Peoples Bancorp of North Carolina, Inc.

Good morning and welcome to People's Bank Corp'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 quarter and fiscal year ended December 31st, 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 then 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 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 in 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's disclaims any responsibility to update these forward-looking statements after this call, except as may be required by applicable legal requirements. People's fourth 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 89 cents for the fourth quarter, which is a 7% increase compared to the linked quarter. During the fourth quarter of 2025, our diluted EPS was negatively impacted by two cents from the sale of another real estate-owned property that we had previously acquired through a merger, which resulted in an $850,000 loss. This property comprised most of our Oreo balance, and the sale reduced our non-performing assets meaningfully compared to the linked quarter. We also redeemed a tranche of subordinated debt we had assumed in a prior acquisition, resulting in a loss of nearly $800,000, for the fourth quarter, which also negatively impacted diluted EPS by 2 cents, but will result in future savings in our funding costs. For the full year of 2025, we achieved our expected results. We generated positive operating leverage compared to the prior year, excluding the impact of accretion income. We had loan growth of 6% compared to 2024, and our fee-based income improved 6% over the prior year. For the fourth quarter, when compared to the linked quarter, We have several highlights to note. Our fee-based income improved 5%. Our efficiency ratio was stable at 57.8%. Our tangible equity to tangible assets ratio grew 26 basis points to 8.8%. The vast majority of our regulatory capital ratios improved. Our book value per share grew 2%, while our tangible book value per share improved by 3%. And our diluted earnings per share exceeded consensus analyst estimates for the quarter, which were 88 cents. For the fourth quarter, our provision for credit losses totaled $8.1 million and was largely driven by net charge-offs. At year-end, our allowance for credit losses stood at 1.12% of total loans and increased from 1% at the prior year-end. Our provision for credit losses for the quarter was driven by net charge-offs, loan growth, and a slight deterioration in economic forecasts. These increases were partially offset by reductions in reserves for individually analyzed loans and leases. Our annualized quarterly net charge-off rate was 44 basis points compared to 41 basis points for the linked quarter. Our small ticket lease charge-offs contributed 31 basis points of our annualized quarterly net charge-off rate. The increase in lease charge-offs compared to the length quarter was largely driven by expected charge-offs that were included in our individually analyzed loan and lease reserves at September 30th. Overall, there were no surprises here for the fourth quarter, as we had anticipated this rate would remain elevated for several quarters, and we believe it should start to taper off in the back half of 2026. We have significantly reduced our position in the high-balance leases in our small-ticket leasing business. which totaled $13 million a year end compared to $35 million at the end of 2024. As we have mentioned before, we are no longer originating these types of leases in our small ticket business. Excluding the lease net charge-offs, the remainder of our loan portfolio had net charge-offs of $2.1 million at an annualized net charge-off rate of 13 basis points. For more information on our net charge-offs, please refer to our accompanying slides Our non-performing loans grew nearly $4 million compared to the linked quarter and were driven by an increase in non-accrual loans, along with higher loans 90-plus days past due and accruing. The increase in non-accrual balances was primarily driven by one acquired commercial and industrial relationship. Non-performing assets declined compared to the linked quarter due to the previously referenced sale of an Oreo property. Our criticized loans declined $32 million compared to the linked quarter end, while classified loans were down $11 million. These reductions were mostly due to upgrades and payoffs during the fourth quarter, which we had noted last quarter was our expectation. At year end, our criticized loan balances as a percent of total loans improved to 3.5% compared to 3.99% at September 30th. Classified loans as a percent of total loans declined to 2.18% at year end, compared to 2.36% at linked quarter end. At year end, 98.6% of our loan portfolio was considered current, compared to 99% at September 30th. Moving on to loan balances, we achieved the top end of our previous guidance, with full year loan growth of 6% compared to 2024. For the fourth quarter of 2025, we had annualized loan growth of 2% compared to the linked quarter end. Loan balances grew nearly $30 million compared to September 30th and were led by increases of $46 million in commercial and industrial loans and another $40 million in construction loans. This growth was partially offset by declines in premium finance loans, leases, and residential real estate loans. Last quarter, we mentioned our loan growth would be tempered during the fourth quarter and possibly into the first quarter of 2026 due to anticipated payoffs. We had a near record quarter of commercial loan production, which offset some of the payoffs we experienced, while some of the expected payoffs have shifted into the first and second quarters of 2026. At quarter end, our commercial real estate loans comprise 35% of total loans 33% of which were owner-occupied, while the remainder were investment real estate. At quarter end, 44% of our total loans were fixed rate, with the remaining 56% at a variable rate. I will now turn the call over to Katie for a discussion of our financial performance.

Thanks, Tyler. For the fourth quarter, our net interest income was relatively flat when compared to the linked quarter, while our net interest margin declined four basis points. We were able to mostly offset declines in our investment and loan income by closely managing our funding costs. Our net interest margin was negatively impacted by lower loan yields, which declined 17 basis points, while our overall funding costs declined 10 basis points. Our accretion income for the quarter totaled $1.8 million compared to $1.7 million for the linked quarter and contributed eight basis points to net interest margins for both periods. For the full year of 2025, our net interest income improved 2% compared to 2024, while our net interest margin declined 7 basis points. Our lower net interest margin was driven by declines in our accretion income, which totaled $9.6 million for 2025 and contributed 11 basis points to margin, compared to $25.2 million and 30 basis points to margin for 2024. Excluding accretion income, our net interest income grew over $22 million, while our net interest margin expanded 12 basis points. We made a move in October to pay off subordinated debt we had previously acquired from Limestone, as we could secure financing at half the cost through FHLB advances and brokered CDs. The subordinated debt was being carried at a rate of around 8.5%. This should result in annual savings of around a million dollars with the tangible book value earned back period on the transaction coming in at less than one year. From a total balance sheet perspective, we continue to position ourselves in a relatively neutral interest rate risk position and will continue to monitor market interest rates, taking action to reduce our deposit costs if rates move lower. As it relates to our fee-based income, we had a 5% increase compared to the linked quarter. The improvement was due to higher lease income and deposit account service charges, as well as mortgage banking and trust and investment income. Compared to the full year of 2024, our fee-based income grew 6%, largely due to higher lease income and trust and investment income. Our net interest rates expenses were up 2% compared to the linked quarter. This increase was due to higher operating lease expense, which was more than offset by our higher fee-based lease income, coupled with higher sales and incentive-based compensation related to our production and performance. For the full year, total non-interest expense grew 3% compared to 2024. The increase was due to higher salaries and employee benefit costs, coupled with increased data processing and software expenses. Our reported efficiency ratio was 57.8% for the fourth quarter and was 57.1% for the linked quarter. The increase in our ratio was mostly due to higher lease expense and sales-based incentive compensation. For the full year of 2025, A reported efficiency ratio was 58.7% compared to 58% for 2024. A higher efficiency ratio was largely due to the impact of lower accretion income coupled with higher non-interest expense compared to the prior year. For the full year of 2025, compared to 2024, we generated positive operating leverage excluding accretion income. This measure compares our total revenue growth, excluding gains and losses, to our total expense growth over the same period. Looking at our balance sheet at year end, our investment portfolio as a percent of total assets was 20.5% at year end, which was flat compared to September 30th. Our loan-to-deposit ratio continued to be around 89%, which was in line with the linked quarter end as well as the prior year end. Our deposit balances decreased $22 million compared to the linked quarter end. The decline was mostly due to reductions in governmental deposits, which were down $30 million, while our retail CDs were down $25 million. These declines were partially offset by higher interest-bearing demand accounts, which grew $24 million, and non-interest-bearing deposits, which were up over $9 million. Compared to the prior year, total deposits excluding brokered CDs increased nearly $160 million, with non-interest-bearing deposits contributing $38 million of the growth. Our demand deposits as a percent of total deposits were 35% at year-end, compared to 34% for the linked quarter-end. Our non-interest-bearing deposits to total deposits were flat at 20% at both year end and the linked quarter end. Our deposit composition was 78% in retail deposits, which includes small businesses, and 22% in commercial deposit balances. Moving on to our capital position, most of our regulatory capital ratios improved compared to the linked quarter end, as improved earnings more than offset dividends paid and risk-weighted asset growth. Our common equity Tier 1 and Tier 1 capital ratios both grew by 18 basis points. Our total risk-based capital ratio was relatively flat, but was directly related to the redemption of our subordinated debt, which qualified as Tier 2 capital. Our tangible equity to tangible asset ratio improved 26 basis points to 8.8% at year end, compared to 8.5% at September 30th. Our book value per share grew to $33.78, while our tangible book value per share improved to $22.77. Finally, I will turn the call over to Tyler for his closing comments.