Peoples Bancorp of North Carolina, Inc. Annual Report 2013

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FY2013 Annual Report · Peoples Bancorp of North Carolina, Inc.

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Our Vision, Mission and Core Values

VISION STATEMENT
To be the Bank of Choice in our
Communities.

MISSION STATEMENT
To Provide Exceptional Customer Ser-
vice While Selling to Customer Needs.

CORE VALUES
E M P L OY E E S

We are valued so we add value.

E X C E P T I O N A L C U S T O M E R S E R V I C E

We surpass our customers’ expectations.

I N T E G R I T Y

We are fair and truthful.

A C C O U N TA B I L I T Y

We are accountable for our own actions and
each other.

P R O G R E S S I V E A N D P O S I T I V E

We see change as an opportunity.

Contents

Message From the President

Financial Highlights

Report of Independent Registered
Public Accounting Firm

Consolidated Balance Sheets

Consolidated Statements
of Earnings

Board of Directors and Officers

Subsidiaries

Shareholder and General
Information

Locations

Back

From the President

We are pleased to report that Peoples Bancorp of

North Carolina, Inc. completed another successful
year during 2013. Consolidated net earnings for
the year ended December 31, 2013 increased
15.5% and totaled $6.7 million, or $1.19 basic and
diluted net earnings per share, before adjustment

remained in excess of regulatory guidelines for a

well-capitalized financial institution. We anticipate

the repurchase of the Company’s preferred stock,

which had a liquidation preference of $12,524,000,

to be approximately $0.18 accretive to the

Company’s diluted earnings per common share in

2014 based on current interest rates. In addition,

directors of Peoples Bancorp paid cash dividends to

common shareholders in the amount of $0.12 per

share during fiscal year 2013.

We did see some growth in 2013 but assets were

basically unchanged at $1.0 billion as of December

31, 2013 and 2012. Available for sale securities

remained constant during 2013 and were $297.9

million as of December 31, 2013, compared to

for preferred stock dividends and accretion.

$297.8 million as of December 31, 2012. Total

For the prior year ended December 31, 2012,

consolidated net earnings totaled $5.8 million,

or $1.04 basic and diluted net earnings per share,

before adjustment for preferred stock dividends

and accretion.

We are also pleased to inform you that Peoples
Bancorp received regulatory approval in

December 2013 to repurchase and retire

the remaining 12,524 outstanding shares of
our Series A preferred stock arising from the
Company’s participation in the Capital Purchase

loans were $621.0 million as of December 31,

2013, compared to $620.0 million as of December

31, 2012.

Non-performing assets continued to decline

throughout 2013 and at year-end totaled $16.4

million or 1.6% of total assets. At December

31, 2012, non-performing assets were $26.3

million or 2.6% of total assets. We attributed the

improvement of non-performing assets to a $3.8

million decrease in non-accrual loans coupled with

Program under the Troubled Asset Relief Program

a $4.6 million decrease in other real estate owned.

in 2008. With this transaction reflected as of

The allowance for loan losses at December 31, 2013 was

December 31, 2013, shareholders’ equity totaled

$13.5 million or 2.2% of total loans, compared to $14.4

$83.7 million, or 8.1% of total assets, and we

million or 2.3% of total loans at December 31, 2012.

Page 2

Deposits increased 2.3% to $799.4 million at
December 31, 2013 when compared to twelve

months ago. We are pleased to report that core

deposits, the Bank’s least expensive source of

funding, increased $37.5 million, or 5.8%, to

$683.9 million at year-end 2013. Certificates of

deposit in amounts of $100,000 or more totaled

$115.3 million at December 31, 2013, as compared

to $134.7 million at December 31, 2012.

Over the past several months, we have invested a
significant amount of time in the review of our

Company’s vision statement, mission statement,
core values, and strategic plan. The review was
designed to address the needs of our identified

communities consisting of customers, employees,

and shareholders. Developed in conjunction with

our Board of Directors, we collectively agreed

that the new vision of Peoples Bank is to become

the “Bank of Choice” in our communities. I wish

to thank the Board for their participation in this

process and for their leadership throughout the year.

Peoples Bank could not be the Company that it is

today without the support of our employees. They

can always be depended upon to do the right thing

for our customers, and we are so proud of their
commitment and dedication. Our employees
represent the key to our ability of becoming the

“Bank of Choice” in the communities we serve.

Peoples Bank and Peoples Bancorp of North

Carolina offer a wide array of financial services that

merit mention here. Peoples Investment Services

and Real Estate Advisory Services are both wholly-

owned subsidiaries of the Bank while Community
Bank Real Estate Solutions (CBRES) operates as a
subsidiary of Peoples Bancorp. Peoples Investment
Services, through our exclusive affiliation with
Raymond James Financial Services, provides access
to non-traditional deposit products including
stocks, bonds, mutual funds, annuities, and other
insurance-related products. Real Estate Advisory
Services provides residential and commercial real
estate appraisals working in conjunction with
mortgage departments in a number of financial
institutions in our area, including Peoples Bank, as
well as various legal firms. CBRES generates non-
interest income for the Company while assisting
professionals in other banks across the country
by providing services of a locally-owned appraisal
management company.

We are excited to embark upon the 102nd year
of business here at Peoples Bank. As one of
North Carolina’s oldest State-chartered banks, we
feel that we are well positioned for the challenges
and opportunities that will come our way in 2014.
As a friend and shareholder of Peoples Bancorp,

you can help us become the “Bank of Choice”

by recommending our services to community

members you encounter. Your referrals are very

much appreciated.

Thank you for your continued support.

Sincerely,

Lance A. Sellers
President and Chief Executive Officer

Page 3

Financial Highlights

(Dollars in thousands, except per share amounts)

Interest income
Interest expense
Net interest earnings
Provision for loan losses
Net interest earnings after provision for loan losses
Non-interest income
Non-interest expense
Income taxes
Net earnings
Dividends and accretion of preferred stock
Net earnings available to common shareholders

Per Share of Common Stock
Basic net earnings
Diluted net earnings
Cash dividends
Market price at December 31
Book value at December 31

At Year-end
Loans, net
Available for sale securities
Assets
Deposits
Shareholders’ equity

Key Performance Ratios
Return on average assets
Return on average shareholders’ equity
Dividend payout ratio*
Average shareholders’ equity to total average assets

* As a percentage of net earnings available to common shareholders.

2013 2012 +/-

-6%
-30%
-1%
-48%
8%
1%
3%
18%
16%
-35%
26%

26%
24%
-33%
56%
-2%

0%
0%
2%
2%
-14%

36,696
5,353
31,343
2,584
28,759
12,652
32,841
1,879
6,691
656
6,035

1.08
1.07
0.12
14.18
14.91

607,459
297,890
1,034,684
799,361
83,719

0.65%
6.67%
11.17%
9.79%

39,245
7,696
31,549
4,924
26,625
12,537
31,782
1,587
5,793
1,010
4,783

0.86
0.86
0.18
9.10
15.18

605,551
297,823
1,013,516
781,525
97,747

0.56%
5.58%
20.96%
10.08%

Page 4

Report of Audit

Page 5

Consolidated Balance Sheets

December 31, 2013 and 2012

(dollars in thousands)

Assets
Cash and due from banks, including reserve requirements

of $11,472 at 12/31/13 and $9,625 at 12/31/12

Interest-bearing deposits

Cash and cash equivalents

Investment securities available for sale
Other investments
Total securities

Mortgage loans held for sale

Loans
Less allowance for loan losses

Net loans

Premises and equipment, net
Cash surrender value of life insurance
Other real estate
Accrued interest receivable and other assets

Total assets

Liabilities and Shareholders’ Equity
Deposits:
Non-interest bearing demand
NOW, MMDA & savings
Time, $100,000 or more
Other time

Total deposits

Securities sold under agreements to repurchase
FHLB borrowings
Junior subordinated debentures
Accrued interest payable and other liabilities

Total liabilities

Commitments
Shareholders’ equity:

Series A preferred stock, $1,000 stated value; authorized 5,000,000 shares; issued and

outstanding 12,524 shares in 2012

Common stock, no par value; authorized 20,000,000 shares; issued and outstanding
5,613,495 shares in 2013 and 2012

Retained earnings

Accumulated other comprehensive (loss) income
Total shareholders’ equity
Total liabilities and shareholders’ equity

2013 2012

49,902
26,871
76,773

297,890
4,990
302,880

32,617
16,226
48,843

297,823
5,599
303,422

497

6,922

620,960
(13,501)
607,459

16,358
13,706
1,679
15,332
1,034,684

195,265
386,893
115,268
101,935
799,361

45,396
65,000
20,619
20,589
950,965

619,974
(14,423)
605,551

15,874
13,273
6,254
13,377
1,013,516

161,582
371,719
134,733
113,491
781,525

34,578
70,000
20,619
9,047
915,769

—

12,524

48,133
36,758
(1,172)
83,719
1,034,684

48,133
31,478
5,612
97,747
1,013,516

See Appendix A to the Peoples Bancorp of North Carolina, Inc. Proxy Statement, dated March 25, 2014, for a complete

set of Consolidated Financial Statements.

Page 6

Consolidated Statements of Earnings

For the Years Ended December 31, 2013, 2012 and 2011

(dollars in thousands, except per share amounts)

2013

2012 2011

Interest income:

Interest and fees on loans
Interest on due from banks
Interest on investment securities:

U.S. Government sponsored enterprises
States and political subdivisions
Other

Total interest income

Interest expense:

NOW, MMDA & savings deposits
Time deposits
FHLB borrowings
Junior subordinated debentures
Other

Total interest expense
Net interest income

Provision for loan losses
Net interest income after provision for loan losses

Non-interest income:

Service charges
Other service charges and fees
Other than temporary impairment losses
Gain on sale of securities
Mortgage banking income
Insurance and brokerage commissions
Loss on sale and write-down of other real estate
Miscellaneous

Total non-interest income

Non-interest expense:

Salaries and employee benefits
Occupancy
Other

Total non-interest expense
Earnings before income taxes

Income tax expense

Net earnings

Dividends and accretion of preferred stock

Net earnings available to common shareholders

Basic net earnings per common share
Diluted net earnings per common share
Cash dividends declared per common share

$
$
$
$

30,194
85

1,639
4,427
351
36,696

732
1,650
2,518
398
55
5,353
31,343

2,584
28,759

4,566
1,172
—
614
1,228
661
(581)
4,992
12,652

16,851
5,539
10,451
32,841
8,570
1,879
6,691
656
6,035
1.08
1.07
0.12

32,758
51

2,746
3,403
287
39,245

1,180
3,205
2,744
438
129
7,696
31,549

4,924
26,625

4,764
1,940
—
1,218
1,229
517
(1,136)
4,005
12,537

16,426
5,236
10,120
31,782
7,380
1,587
5,793
1,010
4,783
0.86
0.86
0.18

36,374
33

5,414
3,180
258
45,259

2,263
5,035
2,956
407
285
10,946
34,313

12,632
21,681

5,106
2,090
(144)
4,406
757
471
(1,322)
3,149
14,513

14,766
5,339
9,467
29,572
6,622
1,463
5,159
1,393
3,766
0.68
0.68
0.08

See Appendix A to the Peoples Bancorp of North Carolina, Inc. Proxy Statement, dated March 25, 2014, for a complete set of Consolidated

Financial Statements.

Page 7

Directors and Officers
Peoples Bank and Peoples Bancorp Board of Directors
Robert C. Abernethy

John W. Lineberger, Jr.

Chairman of the Board

President

Peoples Bancorp of North Carolina, Inc.
and Peoples Bank

President, Secretary and Treasurer
Carolina Glove Company, Inc.

James S. Abernethy

President and Assistant Secretary
Midstate Contractors, Inc.

Douglas S. Howard

Vice President, Secretary and Treasurer
Denver Equipment of Charlotte, Inc.

Lincoln Bonded Warehouse Company

Gary E. Matthews
President and Director

Matthews Construction Company, Inc.

Billy L. Price, Jr., M.D.

Managing Partner and Practitioner of

Internal Medicine
Catawba Valley Internal Medicine, PA

Larry E. Robinson

President and Chief Executive Officer

The Blue Ridge Distributing Company, Inc.

W. Gregory Terry

General Manager

Drum and Willis-Reynolds Funeral
Homes and Crematory
Dan Ray Timmerman, Sr.
Chairman of the Board and
Chief Executive Officer
Timmerman Manufacturing, Inc.

Benjamin I. Zachary

President, Treasurer, General Manager and
Director, Alexander Railroad Company

Peoples Bancorp Officers
Lance A. Sellers

President and
Chief Executive Officer

Joseph F. Beaman, Jr.
Executive Vice President and
Corporate Secretary

A. Joseph Lampron, Jr.

Executive Vice President,
Chief Financial Officer and
Corporate Treasurer

William D. Cable, Sr.
Executive Vice President,
Assistant Corporate Treasurer and
Assistant Corporate Secretary

Peoples Bank Officers

Lance A. Sellers

President and Chief Executive
Officer

Joseph F. Beaman, Jr.

Executive Vice President, Chief
Administrative Officer and
Corporate Secretary

A. Joseph Lampron, Jr.

Executive Vice President, Chief
Financial Officer

William D. Cable, Sr.

Executive Vice President, Chief
Operating Officer
Kimberly L. Boyd

Senior Vice President, Banking
Support Manager

Jeffrey P. Gniadek