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, 2003
-------------
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)
518 WEST C STREET
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 by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes No X
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
3,133,547 SHARES OF COMMON STOCK, NO PAR VALUE, OUTSTANDING AT AUGUST 14, 2003.
- --------------------------------------------------------------------------------
INDEX
PART I - FINANCIAL INFORMATION
PAGE(S)
Item 1. Financial Statements
Consolidated Balance Sheets at June 30, 2003 (Unaudited) and
December 31, 2002 3
Consolidated Statements of Earnings for the three months
ended June 30, 2003 and June 30, 2002 (Unaudited), and for
the six months ended June 30, 2003 and June 30, 2002
(Unaudited) 4
Consolidated Statements of Comprehensive Income for the
three months ended June 30, 2003 and June 30, 2002
(Unaudited), and for the six months ended June 30, 2003 and
June 30, 2002 (Unaudited) 5
Consolidated Statements of Cash Flows for the six months
ended June 30, 2003 and June 30, 2002 (Unaudited) 6-7
Notes to Consolidated Financial Statements (Unaudited) 8-10
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 11-17
Item 3. Quantitative and Qualitative Disclosures About Market Risk 18
Item 4. Controls and Procedures 19
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 20
Item 2. Changes in Securities and Use of Proceeds 20
Item 3. Defaults upon Senior Securities 20
Item 4. Submission of Matters to a Vote of Security Holders 20
Item 5. Other Information 20
Item 6. Exhibits and Reports on Form 8-K 20-22
Signatures 23
Certifications 24-26
Statements made in this Form 10-Q, 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
Form 10-Q 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 environments 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, 2002, under "General Description of Business."
2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PEOPLES BANCORP OF NORTH CAROLINA, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
June 30, December 31,
Assets 2003 2002
------ ------------ -------------
(Unaudited)
Cash and due from banks $ 21,151,593 13,803,665
Federal funds sold 9,389,000 1,774,000
------------ -------------
Cash and cash equivalents 30,540,593 15,577,665
------------ -------------
Investment securities available for sale 73,457,013 71,735,705
Other investments 4,021,973 4,345,573
------------ -------------
Total securities 77,478,986 76,081,278
------------ -------------
Mortgage loans held for sale 6,026,760 5,064,635
Loans, net 526,152,396 519,121,840
Premises and equipment, net 12,870,461 15,620,977
Cash surrender value of life insurance 4,948,580 4,828,708
Accrued interest receivable and other assets 7,028,571 8,446,435
------------ -------------
Total assets $665,046,347 644,741,538
============ =============
Liabilities and Shareholders' Equity
------------------------------------
Deposits:
Non-interest bearing demand $ 76,511,443 67,398,458
NOW, MMDA & savings 151,967,089 156,554,189
Time, $100,000 or more 177,140,673 160,836,596
Other time 133,684,594 130,949,712
------------ -------------
Total deposits 539,303,799 515,738,955
Demand notes payable to U.S. Treasury 1,600,000 1,600,000
FHLB borrowings 58,000,000 63,071,429
Trust preferred securities 14,000,000 14,000,000
Accrued interest payable and other liabilities 1,516,597 1,726,421
------------ -------------
Total liabilities 614,420,396 596,136,805
------------ -------------
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 3,133,547 shares 35,097,773 35,097,773
Retained earnings 12,976,941 12,094,363
Accumulated other comprehensive income 2,551,237 1,412,597
------------ -------------
Total shareholders' equity 50,625,951 48,604,733
------------ -------------
Total liabilities and shareholders' equity $665,046,347 644,741,538
============ =============
See accompanying notes to consolidated financial statements.
3
PEOPLES BANCORP OF NORTH CAROLINA, INC. AND SUBSIDIARIES
Consolidated Statements of Earnings
Three Months Ended Six Months Ended
------------------------------- ------------------------------
June 30, 2003 June 30, 2002 June 30, 2003 June 30, 2002
--------------- -------------- -------------- --------------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
Interest Income:
Interest and fees on loans $ 7,823,938 7,939,039 15,607,361 15,754,574
Interest on federal funds sold 27,168 13,100 44,097 23,848
Interest on investment securities:
U.S. Government agencies 548,989 908,465 1,184,115 1,873,572
States and political subdivisions 141,690 153,602 291,351 329,634
Other 108,830 125,266 217,797 246,998
--------------- -------------- -------------- --------------
Total interest income 8,650,615 9,139,472 17,344,721 18,228,626
--------------- -------------- -------------- --------------
Interest expense:
NOW, MMDA & savings deposits 328,237 538,993 634,997 1,049,346
Time deposits 2,077,721 2,749,898 4,180,477 5,968,764
FHLB borrowings 641,982 652,023 1,301,923 1,336,932
Trust preferred securities 166,250 183,750 332,500 367,500
Other 1,446 2,494 3,682 12,128
--------------- -------------- -------------- --------------
Total interest expense 3,215,636 4,127,158 6,453,579 8,734,670
--------------- -------------- -------------- --------------
Net interest income 5,434,979 5,012,314 10,891,142 9,493,956
Provision for loan losses 2,276,900 1,266,100 3,069,900 1,766,100
--------------- -------------- -------------- --------------
Net interest income after provision
for loan losses 3,158,079 3,746,214 7,821,242 7,727,856
--------------- -------------- -------------- --------------
Other income:
Service charges 818,928 748,987 1,591,079 1,409,483
Other service charges and fees 145,442 114,190 304,880 277,059
Mortgage banking income 213,751 169,913 404,108 399,867
Insurance and brokerage commissions 102,230 125,637 199,192 245,265
Gain (loss) on sale of repossessed assets (552,755) (15,977) (550,966) (3,257)
Gain on sale of loans - - 478,759 -
Miscellaneous 328,416 263,028 613,318 601,305
--------------- -------------- -------------- --------------
Total other income 1,056,012 1,405,778 3,040,370 2,929,722
--------------- -------------- -------------- --------------
Other expense:
Salaries and employee benefits 2,365,716 2,416,871 4,929,510 4,853,873
Occupancy 815,277 753,730 1,650,166 1,513,073
Other 993,998 1,022,692 2,042,248 2,041,057
--------------- -------------- -------------- --------------
Total other expenses 4,174,991 4,193,293 8,621,924 8,408,003
--------------- -------------- -------------- --------------
Earnings before income taxes 39,100 958,699 2,239,688 2,249,575
Income taxes (52,100) 312,400 730,400 717,400
--------------- -------------- -------------- --------------
Net earnings $ 91,200 646,299 1,509,288 1,532,175
=============== ============== ============== ==============
Basic earnings per share $ 0.03 0.21 0.48 0.48
=============== ============== ============== ==============
Diluted earnings per share $ 0.03 0.20 0.48 0.48
=============== ============== ============== ==============
Cash dividends declared per share $ 0.10 0.10 0.20 0.20
=============== ============== ============== ==============
See accompanying notes to consolidated financial statements.
4
PEOPLES BANCORP OF NORTH CAROLINA, INC. AND SUBSIDIARIES
Consolidated Statements of Comprehensive Income
Three Months Ended Six Months Ended
------------------------------- ------------------------------
June 30, 2003 June 30, 2002 June 30, 2003 June 30, 2002
--------------- -------------- -------------- --------------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
Net earnings $ 91,200 646,299 1,509,288 1,532,175
--------------- -------------- -------------- --------------
Other comprehensive income, net of tax:
Unrealized gain on
investment securities, net
of taxes of $390,716,
$597,495, $427,794
and $520,763,
respectively 612,406 936,510 670,522 816,241
Unrealized gain on derivative
financial instruments
qualifying as cash flow
hedges, net of tax of
$344,621, $77,900,
$298,660 and $77,900,
respectively 540,157 122,100 468,118 122,100
--------------- -------------- -------------- --------------
Other comprehensive income 1,152,563 1,058,610 1,138,640 938,341
--------------- -------------- -------------- --------------
Comprehensive income $ 1,243,763 1,704,909 2,647,928 2,470,516
=============== ============== ============== ==============
See accompanying notes to consolidated financial statements.
5
PEOPLES BANCORP OF NORTH CAROLINA, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Six months ended June 30, 2003 and 2002
2003 2002
------------- ------------
(Unaudited) (Unaudited)
Cash flows from operating activities:
Net earnings $ 1,509,288 1,532,175
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation, amortization and accretion 974,342 714,907
Provision for loan losses 3,069,900 1,766,100
Gain on sale of mortgage loans - (17,578)
Gain on sale of premises and equipment (1,758) -
Recognition of gain on sale of derivative instruments (83,807) -
Loss (gain) on sale of repossessed assets 150,966 (12,290)
Change in:
Cash surrender value of life insurance (119,872) (122,854)
Other assets 606,242 (258,185)
Other liabilities (209,825) 252,126
Mortgage loans held for sale (962,125) 3,267,139
------------- ------------
Net cash provided by operating activities 4,933,351 7,121,540
------------- ------------
Cash flows from investing activities:
Purchases of investment securities available-for-sale (14,175,199) (500,000)
Proceeds from calls and maturities of investment securities
available for sale 13,428,914 9,846,591
Change in other investments 323,600 (300,000)
Net change in loans (8,006,460) (16,271,886)
Purchases of premises and equipment (1,645,835) (1,110,088)
Proceeds from sale of premises and equipment 45,000 3,950
Write-downs of repossessed assets 400,000 -
Proceeds from sale of repossessed assets 538,851 183,173
Proceeds from sale of derivative instruments 1,254,000 -
------------- ------------
Net cash used in investing activities (7,837,129) (8,148,260)
------------- ------------
Cash flows from financing activities:
Net change in deposits 23,564,844 14,732,646
Net change in demand notes payable to U.S. Treasury - 1,370,480
Proceeds from FHLB borrowings 29,850,000 18,500,000
Repayments of FHLB advances (34,921,429) (28,571,429)
Transaction costs associated with trust preferred securities - (36,537)
Common stock repurchased - (1,146,250)
Proceeds from exercise of options - 4,225
Cash dividends (626,709) (628,882)
------------- ------------
Net cash provided by financing activities 17,866,706 4,224,253
------------- ------------
Net change in cash and cash equivalents 14,962,928 3,197,533
Cash and cash equivalents at beginning of period 15,577,665 15,303,320
------------- ------------
Cash and cash equivalents at end of period $ 30,540,593 18,500,853
============= ============
6
PEOPLES BANCORP OF NORTH CAROLINA, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Six months ended June 30, 2003 and 2002
(Continued)
2003 2002
------------ -----------
(Unaudited) (Unaudited
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 6,646,910 8,931,807
Income taxes $ 1,140,897 844,000
Noncash investing and financing activities:
Change in net unrealized gain (loss) on investment securities
available for sale and derivative financial instruments, net of tax $ 1,138,640 938,341
Transfer of loans to other real estate $ 1,635,936 196,476
Financed sale of fixed assets $ 3,774,932 -
See accompanying notes to consolidated financial statements.
7
PEOPLES BANCORP OF NORTH CAROLINA, INC. AND SUBSIDIARIES
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 subsidiaries,
PEBK Capital Trust I and Peoples Bank (the "Bank"), along with the Bank's
wholly owned subsidiaries, Peoples Investment Services, Inc. and Real
Estate Advisory Services, Inc. (collectively called the "Company"). All
significant intercompany balances and transactions have been eliminated in
consolidation.
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 accounting principles generally accepted in
the United States of America. Actual results could differ from those
estimates.
Critical Accounting Policies
------------------------------
The Company's accounting policies are fundamental to understanding
management's discussion and analysis of results of operations and financial
condition. Many of the Company's accounting policies require significant
judgment regarding valuation of assets and liabilities and/or significant
interpretation of the specific accounting guidance. 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 2003 Annual
Report to Shareholders which is Appendix A to the Proxy Statement for the
May 1, 2003 Annual Meeting of Shareholders. The following is a summary of
the more judgmental and complex accounting policies of the Company.
Many of the Company's assets and liabilities are recorded using various
valuation techniques that require significant judgment as to
recoverability. The collectibility of loans is reflected through the
Company's estimate of the allowance for loan losses. The Company performs
periodic and systematic detailed reviews of its lending portfolio to assess
overall collectibility. In addition, certain assets and liabilities are
reflected at their estimated fair value in the consolidated financial
statements. Such amounts are based on either quoted market prices or
estimated values derived by the Company utilizing dealer quotes or market
comparisons.
There are other complex accounting standards that require the Company to
employ significant judgment in interpreting and applying certain of the
principles prescribed by those standards. These judgments include, but are
not limited to, the determination of whether a financial instrument or
other contract meets the definition of a derivative in accordance with
Statement of Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments and Hedging Activities" (SFAS 133), and the
applicable hedge deferral criteria.
(2) Allowance for Loan Losses
----------------------------
The following is an analysis of the allowance for loan losses for the six
months ended June 30, 2003 and 2002:
2003 2002
------------ ----------
Balance, beginning of period $ 7,247,906 6,090,570
Provision for loan losses 3,069,900 1,766,100
Less:
Charge-offs (1,378,922) (818,000)
Recoveries 94,458 78,481
------------ ----------
Net charge-offs (1,284,464) (739,519)
------------ ----------
Balance, end of period $ 9,033,342 7,117,151
============ ==========
8
(3) Net Earnings Per Share
-------------------------
Net 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. The average market price during the year is used to
compute equivalent shares.
The reconciliation of the amounts used in the computation of both "basic
earnings per share" and "diluted earnings per share" for the three months
and six months ended June 30, 2003 is as follows:
For the three months ended June 30, 2003
----------------------------------------
Per Share
Net Earnings Common Shares Amount
------------- ------------- ----------
Basic earnings per share $ 91,200 3,133,547 $ 0.03
==========
Effect of dilutive securities:
Stock options - 25,394
------------- -------------
Diluted earnings per share $ 91,200 3,158,941 $ 0.03
============= ============= ==========
For the six months ended June 30, 2003
--------------------------------------
Per Share
Net Earnings Common Shares Amount
------------- ------------- ----------
Basic earnings per share $ 1,509,288 3,133,547 $ 0.48
==========
Effect of dilutive securities:
Stock options - 16,706
------------- -------------
Diluted earnings per share $ 1,509,288 3,150,253 $ 0.48
============= ============= ==========
The reconciliation of the amounts used in the computation of both "basic
earnings per share" and "diluted earnings per share" for the three months
and six months ended June 30, 2002 is as follows:
For the three months ended June 30, 2002
----------------------------------------
Per Share
Net Earnings Common Shares Amount
------------- ------------- ----------
Basic earnings per share $ 646,299 3,145,547 $ 0.21
==========
Effect of dilutive securities:
Stock options - 13,802
------------- -------------
Diluted earnings per share $ 646,299 3,159,349 $ 0.20
============= ============= ==========
For the six months ended June 30, 2002
--------------------------------------
Per Share
Net Earnings Common Shares Amount
------------- ------------- ----------
Basic earnings per share $ 1,532,175 3,165,780 $ 0.48
==========
Effect of dilutive securities:
Stock options - 10,405
------------- -------------
Diluted earnings per share $ 1,532,175 3,176,185 $ 0.48
============= ============= ==========
(4) Derivative Instruments and Hedging Activities
-------------------------------------------------
In the normal course of business, the Company enters into derivative
contracts to manage interest rate risk by modifying the characteristics of
the related balance sheet instruments in order to reduce the adverse effect
of changes in interest rates. All derivative financial instruments are
recorded at fair value in the financial statements. On the date a
derivative contract is entered into, the Company designates the derivative
as a fair value hedge, a
9
cash flow hedge, or a trading instrument. Changes in the fair value of
instruments used as fair value hedges are accounted for in the earnings of
the period simultaneous with accounting for the fair value change of the
item being hedged. Changes in the fair value of the effective portion of
cash flow hedges are accounted for in other comprehensive income rather
than earnings. Changes in fair value of instruments that are not intended
as a hedge are accounted for in the earnings of the period of the change.
The Company formally documents all hedging relationships, including an
assessment that the derivative instruments are expected to be highly
effective in offsetting the changes in fair values or cash flows of the
hedged items.
As of June 30, 2003, the Company had a cash flow hedge with a notional
amount of $25 million. This derivative instrument consists of an interest
rate swap agreement that was used to convert floating rate loans to fixed
rate for a period of three years ending in April 2006. Interest rate swap
agreements generally involve the exchange of fixed and variable rate
interest payments between two parties, based on a common notional principal
amount and maturity date. The terms of the swaps are determined based on
management's assessment of future interest rates and other factors. The
Company recorded an asset of $348,000 for the fair value of this cash flow
hedge resulting in an after-tax increase in other comprehensive income of
$212,500. As of June 30, 2003, no ineffectiveness was recorded in earnings.
Additionally, the Company settled two previously outstanding interest rate
swap agreements during the quarter ended June 30, 2003. The first swap with
a notional amount of $40.0 million and scheduled to mature in June 2004 was
sold for a gain of $860,000. The second swap with a notional amount of
$20.0 million and scheduled to mature in July 2004 was sold for a gain of
$394,000. The gains realized upon settlement are being recognized over the
original term of the agreements.
(5) Commitments and Contingencies
-------------------------------
The Company is party to financial instruments with off-balance-sheet risk
in the normal course of business to meet the financing needs of its
customers. These financial instruments include commitments to extend
credit, standby letters of credit and financial guarantees. Those
instruments involve, to varying degrees, elements of credit risk in excess
of the amount recognized in the balance sheet. The contract amounts of
those instruments reflect the extent of involvement the Company has in
particular classes of financial instruments. At June 30, 2003, the
contractual amounts of the Company's commitments to extend credit and
standby letters of credit were $105.9 million and $2.0 million,
respectively.
Commitments to extend credit are agreements to lend to a customer as long
as there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates and because they may
expire without being drawn upon, the total commitment amount of $105.9
million does not necessarily represent future cash requirements. Standby
letters of credit and financial guarantees written are conditional
commitments issued by the Company to guarantee the performance of a
customer to a third party.
The Company has an overall interest rate-risk management strategy that
incorporates the use of derivative instruments to minimize significant
unplanned fluctuations in earnings that are caused by interest rate
volatility. By using derivative instruments, the Company is exposed to
credit and market risk. If the counterparty fails to perform, credit risk
is equal to the extent of the fair-value gain in the derivative. The
Company attempts to minimize the credit risk in derivative instruments by
entering into transactions with counterparties that are reviewed
periodically by the Company and are believed to be of high quality.
10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Summary. Net earnings for the second quarter of 2003 were $91,000, or
$0.03 basic and diluted net earnings per share. Net earnings from recurring
operations for the three months ended June 30, 2003 were $419,000, or $0.13
basic and diluted net earnings per share, representing a 36% decrease from
second quarter 2002 net income from recurring operations of $657,000, or $0.21
basic and diluted net earnings per share. The decrease in recurring earnings is
primarily attributable to an increase in the provision for loan losses. Net
non-recurring losses on disposition of assets were $553,000 for the three months
ended June 30, 2003, as compared to $16,000 for the three months ended June 30,
2002.
The annualized return on average assets was 0.06% for the three months
ended June 30, 2003 compared to 0.42% for the same period in 2002, and
annualized return on average shareholders' equity was 0.73% for the three months
ended June 30, 2003 compared to 5.69% for the same period in 2002. Excluding
non-recurring gains and losses on the disposition of assets, the annualized
return on average assets was 0.26% for the three months ended June 30, 2003
compared to 0.42% for the same period in 2002, and annualized return on average
shareholders' equity was 3.33% for the three months ended June 30, 2003 compared
to 5.78% for the same period in 2002.
Net earnings for the six months ended June 30, 2003 were $1.5 million, or
$0.48 basic and diluted earnings per share. Net earnings from recurring
operations for the six months ended June 30, 2003 were $1.6 million, or $0.50
basic earnings per share and $0.49 diluted net earnings per share, representing
a 1% increase over net earnings from recurring operations of $1.5 million, or
$0.48 basic and diluted earnings per share for the six months ended June 30,
2002. Net non-recurring losses on disposition of assets in 2003 amounted to
$44,000, net of income tax expense. Net losses on disposition of assets included
a $551,000 net loss on repossessed assets, which was partially offset by a
$479,000 gain associated with the sale of the Bank's $3.7 million credit card
portfolio during the first quarter. The Company had non-recurring losses on the
disposition of assets of $3,000 in the six months ended June 30, 2002.
The annualized return on average assets was 0.47% and annualized return on
average shareholders' equity was 6.08% for the six months ended June 30, 2003.
Excluding non-recurring gains and losses on disposition of assets, the
annualized return on average assets was 0.48% for the six months ended June 30,
2003 compared to 0.50% for the same period in 2002, and annualized return on
average shareholders' equity was 6.25% for the six months ended June 30, 2003
compared to 6.70% for the same period in 2002.
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, 2003
an increase of 8% over the $5.0 million earned in the same period in 2002. The
increase in net interest income for the second quarter of 2003 was primarily
attributable to a decrease in the cost of funds, which reflects a general
decline in market interest rates paid on deposits.
Interest income decreased $489,000 or 5% for the three months ended June
30, 2003 compared with the same period in 2002. The decrease was due to a
decrease in the yield on earning assets, which is primarily attributable to a
decrease in the yield on investments resulting from accelerated repayments of
mortgage-backed securities (MBS) being reinvested at current market rates, which
are substantially lower than the market rates in place when the MBS were
acquired in prior years, combined with a decrease in the prime commercial
lending rate of the Bank. MBS purchased in prior years were purchased with
yields ranging from 5.50% to 7.00% compared to MBS purchased at current market
rates, which are purchased with yields ranging from 3.00% to 4.50%.
Interest expense decreased $912,000 or 22% for the three months ended June
30, 2003 compared with the same period in 2002. The decrease in interest expense
was due to a decrease in the cost of funds to 2.40% for
11
the three months ended June 30, 2003 from 3.22% for the same period in 2002,
partially offset by an increase in volume of interest bearing liabilities. The
decrease in the cost of funds is primarily attributable to a decrease in the
average rate paid on certificates of deposit to 2.68% for the three months ended
June 30, 2003 from 3.87% for the same period one year ago.
Net interest income for the six month period ended June 30, 2003 was $10.9
million, an increase of 15% over net interest income of $9.5 million for the six
months ended June 30, 2002. The increase was primarily attributable to a
decrease in the cost of funds, which reflects a general decline in market
interest rates paid on deposits.
Interest income decreased $884,000 or 5% to $17.3 million for the six
months ended June 30, 2003 compared to $18.2 million for the same period in
2002. The decrease was due to a decrease in the yield on earning assets, which
is primarily attributable to a decrease in the yield on investments combined
with a decrease in the Bank's prime commercial lending rate. Average loans
increased 7% to $535.4 million, while average investment securities available
for sale decreased 15% to $68.7 million in the six months ended June 30, 2003
compared to the same period in 2002. All other interest-earning assets including
federal funds sold increased to an average of $13.6 million in the six months
ended June 30, 2003 from $7.7 million in the same period in 2002. The tax
equivalent yield on average earning assets decreased to 5.71% for the six months
ended June 30, 2003 from 6.29% for the six months ended June 30, 2002.
Interest expense decreased 26% to $6.5 million for the six months ended
June 30, 2003 compared to $8.7 million for the corresponding period in 2002. The
decrease in interest expense was due to a decrease in the average rate paid on
interest bearing liabilities to 2.43% for the six months ended June 30, 2003
from 3.42% for the same period in 2002, partially offset by an increase in
volume of interest bearing liabilities. The decrease in the cost of funds is
primarily attributable to a decrease in the average rate paid on certificates of
deposit to 2.74% for the six months ended June 30, 2003 from 4.21% for the same
period in 2002.
Provision for Loan Losses. For the three months ended June 30, 2003 a
contribution of $2.3 million was made to the provision for loan losses compared
to $1.3 million for the three months ended June 30, 2002. For the six months
ended June 30, 2003 a contribution of $3.1 million was made to the provision for
loan losses compared to a $1.8 million contribution to the provision for loan
losses for the six months ended June 30, 2002. The increase in the provision for
loan losses reflects an increase in classified loans and non-performing assets,
which is the result of adverse business conditions in the Bank's market area and
the cumulative effect on certain businesses from terrorist activities in 2001
and the Washington, DC sniper attacks in 2002.
Non-Interest Income. Total non-interest income was $1.1 million in the
second quarter of 2003, a 25% decrease from the $1.4 million earned in the same
period of 2002. This decrease is primarily attributable to an increase in net
losses on the disposition of repossessed assets, which totaled $553,000 for the
three months ended June 30, 2003 compared to $16,000 for the same period in
2002. Service charges were $819,000 for the three months ended June 30, 2003, a
9% increase over the same period in 2002. This is primarily attributable to an
increase in account maintenance fees coupled with deposit growth. Miscellaneous
income was $328,416 for the three months ended June 30, 2003, a 25% increase
over the same period in 2002. The increase in miscellaneous income is primarily
attributable to an increase in appraisal fee income. Excluding non-recurring
losses on the disposition of assets, non-interest income for the three months
ended June 30, 2003 increased 13% as compared to the same period last year.
Total non-interest income was $3.0 million for the six months ended June
30, 2003, an increase of 4% from the $2.9 million earned in the same period of
2002. Service charges were $1.6 million for the six months ended June 30, 2003,
a 13% increase over the same period in 2002. This is primarily attributable to
an increase in account maintenance fees coupled with deposit growth. Net losses
on the disposition of assets were $72,000 for the six months ended June 30, 2003
compared to $3,000 for the same period in 2002. Miscellaneous income increased
2% to $613,318 for the six months ended June 30, 2003. Excluding gains on losses
on disposition of assets, non-interest income for the six months ended June 30,
2003 increased 6% as compared to the same period last year.
12
Non-Interest Expense. Total non-interest expense was $4.2 million for the
second quarter of 2003 and 2002. Salary and employee benefits totaled $2.4
million for the three months ended June 30, 2003 and 2002. Occupancy expense
increased 8% for the quarter ended June 30, 2003 due to operating expenses
associated with two additional branches opened after June 30, 2002. Other
expense decreased 3% to $994,000 for the three months ended June 30, 2003 as
compared to the same period in 2002. The decrease in other expense is primarily
attributable to a reduction in credit card processing expense, resulting from
the sale of the Bank's credit card portfolio during first quarter of 2003.
Total non-interest expense was $8.6 million for the six months ended June
30, 2003, an increase of 3% from the same period in 2002. The increase in
non-interest expense for the six months ending June 30, 2003 is primarily due to
a 9% increase in occupancy expense for the six months ended June 30, 2003 as
compared to the same period of 2002. This is primarily attributable to
increased operating expenses associated with the new branches. Salary and
employee benefits totaled $4.9 million for the six months ended June 30, 2003
and 2002. Other expense totaled $2.0 million for the six months ended June 30,
2003 and 2002.
Income Taxes. The Company reported an income tax credit of $52,000 for the
second quarter of 2003. This was attributable to a decrease in taxable income
for the quarter after excluding non-taxable income. Income taxes of $312,000
represented an effective tax rate of 33% for the second quarter of 2002.
The Company reported income taxes of $730,000 and $717,000 for the six
months ended June 30, 2003 and 2002, respectively. This represented effective
tax rates of 33% and 32% for the respective periods.
ANALYSIS OF FINANCIAL CONDITION
Investment Securities. Available-for-sale securities amounted to $73.5
million at June 30, 2003 compared to $71.7 million at December 31, 2002. This
increase is attributable to additional securities purchases along with an
increase in market value. These increases were partially offset by paydowns on
mortgage-backed securities and maturities during the six months ended June 30,
2003. Average investment securities for the six months ended June 30, 2003
amounted to $68.7 million compared to $77.4 million for the year ended December
31, 2002.
Loans. At June 30, 2003, loans amounted to $535.2 million compared to
$526.4 million at December 31, 2002, an increase of $8.8 million. Average loans
represented 87% of total earning assets for the six months ended June 30, 2003,
compared to 86% for the year ended December 31, 2002. Mortgage loans held for
sale were $6.0 million and $5.1 million at June 30, 2003 and December 31, 2002,
respectively.
Allowance for Loan Losses. The allowance for loan losses reflects
management's assessment and estimate of the risks associated with extending
credit and its evaluation of the quality of the loan portfolio. The Bank
periodically analyzes the loan portfolio in an effort to review asset quality
and to establish an allowance for loan losses that management believes will be
adequate in light of anticipated risks and loan losses. In assessing the
adequacy of the allowance, size, quality and risk of loans in the portfolio are
reviewed. Other factors considered are:
- the Bank's loan loss experience;
- the amount of past due and nonperforming loans;
- specific known risks;
- the status and amount of other past due and non-performing assets;
- underlying estimated values of collateral securing loans;
- current and anticipated economic conditions; and
- other factors which management believes affect the allowance for
potential credit losses.
An analysis of the credit quality of the loan portfolio and the adequacy of
the allowance for loan losses is
13
prepared by the Bank's credit administration personnel and presented to the
Bank's Executive and Loan Committee on a regular basis. The allowance is the
total of specific reserves allocated to significant individual credits plus a
general reserve. After individual loans with specific allocations have been
deducted, the general reserve is calculated by applying general reserve
percentages to the nine risk grades within the portfolio. Loans are categorized
as one of nine risk grades based on management's assessment of the overall
credit quality of the loan, including payment history, financial position of the
borrower, underlying collateral and internal credit review. The general reserve
percentages are determined by management based on its evaluation of losses
inherent in the various risk grades of loans. The allowance for loan losses is
established through charges to expense in the form of a provision for loan
losses. Loan losses and recoveries are charged and credited directly to the
allowance.
The following table presents the percentage of loans assigned to each risk
grade along with the general reserve percentage applied to loans in each risk
grade at June 30, 2003 and December 31, 2002.
LOAN RISK GRADE ANALYSIS: PERCENTAGE OF LOANS GENERAL RESERVE
BY RISK GRADE PERCENTAGE
----------------------- -----------------------
6/30/2003 12/31/2002 6/30/2003 12/31/2002
---------- ----------- ---------- -----------
Risk 1 (Excellent Quality) 9.60% 8.92% 0.15% 0.15%
Risk 2 (High Quality) 30.04% 33.19% 0.50% 0.50%
Risk 3 (Good Quality) 49.60% 46.28% 1.00% 1.00%
Risk 4 (Management Attention) 4.09% 5.33% 2.50% 2.50%
Risk 5 (Watch) 3.35% 3.32% 7.00% 7.00%
Risk 6 (Substandard) 1.49% 2.04% 12.00% 12.00%
Risk 7 (Low Substandard) 0.12% 0.03% 25.00% 25.00%
Risk 8 (Doubtful) 0.00% 0.00% 50.00% 50.00%
Risk 9 (Loss) 0.00% 0.01% 100.00% 100.00%
At June 30, 2003 there were four relationships exceeding $1 million each
(which totaled $11.7 million) in the Watch risk grade and two relationships
exceeding $1 million each (which totaled $6.2 million) in the Substandard risk
grade. Balances of individual relationships exceeding $1 million in these risk
grades ranged from $2.3 million to $3.9 million. These customers continue to
meet payment requirements and would not become non-performing assets unless they
are unable to meet those requirements.
An allowance for loan losses is also established, as necessary, for
individual loans considered to be impaired in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 114. A loan is considered impaired
when, based on current information and events, it is probable that all amounts
due according to the contractual terms of the loan will not be collected.
Impaired loans are measured based on the present value of expected future cash
flows, discounted at the loan's effective interest rate, or at the loan's
observable market price, or the fair value of collateral if the loan is
collateral dependent. At June 30, 2003 and December 31, 2002, the recorded
investment in loans that were considered to be impaired under SFAS No. 114 was
approximately $9.2 million and $4.8 million, respectively, with related
allowance for loan losses of approximately $2.6 million and $676,000,
respectively.
The allowance for loan losses increased to $9.0 million or 1.69% of total
loans outstanding at June 30, 2003 as compared to $7.2 million, or 1.38% of
total loans outstanding as of December 31, 2002. This increase in the allowance
for loan losses is attributable to specific reserves established on non-accrual
loans, including a $1.4 million reserve on loans of $2.5 million to one
customer.
The Bank's allowance for loan losses is also subject to regulatory
examinations and determinations as to adequacy, which may take into account such
factors as the methodology used to calculate the allowance for loan losses and
the size of the allowance for loan losses compared to a group of peer banks
identified by the regulators. During their routine examinations of banks, the
FDIC and the North Carolina Commissioner of Banks may require the Company to
recognize additions to the allowance based on their judgments about
14
information available to them at the time of their examination.
While it is the Bank's policy to charge off in the current period loans for
which a loss is considered probable, there are additional risks of future losses
which cannot be quantified precisely or attributed to particular loans or
classes of loans. Because these risks include the state of the economy,
management's judgment as to the adequacy of the allowance is necessarily
approximate and imprecise. After review of all relevant matters affecting loan
collectibility, management believes that the allowance for loan losses is
appropriate.
The Company grants loans and extensions of credit primarily within the
Catawba Valley region of North Carolina, which encompasses Catawba, Alexander,
Iredell and Lincoln counties. Although the Bank has a diversified loan
portfolio, a substantial portion of the loan portfolio is collateralized by real
estate, which is dependent upon the real estate market. Non-real estate loans
also can be affected by local economic conditions. At June 30, 2003,
approximately 7% of the Company's portfolio was not secured by any type of
collateral. Unsecured loans generally involve higher credit risk than secured
loans and, in the event of customer default, the Company has a higher exposure
to potential loan losses.
Non-performing Assets. Non-performing assets totaled $11.7 million at June
30, 2003 or 1.75% of total assets, compared to $6.6 million at December 31,
2002, or 1.03% of total assets. Non-accrual loans were $9.1 million at June 30,
2003, an increase of $4.5 million from non-accruals of $4.6 million at December
31, 2002. As a percentage of total loans outstanding, non-accrual loans were
1.71% at June 30, 2003 compared to 0.87% at December 31, 2002. The Bank had
loans ninety days past due and still accruing at June 30, 2003 of $ 81,000 as
compared to $238,000 at December 31, 2002. Other real estate owned totaled $1.7
million as of June 30, 2003 as compared to $240,000 at December 31, 2003. This
increase is from the acquisition of properties through foreclosure from a real
estate development customer that was adversely impacted by the slowdown in area
businesses. Repossessed assets, primarily consisting of aircraft taken in
collection of loans, totaled $711,000 and $1.5 million as of June 30, 2003 and
December 31, 2002, respectively. The Bank is actively marketing other real
estate owned and repossessed assets in an effort to dispose of these assets as
quickly and efficiently as possible.
Total non-performing loans, which include non-accrual loans and loans
ninety days past due and still accruing, were $9.2 million and $4.8 million at
June 30, 2003 and December 31, 2002, respectively. This increase is the result
of adverse business conditions in the Bank's market area and the cumulative
effect on a local business from terrorist activities in 2001 and the Washington,
DC sniper attacks in 2002. The ratio of non-performing loans to total loans was
1.72% at June 30, 2003, as compared to 0.92% at December 31, 2002.
Deposits. Total deposits at June 30, 2003 were $539.3 million, an increase
of 5% over deposits of $515.7 million at December 31, 2002. Certificates of
deposit in amounts greater than $100,000 or more totaled $177.1 million at June
30, 2003 as compared to $160.8 million at December 31, 2002. At June 30, 2003,
brokered deposits amounted to $54.6 million as compared to $39.9 million at
December 31, 2002. This reflects management's efforts to manage the cost of
funds by replacing high cost local deposits with lower cost brokered deposits to
fund loan growth. Brokered deposits are generally considered to be more
susceptible to withdrawal as a result of interest rate changes and to be a less
stable source of funds, as compared to deposits from the local market. Brokered
deposits outstanding as of June 30, 2003 have a weighted average rate of 2.72%
with a weighted average original term of 21.31 months.
Borrowed Funds. Borrowings from the Federal Home Loan Bank of Atlanta
("FHLB") totaled $58.0 million at June 30, 2003 compared to $63.1 million at
December 31, 2002. The average balance of FHLB borrowings for the six months
ended June 30, 2003 was $60.3 million compared to $61.0 million for the year
ended December 31, 2002. At June 30, 2003, FHLB borrowings with maturities
exceeding one year amounted to $52.0 million. The FHLB has the option to
convert $52,000,000 of the total advances outstanding into three month
LIBOR-based floating rate advances. If the FHLB elects to convert the advances,
the Bank may repay the advances without payment of a prepayment fee. The
Company had no federal funds purchased as of June 30, 2003 or December 31, 2002.
15
Interest Rate Risk Management. The objective of the Company's interest
rate risk management strategies is to identify and manage the sensitivity of net
interest income to changing interest rates, in order to achieve the Company's
overall financial goals.
The Company manages its exposure to fluctuations in interest rates through
policies established by the Asset/Liability Committee ("ALCO") of the Bank. The
ALCO meets monthly and has the responsibility for approving asset/liability
management policies, formulating and implementing strategies to improve balance
sheet positioning and/or earnings and reviewing the interest rate sensitivity of
the Company.
In order to assist in achieving a desired level of interest rate
sensitivity, the Company entered into an off-balance sheet contract during
second quarter of 2003 that is considered a derivative financial instrument. At
June 30, 2003, the Company had one interest rate swap contract outstanding,
accounted for as a cash flow hedge. Under the swap agreement, the Company
receives a fixed rate of 5.22% and pays a variable rate based on the current
prime rate (4.00% at June 30, 2003) on a notional amount of $25.0 million. The
swap agreement matures in April 2006. Management believes that the risk
associated with using this type of derivative financial instrument to mitigate
interest rate risk should not have any material unintended impact on the
Company's financial condition or results of operations.
The Company settled two previously outstanding interest rate swap
agreements during the quarter ended June 30, 2003. The agreements were sold
for a total gain of $1.3 million, which will be recognized over the original
term of the contracts.
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 its 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 FHLB and The Bankers Bank, and is also able to purchase federal funds from
other financial institutions.
At June 30, 2003, the Bank had a significant amount of deposits in amounts
greater than $100,000, including brokered deposits. The balance and cost of
these deposits are more susceptible to changes in the interest rate environment
than other deposits.
The Bank had a line of credit with the FHLB equal to 20% of the Bank's
total assets, with an outstanding balance of $58.0 million at June 30, 2003. The
Bank also has the ability to borrow up to $26.5 million for the purchase of
overnight federal funds from three correspondent financial institutions.
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 available under the line of credit, as a percentage of
net deposits (adjusted for deposit runoff projections) and short-term
liabilities was 20.30% at June 30, 2003 and 17.85% at December 31, 2002. The
December 31, 2002 ratio has been restated to reflect changes in the FHLB
borrowing availability calculation, which the Bank recognizes as a factor of its
liquidity. The minimum required liquidity ratio as defined in the Bank's
Asset/Liability and Interest Rate Risk Management Policy is 20%.
Capital Resources. Shareholders' equity at June 30, 2003 was $50.6 million
compared to $48.6 million at December 31, 2002. At June 30, 2003 and December
31, 2002, unrealized gains and losses, net of taxes, amounted to a gain of $2.6
million and $1.4 million, respectively. Annualized return on average equity,
including non-recurring income, for the six months ended June 30, 2003 was 6.08%
compared to 7.12% for the year ended December 31, 2002. Total cash dividends
paid during the six months ended June 30, 2003 amounted
16
to $627,000 as compared to total cash dividends of $629,000 paid for the first
six months of 2002. This decrease is attributable to a reduction in shares
outstanding due to stock repurchase activity. The Company repurchased $1.1
million, or 73,500 shares of its common stock during the six months ended June
30, 2002 as part of the stock repurchase plan implemented in February 2002,
which expired in February 2003. There is not a repurchase plan in effect at June
30, 2003.
Under the regulatory capital guidelines, 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 and trust preferred
securities less all intangible assets and goodwill. The Company's Tier I
capital ratio was 10.74% and 10.76% at June 30, 2003 and December 31, 2002,
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 11.99% and 12.01% at
June 30, 2003 and December 31, 2002, respectively. In addition to the Tier I
and total risk-based capital requirements, financial institutions are also
required 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 9.48% and
9.78% at June 30, 2003 and December 31, 2002, 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, 2003
and December 31, 2002.
17
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, 2003 from that presented in the
Company's Annual Report on Form 10-K for the fiscal year ended December 31,
2002.
18
ITEM 4. CONTROLS AND PROCEDURES
The Company's management, with the participation of the Company's Chief
Executive Officer and Chief Financial Officer, has evaluated the effectiveness
of the Company's disclosure controls and procedures (as such term is defined in
Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as
amended (the "Exchange Act")) as of the end of the period covered by this
report. Based on such evaluation, the Company's Chief Executive Officer and
Chief Financial Officer have concluded that, as of the end of such period, the
Company's disclosure controls and procedures are effective in recording,
processing, summarizing and reporting, on a timely basis, information required
to be disclosed by the Company in the reports that it files or submits under the
Exchange Act.
There have not been any changes in the Company's internal control over
financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f)
under the Exchange Act) during the fiscal quarter to which this report relates
that have materially affected, or are reasonably likely to materially affect,
the Company's internal control over financial reporting.
19
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 1, 2003
(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, Gary E. Matthews,
Dan Ray Timmerman, Sr., Benjamin I. Zachary, John H. Elmore, Jr.,
Fred L. Sherrill, Jr., and Charles F. Murray.
(c) At the May 1, 2003 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 2,718,010 117,808
James S. Abernethy 2,718,340 117,643
Larry E. Robinson 2,918,942 17,342
Ratification of appointment of Independent Public Accountants -
Porter Keadle Moore LLP
Votes For - 2,929,804, Votes Against - 1,260, Votes Abstained -
5,385
(d) Not applicable
ITEM 5. OTHER INFORMATION
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
20
Exhibit (3)(i) Articles of Incorporation of Peoples Bancorp of North Carolina, Inc., incorporated
by reference to Exhibit (3)(i) to the Form 8-A filed with the Securities and Exchange
Commission on September 2, 1999
Exhibit (3)(ii) Amended and Restated Bylaws of Peoples Bancorp of North Carolina, Inc., incorporated
by reference to Exhibit (3)(ii) to the Form 10-K filed with the Securities and Exchange
Commission on March 28, 2002
Exhibit (4) Specimen Stock Certificate, incorporated by reference to Exhibit (4) to the Form 8-A
filed with the Securities and Exchange Commission on September 2, 1999
Exhibit (10)(a) Employment Agreement between Peoples Bank and Tony W. Wolfe incorporated by reference to
Exhibit (10)(a) to the Form 10-K filed with the Securities and Exchange Commission on
March 30, 2000
Exhibit (10)(b) Employment Agreement between Peoples Bank and Joseph F. Beaman, Jr. incorporated by
reference to Exhibit (10)(b) to the Form 10-K filed with the Securities and Exchange
Commission on March 30, 2000
Exhibit (10)(c) Employment Agreement between Peoples Bank and William D. Cable incorporated by reference to
Exhibit (10)(d) to the Form 10-K filed with the Securities and Exchange Commission on
March 30, 2000
Exhibit (10)(d) Employment Agreement between Peoples Bank and Lance A. Sellers incorporated by reference to
Exhibit (10)(e) to the Form 10-K filed with the Securities and Exchange Commission on
March 30, 2000
Exhibit (10)(e) Peoples Bancorp of North Carolina, Inc. Omnibus Stock Ownership and Long Term Incentive
Plan incorporated by reference to Exhibit (10)(f) to the Form 10-K filed with the
Securities and Exchange Commission on March 30, 2000
Exhibit (10)(f) Employment Agreement between Peoples Bank and A. Joseph Lampron incorporated by reference
to Exhibit (10)(g) to the Form 10-K filed with the Securities and Exchange Commission on
March 28, 2002
Exhibit (10)(g) Peoples Bank Directors' and Officers' Deferral Plan, incorporated by reference to Exhibit
(10)(h) to the Form 10-K filed with the Securities and Exchange Commission on
March 28, 2002
Exhibit (10)(h) Rabbi Trust for the Peoples Bank Directors' and Officers' Deferral Plan, incorporated by
reference to Exhibit (10)(i) to the Form 10-K filed with the Securities and Exchange
Commission on March 28, 2002
21
Exhibit (10)(i) Description of Service Recognition Program maintained by Peoples Bank, incorporated by
reference to Exhibit (10)(i) to the Form 10-K filed with the Securities and Exchange
Commission on March 27, 2003
Exhibit (31)(a) Certification of Chief Executive Officer
Exhibit (31)(b) Certification of Chief Financial Officer
Exhibit (32) Certification Pursuant to 18 U.S.C. Section 1350
(b) Reports on Form 8-K
The Company filed a Form 8-K on April 24, 2003, announcing the
Company's first quarter 2003 earnings results.
22
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, 2003 By: /s/ Tony W. Wolfe
--------------- -------------------------------------
Date Tony W. Wolfe
President and Chief Executive Officer
(Principal Executive Officer)
August 14, 2003 By: /s/ A. Joseph Lampron
--------------- -------------------------------------
Date A. Joseph Lampron
Executive Vice President and Chief
Financial Officer
(Principal Financial and Principal
Accounting Officer)
23