Peoples Bancorp of North Carolina, Inc. (PEBK): SWOT Analysis [Nov-2025 Updated]

Peoples Bancorp of North Carolina, Inc. (PEBK) looks like a classic value play: strong asset quality with non-performing assets at just 0.28% and a book value of $28.15, plus the stock trades defintely below the estimated fair value of $64.39. However, the recent dip in net earnings to $3.7 million in Q3 2025 and a high geographic concentration across only five North Carolina counties present real near-term headwinds. The question is whether the new $3.0 million share repurchase plan can close that valuation gap before competitive pressures and rising credit loss provisions erode the balance sheet strength.

Peoples Bancorp of North Carolina, Inc. (PEBK) - SWOT Analysis: Strengths

Strong asset quality with Non-Performing Assets (NPAs) at a low 0.29% of total assets as of September 2025.

You want to know where Peoples Bancorp of North Carolina, Inc. (PEBK) is rock-solid, and it starts with credit quality. The bank maintains an exceptionally clean balance sheet, which is a defintely strong signal in the current economic climate. As of September 30, 2025, the Non-Performing Assets (NPAs)-loans and other assets that aren't generating income-stood at just $5.1 million. Here's the quick math: this translates to a low NPA ratio of only 0.29% of total assets, which were $1.74 billion. This low ratio is a clear indicator of disciplined underwriting and a healthy loan portfolio, especially when compared to many peers facing rising credit concerns.

Highly stable funding base, with core deposits representing approximately 90% of total deposits.

A bank's funding base is its lifeblood, and Peoples Bancorp has a highly stable one. At the close of the third quarter of 2025, core deposits-which are generally cheaper and less volatile than wholesale funding-represented a massive 89.65% of total deposits. That's a huge competitive advantage. Total deposits were $1.55 billion, with core deposits making up $1.39 billion of that. This high percentage means the bank is not reliant on expensive, short-term funding, which helps protect its profitability when interest rates shift.

• Core funding is cheap, stable, and sticky.

Net Interest Margin (NIM) expanded to 3.58% in the third quarter of 2025, reflecting effective asset-liability management.

The Net Interest Margin (NIM)-the difference between interest earned on assets and interest paid on liabilities-is a key profit driver for any bank. For Q3 2025, Peoples Bancorp reported an expanded NIM of 3.58%. This expansion, up from 3.35% in Q3 2024, shows the bank's management is effectively navigating the interest rate environment. They are earning more on their loans and investments relative to what they are paying out on deposits, which directly supports net interest income.

Solid capital position with book value per share rising to $28.15 as of September 30, 2025.

Capital strength is non-negotiable for a financial institution, and Peoples Bancorp is well-capitalized. The book value per share-a measure of a bank's net worth on a per-share basis-increased to $28.15 as of September 30, 2025. This rise reflects retained earnings and improvements in shareholders' equity, giving the bank a strong buffer against unexpected losses and providing capacity for future loan growth or strategic initiatives. The bank continues to exceed the capital required by the Federal Reserve Board to be deemed well-capitalized.

Attractive valuation, trading at a P/E ratio of 9.5x, below the US Banks industry average of 11.2x.

From a value investor's perspective, the stock is attractively priced relative to the broader market. The trailing twelve-month (TTM) Price-to-Earnings (P/E) ratio for Peoples Bancorp stands at approximately 9.5x. This is a significant discount when you compare it to the US Banks industry average P/E ratio of 11.2x. This valuation gap suggests the market may be undervaluing the bank's consistent profitability and strong asset quality metrics.

Here is a snapshot of the bank's key financial strengths as of Q3 2025:

Peoples Bancorp of North Carolina, Inc. (PEBK) - SWOT Analysis: Weaknesses

Net earnings decreased to $3.7 million in Q3 2025 from $4.0 million in the prior-year period.

You're looking at the bottom line, and the third quarter of 2025 shows a clear dip in profitability. Peoples Bancorp of North Carolina's net earnings for the three months ended September 30, 2025, dropped to $3.7 million, down from $4.0 million in the same period a year ago. That's a direct decline of $300,000, or 7.5%, which immediately pressures shareholder returns. The diluted earnings per share (EPS) also fell, moving from $0.72 in Q3 2024 to $0.67 in Q3 2025.

This decline in quarterly net earnings is a red flag, signaling that growth in net interest income is being offset by other operational headwinds. The primary culprits for this quarterly performance were a larger provision for credit losses and an increase in non-interest expense. The year-to-date picture is slightly better, with net earnings for the nine months ended September 30, 2025, at $13.2 million, but the quarterly trend is what demands immediate attention.

Profit margins are slipping, with net profit margin dipping to 19.6% from 20.3% recently.

Slipping profit margins are a classic sign of operational inefficiency or rising costs outpacing revenue growth. Peoples Bancorp of North Carolina's net profit margin recently dipped to 19.6% from 20.3% in the prior period. This means that for every dollar of revenue the bank generates, it's keeping less as profit. Honestly, a 70-basis-point drop is not catastrophic, but it hints at muted short-term upside, especially when compared to the company's five-year annual earnings growth average of 5.8%.

Here's the quick math on the margin erosion:

• Net Profit Margin: Dropped to 19.6%.
• Prior Period Margin: Was 20.3%.
• The Difference: A 0.7% contraction in profitability.

This margin softness, even with annual earnings still growing by 3.2%, suggests the bank is sustaining profits through volume, not improved efficiency. That's a tough way to scale.

Non-interest expense is rising, driven by appraisal-related costs and higher salaries/benefits.

One of the most tangible drags on the recent quarterly performance is the rising non-interest expense (overhead). For the nine months ended September 30, 2025, the bank's total non-interest expense climbed to $47.3 million, up from $44.7 million in the prior-year period. That's a significant increase of $2.6 million, or about 5.8%, which directly pressures operating leverage.

Management attributed the increase in non-interest expense, which helped drive the Q3 net earnings decline, to several factors, including higher salaries and benefits costs, plus appraisal-related costs. This expense creep is a defintely a weakness because it's harder to control than interest rates. You need to watch how much of this is one-time versus structural.

To illustrate the rising cost pressure, look at the year-to-date figures:

High geographic concentration, operating all 15 banking offices entirely within five North Carolina counties.

The bank's operational footprint is a classic community bank weakness: high geographic concentration. Peoples Bancorp of North Carolina operates all 15 of its banking offices exclusively within five North Carolina counties. This includes Catawba, Lincoln, Iredell, Alexander, and Mecklenburg counties. While this deep local focus is a strength in terms of community connection, it creates a massive vulnerability to regional economic downturns.

A major employer leaving one of those five counties, or a localized natural disaster, could disproportionately impact the bank's loan portfolio and deposit base. The lack of geographic diversification means the bank cannot easily offset a slump in one area with strength in another. They are essentially betting on the sustained economic health of a very small slice of the US economy.

• Total Banking Offices: 15
• Counties of Operation: 5 North Carolina counties
• The Risk: Undue exposure to local real estate market fluctuations.

Peoples Bancorp of North Carolina, Inc. (PEBK) - SWOT Analysis: Opportunities

Significant Discount to Fair Value

You're looking for a clear margin of safety, and Peoples Bancorp of North Carolina is giving you a big one. The stock is trading at a steep discount to its intrinsic worth, which is a classic value opportunity. As of November 2025, the stock price sits around $\mathbf{\$30.69}$ per share. That's defintely a bargain when you compare it to an independent fair value estimate of $\mathbf{\$63.28}$. The market is pricing this bank at less than half its estimated value, a spread that suggests a powerful mean-reversion trade is possible.

This valuation gap, trading at over $\mathbf{50\%}$ below the fair value estimate, is a compelling buy signal for long-term investors. The company's underlying fundamentals are not reflected in the current market price, and closing even a portion of this gap would generate substantial returns.

Capital Return Potential with a $\mathbf{\$3.0}$ Million Share Repurchase Authorization

Management is already signaling confidence in the stock's undervaluation through direct capital return. In Q1 2025, the Board of Directors authorized a new stock repurchase program of up to $\mathbf{\$3.0}$ million. This is a concrete action that directly supports the share price by reducing the outstanding share count. It's a good use of capital when the stock is this cheap.

Here's the quick math on the company's financial strength supporting this move:

• Total Assets (as of December 31, 2024): $\mathbf{\$1.65}$ billion
• Shareholders' Equity (as of December 31, 2024): $\mathbf{\$130.6}$ million

The $\mathbf{\$3.0}$ million authorization, announced in March 2025, demonstrates a commitment to enhancing shareholder value, backed by a strong balance sheet.

Expand Commercial Lending in High-Growth North Carolina Areas

The bank has a clear runway for growth by deepening its presence in North Carolina's most dynamic economic hubs. Peoples Bank already has loan production offices (LPOs) in key high-growth counties like Mecklenburg (Charlotte area) and Forsyth (Winston-Salem area). These LPOs are non-branch offices focused purely on generating loans, which is a capital-efficient way to enter new markets.

The opportunity is to convert these LPO relationships into full-service commercial banking relationships, focusing on commercial real estate, construction loans, equipment loans, and business lines of credit. The loan portfolio is already growing; total loans were $\mathbf{\$1.16}$ billion as of Q2 2025, an increase of $\mathbf{\$20}$ million year-to-date. Aggressively expanding commercial lending in these booming metropolitan areas will drive higher-margin interest income.

Diversify Non-Interest Income Away from Appraisal Management Fee Income

The bank's reliance on appraisal management fee income is a structural risk that presents a clear diversification opportunity. A slowdown in the real estate market or a drop in appraisal volume would directly impact the top line.

The numbers from the first half of 2025 show the reliance:

Honestly, more than half your fee income coming from one source is too much. The bank should prioritize growing other fee-generating services, such as:

• Boost service charges on deposits.
• Expand wealth management and trust services.
• Increase debit card and interchange fee revenue.

This diversification is crucial, especially since miscellaneous non-interest income has already seen a $\mathbf{\$1.2}$ million decrease for the nine months ended September 30, 2025, due to lower income from Small Business Investment Company (SBIC) investments. The time to act is now, before the next housing cycle turns.

Peoples Bancorp of North Carolina, Inc. (PEBK) - SWOT Analysis: Threats

You've built a solid, relationship-focused bank, but the threats you face in 2025 are structural, hitting both your credit quality and your cost base. The biggest risks stem from a rising cost of funds and the disproportionate compliance burden that targets smaller institutions like Peoples Bancorp of North Carolina, Inc.

Increased provision for credit losses, which rose to $268K in Q1 2025, tied to higher unfunded construction commitments.

The most immediate financial threat is the increasing cost of credit, specifically in your construction loan portfolio. The provision for credit losses jumped to $268,000 for the three months ended March 31, 2025, a sharp increase from $91,000 in the prior year period. This isn't just a paper increase; it's a direct response to a surge in potential obligations.

Here's the quick math: the allowance for credit losses on unfunded commitments rose to $1.3 million as of March 31, 2025, up from $1.1 million at the end of 2024. This $200,000 increase was driven by an $11.5 million rise in unfunded construction commitments during that single quarter. This concentration in construction lending, while profitable in a growing North Carolina market, is a clear risk exposure if the real estate cycle turns, and you need to watch that number defintely.

Intense competitive pressure from larger regional and national banks expanding into the growing North Carolina markets.

North Carolina is a growth story, but that attracts giants. You are competing head-to-head with massive regional and national banks that have significantly deeper pockets for technology and marketing. These larger players are not just expanding their physical presence; they are accelerating their digital transformation, which is where the real battle for deposits and small business loans is fought.

The competitive threat is two-fold:

• Technology Gap: Larger banks are prioritizing real-time payments, with 62% of banks projected to offer some form of this capability in 2025. Smaller institutions often struggle to match this pace and investment.
• Deposit War: Neobanks and big tech are constantly offering new services and higher rates to entice customers, challenging the loyalty you've built.

You can't outspend Bank of America or Truist, so your relationship model has to be genuinely superior to overcome their technological advantage.

Risk of margin compression if deposit rates rise faster than lending rates, challenging the definitely-achieved NIM expansion.

Your Net Interest Margin (NIM) has been a strong point, expanding to 3.58% in the third quarter of 2025. That's great, but it's fragile. If the Federal Reserve's interest rate policy shifts, or if the competitive pressure for deposits intensifies, that NIM expansion could reverse quickly. Deposit costs are expected to remain high, even if overall interest rates stabilize or fall slightly. Customers are demanding better returns on their savings.

The core risk is that your cost of funds-what you pay on deposits-will climb faster than the yield you earn on your loans. This is a classic squeeze for community banks. Your strong percentage of core deposits, at 89.65% of total deposits as of September 30, 2025, helps, but that proportion is not guaranteed to hold if a competitor offers a significantly higher rate. You need to be ready to defend that funding base.

Regulatory changes could increase compliance costs disproportionately for smaller institutions with total assets of $1.74 billion.

The regulatory environment is a major headwind. While the Office of the Comptroller of the Currency (OCC) is making efforts to reduce burden for community banks, the total volume of new rules is relentless. For a bank with total assets of $1.74 billion as of September 30, 2025, compliance costs do not scale linearly; they hit smaller institutions harder.

Key regulatory changes in 2025 that demand significant resource allocation include:

• Small Business Data Collection (Dodd-Frank 1071): Tier 1 filers must begin collecting data by July 18, 2025, requiring substantial IT and process changes.
• Automated Valuation Models (AVM) Rule: Final rules on AVMs became effective October 1, 2025, which impacts your appraisal processes.
• Personal Financial Data Rights (CFPB 1033): While smaller institutions have a later compliance date (April 1, 2030), the need to prepare for data-sharing infrastructure is a long-term strategic cost.

You have to staff and train for these complex rules, which means diverting capital and time away from growth initiatives. That's the real cost of compliance for a bank your size.