8-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

_____________________

FORM 8-K
CURRENT REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported):October 17, 2005
Peoples Bancorp of North Carolina, Inc.
(Exact Name of Registrant as Specified in Its Charter)
North Carolina
(State or Other Jurisdiction of Incorporation)
000-27205		56-2132396
(Commission File No.)		(IRS Employer Identification No.)
518 West C Street, Newton, North Carolina		28658
(Address of Principal Executive Offices)		(Zip Code)
(828) 464-5620
(Registrant’s Telephone Number, Including Area Code)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
	Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
	Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
	Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
	Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Peoples Bancorp of North Carolina, Inc.

INDEX

	Page
Item 2.02 - Results of Operations and Financial Condition	3
Item 9.01 - Financial Statements and Exhibits	3
Signatures	4
Exhibit (99)(a) Press release dated October 17, 2005	5

2

Item 2.02. Results of Operations and Financial Condition

On October 17, 2005, Peoples Bancorp of North Carolina, Inc. issued a press release announcing third quarter 2005 earnings.

A copy of the press release is attached hereto as Exhibit (99)(a) and is incorporated by reference herein.

Item 9.01. Financial Statements and Exhibits

(c)Exhibits

(99)(a)        Press Release, dated October 17, 2005

Disclosure about forward-looking statements

This Form 8-K contains forward-looking statements. These statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those anticipated in the forward-looking statements. Factors that might cause such a difference include, but are not limited to, changes in interest rate environment, management’s business strategy, national, regional, and local market conditions and legislative and regulatory conditions.

Readers should not place undue reliance on forward-looking statements, which reflect management’s view only as of the date hereof. The Company undertakes no obligation to publicly revise these forward-looking statements to reflect subsequent events or circumstances. Readers should also carefully review the risk factors described in other documents the Company files from time to time with the Securities and Exchange Commission.

3

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized

Peoples Bancorp of North Carolina, Inc.

Dated: October 21, 2005	By:	/s/ A. Joseph Lampron
	A. Joseph Lampron
	Executive Vice President and Chief Financial Officer

4

EX-99.(A)

	EXHIBIT (99)(a)
NEWS RELEASE
		October 17, 2005
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 THIRD QUARTER EARNINGS RESULTS

Peoples Bancorp of North Carolina, Inc., the parent company of Peoples Bank, reported net income of $1.8 million, or $0.53 basic net income per share and $0.52 diluted net income per share, for the three months ended September 30, 2005 as compared to $1.1 million or $0.32 basic and diluted net income per share, for the same period one year ago. September 30, 2004 per share amounts have been restated to reflect the stock dividend declared and distributed during the first quarter 2005.

Tony W. Wolfe, President and Chief Executive Officer, attributed the increase in third quarter earnings to increases in net interest income and non-interest income, which were partially offset by an increase in non-interest expense.

Net interest income increased 22% to $7.4 million for the three months ended September 30, 2005 compared to $6.0 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 resulting from Federal Reserve interest rate increases combined with increases in the average outstanding balances of loans and investment securities available for sale. Net interest income after the provision for loan losses increased 26% to $6.4 million for the three months ended September 30, 2005 compared to $5.1 million for the same period one year ago. The provision for loan losses for the three months ended September 30, 2005 was $930,000 as compared to $931,000 for the same period one year ago.

Non-interest income increased 16% to $1.8 million for the three months ended September 30, 2005, as compared to $1.5 million for the same period one year ago. The increase in non-interest income is primarily due to an increase of $94,000 in check cashing fees, $62,000 in NSF fees, $49,000 in debit card fee income, $36,000 in mortgage banking income and $41,000 in appraisal fees. These increases were partially offset by a $140,000 loss on sale of securities.

Non-interest expense increased 8% to $5.4 million for the three months ended September 30, 2005, as compared to $5.0 million for the same period last year. The increase in non-interest expense included: (1) an increase of $268,000 or 10% in salaries and benefits expense due to normal salary increases and increased incentive expense, (2) an increase of $106,000 or 12% in occupancy expense due to an increase in furniture and equipment expense and lease expense, and (3) an increase of $23,000 or 2% in non-interest expenses other than salary, benefits and occupancy expenses.

Year-to-date net income as of September 30, 2005 was $4.7 million, or $1.37 basic net income per share and $1.35 diluted net income per share as compared to $3.4 million, or $0.97 basic net income per share and $0.96 diluted net income per share, for the same period one year ago.

5

PEOPLES BANCORP ANNOUNCES THIRD QUARTER EARNINGS RESULTS - PAGE TWO

The increase in year-to-date earnings is primarily attributable to an increase in net interest income, an increase in non-interest income and a decrease in the provision for loan losses, which were partially offset by an increase in non-interest expense.

Net interest income increased 14% to $20.3 million for the nine months ended September 30, 2005 compared to $17.7 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 resulting from Federal Reserve interest rate increases combined with an increase in the average outstanding balance of investment securities available for sale. Net interest income after the provision for loan losses increased 19% to $17.9 million for the nine months ended September 30, 2005 compared to $15.1 million for the same period one year ago. The provision for loan losses for the nine months ended September 30, 2005 was $2.3 million as compared to $2.7 million for the same period one year ago. This decrease is due to a $9.6 million reduction in classified loans as of September 30, 2005 when compared to September 30, 2004.

Non-interest income increased 15% to $5.3 million for the nine months ended September 30, 2005, as compared to $4.6 million for the same period one year ago. The increase in non-interest income is primarily due to an increase of $464,000 in fee income from the Bank’s Banco de la Gente branches, an increase of $143,000 in debit card fee income and an increase of $84,000 in mortgage banking income.

Non-interest expense increased 9% to $15.9 million for the nine months ended September 30, 2005, as compared to $14.6 million for the same period last year. The increase in year-to-date non-interest expense included an increase of $755,000 or 9% in salaries and benefits expense primarily due to normal salary increases and increased incentive expense, an increase of $285,000 or 11% in occupancy expense, primarily due to an increase in furniture and equipment expense and lease expense, and an increase of $324,000 or 9% in non-interest expenses other than salary, benefits and occupancy expenses.

Total assets as of September 30, 2005 amounted to $729.2 million, an increase of 5% compared to total assets of $695.0 million at September 30, 2004. This increase is primarily attributable to an increase in available for sale securities combined with an increase in loans. Available for sale securities increased 5% to $110.8 million as of September 30, 2005 compared to $105.3 million as of September 30, 2004, the result of additional securities purchases, which were partially offset by paydowns on mortgage-backed securities, calls and maturities. Loans increased 3% to $560.5 million as of September 30, 2005 compared to $545.8 million as of September 30, 2004.

Non-performing assets totaled $5.9 million at September 30, 2005 or 0.81% of total assets, compared to $8.1 million at September 30, 2004 or 1.17% of total assets. The allowance for loan losses at September 30, 2005 amounted to $7.3 million or 1.31% of total loans compared to $9.5 million or 1.73% of total loans at September 30, 2004.

Deposits amounted to $587.6 million as of September 30, 2005, representing an increase of 4% over deposits of $565.7 million at September 30, 2004. Core deposits, which include non-interest bearing demand deposits, NOW, MMDA, savings and certificates of deposits of denominations less than $100,000, increased $21.3 million to $429.1 million at September 30, 2005 as compared to $407.8 million at September 30, 2004 primarily due to an increase of $14.3 million in non-interest bearing demand deposits and a $10.0 million increase in certificates of deposit in amounts less than $100,000. Certificates of deposit in amounts greater than $100,000 or more totaled $158.5 million at September 30, 2005 as compared to $157.9 million at September 30, 2004.

6

PEOPLES BANCORP ANNOUNCES THIRD QUARTER EARNINGS RESULTS - PAGE THREE

Shareholders’ equity increased to $54.1 million, or 7.42% of total assets, at September 30, 2005 as compared to $50.7 million, or 7.29% of total assets, at September 30, 2004. The net increase in common stock and retained earnings from September 30, 2004 to September 30, 2005 amounted to $4.0 million due to net income earned for the period, which was combined with a $620,000 decrease in accumulated other comprehensive income from September 30, 2004 to September 30, 2005 due to a decrease in the market value of available for sale securities.

Peoples Bank operates entirely in North Carolina, with eleven offices throughout Catawba County, one office in Alexander County, three offices in Lincoln County and two offices in Mecklenburg County. The Company’s common stock is publicly traded over the counter and is quoted on the Nasdaq National Market under the symbol “PEBK.” Scott and Stringfellow, Inc., Ryan, Beck & Co. and Sterne Agee & Leach, Inc. are market makers for the Company’s shares.

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, 2004.

7

PEOPLES BANCORP ANNOUNCES THIRD QUARTER EARNINGS RESULTS - PAGE FOUR
CONSOLIDATED BALANCE SHEETS
September 30, 2005, December 31, 2004 and September 30, 2004
	September 30, 2005			December 31, 2004			September 30, 2004
		(Unaudited)						(Unaudited)
ASSETS:
Cash and due from banks	$	21,963,019		$	15,067,871		$	15,020,955
Federal funds sold		4,648,000			1,723,000			1,516,000
Cash and cash equivalents		26,611,019			16,790,871			16,536,955
Investment securities available for sale		110,805,224			105,598,106			105,321,647
Other investments		6,345,749			5,396,959			4,421,973
Total securities		117,150,973			110,995,065			109,743,620
Loans		560,470,788			535,467,733			545,835,699
Mortgage loans held for sale		4,170,230			3,783,175			4,440,815
Less: Allowance for loan losses		(7,334,831	)		(8,048,627	)		(9,453,135	)
Net loans		557,306,187			531,202,281			540,823,379
Premises and equipment, net		12,742,958			12,742,730			12,707,640
Accrued interest receivable and other assets		15,378,330			14,617,125			15,178,191
Total assets	$	729,189,467		$	686,348,072		$	694,989,785
LIABILITIES AND SHAREHOLDERS' EQUITY:
Deposits:
Non-interest bearing demand	$	98,623,830		$	78,024,194		$	84,295,967
NOW, MMDA & Savings		186,139,961			193,917,507			189,215,995
Time, $100,000 or more		158,488,890			154,300,926			157,931,573
Other time		144,306,091			130,279,446			134,275,107
Total deposits		587,558,772			556,522,073			565,718,642
Demand notes payable to U.S. Treasury		1,600,000			1,184,392			974,727
FHLB borrowings		67,000,000			59,000,000			60,000,000
Junior subordinated debentures		14,433,000			14,433,000			14,433,000
Accrued interest payable and other liabilities		4,512,811			4,270,755			3,191,473
Total liabilities		675,104,583			635,410,220			644,317,842
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 3,443,862 shares in 2005
and 3,448,341 shares in 2004		41,178,332			35,040,390			35,301,274
Retained earnings		13,429,870			16,018,206			15,273,669
Accumulated other comprehensive income		(523,318	)		(120,744	)		97,000
Total shareholders' equity		54,084,884			50,937,852			50,671,943
Total liabilities and shareholders' equity	$	729,189,467		$	686,348,072		$	694,989,785

PEOPLES BANCORP ANNOUNCES THIRD QUARTER EARNINGS RESULTS - PAGE FIVE
CONSOLIDATED STATEMENTS OF INCOME
For the three and nine months ended September 30, 2005 and 2004
	Three months ended					Nine months ended
	September 30,					September 30,
	2005			2004		2005			2004
		(Unaudited)			(Unaudited)		(Unaudited)			(Unaudited)
INTEREST INCOME:
Interest and fees on loans	$	10,156,112		$	8,055,439	$	27,838,237		$	24,035,635
Interest on federal funds sold		35,041			16,473		37,946			25,900
Interest on investment securities:
U.S. Government agencies		893,602			796,006		2,596,159			2,078,090
States and political subdivisions		181,479			170,673		543,974			483,527
Other		85,552			96,361		264,509			293,348
Total interest income		11,351,786			9,134,952		31,280,825			26,916,500
INTEREST EXPENSE:
NOW, MMDA & Savings deposits		647,734			540,620		1,923,016			1,316,725
Time deposits		2,363,754			1,746,693		6,254,678			5,421,336
FHLB borrowings		722,818			651,243		2,144,602			1,940,067
Junior subordinated debentures		234,536			162,371		667,526			487,114
Other		8,763			2,465		19,874			5,624
Total interest expense		3,977,605			3,103,392		11,009,696			9,170,866
NET INTEREST INCOME		7,374,181			6,031,560		20,271,129			17,745,634
PROVISION FOR LOAN LOSSES		930,000			931,000		2,343,000			2,658,000
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES		6,444,181			5,100,560		17,928,129			15,087,634
OTHER INCOME:
Service charges		988,294			907,946		2,740,863			2,592,301
Other service charges and fees		308,185			140,778		823,677			467,808
Gain (loss) on sale of securities		(139,727	)		-		(139,727	)		-
Mortgage banking income		133,543			97,707		338,299			254,488
Insurance and brokerage commission		87,006			82,622		299,526			338,825
Miscellaneous		417,837			320,020		1,212,324			926,412
Total other income		1,795,138			1,549,073		5,274,962			4,579,834
OTHER EXPENSES:
Salaries and employee benefits		3,060,582			2,792,716		9,094,848			8,339,784
Occupancy		1,020,332			914,119		2,977,958			2,692,955
Other		1,306,732			1,283,584		3,874,376			3,550,637
Total other expenses		5,387,646			4,990,419		15,947,182			14,583,376
INCOME BEFORE INCOME TAXES		2,851,673			1,659,214		7,255,909			5,084,092
INCOME TAXES		1,010,200			551,500		2,529,600			1,711,200
NET INCOME	$	1,841,473		$	1,107,714	$	4,726,309		$	3,372,892
PER SHARE AMOUNTS
Basic net income	$	0.53		$	0.32	$	1.37		$	0.97
Diluted net income	$	0.52		$	0.32	$	1.35		$	0.96
Cash dividends	$	0.10		$	0.09	$	0.30		$	0.27
Book value	$	15.70		$	14.63	$	15.70		$	14.63

PEOPLES BANCORP ANNOUNCES THIRD QUARTER EARNINGS RESULTS - PAGE SIX
FINANCIAL HIGHLIGHTS
For the three and nine months ended September 30, 2005 and 2004
	Three months ended							Nine months ended
	September 30,							September 30,
	2005			2004				2005			2004
		(Unaudited)			(Unaudited)				(Unaudited)			(Unaudited)
SELECTED AVERAGE BALANCES:
Available for Sale Securities	$	107,882,865		$	100,953,138			$	106,158,827		$	90,084,325
Loans		555,681,011			545,746,010				546,431,182			549,532,881
Earning Assets		674,120,575			657,185,987				660,580,657			648,645,782
Assets		714,457,486			691,711,032				699,709,385			682,014,502
Deposits		576,723,351			569,067,694				565,242,875			558,753,051
Shareholders' Equity		54,345,593			50,096,139				54,722,615			51,076,320
SELECTED KEY DATA:
Net Interest Margin (tax equivalent)		4.42%			3.72%				4.18%			3.72%
Return on Average Assets		1.02%			0.64%				0.90%			0.66%
Return on Average Shareholders' Equity		13.44%			8.80%				11.55%			8.82%
Shareholders' Equity to Total Assets (Period End)		7.42%			7.29%				7.42%			7.29%
ALLOWANCE FOR LOAN LOSSES:
Balance, beginning of period	$	8,021,456		$	9,153,088			$	8,048,627		$	9,722,267
Provision for loan losses		930,000			931,000				2,343,000			2,658,000
Charge-offs		(1,729,069	)		(682,560	)			(3,410,070	)		(3,101,263	)
Recoveries		112,444			51,607				353,274			174,131
Balance, end of period	$	7,334,831		$	9,453,135			$	7,334,831		$	9,453,135
ASSET QUALITY:
Non-accrual Loans								$	5,104,281		$	6,754,907
90 Days Past Due and still accruing									135,588			113,181
Other Real Estate Owned									670,584			1,239,346
Repossessed Assets									-			-
Total Non-performing Assets								$	5,910,453		$	8,107,434
Non-performing Assets to Total Assets									0.81%			1.17%
Allowance for Loan Losses to Non-performing Assets									124.10%			116.60%
Allowance for Loan Losses to Total Loans									1.31%			1.73%
LOAN RISK GRADE ANALYSIS:					Percentage of Loans				General Reserve
					By Risk Grade*				Percentage
					9/30/2005		9/30/2004		9/30/2005			9/30/2004
Risk 1 (Excellent Quality)					14.26%		12.64%		0.15%			0.15%
Risk 2 (High Quality)					18.84%		22.04%		0.50%			0.50%
Risk 3 (Good Quality)					56.89%		55.13%		1.00%			1.00%
Risk 4 (Management Attention)					7.03%		5.35%		2.50%			2.50%
Risk 5 (Watch)					0.58%		0.74%		7.00%			7.00%
Risk 6 (Substandard)					0.88%		2.05%		12.00%			12.00%
Risk 7 (Low Substandard)					0.60%		0.76%		25.00%			25.00%
Risk 8 (Doubtful)					0.00%		0.04%		50.00%			50.00%
Risk 9 (Loss)					0.00%		0.00%		100.00%			100.00%
*Excludes non-accrual loans
At September 30, 2005 there was one relationship exceeding $1.0 million (which totaled $1.1 million) in the Watch risk grade, two relationships exceeding $1.0 million each (which totaled $2.5 million) in the Substandard risk grade and one relationship exceeding $1.0 million (which totaled $3.2 million) in the Low Substandard risk grade. Balances of individual relationships exceeding $1.0 million in these risk grades ranged from $1.1 million to $3.2 million. These customers continue to meet payment requirements and these relationships would not become non-performing assets unless they are unable to meet those requirements.
(END)