Document:

<PAGE>

STATE OF NORTH CAROLINA

COUNTY OF CATAWBA

                                                            EMPLOYMENT AGREEMENT

         THIS EMPLOYMENT AGREEMENT ("Agreement"), is made as of the 1st day of
December, 1999, by and between PEOPLES BANK, Newton, North Carolina, a North
Carolina banking institution (the "Bank"), and WILLIAM D. CABLE (the
"Employee")and is joined in by PEOPLES BANCORP OF NORTH CAROLINA, INC., a North
Carolina corporation (the "Holding Company");

                             W I T N E S S E T H :

         WHEREAS the Employee has heretofore been employed and currently is
rendering services to the Bank as Senior Vice President; Information Services
and,

         WHEREAS the Bank is a North Carolina banking corporation and the
Holding Company is a North Carolina bank holding company and the sole
shareholder of the Bank; and,

         WHEREAS the Bank considers the continued availability of the Employee's
services to be important to the management and conduct of the Bank's and Holding
Company's business, and desires to secure for the Bank and Holding Company the
continued availability of the Employee's services; and,

         WHEREAS the Employee is willing to make his services available to the
Bank and Holding Company on the terms and subject to the conditions set forth
herein.

         NOW, THEREFORE, in consideration of the mutual covenants contained
herein, the parties hereto agree as follows:

         1.    Employment. The Employee is employed as Senior Vice President,
         ----------------
Information Services. The Employee shall render administrative and management
services to the Bank, such as are customarily performed by persons situated in a
similar executive capacity. He shall promote the business of the Bank and
Holding
<PAGE>

Company and perform such other duties as shall from time to time be reasonably
described by the President of the Bank.

         2.    Compensation.
         ------------------

               A.   Base Salary. The Bank shall pay the Employee during the term
               ----------------
         of this Agreement a base salary at the rate of $80,010 per annum,
         payable in monthly installments or more frequently as the Bank elects;
         provided, that the rate of such salary shall be reviewed annually by
         the Bank. Such rate of salary may be increased (but not decreased) from
         time to time in such amounts as the Bank, in its discretion, may
         decide.

               B.   Management Incentive Plan. The Employee shall be entitled to
               -------------------------------
         participate in an equitable manner with other key management personnel
         of the Bank in the Bank's management incentive plan adopted in 1998.

         3.    Discretionary Bonuses. The Employee shall be entitled to
         ---------------------------
participate in an equitable manner with all other key management personnel of
the Bank in discretionary bonuses authorized and declared by the Directors of
the Bank. No other compensation provided for in this Agreement shall be deemed a
substitute for the Employee's right to participate in such discretionary bonuses
when and as are declared by the Board of Directors.

         4.    Additional Benefits.
         -------------------------

               A.   Participation in Retirement and Medical Plan. The Employee
               -------------------------------------------------
         shall be entitled to participate in any plan of the Bank relating to
         pension, profit sharing or other retirement benefits and health,
         medical and disability coverage, or reimbursement plans that the Bank
         may adopt for the benefit of its employees subject to the eligibility
         rules of such plan.

               B.   Officer Benefits/Expenses. The Employee shall be eligible
               ------------------------------
         to participate in any fringe benefits which may be or become applicable
         to the Bank's executive employees, commensurate with the
         responsibilities and functions to be performed by the Employee under
         this Agreement. Additionally, the
<PAGE>

          Employee shall be entitled to four (4) weeks of paid vacation, as an
          exception to uniform employee policies promulgated by the Directors,
          and such sick leave as is established by such policies. The Bank shall
          reimburse the Employee for all out-of-pocket reasonable and necessary
          business expenses which the Employee shall incur in connection with
          his services on behalf of the Bank. Additionally, the Employee shall
          be entitled to life insurance in the amount of two times his annual
          salary; the same amount in accidental death and dismemberment
          insurance; dependent life insurance upon his spouse in the amount of
          Two Thousand Dollars ($2,000.00); and disability insurance as which
          will compensate the Employee 66-2/3% of his salary after he is out of
          work pursuant to company policy for thirty (30) calendar days. The
          Employer shall pay all premiums for the insurance noted above.

          5.   Term. The initial term of employment under this Agreement shall
          ---------
be for the period commencing December 1, 1999 and ending three (3) calendar
years after such date. At the end of each one-year period following such
commencing date, this Agreement shall automatically be extended for an
additional one (1) year period beyond the then-effective expiration date, unless
written notice from the Bank or the Employee is received sixty (60) days prior
to an anniversary date advising the other party that this Agreement shall not be
further extended, or in the event the Employee and Employer agree to a further
extension before the expiration of this Agreement. The parties intend that this
Agreement shall be a continuing employment agreement, unless written notice is
given as provided in this Paragraph, or unless this Agreement is otherwise
terminated as provided in this Agreement.

          6.   Loyalty/Non-Competition.
          -----------------------------

               A.   The Employee shall devote his full efforts and entire
          business time to the performance of his duties under this Agreement.

               B.   During the term of this Agreement, or any renewals or
          extensions thereof, and for a period of one (1) year after
          termination, the Employee shall not, within Catawba, Alexander,
          Iredell or Lincoln Counties, North Carolina, directly or indirectly,
          own, manage, operate, join, control or participate in the

<PAGE>

     management, operation or control of or be employed by or connected in any
     manner with any depository institution or financial services business which
     competes with the Bank or the Holding Company without the prior written
     consent of the Bank. Notwithstanding the foregoing, the Employee shall be
     free without such consent to purchase or hold as an investment or otherwise
     up to 5% of the outstanding stock or other securities of any corporation
     which has its securities publicly traded on any recognized securities
     exchange or in any over-the-counter market.

               The Employee shall hold in confidence all knowledge or
     information of a confidential nature with respect to the business of the
     Bank or the Holding Company, received by him during the term of this
     Agreement, and will not disclose or make use of such information without
     the prior written consent of the Bank.

               The Employee acknowledges that it would not be possible to
     ascertain the amount of monetary damages in the event of a breach by the
     Employee under the provisions of this Paragraph 6. The Employee agrees that
     in the event of the breach of this Paragraph, injunctive relief enforcing
     the terms of this Paragraph is an appropriate remedy.

               The Bank and Employee further agree that in the event the Bank
     shall terminate the employment of the Employee for cause or should the
     Employee resign his employment during any period of the term of his
     employment contract, then and in that event, the non-competition provisions
     of this Agreement shall be applicable. If, however, the Bank should
     terminate the employment of the Employee without cause during the last year
     of said Agreement, the non-competition provisions of this Agreement shall
     not be applicable, and the Bank shall not proceed with respect to the
     remedies as set forth above.

     7.   Standards. The Employee shall perform his duties under this Agreement
     --------------
in accordance with such reasonable standards expected of employees with
comparable positions in comparable organizations and as may be established from
time-to-time by the Board of Directors. The Bank shall provide the Employee with
<PAGE>

the working facilities and staff customary at the Bank for similar executives
and necessary for him to perform his duties.

     8.   Termination and Termination Pay.
     ------------------------------------

          A.   The Employee's employment under this Agreement shall be
     terminated upon the following occurrences:

               (1)  The death of the Employee during the term of this Agreement,
          in which event the Employee's estate shall be entitled to receive the
          compensation due the Employee through the last day of the calendar
          month in which his death shall have occurred and for a period of three
          (3) months thereafter.

               (2)  The Employee's employment under this Agreement may be
          terminated by the Bank at any time or by the Employee upon sixty (60)
          days written notice to the Employee or the Bank, as the case may be.
          Upon such termination by the Employee or by the Bank "for cause," the
          Employee shall be entitled to receive compensation under this
          Agreement through the effective date of such termination and such
          other benefits, if any, as may be provided by the terms of other plans
          and programs of the Bank in the event of termination.

          Any such termination by the Bank other than termination "for cause"
          shall not prejudice the Employee's right to compensation or benefits
          under this Agreement. The Employee shall have no right to receive
          compensation or benefits for any period after termination "for cause."
          Termination "for cause" shall include termination because of
               Employee's personal dishonesty, in-competence, willful
          misconduct, breach of fiduciary duty involving personal profit,
          intentional failure to perform stated duties, willful violation of any
          law, rule or regulation (other than traffic violations or similar
          offenses), or final cease and
<PAGE>

          desist order, or any material breach of any provision of this
          Agreement.

               (3)  If the Employee is removed or permanently prohibited from
          participating in the conduct of the Bank's affairs by any order issued
          by any regulatory agency, all obligations of the Bank under this
          Agreement shall terminate as of the effective date of the order. The
          rights of the Employee vested prior to the date of such order shall
          not be affected.

               (4)  All obligations under this Agreement may be terminated:

                    (a)  by the Federal Deposit Insurance Corporation at the
               time it enters into an agreement to provide assistance to or on
               behalf of the Bank under the authority contained in its Rules and
               Regulations; and,

                    (b)  by any regulatory or supervisory agency which enters
               any orders to resolve problems related to the operation of the
               Bank, or when the Bank is determined to be in an unsafe or
               unsound condition. Any rights of the Employee vested prior to
               such time shall not be affected by any such determination or
               order.

     9.   Suspension of Employment.
     -----------------------------

          A.   The suspension of the Employee from office or temporary
     prohibition from participation by the Employee in the conduct of the
     affairs of the Bank pursuant to notice served by any supervisory or
     regulatory agency, unless stayed by appropriate proceedings, shall suspend,
     as of the date of such service, all obligations of the Bank under the terms
     of this Agreement.
<PAGE>

          B.   In the event the charges specified in a notice served as provided
     in Subparagraph A of this Section shall be dismissed, the Bank shall:

               (1)  pay the Employee the compensation withheld from such
          Employee pursuant to the suspension of the Bank's obligation as
          required in Subparagraph A of this Section; and,

               (2)  reinstate the obligations suspended as required in
          Subparagraph A of this section.

     10.  Change in Control.
     ----------------------

          A.   In the event of a "Change in Control" (as defined in Subparagraph
     (C) below), the term of employment under this Agreement automatically shall
     be extended to a period of three (3) years beginning on the date of the
     Change in Control, and the Bank or its successor shall be bound by the
     terms of this Agreement and shall be prohibited, during the remainder of
     such term, from:

               (1)  Assigning Employee any duties and/or responsibilities that
          are inconsistent with his position, duties, responsibilities or status
          at the time of the Change in Control or with his reporting
          responsibilities or equivalent titles in effect at such time; or

               (2)  Adjusting Employee's annual base salary rate other than in
          accordance with the provisions of Subparagraph (B) below; or

               (3)  Reducing in level, scope or coverage or eliminating
          Employee's life insurance, medical or hospitalization insurance,
          disability insurance, profit sharing plans, stock option plans, stock
          purchase plans, deferred compensation plans, management retention
          plans, retirement plans, stock ownership plans or similar plans or
          benefits being provided by the Bank or the Holding Company to the
          Employee
<PAGE>

          other than those arising from the Bank's management incentive plan as
          of the effective date of the Change in Control; or

               (4)  Transferring Employee to a location which is an unreasonable
          distance from his current principal work location, without the
          Employee's express written consent.

          B.   In the event of a Change in Control, the Employee's base salary
     shall be adjusted to include an amount equal to the average of the two
     previous years' bonuses arising from the Bank's management incentive plan,
     and/or discretionary bonuses, if any, and such adjusted base salary shall
     be increased by not less than six percent (6%) annually beginning at the
     date of the Change in Control and continuing each year for the three-year
     term thereafter.

          C.   For the purposes of this Agreement, the term "Change in Control"
     shall mean any of the following events:

          (1)  a change in control of a nature that would be required to be
          reported in response to Item 1 of the Current Report on Form 8-K, as
          in effect on the date hereof, pursuant to Section 13 or 15(d) of the
          Securities Exchange Act of 1934, as amended (the "Exchange Act"); or

          (2)  such time as any "person" (as such term is used in Sections 13(d)
          and 14(d) of the Exchange Act), other than a person who beneficially
          owned as of January 1, 1998, more than 5% of the Bank's securities, is
          or becomes the "beneficial owner" (as defined in Rule 13d-3 under the
          Exchange Act), directly or indirectly, of securities of the Holding
          Company or Bank representing 20 percent or more of the combined voting
          power of the outstanding Common Stock of the Holding Company or Common
          Stock of the Bank, as applicable; or
<PAGE>

               (3)  individuals who constitute the Board or board of directors
          of the Holding Company on the date hereof (the "Incumbent Board" and
          "Incumbent Holding Company Board," respectively) cease for any reason
          to constitute at least a majority thereof, provided that any person
          becoming a director subsequent to the date hereof whose election was
          approved by a vote of at least three-quarters of the directors
          comprising the Incumbent Board or Incumbent Holding Company Board, as
          applicable, or whose nomination for election by the Bank's or Holding
          Company's shareholders was approved by the Bank's or Holding Company's
          Board of Directors or Nominating Committee, as applicable, shall be
          considered as though he or she were a member of the Incumbent Board or
          Incumbent Holding Company Board, as applicable; or

               (4)  either the Holding Company or the Bank consolidates or
          merges with or into another corporation, association or entity or is
          otherwise reorganized, where neither the Holding Company nor the Bank,
          respectively, is the surviving corporation in such transaction; or

               (5)  all or substantially all of the assets of either the Holding
          Company or the Bank are sold or otherwise transferred to or are
          acquired by any other entity or group.

          Notwithstanding the other provisions of this Paragraph 10, a
     transaction or event shall not be considered a Change in Control if, prior
     to the consummation or occurrence of such transaction or event, Employee,
     Bank and Holding Company agree in writing that the same shall not be
     treated as a Change in Control for purposes of this Agreement.

          D.   In the event any dispute shall arise between the Employee and the
     Bank or Holding Company (or any successor) as to the terms or
     interpretation of this Agreement, including this Paragraph 10, whether
     instituted by formal legal proceedings or otherwise,
<PAGE>

     including any action taken by the Employee to enforce the terms of this
     Paragraph 10 or in defending against any action taken by the Holding
     Company or the Bank, the Bank shall reimburse the Employee for all costs
     and expenses incurred in such proceedings or actions, including attorney's
     fees, in the event the Employee prevails in any such action.

     11.  Disability. If, by reason of physical or mental disability during
     ---------------
the term hereof, Employee is unable to carry out the normal and usual duties of
his employment hereunder, the Employee shall receive his full salary from the
Bank for up to twenty (20) working days for which he is unable to work. Medical
disability shall require a doctor's statement indicating the date the Employee
became disabled as well as a statement that he is medically able to return to
work before he can resume his duties. If, after thirty (30) consecutive days, he
is still unable to return to work, he will be covered by the disability
insurance policy of the Bank, if that policy applies under its terms. While
disabled, the Employee will keep his original date of employment and all
seniority benefits for up to twelve (12) weeks. Group insurance will be kept in
force (Employee will continue to pay for dependent insurance); however, if the
Employee does not return to work from medical leave after twelve (12) weeks, the
Bank may recover the premiums paid to maintain the coverage. A "return to work"
occurs when an Employee returns to work for at least thirty (30) days. Upon
returning to work from such disability, the Employee shall be restored to his
previous position or to an equivalent position with equivalent benefits, pay,
and other conditions of employment.

     12.  Successors and Assigns.
     ---------------------------

          A.   This Employment Agreement shall enure to the benefit of and be
     binding upon any corporate or other successor of the Bank which shall
     acquire, directly or indirectly, by conversion, merger, consolidation,
     purchase or otherwise, all or substantially all of the assets of the Bank.

          B.   Since the Bank is contracting for the unique and personal skills
     of the Employee, the Employee shall be precluded from assigning or
     delegating his rights or duties hereunder without first obtaining the
     written consent of the Bank.
<PAGE>

     13.  Amendments. No amendments or additions to this Agreement shall be
     ---------------
binding unless in writing by both parties, except as herein otherwise provided.

     14.  Applicable Law. This Agreement shall be governed in all respects,
     ---------------------
whether as to validity, construction, capacity, performance or otherwise, by the
laws of the State of North Carolina, except to the extent that federal law shall
be deemed to apply.

    15.   Severability. The provisions of this Agreement shall be deemed
    ------------------
severable and the invalidity or unenforceability of any provision shall not
affect the validity or enforceability of the other provisions hereof.

     16.  Entire Agreement; Counterparts.
     -----------------------------------

     A.   This Agreement constitutes the entire agreement between the Employee
     and the Bank with respect to the subject matter hereof and supersedes all
     prior agreements with respect thereto. This Agreement may be executed in
     one or more counterparts, all of which taken together shall constitute one
     and the same instrument.

     B.   This Agreement replaces the Agreement between the parties dated
     November 29, 1995 and all other agreements between the parties prior to the
     date hereof respecting the subject matter hereof. Any and all prior
     agreements shall be cancelled and have no further force or effect when this
     Agreement becomes effective.

     17.  Notices. Any notice or other communication required or permitted under
     ------------
this Agreement shall be effective only if it is writing, delivered in person or
by reliable overnight courier service or deposited in the mail, postage prepaid,
return receipt requested and addressed as follows:

     Address of the Bank: Peoples Bank, Post Office Box 467, Newton, North
     Carolina, 28658.

     Address of the Holding Company: Peoples Bancorp of North Carolina, Inc.,
     Post Office Box 467, Newton, North Carolina, 28658.
<PAGE>

Address of the Employee: William D. Cable, 1033 Merrywood Drive, Newton, North
Carolina 28658.

     Notices given in person or by overnight courier service shall be deemed
given when delivered to the address required by this section, and notices given
by mail shall be deemed given three (3) days after deposit in the mail. Any
party hereto may designate, by written notice to the other party in accordance
herewith, any other address to which notices addressed to him shall be sent.

     IN WITNESS WHEREOF, the parties have executed this Agreement the day and
year first written.

                                   PEOPLES BANK, a North Carolina banking
                                   Corporation

                                   By: /s/ Tony W. Wolfe
                                       ------------------------------------
                                         Tony W. Wolfe, President/
                                         Chief Executive Officer

                                        /s/ William D. Cable
                                        -----------------------------------
                                         William D. Cable

The Foregoing Agreement is joined in and agreed to by Peoples Bancorp of North
Carolina, Inc.

                                   PEOPLES BANCORP OF NORTH CAROLINA, INC., a
                                   North Carolina Corporation

                                   by: /s/ Tony W. Wolfe
                                      -------------------------------------
                                         Tony W. Wolfe
                                         President/Chief Executive Officer<PAGE>

STATE OF NORTH CAROLINA

COUNTY OF CATAWBA

                                                            EMPLOYMENT AGREEMENT

         THIS EMPLOYMENT AGREEMENT ("Agreement"), is made as of the 1st day of
December, 1999, by and between PEOPLES BANK, Newton, North Carolina, a North
Carolina banking institution (the "Bank"), and LANCE A. SELLERS (the
"Employee")and is joined in by PEOPLES BANCORP OF NORTH CAROLINA, INC., a North
Carolina corporation (the "Holding Company");

                             W I T N E S S E T H :

         WHEREAS the Employee has heretofore been employed and currently is
rendering services to the Bank as Executive Vice President; Commercial Banking,
Credit Administration, and Mortgage Loans and,

         WHEREAS the Bank is a North Carolina banking corporation and the
Holding Company is a North Carolina bank holding company and the sole
shareholder of the Bank; and,

         WHEREAS the Bank considers the continued availability of the Employee's
services to be important to the management and conduct of the Bank's and Holding
Company's business, and desires to secure for the Bank and Holding Company the
continued availability of the Employee's services; and,

         WHEREAS the Employee is willing to make his services available to the
Bank and Holding Company on the terms and subject to the conditions set forth
herein.

         NOW, THEREFORE, in consideration of the mutual covenants contained
herein, the parties hereto agree as follows:

         1.  Employment. The Employee is employed as Executive Vice President,
         --------------
Commercial Banking, Credit Administration, and Mortgage Loans. The Employee
shall render administrative and management services to the Bank, such as are
customarily performed by persons situated in a similar executive capacity.

<PAGE>

He shall promote the business of the Bank and Holding Company and perform such
other duties as shall from time to time be reasonably described by the President
of the Bank.

         2.   Compensation.
         -----------------

              A.  Base Salary. The Bank shall pay the Employee during the term
              ---------------
         of this Agreement a base salary at the rate of $110,000 per annum,
         payable in monthly installments or more frequently as the Bank elects;
         provided, that the rate of such salary shall be reviewed annually by
         the Bank. Such rate of salary may be increased (but not decreased) from
         time to time in such amounts as the Bank, in its discretion, may
         decide.

              B.  Management  Incentive Plan. The Employee shall be entitled to
              -------------------------------
         participate in an equitable manner with other key management personnel
         of the Bank in the Bank's management incentive plan adopted in 1998.

         3.   Discretionary Bonuses. The Employee shall be entitled to
         --------------------------
participate in an equitable manner with all other key management personnel of
the Bank in discretionary bonuses authorized and declared by the Directors of
the Bank. No other compensation provided for in this Agreement shall be deemed a
substitute for the Employee's right to participate in such discretionary bonuses
when and as are declared by the Board of Directors.

         4.   Additional Benefits.
         ------------------------

              A.  Participation in Retirement and Medical Plan. The Employee
              ------------------------------------------------
         shall be entitled to participate in any plan of the Bank relating to
         pension, profit sharing or other retirement benefits and health,
         medical and disability coverage, or reimbursement plans that the Bank
         may adopt for the benefit of its employees subject to the eligibility
         rules of such plan.

              B.  Officer Benefits/Expenses. The Employee shall be eligible
              -----------------------------
         to participate in any fringe benefits which may be or become applicable
         to the Bank's executive employees, commensurate with the
         responsibilities and functions to be performed by the
<PAGE>

         Employee under this Agreement. Additionally, the Employee shall be
         entitled to four (4) weeks of paid vacation, as an exception to uniform
         employee policies promulgated by the Directors, and such sick leave as
         is established by such policies. The Bank shall reimburse the Employee
         for all out-of-pocket reasonable and necessary business expenses which
         the Employee shall incur in connection with his services on behalf of
         the Bank. Additionally, the Employee shall be entitled to life
         insurance in the amount of two times his annual salary; the same amount
         in accidental death and dismemberment insurance; dependent life
         insurance upon his spouse in the amount of Two Thousand Dollars
         ($2,000.00); and disability insurance as which will compensate the
         Employee 66-2/3% of his salary after he is out of work pursuant to
         company policy for thirty (30) calendar days. The Employer shall pay
         all premiums for the insurance noted above.

         5.  Term. The initial term of employment under this Agreement shall be
         ---------
for the period commencing December 1, 1999 and ending three (3) calendar years
after such date. At the end of each one-year period following such commencing
date, this Agreement shall automatically be extended for an additional one (1)
year period beyond the then-effective expiration date, unless written notice
from the Bank or the Employee is received sixty (60) days prior to an
anniversary date advising the other party that this Agreement shall not be
further extended, or in the event the Employee and Employer agree to a further
extension before the expiration of this Agreement. The parties intend that this
Agreement shall be a continuing employment agreement, unless written notice is
given as provided in this Paragraph, or unless this Agreement is otherwise
terminated as provided in this Agreement.

         6.  Loyalty/Non-Competition.
         ---------------------------

             A.  The Employee shall devote his full efforts and entire business
         time to the performance of his duties under this Agreement.

             B.  During the term of this Agreement, or any renewals or
         extensions thereof, and for a period of one (1) year after termination,
         the Employee shall not, within Catawba, Alexander, Iredell or Lincoln
         Counties, North Carolina, directly or indirectly, own,
<PAGE>

         manage, operate, join, control or participate in the management,
         operation or control of or be employed by or connected in any manner
         with any depository institution or financial services business which
         competes with the Bank or the Holding Company without the prior written
         consent of the Bank. Notwithstanding the foregoing, the Employee shall
         be free without such consent to purchase or hold as an investment or
         otherwise up to 5% of the outstanding stock or other securities of any
         corporation which has its securities publicly traded on any recognized
         securities exchange or in any over-the-counter market.

                    The Employee shall hold in confidence all knowledge or
         information of a confidential nature with respect to the business of
         the Bank or the Holding Company, received by him during the term of
         this Agreement, and will not disclose or make use of such information
         without the prior written consent of the Bank.

                    The Employee acknowledges that it would not be possible to
         ascertain the amount of monetary damages in the event of a breach by
         the Employee under the provisions of this Paragraph 6. The Employee
         agrees that in the event of the breach of this Paragraph, injunctive
         relief enforcing the terms of this Paragraph is an appropriate remedy.

                    The Bank and Employee further agree that in the event the
         Bank shall terminate the employment of the Employee for cause or should
         the Employee resign his employment during any period of the term of his
         employment contract, then and in that event, the non-competition
         provisions of this Agreement shall be applicable. If, however, the Bank
         should terminate the employment of the Employee without cause during
         the last year of said Agreement, the non-competition provisions of this
         Agreement shall not be applicable, and the Bank shall not proceed with
         respect to the remedies as set forth above.

         7.   Standards. The Employee shall perform his duties under this
         --------------
Agreement in accordance with such reasonable standards expected of employees
with comparable positions in comparable organizations and as may be established
from time-to-time by the Board of Directors. The Bank shall provide the Employee
with
<PAGE>

the working facilities and staff customary at the Bank for similar executives
and necessary for him to perform his duties.

         8.   Termination and Termination Pay.
         ------------------------------------

              A.    The Employee's employment under this Agreement shall be
         terminated upon the following occurrences:

                    (1)  The death of the Employee during the term of this
              Agreement, in which event the Employee's estate shall be entitled
              to receive the compensation due the Employee through the last day
              of the calendar month in which his death shall have occurred and
              for a period of three (3) months thereafter.

                    (2)  The Employee's employment under this Agreement may be
              terminated by the Bank at any time or by the Employee upon sixty
              (60) days written notice to the Employee or the Bank, as the case
              may be. Upon such termination by the Employee or by the Bank "for
              cause," the Employee shall be entitled to receive compensation
              under this Agreement through the effective date of such
              termination and such other benefits, if any, as may be provided by
              the terms of other plans and programs of the Bank in the event of
              termination.

              Any such termination by the Bank other than termination "for
              cause" shall not prejudice the Employee's right to compensation or
              benefits under this Agreement. The Employee shall have no right to
              receive compensation or benefits for any period after termination
              "for cause." Termination "for cause" shall include termination
              because of the Employee's personal dishonesty, in-competence,
              willful misconduct, breach of fiduciary duty involving personal
              profit, intentional failure to perform stated duties, willful
              violation of any law, rule or regulation (other than traffic
              violations or similar offenses), or final cease and
<PAGE>

              desist order, or any material breach of any provision of this
              Agreement.

                    (3)  If the Employee is removed or permanently prohibited
              from participating in the conduct of the Bank's affairs by any
              order issued by any regulatory agency, all obligations of the Bank
              under this Agreement shall terminate as of the effective date of
              the order. The rights of the Employee vested prior to the date of
              such order shall not be affected.

                    (4)  All obligations under this Agreement may be terminated:

                         (a)  by the Federal Deposit Insurance Corporation at
                    the time it enters into an agreement to provide assistance
                    to or on behalf of the Bank under the authority contained in
                    its Rules and Regulations; and,

                         (b)  by any regulatory or supervisory agency which
                    enters any orders to resolve problems related to the
                    operation of the Bank, or when the Bank is determined to be
                    in an unsafe or unsound condition. Any rights of the
                    Employee vested prior to such time shall not be affected by
                    any such determination or order.

         9.   Suspension of Employment.
         -----------------------------

              A.    The suspension of the Employee from office or temporary
         prohibition from participation by the Employee in the conduct of the
         affairs of the Bank pursuant to notice served by any supervisory or
         regulatory agency, unless stayed by appropriate proceedings, shall
         suspend, as of the date of such service, all obligations of the Bank
         under the terms of this Agreement.
<PAGE>

              B.    In the event the charges specified in a notice served as
         provided in Subparagraph A of this Section shall be dismissed, the Bank
         shall:

                    (1)  pay the Employee the compensation withheld from such
              Employee pursuant to the suspension of the Bank's obligation as
              required in Subparagraph A of this Section; and,

                    (2)  reinstate the obligations suspended as required in
              Subparagraph A of this section.

         10.  Change in Control.
         ----------------------

              A.  In the event of a "Change in Control" (as defined in
         Subparagraph (C) below), the term of employment under this Agreement
         automatically shall be extended to a period of three (3) years
         beginning on the date of the Change in Control, and the Bank or its
         successor shall be bound by the terms of this Agreement and shall be
         prohibited, during the remainder of such term, from:

                  (1)  Assigning Employee any duties and/or responsibilities
              that are inconsistent with his position, duties, responsibilities
              or status at the time of the Change in Control or with his
              reporting responsibilities or equivalent titles in effect at such
              time; or

                  (2)  Adjusting Employee's annual base salary rate other than
              in accordance with the provisions of Subparagraph (B) below; or

                  (3)  Reducing in level, scope or coverage or eliminating
              Employee's life insurance, medical or hospitalization insurance,
              disability insurance, profit sharing plans, stock option plans,
              stock purchase plans, deferred compensation plans, management
              retention plans, retirement plans, stock ownership plans or
              similar plans or benefits being provided by the Bank or the
              Holding Company to the Employee
<PAGE>

              other than those arising from the Bank's management incentive plan
              as of the effective date of the Change in Control; or

                  (4)  Transferring Employee to a location which is an
              unreasonable distance from his current principal work location,
              without the Employee's express written consent.

              B.  In the event of a Change in Control, the Employee's base
         salary shall be adjusted to include an amount equal to the average of
         the two previous years' bonuses arising from the Bank's management
         incentive plan, and/or discretionary bonuses, if any, and such adjusted
         base salary shall be increased by not less than six percent (6%)
         annually beginning at the date of the Change in Control and continuing
         each year for the three-year term thereafter.

              C.  For the purposes of this Agreement, the term "Change in
         Control" shall mean any of the following events:

              (1) a change in control of a nature that would be required to be
                  reported in response to Item 1 of the Current Report on Form
                  8-K, as in effect on the date hereof, pursuant to Section 13
                  or 15(d) of the Securities Exchange Act of 1934, as amended
                  (the "Exchange Act"); or

              (2) such time as any "person" (as such term is used in Sections
                  13(d) and 14(d) of the Exchange Act), other than a person who
                  beneficially owned as of January 1, 1998, more than 5% of the
                  Bank's securities, is or becomes the "beneficial owner" (as
                  defined in Rule 13d-3 under the Exchange Act), directly or
                  indirectly, of securities of the Holding Company or Bank
                  representing 20 percent or more of the combined voting power
                  of the outstanding Common Stock of the Holding Company or
                  Common Stock of the Bank, as applicable; or
<PAGE>

                       (3)  individuals who constitute the Board or board of
                  directors of the Holding Company on the date hereof (the
                  "Incumbent Board" and "Incumbent Holding Company Board,"
                  respectively) cease for any reason to constitute at least a
                  majority thereof, provided that any person becoming a director
                  subsequent to the date hereof whose election was approved by a
                  vote of at least three-quarters of the directors comprising
                  the Incumbent Board or Incumbent Holding Company Board, as
                  applicable, or whose nomination for election by the Bank's or
                  Holding Company's shareholders was approved by the Bank's or
                  Holding Company's Board of Directors or Nominating Committee,
                  as applicable, shall be considered as though he or she were a
                  member of the Incumbent Board or Incumbent Holding Company
                  Board, as applicable; or

                       (4)  either the Holding Company or the Bank consolidates
                  or merges with or into another corporation, association or
                  entity or is otherwise reorganized, where neither the Holding
                  Company nor the Bank, respectively, is the surviving
                  corporation in such transaction; or

                       (5)  all or substantially all of the assets of either the
                  Holding Company or the Bank are sold or otherwise transferred
                  to or are acquired by any other entity or group.

                  Notwithstanding the other provisions of this Paragraph 10, a
         transaction or event shall not be considered a Change in Control if,
         prior to the consummation or occurrence of such transaction or event,
         Employee, Bank and Holding Company agree in writing that the same shall
         not be treated as a Change in Control for purposes of this Agreement.

                  D.   In the event any dispute shall arise between the Employee
         and the Bank or Holding Company (or any successor) as to the terms or
         interpretation of this Agreement, including this Paragraph 10, whether
         instituted by formal legal proceedings or otherwise,
<PAGE>

         including any action taken by the Employee to enforce the terms of this
         Paragraph 10 or in defending against any action taken by the Holding
         Company or the Bank, the Bank shall reimburse the Employee for all
         costs and expenses incurred in such proceedings or actions, including
         attorney's fees, in the event the Employee prevails in any such action.

         11.  Disability. If, by reason of physical or mental disability during
         ---------------
the term hereof, Employee is unable to carry out the normal and usual duties of
his employment hereunder, the Employee shall receive his full salary from the
Bank for up to twenty (20) working days for which he is unable to work. Medical
disability shall require a doctor's statement indicating the date the Employee
became disabled as well as a statement that he is medically able to return to
work before he can resume his duties. If, after thirty (30) consecutive days, he
is still unable to return to work, he will be covered by the disability
insurance policy of the Bank, if that policy applies under its terms. While
disabled, the Employee will keep his original date of employment and all
seniority benefits for up to twelve (12) weeks. Group insurance will be kept in
force (Employee will continue to pay for dependent insurance); however, if the
Employee does not return to work from medical leave after twelve (12) weeks, the
Bank may recover the premiums paid to maintain the coverage. A "return to work"
occurs when an Employee returns to work for at least thirty (30) days. Upon
returning to work from such disability, the Employee shall be restored to his
previous position or to an equivalent position with equivalent benefits, pay,
and other conditions of employment.

         12.  Successors and Assigns.
         ---------------------------

              A.  This Employment Agreement shall enure to the benefit of and be
         binding upon any corporate or other successor of the Bank which shall
         acquire, directly or indirectly, by conversion, merger, consolidation,
         purchase or otherwise, all or substantially all of the assets of the
         Bank.

              B.  Since the Bank is contracting for the unique and personal
         skills of the Employee, the Employee shall be precluded from assigning
         or delegating his rights or duties hereunder without first obtaining
         the written consent of the Bank.
<PAGE>

         13.  Amendments. No amendments or additions to this Agreement shall be
         ---------------
binding unless in writing by both parties, except as herein otherwise provided.

         14.  Applicable Law. This Agreement shall be governed in all respects,
         --------------------
whether as to validity, construction, capacity, performance or otherwise, by the
laws of the State of North Carolina, except to the extent that federal law shall
be deemed to apply.

         15.  Severability. The provisions of this Agreement shall be deemed
         -----------------
severable and the invalidity or unenforceability of any provision shall not
affect the validity or enforceability of the other provisions hereof.

         16.  Entire Agreement; Counterparts.
         -----------------------------------

         A.   This Agreement constitutes the entire agreement between the
         Employee and the Bank with respect to the subject matter hereof and
         supersedes all prior agreements with respect thereto. This Agreement
         may be executed in one or more counterparts, all of which taken
         together shall constitute one and the same instrument.

         17.  Notices. Any notice or other communication required or permitted
         ------------
under this Agreement shall be effective only if it is writing, delivered in
person or by reliable overnight courier service or deposited in the mail,
postage prepaid, return receipt requested and addressed as follows:

         Address of the Bank: Peoples Bank, Post Office Box 467, Newton, North
         Carolina, 28658.

         Address of the Holding Company: Peoples Bancorp of North Carolina,
         Inc., Post Office Box 467, Newton, North Carolina, 28658.

Address of the Employee: Lance A. Sellers, 134 37th Avenue Place Northwest,
Hickory, North Carolina 28601

         Notices given in person or by overnight courier service shall be deemed
given when delivered to the address required by this section, and notices given
by mail shall be deemed given three (3) days after deposit in the mail. Any
party hereto may designate, by written notice to the other party in accordance
<PAGE>

herewith, any other address to which notices addressed to him shall be sent.

         IN WITNESS WHEREOF, the parties have executed this Agreement the day
and year first written.

                              PEOPLES BANK, a North Carolina banking
                              Corporation

                              By:/s/ Tony W. Wolfe
                             --------------------------------------
                                    Tony W. Wolfe, President/
                                     Chief Executive Officer

                                /s/ Lance A. Sellers
                            ---------------------------------------
                                    Lance A. Sellers

The Foregoing Agreement is joined in and agreed to by Peoples Bancorp of North
Carolina, Inc.

                              PEOPLES BANCORP OF NORTH CAROLINA, INC., a North
                              Carolina Corporation

                              by: /s/ Tony W. Wolfe
                                 ------------------------------------
                                    Tony W. Wolfe
                                    President/Chief Executive Officer

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