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What changed in PEOPLES BANCORP OF NORTH CAROLINA INC's 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of PEOPLES BANCORP OF NORTH CAROLINA INC's 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+108 added−119 removedSource: 10-K (2024-03-07) vs 10-K (2023-03-17)

Top changes in PEOPLES BANCORP OF NORTH CAROLINA INC's 2023 10-K

108 paragraphs added · 119 removed · 94 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

31 edited+6 added−5 removed125 unchanged
Biggest changeAt December 31, 2022, the Company also exceeded each of its minimum capital requirements with a Tier 1 leverage capital ratio of 9.82%, common equity Tier 1 risk-based capital ratio of 12.03%, Tier 1 risk-based capital ratio of 13.21% and total risk-based capital ratio of 14.04%.
Biggest changeAt December 31, 2023, the Company also exceeded each of its minimum capital requirements with a Tier 1 leverage capital ratio of 10.51%, common equity Tier 1 risk-based capital ratio of 12.75%, Tier 1 risk-based capital ratio of 13.94% and total risk-based capital ratio of 14.96%. 9 Table of Contents On July 2, 2013, the Federal Reserve approved a final rule that establishes an integrated regulatory capital framework that addresses shortcomings in certain capital requirements.
Management provides the Bank Board with the loan portfolio information as described below: Monthly: The following reports are submitted to the Bank Board for review and approval on a monthly basis: · Loan Quality/Yield/Growth/Trend Report · Risk Grade Report with Details of Loans Risk Graded 5-8 · Commercial Loan Delinquency · New Loans - $250,000 and Greater · Comparison on New Loans in Prior Month with Same Month in Prior Year · Outstanding Commitments - $250,000 and greater · Commitment Pipeline Report – Outstanding commitments of $2,000,000 and greater (pending final approval and/or acceptance by the applicant) · Underwriting Exception Report (Commercial, Consumer and Mortgage) · Documentation Exception Report (Commercial and Consumer – quarterly comparison with current month) · All New Loans for Prior Month – Details Quarterly: The following reports are submitted to the Bank Board for review and approval on a quarterly basis: · Real Estate Secured Loans with Non-Conforming Loan-To-Value Ratio · Status of Other Real Estate Owned · Nonaccrual · Impaired Loan Report · Letters of Credit Outstanding · Portfolio Status Report - Detailed analytical report summarizing the composition of the bank’s loan portfolio · Portfolio Stress Tests · Mortgage Report (see Mortgage Policy for complete list of reports) · Matured Home Equity Loan Report Semi-annually: The following report is submitted to the Bank Boards for review and approval on a semi-annual basis: · Participation Status Report Annually: On an annual basis, the Bank Board: · Reviews and approves the Bank’s credit underwriting policies and procedures · Reviews findings of the annual independent loan review of borrowing relationships of $1.5 million and greater as well as a periodic sample of commercial relationships with exposures below $1.5 million prepared by an independent loan review company engaged by the Bank · Receives information from management detailing all new committed borrowing relationships exceeding $3.0 million and is informed during the year if a borrowing relationship exceeds $2.5 million 6 Table of Contents Investment Policies and Procedures The Bank’s investment policy is designed to provide flexibility as necessary to maintain satisfactory liquidity while maximizing earnings on funds available for investment.
Management provides the Bank Board with the loan portfolio information as described below: Monthly: The following reports are submitted to the Bank Board for review and approval on a monthly basis: · Loan Quality/Yield/Growth/Trend Report · Risk Grade Report with Details of Loans Risk Graded 5-8 · Commercial Loan Delinquency · New Loans - $250,000 and Greater · Comparison on New Loans in Prior Month with Same Month in Prior Year · Outstanding Commitments - $500,000 and greater · Commitment Pipeline Report – Outstanding commitments of $2,000,000 and greater (pending final approval and/or acceptance by the applicant) · Underwriting Exception Report (Commercial, Consumer and Mortgage) · Documentation Exception Report (Commercial and Consumer – quarterly comparison with current month) · All New Loans for Prior Month – Details Quarterly: The following reports are submitted to the Bank Board for review and approval on a quarterly basis: · Real Estate Secured Loans with Non-Conforming Loan-To-Value Ratio · Status of Other Real Estate Owned · Nonaccrual · Impaired Loan Report · Letters of Credit Outstanding · Portfolio Status Report - Detailed analytical report summarizing the composition of the bank's loan portfolio · Portfolio Stress Tests · Mortgage Report (see Mortgage Policy for complete list of reports) · Matured Home Equity Loan Report Semi-annually: The following report is submitted to the Bank Board for review and approval on a semi-annual basis: · Participation Status Report Annually: On an annual basis, the Bank Board: · Reviews and approves the Bank’s credit underwriting policies and procedures · Reviews findings of the annual independent loan review of borrowing relationships of $1.5 million and greater as well as a periodic sample of commercial relationships with exposures below $1.5 million prepared by an independent loan review company engaged by the Bank · Receives information from management detailing all new committed borrowing relationships exceeding $3.0 million and is informed during the year if a borrowing relationship exceeds $2.5 million 6 Table of Contents Investment Policies and Procedures The Bank’s investment policy is designed to provide flexibility as necessary to maintain satisfactory liquidity while maximizing earnings on funds available for investment.
Pursuant to the Federal Deposit Insurance Corporation Improvement Act of 1991 (“FDICIA”) the federal bank regulatory agencies have prescribed, by regulation, standards and guidelines for all insured depository institutions and depository institution holding companies relating to: (i) internal controls, information systems and internal audit systems; (ii) loan documentation; (iii) credit underwriting; (iv) interest rate risk exposure; (v) asset growth; and (vi) compensation, fees and benefits.
Pursuant to the Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA") the federal bank regulatory agencies have prescribed, by regulation, standards and guidelines for all insured depository institutions and depository institution holding companies relating to: (i) internal controls, information systems and internal audit systems; (ii) loan documentation; (iii) credit underwriting; (iv) interest rate risk exposure; (v) asset growth; and (vi) compensation, fees and benefits.
The Company has no operations and conducts no business of its own other than owning the Bank and PEBK Capital Trust II. Accordingly, the discussion of the business which follows primarily concerns the business conducted by the Bank. Our principal executive offices are located at 518 West C Street, Newtown, North Carolina, 28658, and our telephone number is (828) 464-5620.
The Company has no operations and conducts no business of its own other than owning the Bank and PEBK Capital Trust II. Accordingly, the discussion of the business which follows primarily concerns the business conducted by the Bank. Our principal executive offices are located at 518 West C Street, Newton, North Carolina, 28658, and our telephone number is (828) 464-5620.
On December 31, 2022, the Bank was in compliance with this requirement. Community Reinvestment. Under the Community Reinvestment Act (“CRA”), as implemented by regulations of the FDIC, an insured institution has a continuing and affirmative obligation consistent with its safe and sound operation to help meet the credit needs of its entire community, including low and moderate income neighborhoods.
On December 31, 2023, the Bank was in compliance with this requirement. Community Reinvestment. Under the Community Reinvestment Act (“CRA”), as implemented by regulations of the FDIC, an insured institution has a continuing and affirmative obligation consistent with its safe and sound operation to help meet the credit needs of its entire community, including low and moderate income neighborhoods.
The Sarbanes-Oxley Act of 2002 (“SOX”) implements a broad range of corporate governance and accounting measures for public companies (including publicly-held bank holding companies such as the Company) designed to promote honesty and transparency in corporate America and better protect investors from the types of corporate wrongdoings that occurred at Enron and WorldCom, among other companies.
The Sarbanes-Oxley Act of 2002 ("SOX") implements a broad range of corporate governance and accounting measures for public companies (including publicly-held bank holding companies such as the Company) designed to promote honesty and transparency in corporate America and better protect investors from the types of corporate wrongdoings that occurred at Enron and WorldCom, among other companies.
Additional discussion of the Bank’s loan portfolio and sources of funds for loans can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” on pages A-4 through A-26 of the Annual Report, which is included in this Form 10-K as Exhibit (13).
Additional discussion of the Bank’s loan portfolio and sources of funds for loans can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” on pages A-4 through A-19 of the Annual Report, which is included in this Form 10-K as Exhibit (13).
The USA PATRIOT Act of 2001 (the “USA Patriot Act”“), substantially broadened the scope of United States anti-money laundering laws and regulations by imposing significant new compliance and due diligence obligations on financial institutions, creating new crimes and penalties and expanding the extra-territorial jurisdiction of the United States.
The USA PATRIOT Act of 2001 (the "USA Patriot Act""), substantially broadened the scope of United States anti-money laundering laws and regulations by imposing significant new compliance and due diligence obligations on financial institutions, creating new crimes and penalties and expanding the extra-territorial jurisdiction of the United States.
In addition, the SEC and Nasdaq have adopted regulations under the Sarbanes-Oxley Act of 2002 and the Dodd Frank Act that apply to the Company as a Nasdaq-traded, public company, which seek to improve corporate governance, provide enhanced penalties for financial reporting improprieties and improve the reliability of disclosures in SEC filings. Transactions with Affiliates.
In addition, the SEC and Nasdaq have adopted regulations under the Sarbanes-Oxley Act of 2002 and the Dodd Frank Act that apply to the Company as a Nasdaq-traded, public company, which seek to improve corporate governance, provide enhanced penalties for financial reporting improprieties and improve the reliability of disclosures in SEC filings. 11 Table of Contents Transactions with Affiliates.
The compensation standards prohibit employment contracts, compensation or benefit arrangements, stock option plans, fee arrangements or other compensatory arrangements that would provide “excessive” compensation, fees or benefits, or that could lead to material financial loss.
The compensation standards prohibit employment contracts, compensation or benefit arrangements, stock option plans, fee arrangements or other compensatory arrangements that would provide "excessive" compensation, fees or benefits, or that could lead to material financial loss.
At December 31, 2022, the Bank had four subsidiaries, Peoples Investment Services, Inc., Real Estate Advisory Services, Inc., Community Bank Real Estate Solutions, LLC (“CBRES”) and PB Real Estate Holdings, LLC.
At December 31, 2023, the Bank had four subsidiaries, Peoples Investment Services, Inc., Real Estate Advisory Services, Inc., Community Bank Real Estate Solutions, LLC (“CBRES”) and PB Real Estate Holdings, LLC.
Control is deemed to exist if, among other things, a person acquires 25% or more of any class of voting stock of the Company or controls in any manner the election of a majority of the directors of the Company. 11 Table of Contents Federal Securities Law .
Control is deemed to exist if, among other things, a person acquires 25% or more of any class of voting stock of the Company or controls in any manner the election of a majority of the directors of the Company. Federal Securities Law .
The Company cannot predict whether or in what form any proposed statute, rule or regulation will be adopted or the extent to which the business of the Company and the Bank may be affected by such statute or regulation. General .
The Company cannot predict whether or in what form any proposed statute, rule or regulation will be adopted or the extent to which the business of the Company and the Bank may be affected by such statute or regulation. 8 Table of Contents General .
The underwriting standards and loan origination procedures include officer lending limits, which are approved by the Bank Board. The President/Chief Executive Officer of the Bank has loan authority of up to the legal lending limit of the Bank. As of December 21, 2022, the individual lending authority of the Chief Credit Officer/Executive Vice President was set at $6.5 million.
The underwriting standards and loan origination procedures include officer lending limits, which are approved by the Bank Board. The President/Chief Executive Officer of the Bank has loan authority of up to the legal lending limit of the Bank. As of December 31, 2023, the individual lending authority of the Chief Credit Officer/Executive Vice President was set at $6.5 million.
It is difficult at this time to predict when or how any new standards under the Economic Growth Act will ultimately be applied to, or what specific impact the Economic Growth Act and the yet-to-be-written implementing rules and regulations will have on us. 9 Table of Contents Capital Adequacy .
It is difficult at this time to predict when or how any new standards under the Economic Growth Act will ultimately be applied to, or what specific impact the Economic Growth Act and the yet-to-be-written implementing rules and regulations will have on us. Capital Adequacy .
For this protection, each insured bank pays a quarterly statutory assessment and is subject to the rules and regulations of the FDIC. We recognized approximately $461,000, $415,000 and $263,000 in FDIC insurance expense in 2022, 2021, and 2020, respectively.
For this protection, each insured bank pays a quarterly statutory assessment and is subject to the rules and regulations of the FDIC. We recognized approximately $745,000, $461,000 and $415,000 in FDIC insurance expense in 2023, 2022, and 2021, respectively.
All institutions are required to make public disclosure of their CRA performance ratings. The Bank received a “satisfactory” rating in its last CRA examination, which was conducted in January 2020. Changes in Control.
All institutions are required to make public disclosure of their CRA performance ratings. The Bank received a “satisfactory” rating in its last CRA examination, which was conducted in May 2023. Changes in Control.
Under these limits, no loans and extensions of credit to any borrower outstanding at one time and not fully secured by readily marketable collateral may exceed 15% of the Bank’s total equity capital. At December 31, 2022, this limit was $26.5 million.
Under these limits, no loans and extensions of credit to any borrower outstanding at one time and not fully secured by readily marketable collateral may exceed 15% of the Bank’s total equity capital. At December 31, 2023, this limit was $28.0 million.
This limit is increased by an additional 10% of the Bank’s total equity capital, or $44.2 million as of December 31, 2022, for loans and extensions of credit that are fully secured by readily marketable collateral. Anti-Money Laundering and the USA Patriot Act.
This limit is increased by an additional 10% of the Bank’s total equity capital, or $46.7 million as of December 31, 2023, for loans and extensions of credit that are fully secured by readily marketable collateral. Anti-Money Laundering and the USA Patriot Act.
The Executive Vice President/Chief Financial Officer serves as the Primary Investment Officer. 7 Table of Contents Human Capital Management At December 31, 2022, the Company employed 279 full-time employees and 21 part-time employees, which equated to 291 full-time equivalent employees. We are not a party to any collective bargaining agreements, and we consider our employee relations to be good.
The Executive Vice President/Chief Financial Officer serves as the Primary Investment Officer. 7 Table of Contents Human Capital Management At December 31, 2023, the Company employed 277 full-time employees and 15 part-time employees, which equated to 285 full-time equivalent employees. We are not a party to any collective bargaining agreements, and we consider our employee relations to be good.
The Bank also operates loan production offices in Charlotte, Denver, Salisbury and Winston-Salem North Carolina. The Company’s fiscal year ends December 31. At December 31, 2022, the Company had total assets of $1.6 billion, net loans of $1.0 billion, deposits of $1.4 billion, total securities of $448.1 million, and shareholders’ equity of $105.2 million.
The Bank also operates loan production offices in Charlotte, Denver, Salisbury and Winston-Salem North Carolina. The Company’s fiscal year ends December 31. At December 31, 2023, the Company had total assets of $1.6 billion, net loans of $1.1 billion, deposits of $1.4 billion, total securities of $394.8 million, and shareholders’ equity of $121.0 million.
This standard, referred to as Current Expected Credit Loss (or “CECL”), requires FDIC-insured institutions and their holding companies (banking organizations) to recognize credit losses expected over the life of certain financial assets.
This standard, referred to as Current Expected Credit Loss (or “CECL”), requires FDIC-insured institutions and their holding companies (banking organizations) to recognize credit losses expected over the life of certain financial assets.The Company adopted CECL as of January 1, 2023.
The Bank’s legal lending limit is set by law and is monitored by the FDIC and the Commissioner. As of December 31, 2022, the Bank’s legal lending limit was $26.5 million (absent fully marketable collateral), and the largest credit relationship was $19.7 million.
The Bank’s legal lending limit is set by law and is monitored by the FDIC and the Commissioner. As of December 31, 2023, the Bank’s legal lending limit was $28.0 million (absent fully marketable collateral), and the largest credit relationship was $19.1 million.
At December 31, 2022, the Bank exceeded each of its minimum capital requirements with a Tier 1 leverage capital ratio of 9.68%, common equity Tier 1 risk-based capital ratio of 13.10%, Tier 1 risk-based capital ratio of 13.10% and total risk-based capital ratio of 13.93%.
At December 31, 2023, the Bank exceeded each of its minimum capital requirements with a Tier 1 leverage capital ratio of 10.35%, common equity Tier 1 risk-based capital ratio of 13.83%, Tier 1 risk-based capital ratio of 13.83% and total risk-based capital ratio of 14.85%.
At December 31, 2022, the Company employed 279 full-time employees and 21 part-time employees, which equated to 291 full-time equivalent employees. Subsidiaries The Bank is a subsidiary of the Company.
At December 31, 2023, the Company employed 277 full-time employees and 15 part-time employees, which equated to 285 full-time equivalent employees. Subsidiaries The Bank is a subsidiary of the Company.
Based upon June 30, 2022 comparative data, the Bank had 20.73% of the deposits in Catawba County, placing it second in deposit size among a total of 11 banks with branch offices in Catawba County; 18.98% of the deposits in Lincoln County, placing it second in deposit size among a total of nine banks with branch offices in Lincoln County; and 17.57% of the deposits in Alexander County, placing it fourth in deposit size among a total of five banks with branch offices in Alexander County.
Based upon June 30, 2023 comparative data, the Bank had 20.01% of the deposits in Catawba County, placing it second in deposit size among a total of 12 banks with branch offices in Catawba County; 16.09% of the deposits in Lincoln County, placing it second in deposit size among a total of nine banks with branch offices in Lincoln County; and 16.57% of the deposits in Alexander County, placing it fourth in deposit size among a total of four banks with branch offices in Alexander County.
On July 2, 2013, the Federal Reserve approved a final rule that establishes an integrated regulatory capital framework that addresses shortcomings in certain capital requirements. The rule, which became effective on January 1, 2015, implements in the United States the Basel III regulatory capital reforms from the Basel Committee on Banking Supervision and certain changes required by the Dodd-Frank Act.
The rule, which became effective on January 1, 2015, implements in the United States the Basel III regulatory capital reforms from the Basel Committee on Banking Supervision and certain changes required by the Dodd-Frank Act.
We dedicate resources to fostering professional and personal growth with continuing education, on-the-job training and development programs. 8 Table of Contents Supervision and Regulation Bank holding companies and commercial banks are extensively regulated under both federal and state law.
We dedicate resources to fostering professional and personal growth with continuing education, on-the-job training and development programs. Supervision and Regulation Bank holding companies and commercial banks are extensively regulated under both federal and state law. The following is a brief summary of certain statutes and rules and regulations that affect or will affect the Company, the Bank and their subsidiaries.
PB Real Estate Holdings, LLC acquires, manages and disposes of real property, other collateral and assets obtained in the ordinary course of collecting debts previously contracted. In 2019, the Company launched PB Insurance Agency, which operated as a division of CBRES, until it was discontinued in 2022.
PB Real Estate Holdings, LLC acquires, manages and disposes of real property, other collateral and assets obtained in the ordinary course of collecting debts previously contracted.
Risk Factors for a further discussion of risks related to CECL. Financial Privacy and Cybersecurity. The federal banking regulators have adopted rules that limit the ability of banks and other financial institutions to disclose non-public information about consumers to non-affiliated third parties.
To the extent actual outcomes differ from management estimates, additional provision for credit losses could be required that could adversely affect our earnings or financial position in future periods. Financial Privacy and Cybersecurity. The federal banking regulators have adopted rules that limit the ability of banks and other financial institutions to disclose non-public information about consumers to non-affiliated third parties.
The Company redeemed $5.0 million of outstanding trust preferred securities in 2019. The trust preferred securities issued by PEBK Trust II accrue and pay quarterly dividends at a floating rate of three-month LIBOR plus 163 basis points. The Company has guaranteed payment of these dividends and other payments due on the trust preferred securities.
The Company redeemed $5.0 million of outstanding trust preferred securities in 2019. Prior to September 15, 2023, the trust preferred securities accrued and paid interest quarterly at a floating rate of three-month LIBOR plus 163 basis points. The three-month USD LIBOR rate ceased to be published after June 30, 2023.
Removed
The following is a brief summary of certain statutes and rules and regulations that affect or will affect the Company, the Bank and their subsidiaries.
Added
Effective September 15, 2023, the trust preferred securities accrue and pay interest quarterly at a floating rate of three-month Secured Overnight Financing Rate (SOFR) plus 189 basis points, including a 26 basis point credit spread adjustment.
Removed
In November 2018, the FDIC announced that the Deposit Insurance Fund (“DIF”) reserve ratio exceeded the statutory minimum of 1.35% as of September 30, 2018. Among other things, this resulted in the FDIC awarding assessment credits for banks with less than $10 billion in total assets that had contributed to the DIF in prior years.
Added
The increase in 2023 is primarily due to the FDIC insurance assessment rate changing from 0.03% to 0.05% effective January 1, 2023. The FDIC may conduct examinations of and require reporting by FDIC-insured institutions.
Removed
We were notified in January 2019 that we had received approximately $272,000 in credits that would be available to offset deposit insurance assessments once the DIF reached 1.38%. The DIF reached 1.38% as of June 30, 2019 and therefore, the FDIC began to apply the Bank’s credits to our quarterly deposit insurance assessments beginning with the second quarter of 2019.
Added
Since the adoption of CECL, the allowance for credit losses represents management’s estimate of credit losses for the remaining estimated life of the Bank’s financial assets, including loan receivables and some off-balance sheet credit exposures.
Removed
The Bank’s credits were fully utilized in the first quarter of 2020. The FDIC may conduct examinations of and require reporting by FDIC-insured institutions.
Added
Estimating the amount of the allowance for credit losses requires significant judgment and the use of estimates related to historical experience, current conditions, reasonable and supportable forecasts, and the value of collateral on collateral-dependent loans. The loan portfolio also represents the largest asset type on our consolidated balance sheet.
Removed
The CECL framework is expected to result in earlier recognition of credit losses and is expected to be significantly influenced by the composition, characteristics and quality of the Company’s loan portfolio, as well as the prevailing economic conditions and forecasts. The Company adopted CECL as of January 1, 2023. See Item 1A.
Added
Loan losses are charged against the allowance, while recoveries of amounts previously charged off are credited to the allowance. A provision for credit losses is charged to operations based on management’s periodic evaluation of the factors previously mentioned, as well as other pertinent factors.
Added
There are many factors affecting the allowance for credit losses; some are quantitative while others require qualitative judgment. Although management believes its process for determining the allowance adequately considers all the potential factors that could potentially result in credit losses, the process includes subjective elements and is susceptible to significant change.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

50 edited+5 added−19 removed104 unchanged
Biggest changeWe could be materially and adversely affected if employees, clients, counterparties or other third parties caused an operational breakdown or failure, either as a result of human error, fraudulent manipulation or purposeful damage to any of our operations or systems.
Biggest changeWe could be materially and adversely affected if employees, clients, counterparties or other third parties caused an operational breakdown or failure, either as a result of human error, fraudulent manipulation or purposeful damage to any of our operations or systems. 23 Table of Contents In deciding whether to extend credit or to enter into other transactions with clients and counterparties, we may rely on information furnished to us by or on behalf of clients and counterparties, including financial statements and other financial information, which we do not independently verify.
Management maintains an allowance for loan losses based upon, among other things, historical experience, an evaluation of economic conditions and regular reviews of delinquencies and loan portfolio quality. Management believes it has established the allowance in accordance with U.S. Generally Accepted Accounting Principles (“GAAP”) and in consideration of the current economic environment.
Management maintains an allowance for credit losses based upon, among other things, historical experience, an evaluation of economic conditions and regular reviews of delinquencies and loan portfolio quality. Management believes it has established the allowance in accordance with U.S. Generally Accepted Accounting Principles (“GAAP”) and in consideration of the current economic environment.
In assessing the impairment of investment securities, management considers the length of time and extent to which the fair value has been less than cost, the financial condition and near-term prospects of the issues, and the intent and ability of the Company to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery of fair value in the near term.
In assessing the impairment of investment securities, management considers the extent to which the fair value has been less than cost, the financial condition and near-term prospects of the issues, and the intent and ability of the Company to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery of fair value in the near term.
Although we believe that our underwriting criteria are appropriate for the various kinds of loans we make, we may incur losses on loans that meet our underwriting criteria, and these losses may exceed the amounts set aside as reserves in our allowance for loan losses. Our loan portfolio includes loans with a higher risk of loss.
Although we believe that our underwriting criteria are appropriate for the various kinds of loans we make, we may incur losses on loans that meet our underwriting criteria, and these losses may exceed the amounts set aside as reserves in our allowance for credit losses. Our loan portfolio includes loans with a higher risk of loss.
When market rates of interest change, and in particular during periods of rapid rate movements as experienced in 2022, the interest the Bank receives on its assets and the interest the Bank pays on its liabilities will fluctuate. This can cause decreases in the “spread” and can adversely affect the Bank’s income.
When market rates of interest change, and in particular during periods of rapid rate movements as experienced in 2022 and 2023, the interest the Bank receives on its assets and the interest the Bank pays on its liabilities will fluctuate. This can cause decreases in the “spread” and can adversely affect the Bank’s income.
Recessionary conditions and/or continued negative developments in the domestic and international credit markets may significantly affect the markets in which we do business, the value of our loans and investments, and our ongoing operations, costs and profitability.
Recessionary conditions and/or negative developments in the domestic and international credit markets may significantly affect the markets in which we do business, the value of our loans and investments, and our ongoing operations, costs and profitability.
If management’s assumptions and judgments prove to be incorrect and the allowance for loan losses is inadequate to absorb future losses, or if the bank regulatory authorities require the Bank to increase the allowance for loan losses as a part of their examination process, the Bank’s earnings and capital could be significantly and adversely affected.
If management’s assumptions and judgments prove to be incorrect and the allowance for credit losses is inadequate to absorb future losses, or if the bank regulatory authorities require the Bank to increase the allowance for credit losses as a part of their examination process, the Bank’s earnings and capital could be significantly and adversely affected.
Increases in interest rates and/or weakening economic conditions could adversely impact the ability of borrowers to repay outstanding loans and the value of the collateral securing these loans. We seek to mitigate the risks inherent in our loan portfolio by adhering to specific underwriting practices.
Increases in interest rates and/or negative economic conditions could adversely impact the ability of borrowers to repay outstanding loans and the value of the collateral securing these loans. We seek to mitigate the risks inherent in our loan portfolio by adhering to specific underwriting practices.
Finally, if our estimate for the recorded allowance for loan losses proves to be incorrect and our allowance is inadequate, we will have to increase the allowance accordingly. Changes in interest rates affect profitability and assets. Changes in prevailing interest rates may hurt the Bank’s business.
Finally, if our estimate for the recorded allowance for credit losses proves to be incorrect and our allowance is inadequate, we will have to increase the allowance accordingly. Changes in interest rates affect profitability and assets. Changes in prevailing interest rates may hurt the Bank’s business.
Inflation risk is the risk that the value of assets or income from investments will be worth less in the future as inflation decreases the value of money. Recently, there has been a pronounced rise in inflation and the Federal Reserve has raised certain benchmark interest rates in an effort to combat this trend.
Inflation risk is the risk that the value of assets or income from investments will be worth less in the future as inflation decreases the value of money. In recent years, there has been a pronounced rise in inflation and the Federal Reserve has raised certain benchmark interest rates in an effort to combat this trend.
Declining home sales volumes, decreased real estate values and higher than normal levels of unemployment could contribute to losses on these loans. 16 Table of Contents A significant amount of the Bank’s business is concentrated in lending which is secured by property located in the Catawba Valley and surrounding areas.
Declining home sales volumes, decreased real estate values and higher than normal levels of unemployment could contribute to losses on these loans. A significant amount of the Bank’s business is concentrated in lending which is secured by property located in the Catawba Valley and surrounding areas.
This risk also includes potential legal actions that could arise as a result of an operational deficiency or as a result of noncompliance with applicable regulatory standards. 19 Table of Contents We establish and maintain systems of internal operational controls that provide us with timely and accurate information about our level of operational risk.
This risk also includes potential legal actions that could arise as a result of an operational deficiency or as a result of noncompliance with applicable regulatory standards. We establish and maintain systems of internal operational controls that provide us with timely and accurate information about our level of operational risk.
Failure to perform in any of these areas could significantly weaken our competitive position, which could adversely affect our growth and profitability, which, in turn, could have a material adverse effect on our financial condition and results of operations. Failure to keep pace with technological change could adversely affect our business.
Failure to perform in any of these areas could significantly weaken our competitive position, which could adversely affect our growth and profitability, which, in turn, could have a material adverse effect on our financial condition and results of operations. 21 Table of Contents Failure to keep pace with technological change could adversely affect our business.
In addition, unfavorable global economic conditions, including the effects of the COVID-19 pandemic discussed above, have had a negative impact on financial markets and could adversely impact our customers, which in turn could lead to lower business activity and higher loan delinquencies.
In addition, unfavorable global economic conditions, including the lingering effects of the COVID-19 pandemic, have had a negative impact on financial markets and could adversely impact our customers, which in turn could lead to lower business activity and higher loan delinquencies.
Any future increases or required prepayments of FDIC insurance premiums may adversely impact the Company’s earnings and financial condition. 18 Table of Contents Cybersecurity incidents could disrupt business operations, result in the loss of critical and confidential information, and adversely impact our reputation and results of operations.
Any future increases or required prepayments of FDIC insurance premiums may adversely impact the Company’s earnings and financial condition. Cybersecurity incidents could disrupt business operations, result in the loss of critical and confidential information, and adversely impact our reputation and results of operations.
The challenges made by taxing authorities may result in adjustments to the timing or amount of taxable income or deductions or the allocation of income among tax jurisdictions. If any such challenges are made and are not resolved in our favor, they could have an adverse effect on our financial condition and results of operations. As discussed in Item 3.
The challenges made by taxing authorities may result in adjustments to the timing or amount of taxable income or deductions or the allocation of income among tax jurisdictions. If any such challenges are made and are not resolved in our favor, they could have an adverse effect on our financial condition and results of operations.
The Bank has benefited from consistency within its senior management team, with two of its top three executives averaging 26 years of service with the Bank.
The Bank has benefited from consistency within its senior management team, with two of its top three executives averaging 27 years of service with the Bank.
We could be required to apply a new or revised standard retroactively, resulting in our restating prior period financial statements in material amounts. Our internal controls may be ineffective. Management regularly reviews and updates our internal controls, disclosure controls and procedures, and corporate governance policies and procedures.
We could be required to apply a new or revised standard retroactively, resulting in our restating prior period financial statements in material amounts. 22 Table of Contents Our internal controls may be ineffective. Management regularly reviews and updates our internal controls, disclosure controls and procedures, and corporate governance policies and procedures.
In the past, our business has been materially affected by these regulations. This trend is likely to continue in the future. Regulatory authorities have extensive discretion in their supervisory and enforcement activities, including the imposition of restrictions on operations, the classification of our assets and the determination of the level of allowance for loan losses.
In the past, our business has been materially affected by these regulations. This trend is likely to continue in the future. 19 Table of Contents Regulatory authorities have extensive discretion in their supervisory and enforcement activities, including the imposition of restrictions on operations, the classification of our assets and the determination of the level of allowance for credit losses.
Technology and other changes are allowing parties to complete financial transactions through alternative methods that historically have involved banks. For example, consumers can now maintain funds that would have historically been held as bank deposits in brokerage accounts, mutual funds or general-purpose reloadable prepaid cards.
Consumers may decide not to use banks to complete their financial transactions. Technology and other changes are allowing parties to complete financial transactions through alternative methods that historically have involved banks. For example, consumers can now maintain funds that would have historically been held as bank deposits in brokerage accounts, mutual funds or general-purpose reloadable prepaid cards.
If the Bank is unsuccessful in managing the effects of changes in interest rates, the financial condition and results of operations could suffer. A small number of large deposit relationships provide a significant level of funding for the Bank. The Bank’s five largest deposit relationships, including securities sold under agreements to repurchase, amounted to $117.0 million at December 31, 2022.
If the Bank is unsuccessful in managing the effects of changes in interest rates, the financial condition and results of operations could suffer. A small number of large deposit relationships provide a significant level of funding for the Bank. The Bank’s five largest deposit relationships, including securities sold under agreements to repurchase, amounted to $134.5 million at December 31, 2023.
Provisions of our articles of incorporation and bylaws, and federal banking laws, including regulatory approval requirements, could make it more difficult for a third party to acquire us, even if doing so would be perceived to be beneficial to our shareholders.
Our articles of incorporation and bylaws, and certain banking laws may have an anti-takeover effect. Provisions of our articles of incorporation and bylaws, and federal banking laws, including regulatory approval requirements, could make it more difficult for a third party to acquire us, even if doing so would be perceived to be beneficial to our shareholders.
A successful challenge to our performance under the fair lending laws and regulations could adversely impact our CRA rating and result in a wide variety of sanctions, including the required payment of damages and civil money penalties, injunctive relief, imposition of restrictions on or delays in approving merger and acquisition activity and restrictions on expansion activity, which could negatively impact our reputation, business, financial condition and results of operations. 20 Table of Contents Consumers may decide not to use banks to complete their financial transactions.
A successful challenge to our performance under the fair lending laws and regulations could adversely impact our CRA rating and result in a wide variety of sanctions, including the required payment of damages and civil money penalties, injunctive relief, imposition of restrictions on or delays in approving merger and acquisition activity and restrictions on expansion activity, which could negatively impact our reputation, business, financial condition and results of operations.
Our ability to borrow could also be impaired by factors that are not specific to us, such as a disruption in the financial markets or negative views and expectations about the prospects for the financial services industry in light of the recent turmoil faced by banking organizations or deterioration in credit markets. 21 Table of Contents Risks related to decline in value of investment securities portfolio.
Our ability to borrow could also be impaired by factors that are not specific to us, such as a disruption in the financial markets or negative views and expectations about the prospects for the financial services industry in light of the recent turmoil faced by banking organizations or deterioration in credit markets.
For further discussion related to our process for determining the appropriate level of the allowance for loan losses, see “Allowance for Loan Losses” within “Item 7. Management’s Discussion and Analysis of Financial Condition and Results and Operation” of the Annual Report, which is included in this Form 10-K as Exhibit (13).
For further discussion related to our process for determining the appropriate level of the allowance for credit losses, see “Allowance for Credit Losses” within “Item 7. Management’s Discussion and Analysis of Financial Condition and Results and Operation” of the Annual Report, which is included in this Form 10-K as Exhibit (13). If our non-performing assets increase, our earnings will suffer.
While we have disaster recovery and other policies and procedures designed to prevent or limit the effect of any failure, interruption or security breach of our information systems, there can be no assurance that any such failures, interruptions, or security breaches will not occur or, if they do occur, that they will be adequately addressed.
This could materially affect our business operations and financial condition. 18 Table of Contents While we have disaster recovery and other policies and procedures designed to prevent or limit the effect of any failure, interruption or security breach of our information systems, there can be no assurance that any such failures, interruptions, or security breaches will not occur or, if they do occur, that they will be adequately addressed.
Furthermore, as a bank holding company, our ability to pay dividends is subject to the guidelines of the Federal Reserve regarding capital adequacy and dividends before declaring or paying any dividends. Dividends also may be limited as a result of safety and soundness considerations.
Furthermore, as a bank holding company, our ability to pay dividends is subject to the guidelines of the Federal Reserve regarding capital adequacy and dividends before declaring or paying any dividends.
Our allowance for loan losses may be insufficient and could therefore reduce earnings. The risk of credit losses on loans varies with, among other things, general economic conditions, the creditworthiness of the borrower over the term of the loan and, in the case of a collateralized loan, the value and marketability of the collateral for the loan.
The risk of credit losses on loans varies with, among other things, general economic conditions, the creditworthiness of the borrower over the term of the loan and, in the case of a collateralized loan, the value and marketability of the collateral for the loan.
Our financial condition and results of operations could be negatively affected to the extent we rely on financial statements that do not comply with GAAP or are materially misleading, any of which could be caused by errors, omissions, or fraudulent behavior by our employees, clients, counterparties, or other third parties. 24 Table of Contents Our articles of incorporation and bylaws, and certain banking laws may have an anti-takeover effect.
Our financial condition and results of operations could be negatively affected to the extent we rely on financial statements that do not comply with GAAP or are materially misleading, any of which could be caused by errors, omissions, or fraudulent behavior by our employees, clients, counterparties, or other third parties.
These balances represent 7.89% of total deposits and securities sold under agreements to repurchase combined at December 31, 2022. Total deposits for the five largest relationships referenced above amounted to $85.7 million, or 5.97% of total deposits at December 31, 2022.
These balances represent 9.10% of total deposits and securities sold under agreements to repurchase combined at December 31, 2023. Total deposits for the five largest relationships referenced above amounted to $108.4 million, or 7.79% of total deposits at December 31, 2023.
We can make no assurance that any such losses would not materially and adversely affect our business, financial condition or results of operations. Liquidity risk could impair our ability to fund operations and jeopardize our financial condition. Liquidity is essential to our business. We rely on a number of different sources in order to meet our potential liquidity demands.
We can make no assurance that any such losses would not materially and adversely affect our business, financial condition or results of operations. 20 Table of Contents Liquidity risk could impair our ability to fund operations and jeopardize our financial condition. Liquidity is essential to our business.
Total securities sold under agreements to repurchase for the five largest relationships referenced above amounted to $31.4 million, or 65.76% of total securities sold under agreements to repurchase at December 31, 2022.
Total securities sold under agreements to repurchase for the five largest relationships referenced above amounted to $26.2 million, or 30.17% of total securities sold under agreements to repurchase at December 31, 2023.
At December 31, 2022, unrealized losses in our available for sale investment securities portfolio totaled $62.3 million. These unrealized losses arose due to changing interest rates and are considered to be temporary; however, in the event that we sell these securities while they are in an unrealized loss position, we will recognize a corresponding loss.
These unrealized losses arose due to changing interest rates and are considered to be temporary; however, in the event that we sell these securities while they are in an unrealized loss position, we will recognize a corresponding loss.
We may need additional access to capital, which we may be unable to obtain on attractive terms or at all. We may need to incur additional debt or equity financing in the future to make strategic acquisitions or investments, for future growth or to fund losses or additional provision for loan losses in the future.
We may need to incur additional debt or equity financing in the future to make strategic acquisitions or investments, for future growth or to fund losses or additional provision for loan losses in the future.
Our business is subject to periodic fluctuations based on national, regional and local economic conditions. These fluctuations are not predictable, cannot be controlled, and may have a material adverse impact on our operations and financial condition. Our banking operations are primarily locally oriented and community-based. Our retail and commercial banking activities are primarily concentrated within the same geographic footprint.
These fluctuations are not predictable, cannot be controlled, and may have a material adverse impact on our operations and financial condition. Our banking operations are primarily locally oriented and community-based. Our retail and commercial banking activities are primarily concentrated within the same geographic footprint. Our market is primarily based in the Catawba Valley region of North Carolina and surrounding communities.
Replacing these third-party vendors could also entail significant delay and expense. 22 Table of Contents Negative publicity could damage our reputation. Reputation risk, or the risk to our earnings and capital from negative public opinion, is inherent in our business.
Replacing these third-party vendors could also entail significant delay and expense. Negative publicity could damage our reputation. Reputation risk, or the risk to our earnings and capital from negative public opinion, is inherent in our business. Negative public opinion could adversely affect our ability to keep and attract customers and expose us to adverse legal and regulatory consequences.
While economic growth and business activity has been generally favorable in our market area in recent years, there can be no assurance that economic conditions will recover to pre-pandemic levels, and these conditions could worsen.
Unfavorable changes in unemployment, real estate values, interest rates, inflation and other factors could weaken the economies of the communities we serve. While economic growth and business activity has been generally favorable in our market area in recent years, there can be no assurance that economic conditions will recover to pre-pandemic levels, and these conditions could worsen.
Consequently, a decline in local economic conditions may have a greater effect on the Bank’s earnings and capital than on the earnings and capital of larger financial institutions whose real estate loan portfolios are more geographically diverse.
Consequently, a decline in local economic conditions may have a greater effect on the Bank’s earnings and capital than on the earnings and capital of larger financial institutions whose real estate loan portfolios are more geographically diverse. 16 Table of Contents Our use of appraisals in deciding whether to make a loan on or secured by real property does not ensure the value of the real property collateral.
We do not record interest income on non-accrual loans or real estate owned.
Our non-performing assets adversely affect our net income in various ways. We do not record interest income on non-accrual loans or real estate owned.
Any failure or circumvention of our controls and procedures or failure to comply with regulations related to controls and procedures could have a material adverse effect on our business, results of operations, and financial condition. 23 Table of Contents Impairment of investment securities or deferred tax assets could require charges to earnings, which could result in a negative impact on our results of operations.
Any failure or circumvention of our controls and procedures or failure to comply with regulations related to controls and procedures could have a material adverse effect on our business, results of operations, and financial condition.
We may not be able to retain or grow our deposit base, which could adversely impact our funding costs. Like many financial institutions, the Bank relies on customer deposits as its primary source of funding for its lending activities, and the Bank continues to seek customer deposits to maintain this funding base.
Like many financial institutions, the Bank relies on customer deposits as its primary source of funding for its lending activities, and the Bank continues to seek customer deposits to maintain this funding base. The Bank’s future growth will largely depend on its ability to retain and grow its deposit base.
Our customers may also be affected by inflation and the rising costs of goods and services used in their households and businesses, which could have a negative impact on their ability to repay their loans with us.
Our customers may also be affected by inflation and the rising costs of goods and services used in their households and businesses, which could have a negative impact on their ability to repay their loans with us. 15 Table of Contents Recessionary conditions could result in increases in our level of nonperforming loans and/or reduce demand for our products and services, which would lead to lower revenue, higher loan losses and lower earnings.
Our primary sources of liquidity are increases in deposit accounts, cash flows from loan payments and our securities portfolio. Borrowings also provide us with a source of funds to meet liquidity demands. An inability to raise funds through deposits, borrowings, the sale of loans and other sources could have a substantial negative effect on our liquidity.
We rely on a number of different sources in order to meet our potential liquidity demands. Our primary sources of liquidity are increases in deposit accounts, cash flows from loan payments and our securities portfolio. Borrowings also provide us with a source of funds to meet liquidity demands.
Some of these policies require use of estimates and assumptions that may affect the value of our assets or liabilities and financial results.
Changes in our accounting policies or in accounting standards could materially affect how we report our financial results and condition. Our accounting policies are fundamental to understanding our financial results and condition. Some of these policies require use of estimates and assumptions that may affect the value of our assets or liabilities and financial results.
We may also be forced, as a result of any withdrawal of deposits, to rely more heavily on other, potentially more expensive and less stable funding sources. Consequently, the occurrence of any of these events could have a material adverse effect on our business, results of operations, financial condition and future prospects.
We may also be forced, as a result of any withdrawal of deposits, to rely more heavily on other, potentially more expensive and less stable funding sources.
However, an appraisal is only an estimate of the value of the property at the time the appraisal is made. If the appraisal does not reflect the amount that may be obtained upon any sale or foreclosure of the property, we may not realize an amount equal to the indebtedness secured by the property.
If the appraisal does not reflect the amount that may be obtained upon any sale or foreclosure of the property, we may not realize an amount equal to the indebtedness secured by the property. Our allowance for credit losses may be insufficient and could therefore reduce earnings.
If any of these risks were to materialize, our business, financial condition or results of operations could be materially and adversely affected. RISK FACTORS RELATED TO OUR BUSINESS The lingering economic impact of the COVID-19 pandemic combined with the current inflationary pressures could adversely affect our financial condition and results of operations.
If any of these risks were to materialize, our business, financial condition or results of operations could be materially and adversely affected. RISK FACTORS RELATED TO OUR BUSINESS Unfavorable economic conditions could adversely affect our business. Our business is subject to periodic fluctuations based on national, regional and local economic conditions.
Our use of appraisals in deciding whether to make a loan on or secured by real property does not ensure the value of the real property collateral. In considering whether to make a loan secured by real property, we typically require an appraisal of the property.
In considering whether to make a loan secured by real property, we typically require an appraisal of the property. However, an appraisal is only an estimate of the value of the property at the time the appraisal is made.
Accordingly, we expect to continue to be dependent upon local business conditions as well as conditions in the local residential and commercial real estate markets we serve. Unfavorable changes in unemployment, real estate values, interest rates, inflation and other factors could weaken the economies of the communities we serve.
Adverse economic conditions within our markets could have a material adverse effect on our financial condition, results of operations and cash flows. Accordingly, we expect to continue to be dependent upon local business conditions as well as conditions in the local residential and commercial real estate markets we serve.
The Bank’s future growth will largely depend on its ability to retain and grow its deposit base. As of December 31, 2022, the Bank had $1.4 billion in deposits.
As of December 31, 2023, the Bank had $1.4 billion in deposits.
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The COVID-19 pandemic caused significant economic disruption throughout the United States.
Added
Consequently, the occurrence of any of these events could have a material adverse effect on our business, results of operations, financial condition and future prospects. 17 Table of Contents We may not be able to retain or grow our deposit base, which could adversely impact our funding costs.
Removed
Although the economic activity has improved and there is growth in demand for goods and services, the lingering impact the COVID-19 pandemic has created certain adverse and persistent macroeconomic consequences, including labor shortages and disruptions of global supply chain, which may continue for some time and which have contributed to rising inflationary pressures and the risk of recession.
Added
An inability to raise funds through deposits, borrowings, the sale of loans and other sources could have a substantial negative effect on our liquidity.
Removed
As a result of the lingering impact of the COVID-19 pandemic and the related adverse economic consequences, we could be subject to the following risks, among others, any of which individually or in combination with others could have a material, adverse effect on our business, financial condition, liquidity, and results of operations: · Demand for our products and services may decline, making it difficult to grow assets and income; · If we have high levels of unemployment for an extended period of time, loan delinquencies, problem assets, and foreclosures may increase, resulting in increased charges and reduced income; · Collateral for loans, especially real estate, may decline in value, which could cause loan losses to increase; · Limitations may be placed on our ability to foreclose on properties we hold as collateral; · Our allowance for credit losses may have to be increased if borrowers experience financial difficulties which will adversely affect our net income; · The net worth and liquidity of loan guarantors may decline, impairing their ability to honor commitments to us; · Our cybersecurity risks are increased if employees work remotely; · We rely on third-party vendors for certain services and the unavailability of a critical service could have an adverse effect on us; and · FDIC premiums may increase if the FDIC experiences additional resolution costs. 15 Table of Contents Unfavorable economic conditions could adversely affect our business.
Added
Risks related to decline in value of investment securities portfolio. At December 31, 2023, unrealized losses in our available for sale investment securities portfolio totaled $51.3 million.
Removed
Our market is primarily based in the Catawba Valley region of North Carolina and surrounding communities. Worsening economic conditions within our markets could have a material adverse effect on our financial condition, results of operations and cash flows.
Added
Credit losses on investment securities or deferred tax assets could require charges to earnings, which could result in a negative impact on our results of operations.
Removed
Recessionary conditions could result in increases in our level of nonperforming loans and/or reduce demand for our products and services, which would lead to lower revenue, higher loan losses and lower earnings.
Added
Dividends also may be limited as a result of safety and soundness considerations. 24 Table of Contents We may need additional access to capital, which we may be unable to obtain on attractive terms or at all.
Removed
In addition, the measure of our allowance for loan losses is dependent on the adoption of new accounting standards. The FASB issued an Accounting Standards Update related to CECL, the new credit impairment model, which was implemented by the Company for reporting periods beginning on January 1, 2023.
Removed
This new model requires financial institutions to estimate and develop a provision for credit losses at origination for the lifetime of the loan, as opposed to reserving for probable incurred losses up to the balance sheet date.
Removed
Under the CECL model, credit deterioration will be reflected in the income statement in the period of origination or acquisition of the loan, with changes in expected credit losses due to further credit deterioration or improvement reflected in the periods in which the expectation changes. 17 Table of Contents The CECL framework is expected to result in earlier recognition of credit losses and is expected to be significantly influenced by the composition, characteristics and quality of the Company’s loan portfolio, as well as the prevailing economic conditions and forecasts.
Removed
The Company will initially apply the impact of the new guidance through a cumulative-effect adjustment to retained earnings as of the beginning of the year of implementation.
Removed
The CECL standard provides significant flexibility and requires a high degree of judgment with regards to pooling financial assets with similar risk characteristics and adjusting the relevant historical loss information in order to develop an estimate of expected lifetime losses.
Removed
Providing for losses over the life of the Bank’s loan portfolio is a change to the previous method of providing allowances for loan losses that are probable and incurred.
Removed
This change may require us to increase our allowance for loan losses rapidly in future periods, and greatly increases the types of data we need to collect and review to determine the appropriate level of the allowance for loan losses.
Removed
It may also result in even small changes to future forecasts having a significant impact on the allowance, which could make the allowance more volatile, and regulators may impose additional capital buffers to absorb this volatility. If our non-performing assets increase, our earnings will suffer. Our non-performing assets adversely affect our net income in various ways.
Removed
This could materially affect our business operations and financial condition.
Removed
Negative public opinion could adversely affect our ability to keep and attract customers and expose us to adverse legal and regulatory consequences.
Removed
Legal Proceedings, the North Carolina Department of Revenue is seeking to disallow certain tax credits taken by the Bank in prior tax years from an investment made by the Bank.
Removed
While the Bank purchased a Guaranty Agreement along with the investment, which we believe limits our potential exposure, in the event the tax credits are ultimately disallowed, there can be no assurance that the guarantor will perform under the Guaranty Agreement or that we will recover all of any of these potential losses under the Guaranty Agreement.
Removed
This could have a material adverse effect on our results of operations and financial condition. Changes in our accounting policies or in accounting standards could materially affect how we report our financial results and condition. Our accounting policies are fundamental to understanding our financial results and condition.
Removed
In deciding whether to extend credit or to enter into other transactions with clients and counterparties, we may rely on information furnished to us by or on behalf of clients and counterparties, including financial statements and other financial information, which we do not independently verify.

Item 2. Properties

Properties — owned and leased real estate

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Biggest changeOwned Corporate Office 518 West C Street Newton, North Carolina 28658 420 West A Street Newton, North Carolina 28658 213 1st Street, West Conover, North Carolina 28613 3261 East Main Street Claremont, North Carolina 28610 6125 Highway 16 South Denver, North Carolina 28037 5153 N.C.
Biggest changeThe following table sets forth certain information regarding the Bank’s properties at December 31, 2023. 26 Table of Contents Owned Leased Corporate Office 518 West C Street Newton, North Carolina 28658 420 West A Street Newton, North Carolina 28658 213 1st Street, West Conover, North Carolina 28613 3261 East Main Street Claremont, North Carolina 28610 6125 Highway 16 South Denver, North Carolina 28037 5153 N.C.
ITEM 2. PROPERTIES At December 31, 2022, the Company and the Bank conducted their business from their headquarters office in Newton, North Carolina and the Bank’s 17 branch offices in Lincolnton, Hickory, Newton, Catawba, Conover, Claremont, Maiden, Denver, Triangle, Hiddenite, Charlotte, Huntersville, Mooresville, Raleigh and Cary, North Carolina.
ITEM 2. PROPERTIES At December 31, 2023, the Company and the Bank conducted their business from their headquarters office in Newton, North Carolina and the Bank’s 17 branch offices in Lincolnton, Hickory, Newton, Catawba, Conover, Claremont, Maiden, Denver, Triangle, Hiddenite, Charlotte, Huntersville, Mooresville, Raleigh and Cary, North Carolina.
Highway 90E Hiddenite, North Carolina 28636 200 Island Ford Road Maiden, North Carolina 28650 3310 Springs Road NE Hickory, North Carolina 28601 142 South Highway 16 Denver, North Carolina 28037 106 North Main Street Catawba, North Carolina 28609 2050 Catawba Valley Boulevard Hickory, North Carolina 28601 1074 River Highway Mooresville, North Carolina 28117 163 Plantation Ridge Drive Mooresville, North Carolina 28117 1910 East Main Street Lincolnton, North Carolina 28092 Leased 1333 2nd Street NE Hickory, North Carolina 28601 6350 South Boulevard Charlotte, North Carolina 28217 3752/3754 Highway 16 North Denver, North Carolina 28037 9617 Holly Point Drive Huntersville, NC 28078 4000 Westchase Boulevard Suite 100 Raleigh, North Carolina 27607 1117 Parkside Main Street Cary, North Carolina 27519 13840 Ballantyne Corporate Place Suite 150 Charlotte, North Carolina 28277 118 East Council Street Suite 1 Salisbury, NC 28144 380 Knollwood Street Suite D Winston-Salem, NC 27103 26 Table of Contents
Highway 90E Hiddenite, North Carolina 28636 200 Island Ford Road Maiden, North Carolina 28650 3310 Springs Road NE Hickory, North Carolina 28601 142 South Highway 16 Denver, North Carolina 28037 106 North Main Street Catawba, North Carolina 28609 2050 Catawba Valley Boulevard Hickory, North Carolina 28601 163 Plantation Ridge Drive Mooresville, North Carolina 28117 1910 East Main Street Lincolnton, North Carolina 28092 1333 2nd Street NE Hickory, North Carolina 28601 6350 South Boulevard Charlotte, North Carolina 28217 3752/3754 Highway 16 North Denver, North Carolina 28037 9617 Holly Point Drive Huntersville, NC 28078 4000 Westchase Boulevard Suite 100 Raleigh, North Carolina 27607 1117 Parkside Main Street Cary, North Carolina 27519 13840 Ballantyne Corporate Place Suite 150 Charlotte, North Carolina 28277 118 East Council Street Suite 1 Salisbury, NC 28144 380 Knollwood Street Suite D Winston-Salem, NC 27103
The Bank also operates loan production offices in Charlotte, Denver, Salisbury and Winston-Salem, North Carolina. The following table sets forth certain information regarding the Bank’s properties at December 31, 2022.
The Bank also operates loan production offices in Charlotte, Denver, Salisbury and Winston-Salem, North Carolina.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeThe Tax Credit Guaranty Agreement by State Tax Credit Exchange, LLC dated September 10, 2014 was attached to the Company’s September 30, 2018 Quarterly Report on Form 10-Q as Exhibit 99. In the opinion of management, the Company is not involved in any other material pending legal proceedings other than routine proceedings occurring in the ordinary course of business.
Biggest changeIn the opinion of management, the Company is not involved in any other material pending legal proceedings other than routine proceedings occurring in the ordinary course of business.
The Bank disagreed with the NCDOR’s proposed adjustments and the disallowance of certain tax credits, and challenged the proposed adjustments and the disallowance of such tax credits. During the second quarter of 2019, the Bank paid the NCDOR $1.2 million in taxes and interest associated with the proposed adjustments noted above.
The Bank disagreed with the NCDOR’s adjustments and the disallowance of certain tax credits, and contested the proposed adjustments and the disallowance of such tax credits. During the second quarter of 2019, the Bank paid NCDOR $1.2 million in taxes and interest associated with the proposed adjustments noted above.
This payment stopped the accrual of interest during the period while the proposed adjustments and disallowance are being contested, and the NCDOR waived associated penalties.
This payment stopped the accrual of interest during the period while the proposed adjustments and disallowance are being contested, and the NCDOR waived associated penalties. In connection with the Bank’s investment related to the subject tax credits the Bank obtained a Tax Credit Guaranty Agreement from State Tax Credit Exchange, LLC dated September 10, 2014.
Removed
The Bank purchased a Guaranty Agreement along with this tax credit investment that unconditionally guarantees the amount of its investment plus associated penalties and interest which management believes would limit the Bank’s exposure to approximately $125,000.
Added
The Bank has been informed that a potential settlement is being negotiated and being finalized that will withdraw the NCDOR’s disallowance of the tax credits. At this time the settlement is not final.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeThe information required by Item 201(d) concerning securities authorized for issuance under equity compensation plans is set forth in Item 12 hereof. 29 Table of Contents 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) October 1 - 31, 2022 3,200 $ 27.50 3,200 $ 1,317,790 November 1 - 30, 2022 2,446 $ 28.43 1,000 $ 1,289,460 December 1 - 31, 2022 269 $ 30.71 - $ 1,289,460 Total 5,915 $ 28.03 4,200 (1) The Company purchased 1,715 shares on the open market in the three months ended December 31, 2022 for its deferred compensation plan.
Biggest changePeriod 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) October 1 - 31, 2023 8,750 $ 20.83 7,500 $ 171,592 November 1 - 30, 2023 7,800 $ 21.59 7,800 $ 3,184 December 1 - 31, 2023 159 $ 27.24 - $ 2,003,184 Total 16,709 $ 21.25 15,300 (1) The Company purchased 1,409 shares on the open market in the three months ended December 31, 2023 for its deferred compensation plan.
The graph was prepared by S&P Global Market Intelligence, using data as of December 31, 2022. COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURNS Performance Report for Peoples Bancorp of North Carolina, Inc.
The graph was prepared by S&P Global Market Intelligence, using data as of December 31, 2023. COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURNS Performance Report for Peoples Bancorp of North Carolina, Inc.
As of March 8, 2023, the Company had 668 shareholders of record, not including the number of persons or entities whose stock is held in nominee or street name through various brokerage firms or banks. 28 Table of Contents STOCK PERFORMANCE GRAPH The following graph compares the Company’s cumulative shareholder return on its common stock with a NASDAQ index and with a southeastern bank index.
As of February 29, 2024, the Company had 668 shareholders of record, not including the number of persons or entities whose stock is held in nominee or street name through various brokerage firms or banks. 28 Table of Contents STOCK PERFORMANCE GRAPH The following graph compares the Company’s cumulative shareholder return on its common stock with a NASDAQ index and with a southeastern bank index.
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.
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 March 2023 and December 2023 and expires in March 2024.
Added
Period Ending Index 12/31/18 12/31/19 12/31/20 12/31/21 12/31/22 12/31/23 Peoples Bancorp of North Carolina, Inc. 100.00 137.48 99.73 122.57 149.30 147.27 NASDAQ Composite Index 100.00 136.69 198.10 242.03 163.28 236.17 S&P U.S.
Added
BMI Banks - Southeast Region Index 100.00 140.94 126.37 180.49 146.81 151.44 Source: S&P Global Market Intelligence © 2024 29 Table of Contents The information required by Item 201(d) concerning securities authorized for issuance under equity compensation plans is set forth in Item 12 hereof.

Item 6. [Reserved]

Selected Financial Data — reserved (removed by SEC in 2021)

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Biggest changeITEM 6. SELECTED FINANCIAL DATA The information required by this Item is set forth in the section captioned “Selected Financial Data” on page A-3 of the Annual Report, which Annual Report is filed with this Form 10-K as Exhibit (13). The section captioned “Selected Financial Data” on page A-3 of the Annual Report is incorporated herein by reference.
Biggest changeITEM 6. SELECTED FINANCIAL DATA The information required by this Item is set forth in the section captioned "Selected Financial Data" on page A-3 of the Annual Report, which Annual Report is filed with this Form 10-K as Exhibit (13). The section captioned "Selected Financial Data" on page A-3 of the Annual Report is incorporated herein by reference.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The information required by this Item is set forth in the section captioned “Management’s Discussion and Analysis of Financial Condition and Results of Operations” on pages A-4 through A-18 of the Annual Report, which section is filed with this Form 10-K as Exhibit (13).
Biggest changeITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The information required by this Item is set forth in the section captioned “Management’s Discussion and Analysis of Financial Condition and Results of Operations” on pages A-4 through A-19 of the Annual Report, which section is filed with this Form 10-K as Exhibit (13).

Other PEBK 10-K year-over-year comparisons