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 SEPTEMBER 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
incorporation or organization) Identification No.)
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 NOVEMBER 10,
--------------------------------------------------------------------------------
2000.
-----
<PAGE>
<TABLE>
<CAPTION>
INDEX
PART I - FINANCIAL INFORMATION PAGE(S)
<S> <C> <C>
Item 1. Financial Statements
Consolidated Balance Sheets at September 30, 2000 (Unaudited)
and December 31, 1999 3
Consolidated Statements of Income for the three months ended September
30, 2000 and September 30, 1999 (Unaudited), and for the nine months
ended September 30, 2000 and September 30, 1999 (Unaudited) 4
Consolidated Statements of Comprehensive Income for the three months
ended September 30, 2000 and September 30, 1999 (Unaudited), and for
the nine months ended September 30, 2000 and September 30, 1999
(Unaudited) 5
Consolidated Statements of Cash Flows for the nine months ended
September 30, 2000 and September 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 15
Signatures 16
</TABLE>
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.
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PEOPLES BANCORP OF NORTH CAROLINA, INC. AND SUBSIDIARY
Consolidated Balance Sheets
September 30, December 31,
Assets 2000 1999
------------------------------------------------ --------------- -------------
(Unaudited)
<S> <C> <C>
Cash and due from banks $ 13,331,839 14,067,311
Federal funds sold 11,700,000 2,930,000
--------------- -------------
Cash and cash equivalents 25,031,839 16,997,311
Investment securities available for sale 64,659,940 62,498,359
Other investments 2,183,873 1,345,100
--------------- -------------
Total securities 66,843,813 63,843,459
Mortgage loans held for sale 1,006,535 1,685,472
Loans, net 383,517,317 335,273,577
Premises and equipment, net 10,621,336 9,342,582
Accrued interest receivable and other assets 6,156,911 5,292,453
--------------- -------------
Total assets $ 493,177,751 432,434,854
=============== =============
Liabilities and Shareholders' Equity
-----------------------------------------------
Deposits:
Demand $ 50,870,570 53,506,430
Interest-bearing demand 33,321,874 31,752,477
Savings 79,582,419 77,556,576
Time, $100,000 or more 120,442,421 89,306,653
Other time 145,214,291 124,512,233
--------------- -------------
Total deposits 429,431,575 376,634,369
Demand notes payable to U.S. Treasury 1,337,826 1,600,000
Federal funds purchased -- --
FHLB borrowings 17,357,143 14,500,000
Accrued interest payable and other liabilities 3,516,008 1,702,006
--------------- -------------
Total liabilities 451,642,552 394,436,375
--------------- -------------
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 5,568,619 7,189,417
Accumulated other comprehensive income (441,218) (920,400)
--------------- -------------
Total shareholders' equity 41,535,199 37,998,479
--------------- -------------
Total liabilities and shareholders' equity $ 493,177,751 432,434,854
=============== =============
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
<TABLE>
<CAPTION>
PEOPLES BANCORP OF NORTH CAROLINA, INC. AND SUBSIDIARY
Consolidated Statements of Income (Unaudited)
Three Months Three Months Nine Months Nine Months
Ended Ended Ended Ended
September 30, 2000 September 30, 1999 September 30, 2000 September 30, 1999
------------------- ------------------ ------------------ ------------------
<S> <C> <C> <C> <C>
Interest and fees on loans $ 9,638,520 7,191,247 26,496,610 20,789,713
Interest on federal funds sold 65,906 138,526 120,023 238,599
Interest on investment securities:
U.S. Treasury -- 12,566 16,572 37,561
U.S. Government agencies 767,005 550,754 2,179,944 1,643,777
States and political subdivisions 239,858 242,475 742,588 724,849
Other 42,638 53,482 113,474 160,231
------------------- ------------------ ------------------ ------------------
Total interest income 10,753,927 8,189,050 29,669,211 23,594,730
------------------- ------------------ ------------------ ------------------
Interest expense:
Interest bearing demand deposits 115,592 110,173 339,824 319,073
Savings deposits 838,504 741,832 2,395,537 2,156,325
Time deposits 3,922,412 2,606,259 10,059,361 7,852,037
FHLB borrowings 265,217 185,576 707,666 547,878
Other 33,971 12,062 116,119 33,511
------------------- ------------------ ------------------ ------------------
Total interest expense 5,175,696 3,655,902 13,618,507 10,908,824
------------------- ------------------ ------------------ ------------------
Net interest income 5,578,231 4,533,148 16,050,704 12,685,906
Provision for loan losses 640,000 25,000 1,419,100 25,000
------------------- ------------------ ------------------ ------------------
Net interest income after provision
for loan losses 4,938,231 4,508,148 14,631,604 12,660,906
------------------- ------------------ ------------------ ------------------
Other income:
Service charges 403,461 353,936 1,162,447 969,993
Other service charges and fees 92,831 75,651 275,815 219,807
Gain (loss) on sale of securities (483,472) -- (483,472) (34,824)
Mortgage banking income (155,092) 138,162 79,054 668,057
Insurance and brokerage commissions 42,364 28,507 115,058 101,254
Miscellaneous 968,064 269,610 1,723,062 711,689
------------------- ------------------ ------------------ ------------------
Total other income 868,156 865,866 2,871,964 2,635,976
------------------- ------------------ ------------------ ------------------
Other expense:
Salaries and employee benefits 2,317,036 2,095,619 6,730,338 5,658,317
Occupancy 653,340 563,251 1,861,174 1,670,141
Other 760,831 1,062,562 2,972,871 3,047,000
------------------- ------------------ ------------------ ------------------
Total other expenses 3,731,207 3,721,432 11,564,383 10,375,458
------------------- ------------------ ------------------ ------------------
Income before income taxes 2,075,180 1,652,582 5,939,185 4,921,424
Income taxes 689,300 525,600 1,941,500 1,574,900
------------------- ------------------ ------------------ ------------------
Net income $ 1,385,880 1,126,982 3,997,685 3,346,524
=================== ================== ================== ==================
Net income per share - basic $ 0.43 0.35 1.24 1.04
=================== ================== ================== ==================
Cash dividends declared per share $ 0.10 0.08 0.29 0.25
=================== ================== ================== ==================
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
<TABLE>
<CAPTION>
PEOPLES BANCORP OF NORTH CAROLINA, INC. AND SUBSIDIARY
Consolidated Statements of Comprehensive Income (Unaudited)
Three Months Three Months Nine Months Nine Month
Ended Ended Ended Ended
September 30, 2000 September 30, 1999 September 30, 2000 September 30, 1999
-------------------- -------------------- ------------------ --------------------
<S> <C> <C> <C>
Net earnings $ 1,385,880 $ 1,126,982 $ 3,997,685 3,346,524
-------------------- -------------------- ------------------ --------------------
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 $242,064,
$(249,024), $117,407
and $(824,450),
respectively 379,410 (390,319) 184,022 (1,292,238)
Less reclassification
adjustment for (gains)
losses included in net
earnings, net of taxes of
$188,312, $0, $188,312,
and $13,564,
respectively 295,160 -- 295,160 21,260
-------------------- -------------------- ------------------ --------------------
Other comprehensive income 674,570 (390,319) 479,182 (1,270,978)
-------------------- -------------------- ------------------ --------------------
Comprehensive income $ 2,060,450 $ 736,663 $ 4,476,867 $ 2,075,546
==================== ==================== ================== ====================
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
<TABLE>
<CAPTION>
PEOPLES BANCORP OF NORTH CAROLINA, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows (Unaudited)
Nine months ended September 30, 2000 and 1999
2000 1999
------------- ------------
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 3,997,685 3,346,524
Adjustments to reconcile net earnings to
net cash provided (used) by operating activities:
Depreciation, amortization and accretion 1,212,026 765,900
Provision for loan losses 1,419,100 25,000
Loss (gain) on sale of investment securities 483,472 34,824
Loss (gain) on sale of mortgage loans 293,520 287,139
Loss (gain) on sale of premises and equipment (1,329,736) --
Loss (gain) on sale of other real estate 2,950 36,149
Change in:
Other assets (1,541,866) (133,785)
Other liabilities 1,814,002 149,990
Mortgage loans held for sale 385,418 5,940,374
------------- ------------
Net cash provided (used) by operating activities 6,736,571 10,452,115
------------- ------------
Cash flows from investing activities:
Purchases of investment securities available-for-sale (25,526,829) (19,521,841)
Proceeds from calls and maturities of investment securities
available for sale 5,548,216 11,101,803
Proceeds from sales of investment securities available for sale 18,129,483 7,125,196
Change in other investments (838,773) 150,200
Net change in loans (49,662,841) (21,322,539)
Purchase of premises and equipment (2,702,828) (1,748,854)
Proceeds from sale of premises and equipment 1,875,000 --
Improvements to other real estate -- (239,944)
Proceeds from sale of other real estate 24,500 498,994
------------- ------------
Net cash used in investing activities (53,154,072) (23,956,985)
------------- ------------
Cash flows from financing activities:
Net change in deposits 52,797,208 16,789,428
Change in demand notes payable to U.S. Treasury (262,174) 1,606,147
Net change in FHLB borrowings 2,857,143 (142,857)
Cash dividends (936,375) (790,106)
Cash paid in lieu of fractional shares (3,773) (5,871)
------------- ------------
Net cash provided by financing activities 54,452,029 17,456,741
------------- ------------
Net change in cash and cash equivalents 8,034,528 3,951,871
Cash and cash equivalents at beginning of year 16,997,311 17,754,077
------------- ------------
Cash and cash equivalents at end of year $ 25,031,839 21,705,948
============= ============
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
PEOPLES BANCORP OF NORTH CAROLINA, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows (Unaudited)
Nine months ended September 30, 2000 and 1999
(Continued)
<S> <C> <C>
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 13,206,542 10,563,070
Income taxes $ 1,845,000 700,000
============= ============
Noncash investing and financing activities:
Change in net unrealized gain (loss) on investment
securities available for sale, net of tax $ 479,182 (1,270,978)
Transfer of loans to other real estate $ -- 204,719
------------- ------------
</TABLE>
See accompanying notes to consolidated financial statements.
7
<PAGE>
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 nine
months ended September 30, 2000 and 1999:
<TABLE>
<CAPTION>
2000 1999
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<S> <C> <C>
Balance, beginning of period $ 3,924,348 4,136,690
Provision for loan losses 1,419,100 25,000
Less:
Charge-offs (755,165) (180,556)
Recoveries 52,050 58,026
------------- -----------
Net charge-offs (703,115) (122,530)
------------- -----------
Balance, end of period $ 4,640,333 4,039,160
============= ===========
</TABLE>
(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 nine months ended September 30, 2000 and September 30, 1999,
the Company has chosen to present the calculation of basic earnings per share as
follows:
<TABLE>
<CAPTION>
Net Earnings Common Share Per Share
(Numerator) (Denominator) Amount
------------- ------------- ---------
<S> <C> <C> <C>
For the Nine Months Ended September 30, 2000 $ 3,997,685 3,218,714 $ 1.24
For the Nine Months Ended September 30, 1999 $ 3,346,524 3,218,714 $ 1.04
</TABLE>
All per share amounts have been restated to reflect a 10% stock dividend paid
on April 24, 2000.
8
<PAGE>
(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
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Summary. Net income for the third quarter of 2000 was $1.4 million, an
increase of $259,000 or 23% over the $1.1 million earned in the same period in
1999. Basic income per share for the quarter ended September 30, 2000 increased
to $0.43 or 23% from $0.35 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 as well as limited growth of
non-interest expense. Annualized return on average assets was 1.15% for the
three months ended September 30, 2000 compared to 1.07% for the same period in
1999, and annualized return on average shareholders' equity was 14.28% for the
three months ended September 30, 2000 compared to 12.71% for the same period in
1999.
Net income for the nine months ended September 30, 2000 was $4.0 million,
an increase of 19% over the $3.3 million earned in the first nine months of
1999. Basic net income per share for this period increased 19% to $1.24 from
$1.04 for the nine months ended September 30, 1999. The strong growth in net
income resulted from a 27% increase in net interest income. Annualized return
on average assets was 1.17% for the first nine months of 2000 compared to 1.08%
for the same period in 1999, and annualized return on average shareholders'
equity was 12.85% for the first nine months of 2000 compared to 11.59% for the
same period in 1999.
Net Interest Income. Net interest income, the major component of the
Company's net income, was $5.6 million for the three months ended September 30,
2000 an increase of 23% over the $4.5 million earned in the same period in 1999.
The increase over 1999 third 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 $2.6 million or 31% for the three months ended
September 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 $1.5 million or 42% for the three months ended
September 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 5.37% for the
three months ended September 30, 2000 from 4.44% for the same period in 1999,
combined with an increase in volume of interest bearing liabilities.
Net interest income for the nine month period ended September 30, 2000 was
$16.1 million, an increase of 27% over net interest income of $12.7 million for
the nine months ended September 30, 1999. This increase was attributed to the
increase in the volume of average earning assets to $436.1 million in the nine
months ended September 30, 2000 from $391.7 million in the same period in 1999,
combined with an increase in the annualized tax equivalent net yield on earning
assets to 5.02% for the nine months ended September 30, 2000 from 4.46% for the
nine months ended September 30, 1999.
Interest income increased $6.1 million or 26% for the nine months ended
September 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 13% to $365.1
million, while average investment securities available for sale increased 11% to
$65.9 million in the nine months ended September 30, 2000 compared to the same
period in 1999. The yield on average earning assets increased to 9.18% for the
nine months ended September 30, 2000 from 8.18% for the nine months ended
September 30, 1999. This increased yield is primarily attributable to increases
in the Bank's prime commercial lending rate.
10
<PAGE>
Interest expense increased 25% to $13.6 million in the nine months ended
September 30, 2000 compared to $10.9 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 12% to
$361.3 million for the nine months ended September 30, 2000 from $322.2 million
for the nine months ended September 30, 1999. This increase is primarily
attributable to the increase in average interest bearing deposits to $343.6
million in the nine months ended September 30, 2000 from $307.7 million in the
same period in 1999. The average rate paid on interest bearing liabilities
increased to 5.02% for the nine months ended September 30, 2000 from 4.53% for
the nine months ended September 30, 1999.
Provision for Loan Losses. For the three months ended September 30, 2000 a
contribution of $640,000 was made to the provision for loan losses compared to a
$25,000 contribution to the provision for loan losses for the three months ended
September 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. This contribution will also serve to better
align the Bank among its peers with respect to the ratio of allowance for loan
losses as a percent of total loans outstanding.
For the nine months ended September 30, 2000 a contribution of $1,419,100
was made to the provision for loan losses compared to a contribution of $25,000
to the provision for loan losses for the nine months ended September 30, 1999.
As previously mentioned, 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 $868,000 in the third
quarter of 2000 compared to $866,000 earned in the third quarter of 1999. This
limited growth in non-interest income reflects activity associated with the sale
and anticipated disposal of fixed assets. During third quarter 2000, the
Company sold its Peoples Bank Newton Main Office to the United States Postal
Service. This transaction resulted in a net gain on the sale of capital assets
that should enable the Company to improve future earnings by realizing
short-term losses on the sale of certain available for sale securities and
certain jumbo mortgage loans. During third quarter, the Company sold
approximately $18.6 million of available for sale securities at a loss of
$483,000. Proceeds from this sale were reinvested in higher yielding available
for sale securities. Also sold were approximately $5.7 million of jumbo
mortgage loans at a loss of $284,000. These proceeds will be reinvested in
higher yielding loans.
During fourth quarter 2000, the Company will be consolidating its corporate
and support services into the new Peoples Bancorp Center. As a result of this
move much of the Bank's existing Newton Main office, which currently serves as
the Company's corporate headquarters, will be vacated. The Bank will lease its
current home office from the United States Postal Service until construction of
a new downtown Newton Office is completed in first quarter 2001.
Total non-interest income was $2.9 million for the nine months ended
September 30, 2000, an increase of 9% over the $2.6 million earned in the same
period of 1999. Service charges on deposit accounts increased 20% to $1.2
million for the nine months ended September 30, 2000 due to the growth in the
deposit base coupled with an increase in service charges on deposits. Mortgage
banking income decreased to $79,000 for the nine months ended September 30, 2000
from $668,000 for the nine months ended September 30, 1999. This decrease is
primarily attributable to the loss on sale of mortgage loans realized in third
quarter 2000 coupled with an increase in mortgage loan rates, which resulted in
a decrease in mortgage loan applications. The Company reported a securities
loss of $483,000 in the first nine months of 2000 compared to a net loss of
$35,000 in the first nine months of 1999. Miscellaneous non-interest income
increased to $1.7 million for the nine months ended September 30, 2000 from
$712,000 for the nine months ended September 30, 1999. This increase reflects
the net gain on sale of capital assets associated with the sale of the Bank's
Newton Main Office.
11
<PAGE>
Non-Interest Expense. Total non-interest expense was $3.7 million in the
third quarter of 2000 and 1999. Salary and employee benefits increased 11% for
the three months ended September 30, 2000 over the same period of 1999 due to
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 16% due to additional leased space and depreciation
for equipment purchased. The Company realized a reduction in other non-interest
expenses in such categories as bank holding company formation expense,
fraud/forgery expense, and consulting expense.
Total non-interest expense was $11.6 million in the nine months ended
September 30, 2000, an increase of 11% over the same period in 1999. The
majority of this increase was a result of a 19% 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
11% due to additional leased space and depreciation for equipment purchased.
Other non-interest expenses decreased 2% or $74,000.
Income Taxes. The Bank reported income taxes of $689,000 and $526,000 for
the third quarters of 2000 and 1999, respectively. This represented effective
tax rates of 33% and 32% for the respective periods.
The Bank reported income taxes of $1.9 million and $1.6 million for the
nine-month periods ending September 30, 2000 and 1999, 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 $64.7
million at September 30, 2000 compared to $62.5 million at December 31, 1999.
Average investment securities for the nine months ended September 30, 2000
amounted to $65.9 million compared to $59.5 million for the year ended December
31, 1999.
Loans. At September 30, 2000, total loans amounted to $388.2 million
compared to $339.2 million at December 31, 1999, an increase of 14%. 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 nine
months ended September 30, 2000, compared to 82% for the year ended December
31, 1999. Mortgage loans held for sale were $1.0 million at September 30, 2000,
a decrease of 40% 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 $3.7 million at September 30,
2000 or 0.74% of total assets, compared to $3.6 million at December 31, 1999 and
$4.5 million at September 30, 1999, or 0.99% and 1.07% of total assets,
respectively. Non-accrual loans were $3.5 million at September 30, 2000, an
increase of $629,000 from non-accruals of $2.9 million at December 31, 1999.
As a percentage of total loans outstanding, non-accrual loans were 0.90% at
September 30, 2000 compared to 0.84% at December 31, 1999. This increase of 6
basis points indicates management's proactive stance in the identification and
recognition of potential problem accounts. Loans ninety days past due and still
accruing amounted to $144,000 and $645,000 at September 30, 2000 and December
31, 1999, respectively. The allowance for loan losses at September 30, 2000
amounted to $4.6 million or 1.20% 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 September 30, 1999.
Deposits. Total deposits at September 30, 2000 were $429.4 million, an
increase of 14% over deposits of $376.6 million at December 31, 1999.
Certificates of deposit in amounts greater than $100,000 or more totaled $120.4
million at September 30, 2000, compared to $89.3 million at December 31, 1999.
This increase is partially attributable to a deposit campaign the Bank conducted
in August 2000 in an effort to focus on the establishment of new relationships.
The majority of these deposits are from 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.
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Borrowed Funds. Federal Home Loan Bank borrowings were $17.4 million at
September 30, 2000 compared to $14.5 million at December 31, 1999. The average
balance of Federal Home Loan Bank borrowings for the nine months ended September
30, 2000 was $15.3 million compared to $13.5 million for the year ended December
31, 1999. At September 30, 2000, Federal Home Loan Bank borrowings with
maturities exceeding one year amounted to $17.4 million. The Company had no
federal funds purchased as of September 30, 2000, December 31, 1999 or September
30, 1999.
Capital Structure. Shareholders' equity at September 30, 2000 was $41.5
million compared to $38.0 million at December 31, 1999. In addition, at
September 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
$441,000 and a loss of $920,000, respectively. Annualized return on average
equity for the nine months ended September 30, 2000 was 12.85% compared to
11.54% for the year ended December 31, 1999. Total cash dividends paid as of
September 30, 2000 amounted to $936,000 an increase of 18% compared to total
cash dividends of $790,000 paid for the first nine months of 1999.
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 10.35% and 10.99% at September 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 11.50% and 12.11% at
September 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 8.67% and 9.21% at September 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 September 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 September 30, 2000 the Bank had a line of
credit with the FHLB equal to 20% of the Bank's total assets, with an
outstanding balance of $17.4 million. The Bank also has the ability to borrow
up to $10 million through 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 29.04% at September 30, 2000 and 30.26% at December
31, 1999. The December 31, 1999 ratio has been restated to reflect increased
borrowing capacity at the FHLB, which the Company recognizes as a factor of its
liquidity.
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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 September 30, 2000 from that presented in
the Company's Annual Report on Form 10-K for the fiscal year ended December 31,
1999.
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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
Not applicable
ITEM 5. OTHER INFORMATION
Not applicable
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 August 3, 2000, announcing the
approval of a Dividend Reinvestment and Stock Purchase Plan by
the Board of Directors on June 27, 2000.
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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.
November 10, 2000 By: /s/ Tony W. Wolfe
------------------- -------------------------------------
Date Tony W. Wolfe
President and Chief Executive Officer
(Principal Executive Officer)
November 10, 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)
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