NEW PEOPLES BANKSHARES INC - Quarter Report: 2011 June (Form 10-Q)

NEW PEOPLES BANKSHARES INC - Quarter Report: 2011 June (Form 10-Q)

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Form 10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

x	Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended June 30, 2011

¨	Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from to

Commission file number: 000-33411

NEW PEOPLES BANKSHARES, INC.

(Exact name of registrant as specified in its charter)


Virginia		31-1804543
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

67 Commerce Drive
Honaker, Virginia		24260
(Address of principal executive offices)		(Zip Code)

(276) 873-7000

(Registrant’s telephone number, including area code)

n/a

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ¨ No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:

10,010,178 shares of common stock, par value $2.00 per share, outstanding as of August 8, 2011.

NEW PEOPLES BANKSHARES, INC.

INDEX


		Page

PART I	FINANCIAL INFORMATION		2

Item 1.	Financial Statements		2

	Consolidated Statements of Income - Six Months Ended June 30, 2011 and 2010 (Unaudited)		2

	Consolidated Statements of Income - Three Months Ended June 30, 2011 and 2010 (Unaudited)		3

	Consolidated Balance Sheets - June 30, 2011 (Unaudited) and December 31, 2010		4

	Consolidated Statements of Changes in Stockholders’ Equity Six Months Ended June 30, 2011 and 2010 (Unaudited)		5

	Consolidated Statements Of Cash Flows - Six Months Ended June 30, 2011 and 2010 (Unaudited)		6

	Notes to Consolidated Financial Statements		7

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		18

Item 3.	Quantitative and Qualitative Disclosures about Market Risk		24

Item 4.	Controls and Procedures		24

PART II	OTHER INFORMATION		25

Item 1.	Legal Proceedings		25

Item 1A.	Risk Factors		25

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		25

Item 3.	Defaults upon Senior Securities		25

Item 4.	(Removed and Reserved)		25

Item 5.	Other Information		25

Item 6.	Exhibits		25

SIGNATURES			26

Part I

Financial Information

Item 1

Financial Statements

NEW PEOPLES BANKSHARES, INC.

CONSOLIDATED STATEMENTS OF INCOME

FOR THE SIX MONTHS ENDED JUNE 30, 2011 AND 2010

(IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA)

(UNAUDITED)


	2011			2010
INTEREST AND DIVIDEND INCOME
Loans including fees	$	21,402		$	24,478
Federal funds sold		9			21
Interest-earning deposits with banks		80			—
Investments		84			58
Dividends on equity securities (restricted)		50			42

Total Interest and Dividend Income		21,625			24,599


INTEREST EXPENSE
Deposits
Demand		89			150
Savings		324			393
Time deposits below $100,000		2,630			3,792
Time deposits above $100,000		1,574			2,337
FHLB Advances		444			524
Other borrowings		105			122
Trust Preferred Securities		200			219

Total Interest Expense		5,366			7,537


NET INTEREST INCOME		16,259			17,062
PROVISION FOR LOAN LOSSES		3,457			3,940


NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES		12,802			13,122


NONINTEREST INCOME
Service charges		1,159			1,313
Fees, commissions and other income		1,019			989
Insurance and investment fees		191			279
Life insurance investment income		176			209

Total Noninterest Income		2,545			2,790


NONINTEREST EXPENSES
Salaries and employee benefits		7,859			7,520
Occupancy and equipment expense		2,144			2,334
Advertising and public relations		183			194
Data processing and telecommunications		798			814
FDIC insurance premiums		1,096			1,500
Other real estate owned and repossessed vehicles, net		2,490			302
Other operating expenses		2,660			2,358

Total Noninterest Expenses		17,230			15,022


INCOME (LOSS) BEFORE INCOME TAXES		(1,883	)		890

INCOME TAX EXPENSE (BENEFIT)		(757	)		235


NET INCOME (LOSS)	$	(1,126	)	$	655


Earnings (Loss) Per Share
Basic	$	(0.11	)	$	0.07

Fully Diluted	$	(0.11	)	$	0.07


Average Weighted Shares of Common Stock
Basic		10,010,178			10,009,039

Fully Diluted		10,010,178			10,009,039

The accompanying notes are an integral part of this statement.

NEW PEOPLES BANKSHARES, INC.

CONSOLIDATED STATEMENTS OF INCOME

FOR THE THREE MONTHS ENDED JUNE 30, 2011 AND 2010

(IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA)

(UNAUDITED)


	2011			2010
INTEREST AND DIVIDEND INCOME
Loans including fees	$	10,514		$	12,283
Federal funds sold		—			11
Interest-earning deposits with banks		54			—
Investments		45			35
Dividends on equity securities (restricted)		28			21

Total Interest and Dividend Income		10,641			12,350


INTEREST EXPENSE
Deposits
Demand		44			77
Savings		138			193
Time deposits below $100,000		1,242			1,812
Time deposits above $100,000		769			1,118
FHLB Advances		223			263
Other borrowings		44			59
Trust Preferred Securities		92			112

Total Interest Expense		2,552			3,634

NET INTEREST INCOME		8,089			8,716
PROVISION FOR LOAN LOSSES		2,312			1,950


NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES		5,777			6,766


NONINTEREST INCOME
Service charges		607			703
Fees, commissions and other income		445			448
Insurance and investment fees		93			159
Life insurance investment income		89			103

Total Noninterest Income		1,234			1,413


NONINTEREST EXPENSES
Salaries and employee benefits		3,946			4,019
Occupancy and equipment expense		1,119			1,130
Advertising and public relations		98			116
Data processing and telecommunications		392			399
FDIC insurance premiums		421			750
Other real estate owned and repossessed vehicles, net		2,246			156
Other operating expenses		1,395			1,301

Total Noninterest Expenses		9,617			7,871


INCOME (LOSS) BEFORE INCOME TAXES		(2,606	)		308

INCOME TAX EXPENSE (BENEFIT)		(931	)		66


NET INCOME (LOSS)	$	(1,675	)	$	242


Earnings (Loss) Per Share
Basic	$	(0.17	)	$	0.02

Fully Diluted	$	(0.17	)	$	0.02


Average Weighted Shares of Common Stock
Basic		10,010,178			10,009,042

Fully Diluted		10,010,178			10,009,042

The accompanying notes are an integral part of this statement.

NEW PEOPLES BANKSHARES, INC.

CONSOLIDATED BALANCE SHEETS

(IN THOUSANDS EXCEPT PER SHARE AND SHARE DATA)


	June 30, 2011			December 31, 2010
	(Unaudited)			(Audited)
ASSETS

Cash and due from banks	$	18,818		$	14,369
Interest-bearing deposits with banks		69,082			42,549
Federal funds sold		1,010			25,611

Total Cash and Cash Equivalents		88,910			82,529

Investment securities
Available-for-sale		4,383			4,658

Loans receivable		664,003			707,794
Allowance for loan losses		(18,697	)		(25,014	)

Net Loans		645,306			682,780

Bank premises and equipment, net		33,780			34,141
Equity securities (restricted)		3,733			3,878
Other real estate owned		11,137			12,346
Accrued interest receivable		3,368			3,700
Life insurance investments		11,187			11,011
Goodwill and other intangibles		4,288			4,346
Deferred taxes		7,362			8,037
Other assets		7,653			5,201


Total Assets	$	821,107		$	852,627


LIABILITIES

Deposits:
Demand deposits:
Noninterest bearing	$	102,343		$	87,839
Interest-bearing		56,062			60,022
Savings deposits		99,992			108,119
Time deposits		482,756			510,100

Total Deposits		741,153			766,080

Federal Home Loan Bank advances		18,583			24,183
Accrued interest payable		1,795			1,720
Accrued expenses and other liabilities		1,150			1,475
Line of credit borrowing		—			4,900
Other borrowings		5,450			250
Trust preferred securities		16,496			16,496


Total Liabilities		784,627			815,104


STOCKHOLDERS’ EQUITY

Common stock - $2.00 par value; 50,000,000 shares authorized; 10,010,178 shares issued and outstanding		20,020			20,020
Additional paid-in-capital		21,689			21,689
Retained earnings (deficit)		(5,301	)		(4,175	)
Accumulated other comprehensive income (loss)		72			(11	)


Total Stockholders’ Equity		36,480			37,523


Total Liabilities and Stockholders’ Equity	$	821,107		$	852,627

The accompanying notes are an integral part of this statement.

NEW PEOPLES BANKSHARES, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

FOR THE SIX MONTHS ENDED JUNE 30, 2011 AND 2010

(IN THOUSANDS INCLUDING SHARE DATA)

(UNAUDITED)


	Shares of Common Stock		Common Stock		Additional Paid in Capital		Retained Earnings (Deficit)			Accumulated Other Comprehensive Income (Loss)			Total Shareholders’ Equity			Comprehensive Income (Loss)

Balance, December 31, 2009		10,009	$	20,018	$	21,683	$	4,890		$	28		$	46,619
Net Income								655						655		$	655

Unrealized loss on available-for-sale securities, net of $2 tax											4			4			4

Balance, June 30, 2010		10,009	$	20,018	$	21,683	$	5,545		$	32		$	47,278		$	659


Balance, December 31, 2010		10,010	$	20,020	$	21,689	$	(4,175	)	$	(11	)	$	37,523
Net Income (Loss)								(1,126	)					(1,126	)	$	(1,126	)
Unrealized gain on available-for-sale securities, net of $43 tax											83			83			83

Balance, June 30, 2011		10,010	$	20,020	$	21,689	$	(5,301	)	$	72		$	36,480		$	(1,043	)

The accompanying notes are an integral part of this statement.

NEW PEOPLES BANKSHARES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE SIX MONTHS ENDED JUNE 30, 2011 AND 2010

(IN THOUSANDS)

(UNAUDITED)


	2011			2010
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)	$	(1,126	)	$	655
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation		1,245			1,383
Provision for loan losses		3,457			3,940
Income (less expenses) on life insurance		(176	)		(209	)
Loss on sale of fixed assets		152			—
Loss on sale of foreclosed real estate		47			36
Adjustment of carrying value of foreclosed real estate		1,869			—
Accretion of bond premiums/discounts		4			—
Deferred tax expense		631			735
Amortization of core deposit intangible		58			109
Net change in:
Interest receivable		332			(71	)
Other assets		(2,452	)		(1,811	)
Accrued interest payable		75			(37	)
Accrued expenses and other liabilities		(325	)		314

Net Cash Provided by Operating Activities		3,791			5,044


CASH FLOWS FROM INVESTING ACTIVITIES
Net decrease in loans		30,655			11,478
Purchase of securities available-for-sale		(2,455	)		(1,654	)
Proceeds from sale and maturities of securities available-for-sale		2,853			613
Sale of Federal Home Loan Bank stock		145			—
Purchase of Federal Reserve Bank stock		—			1
Payments for the purchase of property and equipment		(1,204	)		(1,269	)
Proceeds from sales of property and equipment		168			—
Proceeds from sales of other real estate owned		2,655			1,559

Net Cash Provided by Investing Activities		32,817			10,728


CASH FLOWS FROM FINANCING ACTIVITIES
Net decrease in line of credit borrowings		(4,900	)		—
Net increase in other borrowings		5,200			—
Repayments to Federal Home Loan Bank		(5,600	)		(600	)
Net change in:
Demand deposits		10,544			23,544
Savings deposits		(8,127	)		(728	)
Time deposits		(27,344	)		(21,436	)

Net Cash Provided by (Used in) Financing Activities		(30,227	)		780


Net increase in cash and cash equivalents		6,381			16,552
Cash and Cash Equivalents, Beginning of Period		82,529			39,560

Cash and Cash Equivalents, End of Period	$	88,910		$	56,112


Supplemental Disclosure of Cash Paid During the Period for:

Interest	$	5,441		$	7,500
Taxes	$	—		$	—

Supplemental Disclosure of Non Cash Transactions:

Other real estate acquired in settlement of foreclosed loans	$	3,362		$	5,897
Loans made to finance sale of foreclosed real estate	$	—		$	175

The accompanying notes are an integral part of this statement.

NEW PEOPLES BANKSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1

NATURE OF OPERATIONS:

New Peoples Bankshares, Inc. (“The Company”) is a bank holding company whose principal activity is the ownership and management of a community bank. New Peoples Bank, Inc. (“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 member bank, the Bank is subject to regulation 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 southwestern Virginia, southern West Virginia, and eastern Tennessee. On June 9, 2003, the Company formed two wholly owned subsidiaries, NPB Financial Services, Inc. and NPB Web Services, Inc. On July 7, 2004 the Company established NPB Capital Trust I for the purpose of issuing trust preferred securities. On September 27, 2006, the Company established NPB Capital Trust 2 for the purpose of issuing additional trust preferred securities. NPB Financial Services, Inc. was a subsidiary of the Company until January 1, 2009 when it became a subsidiary of the Bank.

NOTE 2

ACCOUNTING PRINCIPLES:

The financial statements conform to U. S. generally accepted accounting principles and to general industry practices. In the opinion of management, the accompanying unaudited financial statements contain all adjustments (consisting of only normal recurring accruals) necessary to present fairly the financial position at June 30, 2011, and the results of operations for the three month and six month periods ended June 30, 2011 and 2010. The notes included herein should be read in conjunction with the notes to financial statements included in the Company’s Annual Report on Form 10-K/A Amendment No. 2 for the year ended December 31, 2010. The results of operations for the three month and six month periods ended June 30, 2011 and 2010 are not necessarily indicative of the results to be expected for the full year.

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The determination of the adequacy of the allowance for loan losses is based on estimates that are particularly susceptible to significant changes in the economic environment and market conditions.

NOTE 3

FORMAL WRITTEN AGREEMENT:

Effective July 29, 2010, the Company and the Bank entered into a written agreement with the Federal Reserve Bank of Richmond (“Reserve Bank”) and the Virginia State Corporation Commission Bureau of Financial Institutions (the “Bureau”) called (the “Written Agreement”). We believe we have made good progress in our compliance efforts under the Written Agreement and all of the written plans required to date, as discussed in the following paragraphs, have been submitted on a timely basis.

Under the terms of the Written Agreement, the Bank has agreed to develop and submit for approval within specified time periods written plans to: (a) strengthen board oversight of management and the Bank’s operation; (b) if appropriate after review, to strengthen the Bank’s management and board governance; (c) strengthen credit risk management policies; (d) enhance lending and credit administration; (e) enhance the Bank’s management of commercial real estate concentrations; (f) conduct ongoing review and grading of the Bank’s loan portfolio; (g) improve the Bank’s position with respect to loans, relationships, or other assets in excess of $1 million which are now or in the future become past due more than 90 days, which are on the Bank’s problem loan list, or which are adversely classified in any report of examination of the Bank; (h) review and revise, as appropriate, current policy and maintain sound processes for maintaining an adequate allowance for loan and lease losses; (i) enhance management of the Bank’s liquidity position and funds management practices; (j) revise its contingency funding plan; (k) revise its strategic plan; and (l) enhance the Bank’s anti-money laundering and related activities.

In addition, the Bank has agreed that it will: (a) not extend, renew, or restructure any credit that has been criticized by the Reserve Bank or the Bureau absent prior board of directors approval in accordance with the restrictions in the Written Agreement; (b) eliminate all assets or portions of assets classified as “loss” and thereafter charge off all assets classified as “loss” in a federal or state report of examination, unless otherwise approved by the Reserve Bank.

Under the terms of the Written Agreement, both the Company and the Bank have agreed to submit capital plans to maintain sufficient capital at the Company, on a consolidated basis, and the Bank, on a stand-alone basis, and to refrain from declaring or paying dividends without prior regulatory approval. The Company has agreed that it will not take any

NEW PEOPLES BANKSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 3

FORMAL WRITTEN AGREEMENT (CONTINUED):

other form of payment representing a reduction in the Bank’s capital or make any distributions of interest, principal, or other sums on subordinated debentures or trust preferred securities without prior regulatory approval. The Company may not incur, increase or guarantee any debt without prior regulatory approval and has agreed not to purchase or redeem any shares of its stock without prior regulatory approval.

Under the terms of the Written Agreement, the Company and the Bank have appointed a committee to monitor compliance with the Written Agreement. The directors of the Company and the Bank have recognized and unanimously agree with the common goal of financial soundness represented by the Written Agreement and have confirmed the intent of the directors and executive management to diligently seek to comply with all requirements of the Written Agreement.

NOTE 4

CAPITAL REQUIREMENTS:

The Company and the Bank are subject to various capital requirements administered by federal banking agencies. 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 Company’s and the Bank’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company and the Bank must meet specific capital guidelines that involve quantitative measures of assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. The capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors. Prompt corrective action provisions are not applicable to bank holding companies.

Quantitative measures established by regulation to ensure capital adequacy require the Company and the Bank to maintain minimum amounts and ratios (set forth in the following table) of total and Tier 1 capital (as defined) to risk-weighted assets (as defined) and of Tier 1 capital (as defined) to average assets (as defined). Management believes that, as of June 30, 2011, the Company and the Bank meet all capital adequacy requirements to which they are subject.

As of June 30, 2011 the Bank was 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 Company’s and the Bank’s actual capital amounts and ratios are presented in the table as of June 30, 2011 and December 31, 2010, respectively.


	Actual					Minimum Capital Requirement					Minimum to Be Well Capitalized Under Prompt Corrective Action Provisions
(Dollars are in thousands)	Amount		Ratio			Amount		Ratio			Amount		Ratio
June 30, 2011:
Total Capital to Risk Weighted Assets:
The Company	$	51,988		9.35	%	$	44,496		8	%	$	N/A		N/A
The Bank		56,651		10.21	%		44,384		8	%		55,480		10	%
Tier 1 Capital Risk Weighted Assets:
The Company		39,615		7.12	%		22,248		4	%		N/A		N/A
The Bank		49,571		8.93	%		22,192		4	%		33,288		6	%
Tier 1 Capital to Average Assets:
The Company		39,615		4.74	%		33,409		4	%		N/A		N/A
The Bank		49,571		5.97	%		33,194		4	%		41,492		5	%

December 31, 2010:
Total Capital to Risk Weighted Assets:
The Company	$	53,020		8.87	%	$	47,825		8	%	$	N/A		N/A
The Bank		58,466		9.79	%		47,786		8	%		59,732		10	%
Tier 1 Capital Risk Weighted Assets:
The Company		39,108		6.54	%		23,913		4	%		N/A		N/A
The Bank		50,777		8.50	%		23,893		4	%		35,839		6	%
Tier 1 Capital to Average Assets:
The Company		39,108		4.62	%		33,857		4	%		N/A		N/A
The Bank		50,777		6.00	%		33,857		4	%		42,321		5	%

NEW PEOPLES BANKSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 5

INVESTMENT SECURITIES:

The amortized cost and estimated fair value of securities are as follows:


(Dollars are in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Approximate Fair Value
June 30, 2011
Available for Sale
U.S. Government Agencies	$	2,707	$	37	$	—	$	2,744
Taxable municipals		893		52		—		945
US. Government Mortgage backed securities		674		20		—		694

Total Securities AFS	$	4,274	$	109	$	—	$	4,383


December 31, 2010
Available for Sale
U.S. Government Agencies	$	3,001	$	—	$	31	$	2,970
Taxable municipals		894		5		—		899
U.S. Government Mortgage backed securities		781		8		—		789

Total Securities AFS	$	4,676	$	13	$	31	$	4,658

The following table details unrealized losses and related fair values in the available for sale portfolio. This information is aggregated by the length of time that individual securities have been in a continuous unrealized loss position as of June 30, 2011 and December 31, 2010.


	Less than 12 Months				12 Months or More				Total
(Dollars are in thousands)	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
June 30, 2011
U.S. Government Agencies	$	—	$	—	$	—	$	—	$	—	$	—


December 31, 2010
U.S. Government Agencies	$	2,970	$	31	$	—	$	—	$	2,970	$	31

At June 30, 2011, the available for sale portfolio had no investments for which the fair market value was less than amortized cost. At December 31, 2010, the available for sale portfolio included four investments for which the fair market value was less than amortized cost. No securities had an other than temporary impairment.

The amortized cost and fair value of investment securities at June 30, 2011, 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.


(Dollars are in thousands) Securities Available for Sale	Amortized Cost		Fair Value		Weighted Average Yield
Due in one year or less	$	—	$	—		—	%
Due after one year through five years		231		236		3.14	%
Due after five years through fifteen years		4,043		4,147		3.50	%

Total	$	4,274	$	4,383		3.46	%

Investment securities with a carrying value of $1.2 million and $892 thousand at June 30, 2011 and December 31, 2010, were pledged to secure public deposits and for other purposes required by law.

The Bank, as a member of the Federal Reserve Bank and the Federal Home Loan Bank, is required to hold stock in each. These equity securities are restricted from trading and are recorded at a cost of $3.7 million and $3.9 million as of June 30, 2011 and December 31, 2010, respectively.

NEW PEOPLES BANKSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 6

LOANS:

Loans receivable outstanding are summarized as follows:


(Dollars are in thousands)	June 30, 2011		December 31, 2010
Commercial, financial and agricultural	$	98,365	$	109,551
Real estate-construction		44,872		52,307
Real estate-mortgages		473,814		489,314
Installment loans to individuals		46,952		56,622

Total loans	$	664,003	$	707,794

The following table presents information concerning the Company’s investment in loans considered impaired as of June 30, 2011 and December 31, 2010:


As of June 30, 2011 (Dollars are in thousands)	Average Recorded Investment		Interest Income Recognized		Recorded Investment		Unpaid Principal Balance		Related Allowance
With no related allowance recorded:
Commercial, financial and agricultural	$	14,062	$	322	$	16,934	$	17,712	$	—
Real estate-construction		13,672		128		14,768		23,735		—
Real Estate-mortgages		34,413		857		40,827		44,103		—
Installment loans to individuals		1		—		4		4		—
With an allowance recorded:
Commercial, financial and agricultural		6,104		90		3,650		3,824		1,256
Real estate-construction		7,275		50		3,963		4,306		1,632
Real Estate-mortgages		13,533		254		10,357		10,642		1,735
Installment loans to individuals		38		1		26		27		7

Total	$	89,098	$	1,702	$	90,529	$	104,353	$	4,630


As of December 31, 2010 (Dollars are in thousands)	Recorded Investment		Unpaid Principal Balance		Related Allowance
With no related allowance recorded:
Commercial, financial and agricultural	$	9,264	$	9,785	$	—
Real estate-construction		8,585		12,594		—
Real Estate-mortgages		27,138		27,997		—
Installment loans to individuals		—		—		—
With an allowance recorded:
Commercial, financial and agricultural		11,729		11,729		4,042
Real estate-construction		14,913		16,253		3,926
Real Estate-mortgages		18,973		19,142		4,842
Installment loans to individuals		46		46		23

Total	$	90,648	$	97,546	$	12,833

The average recorded investment in impaired loans was $63.4 million for the year ended December 31, 2010.

Loans receivable on nonaccrual status are summarized as follows:


(Dollars are in thousands)	June 30, 2011		December 31, 2010
Commercial, financial and agricultural	$	11,544	$	5,970
Real estate-construction		12,239		15,460
Real estate-mortgages		18,889		22,986
Installment loans to individuals		324		1,365

Total loans receivable on nonaccrual status	$	42,996	$	45,781

Total interest income not recognized on nonaccrual loans for six months ended June 30, 2011 and 2010 was $1.1 million and $309 thousand, respectively.

NEW PEOPLES BANKSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 6

LOANS (CONTINUED):

An age analysis of past due loans receivable was as follows:


As of June 30, 2011 (Dollars are in thousands)	Loans 30-89 Days Past Due		Loans 90 or More Days Past Due		Total Past Due Loans		Current Loans		Total Loans		Accruing Loans 90 or More Days Past Due
Commercial, financial and agricultural	$	4,257	$	9,855	$	14,112	$	84,253	$	98,365	$	446
Real estate-construction		3,628		9,394		13,022		31,850		44,872		—
Real Estate-mortgages		19,305		11,355		30,660		443,154		473,814		1,598
Installment loans to individuals		1,276		533		1,809		45,143		46,952		309

Total	$	28,466	$	31,137	$	59,603	$	604,400	$	664,003	$	2,353


As of December 31, 2010 (Dollars are in thousands)	Loans 30-89 Days Past Due		Loans 90 or More Days Past Due		Total Past Due Loans		Current Loans		Total Loans		Accruing Loans 90 or More Days Past Due
Commercial, financial and agricultural	$	5,622	$	2,690	$	8,312	$	101,239	$	109,551	$	90
Real estate-construction		2,079		8,150		10,229		42,078		52,307		—
Real Estate-mortgages		22,251		12,227		34,478		454,836		489,314		1,332
Installment loans to individuals		2,584		337		2,921		53,701		56,622		270

Total	$	32,536	$	23,404	$	55,940	$	651,854	$	707,794	$	1,692

The Company categorizes loans receivable into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. The Company analyzes loans and leases individually by classifying the loans receivable as to credit risk. The Company uses the following definitions for risk ratings:

Pass - Loans in this category are considered to have a low likelihood of loss based on relevant information analyzed about the ability of the borrowers to service their debt and other factors.

Special Mention - Loans in this category are currently protected but are potentially weak, including adverse trends in borrower’s operations, credit quality or financial strength. Those loans constitute an undue and unwarranted credit risk but not to the point of justifying a substandard classification. The credit risk may be relatively minor yet constitute an unwarranted risk in light of the circumstances. Special mention loans have potential weaknesses which may, if not checked or corrected, weaken the loan or inadequately protect the Company’s credit position at some future date.

Substandard - A substandard loan is inadequately protected by the current sound net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans classified as substandard must have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt; they are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.

Doubtful - Loans classified Doubtful have all the weaknesses inherent in loans classified Substandard, plus the added characteristic that the weaknesses make collection or liquidation in full on the basis of currently existing facts, conditions, and values highly questionable and improbable.

Based on the most recent analysis performed, the risk category of loans receivable was as follows:


As of June 30, 2011 (Dollars are in thousands)	Pass		Special Mention		Substandard		Doubtful		Total
Commercial, financial and agricultural	$	68,631	$	8,906	$	18,304	$	2,524	$	98,365
Real estate-construction		25,638		4,158		15,076		—		44,872
Real Estate-mortgages		375,388		30,728		63,560		4,138		473,814
Installment loans to individuals		44,720		632		1,560		40		46,952

Total	$	514,377	$	44,424	$	98,500	$	6,702	$	664,003

NEW PEOPLES BANKSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 6

LOANS (CONTINUED):


As of December 31, 2010 (Dollars are in thousands)	Pass		Special Mention		Substandard		Doubtful		Total
Commercial, financial and agricultural	$	83,482	$	5,561	$	18,619	$	1,889	$	109,551
Real estate-construction		28,802		4,095		19,410		—		52,307
Real Estate-mortgages		418,166		20,113		47,389		3,646		489,314
Installment loans to individuals		56,037		122		434		29		56,622

Total	$	586,487	$	29,891	$	85,852	$	5,564	$	707,794

At June 30, 2011 there were $19.2 million in loans that are classified as troubled debt restructurings compared to $13.9 million at December 31, 2010.

NOTE 7

ALLOWANCE FOR LOAN LOSSES:

A summary of transactions in the allowance for loan losses is as follows:


	For the Six Months Ended
(Dollar are in thousands)	June 30, 2011			June 30, 2010
Balance, beginning of year	$	25,014		$	18,588
Provision for loan losses		3,457			3,940
Advances made on loans with off balance sheet provision		153			—
Recoveries of loans charged off		1,059			66
Loans charged off		(10,986	)		(6,167	)

Balance, End of period	$	18,697		$	16,427

Percentage of Loans		2.82	%		2.22	%

The following table details activity in the allowance for loan losses by portfolio segment for the periods ended June 30, 2011 and December 31, 2010. Allocation of a portion of the allowance to one category of loans does not preclude its availability to absorb losses in other categories.


As of June 30, 2011 (Dollars are in thousands)	Commercial, Financial and Agricultural			Real Estate Construction			Real Estate Mortgages			Installment Loans to Individuals			Unallocated			Total
Allowance for loan losses:
Beginning balance	$	5,323		$	4,913		$	6,882		$	1,733		$	6,163		$	25,014
Charge offs		(2,208	)		(3,965	)		(3,480	)		(1,333	)		—			(10,986	)
Recoveries		39			707			217			96			—			1,059
Advances		—			153			—			—			—			153
Provisions		190			1,011			2,261			492			(497	)		3,457

Ending balance	$	3,344		$	2,819		$	5,880		$	988		$	5,666		$	18,697


Ending balance allocated to:
Individually evaluated for impairment	$	1,256		$	1,632		$	1,735		$	7		$	—		$	4,630
Collectively evaluated for impairment		2,088			1,187			4,145			981			5,666			14,067

Ending balance	$	3,344		$	2,819		$	5,880		$	988		$	5,666		$	18,697


Loans ending balances:
Individually evaluated for impairment	$	20,584		$	18,731		$	51,184		$	30		$	—		$	90,529
Collectively evaluated for impairment		77,781			26,141			422,630			46,922			—			573,474

Total	$	98,365		$	44,872		$	473,814		$	46,952		$	—		$	664,003

NEW PEOPLES BANKSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 7

ALLOWANCE FOR LOAN LOSSES (CONTINUED):


As of December 31, 2010 (Dollars are in thousands)	Commercial, Financial and Agricultural			Real Estate Construction			Real Estate Mortgages			Installment Loans to Individuals			Unallocated		Total
Allowance for loan losses:
Beginning balance	$	1,710		$	8,036		$	3,525		$	1,501		$	3,816	$	18,588
Charge offs		(1,425	)		(10,002	)		(3,867	)		(1,214	)		—		(16,508	)
Recoveries		509			—			7			90			—		606
Provisions		4,529			6,879			7,217			1,356			2,347		22,328

Ending balance	$	5,323		$	4,913		$	6,882		$	1,733		$	6,163	$	25,014


Ending balance allocated to:
Individually evaluated for impairment	$	4,042		$	3,926		$	4,842		$	23		$	—	$	12,833
Collectively evaluated for impairment		1,281			987			2,040			1,710			6,163		12,181

Ending balance	$	5,323		$	4,913		$	6,882		$	1,733		$	6,163	$	25,014


Loans ending balances:
Individually evaluated for impairment	$	20,993		$	23,497		$	46,112		$	46		$	—	$	90,648
Collectively evaluated for impairment		88,558			28,810			443,202			56,576			—		617,146

Total	$	109,551		$	52,307		$	489,314		$	56,622		$	—	$	707,794

In determining the amount of our allowance, we rely on an analysis of our loan portfolio, our experience and our evaluation of general economic conditions, as well as the requirements of the written agreement and other regulatory input. If our assumptions prove to be incorrect, our current allowance may not be sufficient to cover future loan losses and we may experience significant increases to our provision.

NOTE 8

EARNINGS PER SHARE:

Basic earnings per share computations are based on the weighted average number of shares outstanding during each year. Dilutive earnings per share reflect the additional common shares that would have been outstanding if dilutive potential common shares had been issued. Potential common shares that may be issued relate to outstanding options and are determined by the Treasury method. For the three and six month periods ended June 30, 2011 and 2010, potential common shares were anti-dilutive and were not included in the calculation. Basic and diluted net income per common share calculations follows:


(Amounts in Thousands, Except Share and Per Share Data)	For the three months ended June 30,					For the six months ended June 30,
	2011			2010		2011			2010
Net income (loss)	$	(1,675	)	$	242	$	(1,126	)	$	655
Weighted average shares outstanding		10,010,178			10,009,042		10,010,178			10,009,039
Dilutive shares for stock options		—			—		—			—

Weighted average dilutive shares outstanding		10,010,178			10,009,042		10,010,178			10,009,039


Basic earnings (loss) per share	$	(0.17	)	$	0.02	$	(0.11	)	$	0.07
Diluted earnings (loss) per share	$	(0.17	)	$	0.02	$	(0.11	)	$	0.07

NEW PEOPLES BANKSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 9

FAIR VALUES:

ASC 820, “Fair Value Measurements and Disclosures” provides a framework for measuring fair value under generally accepted accounting principles and requires disclosures about the fair value of assets and liabilities recognized in the balance sheet in periods subsequent to initial recognition, whether the measurements are made on a recurring basis (for example, available for sale investment securities) or on a nonrecurring basis (for example, impaired loans and other real estate acquired through foreclosure).

Fair value is the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Fair Value Measurements and Disclosures also establishes fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value:

Level 1: Quoted prices in active markets for identical assets or liabilities. Level 1 assets and liabilities include debt and equity securities and derivative contracts that are traded in an exchange market, as well as U. S. Treasury, other U. S. Government and agency mortgage-backed debt securities that are highly liquid and are actively traded in over-the-counter markets.

Level 2: Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Level 2 assets and liabilities include debt securities with quoted prices that are traded less frequently than exchange-traded instruments and derivative contracts whose value is determined using a pricing model with inputs that are observable in the market or can be derived principally from or corroborated by observable market data.

Level 3: Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets and liabilities. Level 3 assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation. For example, this category generally includes certain private equity investments, retained residual interests in securitizations, residential mortgage servicing rights, and highly structured or long-term derivative contracts.

Investment Securities Available for Sale - Investment securities available for sale are recorded at fair value on a recurring basis. Fair value measurement is based upon quoted prices. The Company’s available for sale securities, totaling $4.4 million and $4.7 million at June 30, 2011 and December 31, 2010, respectively, are the only assets whose fair values are measured on a recurring basis using Level 2 inputs from an independent pricing service.

Loans - The Company does not record loans at fair value on a recurring basis. The Company is predominantly an asset based lender with real estate serving as collateral on a substantial majority of loans. From time to time a loan is considered impaired and an allowance for loan losses is established. Loans which are deemed to be impaired are primarily valued on a non-recurring basis at the fair values of the underlying real estate collateral. Such fair values are obtained using independent appraisals, which management used to determine the current value of the collateral. If further impairment below the appraised value is warranted based on changes in market conditions and there is no observable market price, or an appraised value does not include estimated costs of disposition, then management must make an estimate of these costs. In that case, the Company records the impaired loan as nonrecurring Level 3. The aggregate carrying amounts of impaired loans were $90.5 million and $90.6 million at June 30, 2011 and December 31, 2010, respectively.

Foreclosed Assets - Foreclosed assets are adjusted to fair value upon transfer of the loans to foreclosed assets. Foreclosed assets are carried at the lower of the carrying value or fair value. Fair value is based upon independent observable market prices or appraised values of the collateral with a third party estimate of disposition costs, which the Company considers to be level 2 inputs. When the appraised value is not available, management determines the fair value of the collateral is further impaired below the appraised value and there is no observable market price, or an appraised value does not include estimated costs of disposition and management must make an estimate, the Company records the foreclosed asset as nonrecurring Level 3.

NEW PEOPLES BANKSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 9

FAIR VALUES (CONTINUED):

Assets and liabilities measured at fair value are as follows as of June 30, 2011:


(Dollars are in thousands)	Quoted market price in active markets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)
(On a recurring basis) Available for sale investments
U.S. Government Agencies	$	—	$	2,744	$	—
Taxable municipals		—		945		—
Mortgage backed securities		—		694		—
(On a non-recurring basis) Other real estate owned		—		—		11,137
Impaired loans
Commercial, financial and agricultural		—		—		20,584
Real estate-construction		—		—		18,731
Real estate-mortgages		—		—		51,184
Installment loans to individuals		—		—		30

Total	$	—	$	4,383	$	101,666

Assets and liabilities measured at fair value are as follows as of December 31, 2010:


(Dollars are in thousands)	Quoted market price in active markets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)
(On a recurring basis) Available for sale investments
U.S. Government Agencies	$	—	$	2,970	$	—
Taxable municipals		—		899		—
Mortgage backed securities		—		789		—
(On a non-recurring basis) Other real estate owned		—		—		12,346
Impaired loans
Commercial, financial and agricultural		—		—		20,993
Real estate-construction		—		—		23,497
Real estate-mortgages		—		—		46,112
Installment loans to individuals		—		—		46

Total	$	—	$	4,658	$	102,994

For the six months ended June 30, 2011 and 2010, the changes in other real estate owned Level 3 assets measured at fair value on a nonrecurring basis are summarized as follows (dollars in thousands):


(Dollars are in thousands)	June 30, 2011 Other Real Estate Owned			June 30, 2010 Other Real Estate Owned
Balance, January 1	$	12,346		$	3,675
Acquired in settlement of loans		3,362			5,861
Proceeds from sale of other real estate owned		(2,655	)		(1,559	)
Gain (Loss) on sale of other real estate owned		(47	)		(36	)
Adjustments to carrying value		(1,869	)		—

Balance, June 30	$	11,137		$	7,941

NEW PEOPLES BANKSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 9

FAIR VALUES (CONTINUED):

Fair Value of Financial Instruments

Fair value information about financial instruments, whether or not recognized in the balance sheet, for which it is practical to estimate the value is based upon the characteristics of the instruments and relevant market information. Financial instruments include cash, evidence of ownership in an entity, or contracts that convey or impose on an entity that contractual right or obligation to either receive or deliver cash for another financial instrument.

The following summary presents the methodologies and assumptions used to estimate the fair value of the Company’s financial instruments presented below. The information used to determine fair value is highly subjective and judgmental in nature and, therefore, the results may not be precise. Subjective factors include, among other things, estimates of cash flows, risk characteristics, credit quality, and interest rates, all of which are subject to change. Since the fair value is estimated as of the balance sheet date, the amounts that will actually be realized or paid upon settlement or maturity on these various instruments could be significantly different.

The carrying value of cash and due from banks, federal funds sold, interest-bearing deposits, deposits with no stated maturities, trust preferred securities 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 months of June 2011 and December 2010.


	June 30, 2011				December 31, 2010
(Dollars are in thousands)	Estimated Fair Value		Carrying Value		Estimated Fair Value		Carrying Value

Financial Assets
Cash and due from bank	$	18,818	$	18,818	$	14,369	$	14,369
Interest bearing deposits with banks		69,082		69,082		42,549		42,549
Federal funds sold		1,010		1,010		25,611		25,611
Investment securities		4,383		4,383		4,658		4,658
Equity securities (restricted)		3,733		3,733		3,878		3,878
Net Loans		648,980		645,306		700,420		682,780
Accrued Interest receivable		3,368		3,368		3,700		3,700
Life insurance investments		11,187		11,187		11,011		11,011

Financial Liabilities
Demand Deposits
Non-interest bearing		102,343		102,343		87,839		87,839
Interest-bearing		56,062		56,062		60,022		60,022
Savings deposits		99,992		99,992		108,119		108,119
Time deposits		485,889		482,756		513,090		510,100
FHLB advances		18,156		18,583		23,611		24,183
Accrued interest payable		1,795		1,795		1,720		1,720
Line of credit borrowing		—		—		4,900		4,900
Other borrowings		5,450		5,450		250		250
Trust preferred securities		16,496		16,496		16,496		16,496

NOTE 10

RECENT ACCOUNTING DEVELOPMENTS:

The following is a summary of recent authoritative announcements:

In July 2010, the Receivables topic of the Accounting Standards Codification (“ASC”) was amended by Accounting Standards Update (“ASU”) 2010-20 to require expanded disclosures related to a company’s allowance for credit losses and the credit quality of its financing receivables. The amendments require the allowance disclosures to be provided on a disaggregated basis. The Company is required to include these disclosures in their interim and annual financial statements. See Notes 6 and 7 to the consolidated financial statements for the required disclosures.

NEW PEOPLES BANKSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 10

RECENT ACCOUNTING DEVELOPMENTS (CONTINUED):

Disclosures about Troubled Debt Restructurings (“TDRs”) required by ASU 2010-20 were deferred by the Financial Accounting Standards Board (“FASB”) in ASU 2011-01 issued in January 2011. In April 2011 FASB issued ASU 2011-02 to assist creditors with their determination of when a restructuring is a TDR. The determination is based on whether the restructuring constitutes a concession and whether the debtor is experiencing financial difficulties as both events must be present.

Disclosures related to TDRs under ASU 2010-20 will be effective for reporting periods beginning after June 15, 2011, but are not expected to have a material effect on the financial statements.

In December 2010, the Intangibles topic of the ASC was amended to modify Step 1 of the goodwill impairment test for reporting units with zero or negative carrying amounts. For those reporting units, an entity is required to perform Step 2 of the goodwill impairment test if it is more likely than not that a goodwill impairment exists. Any resulting goodwill impairment should be recorded as a cumulative-effect adjustment to beginning retained earnings upon adoption. Impairments occurring subsequent to adoption should be included in earnings. The amendment is effective for the Company beginning January 1, 2011, but is not expected to have a material effect on the financial statements. Early adoption is not permitted.

In April 2011, the criteria used to determine effective control of transferred assets in the Transfers and Servicing topic of the ASC was amended by ASU 2011-03. The requirement for the transferor to have the ability to repurchase or redeem the financial assets on substantially the agreed terms and the collateral maintenance implementation guidance related to that criterion were removed from the assessment of effective control. The other criteria to assess effective control were not changed. The amendments are effective for the Company beginning January 1, 2012 but are not expected to have a material effect on the financial statements.

ASU 2011-04 was issued in May 2011 to amend the Fair Value Measurement topic of the ASC by clarifying the application of existing fair value measurement and disclosure requirements and by changing particular principles or requirements for measuring fair value or for disclosing information about fair value measurements. The amendments will be effective for the Company beginning January 1, 2012 but are not expected to have a material effect on the financial statements.

The Comprehensive Income topic of the ASC was amended in June 2011. The amendment eliminates the option to present other comprehensive income as a part of the statement of changes in stockholders’ equity. The amendment requires consecutive presentation of the statement of net income and other comprehensive income and requires an entity to present reclassification adjustments from other comprehensive income to net income on the face of the financial statements. The amendments will be applicable to the Company on January 1, 2012 and will be applied retrospectively.

Other accounting standards that have been issued or proposed by the FASB or other standards-setting bodies are not expected to have a material impact on the Company’s financial position, results of operations or cash flows.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Caution About Forward Looking Statements

We make forward looking statements in this quarterly report that are subject to risks and uncertainties. These forward looking statements include statements regarding our profitability, liquidity, allowance for loan losses, interest rate sensitivity, market risk, business strategy, and financial and other goals. The words “believes,” “expects,” “may,” “will,” “should,” “projects,” “contemplates,” “anticipates,” “forecasts,” “intends,” or other similar words or terms are intended to identify forward looking statements.

Certain information contained in this discussion may include “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements contain the Company’s expectations, plans, future financial performance, and other statements that are not historical facts. These forward-looking statements are generally identified by phrases such as “the Company expects,” “the Company believes” or words of similar importance. Such forward-looking statements involve known and unknown risks including, but not limited to, changes in general economic and business conditions, interest rate fluctuations, competition within and from outside the banking industry, new products and services in the banking industry, risk inherent in making loans such as repayment risks and fluctuating collateral values, problems with technology utilized by the Company, changing trends in customer profiles and changes in laws and regulations applicable to the Company. Although the Company believes that its expectations with respect to the forward-looking statements are based upon reasonable assumptions within the bounds of its knowledge of its business and operations, there can be no assurance that actual results, performance or achievements of the Company will not differ materially from any future results, performance or achievements expressed or implied by such forward-looking statements.

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.

Overview

The Company had a net loss for the quarter ended June 30, 2011 of $1.7 million as compared to net income of $242 thousand for the quarter ended June 30, 2010. Year-to-date June 30, 2011, the Company had a net loss of $1.1 million as compared to net income of $655 thousand for the same period in 2011. Basic net loss per share was $0.17 for the quarter ended June 30, 2011 as compared to basic net income of $0.02 for the quarter ended June 30, 2010. Basic net loss per share was $0.11 for the six months ended June 30, 2011 as compared to net income per share of $0.07 for the six months ended June 30, 2010. The net loss is primarily the result of other real estate owned property write-downs in the second quarter 2011 totaling $1.9 million of which $1.8 million of this amount is related to a single property market value depreciation in a development property in the coastal Carolina area. In addition, we made additional provisions for loan losses totaling $2.3 million in the second quarter of 2011 as a result of additional impairments on troubled credits, one totaling $1.4 million in the Coastal Carolina area, and net charge-offs realized in the quarter.

Total assets decreased to $821.1 million, or 3.70%, from $852.6 million at December 31, 2010. We intentionally are reducing our asset size in an attempt to manage our net interest margin by reducing higher cost funding and to improve our capital position. We foresee total assets to remain around the current level in the near future; however, future reductions may occur to maintain a well-capitalized status under regulatory guidelines.

In the second quarter of 2011, we experienced a decrease in our net interest margin to 4.28%, as compared to 4.45% for the same period in 2010. This is reflected in the $627 thousand decrease in net interest income during the second quarter of 2011 as compared to the same period in 2010 primarily related to increased nonaccrual loans in 2011 and less earning assets.

The provision for loan losses increased $362 thousand, or 18.56%, to $2.3 million for the second quarter of 2011 as compared to $2.0 million in the same period for 2010. At June 30, 2011 our allowance for loan losses totaled $18.7 million, or 2.82% of total loans, as compared to $25.0 million, or 3.53% of total loans at December 31, 2010. At June 30, 2010 our allowance for loan losses totaled $16.4 million, or 2.22% of total loans. The allowance for loan losses are being maintained at a level that management deems appropriate to absorb any potential future losses and known impairments within the loan portfolio whether or not the losses are actually ever realized.

Total loans decreased to $664.0 million at June 30, 2011 from $707.8 million at year end 2010. This is the result of charge offs of $11.0 million for the first six months of 2011, resolution of problem loans, and the intentional shrinking of the loan portfolio to increase regulatory capital ratios. We continue to serve our customers, and although the total loan portfolio has shrunk, we have renewed existing credits and have made new loans to qualified borrowers as well. We plan to decrease the loan portfolio in the near future as we reduce our exposure to certain risks and decrease nonperforming loans. Total deposits decreased $24.9 million from $766.1 million at December 31, 2010 to $741.2 million at June 30, 2011 as two larger depositors and interest rate sensitive customers withdrew deposits to seek other investment opportunities. However, we continue to experience growth in core deposits through attractive consumer and commercial deposit products.

The deterioration of the residential and commercial real estate markets, as well as the extended recessionary period, have resulted in increases to our nonperforming assets. However, we are identifying potential problems early in an effort to minimize losses. The ratio of nonperforming assets to total assets is 6.88% at June 30, 2011 in comparison to 7.02% at December 31, 2010. Nonperforming assets, which include nonaccrual loans, other real estate owned and past due loans greater than 90 days still accruing interest, decreased to $56.5 million at June 30, 2011 from $59.8 million at December 31, 2010; however, as total assets have decreased during 2011, the June 30, 2011 ratio is higher than December 31, 2010. The majority of these assets are real estate development projects and commercial real estate secured loans. We are working aggressively to reduce these totals primarily by working with the customer for additional collateral, or restructuring the debt. However, we also may have to foreclose, repossess collateral or take other prudent measures. We are uncertain how long these processes will take. In the first six months of 2011, net charge offs were $9.9 million as compared to $6.1 million in the same period of 2010. The majority of the charge offs in the first six months of 2011 were related to real estate construction loans and commercial loans with collateral values that are dependent upon current market and economic conditions when these are ascertainable.

The Bank was well capitalized for regulatory purposes at June 30, 2011 as compared to adequately capitalized at December 31, 2010. The following ratios existed at June 30, 2011: Tier 1 leverage ratio of 5.97%, Tier 1 risk based capital ratio of 8.93%, and Total risk based capital ratio of 10.21%. The ratios were as follows at December 31, 2010: Tier 1 leverage ratio of 6.00%, Tier 1 risk based capital ratio of 8.50%, and Total risk based capital ratio of 9.79%.

Critical Accounting Policies

Certain critical accounting policies affect the more significant judgments and estimates used in the preparation of our financial statements. The most critical accounting policy relates to our provision for loan losses, which reflects the estimated losses resulting from the inability of our customers to make required payments. If the financial condition of our borrowers were to further deteriorate, resulting in an impairment of their ability to make payments, our estimates would be updated, and additional provisions could be required. For further discussion of the estimates used in determining the allowance for loan losses, we refer you to the section on “Provision for Loan Losses” below. For discussion of our significant accounting policies see our Annual Report on Form 10-K/A Amendment No. 2 for the year ended December 31, 2010.

Balance Sheet Changes

At June 30, 2011, total assets were $821.1 million, a decrease of $31.5 million, or 3.70%, from December 31, 2010. Total deposits decreased $24.9 million, or 3.25%, for the first six months of 2011 to $741.2 million from $766.1 million at December 31, 2010. Total loans decreased $43.8 million, or 6.19%, to $664.0 million at June 30, 2011 from $707.8 million at December 31, 2010.

We continue to experience an increase in core deposits as noninterest bearing deposits increased 16.51%, or $14.5 million, from $87.8 million at December 31, 2010 to $102.3 million at June 30, 2011. This was partially offset by a $4.0 million decrease in interest bearing demand deposits. Overall, we continue to experience growth in core deposits through attractive consumer and commercial deposit products.

We experienced a decrease in savings deposits of $8.1 million and a decrease in time deposits of $27.3 million. The decreases in savings and time deposits are due to customer desires to be more liquid in the current rate environment. During 2011, some larger liquid and rate sensitive deposits have withdrawn to seek other investment opportunities. We expect to continue to lose higher cost and rate sensitive deposits in the near future. However, we monitor deposits to ensure that we maintain adequate liquidity levels. We believe despite the deposit decrease, we have adequate liquidity.

Total loans decreased to $664.0 million at June 30, 2011 from $707.8 million at year end 2010. This is the result of charge offs of $11.0 million for the first half of 2011 and resolution of problem loans. We plan to decrease the loan portfolio as we manage our capital levels to maintain a well-capitalized status, reduce certain risks to various industry sectors that have posed higher risks in recent times, and resolve nonperforming loans. Even as we decrease our loan portfolio, we still are committed to serving our customers. We have hired commercial lending personnel, continue to train our loan officers to meet the needs of our customers, and are developing new business with qualified borrowers that will ensure a stronger loan portfolio in the future.

Net Interest Income and Net Interest Margin

Net interest income decreased $627 thousand, or 7.19%, to $8.1 million for the second quarter of 2011 from $8.7 million for the same period in 2010. Our net interest margin decreased to 4.28% in the second quarter of 2011 as compared to 4.45% for the same period in 2010. This is the result of nonaccrual loans of $43.0 million at June 30, 2011 which negatively affects the net interest margin as these loans are nonearning assets. If non-accruing loans increase, it may reduce our net interest margin further. We continue to manage our yields on assets and our costs of funds to improve the net interest margin.

Noninterest Income

Noninterest income decreased $179 thousand, or 12.67%, to $1.2 million in the second quarter of 2011 from $1.4 million in the same period in 2010. The decrease is the result of a $96 thousand decrease in services charges on deposit accounts and a $66 thousand decrease in insurance and investment fees. We expect noninterest income to remain flat throughout 2011 as a result of regulatory changes. During the third quarter 2011, we are increasing overdraft fees and some service charges. We continue to seek opportunities to improve noninterest income.

Noninterest Expense

Noninterest expense totaled $9.6 million for the second quarter of 2011 as compared to $7.9 million for the second quarter of 2010. The primary contributors to the increase in noninterest expenses for the quarter are the increase in other real estate owned expenses of $2.1 million, the increase in other operating expenses of $94 thousand, offset by a decrease in FDIC insurance premiums of $329 thousand. Other operating expenses increased mainly due to the result of complying with the terms of the Written Agreement entered into during 2010 and problem loan resolution expenses.

Salaries and benefits decreased $73 thousand in the quarter-to-quarter comparison. We have decreased staffing during the first half of 2011 and in the subsequent period to improve earnings. In the future, we should continue to see improvements in salary and benefits expenses.

Our efficiency ratio, which is defined as noninterest expense divided by the sum of net interest income plus noninterest income, was 103.15% for the second quarter of 2011 as compared to 77.71% for the same period in 2010. This increase in the ratio is due primarily to the $1.7 million increase in noninterest expenses for the quarter.

Provision for Loan Losses

The calculation of the allowance for loan losses is considered a critical accounting policy. The adequacy of the allowance for loan losses is based upon management’s judgment and analysis. The following factors are included in our evaluation of determining the adequacy of the allowance: risk characteristics of the loan portfolio, current and historical loss experience, concentrations and internal and external factors such as general economic conditions.

The allowance for loan losses decreased to $18.7 million at June 30, 2011 as compared to $25.0 million at December 31, 2010. The allowance for loan losses at June 30, 2011 was approximately 2.82% of total loans as compared to 3.53% at December 31, 2010 and 2.22% at June 30, 2010. Net loans charged off for the first six months of 2011 were $9.9 million compared to $6.1 million for the first six months of 2010. The provision for loan losses was $2.3 million for the second quarter of 2011 as compared with $2.0 million in the same period for 2010.

Certain risks exist in the Bank’s loan portfolio. Historically, we have experienced significant annual loan growth until the past couple of years. However, there might be loans that have single pay maturities or demand loans that may be too new to have exhibited signs of weakness. Also, past expansions into new markets increase potential credit risk. A majority of our loans are collateralized by real estate located in our market area. It is our policy to sufficiently collateralize loans to help minimize loss exposures in case of default. The recent negative trends in the national real estate market and economy pose threats to our portfolio. With the exception of real estate development type properties which have experienced more deterioration in market values, the local residential and commercial real estate market values have shown some deterioration but remain relatively stable. National real estate markets have experienced a more significant downturn and this has impacted our portfolio for certain out-of-market loans in the Coastal Carolina, northeastern Tennessee, and eastern West Virginia markets. Prior to 2008, we had purchased participation construction loans in the Coastal Carolina area. The totals of these credits were $5.9 million at June 30, 2011 and $7.6 million at December 31, 2010. At June 30, 2011 $1.3 million of the allowance for loan losses was allocated to these credits compared to $1.2 million at December 31, 2010. The $1.7 million decrease in these credits was the result of charge offs of $1.6 million during the first six months of 2011. This market area poses higher risk to potential future writedowns if the real estate market conditions do not show improvements. It is uncertain as to when or if local real estate values will be more significantly impacted. We do not believe that there will be a severely negative effect in our market area, but because of the uncertainty we deem it prudent to assign more of

the allowance to these types of loans. Our market area is somewhat diverse, but certain areas are more reliant upon agriculture, coal mining and natural gas. As a result, increased risk of loan impairments is possible if these industries experience a significant downturn, although we do not believe this to be likely at least in the near future. We consider these factors to be the primary higher risk characteristics of the loan portfolio.

An evaluation of individual loans is performed by the loan review function. Loans are initially risk rated by the originating loan officer. If deteriorations in the financial condition of the borrower and the capacity to repay the debt occur, along with other factors, the loan may be downgraded. This is typically determined by either the loan officer or loan reviewers. Guidance for the evaluation is established by the regulatory authorities who periodically review the Bank’s loan portfolio for compliance. Classifications used by the Bank are exceptional, very good, standard, acceptable, transitory risk, other assets especially mentioned, substandard, doubtful and loss. For the year 2010 and 2011, we have engaged a third party loan review firm to conduct quarterly loan reviews.

All loans classified as special mention, substandard, doubtful and loss are individually reviewed for impairment. In determining impairment, collateral for loans classified as substandard, doubtful and loss is reviewed to determine if the collateral is sufficient for each of these credits. If an appraisal is older than one year, a new external certified appraisal is obtained in most cases and used to determined impairment. If an exposure exists, a specific allowance is directly made for the amount of the potential loss in addition to estimated liquidation and disposal costs. The evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available. Impaired loans decreased to $90.5 million with a valuation allowance of $4.6 million at June 30, 2011 as compared to $90.6 million with a valuation allowance of $12.8 million at December 31, 2010. Of the $90.5 million recorded as impaired loans, $35.7 million were nonperforming loans, which includes nonaccrual loans and past due 90 days or more and still accruing. We determined we had $18.0 million in loans that required a valuation allowance of $4.6 million at June 30, 2011. At December 31, 2010 we had $45.7 million in loans that required a valuation allowance of $12.8 million. The $27.7 million decrease in loans requiring a valuation allowance was the result of $8.1 million decrease in commercial loans, $8.6 million decrease in real estate loans, and a decrease of $11.0 million in real estate construction loans that required a valuation allowance. Management is aggressively working to reduce the impaired credits at minimal loss.

Loans delinquent greater than 90 days still accruing interest and loans in non-accrual status present higher risks. At June 30, 2011, there were 132 loans in non-accrual status totaling $43.0 million, or 6.48% of total loans. At December 31, 2010, there were 113 loans in non-accrual status totaling $45.8 million, or 6.47% of total loans. It is our policy to stop accruing interest on a loan, and to classify that loan as non-accrual, under the following circumstances: (a) whenever we are advised by the borrower that scheduled payment or interest payments cannot be met, (b) when our best judgment indicates that payment in full of principal and interest can no longer be expected, or (c) when any such loan or obligation becomes delinquent for 90 days unless it is both well secured and in the process of collection. At June 30, 2011 there were $19.2 million in loans that are classified as troubled debt restructurings compared to $13.9 million at December 31, 2010. There are also no loans identified as “potential problem loans.” We do not have any commitments to lend additional funds to non-performing debtors.

Liquidity

We closely monitor our liquidity and have increased liquid assets in the form of cash, due from banks, federal funds sold, and unpledged available for sale investments from $86.3 million at December 31, 2010 to $92.1 million at June 30, 2011. We plan to maintain surplus short-term assets at levels adequate to meet potential liquidity needs during 2011.

At June 30, 2011, all of our investments are classified as available-for-sale, providing an additional source of liquidity in the amount of $3.2 million, which is net of those securities pledged as collateral. We anticipate developing an investment portfolio in the near future as we shrink our loan portfolio and increase deposits. This will primarily serve as a source of liquidity while yielding a higher return than other short term investment options, such as federal funds sold and overnight deposits with the Federal Reserve Bank. In the third quarter of 2011, we are required to pledge approximately $13.0 million in securities or loans for our payment processing with the Federal Reserve Bank. We anticipate purchasing securities and reducing our overnight funds at the Federal Reserve Bank to meet this requirement.

Our loan to deposit ratio was 89.59% at June 30, 2011 and 92.39% at year end 2010. We anticipate this ratio to remain below 90% as we continue to decrease our loan portfolio throughout 2011. We can further lower the ratio as management deems appropriate by managing the rate of growth in our loan portfolio and by offering special promotions to entice new deposits. This can be done by changing interest rates charged or limiting the amount of new loans approved.

Available third party sources of liquidity remain intact at June 30, 2011 which includes the following: our line of credit with the Federal Home Loan Bank of Atlanta, the brokered certificates of deposit markets, internet certificates of deposit, and the discount window at the Federal Reserve Bank of Richmond.

At June 30, 2011, we had borrowings from the Federal Home Loan Bank totaling $18.6 million as compared to $24.2 million at December 31, 2010. The $5.6 million decrease was due to a $5.0 million term note which matured in January 2011 and we paid off this note with liquid funds and the remaining $600 thousand decrease was due to regular monthly principal payments. Of these borrowings at June 30, 2011, none are overnight and subject to daily interest rate changes. Term notes of $10.2 million mature in the year 2012 and we anticipate paying these off as liquidity is available to do so. Two additional borrowings totaling $8.4 million have a maturity date in the year 2018, but reduce in principal amounts monthly. We also used our line of credit with the Federal Home Loan Bank to issue a letter of credit for $7.0 million in 2008 and $3.0 million in 2010 to the Treasury Board of Virginia for collateral on public funds. An additional $39.5 million was available on June 30, 2011 on the $68.1 million line of credit which is secured by a blanket lien on our residential real estate loans. Recently, the Federal Home Loan Bank conducted a collateral review indicating fewer exceptions and our available line of credit increased slightly to $68.1 million at the end of the second quarter of 2011.

We have access to the brokered deposits market. Currently we have $2.7 million in 10 year term time deposits comprised of $3 thousand incremental deposits which yield an interest rate of 4.10%. We utilized this low cost source of funds to match funding for a 10 year balloon mortgage product. With the exception of CDARS time deposits, we have no other brokered deposits. Though this has not been a strategy in the past, we may utilize this source in the future as a lower cost source of funds.

We are a member of an internet certificate of deposit network whereby we may obtain funds from other financial institutions at auction. We may invest funds through this network as well. Currently, we only intend to use this source of liquidity in a liquidity crisis event.

In September 2009, the Bank obtained approval for the Federal Reserve Bank discount window for overnight funding needs. We may collateralize this line with investment securities and loans at our discretion and in July 2011 we pledged an investment security with a fair value of $359 thousand at July 31, 2011 as collateral. We did not request funding as a result of this pledge and do not anticipate using this funding source except as a last resort.

Additional liquidity is expected to be provided by loan repayments and core deposit growth that will result from an increase in market share in our targeted trade area.

With the increased asset liquidity and other external sources of funding, we believe at the Bank level we have adequate liquidity and capital resources to meet our requirements and needs for the foreseeable future. However, liquidity can be further affected by a number of factors such as counterparty willingness or ability to extend credit, regulatory actions and customer preferences, some of which are beyond our control.

Concerning the Company’s liquidity, we borrowed $500 thousand from two directors at $250 thousand each. One borrowing occurred at the end of 2010 and the other in January 2011. The use of these funds is to meet current liquidity needs of the Company. At December 31, 2010, there was a $4.9 million Silverton line of credit that management was diligently working to eliminate and to increase liquidity at the Company level. As reported in the Subsequent Event Section in Item 1. Business of the December 31, 2010 10-K, on March 16, 2011 we received additional borrowings from two directors totaling $4.95 million and were able to retire the Silverton line of credit that was to mature in June 2011 and we continue to work on enhancing the Company’s liquidity.

Capital Resources

Total capital at the end of the second quarter of 2011 was $36.5 million as compared to $37.5 million at the end of December 31, 2010. The decrease was due to the net loss of $1.1 million for the first half of 2011. The Bank remains well capitalized at June 30, 2011, as defined by the capital guidelines of bank regulations. The Company’s capital as a percentage of total assets was 4.44% at June 30, 2011 compared to 4.40% at December 31, 2010.

Our primary source of additional capital comes from retained earnings. We continue to implement and follow our strategic plan and capital plan. Under current economic conditions, we believe it is prudent to increase capital to absorb potential losses that may occur if asset quality deteriorates further. We are aware that capital needs and requirements are affected by the level of problem assets, growth, earnings and other factors. Retained earnings are not alone sufficient to provide for this economic cycle and we believe we will need access to additional sources of capital. As part of our initiative to improve regulatory capital ratios, we are reducing our higher risk assets, which results in a shrinking loan portfolio. Deposit growth is primarily focused on growing core deposits, which are mainly transaction accounts, commercial relationships and savings products. We are focused on improving earnings by maintaining a strong net interest margin and decreasing overhead expenses. These options we are fully implementing to increase capital. However, these efforts alone may not provide us adequate capital if further loan losses are realized. We are exploring a common stock offering.

No cash dividends have been paid historically and none are anticipated in the foreseeable future. Earnings will continue to be retained to build capital.

Off Balance Sheet Items and Contractual Obligations

There have been no material changes during the quarter ended June 30, 2011 to the off-balance sheet items and the contractual obligations disclosed in our annual report on Form 10-K/A Amendment No. 2 for the fiscal year ended December 31, 2010.

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

There have been no material changes in market risks faced by the Company during the quarter ended June 30, 2011. For information regarding the Company’s market risk, refer to the Company’s Annual Report on Form 10-K/A Amendment No. 2 for the year ended December 31, 2010.

Item 4.

Controls and Procedures

We have carried out an evaluation, under the supervision and with the participation of our management, including our President and Chief Executive Officer (our “CEO”) and our Executive Vice President and Chief Financial Officer (our “CFO”), of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this report. Based upon that evaluation, our CEO and CFO concluded that our disclosure controls and procedures were not operating effectively in providing reasonable assurance that (a) the information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and (b) such information is accumulated and communicated to our management, including our CEO and CFO, as appropriate to allow timely decisions regarding required disclosure. Our CEO and CFO based this conclusion on the fact that the Company identified a material weakness in New Peoples’ internal control over financial reporting relating to the system of monitoring the real estate collateral values of impaired loans and other real estate owned properties at the Bank and while internal control procedures have been implemented to remediate this material weakness, no testing has been performed to determine the effectiveness of the new procedures. Additional information with respect to this issue is included in the discussion below.

Changes in Internal Control Over Financial Reporting

During May 2011, after management discovered the material weakness in its internal control over financial reporting described above, management implemented the following internal control procedures to ensure timely reporting of changes in collateral values on impaired loans and other real estate owned properties at the Bank to management responsible for financial reporting of the Company:

A Disclosure Control Committee has been established consisting of the following officers: Chief Executive Officer, Chief Financial Officer, Chief Credit Officer, Chief Operating Officer, Senior Lending Officer, Controller, In-house Legal Counsel, and Director of Internal Audit. This Committee will meet quarterly to discuss loan portfolio and problem asset quality issues, operation risks, legal issues, subsequent events, suspicious activities, and reported disclosures.

The Chief Credit Officer (“CCO”) of the Bank is assigned the responsibility for monitoring all assets classified as impaired. The CCO will also be responsible for determining when appraisals or evaluations will be needed on impaired loans and other real estate owned properties, and for reporting any reductions in collateral values to the Chief Financial Officer (“CFO”) on a quarterly basis prior to the filing of the quarterly and annual reports with the SEC.

When appraisals are received from the third party appraisal firm, a copy of the appraisal will promptly be logged on a register designating the date of receipt and provided to the Loan Officer and the Loan Operations Department, with the Loan Officer responsible to promptly place the appraisal in the customer file, update valuations on the Bank’s database and forward a copy to the CCO.

The independent appraisal review department of the Bank will immediately notify the CCO and the Loan Officer of the results of an appraisal on an impaired or suspected impaired loan or other real estate owned property. After the CCO and Loan Officer review the appraisal, a determination will be made as to the reasonableness of the appraisal. The final determination as to reasonableness will be the responsibility of the CCO. Upon a determination of reasonableness, then the CCO will notify the CFO, Controller and Allowance for Loan Loss model coordinator of any deterioration in the appraised value. A new impairment test will be performed and reviewed by the CCO and CFO to determine if an additional allowance reserve is needed for this credit relationship, which will be provided to the Controller to make general ledger adjustments and financial statement revisions prior to issuance.

Prior to release of financial information, the CFO will contact the CCO to insure no appraisals have been received or are being reviewed, the result of which might be material to the financial statement of the Company.

Part II Other Information

Item 1.

Legal Proceedings

In the course of operations, we may become a party to legal proceedings. We became aware of a lawsuit against the Bank in April 2010. This case involves a claim against the Bank by a joint venture between bank customers, some of whom are former members of senior management, and three investors. The allegation is that the joint venture, VFI, should have priority over the Bank’s deed of trust in order for VFI’s unrecorded and unrecordable ground lease to be enforceable for its full ten year term. There are also additional claims for damages resulting from allegations that the Bank’s representatives imputed liability to the Bank based upon breach of fiduciary duty, fraud, and collaboration. The parties agreed to litigate the ground lease issue first and are now in negotiations to resolve all pending issues due to the fact that the business associated with the building has ceased and the building is vacant. Management and Bank’s counsel believe VFI’s position is not supported by law or the facts presented.

Item 1A. Risk Factors

There have been no other material changes in the risk factors faced by the Company from those disclosed in the Company’s Amendment No. 2 on Form 10-K/A for the year ended December 31, 2010 except for the following:

Prior lending practices regarding demand and single pay loans can inhibit our ability to analyze the risk of these credits and timing of potential impairment due to the nature of their payment terms.

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

Not Applicable

Item 3.

Defaults Upon Senior Securities

Not Applicable

Item 4.

(Removed and Reserved).

Item 5.

Other Information

Not Applicable

Item 6.

Exhibits

The following exhibits are filed as part of this Form 10-Q, and this list includes the exhibit index:


No.		Description

31.1		Certification by Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act.

31.2		Certification by Chief Financial Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act.

32		Certification by Chief Executive Officer and Chief Financial Officer, as required by Section 906 of the Sarbanes-Oxley Act of 2002.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


		NEW PEOPLES BANKSHARES, INC.
		(Registrant)

By:		/s/ JONATHAN H. MULLINS
		Jonathan H. Mullins
		President and Chief Executive Officer

Date: August 8, 2011

By:		/s/ C. TODD ASBURY
		C. Todd Asbury
		Executive Vice President and Chief Financial Officer

Date: August 8, 2011

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