Year-to-date Earnings

For the year ended December 31, 2021, net income was $7.0 million, or $0.29 per share, an increase of $4.1 million, or 142.6%, over the prior year. The improvement is due to an increase of $2.1 million in net interest income, a decrease of $1.9 million in provision for loan loss expense, and an increase of $1.8 million in noninterest income, offset by an $870,000 increase in noninterest expense as discussed in the following paragraphs.

The increase of $2.1 million in net interest income was due primarily to a decrease of $2.0 million in interest expense on deposits, plus an increase of $329,000 in interest income on investments, partially offset by a $315,000 decrease in interest income on loans, including fees. The reduction in interest expense on deposits is due to reduced rates on time deposits and a reduction of $34.7 million in average time deposit balances. The increase in interest income on investments is due to an increase in average balances of $33.6 million, as we redeployed excess funds into investment securities, which generally provide higher yields than cash. The decrease in interest income on loans, including fees, was driven by a decrease of $1.4 million in interest on loans, offset by an increase in fees of $1.1 million. The reduced loan interest income was driven by lower average yields, which decreased to 4.42% for 2021 compared to 4.72% for 2020, even though average loan balances increased $8.0 million. The yield reduction is reflective of the general low interest rate environment over the past two years combined with excess liquidity as stimulus monies have, to some degree, been retained by the recipients. The increase in loan fee income is a result of recognition of net deferred fees on PPP loans totaling $2.0 million in 2021, as compared to $964 thousand in 2020. As noted earlier, the Paycheck Protection Program ended in June 2021 and remaining PPP loan balances total only $6.4 million at year-end 2021. Therefore, the remaining PPP loans and net unearned fees will not have a material impact on future earnings.

The reduction in both interest income and interest expense was driven mainly by lower market rates, which have fallen throughout 2020 and 2021. Our total average yield on earning assets was 4.00% during 2021, compared to 4.36% during 2020. The reduction in our average cost of funds to 0.37% during 2021, compared to 0.72% during 2020, was driven mainly by an increase of $44.1 million in average balances of noninterest-bearing deposits, due to stimulus payments and PPP funds, which are generally deposited into customer accounts. Due to the factors above, the net interest margin for 2021 was 3.64%, a decrease of 1 basis point compared to 3.65% for 2020.

The decrease of $1.9 million in provision for loan loss expense is due to improving asset quality, as exhibited by reductions in past due, classified loans and nonaccrual loans, along with improving employment and non-inflation related economic conditions, as discussed earlier.

The $1.8 million increase in noninterest income was driven by an additional $507,000 in service charges and fees, a $557,000 increase in card processing and interchange income, a $313,000 increase in financial services fees, plus nonrecurring gains on sales of investment securities of $322,000. The improvement in service charges and fees resulted from the fee schedule changes we made in August 2020. The improvement in card processing and interchange income resulted from increased volume and the related increase in interchange fees received. Efforts to increase noninterest income revenues from financial services drove the improvement in insurance and investment fees. Other noninterest income also increased by $138,000, but after considering the nonrecurring net gains on sales of fixed assets of $190,000 in 2021 and the $220,000 bonus payment received in 2020 from a service provider, the increase in this component would have been $168,000. This increase is due to a $128,000 growth in earnings from commissions and gains on originations and sales of mortgage loans in the secondary market.

Noninterest expense grew by $870,000 primarily due to valuation adjustments of $1.1 million on three former branch office locations, which were transferred into other real estate owned offset by a $566,000 reduction in salaries and benefit expense. Excluding the valuation adjustments, occupancy and equipment expense increased $182,000, due largely to costs associated with the Kingsport and Bristol – W. State Street offices, which opened in the third quarter of 2020, and fourth quarter of 2021, respectively. The reduction in salaries and benefit expense is due to the restructuring implemented during the second quarter of 2020. Other operating expenses were up $240,000 due to higher loan expenses and other real estate expenses of $246,000 and $199,000, respectively. These increases offset decreases in FDIC insurance and consulting, which decreased $128,000 and $236,000, respectively. FDIC premiums decreased due to improvements in our risk assessment. Consulting decreased due to costs incurred in 2020, which were not repeated in 2021. In addition, 2021 includes a $76,000 increase in bank franchise taxes due to the increased tax base and increased tax volume for other states.

Income taxes increased $839,000, or 76.1%, which correlates to the growth in pretax earnings.

Balance Sheet

During the quarter ended December 31, 2021, total assets decreased $6.2 million, or 0.8%, to $794.6 million, compared to $800.8 million at September 30, 2021. Interest bearing deposits in other banks decreased $23.8 million, due to funding loan originations which increased loan balances by $19.7 million, and decreased deposit balances $6.0 million.

At December 31, 2021, compared to the prior year-end, total assets grew $38.3 million, or 5.1%. Loan balances increased $18.2 million, or 3.2%. Excluding the net impact of $25.3 million in PPP loan originations and $53.6 million of PPP loan repayments, the remaining loan portfolio grew $46.6 million, due largely to our new Boone loan production office, which opened during the fourth quarter of 2020.

During the year ended December 31, 2021, deposits grew $39.5 million, or 5.9%, due to the impact of stimulus payments and PPP loan funds during the first half of the year, combined with residual liquidity that remains in the financial markets. This deposit growth, combined with a decrease of $30.3 million in interest bearing deposits in other banks, funded a net increase in the investment portfolio of $59.0 million.

Capital

During the year ended December 31, 2021, total capital increased $5.5 million, as earnings added $7.0 million, while accumulated other comprehensive income decreased by $1.6 million. Consequently, book value per share increased to $2.66 at December 31, 2021 compared to $2.43 at December 31, 2020. The bank remains well capitalized per regulatory guidance.

Asset Quality

The allowance for loan losses as a percentage of total loans was 1.13% at December 31, 2021, 1.16% at September 30, 2021, and 1.25% at December 31, 2020.

Annualized net charge-offs, as a percentage of average loans, was (0.05%) during the fourth quarter of 2021, as recoveries exceeded charge-offs by $77,000. Annualized net charge-offs were 0.03% during the prior quarter and 0.07% during the fourth quarter of 2020. Our quarterly assessment of the allowance for loan losses did not indicate the need for additional provision expense, due to improving qualitative factors as previously discussed. For the year ended December 31, 2021, net charge-offs were 0.14% of average loans, compared to 0.08% for 2020.

Nonperforming assets, which include nonaccrual loans and other real estate owned, totaled $4.3 million at December 31, 2021, a decline of $1.1 million, or 21.0%, during the fourth quarter and a decline of $4.6 million, or 51.6%, since year-end 2020. Nonperforming assets as a percentage of total assets were 0.54% at December 31, 2021, 0.68% at September 30, 2021, and 1.17% at December 31, 2020.

As we continue working to reduce nonearning assets, other real estate owned is declined to $1.4 million as of December 31, 2021, compared to $3.3 million as of December 31, 2020. At December 31, 2021, approximately $912,000 of other real estate owned consisted of former branch facilities.

About New Peoples Bankshares, Inc.

New Peoples Bankshares, Inc. is a one-bank financial holding company headquartered in Honaker, Virginia. Its wholly-owned subsidiary provides banking products and services through its 19 branch locations throughout southwest Virginia, eastern Tennessee, southern West Virginia, and a loan production office in western North Carolina. The Company’s common stock is traded over the counter under the trading symbol “NWPP”. Additional investor information can be found on the Company’s website at www.npbankshares.com.

This news release contains statements concerning the Company’s expectations, plans, objectives, future financial performance and other statements that are not historical facts. These statements may constitute “forward-looking statements” as defined by federal securities laws. These statements may address issues that involve estimates and assumptions made by management, risks and uncertainties, and actual results could differ materially from historical results or those anticipated by such statements. Important factors that may cause actual results to differ from projections include:

NEW PEOPLES BANKSHARES, INC.

CONSOLIDATED BALANCE SHEET HIGHLIGHTS

QUARTERS ENDED DECEMBER 31, 2021 THROUGH DECEMBER 31, 2020

(IN THOUSANDS EXCEPT SHARE DATA)

(UNAUDITED)

NEW PEOPLES BANKSHARES, INC.

CONSOLIDATED STATEMENTS OF INCOME HIGHLIGHTS

FOR THE QUARTERS ENDED DECEMBER 31, 2021 THROUGH DECEMBER 31, 2020

(IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA)

(UNAUDITED)

*-For 2021, quarterly income per share does not total year-to-date income per share due to rounding.

NEW PEOPLES BANKSHARES, INC.

CONSOLIDATED STATEMENTS OF INCOME HIGHLIGHTS

FOR THE TWELVE MONTHS ENDED DECEMBER 31, 2021 AND 2020

(IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA)

(UNAUDITED)

*-For 2021, quarterly income per share does not total year-to-date income per share due to rounding.

*The efficiency ratio is computed as a percentage of noninterest expense divided by the sum of net interest income and noninterest income. This is a non-GAAP financial measure that management believes provides investors with important information regarding operational efficiency. Management believes such financial information is meaningful to the reader in understanding operating performance, but cautions that such information should not be viewed as a substitute for GAAP. Comparison of our efficiency ratio with those of other companies may not be possible because other companies may calculate it differently.