Peoples Bancorp of North Carolina (PEBK) 8-K Results of Operations and Financial Condition

EXHIBIT (99)(a)
NEWS RELEASE
		April 16, 2007
Contact:	Tony W. Wolfe
	President and Chief Executive Officer
	A. Joseph Lampron
	Executive Vice President and Chief Financial Officer
	828-464-5620, Fax 828-465-6780

For Immediate Release

PEOPLES BANCORP ANNOUNCES FIRST QUARTER EARNINGS RESULTS

Peoples Bancorp of North Carolina, Inc. (NASDAQ: PEBK), the parent company of Peoples Bank, reported net income of $2.8 million, or $0.73 basic net income per share and $0.71 diluted net income per share, for the three months ended March 31, 2007 as compared to $2.2 million or $0.59 basic and net income per share and $0.58 diluted net income per share, for the same period one year ago. Tony W. Wolfe, President and Chief Executive Officer, attributed the increase in first quarter earnings to growth in interest-earning assets, which contributed to growth in net interest income and non-interest income. In addition, the Company had a decrease in the provision for loan losses. The increases in net interest income and non-interest income and the decrease in the provision for loan losses were partially offset by an increase in non-interest expense as discussed below.

Shareholders’ equity increased to $65.3 million, or 7.80% of total assets, at March 31, 2007 as compared to $55.5 million, or 7.28% of total assets, at March 31, 2006 as a result of net income earned less dividends paid for the period combined with a $1.2 million increase in accumulated other comprehensive income (loss) from March 31, 2006 to March 31, 2007. The increase in accumulated other comprehensive income (loss) is due to an increase in the market value of available for sale securities and derivative instruments.

Net interest income for the quarter ended March 31, 2007 increased 13% to $8.6 million compared to $7.6 million for the same period one year ago. This increase is attributable to Federal Reserve interest rate increases, which resulted in increases to the prime rate. In addition, the average outstanding balances of loans and investment securities available for sale increased for the three months ended March 31, 2007 compared to the three months ended March 31, 2006. Net interest income after the provision for loan losses increased 21% to $8.3 million during the first quarter of 2007, compared to $6.9 million for the same period one year ago. The provision for loan losses for the three months ended March 31, 2007 was $323,000 as compared to $759,000 for the same period one year ago, primarily attributable to a decrease in net charge-offs of $528,000.

Non-interest income increased 10% to $2.1 million for the three months ended March 31, 2007, as compared to $1.9 million for the same period one year ago. The increase in non-interest income is primarily due to an increase in service charges and fees of $79,000 resulting from activity in new branches opened in 2005 and 2006 and an increase in miscellaneous other income of $43,000 primarily due to an increase in debit card fee income.

Non-interest expense increased 13% to $6.0 million for the three months ended March 31, 2007, as compared to $5.3 million for the same period last year. The increase in non-interest expense included: (1) an increase of $530,000 or 19% in salaries and benefits expense due to normal salary increases and increased incentive expense offsetting a $188,000 decrease in reclassified loan origination costs, (2) an increase of $116,000 or 12% in occupancy expense due to an increase in furniture and equipment expense and lease expense, and (3) an increase of $68,000 or 5% non-interest expenses other than salary, benefits and occupancy expenses. The increase in non-interest expenses other than salary, benefits and occupancy expenses is primarily attributable to an increase of $59,000 in professional fees, an increase of $39,000 in debit card expense and an increase of $39,000 in advertising expense. The Company paid a $178,000 prepayment fee in the first quarter of 2006 on the early termination of a $5.0 million Federal Home Loan Bank advance. This fee was included in other non-interest expense.

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PEOPLES BANCORP ANNOUNCES FIRST QUARTER EARNINGS RESULTS - PAGE TWO

Total assets as of March 31, 2007 amounted to $837.3 million, an increase of 10% compared to total assets of $761.7 million at March 31, 2006. This increase is primarily attributable to an increase in loans combined with an increase in securities and fed funds sold. Fed funds sold as of March 31, 2007 amounted to $21.1 million due to an increase in deposits from December 31, 2006 and a seasonal reduction in commercial construction and acquisition and development loans during the first quarter of 2007. Loans increased 9% to $645.0 million as of March 31, 2007 compared to $590.6 million as of March 31, 2006. Available for sale securities increased 4% to $118.7 million as of March 31, 2007 compared to $114.3 million as of March 31, 2006, the result of net securities purchases that are part of management’s objective to grow the investment portfolio. This increase in available for sale securities was partially offset by paydowns on mortgage-backed securities, calls and maturities.

In February 2007, the Financial Accounting Standard Board issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities” (SFAS 159), which permits entities to choose to measure financial instruments and certain other instruments at fair value. SFAS 159 is effective as of the beginning of fiscal years that begin after November 15, 2007; however, it includes an early adoption provision allowing entities to adopt within 120 days of their most recent fiscal year-end. The Company has decided not to implement SFAS 159 until January of 2008.

Non-performing assets totaled $8.5 million at March 31, 2007 or 1.02% of total assets, compared to $5.2 million at March 31, 2006 or 0.68% of total assets. This increase in non-performing assets is due to one large classified loan relationship that was moved to non-accrual status in fourth quarter 2006. The allowance for loan losses at March 31, 2007 amounted to $8.6 million or 1.34% of total loans compared to $7.6 million or 1.30% of total loans at March 31, 2006.

Deposits amounted to $659.2 million as of March 31, 2007, representing an increase of 7% over deposits of $613.5 million at March 31, 2006. Core deposits, which include non-interest bearing demand deposits, NOW, MMDA, savings and certificates of deposits of denominations less than $100,000, increased $42.2 million to $471.4 million at March 31, 2007 as compared to $429.2 million at March 31, 2006 primarily due to an increase in certificates of deposit in amounts less than $100,000. Certificates of deposit in amounts greater than $100,000 or more totaled $187.8 million at March 31, 2007 as compared to $184.3 million at March 31, 2006.

Peoples Bank operates entirely in North Carolina, with eleven offices throughout Catawba County, one office in Alexander County, three offices in Lincoln County, two offices in Mecklenburg County and one office in Union County. The Bank also operates a Loan Production Office in Davidson, North Carolina, which is located in Mecklenburg County. The Company’s common stock is publicly traded over the counter and is quoted on the Nasdaq Global Market under the symbol “PEBK.”

(TABLES FOLLOW)

Statements made in this press release, other than those concerning historical information, should be considered forward-looking statements pursuant to the safe harbor provisions of the Securities Exchange Act of 1934 and the Private Securities Litigation Act of 1995. These forward-looking statements involve risks and uncertainties and are based on the beliefs and assumptions of management and on the information available to management at the time that this release was prepared. These statements can be identified by the use of words like “expect,” “anticipate,” “estimate,” and “believe,” variations of these words and other similar expressions. Readers should not place undue reliance on forward-looking statements as a number of important factors could cause actual results to differ materially from those in the forward-looking statements. Factors that could cause actual results to differ materially include, but are not limited to, (1) competition in the markets served by Peoples Bank, (2) changes in the interest rate environment, (3) general national, regional or local economic conditions may be less favorable than expected, resulting in, among other things, a deterioration in credit quality and the possible impairment of collectibility of loans, (4) legislative or regulatory changes, including changes in accounting standards, (5) significant changes in the federal and state legal and regulatory environment and tax laws, (6) the impact of changes in monetary and fiscal policies, laws, rules and regulations and (7) other risks and factors identified in the Company’s other filings with the Securities and Exchange Commission, including but not limited to those described in Peoples Bancorp of North Carolina, Inc.’s annual report on Form 10-K for the year ended December 31, 2006.

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PEOPLES BANCORP ANNOUNCES FIRST QUARTER EARNINGS RESULTS - PAGE THREE
CONSOLIDATED BALANCE SHEETS
March 31, 2007, December 31, 2006 and March 31, 2006
	March 31, 2007			December 31, 2006			March 31, 2006
		(Unaudited)						(Unaudited)
ASSETS:
Cash and due from banks	$	23,759,037		$	18,860,318		$	22,959,163
Federal funds sold		21,147,000			2,640,000			3,493,000
Cash and cash equivalents		44,906,037			21,500,318			26,452,163
Investment securities available for sale		118,745,494			117,581,000			114,258,100
Other investments		6,755,849			7,295,449			5,804,449
Total securities		125,501,343			124,876,449			120,062,549
Loans		644,991,947			651,381,129			590,564,977
Mortgage loans held for sale		-			-			2,571,200
Less: Allowance for loan losses		(8,620,074	)		(8,303,432	)		(7,649,364	)
Net loans		636,371,873			643,077,697			585,486,813
Premises and equipment, net		13,865,730			12,816,385			12,705,399
Cash surrender value of life insurance		6,589,206			6,532,406			6,363,484
Accrued interest receivable and other assets		10,115,218			10,144,283			10,678,541
Total assets	$	837,349,407		$	818,947,538		$	761,748,949
LIABILITIES AND SHAREHOLDERS' EQUITY:
Deposits:
Non-interest bearing demand	$	112,777,011		$	101,393,142		$	101,497,002
NOW, MMDA & Savings		188,580,644			174,577,641			172,164,020
Time, $100,000 or more		187,766,348			194,176,291			184,315,220
Other time		170,055,451			163,673,215			155,538,776
Total deposits		659,179,454			633,820,289			613,515,018
Demand notes payable to U.S. Treasury		853,415			1,600,000			121,769
Securities sold under agreement to repurchase		9,237,489			6,417,803			3,905,108
FHLB borrowings		77,000,000			89,300,000			69,500,000
Junior subordinated debentures		20,619,000			20,619,000			14,433,000
Accrued interest payable and other liabilities		5,177,720			4,355,073			4,800,560
Total liabilities		772,067,078			756,112,165			706,275,455
Shareholders' Equity:
Preferred stock, no par value; authorized
5,000,000 shares; no shares issued
and outstanding		-			-			-
Common stock, no par value; authorized
20,000,000 shares; issued and
outstanding 3,834,659 shares in 2007
and 3,830,634 shares in 2006		51,193,812			51,122,147			40,856,995
Retained earnings		14,811,487			12,484,463			16,511,234
Accumulated other comprehensive income (loss)		(722,970	)		(771,237	)		(1,894,735	)
Total shareholders' equity		65,282,329			62,835,373			55,473,494
Total liabilities and shareholders' equity	$	837,349,407		$	818,947,538		$	761,748,949

PEOPLES BANCORP ANNOUNCES FIRST QUARTER EARNINGS RESULTS - PAGE FOUR
CONSOLIDATED STATEMENTS OF INCOME
For the three months ended March 31, 2007 and 2006
		Three months ended
		March 31,
		2007		2006
		(Unaudited)		(Unaudited)
INTEREST INCOME:
Interest and fees on loans	$	13,600,189	$	11,132,184
Interest on federal funds sold		125,495		4,142
Interest on investment securities:
U.S. Government agencies		1,130,079		1,021,674
States and political subdivisions		219,494		192,750
Other		124,969		133,553
Total interest income		15,200,226		12,484,303
INTEREST EXPENSE:
NOW, MMDA & savings deposits		912,443		674,737
Time deposits		4,286,403		2,987,731
FHLB borrowings		923,490		885,690
Junior subordinated debentures		360,199		279,639
Other		124,278		35,543
Total interest expense		6,606,813		4,863,340
NET INTEREST INCOME		8,593,413		7,620,963
PROVISION FOR LOAN LOSSES		323,000		759,000
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES		8,270,413		6,861,963
NON-INTEREST INCOME:
Service charges		912,568		924,945
Other service charges and fees		487,547		396,016
Gain (loss) on sale of securities		-		(81,800	)
Mortgage banking income		111,841		120,608
Insurance and brokerage commission		100,657		103,900
Miscellaneous		509,271		465,820
Total non-interest income		2,121,884		1,929,489
NON-INTEREST EXPENSES:
Salaries and employee benefits		3,373,166		2,843,475
Occupancy		1,104,239		988,396
Other		1,543,641		1,475,312
Total non-interest expenses		6,021,046		5,307,183
INCOME BEFORE INCOME TAXES		4,371,251		3,484,269
INCOME TAXES		1,584,126		1,249,200
NET INCOME	$	2,787,125	$	2,235,069
PER SHARE AMOUNTS
Basic net income	$	0.73	$	0.59
Diluted net income	$	0.71	$	0.58
Cash dividends	$	0.12	$	0.10
Book value	$	17.02	$	14.67

PEOPLES BANCORP ANNOUNCES FIRST QUARTER EARNINGS RESULTS - PAGE FIVE
FINANCIAL HIGHLIGHTS
For the three months ended March 31, 2007 and 2006
	Three months ended
	March 31,
	2007			2006
		(Unaudited)			(Unaudited)
SELECTED AVERAGE BALANCES:
Available for sale securities	$	119,776,080		$	117,017,691
Loans		643,112,284			580,463,706
Earning assets		781,156,206			705,759,912
Assets		822,204,490			744,167,124
Deposits		644,992,518			588,699,597
Shareholders' equity		65,311,870			56,513,281
SELECTED KEY DATA:
Net interest margin (tax equivalent)		4.57%			4.48%
Return of average assets		1.37%			1.22%
Return on average shareholders' equity		17.31%			16.04%
Shareholders' equity to total assets (period end)		7.80%			7.28%
ALLOWANCE FOR LOAN LOSSES:
Balance, beginning of period	$	8,303,432		$	7,424,782
Provision for loan losses		323,000			759,000
Charge-offs		(131,138	)		(586,039	)
Recoveries		124,780			51,621
Balance, end of period	$	8,620,074		$	7,649,364
ASSET QUALITY:
Non-accrual loans	$	8,319,990		$	4,852,504
90 days past due and still accruing		78,249			-
Other real estate owned		134,082			344,935
Repossessed assets		5,000			-
Total non-performing assets	$	8,537,321		$	5,197,439
Non-performing assets to total assets		1.02%			0.68%
Allowance for loan losses to non-performing assets		100.97%			147.18%
Allowance for loan losses to total loans		1.34%			1.30%
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