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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999
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Commission file number 000-27205
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PEOPLES BANCORP OF NORTH CAROLINA, INC.
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(Exact Name of Registrant as Specified in Its Charter)
North Carolina 56-2132396
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(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
218 South Main Avenue
Newton, North Carolina 28658
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(Address of Principal Executive Offices) (Zip Code)
(828) 464-5620
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(Registrant's Telephone Number, Including Area Code)
Securities to be Registered Pursuant to Section 12(b) of the Act: None
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Securities to be Registered Pursuant to Section 12(g) of the Act:
Common Stock, no par value
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(Title of class)
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 ________
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Indicate by check mark if disclosure of delinquent filers in response to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
State the aggregate market value of the voting and non-voting common equity held
by non-affiliates of the registrant. The aggregate market value shall be
computed by reference to the price at which the common equity was sold, or the
average bid and asked prices of such common equity, as of a specified date
within 60 days prior to the date of filing. $40,602,662 based on the closing
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price of such common stock on March 16, 2000, which was $13.875 per share.
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Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date. 2,926,318 shares of common
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stock, outstanding at March 27, 2000.
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DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Annual Report of Peoples Bancorp of North Carolina, Inc. for the
year ended December 31, 1999 (the "Annual Report"), which is included as an
Appendix to the Proxy Statement for the 2000 Annual Meeting of Shareholders, are
incorporated by reference into Part I, Part II and Part IV.
Portions of the Proxy Statement for the 2000 Annual Meeting of Shareholders of
Peoples Bancorp of North Carolina, Inc. to be held on May 4, 2000 (the "Proxy
Statement"), are incorporated by reference into Part III.
2
PART I
ITEM 1. BUSINESS
General
Peoples Bancorp of North Carolina, Inc. (the "Company"), was formed in 1999
to serve as the holding company for Peoples Bank (the "Bank"). The Company is a
bank holding company registered with the Board of Governors of the Federal
Reserve System (the "Federal Reserve") under the Bank Holding Company Act of
1956, as amended (the "BHCA"). The Company's sole activity consists of owning
the Bank. The Company's principal source of income is any dividends which are
declared and paid by the Bank on its capital stock.
The Bank, founded in 1912, is a state-chartered commercial bank serving the
citizens and business interests of the Catawba Valley and surrounding
communities. The Bank's deposits are insured by the Bank Insurance Fund (the
"BIF") of the Federal Deposit Insurance Corporation (the "FDIC") to the maximum
amount permitted by law. It is also a member of the Federal Home Loan Bank
system. The Bank conducts its business from its corporate headquarters located
at 218 South Main Avenue, Newton, North Carolina and ten additional offices in
Newton, Denver, Triangle, Catawba, Conover, Maiden, Claremont, Hiddenite, and
Hickory, North Carolina. Ten branch offices provide automated teller machine
(ATM) access to Bank customers. The Bank also has a stand alone ATM located in a
retail establishment in Sherrills Ford. The Bank's training, mortgage loan
administration, network systems, bank card and finance department operations are
operated in leased office space in Newton, Conover and Hickory. At December 31,
1999, the Company had total assets of $432.4 million, net loans of $335.3
million, deposits of $376.6 million, investment securities of $63.8 million, and
shareholders' equity of $38.0 million.
The Bank is engaged primarily in the business of attracting retail and
commercial deposits from the general public and using those deposits to make
secured and unsecured loans. The Bank offers a full range of loan and deposit
products as well as non-deposit investment products. The Bank makes automobile,
credit card, mobile home, securities, first and second mortgage, boat and
recreational vehicle and deposit secured, as well as unsecured, consumer loans.
The Bank also offers a broad range of secured and unsecured commercial loan
products, including commercial construction/permanent loans, Small Business
Administration loans, Rural Economic and Community Development guaranteed loans,
commercial and standby letters of credit, equipment leasing for businesses and
municipalities, special community development loans, and agricultural loans.
The Bank has a diversified loan portfolio, with no foreign loans and few
agricultural loans. Real estate loans are predominately variable rate commercial
property loans. Commercial loans are spread throughout a variety of industries
with no one particular industry or group of related industries accounting for a
significant portion of the commercial loan portfolio. At December 31, 1999,
approximately 9% of the Bank's portfolio was unsecured. Unsecured loans
generally involve higher credit risk than secured loans, and in the event of
customer default, the Bank has a higher exposure to potential loan losses. The
Bank has sold, servicing retained, approximately 31% of its loan portfolio.
The majority of the Bank's deposit and loan customers are individuals and
small to medium-sized businesses located in the Bank's market area. Management
does not believe the Bank is dependent on a single customer or group of
customers concentrated in a particular industry whose loss or insolvency would
have a material adverse impact on operations.
The Bank's primary source of revenue is interest income from its lending
activities. The Bank's other major sources of revenue are interest and dividend
income from investments, interest-earning deposits in other depository
institutions, and transaction and fee income from lending, deposit and
subsidiary activities. The major expenses of the Bank are interest on deposits
and general and administrative expenses such as employee compensation and
benefits, and occupancy expenses.
3
The operations of the Bank and depository institutions in general are
significantly influenced by general economic conditions and by related monetary
and fiscal policies of depository institution regulatory agencies, including the
Federal Reserve, the FDIC and the North Carolina Commissioner of Banks (the
"Commissioner"). Deposit flows and cost of funds are influenced by interest
rates on competing investments and general market rates of interest. Lending
activities are affected by the demand for financing, which in turn are affected
by the interest rates at which financing may be offered and other factors
affecting local demand and availability of funds.
At December 31, 1999, the Bank employed 196 full-time equivalent employees.
The Company has no operations and conducts no business of its own other
than owning the Bank. Accordingly, the discussion of the business which follows
concerns the business conducted by the Bank, unless otherwise indicated.
Subsidiaries
The Bank is the Company's only subsidiary. The Bank has two subsidiaries,
Peoples Investment Services, Inc. and Peoples Real Estate and Appraisal
Services, Inc. Through a relationship with Raymond James Financial Services,
Inc., Peoples Investment Services, Inc. provides the Bank's customers access to
investment counseling and non-deposit investment products such as stocks, bonds,
mutual funds, tax deferred annuities, and related brokerage services. Peoples
Appraisal Services, Inc., provides real estate appraisal services to customers
of the Bank.
Market Area
The Bank's primary market consists of the communities in an approximately
25-mile radius around its headquarters office in Newton, North Carolina. This
area includes Catawba County, Alexander County, the western portion of Iredell
County, the northern portion of Lincoln County, and portions of northeast Gaston
County. The Bank is located only 40 miles north of Charlotte, North Carolina and
the Bank's primary market area is and will continue to be significantly affected
by its close proximity to this major metropolitan area.
Employment in the Bank's primary market area is diversified among
manufacturing, agricultural, retail and wholesale trade, technology, services
and utilities. Siecor (manufacturer of fiber optic cable and accessories) is the
largest employer in Catawba County. Other major employers include CommScope,
Inc. (manufacturer of fiber optic cable and accessories), Catawba County
Schools, and Frye Regional Medical Center, Inc. Employment in the Bank's primary
market area as of January 2000 was strong, with an unemployment rate below that
of North Carolina and national averages.
Competition
The Bank has operated in the Catawba Valley region for more than 85 years
and is the only financial institution headquartered in Newton. However, the Bank
faces strong competition both in attracting deposits and making loans. Its most
direct competition for deposits has historically come from other commercial
banks, credit unions and brokerage firms located in its primary market area,
including large financial institutions. Two national money center commercial
banks are headquartered in Charlotte, North Carolina, only 40 miles from the
Bank's primary market area. Based upon June 30, 1999 comparative data, the Bank
had 17.49% of the deposits in Catawba County, placing it second in deposit size
among a total of eleven banks with branch offices in Catawba County.
The Bank has also faced additional significant competition for investors'
funds from short-term money market securities and other corporate and government
securities. The Bank's deposit base has grown principally due to economic growth
in the Bank's market area coupled with the implementation of new and competitive
deposit products. The ability of the Bank to attract and retain deposits depends
on its ability to generally provide a rate of return, liquidity and risk
comparable to that offered by competing investment opportunities.
The Bank experiences strong competition for loans from commercial banks and
mortgage banking companies. The Bank competes for loans primarily through the
interest rates and loan fees it charges and the efficiency and quality
4
of services it provides borrowers. Competition may increase as a result of the
continuing reduction of restrictions on the interstate operations of financial
institutions.
Supervision and Regulation
Bank holding companies and state savings banks are extensively regulated
under both federal and state law. The following is a brief summary of certain
statutes and rules and regulations that affect or will affect the Company and
the Bank. This summary is qualified in its entirety by reference to the
particular statute and regulatory provisions referred to below and is not
intended to be an exhaustive description of the statutes or regulations
applicable to the business of the Company and the Bank. Supervision, regulation
and examination of the Company and the Bank by the regulatory agencies are
intended primarily for the protection of depositors rather than shareholders of
the Company.
Regulation of the Company
General. The Company was organized for the purpose of acquiring and
holding all of the capital stock of the Bank. As a bank holding company subject
to the BHCA, the Company is subject to certain regulations of the Federal
Reserve. Under the BHCA, the Company's activities and those of its subsidiaries
are limited to banking, managing or controlling banks, furnishing services to or
performing services for its subsidiaries or engaging in any other activity which
the Federal Reserve determines to be so closely related to banking or managing
or controlling banks as to be a proper incident thereto. Also, see " - The
Gramm-Leach-Bliley Act". The BHCA prohibits the Company from acquiring direct or
indirect control of more than 5% of the outstanding voting stock or
substantially all of the assets of any bank or savings bank or merging or
consolidating with another bank holding company or savings bank holding company
without prior approval of the Federal Reserve.
Additionally, the BHCA prohibits the Company from engaging in, or acquiring
ownership or control of, more than 5% of the outstanding voting stock of any
company engaged in a nonbanking business unless such business is determined by
the Federal Reserve to be so closely related to banking as to be properly
incident thereto. The BHCA does not place territorial restrictions on the
activities of such non-banking related activities.
Similarly, Federal Reserve approval (or, in certain cases, non-disapproval)
must be obtained prior to any person acquiring control of the Company. Control
is conclusively presumed to exist if, among other things, a person acquires more
than 25% of any class of voting stock of the Company or controls in any manner
the election of a majority of the directors of the Company. Control is presumed
to exist if a person acquires more than 10% of any class of voting stock and the
stock is registered under Section 12 of the Exchange Act or the acquiror will be
the largest shareholder after the acquisition.
There are a number of obligations and restrictions imposed on bank holding
companies and their depository institution subsidiaries by law and regulatory
policy that are designed to minimize potential loss to the depositors of such
depository institutions and the FDIC insurance funds in the event the depository
institution becomes in danger of default or in default. For example, to avoid
receivership of an insured depository institution subsidiary, a bank holding
company is required to guarantee the compliance of any insured depository
institution subsidiary that may become "undercapitalized" with the terms of any
capital restoration plan filed by such subsidiary with its appropriate federal
banking agency up to the lesser of (i) an amount equal to 5% of the bank's total
assets at the time the bank became undercapitalized or (ii) the amount which is
necessary (or would have been necessary) to bring the bank into compliance with
all acceptable capital standards as of the time the bank fails to comply with
such capital restoration plan. Under a policy of the Federal Reserve with
respect to bank holding company operations, a bank holding company is required
to serve as a source of financial strength to its subsidiary depository
institutions and to commit resources to support such institutions in
circumstances where it might not do so absent such policy. The Federal Reserve
under the BHCA also has the authority to require a bank holding company to
terminate any activity or to relinquish control of a nonbank subsidiary (other
than a nonbank subsidiary of a bank) upon the Federal Reserve's determination
that such activity or control constitutes a serious risk to the financial
soundness and stability of any bank subsidiary of the bank holding company.
5
In addition, insured depository institutions under common control are
required to reimburse the FDIC for any loss suffered by either the Savings
Association Insurance Fund (the "SAIF") or the BIF as a result of the default of
a commonly controlled insured depository institution or for any assistance
provided by the FDIC to a commonly controlled insured depository institution in
danger of default. The FDIC may decline to enforce the cross-guarantee
provisions if it determines that a waiver is in the best interest of the SAIF or
the BIF or both. The FDIC's claim for damages is superior to claims of
stockholders of the insured depository institution or its holding company but is
subordinate to claims of depositors, secured creditors and holders of
subordinated debt (other than affiliates) of the commonly controlled insured
depository institutions.
Federal regulations require that the Company must notify the Federal
Reserve Bank of Richmond prior to repurchasing Common Stock in excess of ten
percent of its net worth during a rolling twelve month period unless the Company
(i) both before and after the redemption satisfies capital requirements for
"well capitalized" state member banks, (ii) received a one or two rating in its
last examination, and (iii) is not the subject of any unresolved supervisory
issues. As a result of the Company's ownership of the Bank, the Company is
registered under the bank holding company laws of North Carolina. Accordingly,
the Company is also subject to regulation and supervision by the Commissioner.
Capital Adequacy Guidelines for Holding Companies. The Federal Reserve has
adopted capital adequacy guidelines for bank holding companies and banks that
are members of the Federal Reserve system and have consolidated assets of $150
million or more. For bank holding companies with less than $150 million in
consolidated assets, the guidelines are applied on a bank-only basis unless the
parent bank holding company (i) is engaged in nonbank activity involving
significant leverage or (ii) has a significant amount of outstanding debt that
is held by the general public.
Bank holding companies subject to the Federal Reserve's capital adequacy
guidelines are required to comply with the Federal Reserve's risk-based capital
guidelines. Under these regulations, the minimum ratio of total capital to risk-
weighted assets (including certain off-balance sheet activities, such as standby
letters of credit) is 8%. At least half of the total capital is required to be
"Tier I capital," principally consisting of common stockholders' equity,
noncumulative perpetual preferred stock, and a limited amount of cumulative
perpetual preferred stock, less certain goodwill items. The remainder ("Tier II
capital") may consist of a limited amount of subordinated debt, certain hybrid
capital instruments and other debt securities, perpetual preferred stock, and a
limited amount of the general loan loss allowance. In addition to the risk-based
capital guidelines, the Federal Reserve has adopted a minimum Tier I capital
(leverage) ratio, under which a bank holding company must maintain a minimum
level of Tier I capital to average total consolidated assets of at least 3% in
the case of a bank holding company which has the highest regulatory examination
rating and is not contemplating significant growth or expansion. All other bank
holding companies are expected to maintain a Tier I capital (leverage) ratio of
at least 1% to 2% above the stated minimum.
Dividend and Repurchase Limitations. The Company must obtain Federal
Reserve approval prior to repurchasing Common Stock for in excess of 10% of its
net worth during any twelve-month period unless the Company (i) both before and
after the redemption satisfies capital requirements for "well capitalized" state
member banks; (ii) received a one or two rating in its last examination; and
(iii) is not the subject of any unresolved supervisory issues.
Although the payment of dividends and repurchase of stock by the Company
are subject to certain requirements and limitations of North Carolina corporate
law, except as set forth in this paragraph, neither the Commissioner nor the
FDIC have promulgated any regulations specifically limiting the right of the
Company to pay dividends and repurchase shares. However, the ability of the
Company to pay dividends or repurchase shares may be dependent upon the
Company's receipt of dividends from the Bank. The Bank's ability to pay
dividends is limited. See " -- Regulation of the Bank -- Dividends."
Federal Securities Law. The Company has registered its Common Stock with
the SEC pursuant to Section 12(g) of the Securities Exchange Act of 1934 (the
"Exchange Act"). As a result of such registration, the proxy and tender offer
rules, insider trading reporting requirements, annual and periodic reporting and
other requirements of the Exchange Act are applicable to the Company.
Regulation of the Bank
6
Dividends. North Carolina commercial banks, such as the Bank, are subject
to legal limitations on the amounts of dividends they are permitted to pay.
Dividends may be paid by the Bank from undivided profits, which are determined
by deducting and charging certain items against actual profits, including any
contributions to surplus required by North Carolina law. Also, an insured
depository institution, such as the Bank, is prohibited from making capital
distributions, including the payment of dividends, if, after making such
distribution, the institution would become "undercapitalized" (as such term is
defined in the applicable law and regulations). Based on its current financial
condition, the Bank does not expect that this provision will have any impact on
the Bank's ability to pay dividends.
Capital Requirements. The Bank, as a North Carolina commercial bank, is
required to maintain a surplus account equal to 50% or more of its paid-in
capital stock. As a North Carolina chartered, FDIC-insured commercial bank which
is not a member of the Federal Reserve System, the Bank is also subject to
capital requirements imposed by the FDIC. Under the FDIC's regulations, state
nonmember banks that (a) receive the highest rating during the examination
process and (b) are not anticipating or experiencing any significant growth, are
required to maintain a minimum leverage ratio of 3% of total consolidated
assets; all other banks are required to maintain a minimum ratio of 1% or 2%
above the stated minimum, with a minimum leverage ratio of not less than 4%.
The Bank exceeded all applicable capital requirements as of December 31, 1999.
Deposit Insurance Assessments. The Bank is also subject to insurance
assessments imposed by the FDIC. Under current law, the insurance assessment to
be paid by the BIF members such as the Bank shall be as specified in a schedule
required to be issued by the FDIC. Effective January 1, 1997, the FDIC equalized
the assessment rates for BIF members as well as those institutions with deposits
insured by the SAIF. Thus, for the semi-annual period beginning January 1, 1997,
the assessments imposed on all FDIC deposits for deposit insurance have an
effective rate ranging from 0 to 27 basis points per $100 of insured deposits,
depending on the institution's capital position and other supervisory factors.
However, because legislation enacted in 1996 requires that both SAIF-insured and
BIF-insured deposits pay a pro rata portion of the interest due on the
obligations issued by the Financing Corporation, for the quarters ended or
ending December 31, 1999, March 31, 2000, and June 30, 2000, the FDIC is
assessing BIF-insured deposits an additional 1.184, 21.20, and 2.08 basis points
per $100 of deposits, respectively, and SAIF-insured deposits an additional
5.920, 2.120, and 2.08 basis points per $100 of deposits, respectively, to cover
those obligations. Based on the current financial condition and capital levels
of the Bank, the Bank does not expect that the FDIC insurance assessments will
have a material impact on the Bank's future earnings.
Transactions with Affiliates. Further, under current federal law,
depository institutions are subject to the restrictions contained in Section
22(h) of the Federal Reserve Act with respect to loans to directors, executive
officers and principal shareholders. Under Section 22(h), loans to directors,
executive officers and shareholders who own more than 10% of a depository
institution (18% in the case of institutions located in an area with less than
30,000 in population), and certain affiliated entities of any of the foregoing,
may not exceed, together with all other outstanding loans to such person and
affiliated entities, the institution's loans-to-one-borrower limit (as discussed
below). Section 22(h) also prohibits loans above amounts prescribed by the
appropriate federal banking agency to directors, executive officers and
shareholders who own more than 10% of an institution, and their respective
affiliates, unless such loans are approved in advance by a majority of the board
of directors of the institution. Any "interested" director may not participate
in the voting. The FDIC has prescribed the loan amount (which includes all other
outstanding loans to such person), as to which such prior board of director
approval is required, as being the greater of $25,000 or 5% of capital and
surplus (up to $500,000). Further, pursuant to Section 22(h), the Federal
Reserve requires that loans to directors, executive officers, and principal
shareholders be made on terms substantially the same as offered in comparable
transactions with non-executive employees of the Bank. The FDIC has imposed
additional limits on the amount a bank can loan to an executive officer.
Loans to One Borrower. The Bank is subject to the Commissioner's loans to
one borrower limits which are substantially the same as those applicable to
national banks. Under these limits, no loans and extensions of credit to any
borrower outstanding at one time and not fully secured by readily marketable
collateral shall exceed 15% of the unimpaired capital and unimpaired surplus of
the bank. Loans and extensions of credit fully secured by readily marketable
collateral may comprise an additional 10% of unimpaired capital and unimpaired
surplus.
7
Limits on Rates Paid on Deposits and Brokered Deposits. Regulations
promulgated by the FDIC place limitations on the ability of insured depository
institutions to accept, renew or roll-over deposits by offering rates of
interest which are significantly higher than the prevailing rates of interest on
deposits offered by other insured depository institutions having the same type
of charter in such depository institution's normal market area. Under these
regulations, "well capitalized" depository institutions may accept, renew or
roll-over such deposits without restriction, "adequately capitalized" depository
institutions may accept, renew or roll-over such deposits with a waiver from the
FDIC (subject to certain restrictions on payments of rates) and
"undercapitalized" depository institutions may not accept, renew, or roll-over
such deposits. The regulations contemplate that the definitions of "well
capitalized," "adequately capitalized" and "undercapitalized" will be the same
as the definitions adopted by the FDIC to implement the corrective action
provisions discussed below.
Only a "well capitalized" (as defined in the statute as significantly
exceeding each relevant minimum capital level) depository institutions may
accept brokered deposits without prior regulatory approval. "Adequately
capitalized" banks may accept brokered deposits with a waiver from the FDIC
(subject to certain restrictions on payment of rates), while "undercapitalized"
banks may not accept brokered deposits. The regulations contemplate that the
definitions of "well capitalized," "adequately capitalized" and
"undercapitalized" are the same as the definitions adopted by the agencies to
implement the prompt corrective action provisions discussed below.
Prompt Corrective Action. The FDIC has broad powers to take corrective
action to resolve the problems of insured depository institutions. The extent of
these powers will depend upon whether the institutions in question are "well
capitalized," "adequately capitalized," "undercapitalized," "significantly
undercapitalized," or "critically undercapitalized." Under the regulations, an
institution is considered "well capitalized" if it has (i) a total risk-based
capital ratio of 10% or greater, (ii) a Tier I risk-based capital ratio of 6% or
greater, (iii) a leverage ratio of 5% or greater and (iv) is not subject to any
order or written directive to meet and maintain a specific capital level for any
capital measure. An "adequately capitalized" institution is defined as one that
has (i) a total risk-based capital ratio of 8% or greater, (ii) a Tier I risk-
based capital ratio of 4% or greater and (iii) a leverage ratio of 4% or greater
(or 3% or greater in the case of an institution with the highest examination
rating). An institution is considered (A) "undercapitalized" if it has (i) a
total risk-based capital ratio of less than 8%, (ii) a Tier I risk-based capital
ratio of less than 4% or (iii) a leverage ratio of less than 4% (or 3% in the
case of an institution with the highest examination rating); (B) "significantly
undercapitalized" if the institution has (i) a total risk-based capital ratio of
less than 6%, or (ii) a Tier I risk-based capital ratio of less than 3% or (iii)
a leverage ratio of less than 3% and (C) "critically undercapitalized" if the
institution has a ratio of tangible equity to total assets equal to or less than
2%.
Other. The federal banking agencies, including the FDIC, have developed
joint regulations requiring disclosure of contingent assets and liabilities and,
to the extent feasible and practicable, supplemental disclosure of the estimated
fair market value of assets and liabilities. Additional joint regulations
require annual examinations of all insured depository institutions by the
appropriate federal banking agency, with some exceptions for small, well-
capitalized institutions and state chartered institutions examined by state
regulators, and establish operational and managerial, asset quality, earnings
and stock valuation standards for insured depository institutions, as well as
compensation standards where such compensation would endanger the insured
depository institution or would constitute an unsafe practice.
The Bank is subject to examination by the FDIC and the Commissioner. In
addition, the Bank is subject to various other state and federal laws and
regulations, including state usury laws, laws relating to fiduciaries, consumer
credit and equal credit, fair credit reporting laws and laws relating to branch
banking. The Bank, as an insured North Carolina commercial bank, is prohibited
from engaging as a principal in activities that are not permitted for national
banks, unless (i) the FDIC determines that the activity would pose no
significant risk to the appropriate deposit insurance fund and (ii) the Bank is,
and continues to be, in compliance with all applicable capital standards.
Under Chapter 53 of the North Carolina General Statutes, if the capital
stock of a North Carolina commercial bank is impaired by losses or otherwise,
the Commissioner is authorized to require payment of the deficiency by
assessment upon the bank's shareholders, pro rata, and to the extent necessary,
if any such assessment is not paid by any shareholder, upon 30 days notice, to
sell as much as is necessary of the stock of such shareholder to make good the
deficiency.
8
The Bank does not believe that these regulations have had or will have a
material adverse effect on its current operations.
The Gramm-Leach-Bliley Act
The Gramm-Leach-Bliley Act (the "GLB Act") was signed into law on November
12, 1999 to remove barriers separating banking, securities and insurance firms
and to make other reforms. Certain provisions of the GLB Act were effective
immediately upon signing; other provisions generally take effect between 120
days and 18 months following enactment.
Financial Affiliations. Title I of the GLB Act facilitates affiliations
among banks, securities firms and insurance companies. Financial organizations
may structure new financial affiliations through a holding company structure, or
a financial subsidiary (with limitations on activities and appropriate
safeguards). A bank holding company may now qualify as a financial holding
company and expand into a wide variety of services that are financial in nature,
provided that its subsidiary depository institutions are well-managed, well-
capitalized and have received a "satisfactory" rating on their last Community
Reinvestment Act (the "CRA") examination. A bank holding company which does not
qualify as a financial holding company under the GLB Act is generally limited in
the types of activities in which it may engage to those that the Federal Reserve
had recognized as permissible for a bank holding company prior to the date of
enactment of the GLB Act.
National banks remain limited in the scope of activities they may exercise
directly within the bank, but an eligible national bank may have a financial
subsidiary that exercises many of the expanded financial services authorized for
a financial holding company. A national bank cannot engage in merchant banking
either directly or through a subsidiary, but a financial holding company is
authorized to have an affiliate company that engages in merchant banking.
State banks may have financial subsidiaries that, upon meeting eligibility
criteria, can engage in activities permitted for financial subsidiaries of
national banks.
Functional Regulation. The GLB Act designates the Federal Reserve as the
overall umbrella supervisor of the new financial services holding companies.
The GLB Act adopts a system of functional regulation where the primary regulator
is determined by the nature of activity rather than the type of institution.
Under this principle, securities activities are regulated by the SEC and other
securities regulators, insurance activities by the state insurance authorities,
and banking activities by the appropriate banking regulator.
Insurance. The GLB Act reaffirms that states are the regulators for
insurance activities of all persons, including acting as the functional
regulator for the insurance activities of federally-chartered banks. However,
states may not prevent depository institutions and their affiliates from
conducting insurance activities.
Privacy. The GLB Act imposes restrictions on the ability of financial
services firms to share customer information with nonaffiliated third parties.
The GLB Act: (i) requires financial services firms to establish privacy policies
and disclose them annually to customers, explaining how nonpublic personal
information is shared with affiliates and third parties; (ii) directs regulatory
agencies to adopt standards for sharing customer information; (iii) permits
customers to prohibit ("opt-out") of the disclosure of personal information to
nonaffiliated third parties; (iv) prohibits the sharing with marketers of credit
card and other account numbers; and, (v) prohibits "pretext" calling. The
privacy provisions do allow, however, a community bank to share information with
third parties that sell financial products, such as insurance companies or
securities firms.
Other. The GLB Act reforms the Federal Home Loan Bank System to provide
small banks with greater access to funds for making loans to small business and
small farmers. Also, the GLB Act obligates operators of automated teller
machines ("ATMs") to provide notices to customers regarding surcharge practices.
The GLB Act provides that CRA agreements between financial institutions and
community groups must be disclosed and reported to the public.
ITEM 2. PROPERTIES
9
At December 31, 1999, the Bank conducted its business from the headquarters
office in Newton, North Carolina, and its ten other branch offices in Hickory,
Newton, Catawba, Conover, Claremont, Maiden, Denver, Triangle and Hiddenite,
North Carolina. The Bank also has a stand alone ATM located in a retail
establishment in Sherrills Ford. It operates training, mortgage loan
administration, network systems, bank card and finance department operations in
additional leased office space in Newton, Conover and Hickory. The following
table sets forth certain information regarding the Bank's properties at December
31, 1999. Unless indicated otherwise, all properties are owned by the Bank.
Corporate Office Land Only
---------
218 South Main Avenue
Newton, North Carolina 28658
2050 Catawba Valley Boulevard
2619 North Main Avenue Hickory, North Carolina 28601
Newton, North Carolina 28658
111 North Main Street
510 East West Street Catawba, North Carolina 28609
Newton, North Carolina 28658
(proposed corporate center)
213 1st Street, West
Conover, North Carolina 28613 Leased
------
3261 East Main Street 310 10th Street NE
Claremont, North Carolina 28610 Suite E 105-106
Conover, North Carolina 28613
6125 Highway 16 South (network systems and training)
Denver, North Carolina 28037
105A South Main Avenue
5153 N.C. Highway 90E Newton, North Carolina 28658
Hiddenite, North Carolina 28636 (bank card operation and finance)
department facilities)
200 Island Ford Road
Maiden, North Carolina 28650 1333 2nd Street NE
Hickory, North Carolina 28601
3310 Springs Road NE (permanent branch, mortgage loan
Hickory, North Carolina 28601 administration and appraisal services
facilities)
142 South Highway 16
Denver, North Carolina 28037
106 North Main Street
Catawba, North Carolina 28609
ITEM 3. LEGAL PROCEEDINGS
In the opinion of management, the Bank is not involved in any pending legal
proceedings other than routine, non-material proceedings occurring in the
ordinary course of business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
10
No matter was submitted to a vote of the Bank's shareholders during the
quarter ended December 31, 1999.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
The information required by this Item is set forth under the section
captioned "Market for the Company's Common Equity and Related Shareholder
Matters" on page A-17 of the Annual Report, which section is incorporated herein
by reference. See "Item 1. BUSINESS--Supervision and Regulation--The Company"
above for regulatory restrictions which limit the ability of the Company to pay
dividends.
ITEM 6. SELECTED FINANCIAL DATA
The information required by this Item is set forth in the table captioned
"Selected Financial Data" on page A-3 of the Annual Report, which table is
incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The information required by this Item is set forth in the section captioned
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" on pages A-4 to A-15 of the Annual Report, which section is
incorporated herein by reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information required by this Item is set forth in the section captioned
"Quantitative and Qualitative Disclosures About Market Risk" on page A-16 of the
Annual Report, which section is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements of the Company and supplementary data
set forth on pages A-19 through A-41 of the Annual Report are incorporated
herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
The information required by this Item is set forth in the section captioned
"Change in Accountant" on page A-15 of the Annual Report, which section is
incorporated herein by reference.
11
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this Item regarding directors and executive
officers of the Company is set forth under the sections captioned "Proposal 1 -
Election of Directors - Nominees" on pages 5 and 6 of the Proxy Statement and
"Proposal 1 - Election of Directors - Executive Officers" on page 8 of the Proxy
Statement, which sections are incorporated herein by reference.
The information required by this Item regarding compliance with Section
16(a) of the Securities Exchange Act of 1934 is set forth under the section
captioned "Section 16(a) Beneficial Ownership Reporting Compliance" set forth on
page 4 of the Proxy Statement, which section is incorporated herein by
reference.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is set forth under the sections
captioned "Proposal 1 - Election of Directors - Director Compensation" on page 7
and "- Management Compensation," " - Stock Benefit Plan," "-Employment
Agreements," "- Incentive Compensation Plans," "- Profit Sharing and 401(k)
Plans," and "- Discretionary Bonuses and Service Awards," on pages 8 through 15
of the Proxy Statement, which sections are incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is incorporated by reference from the
section captioned "Security Ownership of Certain Beneficial Owners" on pages 2
through 4 of the Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
See the section captioned "Proposal 1 - Election of Directors -
Indebtedness of and Transactions with Management" on page 16 of the Proxy
Statement, which section is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
14(a)1. Consolidated Financial Statements (contained in the Annual Report
attached hereto as Exhibit (13) and incorporated herein by reference)
(a) Independent Auditors' Report
(b) Consolidated Statements of Financial Condition as of December 31,
1999 and 1998
(c) Consolidated Statements of Earnings for the Years Ended December
31, 1999, 1998 and 1997
(d) Consolidated Statements of Shareholders' Equity for the Years
Ended December 31, 1999, 1998 and 1997
(e) Consolidated Statements of Comprehensive Income for the Years
Ended December 31, 1999, 1998 and 1997
12
(f) Consolidated Statements of Cash Flows for the Years Ended
December 31, 1999, 1998 and 1997
(g) Notes to Consolidated Financial Statements
14(a)2. Financial Consolidated Statement Schedules
All schedules have been omitted as the required information is either
inapplicable or included in the Notes to Consolidated Financial
Statements, with the exception of the report of KPMG LLP which is
included as Exhibit 99 to this Form 10-K and incorporated herein by
reference, regarding years prior to the year ended December 31, 1998.
14(a)3. Exhibits
Exhibit (3)(i) Articles of Incorporation of Peoples Bancorp of
North Carolina, Inc., incorporated by reference
to Exhibit (3)(I) to the Form 8A filed with the
Securities and Exchange Commission on September
2, 1999
Exhibit (3)(ii) Bylaws of Peoples Bancorp of North Carolina,
Inc. incorporated by reference to Exhibit
(3)(II) to the Form 8A filed with the Securities
and Exchange Commission on September 2, 1999
Exhibit (4) Specimen Stock Certificate, incorporated by
reference to Exhibit (4) to the Form 8A filed
with the Securities and Exchange Commission on
September 2, 1999
Exhibit (10)(a) Employment Agreement between Peoples Bank and
Tony W. Wolfe
Exhibit (10)(b) Employment Agreement between Peoples Bank and
Joseph F. Beaman, Jr.
Exhibit (10)(c) Employment Agreement between Peoples Bank and
Clifton A. Wike
Exhibit (10)(d) Employment Agreement between Peoples Bank and
William D. Cable
Exhibit (10)(e) Employment Agreement between Peoples Bank and
Lance A. Sellers
Exhibit (10)(f) Peoples Bancorp of North Carolina, Inc. Omnibus
Stock Ownership and Long Term Incentive Plan
Exhibit (11) Statement regarding Computation of Per Share
Earnings
Exhibit (12) Statement Regarding Computation of Ratios
Exhibit (13) 1999 Annual Report of Peoples Bancorp of North
Carolina, Inc.
Exhibit (21) Subsidiaries of Peoples Bancorp of North
Carolina, Inc.
Exhibit (27) Financial Data Schedule
Exhibit (99) Report of KPMG LLP
14(b) The Company filed no reports on Form 8-K during the last quarter of
the fiscal year ended December 31, 1999.
13
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
(Registrant)
By: /s/ Tony W. Wolfe
--------------------------------------
Tony W. Wolfe
President and Chief Executive Officer
Date: March 27, 2000
--------------------------------------
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated:
Signature Title Date
- --------- ----- ----
/s/ Tony W. Wolfe President and Chief Executive Officer March 27, 2000
- ----------------------------- (Principal Executive Officer) --------------
Tony W. Wolfe
/s/ Robert C. Abernethy Chairman of the Board and Director March 24, 2000
- ----------------------------- --------------
Robert C. Abernethy
/s/ Joseph F. Beaman, Jr. Executive Vice President and Chief Financial March 24, 2000
- ----------------------------- Officer (Principal Financial and --------------
Joseph F. Beaman, Jr. Principal Accounting Officer)
/s/ James S. Abernethy Director March 24, 2000
- ----------------------------- --------------
James S. Abernethy
/s/ Bruce R. Eckard Director March 23, 2000
- ----------------------------- --------------
Bruce R. Eckard
/s/ John H. Elmore, Jr. Director March 23, 2000
- ----------------------------- --------------
John H. Elmore, Jr.
/s/ Charles F. Murray Director March 23, 2000
- ----------------------------- --------------
Charles F. Murray
/s/ Bobby E. Matthews Director March 24, 2000
- ----------------------------- --------------
Bobby E. Matthews
/s/ Larry E. Robinson Director March 23, 2000
- ----------------------------- --------------
Larry E. Robinson
/s/ Fred L. Sherrill, Jr. Director March 23, 2000
- ----------------------------- --------------
Fred L. Sherrill, Jr.
/s/ Dan Ray Timmerman, Sr. Director March 23, 2000
- ----------------------------- --------------
Dan Ray Timmerman, Sr.
/s/ Benjamin I. Zachary Director March 24, 2000
- ----------------------------- --------------
Benjamin I. Zachary
14
INDEX TO EXHIBITS
Exhibit No. Description
- ----------- -----------
Exhibit (10)(a) Employment Agreement between Peoples Bank and Tony W. Wolfe
Exhibit (10)(b) Employment Agreement between Peoples Bank and Joseph F.
Beaman, Jr.
Exhibit (10)(c) Employment Agreement between Peoples Bank and Clifton A.
Wike
Exhibit (10)(d) Employment Agreement between Peoples Bank and William D.
Cable
Exhibit (10)(e) Employment Agreement between Peoples Bank and Lance A.
Sellers
Exhibit (10)(f) Peoples Bancorp of North Carolina, Inc. Omnibus Stock
Ownership and Long Term Incentive Plan
Exhibit (11) Statement Regarding Computation of Per Share Earnings
Exhibit (12) Statement Regarding Computation of Ratios
Exhibit (13) 1999 Annual Report of Peoples Bancorp of North Carolina,
Inc.
Exhibit (21) Subsidiaries of Peoples Bancorp of North Carolina, Inc.
Exhibit (27) Financial Data Schedule
Exhibit (99) Report of KPMG LLP
15