ex99-a.htm

EXHIBIT (99)(a)


NEWS RELEASE

		July 16, 2007
Contact:	Tony W. Wolfe
	President and Chief Executive Officer

	A. Joseph Lampron
	Executive Vice President and Chief Financial Officer

	828-464-5620, Fax 828-465-6780

For Immediate Release

PEOPLES BANCORP ANNOUNCES SECOND QUARTER EARNINGS RESULTS

Peoples Bancorp of North Carolina, Inc. (NASDAQ: PEBK), the parent company of Peoples Bank, reported net income of $2.6 million, or $0.45 basic net income per share and $0.44 diluted net income per share, for the three months ended June 30, 2007 as compared to $2.7 million or $0.47 basic net income per share and $0.46 diluted net income per share, for the same period one year ago. June 30, 2006 per share amounts have been restated to reflect the 3-for-2 stock split declared and distributed during the second quarter 2007. Tony W. Wolfe, President and Chief Executive Officer, attributed the decrease in second quarter earnings to increases in the provision for loan losses and non-interest expense, which were partially offset by increases in net interest income and non-interest income.

Year-to-date net income as of June 30, 2007 was $5.4 million, or $0.94 basic net income per share and $0.92 diluted net income per share as compared to $4.9 million, or $0.86 basic net income per share and $0.85 diluted net income per share, for the same period one year ago. The increase in year-to-date earnings is primarily attributable to growth in interest-earning assets, which contributed to increases in net interest income and non-interest income. In addition, the Company had a decrease in the provision for loan losses for the six months ended June 30, 2007 as compared to the same period one year ago. The increases in net interest income and non-interest income and the decrease in the provision for loan losses were partially offset by an increase in non-interest expense as discussed below.

Shareholders’ equity increased to $65.4 million, or 7.79% of total assets, at June 30, 2007 as compared to $56.8 million, or 7.25% of total assets, at June 30, 2006 as a result of net income earned less dividends paid for the period combined with a $1.1 million increase in accumulated other comprehensive loss from June 30, 2006 to June 30, 2007. The increase in accumulated other comprehensive loss is due to an increase in the market value of available for sale securities.

Net interest income for the quarter ended June 30, 2007 increased 7% to $8.7 million compared to $8.1 million for the same period one year ago. This increase is attributable to Federal Reserve interest rate increases, which resulted in increases to the prime rate along with an increase in the average outstanding balances of loans and investment securities available for sale for the three months ended June 30, 2007 compared to the three months ended June 30, 2006. Net interest income after the provision for loan losses increased 5% to $8.1 million during the second quarter of 2007, compared to $7.7 million for the same period one year ago. The provision for loan losses for the three months ended June 30, 2007 was $634,000 as compared to $413,000 for the same period one year ago, primarily attributable to an increase in net charge-offs of $600,000. Charge-offs during the three months ended June 30, 2007 consisted primarily of charge-offs on three small loans with the largest charge being $300,000.

Non-interest income increased 6% to $2.1 million for the three months ended June 30, 2007, as compared to $2.0 million for the same period one year ago. The increase in non-interest income is primarily due to an increase in service charges and fees of $90,000 resulting from activity in new branches and an increase in miscellaneous other income of $44,000 primarily due to an increase in debit card fee income. These increases were partially offset by a $102,000 increase in losses on the sale of securities. The $194,000 in the loss on the sale of securities for the three months ended June 30, 2007 is due to a write-down of an asset

PEOPLES BANCORP ANNOUNCES SECOND QUARTER EARNINGS RESULTS – PAGE TWO

classified as other investments. Management determined the market value of this investment had decreased significantly and was not a temporary impairment therefore a write-down was appropriate during second quarter 2007.

Non-interest expense increased 11% to $6.2 million for the three months ended June 30, 2007, as compared to $5.5 million for the same period last year. The increase in non-interest expense included: (1) an increase of $429,000 or 15% in salaries and benefits expense due to normal salary increases and expense associated with additional staff for new branches, (2) an increase of $193,000 or 19% in occupancy expense due to an increase in furniture and equipment expense and lease expense associated with new branches, and (3) a net increase of $10,000 or 1% non-interest expenses other than salary, benefits and occupancy expenses. The increase in non-interest expenses other than salary, benefits and occupancy expenses is primarily attributable to an increase of $66,000 in professional fees, an increase of $51,000 in advertising expense, an increase of $35,000 in office supplies expense and an increase of $21,000 in debit card expense. These increases in non-interest expenses other than salary, benefits and occupancy expenses were partially offset by a $152,000 decrease in amortization of trust preferred securities issuance costs.

Year-to-date net interest income as of June 30, 2007 increased 10% to $17.3 million compared to $15.8 million for the same period one year ago. This increase is attributable to an increase in interest income due to increases in the prime rate, which resulted from Federal Reserve interest rate increases. In addition, the average outstanding balances of loans and investment securities available for sale increased for the six months ended June 30, 2007. Net interest income after the provision for loan losses increased 12% to $16.3 million for the six months ended June 30, 2007, compared to $14.6 million for the same period one year ago. The provision for loan losses for the six months ended June 30, 2007 was $957,000 as compared to $1.2 million for the same period one year ago, primarily attributable to slower growth in loan balances for the first six months of 2007 when compared to the same period in 2006.

Non-interest income increased 8% to $4.3 million for the six months ended June 30, 2007, as compared to $3.9 million for the same period one year ago. The increase in non-interest income is primarily due to an increase in service charges and fees of $169,000 resulting from activity in new branches and an increase in miscellaneous other income of $88,000 primarily due to a $110,000 increase in debit card fee income.

Non-interest expense increased 12% to $12.2 million for the six months ended June 30, 2007, as compared to $10.9 million for the same period last year. The increase in non-interest expense included: (1) an increase of $959,000 or 17% in salaries and benefits expense due to normal salary increases and expenses associated with additional staff for new branches, (2) an increase of $309,000 or 15% in occupancy expense due to an increase in furniture and equipment expense and lease expense associated with new branches, and (3) a net increase of $78,000 or 2% in non-interest expenses other than salary, benefits and occupancy expenses. The increase in non-interest expenses other than salary, benefits and occupancy expenses is primarily attributable to an increase of $125,000 in professional fees, an increase of $90,000 in advertising expense and an increase of $59,000 in debit card expense. These increases in non-interest expenses other than salary, benefits and occupancy expenses were partially offset by a $157,000 decrease in amortization of trust preferred securities issuance costs. The Company paid a $178,000 prepayment fee in the first quarter of 2006 on the early termination of a $5.0 million Federal Home Loan Bank advance. This fee was included in other non-interest expense.

Total assets as of June 30, 2007 amounted to $839.7 million, an increase of 7% compared to total assets of $783.7 million at June 30, 2006. This increase is primarily attributable to an increase in loans combined with an increase in securities. Loans increased 9% to $663.1 million as of June 30, 2007 compared to $607.2 million as of June 30, 2006. Available for sale securities increased 4% to $117.7 million as of June 30, 2007 compared to $113.7 million as of June 30, 2006, the result of securities

PEOPLES BANCORP ANNOUNCES SECOND QUARTER EARNINGS RESULTS – PAGE THREE

purchases that are part of management’s objective to grow the investment portfolio. This increase in available for sale securities was partially offset by paydowns on mortgage-backed securities, calls and maturities.

Non-performing assets totaled $7.2 million at June 30, 2007 or 0.86% of total assets, compared to $3.9 million at June 30, 2006 or 0.49% of total assets. This increase in non-performing assets is due to one large classified loan relationship that was moved to non-accrual status in fourth quarter 2006. This relationship totals $4.2 million at June 30, 2007 and has been appropriately reserved in the Bank’s allowance for loan losses. The allowance for loan losses at June 30, 2007 amounted to $8.5 million or 1.28% of total loans compared to $7.9 million or 1.30% of total loans at June 30, 2006.

Deposits amounted to $654.1 million as of June 30, 2007, representing an increase of 7% over deposits of $610.8 million at June 30, 2006. Core deposits, which include non-interest bearing demand deposits, NOW, MMDA, savings and certificates of deposits of denominations less than $100,000, increased $41.2 million to $476.4 million at June 30, 2007 as compared to $435.1 million at June 30, 2006 due to concerted efforts to attract additional deposits from existing customers and to attract new customers in our existing offices along with deposits gathered in the two new offices opened since June 2006. Certificates of deposit in amounts greater than $100,000 or more totaled $177.7 million at June 30, 2007 as compared to $175.7 million at June 30, 2006.

Peoples Bank operates entirely in North Carolina, with eleven offices throughout Catawba County, one office in Alexander County, three offices in Lincoln County, three offices in Mecklenburg County and one office in Union County. The Company’s common stock is publicly traded over the counter and is quoted on the Nasdaq Global Market under the symbol “PEBK.”

Statements made in this press release, other than those concerning historical information, should be considered forward-looking statements pursuant to the safe harbor provisions of the Securities Exchange Act of 1934 and the Private Securities Litigation Act of 1995. These forward-looking statements involve risks and uncertainties and are based on the beliefs and assumptions of management and on the information available to management at the time that this release was prepared. These statements can be identified by the use of words like “expect,” “anticipate,” “estimate,” and “believe,” variations of these words and other similar expressions. Readers should not place undue reliance on forward-looking statements as a number of important factors could cause actual results to differ materially from those in the forward-looking statements. Factors that could cause actual results to differ materially include, but are not limited to, (1) competition in the markets served by Peoples Bank, (2) changes in the interest rate environment, (3) general national, regional or local economic conditions may be less favorable than expected, resulting in, among other things, a deterioration in credit quality and the possible impairment of collectibility of loans, (4) legislative or regulatory changes, including changes in accounting standards, (5) significant changes in the federal and state legal and regulatory environment and tax laws, (6) the impact of changes in monetary and fiscal policies, laws, rules and regulations and (7) other risks and factors identified in the Company’s other filings with the Securities and Exchange Commission, including but not limited to those described in Peoples Bancorp of North Carolina, Inc.’s annual report on Form 10-K for the year ended December 31, 2006.

PEOPLES BANCORP ANNOUNCES SECOND QUARTER EARNINGS RESULTS - PAGE FOUR

CONSOLIDATED BALANCE SHEETS
June 30, 2007, December 31, 2006 and June 30, 2006



	June 30, 2007			December 31, 2006			June 30, 2006
	*(Unaudited)*						(Unaudited)
ASSETS:
Cash and due from banks	$	26,888,694		$	18,860,318		$	28,048,883
Federal funds sold		2,757,000			2,640,000			2,951,000
Cash and cash equivalents		29,645,694			21,500,318			30,999,883

Investment securities available for sale		117,708,573			117,581,000			113,725,359
Other investments		6,561,447			7,295,449			6,055,199
Total securities		124,270,020			124,876,449			119,780,558

Loans		663,125,684			651,381,129			607,230,621
Mortgage loans held for sale		-			-			3,440,575
Less: Allowance for loan losses		(8,514,417	)		(8,303,432	)		(7,922,419	)
Net loans		654,611,267			643,077,697			602,748,777

Premises and equipment, net		14,421,165			12,816,385			12,779,739
Cash surrender value of life insurance		6,651,597			6,532,406			6,415,211
Accrued interest receivable and other assets		10,074,654			10,144,283			10,968,148
Total assets	$	839,674,397		$	818,947,538		$	783,692,316


LIABILITIES AND SHAREHOLDERS' EQUITY:
Deposits:
Non-interest bearing demand	$	117,701,167		$	101,393,142		$	105,941,780
NOW, MMDA & Savings		183,721,294			174,577,641			171,272,466
Time, $100,000 or more		177,739,130			194,176,291			175,658,315
Other time		174,942,640			163,673,215			157,916,424
Total deposits		654,104,231			633,820,289			610,788,985

Demand notes payable to U.S. Treasury		1,092,438			1,600,000			177,851
Securities sold under agreement to repurchase		17,236,961			6,417,803			2,868,110
FHLB borrowings		77,000,000			89,300,000			74,100,000
Junior subordinated debentures		20,619,000			20,619,000			35,052,000
Accrued interest payable and other liabilities		4,228,148			4,355,073			3,899,724
Total liabilities		774,280,778			756,112,165			726,886,670

Shareholders' Equity:
Preferred stock, no par value; authorized
5,000,000 shares; no shares issued
and outstanding		-			-			-
Common stock, no par value; authorized
20,000,000 shares; issued and
outstanding 5,710,143 shares in 2007
and 3,830,634 shares in 2006		50,272,682			51,122,147			50,384,830
Retained earnings		16,882,082			12,484,463			9,318,997
Accumulated other comprehensive loss		(1,761,145	)		(771,237	)		(2,898,181	)
Total shareholders' equity		65,393,619			62,835,373			56,805,646

Total liabilities and shareholders' equity	$	839,674,397		$	818,947,538		$	783,692,316

PEOPLES BANCORP ANNOUNCES SECOND QUARTER EARNINGS RESULTS - PAGE FIVE

CONSOLIDATED STATEMENTS OF INCOME
For the three and six months ended June 30, 2007 and 2006



	Three months ended						Six months ended
	June 30,						June 30,
	2007			2006			2007			2006
	*(Unaudited)*			(Unaudited)			*(Unaudited)*			(Unaudited)
INTEREST INCOME:
Interest and fees on loans	$	13,771,019		$	12,148,601		$	27,371,208		$	23,280,785
Interest on federal funds sold		209,202			17,060			334,697			21,202
Interest on investment securities:
U.S. Government agencies		1,130,857			1,070,334			2,260,936			2,092,008
States and political subdivisions		221,698			193,411			441,192			386,161
Other		112,993			129,354			237,962			262,907
Total interest income		15,445,769			13,558,760			30,645,995			26,043,063

INTEREST EXPENSE:
NOW, MMDA & savings deposits		985,198			681,623			1,897,641			1,356,360
Time deposits		4,318,455			3,432,723			8,604,858			6,420,454
FHLB borrowings		893,523			968,265			1,817,013			1,853,955
Junior subordinated debentures		364,148			297,681			724,347			577,320
Other		173,193			48,300			297,471			83,843
Total interest expense		6,734,517			5,428,592			13,341,330			10,291,932
NET INTEREST INCOME		8,711,252			8,130,168			17,304,665			15,751,131
PROVISION FOR LOAN LOSSES		634,000			413,000			957,000			1,172,000
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES		8,077,252			7,717,168			16,347,665			14,579,131

NON-INTEREST INCOME:
Service charges		1,023,105			1,016,930			1,935,673			1,941,875
Other service charges and fees		447,177			363,013			934,724			759,029
Gain (loss) on sale of securities		(194,402	)		(91,951	)		(194,402	)		(173,751	)
Mortgage banking income		187,771			119,268			299,612			239,876
Insurance and brokerage commission		130,907			109,783			231,564			213,683
Miscellaneous		544,082			499,940			1,053,353			965,760
Total non-interest income		2,138,640			2,016,983			4,260,524			3,946,472
NON-INTEREST EXPENSES:
Salaries and employee benefits		3,298,737			2,869,737			6,671,903			5,713,212
Occupancy		1,210,294			1,017,425			2,314,533			2,005,821
Other		1,670,833			1,660,957			3,214,474			3,136,269
Total non-interest expenses		6,179,864			5,548,119			12,200,910			10,855,302

INCOME BEFORE INCOME TAXES		4,036,028			4,186,032			8,407,279			7,670,301
INCOME TAXES		1,445,915			1,524,600			3,030,041			2,773,800

NET INCOME	$	2,590,113		$	2,661,432		$	5,377,238		$	4,896,501
PER SHARE AMOUNTS
Basic net income	$	0.45		$	0.47		$	0.94		$	0.86
Diluted net income	$	0.44		$	0.46		$	0.92		$	0.85
Cash dividends	$	0.09		$	0.07		$	0.17		$	0.14
Book value	$	11.45		$	10.00		$	11.45		$	10.00

PEOPLES BANCORP ANNOUNCES SECOND QUARTER EARNINGS RESULTS - PAGE SIX

FINANCIAL HIGHLIGHTS
For the three and six months ended June 30, 2007 and 2006



	Three months ended						Six months ended
	June 30,						June 30,
	2007			2006			2007			2006
	*(Unaudited)*			(Unaudited)			*(Unaudited)*			(Unaudited)
SELECTED AVERAGE BALANCES:
Available for sale securities	$	120,285,416		$	117,765,694		$	120,330,498		$	117,393,759
Loans		646,594,679			596,207,370			644,863,090			588,379,013
Earning assets		790,590,737			723,439,115			786,197,864			714,648,334
Assets		835,822,618			763,297,478			829,051,157			753,785,125
Deposits		654,938,694			606,883,376			649,993,055			597,841,687
Shareholders' equity		67,353,373			57,641,451			67,626,166			58,403,846


SELECTED KEY DATA:
Net interest margin (tax equivalent)		4.52%			4.61%			4.54%			4.54%
Return of average assets		1.24%			1.40%			1.31%			1.31%
Return on average shareholders' equity		15.42%			18.52%			16.03%			16.91%
Shareholders' equity to total assets (period end)		7.79%			7.25%			7.79%			7.25%


ALLOWANCE FOR LOAN LOSSES:
Balance, beginning of period	$	8,620,074		$	7,649,364		$	8,303,432		$	7,424,782
Provision for loan losses		634,000			413,000			957,000			1,172,000
Charge-offs		(822,877	)		(314,448	)		(954,015	)		(900,487	)
Recoveries		83,220			174,503			208,000			226,124
Balance, end of period	$	8,514,417		$	7,922,419		$	8,514,417		$	7,922,419


ASSET QUALITY:
Non-accrual loans							$	6,677,065		$	3,439,382
90 days past due and still accruing								181,218			33,396
Other real estate owned								334,807			380,418
Total non-performing assets							$	7,193,090		$	3,853,196
Non-performing assets to total assets								0.86%			0.49%
Allowance for loan losses to non-performing assets								118.37%			205.61%
Allowance for loan losses to total loans								1.28%			1.30%

(END)