As filed with the Securities and Exchange Commission on August 28, 2002
Registration No. 333-90744
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 2
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
NEW PEOPLES BANKSHARES, INC.
(Exact name of registrant as specified in its charter)
Virginia 6022 54-1880861
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
2 Gent Drive
Honaker, Virginia 24260
(276) 873-6288
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
Kenneth D. Hart
President and Chief Executive Officer
New Peoples Bankshares, Inc.
2 Gent Drive
Honaker, Virginia 24260
(276) 873-6288
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
Copies of Communications to:
Wayne A. Whitham, Jr., Esq.
John M. Oakey, III, Esq.
Williams Mullen
1021 East Cary Street
P.O. Box 1320
Richmond, Virginia 23218-1320
(804) 643-1991
=============
Approximate date of commencement of proposed sale to the public: As soon
as practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, check the following box. |X|
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. |_|
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. |_|
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. |_|
If delivery of the prospectus is expected to be made pursuant to Rule
434, check the following box. |_|
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a)of
the Securities Act of 1933 or until this Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
================================================================================
The information in this prospectus is not complete and may be changed.
We may not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
SUBJECT TO COMPLETION, DATED , 2002
PROSPECTUS
1,200,000 Shares
[LOGO]
New Peoples Bankshares, Inc.
Common Stock
We own and operate New Peoples Bank, Inc., which has nine banking
offices in the southwest Virginia area and one banking office in West Virginia.
We are offering up to 1,200,000 shares of our common stock.
There is no established market for our common stock, and we do not
expect that a market will develop after this offering. We have established the
offering price of $10.00 per share. During 2002, the price in sales of our
common stock known to us has ranged from $10.00 to $12.00 per share.
We will make offers and sales to all of our existing shareholders. In
addition to these offers and sales, we will make offers and sales to the public
in Tennessee, Virginia and West Virginia. All sales will be made by certain of
our employees. There is no underwriter involved in this offering.
We currently estimate that our directors and executive officers will
purchase approximately 50,000 shares in this offering. This amount represents
4.2% of the common stock that we are offering. Our directors and executive
officers currently own 599,453 shares (excluding options), or 10.0% of the
outstanding shares of our common stock.
Investing in our common stock involves risks. You should read the "Risk
Factors" section beginning on page 7 before investing.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of the common stock or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
In addition, shares of our common stock are not deposits or accounts
and are not insured or guaranteed by the Federal Deposit Insurance Corporation
or any other governmental agency.
Underwriter's Proceeds to Us
Price to Public Commission Before Expenses
-------------- ---------- ---------------
Per Share $ 10.00 -- $ 10.00
Total $ 12,000,000 -- $ 12,000,000
This is a best efforts offering, which means that we are not required
to sell any specific number of shares or dollar amount of common stock in this
offering. We have not made any arrangements to place funds received from
investors in an escrow, trust or similar account. A subscription, once executed
and delivered by an investor, is irrevocable. Funds received from an investor
will be available for immediate use once we accept his or her subscription. The
offering will end on ________ __, 2002, unless we extend it until ________ __,
2002.
The date of this prospectus is ________ __, 2002.
[INSIDE FRONT COVER]
[MAP OF MARKET AREA]
2
TABLE OF CONTENTS
Page
Prospectus Summary............................................................4
Summary Financial Information.................................................6
Risk Factors..................................................................7
Terms of the Offering........................................................10
Use of Proceeds..............................................................12
Determination of Offering Price..............................................12
Dilution.....................................................................13
Market for Common Stock......................................................15
Dividend Policy..............................................................16
Capitalization...............................................................16
Business.....................................................................17
Selected Historical Financial Information....................................23
Management's Discussion and Analysis of
Financial Condition and Results of Operations................................24
Management...................................................................44
Description of Capital Stock.................................................48
Government Supervision and Regulation........................................49
Legal Matters................................................................53
Experts......................................................................53
Caution About Forward Looking Statements.....................................53
Where You Can Find More Information..........................................54
Index to Consolidated Financial Statements..................................F-1
ABOUT THIS PROSPECTUS
You should only rely on the information contained in this prospectus.
We have not authorized anyone to provide you with information different from
that contained in this prospectus. We are offering to sell, and seeking offers
to buy, shares of our common stock only in jurisdictions where offers and sales
are permitted. The information contained in this prospectus is accurate only as
of the date of this prospectus, regardless of the time of delivery of this
prospectus or of any sale of common stock.
In this prospectus, we frequently use the terms "we," "our" and "us" to
refer to New Peoples Bankshares, Inc. and New Peoples Bank, Inc. To understand
the offering fully and for a more complete description of the offering you
should read this entire document carefully, including particularly the "Risk
Factors" section beginning on page 7.
3
- --------------------------------------------------------------------------------
PROSPECTUS SUMMARY
This summary highlights information contained elsewhere in this
prospectus. Because this is a summary, it may not contain all of the information
that may be important to you. Therefore, you should read this entire prospectus
carefully before making a decision to invest in our common stock, including the
risks of purchasing common stock discussed under the "Risk Factors" section and
our financial statements and related notes.
We have adjusted all share amounts and per share data relating to our
common stock in this prospectus to reflect a two-for-one stock split of our
common stock in January 2002.
Our Company
We own New Peoples Bank, Inc., a Virginia-chartered commercial bank. We
conduct all of our business through the bank, which operates nine banking
offices in southwest Virginia and one banking office in West Virginia.
We opened in October 1998 to fill a demand for community banking
services in Russell, Scott, Buchanan and Dickenson Counties in southwest
Virginia. We commenced operations with our main office and two branches and have
since opened seven additional branches. We plan to open two additional branches
in the second half of 2002. We have not received regulatory approval for
these branches. Our plans are not dependent on this offering.
We attained profitability on a month-to-month basis by September 1999,
and we had recouped all of our start-up losses by March 2001. Our financial
performance has been characterized by rapid asset growth, increasing earnings
and sound asset quality.
At June 30, 2002, we had total assets of $233.4 million, net loans of
$200.5 million, deposits of $212.5 million and stockholders' equity of $20.1
million.
Our principal executive offices are located at 2 Gent Drive, Honaker,
Virginia 24260, and our telephone number is (276) 873-6288. Our Internet address
is www.newpeoplesbank.com. The information contained on our web site is not part
of this prospectus.
The Offering Price
We have set the offering price for the shares of common stock offered by
this prospectus at $10.00 per share. The factors that we considered in making
this determination were our present earnings and prospects for future earnings,
our proposed operations in the future, the present state of our development and
growth, the prospects of the banking industry in which we compete, the high
demand for shares of our common stock, recent sales prices of our common stock
and an overall assessment of our management and financial condition.
- -------------------------------------------------------------------------------
4
- --------------------------------------------------------------------------------
The Offering
Common Stock Offered............... 1,200,000 shares at $10.00 per share.
Minimum Purchase................... 100 shares.
Maximum Purchase................... 10,000 shares.
Common Stock Outstanding
After the Offering................. 7,200,000 shares. In addition, at June 30,
2002, there were vested options
outstanding to purchase 256,000 shares of
common stock. All outstanding options are
exercisable at a price of $7.50.
Purchase Procedures................ Each prospective investor that wishes to
purchase shares of common stock must
return the subscription card that we have
included with this prospectus to us. See
"Terms of the Offering" on page 9 for
additional information.
Use of Proceeds.................... We intend to use the net proceeds of this
offering for general corporate purposes,
including providing additional equity
capital to New Peoples Bank to support
future growth.
Purchases by Our
Management in the Offering......... In discussions involving the planning of
this offering, our directors and executive
officers have indicated informally that
they intend to purchase shares of common
stock in this offering. Although the exact
number of shares has not been determined,
we currently estimate that they will
purchase approximately 50,000 shares in
this offering. This amount represents 4.2%
of the common stock that we are offering.
None of our directors and executive
officers have entered into any agreements
of have created any obligation to purchase
shares in this offering. To the extent
that they purchase shares in this
offering, we expect that they will do so
for investment purposes only and not for
resale.
Current Ownership by Our
Management......................... Our directors and executive officers
currently own 599,453 shares (excluding
options), or 10.0% of the outstanding
shares of our common stock.
Dividends.......................... Currently no dividends are paid to
shareholders.
- --------------------------------------------------------------------------------
5
SUMMARY FINANCIAL INFORMATION
The following consolidated summary sets forth our selected financial
data for the periods and at the dates indicated. The selected financial data
have been derived from our audited financial statements for the years that ended
December 31, 2001, 2000 and 1999 and from our unaudited financial statements for
the six months ended June 30, 2002 and 2001. You also should read the
detailed information and the financial statements included elsewhere in this
prospectus.
Six Months Year Ended
Ended June 30 December 31,
-------------- ------------
2002 2001 2001 2000 1999
-----------------------------------------------------------
(Dollars in thousands, except per share data)
Income Statement Data
Gross interest income $ 8,096 $ 7,364 $ 15,267 $ 11,228 $ 5,454
Gross interest expense 3,005 4,201 7,950 6,325 2,943
Net interest income 5,091 3,163 7,317 4,903 2,511
Provision for possible loan losses 278 341 571 513 867
Net interest income after provision for
loan losses 4,813 2,822 6,746 4,390 1,644
Non-interest income 666 323 753 444 243
Non-interest expense 3,635 2,533 5,934 3,683 2,644
Income (loss) before income taxes 1,844 612 1,565 1,150 (757)
Income tax expense (benefit) 648 204 556 389 (433)
Net income (loss) 1,196 408 1,009 761 (324)
Per Share Data and Shares Outstanding (1)
Net income, basic .20 .07 .17 .14 (.14)
Net income, diluted .20 .07 .17 .14 (.14)
Cash dividends 0 0 0 0 0
Book value at period end 3.35 3.05 3.15 2.98 2.32
Tangible book value at period end 3.35 3.05 3.15 2.98 2.32
Weighted average shares outstanding,
basic (1) 6,000 6,000 6,000 5,400 2,300
Weighted average shares outstanding,
diluted (1) 6,069 6,000 6,000 5,400 2,300
Shares outstanding at period end (1) 6,000 6,000 6,000 6,000 2,400
Period-End Balance Sheet Data
Total assets 233,409 188,250 214,253 157,390 99,081
Total loans 202,556 160,255 179,216 131,086 86,560
Total deposits 212,475 168,824 194,011 138,447 87,490
Long-term debt 0 0 0 0 0
Shareholders' equity 20,087 18,290 18,891 17,882 11,121
Performance Ratios
Return on average assets 1.06% .46% .54% .58% (.45)%
Return on average shareholders' equity 12.20% 4.50% 5.47% 5.26% (3.11)%
Average shareholders' equity to average
total assets 8.73% 9.96% 9.91% 11.10% 14.38%
Net interest margin (2) 5.31% 3.88% 4.31% 3.99% 3.78%
Asset Quality Ratios
Net charge-offs to average loans .02% .03% .06% .06% .00%
Allowance to period-end gross loans 1.00% 1.00% 1.00% 1.00% 1.00%
Nonperforming assets to gross loans .29% .26% .04% .07% .00%
Capital and Liquidity Ratios
Risk-based
Tier 1 capital 10.53% 12.53% 10.99% 15.24% 13.60%
Total capital 11.59% 13.63% 12.03% 16.36% 14.70%
Leverage capital ratio 8.79% 10.00% 9.19% 11.73% 11.45%
Total equity to
total assets 8.61% 9.72% 8.82% 11.36% 11.22%
(1) We have adjusted all share amounts and per share data to reflect a
two-for-one stock split of our common stock in January 2002.
(2) Net interest margin is calculated as tax-equivalent net interest income
divided by average earning assets and represents our net yield on our earning
assets.
6
RISK FACTORS
An investment in our common stock involves significant risks. You
should carefully read and consider the factors listed below before you invest.
These risk factors may adversely affect our financial condition, including
future earnings. You should read this section together with the other
information in this prospectus.
Because our stock is not listed on any market, the offering price of $10.00 may
not reflect a market price for our stock.
Because our stock is not listed or traded on an exchange or in the
over-the-counter market, we cannot be certain that the prices at which our stock
has historically sold are not higher than the prices that would prevail in an
active market where securities professionals participate. We set the offering
price ourselves without assistance from an underwriter. When an underwriter is
involved in an offering, the offering price reflects market forces at work. An
underwriter works with an issuer to price an offering, based on factors that
include demand for the shares from securities dealers and the underwriter's
analysis of the issuer's past and prospective financial performance. This is an
imperfect process, but it does afford some protection to purchasers that the
offering price is a market price. In this offering, no underwriter is involved.
Because there is no market for our stock, your ability to readily sell any
shares you purchase is doubtful.
Our stock is not listed on a stock market, and we have no intention of
listing it. If you want to sell shares you purchase in this offering, you will
need to find a buyer and negotiate the price.
As we mature, we may not be able to sustain the rapid growth that we have
experienced since inception.
During the last two years, we have experienced significant growth, and
our business strategy calls for continued expansion. We intend to use the funds
raised in this offering to support anticipated increases in our loans and
deposits. Our ability to continue to grow depends, in part, upon our ability to
open new branch offices, attract deposits to those locations, and identify loan
and investment opportunities. Our ability to manage growth successfully also
will depend on whether we can maintain capital levels adequate to support our
growth and maintain cost controls and asset quality. If we are unable to sustain
our growth, our earnings could be adversely affected. If we grow too quickly,
however, and are not able to control costs and maintain asset quality, rapid
growth also could adversely affect our financial performance.
We have a limited operating history upon which to base an estimate of our future
success.
We have been operating only since October 1998. As a result, you have
limited financial information on which to base any estimate of our future
performance. The financial statements presented in this prospectus may not be as
meaningful as those of a company that has a longer history of operations.
Because of our limited operating history, you do not have access to the type and
amount of information that would be available to an investor in a financial
institution with a more extended operating history.
Our profitability depends significantly on economic conditions in our market
area.
Our success depends to a large degree on the general economic
conditions in the southwest Virginia area. The local economic conditions in this
area have a significant impact on the loans that we
7
make to our borrowers, the ability of our borrowers to repay these loans and the
value of the collateral securing these loans. A significant decline in general
economic conditions caused by inflation, recession, unemployment or other
factors beyond our control would impact these local economic conditions and
could negatively affect our financial condition and performance.
Historically, coal mining and farming have represented the primary
industries in our market area. While the coal mining industry has been depressed
in recent years, new industries, including the automobile industry and
technology and communications business, have appeared in our market area. While
we do not have significant credit exposure to these businesses, a recession in
one or more of these industries could have a negative impact on local economic
conditions and real estate collateral values generally, which could negatively
affect our profitability.
Because of the uncertainty of future economic and market conditions, we may not
be able to obtain additional capital on terms as favorable as the terms on prior
offerings.
Our business strategy calls for continued growth. We anticipate that we
will support this growth through additional deposits at new branch locations and
investment opportunities. It is possible that we may need to raise additional
capital to support our future growth. Our ability to raise capital through the
sale of additional securities will depend primarily upon our financial condition
and the condition of financial markets at that time. We cannot make any
assurance that additional capital would be available on terms satisfactory to us
at all. The failure to raise additional capital on terms that are favorable to
us may force us to limit our growth strategy.
A loss of our senior officers could impair our relationship with our customers
and adversely affect our business.
Many community banks attract customers based on the personal
relationships that the banks' officers and customers establish with each other
and the confidence that the customers have in the officers. As a relatively new
enterprise, we depend on the performance of Kenneth D. Hart, who is our and the
bank's President and Chief Executive Officer. Mr. Hart has over 30 years of
experience in the banking industry and has numerous contacts in our market area.
We believe that the extent of his experience and contacts provide us with an
advantage over other community banks in our market, who have chief executive
officers with less experience and fewer contacts.
The loss of the services of Mr. Hart, or his failure to perform
management functions in the manner anticipated by our board of directors, could
have a material adverse effect on our business. Our success will be dependent
upon the board's ability to attract and retain quality personnel, including Mr.
Hart.
Because we are a young company, many of our loans are too new to exhibit any
problems; any future loan losses could adversely affect our financial
performance.
Our loan portfolio has grown from $13.3 million at December 31, 1998,
soon after we began operations, to $202.6 million at June 30, 2002. As part
of our business strategy, we have created and intend to continue to create
lending relationships with customers seeking to establish new banking
relationships and without a previous history with us. These relationships have
resulted in the recent growth in our loan portfolio.
Risk of loan defaults and foreclosures, however, are unavoidable in the
banking industry. Because many of our loans are new, it will be several years
before the quality of our loan portfolio can be evaluated fully, and we can
offer you no assurance that we will not incur excessive loan losses. We
8
nevertheless attempt to limit our exposure to the risk by monitoring our
extensions of credit carefully. We, however, cannot fully eliminate credit
risk and, as a result, credit losses may occur in the future. To the extent
that we do incur excessive loan losses in the future, they could have a material
impact on our financial performance.
If a significant amount of our short-term deposits are not renewed, we will have
to seek alternatives to cover the payment obligations for them.
At December 31, 2001, we had $138.8 million in certificate of deposits
that were scheduled in mature in 2002. That amount represents 91.3% of our total
certificates of deposits at that date. We expect that many of our customers will
renew their certificates of deposits upon maturity and that we will sell
additional certificates of deposits to both existing and new customers. The
growth in our deposits is very sensitive to interest rates, and we can control
the growth by increasing or decreasing the interest rates paid. As a result, we
expect that we will be able to meet any payment obligations that may exist with
respect to our certificates of deposit at maturity.
To the extent, however, that a significant portion of these
certificates are not renewed or covered by the sale of new certificates, we
may need to seek alternatives to cover the payment obligations for them. These
alternatives could include using proceeds from this offering or seeking
additional capital. If we experience this problem, our financial condition could
be adversely affected.
The sale of shares of our common stock in this offering may adversely affect our
return on equity.
We are offering up to 1,200,000 shares of our common stock in this
offering. We will use the net proceeds from this offering for general corporate
purposes. That is, we will use all of the proceeds to provide additional equity
capital to the bank to support anticipated increases in our loans and deposits
as our business grows. This additional capital will also support investments
that we make in fixed assets in connection with the opening of new branches.
While we expect to experience continued increases in our net income
from this growth, we can make no assurance that these increases will occur. It
is possible that our return on equity will decrease following this offering.
Our management will have discretion in allocating the proceeds of the offering
and could delay the achievement of our strategic goals.
We will use the net proceeds from this offering for general corporate
purposes. That is, we will provide additional equity capital to the bank to
support anticipated increases in our loans and deposits as our business grows.
We have not otherwise made a specific allocation for the use of the net
proceeds.
Subject to the requirements of safe and sound banking practices,
however, our management will have discretion in determining the specific use of
the offering proceeds. The discretion of management to allocate the proceeds of
the offering may result in the use of the proceeds for non-banking activities
that are permitted for bank holding companies, but that are not otherwise
specifically identified in this prospectus. While we do not anticipate that
these proceeds will be used for other purposes, to the extent that they are, it
may take us longer to grow our business and operations and otherwise achieve our
strategic goals.
9
You may be one of only a small number of investors in the offering and, as a
result, a substantial percentage of the offering proceeds may be used to pay for
the offering's expenses.
This is a best efforts offering, which means that we are not required
to sell any specific number of shares or dollar amount of common stock in this
offering. In addition, we have not made any arrangements to place funds received
from investors in an escrow, trust or similar account. To the extent that we
sell significantly less than the total number of shares that we are offering
through this prospectus, you may be one of only a small number of investors in
this offering and a substantial percentage of the offering proceeds may be used
to pay for the offering expenses, and not for our general corporate purposes.
For example, if we sell only 2% of the shares that we are offering, or 24,000
shares, at the public offering price of $10.00 per share, we would have gross
offering proceeds of $240,000. Under that scenario, we estimate that
approximately 23.8% of that amount would be used to pay the estimated expenses
of the offering.
TERMS OF THE OFFERING
Purchase Limitations
The minimum subscription for the offering is 100 shares. To increase
participation and ownership within our local community, we are limiting the
maximum number of shares that one individual or entity may directly acquire to
10,000 shares.
Prospective Investors
We will offer and sell shares to all of our existing shareholders. In
addition, we will make offers and sales to the public in Tennessee, Virginia and
West Virginia.
In this offering, we are reserving the right, in our sole discretion,
to accept or reject any subscription for shares of our common stock in whole or
in part. With respect to any subscriptions that we do not accept in whole or in
part, we will return the unaccepted portion of the subscription funds, without
interest.
Plan of Distribution
We will offer and sell shares of common stock through certain of our
employees, who will not receive any sales commission directly or indirectly for
offering or selling the shares. We will limit the participation in our
distribution to only those employees that we have registered as our agents under
applicable securities law, or for which an exemption for their participation
exists. We will not offer or sell shares of common stock through any
underwriters or dealers.
Our plan of distribution will consist of mailing of a notice of our
offering to prospective investors. The notice will include information on how
an interested investor can obtain a copy of this prospectus from us. We do not
expect to solicit personally prospective investors.
This is a best efforts offering, which means that we are not required
to sell any specific number of shares or dollar amount of common stock in this
offering. We have not made any arrangements to place funds received from
investors in an escrow, trust or similar account. A subscription, once
executed, and delivered by an investor, is irrevocable. Funds received from an
investor will be available for immediate use once we accept his or her
subscription.
10
Termination
The offering will terminate on ________ __, 2002. We reserve the right
to extend the offering in our sole discretion until ________ __, 2002 if we have
not sold all 1,200,000 shares of common stock.
Purchase Procedures
Each prospective investor who wishes to purchases shares of our common
stock must take the following steps:
o Complete, date and execute the subscription card that we have
included with this prospectus.
o Return the completed subscription card, with a check payable to "New
Peoples Bankshares, Inc." in an amount equal to $10.00 multiplied by
the number of shares subscribed for, to
Ms. Sereada Schiano
New Peoples Bankshares, Inc.
2 Gent Drive
Honaker, Virginia 24260
We will issue and deliver certificates that evidence shares of our
common stock duly subscribed for and paid in full to those subscribers whose
subscriptions we accept as soon as practicable after the offering is completed.
No Escrow Account
We have not made any arrangements to place funds received from investors
in an escrow, trust or similar account. Once we have accepted a subscription, we
will deposit the proceeds into our general corporate accounts, issue the shares
of common stock to the investor and use the proceeds in the manner that we have
described in this prospectus.
11
USE OF PROCEEDS
The following table sets forth the calculation of our net proceeds from
the offering at the public offering price of $10.00 per share and the use of
these proceeds. Because this is a best efforts offering and there is no minimum
number of shares to be sold, we are presenting this information assuming that we
sell 10%, 50% and 100% of the shares of common stock that we are offering.
10% 50% 100%
--- --- ----
Shares of common stock sold.................................. 120,000 600,000 1,200,000
Public offering price........................................ $10.00 $10.00 $10.00
Gross offering proceeds...................................... $1,200,000 $6,000,000 $12,000,000
Estimated expenses of the offering........................... 59,000 59,000 59,000
------------- ------------- -------------
Net proceeds to us........................................... $1,141,000 $5,941,000 $11,941,000
============= ============= =============
Use of net proceeds:
General corporate purposes................................ $1,141,000 $5,941,000 $11,941,000
============= ============= =============
We will use the net proceeds from this offering for general corporate
purposes. That is, we will use all of the proceeds to provide additional equity
capital to the bank to support anticipated increases in our loans and deposits
as our business grows. This additional capital will also support investments
that we make in fixed assets in connection with the opening of new branches. We
have not otherwise made a specific allocation for the use of the net proceeds.
DETERMINATION OF OFFERING PRICE
We have set the offering price for the shares of common stock offered
by this prospectus at $10.00 per share. The factors that we considered in making
this determination were our present earnings and prospects for future earnings,
our proposed operations in the future, the present state of our development and
growth, the prospects of the banking industry in which we compete, the high
demand for shares of our common stock, recent sales prices of shares of our
common stock and an overall assessment of our management and financial
condition. Because the offering is expected to take place over a period of
several months, sales prices for our common stock in privately negotiated
transactions could vary during the offering.
12
DILUTION
Effect of the Offering on Book Value
At June 30, 2002, we had a net tangible book value of approximately
$20.1 million, or $3.35 per share. Net tangible book value per share represents
the amount of our shareholders' equity, less intangible assets, divided by the
number of shares of common stock that are outstanding. Dilution per share to new
investors in the offering represents the difference between the amount per share
that these investors paid and the pro forma net tangible book value per share of
common stock immediately after completion of the offering.
After giving effect to the sale by us of all 1,200,000 shares of common
stock in the offering at the public offering price of $10.00 per share,
deducting estimated offering expenses, and giving effect to the application of
the estimated net proceeds described in the "Use of Proceeds" section on page
12, our pro forma net tangible book value at June 30, 2002 would have been
approximately $32.0 million, or $4.45 per share. This represents an immediate
increase in net tangible book value of $1.10 per share to existing shareholders
and an immediate dilution of $5.55 per share to new investors.
The following table illustrates this per share dilution assuming that
we sell 10%, 50% and 100% of the shares of common stock that we are offering:
10% 50% 100%
--- --- ----
Public offering price per share...................................... $10.00 $10.00 $10.00
Net tangible book value per share at June 30, 2002................ 3.35 3.35 3.35
Increase per share attributable to new investors.................. 0.12 0.59 1.10
---- ---- ----
Pro forma net tangible book value per share after the offering....... 3.47 3.94 4.45
Dilution per share to new investors.................................. 6.53 6.06 5.55
==== ==== ====
Dilution as a percentage of offering price........................... 65.3% 60.6% 55.5%
Comparison of Prices Paid for Common Stock
The following table sets forth on a pro forma basis, as of June 30,
2002:
o the number of shares of common stock purchased from us prior to the
offering and the number of shares purchased in the offering, and
o the total consideration, prior to the deduction of any expenses,
and average price per share that our existing shareholders have
paid to us and that new investors will pay in the offering at the
public offering price of $10.00 per share.
13
Because this is a best efforts offering and there is no minimum number
of shares to be sold, we are presenting this information assuming that we sell
10%, 50% and 100% of the shares of common stock that we are offering.
Average
Price Per
Shares Purchased Total Consideration Share
--------------------------- -------------------------- -------------------
Number Percent Amount Percent
10%
Existing shareholders (1), (2) 6,000,000 98% $18,000,000 94% $3.00
New investors 120,000 2% 1,200,000 6% $10.00
------------- --------- ------------------
Total 6,120,000 100% $19,200,000 100% $3.14
============= ========= ====================
50%
Existing shareholders (1), (2) 6,000,000 91% $18,000,000 75% $3.00
New investors 600,000 9% 6,000,000 25% $10.00
------------- --------- ------------------
Total 6,600,000 100% $24,000,000 100% $3.64
============= ========= ====================
100%
Existing shareholders (1), (2) 6,000,000 83% $18,000,000 60% $3.00
New investors 1,200,000 17% 12,000,000 40% $10.00
------------- --------- -------------------
Total 7,200,000 100% $30,000,000 100% $4.17
============= ========= ====================
- -----------------
(1) We have adjusted the number of shares purchased and the average price per
share to reflect a two-for-one stock split of our common stock in January
2002.
(2) We have excluded outstanding vested options to purchase 256,000 shares of
our common stock. The exercise price for each of these options is $7.50 per
share.
14
MARKET FOR COMMON STOCK
There currently is no public trading market for shares of our common
stock and, prior to our holding company reorganization in November 2001, there
was no public trading market for shares of New Peoples Bank's common stock. We,
however, are frequently informed of the sales price at which shares of our
common stock are exchanged in privately negotiated transactions.
The high and low trade prices of shares of the bank's common stock
through November 2001 and our common stock since November 2001, to our
knowledge, were as follows:
High Low
2000:
1st quarter 3.75 2.50
2nd quarter 7.50 5.00
3rd quarter 7.50 5.00
4th quarter 7.50 5.00
2001:
1st quarter 9.00 7.50
2nd quarter 9.00 7.50
3rd quarter 9.75 7.50
4th quarter 9.75 7.50
2002:
1st quarter 12.00 10.00
2nd quarter 12.00 10.00
3rd quarter (through August 23, 2002) 10.00 10.00
_____________
* We have adjusted all prices to reflect two-for-one stock splits of the
bank's common stock in March 2000 and our common stock in January 2002.
The most recent sales price of which we are aware was $10.00 per share
on August 22, 2002. Other sales transactions may have occurred that were not
reported to us.
15
DIVIDEND POLICY
We have not declared or distributed any cash dividends to our
shareholders, and it is not likely that we will declare any cash dividends for
several years. Our board of directors intends to follow a policy of retaining
any earnings to provide funds to operate and expand our business for the
foreseeable future. Our future dividend policy is subject to the discretion of
the board of directors and will depend upon a number of factors, including
future consolidated earnings, financial condition, liquidity and capital
requirements of both us and the bank, applicable governmental regulations and
policies and other factors deemed relevant by our board of directors
Our ability to distribute cash dividends will depend primarily on the
abilities of the bank to pay dividends to us. As a state member bank, New
Peoples Bank is subject to certain restrictions imposed by the reserve and
capital requirements of federal and Virginia banking statutes and regulations.
Furthermore, neither we nor the bank may declare or pay a cash dividend on any
of our capital stock if we are insolvent or if the payment of the dividend would
render us insolvent or unable to pay our obligations as they become due in the
ordinary course of business. For additional information on these limitations,
see "Government Supervision and Regulation - Payment of Dividends" on page 50.
CAPITALIZATION
The following table sets forth our actual and pro forma consolidated
capitalization at June 30, 2002. Because this is a best efforts offering and
there is no minimum number of shares to be sold, we are presenting this
information assuming that we sell 10%, 50% and 100% of the shares of common
stock that we are offering. This table should be read with our financial
statements and related notes included in this prospectus.
June 30, 2002
(unaudited)
Stockholders' equity (dollars in thousands): --------------------------------------------------
Actual Pro Forma
------ ---------
10% 50% 100%
Common Stock, $2.00 par value, 12,000,000 12,000,000 12,240,000 13,200,000 14,400,000
shares authorized, 6,000,000 shares
issued and outstanding (pro forma: 10%, 6,120,000;
50%, 6,600,000; 100%, 7,200,000)
Paid-in surplus 5,964,331 6,865,331 10,705,331 15,505,331
Retained earnings 2,122,945 2,122,945 2,122,945 2,122,945
Total stockholders' equity 20,087,276 21,228,276 26,028,276 32,028,276
16
BUSINESS
General
We are the bank holding company for New Peoples Bank, Inc., a Virginia
banking corporation headquartered in Honaker, Virginia. We are engaged in the
commercial banking business, primarily serving Russell, Scott, Buchanan,
Dickenson, Washington and Wise Counties in southwest Virginia and Mercer County
in West Virginia. In addition, the close proximity and mobile nature of
individuals and businesses in adjoining counties in Virginia and West Virginia
and nearby cities places these markets within our bank's targeted trade area. We
also serve individuals and businesses from other areas, including northeastern
Tennessee and eastern West Virginia.
We offer a range of banking and related financial services focused
primarily towards serving individuals, small to medium size businesses, and the
professional community. We strive to serve the banking needs of our customers
while developing personal, hometown relationships with them. Our board of
directors believes that marketing customized banking services will enable us to
establish a niche in the financial services marketplace in our market.
We provide professionals and small and medium size businesses in our
market area with responsive and technologically advanced banking services. These
services include loans that are priced on a deposit relationship basis, easy
access to our decision makers, and quick and innovative action necessary to meet
a customer's banking needs. Our capitalization and lending limit enables us to
satisfy the credit needs of a large portion of the targeted market segment. When
a customer needs a loan that exceeds our lending limit, we try to find other
financial institutions to participate in the loan with us.
Our History
The bank was incorporated under the laws of the Commonwealth of
Virginia on December 9, 1997 and began operations on October 28, 1998. On
September 27, 2001, the shareholders of the bank approved a plan of
reorganization under which they exchanged their shares of bank common stock for
shares of our common stock. On November 30, 2001, the reorganization was
completed and the bank became our wholly owned subsidiary. The bank is our only
subsidiary.
The formation of the bank was first discussed by a group of citizens who
responded to their community's yearning for the friendly hometown banking
provided for years by Peoples Bank, which also originated in Russell County.
Peoples Bank served their community as an independent community bank from its
formation in 1970 until 1987 and as part of the Premier Bank family from its
acquisition by Premier Bankshares Corporation in 1987 until 1997. First Virginia
Banks, Inc. acquired Premier and all of its banking subsidiaries in 1997.
Although Peoples Bank and New Peoples Bank have no formal or legal connection,
several of the officers, board members and employees who made Peoples Bank a
success formed the nucleus for New Peoples Bank.
This core Russell County group invited residents of Scott County,
Buchanan County and Dickenson County to promote the idea of organizing southwest
Virginia's first community bank in almost two decades. The community response
was overwhelming and over 2,400 shareholders emerged to raise in excess of $11
million dollars in start-up capital within a 90-day sale period. The
Commonwealth of Virginia authorized the bank to open three banks at once,
including the central headquarters in Honaker, Virginia, and branches in Weber
City and Castlewood, Virginia. Loan production offices were opened in Norton,
Clintwood and Claypool Hill, Virginia.
17
Location and Market Area
We initially opened with full service branches in Honaker and Weber
City, Virginia and in 1999 opened a full service branch in Castlewood, Virginia.
During 2000, we opened full service branches in Haysi and Lebanon, Virginia.
During 2001, we opened branches in Pounding Mill, Virginia and Princeton, West
Virginia. In 2002, we have opened branch offices in Gate City, Clintwood and Big
Stone Gap, Virginia. We also have loan production offices located in Norton and
Abingdon, Virginia. Management will continue to investigate and consider other
possible sites that would enable us to profitably serve our chosen market area.
In order to open any additional banking offices, we must obtain prior
regulatory approval, which takes into account a number of factors, including,
among others, a determination that we have capital in an amount deemed necessary
to warrant additional expansion and a finding that the public interest will be
served. While we plan to seek regulatory approval at the appropriate time to
establish additional banking offices, there can be no assurance when or if we
will be able to undertake such expansion plans.
Internet Site
In March 2001, we opened our internet banking site at
www.newpeoplesbank.com. The site includes a customer service area that contains
branch and ATM locations, product descriptions and current interest rates
offered on deposit accounts. Customers with internet access can access account
balances, make transfers between accounts, enter stop payment orders, order
checks, and use an optional bill paying service. New customers who live within a
limited market area can open accounts on line.
Banking Services
General. We accept deposits, makes consumer and commercial loans,
issues drafts, and provide other services customarily offered by a commercial
bank, such as business and personal checking and savings accounts, walk-up
tellers, drive-in windows, and 24-hour automated teller machines. New Peoples
Bank is a member of the Federal Reserve System and its deposits are insured
under the Federal Deposit Insurance Act to the limits provider thereunder.
We offer a full range of short-to-medium term commercial and personal
loans. Commercial loans include both secured and unsecured loans for working
capital (including inventory and receivables), business expansion (including
acquisition of real estate and improvements) and purchase of equipment and
machinery. Consumer loans may include secured and unsecured loans for financing
automobiles, home improvements, education and personal investments.
Our lending activities are subject to a variety of lending limits
imposed by state law. While differing limits apply in certain circumstances
based on the type of loan or the nature of the borrower (including the
borrower's relationship to the bank), in general New Peoples Bank is subject to
a loan-to-one borrower limit of an amount equal to 15% of its capital and
surplus in the case of loans which are not fully secured by readily marketable
or other permissible types of collateral. The bank voluntarily may choose to
impose a policy limit on loans to a single borrower that is less than the legal
lending limit.
We obtain short-to medium term commercial and personal loans through
direct solicitation of owners and continued business from customers. Completed
commercial loan applications are reviewed by our loan officers. As part of the
application process, information is obtained concerning the income, financial
condition, employment and credit history of the applicant. If commercial real
estate is involved, information is also obtained concerning cash flow after debt
service. Loan quality is analyzed based on the bank's experience and its credit
underwriting guidelines.
18
Loans by type as a percentage of total loans are as follows:
June 30, December 31,
2002 2001 2000 1999 1998
---- ---- ---- ---- ----
Commercial, financial and
agriculture 19.82% 19.62% 22.84% 26.94% 46.70%
Real estate - construction 2.26% 2.15% 1.17% 2.64% 1.45%
Real estate - mortgage 55.92% 54.81% 54.05% 47.70% 31.76%
Installment loans to individuals 22.00% 23.42% 21.94% 22.72% 20.09%
-------------------------------------------------------------
Total 100.00% 100.00% 100.00% 100.00% 100.00%
=============================================================
Commercial Loans. We make commercial loans to qualified businesses in
our market area. Our commercial lending consists primarily of commercial and
industrial loans to finance accounts receivable, inventory, property, plant and
equipment. Commercial business loans generally have a higher degree of risk than
residential mortgage loans, but have commensurately higher yields. Residential
mortgage loans generally are made on the basis of the borrower's ability to make
repayment from his employment and other income and are secured by real estate
whose value tends to be easily ascertainable. In contrast, commercial business
loans typically are made on the basis of the borrower's ability to make
repayment from cash flow from its business and are secured by business assets,
such as commercial real estate, accounts receivable, equipment and inventory. As
a result, the availability of funds for the repayment of commercial business
loans may be substantially dependent on the success of the business itself.
Further, the collateral for commercial business loans may depreciate
over time and cannot be appraised with as much precision as residential real
estate. To manage these risks, our underwriting guidelines require us to secure
commercial loans with both the assets of the borrowing business and other
additional collateral and guarantees that may be available. In addition, we
actively monitor certain measures of the borrower, including advance rate, cash
flow, collateral value and other appropriate credit factors.
Residential Mortgage Loans. Our residential mortgage loans consist of
residential first and second mortgage loans, residential construction loans and
home equity lines of credit and term loans secured by first and second mortgages
on the residences of borrowers for home improvements, education and other
personal expenditures. We make mortgage loans with a variety of terms, including
fixed and floating or variable rates and a variety of maturities. Maturities for
construction loans generally range from 4-12 to months for residential property
and from 6 to 18 months for non-residential and multi-family properties.
Under our underwriting guidelines, residential mortgage loans generally
are made on the basis of the borrower's ability to make repayment from his
employment and other income and are secured by real estate whose value tends to
be easily ascertainable. These loans are made consistent with the appraisal
policies and real estate lending policies, which detail maximum loan-to-value
ratios and maturities. Loans for owner-occupied property are generally made with
a loan-to-value ratio of up to 80% for first liens. Higher loan-to-value ratios
are allowed based on the borrower's unusually strong general liquidity, net
worth and cash flow. Loan-to-value ratios for home equity lines of credit
generally do not exceed 90%. If the loan-to-value ratio exceeds 80% for
residential mortgage loans, the bank obtains appropriate credit enhancement in
the form of either mortgage insurance or readily marketable collateral.
Construction Loans. Construction lending entails significant additional
risks, compared to residential mortgage lending. Construction loans often
involve larger loan balances concentrated with
19
single borrowers or groups of related borrowers. Construction loans also involve
additional risks attributable to the fact that loan funds are advanced upon the
security of property under construction, which is of uncertain value prior to
the completion of construction. Thus, it is more difficult to evaluate
accurately the total loan funds required to complete a project and related
loan-to-value ratios. To minimize the risks associated with construction
lending, our underwriting guidelines limit loan-to-value ratios for residential
property to 85% and for non-residential property and multi-family properties to
80%, in addition to its usual credit analysis of its borrowers. Management feels
that the loan-to-value ratios described above are sufficient to compensate for
fluctuations in the real estate market to minimize the risk of loss.
Consumer Loans. Our consumer loans consist primarily of installment
loans to individuals for personal, family and household purposes. The specific
types of consumer loans that we make include home improvement loans, debt
consolidation loans and general consumer lending. Consumer loans entail greater
risk than residential mortgage loans do, particularly in the case of consumer
loans that are unsecured, such as lines of credit, or secured by rapidly
depreciable assets such as automobiles. In such cases, any repossessed
collateral for a defaulted consumer loan may not provide an adequate source of
repayment of the outstanding loan balance as a result of the greater likelihood
of damage, loss or depreciation. The remaining deficiency often does not warrant
further substantial collection efforts against the borrower. In addition,
consumer loan collections are dependent on the borrower's continuing financial
stability, and thus are more likely to be adversely affected by job loss,
divorce, illness or personal bankruptcy. Furthermore, the application of various
federal and state laws, including federal and state bankruptcy and insolvency
laws, may limit the amount which can be recovered on such loans. Such loans may
also give rise to claims and defenses by a consumer loan borrower against an
assignee of such loan such as the bank, and a borrower may be able to assert
against such assignee claims and defenses that it has against the seller of the
underlying collateral.
Our underwriting policy for consumer loans is to accept moderate risk
while minimizing losses, primarily through a careful analysis of the borrower.
In evaluating consumer loans, we require our lending officers to review the
borrower's level and stability of income, past credit history and the impact of
these factors on the ability of the borrower to repay the loan in a timely
manner. In addition, we maintain an appropriate margin between the loan amount
and collateral value.
Other Bank Services. Other bank services include safe deposit boxes,
cashier's checks, certain cash management services, traveler's checks, direct
deposit of payroll and social security checks and automatic drafts for various
accounts. We offer ATM card services that can be used by our customers
throughout Virginia and other regions. We also offer MasterCard and VISA credit
card services through an intermediary.
We do not anticipate exercising trust powers in the next few years. We
may establish a trust department in the future but cannot do so without the
prior approval of the Virginia State Corporation Commission's Bureau of
Financial Institutions. In the interim, we may contract for trust services to
our customers through outside vendors.
Competition
The banking business is highly competitive. We compete as a financial
intermediary with other commercial banks, savings and loan associations, credit
unions, mortgage banking firms, consumer finance companies, securities brokerage
firms, insurance companies, money market mutual funds and other financial
institutions operating in the Southwest Virginia market area and elsewhere. Our
market area is a highly competitive, highly branched banking market.
20
Competition in the market area for loans to small businesses and
professionals, the bank's target market, is intense, and pricing is important.
Most of our competitors have substantially greater resources and lending limits
than we have. They offer certain services, such as extensive and established
branch networks and trust services, that we do not expect to provide or will not
provide in the near future. Moreover, larger institutions operating in the
Southwestern Virginia market area have access to borrowed funds at lower cost
than are available to us. Deposit competition among institutions in the market
area also is strong. As a result, it is possible that we may pay above-market
rates to attract deposits. We generally pay above-market rates, usually one
percent above current rates for a six-month period, to attract deposits when we
open a new branch office.
While pricing is important, our principal method of competition is
service. As a community banking organization, we strive to serve the banking
needs of our customers while developing personal, hometown relationships with
them. As a result, we provide a significant amount of service and a range of
products without the fees that customers can expect from larger banking
institutions.
According to a market share report prepared by the FDIC, as of June 30,
2001, the most recent date for which market share information is available, New
Peoples Bank's deposits as a percentage of total deposits in its major market
areas were as follows: Russell County - 39.0 %, Scott County - 24.8% and
Dickenson County - 9.3%.
Employees
As of June 30, 2002, we had 129 total employees, 122 of which were
full-time employees. None of our employees is covered by any collective
bargaining agreement, and relations with employees are considered excellent.
Legal Proceedings
In the course of our operations, we may become a party to legal
proceedings. We are not aware of any material pending or threatened legal
proceedings.
21
Properties
We own our main office and all of our branch offices. We conduct our
business from the following locations:
Main Office
o 2 Gent Drive, Honaker, Virginia 24260 (opened 1998)
Branch Offices
o 131 U.S. Highway 28 South, Weber City, Virginia 24290 (opened
1998)
o 102 Miners Drive, Castlewood, Virginia 24224 (opened 1999)
o 402 Main Street, Haysi, Virginia 24256 (opened 2000)
o 685 North East Main Street, Lebanon, Virginia 24266 (opened
2000)
o Route 460 at Pounding Mill, Virginia 24637 (opened 2001)
o 1221 Stafford Drive, Princeton, West Virginia 24740 (opened
2001)
o 326 East Jackson Street, Gate City, Virginia 24251 (opened
2002)
o Route 83, Colley Shopping Center, Clintwood, Virginia 24228
(opened 2002)
o 419 Shawnee Avenue East, Big Stone Gap, Virginia 24219
(opened 2002)
We have loan production offices in Norton and Abingdon, Virginia. We
lease these offices through operating lease arrangements with varying term
lengths.
We have purchased property that includes a former bank building in
Tazewell, Virginia. The purchase of the property, however, included a one-year
prohibition on banking activities. We anticipate that this branch office will
open in the fall of 2002 after the prohibition expires and remodeling is
complete.
We believe that all of our properties are maintained in good operating
condition and are suitable and adequate for our operational needs.
22
SELECTED HISTORICAL FINANCIAL INFORMATION
The following consolidated summary sets forth selected financial data
for us for the periods and at the dates indicated. The selected financial data
have been derived from our audited financial statements for the years that ended
December 31, 2001, 2000 and 1999 and from our unaudited financial statements for
the six months ended June 30, 2002 and 2001. The following summary is
qualified in its entirety by the detailed information and the financial
statements included elsewhere in this prospectus.
Six Months Year Ended
Ended June 30, December 31,
-------------- ------------
2002 2001 2001 2000 1999
-----------------------------------------------------------
(Dollars in thousands, except per share data)
Income Statement Data
Gross interest income $ 8,096 $ 7,364 $ 15,267 $ 11,228 $ 5,454
Gross interest expense 3,005 4,201 7,950 6,325 2,943
Net interest income 5,091 3,163 7,317 4,903 2,511
Provision for possible loan losses 278 341 571 513 867
Net interest income after provision for
loan losses 4,813 2,822 6,746 4,390 1,644
Non-interest income 666 323 753 444 243
Non-interest expense 3,635 2,533 5,934 3,683 2,644
Income (loss) before income taxes 1,844 612 1,565 1,150 (757)
Income tax expense (benefit) 648 204 556 389 (433)
Net income (loss) 1,196 408 1,009 761 (324)
Per Share Data and Shares Outstanding (1)
Net income, basic .20 .07 .17 .14 (.14)
Net income, diluted .20 .07 .17 .14 (.14)
Cash dividends 0 0 0 0 0
Book value at period end 3.35 3.05 3.15 2.98 2.32
Tangible book value at period end 3.35 3.05 3.15 2.98 2.32
Weighted average shares outstanding,
basic (1) 6,000 6,000 6,000 5,400 2,300
Weighted average shares outstanding,
diluted (1) 6,069 6,000 6,000 5,400 2,300
Shares outstanding at period end (1) 6,000 6,000 6,000 6,000 2,400
Period-End Balance Sheet Data
Total assets 233,409 188,250 214,253 157,390 99,081
Total loans 202,556 160,255 179,216 131,086 86,560
Total deposits 212,475 168,824 194,011 138,447 87,490
Long-term debt 0 0 0 0 0
Shareholders' equity 20,087 18,290 18,891 17,882 11,121
Performance Ratios
Return on average assets 1.06% .46% .54% .58% (.45)%
Return on average shareholders' equity 12.20% 4.50% 5.47% 5.26% (3.11)%
Average shareholders' equity to average
total assets 8.73% 9.96% 9.91% 11.10% 14.38%
Net interest margin (2) 5.31% 3.88% 4.31% 3.99% 3.78%
Asset Quality Ratios
Net charge-offs to average loans .02% .03% .06% .06% .00%
Allowance to period-end gross loans 1.00% 1.00% 1.00% 1.00% 1.00%
Nonperforming assets to gross loans .29% .26% .04% .07% .00%
Capital and Liquidity Ratios
Risk-based
Tier 1 capital 10.53% 12.53% 10.99% 15.24% 13.60%
Total capital 11.59% 13.63% 12.03% 16.36% 14.70%
Leverage capital ratio 8.79% 10.00% 9.19% 11.73% 11.45%
Total equity to
total assets 8.61% 9.72% 8.82% 11.36% 11.22%
(1) We have adjusted all share amounts and per share data to reflect a
two-for-one stock split of our common stock in January 2002.
(2) Net interest margin is calculated as tax-equivalent net interest income
divided by average earning assets and represents our net yield on our earning
assets.
23
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
The following commentary discusses major components of our business and
presents an overview of our consolidated financial position at June 30, 2002 and
at December 31, 2001 and 2000 as well as results of operations for the six
months ended June 30, 2002 and 2001 and the years ended December 31, 2001 and
2000. This discussion should be reviewed in conjunction with the consolidated
financial statements and accompanying notes and other statistical information
presented elsewhere in this prospectus.
We are not aware of any current recommendations by any regulatory
authorities that, if they were implemented, would have a material effect on our
liquidity, capital resources or results of operations.
Overview
On September 27, 2001, New Peoples Bank's shareholders approved a plan
of reorganization under which they exchanged their common stock for our common
stock. On November 30, 2001, the reorganization was completed and New Peoples
Bank became our wholly owned subsidiary. The accompanying financial information
reflects the financial condition and operations of New Peoples Bank prior to
November 30, 2001 and our consolidated financial condition and operations since
then.
Since opening for business on October 28, 1998, we have achieved
outstanding growth. At June 30, 2002, our total assets were $233.4 million,
total deposits were $212.5 million and total loans were $202.5 million.
Our net income for the six months ended June 30, 2002 was $1.2
million, compared to net income of $408,000 for the six months ended June 30,
2001. Net income per share was $.20 for the six months ended June 30, 2002,
compared to $.07 for the same period last year.
Our net income for the year 2001 was $1.0 million, compared to $761,000
for 2000. Net income per share was $.17 for 2001, compared to $.14 for 2000.
For the foreseeable future, our management will continue its strategy
of providing personal and customized financial services to individuals, small to
medium size businesses and the professional community. We will strive to serve
the banking needs of our customers by developing personal, hometown
relationships.
24
Net Interest Income and Net Interest Margin
2001 Compared with 2000
Our net interest income, which equals total interest and dividend
income less total interest expense, increased from $4.9 million for 2000 to $7.3
million for 2001. The increase was the result of higher average balances and an
increase in the net interest margin.
Our net interest margin, which equals net interest income divided by
total interest earning assets in 2001 was 4.31%, compared to 3.99% for 2000. The
rates received on earning assets decreased less than the rates paid on deposits,
resulting in the increase in net interest margin. During 2001, interest rates
fell in response to interest rate reductions by the Federal Reserve. However, we
were able to maintain an average yield on loans of 9.37% for 2001, compared to
9.52% for 2000 due to the strong demand for loans that we experienced from our
customers. The average yield on federal funds sold decreased from 6.22% in 2000
to 4.15% in 2001 as a result of the interest rate reductions. We were able to
improve the yield on investments from 5.78% in 2000 to 6.15% in 2001 by
purchasing U.S. Government Agency bonds with longer maturities. Consistent with
market interest rate reductions, the average cost of deposits decreased from
5.91% for 2000 to 5.18% for 2001.
2000 Compared with 1999
Our net interest income increased from $2.5 million for 1999 to $4.9
million for 2000. The increase was the result of higher average balances and an
increase in the net interest margin.
Our net interest margin on earnings assets for 2000 was 3.99%, compared
to 3.78% for 1999. The rates on earning assets increased more than the rates
paid on deposits, resulting in the increase in net interest margin. In response
to strong loan demand, the average balance of loans increased $54.5 million and
the average rate received on loans increased from 8.88% for 1999 to 9.52% for
2000. The interest rates received on loans, federal funds sold and other
investments increased in response to a general increase in market interest
rates. Consistent with market rate increases, the average cost of deposits
increased from 5.18% for 1999 to 5.91% for 2000.
25
The following table shows the rates paid on earning assets and deposit
liabilities for the periods indicated.
Net Interest Margin Analysis
Average Balance Sheet
For the Years Ended December 31,
(dollars in thousands)
2001 2000 1999
------------------------------ ------------------------------ -----------------------------
Average Average Average
Rates Rates Rates
Average Income/ Earned/ Average Income/ Earned/ Average Income/ Earned/
Balance Expense Paid Balance Expense Paid Balance Expense Paid
------- ------- ---- ------- ------- ---- ------- ------- ----
ASSETS
Loans including fees $155,891 $14,602 9.37% $109,316 $10,408 9.52% $54,794 $4,867 8.88%
Federal Funds sold 9,514 395 4.15 10,392 646 6.22 8,833 432 4.90
Deposits in other banks - - - 260 14 5.45 1,938 109 5.61
Other investments 4,388 270 6.15 2,764 160 5.78 904 46 5.01
----- --- ---- ----- --- ---- --- -- ----
Total Earning Assets 169,793 15,267 8.99 122,732 11,228 9.15 66,469 5,454 8.20
------ ---- ------ ---- ----- ----
Allowance for loans
losses (1,573) (1,082) (400)
Non-earning assets 17,649 8,736 6,186
------ ----- -----
Total Assets $185,869 $130,386 $72,255
======== ======== =======
LIABILITIES AND STOCKHOLDER'S EQUITY
Deposits
Demand-interest $5,945 120 2.02 $3,958 98 2.48 $2,126 52 2.46
bearing
Savings 12,912 379 2.94 7,900 314 3.97 4,330 159 3.66
All other time deposits 134,502 7,451 5.54 95,136 5,913 6.22 50,395 2,732 5.42
------- ----- ---- ------ ----- ---- ------ ----- ----
Total Deposits 153,359 7,950 5.18 106,994 6,325 5.91 56,851 2,943 5.18
-------------- ------- ----- ---- ------- ----- ---- ------ ----- ----
Non-interest bearing
deposits 12,886 8,074 4,703
Other liabilities 1,197 847 310
----- --- ---
Total Liabilities 167,442 115,915 61,864
Stockholder's Equity 18,427 14,471 10,391
------ ------ ------
Total Liabilities and
Stockholder's Equity $185,869 $130,386 $72,255
======== ======== =======
Net Interest Income $7,317 $4,903 $2,511
====== ====== ======
Net Yield on Interest
Earning Assets 4.31% 3.99% 3.78%
===== ===== =====
Net Interest Spread 3.81% 3.24% 3.02%
------------------- ===== ===== =====
________________________
(1) Non-accrual loans are not significant and have been included in the average
balance of loans outstanding.
(2) Loan fees are not material and have been included in interest income on
loans.
(3) Tax exempt income is not significant and has been treated as fully taxable.
26
Net interest income is affected by changes in both average interest
rates and the average volumes of interest-earning assets and interest-bearing
liabilities. The following table sets forth the amounts of the total changes in
interest income and expense which can be attributed to rate (change in rate
multiplied by old volume) and volume (change in volume multiplied by old rate)
for the periods indicated. The change in interest due to both volume and rate
has been allocated to volume and rate in proportion to the relationship of the
absolute dollar amounts of the change in each.
Volume and Rate Analysis
(in thousands)
2001 Compared to 2000 2000 Compared to 1999
------------------------------------ ------------------------------------
Increase (Decrease) Increase (Decrease)
Change in Change in
Interest Interest
Volume Rate Income/ Volume Rate Income/
Effect Effect Expense Effect Effect Expense
Interest Income:
Loans $4,434 $(240) $4,194 $4,842 $699 $5,541
Federal funds sold (55) (196) (251) 76 138 214
Deposits in other banks (14) - (14) (94) (1) (95)
Other investments 94 16 110 93 21 114
-- -- --- -- -- ---
Total Earning Assets 4,459 (420) 4,039 4,917 857 5,774
====== ====== ====== ====== ==== ======
Interest Bearing Liabilities
Demand 49 (27) 22 45 1 46
Savings 199 (134) 65 131 24 155
All other time deposits 2,447 (908) 1,539 2,425 756 3,181
----- ----- ----- ----- --- -----
Total Interest Bearing Liabilities 2,695 (1,069) 1,626 2,601 781 3,382
----- ------- ----- ----- --- -----
Change in Net Interest Income $1,764 $649 $2,413 $2,316 $76 $2,392
====== ==== ====== ====== === ======
First Six Months 2002 Compared with First Six Months 2001
Our net interest income increased from $3.2 million for the first six
months of 2001 to $5.1 million for the first six months of 2002. The increase
was the result of higher average balances and an increase in the net interest
margin.
Our interest margin on earning assets was 5.09% for the first six
months of 2002, compared with 3.88% for the first six months of 2001. Interest
rates were lower during the first six months of 2002 compared to the first six
months of 2001. The average yield on earning assets decreased 94 basis points
and the average cost of funds decreased 262 basis points, resulting in the
increase in the net interest margin. Due to strong loan demand, we were able to
maintain a yield on loans of 8.36% during the first six months of 2002, compared
to 9.48% during the first six months of 2001.
27
The following table shows the rates paid on earnings assets and deposit
liabilities for the periods indicated.
Net Interest Margin Analysis
Average Balance Sheet
For the Six Months Ended June 30,
(dollars in thousands)
---------------- 2002 ---------------- ---------------- 2001 ----------------
Average Average Average Average
Balance Income/ Rates Balance Income/ Rates
Sheet Expense Earned/Paid Sheet Expense Earned/Paid
ASSETS
Loans including fees $ 190,106 $ 7,947 8.36% $ 145,800 $ 6,909 9.48%
Federal Funds sold 6,870 58 1.69% 11,562 285 4.93%
Other investments 3,070 91 5.93% 5,749 170 5.91%
---------- ---------- ----- --------- -------- ----
Total Earning Assets 200,046 8,096 8.09% 163,111 7,364 9.03%
---------- ---------- ---- --------- -------- ----
Allowance for loans losses (1,890) (1,447)
Non-earning assets 26,483 12,291
---------- ---------
Total Assets $ 224,639 $ 173,955
========== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits
Demand - Interest bearing $ 12,596 $ 94 1.51% $ 6,889 $ 87 2.53%
Savings 17,265 169 1.96% 7,966 141 3.54%
All other time deposits 155,508 2,741 3.53% 128,570 3,972 6.18%
---------- ---------- ---- --------- -----
Total Deposits 185,369 3,004 3.24% 143,425 4,200 5.86%
---------- ---------- ---- --------- -------- ----
Federal Funds Purchased 33 1 3.04%
---------- ---------- ----
Total Interest Bearing
Liabilities 185,402 3,005 3.24% 143,425 4,200 5.86%
---------- ---------- ---- --------- -------- ----
Non-interest bearing deposits 18,329 11,235
Other liabilities 1,313 1,158
---------- ---------
Total Liabilities $ 205,044 155,818
Stockholders' Equity 19,595 18,137
---------- ---------
Total Liabilities and
Stockholders' Equity $ 224,639 $ 173,955
========== =========
Net Interest Income $ 5,091 $ 3,164
========== ========
Net Yield on Interest
Earning Assets 5.09% 3.88%
==== ====
Net Interest Spread 4.85% 3.17%
==== ====
(1) Non-accrual loans are not significant and have been included in the average
balance of loans outstanding.
(2) Loan fees are not material and have been included in interest income on
loans.
(3) Tax exempt income is not significant and has been treated as fully taxable.
28
Interest Sensitivity
At June 30, 2002, we had a negative cumulative gap rate sensitivity
ratio of 33.59% for the one year repricing period, compared to 33.00% at
December 31, 2001. 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. On a quarterly basis, management reviews our
interest rate risk and has decided that the current position is an acceptable
risk for a growing community bank operating in a rural environment. The table
set forth below shows our interest sensitivity by year.
Interest Sensitivity Analysis
December 31, 2001
(dollars in thousands)
Maturing or Repricing in
--------------------------------------------------------------------------------------
1-90 91-365 Over
Days Days 2003 2004 2005 2006 5 Years Total
Uses of Funds ---- ---- ---- ---- ---- ---- ------- -----
- -------------
Loans $32,154 $63,779 $32,881 $21,984 $10,747 $7,012 $10,659 $179,216
Federal funds sold 3,387 - - - - - - 3,387
Total investments 3,499 - 2,057 - 102 - - 5,658
------------------------------------------------------------------------------------------
Total 39,040 63,779 34,938 21,984 10,849 7,012 10,659 $188,261
------------------------------------------------------------------------------------------
Sources of Funds
- ----------------
Deposits
Demand and savings $26,182 $ - $ - $ - $ - $ - $ - $26,182
Time deposits < $100M 42,621 61,467 5,645 1,423 1,436 375 216 113,183
Time deposits > $100M 13,086 21,580 2,371 1,039 672 100 - 38,848
Total Deposits 81,889 83,047 8,016 2,462 2,108 475 216 178,213
------- ------- ------ ------ ------ ---- ---- --------
Discrete Gap $(42,849) $(19,268) $26,922 $19,522 $8,741 $6,537 $10,443 $10,048
======== ======== ======= ======= ======= ====== ======= ======
Cumulative Gap $(42,849) $(62,117) $(35,195) $(15,673) $(6,932) $(395) $10,048
Ratio of Cumulative Gap
to Total Earning Assets (22.76)% (33.00)% (18.69)% (8.33)% (3.68)% (0.21)% 5.34%
29
Interest Sensitivity Analysis
June 30, 2002
(dollars in thousands)
Maturing or Repricing in
----------------------------------------------------------------------------------
1-90 91-365 Over 5
Uses of Funds Days Days Year 2 Year 3 Year 4 Year 5 Years Total
- ------------- ---- ---- ------ ------ ------ ------ ----- -----
Loans $ 30,136 $ 72,365 $ 39,656 $ 24,389 $ 13,719 $ 9,627 $ 12,664 $202,556
Federal funds sold 1,737 1,737
Total investments 2,057 102 2,159
------- -------- --------- -------- -------- ------- ------- -------
Total 31,873 74,422 39,656 24,491 13,719 9,627 12,664 206,452
-------- -------- --------- -------- -------- ------- ------- -------
Sources of Funds
Deposits
Demand and savings 32,404 32,404
Time deposits < $100M 41,943 66,084 5,817 1,936 3,501 824 120,105
Time deposits > $100M 13,671 20,850 3,398 408 2,007 97 40,431
-------- -------- -------- -------- ------- ------- ------- --------
Total Deposits 88,018 86,934 9,215 2,344 5,508 921 192,940
-------- -------- -------- -------- -------- ------- ------- -------
Discrete Gap (56,145) (12,512) 30,441 22,147 8,211 8,706 12,664 13,512
Cumulative Gap (56,145) (68,657) (38,216) (16,069) (7,858) 848 13,512
Ratio of Cumulative Gap
To Total Earning Assets (27.46%) (33.59%) (18.69%) (7.86%) (3.84%) 0.41% 6.54%
The above tables reflect the earlier of the maturity or repricing dates
for various assets and liabilities. In preparing the above tables, 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.
Market and Interest Rate Risk Management
Market risk is the risk of loss due to adverse changes in current and
future cash flows, fair values, earnings or capital due to adverse movements in
interest rates and other factors, including foreign exchange rates and commodity
prices. Because we have no significant foreign exchange activities and hold no
commodities, 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. Changes in the interest rates earned and
paid also affect the estimated fair value of our interest bearing assets and
liabilities.
Our Asset and Liability Committee has been delegated the responsibility
of managing our interest-sensitive balance sheet accounts to maximize earnings
while managing interest rate risk. The committee, comprised of various members
of senior management, is also responsible for establishing policies to monitor
and limit our exposure to interest rate risk and to manage our liquidity and
capital positions. The committee satisfies its responsibilities through
quarterly meetings during which product pricing issues, liquidity measures and
interest sensitivity positions are monitored.
30
In December 2001, our board of directors approved a revised
asset/liability management policy, and the committee implemented significant
modifications to its methodology and processes for managing our interest rate
risk. Most notably, we implemented an asset/liability management and simulation
software model, which is used to periodically measure the potential impact on
net interest income of projected or hypothetical changes in interest rates.
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 December
31, 2001 and June 30, 2002. At both dates, our interest rate risk was within the
established limitations.
Estimated Increase
(Decrease) in Net
Immediate Interest Income
Basis Point Change ----------------------------------------------- Established
In Interest Rates December 31, 2001 June 30, 2002 Limitation
----------------- ----------------- ------------- ----------
+300 (4.72)% (4.69)% -20.00%
+200 (3.17) (3.15) -15.00
+100 (1.64) (1.61) -7.00
-100 2.22 2.01 -7.00
-200 4.89 4.36 -15.00
-300 8.69 5.79 -20.00
The type of modeling used to generate the above table does not take
into account all strategies that we might adopt in response to a sudden and
sustained change in interest rates. These strategies may include asset liability
acquisitions of appropriate maturities in the cash market and may also include
off-balance sheet alternatives to the extent such activity is authorized by the
board of directors.
The committee is also responsible for long-term asset/liability
management and completes the following functions:
o Monitoring available opportunities to undertake major
corrective actions (in the nature and mix of assets and
liabilities) for structural mismatches.
o Determining the appropriateness of fixed rate vs. variable
rate lending and investment strategies and formulation
policies to influence this activity.
o Developing parameters for the investment portfolio in the
context of overall balance sheet management (liquidity,
interest rate risk, credit risk, risk-based capital, price
risk, and earnings).
o Establishing financial goals, including minimum standards for
return on assets and equity. o Overseeing the long-term
strategic use of capital to maximize the return on equity
within reasonable levels of risk.
31
Provision for Loan Losses
2001 Compared with 2000
The provision for loan losses was $571,000 for 2001 compared with
$513,000 for 2000. The allowance for loan losses was $1.8 million at December
31, 2001 (approximately 1% of total loans outstanding). Net loans charged off
for 2001 were $89,000 (.06% of average loans), compared to $67,000 for 2000.
Net loans charged off as a percentage of average loans may increase as our loan
portfolio matures.
2000 Compared with 1999
The provision for loan losses was $513,000 for 2000 compared with
$867,000 for 1999. The allowance for loan losses was approximately 1% of loans
at the end of each year. Net loans charged off for 2000 were $67,000 (.06% of
average loans), compared to $1,000 for 1999.
First Six Months 2002 Compared with First Six Months 2001
Our provision for loan losses for the first six months of 2002 was
$278,000, compared with $341,000 for the same period of 2001. Net loan
charge-offs for the first six months of 2002 were $45,000 resulting in an
allowance for loan losses of $2.0 million (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.
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 grade the loans and a loan processor reviews
the grade for appropriateness. In addition, a credit analyst reviews all loans
in excess of $500,000 to one borrower. On a continuous basis, we downgrade loans
if necessary based on recommendations of loan officers, review of pass due
loans, and recommendations of examiners and auditors.
32
The following table provides a summary of the activity in the allowance
for loan losses.
Analysis of the Allowance for Loan Losses
(dollars in thousands)
Six Months Ended
June 30, Year Ended December
Activity 2002 2001 2001 2000 1999
Beginning Balance $ 1,793 $ 1,311 $ 1,311 $ 865 $ 0
Provision charged to expense 278 341 571 513 867
Loan Losses:
Installment loans to individuals (72) (51) 98 70 2
Recoveries:
Installment loans to individuals 27 2 9 3 -
-------- -------- ------- -------- --------
Net Loan Losses (45) (49) 89 67 2
-------- -------- ------- -------- --------
Balance at End of Period $ 2,026 $ 1,603 $ 1,793 $ 1,311 $ 865
======== ======== ======= ======== ========
Allowance for loan losses as a percentage
of year end losses 1.00% 1.00% 1.00% 1.00% 1.00%
==== ==== ==== ==== ====
We have allocated the allowance according to the amount deemed to be
reasonably necessary to provide for the possibility of losses being incurred
within each of the categories of loans. The allocation of the allowance as shown
in the following table should not be interpreted as an indication that loan
losses in future years will occur in the same proportions or that the allocation
indicates future loan loss trends. Furthermore, the portion allocated to each
loan category is not the total amount available for future losses that might
occur within such categories since the total allowance is a general allowance
applicable to the entire portfolio.
The allocation of the allowance for loan losses is based on our
judgment of the relative risk associated with each type of loan. We have not
based the allocation of the allowance on an analysis of problem loans since
those loans are insignificant. We have allocated 6% of the allowance to cover
real estate loans, which reflects their lower risk. Residential mortgage loans
are secured by real estate whose value tends to be easily ascertainable. These
loans are made consistent with appraisal policies and real estate lending
policies, which detail maximum loan-to-value ratios and maturities. We have
allocated 20% of the allowance to commercial loans, which have more risk than
residential real estate loans. Commercial business loans typically are made on
the basis of the borrower's ability to make repayment from cash flow from its
business and are secured by business assets, such as commercial real estate,
accounts receivable, equipment and inventory. As a result, the availability of
funds for the repayment of commercial business loans may be substantially
dependent on the success of the business itself.
We have allocated 49% of the allowance to consumer installment loans.
Consumer installment loans entail greater risk than commercial or real estate
loans, because the loans may be unsecured, such as lines of credit, or secured
by rapidly depreciable assets such as automobiles. In addition, consumer loan
collections are dependent on the borrower's continuing financial stability, and
thus are more likely to be adversely affected by job loss, divorce, illness or
personal bankruptcy. Losses related to consumer loans
33
have been influenced by the increase in personal bankruptcies. To date, all of
the loans charged off by the bank, have been consumer loans. We have left 25% of
the allowance unallocated, which is available to absorb losses in excess of the
amounts allocated to specific loan categories. We are not aware of any
significant changes in the composition of the loan portfolio or known risk
factors that would result in a change the allocation of the allowance for loan
losses during the periods presented.
The following table shows the balance and percentage of our allowance
for loan losses allocated to each major category of loans.
Allocation of the Allowance for Loan Losses
(dollars in thousands)
December 31, 2001 December 31, 2000 December 31, 1999
--------------------------------- -------------------------------- -----------------------------
Percent Percent Percent Percent Percent Percent
of of of of of of
Amount Allowance Loans Amount Allowance Loans Amount Allowance Loans
------ --------- ----- ------ --------- ----- ------ --------- -----
Analysis of Ending Balance
Commercial $359 20% 19.62% $262 20% 22.84% $173 20% 26.94%
Real estate 4 - 2.15% 2 - 1.17% 3 - 2.64%
construction
Real estate 104 6% 54.81% 77 6% 54.05% 49 6% 47.70%
mortgage
Installment 879 49% 23.42% 642 49% 21.94% 424 49% 22.72%
Unallocated 447 25% - 328 25% - 216 25% -
--- --- ------ --- --- ------ --- --- ------
Total $1,793 100% 100.00% $1,311 100% 100.00% $865 100% 100.00%
====== ==== ======= ====== ==== ======= ==== ==== =======
The allocation of the allowance for loan losses at June 30, 2002 would
not differ significantly from the allocation at December 31, 2001.
The allowance for loan losses was not allocated at December 31, 1998.
Nonaccrual loans and loans past due 90 days or more and still accruing
are shown in the following schedule. Loans past due 90 days or more are
classified as nonaccrual unless the loan is well secured and in the process of
collection. Nonaccrual loans did not have a significant impact on interest
income in any of the periods presented. Non-accrual loans at June 30, 2002
included a loan of $570,000, which is secured by commercial real estate. The
borrower has declared bankruptcy, and we anticipate that we will begin
foreclosure in the near future. No loss, however, is expected. Management has
not identified any additional loans as "troubled debt restructurings" or
"potential problem loans."
Non-Accrual and Past Due Loans
(dollars in thousands)
June 30, December 31,
Principal: 2002 2001 2000 1999 1998
Non-accrual and past due loans:
Non-accruing loans $ 592 $ 47 $ 73 $ - $ -
Loans and past due 90 days or
more and still accruing - 29 23 77 -
-------- -------- -------- -------- -------
Total $ 592 $ 76 $ 96 $ 77 $ -
======== ======== ======== ======== =======
Percent of total loans 0.29% 0.04% 0.07% 0.09% N/A
==== ==== ==== ==== ===
34
Noninterest Income
2001 Compared with 2000
Noninterest income increased from $444,000 in 2000 to $753,000 in 2001.
The increase is consistent with the growth in our average assets and deposits.
The major sources of noninterest income include overdraft fees on deposit
accounts and insurance commissions. The overdraft fees increased from $324,000
for 2000 to $458,000 for 2001. Insurance commissions increased from $54,000 for
2000 to $108,000 for 2001. In addition, noninterest income for 2001 included
$69,000 of income produced by bank owned life insurance purchased during the
fourth quarter of 2001. Noninterest income as a percentage of average assets
increased from .34% in 2000 to .40% in 2001.
2000 Compared with 1999
Noninterest income increased from $243,000 in 1999 to $444,000 in 2000.
The increase is consistent with the growth in our average assets and deposits.
Noninterest income as a percentage of average assets was .34% for both years.
First Six Months 2002 Compared with First Six Months 2001
Noninterest income increased from $323,000 in the first six months of
2001 to $666,000 in the first six months of 2002. Noninterest income as a
percentage (annualized) of average total assets increased from .37% for the
first six months of 2001 to .59% for the first half of 2002. The increase in the
dollar amount is due to a significant increase in overdraft charges and $276,000
of income produced by bank owned life insurance purchased during the fourth
quarter of 2001. The increase in fee income is consistent with the growth in our
assets and deposits.
Noninterest Expense
2001 Compared with 2000
Noninterest expense increased from $3.7 million in 2000 to $5.9 million
in 2001. The increase was due to additional staffing and expenses associated
with the new branches opened and the general growth in operations. Noninterest
expense as a percentage of average assets increased from 2.82% in 2000 to 3.15%
for 2001. Noninterest expense in the future will depend on our growth and the
number of new branch locations.
2000 Compared with 1999
Noninterest expense increased from $2.6 million in 1999 to $3.7 million
in 2000. The increase was due to additional staffing and expenses associated
with the new branches opened and the general growth in operations. Noninterest
expense as a percentage of average assets decreased from 3.66% for 1999 to 2.82%
for 2000.
First Six Months 2002 Compared with First Six Months 2001
Noninterest expense increased from $2.5 million in the first six months
of 2001 to $3.6 million in the first six months of 2002. 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 increased from 2.91% for the first six months of 2001 to 3.24%
for the first six months of 2002.
35
Income Taxes
Due to timing differences between book and tax treatment of several
expense items, a deferred tax asset of $212,000 has been recognized at December
31, 2001. The deferred tax asset represents reductions in future income tax
liabilities from future deductions for start-up costs, bad debts and capitalized
interest costs. Our income tax expense was computed at the normal corporate
income tax rate of 34% of taxable income included in net income. We do not have
significant nontaxable income or nondeductible expenses.
Loans
We have had a continued strong loan demand and total loans increased
$44.5 million during 2000, $48.1 million during 2001 and $23.3 million during
the first half of 2002. A schedule of loans by type is set forth immediately
below. Approximately 58% of the loan portfolio is secured by real estate.
Loans receivable outstanding are summarized as follows:
Loan Portfolio
(in thousands)
June 30, December 31,
2002 2001 2000 1999 1998
---- --------------------------------------------
Commercial, financial and
agricultural $ 40,148 $ 35,168 $ 29,941 $ 23,321 $ 6,229
Real estate - construction 4,584 3,845 1,528 2,285 193
Real estate - mortgage 113,270 98,229 70,858 41,288 4,236
Installment loans to individuals 44,554 41,974 28,759 19,666 2,681
------- --------- --------- -------- -------
Total $202,556 $179,216 $131,086 $ 86,560 $ 13,339
======= ======= ======= ======== =========
36
Our loan maturities as of December 31, 2001 are shown in the following
table. Our loan maturities at June 30, 2002 were not significantly different
than the maturities at December 31, 2001.
Maturities of Loans
(in thousands)
Maturity Range
-----------------------------------------------------------------------------------------
1-90 91-365 Over
Days Days 2003 2004 2005 2006 5 Years Total
---- ---- ---- ---- ---- ---- ------- -----
Commercial, financial and
agricultural loans $13,693 $16,142 $ 2,263 $1,693 $ 917 $ 278 $ 182 $35,168
Real estate - construction 631 1,766 - - 1,130 - 318 3,845
Real estate - mortgage 12,615 29,805 20,315 14,627 6,085 5,804 8,978 98,229
Installment loans 5,215 16,066 10,303 5,664 2,615 930 1,181 41,974
------ ------ ------ ----- ----- ----- ----- ------
Total $32,154 $63,779 $32,881 $21,984 $10,747 $7,012 $10,659 $179,216
======= ======= ======= ======= ======= ====== ======= ========
Loans with predetermined
rates $18,302 $33,012 $21,905 $15,129 $9,120 $7,012 $10,659 115,139
Loans with variable or
adjustable rates 13,852 30,767 10,976 6,855 1,627 64,077
------ ------ ------ ----- ----- ------ ------ ------
Total $32,154 $63,779 $32,881 $21,984 $10,747 $7,012 $10,659 $179,216
======= ======= ======= ======= ======= ====== ======= ========
This table reflects the earlier of the maturity or repricing dates for
various assets and liabilities at December 31, 2001. In preparing this 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.
37
Investment Securities
Total investment securities decreased from $11.9 million at December 31,
2000 to $5.7 million at December 31, 2001 and decreased to $2.2 million at June
30, 2002. We had no available for sale securities at December 31, 2001 and June
30, 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. At December 31,
2001, we had short term U.S. Government agency notes with a book value of $3.5
million that matured in the first part of January 2002.
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.
The carrying values of investment securities are shown in the following
table:
Investment Securities Portfolio
(in thousands)
June 30, December 31,
2002 2001 2000 1999
---- -----------------------------------
Securities Available for Sale
U. S. Treasury and other U.S.
Government agencies and
corporations $ - $ - $ 8,913 $ -
Securities Held to Maturity
U. S. Treasury and other U. S.
Government agencies and
corporations 2,057 $ 5,556 $ 2,858 $ -
States and political subdivisions 102 102 102 -
---------- ---------- ---------- ----------
Total $ 2,159 $ 5,658 $ 11,873 $ -
========== ========== ========== ==========
38
The amortized cost, fair value and weighted average yield of investment
securities at December 31, 2001 and June 30, 2002, by contractual maturity, are
shown in the following schedule. Expected maturities will differ from
contractual maturities because issuers may have the right to call or prepay
obligations with or without call or prepayment penalties.
Maturities of Securities
(dollars in thousands)
December 31, 2001
Weighted
Securities held to Maturity Amortized Fair Average
- --------------------------- Cost Value Yield
------------------------------------
U.S. Treasury and Agency
Due within one year $ 3,499 $ 3,499 1.65%
Due after one year through five years $ 2,057 $ 2,100 7.00%
----------------------------------
$ 5,556 $ 5,599 3.63%
----------------------------------
Municipal Governments
Due after one year through five years $ 102 $ 106 5.00%
----------------------------------
$ 102 $ 106 5.00%
----------------------------------
Total $ 5,658 $ 5,705 3.65%
==================================
June 30, 2002
U.S. Treasury and Agency
Due within one year $ 2,057 $ 2,062 7.00%
----------------------------------
$ 2,057 $ 2,062 7.00%
----------------------------------
Municipal Governments
Due after one year through five years $ 102 $ 107 5.00%
----------------------------------
$ 102 $ 107 5.00%
----------------------------------
Total $ 2,159 $ 2,169 6.90%
==================================
The carrying amount of securities pledged by us to secure public
deposits was $2.2 million at December 31, 2001 and June 30, 2002. We are
required to hold stock in the Federal Reserve Bank. The investment in Federal
Reserve Bank stock is recorded at cost of $529,000 as of June 30, 2002 and
December 31, 2001.
39
Life Insurance
We have life insurance policies on the lives of four officers with
three insurance companies. The total cash surrender value of the policies was
$7.5 million and $7.8 million at December 31, 2001 and June 30, 2002,
respectively. These policies will yield 6.19%, less a mortality cost of
approximately .53% for a net return of approximately 5.66% until the end of
2002.
Deposits
We have had excellent growth in our deposits which totaled $194.0
million at December 31, 2001 and $212.5 million at June 30, 2002. Time deposits
of $100,000 or more equaled approximately 20% of deposits at both December 31,
2001 and June 30, 2002. We do not have brokered deposits and internet accounts
are limited to customers located in the surrounding geographical area. The
average balance of and the average rate paid on deposits is shown in the net
interest margin analysis.
A breakdown of deposits by type is shown in our consolidated balance
sheet.
Maturities of time certificates of deposit of $100,000 or more
outstanding are summarized as follows:
Maturities of Time Deposits
(in thousands)
June 30, December 31,
2002 2001
Three months or less $ 15,424 $ 13,086
Over three months through six months 12,736 14,384
Over six months through twelve months 6,359 7,196
Over twelve months 5,912 4,182
---------- ----------
Total $ 40,431 $ 38,848
========== ==========
40
Capital
Capital as a percentage of total assets was 8.61% at June 30, 2002
compared to 8.82% at December 31, 2001, and 11.36% at December 31, 2000, which
exceeded regulatory requirements. Our required and actual risk based capital
ratios at both dates are set forth immediately below. We are considered to be
well capitalized under the regulatory framework for prompt corrective action at
this time. However, it will be necessary to obtain additional capital in the
future to support our rapid growth.
Capital Amounts and Ratios
(dollars in thousands)
Minimum To Be Well
Minimum Capital Capitalized Under Prompt
Actual Requirement Corrective Action
Amount Ratio Amount Ratio Amount Ratio
June 30, 2002
Total Capital to
Risk
Weighted Assets: $ 22,113 11.59% $ 15,264 8% $ 19,000 10%
Tier 1 Capital to
Risk
Weighted Assets: 20,087 8.79% 7,632 4% 11,448 6%
Tier 1 Capital to
Average
Assets: 20,087 10.53% 9,141 4% 11,426 5%
December 31, 2001:
Total Capital to
Risk
Weighted Assets: $ 20,688 12.03% $ 13,760 8% $ 17,200 10%
Tier 1 Capital to
Risk
Weighted Assets: 18,895 10.99% 6,880 4% 10,320 6%
Tier 1 Capital to
Average
Assets: 18,895 9.19% 8,226 4% 10,283 5%
December 31, 2000:
Total Capital to Risk
Weighted Assets $ 19,194 16.36% $ 9,385 8% $ 11,730 10%
Tier 1 Capital to
Risk
Weighted Assets: 17,882 15.24% 4,692 4% 7,038 6%
Tier 1 Capital to
Average
Assets: 17,882 11.73% 6,098 4% 7,622 5%
Liquidity
We had liquid assets of approximately $11.5 million at December 31,
2001 and $9.7 million at June 30, 2002 in the form of cash, due from banks and
federal funds sold. We believe that our liquid assets were adequate at both
dates. Additional liquidity will be provided by the growth in deposit accounts
and loan repayments. 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.
As of June 30, 2002, we had time deposits of $142.0 million that mature
within one year. Historically, we have been able to retain approximately 90% of
maturing deposits by offering current market rates. We continue to offer premium
rates at our new branches and attract new customers and deposits. We anticipate
that we will be able to retain a large percentage of our maturing time deposits
and will experience a net growth in deposits by attracting new customers at our
new branches as well as at our existing branches.
41
Analysis of Cash Flows
Our significant cash flows are as follows:
Six Months Ended Year Ended
June 30, December 31,
-----------------------------------------------------
2002 2001 2000 1999
-----------------------------------------------------
Cash was provided by
operations $ 899 $ 1,372 $ 1,583 $ (118)
Sale of common stock - - 6,000 817
Growth in deposits 18,464 55,564 56,957 61,354
Maturity of securities 3,499 9,714 28,913
Withdrawal of deposits in
other banks 859 1,671
------------------------------------------------------------
Total $ 22,862 $ 67,509 $ 94,312 $ 63,724
============================================================
Cash was used for
Growth in loans $ 23,385 $ 48,219 $ 44,594 $ 73,222
Purchase of property, plant
and equipment 1,303 3,757 2,081 1,219
Investment in life insurance
agreements - 7,500 - -
Purchase of securities 3,499 40,960 18
------------------------------------------------------------
Total $ 24,688 $ 62,975 $ 87,635 $ 74,459
============================================================
We originally capitalized our company in 1998 with $11.1 million
received through an offering of our common stock. In 2000, we increased our
capital by an additional $6.0 million through another offering of our common
stock. The additional capital was necessary to support our growth and to
maintain acceptable capital ratios.
We have been successful in attracting new customers and deposits by
establishing branches in attractive locations and offering premium rates to new
customers. The growth in deposits is sensitive to interest rates and we can
control the growth by increasing or decreasing the interest rates paid. We
anticipate that we will continue to offer premium rates for deposits at our new
branch locations.
We have used the funds provided by common stock issues and deposits to
fund the purchase of banking facilities and our loan portfolio. We continue to
have a strong demand for our loan products and have a loan to deposit ratio of
95% at June 30, 2002. To manage the growth in our loan portfolio, we can vary
the interest rates charged or limit the amount of new loans approved.
42
The growth in loans and deposits does not always occur in the same time
period and the excess or deficit of funds provided affects the amount that we
retain in cash or invest in fed funds or short-term investments. Our practice
has been to invest available funds in short term U. S. treasury and agency
securities in order to provide liquidity or to provide income until the funds
are needed for new loans.
43
MANAGEMENT
The Board of Directors
Our board of directors currently consists of 14 members. The board of
directors is divided into three classes, two of which consist of five members
and one of which consists of four members. These directors serve for the terms
of their respective classes, which expire in 2002, 2003 and 2004. The following
table sets forth the composition of the board of directors.
Class A Class B Class C
(Term Expiring in 2002) (Term Expiring in 2003) (Term Expiring in 2004)
John D. Cox Joe M. Carter Tim W. Ball
Charles H. Gent, Jr. Harold Lynn Keene Michael G. McGlothlin
A. Frank Kilgore John D. Maxfield Bill Ed Sample
Steven H. Starnes Fred W. Meade Paul E. Vencill, Jr.
E. Virgil Sampson, Jr. B. Scott White
The following biographical information discloses each director's age
and business experience in the past five years and the year that each individual
was first elected to our board of directors or the bank's board of directors.
Tim W. Ball, 42, is self-employed as a farmer in Honaker, Virginia. He
has been a director since 1999.
Joe M. Carter, 64, is General Manager of Daugherty Chevrolet in
Clinchport, Virginia. He has been a director since 1998.
John D. Cox, 45, is the owner of Tri-County New Holland, a tractor and
equipment business, in Kingsport, Tennessee. He has been a director since 1998.
Charles H. Gent, Jr., 42, is self-employed in the logging and farming
industry in Honaker, Virginia. He has been a director since 1998.
Harold Lynn Keene, 48, is President of Keene Carpet, Inc. and Harold
Keene Coal Co., Inc. in Honaker, Virginia. He has been a director since 1998.
A. Frank Kilgore, 50, is an attorney with Kilgore & Kilgore, P.C. in
St. Paul, Virginia. He has been a director since 1998.
John D. Maxfield, 59, is retired. He has been a director since 1998.
Michael G. McGlothlin, 50, is an attorney with McGlothlin & Wife in
Grundy, Virginia. He has been a director since 1998.
Fred W. Meade, 68, is President of Big M Discount Stores and West Hills
Estates, Inc. in St. Paul, Virginia. He has been a director since 1998.
Bill Ed Sample, 68, is self-employed as a farmer in Honaker, Virginia.
He has been a director since 1998.
44
E. Virgil Sampson, Jr., 62, is the owner of Scott Jewellers in Gate
City, Virginia. He is Chairman of the Board and has been a director since 1998.
Steven H. Starnes, 46, is President of Starnes Refrigeration & Air
Conditioning, Inc. in Lebanon, Virginia. He has been a director since 1998.
Paul R. Vencill, Jr., 60, is the owner of Lebanon Equipment Co. in
Lebanon, Virginia. He has been a director since 1998.
B. Scott White, 56, is self-employed as a farmer in Castlewood,
Virginia. He has been a director since 1998.
Executive Officers
The following biographical information discloses the age and business
experience in the past five years for each of our executive officers
Kenneth D. Hart, 55, has served as our President and Chief Executive
Officer since 2001 and the bank's President and Chief Executive Officer since
1998. From 1995 to 1998, he was Chief Administrative Officer of First Virginia
Bank - Mountain Empire and, from 1975 to 1995, he was Chief Executive Officer of
Peoples Bank, Inc.
Frank Sexton, Jr., 52, has served as our Executive Vice President,
Chief Financial Officer and Secretary since 2001 and the bank's Executive Vice
President and Cashier since 1998. From 1991 to 1998, he was Senior Vice
President and Cashier of First Virginia Bank - Mountain Empire.
Security Ownership of Management
The following table sets forth, as of August 23, 2002, certain
information with respect to beneficial ownership of shares of our common stock
by each of the members of the board of directors, by the executive officer named
in the "Summary Compensation Table" below and by all directors and executive
officers as a group. Beneficial ownership includes shares, if any, held in the
name of the spouse, minor children or other relatives of the individual living
in such person's home, as well as shares, if any, held in the name of another
person under an arrangement whereby the director or executive officer can vest
title in himself at once or at some future time.
Common Stock Percentage
Name Address Beneficially Owned (1) of Class
---- ------- ---------------------- --------
Directors:
Tim W. Ball P. O. Box 1356 4,400 *
Honaker, VA 24260
Joe M. Carter RR4 Box 176 11,220 *
Clinchport, VA 24244
John D. Cox 13515 East Carters Valley Road 35,000 *
Gate City, VA 24251
Charles H. Gent, Jr. P. O. Box 330 12,400 *
Honaker, VA 24260
45
Common Stock Percentage
Name Address Beneficially Owned (1) of Class
---- ------- ---------------------- --------
Harold Lynn Keene P. O. Box 1320 24,400 *
Honaker, VA 24260
A. Frank Kilgore P. O. Box 1210 56,700 *
St. Paul, VA 24283
John D. Maxfield 3270 Oak Circle Drive 26,125 *
Rosedale, VA 24280
Michael G. McGlothlin P. O. Box 810 62,000 1.0
Grundy, VA 24614
Fred W. Meade P. O. Box 10 28,400 *
St. Paul, VA 24283
Bill Ed Sample Rt. 2 Box 361 22,400 *
Honaker, VA 24260
E. Virgil Sampson, Jr. P. O. Box 504 21,576 *
Gate City, VA 24251
Steven H. Starnes P. O. Box 2078 18,400 *
Lebanon, VA 24266
Paul E. Vencill, Jr. P. O. Box 129 46,000 *
Lebanon, VA 24266
B. Scott White Rt. 2 Box 181-A 178,800 3.0
Castlewood, VA 24224
Executive Officers:
Kenneth D. Hart Route 1, Box 279-A1 69,000 1.2
Honaker, Virginia 24260
Frank Sexton, Jr. P.O. Box 1018 33,632 *
Pound, Virginia 24279
All present executive 650,453 10.8
officers and directors as a
group (16 persons)
* Percentage of ownership is less than one percent of the outstanding shares
of Common Stock.
(1) Amounts disclosed include shares of common stock that certain directors
have the right to acquire upon the exercise of stock options exercisable
within 60 days, as follows: Each of the 14 directors, 2,000 shares; Mr.
Hart, 13,000 shares; and Mr. Sexton, 10,000 shares.
Although the exact number of shares has not been determined, we
currently anticipate that our directors and executive officers will purchase
approximately 50,000 shares in this offering.
Security Ownership of Certain Beneficial Owners
As of August 23, 2002, there are no persons known to us that
beneficially own five percent or more of the outstanding shares of our common
stock.
46
Director Compensation
We pay each of our directors $100 per month for his services on our
board of directors. In addition, in December 2001, we granted each of our
directors options to purchase 2,000 shares of our company stock. These options,
which we granted under our 2001 Stock Option Plan, are immediately exercisable,
have an exercise price of $7.50 per share and have a term of 10 years.
Executive Compensation
The following table shows, for the fiscal years ended December 31,
2001, 2000 and 1999, the cash compensation that we paid, as well as certain
other compensation paid or accrued for those years, to the named executive
officer in all capacities in which he served:
Summary Compensation Table
Annual Compensation Long Term Compensation
------------------- ----------------------
Securities All
Name and Other Annual Underlying Other
Principal Position Year Salary ($) Bonus ($) Compensation ($) Options (#)(1) Compensation(2)
------------------ ---- ---------- --------- ---------------- -------------- --------------
Kenneth D. Hart 2001 112,500 5,625 * 13,000 5,045
President and Chief Executive 2000 100,000 4,792 * -- 4,423
Officer 1999 100,000 -- * -- 5,390
* All benefits that might be considered of a personal nature did not exceed
the lesser of $50,000 or 10% of total annual salary and bonus.
(1) We have adjusted all share amounts to reflect a two-for-one stock split in
January 2002.
(2) Amounts represent our matching contributions under the bank's defined
contribution plan.
Stock Options
The following table sets forth for the year ended December 31, 2001,
the grants of stock options to the named executive officer:
Option Grants In Last Fiscal Year
Number of Securities Percent of Total
Number of Securities Options Granted to
Underlying Options Employees in Fiscal Exercise or Base
Name Granted (#) (1) Year (%) (2) Price ($/Share) (3) Expiration Date
- ---- --------------- ------------ ------------------- ---------------
Kenneth D. Hart 13,000 5.75% 7.50 December 12, 2011
(1) We have adjusted all share amounts to reflect a two-for-one stock split in
January 2002. We granted stock options at the market value of the shares of
common stock at the grant date. The options are exercisable immediately.
47
(2) Options to purchase 226,000 shares of common stock were granted to
employees during the year ended December 31, 2001.
The named executive officer did not exercise any stock options during
2001. The following table sets forth the amount and value of stock options that
the named executive officer held as of December 31, 2001:
Fiscal Year End Option Values
Number of
Securities Underlying Value of Unexercised
Unexercised Options at In-the-Money Options
Fiscal Year End (#)(1) at Fiscal Year End ($)(2)
---------------------- -------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
Kenneth D. Hart 13,000 -- 0 --
(1) We have adjusted all share amounts to reflect a two-for-one stock split in
January 2002.
(2) The value of in-the-money options at fiscal year end was calculated by
determining the difference between the fair market value a share of our
common stock on December 31, 2001 and the exercise price of the options.
Transactions with Management
Some of our directors and officers are at present, as in the past, our
customers, and we have had, and expect to have in the future, banking
transactions in the ordinary course of our business with our directors and
officers and their affiliates, on substantially the same terms, including
interest rates and collateral on loans, as those prevailing at the same time for
comparable transactions with others. These transactions do not involve more than
the normal risk of collectibility or present other unfavorable features.
There are no legal proceedings to which any of our directors or
executive officers, or any of their affiliates, is a party that would be
material and adverse to us.
DESCRIPTION OF CAPITAL STOCK
Our authorized capital stock consists of 12,000,000 shares of common
stock, par value $2.00 per share. At June 30, 2002, we had 6,000,000 issued and
outstanding shares of common stock held by approximately 3,175 shareholders of
record. Additionally, there are vested options to purchase 256,000 shares of
common stock. All outstanding shares of common stock are fully paid and
nonassessable. Our articles and bylaws do not authorize the issuance of any
class or series of preferred stock.
Common Stock
Holders of shares of common stock are entitled to receive dividends
when and as declared by the board of directors out of funds legally available
therefor. In the event of our liquidation, dissolution or
48
winding up, the holders of common stock shall be entitled to receive, in cash or
in kind, the assets of ours available for distribution remaining after payment
or provision for payment of our debts and liabilities.
Holders of common stock are entitled to one vote per share on all
matters submitted to shareholders. There are no cumulative voting rights in the
election of directors. Our shareholders do not have preemptive rights to
purchase additional shares of any class of our capital stock. Holders of common
stock have no conversion or redemption rights. The shares of common stock
presently outstanding are, and the common stock to be issued in connection with
the offering will be when issued, fully paid and nonassessable.
Limitations on Liability of Officers and Directors
As permitted by the Virginia Stock Corporation Act, our articles
contain provisions that indemnify our directors and officers to the full extent
permitted by Virginia law and eliminate the personal liability of our directors
and officers for monetary damages to us or our shareholders for breach of their
fiduciary duties, except to the extent that the Virginia Act prohibits
indemnification or elimination of liability. These provisions do not limit or
eliminate our rights or the rights of any shareholder to seek an injunction or
any other non-monetary relief in the event of a breach of a director's or
officer's fiduciary duty. In addition, these provisions apply only to claims
against a director or officer arising out of his role as a director or officer
and do not relieve a director or officer from liability if he engaged in willful
misconduct or a knowing violation of the criminal law or any federal or state
securities law.
In addition, our articles provide for the indemnification of both
directors and officers for expenses that they incur in connection with the
defense or settlement of claims asserted against them in their capacities as
directors and officers. This right of indemnification extends to judgments or
penalties assessed against them. We have limited our exposure to liability for
indemnification of directors and officers by purchasing directors and officers
liability insurance coverage.
The rights of indemnification provided in our articles are not
exclusive of any other rights that may be available under any insurance or other
agreement, by vote of shareholders or disinterested directors or otherwise.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933, as amended, may be permitted to directors, officers or persons
controlling us pursuant to the foregoing provisions, we have been informed that
in the opinion of the Securities and Exchange Commission this type of
indemnification is against public policy as expressed in the Securities Act of
1933, as amended, and is unenforceable.
GOVERNMENT SUPERVISION AND REGULATION
General
As a bank holding company, we are subject to regulation under the Bank
Holding Company Act, and the examination and reporting requirements of the
Federal Reserve. Under the Bank Holding Company Act, a bank holding company may
not directly or indirectly acquire ownership or control of more than 5% of the
voting shares or substantially all of the assets of any bank or merge or
consolidate with another bank holding company without the prior approval of the
Federal Reserve. The Bank Holding Company Act also generally limits the
activities of a bank holding company to that of banking, managing or controlling
banks, or any other activity which is determined to be so closely related to
banking or to managing or controlling banks that an exception is allowed for
those activities.
49
As a state-chartered commercial bank, the bank is subject to
regulation, supervision and examination by the Virginia State Corporation
Commission's Bureau of Financial Institutions. It also is subject to regulation,
supervision and examination by the Federal Reserve. State and federal law also
governs the activities in which the bank engages, the investments that it makes
and the aggregate amount of loans that may be granted to one borrower. Various
consumer and compliance laws and regulations also affect the bank's operations.
The earnings of our subsidiaries, and therefore our earnings, are
affected by general economic conditions, management policies, changes in state
and federal legislation and actions of various regulatory authorities, including
those referred to above. The following description summarizes the significant
federal and state laws to which we are, and the bank is, subject. To the extent
that statutory or regulatory provisions or proposals are described, the
description is qualified in its entirety by reference to the particular
statutory or regulatory provisions or proposals.
Payment of Dividends
We are a legal entity separate and distinct from our banking and other
subsidiaries. The majority of our revenues result from dividends paid to us by
the bank. The bank is subject to laws and regulations that limit the amount of
dividends that it can pay. In addition, we are, and the bank is, subject to
various regulatory restrictions relating to the payment of dividends, including
requirements to maintain capital at or above regulatory minimums. Banking
regulators have indicated that banking organizations should generally pay
dividends only if the organization's net income available to common shareholders
over the past year has been sufficient to fully fund the dividends, and the
prospective rate of earnings retention appears consistent with the
organization's capital needs, asset quality and overall financial condition. We
do not expect that any of these laws, regulations or policies will materially
affect the ability of the bank to pay dividends.
Insurance of Accounts, Assessments and Regulation by the FDIC
The deposits of the bank are insured by the FDIC up to the limits set
forth under applicable law. The deposits of the bank are subject to the deposit
insurance assessments of the Bank Insurance Fund of the FDIC.
The FDIC has implemented a risk-based deposit insurance assessment
system under which the assessment rate for an insured institution may vary
according to regulatory capital levels of the institution and other factors
(including supervisory evaluations). Depository institutions insured by the Bank
Insurance Fund that are "well capitalized" and that present few or no
supervisory concerns are required to pay only the statutory minimum assessment
of $2,000 annually for deposit insurance, while all other banks are required to
pay premiums ranging from .03% to .27% of domestic deposits. These rate
schedules are subject to future adjustments by the FDIC. In addition, the FDIC
has authority to impose special assessments from time to time. However, because
the legislation enacted in 1996 requires that both Savings Association Insurance
Fund-insured and Bank Insurance Fund-insured deposits pay a pro rata portion of
the interest due on the obligations issued by the Financing Corporation, the
FDIC is assessing Bank Insurance Fund-insured deposits an additional 1.30 basis
points per $100 of deposits to cover those obligations.
The FDIC is authorized to prohibit any Bank Insurance Fund-insured
institution from engaging in any activity that the FDIC determines by regulation
or order to pose a serious threat to the respective insurance fund. Also, the
FDIC may initiate enforcement actions against banks, after first giving the
institution's primary regulatory authority an opportunity to take such action.
The FDIC may terminate
50
the deposit insurance of any depository institution if it determines, after a
hearing, that the institution has engaged or is engaging in unsafe or unsound
practices, is in an unsafe or unsound condition to continue operations, or has
violated any applicable law, regulation, order or any condition imposed in
writing by the FDIC. It also may suspend deposit insurance temporarily during
the hearing process for the permanent termination of insurance, if the
institution has no tangible capital. If deposit insurance is terminated, the
deposits at the institution at the time of termination, less subsequent
withdrawals, shall continue to be insured for a period from six months to two
years, as determined by the FDIC. We are not aware of any existing circumstances
that could result in the termination of any bank's deposit insurance.
Capital
The Federal Reserve has issued risk-based and leverage capital
guidelines applicable to banking organizations that it supervises. Under the
risk-based capital requirements, we are, and the bank is, generally required to
maintain a minimum ratio of total capital to risk-weighted assets (including
certain off-balance sheet activities, such as standby letters of credit) of 8%.
At least half of the total capital must be composed of common equity, retained
earnings and qualifying perpetual preferred stock, less certain intangibles
("Tier 1 capital"). The remainder may consist of certain subordinated debt,
certain hybrid capital instruments and other qualifying preferred stock and a
limited amount of the loan loss allowance ("Tier 2 capital," which, together
with Tier 1 capital, composes "total capital").
In addition, each of the federal banking regulatory agencies has
established minimum leverage capital requirements for banking organizations.
Under these requirements, banking organizations must maintain a minimum ratio of
Tier 1 capital to adjusted average quarterly assets equal to 3% to 5%, subject
to federal bank regulatory evaluation of an organization's overall safety and
soundness.
The risk-based capital standards of the Federal Reserve explicitly
identify concentrations of credit risk and the risk arising from non-traditional
activities, as well as an institution's ability to manage these risks, as
important factors to be taken into account by the agency in assessing an
institution's overall capital adequacy. The capital guidelines also provide that
an institution's exposure to a decline in the economic value of its capital due
to changes in interest rates be considered by the agency as a factor in
evaluating a banking organization's capital adequacy.
Other Safety and Soundness Regulations
There are a number of obligations and restrictions imposed on bank
holding companies and their depository institution subsidiaries by federal law
and regulatory policy that are designed to reduce potential loss exposure to the
depositors of such depository institutions and to the FDIC insurance funds in
the event that the depository institution is insolvent or is in danger of
becoming insolvent. For example, under the requirements of the Federal Reserve
with respect to bank holding company operations, a bank holding company is
required to serve as a source of financial strength to its subsidiary depository
institutions and to commit resources to support such institutions in
circumstances where it might not do so otherwise. In addition, the
"cross-guarantee" provisions of federal law require insured depository
institutions under common control to reimburse the FDIC for any loss suffered or
reasonably anticipated by the FDIC as a result of the insolvency of commonly
controlled insured depository institutions or for any assistance provided by the
FDIC to commonly controlled insured depository institutions in danger of
failure. The FDIC may decline to enforce the cross-guarantee provision if it
determines that a waiver is in the best interests of the deposit insurance
funds. The FDIC's claim for reimbursement under the cross guarantee provisions
is superior to claims of shareholders of the insured depository institution or
its holding company but is subordinate to claims of depositors, secured
creditors and nonaffiliated holders of subordinated debt of the commonly
controlled insured depository institutions.
51
The federal banking agencies also have broad powers under current
federal law to take prompt corrective action to resolve problems of insured
depository institutions. The extent of these powers depends upon whether the
institution in question is well capitalized, adequately
capitalized,undercapitalized, significantly undercapitalized or critically
undercapitalized, as defined by the law. As of December 31, 2001, the bank was
classified as well capitalized.
State banking regulators also have broad enforcement powers over the
bank, including the power to impose fines and other civil and criminal
penalties, and to appoint a conservator.
Community Reinvestment
The requirements of the Community Reinvestment Act are also applicable
to the bank. The act imposes on financial institutions an affirmative and
ongoing obligation to meet the credit needs of their local communities,
including low and moderate income neighborhoods, consistent with the safe and
sound operation of those institutions. A financial institution's efforts in
meeting community needs currently are evaluated as part of the examination
process pursuant to twelve assessment factors. These factors are also considered
in evaluating mergers, acquisitions and applications to open a branch or
facility. To the best knowledge of the bank, it is meeting its obligations under
the act.
Interstate Banking and Branching
Current federal law authorizes interstate acquisitions of banks and
bank holding companies without geographic limitation. Effective June 1, 1997, a
bank headquartered in one state was authorized to merge with a bank
headquartered in another state, as long as neither of the states had opted out
of such interstate merger authority prior to such date. After a bank has
established branches in a state through an interstate merger transaction, the
bank may establish and acquire additional branches at any location in the state
where a bank headquartered in that state could have established or acquired
branches under applicable federal or state law.
Gramm-Leach-Bliley Act
The Gramm-Leach-Bliley Act was signed into law on November 12,1999.
The act covers a broad range of issues, including a repeal of most of the
restrictions on affiliations among depository institutions, securities firms and
insurance companies. Most of the act's provisions require the federal bank
regulatory agencies and other regulatory bodies to adopt regulations to
implement the act, and for that reason an assessment of the full impact of the
act on us and the bank must await completion of that regulatory process.
The act repeals sections 20 and 32 of the Glass-Stegall Act, thus
permitting unrestricted affiliations between banks and securities firms. The act
also permits bank holding companies to elect to become financial holding
companies. A financial holding company may engage in or acquire companies that
engage in a broad range of financial services, including securities activities
such as underwriting, dealing, brokerage, investment and merchant banking; and
insurance underwriting, sales and brokerage activities. In order to become a
financial holding company, the bank holding company and all of its affiliated
depository institutions must be well-capitalized, well-managed, and have at
least a satisfactory Community Reinvestment Act rating.
The act provides that the states continue to have the authority to
regulate insurance activities, but prohibits the states in most instances from
preventing or significantly interfering with the ability of a bank, directly or
through an affiliate, to engage insurance sales, solicitations or
cross-marketing activities. Although the states generally must regulate bank
insurance activities in a nondiscriminatory manner, the
52
states may continue to adopt and enforce rules that specifically regulate
bank insurance activities in certain areas identified in the act. The act
directs the federal bank regulatory agencies to adopt insurance consumer
protection regulations that apply to sales practices, solicitations, advertising
and disclosures.
The act adopts a system of functional regulation under which the
Federal Reserve is confirmed as the umbrella regulator for financial holding
companies, but financial holding company affiliates are to be principally
regulated by functional regulators such as the FDIC for state nonmember bank
affiliates, the Securities and Exchange Commission for securities affiliates and
state insurance regulators for insurance affiliates. The act repeals the broad
exemption of banks from the definitions of "broker" and "dealer" for purposes of
the Securities and Exchange Act of 1934, as amended, but identifies a set of
specific activities, including traditional bank trust and fiduciary activities,
in which a bank may engage without being deemed a "broker," and a set of
activities in which a bank may engage without being deemed a "dealer." The act
also makes conforming changes in the definitions of "broker" and "dealer" for
purposes of the Investment Company Act of 1940, as amended, and the Investment
Advisers Act of 1940, as amended.
The act contains extensive customer privacy protection provisions.
Under these provisions, a financial institution must provide to its customers,
at the inception of the customer relationship and annually thereafter, the
institution's policies and procedures regarding the handling of customers'
nonpublic personal financial information. The act provides that, except for
certain limited exceptions, an institution may not provide such personal
information to unaffiliated third parties unless the institution discloses to
the customer that such information may be so provided and the customer is given
the opportunity to opt out of such disclosure. An institution may not disclose
to a non-affiliated third party, other than to a consumer reporting agency,
customer account numbers or other similar account identifiers for marketing
purposes. The act also provides that the states may adopt customer privacy
protections that are more strict than those contained in the act. The act also
makes a criminal offense, except in limited circumstances, obtaining or
attempting to obtain customer information of a financial nature by fraudulent or
deceptive means.
LEGAL MATTERS
The validity of the shares of our common stock offered and certain
other legal matters will be passed upon by the law firm of Williams Mullen.
EXPERTS
The consolidated financial statements included in this prospectus and
the registration statement have been audited by S.B. Hoover & Company, L.L.P.,
independent certified public accountants, to the extent and for the periods set
forth in their report appearing elsewhere herein and in the registration
statement, and have been so included in reliance upon the report of such firm
given upon their authority as experts in accounting and auditing.
CAUTION ABOUT FORWARD LOOKING STATEMENTS
We make forward looking statements in this prospectus that are subject
to risks and uncertainties. These forward looking statements include statements
regarding profitability, liquidity, allowance for loan losses, interest rate
sensitivity, market risk, and financial and other goals. The words "believes,"
53
"expects," "may," "will," "should," "projects," "contemplates," "anticipates,"
"forecasts," "intends" or other similar words or terms are intended to identify
forward looking statements.
These forward looking statements are subject to significant
uncertainties because they are based upon or are affected by factors including:
o Continued levels of loan quality and origination volume;
o Interest rate fluctuations and other economic conditions;
o Competition in product offerings and product pricing;
o Continued relationships with major customers;
o Future laws and regulations; and
o Other factors, including those matters discussed in the "Risk
Factors" section and the "Management's Discussion and Analysis
of Financial Condition and Results of Operations" section of
this prospectus.
Because of these uncertainties, our actual future results may be
materially different from the results indicated by these forward looking
statements. In addition, our past results of operations do not necessarily
indicate our future results.
WHERE YOU CAN FIND MORE INFORMATION
We are subject to the information requirements of the Securities
Exchange Act of 1934, as amended, and we file annual, quarterly and current
reports, proxy statements and other information with the Securities and Exchange
Commission. You may read and copy any document that we file at the SEC's public
reference room facility located at 450 Fifth Street, NW, Washington, D.C. 20549.
Please call the SEC at 1-800-SEC-0330 for further information on the public
reference room. The SEC also maintains an Internet site at http://www.sec.gov
that contains reports, proxy and information statements and other information
regarding issuers, including us, that file documents with the SEC electronically
through the SEC's electronic data gathering, analysis and retrieval system known
as EDGAR.
This prospectus is part of a registration statement filed by us with
the SEC. Because the rules and regulations of the SEC allow us to omit certain
portions of the registration statement from this prospectus, this prospectus
does not contain all the information set forth in the registration statement.
You may review the registration statement and the exhibits filed with such
registration statement for further information regarding us and the shares of
our common stock being sold by this prospectus. The registration statement and
its exhibits may be inspected at the public reference facility of the SEC at the
locations described above.
We also maintain an Internet site at www.newpeoplesbank.com, which
contains information relating to us and our business.
54
INDEX TO FINANCIAL STATEMENTS
Annual Financial Statements Page
Independent Auditors' Report F2
Consolidated Balance Sheets as of
December 31, 2001 and 2000 F3
Consolidated Statements of Income - Years Ended
December 31, 2001, 2000 and 1999 F4
Consolidated Statements of Stockholders' Equity - Years
Ended December 31, 2001, 2000 and 1999 F5
Consolidated Statements of Cash Flows - Years Ended
December 31, 2001, 2000 and 1999 F6
Notes to Consolidated Financial Statements F7
Quarterly Financial Statements
Consolidated Balance Sheets - June 30, 2002 and
December 31, 2001 F23
Consolidated Statements of Income - Six Months
Ended June 30, 2002 and 2001 F24
Consolidated Statements of Changes in Stockholders' Equity -
Six Months Ended June 30, 2002 and 2001 F25
Consolidated Statements of Cash Flows - Six Months
Ended June 30, 2002 and 2001 F26
Notes to Consolidated Financial Statements F27
F1
[LETTERHEAD OF S.B. HOOVER & COMPANY, L.L.P.]
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
New Peoples Bankshares, Inc.
Honaker, Virginia
We have audited the consolidated balance sheets of New Peoples Bankshares, Inc.
and subsidiary as of December 31, 2001 and 2000, and the related consolidated
statements of income, stockholders' equity, and cash flows for each of the three
years in the period ended December 31, 2001. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of New Peoples
Bankshares, Inc. and subsidiary as of December 31, 2001 and 2000, and the
results of its operations and its cash flows for each of the three years in the
period ended December 31, 2001, in conformity with accounting principles
generally accepted in the United States of America.
/s/ S. B. HOOVER & COMPANY, L.L.P.
January 25, 2002
Harrisonburg, Virginia
F2
NEW PEOPLES BANKSHARES, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2001 AND 2000
----------------------------
ASSETS
2001 2000
---- ----
Cash and due from banks (Note 3) $ 8,160,163 $ 4,448,754
Federal funds sold 3,387,000 3,423,000
------------- -------------
Total Cash and Cash Equivalents 11,547,163 7,871,754
Investment Securities
Available for sale (Note 4) 8,913,173
Held to maturity (Note 4)(fair value of $5,704,751 at 5,657,937 2,960,184
December 31, 2001 and $1,960,857 at December 31, 2000) ------------- -------------
Total Investment Securities 5,657,937 11,873,357
Loans receivable (Note 5) 179,215,539 131,086,225
Allowance for loan losses (Note 6) (1,792,850) (1,311,348)
------------- -------------
Net Loans 177,422,689 129,774,877
Bank premises and equipment, net (Note 7) 8,365,639 5,214,049
Federal Reserve Bank stock (restricted) (Note 4) 529,250 529,250
Accrued interest receivable 1,637,979 1,373,998
Deferred income taxes (Note 9) 212,162 161,472
Deposits with life insurance companies 7,500,000
Other assets 1,380,235 591,768
------------- -------------
Total Assets $ 214,253,054 $ 157,390,525
============= =============
LIABILITIES
Deposits:
Demand deposits:
Noninterest bearing $ 15,798,126 $ 9,822,709
Interest-bearing 7,535,247 4,422,909
Savings deposits 18,646,950 9,161,060
Time deposits (Note 8) 152,031,073 115,040,743
------------- -------------
Total Deposits 194,011,396 138,447,421
Accrued interest payable 687,354 786,856
Income taxes payable 459,545 117,420
Accrued expenses and other liabilities 203,685 156,419
------------- -------------
Total Liabilities 195,361,980 139,508,116
------------- -------------
STOCKHOLDERS' EQUITY (Notes 12 & 15)
Common stock - $2.00 par value; 12,000,000 shares authorized;
6,000,000 shares issued and outstanding (1) 12,000,000 12,000,000
Paid-in-surplus 5,964,331 5,964,331
Retained earnings (accumulated deficit) 926,743 (81,922)
------------- -------------
Total Stockholders' Equity 18,891,074 17,882,409
------------- -------------
Total Liabilities and Stockholders' Equity $ 214,253,054 $ 157,390,525
============= =============
(1) Restated to reflect the 2 for 1 stock split which occurred on January 1, 2002.
The accompanying notes are an integral part of this statement.
F3
NEW PEOPLES BANKSHARES, INC.
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
----------------------------------------------------
INTEREST AND DIVIDEND INCOME 2001 2000 1999
---- ---- ----
Loans including fees $ 14,602,070 $ 10,407,770 $ 4,867,305
Federal funds sold 395,164 646,374 432,362
Deposits in other banks 14,131 108,789
Investment securities 237,778 134,255 25,005
Dividends on equity securities 31,755 25,515 20,314
------------ ------------ ------------
Total Interest and Dividend Income 15,266,767 11,228,045 5,453,775
------------ ------------ ------------
INTEREST EXPENSE
Deposits
Demand 120,076 98,309 52,211
Savings 378,511 313,738 158,566
Time deposits below $100,000 5,570,090 4,387,005 1,946,184
Time deposits above $100,000 1,881,463 1,525,839 786,197
------------ ------------ ------------
Total Interest Expense 7,950,140 6,324,891 2,943,158
------------ ------------ ------------
NET INTEREST INCOME 7,316,627 4,903,154 2,510,617
PROVISION FOR LOAN LOSSES (Note 6) 571,000 513,400 866,752
------------ ------------ ------------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 6,745,627 4,389,754 1,643,865
------------ ------------ ------------
NONINTEREST INCOME
Service charges 457,396 323,899 153,183
Fees, commissions and other income 226,317 119,670 89,982
Life insurance agreements 68,904 - -
------------ ------------ ------------
Total Noninterest Income 752,617 443,569 243,165
------------ ------------ ------------
NONINTEREST EXPENSES
Salaries and employee benefits (Note 11) 3,402,878 2,168,474 1,584,162
Occupancy expense 260,320 183,650 137,170
Equipment expense 400,780 213,622 131,051
Advertising and public relations 125,839 102,342 80,334
Other operating expenses 1,743,327 1,015,010 711,157
------------ ------------ ------------
Total Noninterest Expenses 5,933,144 3,683,098 2,643,874
------------ ------------ ------------
Income (Loss) before Income Taxes 1,565,100 1,150,225 (756,844)
INCOME TAX EXPENSE (BENEFIT) (Note 9) 556,435 389,153 (433,205)
------------ ------------ ------------
NET INCOME (LOSS) $ 1,008,665 $ 761,072 $ (323,639)
============ ============ ============
Earnings (Loss) Per Share (Basic and Diluted) (1) .17 .14 (.14)
============ =========== ============
Average Weighted Shares of Common Stock (1) 6,000,000 5,400,000 2,299,952
============ ============ ============
(1) Earnings per share and average weighted shares of common stock have been
restated to reflect the 2 for 1 stock split which occurred on January 1, 2002.
The accompanying notes are an integral part of this statement.
F4
NEW PEOPLES BANKSHARES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
----------------------------------------------------
Retained
Shares of Earnings
Common Common Paid in (Accumulated
Stock (1) Stock Surplus Deficit) Total
Balance, December 31, 1998 1,124,964 $ 4,499,856 $ 6,714,114 $ (519,355) $10,694,615
Common Stock Sold 75,036 300,144 450,217 750,361
Net Loss (323,639) (323,639)
------------- ------------ ------------- ------------ ------------
Balance, December 31, 1999 1,200,000 4,800,000 7,164,331 (842,994) 11,121,337
Stock Dividend 1,200,000 4,800,000 (4,800,000)
Common Stock Sold 600,000 2,400,000 3,600,000 6,000,000
Net Income 761,072 761,072
------------- ------------ ------------- ------------ ------------
Balance, December 31, 2000 3,000,000 12,000,000 5,964,331 (81,922) 17,882,409
Net Income 1,008,665 1,008,665
------------- ------------ ------------- ------------ ------------
Balance, December 31, 2001 3,000,000 $ 12,000,000 $ 5,964,331 $ 926,743 $ 18,891,074
============= ============ ============= ============ ============
(1) Actual number of shares outstanding prior to January 2002 stock split.
The accompanying notes are an integral part of this statement.
F5
NEW PEOPLES BANKSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
----------------------------------------------------
2001 2000 1999
---- ---- ----
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 1,008,665 $ 761,072 $ (323,639)
Adjustments to reconcile net income (loss) to net
Cash provided by (used in) operating activities:
Depreciation 593,997 373,359 278,028
Provision for loan losses 571,000 513,400 866,752
Loss on sale of foreclosed real estate 87,520
Deferred tax benefit (50,690) 271,733 (433,205)
Loss on disposal of fixed assets 12,156
Net change in:
Interest receivable (263,981) (676,376) (567,561)
Other assets (874,174) (251,608) (161,626)
Accrued interest payable (99,502) 388,080 238,068
Income tax payable 340,312 117,420
Accrued expense and other liabilities 47,266 85,719 (15,221)
------------ ------------ -------------
Net Cash Provided by (Used in) Operating
Activities 1,372,569 1,582,799 (118,404)
------------ ------------ -------------
CASH FLOWS FROM INVESTING ACTIVITIES
Net change in interest-bearing deposits in
other banks 858,756 1,671,183
Net increase in loans (48,218,812) (44,593,543) (73,222,352)
Purchase of securities held-to-maturity (3,498,520) (2,960,184)
Purchase of securities available-for-sale (37,826,367)
Proceeds from maturities of securities
available-for-sale 8,913,173 28,913,194
Proceeds from maturities of securities
held-to-maturity 800,767
Purchase of Federal Reserve Bank stock (173,500) (18,250)
Payments for the purchase of property (3,757,743) (2,081,075) (1,219,120)
Deposits with life insurance companies (7,500,000)
------------ ------------ -------------
Net Cash Used in Investing Activities (53,261,135) (57,862,719) (72,788,539)
------------ ------------ -------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from common stock subscriptions 6,000,000 817,331
Net change in:
Demand deposits 9,087,755 5,187,605 6,142,513
Savings deposits 9,485,890 3,635,737 3,875,276
Time deposits 36,990,330 42,133,612 50,518,064
------------ ------------ -------------
Net Cash Provided by Financing Activities 55,563,975 56,956,954 61,353,184
------------ ------------ -------------
Net increase (decrease) in cash and cash equivalents 3,675,409 677,034 (11,553,759)
Cash and Cash Equivalents, Beginning of Year 7,871,754 7,194,720 18,748,479
------------ ------------ -------------
Cash and Cash Equivalents, End of Year $ 11,547,163 $ 7,871,754 $ 7,194,720
============ ============ =============
Supplemental Disclosure of Cash Paid During the Year for:
Interest 8,049,642 5,937,123 2,705,092
Taxes 265,000
Supplemental Disclosure of Non Cash Transactions:
Loans made to finance sale of foreclosed real estate 196,781
The accompanying notes are an integral part of this statement.
F6
NEW PEOPLES BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
NOTE 1 REORGANIZATION:
On September 27, 2001, the shareholders of the New Peoples Bank,
Inc. ("the Bank") approved a plan of reorganization under
which the shareholders of the Bank exchanged 100% of their
common stock for 100% of the common stock of New Peoples
Bankshares Inc. ("New Peoples"). On November 30, 2001, the
reorganization was accounted for in a manner similar to a
pooling of interest and the Bank became a wholly owned
subsidiary of New Peoples. The accompanying financial
statements reflect the transactions of the Bank for the years
2001, 2000 and 1999 and of New Peoples since its inception on
July 12, 2001.
The revenue and net income for each of the companies from January
1, 2001 until November 30, 2001 is shown in the following
schedule:
Revenue Net Income
New Peoples $ -0- $ (32,749)
Bank 14,526,262 1,000,137
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Nature of Operations - New Peoples is a bank holding company whose
principal activity is the ownership and management of a community
bank. New Peoples subsidiary bank was organized and incorporated
under the laws of the Commonwealth of Virginia on December 9,
1997. The Bank commenced operations on October 28, 1998, after
receiving regulatory approval. As a state chartered bank, the Bank
is subject to regulations by the Virginia Bureau of Financial
Institutions, the Federal Deposit Insurance Corporation and the
Federal Reserve Bank. The Bank provides general banking services
to individuals, small and medium size businesses and the
professional community of southwest Virginia.
Consolidation Policy - The consolidated financial statements
include New Peoples and the Bank. All significant intercompany
balances and transactions have been eliminated.
Use of Estimates - The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect certain
reported amounts and disclosures. Accordingly, actual results
could differ from those estimates.
Investment Securities - Investment securities which the Bank
intends to hold until maturity or until called are classified as
Held to Maturity. These investment securities are carried at cost,
adjusted for amortization of premium and accretion of discounts
using the effective interest method.
Investment securities, which the Bank intends to hold for
indefinite periods of time, are classified as Available for Sale.
These investment securities are carried at fair value. At December
31, 2000, the cost of these investments approximated the fair
value.
F7
NEW PEOPLES BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
------------------------------------------------------
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Loans and Allowance for Loan Losses - Loans are carried on the
balance sheet net of any unearned interest and the allowance for
loan losses. Interest income on loans is computed using the
effective interest method, except where serious doubt exists as to
the collectibility of the loan, in which accrual of the income is
discontinued.
In addition, loans are placed on non-accrual status when the
loan has been in default for a period of 90 days or more
unless the loan is both well secured and in the process of
collection. Loans are returned to accrual status when the loan
has been brought current according to its contractual terms
and prospects for future contractual payments are no longer in
doubt.
The allowance for loan losses is established through a
provision for loan losses charged to expense. Loans are
charged against the allowance for loan losses when management
believes that collectibility of the principal is unlikely. The
allowance for loan losses is evaluated on a regular basis by
management and is based upon management's periodic review of
the collectibility of the loans, industry historical
experience, the nature and volume of the loan portfolio,
adverse situations that may affect the borrower's ability to
repay, estimated value of any underlying collateral and
prevailing economic conditions. This evaluation is inherently
subjective as it requires estimates that are susceptible to
significant revision as more information becomes available.
Bank Premises and Equipment - Land, buildings and equipment are
recorded at cost less accumulated depreciation. Depreciation is
computed using the straight-line method over the following
estimated useful lives:
Type Estimated useful life
---- ---------------------
Buildings 39 years
Paving and landscaping 15 years
Computer equipment and software 3 to 5 years
Vehicles 5 years
Furniture and equipment (other) 5 to 7 years
Advertising Cost - Advertising costs are expensed in the period
incurred.
Stock Options - New Peoples accounts for stock options using the
"intrinsic value method" described in Accounting Principles Board
Opinion 25.
Income Taxes - Deferred income tax assets and liabilities are
determined using the liability (or balance sheet) method. Under
this method, the net deferred tax asset or liability is determined
based on the tax effects of the temporary differences between the
book and tax bases of the various balance sheet assets and
liabilities and gives current recognition to changes in tax rates
and laws.
Cash and Cash Equivalents - Cash and cash equivalents as used in
the cash flow statements includes cash and due from banks and
federal funds sold.
F8
NEW PEOPLES BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
------------------------------------------------------
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
------------------------------------------------------
Earnings Per Share - Earnings per share represent both basic and
diluted earnings per share using the treasury stock method.
NOTE 3 DEPOSITS IN AND FEDERAL FUNDS SOLD TO BANKS:
The Bank had cash on deposit and federal funds sold to other
commercial banks amounting to $8,346,191 and $6,084,353 at
December 31, 2001 and 2000, respectively. Deposit amounts at other
commercial banks may, at times, exceed federally insured limits.
NOTE 4 INVESTMENT SECURITIES:
The amortized cost and estimated fair value of securities are as
follows:
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ---------- -----
Securities Held to Maturity
December 31, 2001
U.S. Government agencies $ 5,555,840 $ 43,027 $ $ 5,598,867
Municipal governments 102,097 3,787 105,884
------------ ----------- ----------- ------------
Total Securities Held
to Maturity $ 5,657,937 $ 46,814 $ $ 5,704,751
============ =========== =========== ============
At December 31, 2001, the Company had not identified any securities as available for
sale.
Securities Available for Sale
December 31, 2000
U.S. Treasury $ 6,969,076 $ 1,260 $ $ 6,970,336
U.S. Government agencies 1,944,097 639 1,944,736
------------ ----------- ----------- ------------
Total Securities Available
for Sale $ 8,913,173 $ 1,899 $ $ 8,915,072
============ =========== =========== ============
Securities Held to Maturity
December 31, 2000
U.S. Government agencies $ 2,858,087 $ 627 $ 1,382 $ 2,857,332
Municipal governments 102,097 1,428 103,525
------------ ----------- ----------- ------------
Total Securities Held to
Maturity $ 2,960,184 $ 2,055 $ 1,382 $ 2,960,857
============ =========== =========== ============
F9
NEW PEOPLES BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
------------------------------------------------------
NOTE 4 INVESTMENT SECURITIES (CONTINUED)
The amortized cost and fair value of investment securities at
December 31, 2001, by contractual maturity, are shown in the
following schedule. Expected maturities will differ from
contractual maturities because borrowers may have the right to
call or prepay obligations with or without call or prepayment
penalties.
Securities Held to Maturity
---------------------------
Weighted
Amortized Fair Average
Cost Value Yield
--------- ----- --------
U.S. Government Agencies
Due within one year $ 3,498,520 $ 3,499,168 1.65%
Due after one year through five years $ 2,057,320 2,099,699 7.00%
----------- ----------- -----
Total $ 5,555,840 $ 5,598,867 6.63%
============ ============ =====
Municipal Governments
Due after one year through five years $ 102,097 $ 105,884 5.00%
------------ ------------ -----
Total $ 102,097 $ 105,884 5.00%
============ ============ =====
The carrying amount of securities pledged by the Bank to secure
public deposits amounts to $2,159,417 at December 31, 2001.
The Bank is required to hold stock in the Federal Reserve Bank.
The investment in Federal Reserve Bank stock is recorded at cost
of $529,250 as of December 31, 2001 and 2000.
NOTE 5 LOANS:
Loans receivable outstanding at December 31 are summarized as
follows: (Rounded to the nearest thousand.)
2001 2000
---- ----
Commercial, financial and agricultural $ 35,168,000 $ 29,941,000
Real estate - construction 3,845,000 1,528,000
Real estate - mortgages 98,229,000 70,858,000
Installment loans to individuals 41,974,000 28,759,000
------------- -------------
Loans Receivable $ 179,216,000 $ 131,086,000
============= =============
F10
NEW PEOPLES BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
------------------------------------------------------
NOTE 6 ALLOWANCE FOR LOAN LOSSES:
A summary of transactions in the allowance for loan losses are as
follows:
2001 2000 1999
---- ---- ----
Balance, beginning of year $ 1,311,348 $ 865,268 $ 0
Provision charged to operating expenses 571,000 513,400 866,752
Recoveries of loan charged off 8,495 2,928
Loans charged off 97,993 70,248 1,484
------------ ------------ ------------
Balance, End of Year $ 1,792,850 $ 1,311,348 $ 865,268
============ ============ ============
Percentage of Loans 1.00% 1.00% 1.00%
NOTE 7 BANK PREMISES AND EQUIPMENT:
Bank premises and equipment at December 31, are summarized as
follows:
2001 2000
---- ----
Land $ 2,102,800 $ 983,480
Buildings and improvements 4,159,520 2,993,427
Furniture and equipment 2,884,850 1,909,560
Vehicles 101,904 42,400
Construction in progress 434,252 8,874
------------- -------------
9,683,326 5,937,741
Less accumulated depreciation 1,317,687 723,692
------------- -------------
Bank Premises and Equipment $ 8,365,639 $ 5,214,049
============= =============
Depreciation expense for 2001, 2000 and 1999 was $593,997,
$373,359, and $278,028, respectively.
F11
NEW PEOPLES BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
------------------------------------------------------
NOTE 8 OTHER TIME DEPOSITS:
The aggregate amount of time deposits with a minimum denomination
of $100,000 was $38,847,562 and $28,320,273 at December 31, 2001
and 2000, respectively.
At December 31, 2001, the scheduled maturities of certificates of
deposit are as follows:
2002 $ 138,753,000
2003 8,016,000
2004 2,462,000
2005 2,108,000
2006 475,000
After five years 217,000
--------------
Total $ 152,031,000
==============
NOTE 9 INCOME TAX EXPENSE:
The components of income tax expense for the years ended December
31, are as follows:
2001 2000 1999
---- ---- ----
Current expense $ 607,125 $ 117,421 $
Deferred expense (benefit) (50,690) 271,732 (433,205)
------------ ------------ ------------
Net Income Tax Expense (Benefit) $ 556,435 $ 389,153 $ (433,205)
============ ============ ============
The deferred tax expense (benefit) resulting from temporary
differences for the years ended December 31 is as follows:
2001 2000 1999
---- ---- ----
Organization and start-up cost $ 16,762 $ 18,575 $ 18,575
Provision for loan losses (144,622) (126,410) (294,191)
Depreciation 76,786 96,898 44,924
Net operating income (loss) 282,669 (26,199)
Capitalized interest 384
------------ ------------ ------------
Total (50,690) 271,732 (256,891)
------------ ------------ ------------
Change in Valuation Allowance (176,314)
------------ ------------ ------------
Deferred income tax expense (benefit) $ (50,690) $ 271,732 $ (433,205)
============ ============ ============
F12
NEW PEOPLES BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
------------------------------------------------------
NOTE 9 INCOME TAX EXPENSE (CONTINUED):
The net deferred tax assets resulting from temporary differences
as of December 31, are summarized as follows:
2001 2000 1999
---- ---- ----
Deferred Tax Assets:
-------------------
Organization and start-up cost $ 35,867 $ 52,629 $ 71,204
Allowance for loan losses 459,054 314,432 188,022
Net operating loss carryforward 282,669
Capitalized interest 4,981 5,365 5,365
------------ ------------ ------------
Total Assets 499,902 372,426 547,260
------------ ------------ ------------
Deferred Tax Liabilities:
-------------------------
Accelerated depreciation 287,740 210,954 114,055
------------ ------------ ------------
Net Deferred Tax Asset $ 212,162 $ 161,472 $ 433,205
============ ============ ============
At December 31, 1999, the Bank had a net operating loss
carryforward of $832,666 and contribution carryforward of $7,040,
which were used to offset taxable income for 2000.
The following table summarizes the differences between the actual
income tax expense and the amounts computed using the federal
statutory tax rates:
2001 2000 1999
---- ---- ----
Income tax expense at the applicable
federal rate $ 532,134 $ 391,077 $ (257,328)
Permanent differences resulting from:
Nondeductible reorganization expenses 7,859
Nondeductible meals and entertainment 1,236 743 437
Change in valuation allowance (176,314)
Other adjustments 15,206 (2,667)
------------ ------------ ------------
Income Tax Expense $ 556,435 $ 389,153 $ (433,205)
============ ============ ============
NOTE 10 RELATED PARTY TRANSACTIONS:
During the year, officers and directors (and companies controlled
by them) were customers of and had transactions with the Company
in the normal course of business. These transactions were made on
substantially the same terms as those prevailing for other
customers and did not involve any abnormal risk.
Loan transactions with related parties are shown in the following
schedule:
2001 2000
---- ----
Total loans, beginning of year $ 5,209,080 $ 4,798,970
New loans 2,800,929 2,616,660
Repayments (1,939,528) (2,206,550)
------------- -------------
Total Loans, End of Year $ 6,070,481 $ 5,209,080
============= =============
F13
NEW PEOPLES BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
------------------------------------------------------
NOTE 11 RETIREMENT PLAN:
The Bank has established a qualified defined contribution plan
which covers all full time employees. Under the plan the Bank
matches employee contributions up to a maximum of 5% of their
salary. The Bank contributed $109,998, $73,480 and $57,720 to the
defined contribution plan for 2001, 2000 and 1999, respectively.
NOTE 12 COMMON STOCK:
As of December 31, 1999, the Bank had issued and outstanding
1,200,000 shares of $4 par value common stock. On March 15, 2000,
the Board approved a 2 for 1 stock split, effected in the form of
a dividend, to shareholders of record on that date. This split
resulted in an additional 1,200,000 shares of stock oustanding. In
addition, the Board approved a post split sale of 600,000 shares
of common stock at $10 per share. All of those shares were sold
and issued, resulting in a total of 3,000,000 shares issued and
outstanding at December 31, 2001. Effective November 30, 2001, the
Bank's common stock was exchanged for 3,000,000 shares of New
Peoples common stock on a one for one basis.
On December 12, 2001, the Board approved a 2 for 1 stock split, to
shareholders of record on January 1, 2002 by reducing the par
value from $4.00 per share to $2.00 per share.
NOTE 13 STOCK OPTION PLAN:
New Peoples' stock option plan was adopted on September 27, 2001.
The purpose of the Plan is to reward employees and directors for
services rendered and investment risks undertaken to date and to
promote the success of New Peoples by providing incentives to
employees and directors that will promote the identification of
their personal interest with the long-term financial success of
New Peoples and with growth in shareholder value. The plan
provides that options for up to 900,000 shares of New Peoples
common stock may be issued to employees and directors. The
exercise price may not be less than 100% of the fair market value
of the shares on the award date. Each award becomes exercisable in
the event of a change in control of New Peoples. All options are
subject to exercise or forfeiture if New Peoples' capital falls
below its minimum requirements, as determined by its state or
federal primary regulators, and New Peoples' primary regulator so
directs. The plan will expire on May 31, 2011, unless sooner
terminated by the Board of Directors. On December 12, 2001,
options to acquire 256,000 shares (on a post stock split basis)
were awarded under the plan; these options have an exercise price
of $7.50 per share (subsequent to the 2 for 1 stock split on
January 1, 2002) and have a term of ten years.
The fair value of each option granted was $5.87 using the "Minimum
Value" method with the following assumptions: risk free interest
rate 5.09%, expected life - 10 years, expected volatility - 0% and
expected dividends of zero.
F14
NEW PEOPLES BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
------------------------------------------------------
NOTE 13 STOCK OPTION PLAN (CONTINUED):
New Peoples applies APB Opinion 25 and related interpretations in
accounting for the stock option plan. Accordingly, no compensation
cost has been recognized. Had compensation cost for New Peoples'
stock option plan been determined based on the fair value at the
grant dates for awards under the plan consistent with the method
prescribed by FASB Statement No. 123, the net income would have
been adjusted to the proforma amounts indicated below:
Net Earnings
Income Per Share
Per Statement of Income $ 1,008,665 $ .17
Cost of options granted (net of tax effect) (751,360) (.13)
--------------- -------------
Proforma $ 257,305 $ .04
=============== =============
NOTE 14 DEPOSITS WITH LIFE INSURANCE COMPANIES:
The Bank has deposited $7,500,000 with various life insurance
companies pending the development of a deferred compensation plan
which will be funded by the income on the life insurance policies.
The life insurance policies will insure key officers and will be
owned by New Peoples. The deposit has a guaranteed interest rate
of 6.19% through the year 2002.
NOTE 15 DIVIDEND LIMITATIONS ON SUBSIDIARY BANK:
The principal source of funds of New Peoples is dividends paid by
the Bank. The Federal Reserve Act restricts the amount of
dividends the Bank may pay. Approval by the Board of Governors of
the Federal Reserve Systems is required if the dividends declared
by a state member bank, in any year, exceed the sum of (1) net
income of the current year and (2) income net of dividends for the
preceding two years. In addition, the Federal Reserve Bank has
established, for a de novo bank a minimum ratio of tier 1 capital
to average assets of 9%. As of January 1, 2002, approximately
$931,000 was available for dividend distribution. During 2001, the
Bank declared dividend's payable to New Peoples of $25,000.
NOTE 16 FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK:
In the normal course of business, the Bank has outstanding
commitments and contingent liabilities, such as commitments to
extend credit and standby letters of credit, which are not
included in the accompanying consolidated financial statements.
The Bank's exposure to credit loss in the event of nonperformance
by the other party to the financial instruments for commitments to
extend credit and standby letters of credit is represented by the
contractual or notional amount of those instruments. The Bank uses
the same credit policies in making such commitments as it does for
instruments that are included in the balance sheet.
F15
NEW PEOPLES BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
------------------------------------------------------
NOTE 16 FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
(CONTINUED):
Financial instruments whose contract amount represents credit risk
were as follows (in thousands):
2001 2000
---- ----
Commitments to extend credit $ 12,134 $ 11,329
Standby letters of credit 2,177 323
Commitments to extend credit are agreements to lend to a customer
as long as there is no violation of any condition established in
the contract. Commitments generally have fixed expiration dates or
other termination clauses and may require payment of a fee. Since
many of the commitments are expected to expire without being drawn
upon, the total commitment amounts do not necessarily represent
future cash requirements. The Bank evaluates each customer's
creditworthiness on a case-by-case basis. The amount of collateral
obtained, if deemed necessary by the Bank upon extension of
credit, is based on management's credit evaluation. Collateral
held varies but may include accounts receivable, inventory,
property and equipment, and income-producing commercial
properties.
Standby letters of credit are conditional commitments issued by
the Bank to guarantee the performance of a customer to a third
party, Standby letters of credit generally have fixed expiration
dates or other termination clauses and may require payment of a
fee. The credit risk involved in issuing letters of credit is
essentially the same as that involved in extending loan facilities
to customers. The Bank's policy for obtaining collateral, and the
nature of such collateral, is essentially the same as that
involved in making commitments to extend credit.
NOTE 17 CONCENTRATION OF CREDIT RISK:
The Bank has a concentration of credit risk in deposits and
federal funds sold to commercial banks as described in Note 2.
Note 4 shows the types of loans made by the Bank. A substantial
portion of the Bank's loans are secured by real estate. The Bank
does not have any significant concentrations to any one industry
or customer.
NOTE 18 REGULATORY MATTERS:
New Peoples and the Bank are subject to various capital
requirements administered by its primary federal regulator, the
Federal Reserve Bank. Failure to meet minimum capital requirements
can initiate certain mandatory, and possibly, additional
discretionary actions by regulators that, if undertaken, could
have a direct material effect on the New Peoples' financial
statements. Under capital adequacy guidelines and the regulatory
framework for prompt corrective action, the New Peoples must meet
specific capital guidelines that involve quantitative measures of
the New Peoples' assets, liabilities, and certain off-balance
sheet items as calculated under regulatory accounting practices.
The New Peoples' capital amounts and classification are also
subject to qualitative judgements by the regulators about
components, risk weightings, and other factors.
F16
NEW PEOPLES BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
------------------------------------------------------
NOTE 18 REGULATORY MATTERS (CONTINUED):
Quantitative measures established by regulation to ensure capital
adequacy require New Peoples to maintain minimum amounts and
ratios (set forth in the following table) of total and Tier 1
capital (as defined in the regulations) to risk-weighted assets
(as defined) and of Tier 1 capital (as defined) to average assets
(as defined).
As of July 30, 2001, the most recent date of notification, the
Bureau of Financial Institutions categorized the Bank as well
capitalized under the regulatory framework for prompt corrective
action. To be categorized as well capitalized, an institution must
maintain minimum total risk-based, Tier 1 risk-based and Tier 1
leverage ratios as set forth in the following tables. There are no
conditions or events since the notification that management
believes have changed the Bank's category. The Bank's actual
capital amounts (in thousands) and ratios are presented in the
table as of December 31, 2001 and 2000, respectively.
Minimum
To Be Well
Minimum Capitalized Under
Capital Prompt Corrective
Actual Requirement Action Provisions
----------------- ----------------- -----------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
December 31, 2001:
Total Capital to Risk
Weighted Assets: $ 20,688 12.03% $ 13,760 8% $ 17,200 10%
Tier 1 Capital to Risk
Weighted Assets: 18,895 10.99% 6,880 4% 10,320 6%
Tier 1 Capital to Average
Assets: 18,895 9.19% 8,226 4% 10,283 5%
December 31, 2000:
Total Capital to Risk
Weighted Assets: $ 19,194 16.36% $ 9,385 8% $ 11,730 10%
Tier 1 Capital to Risk
Weighted Assets: 17,882 15.24% 4,692 4% 7,038 6%
Tier 1 Capital to Average
Assets: 17,882 11.73% 6,098 4% 7,622 5%
F17
NEW PEOPLES BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
------------------------------------------------------
NOTE 19 DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS:
Statement of Financial Accounting Standards No. 107 (SFAS 107)
"Disclosures About the Fair Value of Financial Statements" defines
the fair value of a financial instrument as the amount at which a
financial instrument could be exchanged in a current transaction
between willing parties, other than in a forced liquidation sale.
As the majority of the Bank's financial instruments lack an
available trading market, significant estimates, assumptions and
present value calculations are required to determine estimated
fair value.
Estimated fair value and the carrying value of financial
instruments at December 31, 2001 and 2000, are as follows (in
thousands):
December 31, 2001 December 31, 2000
Estimated Carrying Estimated Carrying
Fair Value Value Fair Value Value
---------- --------- ---------- ---------
Financial Assets
----------------
Cash and due from bank $ 8,160 $ 8,160 $ 4,449 $ 4,449
Federal funds sold 3,387 3,387 3,423 3,423
Investment securities 5,705 5,658 11,876 11,873
Federal Reserve Bank stock 529 529 529 529
Loans 182,315 179,216 130,572 131,086
Accrued interest receivable 1,638 1,638 1,374 1,374
Financial Liabilities
---------------------
Demand Deposits:
Non-interest bearing 15,798 15,798 9,823 9,823
Interest-bearing 7,535 7,535 4,423 4,423
Savings deposits 18,647 18,647 9,161 9,161
Time deposits 152,746 152,031 115,476 115,041
Accrued interest payable 687 687 787 787
The carrying value of cash and due from banks, federal funds sold,
interest-bearing deposits, Federal Reserve Bank stock, deposits
with no stated maturities, and accrued interest approximates fair
value. The estimated fair value of investment securities was based
on closing market prices. The remaining financial instruments were
valued based on the present value of estimated future cash flows,
discounted at various rates in effect for similar instruments
during the month of December 2001 and 2000.
F18
NEW PEOPLES BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
------------------------------------------------------
NOTE 20 PARENT CORPORATION ONLY FINANCIAL STATEMENTS:
BALANCE SHEET
AS OF DECEMBER 31, 2001
-----------------------
ASSETS
Investment in subsidiary $ 18,895,351
Other assets 3,472
--------------
Total Assets $ 18,898,823
==============
LIABILITIES
Due to subsidiary bank $ 7,749
--------------
Total Liabilities $ 7,749
--------------
STOCKHOLDERS' EQUITY
Common stock - $ 4.00 par value, 12,000,000 shares authorized;
3,000,000 shares issued and outstanding 12,000,000
Surplus 6,000,000
Retained earnings 891,074
--------------
Total Stockholders' Equity 18,891,074
--------------
Total Liabilities and Stockholders' Equity $ 18,898,823
==============
F19
NEW PEOPLES BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
------------------------------------------------------
NOTE 20 PARENT CORPORATION ONLY FINANCIAL STATEMENTS (CONTINUED):
STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 2001
------------------------------------
Income
Dividends from subsidiary $ 25,000
Income from subsidiary 12,000
--------------
Total Income 37,000
--------------
Expenses
Legal fees 32,749
--------------
Total Expenses 32,749
--------------
Income before Income Taxes 4,251
Income Tax Benefit 3,472
--------------
Net Income $ 7,723
==============
F20
NEW PEOPLES BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
------------------------------------------------------
NOTE 20 PARENT CORPORATION ONLY FINANCIAL STATEMENTS (CONTINUED):
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 2001
--------------------------------------------
Common Retained
Stock Surplus Earnings Total
------ ------- -------- -----
Balance
December 31, 2000 $ - $ - $ - $ -
Exchange of New Peoples Bankshares
stock for New Peoples Bank stock 12,000,000 6,000,000 883,351 18,883,351
Net Income 7,723 7,723
------------- ------------- ------------ --------------
Balance
December 31, 2001 $ 12,000,000 $ 6,000,000 $ 891,074 $ 18,891,074
============= ============ ============ ==============
F21
NEW PEOPLES BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
------------------------------------------------------
NOTE 20 PARENT CORPORATION ONLY FINANCIAL STATEMENTS (CONTINUED):
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 2001
------------------------------------
Operating Activities:
Net Income $ 7,723
Adjustments to reconcile net income to net cash
provided by operating activities:
Income of subsidiary bank (12,000)
Net change in:
Other assets (3,472)
Accounts payable 7,749
--------------
Net Cash Provided by Operating Activities 0
--------------
Net Increase in Cash and Cash Equivalents 0
Cash and Cash Equivalents, Beginning of Year 0
--------------
Cash and Cash Equivalents, End of Year $ 0
==============
Supplemental Information:
Non-cash transactions:
Transfer of 3,000,000 shares of New Peoples Bankshares stock
for 3,000,000 shares of New Peoples Bank stock $ 18,883,351
F22
NEW PEOPLES BANKSHARES, INC.
CONSOLIDATED BALANCE SHEETS
June 30, December 31,
2002 2001
(Unaudited) (Audited)
----------- ----------------
ASSETS
Cash and due from banks $ 7,982,361 $ 8,160,163
Federal funds sold 1,737,000 3,387,000
------------- -------------
Total Cash and Cash Equivalents 9,719,361 11,547,163
Securities held to maturity (fair value $2,169,250 and
$5,704,751) 2,159,417 5,657,937
Loans, net of allowance for loan losses of $2,026,128
at June 30, 2002, and $1,792,850 at December 31, 2001 200,530,129 177,422,689
Bank premises and equipment net 9,267,875 8,365,639
Federal Reserve Bank stock (restricted) 529,250 529,250
Accrued interest receivable 1,492,722 1,637,979
Investment in life insurance contracts 7,776,130 7,500,000
Other assets 1,934,170 1,592,397
----------- -----------
Total Assets $233,409,054 $214,253,054
=========== ===========
LIABILITIES
Deposits:
Demand deposits:
Noninterest bearing $ 19,535,114 $15,798,126
Interest bearing 8,735,364 7,535,247
Savings deposits 23,668,793 18,646,950
Other time deposits 160,535,906 152,031,073
----------- -----------
Total Deposits 212,475,177 194,011,396
Accrued interest payable 539,713 687,354
Income taxes payable 107,845 459,545
Accrued expenses and other liabilities 199,043 203,685
------------- -------------
Total Liabilities 213,321,778 195,361,980
------------- -------------
STOCKHOLDERS' EQUITY
Common stock - (12,000,000 shares authorized)
6,000,000 shares issued and outstanding,
$2.00 par value (1) 12,000,000 12,000,000
Paid-in-surplus 5,964,331 5,964,331
Retained earnings 2,122,945 926,743
------------- -------------
Total Stockholders' Equity 20,087,276 18,891,074
------------- -------------
Total Liabilities and Stockholders' Equity $233,409,054 $214,253,054
=========== ============
(1) December 31, 2001 restated to reflect the 2 for 1 stock split which occurred
on January 1, 2002.
The accompanying notes are an integral part of these statements.
F23
NEW PEOPLES BANKSHARES, INC.
CONSOLIDATED STATEMENTS OF INCOME
FOR THE SIX MONTHS ENDED JUNE 30, 2002 AND 2001
(UNAUDITED)
2002 2001
Interest and Dividend Income
Loans (including fees) $ 7,946,795 $ 6,908,741
Federal funds sold 57,844 284,487
Other investments 91,152 170,444
------------ ------------
Total Interest Income 8,095,791 7,363,672
------------ ------------
Interest Expense
Interest on deposits 3,004,607 4,200,185
------------ ------------
Net Interest Income 5,091,184 3,163,487
Provision for Loan Losses 278,000 341,000
------------ ------------
Net Interest Income After Provision for Loan Losses 4,813,184 2,822,487
------------ ------------
Noninterest Income
Service charges, fees and commissions 392,453 295,735
Other operating income 273,283 27,338
------------ ------------
Total Noninterest Income 665,736 323,073
------------ ------------
Noninterest Expense
Salaries and employee benefits 1,981,447 1,517,788
Occupancy expense 497,383 361,434
Other operating expenses 1,156,241 654,250
------------ ------------
Total Noninterest Expense 3,635,071 2,533,472
------------ ------------
Income Before Income Taxes 1,843,849 612,088
Income Tax Expense 647,647 204,455
------------ ------------
Net Income $ 1,196,202 $ 407,633
============= ============
Net Income Per Share (Basic and Diluted) $ 0.20 $ 0.07
=========== ===========
Weighted Average Shares Outstanding1 6,000,000 6,000,000
Diluted Weighted Average Shares Outstanding 6,068,683
1 Prior year restated to reflect 2 for 1 stock split.
The accompanying notes are an integral part of these statements.
F24
NEW PEOPLES BANKSHARES, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 2002 AND 2001
(UNAUDITED)
Retained
Common Paid in Earnings/
Stock Capital (Accumulated Deficit) Total
----- ------- --------------------- -----
Balance, December 31, 2000 $ 12,000,000 $ 5,964,331 $ (81,922) $ 17,882,409
Net Income 407,633 407,633
------------- ------------ ------------ ----------
Balance June 30, 2001 $ 12,000,000 $ 5,964,331 $ 325,711 $ 18,290,042
============= ============ ============ ==========
Balance, December 31, 2001 $ 12,000,000 $ 5,964,331 $ 926,743 $ 18,891,074
Net Income 1,196,202 1,196,202
------------- ------------ ------------ ----------
Balance June 30, 2002 $ 12,000,000 $ 5,964,331 $ 2,122,945 $ 20,087,276
============= ============ ============= ============
The accompanying notes are an integral part of these statements.
F25
NEW PEOPLES BANKSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2002 AND 2001
(UNAUDITED)
2002 2001
Operating Activities:
Net income $ 1,196,202 $ 407,633
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for loan losses 278,000 341,000
Depreciation 401,167 261,090
Income from life insurance contracts (276,130)
Net change in:
Interest receivable 145,257 (89,200)
Other assets (341,773) (319,767)
Accrued expense and other liabilities (503,983) 74,919
------------- -------------
Net Cash Provided by Operating Activities 898,740 675,675
------------- -------------
Investing Activities:
Payments for the purchase of property (1,303,403) (1,725,766)
Net change in loans (23,385,440) (29,217,790)
Maturity of securities available for sale 3,498,520 8,913,173
Purchase of securities held to maturity (9,164,945)
------------- -------------
Net Cash Used in Investing Activities (21,190,323) (31,195,328)
------------- --------------
Financing Activities:
Net change in:
Demand and saving deposits 9,958,948 7,388,334
Time deposits 8,504,833 22,988,209
------------- --------------
Net Cash Provided by Financing Activities 18,463,781 30,376,543
------------- -------------
Net Increase (Decrease) in Cash and Cash Equivalents (1,827,802) (143,110)
Cash and Cash Equivalents, Beginning of Period 11,547,163 7,871,754
------------- -------------
Cash and Cash Equivalents, End of Period $ 9,719,361 $ 7,728,644
============= =============
Supplemental Disclosure of Cash Paid:
Interest $ 3,152,248 $ 4,143,454
Income taxes $ 620,000 $ 65,000
The accompanying notes are an integral part of these statements.
F26
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
consolidated financial statements contain all adjustments
(consisting of only normal recurring accruals) necessary to
present fairly the financial position as of June 30, 2002, and
the results of operations for the six month and three month
periods ended June 30, 2002 and 2001. The notes included
herein should be read in conjunction with the notes to
financial statements included in the 2001 annual report to
stockholders of New Peoples Bankshares, Inc.
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 held to
maturity securities as of June 30, 2002, are as follows:
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
Securities Held to Maturity
June 30, 2002
U.S. Government Agencies $ 2,057,320 $ 4,880 $ $ 2,062,200
Municipal Governments 102,097 4,953 107,050
------------ ------------ ------------ ------------
Total Securities Held to
Maturity $ 2,159,417 $ 9,833 $ $ 2,169,250
============ ============ ============ ============
Securities Held to Maturity
December 31, 2001
U.S. Government Agencies $ 5,555,840 $ 43,027 $ $ 5,598,867
Municipal governments 102,097 3,787 105,884
------------ ------------ ------------ ------------
Total Securities Held
To Maturity $ 5,657,937 $ 46,814 $ $ 5,704,751
============ ============ ============ ============
F27
NOTE 3 LOANS:
Loans receivable outstanding are summarized as follows:
(in thousands.)
June 30, December 31,
2002 2001
---- ----
Commercial, financial and agricultural $ 40,148 $ 35,168
Real estate - construction 4,584 3,845
Real estate - mortgages 113,270 98,229
Installment loans to individuals 44,554 41,974
------------ -----------
Loans Receivable $ 202,556 $ 179,216
============ ===========
NOTE 4 ALLOWANCE FOR LOAN LOSSES:
Transactions in the Bank's allowance for loan losses are shown in
the following schedule:
For the Three Months Ended
June 30, June 30,
2002 2001
----------------- ----------------
Balance, beginning of period $ 1,792,850 $ 1,311,348
Provision for loan losses 278,000 341,000
Charge-offs (71,778) (51,002)
Recoveries 27,056 1,925
-------------- --------------
Balance, End of Period $ 2,026,128 $ 1,603,271
============== ==============
NOTE 5 COMMON STOCK:
On December 12, 2001, the Board of Directors approved a 2 for
1 stock split to shareholders of record on January 1, 2002 by
reducing the par value of common stock from $4 to $2 per share.
This split resulted in an additional 3,000,000 shares of stock
outstanding.
NOTE 6 EARNINGS PER SHARE:
The weighted average shares outstanding used for the
calculation of earnings per share has been adjusted to reflect the
2 for 1 stock split that was effective January 1, 2002. Diluted
earnings per share has been calculated for the current periods to
reflect the dilutive effect of the 256,000 exercisable outstanding
options granted to employees and directors of the Bank. 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.
F28
================================================================================
________ __, 2002
[LOGO]
1,200,000 Shares of Common Stock
-----------------
PROSPECTUS
-----------------
- --------------------------------------------------------------------------------
We have not authorized any dealer, salesperson or other person to give you
written information other than this prospectus or to make representations as to
matters not stated in this prospectus. You must not rely on unauthorized
information. This prospectus is not an offer to sell these securities or our
solicitation of your offer to buy these securities in any jurisdiction where
that would not be permitted or legal. Neither the delivery of this prospectus
nor any sales made hereunder after the date of this prospectus shall create an
implication that the information contained herein or the affairs of the company
have not changed since the date of this prospectus.
================================================================================
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution.
Securities and Exchange Commission Registration Fee......................$1,104*
Printing Expenses.........................................................5,000
Accounting Fees and Expenses..............................................7,000
Legal Fees and Expenses..................................................40,000
Blue Sky Fees and Expenses................................................5,000
Miscellaneous Expenses......................................................896
Total...................................................................$59,000
_______________
* Represents actual expenses. All other expenses are estimates.
Item 14. Indemnification of Directors and Officers.
Article 10 of Chapter 9 of Title 13.1 of the Code of Virginia (the
"Code") permits a Virginia corporation to indemnify any director or officer for
reasonable expenses incurred in any legal proceeding in advance of final
disposition of the proceeding, if the director or officer furnishes the
corporation a written statement of his or her good faith belief that he or she
has met the standard of conduct prescribed by the Code and furnishes the
corporation a written undertaking to repay any advance if it is ultimately
determined that he or she did not meet the standard of conduct, and a
determination is made by the board of directors that such standard has been met.
In a proceeding by or in the right of the corporation, no indemnification shall
be made in respect of any matter as to which an officer or director is adjudged
to be liable to the corporation, unless the court in which the proceeding took
place determines that, despite such liability, such person is reasonably
entitled to indemnification in view of all of the relevant circumstances. In any
other proceeding, no indemnification shall be made if the director or officer is
adjudged liable to the corporation on the basis that he or she improperly
received a personal benefit. Corporations are given the power to make any other
or further indemnity, including advance of expenses, to any director or officer
that may be authorized by the articles of incorporation or any bylaw made by the
shareholders, or any resolution adopted, before or after the event, by the
shareholders, except an indemnity against willful misconduct or a knowing
violation of the criminal law. Unless limited by its articles of incorporation,
indemnification of a director or officer is mandatory when he or she entirely
prevails in the defense of any proceeding to which he or she is a party because
he or she is or was a director or officer.
The Articles of Incorporation of the Registrant contain provisions
indemnifying the directors and officers of the Registrant as permitted by
Virginia law. In addition, the Articles of Incorporation of the Registrant
eliminate the personal liability of the Registrant's directors and officers to
the Registrant or its shareholders for monetary damages as permitted by Virginia
law.
Item 15. Recent Sales of Unregistered Securities.
The Registrant has sold unregistered securities within the past three
(3) years as follows:
In July 2000, New Peoples Bank, Inc. (the "Bank"), the predecessor to
the Registrant, sold 600,000 shares (1,200,000 shares, as adjusted for a
two-for-one stock split in January 2002) of its
II-1
common stock in an offering to 121 investors. The offering price for each share
was $10.00 (or $5.00 per share, as adjusted), or a total of $6,000,000 in the
offering. The Bank did not have an underwriter in connection with the offering.
As the shares were securities issued by a bank, the Bank relied upon Section
3(a)(2) under the Securities Act of 1933, as amended (the "Securities Act"), for
the exemption from registration for the issuance of these shares of Common
Stock.
The Registrant was formed on July 12, 2001 for the sole purpose of
reorganizing the Bank into a bank holding company structure. In connection with
the formation of the Registrant, the Registrant made an initial issuance of 100
shares of its common stock ("Common Stock") in August 2001 to the Bank for an
aggregate amount of $1,000. The Registrant relied upon Section 4(2) under the
Securities Act of 1933, as amended, for the exemption from registration for the
issuance of these shares of Common Stock.
On November 30, 2001, the Registrant issued 3,000,000 shares (6,000,000
shares, as adjusted for a two-for-one stock split in January 2002) of Common
Stock to the shareholders of the Bank. The issuance was made in connection with
the reorganization of the Bank into a bank holding company structure, and the
Registrant exchanged one share of Common Stock for each share of the Bank's
common stock. The Registrant relied upon Section 3(a)(12) under the Securities
Act of 1933, as amended, for the exemption from registration for the issuance of
these shares of Common Stock.
On December 12, 2001, the Registrant granted to its directors and
certain of its key employees options to acquire a total of 128,000 shares
(256,000 shares, as adjusted for a two-for-one stock split in January 2002) of
Common Stock at an exercise price of $15.00 per share ($7.50, as adjusted). The
Registrant relied upon Rule 701 under the Securities Act for the exemption from
registration for the grant of these options.
Item 16. Exhibits and Financial Statement Schedules.
(a) Exhibits:
The following exhibits are filed on behalf of the Registrant as part of
this Registration Statement:
Exhibit No. Document
----------- --------
3.1 Articles of Incorporation, attached as Exhibit 3.1 to the
Registrant's Current Report on Form 8-K filed December 17,
2001, incorporated herein by reference.
3.2 Bylaws, attached as Exhibit 3.2 to the Registrant's Current
Report on Form 8-K filed December 17, 2001, incorporated
herein by reference.
4.1 Form of stock certificate.*
5.1 Legal opinion of Williams Mullen.*
10.1 2001 Stock Option Plan, attached as Exhibit 10.1 to the
Registrant's Annual Report on Form 10-KSB for the period
ending December 31, 2001, filed on April 1, 2002, incorporated
herein by reference.
21 Subsidiaries of the Registrant.*
23.1 Consent of Williams Mullen (included in Exhibit 5.1 above).
23.2 Consent of S. B. Hoover & Company, L.L.P.**
24.1 Powers of attorney (included on signature page).*
99.1 Form of Subscription Agreement.*
______________
II-2
* Previously filed.
** Filed herewith.
(b) Financial Statement Schedules: None.
Item 17. Undertakings.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section
10(a)(3) of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events
arising after the effective date of the registration
statement (or the most recent post-effective
amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the
information set forth in the registration statement.
Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the
total dollar value of securities offered would not
exceed that which was registered) and any deviation
from the low or high end of the estimated maximum
offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule
424(b) if, in the aggregate, the changes in volume
and price represent no more than 20 percent change in
the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the
effective registration statement.
(iii) To include any material information with respect to
the plan of distribution not previously disclosed in
the registration statement or any material change to
such information in the registration statement;
provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if the
registration statement is on Form S-3, Form S-8 or Form F-3, and the information
required to be included in a post-effective amendment by those paragraphs is
contained in periodic reports filed with or furnished to the Commission by the
Registrant pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934 that are incorporated by reference in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
the offering.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful
II-3
defense of any action, suit or proceeding) is asserted by such director, officer
or controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question of whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
II-4
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized in the County of Russell,
Commonwealth of Virginia, on August 26, 2002.
NEW PEOPLES BANKSHARES, INC.
By: /s/ Kenneth D. Hart
--------------------------------------
Kenneth D. Hart
President and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, as amended,
this registration statement has been signed by the following persons in the
capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ Kenneth D. Hart President and August 26, 2002
- -------------------------------------------- Chief Executive Officer
Kenneth D. Hart (Principal Executive Officer)
/s/ Frank Sexton, Jr. Executive Vice President, Chief Financial August 26, 2002
- -------------------------------------------- Officer and Secretary
Frank Sexton, Jr. (Principal Financial Officer and
Principal Accounting Officer)
* Director August 26, 2002
- -------------------------------------------
Tim Ball
* Director August 26, 2002
- -------------------------------------------
Joe M. Carter
* Director August 26, 2002
- -------------------------------------------
John D. Cox
* Director August 26, 2002
- -------------------------------------------
Charles Gent
* Director August 26, 2002
- -------------------------------------------
Harold Lynn Keene
* Director August 26, 2002
- -------------------------------------------
Frank Kilgore
* Director August 26, 2002
- -------------------------------------------
John Maxfield
Director
- -------------------------------------------
Michael G. McGlothlin
* Director August 26, 2002
- -------------------------------------------
Fred Meade
* Director August 26, 2002
- -------------------------------------------
Bill Ed Sample
* Director August 26, 2002
- -------------------------------------------
E. Virgil Sampson, Jr.
* Director August 26, 2002
- -------------------------------------------
Steve Starnes
* Director August 26, 2002
- -------------------------------------------
Paul Vencill, Jr.
* Director August 26, 2002
- -------------------------------------------
B. Scott White
* Frank Sexton, Jr., by signing his name hereto, signs this document on
behalf of each of the persons indicated by an asterisk above pursuant to powers
of attorney duly executed by such persons and previously filed with the
Securities and Exchange Commission as part of this Registration Statement.
Date: August 26, 2002 /s/ Frank Sexton, Jr.
---------------------------
Frank Sexton, Jr.
Attorney-in-Fact
EXHIBIT INDEX
Exhibit No. Document
----------- --------
3.1 Articles of Incorporation, attached as Exhibit 3.1 to the
Registrant's Current Report on Form 8-K filed December 17,
2001, incorporated herein by reference.
3.2 Bylaws, attached as Exhibit 3.2 to the Registrant's Current
Report on Form 8-K filed December 17, 2001, incorporated
herein by reference.
4.1 Form of stock certificate.*
5.1 Legal opinion of Williams Mullen.*
10.1 2001 Stock Option Plan, attached as Exhibit 10.1 to the
Registrant's Annual Report on Form 10-KSB for the period
ending December 31, 2001, filed on April 1, 2002, incorporated
herein by reference.
21 Subsidiaries of the Registrant.*
23.1 Consent of Williams Mullen (included in Exhibit 5.1 above).
23.2 Consent of S. B. Hoover & Company, L.L.P.**
24.1 Powers of attorney (included on signature page).*
99.1 Form of Subscription Agreement.*
________________________
* Previously filed.
** Filed herewith.