Document And Entity Information
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Document And Entity Information (USD $)
12 Months Ended
Dec. 31, 2012
Mar. 18, 2013
Jun. 30, 2012
Document And Entity Information [Abstract]      
Document Type 10-K    
Amendment Flag false    
Document Period End Date Dec. 31, 2012    
Document Fiscal Year Focus 2012    
Document Fiscal Period Focus FY    
Entity Registrant Name NEW PEOPLES BANKSHARES INC    
Entity Central Index Key 0001163389    
Current Fiscal Year End Date --12-31    
Entity Filer Category Smaller Reporting Company    
Entity Common Stock, Shares Outstanding   21,870,843  
Entity Well-known Seasoned Issuer No    
Entity Public Float     $ 9,451,132
Entity Current Reporting Status Yes    
Entity Voluntary Filers No    

Consolidated Balance Sheets
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Consolidated Balance Sheets (USD $)
In Thousands, unless otherwise specified
Dec. 31, 2012
Dec. 31, 2011
ASSETS    
Cash and due from banks $ 17,517 $ 18,306
Interest-bearing deposits with banks 76,590 72,170
Federal funds sold 2 77
Total Cash and Cash Equivalents 94,109 90,553
Investment Securities available-for-sale 49,615 32,434
Loans receivable 522,363 597,816
Allowance for loan losses (16,810) (18,380)
Net Loans 505,553 579,436
Bank premises and equipment, net 31,190 33,141
Equity securities (restricted) 2,803 3,573
Other real estate owned 13,869 15,092
Accrued interest receivable 2,374 3,067
Life insurance investments 11,964 11,351
Goodwill and other intangibles 53 123
Deferred taxes net 4,686 7,220
Other assets 2,799 4,394
Total Assets 719,015 780,384
Demand Deposits [Abstract]    
Noninterest bearing 98,432 109,629
Interest-bearing 68,665 58,459
Savings deposits 113,280 94,569
Time deposits 372,473 445,658
Total Deposits 652,850 708,315
FHLB advances 6,558 17,983
Accrued interest payable 1,880 1,796
Accrued expenses and other liabilities 1,365 1,471
Other borrowings   5,450
Trust preferred securities 16,496 16,496
Total Liabilities 679,149 751,511
STOCKHOLDERS' EQUITY    
Common stock - $2.00 par value; 50,000,000 shares authorized; 21,865,535 and 10,010178 shares issued and outstanding at December 31, 2012 and December 31, 2011, respectively 43,731 20,020
Common stock warrants 2,056  
Additional paid-in-capital 13,081 21,689
Retained deficit (19,409) (13,085)
Accumulated other comprehensive income (loss) 407 249
Total Stockholders' Equity 39,866 28,873
Total Liabilities and Stockholders' Equity $ 719,015 $ 780,384

Consolidated Balance Sheets (Parenthetical)
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Consolidated Balance Sheets (Parenthetical) (USD $)
Dec. 31, 2012
Dec. 20, 2012
Dec. 31, 2011
Consolidated Balance Sheets [Abstract]      
Common stock, par value $ 2.00   $ 2.00
Common stock, shares authorized 50,000,000   50,000,000
Common stock, shares issued 21,865,535 8,040,838 10,010,178
Common stock, shares outstanding 21,865,535   10,010,178

Consolidated Statements Of Operations
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Consolidated Statements Of Operations (USD $)
In Thousands, except Share data, unless otherwise specified
12 Months Ended
Dec. 31, 2012
Dec. 31, 2011
INTEREST AND DIVIDEND INCOME    
Loans including fees $ 32,592 $ 41,176
Federal funds sold 3 9
Interest-earning deposits with banks 173 184
Investments 851 301
Dividends on equity securities (restricted) 114 99
Total Interest and Dividend Income 33,733 41,769
INTEREST EXPENSE    
Demand 110 155
Savings 242 460
Time deposits below $100,000 2,994 4,768
Time deposits above $100,000 2,024 2,949
FHLB Advances 472 644
Other borrowings 128 194
Trust Preferred Securities 490 436
Total Interest Expense 6,460 9,606
NET INTEREST INCOME 27,273 32,163
PROVISION FOR LOAN LOSSES (NOTE 7) 4,800 7,959
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 22,473 24,204
NONINTEREST INCOME    
Service charges 2,482 2,488
Fees, commissions and other income 1,949 2,312
Insurance and investment fees 319 384
Net realized gains on sale of investment securities 537  
Life insurance investment income 309 340
Total Noninterest Income 5,596 5,524
NONINTEREST EXPENSES    
Salaries and employee benefits (Note 14) 13,947 15,735
Occupancy and equipment expense 4,211 4,533
Advertising and public relations 472 445
Data processing and telecommunications 1,743 1,654
FDIC insurance premiums 1,659 2,014
Other real estate owned and repossessed vehicles, net 4,458 5,577
Impairment of goodwill   4,122
Other operating expenses 5,498 5,342
Total Noninterest Expenses 31,988 39,422
LOSS BEFORE INCOME TAXES (3,919) (9,694)
INCOME TAX EXPENSE (BENEFIT)(Note 11) 2,405 (784)
NET LOSS $ (6,324) $ (8,910)
Loss Per Share    
Basic and Fully Diluted $ (0.57) $ (0.89)
Average Weighted Shares of Common Stock    
Basic and Fully Diluted 11,181,963 10,010,178

Consolidated Statements Of Comprehensive Income (Loss)
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Consolidated Statements Of Comprehensive Income (Loss) (USD $)
In Thousands, unless otherwise specified
12 Months Ended
Dec. 31, 2012
Dec. 31, 2011
Statement of Other Comprehensive Income (Loss) [Abstract]    
Net Loss $ (6,324) $ (8,910)
Investment securities activity    
Unrealized gains arising during the year 777 394
Tax related to unrealized gains (264) (134)
Reclassification of realized gains during the year (537)  
Tax related to realized gains 182  
TOTAL OTHER COMPREHENSIVE INCOME 158 260
TOTAL COMPREHENSIVE LOSS $ (6,166) $ (8,650)

Consolidated Statements Of Changes In Stockholders' Equity
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Consolidated Statements Of Changes In Stockholders' Equity (USD $)
In Thousands, except Share data
Common Stock [Member]
Common Stock Warrants [Member]
Additional Paid In Capital [Member]
Retained Earnings [Member]
Accumulated Other Comprehensive Income (Loss) [Member]
Total
Balance at Dec. 31, 2010 $ 20,020   $ 21,689 $ (4,175) $ (11) $ 37,523
Balance, Shares at Dec. 31, 2010 10,010,000          
Net loss       (8,910)   (8,910)
Unrealized gain on available-for-sale securities, net of tax         260 260
Common stock and common stock warrants issuance, net of costs of $624           10,010,178
Balance at Dec. 31, 2011 20,020   21,689 (13,085) 249 28,873
Balance, Shares at Dec. 31, 2011 10,010,000         10,010,178
Net loss       (6,324)   (6,324)
Conversion of Director notes plus accrued interest 7,629 663 (2,570)     5,722
Conversion of Director notes plus accrued interest, shares 3,815,000          
Realized gains on available-for-sale securities, net of $182 tax         (355) (355)
Unrealized gain on available-for-sale securities, net of tax         513 513
Common stock and common stock warrants issuance, net of costs of $624 8,041,000         21,865,535
Common stock and common stock warrants issuance net of costs of $624, value 16,082 1,393 (6,038)     11,437
Balance at Dec. 31, 2012 $ 43,731 $ 2,056 $ 13,081 $ (19,409) $ 407 $ 39,866
Balance, Shares at Dec. 31, 2012 21,866,000         21,865,535

Consolidated Statements Of Changes In Stockholders' Equity (Parenthetical)
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Consolidated Statements Of Changes In Stockholders' Equity (Parenthetical) (USD $)
In Thousands, unless otherwise specified
12 Months Ended
Dec. 31, 2012
Consolidated Statements Of Changes In Stockholders' Equity [Abstract]  
Realized gains on available-for-sale securities, tax $ 182
Unrealized gain on available-for-sale securities, tax 264
Costs of stock and warrant issuance $ 624

Consolidated Statements Of Cash Flows
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Consolidated Statements Of Cash Flows (USD $)
In Thousands, unless otherwise specified
12 Months Ended
Dec. 31, 2012
Dec. 31, 2011
CASH FLOWS FROM OPERATING ACTIVITIES    
Net loss $ (6,324) $ (8,910)
Adjustments to reconcile net loss to net cash provided by operating activities:    
Depreciation 2,500 2,562
Provision for credit losses 4,800 7,959
Impairment of goodwill   4,122
Income (less expenses) on life insurance (613) (340)
Gain on sale of securities available-for-sale (537)  
Loss on sale of fixed assets 357 126
Loss on sale of foreclosed real estate 480 218
Adjustment of carrying value of foreclosed real estate 2,620 4,023
Accretion of bond premiums/discounts 572 70
Deferred tax expense 2,453 683
Amortization of core deposit intangible 70 101
Net change in:    
Interest receivable 693 633
Other assets 1,595 807
Accrued interest payable 356 76
Accrued expenses and other liabilities (106) (4)
Net Cash Provided by Operating Activities 8,916 12,126
CASH FLOWS FROM INVESTING ACTIVITIES    
Net decrease in loans 59,108 82,453
Purchase of securities available-for-sale (40,828) (31,647)
Proceeds from sale and maturities of securities available-for-sale 23,851 4,195
Sale of Federal Home Loan Bank stock 770 305
Payments for the purchase of property and equipment (1,333) (1,921)
Proceeds from sales of premises and equipment 427 233
Proceeds from sales of other real estate owned 8,098 5,945
Net Cash Provided by Investing Activities 50,093 59,563
CASH FLOWS FROM FINANCING ACTIVITIES    
Issuance of common stock and common stock warrants 11,437  
Repayment of line of credit borrowings   (4,900)
Net increase in other borrowings   5,200
Repayments to Federal Home Loan Bank (11,425) (6,200)
Net change in:    
Demand deposits (991) 20,227
Savings deposits 18,711 (13,550)
Time deposits (73,185) (64,442)
Net Cash Used in Financing Activities (55,453) (63,665)
Net increase in cash and cash equivalents 3,556 8,024
Cash and Cash Equivalents, Beginning of Period 90,553 82,529
Cash and Cash Equivalents, End of Period 94,109 90,553
Supplemental Disclosure of Cash Paid During the Period for:    
Interest 6,544 9,682
Taxes      
Supplemental Disclosure of Non Cash Transactions:    
Other real estate acquired in settlement of foreclosed loans 9,975 12,932
Conversion of Director notes in other borrowings to common stock 5,450  
Conversion of accrued interest payable on Director notes to common stock 272  
Common stock issued as a result of the conversion of Director Notes 5,722  
Loans made to finance sale of foreclosed real estate   $ 1,000

Nature Of Operations
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Nature Of Operations
12 Months Ended
Dec. 31, 2012
Nature Of Operations [Abstract]  
Nature Of Operations

NOTE 1NATURE OF OPERATIONS:

 

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 member bank, the Bank is subject to regulation by the Virginia Bureau of Financial Institutions, the Federal Deposit Insurance Corporation and the Federal Reserve Bank.  The Bank provides general banking services to individuals, small and medium size businesses and the professional community of southwestern Virginia, southern West Virginia, and eastern Tennessee.  On June 9, 2003, the Company formed two wholly owned subsidiaries, NPB Financial Services, Inc. and NPB Web Services, Inc.  On July 7, 2004 the Company established NPB Capital Trust I for the purpose of issuing trust preferred securities.  On September 27, 2006, the Company established NPB Capital Trust 2 for the purpose of issuing additional trust preferred securities.  NPB Financial Services, Inc. was a subsidiary of the Company until January 1, 2009 when it became a subsidiary of the Bank. The name of NPB Financial Services, Inc. was changed in June 2012 to NPB Insurance Services, Inc. which will operate solely as an insurance agency.


Summary Of Significant Accounting Policies
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Summary Of Significant Accounting Policies
12 Months Ended
Dec. 31, 2012
Summary Of Significant Accounting Policies [Abstract]  
Summary Of Significant Accounting Policies

NOTE 2SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

 

Consolidation Policy - The consolidated financial statements include the Company, the Bank, NPB Insurance Services, Inc., and NPB Web Services, Inc. (Hereinafter, collectively referred to as “The Company.”)  All significant intercompany balances and transactions have been eliminated.  In accordance with ASC 942, NPB Capital Trust I and 2 are not included in the consolidated financial statements.

 

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

 

Cash and Cash Equivalents – Cash and cash equivalents as used in the cash flow statements include cash and due from banks, interest-bearing deposits with banks, and federal funds sold.

 

Investment Securities – Management determines the appropriate classification of securities at the time of purchase.  If management has the intent and the Company has the ability at the time of purchase to hold securities until maturity, they are classified as held to maturity and carried at amortized historical cost.  Securities not intended to be held to maturity are classified as available for sale and carried at fair value.  Securities available for sale are intended to be used as part of the Company’s asset and liability management strategy and may be sold in response to changes in interest rates, prepayment risk or other similar factors.

 

The amortization of premiums and accretion of discounts are recognized in interest income using the effective interest method over the period to maturity.  Realized gains and losses on dispositions are based on the net proceeds and the adjusted book value of the securities sold, using the specific identification method.  Realized gains (losses) on securities available-for-sale are included in noninterest income and, when applicable, are reported as a reclassification adjustment, net of tax, in other comprehensive income.  Unrealized gains and losses on investment securities available for sale are based on the difference between book value and fair value of each security.  These gains and losses are credited or charged to other comprehensive income, net of tax, whereas realized gains and losses flow through the statement of operations.

 

Loans – Loans are carried on the balance sheet at unpaid principal balance, 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 case accrual of the income is discontinued.

 

It is the Company’s policy to stop accruing interest on a loan, and classify that loan as non-accrual under the following circumstances:  (a) whenever we are advised by the borrower that scheduled payment or interest payments cannot be met, (b) when our best judgment indicates that payment in full of principal and interest can no longer be expected, or (c) when any such loan or obligation becomes delinquent for 90 days unless it is both well secured and in the process of collection.  All interest accrued but not collected for loans that are place on nonaccrual or charged off is reversed against interest income.  The interest on these loans is accounted for on the cash basis or cost-recovery method, until qualifying for return to accrual.  Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and prospects for future contractual payments are reasonably assured.

 

A loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement.  Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due.  Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired.  Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed.  Impairment is measured on a loan by loan basis for commercial and construction loans by either the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s obtainable market price, or the fair value of the collateral if the loan is collateral dependent.

 

Significant Group Concentrations of Credit Risk –  The Company identifies a concentration as any obligation, direct or indirect, of the same or affiliated interests which represent 25% or more of the Company’s capital structure, or $10.0 million as of December 31, 2012.  Most of the Company’s activities are with customers located within the southwest Virginia, southern West Virginia, and northeastern Tennessee region.  Certain concentrations may pose credit risk.  The Company does not have any significant concentrations to any one industry or customer.

 

Allowance for Loan Losses – The allowance for loan losses is maintained at a level that, in management’s judgment, is adequate to absorb credit losses inherent in the loan portfolio.  The loan portfolio is analyzed periodically and loans are assigned a risk rating.  Allowances for impaired loans are generally determined based on collateral values or the present value of expected cash flows.  A general allowance is made for all other loans not considered impaired as deemed appropriate by management.  In determining the adequacy of the allowance, management considers the following factors: the nature of the portfolio, credit concentrations, trends in historical loss experience, specific impaired loans, the estimated value of any underlying collateral, prevailing environmental factors and economic conditions, and other inherent risks.  While management uses available information to recognize losses on loans, further reductions in the carrying amounts of loans may be necessary based on changes in collateral values and changes in estimates of cash flows on impaired loans.  This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available.

 

The allowance is increased by a provision for loan losses, which is charged to expense and reduced by charge-offs, net of recoveries.  Loans are charged against the allowance for loan losses when management believes that collectability of all or part of the principal is unlikely.  Past due status is determined based on contractual terms.

 

In regards to its consumer loans and consumer real estate loan portfolio, the Company uses a conservative approach for its risk grading and timing of charge offs on these loans.  This approach is based on the guidance found in the Uniform Retail Credit Classification and Account Management Policy and as a result affects our estimate of the allowance for loan losses.  Under this approach when a consumer loan or consumer real estate loan is originated, it must possess qualities of a credit risk grade of Pass for approval and will remain with the initial risk rating through maturity unless there is a deterioration in the credit quality of the loan.  Subsequently, if the loan becomes contractually 90 days past due or the borrower files for bankruptcy protection, it is downgraded to Substandard.  At 90 days past due, or earlier if the customer has filed bankruptcy, the collateral value less estimated liquidation costs is compared to the loan balance to calculate any potential deficiency.  If there is sufficient collateral, no charge-off is necessary.  If there is a deficiency, then within 30 days of the loan becoming 90 days past due, or within 60 days of bankruptcy notice, the deficiency is charged-off against the allowance for loan loss.  If the loan is unsecured, upon being deemed Substandard, the entire loan amount is charged off.  Collection efforts continue by means of repossessions or foreclosures, and upon bank ownership, liquidation ensues.

 

Other Real Estate Owned – Other real estate owned represents properties acquired through foreclosure or deed taken in lieu of foreclosure.  At the time of acquisition, these properties are recorded at the lower of cost or fair value less estimated costs to sell.  Expenses incurred in connection with operating these properties and subsequent write-downs, if any, are charged to expense.  Subsequent to foreclosure, management periodically considers the adequacy of the reserve for losses on the property.  Gains and losses on the sales of these properties are credited or charged to income in the year of the sale.

 

 

 

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 other equipment

 

5 to 7 years

 

Stock Options - The Company records compensation related to stock options pursuant to ASC 718 which requires the estimated fair market value of the expense to be reflected over the period the award is earned which is presumed to be the vesting period.  For additional discussion concerning stock options see Note 15, “Stock Option Plan.”

Common Stock Warrants - The company issued common stock warrants as a result of its conversion of Director notes and the completion of its common stock offering in 2012.  For additional discussion concerning these transactions including the terms and value of the warrants, see Note 22, “Capital.”

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.  If all or a portion of the net deferred tax asset is determined to be unlikely to be realized, a valuation allowance is established to reduce the net deferred tax asset to the amount that is more likely than not to be realized.

 

In the event the Company has unrecognized tax expense in future accounting periods, the Company will recognize interest in interest expense and penalties in operating expenses.  There were no interest or penalties related to an unrecognized tax position for the years ended December 31, 2012 and 2011.  Because of the impact of deferred tax accounting, other than interest and penalties, the reversal of the Company’s treatment by taxing authorities would not affect the annual effective tax rate but would defer or accelerate the payment of cash to the taxing authority.  The Company’s tax filings for years ended 2009 through 2012 are currently open to audit under statutes of limitations by the Internal Revenue Service (“IRS”) and the Virginia Department of Taxation.  Our tax filings for the years ended 2010 and 2011 are currently under examination by the IRS.

 

Financial Instruments – Off-balance-sheet instruments -  In the ordinary course of business, the Company has entered into commitments to extend credit.  Such financial instruments are recorded in the financial statements when they are funded.

 

Comprehensive Income – Generally accepted accounting principles require that recognized revenue, expenses, gains and losses be included in net income.  Although certain changes in assets and liabilities, such as unrealized gains and losses on available-for-sale securities, are reported as a separate component of the equity section of the balance sheet, such items, along with net income, are components of comprehensive income.

 

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 and common stock warrants and are determined by the Treasury Method.  For the years ending December 31, 2012 and 2011, potential common shares were anti-dilutive and were not included in the calculation.  Basic and diluted net loss per common share calculations follows:

 

(Amounts in Thousands, Except

 

For the years ended

Share and Per Share Data)

 

December 31,

 

 

2012

 

2011

 

 

 

 

 

Net loss available to common shareholders

$

(6,324)

$

(8,910)

Weighted average shares outstanding

 

11,181,963 

 

10,010,178 

Weighted average dilutive shares outstanding

 

11,181,963 

 

10,010,178 

Basic and diluted loss per share

$

(0.57)

$

(0.89)

Advertising Cost – Advertising costs are expensed in the period incurred.

 

Business Combinations - For purchase acquisitions accounted for as a business combination, the Company is required to record the assets acquired, including identified intangible assets and liabilities assumed at their fair value, which in many instances involves estimates based on third party valuations, such as appraisals, or internal valuations based on discounted cash flow analyses or other valuation techniques.  The determination of the useful lives of intangible assets is subjective, as is the appropriate amortization method for such intangible assets.  In addition, purchase acquisitions may result in goodwill, which is subject to ongoing periodic impairment testing based on the fair value of net assets acquired compared to the carrying value of goodwill.  Changes in acquisition multiples, the overall interest rate environment, or the continuing operations of the assets acquired could have a significant impact on the periodic impairment testing.  For additional discussion concerning our valuation of intangible assets, see Note 13, “Intangible Assets.”

 

Reclassification – Certain reclassifications have been made to the prior years’ financial statements to place them on a comparable basis with the current year.  Net income and stockholders’ equity previously reported were not affected by these reclassifications. 

 

Subsequent Events – The Company has evaluated subsequent events for potential recognition and/or disclosure through the date these consolidated financial statements were issued.


Summary Of Significant Accounting Principles (Policy)
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Summary Of Significant Accounting Principles (Policy)
12 Months Ended
Dec. 31, 2012
Summary Of Significant Accounting Policies [Abstract]  
Consolidation Policy

Consolidation Policy - The consolidated financial statements include the Company, the Bank, NPB Insurance Services, Inc., and NPB Web Services, Inc. (Hereinafter, collectively referred to as “The Company.”)  All significant intercompany balances and transactions have been eliminated.  In accordance with ASC 942, NPB Capital Trust I and 2 are not included in the consolidated financial statements.

Use of Estimates

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

Cash and Cash Equivalents

Cash and Cash Equivalents – Cash and cash equivalents as used in the cash flow statements include cash and due from banks, interest-bearing deposits with banks, and federal funds sold.

Investment Securities

Investment Securities – Management determines the appropriate classification of securities at the time of purchase.  If management has the intent and the Company has the ability at the time of purchase to hold securities until maturity, they are classified as held to maturity and carried at amortized historical cost.  Securities not intended to be held to maturity are classified as available for sale and carried at fair value.  Securities available for sale are intended to be used as part of the Company’s asset and liability management strategy and may be sold in response to changes in interest rates, prepayment risk or other similar factors.

 

The amortization of premiums and accretion of discounts are recognized in interest income using the effective interest method over the period to maturity.  Realized gains and losses on dispositions are based on the net proceeds and the adjusted book value of the securities sold, using the specific identification method.  Realized gains (losses) on securities available-for-sale are included in noninterest income and, when applicable, are reported as a reclassification adjustment, net of tax, in other comprehensive income.  Unrealized gains and losses on investment securities available for sale are based on the difference between book value and fair value of each security.  These gains and losses are credited or charged to other comprehensive income, net of tax, whereas realized gains and losses flow through the statement of operations.

Loans

Loans – Loans are carried on the balance sheet at unpaid principal balance, 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 case accrual of the income is discontinued.

 

It is the Company’s policy to stop accruing interest on a loan, and classify that loan as non-accrual under the following circumstances:  (a) whenever we are advised by the borrower that scheduled payment or interest payments cannot be met, (b) when our best judgment indicates that payment in full of principal and interest can no longer be expected, or (c) when any such loan or obligation becomes delinquent for 90 days unless it is both well secured and in the process of collection.  All interest accrued but not collected for loans that are place on nonaccrual or charged off is reversed against interest income.  The interest on these loans is accounted for on the cash basis or cost-recovery method, until qualifying for return to accrual.  Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and prospects for future contractual payments are reasonably assured.

 

A loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement.  Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due.  Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired.  Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed.  Impairment is measured on a loan by loan basis for commercial and construction loans by either the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s obtainable market price, or the fair value of the collateral if the loan is collateral dependent.

Significant Group Concentrations Of Credit Risk

Significant Group Concentrations of Credit Risk –  The Company identifies a concentration as any obligation, direct or indirect, of the same or affiliated interests which represent 25% or more of the Company’s capital structure, or $10.0 million as of December 31, 2012.  Most of the Company’s activities are with customers located within the southwest Virginia, southern West Virginia, and northeastern Tennessee region.  Certain concentrations may pose credit risk.  The Company does not have any significant concentrations to any one industry or customer.

Allowance For Loan Losses

Allowance for Loan Losses – The allowance for loan losses is maintained at a level that, in management’s judgment, is adequate to absorb credit losses inherent in the loan portfolio.  The loan portfolio is analyzed periodically and loans are assigned a risk rating.  Allowances for impaired loans are generally determined based on collateral values or the present value of expected cash flows.  A general allowance is made for all other loans not considered impaired as deemed appropriate by management.  In determining the adequacy of the allowance, management considers the following factors: the nature of the portfolio, credit concentrations, trends in historical loss experience, specific impaired loans, the estimated value of any underlying collateral, prevailing environmental factors and economic conditions, and other inherent risks.  While management uses available information to recognize losses on loans, further reductions in the carrying amounts of loans may be necessary based on changes in collateral values and changes in estimates of cash flows on impaired loans.  This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available.

 

The allowance is increased by a provision for loan losses, which is charged to expense and reduced by charge-offs, net of recoveries.  Loans are charged against the allowance for loan losses when management believes that collectability of all or part of the principal is unlikely.  Past due status is determined based on contractual terms.

 

In regards to its consumer loans and consumer real estate loan portfolio, the Company uses a conservative approach for its risk grading and timing of charge offs on these loans.  This approach is based on the guidance found in the Uniform Retail Credit Classification and Account Management Policy and as a result affects our estimate of the allowance for loan losses.  Under this approach when a consumer loan or consumer real estate loan is originated, it must possess qualities of a credit risk grade of Pass for approval and will remain with the initial risk rating through maturity unless there is a deterioration in the credit quality of the loan.  Subsequently, if the loan becomes contractually 90 days past due or the borrower files for bankruptcy protection, it is downgraded to Substandard.  At 90 days past due, or earlier if the customer has filed bankruptcy, the collateral value less estimated liquidation costs is compared to the loan balance to calculate any potential deficiency.  If there is sufficient collateral, no charge-off is necessary.  If there is a deficiency, then within 30 days of the loan becoming 90 days past due, or within 60 days of bankruptcy notice, the deficiency is charged-off against the allowance for loan loss.  If the loan is unsecured, upon being deemed Substandard, the entire loan amount is charged off.  Collection efforts continue by means of repossessions or foreclosures, and upon bank ownership, liquidation ensues.

Other Real Estate Owned

 

Other Real Estate Owned – Other real estate owned represents properties acquired through foreclosure or deed taken in lieu of foreclosure.  At the time of acquisition, these properties are recorded at the lower of cost or fair value less estimated costs to sell.  Expenses incurred in connection with operating these properties and subsequent write-downs, if any, are charged to expense.  Subsequent to foreclosure, management periodically considers the adequacy of the reserve for losses on the property.  Gains and losses on the sales of these properties are credited or charged to income in the year of the sale.

Bank Premises And Equipment

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 other equipment

 

5 to 7 years

 

Advertising cost

Advertising Cost – Advertising costs are expensed in the period incurred.

Stock Options

Stock Options - The Company records compensation related to stock options pursuant to ASC 718 which requires the estimated fair market value of the expense to be reflected over the period the award is earned which is presumed to be the vesting period.  For additional discussion concerning stock options see Note 15, “Stock Option Plan.”

Common Stock Warrants  -

Common Stock Warrants

Common Stock Warrants - The company issued common stock warrants as a result of its conversion of Director notes and the completion of its common stock offering in 2012.  For additional discussion concerning these transactions including the terms and value of the warrants, see Note 22, “Capital.”

Income Taxes

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.  If all or a portion of the net deferred tax asset is determined to be unlikely to be realized, a valuation allowance is established to reduce the net deferred tax asset to the amount that is more likely than not to be realized.

 

In the event the Company has unrecognized tax expense in future accounting periods, the Company will recognize interest in interest expense and penalties in operating expenses.  There were no interest or penalties related to an unrecognized tax position for the years ended December 31, 2012 and 2011.  Because of the impact of deferred tax accounting, other than interest and penalties, the reversal of the Company’s treatment by taxing authorities would not affect the annual effective tax rate but would defer or accelerate the payment of cash to the taxing authority.  The Company’s tax filings for years ended 2009 through 2012 are currently open to audit under statutes of limitations by the Internal Revenue Service (“IRS”) and the Virginia Department of Taxation.  Our tax filings for the years ended 2010 and 2011 are currently under examination by the IRS.

Financial Instruments - Off-Balance Sheet Instruments

Financial Instruments – Off-balance-sheet instruments -  In the ordinary course of business, the Company has entered into commitments to extend credit.  Such financial instruments are recorded in the financial statements when they are funded.

Comprehensive Income

Comprehensive Income – Generally accepted accounting principles require that recognized revenue, expenses, gains and losses be included in net income.  Although certain changes in assets and liabilities, such as unrealized gains and losses on available-for-sale securities, are reported as a separate component of the equity section of the balance sheet, such items, along with net income, are components of comprehensive income.

Earnings Per Share

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 and common stock warrants and are determined by the Treasury Method.  For the years ending December 31, 2012 and 2011, potential common shares were anti-dilutive and were not included in the calculation.  Basic and diluted net loss per common share calculations follows:

 

(Amounts in Thousands, Except

 

For the years ended

Share and Per Share Data)

 

December 31,

 

 

2012

 

2011

 

 

 

 

 

Net loss available to common shareholders

$

(6,324)

$

(8,910)

Weighted average shares outstanding

 

11,181,963 

 

10,010,178 

Weighted average dilutive shares outstanding

 

11,181,963 

 

10,010,178 

Basic and diluted loss per share

$

(0.57)

$

(0.89)

 

Business Combinations

Business Combinations - For purchase acquisitions accounted for as a business combination, the Company is required to record the assets acquired, including identified intangible assets and liabilities assumed at their fair value, which in many instances involves estimates based on third party valuations, such as appraisals, or internal valuations based on discounted cash flow analyses or other valuation techniques.  The determination of the useful lives of intangible assets is subjective, as is the appropriate amortization method for such intangible assets.  In addition, purchase acquisitions may result in goodwill, which is subject to ongoing periodic impairment testing based on the fair value of net assets acquired compared to the carrying value of goodwill.  Changes in acquisition multiples, the overall interest rate environment, or the continuing operations of the assets acquired could have a significant impact on the periodic impairment testing.  For additional discussion concerning our valuation of intangible assets, see Note 13, “Intangible Assets.”

Reclassification

Reclassification – Certain reclassifications have been made to the prior years’ financial statements to place them on a comparable basis with the current year.  Net income and stockholders’ equity previously reported were not affected by these reclassifications.

Subsequent Events

Subsequent Events – The Company has evaluated subsequent events for potential recognition and/or disclosure through the date these consolidated financial statements were issued.


Summary Of Significant Accounting Policies (Tables)
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Summary Of Significant Accounting Policies (Tables)
12 Months Ended
Dec. 31, 2012
Summary Of Significant Accounting Policies [Abstract]  
Schedule Of 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 other equipment

 

5 to 7 years

 

Schedule Of Basic And Diluted Net Loss Per Common Share Calculations

(Amounts in Thousands, Except

 

For the years ended

Share and Per Share Data)

 

December 31,

 

 

2012

 

2011

 

 

 

 

 

Net loss available to common shareholders

$

(6,324)

$

(8,910)

Weighted average shares outstanding

 

11,181,963 

 

10,010,178 

Weighted average dilutive shares outstanding

 

11,181,963 

 

10,010,178 

Basic and diluted loss per share

$

(0.57)

$

(0.89)

 


Summary Of Significant Accounting Policies (Narrative)(Details)
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Summary Of Significant Accounting Policies (Narrative)(Details) (USD $)
In Millions, unless otherwise specified
12 Months Ended
Dec. 31, 2012
Summary Of Significant Accounting Policies [Abstract]  
Concentration Risk, Percentage 25.00%
Company's capital structure $ 10.0

Summary Of Significant Accounting Policies (Schedule Of Estimated Useful Lives) (Details)
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Summary Of Significant Accounting Policies (Schedule Of Estimated Useful Lives) (Details)
12 Months Ended
Dec. 31, 2012
Building [Member]
 
Estimated useful life 39 years
Paving And Landscaping [Member]
 
Estimated useful life 15 years
Vehicles [Member]
 
Estimated useful life 5 years
Maximum [Member] | Computer Equipment And Software [Member]
 
Estimated useful life 5 years
Maximum [Member] | Furniture And Other Equipment [Member]
 
Estimated useful life 7 years
Minimum [Member] | Computer Equipment And Software [Member]
 
Estimated useful life 3 years
Minimum [Member] | Furniture And Other Equipment [Member]
 
Estimated useful life 5 years

Summary Of Significant Accounting Policies (Schedule Of Basic And Diluted Net Loss Per Common Share Calculations) (Details)
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Summary Of Significant Accounting Policies (Schedule Of Basic And Diluted Net Loss Per Common Share Calculations) (Details) (USD $)
In Thousands, except Share data, unless otherwise specified
3 Months Ended 12 Months Ended
Dec. 31, 2012
Sep. 30, 2012
Jun. 30, 2012
Mar. 31, 2012
Dec. 31, 2011
Sep. 30, 2011
Jun. 30, 2011
Mar. 31, 2011
Dec. 31, 2012
Dec. 31, 2011
Net loss $ 212 $ (1,463) $ (2,538) $ (2,535) $ (5,952) $ (1,832) $ (1,675) $ 549 $ (6,324) $ (8,910)
Weighted average shares outstanding                 11,181,963 10,010,178
Weighted average dilutive shares outstanding                 11,181,963 10,010,178
Basic and diluted loss per share                 $ (0.57) $ (0.89)
Parent Company [Member]
                   
Net loss                 $ (6,324) $ (8,910)

Formal Written Agreement
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Formal Written Agreement
12 Months Ended
Dec. 31, 2012
Formal Written Agreement [Abstract]  
Formal Written Agreement

NOTE 3FORMAL WRITTEN AGREEMENT:

Effective July 29, 2010, the Company and the Bank entered into a written agreement with the Federal Reserve Bank of Richmond (“Reserve Bank”) and the Virginia State Corporation Commission Bureau of Financial Institutions (the “Bureau”) called (the “Written Agreement”).  At December 31, 2012, we believe we have not yet achieved full compliance with the Written Agreement but we have made progress in our compliance efforts under the Written Agreement and all of the written plans required to date, as discussed in the following paragraphs, have been submitted on a timely basis. 

 

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

 

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

Under the terms of the Written Agreement, both the Company and the Bank have agreed to submit capital plans to maintain sufficient capital at the Company, on a consolidated basis, and the Bank, on a stand-alone basis, and to refrain from declaring or paying dividends without prior regulatory approval. The Company has agreed that it will not take any other form of payment representing a reduction in the Bank’s capital or make any distributions of interest, principal, or other sums on subordinated debentures or trust preferred securities without prior regulatory approval. The Company may not incur, increase or guarantee any debt without prior regulatory approval and has agreed not to purchase or redeem any shares of its stock without prior regulatory approval.

 

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


Deposits In And Federal Funds Sold To Banks
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Deposits In And Federal Funds Sold To Banks
12 Months Ended
Dec. 31, 2012
Deposits In And Federal Funds Sold To Banks [Abstract]  
Deposits In And Federal Funds Sold To Banks Disclosure

NOTE 4DEPOSITS IN AND FEDERAL FUNDS SOLD TO BANKS:

 

The Bank had federal funds sold and cash on deposit with other commercial banks amounting to $76.6 million and $72.3 million at December 31, 2012 and 2011, respectively.  Deposit amounts at other commercial banks may, at times, exceed federally insured limits.    

 

The Bank is required to maintain average reserve balances, computed by applying prescribed percentages to its various types of deposits, either at the Bank or on deposit with the Federal Reserve Bank.  At December 31, 2012 and 2011, all required reserves were met by the Bank’s vault cash.    


Deposits In And Federal Funds Sold To Banks (Details)
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Deposits In And Federal Funds Sold To Banks (Details) (USD $)
In Millions, unless otherwise specified
Dec. 31, 2012
Dec. 31, 2011
Deposits In And Federal Funds Sold To Banks [Abstract]    
Federal funds sold and cash on deposit $ 76.6 $ 72.3

Investment Securities
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Investment Securities
12 Months Ended
Dec. 31, 2012
Investment Securities [Abstract]  
Investment Securities

NOTE 5INVESTMENT SECURITIES:

 

The amortized cost and estimated fair value of securities (all available-for-sale) are as follows:

 

 

 

 

 

Gross

 

Gross

 

Approximate

 

Amortized

 

Unrealized

 

Unrealized

 

Fair

(Dollars are in thousands)

Cost

 

Gains

 

Losses

 

Value

December 31, 2012

U.S. Government Agencies

$

23,177 

$

473 

$

13 

$

23,637 

Mortgage backed securities

$

25,822 

$

210 

$

54 

$

25,978 

Total Securities AFS

$

48,999 

$

683 

$

67 

$

49,615 

 

December 31, 2011

U.S. Government Agencies

$

21,405 

$

238 

$

10 

$

21,633 

Taxable municipals

$

1,465 

$

89 

$

$

1,552 

Tax-exempt municipals

$

1,043 

$

11 

$

-

$

1,054 

Mortgage backed securities

$

8,144 

$

67 

$

16 

$

8,195 

Total Securities AFS

$

32,057 

$

405 

$

28 

$

32,434 

 

The following table details unrealized losses and related fair values in the available-for-sale portfolio.  This information is aggregated by the length of time that individual securities have been in a continuous unrealized loss position as of December 31, 2012 and December 31, 2011.

 

 

 

Less than 12 Months

 

12 Months or More

 

Total

 

 

(Dollars are in thousands)

 

Fair Value

 

Unrealized

Losses

 

Fair

Value

 

Unrealized

Losses

 

Fair

Value

 

Unrealized

Losses

 

December 31, 2012

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Government Agencies

$

2,931 

$

13 

$

-

$

-

$

2,931 

$

13 

 

Mtg. backed securities

 

7,491 

 

54 

 

-

 

-

 

7,491 

 

54 

 

Total Securities AFS

$

10,422 

$

67 

$

-

$

-

$

10,422 

$

67 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2011

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Government Agencies

$

5,592 

$

10 

$

-

$

-

$

5,592 

$

10 

 

Taxable municipals

 

572 

 

 

-

 

-

 

572 

 

 

Mtg. backed securities

 

4,055 

 

16 

 

-

 

-

 

4,055 

 

16 

 

Total Securities AFS

$

10,219 

$

28 

$

-

$

-

$

10,219 

$

28 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

At December 31, 2012, the available-for-sale portfolio included ten investments for which the fair market value was less than amortized cost.  At December 31, 2011, the available-for-sale portfolio included eleven investments for which the fair market value was less than amortized cost.  Management evaluates securities for other than temporary impairment at least on a quarterly basis, and more frequently when economic or market concerns warrant such evaluation.  Consideration is given to (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial conditions and near-term prospects of the issuer, and (3) the intent and ability of the Company to retain its investme