Peoples Bancorp of North Carolina: A Case Study in Regional Banking Resilience Amid 2025 Economic Shifts

The regional banking sector in 2025 faces a complex landscape of tightening credit cycles, regulatory uncertainty, and evolving consumer behavior. Yet, within this environment, Peoples Bancorp of North Carolina (NASDAQ:PEBK) has emerged as a standout performer, demonstrating resilience through disciplined balance sheet management, strong deposit growth, and a focus on high-quality lending. For investors seeking exposure to a sector under pressure but with pockets of strength, PEBK's Q2 2025 results offer a compelling case study.

Q2 2025 Performance: A Blueprint for Resilience

Peoples Bancorp's second-quarter results, reported on July 21, 2025, underscore its ability to navigate a shifting economic landscape. The bank delivered net earnings of $5.2 million ($0.97 per share), a 8.1% year-over-year increase in net income and a 4.3% rise in diluted earnings per share. This outperformance was driven by a 3.57% net interest margin (NIM)—up from 3.35% in Q2 2024—and a disciplined approach to cost management.

Key metrics highlight the bank's strategic focus:
- Loan Growth: Total loans increased to $1.16 billion, a 1.8% rise from December 2024, with strength in commercial real estate (CRE) and residential lending.
- Deposit Stability: Total deposits grew to $1.51 billion, with core deposits (90.05% of total deposits) reaching $1.36 billion—a 1.5% increase from year-end 2024.
- Asset Quality: Non-performing assets remained low at 0.28% of total assets, and the allowance for credit losses contracted slightly to 0.85% of loans, reflecting confidence in underwriting standards.

The bank's ability to expand its NIM while maintaining asset quality is particularly noteworthy. A $650,000 increase in interest income and a $531,000 reduction in interest expense (due to lower funding costs) fueled net interest income growth to $14.6 million, up 8.9% year-over-year. This outpaces the broader regional banking sector, where the average NIM for U.S. regional banks in Q1 2025 was 3.25%, below the pre-pandemic average of 3.63%.

Sector Context: Challenges and Opportunities

The regional banking sector in 2025 is navigating a mix of headwinds and tailwinds. Credit cycles are normalizing, with delinquencies and charge-offs rising modestly in consumer loans, particularly in credit cards and auto loans. However, CRE remains a critical area of risk, especially for banks with concentrated exposure to office real estate. As of Q2 2025, the average CRE-to-risk-based capital ratio for banks with $10B–$100B in assets was 199%, compared to 54% for larger banks, highlighting the sector's vulnerability.

Regulatory uncertainty, including the ongoing Basel III Endgame re-proposal, adds complexity. While the re-proposal may lower capital requirements, it also creates ambiguity in strategic planning. Meanwhile, net interest margin pressures persist as deposit costs rise and loan yields normalize. The Eleventh District's average NIM in 2024 was 3.40%, but projections suggest it could dip to 3.0% by year-end 2025.

Peoples Bancorp: A Strategic Differentiator

Peoples Bancorp's performance stands out against these challenges. Its core NIM of 4.12% in Q1 2025 (excluding accretion income) contrasts sharply with the sector's average. The bank's focus on high-quality CRE lending—with a 4% annualized loan growth rate in Q2—has been balanced by prudent risk management. For example, its non-performing CRE assets remain at 0.28%, well below the sector's average of 0.5% in the Eleventh District.

Deposit growth is another strength. While many regional banks face pressure from rising deposit costs, Peoples' core deposits grew by 1.5% year-over-year, driven by a shift away from brokered deposits (down $96 million) and a focus on low-cost retail and governmental accounts. This stability in funding allows the bank to maintain a loan-to-deposit ratio of 83%, avoiding the liquidity risks that plagued some peers in 2023.

Implications for Investors

For investors, Peoples Bancorp's Q2 results suggest a bank that is well-positioned to weather macroeconomic volatility. Its disciplined approach to credit risk, combined with a strong capital position (8.50% equity-to-asset ratio), provides a buffer against potential downturns. The bank's 60-basis-point improvement in capital ratios since year-end 2024 also positions it to withstand regulatory changes or M&A opportunities.

However, risks remain. The broader CRE market—particularly office real estate—could weaken further if remote work trends persist. While Peoples' exposure is currently modest (non-performing CRE at 0.28%), a sector-wide correction could test its resilience. Investors should monitor non-performing loan trends and allowance for credit losses as key indicators.

Conclusion: A Resilient Play in a Fragmented Sector

Peoples Bancorp's Q2 2025 performance highlights the potential for regional banks to thrive in a challenging environment through prudent risk management, deposit discipline, and strategic lending. While the sector faces headwinds, PEBK's focus on high-quality CRE and residential lending, coupled with its strong balance sheet, makes it a compelling long-term investment.

For investors, the key takeaway is clear: diversification within the regional banking sector is critical. While some banks may struggle with asset quality or regulatory costs, those like Peoples Bancorp—focused on organic growth and conservative risk management—are likely to outperform. As the economic landscape evolves, PEBK's Q2 results offer a blueprint for resilience.