UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________________
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended JUNE 30, 2000
-------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______ to _________
Commission File Number 000-27205
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PEOPLES BANCORP OF NORTH CAROLINA, INC.
---------------------------------------
(Exact name of registrant as specified in its charter)
NORTH CAROLINA 56-2132396
-------------- ----------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
218 SOUTH MAIN AVENUE
NEWTON, NORTH CAROLINA 28658
---------------------- -----
(Address of principal executive office) (Zip Code)
(828) 464-5620
--------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90
days. Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the
latest practicable date.
3,218,714 SHARES OF COMMON STOCK, NO PAR VALUE, OUTSTANDING AT AUGUST 14, 2000.
- --------------------------------------------------------------------------------
INDEX
PART I - FINANCIAL INFORMATION PAGE(S)
Item 1. Financial Statements
Consolidated Balance Sheets at June 30, 2000 (Unaudited) and
December 31, 1999 3
Consolidated Statements of Income for the three months ended June 30,
2000 and June 30, 1999 (Unaudited), and for the six months
ended June 30, 2000 and June 30, 1999 (Unaudited) 4
Consolidated Statements of Comprehensive Income for the three months
ended June 30, 2000 and June 30, 1999 (Unaudited), and for the six
months ended June 30, 2000 and June 30, 1999 (Unaudited) 5
Consolidated Statements of Cash Flows for the six months ended
June 30, 2000 and June 30, 1999 (Unaudited) 6-7
Notes to Consolidated Financial Statements (Unaudited) 8-9
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 10-13
Item 3. Quantitative and Qualitative Disclosures About Market Risk 14
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 15
Item 2. Changes in Securities and Use of Proceeds 15
Item 3. Defaults upon Senior Securities 15
Item 4. Submission of Matters to a Vote of Security Holders 15
Item 5. Other Information 15
Item 6. Exhibits and Reports on Form 8-K 16
Signatures 17
This Form 10-Q contains forward-looking statements. These statements are
subject to certain risks and uncertainties that could cause actual results to
differ materially from those anticipated in the forward-looking statements.
Factors that might cause such a difference include, but are not limited to,
changes in interest rate environment, management's business strategy, national,
regional, and local market conditions and legislative and regulatory conditions.
Readers should not place undue reliance on forward-looking statements,
which reflect management's view only as of the date hereof. The Company
undertakes no obligation to publicly revise these forward-looking statements to
reflect subsequent events or circumstances. Readers should also carefully
review the risk factors described in other documents the Company files from time
to time with the Securities and Exchange Commission.
2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PEOPLES BANCORP OF NORTH CAROLINA, INC. AND SUBSIDIARY
Consolidated Balance Sheets
June 30, December 31,
Assets 2000 1999
------ ------------- -------------
(Unaudited)
Cash and due from banks $ 15,956,878 14,067,311
Federal funds sold - 2,930,000
------------- -------------
Cash and cash equivalents 15,956,878 16,997,311
Investment securities available for sale 65,542,377 62,498,359
Other investments 2,183,873 1,345,100
------------- -------------
Total securities 67,726,250 63,843,459
Mortgage loans held for sale 770,076 1,685,472
Loans, net 369,354,472 335,273,577
Premises and equipment, net 9,715,384 9,342,582
Accrued interest receivable and other assets 5,806,791 5,292,453
------------- -------------
Total assets $469,329,851 432,434,854
============= =============
Liabilities and Shareholders' Equity
-------------------------------------
Deposits:
Demand $ 58,694,354 53,506,430
Interest-bearing demand 31,922,842 31,752,477
Savings 79,092,777 77,556,576
Time, $100,000 or more 104,330,080 89,306,653
Other time 131,610,149 124,512,233
------------- -------------
Total deposits 405,650,202 376,634,369
Demand notes payable to U.S. Treasury 1,600,000 1,600,000
Federal funds purchased 5,140,000 -
FHLB borrowings 14,428,571 14,500,000
Accrued interest payable and other liabilities 2,714,457 1,702,006
------------- -------------
Total liabilities 429,533,230 394,436,375
------------- -------------
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
3,218,714 shares in 2000 and 2,926,318
shares in 1999 36,407,798 31,729,462
Retained earnings 4,504,610 7,189,417
Accumulated other comprehensive income (1,115,787) (920,400)
------------- -------------
Total shareholders' equity 39,796,621 37,998,479
------------- -------------
Total liabilities and shareholders' equity $469,329,851 432,434,854
============= =============
See accompanying notes to consolidated financial statements.
3
PEOPLES BANCORP OF NORTH CAROLINA, INC. AND SUBSIDIARY
Consolidated Statements of Income (Unaudited)
Three Months Three Months Six Months Six Months
Ended Ended Ended Ended
June 30, 2000 June 30, 1999 June 30, 2000 June 30, 1999
---------------- ------------- ------------- --------------
Interest Income:
Interest and fees on loans $ 8,778,731 6,951,105 16,858,090 13,598,466
Interest on federal funds sold 32,175 60,931 54,117 100,074
Interest on investment securities:
U.S. Treasury 4,005 12,496 16,572 24,994
U.S. Government agencies 742,827 537,076 1,412,939 1,093,022
States and political subdivisions 247,872 241,843 502,730 482,375
Other 32,178 48,937 70,836 106,749
---------------- ------------- ------------- --------------
Total interest income 9,837,788 7,852,388 18,915,284 15,405,680
---------------- ------------- ------------- --------------
Interest expense:
Interest bearing demand deposits 113,979 107,424 224,232 208,900
Savings deposits 804,756 716,747 1,557,033 1,414,493
Time deposits 3,223,419 2,585,154 6,136,949 5,245,778
FHLB borrowings 220,660 178,394 442,449 362,302
Other 64,936 11,815 82,149 21,449
---------------- ------------- ------------- --------------
Total interest expense 4,427,750 3,599,534 8,442,812 7,252,922
---------------- ------------- ------------- --------------
Net interest income 5,410,038 4,252,854 10,472,472 8,152,758
Provision for loan losses 522,600 - 779,100 -
---------------- ------------- ------------- --------------
Net interest income after provision
for loan losses 4,887,438 4,252,854 9,693,372 8,152,758
---------------- ------------- ------------- --------------
Other income:
Service charges 387,541 316,317 758,987 616,057
Other service charges and fees 88,252 68,858 182,984 144,157
Gain (loss) on sale of securities - - - (34,824)
Mortgage banking income 144,236 201,541 234,145 529,895
Insurance and brokerage commissions 46,194 43,939 72,694 72,747
Miscellaneous 474,949 237,813 754,999 442,079
---------------- ------------- ------------- --------------
Total other income 1,141,172 868,468 2,003,809 1,770,111
---------------- ------------- ------------- --------------
Other expense:
Salaries and employee benefits 2,191,907 1,787,555 4,413,302 3,562,698
Occupancy 616,000 569,163 1,207,834 1,106,890
Other 1,232,322 1,077,315 2,212,040 1,984,439
---------------- ------------- ------------- --------------
Total other expenses 4,040,229 3,434,033 7,833,176 6,654,027
---------------- ------------- ------------- --------------
Income before income taxes 1,988,381 1,687,289 3,864,005 3,268,842
Income taxes 646,200 541,900 1,252,200 1,049,300
---------------- ------------- ------------- --------------
Net income $ 1,342,181 1,145,389 2,611,805 2,219,542
================ ============= ============= ==============
Net income per share - basic $ 0.42 0.36 0.81 0.69
================ ============= ============= ==============
Cash dividends declared per share $ 0.10 0.08 0.19 0.16
================ ============= ============= ==============
See accompanying notes to consolidated financial statements.
4
PEOPLES BANCORP OF NORTH CAROLINA, INC. AND SUBSIDIARY
Consolidated Statements of Comprehensive Income (Unaudited)
Three Months Three Months Six Months Six Months
Ended Ended Ended Ended
June 30, 2000 June 30, 1999 June 30, 2000 June 30, 1999
---------------- ---------------- --------------- ---------------
Net earnings $ 1,342,181 $ 1,145,389 $ 2,611,805 $ 2,219,542
---------------- ---------------- --------------- ---------------
Other comprehensive income, net
of tax:
Unrealized gains (losses) on
investment securities
available for sale:
Unrealized gains
(losses) arising during
the period, net of
taxes of $7,859,
$(319,211), $(124,657)
and $(575,427),
respectively 12,318 (500,345) (195,387) (901,920)
Less reclassification
adjustment for (gains)
losses included in net
earnings, net of taxes of
$13,564
- - - 21,260
---------------- ---------------- --------------- ---------------
Other comprehensive income 12,318 (500,345) (195,387) (880,660)
---------------- ---------------- --------------- ---------------
Comprehensive income $ 1,354,499 $ 645,044 $ 2,416,418 $ 1,338,882
================ ================ =============== ===============
See accompanying notes to consolidated financial statements.
5
PEOPLES BANCORP OF NORTH CAROLINA, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows (Unaudited)
Six months ended June 30, 2000 and 1999
2000 1999
------------- ------------
Cash flows from operating activities:
Net earnings $ 2,611,805 2,219,542
Adjustments to reconcile net earnings to
net cash provided (used) by operating activities:
Depreciation, amortization and accretion 363,217 525,446
Provision for loan losses 779,100 -
Loss (gain) on sale of investment securities - 34,824
Loss (gain) on sale of mortgage loans 19,416 179,569
Gain on sale of other real estate 2,950 28,263
Change in:
Other assets (190,835) (224,501)
Other liabilities 1,012,451 (367,514)
Mortgage loans held for sale 895,980 6,288,793
------------- ------------
Net cash provided (used) by operating activities 5,494,084 8,684,422
------------- ------------
Cash flows from investing activities:
Purchases of investment securities available-for-sale (7,558,732) (11,767,111)
Proceeds from calls and maturities of investment securities
available for sale 4,197,420 9,067,526
Proceeds from sales of investment securities available for sale - 7,125,196
Change in other investments (838,773) 150,200
Net change in loans (34,859,996) (20,732,812)
Purchase of premises and equipment (965,066) (978,513)
Improvements to other real estate - (194,496)
Proceeds from sale of other real estate 24,500 316,442
------------- ------------
Net cash used in investing activities (40,000,647) (17,013,568)
------------- ------------
Cash flows from financing activities:
Net change in deposits 29,015,835 13,683,561
Change in demand notes payable to U.S. Treasury - 1,818,729
Net change in FHLB borrowings (71,429) (71,428)
Net change in federal funds purchased 5,140,000 -
Cash dividends (614,503) (526,737)
Cash paid in lieu of fractional shares (3,773) (5,871)
------------- ------------
Net cash provided by financing activities 33,466,130 14,898,254
------------- ------------
Net change in cash and cash equivalents (1,040,433) 6,569,108
Cash and cash equivalents at beginning of year 16,997,311 17,754,077
------------- ------------
Cash and cash equivalents at end of year $ 15,956,878 24,323,185
============= ============
6
PEOPLES BANCORP OF NORTH CAROLINA, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows (Unaudited)
Six months ended June 30, 2000 and 1999
(Continued)
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 8,357,998 7,194,835
Income taxes $ 829,000 500,000
============= ==========
Noncash investing and financing activities:
Change in net unrealized gain (loss) on investment
securities available for sale, net of tax $ (195,387) (880,660)
Transfer of loans to other real estate $ - 204,719
------------- ----------
See accompanying notes to consolidated financial statements.
7
PEOPLES BANCORP OF NORTH CAROLINA, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements (Unaudited)
(1) Summary of Significant Accounting Policies
----------------------------------------------
The consolidated financial statements include the financial statements of
Peoples Bancorp of North Carolina, Inc. and its wholly owned subsidiary,
Peoples Bank. All significant intercompany balances and transactions have
been eliminated in consolidation.
A description of the Company's significant accounting policies can be found
in Note 1 of the Notes to Consolidated Financial Statements in the
Company's 1999 Annual Report to Shareholders which is Appendix A to the
Proxy Statement for the May 4, 2000 Annual Meeting of Shareholders. The
consolidated financial statements in this report are unaudited. In the
opinion of management, all adjustments (none of which were other than
normal accruals) necessary for a fair presentation of the financial
position and results of operations for the periods presented have been
included.
Management of the Company has made a number of estimates and assumptions
relating to reporting of assets and liabilities and the disclosure of
contingent assets and liabilities to prepare these consolidated financial
statements in conformity with generally accepted accounting principles.
Actual results could differ from those estimates.
(2) Allowance for Loan Losses
----------------------------
The following is an analysis of the allowance for loan losses for the six
months ended June 30, 2000 and 1999:
2000 1999
----------- ----------
Balance, beginning of period $3,924,348 4,136,690
Provision for loan losses 779,100 -
Less:
Charge-offs (430,212) (160,601)
Recoveries 31,444 48,576
----------- ----------
Net charge-offs (398,768) (112,025)
----------- ----------
Balance, end of period $4,304,680 4,024,665
=========== ==========
(3) Earnings Per Share
--------------------
The Company is required to report earnings per common share on the face of
the statements of earnings with and without the dilutive effects of
potential common stock issuances from instruments such as options,
convertible securities and warrants. Earnings per common share is based on
the weighted average number of common shares outstanding during the period
while the effects of potential common shares outstanding during the period
are included in diluted earnings per share. Additionally, the Company must
reconcile the amounts used in the computation of both "basic earnings per
share" and "diluted earnings per share."
Stock options granted in 1999 have not been included in the computation of
"diluted earnings per share" as the effect of inclusion would be
antidilutive. Therefore, since "basic earnings per share" and "diluted
earnings per share" are the same for the six months ended June 30, 2000 and
June 30, 1999, the Company has chosen to present the calculation of basic
earnings per share as follows:
Net Earnings Common Share Per Share
(Numerator) (Denominator) Amount
-------------- ------------- ----------
For the Six Months Ended June 30, 2000 $ 2,611,805 3,218,714 $ 0.81
For the Six Months Ended June 30, 1999 $ 2,219,542 3,218,714 $ 0.69
All per share amounts have been restated to reflect a 10% stock dividend
paid on April 24, 2000.
8
(4) Recent Accounting Pronouncements
----------------------------------
In 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities". SFAS No.
133 establishes accounting and reporting standards for hedging derivatives
and for derivative instruments including derivative instruments embedded in
other contracts. It requires the fair value recognition of derivatives as
assets or liabilities in the financial statements. The accounting for
changes in the fair value of a derivative depends on the intended use of
the derivative instruments at inception. SFAS No. 133 is effective for all
fiscal quarters of all fiscal years beginning after June 15, 2000, but
initial application of the Statement must be made at the beginning of the
quarter. At the date of initial application, an entity may transfer any
held to maturity security into the available for sale or trading categories
without calling into question the entity's intent to hold other securities
to maturity in the future. The Company believes the adoption of SFAS No.
133 will not have a material impact on its financial position, results of
operations or liquidity.
9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Summary. Net income for the second quarter of 2000 was $1.3 million, an
increase of $197,000 or 17% over the $1.1 million earned in the same period in
1999. Basic income per share for the quarter ended June 30, 2000 increased to
$0.42 or 17% from $0.36 in the comparable period of 1999. Contributing
significantly to these favorable results has been the active manner in which the
Company's net interest margin has been managed. Annualized return on average
assets was 1.18% for the three months ended June 30, 2000 compared to 1.11% for
the same period in 1999, and annualized return on average shareholders' equity
was 13.90% versus 12.58%, respectively.
Net income for the six months ended June 30, 2000 was $2.6 million, an
increase of 18% over the $2.2 million earned in the first six months of 1999.
Basic net income per share for this period increased 18% to $0.81 from $0.69 for
the six months ended June 30, 1999. The strong growth in net income resulted
from a 28% increase in net interest income. Annualized return on average assets
was 1.17% for the first six months of 2000 compared to 1.09% for the same period
in 1999, and annualized return on average shareholders' equity was 13.03% versus
11.75%, respectively.
Net Interest Income. Net interest income, the major component of the
Company's net income, was $5.4 million for the three months ended June 30, 2000
an increase of 27% over the $4.3 million earned in the same period in 1999. The
increase over 1999 second quarter net interest income was primarily attributable
to an increase in the volume of average earning assets coupled with an increase
in the net yield on earning assets.
Interest income increased $2.0 million or 25% for the three months ended
June 30, 2000 compared with the same period in 1999. The increase was due to an
increase in the volume of earning assets, which resulted from an increase in
loan volume, as well as an increase in the yield on earning assets which is
partially attributable to increases in the Bank's prime commercial lending rate.
Interest expense increased $828,000 or 23% for the three months ended June
30, 2000 compared with the same period in 1999. The increase in interest
expense was due to an increase in the cost of funds to 4.96% for the three
months ended June 30, 2000 from 4.48% for the same period in 1999, combined with
an increase in volume of interest bearing liabilities.
Net interest income for the six month period ended June 30, 2000 was $10.5
million, an increase of 28% over net interest income of $8.2 million for the six
months ended June 30, 1999. This increase was attributed to the increase in the
volume of average earning assets to $425.3 million in the six months ended June
30, 2000 from $387.7 million in the same period in 1999, combined with an
increase in the annualized tax equivalent net yield on earning assets to 5.06%
for the six months ended June 30, 2000 from 4.33% for the six months ended June
30, 1999.
Interest income increased $3.5 million or 23% for the six months ended June
30, 2000 compared to the same period in 1999. The increase was due to an
increase in the volume of average earning assets combined with an increase in
the yield on average earning assets. Average loans increased 11% to $355.4
million, while average investment securities available for sale increased 10% to
$65.7 million in the six months ended June 30, 2000 compared to the same period
in 1999. All other interest-earning assets including federal funds sold
decreased to an average of $4.2 million in the six months ended June 30, 2000
from $7.8 million in the same period in 1999. The yield on average earning
assets increased to 9.04% for the six months ended June 30, 2000 from 8.07% for
the six months ended June 30, 1999.
10
Interest expense increased 16% to $8.4 million in the six months ended June
30, 2000 compared to $7.3 million for the corresponding period in 1999. The
increase resulted from an increase in the volume of interest bearing liabilities
coupled with an increase in the average rate paid on interest bearing
liabilities. Average interest bearing liabilities increased 10% to $350.7
million for the six months ended June 30, 2000 from $319.9 million for the six
months ended June 30, 1999. This increase is primarily attributable to the
increase in average interest bearing deposits to $333.8 million in the six
months ended June 30, 2000 from $305.4 million in the same period in 1999. The
average rate paid on interest bearing liabilities increased to 4.83% for the six
months ended June 30, 2000 from 4.53% for the six months ended June 30, 1999.
Provision for Loan Losses. For the three months ended June 30, 2000 a
contribution of $523,000 was made to the provision for loan losses compared to
no contribution to the provision for loan losses for the three months ended June
30, 1999. The increase in the provision for loan losses reflects management's
decision to accelerate the Bank's contribution to the allowance for loan losses
as a cautionary approach to address any possibility of an economic downturn in
the regional economy.
For the six months ended June 30, 2000 a contribution of $779,000 was made
to the provision for loan losses compared to no contribution to the provision
for loan losses for the six months ended June 30, 1999. The increase in the
provision for loan losses reflects management's decision to accelerate the
Bank's contribution to the allowance for loan losses as a cautionary approach to
address any possibility of an economic downturn in the regional economy.
Non-Interest Income. Total non-interest income was $1.1 million in the
second quarter of 2000, an increase of 31% over the $868,000 earned in the
second quarter of 1999. Service charges on deposit accounts increased 23% to
$388,000 for the second quarter of 2000 due to the growth in the deposit base
coupled with an increase in service charges on deposits. Miscellaneous
non-interest income increased 100% to $475,000 for the three months ended June
30, 2000. The increase is primarily attributable to a gain on the sale of a
commercial loan during second quarter 2000. Mortgage banking income decreased
28% to $144,000 in the second quarter of 2000 compared to $202,000 for the
second quarter of 1999. The decrease in mortgage banking income was due to an
increase on mortgage loan rates, which resulted in a decrease in mortgage loan
applications.
Total non-interest income was $2.0 million for the six months ended June
30, 2000, an increase of 13% over the $1.8 million earned in the same period of
1999. Service charges on deposit accounts increased 23% to $759,000 for the six
months ended June 30, 2000 due to the growth in the deposit base coupled with an
increase in service charges on deposits. Mortgage banking income decreased 56%
to $234,000 in the six months ended June 30, 2000 from $530,000 for the six
months ended June 30, 1999 due to an increase on mortgage loan rates, which
resulted in a decrease in mortgage loan applications. The Company reported no
securities gains or losses in the first six months of 2000 compared to a net
loss of $35,000 in the first six months of 1999. Miscellaneous non-interest
income increased 71% to $755,000 for the six months ended June 30, 2000 from
$442,000 for the six months ended June 30, 1999. This increase is attributable
to a gain on the sale of a commercial loan, growth in the Bank's credit card
portfolio, and increased income from check printing activities.
Non-Interest Expense. Total non-interest expense was $4.0 million in the
second quarter of 2000, an increase of 18% over the same period in 1999. The
majority of this increase was a result of a 23% increase in salary and employee
benefits reflecting regular merit and promotional increases, increased funding
of the Bank's incentive plan, and an increase in the number of employees to
service growth in the customer base as well as additional staffing in
anticipation of future branching needs. Occupancy expense increased 8% due to
additional leased space and depreciation for equipment purchased.
Total non-interest expense was $7.8 million in the six months ended June
30, 2000, an increase of 18% over the same period in 1999. The majority of this
increase was a result of a 24% increase in salary and employee benefits
reflecting regular merit and promotional increases, increased funding of the
Bank's incentive plan, and an increase in the number of employees to service new
branches and growth in the customer base as well as additional staffing in
anticipation of future branching needs. Occupancy expense increased 9% due to
additional leased space and depreciation for equipment purchased. Other
non-interest expenses increased 11% or $228,000 as a result of the added expense
of serving a larger customer base.
11
Income Taxes. The Bank reported income taxes of $646,000 and $542,000 for
the second quarters of 2000 and 1999, respectively. This represented effective
tax rates of 32% for the respective periods.
The Bank reported income taxes of $1.3 million and $1.1 million for the
six-month periods ending June 30, 2000 and 1999, respectively. This represented
effective tax rates of 32% for the respective periods.
ANALYSIS OF FINANCIAL CONDITION
Investment Securities. Available-for-sale securities amounted to $65.5
million at June 30, 2000 compared to $62.5 million at December 31, 1999.
Average investment securities for the six months ended June 30, 2000 amounted to
$65.7 million compared to $59.5 million for the year ended December 31, 1999.
Loans. At June 30, 2000, total loans amounted to $373.7 million compared
to $339.2 million at December 31, 1999, an increase of 10%. This loan growth
reflects a continuation of strong economic growth in the Catawba Valley region.
Average loans represented 84% of total earning assets for the six months ended
June 30, 2000, compared to 82% for the year ended December 31, 1999. Mortgage
loans held for sale were $770,000 at June 30, 2000, a decrease of 54% from the
December 31, 1999 balance of $1.7 million. The reduction in mortgage loans held
for sale reflects a decrease in mortgage loan volume due to an increase in
mortgage loan rates.
Asset Quality. Non-performing assets totaled $3.1 million at June 30, 2000
or 0.65% of total assets, compared to $3.6 million at December 31, 1999 and $4.2
million at June 30, 1999, or 0.99% and 1.01% of total assets, respectively.
Non-accrual loans were $2.7 million at June 30, 2000, a decrease of $184,000
from non-accruals of $2.9 million at December 31, 1999. As a percentage of
total loans outstanding, non-accrual loans were 0.71% at June 30, 2000 compared
to 0.84% at December 31, 1999. Loans ninety days past due and still accruing
amounted to $362,000 and $645,000 at June 30, 2000 and December 31, 1999,
respectively. The allowance for loan losses at June 30, 2000 amounted to $4.3
million or 1.15% of total loans compared to $3.9 million or 1.16% of total loans
at December 31, 1999, and $4.0 million or 1.25% of total loans at June 30, 1999.
Deposits. Total deposits at June 30, 2000 were $405.7 million, an increase
of 8% over deposits of $376.6 million at December 31, 1999. Certificates of
deposit in amounts greater than $100,000 or more totaled $104.3 million at June
30, 2000, compared to $89.3 million at December 31, 1999. The majority of these
deposits are from long standing customers who reside or own businesses in the
Bank's primary service area, and therefore, are believed by the Bank to be
stable, and for all practicable purposes, no more rate sensitive than core
deposits.
Borrowed Funds. Federal Home Loan Bank borrowings were $14.4 million at
June 30, 2000 compared to $14.5 million at December 31, 1999. The average
balance of Federal Home Loan Bank borrowings for the six months ended June 30,
2000 was $14.3 million compared to $13.5 million for the year ended December 31,
1999. At June 30, 2000, Federal Home Loan Bank borrowings with maturities
exceeding one year amounted to $12.4 million. Federal funds purchased amounted
to $5.1 million as of June 30, 2000. The Company had no federal funds purchased
as of December 31, 1999 or June 30, 1999. The increase in federal funds
purchased reflects a continued increase in loan demand.
Capital Structure. Shareholders' equity at June 30, 2000 was $39.8 million
compared to $38.0 million at December 31, 1999. In addition, at June 30, 2000
and December 31, 1999, unrealized gains and losses, net of taxes, in the
available-for-sale securities portfolio amounted to a loss of $1.1 million and a
loss of $920,000, respectively. Annualized return on average equity for the six
months ended June 30, 2000 was 13.03% compared to 11.54% for the year ended
December 31, 1999. Total cash dividends paid as of June 30, 2000 amounted to
$615,000 an increase of 17% compared to total cash dividends of $527,000 paid
for the first six months of 1999.
12
Under the regulatory capital guidelines of the Federal Reserve System (the
"Federal Reserve"), financial institutions are currently required to maintain a
total risk-based capital ratio of 8.0% or greater, with a Tier 1 risk-based
capital ratio of 4.0% or greater. Tier 1 capital is generally defined as
shareholders' equity less all intangible assets and goodwill. The Company's
Tier I capital ratio was 10.39% and 10.99% at June 30, 2000 and December 31,
1999, respectively. Total risk based capital is defined as Tier 1 capital plus
supplementary capital. Supplementary capital, or Tier 2 capital, consists of
the Company's allowance for loan losses, not exceeding 1.25% of the Company's
risk-weighted assets. Total risk-based capital ratio is therefore defined as the
ratio of total capital (Tier 1 capital and Tier 2 capital) to risk-weighted
assets. The Company's total risk based capital ratio was 11.51% and 12.11% at
June 30, 2000 and December 31, 1999, respectively. In addition to the Tier I
and total risk-based capital requirements, financial institutions are also
required by the Federal Reserve to maintain a leverage ratio of Tier 1 capital
to total average assets of 4.0% or greater. The Company's Tier I leverage
capital ratio was 8.77% and 9.21% at June 30, 2000 and December 31, 1999,
respectively.
A bank is considered to be "well capitalized" if it has a total risk-based
capital ratio of 10.0 % or greater, a Tier I risk-based capital ratio of 6.0% or
greater, and has a leverage ratio of 5.0% or greater. Based upon these
guidelines, the Bank was considered to be "well capitalized" at June 30, 2000
and December 31, 1999.
Liquidity. The Bank's liquidity position is generally determined by the
need to respond to short term demand for funds created by deposit withdrawals
and the need to provide resources to fund assets, typically in the form of
loans. How the Bank responds to these needs is affected by the Bank's ability to
attract deposits, the maturity of the loans and securities, the flexibility of
assets within the securities portfolio, the current earnings of the Bank, and
the ability to borrow funds from other sources. The Bank's primary sources of
liquidity are cash and cash equivalents, available-for-sale securities, deposit
growth, and the cash flows from principal and interest payments on loans and
other earning assets. In addition, the Bank is able, on a short-term basis, to
borrow funds from the Federal Reserve System, the Federal Home Loan Bank of
Atlanta (FHLB) and The Bankers Bank, and is also able to purchase federal funds
from other financial institutions. At June 30, 2000 the Bank had a $30 million
line of credit with the FHLB, with an outstanding balance of $14.4 million. The
Bank also has the ability to borrow up to $10 million through The Bankers Bank.
At June 30, 2000, the Bank had $5.1 million in federal funds purchased with The
Bankers Bank. The liquidity ratio for the Bank, which is defined as net cash,
interest bearing deposits with banks, Federal Funds sold, certain investment
securities and certain FHLB advances, as a percentage of net deposits (adjusted
for deposit runoff projections) and short-term liabilities was 23.10% at June
30, 2000 and 26.70% at December 31, 1999. The decrease in the Bank's liquidity
ratio reflects strong loan demand prevalent in the Bank's area.
13
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes in the quantitative and qualitative
disclosures about market risks as of June 30, 2000 from that presented in the
Company's Annual Report on Form 10-K for the fiscal year ended December 31,
1999.
14
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In the opinion of management, the Company is not involved in any
pending legal proceedings other than routine, non-material
proceedings occurring in the ordinary course of business.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) Annual Shareholders' Meeting - May 4, 2000
(b) Directors elected at the meeting are as follows: Robert C.
Abernethy, James S. Abernethy, and Larry E. Robinson.
Continuing directors include: Bruce R. Eckard, B. E.
Matthews, Dan Ray Timmerman, Sr., Benjamin I. Zachary,
John H. Elmore, Jr., Charles F. Murray, and
Fred L. Sherrill, Jr.
(c) At the May 4, 2000 Annual Shareholders Meeting the
following items were submitted to a vote of shareholders:
Election of Directors - The following directors were elected
for a term of three years.
Vote For Withhold Authority
--------- ------------------
Robert C. Abernethy 2,672,659 12,667
James S. Abernethy 2,672,716 12,610
Larry E. Robinson 2,672,716 12,610
Ratification of appointment of Independent Public
Accountants - Porter Keadle Moore LLP
Votes For - 2,674,920, Votes Against - 900,
Votes Abstained - 9,506
(d) Not applicable
ITEM 5. OTHER INFORMATION
Not applicable
15
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K
The Company filed a Form 8-K on April 4, 2000, announcing
plans to issue a 10% stock dividend to be distributed on
April 24, 2000 to shareholders of record on April 10, 2000.
16
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Peoples Bancorp of North Carolina, Inc.
August 14, 2000 By: /S/ Tony W. Wolfe
---------------- -------------------------------------
Date Tony W. Wolfe
President and Chief Executive Officer
(Principal Executive Officer)
August 14, 2000 By: /S/ Joseph F. Beaman, Jr.
---------------- -------------------------------------
Date Joseph F. Beaman, Jr.
Executive Vice President and Chief
Financial Officer
(Principal Financial and Principal
Accounting Officer)
17