updated 1/31/2011 9:47:24 AM ET 2011-01-31T14:47:24

NEWTON, N.C., Jan. 31, 2011 (GLOBE NEWSWIRE) -- Peoples Bancorp of North Carolina, Inc. (Nasdaq:PEBK), the parent company of Peoples Bank, reported net income of $1.8 million for the year ended December 31, 2010, resulting in $0.33 basic and diluted net earnings per share, before adjustment for preferred stock dividends and accretion, as compared to $2.9 million, or $0.53 basic and diluted net earnings per share, for the same period one year ago. After adjusting for dividends and accretion on preferred stock, net earnings available to common shareholders for the year ended December 31, 2010, were $448,000 or $0.08 basic and diluted net earnings per common share as compared to $1.7 million, or $0.30 basic and diluted net earnings per common share, for the same period one year ago. Tony W. Wolfe, President and Chief Executive Officer, attributed the decrease in year-to-date earnings to an increase in provision for loan losses, which was partially offset by an increase in net interest income, an increase in non-interest income and a decrease in non-interest expense. Mr. Wolfe stated that the current economic conditions continue to stress both our borrowers and the collateral supporting our loans. The Bank strives to proactively work with its customers to identify potential problems. If found, the Bank works to quickly recognize identifiable losses and to establish a plan, with the borrower, if possible, to have the loans paid off. This process has increased the levels of charge-offs and provision for loan losses in each quarter of 2010. Mr. Wolfe noted that he was pleased to report that the Company remained profitable for the year ended December 31, 2010, during these challenging economic conditions.

For the quarter ended December 31, 2010, the Company incurred a net loss of $439,000 or $0.08 basic and diluted net loss per share, before adjustment for preferred stock dividends and accretion, as compared to net earnings of $632,000, or $0.11 basic and diluted net earnings per share, for the same period one year ago. After adjusting for dividends and accretion on preferred stock, the Company reported a $787,000 net loss available to common shareholders for the three months ended December 31, 2010, or $0.14 basic and diluted net loss per common share as compared to $284,000 net earnings available to common shareholders, or $0.05 basic and diluted net earnings per common share, for the same period one year ago. Mr. Wolfe attributed the decrease in fourth quarter earnings to an increase in provision for loan losses as discussed below. 

Year-to-date net interest income as of December 31, 2010, increased to $33.3 million compared to $32.9 million for the same period one year ago. This increase is primarily attributable to a reduction in interest expense due to a decrease in the cost of funds for time deposits. Net interest income after the provision for loan losses decreased 24% to $16.9 million for the year ended December 31, 2010, compared to $22.3 million for the same period one year ago. The provision for loan losses for the year ended December 31, 2010, was $16.4 million as compared to $10.5 million for the same period one year ago, primarily attributable to an increase in non-performing assets and a $10.2 million increase in net charge-offs during the year ended December 31, 2010, compared to the same period last year. Net charge-offs during the year ended December 31, 2010, included $10.2 million on acquisition, development and construction ("AD&C") loans, $4.0 million on mortgage loans and $2.2 million on non-real estate loans, which included $1.7 million on commercial loans.

Non-interest income increased 17% to $13.9 million for the year ended December 31, 2010, as compared to $11.8 million for the same period one year ago primarily due to a $2.0 million increase in gains on the sale of securities for the year ended December 31, 2010, as compared to the same period one year ago.

Non-interest expense decreased 3% to $28.9 million for the year ended December 31, 2010, as compared to $29.9 million for the same period last year. The decrease in non-interest expense included: (1) a decrease of $634,000 or 4% in salaries and benefits expense primarily due to a $322,000 decrease in supplemental retirement plan expense, a $275,000 decrease in 401-K plan expense and a $122,000 decrease in salary expense and (2) a decrease of $328,000 or 3% in non-interest expenses other than salary, employee benefits and occupancy expenses primarily due to a decrease of $458,000 in debit card expense.

Net interest income was $8.6 million for the three-month period ended December 31, 2010, compared to $8.5 million for the same period one year ago. Net interest income after the provision for loan losses decreased 55% to $2.3 million during the fourth quarter of 2010, compared to $5.1 million for the same period one year ago. The provision for loan losses for the three months ended December 31, 2010, was $6.2 million as compared to $3.4 million for the same period one year ago, primarily attributable to a $5.0 million increase in net charge-offs during fourth quarter 2010, compared to fourth quarter 2009.

Non-interest income amounted to $4.3 million for the three months ended December 31, 2010, as compared to $2.9 million for the same period last year. This increase is primarily attributable to a $1.4 million increase in gains on the sale of securities for the three months ended December 31, 2010, as compared to the same period one year ago.

Non-interest expense increased 4% to $7.5 million for the three months ended December 31, 2010, as compared to $7.2 million for the same period last year. The increase in non-interest expense included: (1) an increase of $132,000 or 4% in salaries and benefits expense, (2) an increase of $31,000 or 2% in occupancy expense and (3) an increase of $116,000 or 5% in non-interest expenses other than salary, employee benefits and occupancy expenses.

Total assets as of December 31, 2010, amounted to $1.1 billion, an increase of 2% compared to total assets of $1.0 billion at December 31, 2009. This increase is primarily attributable to an increase in investment securities available for sale. Available for sale securities increased 40% to $272.4 million as of December 31, 2010, compared to $195.1 million as of December 31, 2009. This increase reflects the investment of additional funds received from growth in deposits and a decrease in loans. Total loans amounted to $726.2 million as of December 31, 2010, compared to $778.1 million as of December 31, 2009. This decrease reflects a decline in loan originations combined with continuing payments on existing loans.

Non-performing assets increased 63% to $46.9 million or 4.40% of total assets at December 31, 2010, compared to $28.8 million or 2.74% of total assets at December 31, 2009 primarily due to a $17.3 million increase in non-accrual loans. Non-performing loans include $23.1 million in AD&C loans, $16.2 million in commercial and residential mortgage loans and $1.0 million in other loans at December 31, 2010, as compared to $4.8 million in AD&C loans, $18.3 million in commercial and residential mortgage loans and $1.7 million in other loans as of December 31, 2009. Included in AD&C non-accrual loans at December 31, 2010, is $10.9 million in loans to the largest AD&C relationship in the Bank that are current but whose repayment is dependent upon the underlying collateral and whose terms are interest only. The allowance for loan losses at December 31, 2010, amounted to $15.5 million or 2.13% of total loans compared to $15.4 million or 1.98% of total loans at December 31, 2009. According to Mr. Wolfe, management believes the current level of the allowance for loan losses is adequate; however, there is no assurance that additional adjustments to the allowance will not be required because of changes in economic conditions, regulatory requirements or other factors.

Deposits amounted to $838.7 million as of December 31, 2010, representing an increase of 4% over deposits of $809.3 million at December 31, 2009. Core deposits, which include non-interest bearing demand deposits, NOW, MMDA, savings and non-brokered certificates of deposits of denominations less than $100,000, increased $23.7 million or 4% to $592.7 million at December 31, 2010, as compared to $569.0 million at December 31, 2009. Certificates of deposit in amounts greater than $100,000 or more totaled $241.4 million at December 31, 2010, as compared to $233.1 million at December 31, 2009. This increase is partially due to a $3.7 million increase in certificates of deposit issued through the Certificate of Deposit Account Registry Service (CDARS) as of December 31, 2010, compared to December 31, 2009.

Securities sold under agreement to repurchase amounted to $34.1 million at December 31, 2010, as compared to $36.9 million at December 31, 2009. 

Shareholders' equity was $96.9 million, or 9.07% of total assets, at December 31, 2010, as compared to $99.2 million, or 9.46% of total assets, at December 31, 2009. The Company's total risk-based capital ratio was 15.52% at December 31, 2010, which exceeds the regulatory "well-capitalized" threshold of 10.00%.

Peoples Bank operates 22 offices entirely in North Carolina, with offices in Catawba, Alexander, Lincoln, Mecklenburg, Union, Iredell and Wake Counties. The Company's common stock is publicly traded and is quoted on the Nasdaq Global Market under the symbol "PEBK."

Statements made in this press release, other than those concerning historical information, should be considered forward-looking statements pursuant to the safe harbor provisions of the Securities Exchange Act of 1934 and the Private Securities Litigation Act of 1995. These forward-looking statements involve risks and uncertainties and are based on the beliefs and assumptions of management and on the information available to management at the time that this release was prepared. These statements can be identified by the use of words like "expect," "anticipate," "estimate," and "believe," variations of these words and other similar expressions. Readers should not place undue reliance on forward-looking statements as a number of important factors could cause actual results to differ materially from those in the forward-looking statements. Factors that could cause actual results to differ materially include, but are not limited to, (1) competition in the markets served by Peoples Bank, (2) changes in the interest rate environment, (3) general national, regional or local economic conditions may be less favorable than expected, resulting in, among other things, a deterioration in credit quality and the possible impairment of collectibility of loans, (4) legislative or regulatory changes, including changes in accounting standards, (5) significant changes in the federal and state legal and regulatory 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, including but not limited to those described in Peoples Bancorp of North Carolina, Inc.'s annual report on Form 10-K for the year ended December 31, 2009.

CONSOLIDATED BALANCE SHEETS    
December 31, 2010 and December 31, 2009    
(Dollars in thousands)    
     
  December 31, 2010 December 31, 2009
   (Unaudited)   
ASSETS:    
Cash and due from banks  $ 22,521  $ 29,633
Interest bearing deposits  1,456  1,707
Cash and cash equivalents  23,977  31,340
     
Certificates of deposits  735  3,345
     
Investment securities available for sale  272,449  195,115
Other investments  5,761  6,346
Total securities  278,210  201,461
     
Mortgage loans held for sale  3,814  2,840
     
Loans  726,160  778,056
Less: Allowance for loan losses  (15,493)  (15,413)
Net loans  710,667  762,643
     
Premises and equipment, net  17,334  17,947
Cash surrender value of life insurance  7,539  7,282
Accrued interest receivable and other assets  25,376  21,636
Total assets  $ 1,067,652  $ 1,048,494
     
     
LIABILITIES AND SHAREHOLDERS' EQUITY:    
Deposits:    
Non-interest bearing demand  $ 114,792  $ 117,636
NOW, MMDA & Savings  332,511  290,273
Time, $100,000 or more  241,366  233,142
Other time   150,043  168,292
Total deposits  838,712  809,343
     
Demand notes payable to U.S. Treasury  1,600  636
Securities sold under agreement to repurchase  34,094  36,876
Short-term Federal Reserve Bank borrowings  --   -- 
FHLB borrowings  70,000  77,000
Junior subordinated debentures  20,619  20,619
Accrued interest payable and other liabilities  5,769  4,797
Total liabilities  970,794  949,271
     
Shareholders' equity:    
Series A preferred stock, $1,000 stated value; authorized 5,000,000 shares; issued and outstanding 25,054 shares in 2010 and 2009  24,582  24,476
Common stock, no par value; authorized 20,000,000 shares; issued and outstanding 5,541,413 shares in 2010 and 5,539,056 shares in 2009  48,281  48,269
Retained earnings  23,608  23,573
Accumulated other comprehensive income  387  2,905
Total shareholders' equity  96,858  99,223
     
Total liabilities and shareholders' equity  $ 1,067,652  $ 1,048,494
       
CONSOLIDATED STATEMENTS OF INCOME       
For the three months and years ended December 31, 2010 and 2009      
(Dollars in thousands, except per share amounts)        
         
   Three months ended

December 31, 
Years ended

December 31, 
   2010   2009   2010   2009 
   (Unaudited)   (Unaudited)   (Unaudited)   
INTEREST INCOME:        
Interest and fees on loans  $ 10,031  $ 10,608  $ 40,267  $ 43,211
Interest on federal funds sold  --   -- --   1
Interest on investment securities:        
U.S. Government sponsored enterprises  1,068  1,514  5,035  5,461
States and political subdivisions  725  376  2,173  1,242
Other  51  31  205  122
Total interest income  11,875  12,529  47,680  50,037
         
INTEREST EXPENSE:        
NOW, MMDA & savings deposits  829  899  3,472  2,965
Time deposits  1,527  2,017  6,786  9,687
FHLB borrowings  780  911  3,285  3,577
Junior subordinated debentures  101  101  411  546
Other  88  100  394  412
Total interest expense  3,325  4,028  14,348  17,187
         
NET INTEREST INCOME  8,550  8,501  33,332  32,850
PROVISION FOR LOAN LOSSES  6,221  3,379  16,438  10,535
NET INTEREST INCOME AFTER        
PROVISION FOR LOAN LOSSES  2,329  5,122  16,894  22,315
         
NON-INTEREST INCOME:        
Service charges  1,433  1,478  5,626  5,573
Other service charges and fees  511  490  2,195  2,058
Gain (loss) on sale and write-down of securities  1,365  --   3,057  1,072
Mortgage banking income  160  194  532  827
Insurance and brokerage commission  114  128  390  414
Miscellaneous   704  592  2,084  1,879
Total non-interest income  4,287  2,882  13,884  11,823
         
NON-INTEREST EXPENSES:        
Salaries and employee benefits  3,660  3,528  14,124  14,758
Occupancy  1,450  1,419  5,436  5,409
Other  2,410  2,294  9,388  9,716
Total non-interest expense  7,520  7,241  28,948  29,883
         
EARNINGS BEFORE INCOME TAXES  (904)  763  1,830  4,255
INCOME TAXES  (465)  131  (11)  1,339
         
NET EARNINGS  (439)  632  1,841  2,916
         
Dividends and accretion on preferred stock  348  348  1,393  1,246
         
NET EARNINGS (LOSS) AVAILABLE TO        
COMMON SHAREHOLDERS  $ (787)  $ 284  $ 448  $ 1,670
         
PER COMMON SHARE AMOUNTS        
Basic net earnings (loss)  $ (0.14)  $ 0.05  $ 0.08  $ 0.30
Diluted net earnings (loss)  $ (0.14)  $ 0.05  $ 0.08  $ 0.30
Cash dividends  $ 0.02  $ 0.07  $ 0.08  $ 0.26
Book value  $ 12.96  $ 13.39  $ 12.96  $ 13.39
         
         
FINANCIAL HIGHLIGHTS        
For the three months and years ended December 31, 2010 and 2009      
(Dollars in thousands)        
         
   Three months ended

December 31, 
Years ended

December 31, 
   2010   2009   2010   2009 
   (Unaudited)   (Unaudited)   (Unaudited)   
SELECTED AVERAGE BALANCES:        
 Available for sale securities  $ 242,793  $ 189,232  $ 219,797  $ 161,135
 Loans  740,249  781,617  757,532  782,465
 Earning assets  1,016,888  981,359  999,054  956,680
 Assets  1,088,333  1,053,448  1,078,140  1,016,252
 Deposits  854,745  811,451  840,343  772,075
 Shareholders' equity  100,187  100,012  101,529  101,162
         
         
SELECTED KEY DATA:        
 Net interest margin (tax equivalent) 3.49% 3.54% 3.46% 3.53%
 Return of average assets -0.16% 0.24% 0.17% 0.29%
 Return on average shareholders' equity -1.71% 2.51% 1.81% 2.88%
 Shareholders' equity to total assets (period end) 9.07% 9.46% 9.07% 9.46%
         
         
ALLOWANCE FOR LOAN LOSSES:        
Balance, beginning of period  $ 17,718  $ 15,474  $ 15,413  $ 11,025
Provision for loan losses  6,221  3,379  16,438  10,535
Charge-offs  (8,548)  (3,504)  (16,910)  (6,670)
Recoveries  102  64  552  523
Balance, end of period  $ 15,493  $ 15,413  $ 15,493  $ 15,413
         
         
ASSET QUALITY:        
 Non-accrual loans      $ 40,062  $ 22,789
 90 days past due and still accruing      211  1,977
 Other real estate owned      6,673  3,997
 Total non-performing assets      $ 46,946  $ 28,763
 Non-performing assets to total assets     4.40% 2.74%
 Allowance for loan losses to non-performing assets      33.00% 53.59%
 Allowance for loan losses to total loans     2.13% 1.98%
         
         
LOAN RISK GRADE ANALYSIS:        
      Percentage of Loans

By Risk Grade*
      12/31/2010 12/31/2009
 Risk Grade 1 (excellent quality)     3.36% 3.51%
 Risk Grade 2 (high quality)     16.60% 16.30%
 Risk Grade 3 (good quality)     47.00% 50.99%
 Risk Grade 4 (management attention)     21.31% 17.12%
 Risk Grade 5 (watch)     2.84% 7.41%
 Risk Grade 6 (substandard)     3.09% 1.45%
 Risk Grade 7 (low substandard)     0.00% 0.04%
 Risk Grade 8 (doubtful)     0.00% 0.00%
 Risk Grade 9 (loss)     0.00% 0.00%
         
*Excludes non-accrual loans        
At December 31, 2010 there were four relationships exceeding $1.0 million (which totaled $7.0 million) in the Watch risk grade, nine relationships exceeding $1.0 million in the Substandard risk grade (which totaled $16.9 million) and no relationships exceeding $1.0 million in the Low Substandard risk grade. There was one relationship with loans in the Watch risk grade and the Substandard risk grade totaling $1.5 million. These customers continue to meet payment requirements in accordance with the terms of the promissory notes on these loans.
CONTACT: Tony W. Wolfe
         President and Chief Executive Officer
         
         A. Joseph Lampron
         Executive Vice President and Chief Financial Officer
         828-464-5620, Fax 828-465-6780

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