Peoples Bancorp of North Carolina, Inc.

Good morning and welcome to People's Bank Corp Inc's conference call. My name is Rocco and I will be your conference facilitator. Today's call will cover a discussion of the results of operations for the quarter and fiscal year ended December 31st, 2023. Please be advised that all lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer period. If you would like to ask a question during this time, simply press star 1 on your telephone keypad and questions will be taken in the order they are received. If you would like to withdraw your question, please press star then 2. This call is also being recorded. If you object to the recording, please disconnect at this time. Please be advised that the commentary in this call will contain projections or other forward-looking statements regarding people's future financial performance or future events. These statements are based on management's current expectations. The statements in this call, which are not historical fact, are forward-looking statements and involve a number of risks and uncertainties detailed in People's Securities and Exchange Commission filings. Management believes the forward-looking statements made during this call are based on reasonable assumptions within the bounds of their knowledge of PEOPLE's business and operations. However, it is possible actual results may differ materially from these forward-looking statements. PEOPLE disclaims any responsibility to update these forward-looking statements after this call, except as may be required by applicable legal requirements. People's Post Quarter 2023 earnings release was issued this morning and is available at peoplesbankcorp.com under investor relations. A reconciliation of the non-generally accepted accounting principles or GAAP financial measures discussed during this call to the most directly comparable GAAP financial measures is included at the end of the earnings release. This call will include about 25 to 30 minutes of prepared commentary. followed by a question and answer period, which I will facilitate. An archived webcast of this call will be available on peoplesbankcorp.com in the investor relations section for one year. Participants in today's call will be Chuck Solorizky, President and Chief Executive Officer, Tyler Wilcox, Chief Operating Officer, and Katie Bailey, Chief Financial Officer and Treasurer. And each will be available for questions following opening statements. Mr. Soros, you may begin your conference.

Thank you, Rocco. Good morning, and thank you for joining our call today. In the fourth quarter, we reported record quarterly earnings of $33.8 million, while our diluted earnings per share improved to 96 cents compared to 90 cents for the linked quarter. This includes $1.3 million of acquisition-related expenses for the limestone merger, which reduced diluted EPS for the fourth quarter by three cents. Overall, our fourth quarter results included many highlights, such as growth in our return on average stockholders' equity, which was 13.4%, compared to 12.6% for the linked quarter. Our efficiency ratio improved to 56%, from 58.4% for the linked quarter. our loan-to-deposit ratio declined slightly compared to the linked quarter end. Our non-performing assets declined 8% compared to the linked quarter end and are at their lowest level as a percent of total loans since the Great Recession. Our book value for share improved to $29.83 compared to $28.06 at September 30th. and $27.76 at year-end 2022, while our tangible book value per share grew to $18.16 compared to $16.52 and $16.23, respectively. Our tangible equity to tangible asset ratio increased to 7.3% compared to 6.9% at the linked quarter end, and we completed a $3 million share repurchase during the quarter. On a full year basis, our net income was $113.4 million and our diluted EPS was $3.44 compared to $3.60 for 2022. This includes acquisition-related expenses of $17 million during 2023 which negatively impacted diluted EPS by 40 cents and a $2.4 million pension settlement charge associated with the final termination of our pension plan, which negatively impacted diluted EPS for 2023 by six cents. Some highlights for the full year of 2023 include net interest income was up 34% compared to 2022. This increase was driven by the limestone merger and higher market interest rates improving our earning asset yields while we controlled our deposit costs. Our fee-based income grew 18% compared to 2022. Our return on average assets adjusted for non-core expenses improved to 1.61% for 2023 compared to 1.47% for 2022. We had positive operating leverage for the year compared to the prior year, which means we grew our revenues faster than our expenses. Our efficiency ratio improved to 58.7% from 59.6% for 2022. At the same time, our efficiency ratio adjusted for non-core expenses improved to 54.4% for 2023, compared to 58.6% for 2022. And our net charge off rate was 15 basis points of average loans compared to 16 basis points for 2022. Moving on to our credit quality, our allowance for credit losses represented 1.01% of total loans at quarter end. Changes in our allowance were driven by charge offs within the loan portfolio which were partially offset by improvement in our individually analyzed loan portfolio. The debt charge-offs were driven by higher lease charge-offs, a third of which was the result of a fraud-related charge-off and increased consumer indirect loan charge-offs. While our consumer indirect loan charge-offs were higher than recent periods, they were consistent with pre-pandemic levels as we had anticipated. For both the leasing and indirect portfolios, we are satisfied with their risk-adjusted business performance. Non-performing assets improved during the fourth quarter and were down 8% compared to the linked quarter end as both our non-accrual and loans 90 days past due and accruing declined. At year end, our non-performing assets decreased to 43 basis points of total assets compared to 48 basis points at the linked quarter end and 63 basis points at year end 2022. The portion of our loan portfolio considered current at quarter end was 98.6% compared to 99% at September 30th. For the quarter, our annualized net charge off rate was 23 basis points, an increase of 15 basis points for the linked quarter and up from 18 basis points for the prior year quarter. For the full year, our annualized net charge off rate was 15 basis points for 2023, compared to 16 basis points for 2022. Criticized loans to total loans increased during the fourth quarter to 3.82% at year end, while our classified loans declined 10 basis points to 1.95% of total loans at year end. The increase of criticized loans was related to downgrades of several commercial relationships, while the growth was partially offset by payoffs and upgrades during the quarter. In regards to the commercial real estate and commercial and industrial loan portfolios, credit quality metrics remain strong, with delinquency reported at 45%. percent at year-end and combined had zero basis points in net charge-offs for the year. This compares the prior year-end delinquency of 0.86 percent in net charge-offs of five basis points for the full year 2022. As it relates to non-owner-occupied commercial real estate, as well as construction and land development, these balances represented 38 percent of total commercial loans and 27% of total loans at year end. The land development remains a small percentage of the loan portfolio and totaled $106 million or 1.4% of total loans at year end. Our commercial office space outstanding balance was 2% of our total loan portfolio at year end. We have two large projects maturing in 2024 totaling $17 million which will give us an opportunity to reassess 12% of our office portfolio. As it relates to our construction loan portfolio, we continue to see high demand and successful project execution. We mentioned last quarter that we expected more construction projects to achieve certificates of occupancy during the fourth quarter, which were obtained and resulted in the decline in our construction loan balances. At year end, our construction loan balances totaled $364 million with outstanding commitments of $670 million. Our multifamily balances continue to convert from construction as projects reach completion and stood at $520 million at year end. These projects have generally been leasing up at appropriate speeds and often at higher rates than projected. Our top 10 multifamily loans account for 33% of the funded multifamily portfolio, six of which are still in construction phase. As we have noted previously, the location of these projects are within the growth markets with strong metrics and notable guarantor support. Hospitality loan balances were $174 million at year end and were less than 3% of our total loan portfolio. Following the third quarter, we were able to exit an out-of-market hotel that was acquired through the limestone merger, further reducing our hospitality exposure at year end. Additionally, two hotels successfully exited in the fourth quarter, while the outstanding balance on one hotel materially changed through a refinance utilizing the SBA 504 program. The top 10 funded loans with flag hotels represent 52% of the hospitality portfolio at year end. Occupancy trends within this portfolio generally remain above the market competitors with trailing 12 and trailing three months occupancies at 77 and 79% respectively. Our total loan portfolio grew 75 million by 10% annualized compared to the linked quarter end. Commercial and industrial loan balances experienced the most growth and were up $55 million for September 30th. The specialty finance divisions provided $25 million of growth, while commercial real estate loans were up $7 million. Compared to year-end 2022, our organic loan growth was 10%, which excludes loans acquired from the limestone merger. Most of the organic growth was in commercial real estate, which was up $204 million, while our specialty finance divisions provided $113 million of growth. Commercial and industrial balances were up $77 million, and consumer indirect loans increased $37 million. At December 31, 2023, our commercial real estate loans comprised 36% of total loans, nearly 40% of which were owner-occupied, while the remainder was investment real estate. At the same time, our total consumer loans, which include residential real estate and home equity lines of credit, were 29% of total loans. Commercial and industrial loans were 19%. Specialty finance totaled 10%, and construction loans were 6%. At year end, 49% of our total loans were fixed rate, with the remaining 51% at variable rate. I will now turn the call over to Katie for a discussion of our financial performance.

Thanks, Chuck. During the fourth quarter, our net interest income was lower than the linked quarter due to higher deposit costs, which were partially offset by improved investment yields. Our net interest margin was 4.44% for the fourth quarter compared to 4.71% for the linked quarter. The lower net interest margin was partially due to our margin being higher during this linked quarter as a result of acquisition-related adjustments to accretion, which totaled $1.9 million and added 10 basis points to our third quarter net interest margin. During the fourth quarter of 2023, we recognized a $1.3 million increase to accretion income related to refinements in our fair value marks from our limestone merger. which added seven basis points to net interest margin. Also contributing to the decline in net interest margin compared to the linked quarter were higher deposit costs, as we offered short-term higher rate CDs that were part of a successful deposit acquisition strategy. We partially offset this increase with higher investment yields for the quarter. For the fourth quarter, our deposit costs were 1.66%, and excluding brokered CDs were 1.33%. Accretion income net of amortization expense totaled $9.3 million for the fourth quarter compared to $9.5 million for the linked quarter. Accretion income positively impacted our net interest margin by 47 basis points for the fourth quarter and 52 basis points for the third quarter. Compared to the prior year quarter, our net interest income grew 25%, while our net interest margin remained flat, as improved investment and loan yields were offset by higher deposit costs. For the full year of 2023, compared to 2022, our net interest income increased 34%, and net interest margin grew 59 basis points. Net interest income was positively impacted by the limestone merger compared to 2022. Most of the increase in our net interest margin was due to our investment and loan yields improving, which were partially offset by higher deposit and funding costs. Since the beginning of 2023, the Federal Reserve has increased rates a total of 5.25%. Over this same time period, our interest-bearing deposit costs, when excluding brokered CDs have only grown 1.2%. During the same period, our deposit betas have moved 23% excluding brokered CDs. As far as our expenses, total non-interest expense was down 6% compared to the linked quarter, which was largely due to lower acquisition-related expenses for the fourth quarter. Acquisition-related non-interest expenses totaled $1.3 million for the fourth quarter, and were $4.4 million for the linked quarter. Compared to the prior year quarter, total non-interest expense increased 27% and was up 29% for the full year of 2023 compared to 2022. These increases were primarily due to the acquisition-related expenses for the fourth quarter of 2023 and $17 million for the full year of 2023. as well as the larger footprint and ongoing operating costs of the additional offices from Limestone. Our reported efficiency ratio was 56% for the fourth quarter compared to 58.4% for the linked quarter. When adjusted for non-core expenses, our efficiency ratio was 54.9% compared to 52.5% for the linked quarter. The increase was the result of higher deposit costs compared to the linked quarter. For the full year of 2023, our reported efficiency ratio was 58.7% compared to 59.6% for 2022. Excluding non-core expenses, our efficiency ratio improved to 54.4% for 2023 compared to 58.6% for 2022. Moving on to the balance sheet, At year-end, our investment securities to total assets declined to 19.6%, while our loan-to-deposit ratio declined slightly to 86.1%. We continued to actively manage our balance sheet position with a focus on our interest rate risk profile. During the fourth quarter, we made a decision to sell nearly $37 million of our investment securities and recognized a loss of $1.7 million. This move resulted in a payback of just over a year and reduces the credit exposure within our investment portfolio. We will continue to be opportunistic in our decisions while trying to do so in a low-risk manner with a short-earned back period. Along those lines, we did utilize the Federal Reserve's Bank Term Funding Program this quarter as it provided a lower-cost funding source than our alternatives. As of today, the funds we borrowed under this program are at a rate 76 basis points less than what we would have paid for an FHLB overnight borrowing. And assuming the same rate benefit, it will result in savings of nearly $1.2 million over a one-year period. As we have noted previously, we have ample liquidity, and the attractive rate offered on this source was advantageous for us. We continue to have strong regulatory capital ratios. We are confident in our stock and performance, and with that in mind, we repurchased $3 million of our shares this quarter at an average price of $27.98. We have repurchased our shares in 2023, 2022, and 2020 for an aggregate total of nearly $40 million. We are committed to deploying our capital in the most effective manner and will continue to do so in the future, while also being cognizant of the impact of dilution. At year end, our capital ratios improved, and our common equity Tier 1 capital ratio was 11.8%, our total risk-based capital ratio was 13.5%, and our leverage ratio was 9.6%. At year end, our tangible equity to tangible assets ratio improved to 7.3% compared to 6.9% at the linked quarter end. Our improved earnings, along with some recovery of our accumulated other comprehensive losses on our available for sale investment securities portfolio, contributed to the growth. The improvement in our accumulated other comprehensive losses accounted for 44 basis points of the increase over the linked quarter. Next, I will turn the call over to Tyler, who will provide additional details around our performance and future outlook.