DOCUMENTS
INCORPORATED BY REFERENCE
Portions
of the Annual Report of Peoples Bancorp of North Carolina, Inc. for the year
ended December 31, 2004 (the “Annual Report”), which is included as Appendix A
to the Proxy Statement for the 2005 Annual Meeting of Shareholders, are
incorporated by reference into Part I and Part II.
Portions
of the Proxy Statement for the 2005 Annual Meeting of Shareholders of Peoples
Bancorp of North Carolina, Inc. to be held on May 5, 2005 (the “Proxy
Statement”), are incorporated by reference into Part III.
This
report contains certain forward-looking statements with respect to the financial
condition, results of operations
and business of Peoples Bancorp of North Carolina, Inc. (the “Company”). These
forward-looking statements involve risks and uncertainties and are based on the
beliefs and assumptions of management of the Company and on the information
available to management at the time that these disclosures were 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 (the “Bank”), (2) changes in
the interest rate environment, (3) general national, regional or local economic
conditions may be less favorable than expected, resulting in, among other
things, a deterioration in credit quality and the possible impairment of
collectibility of loans, (4) legislative or regulatory changes, including
changes in accounting standards, (5) significant changes in the federal and
state legal and regulatory environment and tax laws, (6) the impact of changes
in monetary and fiscal policies, laws, rules and regulations and (7) other risks
and factors identified in the Company’s other filings with the Securities and
Exchange Commission. The Company undertakes no obligation to update any
forward-looking statements.
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 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.
The Bank,
founded in 1912, is a state-chartered commercial bank serving the citizens and
business interests of the Catawba Valley and surrounding communities through 16
offices located in Lincolnton, Newton, Denver, Catawba, Conover, Maiden,
Claremont, Hiddenite, Hickory and Charlotte, North Carolina. At December 31,
2004, the Company had total assets of $686.3 million, net loans of $527.4
million, deposits of $556.5 million, investment securities of $105.6 million,
and shareholders’ equity of $50.9 million.
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. 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.
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 Federal Deposit Insurance Corporation (the “FDIC”) and the North
Carolina Commissioner of Banks (the "Commissioner").
At
December 31, 2004, the Bank employed 209 full-time equivalent
employees.
Subsidiaries
The Bank
is a subsidiary of the Company. The Bank has two subsidiaries, Peoples
Investment Services, Inc. and Real Estate Advisory 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. Real Estate Advisory
Services, Inc., provides real estate appraisal and real estate brokerage
services.
In
December 2001 the Company formed a wholly owned Delaware statutory trust, PEBK
Capital Trust I (“PEBK Trust”), which issued $14.0 million of guaranteed
preferred beneficial interests in the Company’s junior subordinated deferrable
interest debentures that qualify as Tier I capital under Federal Reserve Board
guidelines. All of the common securities of PEBK Trust are owned by the Company.
The proceeds from the issuance of the common securities and the trust preferred
securities were used by PEBK Trust to purchase $14.4 million of junior
subordinated debentures of the Company, which pay interest at a floating rate
equal to the prime rate plus 50 basis points. The proceeds received by the
Company from the sale of the junior subordinated debentures were used for
general purposes, primarily
to provide capital to the Bank. The debentures represent the sole asset of PEBK
Trust. As discussed under the heading entitled “Recent Accounting
Pronouncements” in note 1 to the consolidated financial statements included in
the 2004 Annual Report of Peoples Bancorp, Inc., attached hereto as Exhibit 13,
PEBK Trust was deconsolidated by the Company under FIN 46 as of December 31,
2003.
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, Lincoln County, the western portion
of Iredell 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. The Bank has opened two offices in Mecklenburg
County since June 30, 2004 specifically designed to serve the growing Latino
market. The first office opened in the third quarter of 2004 and the second
office opened in the first quarter of 2005.
Employment
in the Bank's primary market area is diversified among manufacturing,
agricultural, retail and wholesale trade, technology, services and utilities.
Catawba County’s largest employers include Catawaba County Schools, Frye
Regional Medical Center, CommScope, Inc. (manufacturer of fiber optic cable and
accessories), Merchant Distributors, Inc (wholesale food distributor), Hickory
Springs (manufacturer of foam rubber cushions), Catawba Valley Medical Center,
Sherrill Furniture Company, CV Industries (furniture manufacturer) and Catawba
County.
Competition
The Bank
has operated in the Catawba Valley region for more than 90 years and is the only
financial institution headquartered in Newton. Nevertheless, 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, 2004 comparative data, the Bank had
20.03 % of the deposits in Catawba County, placing it third in deposit size
among a total of 12 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 of services it
provides borrowers. Competition is increasing as a result of the continuing
reduction of restrictions on the interstate operations of financial
institutions.
Supervision
and Regulation
Bank
holding companies and commercial 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, the Bank and any
subsidiaries. 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. Statutes and regulations which contain wide-ranging proposals for
altering the structures, regulations and competitive relationship of financial
institutions are introduced regularly. The Company cannot predict whether or in
what form any proposed statute or regulation will be adopted or the extent to
which the business of the Company and the Bank may be affected by such statute
or regulation.
General. 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 the 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. The Company, as a registered bank holding company, is subject to the
regulation of the Federal Reserve. 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.
In
addition, insured depository institutions under common control are required to
reimburse the FDIC for any loss suffered by its deposit insurance funds 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 deposit insurance funds. 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.
As a
result of the Company's ownership of the Bank, the Company is also 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. 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 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.
Capital
Requirements for the Bank. 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, 2004.
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.
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).
Deposit
Insurance Assessments. The Bank
is subject to insurance assessments imposed by the FDIC. Under current law, the
insurance assessment to be paid by members of the Bank Insurance Fund, such as
the Bank, shall be as specified in a schedule required to be issued by the FDIC.
FDIC assessments for deposit insurance range from 0 to 27 basis points per $100
of insured deposits, depending on the institution's capital position and other
supervisory factors.
Federal
Home Loan Bank System. The FHLB
system provides a central credit facility for member institutions. In December
2004, the FHLB of Atlanta implemented a new capital plan. As a member of the
FHLB of Atlanta and under the new capital plan, the Bank is required to own
capital stock in the FHLB of Atlanta in an amount at least equal to 0.20% (or 20
basis points) of the Bank’s total assets at the end of each calendar year, plus
4.5% of its outstanding advances (borrowings) from the FHLB of Atlanta under the
new activity-based stock ownership requirement. On December 31, 2004, the Bank
was in compliance with this requirement.
Community
Reinvestment. Under
the Community Reinvestment Act (“CRA”), as implemented by regulations of the
FDIC, an insured institution has a continuing and affirmative obligation
consistent with its safe and sound operation to help meet the credit needs of
its entire community, including low and moderate income neighborhoods. The CRA
does not establish specific lending requirements or programs for financial
institutions, nor does it limit an institution’s discretion to develop,
consistent with the CRA, the types of products and services that it believes are
best suited to its particular community. The CRA requires the federal banking
regulators, in connection with their examinations of insured institutions, to
assess the institutions’ records of meeting the credit needs of their
communities, using the ratings of “outstanding,” “satisfactory,” “needs to
improve,” or “substantial noncompliance,” and to take that record into account
in its evaluation of certain applications by those institutions. All
institutions are required to make public disclosure of their CRA performance
ratings. The Bank received a “satisfactory” rating in its last CRA examination
which was conducted during March 2004.
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
institution in question is "well capitalized," "adequately capitalized,"
"undercapitalized," "significantly undercapitalized," or "critically
undercapitalized." Under the regulations, an institution is considered: (A)
"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;
(B) "adequately capitalized" if it 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); (C)"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);
(D) "significantly undercapitalized" if it 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 (E) "critically undercapitalized"
if the institution has a ratio of tangible equity to total assets equal to or
less than 2%.
Changes
in Control. 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.
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 Securities Exchange Act of 1934 or
the acquiror will be the largest shareholder after the
acquisition.
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. 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.
Transactions
with Affiliates. 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.
Gramm-Leach-Bliley
Act. The
federal Gramm-Leach-Bliley Act enacted in 1999 (the “GLB Act”) dramatically
changed various federal laws governing the banking, securities and insurance
industries. The GLB Act has expanded opportunities for banks and bank holding
companies to provide services and engage in other revenue-generating activities
that previously were prohibited to them. However, this expanded authority also
may present us with new challenges as our larger competitors are able to expand
their services and products into areas that are not feasible for smaller,
community oriented financial institutions. The GLB Act likely will have a
significant economic impact on the banking industry and on competitive
conditions in the financial services industry generally.
USA
Patriot Act of 2001.
The USA
Patriot Act of 2001 was enacted in response to the terrorist attacks that
occurred in New York, Pennsylvania and Washington, D.C. on September 11, 2001.
The Act is intended to strengthen the ability of U.S. law enforcement and the
intelligence community to work cohesively to combat terrorism on a variety of
fronts. The potential impact of the Act on financial institutions of all kinds
is significant and wide ranging. The Act contains sweeping anti-money laundering
and financial transparency laws and requires various regulations, including
standards for verifying customer identification at account opening, and rules to
promote cooperation among financial institutions, regulators, and law
enforcement entities in identifying parties that may be involved in terrorism or
money laundering.
Sarbanes-Oxley
Act of 2002.
On July
30, 2002, the Sarbanes-Oxley Act of 2002 was signed into law and became some of
the most sweeping federal legislation addressing accounting, corporate
governance and disclosure issues. The impact of the Sarbanes-Oxley Act is
wide-ranging as it applies to all public companies and imposes significant new
requirements for public company governance and disclosure requirements. Some of
the provisions of the Sarbanes-Oxley Act became effective immediately while
others are still being implemented.
In
general, the Sarbanes-Oxley Act mandates important new corporate governance and
financial reporting requirements intended to enhance the accuracy and
transparency of public companies’ reported financial results. It establishes new
responsibilities for corporate chief executive officers, chief financial
officers and audit committees in the
financial
reporting process and creates a new regulatory body to oversee auditors of
public companies. It backs these requirements with new SEC enforcement tools,
increases criminal penalties for federal mail, wire and securities fraud, and
creates new criminal penalties for document and record destruction in connection
with federal investigations. It also increases the opportunity for more private
litigation by lengthening the statute of limitations for securities fraud claims
and providing new federal corporate whistleblower protection.
The
economic and operational effects of this new legislation on public companies,
including us, will be significant in terms of the time, resources and costs
associated with complying with the new law. Because the Sarbanes-Oxley Act, for
the most part, applies equally to larger and smaller public companies, we will
be presented with additional challenges as a smaller, community-oriented
financial institution seeking to compete with larger financial institutions in
our market.
Other.
Additional 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. Additional regulations also establish operational and
managerial, asset quality, earnings and stock valuation standards for insured
depository institutions, as well as compensation standards.
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.
ITEM
2.
PROPERTIES
At
December 31, 2004, the Bank conducted its business from the headquarters office
in Newton, North Carolina, and its sixteen other branch offices in Lincolnton,
Hickory, Newton, Catawba, Conover, Claremont, Maiden, Denver, Triangle,
Hiddenite and Charlotte, North Carolina. The following table sets forth certain
information regarding the Bank's properties at December 31, 2004.
Owned
Leased
Corporate
Office 1333 2nd Street
NE
518 West C
Street
Hickory, North Carolina 28601
Newton,
North Carolina 28658
1910 East Main Street
420 West
A Street
Lincolnton, North Carolina 28092
Newton, North Carolina 28658
2050 Catawba
Valley Boulevard
2619 North Main Avenue Hickory,
North Carolina 28601
Newton, North Carolina 28658
760
Highway 27 West
213 1st Street, West Lincolnton,
North Carolina 28092
Conover, North Carolina 28613
102
Leonard Avenue
3261 East Main Street Newton,
North Carolina 28658
Claremont, North Carolina 28610
6300
South Boulevard
6125 Highway 16 South Suite 100
Denver, North Carolina 28037 Charlotte, North
Carolina 28217
5153 N.C. Highway 90E
Hiddenite, North Carolina 28636
200 Island Ford Road
Maiden, North Carolina 28650
3310 Springs Road NE
Hickory, North Carolina 28601
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 Company 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
No matter
was submitted to a vote of the Bank's shareholders during the quarter ended
December 31, 2004.
PART
II
ITEM
5. MARKET
FOR REGISTRANT'S COMMON EQUITY, RELATED SHAREHOLDER MATTERS AND
ISSUER PURCHASES
OF EQUITY SECURITIES
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-23 of the Annual Report, which section is incorporated herein by reference.
See "Item 1. BUSINESS--Supervision and Regulation" 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-2 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-3 through A-24 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-21 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-25 through A-50 of the Annual Report are incorporated herein by
reference.
ITEM
9. CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
Not
applicable.
ITEM
9A. CONTROLS
AND PROCEDURES
The
Company’s management, under the supervision and with the participation of the
Chief Executive Officer and the Chief Financial Officer of the Company (its
principal executive officer and principal financial officer, respectively) have
concluded, based on their evaluation as of the
end of the period covered by this Report, that the
Company’s disclosure controls and procedures are effective to ensure that
information required to be disclosed by the Company in the reports filed or
submitted by it under the Securities Exchange Act of 1934, as amended, is
recorded, processed, summarized and reported within the time periods specified
in the applicable rules and forms. The Company’s management has further
concluded, that the controls and procedures are designed to ensure that
information required to be disclosed by the Company in such reports is
accumulated and communicated to the Company’s management, including the Chief
Executive Officer and the Chief Financial Officer of the Company as appropriate
to allow timely decisions regarding required disclosure.
There
have been no significant changes in internal control over financial reporting
during the period covered by this annual report that have materially affected,
or are reasonably likely to materially affect, the Company’s internal control
over financial reporting.
ITEM
9B. OTHER
INFORMATION
None
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 10 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 5 of
the Proxy Statement, which section is incorporated herein by
reference.
The
information required by this Item regarding identification of members of the
Company’s Audit Committee is set forth under the section captioned “Proposal 1 -
Election of Directors - Committees of the Board” on page 8 of the Proxy
Statement, which section is incorporated herein by reference. The Board of
Directors of the Company has determined that the chair of the Audit Committee,
Benjamin Zachary, qualifies as an “audit committee financial expert.” Mr.
Zachary was licensed as a certified public accountant from 1981 until May 1992.
He is presently the President and Treasurer of Alexander Railroad Company.
The
Company has adopted a Code of Ethics that applies to the Company’s employees,
including the principal executive officer and principal financial officer. The
Company will provide to any person, without charge, upon request, a copy of the
Code of Ethics. To request a copy, a written request should be submitted to the
Company’s corporate headquarters, addressed to the attention of A. Joseph
Lampron, Chief Financial Officer.
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 pages 9 and 10
and “- Management Compensation,” “ - Stock Benefits Plan,” “- Employment
Agreements,” “- Incentive Compensation Plans,” “- Profit Sharing and 401(k)
Plans,” “- Deferred Compensation Plan,” “- Supplemental Retirement Plan,” and "-
Discretionary Bonuses and Service Awards," on pages 11 through 20 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 5
of the Proxy Statement and the section captioned “Equity Compensation Plan
Information” on page 14 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 and Directors” on page 20 of the Proxy Statement,
which section is incorporated herein by reference.
ITEM
14. PRINCIPAL
ACCOUNTANT FEES AND SERVICES
See the
section captioned “Proposal 2 - Ratification of Selection of Independent
Auditor” on page 23 of the Proxy Statement, which section is incorporated herein
by reference.
PART
IV
ITEM
15. EXHIBITS
AND FINANCIAL STATEMENT SCHEDULES
|
15(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, 2004 and
2003 |
| |
(c) |
Consolidated
Statements of Earnings for the Years Ended December 31, 2004, 2003 and
2002 |
| |
(d) |
Consolidated
Statements of Shareholders’ Equity for the Years Ended December 31, 2004,
2003 and 2002 |
| |
(e) |
Consolidated
Statements of Comprehensive Income for the Years Ended December 31, 2004,
2003 and 2002 |
| |
(f) |
Consolidated
Statements of Cash Flows for the Years Ended December 31, 2004, 2003 and
2002 |
| |
(g) |
Notes
to Consolidated Financial Statements |
|
15(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.
|
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 26,
2004 |
| |
|
|
|
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 |
| |
|
|
|
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
(11) |
|
Statement
Regarding Computation of Per Share Earnings |
| |
|
|
|
Exhibit
(12) |
|
Statement
Regarding Computation of Ratios |
| |
|
|
|
Exhibit
(13) |
|
2004
Annual Report of Peoples Bancorp of North Carolina,
Inc. |
| |
|
|
|
Exhibit
(14) |
|
Code
of Business Conduct and Ethics of Peoples Bancorp of
North |
| |
|
Carolina,
Inc. |
| |
|
|
|
Exhibit
(21) |
|
Subsidiaries
of Peoples Bancorp of North Carolina, Inc., incorporated
by |
| |
|
reference
to Exhibit 21 to the Form 10-K filed with the Securities and
|
| |
|
Exchange
Commission on March 27, 2003 |
| |
|
|
|
Exhibit
(23)(a) |
|
Consent
of Porter Keadle Moore, LLP for Registration Statement on
|
| |
|
Form
S-3 filed with the Securities and Exchange Commission on
August |
| |
|
10,
2000 |
| |
|
|
|
Exhibit
(23)(b) |
|
Consent
of Porter Keadle Moore, LLP for Registration Statement on
|
| |
|
Form
S-8 filed with the Securities and Exchange Commission on
|
| |
|
September
28, 2000 |
| |
|
|
|
Exhibit
(31)(a) |
|
Certification
of principal executive officer pursuant to section 302 of the
|
| |
|
Sarbanes-Oxley
Act of 2002 |
| |
|
|
|
Exhibit
(31)(b) |
|
Certification
of principal financial officer pursuant to section 302 of the
|
| |
|
Sarbanes-Oxley
Act of 2002 |
| |
|
|
|
Exhibit
(32) |
|
Certification
Pursuant to 18 U.S.C. Section 1350, as adopted pursuant
to |
| |
|
Section
906 of the Sarbanes-Oxley Act of 2002 |
|
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 25, 2005 |
| |
|
| |
|
| |
|
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
25, 2005 |
|
Tony
W. Wolfe |
|
(Principal
Executive Officer) |
|
|
| |
|
|
|
|
|
/s/
James S. Abernethy |
|
Director |
|
March
25, 2005 |
|
James
S. Abernethy |
|
|
|
|
| |
|
|
|
|
|
/s/
Robert C. Abernethy |
|
Chairman
of the Board and Director |
|
March
25, 2005 |
|
Robert
C. Abernethy |
|
|
|
|
| |
|
|
|
|
|
/s/
Douglas S. Howard |
|
Director |
|
March
25, 2005 |
|
Douglas
S. Howard |
|
|
|
|
| |
|
|
|
|
|
/s/
A. Joseph Lampron |
|
Executive
Vice President and Chief |
|
March
25, 2005 |
|
A.
Joseph Lampron |
|
Financial
Officer (Principal Financial |
|
|
| |
|
and
Principal Accounting Officer) |
|
|
| |
|
|
|
|
|
/s/
John W. Lineberger, Jr. |
|
Director |
|
March
25, 2005 |
|
John
W. Lineberger, Jr. |
|
|
|
|
| |
|
|
|
|
|
/s/
Gary E. Matthews |
|
Director |
|
March
25, 2005 |
|
Gary
E. Matthews |
|
|
|
|
| |
|
|
|
|
|
/s/
Charles F. Murray |
|
Director |
|
March
25, 2005 |
|
Charles
F. Murray |
|
|
|
|
| |
|
|
|
|
|
/s/
Billy L. Price, Jr., M.D. |
|
Director |
|
March
25, 2005 |
|
Billy
L. Price, Jr., M.D. |
|
|
|
|
| |
|
|
|
|
|
/s/
Larry E. Robinson |
|
Director |
|
March
25, 2005 |
|
Larry
E. Robinson |
|
|
|
|