market area, thereby becoming a valued partner with respect to real estate lending.

Community Bank Real Estate Solutions, LLC, assists community banks across the country with appraisal management services.

We hope you will continue to recommend our Bank and subsidiary companies to members of your communities.

Sincerely,

Lance A. Sellers

President and Chief Executive Officer

Financial Highlights

Dollars in Thousands Except Per Share Amounts

2022

2021

Change

Interest income Interest expense Net interest earnings

$

54,431

47,179 15%

3,323

3,205 4%

51,108

43,974 16%

Provision for (recovery of) loan losses

1,472

(1,163) -227%

Net interest earnings after provision for loan losses Non-interest income

49,636

45,137 10%

26,689

24,919 7%

Non-interest expense Income taxes

56,030

51,127 10%

4,172

3,796 10%

Net earnings

$

16,123

15,133 7%

Per Share of Common Stock

Basic net earnings

$

2.94

2.71 8%

Diluted net earnings Cash dividends

2.85

2.63 8%

0.87

0.66 32%

Market price at December 31 Book value at December 31

32.56

27.59 18%

19.24

25.89 -26%

At Year-end

Loans, net

$

1,022,114

875,514 17%

Available for sale securities Assets

445,394

406,549 10%

1,620,927

1,624,193 0%

Deposits Shareholders' equity

1,435,215

1,412,748 2%

105,195

142,369 -26%

Key Performance Ratios

Return on average assets

0.97% 0.96%

Return on average shareholders' equity Dividend payout ratio

13.01% 10.24%

30.61% 24.83%

Average shareholders' equity to total average assets

7.45% 9.42%

Report of Independent Registered Public Accounting Firm

To the Shareholders and the Board of Directors of Peoples Bancorp of North Carolina, Inc.

We have audited, in accordance with the standards of the Public Company Accounting Oversight Board

(United States), the consolidated balance sheets of Peoples Bancorp of North Carolina, Inc. as of

Report of Independent Registered Public Accounting Firm

December 31, 2018 and 2017, and the related consolidated statements of earnings, comprehensive income, shareholders' equity and cash flows for each of the three years in the period ended December To the Shareholders and the Board of Directors of Peoples Bancorp of North Carolina, Inc.

31, 2018 (not presented herein); and in our report, dated March 14, 2019, we expressed an unqualifiedopinion on those consolidated financial statements.

We have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Peoples Bancorp of North Carolina, Inc. as of December 31, 2022

In our opinion, the information set forth in the accompanying condensed consolidated financial and 2021, and the related consolidated statements of earnings, comprehensive income (loss), changes in statements is fairly stated, in all material respects, in relation to the consolidated financial statements shareholders' equity and cash flows for each of the three years in the period ended December 31, 2022 (not from which it has been derived.

presented herein); and in our report, dated March 17, 2023, we expressed an unqualified opinion on those consolidated financial statements.

In our opinion, the information set forth in the accompanying condensed consolidated financial statements is fairly stated, in all material respects, in relation to the consolidated financial statements from which it has been dCehraivrleodt.te, North Carolina

March 14, 2019

Raleigh, North Carolina March 17, 2023

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Consolidated Balance Sheets

December 31, 2022 and December 31, 2021

(Dollars in thousands)

Assets

Cash and due from banks, including reserve requirements of $0 at both 12/31/22 and 12/31/21

Interest-bearing deposits

December 31,

December 31,

2022

2021

(Audited)

(Audited)

$

50,061 44,711

21,535 232,788

Cash and cash equivalents Investment securities available for sale Other investments

71,596 277,499

445,394 406,549

2,656 3,668

Total securities Mortgage loans held for sale Loans

448,050 410,217

211 3,637

1,032,608 884,869

Less allowance for loan losses

(10,494)

(9,355)

Net loans

1,022,114 875,514

Premises and equipment, net

Cash surrender value of life insurance Right of use lease asset

Accrued interest receivable and other assets Total assets

18,205 16,104

17,703 17,365

5,116 4,612

37,932 19,245

$

1,620,927

1,624,193

Liabilities and Shareholders' Equity

Deposits:

Noninterest-bearing demand Interest-bearing demand, MMDA & savings Time, $250,000 or more

$

523,088 514,319

814,128 797,179

31,001 26,333

Other time

66,998 74,917

Total deposits

Securities sold under agreements to repurchase Junior subordinated debentures

Lease liability

Accrued interest payable and other liabilities

1,435,215 1,412,748

47,688 37,094

15,464 15,464

5,185 4,677

12,180 11,841

Total liabilities

1,515,732

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 5,636,830 shares at December 31, 2022 and 5,661,569 shares at December 31, 2021

Common stock, held by deferred compensation trust, at cost: 169,004 shares at December 31, 2022 and 162,193 shares at December 31, 2021

Deferred compensation

Retained earnings

Accumulated other comprehensive income (loss)

-

-

52,636

53,305

(2,181) (1,992)

2,181 1,992

100,156 88,968

Total shareholders' equity

Total liabilities and shareholders' equity

$

1,620,927

(47,597) 105,195

96 142,369 1,624,193

See accompanying Notes to Consolidated Financial Statements.

See Appendix A to the Peoples Bancorp of North Carolina, Inc. Proxy Statement for a complete set of Consolidated Financial Statements.

Consolidated Statements of Earnings

For the Years Ended December 31, 2022, 2021 and 2020

(Dollars in thousands, except per share amounts)

Interest income:

Interest and fees on loans Interest on due from banks Interest on federal funds sold Interest on investment securities:

U.S. Government sponsored enterprises States and political subdivisions

2022

2021

2020

$

43,077 2,223 -

41,186 42,314

258 127

- 204

4,962 4,075 94 54,431

2,478 2,361

3,146 2,691

Other

111 261

Total interest income

47,179 47,958

Interest expense:

Demand deposits, MMDA & savings deposits Time deposits

FHLB borrowings

Junior subordinated debentures Other

2,019

2,029 1,962

562 -

752 947

- 357

529

280 370

213

144 200

Total interest expense

3,323

3,205 3,836

Net interest income

Provision for (recovery of) loan losses

51,108

43,974 44,122

1,472

(1,163) 4,259

Net interest income after provision for loan losses

49,636

45,137 39,863

Non-interest income:

Service charges

Other service charges and fees Gain on sale of securities Mortgage banking income

Insurance and brokerage commissions Appraisal management fee income

Gain (loss) on sale of premises and equipment

Gain (loss) on sales and write-downs of other real estate, net Miscellaneous

5,290

3,921 3,528

734 -

803 742

- 2,639

393

2,505 2,469

945

1,035 897

11,663

8,890 6,754

(85)

105

-

-

21 (47)

7,749

7,639 5,932

Total non-interest income

26,689

24,919 22,914

Non-interest expense:

Salaries and employee benefits Occupancy

Professional fees Advertising

Debit card expense FDIC insurance

Appraisal management fee expense Other

26,130

24,506 23,538

8,048

7,858 7,933

1,915

1,826 1,580

693

536 787

1,224

1,000 1,012

461

415 263

9,264

7,112 5,274

8,295

7,874 8,544

Total non-interest expense

56,030

51,127 48,931

Earnings before income taxes

Income tax expense

20,295

18,929 13,846

4,172

3,796 2,489

Net earnings

$ $ $ $

16,123 2.94 2.85 0.87

15,133 11,357

Basic net earnings per share Diluted net earnings per share Cash dividends declared per share

2.71 2.01

2.63 1.95

See accompanying Notes to Consolidated Financial Statements.

0.66

See Appendix A to the Peoples Bancorp of North Carolina, Inc. Proxy Statement for a complete set of Consolidated Financial Statements.

0.75