Peoples Bancorp of North Carolina, Inc. Annual Report 2018

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FY2018 Annual Report · Peoples Bancorp of North Carolina, Inc.

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PeoplesBancorp

2 0 1 8 A n n u a l R e p o r t

Our Promise

Our Core Values:

We strive to be exceptional

Employees

and inspire others to be

exceptional too.

Our Vision

To be the bank that’s

exceptional at serving

our communities, including

employees, customers

and shareholders.

Our Mission

To provide exceptional

customer service while

selling to customer needs.

We are informed,
encouraged, and committed.

Integrity

We are fair and truthful.

Exceptional Customer Service

We surpass our customers’
expectations.

Accountability

We are accountable for our own
actions and bank goals.

Progressive and Positive

We see change as an opportunity.

Table of Contents

Message from the President

Report of Independent Registered Public Accounting Firm

Financial Highlights

Consolidated Balance Sheets

Consolidated Statements of Earnings

Board of Directors and Officers

Subsidiaries / Shareholder and General Information

From the President

2 0 1 8 A n n u a l R e p o r t

“When we

blend intellect

and passion,

there are

no limits to

what we can

accomplish.”

The value of always striving to be exceptional cannot be underestimated. To that

end, I am pleased to announce the 2018 Annual Report of business activity on

behalf of Peoples Bancorp of North Carolina, Inc. In its 106th consecutive year of

being presented, this report reflects the efforts of our employees who consistently

demonstrate superior standards in service to our customers, our communities and

the Company. Year-to-date highlights are as follows:

Our customers look to our Bank to be their financial guide in both life and business. It’s a privilege to be a trusted partner

during our customers’ achievements and significant moments in life. It’s an honor to have the opportunity to help lead the

way toward a better future. When we deliver exceptional service, it creates a ripple effect in the community.

Our final community is our shareholders. It’s important that our shareholders trust us to continue to uphold the highest

operating standards, including being a well-capitalized bank with strong earnings. We are here to champion the exceptional

strength of people and communities—to help people live their best lives. Our Bank is an institution that honors the past while

● Net earnings were a record $13.4 million or $2.23 basic net earnings per share and

looking toward the future for innovative ways to meet the needs of all of our communities. When we blend intellect and

$2.22 diluted net earnings per share for the year ended December 31, 2018, as

passion, there are no limits to what we can accomplish.

compared to $10.3 million or $1.71 basic net earnings per share and $1.69 diluted net

earnings per share for the same period one year ago.

The Directors of Peoples Bancorp play a direct and critical role in the success of our Company. They consistently endeavor

to enhance shareholder value through their diligence, hard work and acumen. Please join me in thanking them for their

● Total loans increased $44.2 million to $804.0 million at December 31, 2018,

commitment. In addition to the Bank, which operates as a wholly-owned subsidiary of the Company, we would like to

compared to $759.8 million at December 31, 2017.

remind you of our three subsidiary companies:

● Core deposits were $859.2 million or 98.0% of total deposits at December 31, 2018,

Peoples Investment Services, Inc., licensed financial advisors who provide access to investment products, which include

compared to $887.4 million or 97.9% of total deposits at December 31, 2017.

stocks, bonds, mutual funds, annuities, and other suitable monetary investments through our affiliation with Raymond

● As of December 31, 2018 shareholders’ equity was $123.6 million, or 11.3% of total

assets, compared to $116.0 million, or 10.6% of total assets, as of December 31,

2017. This increase is primarily due to an increase in retained earnings due to net

income.

This year was an especially exciting one for our Bank as we opened a new full-

service branch in Cary. It’s inspiring to be able to offer our services as a trusted

financial partner to the small businesses and consumers within this growing market.

We’re confident that the Cary community will find exceptional value in what our Bank

can offer them.

We’re continuously striving to make a difference in the lives of our communities,

including employees, customers and shareholders.

We want our employees to know they fill an invaluable role for our Bank. It takes

a special blend of talent, commitment, optimism and passion to be there for our

customers and empower them with creative solutions. By serving with integrity, our

employees build lasting relationships. It’s only fitting that our employees receive that

same dedication to excellence for their own growth and success. Passionate people

are the foundation of this Bank, so we invest in their success. In addition, we are

always looking to attract new employees who want to help others progress.

James Financial Services, Inc.

Real Estate Advisory Services, Inc., which provides real estate appraisals (both residential and commercial) to Peoples

Bancorp’s market area, thereby becoming a valued partner with respect to mortgage-related transactions.

Community Bank Real Estate Solutions, LLC, assists community banks across the country with appraisal

management services.

The Annual Shareholders Meeting is scheduled for May 2, 2019 at Catawba Country Club beginning at 11 a.m. I hope

each and every shareholder will attend the Annual Meeting. I want to express my appreciation for the loyalty and

support of each of our shareholders, whom we hope will recommend our Bank and subsidiary companies to members

of their communities.

Sincerely,

Lance A. Sellers

President and Chief Executive Officer

Report of Independent Registered Public Accounting Firm

To the Shareholders and the Board of Directors of Peoples Bancorp of North Carolina, Inc.

We have audited, in accordance with the standards of the Public Company Accounting Oversight Board
(United States), the consolidated balance sheets of Peoples Bancorp of North Carolina, Inc. as of
December 31, 2018 and 2017, and the related consolidated statements of earnings, comprehensive
Report of Independent Registered Public Accounting Firm
income, shareholders' equity and cash flows for each of the three years in the period ended December
31, 2018 (not presented herein); and in our report, dated March 14, 2019, we expressed an unqualified
opinion on those consolidated financial statements.
To the Shareholders and the Board of Directors of Peoples Bancorp of North Carolina, Inc.

In our opinion, the information set forth in the accompanying condensed consolidated financial
We have audited, in accordance with the standards of the Public Company Accounting Oversight Board
statements is fairly stated, in all material respects, in relation to the consolidated financial statements
(United States), the consolidated balance sheets of Peoples Bancorp of North Carolina, Inc. as of
from which it has been derived.
December 31, 2018 and 2017, and the related consolidated statements of earnings, comprehensive
income, shareholders' equity and cash flows for each of the three years in the period ended December
31, 2018 (not presented herein); and in our report, dated March 14, 2019, we expressed an unqualified
opinion on those consolidated financial statements.

Charlotte, North Carolina
In our opinion, the information set forth in the accompanying condensed consolidated financial
March 14, 2019
statements is fairly stated, in all material respects, in relation to the consolidated financial statements
from which it has been derived.

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

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

2 018

45,350

2,146

43,204

790

42,414

16,166

42,574

2,624

13,382

2.23

2.22

0.52

24.46

20.62

797,578

194,578

1,093,251

877,213

123,617

1.22%

10.81%

23.41%

11.31%

2 0 1 8 A n n u a l R e p o r t

Change

-10%

256%

-34%

30%

31%

18%

-20%

-15%

-3%

2017

41,949

2,377

39,572

(507)

40,079

15,364

41,228

3,947

10,268

1.71

1.69

0.44

30.69

19.34

753,398

229,321

1,092,166

906,952

115,975

0.93%

8.78%

25.67%

10.64%

Charlotte, North Carolina
March 14, 2019

elliottdavis.com

Consolidated Balance Sheets

For the years ended December 31, 2018 and 2017

Consolidated Statements of Earnings

For the Years Ended December 31, 2018, 2017 and 2016

(Dollars in thousands)

Assets

Cash and due from banks, including reserve requirements
of $8,918 at 12/31/18 and $7,472 at 12/31/17

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:

Noninterest-bearing demand

NOW, MMDA & savings

Time, $250,000 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 (Note 10)

Shareholders’ equity:

Series A preferred stock, $1,000 stated value; authorized

5,000,000 shares; no shares issued and outstanding

Common stock, no par value; authorized

20,000,000 shares; issued and outstanding 5,995,256 shares
at December 31, 2018 and December 31, 2017

Retained earnings

Accumulated other comprehensive income

Total shareholders’ equity

Total liabilities and shareholders’ equity

December 31,

2018

40,553

2,817

43,370

194,578

4,361

198,939

680

804,023

(6,445)

797,578

18,450

15,936

18,271

2 017

53,186

4,118

57,304

229,321

1,830

231,151

857

759,764

(6,366)

753,398

19,911

15,552

118

13,875

1,093,251

1,092,166

298,817

475,223

16,239

86,934

877,213

58,095

20,619

13,707

969,634

285,406

498,445

18,756

104,345

906,952

37,757

20,619

10,863

976,191

62,096

60,535

986

123,617

1,093,251

62,096

50,286

3,593

115,975

1,092,166

(Dollars in thousands, except per share amounts)

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

(Reduction of) provision for loan losses

Net interest income after provision for loan losses

Non-interest income:

Service charges

Other service charges and fees

Gain on sale of securities

Mortgage banking income

Insurance and brokerage commissions

Appraisal management fee income

Gain (loss) on sales and write-downs of other real estate

Miscellaneous

Total non-interest income

Non-interest expense:

Salaries and employee benefits

Occupancy

Professional fees

Advertising

Debit card expense

FDIC insurance

Appraisal management fee expense

Other

Total non-interest expense

Earnings before income taxes

Income tax expense

Net earnings

Basic net earnings per share

Diluted net earnings per share

Cash dividends declared per share

2 018

38,654

304

2,333

3,877

182

45,350

769

472

790

115

2,146

43,204

790

42,414

4,355

705

851

824

3,206

6,193

16,166

21,530

7,170

1,525

922

994

328

2,460

7,645

42,574

16,006

2,624

13,382

2.23

2.22

0.52

2 0 1 8 A n n u a l R e p o r t

2017

34,888

219

2,404

4,236

202

41,949

598

466

662

590

2,377

39,572

(507)

40,079

4,453

593

1,190

761

3,306

(239)

5,300

2016

32,452

123

2,531

4,454

249

39,809

495

586

1,661

485

3,271

36,538

(1,206)

37,744

4,497

890

729

1,428

632

3,146

4,850

15,364

16,236

20,058

6,701

1,236

1,195

1,248

347

2,526

7,917

41,228

14,215

3,947

10,268

1.71

1.69

0.44

19,264

6,765

2,439

1,136

1,141

494

2,260

8,743

42,242

11,738

2,561

9,177

1.53

1.50

0.35

See Appendix A to the Peoples Bancorp of North Carolina, Inc. Proxy Statement, dated March 25, 2019, for a complete set of Consolidated Financial Statements.

Directors and Officers

Peoples Bank Subsidiaries’
Board of Directors and Officers

Shareholder and
General Information

2 0 1 8 A n n u a l R e p o r t

Peoples Bank
and Peoples Bancorp
Board of Directors

Robert C. Abernethy
Chairman of the Board
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 and Treasurer
Denver Equipment Company of
Charlotte, Inc.

John W. Lineberger, Jr.
President
Lincoln Bonded Warehouse Company

Gary E. Matthews
President and Director
Matthews Construction Company, Inc.

Billy L. Price, Jr., M.D.
Practitioner of Internal Medicine
BL Price Jr Medical Consultants, PLLC

Larry E. Robinson
Chairman of the Board
and Chief Executive Officer
The Blue Ridge Distributing
Company, Inc.

W. Gregory Terry
President
DFH Holdings
Operator/General Manager
Drum & Willis-Reynolds
Funeral Home & 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

Corporate Officers

Lance A. Sellers
President and
Chief Executive Officer (CEO)

William D. Cable, Sr.
Executive Vice President,
Chief Operating Officer (COO)

A. Joseph Lampron, Jr.
Executive Vice President,
Chief Financial Officer (CFO)

James Veasey
First Vice President,
Business Development Officer

Ryan M. Waddle
First Vice President,
Area Executive - Mooresville

Margaret C. Ward
First Vice President
Human Resources Director

Vice Presidents

Melissa R. Aldrich
Vice President,
Business Center Manager - Hiddenite

Carol R. Allen
Vice President,
Business Center Manager – Maiden

William Armstrong, Jr.
Vice President, Mortgage Underwriter

Kevin M. Brady
Vice President, Mortgage Sales Manager

Velvet L. Burton
Vice President, Service Center Manager

Lorena Castro
Vice President,
Business Center Manager - South Boulevard

Jeanine L. Cohoon
Vice President,
Marketing Channel Analyst

Wendy E. Cordero-Jones
Vice President, Mortgage Lending Manager

James Davenport
Vice President,
Business Development Officer

Roger G. Decato
Vice President, Commercial Banking
Portfolio Manager

Zachary M. Dellinger
Vice President, Business Development
Officer

Cathleen H. Dillingham
Vice President, Learning
& Development Manager

James R. Durham
Vice President, Financial Advisor

Heather N. Edwards
Vice President, Business Center Manager –
Mooresville

Rhonda L. Fleming
Vice President, Business Development
Officer

Maria P. Gibbs
Vice President, Business
Development Officer

Lauren K. Hammond
Vice President, Marketing Specialist

Lamona J. Harbinson
Vice President, E-Services Manager

Vanessa Horvath
Vice President, Business Development
Officer

Mitchell B. Johnson
Vice President,
Business Center Manager - Triangle

David S. Lewis Jr.
Vice President,
Business Development Officer

Mark N. Lewis
Vice President,
Business Development Officer

Ryan T. Link
Vice President, Senior Credit Analyst

George “Marty” Lowder
Vice President, Finance Analyst

Brenda K. Mash
Vice President, Business
Center Manager – Denver

Joshua E. McKinney
Vice President, Business
Development Officer – Hickory

Bruce E. Meisner
Vice President, REAS Manager

Paula M. Parker
Vice President, Business
Center Manager – CVB

Lynn H. Poole
Vice President, Business
Center Manager – Catawba

Krissy O. Price
Vice President, Assistant
Corporate Secretary

Andrew R. Puntch
Vice President, Application & Project
Management Manager

Jeanette E. Ringley
Vice President, Business
Center Manager - Newton

C. Randy Rodgers
Vice President, Financial Advisor

Sandra B. Shuford
Vice President, Data
Management & Computer
Operations Manager

Shawn D. Sigmon
Vice President, Mortgage Loan
Origination System Analyst

John W. Somers
Vice President, Business
Center Manager – Lincolnton

Jon Bradley Southers
Vice President, Commercial Credit
Administration

Robert D. Spencer
Vice President, Business
Center Manager – Viewmont

Michael K. Stroud
Vice President, Staff Appraiser

Allison J. Taylor
Vice President, Business
Center Manager - Springs Road

Tony J. Thomas
Vice President,
Business Development Officer

Lisa G. Treadaway
Vice President,
Organizational Architect

Adam P. Turbyfill
Vice President,
Business Development Officer

Jennifer K. Turner
Vice President,
Credit Administration
Loan Review Officer

Freda B. Turnmire
Vice President, Business
Center Manager - West Lincoln

Dominick Vertorano
Vice President, Business
Center Manager - Cornelius

Tandra D. Wilkinson
Vice President, Loan Balancing
& Servicing Manager

Senior Vice Presidents

Kimberly L. Boyd
Senior Vice President,
Chief Banking Support Officer

George S. Earp
Senior Vice President, Finance Director

Jeffery P. Gniadek
Senior Vice President,
Area Executive – Hickory

Jan G. Griffin
Senior Vice President,
Director of Loan Operations

Rafael Intriago
Senior Vice President,
Metro Market Executive

Walter C. Joyce
Senior Vice President,
Chief Technology Officer

James O. Perry
Senior Vice President, Chief Retail Officer

David E. Reitzel
Senior Vice President,
Real Estate Administration

Daniel F. Richard
Senior Vice President,
Area Executive - Triangle

Mark W. Sigmon
Senior Vice President,
Area Executive – Denver

Jody G. Street
Senior Vice President
Area Executive - Newton

Timothy P. Turner
Senior Vice President, Chief Credit Officer

First Vice Presidents

Angela J. Abernethy
First Vice President,
Treasury Services Manager

Heather A. Allen
First Vice President, BSA Officer

Kimberly D. Bazzle
First Vice President, Marketing Director

David C. Brown
First Vice President, Investment Manager

Martha P. Connors
First Vice President
Regional Sales Manager - Metro Region

Leslie D. Hambrick
First Vice President, Chief Internal Auditor

Maria Fernanda Hoyos
First Vice President
Regional Sales Manager - Raleigh Region

M. Beth LaBarbera
First Vice President,
Regional Sales Manager

John J. Noonan
First Vice President, CBRES Manager

Connie P. Ollis
First Vice President, Compliance Officer

Lucretia K. Rogers
First Vice President,
Regional Sales Manager

Carol S. Shinn
First Vice President,
Director of Deposit Operations

Kyle E. Sigmon
First Vice President,
Consumer Credit Administration

Community Bank Real Estate Solutions, LLC

Board of Directors

Officers

Robert C. Abernethy

David E. Reitzel

Dan Ray Timmerman, Sr.

Lance A. Sellers

David E. Reitzel
President

Lance A. Sellers
Vice President

John Noonan
Vice President

Krissy O. Price
Secretary

A. Joseph Lampron, Jr.
Treasurer

Peoples Investment Services, Inc.

Board of Directors

Officers

Robert C. Abernethy

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

David C. Brown

Larry E. Robinson

Douglas S. Howard

Lance A. Sellers

William D. Cable, Sr.

David C. Brown
President

Lance A. Sellers
Vice President and
Assistant Secretary

Krissy O. Price
Secretary

A. Joseph Lampron, Jr.
Treasurer

Real Estate Advisory Services, Inc.

Board of Directors

Officers

Robert C. Abernethy

Dan Ray Timmerman, Sr.

David E. Reitzel

Lance A. Sellers

David E. Reitzel
President

Lance A. Sellers
Vice President

Krissy O. Price
Secretary

A. Joseph Lampron, Jr.
Treasurer

Annual Meeting
The Annual Meeting of Shareholders of Peoples Bancorp will be held
at 11 a.m. on May 2, 2019 at Catawba Country Club located at 1154
Country Club Rd, Newton, North Carolina.

Shareholders’ Luncheon
Shareholders in attendance at the Annual Meeting are cordially
invited to remain for a luncheon to be served immediately
upon adjournment.

Common Stock
Peoples Bancorp common stock is listed on the NASDAQ (National
Association of Securities Dealers Automated Quotations) Global Market,
where our symbol is PEBK.

Dividend Reinvestment & Stock Purchase
Peoples Bancorp offers a Dividend Reinvestment and Stock
Purchase Plan for the benefit of the Company’s shareholders. The
Plan provides for the full or partial reinvestment of cash dividends,
optional cash purchases of the Company’s stock, safekeeping of
the share certificates, liquidation of shares, and gifting of shares
and enrollment of the designated recipients.

Broadridge Corporate Issuer Solutions, Inc. is the Plan Administrator.
For more information, one may call Peoples Bancorp at 828-464-5620
or 800-948-7195 or contact the Plan Administrator at 855-263-4988.

Shareholders of Peoples Bancorp are entitled to receive dividends
when and as declared by the Board of Directors out of funds legally
available therefore.

Such dividend payments are declared based upon the guidelines of
North Carolina and federal banking law.

Corporate Office
Peoples Bancorp of North Carolina, Inc.
518 West C Street
PO Box 467
Newton, NC 28658
828-464-5620

Stock Transfer Agent & Registrar
Broadridge Corporate Issuer Solutions, Inc.
P.O. Box 1342
Brentwood, NY 11717
www.broadridge.com

Independent Auditors
Elliott Davis, PLLC
500 East Morehead Street, Suite 700
Charlotte, NC 28202

PeoplesBankNC.com