U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] Quarterly Report under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the quarterly period ended March 31, 2003
[ ] Transition Report under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the transition period from ____________ to _____________
Commission file number: 0-33411
NEW PEOPLES BANKSHARES, INC.
(Exact Name of Registrant as Specified in its Charter)
Virginia 31-1804543
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
2 Gent Drive
Honaker, Virginia 24260
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (276) 873-6288
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Exchange Act 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
------ ------
Indicate by check mark whether the registrant is an accelerated filer
(as defined in Rule 12b-2 of the Exchange Act).
Yes No X
------ ------
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date:
6,898,003 shares of common stock, par value $2.00 per share,
outstanding as of May 1, 2003
1
NEW PEOPLES BANKSHARES, INC.
INDEX
Page
PART I FINANCIAL INFORMATION 2
Item 1. Financial Statements
Consolidated Statements of Income - Three Months
Ended March 31, 2003 and 2002 2
Consolidated Balance Sheets - March 31, 2003 and
December 31, 2002 3
Consolidated Statements of Changes in Stockholders' Equity -
Three Months Ended March 31, 2003 and 2002 4
Consolidated Statements of Cash Flows - Three Months
Ended March 31, 2003 and 2002 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
Item 3. Quantitative and Qualitative Disclosures about Market Risk 14
Item 4. Controls and Procedures 14
PART II OTHER INFORMATION 15
Item 1. Legal Proceedings 15
Item 2. Changes in Securities and Use of Proceeds 15
Item 3. Defaults upon Senior Securities 16
Item 4. Submission of Matters to a Vote of Security Holders 16
Item 5. Other Information 16
Item 6. Exhibits and Reports on Form 8-K 16
SIGNATURES 17
2
Part I Financial Information
Item 1 Financial Statements
NEW PEOPLES BANKSHARES, INC.
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 2003 AND 2002
(UNAUDITED)
2003 2002
Interest Income
Loans including fees $ 4,461,376 $ 3,882,971
Federal funds sold 27,924 42,653
Investments 143,390 44,506
---------- ----------
Total Interest Income 4,632,690 3,970,130
---------- ----------
Interest Expense
Interest on deposits 1,666,320 1,575,402
---------- ----------
Net Interest Income 2,966,370 2,394,728
Provision for Loan Losses 160,000 130,000
---------- ----------
Net Interest Income After Provision for Loan Losses 2,806,370 2,264,728
---------- ----------
Noninterest Income
Service charges 182,853 131,608
Fees and commissions and other income 76,297 61,520
Life insurance investment income 113,974 105,408
---------- ----------
Total Noninterest Income 373,124 298,536
---------- ----------
Noninterest Expense
Salaries and employee benefits 1,349,434 900,996
Occupancy expense 314,490 277,624
Other operating expenses 604,668 515,078
---------- ----------
Total Noninterest Expenses 2,268,592 1,693,698
---------- ----------
Income Before Income Taxes 910,902 869,566
Income Tax Expense 299,544 290,464
---------- ----------
Net Income $ 611,358 $ 579,102
========== ==========
Net Income Per Share (Basic and Diluted) $ .09 $ 0.10
======== ==========
Weighted Average Shares Outstanding
Basic 6,800,715 6,000,000
Diluted 6,870,766 6,073,143
The accompanying notes are an integral part of these statements.
3
NEW PEOPLES BANKSHARES, INC.
CONSOLIDATED BALANCE SHEETS
March 31, December 31,
2003 2002
(Unaudited) (Audited)
ASSETS
Cash and due from banks $ 8,566,407 $ 8,815,523
Federal funds sold 5,989,000 6,123,000
----------- -----------
Total Cash and Cash Equivalents 14,555,407 14,938,523
Securities held to maturity, fair value
of $33,194,559 at March 31, 2003 and
$34,356,811 at December 31, 2002 33,182,242 34,304,596
Loans, net of allowance for loan losses
of $2,342,232 at March 31, 2003, and
$2,224,487 at December 31, 2002 231,828,232 220,170,411
Bank premises and equipment, net 11,928,055 10,915,165
Federal Reserve Bank and FHLB stock (restricted) 1,310,250 538,950
Accrued interest receivable 1,671,413 1,846,231
Life insurance investments 8,092,394 7,987,882
Other assets 767,253 696,555
----------- -----------
Total Assets $303,335,246 $291,398,313
=========== ===========
LIABILITIES
Deposits:
Demand deposits:
Noninterest bearing $ 27,064,146 $ 22,379,395
Interest bearing 10,362,445 9,711,423
Savings deposits 31,388,794 27,125,922
Time deposits 202,514,688 204,588,711
----------- -----------
Total Deposits 271,330,073 263,805,451
Accrued interest payable 604,455 702,260
Accrued expenses and other liabilities 839,057 409,374
----------- -----------
Total Liabilities 272,773,585 264,917,085
----------- -----------
STOCKHOLDERS' EQUITY
Common stock - $2 par value; 12,000,000
shares authorized;
6,898,003 shares issued and outstanding 13,796,006
6,008,393 shares issued and outstanding 12,016,786
Paid-in-surplus 13,049,260 5,948,505
Stock subscriptions 5,410,900
Retained earnings 3,716,395 3,105,037
----------- -----------
Total Stockholders' Equity 30,561,661 26,481,228
----------- -----------
Total Liabilities and Stockholders' Equity $303,335,246 $291,398,313
=========== ===========
The accompanying notes are an integral part of these statements.
4
NEW PEOPLES BANKSHARES, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 2003 AND 2002
(UNAUDITED)
Common Paid in Stock Retained
Stock Surplus Subscriptions Earnings Total
Balance, December 31, 2001 $ 12,000,000 $ 5,964,331 $ $ 926,743 $ 18,891,074
Net Income 579,102 579,102
-------- -------- -------- -------- --------
Balance March 31, 2002 $ 12,000,000 $ 5,964,331 $ $1,505,845 $ 19,470,176
========== ========== ======== ========= =========
Balance, December 31, 2002 $ 12,016,786 $ 5,948,505 $ 5,410,900 $3,105,037 $ 26,481,228
Common Stock Subscribed 3,435,200 3,435,200
Stock Options Exercised 10,000 27,500 37,500
Common Stock Issued 1,769,220 7,076,880 (8,846,100)
Cost of Common Stock
Offering (3,625) (3,625)
Net Income 611,358 611,358
-------- -------- -------- -------- --------
Balance March 31, 2003 $ 13,796,006 $13,049,260 $ 0 $3,716,395 $30,561,661
========== =========== ======== ========= =========
The accompanying notes are an integral part of these statements.
5
NEW PEOPLES BANKSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2003 AND 2002
(UNAUDITED)
2003 2002
Operating Activities:
Net income $ 611,358 $ 579,102
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for loan losses 160,000 130,000
Net amortization on securities 123,354
Depreciation 247,711 180,618
Income from life insurance
contracts (net of expenses) (104,512) (105,048)
Net change in:
Interest receivable 174,818 173,946
Other assets (70,698) 226,055
Accrued expense and other liabilities 331,878 267,923
---------- ----------
Net Cash Provided by Operating Activities 1,473,909 1,452,596
---------- ----------
Investing Activities:
Payments for the purchase of property (1,260,601) (800,462)
Net change in loans (11,817,821) (10,571,888)
Purchase of securities held to maturity (11,000,000) (2,499,050)
Maturity of securities held to maturity 11,999,000
Purchase of Federal Reserve Bank stock (66,000)
Purchase of FHLB stock (705,300)
---------- ----------
Net Cash Used in Investing Activities (12,850,722) (13,871,400)
----------- -----------
Financing Activities:
Net change in:
Demand and saving deposits 9,598,645 6,838,277
Time deposits (2,074,023) 4,474,607
Net proceeds from common stock offering 3,431,575
Common stock options exercised 37,500
---------- ----------
Net Cash Provided by Financing Activities 10,993,697 11,312,884
---------- ----------
Net Decrease in Cash and Cash Equivalents (383,116) (1,105,920)
Cash and Cash Equivalents, Beginning of Period 14,938,523 11,547,163
---------- ----------
Cash and Cash Equivalents, End of Period $14,555,407 $10,441,243
========== ==========
Supplemental Disclosure of Cash Paid:
Interest $ 1,764,125 $ 1,667,326
The accompanying notes are an integral part of these statements.
6
NEW PEOPLES BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 ACCOUNTING PRINCIPLES:
The financial statements conform to U.S. generally accepted
accounting principles and to general industry practices. In the
opinion of management, the accompanying unaudited
financial statements contain all adjustments (consisting of only
normal recurring accruals) necessary to present fairly the financial
position as of March 31, 2003, and the results of operations for the
three month periods ended March 31, 2003 and 2002. The notes included
herein should be read in conjunction with the notes to financial
statements included in the 2002 annual report to shareholders
of New Peoples Bankshares, Inc. The results of operations for
the three month periods ended March 31, 2003 and 2002 are not
necessarily indicative of the results to be expected for the full
year.
The Company does not expect the anticipated adoption of any newly
issued accounting standards to have a material impact on future
operations or financial position.
NOTE 2 SECURITIES HELD TO MATURITY:
The amortized cost and estimated fair value of securities held to
maturity are as follows:
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
March 31, 2003
U.S. Government
Agency $33,080,370 $ 15,452 $ 8,695 $33,087,127
State, County &
Municipal 101,872 5,560 107,432
---------- -------- -------- ----------
Total Securities
Held to
Maturity $33,182,242 $ 21,012 $ 8,695 $33,194,559
========== ======== ======== ==========
December 31, 2002
U.S. Government
Agency $34,203,529 $ 56,916 $ 10,613 $34,249,832
State, County &
Municipal 101,067 5,912 106,979
---------- -------- -------- ----------
Total Securities
Held
to Maturity $34,304,596 $ 62,828 $ 10,613 $34,356,811
========== ======== ======== ==========
NOTE 3 LOANS:
Loans receivable outstanding are summarized as follows: (Rounded to
the nearest thousand.)
March 31, December 31,
2003 2002
Commercial, financial and agricultural $102,239,000 $ 93,746,000
Real estate - construction 4,841,000 5,615,000
Real estate mortgage - 1-4
family residential 84,232,000 80,264,000
Installment loans to individuals 42,858,000 42,770,000
----------- -----------
Loans Receivable $234,170,000 $222,395,000
=========== ===========
7
NEW PEOPLES BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 ALLOWANCE FOR LOAN LOSSES:
Transactions in the Company's allowance for loan losses are shown in
the following schedule:
For the Three Months Ended
March 31, March 31,
2003 2002
Balance, beginning of period $2,224,487 $1,792,850
Provision for loan losses 160,000 130,000
Charge-offs (48,219) (47,978)
Recoveries 5,964 23,278
--------- ---------
Balance, End of Period $2,342,232 $1,898,150
========= =========
NOTE 5 COMMON STOCK:
On October 15, 2002, 1,200,000 shares of common stock were offered
for sale by means of a prospectus to existing shareholders and to the
general public in the states of Virginia, West Virginia and Tennessee
only. The sale ended on February 7, 2003, after one 30 day extension
from the original sale period. The total number of shares sold under
the offering were 890,469 resulting in total proceeds to the Company of
$8,904,690.
In February 2003, options to purchase 5,000 shares of common stock
were exercised at $7.50 per share. At March 31, 2003, the following
exercisable options were outstanding.
Date of Grant Outstanding Exercise Price
December 12, 2001 278,466 $ 7.50
January 1, 2003 79,500 $ 10.00
NOTE 6 EARNINGS PER SHARE:
Diluted earnings per share have been calculated to reflect the
dilutive effect of the exercisable outstanding options granted to
employees and directors of the Company. The dilution calculation
assumes that all options were exercised at the beginning of the period
and that the proceeds were used to purchase common stock at the
average market price during the period.
8
Item 2 Management's Discussion and Analysis of Financial Condition and
Results of Operations
Overview
New Peoples Bankshares, Inc. ("Company") is the bank holding company for
New Peoples Bank, Inc. ("Bank").
The Bank opened for business on October 28, 1998 and has achieved
outstanding growth. As of March 31, 2003, the Bank had total deposits of
$271,330,073 and total loans of $234,170,464.
The Company's net income for the three months ended March 31, 2003 was
$611,358 compared with income of $579,102 for the three months ended March 31,
2002. Net income per share was $.09 compared with $.10 for the prior period.
For the foreseeable future, management will continue its strategy of
providing personal and customized financial services to individuals, small to
medium size businesses and the professional community. The Bank will strive to
serve the banking needs of its customers by developing personal, hometown
relationships.
Net Interest Income and Net Interest Margin
Our net interest income, which equals total interest and dividend income
less total interest expense, increased from $2,394,728 for the first three
months of 2002 to $2,966,370 for the first three months of 2003. The increase
was the net result of higher average balances and a 30 basis point decrease in
the net interest margin.
The net interest margin on earning assets, which equals net interest income
divided by total interest earning assets was 4.56% for the first three months of
March 31, 2003 and 4.86% for the first three months of 2002. Interest rates were
lower during the first three months of 2003 compared with the same period in
2002 in response to interest rate cuts by the Federal Reserve Bank. The average
yield on earning assets decreased 91 basis points and the average cost of funds
decreased 63 basis points resulting in the decrease in the net interest margin.
Because of a strong loan demand, the Bank was able to maintain the yield on
loans of 8.14% during the current period compared with 8.46% for the prior
period. The Bank continues to offer attractive loan and deposit rates in order
to attract new customers. Table I shows the rates paid on earning assets and
deposit liabilities.
Provision for Loan Losses
The provision for loan losses for the first three months of 2003 was
$160,000 compared with $130,000 for the same period of 2002. Loan charge-offs
for the first three months of 2003 were $48,219 and recoveries were $5,964
resulting in an allowance for loan losses of $2,342,232 (approximately 1% of
total loans).
The calculation of the allowance for loan losses is considered a critical
accounting policy. Although we have experienced lenders who are familiar with
their customer base, most loans are too new to have exhibited signs of weakness
and the bank does not have an adequate history of loan losses to develop
accurate risk factors. In calculating the amount of the allowance for loan
losses we use guidelines that have been traditionally recommended by the bank
regulatory agencies. At each balance sheet date, we adjust the allowance to
equal the larger of 1% or an amount calculated by multiplying a loss factor
times the amount of loans in each risk classification pool. The pools and
loss factors used in this calculation are as follows: loss-100%, doubtful-50%,
substandard-10%, special mention-1%, pass-.5%. In addition we consider current
economic conditions, changes in the nature and volume of the loan portfolio, and
known adverse factors that may affect the borrowers ability to repay. We intend
to continue to set the allowance at a minimum of 1% unless there is a clear
indication that a 1% allowance is not appropriate.
9
Provision for Loan Losses (Continued)
As the loan portfolio matures, a loss rate specific to us will emerge and
these loss percentages will be applied to the loan portfolio. This will result
in a more accurate allowance for loan loss calculation that is tailored to
reflect the risk associated with our loan portfolio.
The allowance for loan losses represents management's best estimate of the
probable loan losses incurred as of each balance sheet date.
Loan officers initially risk rate the loans and a loan processor reviews the
risk rating for appropriateness. In addition, a credit analyst reviews all loans
in excess of $500,000 to one borrower. We also have a loan review team that
reviews a sample of new loans for compliance, collectibility and risk rating. On
a continuous basis, we downgrade loans if necessary based on recommendations of
loan officers, review of past due loans, and recommendations
of examiners and auditors.
Noninterest Income
Noninterest income increased from $298,536 in the first three months of 2002
to $373,124 in the first three months of 2003. The increase in service charges,
fees and commissions is consistent with the growth in average assets of the
Bank.
Noninterest income as a percentage (annualized) of average assets was .50%
for the first quarter of 2003 compared to .54% for the first three months of
2002.
Noninterest Expense
Noninterest expense increased from $1,693,698 in the first quarter of 2002
to $2,268,592 in the first three months of 2003. The increase was due to
additional staffing and expenses associated with the new branches opened and the
general growth in operations. Noninterest expenses as a percentage (annualized)
of average assets was 3.05% for the first three months of 2003 compared to 3.06%
for the first three months of 2002.
Investment Securities
Total investment securities decreased from $34.3 million at December 31,
2002 to $33.1 million at March 31, 2003. We had no available for sale securities
at March 31, 2003 and December 31, 2002. At those dates, we believed that we had
adequate liquidity in the form of other assets, including federal funds sold. In
addition, the securities held to maturity held at those dates generally had
short contractual maturities and would have been available for liquidity
purposes if necessary.
Our practice has been to invest available funds in short term U.S. Treasury
and Agency securities, which reduce the percentage of the bank's capital that is
subject to the Virginia bank franchise tax. The amount invested fluctuates from
period to period depending on the funds available and projected liquidity needs.
During the first three months of 2003, securities held to maturity with a book
value of $11,999,000 were replaced with similar short-term securities held to
maturity.
Loans
Total loans have increased $11,775,000 during the first three months of 2003
to $234,170,000. Approximately 66% of the loan portfolio is secured by real
estate.
Loans receivable outstanding are summarized as follows:
Loan Portfolio
(In Thousands)
March 31, December 31,
2003 2002
Commercial, financial and agricultural $ 102,239 $ 93,746
Real estate - construction 4,841 5,615
Real estate mortgage - 1-4 family residential 84,232 80,264
Installment loans to individuals 42,858 42,770
--------- ---------
Loans Receivable $ 234,170 $ 222,395
========= =========
10
Loan Portfolio Risk Factors
Nonaccrual and past due loans are shown in the following schedule.
Management has not identified any additional loans as "troubled debt
restructurings" or "potential problem loans."
March 31,December 31,
2003 2002
Principal: (In Thousands)
Nonaccrual and past due loans:
Nonaccruing loans $ 28 $ 40
Loans past due 90 days or more
and still accruing 0 19
----- -----
Total $ 28 $ 59
===== =====
Percent of total loans 0.01% 0.03%
Investment in Federal Home Loan Bank of Atlanta
During the current quarter, the Bank purchased common stock issued by the
Federal Home Loan Bank of Atlanta ("FHLB") of $705,300. The Bank also entered
into an agreement with the FHLB which establishes a $49,000,000 line of credit.
Advances under the line will be secured by a blanket floating lien on the Bank's
qualifying real estate loans. No advances had been made under the line of credit
at March 31, 2003.
Bank Premises
At March 31, 2003, the Bank had eleven full service branches, one
deposit-taking branch and two loan production offices.
On April 24, 2003, we opened a full service branch in Grundy, Virginia. We
anticipate that the total cost of the land, building and equipment will be
$1,562,000. A Director of the Bank has agreed to purchase the second floor of
the building and six parking spaces for $350,000 for use as a law office.
The Board of Directors has approved the filing of an application to open a
branch in Dungannon, Virginia, in leased facilities located within the building
which houses the Dungannon Post Office. The monthly lease fee will be
approximately $800. It will be operated primarily as a deposit-taking branch,
with two tellers. Opening is projected in the summer 2003, subject to approval
by the State Corporation Commission.
Land has been purchased and preliminary construction has begun for a full
service branch in Bloomingdale/Kingsport, Tennessee. It is anticipated that
construction will be completed by late autumn 2003, at an estimated cost of
$800,000.
Management will continue to investigate and consider other possible sites
that would enable the Bank to profitably serve its chosen market area.
Additional purchases of premises and equipment for the year 2003 will depend on
the decision to open additional branches.
Deposits
Our deposits increased $7,524,622 during the first quarter of 2003 to
$271,330,073 at March 31, 2003. A schedule of deposits by type is shown in the
balance sheet. Time deposits of $100,000 or more equaled 18.4% of total deposits
at March 31, 2003 and 20.0% at December 31, 2002. We do not have brokered
deposits and internet accounts are limited to customers in the surrounding
geographical area. A maturity schedule of deposits is included in Table II.
11
Capital
Capital as a percentage of total assets was 10.08% at March 31, 2003, which
exceeded regulatory requirements.
On October 15, 2002, 1,200,000 shares of common stock were offered for sale
by means of a prospectus to existing shareholders and to the general public in
the states of Virginia, West Virginia and Tennessee only. The sale ended on
February 7, 2003, after one 30 day extension from the original sale period. The
total number of shares sold under the offering were 890,469, resulting in total
proceeds of $8,904,690.
Liquidity
We had liquid assets of approximately $31.9 million at March 31, 2003 in the
form of cash and due from banks, federal funds sold and investments maturing
within 90 days. We believe that our liquid assets were adequate at March 31,
2003. In the event that we need additional funds, we have the ability to
purchase federal funds under established lines of credit of $3.5 million and to
borrow from the FHLB under a $49 million line of credit. Additional liquidity
will be provided by the future growth that management expects in deposit
accounts and loan repayments. We believe that this future growth will result
from an increase in market share in our targeted trade area. The maturity
of our interest earning assets and interest bearing deposits is shown in
Table II.
Employees
The Company's full time equivalent employees have increased from 145 at
December 31, 2002 to 155 at March 31, 2003. Future increases in the number of
employees will depend on the selection and approval of new branches.
12
Table I
NEW PEOPLES BANKSHARES, INC.
NET INTEREST MARGIN ANALYSIS
AVERAGE BALANCE SHEET
FOR THE THREE MONTHS ENDED MARCH 31, 2003 AND 2002
(In thousands of dollars)
---------------- 2003 --------- --------------- 2002 ----------------
Average Average Average Average
Balance Income/ Rates Balance Income/ Rates
Sheet Expense Earned/Paid Sheet Expense Earned/Paid
ASSETS
Loans including fees (1) $229,034 $ 4,461 8.14% $183,587 $ 3,883 8.46%
Federal Funds sold 9,395 28 1.21 10,295 43 1.67
Other investments 31,415 143 .86 3,255 44 5.41
------- ------- ----- ------- ------- -----
Total Earning Assets 269,844 4,632 7.15 197,137 3,970 8.06
------- ----- ------- -----
Allowance for loans losses (2,281) (1,826)
Non-earning assets 29,872 25,941
------- -------
Total Assets $297,435 $221,252
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits
Demand - Interest
bearing $ 16,053 $ 46 1.18% $ 8,101 $ 26 1.28%
Savings 23,332 87 1.52 19,830 96 1.94
All other time deposits 203,777 1,533 3.09 155,351 1,453 3.74
--------- ------- ----- ------ ------ -------
Total Deposits 243,162 1,666 2.81 183,282 1,575 3.44
------- ----- ------- -----
Non-interest bearing
deposits 29,327 17,215
Other liabilities 1,174 1,470
------- -------
Total Liabilities 273,663 201,967
Stockholders' Equity 23,772 19,285
------- -------
Total Liabilities and
Stockholders' Equity $297,435 $ 221,252
======= =======
Net Interest Earnings $ 2,966 $ 2,395
======= =======
Net Yield on Interest
Earning Assets 4.56% 4.86%
===== =====
(1) Nontaxable interest income is insignificant and treated as taxable in
the above analysis.
13
Table II
NEW PEOPLES BANKSHARES, INC.
INTEREST SENSITIVITY ANALYSIS
(In thousands of dollars)
March 31, 2003
1-90 91-365 Over 5
Uses of Funds Days Days 2005 2006 2007 2008 Years Total
- ------------- ---- ---- ---- ---- ---- ---- ----- -----
Loans $ 22,925 $ 60,210 $ 29,302 $ 19,672 $ 28,252 $ 34,621 $ 39,188 $234,170
Federal funds sold 5,989 5,989
Total investments 17,310 16,374 808 34,492
------ ------ ------ ------ ------- ------ ------ --------
Total 46,224 76,584 29,302 20,480 28,252 34,621 39,188 274,651
-------- ------ ------ -------- ------ ------ ------ --------
Sources of Funds
Deposits
Demand and
savings 41,751 41,751
Time deposits
> $100M 16,169 23,305 4,256 3,001 2,622 646 49,999
Time deposits
< $100M 48,539 75,232 12,704 5,517 8,385 2,125 14 152,516
------- ------ ------ ------- ------ ------- ------- -------
Total Deposits 106,459 98,537 16,960 8,518 11,007 2,771 14 244,266
------- ------- ------ ------- ------- ----- ------ -------
Discrete Gap (60,235) (21,953) 12,342 11,962 17,245 31,850 39,174 30,385
Cumulative Gap (60,235) (82,188) (69,846) (57,884) (40,639) (8,789) 30,385
Ratio of Cumulative
Gap To Total
Earning Assets -21.93% -29.92% -25.43% -21.08% -14.80% -3.20% 11.06%
December 31, 2002
Ratio of Cumulative
Gap To Total
Earning Assets -25.51% -34.27% -28.15% -22.09% -17.13% -5.98% 8.33%
Table II reflects the earlier of the maturity or repricing dates for various
assets and liabilities at March 31, 2003. In preparing the above table, no
assumptions are made with respect to loan prepayments or deposit run offs. Loan
principal payments are included in the earliest period in which the loan matures
or can be repriced. Principal payments on installment loans scheduled prior to
maturity are included in the period of maturity or repricing.
14
Item 3. Market and Interest Rate Risk Management
Interest rate risk represents the primary risk factor affecting our balance
sheet and net interest margin. Significant changes in interest rates by the
Federal Reserve could result in similar changes in other interest rates, that
could affect interest earned on our loan and investment portfolios and interest
paid on our deposit accounts.
Our policy objective is to monitor our position and to manage our short term and
long-term interest rate risk exposure. Our board of directors has established
percentages for the maximum potential reductions in net interest income, that we
are willing to accept, which result from changes in interest rates over the next
12-month period. The percentage limitations relate to instantaneous and
sustained changes in interest rates of plus and minus certain basis points.
The following table summarizes our established percentage limitations and the
sensitivity of our net interest income to various interest rate scenarios for
the next 12 months, based on assets and liabilities as of March 31, 2003 and
December 31, 2002. At both dates, our interest rate risk is within the
established limitations.
Immediate Estimated Increase
Basis Point Change (Decrease) in Net Established
In Interest Rates Interest Income Limitation
March 31,December 31,
2003 2002
+300 (2.56)% (4.67)% (20.00)%
+200 (1.70) (3.10) (15.00)
+100 (.84) (1.55) (7.00)
-100 1.37 2.13 (7.00)
-200 4.21 4.09 (15.00)
-300 (.48) 1.95 (20.00)
During the first quarter of 2003, we were able to reduce our interest rate
risk for an increasing rate environment by increasing our earning assets that
reprice within one year relative to deposits that will reprice within one year.
At March 31, 2003, we had a cumulative Gap Rate Sensitivity Ratio (based on
contractual terms) of a negative 29.92% for the one year repricing period
compared with a negative 34.27% at December 31, 2003. This generally indicates
that earnings would improve in a declining interest rate environment as
liabilities reprice more quickly than assets. Conversely, earnings would
probably decrease in periods during which interest rates are increasing.
Management constantly monitors the Company's interest rate risk and has decided
that the current position is an acceptable risk for a growing community bank
operating in a rural environment. Table II in Item 2 shows the Company's
interest sensitivity by year.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
As a result of the enactment of the Sarbanes-Oxley Act of 2002, issuers such
as the Company that file periodic reports under the Securities Exchange Act of
1934 (the "Act") are now required to include in those reports certain
information concerning the issuer's controls and procedures for complying with
the disclosure requirements of the federal securities laws. Under rules adopted
by the Securities and Exchange Commission effective August 29, 2002, these
disclosure controls and procedures include, without limitation, controls
and procedures designed to ensure that information required to be disclosed by
an issuer in the reports it files or submits under the Act is communicated to
the issuer's management, including its principal executive officer or officers
and principal financial officer or officers, or persons performing similar
functions, as appropriate to allow timely decisions regarding required
disclosure.
15
Item 4. Controls and Procedures (Continued)
We have established our disclosure controls and procedures to ensure that
material information related to the Company is made known to our principal
executive officers and principal financial officer on a regular basis, in
particular during the periods in which our quarterly and annual reports are
being prepared. These disclosure controls and procedures consist principally of
communications between and among the Chief Executive Officer and the Chief
Financial Officer, and the other executive officers of the Company and its
subsidiaries to identify any new transactions, events, trends, contingencies or
other matters that may be material to the Company's operations. As required, we
will evaluate the effectiveness of these disclosure controls and procedures on a
quarterly basis, and most recently did so as of March 31, 2003, a date within 90
days prior to the filing of this annual report. Based on this evaluation, the
Company's management, including the Chief Executive Officer and the Chief
Financial Officer, concluded that such disclosure controls and procedures were
operating effectively as designed as of the date of such evaluation.
Changes in Internal Controls
We also maintain a system of internal accounting controls that is designed
to provide assurance that assets are safeguarded and that
transactions are executed in accordance with management's authorization and
properly recorded. This system is continually reviewed and is augmented by
written policies and procedures, and careful selection and training of qualified
personnel. There have been no significant changes to this system of internal
controls or in other factors that could significantly affect those controls
subsequent to the date of the Company's evaluation described above.
Part II Other Information
Item 1. Legal Proceedings - Not Applicable
Item 2. Changes in Securities and Use of Proceeds -
The Company terminated on February 7, 2003 a non-underwritten
registered offering of up to 1,200,000 shares of common stock at a purchase
price of $10.00 per share. Of the proceeds of the offering, $2,250,000 was used
to increase the capital of the Bank and the remainder held at the Company level
for future investment in the Bank and other general corporate purposes.
The following information is furnished pursuant to Rule 463 and Item
701(f) of Regulation S-K:
(1) The registration statement on Form S-1 (no. 333-90744) was
declared effective on October 15, 2002.
(2) The offering commenced on or about October 15, 2002.
(3) The offering did not terminate before any securities were sold.
(4) (i) The offering terminated on February 7, 2003.
(ii) There is no underwriter in the offering.
(iii) The only class of security registered is common stock.
(iv) The registration statement covers 1,200,000 shares of
common stock being offered at $10 per share, or $12,000,000 in
the aggregate. As of February 7, 2003, the Company had sold
890,469 shares, and had received gross proceeds of $8,904,690.
(v) From the effective date of the registration statement to March
31, 2003 (the ending date of the reporting period), the
reasonably estimated amount of expenses incurred for the
issuer's account in connection with the issuance and
distribution of the securities registered were: (1)
underwriters' discounts and commissions $-0-; (2) finder's
fees $-0-; (3) expenses paid to or for underwriters $-0-; (4)
other expenses (including, advertising, legal and accounting)
$80,260; Total expenses $80,260.
None of such payments were direct or indirect payments to
directors or officers of the Company or its associates, or to
affiliates of the Company.
16
(vi) The net offering proceeds as of March 31, 2003, after
deduction of expenses, was $8,824,430.
(vii) From October 15, 2002, to March 31, 2003 (the ending date
of the reporting period) the amount of net offering
proceeds to the issuer were used as follows:
1. construction of plant, building and facilities $-0-
2. purchase and installation of machinery and
equipment $-0-
3. purchase of real estate $-0-
4. acquisition of other business(es) $-0-
5. repayment of indebtedness $-0-
6. working capital $8,824,430
7. temporary investments (to be specified) $-0-
8. any other purposes for which at least
$75,000 has been used $-0-
(viii) The use of proceeds described in clause 4(vii) above
does not represent a material change in the use of proceeds
from that described in the prospectus.
Item 3. Defaults Upon Senior Securities - Not Applicable
Item 4. Submission of Matters to a Vote
of Security Holders - Not Applicable
Item 5. Other Information - Not Applicable
Item 6. Exhibits and Reports on 8-K -
(a) Exhibits
The following exhibits are filed as part of this Form 10-Q, and this list
includes the exhibit index:
No. Description
3.1 Articles of Incorporation of Registrant (1)
3.2 By Laws of Registrant (1)
10.1 New Peoples Bank, Inc. 2001 Stock Option Plan (2)
10.2 Salary Continuation Plan for Kenneth D. Hart (3)
99.1 Statement of Chief Executive Officer and Chief Financial Officer
pursuant to 18 U.S.C. Section 1350.
(1) Incorporated by reference to Exhibits to
Form 8-K filed by New
Peoples Bankshares, Inc. on December 12, 2001.
(2) Incorporated by reference to Exhibits to Form 10-KSB filed by New
Peoples Bankshares, Inc. on April 1, 2002.
(3) Incorporated by reference to Exhibits to Form 10-K filed by New
Peoples Bankshares, Inc. on March 31, 2003.
(b) Reports on Form 8-K.
On January 14, 2003, the Company filed an amendment to Form 8-K to report,
under Item 4, a change in the Company's Certifying Accountant.
17
Signature
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NEW PEOPLES BANKSHARES, INC.
By: /s/ KENNETH D. HART
------------------------------------
Kenneth D. Hart
President and Chief Executive
Officer
By: /s/ FRANK SEXTON, JR.
----------------------------------
Frank Sexton, Jr.
Executive Vice President and
Cashier
Date: May 14, 2003
18
CERTIFICATION
I, Kenneth D. Hart, President and Chief Executive Officer, certify that:
1. I have reviewed this quarterly report on Form 10-Q of New Peoples
Bankshares, Inc.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
(a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report is
being prepared;
(b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the filing
date of this quarterly report (the "Evaluation Date"); and
(c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
(a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have identified
for the registrant's auditors any material weaknesses in internal
controls; and
(b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and
19
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
By: /s/ KENNETH D. HART
-------------------------------
Kenneth D. Hart
President and Chief Executive
Officer
Date: May 14, 2003
------------------------------
20
CERTIFICATION
I, Frank Sexton, Jr., Chief Financial Officer, certify that:
1. I have reviewed this quarterly report on Form 10-Q of New Peoples
Bankshares, Inc.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
(a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report is
being prepared;
(b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the filing
date of this quarterly report (the "Evaluation Date"); and
(c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
(a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have identified
for the registrant's auditors any material weaknesses in internal
controls; and
(b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and
21
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
By: /s/ FRANK SEXTON, JR.
-------------------------------
Frank Sexton, Jr.
Chief Financial Officer
Date: May 14, 2003
------------------------------
22
99.1 Statement of Chief Executive Officer and Chief Financial Officer
Pursuant to 18 U.S.C. ss.1350
Pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. ss. 1350)
The undersigned, as the Chief Executive Officer and Chief Financial
Officer of New Peoples Bankshares, Inc., respectively, certify that the
Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2003,
which accompanies this certification fully complies with the requirements of
Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934
and the information contained in the periodic report fairly presents, in all
material respects, the financial condition and results of operations of New
Peoples Bankshares, Inc. at the dates and for the periods indicated. The
foregoing certification is made pursuant to ss. 906 of the Sarbanes-Oxley Act of
2002 (18 U.S.C. ss. 1350), and no purchaser or seller of securities or any other
person shall be entitled to rely upon the foregoing certification for any
purpose. The undersigned expressly disclaim any obligation to update the
foregoing certification except as required by law.
By: /s/ KENNETH D. HART
--------------------------
Kenneth D. Hart
Chief Executive Officer
Date: May 14, 2003
By: /s/ FRANK SEXTON, JR.
--------------------------
Frank Sexton, Jr.
Chief Financial Officer
Date: May 14, 2003
A signed original of this written statement required by Section 906 has
been provided to New Peoples Bankshares, Inc. and will be retained by New
Peoples Bankshares, Inc. and furnished to the Securities and Exchange Commission
or its staff upon request.