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):      January 22, 2008
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 January 22, 2008	5

2

Item 2.02. Results of Operations and Financial Condition

On January 22, 2008, Peoples Bancorp of North Carolina, Inc. issued a press release announcing fourth quarter 2007 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

(d)	Exhibits
(99)(a)	Press release, dated January 22, 2008

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.
Date:  January 24, 2008	By:	/s/ A. Joseph Lampron
	A. Joseph Lampron
	Executive Vice President and Chief Financial Officer

4

EX-99.(A)

EXHIBIT (99)(a)
NEWS RELEASE
		January 22, 2008
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 FOURTH QUARTER EARNINGS RESULTS

Peoples Bancorp of North Carolina, Inc. (NASDAQ: PEBK), the parent company of Peoples Bank, reported net income of $1.6 million, or $0.28 basic and diluted net income per share, for the three months ended December 31, 2007 as compared to $1.9 million or $0.33 basic and diluted net income per share, for the same period one year ago.  December 31, 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 fourth quarter earnings to a decrease in net interest income, an increase in provision for loan losses and an increase in non-interest expense, which were partially offset by an increase in non-interest income.

Year-to-date net income as of December 31, 2007 was $9.6 million, or $1.68 basic net income per share and $1.65 diluted net income per share as compared to $9.2 million, or $1.61 basic net income per share and $1.58 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 year ended December 31, 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 $70.1 million, or 7.73% of total assets, at December 31, 2007 as compared to $62.8 million, or 7.67% of total assets, at December 31, 2006 as a result of net income earned less dividends paid for the period combined with a $2.5 million increase in accumulated other comprehensive income (loss) from December 31, 2006 to December 31, 2007.  The increase in accumulated other comprehensive income (loss) is primarily due to an increase in the market value of available for sale securities.

Net interest income for the quarter ended December 31, 2007 decreased 2% to $8.3 million compared to $8.4 million for the same period one year ago.  This decrease is primarily attributable to a reduction in the Bank’s prime commercial lending rate during 2007.  Net interest income after the provision for loan losses decreased 3% to $7.5 million during the fourth 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 December 31, 2007 was $785,000 as compared to $655,000 for the same period one year ago, primarily attributable to an increase in loan growth of $5.8 million in fourth quarter 2007 when compared to fourth quarter 2006.

Non-interest income increased 63% to $2.5 million for the three months ended December 31, 2007, as compared to $1.6 million for the same period one year ago.  Increases in components of non-interest income for the three months ended  December 31, 2007 compared to the same period last year include a $377,000 increase in service charges and fees resulting from growth in deposit base coupled with normal pricing changes, an increase in mortgage banking income of $191,000 primarily due to a $185,000 write-down of the Bank’s mortgage servicing asset in fourth quarter 2006 and an increase in miscellaneous income of $143,000 due to a $132,000 reduction in losses on the disposition of assets in fourth quarter 2007 when compared to fourth quarter

5

PEOPLES BANCORP ANNOUNCES FOURTH QUARTER EARNINGS RESULTS – PAGE TWO

2006.  These increases in non-interest income were combined with a $254,000 decrease in the loss on sale of securities in fourth quarter 2007 when compared to fourth quarter 2006.

Non-interest expense increased 20% to $7.6 million for the three months ended December 31, 2007, as compared to $6.3 million for the same period last year.  The increase in non-interest expense included: (1) an increase of $910,000 or 30% in salaries and benefits expense due to normal salary increases and expense associated with additional staff for new branches, (2) an increase of $108,000 or 10% in occupancy expense due primarily to an increase in furniture and equipment expense and lease expense associated with the new office in Cornelius, and (3) a net increase of $219,000 or 10% 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 $70,000 in advertising expense, an increase of $64,000 in FDIC insurance expense, an increase of $63,000 in office supplies expense, an increase of $75,000 in taxes and licenses expense and an increase of $58,000 in deposit program 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 December 31, 2007 increased 6% to $34.1 million compared to $32.3 million for the same period one year ago.  This increase is primarily attributable to an increase in the average outstanding balances of loans for the year ended December 31, 2007.  Net interest income after the provision for loan losses increased 8% to $32.1 million for the year ended December 31, 2007, compared to $29.8 million for the same period one year ago.  The provision for loan losses for the year ended December 31, 2007 was $2.0 million as compared to $2.5 million for the same period one year ago, primarily attributable to a reduction in net charge-offs of $396,000.

Non-interest income increased 17% to $8.8 million for the year ended December 31, 2007, as compared to $7.6 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 $747,000 resulting from growth in deposit base coupled with normal pricing changes, an increase of $133,000 in insurance and brokerage commission primarily due to an increase in income from the Bank’s investment subsidiary, an increase in mortgage banking income of $271,000 primarily due to a $185,000 write-down of the Bank’s mortgage servicing asset in fourth quarter 2006 combined with an increase in brokered loan activity and an increase in miscellaneous income of $81,000.

Non-interest expense increased 13% to $26.0 million for the year ended December 31, 2007, as compared to $23.0 million for the same period last year. The increase in non-interest expense included: (1) an increase of $2.1 million or 18% in salaries and benefits expense due to normal salary increases and expenses associated with additional staff for the new branches, (2) an increase of $571,000 or 14% in occupancy expense due to an increase in furniture and equipment expense and lease expense associated with the new office opened in Monroe in June 2006 and the new office opened in Cornelius in June 2007, and (3) a net increase of $336,000 or 5% 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 $215,000 in advertising expense, an increase of $144,000 in professional fees, an increase of $118,000 in office supplies expense and an increase of $88,000 in debit card expense.  These increases in non-interest expenses other than salary, benefits and occupancy expenses were partially offset by a $461,000 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.

6

PEOPLES BANCORP ANNOUNCES FOURTH QUARTER EARNINGS RESULTS – PAGE THREE

Total assets as of December 31, 2007 amounted to $906.8 million, an increase of 11% compared to total assets of $818.9 million at December 31, 2006.  This increase is primarily attributable to an increase in loans.  Loans increased 11% to $722.3 million as of December 31, 2007 compared to $651.4 million as of December 31, 2006.Premises and equipment increased $5.4 million to $18.2 million at December 31, 2007 as compared to $12.8 million at December 31, 2006 primarily due to the purchase of a previously leased branch office and costs associated with new offices.

Non-performing assets totaled $8.5 million at December 31, 2007 or 0.93% of total assets, compared to $8.0 million at December 31, 2006 or 0.97% of total assets.  The allowance for loan losses at December 31, 2007 amounted to $9.1 million or 1.26% of total loans compared to $8.3 million or 1.27% of total loans at December 31, 2006.

Deposits amounted to $693.6 million as of December 31, 2007, representing an increase of 9% over deposits of $633.8 million at December 31, 2006.  Core deposits, which include non-interest bearing demand deposits, NOW, MMDA, savings and certificates of deposits of denominations less than $100,000, increased $50.5 million to $490.1 million at December 31, 2007 as compared to $439.6 million at December 31, 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.  The Bank has also introduced remote deposit capture for customers in 2007, which has enabled the Bank to gather additional deposits from several existing customers and has been helpful in attracting new customers at the new office in Cornelius.  Certificates of deposit in amounts greater than $100,000 or more totaled $203.5 million at December 31, 2007 as compared to $194.2 million at December 31, 2006.

Securities sold under agreement to repurchase increased $21.2 million to $27.6 million at December 31, 2007 as compared to $6.4 million at December 31, 2006 as concerted efforts to promote cash management services have increased customer usage of this product.

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 Bank opened two new offices in January 2008: a traditional banking office in Mooresville, in Iredell County, and a Banco de le Gente office in Raleigh, in Wake 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.

7

PEOPLES BANCORP ANNOUNCES FOURTH QUARTER EARNINGS RESULTS
CONSOLIDATED BALANCE SHEETS
December 31, 2007 and December 31, 2006
	December 31, 2007			December 31, 2006
	(Unaudited)
ASSETS:
Cash and due from banks	$	27,647,627		$	18,860,318
Federal funds sold		2,152,000			2,640,000
Cash and cash equivalents		29,799,627			21,500,318
Investment securities available for sale		120,968,358			117,581,000
Other investments		6,433,947			7,295,449
Total securities		127,402,305			124,876,449
Loans		722,276,948			651,381,129
Less:  Allowance for loan losses		(9,103,058	)		(8,303,432	)
Net loans		713,173,890			643,077,697
Premises and equipment, net		18,234,393			12,816,385
Cash surrender value of life insurance		6,776,379			6,532,406
Accrued interest receivable and other assets		11,395,396			10,144,283
Total assets	$	906,781,990		$	818,947,538
LIABILITIES AND SHAREHOLDERS' EQUITY:
Deposits:
Non-interest bearing demand	$	112,071,090		$	101,393,142
NOW, MMDA & Savings		196,959,895			174,577,641
Time, $100,000 or more		203,499,504			194,176,291
Other time		181,108,214			163,673,215
Total deposits		693,638,703			633,820,289
Demand notes payable to U.S. Treasury		1,600,000			1,600,000
Securities sold under agreement to repurchase		27,583,263			6,417,803
FHLB borrowings		87,500,000			89,300,000
Junior subordinated debentures		20,619,000			20,619,000
Accrued interest payable and other liabilities		5,739,442			4,355,073
Total liabilities		836,680,408			756,112,165
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 5,624,234 shares in 2007
and 3,830,634 shares in 2006		48,651,895			51,122,147
Retained earnings		19,741,876			12,484,463
Accumulated other comprehensive income (loss)		1,707,811			(771,237	)
Total shareholders' equity		70,101,582			62,835,373
Total liabilities and shareholders' equity	$	906,781,990		$	818,947,538

PEOPLES BANCORP ANNOUNCES FOURTH QUARTER EARNINGS RESULTS
CONSOLIDATED STATEMENTS OF INCOME
For the three months and years ended December 31, 2007 and 2006
	Three months ended					Years ended
	December 31,					December 31,
	2007		2006			2007			2006
	(Unaudited)		(Unaudited)			(Unaudited)
INTEREST INCOME:
Interest and fees on loans	$	13,933,821	$	13,479,873		$	55,400,514		$	49,667,700
Interest on federal funds sold		16,161		23,287			383,492			85,307
Interest on investment securities:
U.S. Government agencies		1,160,016		1,115,072			4,571,571			4,321,346
States and political subdivisions		226,048		210,776			887,584			798,185
Other		124,840		131,766			488,465			521,077
Total interest income		15,460,886		14,960,774			61,731,626			55,393,615
INTEREST EXPENSE:
NOW, MMDA & savings deposits		1,123,393		885,963			4,098,892			3,060,201
Time deposits		4,446,186		4,052,377			17,430,012			14,188,623
FHLB borrowings		977,649		824,512			3,758,996			3,588,169
Junior subordinated debentures		380,129		685,152			1,475,701			1,962,692
Other		277,863		127,111			821,331			310,188
Total interest expense		7,205,220		6,575,115			27,584,932			23,109,873
NET INTEREST INCOME		8,255,666		8,385,659			34,146,694			32,283,742
PROVISION FOR LOAN LOSSES		785,000		655,000			2,038,000			2,513,282
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES		7,470,666		7,730,659			32,108,694			29,770,460
NON-INTEREST INCOME:
Service charges		1,260,317		1,011,566			4,278,238			3,929,956
Other service charges and fees		514,676		386,308			1,938,137			1,539,367
Gain (loss) on sale of securities		-		(254,403	)		(561,832	)		(591,856	)
Mortgage banking income		124,816		(66,385	)		560,291			289,293
Insurance and brokerage commission		112,391		94,353			521,095			388,559
Miscellaneous		535,810		393,033			2,079,765			1,998,476
Total non-interest income		2,548,010		1,564,472			8,815,694			7,553,795
NON-INTEREST EXPENSE:
Salaries and employee benefits		3,980,173		3,070,375			13,887,841			11,785,094
Occupancy		1,231,913		1,124,326			4,750,634			4,180,058
Other		2,365,800		2,146,651			7,354,401			7,017,986
Total non-interest expenses		7,577,886		6,341,352			25,992,876			22,983,138
INCOME BEFORE INCOME TAXES		2,440,790		2,953,779			14,931,512			14,341,117
INCOME TAXES		838,700		1,052,200			5,339,541			5,170,300
NET INCOME	$	1,602,090	$	1,901,579		$	9,591,971		$	9,170,817
PER SHARE AMOUNTS
Basic net income	$	0.28	$	0.33		$	1.68		$	1.61
Diluted net income	$	0.28	$	0.33		$	1.65		$	1.58
Cash dividends	$	0.12	$	0.12		$	0.41		$	0.33
Book value	$	12.46	$	10.94		$	12.46		$	10.94

PEOPLES BANCORP ANNOUNCES FOURTH QUARTER EARNINGS RESULTS
FINANCIAL HIGHLIGHTS
For the three months and years ended December 31, 2007 and 2006
	Three months ended						Years ended
	December 31,						December 31,
	2007			2006			2007			2006
	(Unaudited)			(Unaudited)			(Unaudited)
SELECTED AVERAGE BALANCES:
Available for sale securities	$	119,953,571		$	119,832,891		$	120,295,773		$	118,605,090
Loans		698,558,453			631,796,382			665,378,871			604,426,631
Earning assets		827,743,581			761,342,962			801,093,438			732,712,261
Assets		879,315,517			803,134,907			846,835,613			772,585,007
Deposits		677,788,058			624,740,930			659,173,483			605,407,021
Shareholders' equity		69,584,027			62,847,668			70,586,143			62,465,497
SELECTED KEY DATA:
Net interest margin (tax equivalent)		4.06%			4.47%			4.37%			4.51%
Return of average assets		0.72%			0.94%			1.13%			1.19%
Return on average shareholders' equity		9.13%			12.00%			13.59%			14.68%
Shareholders' equity to total assets (period end)		7.73%			7.67%			7.73%			7.67%
ALLOWANCE FOR LOAN LOSSES:
Balance, beginning of period	$	8,687,033		$	8,132,844		$	8,303,432		$	7,424,782
Provision for loan losses		785,000			655,000			2,038,000			2,513,282
Charge-offs		(447,667	)		(538,231	)		(1,626,458	)		(1,958,551	)
Recoveries		78,692			53,819			388,084			323,919
Balance, end of period	$	9,103,058		$	8,303,432		$	9,103,058		$	8,303,432

ASSET QUALITY:
Non-accrual loans	$	7,987,472	$	7,559,610
90 days past due and still accruing		-		78,343
Other real estate owned		482,959		344,261
Total non-performing assets	$	8,470,431	$	7,982,214
Non-performing assets to total assets		0.93%		0.97%
Allowance for loan losses to non-performing assets		107.47%		104.02%
Allowance for loan losses to total loans		1.26%		1.27%
LOAN RISK GRADE ANALYSIS:	Percentage of Loans
	By Risk Grade*
	12/31/2007		12/31/2006
Risk 1 (excellent quality)		11.06%		12.03%
Risk 2 (high quality)		14.06%		14.89%
Risk 3 (good quality)		62.53%		60.31%
Risk 4 (management attention)		9.51%		10.46%
Risk 5 (watch)		1.57%		0.41%
Risk 6 (substandard)		0.13%		0.70%
Risk 7 (low substandard)		0.03%		0.02%
Risk 8 (doubtful)		0.00%		0.00%
Risk 9 (loss)		0.00%		0.00%
*Excludes non-accrual loans
At December 31, 2007 there were two relationships exceeding $1.0 million (which totaled $6.9 million) in the Watch risk grade, no relationships exceeding $1.0 million in the Substandard risk grade and no relationships exceeding $1.0 million in the Low Substandard risk grade. 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)