ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
NORTH CAROLINA 56-2132396
------------------------------ ----------------------------------
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
518 WEST C STREET
NEWTON, NORTH CAROLINA 28658
---------------------------------------- ----------
(Address of Principal Executive Offices) (Zip Code)
|
Indicate by check mark if disclosure of delinquent filers in response to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ]
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Annual Report of Peoples Bancorp of North Carolina, Inc. for the year ended December 31, 2001 (the "Annual Report"), which is included as Appendix A to the Proxy Statement for the 2002 Annual Meeting of Shareholders, are incorporated by reference into Part I, Part II and Part IV.
Portions of the Proxy Statement for the 2002 Annual Meeting of Shareholders of Peoples Bancorp of North Carolina, Inc. to be held on May 2, 2002 (the "Proxy Statement"), are incorporated by reference into Part III.
This Form 10-K contains forward-looking statements. These statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those anticipated in the forward-looking statements. Factors that might cause such a difference include, but are not limited to, changes in interest rate environment, management's business strategy, national, regional, and local market conditions and legislative and regulatory conditions.
Readers should not place undue reliance on forward-looking statements, which reflect management's view only as of the date hereof. The Company undertakes no obligation to publicly revise these forward-looking statements to reflect subsequent events or circumstances. Readers should also carefully review the risk factors described in other documents the Company files from time to time with the Securities and Exchange Commission.
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 13 offices located in Lincolnton, Newton, Denver, Triangle, Catawba, Conover, Maiden, Claremont, Hiddenite, and Hickory, North Carolina. At December 31, 2001, the Company had total assets of $619.5 million, net loans of $484.5 million, deposits of $490.2 million, investment securities of $84.3 million, and shareholders' equity of $45.4 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, 2001, the Bank employed 200 full-time equivalent employees.
SUBSIDIARIES
The Bank is the Company's subsidiary. 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 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.
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, the western portion of Iredell County, the northern and central portions of Lincoln 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.
Employment in the Bank's primary market area is diversified among manufacturing, agricultural, retail and wholesale trade, technology, services and utilities. Corning Cable Systems, LLC (manufacturer of fiber optic cable and accessories) is the largest employer in Catawba County. Other major employers include CommScope, Inc. (manufacturer of fiber optic cable and accessories), Frye Regional Medical Center, Inc., Century Furniture Company, and Catawba County Schools.
COMPETITION
The Bank has operated in the Catawba Valley region for approximately 90 years and is the only financial institution headquartered in Newton. However, 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, 2001 comparative data, the Bank had 19.13 % of the deposits in Catawba County, placing it second 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 state savings 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 any 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. 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 either the Savings Association Insurance Fund (the "SAIF") or the BIF 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 SAIF or the BIF or both. 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 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.
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 the BIF members such as the Bank shall be as specified in a schedule required to be issued by the FDIC. All FDIC deposits for deposit insurance have an effective rate ranging from 0 to 31 basis points per $100 of insured deposits, depending on the institution's capital position and other supervisory factors. Based on the current financial condition and capital levels of the Bank, the Bank does not expect that the FDIC insurance assessments will have a material impact on the Bank's future earnings.
Federal Home Loan Bank System. The FHLB system provides a central credit facility for member institutions. As a member of the FHLB of Atlanta, the Bank is required to own capital stock in the FHLB of Atlanta in an amount at least equal to the greater of 1% of the aggregate principal amount of its unpaid residential mortgage loans, home purchase contracts and similar obligations at the end of each calendar year, or 5% of its outstanding advances (borrowings) from the FHLB of Atlanta. On December 31, 2001, 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 2001.
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 institutions in question are "well capitalized," "adequately capitalized," "undercapitalized," "significantly undercapitalized," or "critically undercapitalized." Under the regulations, an institution is considered "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. An "adequately capitalized" institution is defined as one that 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). An institution is considered (A) "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); (B) "significantly undercapitalized" if the institution 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 (C) "critically undercapitalized" if the institution has a ratio of tangible equity to total assets equal to or less than 2%.
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, and establish operational and managerial, asset quality, earnings and stock valuation standards for insured depository institutions, as well as compensation standards where such compensation would endanger the insured depository institution or would constitute an unsafe practice.
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, 2001, the Bank conducted its business from the headquarters office in Newton, North Carolina, and its twelve other branch offices in Lincolnton, Hickory, Newton, Catawba, Conover, Claremont, Maiden, Denver, Triangle and Hiddenite, North Carolina. The Bank also has two stand alone ATMs located in Hickory and Sherrills Ford . The following table sets forth certain information regarding the Bank's properties at December 31, 2001. Unless indicated otherwise, all properties are owned by the Bank.
Corporate Office 2050 Catawba Valley Boulevard
518 West C Street Hickory, North Carolina 28601
Newton, North Carolina 28658 (ATM site only)
420 West A Street U.S. Highway 321
Newton, North Carolina 28658 Newton, NC 28658
(land only)
2619 North Main Avenue
Newton, North Carolina 28658 LEASED
------
213 1st Street, West 1333 2nd Street NE
Conover, North Carolina 28613 Hickory, North Carolina 28601
3261 East Main Street 114 West C Street
Claremont, North Carolina 28610 Newton, North Carolina 28658
(off-site storage only)
6125 Highway 16 South
Denver, North Carolina 28037 6360 East N.C. Highway
Sherrills Ford, North Carolina 28673
5153 N.C. Highway 90E (ATM site only)
Hiddenite, North Carolina 28636
1910 East Main Street
200 Island Ford Road Lincolnton, North Carolina 28092
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 the management, the Bank 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, 2001.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
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-17 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-15 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-16 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-20 through A-42 of the Annual Report are incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
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 9 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.
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 page 8 and "- Management Compensation," " - Stock Benefit 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 9 through 19 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 4 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"on page 19 of the Proxy Statement, which section is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
14(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, 2001 and 2000
(c) Consolidated Statements of Earnings for the Years Ended December 31, 2001, 2000 and 1999
(d) Consolidated Statements of Shareholders' Equity for the Years Ended December 31, 2001, 2000 and 1999
(e) Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2001, 2000 and 1999
(f) Consolidated Statements of Cash Flows for the Years Ended December 31, 2001, 2000 and 1999
(g) Notes to Consolidated Financial Statements
14(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.
14(a)3. Exhibits
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.
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
Clifton A. Wike incorporated by reference to
Exhibit (10)(c) 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
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)(e) 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)(f) 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)(g) Employment Agreement between Peoples Bank and
A. Joseph Lampron
Exhibit (10)(h) Peoples Bank Directors'and Officers' Deferral Plan
Exhibit (10)(i) Rabbi Trust for the Peoples Bank Directors'
and Officers' Deferral Plan
Exhibit (11) Statement regarding Computation of Per Share
Earnings
Exhibit (12) Statement Regarding Computation of Ratios
Exhibit (13) 2001 Annual Report of Peoples Bancorp of North
Carolina, Inc.
Exhibit (21) Subsidiaries of Peoples Bancorp of North Carolina,
Inc.
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 More, LLP for
Registration Statement on Form S-8 filed with the
Securities and Exchange Commission on September
28,2000
14(b) The Company filed two reports on Form 8-K during the last quarter
of the fiscal year ended December 31, 2001. In a report on Form 8-K
filed with the SEC on December 11, 2001, the Company reported the
|
issuance of a press release on December 10, 2001 announcing that fourth quarter earnings were anticipated to be lower than the Company's previous expectations. On December 20, 2001, the Company announced the issuance on December 19, 2001 of $14,000,000 PEBK Capital Trust I floating rate securities.
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 27, 2002
-------------------------------------
|
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 27, 2002 --------------------------- (Principal Executive Officer) -------------- Tony W. Wolfe /s/ Robert C. Abernethy Chairman of the Board and Director March 27, 2002 --------------------------- -------------- Robert C. Abernethy /s/ A. Joseph Lampron Executive Vice President and Chief Financial March 27, 2002 --------------------------- Officer (Principal Financial and -------------- A. Joseph Lampron Principal Accounting Officer) /s/ James S. Abernethy Director March 27, 2002 --------------------------- -------------- James S. Abernethy /s/ Bruce R. Eckard Director March 27, 2002 --------------------------- -------------- Bruce R. Eckard /s/ John H. Elmore, Jr. Director March 27, 2002 --------------------------- -------------- John H. Elmore, Jr. /s/ Charles F. Murray Director March 27, 2002 --------------------------- -------------- Charles F. Murray /s/ Gary E. Matthews Director March 27, 2002 --------------------------- -------------- Gary E. Matthews /s/ Larry E. Robinson Director March 27, 2002 --------------------------- -------------- Larry E. Robinson /s/ Fred L. Sherrill, Jr. Director March 27, 2002 --------------------------- -------------- Fred L. Sherrill, Jr. /s/ Dan Ray Timmerman, Sr. Director March 27, 2002 --------------------------- -------------- Dan Ray Timmerman, Sr. /s/ Benjamin I. Zachary Director March 27, 2002 --------------------------- -------------- Benjamin I. Zachary |
INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION
----------- -----------
Exhibit (3)(ii) Amended and Restated Bylaws of Peoples Bancorp of North Carolina, Inc.
Exhibit (10)(g) Employment Agreement between Peoples Bank and A. Joseph Lampron
Exhibit (10)(h) Peoples Bank Directors' and Officers' Deferral Plan
Exhibit (10)(i) Rabbi Trust for the Peoples Bank Directors' and Officers' Deferral Plan
Exhibit (11) Statement Regarding Computation of Per Share Earnings
Exhibit (12) Statement Regarding Computation of Ratios
Exhibit (13) 2001 Annual Report of Peoples Bancorp of North Carolina, Inc.
Exhibit (21) Subsidiaries of Peoples Bancorp of North Carolina, Inc.
Exhibit (23)(a) Consent of Porter Keadle Moore, LLP for Registration Statement on Form S-3 filed with the
Securities and Exchange Commission on March 28, 2002
Exhibit (23)(b) Consent of Porter Keadle More, LLP for Registration Statement on Form S-8 filed with the
Securities and Exchange Commission on March 28, 2002
|
Exhibit 3(ii)
AMENDED AND RESTATED BYLAWS
OF
PEOPLES BANCORP OF NORTH CAROLINA, INC.
ARTICLE I
ARTICLE II
In the case of a special meeting, the notice of meeting shall include a description of the purpose or purposes for which the meeting is called; but, in the case of an annual or substitute annual meeting, the notice of meeting need not include a description of the purpose or purposes for which the meeting is called unless such a description is required by the provisions of the North Carolina Business Corporation Act.
When a meeting is adjourned to a different date, time or place, notice need not be given of the new date, time or place if the new date, time or place is announced at the meeting before adjournment and if a new record date is not fixed for the adjourned meeting. If a new record date is fixed for the adjourned meeting (which must be done if the new date is more than 120 days after the date of the original meeting), notice of the adjourned meeting must be given as provided in this Section 5 to persons who are shareholders as of the new record date.
meeting will be held, for the period beginning two (2) business days after notice of the meeting is given and continuing through the meeting, and shall be available for inspection by any shareholder, or by any shareholder's agent or attorney, at any time during regular business hours. The list shall also be available at the meeting and shall be subject to inspection by any shareholder, his or her agent or attorney, at any time during the meeting or any adjournment thereof.
If no record date is fixed by the Board of Directors for the determination of shareholders entitled to notice of or to vote at a meeting of shareholders, the close of business on the day before the first notice of the meeting is delivered to shareholders shall be the record date for such determination of shareholders.
Once a share is represented for any purpose at a meeting, it is deemed present for quorum purposes for the remainder of the meeting and for any adjournment of that meeting unless a new record date is or must be set for that adjourned meeting.
In the absence of a quorum at the opening of any meeting of shareholders, such meeting may be adjourned from time to time by the vote of a majority of the votes cast on the motion to adjourn; and, subject to the provisions of Section 5 of this Article II, at any adjourned meeting any business may be transacted that might have been transacted at the original meeting if a quorum exists with respect to the matter proposed.
Except in the election of directors as governed by the provisions of
Section 4 of Article III, if a quorum exists, action on a matter by a voting
group is approved if the votes cast within the voting group favoring the action
exceed the votes cast opposing the action, unless a greater vote is required by
law or the Articles of Incorporation or these Bylaws.
Absent special circumstances, shares of the Corporation are not entitled to vote if they are owned, directly or indirectly, by a second corporation in which the Corporation owns, directly or indirectly, a majority of the shares entitled to vote for directors of the second corporation; provided that this provision does not limit the power of the Corporation or such second corporation to vote shares held by it in a fiduciary capacity.
ARTICLE III
No person shall be elected, re-elected, or appointed as a director after
attaining seventy (70) years of age, unless that person is an employee of the
Corporation. In the event a non-employee director attains the age of seventy
(70) years during his or her term, such director shall serve until
his or her current term has expired, at which time his or her successor shall be elected by the shareholders.
In the first election of directors that the total number of directors is nine (9) or more, the directors shall be divided into three (3) classes, as nearly equal as possible in number as may be, to serve in the first instance for terms of one (1), two (2) and three (3) years, respectively, from the date such class of directors takes office or until their earlier death, resignation, retirement, removal or disqualification or until their successors shall be elected and shall qualify, and thereafter the successors in each class of directors shall be elected for terms of three (3) years or until their earlier death, resignation, retirement, removal, or disqualification or until their successors shall be elected and shall qualify. In the event of any increase or decrease in the number of directors at a time that the directors are so classified, the additional or eliminated directorships shall be classified or chosen so that all classes of directors shall remain or become as nearly equal as possible in number.
Notwithstanding the provisions of this Section 5, a decrease in the number of directors does not shorten an incumbent director's term. Despite the expiration of a director's term, such director shall continue to serve until a successor shall be elected and qualified or until there is a decrease in the number of directors.
shareholders, only the shareholders of that voting group may participate in the vote to remove him or her. A director may not be removed by the shareholders at a meeting unless the notice of that meeting states that the purpose, or one (1) of the purposes, of the meeting is removal of the director. If any directors are so removed, new directors may be elected at the same meeting.
In the absence of the Chairman, the President and Chief Executive Officer shall preside at meetings of directors or shareholders.
ARTICLE IV
ARTICLE V
held by the same person, but no officer may act in more than one (1) capacity where action of two (2) or more officers is required.
all regular and special meetings and meetings of committees of the Board of Directors. If the President and Chief Executive Officer of the Corporation is also a director of the Corporation, he or she shall serve as a member of the Executive Committee.
ARTICLE VI
ARTICLE VII
represented by certificates, the Corporation shall issue and deliver, to each shareholder to whom such shares have been issued or transferred, certificates representing the shares owned by him or her. When shares are not represented by certificates, then within a reasonable time after the issuance or transfer of such shares, the Corporation shall send the shareholder to whom such shares have been issued or transferred a written statement of the information required by law to be on certificates.
shall be recognized as the shareholder; and (iv) the purposes for which the beneficial owner shall be recognized as the shareholder.
The purposes for which the Corporation shall recognize the beneficial owner
as the shareholder may include the following: (i) receiving notice of, voting
at, and otherwise participating in shareholders' meetings; (ii) executing
consents with respect to the shares; (iii) exercising dissenters' rights under
the North Carolina Business Corporation Act; (iv) receiving distributions and
share dividends with respect to the shares; (v) exercising inspection rights;
(vi) receiving reports, financial statements, proxy statements, and other
communications from the Corporation; (vii) making any demand upon the
Corporation required or permitted by law; and (viii) exercising any other rights
or receiving any other benefits of a shareholder with respect to the shares.
The certificate shall be effective ten (10) business days after its receipt by the Corporation and until it is changed by the nominee, unless the certificate specifies a later effective time or an earlier termination date.
If the certificate affects less than all of the shares registered in the name of the nominee, the Corporation may require the shares affected by the certificate to be registered separately on the books of the Corporation and be represented by a share certificate that bears a conspicuous legend stating that there is a nominee certificate in effect with respect to the shares represented by that share certificate.
ARTICLE VIII
No Bylaw adopted, amended, or repealed by the shareholders shall be readopted, amended,
or repealed by the Board of Directors, unless the Articles of Incorporation or a Bylaw adopted by the shareholders authorizes the Board of Directors to adopt, amend, or repeal that particular Bylaw or the Bylaws generally.
ARTICLE IX
Litigation expense incurred by a person described in this Article IX in connection with a matter described in this Article IX may be paid by the Corporation in advance of the final disposition or termination of such matter, if the Corporation receives an undertaking, dated, in writing and signed by the person to be indemnified, to repay all such sums unless such person is ultimately determined to be entitled to be indemnified by the Corporation as provided in this Article IX. Requests for payments in advance of final disposition or termination shall be submitted in writing unless this requirement is waived by the Corporation.
A person described in this Article IX may apply to the Corporation in writing for indemnification or advance expenses. Such applications shall be addressed to the Corporate Secretary or, in the absence of the Corporate Secretary, to any executive officer of the Corporation. The Corporation shall respond in writing to such applications as follows: to a request for indemnity under this Article IX, within ninety (90) days after receipt of the application; to a request for advance expenses under this Article IX, within fifteen (15) days after receipt of the application.
Notwithstanding the foregoing, no advance payment shall be made as to any payment or portion of a payment for which the determination is made that the person requesting payment will not be entitled to indemnification. Such determination may be made only by a majority vote of
disinterested directors or by independent legal counsel as provided in Section 2 of this Article IX. If there are not at least two (2) disinterested directors, the notice of all requests for advance pa yment shall be delivered for review to independent legal counsel for the Corporation. Such counsel shall have the authority to disapprove any advance payment or portion of a payment for which it appears that the person requesting payment will not be entitled to indemnification.
If any action is necessary or appropriate to authorize the Corporation to pay the indemnification required by these Bylaws, the Board of Directors shall take such action, including (i) making a good faith evaluation of the indemnification request, (ii) giving notice to, and obtaining approval by, the shareholders of the Corporation, and (iii) taking any other action.
The right to indemnification or advance expenses provided herein shall be enforceable in any court of competent jurisdiction. A legal action may be commenced if a claim for indemnity or advance expenses is denied in whole or in part, or upon the expiration of the time periods provided above. In any such action, if the claimant establishes the right to indemnification, he or she shall also have the right to be indemnified against the litigation expense (including, without limitation, reasonable attorneys' fees) of such action.
If this Article or any portion hereof shall be invalidated on any ground by any court or agency of competent jurisdiction, then the Corporation shall nevertheless indemnify each person described in this Article IX to the full extent permitted by the portion of this Article that is not invalidated and also to the full extent (not exceeding the benefits described herein) permitted or required by other applicable law.
Exhibit 10(g)
STATE OF NORTH CAROLINA
COUNTY OF CATAWBA
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement"), is made as of the 1st day of December, 2001, by and between PEOPLES BANK, Newton, North Carolina, a North Carolina banking institution (the "Bank"), and A. JOSEPH LAMPRON (the "Employee") and is joined in by PEOPLES BANCORP OF NORTH CAROLINA, INC., a North Carolina corporation (the "Holding Company");
W I T N E S S E T H :
WHEREAS the Employee is currently rendering services to the Bank as Executive Vice President and Chief Financial Officer, and to the Holding Company as Executive Vice President, Chief Financial Officer, and Corporate Treasurer, and,
WHEREAS the Bank is a North Carolina banking corporation and the Holding Company is a North Carolina bank holding company and the sole shareholder of the Bank; and,
WHEREAS the Bank considers the continued availability of the Employee's services to be important to the Bank's and Holding Company's business, and desires to secure for the Bank and Holding Company the continued availability of the Employee's services; and,
WHEREAS the Employee is willing to provide services to the Bank and Holding Company on the terms and subject to the conditions set forth herein.
NOW, THEREFORE, in consideration of the mutual covenants contained herein, the parties hereto agree as follows:
capacity. Employee shall promote the business of the Bank and Holding Company and perform such other duties as shall from time to time be reasonably described by the President of the Bank.
responsibilities and functions to be performed by the Employee under this Agreement. Additionally, the Employee shall be entitled to four (4) weeks of paid vacation, as an exception to uniform employee policies promulgated by the Directors, and such sick leave as is established by such policies. The Bank shall reimburse the Employee for all out-of-pocket reasonable and necessary business expenses which the Employee shall incur in connection with services on behalf of the Bank. Additionally, the Employee shall be entitled to life insurance in the amount of two times annual salary; the same amount in accidental death and dismemberment insurance; dependent life insurance upon Employee's spouse in the amount of Two Thousand Dollars ($2,000.00); and disability insurance as which will compensate the Employee 66-2/3% of salary after Employee is out of work pursuant to company policy for thirty (30) calendar days. The Employer shall pay all premiums for the insurance noted above.
A. Employee shall devote Employee's full efforts and entire business time to the performance of Employee's duties under this Agreement.
B. During the term of this Agreement, or any renewals or extensions thereof, and for a period of one (1) year after termination, the Employee shall not, within Catawba, Alexander, Iredell or Lincoln
Counties, North Carolina, directly or indirectly, own, manage, operate, join, control or participate in the management, operation or control of or be employed by or connected in any manner with any depository institution or financial services business which competes with the Bank or the Holding Company without the prior written consent of the Bank. Notwithstanding the foregoing, the Employee shall be free without such consent to purchase or hold as an investment or otherwise up to 5% of the outstanding stock or other securities of any corporation which has its securities publicly traded on any recognized securities exchange or in any over-the-counter market.
The Employee shall hold in confidence all knowledge or information of a confidential nature with respect to the business of the Bank or the Holding Company, received during the term of this Agreement, and will not disclose or make use of such information without the prior written consent of the Bank.
The Employee acknowledges that it would not be possible to ascertain the amount of monetary damages in the event of a breach by the Employee under the provisions of this Paragraph 6. The Employee agrees that in the event of the breach of this Paragraph, injunctive relief enforcing the terms of this Paragraph is an appropriate remedy.
The Bank and Employee further agree that in the event the Bank shall terminate the employment of the Employee for cause or should the Employee resign employment during any period of the term of this employment contract, then and in that event, the non-competition provisions of this Agreement shall be applicable. If, however, the Bank should terminate the employment of the Employee without cause during the last year of said Agreement, the non-competition provisions of this Agreement shall not be applicable, and the Bank shall not proceed with respect to the remedies as set forth above.
the working facilities and staff customary at the Bank for similar executives and necessary for him to perform his duties under this Agreement.
A. The Employee's employment under this Agreement shall be terminated upon the following occurrences:
(1) The death of the Employee during the term of this Agreement, in which event the Employee's estate shall be entitled to receive the compensation due the Employee through the last day of the calendar month in which death shall have occurred and for a period of three (3) months thereafter.
(2) The Employee's employment under this Agreement may be terminated by the Bank at any time or by the Employee upon sixty (60) days written notice to the Employee or the Bank, as the case may be. Upon such termination by the Employee or by the Bank "for cause," the Employee shall be entitled to receive compensation under this Agreement through the effective date of such termination and such other benefits, if any, as may be provided by the terms of other plans and programs of the Bank in the event of termination.
Any such termination by the Bank other than termination "for cause" shall not prejudice the Employee's right to compensation or benefits under this Agreement. The Employee shall have no right to receive compensation or benefits for any period after termination "for cause." Termination "for cause" shall include termination because of the Employee's personal dishonesty, incompetence, willful misconduct, breach of duty involving personal profit, intentional failure to perform stated duties, willful violation of any law, rule or regulation (other than traffic violations or similar offenses), or final cease and desist order,
or any material breach of any provision of this Agreement. Termination "for cause" shall also include any termination pursuant to a resolution of the Board of Directors approved by a vote of at least eighty-five percent of directors entitled to vote, finding that termination of the Employee's Agreement is in the best interests of the Bank or the Holding Company.
(3) If the Employee is removed or permanently prohibited from participating in the conduct of the Bank's affairs by any order issued by any regulatory agency, all obligations of the Bank under this Agreement shall terminate as of the effective date of the order. The rights of the Employee vested prior to the date of such order shall not be affected.
(4) All obligations under this Agreement may be terminated:
(a) by the Federal Deposit Insurance Corporation at the time it enters into an agreement to provide assistance to or on behalf of the Bank under the authority contained in its Rules and Regulations; and,
(b) by any regulatory or supervisory agency which enters any orders to resolve problems related to the operation of the Bank, or when the Bank is determined to be in an unsafe or unsound condition. Any rights of the Employee vested prior to such time shall not be affected by any such determination or order.
A. The suspension of the Employee from office or temporary prohibition from participation by the
Employee in the conduct of the affairs of the Bank pursuant to notice served by any supervisory or regulatory agency, unless stayed by appropriate proceedings, shall suspend, as of the date of such service, all obligations of the Bank under the terms of this Agreement.
B. In the event the charges specified in a notice served as provided in Subparagraph A of this Section shall be dismissed, the Bank shall:
(1) pay the Employee the compensation withheld from such Employee pursuant to the suspension of the Bank's obligation as required in Subparagraph A of this Section; and,
(2) reinstate the obligations suspended as required in Subparagraph A of this section.
A. In the event of a "Change in Control" (as defined in Subparagraph
(C) below), the term of employment under this Agreement
automatically shall be extended to a period of three (3) years
beginning on the date of the Change in Control, and the Bank or
its successor shall be bound by the terms of this Agreement and
shall be prohibited, during the remainder of such term, from:
(1) Assigning Employee any duties and/or responsibilities that are inconsistent with his position, duties, responsibilities or status at the time of the Change in Control or with his reporting responsibilities or equivalent titles in effect at such time; or
(2) Adjusting Employee's annual base salary rate other than in accordance with Subparagraph (B) below; or
(3) Reducing in level, scope or coverage or eliminating Employee's life insurance, medical or hospitalization insurance, disability insurance,
profit sharing plans, stock option plans, stock purchase plans, deferred compensation plans, management retention plans, retirement plans, stock ownership plans or similar plans or benefits being provided by the Bank or the Holding Company to the Employee other than those arising from the Bank's management incentive plan as of the effective date of the Change in Control; or
(4) Transferring Employee to a location which is an unreasonable distance from the Employee's current principal work location, without the Employee's express written consent.
B. In the event of a Change in Control, the Employee's base salary shall be adjusted to include an amount equal to the average of the two previous years' bonuses arising from the Bank's management incentive plan, and/or discretionary bonuses, if any, and such adjusted base salary shall be increased by not less than six percent (6%) annually beginning at the date of the Change in Control and continuing each year for the three-year term thereafter.
C. For the purposes of this Agreement, the term "Change in Control" shall mean any of the following events:
(1) a change in control of a nature that would be required to be reported in response to Item 1 of the Current Report on Form 8-K, as in effect on the date hereof, pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"); or
(2) such time as any "person" (as such term is used in Sections 13(d) and 14(d) of the Exchange Act), other than a person who beneficially owned as of January 1, 1998, more than 5% of the Bank's securities, is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Holding Company or Bank representing 20 percent or more of the combined voting Power
of the outstanding Common Stock of the Holding Company or Common Stock of the Bank, as applicable; or
(3) individuals who constitute the Board or board of directors of the Holding Company on the date hereof (the "Incumbent Board" and "Incumbent Holding Company Board," respectively) cease for any reason to constitute at least a majority thereof, provided that any person becoming a director subsequent to the date hereof whose election was approved by a vote of at least three-quarters of the directors comprising the Incumbent Board or Incumbent Holding Company Board, as applicable, or whose nomination for election by the Bank's or Holding Company's shareholders was approved by the Bank's or Holding Company's Board of Directors or Nominating Committee, as applicable, shall be considered as though he or she were a member of the Incumbent Board or Incumbent Holding Company Board, as applicable; or
(4) either the Holding Company or the Bank consolidates or merges with or into another corporation, association or entity or is otherwise reorganized, where neither the Holding Company nor the Bank, respectively, is the surviving corporation in such transaction; or
(5) all or substantially all of the assets of either the Holding Company or the Bank are sold or otherwise transferred to or are acquired by any other entity or group.
Notwithstanding the other provisions of this Paragraph 10, a transaction or event shall not be considered a Change in Control if, prior to the consummation or occurrence of such transaction or event, Employee, Bank and Holding Company agree in writing that the same shall not be treated as a Change in Control for purposes of this Agreement.
D. In the event any dispute shall arise between the Employee and the Bank or Holding Company (or any successor) as to the terms or interpretation of this Agreement, including this Paragraph 10, whether instituted by formal legal proceedings or otherwise, including any action taken by the Employee to enforce the terms of this Paragraph 10 or in defending against any action taken by the Holding Company or the Bank, the Bank shall reimburse the Employee for all costs and expenses incurred in such proceedings or actions, including attorney's fees, in the event the Employee prevails in any such action.
A. This Employment Agreement shall enure to the benefit of and be binding upon any corporate or other successor of the Bank which shall acquire, directly or indirectly, by conversion, merger, consolidation, purchase or otherwise, all or substantially all of the assets of the Bank.
B. Since the Bank is contracting for the unique and personal skills of the Employee, the Employee shall be precluded from assigning or delegating Employee's rights or duties hereunder without first obtaining the written consent of the Bank.
A. This Agreement constitutes the entire agreement between the Employee and the Bank with respect to the subject matter hereof and supersedes all prior agreements with respect thereto. This Agreement may be executed in one or more counterparts, all of which taken together shall constitute one and the same instrument.
Address of the Bank: Peoples Bank, Post Office Box 467, Newton, North Carolina, 28658.
Address of the Holding Company: Peoples Bancorp of North Carolina, Inc., Post Office Box 467, Newton, North Carolina, 28658.
Address of the Employee: A. Joseph Lampron, 7824 Nine Iron Court, Denver, NC 28037.
Notices given in person or by overnight courier service shall be deemed given when delivered to the address required by this section, and notices given by mail shall be deemed given three (3) days after deposit in the mail. Any party hereto may designate, by written notice to the other party in accordance herewith, any other address to which notices addressed to him shall be sent.
IN WITNESS WHEREOF, THE PARTIES HAVE EXECUTED THIS AGREEMENT THE DAY AND
YEAR FIRST WRITTEN.
PEOPLES BANK, a North Carolina banking
Corporation
By: /s/ Tony W. Wolfe
---------------------------------------
Tony W. Wolfe, President/
Chief Executive Officer
|
EMPLOYEE
/s/ A. Joseph Lampron
---------------------------------------
A. Joseph Lampron
|
THE FOREGOING AGREEMENT IS JOINED IN AND AGREED TO BY PEOPLES BANCORP OF NORTH CAROLINA, INC.
PEOPLES BANCORP OF NORTH CAROLINA, INC., a North
Carolina Corporation
by: /s/ Tony W. Wolfe
---------------------------------------
Tony W. Wolfe
President/Chief Executive Officer
|
Exhibit 10(h)
PEOPLES BANK
DIRECTORS' AND OFFICERS' DEFERRAL PLAN
By a vote of the Peoples Bank Board of Directors, (hereinafter referred to as the, "Bank") on the 18th day of December, 2001, the Bank has established the Peoples Bank Directors' and Officers' Deferral Plan (hereinafter referred to as the, "Benefit Plan") to allow eligible Directors and Officers the opportunity to participate in the Plan and defer all or a portion of their fees or salary in accordance therewith;
It is the intent of the Bank that this Benefit Plan be considered an unfunded arrangement maintained primarily to provide supplemental retirement benefits, and to be considered a non-qualified benefit plan for purposes of the Employee Retirement Security Act of 1974, as amended ("ERISA").
I. ELIGIBILITY
Those individuals selected by the Board of Directors and designated in resolutions of the Board and members of the Board of Directors shall be eligible to become a participant in this Benefit Plan (hereinafter referred to as the, "Participant").
II. FEES AND COMPENSATION
The fees covered under this Benefit Plan shall be any and all amounts paid to the Participant for the Participant's services, including but not limited to annual fees, meeting fees, and committee fees. Participants may elect to defer no more than one hundred percent (100%) of fees and compensation. The deferred fees covered under this Benefit Plan shall be credited to the Participant subject to the election requirement of Subparagraph III (A) hereinbelow.
III. DEFERRED COMPENSATION
The Participant shall at the same time as entering this Benefit Plan file a written statement with the Bank notifying the Bank as to the percent (%) or dollar amount of fees and compensation as defined in Paragraph II that are to be deferred and the actual investments [as defined in Subparagraph VI (G)] (hereinafter referred to as the, "Election Form"). A copy of the said Election Form is attached hereto and marked as Exhibit "A-1". The election to defer fees and compensation may only be
made for fees and compensation not yet earned as of the date of said election. Signed written statements filed under this section, unless modified or revoked, shall be valid for all succeeding years. Any modification or revocation of a signed written statement must be in writing, made one (1) year prior to receiving benefits hereunder, and shall be effective for calendar years succeeding the year in which the modification or revocation is made.
At all times, the Participant shall be one hundred percent (100%) vested in the Participant's Deferred Compensation Account [as defined in Subparagraph IV (A)(i)]. Payment of the Participant's Deferred Account balance shall commence on the first day of the calendar month following the end of the Participant's term of office due to resignation, removal, failure to be re-elected, retirement, or hardship as further set forth hereinbelow, and shall continue, if applicable, as set forth in the Participant's Election Form.
The Participant shall at the same time as entering this Benefit Plan notifying the Bank on the Election Form as to the percent (%) of deferred compensation that is to be allocated among the "actual investment" choices as defined in Subparagraph VI (G) herein. The Participant may make changes to the allocation of their "actual investments" quarterly.
The Bank may make matching or other contributions to this Benefit Plan for the benefit of the Participant from time to time at the discretion of the Bank. The Participant shall be one hundred percent (100%) vested in the Bank's Contributions
hereunder.
The vested amounts in the Participant's Deferred Compensation Account
attributed to bank contributions shall be paid under the same terms
and conditions as payment of the Participant's deferred compensation
[Subparagraph III (B)].
The Bank's contribution to the Participant's Deferred Compensation
Account, if any, shall be invested under the same terms and conditions
as the investment of the Participant's Deferred Compensation
[Subparagraph III (C)].
IV. PARTICIPANT'S DEFERRED COMPENSATION ACCOUNT AND RABBI TRUST
The Bank shall establish a Rabbi Trust for the Benefit Plan. The Bank shall pay all deferral amounts and matching contributions, if any, to the Rabbi Trust. Said Trustee shall make actual investments and payments in accordance with this Benefit Plan.
The Trustee shall establish and maintain an account on behalf of
each Participant. A Participant's Account shall be credited with
(i) the amount of Fees and Compensation the Participant elects to
defer under the Election Form, (ii) other Bank Contributions, if
any, and (iii) earnings or losses attributable to the Account.
Each Account of a Participant shall be maintained until the value
thereof has been distributed to or on behalf of such Participant
or the Participant's beneficiary(ies). The value of said account
shall be calculated quarterly.
V. DEATH OF DIRECTOR
In the event of the death of the Participant prior to commencement of payments, within thirty (30) days after the Participant's death, the Participant's Deferred Compensation Account balance as of the date of death shall be paid as set forth in the Election Form, or in a lump sum, at the discretion of the Bank, to such individual or individuals as the Participant may have designated in writing and filed with the
Bank. In the event no designation is made, the Participant's account balance shall be paid as set forth herein to the duly qualified executor or administrator of the Participant's estate.
In the event of the death of the Participant after commencement of payments but prior to the Participant receiving all payments due the Participant under this Benefit Plan, within thirty (30) days after the Participant's death, the remaining Deferred Compensation Account balance as of the date of death shall be paid as set forth in the Election Form, or in a lump sum, at the discretion of the Bank, to such individual or individuals as the Participant may have designated in writing and filed with the Bank. In the event no designation is made, the Participant's account balance shall be paid as set forth herein to the duly qualified executor or administrator of the Participant's estate.
VI. MISCELLANEOUS
It is understood that, during the lifetime of the Participant, this Benefit Plan may be amended or revoked at any time or times, in whole or in part, by the mutual written consent of the Participant, the Bank, and the Trustee.
Whenever in this Benefit Plan words are used in the masculine or neuter gender, they shall be read and construed as in the masculine, feminine or neuter gender, whenever they should so apply.
Nothing contained in this Benefit Plan shall affect the right of the Participant to participate in or be covered by any qualified or non-qualified pension, profit-sharing, group, bonus or other supplemental compensation or fringe benefit plan constituting a part of the Bank's existing or future compensation structure.
Headings and subheadings in this Benefit Plan are inserted for reference and convenience only and shall not be deemed a part of this Benefit Plan.
If any term, provision, covenant, or condition of this Benefit Plan is determined by an arbitrator or a court, as the case may be, to be invalid, void, or unenforceable, such determination shall not render any other term, provision, covenant, or condition invalid, void, or unenforceable, and this Benefit Plan shall remain in full force and effect notwithstanding such partial invalidity.
Neither this Benefit Plan nor the payments of any benefits thereunder shall be construed as giving to the Participant any right to be retained as a member of the Board of Directors of the Bank.
Each Participant will be allowed to select from a restricted list the funds to be used to determine the "investment allocation" of their Deferred Compensation Account. The performance of the deemed investments will be used to determine the earnings or losses to credit to the Participant's Deferred Compensation Account. The Participant will be allowed to change their investment allocation quarterly.
VII. CHANGE OF CONTROL
The Participant shall be one hundred percent (100%) vested in all benefits provided in this Benefit Plan upon a Change of Control. A Change of Control shall be as defined in Subsection XIII (d) in the Rabbi Trust for the Peoples Bank Directors' and Officers' Deferral Plan.
VIII. ADMINISTRATION AND CLAIMS
The Plan Administrator of this Benefit Plan shall be the Peoples Bank until its resignation or removal by the Board. As Plan Administrator, the Peoples Bank shall be responsible for the management and administration of this Benefit Plan. The Plan Administrator may delegate to others certain aspects of the management and operation responsibilities of this Benefit Plan including the employment of advisors and the delegation of ministerial duties to qualified individuals.
In the event a dispute arises over benefits under this Benefit Plan and benefits are not paid to the Participant (or to the Participant's beneficiary(ies) in the case of the
Participant's death) and such claimants feel they are entitled to receive such benefits, then a written claim must be made to the Plan Administrator named above within sixty (60) days from the date payments are refused. The Plan Administrator shall review the written claim and if the claim is denied, in whole or in part, they shall provide in writing within sixty (60) days of receipt of such claim the specific reasons for such denial, reference to the provisions of this Benefit Plan upon which the denial is based and any additional material or information necessary to perfect the claim. Such written notice shall further indicate the additional steps to be taken by claimants if a further review of the claim denial is desired. A claim shall be deemed denied if the Plan Administrator fails to take any action within the aforesaid sixty-day period.
If claimants desire a second review they shall notify the Plan Administrator in writing within sixty (60) days of the first claim denial. Claimants may review This Benefit Plan or any documents relating thereto and submit any written issues and comments it may feel appropriate. In their sole discretion, the Plan Administrator shall then review the second claim and provide a written decision within sixty (60) days of receipt of such claim. This decision shall likewise state the specific reasons for the decision and shall include reference to specific provisions of this Benefit Plan upon which the decision is based.
If claimants continue to dispute the benefit denial, then claimants may submit the dispute to an Arbitrator for final arbitration. The Arbitrator shall be selected by mutual agreement of the Bank and the claimants. The Arbitrator shall operate under any generally recognized set of arbitration rules. The parties hereto agree that they and their heirs, personal representatives, successors and assigns shall be bound by the decision of such Arbitrator with respect to any controversy properly submitted to it for determination.
PEOPLES BANK
Newton, North Carolina
By: /s/ Robert C. Abernethy ------------------------------ Chairman of the Board |
Exhibit 10(i)
RABBI TRUST FOR THE
PEOPLES BANK
DIRECTORS' AND OFFICERS' DEFERRAL PLAN
CBIZ/BENMARK
1100 CIRCLE 75 PARKWAY, SUITE 300
ATLANTA, GEORGIA 30339
TELEPHONE: (770) 952-1529
FACSIMILE: (770) 952-8029
RABBI TRUST FOR PEOPLES BANK
DIRECTORS' AND OFFICERS' DEFERRAL PLAN
This Trust Agreement effective as of the 6th day of December, 2001 by and between Peoples Bank having its principal place of business in North Carolina or any successor corporation (hereinafter referred to as the, "Bank"), and Eastern Bank & Trust Co., a banking corporation with its principal place of business in Massachusetts (hereinafter referred to as the, "Trustee").
W I T N E S S E T H:
WHEREAS, Bank has adopted a non-qualified deferred compensation plan (hereinafter referred to as the, "Benefit Plan"), such Benefit Plan has been made effective as of the 1st day of January, 2002 and constitutes a non-qualified deferred compensation plan, a copy of which is attached hereto as Exhibit "A", fully incorporated herein by reference, and made a part hereof.
WHEREAS, Bank hereby establishes this Trust (hereinafter referred to as the, "Trust") and to contribute to the Trust assets that shall be held therein, subject to the claims of bank's creditors in the event of Bank's Insolvency, as herein defined, until paid to Benefit Plan participants, and their beneficiaries in such manner and at such times as specified in the Benefit Plan;
WHEREAS, it is the intention of the parties that this Trust shall constitute an unfunded arrangement and shall not affect the status of the Benefit Plan as an unfunded plan, maintained primarily for the purpose of providing deferred compensation for a select group of management or highly compensated Directors and Officers, for purposes of Title I of the Employee Retirement Income Security Act of 1974 ("ERISA"), as amended;
WHEREAS, it is the intention of Bank to make contributions to the Trust pursuant to the Benefit Plan (hereinafter referred to as the, "Contributions");
NOW, THEREFORE, the parties do hereby establish the Trust and agree that the Trust shall be comprised, held and disposed of as follows:
SECTION I ESTABLISHMENT OF TRUST
(a) This trust is hereby established as the Rabbi Trust for Peoples Bank Directors' and Officers' Deferral Plan.
(b) Bank shall deposit, from time to time, the Contributions with Trustee in trust, which shall become the principal of the Trust to be held, administered and disposed of by Trustee as provided in this Trust Agreement.
(c) The Trust hereby established shall be irrevocable, but may be amended as provided under (and only as provided under) Section XII.
(d) The Trust is intended to be a grantor trust, of which Bank is the grantor, within the meaning of subpart E, part I, subchapter J, chapter 1, subtitle A of the Internal Revenue Code of 1986, as amended, and shall be construed accordingly.
(e) The principal of the Trust, and any earnings thereon shall be held separate and apart from other funds of Bank and shall be used exclusively for the uses and purposes of Benefit Plan participants and general creditors as herein set forth. Benefit Plan participants and their beneficiaries shall have no preferred claim on, or any beneficial ownership interest in, any assets of the Trust. Any rights created under the Benefit Plan and this Trust Agreement shall be mere unsecured contractual rights of Benefit Plan participants and their beneficiaries against the Trust. Any assets held by the Trust will be subject to the claims of Bank's general creditors under federal and state law in the event of Insolvency, as defined in Section III (a) herein.
(f) The Trustee shall be accountable for all property and Contributions received, but the Trustee shall have no duty to see that the Contributions are received pursuant to the Benefit Plan, nor shall the Trustee be obligated to enforce or collect any Contribution from the Bank. Notwithstanding the foregoing, in the event of a Change in Control, the Trustee shall have the right to monitor, enforce and/or collect any Contributions due and owing from the Bank or to give notice of any default in making Contributions to any person.
(g) The Trustee may not return to the Bank any excess assets that remain in the Trust.
SECTION II PAYMENTS TO PLAN PARTICIPANTS AND THEIR BENEFICIARIES
(a) The Plan Participant shall deliver to the Bank a deferral and election form, in accordance with the terms of the Benefit Plan, that directs the deferrals, investments and payments of the Participant's Deferred Compensation Account. The Bank shall make Contributions to the Trust in accordance with said deferral and election form, and the Trustee shall make investments and payments accordingly. A true and correct copy of said Peoples Bank Directors' Deferral Plan Deferral and Payment Election Form is attached hereto, marked Exhibit "A-1", and fully incorporated herein by reference. Notwithstanding anything herein to the contrary, the Bank shall have the sole discretion to direct the investments of the Rabbi Trust and shall direct the Trustee accordingly.
(b) In accordance with said deferral and election form, the Bank shall deliver to Trustee a schedule (the, "Payment Schedule") that indicates the amounts payable in respect of each Benefit Plan participant (and his or her beneficiaries), that provides a formula or other instructions acceptable to Trustee for determining the amounts so payable, the form in which such amount is to be paid (as provided for or available under the Benefit Plan), and the time of commencement for payment of such amounts. The Trustee shall make payments in accordance with said Payment Schedule.
(c) The Trustee shall, in accordance with the written instructions of the Bank, withhold and report any federal, state or local taxes that may be required to be withheld and reported with respect to the payment of benefits pursuant to the terms of the Benefit Plan and shall pay amounts withheld to the appropriate taxing authorities. In addition, the Trustee shall be authorized to pay any federal, state or local taxes to any government body that presents a tax deficiency notice to the Trustee with respect to income or assets of the Trust. The Bank shall deliver to the Trustee each year a schedule which specifies the amount of taxes to be withheld, if any, with respect to benefit payments to be made hereunder. Trustee shall be entitled to rely conclusively on the written instructions of Bank as to all tax reporting and withholding requirements.
(d) The entitlement of a Benefit Plan participant or his or her beneficiaries to benefits under the Benefit Plan shall be determined by the Bank or such party (other than the Trustee) as it shall designate under the Benefit Plan, and any claim for such benefits shall be considered and reviewed under the procedures set out in the Benefit Plan.
SECTION III
TRUSTEE RESPONSIBILITY REGARDING PAYMENTS TO
TRUST BENEFICIARY WHEN BANK IS INSOLVENT
(a) Trustee shall cease payment of benefits to Benefit Plan participants and their beneficiaries if the Bank is Insolvent. Bank shall be considered "Insolvent" for purposes of this Trust Agreement if (i) Bank states to it in writing that it is unable to pay its debts as they become due, or (ii) Bank is subject to a pending proceeding as a debtor under the United States Bankruptcy Code.
(b) At all times during the continuance of this Trust, as provided in
Section I (e) hereof, the principal and income of the Trust shall be subject to
claims of general creditors of Bank under federal and state law as set forth
below.
(1) The Board of Directors and the Chief Executive Officer of Bank shall have the duty to inform Trustee in writing of Bank's Insolvency. If a person claiming to be a creditor of Bank alleges in writing to Trustee that Bank has become Insolvent, Trustee shall determine whether Bank is Insolvent and, pending such determination, Trustee shall discontinue payment of benefits to Benefit Plan participants or their beneficiaries.
(2) Unless trustee has actual knowledge of Bank's Insolvency, or
has received notice from Bank or a person claiming to be a creditor alleging
that Bank is Insolvent, Trustee shall have no duty to inquire whether Bank is
|
Insolvent. Trustee may in all events rely on such evidence concerning Bank's solvency as may be furnished to Trustee and that provides Trustee with a reasonable basis for making a determination concerning Bank's solvency. Trustee shall have no liability for any payments to Benefit Plan participants or their beneficiaries after the occurrence of an Insolvency but prior to its actual knowledge thereof.
(3) If at any time Trustee has determined that Bank is Insolvent, Trustee shall discontinue payments to Benefit Plan participants or their beneficiaries and shall hold the assets of the Trust for the benefit of Bank's general creditors. Nothing in this Trust Agreement shall in any way diminish any rights of Benefit Plan participants or their beneficiaries to pursue their rights as general creditors of bank with respect to benefits due under the Benefit Plan or otherwise.
(4) Trustee shall resume the payment of benefits to Benefit Plan participants or their beneficiaries in accordance with Section II of this Agreement only after Trustee has determined that Bank is not (or is no longer) Insolvent.
(c) Provided that there are sufficient assets, if Trustee discontinues the payment of benefits from the Trust pursuant to Section III (b) hereof and subsequently resumes such payments, the first payment following such discontinuance shall include the aggregate amount of all payments due to Benefit Plan participants or their beneficiaries under the terms of the Benefit Plan for the period of such discontinuance, less the aggregate amount of any payments made to Benefit Plan participants or their beneficiaries by Bank in lieu of the payments provided for hereunder during any such period of discontinuance.
SECTION IV PAYMENTS TO BANK
The Trustee may not return to the Bank any excess assets that remain in the Trust. If there are any assets remaining in the Trust after all required distributions are made, the excess assets shall be distributed in a pro rata share based on account balance to each participant participating in the Plan within the twelve (12) months prior to Plan termination.
SECTION V TRUSTEE'S POWERS AND PARTICIPANT DIRECTED ACCOUNTS
(a) In accordance with the terms of the Benefit Plan, the Bank may allow each participant to control and direct the investments of the participant's accounts. If participant directed accounts are allowed, the Bank may select a diversified group of investments to offer to the participants. All investment direction shall be made in writing by the participant to the Bank. The Trustee shall not be liable for any loss, or by any reason of any breach, which results from the participant's controlling and directing investments in his account and shall not be under any duty to advise a participant or beneficiary with respect to any investment. Each participant shall be informed of his right to direct the investment of his account and of the procedures regarding directed investments. If such participant does not elect an investment method, the Trustee shall invest the participant's accounts as directed by the Bank.
(b) Subject to the foregoing, Trustee shall have the following powers and authority in the administration of the assets of the Trust, in addition to those vested in it elsewhere in this Trust Agreement or by law:
(i) Subject to investment direction issued by Bank or the participant, to invest and reinvest the assets of the Trust, without distinction between principal and income, in any kind of property, real, personal or mixed, tangible or intangible, and in any kind of investment, security or obligation suitable for the investment of Trust assets, including federal, state and municipal tax-free obligations and other tax-free investment vehicles, insurance policies and
annuity contracts, and any common trust fund, group trust, pooled fund, or other commingled investment fund maintained by the Trustee or any other bank or entity for trust investment purposes in which the Trust is eligible to invest and the provisions governing such fund shall be part of the Trust Agreement as though fully restated herein;
(ii) To purchase, and maintain as owner, a life insurance policy or policies with respect to participants; provided; however; that the Trustee shall not be required to purchase or take any action under a life insurance policy or policies with respect to participants unless directed to do so by the Bank, which shall designate the face amount of said policy or policies, the terms of the policy or policies and the insurance company;
(iii) To sell for cash or on credit, to grant options, convert, redeem, exchange for other securities or other property, or otherwise to dispose of, any security or other property at any time held except that the Trustee shall have no right or obligation to take any action with respect to any insurance contract or policy unless so directed by the Bank;
(iv) At the direction of the Bank, to settle, compromise or submit to arbitration, any claims, debts or damages, due to or owning to or from the Trust, to commence or defend suits or legal proceedings and to represent the Trust in all suits or legal proceedings provided, however, the Trustee shall not be expected or required to undertake any of the foregoing unless there are sufficient assets in the Trust with which to do so, or the Trustee has received assurances by a party to this Trust, satisfactory to the Trustee, of the payment or reimbursement of the expenses connected therewith;
(v) To exercise any conversion privilege (other than conversion privileges with respect to any insurance policy, which shall be exercised only upon direction of the Bank, and/or subscription right available in connection with securities or other property at any time held, to oppose or to consent to the reorganization, consolidation, merger or readjustment of the finances of any corporation, bank or association or to the sale, mortgage, pledge or lease of the property of any corporation, bank or association any of the securities of which may at any time be held and to do any act with reference thereto, including the exercise of options, making of agreement or subscription, which may be deemed necessary or advisable in connection therewith, and to hold and retain any securities or other properties so acquired;
(vi) To hold cash uninvested for a reasonable period of time under the circumstances without liability for interest, pending investment thereof or the payment of expenses or making distributions therewith;
(vii) To form corporations and to create trusts to hold title to any securities or other property, all upon such terms and conditions as may be deemed advisable;
(viii) To employ suitable agents and counsel and to pay their reasonable expenses and compensation;
(ix) To register any securities held hereunder in the name of the Trustee or in the name of a nominee with or without the addition of words indicating that such securities are held in a fiduciary capacity and to hold any securities in bearer form and to combine certificates representing such securities with certificates of the same issue held by Trustee in other fiduciary or representative capacities, or to deposit securities in any qualified central depository where such securities may be held in bulk in the name of the nominee of such depository with securities deposited by other depositors, or deposit securities issued by the United States Government, or any agency or instrumentality's thereof, with a Federal Reserve Bank;
(x) To make, execute and deliver, as Trustee, any and all conveyances, contracts, waivers, releases or other instruments in writing necessary or proper for the accomplishment of any of the foregoing powers;
(xi) To have any and all other powers or authority, under the laws of the state in which the Trustee's principal executive offices are located, relevant to performance in the capacity as Trustee; and
(xii) To settle, compromise or submit to arbitration, any claims, debts or damages, due or owing to or from the Trust, to commence or defend suits or legal proceedings and to represent the Trust in all suits or legal proceedings; provided, however, the Trustee shall not be expected or required to undertake any of the foregoing unless there are sufficient assets in the Trust with which to do so, or the Trustee has received assurances by a party to this Trust, satisfactory to the Trustee, of the payment or reimbursement of the expenses connected therewith.
SECTION VI DISPOSITION OF INCOME
During the term of this Trust, all income received by the Trust, net of distribu-tions, expenses and taxes, shall be accumulated and reinvested.
SECTION VII ACCOUNTING BY TRUSTEE
Trustee shall keep accurate and detailed records of all investments, receipts, disbursements, and all other transactions required to be made, including such specific records as shall be agreed upon in writing between Bank and Trustee. Trustee shall retain CBIZ/Benmark or such other administrator as the Bank may direct to provide these services. Within ninety (90) days following the close of each calendar year and within sixty (60) days after the removal or resignation of Trustee, Trustee shall deliver to Bank a written account of its administration of the Trust during such year or during the period from the close of the last preceding year to the date of such removal or resignation, setting forth all investments, receipts, disbursements and other transactions effected by it, including a description of all securities and investments purchased and sold with the cost or net proceeds of such purchases or sales (accrued interest paid or receivable being shown separately), and showing all cash, securities and other property held in the Trust at the end of each year or as of the date of such removal or resignation, as the case may be.
SECTION VIII RESPONSIBILITY OF TRUSTEE
(a) Trustee shall act with the care, skill, prudence and diligence under the circumstances then prevailing that a prudent person acting in like capacity and familiar with such
matters would use in the conduct of an enterprise of a like character and with like aims, provided, however, that Trustee shall incur no liability to any person for any action taken pursuant to a direction, request or approval given by Bank which is contemplated by, and in conformity with, the terms of the Benefit Plan or this Trust and is given in writing by Bank. In the event of a dispute between Bank and a party, Trustee may apply at the expense of the Trust to a court of competent jurisdiction (located in Massachusetts, if possible) to resolve the dispute.
(b) Trustee may hire agents, accountants, actuaries, investment advisors, financial consultants or other professionals to assist it in performing any of the duties or obligations hereunder.
(c) Trustee shall have, without exclusion, all powers conferred on trustees by applicable law, unless expressly provided otherwise herein, provided, however, that if an insurance policy is acquired or held at the direction of Bank as an asset of the Trust, Trustee shall have no power to name a beneficiary of the policy other than the Trust, to assign the policy other than to a successor Trustee, or to loan any person (including Bank) the proceeds of any borrowing against such policy.
(d) Notwithstanding any powers granted to Trustee pursuant to this Agreement or to applicable law, Trustee shall not have any power that could give this Trust the objective of carrying on a business and dividing the gains therefrom, within the meaning of Section 301.7701-2 of the Procedure and Administrative Regulations promulgated pursuant to the Internal Revenue Code.
(e) Trustee shall be entitled to conclusively rely upon written notice, direction, instruction, certificate or other communication believed by it to be genuine and to be signed by the proper person or persons.
(d) Nothing contained in this Trust Agreement shall require Trustee to risk or expend its own funds in the performance of its duties hereunder. In the acceptance and performance of its duties hereunder, Trustee acts solely as Trustee of the Trust and not in its individual capacity, and all persons, other than Bank, having any claim against Trustee related to this Trust Agreement or the actions or agreements of Trustee contemplated hereby shall look solely to the Trustee for the payment or satisfaction thereof, except to the extent that Trustee has engaged in
willful misconduct or gross negligence, or Trustee has willfully breached its obligation under this Trust Agreement.
(g) Trustee shall not be responsible for determining whether a Change in Control (as hereinafter defined) has occurred. Bank will notify Trustee of the occurrence of a Change in Control, and Trustee shall be entitled to rely conclusively upon such notification for all purposes of a Change in Control hereunder without any liability or further duty with respect thereto.
(h) Any amendment or amendments that are or may be made to the Benefit Plan shall not increase the Trustee's duties hereunder without the express written consent of the Trustee.
SECTION IX COMPENSATION AND EXPENSES OF TRUSTEE
Bank shall pay all administrative and Trustee's fees and expenses. If not paid by Bank, the fees and expenses shall be paid from the Trust.
SECTION X RESIGNATION AND REMOVAL OF TRUSTEE
(a) Trustee may resign at any time by written notice to Bank, which shall be effective sixty (60) days after receipt of such notice unless Bank and Trustee agree otherwise, whether or not a successor has been appointed and qualifies. Trustee shall pay or deliver property to the successor Trustee or Bank (in further trust, pending the appointment of a successor) as the case may be, at the end of such period.
(b) Trustee may be removed by Bank on sixty (60) days notice to Trustee or upon shorter notice accepted by Trustee. A successor Trustee may be removed by Bank on ninety (90) days notice to such successor Trustee or upon shorter notice accepted by the successor Trustee.
(c)(1) If, at the time of a Change in Control (as defined herein), the then acting Trustee is an individual or entity, not independent of the Bank, the Board of Directors of the Bank, as in existence immediately prior to the Change in Control, shall designate an independent third party
with corporate trustee powers to act as successor Trustee and upon such appointment, the Trustee acting prior to such Change in Control shall resign. The successor Trustee appointed by the Board of Directors may not be removed by the Bank for two (2) years following the date of such Change in Control.
(2) If, at the time of a Change in Control (as defined herein), the Trustee is, other than serving as Trustee hereunder, an independent party with respect to the Bank, Trustee may not be removed by Bank for the two (2) years following the date of such a Change in Control. Such Trustee also may not be removed by Bank in anticipation of a Change in Control.
(d) If Trustee resigns at any time following a Change in Control, or if Trustee is removed by Bank at any time following the expiration of the two (2) year period (as described in Subpart (c) above) following a Change in Control, the President of the Bank, as in existence immediately prior to a Change in Control, shall select a successor Trustee in accordance with the provisions of XI (a) hereof and such selection shall be made on or before the effective date of Trustee's resignation or removal. In all other instances of resignation or removal, Bank shall select a successor Trustee in accordance with the provisions of XI (a) hereof, with such selection being made on or before the effective date of Trustee's resignation or removal.
(e) Upon resignation or removal of Trustee and appointment of a successor Trustee, all assets shall subsequently be promptly transferred to the successor Trustee, in accordance with sub-section (a) hereof.
(f) If Trustee resigns or is removed under paragraph (a), (b), or (d) of this Section X, a successor shall be appointed in accordance with Section XI hereof, with such selection being made on or before the effective date of resignation or removal. If no such appointment has been made, Bank or Trustee (as applicable) may apply to a court of competent jurisdiction for appointment of a successor or for instructions. Should the Trustee be required to apply to a court of competent jurisdiction for such purpose, all expenses of Trustee in connection with the proceeding shall be allowed as administrative expenses of the Trust.
SECTION XI APPOINTMENT OF SUCCESSOR
(a) If Trustee resigns or is removed pursuant to the provisions of
Section X hereof, Bank may appoint any third party, such as a bank trust
department or other party that may be granted corporate trustee powers under
state law, to serve as successor Trustee hereunder. The appointment of a
successor Trustee shall be effective when accepted in writing by the new
trustee. The new Trustee shall have all of the rights and powers of the former
Trustee, including ownership rights in the Trust assets. The former Trustee
shall execute any instrument necessary or reasonably requested by the successor
Trustee to evidence the transfer.
(b) The successor Trustee need not examine the records and acts of any prior Trustee and may retain or dispose of existing Trust assets, subject to Sections VII and VIII hereof. The successor Trustee shall not be responsible for and Bank shall indemnify and defend the successor trustee from any claim or liability resulting from any action or inaction of any prior Trustee from any other past event, or any condition existing at the time it becomes successor Trustee.
SECTION XII AMENDMENT OR TERMINATION
(a) This Trust Agreement may be amended by a written instrument executed by Trustee and Bank. Notwithstanding the foregoing, no such amendment shall conflict with the terms of the Benefit Plan or shall make the Trust revocable.
(b) The Trust shall not terminate until Benefit Plan participants and their beneficiaries are no longer entitled to any benefits pursuant to the terms of the Benefit Plan. Upon termination of the Trust any assets remaining in the Trust shall be distributed as directed in Section IV herein, but in no event shall any assets be returned to the Bank. Notwithstanding the foregoing, if at any time prior to the termination of the Trust pursuant to the provisions set forth herein, the Trust has distributed its entire corpus, the Trust shall terminate unless within sixty (60) days of notification to the Bank by trustee that all assets of the Trust have been distributed, the Bank makes additional contributions to the Trust for purposes of paying the benefits set forth herein.
(c) All assets in the Trust at termination shall, after payment of all amounts due to Trustee and all fees, taxes, expenses chargeable to the Trust, be distributed as directed in Section IV herein, but in no event shall any assets be returned to the Bank.
(d) Section(s) I (one), II (two), VI (six), X (ten) and XII (twelve) of this Trust Agreement may not be amended by Bank (i) in anticipation of or (ii) for two (2) years following a Change of Control, as defined herein.
SECTION XIII MISCELLANEOUS
(a) Any provision of this Trust Agreement prohibited by law shall be ineffective to the extent of any such prohibition, without invalidating the remaining provisions hereof.
(b) Benefits payable to Benefit Plan participants and their beneficiaries under this Trust Agreement may not be anticipated, assigned (either at law or in equity), alienated, pledged,
encumbered or subjected to attachment, garnishment, levy, execution or other legal or equitable process.
(c) This Trust Agreement shall be governed by and constructed in accordance with the laws of the Commonwealth of Massachusetts. Nothing in this Trust Agreement shall be construed to subject the Trust to the Employee Retirement Income Security Act of 1974, as amended.
(d) For purposes of this Trust, Change in Control shall mean any one of the following with respect to (i) the Bank or any successor thereto:
(i) any merger, consolidation or reorganization where the Bank that is the participant's employer (or that the participant is a director of) is not the consolidated or surviving entity;
(2) any acquisition of more than fifty percent (50%) of the stock of the Bank that is the participant's employer (or that the participant is a director of) by a third party or parties;
(3) any transfer of all or substantially all of the assets of the Bank that is the participant's employer (or that the participant is a director of) to a third party or parties; or
(4) Any conversion from a mutually owned Bank to stock ownership.
(e) The Bank shall be required to notify the Trustee of a Change in Control or imminent Change in Control (for these purposes, a Change in Control shall be imminent if it shall occur within sixty (60) days from the date of said notice). The Trustee shall not be charged with actual knowledge of a Change in Control until it has received notice, in writing, of such Change in Control or imminent Change in Control.
(f) Every direction or notice authorized hereunder shall be deemed delivered to the Bank or the Trustee as the case may be:
(i) on the date it is personally delivered to the Bank or the Trustee at its respective principal executive offices, or
(ii) three (3) business days after it is sent by registered or certified mail, postage prepaid, addressed to the Bank, the Trustee or the Benefits Determiner at such principal executive offices.
(g) The Trustee shall be fully protected in relying upon a certification of an authorized representative of the Bank with respect to any instruction, direction or approval of the Bank required or permitted hereunder, and protected also in relying upon the certification until a subsequent certification is filed with the Trustee. The Trustee shall be fully protected in acting upon any instrument, certificate, or paper believed by it to be genuine and to be signed or presented by the proper person or persons, and the Trustee shall be under no duty to make any investigation or inquiry as to any statement contained in any such writing, but may accept the same as conclusive evidence of the trust and accuracy contained therein.
(h) Communications under this Agreement shall be in writing and shall be sent to the following addresses:
Trustee: Thomas A. Nussbaum
Eastern Bank & Trust Co.
2 Adams Place, AP06
Quincy, MA 02169-7456
Bank: Peoples Bank
218 S. Main Avenue
Newton, North Carolina 28658-0467
Benefits CBIZ/Benmark
Determiner: 1100 Circle 75 Parkway, Suite 300
Atlanta, Georgia 30339
|
(i) This Trust Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original, but all of which shall together constitute only one agreement.
SECTION XIV EFFECTIVE DATE
The effective date of this Trust Agreement shall be the 6th day of December, 2001.
IN WITNESS WHEREOF, this instrument has been executed as of the day and year first above written.
ATTEST: PEOPLES BANK
By: /s/ Tony W. Wolfe
------------------------ ------------------------------------
|
ATTEST: EASTERN BANK & TRUST CO.
/s/ Debbie Entrekin By: /s/ Thomas A. Hussbaum
------------------------ ------------------------------------
(Trustee)
------------------------
|
Exhibit (11)
STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS
Basic earnings per common share of $1.42 for the year ended December 31, 2001 was calculated by dividing net income of $4.6 million for the period January 1, 2001 to December 31, 2001 by the weighted-average number of common shares outstanding of 3,218,714.
Exhibit (12)
STATEMENT REGARDING COMPUTATION OF RATIOS
The averages used in computing the performance ratios provided in Item 6 represent average daily balances.
EXHIBIT (13)
PEOPLES BANCORP OF NORTH CAROLINA, INC.
General Description of Business
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 13 offices located in Lincolnton, Newton, Denver, Triangle, Catawba, Conover, Maiden, Claremont, Hiddenite, and Hickory, North Carolina. At December 31, 2001, the Company had total assets of $619.5 million, net loans of $484.5 million, deposits of $490.2 million, investment securities of $84.3 million, and shareholders' equity of $45.4 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").
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 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.
This Annual Report contains forward-looking statements. These statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those anticipated in the forward-looking statements. Factors that might cause such a difference include, but are not limited to, changes in interest rate environment, management's business strategy, national, regional, and local market conditions and legislative and regulatory conditions.
Readers should not place undue reliance on forward-looking statements, which reflect management's view only as of the date hereof. The Company undertakes no obligation to publicly revise these forward-looking statements to reflect subsequent events or circumstances. Readers should also carefully review the risk factors described in other documents the Company files from time to time with the Securities and Exchange Commission.
SELECTED
FINANCIAL DATA
Dollars in Thousands Except Per Share Amounts
2001 2000 1999 1998 1997
---------------------------------------------------- --------------- ---------- ---------- ---------- ----------
SUMMARY OF OPERATIONS
Interest income $ 41,898 40,859 32,302 29,215 23,783
Interest expense 23,027 19,432 14,790 14,540 11,179
---------------------------------------------------- --------------- ---------- ---------- ---------- ----------
Net interest income 18,871 21,427 17,512 14,675 12,604
Provision for loan losses 3,545 1,879 425 445 696
---------------------------------------------------- --------------- ---------- ---------- ---------- ----------
Net interest income after provision for loan losses 15,326 19,548 17,087 14,230 11,908
Non-interest income 8,263 3,915 3,380 3,646 2,060
Non-interest expense 16,752 15,509 13,832 12,020 10,413
---------------------------------------------------- --------------- ---------- ---------- ---------- ----------
Income before taxes 6,837 7,954 6,635 5,856 3,555
Income taxes 2,262 2,576 2,093 1,847 1,149
---------------------------------------------------- --------------- ---------- ---------- ---------- ----------
Net income $ 4,575 5,378 4,542 4,009 2,406
---------------------------------------------------- --------------- ---------- ---------- ---------- ----------
SELECTED YEAR-END BALANCES
Assets $ 619,505 519,002 432,435 402,273 326,853
Available for sale securities 84,286 71,565 62,498 63,228 53,307
Loans 489,856 407,790 336,959 306,748 238,449
Interest-earning assets 586,496 490,449 411,734 383,270 308,852
Deposits 490,223 450,073 376,634 350,067 275,393
Interest-bearing liabilities 515,989 420,594 339,243 315,387 258,685
Shareholders' equity $ 45,401 43,039 37,998 35,924 24,930
Shares outstanding* 3,218,714 3,218,714 3,218,950 3,219,150 2,808,300
---------------------------------------------------- --------------- ---------- ---------- ---------- ----------
SELECTED AVERAGE BALANCES
Assets $ 575,142 469,536 417,387 369,864 295,879
Available for sale securities 84,549 66,218 60,642 59,824 57,508
Loans 454,371 374,226 324,651 271,819 215,789
Interest-earning assets 545,945 447,645 396,606 351,730 281,215
Deposits 481,289 408,210 363,637 321,371 252,998
Interest-bearing liabilities 472,435 373,167 326,164 293,631 233,901
Shareholders' equity $ 47,432 42,852 39,348 33,303 24,117
Shares outstanding* 3,218,714 3,218,714 3,218,950 3,058,160 2,808,300
---------------------------------------------------- --------------- ---------- ---------- ---------- ----------
PROFITABILITY RATIOS
Return on average total assets 0.80% 1.15% 1.09% 1.08% 0.81%
Return on average shareholders' equity 9.65% 12.55% 11.54% 12.04% 9.98%
Dividend payout ratio 28.14% 23.39% 23.84% 22.61% 33.18%
---------------------------------------------------- --------------- ---------- ---------- ---------- ----------
LIQUIDITY AND CAPITAL RATIOS (AVERAGES)
Loan to deposit 94.41% 91.67% 89.28% 84.58% 85.29%
Shareholders' equity to total assets 8.25% 9.13% 9.43% 9.00% 8.15%
---------------------------------------------------- --------------- ---------- ---------- ---------- ----------
PER SHARE OF COMMON STOCK*
Net income $ 1.42 1.67 1.41 1.31 0.86
Cash dividends $ 0.40 0.39 0.34 0.28 0.28
Book value $ 14.11 13.37 11.81 11.16 8.88
---------------------------------------------------- --------------- ---------- ---------- ---------- ----------
|
* Shares outstanding and per share computations have been restated to reflect a 10% stock dividend during second quarter 2000, the 3 for 2 stock split during first quarter 1999 and the 10% stock dividend during second quarter 1997.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
INTRODUCTION
Management's discussion and analysis of earnings and related data are presented to assist in understanding the consolidated financial condition and results of operations of Peoples Bancorp of North Carolina, Inc. (the "Company"), for the years ended December 31, 2001, 2000 and 1999. The Company is a registered bank holding company operating under the supervision of the Federal Reserve Board and the parent company of Peoples Bank (the "Bank"). The Bank is a North Carolina-chartered bank, with offices in Catawba, Lincoln and Alexander Counties, operating under the banking laws of North Carolina and the Rules and Regulations of the Federal Deposit Insurance Corporation (the "FDIC").
This discussion and related financial data should be read in conjunction with the audited consolidated financial statements and related footnotes.
RESULTS OF OPERATIONS
SUMMARY
The Company reported earnings of $4.6 million in 2001, or $1.42 basic and
diluted net income per share, a 15% decrease as compared to $5.4 million, or
$1.67 basic and diluted net income per share, for 2000. Net income for 2000
represented an increase of 18% as compared to 1999 net income of $4.5 million.
The decline in net income in 2001 is attributable to a decrease in net interest
income, coupled with charge-offs of certain non-performing loans. The increase
in net income in 2000 compared to 1999 resulted from increased net interest
income combined with an increase in non-interest income and partially offset by
growth in non-interest expense.
Return on average assets in 2001 was 0.80%, compared to 1.15% in 2000 and 1.09% in 1999. Return on average shareholders' equity was 9.65% in 2001 compared to 12.55% in 2000 and 11.54% in 1999.
NET INTEREST INCOME
Net interest income, the largest component of the Company's income, is the
amount by which interest and fees generated by earning assets exceed the total
cost of funds used to carry them. Net interest income is affected by changes in
the volume and mix of earning assets and interest-bearing liabilities, as well
as changes in the yields earned and rates paid. Net interest margin is
calculated by dividing tax-equivalent net interest income by average earning
assets, and represents the Company's net yield on its earning assets.
Net interest income on a tax-equivalent basis totaled $19.3 million in 2001, a decrease of 12% or $2.6 million from the comparable figure in 2000. The increase in net interest income on a tax equivalent basis in 2000 over 1999 was $3.9 million or 22%. The interest rate spread, which represents the rate earned on interest earning assets less the rate paid on interest-bearing liabilities, decreased to 2.89% in 2001 from 4.03% in 2000, following an increase from the 1999 net interest spread of 3.74%. The net yield on earning assets decreased to 3.54% in 2001 from 4.90% in 2000, following an increase from the 1999 net interest margin of 4.54%.
Table 1 sets forth for each category of earning assets and interest-bearing liabilities, the average amounts outstanding, the interest incurred on such amounts and the average rate earned or incurred for the years ended December 31, 2001, 2000 and 1999. The table also sets forth the average rate earned on total earning assets, the average rate paid on total interest-bearing liabilities, and the net yield on average total earning assets for the same periods. Yield information does not give effect to changes in fair value that are reflected as a component of shareholders' equity. Nonaccrual loans and the interest income that was recorded on these loans, if any, are included in the yield calculations for loans in all periods reported.
TABLE 1- AVERAGE BALANCE TABLE
DECEMBER 31, 2001 DECEMBER 31, 2000 DECEMBER 31, 1999
-------------------------------------------------------------------------------------
(Dollars in Thousands) BALANCE INTEREST RATE BALANCE INTEREST RATE BALANCE INTEREST RATE
----------------------------------------------------------------------------------------------------------------------------------
Earning Assets:
Loans: Net of unearned income $454,371 $ 36,512 8.04% $374,226 $ 36,424 9.73% $324,651 $ 28,375 8.74%
Investments - taxable 61,050 3,919 6.42% 44,320 2,994 6.76% 39,122 2,348 6.00%
Investments - nontaxable 20,080 1,381 6.88% 21,898 1,497 6.84% 21,520 1,475 6.86%
Federal funds sold 3,776 127 3.36% 4,593 282 6.14% 6,780 339 5.00%
Other 6,668 428 6.42% 2,608 171 6.56% 4,533 266 5.87%
----------------------------------------------------------------------------------------------------------------------------------
Total earning assets 545,945 42,367 7.76% 447,645 41,368 9.24% 396,606 32,803 8.27%
Cash and due from banks 12,273 11,538 10,667
Other assets 21,703 14,199 14,192
Allowance for loan losses (5,598) (4,281) (4,079)
----------------------------------------------------------------------------------------------------------------------------------
Total assets $574,323 $469,101 $417,386
==================================================================================================================================
Interest bearing liabilities:
Deposits:
NOW accounts $ 38,584 $ 413 1.07% $ 32,866 $ 456 1.39% $ 31,003 $ 429 1.38%
Regular savings accounts 22,670 178 0.78% 24,982 472 1.89% 26,258 490 1.87%
Insured money market accounts 65,846 2,373 3.60% 55,982 2,832 5.06% 54,757 2,435 4.45%
Certificates of deposit $100,000 or more 156,034 9,669 6.20% 108,130 6,729 6.22% 83,845 4,475 5.34%
Other time deposits 143,781 8,158 5.67% 133,419 7,838 5.87% 115,786 6,178 5.34%
FHLB borrowings 42,533 2,118 4.98% 15,806 974 6.16% 13,532 736 5.44%
Demand notes payable to U.S. Treasury 897 33 3.64% 852 55 6.46% 899 41 4.56%
Other 2,090 84 4.02% 1,130 76 6.73% 83 5 5.95%
----------------------------------------------------------------------------------------------------------------------------------
Total interest bearing liabilities 472,435 23,026 4.87% 373,167 19,432 5.21% 326,163 14,789 4.53%
Demand deposits 54,374 52,831 51,988
Other liabilities 3,486 3,268 2,166
Shareholders' equity 46,093 42,208 39,348
----------------------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholder's equity $576,388 $471,474 $419,665
==================================================================================================================================
Net interest spread $ 19,341 2.89% $ 21,936 4.03% $ 18,014 3.74%
==================================================================================================================================
Net yield on earning assets 3.54% 4.90% 4.54%
==================================================================================================================================
Taxable equivalent adjustment
Investment securities 470 509 502
----------------------------------------------------------------------------------------------------------------------------------
Net interest income $ 18,871 $ 21,427 $ 17,512
==================================================================================================================================
|
Changes in interest income and interest expense can result from variances in both volume and rates. Table 2 describes the impact on the Company's tax equivalent net interest income resulting from changes in average balances and average rates for the periods indicated. The changes in interest due to both volume and rate have been allocated to volume and rate changes in proportion to the relationship of the absolute dollar amounts of the changes in each.
TABLE 2 - RATE/VOLUME VARIANCE ANALYSIS
TAX EQUIVALENT BASIS
DECEMBER 31, 2001 DECEMBER 31, 2000
------------------------------------------- -----------------------------------------
CHANGES IN CHANGES IN TOTAL CHANGES IN CHANGES IN TOTAL
IN AVERAGE AVERAGE INCREASE IN AVERAGE AVERAGE INCREASE
(Dollars in Thousands) VOLUME RATES (DECREASE) VOLUME RATES (DECREASE)
------------------------------------------------------------------------------------ -----------------------------------------
Interest Income:
Loans: Net of unearned income $ 7,120 ($7,032) $ 88 $ 4,579 $ 3,470 $ 8,049
Investments - taxable 1,103 (178) 925 331 315 646
Investments - nontaxable (125) 9 (116) 26 (4) 22
Federal funds sold (39) (116) (155) (122) 65 (57)
Other 277 (20) 257 (108) 13 (95)
----------- ------------- --------------- ----------- -------------- ------------
Total interest income $ 8,336 ($7,337) $ 999 $ 4,706 $ 3,859 $ 8,565
Interest bearing liabilities:
Deposits:
NOW accounts 70 (113) (43) 26 1 27
Regular savings accounts (31) (263) (294) (24) 6 (18)
Insured money market accounts 427 (886) (459) 58 338 396
Certificates of deposit $100,000 or more 2,975 (35) 2,940 1,404 850 2,254
Other time deposits 598 (278) 320 988 672 1,660
FHLB Borrowings 1,489 (345) 1,144 132 106 238
Demand notes payable to U.S. Treasury 2 (25) (23) (3) 17 14
Other 54 (45) 9 66 6 72
----------- ------------- --------------- ----------- -------------- ------------
Total interest expense $ 5,584 ($1,990) $ 3,594 $ 2,647 $ 1,996 $ 4,642
----------- ------------- --------------- ----------- -------------- ------------
Net interest income $ 2,752 ($5,347) ($2,595) $ 2,059 $ 1,863 $ 3,923
|
The decrease in net interest income in 2001 was primarily attributable to declining interest rates during 2001. The yield on earning assets decreased to 7.76% in 2001 from 9.24% in 2000. This decrease reflects a decrease in the Company's average prime commercial lending rate in 2001, when compared to 2000. The average balance of earning assets increased by $98.3 million, to $546.0 million in 2001 from $447.6 million in 2000. The increase in average loans comprised $80.1 million of this increase. Average investments increased $14.9 million or 23% to $81.1 million in 2001 as compared to $66.2 million in 2000. Average interest-bearing liabilities increased by $99.2 million, to $472.4 million in 2001 from $373.2 million in 2000. This growth in average interest-bearing liabilities is a direct result of the increase in average interest-bearing deposits, which increased by $71.5 million, to $426.9 million in 2001 from $355.4 million in 2000 and an increase in Federal Home Loan Bank (FHLB) borrowings of $26.7 million to $42.5 million in 2001 from $15.8 million in 2000. The increase in average interest-bearing deposits was primarily attributable to the growth in average time deposits, which increased $58.3 million to $299.8 million in 2001 from $241.5 million in 2000. The cost of funds decreased to 4.87% in 2001 from 5.21% in 2000, mainly as a result of the decrease in the cost of deposits. The decrease in net interest margin in 2001 is primarily attributable to a large percentage of the Bank's loan portfolio being tied to the prime commercial lending rate, which results in loans repricing more quickly than fixed rate deposits in a falling interest rate environment.
Tax-equivalent interest income on loans in 2001 increased $88,000 from the $36.4 million recorded for 2000, following an increase of $8.0 million or 28% in 2000 over 1999. The decrease in the net interest spread to 2.89% in 2001 from 4.03% in 2000 resulted from the decrease in the yield on earning assets to 7.76% in 2001 from 9.24% in 2000, partially offset by a decrease in the cost of funds to 4.87% in 2001 from 5.21% in 2000.
Interest expense on FHLB borrowings totaled $2.1 million during 2001 at an average rate of 4.98% compared to $974,000 in 2000 at an average rate of 6.16%, and $736,000 in 1999 at an average rate of 5.44%. Interest expense on federal funds purchased, promissory notes and demand notes payable to the U.S. Treasury totaled $117,000, $131,000 and $46,000 for 2001, 2000 and 1999, respectively.
PROVISION FOR LOAN LOSSES
Provisions for loan losses are charged to income in order to bring the
total allowance for loan losses to a level deemed appropriate by management of
the Company based on such factors as management's judgment as to losses within
the Company's loan portfolio, including the valuation of impaired loans in
accordance with Statement of Financial Accounting Standards (SFAS) no. 114 and
118, loan growth, net charge-offs, changes in the composition of the loan
portfolio, delinquencies and management's assessment of the quality of the loan
portfolio and general economic climate.
The provision for loan losses was $3.5 million, $1.9 million, and $425,000 for the years ended December 31, 2001, 2000 and 1999, respectively. The increase in the provision for loan losses reflects management's decision to accelerate the Bank's contribution to the allowance for loan losses due to declining economic conditions, nationally and locally. Please see the section below entitled "Allowance for Loan Losses." The ratio of net charge-offs to average loans was 0.48% in 2001, 0.29% in 2000 and 0.20% in 1999. Net charge-offs for 2001 were $2.2 million. The ratio of non-performing loans to total loans was 0.90% at December 31, 2001, as compared to 1.45% and 1.03% at December 31, 2000 and 1999, respectively.
NON-INTEREST INCOME
Non-interest income for 2001 totaled $8.3 million, an increase of $4.4
million or 113% from non-interest income of $3.9 million for 2000. The increase
in non-interest income for 2001 resulted from fees arising from a new service
provided to retail checking customers, gains recorded on the sale of available
for sale securities, and a strong demand of mortgage loan services.
Non-interest income for 2000 increased $536,000 or 16% over non-interest income
of $3.4 million for 1999 primarily due to an increase in service charges, fees
and miscellaneous other income.
Service charge income increased $1.2 million, or 77% from 2000 to 2001, as a result of growth in the deposit base coupled with fees arising from a new product designed to automatically advance funds to assist in the event of checking account overdrafts as well as an increase in account maintenance fees. Increases in non-interest income for 2000 were attributable to an increase in deposit volume and associated charges. Service charge income increased $262,000, or 20% in 2000 compared to 1999.
The Company reported a net gain on sale of securities of $1.6 million in 2001, compared to a net loss on sale of securities of $483,000 during 2000 as the Company sold $83.0 million of available for sale securities. During 1999 a loss on sale of securities of approximately $35,000 was recognized.
Mortgage banking income increased to $1.0 million in 2001 from $241,000 in 2000 due to a strong demand for mortgage loan services. Mortgage banking income decreased $499,000, or 67% in 2000 from the $740,000 reported in 1999. The reduction in mortgage banking income for 2000 included a loss of $284,000 associated with the sale of jumbo mortgage loans.
NON-INTEREST EXPENSE
Total non-interest expense for 2001 amounted to $16.8 million. This was an
8% increase over the $15.5 million reported in 2000, and followed a 12% increase
in 2000 over the $13.8 million reported in 1999.
Salary and employee benefit expense was $9.1 million in 2001, compared to $8.9 million during 2000, an increase of $216,000 or 2%, following a $1.2 million or 15% increase in salary and employee benefit expense in 2000 over 1999. The increase during 2001 resulted from merit increases. Increases during 2000 reflect merit increases, additional participation in management and employee incentive plans, and increased staffing levels to support overall Company growth.
The Company recorded occupancy expense of $3.0 million in 2001, compared to $2.5 million during 2000, an increase of $474,000 or 20%, following an increase of $279,000 or 13% in occupancy expenses in 2000 over 1999. The increase in 2001 reflects increased overhead expenses associated with new branches, existing branch renovations and the Company's new corporate headquarters. Increases in occupancy expense in 2000 over 1999 were due to the construction of two full service branches and renovations associated with the Company's new corporate headquarters.
The total of all other operating expenses increased $552,000 or 13% during 2001. Other operating expense increased $236,000 or 6% in 2000 over 1999.
INCOME TAXES
Total income tax expense was $2.3 million in 2001 compared with $2.6
million in 2000 and $2.1 million in 1999. The primary reason for the decrease
in taxes was the decrease in pretax income during 2001, following an increase in
taxes related to an increase in pretax income in 2000 over 1999. The Company's
effective tax rates were 33.08%, 32.39% and 31.55% in 2001, 2000 and 1999,
respectively.
LIQUIDITY
The Bank's liquidity position is generally determined by the need to
respond to short term demand for funds created by deposit withdrawals and the
need to provide resources to fund assets, typically in the form of loans. How
the Bank responds to these needs is affected by the Bank's ability to attract
deposits, the maturity of the loans and securities, the flexibility of assets
within the securities portfolio, the current earnings of the Bank, and the
ability to borrow funds from other sources. The Bank's primary sources of
liquidity are cash and cash equivalents, available-for-sale securities, deposit
growth, and the cash flows from principal and interest payments on loans and
other earning assets. In addition, the Bank is able, on a short-term basis, to
borrow funds from the Federal Reserve System, the Federal Home Loan Bank of
Atlanta and The Banker's Bank, and is also able to purchase federal funds from
other financial institutions. At December 31, 2001 the Bank had a line of
credit with the FHLB equal to 20% of the Bank's total assets, with an
outstanding balance of $68.2 million. The Bank also had the ability to borrow
up to $10 million through The Bankers Bank as of December 31, 2001. The
liquidity ratio for the Bank, which is defined as net cash, interest bearing
deposits with banks, Federal Funds sold, certain investment securities and
certain FHLB advances, as a percentage of net deposits (adjusted for deposit
runoff projections) and short-term liabilities was 20.62% at December 31, 2001,
27.03% at December 31, 2000, and 30.26% at December 31, 1999. The December 31,
1999 ratio has been restated to reflect increased borrowing capacity at the
FHLB, which the Bank recognizes as a factor of its liquidity.
As disclosed in the Company's Consolidated Statements of Cash Flows included elsewhere herein, net cash provided by operating activities was approximately $3.5 million during 2001. Net cash used in investing activities of $104.6 million consisted primarily of a net change in loans of $82.1 million and securities purchased of $118.4 million funded largely by sales, maturities and paydowns of investment securities of $105.7 million. Net cash provided by financing activities consisted of a $40.1 million net increase in deposits and a $51.0 million net increase in FHLB borrowings. Additionally, the Company issued $14.0 million in trust preferred securities in December 2001.
ASSET LIABILITY MANAGEMENT
The Company's asset liability management strategies are designed to
minimize interest rate risk between interest-earning assets and interest-bearing
liabilities at various maturities, while maintaining the objective of assuring
adequate liquidity and maximizing net interest income. Table 3 presents an
interest rate sensitivity analysis for the interest earning assets and
interest-bearing liabilities for the year ended December 31, 2001.
TABLE 3 - INTEREST SENSITIVITY ANALYSIS
OVER 5 YEARS
(DOLLARS IN THOUSANDS) IMMEDIATE 1-3 MONTHS 4-12 MONTHS 1 - 5 YEARS & NON-SENSITIVE TOTAL
----------------------------------------------------------------------------------------------------------------------------------
INTEREST EARNING ASSETS:
Loans $ 358,729 $ 7,726 $ 18,557 $ 68,372 $ 37,224 $490,608
Mortgage loans available for sale 5,339 0 0 0 0 5,339
Investment securities 4,000 1,638 2,357 4,776 71,515 84,286
Federal funds sold 2,261 0 0 0 0 2,261
Interest bearing deposit account-FHLB 214 0 0 0 0 214
Other earning assets 0 0 0 0 3,788 3,788
----------------------------------------------------------------------------------------------------------------------------------
Total interest earning assets $ 370,543 $ 9,364 $ 20,914 $ 73,148 $ 112,527 $586,496
----------------------------------------------------------------------------------------------------------------------------------
INTEREST BEARING LIABILITIES:
NOW, savings, and money market deposits $ 145,592 $ 0 $ 0 $ 0 $ 0 $145,592
Certificates of deposit of $100,000 or more 12,087 27,769 106,126 10,052 0 156,034
Other time deposits 18,231 27,913 67,355 18,271 1 131,771
Other short term borrowings 378 0 0 0 0 378
FHLB borrowings 0 5,000 11,000 5,214 47,000 68,214
Trust preferred securities 0 14,000 0 0 0 14,000
----------------------------------------------------------------------------------------------------------------------------------
Total interest bearing liabilities $ 176,288 $ 74,682 $ 184,481 $ 33,537 $ 47,001 $515,989
----------------------------------------------------------------------------------------------------------------------------------
Interest-sensitive gap 194,255 (65,318) (163,567) 39,611 65,526 70,507
Cumulative interest-sensitive gap 194,255 128,937 (34,630) 4,981 70,507
------------------------------------------------------------------------------------------------------------------------
Cumulative interest-sensitive gap
to total earning assets 33.12% 21.98% -5.90% 0.85% 12.02%
|
Management tries to minimize interest rate risk between interest earning assets and interest bearing liabilities by attempting to minimize wide fluctuations in net interest income due to interest rate movements. The ability to control these fluctuations has a direct impact on the profitability of the Company. Management monitors this activity on a regular basis through analysis of its portfolios to determine the difference between rate sensitive assets and rate sensitive liabilities.
The Company's rate sensitive assets are those earning interest at variable rates and those maturing within one year. Rate sensitive assets therefore include both loans and available-for-sale securities. Rate sensitive liabilities include interest-bearing checking accounts, money market deposit accounts, savings accounts, certificates of deposit and borrowed funds. At December 31, 2001, 68% of the Company's interest earning assets, excluding non-accrual loans could be repriced within one year, compared to 84% of interest-bearing liabilities. Rate sensitive assets at December 31, 2001 totaled $586.5 million , exceeding rate sensitive liabilities of approximately $516.0 million by $70.5 million.
An analysis of the Company's financial condition and growth can be made by examining the changes and trends in interest-earning assets and interest-bearing liabilities, and a discussion of these changes and trends follows.
ANALYSIS OF FINANCIAL CONDITION
INVESTMENT SECURITIES
All of the Company's investment securities are held in the
available-for-sale ("AFS") category. At December 31, 2001 the market value of
AFS securities totaled $84.3 million, compared to $71.6 million and $62.5
million at December 31, 2000 and 1999, respectively. Table 4 presents the
market value of the presently held AFS securities for the years ended December
31, 2001, 2000 and 1999.
TABLE 4 - SUMMARY OF INVESTMENT PORTFOLIO
YEAR ENDED YEAR ENDED YEAR ENDED
(DOLLARS IN THOUSANDS) DEC 31, 2001 DEC 31, 2000 DEC 31, 1999
-------------------------------------------------------------------------------------------------------------
UNITED STATES TREASURY SECURITIES: $ - $ - $ 900
OBLIGATIONS OF UNITED STATES GOVERNMENT
AGENCIES AND CORPORATIONS: $ - $ 25,119 $ 23,374
OBLIGATIONS OF STATES AND POLITICAL SUBDIVISIONS: $ 16,404 $ 22,228 $ 22,012
MORTGAGE BACKED SECURITIES: $ 63,382 $ 24,218 $ 16,212
TRUST PREFERRED SECURITIES: $ 4,500 $ - $ -
TOTAL SECURITIES: $ 84,286 $ 71,565 $ 62,498
|
The composition of the investment securities portfolio reflects the Company's investment strategy of maintaining an appropriate level of liquidity while providing a relatively stable source of income. The investment portfolio also provides a balance to interest rate risk and credit risk in other categories of the balance sheet while providing a vehicle for the investment of available funds, furnishing liquidity, and supplying securities to pledge as required collateral for certain deposits.
The Company's investment portfolio consists of U.S. government agency securities, municipal securities and U.S. government agency sponsored mortgage-backed securities. AFS securities averaged $81.1 million in 2001, $66.2 million in 2000 and $60.6 million in 1999. Table 5 presents the AFS securities held by the Company by maturity category at December 31, 2001. Yield information does not give effect to changes in fair value that are reflected as a component of shareholders' equity and yields are calculated on a tax equivalent basis.
TABLE 5 - MATURITY DISTRIBUTION AND WEIGHTED AVERAGE YIELD ON INVESTMENTS
ONE YEAR OR LESS AFTER ONE YEAR AFTER 5 YEARS AFTER 10 YEARS TOTALS
THROUGH 5 YEARS THROUGH 10 YEARS
(DOLLARS IN THOUSANDS) AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD
-----------------------------------------------------------------------------------------------------------------------
BOOK VALUE:
States and political subdivisions $ 3,961 7.27% $ 4,624 7.01% $ 3,513 6.37% $ 4,336 7.11% $16,434 6.96%
Mortgage backed securities - - - - - - 64,862 6.35% 64,862 6.35%
Trust Preferred securities - - - - - - 4,500 7.07% 4,500 7.07%
=======================================================================================================================
Total securities $ 3,961 7.27% $ 4,624 7.01% $ 3,513 6.37% $73,698 6.44% $85,796 6.50%
|
LOANS
The loan portfolio is the largest category of the Company's earnings assets
and is comprised of commercial loans, real estate mortgage loans, real estate
construction loans and consumer loans. The Company restricts its primary lending
market to within the Catawba Valley region of North Carolina, which encompasses
Catawba, Alexander and Lincoln counties and portions of Iredell and Gaston
counties. The mix of the loan portfolio consists primarily of loans secured by
real estate and commercial loans. In management's opinion, there are no
significant concentrations of credit with particular borrowers engaged in
similar activities.
In the normal course of business, there are various commitments outstanding to extend credit that are not reflected in the financial statements. At December 31, 2001, outstanding loan commitments totaled $91.8 million. Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments may expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements.
The composition of the Company's loan portfolio is presented in Table 6.
TABLE 6 - LOAN PORTFOLIO
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, 2001 DECEMBER 31, 2000 DECEMBER 31, 1999 DECEMBER 31, 1998
(DOLLARS IN THOUSANDS) AMOUNT % OF LOANS AMOUNT % OF LOANS AMOUNT % OF LOANS AMOUNT % OF LOANS
---------------------------------------------------------------------------------------------------------------------------------
BREAKDOWN OF LOAN RECEIVABLES:
Commercial, financial & agricultural $102,409 20.87% $ 96,882 23.58% $ 83,644 24.66% $ 89,536 29.68%
Real Estate - Mortgage 277,737 56.61% 229,260 55.79% 190,921 56.29% 157,167 52.11%
Real Estate - Construction 82,791 16.88% 58,939 14.34% 39,340 11.60% 29,927 9.92%
Consumer 27,671 5.64% 25,858 6.29% 25,293 7.46% 24,995 8.29%
------------------------------------------------------------------------------------------
Total loans $490,608 100.00% $410,939 100.00% $339,198 100.00% $301,625 100.00%
Less: Allowance for Loan Losses 6,091 4,713 3,924 4,137
-------- -------- -------- --------
Net Loans $484,517 $406,226 $335,274 $297,488
======== ======== ======== ========
YEAR ENDED
DECEMBER 31, 1997
(DOLLARS IN THOUSANDS) AMOUNT % OF LOANS
------------------------------------------------------------
BREAKDOWN OF LOAN RECEIVABLES:
Commercial, financial & agricultural $ 80,230 33.42%
Real Estate - Mortgage 115,768 48.22%
Real Estate - Construction 24,291 10.12%
Consumer 19,793 8.24%
---------------------
Total loans $240,082 100.00%
Less: Allowance for Loan Losses 4,375
--------
Net Loans $235,707
========
|
As of December 31, 2001, gross loans outstanding were $490.6 million, an increase of $79.7 million or 19% over the December 31, 2000 balance of $410.9 million. Most of this growth was attributable to growth in real estate loans. Real estate mortgage loans grew $48.5 million in 2001, while real estate construction loans grew $23.9 million in 2001. The Company experienced an increase of $5.5 million in the commercial loan portfolio. As a percentage of the Company's total loan portfolio, real estate mortgage loans represented 56.61% in 2001, 55.79% in 2000 and 56.29% in 1999. Over the same period commercial loans represented 20.87%, 23.58% and 24.66% of the Company's total loan portfolio, respectively. Real estate construction loans made up 16.88%, 14.34% and 11.60% of the Company's total loan portfolio at December 31, 2001, 2000 and 1999, respectively. Consumer loans represented 5.64%, 6.29% and 7.46% of the Company's total loan portfolio at December 31, 2001, 2000 and 1999, respectively.
Mortgage loans held for sale were $5.3 million at December 31, 2001, an increase of $3.8 million over the December 31, 2000 balance of $1.6 million which represented a decrease of $122,000 over the December 31, 1999 balance of $1.7 million.
Table 7 identifies the maturities of all loans as of December 31, 2001 and addresses the sensitivity of these loans to changes in interest rates.
TABLE 7 - MATURITY AND REPRICING DATA FOR LOANS
AFTER ONE
WITHIN ONE YEAR THROUGH AFTER FIVE
(DOLLARS IN THOUSANDS) YEAR OR LESS FIVE YEARS YEARS TOTAL LOANS
----------------------------------------------------------------------------------------------
Commercial, financial & agricultural $ 88,336 $ 11,244 $ 2,829 $ 102,409
Real Estate - Mortgage 201,461 35,520 40,756 277,737
Real Estate - Commercial 74,155 4,151 4,485 82,791
Consumer 10,032 14,024 3,615 27,671
----------------------------------------------------------------------------------------------
Total Loans $ 373,984 $ 64,939 $ 51,685 $ 490,608
==============================================================================================
Total fixed rate loans 12,745 64,301 51,685 128,731
Total floating rate loans 361,239 638 0 361,877
----------------------------------------------------------------------------------------------
Total loans $ 373,984 $ 64,939 $ 51,685 $ 490,608
==============================================================================================
|
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses reflects management's assessment and estimate
of the risks associated with extending credit and its evaluation of the quality
of the loan portfolio. The Bank periodically analyzes the loan portfolio in an
effort to review asset quality and to establish an allowance for loan losses
that management believes will be adequate in light of anticipated risks and loan
losses. In assessing the adequacy of the allowance, size, quality and risk of
loans in the portfolio are reviewed. Other factors considered are:
- the Bank's loan loss experience;
- the amount of past due and nonperforming loans;
- specific known risks;
- the status and amount of past due and nonperforming assets;
- underlying estimated values of collateral securing loans;
- current and anticipated economic conditions; and
- other factors which management believes affect the allowance for
potential credit losses.
An analysis of the credit quality of the loan portfolio and the adequacy of the allowance for loan losses is prepared by the Bank's credit administration area and presented to the Bank's Executive and Loan Committee on a regular basis. In addition, the Bank has engaged an outside loan review consultant to perform, and report on an annual basis, an independent review of the quality of the loan portfolio relative to the accurateness of the Bank's loan grading system. The allowance for loan losses is established through charges to expense in the form of a provision for loan losses. Loan losses and recoveries are charged and credited directly to the allowance.
An allowance for loan losses is also established, as necessary, for individual loans considered to be impaired in accordance with SFAS No. 114. A loan is considered impaired when, based on current information and events, it is probable that all amounts due according to the contractual terms of the loan will not be collected. Impaired loans are measured based on the present value of expected future cash flows, discounted at the loan's effective interest rate, or at the loan's observable market price, or the fair value of collateral if the loan is collateral dependent. At December 31, 2001 and 2000, the recorded investment in loans that were considered to be impaired under SFAS No. 114 was approximately $4.4 million and $6.0 million, respectively, with related allowance for loan losses of approximately $699,000 and $925,000, respectively.
The Bank's allowance for loan losses is also subject to regulatory examinations and determinations as to adequacy, which may take into account such factors as the methodology used to calculate the allowance for loan losses and the size of the allowance for loan losses compared to a group of peer banks identified by the regulators. During their routine examinations of banks, the FDIC and the North Carolina Commissioner of Banks may require the Company to recognize additions to the allowance based on their judgments about information available to them at the time of their examination.
While it is the Bank's policy to charge off in the current period loans for which a loss is considered probable, there are additional risks of future losses which cannot be quantified precisely or attributed to particular loans or classes of loans. Because these risks include the state of the economy, management's judgment as to the adequacy of the allowance is necessarily approximate and imprecise.
The Company grants loans and extensions of credit primarily within the Catawba Valley region of North Carolina, which encompasses Catawba, Alexander, Iredell and Lincoln counties. Although the Bank has a diversified loan portfolio, a substantial portion of the loan portfolio is collateralized by real estate, which is dependent upon the real estate market. Non-real estate commercial loans also can be affected by local economic conditions. At December 31, 2001, approximately 8% of the Company's portfolio was not secured by any type of collateral. Unsecured loans generally involve higher credit risk than secured loans and, in the event of customer default, the Company has a higher exposure to potential loan losses.
Total non-performing loans were $4.4 million in 2001, $6.0 million in 2000 and $3.5 million in 1999. The ratio of net charge-offs to average total loans was 0.48% in 2001, 0.29% in 2000 and 0.20% in 1999. The ratio of non-performing loans to total loans was 0.90% at December 31, 2001, as compared to 1.45% and 1.04% at December 31, 2000 and 1999, respectively. The allowance for loan losses totaled $6.1 million, representing 1.24% of total loans outstanding at December 31, 2001. For December 31, 2000 and 1999, the allowance for loan losses amounted to $4.7 million, or 1.15% of total loans outstanding and $3.9 million, or 1.16% of total loans outstanding, respectively.
Table 8 presents an analysis of the allowance for loan losses, including charge-off activity.
TABLE 8 - ANALYSIS OF ALLOWANCE FOR LOAN LOSSES
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
(DOLLARS IN THOUSANDS) 2001 2000 1999 1998 1997
============================================================================================================================
RESERVE FOR LOAN LOSSES AT BEGINNING $ 4,713 $ 3,924 $ 4,137 $ 4,375 $ 3,745
LOANS CHARGED OFF:
Commercial, financial, and agriculture 842 857 485 608 8
Real estate - mortgage 790 10 25 - -
Real estate - construction 51 36 - - -
Consumer 675 255 195 138 131
----------------------------------------------------------------------------------------------------------------------------
Total loans charged off $ 2,358 $ 1,158 $ 705 $ 746 $ 139
----------------------------------------------------------------------------------------------------------------------------
RECOVERIES OF LOSSES PREVIOUSLY CHARGED OFF:
Commercial, financial, and agriculture 84 20 24 39 60
Real estate - mortgage - - - - -
Real estate - construction 6 - - - -
Consumer 101 48 43 24 12
----------------------------------------------------------------------------------------------------------------------------
Total recoveries $ 191 $ 68 $ 67 $ 63 $ 72
----------------------------------------------------------------------------------------------------------------------------
Net loans charged off $ 2,167 $ 1,090 $ 638 $ 683 $ 67
Provision for loan losses 3,545 1,879 425 445 697
----------------------------------------------------------------------------------------------------------------------------
Reserve for loan losses at end of year $ 6,091 $ 4,713 $ 3,924 $ 4,137 $ 4,375
============================================================================================================================
Loans charged off net of recoveries, as
a percent of average loans outstanding 0.48% 0.29% 0.20% 0.25% 0.03%
|
NON-PERFORMING ASSETS
Non-performing assets, comprised of non-accrual loans, other real estate
owned and loans for which payments are more than 90 days past due totaled $4.7
million at December 31, 2001 compared to $6.1 million at December 31, 2000. This
decrease is a result of the resolution of two large problem credits included in
non-performing assets at December 31, 2000, which resulted in charge-offs of
$746,000 in 2001.
It is the general policy of the Company to stop accruing interest income and place the recognition of interest on a cash basis when a loan is placed on non-accrual status and any interest previously accrued but not collected is reversed against current income.
A summary of non-performing assets at December 31 for each of the years presented is shown in table 9.
TABLE 9 - NON-PERFORMING ASSETS
(DOLLARS IN THOUSANDS)
-----------------------------------------------------------------------------------------------
YEAR 2001 2000 1999 1998 1997
-----------------------------------------------------------------------------------------------
Nonaccrual loans $3,756 $5,421 $2,866 $3,292 $3,075
Loans 90 days or more past due and still accruing 655 545 645 328 586
Total non-performing loans 4,411 5,966 3,511 3,620 3,661
All other real estate owned 256 112 44 545 -
Total non-performing assets $4,667 $6,078 $3,555 $4,165 $3,661
AS A PERCENT OF TOTAL LOANS AT YEAR END
Non-accrual loans 0.77% 1.32% 0.84% 1.09% 1.28%
Loans 90 days or more past due and still accruing 0.13% 0.13% 0.19% 0.11% 0.24%
Total non-performing assets 0.95% 1.48% 1.05% 1.38% 1.52%
|
At December 31, 2001 the Company had non-performing loans, defined as non-accrual and accruing loans past due more than 90 days, of $4.4 million or 0.90% of total loans. Non-performing loans for 2000 were $6.0 million, or 1.45% of total loans and $3.5 million, or 1.03% of total loans for 1999. Interest that would have been recorded on non-accrual loans for the years ended December 31, 2001, 2000 and 1999, had they performed in accordance with their original terms, amounted to approximately $695,000, $508,000 and $333,000 respectively. Interest income on non-accrual loans included in the results of operations for 2001, 2000, and 1999 amounted to approximately $22,000, $94,000 and $61,000, respectively.
Management continually monitors the loan portfolio to ensure that all loans potentially having a material adverse impact on future operating results, liquidity or capital resources have been classified as non-performing. Should economic conditions deteriorate, the inability of distressed customers to service their existing debt could cause higher levels of non-performing loans.
DEPOSITS
The Company primarily uses deposits to fund its loan and investment
portfolios. The Company offers a variety of deposit accounts to individuals and
businesses. Deposit accounts include checking, savings, money market and
certificates of deposit. Certificates of deposit in amounts of $100,000 or more
totaled $156.0 million at December 31, 2001, $129.1 million and $89.3 million at
December 31, 2000 and 1999, respectively. The majority of these deposits are
from customers who reside or own businesses in the Bank's primary service area,
and therefore, are believed by the Bank to be stable, and for all practicable
purposes, no more rate sensitive than core deposits.
As of December 31, 2001, total deposits were $490.2 million, an increase of $40.1 million or 9% increase over the December 31, 2000 balance of $450.1 million. The increase in deposits is primarily attributable to growth in time deposits which resulted from deposit campaigns throughout 2001.
Table 10 is a summary of the maturity distribution of certificates of deposit in amounts of $100,000 or more as of December 31, 2001.
TABLE 10 - MATURITIES OF TIME DEPOSITS OVER $100,000
(DOLLARS IN THOUSANDS)
================================================
MATURITY PERIOD AMOUNT
================================================
Three months or less $ 39,855
Over three months through six months 59,869
Over six months through twelve months 46,257
Over twelve months 10,053
--------
Total $156,034
========
|
BORROWED FUNDS
The Company has access to various short-term borrowings, including the
purchase of Federal Funds and borrowing arrangements from the FHLB and other
financial institutions. At December 31, 2001, FHLB borrowings totaled $68.2
million compared to $21.4 million at December 31, 2000 and $14.5 million at
December 31, 1999. Average FHLB borrowings for 2001 were $42.5 million, compared
to average balances of $15.8 million for 2000 and $13.5 million for 1999. The
maximum amount of outstanding FHLB borrowings was $68.2 million in 2001, and
$21.4 in 2000 and $14.5 in 1999. The FHLB advances outstanding at December 31,
2001 had both fixed and adjustable interest rates ranging from 1.83% to 6.16%.
Approximately $16.0 million of the FHLB advances outstanding mature prior to
December 31, 2002. Additional information regarding FHLB advances is provided
in note 7 to the consolidated financial statements.
Demand notes payable to the U. S. Treasury amounted to approximately $118,000 at December 31, 2001 and $1.6 million at December 31, 2000 and 1999, respectively.
TRUST PREFERRED SECURITIES
In December, 2001 the Company formed a wholly owned Delaware statutory
trust, PEBK Capital Trust I ("PEBK Trust"), which issued $14 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 prime 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. The debentures and related earnings statement
effects are eliminated in the Company's financial statements.
The Trust Preferred Securities accrue and pay quarterly distributions based on the liquidation value of $50,000 per capital security at a floating rate of prime plus 50 basis points. The Company has guaranteed distributions and other payments due on the Trust Preferred Securities to the extent PEBK Trust has funds with which to make the distributions and other payments. The net combined effect of all the documents entered into in connection with the Trust Preferred Securities is that the Company is liable to make the distributions and other payments required on the Trust Preferred Securities.
The Trust Preferred Securities are mandatorily redeemable upon maturity of the debentures on December 31, 2031, or upon earlier redemption as provided in the indenture. The Company has the right to redeem the debentures purchased by PEBK Trust, in whole or in part, on or after December 31, 2006. As specified in the indenture, if the debentures are redeemed prior to maturity, the redemption price will be the principal amount and any accrued but unpaid interest.
CAPITAL RESOURCES
Shareholders' equity at December 31, 2001 was $45.4 million compared to
$43.0 million and $38.0 million at December 31, 2000 and 1999, respectively. At
December 31, 2001, unrealized gains and losses net of tax in the
available-for-sale securities portfolio amounted to a loss of approximately
$922,000. For the years ended December 31, 2000 and 1999, unrealized gains and
losses net of tax in the available-for-sale securities portfolio amounted to a
gain of approximately $4,000 and a loss of approximately $920,000, respectively.
Average shareholders' equity as a percentage of total average assets is one
measure used to determine capital strength. Average shareholders' equity as a
percentage of total average assets was 8.25%, 9.13% and 9.43% for 2001, 2000 and
1999. The return on average shareholders' equity was 9.65% at December 31,
2001 as compared to 12.55% and 11.54% as of December 31, 2000 and December 31,
1999, respectively.
Under regulatory capital guidelines, financial institutions are currently required to maintain a total risk-based capital ratio of 8.0% or greater, with a Tier 1 risk-based capital ratio of 4.0% or greater. Tier 1 capital is generally defined as shareholders' equity less all intangible assets and goodwill. Tier 1 capital at December 31, 2001 includes $14.0 million in trust preferred securities. The Company's Tier I capital ratio was 11.14%, 10.11% and 10.99% at December 31, 2001, 2000 and 1999, respectively. Total risk based capital is defined as Tier 1 capital plus supplementary capital. Supplementary capital, or Tier 2 capital, consists of the Company's allowance for loan losses, not exceeding 1.25% of the Company's risk-weighted assets. Total risk-based capital ratio is therefore defined as the ratio of total capital (Tier 1 capital and Tier 2 capital) to risk-weighted assets. The Company's total risk based capital ratio was 12.27%, 11.22% and 12.11% at December 31, 2001, 2000 and 1999, respectively. In addition to the Tier I and total risk-based capital requirements, financial institutions are also required by the FDIC to maintain a leverage ratio of Tier 1 capital to total average assets of 4.0% or greater. The Company's Tier I leverage capital ratio was 10.46%, 9.10% and 9.21% at December 31, 2001, 2000 and 1999, respectively.
A Bank is considered to be "well capitalized" if it has a total risk-based capital ratio of 10.0 % or greater, a Tier I risk-based capital ratio of 6.0% or greater, and has a leverage ratio of 5.0% or greater. Based upon these guidelines, the Bank was considered to be "well capitalized" at December 31, 2001, 2000 and 1999, respectively.
The Company's key equity ratios as of December 31, 2001, 2000 and 1999 are presented in Table 11:
TABLE 11 - EQUITY RATIOS
YEARS ENDED DECEMBER 31,
2001 2000 1999
========================================================
Return on average assets 0.80% 1.15% 1.09%
Return on average equity 9.65% 12.55% 11.54%
Dividend payout ratio 28.14% 23.39% 23.84%
Average equity to average assets 8.25% 9.13% 9.43%
|
COMPANY REORGANIZATION
Effective August 31, 1999, the Bank completed the process of converting to
the holding company form of organization. The Bank is now a subsidiary of the
Company, a one-bank holding company, headquartered in Newton, North Carolina.
As a result of the reorganization, each share of the Bank's common stock was automatically converted into one share of the Company's common stock. The Company is now the sole shareholder of the Bank. The corporate reorganization was accounted for in a manner similar to a pooling of interest.
QUARTERLY FINANCIAL DATA
The Company's consolidated quarterly operating results for the years ended
December 31, 2001 and 2000 are presented in table 12. The increase in provision
for loan losses in fourth quarter 2001 reflects the charge off of two large
loans during fourth quarter.
TABLE 12 - QUARTERLY FINANCIAL DATA
2001 2000
---------------------------------- ----------------------------------
(in thousands, except per share amounts)
First Second Third Fourth First Second Third Fourth
---------- ------ ------ ------ ---------- ------ ------ ------
Total interest income $ 10,935 10,849 10,568 9,546 $ 9,077 9,838 10,754 11,190
Total interest expense 5,905 5,998 5,952 5,172 4,015 4,428 5,176 5,814
---------------------------------- ----------------------------------
Net interest income 5,030 4,851 4,616 4,374 5,062 5,410 5,578 5,376
Provision for loan losses 429 453 760 1,903 256 523 640 460
Other income 1,602 1,990 2,110 2,561 863 1,141 868 1,044
Other expense 4,160 4,370 3,864 4,358 3,793 4,040 3,731 3,945
---------------------------------- ----------------------------------
Income before income taxes 2,043 2,018 2,102 674 1,876 1,988 2,075 2,015
Income taxes 672 668 716 206 606 646 689 635
---------------------------------- ----------------------------------
Net earnings $ 1,371 1,350 1,386 468 $ 1,270 1,342 1,386 1,380
================================== ==================================
Net earnings per share $ 0.42 0.42 0.43 0.15 $ 0.39 0.42 0.43 0.43
================================== ==================================
|
QUANTATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk reflects the risk of economic loss resulting from adverse changes in market prices and interest rates. This risk of loss can be reflected in either diminished current market values or reduced potential net interest income in future periods.
The Company's market risk arises primarily from interest rate risk inherent in its lending and deposit taking activities. The structure of the Company's loan and deposit portfolios is such that a significant decline (increase) in interest rates may adversely impact net market values and interest income. Management seeks to manage the risk through the utilization of its investment securities and off balance sheet derivative instruments. During the years ended December 31, 2001, 2000 and 1999, the Company has used interest rate contracts to manage market risk. During first quarter 2001, the Company entered into an interest rate floor contract as a means of managing its interest rate risk. Interest rate floors are used to protect certain designated variable rate financial instruments from the downward effects of their repricing in the event of a decreasing rate environment. The total cost of the interest rate floor was $417,500 and it was not management's intention to use the floor as a fair value or cash flow hedge, as defined in SFAS No. 133. The Company sold the interest rate floor contract during the quarter ended June 30, 2001. For the years ended December 31, 2001 the Company recognized no interest expense related to derivative financial instruments. The Company expensed $3,200 and $22,944 for the years ended December 31, 2000 and 1999, respectively, related to derivative financial instruments. The Company had no off-balance sheet derivative financial instruments at December 31, 2001.
Table 13 presents in tabular form the contractual balances and the estimated fair value of the Company's on-balance sheet financial instruments and the notional amount and estimated fair value of the Company's off-balance sheet derivative instruments at their expected maturity dates for the period ended December 31, 2001. The expected maturity categories take into consideration historical prepayment experience as well as management's expectations based on the interest rate environment at December 31, 2001. For core deposits without contractual maturity (i.e. interest bearing checking, savings, and money market accounts), the table presents principal cash flows based on management's judgment concerning their most likely runoff or repricing behaviors.
TABLE 13- MARKET RISK TABLE
(IN THOUSANDS) PRINCIPAL/NOTIONAL AMOUNT MATURING IN:
YEAR ENDED DECEMBER YEAR ENDED DECEMBER YEAR ENDED DECEMBER
LOANS RECEIVABLE 31, 2002 31, 2003 31, 2004
==========================================================================================================
Fixed rate $ 17,544 $ 18,126 $ 18,736
Average interest rate 11.58% 8.48% 7.96%
Variable rate $ 129,765 $ 48,511 $ 35,072
Average interest rate 5.94% 5.35% 5.37%
INVESTMENT SECURITIES
==========================================================================================================
Interest bearing cash $ 214 $ - $ -
Average interest rate 1.83% - -
Federal funds sold $ 2,261 $ - $ -
Average interest rate 2.18% - -
Securities available for sale $ 3,070 $ 1,808 $ 4,307
Average interest rate 7.91% 4.89% 6.42%
Nonmarketable equity securities $ - $ - $ -
Average interest rate - - -
DEBT OBLIGATIONS
==========================================================================================================
Deposits $ 273,321 $ 24,328 $ 4,491
Average interest rate 4.77% 3.74% 3.83%
Advances from FHLB $ 16,000 $ 214 $ -
Average interest rate 1.88% 5.86% 0.00%
Demand Notes payable to U.S. Treasury $ 118 $ - $ -
Average interest rate 1.43% - -
YEARS ENDED
LOANS RECEIVABLE DECEMBER 31, 2005 & 2006 THEREAFTER TOTAL FAIR VALUE
======================================================================================================
Fixed rate $ 32,021 $ 45,417 $131,844 $ 135,532
Average interest rate 8.01% 8.65%
Variable rate $ 50,728 $ 94,688 $358,764 $ 364,170
Average interest rate 5.47% 5.54%
INVESTMENT SECURITIES
======================================================================================================
Interest bearing cash $ - $ - $ 214 $ 214
Average interest rate - -
Federal funds sold $ - $ - $ 2,261 $ 2,261
Average interest rate - -
Securities available for sale $ 2,934 $ 72,166 $ 84,286 $ 84,286
Average interest rate 6.02% 5.97%
Nonmarketable equity securities $ - $ 4,603 $ 4,603 $ 4,603
Average interest rate - -
DEBT OBLIGATIONS
======================================================================================================
Deposits $ 779 $ 187,305 $490,223 $ 493,303
Average interest rate 5.84% 0.76%
Advances from FHLB $ 5,000 $ 47,000 $ 68,214 $ 68,497
Average interest rate 0.00% 4.58%
Demand Notes payable to U.S. Treasury $ - $ - $ 118 $ 118
Average interest rate - -
|
MARKET FOR THE COMPANY'S COMMON EQUITY
AND RELATED SHAREHOLDER MATTERS
Peoples Bancorp common stock is traded on the over-the-counter (OTC) market and quoted on the Nasdaq National Market, under the symbol "PEBK". Scott and Stringfellow, Inc., Ryan, Beck & Co., and Trident Securities, Inc. are market makers for the Company's shares.
Although the payment of dividends by the Company is subject to certain requirements and limitations of North Carolina corporate law, 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 and repurchase shares may be dependent upon the Company's receipt of dividends from the Bank. The Bank's ability to pay dividends is limited. 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). Based on its current financial condition, the Bank does not expect that this provision will have any impact on the Bank's ability to pay dividends.
As of March 1, 2002, the Company had 670 shareholders of record, not including the number of persons or entities whose stock is held in nominee or street name through various brokerage firms or banks. The market price for the Company's common stock was $15.85 on March 1, 2002.
Following is certain market and dividend information for the last two fiscal years. Information for quarters prior to the third quarter of 2000 relates to the Bank's common stock. Over-the-counter quotations reflect inter-dealer prices, without retail mark-up, mark down or commission and may not necessarily represent actual transactions.
MARKET AND DIVIDEND DATA
CASH DIVIDEND
2001 LOW BID HIGH BID PER SHARE
First Quarter $ 13.000 $ 16.000 $ 0.10
Second Quarter $ 16.050 $ 13.500 $ 0.10
Third Quarter $ 16.000 $ 20.000 $ 0.10
Fourth Quarter $ 14.100 $ 17.000 $ 0.10
CASH DIVIDEND
2000 LOW BID HIGH BID PER SHARE
First Quarter $ 11.591 $ 13.636 $ 0.09
Second Quarter $ 12.159 $ 16.250 $ 0.10
Third Quarter $ 12.000 $ 13.625 $ 0.10
Fourth Quarter $ 11.625 $ 13.500 $ 0.10
|
DIRECTORS AND OFFICERS OF THE COMPANY
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders
Peoples Bancorp of North Carolina, Inc.
Newton, North Carolina:
We have audited the accompanying consolidated balance sheets of Peoples Bancorp of North Carolina, Inc. as of December 31, 2001 and 2000, and the related consolidated statements of earnings, comprehensive income, changes in shareholders' equity and cash flows for each of the three years in the period ended December 31, 2001. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Peoples Bancorp of North Carolina, Inc. as of December 31, 2001 and 2000, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2001, in conformity with accounting principles generally accepted in the United States of America.
/s/ Porter Keadle Moore, LLP Atlanta, Georgia January 18, 2002 |
PEOPLES BANCORP OF NORTH CAROLINA, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2001 AND 2000
2001 2000
------------- -----------
Assets
------
Cash and due from banks, including reserve requirements
of $2,246,000 and $4,739,000 $ 13,042,320 13,619,197
Federal funds sold 2,261,000 5,020,000
------------- -----------
Cash and cash equivalents 15,303,320 18,639,197
Investment securities available for sale 84,286,037 71,564,844
Other investments 4,602,773 2,398,873
Mortgage loans held for sale 5,338,931 1,563,700
Loans, net 484,517,151 406,226,100
Premises and equipment, net 14,679,191 12,907,968
Cash surrender value of life insurance 4,583,000 -
Accrued interest receivable and other assets 6,194,301 5,701,105
------------- -----------
$619,504,704 519,001,787
============= ===========
Liabilities and Shareholders' Equity
------------------------------------
Deposits:
Noninterest-bearing $ 56,826,130 52,793,390
Interest-bearing 433,397,059 397,279,952
------------- -----------
Total deposits 490,223,189 450,073,342
Demand notes payable to U. S. Treasury 117,987 1,600,000
Accrued interest payable and other liabilities 1,548,139 2,932,284
Federal Home Loan Bank advances 68,214,286 21,357,142
Guaranteed preferred beneficial interests in Company's junior
subordinated debentures (Trust Preferred Securities) 14,000,000 -
------------- -----------
Total liabilities 574,103,601 475,962,768
------------- -----------
Commitments
Shareholders' equity:
Preferred stock, no par value; authorized 5,000,000 shares;
no shares issued and outstanding - -
Common stock, no par value; authorized 20,000,000 shares;
3,218,714 shares issued and outstanding 36,407,798 36,407,798
Retained earnings 9,915,399 6,627,533
Accumulated other comprehensive income (loss) (922,094) 3,688
------------- -----------
Total shareholders' equity 45,401,103 43,039,019
------------- -----------
$619,504,704 519,001,787
============= ===========
|
See accompanying notes to consolidated financial statements.
PEOPLES BANCORP OF NORTH CAROLINA, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
2001 2000 1999
---------------- ----------- -----------
Interest income:
Interest and fees on loans $ 36,512,395 36,423,973 28,375,391
Interest on federal funds sold 126,791 281,659 338,941
Interest and dividends on securities:
U. S. Treasuries - 16,572 50,221
U. S. Government agencies 3,918,551 2,977,459 2,297,645
State and political subdivisions 911,707 988,020 973,744
Other 428,157 171,600 266,097
---------------- ----------- -----------
Total interest income 41,897,601 40,859,283 32,302,039
---------------- ----------- -----------
Interest expense:
Deposits 20,790,136 18,326,359 14,009,018
Federal Home Loan Bank advances 2,118,511 974,036 735,752
Other 117,849 131,705 45,501
---------------- ----------- -----------
Total interest expense 23,026,496 19,432,100 14,790,271
---------------- ----------- -----------
Net interest income 18,871,105 21,427,183 17,511,768
Provision for loan losses 3,545,322 1,879,100 425,000
---------------- ----------- -----------
Net interest income after provision for loan losses 15,325,783 19,548,083 17,086,768
---------------- ----------- -----------
Other income:
Service charges on deposit accounts 2,805,492 1,588,390 1,326,810
Other service charges and fees 471,998 367,352 298,454
Gain (loss) on sale of securities 1,613,992 (483,472) (34,824)
Mortgage banking income 1,014,043 241,007 740,031
Insurance and brokerage commissions 348,582 168,557 129,786
Miscellaneous 2,008,797 2,033,930 919,804
---------------- ----------- -----------
Total other income 8,262,904 3,915,764 3,380,061
---------------- ----------- -----------
Other expenses:
Salaries and employee benefits 9,115,496 8,899,285 7,737,404
Occupancy 2,984,100 2,509,720 2,230,448
Other operating 4,652,197 4,099,972 3,863,652
---------------- ----------- -----------
Total other expenses 16,751,793 15,508,977 13,831,504
---------------- ----------- -----------
Earnings before income taxes 6,836,894 7,954,870 6,635,325
Income tax expense 2,261,542 2,576,400 2,093,380
---------------- ----------- -----------
Net earnings $ 4,575,352 5,378,470 4,541,945
================ =========== ===========
Net earnings per share $ 1.42 1.67 1.41
================ =========== ===========
|
See accompanying notes to consolidated financial statements.
PEOPLES BANCORP OF NORTH CAROLINA, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
Accumulated
Common Stock Other
------------------------ Retained Comprehensive
Shares Amount Earnings Income (Loss) Total
---------- ------------ ----------- -------------- -----------
Balance, December 31, 1998 2,926,500 $31,730,372 3,735,171 458,592 35,924,135
Cash paid in lieu of fractional shares (182) (910) (4,961) - (5,871)
Cash dividends declared ($0.34 per share) - - (1,082,738) - (1,082,738)
Net earnings - - 4,541,945 - 4,541,945
Change in net unrealized gain (loss) on
investment securities available for
sale, net of tax - - - (1,378,992) (1,378,992)
---------- ------------ ----------- -------------- -----------
Balance, December 31, 1999 2,926,318 31,729,462 7,189,417 (920,400) 37,998,479
10% stock dividend 292,396 4,678,336 (4,678,336) - -
Cash paid in lieu of fractional shares - - (3,775) - (3,775)
Cash dividends declared ($0.39 per share) - - (1,258,243) - (1,258,243)
Net earnings - - 5,378,470 - 5,378,470
Change in net unrealized gain (loss) on
investment securities available for
sale, net of tax - - - 924,088 924,088
---------- ------------ ----------- -------------- -----------
Balance, December 31, 2000 3,218,714 36,407,798 6,627,533 3,688 43,039,019
Cash dividends declared ($0.40 per share) - - (1,287,486) - (1,287,486)
Net earnings - - 4,575,352 - 4,575,352
Change in net unrealized gain (loss) on
investment securities available for
sale, net of tax - - - (925,782) (925,782)
---------- ------------ ----------- -------------- -----------
Balance, December 31, 2001 3,218,714 $36,407,798 9,915,399 (922,094) 45,401,103
========== ============ =========== ============== ===========
|
See accompanying notes to consolidated financial statements.
PEOPLES BANCORP OF NORTH CAROLINA, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
2001 2000 1999
------------ --------- -----------
Net earnings $ 4,575,352 5,378,470 4,541,945
------------ --------- -----------
Other comprehensive income, net of tax:
Unrealized gains (losses) on investment
securities available for sale 97,560 1,030,186 (2,293,615)
Reclassification adjustment for (gains) losses on
sales of investment securities available for sale (1,613,992) 483,472 34,824
------------ --------- -----------
Total other comprehensive income (loss),
before income taxes (1,516,432) 1,513,658 (2,258,791)
------------ --------- -----------
Income tax expense (benefit) related to other comprehensive income:
Unrealized holding gains (losses) on investment
securities available for sale 38,000 401,258 (893,363)
Reclassification adjustment for (gains) losses on
sales of investment securities available for sale (628,650) 188,312 13,564
------------ --------- -----------
Total income tax expense (benefit) related to
other comprehensive income (590,650) 589,570 (879,799)
------------ --------- -----------
Total other comprehensive income (loss),
net of tax (925,782) 924,088 (1,378,992)
------------ --------- -----------
Total comprehensive income $ 3,649,570 6,302,558 3,162,953
============ ========= ===========
|
See accompanying notes to consolidated financial statements.
PEOPLES BANCORP OF NORTH CAROLINA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
2001 2000 1999
-------------- ------------ ------------
Cash flows from operating activities:
Net earnings $ 4,575,352 5,378,470 4,541,945
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation, amortization and accretion 1,584,437 1,531,860 1,794,646
Provision for loan losses 3,545,322 1,879,100 425,000
Provision for deferred taxes (532,329) (246,511) 915,285
Loss (gain) on sale of investment securities (1,613,992) 483,472 34,824
Loss (gain) on sale of premises and equipment - (598,308) 12,925
Loss (gain) on sale of mortgage loans (37,152) 292,796 369,583
Loss (gain) on sale of other real estate 51,840 (9,226) 64,943
Change in:
Other assets 1,017,755 (1,090,782) (1,006,947)
Other liabilities (1,384,145) 1,230,278 (797,420)
Mortgage loans held for sale (3,738,079) (171,024) 7,204,762
-------------- ------------ ------------
Net cash provided by operating activities 3,469,009 8,680,125 13,559,546
-------------- ------------ ------------
Cash flows from investing activities:
Purchase of investment securities available for sale (118,372,897) (33,291,361) (23,737,969)
Proceeds from calls and maturities of investment securities
available for sale 22,714,408 7,139,920 15,076,886
Proceeds from sales of investment securities available
for sale 82,969,419 18,129,483 6,896,296
Change in other investments (2,203,900) (1,053,773) 150,200
Purchase of cash value life insurance (4,583,000) - -
Net change in loans (82,092,812) (72,926,623) (38,273,585)
Purchases of premises and equipment (3,652,961) (2,243,860) (1,857,657)
Proceeds from sale of premises and equipment 645,429 1,916,505 4,500
Construction in progress (100,633) (3,779,053) (870,284)
Improvements to other real estate - - (241,951)
Proceeds from sale of other real estate 60,310 36,426 740,962
-------------- ------------ ------------
Net cash used by investing activities (104,616,637) (86,072,336) (42,112,602)
-------------- ------------ ------------
Cash flows from financing activities:
Net change in deposits 40,149,847 73,438,973 26,566,991
Net change in demand notes payable to U. S. Treasury (1,482,013) - 1,460,765
Proceeds from FHLB borrowings 51,000,000 18,000,000 1,000,000
Payments of FHLB advances (4,142,856) (11,142,858) (142,857)
Proceeds from issuance of trust preferred securities 14,000,000 - -
Transaction costs associated with trust preferred securities (425,741) - -
Cash dividends (1,287,486) (1,258,243) (1,082,738)
Cash paid in lieu of fractional shares - (3,775) (5,871)
-------------- ------------ ------------
Net cash provided by financing activities 97,811,751 79,034,097 27,796,290
-------------- ------------ ------------
Net change in cash and cash equivalents (3,335,877) 1,641,886 (756,766)
Cash and cash equivalents at beginning of year 18,639,197 16,997,311 17,754,077
-------------- ------------ ------------
Cash and cash equivalents at end of year $ 15,303,320 18,639,197 16,997,311
============== ============ ============
|
See accompanying notes to consolidated financial statements.
PEOPLES BANCORP OF NORTH CAROLINA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
2001 2000 1999
------------ ---------- -----------
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $23,068,630 18,952,793 14,812,486
Income taxes $ 3,209,000 2,663,000 1,000,000
Noncash investing and financing activities:
Change in net unrealized gain(loss) on investment
securities available for sale, net of tax $ (925,782) 924,088 (1,378,992)
Transfer of loans to other real estate $ 256,439 95,000 123,451
Financed sales of other real estate $ - - 60,000
|
See accompanying notes to consolidated financial statements.
PEOPLES BANCORP OF NORTH CAROLINA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Peoples Bank (the "Bank") commenced business in 1912 upon receipt of its banking charter from the North Carolina State Banking Commission (the "SBC"). The Bank is primarily regulated by the SBC and the Federal Deposit Insurance Corporation and undergoes periodic examinations by these regulatory agencies. The Bank, whose main office is in Newton, North Carolina, provides a full range of commercial and consumer banking services primarily in Catawba, Alexander, Lincoln and Iredell counties in North Carolina.
Peoples Investment Services, Inc. is a wholly owned subsidiary of the Bank, which began operations in 1996 to provide investment and trust services through agreements with an outside party.
Real Estate Advisory Services, Inc. is a wholly owned subsidiary of the Bank which began operations in 1997 to provide real estate appraisal and property management services to individuals and commercial customers of the Bank.
Certain amounts in the 2000 and 1999 financial statements have been reclassified to conform to the 2001 presentation. Such reclassifications had no effect on net earnings or total assets.
Available for sale securities are recorded at fair value. Unrealized holding gains and losses, net of the related tax effect, on securities available for sale are excluded from earnings and are reported as a separate component of shareholders' equity until realized.
A decline in the market value of any available for sale investment below cost that is deemed other than temporary is charged to earnings and establishes a new cost basis for the security.
Premiums and discounts are amortized or accreted over the life of the related security as an adjustment to the yield. Realized gains and losses for securities classified as available for sale are included in earnings and are derived using the specific identification method for determining the cost of securities sold.
PEOPLES BANCORP OF NORTH CAROLINA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
Impaired loans are measured based on the present value of expected future cash flows, discounted at the loan's effective interest rate, or at the loan's observable market price, or the fair value of the collateral if the loan is collateral dependent. A loan is impaired when, based on current information and events, it is probable that all amounts due according to the contractual terms of the loan will not be collected.
Accrual of interest is discontinued on a loan when management believes, after considering economic conditions and collection efforts, that the borrower's financial condition is such that collection of interest is doubtful. Interest previously accrued but not collected is reversed against current period earnings when such loans are placed on nonaccrual status.
The allowance for loan losses is established through a provision for loan losses charged to earnings. Loans are charged against the allowance for loan losses when management believes that the collectibility of the principal is unlikely. The allowance represents an amount, which, in management's judgment, will be adequate to absorb probable losses on existing loans that may become uncollectible.
Management's judgment in determining the adequacy of the allowance is based on evaluations of the collectibility of loans. These evaluations take into consideration such factors as changes in the nature and volume of the loan portfolio, current economic conditions that may affect the borrower's ability to pay, overall portfolio quality, and review of specific problem loans. In determining the adequacy of the allowance for loan losses, management uses a loan grading system that rates individual loans into nine risk classifications. These risk categories are assigned allocations of loss based on management's estimate of potential loss which is generally based on an analysis of historical loss experience, current economic conditions, performance trends, and discounted collateral deficiencies. The combination of these results is compared monthly to the recorded allowance for loan losses and material differences are adjusted by increasing or decreasing the provision for loan losses. Management uses an independent external loan reviewer to challenge and corroborate the loan grading system and provide additional analysis in determining the adequacy of the allowance for loan losses and the future provisions for estimated losses.
While management uses available information to recognize losses on loans, future additions to the allowance may be necessary based on changes in economic conditions. In addition, various regulatory agencies, as an integral part of their examination process, periodically review the Bank's allowance for loan losses. Such agencies may require the Bank to recognize additions to the allowance based on judgments different than those of management.
PEOPLES BANCORP OF NORTH CAROLINA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
Mortgage loans serviced for others are not included in the accompanying balance sheets. The unpaid principal balances of mortgage loans serviced for others was approximately $79,128,000 and $97,899,000 at December 31, 2001 and 2000, respectively.
Buildings and improvements 10 - 50 years Furniture and equipment 3 - 10 years |
In the event the future tax consequences of differences between the financial reporting bases and the tax bases of the Company's assets and liabilities results in deferred tax assets, an evaluation of the probability of being able to realize the future benefits indicated by such asset is required. A valuation allowance is provided for the portion of the deferred tax asset when it is more likely than not that some portion or all of the deferred tax asset will not be realized. In assessing the realizability of the deferred tax assets, management considers the scheduled reversals of deferred tax liabilities, projected future taxable income, and tax planning strategies.
PEOPLES BANCORP OF NORTH CAROLINA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
During 1999, the Company declared a 3 for 2 stock split. Additionally, the Company declared and distributed a 10% stock dividend to its shareholders in April, 2000. All previously reported per share amounts have been restated to reflect the stock split and stock dividend.
On July 20, 2001, the Financial Accounting Standards Board ("FASB") issued SFAS No. 141, "Business Combinations" and SFAS No. 142, "Goodwill and Other Intangible Assets". SFAS No. 141 is effective for business combinations initiated after June 30, 2001 and requires all business combinations completed after its adoption to be accounted for under the purchase method of accounting and establishes specific criteria for the recognition of intangible assets separately from goodwill. SFAS No. 142 will be effective for the Company on January 1, 2002 and addresses the accounting for goodwill and intangible assets subsequent to their initial recognition. Upon adoption of SFAS No. 142, goodwill and some intangible assets will no longer be amortized and will be tested for impairment at least annually. The Company believes the adoption of SFAS No. 142 will not have a material impact on its financial position, results of operations or liquidity.
(2) CORPORATE REORGANIZATION Effective August 31, 1999, Peoples Bank completed the process of converting to a holding company form of operation. Peoples Bancorp of North Carolina, Inc. has become the parent of Peoples Bank. Bancorp is a North Carolina, one-bank holding company, headquartered in Newton, North Carolina.
Peoples Bank's shareholders approved the holding company reorganization at the Bank's annual meeting held in May, 1999. Regulatory approval was received on July 22, 1999. The holding company conversion was completed successfully on August 31, 1999. As a result of the conversion, each share of Bank $5 par value common stock was converted into one share of Bancorp no par value stock, and the Bank's common stock and additional paid-in capital accounts were combined into Bancorp's common stock account. Certain shareholders representing 182 shares were paid cash of $5,871 in lieu of the issuance of fractional shares. Bancorp is now the sole shareholder of the Bank.
(3) INVESTMENT SECURITIES Investment securities available for sale at December 31, 2001 and 2000 are as follows:
December 31, 2001
-----------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
----------- ---------- ---------- ----------
Mortgage-backed securities $64,862,499 99,308 1,579,620 63,382,187
State and political subdivisions 16,433,929 242,972 273,051 16,403,850
Trust preferred securities 4,500,000 - - 4,500,000
----------- ---------- ---------- ----------
Total $85,796,428 342,280 1,852,671 84,286,037
=========== ========== ========== ==========
|
PEOPLES BANCORP OF NORTH CAROLINA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(3) INVESTMENT SECURITIES, CONTINUED
December 31, 2000
-----------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
----------- ---------- ---------- ----------
U.S. Government agencies $24,997,100 185,280 63,334 25,119,046
Mortgage-backed securities 24,396,834 141,760 320,829 24,217,765
State and political subdivisions 22,164,868 190,651 127,486 22,228,033
----------- ---------- ---------- ----------
Total $71,558,802 517,691 511,649 71,564,844
=========== ========== ========== ==========
|
The amortized cost and fair value of investment securities available for sale at December 31, 2001, by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because borrowers have the right to call or prepay obligations with or without call or prepayment penalties.
Amortized Estimated
Cost Fair Value
----------- ----------
Due within one year $ 3,960,963 3,995,251
Due from one to five years 4,624,279 4,775,590
Due from five to ten years 3,512,815 3,539,473
Due after ten years 8,835,872 8,593,536
Mortgage-backed securities 64,862,499 63,382,187
----------- ----------
$85,796,428 84,286,037
=========== ==========
|
Proceeds from sales of securities available for sale during 2001, 2000, and 1999 were $82,969,419, $18,129,483 and $6,896,296, respectively. Gross gains of $1,626,583 and $39,788 for 2001 and 1999, respectively, along with gross losses of $12,591, $483,472 and $74,612 for 2001, 2000 and 1999, respectively, were realized on those sales.
Securities with a carrying value of approximately $27,210,000 and $26,022,000 at December 31, 2001 and 2000, respectively, were pledged to secure public deposits and for other purposes as required by law.
(4) LOANS Major classifications of loans at December 31, 2001 and 2000 are summarized as follows:
2001 2000
------------ -----------
Commercial $102,409,403 96,881,936
Real estate - mortgage 277,737,352 229,260,731
Real estate - construction 82,790,441 58,938,765
Consumer 27,670,525 25,857,895
------------ -----------
Total loans 490,607,721 410,939,327
Less allowance for loan losses 6,090,570 4,713,227
------------ -----------
Total net loans $484,517,151 406,226,100
============ ===========
|
The Company grants loans and extensions of credit primarily within the Catawba Valley region of North Carolina which encompasses Catawba and Alexander counties and portions of Iredell and Lincoln counties.
PEOPLES BANCORP OF NORTH CAROLINA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(4) LOANS, CONTINUED
At December 31, 2001 and 2000, the Company had nonaccrual loans approximating $3,756,000 and $5,421,000, respectively. In addition, the Company had approximately $655,000 and $545,000 in loans past due more than ninety days and still accruing interest at December 31, 2001 and 2000, respectively. Interest income that would have been recorded on nonaccrual loans for the years ended December 31, 2001, 2000, and 1999, had they performed in accordance with their original terms, amounted to approximately $695,000, $508,000 and $333,000, respectively. Interest income on nonaccrual loans included in the results of operations for 2001, 2000 and 1999 amounted to approximately $22,000, $94,000 and $61,000, respectively.
At December 31, 2001 and 2000, the recorded investment in loans that were considered to be impaired under SFAS No. 114 was approximately $4,408,909 and $5,966,000, respectively, of which approximately $3,756,000 at December 31, 2001 and $5,421,000 at December 31, 2000 was on nonaccrual. The related allowance for loan losses on these loans was approximately $699,000 and $925,000 at December 31, 2001 and 2000, respectively. The average recorded investment in impaired loans for the twelve months ended December 31, 2001 and 2000 was approximately $5,743,000 and $3,673,000, respectively. For the years ended December 31, 2001, 2000, and 1999, the Company recognized approximately $38,000, $94,000 and $61,000, respectively, of interest income on impaired loans.
Changes in the allowance for loan losses were as follows:
2001 2000 1999
------------- ----------- ----------
Balance at beginning of year $ 4,713,227 3,924,348 4,136,690
Amounts charged off (2,358,320) (1,158,381) (705,277)
Recoveries on amounts previously charged off 190,341 68,160 67,935
Provision for loan losses 3,545,322 1,879,100 425,000
------------ ----------- ----------
Balance at end of year $ 6,090,570 4,713,227 3,924,348
============ =========== ==========
|
(5) PREMISES AND EQUIPMENT Major classifications of premises and equipment are summarized as follows:
2001 2000
------------ ----------
Land $ 2,844,746 3,300,561
Buildings and improvements 9,847,402 3,990,234
Furniture and equipment 9,427,871 7,278,731
----------- ----------
22,120,019 14,569,526
Less accumulated depreciation 7,541,460 6,310,895
----------- ----------
14,578,559 8,258,631
Construction in progress 100,632 4,649,337
----------- ----------
$14,679,191 12,907,968
=========== ==========
|
Depreciation expense was approximately $1,337,000, $1,139,000 and $1,175,000, for the years ended December 31, 2001, 2000, and 1999, respectively.
PEOPLES BANCORP OF NORTH CAROLINA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(6) TIME DEPOSITS
The aggregate amount of time deposit accounts with a minimum denomination of $100,000 was $156,034,091 and $129,111,812 at December 31, 2001 and 2000, respectively.
At December 31, 2001, the scheduled maturities of time deposits are as follows:
2002 $259,481,261
2003 23,053,831
2004 4,490,824
2005 554,826
2006 and thereafter 224,449
------------
$287,805,191
============
|
(7) FEDERAL HOME LOAN BANK ADVANCES
The Bank has advances from the Federal Home Loan Bank ("FHLB") with monthly interest payments at various maturity dates and interest rates ranging from 1.83% to 6.16% at December 31, 2001. The FHLB advances are collateralized by a blanket assignment on all residential first mortgage loans and commercial real estate loans that the Bank owns.
Advances from the FHLB outstanding at December 31, 2001 mature as follows:
Year
----
2002 $16,000,000
2003 214,286
2005 5,000,000
2010 12,000,000
2011 35,000,000
-----------
$68,214,286
===========
|
These borrowings are extended to the Bank under an extension of credit equal to 20% of the Bank's total assets. The Bank is required to purchase and hold certain amounts of FHLB stock in order to obtain FHLB borrowings. No ready market exists for the FHLB stock, and it has no quoted market value. The stock is redeemable at $100 per share subject to certain limitations set by the FHLB. At December 31, 2001 and 2000 the Bank owned FHLB stock amounting to $3,410,800 and $1,206,900, respectively.
(8) TRUST PREFERRED SECURITIES In December, 2001 the Company formed a wholly owned Delaware statutory trust, PEBK Capital Trust I ("PEBK Trust"), which issued $14 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 prime 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. The debentures and related earnings statement effects are eliminated in the Company's financial statements.
The Trust Preferred Securities accrue and pay quarterly distributions based on the liquidation value of $50,000 per capital security at a floating rate of prime plus 50 basis points. The Company has guaranteed distributions and other payments due on the Trust Preferred Securities to the extent PEBK Trust has funds with which to make the distributions and other payments. The net combined effect of all the documents entered into in connection with the Trust Preferred Securities is that the Company is liable to make the distributions and other payments required on the Trust Preferred Securities.
PEOPLES BANCORP OF NORTH CAROLINA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(8) TRUST PREFERRED SECURITIES, CONTINUED The Trust Preferred Securities are mandatorily redeemable upon maturity of the debentures on December 31, 2031, or upon earlier redemption as provided in the indenture. The Company has the right to redeem the debentures purchased by PEBK Trust, in whole or in part, on or after December 31, 2006. As specified in the indenture, if the debentures are redeemed prior to maturity, the redemption price will be the principal amount and any accrued but unpaid interest.
(9) INCOME TAXES The provision for income taxes is summarized as follows:
2001 2000 1999
----------- ---------- ---------
Current $2,793,871 2,822,911 1,178,095
Deferred (532,329) (246,511) 915,285
----------- ---------- ---------
$2,261,542 2,576,400 2,093,380
=========== ========== =========
|
The differences between the provision for income taxes and the amount computed by applying the statutory federal income tax rate to earnings before income taxes are as follows:
2001 2000 1999
----------- ---------- ----------
Pre-tax income at statutory rates (34%) $2,324,544 2,704,656 2,256,010
Differences:
Tax exempt interest income (331,035) (354,948) (343,143)
Nondeductible interest and other expense 56,330 64,717 54,805
Other, net (16,444) (22,229) 30,642
State taxes, net of federal benefit 228,147 184,204 95,066
----------- ---------- ----------
$2,261,542 2,576,400 2,093,380
=========== ========== ==========
|
The following summarizes the tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities. The net deferred tax asset is included as a component of other assets at December 31, 2001 and 2000.
2001 2000
---------- ---------
Deferred tax assets:
Allowance for loan losses $1,938,983 1,341,505
Amortizable intangible assets 262,652 228,305
Accrued retirement expense 92,520 103,599
Accrued contingent liabilities 9,639 83,644
Foreclosed real estate 16,193 24,669
Income from non-accrual loans 254,247 250,330
Unrealized loss on available for sale securities 588,296 -
Other 24,520 9,076
---------- ---------
Total gross deferred tax assets 3,187,050 2,041,128
---------- ---------
Deferred tax liabilities:
Unrealized gain on available for sale securities - 2,354
Deferred loan fees 1,225,178 1,187,215
Premises and equipment 133,467 150,744
Deferred income from servicing rights 378,386 349,278
Other - 24,497
---------- ---------
Total gross deferred tax liabilities 1,737,031 1,714,088
---------- ---------
Net deferred tax asset $1,450,019 327,040
========== =========
|
PEOPLES BANCORP OF NORTH CAROLINA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(10) RELATED PARTY TRANSACTIONS The Company conducts transactions with its directors and executive officers, including companies in which they have beneficial interests, in the normal course of business. It is the policy of the Company that loan transactions with directors and officers be made on substantially the same terms as those prevailing at the time made for comparable loans to other persons. The following is a summary of activity for related party loans for 2001:
Beginning balance $ 13,088,000
New loans 4,375,000
Repayments (3,681,000)
-----------
Ending balance $ 13,782,000
===========
|
At December 31, 2001 and 2000, the Company had deposit relationships with related parties of approximately $11,955,000 and $8,800,000, respectively.
The Company also enters into contracts from time to time with certain directors for the construction of bank facilities. At December 31, 2001, the Company had outstanding construction contracts with these directors amounting to approximately $1,100,000. During the year ended December 31, 2001, 2000 and 1999, total construction costs for bank facilities paid to directors was approximately $1,435,000, $2,915,000 and $374,000, respectively.
(11) COMMITMENTS The Company leases various office space for banking and operational facilities under operating lease arrangements. Future minimum lease payments required for all operating leases having a remaining term in excess of one year at December 31, 2001 are as follows:
Year Amount
---- ------
2002 $ 328,908
2003 330,908
2004 340,908
2005 340,908
2006 191,873
Thereafter 1,155,750
----------
Total minimum obligation $2,689,255
==========
|
Total rent expense was approximately $351,000, $361,000 and $262,000, for 2001, 2000, and 1999, respectively.
The Company is a party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit, standby letters of credit and financial guarantees. Those instruments involve, to varying degrees, elements of credit risk in excess of the amount recognized in the balance sheet. The contract amounts of those instruments reflect the extent of involvement the Company has in particular classes of financial instruments.
The exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit and standby letters of credit and financial guarantees written is represented by the contractual amount of those instruments. The Company uses the same credit policies in making commitments and conditional obligations as it does for on-balance-sheet instruments.
PEOPLES BANCORP OF NORTH CAROLINA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(11) COMMITMENTS, CONTINUED In most cases, the Company does require collateral or other security to support financial instruments with credit risk
Contractual Amount
------------------------
2001 2000
------------ ----------
Financial instruments whose contract
amounts represent credit risk:
Commitments to extend credit $ 91,822,000 89,407,000
Standby letters of credit $ 1,667,000 2,208,000
|
Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments may expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Company evaluates each customer's creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Company, upon extension of credit is based on management's credit evaluation. Collateral held varies but may include unimproved and improved real estate, certificates of deposit, or personal property.
Standby letters of credit and financial guarantees written are conditional commitments issued by the Company to guarantee the performance of a customer to a third party. Those guarantees are primarily issued to businesses in the Company's delineated trade area. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. The Company holds real estate, equipment, automobiles and customer deposits as collateral supporting those commitments for which collateral is deemed necessary.
In the normal course of business, the Company is a party (both as plaintiff and defendant) to a number of lawsuits. In the opinion of management and counsel, none of these cases should have a material adverse effect on the financial position of the Bank or the Company.
The Company has $16,500,000 available for the purchase of overnight federal funds from three correspondent financial institutions.
(12) EMPLOYEE AND DIRECTOR BENEFIT PROGRAMS The Company has a profit sharing and 401(k) plan for the benefit of substantially all employees subject to certain minimum age and service requirements. Under this plan, the Company matches employee contributions to a maximum of five percent of annual compensation. The Company's contribution pursuant to this formula was approximately $318,000, $249,000 and $163,000, for the years of 2001, 2000, and 1999, respectively. The Board of Directors elected not to make a discretionary contribution in 2001, 2000, or 1999. Investments of the plan are determined by the compensation committee consisting of selected outside directors and senior executive officers. No investments in Company stock have been made by the plan. The vesting schedule for the plan begins at 20 percent after three years of employment and graduates 20 percent each year until reaching 100 percent after seven years of employment.
During December, 2001, the Company initiated a postretirement benefit plan to provide retirement benefits to key officers and its Board of Directors and to provide death benefits for their designated beneficiaries. Under the plan, the Company purchased life insurance contracts on the lives of the key officers and each director. The increase in cash surrender value of the contracts, less the Company's cost of funds, constitutes the Company's contribution to the plan each year. Plan participants are to be paid annual benefits for a specified number of years commencing upon retirement. At December 31, 2001, the cash surrender value of the insurance contracts was approximately $4,583,000. The Company incurred no expense for benefits relating to this plan during 2001.
PEOPLES BANCORP OF NORTH CAROLINA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(12) EMPLOYEE AND DIRECTOR BENEFIT PROGRAMS, CONTINUED The Company is currently paying medical benefits for certain retired employees. Postretirement benefits, including amortization of the transition obligation, were approximately $33,484, $30,680 and $28,830, for the years ended December 31, 2001, 2000, and 1999, respectively. The following table sets forth the accumulated postretirement benefit obligation as of December 31, 2001 and 2000, which represents the liability for accrued postretirement benefit costs:
2001 2000
--------- --------
Accumulated postretirement benefit obligation $213,536 194,598
Unrecognized transition obligation (17,407) (34,819)
Unrecognized gain (loss) (38,048) (16,024)
--------- --------
Net liability recognized $158,081 143,755
========= ========
|
Effective May 13, 1999, the Company adopted an Omnibus Stock Ownership and Long Term Incentive Plan (the "Plan") whereby certain stock-based rights, such as stock options, restricted stock, performance units, stock appreciation rights, or book value shares, may be granted to eligible directors and employees. A total of 321,860 shares were reserved for possible issuance under this Plan. All rights must be granted or awarded within ten years from the effective date.
Under the Plan, the Company awarded 5,365 book value shares to each of its ten directors with vesting for nine of the directors over a five year period, effective September 28, 1999, and immediate vesting for one director. Any recipient of book value shares has no rights as a shareholder with respect to the book value shares. The intitial value of the book value shares awarded during 1999 was determined to be $11.45 per share. The Company recorded an expense of approximately $43,000, $33,000 and $3,000 associated with the benefits of this plan in the years ended December 31, 2001, 2000 and 1999, respectively.
Also under the Plan, the Company granted incentive stock options to certain eligible employees in order that they may purchase Company stock at a price equal to the fair market value on the date of the grant. The options granted in 1999 vest over a five year period. Options granted in 2001 and 2000 vest over a three year period. All options expire after ten years. A summary of the activity in the Plan is presented below:
2001 2000 1999
---------------------- --------------------- ---------------------
Weighted Weighted Weighted
Average Average Average
Option Price Option Price Option Price
Shares Per Share Shares Per Share Shares Per Share
------- ------------- ------ ------------- ------ -------------
Outstanding, beginning of year 77,598 $ 14.00 27,657 $ 16.36 - $ -
Granted during the year 62,105 $ 15.86 49,941 $ 12.69 27,657 $ 16.36
------- ------------- ------ ------------- ------ -------------
Outstanding, end of year 139,703 $ 14.82 77,598 $ 14.00 27,657 $ 16.36
======= ============= ====== ============= ====== =============
Number of shares exercisable 27,709 5,530 -
======= ====== ======
|
The weighted average grant-date fair value of options granted in 2001, 2000 and 1999 was $10.40, $6.24, and $6.48, respectively. Options outstanding at December 31, 2001 are exercisable at option prices ranging from $12.69 to $16.36, as presented in the table above. Such options have a weighted average remaining contractual life of approximately 9 years.
PEOPLES BANCORP OF NORTH CAROLINA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(12) EMPLOYEE AND DIRECTOR BENEFIT PROGRAMS, CONTINUED The Plan is accounted for under Accounting Principles Board Opinion No. 25 and related interpretations. No compensation expense has been recognized related to the grant of the incentive stock options. Had compensation cost been determined based upon the fair value of the options at the grant dates, the Company's net earnings and net earnings per share would have been reduced to the proforma amounts indicated below.
2001 2000 1999
----------- ---------- ---------
Net earnings As reported $4,575,352 5,378,470 4,541,945
Proforma $4,174,899 5,185,258 4,440,959
Net earnings per share As reported $ 1.42 1.67 1.55
Proforma $ 1.30 1.61 1.52
|
The fair value of each option is estimated on the date of grant using the Black-Scholes options-pricing model with the following weighted average assumptions used for grants in 2001, 2000 and 1999, respectively - dividend yield of 2.8%, 2.9% and 2.5%, respectively; risk free interest rate of 5%, 5% and 7%, respectively; and an expected life of 10 years. For disclosure purposes, the Company immediately recognized the expense associated with the option grants assuming that all awards vest upon grant.
(13) REGULATORY MATTERS The Company is subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company's financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company must meet specific capital guidelines that involve quantitative measures of the assets, liabilities and certain off-balance-sheet items as calculated under regulatory accounting practices. The capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy require the Company to maintain minimum amounts and ratios (set forth in the table below) of total and Tier 1 capital (as defined in the regulations) to risk-weighted assets (as defined), and of Tier 1 capital to average assets (as defined). Management believes, as of December 31, 2001, that Bancorp and the Bank meet all capital adequacy requirements to which they are subject.
As of December 31, 2001 the most recent notification from the FDIC categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized the Bank must maintain minimum total risk-based, Tier 1 risk-based and Tier 1 leverage ratios as set forth in the table. There are no conditions or events since that notification that management believes have changed the institution's category.
PEOPLES BANCORP OF NORTH CAROLINA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(13) REGULATORY MATTERS, CONTINUED The Company's and the Bank's actual capital amounts and ratios are presented below.
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provision
----------------- ---------------- ----------------
Amount Ratio Amount Ratio Amount Ratio
------- -------- ------- ------- ------- -------
AS OF DECEMBER 31, 2001:
Total Capital (to Risk Weighted Assets)
Consolidated $66,254 12.27% 43,208 8.00% N/A N/A
Bank $64,841 12.03% 43,105 8.00% 53,881 10.00%
Tier 1 Capital (to Risk Weighted Assets)
Consolidated $60,163 11.14% 21,604 4.00% N/A N/A
Bank $58,750 10.90% 21,552 4.00% 32,328 6.00%
Tier 1 Capital (to Average Assets)
Consolidated $60,163 10.46% 22,999 4.00% N/A N/A
Bank $58,750 10.24% 22,959 4.00% 28,699 5.00%
AS OF DECEMBER 31, 2000:
Total Capital (to Risk Weighted Assets)
Consolidated $47,412 11.22% 33,803 8.00% N/A N/A
Bank $46,464 11.02% 33,738 8.00% 42,172 10.00%
Tier 1 Capital (to Risk Weighted Assets)
Consolidated $42,699 10.11% 16,901 4.00% N/A N/A
Bank $41,751 9.90% 16,869 4.00% 25,303 6.00%
Tier 1 Capital (to Average Assets)
Consolidated $42,699 9.10% 18,768 4.00% N/A N/A
Bank $41,751 8.91% 18,751 4.00% 23,439 5.00%
|
(14) SHAREHOLDERS' EQUITY In April, 2000, the Company declared and distributed a 10% stock dividend to its shareholders. On the date of distribution, certain shareholders, representing 236 shares, were paid cash of $3,775 in lieu of fractional shares. On February 11, 1999, the Board of Directors of the Company declared a 3 for 2 stock split to be effected in the form of a 50% stock dividend. On the date of distribution, 182 shares, representing all fractional shares, were paid cash of $5,871 representing the February 22, 1999 market price. All share and per share amounts have been changed to reflect the stock split and stock dividend as if it had occurred on December 31, 1998.
On June 27, 2000, the Board of Directors of the Company approved the Peoples Bancorp of North Carolina, Inc. Dividend Reinvestment and Stock Purchase Plan. The Plan provides for the full or partial reinvestment of cash dividends and optional cash purchases of the Company's stock. A total of 200,000 shares were reserved for possible issuance and sale under this Plan.
The Board of Directors, at its discretion, can issue shares of preferred stock up to a maximum of 5,000,000 shares. The Board is authorized to determine the number of shares, voting powers, designations, preferences, limitations and relative rights.
The Board of Directors of the Bank may declare a dividend of all of its retained earnings as it may deem appropriate, subject to the requirements of the General Statutes of North Carolina, without prior approval from the requisite regulatory authorities. As of December 31, 2001, this amount was approximately $13,710,000.
PEOPLES BANCORP OF NORTH CAROLINA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(15) OTHER OPERATING EXPENSE Other operating expense for the years ended December 31 included the following items that exceeded one percent of total revenues:
2001 2000 1999
-------- ------- -------
Telephone $332,569 379,801 353,536
Education and Consulting $159,720 164,750 366,488
Merchant Processing $551,513 502,085 459,682
|
(16) FAIR VALUE OF FINANCIAL INSTRUMENTS The Company is required to disclose fair value information about financial instruments, whether or not recognized on the face of the balance sheet, for which it is practicable to estimate that value. The assumptions used in the estimation of the fair value of the Company's financial instruments are detailed below. Where quoted prices are not available, fair values are based on estimates using discounted cash flows and other valuation techniques. The use of discounted cash flows can be significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. The following disclosures should not be considered a surrogate of the liquidation value of the Company, but rather a good faith estimate of the increase or decrease in value of financial instruments held by the Company since purchase, origination, or issuance.
PEOPLES BANCORP OF NORTH CAROLINA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
Fair value estimates are based on existing on and off-balance sheet financial instruments without attempting to estimate the value of anticipated future business and the value of assets and liabilities that are not considered financial instruments. Significant assets and liabilities that are not considered financial instruments include the deferred income taxes and premises and equipment. In addition, the tax ramifications related to the realization of the unrealized gains and losses can have a significant effect on fair value estimates and have not been considered in the estimates.
The carrying amount and estimated fair values of the Company's financial instruments at December 31, 2001 and 2000 are as follows:
2001 2000
--------------------- --------------------
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
--------- ---------- -------- ----------
(In thousands) (In thousands)
Assets:
Cash and cash equivalents $ 15,303 15,303 18,639 18,639
Investment securities available for sale $ 84,286 84,286 71,565 71,565
Other investments $ 4,603 4,603 2,399 2,399
Loans $ 484,517 493,611 406,226 402,239
Mortgage loans held for sale $ 5,339 5,339 1,564 1,564
Cash surrender value of life insurance $ 4,583 4,583 - -
Mortgage servicing rights $ 981 981 920 920
Liabilities:
Deposits and demand notes payable $ 490,341 493,421 451,673 467,512
FHLB advances $ 68,214 68,497 21,357 22,217
Trust preferred securities $ 14,000 14,000 - -
Unrecognized financial instruments:
Commitments to extend credit $ 91,822 91,822 89,407 89,407
Standby letters of credit $ 1,667 1,667 2,208 2,208
|
PEOPLES BANCORP OF NORTH CAROLINA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(17) PEOPLES BANCORP OF NORTH CAROLINA, INC. (PARENT COMPANY ONLY) CONDENSED FINANCIAL STATEMENTS
BALANCE SHEETS
DECEMBER 31, 2001 AND 2000
Assets
------
2001 2000
----------- ----------
Cash $ 228,202 152,939
Investment in subsidiaries 58,421,072 42,091,437
Other investments 815,000 815,000
Other assets 472,872 19,056
----------- ----------
$59,937,146 43,078,432
=========== ==========
Liabilities and Shareholders' Equity
------------------------------------
Accrued expenses $ 103,043 39,413
Junior subordinated debentures 14,433,000 -
Shareholders' equity 45,401,103 43,039,019
----------- ----------
$59,937,146 43,078,432
=========== ==========
|
Statements of Earnings
For the Years Ended December 31, 2001, 2000 and 1999
2001 2000 1999
---------- --------- ---------
Dividends from Bank $1,462,486 2,327,019 1,082,738
Expenses:
Interest 30,333 - -
Other operating expenses 311,117 191,519 -
---------- --------- ---------
Total expenses 341,450 191,519 -
---------- --------- ---------
Earnings before income tax benefit and equity in
undistributed earnings of subsidiaries 1,121,036 2,135,500 1,082,738
Income tax benefit 131,900 74,100 -
---------- --------- ---------
Earnings before equity in undistributed
earnings of subsidiaries 1,252,936 2,209,600 1,082,738
Equity in undistributed earnings of subsidiaries 3,322,416 3,168,870 3,459,207
---------- --------- ---------
Net earnings $4,575,352 5,378,470 4,541,945
========== ========= =========
|
PEOPLES BANCORP OF NORTH CAROLINA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(17) Peoples Bancorp of North Carolina, Inc. (Parent Company Only) Condensed Financial Statements, continued
Statements of Cash Flows
For the Years Ended December 31, 2001, 2000 and 1999
2001 2000 1999
------------- ----------- -----------
Cash flows from operating activities:
Net earnings $ 4,575,352 5,378,470 4,541,945
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Equity in undistributed earnings of subsidiaries (3,322,416) (3,168,870) (3,459,207)
Provision for deferred taxes (28,076) (19,056) -
Change in:
Accrued expenses 63,630 39,413 5,871
------------- ----------- -----------
Net cash provided by operating activities 1,288,490 2,229,957 1,088,609
------------- ----------- -----------
Cash flows from investing activities:
Capital contributions to subsidiaries (13,933,000) - -
Purchase of other investments - (815,000) -
------------- ----------- -----------
Net cash used by investing activities (13,933,000) (815,000) -
------------- ----------- -----------
Cash flows from financing activities:
Proceeds from junior subordinated debentures 14,433,000 - -
Cash paid in lieu of fractional shares - (3,775) (5,871)
Dividends paid (1,287,486) (1,258,243) (1,082,738)
Transaction costs associated with trust preferred securities (425,741) - -
------------- ----------- -----------
Net cash provided (used) by financing activities 12,719,773 (1,262,018) (1,088,609)
------------- ----------- -----------
Net change in cash 75,263 152,939 -
Cash at beginning of year 152,939 - -
------------- ----------- -----------
Cash at end of year $ 228,202 152,939 -
============= =========== ===========
|
Exhibit (21)
SUBSIDIARIES OF PEOPLES BANCORP OF NORTH CAROLINA, INC.
Peoples Bank, a commercial bank organized under the laws of North Carolina, is a subsidiary of Peoples Bancorp of North Carolina, Inc.
In December 2001, the Peoples Bancorp of North Carolina, Inc. formed a wholly owned Delaware statutory trust, PEBK Capital Trust I ("PEBK Trust"), which issued $14 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.
EXHIBIT (23)(a)
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have issued our report dated January 18, 2002, accompanying the consolidated financial statements incorporated by reference in the Annual Report of Peoples Bancorp of North Carolina, Inc. on Form 10-K for the year ended December 31, 2001. We hereby consent to the incorporation by reference of said report in the Registration Statement of Peoples Bancorp of North Carolina, Inc. on Form S-3 (File No. 333-43426, effective August 10, 2000).
/s/ PORTER KEADLE MOORE, LLP
Atlanta, Georgia
March 26, 2002
|
EXHIBIT (23)(b)
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have issued our report dated January 18, 2002, accompanying the consolidated financial statements incorporated by reference in the Annual Report of Peoples Bancorp of North Carolina, Inc. on Form 10-K for the year ended December 31, 2001. We hereby consent to the incorporation by reference of said report in the Registration Statement of Peoples Bancorp of North Carolina, Inc. on Form S-8 (File No. 333-46860, effective September 28, 2000).
/s/ PORTER KEADLE MOORE, LLP
Atlanta, Georgia
March 26, 2002
|