Peoples Bancorp of North Carolina, Inc.

Good morning and welcome to People's Bancorp Incorporated's conference call. My name is Gary and I will be your conference facilitator. Today's call will cover a discussion of the results of operations for the three and nine months ended September 30th, 2025. 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, press star 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. Peoples disclaims any responsibility to update these forward-looking statements after this call, except as may be required by applicable legal requirements. Peoples' third quarter 2025 earnings release and earnings conference call presentation were issued this morning and are 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 15 to 20 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 Tyler Wilcox, President and Chief Executive Officer, and Katie Bailey, Chief Financial Officer and Treasurer, and each will be available for questions following opening statements. Mr. Wilcox, you may begin your conference.

Thank you, Gary. Good morning, everyone, and thank you for joining our call today. Earlier this morning, we reported diluted earnings per share of 83 cents for the third quarter of 2025, an improvement compared to the least quarter. During the third quarter of 2025, we sold approximately $75 million of investment securities at a loss of $2.7 million, which negatively impacted our earnings per diluted share by six cents for the third quarter. We took this opportunity to sell some of our lower-yielding investment securities in an effort to increase our investment securities yields going forward. When compared to the linked quarter, some of our highlights for the third quarter included annualized loan growth of 8%, Our net interest income increased nearly $4 million, while our net interest margin expanded by one basis point. Excluding accretion income, net interest margin expanded five basis points, which marks our fifth straight quarter of core net interest margin expansion. We continue to produce stable fee-based income. Our quarterly net charge-off rate decreased by two basis points, while our provision for credit losses declined by over 50%. Our non-interest expenses declined 1%. Our efficiency ratio improved to 57.1% compared to 59.3%. Our tangible equity to tangible assets ratio improved 27 basis points and stood at 8.5%. Our book value per share grew 2%, while our tangible book value per share improved by 4%. And our diluted earnings per share, excluding the losses on investment securities re-recorded, exceeded consensus analyst estimates for the quarter. As we mentioned last quarter, we anticipated a reduction in our provision for credit losses. For the third quarter, our provision for credit losses declined over $9 million, and our allowance for credit losses stood at 1.11% of total loans. Our provision for credit losses for the quarter was driven by net charge-offs, loan growth, and a slight deterioration in economic forecasts, which was partially offset by reductions in reserves for individually analyzed loans. For more information on our provision for credit losses, please refer to our accompanying slides. Our annualized quarterly net charge-off rate was 41 basis points, an improvement from 43 basis points for the linked quarter. The reduction was due to lower small-ticket lease charge-offs as we had anticipated. Non-performing loans declined nearly $2 million compared to the linked quarter end, with improvements in both loans 90-plus days past due and accruing and non-accrual balances. At September 30th, non-performing loans comprised 58 basis points of total loans compared to 61 basis points at June 30th. Criticized loans increased by nearly $24 million compared to the linked quarter end, while classified loans grew nearly $34 million. We had a handful of downgrades during the quarter, However, we do anticipate some of these credits will be paid off or upgraded in the fourth quarter. The downgrades were among credits that are unrelated from an industry and geographic standpoint and viewed as isolated issues. We continue to complete our extensive portfolio reviews while recognizing some softening economic indicators in recent quarters. By quarter end, our criticized loan balances as a percent of total loans was 3.99% compared to 3.7% at June 30th. Classified loans as a percent of total loans grew to 2.36% at quarter end compared to 1.89% at the linked quarter end. These refer to our accompanying slides for trends in our historical criticized and classified loans. Our second quarter delinquency rates were stable, with 99% of our loan portfolio considered current at September 30th compared to 99.1% at the linked quarter end. We continue to monitor our loan portfolio for impacts from the recent changes in economic conditions and monetary policy and have not identified any systemic negative trends at this time. Moving on to loan balances, we have loan growth of $127 million, or 8% annualized, compared to the linked quarter end. The most significant areas of growth were in commercial real estate and commercial and industrial loan balances. At the same time, we had declines in construction loans, as those projects completed and moved into our commercial real estate portfolio. We also had decreases in our lease balances, with the reduction being mostly due to declines in our small ticket leasing balances. Our loan production this quarter arrived as anticipated. As we indicated last quarter, we expected and continue to expect payoff activity to be weighted to the second half of the year. Those payoffs have shifted to the fourth quarter and possibly into the first quarter of 2026. Our year-to-date loan growth through the third quarter was 6%, and we expected to come down during the fourth quarter, but to remain in our guided range for the full year. At quarter end, our commercial real estate loans comprised 35% of total loans, 32% of which were owner-occupied, while the remainder were investment real estate. At quarter end, 43% of our total loans were fixed rate, with the remaining 57% at a variable rate, I will now turn the call over to Katie for a discussion of our financial performance.

Thanks, Tyler. Our net interest income and net interest margin improved by 4% in one basis point, respectively, compared to the linked quarter. The increase in net interest margin was due to higher investment security yields compared to the second quarter. Our investment securities yield improved to 3.79% compared to 3.52% for the linked quarter and as we made moves during the quarter to sell some lower-yielding investment securities at a loss in an effort to be opportunistic with our portfolio yield. For the third quarter, accretion income declined to $1.7 million and contributed eight basis points to net interest margin, compared to $2.6 million and 12 basis points for the linked quarter. Excluding accretion income, our net interest margin expanded by five basis points, which is the fifth straight quarterly increase in core net interest margin. For the first nine months of 2025, our net interest income improved 1%, while our net interest margin declined nine basis points compared to 2024. Our lower net interest margin was due to a reduction in our accretion income which was $7.8 million for 2025, contributing 12 basis points to margin, compared to 20.3 million, or 33 basis points to margin, for 2024. Excluding accretion income, our net interest margin expanded 12 basis points. We continue to be relatively neutral in a relatively neutral interest rate risk position, and we'll continue to take further action on our deposit costs is market interest rates decline. Moving on to our fee-based income, we had a 1% decline compared to the linked quarter, which was driven by lower lease income and partially offset by higher electronic banking and deposit account service charges. For the first nine months of 2025, fee-based income grew 7% compared to 2024. The improvement was due to increases in lease income commercial loan swap fee income, and trust and investment income. As it relates to our non-interest expenses, we experienced a 1% decline from the linked quarter and were within our guided range. This was driven by lower professional fees, which was partially offset by increases in marketing and franchise tax expense. For the first nine months of 2025, non-interest expenses grew $7.7 million, or 4%, compared to 2024. The increase was due to higher salaries and employee benefit costs, coupled with higher data processing and software expenses. Our reported efficiency ratio improved to 57.1% compared to 59.3% for the linked quarter. This was primarily due to higher non-interest income for the third quarter compared to the linked quarter. For the first nine months of 2025, our reported efficiency ratio was 59% compared to 57.4% for the same period in 2024. The increased efficiency ratio was largely due to the impact of lower accretion income coupled with higher non-interest expense compared to the prior year. Looking at our balance sheet at quarter end, We had another quarter of considerable loan growth, which was an annualized rate of 8% compared to the linked quarter end. The loan growth outpaced our deposit growth this quarter, bringing our loan-to-deposit ratio to 88% from 86% at June 30th. Our investment portfolio shrank to 20.5% of total assets compared to 21.2% at June 30th. This reduction was primarily due to our sales of around $75 million of lower yielding investment securities, which resulted in a $2.7 million loss we recognized during the quarter. We reinvested about half of the proceeds into higher yielding investment securities and used the remainder to pay down our borrowing. We will continue to look for opportunities to improve the yield on our investment portfolio. Compared to June 30th, our deposit balances were relatively flat. Increases in our money market, interest-bearing demand, and non-interest-bearing accounts did not offset declines in our brokerage CDs, governmental, and savings accounts. Typically, our governmental deposit balances grow in the third quarter. However, this quarter, the inflows were offset by outflows of tax payments. Our demand deposits as a percent of total deposits remained flat at 34% compared to the linked quarter end. Our non-interfering deposits to total deposits remained unchanged and stood at 20% at both September 30th and the linked quarter end. Our deposit composition was 77% in retail deposit balances, which included small businesses, and 23% in commercial deposit balances. Our average retail client deposit relationship was $26,000 at quarter end, while our median was around $2,600. Moving on to our capital position, most of our capital ratios improved compared to the linked quarter end. This was due to earnings, net of dividends, more than offsetting the impact of loan growth on risk-weighted assets for the quarter. Our tangible equity to tangible assets ratio improved 27 basis points to 8.5% at quarter end as higher earnings and reductions in our accumulated other comprehensive losses increased the ratio. Our book value per share grew 2%, while our tangible book value per share increased 4% compared to the linked quarter end. Finally, I will turn the call over to Tyler for his closing comments.