Peoples Bancorp Announces Fourth Quarter and Annual Earnings Results

Peoples Bancorp Announces Fourth Quarter and Annual Earnings Results

NEWTON, N.C., Jan. 28, 2013 (GLOBE NEWSWIRE) -- Peoples Bancorp of North
Carolina, Inc. (Nasdaq:PEBK), the parent company of Peoples Bank, reported
fourth quarter and annual earnings results with highlights as follows:

Highlights:

  oEarnings before securities gains and income taxes were $1.4 million for
    the three months ended December 31, 2012 compared to $718,000 for the same
    period one year ago.
  oEarnings before securities gains and income taxes were $6.2 million for
    the year ended December 31, 2012 compared to $2.4 million for the year
    ended December 31, 2011.
  oNet earnings were $1.2 million or $0.22 basic and diluted net earnings per
    share for the three months ended December 31, 2012, before adjustment for
    preferred stock dividends and accretion, as compared to $1.8 million or
    $0.32 basic and diluted net earnings per share, before adjustment for
    preferred stock dividends and accretion, for the same period one year ago.
  oNet earnings available to common shareholders were $1.1 million or $0.19
    basic and diluted net earnings per common share for the three months ended
    December 31, 2012, as compared to $1.4 million or $0.26 basic and diluted
    net earnings per common share, for the same period one year ago.
  oCore deposits were $646.4 million, or 82.7% of total deposits at December
    31, 2012, compared to $633.0 million, or 76.5% of total deposits at
    December 31, 2011.

Lance A. Sellers, President and Chief Executive Officer, attributed the
increase in fourth quarter earnings before security gains and income taxes to
a decrease in the provision for loan losses, which was partially offset by a
decrease in net interest income, a decrease in non-interest income and an
increase in non-interest expense.

Year-to-date net earnings as of December 31, 2012 were $5.8 million, or $1.04
basic and diluted net earnings per share, before adjustment for preferred
stock dividends and accretion, as compared to $5.2 million, or $0.93 basic and
diluted net earnings per share, before adjustment for preferred stock
dividends and accretion, 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, 2012 were $4.8 million, or $0.86
basic and diluted net earnings per common share, as compared to $3.8 million,
or $0.68 basic and diluted net earnings per common share, for the same period
one year ago. The increase in year-to-date earnings is primarily attributable
to a decrease in the provision for loan losses, which was partially offset by
aggregate decreases in net interest income and non-interest income and
aggregate increases in non-interest expense, as discussed below.

Net interest income was $7.7 million for the three months ended December 31,
2012, compared to $8.6 million for the same period one year ago.This decrease
was primarily due to a decrease in interest income resulting from decreases in
loans and investment securities and a decrease in the yield on earning assets,
which were partially offset by a decrease in interest expense due to a
reduction in the cost of funds and a reduction in interest bearing
liabilities.Net interest income after the provision for loan losses increased
to $7.2 million during the fourth quarter of 2012, compared to $5.6 million
for the same period one year ago.The provision for loan losses for the three
months ended December 31, 2012, was $511,000, as compared to $2.9 million for
the same period one year ago.The decrease in the provision for loan losses is
primarily attributable to a $4.2 million reduction in non-accrual loans from
December 31, 2011 to December 31, 2012.

Non-interest income was $2.7 million for the three months ended December 31,
2012, as compared to $4.5 million for the same period one year ago.This
decrease is primarily attributable to a $1.8 million decrease in the gains on
sale of securities, which was partially offset by a $210,000 increase in
mortgage banking income, for the three months ended December 31, 2012, as
compared to the same period one year ago.

Non-interest expense was $8.5 million for the three months ended December 31,
2012, as compared to $7.6 million for the same period one year ago.This
increase is attributable to a $529,000 increase in salaries and employee
benefits expense, which was primarily due to salary increases in 2012 and
bonuses accrued in the fourth quarter 2012, and a $316,000 increase in
non-interest expenses other than salary, employee benefits and occupancy
expenses for the three months ended December 31, 2012, as compared to the same
period one year ago.

Year-to-date net interest income as of December 31, 2012 decreased 8.1% to
$31.5 million compared to $34.3 million for the same period one year ago.
This decrease is primarily attributable to a decrease in interest income
resulting from decreases in loans and investment securities and a decrease in
the yield on earning assets, which were partially offset by a decrease in
interest expense due to a reduction in the cost of funds and a reduction in
interest bearing liabilities.Net interest income after the provision for loan
losses increased 22.8% to $26.6 million for the year ended December 31, 2012,
compared to $21.7 million for the same period one year ago.The provision for
loan losses for the year ended December 31, 2012 was $4.9 million, as compared
to $12.6 million for the same period one year ago.The decrease in the
provision for loan losses is primarily attributable to a $4.4 million decrease
in net charge-offs during the year ended December 31, 2012 compared to the
same period one year ago and a $4.2 million reduction in non-accrual loans
from December 31, 2011 to December 31, 2012.

Non-interest income was $12.5 million for the year ended December 31, 2012, as
compared to $14.5 million for the year ended December 31, 2011.This decrease
is primarily attributable to $3.0 million decrease in the gains on sale of
securities, which was partially offset by a $472,000 increase in mortgage
banking income and a $362,000 increase in income from the Company's appraisal
management company subsidiary, for the year ended December 31, 2012, as
compared to the year ended December 31, 2011.

Non-interest expense was $31.8 million for the year ended December 31, 2012,
as compared to $29.6 million for the year ended December 31, 2011.This
increase is primarily due to a $1.7 million increase in salaries and employee
benefits expense and a $653,000 increase in non-interest expenses other than
salary, employee benefits and occupancy expenses for the year ended December
31, 2012, as compared to the same period one year ago.The increase in
salaries and employee benefits expense was primarily due to salary increases
and bonuses accrued in 2012, along with an increase in commissions on mortgage
and real estate appraisal sales.The increase in non-interest expenses other
than salary, employee benefits and occupancy expenses included $232,000 in
expenses associated with the Company's purchase of preferred stock and a
common stock warrant from the U.S. Department of the Treasury ("UST"), which
was issued to the UST in connection with the Company's participation in the
Capital Purchase Program ("CPP") under the Troubled Asset Relief Program
('TARP") in 2008.

Total assets amounted to $1.0 billion as of December 31, 2012, as compared to
$1.1 billion as of December 31, 2011.Available for sale securities decreased
7.3% to $297.8 million as of December 31, 2012, compared to $321.4 million as
of December 31, 2011.This decrease reflects investment securities sold and
paydowns of mortgage-backed securities during the year ended December 31,
2012, which were partially offset by purchases of investment securities.Total
loans amounted to $620.0 million as of December 31, 2012, compared to $670.5
million as of December 31, 2011.This decrease is primarily due to the
anticipated reduction in existing loans through the work-through of problem
loans and normal principal repayments, which have exceeded the diminished
level of loan originations, due primarily to the current level of slow
economic growth.

Non-performing assets declined to $26.3 million or 2.6% of total assets at
December 31, 2012, compared to $32.1 million or 3.0% of total assets at
December 31, 2011 primarily due to a decrease in non-accrual
loans.Non-performing loans include $9.2 million in acquisition, development
and construction ("AD&C") loans, $10.4 million in commercial and residential
mortgage loans and $415,000 in other loans at December 31, 2012, as compared
to $13.2 million in AD&C loans, $10.7 million in commercial and residential
mortgage loans and $554,000 in other loans at December 31, 2011.The allowance
for loan losses at December 31, 2012 was $14.4 million or 2.3% of total loans,
compared to $16.6 million or 2.5% of total loans at December 31,
2011.According to Mr. Sellers, 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 $781.5 million as of December 31, 2012, compared to
$827.1 million at December 31, 2011.Core deposits, which include non-interest
bearing demand deposits, NOW, MMDA, savings and non-brokered certificates of
deposit of denominations less than $100,000, increased $13.4 million to $646.4
million at December 31, 2012, as compared to $633.0 million at December 31,
2011.Certificates of deposit in amounts greater than $100,000 or more totaled
$134.7 million at December 31, 2012, as compared to $193.0 million at December
31, 2011.This decrease is attributable to a $25.6 million decrease in
brokered certificates of deposit combined with a decrease in retail
certificates of deposit as intended as part of the Bank's pricing strategy to
allow maturing high cost certificates of deposit to roll-off.

Securities sold under agreement to repurchase were $34.6 million at December
31, 2012, as compared to $39.6 million at December 31, 2011.

Shareholders' equity was $97.7 million, or 9.6% of total assets, as of
December 31, 2012, compared to $103.0 million, or 9.7% of total assets, as of
December 31, 2011.This decrease reflects the Company's repurchase and
retirement of a portion of its preferred shares in the second quarter of
2012.The Company purchased 12,530 shares of the Company's 25,054 outstanding
shares of preferred stock from the UST, which was issued to the UST in
connection with the Company's participation in the CPP under TARP in 2008.

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 the Company's annual report on Form 10-K for the
year ended December 31, 2011.

CONSOLIDATED BALANCE SHEETS                                                 
December 31, 2012 and December 31, 2011                                    
(Dollars in thousands)                                                      
                                                       
                                     December 31, 2012 December 31, 2011
                                     (Unaudited)      (Audited)
ASSETS:                                                 
Cash and due from banks               $32,617          $22,532
Interest bearing deposits             16,226            6,704
Cash and cash equivalents             48,843            29,236
                                                       
Investment securities available for   297,823           321,388
sale
Other investments                     5,599             5,712
Total securities                      303,422           327,100
                                                       
Mortgage loans held for sale          6,922             5,146
                                                       
Loans                                 619,974           670,497
Less:Allowance for loan losses       (14,423)          (16,604)
Net loans                             605,551           653,893
                                                       
Premises and equipment, net           15,874            16,896
Cash surrender value of life          13,273            12,835
insurance
Accrued interest receivable and other 19,631            21,957
assets
Total assets                          $1,013,516       $1,067,063
                                                       
                                                       
LIABILITIES AND SHAREHOLDERS' EQUITY:                   
Deposits:                                               
Non-interest bearing demand           $161,582         $136,878
NOW, MMDA & savings                   371,719           366,133
Time, $100,000 or more                134,733           193,045
Other time                           113,491           131,055
Total deposits                        781,525           827,111
                                                       
Securities sold under agreement to    34,578            39,600
repurchase
FHLB borrowings                       70,000            70,000
Junior subordinated debentures        20,619            20,619
Accrued interest payable and other    9,047             6,706
liabilities
Total liabilities                     915,769           964,036
                                                       
Shareholders' equity:                                   
Series A preferred stock, $1,000
stated value; authorized 5,000,000
shares; issued and outstanding 12,524 12,524            24,758
shares in 2012 and 25,054 shares in
2011
Common stock, no par value;
authorized 20,000,000 shares; issued  48,133            48,298
and outstanding 5,613,495 shares in
2012 and 5,544,160 shares in 2011
Retained earnings                     31,478            26,895
Accumulated other comprehensive       5,612             3,076
income
Total shareholders' equity            97,747            103,027
                                                       
Total liabilities and shareholders'   $1,013,516       $1,067,063
equity

                                                       
                                                                         
CONSOLIDATED STATEMENTS OF INCOME                                        
For the three months and years ended December 31, 2012 and 2011          
(Dollars in thousands, except per share amounts)                          
                                                       
               Three months ended December Years ended December
                31,                         31,
               2012         2011        2012        2011
               (Unaudited)  (Unaudited) (Unaudited) (Audited)
INTEREST                                                
INCOME:
Interest and    $7,936       $8,697      $32,758     $36,374
fees on loans
Interest on due 16            15           51           33
from banks
Interest on
investment                                              
securities:
U.S. Government
sponsored       419           1,416        2,746        5,414
enterprises
State and
political       940           793          3,403        3,180
subdivisions
Other           81            68           287          258
Total interest  9,392         10,989       39,245       45,259
income
                                                       
INTEREST                                                
EXPENSE:
NOW, MMDA &
savings         267           428          1,180        2,263
deposits
Time deposits   572           1,134        3,205        5,035
FHLB borrowings 680           698          2,744        2,956
Junior
subordinated    105           106          438          407
debentures
Other           25            54           129          285
Total interest  1,649         2,420        7,696        10,946
expense
                                                       
NET INTEREST    7,743         8,569        31,549       34,313
INCOME
PROVISION FOR   511           2,936        4,924        12,632
LOAN LOSSES
NET INTEREST
INCOME AFTER    7,232         5,633        26,625       21,681
PROVISION FOR
LOAN LOSSES
                                                       
NON-INTEREST                                            
INCOME:
Service charges 1,162         1,261        4,764        5,106
Other service
charges and     408           488          1,940        2,090
fees
Gain on sale of 15            1,767        1,218        4,262
securities
Mortgage        436           226          1,229        757
banking income
Insurance and
brokerage       114           120          517          471
commissions
Miscellaneous  544           620          2,869        1,827
Total
non-interest    2,679         4,482        12,537       14,513
income
                                                       
NON-INTEREST                                            
EXPENSES:
Salaries and
employee        4,466         3,937        16,426       14,766
benefits
Occupancy       1,345         1,309        5,236        5,339
Other           2,700         2,384        10,120       9,467
Total
non-interest    8,511         7,630        31,782       29,572
expense
                                                       
EARNINGS BEFORE 1,400         2,485        7,380        6,622
INCOME TAXES
INCOME TAXES    187           708          1,587        1,463
                                                       
NET EARNINGS    1,213         1,777        5,793        5,159
                                                       
Dividends and
accretion on    157           348          1,010        1,393
preferred stock
                                                       
NET EARNINGS
AVAILABLE TO    $1,056       $1,429      $4,783      $3,766
COMMON
SHAREHOLDERS
                                                       
PER COMMON                                              
SHARE AMOUNTS
Basic net       $0.19        $0.26       $0.86       $0.68
earnings
Diluted net     $0.19        $0.26       $0.86       $0.68
earnings
Cash dividends  $0.07        $0.02       $0.18       $0.08
Book value      $15.18       $14.06      $15.18      $14.06

                                                       
FINANCIAL HIGHLIGHTS                                                      
For the three months and years ended December 31, 2012 and 2011          
(Dollars in thousands)                                                    
                                                       
                Three months ended        Years ended
                 December 31,               December 31,
                2012        2011        2012        2011
                (Unaudited) (Unaudited) (Unaudited) (Audited)
SELECTED AVERAGE                                        
BALANCES:
Available for    $279,800    $312,699    $289,010    $295,413
sale securities
Loans            629,368      677,539      648,595      697,527
Earning assets   943,051      1,022,341    965,994      1,015,451
Assets           1,008,543    1,084,473    1,029,612    1,074,248
Deposits         773,015      838,566      786,976      835,549
Shareholders'    98,552       103,169      103,805      102,568
equity
                                                       
SELECTED KEY                                            
DATA:
Net interest
margin (tax      3.46%         3.48%         3.44%         3.55%
equivalent)
Return on        0.48%         0.65%         0.56%         0.48%
average assets
Return on
average          4.90%         6.83%         5.58%         5.03%
shareholders'
equity
Shareholders'
equity to total  9.64%         9.66%         9.64%         9.66%
assets (period
end)
                                                       
ALLOWANCE FOR                                           
LOAN LOSSES:
Balance,
beginning of     $16,551     $16,348     $16,604     $15,493
period
Provision for    511          2,936        4,924        12,632
loan losses
Charge-offs      (2,688)      (2,726)      (8,331)      (12,260)
Recoveries       49           46           1,226        739
Balance, end of  $14,423     $16,604     $14,423     $16,604
period
                                                       
                                                       
ASSET QUALITY:                                          
Non-accrual                                $17,630     $21,785
loans
90 days past due
and still                                  2,403        2,709
accruing
Other real                                 6,256        7,576
estate owned
Repossessed                                10           --
assets
Total
non-performing                             $26,299     $32,070
assets
Non-performing
assets to total                            2.60%         3.01%
assets
Allowance for
loan losses to                             54.84%        51.77%
non-performing
assets
Allowance for
loan losses to                             2.33%         2.48%
total loans
                                                       
LOAN RISK GRADE                            Percentage of Loans
ANALYSIS:                                    By Risk Grade
                                          12/31/2012    12/31/2011
Risk Grade 1
(excellent                                 2.93%         3.12%
quality)
Risk Grade 2                               16.94%        16.58%
(high quality)
Risk Grade 3                               47.74%        49.30%
(good quality)
Risk Grade 4
(management                                20.70%        19.65%
attention)
Risk Grade 5                               5.07%         4.76%
(watch)
Risk Grade 6                               6.26%         6.21%
(substandard)
Risk Grade 7
(low                                       0.00%         0.00%
substandard)
Risk Grade 8                               0.00%         0.00%
(doubtful)
Risk Grade 9                               0.00%         0.00%
(loss)
                                                       
At December 31, 2012, including non-accrual loans, there were nine
relationships exceeding $1.0 million (which totaled $17.2 million) in
the Watch risk grade, four relationships exceeding $1.0 million in the
Substandard risk grade(which totaled $11.1 million) and no
relationships exceeding $1.0 million in the Low Substandard risk
grade.There were three relationships with loans in the Watch risk
grade and the Substandard risk grade exceeding $1.0 million total
(which totaled $4.6 million).

CONTACT: Lance A. Sellers
         President and Chief Executive Officer
        
         A. Joseph Lampron, Jr.
         Executive Vice President and Chief Financial Officer
        
         828-464-5620, Fax 828-465-6780
 
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