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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

For the quarterly period ended September 30, 2004

For the transition period from              to             

Commission file number: 0-33411

NEW PEOPLES BANKSHARES, INC.

(Exact name of registrant as specified in its charter)

(276) 873-6288

(Registrant’s telephone number, including area code)

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

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

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

6,909,569 shares of common stock, par value $2.00 per share,

outstanding as of November 11, 2004

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NEW PEOPLES BANKSHARES, INC.

INDEX

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Part I Financial Information

Item 1 Financial Statements

NEW PEOPLES BANKSHARES, INC.

CONSOLIDATED STATEMENTS OF INCOME

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2004 AND 2003

(IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA)

(UNAUDITED)

The accompanying notes are an integral part of this statement.

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NEW PEOPLES BANKSHARES, INC.

CONSOLIDATED STATEMENTS OF INCOME

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2004 AND 2003

(IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA)

(UNAUDITED)

The accompanying notes are an integral part of this statement.

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NEW PEOPLES BANKSHARES, INC.

CONSOLIDATED BALANCE SHEETS

(IN THOUSANDS EXCEPT SHARE DATA)

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 NINE MONTHS ENDED SEPTEMBER 30, 2004 AND 2003

(IN THOUSANDS INCLUDING SHARE DATA)

(UNAUDITED)

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 NINE MONTHS ENDED SEPTEMBER 30, 2004 AND 2003

(IN THOUSANDS)

(UNAUDITED)

The accompanying notes are an integral part of this statement.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 NATURE OF OPERATIONS:

New Peoples Bankshares, Inc. (the Company) is a bank holding company whose principal activity is the ownership and management of a community bank. New Peoples Bank, Inc. (the 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 regulation by the Virginia Bureau of Financial Institutions, the Federal Deposit Insurance Corporation and the Federal Reserve Bank. The Bank provides general banking services to individuals, small and medium size businesses and the professional communities of southwestern Virginia, southern West Virginia, and eastern Tennessee. On September 9, 2003, the Company formed two wholly owned subsidiaries, NPB Financial Services, Inc. and NPB Web Services, Inc.

NOTE 2 ACCOUNTING PRINCIPLES:

The financial statements conform to U. S. generally accepted accounting principles and to general industry practices. In the opinion of management, the accompanying unaudited financial statements contain all adjustments (consisting of only normal recurring accruals) necessary to present fairly the financial position at September 30, 2004, and the results of operations for the nine and three month periods ended September 30, 2004 and 2003. The notes included herein should be read in conjunction with the notes to financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2003. The results of operations for the nine and three month periods ended September 30, 2004 and 2003 are not necessarily indicative of the results to be expected for the full year.

The Company does not expect the anticipated adoption of any newly issued accounting standards to have a material impact on future operations or financial position.

NOTE 3 INVESTMENT SECURITIES:

The amortized cost and estimated fair value of securities at the dates indicated are as follows:

As of September 30, 2004 and December 31, 2003, all securities were classified as available for sale.

The amortized cost and fair value of investment securities at September 30, 2004, 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.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 3 INVESTMENT SECURITIES (Continued):

Investment securities with a carrying value of $3.3 million at September 30, 2004 and December 31, 2003 were pledged to secure public deposits and for other purposes required by law.

The Bank, as a member of the Federal Reserve Bank and the Federal Home Loan Bank, is required to hold stock in each. These equity securities are restricted from trading and are recorded at a cost of $1.8 million and $1.4 million at September 30, 2004 and December 31, 2003, respectively.

NOTE 4 LOANS:

Loans receivable outstanding are summarized as follows:

The following is a summary of information at September 30, 2004 and December 31, 2003 pertaining to nonperforming loans:

The following is a summary of information at September 30, 2004 and December 31, 2003 pertaining to impaired loans:

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NOTE 5 ALLOWANCE FOR LOAN LOSSES:

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

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 6 RELATED PARTY LOANS:

During the year, officers and directors (and companies controlled by them) were customers of and had loan transactions with the Bank in the normal course of business which amounted to outstanding principal amounts of $11.6 million at September 30, 2004 and $7.9 million at December 31, 2003. During the year ended December 31, 2003, total principal additions were $12.5 million and principal payments were $11.4 million. These transactions were made on substantially the same terms as those prevailing for other customers and did not involve any abnormal risk.

NOTE 7 COMMON STOCK:

On October 15, 2002, 1,200,000 shares of common stock were offered for sale by means of a prospectus to existing shareholders and to the general public in the states of Virginia, West Virginia and Tennessee only. The sale ended on February 7, 2003, after one 30 day extension from the original sale period. The total number of shares sold under the offering were 890,469.

During the third quarter of 2004, options to purchase 4,000 shares of common stock were exercised. At September 30, 2004, the following exercisable options were outstanding.

NOTE 8 EARNINGS PER SHARE:

Basic earnings per share computations are based on the weighted average number of shares outstanding during each year. Dilutive earnings per share reflects the additional common shares that would have been outstanding if dilutive potential common shares had been issued. Potential common shares that may be issued relate to outstanding options determined by the Treasury Method.

NOTE 9 TRUST PREFERRED SECURITIES:

On July 7, 2004, the Company completed the issuance of $11.3 million in floating rate trust preferred securities offered by its wholly owned subsidiary, NPB Capital Trust I. The proceeds of the funds are being used for general corporate purposes which may include capital management for affiliates, retirement of indebtedness and other investments. Under the terms of the trust preferred transaction, the securities mature in 30 years and are redeemable, in whole or in part, without penalty, at the option of the Company after five years. Due to the ability to defer interest and principal payments for 60 months without being considered in default, the regulatory agencies consider the trust preferred securities as Tier 1 capital. The securities have a floating rate, which will be reset quarterly, with an initial rate of 4.18%.

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

Caution About Forward Looking Statements

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

These forward looking statements are subject to significant uncertainties because they are based upon or are affected by factors including the following: the ability to successfully manage our growth or implement our growth strategies, identify attractive markets, locations or opportunities to expand in the future; maintaining capital levels adequate to support our growth; maintaining cost controls and asset qualities as we open or acquire new branches; reliance on our management team, including our ability to attract and retain key personnel; the successful management of interest rate risk; changes in general economic and business conditions in our market area; changes in interest rates and interest rate policies; risks inherent in making loans such as repayment risks and fluctuating collateral values; competition with other banks and financial institutions, and companies outside of the banking industry, including those companies that have substantially greater access to capital and other resources; demand, development and acceptance of new products and services; problems with technology utilized by us; changing trends in customer profiles and behavior; and changes in banking and other laws and regulations applicable to us.

Because of these uncertainties, our actual future results may be materially different from the results indicated by these forward looking statements. In addition, our past results of operations do not necessarily indicate our future results.

Overview

For the third quarter of 2004, New Peoples Bankshares, Inc. (the Company), which is the parent company of New Peoples Bank, Inc. (the Bank), earned $840 thousand, or $.12 per share and reached $418.8 million in total assets. The $840 thousand net income, or $.12 per share for the third quarter 2004 compared favorably to net income for the third quarter of 2003 of $761 thousand, or $.11 per share. Year-to-date net income was $2.6 million, or $.38 per share, as compared to $2.0 million, or $.29 per share for the same period in 2003. Total assets surpassed $400 million in the third quarter and were $418.8 million at the end of the third quarter 2004. Total loans and deposits continued to grow and were $366.4 million and $369.6 million, respectively. The Company continued to expand in southwestern Virginia by opening a new office in Abingdon, Virginia in August 2004. Another office was opened in October 2004 in Bristol, Virginia.

The increase in earnings is due primarily to a strong net interest margin resulting from increased loan production at the branches and sustained cost of funds. Net interest margin for the third quarter of 2004 was 5.06% as compared to 4.62% for the period ending September 30, 2003. The annualized return on average equity was 9.62% and 11.33% for the quarters ended September 30, 2004 and 2003, respectively. On a year-to-date basis, the net interest margin was 5.12% as compared to 4.49% as of September 30, 2004 and 2003, respectively. The annualized return on average equity based on year-to-date results was 10.35% as of September 30, 2004 and 10.47% for the same period in 2003.

Strong growth in assets, loans, and deposits continued into the third quarter. At September 30, 2004, total assets were $418.8 million, an increase of $51.7 million, or 15.09%, over December 31, 2003. Total deposits grew $37.3 million, or 12.10%, to $345.5 million, and total loans were $347.4 million, an increase of $52.0 million, or 17.59%, from the amounts at December 31, 2003. The increase in deposits and loans can be attributed to an increased presence in the market at new and existing branches, the addition of several new loan officers, an improving economy, and the Company’s reputation for quality service.

During the third quarter of 2004, the Company continued expanding its branch network by opening a new office in Abingdon, Virginia. Subsequent to quarter end, an additional office was opened in Bristol, Virginia resulting in 19 full service offices and one loan production office located throughout southwestern Virginia, southern West Virginia, and eastern Tennessee. A new operations center is nearly complete and will house bank operations and administration. Renovations are planned for the existing main office of the Company to expand the loan operations department. Future expansions in new markets are expected to occur in early 2005.

Early in the third quarter of 2004, the Company completed an $11.0 million issuance of trust preferred securities, the proceeds of which are being used for general corporate purposes and future growth.

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Critical Accounting Policies

Certain critical accounting policies affect the more significant judgments and estimates used in the preparation of our financial statements. The most critical accounting policy relates to our provision for loan losses, which reflects the estimated losses resulting from the inability of our customers to make required payments. If the financial condition of our borrowers were to deteriorate, resulting in an impairment of their ability to make payments, our estimates would be updated, and additional provisions could be required. For further discussion of the estimates used in determining the allowance for loan losses, we refer you to the section on “Provision for Loan Losses” in this discussion.

Net Interest Income and Net Interest Margin

During the third quarter of 2004, we continued to have a very strong net interest margin of 5.06%. This is compared to a net interest margin of 4.62% for the quarter ending September 30, 2003. The loan portfolio continues to grow from additions to our lending staff, new markets and a recovering economy. At the same time, we have maintained a low cost of funds during a rising rate environment. As a result, our net interest margin has significantly improved.

Net interest income continued to increase from $3.5 million for the third quarter of 2003 to $4.5 million for the same period in 2004. Loan income increased to $6.2 million for the third quarter of 2004, or $1.2 million, from $5.0 million for the same period in 2003. The increase is related to the increase in loan volume during the year. Total interest expense was $1.7 million for the quarter ending September 30, 2004 as compared to $1.6 million for the same period in 2003. The $109 thousand increase is attributable primarily to the $101 thousand interest expense on the trust preferred security issuance in July 2004.

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

Net Interest Margin Analysis

Average Balances, Income and Expense, and Yields and Rates

(In Thousands of Dollars)