| **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, 2006**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
| **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)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
| 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 |  o | No |   **x** |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
| 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 |  o | No |                  **x** |   |
| 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 |                  **x** | No |  o |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
| Indicate                by check mark if disclosure of delinquent filers in response to Item                405                of Regulation S-K is not contained herein, and will not be contained,                to                the best of registrant's knowledge, in definitive proxy or information                statements incorporated by reference in                                                                                                                                                                                                                                                            |
| Part                III of this Form 10-K or any amendment to this Form 10-K.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |  **x** |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
| Indicate                by check mark whether the registrant is a large accelerated filer,                and                accelerated filer, or a non-accelerated filer.                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| Large                Accelerated Filer                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |  o | Accelerated                Filer |                   **x** | Non-Accelerated                Filer |  o |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
| Indicate                by check mark whether the registrant is a shell company (as defined                in                Rule 12b-2 of the Exchange Act).                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           | Yes                    o |   | No |                  **x** |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
| 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 prices of such                common                equity, as of the last business day of the registrant’s most recently                completed second fiscal quarter. $78,083,522 based on the closing                price of                such common stock on June 30, 2006, which was $26.01 per                share. |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
| Indicate                the number of shares outstanding of each of the registrant's classes                of                common stock, as of the latest practicable date.**3,834,175                shares of common stock, outstanding at February 28,                2007.**                                                                                                                                                                                                                                                                                                                                            |

----

**DOCUMENTS        INCORPORATED BY REFERENCE**

***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 (the “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**                                                   |
|                                                                                                   |   2006                  Form 10-K | Notice                  of 2007 Annual                  Meeting, Proxy                  Statement and                  Annual Report |
|                                                                                                   | Page | Page |
| **PART                  I**                                                                            |   |   |
| Item                  1 - Business                                                                     | 3                  -                  10 | N/A |
| Item                  1A - Risk Factors                                                                | 10                  - 12 | N/A |
| Item                  1B - Unresolved Staff Comments                                                   | 12 | N/A |
| Item                  2 - Properties                                                                   | 13 | N/A |
| Item                  3 - Legal Proceedings                                                            | 13 | N/A |
| Item                  4 - Submission of Matters to a Vote of Security Holders                          | 13 | N/A |
|                                                                                                   |   |   |
| **PART                  II**                                                                           |   |   |
| Item                  5 - Market for the Common Equity, Related Shareholder Matters and                |   |   |
| Issuer                  Purchases of Equity Securities                                                 | 14 | A-24 |
| Item                  6 - Selected Financial Data                                                      | 14 | A-3 |
| Item                  7 - Management’s Discussion and Analysis of Financial Condition and        |   |   |
| Results                  of Operations                                                                 | 14 | A-4                  - A-25 |
| Item                  7A - Quantitative and Qualitative Disclosures About Market                  Risk | 14 | A-22 |
| Item                  8 - Financial Statements and Supplementary Data                                  | 15 | A-26                  - A-56 |
| Item                  9 - Changes in and Disagreements with Accountants on                  Accounting |   |   |
| and                  Financial Disclosure                                                              | 15 | N/A |
| Item                  9A - Controls and Procedures                                                     | 15 | N/A |
| Item                  9B - Other Information                                                           | 15 | N/A |
|                                                                                                   |   |   |
| **PART                  III**                                                                          |   |   |
| Item                  10 - Directors and Executive Officers of the Registrant                          | 15 | 7                  -                  11; 17 - 18 |
| Item                  11 - Executive Compensation                                                      | 16 | 11                  - 32 |
| Item                  12 - Security Ownership of Certain Beneficial Owners and Management              | 16 | 4                  -                  7; 22 |
| Item                  13 - Certain Relationships and Related Transactions                              | 16 | 31 |
| Item                  14 - Principal Accountant Fees and Services                                      | 16 | 33                  - 34 |
|                                                                                                   |   |   |
| **PART                  IV**                                                                           |   |   |
| Item                  15 - Exhibits and Financial Statement Schedules                                  | 17                  - 19 | N/A |
|                                                                                                   |   |   |
| Signatures                                                                                             | 20 | N/A |

----

**PART        I**

**ITEM        1.     BUSINESS**

**General**

**Subsidiaries**

** **

----

**Market        Area**

**Competition**

**Supervision        and Regulation**

----

***                      General***
**.**

***Capital        Adequacy Guidelines for Holding Companies***
**.**

***Capital        Requirements for the Bank.***

***Dividend        and Repurchase Limitations***
**.**

----

***Deposit        Insurance***
**.**

***Federal        Deposit Insurance Reform***
**.**

|   | · | raising                  the coverage level for retirement accounts to $250,000;                                                                                                              |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | · | indexing                  deposit insurance coverage levels for inflation beginning in                  2012;                                                                                 |
|   | · | prohibiting                  undercapitalized financial institutions from accepting employee                  benefit                  plan deposits;                                         |
|   | · | merging                  the Bank Insurance Fund and Savings Association Insurance Fund                  into a new                  Deposit Insurance Fund (the DIF); and                    |
|   | · | providing                  credits to financial institutions that capitalized the FDIC prior                  to 1996                  to offset future assessment                  premiums. |

***Federal        Home Loan Bank System***
**.**

***Community        Reinvestment.***
* *

----

***Prompt        Corrective Action.***
* *

***                      Changes in Control.***

***Federal        Securities Law***
*.*

***Transactions        with Affiliates.***
* *

***Loans        to One Borrower.***
* *

----

***Gramm-Leach-Bliley        Act.***

***USA        Patriot Act of 2001***
**.        **

***Sarbanes-Oxley        Act of 2002***
**.        **

***Other.***
* *

----

| **ITEM                    1A.** | **RISK                    FACTORS** |
|---------------------------------|-------------------------------------|

**Loss        of key personnel could adversely impact results**

**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**

**An        inadequate allowance for loan losses would reduce our earnings**

**Changes        in interest rates affect profitability and assets **

----

**Regional        economic factors may have an adverse impact on our business**

**The        Bank faces strong competition from other banks and financial institutions        which        can hurt its business **

**Government        regulations and policies impose limitations and may result in higher operating        costs and competitive disadvantages **

**Changes        in technology may impact the Bank’s business **

**The        trading volume in our common stock is less than that of larger public companies        which can cause price volatility**

|   | l | actual                  or anticipated fluctuation in our operating results;                                                                                                                              |
|--------|---|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | l | changes                  in interest rates;                                                                                                                                                               |
|   | l | changes                  in the legal or regulatory environment in which we operate;                                                                                                                      |
|   | l | press                  releases, announcements or publicity relating to us or our competitors                  or                  relating to trends in our industry;                                    |
|   | l | changes                  in expectations as to our future financial performance, including                  financial estimates or recommendations by securities analysts and                  investors; |
|   | l | 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 us or our                    competitors. |
|--------------------|-------------------------------------------------------------------------------------------|

**We        may be subject to examinations by taxing authorities which could adversely        affect our results of operations**

**We        may not be able to pay dividends in the future in accordance with past        practice**

| **ITEM                    1B.** | **UNRESOLVED                    STAFF COMMENTS** |
|---------------------------------|--------------------------------------------------|

----

| **ITEM                    2.** | **PROPERTIES** |
|--------------------------------|----------------|

|   | **Owned**                                        |   | **Leased**                                        |   |
|--------|--------------------------------------------------|--------|---------------------------------------------------|--------|
|   |                                             |   |                                              |   |
|   | Corporate                  Office                |   | 1333                  2nd Street NE               |   |
|   | 518                  West C Street               |   | Hickory,                  North Carolina 28601    |   |
|   | Newton,                  North Carolina 28658    |   |                                              |   |
|   |                                             |   | 1910                  East Main Street            |   |
|   | 420                  West A Street               |   | Lincolnton,                  North Carolina 28092 |   |
|   | Newton,                  North Carolina 28658    |   |                                              |   |
|   |                                             |   | 2050                  Catawba Valley Boulevard    |   |
|   | 2619                  North Main Avenue          |   | Hickory,                  North Carolina 28601    |   |
|   | Newton,                  North Carolina 28658    |   |                                              |   |
|   |                                             |   | 760                  Highway 27 West              |   |
|   | 213                  1st Street, West            |   | Lincolnton,                  North Carolina 28092 |   |
|   | Conover,                  North Carolina 28613   |   |                                              |   |
|   |                                             |   | 102                  Leonard Avenue               |   |
|   | 3261                  East Main Street           |   | Newton,                  North Carolina 28658     |   |
|   | Claremont,                  North Carolina 28610 |   |                                              |   |
|   |                                             |   | 6300                  South Boulevard             |   |
|   | 6125                  Highway 16 South           |   | Suite                  100                        |   |
|   | Denver,                  North Carolina 28037    |   | Charlotte,                  North Carolina 28217  |   |
|   |                                             |   |                                              |   |
|   | 5153                  N.C. Highway 90E           |   | 4451                  Central Avenue              |   |
|   | Hiddenite,                  North Carolina 28636 |   | Suite                  A                          |   |
|   |                                             |   | Charlotte,                  North Carolina 28205  |   |
|   | 200                  Island Ford Road            |   |                                              |   |
|   | Maiden,                  North Carolina 28650    |   | 3752/3754                  Highway 16 North       |   |
|   |                                             |   | Denver,                  North Carolina 28037     |   |
|   | 3310                  Springs Road NE            |   |                                              |   |
|   | Hickory,                  North Carolina 28601   |   | 209                  Delburg Street               |   |
|   |                                             |   | Suite                  105                        |   |
|   | 142                  South Highway 16            |   | Davidson,                  North Carolina 28036   |   |
|   | Denver,                  North Carolina 28037    |   |                                              |   |
|   |                                             |   | 501                West Roosevelt Boulevard       |   |
|   | 106                  North Main Street           |   | Monroe,                NC  28110             |   |
|   | Catawba,                  North Carolina 28609   |   |                                              |   |

| **ITEM                  3.** | **LEGAL                  PROCEEDINGS** |
|------------------------------|----------------------------------------|

| **ITEM                  4.** | **SUBMISSION                  OF MATTERS TO A VOTE OF SECURITY                  HOLDERS** |
|------------------------------|-------------------------------------------------------------------------------------------|

----

**PART        II**

| **ITEM                  5.** | **MARKET                  FOR REGISTRANT'S COMMON EQUITY, RELATED SHAREHOLDER MATTERS AND                  ISSUER                  PURCHASES OF EQUITY                  SECURITIES** |
|------------------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| **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** |   | **Maximum                  Number (or Approximate Dollar****Value)                  of Shares that****May                  Yet Be Purchased Under the Plans or Programs** |                                      |   |
|                                                                                                                                                                                                                                                                                                              |   |                                                           |                                  |                                                                     |   |                                                                                                                                                              |   |                                                                                                                                                                      |                                      |   |   |   |   |   |   |
| October                  1 - 31, 2006                                                                                                                                                                                                                                                                             |   |                                                           | -                      |                                                                     | $      | -                                                                                                                                                  |   |                                                                                                                                                                      | -                          |   | $ | 1,575,000 |   |   |   |
|                                                                                                                                                                                                                                                                                                              |   |                                                           |                                  |                                                                     |   |                                                                                                                                                              |   |                                                                                                                                                                      |                                      |   |   |   |   |   |   |
| November                  1 - 30, 2006                                                                                                                                                                                                                                                                            |   |                                                           | 569                                   |                                                                     |   | 29.71                                                                                                                                                             |   |                                                                                                                                                                      | -                          |   |   | 1,575,000 |   | (1) |   |
|                                                                                                                                                                                                                                                                                                              |   |                                                           |                                  |                                                                     |   |                                                                                                                                                              |   |                                                                                                                                                                      |                                      |   |   |   |   |   |   |
| December                  1 - 31, 2006                                                                                                                                                                                                                                                                            |   |                                                           | -                      |                                                                     |   | -                                                                                                                                                  |   |                                                                                                                                                                      | -                          |   |   | 2,000,000 |   | (2) |   |
|                                                                                                                                                                                                                                                                                                              |   |                                                           |                                  |                                                                     |   |                                                                                                                                                              |   |                                                                                                                                                                      |                                      |   |   |   |   |   |   |
| **Total**                                                                                                                                                                                                                                                                                                         |   |                                                           | **569**                               |                                                                     | **$**  | **29.71**                                                                                                                                                         |   |                                                                                                                                                                      | **-                     ** |   | **$** | **2,000,000** |   |   |   |
|                                                                                                                                                                                                                                                                                                              |   |                                                           |                                  |                                                                     |   |                                                                                                                                                              |   |                                                                                                                                                                      |                                      |   |   |   |   |   |   |
| (1)                  The Company authorized a $2.0 million stock repurchase program                  effective                  December 1, 2005. This program expired November 30, 2006. The Company                  repurchased 19,250 shares pursuant to this program in first quarter                  2006. |   |
|                                                                                                                                                                                                                                                                                                              |   |                                                           |                                  |                                                                     |   |                                                                                                                                                              |   |                                                                                                                                                                      |                                      |   |   |   |   |   |   |
| (2)                  The Company authorized a $2.0 million stock repurchase program                  effective                  December 1, 2006. This program will expire November 30, 2007. No                  shares                  were repurchased pursuant to this program in 2006.                      |   |

| **ITEM                  6.** | **SELECTED                  FINANCIAL DATA** |
|------------------------------|----------------------------------------------|

| **ITEM                  7.** | **MANAGEMENT'S                  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF                  OPERATIONS** |
|------------------------------|-----------------------------------------------------------------------------------------------------------------------------|

| **ITEM                  7A.** | **QUANTITATIVE                  AND QUALITATIVE DISCLOSURES ABOUT MARKET                  RISK** |
|-------------------------------|--------------------------------------------------------------------------------------------------|

** **

----

| **ITEM                  8.** | **FINANCIAL                  STATEMENTS AND SUPPLEMENTARY                  DATA** |
|------------------------------|-----------------------------------------------------------------------------------|

| **ITEM                  9.** | **CHANGES                  IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL                  DISCLOSURE** |
|------------------------------|----------------------------------------------------------------------------------------------------------------------------|

| **ITEM                  9A.** | **CONTROLS                  AND PROCEDURES** |
|-------------------------------|----------------------------------------------|

| **ITEM                  9B.** | **OTHER                  INFORMATION** |
|-------------------------------|----------------------------------------|

**PART        III**

| **ITEM                  10.** | **DIRECTORS                  AND EXECUTIVE OFFICERS OF THE                  REGISTRANT** |
|-------------------------------|------------------------------------------------------------------------------------------|

| **ITEM                  11.** | **EXECUTIVE                  COMPENSATION** |
|-------------------------------|---------------------------------------------|

----

| **ITEM                  12.** | **SECURITY                  OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND                  MANAGEMENT** |
|-------------------------------|------------------------------------------------------------------------------------------------------|

| **ITEM                  13.** | **CERTAIN                  RELATIONSHIPS AND RELATED                  TRANSACTIONS** |
|-------------------------------|--------------------------------------------------------------------------------------|

| **ITEM                  14.** | **PRINCIPAL                  ACCOUNTANT FEES AND                  SERVICES** |
|-------------------------------|------------------------------------------------------------------------------|

----

| **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) |
|---------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (a) | Reports                of Independent Registered Public Accounting Firm |
|--------|-----|-------------------------------------------------------------------------|

|   | (b) | Consolidated                Balance Sheets as of December 31, 2006 and                2005 |
|--------|-----|--------------------------------------------------------------------------------------------|

|   | (c) | Consolidated                Statements of Earnings for the Years Ended December 31, 2006, 2005                and                2004 |
|--------|-----|---------------------------------------------------------------------------------------------------------------------------------------|

|   | (d) | Consolidated                Statements of Changes in Shareholders’ Equity for the Years Ended December                31, 2006, 2005 and 2004 |
|--------|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (e) | Consolidated                Statements of Comprehensive Income for the Years Ended December 31,                2006,                2005 and 2004 |
|--------|-----|---------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (f) | Consolidated                Statements of Cash Flows for the Years Ended December 31, 2006, 2005                and                2004 |
|--------|-----|-----------------------------------------------------------------------------------------------------------------------------------------|

|   | (g) | Notes                to Consolidated Financial                Statements |
|--------|-----|--------------------------------------------------------------------------|

| 15(a)2. |   | Financial                Consolidated Statement Schedules |
|---------|--------|-----------------------------------------------------------|

| 15(a)3. | Exhibits                         |                                                                                                      |
|---------|----------------------------------|-----------------------------------------------------------------------------------------------------------|
|    |                             |                                                                                                      |
|    | Exhibit                  (3)(i)  | Articles                  of Incorporation of Peoples Bancorp of North Carolina,                  Inc.,   |
|    |                             | incorporated                  by reference to Exhibit (3)(i) to the Form 8-A filed with the               |
|    |                             | Securities                  and Exchange Commission on September 2, 1999                                  |
|    |                             |                                                                                                      |
|    | Exhibit                  (3)(ii) | Amended                  and Restated Bylaws of Peoples Bancorp of North Carolina,                        |
|    |                             | Inc.,                  incorporated by reference to Exhibit (3)(ii) to the Form 10-K filed                |
|    |                             | with                  the Securities and Exchange Commission on March 26,                  2004           |
|    |                             |                                                                                                      |
|    | Exhibit                  (4)     | Specimen                  Stock Certificate, incorporated by reference to Exhibit (4) to                  |
|    |                             | the                  Form 8-A filed with the Securities and Exchange Commission on                   |
|    |                             | September                2, 1999                                                                          |
|    |                             |                                                                                                      |
|    | Exhibit                  (10)(a) | Employment                  Agreement between Peoples Bank and Tony W. Wolfe                              |
|    |                             | incorporated                  by reference to Exhibit (10)(a) to the Form 10-K filed with                 |
|    |                             | the                  Securities and Exchange Commission on March 30, 2000                                 |
|    |                             |                                                                                                      |
|    | Exhibit                  (10)(b) | Employment                  Agreement between Peoples Bank and Joseph F. Beaman,                          |
|    |                             | Jr.                  incorporated by reference to Exhibit (10)(b) to the Form 10-K                  filed |
|    |                             | with                  the Securities and Exchange Commission on March 30,                  2000           |
|    |                             |                                                                                                      |
|    | Exhibit                  (10)(c) | Employment                  Agreement between Peoples Bank and William D. Cable                           |
|    |                             | incorporated                  by reference to Exhibit (10)(d) to the Form 10-K filed with                 |
|    |                             | the                  Securities and Exchange Commission on March 30,                  2000                |

----

|   | Exhibit                (10)(d)  | Employment                Agreement between Peoples Bank and Lance A. Sellers                              |
|--------|---------------------------------|------------------------------------------------------------------------------------------------------------|
|   |                            | incorporated                by reference to Exhibit (10)(e) to the Form 10-K filed with                    |
|   |                            | the                Securities and Exchange Commission on March 30, 2000                                    |
|   |                            |                                                                                                       |
|   | Exhibit                (10)(e)  | 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)(e)(i) | Amendment              No. 1 to the Peoples Bancorp of North Carolina, Inc.                                |
|   |                            | Omnibus              Stock Ownership and Long Term Incentive Plan                                          |
|   |                            |                                                                                                       |
|   | Exhibit                (10)(f)  | Employment                Agreement between Peoples Bank and A. Joseph Lampron,                            |
|   |                            | incorporated                by reference to Exhibit (10)(g) to the Form 10-K filed with                the |
|   |                            | Securities                and Exchange Commission on March 28, 2002                                        |
|   |                            |                                                                                                       |
|   | Exhibit                (10)(g)  | 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)(h)  | 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)(i)  | 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)(j) | Capital                Securities Purchase Agreement dated as of June 26, 2006, by                and  |
|   |                           | among                Peoples Bancorp of North Carolina, Inc., 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)(k) | 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)(l) | Guarantee                Agreement of Peoples Bancorp of North Carolina, Inc.                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)(m) | Indenture,                dated as of June 28, 2006, by and between Peoples Bancorp of                 |
|   |                           | North                Carolina, Inc. 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                (12) | Statement                Regarding Computation of Ratios                                               |
|   |                        |                                                                                                   |
|   | Exhibit                (13) | 2006                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          |

----

|   | Exhibit                (21)      | Subsidiaries                of Peoples Bancorp of North Carolina, Inc., incorporated by                                                                                                    |
|--------|----------------------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                             | reference to                Exhibit 21 to the Form 10-K filed with the Securities and                                                                                                 |
|   |                             | Exchange Commission                on March 27, 2003                                                                                                                                  |
|   |                             |                                                                                                                                                                                       |
|   | Exhibit                  (23)    | Consent                  of Porter Keadle Moore, LLP                                                                                                                                       |
|   |                             |                                                                                                                                                                                       |
|   | Exhibit                (31)(a)   | Certification                of principal executive officer pursuant to section 302 of the                Sarbanes-Oxley Act of 2002                                                       |
|   |                             |                                                                                                                                                                                       |
|   | Exhibit                  (31)(b) | 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 |

----

| **SIGNATURES**                                                                                                                                                                                                                                                                                                         |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                                                                                                                                                                                                   |
| Pursuant                  to the requirements of Section 13 or 15(d) of the Securities Exchange                  Act                  of 1934, the registrant has duly caused this report to be signed                  on its                  behalf by the undersigned, thereunto duly                  authorized. |

|   |   | PEOPLES                BANCORP OF NORTH CAROLINA, INC. |                                   |
|--------|--------|--------------------------------------------------------|----------------------------------------|
|   |   | (Registrant)                                           |                                   |   |   |   |
|   |   |                                                   |                                   |   |   |   |   |
|   |   | By:                                                    | /s/                Tony W. Wolfe  |   |   |   |
|   |   | Tony                W. Wolfe                           |                                   |   |   |   |
|   |   | President                and Chief Executive Officer   |                                   |   |   |
|   |   |                                                   |                                   |   |   |   |   |
|   |   | Date:                March 15, 2007                    |                                   |   |   |   |

| Pursuant                  to the requirements of the Securities Exchange Act of 1934, this                  report                  has been signed below by the following persons on behalf of the                  registrant                  and in the capacities and on the dates indicated: |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                                                                                                                                                                               |
| **Signature**                                                                                                                                                                                                                                                                                      |   | **Title** |   | **Date** |
|                                                                                                                                                                                                                                                                                               |   |   |   |   |
| /s/                  Tony W. Wolfe                                                                                                                                                                                                                                                                 |   | President                  and Chief Executive Officer |   | March                  15, 2007 |
| Tony                  W. Wolfe                                                                                                                                                                                                                                                                     |   | (Principal                  Executive Officer) |   |   |
|                                                                                                                                                                                                                                                                                               |   |   |   |   |
| /s/                  James S. Abernethy                                                                                                                                                                                                                                                            |   | Director |   | March                  15, 2007 |
| James                  S. Abernethy                                                                                                                                                                                                                                                                |   |   |   |   |
|                                                                                                                                                                                                                                                                                               |   |   |   |   |
| /s/                  Robert C. Abernethy                                                                                                                                                                                                                                                           |   | Chairman                  of the Board and Director |   | March                  15, 2007 |
| Robert                  C. Abernethy                                                                                                                                                                                                                                                               |   |   |   |   |
|                                                                                                                                                                                                                                                                                               |   |   |   |   |
| /s/                  Douglas S. Howard                                                                                                                                                                                                                                                             |   | Director |   | March                  15, 2007 |
| Douglas                  S. Howard                                                                                                                                                                                                                                                                 |   |   |   |   |
|                                                                                                                                                                                                                                                                                               |   |   |   |   |
| /s/                  A. Joseph Lampron                                                                                                                                                                                                                                                             |   | Executive                  Vice President and Chief |   | March                  15, 2007 |
| A.                  Joseph Lampron                                                                                                                                                                                                                                                                 |   | Financial                  Officer (Principal Financial |   |   |
|                                                                                                                                                                                                                                                                                               |   | and                  Principal Accounting Officer) |   |   |
|                                                                                                                                                                                                                                                                                               |   |   |   |   |
| /s/                  John W. Lineberger, Jr.                                                                                                                                                                                                                                                       |   | Director |   | March                  15, 2007 |
| John                  W. Lineberger, Jr.                                                                                                                                                                                                                                                           |   |   |   |   |
|                                                                                                                                                                                                                                                                                               |   |   |   |   |
| /s/                  Gary E. Matthews                                                                                                                                                                                                                                                              |   | Director |   | March                  15, 2007 |
| Gary                  E. Matthews                                                                                                                                                                                                                                                                  |   |   |   |   |
|                                                                                                                                                                                                                                                                                               |   |   |   |   |
| /s/                  Billy L. Price, Jr., M.D.                                                                                                                                                                                                                                                     |   | Director |   | March                  15, 2007 |
| Billy                  L. Price, Jr., M.D.                                                                                                                                                                                                                                                         |   |   |   |   |
|                                                                                                                                                                                                                                                                                               |   |   |   |   |
| /s/                  Larry E. Robinson                                                                                                                                                                                                                                                             |   | Director |   | March                  15, 2007 |
| Larry                  E. Robinson                                                                                                                                                                                                                                                                 |   |   |   |   |
|                                                                                                                                                                                                                                                                                               |   |   |   |   |
| /s/                  William Gregory Terry                                                                                                                                                                                                                                                         |   | Director |   | March                  15, 2007 |
| William                  Gregory Terry                                                                                                                                                                                                                                                             |   |   |   |   |
|                                                                                                                                                                                                                                                                                               |   |   |   |   |
| /s/                  Dan Ray Timmerman, Sr.                                                                                                                                                                                                                                                        |   | Director |   | March                  15, 2007 |
| Dan                  Ray Timmerman, Sr.                                                                                                                                                                                                                                                            |   |   |   |   |
|                                                                                                                                                                                                                                                                                               |   |   |   |   |
| /s/                  Benjamin I. Zachary                                                                                                                                                                                                                                                           |   | Director |   | March                  15, 2007 |
| Benjamin                  I. Zachary                                                                                                                                                                                                                                                               |   |   |   |   |

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