What changed in this filing

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Item 1. Financial Statements

2022-05-16 compared with 2021-11-15 · 1101 added, 880 removed, 123 unchanged (94% of the section changed)

Item 1 Financial Statements

NEW PEOPLES BANKSHARES,

STATEMENTS OF INCOME

FOR THE THREE MONTHS

ENDED SEPTEMBER 30, 2021 AND 2020

THOUSANDS EXCEPT SHARE AND PER SHARE DATA)

AND DIVIDEND INCOME

including fees

Interest-earning

deposits with banks

on equity securities (restricted)

Interest and Dividend Income

Interest Expense

INTEREST INCOME

FOR LOAN LOSSES

INTEREST INCOME AFTER

FOR LOAN LOSSES

charges and fees

processing and interchange

and investment fees

on sales of available-for-sale securities

noninterest income

Noninterest Income

and employee benefits

and equipment expense

processing and telecommunications

operating expenses

Noninterest Expenses

BEFORE INCOME TAXES

Weighted Shares of Common Stock

The accompanying

notes are an integral part of these financial statements.

NEW PEOPLES BANKSHARES,

Item 1 Financial

PEOPLES BANKSHARES, INC.

BALANCE SHEETS

THOUSANDS EXCEPT PER SHARE AND SHARE DATA)

Cash and due from banks

Interest-bearing deposits with banks

Federal funds sold

Total Cash and Cash Equivalents

Investment securities available-for-sale, at fair value

Loans held for sale

Loans receivable

Allowance for loan losses

Bank premises and equipment, net

Other real estate owned

Accrued interest receivable

Deferred taxes, net

Bank owned life insurance

Right-of-use assets –

operating leases

Noninterest bearing

Interest-bearing

Total Deposits

Borrowed funds

Lease liabilities –

operating leases

Accrued interest payable

Accrued expenses and other liabilities

Total Liabilities

SHAREHOLDERS’

Common stock - $2.00 par value;

50,000,000 shares authorized;

23,922,086 shares issued and outstanding at

March 31, 2022 and December 31, 2021

Additional paid-in-capital

Retained earnings

Accumulated other comprehensive loss

Total Shareholders’

Total Liabilities and Shareholders’

accompanying notes are an integral part of these consolidated financial statements.

PEOPLES BANKSHARES, INC.

STATEMENTS OF INCOME

FOR THE NINE MONTHS

ENDED SEPTEMBER 30, 2021 AND 2020

THE THREE MONTHS ENDED MARCH 31, 2022 AND 2021

THOUSANDS EXCEPT SHARE AND PER SHARE DATA)

AND DIVIDEND INCOME

including fees

Interest-earning

deposits with banks

on equity securities (restricted)

INTEREST AND DIVIDEND INCOME

Loans including fees

Interest-earning deposits with banks

Dividends on equity securities (restricted)

Total Interest and Dividend Income

INTEREST EXPENSE

INTEREST INCOME

FOR LOAN LOSSES

INTEREST INCOME AFTER

FOR LOAN LOSSES

charges and fees

processing and interchange

and investment fees

on sales of available-for-sale securities

noninterest income

Borrowed funds

Total Interest Expense

NET INTEREST INCOME

PROVISION FOR LOAN LOSSES

NET INTEREST INCOME AFTER

PROVISION FOR LOAN LOSSES

NONINTEREST INCOME

and employee benefits

and equipment expense

processing and telecommunications

operating expenses

Service charges and fees

Card processing and interchange

Insurance and investment fees

Other noninterest income

Total Noninterest Income

NONINTEREST EXPENSES

BEFORE INCOME TAXES

Weighted Shares of Common Stock

The accompanying

notes are an integral part of these financial statements.

NEW PEOPLES BANKSHARES,

CONSOLIDATED STATEMENTS

OF COMPREHENSIVE INCOME

FOR THE THREE AND

NINE MONTHS ENDED SEPTEMBER 30, 2021 AND 2020

the three months ended

September 30,

the nine months ended

September 30,

comprehensive income:

securities activity

(losses) gains arising during the period

Reclassification

adjustment for net gains included

comprehensive (loss) gain on investment securities

tax benefit (expense)

OTHER COMPREHENSIVE (LOSS) INCOME

COMPREHENSIVE INCOME

The accompanying notes

are an integral part of these financial statements.

NEW PEOPLES BANKSHARES,

CONSOLIDATED BALANCE

THOUSANDS EXCEPT PER SHARE AND SHARE DATA)

and due from banks

Interest-bearing

deposits with banks

Cash and Cash Equivalents

securities available-for-sale

held for sale

for loan losses

premises and equipment, net

real estate owned

interest receivable

assets – operating leases

Interest-bearing

liabilities – operating leases

interest payable

expenses and other liabilities

STOCKHOLDERS’

Common stock - $ 2.00 par value;

50,000,000 shares authorized;

shares issued and outstanding at

September 30, 2021 and December 31, 2020

paid-in-capital

earnings (deficit)

other comprehensive (loss) income

Stockholders’ Equity

Liabilities and Stockholders’ Equity

The accompanying notes

are an integral part of these financial statements.

NEW PEOPLES BANKSHARES,

CONSOLIDATED STATEMENTS

OF CHANGES IN STOCKHOLDERS’ EQUITY

FOR THE THREE AND

NINE MONTHS ENDED SEPTEMBER 30, 2021 AND 2020

(IN THOUSANDS INCLUDING

of Common Stock

Paid-in- Capital

Retained (Deficit)

Salaries and employee benefits

Occupancy and equipment expense

Data processing and telecommunications

Other operating expenses

Total Noninterest Expenses

INCOME BEFORE INCOME TAXES

INCOME TAX EXPENSE

Earnings Per Share

Basic and diluted

Average Weighted Shares of Common Stock

Basic and diluted

accompanying notes are an integral part of these consolidated financial statements.

PEOPLES BANKSHARES, INC.

STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

THE THREE MONTHS ENDED MARCH 31, 2022 AND 2021

For the three months ended

Other comprehensive income:

Investment Securities Activity

Unrealized losses arising during the period

Other comprehensive losses on investment securities

Related tax benefit

TOTAL OTHER COMPREHENSIVE LOSS

TOTAL COMPREHENSIVE (LOSS) INCOME

accompanying notes are an integral part of these consolidated financial statements.

PEOPLES BANKSHARES, INC.

STATEMENTS OF CHANGES IN SHAREHOLDERS’

THE THREE MONTHS ENDED MARCH 31, 2022 AND 2021

THOUSANDS INCLUDING SHARE DATA)

Shares of Common Stock

Additional Paid-in- Capital

Accumulated Other

Comprehensive Income (Loss)

Stockholders’ Equity

Total Shareholders’

Balance, December 31, 2020

comprehensive income, net of tax

Other comprehensive loss, net of tax

Balance, March 31, 2021

comprehensive income, net of tax

Balance, June 30, 2020

comprehensive income, net of tax

September 30, 2020

Balance, December 31, 2021

comprehensive income, net of tax

Other comprehensive loss, net of tax

Cash dividend declared ($0.05 per share)

Balance, March 31, 2022

comprehensive income, net of tax

Balance, June 30, 2021

comprehensive income, net of tax

September 30, 2021

The accompanying notes

are an integral part of these financial statements.

NEW PEOPLES BANKSHARES,

CONSOLIDATED STATEMENTS

OF CASH FLOWS

FOR THE NINE MONTHS

ENDED SEPTEMBER 30, 2021 AND 2020

FLOWS FROM OPERATING ACTIVITIES

to reconcile net income to net cash provided by

accompanying notes are an integral part of these consolidated financial statements.

PEOPLES BANKSHARES, INC.

STATEMENTS OF CASH FLOWS

THE THREE MONTHS ENDED MARCH 31, 2022 AND 2021

CASH FLOWS FROM OPERATING ACTIVITIES

Adjustments to reconcile net income to net cash provided by

operating activities:

for loan losses

on bank owned life insurance

on sale of securities available-for-sale

on sale of mortgage loans

Provision for loan losses

Income on bank owned life insurance

Gain on sale of mortgage loans

Loss on sale of premises and equipment

on sale of repossessed assets

on sale of other real estate owned

originated for sale

from sales of loans originated for sale

to carrying value of premises transferred to other real estate owned

of carrying value of other real estate owned

Adjustment of carrying

value of repossessed assets

Amortization/accretion

of bond premiums/discounts

interest receivable

interest payable

expenses and other liabilities

Cash Provided by Operating Activities

FLOWS FROM INVESTING ACTIVITIES

(increase) in loans

of securities available-for-sale

from sale of investment securities available-for-sale

from repayments and maturities of securities available-for-sale

Net redemption

(purchase) of equity securities (restricted)

for the purchase of premises and equipment

from sale of premises and equipment

from sales of repossessed assets

from insurance claims on other real estate owned

from sales of other real estate owned

Cash Used in Investing Activities

FLOWS FROM FINANCING ACTIVITIES

in short term borrowings

in noninterest bearing deposits

change in interest bearing deposits

Cash Provided by Financing Activities

Net (decrease)

increase in cash and cash equivalents

and Cash Equivalents, Beginning of the Period

and Cash Equivalents, End of the Period

Disclosure of Cash Paid During the Period for:

Disclosure of Non-cash Transactions:

real estate acquired in settlement of foreclosed loans

made to finance sale of other real estate owned

of premises and equipment to other real estate

in unrealized gains on securities available for sale

The accompanying notes

are an integral part of these financial statements.

NEW PEOPLES BANKSHARES, INC.

NOTES TO CONSOLIDATED

FINANCIAL STATEMENTS

1 NATURE OF OPERATIONS

(Gain) loss on sale of other real estate owned

Loans originated for sale

Proceeds from sales of loans originated for sale

Adjustment of carrying value of other real estate owned

Amortization of bond premiums

Deferred tax benefit

Net change in:

Accrued interest receivable

Accrued interest payable

Accrued expenses and other liabilities

Net Cash Provided by Operating Activities

CASH FLOWS FROM INVESTING ACTIVITIES

Net increase in loans

Purchase of securities available-for-sale

Proceeds from repayments and maturities of securities available-for-sale

Net purchase of equity securities (restricted)

Payments for the purchase of premises and equipment

Proceeds from sales of other real estate owned

Net Cash Used in Investing Activities

CASH FLOWS FROM FINANCING ACTIVITIES

Net change in noninterest bearing deposits

Net change in interest bearing deposits

Dividends paid

Net Cash Provided by Financing Activities

Net increase in cash and cash equivalents

Cash and Cash Equivalents, Beginning of the Period

Cash and Cash Equivalents, End of the Period

Supplemental Disclosure of Cash Paid During the Period for:

Supplemental Disclosure of Non-cash Transactions:

Other real estate acquired in settlement of foreclosed loans

Loans made to finance sale of other real estate owned

Change in unrealized losses on securities available for sale

accompanying notes are an integral part of these consolidated financial statements.

PEOPLES BANKSHARES, INC.

TO CONSOLIDATED FINANCIAL STATEMENTS

1 NATURE OF OPERATIONS

of Operations –

New Peoples Bankshares, Inc.

(New Peoples) is a financial holding company whose principal activity is the ownership and management

of a community bank, New Peoples Bank, Inc.

New Peoples and the Bank are organized and incorporated under the laws of the

Commonwealth of Virginia.

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 Board of Governors of the Federal Reserve System (the Federal Reserve).

The Bank provides

general banking services to individuals, small and medium size businesses and the professional community of southwest Virginia, southern

West Virginia, western North Carolina and northeastern Tennessee.

These services include commercial and consumer loans along with traditional

deposit products such as checking and savings accounts.

NOTE 2 SUMMARY

OF SIGNIFICANT ACCOUNTING POLICIES

These consolidated

financial statements conform to U.

(New Peoples) is a financial holding company whose principal activity is the ownership

and management of a community bank, New Peoples Bank, Inc.

New Peoples and the Bank are organized and incorporated under

the laws of the Commonwealth of Virginia.

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 Board of Governors of the Federal Reserve System (the Federal

The Bank provides general banking services to individuals, small and medium size businesses and the professional community

of southwest Virginia, southern West Virginia, western North Carolina and northeastern Tennessee.

These services include commercial and

consumer loans along with traditional deposit products such as checking and savings accounts.

2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

consolidated financial statements conform to U.

generally accepted accounting principles (GAAP) and to general industry practices.

In the opinion

of management, the accompanying consolidated financial statements contain all adjustments (consisting of only normal recurring accruals)

necessary to present fairly the Company’s financial position at September 30, 2021 and December 31, 2020, and the results of operations

for the three and nine month periods ended September 30, 2021 and 2020.

In the opinion of management, the accompanying consolidated financial statements contain all adjustments (consisting of only normal recurring

accruals) necessary to present fairly the Company’s financial position at March 31, 2022 and December 31, 2021, and the results

of operations for the three month periods ended March 31, 2022 and 2021.

The notes included herein should be read in conjunction with

the notes to the consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December

The results of operations for interim periods are not necessarily indicative of the results of operations that may be expected

for a full year or any future period.

The consolidated

financial statements include New Peoples, the Bank, NPB Insurance Services, Inc., and NPB Web Services, Inc.

(hereinafter, collectively

referred to as the Company, we, us or our).

consolidated financial statements include New Peoples, the Bank, NPB Insurance Services, Inc., and NPB Web Services, Inc.

(hereinafter,

collectively referred to as the Company, we, us or our).

All significant intercompany balances and transactions have been eliminated.

In accordance

with Accounting Standards Codification (ASC) 942, Financial Services – Depository and Lending, NPB Capital Trust I and 2 are not

included in the consolidated financial statements.

The preparation of

financial statements in conformity with GAAP 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.

In accordance with Accounting Standards Codification (ASC) 942, Financial Services –

Depository and Lending, NPB Capital Trust

I and 2 are not included in the consolidated financial statements.

preparation of financial statements in conformity with GAAP 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 and the determination of the deferred tax asset and related valuation allowance are based on estimates

that are particularly susceptible to significant changes in the economic environment and market conditions.

NOTE 3 INCOME

Basic income per

share computations are based on the weighted average number of shares outstanding during each period.

Dilutive earnings per share reflect

the additional common shares that would have been outstanding if dilutive potential common shares had been issued.

Potential common shares

that may be issued relate to outstanding common stock warrants and are determined by the Treasury Method.

For the three-month and nine-month

periods ended September 30, 2021 and 2020, there were no potential common shares.

Basic and diluted net income per common share calculations

Schedule Basic and diluted net income per common share

in Thousands, Except

The determination of

the adequacy of the allowance for loan losses and the determination of the deferred tax asset and related valuation allowance are based

on estimates that are particularly susceptible to significant changes in the economic environment and market conditions.

reclassifications have been made to prior period amounts to conform to current period presentation.

None of these reclassifications are

considered material and have no impact on net income.

3 EARNINGS PER SHARE

earnings per share computations are based on the weighted average number of shares outstanding during each period.

Diluted earnings per

share reflect the additional common shares that would have been outstanding if dilutive potential common shares had been issued.

the three month periods ended March 31, 2022 and 2021, there were no potential common shares.

Basic and diluted net earnings per common

share calculations follow:

(Dollars in Thousands, Except

Share and Per Share Data)

the three months

ended September 30,

the nine months

ended September 30,

average shares outstanding

average dilutive shares outstanding

and diluted income per share

NOTE 4 CAPITAL

Capital Requirements

meets eligibility criteria of a small bank holding company in accordance with the Federal Reserve’s Small Bank Holding Company

Policy Statement issued in February 2015 and, therefore, is not obligated to report consolidated regulatory capital.

subject to various capital requirements administered by federal banking agencies.

Failure to meet minimum capital requirements can initiate

certain mandatory and, possibly, additional discretionary actions by regulators that, if undertaken, could have a direct material effect

on the Bank’s financial statements.

Under capital adequacy guidelines and the regulatory framework for prompt corrective action,

the Bank must meet specific capital guidelines that involve quantitative measures of assets, liabilities, and certain off-balance sheet

items as calculated under regulatory accounting practices.

The capital amounts and classification are also subject to qualitative judgments

by the regulators about components, risk weightings, and other factors.

For the three months ended

Weighted average shares outstanding

Weighted average diluted shares outstanding

Basic and diluted income per share

Requirements and Ratios

Company meets eligibility criteria of a small bank holding company in accordance with the Federal Reserve’s Small Bank Holding

Company Policy Statement issued in February 2015 and, therefore, is not obligated to report consolidated regulatory capital.

Bank is subject to various capital requirements administered by federal banking agencies.

Failure to meet minimum capital requirements

can initiate certain mandatory and, possibly, additional discretionary actions by regulators that, if undertaken, could have a direct

material effect on the Bank’s financial statements.

Under capital adequacy guidelines and the regulatory framework for prompt corrective

action, the Bank must meet specific capital guidelines that involve quantitative measures of assets, liabilities, and certain off-balance

sheet items as calculated under regulatory accounting practices.

The capital amounts and classification are also subject to qualitative

judgments by the regulators about components, risk weightings, and other factors.

measures established by regulation to ensure capital adequacy require the Bank to maintain minimum amounts and ratios (set forth in the

1 unchanged sentence

to risk-weighted assets.

As of September 30, 2021, the Bank meets all capital adequacy requirements to which it is subject.

actual capital amounts and ratios are presented in the following table as of September 30, 2021 and December 31, 2020, respectively.

Schedule Bank’s actual capital amounts and ratios

Capital Requirement

to Be Well Capitalized Under Prompt Corrective Action Provisions

are in thousands)

September 30,

Capital to Risk Weighted Assets

1 Capital to Risk Weighted Assets

1 Capital to Average Assets

Equity Tier 1 Capital

Risk Weighted Assets

Capital to Risk Weighted Assets

1 Capital to Risk Weighted Assets

1 Capital to Average Assets

Equity Tier 1 Capital

Risk Weighted Assets

Accordingly, as of

September 30, 2021, and December 31, 2020, the Bank was well capitalized under the regulatory framework for prompt corrective action.

There are no conditions or events since such dates that management believes have changed the Bank’s category.

The Bank is also

subject to the rules implementing the Basel III capital framework and certain related provisions of the Dodd-Frank Wall Street Reform

and Consumer Protection Act of 2010.

The final rules require the Bank to comply with the following minimum capital ratios:

Common Equity Tier 1 capital to risk-weighted assets ratio of at least 4.5%, plus a 2.5% capital conservation buffer (effectively resulting

in a minimum Common Equity Tier 1 capital to risk-weighted assets ratio of 7%), (ii) a ratio of Tier 1 capital to risk-weighted assets

of at least 6.0%, plus the 2.5% capital conservation buffer (effectively resulting in a minimum Tier 1 capital ratio of 8.5%), (iii)

a ratio of total capital to risk-weighted assets of at least 8.0%, plus the 2.5% capital conservation buffer (effectively resulting in

a minimum total capital ratio of 10.5%), and (iv) a leverage ratio of 4%, calculated as the ratio of Tier 1 capital to average assets.

As of March 31, 2022, the Bank meets all capital adequacy requirements to which it is subject.

Bank’s actual capital amounts and ratios are presented in the following table as of March 31, 2022 and December 31, 2021, respectively.

Minimum Capital Requirement

Minimum to Be Well Capitalized Under Prompt Corrective Action Provisions

(Dollars are in thousands)

March 31, 2022:

Total Capital to Risk Weighted Assets

Tier 1 Capital to Risk Weighted Assets

Tier 1 Capital to Average Assets

Common Equity Tier 1 Capital

to Risk Weighted Assets

December 31, 2021:

Total Capital to Risk Weighted Assets

Tier 1 Capital to Risk Weighted Assets

Tier 1 Capital to Average Assets

Common Equity Tier 1 Capital

to Risk Weighted Assets

as of March 31, 2022 and December 31, 2021, the Bank was well capitalized under the regulatory framework for prompt corrective action.

There are no conditions or events since such dates that management believes have changed the Bank’s category.

Bank is also subject to the rules implementing the Basel III capital framework and certain related provisions of the Dodd-Frank

Wall Street Reform and Consumer Protection Act of 2010.

The final rules require the Bank to comply with the following minimum capital

(i) a Common Equity Tier 1 capital to risk-weighted assets ratio of at least 4.5%, plus a 2.5% “capital conservation

buffer”

(effectively resulting in a minimum Common Equity Tier 1 capital to risk-weighted assets ratio of 7%), (ii) a ratio of

Tier 1 capital to risk-weighted assets of at least 6.0%, plus the 2.5% capital conservation buffer (effectively resulting in a minimum

Tier 1 capital ratio of 8.5%), (iii) a ratio of total capital to risk-weighted assets of at least 8.0%, plus the 2.5% capital conservation

buffer (effectively resulting in a minimum total capital ratio of 10.5%), and (iv) a leverage ratio of 4%, calculated as the ratio

of Tier 1 capital to average assets.

The capital conservation buffer is designed to absorb losses during periods of economic stress.

Banking institutions with a Common Equity

Tier 1 capital to risk-weighted assets ratio above the minimum but below the conservation buffer face constraints on dividends, equity

repurchases, and compensation based on the amount of the shortfall.

All ratios shown in the table above exceed the minimum requirements.

The Bank’s capital conservation buffer as of September 30, 2021, was 8.37%.

NOTE 5 INVESTMENT

The amortized cost and estimated fair

value of available-for-sale (AFS) securities as of September 30, 2021 and December 31, 2020 is as follows:

Schedule of estimated fair value of available-for-sale (AFS) securities

are in thousands)

September 30, 2021

Banking institutions with a Common Equity Tier 1 capital to risk-weighted assets ratio above the minimum but below the conservation buffer

face constraints on dividends, equity repurchases, and compensation based on the amount of the shortfall.

All ratios shown in the table

above exceed the minimum requirements.

The Bank’s capital conservation buffer as of March 31, 2022 was 7.90%.

5 INVESTMENT SECURITIES

amortized cost and estimated fair value of available-for-sale (AFS) securities as of March 31, 2022 and December 31, 2021 are as follows:

(Dollars are in thousands)

March 31, 2022

Government Agencies

backed securities

Securities AFS

Taxable municipals

Corporate bonds

Mortgage backed securities

Total Securities AFS

December 31, 2021

Government Agencies

backed securities

Securities AFS

The following table

details unrealized losses and related fair values in the AFS portfolio.

This information is aggregated by the length of time that individual

securities have been in a continuous unrealized loss position as of September 30, 2021 and December 31, 2020.

Schedule of unrealized loss position

than 12 Months

Taxable municipals

Corporate bonds

Mortgage backed securities

Total Securities available for sale

following table details unrealized losses and related fair values in the AFS portfolio.

This information is aggregated by the length

of time that individual securities have been in a continuous unrealized loss position as of March 31, 2022 and December 31, 2021.

Less than 12 Months

12 Months or More

are in thousands)

(Dollars are in thousands)

March 31, 2022

Government Agencies

backed securities

Securities AFS

Taxable municipals

Corporate bonds

Mortgage backed securities

Total Securities AFS

December 31, 2021

Government Agencies

backed securities

Securities AFS

At September 30,

2021, there were 78 securities in a loss position, of which 26 have been in a loss position for twelve months or more.

Management believes

that all unrealized losses have resulted from temporary changes in the interest rates and current market conditions and are not a result

of credit deterioration.

Management does not intend to sell, and it is not likely that the Bank will be required to sell any of the securities

referenced in the table above before recovery of their amortized cost.

Investment securities

with a carrying value of $ 5.2 million and $ 6.8 million at September 30, 2021 and December 31, 2020, respectively, were pledged as collateral

to secure public deposits and for other purposes required by law.

The following table

summarizes sales of AFS debt securities for the nine months-ended September 30,

Schedule summarizes sales of AFS debt securities

are in thousands)

provision (benefit)

The amortized cost

and fair value of investment securities at September 30, 2021, by contractual maturity, are shown in the following schedule.

maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without

call or prepayment penalties.

Schedule amortized cost and fair value of investment securities

Taxable municipals

Corporate bonds

Mortgage backed securities

Total Securities AFS

March 31, 2022, there were 192 securities in a loss position, of which 33 have been in a loss position for twelve months or more.

believes that all unrealized losses have resulted from temporary changes in the interest rates and current market conditions and not

as a result of credit deterioration.

Management does not intend to sell, and it is not likely that the Bank will be required to sell

any of the securities referenced in the table above before recovery of their amortized cost.

securities with a carrying value of $11.1 million and $12.1 million at March 31, 2022 and December 31, 2021, respectively, were pledged

as collateral to secure public deposits and for other purposes required by law.

AFS debt securities were sold during the three months ended March 31, 2022 and 2021.

amortized cost and fair value of investment securities at March 31, 2022, by contractual maturity, are shown in the following schedule.

Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or

without call or prepayment penalties.

(Dollars are in thousands)

Securities Available-for-Sale

in one year or less

one year through five years

five years through ten years

after ten years

The Bank, as a member

of the Federal Reserve Bank and the Federal Home Loan Bank of Atlanta (FHLB), is required to hold stock in each.

The Bank also owns stock

in CBB Financial Corp., which is a correspondent of the Bank.

These equity securities, which are included in Other Assets on the consolidated

balance sheet, are restricted from trading and are recorded at a cost of $ 2.0 million and $ 2.6 million at September 30, 2021 and December

31, 2020, respectively.

The stock has no quoted market value and no ready market exists.

There were $109 thousand

of loans held for sale at September 30, 2021 and $389 thousand at December 31, 2020, which represents mortgage loans originated for sale.

Due in one year or less

Due after one year through five years

Due after five years through ten years

Due after ten years

Bank, as a member of the Federal Reserve Bank of Richmond (the Reserve Bank) and the Federal Home Loan Bank (the FHLB) of Atlanta, is

required to hold stock in each.

The Bank also owns stock in CBB Financial Corp., which is a correspondent of the Bank.

These equity securities,

which are included in Other Assets on the consolidated balance sheet, are restricted from trading and are recorded at a cost of $2.1

million and $2.0 million at March 31, 2022 and December 31, 2021, respectively.

The stock has no quoted market value and no ready market

March 31, 2022, $100 thousand of loans were held for sale.

At December 31, 2021, no loans were held for sale, which represent mortgage

loans originated for sale.

These originations and sales are executed on a best efforts basis.

Loans receivable

outstanding as of September 30, 2021 and December 31, 2020 are summarized as follows:

Schedule of Loans receivable on nonaccrual status

are in thousands)

estate secured:

and land development

real estate loans

installment loans

Included in commercial

loans at September 30, 2021 and December 31, 2020 were $9.6 million and $34.8 million of Paycheck Protection Program (PPP) loans, respectively,

that are guaranteed by the Small Business Administration (SBA).

Fees paid by SBA for round 1 PPP loans ranged from 1% to 5% of the amount

borrowed, with 5% paid on loans up to $350 thousand, 3% on loans between $350 thousand and $2 million, and 1% on loans over $2 million.

For round 2 PPP loans the fee structure was modified to the lesser of 50%, or $2.5 thousand for loans up to $50 thousand, 5% on loans

ranging from $50 thousand to $350 thousand;

3% on loans between $350 thousand and $2 million and 1% on loans over $2 million.

in total loans above are net deferred fees of $390 thousand and $496 thousand, including unearned PPP loans fees, at September 30, 2021

and December 31, 2020, respectively.

Income from net deferred fees is recognized as income over the lives of the respective loans as

a yield adjustment.

If loans repay prior to scheduled maturities any unamortized fee or cost is recognized at that time.

Loans receivable

on nonaccrual status as of September 30, 2021 and December 31, 2020 are summarized as follows:

Schedule Of Summary Loans receivable on nonaccrual status

are in thousands)

estate secured:

and land development

real estate loans

installment loans and other loans

loans receivable on nonaccrual status

Total interest income

not recognized on nonaccrual loans for the nine months ended September 30, 2021 and September 30, 2020 was $445 thousand and $418 thousand,

respectively.

The following tables

present information concerning the Company’s investment in loans considered impaired as of September 30, 2021 and December 31,

Summary of impaired loans

of September 30, 2021

are in thousands)

Principal Balance

no related allowance recorded:

estate secured:

and land development

installment loans

an allowance recorded:

estate secured:

and land development

installment loans

of December 31, 2020

are in thousands)

Principal Balance

no related allowance recorded:

estate secured:

and land development

installment loans

an allowance recorded:

estate secured:

and land development

installment loans

The following tables

present information concerning the Company’s average impaired loans and interest recognized on those impaired loans, for the periods

are in thousands)

estate secured:

and land development

installment loans

an allowance recorded:

estate secured:

and land development

installment loans

are in thousands)

estate secured:

and land development

installment loans

an allowance recorded:

estate secured:

and land development

installment loans

An age analysis of

past due loans receivable as of September 30, 2021 and December 31, 2020 is below.

At September 30, 2021 and December 31, 2020, no loans

over 90 days past due were accruing.

Summary age analysis of past due loans receivable

of September 30, 2021

are in thousands)

estate secured:

and land development

real estate loans

installment loans

of December 31, 2020

are in thousands)

estate secured:

and land development

real estate loans

installment loans

The Company categorizes

loans receivable into risk categories based on relevant information about the ability of borrowers to service their debt such as:

financial information, historical payment experience, credit documentation, public information, and current economic trends, among other

receivable outstanding as of March 31, 2022 and December 31, 2021 are summarized as follows:

(Dollars are in thousands)

December 31, 2021

Real estate secured:

Construction and land development

Residential 1-4 family

Total real estate loans

Consumer installment loans

All other loans

in commercial loans at March 31, 2022 and December 31, 2021 were $2.8 million and $6.4 million of Paycheck Protection Program (PPP) loans,

respectively, that are guaranteed by the Small Business Administration (SBA).

included in total loans above are deferred loan fees of $1.7 million and $1.8 million at March 31, 2022 and December 31, 2021, respectively.

Deferred loan costs were $2.1 million and $2.0 million, at March 31, 2022 and December 31, 2021, respectively.

Income from net deferred

fees and costs is recognized over the lives of the respective loans as a yield adjustment.

If loans repay prior to scheduled maturities

any unamortized fee or costs is recognized at that time.

receivable on nonaccrual status as of March 31, 2022 and December 31, 2021 are summarized as follows:

(Dollars are in thousands)

December 31, 2021

Real estate secured:

Construction and land development

Residential 1-4 family

Total real estate loans

Consumer installment loans and other loans

Total loans receivable on nonaccrual status

interest income not recognized on nonaccrual loans for the three months ended March 31, 2022 and March 31, 2021 was $5 thousand and $135

thousand, respectively.

the provisions of the CARES Act, or related guidance issued by banking regulators, modifications, mainly in the form of short-term payment

deferrals, were granted on 786 loans totaling $119.6 million, during 2020.

At March 31, 2022 and December 31, 2021, no loans were subject

to pandemic related forbearance.

At March 31, 2022, 511 of the original 786 accounts remain, totaling $75.5 million.

Of these remaining

accounts, three loans totaling $133 thousand are past due 90 days or more.

following table presents information concerning the Company’s investment in loans considered impaired as of March 31, 2022 and

December 31, 2021:

As of March 31, 2022

(Dollars are in thousands)

Unpaid Principal Balance

With no related allowance recorded:

Real estate secured:

Construction and land development

Residential 1-4 family

Consumer installment loans

All other loans

With an allowance recorded:

Real estate secured:

Construction and land development

Residential 1-4 family

Consumer installment loans

All other loans

As of December 31, 2021

(Dollars are in thousands)

Unpaid Principal Balance

With no related allowance recorded:

Real estate secured:

Construction and land development

Residential 1-4 family

Consumer installment loans

All other loans

With an allowance recorded:

Real estate secured:

Construction and land development

Residential 1-4 family

Consumer installment loans

All other loans

following tables present information concerning the Company’s average impaired loans and interest recognized on those impaired

loans, for the periods indicated:

Three Months Ended

March 31, 2022

March 31, 2021

(Dollars are in thousands)

With no allowance recorded:

Real estate secured:

Construction and land development

Residential 1-4 family

Consumer installment loans

All other loans

With an allowance recorded:

Real estate secured:

Construction and land development

Residential 1-4 family

Consumer installment loans

All other loans

age analysis of past due loans receivable as of March 31, 2022 and December 31, 2021 is below.

At March 31, 2022 and December 31, 2021,

there were no loans over 90 days past due that were accruing.

As of March 31, 2022

(Dollars are in thousands)

Real estate secured:

Construction and land

Residential 1-4 family

Total real estate loans

Consumer installment loans

All other loans

As of December 31, 2021

(Dollars are in thousands)

Real estate secured:

Construction and land

Residential 1-4 family

Total real estate loans

Consumer installment

All other loans

Company categorizes loans receivable into risk categories based on relevant information about the ability of borrowers to service their

debt such as:

current financial information, historical payment experience, credit documentation, public information, and current economic

trends, among other factors.

The Company analyzes loans individually by classifying the loans receivable as to credit risk.

The Company uses the following

definitions for risk ratings:

in this category are considered to have a low likelihood of loss based on relevant information analyzed about the ability of the borrowers

to service their debt and other factors.

Special Mention

- Loans in this category are currently protected but are potentially weak, including adverse trends in borrower’s operations,

uses the following definitions for risk ratings:

- Loans in this category are considered to have a low likelihood of loss based on relevant information analyzed about the ability

of the borrowers to service their debt and other factors.

Mention - Loans in this category are currently protected but are potentially weak, including adverse trends in borrower’s operations,

credit quality or financial strength.

3 unchanged sentences

Special mention loans have potential weaknesses which may, if not checked or corrected, weaken the loan or inadequately protect

the Company’s credit position at some future date.

- A substandard loan is inadequately protected by the current sound net worth and paying capacity of the

obligor or of the collateral pledged, if any.

Loans classified as substandard must have a well-defined weakness or weaknesses that jeopardize

the liquidation of the debt;

they are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies

are not corrected.

the Company’s credit position at some future date.

- A substandard loan is inadequately protected by the current sound net worth and paying capacity of

the obligor or of the collateral pledged, if any.

Loans classified as substandard must have a well-defined weakness or weaknesses that

jeopardize the liquidation of the debt;

they are characterized by the distinct possibility that the institution will sustain some loss

if the deficiencies are not corrected.

- Loans classified doubtful have all the weaknesses

1 unchanged sentence

on the basis of currently existing facts, conditions, and values highly questionable and improbable.

Based on the most recent analysis performed,

the risk categories of loans receivable as of September 30, 2021 and December 31, 2020 were as follows:

Schedule of summary of category of loans receivable

of September 30, 2021

are in thousands)

estate secured:

and land development

real estate loans

installment loans

of December 31, 2020

are in thousands)

estate secured:

and land development

real estate loans

installment loans

NOTE 7 ALLOWANCE

FOR LOAN LOSSES

In determining the

amount of our allowance for loan losses, we rely on an analysis of our loan portfolio, our experience and our evaluation of general economic

If our assumptions prove to be incorrect, our current allowance may not be sufficient to cover future loan losses and we

may experience significant increases to our provision.

Due to the underlying SBA guarantee provided for PPP loans, these accounts were

not included in either the portfolio segment or impairment calculations at September 30, 2021 and December 31, 2020.

Additionally, due

to uncertainties presented by the ongoing pandemic and the resulting economic uncertainty, internal and external qualitative factors

were revised accordingly.

This revision included reviewing our internal scoring related to loan modifications and extensions, and external

factors, specifically, unemployment and other economic factors.

The following

table presents activity in the allowance for loan losses for the nine- and three-month periods ending September 30, 2021, and 2020, respectively.

Additionally, the allocation of the allowance by recorded portfolio segment and impairment method is presented as of September 30, 2021,

and December 31, 2020, respectively.

Summary of activity in the allowance for loan losses

estate secured

are in thousands)

and Land Development

and All Other

Nine months ended

September 30, 2021

Ending balance

Three months ended

September 30, 2021

Beginning balance

Ending balance

for loan losses at September 30, 2021

Individually evluated

for impairment

evaluated for impairment

Loans at September

Individually evluated

for impairment

evaluated for impairment

estate secured

are in thousands)

and Land Development

and All Other

Allowance for

loan losses at December 31, 2020

evluat ed for impairment

evaluated for impairment

Loans at December 31,

Individually evluated

for impairment

evaluated for impairment

estate secured

are in thousands)

and Land Development

and All Other

Nine months ended

September 30, 2020

Ending balance

Three months ended

September 30, 2020

Beginning balance

Ending balance

Allocation of a portion

of the allowance to one category of loans does not preclude its availability to absorb losses in other categories.

NOTE 8 TROUBLED DEBT RESTRUCTURINGS

There were $2.8 million

in loans that were classified as troubled debt restructurings (TDRs) at September 30, 2021 and $4.0 million at December 31, 2020.

loans considered to be TDRs are individually evaluated for impairment as part of the allowance for loan losses calculation.

The following table

presents information related to loans modified as TDRs during the nine and three months ended September 30, 2021 and 2020.

Schedule of loans modified as TDRs

For the nine months ended

September 30, 2021

For the nine months ended

September 30, 2020

Troubled Debt Restructurings

on the most recent analysis performed, the risk categories of loans receivable as of March 31, 2022 and December 31, 2021 was as follows:

As of March 31, 2022

(Dollars are in thousands)

Recorded Investment

Real estate secured:

Construction and land

Construction and land development

Residential 1-4 family

2 unchanged sentences

All other loans

For the three months ended

September 30, 2021

For the three months ended

September 30, 2020

Troubled Debt Restructurings

As of December 31, 2021

(Dollars are in thousands)

Recorded Investment

Real estate secured:

Construction and land

Construction and land development

Residential 1-4 family

2 unchanged sentences

All other loans

During the three

months and nine months ended September 30, 2021, no loans were modified for which the modification was considered to be a troubled dept

restructuring.

During the three

months ended September 30, 2020, one modified loan with a balance of $ 32 thousand was considered to be a troubled debt restructuring.

During the nine months ended September 30, 2020, the Company modified 32 loans totaling $ 1.4 million for which the modification was considered

During the three

months ended September 30, 2021, one loan with a balance of $ 119 thousand previously modified as troubled debt restructuring defaulted.

During the nine months ended September 30, 2021, two loans to the same borrower, previously modified as TDRs, totaling $ 1.1 million,

defaulted, resulting in charge-offs totaling $ 835 thousand.

Generally, a TDR is considered to be in default once it becomes 90 days or

more past due following a modification.

During the three

months ended September 30, 2020, no loans previously modified as troubled debt restructurings defaulted.

During the nine months ended

September 30, 2020, one loan previously modified as a troubled debt restructuring, with a balance of $ 31 thousand, defaulted.

previously modified as a troubled debt restructuring, with a balance of $ 663 thousand, which defaulted during the first three months

of 2020, has been paid off.

In determining the

allowance for loan losses, management considers TDRs and subsequent defaults in these restructurings in its estimate.

The Company evaluates

all TDRs for possible further impairment.

As a result, the allowance may be increased, adjustments may be made in the allocation of the

allowance, or charge-offs may be taken to further write down the carrying value of the loan.

NOTE 9 OTHER REAL

The following table

summarizes the activity in other real estate owned for the nine months ended September 30, 2021 and the year ended December 31, 2020:

Schedule Of other real estate owned

7 ALLOWANCE FOR LOAN LOSSES

determining the amount of our allowance for loan losses, we rely on an analysis of our loan portfolio, our experience and our evaluation

of general economic conditions.

If our assumptions prove to be incorrect, our current allowance may not be sufficient to cover future

loan losses and we may experience significant increases to our provision.

Due to the underlying SBA guarantee provided for PPP loans,

these accounts were not included in either the portfolio segment or impairment calculations at March 31, 2022 and December 31, 2021.

Additionally, due to uncertainties presented by the ongoing pandemic and the resulting economic uncertainty, internal and external qualitative

factors were revised accordingly.

This revision included reviewing our internal scoring related to loan modifications and extensions,

and external factors, specifically, unemployment and other economic factors.

following tables present activity in the allowance for loan losses by portfolio segment for the three month periods ended March 31, 2022

and 2021, respectively.

Additionally, the allocation of the allowance by recorded portfolio segment and impairment method is presented

as of March 31, 2022, and December 31, 2021, respectively

(Dollars are in thousand)

secured Commercial

Construction and Land Development

Residential 1-4 family

Consumer and All Other

Three months ended March 31, 2022

Beginning balance

Ending balance

Allowance for loan losses at March 31, 2022

Individually evaluated for impairment

Collectively evaluated for impairment

Loans at March 31, 2022

Individually evaluated for impairment

Collectively evaluated for impairment

(Dollars are in thousands)

September 30,

estate secured Commercial

Construction and Land Development

Residential 1-4 family

Consumer and All Other

Allowance for loan losses at December 31, 2021

Individually evaluated for impairment

Collectively evaluated for impairment

Loans at December 31, 2021

Individually evaluated for impairment

Collectively evaluated for impairment

(Dollars are in thousands)

estate secured Commercial

Construction and Land Development

Residential 1-4 family

Consumer and All Other

Three months ended March 31, 2021

Beginning balance

Ending balance

of a portion of the allowance to one category of loans does not preclude its availability to absorb losses in other categories.

8 TROUBLED DEBT RESTRUCTURINGS

were $2.4 million and $2.5 million in loans classified as troubled debt restructurings at March 31, 2022 and December 31, 2021, respectively.

All loans considered to be troubled debt restructurings are individually evaluated for impairment as part of the allowance for loan losses

No loans modified during the three months ended March 31, 2022 or March 31, 2021, were considered to be troubled debt restructurings.

loan totaling $84 thousand, previously modified as a trouble debt restructuring, defaulted during the three months ended March 31, 2022.

No restructured notes defaulted during the three months ended March 31, 2021.

Generally, a restructured troubled debt is considered to

be in default once it becomes 90 days or more past due following a modification.

determining the allowance for loan losses, management considers troubled debt restructurings and subsequent defaults in these restructurings

in its estimate.

The Company evaluates all troubled debt restructurings for possible further impairment.

As a result, the allowance may

be increased, adjustments may be made in the allocation of the allowance, or charge-offs may be taken to further write down the carrying

value of the loan.

9 OTHER REAL ESTATE OWNED

following table summarizes the activity in other real estate owned for the three months ended March 31, 2022 and the year ended December

(Dollars are in thousands)

December 31, 2021

5 unchanged sentences

Adjustment of carrying value

Gains from sales, net

Net gains from sales

Balance, end of period

During the three

months ended September 30, 2021, three former branch office sites were transferred to Other Real Estate Owned at a value of $ 950 thousand.

Former branch office sites comprised $ 1.375 million and $ 683 thousand of the balance of Other Real Estate Owned at September 30, 2021

and December 31, 2020, respectively.

NOTE 10 FAIR VALUES

The financial reporting

standard, “Fair Value Measurements and Disclosures” provides a framework for measuring fair value under generally accepted

accounting principles and requires disclosures about the fair value of assets and liabilities recognized in the balance sheet in periods

subsequent to initial recognition, whether the measurements are made on a recurring basis (for example, available-for-sale investment

securities) or on a nonrecurring basis (for example, impaired loans and other real estate acquired through foreclosure).

Fair value is defined

as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous

market for the asset or liability in an orderly transaction between market participants on the measurement date.

Fair Value Measurements

and Disclosures also establish fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the

use of unobservable inputs when measuring fair value.

The standard describes three levels of inputs that may be used to measure fair

Quoted prices

in active markets for identical assets or liabilities.

Level 1 assets and liabilities include debt and equity securities and derivative

contracts that are traded in an exchange market, as well as U.

Treasury, other U.

Government and agency mortgage-backed debt securities

that are highly liquid and are actively traded in over-the-counter markets.

observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities;

quoted prices in markets that are

or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the

assets or liabilities.

Level 2 assets and liabilities include debt securities with quoted prices that are traded less frequently than

exchange-traded instruments and derivative contracts whose value is determined using a pricing model with inputs that are observable

in the market or can be derived principally from or corroborated by observable market data.

This category generally includes certain

derivative contracts and impaired loans.

unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets and liabilities.

Level 3 assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flow methodologies,

or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation.

For example, this category generally includes certain private equity investments, retained residual interests in securitizations, residential

mortgage servicing rights, and highly structured or long-term derivative contracts.

Investment Securities

Available for Sale – Investment securities available-for-sale are recorded at fair value on a recurring basis.

Fair value measurement

is based upon quoted prices if available.

If quoted prices are not available, fair value is measured using independent pricing models

or other model-based valuation techniques such as the present value of future cash flows, adjusted for the security’s credit rating,

prepayment assumptions and other factors such as credit loss assumptions.

Level 1 securities include those traded on an active exchange

such as the New York Stock Exchange, or by dealers or brokers in active over-the counter markets.

Level 2 securities include mortgage-backed

securities issued by government sponsored entities, municipal bonds and corporate debt securities.

Securities classified as Level 3 include

asset-backed securities in less liquid markets.

Company does not record loans at fair value on a recurring basis.

Real estate serves as collateral on a substantial majority of the Company’s

10 FAIR VALUES

Company uses fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures.

In accordance with the Fair Value Measurements and Disclosures topic of FASB ASC, the fair value of a financial instrument is the price

that would be received to sell an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market

and in an orderly transaction between market participants at the measurement date.

Fair value is best determined based upon quoted market

However, in many instances, there are no quoted market prices for the Company's various financial instruments.

In cases where

quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques.

Those techniques

are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows.

Accordingly, the

fair value estimates may not be realized in an immediate settlement of the instrument.

fair value guidance provides a consistent definition of fair value, which focuses on exit price in the principal or most advantageous

market and in an orderly transaction (that is, not a forced liquidation or distressed sale) between market participants at the measurement

date under current market conditions.

If there has been a significant decrease in the volume and level of activity for the asset or liability,

a change in valuation technique or the use of multiple valuation techniques may be appropriate.

In such instances, determining the price

at which willing market participants would transact at the measurement date under current market conditions depends on the facts and

circumstances and requires the use of significant judgment.

The fair value is a reasonable point within the range that is most representative

of fair value under current market conditions.

accordance with this guidance, the Company groups its financial assets and financial liabilities generally measured at fair value in

three levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine

Quoted prices are available in active markets for identical assets or liabilities as of the reported date.

Pricing inputs are other than quoted prices in active markets, which are either directly or indirectly observable as of the reported

The nature of these assets and liabilities include items for which quoted prices are available but traded less frequently, and

items that are valued using other financial instruments, the parameters of which can be directly observed.

Assets and liabilities that have little to no pricing observability as of the reported date.

These items do not have two-way markets

and are measured using management’s best estimate of fair value, where the inputs into the determination of fair value require

significant management judgment or estimation.

description of the valuation methodologies used for instruments measured at fair value, as well as the general classification of such

instruments pursuant to the valuation hierarchy are as follows:

Securities Available for Sale - Investment securities available for sale are recorded at fair value on a recurring basis.

measurement is based upon quoted prices.

The Company’s available for sale securities, totaling $106.8 million and $107.4 million

at March 31, 2022 and December 31, 2021, respectively, are the only assets whose fair values are measured on a recurring basis using

Level 2 inputs from an independent pricing service.

- The Company does not record loans at fair value on a recurring basis.

Real estate serves as collateral on a substantial majority of

the Company’s loans.

When a loan is considered impaired, a specific reserve may be established.

Loans, which are deemed to be impaired and require

a reserve, are primarily valued on a non-recurring basis at the fair values of the underlying real estate collateral.

Where there is

no observable market price, such fair values are obtained using independent appraisals, which management evaluates to determine whether

or not the fair value of the collateral is further impaired below the appraised value and adjusts for estimated costs of disposition.

Loans, which are deemed to be impaired

and require a reserve are primarily valued on a non-recurring basis at the fair value of the underlying real estate collateral.

there is no observable market price, such fair values are obtained using independent appraisals, which management evaluates to determine

whether or not the fair value of the collateral is further impaired below the appraised value and adjusts for estimated costs of disposition.

The Company records impaired loans as nonrecurring Level 3 assets.

Foreclosed Assets

– Foreclosed assets are adjusted to fair value upon transfer of the loans to foreclosed assets.

Foreclosed assets

are carried at the lower of the carrying value or fair value.

Fair value is based upon observable market prices, when available,

reduced by estimated disposition costs, which the Company considers to be nonrecurring Level 2 inputs.

When observable market prices

are not available, management determines the fair value of the foreclosed asset using independent appraisals, evaluated to determine

whether or not the property is further impaired below the appraised value and adjusts for estimated costs of disposition.

records foreclosed assets as nonrecurring Level 3.

Assets and liabilities

measured at fair value are as follows as of September 30, 2021 (for purpose of this table the impaired loans are shown net of the related

Schedule Assets and liabilities measured at fair value

September 30, 2021

Real Estate Owned –Other real estate owned is adjusted to fair value upon transfer of the loans, or former bank premises, to other

real estate owned.

These assets are carried at the lower of their carrying value or fair value.

Fair value is based upon observable market

prices, when available, reduced by estimated disposition costs, which the Company considers to be nonrecurring Level 2 inputs.

When observable

market prices are not available, management determines the fair value of the foreclosed asset using independent third-party appraisals,

evaluated to determine whether or not the property is further impaired below the appraised value, and adjusts for estimated costs of

The Company records foreclosed assets as nonrecurring Level 3.

and liabilities measured at fair value are as follows as of March 31, 2022 (for purpose of this table the impaired loans are shown net

of the related allowance):

March 31, 2022

(Dollars are in thousands)

11 unchanged sentences

Impaired loans

Assets and liabilities

measured at fair value are as follows as of December 31, 2020 (for purpose of this table the impaired loans are shown net of the related

and liabilities measured at fair value are as follows as of December 31, 2021 (for purpose of this table the impaired loans are shown

net of the related allowance):

December 31, 2021

12 unchanged sentences

Impaired loans

For Level 3 assets

measured at fair value on a recurring or non-recurring basis as of September 30, 2021 and December 31, 2020, the significant unobservable

inputs used in the fair value measurements were as follows:

Schedule of significant unobservable inputs Level 3 assets

(Dollars in thousands)

September 30, 2021

Fair Value at December 31, 2020

Valuation Technique

Significant Unobservable Inputs

General Range of Significant Unobservable Input Values

Impaired Loans

Appraised Value/Discounted Cash Flows/Market Value of Note

Discounts to reflect current market conditions, ultimate collectability, and estimated costs to sell

Other Real Estate Owned

Appraised Value/Comparable Sales/Other Estimates from Independent Sources

Discounts to reflect current market conditions and estimated costs to sell

Level 3 assets measured at fair value on a recurring or non-recurring basis as of March 31, 2022 and December 31, 2021, the significant

unobservable inputs used in the fair value measurements were as follows:

in thousands)

Value at March 31, 2022

Unobservable Inputs

Range of Significant Unobservable Input Values

Value/ Market Value of Note

to reflect current market conditions, ultimate collectability, and estimated costs to sell

Real Estate Owned

Value/Comparable Sales/Other Estimates from Independent Sources

to reflect current market conditions and estimated costs to sell

Value of Financial Instruments

Fair value information

about financial instruments, whether or not recognized in the balance sheet, for which it is practical to

estimate the value, is based

upon the characteristics of the instruments and relevant market information.

Financial instruments include cash, evidence of ownership

in an entity, or contracts that convey or impose on an entity that contractual right or obligation to either receive or deliver cash

for another financial instrument.

following summary presents the methodologies and assumptions used to estimate the fair value of the Company’s financial instruments

presented below.

The information used to determine fair value is highly subjective and judgmental in nature and, therefore, the results

may not be precise.

Subjective factors include, among other things, estimates of cash flows, risk characteristics, credit quality, and

interest rates, all of which are subject to change.

Since the fair value is estimated as of the balance sheet date, the amounts that

will actually be realized or paid upon settlement or maturity on these various instruments could be significantly different.

The carrying amount and fair value of

the Company’s financial instruments that are not required to be measured or reported at fair value on a recurring basis as of September

30, 2021 and December 31, 2020 are as follows:

Schedule fair value financial instruments

ASC 825, Financial Instruments, requires disclosure about fair value of financial instruments, including those financial assets and financial

liabilities that are not required to be measured and reported at fair value on a recurring or nonrecurring basis.

ASC 825 excludes certain

financial instruments and all nonfinancial instruments from its disclosure requirements.

Accordingly, the aggregate fair value amounts

presented may not necessarily represent the underlying fair value of the Company.

The carrying values of cash and due from banks, federal

funds sold, interest-bearing deposits, deposits with no stated maturities and accrued interest approximates fair value and are excluded

from the table below.

estimated fair values, and related carrying or notional amounts, of the Company's financial instruments and their placement in the fair

value hierarchy at March 31, 2022 and December 31, 2021 was as follows (in thousands):

Fair Value Measurements

3 unchanged sentences

Significant unobservable inputs

September 30, 2021

Financial Instruments – Assets

Financial Instruments – Liabilities

March 31, 2022

Financial Instruments –

Time Deposits

1 unchanged sentence

December 31, 2021

Financial Instruments – Assets

Financial Instruments – Liabilities

Financial Instruments –

Time Deposits

Borrowed funds

Fair value estimates

are made at a specific point in time, based on relevant market information and information about the financial instrument.

These estimates

do not reflect any premium or discount that could result from offering for sale at one time the Company’s entire holdings of a

particular financial instrument.

Because no market exists for a significant portion of the Company’s financial instruments, fair

value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of

various financial instruments and other factors.

These estimates are subjective in nature, involve uncertainties and matters of significant

judgment, and therefore cannot be determined with precision.

Changes in assumptions can significantly affect the estimates.

Estimated fair values

have been determined by the Company using historical data, as generally provided in the Company’s regulatory reports, and an estimation

methodology suitable for each category of financial instruments.

The Company’s fair value estimates, methods and assumptions are

set forth below for the Company’s other financial instruments.

The carrying values

of cash and due from banks, federal funds sold, interest-bearing deposits, deposits with no stated maturities and accrued interest approximates

fair value and are excluded from the table above.

In accordance with

our adoption of Accounting Standards Update (ASU) 2016-01 in 2018, the methods utilized to measure the fair value of financial instruments

at September 30, 2021 and December 31, 2020, represent an approximation of exit price;

however, an actual exit price may differ.

NOTE 11 LEASING

of September 30, 2021, the Bank leases five branch office sites resulting from sale leaseback transactions entered into in 2017 and 2019.

The lease agreements have maturity dates ranging from May 2032 to September 2034.

While it is assumed that there are currently no circumstances

in which the leases would be terminated prior to expiration, on October 1, 2021, the company repurchased the branch office that was sold

under a sale leaseback transaction in 2019.

The weighted average remaining life of the lease terms at September 30, 2021 was 11.14 years.

11 LEASING ACTIVITIES

of March 31, 2022, the Bank leases four branch office sites resulting from sale leaseback transactions entered into in 2017 and a sublet

of a lot adjacent to another office.

The lease agreements have maturity dates ranging from May 2032 to December 2041.

It is assumed that

there are currently no circumstances in which the leases would be terminated prior to expiration.

The weighted average remaining life

of the lease terms at March 31, 2022 was 10.36 years.

discount rate used in determining the lease liability for each individual lease was the FHLB fixed advance rate which corresponded to

1 unchanged sentence

This methodology is expected to be used for any other subsequent lease agreements.

average discount rate for the leases at September 30, 2021 was 3.16 %.

For the nine months

ended September 30, 2021 and 2020, operating lease expenses were $ 421 thousand and $ 429 thousand, respectively.

Company’s other operating leases were evaluated and determined to be immaterial to the financial statements.

At September 30, 2021,

average discount rate for the leases at March 31, 2022 was 3.24%.

Company’s operating lease costs for the three months ended March 31, 2022 and 2021, as the result of the transactions discussed

above, were $114 thousand and $138 thousand, respectively.

Company’s other operating leases were evaluated and determined to be immaterial to the financial statements.

At March 31, 2022,

future minimum rental commitments under the non-cancellable operating leases discussed above are as follows (dollars are in thousands):

Schedule Of non-cancellable operating lease

Total lease payments

Less imputed interest

considering the repurchase of the branch office October 1, 2021, minimum future rental commitments will consist of total lease payments

of $ 4.956 million less imputed interest of $ 899 thousand, for a total of $ 4.057 million.

12 REVENUE FROM CONTRACTS WITH CUSTOMERS

from contracts with customers as defined in ASC 606 is recognized within Noninterest income.

The following table presents Noninterest

income by revenue stream for the three and nine months ended September 30, 2021 and 2020.

Schedule of Redeemable Noncontrolling Interest

our revenue from contracts with customers as defined in ASC 606 is recognized within Noninterest income.

The following table presents

Noninterest income by revenue stream for the three months ended March 31, 2022 and 2021:

the three months ended

in thousands)

charges and fees

processing and interchange income

and investment fees

noninterest income

Noninterest Income

13 NONINTEREST EXPENSES

operating expenses, included as part of noninterest expenses, consisted of the following for the periods presented:

For the three months ended

For the nine months ended

September 30,

(Dollars in thousands)

Service charges and fees

Card Processing and interchange income

Gain on sale of securities available-for-sale (1)

Insurance and investment fees

Other noninterest income

Total Noninterest Income

within the scope of ASU 2014-09

NOTE 13 NONINTEREST EXPENSES

Other operating expenses,

included as part of noninterest expenses, consisted of the following for the periods presented:

Schedule of noninterest expenses

For the three months ended September 30,

For the nine months ended September 30,

(Dollars are in thousands)

ATM network expense

Legal and professional fees

Legal, accounting and professional fees

Consulting fees

2 unchanged sentences

FDIC insurance premiums

Other real estate owned expenses, net

Other operating expenses

Other real estate owned, net

Total other operating expenses

NOTE 14 SUBSEQUENT

14 SUBSEQUENT EVENTS

are events or transactions that occur after the balance sheet date but before financial statements are issued.

Recognized subsequent

events are events or transactions that provide additional evidence about conditions that existed at the date of the balance sheet, including

the estimates inherent in the process of preparing financial statements.

Non-recognized subsequent events are events that provide evidence

about conditions that did not exist at the date of the balance sheet but arose after that date.

No subsequent events have occurred since

September 30, 2021, except for the repurchase of a branch office site that had been previously sold under a sale leaseback transaction

NOTE 15 RECENT

ACCOUNTING DEVELOPMENTS

The following is

a summary of recent authoritative announcements:

In June 2016, per

2016-13, ‘Financial Instruments – Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments,’

the Financial Accounting Standards Board (the FASB) issued guidance to change the accounting for credit losses and modify the impairment

model for certain debt securities.

April 20, 2022, the United States District Court for the Western District of Virginia issued summary judgment, in favor of the Bank,

dismissing all remaining claims made in a lawsuit filed by a former employee in January 2021, alleging wrongful termination based on

gender, religion and age.

April 28, 2022 the board of directors of the Company authorized the repurchase of up to 500,000 shares of the Company’s outstanding

common stock through March 31, 2023.

The actual means and timing of any purchases, number of shares and prices or range of prices will

be determined by the Company in its discretion and will depend on a number of factors, including the market price of the Company’s

common stock, general market and economic conditions, and applicable legal and regulatory requirements.

There is no assurance that the

Company will purchase any shares under this program.

15 RECENT ACCOUNTING DEVELOPMENTS

following is a summary of recent authoritative announcements:

June 2016, per ASU No.

2016-13, ‘Financial Instruments –

Credit Losses (Topic 326):

Measurement of Credit Losses on Financial

Instruments,’

the Financial Accounting Standards Board (the FASB) issued guidance to change the accounting for credit losses and

modify the impairment model for certain debt securities.

Subsequently, per ASU No.

2019-10, implementation for the Company is delayed until reporting periods

beginning after December 15, 2022.

Early adoption is permitted for all organizations for periods beginning after December 15, 2018.

Company is currently evaluating the effect that implementation of the new standard will have on its financial position, results of operations,

and cash flows.

In May 2019, the

FASB issued targeted transition relief for entities which irrevocably elect the fair value option for certain financial assets previously

measured at amortized cost basis.

For those entities, the amendments to the transition guidance for ASU 2016-13 will increase comparability

of financial statement information by providing an option to align measurement methodologies for similar financial assets.

Subsequently,

2019-10, implementation for the Company is delayed until reporting periods beginning after December 15, 2021.

is currently in the process of evaluating the impact of adoption of this guidance on its financial statements.

In November 2019,

the FASB released ASU 2019-10, ‘Financial Instruments – Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and

Leases (Topic 842),’ in which the FASB shared a new philosophy to extend and simplify how effective dates for certain major Updates

would be staggered between larger public companies (bucket one) and all other entities (bucket two).

A major Update would first be effective

for bucket-one entities.

For bucket-two entities, including the Company, it is anticipated that the FASB will consider requiring an effective

date staggered at least two years after bucket one for major Updates.

Generally, it is expected that early application would continue

to be allowed for all entities.

The Company is considered a bucket-two entity due to its eligibility to be a smaller reporting company,

per the Securities and Exchange Commission (the SEC).

This Update applies to ASU 2016-13, as discussed above, ASU 2017-12, which does

not apply to the Company, and ASU 2016-02, which the Company has already early-adopted.

In December 2019,

the FASB released ASU 2019-12, ‘Income Taxes (Topic 740),’ which simplify the accounting for income taxes by removing certain

exceptions to the general principles in Topic 740, improve consistent application, and simplify GAAP for other areas of Topic 740.

amendments in this Update are effective for the Company for fiscal years beginning after December 15, 2021, and interim periods within

fiscal years beginning after December 15, 2022.

The Company does not expect these amendments to have a material effect on its financial

In January 2020,

the FASB released ASU 2020-01, ‘Investments – Equity Securities (Topic 321), Investments – Equity Method and Joint

Ventures (Topic 323), and Derivatives and Hedging (Topic 815),’ which clarify certain interactions between the guidance to account

for certain equity securities under Topic 321, 323 and 815, and improve current GAAP by reducing diversity in practice and increasing

comparability of accounting.

The amendments in this Update are effective for the Company for fiscal years beginning after December 31,

2021, and interim periods within those fiscal years.

Early adoption is permitted.

The Company does not expect these amendments to have

a material effect on its financial statements.

In March 2020, the

FASB released ASU 2020-03, ‘Codification Improvements to Financial Instruments,’ as part of its ongoing project for improving

the Codification or correcting its unintended application.

This Update is being issued to increase stakeholder awareness of these amendments.

These amendments affect Fair Value Option Disclosures, Applicability of Portfolio Exception in Topic 820 to Nonfinancial Items, Disclosures

for Depository and Lending Institutions, Cross-Reference to Line-of-Credit or Revolving-Debt Arrangements Guidance in Subtopic 470-50,

Cross-Reference to Net Asset Value Practical Expedient in Subtopic 820-10, Interaction of Topic 842 and Topic 326, and Interaction of

Topic 326 and Subtopic 860-20.

The amendments in this update are effective immediately.

The Company does not expect these amendments

to have a material effect on its financial statements.

In March 2020, the

FASB released ASU 2020-04, ‘Reference Rate Reform (Topic 848), Facilitation of the Effects of Reference Rate Reform on Financial

Reporting,’ which provides optional guidance for a limited period of time to ease the potential burden in accounting for (or recognizing

the effects of) reference rate reform.

The amendments in this Update are elective and apply to all entities, subject to meeting certain

criteria, that have contracts, hedging relationships, and other transactions that reference the London Interbank Offering Rate (LIBOR)

or another reference rate expected to be discontinued because of reference rate reform.

The amendments in the Update are effective for

the Company as of March 12, 2020 through December 31, 2022.

The Company is working through implementation of this guidance, but does

not expect this amendment to have a material impact on its financial statements.

In August 2020, the

FASB released ASU 2020-06, ‘Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity,’ which

reduces the number of accounting models for convertible debt instruments and convertible preferred stock.

The Board concluded that eliminating

certain accounting models simplifies the accounting for convertible instruments, reduces complexity for preparers and practitioners,

and improves the decision usefulness and relevance of the information provided to financial statement users.

The amendments in this Update

are effective for the Company for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years.

The Company does not expect these amendments to have a material effect on its financial statements.

In January 2021,

the FASB released ASU 2021-01, ‘Reference Rate Reform (Topic 848),’ which clarifies that certain optional expedients and

exceptions in topic 848 for contract modifications and hedge accounting apply to derivatives that are affected by the discounting transition

related to reference rate reform.

2019-10, implementation for the Company is delayed

until reporting periods beginning after December 15, 2022.

Early adoption is permitted for all organizations for periods beginning after

December 15, 2018.

The Company is currently evaluating the effect that implementation of the new standard will have on its financial

position, results of operations, and cash flows.

The Company has contracted with a software vendor and is currently working through the

implementation process.

It is anticipated the Company will run the new methodology parallel to the current allowance methodology for

several periods before full implementation.

March 2020, the FASB released ASU 2020-04, ‘Reference Rate Reform (Topic 848), Facilitation of the Effects of Reference Rate Reform

on Financial Reporting,’

which provides optional guidance for a limited period of time to ease the potential burden in accounting

for (or recognizing the effects of) reference rate reform.

The amendments in this Update are elective and apply to all entities, subject

to meeting certain criteria, that have contracts, hedging relationships, and other transactions that reference the London Interbank Offering

Rate (LIBOR) or another reference rate expected to be discontinued because of reference rate reform.

The amendments in the Update are

effective for the Company as of March 12, 2020 through December 31, 2022.

The Company is working through implementation of this guidance,

and to date this amendment has not had a material impact on its financial statements.

January 2021, the FASB released ASU 2021-01, ‘Reference Rate Reform (Topic 848),’

which clarifies that certain optional expedients

and exceptions in topic 848 for contract modifications and hedge accounting apply to derivatives that are affected by the discounting

transition related to reference rate reform.

The amendments in this Update are effective immediately for all entities.

An entity may elect to apply

the amendments in the Update on a full retrospective basis as of any date from the beginning of an interim period that includes or is

subsequent to March 12, 2020, or on a prospective basis to new modifications from any date within an interim period that includes or

is subsequent to the date of the issuance of a final Update, up to the date that financial statements are available to be issued.

Company does not expect this amendment to have a material effect on its financial statements.

In July 2021, the

FASB released ASU 2021-05, ‘Lessors – Certain Leases with Variable Lease Payments (Topic 842),’ which amends the lease

classification requirements for lessors to align them with practice under Topic 840.

The amendments in this Update amend Topic 842 and

are effective for the Company for fiscal years beginning after December 15, 2021, and for interim periods within fiscal years beginning

after December 13, 2022.

The Company may elect either (1) to retrospectively apply the amendments to leases that commenced or were modified

on or after the adoption of Update 2016-02 or (2) prospectively to leases that commence or are modified on or after the date that the

Company first applies the amendments.

An entity may

elect to apply the amendments in the Update on a full retrospective basis as of any date from the beginning of an interim period that

includes or is subsequent to March 12, 2020, or on a prospective basis to new modifications from any date within an interim period that

includes or is subsequent to the date of the issuance of a final Update, up to the date that financial statements are available to be

The Company does not expect this amendment to have a material effect on its financial statements.

In August 2021, the

FASB released ASU 2021-06, ‘Presentation of Financial Statements (Topic 205), Financial Services – Depository and Lending

(Topic 942), and Financial Services – Investment Companies (Topic 946),’ which amends certain SEC paragraphs pursuant to

SEC final rule releases No.

33-10786, Amendments to Financial Disclosures about Acquired and Disposed Businesses , and No.

Update of Statistical Disclosures for Bank and Savings and Loan Registrants .

These amendments become effective for fiscal years

ending on or after December 15, 2021.

The Company does not expect these amendments to have a material effect on its financial statements.

Other accounting

standards that have been issued or proposed by the FASB or other standards-setting bodies are not expected to have a material impact

on the Company’s financial position, results of operations or cash flows.

March 2022, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No.

2022-02, “Financial Instruments-Credit

Losses (Topic 326), Troubled Debt Restructurings and Vintage Disclosures.”

ASU 2022-02 addresses areas identified by the FASB as

part of its post-implementation review of the credit losses standard (ASU 2016-13) that introduced the CECL model.

The amendments eliminate

the accounting guidance for troubled debt restructurings by creditors that have adopted the CECL model and enhance the disclosure requirements

for loan refinancings and restructurings made with borrowers experiencing financial difficulty.

In addition, the amendments require a

public business entity to disclose current-period gross write-offs for financing receivables and net investment in leases by year of

origination in the vintage disclosures.

The amendments in this ASU should be applied prospectively, except for the transition method

related to the recognition and measurement of TDRs, an entity has the option to apply a modified retrospective transition method, resulting

in a cumulative-effect adjustment to retained earnings in the period of adoption.

For entities that have adopted ASU 2016-13, ASU 2022-02

is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years.

For entities that

have not yet adopted ASU 2016-13, the effective dates for ASU 2022-02 are the same as the effective dates in ASU 2016-13.

Early adoption

is permitted if an entity has adopted ASU 2016-13.

An entity may elect to early adopt the amendments about TDRs and related disclosure

enhancements separately from the amendments related to vintage disclosures.

The Company is currently assessing the impact that ASU 2022-02

will have on its consolidated financial statements.

accounting standards that have been issued or proposed by the FASB or other standards-setting bodies are not expected to have a material

impact on the Company’s financial position, results of operations or cash flows.

Management’s

Discussion and Analysis of Financial Condition and Results of Operations

About Forward Looking Statements

make forward looking statements in this quarterly report on Form 10-Q that are subject to risks and uncertainties.

These forward looking

statements include statements regarding expectations, intentions, projections and beliefs concerning our profitability, liquidity, and

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.

The forward-looking information is based on various factors and was derived using numerous assumptions.

factors that may cause actual results to differ from projections include:

success or failure of our efforts to implement our business plan;

required increase in our regulatory capital ratios;

other regulatory requirements that may arise from examinations, changes in the law and other similar factors;

deterioration

of asset quality;

in the level of our nonperforming assets and charge-offs;

of real estate values in our markets;

ability to attract and retain talent;

demographical

changes in our markets which negatively impact the local economy;

uncertain outcome of current or future legislation or regulations or policies of state and federal regulators;

successful management of interest rate risk;

successful management of liquidity;

in general economic and business conditions in our market area and the United States in general;

risks inherent in making loans such as changes in a borrower’s ability to repay and our management of such risks;

with other banks and financial institutions, and companies outside of the banking industry, including online lenders and those companies

that have substantially greater access to capital and other resources;

development and acceptance of new products and services we have offered or may offer;

effects of, and changes in, trade, monetary and fiscal policies and laws, including interest rate policies of the Federal Reserve, inflation,

interest rate, market and monetary fluctuations;

occurrence of significant natural disasters, including severe weather conditions, floods, health related issues (including the ongoing

novel coronavirus (COVID-19) outbreak and the associated efforts to limit the spread of the disease), and other catastrophic events;

utilized by us;

ability to successfully manage cyber security;

reliance on third-party vendors and correspondent banks;

in generally accepted accounting principles;

in governmental regulations, tax rates and similar matters;

risks, which may be described, from time to time, in our filings with the SEC.

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.

We expressly disclaim any obligation to update

or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

Accounting Policies

discussion of our significant accounting policies, see our Annual Report on Form 10-K for the year ended December 31, 2021 (the 2021

Certain critical accounting policies affect the more significant judgments and estimates used in the preparation of our

financial statements.

Our most critical accounting policies relate to the allowance for loan losses and the related provision for

loan losses and the calculation of our deferred tax asset and related valuation allowance.

allowance represents an amount that, in the Company's judgment, will be adequate to absorb probable and estimable losses inherent in

the loan portfolio.

The judgment in determining the level of the allowance is based on evaluations of the collectability of loans while

taking into consideration such factors as trends in delinquencies and charge-offs for relevant periods of time, changes in the nature

and volume of the loan portfolio, current economic conditions that may affect a borrower's ability to repay and the value of collateral,

overall portfolio quality and review of specific potential losses.

This evaluation is inherently subjective because it requires estimates

that are susceptible to significant revision as more information becomes available.

tax assets or liabilities are computed based upon the difference between financial statement and income tax bases of assets and liabilities

using the enacted marginal tax rate.

In the past, the Company provided a valuation

allowance on its net deferred tax assets where it was deemed more likely than not such assets would not be realized.

At March 31, 2022

and December 31, 2021, the Company had no valuation allowance on its net deferred tax assets.

Company recognizes the tax benefit from an uncertain tax position only if it is more likely than not the tax position will be sustained

on examination by the taxing authorities, based on the technical merits of the position.

The tax benefits recognized in the financial

statements from such positions are then measured based on the largest benefit that has a greater than 50% likelihood of being realized

upon settlement.

further discussion of the deferred tax asset and valuation allowance, we refer you to the section on “Deferred Tax Asset and Income

and Highlights

Company generated net income for the three months ended March 31, 2022 of $1.9 million, or basic and diluted net income per share of

$0.08, as compared to the three months ended March 31, 2021 when the Company had net income of $1.6 million, or $0.07 basic and diluted

net income per share.

The primary drivers for the increase were increases in net interest income of $208 thousand, a reduction in the

provision for loan losses of $86 thousand, and an increase in total noninterest income of $241 thousand.

interest income increased $208 thousand due to a $270 thousand decrease in interest expense, which more than offset a $62 thousand decrease

in interest income.

Although year-over-year there was a $36.3 million increase in the volume of earning assets, due largely to growth

in the investment and loan portfolios of $60.7 million and $9.3 million, respectively, interest income attributed to the increased volume

of earning assets increased only $43 thousand.

There are a couple of primary reasons for the results.

One, the net increase was negatively

impacted comparative to the prior year due to a $312 thousand decrease in loan fee income resulting from the forgiveness in PPP loans

in 2021 which was not replicated in 2022.

We anticipate loan interest income to be less in the second and third quarters of 2022 as compared

to the same periods in 2021 for the same reasons related to the PPP loan fee income cessation.

Secondly, interest income was negatively

impacted by the repricing of earning assets at lower interest rates which caused a year-over-year, rate related, decline of $105 thousand.

Interest expense decreased driven by the continued low interest rate environment throughout 2021 and into the first quarter of 2022,

as our overall cost of funds fell 16 basis points year-over-year to 0.30% for the first quarter of 2022.

Also, the mix of deposits continues

to shift away from time deposits to lower, and noninterest, rate bearing deposits.

Furthermore, Federal Home Loan Bank advances were

paid off resulting in a decrease in interest expense of $96,000.

In March and May 2022, the Federal Open Market Committee raised the

target federal funds rate 25 and 50 basis points, respectively, in what is largely considered to be a series of rate increases during

Due to our interest rate sensitivity position, we anticipate interest income to increase as interest rates increase in the near

however, future year-over-year comparisons may not reflect the increase due to the impact of the PPP loan forgiveness in 2021.

year-over-year reduction in the provision for loan losses of $86 thousand is due to a combination of factors, including the improving

characteristics of the loan portfolio, as exhibited by the decline in nonperforming loans, combined with continued improving employment

Annualized net charge-offs to average loans remain at low levels and were 0.05% for the quarter ended March 31, 2022.

loans to total loans and nonperforming assets to total assets declined to 0.44% and 0.42%, respectively at March 31, 2022.

non-interest income increased $240,000 during the first quarter of 2022 compared to the first quarter of 2021 due to increases in service

charges and fees and card processing fees of $175 thousand and $52 thousand, respectively.

The service charges and fees increase relates

to increased volume in overdraft charges related to customer activity beginning to return to pre-pandemic levels as businesses reopened

and as customers spend savings from stimulus payments accumulated during the pandemic.

Card processing fee revenue is also volume related

for reasons similar to those impacting service charge income.

In addition, year-over-year, fees generated through financial and merchant

services increased $12 thousand and $11 thousand, respectively, due to increased volume from both new and existing customers using these

We continue efforts to increase noninterest income revenue through product enhancements and customer development.

non-interest expense increased $90 thousand, as salaries and benefits expense increased $196 thousand due to the impact of increasing

our minimum base hourly wage in the fourth quarter of 2021, targeted salary adjustments to retain and attract employees, combined with

normal annual wage adjustments and added accrued costs for performance incentive plans to be awarded in the first quarter of 2023, if

2022 goals are met.

Occupancy expense decreased $170 thousand due largely to the reduction in the number of buildings through sales or

transfers to other real estate owned.

Additionally, net depreciation costs for furniture, equipment and computer equipment decreased

$89 thousand as assets reached the end of their estimated economic useful lives, along with the decommissioning of a number of interactive

teller machines during the fourth quarter of 2021.

Other operating expenses increased $83 thousand year-over-year, primarily due to costs

related to the holding and disposal of other real estate owned, which increased from $33 thousand to $130 thousand in 2021 to 2022.

network expenses increased $25 thousand to $367 thousand, due to increased activity combined with general cost increases.

Miscellaneous

losses increased $69 thousand to $50 thousand in 2022, as compared to net recoveries of $19 thousand in 2021.

These increased expenses

were partially offset by decreases in data processing and telecommunications costs, and FDIC insurance which decreased $19 thousand and

$21 thousand, respectively.

Data processing and telecommunication costs decreased due to the reduction in the number of branch sites

and renegotiated contracts, while FDIC insurance decreased due to the improved risk factors considered in the premium assessment.

continue to decrease non-interest expenses of the Company and improve efficiency.

assets increased $18.9 million, or 2.4%, to $813.5 million at March 31, 2022 from $794.6 million at December 31, 2021, funded largely

by increased deposits as the low interest rate environment continues to provide liquidity.

Total loans increased $1.4 million, or 0.23%,

to $595.1 million at March 31, 2022 from $593.7 million at December 31, 2021.

Loan growth has resulted from to increases in construction

and land development loans, commercial loans secured by real estate and multi-family loans, which grew $6.5 million, $1.2 million and

$1.4 million, respectively.

Growth in these components of the portfolio offset a reduction in commercial loans of $6.7 million.

in commercial loans was largely the result of the repayment and forgiveness of PPP loans which declined $3.6 million during the first

three months of 2022.

Our loan production operation in Boone, North Carolina, continues to generate positive results, as well as our

Tri Cities area branches in Bristol, Virginia and Kingsport, Tennessee.

Total deposits increased $23.5 million, or 3.3%, to $731.0 million

at March 31, 2022 from $707.5 million at December 31, 2021, driven by liquidity resulting from the continuing low interest rate environment

and seasonal growth from income tax refunds.

March 31, 2022, shareholders’

equity totaled $58.9 million, a decrease of $4.7 million, or 7.4%, from December 31, 2021.

cause for the net decrease was the change in the net unrealized loss on investment securities available for sale, which increased $5.4

million, or 668.8%, during the first quarter of 2022, due to the impact of the change in interest rates.

Excluding the impact of the

unrealized loss, equity increased $725 thousand, due to net income of $1.9 million less the cash dividend payment of $1.2 million, which

was the first cash dividend paid by the Company.

as of and for the three month period ended March 31, 2022 include:

income for the first quarter of 2022 was $1.9 million, compared to $1.6 million for the first

quarter of 2021;

interest margin was 3.53% for the quarter, a decrease of 6 basis points compared to 3.59%

for the quarter ended March 31, 2021;

for loans losses was $100 thousand for the quarter, a reduction of $86 thousand compared

to the first quarter of 2021;

and employee benefits expense increased $196 thousand, or 6.4%, to $3.3 million for the first

quarter of 2022 compared to the same quarter in 2021;

assets grew $18.9 million to $813.5 million, during the first three months of 2022;

balances grew $23.5 million;

balances grew $1.4 million;

· Nonperforming

assets, which include nonaccrual loans and other real estate owned, totaled $3.4 million

at March 31, 2022, a decline of $867 thousand, or 20.2%, during the quarter.

of the Three Months ended March 31, 2022 to March 31, 2021

Company’s primary source of income is net interest income, which increased by $208 thousand, or 3.2%, to $6.6 million for the first

quarter of 2022 compared to $6.4 million for the first quarter of 2021.

While we had increases in average loan balances and investment

securities, those were impacted by the effect of decreases in interest rates and a decrease of $292 thousand in nonrecurring PPP loan

fees in 2022, causing interest income to decrease by $62 thousand.

However, total interest expense decreased $270 thousand, which more

than mitigated the decrease in interest income.

The decrease in interest expense was driven primarily by a $253 thousand decrease in

interest on deposits, a result of growth in noninterest bearing deposits and a 16 basis-point decrease in the cost of funds to 30 bps.

Overall, the net interest margin decreased 6 bps to 3.53%.

following table shows the rates paid on earning assets and interest bearing liabilities for the periods indicated:

Interest Margin Analysis

Balances, Income and Expense, and Yields and Rates

in thousands)

Months Ended March 31,

bearing deposits in other banks

investment securities

earning assets

for loans losses

AND SHAREHOLDERS’

Interest-bearing

demand deposits

and money market deposits

preferred securities

interest-bearing liabilities

Non-interest-bearing

deposit liabilities and cost of funds

Shareholders’

Liabilities and Shareholders’

Interest Income

Interest Margin

Interest Spread

(1) Nonaccrual

loans and loans held for sale have been included in average loan balances.

Tax exempt income is not significant and has been treated as fully taxable.

Includes loans held for sale

interest income is affected by changes in both average interest rates and average volumes (balances) of interest-earning assets and interest-bearing

The following table sets forth the amounts of the total changes in interest income and interest expense which can be attributed

to rates and volume for the period indicated:

Volume and Rate Analysis

Increase (decrease)

Months Ended March 31,

in thousands)

in Interest Income/ Expense

bearing deposits in other banks

investment securities

Earning Assets

Interest-bearing

demand deposits

and money market deposits

preferred securities

Interest-bearing Liabilities

in Net Interest Income

on our current assessment of the loan portfolio, a lower provision of $100 thousand was made in the first quarter of 2022, after considering

the continued improvement in loan quality, exhibited by reductions in past due and nonaccrual loans and classified assets.

For a discussion

of the factors affecting the allowance for loan losses, including provision expense, refer to Note 7, Allowance for Loan Losses, in Item

1 of this Form 10-Q.

income for the first quarter of 2022 was $2.4 million, an increase of $240 thousand, or 11.3%, when compared to the same period in 2021.

As discussed previously, increased revenues from service charges and card servicing fees, which increased $175 thousand and $52 thousand,

respectively, were the primary drivers of this improvement.

Revenue from financial services activities increased $12 thousand, or 5.3%,

while merchant services income increased $11 thousand or 37.6%, as we continue to develop, or expand existing, customer relationships

in these service sectors.

non-interest expense increased $90 thousand, year-over-year for the three month period ending March 31, 2022.

As previously discussed,

increases to salaries and benefits expenses of $196 thousand were largely offset by reduced occupancy expenses which decreased $170 thousand.

efficiency ratio, a non-GAAP measure, which is defined as noninterest expense divided by the sum of net interest income plus noninterest

income, improved to 71.6% for the first quarter of 2022 from 74.3% for the first quarter of 2022, as we continue to implement changes

to increase income and further control operating expenses.

April 29, 2022, the Bank notified its principal regulators that it will be closing branch offices in Big Stone Gap and Chilhowie, Virginia,

on August 12, 2022.

Accounts serviced at these offices will be transferred to nearby branches, and employees will be reassigned to other

positions or offices, as available.

Interactive teller machines at these locations will remain in service for the foreseeable future.

This restructuring of the branch network should improve the efficiency of service to the customers of these communities.

tax expense for the first quarter of 2022 totaled $530 thousand, an increase of $108 thousand, or 25.6% from the $422 thousand recorded

during the same period in 2021.

The year-over-year increase approximates the increase of pre-tax earnings.

assets increased $18.9 million, or 2.4%, to $813.5 million at March 31, 2022 from $794.6 million at December 31, 2021.

This growth was

primarily driven by the $23.5 million increase in deposits, which has increased

interest-bearing deposits in other banks and has helped fund loan growth which increased $16.0 million and $1.4 million, respectively.

investments decreased $538 thousand, or 0.5%, to $106.8 million at March 31, 2022 due primarily to an increase of $6.9 million in

net unrealized losses and $4.2 million of repayments and maturities, which were largely offset by purchases of $10.7 million.

expected that purchases will continue as we deploy excess liquidity, and use the investment portfolio to manage the balance sheet

and increase the return on earning assets.

were $100 thousand of loans held for sale at March 31, 2022 versus $0 at December 31, 2021.

These loans are originated for sale into

the secondary market on a best efforts basis.

receivable increased $1.4 million, or 0.2%, due

mainly to increases in construction and land development loans, commercial loans secured by real estate and multi-family loans, which

grew $6.5 million, $1.2 million and $1.4 million, respectively.

Growth in these components of the portfolio offset a reduction in commercial

loans of $6.7 million.

The decrease in commercial loans was largely the result of the repayment and forgiveness of PPP loans which declined

$3.6 million during the first three months of 2022.

At March 31, 2022, PPP loans totaled $2.8 million.

deposits increased $23.5 million, or 3.3%, to $731.0 million at March 31, 2022 from $707.5 million at December 31, 2021, due to increases

in noninterest-bearing demand deposits of $18.0 million, or 7.2%, and interest-bearing deposits of $5.5 million, or 1.2%.

The increase in deposits was driven mainly by increases in interest-bearing

NOW and demand deposits and other interest-bearing transaction accounts which increased $5.5 million and $5.6 million, respectively,

offset by a decrease in time deposits of $5.7 million.

The increase in deposits is something experienced across the industry, due to

the continuing low interest rate environment, combined with the lingering impact of various stimulus and liquidity measures implemented

by the government during the peak of the pandemic.

While it is likely that recent and expected increases to the federal funds rate will,

at some point, impact liquidity, we continue to maintain core deposits through attractive consumer and commercial deposit products and

strong ties with our customer base and communities.

preferred securities of $16.5 million at March 31, 2022 were unchanged compared to December 31, 2021.

equity at March 31, 2022 was $58.9 million, a decrease of $4.7 million, or 7.4%, compared to $63.6 million at December 31, 2021.

previously and in the Capital Resources section the primary driver of the decline was the $5.4 million net increase in the other accumulated

comprehensive loss, related to the unrealized loss on available for sale investment securities, along with a cash dividend payment.

increase in other accumulated comprehensive loss is related to the recent increase in interest rates and is not related to any deterioration

in the credit quality of any investment securities held.

Non-performing

assets decreased $867 thousand, or 20.2%, during the first three months of 2022, driven by a decrease in nonaccruing loan balances of

$301 thousand, a decrease in other real estate owned (OREO) of $566 thousand.

As a result, the ratio of nonperforming assets to total

assets decreased to 0.42% at March 31, 2022 compared to 0.54% at December 31, 2021.

Nonperforming

assets include nonaccrual loans, OREO and loans past due more than 90 days which are still accruing interest.

Our policy is to place

loans on nonaccruing status once they reach 90 days past due.

The makeup of the nonaccruing loans is primarily those secured by residential

mortgages, and commercial real estate.

is primarily made up of commercial properties, farmland and land of which $475 thousand consists of former branch office sites that were

transferred to OREO in 2021.

Those two remaining branch sites at March 31, 2022, were sold in May 2022, bringing our OREO balance down

to $321 thousand.

We continue extensive and aggressive measures to work through problem credits and liquidate foreclosed properties in

an effort to reduce nonperforming assets.

We remain mindful of the impact on earnings and capital as we work to achieve our goal to reduce

nonperforming assets.

However, we may recognize some losses and reductions in the allowance for loan loss as we expedite the resolution

of these problem assets.

rated substandard or below totaled $2.6 million at March 31, 2022, a decrease of $261 thousand from $2.9 million at December 31, 2021.

Total past due loans decreased to $2.7 million at March 31, 2022 from $3.4 million at

December 31, 2021.

Please refer to Note 6 Loans in Section 1 of this Form 10-Q for additional details related to loan ratings and past

allowance for loan losses at March 31, 2022 was $6.8 million, or 1.14% of total loans as compared to $6.7 million, or 1.13%, of total

loans at December 31, 2021.

Impaired loans totaled $2.8 million with an estimated related specific allowance of $199 thousand for potential

losses at March 31, 2022 as compared to $2.8 million of impaired loans with an estimated related allowance of $166 thousand at the end

A provision of $100 thousand was recorded for the first quarter of 2022 compared to $186 thousand for the first three months

In the first three months of 2022, net charge-offs were $76 thousand, or 0.05% of average loans, annualized, as compared to

$84 thousand, or 0.06%, of average loans for the same period of 2021.

The allowance for loan losses is being maintained at a level that

management deems appropriate to absorb any potential future losses and known impairments within the loan portfolio, whether or not the

losses are actually ever realized.

We continue to adjust the allowance for loan loss model to best reflect the risks in the portfolio

and the changes made in our internal policies and procedures;

however, future provisions may be deemed necessary.

Due to uncertainties

related to the ongoing pandemic and the resulting economic uncertainty, internal and external qualitative factors that were revised early

in the pandemic remain largely in place.

These revisions included reviewing our internal scoring related to loan modifications and extensions,

and external factors, specifically, unemployment and other economic factors.

have commenced the process of preparing to implement the Current Expected Credit Loss (CECL) model to replace our

legacy loan loss model.

We are on schedule to be testing and running concurrent quarterly calculations of both the legacy and CECL

models by the end of the second quarter 2022.

Selected Credit Ratios

(Dollars in thousands)

Allowance for loan losses

Allowance for loan losses to total loans

Nonaccrual loans

Nonaccrual loans to total loans

Ratio of allowance for loan losses to nonaccrual loans

Charge-offs net of recoveries

Average loans

Net charge-offs to average loans

Tax Asset and Income Taxes

to timing differences between book and tax treatment of several income and expense items, a net deferred tax asset, excluding the deferred

tax asset on the unrealized loss on securities available for sale, of $2.6 million and $1.7 million existed at March 31, 2022 and December

31, 2021, respectively.

Our income tax expense was computed at the corporate income tax rate of 21% of taxable income.

We have no significant

nontaxable income or nondeductible expenses.

shareholders’

equity at March 31, 2022 was $58.9 million compared to $63.6 million at December 31, 2021, a decrease of $4.7 million,

As previously discussed, this decline was driven by the $5.4 million net increase in the accumulated comprehensive loss related

to the unrealized loss on investment securities available- for-sale.

Excluding the impact of the unrealized loss, equity increased $725

thousand, due to net income of $1.9 million less the cash dividend payment of $1.2 million.

Company meets the eligibility criteria to be classified as a small bank holding company in accordance with the Federal Reserve’s

Small Bank Holding Company Policy Statement issued in February 2015 and is therefore not obligated to report consolidated regulatory

The Bank continues to be subject to various capital requirements administered by banking agencies.

Bank’s capital ratios along with the minimum regulatory thresholds to be considered well-capitalized are presented at Note 4 in

Item 1 of this Form 10-Q.

March 31, 2022, the Bank remains well capitalized under the regulatory framework for prompt corrective action.

The ratios mentioned above

for the Bank comply with the Federal Reserve rules to align with the Basel III Capital requirements.

value per common share was $2.46 at March 31, 2022, and $2.66 at December 31, 2021.

Excluding the impact of the accumulated other comprehensive

loss, book value per share was $2.72 and $2.69 at March 31, 2022 and December 31, 2021, respectively.

Other key performance indicators

are as follows:

months ended March 31,

on average assets 1

on average equity 1

equity to average assets

current economic conditions, we believe it is prudent to continue to retain capital sufficient to support planned asset growth while

being able to absorb potential losses that may occur if asset quality deteriorates, and based upon projections, we believe our current

capital levels will be sufficient.

the first quarter of 2022, the Company paid its first cash dividend of $0.05 to shareholders.

Earnings will continue to be retained to

provide capital to support the planned growth and operations of the Company and to continue to pay any future dividends to shareholders.

April 28, 2022 the board of directors of the Company authorized the repurchase of up to 500,000 shares of the Company’s outstanding

common stock through March 31, 2023.

The actual means and timing of any purchases, number of shares and prices or range of prices will

be determined by the Company in its discretion and will depend on a number of factors, including the market price of the Company’s

common stock, general market and economic conditions, and applicable legal and regulatory requirements.

There is no assurance that the

Company will purchase any shares under this program

closely monitor our liquidity and our liquid assets in the form of cash, due from banks, federal funds sold, and unpledged available

for sale investments.

Collectively, those balances were $184.7 million at March 31, 2022, an increase of $25.4 million from $159.3 million

at December 31, 2021.

A surplus of short-term assets is maintained at levels management deems adequate to meet potential liquidity needs

March 31, 2022, all of our investment securities were classified as available-for-sale.

These investments provide a source of liquidity

in the amount of $95.8 million, which is net of the $11.1 million of securities pledged as collateral.

Investment securities available

for sale serve as a source of liquidity while yielding a higher return versus other short-term investment options, such as federal funds

sold and overnight deposits with the Federal Reserve Bank.

loan to deposit ratio was 81.4% at March 31, 2022 and 83.9% at December 31, 2021.

We anticipate this ratio to remain at or below 90%

for the foreseeable future.

third-party sources of liquidity at March 31, 2022 include the following:

a line of credit with the FHLB, access to brokered certificates

of deposit markets and the discount window at the Federal Reserve Bank.

We also have the ability to borrow $30.0 million in unsecured

federal funds through credit facilities extended by correspondent banks.

Bank’s line of credit with the FHLB is $198.6 million, with unused availability at March 31, 2022 of $186.6 million.

No FHLB advances

were outstanding at March 31, 2022, but the credit line also secures letters of credit totaling $12.0 million.

The available line and

the outstanding letters of credit are secured by a blanket lien on our residential real estate loans which amounted to $132.0 million

at March 31, 2022.

Bank also has access to the brokered deposits market and the Certificate of Deposit Registry Service (CDARS).

At March 31, 2022, we held

no brokered deposits and $4.4 million in CDARS reciprocal time deposits.

liquidity is available through the Federal Reserve Bank discount window for overnight funding needs.

We may collateralize this line with

investment securities and loans at our discretion;

however, we do not anticipate using this funding source except as a last resort.

the on-balance sheet liquidity and other external sources of funding, we believe the Bank has adequate liquidity and capital resources

to meet our requirements and needs for the foreseeable future.

However, liquidity can be further affected by a number of factors such

as counterparty willingness or ability to extend credit, regulatory actions and customer preferences, etc., some of which are beyond

bank holding company has approximately $748 thousand in cash on deposit at the Bank at March 31, 2022.

The holding company receives periodic

dividend payments from the Bank which are used to pay operating expenses, trust preferred interest payments, and fund dividend payments

to shareholders.

The Company makes quarterly interest payments on the trust preferred securities.

discussed in the Capital Resources section, on April 28, 2022, the board of directors of the Company authorized the repurchase of up

to 500,000 shares of the Company’s outstanding common stock through March 31, 2023.

Payments for any repurchases will be distributed

from available funds, or from dividends payments from the Bank.

Balance Sheet Items and Contractual Obligations

have been no material changes during the quarter ended March 31, 2022 to the off-balance sheet items and the contractual obligations

disclosed in our 2021 Form 10-K.

and Qualitative Disclosures About Market Risk

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements