Peoples Bancorp of NC: A Dividend Dynamo in a Volatile Market?

Investors seeking stable income in a choppy economic environment are increasingly turning to regional banks with proven dividend discipline and geographic resilience. Peoples Bancorp of North Carolina (PEBK), a small-cap financial institution with a 14% deposit market share in its core regions, offers a compelling case study. Its $0.20 quarterly regular dividend, unchanged since 2022, signals financial prudence even as macroeconomic headwinds loom. But can PEBK sustain its dividend streak amid institutional outflows and a geographically concentrated footprint? Let’s dive into the numbers.

The Dividend Discipline: A Beacon of Stability

PEBK’s dividend policy is a masterclass in conservative capital management. The bank’s regular quarterly dividend of $0.20 per share—a rate it has maintained since 2022—represents just 24% of its trailing twelve-month (TTM) earnings as of Q1 2025. This low payout ratio (calculated using diluted EPS of $0.82 in Q1 2025) leaves ample room for earnings volatility while rewarding shareholders.

What’s more, PEBK’s special dividend of $0.16 per share in Q1 2025—touted as “non-recurring”—highlighted its capital flexibility. Even excluding this windfall, the regular dividend alone yields 2.5% at current prices, far above the S&P 500’s average yield of 1.3%.

The key takeaway? PEBK’s dividend is not just sustainable but conservative by design, insulated from the vagaries of quarterly performance.

Financial Fortitude: A Strong Foundation

Behind the dividend lies a balance sheet bolstered by improved capital adequacy and robust earnings growth.

• Capital Position: Shareholders’ equity rose to 8.18% of total assets in Q1 2025, up from 7.90% at year-end 2024. This “equity buffer” exceeds peer averages, signaling resilience against loan defaults or market shocks.
• Asset Quality: Non-performing assets (NPAs) remain minimal at 0.30% of total assets, with most tied to low-risk residential mortgages. The allowance for credit losses (ACL) at $10 million (0.87% of loans) comfortably covers potential losses.
• Earnings Momentum: Net income surged 10.3% year-over-year in Q1 2025 to $4.3 million, driven by a widening net interest margin (3.51% vs. 3.33% in 2024) and strong deposit growth ($1.52 billion in deposits, up 2.2% QoQ).

Regional Risks and Rewards: North Carolina’s Double-Edged Sword

PEBK’s strategy hinges on dominance in its local markets, but this geographic focus is both a strength and vulnerability.

Strengths:
- Market Share: PEBK holds a 12% deposit market share in its core regions, including Charlotte and the Piedmont area, where it serves small businesses and households.
- Economic Tailwinds: North Carolina’s GDP grew 2.3% in 2023, outpacing the U.S. average of 1.6%. This growth supports loan demand and fee income.

Risks:
- Concentration Risk: A downturn in NC’s housing or manufacturing sectors could strain PEBK’s loan book. Its ACL already reflects this, with provisions rising for construction loans.
- Interest Rate Exposure: While PEBK’s net interest margin expanded in Q1, rising rates could pressure loan demand and reprice liabilities.

Institutional Dynamics: A Mixed Picture

The question of institutional sentiment is critical. While Wellington Management’s 606% stake increase in 2024 signals confidence, broader institutional activity is mixed:

• Top Holders: BlackRock and Vanguard collectively own 11.6% of shares, but institutional holdings fell 11% in value over the prior week as of February 2025.
• Insider Activity: Insiders have been selling, with a $22 million stake in a $145 million market cap company, raising governance concerns.

The Bottom Line: While PEBK lacks Wall Street analyst coverage, major players like Wellington are doubling down. The broader dip in institutional value may reflect short-term volatility rather than a loss of faith.

Verdict: A Resilient Income Play for Patient Investors

Despite risks, PEBK’s low payout ratio, strong capital cushion, and regional dominance position it as a defensive income stock. Key arguments for buying now:

1. Undervalued: Trading at a 12.3x P/E ratio versus peers’ 14.5x, PEBK offers a margin of safety.
2. Dividend Safety: The $0.20 regular dividend is 2.5x covered by TTM earnings, with room to grow as rates stabilize.
3. Long-Term Growth: Its appraised fee income surged $628,000 in Q1 2025, signaling non-interest revenue potential.

Call to Action: For income investors willing to stomach geographic concentration, PEBK is a buy. Set a price target of $34 (20x 2025 EPS estimates) and watch for Q2 earnings to confirm margin resilience.

Disclaimer: Past performance does not guarantee future results. Consult your financial advisor before making investment decisions.