Peoples Bancorp of North Carolina (PEBK)

Alright, ENBP was one for me, and here is one for the (3) readers of this burgeoning blog.

Peoples Bancorp of North Carolina (PEBK) of Newton, NC. Peoples Bank currently operates 19 banking offices, mainly northwest of Charlotte (Catawba, Alexander, Lincoln, Mecklenburg, & Iredell counties) and they are focused on growing its presence in Wake County (Raleigh MSA).

The weakness in bank stocks and the broader market has PEBK shares down ~20% since its 2018 highs. While PEBK’s P/E and P/TBV valuations have not retreated all the way back to pre-election levels, current valuation (13.7x P/E and 137% P/TBV) on PEBK shares are back at early 2017 levels and provide a good entry point to start accumulating a position in an attractive banking franchise.

PEBK has proven its mettle over the years. The bank was established in 1912 and all of the growth over the past 106 years has been organic, growing from the initial branch to its current 19 branch and 2 loan production locations. PEBK managed through the previous financial crisis without printing a full year net loss and PEBK has been printing some healthy returns since FY 2014. As positioned today, 1%+ ROA and 10%+ ROE profile is a reasonable forecast for returns during expansionary periods. PEBK shares have traded publicly for a long time, and just about any long-term cycle has management compounding equity returns at a 9%+ annualized rate.

Primary drivers setting up PEBK shareholders for continued investment performance over the near- and longer-term:

  1. Compounding Earnings: PEBK has proven over and over that banking done well is a good business. Under the current regulatory environment, ROE should continue to compound at a 10% rate and provide attractive growth and investment returns to shareholders. Peoples Bank has a wonderful geographic footprint with plenty of opportunity to leverage its franchise into new/adjacent markets. With a 14bps Cost of Funds, PEBK management has a very valuable funding source to drive attractive investment returns for shareholders.
  2. Dividend Income: PEBK pays a current dividend yield of ~1.9% and the current payout ratio is very manageable 26%.
  3. Potential M&A Upside: from an acquirer’s perspective, PEBK checks off just about every box on a Bank M&A wish list:
    • Market Geography: PEBK is positioned nicely in/around major markets in North Carolina, which has been an attractive market for both in-state and out-of-state buyers for several years now.
    • Deposit Funding: PEBK’s deposit position is as close to as good as it gets in 2018. Nearly 37% of its deposits are noninterest-bearing, which is great. But even better than the noninterest deposits is the fact that the interest-rate on its interest-bearing deposits IS ONLY 20bps! That is a phenomenal and incredibly valuable deposit franchise. And the cherry on top is the 88% Loan/Deposit ratio, which means PEBK has an immaterial amount of wholesale funding on the books.
    • Asset Quality: Buyers unlikely to have to incorporate a material credit mark as NPL/Loans metric is 0.50% and the Loan Loss Reserves currently cover NPL’s by ~1.6x.

Some concerns that could pressure earnings/profitability/growth to keep an eye on:

  • Economic Cycle
    • Hard to forecast where we are here, but all banks and shareholders, no matter the quality of management, bear the risk of a downturn in the local and national economy.

Bank Description & Geography

Peoples Bank currently operates 19 banking offices, mainly northwest of Charlotte (Catawba, Alexander, Lincoln, Mecklenburg, & Iredell counties) and they are focused on growing its Wake county (Raleigh MSA) presence.


Financial Overview


Notable Ownership

  • Christine Abernethy – 12.1%
  • Directors / Named Executives – 11.2%
  • Tontine Financial – 7.0%
  • Jeffrey Gendell – 9.5%
  • Kennedy Capital – 3.6%
  • BlackRock – 3.5%
  • Vanguard – 3.4%

Prospective Buyers (active market a lot of potential buyers)

  • First Citizens ($36B Assets / FCNCA)
  • Fifth Third ($159B / FITB)
  • FNB Corp ($32B / FNB)
  • Pinnacle Financial ($24B / PNFP)
  • First Bancorp NC ($5.7B / FBNC)
  • Carolina Financial ($3.7B / CARO)

Author: Golden Belt Investments

Investor, primarily community banks, small/mid cap, specialty finance

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