UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-K
ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(D)
OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year
ended: December 31,
2019
Peoples Bancorp of North Carolina, Inc.
( Exact Name of Registrant as Specified in
Its Charter)
North Carolina
(State or Other
Jurisdiction of Incorporation)
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000-27205
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56-2132396
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(Commission
File No.)
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(IRS
Employer Identification No.)
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518 West C Street, Newton,
North Carolina
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28658
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(Address
of Principal Executive Offices)
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(Zip
Code)
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(828) 464-5620
(Registrant’s
Telephone Number, Including Area Code)
Securities
Registered Pursuant to Section 12(b) of the Act: None
Securities
Registered Pursuant to Section 12(g) of the Act:
Common Stock, no par value
(title of
class)
Indicate by check mark if the
registrant is a well-known seasoned issuer, as defined in Rule 405
of the Securities Act.
Yes ☐ No ☒
Indicate by check mark if the
registrant is not required to file reports pursuant to Section 13
or Section 15(d) of the Act.
Yes ☐ No ☒
Indicate by check mark whether the
registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90
days.
Yes ☒
No
☐
Indicate by check mark whether the
registrant has submitted electronically every Interactive Data File
required to be submitted pursuant to Rule 405 of
Regulation S-T (§ 232.405 of this chapter) during
the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files). Yes
☒ No ☐
Indicate by check
mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, a smaller reporting
company, or an emerging growth company. See the definitions of
“large accelerated filer”, “accelerated
filer”, “smaller reporting company”, and
“emerging growth company” in Rule 12b-2 of the Exchange
Act.
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Large accelerated filer
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Accelerated filer
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Non-accelerated filer
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Smaller reporting
company☒
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Emerging growth company
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If an
emerging growth company, indicate by check mark if the registrant
has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided
pursuant to Section 13 (a) ☐ Indicate by check
mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
Yes
☐ No ☒
State
the aggregate market value of the voting and non-voting common
equity held by non-affiliates computed by reference to the price at
which the common equity was last sold, or the average bid and asked
price of such common equity, as of the last business day of the
registrant’s most recently completed second fiscal quarter.
$136,593,960 based on the closing price of such common stock on
June 30, 2019, which was $30.05 per share.
Indicate the number
of shares outstanding of each of the registrant's classes of common
stock, as of the latest practicable date.
5,914,304 shares of common stock, outstanding at February 29,
2020.
DOCUMENTS INCORPORATED BY REFERENCE
Portions
of the Annual Report of Peoples Bancorp of North Carolina, Inc. for
the year ended December 31, 2019 (the “Annual Report”),
which will be included as Appendix A to the Proxy Statement for the
2020 Annual Meeting of Shareholders, are incorporated by reference
into Part II and included as Exhibit 13 to this Form
10-K.
Portions
of the Proxy Statement for the 2019 Annual Meeting of Shareholders
of Peoples Bancorp of North Carolina, Inc. to be held on May 7,
2020 (the “Proxy Statement”), are incorporated by
reference into Part III.
This report contains certain forward-looking statements with
respect to the financial condition, results of operations and
business of Peoples Bancorp of North Carolina, Inc. (the
“Company”). These forward-looking statements involve
risks and uncertainties and are based on the beliefs and
assumptions of management of the Company and on the information
available to management at the time that these disclosures were
prepared. These statements can be identified by the use of words
like “expect,” “anticipate,”
“estimate” and “believe,” variations of
these words and other similar expressions. Readers should not place
undue reliance on forward-looking statements as a number of
important factors could cause actual results to differ materially
from those in the forward-looking statements. Factors that could
cause actual results to differ materially include, but are not
limited to, (1) competition in the markets served by Peoples Bank,
(2) changes in the interest rate environment, (3) general national,
regional or local economic conditions may be less favorable than
expected, resulting in, among other things, a deterioration in
credit quality and the possible impairment of collectibility of
loans, (4) legislative or regulatory changes, including changes in
accounting standards, (5) significant changes in the federal and
state legal and regulatory environment and tax laws, (6) the impact
of changes in monetary and fiscal policies, laws, rules and
regulations and (7) other risks and factors identified in the
Company’s other filings with the Securities and Exchange
Commission. The Company undertakes no obligation to update any
forward-looking statements.
PEOPLES BANCORP OF NORTH CAROLINA, INC.
FORM 10-K CROSS REFERENCE INDEX
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2019 Form 10-K
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Notice of 2020 Annual Meeting, Proxy Statement and Annual
Report
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PART I
ITEM 1.
BUSINESS
General
Peoples
Bancorp of North Carolina, Inc. (“Bancorp”), was formed
in 1999 to serve as the holding company for Peoples Bank (the
“Bank”). Bancorp 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”). Bancorp’s
principal source of income is dividends declared and paid by the
Bank on its capital stock, if any. Bancorp 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.
Bancorp and its wholly owned subsidiary, the Bank, along with the
Bank’s wholly owned subsidiaries are collectively called the
“Company”.
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 20 banking offices, as of December
31, 2019, located in Lincolnton, Newton, Denver, Catawba, Conover,
Maiden, Claremont, Hiddenite, Hickory, Charlotte, Cornelius,
Mooresville, Raleigh, and Cary North Carolina. The Bank also
operates loan production offices in Charlotte, Denver and Durham,
North Carolina. The Company’s fiscal year ends December 31.
At December 31, 2019, the Company had total assets of $1.2 billion,
net loans of $843.2 million, deposits of $966.5 million, total
securities of $200.0 million, and shareholders’ equity of
$134.1 million.
The
Bank operates three banking offices focused on the Latino
population that were formerly operated as a division of the Bank
under the name Banco de la Gente (“Banco”). These
offices are now branded as Bank branches and considered a separate
market territory of the Bank as they offer normal and customary
banking services as are offered in the Bank’s other branches
such as the taking of deposits and the making of
loans.
The
Bank has a diversified loan portfolio, with no foreign loans and
few agricultural loans. Real estate loans are predominately
variable rate and fixed rate commercial property loans, which
include residential development loans to commercial customers.
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 Bank’s loan
portfolio also includes Individual Taxpayer Identification Number
(ITIN) mortgage loans generated thorough the Bank’s Banco
offices. Additional discussion of the Bank’s loan portfolio
and sources of funds for loans can be found in
“Management’s Discussion and Analysis of Financial
Condition and Results of Operations” on pages A-4 through A-23 of the Annual
Report, which is included in this Form 10-K as Exhibit
(13).
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, 2019, the Company employed 306 full-time employees and
31 part-time employees, which equated to 326 full-time equivalent
employees.
Subsidiaries
The
Bank is a subsidiary of the Company. At December 31, 2019, the Bank
had four subsidiaries, Peoples Investment Services, Inc., Real
Estate Advisory Services, Inc., Community Bank Real Estate
Solutions, LLC (“CBRES”) and PB Real Estate Holdings,
LLC. 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. CBRES serves as a
“clearing-house” for appraisal services for community
banks. Other banks are able to contract with CBRES to find and
engage appropriate appraisal companies in the area where the
property to be appraised is located. This type of service ensures
that the appraisal process remains independent from the financing
process within the Bank. PB Real Estate Holdings, LLC acquires,
manages and disposes of real property, other collateral and other
assets obtained in the ordinary course of collecting debts
previously contracted. In 2019 the Company launched PB Insurance
Agency, which is part of CBRES.
In June
2006, the Company formed a wholly owned Delaware statutory trust,
PEBK Capital Trust II (“PEBK Trust II”), which issued
$20.0 million of guaranteed preferred beneficial interests in the
Company’s junior subordinated deferrable interest debentures.
All of the common securities of PEBK Trust II are owned by the
Company. The proceeds from the issuance of the common securities
and the trust preferred securities were used by PEBK Trust II to
purchase $20.6 million of junior subordinated debentures of the
Company, which pay a floating rate equal to three-month LIBOR plus
163 basis points. The proceeds received by the Company from the
sale of the junior subordinated debentures were used in December
2006 to repay the trust preferred securities issued in December
2001 by PEBK Capital Trust, a wholly owned Delaware statutory trust
of the Company, and for general purposes. The debentures represent
the sole asset of PEBK Trust II. PEBK Trust II is not included in
the consolidated financial statements. The Company redeemed $5.0
million of outstanding trust preferred securities in December
2019.
The trust preferred
securities issued by PEBK Trust II accrue and pay quarterly at a
floating rate of three-month LIBOR plus 163 basis points. The
Company has guaranteed distributions and other payments due on the
trust preferred securities to the extent PEBK Trust II does not
have funds with which to make the distributions and other payments.
The net combined effect of the trust preferred securities
transaction is that the Company is obligated to make the
distributions and other payments required on the trust preferred
securities.
These
trust preferred securities are mandatorily redeemable upon maturity
of the debentures on June 28, 2036, or upon earlier redemption as
provided in the indenture. The Company has the right to redeem the
debentures purchased by PEBK Trust II, in whole or in part, which
became effective on June 28, 2011. As specified in the indenture,
if the debentures are redeemed prior to maturity, the redemption
price will be the principal amount plus any accrued but unpaid
interest.
Market Area
The
Bank’s primary market consists of the communities in an
approximate 50-mile radius around its headquarters office in
Newton, North Carolina. This area includes Catawba County,
Alexander County, Lincoln County, Iredell County and portions of
northeast Gaston County, North Carolina. 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, retail and wholesale trade, technology, services and
utilities. Catawba County’s largest employers include Catawba
County Schools, Frye Regional Medical Center, Catawba Valley
Medical Center, Merchant Distributors, Inc. (wholesale food
distributor), Catawba County, CommScope, Inc. (manufacturer of
fiber optic cable and accessories), Corning Optical Communications
(manufacturer of fiber optic cable and accessories), Ethan Allen
(furniture manufacturer), HSM (manufacturing) and Advance Pierre
Foods (restaurants and bakeries). Lincoln County’s largest
employers include Lincoln County Schools, County of Lincoln,
Charlotte Mecklenburg Hospital, RSI Home Products (manufacturing),
Wal-Mart Associates Inc., The Timken Company (manufacturing),
Julius Blum Inc. (manufacturing), Lowes Home Centers Inc., Cataler
North America (manufacturing) and Congruity HR (professional &
business services).
Competition
The
Bank has operated in the Catawba Valley region of North Carolina
for over 100 years and is the only financial institution
headquartered in Newton, North Carolina. Nevertheless, 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. One national money center commercial bank is
headquartered in Charlotte, North Carolina. Based upon June 30,
2019 comparative data, the Bank had 20.97% of the deposits in
Catawba County, placing it second in deposit size among a total of
11 banks with branch offices in Catawba County; 9.54% of the
deposits in Lincoln County, placing it fifth in deposit size among
a total of ten banks with branch offices in Lincoln County; and
13.29% of the deposits in Alexander County, placing it fifth in
deposit size among a total of six banks with branch offices in
Alexander County.
The
Bank also faces additional significant competition for
investors’ funds from short-term money market securities and
other corporate and government securities. The Bank’s core
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 to 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 commercial 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 their 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, the Bank and their
subsidiaries. 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 mitigate the risk of failure, bank holding
companies are required to guarantee the compliance of any insured
depository institution subsidiary that may become
“undercapitalized” with the terms of the 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
capital standards as of the time the bank fails to comply with such
capital restoration plan. The Company, as a registered bank holding
company, is subject to the regulation of the Federal Reserve. 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 its deposit
insurance funds 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 deposit insurance funds. 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
also registered under the bank holding company laws of North
Carolina. Accordingly, the Company is also subject to regulation
and supervision by the Commissioner.
Dodd-Frank Wall Street
Reform and Consumer Protection Act (the “Dodd-Frank
Act”). On
July 21, 2010, the Dodd-Frank Act became law. The Dodd-Frank Act has had and
will continue to have a broad impact on the financial services
industry, including significant regulatory and compliance changes
including, among other things,
●
enhanced authority
over troubled and failing banks and their holding
companies;
●
increased capital
and liquidity requirements;
●
increased
regulatory examination fees; and
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specific provisions
designed to improve supervision and safety and soundness by
imposing restrictions and limitations on the scope and type of
banking and financial activities.
While
much of the original provisions of the Dodd-Frank Act were not
directly applicable to the Company due to size thresholds, many of
the requirements of the Dodd-Frank Act remain subject to
implementation over the course of several years. While the Company
does not currently expect the final requirements of the Dodd-Frank
Act to have a material adverse impact on the Company, we do expect
them to negatively impact our profitability, require changes to
certain of our business practices, including limitations on fee
income opportunities, and impose more stringent capital, liquidity
and leverage requirements upon the Company. These changes may also
require us to invest significant management attention and resources
to evaluate and make any changes necessary to comply with the new
statutory and regulatory requirements.
In May
2018, the Economic Growth, Regulatory Relief and Consumer
Protection Act (the “Economic Growth Act”), was enacted
to modify or remove certain financial reform rules and regulations,
including some of those implemented under the Dodd-Frank Act. While
the Economic Growth Act maintains most of the regulatory structure
established by the Dodd-Frank Act, it amends certain aspects of the
regulatory framework for small depository institutions with assets
less than $10 billion and for large banks with assets of more than
$50 billion. Many of these changes could result in meaningful
regulatory changes for banks and their holding
companies.
The
Economic Growth Act, among other matters, expands the definition of
qualified mortgages which may be held by a financial institution
and provides for an alternative capital rule which financial
institutions and their holding companies with total consolidated
assets of less than $10 billion may elect to utilize. The Economic
Growth Act instructed the federal banking regulators to establish a
single “Community Bank Leverage Ratio” of between 8%
and 10%, which has been proposed to be 9% by the federal
regulators. The Community Bank Leverage Ratio provides for a
simpler calculation of a bank’s capital ratio than the Basel
III provisions currently in place (see below). Any qualifying
depository institution or its holding company that exceeds the
Community Bank Leverage Ratio will be considered to have met
generally applicable leverage and risk-based regulatory capital
requirements and any qualifying depository institution that exceeds
the new ratio will be considered to be “well
capitalized” under the prompt corrective action rules. In
addition, the Economic Growth Act includes regulatory relief for
community banks of certain sizes regarding regulatory examination
cycles, call reports, the Volcker Rule (proprietary trading
prohibitions), mortgage disclosures and risk weights for certain
high-risk commercial real estate loans. We continue to evaluate the
impact that the rules issued thus far under the Economic Growth Act
will have on the Bank, but we currently do not believe that it will
be significant. At this time, we do not expect to opt-in to the
ability to utilize the Community Bank Leverage Ratio and will
instead continue to use the Basel III standards.
It is
difficult at this time to predict when or how any new standards
under the Economic Growth Act will ultimately be applied to, or
what specific impact the Economic Growth Act and the
yet-to-be-written implementing rules and regulations will have on
us.
Capital
Adequacy. At
December 31, 2019, the Bank exceeded each of its capital
requirements with a Tier 1 leverage capital ratio of 11.61%, common
equity Tier 1 risk-based capital ratio of 15.09%, Tier 1 risk-based
capital ratio of 15.09% and total risk-based capital ratio of
15.79%. At December 31, 2019, the Company also exceeded each of its
capital requirements with a Tier 1 leverage capital ratio of
11.91%, common equity Tier 1 risk-based capital ratio of 13.79%,
Tier 1 risk-based capital ratio of 15.37% and total risk-based
capital ratio of 16.08%.
On July
2, 2013, the Federal Reserve approved a final rule that establishes
an integrated regulatory capital framework that addresses
shortcomings in certain capital requirements. The rule, which
became effective on January 1, 2015, implements in the United
States the Basel III regulatory capital reforms from the Basel
Committee on Banking Supervision and certain changes required by
the Dodd-Frank Act. The final rule:
●
established a new
minimum common equity Tier 1 risk-based capital ratio (common
equity Tier 1 capital to total risk-weighted assets) of 4.5% and
increased the minimum Tier 1 risk-based capital ratio from 4.0% to
6.0%, while maintaining the minimum total risk-based capital ratio
of 8.0% and the minimum Tier 1 leverage capital ratio of
4.0%;
●
revised the rules
for calculating risk-weighted assets to enhance their risk
sensitivity;
●
phased out trust
preferred securities and cumulative perpetual preferred stock as
Tier 1 capital;
●
added a requirement
to maintain a minimum conservation buffer, composed of common
equity Tier 1 capital, of 2.5% of risk-weighted assets, to be
applied to the new common equity Tier 1 risk-based capital ratio,
the Tier 1 risk-based capital ratio and the Total risk-based
capital ratio, which means that banking organizations, on a fully
phased in basis no later than January 1, 2019, must maintain a
minimum common equity Tier 1 risk-based capital ratio of 7.0%, a
minimum Tier 1 risk-based capital ratio of 8.5% and a minimum Total
risk-based capital ratio of 10.5%; and
●
changed the
definitions of capital categories for insured depository
institutions for purposes of the Federal Deposit Insurance
Corporation Improvement Act of 1991 prompt corrective action
provisions. Under these revised definitions, to be considered
well-capitalized, an insured depository institution must have a
Tier 1 leverage capital ratio of at least 5.0%, a common equity
Tier 1 risk-based capital ratio of at least 6.5%, a Tier 1
risk-based capital ratio of at least 8.0% and a total risk-based
capital ratio of at least 10.0%.
The new
minimum regulatory capital ratios and changes to the calculation of
risk-weighted assets became effective for the Bank and the Company
on January 1, 2015. The required minimum conservation buffer was
phased in incrementally, starting at 0.625% on January 1, 2016 and
increased to 1.25% on January 1, 2017, 1.875% on January 1, 2018,
and 2.5% on January 1, 2019.
The
final rule established common equity Tier 1 capital as a new
capital component. Common equity Tier 1 capital consists of common
stock instruments that meet the eligibility criteria in the final
rule, retained earnings, accumulated other comprehensive
income/loss and common equity Tier 1 minority interest. As a
result, Tier 1 capital has two components: common equity Tier 1
capital and additional Tier 1 capital. The final rule also revised
the eligibility criteria for inclusion in additional Tier 1 and
Tier 2 capital. As a result of these changes, certain
non-qualifying capital instruments, including cumulative preferred
stock and trust preferred securities, are excluded as a component
of Tier 1 capital for institutions of the size of the
Company.
The
final rule further requires that certain items be deducted from
common equity Tier 1 capital, including (1) goodwill and other
intangible assets, other than mortgage servicing rights, net of
deferred tax liabilities (“DTLs”); (2) deferred tax
assets that arise from operating losses and tax credit
carryforwards, net of valuation allowances and DTLs; (3) after-tax
gain-on-sale associated with a securitization exposure; and (4)
defined benefit pension fund assets held by a depository
institution holding company, net of DTLs. In addition, banking
organizations must deduct from common equity Tier 1 capital the
amount of certain assets, including mortgage servicing assets, that
exceed certain thresholds. The final rule also allows all but the
largest banking organizations to make a one-time election not to
recognize unrealized gains and losses on available for sale debt
securities in regulatory capital, as under prior capital
rules.
The
final rule provides that the failure to maintain the minimum
conservation buffer will result in restrictions on capital
distributions and discretionary cash bonus payments to executive
officers. If a banking organization’s conservation buffer is
less than 0.625%, the banking organization may not make any capital
distributions or discretionary cash bonus payments to executive
officers. If the conservation buffer is greater than 0.625% but not
greater than 1.25%, capital distributions and discretionary cash
bonus payments are limited to 20% of net income for the four
calendar quarters preceding the applicable calendar quarter (net of
any such capital distributions), or eligible retained income. If
the conservation buffer is greater than 1.25% but not greater than
1.875%, the limit is 40% of eligible retained income, and if the
conservation buffer is greater than 1.875% but not greater than
2.5%, the limit is 60% of eligible retained income. The preceding
thresholds for the conservation buffer and related restrictions
represent the fully phased in rules effective no later than January
1, 2019. Such thresholds were phased in incrementally throughout
the phase in period, with the lowest thresholds having become
effective January 1, 2016.
Dividend and Repurchase
Limitations. Federal
regulations provide that the Company must obtain Federal Reserve
approval prior to repurchasing its common stock for consideration
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 a “well capitalized”
bank holding company; (ii) received a one or two rating in its last
examination; and (iii) is not the subject of any unresolved
supervisory issues.
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. 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. As a
member of the FDIC, our deposits are insured up to applicable
limits by the FDIC, and such insurance is backed by the full faith
and credit of the United States Government. The basic deposit
insurance level is generally $250,000, as specified in FDIC
regulations. For this protection, each insured bank pays a
quarterly statutory assessment and is subject to the rules and
regulations of the FDIC.
We
recognized approximately $119,000, $328,000, and $347,000 in FDIC
insurance expense in 2019, 2018, and 2017, respectively. In
November 2018, the FDIC announced that the Deposit Insurance Fund
(“DIF”) reserve ratio exceeded the statutory minimum of
1.35% as of September 30, 2018. Among other things, this resulted
in the FDIC awarding assessment credits for banks with less than
$10 billion in total assets that had contributed to the DIF in
prior years. We were notified in January 2019 that we had received
approximately $272,000 in credits that would be available to offset
deposit insurance assessments once the DIF reached 1.38%. The DIF
reached 1.38% as of June 30, 2019 and therefore, the FDIC began to
apply the Bank’s credits to our quarterly deposit insurance
assessments beginning with the second quarter of 2019. We expect to
utilize all credits by end of the first quarter of 2020, and thus
we expect our FDIC insurance expense to increase in 2020 compared
to 2019.
The
FDIC may conduct examinations of and require reporting by
FDIC-insured institutions. It may also prohibit an institution from
engaging in any activity that it determines by regulation or order
to pose a serious risk to the deposit insurance fund and may
terminate the Bank’s deposit insurance if it determines that
the institution has engaged in unsafe or unsound practices or is in
an unsafe or unsound condition.
Federal Home Loan Bank
System. The Federal
Home Loan Bank (“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 0.20% (or 20 basis points)
of the Bank’s total assets at the end of each calendar year,
plus 4.25% of its outstanding advances (borrowings) from the FHLB
of Atlanta under the new activity-based stock ownership
requirement. On December 31, 2019, 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
February 2017.
Changes in Control.
The BHCA prohibits the Company from acquiring direct or indirect
control of more than 5% of the outstanding voting stock or
substantially all of the assets of any bank or savings bank or
merging or consolidating with another bank or financial holding
company or savings bank holding company without prior approval of
the Federal Reserve. Similarly, Federal Reserve approval (or, in
certain cases, non-objection) must be obtained prior to any person
acquiring control of the Company. Control is deemed to exist if,
among other things, a person acquires 25% or more of any class of
voting stock of the Company or controls in any manner the election
of a majority of the directors of the Company.
Federal Securities
Law. The Company has
registered its common stock with the Securities and Exchange
Commission (“SEC”) pursuant to Section 12(g) of the
Securities Exchange Act of 1934, as amended from time to time (the
“Exchange Act”). As a result of such registration, the
proxy and tender offer rules, insider trading reporting
requirements, annual and periodic reporting and other requirements
of the Exchange Act are applicable to the Company.
Transactions with
Affiliates. Under current federal law,
depository institutions are subject to the restrictions contained
in Section 22(h) of the Federal Reserve Act with respect to loans
to directors, executive officers and principal shareholders. Under
Section 22(h), loans to directors, executive officers and
shareholders who own more than 10% of a depository institution (18%
in the case of institutions located in an area with less than
30,000 in population), and certain affiliated entities of any of
the foregoing, may not exceed, together with all other outstanding
loans to such person and affiliated entities, the
institution’s loans-to-one-borrower limit (as discussed
below). Section 22(h) also prohibits loans above amounts prescribed
by the appropriate federal banking agency to directors, executive
officers and shareholders who own more than 10% of an institution,
and their respective affiliates, unless such loans are approved in
advance by a majority of the board of directors of the institution.
Any “interested” director may not participate in the
voting. The FDIC has prescribed the loan amount (which includes all
other outstanding loans to such person), as to which such prior
board of director approval is required, as being the greater of
$25,000 or 5% of capital and surplus (up to $500,000). Further,
pursuant to Section 22(h), the Federal Reserve requires that loans
to directors, executive officers, and principal shareholders be
made on terms substantially the same as offered in comparable
transactions with non-executive employees of the Bank. The FDIC has
imposed additional limits on the amount a bank can loan to an
executive officer.
Loans to One
Borrower. The
Bank is subject to the loans-to-one-borrower limits imposed by
North Carolina law, which are substantially the same as those
applicable to national banks. Under these limits, no loans and
extensions of credit to any borrower outstanding at one time and
not fully secured by readily marketable collateral shall exceed 15%
of the Bank’s total equity capital. At December 31, 2019,
this limit was $22.4 million. This limit is increased by an
additional 10% of the Bank’s total equity capital, or $37.3
million as of December 31, 2019, for loans and extensions of credit
that are fully secured by readily marketable
collateral.
Gramm-Leach-Bliley
Act. The federal Gramm-Leach-Bliley Act (the “GLB
Act”) dramatically changed various federal laws governing the
banking, securities and insurance industries. The GLB Act expanded
opportunities for banks and bank holding companies to provide
services and engage in other revenue-generating activities that
previously were prohibited. In doing so, it increased competition
in the financial services industry, presenting greater
opportunities for our larger competitors, which were more able to
expand their service and products than smaller, community-oriented
financial institutions, such as the Bank.
USA Patriot Act of
2001. The
Uniting and Strengthening America by
Providing Appropriate Tools Required to Intercept and Obstruct
Terrorism Act (the “Patriot Act”) was enacted in
response to the terrorist attacks that occurred in New York,
Pennsylvania and Washington, D.C. on September 11, 2001. The
Patriot Act was intended to strengthen the ability of U.S. law
enforcement and the intelligence community to work cohesively to
combat terrorism on a variety of fronts. The impact of the Patriot
Act on financial institutions of all kinds has been significant and
wide ranging. The Patriot Act contains sweeping anti-money
laundering and financial transparency laws and requires various
regulations, including standards for verifying customer
identification at account opening, and rules to promote cooperation
among financial institutions, regulators, and law enforcement
entities in identifying parties that may be involved in terrorism
or money laundering.
Interstate Banking and
Branching. The BHCA was amended by the Interstate Banking
Act. The Interstate Banking Act provides that adequately
capitalized and managed financial and bank holding companies are
permitted to acquire banks in any state. State law prohibiting
interstate banking or discriminating against out-of-state banks is
preempted. States are not permitted to enact laws opting out of
this provision; however, states are allowed to adopt a minimum age
restriction requiring that target banks located within the state be
in existence for a period of years, up to a maximum of five years,
before a bank may be subject to the Interstate Banking Act. The
Interstate Banking Act, as amended by the Dodd-Frank Act,
establishes deposit caps which prohibit acquisitions that result in
the acquiring company controlling 30% or more of the deposits of
insured banks and thrift institutions held in the state in which
the target maintains a breach or 10% or more of the deposits
nationwide. States have the authority to waive the 30% deposit cap.
State-level deposit caps are not preempted as long as they do not
discriminate against out-of-state companies, and the federal
deposit caps apply only to initial entry acquisitions.
Sarbanes-Oxley Act of
2002. The
Sarbanes-Oxley Act of 2002 mandates for public companies a variety
of reforms intended to address corporate and accounting fraud and
provides for the establishment of the Public Company Accounting
Oversight Board (the “PCAOB”) which enforces auditing,
quality control and independence standards for firms that audit
SEC-reporting companies. The Sarbanes-Oxley Act imposes higher
standards for auditor independence and restricts the provision of
consulting services by auditing firms to companies they audit and
requires that certain audit partners be rotated periodically. It
also requires chief executive officers and chief financial
officers, or their equivalents, to certify the accuracy of periodic
reports filed with the SEC, subject to civil and criminal penalties
if they knowingly or willfully violate this certification
requirement, and increases the oversight and authority of audit
committees of publicly traded companies.
Limits on Rates Paid on
Deposits and Brokered Deposits. FDIC regulations limit
the ability of insured depository institutions to accept, renew or
roll-over deposits by offering rates of interest which are
significantly higher than the prevailing rates of interest on
deposits offered by other insured depository institutions having
the same type of charter in such depository institution’s
normal market area. Under these regulations, “well
capitalized” depository institutions may accept, renew or
roll-over such deposits without restriction, “adequately
capitalized” depository institutions may accept, renew or
roll-over such deposits with a waiver from the FDIC (subject to
certain restrictions on payments of rates) and
“undercapitalized” depository institutions may not
accept, renew, or roll-over such deposits. Definitions of
“well capitalized,” “adequately
capitalized” and “undercapitalized” are the same
as the definitions adopted by federal banking agencies to implement
the prompt corrective action provisions discussed
above.
Other. Additional regulations require
annual examinations of all insured depository institutions by the
appropriate federal banking agency and establish operational and
managerial, asset quality, earnings and stock valuation standards
for insured depository institutions, as well as compensation
standards.
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, equal credit and 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.
Future Requirements.
Statutes and regulations, which contain wide-ranging proposals for
altering the structures, regulations and competitive relationships
of financial institutions, are introduced regularly. Neither the
Company nor the Bank can predict whether or what form any proposed
statute or regulation will be adopted or the extent to which the
business of the Company or the Bank may be affected by such statute
or regulation.
Available Information
The
Company makes its Annual Report on Form 10-K, Quarterly Reports on
Form 10-Q, Current Reports on Form 8-K and amendments to those
reports available free of charge on its internet website
www.peoplesbanknc.com
as soon as reasonably practicable after the reports are
electronically filed with the SEC. The Company’s Annual
Report on Form 10-K and Quarterly Reports on Form 10-Q are also
available on its internet website in interactive data format using
the eXtensible Business Reporting Language (XBRL), which allows
financial statement information to be downloaded directly into
spreadsheets, analyzed in a variety of ways using commercial
off-the-shelf software and used within investment models in other
software formats. The SEC maintains an Internet site that contains
reports, proxy information, statements and other information filed
by the Company with the SEC electronically. These filings are also
accessible on the SEC’s website at https://www.sec.gov.
The
Company maintains an internet website at www.peoplesbanknc.com.
The Company’s corporate governance policies, including the
charters of the Audit and Enterprise Risk, Compensation, and
Governance Committees, and the Code of Business Conduct and Ethics
may be found on the Company’s website. A written copy of the
foregoing corporate governance policies is available upon written
request to the Company. Information included on the Company’s
website is not incorporated by reference into this Annual
Report.
ITEM 1A.
RISK
FACTORS
The
following are potential risks that management considers material
and that could affect the future operating results and financial
condition of the Bank and the Company. The risks are not listed in
any particular order of importance, and there is the potential that
there are other risks that have either not been identified or that
management believed to be immaterial but which could in fact
adversely affect the operating results and financial condition of
the Bank and the Company.
If any
of the following risks actually occur, the Company’s
financial condition and results of operations could be materially
and adversely affected. If this were to happen, the value of the
Company’s common stock could decline significantly, and you
could lose all or part of your investment.
Our business could be adversely affected by current conditions in
the financial markets and economic conditions
generally.
Our
business is subject to periodic fluctuations based on national,
regional and local economic conditions. These fluctuations are not
predictable, cannot be controlled, and may have a material adverse
impact on our operations and financial condition. Sustained
weakness or weakening in business and economic conditions generally
or specifically in the principal markets in which we do business
could have one or more of the following adverse effects on our
business:
●
a decrease in the
demand for loans or other products and services offered by
us;
●
a decrease in the
value of our loans or other assets secured by consumer or
commercial real estate;
●
a decrease in
deposit balances due to overall reductions in the accounts of
customers;
●
an impairment of
certain intangible assets or investment securities;
●
a decreased ability
to raise additional capital on terms acceptable to us or at all;
or
●
an increase in the
number of borrowers who become delinquent, file for protection
under bankruptcy laws or default on their loans or other
obligations to us. An increase in the number of delinquencies,
bankruptcies or defaults could result in a higher level of
nonperforming assets, net charge-offs and provision for credit
losses, which would reduce our earnings.
11
Financial reform legislation enacted by Congress and resulting
regulations have increased, and are expected to continue to
increase our costs of operations.
Congress enacted
the Dodd-Frank Act in 2010. This law has significantly changed the
structure of the bank regulatory system and affects the lending,
deposit, investment, trading and operating activities of financial
institutions and their holding companies. The Dodd-Frank Act
requires various federal agencies to adopt a broad range of new
implementing rules and regulations, and to prepare numerous studies
and reports for Congress. The federal agencies are given
significant discretion in drafting the implementing rules and
regulations. Although some of these regulations have been
promulgated, additional regulations could be issued.
It is
difficult to quantify what specific impact the Dodd-Frank Act and
related regulations have had on the Company to date and what impact
yet to be written regulations will have on us in the future.
However, it is expected that at a minimum they will increase our
operating and compliance costs and could increase our interest
expense.
Notwithstanding the
foregoing, on February 3, 2017, the President of the United States
issued an executive order identifying “core principles”
for the administration’s financial services regulatory policy
and directing the Secretary of the Treasury, in consultation with
the heads of other financial regulatory agencies, to evaluate how
the current regulatory framework promotes or inhibits the
principles and what actions have been, and are being, taken to
promote the principles. In response to the executive order, on June
12, 2017, October 6, 2017 and October 26, 2017, respectively, the
U.S. Department of the Treasury issued the first three of four
reports recommending a number of comprehensive changes in the
current regulatory system for U.S. depository institutions, the
U.S. capital markets and the U.S. asset management and insurance
industries that may serve to reduce the impact of existing and
future regulations on our operations. There can be no assurance
that such regulations will be implemented or that they will reduce
the impact of existing and future regulations on our
operations.
Increases in FDIC insurance premiums may adversely affect the
Company’s net income and profitability.
The
Company is generally unable to control the amount of premiums that
the Bank is required to pay for FDIC insurance. If there are bank
or financial institution failures that exceed the FDIC’s
expectations, the Bank may be required to pay higher FDIC premiums
than those currently in force. Any future increases or required
prepayments of FDIC insurance premiums may adversely impact the
Company’s earnings and financial condition.
Market developments may adversely affect our industry, business and
results of operations.
Significant
declines in the residential or commercial real estate markets, with
falling prices and increasing foreclosures and unemployment, can
result in significant write-downs of asset values by many financial
institutions, including government-sponsored entities and major
commercial and investment banks. As a consequence, the credit
quality of banks may quickly deteriorate and their net income and
results of operations can be adversely impacted. In such situations
many lenders and institutional investors may reduce, and in some
cases, cease to provide funding to borrowers including other
financial institutions. Although the Company and the Bank are
currently “well capitalized,” we are part of the
financial system and a systemic lack of available credit, a lack of
confidence in the financial sector, increased volatility in the
financial markets and/or reduced business activity could materially
adversely affect our business, financial condition and results of
operations.
Loss of key personnel could adversely impact results.
The
success of the Bank has been and will continue to be greatly
influenced by the ability to retain the services of existing senior
management. The Bank has benefited from consistency within its
senior management team, with its top three executives averaging
more than 20 years of service with the Bank. The Company has
entered into employment contracts with each of these top management
officers. One of these officers, Joe Lampron, Executive Vice
President and Chief Financial Officer of the Company and the Bank,
has announced his intention to retire in June 2020. The inability
to retain qualified personnel to replace Mr. Lampron, the loss of
the services of any other key management personnel, or the
inability to recruit and retain qualified personnel in the future,
could have an adverse impact on the business and financial results
of the Bank.
A significant amount of the Bank’s business is concentrated
in lending which is secured by property located in the Catawba
Valley and surrounding areas.
In
addition to the financial strength and cash flow characteristics of
the borrower in each case, the Bank often secures its loans with
real estate collateral. The real estate collateral in each case
provides an alternate source of repayment in the event of default
by the borrower and may deteriorate in value during the time the
credit is extended. If the Bank is required to liquidate the
collateral securing a loan during a period of reduced real estate
values to satisfy the debt, the Bank’s earnings and capital
could be adversely affected.
Additionally, with
most of the Bank’s loans concentrated in the Catawba Valley
and surrounding areas, a decline in local economic conditions could
adversely affect the values of the Bank’s real estate
collateral. Consequently, a decline in local economic conditions
may have a greater effect on the Bank’s earnings and capital
than on the earnings and capital of larger financial institutions
whose real estate loan portfolios are more geographically
diverse.
Our allowance for loan losses may be insufficient and could
therefore reduce earnings.
The
risk of credit losses on loans varies with, among other things,
general economic conditions, the creditworthiness of the borrower
over the term of the loan and, in the case of a collateralized
loan, the value and marketability of the collateral for the loan.
Management maintains an allowance for loan losses based upon, among
other things, historical experience, an evaluation of economic
conditions and regular reviews of delinquencies and loan portfolio
quality. Management believes it has established the allowance in
accordance with U.S. Generally Accepted Accounting Principles
(“GAAP”) and in consideration of the current economic
environment. Although management uses the best information
available to make evaluations, significant future additions to the
allowance may be necessary based on changes in economic and other
conditions, thus adversely affecting the operating results of the
Company. If management’s assumptions and judgments prove to
be incorrect and the allowance for loan losses is inadequate to
absorb future losses, or if the bank regulatory authorities require
the Bank to increase the allowance for loan losses as a part of
their examination process, the Bank’s earnings and capital
could be significantly and adversely affected. For further
discussion related to our process for determining the appropriate
level of the allowance for loan losses, see “Allowance for
Loan Losses” within “Item 7. Management’s
Discussion and Analysis of Financial Condition and Results and
Operation” of the Annual Report, which is included in this
Form 10-K as Exhibit (13).
In
addition, the measure of our allowance for loan losses is dependent
on the adoption of new accounting standards. The FASB issued an
Accounting Standards Update related to current expected credit
losses (“CECL”), the new credit impairment model, which
is expected to be implemented by the Company for reporting periods
beginning on January 1, 2023. This new model requires financial
institutions to estimate and develop a provision for credit losses
at origination for the lifetime of the loan, as opposed to
reserving for probable incurred losses up to the balance sheet
date. Under the CECL model, credit deterioration will be reflected
in the income statement in the period of origination or acquisition
of the loan, with changes in expected credit losses due to further
credit deterioration or improvement reflected in the periods in
which the expectation changes.
The
CECL framework is expected to result in earlier recognition of
credit losses and is expected to be significantly influenced by the
composition, characteristics and quality of the Company's loan
portfolio, as well as the prevailing economic conditions and
forecasts. The Company will initially apply the impact of the new
guidance through a cumulative-effect adjustment to retained
earnings as of the beginning of the year of
implementation.
The
CECL standard provides significant flexibility and requires a high
degree of judgment with regards to pooling financial assets with
similar risk characteristics and adjusting the relevant historical
loss information in order to develop an estimate of expected
lifetime losses. Providing for losses over the life of the
Bank’s loan portfolio is a change to the previous method of
providing allowances for loan losses that are probable and
incurred. This change may require us to increase our allowance for
loan losses rapidly in future periods, and greatly increases the
types of data we need to collect and review to determine the
appropriate level of the allowance for loan losses. It may also
result in even small changes to future forecasts having a
significant impact on the allowance, which could make the allowance
more volatile, and regulators may impose additional capital buffers
to absorb this volatility.
Changes in interest rates affect profitability and
assets.
Changes
in prevailing interest rates may hurt the Bank’s business.
The Bank derives its income primarily from the difference or
“spread” between the interest earned on loans,
securities and other interest-earning assets, and interest paid on
deposits, borrowings and other interest-bearing liabilities. In
general, the larger the spread, the more the Bank earns. When
market rates of interest change, the interest the Bank receives on
its assets and the interest the Bank pays on its liabilities will
fluctuate. This can cause decreases in the “spread” and
can adversely affect the Bank’s income. Changes in market
interest rates could reduce the value of the Bank’s financial
assets. Fixed-rate investments, mortgage-backed and related
securities and mortgage loans generally decrease in value as
interest rates rise. In addition, interest rates affect how much
money the Bank lends. For example, when interest rates rise, the
cost of borrowing increases and the loan originations tend to
decrease. If the Bank is unsuccessful in managing the effects of
changes in interest rates, the financial condition and results of
operations could suffer.
We
measure interest rate risk under various rate scenarios using
specific criteria and assumptions. A summary of this process, along
with the results of our net interest income simulations, is
presented within “Item 7A. Quantitative and Qualitative
Disclosures About Market Risk” of the Annual Report which is
included in this Form 10-K as Exhibit (13).
The Bank faces strong competition from other banks and financial
institutions which can hurt its business.
The
financial services industry is highly competitive. The Bank
competes against commercial banks, savings banks, savings and loan
associations, credit unions, mortgage banks, brokerage firms,
investment advisory firms, insurance companies and other financial
institutions. Many of these entities are larger organizations with
significantly greater financial, management and other resources
than the Bank has. Moreover, two national money center commercial
banks are headquartered in Charlotte, North Carolina, only 40 miles
from the Bank’s primary market area.
While
management believes it can and does successfully compete with other
financial institutions in our market, we may face a competitive
disadvantage as a result of our smaller size and lack of geographic
diversification.
Changes in technology may impact the Bank’s
business.
The
Bank uses various technologies in its business and the banking
industry is undergoing rapid technological changes. The effective
use of technology increases efficiency and enables financial
institutions to reduce costs. The Bank’s future success will
depend in part on its ability to address the needs of its customers
by using technology to provide products and services that will
satisfy customer demands for convenience as well as create
additional efficiencies in the Bank’s operations. The
Bank’s competitors may have substantially greater resources
to invest in technological improvements.
We may be subject to examinations by taxing authorities which could
adversely affect our results of operations.
In
the normal course of business, we may be subject to examinations
from federal and state taxing authorities regarding the amount of
taxes due in connection with investments we have made and the
businesses in which we are engaged. Recently, federal and state
taxing authorities have become increasingly aggressive in
challenging tax positions taken by financial institutions. The
challenges made by taxing authorities may result in adjustments to
the timing or amount of taxable income or deductions or the
allocation of income among tax jurisdictions. If any such
challenges are made and are not resolved in our favor, they could
have an adverse effect on our financial condition and results of
operations.
As discussed in Item 3. Legal Proceedings, the
NCDOR (as defined on page 21) is seeking to disallow certain tax
credits taken by the Bank in prior tax years from an investment
made by the Bank. While the Bank purchased a Guaranty Agreement
along with the investment, which we believe limits our exposure,
there can be no assurance that the guarantor will perform under the
Guaranty Agreement or that we will recover under the Guaranty
Agreement. For additional information concerning the disallowance
of the tax credits, see Item 3. Legal Proceedings on
page 23.
Changes in our accounting policies or in accounting standards could
materially affect how we report our financial results and
condition.
Our
accounting policies are fundamental to understanding our financial
results and condition. Some of these policies require use of
estimates and assumptions that may affect the value of our assets
or liabilities and financial results. Some of our accounting
policies are critical because they require management to make
difficult, subjective and complex judgments about matters that are
inherently uncertain and because it is likely that materially
different amounts would be reported under different conditions or
using different assumptions.
From
time to time the Financial Accounting Standards Board
(“FASB”) and the SEC change the financial accounting
and reporting standards or the interpretation of those standards
that govern the preparation of our external financial statements.
These changes are beyond our control, can be hard to predict and
could materially impact how we report our results of operations and
financial condition. We could be required to apply a new or revised
standard retroactively, resulting in our restating prior period
financial statements in material amounts.
Our internal controls may be ineffective.
Management
regularly reviews and updates our internal controls, disclosure
controls and procedures, and corporate governance policies and
procedures. Any system of controls, however well designed and
operated, is based in part on certain assumptions and can provide
only reasonable, not absolute, assurances that the objectives of
the system are met. Any failure or circumvention of our controls
and procedures or failure to comply with regulations related to
controls and procedures could have a material adverse effect on our
business, results of operations, and financial
condition.
Impairment of investment securities or deferred tax assets could
require charges to earnings, which could result in a negative
impact on our results of operations.
In
assessing the impairment of investment securities, management
considers the length of time and extent to which the fair value has
been less than cost, the financial condition and near-term
prospects of the issues, and the intent and ability of the Company
to retain its investment in the issuer for a period of time
sufficient to allow for any anticipated recovery of fair value in
the near term. In assessing the future ability of the Company to
realize the deferred tax assets, management considers whether it is
more likely than not that some portion or all of the deferred tax
assets will not be realized. The ultimate realization of deferred
tax assets is dependent upon the generation of future taxable
income during the periods in which those temporary differences
become deductible. The impact of each of these impairment matters
could have a material adverse effect on our business, results of
operations, and financial condition.
We rely on other companies to provide key components of our
business infrastructure.
Third
party vendors provide key components of our business infrastructure
such as internet connections, network access and core application
processing. While we have selected these third party vendors
carefully, we do not control their actions. Any problems caused by
these third parties, including as a result of their not providing
us their services for any reason or their performing their services
poorly, could adversely affect our ability to deliver products and
services to our customers and otherwise to conduct our business and
could negatively impact our reputation. Replacing these third party
vendors could also entail significant delay and
expense.
Our information systems may experience an interruption or breach in
security.
We rely
heavily on communications and information systems to conduct our
business. Any failure, interruption, or breach in security or
operational integrity of these systems could result in failures or
disruptions in our customer relationship management, general
ledger, deposit, loan, and other systems. While we have policies
and procedures designed to prevent or limit the effect of these
possible events, there can be no assurance that any such failure,
interruption or security breach will not occur or, if any does
occur, that it can be sufficiently remediated.
There
have been increasing efforts on the part of third parties,
including through cyber-attacks, to breach data security at
financial institutions or with respect to financial transactions.
There have been numerous instances involving financial services and
consumer-based companies reporting the unauthorized disclosure of
client or customer information or the destruction or theft of
corporate data. In addition, because the techniques used to cause
such security breaches change frequently, often are not recognized
until launched against a target and may originate from less
regulated and remote areas around the world, we may be unable to
proactively address these techniques or to implement adequate
preventative measures. The ability of our customers to bank
remotely, including online and through mobile devices, requires
secure transmission of confidential information and increases the
risk of data security breaches.
The
occurrence of any failures, interruptions, or security breaches of
our information systems could damage our reputation, result in a
loss of customer business, subject us to additional regulatory
scrutiny, or expose us to civil litigation and possible financial
liability, any of which could have a material adverse effect on our
financial condition, results of operations and
business.
Liquidity is essential to our businesses.
Our
liquidity could be impaired by an inability to access the capital
markets or unforeseen outflows of cash. This situation may arise
due to circumstances that we may be unable to control, such as a
general market disruption or an operational problem that affects
third parties or us. Our credit ratings are important to our
liquidity. A reduction in our credit ratings could adversely affect
our liquidity and competitive position, increase our borrowing
costs, limit our access to the capital markets or trigger
unfavorable contractual obligations.
Negative publicity could damage our reputation
Reputation risk, or
the risk to our earnings and capital from negative public opinion,
is inherent in our business. Negative public opinion could
adversely affect our ability to keep and attract customers and
expose us to adverse legal and regulatory consequences. Negative
public opinion could result from our actual or alleged conduct in
any number of activities, including lending practices, corporate
governance, regulatory compliance, mergers and acquisitions, and
disclosure, sharing or inadequate protection of customer
information, and from actions taken by government regulators and
community organizations in response to that conduct. Our reputation
could also be adversely impacted by negative public opinion
regarding the financial services industry in general.
Financial services companies depend on the accuracy and
completeness of information about customers and
counterparties.
In
deciding whether to extend credit or enter into other transactions,
we may rely on information furnished by or on behalf of customers
and counterparties, including financial statements, credit reports,
and other financial information. We may also rely on
representations of those customers, counterparties, or other third
parties, such as independent auditors, as to the accuracy and
completeness of that information. Reliance on inaccurate or
misleading financial statements, financial advisors and
consultants, credit reports, or other financial information could
cause us to enter into unfavorable transactions, which could have a
material adverse effect on our financial condition and results of
operations.
If our non-performing assets increase, our earnings will
suffer.
Our
non-performing assets adversely affect our net income in various
ways. We do not record interest income on non-accrual loans or real
estate owned. We must reserve for probable losses, which is
established through a current period charge to the provision for
loan losses as well as from time to time, as appropriate, the write
down of the value of properties in our other real estate owned
portfolio to reflect changing market values. Additionally, there
are legal fees associated with the resolution of problem assets as
well as carrying costs such as taxes, insurance and maintenance
related to our other real estate owned. Further, the resolution of
non-performing assets requires the active involvement of
management, which can distract them from more profitable activity.
Finally, if our estimate for the recorded allowance for loan losses
proves to be incorrect and our allowance is inadequate, we will
have to increase the allowance accordingly.
Our loan portfolio includes loans with a higher risk of
loss.
We
originate commercial real estate loans, commercial loans,
construction and land development loans, and residential mortgage
loans primarily within our market area. Commercial real estate,
commercial, and construction and land development loans tend to
involve larger loan balances to a single borrower or groups of
related borrowers and are most susceptible to a risk of loss during
a downturn in the business cycle. These loans also have
historically had greater credit risk than other loans for the
following reasons:
●
Commercial Real Estate Loans. Repayment
is dependent on income being generated in amounts sufficient to
cover operating expenses and debt service. These loans also involve
greater risk because they are generally not fully amortizing over a
loan period, but rather have a balloon payment due at maturity. A
borrower’s ability to make a balloon payment typically will
depend on being able to either refinance the loan or timely sell
the underlying property. As of December 31, 2019, commercial real
estate loans comprised approximately 34% of the Bank’s total
loan portfolio.
●
Commercial Loans. Repayment is
generally dependent upon the successful operation of the
borrower’s business. In addition, the collateral securing the
loans may depreciate over time, be difficult to appraise, be
illiquid, or fluctuate in value based on the success of the
business. As of December 31, 2019, commercial loans comprised
approximately 12% of the Bank’s total loan
portfolio.
●
Construction and land development
loans. The risk of loss is largely dependent on our initial
estimate of whether the property’s value at completion equals
or exceeds the cost of property construction and the availability
of take-out financing. During the construction phase, a number of
factors can result in delays or cost overruns. If our estimate is
inaccurate or if actual construction costs exceed estimates, the
value of the property securing our loan may be insufficient to
ensure full repayment when completed through a permanent loan, sale
of the property, or by seizure of collateral. As of December 31,
2019, construction and land development loans comprised
approximately 11% of the Bank’s total loan
portfolio.
●
Single-family residential loans.
Declining home sales volumes, decreased real estate values and
higher than normal levels of unemployment could contribute to
losses on these loans. As of December 31, 2019, single-family
residential loans comprised approximately 35% of the Bank’s
total loan portfolio, including Banco single-family residential
non-traditional loans which were approximately 4% of the
Bank’s total loan portfolio.
Because we engage in lending secured by real estate and may be
forced to foreclose on the collateral property and own the
underlying real estate, we may be subject to the increased costs
associated with the ownership of real property, which could result
in reduced net income.
Since
we originate loans secured by real estate, we may have to foreclose
on the collateral property to protect our investment and may
thereafter own and operate such property, in which case we are
exposed to the risks inherent in the ownership of real estate. The
amount that we, as a mortgagee, may realize after a default is
dependent upon factors outside of our control, including, but not
limited to:
●
general or local
economic conditions;
●
environmental
cleanup liability;
●
neighborhood
values;
●
interest
rates;
●
real estate tax
rates;
●
operating expenses
of the mortgaged properties;
●
supply of and
demand for rental units or properties;
●
ability to obtain
and maintain adequate occupancy of the properties;
●
zoning
laws;
●
governmental rules,
regulations and fiscal policies; and
●
acts of
God.
Certain
expenditures associated with the ownership of real estate,
principally real estate taxes and maintenance costs, may adversely
affect the income from the real estate. Therefore, the cost of
operating real property may exceed the rental income earned from
such property, and we may have to advance funds in order to protect
our investment or we may be required to dispose of the real
property at a loss.
We are subject to extensive regulation and oversight,
and depending upon the findings and
determinations of our regulatory authorities, we may be required to
make adjustments to our business, operations or financial position
and could become subject to formal or informal regulatory
action.
We are
subject to extensive regulation and supervision, including
examination by federal and state banking regulators. Federal and
state regulators have the ability to impose substantial sanctions,
restrictions and requirements on us if they determine, upon
conclusion of their examination or otherwise, violations of laws
with which we must comply or weaknesses or failures with respect to
general standards of safety and soundness, including, for example,
in respect of any financial concerns that the regulators may
identify and desire for us to address. Such enforcement may be
formal or informal and can include directors’ resolutions,
memoranda of understanding, consent orders, civil money penalties
and termination of deposit insurance and bank closure. Enforcement
actions may be taken regardless of the capital levels of the
institution, and regardless of prior examination findings. In
particular, institutions that are not sufficiently capitalized in
accordance with regulatory standards may also face capital
directives or prompt corrective actions. Enforcement actions may
require certain corrective steps (including staff additions or
changes), impose limits on activities (such as lending, deposit
taking, acquisitions, paying dividends or branching), prescribe
lending parameters (such as loan types, volumes and terms) and
require additional capital to be raised, any of which could
adversely affect our financial condition and results of operations.
The imposition of regulatory sanctions, including monetary
penalties, may have a material impact on our financial condition
and results of operations and/or damage our reputation. In
addition, compliance with any such action could distract
management’s attention from normal operations, cause us to
incur significant expenses, restrict us from engaging in
potentially profitable activities and limit our ability to raise
capital.
We face risks related to the Bank Secrecy Act and other anti-money
laundering statutes and regulations.
The
federal Bank Secrecy Act, the Patriot Act and other laws and
regulations require financial institutions, among other duties, to
institute and maintain effective anti-money laundering programs and
file suspicious activity and currency transaction reports as
appropriate. The FINCEN, established by the Treasury to administer
the Bank Secrecy Act, is authorized to impose significant civil
money penalties for violations of those requirements and has
recently engaged in coordinated enforcement efforts with the
individual federal banking regulators, as well as the U.S.
Department of Justice, Drug Enforcement Administration and Internal
Revenue Service. There is also increased scrutiny of compliance
with the rules enforced by the Office of Foreign Assets Control.
Federal and state bank regulators also examine for compliance with
Bank Secrecy Act and anti-money laundering regulations. If our
policies, procedures and systems are deemed deficient or the
policies, procedures and systems of the financial institutions that
we have already acquired or may acquire in the future are
deficient, we could be subject to liability, including fines and
regulatory actions such as restrictions on our ability to pay
dividends and the necessity to obtain regulatory approvals to
proceed with certain aspects of our business plan which would
negatively impact our business, financial condition and results of
operations. Failure to maintain and implement adequate programs to
combat money laundering and terrorist financing could also have
serious reputational consequences for us.
Consumers may decide not to use banks to complete their financial
transactions.
Technology
and other changes are allowing parties to complete financial
transactions through alternative methods that historically have
involved banks. For example, consumers can now maintain funds that
would have historically been held as bank deposits in brokerage
accounts, mutual funds or general-purpose reloadable prepaid cards.
Consumers can also complete transactions such as paying bills
and/or transferring funds directly without the assistance of banks.
The process of eliminating banks as intermediaries, known as
“disintermediation,” could result in the loss of fee
income, as well as the loss of customer deposits and the related
income generated from those deposits. The loss of these revenue
streams and the lower cost of deposits as a source of funds could
have a material adverse effect on our financial condition and
results of operations.
The
soundness of other financial institutions could adversely affect
us.
Our
ability to engage in routine funding transactions could be
adversely affected by the actions and commercial soundness of other
financial institutions. Financial services companies are
interrelated as a result of trading, clearing, counterparty or
other relationships. We have exposure to many different industries
and counterparties, and we routinely execute transactions with
counterparties in the financial services industry, including
brokers and dealers, commercial banks, and investment banks.
Defaults by, or even rumors or questions about, one or more
financial services companies, or the financial services industry
generally, have led to market-wide liquidity problems and could
lead to losses or defaults by us or by other institutions. Such
losses could materially and adversely affect our business,
financial condition or results of operations.
We are subject to federal and state fair lending laws, and failure
to comply with these laws could lead to material
penalties.
Federal
and state fair lending laws and regulations, such as the Equal
Credit Opportunity Act and the Fair Housing Act, impose
nondiscriminatory lending requirements on financial institutions.
The Department of Justice, the Consumer Finance Protection Bureau
and other federal and state agencies are responsible for enforcing
these laws and regulations. A successful challenge to our
performance under the fair lending laws and regulations could
adversely impact our CRA rating and result in a wide variety of
sanctions, including the required payment of damages and civil
money penalties, injunctive relief, imposition of restrictions on
or delays in approving merger and acquisition activity and
restrictions on expansion activity, which could negatively impact
our reputation, business, financial condition and results of
operations.
We are subject to losses due to errors, omissions or fraudulent
behavior by our employees, clients, counterparties or other third
parties.
We
are exposed to many types of operational risk, including the risk
of fraud by employees and third parties, clerical recordkeeping
errors and transactional errors. Our business is dependent on our
employees as well as third-party service providers to process a
large number of increasingly complex transactions. We could be
materially and adversely affected if employees, clients,
counterparties or other third parties caused an operational
breakdown or failure, either as a result of human error, fraudulent
manipulation or purposeful damage to any of our operations or
systems.
In
deciding whether to extend credit or to enter into other
transactions with clients and counterparties, we may rely on
information furnished to us by or on behalf of clients and
counterparties, including financial statements and other financial
information, which we do not independently verify. We also may rely
on representations of clients and counterparties as to the accuracy
and completeness of that information and, with respect to financial
statements, on reports of independent auditors. For example, in
deciding whether to extend credit to a client, we may assume that
the client’s audited financial statements conform with GAAP
and present fairly, in all material respects, the financial
condition, results of operations and cash flows of the client. Our
financial condition and results of operations could be negatively
affected to the extent we rely on financial statements that do not
comply with GAAP or are materially misleading, any of which could
be caused by errors, omissions, or fraudulent behavior by our
employees, clients, counterparties, or other third
parties.
The trading volume in our common stock is less than that of larger
public companies which can cause price volatility.
The
trading history of our common stock has been characterized by
relatively low trading volume. The value of a shareholder’s
investment may be subject to sudden decreases due to the volatility
of the price of our common stock, which trades on the NASDAQ Global
Market.
The
market price of our common stock may be volatile and subject to
fluctuations in response to numerous factors, including, but not
limited to, the factors discussed in other risk factors and the
following:
●
actual
or anticipated fluctuation in our operating results;
●
changes
in interest rates;
●
changes
in the legal or regulatory environment in which we
operate;
●
press
releases, announcements or publicity relating to us or our
competitors or relating to trends in our industry;
●
changes
in expectations as to our future financial performance, including
financial estimates or recommendations by securities analysts and
investors;
●
future
sales of our common stock;
●
changes
in economic conditions in our market, general conditions in the
U.S. economy, financial markets or the banking
industry; and
●
other
developments affecting our competitors or us.
These
factors may adversely affect the trading price of our common stock,
regardless of our actual operating performance, and could prevent a
shareholder from selling common stock at or above the current
market price. These factors may also adversely affect the
Company’s ability to raise capital in the open market if
needed. In addition, the Company cannot say with any certainty that
a more active and liquid trading market for its common stock will
develop.
Our
stock price can be volatile.
Stock price
volatility may make it more difficult for you to resell your common
stock when you want and at prices you find attractive. Our stock
price can fluctuate significantly in response to a variety of
factors including, among other things:
●
actual or
anticipated variations in quarterly results of
operations;
●
recommendations by
securities analysts;
●
operating results
and stock price performance of other companies that investors deem
comparable to us;
●
news reports
relating to trends, concerns, and other issues in the financial
services industry;
●
perceptions in the
marketplace regarding us and/or our competitors;
●
new technology used
or services offered by competitors;
●
significant
acquisitions or business combinations, strategic partnerships,
joint ventures, or capital commitments by or involving us or our
competitors; and
●
changes in
government regulations.
Our common stock is not FDIC insured.
The
Company’s common stock is not a savings or deposit account or
other obligation of any bank and is not insured by the FDIC or any
other governmental agency and is subject to investment risk,
including the possible loss of principal. Investment in our common
stock is inherently risky for the reasons described in this
“Risk Factors” section and elsewhere in this report and
is subject to the same market forces that affect the price of
common stock in any company. As a result, holders of our common
stock may lose some or all of their investment.
We may reduce or eliminate dividends on our common
stock.
Although we have
historically paid a quarterly cash dividend to the holders of our
common stock, holders of our common stock are not entitled to
receive dividends. Downturns in the domestic and global economies
could cause our Board of Directors to consider, among other things,
reducing or eliminating dividends paid on our common stock. This
could adversely affect the market price of our common stock.
Furthermore, as a bank holding company, our ability to pay
dividends is subject to the guidelines of the Federal Reserve
regarding capital adequacy and dividends before declaring or paying
any dividends. Dividends also may be limited as a result of safety
and soundness considerations.
We may need additional access to capital, which we may be unable to
obtain on attractive terms or at all.
We may
need to incur additional debt or equity financing in the future to
make strategic acquisitions or investments, for future growth or to
fund losses or additional provision for loan losses in the future.
Our ability to raise additional capital, if needed, will depend in
part on conditions in the capital markets at that time, which are
outside our control, and on our financial performance. Accordingly,
we may be unable to raise additional capital, if and when needed,
on terms acceptable to it, or at all. If we cannot raise additional
capital when needed, our ability to further expand our operations
through internal growth and acquisitions could be materially
impaired and our stock price negatively affected.
Our articles of incorporation, as amended, amended and restated
bylaws, and certain banking laws may have an anti-takeover
effect.
Provisions of our
articles of incorporation, as amended, amended and restated bylaws,
and federal banking laws, including regulatory approval
requirements, could make it more difficult for a third party to
acquire us, even if doing so would be perceived to be beneficial to
our shareholders. The combination of these provisions may prohibit
a non-negotiated merger or other business combination, which, in
turn, could adversely affect the market price of our common
stock.
Our use of appraisals in deciding whether to make a loan on or
secured by real property does not ensure the value of the real
property collateral.
In
considering whether to make a loan secured by real property, we
typically require an appraisal of the property. However, an
appraisal is only an estimate of the value of the property at the
time the appraisal is made. If the appraisal does not reflect the
amount that may be obtained upon any sale or foreclosure of the
property, we may not realize an amount equal to the indebtedness
secured by the property.
Pandemics, natural disasters and geopolitical events beyond our
control could adversely affect us.
Pandemics, natural
disasters such as extreme weather conditions, hurricanes, floods,
and other acts of nature and geopolitical events involving civil
unrest, changes in government regimes, terrorism, or military
conflict could adversely affect our business operations and those
of our customers and have significant negative impacts upon
economic conditions and cause substantial damage and loss to real
and personal property. These pandemics, natural disasters and
geopolitical events could impair our borrowers' ability to service
their loans, decrease the level and duration of deposits by
customers, erode the value of loan collateral, and result in an
increase in the amount of our non-performing loans and a higher
level of non-performing assets (including real estate owned), net
charge-offs, and provision for loan losses, and could materially
and adversely affect our business, financial condition, results of
operations and the value of our common stock.
We depend on the accuracy and completeness of information about
customers.
In
deciding whether to extend credit, open a bank account or enter
into other transactions with customers, we may rely on information
furnished to us by or on behalf of customers, including financial
statements and other financial information. We also may rely on
representations of customers as to the accuracy and completeness of
that information and, with respect to financial statements, on
reports of independent auditors. We may further rely on invoices,
contracts, and other supporting documentation provided by our
customers, as well as our customers' representations that their
financial statements conform to GAAP and present fairly, in all
material respects, the financial condition, results of operations
and cash flows of the customer. We also may rely on customer
representations and certifications, or other audit or accountants'
reports, with respect to the business and financial condition of
our clients. Our financial condition, results of operations,
financial reporting or reputation could be negatively affected if
we rely on materially misleading, false, inaccurate or fraudulent
information.
A small number of large deposit relationships provide a significant
level of funding for the Bank.
The
Bank’s five largest funding relationships, including deposits
and securities sold under agreements to repurchase, amounted to
$121.9 million at December 31, 2019. These balances represent
12.30% of total deposits and securities sold under agreements to
repurchase combined at December 31, 2019. Total deposits for the
five largest relationships referenced above amounted to $107.7
million, or 11.14% of total deposits at December 31, 2019. Total
securities sold under agreements to repurchase for the five largest
relationships referenced above amounted to $14.2 million, or 58.76%
of total securities sold under agreements to repurchase at December
31, 2019. Loss of one or more of these deposit relationships could
have a negative impact on the Bank’s liquidity
position.
ITEM 1B.
UNRESOLVED
STAFF COMMENTS
Not
applicable.
ITEM 2.
PROPERTIES
At
December 31, 2019, the Company and the Bank conducted their
business from the headquarters office in Newton, North Carolina and
its 20 other branch offices in Lincolnton, Hickory, Newton,
Catawba, Conover, Claremont, Maiden, Denver, Triangle, Hiddenite,
Charlotte, Cornelius, Mooresville, Raleigh and Cary, North
Carolina. The Bank also operates loan production offices in
Charlotte, Denver and Durham North Carolina. The following table
sets forth certain information regarding the Bank’s
properties at December 31, 2019.
|
Owned
|
Leased
|
|
Corporate
Office
518
West C Street
Newton,
North Carolina 28658
|
1333
2nd Street NE
Hickory, North
Carolina 28601
|
|
|
|
|
420
West A Street
Newton,
North Carolina 28658
|
1910
East Main Street
Lincolnton, North
Carolina 28092
|
|
|
|
|
213 1st
Street, West
Conover, North
Carolina 28613
|
760
Highway 27 West
Lincolnton, North
Carolina 28092
|
|
|
|
|
3261
East Main Street
Claremont, North
Carolina 28610
|
102
Leonard Avenue
Newton,
North Carolina 28658
|
|
|
|
|
6125
Highway 16 South
Denver,
North Carolina 28037
|
6350
South Boulevard
Charlotte, North
Carolina 28217
|
|
|
|
|
5153
N.C. Highway 90E
Hiddenite, North
Carolina 28636
|
4451
Central Avenue
Suite
A
Charlotte, North
Carolina 28205
3752/3754 Highway
16 North
Denver,
North Carolina 28037
|
|
|
|
|
200
Island Ford Road
Maiden,
North Carolina 28650
|
9624-I
Bailey Road
Cornelius, North
Carolina 2803
|
|
|
|
|
3310
Springs Road NE
Hickory, North
Carolina 28601
|
3023-10
Capital Boulevard
Raleigh, North
Carolina 27604
|
|
|
|
|
142
South Highway 16
Denver,
North Carolina 28037
|
2530
Meridian Parkway
Durham,
North Carolina 27713
|
|
|
|
|
106
North Main Street
Catawba, North
Carolina 28609
|
1117
Parkside Main Street
Cary,
NC, 27519
|
|
|
|
|
2050 Catawba Valley
Boulevard
Hickory, North
Carolina 28601
|
13840
Ballantyne Corporate Place
Suite
150
Charlotte, NC
2827
|
|
|
|
|
1074
River Highway
Mooresville, North
Carolina 28117
|
|
|
|
|
ITEM 3.
LEGAL
PROCEEDINGS
On
October 19, 2018, the Bank received a draft audit report from the
North Carolina Department of Revenue (“NCDOR”) setting
forth certain proposed adjustments to the North Carolina income tax
returns for the Bank for the tax years January 1, 2014 through
December 31, 2016. The NCDOR is seeking to disallow certain tax
credits taken by the Bank in tax years January 1, 2014 through
December 31, 2016 from an investment made by the Bank. The total
proposed adjustments sought by the NCDOR as of the date of the
draft audit report (including additional tax, penalties and
interest up to the date of the draft audit report) was
approximately $1.4 million. The Bank disagrees with the
NCDOR’s proposed adjustments and the disallowance of certain
tax credits, and is challenging the proposed adjustments and the
disallowance of such tax credits. During the second quarter of
2019, the Bank paid the NCDOR $1.2 million in taxes and interest
associated with the proposed adjustments noted above. This payment
stopped the accrual of interest during the period while the
proposed adjustments and disallowance are being contested, and the
NCDOR waived associated penalties. The Bank purchased a Guaranty
Agreement along with this tax credit investment that
unconditionally guarantees the amount of its investment plus
associated penalties and interest which management believes would
limit the Bank’s exposure to approximately $125,000. The Tax
Credit Guaranty Agreement from State Tax Credit Exchange, LLC dated
September 10, 2014 was attached to the Company’s September
30, 2018 Form 10-Q as Exhibit 99.
ITEM 4.
MINE
SAFETY DISCLOSURES
Not
applicable.
PART II
ITEM
5.
MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED
STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES
The
Company’s common stock is listed on the NASDAQ Global Market,
under the symbol “PEBK.” Market makers for the
Company’s shares include Raymond James Financial, Inc. and
Hovde Group, LLC.
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, among other things, 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 amount 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. See
Supervision and Regulation under Item 1 Business.
As of
March 6, 2020, the Company had 657 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 closing
market price for the Company’s common stock was $24.50 on March 6,
2020.
STOCK
PERFORMANCE GRAPH
The
following graph compares the Company’s cumulative shareholder
return on its common stock with a NASDAQ index and with a
southeastern bank index. The graph was prepared by S&P Global
Market Intelligence, using data as of December 31,
2019.
COMPARISON
OF SIX-YEAR CUMULATIVE TOTAL RETURNS
Performance
Report for
Peoples
Bancorp of North Carolina, Inc.
Peoples Bancorp of North Carolina, Inc.
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Period Ending
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Index
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12/31/14
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12/31/15
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12/31/16
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12/31/17
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12/31/18
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12/31/19
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Peoples
Bancorp of North Carolina, Inc.
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100.00
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109.12
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144.10
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197.21
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159.94
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219.87
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NASDAQ
Composite Index
|
100.00
|
106.96
|
116.45
|
150.96
|
146.67
|
200.49
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|
SNL
Southeast Bank Index
|
100.00
|
98.44
|
130.68
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161.65
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133.56
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188.08
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Source: S&P Global Market Intelligence
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© 2020
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The
information required by Item 201(d) concerning securities
authorized for issuance under equity compensation plans is set
forth in Item 12 hereof.
ISSUER PURCHASES OF EQUITY SECURITIES
|
Period
|
Total
Number of Shares Purchased
|
Average
Price Paid per Share
|
Total
Number of Shares Purchased as Part of Publicly Announced Plans or
Programs (2)
|
Maximum
Number (or Approximate Dollar Value) of Shares that May Yet Be
Purchased Under the Plans or Programs (3)
|
|
|
|
|
|
|
|
January
1 - 31, 2019
|
-
|
$-
|
-
|
$-
|
|
|
|
|
|
|
|
February
1 - 28, 2019
|
1,047
|
26.86
|
5,518
|
$4,847,977
|
|
|
|
|
|
|
|
March
1 - 31, 2019
|
892
|
28.49
|
-
|
$4,847,977
|
|
|
|
|
|
|
|
April
1 - 30, 2019
|
958
|
27.75
|
41,501
|
$3,713,337
|
|
|
|
|
|
|
|
May
1 - 31, 2019
|
1,239
|
27.98
|
22,495
|
$3,713,337
|
|
|
|
|
|
|
|
June
1 - 30, 2019
|
652
|
29.28
|
-
|
$3,087,071
|
|
|
|
|
|
|
|
July
1 - 31, 2019
|
958
|
27.50
|
-
|
$3,087,071
|
|
|
|
|
|
|
|
August
1 - 31, 2019
|
458
|
28.16
|
20,840
|
$2,509,871
|
|
|
|
|
|
|
|
September
1 - 30, 2019
|
-
|
-
|
-
|
$2,509,871
|
|
|
|
|
|
|
|
October
1 - 31, 2019
|
938
|
29.90
|
-
|
$2,509,871
|
|
|
|
|
|
|
|
November
1 - 30, 2019
|
196
|
29.82
|
-
|
$2,509,871
|
|
|
|
|
|
|
|
December
1 - 31, 2019
|
217
|
31.47
|
-
|
$2,509,871
|
|
|
|
|
|
|
|
Total
|
7,555(1)
|
$26.60
|
90,354
|
|
(1)
The Company purchased 7,555 shares on the open market in the year
ended December 31, 2019 for its deferred compensation plan. All
purchases were funded by participant contributions to the
plan.
(2)
Reflects shares purchased under the Company's stock repurchase
program.
(3)
Reflects dollar value of shares that may yet be purchased under the
Company's stock repurchase program , which was funded in February
2019.
ITEM 6.
SELECTED
FINANCIAL DATA
The
information required by this Item is set forth in the section
captioned "Selected Financial Data" on page A-3 of the Annual
Report, which Annual Report is included in this Form 10-K as
Exhibit (13). The section captioned "Selected Financial Data" on
page A-3 of the Annual Report 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-4
through A-23 of the Annual Report, which section is included in
this Form 10-K as Exhibit (13), and which section captioned
“Management’s Discussion and Analysis of Financial
Condition and Results of Operations” 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-22 of the Annual Report, which
Annual Report is included in this Form 10-K as Exhibit (13), and
which section captioned “Quantitative and Qualitative
Disclosures About Market Risk” is incorporated herein by
reference.
ITEM 8.
FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA
The
consolidated financial statements of the Company and supplementary
data are set forth on pages A-24 through A-68 of the Annual Report,
which Annual Report is included in this Form 10-K as Exhibit (13).
The consolidated financial statements of the Company and
supplementary data set forth on pages A-24 through A-68 of the
Annual Report are incorporated herein by reference.
ITEM 9.
CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
ITEM 9A.
CONTROLS
AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
The
Company’s management, under the supervision and with the
participation of the Chief Executive Officer and the Chief
Financial Officer of the Company, has concluded, based on their
evaluation as of the end of the period covered by this Report, that
the Company’s disclosure controls and procedures (as defined
in Rule 13A-15(e) promulgated under the Exchange Act) are effective
to ensure that information required to be disclosed by the Company
in the reports filed or submitted by it under the Exchange Act is
recorded, processed, summarized and reported within the time
periods specified in the applicable rules and forms and include
controls and procedures designed to ensure that information
required to be disclosed by the Company in such reports is
accumulated and communicated to the Company’s management
including the Chief Executive Officer and the Chief Financial
Officer of the Company as appropriate to allow timely decisions
regarding required disclosure.
Changes in Internal Controls over Financial Reporting
There
have been no changes in internal control over financial reporting
during the quarter ended December 31, 2019 that have materially
affected, or are reasonably likely to materially affect, the
Company’s internal control over financial
reporting.
Management’s Annual Report on Internal Controls over
Financial Reporting
The
Company’s management is responsible for establishing and
maintaining adequate internal control over financial reporting.
Internal control over financial reporting is defined in Rule
13a-15(f) promulgated under the Securities Exchange Act of 1934.
The Company’s internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with accounting
principles generally accepted in the United States of America.
Internal control over financial reporting includes those policies
and procedures that (1) pertain to the maintenance of records that
in reasonable detail accurately and fairly reflect the transactions
and dispositions of the assets of the company, (2) provide
reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with
accounting principles generally accepted in the United States of
America, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and
directors of the company and (3) provide reasonable assurance
regarding prevention or timely detection of unauthorized
acquisition, use or disposition of the company’s assets that
could have a material effect on the financial
statements.
the
company and (3) provide reasonable assurance regarding prevention
or timely detection of unauthorized acquisition, use or disposition
of the company’s assets that could have a material effect on
the financial statements.
Because
of its inherent limitations, internal control over financial
reporting may not prevent or detect misstatements. Projections of
any evaluation of effectiveness to future periods are subject to
the risk that controls may become inadequate because of changes in
conditions, or that the degree of compliance with the policies or
procedures may deteriorate.
Management assessed
the effectiveness of the Company’s internal control over
financial reporting as of December 31, 2019. In making this
assessment, management used the criteria established in
“Internal Control – Integrated Framework” issued
by the Committee of Sponsoring Organizations of the Treadway
Commission in 2013. Based on our assessment and those criteria,
management believes that the Company maintained effective internal
control over financial reporting as of December 31,
2019.
Elliott
Davis, PLLC, an independent, registered public accounting firm, has
audited the Company’s consolidated financial statements as of
and for the year ended December 31, 2019, and audited the
Company’s effectiveness of internal control over financial
reporting as of December 31, 2019, as stated in their report, which
is included in Item 8 hereof.
ITEM 9B.
OTHER
INFORMATION
None
PART III
ITEM 10.
DIRECTORS
AND EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The
information required by this Item is set forth under the sections
captioned “Director Nominees”, “Executive
Officers of the Company “, “Security Ownership Of
Certain Beneficial Owners and Management, “Section 16(a)
Beneficial Ownership Reporting Compliance”, “Code of
Business Conduct and Ethics”, “Board Committees –
Governance Committee” and “Board Committees –
Audit and Enterprise Risk Committee” contained in the Proxy
Statement, which sections are incorporated herein by
reference.
ITEM 11.
EXECUTIVE
COMPENSATION
The
information required by this Item is set forth under the section
captioned “Compensation Discussion and Analysis”,
“Summary Compensation Table”, “Grants of
Plan-Based Awards”, “Outstanding Equity Awards at
Fiscal Year End”, “Option Exercises and Stock
Vested”, “Pension Benefits”, “Nonqualified
Deferred Compensation”, “Employment Agreements”,
“Potential Payments upon Termination or Change in
Control”, “Omnibus Stock Option and Long Term Incentive
Plan”, “Director Compensation”,
“Compensation Committee – Compensation Committee
Interlocks and Insider Participation” and “Compensation
Committee – Compensation Committee Report” contained in
the Proxy Statement, which sections are incorporated herein by
reference.
ITEM 12.
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS
For the
information required by the Item see the section captioned
“Security Ownership of Certain Beneficial Owners and
Management” contained in the Proxy Statement, which section
is incorporated herein by reference.
The
following table presents the number of shares of Company common
stock to be issued upon the exercise of outstanding options,
warrants and rights; the weighted-average price of the outstanding
options, warrants and rights and the number of options, warrants
and rights remaining that may be issued under the Company’s
Omnibus Plan described under the section captioned “Omnibus
Stock Option and Long Term Incentive Plan” contained in the
Proxy Statement.
|
Plan Category
|
Number of securities to be issued upon exercise of
outstanding option, warrants and rights (1), (2), (3),
(4)
|
Weighted-average exercise price of outstanding options, warrants
and rights (5)
|
Number of securities remaining available for future issuance under
equity compensation plans (excluding securities reflected in column
(a)) (6)
|
|
|
(a)
|
(b)
|
(c)
|
|
Equity compensation plans approved by security holders
|
18,233
|
$32.85
|
-
|
|
Equity compensation plans not approved by security
holders
|
-
|
-
|
-
|
|
Total
|
18,233
|
$32.85
|
-
|
|
|
|
|
|
(1)
Includes 5,104 restricted stock units granted on February 18, 2016
(adjusted for the 10% stock dividend paid December 15, 2017) under
the Omnibus Plan. These restricted stock grants vested on February
20, 2020.
(2)
Includes 4,114 restricted stock units granted on March 1, 2017
(adjusted for the 10% stock dividend paid December 15, 2017) under
the Omnibus Plan. These restricted stock grants vest on March 1,
2021.
(3)
Includes 3,725 restricted stock units granted on January 24, 2018
under the Omnibus Plan. These restricted stock grants vest on
January 24, 2022.
(4)
Includes 5,290 restricted stock units granted on February 21, 2019
under the Omnibus Plan. These restricted stock grants vest on
February 21, 2023.
(5)
The exercise price used for the grants of restricted stock units
under the Omnibus Plan is $32.85, the closing price for the
Company’s stock on December 31, 2019.
(6)
No shares were available for issuance under the Omnibus Plan at
December 31, 2019 due to Plan expiration on May 7,
2019.
ITEM 13.
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR
INDEPENDENCE
See the
sections captioned “Indebtedness of and Transactions with
Management and Directors” and “Board Leadership
Structure and Risk Oversight” contained in the Proxy
Statement, which sections are incorporated herein by
reference.
ITEM 14.
PRINCIPAL
ACCOUNTANT FEES AND SERVICES
See the
section captioned “Proposal 4 - Ratification of Selection of
Independent Registered Public Accounting Firm” contained in
the Proxy Statement, which section is incorporated herein by
reference.
PART IV
ITEM 15.
EXHIBITS
AND FINANCIAL STATEMENT SCHEDULES
15(a)1.
Consolidated
Financial Statements (contained in the Annual Report attached
hereto as Exhibit (13) and incorporated herein by
reference)
(b)
Consolidated
Balance Sheets as of December 31, 2019 and 2018
(c)
Consolidated
Statements of Earnings for the Years Ended December 31, 2019, 2018
and 2017
(d)
Consolidated
Statements of Comprehensive Income for the Years Ended December 31,
2019, 2018 and 2017
(e)
Consolidated
Statements of Changes in Shareholders’ Equity for the Years
Ended December 31, 2019, 2018 and 2017
(f)
Consolidated
Statements of Cash Flows for the Years Ended December 31, 2019,
2018 and 2017
15(a)2.
Consolidated
Financial Statement Schedules
All
schedules have been omitted, as the required information is either
inapplicable or included in the Notes to Consolidated Financial
Statements.
15(a)3.
Exhibits
Exhibit
(3)(i)
Articles of
Amendment dated December 19, 2008, regarding the Series A
Preferred Stock, incorporated by reference to Exhibit (3)(1) to the
Form 8-K filed with the Securities and Exchange Commission on
December 29, 2008
Exhibit
(3)(ii)
Articles of
Amendment dated February 26, 2010 incorporated by reference to
Exhibit (3)(2) to the Form 10-K filed with the Securities and
Exchange Commission on March 25, 2010
Exhibit
(3)(iii)
Articles of
Incorporation of the Registrant, 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)(iv)
Second Amended and
Restated Bylaws of the Registrant, incorporated by reference to
Exhibit (3)(ii) to the Form 8-K filed with the Securities and
Exchange Commission on June 24, 2015
Exhibit
(4)(i)
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
(4)(ii)
Description of
Registrant’s Securities registered pursuant to Section 12 of
the Securities Act of 1934
Exhibit
(10)(i)
Amended and
Restated Executive Salary Continuation Agreement between Peoples
Bank and Tony W. Wolfe dated December 18, 2008, incorporated
by reference to Exhibit (10)(a)(iii) to the Form 8-K filed with the
Securities and Exchange Commission on December 29,
2008
Exhibit
(10)(ii)
Amended and
Restated Executive Salary Continuation Agreement between Peoples
Bank and Joseph F. Beaman, Jr. dated December 18, 2008,
incorporated by reference to Exhibit (10)(b)(iii) to the Form 8-K
filed with the Securities and Exchange Commission on December 29,
2008
Exhibit
(10)(iii)
Amended and
Restated Executive Salary Continuation Agreement between Peoples
Bank and William D. Cable, Sr. dated December 18, 2008,
incorporated by reference to Exhibit (10)(c)(iii) to the Form 8-K
filed with the Securities and Exchange Commission on December 29,
2008
Exhibit
(10)(iv)
Employment
Agreement dated January 22, 2015 between the Registrant and William
D. Cable, Sr., incorporated by reference to Exhibit (10)(c) to the
Form 8-K filed with the Securities and Exchange Commission on
February 9, 2015
Exhibit
(10)(v)
Amended and
Restated Executive Salary Continuation Agreement between Peoples
Bank and Lance A. Sellers dated December 18, 2008,
incorporated by reference to Exhibit (10)(d)(iii) to the Form 8-K
filed with the Securities and Exchange Commission on December 29,
2008
Exhibit
(10)(vi)
Employment
Agreement dated January 22, 2015 between the Registrant and Lance
A. Sellers, incorporated by reference to Exhibit (10)(a) to the
Form 8-K filed with the Securities and Exchange Commission on
February 9, 2015
Exhibit
(10)(vii)
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)(viii)
Amendment No. 1 to
the Peoples Bancorp of North Carolina, Inc. Omnibus Stock Ownership
and Long Term Incentive Plan incorporated by reference to Exhibit
(10)(e)(i) to the Form 10-K filed with the Securities and Exchange
Commission on March 15, 2007
Exhibit
(10)(ix)
Amended and
Restated Executive Salary Continuation Agreement between Peoples
Bank and A. Joseph Lampron, Jr. dated December 18, 2008,
incorporated by reference to Exhibit (10)(f)(iii) to the Form 8-K
filed with the Securities and Exchange Commission on December 29,
2008
Exhibit
(10)(x)
Employment
Agreement dated January 22, 2015 between the Registrant and A.
Joseph Lampron, Jr., incorporated by reference to Exhibit (10)(b)
to the Form 8-K filed with the Securities and Exchange Commission
on February 9, 2015
Exhibit
(10)(xi)
Peoples Bank
Directors’ and Officers’ Deferral Plan, incorporated by
reference to Exhibit (10)(h) to the Form 10-K filed with the
Securities and Exchange Commission on March 28, 2002
Exhibit
(10)(xii)
Rabbi Trust for the
Peoples Bank Directors’ and Officers’ Deferral Plan,
incorporated by reference to Exhibit (10)(i) to the Form 10-K filed
with the Securities and Exchange Commission on March 28,
2002
Exhibit
(10)(xiii)
Description of
Service Recognition Program maintained by Peoples Bank,
incorporated by reference to Exhibit (10)(i) to the Form 10-K filed
with the Securities and Exchange Commission on March 27,
2003
Exhibit
(10)(xiv)
Capital Securities
Purchase Agreement dated as of June 26, 2006, by and among the
Registrant, PEBK Capital Trust II and Bear, Sterns Securities
Corp., incorporated by reference to Exhibit (10)(j) to the Form
10-Q filed with the Securities and Exchange Commission on November
13, 2006
Exhibit
(10)(xv)
Amended and
Restated Trust Agreement of PEBK Capital Trust II, dated as of June
28, 2006, incorporated by reference to Exhibit (10)(k) to the Form
10-Q filed with the Securities and Exchange Commission on November
13, 2006
Exhibit
(10)(xvi)
Guarantee Agreement
of the Registrant dated as of June 28, 2006, incorporated by
reference to Exhibit (10)(l) to the Form 10-Q filed with the
Securities and Exchange Commission on November 13,
2006
Exhibit
(10)(xvii)
Indenture, dated as
of June 28, 2006, by and between the Registrant and LaSalle Bank
National Association, as Trustee, relating to Junior Subordinated
Debt Securities Due September 15, 2036, incorporated by reference
to Exhibit (10)(m) to the Form 10-Q filed with the Securities and
Exchange Commission on November 13, 2006
Exhibit
(10)(xviii)
Form of Amended and
Restated Director Supplemental Retirement Agreement between Peoples
Bank and Directors Robert C. Abernethy, James S. Abernethy, Douglas
S. Howard, John W. Lineberger, Jr., Gary E. Matthews,
Dr. Billy L Price, Jr., Larry E Robinson, W. Gregory Terry,
Dan Ray Timmerman, Sr., and Benjamin I. Zachary, incorporated by
reference to Exhibit (10)(n) to the Form 8-K filed with the
Securities and Exchange Commission on December 29,
2008
Exhibit
(10)(xix)
2009 Omnibus Stock
Ownership and Long Term Incentive Plan incorporated by reference to
Exhibit (10)(o) to the Form 10-K filed with the Securities and
Exchange Commission on March 20, 2009
Exhibit
(10)(xx)
First Amendment to
Amended and Restated Executive Salary Continuation Agreement
between Peoples Bank and Lance A. Sellers dated February 16,
2018
Exhibit
(10)(xxi)
First Amendment to
Amended and Restated Executive Salary Continuation Agreement
between Peoples Bank and A. Joseph Lampron, Jr. dated February 16,
2018
Exhibit
(10)(xxii)
First Amendment to
Amended and Restated Executive Salary Continuation Agreement
between Peoples Bank and William D. Cable, Sr. dated February 16,
2018
2019 Annual Report
of Peoples Bancorp of North Carolina, Inc.
Exhibit
(14)
Code of Business
Conduct and Ethics of Peoples Bancorp of North Carolina, Inc.,
incorporated by reference to Exhibit (14) to the Form 10-K filed
with the Securities and Exchange Commission on March 25,
2005
Subsidiaries of the
Registrant
Exhibit
(31)(i)
Certification of
principal executive officer pursuant to section 302 of the
Sarbanes-Oxley Act of 2002
Exhibit
(31)(ii)
Certification of
principal financial officer pursuant to section 302 of the
Sarbanes-Oxley Act of 2002
Exhibit
(32)
Certification
Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
906 of the Sarbanes-Oxley Act of 2002
Exhibit
(101)
The following
materials from the Company’s 10-K Report for the annual
period ended December 31, 2019, formatted in eXtensible Business
Reporting Language ("XBRL"): (i) the Condensed Consolidated
Balance Sheets, (ii) the Condensed Consolidated Statements of
Earnings, (iii) the Condensed Consolidated Statements of
Comprehensive Income (iv) the Condensed Consolidated
Statements of Changes in Shareholders’ Equity, (v) the
Condensed Consolidated Statements of Cash Flows, and (vi) the
Notes to the Condensed Consolidated Financial
Statements.
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.
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PEOPLES
BANCORP OF NORTH CAROLINA, INC.
|
|||||
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(Registrant)
|
|||||
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Date: March 13,
2020
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|||||
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By:
|
/s/
Lance A. Sellers
|
||||
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Lance
A. Sellers
|
|||||
|
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President
and Chief Executive Officer
|
|||||
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|||||
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|||||
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|||||
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|
||||||
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
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||
|
|
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|
||
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/s/
Lance A. Sellers
|
|
President
and Chief Executive Officer
|
|
March
13, 2020
|
||
|
Lance
A. Sellers
|
|
(Principal
Executive Officer)
|
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||
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||
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/s/
James S. Abernethy
|
|
Director
|
|
March
13, 2020
|
||
|
James
S. Abernethy
|
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||
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/s/
Robert C. Abernethy
|
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March
13, 2020
|
|||
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Robert
C. Abernethy
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/s/
Douglas S. Howard
|
|
Director
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|
March
13, 2020
|
||
|
Douglas
S. Howard
|
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/s/ A.
Joseph Lampron, Jr.
|
|
Executive
Vice President and Chief
|
|
March
13, 2020
|
||
|
A.
Joseph Lampron, Jr.
|
|
Financial
Officer (Principal Financial
|
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|
||
|
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|
and
Principal Accounting Officer)
|
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||
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|
||
|
/s/
John W. Lineberger, Jr.
|
|
Director
|
|
March
13, 2020
|
||
|
John W.
Lineberger, Jr.
|
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||
|
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|
||
|
/s/
Gary E. Matthews
|
|
Director
|
|
March
13, 2020
|
||
|
Gary E.
Matthews
|
|
|
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|
||
|
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|
||
|
/s/
Billy L. Price, Jr., M.D.
|
|
Director
|
|
March
13, 2020
|
||
|
Billy
L. Price, Jr., M.D.
|
|
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|
||
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|
||
|
/s/
Larry E. Robinson
|
|
Director
|
|
March
13, 2020
|
||
|
Larry
E. Robinson
|
|
|
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|
||
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|
||
|
/s/
William Gregory Terry
|
|
Director
|
|
March
13, 2020
|
||
|
William
Gregory Terry
|
|
|
|
|
||
|
|
|
|
|
|
||
|
/s/ Dan
Ray Timmerman, Sr.
|
|
Director
|
|
March
13, 2020
|
||
|
Dan Ray
Timmerman, Sr.
|
|
|
|
|
||
|
|
|
|
|
|
||
|
/s/
Benjamin I. Zachary
|
|
Director
|
|
March
13, 2020
|
||
|
Benjamin
I. Zachary
|
|
|
|
|
||
33
