New Peoples Bankshares Inc – ‘10-K’ for 12/31/02

On:  Monday, 3/31/03, at 10:48am ET   ·   For:  12/31/02   ·   Accession #:  930609-3-11   ·   File #:  0-33411

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Annual Report   —   Form 10-K
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: 10-K        Annual Report                                         68    266K 
 2: EX-10       Exhibit 10.2                                           8     34K 
 3: EX-21       Subsidiaries of the Registrant                         1      3K 
 4: EX-99       Exhibit 99.1                                           1      6K 
 5: EX-99       Exhibit 99.2                                           1      6K 

10-K   —   Annual Report
Document Table of Contents

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Securities And Exchange Commission

Washington, D.C. 20549

 FORM 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES 
EXCHANGE ACT OF 1934  

For fiscal year ended December 31, 2002   

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                 (I.R.S. Employer
       incorporation or organization)                   Identification
                                              No.)

               2 Gent Drive                          24260
                  Honaker, VA                         (Zip Code)
(Address of principal executive offices)                

(Registrant's telephone number including area code) (276) 873-6288  

Securities registered pursuant to Section 12(b) of the Act: 
None

Securities registered pursuant to Section 12(g) of the Act: 

 Common Stock - $2 Par Value

 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 subhject to     
such filing requirements for past 90 days.  Yes ..X. No ....                    

  Indicate by check mark if  disclosure  of  delinquent  filers  pursuant to
Item 405 of  Regulation  S-K is not  contained  in this form,  and will not be  
contained,  to the best of  registrant's  knowledge,  in  definitive  proxy or  
information  statements  incorporated  by  reference  in Part III of this Form  
10-K or any amendment to this Form 10-K. [X]                                    

  Indicate by check mark whether the registrant is an accelerated  filer (as
defined in Exchange Act Rule 12b-2).  Yes ....  No ..X..                        

    The aggregate market value of the voting stock held by non-affiliates, based
on the last reported sales prices of $10.00 per share during the first quarter  
of 2003, was $62,740,040.                                                       

The number of shares outstanding of the registrant's common stock, was  
6,903,862 as of March 15, 2003.                                                 

DOCUMENTS INCORPORATED BY REFERENCE:
None

 LOCATION OF EXHIBIT INDEX

The index of exhibits is contained herein on page 62.             

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 TABLE OF CONTENTS

                                                                    Page
PART I                                                                          

Item 1.  Description of Business                                     3

Item 2.  Description of Property                                    12

Item 3.  Legal Proceedings                                          13

Item 4.  Submission of Matters to a Vote of Security Holders        13

PART II                                                                         

Item 5.  Market for Common Equity and Related Stockholder Matters   14

Item 6.  Selected Historical Financial Information                  15

Item 7.  Management's Discussion and Analysis of                      
           Financial Condition and Results of Operations            16

Item 7A. Market and Interest Rate Risk Management                   31

Item 8.  Financial Statements                                       33

Item 9.  Changes in and Disagreements with Accountants on             
            Accounting and Financial Disclosure                     55

PART III                                                                        

Item 10. Directors, Executive Officers, Promoters and Control         
Persons; Compliance with Section 16(a) of the   
           Exchange Act                                             55

Item 11. Executive Compensation                                     57

Item 12. Security Ownership of Certain Beneficial Owners              
           and Management                                           58

Item 13. Certain Relationships and Related Transactions             60

Item 14. Controls and Procedures                                    61

PART IV                                                                         

Item 15. Exhibits and Reports on Form 8-K                           62

SIGNATURES                                                               63     

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PART I                                                                          

Item 1.                     Description of Business                             

General                                                                         

New Peoples Bankshares, Inc. is 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.                                          

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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, Big   
Stone Gap, Tazwell and Davenport, 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.                                                        

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Loans by type as a percentage of total loans are as follows:                    

                      December 31,
                      2002      2001       2000      1999       1998
                      ----------------------------------------------
Commercial, financial                                                           
and agriculture          19.32%    19.62%     22.84%    26.94%     46.70% 
Real estate                                                                     
- construction            2.52%     2.15%      1.17%     2.64%      1.45% 
Real estate                                                                     
- mortgage               58.93%    54.81%     54.05%    47.70%     31.76% 
Installment loans                                                               
to individuals           19.23%    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.         

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Construction Loans.  Construction lending entails significant additional        
risks, compared to residential mortgage lending. Construction loans often       
involve larger loan balances concentrated with 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.                                              

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The following table discloses selected financial information related to our     
operations during the last three years.                                         

 Table 1
 Selected Financial Data
(Dollars in thousands)

                        As of / For the Year Ended
                        December 31,

                          2002       2001         2000

Total assets                        $291,398    $214,253    $157,391            
Securities                            34,305       5,658      11,873            
Loans, net of allowance                                                         
for loan losses                   220,170     177,423     129,775         
Deposits                             263,805     194,011     138,447            
Shareholder's equity                  26,481      18,891      17,882            

Net interest income                   10,665       7,317       4,903            
Provision for loan losses                603         571         513            
Noninterest income                     1,412         753         444            
Noninterest expense                    8,218       5,933       3,683            
Net income                             2,178       1,009         761            

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.            

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, 2002,   
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 areas    
were as follows: Russell County, VA - 31.84%, Scott County, VA - 24.91%,        
Dickenson County, VA - 16.99%, Tazewell County, VA - 1.79% and Mercer County,   
WV - 2.30%.                                                                     

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Employees                                                                       

As of December 31, 2002, we had 150 total employees, 145 of which were full-time
employees. None of our employees is covered by any collective bargaining        
agreement, and relations with employees are considered excellent.               

Supervision and Regulation                                                      

General. As a bank holding company, we are subject to regulation under the Bank 
Holding Company Act of 1956, as amended,  the ("BHCA") and the examination      
and reporting requirements of the Board of Governors of the Federal Reserve     
System (the "Federal Reserve Board"). Under the BHCA, 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 Board. The BHCA also generally limits the activities of a bank  
holding company to that of banking, managing or controlling banks, or any other 
activity that is determined to be so closely related to banking or to managing  
or controlling banks that an exception is allowed for those activities.         

As a  state-chartered  commercial bank, we are subject to regulation,           
supervision and examination by the Commission. We are also subject to           
regulation, supervision and examination by the Federal Reserve Board. State and 
federal law also governs the activities in which we engage, the investments that
we make and the aggregate amount of loans that may be granted to one borrower.  
Various  consumer and compliance  laws and regulations also affect              
our operations.                                                                 

The earnings of our subsidiary, 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 subject. To the extent       
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. The Company is a legal entity separate and distinct from  
its banking subsidiary. The majority of our revenues are from dividends paid to 
us by the Bank. The Bank is subject to laws and regulations that limit the      
amount of dividends it can pay. In addition, both we and the Bank are 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. During the year ended December 
31, 2001, the Bank declared $25,000 in dividends payable to the Company. No     
dividends were declared during 2002.                                            

Capital. The Federal Reserve Board has issued risk-based and leverage capital   
guidelines applicable to banking organizations that it supervises. Under the    
risk-based capital requirements, we and the Bank are each 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, qualifying preferred stock and a limited    
amount of the loan loss allowance ("Tier 2 capital," which, together with Tier 1
capital, composes "total capital").                                             

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In addition, each of the federal banking regulatory agencies has established    
minimum leverage capital requirements for banking organizations. Pursuant to    
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 banking regulatory evaluation of an organization's overall safety and   
soundness.                                                                      

The risk-based capital or standards of the Federal Reserve Board 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 Federal Deposit Insurance Corporation ("FDIC") insurance funds in the event 
that the depository institution is insolvent or is in danger of becoming        
insolvent.  For example, under requirements of the Federal Reserve Board 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.                                     

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, 2002, we and the    
Bank were 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.                                                       

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.                                                                            

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Gramm-Leach-Bliley Act of 1999. The Gramm-Leach-Bliley Act of 1999 (the "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 banking regulatory agencies and other     
regulatory bodies to adopt regulations to implement the Act, and for that reason
an assessment of the full impact on us 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 in insurance sales, solicitations or cross-marketing       
activities. Although the states generally must regulate bank insurance          
activities in a nondiscriminatory manner, the 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 banking        
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
Board 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 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.                                                                

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International Money Laundering Abatement and Financial Anti-Terrorism Act of    
2001. On October 26, 2001, the USA Patriot Act of 2001 was signed into law. This
act contains the International Money Laundering Abatement and Financial         
Anti-Terrorism Act of 2001 (the "IMLAFA"). The IMLAFA contains anti-money       
laundering measures affecting insured depository institutions, broker-dealers   
and certain other financial institutions. The IMLAFA requires U.S. financial    
institutions to adopt new policies and procedures to fight money laundering and 
grant the Secretary of the Treasury broad authority to establish regulations and
to impose  requirements  and restrictions on financial institutions'            
operations. We do not expect that compliance with the IMLAFA will have a        
material impact on our or the Bank's results of operations or financial         
condition.                                                                      

Sarbanes -Oxley Act of 2002. On July 30, 2002, the Sarbanes-Oxley Act of 2002   
(the "Sarbanes-Oxley Act") was signed into law. The Sarbanes-Oxley Act          
represents a comprehensive revision of laws affecting corporate governance,     
accounting obligations and corporate reporting. The Sarbanes-Oxley Act is       
applicable to all companies with equity or debt securities registered under the 
Securities Exchange Act of 1934. In particular, the Sarbanes-Oxley Act          
establishes: (1) new  requirements  for  audit  committees,                     
including independence, expertise and responsibilities; (2) additional          
responsibilities regarding financial statements for the Chief Executive Officer 
and Chief Financial Officer of the reporting company; (3) new standards for     
auditors and regulation of audits; (4) increased disclosure and reporting       
obligations for the reporting company and their directors and executive         
officers; and (5) new increased civil and criminal penalties for violation of   
the securities laws. Many of the provisions became effective immediately while  
other provisions became effective over a period of 30 to 270 days and are       
subject to rulemaking by the Securities and Exchange Commission. We anticipate  
that we will incur additional expenses to comply with the provisions of the     
Sarbanes-Oxley Act and the resulting regulations. However, we do not expect that
the added expenses for such compliance will have a material impact on our or the
Bank's results of operations or financial condition.                            

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Effect of Governmental Monetary Policies                                        

Our operations are affected not only by general economic conditions, but also by
the policies of various regulatory authorities. In particular, the Federal      
Reserve Board regulates money and credit conditions and interest rates in order 
to influence general economic conditions. These policies have a significant     
influence on overall growth and distribution of bank loans, investments and     
deposits, and affect interest rates charged on loans or paid for time and       
savings deposits. Federal Reserve Board monetary policies have had a significant
effect on the operating results of commercial banks in the past and are expected
to do so in the future.                                                         

Item 2. Description of Property                                                 

At December 31, 2002, the Bank's net investment in Bank premises and equipment  
in service was $10,915,165. A schedule by type is shown in Note 7 to the        
financial statements. A description of the Bank's property is as follows.       

Our main office in Honaker, Virginia, which we own, contains 11,800 square feet 
on three floors and is situated on 2.5 acres. The building contains a full      
service branch, administration operations,  bookkeeping and credit              
departments, two drive-thru lanes and an ATM. The office is an attractive brick 
building with adequate room for current operations. The office is located at 2  
Gent Drive, Honaker, Virginia 24260.                                            

The Branch at Weber City, which we own, is a 2,700 square foot brick building   
situated on a 200 x 150 lot. It contains a full service branch with three       
drive-thru lanes and an ATM. The branch is located at 131 U.S. Highway 23 South,
Weber City, Virginia 24290.                                                     

The Branch at Castlewood, which we own, is a 4,500 square foot brick building   
situated on a 300 x 150 lot. It contains a full service branch with two         
drive-thru lanes and an ATM. The branch is located at 102 Miners Drive,         
Castlewood, Virginia 24224.                                                     

The Branch at Haysi, which we own, is a 2,400 square foot brick building        
situated on a one-fourth acre lot. It contains a full service branch with       
drive-thru lanes and an ATM. The branch is located at 402 Main Street, Haysi,   
Virginia 24256.                                                                 

The Branch at Lebanon, which we own, is a 6,000 square foot building, of brick  
construction, situated on a one acre lot. It contains a full service branch with
drive-thru lanes and an ATM. The branch is located at 685 North East Main       
Street, Lebanon, Virginia 24266.                                                

The Branch at Pounding Mill, which we own, is a 3,600 square foot brick building
situated on a one acre lot. It contains a full service branch with two          
drive-thru lanes and an ATM. The branch is located on Route 460 at Pounding     
Mill, Virginia 24637.                                                           

The Branch at Princeton, which we own, is a 3,600 square foot brick building    
situated on a .39 acre lot. It contains a full service branch with two          
drive-thru lanes and an ATM. The branch is located at 1221 Stafford Drive,      
Princeton, West Virginia 24740.                                                 

On January 3, 2002, we opened a branch in Gate City, Virginia, which we own. The
branch is a 3,600 square foot brick building situated on a one acre lot. It     
contains a full service branch with two drive-thru lanes and an ATM. The branch 
is located at 326 East Jackson Street, Gate City, Virginia 24251.               

On May 16, 2002, we opened a branch in Clintwood, Virginia, which we own and    
which replaces the loan production office. The Bank is a 3,600 square foot brick
building situated on a one acre lot. It contains a full service branch with     
drive thru lanes and an ATM. The branch is located on Route 83, Colley Shopping 
Center, Clintwood, Virginia 24228.                                              

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On August 8, 2002, we opened a branch in Big Stone Gap, Virginia, which we own. 
The Bank is a 2,800 square foot brick building situated on a half-acre lot. It  
contains a full service branch with drive thru lanes and ATM. The branch is     
located at 419 Shawnee Avenue East, Big Stone Gap, Virginia 24219.              

On September 26, 2002, we opened a branch in Tazewell, Virginia, which we own.  
The Bank is a 1,900 square foot bricked building situated on a 0.4 acre lot. It 
contains a full service branch with drive thru lanes and an ATM. The branch is  
located at 157 Tazewell Mall Circle, Tazewell, Virginia 24630.                  

On December 5, 2002, we opened a semi-branch at Davenport, from leased          
facilities, primarily as a deposit-taking service to the community. The building
is an original mobile unit, converted to a stationary structure, with partial   
wood siding and partial brick exterior. It contains one drive thru lane and no  
ATM. The location is at the intersection of State Routes 80 and 600, Davenport, 
VA 24239.                                                                       

The loan production offices located in Norton and Abingdon are leased through   
operating lease arrangements with varying term lengths.                         

We believe that all of our properties are maintained in good operating condition
and are suitable and adequate for our operational needs.                        

Land was purchased and construction is nearing completion for a full service    
branch in Grundy, Virginia. Approval was granted by the State Corporation       
Commission on March 3, 2003 for the new branch, which we own. The building is a 
3,400 square foot building, situated on one acre of land. It contains a full    
service branch with drive thru lanes and an ATM. The branch is located on U.S.  
Route 460, RR4, Box 49, Grundy, Virginia 24614. The scheduled opening date is   
April 2003.                                                                     

Land has been purchased and preliminary construction has begun for a full       
service branch in  Bloomingdale,  Tennessee.  It is  anticipated                
that construction will be completed by late autumn 2003, at costs similar to    
those for the Gate City and Clintwood branches.                                 

We will continue to investigate and consider other possible sites that would    
enable us to profitably serve our chosen market area. Purchases of premises and 
equipment for the year 2003 will depend on the decision to open additional      
branches.                                                                       

Item 3. 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.          

Item 4.  Submission of Matters to a Vote of Security Holders                    

We have not submitted any matters to the vote of security holders for the       
quarter ending December 31, 2002.                                               

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PART II                                                                         

Item 5.  Market for Common Equity and Related Stockholders Matters              

(a)  Market Information                                                         

  We act as our own transfer agent. At present, there is no public trading
    market for our common stock. Trades in our common stock occur sporadically
on a local basis.                                                     

     The high and low trade prices of the Company's common stock known to us are
   set forth in the table below. Trade prices have been restated to show the
   effects of the 2 for 1 stock split on January 1, 2002. Other transactions
may have occurred at prices about which we are not aware.             

                             2002                   2001
                           ---------------       ---------------
                            High     Low          High     Low
1st quarter                $ 10.00  $10.00       $  4.50  $ 3.75
2nd quarter                  10.00   10.00          4.50    3.75
3rd quarter                  11.00   11.00          4.88    3.75
4th quarter                  10.00   10.00          4.88    3.75

The most recent sales price of which management is aware was $7.00 per
share during the first quarter of 2003.                               

(b)  On March 1, 2003, there were approximately 5,630 shareholders of record.   

(c)  Dividends                                                                  

     We have not declared a dividend. The declaration of dividends in the future
 will depend on our earnings and capital requirements. We are subject to
 certain restrictions imposed by the reserve and capital requirements of
 federal and Virginia banking statutes and regulations. Additionally, we
     intend to follow a policy of retaining earnings, if any, for the purpose of
    increasing net worth and reserves during our initial years of operation in
     order to promote our growth and ability to compete in our market area. As a
     result, we do not anticipate paying a dividend on our Common Stock in 2003.
    See Note 15 and Note 18 for further discussion of dividend limitations and
capital requirements.                                                 

(d)  Stock Offering                                                             

On October 15, 2002, upon approval from the Securities and Exchange   
     Commission, 1,200,000 shares of common stock were offered for sale by means
   of a prospectus to existing shareholders and to the general public in the
 states of Virginia, West Virginia and Tennessee only. The sale ended on
     February 7, 2003, after one 30 day extension from the original sale period.
The total number of shares sold under the offering were 890,469, which
     resulted in total offering proceeds of $8,904,690. Expenses relating to the
   offering totaled $76,635, which results in net proceeds from the offering
of $8,828,055.                                                        

    No underwriter was used during this offering and no commissions were paid.

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Item 6.  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 has been    
derived from our audited financial statements for the years that ended December 
31, 2002, 2001, 2000 and 1999. The following is qualified in its entirety by the
detailed information and the financial statements included elsewhere in this    
10K.                                                                            

                        Year Ended
                        December 31,

                            2002        2001        2000        1999
                             (Dollars in thousands, except per share data)
Income Statement Data                                                           

Gross interest income          $ 17,040     $15,267    $ 11,228    $  5,454     
Gross interest expense            6,375       7,950       6,325       2,943     
Net interest income              10,665       7,317       4,903       2,511     
Provision for possible                                                          
loan losses                      603         571         513         867  
Net interest income after                                                       
provision for loan losses     10,062       6,746       4,390       1,644  
Non-interest income               1,412         753         444         243     
Non-interest expense              8,218       5,934       3,683       2,644     
Income (loss) before                                                            
income taxes                   3,256       1,565       1,150        (757) 
Income tax expense (benefit)      1,078         556         389        (433)    
Net income (loss)                 2,178       1,009         761        (324)    

Per Share Data and Shares                                                       
Outstanding (1)                                                             

Net income, basic                  0.36        0.17        0.14       (0.14)    
Net income, diluted                0.35        0.17        0.14       (0.14)    
Cash dividends                       -           -           -           -      
Book value at end of period        4.04        3.15        2.98        2.32     
Tangible book value at                                                          
period end                      4.04        3.15        2.98        2.32  
Weighted average shares                                                         
outstanding, basic (1)         6,105       6,000       5,400       2,300  
Weighted average shares                                                         
outstanding, diluted (1)       6,168       6,000       5,400       2,300  
Shares outstanding at                                                           
period end (1)                 6,008       6,000       6,000       2,400  
Shares subscribed at period end     541          -           -           -      

Period-End Balance Sheet Data                                                   

Total assets                    291,398     214,253     157,390      99,081     
Total loans                     222,395     179,216     131,086      86,560     
Total deposits                  263,805     194,011     138,447      87,490     
Long-term debt                       -           -           -           -      
Shareholders' equity             26,481      18,891      17,882      11,121     

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Performance Ratios                                                              

Return on average assets            0.86%       0.54%       0.58%      -0.45%   
Return on average                                                               
shareholders' equity             9.60%       5.49%       5.26%      -3.11%
Average shareholders' equity                                                    
to average total assets          8.97%       9.89%      11.10%      14.38%
Net interest margin (2)             4.87%       4.31%       3.99%       3.78%   

Asset Quality Ratios                                                            

Net charge-offs to average                                                      
loans                            0.09%       0.06%       0.06%       0.06%
Allowance to period-end                                                         
gross loans                      1.00%       1.00%       1.00%       1.00%
Nonperforming assets to                                                         
gross loans                      0.34%       0.06%       0.07%       0.07%

Capital and Liquidity Ratios                                                    

Risk-based                                                                      
Tier 1 capital                  11.05%      10.99%      15.24%      13.60%
Total capital                   12.11%      12.03%      16.36%      14.70%
Leverage capital ratio              9.51%       9.19%      11.73%      11.45%   
Total equity to total assets        9.09%       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.                                                       

Item 7.  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 December 31, 2002 and 2001
as well as results of operations for the years ended December 31, 2002, 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 10-K.                                               

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.                                                                           

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Since opening for business on October 28, 1998, we have achieved outstanding    
growth. At December 31, 2002, our total assets were $291.4 million, total       
deposits were $263.8 million and total loans were $222.4 million.               

Our net income for the year ended December 30, 2002 was $2.2 million, compared  
to net income of $1.0 million and $761,000 for the years ended December 31, 2001
and 2000, respectively. Net income per share was $.36 for the year ended        
December 31, 2002, compared to $.17 and $.14 for 2001 and 2000, respectively.   

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.                                                                  

Net Interest Income and Net Interest Margin                                     

2002 Compared with 2001                                                         

Our net interest income, which equals total interest and dividend income less   
total interest expense, increased from $7.3 million for 2001 to $10.7 million   
for 2002. 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 2002 was 4.87%, compared to 4.31% for 2001. The     
rates received on earning assets decreased less than the rates paid on deposits,
resulting in the increase in net interest margin. During 2002, 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 8.28% for 2002, compared to  
9.37% for 2001 due to the strong demand for loans that we experienced from our  
customers. The average yield on federal funds sold decreased from 4.15% in 2001 
to 1.60% in 2002 as a result of the interest rate reductions. The average yield 
received on other investments decreased from 6.15% in 2001 to 3.16% in 2002 due 
to a general decrease in market interest rates. Consistent with market interest 
rate reductions, the average cost of deposits decreased from 5.18% for 2001 to  
3.14% for 2002.                                                                 

2001 Compared with 2000                                                         

Our net interest income 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 on earnings assets for 2001 was 4.31%, compared to 3.99%
for 2000. 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 $46.6 million and the
average rate received on loans decreased from 9.52% for 2000 to 8.28% for 2001. 
The interest rates received on loans, federal funds sold and other investments  
decreased in response to a general decrease in market interest rates. Consistent
with market rate decreases, the average cost of deposits decreased from 5.91%   
for 2000 to 5.18% for 2001.                                                     

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The following table shows the rates paid on earning assets and deposit          
liabilities for the periods indicated.                                          

                                                        [Enlarge/Download Table]

                          NEW PEOPLES BANKSHARES, INC.                                                              
                          NET INTEREST MARGIN ANALYSIS                                                              
                            AVERAGE BALANCE SHEET                                                                   
           FOR THE YEARS ENDED DECEMBER 31, 2002 AND 2001 AND 2000                                                  
                            (In Thousands of Dollars)                                                               


                                            2002                         2001                       2000            

                                                    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                        $201,417   $16,675   8.28%    $155,891  $14,602   9.37%  $109,316  $10,408   9.52% 
   Federal Funds                                                                                                    
     sold                          12,501       200   1.60        9,514      395   4.15     10,392      646    6.22 
   Deposits in other                                                                                                
     bank                                                                                      260       14    5.45 
   Other investments                5,224       165   3.16        4,388      270   6.15      2,764      160    5.78 
                                    -----      ----  -----        -----     ----  -----      -----     ----    ---- 

   Total Earning                                                                                                    
     Assets                       219,142    17,040   7.78      169,793   15,267   8.99    122,732   11,228    9.15 
                                             ------                       ------ ------              ------    ---- 

   Allowance for loans losses      (2,003)                       (1,573)                    (1,082)                 
   Non-earning assets              28,389                        17,649                      8,736                  
                                 --------                      --------                      -----                  

   Total Assets                  $245,528                    $  185,869                   $130,386                  
                                  =======                     =========                    =======                  

LIABILITIES AND STOCKHOLDER'S EQUITY                                                                                

   Deposits                                                                                                         
     Demand - Interest bearing   $ 13,253    $  194   1.46%  $    5,945  $   120   2.02    $  3,958       98    2.48
     Savings                       18,862       364   1.93       12,912      379   2.94       7,900      314    3.97
     All other time deposits      170,999     5,817   3.40      134,502    7,451   5.54      95,136    5,913    6.22
                                  -------    ------   ----     --------   ------   ----     -------   ------    ----

     Total Deposits               203,114     6,375   3.14      153,359    7,950   5.18     106,994    6,325    5.91
                                             ------   ----                 -----   ----               ------    ----

   Non-interest bearing deposits   20,901                        12,886                      8,074                  
   Other liabilities                1,340                         1,197                        847                  
                                    -----                         -----                       ----                  

     Total Liabilities            225,355                       167,442                    115,915                  

   Stockholder's Equity            20,173                        18,427                     14,471                  
                                 --------                      --------                     ------                  

   Total Liabilities and                                                                                            
     Stockholder's Equity       $ 245,528                      $185,869                   $130,386                  
                                 ========                       =======                    =======                  

   Net Interest Income                      $ 10,665                     $ 7,317                    $  4,903        
                                              ======                      ======                      ======        

   Net Yield on Interest                                                                                            
     Earning Assets                                   4.87%                        4.31%                       3.99%
                                                     =====                        =====                        ==== 

   Net Interest Spread                                4.64%                        3.81%                       3.24%
                                                     =====                        =====                        ==== 

(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.                                                                        

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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 the change due to rates.                                  

Volume and Rate Analysis
(in thousands)  

                   2002 Compared to 2001       2001 Compared to 2000
                   ---------------------       ---------------------
                   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               $4,264   $(2,191) $2,073    $4,434   $ (240)  $4,194  
Federal funds sold     124     (319)    (195)      (55)    (196)    (251) 
Deposits in other                                                         
 banks                                            (14)              (14)
Other investments       51     (156)    (105)       94       16      110  
                   -----    -----    -----     -----    -----    -----

Total Earning Assets 4,439   (2,666)   1,773     4,459     (420)   4,039  
                   -----   ------    -----     -----    -----    -----

Interest Bearing Liabilities                                                    
Demand                 148      (74)      74        49      (27)      22  
Savings                175     (190)     (15)      199     (134)      65  
All other time                                                            
deposits           2,022   (3,656)  (1,634)    2,447     (908)   1,539
                   -----   ------   ------     -----    -----    -----

Total Interest Bearing                                                    
Liabilities        2,345   (3,920)  (1,575)    2,695   (1,069)   1,626
                   -----   ------   ------     -----   ------    -----

Change in Net Interest                                                    
Income            $2,094   $1,254   $3,348    $1,764   $  649   $2,413
                   =====    =====    =====     =====    =====    =====

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Interest Sensitivity                                                            

At December 31, 2002, we had a negative cumulative gap rate sensitivity ratio of
34.34% 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.                                   

                                                        [Enlarge/Download Table]

                          Interest Sensitivity Analysis                                                        
                                December 31, 2002                                                              
                            (dollars in thousands)                                                             


                           1-90      91-365                                                 Over 5             
Uses of Funds              Days       Days         2003      2004      2005       2006       Years      Total  
-------------              ----       ----         ----      ----      ----       ----       -----      -----  
                                                                                                               
Loans                    $24,116    $56,369    $  28,549   $20,331   $24,371   $  31,507   $  37,152   $222,395
Federal funds sold         6,123                                                                          6,123
Total investments         11,984     21,513                    808                               539     34,844
                          ------     ------      -------    ------   -------     -------     -------    -------

   Total                  42,223     77,882       28,549    21,139    24,371      31,507      37,691    263,362
                          ------     ------     --------    ------    ------    --------     -------    -------

Sources of Funds                                                                                               

Deposits                                                                                                       

   Demand and                                                                                                  
     savings              36,837                                                                         36,837
   Time deposits < $100M  56,312     74,743        9,446     3,695     8,200       1,604          11    154,011
   Time deposits > $100M  16,251     26,219        2,982     1,492     3,090         544                 50,578
                         -------     ------        -----     -----     -----       -----       -----    -------

   Total Deposits        109,400    100,962       12,428     5,187    11,290       2,148          11    241,426
                         -------   --------       ------   -------   -------       -----       -----    -------

Discrete Gap             (67,177)   (23,080)      16,121    15,952    13,081      29,359      37,680     21,936

Cumulative Gap           (67,177)   (90,257)     (74,136)  (58,184)  (45,103)    (15,744)     21,936           

Ratio of Cumulative Gap                                                                                        
  To Total Earning Assets -25.56%    -34.34%      -28.21%   -22.14%   -17.16%      -5.99%       8.33%          

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Provision for Loan Losses                                                       

2002 Compared with 2001                                                         

The provision for loan losses was $603,000 for 2002 compared with $571,000 for  
2001. The allowance for loan losses was $2.2 million at December 31, 2002       
(approximately 1% of total loans outstanding). Net loans charged off for 2002   
were $171,000 (0.09% of average loans), compared to $89,000 for 2001. Net loans 
charged off as a percentage of average loans may increase as our loan portfolio 
matures.                                                                        

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 approximately 1% of loans at the end of 
each year. Net loans charged off for 2001 were $89,000 (.06% of average loans), 
compared to $67,000 for 2000.                                                   

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.                                  

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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)  

                             Year Ended December
Activity                      2002       2001      2000       1999

Beginning Balance                $1,793     $1,311    $  865     $    0   
                               -----      -----     -----      -----

Provision charged to expense        603        571       513        867   
                               -----      -----     -----      -----

Loan Losses:                                                              
Installment loans to                                                  
individuals                      (207)       (98)      (70)        (2)

Recoveries:                                                               
Installment loans to                                                  
individuals                        36          9         3          - 
                               -----      -----     -----      -----

Net Loan Losses                    (171)       (89)      (67)        (2)  
                               -----      -----     -----     ------

Balance at End of Period         $2,225     $1,793    $1,311     $  865   
                               =====      =====     =====      =====

Allowance for loan losses                                                 
as a percentage                                                       
of year end losses               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.                                                 

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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 loans     
collections are dependent on the borrower's  continuing financial stability,    
and thus are more likely to be ad versely affected by job loss, divorce, illness
or personal bankruptcy. Losses related to consumer loans 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.                               

                                                        [Enlarge/Download Table]

                                        Allocation of the Allowance for Loan Losses                                 
                                                 (dollars in thousands)                                             


                December 31, 2002          December 31, 2001         December 31, 2000        December 31, 1999     
                     Percent  Percent          Percent   Percent           Percent Percent          Percent  Percent
                        of      of                of        of                of      of               of      of   
             Amount  Allowance Loans   Amount  Allowance   Loans    Amount Allowance Loans  Amount  Allowance Loans 

Analysis of Ending Balance                                                                                          

                                                                                                                    
Commercial   $  445     20%    19.32%   $  359     20%     19.62%    $  262   20%   22.84%    $  173    20%   26.94%
Real estate                                                                                                         
  mortgage      134      6%    61.45%      108      6%     56,96%        79    6%   55.22%        52     6%   50.34%
Installment   1,090     49%    19.23%      879     49%     23.42%       642   49%   21.94%       424    49%   22.72%
Unallocated     556     25%                447     25%                  328   25%                216    25%         
              -----    ---    ------     -----    ---     ------      -----  ---   ------     ------   ---   ------ 

Total        $2,225    100%   100.00%   $1,793    100%    100.00%    $1,311  100%  100.00%    $  865   100%  100.00%
              =====    ===    ======     =====    ===     ======      =====  ===   ======      =====   ===   ====== 

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. Management has not identified any additional loans as    
"troubled debt restructurings" or "potential problem loans."                    

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Non-Accrual and Past Due Loans
(dollars in thousands)  

                      December 31,
    Principal:                 2002        2001     2000     1999     1998
Non-accrual and past                                                  
due loans:                                                        
  Non-accruing loans          $  761     $   47   $   73   $    -   $    -
Loans and past due                                                    
90 days or more                                                   
    and still accruing             -         29       23       77        -
                               -----      -----    -----    -----    -----

    Total                     $  761     $   76   $   96   $   77   $    -
                               =====      =====    =====    =====    =====

    Percent of total loans      0.34%      0.04%    0.07%    0.09%     N/A
                                ====       ====     ====     ====      ===

Noninterest Income                                                              

2002 Compared with 2001                                                         

Noninterest income increased from $753,000 in 2001 to $1,412,000 in 2002. 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 $458,000 for      
2001 to $660,000 for 2002. Insurance commissions decreased from $108,000 for    
2001 to $103,000 for 2002. In addition, income produced by bank owned life      
insurance purchased during the fourth quarter of 2001 increased from $69,000 for
2001 to $457,000 for 2002. Noninterest income as a percentage of average assets 
increased from .40% in 2001 to .58% in 2002.                                    

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 operations. 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.                                                                

Noninterest Expense                                                             

2002 Compared with 2001                                                         

Noninterest expense increased from $5.9 million in 2001 to $8.2 million in 2002.
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 3.15% for 2001 to 3.35% for 2002.   
Noninterest expense in the future will depend on our growth and the number of   
new branch locations.                                                           

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.                                                                       

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Income Taxes                                                                    

Due to timing differences between book and tax treatment of several expense     
items, a deferred tax liability of $134,738 has been recognized at December 31, 
2002. The deferred tax liability represents increases to future income tax      
liabilities from future reduced deductions for depreciation and increases to    
income from unrealized accretion and unrealized BOLI income. 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 $44.6      
million during 2000, $48.2 million during 2001 and $43.4 million during 2002. A 
schedule of loans by type is set forth immediately below. Approximately 61% of  
the loan portfolio is secured by real estate.                                   

Loans receivable outstanding are summarized as follows:                         

Loan Portfolio
(in thousands)  

                            December 31,
                           2002      2001     2000     1999     1998
                           -----------------------------------------

Commercial, financial and                                               
 agricultural              $42,959   $35,168  $29,941  $23,321  $6,229
Real estate                                                             
 - construction              5,615     3,845    1,528    2,285     193
Real estate - mortgage      131,051    98,229   70,858   41,288   4,236 
Installment loans to                                                    
 individuals                42,770    41,974   28,759   19,666   2,681
                            ------    ------   ------   ------   -----

  Total                   $222,395  $179,216 $131,086  $86,560 $13,339
                           =======   =======  =======   ======  ======

Our loan maturities as of December 31, 2002 are shown in the following table.   

                                                        [Enlarge/Download Table]

                                                    Maturities of Loans                                     
                                                        (in thousands)                                      


                                                      Maturity Range                                        
                           1-90     91-365                                               Over               
                           Days      Days      2003       2004        2005       2006    5 Years     Total  
                           ----      ----      ----       ----        ----       ----    -------     -----  

                                                                                                            
Commercial and                                                                                              
  agricultural loans      $ 9,982  $ 26,748  $ 10,887    $  8,353    $ 11,784  $ 14,085   $ 18,593  $100,432
Real estate                 4,291    12,811     4,915       3,322       8,200    15,992     16,883    66,414
Consumer - installment/                                                                                     
  other                     9,843    16,808    12,748       8,657       4,386     1,431      1,676    55,549
                          -------   -------   -------     -------     -------   -------    -------   -------

Total                    $ 24,116  $ 56,367  $ 28,550    $ 20,332    $ 24,370  $ 31,508   $ 37,152  $222,395
                          =======   =======   =======     =======     =======   =======    =======   =======

Loans with                                                                                                  
  predetermined                                                                                             
  rates                  $ 16,450  $ 26,843  $ 19,537    $ 14,407    $ 14,104  $ 10,472   $ 30,359  $132,172
Loans with variable or                                                                                      
  adjustable rates          7,666    29,524     9,013       5,925      10,266    21,036      6,793    90,223
                          -------   -------   -------     -------     -------   -------    -------   -------

Total                    $ 24,116  $ 56,367  $ 28,550    $ 20,332    $ 24,370  $ 31,508   $ 37,152  $222,395
                          =======   =======   =======     =======     =======   =======    =======   =======

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This table reflects the earlier of the maturity or repricing dates for various  
assets and liabilities at December 31, 2002. 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.                   

Investment Securities                                                           

Total investment securities decreased from $11.9 million at December 31, 2000 to
$5.7 million at December 31, 2001 and increased to $34.3 million at December 31,
2002. We had no available for sale securities at December 31, 2001 and December 
31, 2002. At those dates, we believed that we had adequate liquidity in the form
of other assets, including federal funds sold. In addition, the securities held 
to maturity held at those dates generally had short contractual maturities and  
would have been available for liquidity purposes if necessary. At December 31,  
2002, we had short term U.S. Government agency notes with a book value of $12.0 
million that matured in the first quarter of 2003.                              

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)  

                      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                   34,204     $ 5,556   $  2,858   $     -
States and political                                                      
subdivisions                      101         102        102         -
                               ------      ------    -------    ------

Total                           $34,305     $ 5,658   $ 11,873   $     -  
                               ======      ======    =======    ======

The amortized cost, fair value and weighted average yield of investment         
securities at December 31, 2001 and 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.                                        

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Maturities of Securities
(dollars in thousands)  

                                                                  Weighted
                                     Amortized      Fair         Average
                                      Cost         Value         Yield

December 31, 2001                                                               

Securities held to Maturity                                                     
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%  
                                    ======       =======        ====

December 31, 2002                                                         

U.S. Treasury and Agency                                                  
 Due within one year                $33,497      $ 33,539        3.85%
                                    ------       -------        ----

                                    $33,479      $ 33,539        3.85%
                                    ------       -------        ----

Municipal Governments                                                     
Due after one year through                                          
    five years                      $   808      $    818        3.26%
                                    ------       -------        ----

                                    $   808      $    818        3.26%
                                    ------       -------        ----

Total                                 $34,305      $ 34,357        3.84%  
                                    ======       =======        ====

The carrying amount of securities pledged by us to secure public deposits was   
$2.8 million at December 31, 2002. We are required to hold stock in the Federal 
Reserve Bank. The investment in Federal Reserve Bank stock is recorded at cost  
of $539,000 as of December 31, 2002 and $529,000 as of December 31, 2001.       

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 $8.0 million at December 31, 2001 and December 31, 2002,            
respectively. These policies yielded 6.19%, less a mortality cost of            
approximately .53% for a net return of approximately 5.66% during 2002. The new 
interest rate in effect through the end of 2003 is an average of 5.35%.         

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Deposits                                                                        

We have had excellent growth in our deposits which totaled $194.0 million at    
December 31, 2001 and $263.8 million at December 31, 2002. Time deposits of     
$100,000 or more equaled approximately 20% of deposits at both December 31, 2001
and 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 sheets.    

Maturities of time certificates of deposit of $100,000 or more outstanding are  
summarized as follows:                                                          

 Maturities of Time Deposits
(in thousands)  

                                            December 31,
                                           2002       2001      1999

Three months or less                           $16,251   $ 16,010   $13,086     
Over three months through twelve months         26,219     12,508    21,580     
Over one year through three years                4,474      6,244     3,410     
Over twelve months                               3,634      4,941       772     
                                           ------    -------    ------

       Total                              $50,578   $ 39,703   $38,848
                                           ======    =======    ======

Capital                                                                         

Capital as a percentage of total assets was 9.09% at December 31, 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.                                                    

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Capital Amounts and Ratios
(dollars in thousands)  

                                        Minimum     Minimum To Be Well
                                           Capital  Capitalized Under Prompt
                      Actual          Requirement    Corrective Action
               Amount   Ratio      AmountRatio      Amount   Ratio
December 31, 2002                                                               
Total Capital to                                                                
Risk                                                                      
Weighted Assets:  $ 25,564   12.11%    $16,893  8%   $ 21,11  6   10%     
Tier 1 Capital to                                                               
Risk                                                                      
Weighted Assets:    23,339   11.05%      8,446  4%     12,670      6%     
Tier 1 Capital to                                                               
Average                                                                   
Assets:             23,339    9.51%     11,372  4%     14,215      5%     

December 31, 2001:                                                              
Total Capital to                                                                
Risk                                                                      
Weighted Assets:  $ 20,684   12.03%    $13,760  8%   $ 17,200     10%     
Tier 1 Capital to                                                               
Risk                                                                      
Weighted Assets:    18,891   10.99%      6,880  4%     10,320      6%     
Tier 1 Capital to                                                               
Average                                                                   
Assets:             18,891    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    
$14.9 million at December 31, 2002 in the form of cash, due from banks and      
federal funds sold. We believe that our liquid assets were adequate at both     
dates. 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.       
Additional liquidity will be provided by the future growth that management      
expects in deposit accounts and loan repayments. We believe that this future    
growth will result from an increase in market share in our targeted trade area. 
In 2002 alone, we have opened five new branches and plan to open additional     
branches before the end of 2003.                                                

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As of December 31, 2002, we had time deposits of $173.5 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 to 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.                               

Analysis of Cash Flows                                                          

Our significant cash flows are as follows:                                      
                                Year Ended
                                  December 31,
                                 2002      2001       2000      1999

Cash was Provided by                                                            
Operations                        $ 3,694    $ 1,372   $ 1,583    $ (118) 
Investment activities                                                     
 Maturity of securities           3,500      9,714    28,913         -
Withdrawal of deposits in                                           
  other banks                         -         -        859     1,671
Financing Activities                                                      
 Sale of common stock             5,412         -      6,000       817
 Growth in deposits              69,794     55,564    50,957    60,536
                                 ------     ------    ------    ------

Total                             $82,400    $66,650   $88,312   $62,906  
                                 ======     ======    ======    ======

Cash was used for Investing                                                     
Activities                                                                  
Growth in loans                   $43,351    $48,219   $44,594   $73,222  
Purchase of property, plant                                               
 and equipment                    3,572      3,757     2,081     1,219
Investment in life insurance                                              
 agreements                                 -7,500         -         -
Purchase of securities             32,232      3,499    40,960        18  
                                 ------     ------     ------    -----

Total                             $79,155    $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. During    
2002, we raised an additional $5.4 million through a common stock offering that 
ended on February 7, 2003. Total capital raised by this most recent offering    
totaled $8.8 million net of related expenses. 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 85% at  
December 31, 2002. To manage the growth in our loan portfolio, we can vary the  
interest rates charged or limit the amount of new loans approved.               

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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.                                                                      

Item 7A. 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.                               

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, 2002 and 
2001. At both dates, our interest rate risk is within the established           
limitations.                                                                    

Immediate      Estimated Increase                           
Basis Point Change   (Decrease) in Net      Established               
In Interest Rates    Interest Income       Limitation               

December 31,            
2002       2001           

+300          (4.67)%   (4.72)%       (20.00)%        
+200          (3.10)    (3.17)        (15.00)         
+100          (1.55)    (1.64)         (7.00)         
-100           2.13      2.22          (7.00)         
-200           4.09      4.89         (15.00)         
-300           1.95      8.69         (20.00)         

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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.                    

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Item 8.                      Financial Statements                               

CONTENTS                                                                        
                                                                    Page

Independent Auditors' Report                                             34     

Consolidated Balance Sheets as of                                               
December 31, 2002 and 2001                                            35  

Consolidated Statements of Income - Years Ended                                 
December 31, 2002 and 2001                                            36  

Consolidated Statements of Stockholders' Equity - Years                         
Ended December 31, 2002 and 2001                                      37  

Consolidated Statements of Cash Flows - Years Ended                             
December 31, 2002 and 2001                                            38  

Notes to Consolidated Financial Statements                               39     

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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, 2002 and 2001, and the related consolidated   
statements of income, stockholders' equity, and cash flows for each of the years
in the three year period ended December 31, 2002. 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, 2002 and 2001, and the       
results of its operations and its cash flows for each of the years in the three 
year period ended December 31, 2002, in conformity with accounting principles   
generally accepted in the United States of America.                             

                         /s/S. B. Hoover & Company, L.L.P.

January 17, 2003                                                                
Harrisonburg, Virginia                                                          

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NEW PEOPLES BANKSHARES, INC.
 CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2002 AND 2001

ASSETS                                                                          
                                        2002            2001
                                        ----            ----

Cash and due from banks (Note 3)             $   8,815,523    $   8,160,163     
Federal funds sold                               6,123,000        3,387,000     
                                         ------------     ------------

Total Cash and Cash Equivalents              14,938,523       11,547,163  

Investment Securities                                                           
Held to maturity, fair value of $34,356,811                               
in 2002 and $5,704,751 in 2001                                      
 (Note 4)                                  34,304,596        5,657,937
                                         ------------     ------------

Loans receivable (Note 5)                      222,394,898      179,215,539     
Allowance for loan losses (Note 6)           (2,224,487)      (1,792,850) 
                                         -------------    ------------

Net Loans                                   220,170,411      177,422,689  

Bank premises and equipment, net (Note 7)       10,915,165        8,365,639     
Federal Reserve Bank stock (restricted)                                         
(Note 4)                                        538,950          529,250  
Accrued interest receivable                      1,846,231        1,637,979     
Life insurance investments                       7,987,882        7,568,904     
Other assets                                       696,555        1,523,493     
                                         ------------     ------------

Total Assets                              $ 291,398,313    $ 214,253,054  
                                          ===========     ============

LIABILITIES                                                                     

Deposits:                                                                       
Demand deposits:                                                          
 Noninterest bearing                    $  22,379,395    $  15,798,126
 Interest-bearing                           9,711,423        7,535,247
Savings deposits                             27,125,922       18,646,950  
Time deposits (Note 8)                      204,588,711      152,031,073  
                                         ------------     ------------

Total Deposits                              263,805,451      194,011,396  

Accrued interest payable                           702,260          687,354     
Accrued expenses and other liabilities             409,374          663,230     
                                         ------------     ------------

Total Liabilities                           264,917,085      195,361,980  
                                         ------------     ------------

STOCKHOLDERS' EQUITY (Notes 12 & 15)                                            

Common stock - $2.00 par value; 12,000,000                                      
shares authorized; 6,008,393 and                                          
6,000,000 shares issued and outstanding                                   
for 2002 and 2001, respectively              12,016,786       12,000,000  
Paid-in-surplus                                  5,948,505        5,964,331     
Stock Subscriptions                              5,410,900                      
Retained earnings                                3,105,037          926,743     
                                         ------------     ------------

Total Stockholders' Equity                   26,481,228       18,891,074  
                                         ------------     ------------

Total Liabilities and Stockholders'                                       
 Equity                                 $ 291,398,313    $ 214,253,054
                                          ===========     ============

The accompanying notes are an integral part of this statement.  

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NEW PEOPLES BANKSHARES, INC.
 CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000  

INTEREST AND DIVIDEND INCOME          2002            2001         2000         
                             ----            ----         ----

Loans including fees           $16,674,854    $14,602,070   $10,407,770   
Federal funds sold                 200,248        395,164       646,374   
Deposits in other banks                                          14,131   
U.S. Treasury securities           133,176        237,778       134,255   
Dividends on Federal Reserve                                              
Bank stock                       31,865         31,755        25,515
                               --------       --------     ---------

Total Interest and Dividend                                               
Income                        17,040,143     15,266,767   11,228,045
                              ----------     ----------   ----------

INTEREST EXPENSE                                                                

Deposits                                                                  
Demand                          106,715        120,076        98,309
Savings                         450,589        378,511       313,738
Time deposits below $100,000  4,289,264      5,570,090     4,387,005
Time deposits above $100,000  1,528,106      1,881,463     1,525,839
                              ---------      ---------     ---------

Total Interest Expense           6,374,674      7,950,140     6,324,891   
                              ---------      ---------     ---------

NET INTEREST INCOME                10,665,469      7,316,627     4,903,154      

PROVISION FOR LOAN LOSSES (Note 6)    603,000        571,000       513,400      
                             ----------       --------     ---------

Net Interest Income after                                                       
Provision for Loan Losses       10,062,469      6,745,627     4,389,754   
                             ----------     ----------     ---------

NONINTEREST INCOME                                                              
Service charges                    662,598        457,396       323,899   
Fees, commissions and                                                     
other income                    292,516        226,317       119,670
Life insurance investment                                                 
income                          456,825         68,904              
                               --------       --------     ---------

Total Noninterest Income         1,411,939        752,617       443,569   
                              ---------       --------     ---------

NONINTEREST EXPENSES                                                            
Salaries and employee                                                     
benefits (Note 11)            4,431,131      3,402,878     2,168,474
Occupancy expense                  457,839        260,320       183,650   
Equipment expense                  917,473        707,428       415,470   
Advertising and public relations   189,635        125,839       102,342   
Stationery and supplies            210,937        149,529        94,516   
Other operating expenses         2,010,733      1,287,150       718,646   
                              ---------      ---------     ---------

Total Noninterest Expenses       8,217,748      5,933,144     3,683,098   
                              ---------      ---------     ---------

Income before Income Taxes       3,256,660      1,565,100     1,150,225   

INCOME TAX EXPENSE (Note 9)         1,078,366        556,435       389,153      
                              ---------       --------     ---------

NET INCOME                         $2,178,294     $1,008,665    $  761,072      
                              =========      =========     =========
Earnings Per Share (1)                                                    
Basic                               .36            .17           .14
                              =========      =========    ==========
Fully Diluted                       .35                             
                              =========      =========     =========

Average Weighted Shares of                                                
Common Stock (1)              6,104,734      6,000,000     5,400,000
                              =========      =========     =========

(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.  

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                          NEW PEOPLES BANKSHARES, INC.                                              
               CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY                                      
             FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000                                   


                                                                           Retained                 
                       Shares of                                Common      Earnings                
                        Common      Commo  n    Paid in          Stock    (Accumulated              
                         Stock       Stock       Surplus     Subscriptions   Deficit)      Total    

                                                                                                    
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 

Stock Split             3,000,000                                                                   

Stock Options Exercised     2,534       5,068        13,937                                  19,005 

Common Stock Subscribed                                        5,469,490                  5,469,490 

Common Stock Issued         5,859      11,718        46,872      (58,590)                           

Cost of Common Stock                                                                                
  Offering                                          (76,635)                                (76,635)

Net Income                                                                  2,178,294     2,178,294 
                        ---------  ----------     ---------    ---------    ---------     --------- 

Balance, December 31,                                                                               
  2002                  6,008,393 $12,016,786    $5,948,505   $5,410,900   $3,105,037   $26,481,228 
                        =========  ==========     =========    =========    =========    ========== 

    The accompanying notes are an integral part of this statement.

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NEW PEOPLES BANKSHARES, INC.
 CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000  

                                   2002         2001        2000
                                   ----         ----        ----
CASH FLOWS FROM OPERATING ACTIVITIES                                            
Net income                        $ 2,178,294   $ 1,008,665  $   761,072  
Adjustments to reconcile net income                                       
to net cash provided by operating                                     
activities:                                                           
 Depreciation                       866,492       593,997      373,359
 Provision for loan losses          603,000       571,000      513,400
Income (less expenses) on                                           
life insurance                 (418,978)       68,904         
Loss on sale of foreclosed                                          
real estate                      71,577        87,520         
Amortization of bond premiums       85,748                          
 Deferred tax benefit               346,900       (50,690)     271,733
Loss on disposal of fixed assets                  12,156            
Net change in:                                                      
     Interest receivable            (208,252)     (263,981)    (676,376)
     Other assets                    202,329      (343,581)    (251,608)
    Accrued interest payable         14,906       (99,502)     388,080
Accrued expense and other                                     
       liabilities                 (603,144)      387,578      203,139
                                 ----------    ----------   ----------

Net Cash Provided by Operating                                            
 Activities                       3,138,872     1,972,066    1,582,799
                                -----------    ----------   ----------

CASH FLOWS FROM INVESTING ACTIVITIES                                            
Net change in interest-bearing                                            
 deposits in other banks                                       858,756
Net increase in loans             (43,350,722)  (48,218,812) (44,593,543) 
Purchase of securities                                                    
  held-to-maturity               (32,232,407)   (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                 3,500,000       800,767            
Purchase of Federal Reserve                                               
  Bank stock                          (9,700)                  (173,500)
Payments for the purchase of                                              
  property                        (3,152,316)   (4,357,240)  (2,081,075)
Proceeds from the sale of property    291,715                             
Deposits with life insurance                                              
companies                                     (7,500,000)           
                                 ----------    ----------   ----------

Net Cash Used in Investing                                                
  Activities                     (74,953,430)  (53,860,632) (57,862,719)
                               -----------   -----------  ----------

CASH FLOWS FROM FINANCING ACTIVITIES                                            
Proceeds from common stock                                                
 subscriptions                                               6,000,000
Net proceeds from common stock                                            
offering                         5,392,855                          
Common stock options exercised         19,005                             
Net change in:                                                            
 Demand deposits                  8,757,445     9,087,755    5,187,605
 Savings deposits                 8,478,975     9,485,890    3,635,737
 Time deposits                   52,557,638    36,990,330   42,133,612
                                 ----------    ----------   ----------

Net Cash Provided by Financing                                            
 Activities                      75,205,918    55,563,975   56,956,954
                                 ----------    ----------   ----------

Net increase in cash and cash                                             
 equivalents                      3,391,360     3,675,409      677,034

Cash and Cash Equivalents,                                                      
Beginning of Year                  11,547,163     7,871,754    7,194,720  
                                 ----------    ----------   ----------

Cash and Cash Equivalents,                                                      
End of Year                       $14,938,523   $11,547,163  $ 7,871,754  
                                 ==========    ==========   ==========

Supplemental Disclosure of Cash Paid                                            
During the Year for:                                                        
Interest                            6,359,768     8,049,642    5,937,123  
Taxes                               1,393,983       556,435               

Supplemental Disclosure of Non Cash                                             
Transactions:                                                               
Loans made to finance sale of                                               
foreclosed real estate                33,000       196,781              

The accompanying notes are an integral part of this statement.  

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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 their common stock for common stock
       in New Peoples Bankshares Inc. ("New Peoples"). On November 30, 2001,
         the reorganization was completed on a pooling of interest basis 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 and 2000 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, 2002 and 2001,
there were no securities classified as Available for Sale.    

        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.     

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NEW PEOPLES BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)  

NOTE 2   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):                

      Loans and Allowance for Loan Losses (Continued) - 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 it 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.                                                         

  Earnings Per Share - Earnings per share represent both basic and
diluted earnings per share using the treasury  stock method.  
   Weighted average shares outstanding at December 31, 2002 included
  outstanding stock subscriptions as a result of the ongoing stock
offering at December 31, 2002.                                

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 $10,048,272 and $8,346,190 at December 31, 2002 and
       2001, respectively. Deposit amounts at other commercial banks may, at
times, exceed federally insured limits.                       

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NEW PEOPLES BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)  

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, 2002                                           

U.S. Government                                             
          agencies              $34,203,529   $  56,916  $  10,613   $34,249,832

          Municipal governments     101,067       5,912                  106,979
                                   --------    --------   --------      --------

Total Securities Held                                       
          to Maturity           $34,304,596   $  62,828   $ 10,613   $34,356,811
                                ===========    ========   ========    ==========

          At December 31, 2002, the Company had not identified any securities as
available for sale.                                         

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.                                         

          The amortized cost and fair value of investment securities at December
 31, 2002, 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
                                         ------------    -----   -----------

      Due within one year              $33,496,960  $33,538,683    3.66%
Due after one year through                                  
      five years                           807,636      818,128    3.26%
                                        ---------    ---------    ----

      Total                            $34,304,596  $34,356,811    3.65%
                                        ========== ===========    ====

          The carrying amount of securities pledged by the Bank to secure public
deposits amounts to $2,807,636 at December 31, 2002.        

       The Bank is required to hold stock in the Federal Reserve Bank. The
   investment in Federal Reserve Bank stock is recorded at cost of
$538,950 and  $529,250 as of  December  31, 2002 and 2001,  
respectively.                                               

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NEW PEOPLES BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)  

NOTE 5   LOANS:                                                                 

         Loans receivable outstanding at December 31, are summarized as follows:
(Rounded to the nearest thousand.)                            
                                              2002        2001

   Commercial, financial and agricultural  $ 42,959,000 $ 35,168,000
   Real estate - construction                 5,615,000    3,845,000
   Real estate - mortgages                  131,051,000   98,229,000
   Installment loans to individuals          42,770,000   41,974,000
                                             ----------   ----------

      Loans Receivable                     $222,395,000 $179,216,000
                                            ===========  ===========

NOTE 6   ALLOWANCE FOR LOAN LOSSES:                                             

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

                                  2002        2001        2000
                                  ----        ----        ----

  Balance, beginning of year    $1,792,850  $1,311,348  $  865,268
Provision charged to operating                                
     expenses                      603,000     571,000     513,400
Recoveries of loans charged                                   
     off                            35,591       8,495       2,928
   Loans charged off               (206,954)    (97,993)    (70,248)
                                 ---------   ---------   ---------

     Balance, End of Year       $2,224,487  $1,792,850  $1,311,348
                                 =========   =========   =========

   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:

                                              2002        2001

  Land                                      $2,188,937  $2,102,800
  Buildings and improvements                 6,557,287   4,159,520
  Furniture and equipment                    3,876,615   2,884,850
  Vehicles                                     137,874     101,904
  Construction in progress                     338,606     434,252
                                             ---------   ---------

                                            13,099,319   9,683,326
      Less accumulated depreciation          (2,184,154) (1,317,687)

     Bank Premises and Equipment           $10,915,165  $8,365,639
                                            ==========   =========

      Depreciation expense for 2002, 2001 and 2000 was $866,492, $593,997,
and $373,359 respectively.                                    

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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 $50,577,890 and $38,847,562 at December 31, 2002 and 2001,
respectively.                                                 

   At December 31, 2002, the scheduled maturities of certificates of
deposit are as follows:                                       

2003                            $173,525,000
2004                              12,428,000
2005                               5,187,000
2006                              11,290,000
2007                               2,148,000
After five years                      11,000
                                  ----------

   Total                        $204,589,000
                                 ===========

NOTE 9   INCOME TAX EXPENSE:                                                    

       The components of income tax expense for the years ended December 31,
are as follows:                                               

                                  2002        2001        2000
                                  ----        ----        ----

  Current expense               $  731,466  $  607,125  $  117,421
  Deferred expense (benefit)       346,900     (50,690)    271,732
                                 ---------   ---------   ---------

     Net Federal Income Tax     $1,078,366  $  556,435  $  389,153
                                 =========   =========   =========

The deferred tax expense  (benefit)  resulting  from temporary
differences for the years ended December 31 is as follows:    

                                   2002       2001        2000
                                   ----       ----        ----

Organization and start-up                                     
     cost                       $   18,942  $   16,762  $   18,575
   Provision for loan losses       (161,552)   (144,622)   (126,410)
  Depreciation                     363,516      76,786      96,898
  Net operating loss utilized                              282,669
Unrealized accretion income        3,608                      
Net earnings on bank owned                                    
life insurance                128,008                   
Capitalized interest              (5,622)        384          
                                 ---------   ---------   ---------

Deferred Income Tax Expense                             
        (Benefit)               $  346,900  $  (50,690) $  271,732
                                 =========   =========   =========

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NEW PEOPLES BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)  

NOTE 9   INCOME TAX EXPENSE (CONTINUED):                                        

      The net deferred tax assets and liabilities resulting from temporary
differences as of December 31, are summarized as follows:     

                                  2002       2001         2000
                                  ----       ----         ----
Deferred Tax Assets:                                          
-------------------                                           
  Organization and start-up cost $  16,925   $  35,867   $  52,629
  Allowance for loan losses        620,606     459,054     314,432
  Capitalized interest              10,603       4,981       5,365
                                 ---------   ---------   ---------

     Total Assets                  648,134     499,902     372,426
                                 ---------   ---------   ---------

Deferred Tax Liabilities:                                     
  Accelerated depreciation         651,256     287,740     210,954
Unrealized accretion income        3,608                      
Net unrealized income on bank                                 
owned life insurance          128,008                   
                                 ---------   ---------   ---------

     Total Liabilities             782,872     287,740     210,954
                                 ---------   ---------   ---------

Net Deferred Tax Asset                                  
        (Liability)             $ (134,738) $  212,162  $  161,472
                                 =========   =========   =========

   The following table summarizes the differences between the actual
         income tax expense and the amounts computed using the federal statutory
tax rates:                                                    

                                  2002        2001        2000
                                  ----        ----        ----

Income tax expense at the                                     
     applicable federal rate    $1,114,328  $  532,134  $  391,077
Permanent differences resulting                               
from:                                                     
     Nondeductible expenses          2,602       9,095         743
Tax exempt interest income    (14,949)                  
   Other adjustments                (23,615)     15,206      (2,667)
                                 ---------   ---------   ---------

     Income Tax Expense         $1,078,366  $  556,435  $  389,153
                                 =========   =========   =========

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:                                                     

                                              2002        2001

  Total loans, beginning of year           $ 6,070,481  $5,209,080
  New loans                                    805,476   2,800,929
   Repayments                                (1,009,016) (1,939,528)
                                           -----------  ----------

  Total Loans, End of Year                 $ 5,866,941  $6,070,481
                                            ==========   =========

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NEW PEOPLES BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)  

NOTE 11  RETIREMENT PLANS:                                                      

      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 $143,331, $109,998, and $73,480 to the defined contribution
plan for 2002, 2001 and 2000, respectively.                   

      In addition, the Bank has established a salary continuation plan for
  key executives, which is funded by single premium life insurance
policies. Expenses related to the plan were $80,332 for 2002. 

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 outstanding. 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 of
the common stock from $4.00 per share to $2.00 per share.     

     On October 15, 2002, upon approval from the Securities and Exchange
       Commission, 1,200,000 shares of common stock were offered for sale by
   means of a prospectus to existing shareholders and to the general
         public in the states of Virginia, West Virginia and Tennessee only. The
      sale ended on February 07, 2003, after one 30 day extension from the
 original sale period. The total number of shares sold under the
offering were 890,469.                                        

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 286,000 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.                                 

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NEW PEOPLES BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)  

NOTE 13  STOCK OPTION PLAN (CONTINUED):                                         

         During 2002, a total of 2,534 options were exercised at an option price
         of $7.50 per share. As of December 31, 2002, there were 283,466 options
outstanding at an option price of $7.50 per share.            

        On January 1, 2003 stock options of 79,500 shares were awarded to some
      employees and all directors; these options have an exercise price of
     $10.00 per share with a term of ten years and an expiration date of
    December 31, 2012, with all the same covenants/requirements as the
previous option.                                              

   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:                             

                                             2002         2001

   Per statement of income                  $2,178,294    $1,008,665
Cost of options granted                                       
      (net of tax effect)                                    (751,360)
                                             ---------     ---------

      Proforma Net Income                   $2,178,294    $  257,305
                                             =========     =========

NOTE 14  DEPOSITS WITH LIFE INSURANCE COMPANIES:                                

     The Bank deposited $7,500,000 in October/November 2001 with various
         life insurance companies. The deposit had a guaranteed interest rate of
       6.19% through the year 2002. The new interest rate through 2003 is an
average of 5.35%.                                             

         In 2002, life insurance policies insuring key officers were issued. The
       policies are owned by the bank and the income on the policies will be
used to fund a salary continuation plan for the officers.     

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NEW PEOPLES BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)  

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. As of January
1, 2003, approximately $3,125,000 was available for dividend  
      distribution. The Bank declared dividend's payable to New Peoples of
$25,000 for 2001 and zero for 2002.                           

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.                                                

         Financial instruments whose contract amount represents credit risk were
as follows (in thousands):                                    
                                            2002        2001

 Commitments to extend credit                $15,877     $12,134
 Standby letters of credit                       826       2,177

      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.                                                       

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NEW PEOPLES BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)  

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 3. Note 5 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.

   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).   

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NEW PEOPLES BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)  

NOTE 18  REGULATORY MATTERS (CONTINUED):                                        

   As of October 15, 2002, 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,
2002 and 2001, respectively.                                  
                                                           Minimum
                                                          To Be Well
                                               Minimum   Capitalized Under
                                               Capital   Prompt Corrective
                                  Actual       Requirement   Action Provisions
                           Amount  Ratio   Amount  Ratio  Amount   Ratio

December 31, 2002:                                          
Total Capital to Risk                                       
       Weighted Assets:  $ 25,564  12.11% $16,893   8%    $21,116  10%

Tier 1 Capital to Risk                                      
       Weighted Assets:    23,339  11.05%   8,446   4%     12,670   6%

Tier 1 Capital to Average                                   
       Assets:             23,339   9.51%  11,372   4%     14,215   5%

December 31, 2001:                                          
Total Capital to Risk                                       
       Weighted Assets:  $ 20,684  12.03% $13,760   8%    $17,200  10%

Tier 1 Capital to Risk                                      
       Weighted Assets:    18,891  10.99%   6,880   4%     10,320   6%

Tier 1 Capital to Average                                   
       Assets:             18,891   9.19%   8,226   4%     10,283   5%

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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, 2002 and 2001, are as follows
(in thousands):                                             

                               December 31, 2002     December 31, 2001
                               Estimated Carrying    Estimated  Carrying
                             Fair Value   Value    Fair Value    Value
                               ---------- ---------  ----------  ---------

Financial Assets                                            

     Cash and due from bank   $ 8,815   $  8,815    $  8,160   $ 8,160
     Federal funds sold         6,123      6,123       3,387     3,387
     Investment securities     34,357     34,305       5,705     5,658
Federal Reserve Bank                                        
       stock                      539        539         529       529
     Loans                    224,625    222,395     182,315   179,216
Accrued interest                                            
       receivable               1,846      1,846       1,638     1,638
Life insurance                                              
       investments              7,988      7,988       7,500     7,500

Financial Liabilities                                       

Demand Deposits:                                            
       Non-interest bearing    22,379     22,379      15,798    15,798
       Interest-bearing         9,711      9,711       7,535     7,535
     Savings deposits          27,126     27,126      18,647    18,647
     Time deposits            205,723    204,589     152,746   152,031
Accrued interest                                            
       payable                    702        702         687       687

      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 2002 and 2001.                                     

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NEW PEOPLES BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)  

NOTE 20   PARENT CORPORATION ONLY FINANCIAL STATEMENTS:                         

BALANCE SHEETS                                                                  
AS OF DECEMBER 31, 2001 AND 2002

ASSETS                                                                          

                                            2002          2001

Due from banks                                 $ 3,134,611   $              
Investment in subsidiary                        23,339,322     18,895,351   
Other assets                                        20,142          3,472   
                                             ----------    -----------

Total Assets                                   $26,494,075   $ 18,898,823   
                                             ==========    ===========

LIABILITIES                                                                     

Due to subsidiary bank                         $    12,847   $      7,749   
                                             ----------    -----------

Total Liabilities                              $    12,847   $      7,749   
                                             ----------    -----------

STOCKHOLDERS' EQUITY                                                            

Common stock - $ 2.00 par value, 12,000,000                                 
shares authorized; 6,008,393 and 6,000,000                              
shares issued and outstanding for 2002                                  
and 2001, respectively                        12,016,786     12,000,000 
Paid-in-Surplus                                  5,948,505      5,964,331   
Stock subscriptions                              5,410,900                  
Retained earnings                                3,105,037        926,743   
                                             ----------    -----------

Total Stockholders' Equity                    26,481,228     18,891,074 
                                             ----------    -----------

Total Liabilities and Stockholders' Equity   $26,494,075   $ 18,898,823 
                                             ==========    ===========

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NEW PEOPLES BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)  

NOTE 20   PARENT CORPORATION ONLY FINANCIAL STATEMENTS (CONTINUED):             

STATEMENTS OF INCOME
FOR ONE MONTH ENDED DECEMBER 31, 2001 AND   
THE YEAR ENDED DECEMBER 31, 2002  

                                               2002           2001

Income                                                                          
Dividends from subsidiary                       $              $   25,000   
Undistributed income from subsidiary             2,193,971         12,000   
                                              ---------      ---------

Total Income                                     2,193,971         37,000   
                                              ---------      ---------

Expenses                                                                        
Legal fees (reorganization)                                        32,749   
Shareholder related expenses                        23,752                  
                                              ---------      ---------

Total Expenses                                      23,752         32,749   
                                              ---------      ---------

Income before Income Taxes                         2,170,219          4,251     

Income Tax Benefit                                   8,076          3,472   
                                              ---------      ---------

Net Income                                        $2,178,295     $    7,723     
                                              =========      =========

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NEW PEOPLES BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)  

NOTE 20   PARENT CORPORATION ONLY FINANCIAL STATEMENTS (CONTINUED):             

                                                        [Enlarge/Download Table]

                STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY                                  
                  FOR ONE MONTH ENDED DECEMBER 31, 2001 AND                                    
                       THE YEAR ENDED DECEMBER 31, 2002                                        



                              Common                         Stock      Retained               
                               Stock         Surplus     Subscriptions   Earnings    Total     

                                                                                               
Balance                                                                                        
   December 31, 2000        $         -     $        -     $       -    $       -  $         - 

Exchange of New Peoples                                                                        
   Bankshares stock for                                                                        
   New Peoples Bank stock    12,000,000      5,964,331                    919,019   18,883,350 

Net Income                                                                  7,723        7,723 
                             ----------      ---------      ---------    --------   ---------- 

Balance                                                                                        
   December 31, 2001        $12,000,000     $5,964,331     $            $ 926,742  $18,891,073 
                             ----------      ---------      ---------    --------   ---------- 

Stock options exercised           5,068         13,937                                  19,005 

Common Stock Subscribed                                     5,469,490                5,469,490 

Common Stock Issued              11,718         46,872        (58,590)                         

Cost of common stock                                                                           
   offering                                    (76,635)                                (76,635)

Net Income                                                              2,178,295    2,178,295 
                             ----------     ----------     ----------   ---------   ---------- 

Balance                                                                                        
   December 31, 2002        $12,016,786     $5,948,505    $5,410,900   $3,105,037  $26,481,228 
                             ==========      =========     =========    =========   ========== 

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NEW PEOPLES BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)  

NOTE 20   PARENT CORPORATION ONLY FINANCIAL STATEMENTS (CONTINUED):             

STATEMENTS OF CASH FLOWS
FOR ONE MONTH ENDED DECEMBER 31, 2001 AND   
THE YEAR ENDED DECEMBER 31, 2002

                                                2002            2001

Cash Flows From Operating Activities:                                           
Net Income                                      $2,178,295     $    7,723   
Adjustments to reconcile net income to                                      
net cash used in operating activities:                                  
  Income of subsidiary bank                   (2,193,971)       (12,000)
Net change in:                                                      
     Other assets                                (16,670)        (3,472)
    Accounts payable                              5,097          7,749
                                              ---------      ---------

Net Cash Used in Operating Activities              (27,249)                 
                                              ---------      ---------

Cash Flows From Investing Activities:                                           
Investment in subsidiary                        (2,250,000)                 
                                             ----------      ---------

Net Cash Used in Investing Activities           (2,250,000)                 
                                             ----------      ---------

Cash Flows From Financing Activities:                                           
Net proceeds from common stock offering          5,392,855                  
Exercise of stock options                           19,005                  
                                               ---------       ---------

Net Cash Provided by Financing Activities        5,411,860                  
                                               ---------       ---------

Net Increase in Cash and Cash Equivalents          3,134,611                    

Cash and Cash Equivalents, Beginning of Year                                
                                               ---------       ---------

Cash and Cash Equivalents, End of Year            $3,134,611      $        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

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Item 9.  Changes in and Disagreements with Accountants on Accounting and        
Financial Disclosure                                          

As reported on Form 8K on December  18, 2002,  effective as of that date,  New  
Peoples Bankshares,  Inc. (the "Corporation") or (the "Registrant") decided to  
end the  engagement  of S. B. Hoover and Company,  L.L.P.  ("S. B. Hoover") as  
the Corporation's  independent certified public accountants by selecting Brown  
Edwards & Company,  L.L.P. to serve as its independent  public accountants for  
the year ended December 31, 2003. With the Audit  Committee's  recommendation,  
the Board of  Directors  approved the  selection  on December  18,  2002.  The  
prior  independent  certified public  accountants,  S. B. Hoover has served as  
the independent  certified public  accountants for the year ended December 31,  
2002.  Furthermore,  they will continue to provide income tax  preparation and  
consulting services for the year ended December 31, 2003.                       

S. B. Hoover's report on the Corporation's  consolidated  financial statements  
during the two most recent  fiscal  years  contained  no adverse  opinion or a  
disclaimer of opinion,  and was not  qualified or modified as to  uncertainty,  
audit scope or accounting principles.                                           

During the last two fiscal years, there were no disagreements between the       
Corporation and S. B. Hoover on any matters of accounting principles or         
practices, financial statement disclosure, or auditing scope or procedure, which
disagreements, if not resolved to the satisfaction of S. B. Hoover, would have  
caused it to make a reference to the subject matter of the disagreements in     
connection with its report.                                                     

PART III                                                                        

Item 10.  Directors, Executive Officers, Promoters and Control Persons;         
Compliance with Section 16(a) of the Exchange Act           

The following table sets forth information with respect to the directors and    
executive officers of New Peoples Bankshares, Inc. With the exception of Tim    
Ball, who started in 1999, all of the Directors have served as directors of the 
Bank since 1998.                                                                

              Principal Occupation
Directors          Age          During Past Five Years                  

Class I - Term Ending as of the 2003 Annual Meeting                             
Joe Carter              65       General Manager, Daugherty Chevrolet           
Harold Lynne Keene      48       Owner/Operator, Keene Carpet, Inc.             
John Maxfield           60       Retired                                        
Fred Meade              68       Owner, Big M. Discount Stores                  
Virgil Sampson, Jr.     62       Owner, Scott Jewelers                          

Class II - Term Ending as of the 2004 Annual Meeting                            
Tim Ball                43       Self employed, Farmer                          
Michael G. McGlothlin   51       Attorney, McGlothlin & Wife                    
Bill Ed Sample          69       Self-employed Farmer                           
Paul Vencill, Jr.       61       Owner, Lebanon Equipment Co.                   
B. Scott White          57       Self Employed/Farmer                           

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Class III - Term Ending as of the 2005 Annual Meeting                           
John D. Cox           46         Owner, Tri-County New Holland                  
Charles H. Gent       43         Self-employed, Logging/Farming                 
Frank Kilgore         50         Attorney, Kilgore & Kilgore                    
L. T. Phillips        84         Owner, Phillips TV & Appliance - deceased a/o  
    02-27-2002
Stephen H. Starnes    46         President, Starnes, Inc.                       

Executive Officers                                                              

Kenneth D. Hart       55         President and CEO                              
        New Peoples Bank, Inc.
 1998 to Present

              Chief Administrative Officer
                       First Virginia Bank - Mountain Empire
                     1995 to 1998 (formerly Premier Bank
Central NA)   

         Chief Executive Officer
    Peoples Bank, Inc.
 1975 - 1995

Frank Sexton, Jr.     53         Executive Vice President and Cashier           
        New Peoples Bank, Inc.
      June 1998 to Present

                 Senior Vice President & Cashier
                       First Virginia Bank - Mountain Empire
                    1991 - June 1998 (Formerly Premier
   Bank Central, NA)

Section 16(a) Beneficial Ownership Reporting Compliance                         

The Company's executive officers, directors and 10% shareholders, if any, are   
required under Section 16(a) of the Securities Exchange Act of 1934 to file with
the Securities and Exchange Commission reports of their ownership and changes in
ownership of the Bank's securities. Based solely on a review of copies of such  
reports furnished to the Company through the date hereof, or written            
representations that no reports were required to be filed, the Company believes 
that its executive officers and directors have filed on a timely basis all      
reports required to be filed pursuant to Section 16(a) during the fiscal year   
ended December 31, 2002.                                                        

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Item 11.  Executive Compensation                                                

Summary                                                                         

The following table sets forth a summary of certain information concerning the  
compensation paid by the Company for services rendered in all capacities during 
the years ended December 31, 2002, 2001 and 2000, to the President and          
Chief Executive Officer of the Company. Only one executive officer of the Bank  
had total compensation during the fiscal year which exceeded $100,000.          

Summary Compensation Table                                                      

 Annual Compensation (1)

 Name and         Year     Salary   Bonus Other     Long-Term Compensation
Principal Position                                 Securities Underlying Uptions

Kenneth D. Hart      2002    $125,000  6,250 -------                            
President and Chief  2001    $112,500  5,625 -------         13,000             
Executive Officer    2000    $100,000  4,792 -------                            

(1)  Does not include certain perquisites and other personal benefits, the      
amount of which are not shown because the aggregate amount of such    
     compensation during the year did not exceed the lesser of $50,000 or 10% of
total salary and bonus reported for such executive officer.           

Salary Continuation Plan                                                        

On December 18, 2002, New Peoples entered into a salary continuation agreement  
("Agreement") with Kenneth D. Hart. The Agreement provides for payments, at     
normal retirement date, of $59,063 per year for fifteen years. In addition, the 
Agreement provides benefits upon early termination (other than for cause),      
death, disability or change in control.                                         

The agreement is attached as Exhibit 10.2.                                      

Stock Options                                                                   

The following table sets forth for the year ended December 31, 2002, the grants 
of stock options to the named executive officers.                               

Number    Percent of Total          
Of Securities Options Granted             
 Underlying     to Employees   Exercise or
Options         in Fiscal      Base   
   Name         Granted(#)(1)   Year(%)(2)  Price($/Share) Expiration Date

Kenneth D. Hart      13,000           5.08%        7.50       December 31, 2011 

(1)  Stock options were granted at the market value of the shares of Common     
    Stock at the grant date. The grants are exercisable immediately after they
     are granted. The total number of options held by Kenneth D. Hart is 20,500.

(2)  Options to purchase 256,000 shares were granted to employees and 30,000    
 shares were granted to the directors during the year ended December 31,
2001.                                                                 

(3)  Options to purchase  51,500  shares were granted to employees  and 28,000  
   shares were  granted to the  directors  on January 01,  2003.  Options to
purchase 7,500 shares were granted to Kenneth D. Hart.                

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 Fiscal Year End Option Values

Number of             
              Securities Underlying       Value of Unexercised
             Unexercised Options at       In-the-Money Options
                  Fiscal Year End (#)     at Fiscal Year End ($) (1)
  Name          Exercisable  Unexercisable  Exercisable    Unexercisable

Kenneth D. Hart      13,000            0         $32,500             0          

(1)  The value of in-the-money options at fiscal year end was calculated by     
 determining the difference between the latest trade price of a share of
   Common Stock as reported to the Company in 2001 and the exercise price of
the options.                                                          

Compensation of Directors                                                       

During 2001, the Directors did not receive compensation for participating in    
board and committee meetings.                                                   

During 2002, the Directors each received $100 monthly for attending board       
meetings. During 2003, the monthly compensation will increase to $200.          

Item 12.  Security Ownership of Certain Beneficial Owners and Management        

The following table sets forth, as of March 15, 2003, certain information with  
respect to the beneficial ownership of the Company's common stock, par value    
$2.00 per share ("Common Stock"), held by each director of the Company, the     
executive officers' names in the Summary Compensation Table in "Item 11,        
Executive Compensation" herein, and by the directors and all executive officers 
as a group.                                                                     

As of March 15, 2003, based on information available to the Bank, no person     
beneficially owned 5% or more of the Company's common stock.                    

Amount and Nature of
 Directors              Beneficial Ownership (1)(2)     Percent of Class

Tim Ball                               6,400                          *         
P. O. Box 1356                                                                  
Honaker, VA 24260                                                               

Joe Carter                                                       13,220 *       
RR4 Box 176                                                                     
Clinchport, VA 24244                                                            

John D. Cox                           37,000                          *         
13515 East Carters Valley Road                                                  
Gate City, VA 24251                                                             

Charles H. Gent                       19,600                          *         
P. O. Box 330                                                                   
Honaker, VA 24260                                                               

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Harold Lynn Keene                     29,000                          *         
P. O. Box 1320                                                                  
Honaker, VA 24260                                                               

Frank Kilgore                         63,700                          *         
P. O. Box 1210                                                                  
St. Paul, VA 24283                                                              

John Maxfield                         24,000                          *         
3270 Oak Circle Drive                                                           
Rosedale, VA 24280                                                              

Michael G. McGlothlin                 74,000                          *         
P. O. Box 810                                                                   
Grundy, VA 24614                                                                

Fred Meade                            31,100                          *         
P. O. Box 10                                                                    
St. Paul, VA 24283                                                              

L. T. Phillips                             0                          *         
P. O. Box 457                                                                   
St. Paul, VA 24283                                                              

Bill Ed Sample                        24,400                          *         
Rt. 2 Box 361                                                                   
Honaker, VA 24260                                                               

Earnest Virgil Sampson, Jr.           24,176                          *         
P. O. Box 504                                                                   
Gate City, VA 24251                                                             

Stephen H. Starnes                    23,330                          *         
P. O. Box 2078                                                                  
Lebanon, VA 24266                                                               

Paul Vencill, Jr.                     48,000                          *         
P. O. Box 129                                                                   
Lebanon, VA 24266                                                               

B. Scott White                       180,800                       2.6%         
Rt. 2 Bx 181-A                                                                  
Castlewood, VA 24224                                                            

Executive                                                             
Officers                                                              

Kenneth D. Hart                       71,000                       1.0%         

Frank Sexton, Jr.                     35,632                          *         

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All Directors and Executive                                                     
Officers as a Group             705,358                       10.1%   
-------------------                                                   

                                                  Less than 1% *

(1)      For purposes of this table, beneficial ownership has been              
   determined in accordance with the provisions of Rule 13d-3 of the
      Securities Exchange Act of 1934 under which, in general, a person is
         deemed to be the beneficial owner of a security if he has or shares the
    power to vote or direct the voting of the security or the power to
        dispose of or direct the disposition of the security, or if he has the
    right to acquire beneficial ownership of the security within sixty
     days. Shares of Common Stock which are subject to stock options are
         deemed to be outstanding for the purpose of computing the percentage of
       outstanding Common Stock owned by such person or group but not deemed
         outstanding for the purpose of computing the percentage of Common Stock
owned by any other person or group.                           

(2)      Included in the amounts of beneficial ownership above are stock        
        options that give the owners the right to acquire shares of stock with
       60 days. Each director has 4,000 shares of unexercised options in the
         totals above. Kenneth Hart and Frank Sexton, Jr. have 20,500 and 15,000
shares of unexercised options included in the totals above,   
respectively.                                                 

Equity Compensation Plan Information                                            

The following table sets forth information as of December 31, 2002, with respect
to compensation plans under which our shares of Common Stock are authorized for 
issuance.                                                                       
                                                            Number of Securities
                   Number of Securities                      Remaining Available
                       to be Issued       Weighted Average   for Future Issuance
                 upon Exercise of      Exercise Price of      Under Equity
                   Outstanding Options   Outstanding Options  Compensation Plans
Plan Category                                                                   

Equity Compensation Plans                                                       
Approved by Board of Directors                                            

2001 Stock Option                                                         
Plan                283,466                7.50               614,000 

Item 13.    Certain Relationships and Related Transactions                      

During 2002, the Bank extended credit to its directors. A schedule of related   
party transactions is shown in Note 10 to the financial statements. All such    
loans were made in the ordinary course of business and were made on             
substantially the same terms, including interest rates and collateral, as those 
prevailing at the time for comparable transactions.                             

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Item 14.  Controls and Procedures                                               

Evaluation of Disclosure Controls and Procedures                                

As a result of the enactment of the Sarbanes-Oxley Act of 2002, issuers such as 
New Peoples Bankshares, Inc. (New Peoples) that file periodic reports under the 
Securities Exchange Act of 1934 (the "Act") are now required to include in those
reports certain information concerning the issuer's controls and procedures for 
complying with the disclosure requirements of the federal securities laws.      
Under rules adopted by the Securities and Exchange Commission effective August  
29, 2002,  these disclosure  controls and procedures include, without           
limitation, controls and procedures designed to ensure that information required
to be disclosed by an issuer in the reports it files or submits under the Act,  
is  communicated to the issuer's management, including its principal            
executive officer or officers and principal financial officer or officers, or   
persons performing similar functions, as appropriate to allow timely decisions  
regarding required disclosure.                                                  

We have established our disclosure controls and procedures to ensure that       
material information related to New Peoples is made known to our principal      
executive officers and principal financial officer on a regular basis, in       
particular during the periods in which our quarterly and annual reports are     
being prepared. These disclosure controls and procedures consist principally of 
communications between and among the Chief Executive Officer and the Chief      
Financial Officer, and the other executive officers of New Peoples and its      
subsidiaries to identify any new transactions, events, trends, contingencies or 
other matters that may be material to New Peoples' operations. As required, we  
will evaluate the effectiveness of these disclosure controls and procedures on a
quarterly basis, and most recently did so as of January 31, 2003, a date within 
90 days prior to the filing of this annual report. Based on this evaluation, New
Peoples' management, including the Chief Executive Officer and the Chief        
Financial Officer, concluded that such disclosure controls and procedures were  
operating effectively as designed as of the date of such evaluation.            

Changes in Internal Controls                                                    

We also maintain a system of internal accounting controls that is designed to   
provide assurance that assets are safeguarded and that transactions are executed
in accordance  with  management's  authorization  and properly recorded.        
This system is continually reviewed and is augmented by written                 
policies and procedures, the careful selection and training of qualified        
personnel. There have been no significant changes to this system of internal    
controls or in other factors that could significantly affect those controls     
subsequent to the date of the Company's evaluation.                             

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Item 15.    Exhibits and Reports on Form 8K                                     

(a)   Exhibits                                                                  

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

No.                          Description                                        

3.1    Articles of Incorporation of Registrant (1)                              

3.2    By Laws of Registrant (1)                                                

10.1   Stock Option Plan (2)                                                    

10.2   Salary Continuation Plan for Kenneth D. Hart (filed herewith)            

21     List of Subsidiaries (filed herewith)                                    

99.1   Statement of Chief Executive Officer pursuant to 18 U.S.C. Section 1350  
(filed herewith)                                                  

99.2   Statement of Chief Financial Officer pursuant to 18 U.S.C. Section 1350  
(filed herewith)                                                  

(1) Incorporated by reference to Exhibits to Form 8K filed by     
New Peoples Bankshares, Inc. on December 12, 2002                 

(2) Incorporated by reference to Exhibits to Form 10KSB filed by  
New Peoples Bankshares, Inc. on March 31, 2001.                   

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 SIGNATURE

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

                              NEW PEOPLES BANKSHARES, INC.

          By:  /s/ KENNETH D. HART
                              ----------------------------------
           Kenneth D. Hart
                                 President and Chief Executive Officer

         Date:    March 28, 2003
                      ------------------

            By:  /s/ FRANK SEXTON, JR.
                              ----------------------------------
             Frank Sexton, Jr.
                   Chief Financial Officer

         Date:    March 28, 2003
                      ------------------

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant in   
the capacities indicated.                                                       

Signature                        Capacity               Date    
/s/TIM BALL                                                                     
                                    Director          March 28, 2003
-----------------------------                            --------------   
Tim Ball                                                                  

/s/JOE CARTER                                                                   
                                    Director          March 28, 2003
-----------------------------                            --------------   
Joe Carter                                                                

/s/JOHN D. COX                                                                  
                                    Director          March 28, 2003
-----------------------------                            --------------   
John D. Cox                                                               

/s/CHARLES H. GENT                                                              
                                    Director          March 28, 2003
-----------------------------                            --------------   
Charles H. Gent                                                           

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Signature                        Capacity               Date    

/s/HAROLD LYNN KEENE                                                            
                                    Director          March 28, 2003
-----------------------------                            --------------   
Harold Lynn Keene                                                         

/s/FRANK KILGORE                                                                
                                    Director          March 28, 2003
-----------------------------                            --------------   
Frank Kilgore                                                             

/s/JOHN MAXFIELD                                                                
                                    Director          March 28, 2003
-----------------------------                            --------------   
John Maxfield                                                             

/s/MICHAEL G. MCGLOTHLIN                                                        
                                    Director          March 28, 2003
-----------------------------                            --------------   
Michael G. McGlothlin                                                     

/s/FRED MEADE                                                                   
                                    Director          March 28, 2003
-----------------------------                            --------------   
Fred Meade                                                                

/s/BILL ED SAMPLE                                                               
                                    Director          March 28, 2003
-----------------------------                            --------------   
Bill Ed Sample                                                            

/s/EARNEST VIRGIL SAMPSON, JR.                                                  
                                    Director          March 28, 2003
-----------------------------                            --------------   
Earnest Virgil Sampson, Jr.                                               

/s/STEPHEN H. STARNES                                                           
                                    Director          March 28, 2003
-----------------------------                            --------------   
Stephen H. Starnes                                                        

/s/PAUL VENCILL, JR.                                                            
                                    Director          March 28, 2003
-----------------------------                            --------------   
Paul Vencill, Jr.                                                         

/s/B. SCOTT WHITE                                                               
                                    Director          March 28, 2003
-----------------------------                            --------------   
B. Scott White                                                            

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 CERTIFICATION

    I, Kenneth D. Hart, President and Chief Executive Officer, certify that:

    1.    I have  reviewed  this  annual  report on Form 10-K of New Peoples
Bankshares, Inc.;                                                               

2.    Based on my knowledge, this annual report does not contain any
untrue statement of a material fact or omit to state a material fact necessary  
to make the statements made, in light of the circumstances under which such     
statements were made, not misleading with respect to the period covered by this 
annual report;                                                                  

3.    Based on my knowledge, the financial statements, and other    
financial information included in this annual report, fairly present in all     
material respects the financial condition, results of operations and cash flows 
of the registrant as of, and for, the periods presented in this annual report;  

  4.    The registrant's other certifying officers and I are responsible
for establishing and maintaining disclosure controls and procedures (as defined 
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:           

       (a)  designed such disclosure controls and procedures to ensure
that material information relating to the registrant, including its 
 consolidated subsidiaries, is made known to us by others within those
   entities, particularly during the period in which this annual report is
being prepared;                                                     

       (b)  evaluated the effectiveness of the registrant's disclosure
   controls and procedures as of a date within 90 days prior to the filing
date of this annual report (the "Evaluation Date"); and             

      (c)  presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;                               

  5.    The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and the audit 
committee of registrant's board of directors (or persons performing the         
equivalent functions):                                                          

       (a)  all significant deficiencies in the design or operation of
      internal controls which could adversely affect the registrant's ability to
    record, process, summarize and report financial data and have identified
for the registrant's auditors any material weaknesses in internal   
controls; and                                                       

 (b)  any fraud,  whether or not  material,  that involves
management or other employees who have a significant role in the    
registrant's internal controls; and                                 

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   6.   The registrant's other certifying officers and I have indicated in
this annual report whether there were significant changes in internal controls  
or in other factors that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.                     

                By:  /s/ KENNETH D. HART
                           -------------------------
                 Kenneth D. Hart
                                       President and Chief Executive Officer

            Date: March 28, 2003
                      ------------------

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65

 CERTIFICATION

I, Frank Sexton, Jr., Chief Financial Officer, certify that:        

    1.    I have  reviewed  this  annual  report on Form 10-K of New Peoples
Bankshares, Inc.;                                                               

2.    Based on my knowledge, this annual report does not contain any
untrue statement of a material fact or omit to state a material fact necessary  
to make the statements made, in light of the circumstances under which such     
statements were made, not misleading with respect to the period covered by this 
annual report;                                                                  

3.    Based on my knowledge, the financial statements, and other    
financial information included in this annual report, fairly present in all     
material respects the financial condition, results of operations and cash flows 
of the registrant as of, and for, the periods presented in this annual report;  

  4.    The registrant's other certifying officers and I are responsible
for establishing and maintaining disclosure controls and procedures (as defined 
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:           

       (a)  designed such disclosure controls and procedures to ensure
that material information relating to the registrant, including its 
 consolidated subsidiaries, is made known to us by others within those
   entities, particularly during the period in which this annual report is
being prepared;                                                     

       (b)  evaluated the effectiveness of the registrant's disclosure
   controls and procedures as of a date within 90 days prior to the filing
date of this annual report (the "Evaluation Date"); and             

      (c)  presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;                               

  5.    The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and the audit 
committee of registrant's board of directors (or persons performing the         
equivalent functions):                                                          

       (a)  all significant deficiencies in the design or operation of
      internal controls which could adversely affect the registrant's ability to
    record, process, summarize and report financial data and have identified
for the registrant's auditors any material weaknesses in internal   
controls; and                                                       

 (b)  any fraud,  whether or not  material,  that involves
management or other employees who have a significant role in the    
registrant's internal controls; and                                 

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66

    6.    The registrant's other certifying officers and I have indicated in
this annual report whether there were significant changes in internal controls  
or in other factors that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.                     

                  By:  /s/ FRANK SEXTON, JR.
                                 -------------------------------
                   Frank Sexton, Jr.
                         Chief Financial Officer

            Date: March 28, 2003
                      ------------------

Dates Referenced Herein   and   Documents Incorporated by Reference

				Referenced-On Page
This ‘10-K’ Filing		Date		First		Last			Other Filings
		12/31/12		46					10-K
		12/31/11		57					10-K
		5/31/11		45
		12/31/03		55					10-K
Filed on:		3/31/03							10-Q
		3/28/03		63		68
		3/15/03		1		58
		3/3/03		13
		3/1/03		14
		2/7/03		14		45
		1/31/03		61
		1/17/03		34
		1/1/03		46		57
For Period End:		12/31/02		1		60			8-K/A
		12/30/02		17
		12/18/02		55		57			8-K
		12/12/02		62
		12/5/02		13
		10/15/02		14		49			DEF 14A
		9/26/02		13
		8/29/02		61
		8/8/02		13
		7/30/02		11
		6/30/02		7					10-Q
		5/16/02		12
		1/3/02		12
		1/1/02		14		45			4,  4/A
		12/31/01		8		57			10KSB
		12/12/01		45
		11/30/01		3		45			8-K12G3
		10/26/01		11
		9/27/01		3		45
		7/12/01		39
		3/31/01		62
		1/1/01		39
		12/31/00		15		57
		3/15/00		45
		12/31/99		15		45
		11/12/99		10
		12/31/98		23
		10/28/98		3		39
		12/9/97		3		39
		6/1/97		9
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